Kimco Realty Corporation — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual filing, not a standalone fourth-quarter report; selected unaudited Q4 results are also summarized below. Kimco is a REIT focused on owning and operating open-air shopping centers. At year-end it held interests in 525 shopping centers totaling 85.4 million square feet, plus 384 other property interests.
Financial and operating metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Total revenue | $1,170.8 million | $1,166.8 million |
| Rental property revenue | $1,152.4 million | $1,144.5 million |
| Operating income | $300.8 million | $343.6 million |
| Net income available to common shareholders | $332.6 million; $0.79 diluted EPS | $831.2 million; $2.00 diluted EPS |
| FFO / adjusted FFO | $555.7 million / $629.4 million; $1.32 / $1.50 per diluted share | $643.2 million / $603.4 million; $1.56 / $1.46 per diluted share |
| Cash flow from operating activities | $592.1 million | $493.7 million |
| Cash flow from investing activities | $165.4 million provided | $21.4 million provided |
| Cash flow from financing activities | $804.5 million used | $512.9 million used |
| Total debt at year-end | $5,066.4 million | $5,376.3 million |
| Cash and cash equivalents at year-end | $142.5 million | $189.5 million |
| Total assets / stockholders’ equity | $11,230.6 million / $5,256.1 million | $11,344.2 million / $5,046.3 million |
Consolidated operating portfolio occupancy was 95.2%; the broader combined shopping center portfolio was 95.4% leased. U.S. same-property NOI grew 2.8%. Average base rent per leased square foot in the U.S. consolidated portfolio rose from $14.36 to $14.99. The common dividend declared was $1.035 per share for 2016; cash dividends paid totaled $474.0 million.
Q4 snapshot: Rental property revenue was $292.9 million. Net income attributable to Kimco was $78.3 million, or $0.16 per common share. Q4 FFO was $163.0 million ($0.38 diluted per share) and adjusted FFO was $160.4 million ($0.38 diluted per share).
Material changes versus the prior comparable period
- Rental revenue increased 0.7%, while total revenue increased 0.3%. Acquisitions and portfolio growth were largely offset by revenue lost from dispositions.
- Net income available to common shareholders fell to $332.6 million from $831.2 million. The filing attributes the decline principally to substantially lower property and joint-venture disposition gains, higher property impairments, debt prepayment charges, and a deferred-tax valuation allowance.
- FFO declined 13.6% to $555.7 million, while adjusted FFO increased to $629.4 million from $603.4 million. Adjusted FFO excludes selected transactional and other items and is a non-GAAP measure.
- Operating cash flow increased $98.4 million. Cash used for financing increased, reflecting substantial debt repayments, dividends, and other financing activity.
- Debt declined about $310 million year over year. Kimco repaid $703 million of mortgage debt and repaid notes early, while issuing senior unsecured notes. Early extinguishment charges were $45.7 million.
- Kimco continued to exit international investments: South America was fully exited, Mexico was substantially exited, and essentially all Canadian operating properties had been sold. Canadian joint-venture disposition gains were a material contributor to reported results in both years, especially 2015.
Outlook, commentary, risks and unusual items
- Operating priorities: Management emphasized upgrading portfolio quality through selective acquisitions and dispositions, simplifying the joint-venture structure, exiting international markets, redeveloping existing centers, and pursuing selective U.S. development. It also stated an intention to deleverage over time.
- 2027? No—2017 investment plans: Management anticipated $300–$400 million of operating-property acquisitions, $250–$300 million of redevelopment and re-tenanting investment, and $150–$200 million of development spending. Estimated remaining costs to complete the six active development projects were $225–$275 million. These are capital plans, not earnings guidance.
- Liquidity and maturities: The year-end revolving facility had $1.725 billion available. In February 2017, Kimco replaced it with a $2.25 billion facility maturing in 2021, with extension options. The remaining $250 million term-loan balance was repaid in January 2017. Management expected to address 2017 consolidated debt maturities with operating cash flow, the revolver, extensions and/or refinancing.
- Impairments and tax: Kimco recorded $93.3 million of property impairment charges in 2016. The KRS merger into a wholly owned LLC led to a $63.5 million valuation allowance on deferred tax assets, materially affecting tax expense. Management estimates and fair-value assumptions affect reported impairments and asset values.
- Legal and tax contingencies: Kimco disclosed an SEC subpoena and parallel DOJ investigation connected with possible Foreign Corrupt Practices Act issues in the Wal-Mart investigation. The duration, scope and outcome were not predictable. Mexico’s tax authority assessed taxes, interest and penalties totaling approximately $61.6 million; Kimco appealed and stated it believed no amount was payable, but could not assure the outcome.
- Principal business risks: Retailer financial distress or bankruptcies, e-commerce and changing retail space needs, occupancy and rent pressure, real-estate market conditions, refinancing and interest-rate risk, development costs and delays, impairment risk, joint-venture partner dependence, REIT qualification and cybersecurity. The filing also notes environmental liability, covenant restrictions and the possibility of adverse effects from asset-sale prices below carrying value.
Most important facts for investors to verify
- Whether same-property NOI growth, occupancy and leasing spreads remain durable, and how much rent growth depends on renewals and re-tenanting.
- How much of reported earnings and FFO reflects recurring property operations versus disposition gains, impairments, debt prepayment costs and other adjustments.
- The status and financial exposure, if any, from the SEC/DOJ investigation and the appealed Mexican tax assessments.
- Actual funding and completion costs for the 2017 acquisition, redevelopment and development plans, and progress against the stated deleveraging objective.
- Debt maturities, refinancing terms, covenant headroom and liquidity following the new revolving credit facility and subsequent term-loan repayment.
- Future dividend coverage by operating cash flow, given $474.0 million of 2016 cash dividends and the REIT distribution requirement.