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 September 30, 2001
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)
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(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.
64,238,685 shares outstanding as of October 31, 2001
1 of 22
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000.
Condensed Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2001 and 2000.
Condensed Consolidated Statements of Comprehensive Income for the Three and
Nine Months Ended September 30, 2001 and 2000.
Condensed Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 2001 and 2000.
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 $1.4 million or 1.2% to $114.3
million for the three months ended September 30, 2001, as compared with $115.7
million for the corresponding quarter ended September 30, 2000. This net
decrease is primarily due to the combined effect of (i) the acquisition of 14
shopping center properties during 2001 and 2000, new leasing within the
portfolio and the completion of certain development projects providing
incremental revenues of approximately $4.1 million for the three months ended
September 30, 2001 as compared to the corresponding period in 2000, offset by
(ii) the commencement of new redevelopment projects and tenant buyouts causing a
temporary decrease in vacancy and the sale of certain shopping center properties
during 2001 and 2000 resulting in a decrease in revenues of approximately $5.5
million for the three months ended September 30, 2001 as compared to the same
period in 2000.
2
Revenues from rental property increased $10.8 million or 3.2% to $353.8
million for the nine months ended September 30, 2001, as compared with $343.0
million for the corresponding nine month period ended September 30, 2000. This
net increase resulted primarily from the combined effect of (i) the acquisition
of 14 shopping center properties during 2001 and 2000, new leasing within the
portfolio and the completion of certain redevelopment and development projects
providing incremental revenues of $15.8 million for the nine month period ended
September 30, 2001 as compared to the same period in 2000, offset by (ii) the
commencement of new redevelopment projects and sales of certain shopping center
properties throughout 2001 and 2000 resulting in a decrease of revenues of
approximately $5.0 million as compared to the corresponding nine month period in
2000.
The rental property expense components of real estate tax, operating and
maintenance, and depreciation and amortization increased approximately $0.5
million, $0.2 million, and $0.4 million, respectively, for the three months
ended September 30, 2001 as compared with the same three month period in 2000.
Similarly, the rental property expense components of real estate tax, operating
and maintenance, and depreciation and amortization increased approximately $1.3
million, $4.1 million, and $2.8 million, respectively, for the nine months ended
September 30, 2001 as compared with the same nine month period in 2000. These
rental property expense increases are primarily due to property acquisitions,
renovations within the existing portfolio, the completion of certain
redevelopment and development projects, and increased snow removal costs during
2001 offset by the disposition of certain shopping center properties.
Interest expense decreased $1.2 million and $1.1 million for the three and
nine months ended September 30, 2001, respectively, as compared to the
corresponding periods in 2000. These decreases are primarily due to reduced
interest costs on the Company's floating-rate revolving credit facility and
remarketing reset notes during the three and nine months ended September 30,
2001 as compared to the same periods in 2000.
The Company has a non-controlling limited partnership interest in 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. Equity in income of KIR increased $0.9 million to $3.2 million for
the three months ended September 30, 2001, as compared with $2.3 million for the
corresponding period in 2000. Similarly, equity in income of KIR increased $2.2
million to $9.1 million for the nine months ended September 30, 2001, as
compared with $6.9 million for the corresponding period in 2000. These increases
are primarily due to the Company's increased capital investment in KIR. The
additional capital investments received by KIR from the Company and its other
institutional partners were used to purchase additional shopping center
properties throughout calendar year 2000 and during the nine months ended
September 30, 2001.
3
Effective January 1, 2001, the Company has elected taxable REIT subsidiary
status for its wholly-owned development subsidiary ("KDI"). KDI is primarily
engaged in the ground-up development of neighborhood and community shopping
centers and the subsequent sale thereof upon completion. During the nine months
ended September 30, 2001, KDI sold one of its recently completed projects and
four out-parcels, in separate transactions, for approximately $36.9 million,
which resulted in net gains of approximately $4.3 million after provision for
income taxes.
During March 2001, the Company, through a taxable REIT subsidiary, formed
a joint venture (the "Ward Venture") in which the Company has a 50% interest,
for purposes of acquiring asset designation rights for substantially all of the
real estate property interests of the bankrupt estate of Montgomery Ward LLC and
its affiliates. These asset designation rights have provided the Ward Venture
the ability to direct the ultimate disposition of the 315 fee and leasehold
interests held by the bankrupt estate. The Ward Venture has completed
transactions on 258 properties, and the Company has recognized net profits of
approximately $12.0 million after provision for income taxes for the nine months
ended September 30, 2001. The pre-tax profits from the Ward Venture are included
in the Condensed Consolidated Statement of Income in equity in income of other
real estate joint ventures, net.
