Kimco Realty Corporation (KIM) — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise. The filing combines Kimco Realty Corporation and its operating company, Kimco Realty OP, LLC. A January 2023 reorganization established the UPREIT structure; the statements are presented as if the common-control reorganization had occurred at the earliest period shown.
Business context and financial performance
Kimco owns and operates open-air, primarily grocery-anchored shopping centers and mixed-use assets. At quarter-end, it had interests in 528 U.S. shopping center properties totaling 90.1 million square feet, plus 21 other property interests, primarily through investments.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $442.8 | $427.2 | $885.7 | $854.4 |
| Operating income | $157.2 | $133.2 | $329.7 | $276.5 |
| Net income (loss) available to common shareholders | $100.4 | $(125.8) | $383.9 | $105.2 |
| Diluted GAAP earnings per share | $0.16 | $(0.21) | $0.62 | $0.17 |
| FFO per diluted share (non-GAAP) | $0.39 | $0.40 | $0.78 | $0.79 |
| Same-property NOI (non-GAAP) | $326.5 | $319.1 | $651.5 | $639.8 |
Same-property NOI increased 2.3% in Q2 and 1.8% for the first half, principally reflecting leasing-driven rental growth, partly offset by higher tenant credit losses. Q2 rental-property revenue rose $15.7 million year over year; management cited leasing activity and portfolio growth, including acquired properties.
Cash flow, debt and liquidity
- Operating cash flow: $600.3 million for the six months, up from $442.3 million. The increase included the $194.1 million ACI special dividend, property operations and leasing; it is not solely recurring property cash flow.
- Investing and financing: Investing activities provided $162.9 million, compared with $155.1 million used in the prior-year period. Financing activities used $376.6 million, including $297.7 million of dividends paid.
- Cash and marketable securities: Cash and cash equivalents were $536.5 million at June 30, compared with $149.8 million at December 31, 2022. Marketable securities were $314.8 million, including 14.2 million ACI shares valued at $310.1 million.
- Debt: Notes payable were $6.775 billion and mortgages payable $359.6 million, or approximately $7.135 billion combined. The filing reports $18.0 million of consolidated floating-rate debt. Interest expense was $60.7 million in Q2, up $4.2 million year over year.
- Credit access and covenants: A new $2.0 billion unsecured revolver was established in February, maturing in March 2027 with two six-month extension options and an accordion feature up to $2.75 billion. It was undrawn at quarter-end; Kimco reported compliance with its covenants. The company also reported over 485 unencumbered property interests.
- Debt fair value: Carrying value of notes payable was $6.775 billion versus estimated fair value of $5.880 billion; mortgage carrying value was $359.6 million versus estimated fair value of $298.5 million.
Material changes and unusual items
- Net income comparisons were materially affected by ACI-related items. In the first half of 2023, Kimco recorded $194.1 million of ACI special dividend income and $4.4 million of net gains on marketable securities; the prior-year first half included a $139.7 million net loss on marketable securities. Q2 2023 included a $14.6 million securities gain, versus a $261.5 million loss in Q2 2022.
- Kimco sold 14.1 million ACI shares for $282.3 million net proceeds and recognized a $241.2 million taxable long-term capital gain. It expects to pay $61.0 million in federal and state taxes on the gain and intends to retain the sale proceeds for general corporate purposes.
- Property-sale gains were $52.4 million for the first half of 2023, versus $7.1 million in 2022. The 2023 dispositions included four operating properties and eight parcels. First-half 2023 acquisitions/consolidations had an aggregate purchase price of $166.2 million.
- First-half impairment charges were $11.8 million, related to properties being marketed for sale; the comparable 2022 charge was $14.7 million. Management says valuations were primarily based on signed contracts or third-party letters of intent.
- Kimco’s February 2023 UPREIT reorganization changed the public-company/operating-company structure, but the filing states the entities’ assets and liabilities are the same in their respective statements; equity and capital presentation differs.
Outlook, risks and contingencies
- Capital plans: Management anticipates spending approximately $100–$200 million on acquisitions or additional property interests and $125–$175 million on redevelopment and re-tenanting for the remainder of 2023. Funding may come from operating cash flow, cash, dispositions, marketable-security sales and/or the revolver.
- Dividends: The board declared a $0.23 per-share quarterly common dividend for September 2023. Because of the ACI special dividend, Kimco says it may need to make a special distribution to meet REIT requirements; form and amount were undecided, with an announcement expected during 2023.
- Operating and market risks: Management highlights inflation, elevated interest rates, slower growth or recession, tenant bankruptcies, labor and supply-chain constraints, possible rent and rent-spread pressure, credit losses, property impairments, financing/refinancing conditions, and market-value volatility in ACI shares and other investments. Long-term leases and expense-reimbursement provisions may partly mitigate inflation exposure.
- Commitments and guarantees: Investment funding commitments totaled $64.7 million, of which $45.5 million had been funded. Outstanding letters of credit were $39.8 million and performance/surety bonds $17.4 million. Kimco guarantees debt-service shortfalls on $45.5 million of Sheridan, Colorado tax-increment bonds; revenues had met debt service to date. Management said ordinary-course legal proceedings were not expected to materially adversely affect the company.
- Governance and controls: On July 27, 2023, the board amended bylaws, including advance-notice/proxy-solicitation provisions and exclusive-forum provisions for specified claims. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- How much of first-half cash flow and reported earnings is recurring property performance versus ACI dividend, ACI share-price movements, property-sale gains and other nonrecurring items.
- Whether same-property NOI and leasing momentum continue, and whether tenant credit losses, operating expenses and insurance costs worsen.
- The amount, form and timing of any special dividend associated with the ACI payment and REIT distribution requirements.
- Execution and funding of the stated 2023 acquisition and redevelopment spending plans, alongside regular dividends and debt maturities.
- Exposure to interest rates, refinancing costs, ACI market value, investment commitments, and the Sheridan bond guarantee; also review the full covenant and maturity disclosures.