UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-10899
Kimco Realty Corporation
(Exact name of registrant as specified in its charter)
Maryland 13-2744380
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 11042
(Address of principal executive offices - zip code)
(516) 869-9000
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b of the Exchange Act).
Yes [X] No [_]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12-b-2 of the Exchange Act).
Yes [_] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
240,448,614 shares outstanding as of March 31, 2006.
1 of 37
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets as of March 31, 2006 and
December 31, 2005. 3
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2006 and 2005. 4
Condensed Consolidated Statements of Comprehensive Income for
the Three Months Ended March 31, 2006 and 2005. 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2006 and 2005. 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk 32
Item 4. Controls and Procedures 34
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 5. Other Information 35
Item 6. Exhibits 35
2
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
MARCH 31, DECEMBER 31,
2006 2005
---------- ------------
Assets:
Operating real estate, net of accumulated depreciation
of $742,403 and $740,127, respectively $3,679,305 $3,209,158
Investments and advances in real estate joint ventures 782,866 735,648
Real estate under development 718,641 611,121
Other real estate investments 361,996 283,035
Mortgages and other financing receivables 156,288 132,675
Cash and cash equivalents 158,878 76,273
Marketable securities 206,577 206,452
Accounts and notes receivable 63,111 64,329
Other assets 248,146 215,945
---------- ----------
$6,375,808 $5,534,636
========== ==========
Liabilities:
Notes payable $2,212,474 $2,147,405
Mortgages payable 400,577 315,336
Construction loans payable 261,943 228,455
Dividends payable 82,258 78,169
Other liabilities 315,392 255,213
---------- ----------
3,272,644 3,024,578
---------- ----------
Minority interests 240,887 122,844
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 3,600,000 shares
Class F Preferred Stock, $1.00 par value, authorized 700,000 shares
Issued and outstanding 700,000 shares 700 700
Aggregate liquidation preference $175,000
Common stock, $.01 par value, authorized 300,000,000 shares
Issued: 240,995,194 shares; outstanding 240,448,614 shares at March 31, 2006;
Issued and outstanding 228,059,056 shares at December 31, 2005 2,404 2,281
Paid-in capital 2,735,693 2,255,332
Retained earnings 73,792 59,855
---------- ----------
2,812,589 2,318,168
Accumulated other comprehensive income 49,688 69,046
---------- ----------
2,862,277 2,387,214
---------- ----------
$6,375,808 $5,534,636
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
----------------------------
2006 2005
--------- ---------
Revenues from rental property $ 142,705 $ 129,314
--------- ---------
Rental property expenses:
Rent 2,913 2,509
Real estate taxes 17,664 16,050
Operating and maintenance 17,734 17,434
--------- ---------
38,311 35,993
--------- ---------
104,394 93,321
Mortgage and other financing income 4,194 3,105
Management and other fee income 7,395 7,653
Depreciation and amortization (29,683) (25,369)
General and administrative expenses (16,733) (12,004)
Interest, dividends and other investment income 12,290 4,061
Other income/(expense), net 12,032 (936)
Interest expense (40,020) (28,470)
--------- ---------
53,869 41,361
Provision for income taxes (1,653) (2,637)
Income from other real estate investments 18,633 16,608
Equity in income of real estate joint ventures, net 16,751 24,381
Minority interests in income, net (5,814) (3,136)
Gain on sale of development properties,
net of tax of $1,209 and $3,479, respectively 1,812 5,219
--------- ---------
INCOME FROM CONTINUING OPERATIONS 83,598 81,796
--------- ---------
DISCONTINUED OPERATIONS:
Income from discontinued operating properties 971 993
Gain on sale of operating properties 11,626 2,396
--------- ---------
INCOME FROM DISCONTINUED OPERATIONS 12,597 3,389
--------- ---------
Gain on transfer of operating properties, net -- 1,595
NET INCOME 96,195 86,780
Preferred stock dividends (2,909) (2,909)
--------- ---------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 93,286 $ 83,871
========= =========
Per common share:
Income from continuing operations:
-Basic $ 0.35 $ 0.36
========= =========
-Diluted $ 0.35 $ 0.35
========= =========
Net income :
-Basic $ 0.41 $ 0.37
========= =========
-Diluted $ 0.40 $ 0.36
========= =========
Weighted average shares outstanding for net income calculations:
-Basic 228,674 225,461
========= =========
-Diluted 233,620 234,311
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended March 31,
----------------------------
2006 2005
-------- --------
Net income $ 96,195 $ 86,780
-------- --------
Other comprehensive income:
Change in unrealized gain on marketable securities (18,890) 9,844
Change in unrealized gain on foreign currency hedge agreements 190 1,802
Foreign currency translation adjustment (658) (1,722)
-------- --------
Other comprehensive income (19,358) 9,924
-------- --------
Comprehensive income $ 76,837 $ 96,704
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended March 31,
----------------------------
2006 2005
--------- --------
Cash flow from operating activities:
Net income $ 96,195 $ 86,780
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 29,687 26,183
Gain on sale of development properties (3,021) (8,698)
Gain on sale/transfer of operating properties (11,626) (3,991)
Minority interests in income of partnerships, net 5,814 3,136
Equity in income of real estate joint ventures, net (16,751) (24,381)
Income from other real estate investments (17,510) (12,325)
Distributions of unconsolidated investments 30,550 33,815
Change in accounts and notes receivable 1,604 (5,024)
Change in accounts payable and accrued expenses 19,297 20,678
Change in other operating assets and liabilities (1,112) (4,501)
--------- --------
Net cash flow provided by operating activities 133,127 111,672
--------- --------
Cash flow from investing activities:
Acquisition of and improvements to operating real estate (321,622) (50,961)
Acquisition of and improvements to real estate under development (123,601) (71,862)
Investment in marketable securities (39,847) (40,011)
Proceeds from sale of marketable securities 17,602 1,836
Proceeds from transferred operating properties 73,573 52,974
Investments and advances to real estate joint ventures (73,544) (24,623)
Reimbursements of advances to real estate joint ventures 34,961 8,556
Other real estate investments (95,090) (7,915)
Reimbursements of advances to other real estate investments 15,470 3,031
Investment in mortgage loans receivable (32,412) (6,200)
Collection of mortgage loans receivable 9,339 5,594
Other investments (12,085) --
Settlement of net investment hedges -- (10,126)
Proceeds from sale of operating properties 13,012 17,230
Proceeds from sale of development properties 9,776 78,083
--------- --------
Net cash flow used for investing activities (524,468) (44,394)
--------- --------
Cash flow from financing activities:
Principal payments on debt, excluding
normal amortization of rental property debt (300) --
Principal payments on rental property debt (2,525) (1,979)
Principal payments on construction loan financings (2,619) (23,954)
Proceeds from mortgage/construction loan financings 67,335 63,224
Borrowings under revolving credit facilities 1,294 --
Repayment of borrowings under revolving credit facilities (234,419) (94,102)
Proceeds from issuance of unsecured notes 300,000 100,000
Financing origination costs (3,084) (730)
Redemption of minority interests in real estate partnerships (1,537) --
Dividends paid (78,169) (71,497)
Proceeds from issuance of stock 427,970 19,681
--------- --------
Net cash flow provided by (used for) financing activities 473,946 (9,357)
--------- --------
Change in cash and cash equivalents 82,605 57,921
Cash and cash equivalents, beginning of period 76,273 38,220
--------- --------
Cash and cash equivalents, end of period $ 158,878 $ 96,141
========= ========
Interest paid during the year (net of capitalized interest
of $4,520, and $2,447, respectively) $ 19,919 $ 13,396
========= ========
Income taxes paid during the period $ 22 $ 382
========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
6
KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Interim Financial Statements
Principles of Consolidation -
The accompanying Condensed Consolidated Financial Statements include the
accounts of Kimco Realty Corporation (the "Company"), its subsidiaries, all of
which are wholly-owned, and all entities in which the Company has a controlling
interest, including where the Company has been determined to be a primary
beneficiary of a variable interest entity in accordance with the provisions and
guidance of the Financial Accounting Standards Board ("FASB") Interpretation No.
