KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 

 

(1)	Includes restricted assets of consolidated variable interest entities (“VIEs”) at March 31, 2019 and December 31, 2018 of $241,538 and $239,012, respectively.  See Footnote 11 of the Notes to Condensed Consolidated Financial Statements.
(2)	Includes non-recourse liabilities of consolidated VIEs at March 31, 2019 and December 31, 2018 of $140,769 and $143,186, respectively.  See Footnote 11 of the Notes to Condensed Consolidated Financial Statements.

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

 

  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months Ended March 31, 2019 and 2018

(Unaudited)

(in thousands)

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                        

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by Kimco Realty Corporation (the “Company”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with the safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “target,” “forecast” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company’s control and could materially affect actual results, performances or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to (i) general adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (iv) the Company’s ability to raise capital by selling its assets, (v) changes in governmental laws and regulations and management’s ability to estimate the impact of such changes, (vi) the level and volatility of interest rates and managements’ ability to estimate the impact thereof, (vii) risks related to the Company’s international operations, (viii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (ix) valuation and risks related to the Company’s joint venture and preferred equity investments, (x) valuation of marketable securities and other investments, (xi) increases in operating costs, (xii) changes in the dividend policy for the Company’s common and preferred stock and the Company’s ability to pay dividends at current levels, (xiii) the reduction in the Company’s income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xiv) impairment charges, (xv) unanticipated changes in the Company’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity and (xvi) the risks and uncertainties identified under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year-ended December 31, 2018. Accordingly, there is no assurance that the Company’s expectations will be realized. The Company disclaims any intention or obligation to update the forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to refer to any further disclosures the Company makes or related subjects in the Company’s Current Reports on Form 8-K that the Company files with the Securities and Exchange Commission (“SEC”).

 

The following discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes thereto.  These unaudited financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.

 

Executive Overview

 

Kimco Realty Corporation, a Maryland corporation, is one of North America’s largest publicly traded owners and operators of open-air shopping centers.   The terms “Kimco,” the “Company,” “we,” “our” and “us” each refer to Kimco Realty Corporation and our subsidiaries, unless the context indicates otherwise.  The Company’s mission is to create destinations for everyday living that inspire a sense of community and deliver value to our many stakeholders.

 

The Company is a self-administered real estate investment trust (“REIT”) and has owned and operated open-air shopping centers for 60 years.  The Company has not engaged, nor does it expect to retain, any REIT advisors in connection with the operation of its properties. As of March 31, 2019, the Company had interests in 430 shopping center properties (the “Combined Shopping Center Portfolio”), aggregating 75.5 million square feet of gross leasable area (“GLA”), located in 27 states and Puerto Rico. In addition, the Company had 289 other property interests, primarily through the Company’s preferred equity investments and other real estate investments, totaling 4.7 million square feet of GLA. The Company’s ownership interests in real estate consist of its consolidated portfolio and portfolios where the Company owns an economic interest, such as properties in the Company’s investment real estate management programs, where the Company partners with institutional investors and also retains management.  

 

The Company’s operating strategies are to (i) own and operate its shopping center properties at their highest potential through maximizing and maintaining rental income and occupancy levels, (ii) attract local area customers to its shopping centers, which offer off-price merchandise and day-to-day necessities rather than high-priced luxury items, and (iii) maintain a strong balance sheet.

 

The Company’s investment strategy is to invest capital into high quality assets focusing on major metropolitan-area U.S. markets, predominantly on the East and West coasts and in the Sunbelt region, which are supported by strong demographics, significant projected population growth, and where the Company perceives significant barriers to entry while disposing of lesser quality assets in less desirable locations. Through this strategy, the Company has steadily progressed in its transformation of its portfolio and will continue these efforts as deemed necessary to maximize the quality and growth of its portfolio. The properties acquired are primarily located in major metropolitan areas allowing tenants to generate higher foot traffic resulting in higher sales volume. The Company believes that this will enable it to maintain higher occupancy levels, rental rates and rental growth. In addition, the Company, on a selective basis, has embarked on several ground-up development and re-development projects which include residential and mixed-use components.

 

 

The Company’s investment strategy also includes the retail re-tenanting, renovation and expansion of its existing centers and acquired centers, while also pursuing redevelopment opportunities to increase overall value within its portfolio. The Company may selectively acquire established income-producing real estate properties and properties requiring significant re-tenanting and redevelopment, primarily in geographic regions in which the Company presently operates. Additionally, the Company may selectively acquire land parcels in its key markets for real estate development projects for long-term investment. The Company may consider investments in other real estate sectors and in geographic markets where it does not presently operate should suitable opportunities arise. The Company also continues to simplify its business by reducing the number of joint venture investments.

 

As part of the Company’s investment strategy each property is evaluated for its highest and best use, which may include residential and mixed-use components. In addition, the Company may consider other opportunistic investments related to retailer controlled real estate such as, repositioning underperforming retail locations, retail real estate financing and bankruptcy transaction support. The Company has an active capital recycling program which provides for the disposition of certain properties. If the estimated fair value for any of these assets is less than their net carrying values, the Company would be required to take impairment charges and such amounts could be material.