Other income, net decreased $2.7 million for the three months ended
September 30, 2001 as compared with the same period in 2000. The net decrease is
primarily due to higher realized gains on the sale of certain marketable equity
and debt securities in the three months ended September 30, 2000 as compared to
the current quarter. Other income, net increased $1.9 million for the nine
months ended September 30, 2001 as compared with the same nine month period in
2000. The net increase is primarily the result of higher interest income,
dividend income, and realized gains related to the Company's investment and sale
of certain marketable equity and debt securities during the nine months ended
September 30, 2001 as compared to the same period in 2000.
Operating and administrative expenses increased approximately $0.7 million
and $2.4 million for the three and nine month periods ended September 30, 2001,
respectively, as compared to the same periods in 2000. These increases are
primarily due to higher costs related to the growth of the Company including (i)
increased senior management and staff levels, (ii) increased system related
costs and (iii) other personnel related costs. In addition, the Company issued a
stock grant award to a newly appointed executive officer of the Company valued
at approximately $1.1 million during 2001.
During the nine months ended September 30, 2001, the Company, in separate
transactions, disposed of four operating properties, including the sale of a
property to KIR, comprising approximately 0.6 million square feet of gross
leasable area ("GLA"). Cash proceeds from three of these dispositions aggregated
approximately $43.5 million, which approximated their aggregate net book value.
During May 2001, the Company realized a gain of approximately $3.0 million from
the sale of an
4
operating property in Elyria, OH. Cash proceeds from this disposition totaling
$5.8 million, together with an additional $7.1 million cash investment, were
used to acquire an exchange shopping center property located in Lakeland, FL
during August 2001.
During the nine months ended September 30, 2000, the Company, in separate
transactions, disposed of eight shopping center properties comprising 1.1
million square feet of GLA for an aggregate sales price of approximately $19.7
million, including the assignment of $2.6 million of mortgage debt. Net gains on
sales of these properties were approximately $2.1 million.
Net income for the three and nine months ended September 30, 2001 was
$59.3 million and $174.7 million, respectively. Net income for the three and
nine months ended September 30, 2000 was $51.5 million and $151.2 million,
respectively. On a diluted per share basis, net income improved $0.10 and $0.28
for the three and nine month periods ended September 30, 2001, respectively,
including the gains on sales of certain operating properties in the respective
periods in 2001 and 2000. This improved performance reflects the combined effect
of internal growth and property acquisitions in the core portfolio, profits from
KDI, income from the investment in KIR and profits from the Ward Venture
investment, which strengthened 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 $2.2 billion for the
purposes of, among other things, repaying indebtedness, acquiring interests in
neighborhood and community shopping centers, funding ground-up development
projects and expanding and improving properties in the portfolio.
During August 2000, the Company established a $250.0 million unsecured
revolving credit facility, which is scheduled to expire in August 2003. This
credit facility, which replaced the Company's $215.0 million unsecured revolving
credit facility has made available funds to both finance the purchase of
properties and meet any short-term working capital requirements. As of
September 30, 2001, there were no borrowings outstanding under this credit
facility.
The Company also has a $200.0 million medium-term notes ("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.
5
In addition to the public equity and debt markets as capital sources, the
Company may, from time to time, obtain non-recourse mortgage financing on
selected properties. As of September 30, 2001, the Company had over 350
unencumbered property interests in its portfolio.
During May 2001, the Company filed a shelf registration statement on Form
S-3 for up to $750.0 million of debt securities, preferred stock, depositary
shares, common stock and common stock warrants. As of September 30, 2001, the
Company had $750.0 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
operating income 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 has 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, 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 $253.7 million for the nine months ended
September 30, 2001 as compared to $206.7 million for the corresponding period
ended September 30, 2000.
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
6
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 debt.
