Business context and reporting period
Kimco Realty Corporation filed this unaudited Form 10-Q for the three months ended March 31, 2015. It owns and operates neighborhood and community shopping centers; at quarter-end it reported interests in 745 shopping center properties and 494 other property interests across the U.S. and several international markets. Management’s strategy emphasizes upgrading the U.S. portfolio, reducing joint-venture complexity and Latin American exposure, and investing in redevelopment.
Financial performance and condition
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Total revenue | $283.5 million | $228.2 million; up 24.2% |
| Operating income | $94.0 million | $74.7 million; operating margin approximately 33.1% vs. 32.7% |
| Net income attributable to Kimco | $310.3 million; diluted EPS $0.71 | $87.0 million; diluted EPS $0.18 |
| FFO, diluted | $0.37 per share | $0.34 per share |
| FFO as adjusted, diluted | $0.36 per share; $147.2 million | $0.34 per share; $140.8 million |
| Operating cash flow | $216.5 million | $181.5 million |
| Cash and cash equivalents at quarter-end | $221.0 million | $187.3 million at December 31, 2014 |
| Notes and mortgages payable | $5.72 billion | $4.60 billion at December 31, 2014 |
- Rental property revenue increased 25.7%, reflecting acquisitions and higher occupancy (95.7% versus 94.1% a year earlier), as well as leasing and redevelopment activity. Same-property NOI increased 3.0% on a combined basis and 3.2% for U.S. properties.
- Reported earnings growth was substantially affected by non-recurring and transactional gains: a $139.8 million gain on gaining control of previously held joint-venture interests, $32.1 million from property sales, and increased joint-venture income. Adjusted FFO grew more modestly, about 4.5%.
- Investing cash outflow was $660.9 million, chiefly for property acquisitions and a $190.3 million Safeway-related investment. Financing cash inflow was $478.0 million, including debt issuance and $105.5 million of net noncontrolling-interest contributions.
- Quarter-end revolving-credit-facility borrowings were $140 million, with approximately $1.6 billion available. The company reported compliance with debt covenants; its credit-facility total-indebtedness-to-gross-asset-value ratio was 44% against a 60% maximum.
Material changes, outlook and risks
- Kimco acquired the remaining interest in the 39-property Kimstone portfolio for approximately $1.39 billion, including assumed debt, and acquired other properties. It also sold 39 operating properties and three land parcels for $96.5 million in aggregate, recognizing a $32.1 million gain.
- Management expected 2015 operating-property acquisitions of approximately $1.1–$1.3 billion, redevelopment and re-tenanting commitments of $200–$250 million, and ground-up development commitments of $50–$100 million. These are spending expectations, not earnings guidance.
- Management cited access to financing and refinancing alternatives, while noting risks from economic and property-market conditions, tenant financial health, financing availability and interest rates, foreign currency, acquisitions, joint ventures, asset valuations, operating costs, and potential impairments. A 1% increase in short-term rates was estimated to raise quarterly interest expense by $2.7 million at reported variable-rate debt balances.
- Remaining 2015 maturities were stated as $433.7 million of consolidated debt, $249.3 million of unconsolidated joint-venture debt, and $55.7 million tied to the Preferred Equity Program, assuming available extensions. The company anticipated addressing these through operating cash flow, refinancing, credit-facility capacity, and partner contributions as applicable.
- The company declared a $0.24 per common share quarterly dividend for payment in April and declared the same amount for July payment. The board reviews dividend policy quarterly.
- Kimco continued cooperating with SEC and DOJ investigations concerning possible Foreign Corrupt Practices Act violations related to Wal-Mart. The filing says the investigations’ duration, scope, and outcome could not be predicted; management reported no material changes to the previously disclosed risk factors.
Important facts for investors to verify
- How much of earnings growth came from recurring property operations versus the Kimstone control-change gain, property-sale gains, and joint-venture transactions; compare GAAP results with FFO and adjusted FFO.
- Whether the large acquisition program delivers expected occupancy, rent growth, and returns, and how assumed mortgage debt affects leverage and refinancing needs.
- Progress on the stated capital-recycling, redevelopment, development, and Latin American exit plans, including any further impairment charges or foreign-currency translation losses.
- Debt maturities, available revolver capacity, covenant headroom, and the sustainability of dividends alongside acquisition and redevelopment spending.
- Developments in the SEC and DOJ investigations and any resulting financial, operational, or reputational impact.