Kimco Realty Corporation — FY 2013 Form 10-K
Business context and reporting period. Kimco is a self-administered REIT focused on owning and operating neighborhood and community shopping centers. This annual report covers the fiscal year ended December 31, 2013; it is not solely a fourth-quarter report. At year-end, Kimco had interests in 852 shopping centers totaling 124.5 million square feet of gross leasable area (GLA), plus 575 other property interests. Its strategy emphasized upgrading the portfolio, redevelopment, deleveraging, and simplifying operations by exiting Mexico and South America and reducing joint-venture investments.
Financial and operating performance
| Metric | 2013 | 2012 |
|---|---|---|
| Rental property revenue | $910.4 million | $836.9 million |
| Total revenue | $946.7 million | $874.4 million |
| Operating income | $225.5 million | $266.5 million |
| Income from continuing operations | $261.7 million | $210.1 million |
| Net income attributable to Kimco | $236.3 million | $266.1 million |
| Net income available to common shareholders | $178.0 million | $172.7 million |
| Diluted net income per common share | $0.43 | $0.42 |
| FFO as adjusted per diluted share (non-GAAP) | $1.33 | $1.26 |
| Cash flow from operations | $570.0 million | $479.1 million |
| Cash flow from investing activities | $72.2 million provided | $51.0 million used |
| Cash flow from financing activities | $635.4 million used | $399.1 million used |
| Total debt at year-end | $4.22 billion | $4.20 billion |
- Same-property NOI increased; the filing gives both 3.4% in its executive summary and 3.5% in the detailed reconciliation. Excluding foreign-currency effects, the summary reports 4.1% growth.
- Combined shopping-center portfolio occupancy was 94.6%, up from 94.0%; U.S. combined portfolio occupancy was 94.9%, up from 93.9%. The consolidated operating portfolio was 94.0% leased.
- U.S. consolidated average base rent per leased square foot increased from $12.18 to $12.61. Recognized U.S. cash leasing spreads were 7.7% overall, with new leases up 15.6% and renewals/options up 5.9%.
- Cash and cash equivalents were $148.8 million. The $1.75 billion revolving credit facility had $194.5 million outstanding and $1.6 billion available at year-end.
- Management reported compliance with debt covenants. The facility showed total indebtedness to gross asset value of 40% against a maximum of 60%, and fixed-charge coverage of 2.91x against a minimum of 1.50x.
Material changes versus the prior comparable period
- Rental revenue rose 8.8%, reflecting acquisitions, higher occupancy, development and redevelopment projects, and portfolio growth. Interest expense declined $11.8 million to $213.9 million.
- Net income attributable to Kimco fell $29.8 million, despite higher continuing-operations income and common-shareholder income. A principal factor was the increase in gross impairment charges to $190.2 million from $59.6 million, alongside lower gains on operating-property sales. Common-shareholder income increased partly because 2012 included $21.7 million of preferred-stock redemption costs.
- Equity in income of joint ventures increased to $208.7 million from $112.9 million, primarily due to property-sale gains, particularly in Mexico. The company also recorded $34.5 million of income-tax provision, versus $16.9 million in 2012, including higher foreign taxes associated with the Mexican joint-venture sale.
- Operating cash flow increased $90.9 million. Investing cash flow turned positive largely due to joint-venture reimbursements and lower acquisition spending; financing cash outflow increased, including dividends and debt repayments.
- Kimco acquired 32 shopping centers and eight outparcels for $724.5 million, including assumed debt. It sold 36 operating properties and three outparcels for $279.5 million, and sold eight Latin American properties for $115.4 million.
- The company’s common dividend declared was $0.855 per share for 2013, versus $0.78 in 2012. The filing says 2013 common distributions were characterized for tax purposes as 46% ordinary income, 36% return of capital, and 18% capital gain.
Outlook, risks, contingencies, and unusual items
- For 2014, management anticipated acquiring approximately $500 million to $1.0 billion of operating properties and committing approximately $150 million to $200 million to redevelopment and re-tenanting. Planned funding sources included asset-sale proceeds, operating cash flow, assumed debt, and credit-facility availability.
- Management intended to continue deleveraging and portfolio simplification. Latin American dispositions may release cumulative foreign-currency translation losses into earnings. The reported Latin American CTA loss was $114.7 million at year-end; the broader foreign-investment CTA net loss was $91.0 million after noncontrolling interests.
- Management identified 2014 debt maturities of $419.9 million of consolidated debt, $384.2 million of unconsolidated-joint-venture debt, and $62.2 million of preferred-equity debt, assuming available extensions. Separately, the contractual-obligations schedule lists $838.1 million of long-term debt principal due in 2014. Kimco said it expected to extend, refinance, or repay maturities using operating cash, its credit facility, new debt, or partner contributions, as applicable. It extended its $400 million U.S. term loan to April 2015 in January 2014.
- Kimco received an SEC subpoena in January 2013 in connection with the SEC’s Wal-Mart-related Foreign Corrupt Practices Act investigation; the DOJ is conducting a parallel investigation. Kimco said it was cooperating and could not predict the investigations’ duration, scope, or result. Related professional fees increased general and administrative expense.
- The company reported $31.9 million of letters of credit and $21.1 million of performance and surety bonds. It also retained a $139.7 million guarantee on debt assumed by the buyer of the InTown portfolio and a financing commitment extending five years beyond the loan’s maturity; the related $21.7 million gain was deferred.
- Other material risks include tenant defaults or bankruptcies, retail competition and e-commerce, property impairments, refinancing and interest-rate exposure, foreign currency and political risks, joint-venture partner and preferred-equity exposure, REIT qualification, and cybersecurity incidents. The filing also describes an IRS proposed adjustment involving a $40.9 million potential penalty tax; Kimco disputed the position and said it intended to defend it.
- The auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2013.
Most important facts for investors to verify
- Reconcile the filing’s 3.4% and 3.5% full-year same-property NOI growth disclosures and distinguish the 94.6% combined occupancy figure from the 94.0% consolidated portfolio figure.
- Assess the $190.2 million in 2013 gross impairments, including the Mexico-related property write-downs, and whether further portfolio-sale impairments or CTA charges may arise.
- Review the timing and refinancing plans for 2014 maturities, including the differing maturity totals presented in the filing, and confirm current revolving-credit availability and covenant headroom.
- Monitor progress toward the Latin American exit and the potential earnings effects of releasing accumulated translation losses.
- Track the SEC and DOJ investigations, the IRS tax dispute, and Kimco’s retained InTown guarantee and post-maturity financing commitment.
- Evaluate whether acquisition and redevelopment spending targets are achieved while the company pursues deleveraging and maintains its dividend.