46(R), Consolidation of Variable Interest Entities ("FIN 46(R)") or meets
certain criteria of a sole general partner or managing member as identified, in
accordance with Emerging Issues Task Force ("EITF") Issue 04-5, Investors
Accounting for an Investment in a Limited Partnership when the Investor is the
Sole General Partner and the Limited Partners have Certain Rights ("EITF 04-5").
All inter-company balances and transactions have been eliminated in
consolidation. The information furnished is unaudited and reflects 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. These Condensed Consolidated
Financial Statements should be read in conjunction with the Company's Annual
Report on Form 10-K.
Income Taxes -
The Company has made an election to qualify, and believes it is operating
so as to qualify, as a Real Estate Investment Trust (a "REIT") for federal
income tax purposes. Accordingly, the Company generally will not be subject to
federal income tax, provided that distributions to its stockholders equal at
least the amount of its REIT taxable income as defined under Sections 856
through 860 of the Internal Revenue Code, as amended (the "Code"). However, in
connection with the Tax Relief Extension Act of 1999, which became effective
January 1, 2001, the Company is now permitted to participate in certain
activities which it was previously precluded from in order to maintain its
qualification as a REIT, so long as these activities are conducted in entities
which elect to be treated as taxable REIT subsidiaries under the Code. As such,
the Company will be subject to federal and state income taxes on the income from
these activities. During the three months ended March 31, 2006 and 2005, the
Company's provision for federal and state income taxes was approximately $2.9
million and $6.1 million, respectively, relating to activities conducted in its
taxable REIT subsidiaries.
7
Earnings Per Share -
On July 21, 2005, the Company's Board of Directors declared a two-for-one
split (the "Stock Split") of the Company's common stock which was effected in
the form of a stock dividend paid on August 23, 2005 to stockholders of record
on August 8, 2005. All share and per share data included in the accompanying
Condensed Consolidated Financial Statements and Notes thereto have been adjusted
to reflect this split.
The following table sets forth the reconciliation of earnings and the
weighted average number of shares used in the calculation of basic and diluted
earnings per share (amounts presented in thousands except per share data):
Three Months Ended March 31,
----------------------------
2006 2005
-------- --------
Computation of Basic Earnings Per Share:
Income from continuing operations $ 83,598 $ 81,796
Gain on transfer of operating properties -- 1,595
Preferred stock dividends (2,909) (2,909)
-------- --------
Income from continuing operations
applicable to common shares 80,689 80,482
Income from discontinued operations 12,597 3,389
-------- --------
Net income applicable to common shares $ 93,286 $ 83,871
======== ========
Weighted average common shares outstanding 228,674 225,461
======== ========
Basic Earnings Per Share:
Income from continuing operations $ 0.35 $ 0.36
Income from discontinued operations 0.06 0.01
-------- --------
Net income $ 0.41 $ 0.37
======== ========
Computation of Diluted Earnings Per Share:
Income from continuing operations
applicable to common shares $ 80,689 $ 80,482
Distributions on convertible units --(a) 1,607
-------- --------
8
Income from continuing operations for diluted
earnings per share 80,689 82,089
Income from discontinued operations 12,597 3,389
-------- --------
Net income for diluted earnings per common
share $ 93,286 $ 85,478
======== ========
Weighted average common shares
outstanding - basic 228,674 225,461
Effect of dilutive securities:
Stock options/deferred stock awards 4,803 4,084
Assumed conversion of convertible units 143(a) 4,766
-------- --------
Shares for diluted earnings per common share 233,620 234,311
======== ========
Diluted Earnings Per Common Share:
Income from continuing operations $ 0.35 $ 0.35
Income from discontinued operations 0.05 0.01
-------- --------
Net income $ 0.40 $ 0.36
======== ========
(a) For the period ended March 31, 2006, the effect of the assumed conversion of
certain convertible units would have an anti-dilutive effect upon the
calculation of Income from continuing operations per share. Accordingly, the
impact of such conversion has not been included in the determination of diluted
earnings per share calculations.
The Company maintains an equity participation plan (the "Plan") pursuant to
which a maximum of 37,000,000 shares of the Company's common stock may be issued
for qualified and non-qualified options and restricted stock grants. Options
granted under the Plan generally vest ratably over a three or five year term,
expire ten years from the date of grant and are exercisable at the market price
on the date of grant, unless otherwise determined by the Board of Directors at
its sole discretion. Restricted stock grants vest 100% on the fifth anniversary
of the grant. In addition, the Plan provides for the granting of certain options
to each of the Company's non-employee directors (the "Independent Directors")
and permits such Independent Directors to elect to receive deferred stock awards
in lieu of directors' fees.
Prior to January 1, 2003, the Company accounted for the Plan under the
intrinsic value-based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations including FASB Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation (an interpretation of APB
Opinion No.
9
25). Effective January 1, 2003, the Company adopted the prospective method
provisions of Statement of Financial Accounting Standards ("SFAS") No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123 ("SFAS No. 148"), which applies the
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123") to all employee awards granted, modified or settled after
January 1, 2003.
During December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123(R)"), which is a revision of Statement 123.
SFAS No. 123(R) supersedes Opinion 25. Generally, the approach in SFAS No.
123(R) is similar to the approach described in Statement 123. However, SFAS No.
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the statement of operations based on
their fair values. Pro-forma disclosure is no longer an alternative under SFAS
No. 123(R). SFAS No. 123(R) is effective for fiscal years beginning after
December 31, 2005. The Company began expensing stock based employee compensation
with its adoption of the prospective method provisions of SFAS No. 148,
effective January 1, 2003, as a result, the adoption of SFAS No. 123(R) did not
have a material impact on the Company's financial position or results of
operations.
The cost related to stock-based employee compensation included in the
determination of net income for the three months ended March 31, 2005 is less
than that which would have been recognized if the fair value based method had
been applied to all awards since the original effective date of SFAS No. 123.
There was no difference in amounts for the three months ended March 31, 2006.
The following table illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all outstanding stock awards
for the three months ended March 31, 2005 (amounts presented in thousands except
for per share data):
For the Three Months Ended
March 31, 2005
--------------------------
Net income, as reported $86,780
Add: Stock based employee compensation
expense included in reported net income 1,025
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (1,174)
-------
Pro Forma Net Income - Basic $86,631
=======
Earnings Per Share
Basic - as reported $ 0.37
=======
Basic - pro forma $ 0.37
=======
10
Net income for diluted earnings per common
share $ 85,478
Add: Stock based employee compensation
expense included in reported net income 1,025
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (1,174)
--------
Pro Forma Net Income - Diluted $ 85,329
========
Earnings Per Share
Diluted - as reported $ 0.36
========
Diluted - pro forma $ 0.36
========
In addition, there were approximately 28,750 and 1,707,000 stock options
that were anti-dilutive for the three month periods ended March 31, 2006 and
2005, respectively.
