UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DD.C..C.20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedJune 30, 20202021
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 incorporation or organization) |
| (I.R.S. Employer Identification No.) |
500 North Broadway, Suite 201, Jericho, NY 11753
(Address of principal executive offices) (Zip Code)
(516) 869-9000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $.01 per share. | KIM | New York Stock Exchange |
Depositary Shares, each representing one-thousandth of a share of 5.125% Class L Cumulative Redeemable, Preferred Stock, $1.00 par value per share. | KIMprL | New York Stock Exchange |
Depositary Shares, each representing one-thousandth of a share of 5.250% Class M Cumulative Redeemable, Preferred Stock, $1.00 par value per share. | KIMprM | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | |
Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 29, 2020,21, 2021, the registrant had 432,503,634433,513,481 shares of common stock outstanding.
PART I - FINANCIAL INFORMATION
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)
June 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
Assets: | ||||||||||||||||
Real estate, net of accumulated depreciation and amortization of $2,606,653 and $2,500,053, respectively | $ | 9,397,045 | $ | 9,209,053 | ||||||||||||
Real estate, net of accumulated depreciation and amortization of $2,784,417 and $2,717,114, respectively | $ | 9,263,542 | $ | 9,346,041 | ||||||||||||
Real estate under development | 5,672 | 220,170 | 5,672 | 5,672 | ||||||||||||
Investments in and advances to real estate joint ventures | 585,363 | 578,118 | 595,283 | 590,694 | ||||||||||||
Other real estate investments | 176,037 | 194,400 | 141,536 | 117,140 | ||||||||||||
Cash and cash equivalents | 201,687 | 123,947 | 230,062 | 293,188 | ||||||||||||
Marketable securities | 633,551 | 9,353 | 792,136 | 706,954 | ||||||||||||
Accounts and notes receivable, net | 250,150 | 218,689 | 200,121 | 219,248 | ||||||||||||
Operating lease right-of-use assets, net | 96,437 | 99,125 | 99,924 | 102,369 | ||||||||||||
Other assets | 214,028 | 345,012 | 230,646 | 233,192 | ||||||||||||
Total assets (1) | $ | 11,559,970 | $ | 10,997,867 | $ | 11,558,922 | $ | 11,614,498 | ||||||||
Liabilities: | ||||||||||||||||
Notes payable, net | $ | 4,961,972 | $ | 4,831,759 | $ | 5,047,529 | $ | 5,044,208 | ||||||||
Mortgages and construction loan payable, net | 388,406 | 484,008 | ||||||||||||||
Mortgages payable, net | 167,976 | 311,272 | ||||||||||||||
Dividends payable | 5,366 | 126,274 | 5,366 | 5,366 | ||||||||||||
Operating lease liabilities | 90,364 | 92,711 | 94,492 | 96,619 | ||||||||||||
Other liabilities | 477,545 | 516,265 | 455,560 | 470,995 | ||||||||||||
Total liabilities (2) | 5,923,653 | 6,051,017 | 5,770,923 | 5,928,460 | ||||||||||||
Redeemable noncontrolling interests | 17,943 | 17,943 | 15,784 | 15,784 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock, $1.00 par value, authorized 7,054,000 shares; Issued and outstanding (in series) 19,580 shares; Aggregate liquidation preference $489,500 | 20 | 20 | 20 | 20 | ||||||||||||
Common stock, $.01 par value, authorized 750,000,000 shares; Issued and outstanding 432,503,634 and 431,814,951 shares, respectively | 4,325 | 4,318 | ||||||||||||||
Common stock, $.01 par value, authorized 750,000,000 shares; Issued and outstanding 433,516,714 and 432,518,743 shares, respectively | 4,335 | 4,325 | ||||||||||||||
Paid-in capital | 5,752,658 | 5,765,233 | 5,771,179 | 5,766,511 | ||||||||||||
Cumulative distributions in excess of net income | (200,492 | ) | (904,679 | ) | (68,265 | ) | (162,812 | ) | ||||||||
Total stockholders' equity | 5,556,511 | 4,864,892 | 5,707,269 | 5,608,044 | ||||||||||||
Noncontrolling interests | 61,863 | 64,015 | 64,946 | 62,210 | ||||||||||||
Total equity | 5,618,374 | 4,928,907 | 5,772,215 | 5,670,254 | ||||||||||||
Total liabilities and equity | $ | 11,559,970 | $ | 10,997,867 | $ | 11,558,922 | $ | 11,614,498 | ||||||||
(1) | Includes restricted assets of consolidated variable interest entities (“VIEs”) at June 30, |
(2) | Includes non-recourse liabilities of consolidated VIEs at June 30, |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Revenues from rental properties, net | $ | 235,961 | $ | 280,710 | $ | 521,965 | $ | 571,344 | $ | 285,732 | $ | 235,961 | $ | 564,603 | $ | 521,965 | ||||||||||||||||
Management and other fee income | 2,955 | 4,163 | 6,695 | 8,539 | 3,284 | 2,955 | 6,721 | 6,695 | ||||||||||||||||||||||||
Total revenues | 238,916 | 284,873 | 528,660 | 579,883 | 289,016 | 238,916 | 571,324 | 528,660 | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Rent | (2,827 | ) | (2,924 | ) | (5,662 | ) | (5,616 | ) | (2,993 | ) | (2,827 | ) | (6,028 | ) | (5,662 | ) | ||||||||||||||||
Real estate taxes | (38,678 | ) | (37,005 | ) | (78,330 | ) | (76,352 | ) | (39,594 | ) | (38,678 | ) | (78,530 | ) | (78,330 | ) | ||||||||||||||||
Operating and maintenance | (38,940 | ) | (43,217 | ) | (81,348 | ) | (84,113 | ) | (46,897 | ) | (38,940 | ) | (93,417 | ) | (81,348 | ) | ||||||||||||||||
General and administrative | (22,504 | ) | (22,633 | ) | (43,521 | ) | (48,464 | ) | (24,754 | ) | (22,504 | ) | (49,232 | ) | (43,521 | ) | ||||||||||||||||
Impairment charges | (138 | ) | (17,451 | ) | (3,112 | ) | (21,626 | ) | (104 | ) | (138 | ) | (104 | ) | (3,112 | ) | ||||||||||||||||
Merger charges | (3,193 | ) | 0 | (3,193 | ) | 0 | ||||||||||||||||||||||||||
Depreciation and amortization | (73,559 | ) | (69,005 | ) | (142,956 | ) | (140,566 | ) | (72,573 | ) | (73,559 | ) | (147,449 | ) | (142,956 | ) | ||||||||||||||||
Total operating expenses | (176,646 | ) | (192,235 | ) | (354,929 | ) | (376,737 | ) | (190,108 | ) | (176,646 | ) | (377,953 | ) | (354,929 | ) | ||||||||||||||||
Gain on sale of properties | 1,850 | 14,762 | 5,697 | 38,357 | 18,861 | 1,850 | 28,866 | 5,697 | ||||||||||||||||||||||||
Operating income | 64,120 | 107,400 | 179,428 | 241,503 | 117,769 | 64,120 | 222,237 | 179,428 | ||||||||||||||||||||||||
Other income/(expense) | ||||||||||||||||||||||||||||||||
Other income, net | 49 | 1,867 | 1,293 | 2,986 | 1,782 | 49 | 5,139 | 1,293 | ||||||||||||||||||||||||
Gain on marketable securities, net | 526,243 | 71 | 521,577 | 1,574 | 24,297 | 526,243 | 85,382 | 521,577 | ||||||||||||||||||||||||
Gain on sale of cost method investment | 190,832 | - | 190,832 | - | 0 | 190,832 | 0 | 190,832 | ||||||||||||||||||||||||
Interest expense | (48,015 | ) | (44,097 | ) | (94,075 | ) | (88,492 | ) | (46,812 | ) | (48,015 | ) | (94,528 | ) | (94,075 | ) | ||||||||||||||||
Income before income taxes, net, equity in income of joint ventures, net, and equity in income from other real estate investments, net | 733,229 | 65,241 | 799,055 | 157,571 | 97,036 | 733,229 | 218,230 | 799,055 | ||||||||||||||||||||||||
(Provision)/benefit for income taxes, net | (51 | ) | 344 | (94 | ) | (286 | ) | |||||||||||||||||||||||||
Provision for income taxes, net | (1,275 | ) | (51 | ) | (2,583 | ) | (94 | ) | ||||||||||||||||||||||||
Equity in income of joint ventures, net | 10,158 | 22,533 | 23,806 | 41,287 | 16,318 | 10,158 | 34,070 | 23,806 | ||||||||||||||||||||||||
Equity in income of other real estate investments, net | 4,782 | 13,269 | 15,740 | 19,493 | 5,039 | 4,782 | 8,826 | 15,740 | ||||||||||||||||||||||||
Net income | 748,118 | 101,387 | 838,507 | 218,065 | 117,118 | 748,118 | 258,543 | 838,507 | ||||||||||||||||||||||||
Net income attributable to noncontrolling interests | (225 | ) | (360 | ) | (514 | ) | (869 | ) | (421 | ) | (225 | ) | (3,904 | ) | (514 | ) | ||||||||||||||||
Net income attributable to the Company | 747,893 | 101,027 | 837,993 | 217,196 | 116,697 | 747,893 | 254,639 | 837,993 | ||||||||||||||||||||||||
Preferred dividends | (6,354 | ) | (14,534 | ) | (12,708 | ) | (29,068 | ) | (6,354 | ) | (6,354 | ) | (12,708 | ) | (12,708 | ) | ||||||||||||||||
Net income available to the Company's common shareholders | $ | 741,539 | $ | 86,493 | $ | 825,285 | $ | 188,128 | $ | 110,343 | $ | 741,539 | $ | 241,931 | $ | 825,285 | ||||||||||||||||
Per common share: | ||||||||||||||||||||||||||||||||
Net income available to the Company: | ||||||||||||||||||||||||||||||||
Net income available to the Company's common shareholders: | Net income available to the Company's common shareholders: | |||||||||||||||||||||||||||||||
-Basic | $ | 1.71 | $ | 0.20 | $ | 1.91 | $ | 0.45 | $ | 0.25 | $ | 1.71 | $ | 0.56 | $ | 1.91 | ||||||||||||||||
-Diluted | $ | 1.71 | $ | 0.20 | $ | 1.90 | $ | 0.44 | $ | 0.25 | $ | 1.71 | $ | 0.56 | $ | 1.90 | ||||||||||||||||
Weighted average shares: | ||||||||||||||||||||||||||||||||
-Basic | 429,967 | 419,697 | 429,851 | 419,581 | 431,011 | 429,967 | 430,769 | 429,851 | ||||||||||||||||||||||||
-Diluted | 431,170 | 420,646 | 431,527 | 420,798 | 432,489 | 431,170 | 432,430 | 431,527 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended June 30, 20202021 and 20192020
(Unaudited)
(in thousands)
Cumulative | Total | Cumulative Distributions in Excess of Net | Preferred Stock | Common Stock | Paid-in | Total Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions in | Preferred Stock | Common Stock | Paid-in | Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excess of Net Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2019 | $ | (804,241 | ) | 43 | $ | 43 | 422,037 | $ | 4,220 | $ | 6,119,855 | $ | 5,319,877 | $ | 76,981 | $ | 5,396,858 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 101,027 | - | - | - | - | - | 101,027 | 360 | 101,387 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | - | - | - | - | - | - | - | (93 | ) | (93 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (132,720 | ) | - | - | - | - | - | (132,720 | ) | - | (132,720 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | - | - | - | - | - | - | - | (474 | ) | (474 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | - | - | - | 3 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | - | - | - | (36 | ) | - | (437 | ) | (437 | ) | - | (437 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | - | - | - | 90 | 1 | 1,129 | 1,130 | - | 1,130 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | - | - | - | - | - | 4,536 | 4,536 | - | 4,536 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interests | - | - | - | - | - | 489 | 489 | (3,215 | ) | (2,726 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | $ | (835,934 | ) | 43 | $ | 43 | 422,094 | $ | 4,221 | $ | 6,125,572 | $ | 5,293,902 | $ | 73,559 | $ | 5,367,461 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2020 | $ | (942,031 | ) | 20 | $ | 20 | 432,525 | $ | 4,325 | $ | 5,747,277 | $ | 4,809,591 | $ | 62,878 | $ | 4,872,469 | $ | (942,031 | ) | 20 | $ | 20 | 432,525 | $ | 4,325 | $ | 5,747,277 | $ | 4,809,591 | $ | 62,878 | $ | 4,872,469 | ||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests | - | - | - | - | - | - | - | 109 | 109 | 0 | - | 0 | - | 0 | 0 | 0 | 109 | 109 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 747,893 | - | - | - | - | - | 747,893 | 225 | 748,118 | 747,893 | - | 0 | - | 0 | 0 | 747,893 | 225 | 748,118 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | - | - | - | - | - | - | - | (343 | ) | (343 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (343 | ) | (343 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (6,354 | ) | - | - | - | - | - | (6,354 | ) | - | (6,354 | ) | (6,354 | ) | - | 0 | - | 0 | 0 | (6,354 | ) | 0 | (6,354 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | - | - | - | - | - | - | - | (344 | ) | (344 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (344 | ) | (344 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | - | - | - | (21 | ) | - | (166 | ) | (166 | ) | - | (166 | ) | 0 | 0 | 0 | (21 | ) | 0 | (166 | ) | (166 | ) | 0 | (166 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | - | - | - | - | - | 5,395 | 5,395 | - | 5,395 | 0 | - | 0 | - | 0 | 5,395 | 5,395 | 0 | 5,395 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interests | - | - | - | - | - | 152 | 152 | (662 | ) | (510 | ) | 0 | - | 0 | - | 0 | 152 | 152 | (662 | ) | (510 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | $ | (200,492 | ) | 20 | $ | 20 | 432,504 | $ | 4,325 | $ | 5,752,658 | $ | 5,556,511 | $ | 61,863 | $ | 5,618,374 | $ | (200,492 | ) | 20 | $ | 20 | 432,504 | $ | 4,325 | $ | 5,752,658 | $ | 5,556,511 | $ | 61,863 | $ | 5,618,374 | ||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2021 | $ | (104,909 | ) | 20 | $ | 20 | 433,448 | $ | 4,334 | $ | 5,763,868 | $ | 5,663,313 | $ | 65,154 | $ | 5,728,467 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 116,697 | - | 0 | - | 0 | 0 | 116,697 | 421 | 117,118 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | 0 | - | 0 | - | 0 | 0 | 0 | (7 | ) | (7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (80,053 | ) | - | 0 | - | 0 | 0 | (80,053 | ) | 0 | (80,053 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | (622 | ) | (622 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | 0 | 0 | 0 | (27 | ) | 0 | (154 | ) | (154 | ) | 0 | (154 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | 0 | 0 | 0 | 96 | 1 | 1,809 | 1,810 | 0 | 1,810 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | 0 | - | 0 | - | 0 | 5,656 | 5,656 | 0 | 5,656 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | (68,265 | ) | 20 | $ | 20 | 433,517 | $ | 4,335 | $ | 5,771,179 | $ | 5,707,269 | $ | 64,946 | $ | 5,772,215 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Six Months Ended June 30, 20202021 and 20192020
(Unaudited)
(in thousands)
Cumulative | Total | Cumulative Distributions in Excess of Net | Preferred Stock | Common Stock | Paid-in | Total Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions in | Preferred Stock | Common Stock | Paid-in | Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excess of Net Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2019 | $ | (787,707 | ) | 43 | $ | 43 | 421,389 | $ | 4,214 | $ | 6,117,254 | $ | 5,333,804 | $ | 77,249 | $ | 5,411,053 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 217,196 | - | - | - | - | - | 217,196 | 869 | 218,065 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | - | - | - | - | - | - | - | (185 | ) | (185 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (265,423 | ) | - | - | - | - | - | (265,423 | ) | - | (265,423 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | - | - | - | - | - | - | - | (1,159 | ) | (1,159 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | - | - | - | 786 | 8 | (8 | ) | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted stock | - | - | - | (223 | ) | (2 | ) | (3,687 | ) | (3,689 | ) | - | (3,689 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | - | - | - | 142 | 1 | 1,810 | 1,811 | - | 1,811 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | - | - | - | - | - | 9,714 | 9,714 | - | 9,714 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interests | - | - | - | - | - | 489 | 489 | (3,215 | ) | (2,726 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | $ | (835,934 | ) | 43 | $ | 43 | 422,094 | $ | 4,221 | $ | 6,125,572 | $ | 5,293,902 | $ | 73,559 | $ | 5,367,461 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2020 | $ | (904,679 | ) | 20 | $ | 20 | 431,815 | $ | 4,318 | $ | 5,765,233 | $ | 4,864,892 | $ | 64,015 | $ | 4,928,907 | $ | (904,679 | ) | 20 | $ | 20 | 431,815 | $ | 4,318 | $ | 5,765,233 | $ | 4,864,892 | $ | 64,015 | $ | 4,928,907 | ||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests | - | - | - | - | - | - | - | 109 | 109 | 0 | - | 0 | - | 0 | 0 | 0 | 109 | 109 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 837,993 | - | - | - | - | - | 837,993 | 514 | 838,507 | 837,993 | - | 0 | - | 0 | 0 | 837,993 | 514 | 838,507 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | - | - | - | - | - | - | - | (605 | ) | (605 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (605 | ) | (605 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (133,806 | ) | - | - | - | - | - | (133,806 | ) | - | (133,806 | ) | (133,806 | ) | - | 0 | - | 0 | 0 | (133,806 | ) | 0 | (133,806 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | - | - | - | - | - | - | - | (899 | ) | (899 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (899 | ) | (899 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | - | - | - | 921 | 9 | (9 | ) | - | - | - | 0 | 0 | 0 | 921 | 9 | (9) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | - | - | - | (295 | ) | (3 | ) | (5,322 | ) | (5,325 | ) | - | (5,325 | ) | 0 | 0 | - | (295 | ) | (3) | (5,322 | ) | (5,325 | ) | 0 | (5,325 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | - | - | - | 63 | 1 | 980 | 981 | - | 981 | 0 | 0 | 0 | 63 | 1 | 980 | 981 | 0 | 981 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | - | - | - | - | - | 11,124 | 11,124 | - | 11,124 | 0 | - | 0 | - | 0 | 11,124 | 11,124 | 0 | 11,124 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interests | - | - | - | - | - | (19,348 | ) | (19,348 | ) | (1,271 | ) | (20,619 | ) | 0 | - | 0 | - | 0 | (19,348) | (19,348) | (1,271 | ) | (20,619 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | $ | (200,492 | ) | 20 | $ | 20 | 432,504 | $ | 4,325 | $ | 5,752,658 | $ | 5,556,511 | $ | 61,863 | $ | 5,618,374 | $ | (200,492 | ) | 20 | $ | 20 | 432,504 | $ | 4,325 | $ | 5,752,658 | $ | 5,556,511 | $ | 61,863 | $ | 5,618,374 | ||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2021 | $ | (162,812 | ) | 20 | $ | 20 | 432,519 | $ | 4,325 | $ | 5,766,511 | $ | 5,608,044 | $ | 62,210 | $ | 5,670,254 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 254,639 | - | 0 | - | 0 | 0 | 254,639 | 3,904 | 258,543 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | 0 | - | 0 | - | 0 | 0 | 0 | (176 | ) | (176 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (160,092 | ) | - | 0 | - | 0 | 0 | (160,092 | ) | 0 | (160,092 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | (992 | ) | (992 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 0 | 0 | 0 | 1,442 | 14 | (14 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | 0 | 0 | 0 | (548 | ) | (5 | ) | (9,241 | ) | (9,246 | ) | 0 | (9,246 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | 0 | 0 | 0 | 104 | 1 | 1,969 | 1,970 | 0 | 1,970 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | 0 | - | 0 | - | 0 | 11,954 | 11,954 | 0 | 11,954 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | (68,265 | ) | 20 | $ | 20 | 433,517 | $ | 4,335 | $ | 5,771,179 | $ | 5,707,269 | $ | 64,946 | $ | 5,772,215 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash flow from operating activities: | ||||||||||||||||
Net income | $ | 838,507 | $ | 218,065 | $ | 258,543 | $ | 838,507 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 142,956 | 140,566 | 147,449 | 142,956 | ||||||||||||
Impairment charges | 3,112 | 21,626 | 104 | 3,112 | ||||||||||||
Equity award expense | 11,482 | 10,284 | 12,271 | 11,482 | ||||||||||||
Gain on sale of properties | (5,697 | ) | (38,357 | ) | (28,866 | ) | (5,697 | ) | ||||||||
Gain on marketable securities, net | (521,577 | ) | (1,574 | ) | (85,382 | ) | (521,577 | ) | ||||||||
Gain on sale of cost method investment | (190,832 | ) | - | 0 | (190,832 | ) | ||||||||||
Equity in income of joint ventures, net | (23,806 | ) | (41,287 | ) | (34,070 | ) | (23,806 | ) | ||||||||
Equity in income of other real estate investments, net | (15,740 | ) | (19,493 | ) | (8,826 | ) | (15,740 | ) | ||||||||
Distributions from joint ventures and other real estate investments | 55,828 | 60,858 | 37,080 | 55,828 | ||||||||||||
Change in accounts and notes receivable, net | (31,461 | ) | 2,159 | 19,127 | (31,461 | ) | ||||||||||
Change in accounts payable and accrued expenses | (977 | ) | (8,382 | ) | 5,587 | (977 | ) | |||||||||
