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Kimco and IRT Property hold steady as Kmart’s financial struggle unfolds

At least two of Kmart’s landlords say they aren’t overly concerned about the retailer’s troubles. Yet.

Here are some numbers to ponder: Thirteen percent of New Hyde Park, N.Y.-based Kimco Corp.’s total base revenue was generated through its 75 Kmart leases. Thirteen of those stores are now closed. The gross retail revenue from the closed stores amounts to 2.9%, or $15.4 million, in base rent for Kimco.

Kimco acknowledged that Kmart's bankruptcy will hurt its 2002 profits. But that doesn’t seem to have this REIT on edge. Why? Most of the Kmart stores occupy freestanding sites. And where Kmart assumes in-line, anchor spots, a limited amount of co-tenancy arrangements exist. Translation: without these agreements a consequential loss in revenue from surrounding tenants is unlikely.

However, to safeguard itself from the potential of reduced rents, Kimco has lowered its funds from operations (FFO) per share growth forecast for 2002. In fact, the firm predicts FFO per share growth of between 1% and 4%. Analysts had expected 2002 FFO of between $3.05 and $3.29 per share, with a mean forecast of $3.23, according to Reuters. Kimco executives say Kmart’s insolvency will have no impact on the company’s 2002 business plan.

Atlanta-based IRT Property Co.’s chairman and CEO Thomas A. McAuley remains relatively optimistic as well. All of the Kmart stores currently in place at the REIT’s centers — eight BigK concepts totaling 692,212 sq. ft. — are well-positioned and remain open, McAuley says. As of Sept. 30, 2001, the stores accounted for 4.5% of the REIT’s annual revenues.

McAuley declined to further comment on Kmart’s bankruptcy until the retailer communicates any further intentions.

Both IRT and Kimco say the full impact of Kmart’s bankruptcy may not be fully realized until their financials are in for 2003.

-- Erika Hutton

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