KIM

Business Context and Reporting Period

Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Kimco is a major owner and operator of neighborhood and community shopping centers. As of September 30, 2009, the Company held interests in 1,934 properties totaling approximately 179.4 million square feet of gross leasable area (GLA) across 45 states, Puerto Rico, Canada, Mexico, and South America. The Company is shifting strategy away from non-retail assets to focus on core retail operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income Decline: Net income attributable to the Company dropped from $108.6 million in Q3 2008 to $40.1 million in Q3 2009. For the nine-month period, the Company reported a net loss of $56.1 million compared to net income of $301.4 million in the prior year.
• Impairment Charges: The primary driver of the loss was non-cash impairment charges totaling approximately $176.5 million recognized in June 2009. This included $50.0 million for property carrying values, $26.9 million for joint venture investments, $40.6 million for preferred equity investments, and $29.6 million for marketable securities.
• Revenue Growth: Despite the loss, rental revenues increased 1.0% in Q3 and 2.4% for the nine months ended September 30, 2009, driven by acquisitions and development completions, partially offset by a decline in occupancy from 95.1% (2008) to 91.3% (2009).
• Joint Venture Income: Equity in income of joint ventures decreased significantly ($69.5 million in Q3 and $134.7 million for nine months) due to impairments and reduced income from the Albertson's joint venture following property sales in 2008.
• Debt Reduction: Total debt decreased from $4.56 billion at year-end 2008 to $3.97 billion at September 30, 2009, due to significant repayments of construction loans and unsecured term loans.

Guidance, Outlook, and Risks

• Capital Markets: Management notes that credit markets remain constrained but accessible. The Company successfully issued $300 million in 10-year Senior Unsecured Notes in September 2009 and completed a $717 million common stock offering in April 2009.
• Dividend Policy: The Company paid $1.00 per common share in dividends during the nine months ended September 30, 2009. Management expects to return to a ratable quarterly dividend starting in January 2010, subject to Board discretion and economic conditions.
• Strategic Shift: The Company is actively divesting non-strategic assets (non-retail preferred equity, marketable securities, urban mixed-use) to focus on core neighborhood and community shopping centers.
• Subsequent Event: On November 4, 2009, the Company acquired the remaining 85% interest in PL Retail LLC for approximately $175 million, funded by its revolving credit facility.
• Risks: Key risks include adverse economic conditions affecting tenant solvency and occupancy, inability to refinance debt on favorable terms, and continued volatility in real estate valuations leading to further impairments.

Investor Verification Checklist

• Impairment Sustainability: Verify if the $176.5 million in impairment charges represent a one-time write-down or if further declines in asset values are anticipated given the ongoing recession.
• Occupancy Trends: Monitor the occupancy rate (currently 91.3%) and the impact of tenant bankruptcies on future rental revenue stability.
• Debt Maturities: Review the schedule of debt maturities, particularly the $67.3 million due in 2010, to assess refinancing risks in a tight credit market.
• Joint Venture Exposure: Assess the carrying value of unconsolidated joint ventures (approx. $1.2 billion) and the potential for further equity income reductions or impairments.
• Dividend Coverage: Evaluate Funds From Operations (FFO) relative to the dividend payout to ensure sustainability of the $1.00 annual dividend rate.