 

Results of Operations

 

Comparison of the three months ended March 31, 2019 and 2018

 

The following table presents the comparative results from the Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 2019, as compared to the corresponding period in 2018 (in thousands, except per share data):

 

		Three Months Ended March 31,
		2019				2018				$ Change
Revenues
Revenues from rental properties, net (1)		$	290,634			$	299,717			$	(9,083	)
Management and other fee income			4,376				4,361				15
Operating expenses
Rent (2)			(2,692	)			(2,818	)			126
Real estate taxes			(39,347	)			(40,434	)			1,087
Operating and maintenance (3)			(40,896	)			(43,331	)			2,435
General and administrative (4)			(25,831	)			(22,398	)			(3,433	)
Provision for doubtful accounts			-				(2,131	)			2,131
Impairment charges			(4,175	)			(7,646	)			3,471
Depreciation and amortization			(71,561	)			(81,382	)			9,821
Gain on sale of properties/change in control of interests			23,595				56,971				(33,376	)
Other income/(expense)
Other income, net			2,622				6,179				(3,557	)
Interest expense			(44,395	)			(49,943	)			5,548
Provision for income taxes, net			(630	)			(52	)			(578	)
Equity in income of joint ventures, net			18,754				16,913				1,841
Equity in income of other real estate investments, net			6,224				9,976				(3,752	)
Net (income)/loss attributable to noncontrolling interests			(509	)			108				(617	)
Preferred dividends			(14,534	)			(14,589	)			55
Net income available to the Company's common shareholders		$	101,635			$	129,501			$	(27,866	)
Net income available to the Company:
Diluted per common share		$	0.24			$	0.30			$	(0.06	)

 

(1)

The Company reclassified $63.7 million of Reimbursement income and $5.6 million of Other rental property income to Revenues from rental properties, net on the Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 2018. See Footnote 2 to the Notes to the Company’s Condensed Consolidated Financial Statements for additional disclosure.

(2)

Rent expense relates to ground lease payments for which the Company is the lessee.

(3)

Operating and maintenance expense consists of property related costs including repairs and maintenance costs, roof repair, landscaping, parking lot repair, snow removal, utilities, property insurance costs, security and various other property related expenses.

(4)

General and administrative expense include employee-related expenses (including salaries, bonuses, equity awards, benefits, severance costs and payroll taxes), professional fees, office rent, travel expense and other company-specific expenses.

 

 

Net income available to the Company’s common shareholders was $101.6 million for the three months ended March 31, 2019, as compared to $129.5 million for the comparable period in 2018. On a diluted per share basis, net income available to the Company for the three months ended March 31, 2019, was $0.24 as compared to $0.30 for the comparable period in 2018.

 

The following describes the changes of certain line items included in Net income available to the Company’s common shareholders on the Company’s Condensed Consolidated Statements of Income, which it believes represent items that have significant changes during the three months ended March 31, 2019, as compared to the corresponding period in 2018:

 

Revenue from rental properties, net –

 

The decrease in Revenues from rental properties, net of $9.1 million for the three months ended March 31, 2019, as compared to the corresponding period in 2018, is primarily from (i) the combined effect of a decrease in revenues of $21.8 million from properties sold during 2019 and 2018, partially offset by (ii) the completion of certain redevelopment and development projects, acquisitions, tenant buyouts and net growth in the current portfolio, which provided incremental revenues for the three months ended March 31, 2019 of $12.7 million, as compared to the corresponding period in 2018.

 

General and administrative –

 

The increase in General and administrative of $3.4 million for the three months ended March 31, 2019, as compared to the corresponding period in 2018, is primarily due to a decrease in capitalization of personnel costs due to the completion of certain development projects and decreased capitalization of internal leasing commissions in association with the adoption of Topic 842.

 

Impairment charges –

 

During the three months ended March 31, 2019 and 2018, the Company recognized impairment charges related to adjustments to property carrying values of $4.2 million and $7.6 million, respectively, for which the Company’s estimated fair values were primarily based upon signed contracts or letters of intent from third party offers. These adjustments to property carrying values were recognized in connection with the Company’s efforts to market certain properties and management’s assessment as to the likelihood and timing of such potential transactions. Certain of the calculations to determine fair value utilized unobservable inputs and as such are classified as Level 3 of the fair value hierarchy.

 

Depreciation and amortization –

 

The decrease in Depreciation and amortization of $9.8 million for the three months ended March 31, 2019, as compared to the corresponding period in 2018, is primarily due to (i) a decrease of $6.5 million resulting from property dispositions in 2019 and 2018, (ii) a decrease of $2.4 million related to the acceleration of depreciable lives of assets within the Company’s redevelopment projects during the three months ended March 31, 2018 and (iii) a decrease related to tenant vacates and write-offs of depreciable assets of $0.9 million.

 

Gain on sale of properties/change in control of interests –

 

During the three months ended March 31, 2019, the Company disposed of five operating properties and two out-parcels, in separate transactions, for an aggregate sales price of $74.2 million. These transactions resulted in aggregate gains of $23.6 million and aggregate impairment charges of $1.0 million.

 

During the three months ended March 31, 2018, the Company disposed of 20 operating properties (including the deconsolidation of one property) and one out-parcel, in separate transactions, for an aggregate sales price of $522.5 million. These transactions resulted in aggregate gains of $57.0 million and aggregate impairment charges of $2.4 million.

