Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and
information publicly disseminated by Kimco Realty Corporation (the "Company")
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 and
includes this statement for purposes of complying with the safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe the Company's future plans, strategies and expectations, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," "will," "target," "forecast" or similar
expressions. You should not rely on forward-looking statements since they
involve known and unknown risks, uncertainties and other factors which are, in
some cases, beyond the Company's control and could materially affect actual
results, performances or achievements. Factors which may cause actual results to
differ materially from current expectations include, but are not limited to, (i)
general adverse economic and local real estate conditions, (ii) the inability of
major tenants to continue paying their rent obligations due to bankruptcy,
insolvency or a general downturn in their business, (iii) financing risks, such
as the inability to obtain equity, debt or other sources of financing or
refinancing on favorable terms to the Company, (iv) the Company's ability to
raise capital by selling its assets, (v) changes in governmental laws and
regulations and management's ability to estimate the impact of such changes,
(vi) the level and volatility of interest rates and 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 and Weingarten Realty
Investor's ("Weingarten"), ability to complete the acquisition 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 acquisition; (x) the
occurrence of any event, change or other circumstance that could give rise to
the termination of the definitive transaction agreement relating to the proposed
transaction, (xi) risks related to diverting the attention of the Company and
Weingarten management from ongoing business operations; failure to realize the
expected benefits of the acquisition, (xii) significant transaction costs and/or
unknown or inestimable liabilities, (xiii) the risk of shareholder litigation in
connection with the proposed transaction, including resulting expense or delay;
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,
(xiv) the Company's ability to obtain the expected financing to consummate the
acquisition, (xv) 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
acquisition, (xvi) effects relating to the announcement of the acquisition or
any further announcements or the consummation of the acquisition on the market
price of the Company's common stock or Weingarten's common shares, (xvii) the
possibility that, if the Company does not achieve the perceived benefits of the
acquisition as rapidly or to the extent anticipated by financial analysts or
investors, the market price of the Company's common stock could decline, (xviii)
valuation and risks related to the Company's joint venture and preferred equity
investments, (xix) valuation of marketable securities and other investments,
including the shares of Albertsons Companies, Inc. common stock held by the
Company, (xx) increases in operating costs, (xxi) changes in the dividend policy
for the Company's common and preferred stock and the Company's ability to pay
dividends at current levels, (xxii) the reduction in the Company's income in the
event of multiple lease terminations by tenants or a failure by multiple tenants
to occupy their premises in a shopping center, (xxiii) impairment charges,
(xxiv) unanticipated changes in the Company's intention or ability to prepay
certain debt prior to maturity and/or hold certain securities until maturity and
(xxv) the risks and uncertainties identified under Item 1A, "Risk Factors" in
our Annual Report on Form 10-K for the year-ended December 31, 2020.
Accordingly, there is no assurance that the Company's expectations will be
realized. The Company disclaims any intention or obligation to update the
forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised to refer to any further disclosures the
Company makes or related subjects in the Company's Quarterly Reports on Form
10-Q and Current Reports on Form 8-K that the Company files with the Securities
and Exchange Commission ("SEC").
The following discussion should be read in conjunction with the accompanying
Condensed Consolidated Financial Statements and Notes thereto. These unaudited
financial statements include all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
Executive Overview
Kimco Realty Corporation, a Maryland corporation, is one of North America's
largest publicly traded owners and operators of open-air, grocery-anchored
shopping centers and mixed-use assets in the U.S. The terms "Kimco," the
"Company," "we," "our" and "us" each refers to Kimco Realty Corporation and our
subsidiaries, unless the context indicates otherwise. The Company's mission is
to create destinations for everyday living that inspire a sense of community and
deliver value to our many stakeholders.
The Company is a self-administered real estate investment trust ("REIT") and has
owned and operated open-air shopping centers for 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 of March 31, 2021, the Company had interests
in 398 U.S. shopping center properties, aggregating 69.8 million square feet of
gross leasable area ("GLA"), located in 27 states. In addition, the Company had
122 other property interests, primarily through the Company's preferred equity
investments and other real estate investments, totaling 6.7 million square feet
of GLA. The Company's ownership interests in real estate consist of its
consolidated portfolio and portfolios where the Company owns an economic
interest, such as properties in the Company's investment real estate management
programs, where the Company partners with institutional investors and also
retains management.
The Company's primary business objective is to be the premier owner and
operators of open-air, grocery-anchored shopping centers and mixed-use assets in
the U.S. The Company believes it can achieve this objective by:
? 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.
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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.