Change in other operating assets and liabilities, net | (24,348 | ) | (30,936 | ) | (29,346 | ) | (24,348 | ) | ||||||||
Net cash flow provided by operating activities | 237,447 | 313,529 | 293,671 | 237,447 | ||||||||||||
Cash flow from investing activities: | ||||||||||||||||
Acquisition of operating real estate | (7,073 | ) | - | (84,312 | ) | (7,073 | ) | |||||||||
Improvements to operating real estate | (110,826 | ) | (139,865 | ) | (66,342 | ) | (110,826 | ) | ||||||||
Improvements to real estate under development | (22,358 | ) | (57,496 | ) | 0 | (22,358 | ) | |||||||||
Investments in marketable securities | - | (157 | ) | |||||||||||||
Proceeds from sale of marketable securities | 906 | 151 | 201 | 906 | ||||||||||||
| Proceeds from sale of cost method investment | 227,521 | - | 0 | 227,521 | ||||||||||||
Investments in and advances to real estate joint ventures | (8,006 | ) | (16,214 | ) | (5,698 | ) | (8,006 | ) | ||||||||
Reimbursements of investments in and advances to real estate joint ventures | 1,737 | 2,702 | 3,368 | 1,737 | ||||||||||||
Investments in and advances to other real estate investments | (1,278 | ) | (9,685 | ) | (55,713 | ) | (1,278 | ) | ||||||||
Reimbursements of investments in and advances to other real estate investments | - | 5,960 | 32,780 | 0 | ||||||||||||
Investment in other financing receivable | - | (48 | ) | (397 | ) | 0 | ||||||||||
Collection of mortgage loans receivable | 77 | 5,351 | 93 | 77 | ||||||||||||
Proceeds from sale of operating properties | 13,447 | 106,782 | ||||||||||||||
Proceeds from sale of properties | 130,138 | 13,447 | ||||||||||||||
Proceeds from insurance casualty claims | 2,450 | 2,000 | 0 | 2,450 | ||||||||||||
Net cash flow provided by/(used for) investing activities | 96,597 | (100,519 | ) | |||||||||||||
Net cash flow (used for)/provided by investing activities | (45,882 | ) | 96,597 | |||||||||||||
Cash flow from financing activities: | ||||||||||||||||
Principal payments on debt, excluding normal amortization of rental property debt | (88,426 | ) | (6,198 | ) | (136,222 | ) | (88,426 | ) | ||||||||
Principal payments on rental property debt | (5,440 | ) | (6,179 | ) | (5,011 | ) | (5,440 | ) | ||||||||
Proceeds from construction loan financing | - | 7,149 | ||||||||||||||
(Repayments)/proceeds from the unsecured revolving credit facility, net | (200,000 | ) | 35,000 | |||||||||||||
Proceeds from the unsecured revolving credit facility, net | 0 | (200,000 | ) | |||||||||||||
| Proceeds from issuance of unsecured term loan | 590,000 | - | 0 | 590,000 | ||||||||||||
| Repayments of unsecured term loan | (265,000 | ) | - | 0 | (265,000 | ) | ||||||||||
Financing origination costs | (6,422 | ) | (7 | ) | 0 | (6,422 | ) | |||||||||
Payment of early extinguishment of debt charges | - | (1,531 | ) | |||||||||||||
Contributions from noncontrolling interests | 109 | - | 0 | 109 | ||||||||||||
Redemption/distribution of noncontrolling interests | (22,123 | ) | (4,060 | ) | (3,225 | ) | (22,123 | ) | ||||||||
Dividends paid | (254,716 | ) | (265,226 | ) | (160,092 | ) | (254,716 | ) | ||||||||
Proceeds from issuance of stock, net | 981 | 1,811 | 1,970 | 981 | ||||||||||||
Change in other financing liabilities | (5,267 | ) | (3,359 | ) | ||||||||||||
Shares repurchased for employee tax withholding on equity awards | (9,225 | ) | (5,313 | ) | ||||||||||||
Change in tenants' security deposits | 890 | 46 | ||||||||||||||
Net cash flow used for financing activities | (256,304 | ) | (242,600 | ) | (310,915 | ) | (256,304 | ) | ||||||||
Net change in cash and cash equivalents | 77,740 | (29,590 | ) | (63,126 | ) | 77,740 | ||||||||||
Cash and cash equivalents, beginning of the period | 123,947 | 143,581 | 293,188 | 123,947 | ||||||||||||
Cash and cash equivalents, end of the period | $ | 201,687 | $ | 113,991 | $ | 230,062 | $ | 201,687 | ||||||||
Interest paid during the period including payment of early extinguishment of debt charges of $0 and $1,531, respectively (net of capitalized interest of $8,879 and $6,680, respectively) | $ | 91,502 | $ | 86,621 | ||||||||||||
Interest paid during the period (net of capitalized interest of $417 and $8,879, respectively) | $ | 96,097 | $ | 91,502 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Organization
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. 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, its affiliates and related real estate joint ventures are engaged principally in the ownership, management, development and operation of open-air shopping centers, which are anchored generally by grocery stores, off-price retailers, home improvement centers, discounters and/or service-oriented tenants. Additionally, the Company provides complementary services that capitalize on the Company’s established retail real estate expertise.
The Company elected status as a Real Estate Investment Trust (a “REIT”) for federal income tax purposes beginning in its taxable year ended December 31, 1991 and operates in a manner that enables the Company to maintain its status as a REIT. As a REIT, with respect to each taxable year, the Company must distribute at least 90 percent of its taxable income (excluding capital gain) and does not pay federal income taxes on the amount distributed to its shareholders. The Company is not generally subject to federal income taxes if it distributes 100 percent of its taxable income. Most states where the Company holds investments in real estate conform to the federal rules recognizing REITs. Certain subsidiaries have made a joint election with the Company to be treated as taxable REIT subsidiaries (“TRSs”), which permit the Company to engage in certain business activities which the REIT may not conduct directly. A TRS is subject to federal and state income taxes on its income, and the Company includes, when applicable, a provision for taxes in its condensed consolidated financial statements. The Company is subject to and also includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. These investments are held by the Company at the REIT level and not in the Company’s taxable REIT subsidiaries. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries.
COVID-19 Pandemic -–
In March 2020, The coronavirus disease 2019 (“COVID-19”) was recognized as a pandemic by the World Health Organization ("WHO"). Shortly thereafter, the President of the United States declared a national emergency throughout the United States. 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. Thecontinues to impact of COVID-19 on the retail real estate industry for both landlords and tenants has been wide ranging, including, but not limited to, the temporary closures of many businesses, "shelter in place" orders, social distancing guidelines and other governmental, business and individual actions taken in response to the COVID-19 pandemic. There has also been reduced consumer spending due to job losses, government restrictions in response to COVID-19 and other effects attributable to COVID-19.
The COVID-19 pandemic, while still unfolding, has significantly impacted the Company’s stakeholders. The Company is aware of the critical role its shopping centers play in the communities they serve, often providing access to essential goods and services such as groceries, drug stores, and medical care. The Company’s shopping centers generally remain open to continue to provide access to these essential goods and services, and the Company has taken steps to protect the shoppers and tenants at its sites, following the guidance of the Centers for Disease Control and Prevention ("CDC") and the WHO.
In March 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, a substantial tax and spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic. The Company continues to monitor the impact of the COVID-19 pandemic closely, as well as any effects that may result from the CARES Act on the Company's tenants which would then indirectly affect the Company.
The COVID-19 pandemic has created significant economic uncertainty and volatility.tenants. 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 are highly uncertain and cannot be predicted at this time. The Company’s business, operations and financial results will depend on numerous evolving factors, that the Company is not able to predict at this time, including the duration and scope of the pandemic, governmental, business and individual actions that have been and continue to be, taken in response to the pandemic, the impactdistribution and effectiveness of vaccines, impacts on economic activity from the pandemic and actions taken in response, the effecteffects of the pandemic on the Company’s tenants and their businesses, the ability of tenants to make their rental payments, additional closures of tenants’ businesses and the impactimpacts of opening and reclosing of communities in response to the resurgence ofincrease in positive COVID-19.19 cases. Any of these events could materially adversely impact the Company’s business, financial condition, results of operations or stock price. 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, Thethe Company will continue to monitor for any material or adverse effects resulting from the COVID-19 pandemic.
The health and safety of If the Company’s employees and their families is a top priority. The Company has takendetermined that any of its assets are impaired, the necessary stepsCompany would be required to protect its employeestake impairment charges, and to empower them to work from home and care for their family members and children, whose lives have also been impacted.such amounts could be material.
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The Company will continue to evaluate individual situations as they arisedevelopment and adjust its approach as appropriate, with the goal to enable its employeesdistribution of COVID-19 vaccines has assisted in allowing many restrictions to be lifted, providing a path to recovery. The U.S. economy continues to build upon the reopening trend as productive as possible while offering thembusinesses reopen to full capacity and stimulus is flowing through to the flexibility they needconsumer. The overall economy continues to care for themselvesrecover but several issues including the lack of qualified employees, inflation risk, supply chain bottlenecks and their families.COVID-19 variants have impacted the pace of the recovery.
SinceAlthough the outbreak of the COVID-19 pandemic, the Company’s shopping centers have remained open; however, a substantial number of tenants had or continueCompany continues to have temporarily closed their businesses. Others had, or continue to have, shortened their operating hours or offered reduced services. The Company has also observed a substantialsee an increase in the numbercollections of tenants that have made late or partial rentrental payments, requested a deferral of rent payments or defaulted on rent payments. The Company considered the effects COVID-19 hashave had on its tenants are still heavily considered when evaluating the adequacy of the collectability of the lessee’stenant's total accounts receivable balance, including the corresponding straight-line rent receivable. During the six months ended June 30,2020, the Company recorded a $50.5 million adjustment associated with potentially uncollectible revenues and disputed amounts, which includes $11.5 million for straight-line rent receivables, primarily attributable to 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.
AsPending Merger with Weingarten Realty Investors
On April 15, 2021, the Company and Weingarten Realty Investors (“Weingarten”) announced that they have entered into a resultdefinitive 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"). This strategic transaction was unanimously approved by the Board of Directors of the current economic uncertaintyCompany and the impact to manyBoard of Trust Managers of Weingarten. Under the terms of the Company's tenants,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.
On July 15, 2021, Weingarten’s Board of Trust Managers declared a special cash distribution of $0.69 per Weingarten common share (the “Special Distribution”) payable on August 2, 2021 to shareholders of record on July 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 has taken important stepsat the closing of the Merger from $2.89 per Weingarten common share to offer$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. During the six months ended June 30, 2021, the Company incurred costs of $3.2 million associated with its support, including:pending merger with Weingarten. These charges are primarily comprised of legal and professional fees.
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The Merger is expected to close on August 3, 2021, subject to the receipt of required shareholder approvals and the satisfaction or waiver of other closing conditions specified in the Merger Agreement.
2. Summary of Significant Accounting Policies
Principles of Consolidation -
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company. The Company’s subsidiaries include subsidiaries which are wholly-owned or which the Company has a controlling interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity (“VIE”) in accordance with the Consolidation guidanceGuidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). All inter-company balances and transactions have been eliminated in consolidation. The information presented in the accompanying Condensed Consolidated Financial Statements 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 audited Annual Report on Form 10-K for the year ended December 31, 20192020 (the “10-K”), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020,2021 that would duplicate those included in the 10-K are not included in these Condensed Consolidated Financial Statements.
Reclassifications -
Certain amounts in the prior period have been reclassified in order to conform to the current period’s presentation. For comparative purposes, the Company reclassified (i) $9.4 million of Marketable securities from Other assets on the Company’s Condensed Consolidated Balance Sheets at December 31, 2019 and (ii) $0.1 million and $1.6 million of Gain on marketable securities, net from Other income, net onOn the Company’s Condensed Consolidated Statements of IncomeCash Flows for thethree and six months ended June 30, 2019,2020, respectively.
the Company reclassified $5.3 million of Cash flows used for Change in other financing liabilities to (i) Cash flows used for Shares repurchased for employee tax withholdings on equity awards of $5.3 million and (ii) Cash flows provided by Change in tenant’s security deposits of $0.05 million.
Subsequent Events -
The Company has evaluated subsequent events and transactions for potential recognition or disclosure in its condensed consolidated financial statements (See Footnotes 3,8 and 16 to the Notes to the Company’s Condensed Consolidated Financial Statements).
Statements.
New Accounting Pronouncements –
In April 2020, the FASB staff developed a question-and-answer document, Topic 842 and Topic 840: Accounting for Lease Concessions related to the Effects of the COVID-19 Pandemic, which focuses on the application of the lease guidance in Topic 842, Leases, and Topic 840, Leases (if Topic 842 has not yet been adopted) for lease concessions related to the effects of the COVID-19 pandemic. The FASB staff has been made aware that, given the unprecedented and global nature of the COVID-19 pandemic, it may be exceedingly challenging for entities to determine whether existing contracts provide enforceable rights and obligations for lease concessions and, if so, whether those concessions are consistent with the terms of the contract or are modifications to a contract. As such, an entity can elect not to evaluate whether certain relief provided by a lessor in response to the COVID-19 pandemic is a lease modification. An entity that makes this election can then elect to apply the modification guidance to that relief or account for the concession as if it were contemplated as part of the existing contract. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.
Some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. A deferral affects the timing of cash receipts, but the amount of the consideration is substantially the same as that required by the original contract. The FASB staff expects that there will be multiple ways to account for those deferrals, none of which the FASB staff believes are preferable to the others. Two of those methods are:
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The Company has elected to apply the modification relief as mentioned in (i) above to the lease concessions it has entered into during the six months ended June 30, 2020 related to the COVID-19 pandemic as a lessor related to rental income recognized.
The following table represents ASUsASU to the FASB’s ASC that,have been adopted by the Company as of June 30, 2020, are not yet effective for the Company and for which the Company has not elected early adoption, where permitted:date listed:
ASU | Description |
Adoption Date | Effect on the financial statements or other significant matters |
ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) | The amendments clarify the interaction between the accounting for equity securities, equity method investments, and certain derivative instruments. This ASU, among other things, clarifies that an entity should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. | January 1, |
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The following ASUs to the FASB’s ASC have been adopted by the Company as of the date listed:
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| The adoption of this ASU did not have a material impact on the Company’s financial position and/or results of operations. |
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3. Real Estate
Acquisitions of Operating Properties -
During the six months ended June 30, 2020,2021, the Company acquired the following operating property,properties, through a direct asset purchasepurchases (in thousands):
Purchase Price | Purchase Price | |||||||||||||||||||||||||||||
Property Name | Location | Month Acquired | Cash | GLA* | Location | Month Acquired | Cash | Other Consideration** | Total | GLA* | ||||||||||||||||||||
North Valley Parcel | Peoria, AZ | Feb-20 | $ | 7,073 | 9 | |||||||||||||||||||||||||
Distribution Center #1 | Lancaster, CA | Jan-21 | $ | 58,723 | $ | 11,277 | $ | 70,000 | 927 | |||||||||||||||||||||
Distribution Center #2 | Woodland, CA | Jan-21 | 27,589 | 6,411 | 34,000 | 508 | ||||||||||||||||||||||||
| $ | 86,312 | $ | 17,688 | $ | 104,000 | 1,435 | ||||||||||||||||||||||||
* Gross leasable area ("GLA")
** Consists of the fair value of the assets acquired which exceeded the purchase price upon closing. The transaction was a sale-leaseback with the seller which resulted in the recognition of a prepayment of rent of $17.7 million in accordance with ASC 842,Leases at closing. The prepayment of rent will be amortized over the initial term of the lease through Revenues from rental properties, net on the Company's Condensed Consolidated Statements of Income. See Footnote 10 of the Company’s Condensed Consolidated Financial Statements for additional discussion regarding fair value allocation of partnership interest for noncontrolling interests.
The 2 distribution centers were purchased through a TRS of the Company during January 2021, and they were subsequently sold in June 2021 and are included in the Dispositions disclosure below. Included in the Company's Condensed Consolidated Statements of Income is $3.2 million in total revenues from the date of acquisition through the date of disposition for these two operating properties.
