Exhibit 99.1
Item 6. Selected Financial Data
The following table sets forth selected, historical consolidated financial data
for the Company and should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in this annual report on Form 10-K.
The Company believes that the book value of its real estate assets, which
reflects the historical costs of such real estate assets less accumulated
depreciation, is not indicative of the current market value of its properties.
Historical operating results are not necessarily indicative of future operating
performance.
1
Year ended December 31, (3)
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2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
(in thousands, except per share information)
Operating Data:
Revenues from rental property (1) $ 449,994 $ 448,986 $ 440,428 $ 417,302 $ 329,601
Interest expense $ 86,756 $ 88,443 $ 91,718 $ 83,479 $ 64,285
Depreciation and amortization $ 73,909 $ 71,405 $ 68,758 $ 65,066 $ 50,088
Gain on sale of development properties,
net of tax of $6,034 in 2002
and $5,099 in 2001 $ 9,845 $ 8,319 $ -- $ -- $ --
Gain on disposition of operating properties $ -- $ 3,040 $ 3,962 $ 1,552 $ 901
Provision for income taxes $ 6,870 $ 14,277 $ -- $ -- $ --
Income from continuing operations $ 238,911 $ 214,245 $ 190,270 $ 168,606 $ 119,238
Income per common share, from continuing
operations:
Basic $ 2.20 $ 2.09 $ 1.81 $ 1.57 $ 1.26
Diluted $ 2.19 $ 2.05 $ 1.79 $ 1.55 $ 1.25
Weighted average number of
shares of common stock:
Basic 104,458 96,317 92,688 90,709 75,106
Diluted 105,969 101,163 93,653 91,466 75,961
Cash dividends declared per common share $ 2.10 $ 1.96 $ 1.81 $ 1.64 $ 1.37
December 31,
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2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Balance Sheet Data:
Real estate, before accumulated
depreciation $ 3,398,971 $ 3,201,364 $ 3,114,503 $ 2,951,050 $ 3,023,902
Total assets $ 3,756,878 $ 3,384,779 $ 3,171,348 $ 3,007,476 $ 3,051,178
Total debt $ 1,576,982 $ 1,328,079 $ 1,325,663 $ 1,249,571 $ 1,289,561
Total stockholders' equity $ 1,907,328 $ 1,890,084 $ 1,704,339 $ 1,605,435 $ 1,585,019
Other Data:
Year ended December 31, (3)
-------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Funds from Operations (2):
Net income $ 245,668 $ 236,538 $ 205,025 $ 176,778 $ 122,266
Depreciation and amortization 76,674 74,209 71,129 67,416 51,348
Depreciation and amortization -
real estate joint ventures 17,779 12,718 8,277 5,239 788
(Gain) on disposition of
operating properties (12,778) (3,040) (3,962) (1,552) (901)
(Gain) / loss on early
extinguishment of debt (22,255) -- -- -- 4,900
Adjustment of property
carrying values 33,030 -- -- -- --
Preferred stock dividends (18,437) (24,553) (26,328) (26,478) (24,654)
----------- ----------- ----------- ----------- -----------
Funds from operations $ 319,681 $ 295,872 $ 254,141 $ 221,403 $ 153,747
=========== =========== =========== =========== ===========
Cash flow provided by operations $ 278,931 $ 287,444 $ 250,546 $ 237,153 $ 158,706
Cash flow used for investing activities $ (396,655) $ (157,193) $ (191,626) $ (205,219) $ (630,229)
Cash flow (used for) provided
by financing activities $ 59,839 $ (55,501) $ (67,899) $ (47,778) $ 484,465
(1) Does not include (i) revenues from rental property relating to
unconsolidated joint ventures, (ii) revenues relating to the investment
in retail stores leases and (iii) revenues from properties included in
discontinued operations.
(2) Most industry analysts and equity REITs, including the Company,
generally consider funds from operations ("FFO") to be an appropriate
supplemental measure of the performance of an equity REIT. FFO is
defined as net income applicable to common shares before depreciation
and amortization, extraordinary items, gains or losses on sales of
operating real estate, plus the pro-rata amount of depreciation and
amortization of unconsolidated joint ventures determined on a
consistent basis. Given the nature of the Company's business as a real
estate owner and operator, the Company believes that FFO is helpful to
investors as a measure of its operational performance because it
excludes various items included in net income that do not relate to or
are not indicative of our operating performance such as various
non-recurring items, gains and losses on sales of real estate and real
estate related depreciation and amortization, which can make periodic
and peer analyses of operating performance more difficult to compare.
FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and therefore
should not be considered an alternative for net income as a measure of
liquidity. In addition, the comparability of the Company's FFO with the
FFO reported by other REITs may be affected by the differences that
exist regarding certain accounting policies relating to expenditures
for repairs and other recurring items.
(3) All years have been adjusted to reflect the impact of operating properties
sold during the three months ended March 31, 2003 and the year ended
December 31, 2002 and properties classified as held for sale as of
December 31, 2002 which are reflected in discontinued operations in the
Consolidated Statements of Income.
2
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in this annual report on Form
10-K. Historical results and percentage relationships set forth in the
Consolidated Statements of Income contained in the Consolidated Financial
Statements, including trends which might appear, should not be taken as
indicative of future operations.
Critical Accounting Policies
The Consolidated Financial Statements of the Company include the accounts of the
Company, its wholly-owned subsidiaries and all partnerships in which the Company
has a controlling interest. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying Consolidated Financial
Statements and related notes. In preparing these financial statements,
management has made its best estimates and assumptions that affect the reported
amounts of assets and liabilities. These estimates are based on, but not limited
to, historical results, industry standards and current economic conditions,
giving due consideration to materiality. The most significant assumptions and
estimates relate to revenue recognition and the recoverability of trade accounts
receivable, depreciable lives and valuation of real estate. Application of these
assumptions requires the exercise of judgment as to future uncertainties and, as
a result, actual results could differ from these estimates.
Revenue Recognition and Accounts Receivable
Base rental revenues from rental property are recognized on a straight-line
basis over the terms of the related leases. Certain of these leases also provide
for percentage rents based upon the level of sales achieved by the lessee. These
percentage rents are recorded once the required sales level is achieved. In
addition, leases typically provide for reimbursement to the Company of common
area maintenance, real estate taxes and other operating expenses. Operating
expense reimbursements are recognized as earned. Rental income may also include
payments received in connection with lease termination agreements.
The Company makes estimates of the uncollectability of its accounts receivable
related to base rents, expense reimbursements and other revenues. The Company
analyzes accounts receivable and historical bad debt levels, customer credit
worthiness and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed
and estimates are made in connection with the expected recovery of pre-petition
and post-petition claims. The Company's reported net income is directly affected
by management's estimate of the collectability of accounts receivable.
The Company believes that its revenue recognition policy is in compliance with
generally accepted accounting principles and in accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin No. 101, Revenue
Recognition.
Real Estate
Land, buildings and fixtures and leasehold improvements are recorded at cost,
less accumulated depreciation and amortization. Expenditures for maintenance and
repairs are charged to operations as incurred. Significant renovations and
replacements, which improve and extend the life of the asset, are capitalized.
Depreciation and amortization are provided on the straight-line method over the
estimated useful lives of the assets, as follows:
Buildings 15 to 39 years
Fixtures and leasehold improvements Terms of leases or useful lives,
whichever is shorter
The Company is required to make subjective assessments as to the useful lives of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income.
3
Real estate under development on the Company's Consolidated Balance Sheets
represent ground-up development projects which are held for sale upon
completion. These assets are carried at cost and no depreciation is recorded.
The cost of land and buildings under development include specifically
identifiable costs. The capitalized costs include pre-construction costs
essential to the development of the property, development costs, construction
costs, interest costs, real estate taxes, salaries and related costs and other
costs incurred during the period of development. The Company ceases cost
capitalization when the property is held available for occupancy upon
substantial completion of tenant improvements, but no later than one year from
the completion of major construction activity. If in management's opinion, the
estimated net sales price of these assets is less than the net carrying value,
an adjustment to the carrying value would be recorded to reflect the estimated
fair value of the property. A gain on the sale of these assets is generally
recognized using the full accrual method in accordance with the provisions of
Statement of Financial Accounting Standard No. 66, Accounting for Real Estate
Sales.
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property value is
considered impaired only if management's estimate of current and projected
operating cash flows (undiscounted and without interest charges) of the property
over its remaining useful life is less than the net carrying value of the
property. Such cash flow projections consider factors such as expected future
operating income, trend and prospects, as well as the effects of demand,
competition and other factors. To the extent impairment has occurred, the
carrying value of the property would be adjusted to an amount to reflect the
estimated fair value of the property.
When a real estate asset is identified by management as held for sale the
Company ceases depreciation of the asset and estimates the sales price of such
asset net of selling costs. If, in management's opinion, the net sales price of
the asset is less than the net book value of such asset, an adjustment to the
carrying value would be recorded to reflect the estimated fair value of the
property.
The Company is required to make subjective assessments as to whether there are
impairments in the value of its real estate properties, investments in joint
ventures and other investments. The Company's reported net income is directly
affected by management's estimate of impairments and/or valuation allowances
recognized.
Results of Operations
Comparison 2002 to 2001
Revenues from rental property increased $1.0 million or 0.2% to $450.0 million
for the year ended December 31, 2002, as compared with $449.0 million for the
year ended December 31, 2001. This net increase resulted primarily from the
combined effect of (i) the acquisition of 13 operating properties during 2002,
providing revenues of $5.1 million for the year ended December 31, 2002, (ii)
the full year impact related to the three operating properties acquired in 2001
providing incremental revenues of $2.3 million, and (iii) the completion of
certain development and redevelopment projects, tenant buyouts and new leasing
within the portfolio providing incremental revenues of approximately $20.5
million as compared to the corresponding year ended December 31, 2001, offset by
(iv) an overall decrease in shopping center portfolio occupancy to 87.8% at
December 31, 2002 as compared to 90.4% at December 31, 2001 due primarily to the
bankruptcy filing of Kmart Corporation ("Kmart") and Ames Department Stores,
Inc. ("Ames") and subsequent rejection of leases resulting in a decrease of
revenues of approximately $24.5 million as compared to the preceding year, and
(v) sales of certain shopping center properties throughout 2001 and 2002,
resulting in a decrease of revenues of approximately $2.4 million as compared to
the preceding year.
Rental property expenses, including depreciation and amortization, increased
$10.7 million or 5.8% to $195.9 million for the year ended December 31, 2002 as
compared to $185.2 million for the preceding year. The rental property expense
component of real estate taxes increased approximately $7.0 million or 12.5% for
the year ended December 31, 2002 as compared with the year ended December 31,
2001. This increase relates primarily to the payment of real estate taxes by the
Company on certain Kmart anchored locations where Kmart previously paid the real
estate taxes directly to the taxing authorities. The rental property expense
component of operating and maintenance increased approximately $1.5 million or
3.4% for the year ended December 31, 2002 as compared with the year ended
December 31, 2001. This increase is primarily due to property acquisitions
during 2002 and 2001, renovations within the portfolio and higher professional
fees relating to tenant bankruptcies.
Equity in income of real estate joint ventures, net increased $15.4 million to
$35.6 million for the year ended December 31, 2002, as compared to $20.2 million
for the year ended December 31, 2001. This increase is primarily attributable to
the equity in income from the Kimco Income REIT joint venture investment, the
RioCan joint venture investment, and the KROP joint venture investment as
described below.
4
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. The Company has a 43.3% non-controlling
limited partnership interest in KIR, which the Company manages, and accounts for
its investment in KIR under the equity method of accounting. Equity in income of
KIR increased $3.1 million to $16.3 million for the year ended December 31,
2002, as compared to $13.2 million for the preceding year. This increase is
primarily due to the Company's increased capital investment in KIR totaling
$23.8 million during 2002 and $30.8 million during 2001. 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 2002 and 2001.
During October 2001, the Company formed a joint venture (the "RioCan Venture")
with RioCan Real Estate Investment Trust ("RioCan", Canada's largest publicly
traded REIT measured by gross leasable area ("GLA")), in which the Company has a
50% non-controlling interest, to acquire retail properties and development
projects in Canada. As of December 31, 2002, the RioCan Venture consisted of 28
shopping center properties and four development projects with approximately 6.7
million square feet of GLA. The Company's equity in income from the RioCan
Venture increased approximately $8.7 million to $9.1 million for the year ended
December 31, 2002, as compared to $0.4 million for the preceding year.
During October 2001, the Company formed the Kimco Retail Opportunity Fund
("KROP"), a joint venture with GE Capital Real Estate ("GECRE") which the
Company manages and has a 20% interest. The purpose of this venture is to
acquire established, high-growth potential retail properties in the United
States. As of December 31, 2002, KROP consisted of 15 shopping center properties
with approximately 1.5 million square feet of GLA. During the year ended
December 31, 2002, the Company's equity in income from KROP was approximately
$0.9 million.
Minority interests in income of partnerships, net increased $0.7 million to $2.4
million as compared to $1.7 million for the preceding year. This increase is
primarily due to the acquisition of a shopping center property acquired through
a newly formed partnership by issuing approximately 2.4 million downREIT units
valued at $80 million. The downREIT units are convertible at a ratio of 1:1 into
the Company's common stock and are entitled to a distribution equal to the
dividend rate on the Company's common stock multiplied by 1.1057.
Income from other real estate investments decreased $22.1 million to $16.0
million as compared to $38.1 million for the preceding year. This decrease is
primarily due to the decrease in income from the Montgomery Ward asset
designation rights transactions described below.
During March 2001, the Company, through a taxable REIT subsidiary, formed a real
estate 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, of which 303 transactions have
been completed to date. During the year ended December 31, 2002 the Ward Venture
completed transactions of 32 properties. The pre-tax profits from the Ward
Venture decreased approximately $23.3 million to $11.3 million for the year
ended December 31, 2002 as compared to $34.6 million for the preceding year.
Mortgage financing income increased $17.1 million to $19.4 million for the year
ended December 31, 2002 as compared to $2.3 million for the year ended December
31, 2001. This increase is primarily due to increased interest income earned
related to certain real estate lending activities during the year ended December
31, 2002.
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 year ended
December 31, 2002, KDI sold four projects and eight out-parcels, in separate
transactions, for approximately $128.7 million, including the assignment of
approximately $17.7 million of mortgage debt encumbering one of the properties.
