Kimco Realty Corp. (NYSE: KIM) is a real estate investment trust (REIT) headquartered in New Hyde Park, N.Y., that is one of North America's largest publicly traded owners and operators of open-air shopping centers. As of December 31, 2016, the company owned interests in 524 U.S. shopping centers comprising 85 million square feet of leasable space across 34 states and Puerto Rico.
NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns a 'BBB-' rating to the $175 million of 5.625% Class K preferred shares issued by Kimco Realty Corporation (NYSE: KIM). Net proceeds from the offering are expected to be used for general corporate purposes including the repayment of $198.9 million of 6% senior unsecured notes due Nov. 30, 2012.
Fitch currently rates KIM as follows:
--Issuer Default Rating (IDR) 'BBB+';
--Unsecured revolving credit facility 'BBB+';
--Senior unsecured term loan 'BBB+';
--Senior unsecured notes 'BBB+';
--Preferred stock 'BBB-'.
The Rating Outlook is Stable.
The ratings reflect Kimco's solid track record as a leading owner of community and neighborhood shopping centers, the company's large and diversified pool of retail properties, its experienced leasing and management team and its high quality, diversified tenant mix with a well laddered lease expiration schedule. The ratings also factor in the company's demonstrated track record of accessing a wide variety of capital sources. These positive rating elements are balanced by slightly low fixed charge coverage for the rating category, a stable U.S. retailer environment--albeit one in which market share defensibility remains a key challenge for many traditional retailers-and a weak liquidity coverage ratio through 2014.
Kimco owns and operates a large and diversified portfolio of consolidated and unconsolidated interests in 912 properties aggregating 87 million square feet of pro-rata gross leaseable area (GLA), located in 43 states, Puerto Rico, Canada, Mexico, Chile, Brazil and Peru. The company's portfolio is well diversified with the largest tenant accounting for less than 4% of annualized base rent (ABR) and the top 10 tenants collectively accounting for less than 20% of ABR. Additionally, Kimco continues to make progress reducing the risk profile of the company through the disposition of non-core assets (including the recently announced disposition of InTown Suites for $735 million) and maintenance of a smaller development pipeline.
Lease maturities are well-laddered with no more than 13% expiring in any one year and less than 5% expiring in any one year when assuming the exercise of tenant renewal options.
Leverage, pro forma for the preferred stock issuance, preferred stock redemption and senior unsecured note repayment, increased to 5.9 times (x) at Sept. 30, 2012 from 5.8x at Dec. 31, 2011 and 5.6x at Dec. 31, 2010. Fitch forecasts leverage will remain around 6.0x through 2014, due to modestly positive same store NOI growth. Fitch defines leverage as net debt to recurring operating EBITDA (including Fitch's estimate of recurring cash distributions from unconsolidated joint ventures).
Kimco's fixed-charge coverage is slightly low for the 'BBB+' rating level. Fixed charge coverage was 2.3x for the trailing 12 months (TTM) ended Sept. 30, 2012 pro forma, consistent with 2.2x for 2011 and 2010, respectively. Fitch projects fixed-charge coverage will improve modestly as the company retires higher coupon preferred stock and unsecured notes. Fixed-charge coverage is defined as recurring operating EBITDA plus Fitch's estimate of recurring cash distributions from unconsolidated joint ventures less recurring capital expenditures and non-cash straight line rental income divided by total interest incurred and preferred stock dividends.
Despite wide product availability, increasing price transparency, and lack of consumer loyalty that have threatened the long-term viability of certain retailer business models, Kimco's same-store net operating income (SSNOI) performance turned positive in 2010 and accelerated in 2012. SSNOI growth for the third quarter 2012 (3Q'12) was 2.6% before the impact of foreign currency changes, driven by positive leasing spreads and modest improvements in occupancy, demonstrative of Kimco's good tenant mix and locations, which offset some of these retailer threats.
Fitch expects SSNOI growth of 1-2% per year through 2014. In adverse scenarios not anticipated by Fitch in which SSNOI growth is flat or experiences declines worse than 2009, Kimco's metrics would deteriorate to levels weak for the 'BBB+' rating.
Kimco has demonstrated a long track record of accessing a wide variety of capital sources, including secured and unsecured debt, common and preferred equity and joint venture capital. Year-to-date, Kimco has issued $800 million of preferred stock and a $400 million unsecured term loan.
Kimco maintains a large unencumbered asset pool to support its unsecured borrowings. As of Sept. 30, 2012, there were 416 stabilized assets in the company's unencumbered pool. Capitalizing annualized cash NOI generated by the unencumbered pool at a stressed capitalization rate of 8% generates pro forma unencumbered asset coverage of approximately 2.2x, which is appropriate for the 'BBB+' IDR.
Kimco's liquidity coverage ratio is weaker for the rating at 1.0x pro forma through 2014. Under a scenario where Kimco is able to refinance 80% of its secured debt, the liquidity coverage ratio improves to 1.5x. Fitch defines liquidity coverage as cash, availability under the company's unsecured revolving facility and Fitch's expectation of retained cash flows from operating activities after dividends and distributions divided by uses of liquidity pro rata debt maturities and Fitch's expectation of recurring capital expenditures.
The two-notch differential between Kimco's IDR and its preferred stock rating is consistent with Fitch's criteria for corporate entities with an IDR of 'BBB+'. Based on Fitch's criteria report, 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis,' dated Dec. 15, 2011, the company's preferred stock is deeply subordinated and has loss absorption elements that would likely result in poor recoveries in the event of a corporate default.
The Stable Outlook reflects Fitch's view that metrics will remain relatively unchanged and the Company's demonstrated access to capital will offset an otherwise weaker liquidity coverage ratio.
The following factors may have a positive impact on Kimco's ratings and/or Outlook:
--Fitch's expectation of fixed-charge coverage sustaining above 2.5x (pro forma coverage was 2.3x for the TTM ended Sept. 30, 2012);
--Fitch's expectation of net debt to recurring operating EBITDA sustaining below 5.0x (pro forma leverage was 5.9x as of Sept. 30, 2012);
--Reducing the exposure to non-core assets (recently demonstrated by sale agreement for InTown Suites).
The following factors may have a negative impact on Kimco's ratings and/or Outlook:
--Fitch's expectation of fixed-charge coverage sustaining below 2.0x;
--Fitch's expectation of leverage sustaining above 6.5x;
--Increased exposure to non-retail assets or increased joint venture debt guarantees.
Additional information is available at 'www.fitchratings.com'.
The ratings above were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'2013 Outlook: U.S. Retailing - Grab for Share Intensifies' (Nov. 21, 2012);
--'Recovery Rating and Notching Criteria for Equity REITs' (Nov. 12, 2012);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb. 27, 2012);
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' (Dec. 15, 2011).
Applicable Criteria and Related Research:
2013 Outlook: U.S. Retailing - Grab for Share Intensifies
Recovery Ratings and Notching Criteria for Equity REITs
Corporate Rating Methodology
Criteria for Rating U.S. Equity REITs and REOCs
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis
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George Hoglund, CFA, +1-212-908-9149
Philip Zahn, +1-312-606-2336
Source: Fitch Ratings