Kimco Realty Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Kimco owns, manages and develops open-air shopping centers and operates as a REIT. At quarter-end, it had interests in 430 shopping center properties totaling 75.5 million square feet, plus 289 other property interests, primarily through investments.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $295.0 million | $304.1 million |
| Operating income | $134.1 million | $160.9 million |
| Net income | $116.7 million | $144.0 million |
| Net income available to common shareholders | $101.6 million; diluted EPS $0.24 | $129.5 million; diluted EPS $0.30 |
| FFO per diluted common share | $0.38 | $0.38 |
| Adjusted FFO per diluted common share | $0.37 | $0.37 |
| Same-property NOI | $215.0 million | $207.3 million |
| Cash from operations | $155.3 million | $192.3 million |
- Cash and cash equivalents were $143.7 million at March 31, 2019, essentially unchanged from year-end. Investing activities used $15.5 million and financing activities used $139.6 million; dividends paid were $132.5 million.
- Balance-sheet debt comprised $4.383 billion of notes payable and $485.3 million of mortgages and construction loans. The $2.25 billion unsecured revolver had $100 million drawn and $0.3 million reserved for letters of credit. Kimco reported compliance with its debt covenants.
- Unconsolidated joint ventures had $1.747 billion of debt, with a 4.3% weighted-average interest rate; this is not included in Kimco’s consolidated debt balances.
- Common and preferred dividends declared were unchanged from the prior-year quarter; the common dividend was $0.28 per share.
Changes versus the prior comparable period
- Revenue declined $9.1 million, primarily because property sales reduced revenue by $21.8 million, partly offset by $12.7 million from completed projects, acquisitions, tenant buyouts and portfolio growth.
- Common-shareholder net income fell $27.9 million and diluted EPS declined from $0.30 to $0.24. Lower property-sale gains were a major factor: gains were $23.6 million versus $57.0 million. 2018 also included gains from debt forgiveness and related interest relief.
- Interest expense decreased $5.5 million, while general and administrative expense increased $3.4 million, partly due to lower capitalization of personnel costs and leasing commissions.
- Same-property NOI increased 3.7%, which management attributed mainly to lease-up and rent commencements and higher other property income. FFO and adjusted FFO per diluted share were flat year over year.
- Operating cash flow decreased $37.0 million. Property-sale proceeds were $72.1 million versus $184.6 million in Q1 2018, and dispositions were five operating properties and two out-parcels versus 20 operating properties and one out-parcel.
Outlook, management commentary and notable items
- Management expects to fund operations and planned investment with operating cash flow, cash on hand, property-sale proceeds, the revolving facility and capital-market or other financing alternatives. No earnings or FFO guidance is provided in the supplied filing text.
- For the remainder of 2019, Kimco anticipates $20–$45 million for operating-property acquisitions, $200–$250 million for redevelopment and re-tenanting, and $75–$125 million for development. Estimated remaining costs to complete active development projects are $125–$175 million.
- Kimco reported $74.2 million of consolidated property-sale proceeds and $23.6 million of gains in the quarter. It recorded $4.2 million of impairment charges, primarily for properties marketed for sale. Development assets increased to $275.9 million from $241.4 million at year-end.
- Kimco adopted lease accounting Topic 842 on January 1, 2019, recognizing $106.0 million of right-of-use assets and $98.7 million of lease liabilities. The company’s $97.1 million operating lease liability at quarter-end reflects subsequent activity.
- For Puerto Rico properties affected by Hurricane Maria, Kimco reported $21.2 million of property-insurance proceeds collected to date and estimated approximately $30.3 million in total replacement-cost proceeds. It recognized $1.0 million of insurance-related income in the quarter and said it would continue to assess eligible business-interruption claims.
- Key risks identified include economic and local real-estate conditions; tenant bankruptcies or lease terminations; access to financing and refinancing; interest-rate changes; property-sale valuations and impairments; joint-venture and preferred-equity investment performance; operating-cost increases; and the ability to maintain dividends. Management reported no material change to previously disclosed risk factors and no litigation expected to have a material adverse effect.
Important facts for investors to verify
- Whether same-property NOI growth and leasing activity support recurring rent growth; Q1 leasing comprised 252 leases covering more than 2.6 million square feet.
- How lower operating cash flow and planned redevelopment and development spending affect liquidity, debt and dividend coverage.
- The timing and economics of property dispositions, including potential additional impairments on assets marketed for sale.
- Debt maturities and refinancing exposure, including the reported $45.4 million of 2019 joint-venture maturities and $26.3 million of Preferred Equity Program maturities.
- Collection and timing of remaining Puerto Rico insurance proceeds and any further business-interruption claims.
- Comparability of reported periods: Topic 842 adoption changed presentation, and Kimco’s non-GAAP FFO measures reflect its stated accounting elections and may not be comparable with other REITs.