 

Other income, net –

 

The decrease in Other income, net of $3.6 million for the three months ended March 31, 2019, as compared to the corresponding period in 2018, is primarily due to (i) the recognition of gain on forgiveness of debt of $4.3 million and relief of accrued interest expense of $3.4 million resulting from the foreclosure of an encumbered property during the three months ended March 31, 2018, partially offset by (ii) the recognition of a net gain on changes in fair value of available-for-sale marketable securities of $3.0 million for the three months ended March 31, 2019, as compared to the corresponding period in 2018 and (iii) the recognition of $1.0 million in income relating to the Company’s Puerto Rico properties, resulting from the receipt of casualty insurance claims in excess of the value of the assets written off during the three months ended March 31, 2019.

 

Interest expense –

 

The decrease in Interest expense of $5.5 million for the three months ended March 31, 2019, as compared to the corresponding period in 2018, is primarily the result of the repayment of maturing debt during 2019 and 2018 and lower levels of borrowings during the three months ended March 31, 2019, as compared to the corresponding period in 2018.

 

 

Equity in income of other real estate investments, net –

 

The decrease in Equity in income of other real estate investments, net of $3.8 million for the three months ended March 31, 2019, as compared to the corresponding period in 2018, is primarily due to a decrease in earnings and profit participation from capital transactions related to the Company’s Preferred Equity Program during the three months ended March 31, 2019, as compared to the corresponding period in 2018.

 

 Tenant Concentration

 

The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties and a large tenant base. At March 31, 2019, the Company’s five largest tenants were TJX Companies, Home Depot, Ahold Delhaize USA, Albertsons and PetSmart, which represented 3.8%, 2.6%, 2.2%, 2.0% and 1.9%, respectively, of the Company’s annualized base rental revenues, including the proportionate share of base rental revenues from properties in which the Company has less than a 100% economic interest.

 

Liquidity and Capital Resources

 

The Company’s capital resources include accessing the public debt and equity capital markets, mortgages and construction loan financing, and immediate access to an unsecured revolving credit facility (the “Credit Facility”) with bank commitments of $2.25 billion which can be increased to $2.75 billion through an accordion feature.

 

The Company’s cash flow activities are summarized as follows (in thousands): 

 

		Three Months Ended March 31,
		2019				2018
Cash and cash equivalents, beginning of the period		$	143,581			$	238,513
Net cash flow provided by operating activities			155,258				192,279
Net cash flow (used for)/provided by investing activities			(15,542	)			79,426
Net cash flow used for financing activities			(139,624	)			(291,905	)
Net change in cash and cash equivalents			92				(20,200	)
Cash and cash equivalents, end of the period		$	143,673			$	218,313

 

Operating Activities

 

The Company anticipates that cash on hand, net cash flow provided by operating activities, borrowings under its Credit Facility, and the issuance of equity and public debt, as well as other debt and equity alternatives, will provide the necessary capital required by the Company.  

 

Net cash flow provided by operating activities for the three months ended March 31, 2019, was $155.3 million, as compared to $192.3 million for the comparable period in 2018. The decrease of $37.0 million is primarily attributable to:

●

changes in operating assets and liabilities due to timing of receipts and payments;

●

the disposition of operating properties in 2019 and 2018; and

●

a decrease in distributions from the Company’s joint venture programs; partially offset by

●

new leasing, expansion and re-tenanting of core portfolio properties; and

●

the acquisition of operating properties during 2019.

 

During the three months ended March 31, 2019 and 2018, the Company capitalized personnel costs of $0.6 million and $2.9 million, respectively, relating to deferred leasing costs.

 

Investing Activities

 

Net cash flow used for investing activities was $15.5 million for the three months ended March 31, 2019, as compared to net cash flow provided by investing activities of $79.4 million for the comparable period in 2018.

 

Investing activities during 2019 primarily consisted of:

 

Cash inflows:

●

$72.1 million in proceeds from the sale of five consolidated operating properties and two out-parcels.

 

Cash outflows:

●

$77.6 million for improvements to operating real estate primarily related to the Company’s active redevelopment pipeline and improvements to real estate under development; and

●

$12.4 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project within the Company’s joint venture portfolio, and investments in other real estate investments, primarily related to repayment of a mortgage within the Company’s Preferred Equity Program.

 

 

Investing activities during 2018 primarily consisted of:

 

Cash inflows:

●

$184.6 million in proceeds from the sale of 19 consolidated operating properties, one out-parcel and four land parcels.

 

Cash outflows:

●

$95.3 million for improvements to operating real estate related to the Company’s active redevelopment pipeline and improvements to real estate under development;

●

$7.9 million for acquisition of operating real estate and other related net assets, including one land parcel, and acquisition of real estate under development related to one development project; and

●

$5.9 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project within the Company’s joint venture portfolio.

 

Acquisitions of Operating Real Estate and Other Related Net Assets -

 

       During the three months ended March 31, 2019 and 2018, the Company expended $0 million (after use of §1031 proceeds of $31.0 million) and $3.3 million, respectively, towards the acquisition of operating real estate properties and parcels adjacent to operating real estate properties. The Company anticipates spending approximately $20.0 million to $45.0 million towards the acquisition of operating properties for the remainder of 2019. The Company intends to fund these acquisitions with net cash flow provided by operating activities, proceeds from property dispositions and availability under its Credit Facility.

