Thursday, April 2, 2009

Kimco Realty (KIM) With Massive 70M Share Offering

As we wrote in today's piece on Excel Maritime (EXM) ...

they are issuing a ton of shares (25M) relative to their outstanding base 44M which is major dilution but that's the cost for staying alive - many companies saddled with debt will be doing this.

And on cue Kimco Realty (KIM) has done a 70M offering after the bell today with potentially 10.5M more. Kimco has 270M shares outstanding so this is 26-30% dilution to equity holders. Must be pleasing...
  • Shopping center owner Kimco Realty Corp. said Thursday it plans to issue 70 million shares of common stock in part to help repay debt. Kimco said it will also have a 30-day option to buy an additional 10.5 million shares.
  • Kimco has been hit hard by the recession. The company reported a 92 percent plunge in fourth-quarter funds from operations, the key measurement of performance for real estate investment trusts.
This follows up on stronger companies in the REIT turning to paying out dividends not in cash but stock (also dilutive) [Jan 15, 2009: Vornado to Pay Part of Quarterly Dividend in Stock] And really we are just getting started down this path...

Now today's action in the stock of Kimco was ... curious. After a modest jump with the market in the morning, the stock sold off and then sat at a smallish gain for the day while its peers proceeded to rip the heads off of shorts. I was scratching my head at this since I wanted to add to it on the short side but at a higher price. Only in the last 90 minutes did it jump and even then far below what its REIT friends did. I am sure that was just.... happenstance.

So go forward REIT shareholders have to decide how much dilution they will continue to take in return for keeping these companies solvent. To do such a massive offering at such a low price is not a great sign, but as long as Kool Aid is flowing it can be a signal of "good" - see the performance of Alcoa (AA) the past few weeks after a major equity offering in the single digits. The stock is down 5% in after hours but we'll see how it goes - if the tide turns to "we're just thankful we kicked the can down the road for a while" these sort of things can be short term positives. But its massively dilutive.

Here is the full update from Kimco tonight
  • During February 2009, the company repaid its $130 million 6.875% Senior Notes at maturity. Proceeds from the company’s U.S. $1.5 billion revolving credit facility were used to fund the repayment. The company currently has availability totaling approximately $760 million under its U.S. and Canadian unsecured revolving credit facilities which are scheduled to mature in 2011, subject to a one-year extension at the company’s option in accordance with the terms of the facilities. The company can provide no assurance that it will be successful in closing financings or facilities for which it has obtained a commitment, negotiated a term sheet or begun marketing to prospective lenders.
Leasing Activity (still not too bad but fast approaching 10% vacancy)
  • During the first quarter, the company signed approximately 100 new same-space leases (0.3 million square feet) at an average rent increase of approximately 13% and approximately 50 new non-same space leases (0.1 million square feet). The company also signed approximately 315 renewals (2.0 million square feet) at an average rent increase of approximately 2.5%. The company's preliminary estimate for U.S. occupancy at March 31, 2009 is 91.9%.
Dividend (slashed)
  • The company has paid a dividend of $0.44 per share in the first quarter of 2009 and has declared a dividend of $0.44 per share to be paid in the second quarter of 2009. Recognizing the need to maintain maximum financial flexibility in light of the current state of the capital markets, and considering the dividend requirements for the increased number of shares expected to be outstanding upon completion of the common stock offering announced today, the company expects to reduce its dividend payments for the balance of 2009. The company expects to pay $0.06 per share in each of the third and fourth quarters of 2009. The company currently expects to pay the final two 2009 dividend payments fully in cash.
Earnings Guidance (FIFO is what REITs use as their parallel to earnings per share - how deceiving of a figure below - this is what we will make; as long as you exclude the 70M+ shares we are about to throw on you! The math is not too hard - take what you say and dilute it by 26-30% for a reality check)
  • The company estimates that its Funds From Operations (“FFO”), a widely accepted supplemental measure of REIT performance, will be between $1.70 and $1.85 per diluted common share for the year ending December 31, 2009 before considering the effect of the proposed offering of 70,000,000 shares of common stock announced today.
Kimco Realty Corporation, a real estate investment trust (REIT), owns and operates one of North America’s largest portfolios of neighborhood and community shopping centers. As of December 31, 2008, the company owned interests in 1,950 properties comprising 182 million square feet of leasable space across 45 states, Puerto Rico, Canada, Mexico and South America.

Short Kimco Realty in fund; no personal position

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