New Accounting Pronouncements
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FASB No. 133"), as amended. FASB No. 133 establishes accounting and
reporting standards for derivative instruments. This accounting standard
requires the Company to measure derivative instruments at fair value and to
record them in the Condensed Consolidated Balance Sheet as an asset or
liability, depending on the Company's rights or obligations under the applicable
derivative contract. In addition, the fair value adjustments will be recorded in
either stockholders' equity or earnings in the current period based on the
designation of the derivative. The effective portions of changes in fair value
of cash flow hedges are reported in Other Comprehensive Income ("OCI"), a
component of stockholders' equity, and are subsequently reclassified into
earnings when the hedged item affects earnings. The changes in fair value of
derivative instruments which are not designated as hedging instruments and the
ineffective portions of hedges are recorded in earnings for the current period.
The principal financial instruments currently used by the Company are
interest rate swaps, foreign currency exchange forward contracts and warrant
contracts. The Company, from time to time, hedges the future cash flows of its
floating-rate debt instruments to reduce exposure to interest rate risk
principally through interest rate swaps with major financial institutions. The
Company has an interest-rate swap agreement on its $110.0 million floating-rate
medium-term note which has been designated and qualified as a cash flow hedge.
The Company has determined that this swap agreement is highly effective in
offsetting future variable interest cash flows related to the Company's debt
portfolio. The adoption of FASB No. 133 as of January 1, 2001, resulted in a
cumulative transition adjustment of $1.5 million to OCI and a corresponding
liability of the same amount. For the nine months ended September 30, 2001, the
change in the fair market value of the interest rate swap was $2.7 million and
was recorded in OCI.
7
During September 2001, the Company entered into a foreign currency forward
contract. The Company has designated this foreign currency forward contract as a
fair value hedge. The Company expects this forward contract to be highly
effective in limiting its exposure to the variability in the fair value of its
Canadian ("CAD") $26.3 million investment (approximately USD $16.9 million) as
it relates to changes in the exchange rate. The gain or loss on the forward
contract will be recognized currently in earnings and the gain or loss on the
CAD investment attributable to changes in the exchange rate will be recognized
currently in earnings and shall adjust the carrying amount of the hedged
investment.
During September 2001, the Company acquired warrants to purchase the
common stock of a Canadian REIT. The Company has designated the warrants as a
cash flow hedge of the variability in expected future cash outflows upon
purchasing the common stock. The Company has determined the hedged cash outflow
is probable and expected to occur prior to the expiration date of the warrant.
The Company has determined that the warrant is fully effective and recorded the
change in fair value of the warrant in OCI.
During the next twelve months, the Company expects to reclassify to
earnings as expense approximately $3.9 million of the current balance in
accumulated OCI.
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.
8
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of September 30, 2001, the Company had approximately $227.6 million of
floating-rate debt outstanding. The interest rate risk on $110.0 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-party to the Swap. The
Company believes it mitigates its credit risk by entering into this Swap with a
major financial institution. The Company believes the interest rate risk
represented by the remaining $117.6 million of floating-rate debt is not
material to the Company or its overall capitalization.
As of September 30, 2001, the Company had an investment in marketable
securities in the amount of CAD $26.3 million (approximately USD $16.9 million
as of September 30, 2001). The foreign currency exchange risk has been mitigated
through the use of a foreign currency forward contract (the "Forward Contract")
with a major financial institution. The Company is exposed to credit risk in the
event of non-performance by the counter-party to the Forward Contract. The
Company believes it mitigates its credit risk by entering into the Forward
Contract with a major financial institution.
The Company has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of September 30,
2001, the Company had no other material exposure to market risk.
