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Kimco Realty: Groceries and Open-Air Shopping

10/06/2020 5:00 am EST

Focus: REITS

John Buckingham

Principal, Portfolio Manager, and Editor, The Prudent Speculator

We buy only those stocks we find to be undervalued along several lines relative to their own trading history, those of their peers or that of the market in general, explains John Buckingham, a value investing expert, money manager and editor of The Prudent Speculator.

Real estate investment trust Kimco Realty (KIM) has interests in 400 U.S. open-air shopping centers, comprising 70 million square feet of leasable space concentrated mostly in major metropolitan markets.

After a fantastic 2019 for KIM shares, 2020 has been miserable with the stock off more than 40% on concerns about the near- and long-term impact of COVID-19 and the Great Lockdown.

Of course, Kimco has a very diverse mix of tenants with only 14 chains — led by TJX Companies (TJX), Home Depot (HD), Ahold Delhaize (ADRNY) and Albertson’s (ACI) — each representing more than 1% of annualized base rents, while 77.4% of ABR is from grocery-anchored centers. (Ahold Delhaize operates Giant, Food Lion and Stop & Shop, among others.)

We also note that after falling to 71% in Q2, rent collections improved to 84% in July and 86% in August, with essential retailers at 98%. At the end of April, only 56% of tenants were open for business, but in mid-September that metric stood at 97%.

We are constructive on Kimco’s improved liquidity and note that it has a sizeable stake in Albertson’s, which is publicly traded again.

The retail environment isn’t without strong headwinds, but we like the company’s foray into mixed-use redevelopment of some of its properties and its focus on better markets with higher barriers to entry.

Our target price for Kimco Realty is $18.11 per share. Our target prices incorporate a range of fundamental risks that we believe the companies may face over our normal three-to-five-year investing time horizon.

We also think the stock is cheap, trading below book value and presently yielding 3.5% after the recent dividend reinstatement.

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