UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10899
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Kimco Realty Corporation
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(Exact name of registrant as specified in its charter)
Maryland 13-2744380
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 11042
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(Address of principal executive offices - zip code)
(516) 869-9000
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
60,858,809 shares outstanding as of April 28, 2000.
1 of 14
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets as of March 31, 2000 and December
31, 1999.
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999.
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999.
Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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.
Results of Operations
Revenues from rental property decreased $0.5 million to $112.4 million
for the three months ended March 31, 2000, as compared with $112.9 million for
the corresponding quarter ended March 31, 1999. This net decrease resulted from
the combined effect of (i) property acquisitions during the three month period
ended March 31, 2000, (three shopping center properties) providing revenues of
$.4 million, (ii) acquisitions throughout calendar year 1999, (35 shopping
center properties), providing incremental revenues of $5.6 million, as compared
to the corresponding three month period in 1999 and (iii) the completion of
certain development and redevelopment projects, new leasing and re-tenanting
within the portfolio at improved rental rates providing incremental revenues of
$5.9 million. These increases were offset as a result of the deconsolidation of
23 shopping center properties, as of April 28, 1999, in connection with the sale
of a controlling interest in Kimco Income REIT ("KIR"). Revenues from these 23
properties totaled approximately $12.4 million for the three months ended March
31, 1999.
2
Rental property expenses, including depreciation and amortization,
decreased approximately $3.6 million or 5.1% to $67.6 million for the three
months ended March 31, 2000, as compared with $71.2 million for the
corresponding quarter ended March 31, 1999. The rental property expense
components of real estate taxes, operating and maintenance, and depreciation and
amortization decreased $1.3 million, $0.5 million and $0.8 million,
respectively, for the three month period ended March 31, 2000, as compared with
the corresponding quarter in the preceding year. These rental property expense
decreases are the result of the combined effect of (i) increased expenses
relating to new property acquisitions made throughout calendar year 1999 and
during the quarter ended March 31, 2000, offset by (ii) the reduction of rental
property expenses relating to the deconsolidation of 23 shopping center
properties as of April 28, 1999, in connection with the sale of a controlling
interest in KIR. Interest expense decreased approximately $1.0 million for the
three month period ended March 31, 2000, reflecting lower average outstanding
borrowings as compared to the corresponding period in 1999, resulting from (i)
the deconsolidation of $252.4 million of mortgage debt on 19 properties as of
April 28, 1999, in connection with the sale of a controlling interest in KIR,
offset by (ii) the issuance of an additional $152.0 million of unsecured debt
and the assumption of mortgage debt during 1999 and 2000 in connection with
certain property acquisitions.
During 1998, the Company formed KIR, a limited partnership established
to invest in high quality retail properties financed primarily through the use
of individual non-recourse mortgages. At the time of formation, the Company
contributed 19 property interests to KIR. On April 28, 1999, KIR sold a
significant interest in the partnership to an institutional investor. As a
result, the Company holds a non-controlling limited partnership interest in KIR
and accounts for its investment in KIR under the equity method of accounting.
The Company's equity in income of KIR for the three month period ended March 31,
2000, was approximately $2.3 million.
Net income for the three months ended March 31, 2000 and 1999 was $48.7
million and $39.5 million, respectively. On a per-basic share basis, net income
improved $.14 for the three month period ended March 31, 2000, reflecting the
effect of property acquisitions, internal growth from strong leasing activity
and the completion of certain development and redevelopment projects which
strengthened operating profitability.
Liquidity and Capital Resources
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.
Since the IPO, the Company has completed additional offerings of its public
unsecured debt and equity, raising in the aggregate over $2.0 billion for the
purposes of repaying indebtedness, acquiring interests in neighborhood and
community shopping centers and for expanding and improving properties in the
portfolio.
3
During August 1998, the Company established a $215 million, unsecured
revolving credit facility (the "Credit Facility"), which is scheduled to expire
in August 2001. This Credit Facility has made available funds to both finance
the purchase of properties and meet any short-term working capital requirements.
As of March 31, 2000 there was $45.0 million outstanding under the Credit
Facility.
During November 1999, the Company established a $52 million unsecured
term loan facility, which is scheduled to expire in November 2000. This credit
facility was established to finance the purchase of properties and for general
corporate purposes.
The Company has also implemented a $200 million MTN program pursuant to
which it may, from time to time, offer for sale its senior unsecured debt for
any general corporate purposes, including (i) funding specific liquidity
requirements in its business, including property acquisitions, development and
redevelopment costs and (ii) managing the Company's debt maturities.
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. As of March 31, 2000, the Company had over 350 unencumbered property
interests in its portfolio.