9
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
September 30, December 31,
2001 2000
------------------- -------------------
Assets:
Operating real estate, net of accumulated depreciation
of $435,488 and $391,946, respectively $ 2,548,199 $ 2,594,872
Real estate under development 206,224 127,685
Investment and advances in KIR 162,186 142,437
Investments and advances in other real estate joint ventures 71,305 61,601
Investments in retail store leases 10,218 11,316
Cash and cash equivalents 33,654 19,097
Marketable securities 80,984 63,225
Accounts and notes receivable 49,857 44,673
Other assets 121,578 106,442
------------------- -------------------
$ 3,284,205 $ 3,171,348
=================== ===================
Liabilities:
Notes payable $ 1,035,250 $ 1,080,250
Mortgages payable 294,094 245,413
Other liabilities, including minority interests in partnerships 196,742 141,346
------------------- -------------------
1,526,086 1,467,009
------------------- -------------------
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 412,489 and 418,254 shares, respectively 412 418
Aggregate liquidation preference $103,122 and $104,564, respectively
Common stock, $.01 par value, authorized 200,000,000 shares
Issued and outstanding 64,171,244 and 63,144,859 shares, respectively 642 631
Paid-in capital 1,850,956 1,819,446
Cumulative distributions in excess of net income (96,215) (113,110)
------------------- -------------------
1,756,695 1,708,285
Accumulated other comprehensive income 3,324 --
Notes receivable from officer stockholders (1,900) (3,946)
------------------- -------------------
1,758,119 1,704,339
------------------- -------------------
$ 3,284,205 $ 3,171,348
=================== ===================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
10
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months ended September 30, 2001 and 2000
(in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 2001 2000
Revenues from rental property $ 114,295 $ 115,726 $ 353,764 $ 342,949
---------------- ------------ -------------- --------------
Rental property expenses:
Rent 3,405 3,328 10,378 10,110
Real estate taxes 14,406 13,896 42,859 41,575
Interest 22,141 23,352 67,523 68,575
Operating and maintenance 10,182 9,985 36,271 32,191
Depreciation and amortization 18,490 18,098 55,629 52,852
---------------- ------------ -------------- --------------
68,624 68,659 212,660 205,303
---------------- ------------ -------------- --------------
Income from rental property 45,671 47,067 141,104 137,646
Income from investment in retail store leases 857 998 2,684 3,035
---------------- ------------ -------------- --------------
46,528 48,065 143,788 140,681
Equity in income of KIR 3,200 2,266 9,123 6,899
Equity in income of other real estate joint ventures, net 22,846 1,260 26,069 3,579
Minority interests in income of partnerships, net (351) (628) (1,489) (1,499)
Management fee income 1,608 1,404 5,844 4,313
Other income, net 2,406 5,118 16,096 14,152
Operating and administrative expenses (7,056) (6,405) (21,483) (19,067)
---------------- ------------ -------------- --------------
Income before gain on sale of shopping center
properties and income taxes 69,181 51,080 177,948 149,058
Gain on sale of development properties 590 -- 6,806 --
Gain on sale of operating properties -- 432 3,040 2,109
---------------- ------------ -------------- --------------
Income before income taxes 69,771 51,512 187,794 151,167
Provision for income taxes (10,521) -- (13,138) --
---------------- ------------ -------------- --------------
Net income $ 59,250 $ 51,512 $ 174,656 $ 151,167
================ ============ ============== ==============
Net income applicable to common shares $ 52,707 $ 44,942 $ 154,973 $ 131,409
================ ============ ============== ==============
Net income per common share:
Basic $0.82 $0.72 $2.43 $2.14
====== ====== ====== =====
Diluted $0.81 $0.71 $2.40 $2.12
====== ====== ====== =====
The accompanying notes are an integral part of these
condensed consolidated financial statements.
11
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months ended September 30, 2001 and 2000
(in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 2001 2000
--------------- -------------- -------------- -----------------
Net income $ 59,250 $ 51,512 $ 174,656 $ 151,167
--------------- -------------- -------------- -----------------
Other comprehensive income:
Unrealized gains on marketable securities 157 -- 6,084 --
Unrealized loss on interest rate swap (872) -- (4,166) --
Unrealized gain on warrants 1,406 -- 1,406 --
--------------- -------------- -------------- -----------------
Other comprehensive income 691 -- 3,324 --
--------------- -------------- -------------- -----------------
Comprehensive income $ 59,941 $ 51,512 $ 177,980 $ 151,167
=============== ============== ============== =================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
12
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, 2001 and 2000
(in thousands)
2001 2000
----------------- ----------------
Cash flow provided by operations $ 253,716 $ 206,661
----------------- ----------------
Cash flow from investing activities:
Acquisition of and improvements to operating real estate (50,248) (117,880)
Acquisition of and improvements to real estate under development (91,176) -
Investment in marketable securities (29,018) (28,039)
Proceeds from sale of marketable securities 35,337 8,744
Investment in KIR (19,500) (10,066)
Investments and advances to real estate joint ventures (32,809) (500)