Purchase Price Allocation -
The purchase price for this acquisition isthese acquisitions was allocated to real estate and related intangible assets acquired, as applicable, in accordance with our accounting policies for asset acquisitions. The purchase price allocation for the propertyproperties acquired during the six months ended June 30, 2020,2021, is as follows (in thousands):
Allocation as of June 30, 2020 | Weighted Average | |||||||
Land | $ | 935 | n/a | |||||
Building | 4,610 | 50.0 | ||||||
Building improvements | 221 | 45.0 | ||||||
Tenant improvements | 382 | 19.4 | ||||||
In-place leases | 925 | 19.4 | ||||||
Net assets acquired | $ | 7,073 | ||||||
Real Estate Under Development –
The Company had a real estate development project located in Dania Beach, FL for long-term investment. During June 2020, this real estate development project, aggregating $229.9 million (including internal capitalized costs of $31.2 million), was placed in service and reclassified $228.8 million to Operating real estate, net and $1.1 million to Other assets on the Company’s Condensed Consolidated Balance Sheets. The Company capitalized (i) interest of $4.0 million and $3.1 million, (ii) real estate taxes, insurance and legal costs of $0.6 million and $0.4 million and (iii) payroll of $1.0 million and $0.3 million during the six months ended June 30, 2020 and 2019, respectively, in connection with this real estate development project. As of June 30, 2020, the Company had one land parcel located in Dania Beach, FL which is held for future development included in Real estate under development on the Company’s Condensed Consolidated Balance Sheets.
Allocation as of June 30, 2021 | Weighted Average Amortization Period (in Years) | |||||||
Land | $ | 19,527 | n/a | |||||
Building | 87,691 | 50.0 | ||||||
Building improvements | 6,251 | 45.0 | ||||||
Tenant improvements | 711 | 20.0 | ||||||
In-place leases | 11,120 | 20.0 | ||||||
Below-market leases | (21,300 | ) | 60.0 | |||||
Net assets acquired | $ | 104,000 | ||||||
Redevelopment –
As a result of the COVID-19 pandemic, the Company continues to evaluate its current redevelopment and re-tenanting projects and is moving forward with the projects it feels are necessary.
Dispositions -
The table below summarizes the Company’s disposition activity relating to consolidated operating properties and parcels (dollars in millions):
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Aggregate sales price (1) | $ | 17.2 | $ | 110.1 | ||||
Gain on sale of properties | $ | 5.7 | $ | 38.4 | ||||
Number of properties sold | 3 | 7 | ||||||
Number of out-parcels sold | - | 5 | ||||||
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Aggregate sales price | $ | 132.2 | $ | 17.2 | ||||
Gain on sale of properties (1) | $ | 28.9 | $ | 5.7 | ||||
Number of properties sold | 3 | 3 | ||||||
Number of parcels sold | 7 | 0 | ||||||
Impairments-
During(1) Before noncontrolling interests of $3.1 million and taxes of $2.1 million, after utilization of net operating loss carryforwards, for the six months ended June 30, 2020 2021.and 2019, the Company recognized aggregate impairment charges of $3.1 million and $21.6 million, respectively, related to adjustments to property carrying values for properties which the Company has sold or marketed for sale as part of its active capital recycling program and as such has adjusted the anticipated hold period for such properties. The Company’s estimated fair values of these properties were primarily based upon estimated sales prices from signed contracts or letters of intent from third party offers. See Footnote 11 to the Notes to the Company’s Condensed Consolidated Financial Statements for fair value disclosure.
The COVID-19 pandemic has significantly impacted the retail sector in which the Company operates and if the effects of the pandemic are prolonged, it could have a significant adverse impact to the underlying industries of many of the Company’s tenants. 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 this pandemic and will assess its asset portfolio for any impairment indicators. If the Company has determined that any of its assets are impaired the Company would be required to take impairment charges, and such amounts could be material.
4. Investments in and Advances to Real Estate Joint Ventures
The Company has investments in and advances to various real estate joint ventures. These joint ventures are engaged primarily in the operation of shopping centers which are either owned or held under long-term operating leases. The Company and the joint venture partners have joint approval rights for major decisions, including those regarding property operations. As such, the Company holds noncontrolling interests in these joint ventures and accounts for them under the equity method of accounting.
The table below presents joint venture investments for which the Company held an ownership interest at June 30, 20202021 and December 31, 20192020 (dollars in millions):
Ownership | The Company’s Investment | Ownership | The Company’s Investment | |||||||||||||||||||||
Joint Venture | Interest | June 30, 2020 | December 31, 2019 | Interest | June 30, 2021 | December 31, 2020 | ||||||||||||||||||
Prudential Investment Program (1) | 15.0% | $ | 170.8 | $ | 169.5 | 15.0% | $ | 172.9 | $ | 175.1 | ||||||||||||||
Kimco Income Opportunity Portfolio (“KIR”) (1) | 48.6% | 175.8 | 175.0 | 48.6% | 181.0 | 177.4 | ||||||||||||||||||
Canada Pension Plan Investment Board (“CPP”) (1) | 55.0% | 157.7 | 151.7 | 55.0% | 165.6 | 159.7 | ||||||||||||||||||
Other Joint Venture Programs | Various | 81.1 | 81.9 |
| Various | 75.8 | 78.5 | |||||||||||||||||
Total* | $ | 585.4 | $ | 578.1 | $ | 595.3 | $ | 590.7 | ||||||||||||||||
* Representing 95 property interests and 20.9 million square feet of GLA, as of June 30, 2021, and 97 property interests and 21.2 million square feet of GLA, as of December 31, 2020. (1) The Company manages these joint venture investments and, where applicable, earns property management fees, construction management fees, property acquisition and disposition fees, leasing management fees and asset management fees. The table below presents the Company’s share of net income for the above investments which is included in Equity in income of joint ventures, net on the Company’s Condensed Consolidated Statements of Income for the three and six months ended June 30, Three Months Ended June 30, Six Months Ended June 30, Three Months Ended June 30, Six Months Ended, June 30, Joint Venture 2020 2019 2020 2019 2021 2020 2021 2020 Prudential Investment Program KIR CPP Other Joint Venture Programs Total During the six months ended June 30, The table below presents debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at June 30, As of June 30, 2020 As of December 31, 2019 As of June 30, 2021 As of December 31, 2020 Joint Venture Mortgages and Notes Payable, Net Weighted Average Interest Rate Weighted Average Remaining Term (months)* Mortgages and Notes Payable, Net Weighted Average Interest Rate Weighted Average Remaining Term (months)* Mortgages and Notes Payable, Net Weighted Average Interest Rate Weighted Average Remaining Term (months)* Mortgages and Notes Payable, Net Weighted Average Interest Rate Weighted Average Remaining Term (months)* Prudential Investment Program % KIR % CPP % Other Joint Venture Programs % Total * Includes extension options The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess its joint venture portfolio for any impairment indicators. If the Company has determined that any of its assets are impaired, the Company would be required to take impairment charges, and such amounts could be material. 5. Other Real Estate Investments The Company has provided capital to owners and developers of real estate properties and loans through its Preferred Equity Program. The Company’s maximum exposure to losses associated with its preferred equity investments is primarily limited to its net investment. During the six months ended June 30, 2021, the Company invested $54.9 million in a new preferred equity investment in a property located in San Antonio, TX. As of June 30, 6. Marketable Securities The amortized cost and unrealized As of June 30, 2020 As of December 31, 2019 Marketable securities: Amortized cost (1) Unrealized gains/(losses), net (1) Total fair value As of June 30, 2021 As of December 31, 2020 Marketable securities: Amortized cost Unrealized gains, net Total fair value During the three months ended June 30, 7. Accounts and Notes Receivable The components of accounts and notes receivable, net of potentially uncollectible amounts as of June 30, 2021 and December 31, 2020, are as follows (in thousands): June 30, 2021 December 31, 2020 Billed tenant receivables Unbilled Common area maintenance, insurance and tax reimbursements Deferred rent receivables Other receivables Straight-line rent receivables Total accounts and notes receivable, net 8.Leases Lessor Leases The Company’s primary source of revenues The disaggregation of the Company’s lease income, which is included in Six Months Ended June 30, Six Months Ended June 30, 2020 2019 2021 2020 Lease income: Fixed lease income (1) Variable lease income (2) Above-market and below-market leases amortization, net Total lease income (3) Total lease income (1) Includes minimum base rents, expense reimbursements, ancillary income and straight-line rent adjustments. (2) Includes minimum base rents, expense reimbursements, percentage rent, lease termination fee income and ancillary income. (3) Lessee Leases The Company currently leases real estate space under The components of the Company’s lease expense, which are included in rent expense and general and administrative expense on the Company’s Condensed Consolidated Statements of Income for the six months ended June 30, Six Months Ended June 30, Six Months Ended June 30, 2020 2019 2021 2020 Lease cost: Operating lease cost Variable lease cost Total lease cost Notes Payable – In February 2020, the Company obtained a During the six months ended June 30, Noncontrolling interests represent the portion of equity that the Company does not own in entities it consolidates as a result of having a controlling interest or determining that the Company was the primary beneficiary of a VIE in accordance with the provisions of the FASB’s Consolidation guidance. The Company accounts and reports for noncontrolling interests in accordance with the Consolidation guidance and the Distinguishing Liabilities from Equity guidance issued by the FASB. The Company identifies its noncontrolling interests separately within the equity section on the Company’s Condensed Consolidated Balance Sheets. The amounts of consolidated net income attributable to the Company and to the noncontrolling interests are presented separately on the Company’s Condensed Consolidated Statements of Income. Included within noncontrolling interests are units that were determined to be contingently redeemable that are classified as Redeemable noncontrolling interests and presented in the mezzanine section between Total liabilities and Stockholder’s equity on the Company’s Condensed Consolidated Balance Sheets. The following table presents the change in the redemption value of the Redeemable noncontrolling interests for the six months ended June 30, Six Months Ended June 30, Six Months Ended June 30, 2020 2019 2021 2020 Balance at January 1, Fair value allocation to partnership interest (1) Income Distributions Distributions (1) Balance at June 30, (1) During January 2021, KIM RDC, LLC (“KIM RDC”), a wholly owned subsidiary of the Company, and KP Lancewood LLC (“KPR Member”) entered into a joint venture agreement wherein KIM RDC has a 100% controlling interest and KPR Member is entitled to a profit participation. The joint venture acquired 2 operating properties for a gross fair value of $104.0 million (see Footnote 3 of the Company’s Condensed Consolidated Financial Statements). This joint venture is accounted for as a consolidated VIE (see Footnote 11 of the Company’s Condensed Consolidated Financial Statements). During June 2021 the 2 joint venture properties were sold for a combined sales price of $108.0 million of which the KPR Member received a distribution of $2.1 million. Included within the Company’s consolidated operating properties at both June 30, The majority of the operations of these VIEs are funded with cash flows generated from the properties. The Company has not provided financial support to any of these VIEs that it was not previously contractually required to provide, which consists primarily of funding any capital expenditures, including tenant improvements, which are deemed necessary to continue to operate the entity and any operating cash shortfalls All liabilities of these consolidated VIEs are non-recourse to the Company (“VIE Liabilities”). The assets of the unencumbered VIEs are not restricted for use to settle only the obligations of these VIEs. The remaining VIE assets are encumbered by third party non-recourse mortgage As of June 30, 2020 As of December 31, 2019 Number of unencumbered VIEs Number of encumbered VIEs Total number of consolidated VIEs Restricted Assets: Real estate, net Cash and cash equivalents Accounts and notes receivable, net Other assets Total Restricted Assets VIE Liabilities: Mortgages and construction loan payable, net Other liabilities Total VIE Liabilities As of June 30, 2021 As of December 31, 2020 Number of unencumbered VIEs Number of encumbered VIEs Total number of consolidated VIEs Restricted Assets: Real estate, net Cash and cash equivalents Accounts and notes receivable, net Other assets Total Restricted Assets VIE Liabilities: Mortgages payable, net Operating lease liabilities Other liabilities 19.4 20.1 Total VIE Liabilities All financial instruments of the Company are reflected in the accompanying Condensed Consolidated Balance Sheets at amounts which, in management’s estimation, based upon an interpretation of available market information and valuation methodologies, reasonably approximate their fair values except those listed below, for which fair values are disclosed. The valuation method used to estimate fair value for fixed-rate and variable-rate debt is based on discounted cash flow analyses, with assumptions that include credit spreads, market yield curves, trading activity, loan amounts and debt maturities. The fair values for marketable securities are based on published values, securities dealers’ estimated market values or comparable market sales. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition. As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value Measurements and Disclosures guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The following are financial instruments for which the Company’s estimated fair value differs from the carrying value (in thousands): June 30, 2020 December 31, 2019 June 30, 2021 December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value Carrying Value Fair Value Carrying Value Fair Value Notes payable, net (1) Mortgages and construction loan payable, net (2) Mortgages payable, net (2) (1) The Company determined that the valuation of its Senior Unsecured Notes were classified within Level 2 of the fair value hierarchy and its unsecured revolving credit facility (2) The Company determined that its valuation of its mortgages The Company has certain financial instruments that must be measured under the FASB’s Fair Value Measurements and Disclosures guidance, including available for sale securities. The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis. The Balance at June 30, 2020 Level 1 Level 2 Level 3 Marketable equity securities Balance at June 30, 2021 Level 1 Level 2 Level 3 Marketable equity securities Balance at December 31, 2019 Level 1 Level 2 Level 3 Marketable equity securities Balance at December 31, 2020 Level 1 Level 3 Marketable equity securities Balance at June 30, 2020 Level 1 Level 2 Level 3 Real estate Balance at December 31, 2019 Level 1 Level 2 Level 3 Balance at December 31, 2020 Level 1 Level 2 Level 3 Real estate Other real estate investments In May 2020, the Company’s stockholders approved the 2020 Equity Participation Plan (the “2020 Plan”), which is a successor to the Restated Kimco Realty Corporation 2010 Equity Participation Plan (together with the 2020 Plan, the "Plans") that expired in March 2020. The 2020 Plan provides for a maximum of 10,000,000 shares of the Company’s common stock to be reserved for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, stock payments and deferred stock awards. At June 30, The Company accounts for equity awards in accordance with FASB’s Compensation – Stock Compensation guidance which requires that all share-based payments to employees, including The Company recognized expenses associated with its equity awards of 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 Six Months Ended June 30, Three Months Ended Six Months Ended June 30, 2020 2019 2020 2019 2021 2020 2021 2020 Computation of Basic and Diluted Earnings Per Share: Net income available to the Company's common shareholders Earnings attributable to participating securities Net income available to the Company’s common shareholders for basic earnings per share Distributions on convertible units Net income available to the Company’s common shareholders for diluted earnings per share Weighted average common shares outstanding – basic Effect of dilutive securities (1): Equity awards Assumed conversion of convertible units Weighted average common shares outstanding – diluted Net income available to the Company's common shareholders: Basic earnings per share Diluted earnings per share (1) The effect of the assumed conversion of certain convertible units had an anti-dilutive effect upon the calculation of Net income available to the Company’s common shareholders per share. Accordingly, the impact of such conversions has not been included in the determination of diluted earnings per share calculations. Additionally, there were The Company's unvested restricted share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings. Preferred Stock - The Company’s outstanding Preferred Stock is detailed below: As of June 30, 2020 and December 31, 2019 As of June 30, 2021 and December 31, 2020 As of June 30, 2021 and December 31, 2020 Class of Preferred Stock Shares Authorized Shares Issued and Outstanding Liquidation Preference (in thousands) Dividend Rate Annual Dividend per Depositary Share Par Value Optional Redemption Date Shares Authorized Shares Issued and Outstanding Liquidation Preference (in thousands) Dividend Rate Annual Dividend per Depositary Share Par Value Optional Redemption Date Class L 8/16/2022 8/16/2022 Class M 12/20/2022 12/20/2022 Common Stock- During February 2020, the Company extended its share repurchase program for a term of two* Representing 98 property interests and 21.3 million square feet of GLA, as of both June 30, 2020 and December 31, 2019.20202021 and 20192020 (in millions): $ 1.8 $ 2.8 $ 4.4 $ 5.7 $ 2.6 $ 1.8 $ 5.3 $ 4.4 5.0 17.2 14.7 31.8 9.1 5.0 17.8 14.7 1.7 1.6 2.7 3.0 2.0 1.7 4.1 2.7 (1) 1.7 0.9 2.0 0.8 2.6 1.7 6.9 2.0 $ 10.2 $ 22.5 $ 23.8 $ 41.3 $ 16.3 $ 10.2 $ 34.1 $ 23.8 132019,2021, certain of the Company’s real estate joint ventures disposed of 5 operating2 properties, in separate transactions, for an aggregate sales price of $128.2$53.7 million. These transactions resulted in an aggregate net gain to the Company of $11.9$4.2 million for the six months ended June 30, 2019.2021.20202021 and December 31, 20192020 (dollars in millions): $ 535.6 2.31 % 40.7 $ 538.1 3.46 46.8 $ 492.7 1.97 % 49.5 $ 495.8 2.05 % 37.2 558.5 4.04 % 29.0 556.0 4.39 28.4 531.5 3.25 % 26.2 536.9 3.87 % 25.3 84.8 3.25 % 36.0 84.8 3.25 42.0 85.0 3.25 % 24.0 84.9 3.25 % 30.0 424.2 3.45 % 89.1 415.2 3.87 80.9 381.5 3.59 % 87.0 423.4 3.41 % 86.7 $ 1,603.1 $ 1,594.1 $ 1,490.7 $ 1,541.0 2020,2021, the Company’s net investment under the Preferred Equity Program was $157.3$123.4 million relating to 18962 properties, including 17952 net leased properties. During the six months ended June 30, 2021, the Company recognized income of $7.7 million from its preferred equity investments, including profit participation of $1.2 million. During the six months ended June 30, 2020, the Company recognized income of $15.9 million from its preferred equity investments, including profit participation of $7.5 million. During the six months ended June 30, 2019, the Company recognized income of $19.5 million from its preferred equity investments, including profit participation of $9.8 million. These amounts are included in Equity in income of other real estate investments, net on the Company’s Condensed Consolidated Statements of Income.gains/(losses),gains, net of marketable securities as of June 30, 20202021 and December 31, 2019,2020, are as follows (in thousands): $ 114,587 $ 12,064 518,964 (2,711 ) $ 633,551 $ 9,353 (1)See Albertsons Companies, Inc. discussion below. $ 114,331 $ 114,531 677,805 592,423 $ 792,136 $ 706,954 20202021 and 2019,2020, thethere were net unrealized gains on marketable securities wereof $24.3 million and $526.2 million, and $0.1 million, respectively. In addition, duringDuring the six months ended June 30, 20202021 and 2019,2020, the net unrealized gains on a marketable securities were $521.6$85.4 million and $1.6$521.6 million, respectively. These net unrealized gains are included in Gain on marketable securities, net on the Company’s Condensed Consolidated Statements of Income. See Footnote 1112 to the Notes toof the Company’s Condensed Consolidated Financial Statements for fair value disclosure.Albertsons Companies, Inc. (“ACI”) –The Company owned 9.29% of the common stock of ACI, one of the largest food and drug retailers in the United States, and accounted for this $140.2 million investment on the cost