During 1998, the Company filed a shelf registration statement on Form
S-3 for up to $750 million of debt securities, preferred stock, depositary
shares, common stock and common stock warrants. As of March 31, 2000, the
Company had approximately $393.2 million available for issuance under this shelf
registration statement.
In connection with its intention to continue to qualify as a REIT for
Federal income tax purposes, the Company expects to continue paying regular
dividends to its stockholders. These dividends will be paid from operating cash
flows which are expected to increase due to property acquisitions and growth in
rental revenues in the existing portfolio and from other sources. Since cash
used to pay dividends reduces amounts available for capital investment, the
Company generally intends to maintain a conservative dividend payout ratio,
reserving such amounts as it considers necessary for the expansion and
renovation of shopping centers in its portfolio, repayment of debt, the
acquisition of interests in new properties as suitable opportunities arise, and
such other factors as the Board of Directors considers appropriate.
It is management's intention that the Company continually have access
to the capital resources necessary to expand and develop its business.
Accordingly, the Company may seek to obtain funds through additional equity
offerings, unsecured debt financings and/or mortgage financings in a manner
consistent with its intention to operate with a conservative debt capitalization
policy.
4
The Company anticipates that cash flows from operations will continue
to provide adequate capital to fund its operating and administrative expenses,
regular debt service obligations and the payment of dividends in accordance with
REIT requirements in both the short-term and long-term. In addition, the Company
anticipates that cash on hand, availability under its revolving credit facility,
issuance of equity and public debt, as well as other debt and equity
alternatives, will provide the necessary capital required by the Company. Cash
flows from operations increased to $63.8 million for the three months ended
March 31, 2000 as compared to $59.7 million for the corresponding period ended
March 31, 1999.
Effects of Inflation
Many of the Company's leases contain provisions designed to mitigate
the adverse impact of inflation. Such provisions include clauses enabling the
Company to receive payment of additional rent calculated as a percentage of
tenants' gross sales above pre-determined thresholds, which generally increase
as prices rise, and/or escalation clauses, which generally increase rental rates
during the terms of the leases. Such escalation clauses often include increases
based upon changes in the consumer price index or similar inflation indices. In
addition, many of the Company's leases are for terms of less than 10 years,
which permits the Company to seek to increase rents to market rates upon
renewal. Most of the Company's leases require the tenant to pay an allocable
share of operating expenses, including common area maintenance costs, real
estate taxes and insurance, thereby reducing the Company's exposure to increases
in costs and operating expenses resulting from inflation. The Company
periodically evaluates its exposure to short-term interest rates and 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
loans.
New Accounting Pronouncements
During December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
("SAB 101") which, among other things, provides further guidance as to the
recognition of contingent rents (i.e. additional rents based on tenants' sales
volumes). The Company has elected early adoption of SAB 101 effective January 1,
2000. The management of the Company believes the implementation of SAB 101 will
not have a material impact on the Company's financial position or results of
operations.
5
Forward-looking Statements
This quarterly report on Form 10-Q, together with other statements and
information publicly disseminated by the Company contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe the Company's
future plans, strategies and expectations, are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project" or
similar expressions. You should not rely on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond the Company's control and which could materially affect
actual results, performances or achievements. Factors which may cause actual
results to differ materially from current expectations include, but are not
limited to, (i) general economic and local real estate conditions, (ii)
financing risks, such as the inability to obtain equity or debt financing on
favorable terms, (iii) changes in governmental laws and regulations, (iv) the
level and volatility of interest rates (v) the availability of suitable
acquisition opportunities and (vi) increases in operating costs. Accordingly,
there is no assurance that the Company's expectations will be realized.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of March 31, 2000, the Company had approximately $275.8 million of
floating-rate debt outstanding, including $45.0 million on its unsecured line of
credit. The interest rate risk on $60.0 million of such debt has been mitigated
through the use of an interest rate swap agreement (the "Swap") with a major
financial institution. The Company is exposed to credit risk in the event of
non-performance by the counter-parties to the Swap. The Company believes it
mitigates its credit risk by entering into the Swap with a major financial
institution.
The Company believes the interest rate risk represented by the
remaining $215.8 million of floating-rate debt is not material to the Company or
its overall capitalization.
The Company has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of March 31, 2000,
the Company had no other material exposure to market risk.
