Kimco Realty Corporation — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Financial statements are unaudited. Kimco owns and operates neighborhood and community shopping centers; at quarter-end it reported interests in 814 shopping centers and 541 other property interests.
Financial results
Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding 2013 period.
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $262.0 | $221.5 | $750.1 | $656.4 |
| Operating income | $89.8 | $16.7 | $220.8 | $133.6 |
| Income from continuing operations | $104.6 | $50.6 | $300.8 | $187.5 |
| Net income attributable to Kimco | $194.7 | $55.8 | $371.2 | $174.7 |
| Net income per diluted common share | $0.44 | $0.10 | $0.79 | $0.32 |
| FFO per diluted share | $0.39 | $0.34 | $1.07 | $1.02 |
| Adjusted FFO per diluted share | $0.36 | $0.33 | $1.05 | $1.00 |
- Operating trends: Rental-property revenue rose 19.4% in Q3 and 15.0% for the nine months. Management attributed growth to acquisitions, portfolio occupancy improvement to 95.0% from 93.6%, redevelopment completions and leasing. Same-property NOI before foreign-currency effects increased 4.8% in Q3 and 3.3% year to date.
- Earnings quality and unusual items: Net income includes substantial property-sale gains and gains from gaining control of joint ventures. For nine months, property disposition gains were $129.4 million before tax and noncontrolling interests; change-in-control gains were $83.8 million. Impairment charges totaled $107.0 million, including $61.3 million in discontinued operations. FFO and adjusted FFO are non-GAAP measures, not substitutes for GAAP earnings or operating cash flow.
- Cash flow: Nine-month operating cash flow was $510.0 million, down from $533.8 million. Investing activities used $72.1 million, versus $70.3 million provided in 2013; financing activities used $432.5 million, versus $344.3 million. Cash ended at $154.2 million, compared with $148.8 million at year-end 2013.
- Balance sheet and debt: Total assets were $10.29 billion and total equity $4.84 billion. Notes payable were $3.35 billion and mortgages payable $1.34 billion, up from $3.19 billion and $1.04 billion, respectively, at year-end 2013. The company reported $975 million in preferred-stock liquidation preference.
Material changes, outlook and risks
- Kimco acquired properties with an aggregate purchase price of $1.18 billion in the first nine months, including acquisitions of joint-venture interests that brought properties onto its consolidated statements. It disposed of 37 operating properties for $458.1 million in aggregate sales proceeds.
- The company’s portfolio strategy is to acquire higher-quality U.S. properties, sell lesser-quality assets, reduce exposure to Latin America and simplify joint-venture holdings. It identified approximately 150 U.S. properties for sale over the next 18 months; additional impairments may result if sale prices are below carrying values.
- Management anticipated approximately $1.0–$1.2 billion of operating-property acquisitions during 2014 and $100–$150 million in 2014 redevelopment and re-tenanting commitments. These are management expectations, not guarantees.
- A new $1.75 billion unsecured revolving facility, expandable to $2.25 billion, matures in 2018 with extension options to 2019. At September 30, $250 million was drawn and approximately $1.5 billion was available. The company reported compliance with its credit-facility and note covenants.
- Kimco issued $500 million of 3.20% senior unsecured notes due 2021 and repaid $294.6 million of notes that matured in June. It also repaid a $76.3 million Mexican-peso term loan. Management said operating cash, the credit facility and financing alternatives should provide necessary capital.
- The board declared a quarterly common dividend of $0.24 per share, a 6.7% annualized increase, scheduled for payment January 15, 2015. The filing states the board reviews dividend policy quarterly.
- Kimco expects near-term substantial liquidation of Latin American investments. This would require recognition in earnings of accumulated foreign-currency translation losses; the Latin American CTA loss was $127.0 million at quarter-end. Foreign exchange movements could change the amount.
- Principal risks cited include economic and real-estate conditions, tenant defaults, financing and refinancing availability, interest and foreign-exchange movements, acquisition/disposition opportunities, joint-venture and investment valuations, operating costs, leasing and impairment risks.
- The company is cooperating with SEC and Department of Justice investigations concerning possible Foreign Corrupt Practices Act violations related to the Wal-Mart matter. It said the duration, scope and outcome could not be predicted. Management reported disclosure controls were effective and no material change in internal controls; no material risk-factor changes were reported.
Important facts for investors to verify
- How much of earnings growth reflects recurring property operations versus sale gains, change-in-control gains and other unusual items.
- Progress and realized pricing on the planned dispositions, including the possibility of further impairments and recognition of Latin American currency-translation losses.
- Acquisition and redevelopment spending against management’s 2014 targets, and the resulting impact on debt, cash flow and portfolio quality.
- Same-property NOI and occupancy trends, alongside rising property operating expenses and upcoming lease expirations.
- Liquidity, covenant headroom, debt maturities and refinancing needs, including debt held at unconsolidated joint ventures and preferred-equity investments.
- Developments in the SEC/DOJ investigations and any resulting financial, legal or reputational consequences.