KIM

Business Context and Reporting Period

Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2002
Business Overview: Kimco is a self-administered Real Estate Investment Trust (REIT) and one of the nation's largest owners and operators of neighborhood and community shopping centers. As of February 7, 2003, the portfolio included 607 property interests totaling approximately 90 million square feet of leasable space across 41 states, Canada, and Mexico. The company also engages in ground-up development through its taxable REIT subsidiary, Kimco Developers, Inc. (KDI), and manages various joint ventures including Kimco Income REIT (KIR), the RioCan Venture, and the Kimco Retail Opportunity Portfolio (KROP).

Key Financial Metrics

Note: The filing text does not provide a specific "profit margin" percentage, but Net Income increased by approximately 3.9% year-over-year.

Material Changes vs. Prior Period

• Revenue Stability: Rental revenues remained relatively flat ($450.8M vs $450.4M) despite a decrease in portfolio occupancy from 90.4% to 87.8%. This was driven by the Kmart bankruptcy, which caused a revenue decrease of approximately $25.1 million, offset by acquisitions and new leasing.
• Net Income Growth: Net income rose to $245.7 million from $236.5 million. This increase was fueled by higher equity income from joint ventures (KIR, RioCan, KROP) and gains on the early extinguishment of debt ($22.3 million recognized in 2002), partially offset by lower income from the Montgomery Ward asset designation rights venture.
• Debt Levels: Total debt increased by approximately $249 million to $1.577 billion. This was due to new issuances of senior notes ($235 million) and medium-term notes ($102 million) used to repay maturing debt and fund acquisitions.
• Property Portfolio: The company acquired 13 wholly owned operating properties for $258.7 million and disposed of 12 operating properties for $74.5 million. Significant redevelopment expenditures totaled $44.4 million.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Capital Commitments: Management anticipates capital commitments of $30.0 million to $50.0 million for redevelopment projects and $160.0 million to $200.0 million for ground-up development in 2003.
• Liquidity: The company maintains a conservative capital structure with a target debt-to-market cap of 50% or less (currently 31%). It has a $250 million unsecured revolving credit facility (with $40 million outstanding) and a $200 million medium-term notes program.
• Dividends: The company declared a quarterly dividend of $0.54 per share for the first quarter of 2003, an increase from the $0.52 rate in 2002.

Risks and Contingencies

• Kmart Bankruptcy: Kmart filed for Chapter 11 protection in January 2002. As of December 31, 2002, Kmart represented 4.5% of annualized base rents. The company rejected leases at 31 locations, resulting in a loss of $30.8 million in annualized revenue. In January 2003, Kmart announced the closure of an additional 326 locations, nine of which are leased from Kimco, representing approximately $4.3 million in annualized base rent.
• Property Impairments: The company recorded a $33.0 million adjustment to property carrying values in 2002. This included a $20.5 million write-down on two properties classified as "Held for Sale" and a $12.5 million write-down on four other operating properties deemed not fully recoverable.
• Interest Rate Risk: Approximately $280 million of debt is floating-rate, though $185 million is hedged via interest rate swaps.

Investor Verification Checklist

• Kmart Exposure: Verify the final outcome of the nine additional Kmart store closures announced in January 2003 and the status of lease rejections for the remaining Kmart locations.
• Property Valuations: Review the specific properties included in the $33.0 million impairment charge and the current leasing status of these assets.
• Joint Venture Performance: Assess the cash flow contributions from unconsolidated joint ventures (KIR, RioCan, KROP), which significantly boosted 2002 net income.
• Debt Maturities: Confirm the refinancing status of the $147.3 million in debt maturing in 2003, including the $100 million remarketed reset notes and the $40 million credit facility balance.
• Development Pipeline: Monitor the progress and pre-leasing status of the 19 ground-up development projects managed by KDI.