Kimco Realty Corporation — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; unaudited. Filed August 7, 2020.
Business context
Kimco owns and operates open-air, grocery-anchored shopping centers and mixed-use properties. At June 30, it had interests in 400 U.S. shopping center properties totaling 70.0 million square feet, plus 198 other property interests, primarily through investments. The period was heavily affected by the COVID-19 pandemic, tenant closures and rent collection disruption.
Financial performance and position
- Revenue: Q2 total revenue was $238.9 million, down 16.1% from $284.9 million. First-half revenue was $528.7 million, down 8.8% from $579.9 million. Net rental property revenue fell to $236.0 million in Q2 and $522.0 million for the first half, principally reflecting pandemic-related collectability adjustments.
- Profit: Q2 net income attributable to common shareholders was $741.5 million, or $1.71 per diluted share, versus $86.5 million, or $0.20, a year earlier. First-half figures were $825.3 million, or $1.90 per diluted share, versus $188.1 million, or $0.44. The 2020 results included $526.2 million of Q2 unrealized gains on marketable securities and $190.8 million of gains from sales of ACI investment interests; reported earnings therefore do not reflect recurring property performance alone.
- FFO: Company-reported FFO available to common shareholders was $103.5 million, or $0.24 per diluted share, in Q2, versus $151.2 million, or $0.36, a year earlier. First-half FFO was $264.0 million, or $0.61 per diluted share, versus $309.6 million, or $0.74. FFO excludes the ACI securities gains and other specified items; it is a non-GAAP measure.
- Property operations: Same-property NOI declined 13.6% in Q2 to $182.3 million and 6.1% for the first half to $397.6 million. The company cited potentially uncollectible and disputed revenues as the main cause.
- Cash flow: First-half operating cash flow was $237.4 million, down from $313.5 million. Investing activities provided $96.6 million, including ACI sale proceeds; financing used $256.3 million. Cash and cash equivalents ended the period at $201.7 million.
- Debt and liquidity: June 30 notes payable were $4.962 billion and mortgages/construction loans were $388.4 million. The $2.0 billion revolving facility had no borrowings, with $0.3 million reserved for letters of credit; the company reported covenant compliance. Cash plus marketable securities was approximately $835.2 million, including ACI shares valued at $628.2 million. Total liabilities were $5.924 billion.
- Equity: Total equity was $5.618 billion at June 30, versus $4.929 billion at year-end 2019. The increase largely reflects reported net income, including the ACI gains.
Material changes and unusual items
- Kimco recorded a $50.5 million first-half adjustment for potentially uncollectible revenues and disputed amounts, including $11.5 million related to straight-line rent receivables, primarily due to COVID-19.
- ACI’s IPO and related transactions changed Kimco’s ACI investment from a cost-method investment to marketable securities. Kimco sold some shares and held 39.8 million ACI shares at June 30.
- The common dividend was temporarily suspended for Q2 as a precaution. Class L and M preferred dividends continued.
- Property sales generated $5.7 million of gains in the first half, compared with $38.4 million in the prior-year period. The company sold three operating properties, versus seven properties and five out-parcels in 2019.
- After quarter-end, Kimco fully repaid its $325 million term-loan balance and terminated that facility, issued $500 million of 2.70% unsecured green notes due 2030, and announced a $200 million partial redemption of 3.20% notes due 2021, with an expected $3.3 million prepayment charge.
Outlook, management commentary and risks
- All shopping centers remained open, but many tenants closed temporarily, reduced hours or services, paid late or partially, sought deferrals, or defaulted. For April, May and June, Kimco collected 68%, 66% and 76% of pro-rata annual base rent, respectively; it reported collecting 82% for July. Selective deferrals represented approximately 22%, 22% and 11% of pro-rata annual base rent for April, May and June and were expected to be repaid within six to 18 months.
- Management said the pandemic’s duration and ultimate effects were uncertain and that further receivable adjustments or material impairment charges could be required. Tenant failures, additional closures, weaker property values, financing-market volatility and covenant pressure were identified risks.
- Kimco expected to spend up to approximately $25 million on operating-property acquisitions during the remainder of 2020 and approximately $75 million to $115 million on redevelopment and re-tenanting, while reassessing projects in light of COVID-19.
- The board was evaluating the common dividend quarterly and stated it intended to reinstate a common dividend during 2020 at least at the level required to satisfy REIT taxable-income distribution requirements. No earnings or revenue guidance was provided in the filing text.
- Management cited liquidity resources including the undrawn revolving facility, cash, access to capital markets and more than 320 unencumbered property interests. Reported covenant measures were within requirements, including 43% total indebtedness to gross asset value against a limit below 60%.
- The company reported no litigation expected to have a material adverse effect and stated its disclosure controls were effective.
Most important facts for investors to verify
- Subsequent rent collections, tenant deferrals/defaults, and whether accrued receivables require additional write-downs.
- ACI share price and the resulting volatility in Kimco’s marketable securities and reported earnings.
- Common-dividend reinstatement, including the board’s timing and amount relative to REIT distribution requirements.
- Post-quarter debt transactions, upcoming maturities, refinancing costs and continued covenant headroom.
- Whether same-property NOI, FFO and operating cash flow stabilize as tenants reopen, and whether planned redevelopment spending proceeds.