Kimco Realty Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. Kimco owns and operates neighborhood and community shopping centers. At quarter-end it had interests in 948 shopping-center properties and 902 other property interests across the U.S. and several international markets.
Financial performance and position
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Rental property revenue | $224.0 million | $213.4 million; up 5.0% |
| Net income | $32.0 million | $54.7 million |
| Net income attributable to Kimco | $29.0 million | $50.8 million |
| Net income available to common shareholders | $14.1 million; diluted EPS $0.03 | $39.0 million; diluted EPS $0.10 |
| Operating cash flow | $114.8 million | $143.2 million |
| Investing cash flow | $(53.2) million | $(31.5) million |
| Financing cash flow | $(38.7) million | $(96.3) million |
Rental property expenses were $68.5 million, up 6.4%; depreciation and amortization was $66.2 million, up 17.6%. The filing does not provide a single defined operating-margin measure. Total assets were $9.90 billion and total equity was $5.12 billion at March 31, 2011.
Cash and cash equivalents were $148.0 million. Consolidated debt comprised $3.061 billion of notes payable, $1.057 billion of mortgages and $31.7 million of construction loans—about $4.15 billion in total. Kimco also reported $211.3 million of marketable securities. Its $1.5 billion U.S. revolving facility had approximately $1.5 billion available; the company reported compliance with its debt covenants.
Material changes and drivers
- Rental revenue growth reflected acquisitions and completed development or redevelopment projects, partly offset by property dispositions. Rental expenses increased with properties placed into service, snow removal and acquisitions.
- Net income declined primarily because 2010 included higher income from other real estate investments and joint-venture-related items, including a prior-period distribution exceeding investment carrying value; higher taxes also contributed. Q1 2011 included $2.8 million of impairment charges on three operating properties.
- Operating cash flow fell by $28.4 million, which management attributed mainly to lower transactional income and timing-related changes in receivables, payables and other operating balances.
- Investing cash use rose, notably with higher joint-venture investment and operating-property spending. Financing cash use was lower than the prior year, partly due to increased net revolving-credit borrowings and fewer principal repayments; dividends paid increased to $89.5 million from $76.7 million.
Outlook, risks and unusual items
- Management anticipated 2011 capital commitments of approximately $20–25 million for redevelopment and re-tenanting and $25–35 million for development projects. It expected operating cash flow, credit availability and construction-loan commitments to fund these plans. No earnings or revenue guidance is provided in the supplied filing text.
- Management described a strategic focus on shopping centers, with plans to sell certain non-retail assets and investments and continue forming institutional joint ventures. The company reported five ground-up development projects in progress.
- Consolidated debt maturities for the rest of 2011 were $112.2 million. Kimco also disclosed $589.1 million of 2011 unconsolidated joint-venture debt maturities and $264.1 million of debt on preferred-equity-program properties; repayment was expected through refinancing, partner contributions and, for consolidated debt, operating cash and credit facilities.
- A KimPru joint-venture property had defaulted on non-recourse debt and was expected to be foreclosed; Kimco’s share of the related $40.1 million impairment was approximately $4.5 million. A separate foreclosure generated a $1.7 million Kimco share of a joint-venture gain.
- Kimco agreed to sell its remaining Valad convertible notes and completed the sale on April 27, 2011, receiving approximately AUD $170.2 million including accrued interest; the filing reports no further gain or loss on completion.
- Key risks cited include economic and property-market conditions, tenant failures or lease terminations, access to financing and refinancing, interest and foreign-exchange movements, investment valuations, operating-cost increases and impairment charges. Management reported no litigation expected to have a material adverse effect and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether rental growth and completed projects translate into sustainable operating cash flow, given the year-over-year decline in operating cash generation.
- The causes and durability of the sharp decline in common-shareholder earnings, including the effect of prior-period joint-venture and investment income.
- Refinancing progress for consolidated, joint-venture and preferred-equity-related 2011 maturities, and continued covenant compliance.
- Potential additional losses from the KimPru default/foreclosure and other property or investment impairments.
- Actual funding needs and returns from the disclosed development and redevelopment commitments, and execution of planned non-retail asset sales.