method, which was included in Other assets on the Company’s Condensed Consolidated Balance Sheets. During the six months ended June 30, 2020, ACI issued $1.75 billion of convertible preferred stock and used the net proceeds of $1.68 billion to repurchase approximately 17.5% of ACI’s common stock owned by its current shareholders. As a result of this transaction, the Company received net proceeds of $156.1 million, recognized a gain of $131.6 million, which is included in Gain on sale of cost method investment on the Company’s Condensed Consolidated Statements of Income and held a 7.5% ownership interest in ACI.14On June 25, 2020, ACI announced its initial public offering of 50.0 million shares of its common stock had been priced at $16.00 per share. In connection with this transaction, the Company received net proceeds of $71.4 million, net of fees, from the sale of 4.7 million common shares in ACI and recognized a gain of $59.2 million, which is included in Gain on sale of cost method investment on the Company’s Condensed Consolidated Statements of Income. The shares are now traded on the New York Stock Exchange (NYSE) under the symbol "ACI", which began trading as of June 26, 2020. As of June 30, 2020, the Company holds 39.8 million common shares in ACI which are accounted for as available-for-sale marketable securities and are included in Marketable securities on the Company’s Condensed Consolidated Balance Sheets. As of June 30, 2020, the Company’s investment in ACI was $628.2 million, including a mark-to-market gain of $524.7 million. $ 16,751 $ 25,428 31,374 35,982 7,419 17,328 6,385 4,880 138,192 135,630 $ 200,121 $ 219,248 areis derived from lease agreements, which includes rental income and expense reimbursement. The Company’s lease income is comprised of minimum base rent, expense reimbursements, percentage rent, lease termination fee income, ancillary income, amortization of above-market and below-market rent adjustments and straight-line rent adjustments.RevenueRevenues from rental properties, net on the Company’s Condensed Consolidated Statements of Income, as either fixed or variable lease income based on the criteria specified in ASC 842, for the six months ended June 30, 20202021 and 2019,2020, is as follows (in thousands): $ 393,423 $ 430,618 $ 436,263 $ 443,887 115,018 127,234 115,995 115,018 13,524 13,492 8,933 13,524 $ 521,965 $ 571,344 Adjustments for potentially uncollectible revenues and disputed amounts (3) 3,412 (50,464) $ 564,603 $ 521,965 During the six months ended June 30, 2020, the Company recorded a $50.5 million adjustmentThe amounts represent adjustments associated with potentially uncollectible revenues and disputed amounts which includes $11.5 million for straight-line rent receivables, primarily attributabledue to the COVID-19 pandemic.noncancelablenon-cancelable operating lease agreements for ground leases and administrative office leases. The Company’s leases have remaining lease terms ranging from less than one year to 51.764.5 years, some of which include options to extend the terms for up to an additional 75 years. The Company does not include any of its renewal options in its lease terms for calculating its lease liability as the renewal options allow the Company to maintain operational flexibility and the Company is not reasonably certain it will exercise these renewal options at this time. TheAt June 30, 2021, the weighted average remaining non-cancelable lease term for the Company’s operating leases was 20.920.1 years at June 30, 2020. Theand the weighted average discount rate was 6.65% at June 30, 2020. 6.54%. The Company’s operating lease liabilities are determined based on the estimated present value of the Company’s minimum lease payments under its lease agreements. The discount rate used to determine the lease liabilities is based on the estimated incremental borrowing rate on a lease by lease basis. When calculating the incremental borrowing rates, the Company utilized data from (i) its recent debt issuances, (ii) publicly available data for instruments with similar characteristics, (iii) observable mortgage rates and (iv) unlevered property yields and discount rates. The Company then applied adjustments to account for considerations related to term and security that may not be fully incorporated by the data sets.20202021 and 2019,2020, were as follows (in thousands): $ 5,196 $ 6,557 $ 5,624 $ 5,196 1,455 804 1,332 1,455 $ 6,651 $ 7,361 $ 6,956 $ 6,651 8.9. Notes Mortgages and Construction LoanMortgages Payable new $2.0 billion unsecured revolving credit facility (the “Credit Facility”) with a group of banks, which replaced the Company’s existing $2.25 billion unsecured revolving credit facility.banks. The Credit Facility is scheduled to expire in March 2024, with two additional six-month options to extend the maturity date, at the Company’s discretion, to March 2025. The Credit Facility is a green credit facility tied to sustainability metric targets, as described in the agreement. The Company achieved such targets, which effectively reduced the rate on the Credit Facility by one basis point. The Credit Facility, which accrues interest at a rate of LIBOR plus 77.576.5 basis points (1.18%(0.85% as of June 30, 2020)2021), can be increased to $2.75 billion through an accordion feature. The Credit Facility is a green credit facility tied to climate actions, as described in the agreement. Upon achieving such climate actions, the rate on the Credit Facility is reduced by 1 basis point. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum indebtedness ratios and (ii) minimum interest and fixed charge coverage ratios. As of June 30, 2020,2021, the Credit Facility had 0 outstanding balance, and $0.3 million appropriated0 appropriations for letters of credit and the Company was in compliance with its covenants.In April 2020, the Company entered into a new unsecured term loan credit facility with total outstanding borrowings of $590.0 million (the “Term Loan”) pursuant to a credit agreement with a group of banks. The Term Loan was scheduled to mature in April 2021, with a one-year extension option to extend the maturity date, at the Company’s discretion, to April 2022. The Term Loan accrued interest at a rate of LIBOR plus 140 basis points (1.65% as of June 30, 2020) or, at the Company’s option, a spread of 40 basis points to the base rate defined in the Term Loan, that in each case fluctuated in accordance with changes in the Company’s senior debt ratings. The Term Loan could be increased by an additional $750.0 million through an accordion feature. Pursuant to the terms of the Term Loan, the Company was subject to covenants that were substantially the same as those in the Credit Facility. The Company repaid $265.0 million of the outstanding borrowings under the Term Loan in June 2020. As of June 30, 2020, the Term Loan had an outstanding balance of $325.0 million and the Company was in compliance with its covenants. Subsequent to June 30, 2020, the Term Loan was fully repaid and the facility was terminated.In July 2020, the Company issued $500.0 million in unsecured notes (the “Green Bond”), which are scheduled to mature in October 2030 and accrue interest at a rate of 2.70% per annum. The net proceeds from this offering are allocated to finance or refinance, in whole or in part, recently completed, existing or future Eligible Green Projects, in alignment with the four core components of the Green Bond Principles, 2018 ("GBP") as administered by the International Capital Market Association. Eligible Green Projects include projects with disbursements made in the three years preceding the issue date of the notes.On July 15, 2020, the Company announced the partial redemption of $200.0 million of its 3.20% senior unsecured notes outstanding, which mature in May 2021. These notes will be redeemed on July 30, 2020, and the Company will incur a prepayment charge of approximately $3.3 million resulting from the partial repayment. As of June 30, 2020, $484.9 million was outstanding on these notes.Mortgages and Construction LoanMortgages Payable -In August 2018, the Company closed on a construction loan commitment of $67.0 million relating to one development property. This loan commitment was scheduled to mature in August 2020, with six additional six-month options to extend the maturity date to August 2023 and bore interest at a rate of LIBOR plus 180 basis points. This construction loan was fully repaid in January 2020.2020,2021, the Company repaid $21.6$137.2 million of mortgage debt (including fair market value adjustment of $0.2$1.0 million) that encumbered two25 operating properties.9.10. Noncontrolling InterestsDuring the six months ended June 30, 2020, the Company acquired its partners’ interests in two consolidated entities, in separate transactions, for an aggregate purchase price of $20.6 million. This transaction resulted in a net decrease in Noncontrolling interests of $1.3 million and a corresponding net increase in Paid-in capital of $19.3 million on the Company’s Condensed Consolidated Balance Sheets. There are no remaining partners in one of these consolidated entities.1620202021 and 20192020 (in thousands): $ 17,943 $ 23,682 $ 15,784 $ 17,943 2,068 0 605 185 176 605 (605 ) (177 ) (2,244 ) (605 ) $ 17,943 $ 23,690 $ 15,784 $ 17,943 10.11. Variable Interest Entities (“VIE”(“VIE”)20202021 and December 31, 2019,2020 are 22 consolidated entities that are VIEs for which the Company is the primary beneficiary. These entities have been established to own and operate real estate property. The Company’s involvement with these entities is through its majority ownership and management of the properties. The entities were deemed VIEs primarily because the unrelated investors do not have substantive kick-out rights to remove the general or managing partner by a vote of a simple majority or less, and they do not have substantive participating rights. The Company determined that it was the primary beneficiary of these VIEs as a result of its controlling financial interest. At June 30, 2021, total assets of these VIEs were $991.9 million and total liabilities were $60.7 million. At December 31, 2020, total assets of these VIEs were $1.0 billion and total liabilities were $64.8 million. At$62.1 million and as a result the joint venture is December 31, 2019, nototal assets of these VIEs were $0.9 billion and total liabilities were $70.9 million. longer a VIE.that the entity may experience.Additionally, included within the Company’s real estate development projects at December 31, 2019, is one consolidated entity that was a VIE, for which the Company was the primary beneficiary. This entity had been established to develop a real estate property to hold as a long-term investment. The Company’s involvement with this entity is through its majority ownership and management of the property. This entity was deemed a VIE primarily because the equity investments at risk were not sufficient to permit the entity to finance its activities without additional financial support. The initial equity contributed to this entity was not sufficient to fully finance the real estate construction as development costs are funded by the partners throughout the construction period. The Company determined that it was the primary beneficiary of this VIE as a result of its controlling financial interest. At December 31, 2019, total assets of this real estate development VIE were $346.9 million and total liabilities were $82.5 million. During the six months ended June 30, 2020 the Company purchased the partner’s noncontrolling interest and maintains full ownership of the entity. As a result, the entity is no longer a VIE.debt and a construction loan.debt. The assets associated with these encumbered VIEs (“Restricted Assets”) are collateral under the respective mortgages and a construction loan and are therefore restricted and can only be used to settle the corresponding liabilities of the VIE. The table below summarizes the consolidated VIEs and the classification of the Restricted Assets and VIE Liabilities on the Company’s Condensed Consolidated Balance Sheets as follows (dollars in millions): 19 19 3 4 22 23 $ 98.7 $ 228.9 2.2 9.2 1.7 3.8 1.6 3.6 $ 104.2 $ 245.5 $ 37.3 $ 104.5 27.5 48.9 $ 64.8 $ 153.4 17 19 19 3 3 22 22 $ 96.7 $ 97.7 2.2 1.8 1.4 1.9 1.5 1.1 $ 101.8 $ 102.5 $ 35.9 $ 36.5 5.4 5.5 $ 60.7 $ 62.1 11.12. Fair Value Measurements $ 4,961,972 $ 5,044,336 $ 4,831,759 $ 4,983,763 $ 5,047,529 $ 5,443,088 $ 5,044,208 $ 5,486,953 $ 388,406 $ 387,440 $ 484,008 $ 486,042 $ 167,976 $ 169,756 $ 311,272 $ 312,933 and term loan werewas classified within Level 3 of the fair value hierarchy. The estimated fair value amounts classified as Level 2, as of June 30, 20202021 and December 31, 2019,2020, were $4.7$5.4 billion and $4.8$5.5 billion, respectively. The estimated fair value amounts classified as Level 3, as of June 30, 2020 and December 31, 2019, were $325.0 million and $199.9 million, respectively. and construction loan were classified within Level 3 of the fair value hierarchy. tablestable below presentpresents the Company’s financial assets measured at fair value on a recurring basis at June 30, 20202021 and December 31, 2019,2020, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands): $ 633,551 $ 633,551 $ - $ - $ 792,136 $ 792,136 $ 0 $ 0 $ 9,353 $ 9,353 $ - $ - Level 2 $ 706,954 $ 706,954 $ 0 $ 0 AssetsThe table below presents the Company's assets measured at fair value on a non-recurring basis at June 30, 2020 and December 31, 2019, 2020 (are as follows (inin thousands): $ 5,300 $ - $ - $ 5,300 $ 39,510 $ - $ - $ 39,510 $ 24,899 $ 0 $ 0 $ 24,899 $ 32,974 $ - $ - $ 32,974 $ 5,464 $ 0 $ 0 $ 5,464 During the six months ended June 30, 2020 and 2019, the Company recognized impairment charges related to adjustments to property carrying values of $3.1 million and $21.6 million, respectively. The Company’s estimated fair values of these properties were primarily based upon estimated sales prices, from signed contracts or letters of intent from third party offers.offers, which were less than the carrying value of the assets. The Company does not have access to the unobservable inputs used to determine the estimated fair values of third party offers. Based on these inputs, the Company determined that its valuation of these investments was classified within Level 3 of the fair value hierarchy. (See Footnote 3 to the Notes to the Company’s Condensed Consolidated Financial Statements for additional discussion regarding impairment charges).1812.13. Incentive Plans2020,2021, the Company had 10.08.5 million shares of common stock available for issuance under the 2020 Plan.grants of employee stock options, restricted stock and performance shares, be recognized in the Condensed Consolidated Statements of Income over the service period based on their fair values. Fair value of performance awards is determined depending on the type of award, using either the Black-Scholes option pricing formula or the Monte Carlo method for performance shares, both of which areis intended to estimate the fair value of the awards at the grant date. Fair value of restricted shares is calculated based on the price on the date of grant.$11.5$12.3 million and $10.3$11.5 million for the six months ended June 30, 20202021 and 2019,2020, respectively. As of June 30, 2020,2021, the Company had $46.3$47.8 million of total unrecognized compensation cost related to unvested stock compensation granted under the Plans. That cost is expected to be recognized over a weighted average period of approximately 3.13.0 years.13.14. Earnings Per Share June 30, $ 741,539 $ 86,493 $ 825,285 $ 188,128 $ 110,343 $ 741,539 $ 241,931 $ 825,285 (5,253 ) (660 ) (5,687 ) (1,285 ) (672 ) (5,253 ) (1,475 ) (5,687 ) 736,286 85,833 819,598 186,843 109,671 736,286 240,456 819,598 33 - 81 20 9 33 18 81 $ 736,319 $ 85,833 $ 819,679 $ 186,863 $ 109,680 $ 736,319 $ 240,474 $ 819,679 429,967 419,697 429,851 419,581 431,011 429,967 430,769 429,851 970 949 1,469 1,166 1,356 970 1,528 1,469 233 - 207 51 122 233 133 207 431,170 420,646 431,527 420,798 432,489 431,170 432,430 431,527 $ 1.71 $ 0.20 $ 1.91 $ 0.45 $ 0.25 $ 1.71 $ 0.56 $ 1.91 $ 1.71 $ 0.20 $ 1.90 $ 0.44 $ 0.25 $ 1.71 $ 0.56 $ 1.90 1.20.5 million and 1.31.2 million stock options that were not dilutive as of June 30, 20202021 and 2019,2020, respectively, and 2.5 million shares of restricted stock that were not dilutive for the three months ended June 30, 2020.respectively.1914.15. Stockholders’Stockholders’ Equity 10,350 9,000 $ 225,000 5.125% $ 1.28125 $ 1.00 10,350 9,000 $ 225,000 5.125 % $ 1.28125 $ 1.00 10,580 10,580 264,500 5.250% $ 1.31250 $ 1.00 10,580 10,580 264,500 5.250 % $ 1.31250 $ 1.00 19,580 $ 489,500 19,580 $ 489,500 2020.2021. As of June 30, 2020,2021, the Company had $224.9 million available under this share repurchase program.
During September 2019, the Company established an at the market continuous offering program (“ATM program”), pursuant to which the Company may offer and sell from time to time shares of its common stock, par value $0.01 per share, with an aggregate gross sales price of up to $500.0 million through a consortium of banks acting as sales agents. Sales of the shares of common stock may be made, as needed, from time to time in “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, including by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise (i) at market prices prevailing at the time of sale, (ii) at prices related to prevailing market prices or (iii) as otherwise agreed to with the applicable sales agent. The Company did not offer for sale any shares of common stock under the ATM program during the six months ended June 30, 2020.
Dividends Declared -
The following table provides a summary of the dividends declared per share:
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Common Shares | $ | - | $ | 0.28000 | $ | 0.28000 | $ | 0.56000 | $ | 0.17000 | $ | 0 | $ | 0.34000 | $ | 0.28000 | ||||||||||||||||
Class I Depositary Shares (2) | $ | - | $ | 0.37500 | $ | - | $ | 0.75000 | ||||||||||||||||||||||||
Class J Depositary Shares (2) | $ | - | $ | 0.34375 | $ | - | $ | 0.68750 | ||||||||||||||||||||||||
Class K Depositary Shares (2) | $ | - | $ | 0.35156 | $ | - | $ | 0.70312 | ||||||||||||||||||||||||
Class L Depositary Shares | $ | 0.32031 | $ | 0.32031 | $ | 0.64062 | $ | 0.64062 | $ | 0.32031 | $ | 0.32031 | $ | 0.64062 | $ | 0.64062 | ||||||||||||||||
Class M Depositary Shares | $ | 0.32813 | $ | 0.32813 | $ | 0.65626 | $ | 0.65626 | $ | 0.32813 | $ | 0.32813 | $ | 0.65626 | $ | 0.65626 | ||||||||||||||||
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15.16. Supplemental Schedule of Non-Cash Investing / Financing Activities
The following schedule summarizes the non-cash investing and financing activities of the Company for the six months ended June 30, 20202021 and 20192020 (in thousands):
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Acquisition of real estate interests through proceeds held in escrow | $ | - | $ | 30,970 | ||||||||||||
Proceeds held in escrow through sale of real estate interests | $ | 3,194 | $ | - | $ | 0 | $ | 3,194 | ||||||||
Surrender of restricted common stock | $ | 5,325 | $ | 3,689 | $ | 9,246 | $ | 5,325 | ||||||||
Declaration of dividends paid in succeeding period | $ | 5,366 | $ | 130,460 | $ | 5,366 | $ | 5,366 | ||||||||
Capital expenditures accrual | $ | 46,860 | $ | 61,473 | $ | 37,269 | $ | 46,860 | ||||||||
Lease liabilities arising from obtaining right-of-use assets | $ | 553 | $ | 0 | ||||||||||||
Allocation of fair value to noncontrollling interests | $ | 2,068 | $ | 0 | ||||||||||||
Purchase price fair value adjustment to prepaid rent | $ | 15,620 | $ | 0 | ||||||||||||
16.Subsequent Events
See Footnote 3 to the Notes to the Company’s Condensed Consolidated Financial Statements for return of escrow in connection with a §1031 reverse exchange subsequent to June 30, 2020.
See Footnote 8 to the Notes to the Company’s Condensed Consolidated Financial Statements for debt and financing transactions subsequent to June 30, 2020, including Term Loan payoff, Green Bond issuance and partial redemption of senior unsecured notes.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by Kimco Realty Corporation (the “Company”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with the safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “target,” “forecast” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which, are, in some cases, 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 and Weingarten 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, (x)(xxi) valuation of marketable securities and other investments, (xi)including the shares of Albertsons Companies, Inc. common stock held by the Company, (xxii) increases in operating costs, (xii)(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, (xiii)(xxiv) the reduction in the Company’s income in the event of multiple lease terminations by tenants or a failure byof multiple tenants to occupy their premises in a shopping center, (xiv)(xxv) impairment charges, (xv)(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 (xvi)(xxvii) the other risks and uncertainties identified under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year-ended December 31, 2019.2020, 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 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.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 June 30, 2020,2021, the Company had interests in 400398 U.S. shopping center properties, aggregating 70.070.2 million square feet of gross leasable area (“GLA”), located in 27 states. In addition, the Company had 19871 other property interests, primarily through the Company’s preferred equity investments and other real estate investments, totaling 5.95.1 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.
