Kimco Realty Corporation — Q1 2018 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2018, compared with the same period in 2017; balance-sheet comparisons are with December 31, 2017. Kimco is a REIT focused on owning, managing, developing and operating open-air shopping centers. At quarter-end, it held interests in 475 shopping center properties totaling 80.7 million square feet, plus 331 other property interests, primarily through other real estate investments.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and where otherwise noted.
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Total revenue | $304.1 | $293.6 |
| Operating income | $103.9 | $92.6 |
| Operating margin | 34.2% | 31.6% |
| Net income | $144.0 | $78.2 |
| Net income available to common shareholders | $129.5 | $65.2 |
| Diluted GAAP earnings per common share | $0.30 | $0.15 |
| FFO per diluted share (non-GAAP) | $0.39 | $0.37 |
| Adjusted FFO per diluted share (non-GAAP) | $0.37 | $0.37 |
| Same-property NOI (non-GAAP) | $217.9 | $212.6 |
| Net cash from operating activities | $192.3 | $157.1 |
| Cash and cash equivalents at quarter-end | $218.3 | $238.5 at Dec. 31, 2017 |
| Notes payable, net | $4,598.0 | $4,596.1 at Dec. 31, 2017 |
| Mortgages payable, net | $499.4 | $882.8 at Dec. 31, 2017 |
| Total liabilities | $5,854.0 | $6,225.4 at Dec. 31, 2017 |
- Cash from investing activities was $79.4 million, including $184.6 million of property-sale proceeds; cash used in financing was $291.9 million, including $130.2 million of dividends, $165.0 million of debt principal payments and $24.3 million of common-share repurchases.
- Reported net income included $57.0 million of gains on property sales/change in control. The operating margin is calculated from reported operating income and revenue; reported earnings and margins therefore reflect unusual items.
- The $2.25 billion unsecured revolving credit facility, expiring March 2021 with extension options, had $7.7 million outstanding and $0.5 million appropriated for letters of credit. The facility may be increased to $2.75 billion. Kimco reported compliance with its debt covenants.
Material changes versus the prior comparable period
- Revenue increased $10.5 million, or 3.6%. Rental-property revenue rose $2.7 million, primarily reflecting acquisitions and consolidation, partly offset by dispositions. Reimbursement income increased $5.6 million, reflecting occupancy, recoveries and acquired properties.
- Common-shareholder net income nearly doubled, primarily because property-sale and control-change gains increased to $57.0 million from $1.7 million. The 2018 amount included $50.2 million of gains on 19 operating properties and one out-parcel, and a $6.8 million gain from deconsolidating a property. Q1 2017 included a separate $10.2 million gain on change in control.
- Operating income rose $11.3 million. Depreciation and amortization declined $10.7 million, partly offset by impairment charges increasing to $7.6 million from $1.6 million and interest expense increasing $3.5 million.
- Adjusted FFO per diluted share was unchanged at $0.37; same-property NOI increased 2.5%, to $217.9 million. Management attributed the NOI growth mainly to lease-up and rent commencements.
- Operating cash flow rose $35.2 million. Investing cash flow shifted from a $65.4 million use to a $79.4 million source, chiefly due to higher property-sale proceeds. Financing cash use increased, including debt repayment and share repurchases.
- Mortgage debt fell substantially, reflecting $206.0 million of debt deconsolidated with a property, repayment of $161.9 million of maturing mortgage debt, and a foreclosure. Notes payable were broadly unchanged.
Outlook, management commentary and risks
- Kimco anticipated 2018 spending of approximately $225–$300 million on redevelopment and re-tenanting, and $150–$225 million on development. Estimated remaining costs to complete four active development projects were $175–$250 million. Planned funding sources include dispositions, operating cash flow and available financing.
- Management anticipated spending up to $50 million on operating-property acquisitions in 2018 if suitable opportunities arise, with acquisitions intended to be funded from dispositions. No earnings or FFO guidance is provided in the supplied filing text.
- Management stated it expects cash on hand, operating cash flow, the credit facility and capital-market access to provide required capital, and believed viable financing and refinancing alternatives were available. Debt maturities for the remainder of 2018 included $10.9 million of consolidated debt, $193.5 million in unconsolidated joint ventures and $5.9 million in the Preferred Equity Program.
- The board declared a quarterly common dividend of $0.28 per share payable in July 2018. Management said the board reviews dividend policy quarterly; future dividends depend on operating performance, capital needs and other factors.
- Puerto Rico hurricane claims remained unresolved: Kimco estimated replacement costs of about $26.0 million, had collected $10.0 million in property-insurance proceeds and reported a $5.5 million receivable. It had collected $3.7 million in business-interruption claims and was still assessing further losses and claims. The company expected any replacement-cost recovery above the previously written-off damage amount to be recognized upon settlement and collection.
- Unusual items included $7.6 million of impairment charges, a foreclosure-related $4.3 million gain on debt forgiveness and $3.4 million of accrued-interest relief, and a $1.5 million loss on marketable securities. The filing says impairments partly reflect properties marketed for sale and management’s assessment of potential transactions.
- Management identified risks including adverse economic or property conditions, tenant bankruptcies or lease terminations, financing and refinancing availability, interest-rate changes, disposition values, development and joint-venture performance, operating-cost increases, impairments and the ability to sustain dividends. No material change to previously disclosed risk factors was reported. The company said it was not involved in litigation expected to have a material adverse effect.
- Kimco adopted new revenue and real-estate disposal accounting guidance in 2018. Adoption did not materially change revenue recognition; the disposal guidance produced an $8.1 million cumulative retained-earnings adjustment. The company was evaluating the impact of the new lease standard, effective January 1, 2019.
Important facts for investors to verify
- How much of the sharp increase in GAAP earnings came from property sales, control changes and foreclosure-related items, versus recurring property operations; compare with adjusted FFO and same-property NOI.
- The status, timing and collectability of Puerto Rico property and business-interruption insurance claims, and whether further losses or gains will be recorded.
- Near-term refinancing and repayment plans for the disclosed 2018 maturities, particularly joint-venture debt, and the effect of interest rates on borrowing costs.
- Execution, funding and expected returns for the redevelopment and development pipeline, including remaining project costs and disposition proceeds.
- Tenant retention and re-leasing exposure: the filing lists $91.7 million of annual base rent expiring in 2019 and $95.9 million in 2020, assuming no renewal options are exercised.
- Common and preferred dividend sustainability, considering cash requirements, capital commitments, debt service and the company’s REIT distribution obligations.