Business context and reporting period
Kimco Realty Corporation’s Form 10-K covers the fiscal year ended December 31, 2010. Kimco is a self-managed REIT focused on owning and operating neighborhood and community shopping centers, with additional joint-venture, preferred-equity, development and other real-estate investments. At year-end, it had interests in 951 shopping centers totaling 138.0 million square feet; its broader portfolio comprised 1,857 property interests totaling 172.4 million square feet across the U.S., Puerto Rico, Canada and Latin America.
Financial performance and condition
| Metric | 2010 | 2009 | Change / context |
|---|---|---|---|
| Rental-property revenue | $849.5 million | $773.4 million | Up 9.8%, primarily from acquisitions; management attributed $70.6 million of incremental revenue to property acquisitions. |
| Rental-property expenses | $253.0 million | $232.8 million | Up 8.7%; operating and maintenance costs were the largest increase. |
| Net income attributable to Kimco | $142.9 million | Net loss of $3.9 million | Recovery reflected sharply lower impairment charges and improved joint-venture income. |
| Diluted EPS attributable to Kimco | $0.22 | $(0.15) | Returned to positive earnings. |
| Cash from operating activities | $479.9 million | $403.6 million | Up $76.3 million. |
| Cash from / (used in) investing activities | $37.9 million | $(343.2) million | Improved primarily with lower property investment spending and more operating-property sale proceeds. |
| Cash used in financing activities | $(514.7) million | $(74.5) million | Reflects debt reduction and lower equity issuance proceeds. |
| Total debt | $4.059 billion | $4.434 billion | Down approximately $375 million year over year. |
| Cash and cash equivalents | $125.2 million | $122.1 million | Year-end balance. |
At December 31, 2010, total assets were $9.834 billion and total stockholders’ equity was $4.936 billion. The combined shopping-center portfolio was 93.0% leased, up from 92.6% a year earlier; the consolidated portfolio was 91.9% leased. U.S. consolidated average base rent increased from $11.13 to $11.20 per leased square foot.
Gross impairment charges were $39.1 million in 2010, down from $175.1 million in 2009. This excludes additional impairment charges recorded by unconsolidated joint ventures: Kimco’s share was approximately $28.3 million in 2010. Interest expense rose to $226.4 million from $208.0 million, and Kimco recorded $10.8 million of early debt-extinguishment charges.
Material changes versus the prior comparable period
- Rental revenue growth was largely acquisition-driven, with additional contributions from completed developments, redevelopments, tenant buyouts and portfolio growth. The company acquired 10 shopping centers, a joint-venture interest and two land parcels for approximately $251.3 million, including assumed mortgage debt.
- Kimco established four new unconsolidated joint ventures that acquired approximately $1.0 billion in assets. It also sold seven previously consolidated properties to new joint ventures and disposed of other operating properties.
- Equity in joint-venture income rose to $55.7 million from $6.3 million, including income associated with property sales by the Albertson’s joint venture and fewer impairment charges than in 2009.
- Kimco monetized approximately $130 million of non-retail assets and reduced non-retail book values by approximately $80 million, continuing its plan to shift toward shopping centers and reduce leverage.
- Common dividends declared were $0.66 per share in 2010, versus $0.72 in 2009. The company reported that cash dividends paid in 2010 totaled $307.0 million, compared with $331.0 million in 2009. The 2010 common dividend paid was characterized for tax purposes as 70% ordinary income and 30% return of capital.
Liquidity, debt, outlook and risks
Kimco reported approximately $1.6 billion available under its credit facilities at year-end. The $1.5 billion U.S. revolving facility, with $123.2 million outstanding, was extended to October 2012; the CAD $250 million facility, with no balance outstanding, was extended to March 2012. Management said it intended to continue deleveraging and maintain investment-grade ratings, and considered financing and refinancing alternatives viable based on its assessment at the time.
Contractual debt principal maturities totaled $147.4 million for 2011 in the maturity table, which excludes available extension options; management separately cited $112.5 million of consolidated 2011 maturities assuming available extensions. The filing also identifies $685.2 million of unconsolidated joint-venture debt maturities and $276.4 million of preferred-equity debt maturities for 2011, assuming extensions where available. Management expected consolidated maturities to be addressed through operating cash flow, credit facilities and refinancing; joint-venture and preferred-equity maturities were expected to be addressed through refinancing or partner contributions, as appropriate. Unconsolidated joint-venture debt was approximately $8.0 billion in total, of which Kimco’s share was approximately $3.0 billion.
For 2011, management estimated capital commitments of $15 million to $25 million for redevelopment and re-tenanting, and $25 million to $35 million for development projects. Kimco had six ground-up projects in progress, in the U.S., Mexico, Chile and Brazil. It planned to continue regular quarterly common dividends, but future declarations remain at the board’s discretion and depend on cash flow, liquidity, capital needs, debt limits and REIT requirements.
Key risks include tenant defaults, bankruptcies and store closures; weak retail and local economic conditions; refinancing and capital-market access; interest-rate and foreign-currency movements; impairment or loss on non-retail investments; joint-venture partner and project risks; and maintaining REIT qualification. Management noted that economic conditions had stabilized and credit-market access improved, but flagged high unemployment and uncertainty about economic recovery, including in Europe. A $3.8 million accrual related to a legal claim from a previously sold development project was under settlement negotiation; management expected the settlement to approximate the accrual. The CRA tax-assessment dispute was released in November 2010 and the related letter of credit returned. Management reported no litigation it believed would have a material adverse effect.
Most important facts for investors to verify
- Whether revenue growth and improved occupancy can be sustained beyond acquisition contributions, and how the consolidated portfolio’s 91.9% leased rate compares with the broader 93.0% portfolio measure.
- The quality and repeatability of 2010 earnings: the large year-over-year improvement included lower impairments, joint-venture transaction income and property dispositions.
- Refinancing progress and actual exposure to 2011 consolidated, joint-venture and preferred-equity maturities, including the effect of extension options and partner funding.
- Potential further impairments or losses as Kimco sells non-retail assets, and the assumptions underlying Level 3 property and investment valuations.
- The company’s joint-venture guarantees, including the listed guarantees and its share of approximately $3.0 billion of unconsolidated debt, as well as the ability of partners to meet obligations.
- The filing contains a small inconsistency in selected financial data for 2010 total assets; the audited balance sheet reports $9.834 billion, which is used here.