KIMCO REALTY CORPORATION Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated byKimco 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, in some cases, are 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 management's ability to estimate the impact thereof, (vii) pandemics or other health crises, such as coronavirus disease 2019 ("COVID-19"), (viii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (ix) risks and uncertainties associated with the Company's andWeingarten Realty Investor's ("Weingarten") ability to complete the Merger (as defined below) on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary shareholder approvals and satisfaction of other closing conditions to consummate the Merger, (x) the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement (as defined below), (xi) risks related to diverting the attention of the Company and Weingarten management from ongoing business operations, (xii) the Company's failure to realize the expected benefits of the Merger, (xiii) significant transaction costs and/or unknown or inestimable liabilities related to the Merger, (xiv) the risk of shareholder litigation in connection with the proposed Merger, including any resulting expense or delay, (xv) the risk that Weingarten's business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected, (xvi) the Company's ability to obtain the expected financing to consummate the Merger, (xvii) risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company following completion of the Merger, (xviii) effects relating to any further announcements regarding the Merger or the consummation of the Merger on the market price of the Company's common stock or Weingarten's common shares, (xix) the possibility that, if the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company's common stock could decline, (xx) valuation and risks related to the Company's joint venture and preferred equity investments, (xxi) valuation of marketable securities and other investments, including the shares of Albertsons Companies, Inc. common stock held by the Company, (xxii) increases in operating costs, (xxiii) changes in the dividend policy for the Company's common and preferred stock and the Company's ability to pay dividends at current levels, (xxiv) the reduction in the Company's income in the event of multiple lease terminations by tenants or a failure of multiple tenants to occupy their premises in a shopping center, (xxv) impairment charges, (xxvi) unanticipated changes in the Company's intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity and (xxvii) the other risks and uncertainties identified under Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year-endedDecember 31, 2020 , as supplemented by the risks and uncertainties identified under Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q. 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 in the Company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that the Company files with theSecurities 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 OverviewKimco Realty Corporation , aMaryland corporation, is one ofNorth America's largest publicly traded owners and operators of open-air, grocery-anchored shopping centers and mixed-use assets in theU.S. The terms "Kimco ," the "Company," "we," "our" and "us" each refers toKimco 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 over 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 ofJune 30, 2021 , the Company had interests in 398 U.S. shopping center properties, aggregating 70.2 million square feet of gross leasable area ("GLA"), located in 27 states. In addition, the Company had 71 other property interests, primarily through the Company's preferred equity investments and other real estate investments, totaling 5.1 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. 18
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The Company's primary business objective is to be the premier owner and
operators of open-air, grocery-anchored shopping centers and mixed-use assets in
the
? increasing the value of its existing portfolio of properties and generating
higher levels of portfolio growth;
? increasing cash flows for reinvestment and/or for distribution to
shareholders;
? continuing growth in desirable demographic areas with successful retailers;
and
? increasing capital appreciation.
The Company further concentrated its business objectives to three main areas:
? Sustainable Growth - Delivering consistent growth from a portfolio of
well-located, essential-anchored shopping centers and mixed-use assets.
? Financial Strength - Maintaining a strong balance sheet that will sustain
dividend growth, with liquidity to be an opportunistic investor during periods
of disruption.
?
through accretive acquisitions, redevelopments and investments opportunities
with retailers which have significant real estate holdings.