? Opportunistic Investment - Generating additional internal and external growth
through accretive acquisitions, redevelopments and investments opportunities
with retailers who have significant real estate holdings.
Pending Merger with Weingarten Realty Investors
On April 15, 2021, the Company and Weingarten Realty Investors ("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, creating 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, positions 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. Based on the closing stock price for the Company on April 14,
2021, this represents a total consideration of approximately $30.32 per
Weingarten share. The parties currently expect the transaction to close during
the second half of 2021, subject to customary closing conditions, including the
approval of both the Company and Weingarten shareholders. This strategic
transaction was unanimously approved by the Board of Directors of the Company
and the Board of Trust Managers of Weingarten.
The Merger will create a national operating portfolio of 559 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 in the United States. The
combined company is expected to benefit from increased scale and density in key
Sun 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 has
adversely affected businesses, economies and financial markets worldwide, and
has caused significant volatility in U.S. and international debt and equity
markets. The COVID-19 pandemic has significantly impacted the retail sector in
which the Company operates. The majority of the Company's tenants and their
operations have been impacted, and may continue to be impacted. Through the
duration of the pandemic, a substantial number of tenants have had to
temporarily or permanently close their business, shortened their operating hours
or offer reduced services for some period of time.
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 highly uncertain and
cannot be predicted at this time, including new information that may emerge
concerning the severity of COVID-19, the success of governmental, business and
individual actions that have been, and continue to be, taken in response to
COVID-19, the distribution and effectiveness of 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.
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 this pandemic continues to evolve globally and within the
United States. Management cannot, at this point, estimate ultimate losses
related to the COVID-19 pandemic. 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. 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.
Since the outbreak of the COVID-19 pandemic, the Company's shopping centers have
remained open; however, as noted above, a substantial number of tenants had, or
continue to have, temporarily or permanently closed their businesses. Others
had, or continue to have, shortened their operating hours or offered reduced
services. The Company has, and continues to have, worked with tenants to grant
rent deferrals or forgiveness of rent on a tenant-by-tenant basis. The
development and distribution of COVID vaccines throughout the country have
assisted in allowing many restrictions to be lifted, providing a path to
recovery. There have been additional improvements to the real estate industry as
the pandemic continues to redefine the needs of consumers across the country.
There has been an increase in demand for warehouse space to satisfy fulfilment
and distribution needs as well as certain retail spaces which provide essential
goods such as grocers and pharmacies.
The Company continues to see an increase in collections of rental payments,
however, the effects COVID-19 has had on its tenants is still heavily considered
when evaluating the adequacy of the collectability of the lessee's total
accounts receivable balance, including the corresponding straight-line rent
receivable. As of March 31, 2021, the Company's consolidated accounts receivable
balance was 50% potentially uncollectible, including receivables from tenants
that are being accounted for on a cash basis, and 15% 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.
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Results of Operations
Comparison of the three months ended March 31, 2021 and 2020
The following table presents the comparative results from the Company's
Condensed Consolidated Statements of Income for the three months ended March 31,
2021, as compared to the corresponding period in 2020 (in thousands, except per
share data):
Three Months Ended March 31,
2021 2020 Change
Revenues
Revenues from rental properties, net $ 278,871 $ 286,004 $ (7,133 )
Management and other fee income
3,437 3,740 (303 )
Operating expenses
Rent (1) (3,035 ) (2,835 ) (200 )
Real estate taxes (38,936 ) (39,652 ) 716
Operating and maintenance (2) (46,520 ) (42,408 ) (4,112 )
General and administrative (3) (24,478 ) (21,017 ) (3,461 )
Impairment charges - (2,974 ) 2,974
Depreciation and amortization (74,876 ) (69,397 ) (5,479 )
Gain on sale of properties 10,005 3,847 6,158
Other income/(expense)
Other income, net 3,357 1,245 2,112
Gain/(loss) on marketable securities, net 61,085 (4,667 ) 65,752
Interest expense
(47,716 ) (46,060 ) (1,656 )
Provision for income taxes, net (1,308 ) (43 ) (1,265 )
Equity in income of joint ventures, net 17,752 13,648 4,104
Equity in income of other real estate
investments, net 3,787 10,958 (7,171 )
Net income attributable to noncontrolling
interests (3,483 ) (289 ) (3,194 )
Preferred dividends (6,354 ) (6,354 ) -
Net (loss)/income available to the
Company's common shareholders $ 131,588 $ 83,746 $ 47,842
Net (loss)/income available to the
Company's common shareholders:
Diluted per common share $ 0.30 $ 0.19 $ 0.11
(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 $131.6 million for
the three months ended March 31, 2021, as compared to $83.7 million for the
comparable period in 2020. On a diluted per common share basis, net income
available to the Company for the three months ended March 31, 2021 was $0.30 as
compared to $0.19 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 months ended March 31, 2021, as compared to the
corresponding period in 2020:
Revenues from rental properties, net -
The decrease in Revenues from rental properties, net of $7.1 million for the
three months ended March 31, 2021, as compared to the corresponding period in
2020, is primarily from (i) 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 three months
ended March 31, 2021 of $12.9 million, as compared to the corresponding period
in 2020 and (ii) a decrease in revenues of $0.6 million due to properties sold
during 2021 and 2020, partially offset by (iii) an increase in lease termination
fee income for the three months ended March 31, 2021 of $4.8 million, as
compared to the corresponding period in 2020 and (iv) an increase in revenues of
$1.6 million due to property acquisitions during 2021.