These sales resulted in pre-tax gains of approximately $15.9 million.
During the year ended December 31, 2001, KDI sold two of its recently completed
projects and five out-parcels, in separate transactions, for approximately $61.3
million, which resulted in pre-tax profits of $13.4 million.
5
Management and other fee income increased approximately $6.4 million to $14.2
million for the year ended December 31, 2002 as compared to $7.8 million for the
year ended December 31, 2001. This increase is primarily due to (i) a $1.1
million increase in management fees from KIR resulting from the growth of the
KIR portfolio, (ii) $2.3 million of management and acquisition fees relating to
the KROP joint venture activities during the year ended December 31, 2002 and
(iii) increased property management activity providing incremental fee income of
approximately $3.0 million.
Other income/(loss), net increased approximately $4.7 million to $2.5 million
for the year ended December 31, 2002 as compared to the preceding calendar year.
This increase is primarily due to pre-tax profits earned from the Company's
participation in ventures established to provide inventory liquidation services
to regional retailers in bankruptcy.
Interest expense decreased $1.7 million or 1.9% to $86.7 million for the year
ended December 31, 2002, as compared with $88.4 million for the year ended
December 31, 2001. This decrease is primarily due to reduced interest costs on
the Company's floating-rate revolving credit facilities and remarketed reset
notes which was partially offset by an increase in borrowings during the year
ended December 31, 2002, as compared to the preceding year.
General and administrative expenses increased approximately $3.2 million for the
year ended December 31, 2002, as compared to the preceding calendar year. This
increase is 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.
The Company had previously encumbered seven Kmart sites with individual
non-recourse mortgages aggregating approximately $70.8 million as part of its
strategy to reduce its exposure to Kmart Corporation. As a result of the Kmart
bankruptcy filing in January of 2002 and the subsequent rejection of leases
including leases at these encumbered sites, the Company, during July 2002, had
suspended debt services payments on these loans and was actively negotiating
with the respective lenders. During December 2002, the Company reached agreement
with certain lenders in connection with four of these locations. The Company
paid approximately $24.2 million in full satisfaction of these loans which
aggregated approximately $46.5 million. The Company recognized a gain on early
extinguishment of debt of approximately $22.3 million.
During December 2002, the Company identified two operating properties, comprised
of approximately 0.2 million square feet of GLA, as "Held for Sale" in
accordance with FASB No. 144. The book value of these properties, aggregating
approximately $28.4 million, net of accumulated depreciation of approximately
$2.9 million, exceeded their estimated fair value. The Company's determination
of the fair value of these properties, aggregating approximately $7.9 million,
is based upon executed contracts of sale with third parties less estimated
selling costs. As a result, the Company recorded an adjustment of property
carrying values of $20.5 million. This adjustment is included, along with the
related property operations for the current and comparative years, in the
caption Income/(loss) from discontinued operations on the Company's Consolidated
Statements of Income.
6
As part of the Company's periodic assessment of its real estate properties with
regard to both the extent to which such assets are consistent with the Company's
long-term real estate investment objectives and the performance and prospects of
each asset, the Company determined in the fourth quarter of 2002, that its
investment in four operating properties, comprised of an aggregate 0.4 million
square feet of GLA with an aggregate net book value of approximately $23.8
million, may not be fully recoverable. Based upon management's assessment of
current market conditions and the lack of demand for the properties, the Company
has reduced its potential holding period of these investments. As a result of
the reduction in the anticipated holding period, together with a reassessment of
the projected future operating income of the properties and the effects of
current market conditions, the Company has determined that its investment in
these assets was not fully recoverable and has recorded an adjustment of
property carrying value aggregating approximately $12.5 million.
During 2002, the Company, (i) disposed of, in separate transactions, 12
operating properties for an aggregate sales price of approximately $74.5
million, including the assignment/repayment of approximately $22.6 million of
mortgage debt encumbering three of the properties and, (ii) terminated five
leasehold positions in locations where a tenant in bankruptcy had rejected its
lease. These dispositions resulted in net gains of approximately $12.8 million
for the year ended December 31, 2002. Additionally, during the three month
period ended March 31, 2003, the Company disposed of two operating properties,
in separate transactions, for aggregate proceeds of approximately $5.9 million.
These sales resulted in gains of approximately $3.3 million which were
recognized during the first quarter of 2003. In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets ("FASB No. 144"),
the current and prior comparative years operations of properties sold during
2002 and during the three months ended March 31, 2003 and net gain on
disposition of properties sold during 2002 have been included in the caption
Discontinued operations on the Company's Consolidated Statements of Income.
During 2001, the Company, in separate transactions, disposed of three operating
properties, including the sale of a property to KIR, and a portion of another
operating property comprising in the aggregate approximately 0.6 million square
feet of GLA. Cash proceeds from these dispositions aggregated approximately
$46.7 million, which resulted in a net gain of approximately $3.0 million. Cash
proceeds from the sale of the operating property in Elyria, OH 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.
Net income for the year ended December 31, 2002 was $245.7 million as compared
to $236.5 million for the year ended December 31, 2001, representing an increase
of $9.2 million. This increase reflects the combined effect of increased
contributions from the investments in KIR, KROP, the RioCan Venture and other
financing investments, reduced by lower income resulting from tenant
bankruptcies and subsequent rejection of leases and a decrease in profits from
the Ward Venture.
Comparison 2001 to 2000
Revenues from rental property increased $8.6 million or 1.9% to $449.0 million
for the year ended December 31, 2001, as compared with $440.4 million for the
year ended December 31, 2000. This net increase resulted primarily from the
combined effect of (i) the acquisition of three operating properties during
2001, providing revenues of $1.3 million for the year ended December 31, 2001,
(ii) the full year impact related to the 12 operating properties acquired in
2000 providing incremental revenues of $3.5 million, and (iii) the completion of
certain development and redevelopment projects and new leasing within the
portfolio providing incremental revenues of approximately $11.9 million as
compared to the corresponding year ended December 31, 2000, offset by (iv) the
commencement of new redevelopment projects and tenant buyouts causing a
temporary increase in vacancy, sales of certain shopping center properties
throughout 2001 and 2000 and an overall decrease in shopping center portfolio
occupancy to 90.1% at December 31, 2001 as compared to 92.9% at December 31,
2000 due primarily to bankruptcies of tenants and subsequent rejections of
leases resulting in a decrease of revenues of approximately $8.1 million as
compared to the preceding year.
Rental property expenses, including depreciation and amortization, increased
$9.7 million or 5.5% to $185.2 million for the year ended December 31, 2001 as
compared to $175.5 million for the preceding year. The rental property expense
components of real estate taxes and operating and maintenance increased
approximately $2.2 million and $4.4 million, respectively, for the year ended
December 31, 2001 as compared with the year ended December 31, 2000.
Depreciation and amortization increased $2.6 million for the year ended December
31, 2001 as compared to the preceding year. These increases are primarily due to
property acquisitions during 2001 and 2000, renovations within the existing
portfolio, the completion of certain redevelopment and development projects, and
increased snow removal costs during 2001.
Equity in income of real estate joint ventures, net increased $5.6 million to
$20.2 million for the year ended December 31, 2001 as compared to $14.6 million
for the year ended December 31, 2000. This increase is primarily attributable to
the KIR transaction described below.
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 the formation, the Company
contributed 19 property interests to KIR. On April 28, 1999, KIR sold a
significant interest in the partnership to institutional investors. 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. Equity
in income of KIR increased $3.7 million to $13.2 million for the year ended
December 31, 2001, as compared to $9.5 million for the preceding year. This
increase is primarily due to the Company's increased capital investment in KIR
totaling $30.8 million during 2001 and $29.6 million during 2000. 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 years 2001 and 2000.
7
Income from other real estate investments, increased approximately $30.4 million
to $38.1 million for the year ended December 31, 2001 as compared with $7.7
million for the year ended December 31, 2000. This increase is primarily due to
the Montgomery Ward asset designation rights transaction described below.
During March 2001, the Company, through a taxable REIT subsidiary, formed a real
estate 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 271 properties, and the Company has recognized pre-tax profits
of approximately $34.6 million for the year ended December 31, 2001.
Mortgage financing income increased approximately $0.8 million to $2.3 million
for the year ended December 31, 2001 as compared to $1.5 million for the year
ended December 31, 2000. This increase is primarily due to increased interest
income earned related to certain real estate lending activities during the year
ended December 31, 2001.
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 year ended
December 31, 2001, KDI sold two of its recently completed projects and five
out-parcels, in separate transactions, for approximately $61.3 million, which
resulted in pre-tax profits of $13.4 million.
Interest, dividends and other investment income increased approximately $0.9
million to $17.3 million for the year ended December 31, 2001 as compared to
$16.4 million for the year ended December 31, 2000. Interest, dividends and
other investment income is primarily comprised of interest income, dividend
income and realized gains related to the Company's investments and sales of
certain marketable equity and debt securities.
Interest expense decreased $3.3 million or 3.6% to $88.4 million for the year
ended December 31, 2001, as compared with $91.7 million for the year ended
December 31, 2000. This decrease is primarily due to reduced interest costs on
the Company's floating-rate revolving credit facility and remarketed reset notes
during the year ended December 31, 2001, as compared to the preceding year.
General and administrative expenses increased approximately $3.2 million for the
year ended December 31, 2001, as compared to the preceding calendar year. This
increase is 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 2001, the Company, in separate transactions, disposed of three operating
properties, including the sale of a property to KIR, and a portion of another
operating property comprising in the aggregate approximately 0.6 million square
feet of GLA. Cash proceeds from these dispositions aggregated approximately
$46.7 million, which resulted in a net gain of approximately $3.0 million. Cash
proceeds from the sale of the operating property in Elyria, OH totaling $5.8
million, together with an additional $7.1 million cash investment, was used to
acquire an exchange shopping center property located in Lakeland, FL during
August 2001.
During 2000, the Company, in separate transactions, disposed of ten shopping
center properties. Sale prices from two of these dispositions aggregated
approximately $4.5 million, which approximated their aggregate net book value.
Sale prices from eight of these dispositions aggregated approximately $29.7
million, which resulted in net gains of approximately $4.0 million.
Net income for the year ended December 31, 2001 was $236.5 million as compared
to $205.0 million for the year ended December 31, 2000, representing an increase
of $31.5 million. 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.
8
Tenant Concentrations
The Company seeks to reduce its operating and leasing risks through
diversification achieved by the geographic distribution of its properties,
avoiding dependence on any single property, and a large tenant base. At December
31, 2002, the Company's five largest tenants, were Kmart Corporation, The Home
Depot, Kohl's, TJX Companies, and Wal-Mart, which represented approximately
4.5%, 2.8%, 2.7%, 2.5% and 1.9%, respectively, of the Company's annualized base
rental revenues, including the proportionate share of base rental revenues from
properties in which the Company has less than a 100% economic interest.
On January 22, 2002, Kmart filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. As of the filing date, Kmart occupied 69 locations (excluding
the KIR portfolio which includes six Kmart locations), representing 12.6% of the
Company's annualized base rental revenues and 13.3% of the Company's total
shopping center GLA. During 2002, Kmart rejected its leases at 31 locations,
representing approximately $30.8 million of annualized base rental revenues and
approximately 3.2 million square feet of GLA. As of December 31, 2002, Kmart
represented 4.5% of annualized base rents and 6.9% of leased GLA.
During December 2002, the Company disposed of, in separate transactions, seven
former Kmart sites, comprised of approximately 0.7 million square feet of GLA,
for an aggregate sales price of approximately $40.8 million.
The Company has currently leased or is under agreement to lease 11 of the
rejected locations, has terminated four ground lease locations and has received
offers to purchase three of these sites. The Company is reviewing the offers
received and is actively marketing the remaining six locations to prospective
tenants, however, no assurances can be provided that these locations will be
leased in the near term or at comparable rents previously paid by Kmart.
The Company previously encumbered seven of these rejected locations with
individual non-recourse mortgage loans totaling approximately $70.8 million.
Annualized interest expense on these loans was approximately $5.6 million.
During July 2002, the Company suspended debt service payments on these loans and
was actively negotiating with the respective lenders. During December 2002, the
Company reached agreements with certain lenders in connection with four of these
locations. The Company paid approximately $24.2 million in full satisfaction of
these loans aggregating approximately $46.5 million and the Company recognized a
gain on early extinguishment of debt of approximately $22.3 million. Also,
during December 2002, the Company re-tenanted one of these sites and has brought
the mortgage loan encumbering this property current.
During February 2003, the Company reached agreement with the lender in
connection with the remaining two encumbered sites. The Company paid
approximately $8.3 million in full satisfaction of these loans which aggregated
approximately $14.7 million and the Company will recognize a gain on early
extinguishment of debt of approximately $6.2 million during the first quarter of
2003.
On January 14, 2003, Kmart announced it would be closing an additional 326
locations of which nine of these locations (excluding the KIR portfolio which
includes three additional locations and Kimsouth which includes two additional
locations) are leased from the Company. The annualized base rental revenues from
these nine locations are approximately $4.3 million. The Company had previously
encumbered one of these properties with an individual non-recourse mortgage
loan. The annualized interest expense for the one encumbered property is
approximately $0.8 million. As of the date of this filing of this annual report
on Form 10-K, the Company has not been notified directly by Kmart as to the
timing of the store closings or whether the leases will be assigned or rejected.
Until such time as the leases are rejected, in accordance with the bankruptcy
proceedings, Kmart remains obligated for payments of rent and operating expenses
at these locations and all other remaining locations.
Effective May 1, 2003, the Company has agreed to a five-year rent reduction at
six Kmart locations, representing approximately 0.6 million square feet of GLA.
The average rent was reduced from $8.01 per square foot to $5.57 per square
foot, or approximately $1.5 million of annualized base rent.
The Company generally will have the right to file claims in connection with
these rejected leases for lost rent equal to three years of rental obligations
as well as other amounts related to obligations under the leases. Actual amounts
to be received in satisfaction of these claims will be subject to Kmart's final
plan of reorganization and the availability of funds to pay creditors such as
the Company.