Pending Merger with Weingarten Realty Investors
OnApril 15, 2021 , the Company and Weingarten announced that they have entered into a definitive merger agreement (the "Merger Agreement") under which Weingarten will merge with and into the Company, with the Company continuing as the surviving public company (the "Merger"). The Merger brings together two industry-leading retail real estate platforms with highly complementary portfolios and is expected to create, the preeminent open-air shopping center and mixed-use real estate owner in the country. The increased scale in targeted growth markets, coupled with a broader pipeline of redevelopment opportunities, is expected to position the combined company to create significant value for its shareholders. Under the terms of the Merger Agreement, each Weingarten common share will be converted into 1.408 newly issued shares of the Company's common stock plus$2.89 in cash, subject to certain adjustments specified in the Merger Agreement. This strategic transaction was unanimously approved by the Board of Directors of the Company and theBoard of Trust Managers of Weingarten. OnJuly 15, 2021 , Weingarten'sBoard of Trust Managers declared a special cash distribution of$0.69 per Weingarten common share (the "Special Distribution") payable onAugust 2, 2021 to shareholders of record onJuly 28, 2021 . The Special Distribution is being paid in connection with the anticipated Merger and to satisfy the REIT taxable income distribution requirements. Under the terms of the Merger Agreement, Weingarten's payment of the Special Distribution adjusts the cash consideration to be paid by the Company at the closing of the Merger from$2.89 per Weingarten common share to$2.20 per Weingarten common share, and does not affect the payment of the share consideration of 1.408 newly issued shares of Company common stock for each Weingarten common share owned immediately prior to the effective time of the Merger. The Merger is expected to close onAugust 3, 2021 , subject to the receipt of required shareholder approvals and the satisfaction or waiver of other closing conditions specified in the Merger Agreement. The amounts presented herein for the three and six months endedJune 30, 2021 , are solely the Company's stand-alone results of operations and therefore do not include Weingarten's results of operations for these periods. The Merger will create a national operating portfolio of approximately 555 open-air grocery-anchored shopping centers and mixed-use assets comprising approximately 100 million square feet of gross leasable area. These properties are primarily concentrated in the top major metropolitan markets inthe United States . The combined company is expected to benefit from increased scale and density in keySun Belt markets, enhanced asset quality, tenant diversity, a larger redevelopment pipeline and a deleveraged balance sheet. As a result, the combined company should be uniquely positioned to drive further sustained growth in net operating income and asset value creation through continued strategic leasing and asset management. COVID-19 Pandemic The COVID-19 pandemic has resulted in a widespread health crisis that adversely affected businesses, economies and financial markets worldwide. The COVID-19 pandemic significantly impacted the retail sector in which the Company operates. The majority of the Company's tenants and their operations have been, and may continue to be impacted. Through the duration of the pandemic, a substantial number of tenants had to temporarily or permanently close their business, shortened their operating hours or offer reduced services for some period of time. The development and distribution of COVID-19 vaccines has assisted in allowing many restrictions to be lifted, providing a path to recovery. TheU.S. economy continues to build upon the reopening trend as businesses reopen to full capacity and stimulus is flowing through to the consumer. The overall economy continues to recover but several issues including lack of qualified employees, inflation risk, supply chain bottlenecks and COVID-19 variants have impacted the pace of the recovery. The extent to which the COVID-19 pandemic impacts the Company's financial condition, results of operations and cash flows, in the near term, will continue to depend on future developments, which continue to be uncertain, including new information that may emerge concerning the severity of COVID-19 variants, the distribution and effectiveness as well as the willingness to take the vaccines, the impact of COVID-19 on economic activity, the effect of COVID-19 on the Company's tenants and their businesses, the ability of tenants to make their rental payments and any additional closures of tenants' businesses. 19