The fair value of each option award is estimated on the date of grant using
the Black-Scholes option pricing formula. The more significant assumptions
underlying the determination of such fair values for options granted during the
three months ended March 31, 2006 and 2005, include (i) weighted average
risk-free interest rates of 4.49% and 3.60%, respectively, (ii) weighted average
expected option lives of 6.50 years and 3.75 years, respectively, (iii) weighted
average expected volatility of 18.50% and 17.88%, respectively and (iv) weighted
average expected dividend yield of 3.40% and 5.60%, respectively. The per share
weighted average fair value at the dates of grant for options awarded during the
three months ended March 31, 2006 and 2005 was $5.73 and $2.39, respectively.
Weighted- Aggregate
Average Intrinsic
Exercise Price Value
Shares Per Share (in millions)
---------- -------------- -------------
Options outstanding, January 1, 2006 14,551,296 $22.06
Exercised (1,081,120) $17.46
Granted 107,750 $34.66
Forfeited (56,070) $27.68
----------
Options outstanding, March 31, 2006 13,521,856 $22.50 $245.3
========== ======
Options exercisable -
March 31, 2005 9,434,421 $16.75 $ 96.2
========== ====== ======
March 31, 2006 7,129,415 $17.68 $163.7
========== ====== ======
11
The exercise prices for option outstanding as of March 31, 2006, range from
$9.13 to $40.64 per share. The weighted-average remaining contractual life for
options outstanding as of March 31, 2006, was approximately 7.4 years. Options
to purchase 3,698,852 shares of the Company's commons stock were available for
issuance under the Plan at March 31, 2006.
Cash received from options exercised under the Plan was approximately $18.9
million and approximately $18.0 million for the three months ended March 31,
2006 and 2005, respectively. The total intrinsic value of options exercised
during the three months ended March 31, 2006 and 2005 was approximately $20.1
million and $16.8 million, respectively.
The Company recognized stock options expense of $1.4 million and $1.0
million for the three months ended March 31, 2006 and 2005, respectively. As of
March 31, 2006, the Company had $12.1 million of total unrecognized compensation
cost related to unvested stock compensation granted under the Company's Plan.
That cost is expected to be recognized over a weighted average period of
approximately 2.7 years.
New Accounting Pronouncements -
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections ("SFAS No. 154"), which replaces Accounting Principles Board Opinion
No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154 changes the requirements for the
accounting for and reporting of a change in accounting principles. It requires
retrospective application to prior periods' financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. This statement
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005.
In September 2005, the EITF issued Issue 04-5, Investor's Accounting for an
Investment in a Limited Partnership When the Investor is the Sole General
Partner and the Limited Partners Have Certain Rights, ("EITF 04-5"). At issue is
what rights held by the limited partner(s) preclude consolidation in
circumstances in which the sole general partner would consolidate the limited
partnership in accordance with U.S. generally accepted accounting principles.
The assessment of limited partners' rights and their impact on the presumption
of control of the limited partnership by the sole general partner should be made
when an investor becomes the sole general partner and should be reassessed if
(i) there is a change to the terms or in the exercisability of the rights of the
limited partners, (ii) the sole general partner increases or decreases its
ownership of limited partnership interests, or (iii) there is an increase or
decrease in the number of outstanding limited partnership interests. This issue
is effective no later than for fiscal years beginning after December 15, 2005
and as of June 29, 2005 for new or modified arrangements. The impact of adopting
EITF 04-5 did not have a material impact on the Company's financial position or
results of
12
operations.
2. Operating Property Activities
Acquisitions -
During the three months ended March 31, 2006, the Company acquired, in
separate transactions, 27 operating properties, comprising an aggregate 2.2
million square feet of a gross leasable area ("GLA"), for an aggregate purchase
price of approximately $512.0 million including the assumption of approximately
$57.1 million of non-recourse mortgage debt encumbering seven of the properties,
the issuance of approximately $113.5 million of units relating to two properties
and the issuance of approximately $51.5 million of Company common stock ("Common
Stock") relating to one property. Details of these transactions are as follows
(in thousands):
Purchase Price
------------------------------------
Debt Assumed/
Month Stock or Kimco's
Property Name Location Acquired Cash Units Issued Total GLA Interest
------------------------- --------------------- -------- -------- -------------- -------- ----- --------
Portfolio - 19 properties Various: CA, NV, & HI Jan-06 $114,430 $ 19,124 $133,554 815 100.0%
Groves at Lakeland Lakeland, FL Feb-06 1,500 -- 1,500 105 100.0%
625 Broadway New York, NY Feb-06 36,600 -- 36,600 83 100.0%
387 Bleecker Street New York, NY Feb-06 3,700 -- 3,700 -- 100.0%
Cupertino Village Cupertino, CA Mar-06 27,400 38,000 65,400 115 100.0%
Poway Center Poway, CA Mar-06(a) 3,500 -- 3,500 16 100.0%
Plaza Centro Caguas, PR Mar-06 35,731 71,774(b) 107,505 438 100.0%
Los Colobos Carolina, PR Mar-06 36,684 41,719(b) 78,403 343 100.0%
Hylan Plaza Staten Island, NY Mar-06 -- 81,800(c) 81,800 358 100.0%
-------- -------- -------- -----
$259,545 $252,417 $511,962 2,273
======== ======== ======== =====
(a) Acquired additional square footage of existing property.
(b) Represents the value of units issued, see additional disclosure below.
(c) Represents the value of common stock issued by the Company relating to the
merger transaction with Atlantic Realty Trust ("ART") including $30.3
million issued to the
13
Company's subsidiaries representing the 37% of ART previously owned (See
Note 10).
During March 2006, the Company acquired interests in two shopping center
properties located in Caguas and Carolina, Puerto Rico, valued at an aggregate
$185.9 million. The properties were acquired through the issuance of units from
a consolidated subsidiary and consist of approximately $84.4 million of floating
and fixed rate redeemable units, approximately $29.1 million of redeemable
units, which are redeemable at the option of the holder, and approximately $72.4
million in cash. The aggregate value of the units is included in Minority
interests on the accompanying Condensed Consolidated Balance Sheets.
Additionally during March 2006, the Company committed to acquire five
additional shopping center properties located in Puerto Rico, comprising an
aggregate of approximately 1.4 million square feet of GLA, with an aggregate
value of approximately $262.3 million. Consideration for these additional
property acquisitions will consist of approximately $41.5 million of cash,
approximately $16.7 million of redeemable units, which are redeemable at the
option of the holder, approximately $72.0 million of floating and fixed rate
redeemable units and the assumption of approximately $132.1 million of
non-recourse mortgage debt. The additional acquisitions are scheduled to close
the earlier of the completion of the mortgage assumptions or December 1, 2006.
Dispositions -
During the three months ended March 31, 2006, the Company disposed of one
operating property for a sales price of approximately $37.8 million, which
resulted in a gain of approximately $11.6 million and transferred four operating
properties to a joint venture in which the Company has a 20% non-controlling
interest for an aggregate price of approximately $92.0 million, three of which
were acquired during the first quarter for approximately $62.2 million.
3. Discontinued Operations
The Company reports as discontinued operations properties held-for-sale and
operating properties sold in the current period. The results of these
discontinued operations are included in a separate component of income on the
Condensed Consolidated Statements of Income under the caption Discontinued
operations. This reporting has resulted in certain reclassifications of 2005
financial statement amounts.
The components of Income from operations relating to discontinued
operations for the three months ended March 31, 2006 and 2005 are shown below.
