Kimco Realty Corporation — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Kimco owns, manages, develops and operates open-air shopping centers and reports as a REIT. At quarter-end, it had interests in 508 shopping centers totaling 84.2 million square feet, plus 374 other property interests.
Financial results and condition
Amounts below are in millions, except per-share data and percentages.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $294.8 | $285.1 | $885.6 | $873.8 |
| Operating income | $99.8 | $76.1 | $258.4 | $229.0 |
| Net income (loss) attributable to common shareholders | $102.0 | $(55.1) | $299.0 | $265.9 |
| EPS, diluted | $0.24 | $(0.13) | $0.70 | $0.63 |
| Adjusted FFO per diluted share (non-GAAP) | $0.38 | $0.38 | $1.13 | $1.12 |
| Same-property NOI (non-GAAP) | $236.5 | $229.4 | $697.5 | $685.8 |
| Cash from operating activities | Not presented by quarter | $493.8 | $444.5 |
- Q3 revenue rose 3.4%; nine-month revenue rose 1.4%. Same-property NOI increased 3.1% for Q3 and 1.7% for the nine-month period.
- At September 30, total assets were $11.70 billion and total equity was $5.41 billion. Cash and cash equivalents were $156.6 million.
- Notes payable were $4.70 billion and mortgages payable were $850.8 million, or $5.55 billion combined, versus $5.07 billion combined at December 31, 2016. The company issued $1.25 billion of unsecured notes, repaid $684.6 million of maturing property mortgages, and obtained a $206 million non-recourse mortgage during the nine months.
- The $2.25 billion revolving credit facility matures in March 2021, with two six-month extension options; it may be increased to $2.75 billion. At quarter-end, $25 million was outstanding and $0.5 million was allocated to letters of credit. Kimco reported compliance with debt covenants.
- Investing activities used $278.3 million in the first nine months, compared with $248.2 million provided in 2016; financing activities used $201.4 million, compared with $711.8 million used in 2016.
Material changes and unusual items
- Common-shareholder earnings increased sharply in Q3 from the prior-year loss. The comparison includes 2016 tax expense of $61.4 million, mainly related to a valuation allowance, versus a $0.7 million tax benefit in Q3 2017. Lower impairments and early debt-extinguishment charges also supported the comparison.
- Nine-month common-shareholder earnings rose to $299.0 million, but included a $71.2 million gain from gaining control of properties previously held in joint ventures, a $62.1 million gain on property sales, and foreign-currency liquidation gains and losses. Results also benefited from a $34.6 million Albertsons-related distribution recognized as income. By contrast, equity income from joint ventures fell substantially from 2016, when property and interest sales generated significant gains.
- Impairment charges were $34.3 million for the first nine months, down from $68.1 million in 2016. They included write-downs on properties sold or marketed for sale and a property affected by unfavorable local market conditions.
- Kimco sold 15 operating properties and eight parcels for aggregate proceeds of $230.2 million during the nine months. It acquired or consolidated operating properties with a reported total purchase price of $547.0 million.
- Series L preferred shares generated $217.6 million net proceeds; Kimco used $225 million to partially redeem Series I preferred stock and recorded a $7.0 million redemption charge.
Outlook, management commentary and risks
- Management described a strategy of upgrading the portfolio, exiting or reducing non-core international exposure and joint ventures, redeveloping existing centers, and selectively developing or acquiring U.S. properties. South America exits were completed; Mexico and Canada exits were substantially completed.
- For the remainder of 2017, management anticipated approximately $140–165 million of operating-property acquisitions, $75–100 million of redevelopment and re-tenanting investment, and $75–100 million of development spending. Estimated remaining costs to complete development projects were $225–275 million. The filing provides no formal earnings or FFO guidance.
- After quarter-end, the board declared a quarterly common dividend of $0.28 per share, a 3.7% annualized increase, payable January 16, 2018. The prior quarterly rate was $0.27.
- Hurricanes Harvey and Irma caused minimal reported property damage. Damage assessments continued for seven Puerto Rico properties following Hurricane Maria; five sustained varying damage. Kimco cited property insurance coverage up to $62.0 million and business-interruption coverage up to $39.3 million, subject to a $1.2 million combined deductible, and expected any charge to be immaterial after insurance.
- A $12.4 million consolidated mortgage was in default at quarter-end; management was working with the special servicer on a resolution. The company also disclosed an ongoing SEC and DOJ investigation related to possible Foreign Corrupt Practices Act violations involving Walmart; Kimco said it could not predict the investigation’s duration, scope or outcome.
- Risks cited include economic and local real-estate conditions, tenant failures or vacancies, refinancing and interest-rate exposure, asset-sale proceeds and impairments, joint-venture and investment valuations, operating-cost increases, and development and acquisition execution. A 1% increase in short-term rates would have increased nine-month interest expense by $0.9 million, based on reported variable-rate debt.
Key facts for investors to verify
- How much of the increase in GAAP earnings reflects recurring property operations versus property-sale gains, control-change gains, tax items and investment distributions; review adjusted FFO alongside GAAP results.
- Progress and cash requirements for planned acquisitions, redevelopment and development, and whether asset-sale proceeds support the capital-recycling plan.
- Final Hurricane Maria damage, insurance recoveries and any recognized impairment or business-interruption losses.
- Resolution of the $12.4 million mortgage default, upcoming debt maturities, and continued covenant compliance and access to financing.
- Developments in the SEC/DOJ investigation and the potential outcome, which the filing states cannot be predicted.