Kimco Realty Corporation — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing is an annual report; quarterly figures below are unaudited supplemental data. Kimco is a REIT focused on owning and operating neighborhood and community shopping centers. At year-end, it had interests in 896 shopping centers totaling 131.3 million square feet; the Combined Shopping Center Portfolio was 94.0% leased.
Financial performance and condition
| Metric | 2012 | 2011 |
|---|---|---|
| Rental-property revenue | $884.8 million | $825.7 million |
| Total revenue | $922.3 million | $861.1 million |
| Operating income | $257.5 million | $252.9 million |
| Income from continuing operations | $212.0 million | $159.0 million |
| Net income attributable to Kimco | $266.1 million | $169.1 million |
| Net income available to common shareholders | $172.7 million | $109.7 million |
| Diluted EPS attributable to common shareholders | $0.42 | $0.27 |
| Operating cash flow | $479.1 million | $448.6 million |
| Total debt at year-end | $4.20 billion | $4.11 billion |
| Total assets / stockholders’ equity at year-end | $9.74 billion / $4.77 billion | $9.63 billion / $4.69 billion |
For the fourth quarter, rental-property revenue was $229.1 million versus $212.5 million a year earlier; net income attributable to Kimco was $88.4 million versus $46.4 million, and diluted common EPS was $0.14 versus $0.08.
Same-property NOI rose $18.8 million, or 2.3%, for the year; excluding foreign-currency effects, growth was 2.9%. Adjusted FFO was $514.2 million, or $1.26 per diluted share, compared with $489.8 million, or $1.20 per share, in 2011. FFO and adjusted FFO are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Cash and cash equivalents were $141.9 million. The $1.75 billion revolving credit facility had $249.9 million drawn and $27.3 million allocated to letters of credit, leaving approximately $1.5 billion available. The company reported compliance with its debt covenants. Common dividends paid were $0.76 per share in 2012; the filing reports $0.78 declared. A $0.21 quarterly dividend was declared for payment in April 2013.
Material changes versus 2011
- Revenue from rental property increased 7.2%, primarily reflecting acquisitions and Latin American portfolio growth. Same-property NOI increased 2.3%, and portfolio occupancy improved from 93.3% to 94.0%.
- Net income attributable to Kimco rose by $97.0 million. The increase included higher joint-venture income and gains from property dispositions and changes in control of interests; it should not be read as entirely recurring operating growth.
- Gross impairment charges increased to $59.6 million from $32.8 million, including $22.5 million associated with discontinued operations. Kimco’s share of impairment charges recognized by unconsolidated joint ventures was another $11.1 million.
- Kimco acquired 24 shopping centers, five outparcels and 69 net-leased parcels for an aggregate $634.5 million, including assumed debt. It disposed of operating properties and other parcels, receiving $449.5 million in net proceeds from operating-property sales.
- The company issued $774.1 million in net proceeds from Class I, J and K preferred shares and redeemed all outstanding Class F and G preferred shares for $635.0 million. The redemptions reduced future preferred dividends but generated $21.7 million of charges deducted in arriving at income available to common shareholders.
Outlook, risks and unusual items
- Management’s strategy is to concentrate on North American shopping centers, sell non-retail and non-strategic assets, recycle capital and pursue gradual deleveraging. Non-retail investments had a $398.4 million book value at year-end. The filing provides no explicit 2013 earnings or FFO guidance.
- Planned 2013 capital commitments were approximately $90–$100 million for re-tenanting, redevelopment and related projects, plus $15–$25 million for ground-up development.
- Contractual debt principal due in 2013 was reported as $659.7 million in the obligations table. Elsewhere, management described $640.5 million of consolidated maturities assuming available extensions. Kimco expected to extend, refinance or repay consolidated maturities using operating cash flow and credit-facility availability. Unconsolidated joint ventures also had $570.6 million of 2013 debt maturities; Kimco’s proportionate share was reported as $274.1 million.
- InTown Suites: Kimco reported an agreement to sell the business and related real estate for a gross $735 million, including $617 million of existing debt, with closing expected in the first half of 2013 subject to due diligence, lender approvals and other conditions. Kimco expected to retain a $145.2 million debt guarantee if the sale closed.
- In January 2013, Kimco received an SEC subpoena in connection with an investigation concerning possible Foreign Corrupt Practices Act violations and was notified of a parallel DOJ investigation. The company said it would cooperate; it could not predict the investigations’ duration, scope or outcome.
- The IRS proposed a $40.9 million penalty tax and disallowance of a capital loss related to the sale of Valad shares. Kimco disputes the IRS position and said it intends to defend its position; the matter remained unresolved in the filing.
- Key risks include tenant financial distress and vacancies, retail competition and e-commerce, property valuation and impairments, refinancing and interest-rate exposure, foreign currency and international operations, joint-venture partner and investment risks, and maintaining REIT qualification. Management estimated that a 1 percentage-point increase in short-term rates would have increased 2012 interest expense by $7.2 million.
Important facts for investors to verify
- Reconcile the 2013 consolidated debt-maturity amounts in the filing and confirm subsequent refinancing, repayment or extension activity; also track joint-venture maturities and guarantees.
- Check whether the InTown Suites sale closed, what proceeds and debt were realized, and whether Kimco’s $145.2 million guarantee remained in place.
- Monitor the SEC/DOJ investigation and IRS tax dispute for material developments, outcomes or changes in the company’s exposure.
- Assess recurring property performance separately from disposition gains, joint-venture gains, change-in-control gains, preferred-stock redemption charges and impairment expense.
- Review leasing and occupancy trends, tenant concentration, planned capital spending, asset-sale prices and any further impairment charges.
- Evaluate dividend coverage and refinancing capacity against operating cash flow, capital commitments, debt covenants and the company’s REIT distribution obligations.