Kimco Realty Corporation — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Unaudited results; dollar figures are in millions unless stated otherwise. Kimco owns, manages and develops open-air shopping centers and operates as a REIT. At quarter-end, it reported interests in 450 shopping center properties totaling 77.6 million square feet.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $283.1 | $294.8 | $880.6 | $885.6 |
| Operating income | $102.2 | $99.8 | $290.5 | $258.4 |
| Net income attributable to company common shareholders | $85.6 | $102.0 | $366.0 | $299.0 |
| Diluted GAAP EPS | $0.19 | $0.24 | $0.85 | $0.70 |
| FFO per diluted common share | $0.34 | $0.39 | $1.12 | $1.17 |
| Adjusted FFO per diluted common share | $0.36 | $0.38 | $1.10 | $1.13 |
| Same-property NOI | $212.7 | $207.9 | $630.3 | $612.2 |
- Same-property NOI grew 2.3% for Q3 and 3.0% for the first nine months, primarily from leasing, rent commencements and portfolio lease-up.
- Operating cash flow for the first nine months was $516.3, versus $493.8 a year earlier. Investing activities provided $230.8, mainly reflecting property-sale proceeds; financing activities used $839.2. Cash declined $92.1 from year-end 2017 to $146.4.
- At September 30, notes payable were $4,409.5 and mortgages/construction loans were $478.0, for total reported debt of approximately $4,887.5. This compares with approximately $5,478.9 at December 31, 2017. The company reported total liabilities of $5,633.4.
- The unsecured revolving credit facility had $2.25 billion of commitments, $130.0 outstanding and $0.5 appropriated for letters of credit. It matures in March 2021, with two six-month extension options; Kimco said it was in compliance with its covenants.
- Total assets were $11,109.5 and stockholders’ equity was $5,378.3. The common dividend declared for Q3 was $0.28 per share; $397.2 of dividends were paid in the first nine months.
Changes versus the comparable period
- Q3 revenue fell $11.8 (4.0%) and common-shareholder net income fell $16.3 (16.0%); diluted EPS declined by $0.05. Nine-month revenue was down $5.0 (0.6%), while common-shareholder net income rose $67.0 (22.4%).
- Nine-month rental-property revenue declined $11.2, mainly because of property sales, partly offset by redevelopment completions, tenant buyouts, portfolio growth and 2017 acquisitions/consolidations.
- Nine-month gain on sales of operating properties/change in control rose to $180.5 from $62.1. Kimco sold or deconsolidated 45 operating properties and four out-parcels, with aggregate sales price/gross fair value of $973.5, versus 15 properties and eight out-parcels totaling $230.2 in 2017. Dispositions also contributed to lower rental revenue.
- Nine-month FFO per diluted share declined from $1.17 to $1.12 and adjusted FFO per diluted share from $1.13 to $1.10, despite higher GAAP net income. The increase in reported net income included substantial property-sale gains.
- Kimco repaid $300.0 of 6.875% senior notes ahead of maturity, recording $12.8 of early-extinguishment charges. It also repaid $203.6 of maturing mortgage debt and deconsolidated $206.0 of non-recourse mortgage debt after relinquishing control of a property.
Outlook, commentary and risks
- The filing provides no specific earnings, FFO or revenue guidance. Management expects cash on hand, operating cash flow, its revolving facility, equity and debt markets, and other financing alternatives to fund needs.
- Management estimated remaining costs to complete active development projects at $150–$225, with $45–$70 of development spending expected in the remainder of 2018. Remaining-2018 redevelopment and re-tenanting commitments were estimated at $60–$85. Funding sources cited include dispositions, operating cash flow, construction financing and the credit facility.
- Kimco had three active development projects and two held for future development. It said it did not anticipate operating-property acquisitions for the remainder of 2018, absent suitable opportunities.
- The company identified adverse economic or local real-estate conditions, tenant failures or bankruptcies, financing and refinancing availability, interest-rate and currency changes, operating-cost increases, property valuation and impairment, joint-venture and preferred-equity risks, and dividend sustainability among factors that could affect results. No material risk-factor changes from the 2017 Form 10-K were reported.
- Nine-month impairment charges were $33.9, including $17.6 from revised hold-period assumptions for properties marketed for sale and $16.3 related to property sales. Fair-value estimates used third-party offers or discounted cash flows and included unobservable inputs.
- For Hurricane Maria impacts in Puerto Rico, Kimco had collected $17.5 of property insurance proceeds by quarter-end and recognized $1.5 of excess proceeds as income; it had also collected $4.4 of business-interruption claims. Further business-interruption claims were still being assessed. Kimco reported no significant property damage from Hurricanes Florence or Michael.
- Management stated that it was not aware of litigation expected to have a material adverse effect. The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much of earnings and cash generation is recurring: compare GAAP results with FFO and adjusted FFO, and separate property-sale gains and other transactional items.
- Whether same-property NOI growth, leasing and rent commencements persist, and how upcoming lease expirations affect occupancy and rental income.
- Disposition pace and its effect on portfolio quality, recurring rental revenue, liquidity and future impairment charges.
- Funding and completion risk for the $150–$225 of remaining development costs and the planned redevelopment commitments, including interest-rate exposure and credit-facility availability.
- Progress in collecting remaining insurance proceeds and any changes in Puerto Rico property operations or recovery costs.
- Future dividend coverage, preferred-stock costs and the implications of ongoing common-stock repurchases; the $300 repurchase authorization had $224.9 remaining at September 30.