Reimbursement of advances to real estate joint ventures 24,824 -
Redemption of minority interests in real estate partnerships (5,443) -
Investments in joint ventures (28,757) -
Investments and advances to affiliated companies (100) (5,266)
Investment in mortgage loan receivable (4,500) -
Collection of mortgage loans receivable 5,952 2,967
Proceeds from sale of operating properties 46,766 21,196
Proceeds from sale of development properties 35,928 -
----------------- ----------------
Net cash flow used for investing activities (112,744) (128,844)
----------------- ----------------
Cash flow from financing activities:
Principal payments on debt, excluding
normal amortization of rental property debt (4,587) (17,024)
Principal payments on rental property debt (3,861) (3,407)
Proceeds from mortgage financings 51,230 44,396
Payment of unsecured obligation -- (18,172)
Proceeds from issuance of medium-term notes -- 110,000
Repayment of medium-term notes -- (60,000)
Repayment of borrowings under senior term loan -- (52,000)
Borrowings under revolving credit facility 10,000 45,000
Repayment of borrowings under revolving credit facility (55,000) (45,000)
Dividends paid (157,039) (140,458)
Repurchase and retirement of preferred stock -- (2,505)
Proceeds from issuance of stock 32,842 77,067
----------------- ----------------
Net cash flow used for financing activities (126,415) (62,103)
----------------- ----------------
Change in cash and cash equivalents 14,557 15,714
Cash and cash equivalents, beginning of period 19,097 28,076
----------------- ----------------
Cash and cash equivalents, end of period $ 33,654 $ 43,790
================= ================
Interest paid during the period $ 57,025 $ 56,499
================= ================
Supplemental schedule of noncash investing/financing activities:
Acquisition of real estate interests by issuance of stock
and/or assumption of debt $ 17,220 $ 30,986
================= ================
Investment in real estate joint ventures by issuance of stock
and contribution of property $ 3,420 $ --
================= ================
Disposition of real estate interest by assignment of mortgage debt $ -- $ 2,633
================= ================
Notes received upon disposition of real estate interests $ 950 $ --
================= ================
Notes received upon exercise of stock options $ 150 $ --
================= ================
Declaration of dividends paid in succeeding period $ 51,293 $ 47,985
================= ================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
13
KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
Principles of Consolidation -
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.
Certain 2000 amounts have been reclassified to conform to the 2001
financial statement presentation.
Income Taxes -
The Company and its qualified REIT subsidiaries file a consolidated
federal income tax return. The Company has made an election to qualify, and
believes it is operating so as to qualify, as a Real Estate Investment Trust (a
"REIT") for federal income tax purposes. Accordingly, the Company generally will
not be subject to federal income tax, provided that distributions to its
stockholders equal at least the amount of its REIT taxable income as defined
under the Code. However, in connection with the Tax Relief Extension Act of
1999, which became effective January 1, 2001, the Company is now permitted to
participate in certain activities which it was previously precluded from in
order to maintain its qualification as a REIT, so long as these activities are
conducted in entities which elect to be treated as taxable REIT subsidiaries
under the Code. As such, the Company will be subject to federal and state income
taxes on the income from these activities. During the nine months ended
September 30, 2001, the Company's provision for federal and state income taxes
was approximately $13.1 million relating to activities conducted in its taxable
REIT subsidiaries.
14
Derivative / Financial Instruments -
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting No. 133, Accounting for Derivative Instruments and Hedging Activities
("FASB No. 133"), as amended. FASB No. 133 establishes accounting and reporting
standards for derivative instruments. This accounting standard requires the
Company to measure derivative instruments at fair value and to record them in
the Condensed Consolidated Balance Sheet as an asset or liability, depending on
the Company's rights or obligations under the applicable derivative contract. In
addition, the fair value adjustments will be recorded in either stockholders'
equity or earnings in the current period based on the designation of the
derivative. The effective portions of changes in fair value of cash flow hedges
are reported in Other Comprehensive Income ("OCI"), a component of stockholders'
equity, and are subsequently reclassified into earnings when the hedged item
affects earnings. The changes in fair value of derivative instruments which are
not designated as hedging instruments and the ineffective portions of hedges are
recorded in earnings for the current period.
The Company utilizes derivative financial instruments to reduce exposure
to fluctuations in interest rates, foreign currency exchange rates and market
fluctuation on equity securities. The Company has established policies and
procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company has not, and does not
plan to enter into financial instruments for trading or speculative purposes.
