Kimco Realty Corporation is a US$7.7b mid-cap, real estate investment trust (REIT) based in New Hyde Park, United States. REITs are basically a portfolio of income-producing real estate investments, which are owned and operated by management of that trust company. They have to meet certain requirements in order to become a REIT, meaning they should be analyzed a different way. I’ll take you through some of the key metrics you should use in order to properly assess KIM.
Funds from Operations (FFO) is a higher quality measure of KIM’s earnings compared to net income. This term is very common in the REIT investing world as it provides a cleaner look at its cash flow from daily operations by excluding impact of one-off activities or non-cash items such as depreciation. For KIM, its FFO of US$638m makes up 76% of its gross profit, which means the majority of its earnings are high-quality and recurring.
Robust financial health can be measured using a common metric in the REIT investing world, FFO-to-debt. The calculation roughly estimates how long it will take for KIM to repay debt on its balance sheet, which gives us insight into how much risk is associated with having that level of debt on its books. With a ratio of 13%, the credit rating agency Standard & Poor would consider this as significantly high risk. This would take KIM 7.64 years to pay off using just operating income, which is a long time, and risk increases with time. But realistically, companies have many levers to pull in order to pay back their debt, beyond operating income alone.
Next, interest coverage ratio shows how many times KIM’s earnings can cover its annual interest payments. Usually the ratio is calculated using EBIT, but for REITs, it’s better to use FFO divided by net interest. This is similar to the above concept, but looks at the nearer-term obligations. With an interest coverage ratio of 3.48x, it’s safe to say KIM is generating an appropriate amount of cash from its borrowings.
I also use FFO to look at KIM’s valuation relative to other REITs in United States by using the price-to-FFO metric. This is conceptually the same as the price-to-earnings (PE) ratio, but as previously mentioned, FFO is more suitable. KIM’s price-to-FFO is 12.05x, compared to the long-term industry average of 16.5x, meaning that it is undervalued.
As a REIT, Kimco Realty offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in KIM, I highly recommend taking a look at other aspects of the stock to consider:
- Future Outlook: What are well-informed industry analysts predicting for KIM’s future growth? Take a look at our free research report of analyst consensus for KIM’s outlook.
- Valuation: What is KIM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether KIM is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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