These include the results of operations through the date of each respective sale
for properties sold during 2006 and 2005 and a full quarter of operations for
those assets classified as held-for-sale as of March 31, 2006 (in thousands):
14
Three Months Ended
--------------------------------
March 31, 2006 March 31, 2005
-------------- --------------
Discontinued Operations:
Revenues from rental property $ 1,380 $ 3,615
Rental property expenses (397) (1,524)
------- -------
Income from property operations 983 2,091
Depreciation and amortization (4) (814)
Interest expense -- (271)
Other (8) (13)
------- -------
Income from discontinued operating properties 971 993
Gain on disposition of operating properties 11,626 2,396
------- -------
Income from discontinued operations $12,597 $ 3,389
======= =======
During the three months ended March 31, 2006, the Company classified as
held-for-sale six shopping center properties comprising approximately 0.1
million square feet of GLA. The book value of each of these properties,
aggregating approximately $24.3 million, did not exceed each of their estimated
fair values. As a result, no adjustment of property carrying value has been
recorded. The Company's determination of the fair value for each of these
properties, aggregating approximately $29.5 million, is based upon executed
contracts of sale with third parties less estimated selling costs.
4. Ground-Up Development
The Company is engaged in ground-up development projects which consist of
(i) merchant building through the Company's wholly-owned taxable REIT
subsidiary, Kimco Developers, Inc. ("KDI"), which develops neighborhood and
community shopping centers and the subsequent sale thereof upon completion, (ii)
U.S. ground-up development projects which will be held as long-term investments
by the Company and (iii) various ground-up development projects located in
Mexico and Canada for long-term investment. The ground-up development projects
generally have substantial pre-leasing prior to the commencement of
construction. As of March 31, 2006, the Company had in progress a total of 41
ground-up development projects including 28 merchant building projects, four
U.S. ground-up development projects, eight ground-up development projects
located throughout Mexico and one ground-up development project located in
Canada.
KDI -
During the three months ended March 31, 2006, KDI acquired three land
parcels, in separate transactions, for ground-up development of shopping centers
and
15
subsequent sale thereof upon completion for an aggregate purchase price of
approximately $30.7 million.
During the three months ended March 31, 2006, KDI sold, in separate
transactions, ten out-parcels for approximately $11.5 million and received
approximately $5.1 million of proceeds from completed earn-out requirements on
three previously sold projects. These transactions resulted in gains of
approximately $1.8 million, net of income taxes of $1.2 million.
Additionally, during the three months ended March 31, 2006, KDI obtained
construction financing on two ground-up development properties for an aggregate
loan amount of up to $55.2 million, of which $10.7 million was outstanding as of
March 31, 2006. As of March 31, 2006, KDI had 16 loans with total commitments of
up to $384.4 million of which $261.6 million has been funded. These loans have
original maturities ranging from 3 to 35 months and interest rates ranging from
6.38% to 7.08% at March 31, 2006.
Long-term Investment Projects -
During March 2006, the Company acquired land in Chambersburg, PA, for a
purchase price of approximately $8.9 million. The land will be developed into a
0.4 million square foot retail center with a total estimated project cost of
approximately $26.1 million.
Additionally, during March 2006, the Company acquired land in Monterey,
Mexico, for a purchase price of approximately 140.0 million pesos ("MXP")
(approximately USD $12.8 million). The land will be developed into a 0.6 million
square foot retail center with a total estimated project cost of approximately
USD $35.6 million.
5. FNC Realty Corporation
On July 27, 2005, Frank's Nursery and Crafts, Inc. ("Frank's") emerged from
Chapter 11 bankruptcy pursuant to a bankruptcy court approved plan of
reorganization as FNC Realty Corporation ("FNC"). Pursuant to the plan of
reorganization, the Company received common shares of FNC representing an
approximate 27% ownership interest in exchange for its interest in Frank's. In
addition, the Company acquired an additional 24.5% interest in the common shares
of FNC for cash of approximately $17.0 million, thereby increasing the Company's
ownership interest to approximately 51%. The Company also acquired approximately
$42.0 million of fixed rate 7% convertible senior notes issued by FNC. As a
result of the increase in ownership interest from 27% to 51%, the Company became
the controlling shareholder and therefore, commenced consolidation of FNC
effective July 27, 2005.
16
As of July 27, 2005, FNC held interests in 55 properties with approximately
$16.1 million of non-recourse mortgage debt encumbering 16 of the properties.
These loans bear interest at fixed rates ranging from 4.00% to 7.75% and
maturity dates ranging from June 2012 through June 2022. During December 2005,
FNC pre-paid, without penalty, an aggregate $4.8 million of mortgage debt
encumbering five of its properties. As of March 31, 2006, FNC had approximately
$11.3 million of non-recourse mortgage debt encumbering 11 properties. These
remaining loans bear interest at fixed rates ranging from 4.00% to 7.75% and
maturity dates ranging from June 2012 through July 2014.
The Company's investment strategy with respect to FNC includes
re-tenanting, re-developing and disposition of the properties. From July 27,
2005, through December 31, 2005, FNC disposed of nine properties, in separate
transactions, for an aggregate sales price of approximately $9.4 million. During
the three months ended March 31, 2006, FNC disposed of an additional four
properties, in separate transactions, for an aggregate sales price of
approximately $13.3 million.
6. Investments and Advances in Real Estate Joint Ventures
Kimco Income REIT -
During 1998, the Company formed Kimco Income REIT ("KIR"), a limited
partnership which the Company manages, to invest in high quality retail
properties financed primarily through the use of individual non-recourse
mortgages.
The Company holds a 43.3% non-controlling limited partnership interest in
KIR and accounts for its investment under the equity method of accounting. The
Company's equity in income of KIR for the three months ended March 31, 2006 and
2005 was approximately $6.4 million and $11.8 million, respectively, which
includes the Company's share of gains from property sales of approximately $0.7
million and $7.7 million, respectively.
During the three months ended March 31, 2006, KIR disposed of an operating
property and an out-parcel, in separate transactions, for an aggregate sales
price of approximately $7.9 million. These sales resulted in an aggregate gain
of approximately $1.6 million of which the Company's share was approximately
$0.7 million.
In addition, KIR has a master management agreement with the Company,
whereby, the Company performs services for fees relating to the management,
operation, supervision and maintenance of the joint venture properties. For each
of the three months ended March 31, 2006 and 2005, the Company earned management
fees of approximately $0.8 million, respectively.
As of March 31, 2006, the KIR portfolio was comprised of 67 properties
aggregating 14.1 million square feet of GLA located in 20 states.
17
KROP Venture -
During 2001, the Company formed a joint venture (the "Kimco Retail
Opportunity Portfolio" or "KROP") with GE Capital Real Estate ("GECRE"), in
which the Company has a 20% non-controlling interest and manages the portfolio.
The purpose of this joint venture is to acquire established high growth
potential retail properties in the United States. Total capital commitments to
KROP from GECRE and the Company are for $200.0 million and $50.0 million,
respectively, and such commitments are funded proportionately as suitable
opportunities arise and are agreed to by GECRE and the Company. The Company
accounts for its investment in KROP under the equity method of accounting.
During the three months ended March 31, 2006, KROP sold three operating
properties to a joint venture in which the Company has a 20% non-controlling
interest for an aggregate sales price of approximately $62.2 million. These
sales resulted in an aggregate gain of approximately $19.1 million. As a result
of its continued 20% ownership interests in these properties, the Company has
deferred recognition of its share of these gains.
Additionally, during the three months ended March 31, 2006, KROP sold an
operating property and an out-parcel in separate transactions, for an aggregate
sales price of approximately $8.7 million. These sales resulted in an aggregate
gain of approximately $1.6 million of which the Company's share was
approximately $0.3 million.