The Company’s operating strategies are to (i) own and operate its shopping center properties at their highest potential through maximizing and maintaining rental income and occupancy levels, (ii) attract local area customers to its shopping centers, which offer buy online and pick up in store, off-price merchandise and day-to-day necessities rather than high-priced luxury items, and (iii) maintain a strong balance sheet.
The Company’s investment strategy is to invest capital into its high-quality assets, which are tightly clustered in major metropolitan markets that provide opportunity for growth while disposing of lesser quality assets in less desirable locations. Through this strategy, the Company has transformed its portfolio and will continue these efforts as deemed necessary to maximize the quality and growth of its portfolio. Property acquisitions are focused in major metropolitan areas allowing tenants to generate higher foot traffic resulting in higher sales volume accompanied with a potential for a mixed-use component. The Company believes that this will enable it to maintain higher occupancy levels, rental rates and rental growth.
The Company’s investment strategy also includesprimary business objective is to be the retail re-tenanting, renovationpremier owner and expansionoperators of its existingopen-air, grocery-anchored shopping centers and acquired centers, while also pursuingmixed-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. |
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 which have significant real estate holdings. |
Pending Merger with Weingarten Realty Investors
On April 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 increase overallposition the combined company to create significant value withinfor its portfolio. The Company may selectively acquire established income-producing real estate properties and properties requiring significant re-tenanting and redevelopment, primarily in geographic regions in which the Company presently operates. Additionally, the Company may selectively acquire land parcels in its key markets for real estate development projects for long-term investment. The Company may consider investments in other real estate sectors and in geographic markets where it does not presently operate should suitable opportunities arise. The Company also continues to simplify its business by reducing the number of joint venture investments.shareholders.
As partUnder the terms of the Merger Agreement, each Weingarten common share will be converted into 1.408 newly issued shares of the Company’s investment strategycommon 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 the Board of Trust Managers of Weingarten.
On July 15, 2021, Weingarten’s Board of Trust Managers declared a special cash distribution of $0.69 per Weingarten common share (the “Special Distribution”) payable on August 2, 2021 to shareholders of record on July 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 propertyWeingarten common share owned immediately prior to the effective time of the Merger.
The Merger is evaluatedexpected to close on August 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 its highestthe three and best use, which maysix months ended June 30, 2021, are solely the Company’s stand-alone results of operations and therefore do not include residentialWeingarten’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 components. In addition,assets comprising approximately 100 million square feet of gross leasable area. These properties are primarily concentrated in the Company may consider other opportunistic investments relatedtop major metropolitan markets in the United States. The combined company is expected to retailer controlled real estate, such as repositioning underperforming retail locations, retail real estate financingbenefit from increased scale and bankruptcy transaction support. The Company hasdensity in key Sun Belt markets, enhanced asset quality, tenant diversity, a capital recycling program that provides forlarger redevelopment pipeline and a deleveraged balance sheet. As a result, the disposition of certain lesser quality assets. If the estimated faircombined company should be uniquely positioned to drive further sustained growth in net operating income and asset value for any of these assets is less than their net carrying values, the Company would be required to take impairment charges,creation through continued strategic leasing and such amounts could be material.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.worldwide. The COVID-19 pandemic has significantly impacted the retail sector in which the Company operates, and if the effectsoperates. The majority of the pandemic are prolonged, it could have a significant adverse impact on the underlying industries of many of the Company’s tenants. Accordingly, the Company’s tenants and their operations and, thus, their ability to pay rent, have been, impacted and may continue to be impacted. AllThrough the Company’s shopping centers remain open and operational continuing to provide access to tenants providing essential goods and services. However,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. As
The development and distribution of COVID-19 vaccines has assisted in allowing many restrictions to be lifted, providing a result,path to recovery. The U.S. economy continues to build upon the Company has observed a substantial increasereopening 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 numbernear 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 that have made late or partial rent payments, requested a deferral of rent payments, or defaulted on rentto make their rental payments and it is likely that moreany additional closures of our tenants will be similarly impacted in the future. For the monthstenants’ businesses.
The Company continues to negotiate formonitor the paymentimpact of COVID-19 on the Company’s business, tenants and industry as a whole. The magnitude and duration of the remaining April, MayCOVID-19 pandemic and June rents not yet collected.its impact on the Company’s operations and liquidity remains uncertain as the pandemic continues to evolve globally and within the United States. The Company has also collected 82%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 pro-rata annual base rent for the month of July 2020. Company would be required to take impairment charges, and such amounts could be material.
TheAlthough the Company consideredcontinues to see an increase in collections of rental payments, the impactseffects COVID-19 hashave had on its tenants are still heavily considered when evaluating the adequacy of the collectability of the lessee’stenant’s total accounts receivable balance, including the corresponding straight-line rent receivable. During the six months endedAs of June 30, 2020,2021, the Company recorded a $50.5 million adjustment associated withCompany’s consolidated accounts receivable balance was 48% potentially uncollectible, revenuesincluding receivables from tenants that are being accounted for on a cash basis, and disputed amounts, which includes $11.5 million for16% 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.
The impact of COVID-19 on the Company’s future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, 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 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 is continuing 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 is uncertain as of the filing date of this Quarterly Report on Form 10-Q as this pandemic continues to evolve globally and within the United States. However, if the COVID-19 pandemic continues its current trajectory, such impacts could grow and become material and could materially disrupt the Company’s business operations. See Part II. Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q and Footnotes 1, 2, 3 and 4 to the Notes to the Company’s Condensed Consolidated Financial Statements for further discussion of the possible impact of the COVID-19 pandemic on the Company’s business. 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. See Footnote 3 to the Notes to the Company’s Condensed Consolidated Financial Statements for additional discussion regarding impairment charges.
Results of Operations
Comparison of the three and six months ended June 30,, 2020 2021 and 20192020
The following table presents the comparative results from the Company’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020,2021, as compared to the corresponding periods in 20192020 (in thousands, except per share data):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | Three Months Ended March 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues from rental properties, net | $ | 235,961 | $ | 280,710 | $ | (44,749 | ) | $ | 521,965 | $ | 571,344 | $ | (49,379 | ) | $ | 285,732 | $ | 235,961 | $ | 49,771 | $ | 564,603 | $ | 521,965 | $ | 42,638 | ||||||||||||||||||||||
Management and other fee income | 2,955 | 4,163 | (1,208 | ) | 6,695 | 8,539 | (1,844 | ) | 3,284 | 2,955 | 329 | 6,721 | 6,695 | 26 | ||||||||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Rent (1) | (2,827 | ) | (2,924 | ) | 97 | (5,662 | ) | (5,616 | ) | (46 | ) | (2,993 | ) | (2,827 | ) | (166 | ) | (6,028 | ) | (5,662 | ) | (366 | ) | |||||||||||||||||||||||||
Real estate taxes | (38,678 | ) | (37,005 | ) | (1,673 | ) | (78,330 | ) | (76,352 | ) | (1,978 | ) | (39,594 | ) | (38,678 | ) | (916 | ) | (78,530 | ) | (78,330 | ) | (200 | ) | ||||||||||||||||||||||||
Operating and maintenance (2) | (38,940 | ) | (43,217 | ) | 4,277 | (81,348 | ) | (84,113 | ) | 2,765 | (46,897 | ) | (38,940 | ) | (7,957 | ) | (93,417 | ) | (81,348 | ) | (12,069 | ) | ||||||||||||||||||||||||||
General and administrative (3) | (22,504 | ) | (22,633 | ) | 129 | (43,521 | ) | (48,464 | ) | 4,943 | (24,754 | ) | (22,504 | ) | (2,250 | ) | (49,232 | ) | (43,521 | ) | (5,711 | ) | ||||||||||||||||||||||||||
Impairment charges | (138 | ) | (17,451 | ) | 17,313 | (3,112 | ) | (21,626 | ) | 18,514 | (104 | ) | (138 | ) | 34 | (104 | ) | (3,112 | ) | 3,008 | ||||||||||||||||||||||||||||
Merger charges | (3,193 | ) | - | (3,193 | ) | (3,193 | ) | - | (3,193 | ) | ||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | (73,559 | ) | (69,005 | ) | (4,554 | ) | (142,956 | ) | (140,566 | ) | (2,390 | ) | (72,573 | ) | (73,559 | ) | 986 | (147,449 | ) | (142,956 | ) | (4,493 | ) | |||||||||||||||||||||||||
Gain on sale of properties | 1,850 | 14,762 | (12,912 | ) | 5,697 | 38,357 | (32,660 | ) | 18,861 | 1,850 | 17,011 | 28,866 | 5,697 | 23,169 | ||||||||||||||||||||||||||||||||||
Other income/(expense) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other income, net | 49 | 1,867 | (1,818 | ) | 1,293 | 2,986 | (1,693 | ) | 1,782 | 49 | 1,733 | 5,138 | 1,293 | 3,845 | ||||||||||||||||||||||||||||||||||
Gain on marketable securities, net | 526,243 | 71 | 526,172 | 521,577 | 1,574 | 520,003 | 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 | - | 190,832 | (190,832 | ) | - | 190,832 | (190,832 | ) | ||||||||||||||||||||||||||||||||||
Interest expense | (48,015 | ) | (44,097 | ) | (3,918 | ) | (94,075 | ) | (88,492 | ) | (5,583 | ) | (46,812 | ) | (48,015 | ) | 1,203 | (94,528 | ) | (94,075 | ) | (453 | ) | |||||||||||||||||||||||||
(Provision)/benefit for income taxes, net | (51 | ) | 344 | (395 | ) | (94 | ) | (286 | ) | 192 | ||||||||||||||||||||||||||||||||||||||
Provision for income taxes, net | (1,275 | ) | (51 | ) | (1,224 | ) | (2,583 | ) | (94 | ) | (2,489 | ) | ||||||||||||||||||||||||||||||||||||
Equity in income of joint ventures, net | 10,158 | 22,533 | (12,375 | ) | 23,806 | 41,287 | (17,481 | ) | 16,318 | 10,158 | 6,160 | 34,070 | 23,806 | 10,264 | ||||||||||||||||||||||||||||||||||
Equity in income of other real estate investments, net | 4,782 | 13,269 | (8,487 | ) | 15,740 | 19,493 | (3,753 | ) | 5,039 | 4,782 | 257 | 8,826 | 15,740 | (6,914 | ) | |||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | (225 | ) | (360 | ) | 135 | (514 | ) | (869 | ) | 355 | (421 | ) | (225 | ) | (196 | ) | (3,904 | ) | (514 | ) | (3,390 | ) | ||||||||||||||||||||||||||
Preferred dividends | (6,354 | ) | (14,534 | ) | 8,180 | (12,708 | ) | (29,068 | ) | 16,360 | (6,354 | ) | (6,354 | ) | - | (12,708 | ) | (12,708 | ) | - | ||||||||||||||||||||||||||||
Net income available to the Company's common shareholders | $ | 741,539 | $ | 86,493 | $ | 655,046 | $ | 825,285 | $ | 188,128 | $ | 637,157 | $ | 110,343 | $ | 741,539 | $ | (631,196 | ) | $ | 241,931 | $ | 825,285 | $ | (583,354 | ) | ||||||||||||||||||||||
Net income available to the Company: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income available to the Company's common shareholders: | ||||||||||||||||||||||||||||||||||||||||||||||||
Diluted per common share | $ | 1.71 | $ | 0.20 | $ | 1.51 | $ | 1.90 | $ | 0.44 | $ | 1.46 | $ | 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 $741.5$110.3 million for the three months ended June 30, 2020,2021, as compared to $86.5$741.5 million for the comparable period in 2019.2020. On a diluted per common share basis, net income available to the CompanyCompany's common shareholders for the three months ended June 30, 20202021 was $1.71$0.25 as compared to $0.20$1.71 for the comparable period in 2019.2020.
Net income available to the Company’s common shareholders was $825.3$241.9 million for the six months ended June 30, 2020,2021, as compared to $188.1$825.3 million for the comparable period in 2019.2020. On a diluted per common share basis, net income available to the CompanyCompany's common shareholders for the six months ended June 30, 20202021 was $1.90$0.56 as compared to $0.44$1.90 for the comparable period in 2019.2020.
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, 2020,2021, as compared to the corresponding periods in 2019:2020:
RevenueRevenues from rental properties, net , net–
The decreaseincrease in Revenues from rental properties, net of $44.7$49.8 million for the three months ended June 30, 2020,2021, as compared to the corresponding period in 2019,2020, 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 adjustments associated with potentially uncollectible revenues and disputed amounts, including straight-line rent receivables, primarily due to the COVID-19 pandemic,lease termination fee income for the three months ended June 30, 20202021 of $44.9$2.7 million, as compared to the corresponding period in 2019 and (ii) a decrease in revenues of $8.1 million due to properties sold during 2020, and 2019, partially offset by (iii) acquisitions,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 buyouts and net growth in the current portfolio, which provided incremental revenuesvacancies for the three months ended June 30, 2020 of $4.7 million,2021, as compared to the corresponding period in 2019 and (iv) the completion of certain redevelopment and development projects included in the Company’s Signature Series™, which provided incremental revenues for the three months ended June 30, 2020 of $3.6 million, as compared to the corresponding period in 2019.2020.
The decreaseincrease in Revenues from rental properties, net of $49.4$42.6 million for the six months ended June 30, 2020,2021, as compared to the corresponding period in 2019,2020, 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 adjustments associated with potentially uncollectible revenues and disputed amounts, including straight-line rent receivables, primarily due to the COVID-19 pandemic,lease termination fee income for the six months ended June 30, 20202021 of $49.2$7.5 million, as compared to the corresponding period in 20192020 and (ii)(iii) an increase in revenues of $3.2 million due to property acquisitions during 2021, partially offset by (iv) a net decrease in revenues of $21.2 millionfrom tenants, including straight-line rental income, primarily due to properties sold during 2020rent relief provided in association with the COVID-19 pandemic and 2019, partially offset by (iii) acquisitions, tenant buyouts and net growth in the current portfolio, which provided incremental revenuesvacancies for the six months ended June 30, 20202021 of $12.7$22.0 million, as compared to the corresponding period in 2019 and (iv) the completion of certain redevelopment and development projects included in the Company’s Signature Series™, which provided incremental revenues for the six months ended June 30, 2020 of $8.3 million, as compared to the corresponding period in 2019.2020.
Operating and maintenance–
The decreaseincrease in Operating and maintenance expense of $4.3$8.0 million for the three months ended June 30, 2020,2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) a decrease in expenses of $1.4 million due to properties sold during 2020 and 2019, (ii) a reductionan increase in snow removal costs of $1.2$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 (iii) a decrease(iv) an increase in overall spending on properties primarily due to the COVID-19 pandemic duringreopening of markets throughout the three months ended June 30, 2020, as comparedcountry due to the corresponding period in 2019.
General and administrative –subsiding of the COVID-19 pandemic.
The decreaseincrease in GeneralOperating and administrativemaintenance expense of $4.9$12.1 million for the six months ended June 30, 2020,2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) a reductionan increase in snow removal costs of $1.9$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 fluctuationsreopening of markets throughout the country due to the subsiding of the COVID-19 pandemic.
General and administrative –
The increase in valueGeneral and administrative expense of various directors’ deferred stock$5.7 million for the six months ended June 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 ended June 30, 2020,2021, as compared to the corresponding period in 2019, (ii) a reduction in severance expense for the six months ended June 30, 2020 of $0.9 million, as compared to the corresponding period in 2019, (iii) a reduction in travel and entertainment costs of $0.8 million due to less business related trips during the COVID-19 pandemic and (iv) a reduction in office rent expense of $0.8 million, due to the relocation of the Company’s headquarters to Company-owned office space, for the six months ended June 30, 2020, as compared to the corresponding period in 2019.2020.
Impairment charges–
During the six months ended June 30, 20202021 and 2019,2020, the Company recognized impairment charges related to adjustments to property carrying values of $3.1$0.1 million and $21.6$3.1 million, respectively, for which the Company’s estimated fair values were primarily based upon (i) signed contracts or letters of intent from third party offers or (ii) discounted cash flow models.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 calculationcalculations 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 ended June 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 $4.6$4.5 million for the threesix months ended June 30, 2020,2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) an increase of $5.6$5.5 million and write-offs of depreciable assets due to tenant vacates during the three months ended June 30, 2020, as compared to the corresponding period in 2019 and (ii) an increase of $1.1 million related to the completion ofdepreciation commencing on certain development and redevelopment projects that were placed into service during 2021 and 2020, and 2019,(ii) an increase of $1.0 million resulting from property acquisitions during 2021, partially offset by (iii) a decrease of $2.1$2.0 million resulting from property dispositions indue to write-offs of depreciable assets primarily due to tenant vacates during 2020 and 2019.the six months ended June 30, 2021.
Gain on sale of properties –
During the six months ended June 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 ended June 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. During
Other income, net –
The increase in Other income, net of $3.8 million for the six months ended June 30, 2019,2021, 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 disposedand (ii) an increase in mortgage and other financing income of seven operating properties$1.5 million as a result of new loans issued during 2020 and five out-parcels,the six months ended June 30, 2021, partially offset by (iii) an increase of $3.2 million in separatecosts associated with potential transactions for an aggregate sales pricewhich the Company is no longer pursuing and (iv) a decrease of $110.1 million. These transactions resulted$2.5 million related to the recognition of income from the Company’s Puerto Rico properties, resulting from the receipt of casualty insurance claims in aggregate gainsexcess of $38.4 million.the value of the assets written-off during the six months ended June 30, 2020.
Gain on marketable securities, net , net–
The increase in Gaingain on marketable securities, net of $24.3 million and $85.4 million for the three and six months ended June 30, 2021, respectively, as compared to the gain on marketable securities, net of $526.2 million and $520.0$521.6 million for the three and six months ended June 30, 2020, respectively, as compared to the corresponding periods in 2019, is primarily the result of the mark-to-market fluctuations of the Company’s Albertsons Companies, Inc. (“ACI”) investment due to theirshares of ACI common stock held by the Company, which were obtained during ACI's initial public offering during(“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.
Gain on sale of cost method investment–
In June 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 Company’s investment inshares of ACI throughcommon stock held by the Company during ACI’s initial public offering.IPO.
Interest expenseProvision for income taxes, net –
The increase in Interest expenseProvision for income taxes, net of $3.9 million and $5.6$2.5 million for the three and six months ended June 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 2019, respectively, is primarily due to higher levels of borrowings during 2020, as compared to 2019.2020.
