fitch affirms Kimco Realty's IDR at 'BBB+'
Aug 9 - Fitch Ratings has affirmed Kimco Realty Corporation's (NYSE: KIM) credit ratings as follows: --Issuer Default Rating (IDR) 'BBB+'; --Unsecured revolving credit facility 'BBB+'; --Senior unsecured term loan 'BBB+'; --Senior unsecured notes 'BBB+'; --Preferred stock 'BBB-'. The Rating Outlook is Stable. The affirmations are based on Kimco's solid track record as a leading owner of community and neighborhood shopping centers, the company's large and diversified pool of retail proprieties, its experienced leasing and management team and its high quality, diversified tenant mix with a well laddered lease expiration schedule. The ratings also factor in the company's demonstrated track record of accessing a wide variety of capital sources. These positive rating elements are balanced by slightly low fixed charge coverage for the rating category, an uncertain retail real estate environment and a weak liquidity coverage ratio through 2014. Kimco owns and operates a large and diversified portfolio of consolidated and unconsolidated interests in 915 properties aggregating 86 million square feet of pro-rata gross leaseable area (GLA), located in 43 states, Puerto Rico, Canada, Mexico, Chile, Brazil and Peru. The company's portfolio is well diversified with the largest tenant accounting for less than 4% of annualized base rent (ABR) and the top 10 tenants collectively accounting for less than 20% of ABR. Additionally, Kimco continues to make progress in reducing the risk profile of the company through the disposition of non-core assets and maintenance of a smaller development pipeline. Lease maturities are well-laddered with no more than 13% expiring in any one year and less than 5% expiring in any one year when assuming the exercise of renewal options. Leverage decreased slightly to 5.6 times (x) at June 30, 2012 from 5.8x at Dec. 31, 2011 and 5.6x at Dec. 31, 2010. Fitch forecasts leverage will increase by year-end 2012 towards 6.5x driven by the repurchase of preferred stock with cash on the balance sheet, before declining towards 6.0x through 2014, due to modestly positive same store NOI growth. Fitch defines leverage as net debt to recurring operating EBITDA (including Fitch's estimate of recurring cash distributions from unconsolidated joint ventures). Kimco's fixed-charge coverage is slightly low for the 'BBB+' rating level. Fixed charge coverage was 2.1x for the trailing 12 months (TTM) ended June 30, 2012, consistent with 2.2x for 2010. Fitch projects fixed-charge coverage will improve modestly as the company redeems higher coupon preferred stock later in 2012. Fixed-charge coverage is defined as recurring operating EBITDA plus Fitch's estimate of recurring cash distributions from unconsolidated joint ventures less recurring capital expenditures and non-cash straight line rental income divided by total interest incurred and preferred stock dividends. Despite the general headwinds faced by retailers including an uncertain macroeconomic environment and increasing competition from e-commerce, Kimco's same-store net operating income (SSNOI) performance turned positive in 2010 and accelerated in 2012. SSNOI growth for the second quarter 2012 (2Q'12) was 2.6% before the impact of foreign currency changes driven by positive leasing spreads and modest improvements in occupancy. Fitch expects SSNOI growth of 1-2% per year through 2012. In adverse scenarios not anticipated by Fitch in which SSNOI growth is flat or experiences declines worse than 2009, Kimco's metrics would deteriorate though remain appropriate for the 'BBB+' rating. Kimco has demonstrated a long track record of accessing a wide variety of capital sources, including secured and unsecured debt, common and preferred equity and joint venture capital. Year-to-date, Kimco has issued $625 million of preferred stock and a $400 million unsecured term loan. Kimco maintains a large unencumbered asset pool to support its unsecured borrowings. As of June 30, 2012, there were 414 stabilized assets in the company's unencumbered pool. Capitalizing annualized first half 2012 cash NOI generated by the unencumbered pool at a stressed capitalization rate of 8% generates unencumbered asset coverage of approximately 2.4x, which is appropriate for the 'BBB+' IDR. Fitch anticipates the ratio will migrate towards 2.0x as the company uses cash and draws on the revolving line of credit to potentially redeem portions of the preferred stock outstanding. Kimco's liquidity coverage ratio is adequate at 1.1x under the base scenario through 2013 pro forma for anticipated preferred stock redemptions. Under a scenario where Kimco is able to refinance 80% of its secured debt, the liquidity coverage ratio rises to 1.5x. The ratio declines to 0.7x and 1.0x under the aforementioned scenarios when extended through 2014. Kimco's debt maturity schedule is manageable; however, there are noteworthy concentrations in 2013 and 2014 of 15.7% and 21.7% of total debt maturing, respectively not including joint venture debt obligations. A sizeable portion of the 2014 maturities is attributable to the $400 million term loan which can be extended at the Company's option until 2017. Kimco's demonstrated access to the mortgage, unsecured, preferred stock and common equity markets mitigates refinance risk. The two-notch differential between Kimco's IDR and its preferred stock rating is consistent with Fitch's criteria for corporate entities with an IDR of 'BBB+'. Based on Fitch's criteria report, 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis,' dated Dec. 15, 2011, the company's preferred stock is deeply subordinated and has loss absorption elements that would likely result in poor recoveries in the event of a corporate default. The Stable Outlook reflects Fitch's view that metrics will remain relatively unchanged and the Company's demonstrated access to capital will offset an otherwise weaker liquidity coverage ratio. The following factors may have a positive impact on Kimco's ratings and/or Outlook: --Fitch's expectation of fixed-charge coverage sustaining above 2.5x (coverage was 2.1x for the TTM ended June 30, 2012); --Fitch's expectation of net debt to recurring operating EBITDA sustaining below 5.0x (leverage was 5.6x as of June 30, 2012); --Reducing the exposure to non-core assets. The following factors may have a negative impact on Kimco's ratings and/or Outlook: --Fitch's expectation of fixed-charge coverage sustaining below 2.0x; --Fitch's expectation of leverage sustaining above 6.5x; --Increased exposure to non-retail assets or increased joint venture debt guarantees. Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. Applicable Criteria and Related Research: --'Corporate Rating Methodology,' Aug. 8, 2012. --'Recovery Ratings and Notching Criteria for Equity REITs' (May 3, 2012); --'Criteria for Rating U.S. Equity REITs and REOCs,' Feb. 27, 2012; --'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis,' Dec. 15, 2011. Applicable Criteria and Related Research: Corporate Rating Methodology Recovery Ratings and Notching Criteria for Equity REITs Criteria for Rating U.S. Equity REITs and REOCs Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis
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