Kimco Still Sees High Occupancy

Kimco Realty Corporation (KIM) slightly missed our 2Q estimates by $0.03 per share. Despite the miss, operating results were still good in the company's core portfolio. Portfolio occupancy remains high at nearly 96% and rental rates continue to increase as leases roll.

The company is ramping up investment in the growing economies of Latin America which will eventually help provide more diversification and higher returns than US projects. Expect occupancies and rental rates to decrease in the coming quarters as consumer spending continues to fall. We maintain our Buy rating. Larger, diversified retail REITs [real estate investment trusts] with low comparative debt will be able to better withstand the US economic downturn.

On a P/FFO [price-to-funds from operations] basis, KIM currently trades at a slight discount (3%) to sector averages and an approximate 13% discount to our calculated NAV [net asset valuation]. KIM is better positioned than smaller peers due to a large diversified national and international development pipeline and property base. The company has a strong balance sheet with excellent coverage ratios, plenty of availability to make future investments, and low near term debt maturities.

We think the company will continue to exhibit positive earnings momentum and look for 6%+ FFO growth in 2008, even as retail fundamentals deteriorate. We are setting our six-month target price at 15x our 2008 FFO estimates or $41.00 per share.

ASR Shares to Take Flight

We are upgrading shares of Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR) from Hold to Buy based on positive results during the second quarter of 2008 and an encouraging short-term outlook. We believe that the continued growth in passenger traffic, coupled with the consolidation of terminal 3 of Cancun airport, will be the main points behind positive results in the following quarters. Even though the price of oil remains quite high, it has been moving down recently, providing a relief for the whole airline industry. Our target price is $57.25.

On July 24, ASR reported better than expected second quarter 2008 results. Total revenues increased 11.8% year-over-year in Mexican pesos, reaching MXN$808.5 million (US$77.4 million).

The company has been able to post improved passenger traffic, higher revenues, tighter cost controls, a higher operating margin, and solid net income, even during very challenging moments. The possibility of the construction of a new airport in the Mayan Riviera is concerning, but this is just a medium-term problem.