 

Improvements to Operating Real Estate -

 

During the three months ended March 31, 2019 and 2018, the Company expended $51.3 million and $40.4 million, respectively, towards improvements to operating real estate. These amounts consist of the following (in thousands):

 

		Three Months Ended March 31,
		2019				2018
Redevelopment and renovations		$	36,357			$	28,477
Tenant improvements and tenant allowances			11,937				9,851
Other			3,051				2,056
Total improvements (1)		$	51,345			$	40,384

 

(1)

During the three months ended March 31, 2019 and 2018, the Company capitalized payroll of $1.1 million and $0.9 million, respectively, and capitalized interest of $1.2 million and $0.7 million, respectively, in connection with the Company’s improvements to operating real estate.

 

The Company has an ongoing program to redevelop and re-tenant its properties to maintain or enhance its competitive position in the marketplace. The Company is actively pursuing redevelopment opportunities within its operating portfolio which it believes will increase the overall value by bringing in new tenants and improving the assets’ value. The Company has identified three categories of redevelopment, (i) large scale redevelopment, which involves demolishing and building new square footage, (ii) value creation redevelopment, which includes the subdivision of large anchor spaces into multiple tenant layouts, and (iii) creation of out-parcels and pads located in the front of the shopping center properties. The Company anticipates its capital commitment toward these redevelopment projects and re-tenanting efforts for the remainder of 2019 will be approximately $200.0 million to $250.0 million. The funding of these capital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities and availability under the Company’s Credit Facility.

 

Real Estate Under Development -

 

The Company is engaged in select real estate development projects, which are expected to be held as long-term investments. As of March 31, 2019, the Company had in progress a total of two active real estate development projects and one project held for future development. During the three months ended March 31, 2019 and 2018, the Company expended $26.3 million and $54.9 million, respectively, towards improvements to real estate under development. The Company capitalized (i) interest of $1.9 million and $3.0 million, (ii) real estate taxes, insurance and legal costs of $0.3 million and $0.7 million and (iii) payroll of $0.5 million and $0.4 million during the three months ended March 31, 2019 and 2018, respectively, in connection with its real estate development projects. The Company anticipates the total remaining costs to complete these active projects to be approximately $125.0 million to $175.0 million. The Company anticipates its capital commitment toward these development projects for the remainder of 2019 will be approximately $75.0 million to $125.0 million. The funding of these capital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities, construction financing, where applicable, and availability under the Company’s Credit Facility.

 

 

Financing Activities

 

Net cash flow used for financing activities was $139.6 million for the three months ended March 31, 2019, as compared to $291.9 million for the comparable period in 2018.

 

Financing activities during 2019 primarily consisted of:

 

Cash inflows:

●

$3.3 million in proceeds from construction loan financing at one development project.

 

Cash outflows:

●

$132.5 million of dividends paid; and

●

$6.4 million for principal payments on debt (related to the repayment of debt on an encumbered property), including normal amortization on rental property debt.

 

Financing activities during 2018 primarily consisted of:

 

Cash inflows:

●

$33.1 million in proceeds primarily from the exercise of the Class M Preferred Stock over-allotment option.

 

Cash outflows:

●

$165.0 million for principal payments on debt (related to the repayment of debt on two encumbered properties), including normal amortization on rental property debt;

●

$130.2 million of dividends paid;

●

$24.3 million for the repurchase of common stock; and

●

$5.0 million for redemption/distribution of noncontrolling interests, primarily related to the redemption of certain partnership units by consolidated subsidiaries.

 

The Company continually evaluates its debt maturities, and, based on management’s current assessment, believes it has viable financing and refinancing alternatives that will not materially adversely impact its expected financial results. The Company continues to pursue borrowing opportunities with large commercial U.S. and global banks, select life insurance companies and certain regional and local banks. The Company has noticed a continuing trend that, although pricing remains dependent on specific deal terms, generally spreads for non-recourse mortgage and construction loan financing has stabilized and the unsecured debt markets are functioning well and credit spreads are at manageable levels.

 

Debt maturities for 2019 consist of: $45.4 million of unconsolidated joint venture debt and $26.3 million of debt included in the Company’s Preferred Equity Program, assuming the utilization of extension options where available. These debt maturities are anticipated to be repaid through operating cash flows, debt refinancing, unsecured credit facilities, proceeds from sales and partner capital contributions, as deemed appropriate.

 

The Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintain its investment-grade senior, unsecured debt ratings.  The Company may, from time-to-time, seek to obtain funds through additional common and preferred equity offerings, unsecured debt financings, mortgages and/or construction loan financing and other capital alternatives.

 

Since the completion of the Company’s IPO in 1991, the Company has utilized the public debt and equity markets as its principal source of capital for its expansion needs. Since the IPO, the Company has completed additional offerings of its public unsecured debt and equity, raising in the aggregate over $13.8 billion.  Proceeds from public capital market activities have been used for the purposes of, among other things, repaying indebtedness, acquiring interests in open-air shopping centers, funding real estate under development projects, expanding and improving properties in the portfolio and other investments.

 

During February 2018, the Company filed a shelf registration statement on Form S-3, which is effective for a term of three years, for the future unlimited offerings, from time-to-time, of debt securities, preferred stock, depositary shares, common stock and common stock warrants. The Company, pursuant to this shelf registration statement may, from time-to-time, offer for sale its senior unsecured debt for any general corporate purposes, including (i) funding specific liquidity requirements in its business, including property acquisitions, development and redevelopment costs and (ii) managing the Company’s debt maturities.

