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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 1-10899
Kimco Realty Corporation
(Exact name of registrant as specified in its charter)
Maryland 13-2744380
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 11042
(Address of principal executive offices - Zip Code)
(516) 869-9000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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.
60,265,759 shares outstanding as of April 30, 1999.
1 of 15
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Financial Statements - Condensed Consolidated Balance
Sheets as of March 31, 1999 and December 31, 1998.
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1999 and 1998.
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998.
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 increased $49.8 million or 78.9% to
$112.9 million for the three months ended March 31, 1999, as compared with $63.1
million for the corresponding quarter ended March 31, 1998. This increase
resulted primarily from the combined effect of (i) property acquisitions during
the three month period ended March 31, 1999 (7 shopping center properties)
providing revenues of $1.7 million, (ii) acquisitions throughout calendar year
1998 (62 shopping center properties and 3 retail properties) providing
incremental revenues of $18.1 million as compared to the corresponding three
month period in 1998, (iii) the acquisition of The Price REIT, Inc. as of June
19, 1998 (the "Price REIT Acquisition") providing revenues of $26.6 million for
the three month period ended March 31, 1999, and (iv) new leasing, completion of
property redevelopments and re-tenanting within the portfolio at improved rental
rates.
Rental property expenses, including depreciation and amortization,
increased $32.7 million or 84.9% to $71.2 million for the three months ended
March 31, 1999, as compared with $38.5 million for the corresponding quarter
ended March 31, 1998. The rental property expense components of real estate
taxes, operating and
2
maintenance and depreciation and amortization increased $5.4 million, $5.3
million and $9.0 million, respectively, for the three month period ended March
31, 1999, as compared with the corresponding quarter in the preceding year.
These rental property expense increases are primarily due to the property
acquisitions during the three months ended March 31, 1999, incremental costs
related to property acquisitions throughout 1998, and the Price REIT
Acquisition. Interest expense increased $12.2 million for the three month period
ended March 31, 1999 reflecting higher average outstanding borrowings as
compared to the corresponding period in 1998 consisting of (i) a net increase in
unsecured debt outstanding of approximately $425 million due to the issuance of
new debt and the assumption of $250 million in connection with the Price REIT
Acquisition and (ii) a net increase in mortgage debt of approximately $305.6
million due to $281.3 million of mortgage financing obtained on 22 properties
during 1998 and assumption of mortgage debt during 1998 and 1999 in connection
with various property acquisitions.
General and administrative expenses increased approximately $2.8
million to $6.0 million for the three months ended March 31, 1999, as compared
with $3.2 million for the corresponding quarter ended March 31, 1998. This
increase is due primarily to an increase in senior management and staff levels
and other personnel costs in connection with the growth of the Company and the
Price REIT Acquisition.
During January 1998, the Company disposed of a property in Pinellas
Park, FL. Cash proceeds from the disposition totaling $2.3 million, together
with an additional $7.1 million cash investment, were used to acquire an
exchange shopping center property located in Cranston, RI during March 1998.
Net income for the three months ended March 31, 1999 and 1998 was $39.5
million and $25.5 million, respectively. On a per-basic share basis, net income
improved $.05 for the three month period ended March 31, 1999, after adjusting
for the gain on sale of a shopping center property in the respective period in
1998, reflecting the effect of property acquisitions, including the Price REIT
Acquisition, completion of property redevelopments and increased leasing
activity which strengthened operating profitability.
3
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 $1.9 billion for the
purposes of repaying indebtedness, acquiring interests in neighborhood and
community shopping centers and for expanding and improving properties in the
portfolio.
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, which replaced both the Company's $100
million unsecured revolving credit facility and $150 million interim unsecured
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,
1999, there was $50 million outstanding under the Credit Facility.
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, 1999, the Company had over 300 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, 1999, the
Company had approximately $493.2 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.
4
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.
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, borrowings available 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 $59.7 million for the three months ended
March 31, 1999 as compared to $35.0 million for the corresponding period ended
March 31, 1998.
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.
Impact of Year 2000
Like most corporations, the Company depends upon its business and
technical information systems in operating its business. Many computer systems
process dates using two digits to identify the year, and some systems are unable
to properly process dates beginning with the year 2000. This problem is commonly
referred to as the "Year 2000" issue.
The Company has completed the assessment phase of its systems as to
Year 2000 compliance and functionality. The Company has substantially completed
the identification and review of computer hardware and software suppliers and is
currently verifying the Year 2000 compliance of third-party suppliers, vendors
and service providers that the Company has deemed important to the ongoing
operations
5
of the business. The Company has substantially completed the modification of its
software applications and is in the final phase of testing. The Company
anticipates its systems, including hardware and software, will be Year 2000
compliant by the end of the second quarter of 1999.
