Kimco Realty Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results; amounts below are in U.S. dollars. Kimco owns and operates open-air, generally grocery-anchored shopping centers and mixed-use properties as a REIT.
Business context and material change
On August 3, 2021, Kimco completed its merger with Weingarten Realty Investors. The approximately $4.1 billion transaction added 149 properties, including 30 held through joint ventures. Kimco issued about 179.9 million shares and paid cash consideration. Weingarten’s results are included only from the merger date, so reported year-over-year comparisons reflect a partial period of combined operations and are not directly like-for-like. The acquisition accounting allocation remained provisional at quarter-end.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $368.6 million | $259.8 million | $939.9 million | $788.5 million |
| Rental property revenue, net | $364.7 million | $256.6 million | $929.3 million | $778.6 million |
| Net income/(loss) attributable to common shareholders | $501.4 million | $(44.7) million | $743.3 million | $780.5 million |
| Diluted EPS | $0.91 | $(0.10) | $1.56 | $1.80 |
| FFO per diluted share (non-GAAP) | $0.32 | $0.25 | $0.99 | $0.86 |
| Same-property NOI (non-GAAP) | $220.7 million | $196.9 million | $639.4 million | $596.9 million |
Q3 revenue rose substantially, reflecting the merger, improved collections and leasing-related straight-line rent income. Same-property NOI increased 12.1% in Q3 and 7.1% year to date, primarily as tenant credit losses declined. The same-property measure excludes Weingarten because it was not owned for the full comparison period.
GAAP net income was materially affected by gains on Kimco’s marketable securities, primarily its Albertsons shares: the company recorded a $457.1 million net gain in Q3 and $542.5 million for the nine months. These fair-value gains are not rental operating performance and can fluctuate. Merger charges were $47.0 million in Q3 and $50.2 million year to date. Nine-month common earnings and diluted EPS declined despite higher revenue; the filing also reports a $190.8 million gain on sale of a cost-method investment in 2020. FFO, which excludes marketable-security mark-to-market changes, increased year over year.
Operating cash flow was $417.3 million for the first nine months, down from $465.9 million. Investing cash flow was $(357.8) million, including merger cash consideration and property improvements; financing cash flow was $130.8 million. Cash, cash equivalents and restricted cash ended the period at $483.5 million. The filing does not provide a conventional profit-margin measure in the supplied text.
Balance sheet, debt and liquidity
- Total assets were $18.6 billion at September 30, 2021, versus $11.6 billion at December 31, 2020; the merger is a major reason for the increase.
- Notes payable were $7.03 billion and mortgages payable were $482.6 million, or about $7.52 billion combined. Kimco issued $500 million of 2.25% senior notes due 2031 and assumed approximately $1.5 billion of Weingarten notes and $317.7 million of mortgages.
- The $2.0 billion revolving credit facility had no outstanding balance; $1.9 million was allocated to letters of credit. Kimco reported compliance with debt covenants. Reported covenant measures included indebtedness to gross asset value of 38% and fixed-charge coverage of 3.7x.
- Marketable securities were valued at $1.25 billion. Kimco held 39.8 million Albertsons shares, subject to contractual lock-up provisions.
- Kimco declared common dividends of $0.17 per share for Q3. The board declared another $0.17 quarterly common dividend after quarter-end. Management says the board reviews dividend policy quarterly.
Outlook, commentary and risks
Management described an ongoing economic recovery and improving rental collections, while noting inflation, labor shortages, supply-chain bottlenecks and COVID-19 variants as factors weighing on recovery. The pandemic’s effects on tenants, rent payment and asset values remain uncertain. At quarter-end, management estimated that 43% of consolidated accounts receivable and 13% of straight-line rent receivables were potentially uncollectible; these estimates include tenants accounted for on a cash basis and are not stated as realized losses.
For the remainder of 2021, Kimco anticipated spending approximately $25–$75 million on operating-property acquisitions and $25–$50 million on redevelopment and re-tenanting. These are spending expectations, not earnings guidance. Management said cash, operating cash flow, the revolver and access to debt and equity markets are expected to support liquidity needs, while noting uncertainty around capital requirements.
Key risks include pandemic-related tenant distress and impairments, merger integration costs and failure to realize expected benefits, acquisition valuation and execution, increased indebtedness, interest-rate and refinancing risks, and potential dilution from equity issuance. Kimco also guarantees debt-service shortfalls on $53.7 million of Sheridan, Colorado tax-increment bonds; tax and public-improvement-fee revenues had met debt service to date. No litigation was identified as likely to have a material adverse effect, and management reported disclosure controls were effective.
Important facts for investors to verify
- How much Q3 and year-to-date GAAP earnings depended on Albertsons fair-value gains, and how the investment’s value and lock-up terms evolve.
- Whether Weingarten integration, provisional purchase-price allocation and expected merger benefits develop as anticipated.
- Subsequent trends in rent collections, potentially uncollectible receivables, occupancy, tenant vacancies and same-property NOI.
- Debt maturities, refinancing costs, covenant headroom and liquidity after merger-related debt assumptions and planned capital spending.
- Whether acquisition and redevelopment spending, the dividend and any use of the at-the-market equity program align with cash generation and per-share FFO.