KIM

Business Context and Reporting Period

Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2003
Business Overview: Kimco is a self-administered Real Estate Investment Trust (REIT) and one of the nation's largest owners and operators of neighborhood and community shopping centers. As of February 5, 2004, the portfolio included 699 property interests totaling approximately 102.6 million square feet of leasable space across 41 states, Canada, and Mexico. The Company also engages in ground-up development through its taxable REIT subsidiary, Kimco Developers, Inc. (KDI), and manages various joint ventures including Kimco Income REIT (KIR), the RioCan Venture, and the Kimco Retail Opportunity Portfolio (KROP).

Key Financial Metrics

Liquidity: As of December 31, 2003, the Company had $48.3 million in cash and cash equivalents. It maintained a $500.0 million unsecured revolving credit facility with $45.0 million outstanding and a $400.0 million unsecured bridge facility with $329.0 million outstanding.

Material Changes vs. Prior Period

• Revenue Growth: Revenues from rental property increased 10.8% to $479.7 million, driven by the acquisition of 55 operating properties (including the Mid-Atlantic Realty Trust merger), improved occupancy (90.7% vs. 87.8% in 2002), and new leasing. This was partially offset by revenue decreases due to Kmart lease rejections.
• Net Income Increase: Net income rose 25.3% to $307.9 million. Key drivers included gains on the sale of operating properties ($50.8 million), gains on development sales ($17.5 million), and increased equity income from joint ventures. This was partially offset by a decrease in gains on early extinguishment of debt compared to 2002.
• Debt Expansion: Total debt increased by approximately $578 million to $2.15 billion, primarily due to borrowings and debt assumption related to the Mid-Atlantic Realty Trust merger and other acquisitions.
• Dividend Increase: The Board increased the quarterly dividend to $0.57 per share (from $0.54) effective for the first quarter of 2004.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Capital Strategy: Management intends to maintain a conservative capital structure with debt to total market capitalization at 50% or less (30% as of Dec 31, 2003).
• 2004 Capital Commitments: Anticipated capital commitment for redevelopment projects is $50.0 million to $75.0 million. Ground-up development commitments are expected to be $160.0 million to $200.0 million.
• Liquidity: The Company expects cash flows from operations, existing credit facilities, and access to public debt and equity markets to fund operations, dividends, and expansion.

Risks and Contingencies:

• Tenant Concentration: The five largest tenants (Home Depot, Kmart, Kohl's, Royal Ahold, TJX) represent approximately 13.8% of annualized base rental revenues. Kmart's bankruptcy and lease rejections remain a material risk, though the Company has been actively re-leasing affected sites.
• Interest Rate Risk: Approximately $558.2 million of debt was floating-rate as of year-end, exposing the Company to interest rate fluctuations.
• Foreign Currency: Investments in Canada and Mexico expose the Company to foreign exchange risk, partially mitigated by hedging instruments.
• REIT Qualification: Failure to maintain REIT status would subject the Company to regular corporate income taxes.

Investor Verification Checklist

• Mid-Atlantic Merger Integration: Verify the performance and occupancy rates of the 41 properties acquired in the Mid-Atlantic Realty Trust merger.
• Kmart Exposure: Monitor the re-leasing progress of the eight Kmart sites where leases were rejected and the impact on future rental revenue.
• Debt Maturities: Review the $329.0 million bridge facility maturing in September 2004 and the Company's plan for refinancing or repayment.
• Development Pipeline: Assess the progress and pre-leasing status of the 26 ground-up development projects managed by KDI.
• Joint Venture Performance: Evaluate the equity income contributions from KIR, KROP, and the RioCan Venture, which are significant to overall earnings.