Kimco Realty Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 25, 2020. This annual report includes fourth-quarter results but is not a standalone quarterly filing. Kimco is a REIT focused on owning and operating open-air shopping centers, primarily in major U.S. metropolitan markets. At year-end, it held interests in 409 shopping centers totaling 72.4 million square feet of GLA, plus 243 other real estate interests.
Key financial results and condition
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Total revenue | $1,158.9 million | $1,164.8 million | Down 0.5% |
| Net income attributable to Kimco | $410.6 million | $497.8 million | Down 17.5% |
| Net income available to common shareholders; diluted EPS | $340.0 million; $0.80 | $439.6 million; $1.02 | Down 22.7%; EPS down $0.22 |
| FFO per diluted share | $1.44 | $1.45 | Down $0.01 |
| Adjusted FFO per diluted share | $1.47 | $1.45 | Up $0.02 |
| Cash from operating activities | $583.6 million | $637.9 million | Down $54.3 million |
| Cash and cash equivalents at year-end | $123.9 million | $143.6 million | Down $19.6 million |
| Total debt | $5.316 billion | $4.874 billion | Up $441.9 million |
| Common dividend declared per share | $1.12 | $1.12 | Unchanged |
- Rental-property revenue was $1,142.3 million, down $7.3 million. Same-property NOI increased 3.0% for the year, primarily from lease-up and rent commencements; fourth-quarter same-property NOI rose 2.7% year over year.
- Operating cash flow exceeded cash dividends paid of $531.6 million, but was lower than in 2018. Investing activities used $120.4 million, including $443.7 million of real estate improvements, partly offset by property-sale proceeds.
- Year-end debt had a 3.46% weighted-average interest rate and 10.6-year weighted-average maturity. The $2.25 billion unsecured revolving credit facility had $200 million outstanding and $0.3 million allocated to letters of credit. Kimco reported compliance with its debt covenants and investment-grade ratings of Baa1/BBB+/BBB+.
- No clear operating-margin figure is provided in the filing summary data. Net income was affected by real estate depreciation, impairment charges, gains on property sales and other items; FFO is a supplemental non-GAAP measure, not a substitute for cash flow.
Material changes and notable items
- Common-shareholder net income fell by $99.6 million. Property-sale gains declined to $79.2 million from $229.8 million in 2018; 2019 also included $18.5 million of preferred-stock redemption charges. Lower interest expense and lower impairment and depreciation charges partly offset these effects.
- Kimco sold 20 operating properties and nine out-parcels for an aggregate sales price of $344.7 million, versus 54 operating properties and seven parcels sold in 2018 for $1.164 billion. It acquired three operating properties for $31.3 million.
- Same-property NOI growth was 3.0%. The consolidated portfolio was reported as 96.4% leased at year-end, compared with 95.8% in 2018; another filing section reports the consolidated portfolio at 96.2%. The combined portfolio, including noncontrolling interests, was reported as 96.4% leased.
- Kimco issued 9.5 million common shares through its ATM program for $200.1 million net proceeds and issued $350 million of 3.70% senior notes due 2049. It redeemed $575 million of Class I, J and K preferred stock.
- The company placed Mills Station into service. It recorded $48.7 million of property impairment charges, including an $11.5 million impairment after discontinuing development of Promenade at Christiana and marketing it for sale.
- Fourth-quarter revenue was $296.1 million versus $284.2 million in 2018; net income attributable to Kimco was $109.4 million versus $88.2 million, and diluted EPS was $0.22 versus $0.17.
Outlook, risks and contingencies
- Kimco gave no specific earnings or FFO guidance in the provided filing text. For 2020, it anticipated $100–$200 million of acquisitions, $150–$200 million of redevelopment and re-tenanting investment, and $40–$60 million of remaining costs for its active development project. It expected to fund these needs with operating cash flow, dispositions, debt and available credit.
- Management’s strategy emphasizes improving portfolio quality in major metro markets, creating value through redevelopment and mixed-use projects, and preserving balance-sheet strength. It noted e-commerce and changing retail practices as continuing challenges and described its focus on grocery, off-price, discount and service-oriented tenants.
- Principal risks include tenant financial distress or bankruptcy, vacancies and lease rollover, e-commerce competition, rising property costs, development execution and leasing risks, access to capital and refinancing, interest-rate exposure, impairment valuations, joint-venture risks, climate and severe-weather events, cybersecurity, and maintaining REIT status. The filing also identified COVID-19 as a potential risk to tenant operations, customer traffic and property profitability; it did not quantify an impact.
- Approximately $92.9 million of consolidated secured debt was shown as maturing in 2020 in the market-risk table; the contractual-obligations schedule shows $169.3 million of total principal due in 2020. Management reported repaying $66.6 million of secured debt after year-end and expected to address remaining maturities with operating cash flow and the credit facility. Investors should reconcile the different maturity presentations.
- Mexican tax assessments against entities that previously held property interests totaled $61.6 million, of which Kimco’s stated share was $52.6 million. Tax-court rulings were mixed; Kimco appealed adverse rulings, maintained that it owed no amounts and said it intended to continue defending its position. The outcome was uncertain.
- Kimco reported no litigation expected by management to have a material adverse effect. It had $40.8 million of letters of credit and $17.6 million of performance and surety bonds outstanding. The company also continued to pursue approximately $6.1 million of remaining expected insurance proceeds related to Hurricane Maria; $4.0 million received in 2019 was recognized as income.
Important facts for investors to verify
- Reconcile the reported year-end consolidated occupancy figures of 96.2% and 96.4% across filing sections.
- Review the 2020 debt-maturity schedules, post-year-end repayments and refinancing assumptions, including the credit facility’s March 2021 maturity and extension options.
- Assess whether recurring operating cash flow and adjusted FFO support the $1.12 annual common dividend alongside redevelopment spending and debt needs.
- Examine the assumptions behind $48.7 million of impairments and the status, expected cost and leasing progress of development and redevelopment projects.
- Track the Mexican tax appeals, remaining Hurricane Maria insurance recoveries, and the financial condition and lease exposure of major tenants.
- Consider the effect of ATM share issuance and preferred-stock redemptions on common-share dilution, capital costs and future distributions.