9
Liquidity and Capital Resources
It is management's intention that the Company continually have access to the
capital resources necessary to expand and develop its business. As such, the
Company intends to operate with and maintain a conservative capital structure
with a level of debt to total market capitalization of 50% or less. As of
December 31, 2002 the Company's level of debt to total market capitalization was
31%. In addition, the Company intends to maintain strong debt service coverage
and fixed charge coverage ratios as part of its commitment to maintaining its
investment-grade debt ratings. The Company may, from time to time, seek to
obtain funds through additional equity offerings, unsecured debt financings
and/or mortgage financings and other debt and equity alternatives in a manner
consistent with its intention to operate with a conservative debt structure.
Since the completion of the Company's IPO in 1991, the Company has utilized the
public debt and equity markets as its principal source of capital for its
expansion needs. Since the IPO, the Company has completed additional offerings
of its public unsecured debt and equity, raising in the aggregate over $2.7
billion for the purposes of, among other things, repaying indebtedness,
acquiring interests in neighborhood and community shopping centers, funding
ground-up development projects, expanding and improving properties in the
portfolio and other investments.
The Company has a $250.0 million, unsecured revolving credit facility, which is
scheduled to expire in August 2003. This credit facility has made available
funds to both finance the purchase of properties and meet any short-term working
capital requirements. As of December 31, 2002 there was $40.0 million
outstanding under this credit facility. The Company intends to renew this
facility prior to the maturity date.
During July 2002, the Company further enhanced its liquidity position by
establishing an additional $150.0 million unsecured revolving credit facility.
During December 2002, the Company paid down the outstanding balance and
terminated this facility.
The Company also has a $200.0 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. (See Note 10 of the Notes to
Consolidated Financial Statements included in this annual report on Form 10-K.)
As of December 31, 2002, the Company had $98.0 million available for issuance
under the MTN program.
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 December 31, 2002, the Company had over 380 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 December 31, 2002, the Company had
$288.7 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, debt reduction, the acquisition of interests
in new properties and other investments as suitable opportunities arise, and
such other factors as the Board of Directors considers appropriate.
Cash dividends paid increased to $235.6 million in 2002, compared to $209.8
million in 2001 and $189.9 million in 2000. The Company's dividend payout ratio,
based on funds from operations on a per-basic common share basis, for 2002, 2001
and 2000 was approximately 68.0%, 62.5% and 64.6%, respectively.
Although the Company receives substantially all of its rental payments on a
monthly basis, it generally intends to continue paying dividends quarterly.
Amounts accumulated in advance of each quarterly distribution will be invested
by the Company in short-term money market or other suitable instruments.
The Company anticipates its capital commitment toward redevelopment projects
during 2003 will be approximately $30.0 million to $50.0 million. Additionally,
the Company anticipates its capital commitment toward ground-up development
during 2003 will be approximately $160.0 million to $200.0 million. The proceeds
from the sales of development properties and proceeds from construction loans in
2003 should be sufficient to fund the ground-up development capital
requirements.
10
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 all dividend payments in accordance with REIT
requirements in both the short-term and long-term. In addition, the Company
anticipates that cash on hand, borrowings under its revolving credit facilities,
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 as reported in the Consolidated Statements of Cash Flows
was $278.9 million for 2002, $287.4 million for 2001 and $250.5 million for
2000.
Contractual Obligations and Other Commitments
The Company has debt obligations relating to its revolving credit facility,
MTNs, senior notes, mortgages and construction loans with maturities ranging
from one to 22 years. As of December 31, 2002, the Company's total debt had a
weighted average term to maturity of approximately five years. In addition, the
Company has non-cancelable operating leases pertaining to its shopping center
portfolio. As of December 31, 2002, the Company has certain shopping center
properties that are subject to long-term ground leases where a third party owns
and has leased the underlying land to the Company to construct and/or operate a
shopping center. In addition, the Company has non-cancelable operating leases
pertaining to its retail store lease portfolio. The following table summarizes
the Company's debt maturities and obligations under non-cancelable operating
leases as of December 31, 2002 (in millions):
2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Long-Term Debt $ 147.3 $ 223.9 $ 221.3 $ 118.8 $ 206.1 $ 659.6 $1,577.0
Operating Leases
Ground Leases $ 10.9 $ 10.8 $ 10.1 $ 9.5 $ 9.0 $ 125.1 $ 175.4
Retail Store Leases $ 9.5 $ 8.5 $ 7.3 $ 5.8 $ 3.9 $ 4.2 $ 39.2
The Company has $100.0 million of unsecured senior notes and $7.3 million of
construction loans maturing in 2003. In addition, the Company's unsecured
revolving credit facility, which is scheduled to mature in August 2003, had
$40.0 million outstanding as of December 2002. The Company anticipates
satisfying these maturities with a combination of operating cash flows, its
unsecured revolving credit facility and new debt financings. The Company intends
to renew its unsecured revolving credit facility prior to the maturity date.
The Company has issued letters of credit in connection with the
collateralization of tax-exempt mortgage bonds, completion guarantees for
certain construction projects, and guaranty of payment related to the Company's
insurance program. These letters of credit aggregate approximately $14.9
million.
Additionally, the RioCan Venture, an entity in which the Company holds a 50%
non-controlling interest, has a CAD $5.0 million (approximately USD $3.2
million) letter of credit facility. This facility is jointly guaranteed by
RioCan and the Company and has approximately CAD $1.0 million (approximately USD
$0.6 million) outstanding as of December 31, 2002 relating to various
development projects.
During 2002, the Company obtained construction financing on eight ground-up
development properties for an aggregate loan amount of up to $119.8 million. As
of December 31, 2002, approximately $38.9 million was outstanding.
Unconsolidated Real Estate Joint Ventures
The Company has investments in a number of unconsolidated real estate joint
ventures with varying structures. These investments include the Company's 43.3%
non-controlling interest in KIR, the Company's 50% non-controlling interest in
the RioCan Venture, the Company's 20% non-controlling interest in KROP, and
varying interests in other real estate joint ventures. These joint ventures
operate either shopping center properties or are established for development
projects. Such arrangements are generally with third party institutional
investors, local developers and individuals. The properties owned by the joint
ventures are primarily financed with individual non-recourse mortgage loans.
Non-recourse mortgage debt is generally defined as debt whereby the lenders'
sole recourse with respect to borrower defaults is limited to the value of the
property collateralized by the mortgage. The lender generally does not have
recourse against any other assets owned by the borrower or any of the
constituent members of the borrower, except for certain specified exceptions
listed in the particular loan documents.
11
The KIR joint venture was established for the purpose of investing in high
quality real estate properties financed primarily with individual non-recourse
mortgages. The Company believes that these properties are appropriate for
financing with greater leverage than the Company traditionally uses. As of
December 31, 2002, KIR had interests in 68 properties comprising 14.0 million
square feet of GLA. As of December 31, 2002, KIR had obtained individual
non-recourse mortgage loans on 67 of these properties aggregating approximately
$1,103.7 million. These non-recourse mortgage loans have maturities ranging from
one to 16 years and rates ranging from 5.95% to 8.52%. In addition, KIR
maintains a secured revolving credit facility with a syndicate of banks, which
is scheduled to expire in November 2003. This facility is collateralized by the
unfunded subscriptions of certain partners, including those of the Company. The
facility has an aggregate availability of up to $100.0 million based upon the
amount of unfunded subscription commitments of certain partners. During January
2003, the aggregate availability under the credit facility was reduced to $90.0
million. Under the terms of the facility, funds may be borrowed for general
corporate purposes including the acquisition of institutional quality
properties. Borrowings under the facility accrue interest at Libor plus 0.80%.
As of December 31, 2002, there was $15.0 million outstanding under this
facility. As of December 31, 2002, the Company's pro-rata share of non-recourse
mortgages and other debt obligations relating to the KIR joint venture was
approximately $484.4 million. The Company also has unfunded capital commitments
to KIR in the amount of approximately $55.9 million as of December 31, 2002.
(See Note 6 of the Notes to Consolidated Financial Statements included in this
annual report on Form 10-K.)
The RioCan Venture was established with RioCan Real Estate Investment Trust to
acquire properties and development projects in Canada. As of December 31, 2002,
the RioCan Venture consisted of 28 shopping center properties and four
development projects with approximately 6.7 million square feet of GLA. As of
December 31, 2002, the RioCan Venture had obtained individual, non-recourse
mortgage loans on 26 of these properties aggregating approximately CAD $519.1
million (USD $329.3 million). These non-recourse mortgage loans have maturities
ranging from one to 12 years and rates ranging from 5.82% to 10.31%. As of
December 31, 2002 the Company's pro-rata share of non-recourse mortgage loans
relating to the RioCan Venture was approximately CAD $259.6 million (USD $164.6
million). (See Note 6 of the Notes to Consolidated Financial Statements included
in this annual report on Form 10-K.)
The Kimco Retail Opportunity Fund ("KROP"), a joint venture with GE Capital Real
Estate ("GECRE") was established to acquire high-growth potential retail
properties in the United States. As of December 31, 2002, KROP consisted of 15
shopping center properties with approximately 1.5 million square feet of GLA.
During 2002, KROP obtained a cross-collateralized mortgage with a 5-year term
aggregating $73.0 million on eight properties with an interest rate of LIBOR
plus 1.8%. During 2002, $1.9 million of this mortgage was repaid upon the sale
of one of the collateralized properties. The interest on this mortgage is
payable in monthly installments with principal due in full upon maturity.
Additionally, KROP assumed mortgage debt of approximately $29.5 million in
connection with the acquisition of three shopping centers, with fixed interest
rates ranging from 7.38% to 8.64%. Such mortgage debt is collateralized by the
individual shopping center property and is payable in monthly installments of
principal and interest. At December 31, 2002 the weighted average interest rate
for all mortgage debt outstanding was 4.65% per annum. As of December 31, 2002,
the Company's pro-rata share of non-recourse mortgage loans relating to the KROP
joint venture was approximately $20.0 million. Additionally, the Company along
with its joint venture partner have provided interim financing ("Short-term
Notes") for all acquisitions without a mortgage in place at the time of closing.
As of December 31, 2002 KROP has outstanding Short-term Notes of $17.3 million
due each the Company and GECRE. These short-term notes all have maturities of
less than one year with rates ranging from Libor plus 4.0% to 4.25%. (See Note 6
of the Notes to Consolidated Financial Statements included in this annual report
on Form 10-K.)
The Company has various other unconsolidated real estate joint ventures with
ownership interests ranging from 4% to 50%. As of December 31, 2002, these
unconsolidated joint ventures had individual non-recourse mortgage loans
aggregating approximately $187.9 million. The Company's pro-rata share of these
non-recourse mortgages was approximately $78.9 million. (See Note 6 of the Notes
to Consolidated Financial Statements included in this annual report on Form
10-K.)
12
Other Real Estate Investments
During November 2002, the Company, through its taxable REIT subsidiary, together
with Prometheus Southeast Retail Trust, completed the merger and privatization
of Konover Property Trust, which has been renamed Kimsouth Realty, Inc.,
("Kimsouth"). The Company acquired 44.5% of the common stock of Kimsouth, which
consisted primarily of 38 retail shopping center properties comprising
approximately 17.4 million square feet of GLA. Total acquisition value was
approximately $280.9 million including approximately $216.2 million in mortgage
debt. On December 23, 2002, Kimsouth obtained a cross-collateralized three-year
mortgage, aggregating $21.3 million at a variable rate of Libor plus 3.0% which
replaced (i) a secured line of credit for $8.0 million and (ii) a construction
loan for $17.6 million. All mortgages, which are collateralized by the
individual shopping center properties, are due in monthly installments. The
scheduled maturities of all mortgages payable as of December 31, 2002, are
approximately as follows (in millions): 2003: $74.7; 2004: $2.9; 2005: $30.3;
2006: $3.2; 2007: $45.3 and thereafter, $28.6. At December 31, 2002, the
weighted average interest rate for all mortgage debt outstanding was 7.47% per
annum.
During June 2002, the Company acquired a 90% equity participation interest in an
existing leveraged lease of 30 properties. The properties are leased under a
long-term bond-type net lease whose primary term expires in 2016, with the
lessee having certain renewal option rights. The Company's cash equity
investment was approximately $4.0 million. This equity investment is reported as
a net investment in leveraged lease in accordance with SFAS No. 13 (as amended).
The net investment in leveraged lease reflects the original cash investment
adjusted by remaining net rentals, estimated unguaranteed residual value,
unearned and deferred income, and deferred taxes relating to the investment.
As of December 31, 2002, four of these properties were sold whereby the proceeds
from the sales were used to paydown the mortgage debt by approximately $9.6
million. As of December 31, 2002, the remaining 26 properties were encumbered by
third-party non-recourse debt of approximately $86.0 million that is scheduled
to fully amortize during the primary term of the lease from a portion of the
periodic net rents receivable under the net lease. As an equity participant in
the leveraged lease, the Company has no general obligation for principal or
interest payments on the debt, which is collateralized by a first mortgage lien
on the properties and collateral assignment of the lease. Accordingly, this debt
has been offset against the related net rental receivable under the lease.
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 foreign currency exchange rates
and will, from time to time, enter into interest rate protection agreements
and/or foreign currency hedge agreements which mitigate, but do not eliminate,
the effect of changes in interest rates on its floating-rate debt and
fluctuations in foreign currency exchange rates.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("FASB No. 144"), which supercedes SFAS No. 121.
FASB No. 144 requires that long-lived assets that are to be disposed of by sale
be measured at the lower of book value or fair value less cost to sell. FASB No.
144 retains the requirements of SFAS No. 121 regarding impairment loss
recognition and measurement. In addition, it requires that one accounting model
be used for long-lived assets to be disposed of by sale and broadens the
presentation of discontinued operations to include more disposal transactions.
FASB No. 144 is effective for fiscal years beginning after December 15, 2001.
Effective January 1, 2002, the Company adopted FASB No. 144. The impact of
adoption of FASB No. 144 did not have a material adverse impact on the Company's
financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44, and
64, Amendment of FASB No. 13 and Technical Corrections ("FASB No. 145"). This
statement eliminates the requirement to report gains and losses from
extinguishment of debt as extraordinary unless they meet the criteria of APB
Opinion 30. Debt extinguishments that were classified as extraordinary in prior
periods presented that do not meet the criteria of APB Opinion 30 shall be
reclassified. FASB No. 145 is effective for fiscal years beginning after May 15,
2002. During 2002, the Company elected early adoption of the provisions of FASB
No. 145. The impact of adopting this statement did not have a material adverse
impact on the Company's financial position or results of operations.
