S&P Global Ratings: Kimco Realty Corp. 'BBB+' Rating Affirmed; Outlook Stable

Kimco Realty Corp.

Primary Credit Analyst:

Fernanda Hernandez, New York + 1 [phone]; [e-mail]

Secondary Contact:

Michael H Souers, New York + 1 [phone]; [e-mail]

Table Of Contents

Credit Highlights

Outlook

Our Base-Case Scenario

Company Description

Peer Comparison

Business Risk

Financial Risk

Liquidity

Covenant Analysis

Issue Ratings - Subordination Risk Analysis

Ratings Score Snapshot

Related Criteria

Related Research

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Kimco Realty Corp.

Business Risk: STRONG
									Issuer Credit Rating
Vulnerable	Excellent
	bbb+	bbb	bbb+
Financial Risk:	INTERMEDIATE								BBB+/Stable/--
Highly leveraged	Minimal
	Anchor	Modifiers	Group/Gov't

Credit Highlights

Overview

Key strengths

Key risks

Leading position as the largest rated strip center REIT.

Fully adjusted credit protection metrics, which include preferred stock as 100% debt, are weaker than those of its peers.

High-quality and well diversified grocery-anchored portfolio,	Foot traffic and operating performance have not fully recovered from the
which contributes relatively steady operating performance.	disruption related to the COVID-19 pandemic, and many tenants continue to
	be under financial stress.
Potential monetization of its Albertson's holdings could enhance
liquidity and credit metrics.

Following Kimco Realty Corp's combination with Weingarten, the company became the largest rated strip center REIT,

broadening its scope of operations and deepening its reach in key markets. Following Kimco's acquisition of Weingarten, the company increased its asset base to about $20 billion, becoming the largest strip center REIT under our coverage. In our view, this sizable scale solidifies Kimco's competitive position as it broadens its scope of operations with a total of 559 properties, while increasing its presence in Sun Belt markets that will contribute more than 50% of base rent. In addition, we expect the combined portfolio will drive improved operating margins from economies of scale and synergies as well as a greater access to capital at a lower cost of funding.

Kimco has a high-quality and well diversified grocery-anchored portfolio, which contributes relatively steady operating

performance. The majority of Kimco's properties are in top MSAs and strategically focused on Coastal and Sun Belt markets. Moreover, nearly 80% of the company's properties are grocery-anchored, which we view favorably given their stable cash flow streams and resiliency to e-commerce pressures compared with traditional retailers. While the COVID-19 pandemic accelerated e-commerce grocery delivery, Kimco's grocers have adapted and performed well throughout the pandemic. However, Kimco has a moderate exposure to small shop tenants (12% of ABR), which have shown higher cyclicality that can result in heightened vacancy rates during a recession. Moreover, government-mandated store closures and capacity restrictions pressured rent collections in 2020. Although we expect operating metrics to improve materially in 2021, we think occupancy at small shops (85.5% as of the second quarter) could remain under pressure, with a modest amount of rent abatements and tenant bankruptcies.

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Kimco Realty Corp.

We expect Kimco's credit protection measures will continue improving gradually over the next couple of years as the company's net operating income (NOI) fully recovers and the company monetizes its Albertson's holdings to reduce debt

• Kimco's credit protection metrics exhibited temporary deterioration as the pandemic impaired rent collection and occupancy rates. However, favorable recent operating performance boosted EBITDA and improved debt to EBITDA to 7.8x, reflecting a sustained recovery during the first half of 2021. We expect this trend will continue during the second half of the year allowing the company to bring leverage back down to the mid-7x area by year end. This level is consistent with pre-pandemic metrics and we expect additional improvement in 2022 and 2023 as the company:

• Fully recovers lost EBITDA;
• Delivers projects under redevelopment;
• Maintains healthy leasing volumes and positive rent spreads;
• Monetizes its Albertson's holdings; and
• Reduce its outstanding debt (including preferred shares).

S&P Global Ratings' fully adjusted debt to EBITDA includes preferred stock as 100% debt (which adds approximately

0.6x to our June 30 trailing 12 month calculation. We believe the opportunity for meaningful deleveraging lies within

the potential monetization of Kimco's ownership in Albertsons Cos. Inc. (BB/Stable/--), which was valued at close to

$800 million at the end of the second quarter. The timing or amount of proceeds that will pay down debt from the exit

options available is uncertain; however, this could be a catalyst for a positive rating action.

Lastly, we expect Kimco's fixed-coverage ratio to improve to the mid-3x area over the next couple of years as it

maintains an active liability management and reduces its cost of funding, particularly taking advantage of its lower cost

of funding relative to the cost of debt it absorbed with the acquisition of Weingarten.