 

 

Common Stock –

 

During February 2018, the Company’s Board of Directors authorized a share repurchase program, which is effective for a term of two years, pursuant to which the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the three months ended March 31, 2019. As of March 31, 2019, the Company had $224.9 million available under this common share repurchase program.

 

Senior Notes –

 

The Company’s supplemental indenture governing its senior notes contains the following covenants, all of which the Company is compliant with:

 

Covenant		Must Be		As of March 31, 2019
Consolidated Indebtedness to Total Assets		<65%		37%
Consolidated Secured Indebtedness to Total Assets		<40%		4%
Consolidated Income Available for Debt Service to Maximum Annual Service Charge		>1.50x		5.8x
Unencumbered Total Asset Value to Consolidated Unsecured Indebtedness		>1.50x		2.7x

 

For a full description of the various indenture covenants refer to the Indenture dated September 1, 1993; the First Supplemental Indenture dated August 4, 1994; the Second Supplemental Indenture dated April 7, 1995; the Third Supplemental Indenture dated June 2, 2006; the Fourth Supplemental Indenture dated April 26, 2007; the Fifth Supplemental Indenture dated as of September 24, 2009; the Sixth Supplemental Indenture dated as of May 23, 2013; and the Seventh Supplemental Indenture dated as of April 24, 2014, each as filed with the SEC. See the Exhibits Index to our Annual Report on Form 10-K for the year ended December 31, 2018 for specific filing information.

 

Credit Facility -

 

The Company has a $2.25 billion unsecured revolving credit facility (the “Credit Facility”) with a group of banks, which is scheduled to expire in March 2021, with two additional six-month options to extend the maturity date, at the Company’s discretion, to March 2022. This Credit Facility, which accrues interest at a rate of LIBOR plus 87.5 basis points (3.37% as of March 31, 2019), can be increased to $2.75 billion through an accordion feature. In addition, the Credit Facility includes a $500.0 million sub-limit which provides the Company the opportunity to borrow in alternative currencies including Canadian Dollars, British Pounds Sterling, Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum leverage ratios on both unsecured and secured debt and (ii) minimum interest and fixed coverage ratios. As of March 31, 2019, the Credit Facility had a balance of $100.0 million outstanding and $0.3 million appropriated for letters of credit.

 

Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to maintenance of various covenants. The Company is currently in compliance with these covenants. The financial covenants for the Credit Facility are as follows:

 

Covenant		Must Be		As of March 31, 2019
Total Indebtedness to Gross Asset Value (“GAV”)		<60%		38%
Total Priority Indebtedness to GAV		<35%		3%
Unencumbered Asset Net Operating Income to Total Unsecured Interest Expense		>1.75x		4.2x
Fixed Charge Total Adjusted EBITDA to Total Debt Service		>1.50x		3.0x

 

For a full description of the Credit Facility’s covenants refer to the Amended and Restated Credit Agreement dated as of February 1, 2018, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 30, 2018.

 

Mortgages and Construction Loan Payable –

 

During the three months ended March 31, 2019, the Company repaid $3.2 million of mortgage debt that encumbered an operating property.

 

In August 2018, the Company closed on a construction loan commitment of $67.0 million relating to one of its development projects. This loan commitment is scheduled to mature in August 2020, with six additional six-month options to extend the maturity date to August 2023 and bears interest at a rate of LIBOR plus 180 basis points (4.29% as of March 31, 2019). As of March 31, 2019, the construction loan had a balance of $54.3 million outstanding.

 

In addition to the public equity and debt markets as capital sources, the Company may, from time-to-time, obtain mortgage financing on selected properties and construction loan financing to partially fund the capital needs of its real estate development projects. As of March 31, 2019, the Company had over 320 unencumbered property interests in its portfolio.

 

 

Dividends –

 

In connection with its intention to continue to qualify as a REIT for federal income tax purposes, the Company expects to continue paying regular dividends to its stockholders. These dividends will be paid from operating cash flows. The Company’s Board of Directors will continue to evaluate the Company’s dividend policy on a quarterly basis as the Board of Directors monitors sources of capital and evaluates the impact of the economy and capital markets availability on operating fundamentals.  Since cash used to pay dividends reduces amounts available for capital investment, the Company generally intends to maintain a conservative dividend payout ratio, reserving such amounts as it considers necessary for the expansion and renovation of shopping centers in its portfolio, debt reduction, the acquisition of interests in new properties and other investments as suitable opportunities arise and such other factors as the Board of Directors considers appropriate.  Cash dividends paid for common and preferred issuances of stock for the three months ended March 31, 2019 and 2018 were $132.5 million and $130.2 million, respectively.

 

Although the Company receives substantially all of its rental payments on a monthly basis, it generally intends to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution will be invested by the Company in short-term money market or other suitable instruments. On January 29, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.28 per common share payable to shareholders of record on April 2, 2019, which was paid on April 15, 2019. Additionally, on April 30, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.28 per common share payable to shareholders of record on July 2, 2019, which is scheduled to be paid on July 15, 2019.

