Kimco Realty Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited consolidated results. Kimco owns and operates neighborhood and community shopping centers. At quarter-end, it reported interests in 835 shopping centers totaling 122.0 million square feet, plus 570 other property interests.
Financial performance and position
Unless otherwise noted, amounts are in millions of dollars. Comparisons are with Q1 2013.
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $246.9 | $227.0 |
| Operating income | $78.6 | $74.3 |
| Operating margin | 31.8% | 32.7% |
| Net income attributable to Kimco | $87.0 | $67.8 |
| Net income available to common shareholders | $72.4 | $53.2 |
| Diluted EPS | $0.18 | $0.13 |
| FFO per diluted share | $0.34 | $0.33 |
| Adjusted FFO per diluted share | $0.34 | $0.32 |
| Same-property NOI | $238.0 | $234.6 |
| Cash from operating activities | $181.5 | $149.9 |
| Cash and cash equivalents at period-end | $268.9 | $148.8 at Dec. 31, 2013 |
| Notes and mortgages payable | $4,380.3 | $4,221.4 at Dec. 31, 2013 |
| Total assets | $9,833.7 | $9,663.6 at Dec. 31, 2013 |
- Rental property revenue rose 8.8%. Management attributed growth principally to acquisitions, higher portfolio occupancy and completed development and redevelopment projects. Consolidated shopping-center occupancy was 94.1%, versus 93.2% a year earlier.
- Same-property NOI increased 1.5%; management cited lease-up and rent commencements, partly offset by foreign-exchange effects.
- Operating expenses increased to $168.3 million from $152.7 million, including higher taxes, operating and maintenance costs, G&A and impairment charges. Operating margin therefore declined despite higher revenue.
- Interest expense declined to $50.6 million from $53.5 million, primarily due to lower borrowing rates. Net income also benefited from increased joint-venture gains and property dispositions; it is not solely a measure of recurring property operations.
- Investing cash outflow was $5.8 million, compared with $161.6 million in Q1 2013; financing cash outflow was $55.5 million, compared with $36.7 million of inflow. Cash dividends paid were $106.8 million.
- Quarter-end revolver borrowings were $326.4 million; management reported $1.4 billion available. The $1.75 billion revolving facility matures in 2018, with extension options, and may be increased to $2.25 billion. Reported leverage and coverage covenant measures were within limits.
Material changes, outlook and notable items
- Kimco acquired operating properties for an aggregate purchase price of $221.5 million and disposed of nine operating properties for $98.5 million. The disposals generated $9.3 million of gains and $2.2 million of impairment charges before noncontrolling interests.
- Joint-venture income rose to $53.3 million from $24.1 million, primarily due to gains on sales of properties and interests, including a $28.4 million gain on the sale of Kimco’s noncontrolling interests in six Mexican properties. A $3.7 million gain from a change in control of interests was also recognized, versus $23.2 million in Q1 2013.
- Management’s 2014 plans called for approximately $500 million–$1.0 billion of operating-property acquisitions and $150 million–$200 million of redevelopment and re-tenanting investment. These are activity targets, not earnings guidance. The filing provides no clear full-year earnings or FFO forecast.
- After quarter-end, Kimco issued $500 million of seven-year unsecured notes at 3.20%, with net proceeds intended for general corporate purposes, including reducing revolver borrowings and pre-funding maturities. In April, it also agreed to acquire the remaining interest in Kimco Income Fund for a gross purchase price of $408 million, including assumed debt.
- Management stated that its strategy is to upgrade the portfolio, simplify the business by exiting Latin America and reducing joint-venture investments, and pursue redevelopment. It warned that asset sales below carrying value could cause impairments.
- Foreign-currency translation losses in accumulated other comprehensive income included $119.0 million related to Latin America. Substantial liquidation of those investments could require the accumulated losses to be recognized as an earnings charge. Foreign exchange and interest-rate movements are material exposures; a 1% increase in short-term rates was estimated to raise quarterly interest expense by $2.2 million.
- Other risks include tenant defaults or lease terminations, adverse local real-estate and economic conditions, financing and refinancing availability, property operating-cost increases, valuation of investments and joint ventures, and regulatory changes. The company was cooperating with SEC and DOJ investigations relating to possible Foreign Corrupt Practices Act violations; it stated that it could not predict their scope, duration or outcome. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of the increase in net income and FFO came from recurring operations versus property and joint-venture sales, impairments, and other transactional items.
- Whether the acquisition and redevelopment spending targets are achieved and funded without weakening leverage or liquidity.
- The timing and accounting impact of Latin American exits, including potential release of accumulated currency-translation losses into earnings.
- Upcoming consolidated and joint-venture debt maturities, refinancing terms, and compliance with credit-facility and note covenants.
- Progress and any material developments in the SEC and DOJ investigations.