Equity in income of joint ventures, net –
The decreaseincrease in Equity in income of joint ventures, net of $12.4$6.2 million for the three months ended June 30, 2020,2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) the recognition of net gains of $8.5 million resultinga decrease in credit losses from the sale of propertiestenants, including straight-line rental income, within various joint venture investments during the three months ended June 30, 2019 and (ii) lower equity in income of $3.9 million within various joint venture investments during 2020, as compared to the corresponding period in 2019, primarily resulting from the sale of properties within various joint venture investments during 2019 and an increase in adjustments of trade account receivable and straight-line receivable balances associated with the leases accounted for on a cash basis and allowances due to the impact from the COVID-19 pandemic during 2020.investments.
The decreaseincrease in Equity in income of joint ventures, net of $17.5$10.3 million for the six months ended June 30, 2020,2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) the recognition ofan increase in net gains of $13.2$5.3 million resulting from the sale of properties within various joint venture investments during the six months endedending June 30, 20192021, as compared to the corresponding period in 2020, and (ii) lowerincreased equity in income of $5.3$5.0 million within various joint venture investments during 2020,2021, as compared to the corresponding period in 2019,2020, primarily resulting from the sale of properties within various joint venture investments during 2019 and an increase in adjustments of trade account receivable and straight-line receivable balances associated with the leases accounted for on a cash basis and allowances due to the impact from the COVID-19 pandemic during 2020, partially offset by (iii) a decrease in impairment charges of $1.0 million recognized during 2020, as compared to the corresponding period in 2019.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 $8.5 million and $3.8$6.9 million for the three and six months ended June 30, 2020,2021, as compared to the corresponding periodsperiod in 2019, respectively,2020, is primarily due to a net decrease in profit participation from the sale of properties within the Company’s Preferred Equity Program during 2020,the six months ended June 30, 2021 as compared to the corresponding periodsperiod in 2019.2020.
Preferred dividendsNet income attributable to noncontrolling interests –
The decreaseincrease in Preferred dividendsNet income attributable to noncontrolling interests of $8.2 million and $16.4$3.4 million for the three and six months ended June 30, 2020,2021, as compared to the corresponding periodsperiod in 2019, respectively,2020, is primarily due to an increase in net gain on sale of properties, within consolidated joint ventures, during six months ended June 30, 2021, as compared to the redemptioncorresponding 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 June 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. At June 30, 2020,2021, the Company’s five largest tenants were TJX Companies, Home Depot, Albertsons, Ahold Delhaize USA Albertsons and Ross Stores,PetSmart, which represented 3.9%4.0%, 2.5%2.6%, 2.2%, 2.1%, and 2.0% 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. As discussed above, as a result of the COVID-19 pandemic, the Company has observed a substantial increase in the number of tenants that have made late or partial rent payments, requested a deferral of rent payments, or defaulted on rent payments, and it is likely that more of our tenants will be similarly impacted in the future.
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'sCompany’s unsecured revolving credit facility (the "Credit Facility"“Credit Facility”) with bank commitments of $2.0 billion which can be increased to $2.75 billion through an accordion feature.
The Company’s cash flow activities are summarized as follows (in thousands):
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash and cash equivalents, beginning of the period | $ | 123,947 | $ | 143,581 | $ | 293,188 | $ | 123,947 | ||||||||
Net cash flow provided by operating activities | 237,447 | 313,529 | 293,671 | 237,447 | ||||||||||||
Net cash flow provided by/(used for) investing activities | 96,597 | (100,519 | ) | |||||||||||||
Net cash flow (used for)/provided by investing activities | (45,882 | ) | 96,597 | |||||||||||||
Net cash flow used for financing activities | (256,304 | ) | (242,600 | ) | (310,915 | ) | (256,304 | ) | ||||||||
Net change in cash and cash equivalents | 77,740 | (29,590 | ) | (63,126 | ) | 77,740 | ||||||||||
Cash and cash equivalents, end of the period | $ | 201,687 | $ | 113,991 | $ | 230,062 | $ | 201,687 | ||||||||
Operating Activities
The Company anticipates that cash on hand, net cash flow provided by operating activities, borrowings under its Credit Facility and the issuance of equity and public debt, as well as other debt and equity alternatives, will provide the necessary capital required by the Company. The Company will continue to evaluate its capital requirements for both its short-term and long-term liquidity needs, all of which are highly uncertain and cannot be predicted, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A. Risk Factors. See further discussion relating to the effects of the COVID-19 pandemic in the “COVID-19 Pandemic”, “Investing Activities” and “Financing Activities” sections within this Item 2.pandemic.
Net cash flow provided by operating activities for the six months ended June 30, 2020,2021 was $237.4$293.7 million, as compared to $313.5$237.4 million for the comparable period in 2019.2020. The decreaseincrease of $76.1$56.3 million is primarily attributable to:
| ● | new leasing, expansion and re-tenanting of core portfolio properties; | |
| ● | changes in operating assets and liabilities due to timing of receipts and payments; and | |
| ● | the acquisition of operating properties during 2021 and 2020; partially offset by | |
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● | rent relief provided to |
● | the disposition of operating properties in |
Investing Activities
Net cash flow used for investing activities was $45.9 million for the six months ended June 30, 2021, as compared to net cash flow provided by investing activities of $96.6 million for the comparable period in 2020.
Investing activities during the six months ended June 30, 2021 primarily consisted of:
Cash inflows:
● | $130.1 million in proceeds from the sale of three consolidated properties and seven parcels; |
● | $32.8 million in reimbursements of investments in and advances to other real estate investments; and |
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Cash outflows:
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● | $61.4 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project within the |
Due to the current economic uncertainty resulting from the COVID-19 pandemic, the Company has, and continues to have, worked with its tenants to grant rent deferrals on a tenant-by-tenant basis. The deferrals are anticipated to be paid within six to 18 months.
In addition,Investing activities during April 2020, the Company created a Tenant Assistance Program to assist small business tenants in identifying and applying for federal and state aid to help support their businesses during the COVID-19 pandemic. The Company is working in partnership with law firms to provide assistance with the application process at the Company’s expense. Legal professionals will assist tenants in identifying suitable loan programs, identifying potential lending institutions, and preparing and submitting applications.
Investing Activities
Net cash flow provided by investing activities was $96.6 million for the six months ended June 30, 2020, as compared to net cash flow used for investing activities of $100.5 million for the comparable period in 2019.
Investing activities during 2020 primarily consisted of:
Cash inflows:
● | $228.4 million in proceeds from the partial sale of shares of ACI common stock held by the |
● | $13.4 million in proceeds from the sale of three consolidated operating properties; and |
● | $2.5 million in proceeds from insurance casualty claims. |
Cash outflows:
● | $133.2 million for improvements to operating real estate primarily related to the Company’s active redevelopment pipeline and improvements to real estate under development; |
● | $9.3 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project within the Company’s joint venture portfolio, and investments in other real estate investments, primarily related to repayment of a mortgage within the Company’s Preferred Equity Program; and |
● | $7.1 million for the acquisition of operating real estate. |
Investing activities during 2019 primarily consisted of:
Cash inflows:
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Cash outflows:
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Acquisition of Operating Real Estate–
During the six months ended June 30, 20202021 and 2019,2020, the Company expended $7.1$84.3 million and $0$7.1 million, (after use of Internal Revenue Code Section 1031 proceeds of $31.0 million in 2019), respectively, towards the acquisition of an operating real estate property adjacent to an existing operating real estate property.properties. The Company anticipates spending upapproximately $75.0 million to approximately $25.0$150.0 million towards the acquisition of operating properties for the remainder of 2020.2021, excluding amounts expended in connection with the Merger. The funding of these capital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities and availability under the Company'sCompany’s Credit Facility.
Improvements to Operating Real Estate–
During the six months ended June 30, 20202021 and 2019,2020, the Company expended $110.8$66.3 million and $139.9$110.8 million, respectively, towards improvements to operating real estate. These amounts consist of the following (in thousands):
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Redevelopment and renovations | $ | 93,663 | $ | 103,477 | $ | 40,209 | $ | 93,663 | ||||||||
Tenant improvements and tenant allowances | 17,163 | 29,858 | 26,133 | 17,163 | ||||||||||||
Other | - | 6,530 | ||||||||||||||
Total improvements (1) | $ | 110,826 | $ | 139,865 | $ | 66,342 | $ | 110,826 | ||||||||
(1) | During the six months ended June 30, |
The Company has an ongoing program to redevelop and re-tenant its properties to maintain or enhance its competitive position in the marketplace. The Company is actively pursuing redevelopment opportunities within its operating portfolio which it believes will increase the overall value by bringing in new tenants and improving the assets’ value. The Company has identified three categories of redevelopment: (i) large scale redevelopment, which involves demolishing and building new square footage; (ii) value creation redevelopment, which includes the subdivision of large anchor spaces into multiple tenant layouts; and (iii) creation of out-parcels and pads located in the front of the shopping center properties.
Due to the recent COVID-19 pandemic mentioned above, the Company is re-evaluating its current redevelopment and re-tenanting projects and will only move forward with the projects it feels are necessary. The Company anticipates its capital commitment toward these redevelopment projects and re-tenanting efforts for the remainder of 20202021 will be approximately $75.0$50.0 million to $115.0 million.$100.0 million, which does not include any amounts that may result from the Merger. The funding of these capital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities and availability under the Company’s Credit Facility.
Financing Activities
Net cash flow used for financing activities was $256.3$310.9 million for the six months ended June 30, 2020,2021, as compared $242.6to $256.3 million for the comparable period in 2019.2020.
Financing activities during the six months ended June 30, 2021 primarily consisted of:
Cash outflows:
● | $160.1 million of dividends paid; |
● | $141.2 million in principal payment on debt, including normal amortization of rental property debt; |
● | $9.2 million in shares repurchased for employee tax withholding on equity awards; and |
● | $3.2 million in redemption/distribution of noncontrolling interests. |
Financing activities during the six months ended June 30, 2020 primarily consisted of:
Cash inflows:
● | $590.0 million in proceeds from issuance of the Company’s unsecured term loan credit facility (the |
Cash outflows:
● | $254.7 million of dividends paid; |
● | $265.0 million in repayments of the Company’s Term Loan; |
● | $200.0 million in repayments under the Company’s Credit Facility, net; |
● | $93.9 million for principal payments on debt (primarily related to the repayment of debt on two encumbered properties and the payoff of a construction loan), including normal amortization on rental property debt; |
● | $22.1 million for the redemption/distribution of noncontrolling interests, primarily related to the redemption of certain partnership interests by consolidated subsidiaries; |
● | $6.4 million for financing origination costs, primarily related to the Credit Facility and Term Loan; and |
● | $5.3 million in |
Financing activities during 2019 primarily consisted of:
Cash inflows:
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The Company continually evaluates its debt maturities, and, based on management’s current assessment, believes it has viable financing and refinancing alternatives that will not materially adversely impact its expected financial results. The Company continues to pursue borrowing opportunities with large commercial U.S. and global banks, select life insurance companies and certain regional and local banks. Due to the recent COVID-19 pandemic, the Company has noticed significant volatility in the debt markets. Although pricing remains dependent on specific deal terms, generally spreads for non-recourse mortgage, construction loan financing and unsecured debt are wider than spreads prior to the impact of the COVID-19 pandemic.
Debt maturities for the remainder of 20202021 consist of $70.5 million of consolidated debt, $39.8of: $53.5 million of unconsolidated joint venture debt and $61.9$9.1 million of debt included in the Company’s Preferred Equity Program, assuming the utilization of extension options where available. The 2020 consolidatedThese 2021 debt maturities are anticipated to be repaid with operating cash flows, borrowings from the Company’s Credit Facility and debt refinancing where applicable. The 2020 debt maturities on properties included in the Company’s unconsolidated joint ventures and in the Company’s Preferred Equity Program are anticipated to be repaid withthrough operating cash flows, debt refinancing, unsecured credit facilities, (where available)proceeds from property sales and partner capital contributions, as deemed appropriate.
The Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintain or improve its investment-grade senior, unsecured debt ratings. The Company may, from time to time, seek to obtain funds through additional common and preferred equity offerings, unsecured debt financings mortgages and/or mortgage/construction loan financingfinancings and other capital alternatives.
Since the completion of the Company’s IPO in 1991, the Company has utilized the public debt and equity markets as its principal source of capital for its expansion needs. Since the IPO, the Company has completed additional offerings of its public unsecured debt and equity, raising in the aggregate over $15.2$15.6 billion. Proceeds from public capital market activities have been used for the purposes of, among other things, repaying indebtedness, acquiring interests in open-air, grocery-anchored shopping centers and mixed-use assets, funding real estate under development projects, expanding and improving properties in the portfolio and other investments.
During February 2018,2021, the Company filed a shelf registration statement on Form S-3, which is effective for a term of three years, for the future unlimited offerings, from time to time, of debt securities, preferred stock, depositary shares, common stock and common stock warrants. The Company, pursuant to this shelf registration statement may, from time to time, offer for sale its senior unsecured debt securities for any general corporate purposes, including (i) funding specific liquidity requirements in its business, including property acquisitions and development and redevelopment costs and (ii) managing the Company’s debt maturities.
During May 2020, the Company filed a registration statement on Form S-8 for its 2020 Equity Participation Plan (the “2020 Plan”), which was approved by the Company’s stockholders and is a successor to the Restated Kimco Realty Corporation 2010 Equity Participation Plan that expired in March 2020. The 2020 Plan provides for a maximum of 10,000,000 shares of the Company’s common stock to be reserved for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, stock payments and deferred stock awards. At June 30, 2020, the Company had 10.0 million shares of common stock available for issuance under the 2020 Plan.
Common Stock–
During September 2019, the Company established an at the market continuous offering program (the “ATM program”), pursuant to which the Company may offer and sell from time to time shares of its common stock, par value $0.01 per share, with an aggregate gross sales price of up to $500.0 million through a consortium of banks acting as sales agents. Sales of the shares of common stock may be made, as needed, from time to time in “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, including by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise (i) at market prices prevailing at the time of sale, (ii) at prices related to prevailing market prices or (iii) as otherwise agreed to with the applicable sales agent. The Company did not offer for sale any shares of common stock under the ATM program during the six months ended June 30, 2020.
During February 2020, the Company extended its share repurchase program for a term of two years, which will expire in February 2022, pursuant to which the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the six months ended June 30, 2020.2021. As of June 30, 2020,2021, the Company had $224.9 million available under this share repurchase program.
Senior Notes –
On July 15, 2020, the Company announced the partial redemption of $200.0 million of its 3.20% senior unsecured notes outstanding, which mature in May 2021. These notes will be redeemed on July 30, 2020 and the Company will incur a prepayment charge of approximately $3.3 million resulting from the partial repayment. As of June 30, 2020, $484.9 million was outstanding on these notes.
The Company’s supplemental indenture governing its senior notes contains the following covenants, all of which the Company is compliant with:
Covenant | Must Be | As of June 30, | |||
Consolidated Indebtedness to Total Assets | <65% | ||||
Consolidated Secured Indebtedness to Total Assets | <40% | ||||
Consolidated Income Available for Debt Service to Maximum Annual Service Charge | >1.50x |
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Unencumbered Total Asset Value to Consolidated Unsecured Indebtedness | >1.50x |
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For a full description of the various indenture covenants, refer to the Indenture dated September 1, 1993; the First Supplemental Indenture dated August 4, 1994; the Second Supplemental Indenture dated April 7, 1995; the Third Supplemental Indenture dated June 2, 2006; the Fourth Supplemental Indenture dated April 26, 2007; the Fifth Supplemental Indenture dated as of September 24, 2009; the Sixth Supplemental Indenture dated as of May 23, 2013; and the Seventh Supplemental Indenture dated as of April 24, 2014, each as filed with the SEC. See the Exhibits Index to our Annual Report on Form 10-K for the year ended December 31, 20192020 for specific filing information.
Credit Facility –
In February 2020, the Company obtained a new $2.0 billion Credit Facility with a group of banks, which replaced the Company’s existing $2.25 billion unsecured revolving credit facility.banks. The Credit Facility is scheduled to expire in March 2024, with two additional six-month options to extend the maturity date, at the Company’s discretion, to March 2025. The Credit Facility is a green credit facility tied to sustainability metric targets, as described in the agreement. The Company achieved such targets, which effectively reduced the rate on the Credit Facility by one basis point. The Credit Facility, which accrues interest at a rate of LIBOR plus 77.576.5 basis points (1.18%(0.85% as of June 30, 2020)2021), can be increased to $2.75 billion through an accordion feature. The Credit Facility is a green credit facility tied to climate actions, as described in the agreement. Upon achieving such climate actions, the rate on the Credit Facility is reduced by 1 basis point. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum indebtedness ratios and (ii) minimum interest and fixed charge coverage ratios. As of June 30, 2020,2021, the Credit Facility had no outstanding balance, and $0.3 million appropriatedno appropriations for letters of credit and the Company was in compliance with its covenants.
Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to maintenance of various covenants. The Company is currently in compliance with these covenants. The financial covenants for the Credit Facility are as follows:
Covenant | Must Be | As of June 30, | |||
Total Indebtedness to Gross Asset Value (“GAV”) | <60% | ||||
Total Priority Indebtedness to GAV | <35% | ||||
Unencumbered Asset Net Operating Income to Total Unsecured Interest Expense | >1.75x |
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Fixed Charge Total Adjusted EBITDA to Total Debt Service | >1.50x |
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For a full description of the Credit Facility’s covenants, refer to the Amended and Restated Credit Agreement dated as of February 27, 2020, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 28, 2020.
Pending Merger with Weingarten Realty Investors –
Term Loan–
On April 1, 2020, the Company entered into a new Term Loan with total outstanding borrowings of $590.0 million pursuantThe Merger is expected to a credit agreement with a group of banks. The Term Loan was scheduled to mature in Aprilclose on August 3, 2021, with a one-year extension option to extend the maturity date, at the Company’s discretion, to April 2022. The Term Loan accrued interest at a rate of LIBOR plus 140 basis points (1.65% as of June 30, 2020) or, at the Company’s option, a spread of 40 basis pointssubject to the base rate definedreceipt of required shareholder approvals and the satisfaction or waiver of other closing conditions specified in the Term Loan, that in each case fluctuated in accordance with changes in the Company’s senior debt ratings. The Term Loan could be increased by an additional $750.0 million through an accordion feature. Pursuant toMerger Agreement. Under the terms of the Term Loan,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. Weingarten declared a Special Distribution payable on August 2, 2021 to shareholders of record on July 28, 2021 of $0.69. Under the terms of the Merger Agreement, Weingarten’s payment of the Special Distribution adjusts the cash consideration to be paid by the Company was subjectat the closing of the Merger from $2.89 per Weingarten common share to covenants that were substantially the same as those in the Credit Facility.$2.20 per Weingarten common share. The Company repaid $265.0 millionplans to fund the $2.20 per share cash consideration portion of the outstandingMerger and transaction costs with cash on hand and borrowings under the Term Loan in June 2020 with the proceeds it received from ACI (see Footnote 6 to the Notes to the Company’s Condensed Consolidated Financial Statements). As of June 30, 2020, the Term Loan had an outstanding balance of $325.0 million and the Company was in compliance with its covenants. Subsequent to June 30, 2020, the Term Loan was fully repaid and the facility was terminated.