 

The Company’s Board of Directors also declared quarterly dividends with respect to the Company’s various classes of cumulative redeemable preferred shares (Classes I, J, K, L and M). All dividends on the preferred shares were paid on April 15, 2019 to shareholders of record on April 1, 2019. Additionally, the Company’s Board of Directors also declared quarterly dividends with respect to the Company’s various classes of cumulative redeemable preferred shares (Classes I, J, K, L and M). All dividends on the preferred shares are scheduled to be paid on July 15, 2019, to shareholders of record on July 1, 2019.

 

Hurricane Impact –

 

On September 20, 2017, Hurricane Maria struck Puerto Rico as a Category 4 hurricane which resulted in widespread damage, flooding, and power outages. The Company has interests in seven operating properties located throughout Puerto Rico, aggregating 2.2 million square feet of GLA, which were variously impacted by the hurricane. The Company maintains a comprehensive property insurance policy on these properties with total coverage of up to $62.0 million, as well as business interruption insurance with coverage up to $39.3 million in the aggregate, subject to a collective deductible of $1.2 million.

 

The Company expects to collect property insurance proceeds (net of deductible) equal to the replacement cost of its damaged property, currently estimated to be approximately $30.3 million. As of March 31, 2019, the Company has collected property insurance proceeds totaling $21.2 million to date, which exceeds the $16.0 million previously written off due to property damage by $5.2 million. During the three months ended March 31, 2019, the Company collected property insurance proceeds of $1.0 million and recognized this as income included in Other income, net on the Company’s Condensed Consolidated Statements of Income.

 

The Company’s business interruption insurance covers lost revenues as a result of the hurricane for a period of up to one year. After the expiration of one year following the loss, the policy has 365 days of an extended period of indemnity which provides business interruption coverage in the event the properties have not fully recovered from the storm. Although the Company primarily recovered its business interruption insurance claims during 2018 and 2017, it will continue to assess and process any future business interruption claims for the extended period of indemnity and will submit insurance claims for its losses, if any, under its business interruption insurance policy.

 

Other –

  

The Company is subject to taxes on its activities in Canada, Puerto Rico and Mexico.  In general, under local country law applicable to the structures the Company has in place and applicable treaties, the repatriation of cash to the Company from its subsidiaries and joint ventures in Canada, Puerto Rico and Mexico generally are not subject to withholding tax. The Company is subject to and also includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. These investments are held by the Company at the REIT level and not in the Company’s taxable REIT subsidiary. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries.

 

Funds From Operations

 

Funds From Operations (“FFO”) is a supplemental non-GAAP financial measure utilized to evaluate the operating performance of real estate companies. In December 2018, the National Association of Real Estate Investment Trusts (“NAREIT”) issued “NAREIT Funds From Operations White Paper – 2018 Restatement” which clarifies, where necessary, existing guidance and consolidates alerts and policy bulletins into a single document for ease of use.  NAREIT defines FFO as net income/(loss) available to the Company’s common shareholders computed in accordance with generally accepted accounting principles in the United States (“GAAP”), excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis. Included in the 2018 Restatement is an option for the Company to make an election to include or exclude gains and losses on the sale of assets and impairments of assets incidental to its main business in the calculation of FFO. The main business of a REIT is acquiring, owning, operating, developing and redeveloping real estate in conjunction with its rental of real estate.  Incidental assets may include, but are not limited to, land peripheral to operating properties, property developed for sale, and securities. The NAREIT FFO White Paper – 2018 Restatement (“FFO White Paper - 2018 Restatement”) is effective for annual periods beginning after December 31, 2018 and interim periods reported within those periods.

 

 

As a result of adopting the FFO White Paper - 2018 Restatement, the Company has elected to exclude gains and losses on the sale of assets and impairments of assets incidental to its main business and to exclude mark-to-market changes in value of its equity securities in calculating FFO. As such, the Company will no longer include gains/impairments on land parcels, gains/losses (realized or unrealized) from marketable securities or gains/impairments on preferred equity participations in NAREIT defined FFO.

 

The Company presents FFO available to the Company’s common shareholders as it considers it an important supplemental measure of our operating performance and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO available to the Company’s common shareholders when reporting results. Comparison of our presentation of FFO available to the Company’s common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.

 

The Company also presents FFO available to the Company’s common shareholders as adjusted as an additional supplemental measure as it believes it is more reflective of its core operating performance and provides investors and analysts an additional measure to compare the Company’s performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. FFO available to the Company’s common shareholders as adjusted is generally calculated by the Company as FFO available to the Company’s common shareholders excluding certain transactional income and expenses and non-operating impairments which management believes are not reflective of the results within the Company’s operating real estate portfolio.

 

FFO is a supplemental non-GAAP financial measure of real estate companies’ operating performances, which does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative for net income or cash flows from operations as a measure of liquidity.  Our method of calculating FFO available to the Company’s common shareholders and FFO available to the Company’s common shareholders as adjusted may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

 

The Company’s reconciliation of net income available to the Company’s common shareholders to FFO available to the Company’s common shareholders and FFO available to the Company’s common shareholders as adjusted, is reflected in the table below (in thousands, except per share data). In conjunction with the adoption of NAREIT’s FFO White Paper – 2018 Restatement, the Company has reclassified $3.5 million from transactional income into FFO available to the Company’s common shareholders for the three months ended March 31, 2018, relating to incidental gains and losses on the sale of assets and mark-to-market changes in equity securities.  This reclassification had no impact on FFO available to the Company’s common shareholders as adjusted for the three months ended March 31, 2018.

