KIM

Business Context and Reporting Period

Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2003
Business Overview: Kimco is a Real Estate Investment Trust (REIT) engaged in the ownership, acquisition, development, and redevelopment of neighborhood and community shopping centers. The company also engages in mortgage financing and joint venture investments.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Rental revenues increased 10.7% ($12.0 million) driven by acquisitions (6 properties in Q1 2003, 13 in 2002) and development completions. This was partially offset by a $4.8 million revenue decrease due to Kmart and Ames bankruptcies and lease rejections.
• Expense Increases: Rental property expenses rose 13.0% ($6.2 million), primarily due to higher operating/maintenance costs (snow removal) and depreciation from new acquisitions.
• Joint Venture Income: Equity in income from real estate joint ventures increased 43% ($2.8 million) to $9.3 million, driven by contributions from the Kimco Income REIT (KIR), RioCan Venture, and KROP.
• Non-Recurring Gains: Net income was boosted by a $6.3 million gain on the early extinguishment of debt (settling Kmart-related mortgages for less than face value) and $3.3 million in gains from the sale of operating properties.
• Investment Income Decline: Interest, dividends, and other investment income decreased $4.7 million due to fewer realized gains on securities sales and reduced dividend income.

Outlook, Risks, and Management Commentary

• Liquidity Strategy: Management maintains a conservative capital structure targeting debt-to-market-cap of 50% or less (currently 30%). The company has a $250 million revolving credit facility ($150 million outstanding) and a $95 million bridge facility established in April 2003.
• Kmart Bankruptcy Risk: Kmart represents 4.3% of annualized base rents. Kmart rejected leases at six locations effective May 1, 2003, impacting $3.0 million in annualized revenue. Kimco is negotiating with prospective tenants and reviewing purchase offers for these sites but notes no assurance of re-leasing at comparable rents.
• Dividend Policy: The company intends to maintain regular dividends to qualify as a REIT, funded by operating cash flows. A conservative payout ratio is maintained to reserve capital for expansion and debt reduction.
• Subsequent Event: On May 1, 2003, the company announced the redemption of all 2,000,000 depositary shares of its 8 1/2% Class B Cumulative Redeemable Preferred Stock at $25.00 per share plus accrued dividends.
• Market Risks: Exposure to floating-rate debt ($410.2 million) is partially hedged via interest rate swaps. Foreign currency exposure (Canada and Mexico) is mitigated through forward contracts and cross-currency swaps.

Investor Verification Checklist

• Kmart Lease Replacements: Verify the status of negotiations for the six Kmart sites where leases were rejected and the likelihood of achieving comparable rental rates.
• Debt Maturities: Review the maturity schedule for the $1.6 billion in debt, specifically the $250 million revolving credit facility expiring in August 2003 and the $95 million bridge facility expiring in June 2003.
• Joint Venture Performance: Assess the sustainability of the increased income from joint ventures (KIR, RioCan, KROP) and any required future capital contributions.
• Preferred Stock Redemption: Confirm the cash outflow impact of the Class B Preferred Stock redemption scheduled for June 2, 2003.
• Development Pipeline: Evaluate the progress and funding requirements for the 10 construction loans held by the taxable REIT subsidiary (KDI).