As of March 31, 2006, the KROP portfolio was comprised of 34 shopping
center properties aggregating approximately 5.3 million square feet of GLA
located in 14 states. For the three months ended March 31, 2006 and 2005, the
Company recognized equity in income of KROP of approximately $0.7 million and
$1.2 million, respectively. Additionally, during the three months ended March
31, 2006 and 2005, the Company earned management fees of approximately $0.9
million, respectively and acquisition fees of approximately $0.3 million for the
three months ended March 31, 2005.
Other Real Estate Joint Ventures -
During the three months ended March 31, 2006, the Company acquired, in
separate transactions, 23 operating properties, through newly formed joint
ventures in which the Company has non-controlling interests. These properties
were acquired for an aggregate purchase price of approximately $463.6 million,
including the assumption of approximately $157.0 million of non-recourse
mortgage debt encumbering three of the properties. The Company accounts for its
investment in these joint ventures under the equity method of accounting.
Details of these transactions are as follows (in thousands):
18
Purchase Price
Month -----------------------------------------
Property Name Location Acquired Cash Debt Total GLA
--------------------------------- ------------------------------------ -------- -------- -------- -------- --------
Stabilus Building Salitillo, Cahuila, Mexico Jan-06 $ 2,600 $ -- $ 2,600 63
American Industries (3 Locations) Chihuahua & San Luis Postosi, Mexico Feb-06 12,200 -- 12,200 224
Copperwood Village Houston, TX Feb-06 73,850 -- 73,850 350
Creme De la Creme (2 Locations) Allen & Colleyville, TX Feb-06 2,409 7,229 9,638 41
Five free standing locations CO, OR, NM, NY Mar-06 7,000 -- 7,000 162
Edgewater Commons Edgewater, NJ Mar-06 44,104 74,250 118,354 424
Long Gate Shopping Ctr Ellicot City, MD Mar-06 36,330 40,200 76,530 433
Clackamas Promenade Clakamas, OR Mar-06 35,240 42,550 77,790 237
Westmont Portfolio (8 Locations) Various, Canada Mar-06 16,066 69,572 85,638 358
-------- -------- --------
$229,799 $233,801 $463,600
======== ======== ========
The Company's maximum exposure to losses associated with its unconsolidated
joint ventures is primarily limited to its carrying value in these investments.
As of March 31, 2006, the Company's carrying value in these investments
approximated $782.9 million.
7. Other Real Estate Investments
Preferred Equity Capital -
The Company maintains a preferred equity program, which provides capital to
developers and owners of real estate. During the three months ended March 31,
2006, the Company provided an aggregate of approximately $95.1 million in
investment capital to developers and owners of 57 real estate properties. As of
March
19
31, 2006, the Company's net investment under the Preferred Equity program was
approximately $306.4 million relating to 185 properties. During the three months
ended March 31, 2006, the Company earned from these investments approximately
$9.9 million, including $4.1 million in profit participation earned from two
capital transactions. During the three months ended March 31, 2005, the Company
earned approximately $6.8 million from these investments including $3.1 million
in profit participation earned from one capital transaction.
Kimsouth -
During November 2002, the Company through its taxable REIT subsidiary,
together with Prometheus Southeast Retail Trust, completed the merger and
privatization of Konover Property Trust, which has been renamed Kimsouth Realty,
Inc., ("Kimsouth"). In connection with the merger, the Company acquired 44.5% of
the common stock of Kimsouth, which consisted primarily of 38 retail shopping
center properties comprising approximately 4.6 million square feet of GLA. Total
acquisition value was approximately $280.9 million including approximately
$216.2 million in mortgage debt. The Company's investment strategy with respect
to Kimsouth includes re-tenanting, repositioning and disposition of the
properties. The Company accounts for its investment in Kimsouth under the equity
method of accounting.
During the three months ended March 31, 2006, Kimsouth sold an operating
property for a sales price of approximately $5.0 million. For the three months
ended March 31, 2006 and 2005, the Company recognized equity in income of
Kimsouth of approximately $0.7 million and $5.8 million, respectively.
As of March 31, 2006, Kimsouth consisted of four properties, including the
remaining office component of an operating property sold in 2004, aggregating
approximately 1.0 million square feet of GLA located in four states.
8. Mortgages and Other Financing Receivables
During January 2006, the Company provided approximately $16.0 million as
its share of a $50.0 million junior participation in a $700.0 million first
mortgage loan, in connection with a private investment firm's acquisition of a
retailer. This loan participation bears interest at LIBOR plus 7.75% per annum
and has a two year term with a one year extension option and is collateralized
by certain real estate interests of the retailer. As of March 31, 2006, the
Company's outstanding balance on this loan participation was approximately $16.0
million.
Additionally, during January 2006, the Company provided approximately $5.2
million as its share of an $11.5 million term loan to a real estate developer
for the acquisition of a 59 acre land parcel located in San Antonio, TX. This
loan is interest only at a fixed rate of 11.0% for a term of one year payable
monthly and collateralized by a first mortgage on the subject property. As of
March 31, 2006, the
20
Company's outstanding balance on this loan was approximately $5.2 million.
During February 2006, the Company committed to provide a $17.2 million
credit facility at fixed rate of 8% for a term of six months to a real estate
investor for the recapitalization of a discount and entertainment mall that it
currently owns. As of March 31, 2006, there was no outstanding balance on this
credit facility.
9. Notes Payable
During March 2006, the Company issued $300.0 million of fixed rate
unsecured senior notes under its medium-term notes ("MTN") program. This fixed
rate MTN matures March 15, 2016 and bears interest at 5.783% per annum. The
proceeds from this MTN issuance were primarily used to repay a portion of the
outstanding balance under the Company's U.S. revolving credit facility and for
general corporate purposes.
10. Common Stock Transactions
During March 2006, the Company completed a primary public stock offering of
10,000,000 shares of the Company's common stock. The net proceeds from this sale
of common stock, totaling approximately $405.5 million (after related
transaction costs of $2.5 million) were primarily used to repay the outstanding
balance under the Company's U.S. revolving credit facility, partial repayment of
the outstanding balance under the Company's Canadian denominated credit facility
and for general corporate purposes.
During December 2005, the Company and Atlantic Realty Trust ("Atlantic
Realty") entered into a definitive merger agreement whereby Atlantic Realty
would merge with and into a wholly owned subsidiary of the Company (the
"Merger"). Pursuant to the merger agreement the Company would acquire Atlantic
Realty for an aggregate value equal to $82.5 million plus the amount of Atlantic
Realty's cash on hand at closing and certain agreed upon expenses less merger
expenses and other liabilities, including certain liabilities under Atlantic
Realty's tax agreement with Ramco-Gershenson Properties Trust. The Merger
consideration was paid in shares of the Company's common stock ("Common Stock")
valued on the final full trading day immediately preceding the closing. Prior to
the Merger the Company and its subsidiaries owned approximately 37% of the
common stock of Atlantic Realty.
The shareholders of Atlantic Realty approved the Merger on March 30, 2006,
and the closing occurred on March 31, 2006. As consideration for this
transaction, the Company issued Atlantic Realty shareholders 1,274,420 shares of
Common Stock, excluding 748,510 shares of Common Stock that were to be received
by the Company, at a price of $40.41 per share.
The acquisition of the remaining 63% ownership interest in Atlantic has
been accounted for as a step acquisition with the purchase price being allocated
to the
21
identified assets and liabilities acquired including an operating property
located in Staten Island, NY, comprising approximately 0.4 million square feet
of GLA.