Green Bond–
In July 2020, the Company issued $500.0 million of unsecured notes (the “Green Bond”) which are scheduled to mature in October 2030 and accrue interest at a rate of 2.70% per annum. The net proceeds from this offering are allocated to finance or refinance, in whole or in part, recently completed, existing or future Eligible Green Projects, in alignment with the four core components of the Green Bond Principles, 2018 ("GBP") as administered by the International Capital Market Association. Eligible Green Projects include projects with disbursements made in the three years preceding the issue date of the notes. The Company intends to spend the remaining net proceeds from the offering during the life of the notes.Credit Facility.
Mortgages and Construction Loan Payable –
In August 2018, the Company closed on a construction loan commitment of $67.0 million relating to one development property. This loan commitment was scheduled to mature in August 2020, with six additional six-month options to extend the maturity date to August 2023 and bore interest at a rate of LIBOR plus 180 basis points. This construction loan was fully repaid in January 2020.
During the six months ended June 30, 2020,2021, the Company repaid $21.6$137.2 million of mortgage debt (including fair market value adjustment of $0.2$1.0 million) that encumbered two25 operating properties.
In addition to the public equity and debt markets as capital sources, the Company may, from time to time, obtain mortgage financing on selected properties and construction loan financing to partially fund the capital needs of its real estate development projects. As of June 30, 2020,2021, the Company had over 320355 unencumbered property interests in its portfolio.
COVID-19 –
As the COVID-19 pandemic continues to evolve, an uncertainty remains in relation toregarding the long-term economic impact it will have. As a result, the Company has focused on creating a strong liquidity position, by: (i)including, but not limited to, maintaining availability under its $2.0 billion ($2.75 billion with the accordion feature) Credit Facility; (ii) issuing a new $500.0 million Green Bond; (iii) paying down its existing Term Loan; (iv) holding $201.7 million ofFacility, cash and cash equivalents on hand at June 30, 2020; and (iv) as mentioned above, having access to over 320 unencumbered property interests.
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 is uncertain as of the filing date of this Quarterly Report on Form 10-Q as this pandemic continues to evolve globally and within the United States. However, if the COVID-19 pandemic continues, on its current trajectory, such impacts could grow, and become material and could materially disrupt the Company’s business operations and materially adversely affect the Company’s liquidity.
Dividends–
The Company’s Board of Directors will continue to evaluate the Company’s dividend policy on a quarterly basis as the Board of Directors monitorsthey monitor sources of capital and evaluatesevaluate the impact of the economy and capital markets availability on operating fundamentals. Since cash used to pay dividends reduces amounts available for capital investment, the Company generally intends to maintain a dividend payout ratio that reserves such amounts as it considers necessary for the expansion and renovation of shopping centers in its portfolio, debt reduction, the acquisition of interests in new properties and other investments as suitable opportunities arise and such other factors as the Board of Directors considers appropriate. Cash dividends paid for common and preferred issuances of stock for the six months ended June 30, 2021 and 2020 and 2019 were $254.7$160.1 million and $265.2$254.7 million, respectively.
Although the Company receives substantially all of its rental payments on a monthly basis, it generally has paidintends 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. As a result of the COVID-19 pandemic and the future economic uncertainties, out of an abundance of caution, the Company’s Board of Directors has temporarily suspended the dividend on its common shares. The Company’s Board of Directors will continue to monitor the Company’simpact the COVID-19 pandemic has on the Company's financial performance and economic outlook onoutlook. The Company’s objective is to establish a monthly basis and, at a later date, intends to reinstate the common dividend during 2020 of at least the amount equal tolevel that maintains compliance with the Company’s REIT taxable income distribution requirements.
The On April 27, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.17 per common share payable to shareholders of record on June 9, 2021, which was paid on June 23, 2021. Also, on April 27, 2021, the Company's Board of Directors also declared quarterly dividends with respect to the Company’sCompany's classes of cumulative redeemable preferred shares (Classes L and M). All dividends on preferred shares, which were paid on July 15, 2020,2021, to shareholders of record on July 1, 2020. Additionally,2021.
On July 27, 2021, the Company’s Board of Directors declared quarterly dividends with respect to the Company’s classes of cumulative redeemable preferred shares (Classes L and M). All dividends on the preferred shares which are scheduled to be paid on October 15, 2020,2021, to shareholders of record on October 1, 2020.2021. The Company’s Board of Directors anticipates declaring a quarterly cash dividend on its common shares during the third quarter 2021, subsequent to the completion of the Merger.
Funds From Operations
Funds From Operations (“FFO”) is a supplemental non-GAAP financial measure utilized to evaluate the operating performance of real estate companies. NAREIT defines FFO as net income/(loss) available to the Company’s common shareholders computed in accordance with generally accepted accounting principles in the United States (“GAAP”), excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis. The Company also made an election to exclude from its calculation of FFO (i) gains and losses on the sale of assets and impairments of assets incidental to its main business and (ii) mark-to-market changes in the value of its equity securities. As such, the Company does not include gains/impairments on land parcels, gains/losses (realized or unrealized) from marketable securities, allowance for credit losses on mortgage receivables or gains/impairments on preferred equity participations in NAREIT defined FFO. As a result of this election, the Company will no longer disclose FFO available to the Company’s common shareholders as adjusted (“FFO as adjusted”) as an additional supplemental measure. The incidental adjustments noted above which were previously excluded from NAREIT FFO and used to determine FFO as adjusted are now included in NAREIT FFO and therefore the Company believes FFO as adjusted is no longer necessary.
The Company presents FFO available to the Company’s common shareholders as it considers it an important supplemental measure of our operating performance and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO available to the Company’s common shareholders when reporting results. Comparison of our presentation of FFO available to the Company’s common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.
FFO is a supplemental non-GAAP financial measure of real estate companies’ operating performances, which does not represent cash generated from operating activities in accordance with GAAP and therefore, should not be considered an alternative for net income or cash flows from operations as a measure of liquidity. Our method of calculating FFO available to the Company’s common shareholders may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The Company’s reconciliation of net income available to the Company’s common shareholders to FFO available to the Company’s common shareholders is reflected in the table below (in thousands, except per share data).
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Net income available to the Company’s common shareholders | $ | 741,539 | $ | 86,493 | $ | 825,285 | $ | 188,128 | ||||||||||||||||||||||||
Net income available to the Company’s common shareholders | $ | 110,343 | $ | 741,539 | $ | 241,931 | $ | 825,285 | ||||||||||||||||||||||||
Gain on sale of properties | (1,850 | ) | (14,762 | ) | (5,697 | ) | (38,357 | ) | (18,861 | ) | (1,850 | ) | (28,866 | ) | (5,697 | ) | ||||||||||||||||
Gain on sale of joint venture properties | - | (8,496 | ) | (18 | ) | (13,186 | ) | - | - | (5,283 | ) | (18 | ) | |||||||||||||||||||
Depreciation and amortization - real estate related | 72,296 | 68,723 | 141,003 | 139,983 | 71,781 | 72,296 | 145,894 | 141,003 | ||||||||||||||||||||||||
Depreciation and amortization - real estate joint ventures | 10,178 | 10,115 | 20,742 | 20,276 | 10,234 | 10,178 | 20,241 | 20,742 | ||||||||||||||||||||||||
Impairment charges of depreciable real estate properties | 138 | 18,247 | 3,579 | 24,655 | 104 | 138 | 1,172 | 3,579 | ||||||||||||||||||||||||
Gain on sale of cost method investment | (190,832 | ) | - | (190,832 | ) | - | - | (190,832 | ) | - | (190,832 | ) | ||||||||||||||||||||
Profit participation from other real estate investments, net | (1,186 | ) | (8,754 | ) | (7,469 | ) | (9,784 | ) | (1,346 | ) | (1,186 | ) | (1,151 | ) | (7,469 | ) | ||||||||||||||||
Gain on marketable securities, net | (526,243 | ) | (71 | ) | (521,577 | ) | (1,574 | ) | (24,297 | ) | (526,243 | ) | (85,382 | ) | (521,577 | ) | ||||||||||||||||
Provision for income taxes (1) | - | - | 1 | - | 1,096 | - | 2,142 | 1 | ||||||||||||||||||||||||
Noncontrolling interests (1) | (559 | ) | (333 | ) | (1,063 | ) | (581 | ) | (271 | ) | (559 | ) | 2,355 | (1,063 | ) | |||||||||||||||||
FFO available to the Company’s common shareholders | $ | 103,481 | $ | 151,162 | $ | 263,954 | $ | 309,560 | $ | 148,783 | $ | 103,481 | $ | 293,053 | $ | 263,954 | ||||||||||||||||
Weighted average shares outstanding for FFO calculations: | ||||||||||||||||||||||||||||||||
Basic | 429,967 | 419,697 | 429,851 | 419,581 | 431,011 | 429,967 | 430,769 | 429,851 | ||||||||||||||||||||||||
Units | 663 | 835 | 638 | 825 | 642 | 662 | 653 | 639 | ||||||||||||||||||||||||
Dilutive effect of equity awards | 970 | 949 | 1,469 | 1,166 | 1,356 | 970 | 1,528 | 1,469 | ||||||||||||||||||||||||
Diluted (2) | 431,599 | 421,481 | 431,959 | 421,572 | 433,009 | 431,599 | 432,950 | 431,959 | ||||||||||||||||||||||||
FFO per common share – basic | $ | 0.24 | $ | 0.36 | $ | 0.61 | $ | 0.74 | $ | 0.35 | $ | 0.24 | $ | 0.68 | $ | 0.61 | ||||||||||||||||
FFO per common share – diluted (2) | $ | 0.24 | $ | 0.36 | $ | 0.61 | $ | 0.74 | ||||||||||||||||||||||||
FFO per common share – diluted (2) (3) | $ | 0.34 | $ | 0.24 | $ | 0.68 | $ | 0.61 | ||||||||||||||||||||||||
(1) | Related to gains, impairments, and depreciation on properties, where applicable. |
(2) | Reflects the potential impact if certain units were converted to common stock at the beginning of the period, which would have a dilutive effect on FFO available to the Company’s common shareholders. FFO available to the Company’s common shareholders would be increased by | |
| (3) | Includes Merger charges of $3.2 million (or $0.01 per basic and diluted share) recognized during the three and six months ended June 30, 2021 in connection with the pending Merger. |
Same Property Net Operating Income(Income (“Same property NOI”NOI”)
Same property NOI is a supplemental non-GAAP financial measure of real estate companies’ operating performance and should not be considered an alternative to net income in accordance with GAAP or cash flows from operations as a measure of liquidity. The Company considers Same property NOI as an important operating performance measure because it is frequently used by securities analysts and investors to measure only the net operating income of properties that have been owned by the Company for the entire current and prior year reporting periods. It excludes properties under redevelopment, development and pending stabilization; properties are deemed stabilized at the earlier of (i) reaching 90% leased or (ii) one year following a project’s inclusion in operating real estate. Same property NOI assists in eliminating disparities in net income due to the development, acquisition or disposition of properties during the particular period presented, and thus provides a more consistent performance measure for the comparison of the Company's properties.
Same property NOI is calculated using revenues from rental properties (excluding straight-line rent adjustments, lease termination fees, TIFs and amortization of above/below market rents) less charges for bad debt, operating and maintenance expense, real estate taxes and rent expense plus the Company’s proportionate share of Same property NOI from unconsolidated real estate joint ventures, calculated on the same basis. The Company’s method of calculating Same property NOI available to the Company’s common shareholders may differ from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The following is a reconciliation of Net income available to the Company’s common shareholders to Same property NOI (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Net income available to the Company’s common shareholders | $ | 741,539 | $ | 86,493 | $ | 825,285 | $ | 188,128 | ||||||||||||||||||||||||
Net income available to the Company’s common shareholders | $ | 110,343 | $ | 741,539 | $ | 241,931 | $ | 825,285 | ||||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||
Management and other fee income | (2,955 | ) | (4,163 | ) | (6,695 | ) | (8,539 | ) | (3,284 | ) | (2,955 | ) | (6,721 | ) | (6,695 | ) | ||||||||||||||||
General and administrative | 22,504 | 22,633 | 43,521 | 48,464 | 24,754 | 22,504 | 49,232 | 43,521 | ||||||||||||||||||||||||
Impairment charges | 138 | 17,451 | 3,112 | 21,626 | 104 | 138 | 104 | 3,112 | ||||||||||||||||||||||||
Merger charges | 3,193 | - | 3,193 | - | ||||||||||||||||||||||||||||
Depreciation and amortization | 73,559 | 69,005 | 142,956 | 140,566 | 72,573 | 73,559 | 147,449 | 142,956 | ||||||||||||||||||||||||
Gain on sale of properties | (1,850 | ) | (14,762 | ) | (5,697 | ) | (38,357 | ) | (18,861 | ) | (1,850 | ) | (28,866 | ) | (5,697 | ) | ||||||||||||||||
Interest and other expense, net | 47,966 | 42,230 | 92,782 | 85,506 | 45,030 | 47,966 | 89,389 | 92,782 | ||||||||||||||||||||||||
Gain on marketable securities, net | (526,243 | ) | (71 | ) | (521,577 | ) | (1,574 | ) | (24,297 | ) | (526,243 | ) | (85,382 | ) | (521,577 | ) | ||||||||||||||||
Gain on sale of cost method investment | (190,832 | ) | - | (190,832 | ) | - | - | (190,832 | ) | - | (190,832 | ) | ||||||||||||||||||||
Provision/(benefit) for income taxes, net | 51 | (344 | ) | 94 | 286 | |||||||||||||||||||||||||||
Provision for income taxes, net | 1,275 | 51 | 2,583 | 94 | ||||||||||||||||||||||||||||
Equity in income of other real estate investments, net | (4,782 | ) | (13,269 | ) | (15,740 | ) | (19,493 | ) | (5,039 | ) | (4,782 | ) | (8,826 | ) | (15,740 | ) | ||||||||||||||||
Net income attributable to noncontrolling interests | 225 | 360 | 514 | 869 | 421 | 225 | 3,904 | 514 | ||||||||||||||||||||||||
Preferred dividends | 6,354 | 14,534 | 12,708 | 29,068 | 6,354 | 6,354 | 12,708 | 12,708 | ||||||||||||||||||||||||
Non same property net operating income | (161 | ) | (19,169 | ) | (18,643 | ) | (47,994 | ) | ||||||||||||||||||||||||
Non same property net operating (income)/loss | (10,716 | ) | 3,097 | (26,780 | ) | (14,458 | ) | |||||||||||||||||||||||||
Non-operational expense from joint ventures, net | 16,764 | 10,125 | 35,777 | 24,918 | 14,606 | 16,764 | 26,569 | 35,778 | ||||||||||||||||||||||||
Same property NOI | $ | 182,277 | $ | 211,053 | $ | 397,565 | $ | 423,474 | ||||||||||||||||||||||||
Same property NOI | $ | 216,456 | $ | 185,535 | $ | 420,487 | $ | 401,751 | ||||||||||||||||||||||||
Same property NOI decreasedincreased by $28.8$30.9 million or 13.6%16.7% for the three months ended June 30, 2020,2021, as compared to the corresponding period in 2019.2020. This changeincrease is primarily the result of (i) adjustments associated witha decrease in potentially uncollectible revenues and disputed amounts of $35.9$43.9 million, partially offset by (ii) an increasea decrease in revenues from rental properties of $6.5$11.7 million primarily related to lease-uptenant rent abatements and rent commencements in the portfoliolower occupancy levels and (iii) a decreasean increase in non-recoverable operating expenses of $0.6$1.3 million.
Same property NOI decreasedincreased by $25.9$18.7 million or 6.1%4.7% for the six months ended June 30, 2020,2021, as compared to the corresponding period in 2019.2020. This changeincrease is primarily the result of (i) adjustments associated witha decrease in potentially uncollectible revenues and disputed amounts of $38.5$47.5 million, partially offset by (ii) an increasea decrease in revenues from rental properties of $12.6$27.1 million primarily related to lease-uptenant rent abatements and rent commencementslower occupancy levels and (iii) an increase in the portfolio.non-recoverable operating expenses of $1.7 million.
Leasing Activity
During the six months ended June 30, 2020,2021, the Company executed 392508 leases totaling over 3.04.0 million square feet in the Company’s consolidated operating portfolio comprised of 84196 new leases and 308312 renewals and options. The leasing costs associated with these new leases are estimated to aggregate $25.2$38.7 million or $46.75$33.01 per square foot. These costs include $21.1$28.3 million of tenant improvements and $4.1$10.5 million of external leasing commissions. The average rent per square foot onfor (i) new leases was $20.94$21.01 and on(ii) renewals and options was $17.38.$15.15.
Tenant Lease Expirations
At June 30, 2020,2021, the Company has a total of 5,3725,324 leases in the U.S.its consolidated operating portfolio. The following table sets forth the aggregate lease expirations for each of the next ten years, assuming no renewal options are exercised. For purposes of the table, the Total Annual Base Rent Expiring represents annualized rental revenue, excluding the impact of straight-line rent, for each lease that expires during the respective year. Amounts in thousands, except for number of lease data:
Year Ending December 31, | Number of Leases Expiring | Square Feet Expiring | Total Annual Base Rent Expiring | % of Gross Annual Rent | Number of Leases Expiring | Square Feet Expiring | Total Annual Base Rent Expiring | % of Gross Annual Rent | |||||||||||||||||||||||
| (1) | 177 | 567 | $ | 12,679 | 1.6 | % | 160 | 490 | $ | 10,935 | 1.3 | % | |||||||||||||||||||
2020 | 225 | 1,031 | $ | 18,706 | 2.3 | % | |||||||||||||||||||||||||
2021 | 745 | 5,252 | $ | 85,085 | 10.4 | % | 219 | 813 | $ | 18,084 | 2.2 | % | |||||||||||||||||||
2022 | 825 | 5,902 | $ | 103,345 | 12.6 | % | 778 | 4,852 | $ | 88,361 | 10.6 | % | |||||||||||||||||||
2023 | 725 | 5,739 | $ | 97,276 | 11.9 | % | 748 | 5,731 | $ | 98,869 | 11.9 | % | |||||||||||||||||||
2024 | 668 | 5,200 | $ | 94,893 | 11.6 | % | 694 | 5,159 | $ | 95,228 | 11.5 | % | |||||||||||||||||||
2025 | 541 | 4,837 | $ | 83,879 | 10.3 | % | 639 | 5,320 | $ | 95,772 | 11.5 | % | |||||||||||||||||||
2026 | 287 | 4,316 | $ | 60,969 | 7.5 | % | 563 | 7,154 | $ | 101,489 | 12.2 | % | |||||||||||||||||||
2027 | 248 | 3,224 | $ | 49,706 | 6.1 | % | 298 | 4,054 | $ | 61,723 | 7.4 | % | |||||||||||||||||||
2028 | 309 | 3,187 | $ | 60,299 | 7.4 | % | 323 | 3,390 | $ | 61,484 | 7.4 | % | |||||||||||||||||||
2029 | 251 | 2,603 | $ | 45,553 | 5.6 | % | 254 | 2,620 | $ | 46,035 | 5.5 | % | |||||||||||||||||||
2030 | 190 | 1,678 | $ | 31,274 | 3.8 | % | 225 | 1,921 | $ | 39,920 | 4.8 | % | |||||||||||||||||||
2031 | 214 | 1,649 | $ | 35,007 | 4.2 | % | |||||||||||||||||||||||||
(1) | Leases currently under month-to-month lease or in process of renewal. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company’s primary market risk exposure is interest rate risk. The Company periodically evaluates its exposure to short-term interest rates and will, from time-to-time, enter into interest rate protection agreements which mitigate, but do not eliminate, the effect of changes in interest rates on its floating-rate debt. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. The following table presents the Company’s aggregate fixed rate and variable rate debt obligations outstanding, including fair market value adjustments and unamortized deferred financing costs, as of June 30, 2020,2021, with corresponding weighted average interest rates sorted by maturity date. The Company had no variable rate debt outstanding at June 30, 2021. The table does not include extension options where available (amounts in millions).
