Business context and reporting period
Kimco Realty Corporation filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2011. It owns and operates neighborhood and community shopping centers. At quarter-end, it had interests in 946 shopping centers totaling 137.8 million square feet, plus 892 other property interests. Portfolio occupancy was 92.0%, compared with 91.7% a year earlier.
Financial performance and condition
- Revenue: Second-quarter rental revenue was $219.2 million, up 5.2% from $208.3 million. Six-month rental revenue was $441.0 million, up 5.1% from $419.6 million.
- Profit and EPS: Second-quarter net income attributable to Kimco was $38.7 million versus $24.6 million; diluted EPS was $0.06 versus $0.03. Six-month net income attributable to Kimco was $67.7 million versus $75.4 million; diluted EPS was $0.09 versus $0.13. Six-month net income available to common shareholders was $38.0 million versus $51.8 million.
- Cash flow: Six-month operating cash flow was $215.8 million, down from $229.7 million. Investing activities provided $113.6 million, including proceeds from the Valad convertible-note sale; financing activities used $310.5 million. Cash and cash equivalents ended at $144.1 million.
- Costs and margins: Six-month rental property expenses were $129.0 million, up 3.2%, and depreciation and amortization was $126.9 million, up 11.8%. The filing does not provide a clear consolidated operating-margin figure.
- Debt and equity: Consolidated notes, mortgages and construction loans totaled approximately $4.0 billion at June 30, down from approximately $4.1 billion at year-end. Total liabilities were $4.50 billion and total equity was $5.11 billion. The weighted-average mortgage interest rate was 6.21%.
- Liquidity: Marketable securities were $44.9 million, down from $224.0 million at year-end, principally reflecting the Valad-note sale. The company reported approximately $1.7 billion of aggregate revolving-credit commitments available. Its U.S. facility had $23.5 million outstanding and $24.3 million allocated to letters of credit.
Material changes versus the prior comparable period
- Quarterly earnings increased year over year, with management attributing the change largely to fewer impairment charges and improved property and joint-venture performance. Six-month earnings declined, reflecting lower income from other real estate investments and higher taxes, among other factors.
- Rental revenue growth reflected acquisitions, higher portfolio occupancy, completed development and redevelopment projects, and tenant buyouts. Operating cash flow fell, primarily due to lower joint-venture and other-investment distributions and lower transaction fee income.
- Six-month dividends paid increased to $177.6 million from $153.4 million. Common dividends declared were $0.18 per share quarterly.
Outlook, management commentary, risks and unusual items
- Management intends to focus on shopping centers and plans to sell certain non-retail assets and investments. It expects 2011 spending of approximately $60–$70 million on redevelopment and re-tenanting and $25–$35 million on development projects; four ground-up projects were underway at quarter-end.
- Consolidated debt maturities for the remainder of 2011 were estimated at $91.8 million; management expected to address them through operating cash flow, credit facilities and refinancing. It also disclosed $367.2 million of 2011 unconsolidated joint-venture maturities and $135.3 million related to the preferred-equity program, assuming available extensions.
- Joint-venture properties experienced mortgage defaults and lender foreclosures. Kimco recorded a $3.1 million impairment on a joint-venture investment after planning to exit a redevelopment partnership. Six-month impairment charges totaled approximately $12.4 million, including $8.2 million in discontinued operations.
- One unconsolidated development VIE had estimated maximum exposure of $51.9 million, including future funding commitments; two preferred-equity VIEs had estimated maximum exposure of $9.1 million. A redevelopment venture’s $24.8 million third-party debt carried an interest-only guarantee from Kimco that was backstopped by partners.
- Key risks include tenant failures or vacancies, adverse real-estate and economic conditions, refinancing and capital-market access, interest rates, foreign-exchange movements, investment valuations and impairments. A 1% rise in short-term rates would have increased six-month interest expense by approximately $0.9 million. Management reported no material change in previously disclosed risk factors and stated that disclosure controls were effective.
Important facts for investors to verify
- Whether rental growth, occupancy and leasing gains persist after accounting for acquisitions and completed projects.
- How much reported earnings depend on joint-venture results, distributions and nonrecurring items, including impairments and asset sales.
- The refinancing and repayment plan for 2011 maturities, as well as the timing and availability of credit facilities expiring in 2012.
- Actual cash available for dividends and planned capital spending, given higher dividends and development commitments.
- Further defaults, impairments or funding obligations in joint ventures, preferred-equity investments and development VIEs.