 

		Three Months Ended March 31,
		2019				2018
Net income available to the Company’s common shareholders		$	101,635			$	129,501
Gain on sale of properties/change in control of interests			(23,595	)			(57,423	)
Gain on sale of joint venture properties			(4,690	)			(2,039	)
Depreciation and amortization - real estate related			71,260				78,992
Depreciation and amortization - real estate joint venture			10,161				9,284
Impairment charges			6,408				7,714
Profit participation from other real estate investments, net			(1,030	)			(4,728	)
(Gain)/loss on marketable securities			(1,503	)			1,510
Noncontrolling interests (1)			(248	)			(1,418	)
FFO available to the Company’s common shareholders			158,398				161,393
Transactional (income)/expense:
Severance costs			-				693
Gain on forgiveness of debt			-				(4,274	)
Other income, net			(1,000	)			-
Total transactional income, net			(1,000	)			(3,581	)
FFO available to the Company's common shareholders as adjusted		$	157,398			$	157,812
Weighted average shares outstanding for FFO calculations:
Basic			419,464				423,404
Units			927				933
Dilutive effect of equity awards			1,182				287
Diluted (2)			421,573				424,624
FFO per common share – basic		$	0.38			$	0.38
FFO per common share – diluted (2)		$	0.38			$	0.38
FFO as adjusted per common share – basic		$	0.38			$	0.37
FFO as adjusted per common share – diluted (2)		$	0.37			$	0.37

 

(1)

Related to gains, impairment and depreciation on properties, where applicable.

(2)

Reflects the potential impact if certain units were converted to common stock at the beginning of the period, which would have a dilutive effect on FFO available to the Company’s common shareholders. FFO available to the Company’s common shareholders would be increased by $261 and $264 for the three months ended March 31, 2019 and 2018, respectively. The effect of other certain convertible units would have an anti-dilutive effect upon the calculation of Net income available to the Company’s common shareholders per share. Accordingly, the impact of such conversion has not been included in the determination of diluted earnings per share calculations.

 

 

Same Property Net Operating Income (“Same property NOI”)

 

Same property NOI is a supplemental non-GAAP financial measure of real estate companies’ operating performance and should not be considered an alternative to net income in accordance with GAAP or cash flows from operations as a measure of liquidity. The Company considers Same property NOI as an important operating performance measure because it is frequently used by securities analysts and investors to measure only the net operating income of properties that have been owned by the Company for the entire current and prior year reporting periods. It excludes properties under redevelopment, development and pending stabilization; properties are deemed stabilized at the earlier of (i) reaching 90% leased or (ii) one year following a project’s inclusion in operating real estate. Same property NOI assists in eliminating disparities in net income due to the development, acquisition or disposition of properties during the particular period presented, and thus provides a more consistent performance measure for the comparison of the Company's properties.

 

Same property NOI is calculated using revenues from rental properties (excluding straight-line rent adjustments, lease termination fees, TIFs and amortization of above/below market rents) less charges for bad debt, operating and maintenance expense, real estate taxes and rent expense plus the Company’s proportionate share of Same property NOI from unconsolidated real estate joint ventures, calculated on the same basis. The Company’s method of calculating Same property NOI available to the Company’s common shareholders may differ from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

 

The following is a reconciliation of Net income available to the Company’s common shareholders to Same property NOI (in thousands):

 

		Three Months Ended March 31,
		2019				2018
Net income available to the Company’s common shareholders		$	101,635			$	129,501
Adjustments:
Management and other fee income			(4,376	)			(4,361	)
General and administrative			25,831				22,398
Impairment charges			4,175				7,646
Depreciation and amortization			71,561				81,382
Gain on sale of properties/change in control of interests			(23,595	)			(56,971	)
Interest and other expense, net			41,773				43,764
Provision for income taxes, net			630				52
Equity in income of other real estate investments, net			(6,224	)			(9,976	)
Net income/(loss) attributable to noncontrolling interests			509				(108	)
Preferred dividends			14,534				14,589
Non same property net operating income			(26,258	)			(34,995	)
Non-operational expense from joint ventures, net			14,793				14,372
Same property NOI		$	214,988			$	207,293

 

Same property NOI increased by $7.7 million or 3.7% for the three months ended March 31, 2019, as compared to the corresponding period in 2018. This increase is primarily the result of (i) an increase of $6.7 million related to lease-up and rent commencements in the portfolio and (ii) an increase in other property income of $1.0 million.

 

Leasing Activity

 

During the three months ended March 31, 2019, the Company executed 252 leases totaling over 2.6 million square feet in the Company’s consolidated operating portfolio comprised of 77 new leases and 175 renewals and options. The leasing costs associated with new leases are estimated to aggregate $23.8 million or $51.26 per square foot. These costs include $19.5 million of tenant improvements and $4.3 million of external leasing commissions. The average rent per square foot on new leases was $23.06 and on renewals and options was $13.89.

