Kimco Realty's (NYSE:KIM) shares have been on fire lately: The stock is up 28% since the beginning of the year, and 16% since the start of October. Investors clearly like the commercial REIT with a focus on owning and operating neighborhood and community shopping centers. And why wouldn't they?
Kimco Realty just presented investors with strong third-quarter results, has an attractive business plan, engages in opportunistic real estate transactions, and recently updated its funds from operations guidance due to strong underlying growth and portfolio metrics.
Kimco Realty was founded in 1958 and had its stock market debut in 1991. The New-York headquartered company has become one of the leading real estate investment trusts in the United States that acquires, develops, manages, and sells commercial properties. It currently fetches a market capitalization of $10.4 billion.
Its shopping center portfolio encompasses locations in North and South America, though most of its properties are in the United States.
And Kimco Realty does not appear ready to slow down its expansion drive: The REIT recently bought 10 shopping centers from its existing joint venture with SEB Asset Management for a total consideration of nearly $270 million. The company conducts opportunistic property transactions of such magnitude on a regular basis, and remains committed to growing its shopping center portfolio across its core markets.
At the end of the third quarter, according to company information, Kimco Realty "owned interests in 814 shopping centers with 117 million square feet of leasable space across 41 states, Puerto Rico, Canada, Mexico and South America."
Third-quarter results highlighted management's confidence in FFO growth prospects
In light of positive performance results for the third quarter, more investors found their interest in this shopping center REIT piqued.
Kimco Realty's funds from operations, or FFO, which reflects REITS' underlying profitability, increased from $141.4 million, or $0.34 per share, in last year's third quarter, to $159.9 million, or $0.39 per share, in the most recent quarter. That's an increase of more than 13% on a total basis and nearly 15% on a per-share basis.
Strong FFO performance also led Kimco Realty to hike its FFO outlook for 2014 to $1.42-1$0.45, up 4% from its earlier guidance range. The shopping center REIT is confident it will further grow its FFO and improve its portfolio metrics going forward.
Confidence in its future earnings prospects also led Kimco Realty to increase its quarterly dividend by almost 7%, from $0.225 to $0.240 per share. The new dividend, which will be paid the first time in January 2015, boosts Kimco Realty's dividend yield from 3.56% to 3.8% (data courtesy of S&P Capital IQ).
If FFO momentum continues to build for Kimco Realty, investors could see further dividend growth next year.
Kimco Realty could also present attractive portfolio key performance metrics: The REIT reported an occupancy rate for the third quarter of 95.5% for its U.S. portfolio and 95.3% for its combined portfolio (including properties in Canada and South America). High occupancy rates indicate properties are well managed and in demand, and that further rental revenue and FFO growth is a real possibility.
The Foolish takeaway
Kimco Realty is benefiting from strong FFO momentum, which has positive effects on its dividend stream. Should the company continue to exhibit high occupancy rates and transaction-driven FFO tailwinds, shareholders could see further dividend hikes in 2015 and beyond.
Kingkarn Amjaroen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.