Kimco Realty Corporation — Q3 2020 Form 10-Q
Business and period. Kimco owns and operates open-air, generally grocery-anchored shopping centers and mixed-use assets as a REIT. This unaudited report covers the three and nine months ended September 30, 2020; comparisons are with the same periods in 2019. At quarter-end, it had interests in 400 U.S. shopping center properties totaling 70.1 million square feet, plus 140 other property interests.
Financial results and liquidity
Amounts below are in millions except per-share data.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $259.8 | $282.9 | $788.5 | $862.8 |
| Operating income | $72.9 | $99.5 | $252.3 | $341.0 |
| Net income (loss) attributable to common shareholders | $(44.7) | $59.0 | $780.5 | $247.2 |
| Diluted earnings (loss) per share | $(0.10) | $0.14 | $1.80 | $0.58 |
| FFO per diluted share, company-presented non-GAAP | $0.25 | $0.35 | $0.86 | $1.08 |
| Same-property NOI | $194.4 | $213.9 | $592.0 | $637.4 |
- Revenue and operating performance: Rental-property revenue fell 8.1% in Q3 and 8.5% year to date. Same-property NOI declined 9.1% in Q3 and 7.1% for nine months, primarily reflecting uncollectible and disputed tenant revenue.
- Profit quality: Nine-month net income included $444.6 million of unrealized ACI marketable-security gains and a $190.8 million gain from ACI transactions. Q3 included a $76.9 million unrealized marketable-security loss. These investment gains and losses significantly affected GAAP earnings.
- Cash flow: Operating cash flow was $465.9 million for nine months, versus $482.5 million in 2019. Investing activities provided $43.4 million, largely reflecting $227.3 million of ACI sale proceeds, while financing used $308.3 million. Cash and cash equivalents rose to $325.0 million from $123.9 million at year-end 2019.
- Balance sheet and debt: Total assets were $11.52 billion and total liabilities $5.97 billion. Notes payable were $5.04 billion and mortgages/construction loans $314.6 million. Marketable securities were $556.8 million, primarily Kimco’s 39.8 million ACI shares. The company reported no variable-rate debt outstanding and a weighted-average debt maturity of 11.1 years.
- Liquidity: The $2.0 billion revolving credit facility (expandable to $2.75 billion) was undrawn at quarter-end. Kimco reported compliance with debt covenants; its debt-to-total-assets covenant measure was 39%, and credit-facility total indebtedness to gross asset value was 45%.
Material changes, outlook and risks
- COVID-19 and rent collection: The company said centers remained open, but tenant closures, reduced operations, late or partial payments, deferrals, defaults and bankruptcies affected results. Mandated or voluntary closures represented 2.8% of pro-rata annual base rent at September 30; 140 leases, or 2.3% of pro-rata annual base rent, were associated with tenants in bankruptcy. It collected 89% of pro-rata annual base rent in Q3 and 90% for October. Nine-month revenue was reduced by $72.2 million for potentially uncollectible and disputed amounts, including $15.1 million of straight-line rent receivables. Rent deferrals were generally expected to be paid within six to 18 months.
- Debt and capital actions: Kimco issued $500 million of 2.70% notes due 2030 and $400 million of 1.90% notes due 2028, repaid its $590 million term loan, and redeemed $484.9 million of 3.20% notes due 2021, incurring a $7.5 million early-extinguishment charge. It also repaid $92 million of mortgage debt.
- Dividend: The common dividend was temporarily suspended during the pandemic and reinstated in September at $0.10 per share. The board expected to declare another common dividend in Q4 to meet REIT distribution requirements and said it would review dividend policy quarterly. Preferred dividends continued.
- Investment and portfolio activity: ACI’s IPO and related transactions generated $190.8 million in recognized gains; its shares’ mark-to-market value remains exposed to market fluctuations. Kimco sold three operating properties and a land parcel for $22.6 million in the first nine months, versus $163.8 million of sales in 2019. It placed a $229.9 million Dania Beach development into service in June.
- Spending plans: Management anticipated up to approximately $25 million of operating-property acquisitions and $30–$50 million of redevelopment and re-tenanting commitments for the remainder of 2020. Projects were being reassessed and only those deemed necessary would proceed. The filing provides no earnings or FFO guidance.
- Principal uncertainties: Management could not estimate ultimate pandemic-related losses. Prolonged disruption could further impair tenant rent payments, occupancy, property values, collections, liquidity and covenant compliance. Other stated risks include financing and refinancing conditions, interest rates, tenant bankruptcies, asset impairments, and volatility in ACI and other investments. Management reported no litigation expected to have a material adverse effect and said disclosure controls were effective.
Key facts for investors to verify
- Subsequent rent collections, tenant bankruptcies, deferrals, disputes and the timing of deferred rent payments.
- Whether ACI’s share price changes materially affect reported earnings, asset value or liquidity; distinguish unrealized gains and losses from cash proceeds.
- Actual same-property NOI, FFO, operating cash flow and rent-receivable trends in later periods.
- Debt maturities, refinancing terms, covenant headroom, credit-facility availability and execution of planned redevelopment spending.
- Common-dividend decisions and the company’s ability to meet REIT distribution requirements while funding operations and investment.