Kimco Realty Corporation — FY2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing, not a standalone fourth-quarter report; the filing also provides unaudited quarterly results.
Business context
Kimco is a self-managed REIT focused on owning and operating neighborhood and community shopping centers. At year-end, it reported interests in 1,915 properties totaling approximately 176.9 million square feet across the U.S., Puerto Rico, Canada and Latin America. Its total shopping-center portfolio was 92.6% leased; its consolidated portfolio was 92.2% leased.
Financial performance and liquidity
| Metric | FY2009 | FY2008 |
|---|---|---|
| Rental-property revenue | $786.9 million | $758.7 million |
| Net income (loss) attributable to Kimco | $(3.9) million | $249.9 million |
| Net income (loss) available to common shareholders | $(51.2) million | $202.6 million |
| Diluted net income (loss) per common share | $(0.15) | $0.78 |
| Cash flow from operating activities | $403.6 million | $567.6 million |
| Cash flow used for investing activities | $(343.2) million | $(781.4) million |
| Cash flow from (used for) financing activities | $(74.5) million | $262.4 million |
| Total debt at year-end | $4.43 billion | $4.56 billion |
| Cash and cash equivalents at year-end | $122.1 million | $136.2 million |
Rental revenue rose 3.7%, principally reflecting acquisitions and completed development projects, partly offset by dispositions and lower occupancy. Rental-property expenses rose 9.5% to $236.6 million, including higher real estate taxes and operating costs. Interest expense was $209.9 million, down from $212.6 million. The filing does not provide a clear consolidated operating-margin measure in the supplied text.
Cash flow from operations fell about 29%, mainly because of lower distributions from joint ventures and lower investment income. Total assets were $10.16 billion and total stockholders’ equity was $4.85 billion at year-end. Kimco reported approximately $1.6 billion available under its revolving facilities and had $139.5 million drawn on its U.S. facility. The company reported compliance with its debt covenants; selected year-end measures included debt to gross asset value of 50% against a 60% maximum and fixed-charge coverage of 2.06x against a 1.50x minimum.
The common dividend declared was $0.72 per share for 2009, versus $1.68 in 2008. Cash dividends paid were $331.0 million, compared with $469.0 million. The company said it expected to continue regular quarterly dividends, subject to board review, cash flow, capital needs, debt restrictions and REIT requirements.
Material changes and unusual items
- Kimco recorded $175.1 million of noncash impairment charges in 2009, versus $147.5 million in 2008. The 2009 charges included property carrying values, joint-venture investments, preferred and other real estate investments, development assets, and securities. The filing separately reports $38.7 million of impairments relating to properties held by unconsolidated joint ventures.
- Net loss attributable to Kimco was driven chiefly by impairments, lower income from other real estate investments and a sharp decline in equity income from joint ventures. Joint-venture equity income was $6.3 million, compared with $132.2 million in 2008, including much lower income from the Albertson’s investment and impairments.
- Kimco issued 105.225 million common shares in April and 28.75 million in December, receiving approximately $1.06 billion net in total, primarily to reduce revolving-credit borrowings and for corporate purposes. Weighted-average basic shares increased to 350.1 million from 257.8 million.
- Kimco acquired the remaining 85% of PL Retail for approximately $175 million, taking control of 21 centers with 5.2 million square feet; the transaction included assumed non-recourse debt and preferred stock. It also acquired other properties and interests during the year.
- The company shifted its merchant-building strategy from selling projects after completion to holding remaining projects as long-term investments. It had 11 ground-up development projects in progress at year-end.
- Fourth-quarter 2009 results included $211.8 million of rental revenue, $52.2 million of net income attributable to Kimco and diluted earnings of $0.11 per share. Results were uneven through the year, including a $134.7 million attributable loss in the second quarter.
Outlook, risks and contingencies
Management anticipated 2010 spending of approximately $30–$40 million on redevelopments and $50–$60 million on ground-up development. It expected available revolving-credit capacity to help fund these commitments and said it believed financing and refinancing alternatives remained available, while acknowledging volatile credit markets, slower lender approvals, higher spreads and lower loan-to-value ratios. Management expected subdued real estate transaction activity to constrain near-term growth.
Reported debt maturities require close monitoring. The contractual-obligations table lists $380 million of consolidated long-term debt principal due in 2010, while the liquidity discussion cites $260 million of consolidated debt maturities; the supplied filing text does not clearly reconcile the scope of these figures. It also identifies substantial 2010 maturities at unconsolidated joint ventures and preferred-equity investments, expected to be addressed through refinancing, property sales or partner contributions.
Key risks include tenant bankruptcies, store closures and lower occupancy; difficulty refinancing or raising capital; further property and investment impairments; debt covenant constraints; risks in joint ventures and preferred-equity investments; foreign-currency and international operating risks; and maintaining REIT status. A CAD $66 million (approximately $62.7 million) letter of credit was posted in connection with a Canada Revenue Agency tax assessment dispute. Management said it believed it had a valid defense. The filing reports no litigation expected by management to have a material adverse effect.
Most important facts for investors to verify
- Reconcile the filing’s different descriptions of 2010 consolidated debt maturities and review the full debt schedule, extensions and refinancing plans.
- Assess the quality and cash realization of operating cash flow, particularly the dependence on joint-venture distributions and the decline in those distributions.
- Review impairment assumptions, valuation methods and remaining exposure to further write-downs, including unconsolidated ventures and preferred-equity investments.
- Evaluate the occupancy decline, tenant credit and lease rollover exposure, especially given the difficult retail and real estate environment.
- Confirm the impact of the 2009 equity issuance and reduced dividend on per-share results, leverage and future dividend capacity.
- Track refinancing outcomes for joint ventures, preferred-equity investments and the Canadian tax dispute, including related guarantees and letters of credit.