11. Supplemental Schedule of Non-Cash Investing / Financing Activities
The following schedule summarizes the non-cash investing and financing
activities of the Company for the three months ended March 31, 2006 and 2005 (in
thousands):
2006 2005
-------- --------
Acquisition of real estate interests by issuance of
Common Stock and/or assumption of mortgage debt $105,483 $ --
Acquisition of real estate interest by issuance of units $113,493 $ --
Disposition/transfer of real estate interests by
assignment of mortgage debt $ -- $ 40,239
Disposition/transfer of real estate interest by
assignment of units $ -- $ 4,236
Proceeds held in escrow from sale of real estate
interests $ 37,051 $ --
Acquisition of real estate interest through proceeds
held in escrow $ 19,218 $ --
Declaration of dividends paid in succeeding period $ 82,258 $ 71,892
12. Pro Forma Financial Information
As discussed in Note 2, the Company and certain of its affiliates acquired
and disposed of interests in certain operating properties during the three
months ended March 31, 2006. The pro forma financial information set forth below
is based upon the Company's historical Condensed Consolidated Statements of
Income for the three months ended March 31, 2006 and 2005, adjusted to give
effect to these transactions as of January 1, 2005.
The pro forma financial information is presented for informational purposes
only and may not be indicative of what actual results of operations would have
been had the transactions occurred as of January 1, 2005, nor does it purport to
represent the results of future operations. (Amounts presented in millions,
except per share figures.)
22
Three Months ended March 31,
2006 2005
------ ------
Revenues from rental property $151.0 $141.5
Net income $ 83.6 $ 80.4
Net income per common share:
Basic $ 0.35 $ 0.34
====== ======
Diluted $ 0.35 $ 0.34
====== ======
23
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 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 include this statement for
purposes of complying with these 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" 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 which 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 economic and local real estate conditions, (ii) the
inability of major tenants to continue paying their rent obligations due to
bankruptcy, insolvency or general downturn in their business, (iii) financing
risks, such as the inability to obtain equity or debt financing on favorable
terms, (iv) changes in governmental laws and regulations, (v) the level and
volatility of interest rates, (vi) the availability of suitable acquisition
opportunities and (vii) increases in operating costs. Accordingly, there is no
assurance that the Company's expectations will be realized.
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.
Stock Split
As of August 23, 2005, the Company effected a two-for-one split (the "Stock
Split") of the Company's common stock in the form of a stock dividend paid to
stockholders of record on August 8, 2005. All common share and per common share
data included in this quarterly report on Form 10-Q and the accompanying
Condensed Consolidated Financial Statements and Notes thereto have been adjusted
to reflect this Stock Split.
24
Executive Summary
Kimco Realty Corporation is one of the nation's largest publicly-traded
owners and operators of neighborhood and community shopping centers. As of April
21, 2006, the Company had interests in 1,117 properties, totaling approximately
143.2 million square feet of gross leaseable area ("GLA") located in 45 states,
Canada, Mexico and Puerto Rico.
The Company is self-administered and self-managed through present
management, which has owned and managed neighborhood and community shopping
centers for over 45 years. The executive officers are engaged in the day-to-day
management and operation of real estate exclusively with the Company, with
nearly all operating functions, including leasing, asset management,
maintenance, construction, legal, finance and accounting administered by the
Company.
The Company, through its taxable REIT subsidiaries, is engaged in various
retail real estate related opportunities including (i) merchant building,
through its Kimco Developers, Inc. ("KDI") subsidiary, which is primarily
engaged in the ground-up development of neighborhood and community shopping
centers and the subsequent sale thereof upon completion, (ii) retail real estate
advisory and disposition services, which primarily focuses on leasing and
disposition strategies of retail real estate controlled by both healthy and
distressed and/or bankrupt retailers and (iii) acting as an agent or principal
in connection with tax deferred exchange transactions. The Company will consider
other investments through taxable REIT subsidiaries should suitable
opportunities arise.
In addition, the Company continues to capitalize on its established
expertise in retail real estate by establishing other ventures in which the
Company owns a smaller equity interest and provides management, leasing and
operational support for those properties. The Company also provides preferred
equity capital for real estate entrepreneurs and provides real estate capital
and advisory services to both healthy and distressed retailers. The Company also
makes selective investments in secondary market opportunities where a security
or other investment is, in management's judgment, priced below the value of the
underlying real estate.
The Company's strategy is to maintain a strong balance sheet while
investing opportunistically and selectively. The Company intends to continue to
execute its plan of delivering solid growth in earnings and dividends.
Results of Operations
Revenues from rental property increased $13.4 million or 10.4% to $142.7
million for the three months ended March 31, 2006, as compared with $129.3
million for the corresponding quarter ended March 31, 2005. This net increase
resulted primarily from the combined effect of (i) the acquisition of operating
properties during 2005 and the three months ended March 31, 2006, providing
incremental
25
revenue for the three months ended March 31, 2006 of $10.2 million, (ii) an
overall increase in shopping center portfolio occupancy to 94.6% at March 31,
2006, as compared to 93.4% at March 31, 2005 and the completion of certain
development and redevelopment projects and tenant buyouts providing incremental
revenues of approximately $8.4 million for the three months ended March 31, 2006
as compared to the corresponding period last year, offset by (iii) a decrease in
revenues of approximately $5.2 million for the three months ended March 31,
2006, as compared to the corresponding period last year, resulting from the
transfer of operating properties to various unconsolidated joint venture
entities and the sale of certain properties during 2005 and the three months
ended March 31, 2006.
Rental property expenses, including depreciation and amortization,
increased $6.6 million or 10.8% to $68.0 million for the three months ended
March 31, 2006, as compared to $61.4 million for the corresponding quarter ended
March 31, 2005. This increase is primarily due to operating property
acquisitions during 2006 and 2005 which were partially offset by operating
property dispositions including those transferred to various joint venture
entities.
General and administrative expenses increased approximately $4.7 million to
$16.7 million for the three months ended March 31, 2006, as compared to $12.0
million in the corresponding period in 2005. This increase is primarily due to
personnel related costs, including the non-cash expensing of stock options
granted, attributable to the growth of the Company.
Interest, dividends and other investment income increased approximately
$8.2 million to $12.3 million for the three months ended March 31, 2006, as
compared to $4.1 million for the corresponding period in 2005. This increase is
primarily due to greater dividend income and realized gains on the sale of
certain marketable securities during the period as compared to the same period
in the preceding year.
Other income/(expense), net increased $13.0 million to $12.0 million for
the three months ended March 31, 2006, as compared to an expense of $0.9 million
for the three months ended March 31, 2005. This increase results primarily from
the distribution of Sears Holdings Corp. common stock received as partial
settlement of the Company's Kmart pre-petition claims.
Interest expense increased $11.6 million to $40.0 million for the three
months ended March 31, 2006 as compared to $28.5 million for the corresponding
period in 2005. This increase was due to higher interest rates and higher
outstanding levels of debt during this period as compared to the same period in
the preceding year.
Income from other real estate investments increased $2.0 million to $18.6
million for the three months ended March 31, 2006, as compared to $16.6 million
for the corresponding quarter ended March 31, 2005. This increase is primarily
due to increased investment in the Company's Preferred Equity program which
contributed $9.9 million, including $4.1 million of profit participations earned
from two capital
26
transactions, for the quarter ended March 31, 2006, as compared to $6.8 million
for the corresponding quarter ended March 31, 2005.
