Kimco Realty Corporation — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010. The filing is unaudited. Kimco owns and operates neighborhood and community shopping centers; at quarter-end it held interests in 1,471 retail properties totaling 151 million square feet across the U.S. and several international markets.
Key financial results
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Rental property revenue | $227.0 million | $193.6 million | +17.3% |
| Net income attributable to Kimco | $50.8 million | $38.4 million | +32.3% |
| Net income available to common shareholders | $39.0 million | $26.6 million | +46.7% |
| Diluted earnings per common share | $0.10 | $0.10 | Unchanged |
| Operating cash flow | $143.2 million | $114.9 million | +$28.3 million |
| Cash and cash equivalents at period-end | $137.4 million | $150.0 million | Down from prior-year period |
Rental property expenses were $67.9 million, up 15.7%. Rental revenue less these expenses was approximately $159.1 million, or 70.1% of rental revenue, compared with approximately $135.0 million, or 69.7%, in Q1 2009; this is a simple calculation from the reported line items, not a company-defined margin. Interest expense rose $12.2 million to $58.7 million.
Net cash used in investing was $31.5 million, versus $79.8 million in Q1 2009; net cash used in financing was $96.3 million, versus $21.3 million. Cash increased $15.4 million during the quarter. Dividends paid were $76.7 million, compared with $131.1 million a year earlier. The common dividend was $0.16 per share for the quarter.
Balance sheet, debt and liquidity
- Total assets were $10.26 billion and total equity was $5.11 billion at March 31, 2010.
- Notes payable were $3.05 billion, mortgages payable $1.45 billion, and construction loans $17.5 million; these consolidated debt balances totaled approximately $4.52 billion, up from approximately $4.43 billion at December 31, 2009.
- Marketable securities were $214.8 million. Kimco reported approximately $1.6 billion of availability under its U.S. revolving credit facility and approximately $1.7 billion of aggregate bank commitments.
- Management reported compliance with its debt covenants. Key U.S. facility measures included total indebtedness to gross asset value of 49% against a limit below 60%, and fixed-charge coverage of 2.08x against a minimum of 1.50x.
- Consolidated debt maturities for the remainder of 2010 were $262.3 million. Management expected to address them using operating cash flow, credit facilities and refinancing. It also cited $594.0 million of 2010 unconsolidated joint-venture debt maturities and $251.0 million tied to properties in the preferred-equity program; these are not consolidated debt balances.
Changes and notable items
- Rental revenue rose primarily because acquisitions in 2010 and 2009 contributed $30.3 million; higher portfolio occupancy and completed projects added revenue. Shopping-center occupancy was 92.2%, versus 92.0% a year earlier.
- Net income growth reflected acquired properties and higher joint-venture income, partly offset by approximately $4.4 million of impairment charges. Joint-venture income increased $11.4 million, including gains and other items; it included Kimco’s share of impairment losses.
- Basic weighted-average shares increased to 405.6 million from 271.1 million, while diluted EPS remained $0.10. The filing attributes the earnings increase primarily to acquisitions and joint-venture results.
- Kimco acquired remaining or additional interests in properties in Tucson and Los Angeles, bringing one Los Angeles joint venture under its control. It also sold an operating property and three undeveloped land parcels.
- The company recorded $3.8 million of impairment on a preferred-equity investment and $0.5 million on a marketable security. It reported an unrealized loss of $16.4 million on Valad convertible notes, but stated it expected to recover their full cost basis and did not consider the decline other-than-temporary.
Outlook, risks and contingencies
- Kimco gave no specific earnings or revenue guidance. It expected 2010 capital commitments of approximately $30–$40 million for redevelopment and re-tenanting and $50–$60 million for development projects.
- Management’s strategy was to deleverage over time, focus on neighborhood and community shopping centers, and gradually sell certain non-strategic investments, subject to market conditions. It stated that reduced real-estate transaction activity could constrain near-term growth.
- Management said credit markets had stabilized and refinancing alternatives appeared viable, while emphasizing that it was monitoring the possibility of renewed deterioration. Risks include economic weakness, tenant bankruptcies or store closures, refinancing availability and cost, interest and foreign-exchange movements, and investment and property impairments.
- A Canadian tax assessment dispute required a CAD $66.0 million letter of credit (about US$65.0 million). Kimco said it believed it had a valid defense. Management reported no litigation expected to have a material adverse effect on the portfolio.
- In April 2010, after quarter-end, Kimco issued CAD $150 million of unsecured notes at 5.99%, due in 2018, to repay CAD $150 million of notes maturing that month. The board declared a $0.16-per-share dividend payable July 15, 2010.
- The company said disclosure controls were effective and that there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether acquisition-related revenue growth and 92.2% occupancy are sustained, and how same-property performance compares; the filing does not provide a same-property revenue figure in the supplied text.
- How much of reported earnings growth is recurring versus attributable to joint-venture gains, distributions, acquisitions and impairments; diluted EPS was unchanged year over year.
- Refinancing and repayment plans for consolidated, joint-venture and preferred-equity-related 2010 maturities, distinguishing consolidated obligations from off-balance-sheet investments.
- Performance and recoverability of preferred-equity, joint-venture and marketable-security investments, including the Valad notes and any further impairment exposure.
- Outcome of the Canadian tax dispute and the effect of its letter of credit on available borrowing capacity.