KIM

Business Context and Reporting Period

Company: Kimco Realty Corporation (Kimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: Kimco is a major owner and operator of neighborhood and community shopping centers. As of March 31, 2009, the Company held interests in 1,946 properties totaling approximately 181.3 million square feet of gross leasable area (GLA) across 45 states and several international markets including Mexico, Chile, Brazil, and Peru. The Company operates as a Real Estate Investment Trust (REIT).

Key Financial Metrics

Material Changes vs. Prior Period

• Significant Decline in Net Income: Net income attributable to common shareholders dropped 69% to $26.6 million from $86.6 million in Q1 2008. This was primarily driven by a $29.4 million decrease in equity income from joint ventures (notably the Albertson's joint venture) and a $12.6 million decrease in income from other real estate investments.
• Investment Income Reduction: Interest, dividends, and other investment income fell $14.1 million to $7.9 million, largely due to lower realized gains from the sale of marketable securities compared to the prior year.
• Operating Revenue Growth: Rental property revenues increased 2.7% to $193.9 million, driven by acquisitions in 2008 and completed development projects. However, this was partially offset by a decline in occupancy from 95.8% (Q1 2008) to 92.0% (Q1 2009).
• Expense Increases: General and administrative expenses rose $5.2 million, including $1.9 million in severance costs due to employee terminations. Operating and maintenance expenses increased 13.9%, partly due to higher snow removal costs.
• Debt Repayment: The Company repaid $130.0 million in senior notes that matured in February 2009.

Outlook, Management Commentary, and Risks

• Dividend Policy Change: Recognizing the need for financial flexibility and the impact of a recent stock offering, the Board declared a reduced quarterly cash dividend of $0.06 per share for the second quarter of 2009, down from $0.44 per share in the first quarter. The Company expects to maintain this reduced rate for the balance of 2009.
• Capital Markets Activity: In April 2009 (subsequent to the period end), the Company completed a public stock offering raising approximately $717.3 million and secured a $220.0 million unsecured term loan. Proceeds were used to pay down revolving credit facilities.
• Economic Environment: Management notes that the retail shopping sector has been negatively affected by the economic recession, leading to tenant bankruptcies and store closings. While currently not expected to have a material adverse effect, the lack of real estate transactional activity is expected to curtail growth in 2009.
• Liquidity and Debt: The Company maintains approximately $780.7 million in availability under its credit facilities as of March 31, 2009. Management believes it has viable refinancing alternatives despite a constrained credit environment. Approximately $160.7 million of construction loans mature in 2009.
• Investment Portfolio: The Company holds marketable securities with aggregate unrealized losses of approximately $59.3 million ($21.6 million in equity securities and $37.7 million in Valad Property Group convertible notes). Management does not currently believe these declines are other-than-temporary.

Key Facts for Investor Verification

• Dividend Sustainability: Verify the impact of the significant dividend reduction (from $0.44 to $0.06 per share) on future cash flow requirements and investor returns.
• Occupancy Trends: Monitor the decline in occupancy rates (92.0% vs 95.8% prior year) and the potential for further tenant bankruptcies or lease terminations in the current economic climate.
• Debt Maturities: Assess the Company's ability to refinance approximately $266.2 million of consolidated debt maturing in the remainder of 2009 amidst tight credit markets.
• Unrealized Losses: Review the status of the $59.3 million in unrealized losses on marketable securities to determine if future write-downs (other-than-temporary impairments) may be required.
• Joint Venture Exposure: Evaluate the continued performance of unconsolidated joint ventures (e.g., KimPru), which contributed significantly to the decline in equity income compared to the prior year.