Equity in income of real estate joint ventures, net decreased $7.6 million
to $16.8 million for the three months ended March 31, 2006, as compared to $24.4
million for the corresponding quarter ended March 31, 2005. This decrease is
primarily attributable to (i) reduced equity in income from the Kimco Income
REIT joint venture investment ("KIR") of approximately $5.4 million resulting
from the sale of an operating property during 2005 which provided a gain of
$17.8 million, of which the pro-rata share to the Company was $7.7 million and
(ii) a $2.3 million decrease in equity in income related to a property which
incurred significant hurricane damage last year for which an insurance claim is
currently being negotiated.
Minority interest in income, net increased $2.7 million to $5.8 million for
the three months ended March 31, 2006 compared to $3.1 million for the three
months ended March 31, 2005. This increase was mainly attributable to the income
recognized by FNC Realty from gains on property sales. The Company holds a 51%
interest in FNC Realty and began consolidating this entity effective July 2005.
During the three months ended March 31, 2006, KDI, the Company's
wholly-owned development taxable REIT subsidiary sold, in separate transactions,
ten out-parcels for approximately $11.5 million and received approximately $5.1
million of proceeds from completed earn-out requirements on three previously
sold projects. These transactions resulted in gains of approximately $1.8
million, net of income taxes of $1.2 million.
During the three months ended March 31, 2005, KDI sold two of its recently
completed projects and ten out-parcels, in separate transactions, for
approximately $82.5 million. These sales resulted in gains of approximately $5.2
million, net of income taxes of $3.5 million.
During the three months ended March 31, 2006, the Company disposed of (i)
one operating property for a sales price of approximately $37.8 million which
resulted in a gain of approximately $11.6 million, and (ii) transferred another
operating property to a joint venture in which the Company has a 20%
non-controlling interest for a price of approximately $29.8 million.
During the three months ended March 31, 2005, the Company (i) disposed of,
in separate transactions, two operating properties for an aggregate sales price
of $8.2 million, and (ii) transferred six operating properties to various
co-investment ventures in which the Company has 20% non-controlling interests
for an aggregate price of approximately $92.3 million. For the three months
ended March 31, 2005, these transactions resulted in aggregate gains of
approximately $4.0 million.
Net income for the three months ended March 31, 2006 was $96.2 million, as
27
compared to $86.8 million for the three months ended March 31, 2005. On a
diluted per share basis, net income increased $0.04 to $0.40 for the three month
period ended March 31, 2006, as compared to $0.36 for the corresponding quarter
in the previous year. This increase is attributable to (i) an increased in
revenues from rental properties primarily due to the acquisition of operating
properties during 2005 and the three months ended March 31, 2006, (ii) increased
gains on sale of operating properties for the three months ended March 31, 2006,
(iii) increased income contributed from the marketable securities portfolio as
compared to the same period last year, partially offset by, (iv) a decrease in
equity in income of real estate joint ventures resulting from lower gains on
sales of certain joint venture operating properties during the three months
ended March 31, 2006 as compared to the corresponding period in 2005, and (v)
increased interest expense resulting from higher average outstanding borrowings
and interest rates for the three months ended March 31, 2006 as compared to
three months ended March 31 2005.
Tenant Concentration
The Company seeks to reduce its operating and leasing risks through
diversification achieved by the geographic distribution of its properties,
avoiding dependence on any single property, and a large tenant base. At March
31, 2006, the Company's five largest tenants were The Home Depot, TJX Companies,
Sears Holdings, Kohl's, and Wal-Mart, which represented approximately 3.5%,
3.1%, 2.5%, 2.4% and 1.8%, 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 cash flow activities are summarized as follows (in millions):
Three Months Ended
March 31,
------------------
2006 2005
------- ------
Net cash flow provided by operating activities $ 133.1 $111.7
Net cash flow used for investing activities $(526.0) $(44.4)
Net cash flow provided by (used for) financing activities $ 475.5 $ (9.4)
Operating Activities
The Company anticipates that cash flows from operating activities will
continue to provide adequate capital to fund its operating and administrative
expenses, regular debt service obligations and all dividend payments in
accordance with REIT requirements in both the short term and long term. In
addition, the Company anticipates that cash on hand, borrowings under its
revolving credit facilities, 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
28
flow provided by operating activities for the three months ended March 31, 2006,
was primarily attributable to (i) cash flow from the diverse portfolio of rental
properties, (ii) the acquisition of operating properties during 2006 and 2005,
(iii) new leasing, expansion and re-tenanting of core portfolio properties and
(iv) growth in the Company's joint venture and Preferred Equity programs.
Investing Activities
Acquisitions and Redevelopments -
During the three months ended March 31, 2006, the Company expended
approximately $309.6 million towards acquisition of and improvements to
operating real estate.
The Company has an ongoing program to reformat and re-tenant its properties
to maintain or enhance its competitive position in the marketplace. During the
three months ended March 31, 2006, the Company expended approximately $12.0
million in connection with these major redevelopments and re-tenanting projects.
The Company anticipates its capital commitment toward these and other
redevelopment projects during 2006 will be approximately $70.0 million to $90.0
million. The funding of these capital requirements will be provided by cash flow
from operating activities and availability under the Company's revolving lines
of credit.
Investments and Advances to Real Estate Joint Ventures -
During the three months ended March 31, 2006, the Company expended
approximately $73.5 million for investments and advances to real estate joint
ventures and received approximately $35.0 million from reimbursements of
advances to real estate joint ventures.
Ground-up Development -
The Company is engaged in ground-up development projects which consists of
(i) merchant building through the Company's wholly-owned taxable REIT
subsidiary, KDI, which develops neighborhood and community shopping centers and
the subsequent sale thereof upon completion, (ii) ground-up development projects
which will be held as long-term investments by the Company and (iii) various
ground-up development projects located in Mexico and Canada for long-term
investment. All ground-up development projects generally have substantial
pre-leasing prior to the commencement of construction. As of March 31, 2006, the
Company had in progress a total of 41 ground-up development projects including
28 merchant building projects, four U.S. ground-up development projects, eight
ground-up development projects located throughout Mexico and one ground-up
development project located in Canada.
29
During the three months ended March 31, 2006, the Company expended
approximately $125.1 million in connection with the purchase of land and
construction costs related to these projects. These projects are currently
proceeding on schedule and substantially in line with the Company's budgeted
costs. The Company anticipates its capital commitment during 2006 toward these
and other development projects will be approximately $300 million to $350
million. The proceeds from the sales of the completed ground-up development
projects, proceeds from construction loans and availability under the Company's
revolving lines of credit are expected to be sufficient to fund these
anticipated capital requirements.
Dispositions and Transfers -
During the three months ended March 31, 2006, the Company received net
proceeds of approximately $22.8 million relating to the sale of various
operating properties and ground-up development projects and approximately $73.6
million from the transfer of operating properties to various joint ventures.
Financing Activities
It is management's intention that the Company continually has access to the
capital resources necessary to expand and develop its business. As such, the
Company intends to operate with and maintain a conservative capital structure
with a level of debt to total market capitalization of 50% or less. As of March
31, 2006, the Company's level of debt to total market capitalization was 22%. In
addition, the Company intends to maintain strong debt service coverage and fixed
charge coverage ratios as part of its commitment to maintaining its
investment-grade debt ratings. The Company may, from time to time, seek to
obtain funds through additional equity offerings, unsecured debt financings
and/or mortgage/construction loan financings and other capital alternatives in a
manner consistent with its intention to operate with a conservative debt
structure.