13
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("FASB 146"). This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). For purpose of
this statement, an exit or disposal activity is initiated when management,
having the authority to approve the action, commits to an exit or disposal plan
or otherwise disposes of a long-lived asset (disposal group) and, if the
activity involves the termination of employees, the criteria for a plan of
termination of this statement are met. The provisions of this statement shall be
effective for exit or disposal activities initiated after December 31, 2002. The
impact of the adoption of FASB No. 146 is not expected to have a material
adverse impact on the Company's financial position or results of operations.
In November 2002, FASB issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (an interpretation of FASB Statements No.
5, 57 and 107 and rescission of FASB Interpretation No. 34). FIN 45 clarifies
the requirements of FASB Statement No. 5, Accounting for Contingencies. It
requires that upon issuance of a guarantee, the guarantor must recognize a
liability for the fair value of the obligation it assumes under that guarantee
regardless of whether or not the guarantor receives separate identifiable
consideration (i.e., a premium). The Company has adopted the new disclosure
requirements, which are effective beginning with 2002 calendar year-end
financials. FIN 45's provisions for initial recognition and measurement are
effective on a prospective basis to guarantees issued or modified after December
31, 2002. The adoption of FIN 45 is not expected to have a material adverse
impact on the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure an amendment of FASB Statement No. 123
("FASB No. 148"). This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
transition and annual disclosure provision of FASB No. 148 shall be applied for
fiscal years ending after December 15, 2002. The new interim disclosure
provisions are effective for the first interim period beginning after December
15, 2002. Effective January 1, 2003, the Company will adopt the prospective
method provisions of FASB No. 148, which will apply the recognition provisions
of FASB No. 123 to all employee awards granted, modified or settled after
January 1, 2003. The adoption is not expected to have a material adverse impact
on the Company's results of operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). This new model applies when either (i) the equity
investors (if any) do not have a controlling financial interest or (ii) the
equity investment at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46 requires additional
disclosures. The Company is assessing the impact of this interpretation on its
accounting for its investments in unconsolidated joint ventures (see Note 6 of
the Notes to Consolidated Financial Statements included in this annual report on
Form 10-K).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 2002, the Company had approximately $280.0 million of
floating-rate debt outstanding including $40.0 million on its unsecured
revolving credit facility. The interest rate risk on $185.0 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-party 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 $95.0 million of floating-rate debt is not material
to the Company or its overall capitalization.
14
As of December 31, 2002, the Company has Canadian investments totaling CAD
$204.5 million (approximately USD $130.2 million) comprised of marketable
securities and a real estate joint venture. In addition, the Company has Mexican
real estate investments of MXN $383.7 million (approximately USD $35.7 million).
The foreign currency exchange risk has been mitigated through the use of foreign
currency forward contracts (the "Forward Contracts") and a cross currency swap
(the "CC Swap") with major financial institutions. The Company is exposed to
credit risk in the event of non-performance by the counter-party to the Forward
Contracts and the CC Swap. The Company believes it mitigates its credit risk by
entering into the Forward Contracts and the CC Swap with major financial
institutions.
The Company has not, and does not plan to, enter into any derivative financial
instruments for trading or speculative purposes. As of December 31, 2002, the
Company had no other material exposure to market risk.
15
ITEM 15(a) 1 FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Kimco Realty Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of Kimco Realty Corporation and Subsidiaries (collectively, the "Company")
at December 31, 2002 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2002,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United States
of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatment. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which requires that the results of operations, including any
gain or loss on sale, relating to real estate that has been disposed of or is
classified as held for sale after initial adoption be reported in discontinued
operations for all periods presented.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 18, 2003, except as to Note 5,
which is dated as of May 6, 2003
16
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
December 31, December 31,
2002 2001
----------- -----------
Assets:
Real Estate
Rental property
Land $ 518,268 $ 540,927
Building and improvements 2,666,626 2,454,559
----------- -----------
3,184,894 2,995,486
Less, accumulated depreciation and amortization 516,558 452,878
----------- -----------
2,668,336 2,542,608
Real estate under development 212,765 204,530
Undeveloped land parcels 1,312 1,348
----------- -----------
Real estate, net 2,882,413 2,748,486
Investment and advances in real estate joint ventures 412,672 272,920
Other real estate investments 99,542 7,613
Mortgages and other financing receivables 94,024 53,611
Cash and cash equivalents 35,962 93,847
Marketable securities 66,992 82,997
Accounts and notes receivable 55,012 48,074
Deferred charges and prepaid expenses 50,149 38,031
Other assets 60,112 39,200
----------- -----------
$ 3,756,878 $ 3,384,779
=========== ===========
Liabilities & Stockholders' Equity:
Notes payable $ 1,302,250 $ 1,035,250
Mortgages payable 230,760 286,929
Construction loans payable 43,972 5,900
Accounts payable and accrued expenses 94,784 68,323
Dividends payable 59,646 57,345
Other liabilities 24,198 32,573
----------- -----------
1,755,610 1,486,320
----------- -----------
Minority interests in partnerships 93,940 8,375
----------- -----------
Commitments and contingencies
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 0 and 92,390 shares, respectively -- 92
Aggregate liquidation preference $0 and $23,098, respectively
Common stock, $.01 par value, authorized 200,000,000 shares
Issued and outstanding 104,601,828 and 103,352,570 shares, respectively 1,046 1,034
Paid-in capital 1,984,820 1,976,442
Cumulative distributions in excess of net income (85,367) (93,131)
----------- -----------
1,901,399 1,885,337
Accumulated other comprehensive income 7,401 7,310
Notes receivable from officer stockholders (1,472) (2,563)
----------- -----------
1,907,328 1,890,084
----------- -----------
$ 3,756,878 $ 3,384,779
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
17
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended December 31,
-----------------------------------------
2002 2001 2000
--------- --------- ---------
Real estate operations:
Revenues from rental property $ 449,994 $ 448,986 $ 440,428
--------- --------- ---------
Rental property expenses:
Rent 12,230 12,498 12,056
Real estate taxes 62,778 55,815 53,590
Operating and maintenance 47,024 45,495 41,098
--------- --------- ---------
122,032 113,808 106,744
--------- --------- ---------
327,962 335,178 333,684
Equity in income of real estate joint ventures, net 35,569 20,217 14,570
Minority interests in income of partnerships, net (2,430) (1,682) (2,054)
Income from other real estate investments 16,038 38,113 7,710
Mortgage financing income 19,424 2,318 1,557
Management and other fee income 14,193 7,797 6,131
Depreciation and amortization (73,909) (71,405) (68,758)
--------- --------- ---------
Income from real estate operations 336,847 330,536 292,840
--------- --------- ---------
Other investments:
Interest, dividends and other investment income 18,557 17,286 16,432
Other income/(loss), net 2,532 (2,184) (1,803)
--------- --------- ---------
21,089 15,102 14,629
--------- --------- ---------
Interest expense (86,756) (88,443) (91,718)
General and administrative expenses (31,902) (28,673) (25,481)
Gain on early extinguishment of debt 19,033 -- --
Adjustment of property carrying values (12,530) -- --
--------- --------- ---------
Income from continuing operations
before income taxes 245,781 228,522 190,270
Provision for income taxes (6,870) (14,277) --
--------- --------- ---------
Income from continuing operations 238,911 214,245 190,270
--------- --------- ---------
Discontinued operations:
Income/(loss) from discontinued operating properties
(including adjustment of property carrying values
of ($20,500) in 2002 and gain on early extinguishment
of debt of $3,222 in 2002) (15,866) 10,934 10,793
Gain on disposition of operating properties, net 12,778 -- --
--------- --------- ---------
Income/(loss) from discontinued operations (3,088) 10,934 10,793
--------- --------- ---------
Gain on sale of development properties, net of tax of
$6,034 in 2002 and $5,099 in 2001 9,845 8,319 --
Gain on disposition of operating properties, net -- 3,040 3,962
--------- --------- ---------
Net income 245,668 236,538 205,025
Preferred stock dividends (18,437) (24,553) (26,328)
--------- --------- ---------
Net income available to common shareholders $ 227,231 $ 211,985 $ 178,697
========= ========= =========
Per common share:
Income from continuing operations
- Basic $ 2.20 $ 2.09 $ 1.81
========= ========= =========
- Diluted $ 2.19 $ 2.05 $ 1.79
========= ========= =========
Net Income
- Basic $ 2.18 $ 2.20 $ 1.93
========= ========= =========
- Diluted $ 2.16 $ 2.16 $ 1.91
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
18
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year ended December 31,
-----------------------------------------
2002 2001 2000
--------- --------- ---------
Net income $ 245,668 $ 236,538 $ 205,025
--------- --------- ---------
Other comprehensive income:
Change in unrealized gain/(loss) on marketable securities (4,456) 8,784 --
Change in unrealized gain/(loss) on interest rate swaps 3,264 (3,884) --
Change in unrealized gain on warrants 1,524 2,410 --
Change in unrealized gain on foreign currency
hedge agreements 195 -- --
Foreign currency translation adjustment (436) -- --
--------- --------- ---------
Other comprehensive income 91 7,310 --
--------- --------- ---------
Comprehensive income $ 245,759 $ 243,848 $ 205,025
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands, except per share information)
Cumulative
Preferred Stock Common Stock Distributions
------------------------ ------------------- Paid-in in Excess
Issued Amount Issued Amount Capital of Net Income
--------------------------------------------------------------------------
Balance, December 31, 1999 1,329 $ 1,329 91,194 $ 913 $ 1,729,973 $ (122,959)
Net income 205,025
Dividends ($1.81 per common
share; $1.9375, $2.125,
$2.0938, and $1.875 per
Class A, Class B, Class
C, and Class D Depositary
Share, respectively) (195,176)
Issuance of common stock 3,234 31 86,718
Exercise of common stock options 289 3 4,933
Repurchase of Class D Preferred Stock (11) (11) (2,494)
Collection of notes receivable
-------- -------- -------- --------- ---------- ----------
Balance, December 31, 2000 1,318 1,318 94,717 947 1,819,130 (113,110)
Net income 236,538
Dividends ($1.96 per common share;
$1.9375, $2.125, $2.0938, and $1.8409
per Class A, Class B, Class C, and
Class D Depositary Share, respectively) (216,559)
Issuance of common stock 3,906 40 122,103
Exercise of common stock options 1,694 17 34,919
Collection of notes receivable
Conversion of Class D Preferred
Stock to common stock (326) (326) 3,036 30 290
Accumulated other comprehensive income
-------- -------------- -------- --------- ----------- ----------
Balance, December 31, 2001 992 992 103,353 1,034 1,976,442 (93,131)
Net income 245,668
Dividends ($2.10 per common share;
$1.9375, $2.125, $2.0938, and $1.8409
per Class A, Class B, and Class C
Depositary Share, respectively) (237,904)
Issuance of common stock 80 1 2,523
Exercise of common stock options 308 3 5,771
Collection of notes receivable
Conversion of Class D Preferred
Stock to common stock (92) (92) 861 8 84
Accumulated other comprehensive income
-------- ------------ --------- --------- ----------- ----------
Balance, December 31, 2002 900 $ 900 104,602 $ 1,046 $ 1,984,820 $ (85,367)
======== ============ ========= ========= =========== ==========
Notes
Accumulated Receivable Total
Other Comprehensive from Officer Stockholders'
Income Stockholders Equity
----------------------------------------------------------------------
Balance, December 31, 1999 $ - $ (3,821) $ 1,605,435
Net income 205,025
Dividends ($1.81 per common
share; $1.9375, $2.125,
$2.0938, and $1.875 per
Class A, Class B, Class
C, and Class D Depositary
Share, respectively) (195,176)
Issuance of common stock 86,749
Exercise of common stock options (387) 4,549
Repurchase of Class D Preferred Stock (2,505)
Collection of notes receivable 262 262
------- -------- ---------
Balance, December 31, 2000 - (3,946) 1,704,339
Net income 236,538
Dividends ($1.96 per common share;
$1.9375, $2.125, $2.0938, and $1.8409
per Class A, Class B, Class C, and
Class D Depositary Share, respectively) (216,559)
Issuance of common stock 122,143
Exercise of common stock options (850) 34,086
Collection of notes receivable 2,233 2,233
Conversion of Class D Preferred
Stock to common stock (6)
Accumulated other comprehensive income 7,310 7,310
------- -------- ---------
Balance, December 31, 2001 7,310 (2,563) 1,890,084
Net income 245,668
Dividends ($2.10 per common share;
$1.9375, $2.125, $2.0938, and $1.8409
per Class A, Class B, and Class C
Depositary Share, respectively) (237,904)
Issuance of common stock 2,524
Exercise of common stock options (555) 5,219
Collection of notes receivable 1,646 1,646
Conversion of Class D Preferred
Stock to common stock -
Accumulated other comprehensive income 91 91
------- -------- ----------
Balance, December 31, 2002 $ 7,401 $(1,472) $1,907,328
======= ======== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
19
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
---------------------------------
2002 2001 2000
--------- --------- ---------
Cash flow from operating activities:
Net income $ 245,668 $ 236,538 $ 205,025
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 76,674 74,209 71,129
Adjustment of property carrying values 33,031 -- --
Gain on sale of development properties (15,879) (13,418) --
Gain on sale of operating properties (12,778) (3,040) (3,962)
Gain on early extinguishment of debt (22,255) -- --
Minority interests in income of partnerships, net 2,430 1,682 2,054
Equity in income of real estate joint ventures, net (35,569) (20,217) (14,570)
Income from other real estate investments (13,222) (33,518) (2,298)
Change in accounts and notes receivable (6,938) (1,956) (12,806)
Change in accounts payable and accrued expenses 12,612 3,607 (1,176)
Change in other operating assets and liabilities 15,157 43,557 7,150
--------- --------- ---------
Net cash flow provided by operating activities 278,931 287,444 250,546
--------- --------- ---------
Cash flow from investing activities:
Acquisition of and improvements to operating real estate (240,528) (63,403) (158,515)
Acquisition of and improvements to real estate under development (113,450) (107,364) --
Investment in marketable securities (39,183) (29,070) (45,616)
Proceeds from sale of marketable securities 49,396 36,427 16,055
Redemption of minority interests in real estate partnerships -- (7,133) --
Investments in joint ventures (11,419) (1,382) --
Reimbursements of investments in joint ventures 12,800 -- --
Investments and advances to real estate joint ventures (161,649) (88,532) (30,066)
Reimbursements of advances to real estate joint ventures 16,665 24,824 2,400
Other real estate investments (69,288) -- --
Reimbursements of advances to other real estate investments 1,179 -- --
Investments and advances to affiliated companies -- (100) (6,866)
Investment in mortgage loans receivable (123,242) (36,099) --
Collection of mortgage loans receivable 89,053 5,952 2,967
Collection of note receivable 400 -- --
Investment in and advances received from designation rights 263 -- --
Proceeds from sale of operating properties 84,139 46,766 28,015
Proceeds from sale of development properties 108,209 61,921 --
--------- --------- ---------
Net cash flow used for investing activities (396,655) (157,193) (191,626)
--------- --------- ---------
Cash flow from financing activities:
Principal payments on debt, excluding
normal amortization of rental property debt (30,689) (4,587) (17,024)
Principal payments on construction loan financings (801) -- --
Principal payments on rental property debt (5,931) (5,126) (4,510)
Repayment of medium-term note (110,000) -- (60,000)
Proceeds from issuance of medium-term notes 102,000 -- 210,000
Repayment of senior notes -- -- (100,000)
Proceeds from issuance of senior notes 235,000 -- --
Repayment of borrowings under senior term loan -- -- (52,000)
Borrowings under revolving credit facilities 269,000 10,000 90,000
Repayment of borrowings under revolving credit facilities (229,000) (55,000) (45,000)
Financing origination costs -- -- (2,863)
Proceeds from mortgage financings 28,900 51,230 44,396
Proceeds from construction loan financings 38,873 -- --
Payment of unsecured obligation (11,300) -- (18,172)
Dividends paid (235,602) (209,785) (189,896)
Payment for repurchase of stock -- -- (2,505)
Proceeds from issuance of stock 9,389 157,767 79,675
--------- --------- ---------
Net cash flow provided by (used for) financing activities 59,839 (55,501) (67,899)
--------- --------- ---------
Change in cash and cash equivalents (57,885) 74,750 (8,979)
Cash and cash equivalents, beginning of year 93,847 19,097 28,076
--------- --------- ---------
Cash and cash equivalents, end of year $ 35,962 $ 93,847 $ 19,097
========= ========= =========
Interest paid during the year $ 93,066 $ 89,016 $ 89,857
========= ========= =========
Income taxes paid during the year $ 12,035 $ 24,888 $ --
========= ========= =========
Supplemental schedule of noncash investing/financing activities:
Acquisition of real estate interests by assumption of mortgage debt $ 3,477 $ 17,220 $ 30,986
========= ========= =========
Acquisition of real estate interest by issuance of convertible
downREIT units $ 80,000 $ -- $ --
========= ========= =========
Acquisition of real estate through purchase of partnership interests $ 6,638 $ -- $ --
========= ========= =========
Investment in real estate joint ventures by issuance of stock
and contribution of property $ -- $ 3,420 $ --
========= ========= =========
Disposition of real estate interests by assignment of mortgage debt $ 28,747 $ -- $ 9,124
========= ========= =========
Proceeds held in escrow from sale of real estate interests $ 5,433 $ -- $ 2,700
========= ========= =========
Notes received upon disposition of real estate interests $ -- $ 400 $ --
========= ========= =========
Notes received upon exercise of stock options $ 555 $ 850 $ 387
========= ========= =========
Declaration of dividends paid in succeeding period $ 59,646 $ 57,345 $ 50,570
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
20
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
1. Summary of Significant Accounting Policies:
Business
Kimco Realty Corporation (the "Company" or "Kimco"), its subsidiaries,
affiliates and related real estate joint ventures are engaged
principally in the operation of neighborhood and community shopping
centers which are anchored generally by discount department stores,
supermarkets or drugstores. The Company also provides property
management services for shopping centers owned by affiliated
entities, various real estate joint ventures and unaffiliated third
parties.
