KIM

Business Context and Reporting Period

Company: Kimco Realty Corporation (Kimco)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Three and six months ended June 30, 2004

Business Overview: Kimco is a Real Estate Investment Trust (REIT) focused on acquiring, developing, and managing neighborhood and community shopping centers. The company operates through consolidated properties, unconsolidated joint ventures (including KROP, RioCan Venture, and KIR), and a development subsidiary (KDI).

Key Financial Metrics

Portfolio Occupancy: 92.4% as of June 30, 2004 (up from 89.1% in June 2003).

Debt to Total Market Capitalization: 26% as of June 30, 2004.

Material Changes vs. Prior Period

• Revenue Growth: Rental property revenues increased 15.6% ($36.5 million) for the six months ended June 30, 2004, driven by the acquisition of 10 properties in 2004 and 55 properties in 2003, alongside improved occupancy rates.
• Profitability: Net income increased 7.9% year-over-year. Diluted EPS rose to $1.21 from $1.09. The 2003 comparison was negatively impacted by a $7.8 million deduction for preferred stock redemption costs.
• Debt Reduction: Total debt decreased by approximately $316 million. The company fully paid down a $329 million unsecured bridge facility used for the Mid-Atlantic Realty Trust (MART) transaction and terminated the facility.
• Asset Dispositions: The company transferred 30 operating properties to joint ventures (KROP and others) for approximately $550 million, approximating net book values. Additionally, six operating properties were sold for $24.9 million, generating net gains of $6.1 million.
• Development Sales: The development subsidiary (KDI) sold 18 out-parcels and three projects for $96.7 million, generating $5.8 million in net gains.

Outlook, Risks, and Management Commentary

• Capital Strategy: Management intends to maintain a conservative capital structure with debt-to-total-market-capitalization at 50% or less. Current levels are well below this target at 26%.
• Liquidity: The company maintains a $500 million unsecured revolving credit facility with $100 million outstanding. It also has $609.7 million available under a shelf registration statement and $300 million under its medium-term note program.
• Dividends: The company expects to continue paying regular dividends from operating cash flows to maintain REIT qualification.
• Risks:
  • Tenant Concentration: The five largest tenants (Home Depot, TJX, Kmart, Kohl's, Royal Ahold) represent approximately 14.2% of annualized base rental revenues.
  • Market Risk: Approximately $292.2 million of debt is floating-rate. Foreign currency exposure exists in Canada (CAD $212.2 million) and Mexico (MXN $377.9 million), partially mitigated by hedging instruments.
  • Discontinued Operations: A $4.2 million loss was recorded on two properties reclassified as held-for-sale due to fair value adjustments.

Investor Verification Checklist

• Debt Maturities: Verify the schedule of debt maturities, specifically the $85 million of unsecured MTNs due August 2004 and the status of the terminated bridge facility.
• Joint Venture Performance: Review the specific contribution of unconsolidated joint ventures (RioCan, KROP, KIR) to the $25.9 million equity in income, as these represent significant non-consolidated assets.
• Discontinued Operations: Confirm the final disposition status and cash proceeds from the two properties reclassified as held-for-sale in March 2004.
• Preferred Stock: Note the outstanding Class F Preferred Stock (700,000 shares) with a $175 million aggregate liquidation preference and its impact on net income available to common shareholders.
• Development Pipeline: Assess the remaining funded commitments ($145.5 million) on KDI's 14 construction loans and the timeline for completion.