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The Company continues to monitor the impact of COVID-19 on the Company's business, tenants and industry as a whole. The magnitude and duration of the COVID-19 pandemic and its impact on the Company's operations and liquidity remains uncertain as the pandemic continues to evolve globally and withinthe United States . The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess its asset portfolio for any impairment indicators. In addition, the Company will continue to monitor for any material or adverse effects resulting from the COVID-19 pandemic. If the Company determines that any of its assets are impaired, the Company would be required to take impairment charges, and such amounts could be material. Although the Company continues to see an increase in collections of rental payments, the effects COVID-19 have had on its tenants are still heavily considered when evaluating the adequacy of the collectability of the tenant's total accounts receivable balance, including the corresponding straight-line rent receivable. As ofJune 30, 2021 , the Company's consolidated accounts receivable balance was 48% potentially uncollectible, including receivables from tenants that are being accounted for on a cash basis, and 16% of the Company's straight-line rent receivables were potentially uncollectible, also inclusive of tenants that are being accounted for on a cash basis. These elevated reserves are primarily attributable to the impact from the COVID-19 pandemic. Management's estimate of the collectability of accrued rents and accounts receivable is based on the best information available to management at the time of evaluation. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will continue to assess the collectability of its tenant accounts receivables. As such, the Company may determine that further adjustments to its accounts receivable may be required in the future, and such amounts may be material. 20
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Table of Contents Results of Operations
Comparison of the three and six months ended
The following table presents the comparative results from the Company's Condensed Consolidated Statements of Income for the three and six months endedJune 30, 2021 , as compared to the corresponding periods in 2020 (in thousands, except per share data): Three Months EndedMarch 31 ,
Six Months Ended June 30,
2021 2020 Change 2021 2020 Change
Revenues
Revenues from rental
properties, net $ 285,732 $ 235,961 $ 49,771 $ 564,603 $ 521,965 $ 42,638
Management and other
fee income 3,284 2,955 329 6,721 6,695 26
Operating expenses
Rent (1) (2,993 ) (2,827 ) (166 ) (6,028 ) (5,662 ) (366 )
Real estate taxes (39,594 ) (38,678 ) (916 ) (78,530 ) (78,330 ) (200 )
Operating and
maintenance (2) (46,897 ) (38,940 ) (7,957 ) (93,417 ) (81,348 ) (12,069 )
General and
administrative (3) (24,754 ) (22,504 ) (2,250 ) (49,232 ) (43,521 ) (5,711 )
Impairment charges (104 ) (138 ) 34 (104 ) (3,112 ) 3,008
Merger charges (3,193 ) - (3,193 ) (3,193 ) - (3,193 )
Depreciation and
amortization (72,573 ) (73,559 ) 986 (147,449 ) (142,956 ) (4,493 )
Gain on sale of
properties 18,861 1,850 17,011 28,866 5,697 23,169
Other
income/(expense)
Other income, net 1,782 49 1,733 5,138 1,293 3,845
Gain on marketable
securities, net 24,297 526,243 (501,946 ) 85,383 521,577 (436,194 )
Gain on sale of cost
method investment - 190,832 (190,832 ) - 190,832 (190,832 )
Interest expense (46,812 ) (48,015 ) 1,203 (94,528 ) (94,075 ) (453 )
Provision for income
taxes, net (1,275 ) (51 ) (1,224 ) (2,583 ) (94 ) (2,489 )
Equity in income of
joint ventures, net 16,318 10,158 6,160 34,070 23,806 10,264
Equity in income of
other real estate
investments, net 5,039 4,782 257 8,826 15,740 (6,914 )
Net income
attributable to
noncontrolling
interests (421 ) (225 ) (196 ) (3,904 ) (514 ) (3,390 )
Preferred dividends (6,354 ) (6,354 ) - (12,708 ) (12,708 ) -
Net income available
to the Company's
common shareholders $ 110,343 $ 741,539 $ (631,196 ) $ 241,931 $ 825,285 $ (583,354 )
Net income available
to the Company's
common shareholders:
Diluted per common
share $ 0.25 $ 1.71 $ (1.46 ) $ 0.56 $ 1.90 $ (1.34 ) (1) Rent expense relates to ground lease payments for which the Company is the
lessee.
(2) 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.
(3) General and administrative expense includes employee-related expenses
(including salaries, bonuses, equity awards, benefits, severance costs and
payroll taxes), professional fees, office rent, travel and entertainment
costs and other company-specific expenses.
Net income available to the Company's common shareholders was $110.3 million for
the three months ended June 30, 2021 , as compared to $741.5 million for the
comparable period in 2020. On a diluted per common share basis, net income
available to the Company's common shareholders for the three months ended June
30, 2021 was $0.25 as compared to $1.71 for the comparable period in 2020.
