Kimco Realty Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited. Kimco owns and operates open-air shopping centers. At quarter-end, it held interests in 584 shopping centers totaling 92.2 million square feet, plus 430 other property interests. Unless stated otherwise, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior quarter-end |
|---|---|---|
| Total revenue | $297.2 million | $283.5 million; up 4.8% |
| Rental revenue | $293.1 million | $275.5 million; up 6.4% |
| Operating income | $99.3 million | $94.0 million; operating margin about 33.4% vs. 33.1% |
| Net income attributable to Kimco | $140.7 million | $310.3 million |
| Net income available to common shareholders; diluted EPS | $129.2 million; $0.31 | $295.8 million; $0.71 |
| FFO per diluted share; adjusted FFO per diluted share | $0.38; $0.37 | $0.37; $0.36 |
| U.S. same-property NOI | $226.9 million | $223.7 million; up 1.5% |
| Cash provided by operating activities | $137.0 million | $163.1 million |
| Cash and cash equivalents | $222.0 million | $189.5 million at Dec. 31, 2015 |
| Notes and mortgages payable | $5.16 billion | $5.38 billion at Dec. 31, 2015 |
| Total assets; total equity | $11.25 billion; $5.32 billion | $11.34 billion; $5.18 billion at Dec. 31, 2015 |
Interest expense was $52.5 million, nearly unchanged year over year. Operating expenses included $84.9 million of depreciation and amortization, up from $74.6 million, and $5.8 million of impairment charges. The filing reports investing cash flow of $127.8 million provided, compared with $607.5 million used in Q1 2015; financing cash flow was $232.3 million used, versus $478.0 million provided.
Liquidity included a $1.75 billion unsecured revolving facility, with $180 million drawn and approximately $1.6 billion available at quarter-end. The company reported compliance with debt covenants. Its $300 million 5.783% medium-term notes matured and were repaid in March; the $650 million unsecured term loan was scheduled to mature in January 2017, with extension options.
Material changes and drivers
- Revenue growth reflected 2015 acquisitions, completed redevelopments, tenant buyouts and portfolio leasing growth, partly offset by properties sold. Same-property NOI rose 1.5%, mainly from lease-up and rent commencements, partly offset by higher credit losses.
- Reported net income and EPS fell sharply versus 2015, chiefly because Q1 2015 included a $139.8 million gain from gaining control of interests in properties acquired from joint ventures. Q1 2015 also included a $21.7 million deferred gain recognized after repayment of previously guaranteed debt. These items make headline earnings comparisons less representative of recurring operations.
- FFO per diluted share increased to $0.38 from $0.37; adjusted FFO per diluted share increased to $0.37 from $0.36. FFO is a non-GAAP measure and is not a substitute for operating cash flow.
- Kimco sold seven consolidated operating properties for $101.2 million, recording a $26.9 million after-tax gain. Joint venture property sales generated $54.1 million of aggregate net gains to Kimco before tax. The company also repaid $101.5 million of mortgages on seven properties.
- The company issued 3.62 million shares under its at-the-market program during the quarter, receiving $100.6 million net of fees. It issued a further 1.34 million shares for $37.9 million net through April 13, 2016.
Outlook, commentary and risks
- For 2016, management anticipated $450–$550 million of operating-property acquisitions, $175–$225 million of redevelopment and re-tenanting investment, and $75–$125 million of ground-up development investment. Six consolidated U.S. ground-up projects were in progress, with estimated costs to complete of $260–$270 million.
- Management said operating cash flow, revolving-credit availability, equity and debt offerings, and other financing alternatives were expected to provide capital. It planned to continue portfolio recycling, focus investment primarily on U.S. open-air centers, reduce joint venture exposure, exit Canada and continue deleveraging. The filing provides no earnings or FFO guidance.
- Consolidated debt maturities for the remainder of 2016 were $371.7 million; the filing also identifies $936.4 million of unconsolidated joint venture debt and $55.3 million of debt tied to the Preferred Equity Program maturing in 2016, assuming available extensions. Management expected refinancing, operating cash flow, credit-facility borrowings or partner contributions to address maturities.
- Management noted widening spreads for non-recourse mortgage financing, while unsecured debt markets remained functional with manageable credit spreads. A 1% increase in short-term rates would have increased quarterly interest expense by an estimated $2.2 million based on variable-rate debt outstanding.
- Key exposures include tenant defaults or lease terminations, property-market and financing conditions, interest and foreign-exchange movements, asset-sale pricing and impairment risk, and joint venture and preferred-equity valuations. A $9.1 million cumulative foreign-currency translation gain related to Canada could be recognized in earnings if the Canadian investment is substantially liquidated.
- Kimco continued cooperating with SEC and Department of Justice investigations concerning possible Foreign Corrupt Practices Act violations associated with Wal-Mart. The company said it could not predict the investigations’ duration, scope or outcome. It reported no material changes to previously disclosed risk factors and said disclosure controls were effective.
Investor verification priorities
- Assess recurring property performance separately from property-sale gains, joint venture gains and the unusually large Q1 2015 change-in-control gain; compare same-property NOI and FFO measures with their reconciliations.
- Review the 2016–2017 debt maturity schedule, extension conditions, refinancing assumptions and liquidity after planned acquisitions and capital spending.
- Track the pace and pricing of ATM share issuance, its effect on per-share results, and the balance of the $500 million offering program.
- Verify execution and funding of redevelopment and development plans, and whether planned acquisitions and dispositions meet management’s stated strategy.
- Monitor Canadian asset exits and potential translation-gain recognition, joint venture debt/refinancing needs, tenant credit losses, property impairments and the SEC/DOJ investigations.