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):
--IDR 'BBB+';
--Senior unsecured notes 'BBB+'.
KRC Lending S.A. de C.V. SOFOM ENR (as the issuing entity for Kimco's
Mexican unsecured notes offerings):
--IDR 'BBB+';
--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.
DIVERSIFIED PORTFOLIO
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.
STABLE OUTLOOK
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.
RATING SENSITIVITIES
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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700091
Treatment and Notching of Hybrids in Non-Financial Corporate and REIT
Credit Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726863
Recovery Ratings and Notching Criteria for Equity REITs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722363
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827244
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