Net income available to the Company's common shareholders was $241.9 million for
the six months ended June 30, 2021 , as compared to $825.3 million for the
comparable period in 2020. On a diluted per common share basis, net income
available to the Company's common shareholders for the six months ended June 30,
2021 was $0.56 as compared to $1.90 for the comparable period in 2020.
The following describes the changes of certain line items included on the
Company's Condensed Consolidated Statements of Income, that the Company believes
changed significantly and affected Net income available to the Company's common
shareholders during the three and six months ended June 30, 2021 , as compared to
the corresponding periods in 2020:
Revenues from rental properties, net -
The increase in Revenues from rental properties, net of$49.8 million for the three months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily from (i) a net decrease in credit losses from tenants including straight-line rental income of$48.4 million , (ii) an increase in lease termination fee income for the three months endedJune 30, 2021 of$2.7 million , as compared to the corresponding period in 2020, partially offset by (iii) a net decrease in revenues from tenants of$1.3 million , primarily due to rent relief provided in association with the COVID-19 pandemic and tenant vacancies for the three months endedJune 30, 2021 , as compared to the corresponding period in 2020. 21
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The increase in Revenues from rental properties, net of$42.6 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily from (i) a net decrease in credit losses of$53.9 million from tenants including straight-line rental income, (ii) an increase in lease termination fee income for the six months endedJune 30, 2021 of$7.5 million , as compared to the corresponding period in 2020 and (iii) an increase in revenues of$3.2 million due to property acquisitions during 2021, partially offset by (iv) a net decrease in revenues from tenants, including straight-line rental income, primarily due to rent relief provided in association with the COVID-19 pandemic and tenant vacancies for the six months endedJune 30, 2021 of$22.0 million , as compared to the corresponding period in 2020. Operating and maintenance - The increase in Operating and maintenance expense of$8.0 million for the three months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to (i) an increase in snow removal costs of$2.8 million , (ii) an increase in security and property maintenance services of$3.3 million , (iii) an increase in insurance expense of$1.0 million and (iv) an increase in overall spending on properties primarily due to the reopening of markets throughout the country due to the subsiding of the COVID-19 pandemic. The increase in Operating and maintenance expense of$12.1 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to (i) an increase in snow removal costs of$5.3 million , (ii) an increase in security and property maintenance services of$3.6 million , (iii) an increase in insurance expense of$1.6 million and (iv) an increase in overall spending on properties primarily due to the reopening of markets throughout the country due to the subsiding of the COVID-19 pandemic. General and administrative - The increase in General and administrative expense of$5.7 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to (i) an increase of$3.0 million in personnel related costs primarily from an increase in bonus accrual due to improved financial metrics in 2021, as compared to 2020, and (ii) a decrease of$2.8 million in payroll capitalization due to less active development and redevelopment projects during the six months endedJune 30, 2021 , as compared to the corresponding period in 2020. Impairment charges - During the six months endedJune 30, 2021 and 2020, the Company recognized impairment charges related to adjustments to property carrying values of$0.1 million and$3.1 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 values utilized unobservable inputs and, as such, were classified as Level 3 of the FASB's fair value hierarchy. Merger charges - During the six months endedJune 30, 2021 , the Company incurred costs of$3.2 million associated with its pending merger with Weingarten. These charges are primarily comprised of legal and professional fees.
