KIMCO REALTY CORP quarterly report, Q1 FY2012

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Kimco Realty Corporation — Q1 2012 Form 10-Q

Reporting period: Three months ended March 31, 2012; unaudited. Kimco owns and operates neighborhood and community shopping centers, with interests in 930 shopping center properties totaling 136.2 million square feet. The company also holds other real estate and investment interests. Amounts below are in USD unless stated otherwise.

Financial results and liquidity

  • Revenue: Total revenue was $231.4 million, up 2.8% from $225.1 million. Rental property revenue grew 3.0% to $221.9 million.
  • Profit: Net income attributable to Kimco was $53.6 million, versus $29.0 million; net income available to common shareholders was $38.1 million, versus $14.1 million. Diluted GAAP EPS was $0.09, versus $0.03. Results included higher joint-venture and preferred-equity income and property-sale gains.
  • FFO: NAREIT funds from operations (a non-GAAP supplemental measure) was $126.2 million, or $0.31 per diluted share, versus $122.0 million, or $0.30. Adjusted FFO was $125.9 million, or $0.31 per diluted share, versus $121.2 million, or $0.30.
  • Operating measures: Shopping-center portfolio occupancy was 92.4%, compared with 91.5% a year earlier. Rental property expenses were $61.3 million, down 7.0%, primarily reflecting lower snow-removal costs. Operating income was $67.5 million; operating margin was approximately 29.2%, versus 29.3%.
  • Cash flow: Operating cash flow was $156.9 million, up from $114.8 million. Investing used $32.5 million; financing provided $5.0 million. Cash and equivalents increased to $242.3 million from $112.9 million at year-end.
  • Debt and liquidity: Consolidated notes, mortgages and construction loans totaled $3.91 billion at quarter-end, down from $4.11 billion at December 31, 2011. The $1.75 billion revolving facility had $55.1 million outstanding and $26.6 million allocated to letters of credit; approximately $1.7 billion was available. The company reported compliance with its debt covenants.
  • Capital and distributions: Kimco issued 16 million Class I preferred depositary shares at a 6.00% annual dividend rate, receiving approximately $388.1 million net. It repurchased 1.4 million common shares for $26.1 million. Cash dividends paid were $92.2 million; the quarterly common dividend was $0.19 per share.

Changes versus Q1 2011

  • Higher occupancy, acquisitions and completed development/redevelopment contributed to rental growth. Lower tenant reimbursements partly offset those increases.
  • Joint-venture income rose to $36.7 million from $12.3 million, primarily due to property-sale gains and promote income, lower impairment charges, and improved operating results. Income from other real estate investments rose to $11.0 million from $5.5 million, largely reflecting preferred-equity profit participation.
  • Common-shareholder earnings also benefited from $12.0 million in gains on operating-property dispositions. The comparison is affected by nonrecurring and transaction-related items; adjusted FFO per diluted share increased only modestly, to $0.31 from $0.30.
  • General and administrative expense rose to $34.4 million from $29.7 million, including approximately $2.5 million of executive severance. Interest expense increased to $57.5 million from $55.4 million, while investment income declined after the 2011 sale of Valad notes.
  • Operating cash flow improved, while property acquisitions and improvements increased to $142.2 million from $38.1 million. Cash investing outflow was lower overall, helped by property-sale proceeds.

Outlook, risks and unusual items

  • Management expects 2012 capital commitments of approximately $30–$40 million for redevelopment and re-tenanting and $20–$30 million for ground-up development. Four ground-up projects were underway at quarter-end. These commitments are expected to be funded from operating cash flow and available credit.
  • Management’s stated strategy is to focus on shopping centers, sell non-retail assets and non-strategic retail properties, and selectively grow institutional joint ventures. It plans to strengthen the balance sheet and maintain investment-grade ratings; no earnings or FFO guidance is provided in the supplied filing text.
  • Debt maturities for the remainder of 2012 were reported as $311.5 million of consolidated debt, $799.3 million of unconsolidated joint-venture debt, and $158.8 million of debt on properties in the preferred-equity program, assuming available extensions. A new $400 million unsecured term loan was obtained in April 2012, after quarter-end, to support general corporate purposes and upcoming maturities.
  • The company recorded $9.6 million in property impairment charges, including $5.5 million in discontinued operations. It sold 15 operating properties and two outparcels for approximately $100.2 million, recognizing approximately $11.8 million in aggregate gains and $2.1 million in impairments. One held-for-sale property was impaired by approximately $3.4 million.
  • The IRS issued a proposed assessment relating to a Valad-share capital loss. The notice asserts a potential $40.9 million penalty tax; Kimco disputes the position and intends to appeal. The filing says management believes the company will prevail, but does not provide a clear value for any related financial-statement accrual.
  • Six financing receivables totaling $45.8 million were in default. Five loans totaling $22.9 million were on non-accrual; one $22.9 million loan was 60 days past due and continued accruing interest. Management stated collateral values exceeded carrying values for all six loans.
  • Key stated risks include economic and tenant stress, refinancing and capital-market access, interest and foreign-exchange movements, international operations, joint-venture and investment valuations, and potential impairments. A 1% increase in short-term rates was estimated to increase quarterly interest expense by approximately $0.3 million.

Investor verification priorities

  1. Reconcile GAAP earnings growth with the effects of joint-venture gains, preferred-equity participation, asset-sale gains, impairments and severance; assess FFO’s non-GAAP adjustments.
  2. Review the IRS proposed assessment, appeal process, possible penalty exposure and accounting treatment as the matter develops.
  3. Assess the 2012 maturity schedule, available revolver capacity, subsequent $400 million term loan, and refinancing exposure in unconsolidated ventures and the preferred-equity portfolio.
  4. Monitor defaulted financing receivables, collateral valuations, property impairments and joint-venture performance.
  5. Compare occupancy and same-property operating trends with acquisition-driven rental growth, and track delivery and funding of redevelopment and development commitments.