Business Context and Reporting Period
Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2008
Business Overview: One of the nation's largest publicly-traded owners and operators of neighborhood and community shopping centers. As of June 30, 2008, the Company held interests in 1,928 properties totaling approximately 180.0 million square feet of gross leasable area (GLA) across 45 states, Puerto Rico, Canada, Mexico, Chile, Brazil, and Peru. The Company operates as a Real Estate Investment Trust (REIT).
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2008 |
Six Months Ended June 30, 2007 |
|---|---|---|
| Revenues from Rental Property | $373,938 | $326,312 |
| Net Income | $192,841 | $281,787 |
| Net Income Available to Common Shareholders | $169,197 | $275,968 |
| Diluted EPS (Net Income) | $0.66 | $1.07 |
| Net Cash Flow from Operating Activities | $271,301 | $392,804 |
| Net Cash Flow Used for Investing Activities | $(507,752) | $(1,024,448) |
| Net Cash Flow from Financing Activities | $272,135 | $396,110 |
| Total Assets | $9,594,246 | $9,097,816 |
| Total Debt (Notes, Mortgages, Construction Loans) | $4,739,773 | $4,216,415 |
| Cash and Cash Equivalents | $123,183 | $87,499 |
Material Changes vs. Prior Period
- Revenue Growth: Rental property revenues increased 14.6% ($47.6 million) for the six months ended June 30, 2008, compared to the prior year. This was driven by acquisitions in 2007 and 2008 and the completion of development projects, partially offset by property dispositions.
- Net Income Decline: Net income decreased 31.6% to $192.8 million from $281.8 million. The decline is primarily attributed to:
- A decrease of approximately $51.9 million in earnings related to the monetization of the Albertson's joint venture investment realized in 2007.
- Lower equity in income of joint ventures due to reduced gains on sales and profit participation in 2008 compared to 2007.
- Reduced income from discontinued operations due to fewer property dispositions.
- Operating Expenses: Rental property expenses increased 19.7% ($17.2 million), primarily due to property acquisitions. Real estate taxes increased 22.7% and operating/maintenance costs increased 18.5%.
- Investment Income: Interest, dividends, and other investment income increased significantly ($23.2 million) due to realized gains on the sale of marketable securities and increased interest income from a larger portfolio of marketable securities.
- Debt Levels: Total debt increased by approximately $523 million, reflecting higher outstanding levels of debt to fund acquisitions and development.
Guidance, Outlook, and Risks
- Capital Strategy: Management intends to maintain a conservative capital structure with debt to total market capitalization at 50% or less (currently 33% as of June 30, 2008). The Company plans to fund capital requirements through operating cash flows, credit facilities, and public debt/equity markets.
- Development Outlook: The Company anticipates capital commitments of approximately $300 million to $350 million for ground-up development projects in 2008 and $90 million to $110 million for redevelopment projects.
- Dividends: The Company expects to continue paying regular dividends to maintain REIT qualification. Cash dividends paid for the six months ended June 30, 2008, were $226.6 million.
- Risks and Contingencies:
- Market Risk: Exposure to interest rate fluctuations and foreign currency exchange rates (investments in Canada, Mexico, Chile, Peru, Brazil, and Australia). The Company uses interest rate swaps and local currency debt to mitigate these risks.
- Valuation of Securities: Marketable securities held at June 30, 2008, included an aggregate unrealized loss of $29.9 million. Management does not believe these declines are other-than-temporary but continues to assess them.
- Joint Venture Exposure: Maximum exposure to losses in real estate joint ventures is limited to the carrying value of approximately $1.2 billion.
- Unusual Items: The 2007 period included a significant extraordinary gain of $50.6 million from the Albertson's joint venture purchase price allocation, which is not present in the 2008 period.
Investor Verification Checklist
- Albertson's Impact: Verify the extent to which the 2007 earnings were inflated by the one-time Albertson's joint venture monetization ($51.9 million impact) to normalize year-over-year comparisons.
- Marketable Securities: Review the composition of the $385.8 million marketable securities portfolio and the $29.9 million unrealized loss to assess potential future write-downs.
- Debt Maturities: Examine the debt maturity schedule, noting $650 million outstanding on the U.S. Credit Facility and the refinancing of the Mexican peso facility.
- Development Pipeline: Assess the pre-leasing status and funding requirements for the 55 ground-up development projects currently in progress.
- Foreign Currency Exposure: Evaluate the hedging strategies for significant foreign investments (CAD $476 million, MXP 8.1 billion, AUD 217.4 million).