Kimco Realty Corporation — Q2 2018 Form 10-Q
Business and period. Kimco is a REIT focused on owning, operating, redeveloping and developing open-air shopping centers, generally grocery-anchored. This unaudited report covers the quarter and six months ended June 30, 2018. At quarter-end, the company had interests in 460 shopping center properties totaling 78.7 million square feet of GLA.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $293.4 million | $297.2 million | $597.5 million | $590.8 million |
| Net income attributable to common shareholders | $150.9 million | $131.9 million | $280.4 million | $197.0 million |
| Diluted earnings per share | $0.36 | $0.31 | $0.66 | $0.46 |
| FFO per diluted share | $0.39 | $0.41 | $0.78 | $0.78 |
| FFO per diluted share, as adjusted | $0.37 | $0.38 | $0.74 | $0.75 |
FFO and adjusted FFO are non-GAAP measures. Same-property NOI, another non-GAAP operating measure, increased 3.9% for Q2 and 3.2% for the six-month period. Management attributed growth primarily to lease-up and rent commencements.
GAAP net income growth was materially affected by property-sale gains: gains on sale of operating properties/change in control were $95.2 million in Q2 and $152.2 million for the six months, versus $19.9 million and $21.6 million, respectively, in 2017. Accordingly, common-shareholder net income rose while quarterly FFO declined and six-month FFO was essentially flat. Six-month interest expense increased $3.8 million year over year, reflecting higher rates and borrowing levels, partly offset by debt repayments. General and administrative expense rose $4.2 million for the six months, mainly due to severance and personnel costs.
Cash flow and liquidity. Operating cash flow was $352.0 million for the six months, up from $300.0 million. Investing activities provided $228.2 million, principally reflecting property-sale proceeds; financing activities used $513.1 million, including $264.7 million of dividends, $182.1 million of debt principal payments and $75.1 million of common-stock repurchases. Cash and equivalents were $305.6 million at June 30, 2018, compared with $238.5 million at year-end 2017.
At June 30, total assets were $11.29 billion, total liabilities $5.79 billion and total equity $5.49 billion. Notes payable were $4.59 billion and mortgages payable $477.5 million, or approximately $5.07 billion combined. Mortgage debt decreased substantially, including $206.0 million deconsolidated with a property and $176.0 million of maturing debt repaid. The $2.25 billion unsecured revolving credit facility had no borrowings outstanding (and $0.5 million reserved for letters of credit); it expires in March 2021, with extension options. The company reported compliance with debt covenants and stated that it seeks to maintain investment-grade ratings.
Changes, outlook and notable items
- The company sold or deconsolidated 35 operating properties and sold two out-parcels during the first half; aggregate sales price was $833.1 million. Cash proceeds from operating-property sales were $472.8 million. The company also recognized $30.5 million of impairment charges, including $20.6 million related to properties being marketed for sale.
- Capital recycling and portfolio improvement remain central strategies. Four development projects were active and two were held for future development. Management estimated remaining 2018 commitments of $125–$200 million for redevelopment and re-tenanting, and $100–$150 million for development; estimated total remaining cost to complete the four active developments was $125–$200 million. Up to $25 million of acquisitions was contemplated for the rest of 2018, if suitable opportunities arose. These are spending estimates, not earnings guidance.
- In February, the board authorized a two-year common-share repurchase program of up to $300 million. The company repurchased 5.1 million shares for $75.1 million during the first half; $224.9 million remained available at quarter-end. The Class M preferred-share over-allotment generated $33.4 million in net proceeds before expenses.
- After quarter-end, Kimco gave notice to redeem all $300 million of 6.875% senior notes due October 2019, with redemption scheduled for August 23, 2018. The redemption price was to be determined August 20. The board also declared a $0.28-per-common-share quarterly dividend for October payment.
- A foreclosed encumbered property resulted in $4.3 million of debt-forgiveness gain and $3.4 million of accrued-interest relief. Hurricane Maria damage in Puerto Rico remained subject to insurance claims: the company estimated replacement costs at about $30.9 million, had collected $10.5 million in property proceeds and reported a $5.5 million remaining receivable; business-interruption claims were still being assessed.
- Risks identified include economic and local real-estate conditions, tenant credit and lease terminations, financing and interest rates, ability to sell assets, redevelopment and investment valuations, operating costs, and the company’s ability to maintain dividends. Management reported no material change in previously disclosed risk factors and no litigation expected to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings growth reflects property-sale gains and other nonrecurring items, versus recurring property operations and FFO.
- Execution, costs and leasing progress on redevelopment and development projects, including the stated 2018 spending ranges.
- Debt maturities, refinancing terms and the completed cost and funding of the announced $300 million senior-note redemption.
- Occupancy, lease renewals and tenant credit exposure; the filing identifies lease expirations and major tenants but does not provide a clear portfolio occupancy figure in the supplied text.
- Collection and final settlement of Puerto Rico property and business-interruption insurance claims.
- Effects of the share-repurchase program and preferred dividends on capital available for investment and common distributions.