Kimco Realty Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results. Kimco is a REIT focused on owning and operating neighborhood and community shopping centers; at year-end it had interests in 754 shopping centers totaling 109.5 million square feet of GLA, within a broader portfolio of 1,287 property interests. The combined shopping-center portfolio was 95.6% leased.
Financial performance and key metrics
| Metric | 2014 | 2013 | Change / context |
|---|---|---|---|
| Total revenue | $993.9 million | $861.5 million | Up 15.4%; rental-property revenue rose 16.2% to $958.9 million. |
| Net income attributable to Kimco | $424.0 million | $236.3 million | Diluted EPS was $0.89 versus $0.43. |
| Net income available to common shareholders | $365.7 million | $178.0 million | Diluted EPS from continuing operations was $0.77 versus $0.53. |
| FFO per diluted share | $1.45 | $1.35 | Adjusted FFO per diluted share was $1.40 versus $1.33; both are non-GAAP measures. |
| Same-property NOI | Up 2.5% | — | Up 3.3% excluding foreign-currency effects. |
| Cash from operations | $629.3 million | $570.0 million | Up $59.3 million. |
| Cash from investing activities | $126.7 million | $72.2 million | Positive, with property-sale proceeds among the important drivers. |
| Cash used in financing activities | $717.5 million | $635.4 million | Included $427.9 million of dividends paid. |
| Cash and cash equivalents | $187.3 million | $148.8 million | At December 31. |
| Total debt | $4.62 billion | $4.22 billion | Consolidated debt; weighted-average maturity was 3.7 years. |
| Total assets / stockholders’ equity | $10.29 billion / $4.77 billion | $9.66 billion / $4.63 billion | At December 31. |
Material changes and unusual items
- Kimco acquired 63 shopping centers and five outparcels for an aggregate purchase price of about $1.44 billion, including $702.6 million of assumed debt. Acquisitions from ventures in which Kimco previously held interests generated $107.2 million of change-in-control gains.
- Kimco sold 90 operating properties, including 27 in Latin America, for aggregate proceeds of $833.5 million. Reported disposition gains were partly offset by impairment charges.
- Total gross impairment charges were $217.8 million, versus $190.2 million in 2013. The 2014 amount included property write-downs and foreign-currency translation losses associated with the substantial liquidation of investments in Mexico and Peru. These actions also affected reported earnings and joint-venture income.
- Revenue growth reflected acquisitions and higher occupancy. Combined portfolio occupancy increased from 94.6% to 95.6%; U.S. cash-basis leasing spreads were 8.8%.
- Interest expense declined to $203.8 million from $212.2 million, while depreciation and amortization increased to $258.1 million from $224.7 million.
Outlook, risks, and contingencies
- Management’s strategy is to concentrate on higher-quality U.S. shopping centers, recycle capital by disposing of non-strategic properties, reduce international and institutional-joint-venture exposure, redevelop existing centers, and deleverage over time.
- For 2015, Kimco anticipated acquiring approximately $1.1–$1.3 billion of operating properties, investing $200–$250 million in redevelopment and re-tenanting, and committing $50–$100 million to four U.S. ground-up development projects.
- Management expected to address 2015 consolidated debt maturities through operating cash flow, extensions, refinancing, and its revolving credit facility. The $1.75 billion facility was due in 2018, with extension options; $1.65 billion was available at year-end. In January 2015, Kimco replaced a $400 million term loan with a new $650 million facility. The filing also identifies substantial 2015 maturities at unconsolidated ventures and preferred-equity investments.
- On February 2, 2015, Kimco acquired the remaining 66.7% of the 39-property Kimstone portfolio for a gross purchase price of $1.4 billion, including assumed debt. The company anticipated a $130–$140 million change-in-control gain; this was a subsequent event, not a 2014 transaction.
- Kimco received an SEC subpoena in an investigation related to possible Foreign Corrupt Practices Act violations involving Walmart and was cooperating with the SEC and DOJ. The filing says the duration, scope, and outcome were not predictable.
- The IRS proposed a $40.9 million penalty tax and disallowance of a capital loss tied to a transaction involving Valad Property Ltd. Kimco disputed the position and was pursuing an appeals process; management stated it believed it would prevail.
- Key risks include tenant failures or bankruptcies, retail and e-commerce competition, interest-rate and refinancing exposure, property-sale and impairment risk, foreign-currency movements, joint-venture partner and investment risks, REIT qualification, and cybersecurity. A potential future liquidation of Chilean investments could require recognition of remaining currency-translation losses.
- Kimco reported compliance with its debt covenants and effective internal controls. The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- How much of earnings and FFO growth came from recurring property operations versus acquisitions, asset-sale gains, change-in-control gains, and impairment or currency-translation effects.
- Whether planned 2015 acquisitions, redevelopment spending, and deleveraging can be funded while managing consolidated and joint-venture debt maturities.
- The performance and financing implications of the February 2015 Kimstone acquisition, including its final purchase accounting and actual gain.
- Developments in the SEC/DOJ investigation and the IRS tax dispute, including potential financial or operational consequences.
- Whether occupancy, leasing spreads, and same-property NOI growth persist, and how much rent is exposed to near-term lease expirations.
- The sustainability of the common dividend: 2014 declared dividends were $0.915 per share, and the board retained discretion over future payments.