Kimco to Monetize Albertsons Investment, Lower Stake to 7.5%

Kimco Realty Corp. KIM has decided for partial monetization of its investment in Albertsons Companies, Inc., in association with Albertsons’ $1.75 billion sale of convertible preferred stock.

As liquidity is important amid the coronavirus pandemic and the resultant impact on the economy and financial markets, the move to monetize Kimco’s Albertsons investment seems a strategic fit.

According to Albertsons announcement, the proceeds from the preferred stock sale will be utilized for repurchasing part of common stock owned by its current shareholders. Kimco, which presently enjoys 9.29% ownership stake in Albertsons, expects to receive its allocable share of proceeds and will subsequently maintain a 7.5% ownership stake in Albertsons. The transaction is expected to close by Jun 15, and is conditioned upon customary closing norms.

Kimco had been engaged in making strategic investments over the past years. Notably, a Cerberus-led investment group had acquired 661 non-core Albertsons stores from Albertsons, Inc. in 2006 and Kimco had invested roughly $51 million. Furthermore, the remaining Albertsons stores, in addition to the grocery banners of Jewel-Osco, Acme, Shaws and Star Markets, were acquired by the investment group in 2013 for $3.3 billion from SUPERVALU, with Kimco making an additional $37-million investment.

The retail REIT had purchased $33.6 million of SUPERVALU common stock that was later sold for $74 million, generating roughly a $40-million gain. Then Safeway grocery banner was purchased by the consortium in 2015 and Kimco invested $85.3 million.

Kimco has already received more than $300 million in cash distributions from its Albertsons investment. This is inclusive of the proceeds from the SUPERVALU stock sale and prior to any proceeds obtained from the above-mentioned repurchase of common stock held by Kimco.

Further, the company has been making concerted efforts to bolster its financial flexibility to sail through the current challenging environment and with concerted measures, at the end of April, Kimco had access to more than $2.2 billion of immediate liquidity, with nearly $900 million of cash on the balance sheet and $1.3 billion available under its unsecured revolving credit facility.

Moreover, the company has more than 320 unencumbered assets, which represents 80% of its total net operating income.The company also has one of the longest weighted-average debt maturity profiles in the industry at 10.1 years, owing to its decent balance-sheet management so far and has only 114 million of pro-rata debt maturing for the remainder of 2020.

Notably, retail REITs, including Kimco, Simon Property Group SPG, Macerich MAC, Federal Realty FRT and several others, which have already been battling store closure and bankruptcy issues, are feeling the brunt because consumers are avoiding gathering in large public spaces and several stores are closed or working with reduced hours. Nevertheless, in these uncertain times, having a grocery component has been saving the grace of retail REITs, and Kimco has a high-quality, mixed-use portfolio concentrated in the top U.S. markets and more than 77% of its annual base rent comes from grocery-anchored centers.

Currently, Kimco carries a Zacks Rank #3 (Hold). However, shares of this retail REIT have depreciated 42.2% in the past three months, wider than the 34.9% decline recorded by the industry.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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