2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
Secured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | 70.5 | $ | 142.3 | $ | 149.6 | $ | 12.0 | $ | 9.4 | $ | 4.6 | $ | 388.4 | $ | 387.4 | ||||||||||||||||
Average Interest Rate | 5.20 | % | 5.39 | % | 4.06 | % | 3.23 | % | 6.73 | % | 7.08 | % | 4.83 | % | ||||||||||||||||||
Unsecured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | - | $ | 484.3 | $ | 497.5 | $ | 348.5 | $ | 397.5 | $ | 2,909.2 | $ | 4,637.0 | $ | 4,719.3 | ||||||||||||||||
Average Interest Rate | - | 3.20 | % | 3.40 | % | 3.13 | % | 2.70 | % | 3.73 | % | 3.50 | % | |||||||||||||||||||
Floating Rate | $ | - | $ | 325.0 | $ | - | $ | - | $ | - | $ | - | $ | 325.0 | $ | 325.0 | ||||||||||||||||
Average Interest Rate | - | 1.65 | % | - | - | - | - | 1.65 | % | |||||||||||||||||||||||
Based on the Company’s variable-rate debt balances, interest expense would have increased by $1.6 million for the six months ended June 30, 2020, if short-term interest rates were 1.0% higher.
2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
Secured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | - | $ | 144.5 | $ | 12.0 | $ | 7.2 | $ | - | $ | 4.3 | $ | 168.0 | $ | 169.8 | ||||||||||||||||
Average Interest Rate | - | 4.05 | % | 3.23 | % | 6.74 | % | - | 7.08 | % | 4.18 | % | ||||||||||||||||||||
Unsecured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | - | $ | 498.6 | $ | 349.0 | $ | 398.2 | $ | 497.8 | $ | 3,303.9 | $ | 5,047.5 | $ | 5,443.1 | ||||||||||||||||
Average Interest Rate | - | 3.40 | % | 3.13 | % | 2.70 | % | 3.30 | % | 3.42 | % | 3.33 | % | |||||||||||||||||||
Item 4.Controls and Procedures.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
OTHER INFORMATION
The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.
The Company is not presently involved in any litigation nor, to its knowledge, is any litigation threatened against the Company or its subsidiaries that, in management's opinion, would result in any material adverse effect on the Company's ownership, management or operation of its properties taken as a whole, or which is not covered by the Company's liability insurance.
Except as set forth below, as of the date of this report, there are no material changes to our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
The Company’s business, financial condition, results of operations or stock price has and may continueRisks Relating to be adversely impacted by the COVID-19 pandemic and such impact could be material.
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic has resulted in a widespread health crisis that has had a significant adverse affect on businesses, economies and financial markets worldwide, and has caused significant volatility in U.S. and international debt and equity markets. There is significant uncertainty around the extent and duration of business disruptions related to COVID-19, as well as its long-term impact on the U.S. economy.
Our business and the businesses of our tenants have been adversely affected by the COVID-19 pandemic and actions taken to contain or prevent its spread. A substantial number of tenants have temporarily closed their businesses, have shortened their operating hours or offered reduced services. As a result, the Company has observed a substantial increase in the number of tenants that have made late or partial rent payments, requested a deferral of rent payments, or defaulted on rent payments, and it is likely that more of our tenants will be similarly impacted in the future. Impacts of COVID-19 could also result in the complete or partial closure of one or more of our tenants’ manufacturing facilities or distribution centers, temporary or long-term disruption in our tenants’ supply chains from local and international suppliers, and/or delays in the delivery of our tenants’ inventory.
Even after governmental restrictions are lifted, our tenants may continue to be impacted by economic conditions resulting from COVID-19 or public perceptionPendency of the risk of COVID-19, which could adversely affect foot traffic to our tenants’ businesses and our tenants’ ability to adequately staff their businesses. Such events could severely disrupt their operations and have a material adverse effect on our business, financial condition and results of operations. A downturn in our tenants’ businesses that significantly weakens their financial condition could cause them to delay lease commencements or decline to extend or renew leases upon expiration and could lead to additional failures to make rental payments when due, store closures or bankruptcies, and we may be unable to collect past due balances under relevant leases. We have received requests for rent relief from some of our tenants. We are assessing these requests on a case-by-case basis and have agreed, and may continue to agree to certain relief. It is likely there will be additional requests for relief in the future.
In addition, like many other companies, due to government mandates, we have instructed our employees to work from home, which, especially if this persists for a prolonged period of time, may have an adverse impact on our employees, operations and systems. Extended periods of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. While most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, many employees may have additional personal needs to attend to and employees may become sick themselves and be unable to work. Decreased effectiveness of our team could adversely affect our results due to our inability to meet in person with potential tenants, longer time periods to review and approve leases, longer time to respond to tenant and property issues, or other decreases in productivity that could seriously harm our business.Merger
The COVID-19 pandemic,Merger may not be completed on the terms or timeline currently contemplated, or at all.
Although the Company and Weingarten have entered into a future pandemic, could also have materialdefinitive Merger Agreement on April 15, 2021 under which Weingarten will merge with and adverse effects on our abilityinto the Company, the completion of the Merger is subject to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:certain conditions, including:
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● | approval for listing on the NYSE of the common stock of the Company to be issued in connection with the Merger; |
● | the |
● | no injunction or law prohibiting the Merger; |
● | accuracy of each party’s representations, subject in most cases to materiality or material adverse effect qualifications; |
● | material compliance with each party’s covenants; and |
● | receipt by each of Weingarten and the Company of an opinion to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and of an opinion that each of Weingarten and the Company qualify as a REIT under the Code. Neither Weingarten nor the Company can provide assurances that the Merger will be consummated on the terms or timeline currently contemplated, or at all. |
Failure to complete the Merger could adversely affect our stock price and our future business and financial results.
If the Merger is not completed, our ongoing businesses may be adversely affected and we will be subject to numerous risks, including the following:
● | we are paying substantial costs relating to the Merger, such as legal, accounting, financial |
● | our management's focus on the Merger may have prevented the pursuit of other opportunities that could be beneficial to |
● | reputational harm due to |
If the Merger is not completed, we cannot assure our stockholders that these risks will not materialize or will not materially affect our stock price, our business and financial results.
The pendency of the Merger could adversely affect the business and operations of the Company and Weingarten.
In connection with the pending Merger, some of our and Weingarten’s tenants or vendors may delay or defer decisions, which could adversely affect the revenues, earnings, funds from operations, cash flows and expenses of the Company and Weingarten, regardless of whether the Merger is completed. Similarly, current and prospective employees of the Company and Weingarten may experience uncertainty about their future roles with the Company following the Merger, which may materially adversely affect our and Weingarten’s ability to attract and retain key personnel during the pendency of the Merger. In addition, due to interim operating covenants in the Merger Agreement, we and Weingarten may be unable (without the other party’s prior written consent), during the pendency of the Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
Risks Relating to the Company after Completion of the Merger
We expect to incur substantial expenses related to the Merger.
We expect to incur substantial expenses in completing the Merger and integrating the business, operations, networks, systems, technologies, policies and procedures of the Company and Weingarten. There are a large number of processes that must be integrated in the Merger, including leasing, billing, management information, purchasing, accounting and finance, sales, payroll and benefits, fixed asset, lease administration and regulatory compliance. While we and Weingarten have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of integration expenses.
Our stockholders may be diluted by the Merger and the trading price of shares of the combined company may be affected by factors different from those affecting the price of shares of our common stock before the Merger
The Merger may dilute the ownership position of our stockholders. Upon completion of the Merger, our legacy stockholders will own approximately 71% of the issued and outstanding shares of our common stock, and legacy Weingarten stockholders will own approximately 29% of the issued and outstanding shares of our common stock. Consequently, our stockholders may have less influence over our management and policies after the effective time of the Merger than they currently exercise over our management and policies. The results of our operations and the trading price of our common stock after the Merger may also be affected by factors different from those currently affecting our results of operations and the trading prices of our common stock. For example, some of our and Weingarten’s existing institutional investors may elect to decrease their ownership in the combined company. Accordingly, the historical trading prices and financial results of the Company and Weingarten may not be indicative of these matters for the combined company after the Merger.
Following the Merger, we may be unable to integrate the business of Weingarten successfully or realize the anticipated synergies and related benefits of the Merger or do so within the anticipated time frame.
The Merger involves the combination of two companies which currently operate as independent public companies. We will be required to devote significant management attention and resources to integrating the business practices and operations of Weingarten. Potential difficulties we may encounter in the integration process include the following:
● | the inability to successfully combine the businesses of the Company and Weingarten in |
● | the |
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● | the |
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● | potential unknown liabilities and |
● | performance shortfalls at one or both of the two companies as a |
The extent toFor all these reasons, you should be aware that it is possible that the integration process could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which the COVID-19 pandemic continues to impact our business, results of operations, financial condition and stock price will depend on numerous evolving factors that are highly uncertain and which we may not be able to predict, including the duration and scope of the pandemic, governmental, business and individual actions that have been and continue to be taken in response to the pandemic, the impact on economic activity from the pandemic and actions taken in response, the impact on our employees any other operational disruptions or difficulties we may face, the effect on our tenants and their businesses,could adversely affect the ability of the Company to maintain relationships with tenants, vendors and employees or to pay their contracted rents and any additional closuresachieve the anticipated benefits of our tenants’ businesses. These effects, individuallythe Merger, or in the aggregate, willcould otherwise adversely impact our tenant’s ability to pay their contracted rent. Any of these events could materially adversely impactaffect our business and financial condition, results of operations or stock price.results.
Financial disruption orFollowing the Merger, we will have a prolonged economic downturn could materiallysubstantial amount of indebtedness and adversely affect may need to incur more in the Company’s business.future.
Worldwide financial marketsWe have recently experienced periodssubstantial indebtedness and, in connection with the Merger, will incur additional indebtedness. The incurrence of extraordinary disruption and volatility, which has been exacerbated bynew indebtedness could have adverse consequences on our business following the COVID-19 pandemic, resulting in heightened credit risk, reduced valuationMerger, such as:
● | requiring the Company to use a substantial portion of our cash flow from operations to service our indebtedness, which would reduce the available cash flow to fund working capital, capital expenditures, development projects, and other general corporate purposes and reduce cash for distributions; |
● | limiting our ability to obtain additional financing to fund our working capital needs, acquisitions, capital expenditures, or other debt service requirements or for other purposes; |
● | increasing our costs of incurring additional debt; |
● | increasing our exposure to floating interest rates; |
● | limiting our ability to compete with other companies that are not as highly leveraged, as we may be less capable of responding to adverse economic and industry conditions; |
● | restricting the Company from making strategic acquisitions, developing properties, or exploiting business opportunities; |
● | restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness; |
● | exposing the Company to potential events of default (if not cured or waived) under covenants contained in our debt instruments that could have a material adverse effect on our business, financial condition, and operating results; |
● | increasing our vulnerability to a downturn in general economic conditions; and |
● | limiting our ability to react to changing market conditions in its industry. |
The impact of investments and decreased economic activity. Moreover, many companiesany of these potential adverse consequences could have experienced reduced liquidity and uncertainty as to their ability to raise capital during such periods of market disruption and volatility. In the event that these conditions recur or result in a prolonged economic downturn,material adverse effect on our results of operations, financial positioncondition, and liquidity.
Counterparties to certain agreements with the Company or liquidityWeingarten may exercise their contractual rights under such agreements in connection with the Merger.
We and Weingarten are each party to certain agreements that give the counterparty certain rights following a “change in control,” including in some cases the right to terminate such agreements. Under some such agreements, for example certain debt obligations, the Merger may constitute a change in control and therefore the counterparty may exercise certain rights under the agreement upon the closing of the Merger. Any such counterparty may request modifications of its respective agreements as a condition to granting a waiver or consent under its agreement. There is no assurance that such counterparties will not exercise their rights under the agreements, including termination rights where available, that the exercise of any such rights will not result in a material adverse effect or that any modifications of such agreements will not result in a material adverse effect to the combined company subsequent to the Merger.
We face risks relating to cybersecurity attacks and security incidents which could cause loss of confidential information, disrupt operations and materially affect our business and financial results.
We, like all businesses, are subject to cyberattacks and security incidents, which threaten the confidentiality, integrity, and availability of our systems and information resources. Those attacks and incidents may be materiallydue to intentional or unintentional acts by employees, contractors or third parties, who seek to gain unauthorized access to our or our service providers’ systems to disrupt operations, corrupt data, or steal confidential information. through malware, computer viruses, ransomware, social engineering (e.g., phishing attachments to e-mails) or other vectors.
The risk of a cybersecurity attack, data breach or disruption, including by computer hackers, foreign governments and adversely affected. These market conditions may affectcyber terrorists, has increased as the Company'snumber, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to access debtperform day-to-day operations and, equity capital markets.in some cases, may be critical to the operations of certain of our tenants. While we maintain some of our own critical information technology systems, we also depend on third-parties to provide important software, technologies, tools and a broad array of services and functions, such as payroll, human resources, electronic communications and certain finance functions, among others. In addition, in the ordinary course of our business, we collect, process, transmit and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information.
Although we, and our service providers, have various measures in place to maintain and manage the security and integrity of IT networks, related systems and information assets, there can be no assurance that these efforts will be effective or that attempted attacks, breaches or disruptions will not be successful or damaging. Our measures to prevent, detect and mitigate these threats, such as password protection, firewalls, backup servers, threat monitoring, log aggregation, vulnerability scanning, data encryption, periodic penetration testing and multifactor authentication, may not be successful in preventing a security incident or data breach or limiting the effects of such a breach. Furthermore, the security measures employed by third-party service providers may prove to be ineffective at preventing breaches of their systems. This is particularly so because attack methodologies change frequently or are not recognized until launched, and we also may be unable to investigate or remediate incidents because attackers are increasingly using techniques and tools designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
As a result of recent financial events, wethe COVID-19 pandemic, employees working remotely has amplified certain risks to our business. The number of points of potential cyberattack, such as laptops and mobile devices have increased and any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks or other disruption to our technology infrastructure, may face increased regulation. Many ofadversely affect our business. Cyber criminals are targeting their attacks on individual employees, utilizing interest in pandemic related information to increase business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems which extend to multiple platforms throughout the other risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 identifyCompany.
The primary risks that could directly result from the occurrence of a cyberattack or are exacerbated by, financial economic downturn. Thesesecurity incident include risks relatedoperational interruption, damage to our real estate assets, the competitive environmentrelationship with our tenants, and regulatory developments.private data exposure. We could be required to expend significant capital and other resources to address an attack or incident, which may not be covered or fully covered by our insurance and which may involve payments for investigations, forensic analyses, legal advice, public relations advice, system repair or replacement, or other services, in addition to any remedies or relief that may result from legal proceedings. Our financial results may be negatively impacted by such attacks and incidents or any resulting negative media attention.
A cyberattack or security incident could:
| ● | disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; | |
| ● | result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines; | |
| ● | result in our inability to properly monitor our compliance with the rules and regulations regarding our qualifications as a REIT; | |
| ● | result in unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; | |
| ● | result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space; | |
| ● | require significant management attention and resources to remediate systems, fulfill compliance requirements and /or to remedy any damages that result; | |
| ● | subject us to regulatory enforcement, including investigative costs and fines or penalties, as the White House, SEC and other regulators have increased their focus on companies' cybersecurity vulnerabilities and risks; | |
| ● | subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements or other causes of action; or | |
| ● | damage our reputation among our tenants, investors and associates. |
Moreover, cyber incidents perpetrated against our tenants, including unauthorized access to customers’ credit card data and other confidential information, could diminish consumer confidence and consumer spending and negatively impact our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the six months ended June 30, 2020,2021, the Company repurchased 288,885526,126 shares for an aggregate purchase price of $5.3$9.2 million (weighted average price of $18.39$17.53 per share) in connection with common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted stock awards under the Company’s equity-based compensation plans.
During February 2020, the Company extended its share repurchase program for a term of two years, which will expire in February 2022, pursuant to which the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the threesix months ended June 30, 2020.2021. As of June 30, 2020,2021, the Company had $224.9 million available under this share repurchase program.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||
January 1, 2020 – January 31, 2020 | 30,631 | $ | 20.63 | - | $ | 224.9 | ||||||||||
February 1, 2020 – February 29, 2020 | 238,412 | 18.82 | - | 224.9 | ||||||||||||
March 1, 2020 – March 31, 2020 | 1,665 | 17.76 | - | 224.9 | ||||||||||||
April 1, 2020 – April 30, 2020 | - | - | - | 224.9 | ||||||||||||
May 1, 2020 – May 31, 2020 | 17,157 | 8.76 | - | 224.9 | ||||||||||||
June 1, 2020 – June 30, 2020 | 1,020 | 12.72 | - | 224.9 | ||||||||||||
Total | 288,885 | $ | 18.39 | - | ||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||
January 1, 2021 – January 31, 2021 | 75,847 | $ | 15.16 | - | $ | 224.9 | ||||||||||
February 1, 2021 – February 28, 2021 | 441,944 | 17.89 | - | 224.9 | ||||||||||||
| March 1, 2021 – March 31, 2021 | 1,336 | 19.13 | 224.9 | |||||||||||||
| April 1, 2021 – April 30, 2021 | 3,434 | 19.43 | 224.9 | |||||||||||||
| May 1, 2021 – May 31, 2021 | 3,565 | 21.45 | 224.9 | |||||||||||||
| June 1, 2021 – June 30, 2021 | - | - | 224.9 | |||||||||||||
Total | 526,126 | $ | 17.53 | - | ||||||||||||
Item 3.Defaults Upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
Not applicable.
None.
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.
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31.1 | ||
31.2 | ||
32.1 ** | ||
101.INS | Inline XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request by the SEC.
** Furnished herewith
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.
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| KIMCO REALTY CORPORATION | |
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| July 30, 2021 |
| /s/ Conor C. Flynn |
(Date) |
| Conor C. Flynn | |
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| Chief Executive Officer | |
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| July 30, 2021 |
| /s/ Glenn G. Cohen |
(Date) |
| Glenn G. Cohen | |
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| Chief Financial Officer |