Kimco Realty Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; filed May 6, 2013. Financial statements are unaudited. Kimco is a REIT focused on neighborhood and community shopping centers.
Business context
At quarter-end, Kimco reported interests in 895 shopping-center properties totaling 131.4 million square feet, plus 824 other property interests. Its consolidated shopping-center portfolio occupancy was 93.2%, up from 92.4% a year earlier. Management described a strategy of focusing on shopping centers, selling non-core assets, and reducing leverage over time.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Total revenue | $241.2 million | $224.0 million; up 7.7% |
| Rental-property revenue | $232.8 million | $214.6 million; up 8.5% |
| Operating income | $77.1 million | $68.9 million; operating margin 32.0% vs. 30.7% |
| Net income attributable to Kimco | $67.8 million | $53.6 million |
| Net income available to common shareholders | $53.2 million | $38.1 million |
| Diluted earnings per common share | $0.13 | $0.09 |
| FFO per diluted share, non-GAAP | $0.33 | $0.31 |
| Adjusted FFO per diluted share, non-GAAP | $0.32 | $0.31 |
| Same Property NOI, non-GAAP | $233.7 million; up 4.0% | $224.8 million |
Operating cash flow was $149.9 million, compared with $156.9 million. Investing activities used $161.6 million, versus $32.5 million, principally reflecting investment spending and lower property-sale proceeds. Financing activities provided $36.7 million. Cash and cash equivalents were $166.9 million at quarter-end.
Consolidated notes payable were $3.337 billion and mortgages payable were $1.114 billion, totaling $4.451 billion, compared with $4.195 billion at December 31, 2012. The $1.75 billion revolving credit facility had $499.5 million outstanding and $1.25 billion available, with $4.3 million allocated to letters of credit. Kimco reported compliance with its debt covenants; leverage under the credit-facility covenant was 45% against a maximum of 60%. Remaining 2013 maturities included $441.5 million of consolidated debt. Unconsolidated joint-venture debt and debt associated with preferred-equity investments are separate from Kimco’s consolidated debt.
Quarterly cash dividends paid were $97.7 million. The company declared a $0.21-per-common-share dividend for July 2013. Preferred stock had an aggregate liquidation preference of $975 million.
Material changes and unusual items
- Rental-property revenue rose mainly from acquisitions, higher occupancy, completed projects and Latin American portfolio growth. Same Property NOI increased $8.9 million, or 4.0%.
- Net income included $23.2 million of gains from changes in control when Kimco acquired properties from joint ventures. These gains, along with lower interest expense, contributed to earnings growth; higher taxes and lower joint-venture income partly offset it.
- Equity income from joint ventures declined to $24.1 million from $34.7 million, primarily because the prior-year period included gains on property sales and other transaction income.
- Kimco acquired seven properties for an aggregate stated purchase price of $221.0 million, including assumed debt and other consideration. The acquisitions included a $22.7 million gain from remeasuring a previously held interest in one property.
- Property impairment charges were $3.2 million, versus $9.6 million in Q1 2012. Two properties with a $17.5 million aggregate book value were written down based on purchase offers totaling $14.7 million.
- In March, Kimco refinanced a maturing Mexican-peso term loan with a five-year loan bearing a floating rate of TIIE plus 1.35% (6.13% at quarter-end). It also repaid $100 million of 6.125% notes that matured in January.
Outlook, risks and contingencies
The filing provides no company-wide earnings or FFO guidance. Management estimated 2013 spending of $90–$100 million on reformatting, re-tenanting and redevelopment, and $10–$20 million on three ground-up development projects. It expected to fund these commitments from operating cash flow and available credit. Management anticipated funding 2013 consolidated maturities through operating cash flow, its credit facility and refinancing; joint-venture and preferred-equity maturities were expected to be addressed through refinancing and partner contributions as appropriate.
Management cited risks including economic and property-market conditions, tenant credit and lease terminations, access to financing, interest and foreign-exchange movements, asset and investment valuations, and execution of acquisitions and dispositions. A 1% rise in short-term rates would increase quarterly interest expense by an estimated $2.6 million, based on variable-rate debt outstanding. Kimco stated it was not in violation of its credit-facility or senior-note covenants.
The IRS proposed a $40.9 million penalty tax related to a disputed capital loss; Kimco contests the position and said it intends to defend its tax treatment. The company was also responding to an SEC subpoena and cooperating with a parallel DOJ investigation concerning possible Foreign Corrupt Practices Act violations involving Wal-Mart; it said the investigations’ duration, scope and outcome could not yet be predicted. Management said tax-audit resolutions were not expected to materially affect the financial statements. In April 2013, Kimco agreed to sell nine Mexican properties held in unconsolidated joint ventures; the filing estimated a $26.6 million after-tax gain attributable to Kimco, while noting expected losses on three properties that had been impaired in Q1.
Important facts for investors to verify
- Whether acquisition-related gains and other non-recurring items obscure the trend in recurring operating performance; compare GAAP earnings with FFO, adjusted FFO and Same Property NOI.
- The refinancing and repayment plan for 2013 consolidated maturities, and progress toward management’s stated deleveraging objective.
- Occupancy, leasing and tenant credit trends, including the effect of acquisitions and redevelopment on future rental income.
- Outcome and potential financial exposure from the IRS dispute and the SEC/DOJ investigations; neither outcome is established in this filing.
- Completion, final proceeds and realized gain or loss from the announced Mexican-property sale, and the funding of planned redevelopment and development spending.