Additionally, in connection with the Tax Relief Extension Act of 1999
(the "RMA"), which became effective January 1, 2001, the Company is
now permitted to participate in activities which it was precluded
from previously in order to maintain its qualification as a Real
Estate Investment Trust ("REIT"), so long as these activities are
conducted in entities which elect to be treated as taxable
subsidiaries under the Internal Revenue Code, subject to certain
limitations. As such, the Company, through its taxable REIT
subsidiaries, is engaged in various retail real estate related
opportunities including (i) merchant building, through its Kimco
Developers, Inc. ("KDI") subsidiary, which is primarily engaged in
the ground-up development of neighborhood and community shopping
centers and the subsequent sale thereof upon completion and (ii)
retail real estate advisory and disposition services which
primarily focuses on leasing and disposition strategies of retail
real estate controlled by both healthy and distressed and/or
bankrupt retailers.
The Company seeks to reduce its operating and leasing risks through
diversification achieved by the geographic distribution of its
properties, avoiding dependence on any single property, and a large
tenant base. At December 31, 2002, the Company's single largest
neighborhood and community shopping center accounted for only 1.2%
of the Company's annualized base rental revenues and only 0.8% of
the Company's total shopping center gross leasable area ("GLA"). At
December 31, 2002, the Company's five largest tenants include Kmart
Corporation, The Home Depot, Kohl's, TJX Companies and Wal-Mart,
which represented approximately 4.5%, 2.8%, 2.7%, 2.5% and 1.9%,
respectively, of the Company's annualized base rental revenues,
including the proportionate share of base rental revenues from
properties in which the Company has less than a 100% economic
interest.
The principal business of the Company and its consolidated subsidiaries
is the ownership, development, management and operation of retail
shopping centers. The Company does not distinguish or group its
operations on a geographical basis for purposes of measuring
performance. Accordingly, the Company believes it has a single
reportable segment for disclosure purposes in accordance with
accounting principles generally accepted in the United States.
Principles of Consolidation and Estimates
The accompanying Consolidated Financial Statements include the accounts
of the Company, its subsidiaries, all of which are wholly-owned,
and all partnerships in which the Company has a controlling
interest. All significant intercompany balances and transactions
have been eliminated in consolidation.
Generally accepted accounting principles ("GAAP") require the Company's
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of
revenues and expenses during a reporting period. The most
significant assumptions and estimates relate to the valuation of
real estate, depreciable lives, revenue recognition and the
recoverability of trade accounts receivable. Application of these
assumptions requires the exercise of judgment as to future
uncertainties and, as a result, actual results could differ from
these estimates.
21
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Real Estate
Real estate assets are stated at cost, less accumulated depreciation
and amortization. If there is an event or a change in circumstances
that indicates that the basis of a property may not be recoverable,
then management will assess any impairment in value by making a
comparison of (i) the current and projected operating cash flows
(undiscounted and without interest charges) of the property over
its remaining useful life and (ii) the net carrying amount of the
property. If the current and projected operating cash flows
(undiscounted and without interest charges) are less than the
carrying value of the property, the carrying value would be
adjusted to an amount to reflect the estimated fair value of the
property.
When a real estate asset is identified by management as held for sale,
the Company ceases depreciation of the asset and estimates the
sales price, net of selling costs. If, in management's opinion, the
net sales price of the asset is less than the net book value of the
asset, an adjustment to the carrying value would be recorded to
reflect the estimated fair value of the property.
Depreciation and amortization are provided on the straight-line method
over the estimated useful lives of the assets, as follows:
Buildings 15 to 39 years
Fixtures and leasehold improvements Terms of leases or useful
lives, whichever is shorter
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and replacements, which improve and
extend the life of the asset, are capitalized.
Real Estate Under Development
Real estate under development represents the ground-up development of
neighborhood and community shopping centers which are held for sale
upon completion. These properties are carried at cost and no
depreciation is recorded on these assets. The cost of land and
buildings under development include specifically identifiable
costs. The capitalized costs include pre-construction costs
essential to the development of the property, development costs,
construction costs, interest costs, real estate taxes, salaries and
related costs and other costs incurred during the period of
development. The Company ceases cost capitalization when the
property is held available for occupancy upon substantial
completion of tenant improvements, but no later than one year from
the completion of major construction activity. If in management's
opinion, the net sales price of these assets is less than the net
carrying value, the carrying value would be written down to an
amount to reflect the estimated fair value of the property.
Investments in Unconsolidated Joint Ventures
The Company accounts for its investments in unconsolidated joint
ventures under the equity method of accounting as the Company
exercises significant influence, but does not control these
entities. These investments are recorded initially at cost and
subsequently adjusted for equity in earnings and cash contributions
and distributions.
On a periodic basis, management assesses whether there are any
indicators that the value of the Company's investments in
unconsolidated joint ventures may be impaired. An investment's
value is impaired only if management's estimate of the fair value
of the investment is less than the carrying value of the
investment. To the extent impairment has occurred, the loss shall
be measured as the excess of the carrying amount of the investment
over the estimated fair value of the investment.
Marketable Securities
The Company classifies its existing marketable equity securities as
available-for-sale in accordance with the provisions of Statement
of Financial Accounting Standard No. 115, Accounting for Certain
Investments in Debt and Equity Securities. These securities are
carried at fair market value, with unrealized gains and losses
reported in stockholders' equity as a component of Other
Comprehensive Income ("OCI"). Gains or losses on securities sold
are based on the specific identification method.
22
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
All debt securities are classified as held-to-maturity because the
Company has the positive intent and ability to hold the securities
to maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accretion discounts
to maturity.
Deferred Leasing and Financing Costs
Costs incurred in obtaining tenant leases and long-term financing,
included in deferred charges and prepaid expenses in the
accompanying Consolidated Balance Sheets, are amortized over the
terms of the related leases or debt agreements, as applicable.
Revenue Recognition
Base rental revenues from rental property are recognized on a
straight-line basis over the terms of the related leases. Certain
of these leases also provide for percentage rents based upon the
level of sales achieved by the lessee. These percentage rents are
recorded once the required sales level is achieved. In addition,
leases typically provide for reimbursement to the Company of common
area maintenance costs, real estate taxes and other operating
expenses. Operating expense reimbursements are recognized as
earned.
Income Taxes
The Company and its 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 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 Section 856 through 860 of the Internal Revenue Code, as
amended (the "Code").
In connection with the RMA, 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 subsidiaries under
the Code. As such, the Company is subject to federal and state
income taxes on the income from these activities.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss
and tax credit carry-forwards. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or
settled.
Foreign Currency Translation and Transactions
Assets and liabilities of our foreign operations are translated using
year-end exchange rates, and revenues and expenses are translated
using exchange rates as determined throughout the year. Gains or
losses resulting from translation are included in accumulated other
comprehensive income ("OCI"), as a separate component of the
Company's stockholders' equity. Gains or losses resulting from
foreign currency transactions are translated to local currency at
the rates of exchange prevailing at the dates of the transactions.
The effect of the transaction's gain or loss is included in the
caption Other income/(loss), net in the Consolidated Statements of
Income.
23
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Derivative / Financial Instruments
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard 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 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 OCI 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, cross
currency swaps and warrant contracts. In accordance with the
provisions of FASB No. 133, these derivative instruments were
designated and qualified as either cash flow, fair value or foreign
currency hedges (see Note 15).
Earnings Per Share
On October 24, 2001, the Company's Board of Directors declared a
three-for-two split (the "Stock Split") of the Company's common
stock which was effected in the form of a stock dividend paid on
December 21, 2001 to stockholders of record on December 10, 2001.
All share and per share data included in the accompanying
Consolidated Financial Statements and Notes thereto have been
adjusted to reflect this Stock Split.
24
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
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):
2002 2001 2000
---- ---- ----
Computation of Basic Earnings Per Share:
Income from continuing operations $ 238,911 $ 214,245 $ 190,270
Gain on sale of development properties,
net of tax of $6,034 in 2002 and $5,099
in 2001 9,845 8,319 -
Gain on disposition of operating
properties, net - 3,040 3,962
Preferred stock dividends (18,437) (24,553) (26,328)
--------- --------- ---------
Income from continuing operations
applicable to common shares 230,319 201,051 167,904
Income/(1oss) from discontinued
operations (3,088) 10,934 10,793
--------- --------- ---------
Net income applicable to common shares $ 227,231 $ 211,985 $ 178,697
========= ========= =========
Weighted average common shares outstanding 104,458 96,317 92,688
========= ========= =========
Basic Earnings Per Share:
Income from continuing operations $ 2.20 $ 2.09 $ 1.81
Income/(loss) from discontinued
operations (.02) 0.11 0.12
--------- --------- ---------
Net income $ 2.18 $ 2.20 $ 1.93
========= ========= =========
Computation of Diluted Earnings Per Share:
Income from continuing operations
applicable to common shares $ 230,319 $ 201,051 $ 167,904
Dividends on Class D Convertible
Preferred Stock - 6,115 (a)
Dividends on convertible downREIT units 1,423 - -
--------- --------- ---------
Income from continuing operations for
diluted earnings per share 231,742 207,166 167,904
Income/(loss) from discontinued
operations (3,088) 10,934 10,793
--------- --------- ---------
Net income for diluted earnings per
share $ 228,654 $ 218,100 $ 178,697
========= ========= =========
Weighted average common shares
outstanding - Basic 104,458 96,317 92,688
Effect of dilutive securities:
Stock options 999 1,139 965
Assumed conversion of Class D Preferred
stock to common stock 4 3,707 (a)
Assumed conversion of downREIT units 508 - -
--------- --------- ---------
Shares for diluted earnings per share 105,969 101,163 93,653
========= ========= =========
Diluted Earnings Per Share:
Income from continuing operations $ 2.19 $ 2.05 $ 1.79
Income/(loss) from discontinued
operations (.03) 0.11 0.12
--------- --------- ---------
Net income $ 2.16 $ 2.16 $ 1.91
========= ========= =========
(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.