The total costs to date related to the Year 2000 issue have been
immaterial to the Company's operations. These costs have been expensed as
incurred and consist primarily of internal staff costs and other related
expenses. The Company does not believe that the remaining costs expected to be
incurred in addressing the Year 2000 issue will have a material adverse effect
on the Company's financial condition or results of operations.
Based upon the substantial progress made to date, the Company does not
anticipate delays in finalizing internal Year 2000 compliance issues. However,
the Company cannot guarantee that its third party vendors, partners or others
will be Year 2000 compliant. If the Company or such third party vendors,
partners and others encounter problems in addressing the Year 2000 issue, the
Company's ability to operate its properties and to bill and collect revenues in
a timely manner could be materially adversely affected. The Company is currently
addressing the development of a contingency plan in the event that its systems
or the systems of third party vendors, partners or others fail to resolve the
Year 2000 issue.
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.
6
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of March 31, 1999, the Company had approximately $228.9 million of
floating-rate debt outstanding, including $50 million on its unsecured line of
credit. The interest rate risk on $160 million of such debt has been mitigated
through the use of interest rate swap agreements (the "Swaps") with major
financial institutions. The Company is exposed to credit risk in the event of
non-performance by the counter-parties to the Swaps. The Company believes it
mitigates its credit risk by entering into these Swaps with major financial
institutions.
The Company believes the interest rate risk represented by the
remaining $68.9 million of floating-rate debt is not material in relation to the
total debt outstanding of the Company or its market 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, 1999,
the Company had no other material exposure to market risk.
7
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
March 31, December 31,
1999 1998
--------- ------------
Assets:
Real estate, net of accumulated depreciation
of $273,281 and $255,950, respectively $ 2,865,253 $ 2,767,952
Investment in retail store leases 14,900 15,172
Investments and advances in real estate joint ventures 64,417 64,263
Cash and cash equivalents 40,836 43,920
Accounts and notes receivable 36,185 31,821
Other assets 125,839 128,050
----------- -----------
$ 3,147,430 $ 3,051,178
=========== ===========
Liabilities:
Notes payable $ 935,250 $ 855,250
Mortgages payable 446,758 434,311
Other liabilities, including minority interests
in partnerships 182,056 176,598
----------- -----------
1,564,064 1,466,159
----------- -----------
Stockholders' Equity:
Preferred stock, $1.00 par value, authorized 3,470,000 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 429,159 shares 429 429
Aggregate liquidation preference $107,290
Common stock, $.01 par value, authorized 100,000,000 shares
Issued and outstanding 60,181,610 and 60,133,704
shares, respectively 602 601
Paid-in capital 1,708,860 1,707,272
Cumulative distributions in excess of net income (127,425) (124,183)
----------- -----------
1,583,366 1,585,019
----------- -----------
$ 3,147,430 $ 3,051,178
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months ended March 31, 1999 and 1998
(in thousands, except per share data)
1999 1998
--------- ---------
Revenues from rental property $ 112,876 $ 63,112
--------- ---------
Rental property expenses:
Rent 3,498 2,752
Real estate taxes 14,313 8,877
Interest 23,238 11,039
Operating and maintenance 12,284 6,936
Depreciation and amortization 17,871 8,900
--------- ---------
71,204 38,504
--------- ---------
Income from rental property 41,672 24,608
Income from investment in retail store leases 982 916
--------- ---------
42,654 25,524
Management fee income 836 802
General and administrative expenses (5,968) (3,181)
Other income, net 1,966 1,438
--------- ---------
Income before gain on sale of shopping center property 39,488 24,583
Gain on sale of shopping center property - 901
--------- ---------
Net Income $ 39,488 $ 25,484
========= =========
Net income applicable to common shares $ 32,867 $ 20,874
========= =========
Net income per common share:
Basic $0.55 $0.52
===== =====
Diluted $0.54 $0.51
===== =====
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31, 1999 and 1998
(in thousands)
1999 1998
-------- ---------
Cash flow provided by operations $ 59,705 $ 35,036
-------- ---------
Cash flow from investing activities:
Acquisition of and improvements to real estate (98,789) (103,530)
Investment in marketable securities - (4,183)
Proceeds from sale of marketable securities 4,063 -
Investment in mortgage loans receivable - (1,981)
Repayment of mortgage loans receivable - 1,456
Construction advances to real estate joint ventures - (1,269)
Proceeds from sale of shopping center property 1,690 2,300
-------- ---------
Net cash flow used for investing activities (93,036) (107,207)
-------- ---------
Cash flow from financing activities:
Principal payments on debt, excluding normal
amortization of rental property debt (8,680) -
Principal payments on rental property debt (1,765) (971)
Proceeds from issuance of senior notes 130,000 -
Repayment of senior notes (100,000) -
Borrowings under revolving credit facilities 50,000 100,000
Dividends paid (40,897) (23,999)
Proceeds from issuance of stock 1,589 540
-------- ---------
Net cash flow provided by financing activities 30,247 75,570
-------- ---------
Change in cash and cash equivalents (3,084) 3,399
Cash and cash equivalents, beginning of period 43,920 30,978
-------- ---------
Cash and cash equivalents, end of period $ 40,836 $ 34,377
======== =========
Interest paid during the period $ 12,433 $ 6,391
======== =========
Supplemental schedule of noncash investing/financing activity:
Acquisition of real estate interests by assumption of debt $ 17,462 $ 20,800
======== =========
Declaration of dividends paid in succeeding period $ 41,277 $ 22,557
======== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
10
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 majority-owned partnerships. 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.