Chart 1

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Kimco Realty Corp.

Outlook: Stable

The stable outlook reflects our view that the pandemic-related disruption to Kimco's performance will be temporary. Despite uncertainty because of the new Delta variant or other future variants, we expect a gradual and sustained recovery to Kimco's operating and financial metrics over the next few quarters. In our view, additional government-imposed shut downs are unlikely and we believe Kimco (and its tenants) would be relatively well positioned to weather COVID-19-related containment measures.

In addition, the stable outlook incorporates our view that Kimco will successfully integrate the recently acquired Weingarten assets without major hiccups. We expect debt to EBITDA will continue to trend down to the 7x area by 2022.

Downside scenario

We view a downgrade as unlikely over the next two years given our expectations for operating trends to improve and financial policy to remain stable. However, we could consider a lower rating if:

• Tenants become more distressed, resulting in long-lasting weakness in its operating performance;
• Kimco adopts a more aggressive growth strategy that it funds with a large proportion of debt, deteriorating credit protection metrics; or
• Adjusted debt to EBITDA rises to and remains higher than 8.0x or fixed-charge coverage drops below 2x for two to three consecutive quarters.

Upside scenario

We could raise our ratings if Kimco further reduces debt to EBITDA (which includes S&P Global Ratings' adjustments of preferred stock as 100% debt) to at least 5.5x. While we do not consider an upgrade likely over the next 12 to 24 months, we could envision a scenario in which Kimco is able to monetize its Albertson's investment and uses the proceeds to pay down debt, which could enable the company to approach our targeted leverage threshold for an upgrade.

Our Base-Case Scenario

Assumptions	Key Metrics
• U.S. GDP grows 6.7% and 3.7% for 2021 and 2022,			2Q2021A	2021P	2022P
respectively;
	Debt to EBITDA (x)	7.8	8.0-8.5*	7.0-7.5
• U.S. CPI of 3.6% and 2.3% for 2021 and 2022,		Fixed-charge coverage (x)	3.1	3.0-3.5	3.5-4.0
respectively;
• Cash same-property NOI growth of about 10% in	*FYE 2021P is distorted by the mismatch in timing of
2021 and in the low- to mid-single-digit in 2022;	the acquisition of Weingarten, which closed on Aug. 4,

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Kimco Realty Corp.

• Development spend of about $130 million in 2021 to complete remaining in process projects, increasing to about $200 million in 2022;
• Approximately $150 million in annual maintenance capital expenditures; and
• Annual dividends (including preferred) between $400 million and $500 million over the next two years.

2021. FYE metrics include all debt assumed with the acquisition and only five months of EBITDA. A--Actual.P--Projected.

Company Description

Jericho, N.Y.-based Kimco is the largest publicly traded owner and operator of open-air shopping centers in North

America. As of June 30, 2021, the company owned interests in 398 U.S. shopping centers consisting of 70 million

square feet of leasable space, primarily concentrated in the top major metropolitan markets. Kimco closed on its

previously announced acquisition of Weingarten on Aug. 4, 2021.

Peer Comparison

Kimco is now the largest strip center landlord we rate. We think the quality of its portfolio is comparable to similarly

rated peers. Credit protection measures are somewhat elevated compared with its peers, however, partially as a result

of the amount of preferred stock in their capital structure (which we treat as 100% debt).

Table 1

Kimco Realty Corp. -- Peer Comparison

Industry Sector: Real Estate Investment Trust Or Company

			Federal Realty	Regency Centers	Brixmor Property
	Kimco Realty Corp.		Investment Trust	Corp.	Group Inc.
Ratings as of Aug. 27, 2019	BBB+/Stable/--		A-/Negative/--	BBB+/Stable/--	BBB-/Stable/--
	TTM as of Jun. 30,
	2021		--Fiscal year ended Dec. 31, 2020--
(Mil. $)
Revenue	1,243.3	831.0	1,172.3	1,065.1
EBITDA	777.2	517.0	759.8	704.2
Funds from operations (FFO)	537.1	351.5	587.2	476.7
Interest expense	254.9	171.0	195.4	206.0
Cash interest paid	239.3	164.9	170.7	224.0
Cash flow from operations	537.0	341.2	498.1	409.4
Capital expenditure	230.0	44.6	58.1	34.3
Free operating cash flow	307.0	296.6	440.0	375.0
(FOCF)
Discretionary cash flow (DCF)	(70.8)	(44.6)	129.8	176.1

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