25
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations including FASB Interpretation No. 44, Accounting
for Certain Transactions involving Stock Compensation (an
interpretation of APB Opinion No. 25), issued in March 2000, to
account for stock-based employee compensation plans. Under this
method, compensation cost is recognized for awards of shares of
common stock or stock options to directors, officers and employees
of the Company and consolidated subsidiaries only if the quoted
market price of the stock at the grant date (or other measurement
date, if later) is greater than the amount the grantee must pay to
acquire the stock. The following table illustrates the effect on
net income and earnings per share if the fair value based method
had been applied to all outstanding stock awards in each period:
Year Ended December 31,
---------------------------------------------
2002 2001 2000
---- ---- ----
Net income, as reported $ 245,668 $ 236,538 $ 205,025
Deduct: Total stock based employee
compensation expense determined
under fair value based method
for all awards (3,153) (2,702) (2,190)
--------- --------- ---------
Pro Forma Net Income - Basic $ 242,515 $ 233,836 $ 202,835
========= ========= =========
Earnings Per Share
Basic - as reported $ 2.18 $ 2.20 $ 1.93
========= ========= =========
Basic - pro forma $ 2.15 $ 2.17 $ 1.90
========= ========= =========
Net income for diluted earnings per share
$ 228,654 $ 218,100 $ 178,697
Deduct: Total stock based employee
compensation expense determined
under fair value based method
for all awards (3,153) (2,702) (2,190)
--------- --------- ---------
Pro Forma Net Income - Diluted $ 225,501 $ 215,398 $ 176,507
========= ========= =========
Earnings Per Share
Diluted - as reported $ 2.16 $ 2.16 $ 1.91
========= ========= =========
Diluted - pro forma $ 2.13 $ 2.13 $ 1.88
========= ========= =========
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("FASB No. 144"), which supercedes SFAS No. 121.
FASB No. 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair
value less cost to sell. FASB No. 144 retains the requirements of
SFAS No. 121 regarding impairment loss recognition and measurement.
In addition, it requires that one accounting model be used for
long-lived assets to be disposed of by sale and broadens the
presentation of discontinued operations to include more disposal
transactions. Effective January 1, 2002, the Company adopted FASB
No. 144. The adoption of FASB No. 144 did not have a material
adverse impact on the Company's financial position or results of
operations (see Note 5).
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4,
44, and 64, Amendment of FASB No. 13 and Technical Corrections
("FASB No. 145"). This statement eliminates the requirement to
report gains and losses from extinguishment of debt as
extraordinary unless they meet the criteria of APB Opinion 30. Debt
extinguishments that were classified as extraordinary in prior
periods presented that do not meet the criteria of APB Opinion 30
shall be reclassified. FASB No. 145 is effective for fiscal years
beginning after May 15, 2002. During 2002, the Company elected
early adoption of the provisions of FASB No. 145. The impact of
adopting this statement did not have a material adverse impact on
the Company's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities ("FASB 146"). This
statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring).
For purpose of this statement, an exit or disposal activity is
initiated when management, having the authority to approve the
action, commits to an exit or disposal plan or otherwise disposes
of a long-lived asset (disposal group) and, if the activity
involves the termination of employees, the criteria for a plan of
termination of this statement are met. The provisions of this
statement shall be effective for exit or disposal activities
initiated after December 31, 2002. The impact of the adoption of
FASB No. 146 is not expected to have a material adverse impact on
the Company's financial position or results of operations.
26
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others
(an interpretation of FASB Statements No. 5, 57 and 107 and
rescission of FASB Interpretation No. 34). FIN 45 clarifies the
requirements of FASB Statement No. 5, Accounting for Contingencies.
It requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it
assumes under the guarantee regardless of whether or not the
guarantor receives separate identifiable consideration (i.e., a
premium). The Company has adopted the new disclosure requirements,
which are effective beginning with 2002 calendar year-end
financials. FIN 45's provision for initial recognition and
measurement are effective on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of FIN 45
is not expected to have a material adverse impact on the Company's
financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure an amendment
of FASB Statement No. 123 ("FASB No. 148"). This statement amends
FASB Statement No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure
requirements of FASB Statement No. 123 to require prominent
disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and
the effect of the method used on reported results. The transition
and annual disclosure provisions of FASB No. 148 shall be applied
for fiscal years ending after December 15, 2002. The new interim
disclosure provisions are effective for the first interim period
beginning after December 15, 2002. Effective January 1, 2003, the
Company will adopt the prospective method provisions of FASB No.
148, which will apply the recognition provisions of FASB No. 123 to
all employee awards granted, modified or settled after January 1,
2003. The adoption is not expected to have a material adverse
impact on the Company's financial position or results of
operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"), the primary objective of
which is to provide guidance on the identification of entities for
which control is achieved through means other than voting rights
("variable interest entities" or "VIEs") and to determine when and
which business enterprise should consolidate the VIE (the "primary
beneficiary"). This new model applies when either (i) the equity
investors (if any) do not have a controlling financial interest or
(ii) the equity investment at risk is insufficient to finance that
entity's activities without additional financial support. In
addition, FIN 46 requires additional disclosures. The Company is
assessing the impact of this interpretation on its accounting for
its investments in unconsolidated joint ventures. The Company's
exposure to losses associated with these unconsolidated joint
ventures is limited to its carrying value in these investments (see
Note 6).
Reclassifications
Certain reclassifications of prior years' amounts have been made to
conform with the current year presentation, including the
presentation of gains or losses on the sale of real estate property
in accordance with rule 3-15 of the Securities and Exchange
Commissions's Regulation S-X.
2. Property Acquisitions, Developments and Other Investments:
Operating Properties -
During the years 2002, 2001 and 2000 the Company acquired wholly owned
real estate interests, in separate transactions, at aggregate costs
of approximately $258.7 million, $21.1 million and $62.5 million,
respectively.
27
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Ground-Up Development Properties -
Effective January 1, 2001, the Company elected taxable REIT subsidiary
status for its wholly owned development subsidiary, Kimco
Developers, Inc. ("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 years 2002, 2001 and 2000 certain subsidiaries and
affiliates of the Company expended approximately $148.6 million,
$119.4 million and $74.0 million, respectively, in connection with
the purchase of land and construction costs related to its
ground-up development projects.
Other Investments -
During October 2002, the Company purchased from various joint venture
partners, the remaining interest in a property located in
Harrisburg, PA for an aggregate purchase price of $0.5 million.
This property is now 100% owned by the Company.
During June 2001, the Company purchased from an unaffiliated partner
the remaining 20% interest in a property located in Skokie, IL for
an aggregate purchase price of approximately $0.8 million. The
property is now 100% owned by the Company.
Additionally, during June 2001, the Company purchased from an
unaffiliated partner the remaining 10% interest in a property
located in Smithtown, NY for an aggregate purchase price of
approximately $2.5 million. The property is now 100% owned by the
Company.
During December 2001, the Company purchased the remaining 10% interest
in Kimco Select Investments, a New York general partnership for an
aggregate price of approximately $1.7 million. Kimco Select
Investments was formed in 1997 to provide the Company, through its
90% ownership interest, the opportunity to make investments outside
of its core neighborhood and community shopping center business.
These property acquisitions and other investments have been funded
principally through the application of proceeds from the Company's
public unsecured debt issuances, equity offerings and proceeds from
mortgage and construction financings (see Notes 10, 11, 12 and 16).
3. Dispositions of Real Estate:
During 2002, the Company, (i) disposed of, in separate transactions, 12
operating properties for an aggregate sales price of approximately
$74.5 million, including the assignment/repayment of approximately
$22.6 million of mortgage debt encumbering three of the properties
and (ii) terminated five leasehold positions in locations where a
tenant in bankruptcy had rejected its lease. These transactions
resulted in net gains of approximately $12.8 million (see Note 5).
During 2002, KDI sold four of its recently completed projects and eight
out-parcels for approximately $128.7 million including the
assignment of approximately $17.7 million in mortgage debt
encumbering one of the properties. The sales resulted in pre-tax
gains of approximately $15.9 million.
During 2001, the Company, in separate transactions, disposed of three
operating properties (including the sale of a property to KIR) and
a portion of another operating property, comprising approximately
0.6 million square feet of GLA. Cash proceeds from these
dispositions aggregated approximately $46.7 million which resulted
in a net gain of approximately $3.0 million. Cash proceeds from the
disposition of the operating property in Elyria, OH, totaling $5.8
million, together with an additional $7.1 million cash investment,
was used to acquire an exchange shopping center property located in
Lakeland, FL during August 2001.
During 2001, KDI sold two of its recently completed projects and five
out-parcels for approximately $61.3 million, which resulted in
pre-tax profits of $13.4 million.
28
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
4. Adjustment of Property Carrying Values:
As part of the Company's periodic assessment of its real estate
properties with regard to both the extent to which such assets are
consistent with the Company's long-term real estate investment
objectives and the performance and prospects of each asset, the
Company determined in the fourth quarter of 2002, that its
investment in four operating properties comprised of an aggregate
0.4 million square feet of GLA with an aggregate net book value of
approximately $23.8 million, may not be fully recoverable. Based
upon management's assessment of current market conditions and lack
of demand for the properties, the Company has reduced its
anticipated holding period of these investments. As a result of the
reduction in the anticipated holding period, together with a
reassessment of the potential future operating income of the
properties and the effects of current market conditions, the
Company determined that its investment in these assets was not
fully recoverable and has recorded an adjustment of property
carrying values aggregating approximately $12.5 million.
5. Discontinued Operations and Assets Held for Sale:
In August 2001, the FASB issued Statement of Financial Accounting
Standard No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("FASB 144"). FASB 144 established criteria
beyond that previously specified in Statement of Financial
Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of
("FASB 121"), to determine when a long-lived asset is classified as
held for sale, and it provides a single accounting model for the
disposal of long-lived assets. FASB 144 was effective beginning
January 1, 2002. In accordance with FASB 144, the Company now
reports as discontinued operations assets held for sale (as defined
by FASB 144) as of the end of the current period and assets sold
subsequent to January 1, 2002. All results of these discontinued
operations, are included in a separate component of income on the
Consolidated Statements of Income under Discontinued operations.
This change has resulted in certain reclassifications of 2002, 2001
and 2000 financial statement amounts.
The components of Income/(loss) from operations related to discontinued
operations for each of the three years in the period ended December
31, 2002 are shown below. These include the results of a full year
of operations for properties sold during the three months ended
March 31, 2003, operations through the date of each respective sale
for properties sold during the year ended December 31, 2002 and a
full year of operations for those assets classified as held for
sale as of December 31, 2002, (in thousands):
2002 2001 2000
---- ---- ----
Discontinued Operations:
Revenues from rental property $ 10,110 $ 19,630 $ 18,978
Rental property expenses (5,020) (4,597) (5,221)
-------- -------- --------
Income from property operations 5,090 15,033 13,757
Depreciation and amortization (2,765) (2,804) (2,372)
Interest expense (927) (989) (382)
Gain on early extinguishment of debt 3,222 - -
Adjustment of property carrying values (20,500) - -
Other 14 (306) (210)
-------- -------- --------
Income/(loss) from discontinued
operating properties (15,866) 10,934 10,793
Gain on disposition of operating
properties, net 12,778 - -
-------- -------- --------
Income/(loss) from discontinued
operations $ (3,088) $ 10,934 $ 10,793
======== ======== ========
29
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
During November 2002, the Company disposed of an operating property
located in Chicago, IL. Net proceeds from this sale of
approximately $8.0 million were accepted by a lender in full
satisfaction of an outstanding mortgage loan of approximately $11.5
million. The Company recognized a gain on early extinguishment of
debt of approximately $3.2 million.
During December 2002, the Company identified two operating properties,
comprised of approximately 0.2 million square feet of GLA, as "Held
for Sale" in accordance with FASB No. 144. The book value of these
properties, aggregating approximately $28.4 million, net of
accumulated depreciation of approximately $2.9 million, exceeded
their estimated fair value. The Company's determination of the fair
value of these properties, aggregating approximately $7.9 million,
is based upon executed contracts of sale with third parties less
estimated selling costs. As a result, the Company recorded an
adjustment of property carrying values of $20.5 million. This
adjustment is included, along with the related property operations
for the current and comparative years, in the caption Income/(loss)
from discontinued operations on the Company's Consolidated
Statements of Income.
During the three month period ended March 31, 2003, the Company
disposed of two operating properties, in separate transactions, for
aggregate proceeds of approximately $5.9 million. These sales
resulted in gains of approximately $3.3 million which were
recognized during the first quarter of 2003. In accordance with
FASB 144 the results of operations from these properties have been
included in discontinued operations for each of the three years in
the period ended December 31, 2002.
6. Investment and Advances in Real Estate Joint Ventures:
Kimco Income REIT ("KIR") -
During 1998, the company formed KIR, an entity that was established for
the purpose of investing in high quality real estate properties
financed primarily with individual non-recourse mortgages. These
properties include, but are not limited to, fully developed
properties with strong, stable cash flows from credit-worthy
retailers with long-term leases. The Company originally held a
99.99% limited partnership interest in KIR. Subsequent to KIR's
formation, the Company sold a significant portion of its original
interest to an institutional investor and admitted three other
limited partners. As of December 31, 2002, KIR has received total
capital commitments of $569.0 million, of which the Company
subscribed for $247.0 million and the four limited partners
subscribed for $322.0 million. The Company has a 43.3%
non-controlling limited partnership interest in KIR and accounts
for its investment under the equity method of accounting.
During 2002, the limited partners in KIR contributed $55.0 million
towards their respective capital commitments, including $23.8
million by the Company. As of December 31, 2002, KIR had unfunded
capital commitments of $129.0 million, including $55.9 million from
the Company.
The Company's equity in income from KIR for the years ended December
31, 2002, 2001 and 2000 was approximately $16.3 million, $13.2
million and $9.5 million, respectively.
In addition, KIR entered into a master management agreement with the
Company, whereby, the Company will perform services for fees
related to management, leasing, operations, supervision and
maintenance of the joint venture properties. For the years ended
December 31, 2002, 2001 and 2000, the Company (i) earned management
fees of approximately $4.4 million, $3.3 million and $2.0 million,
respectively, (ii) received reimbursement of administrative fees of
approximately $1.0 million, $1.4 million and $1.4 million,
respectively, and (iii) earned leasing commissions of approximately
$0.8 million, $0.3 million and $0.1 million, respectively.
During 2002, KIR purchased five shopping center properties, in separate
transactions, aggregating approximately 1.8 million square feet of
GLA for approximately $213.5 million, including the assumption of
approximately $63.1 million of mortgage debt encumbering two of the
properties.
During July 2002, KIR disposed of a shopping center property in Aurora,
IL for an aggregate sales price of approximately $2.4 million,
which represented the approximate book value of the property.
30
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
As of December 31, 2002, the KIR portfolio was comprised of 68
shopping center properties aggregating approximately 14.0 million
square feet of GLA located in 21 states.
