Kimco Realty Corporation — Q2 2010 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2010. Kimco owned interests in 1,465 properties totaling 150 million square feet across the U.S., Puerto Rico, Canada, Mexico and South America. Consolidated shopping-center occupancy was 91.7%, versus 91.4% a year earlier.
Financial performance and position
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Rental revenue | $214.0 million | $188.1 million | $429.9 million | $380.5 million |
| Income (loss) from continuing operations | $25.9 million | $(120.5) million | $79.2 million | $(79.7) million |
| Net income (loss) available to common shareholders | $12.8 million | $(146.5) million | $51.8 million | $(119.9) million |
| Basic and diluted EPS | $0.03 | $(0.40) | $0.13 | $(0.37) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $229.7 million | $198.0 million |
For the six months, investing activities provided $105.0 million, largely reflecting property-sale proceeds; financing activities used $321.5 million. Cash increased $13.2 million to $135.3 million. At June 30, total assets were $9.88 billion, total liabilities $4.75 billion, and total equity $5.04 billion. Notes, mortgages and construction loans totaled approximately $4.26 billion, down from approximately $4.43 billion at year-end 2009. The company reported approximately $1.6 billion of availability under its U.S. revolving facility.
Rental revenue rose 13.8% in Q2 and 13.0% for the six-month period, mainly due to acquisitions and, to a lesser extent, higher occupancy and completed development or redevelopment work. Rental property expenses increased 16.9% in Q2 and 14.7% for six months; depreciation and amortization also increased. Interest expense rose $8.7 million in Q2 and $18.7 million for six months, primarily reflecting higher levels of secured debt at higher rates.
Material changes and unusual items
- The return to reported profit versus 2009 was driven substantially by lower impairment charges: 2010 impairment charges were approximately $11.8 million for the six months, compared with approximately $149.2 million in 2009 cash-flow adjustments. The income statement also shows much lower property, investment and joint-venture impairments than in 2009.
- Kimco sold seven properties to newly formed joint ventures for approximately $438.1 million, including assignment of $159.9 million of mortgage debt, and recognized a gain of approximately $2.4 million. It also received net proceeds of approximately $181.6 million from various operating- and development-property sales.
- The common dividend was $0.32 per share for the first six months, compared with $0.50 in the prior-year period. After quarter-end, the board declared a $0.16-per-share quarterly dividend, payable October 15, 2010.
- Marketable securities totaled $208.6 million. Valad convertible notes carried an unrealized loss of approximately $23.0 million; management said it expected to recover their full cost basis and did not expect to be required to sell before recovery.
Outlook, risks and contingencies
Management gave no specific earnings guidance. It planned to focus on neighborhood and community shopping centers, sell certain non-strategic investments over time, and continue deleveraging. It anticipated approximately $20–30 million of 2010 redevelopment and re-tenanting commitments and $35–50 million of remaining development commitments, to be funded from operating cash flow, financing availability and other sources. Management said capital markets had stabilized and it believed financing and refinancing alternatives were viable, while warning that conditions could deteriorate.
Management identified economic weakness, tenant bankruptcies or closures, leasing and occupancy pressure, refinancing access and cost, interest and currency movements, investment valuations, operating-cost increases and impairments as key risks. It did not expect announced retailer closures to materially harm overall performance, but noted weak retail and real-estate transaction conditions could constrain near-term growth.
- At June 30, 2010, remaining-2010 maturities included $52.2 million of consolidated debt, $425.2 million of unconsolidated joint-venture debt and $227.5 million associated with the preferred-equity program. KimPru repaid its $287.5 million term facility in July, primarily through partner contributions.
- A Canadian tax assessment dispute required a letter of credit of approximately CAD $66 million (about US$62.1 million). Kimco said it believed it had a defense against liability.
- A property in a Kimco Income REIT joint venture was in foreclosure proceedings with its mortgage lender.
- Kimco reported compliance with its debt covenants, effective disclosure controls, and no material change in internal control over financial reporting. It reported no material changes to the risk factors in its 2009 Form 10-K.
Important facts for investors to verify
- Reconcile the filing’s differing earnings figures: the financial statements report Q2 net income attributable to Kimco of $24.6 million and common-shareholder net income of $12.8 million, with diluted EPS of $0.03; MD&A cites $27.5 million attributable net income and $0.04 per diluted share. For six months, the statements report $75.4 million attributable to Kimco and $51.8 million available to common shareholders, while MD&A cites $78.3 million attributable net income.
- Review debt maturities, revolver availability and the July repayment of KimPru’s facility, including refinancing needs for unconsolidated ventures and preferred-equity investments.
- Assess the assumptions behind property and investment valuations, impairment charges, and management’s expectation of recovering the Valad notes’ full cost basis.
- Monitor occupancy, tenant credit and closures, planned asset sales, development spending, the Canadian tax dispute and the joint-venture foreclosure.