Business Context and Reporting Period
Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended September 30, 2003
Business Overview: Kimco is a Real Estate Investment Trust (REIT) engaged in the ownership, acquisition, development, and management of neighborhood and community shopping centers. As of September 30, 2003, the Company held 110,413,027 shares of common stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2003 |
Nine Months Ended Sep 30, 2003 |
Nine Months Ended Sep 30, 2002 |
|---|---|---|---|
| Revenues from Rental Property | $120.3 million | $357.6 million | $326.4 million |
| Net Income | $91.5 million | $223.8 million | $182.7 million |
| Net Income Available to Common Shareholders | $88.6 million | $204.3 million | $168.9 million |
| Diluted EPS (Net Income) | $0.80 | $1.90 | $1.60 |
| Cash Flow from Operations | N/A | $237.5 million | $230.8 million |
| Total Debt (Notes & Mortgages Payable) | $1.52 billion | $1.52 billion | $1.53 billion |
| Cash and Cash Equivalents | $107.0 million | $107.0 million | $36.0 million |
| Debt to Total Market Capitalization | 25% | 25% | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Rental revenues increased 12.1% ($13.0 million) for the quarter and 9.6% ($31.2 million) for the nine months compared to 2002. Growth was driven by the acquisition of 11 operating properties and improved portfolio occupancy (89.5% vs. 86.0% in 2002).
- Profitability: Net income increased 50.5% for the quarter and 22.5% for the nine months. Significant contributors included a $6.3 million gain on early extinguishment of debt (Q1 2003) and $30.5 million in net gains from property dispositions (nine months 2003).
- Expense Increases: Rental property expenses rose 13.3% for the quarter and 11.8% for the nine months, primarily due to property acquisitions and higher snow removal costs. Interest expense increased due to higher average outstanding borrowings.
- Joint Venture Income: Equity in income from real estate joint ventures (KIR, RioCan, KROP) increased significantly, contributing $11.2 million for the quarter and $30.5 million for the nine months.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management intends to maintain a conservative capital structure with debt to total market capitalization at 50% or less (currently 25%). The Company anticipates cash flows from operations will fund operating expenses, debt service, and dividends. Capital for expansion is expected to come from public equity/debt markets, revolving credit facilities, and property sales.
Unusual Items and Transactions
- Mid-Atlantic Realty Trust Merger: On October 1, 2003, Kimco completed the acquisition of Mid-Atlantic Realty Trust for approximately $700 million (including debt). The transaction was funded by cash, a new $400 million bridge facility, and existing credit lines.
- Property Dispositions: The Company sold six operating properties for $112.5 million and transferred two properties to the KROP joint venture for $85.0 million, generating net gains of $30.5 million.
- Preferred Stock Redemption: In June 2003, the Company redeemed $225 million of Class A, B, and C preferred stock and issued $175 million of Class F preferred stock.
Risks and Contingencies
- Tenant Bankruptcy (Kmart): Kmart's bankruptcy filing resulted in lease rejections at seven locations, representing $3.3 million in annualized base rental revenues. The Company is negotiating with prospective tenants but notes no assurance of re-leasing at comparable rents.
- Debt Service Suspension: In May 2003, the Company suspended debt service on a $9.3 million non-recourse mortgage encumbering a former Kmart site in Chicago, IL, and is negotiating settlement terms.
- Market Risks: The Company has $153.8 million in floating-rate debt (partially hedged) and foreign currency exposure in Canada and Mexico, which is mitigated through forward contracts and swaps.
Investor Verification Checklist
- Kmart Lease Re-leasing: Verify the status of negotiations for the seven Kmart sites where leases were rejected and the potential impact on future rental income.
- Mid-Atlantic Integration: Review the post-merger financial impact and integration progress of the Mid-Atlantic Realty Trust acquisition closed in October 2003.
- Debt Maturities and Refinancing: Assess the Company's ability to refinance the $400 million bridge facility (maturing September 2004) and other debt obligations.
- Development Pipeline: Evaluate the progress and profitability of the Kimco Developers, Inc. (KDI) subsidiary, which generated $15.3 million in pre-tax gains from development sales in the first nine months.
- Joint Venture Performance: Monitor the performance of key joint ventures (KIR, RioCan, KROP) which contributed significantly to the increase in equity income.