During 2002, KIR obtained individual non-recourse, non-cross
collateralized fixed-rate ten year mortgages aggregating
approximately $170.3 million on seven of its previously
unencumbered properties with rates ranging from 5.95% to 7.38% per
annum. The net proceeds were used to finance the acquisition of
various shopping center properties.
During the year ended December 31, 2001, KIR purchased 12 shopping
center properties (including one property from the Company for
$37.0 million), in separate transactions, aggregating 2.9 million
square feet of GLA for approximately $349.0 million, including the
assumption of approximately $40.2 million of mortgage debt.
During December 2001, KIR disposed of a shopping center property in
Lake Mary, FL for an aggregate sales price of approximately $2.4
million. This disposition resulted in a gain of approximately $0.5
million. Proceeds from this sale were used to acquire an exchange
shopping center property.
During 2001, KIR obtained individual non-recourse, non-cross
collateralized fixed-rate mortgages aggregating approximately
$280.0 million on 14 of its previously unencumbered properties with
terms ranging from 7 to 10 years and rates ranging from 6.76% to
7.69% per annum. The net proceeds were used to finance the
acquisition of various shopping center properties.
KIR maintains a secured revolving credit facility with a syndicate of
banks, which is scheduled to expire in November 2003. This facility
is collateralized by the unfunded subscriptions of certain
partners, including those of the Company. The facility has an
aggregate availability of up to $100.0 million based upon the
amount of unfunded subscription commitments of certain partners.
During January 2003, the aggregate availability under the credit
facility was reduced to $90.0 million. Under the terms of the
facility, funds may be borrowed for general corporate purposes,
including the acquisition of institutional quality properties.
Borrowings under the facility accrue interest at LIBOR plus 0.80%.
As of December 31, 2002, there was $15.0 million outstanding under
this facility.
RioCan Investments -
During October 2001, the Company formed a joint venture (the "RioCan
Venture") with RioCan Real Estate Investment Trust ("RioCan") in
which the Company has a 50% non-controlling interest, to acquire
retail properties and development projects in Canada. The
acquisition and development projects are to be sourced and managed
by RioCan and are subject to review and approval by a joint
oversight committee consisting of RioCan management and the
Company's management personnel. The Company has committed a total
equity investment of up to CAD $250.0 million Canadian dollars
("CAD") for the acquisition of retail properties and development
projects. Capital contributions will only be required as suitable
opportunities arise and are agreed to by the Company and RioCan.
During 2002, the RioCan Venture acquired 24 shopping center
properties and four development properties, in separate
transactions, comprising approximately 5.7 million square feet of
GLA for an aggregate purchase price of approximately CAD $683.7
million (approximately USD $435.8 million) including the assumption
of approximately CAD $321.5 million (approximately USD $203.1
million) in mortgage debt encumbering 13 of the properties.
During October 2001, the RioCan Venture acquired a portfolio of four
shopping center properties located in British Columbia for an
aggregate purchase price of approximately CAD $170.0 million
(approximately USD $107.8 million) including the assumption of
approximately CAD $108.5 million (approximately USD $68.8 million)
in mortgage debt.
As of December 31, 2002, the RioCan Venture was comprised of 28
operating properties and four development properties consisting of
approximately 6.7 million square feet of GLA.
31
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Kimco / G.E. Joint Venture -
During 2001, the Company formed a joint venture (the "Kimco Retail
Opportunity Portfolio" or "KROP") with GE Capital Real Estate
("GECRE"), in which the Company has a 20% non-controlling interest
and manages the portfolio. The purpose of this joint venture is to
acquire established high growth potential retail properties in the
United States. Total capital commitments to KROP from GECRE and the
Company are for $200.0 million and $50.0 million, respectively, and
such commitments are funded proportionately as suitable
opportunities arise and are agreed to by GECRE and the Company.
During 2002, GECRE and the Company contributed approximately $39.0
million and $9.8 million, respectively, towards their capital
commitments. Additionally, GECRE and the Company provided
short-term interim financing for all acquisitions made by KROP
without a mortgage in place at the time of acquisition. All such
financing bears interest at rates ranging from Libor plus 4.0% to
4.25% and have maturities of less than one year. As of December 31,
2002, outstanding balances relating to short-term interim financing
is $17.3 million each for GECRE and the Company.
During 2002, KROP purchased 16 shopping centers aggregating 1.6 million
square feet of GLA for approximately $177.8 million, including the
assumption of approximately $29.5 million of mortgage debt
encumbering three of the properties.
During October 2002, KROP disposed of a shopping center in Columbia, MD
for an aggregate sales price of approximately $2.9 million, which
resulted in a gain of approximately $0.7 million.
During 2002, KROP obtained a cross-collateralized mortgage with a
five-year term aggregating $73.0 million on eight properties with
an interest rate of Libor plus 1.8%. Upon the sale of one of the
collateralized properties, $1.9 million was repaid during 2002. In
order to mitigate the risks of interest rate fluctuations
associated with this variable rate obligation, KROP entered into an
interest rate cap agreement for the notional value of this
mortgage.
Other Real Estate Joint Ventures -
The Company and its subsidiaries have investments in and advances to
various other real estate joint ventures. These joint ventures are
engaged primarily in the operation of shopping centers which are
either owned or held under long-term operating leases.
During 2002, the Company acquired seven former Service Merchandise
locations, in separate transactions, through a venture in which the
Company has a 42.5% non-controlling interest. These properties were
purchased for an aggregate purchase price of approximately $20.9
million. In November 2002, the joint venture obtained mortgages on
two of these locations for approximately $7.0 million. The venture
has signed leases for six of these locations and is actively
negotiating with other retailers to lease the remaining location.
During July 2002, the Company acquired a property located in Kalamazoo,
MI, through a joint venture in which the Company has a 50%
non-controlling interest. The property was purchased for an
aggregate purchase price of approximately $6.0 million.
During December 2002, the Company acquired an out-parcel of an existing
property located in Tampa, Fl, through a joint venture in which the
Company has a 50% non-controlling interest. The property was
purchased for an aggregate purchase price of approximately $4.9
million.
Additionally, during 2002, the Company, in separate transactions,
disposed of two operating properties through a joint venture in
which the Company has a 50% non-controlling interest. The
properties were located in Tempe, AZ and Glendale, AZ and sold for
approximately $19.2 million and $1.7 million, respectively.
32
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
During March 2001, the Company exercised its option to acquire a 50%
non-controlling 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 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 (29,638
shares valued at $27.67 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.
Summarized financial information for the recurring operations of these
real estate joint ventures, is as follows (in millions):
December 31,
--------------------
2002 2001
-------- --------
Assets:
Real estate, net $2,511.8 $1,676.4
Other assets 132.5 94.1
-------- --------
$2,644.3 $1,770.5
======== ========
Liabilities and Partners' Capital:
Notes Payable $ 49.6 $ 15.0
Mortgages payable 1,720.6 1,189.5
Other liabilities 116.6 72.6
Minority Interest 10.8 14.8
Partners' capital 746.7 478.6
-------- --------
$2,644.3 $1,770.5
======== ========
Year Ended December 31,
------------------------
2002 2001 2000
----- ----- ----
Revenues from rental property $314.8 $209.4 $135.0
------ ------ ------
Operating expenses (78.2) (52.9) (32.8)
Interest (108.0) (74.5) (44.8)
Depreciation and amortization (41.6) (31.0) (19.8)
Other, net (4.5) (3.0) (1.6)
------ -------- ------
(232.3) (161.4) (99.0)
------- ------- ------
Net income $82.5 $48.0 $36.0
===== ===== =====
Other liabilities in the accompanying Consolidated Balance Sheets
include accounts with certain real estate joint ventures totaling
approximately $5.3 million and $8.7 million at December 31, 2002
and 2001, respectively. The Company and its subsidiaries have
varying equity interests in these real estate joint ventures, which
may differ from their proportionate share of net income or loss
recognized in accordance with generally accepted accounting
principles.
7. Other Real Estate Investments:
Ward Venture -
During March 2001, through a taxable REIT subsidiary, the Company
formed a real estate 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 expired in August 2002 for the
leasehold positions and expire in 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 property is designated to a user. As of December 31,
2002, there were 12 properties which continue to be marketed.
33
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
During 2002, the Ward Venture completed transactions on 32 properties,
and the Company recognized pre-tax profits of approximately $11.3
million.
During 2001, the Ward Venture completed transactions on 271 properties,
and the Company recognized pre-tax profits from the Ward Venture of
approximately $34.6 million.
Leveraged Lease -
During June 2002, the Company acquired a 90% equity participation
interest in an existing leveraged lease of 30 properties. The
properties are leased under a long-term bond-type net lease whose
primary term expires in 2016, with the lessee having certain
renewal option rights. The Company's cash equity investment was
approximately $4.0 million. This equity investment is reported as a
net investment in leveraged lease in accordance with FASB No. 13
(as amended).
During 2002, four of these properties were sold whereby the proceeds
from the sales were used to paydown the mortgage debt by
approximately $9.6 million. As of December 31, 2002, the remaining
26 properties were encumbered by third-party non-recourse debt of
approximately $86.0 million that is scheduled to fully amortize
during the primary term of the lease from a portion of the periodic
net rents receivable under the net lease. As an equity participant
in the leveraged lease, the Company has no general obligation for
principal or interest payments on the debt, which is collateralized
by a first mortgage lien on the properties and collateral
assignment of the lease. Accordingly, this obligation has been
offset against the related net rental receivable under the lease.
The net investment in leveraged lease reflects the original cash
investment adjusted by remaining net rentals of approximately $94.8
million, estimated unguaranteed residual value of approximately
$65.2 million, non-recourse mortgage debt of approximately ($86.0)
million and unearned and deferred income of approximately ($70.0)
million.
Kmart Venture -
During July 2002, the Company formed the Kmart Venture in which the
Company has a 60% controlling participation for purposes of
acquiring asset designation rights for 54 former Kmart locations.
The total commitment to Kmart by the Kmart Venture, prior to the
profit sharing arrangement commencing, is approximately $43.0
million. As of December 31, 2002, the Kmart Venture has completed
transactions on 35 properties and has funded the total commitment
of approximately $43.0 million to Kmart.
Kimsouth -
During November 2002, the Company, through its taxable REIT subsidiary,
together with Prometheus Southeast Retail Trust, completed the
merger and privatization of Konover Property Trust, which has been
renamed Kimsouth Realty, Inc., ("Kimsouth"). The Company acquired
44.5% of the common stock of Kimsouth, which consisted primarily of
38 retail shopping center properties comprising approximately 17.4
million square feet of GLA. Total acquisition value was
approximately $280.9 million including approximately $216.2 million
in mortgage debt. The Company's investment strategy with respect to
Kimsouth includes re-tenanting, repositioning and disposition of
the properties. During December 2002, Kimsouth sold its joint
venture interest in one property to its joint venture partner for
net proceeds of approximately $4.6 million and disposed of a single
property for net proceeds of approximately $2.9 million.
Selected financial information for Kimsouth as of December 31, 2002, is
as follows: real estate, net of accumulated depreciation, $282.3
million; other assets $38.3 million; mortgages payable $185.0
million; other liabilities $3.6 million.
Preferred Equity Capital -
During 2002, the Company established a preferred equity program, which
provides capital to developers and owners of shopping centers.
During 2002, the Company provided, in separate transactions, an
aggregate of approximately $25.6 million in investment capital to
developers and owners of nine shopping centers.
34
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Investment in Retail Store Leases -
The Company has interests in various retail store leases relating to
the anchor store premises in neighborhood and community shopping
centers. These premises have been sublet to retailers who lease the
stores pursuant to net lease agreements. Income from the investment
in these retail store leases during the years ended December 31,
2002, 2001 and 2000 was approximately $0.8 million, $3.2 million
and $4.0 million, respectively. These amounts represent sublease
revenues during the years ended December 31, 2002, 2001 and 2000 of
approximately $13.9 million, $16.8 million and $19.0 million,
respectively, less related expenses of $11.7 million, $12.2 million
and $13.6 million, respectively, and an amount, which in
management's estimate, reasonably provides for the recovery of the
investment over a period representing the expected remaining term
of the retail store leases. The Company's future minimum revenues
under the terms of all noncancellable tenant subleases and future
minimum obligations through the remaining terms of its retail store
leases, assuming no new or renegotiated leases are executed for
such premises, for future years are as follows (in millions): 2003,
$12.2 and $9.5; 2004, $10.7 and $8.5; 2005, $8.8 and $7.3; 2006,
$7.8 and $5.8; 2007, $5.2 and $3.9 and thereafter, $6.5 and $4.2,
respectively.
8. Mortgages and Other Financing Receivables:
During August 2001, the Company, through a joint venture in which the
Company had a 50% interest, provided $27.5 million of
debtor-in-possession financing (the "Ames Loan") to Ames Department
Stores, Inc. ("Ames"), a retailer in bankruptcy. This loan bore
interest at prime plus 6.0%, was collateralized by all real estate
owned by Ames and was scheduled to mature in August 2003.
During September 2002, the Ames Loan, was restructured as a two-year
$100.0 million secured revolving loan of which the Company has a
40% interest. This revolving loan is collateralized by all of Ames'
real estate interests. The loan bears interest at 8.5% per annum
and provides for contingent interest upon the successful
disposition of the Ames properties. The outstanding balance on the
revolving loan at December 31, 2002 was approximately $4.1 million.
During March 2002, the Company provided a $15.0 million three-year loan
to Gottchalks, Inc., at an interest rate of 12.0% per annum
collateralized by three properties. The Company receives principal
and interest payments on a monthly basis. As of December 31, 2002,
the outstanding loan balance was approximately $14.3 million.
During March 2002, the Company provided a $50.0 million ten-year loan
to Shopko Stores Inc., at an interest rate of 11.0% per annum
collateralized by 15 properties. The Company receives principal and
interest payments on a monthly basis. As of December 31, 2002, the
outstanding loan balance was approximately $49.8 million.
During May 2002, the Company provided a $15.0 million three-year loan
to Frank's Nursery & Crafts, Inc. ("Frank's"), at an interest rate
of 10.25% per annum collateralized by 40 real estate interests.
Interest is payable quarterly in arrears. An additional $7.5
million revolving loan at an interest rate of 10.25% per annum was
also established. As of December 31, 2002 there were no borrowings
outstanding on the additional revolving loan. As an inducement to
make these loans, Frank's issued the Company approximately 4.4
million warrants with an exercise price of $1.15 per share.