2. Property Acquisitions
During the three months ended March 31, 1999, the Company and its
affiliates acquired interests in 7 neighborhood and community shopping center
properties comprising approximately 1.0 million square feet of gross leasable
area ("GLA") in 6 states for an aggregate purchase price of approximately $87.6
million, including the assumption of approximately $14.2 million in mortgage
debt.
During the three months ended March 31, 1999, the Company acquired one
land parcel and, through separate partnership investments, 2 additional land
parcels for the ground-up development of shopping centers for an aggregate
purchase price of approximately $17.3 million.
3. Debt Financings
During February 1999, the Company issued $130 million of 6-7/8%
fixed-rate Senior Notes due 2009 (the "Notes"). Interest on the Notes is payable
semi-annually in arrears. The Notes were sold at 99.85% of par value. Net
proceeds from the issuance totaling approximately $128.9 million, after related
transaction costs of approximately $.9 million, were used, in part, to repay
$100 million floating-rate senior notes that matured during February 1999 and
for general corporate purposes.
4. Investment in Retail Store Leases
Income from the investment in retail store leases for the three months
ended March 31, 1999 and 1998 represents sublease revenues of approximately $5.2
million and $5.0 million, respectively, less related expenses of $3.8 million
and $3.7 million,
11
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.
5. 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:
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Basic EPS - weighted
average number of common
shares outstanding 60,166,084 40,408,841
Effect of dilutive securities -
stock options 602,186 508,848
---------- ----------
Diluted EPS - weighted average
number of common shares 60,768,270 40,917,689
========== ==========
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.
6. Pro Forma Financial Information
As discussed in Note 2, the Company and certain of its affiliates
acquired interests in certain shopping center properties during the three months
ended March 31, 1999. 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, 1999 and 1998, adjusted to give effect to
these transactions as of January 1, 1998.
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, 1998, nor does it
purport to represent the results of future operations. (Amounts presented in
millions, except per share figures).
12
Three Months Ended March 31,
1999 1998
------- ------
Revenues from rental property $ 114.0 $ 66.0
Net Income $ 39.7 $ 26.3
Net Income per common share:
Basic $ .55 $ .54
Diluted $ .54 $ .53
8. Subsequent Events:
On April 28, 1999, the Company and an institutional investor entered into a
joint venture agreement, whereby the joint venture will invest primarily in high
quality retail properties financed primarily through the use of individual
non-recourse mortgages. Under the agreement, the Company contributed to the
joint venture 19 shopping center properties with an aggregate agreed equity
value of approximately $105 million and has agreed to contribute an additional
$12 million to the joint venture. The institutional investor has subscribed for
up to $117 million of equity in the joint venture, of which approximately $70
million has been used to fund the acquisition of four additional properties by
the joint venture. As a result of these transactions, the Company holds a
non-controlling limited partnership interest in the joint venture and will
account for its investment under the equity method of accounting. Additionally,
in connection with these transactions, the joint venture 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.
13
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 -
A current report on Form 8-K was filed on January 29, 1999 to disclose
certain historical and pro forma financial information for certain properties
acquired during the fourth quarter 1998 and January 1999.
14
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 14, 1999 /s/ Milton Cooper
- ------------ ------------------
(Date) Milton Cooper
Chairman of the Board
May 14, 1999 /s/ Michael V. Pappagallo
- ------------ --------------------------
(Date) Michael V. Pappagallo
Chief Financial Officer
15