EUR 850.00 For Business Accounts Only

Morningstar | Kimco's improving portfolio should pay dividends, but there's more work needed.

Kimco timed the retail storm well, having disposed of approximately $6 billion in assets since 2010. With landlords of low-quality physical retail getting hit the hardest, we think the company has done a tremendous job trimming the fat in its portfolio. However, its history of acquiring bundled properties means that there are still a number of bad apples in the bunch. We have ongoing concerns about the size and geographic mix of the portfolio as a whole and worry that as the retail environment becomes more concentrated, many of Kimco's assets will be left in the dust. We see some light at the end of the retail tunnel, but mainly for the highest-quality properties that will consistently attract the most desirable tenants. While we do believe Kimco owns a number of these properties, the drag created by the remaining shopping centers should ultimately cause the company to underperform its peers. Historically, Kimco has benefited in part from a robust shopping center market that has delivered below-average levels of new supply over the past several years, supplementing operating performance and transaction opportunities. With over 500 properties in over 30 markets throughout the United States, Kimco still has challenges to reach its 2020 Vision. This includes being able to deliver on its $3 billion-plus redevelopment pipeline and Signature Series developments, given the potential timing of the real estate cycle, while also navigating the ongoing disruption throughout the retail industry that is likely to affect many of the firm's major tenants and operations. We think the company has the right strategy and tools to be an interesting opportunity for investors, but the headwinds facing retail are dangerously strong.Additionally, the shift in spending habits of millennials is likely to adversely affect physical retail space. The newest generation of consumers favor travel and experiences more than their older counterparts. With many indefinitely bogged down by student debt and less discretionary income fueled by historically high rents, we think the demand for physical retail could be a continuous headwind.