Business Context and Reporting Period
Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: Kimco is a major owner and operator of neighborhood and community shopping centers. As of September 30, 2008, the Company held interests in 1,945 properties totaling approximately 182.0 million square feet of gross leasable area (GLA) across 45 U.S. 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) | Three Months Ended Sep 30, 2008 |
Nine Months Ended Sep 30, 2008 |
Nine Months Ended Sep 30, 2007 |
|---|---|---|---|
| Revenues from Rental Property | $190,503 | $563,381 | $497,424 |
| Net Income | $108,584 | $301,425 | $359,791 |
| Net Income Available to Common Shareholders | $96,762 | $265,959 | $351,063 |
| Diluted EPS (Net Income) | $0.37 | $1.03 | $1.37 |
| Net Cash Flow from Operating Activities | N/A | $479,303 | $560,327 |
| Net Cash Flow Used for Investing Activities | N/A | $(642,324) | $(1,361,443) |
| Net Cash Flow from Financing Activities | N/A | $199,613 | $501,490 |
| Total Assets (Sep 30, 2008) | $9,756,662 | ||
| Total Liabilities (Sep 30, 2008) | $4,968,666 | ||
| Cash and Cash Equivalents (Sep 30, 2008) | $124,091 |
Material Changes vs. Prior Period
- Revenue Growth: Rental property revenues increased 13.3% for the nine months ended September 30, 2008, compared to the prior year, driven primarily by property acquisitions and the completion of development projects.
- Net Income Decline: Net income decreased 16.2% year-over-year for the nine-month period ($301.4M vs. $359.8M). This decline was primarily due to a reduction in the benefit from Net Operating Loss (NOL) valuation allowances in 2007 and lower income from discontinued operations due to fewer property dispositions in 2008.
- Joint Venture Income: Equity in income of joint ventures increased significantly ($26.3M increase for the nine months), largely attributable to a $63.4M gain recognized from the Albertson's joint venture resulting from the sale of 121 properties.
- Investment Impairments: The Company recognized $9.7 million in other-than-temporary impairment losses on marketable securities during the nine months ended September 30, 2008. Additionally, there was an unrealized loss of approximately $49.2 million on marketable equity securities, including a $33.4M unrealized loss on Valad equity securities.
- Acquisitions and Dispositions: The Company acquired 10 operating properties for approximately $215.9 million and disposed of four operating properties for approximately $30.5 million during the period.
Guidance, Outlook, Risks, and Unusual Items
- Capital Markets: Management notes that capital and credit markets have become increasingly volatile and constrained. While the Company anticipates adequate capital from operating cash flows and credit facilities, it acknowledges that access to funds may be limited and costs may increase.
- Debt Maturities: As of September 30, 2008, the Company had $49.4 million of consolidated debt maturing in the remainder of 2008 and $478.6 million maturing in 2009. Management believes it has viable refinancing alternatives.
- Dividends: The Board declared a quarterly dividend of $0.44 per common share, payable October 15, 2008. The Company intends to maintain a conservative dividend payout ratio.
- Unusual Items:
- Albertson's Joint Venture: Significant income recognized from the sale of properties within the Albertson's joint venture.
- Marketable Securities: Significant unrealized losses on Australian-denominated convertible notes and equity securities (Valad), though management does not currently view these as other-than-temporary.
- Stock Offering: In September 2008, the Company completed a public offering of 11.5 million shares, raising net proceeds of approximately $409.4 million, which were used to repay revolving credit facility borrowings.
- Risks: Risks include general economic downturns, tenant bankruptcies, store closings, financing risks, and interest rate volatility. The retail sector has been negatively affected by recent economic conditions.
Investor Verification Checklist
- Debt Refinancing: Verify the Company's ability to refinance $49.4M in 2008 and $478.6M in 2009 debt given the constrained credit market environment.
- Marketable Securities Valuation: Monitor the $49.2M unrealized loss on marketable securities, specifically the Valad investment, for potential future write-downs if market conditions deteriorate further.
- Joint Venture Concentration: Assess the sustainability of income from joint ventures, particularly the Albertson's venture, which contributed significantly to the current period's earnings.
- Liquidity Position: Confirm that operating cash flows and the $1.5 billion U.S. revolving credit facility (with $400M outstanding) are sufficient to cover debt service and dividend obligations.
- Tenant Concentration: Review the impact of the top five tenants (Home Depot, TJX, Sears, Kohl's, Wal-Mart), which represent approximately 12.5% of annualized base rental revenues.