Additionally, the Company has a policy of only entering into derivative
contracts with major financial institutions. The principal financial instruments
used by the Company are interest rate swaps, foreign currency exchange forward
contracts and warrant contracts. In accordance with the provisions of FASB No.
133, these derivative instruments were designated and qualified as cash flow
hedges.
Earnings Per Share -
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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Computation of Basic Earnings Per
share:
Net income applicable to common
Shares $ 52,707 $ 44,942 $ 154,973 $ 131,409
Weighted average common shares
outstanding 64,125 62,307 63,744 61,362
-------- -------- --------- ---------
Basic Earnings Per Share $ 0.82 $ 0.72 $ 2.43 $ 2.14
======== ======== ========= =========
15
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Computation of Diluted Earnings
Per Share:
Net income applicable to common
shares $ 52,707 $44,942 $154,973 $131,409
Dividends on Class D Convertible
Preferred Stock 1,934 --(a) 5,854 --(a)
-------- -------- -------- --------
Net income for diluted earnings per
share $ 54,641 $44,942 $160,827 $131,409
-------- -------- -------- --------
Weighted average common shares
outstanding - Basic 64,125 62,307 63,744 61,362
Effect of dilutive securities:
Stock options 816 785 724 700
Assumed conversion of Class D
Preferred Stock to Common Stock 2,577 --(a) 2,591 --(a)
-------- -------- -------- --------
Shares for diluted earnings per
share 67,518 63,092 67,059 62,062
-------- -------- -------- --------
Diluted Earnings Per Share $ 0.81 $ 0.71 $ 2.40 $ 2.12
======== ======== ======== ========
(a) In 2000, the effect of the assumed conversion of the Class D Preferred Stock
had 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 earnings per common share.
2. Property Acquisitions / Other Investments
Property Acquisitions -
Effective January 1, 2001, the Company has elected taxable REIT subsidiary
status for its wholly-owned development subsidiary ("KDI"). During the nine
months ended September 30, 2001, KDI acquired seven land parcels, in separate
transactions, for the ground-up development of shopping centers and subsequent
sales thereof upon completion for an aggregate purchase price of approximately
$38.6 million, including the assumption of approximately $5.9 million in debt
encumbering one of the properties.
16
On March 1, 2001, the Company exercised its option to acquire a 50%
interest in a joint venture from KC Holdings, Inc. ("KC Holdings"), an entity
formed in connection with the Company's initial public stock offering in
November 1991. This joint venture consists of three shopping center properties
located in Buffalo, NY, comprising approximately 0.4 million square feet of
gross leasable area ("GLA"). The joint venture was acquired for an aggregate
option price of approximately $3.5 million, paid approximately $2.7 million in
cash and $0.8 million in shares of the Company's common stock (19,759 shares
valued at $41.50 per share). The members of the Company's Board of Directors who
are not also shareholders of KC Holdings, unanimously approved the Company's
purchase of this joint venture investment.
During the nine months ended September 30, 2001, the Company acquired
interests in two shopping center properties, in separate transactions,
comprising approximately 0.3 million square feet of GLA, in two states for an
aggregate purchase price of approximately $19.1 million.
Other Investments -
During March 2001, the Company, through a taxable REIT subsidiary, formed
a joint venture (the "Ward Venture") in which the Company has a 50% interest,
for purposes of acquiring asset designation rights for substantially all of the
real estate property interests of the bankrupt estate of Montgomery Ward LLC and
its affiliates. These asset designation rights have provided the Ward Venture
the ability to direct the ultimate disposition of the 315 fee and leasehold
interests held by the bankrupt estate. The asset designation rights expire in
February 2002 for the leasehold positions and December 2004 for the fee owned
locations. During the marketing period, the Ward Venture will be responsible for
all carrying costs associated with the properties until the site is designated
to a user.
The Ward Venture has completed transactions on 258 properties, and the
Company has recognized net profits of approximately $12.0 million after
provision for income taxes for the nine months ended September 30, 2001. The
pre-tax profits from the Ward Venture are included in the Condensed Consolidated
Statement of Income in equity in income of other real estate joint ventures,
net.
During August 2001 the Company, through a joint venture in which the
Company has a 50% interest, provided $27.5 million of debtor in possession
financing to a national retailer. This loan is secured by the real estate and
leases owned by the national retailer.
