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 has assigned a credit rating of 'BBB+' to the $500 million of 3.2% senior unsecured notes due 2021. The notes were priced at 99.8% of par to yield 3.232% to maturity at a 105 bps spread to the benchmark Treasury. The company intends to use the net proceeds for general corporate purposes including reducing borrowings under the revolving credit facility and to pre-fund certain near-term debt maturities.
Fitch currently rates Kimco Realty Corporation (NYSE: KIM) and its two-wholly owned subsidiaries (collectively, Kimco) as follows:
Kimco Realty Corporation:
--Issuer Default Rating (IDR) 'BBB+';
--Unsecured revolving credit facility 'BBB+';
--Senior unsecured term loans 'BBB+';
--Senior unsecured notes 'BBB+';
--Preferred stock 'BBB-'.
Kimco North Trust III (as the issuing entity for Kimco's Canadian unsecured notes offerings):
--Senior unsecured notes 'BBB+'.
KRC Lending S.A. de C.V. SOFOM ENR (as the issuing entity for Kimco's Mexican unsecured notes offerings):
--Senior unsecured term loan 'BBB+'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings reflect Kimco's appropriate leverage and fixed-charge coverage metrics, its solid track record owning a large and diversified pool of community and neighborhood shopping centers, 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 track record of accessing a wide variety of capital sources and the long-term benefits of its ongoing portfolio simplification strategy.
These positive rating elements are balanced by slightly low unencumbered asset coverage of unsecured debt for the rating category and a U.S. retailer environment where market share defensibility remains a key challenge for many traditional retailers.
SIMPLIFYING PORTFOLIO; SAVE FOR 'PLUS' STRATEGY
Since 2010, Kimco has streamlined its portfolio by selling non-core and non-retail assets and reinvesting the proceeds into higher quality retail properties. The latter includes the acquisition of selected partners' interests in managed joint ventures. Pro forma for the most recent portfolio sale in Mexico, Kimco will hold only 36 properties in Latin America and is currently negotiating contracts for their sale. Fitch expects Kimco will continue to sell non-core properties and recycle the capital into core properties going forward.
The simplification strategy recognizes that shareholders and creditors discount the value of non-retail and/or non-recurring cash flows. However, Kimco differentiates its 'Plus' business, where it seeks to act opportunistically with retailer-controlled real estate, from its simplification efforts by showing the relationship to its core neighborhood and community center properties and historical returns. Thus, Fitch views Kimco's participation in the deal to buy Safeway Inc. as neutral to the credit given its negligible effect on metrics.
Kimco owns and operates a large and diversified portfolio of consolidated and unconsolidated interests in 852 properties aggregating 86 million square feet of pro-rata gross leaseable area (GLA), located primarily throughout the United States and Canada. The company's portfolio is well-diversified with the largest tenant accounting for 3% of annualized base rent (ABR) and the top 10 tenants collectively accounting for less than 19% of ABR. Lease maturities are well-laddered with no more than 14% of annual base rent expiring in any one year and less than 4% expiring in any one year when assuming the exercise of tenant renewal options.
APPROPRIATE LEVERAGE AND COVERAGE
Leverage was 5.4x at Dec. 31, 2013, down from 5.8x at both Dec. 31, 2012 and 2011. Fitch expects leverage to approximate 6x through 2015, primarily due to modestly positive same store net operating income (NOI) growth, partially offset by redevelopment expenditures and the acquisition of higher quality, but lower yielding, properties. Fitch defines leverage as net debt-to-trailing 12 months (TTM) recurring operating EBITDA (including estimated recurring cash distributions from unconsolidated joint ventures).
Kimco's fixed-charge coverage is adequate for the 'BBB+' rating level and has improved to 2.5x for the year ending 2013, from 2.1x and 2.2x for 2012 and 2011, respectively. However, Fitch projects fixed-charge coverage will remain below that of other 'BBB+' rated REITs. Fitch defines fixed-charge coverage as recurring operating EBITDA plus estimated 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.
POSITIVE OPERATING PERFORMANCE
Despite a generally constrained economic environment, Kimco has generated modestly positive same-store NOI (SSNOI) growth due to the lack of new supply nationally. SSNOI for the U.S. portfolio grew by 4.1% in 4Q'13 and 3.8% for 2013. Strong demand and positive releasing spreads for the company's anchor space (79% of leased GLA) have been the primary source of its SSNOI growth over the past several years. Fitch expects the company's SSNOI to grow by 2%-4% per year through 2015.
STRONG ACCESS TO CAPITAL & LIQUIDITY
Kimco's liquidity position is appropriate for the rating at 1.5x through 2015 pro forma for the bond issuance and recently announced acquisitions and dispositions subsequent to the end of 4Q'13. Fitch calculates liquidity as sources (unrestricted cash, availability under the unsecured revolving line of credit and retained cash flows from operations) divided by uses (secured and unsecured debt maturities, pro-rata joint venture [JV] debt maturities, development expenditures and maintenance capex). Kimco's liquidity coverage would improve to 2.3x, assuming it refinances 80% of its maturing secured debt.
Kimco maintains a large unencumbered asset pool to support its unsecured borrowings. As of Dec. 31, 2013, unencumbered asset coverage of net unsecured debt was 2.3x assuming an 8% capitalization rate. Kimco's UA/UD ratio is slightly low for the 'BBB+' IDR. Lastly, Kimco's dividend payout policies do not inhibit its financial flexibility with an AFFO payout ratio of 74% for 2013.
PREFERRED STOCK NOTCHING
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. 23, 2013, 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 a slightly low 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 (coverage was 2.5x for 2013);
--Fitch's expectation of net debt-to-recurring operating EBITDA sustaining below 5x (leverage was 5.4x as of Dec. 31, 2013).
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.
Additional information is available 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating U.S. Equity REITs and REOCs: Sector Credit Factors' (Feb. 26, 2014);
--'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis' (Dec. 23, 2013);
--'Recovery Ratings and Notching Criteria for Equity REITs' (Nov. 19, 2013);
--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Criteria for Rating U.S. Equity REITs and REOCs
Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis
Recovery Ratings and Notching Criteria for Equity REITs
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Stephen Boyd, CFA
Alyssa Castelli, +1-212-908-0540 (New York)
Source: Fitch Ratings