Kimco's FFO Up 12.2%

"Our dividend of 61 cents is more than three times the then-initial quarterly dividend as adjusted for stock splits 13 years ago," Kimco chairman Milton Cooper told analysts during the conference call.

Overall net income was down, however, to $78.5 million, from $91.5 million a year earlier. Investor relations manager Scott Onufrey attributed the decline to "lower gains on sales of operating properties." As a result, net income per diluted share for the quarter was $0.67, compared to $0.81 a year earlier.

Kimco's Q3 funds from operations, a widely accepted measure of REIT performance, rose 12.2% to $101.6 million from $90.6 million, according to company officials. On a diluted per-share basis, Q3 FFO rose 8.5% to $0.89 from $0.82. FFO excludes gains on dispositions of operating properties, net of minority interests and joint venture properties.

"The Q3 FFO results are $0.01 per share above consensus and $0.03 per share above our estimate," according to Matthew Ostrower, an analyst with Morgan Stanley. Still, "high REIT stock valuations, improving economic conditions, rising interest rates, as well as the dramatic outperformance of the stocks vs. to market since Q4 '99 causes us to be cautious."

Company officials also emphasized that during the recent period, and throughout the year, Kimco has been very active in the buying and selling assets. Either alone or in partnerships, the company has recently picked up such properties as the 168,000-sf Mission Bell Shopping Center in Tampa, FL, the 140,000-sf Palm Aire Marketplace in Pompano, FL, and the 237,000-sf RioNorte Shopping Center in Laredo, TX, among more than 20 others.

Most notably, Kimco recently entered into a joint venture with DRA Advisors to buy Price Legacy Corp. for $1.3 billion. Kimco will be a 15% partner and manage the 33 shopping centers on behalf of the venture.

"This transaction is another example of Kimco's strategy to form joint venture to acquire low cap rate properties, place more leverage on the properties than the core portfolio and receive fees to boost the return on equity," according to Ross Smotrich, an analyst with Bear Stearns. Partially as a result, Kimco continues to receive a positive "outperform" rating in Bear Stearns' REIT Monitor.

"Within a few weeks, Kimco will have been a public company for 13 years, and I can't help smiling at our cash position at the end of the quarter," Cooper told analysts. "The total gross proceeds of the offering was less than our cash on hand as of this September 30th."

Reflecting on the fact that in the past, Kimco has taken some criticism for its reliance on Kmart as an anchor tenant, "I miss all of the questions about our Kmart exposure," Cooper said. "Kmart's percentage of our rents slipped from number three to number four as of the last quarter.

"The Kimco team has focused on re-leasing the substantial vacancies arising from the bankruptcies of Kmart and others," he continued. "The re-leasing of these vacant boxes is now by and large behind us, and our occupancy percentage has increased to a point where we will expend greater emphasis on culling the portfolio for properties that should be sold, and finding properties that should be redeveloped and expanded.

"The result should be healthy increases in FFO from the same property portfolio," Cooper told analysts. Kimco stock closed yesterday at $53.29, up 0.76%, in the wake of the earnings news.