17
3. Property Dispositions
During the nine months ended September 30, 2001, the Company disposed of
four operating properties, in separate transactions, including the sale of a
property to KIR, comprising approximately 0.6 million square feet of GLA. Cash
proceeds from three of these dispositions aggregated approximately $43.5
million, which approximated their aggregate net book value. During May 2001, the
Company realized a gain of approximately $3.0 million from the sale of an
operating property in Elyria, OH. Cash proceeds of $5.8 million, together with
an additional $7.1 million cash investment, were used to acquire an exchange
shopping center property in Lakeland, FL during August 2001.
During the nine months ended September 30, 2001, KDI sold one of its
recently completed projects and four out-parcels, in separate transactions, for
approximately $36.9 million, which resulted in net gains of approximately $4.3
million after provision for income taxes.
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. 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 nine months ended September 30, 2001 and 2000 was
approximately $9.1 million and $6.9 million, respectively.
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 nine months ended September 30, 2001 and 2000, the Company
earned management fees of approximately $2.4 million and $1.4 million,
respectively.
During the nine months ended September 30, 2001 the Company contributed
$19.5 million in cash and $2.6 million in property to KIR in connection with its
subscription agreement.
5. Investment in Retail Store Leases
Income from the investment in retail store leases for the nine months
ended September 30, 2001 and 2000 represents sublease revenues of approximately
$12.9 million and $14.3 million, respectively, less related expenses of $9.1
million and $10.2 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.
18
6. Debt Financings
During the nine months ended September 30, 2001, the Company obtained four
individual non-recourse mortgage loans of which three are on Kmart anchored
locations, providing aggregate proceeds to the Company of approximately $51.2
million. These ten-year loans mature in 2011 and have effective interest rates
ranging from 7.31% to 7.64% per annum.
7. Financial Instruments: Derivatives and Hedging
The Company is exposed to the effect of changes in interest rates, foreign
currency exchange rate fluctuations and market value fluctuations of equity
securities. The Company limits these risks by following established risk
management policies and procedures including the use of derivatives.
The principal financial instruments currently used by the Company are
interest rate swaps, foreign currency exchange forward contracts and warrant
contracts. In accordance with the provisions of FASB No. 133, these derivative
instruments were designated and qualified as cash flow hedges. The Company (i)
utilizes interest rate swaps as they are determined to be highly effective in
offsetting the future variable interest cash flows related to the Company's debt
portfolio (ii) employs forward contracts in connection with its Canadian ("CAD")
investments to reduce exposure to fluctuations in foreign currency exchange
rates and (iii) utilizes warrant contracts to reduce exposure to variability in
expected future cash outflows related to the future purchase of equity
securities.
The following table summarizes the notional values and fair values of the
Company's derivative financial instruments as of September 30, 2001:
Notional Fair
Hedge Type Value Rate Maturity Value
---------- ----- ---- -------- -----
Interest Rate Swap - cash $110.0 million 6.615% 8/2/02 ($4.2) million
flow
Foreign Currency Forward - CAD $ 26.3 million 1.561 9/6/02 $0.3 million
cash flow
Warrants - cash flow 2,500,000 CAD $11.02 9/7/06 $1.4 million
shares of common stock
As of September 30, 2001, the derivative instruments were reported at
their fair value as other liabilities of $4.2 million and other assets of $1.7
million. The Company anticipates a reclassification to earnings from OCI of
approximately $3.9 million over the next 12 months.
19
8. 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 operating properties during the
nine months ended September 30, 2001. The pro forma financial information set
forth below is based upon the Company's historical Condensed Consolidated
Statements of Income for the nine months ended September 30, 2001 and 2000,
adjusted to give effect to these transactions as of January 1, 2000.
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, 2000, nor does it
purport to represent the results of future operations. (Amounts presented in
millions, except per share figures).
Nine Months Ended September 30,
2001 2000
---- ----
Revenues from rental property $ 352.0 $ 341.1
Net income $ 172.3 $ 152.1
Net income per common share:
Basic $ 2.39 $ 2.16
======== ========
Diluted $ 2.36 $ 2.13
======== ========
20
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.
21
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
November 8, 2001 /s/ Milton Cooper
- ---------------- ----------------------------------
(Date) Milton Cooper
Chairman of the Board
November 8, 2001 /s/ Michael V. Pappagallo
- ---------------- ----------------------------------
(Date) Michael V. Pappagallo
Chief Financial Officer
22