Operating and maintenance -
The increase in Operating and maintenance expense of $4.1 million for the three
months ended March 31, 2021, as compared to the corresponding period in 2020, is
primarily due to an increase in snow removal costs and security and property
maintenance services.
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General and administrative -
The increase in General and administrative expense of $3.5 million for the three
months ended March 31, 2021, as compared to the corresponding period in 2020, is
primarily due to (i) a decrease of $1.6 million in payroll capitalization due to
less active development and redevelopment projects during the three months ended
March 31, 2021, as compared to the corresponding period in 2020 and (ii) an
increase of $1.9 million due to the fluctuations in value of various directors'
deferred stock.
Impairment charges -
During the three months ended March 31, 2020, the Company recognized impairment
charges related to adjustments to property carrying values of $3.0 million, 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.
Depreciation and amortization -
The increase in Depreciation and amortization of $5.5 million for the three
months ended March 31, 2021, as compared to the corresponding period in 2020, is
primarily due to (i) an increase of $2.7 million due to depreciation commencing
on certain development and redevelopment projects that were placed into service
during 2021 and 2020, (ii) an increase of $2.2 million in write-offs of
depreciable assets primarily due to tenant vacates during the three months ended
March 31, 2021, as compared to the corresponding period in 2020 and (iii) an
increase of $0.6 million resulting from property acquisitions during 2021.
Gain on sale of properties -
During the three months ended March 31, 2021, the Company disposed of an
operating property and four parcels, in separate transactions, for an aggregate
sales price of $23.0 million, which resulted in aggregate gains of $10.0
million. During the three months ended March 31, 2020, the Company disposed of
an operating property for a sales price of $13.5 million, which resulted in a
gain of $3.8 million.
Gain/(loss) on marketable securities, net -
The gain on marketable securities, net of $61.1 million for the three months
ended March 31, 2021, as compared to the loss on marketable securities, net of
$4.7 million for corresponding period in 2020, is primarily the result of the
mark-to-market fluctuations of the Company's Albertsons Companies, Inc. ("ACI")
investment, which had its initial public offering ("IPO") in June 2020. This
offering resulted in the Company changing the classification of its ACI
investment from a cost method investment to a marketable security.
Equity in income of joint ventures, net -
The increase in Equity in income of joint ventures, net of $4.1 million for the
three months ended March 31, 2021, as compared to the corresponding period in
2020, is primarily due to (i) an increase in net gains of $4.7 million resulting
from the sale of properties within various joint venture investments during the
three months ending March 31, 2021, as compared to the corresponding period in
2020, partially offset by (ii) lower equity in income of $0.6 million within
various joint venture investments during 2021, as compared to the corresponding
period in 2020, primarily resulting from the sale of properties within various
joint venture investments during 2021 and 2020.
Equity in income of other real estate investments, net -
The decrease in Equity in income of other real estate investments, net of $7.2
million for the three months ended March 31, 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 2021, as compared to the corresponding period in 2020.
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Net income attributable to noncontrolling interests -
The increase in Net income attributable to noncontrolling interests of $3.2
million for the three months ended March 31, 2021, as compared to the
corresponding period in 2020, is primarily due to an increase in net gain on
sale of properties during the three months ended March 31, 2021, as compared to
the corresponding period in 2020.
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 of March 31, 2021, the Company had interests in 398 U.S.
shopping center properties, aggregating 69.8 million square feet of gross
leasable area ("GLA"), located in 27 states. At March 31, 2021, the Company's
five largest tenants were TJX Companies, Home Depot, Ahold Delhaize USA,
Albertsons and PetSmart, which represented 4.0%, 2.6%, 2.1%, 2.0% 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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