Kimco Realty Corporation — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015, with comparative results for 2014 and 2013. This is an annual filing, not a standalone fourth-quarter report.
Business context
Kimco is a REIT focused on owning and operating open-air shopping centers, generally anchored by grocery, discount or drugstore tenants. At year-end it had interests in 605 shopping centers totaling 96.0 million square feet, plus 446 other property interests. The combined shopping center portfolio was 95.0% leased. Management’s strategy emphasized upgrading the U.S. portfolio, selling lower-quality assets, redeveloping properties, reducing joint-venture complexity and deleveraging over time.
Financial results and key metrics
| Metric | 2015 | 2014 | Change or context |
|---|---|---|---|
| Rental property revenue | $1,144.5 million | $958.9 million | Up 19.4%, primarily from acquisitions; acquired properties contributed $179.9 million of incremental revenue year over year. |
| Total revenue | $1,166.8 million | $993.9 million | Includes management and other fee income. |
| Operating income | $343.6 million | $310.3 million | Approximately 29.5% of total revenue in 2015; depreciation and amortization rose 33.5% to $344.5 million. |
| Net income attributable to Kimco | $894.1 million | $424.0 million | Increase reflected substantial gains from joint-venture and property transactions, among other factors. |
| Net income available to common shareholders | $831.2 million | $365.7 million | 2015 diluted EPS was $2.00, versus $0.89. |
| FFO / adjusted FFO | $643.2 million / $603.4 million | $596.2 million / $576.9 million | Diluted FFO was $1.56 per share; adjusted FFO was $1.46 per share. Both are non-GAAP measures. |
| U.S. same-property NOI | Up 3.1% | — | Growth was attributed mainly to lease-up and rent commencements. |
| Cash flow from operations | $493.7 million | $629.3 million | Down $135.6 million, mainly reflecting lower joint-venture operating distributions and timing of receipts and payments. |
| Cash flow from investing / financing | $21.4 million / $(512.9) million | $126.7 million / $(717.5) million | Investing cash flow included joint-venture liquidation proceeds; financing cash flow included debt activity, dividends and preferred-stock redemption. |
| Total debt / cash | $5,376.3 million / $189.5 million | $4,596.0 million / $187.3 million | Total debt increased; weighted-average debt maturity was 5.3 years. |
| Total assets / stockholders’ equity | $11,344.2 million / $5,046.3 million | $10,261.4 million / $4,774.8 million | Year-end debt was about 47% of total assets. |
Operating measures were generally solid: U.S. pro-rata occupancy rose to 95.8% from 95.7%, and U.S. consolidated portfolio occupancy was 95.7%. Average base rent per leased square foot in the U.S. consolidated portfolio increased to $14.36 from $13.50. Dividends declared were $0.975 per common share for 2015, compared with $0.915 in 2014; the Board declared a $0.255 quarterly dividend in November 2015.
Material changes, transactions and unusual items
- Kimco acquired 48 shopping centers, nine out-parcels and three land parcels for an aggregate purchase price of $1.8 billion, including assumed mortgage debt. The acquisitions included buying the remaining interest in the 39-property Kimstone portfolio.
- It disposed of 90 consolidated operating properties and eight out-parcels for $543.9 million in aggregate sales proceeds. Reported gains included $125.8 million, net of tax, on operating-property sales.
- Joint-venture income increased to $480.4 million from $159.6 million. The year included a $373.8 million gain from selling Kimco’s interest in 32 Canadian properties through the RioCan venture and a $149.2 million gain from remeasuring previously held interests when Kimco gained control of properties.
- Interest, dividends and other investment income included a $39.9 million realized gain on marketable securities. The filing also reports $45.5 million of impairment charges before noncontrolling interests and taxes.
- Operating cash flow declined despite higher reported earnings. The reported earnings increase included significant transaction gains and should not be read as equivalent growth in recurring property cash generation.
- Kimco substantially exited Mexico and completed its exit from South America, including selling its remaining Chilean property. It began exiting Canada; the timing and accounting effects of completing that exit remained relevant.
- The company redeemed all outstanding 6.90% Class H preferred shares for $175.0 million and recorded a $5.8 million non-cash charge related to the redemption.
Liquidity, outlook and risks
At December 31, 2015, Kimco had a $1.75 billion unsecured revolving credit facility with no borrowings outstanding and $0.9 million allocated to letters of credit. Management reported compliance with debt covenants. It expected to meet 2016 consolidated maturities through operating cash flow, the revolver, extensions where available and refinancing. The filing gives 2016 consolidated debt maturities of $776.5 million in its liquidity discussion; the contractual-obligations table reports $790.5 million of principal, reflecting differing presentation and exclusions.
For 2016, management anticipated $450–$550 million of operating-property acquisitions, $175–$225 million of redevelopment and re-tenanting commitments, and $75–$125 million of ground-up development spending. Five U.S. ground-up projects were in progress, with estimated costs to complete of $260–$270 million. No FFO or earnings-per-share guidance is provided in the supplied filing text.
- Key business risks include tenant financial distress or bankruptcies, anchor-tenant departures, retail competition and e-commerce effects, local real-estate conditions, vacancies and the cost or timing of redevelopment and new development.
- Financing, refinancing, interest-rate and asset-sale risks remain material. Management noted that non-recourse mortgage spreads had generally widened, while unsecured debt markets remained functional.
- Kimco received an SEC subpoena in 2013 concerning the SEC’s Wal-Mart-related Foreign Corrupt Practices Act investigation and is cooperating with the SEC and a parallel DOJ investigation. The company stated it could not predict the investigations’ duration, scope or result.
- Other exposures include a disputed IRS proposed assessment involving a $40.9 million penalty-tax position, foreign tax and currency risks, joint-venture commitments, environmental liability and cybersecurity risks. Management said resolution of the tax audits was not expected to materially affect the financial statements.
- Kimco’s REIT status depends on meeting qualification and distribution requirements. Losing that status could materially increase taxes and reduce funds available for dividends.
Important facts for investors to verify
- How much of 2015 earnings and FFO growth came from recurring property operations versus the Canadian disposition, change-in-control gains, property sales and securities gains.
- Whether operating cash flow and recurring joint-venture distributions recover after the 2015 decline, and how cash generation compares with dividends and planned capital spending.
- The refinancing plan and final outcomes for 2016 consolidated and joint-venture debt maturities, including the difference between the filing’s maturity presentations.
- Progress and realized pricing on the announced portfolio exits, particularly Canada, and any related taxes, currency translation adjustments or impairment charges.
- Leasing and tenant-retention trends, especially upcoming expirations: 2017 leases represent 14.1% of gross annual rent in the disclosed U.S. consolidated lease-expiration schedule.
- Developments in the SEC/DOJ investigation and the IRS matter, as well as any material changes to contingent liabilities or REIT qualification.