6
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
March 31, December 31,
2000 1999
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Assets:
Real estate, net of accumulated depreciation
of $339,815 and $323,738, respectively $ 2,672,129 $ 2,627,312
Investment and advances in KIR 115,350 114,217
Investments and advances in other real estate joint ventures 64,640 68,553
Investment in retail store leases 12,345 12,709
Cash and cash equivalents 38,564 28,076
Accounts and notes receivable 39,689 31,689
Other assets 131,489 124,920
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$ 3,074,206 $ 3,007,476
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Liabilities:
Notes payable $ 1,082,250 $ 1,037,250
Mortgages payable 227,759 212,321
Other liabilities, including minority interests in partnerships 156,592 152,470
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1,466,601 1,402,041
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Stockholders' Equity:
Preferred stock, $1.00 par value, authorized 5,000,000 shares
Class A Preferred Stock, $1.00 par value, authorized 345,000 shares
Issued and outstanding 300,000 shares 300 300
Aggregate liquidation preference $75,000
Class B Preferred Stock, $1.00 par value, authorized 230,000 shares
Issued and outstanding 200,000 shares 200 200
Aggregate liquidation preference $50,000
Class C Preferred Stock, $1.00 par value, authorized 460,000 shares
Issued and outstanding 400,000 shares 400 400
Aggregate liquidation preference $100,000
Class D Convertible Preferred Stock, $1.00 par value, authorized 700,000 shares
Issued and outstanding 428,514 shares 429 429
Aggregate liquidation preference $107,129
Common stock, $.01 par value, authorized 200,000,000 shares
Issued and outstanding 60,803,343 and 60,795,593 shares, respectively 608 608
Paid-in capital 1,730,415 1,730,278
Cumulative distributions in excess of net income (120,998) (122,959)
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1,611,354 1,609,256
Notes receivable from officer stockholders (3,749) (3,821)
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1,607,605 1,605,435
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$ 3,074,206 $ 3,007,476
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The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months ended March 31, 2000 and 1999
(in thousands, except per share data)
2000 1999
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Revenues from rental property $ 112,356 $ 112,876
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Rental property expenses:
Rent 3,415 3,498
Real estate taxes 13,027 14,313
Interest 22,284 23,238
Operating and maintenance 11,801 12,284
Depreciation and amortization 17,074 17,871
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67,601 71,204
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Income from rental property 44,755 41,672
Income from investment in retail store leases 1,013 982
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45,768 42,654
Management fee income 1,520 836
General and administrative expenses (6,221) (5,968)
Equity in income of KIR 2,348 -
Other income, net 4,991 1,966
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Income before gain on sale of shopping center property 48,406 39,488
Gain on sale of shopping center property 303 -
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Net income $ 48,709 $ 39,488
========= =========
Net income applicable to common shares $ 42,091 $ 32,867
========= =========
Net income per common share:
Basic $0.69 $0.55
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Diluted $0.69 $0.54
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The accompanying notes are an integral part of these
condensed consolidated financial statements.
8
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31, 2000 and 1999
(in thousands)
2000 1999
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Cash flow provided by operations $ 63,802 $ 59,705
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Cash flow from investing activities:
Acquisition of and improvements to real estate (38,382) (98,789)
Investment in marketable securities (12,656) -
Proceeds from sale of marketable securities 3,200 4,063
Investments and advances to affiliated companies (2,466) -
Collection of mortgage loans receivable 2,517 -
Proceeds from sale of shopping center property 390 1,690
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Net cash flow used for investing activities (47,397) (93,036)
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Cash flow from financing activities:
Principal payments on debt, excluding normal
amortization of rental property debt - (8,680)
Principal payments on rental property debt (1,252) (1,765)
Proceeds from mortgage financing 191 -
Payment of unsecured obligation (3,250) -
Proceeds from issuance of senior notes - 130,000
Repayment of senior notes - (100,000)
Borrowings under revolving credit facility 45,000 50,000
Dividends paid (46,743) (40,897)
Proceeds from issuance of stock 137 1,589
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Net cash flow (used for)/provided by financing activities (5,917) 30,247
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Change in cash and cash equivalents 10,488 (3,084)
Cash and cash equivalents, beginning of period 28,076 43,920
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Cash and cash equivalents, end of period 38,564 $ 40,836
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Interest paid during the period $ 12,125 $ 12,433
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Supplemental schedule of noncash investing/financing activity:
Acquisition of real estate interests by assumption of mortgage debt $ 16,498 $ 17,462
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Declaration of dividends paid in succeeding period $ 45,295 $ 41,277
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
9
KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying Condensed Consolidated Financial Statements include
the accounts of Kimco Realty Corporation (the "Company"), its subsidiaries, all
of which are wholly owned, and all partnerships in which the Company has a
controlling interest. The information furnished is unaudited and reflects all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature. These Condensed Consolidated
Financial Statements should be read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K.
