Kimco Realty Corporation — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Kimco is a REIT focused on owning, operating and redeveloping open-air shopping centers. At quarter-end it had interests in 420 shopping center properties totaling 73.6 million square feet of GLA.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $282.9 million | $283.1 million | $862.8 million | $880.6 million |
| Net income available to common shareholders | $59.0 million | $85.6 million | $247.2 million | $366.0 million |
| Diluted EPS | $0.14 | $0.19 | $0.58 | $0.85 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $482.5 million | $516.3 million |
| Same-property NOI | $213.3 million; +2.2% | $208.8 million | $633.4 million; +2.7% | $616.5 million |
- Q3 rental-property revenue was $279.2 million, compared with $278.7 million. Nine-month rental-property revenue decreased $17.3 million, primarily because dispositions reduced revenue by $51.4 million, partly offset by $34.1 million of contributions from completed projects, acquisitions, tenant buyouts and growth in the existing portfolio.
- Net income and EPS declined mainly amid lower property-sale gains, higher impairment charges and the $11.4 million preferred-stock redemption charge. Nine-month property-sale gains were $47.4 million versus $180.5 million in 2018.
- Same-property NOI growth reflected lease-up and rent commencements, partly offset by lower other property income. FFO, a non-GAAP measure, was $146.9 million for Q3 and $456.5 million for nine months; adjusted FFO was $157.3 million and $464.9 million, respectively. Adjusted diluted FFO per share was $0.37 for Q3 and $1.10 for nine months.
- Nine-month operating cash flow was $482.5 million. Investing activities used $161.3 million, versus $230.8 million provided in 2018, while financing activities used $323.4 million. Cash ended the period at $141.3 million.
Balance sheet, debt and liquidity
- Total assets were $11.09 billion and total liabilities were $6.09 billion at September 30, 2019. Notes payable were $4.83 billion; mortgages and construction loans were $482.6 million. Combined reported debt was approximately $5.31 billion, up from $4.87 billion at December 31, 2018.
- The $2.25 billion unsecured revolving facility had $200 million outstanding and $0.3 million allocated to letters of credit. It matures in March 2021, with extension options. The company reported compliance with debt covenants; leverage and coverage measures included 38% total indebtedness to gross asset value and 3.4x fixed-charge coverage under the credit facility covenants.
- Kimco issued $350 million of 3.70% senior unsecured notes due 2049. Management reported no debt maturities for the remainder of 2019 and said it expected cash, operating cash flow, credit-facility availability and capital-market access to fund requirements.
- Preferred stock redemptions of $350 million reduced outstanding liquidation preference to $714.5 million. The common dividend declared for Q3 was $0.28 per share.
Material changes, outlook and risks
- The company sold 12 operating properties and seven out-parcels for aggregate proceeds of $163.8 million during the first nine months, compared with $973.5 million of sales in the comparable 2018 period. It recognized $41.2 million of impairments in 2019, including $29.7 million on assets marketed for sale and $11.5 million on a development project no longer intended for development.
- At quarter-end, two active development projects remained. Management estimated $50 million to $100 million of remaining costs to complete them and planned $20 million to $35 million of development spending for the rest of 2019. It expected $75 million to $100 million of redevelopment and re-tenanting commitments over the same period. Funding was expected from dispositions, operating cash flow, construction financing where applicable and credit-facility availability.
- Hurricane Maria recovery remained relevant to the Puerto Rico portfolio: the company had collected $23.2 million of property-insurance proceeds against estimated replacement costs of about $30.3 million, and recognized $3.0 million of insurance proceeds as income during the nine months.
- Key stated risks include tenant failures or bankruptcies, economic and local real-estate conditions, access to financing, interest-rate changes, asset-sale execution, development and redevelopment opportunities, joint-venture and preferred-equity valuations, operating-cost increases, impairments and the ability to maintain dividends. No material change to previously disclosed risk factors was reported; management said no pending or threatened litigation was expected to have a material adverse effect.
- The filing provides no formal earnings or FFO guidance. Management’s spending estimates above are the principal near-term outlook disclosures. The company adopted lease accounting Topic 842 in 2019, recording $106.0 million of right-of-use assets and $98.7 million of lease liabilities at adoption.
Investor items to verify
- Whether property dispositions and portfolio growth can sustain rental revenue and same-property NOI gains, and how much future performance depends on lease-up and rent commencements.
- The assumptions and sale timing behind $41.2 million of impairments, including the discontinued development project and assets marketed for sale.
- Debt maturities, floating-rate exposure, refinancing access and remaining revolver capacity; a 1 percentage-point increase in short-term rates was estimated to raise nine-month interest expense by $1.9 million.
- Funding and completion costs for the active development and redevelopment pipeline, along with the outlook for property-sale proceeds.
- Tenant rollover and concentration: the five largest tenants represented 12.1% of annualized base rent; 2022 and 2023 expirations represented 12.6% and 12.1% of gross annual rent, respectively.
- Collection of remaining Puerto Rico insurance proceeds and the sustainability of dividends in light of capital requirements and REIT distribution obligations.