Depreciation and amortization -
The increase in Depreciation and amortization of$4.5 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to (i) an increase of$5.5 million due to depreciation commencing on certain development and redevelopment projects that were placed into service during 2021 and 2020, (ii) an increase of$1.0 million resulting from property acquisitions during 2021, partially offset by (iii) a decrease of$2.0 million due to write-offs of depreciable assets primarily due to tenant vacates during 2020 and the six months endedJune 30, 2021 . 22
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Table of Contents Gain on sale of properties - During the six months endedJune 30, 2021 , the Company disposed of three operating properties and seven parcels, in separate transactions, for an aggregate sales price of$132.2 million , which resulted in aggregate gains of$28.9 million . During the six months endedJune 30, 2020 , the Company disposed of three operating properties, in separate transactions, for an aggregate sales price of$17.2 million , which resulted in aggregate gains of$5.7 million . Other income, net - The increase in Other income, net of$3.8 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to (i) an increase in dividend income of$8.0 million from the shares of Albertsons Companies, Inc. ("ACI") common stock held by the Company and (ii) an increase in mortgage and other financing income of$1.5 million as a result of new loans issued during 2020 and the six months endedJune 30, 2021 , partially offset by (iii) an increase of$3.2 million in costs associated with potential transactions for which the Company is no longer pursuing and (iv) a decrease of$2.5 million related to the recognition of income from the Company'sPuerto Rico properties, resulting from the receipt of casualty insurance claims in excess of the value of the assets written-off during the six months endedJune 30, 2020 .
Gain on marketable securities, net -
The gain on marketable securities, net of$24.3 million and$85.4 million for the three and six months endedJune 30, 2021 , respectively, as compared to the gain on marketable securities, net of$526.2 million and$521.6 million for the three and six months endedJune 30, 2020 , respectively, is primarily the result of mark-to-market fluctuations of the shares of ACI common stock held by the Company, which were obtained during ACI's initial public offering ("IPO") inJune 2020 . This offering resulted in the Company changing the classification of its ACI investment from a cost method investment to a marketable security.
Gain on sale of cost method investment -
InJune 2020 , the Company recognized an aggregate gain of$190.8 million related to (i) a$131.6 million gain resulting from ACI's partial repurchase of its common stock from existing shareholders in conjunction with its issuance of convertible preferred stock and (ii) a gain of$59.2 million in connection with the partial sale of the shares of ACI common stock held by the Company during ACI's IPO.
Provision for income taxes, net -
The increase in Provision for income taxes, net of$2.5 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to an increase in gains on sales in the Company's Taxable REIT Subsidiary ("TRS") during 2021, as compared to the corresponding periods in 2020.
Equity in income of joint ventures, net -
The increase in Equity in income of joint ventures, net of$6.2 million for the three months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to a decrease in credit losses from tenants, including straight-line rental income, within various joint venture investments. The increase in Equity in income of joint ventures, net of$10.3 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to (i) an increase in net gains of$5.3 million resulting from the sale of properties within various joint venture investments during the six months endingJune 30, 2021 , as compared to the corresponding period in 2020, and (ii) increased equity in income of$5.0 million within various joint venture investments during 2021, as compared to the corresponding period in 2020, primarily resulting from a decrease in credit losses from tenants, including straight-line rental income.
Equity in income of other real estate investments, net -
The decrease in Equity in income of other real estate investments, net of$6.9 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to a decrease in profit participation from the sale of properties within the Company's Preferred Equity Program during the six months endedJune 30, 2021 as compared to the corresponding period in 2020.
Net income attributable to noncontrolling interests -
The increase in Net income attributable to noncontrolling interests of$3.4 million for the six months endedJune 30, 2021 , as compared to the corresponding period in 2020, is primarily due to an increase in net gain on sale of properties, within consolidated joint ventures, during six months endedJune 30, 2021 , as compared to the corresponding period in 2020. 23
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Table of Contents 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. As ofJune 30, 2021 , the Company had interests in 398 U.S. shopping center properties, aggregating 70.2 million square feet of gross leasable area ("GLA"), located in 27 states. AtJune 30, 2021 , the Company's five largest tenants were TJX Companies, Home Depot, Albertsons,Ahold Delhaize USA and PetSmart, which represented 4.0%, 2.6%, 2.2%, 2.1% and 2.0%, 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, unsecured term loans, mortgages and construction loan financing, and immediate access to the Company's unsecured revolving credit facility (the "Credit Facility") with bank commitments of$2.0 billion which can be increased to$2.75 billion through an accordion feature. In addition, the Company holds 39.8 million shares of ACI, which are subject to certain contractual lock-up provisions.
The Company's cash flow activities are summarized as follows (in thousands):
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