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 $4.9
billion for the purposes of, among other things, repaying indebtedness,
acquiring interests in neighborhood and community shopping centers, funding
ground-up development projects, expanding and improving properties in the
portfolio and other investments.
The Company has an $850.0 million unsecured revolving credit facility,
which is scheduled to expire in July 2008. This credit facility has made
available funds to both finance the purchase of properties and other investments
and meet any short-term working capital requirements. As of March 31, 2006,
there was no outstanding balance under this credit facility.
Additionally, the Company has a Canadian denominated ("CAD") $250.0
30
million unsecured credit facility with a group of banks. This facility
originally bore interest at the CDOR Rate, as defined, plus 0.50%, and is
scheduled to expire in March 2008. During January 2006, the facility was amended
to reduce the borrowing spread to 0.45% and to modify the covenant package to
conform to the Company's $850.0 million U.S. Credit Facility. Proceeds from this
facility will be used for general corporate purposes including the funding of
Canadian denominated investments. As of March 31, 2006, there was CAD $70.0
million (approximately USD $59.9 million) outstanding under this credit
facility.
The Company also has a Mexican Peso denominated ("MXP") 500.0 million
unsecured revolving credit facility. This facility bears interest at the TIIE
Rate, as defined, plus 1.00% and is scheduled to expire in May 2008. Proceeds
from this facility will be used to fund peso denominated investments. As of
March 31, 2006, there was MXP 500.0 million (approximately USD $45.8 million)
outstanding under this facility.
The Company has a MTN program pursuant to which it 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.
During March 2006, the Company issued $300.0 million of fixed rate
unsecured senior notes under its medium-term notes ("MTN") program. This fixed
rate MTN matures March 15, 2016 and bears interest at 5.783% per annum. The
proceeds from this MTN issuance were primarily used to repay a portion of the
outstanding balance under the Company's U.S. revolving credit facility and for
general corporate purposes.
Additionally, during March 2006, the Company completed a primary public
stock offering of 10,000,000 shares of the Company's common stock. The net
proceeds from this sale of common stock, totaling approximately $405.5 million
(after related transaction costs of $2.5 million) were primarily used to repay
the outstanding balance under the Company's U.S. revolving credit facility,
partial repayment of the outstanding balance under the Company's Canadian
denominated credit facility and for general corporate purposes.
During May 2006, the Company filed a shelf registration statement on Form
S-3ASR for the future offerings, from time to time, of debt securities,
preferred stock, depositary shares, common stock and common stock warrants.
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 loans to partially fund the capital needs of its ground-up
development projects. As of March 31, 2006, the Company had over 400
unencumbered property interests in its portfolio.
31
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, which are expected to increase due to property acquisitions, growth in
operating income in the existing portfolio and from other investments. 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.
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. Cash
dividends paid for the three months ended March 31, 2006 and 2005 were $78.2
million and $71.5 million, respectively.
Effects of Inflation
Many of the Company's leases contain provisions designed to mitigate the
adverse impact of inflation. Such provisions include clauses enabling the
Company to receive payment of additional rent calculated as a percentage of
tenants' gross sales above pre-determined thresholds, which generally increase
as prices rise, and/or escalation clauses, which generally increase rental rates
during the terms of the leases. Such escalation clauses often include increases
based upon changes in the consumer price index or similar inflation indices. In
addition, many of the Company's leases are for terms of less than 10 years,
which permits the Company to seek to increase rents to market rates upon
renewal. Most of the Company's leases require the tenant to pay an allocable
share of operating expenses, including common area maintenance costs, real
estate taxes and insurance, thereby reducing the Company's exposure to increases
in costs and operating expenses resulting from inflation. The Company
periodically evaluates its exposure to short-term interest rates and foreign
currency exchange rates and will, from time to time, enter into interest rate
protection agreements and/or foreign currency hedge agreements which mitigate,
but do not eliminate, the effect of changes in interest rates on its
floating-rate debt and fluctuations in foreign currency exchange rates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary market risk exposure is interest rate risk. The
following table presents the Company's aggregate fixed rate and variable rate
domestic and foreign debt obligations outstanding as of March 31, 2006, with
corresponding weighted-average interest rates sorted by maturity date. The
32
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instruments actual cash flows are denominated in U.S.
dollars, Canadian dollars and Mexican pesos, as indicated by geographic
description ($ in USD equivalent in thousands).
Fair
2006 2007 2008 2009 2010 2011+ Total Value
-------- -------- -------- -------- -------- ---------- ---------- ----------
U.S Dollar Denominated
Secured Debt Fixed Rate $ 9,587 $ 2,228 $ 58,839 $ 28,082 $ 19,482 $ 270,265 $ 388,483 $ 397,204
Average Interest Rate 9.08% 6.63% 7.13% 7.61% 8.47% 7.00% 7.19%
Variable Rate $ 97,439 $101,824 $ 66,851 $ 7,318 -- $ 605 $ 274,037 $ 274,037
Average Interest Rate 6.85% 6.68% 6.55% 6.38% -- 7.75% 6.70%
Unsecured Debt Fixed Rate $ 85,000 $195,000 $100,000 $180,000 $ 50,000 $1,267,000 $1,877,000 $1,876,985
Average Interest Rate 7.30% 7.14% 3.95% 6.98% 4.62% 5.41% 5.73%
Variable Rate $101,293 -- -- -- -- -- $ 101,293 $ 101,293
Average Interest Rate 4.48% -- -- -- -- -- 4.48%
Canadian Dollar Denominated
Unsecured Debt Fixed Rate -- -- -- -- $128,458 -- $ 128,458 $ 125,540
Average Interest Rate -- -- -- -- 4.45% -- 4.45%
Variable Rate -- -- $ 59,947 -- -- $ 59,947 $ 59,947
Average Interest Rate -- -- 4.29% -- -- 4.29%
Mexican Pesos Denominated
Unsecured Debt Variable Rate -- -- $ 45,776 -- -- -- $ 45,776 $ 45,776
Average Interest Rate -- -- 8.84% -- -- -- 8.84%
Based on the Company's variable-rate debt balances, interest expense would
have increased by approximately $0.6 million for the three months ended March
31, 2006 if short-term interest rates were 1% higher.
33
As of March 31, 2006, the Company had Canadian investments totaling CAD
$399.4 million (approximately USD $342.1 million) comprised of a real estate
joint venture investments and marketable securities. In addition, the Company
has Mexican real estate investments of approximately MXN $2.8 billion
(approximately USD $260.9 million). The foreign currency exchange risk has been
partially mitigated through the use of local currency denominated debt, foreign
currency forward contracts (the "Forward Contracts") and a cross currency swap
(the "CC Swap") with major financial institutions. The Company is exposed to
credit risk in the event of non-performance by the counter-party to the Forward
Contracts and the CC Swap. The Company believes it mitigates its credit risk by
entering into the Forward Contracts and the CC Swap with major financial
institutions.
The Company has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of March 31, 2006,
the Company had no other material exposure to market risk.
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 in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) 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.
34
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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, or which is not
covered by the Company's liability insurance.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not applicable.
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, Milton Cooper,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
35
31.2 Certification of the Company's Chief Financial Officer, Michael V.
Pappagallo, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Company's Chief Executive Officer, Milton Cooper,
and the Company's Chief Financial Officer, Michael V. Pappagallo, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
36
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 9, 2006 /s/ Milton Cooper
(Date) ----------------------------------------
Milton Cooper
Chairman of the Board
May 9, 2006 /s/ Michael V. Pappagallo
(Date) ----------------------------------------
Michael V. Pappagallo
Chief Financial Officer
37