Kimco Realty Corporation — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011; filed November 4, 2011. Financial statements are unaudited. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Kimco owns and operates neighborhood and community shopping centers. At quarter-end, it reported interests in 940 shopping-center properties totaling 138.0 million square feet, plus 861 other property interests, for 1,801 properties and 170.2 million square feet across the U.S., Puerto Rico, Canada, Mexico, Chile, Brazil and Peru. Management described a strategic focus on shopping centers and plans to sell certain non-retail assets while expanding institutional joint-venture investing.
Financial performance and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Rental revenue | $216.1 million | $207.2 million | $655.5 million | $625.2 million |
| Net income attributable to Kimco | $55.0 million | $30.3 million | $122.7 million | $105.8 million |
| Net income available to common shareholders | $40.1 million | $17.5 million | $78.1 million | $69.3 million |
| Diluted net income per common share | $0.10 | $0.04 | $0.19 | $0.17 |
| Operating cash flow | Not presented for the quarter | $367.9 million | $358.2 million |
- Quarterly rental revenue rose 4.3%; nine-month rental revenue rose 4.8%. Management cited acquisitions, completed development and redevelopment, tenant buyouts, and shopping-center occupancy of 92.2%, up from 91.8%.
- Nine-month rental property expenses were $190.9 million, up 3.3%; depreciation and amortization was $187.0 million, up 8.1%. The filing does not provide a single company-wide operating margin measure.
- Interest expense for the first nine months declined to $167.8 million from $171.3 million. The 2010 comparison included $10.8 million of early debt-extinguishment charges; none were reported in 2011.
- Cash from investing activities was $79.5 million and financing activities used $392.4 million in the first nine months. Cash and cash equivalents were $180.2 million at September 30, versus $125.2 million at year-end 2010. Marketable securities were $39.7 million, down from $224.0 million, primarily following the sale of Valad notes.
- Quarter-end debt comprised $2.884 billion of notes payable, $1.059 billion of mortgages and $42.0 million of construction loans—about $3.985 billion combined. Total liabilities were $4.539 billion and total assets $9.581 billion. These figures exclude debt at unconsolidated joint ventures and properties in the preferred-equity program.
- At September 30, the company reported approximately $1.7 billion of availability under its revolving facilities. In October, it replaced the prior facilities with a $1.75 billion unsecured revolving credit facility, maturing in October 2015 with a one-year extension option.
Changes, outlook and notable items
- During the first nine months, Kimco acquired nine operating properties for total consideration of $167.3 million, including $51.7 million of assumed debt. It disposed of 17 operating properties, one development property and one outparcel for approximately $70.0 million, recognizing $8.7 million in gains and $8.9 million in impairments.
- Total impairment charges were approximately $16.7 million for the nine months, compared with $12.8 million in the prior-year period. Joint-venture investment income increased, partly reflecting lower impairment charges than in 2010.
- Comprehensive income attributable to Kimco was a loss of $59.1 million in Q3, despite positive net income, principally reflecting a $113.9 million adverse foreign-currency translation adjustment. For the nine months, comprehensive income attributable to Kimco was $60.4 million.
- Management expected 2011 redevelopment and other capital commitments of approximately $60–$70 million and ground-up development commitments of approximately $30–$35 million. Four ground-up projects were in progress at quarter-end. Management expected operating cash flow, credit availability and construction-loan commitments to fund these plans.
- Kimco paid a quarterly common dividend of $0.18 per share on October 17, 2011. The board subsequently declared $0.19 per share, payable January 17, 2012. Management said the board reviews dividends quarterly and intends to balance distributions with capital needs.
- The IRS issued a proposed adjustment in October concerning a capital loss claimed by a taxable subsidiary on the sale of Valad common shares. The notice indicated a potential $40.9 million penalty tax. Kimco disputed the IRS position, intended to appeal, and stated it believed it would prevail.
- Other risks identified include economic and real-estate conditions, tenant credit and lease occupancy, access to financing and refinancing, interest and currency-rate movements, joint-venture and investment valuations, operating-cost increases, and impairments. Management reported no material change to previously disclosed risk factors, no litigation it believed would materially adversely affect the company, and effective disclosure controls.
Key facts for investors to verify
- Whether the occupancy improvement and rental-revenue growth continued, and how acquisitions, dispositions and redevelopment affect comparable-property performance.
- Debt maturities and refinancing needs, including the distinction between consolidated debt and substantial debt held by unconsolidated ventures and preferred-equity properties.
- The terms, covenant headroom and actual availability of the October 2011 revolving facility, along with compliance with debt covenants.
- The outcome and potential financial consequences of the IRS proposed adjustment, including the proposed $40.9 million penalty tax.
- The sustainability of joint-venture and other investment income, impairment levels, capital commitments and the declared dividend relative to recurring cash generation.