Business context and reporting period
Kimco Realty Corporation’s Form 10-K covers the fiscal year ended December 31, 2011; it is an annual filing, not a standalone fourth-quarter filing. Kimco is a REIT focused on owning and operating neighborhood and community shopping centers. At year-end, it had interests in 946 shopping centers totaling 138.1 million square feet, within a broader portfolio of 1,791 property interests. The Combined Shopping Center Portfolio was 93.3% occupied, up from 93.0% a year earlier.
Financial performance and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Rental property revenue | $873.7 million | $831.2 million |
| Rental property expenses | $256.0 million | $246.1 million |
| Income from continuing operations | $176.8 million | $137.4 million |
| Net income attributable to Kimco | $169.1 million | $142.9 million |
| Net income available to common shareholders | $109.7 million | $91.5 million |
| Diluted earnings per common share | $0.27 | $0.22 |
| Cash flow from operations | $448.6 million | $479.9 million |
| Total debt at year-end | $4.114 billion | $4.059 billion |
| Cash and cash equivalents at year-end | $112.9 million | $125.2 million |
| Total assets / stockholders’ equity at year-end | $9.615 billion / $4.686 billion | $9.834 billion / $4.936 billion |
Rental revenue grew 5.1%, primarily from acquisitions, development and redevelopment completions, leasing and portfolio growth. Rental property expenses rose 4.0%; the resulting rental-property margin was approximately 70.7%, versus 70.4% in 2010 (calculated from reported revenue and expenses). Operating cash flow declined about $31.3 million, largely because of payment timing for accounts payable and accrued expenses. Investing activities used $20.8 million, while financing activities used $440.1 million. Common dividends paid were $353.8 million; the filing reports $0.72 per common share paid during 2011 and $0.73 declared for the year.
Fourth-quarter 2011 figures reported in the annual filing: rental property revenue was $223.0 million, net income attributable to Kimco was $46.4 million, and basic and diluted net income per share were each $0.08.
Material changes versus the prior comparable period
- Net income attributable to Kimco increased $26.2 million, and diluted EPS increased from $0.22 to $0.27. Higher property and joint-venture earnings, acquisition contributions, development-property gains and the absence of 2010 debt-extinguishment charges were partly offset by higher income tax expense.
- Equity income from joint ventures rose to $64.0 million from $34.6 million, notably reflecting lower JV impairment charges and improved portfolio earnings. Equity income from other real estate investments declined to $51.8 million from $60.8 million.
- Gross impairment charges were $32.8 million, down from $39.1 million in 2010; separately, Kimco’s share of impairment charges recorded by unconsolidated joint ventures was approximately $14.1 million.
- Kimco acquired 19 shopping centers and related parcels totaling about 2.5 million square feet for approximately $374.6 million, including assumed mortgage debt. It disposed of operating and development properties and continued monetizing non-retail investments.
- Non-retail assets and investments were reduced to approximately $512 million, less than 5.4% of total assets. Marketable securities fell to $33.5 million from $224.0 million, reflecting sales including the Valad notes.
- Total debt increased modestly, while stockholders’ equity declined. Other comprehensive income included an $82.2 million foreign-currency translation loss.
Outlook, management commentary, risks and unusual items
Management’s strategy is to focus increasingly on North American neighborhood and community shopping centers, sell non-retail assets over time, strengthen the balance sheet through deleveraging and expand institutional joint ventures. No earnings or revenue guidance is provided. Planned 2012 capital commitments were approximately $25–$35 million for redevelopment and re-tenanting and $15–$25 million for ground-up development.
Kimco established a $1.75 billion unsecured revolving credit facility in October 2011, maturing in October 2015 with a one-year extension option. At year-end, $238.9 million was drawn and approximately $1.5 billion was available. The company reported compliance with its covenants, including total indebtedness to gross asset value of 43% against a maximum of 60%. Management identified 2012 consolidated debt maturities of $352.6 million and expected to extend, refinance or repay them using operating cash flow, the credit facility or new debt. The contractual-obligations table separately shows $423.6 million of 2012 long-term debt principal; the filing’s figures use different presentations and should be reconciled.
Material risks include tenant defaults or bankruptcies, retail-sector weakness and e-commerce, refinancing and interest-rate exposure, property and investment impairments, foreign-currency and international risks, and dependence on joint-venture partners. Kimco reported that a 1% increase in short-term rates would have increased 2011 interest expense by approximately $3.9 million. Unconsolidated joint ventures had approximately $1.1 billion of debt maturities in 2012; Kimco’s proportionate share was approximately $503.2 million. Kimco also disclosed guarantees on selected JV debt, including a $147.5 million InTown Suites guarantee, as well as $33.2 million of letters of credit and $22.8 million of performance and surety bonds.
An unusual tax contingency is an IRS proposed adjustment concerning a capital loss from the Valad share disposition. The IRS indicated a possible 100% penalty tax of approximately $40.9 million and disallowance of the claimed loss. Kimco strongly disputes the IRS position and intends to contest it; management stated it believes it will prevail. Separately, the balance sheet included $16.9 million of accrued non-current uncertain tax benefits and related interest. Management also cautioned that future sales of non-retail assets below carrying value could cause additional impairment charges. No litigation was identified as expected to have a material adverse effect. Management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Reconcile the 2012 consolidated debt maturity figures of $352.6 million and $423.6 million, and assess refinancing plans and JV maturity exposure.
- Track the IRS dispute, the potential $40.9 million proposed tax amount, and the distinction between that claim and accrued uncertain tax benefits.
- Review the quality and sustainability of earnings, including JV distributions, gains on asset sales, impairments and other non-recurring items.
- Assess progress and realized proceeds from non-retail asset sales against carrying values, and monitor further impairment risk.
- Evaluate occupancy, leasing, tenant credit and rent growth alongside the dividend payout, operating cash flow and planned capital spending.