What happened

Shares of real estate investment trust (REIT) Kimco Realty (KIM 0.48%) quickly jumped 10% in the first half hour of trading on April 28. Although there was no specific news related to the shopping center REIT, the move by several states to allow non-essential businesses to open again has been viewed very positively by investors. And for good reason.

So what

Roughly 75% of the rentable square feet in Kimco's centers is leased out to large tenants that are, for the most part, essential businesses (think grocery stores and the like). That's the good news. The bad news is that these tenants only account for around 60% of the REIT's rent roll. The rest of the top line is tied to mid-size and smaller shops, where the mix leans toward non-essential. For example, around 30% of rent comes from either local shops or small national chains, including a lot of restaurants. In other words, Kimco's rent roll could be materially impacted by COVID-19 related closures when it reports first-quarter earnings.   

A vacant shopping center

Image source: Getty Images.

Management isn't sitting around hoping for the best, it has stepped up its efforts to ensure both its own viability and the viability of its most impacted tenants. For example, the REIT has worked with its banks to adjust its available credit, bringing its liquidity up to around $2.2 billion. And it has started a program to help smaller tenants navigate the government's assistance programs. But, despite these efforts, closed stores remain the biggest risk facing the REIT.   

So, states allowing non-essential business to open back up again is a big deal. And investors have reacted positively, justifiably boosting Kimco's shares on the news.

Now what

The economy beginning to restart after the broad COVID-19 related shutdowns is a positive. But Kimco is not out of the woods yet; more stock volatility should be expected. For example, social distancing restrictions may be slowly ending, but the broader economic impact is likely to be a recession. In addition, consumers may continue to avoid stores because of coronavirus concerns. Both will be bad for Kimco's lessees and, in turn, bad for kimco. This story is still a work in progress.