During December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
("SAB 101") which, among other things, provides further guidance as to the
recognition of contingent rents (i.e. additional rents based on tenants' sales
volumes). The Company has elected early adoption of SAB 101 effective January 1,
2000. The management of the Company believes the implementation of SAB 101 will
not have a material impact on the Company's financial position or results of
operations.
2. Property Acquisitions
During the three months ended March 31, 2000, the Company acquired
interests in three neighborhood and community shopping center properties, in
separate transactions, comprising approximately 0.4 million square feet of gross
leasable area ("GLA") in three states for an aggregate purchase price of
approximately $26.7 million, including the assumption of approximately $16.5
million in mortgage debt encumbering two of the properties. In addition, the
Company acquired fee title to a shopping center property in which the Company
held a leasehold interest for an aggregate purchase price of approximately $2.5
million.
During 1998, in connection with the Company's merger with The Price
REIT, Inc., the Company acquired a 50% interest in a joint venture in Houston,
TX. During March 2000, the Company acquired the remaining 50% interest in such
partnership for $5.0 million and now accounts for its investment under the
consolidation method of accounting.
10
3. Property Dispositions
During January 2000, the Company disposed of a shopping center property
in Mohegan Lake, NY. Cash proceeds from this disposition totaled approximately
$0.4 million, of which a gain of approximately $0.3 million was realized.
4. Investment and Advances in KIR
During 1998, the Company formed Kimco Income REIT ("KIR"), a limited
partnership established to invest in high quality retail properties financed
primarily through the use of individual non-recourse mortgages. At the time of
formation, the Company contributed 19 property interests to KIR. On April 28,
1999, KIR sold a significant interest in the partnership to an institutional
investor. As a result, the Company holds a non-controlling limited partnership
interest in KIR and accounts for its investment in KIR under the equity method
of accounting. The Company's equity in income of KIR for the three months ended
March 31, 2000, was approximately $2.3 million.
In addition, KIR entered into a master management agreement with the
Company, whereby, the Company will perform services for fee relating to the
management, operation, supervision and maintenance of the joint venture
properties. For the three months ended March 31, 2000, the Company earned
management fees of approximately $0.4 million.
5. Investment in Retail Store Leases
Income from the investment in retail store leases for the three months
ended March 31, 2000 and 1999 represents sublease revenues of approximately $4.8
million and $5.2 million, respectively, less related expenses of $3.4 million
and $3.8 million, respectively, and amounts, which in management's estimation,
reasonably provide for the recovery of the investment over a period representing
the expected remaining term of the retail store leases.
6. Net Income Per Common Share
The following table sets forth the basic and diluted weighted average
numbers of common shares outstanding for each period used in the calculation of
basic and diluted net income per common share:
11
Three Months Ended
March 31, 2000 March 31, 1999
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Basic EPS - weighted
average number of common
shares outstanding 60,795,794 60,166,084
Effect of dilutive securities -
stock options 455,089 602,186
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Diluted EPS - weighted average
number of common shares 61,250,883 60,768,270
========== ==========
The effect of the conversion of the Class D Preferred Stock would have
an anti-dilutive effect upon the calculation of net income per common share.
Accordingly, the impact of such conversion has not been included in the
determination of diluted net income per common share.
7. Pro Forma Financial Information
As discussed in Notes 2 and 3, the Company and certain of its
affiliates acquired and disposed of interests in certain shopping center
properties during the three months ended March 31, 2000. The pro forma financial
information set forth below is based upon the Company's historical Condensed
Consolidated Statements of Income for the three months ended March 31, 2000 and
1999, adjusted to give effect to these transactions as of January 1, 1999.
The pro forma financial information is presented for informational
purposes only and may not be indicative of what actual results of operations
would have been had the transactions occurred as of January 1, 1999, nor does it
purport to represent the results of future operations. (Amounts presented in
millions, except per share figures).
Three Months Ended March 31,
2000 1999
---- ----
Revenues from rental property $ 112.7 $ 113.5
Net Income $ 48.5 $ 39.8
Net Income per common share:
Basic $ .69 $ .55
Diluted $ .68 $ .55
12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently involved in any litigation, nor to its
knowledge is any litigation threatened against the Company or its subsidiaries,
that in management's opinion, would result in any material adverse effect on the
Company's ownership, management or operation of its properties, or which is not
covered by the Company's liability insurance.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
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.
Form 8-K -
None.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMCO REALTY CORPORATION
May 12, 2000 /s/ Milton Cooper
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(Date) Milton Cooper
Chairman of the Board
May 12, 2000 /s/ Michael V. Pappagallo
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(Date) Michael V. Pappagallo
Chief Financial Officer
14