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Morningstar | Kimco Is Nearly Finished Transforming Its Portfolio to Weather the E-Commerce Storm

Retail REIT Kimco Realty owns and operates a geographically diversified portfolio of quality shopping centers. Kimco's retail portfolio includes grocery-anchored centers, super-regional centers, power centers, and mixed-use urban centers. The company has undergone a dramatic transformation, having sold over 400 properties for more than $6 billion since 2010, including $1 billion in 2018, and significantly improving the portfolio's quality. Currently, Kimco derives more than 80% of its annual base rent from major metropolitan markets. Management continues to strategically sell lower-quality assets and reinvest the proceeds in high-yielding development and redevelopment projects. As the retail environment continues to face headwinds that disproportionally impact lower-quality assets, we believe that Kimco's efforts to improve the portfolio's overall quality is essential to providing value for shareholders.E-commerce continues to pressure brick-and-mortar retail. While many of Kimco's tenants must directly compete with the growth of e-commerce, much of Kimco's portfolio is insulated from online competition. Segments like grocery stores, restaurants, fitness centers and other service-based businesses still drive traffic to physical retail centers. Regardless of the competition from e-commerce, location is still paramount for retailers. Retailers are becoming more selective with their physical locations, opting to locate storefronts in the highest quality assets while closing stores in low productivity sites. Thus, we believe that Kimco needs to continue improving its overall quality mix to maintain solid NOI growth across its portfolio.Many of Kimco's new development projects are mixed-use assets that incorporate retail, office, residential, and/or hotel components to attract tenants seeking cohesive live-work-play environments. We like these projects as the symbiotic relationship should drive additional demand to the company's portfolio and should help diversify Kimco's NOI away from the retail headwinds. However, we are concerned about the execution risk presented from venturing into real estate segments outside of management's historical core competency.