 

 

Tenant Lease Expirations

 

At March 31, 2019, the Company has a total of 5,573 leases in the U.S. consolidated operating portfolio. The following table sets forth the aggregate lease expirations for each of the next ten years, assuming no renewal options are exercised. For purposes of the table, the Total Annual Base Rent Expiring represents annualized rental revenue, excluding the impact of straight-line rent, for each lease that expires during the respective year. Amounts in thousands except for number of lease data:

 

Year Ending December 31,		Number of Leases Expiring				Square Feet Expiring				Total Annual Base Rent Expiring				% of Gross Annual Rent
(1)			166				554			$	11,477				1.4	%
2019			391				1,834			$	35,109				4.3	%
2020			755				5,139			$	85,525				10.4	%
2021			775				6,037			$	91,617				11.1	%
2022			800				6,104			$	103,191				12.5	%
2023			731				6,031			$	100,887				12.2	%
2024			516				4,966			$	80,101				9.7	%
2025			245				2,093			$	38,660				4.7	%
2026			237				3,609			$	51,890				6.3	%
2027			250				3,284			$	50,105				6.1	%
2028			327				3,399			$	62,910				7.6	%
2029			200				2,546			$	39,987				4.9	%

 

(1)

Leases currently under month to month lease or in process of renewal.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

The Company’s primary market risk exposure is interest rate risk. The Company periodically evaluates its exposure to short-term interest rates and will, from time-to-time, enter into interest rate protection agreements which mitigate, but do not eliminate, the effect of changes in interest rates on its floating-rate debt. The Company has not, and does not plan to, enter into any derivative financial instruments for trading or speculative purposes. The following table presents the Company’s aggregate fixed rate and variable rate debt obligations outstanding, including fair market value adjustments and unamortized deferred financing costs, as of March 31, 2019, with corresponding weighted average interest rates sorted by maturity date. The table does not include extension options where available (amounts in millions).

 

		2019				2020				2021				2022				2023				Thereafter				Total				Fair Value
Secured Debt
Fixed Rate		$	-			$	103.4			$	149.3			$	150.1			$	11.9			$	17.2			$	431.9			$	428.6
Average Interest Rate			-				5.46	%			5.39	%			4.05	%			3.23	%			6.83	%			4.94	%
Floating Rate		$	-			$	53.4			$	-			$	-			$	-			$	-			$	53.4			$	54.8
Average Interest Rate			-				4.29	%			-				-				-				-				4.29	%
Unsecured Debt
Fixed Rate		$	-			$	-			$	483.4			$	496.2			$	347.8			$	2,959.8			$	4,287.2			$	4,204.3
Average Interest Rate			-				-				3.20	%			3.40	%			3.13	%			3.59	%			3.49	%
Floating Rate		$	-			$	-			$	96.2			$	-			$	-			$	-			$	96.2			$	97.9
Average Interest Rate			-				-				3.37	%			-				-				-				3.37	%

 

Based on the Company’s variable-rate debt balances, interest expense would have increased by $0.4 million for the three months ended March 31, 2019 if short-term interest rates were 1.0% higher.

 

 

Item 4.  Controls and Procedures.

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

 

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II

OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

The Company is not presently involved in any litigation nor, to its knowledge, is any litigation threatened against the Company or its subsidiaries that, in management's opinion, would result in any material adverse effect on the Company's ownership, management or operation of its properties taken as a whole, or which is not covered by the Company's liability insurance.

 

 

Item 1A.  Risk Factors.

 

There are no material changes from risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018. 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Issuer Purchases of Equity Securities

 

During the three months ended March 31, 2019, the Company repurchased 184,461 shares for an aggregate purchase price of $3.2 million (weighted average price of $17.57 per share) in connection with common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted stock awards under the Company’s equity-based compensation plans.

 

In addition, during February 2018, the Company’s Board of Directors authorized a share repurchase program, which is effective for a term of two years, pursuant to which the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the three months ended March 31, 2019. As of March 31, 2019, the Company had $224.9 million available under this common share repurchase program.

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
January 1, 2019 – January 31, 2019			9,931			$	14.62				-			$	224.9
February 1, 2019 – February 28, 2019			171,591				17.73				-				224.9
March 1, 2019 – March 31, 2019			2,939				17.61				-				224.9
Total			184,461			$	17.57				-

 

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

 

Item 5.  Other Information.

 

None.

 

 

Item 6.  Exhibits.

 

Exhibits –

 

4.1  Agreement to File Instruments

 

Kimco Realty Corporation (the “Registrant”) hereby agrees to file with the Securities and Exchange Commission, upon request of the Commission, all instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries, and for any of its unconsolidated subsidiaries for which financial statements are required to be filed, and for which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis.

	31.1	Certification of the Company’s Chief Executive Officer, Conor C. Flynn, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the Company’s Chief Financial Officer, Glenn G. Cohen, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of the Company’s Chief Executive Officer, Conor C. Flynn, and the Company’s Chief Financial Officer, Glenn G. Cohen, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase
	101.DEF	XBRL Taxonomy Extension Definition Linkbase
	101.LAB	XBRL Taxonomy Extension Label Linkbase
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

			KIMCO REALTY CORPORATION
May 3, 2019			/s/ Conor C. Flynn
(Date)			Conor C. Flynn
			Chief Executive Officer
May 3, 2019			/s/ Glenn G. Cohen
(Date)			Glenn G. Cohen
			Chief Financial Officer

 

 

34