Kimco Realty Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Kimco is a REIT focused on open-air, generally grocery-anchored shopping centers and mixed-use properties. At quarter-end, it had interests in 398 U.S. shopping centers totaling 70.2 million square feet, plus 71 other property interests. Amounts below are in U.S. dollars.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $289.0 million | $238.9 million | $571.3 million | $528.7 million |
| Operating income | $117.8 million | $64.1 million | $222.2 million | $179.4 million |
| Net income available to common shareholders | $110.3 million | $741.5 million | $241.9 million | $825.3 million |
| Diluted EPS | $0.25 | $1.71 | $0.56 | $1.90 |
| FFO per diluted share (non-GAAP) | $0.34 | $0.24 | $0.68 | $0.61 |
| Same-property NOI (non-GAAP) | $216.5 million | $185.5 million | $420.5 million | $401.8 million |
- Q2 revenue rose 21% year over year; rental-property revenue increased $49.8 million. Management attributed the increase principally to a $48.4 million reduction in tenant credit losses, along with higher lease-termination fees. Rent relief and vacancies partly offset the gains.
- Same-property NOI increased 16.7% in Q2 and 4.7% for the first half. The main driver was lower potentially uncollectible revenue and disputed amounts; rent abatements, lower occupancy and higher non-recoverable expenses offset part of the improvement.
- Common-shareholder net income fell sharply versus 2020 because the prior-year results included large gains on Albertsons securities and the sale of a cost-method investment. Q2 2020 included $526.2 million of marketable-securities gains and $190.8 million from the cost-method investment sale; Q2 2021 recorded $24.3 million of securities gains and no such sale gain.
- Operating cash flow was $293.7 million for the first half, versus $237.4 million a year earlier. Investing activities used $45.9 million, compared with $96.6 million provided in 2020; financing activities used $310.9 million, versus $256.3 million used.
- Cash and cash equivalents were $230.1 million at June 30, down from $293.2 million at year-end. Marketable securities were $792.1 million, including $677.8 million of net unrealized gains.
- Notes payable were $5.048 billion and mortgages payable $168.0 million, for total reported debt of approximately $5.216 billion. The $2.0 billion revolving credit facility was undrawn; the company reported covenant compliance. It repaid $137.2 million of mortgage debt during the first half.
- Reported annualized financing information shows fixed-rate debt, with no variable-rate debt outstanding at quarter-end. The company’s senior-debt covenant ratios were within stated requirements.
Material changes, outlook and commentary
- Kimco and Weingarten Realty Investors had a pending merger, announced April 15, 2021. The terms provided 1.408 Kimco shares plus cash per Weingarten share; following Weingarten’s $0.69 special distribution, the cash consideration was adjusted from $2.89 to $2.20 per share. Closing was expected August 3, 2021, subject to approvals and other conditions. Kimco planned to fund cash consideration and transaction costs with cash and revolver borrowings. Q2 results exclude Weingarten.
- The merger is expected to create a portfolio of approximately 555 centers and mixed-use assets totaling about 100 million square feet. Kimco cited scale, Sun Belt density and redevelopment opportunities as anticipated benefits, while cautioning that benefits and integration outcomes are uncertain.
- Management estimated remaining-2021 spending of $75–$150 million for acquisitions, excluding the merger, and $50–$100 million for redevelopment and re-tenanting. Funding was expected from dispositions, operating cash flow and credit-facility availability. These are spending estimates, not earnings guidance.
- Kimco incurred $3.2 million of merger-related legal and professional costs in the first half. It sold three operating properties and seven parcels for aggregate proceeds of $132.2 million, recognizing $28.9 million of gains.
- COVID-19 effects remained uncertain despite improving collections and reopening. At June 30, management estimated 48% of consolidated accounts receivable and 16% of straight-line rent receivables were potentially uncollectible; further adjustments or material impairment charges could be required. The filing also identifies labor shortages, inflation risk, supply-chain bottlenecks and COVID-19 variants as recovery headwinds.
- Other risks include merger failure, dilution, integration costs and execution, additional debt and interest-rate exposure, tenant financial distress, refinancing and capital-market access, investment valuations, and cybersecurity incidents. Management reported no litigation expected to have a material adverse effect and stated disclosure controls were effective.
- The board had declared a $0.17 common dividend per share for Q2. Management said the board would continue to review dividends quarterly and anticipated declaring a Q3 common dividend after merger completion.
Important facts for investors to verify
- Whether the merger closed on the anticipated terms and date, and the final share issuance, cash funding, transaction costs and debt impact.
- Subsequent collection trends, tenant receivable reserves, rent relief, occupancy and any asset impairment charges.
- The sustainability of improved same-property NOI and FFO, particularly how much reflects normalized leasing and collections versus reduced credit-loss provisions.
- The value and liquidity of the Albertsons securities, including applicable lock-up restrictions and sensitivity of earnings to market-price movements.
- Debt maturities, covenant headroom, post-merger leverage and dividend coverage alongside planned acquisition and redevelopment spending.
- Comparisons use GAAP earnings and company-defined non-GAAP FFO and same-property NOI; the filing cautions that non-GAAP measures may not be comparable across REITs.