Kimco Realty Corporation — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018. Although the request references 2018 Q4, this filing reports full-year results; selected fourth-quarter figures are included below. Kimco is a REIT focused on owning and operating open-air shopping centers, primarily in the U.S.
Business context and portfolio
- At year-end, Kimco had interests in 437 shopping center properties totaling 76.3 million square feet across 27 states and Puerto Rico, plus 290 other property interests totaling 4.7 million square feet.
- The combined shopping center portfolio was 95.6% leased; the consolidated operating portfolio was 95.8% leased, versus 95.9% at year-end 2017.
- Kimco’s strategy emphasizes major metro markets, portfolio upgrades, redevelopment and capital recycling. Its top 20 core markets generated 81% of annualized base rent.
Financial results and key metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenues | $1,164.8 million | $1,200.8 million |
| Net income | $498.5 million | $439.7 million |
| Net income available to common shareholders | $439.6 million; $1.02 diluted EPS | $372.5 million; $0.87 diluted EPS |
| FFO available to common shareholders | $620.7 million; $1.47 diluted per share | $655.6 million; $1.55 diluted per share |
| FFO as adjusted | $613.0 million; $1.45 diluted per share | $644.2 million; $1.52 diluted per share |
| Same-property NOI growth | 2.9% | — |
| Cash provided by operating activities | $637.9 million | $614.2 million |
- Fourth quarter: revenue was $284.2 million versus $315.2 million in Q4 2017; net income attributable to Kimco was $88.2 million versus $84.9 million; diluted EPS was $0.17 in both periods. Adjusted FFO was $147.4 million versus $166.4 million.
- Average base rent per leased square foot in the consolidated portfolio rose to $16.22 from $15.43. Same-property NOI increased 2.9% for the year, mainly from lease-up and rent commencements.
- Cash and cash equivalents were $143.6 million at year-end, down from $238.5 million. Investing activities provided $253.6 million, principally reflecting property-sale proceeds; financing activities used $986.5 million.
- Total debt was approximately $4.87 billion, down from $5.48 billion. Weighted-average interest rate was 3.62% and weighted-average maturity was 10.5 years. The $2.25 billion unsecured revolving facility had $100 million outstanding and $0.3 million allocated to letters of credit; the facility can increase to $2.75 billion.
- Total assets were $11.0 billion and stockholders’ equity was $5.33 billion. The common dividend was $1.12 per share for 2018, compared with $1.08 paid in 2017.
Material changes versus prior year
- Revenue declined $36.1 million, primarily because property dispositions reduced rental revenue by $63.2 million, partly offset by contributions from developments, leasing and acquired or consolidated properties.
- Common-shareholder net income rose $67.1 million, but included $229.8 million of gains on operating-property sales and control changes, compared with $93.5 million in 2017. The filing also reports $79.2 million of property impairment charges, up from $67.3 million.
- FFO declined $34.8 million, and adjusted FFO declined $31.2 million. These non-GAAP measures exclude or adjust for specified gains, impairments and other items; they are not equivalent to GAAP earnings or operating cash flow.
- Kimco sold or deconsolidated 54 operating properties and sold seven out-parcels for an aggregate sales price of approximately $1.2 billion. It completed and opened three development projects totaling $338.8 million.
- Capital spending on operating-property improvements rose to $290.9 million from $206.8 million. Debt declined following repayments and dispositions; Kimco also repurchased 5.1 million shares for $75.1 million under its share repurchase program.
Outlook, risks and unusual items
- For 2019, management anticipated $50–$75 million for operating-property acquisitions, $200–$250 million for redevelopment and re-tenanting, and $100–$150 million for development. Estimated remaining costs to complete active development projects were $150–$200 million. The filing does not provide earnings or FFO guidance.
- Management expects capital needs to be funded through operating cash flow, property dispositions and available credit. It said it believed financing and refinancing alternatives were viable and intended to maintain investment-grade ratings. Kimco reported ratings of Baa1/BBB+/BBB+.
- Key risks include e-commerce and changing retailer space needs, tenant financial distress or lease terminations, local economic and real estate conditions, interest rates and access to financing, property-sale and impairment risk, and execution, cost and timing risks for development and redevelopment. The filing also discusses cybersecurity, environmental, severe-weather and REIT-qualification risks.
- 2018 included $12.8 million of early debt-extinguishment charges; $79.2 million of property impairments, including a write-down after abandoning a Jacksonville development; and $4.2 million of insurance proceeds recognized in excess of Hurricane Maria-related property losses. Kimco reported no significant damage from Hurricanes Florence or Michael in 2018.
- The company reported compliance with its debt covenants. It disclosed $41.8 million of letters of credit and $20.6 million of performance and surety bonds. Management stated that ordinary-course legal matters were not expected to have a material adverse effect; a Mexican tax assessment dispute remains a disclosed uncertainty, and the company said it intended to defend its position.
Important facts for investors to verify
- Reconcile GAAP net income growth with the significant property-sale gains, impairment charges and other unusual items; assess recurring earnings using the filing’s FFO reconciliation.
- Review whether same-property NOI growth, rent increases and leasing performance can offset revenue lost through dispositions and ongoing retail-sector pressures.
- Track occupancy, lease expirations, tenant credit quality and the contribution of the 2018 development completions to cash flow.
- Confirm the funding, completion costs and expected returns for 2019 development and redevelopment plans, alongside debt maturities and credit-facility availability.
- Assess the sustainability of dividends and repurchases relative to operating cash flow, capital commitments and debt reduction needs; note that future dividends remain at board discretion.