9. Cash and Cash Equivalents:
Cash and cash equivalents (demand deposits in banks, commercial paper
and certificates of deposit with original maturities of three
months or less) includes tenants' security deposits, escrowed funds
and other restricted deposits approximating $0.1 million at
December 31, 2002 and 2001.
35
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Cash and cash equivalent balances may, at a limited number of banks and
financial institutions, exceed insurable amounts. The Company
believes it mitigates its risks by investing in or through major
financial institutions. Recoverability of investments is dependent
upon the performance of the issuers.
10. Notes Payable:
The Company has implemented a 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.
As of December 31, 2002, a total principal amount of $507.25 million,
in senior fixed-rate MTNs had been issued under the MTN program
primarily for the acquisition of neighborhood and community
shopping centers, the expansion and improvement of properties in
the Company's portfolio and the repayment of certain debt of the
Company. These fixed-rate notes had maturities ranging from five to
twelve years at the time of issuance and bear interest at rates
ranging from 5.98% to 7.91%. Interest on these fixed-rate senior
unsecured notes is payable semi-annually in arrears.
During July 2002, the Company issued an aggregate $102.0 million of
unsecured debt under its MTN program. These issuances consisted of
(i) an $85.0 million floating-rate MTN which matures in August 2004
and bears interest at Libor plus 0.50% per annum and (ii) a $17.0
million fixed-rate MTN which matures in July 2012 and bears
interest at 5.98% per annum. The proceeds from these MTN issuances
were used toward the repayment of a $110.0 million floating-rate
MTN which matured in August 2002. In addition, the Company entered
into an interest rate swap agreement on the $85.0 million
floating-rate MTN which effectively fixed the interest rate at
2.3725% per annum until November 2003.
During November 2002, the Company issued $35.0 million of 4.961%
fixed-rate Senior Notes due 2007 (the "2007 Notes"). Interest on
the 2007 Notes is payable semi-annually in arrears. Net proceeds
from the issuance totaling approximately $34.9 million, after
related transaction costs of approximately $0.1 million, were
primarily used to repay outstanding borrowings on the Company's
unsecured credit facilities.
Also, during November 2002, the Company issued $200.0 million of 6%
fixed-rate Senior Notes due 2012 (the "2012 Notes"). Interest on
the 2012 Notes is payable semi-annually in arrears. The Notes were
sold at 99.79% of par value. Net proceeds from the issuance
totaling approximately $198.3 million, after related transaction
costs of approximately $1.3 million, were primarily used to repay
outstanding borrowings on the Company's unsecured credit
facilities.
As of December 31, 2002, the Company has a total principal amount of
$570.0 million, in fixed-rate unsecured senior notes. These
fixed-rate notes have maturities ranging from 2003 through 2012 and
bear interest at rates ranging from 4.96% to 7.50%. Interest on
these fixed-rate senior unsecured notes is payable semi-annually in
arrears.
As of December 31, 2002, the Company had outstanding $100.0 million of
remarketed reset notes, which mature in August 2008. The interest
rate spread applicable to each period is determined pursuant to a
remarketing agreement between the Company and a financial
institution. The current interest rate is LIBOR plus 1.25% per
annum, and interest is payable quarterly in arrears. During
November 2002, the Company entered into an interest rate swap
agreement which effectively fixed the interest rate at 3.03% per
annum through August 2003.
In accordance with the terms of the Indenture, as amended, pursuant to
which the Company's senior, unsecured notes have been issued, the
Company is (a) subject to maintaining certain maximum leverage
ratios on both unsecured senior corporate and secured debt, minimum
debt service coverage ratios and minimum equity levels, and (b)
restricted from paying dividends in amounts that exceed by more
than $26.0 million the funds from operations, as defined, generated
through the end of the calendar quarter most recently completed
prior to the declaration of such dividend; however, this dividend
limitation does not apply to any distributions necessary to
maintain the Company's qualification as a REIT providing the
Company is in compliance with its total leverage limitations.
36
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
During August 2000, the Company established a $250.0 million, unsecured
revolving credit facility (the "Credit Facility") with a group of
banks which is scheduled to expire in August 2003. The Company
intends to renew the Credit Facility prior to the maturity date.
This Credit Facility has made available funds for general corporate
purposes, including the funding of property acquisitions,
development and redevelopment costs. Interest on borrowings accrues
at a spread (currently 0.65%) to LIBOR or money-market rates, as
applicable, which fluctuates in accordance with changes in the
Company's senior debt ratings. The Company's senior debt ratings
are currently A-/stable from Standard & Poors and Baa1/stable from
Moody's Investor Services. As part of this Credit Facility, the
Company has a competitive bid option where the Company may auction
up to $100.0 million of its requested borrowings to the bank group.
This competitive bid option provides the Company the opportunity to
obtain pricing below the currently stated spread to LIBOR of 0.65%.
A facility fee of 0.15% per annum is payable quarterly in arrears.
Pursuant to the terms of the agreement, the Company, among other
things, is (a) subject to maintaining certain maximum leverage
ratios on both unsecured senior corporate and secured debt, a
minimum debt service coverage ratio and minimum unencumbered asset
and equity levels, and (b) restricted from paying dividends in
amounts that exceed 90% of funds from operations, as defined. As of
December 31, 2002, there was $40.0 million outstanding under this
Credit Facility.
During July 2002, the Company further enhanced its liquidity position
by establishing an additional $150.0 million unsecured revolving
credit facility. During December 2002, the Company paid down the
outstanding balance and terminated this facility.
The scheduled maturities of all unsecured senior notes payable as of
December 31, 2002 are approximately as follows (in millions): 2003,
$140.0; 2004, $185.0; 2005, $200.25; 2006, $85.0; 2007, $195.0 and
thereafter, $497.0.
11. Mortgages Payable:
As part of the Company's strategy to reduce its exposure to Kmart
Corporation, the Company had previously encumbered seven Kmart
sites with individual non-recourse mortgages aggregating
approximately $70.8 million. As a result of the Kmart bankruptcy
filing in January 2002 and the subsequent rejection of leases
including these encumbered sites, the Company, during July 2002,
had suspended debt service payments on these loans and began active
negotiations with the respective lenders.
During December 2002, the Company reached agreement with certain
lenders in connection with four of these locations. The Company
paid approximately $24.2 million in full satisfaction of the loans
encumbering these properties which aggregated $46.5 million and the
Company recognized a gain on early extinguishment of debt of
approximately $22.3 million (see Note 5).
During December 2002, the Company re-tenanted one location and has
brought the mortgage loan encumbering this property current.
During February 2003, the Company reached agreement with the lender in
connection with the two remaining encumbered locations. The Company
paid approximately $8.3 million in full satisfaction of these loans
which aggregated approximately $14.7 million and will recognize a
gain on early extinguishment of debt of approximately $6.2 million
during the first quarter of 2003.
During 2001, the Company obtained four individual non-recourse
fixed-rate mortgage loans 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.
37
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Mortgages payable, collateralized by certain shopping center properties
and related tenants' leases, are generally due in monthly
installments of principal and/or interest which mature at various
dates through 2023. Interest rates range from approximately 6.50%
to 9.50% (weighted average interest rate of 7.82% as of December
31, 2002). The scheduled maturities of all mortgages payable as of
December 31, 2002, are approximately as follows (in millions):2003,
$0.0; 2004, $8.8; 2005, $14.6; 2006, $33.8; 2007, $11.1 and
thereafter, $162.5.
Two of the Company's properties are encumbered by approximately $11.1
million in floating-rate, tax-exempt mortgage bond financing. The
rates on the bonds are reset annually, at which time bondholders
have the right to require the Company to repurchase the bonds. The
Company has engaged a remarketing agent for the purpose of offering
for resale those bonds that are tendered to the Company. All bonds
tendered for redemption in the past have been remarketed and the
Company has arrangements, including letters of credit, with banks
to both collateralize the principal amount and accrued interest on
such bonds and to fund any repurchase obligations.
12. Construction Loans Payable:
During 2002, the Company obtained construction financing on eight
ground-up development projects for an aggregate loan amount of up
to $119.8 million, of which approximately $38.9 million has been
funded as of December 31, 2002. These loans have maturities ranging
from 18 to 36 months and a weighted average interest rate of 4.38%
at December 31, 2002.
The scheduled maturities of all construction loans payable as of
December 31, 2002, are approximately as follows (in millions):
2003, $7.3; 2004, $30.2; and 2005, $6.5.
13. KC Holdings:
To facilitate the Company's November 1991 initial public stock
offering (the "IPO"), 46 shopping center properties and certain
other assets, together with indebtedness related thereto, were
transferred to subsidiaries of KC Holdings, a newly-formed
corporation that is owned by the stockholders of the Company prior
to the IPO. The Company was granted ten-year, fixed-price
acquisition options (the "Acquisition Options") to reacquire the
real estate assets owned by KC Holdings' subsidiaries, subject to
any liabilities outstanding with respect to such assets at the time
of an option exercise. During the Acquisition Options period, which
expired in November 2001, KC Holdings' subsidiaries had conveyed 29
shopping centers and a 50% interest in a joint venture consisting
of three properties back to the Company. Additionally, KC Holdings'
subsidiaries disposed of ten additional centers in transactions
with third parties. The members of the Company's Board of Directors
who are not also shareholders of KC Holdings unanimously approved
the purchase of each of these properties that have been reacquired
by the Company from KC Holdings. The Company manages three of KC
Holdings' four remaining shopping center properties pursuant to a
management agreement (See Note 17).
14. Fair Value Disclosure of Financial Instruments:
All financial instruments of the Company are reflected in the
accompanying Consolidated Balance Sheets at amounts which, in
management's estimation based upon an interpretation of available
market information and valuation methodologies (including
discounted cash flow analyses with regard to fixed-rate debt)
considered appropriate, reasonably approximate their fair values
except those listed below for which fair values are reflected. Such
fair value estimates are not necessarily indicative of the amounts
that would be realized upon disposition of the Company's financial
instruments. The following are financial instruments for which the
Company's estimate of fair value differs from the carrying amounts
(in thousands):
December 31, 2002
-----------------------------------
Carrying Amounts Fair Value
---------------- ----------
Notes payable $1,302,250 $1,353,884
Mortgages payable $ 230,760 $ 282,361
38
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
15. 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,
cross currency swaps 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 interest-rate swap agreements on its $85.0 million
floating-rate MTN and on its $100.0 million floating-rate
remarketed reset notes, which have been designated and qualified as
cash flow hedges. The Company has determined that these swap
agreements are highly effective in offsetting future variable
interest cash flows related to the Company's debt portfolio. For
the year ended December 31, 2002, the change in the fair value of
the interest rate swaps was $3.3 million which was recorded in OCI
a component of stockholders' equity, with a corresponding liability
reduction for the same amount.
During 2002, the Company entered into foreign currency forward
contracts on its Canadian investment in marketable securities in
the amount of approximately CAD $31.2 million (approximately USD
$19.9 million). The Company has designated these foreign currency
forward contracts as fair value hedges. The Company expects these
forward contracts to be highly effective in limiting its exposure
to the variability in the fair value of its Canadian investments as
it relates to changes in the exchange rate. The gain or loss on the
forward contracts will be recognized currently in earnings and the
gain or loss on the Canadian investments attributable to changes in
the exchange rate will be recognized currently in earnings and
shall adjust the carrying amount of the hedged investments.
As of December 31, 2002, the Company had foreign currency forward
contracts on its Canadian investments in real estate aggregating
approximately CAD $173.3 million (approximately USD $110.3
million). In addition, the Company had foreign currency forward
contracts and a cross currency swap aggregating $383.7 million
pesos ("MXN")(approximately USD $35.7 million) on its Mexican real
estate investments. The Company has designated these foreign
currency agreements as hedges of the foreign currency exposure of
its net investment in Canadian and Mexican real estate operations.
The Company believes that these agreements are highly effective in
reducing the exposure to fluctuations in the exchange rate. The
gains and losses on these net investment hedges are recorded in OCI
with a corresponding asset or liability for the same amount.
Similarly, the foreign currency translation gains and losses on the
Canadian and Mexican investments attributable to changes in the
exchange rate will also be recorded in OCI.
During 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 warrants. The Company has determined that
the warrants are fully effective. For the year ended December 31,
2002, the change in fair value of the warrants was a loss of
approximately $0.1 million which was recorded in OCI with a
corresponding asset for the same amount.
39
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
The following table summarized the notional values and fair values of
the Company's derivative financial instruments as of December 31,
2002:
Fair Value
Hedge Type Notional Value Rate Maturity (in millions)
---------- -------------- ---- -------- -------------
Interest rate swap - cash $185.0 million 1.78% - 8/03 - ($0.6)
flow 1.8725% 11/03
Foreign currency forwards CAD $31.2 million 1.5882 - 9/03 - $0.1
- fair value 1.5918 4/05
Warrants - cash flow 2,500,000 shares of CAD 9/06 $2.3
common stock $11.02
Foreign currency forwards CAD $173.3 million 1.5527 - 1/05 - $1.3
- net investment 1.6194 8/05
Foreign currency forwards MXN $243.8 million 10.57 - 9/06 ($0.5)
- net investment 12.14
MXN cross currency swap MXN $139.9 million 7.227 10/07 ($0.4)
- net investment
As of December 31, 2002, these derivative instruments were reported at
their fair value as other liabilities of $1.5 million and other
assets of $3.7 million. During the next 12 months, the Company
expects to reclassify to earnings as expense approximately $0.6
million of the current balance in accumulated OCI primarily related
to the fair value of the interest rate swaps.
16. Preferred Stock, Common Stock and DownREIT Unit Transactions:
During October 2002, the Company acquired an interest in a shopping
center property located in Daly City, CA valued at $80.0 million
through the issuance of approximately 2.4 million downREIT units
(the "Units") which are convertible at a ratio of 1:1 into the
Company's common stock. The downREIT unit holder has the right to
convert the Units anytime after one year. In addition, the Company
has the right to mandatorily require a conversion after ten years.
If at the time of conversion the common stock price for the 20
previous trading days is less than $33.57 per share the unit holder
would be entitled to additional shares, however, the maximum number
of additional shares is limited to 251,966 based upon a floor
common stock price of $30.36. The Company has the option to settle
the conversion in cash. Dividends on the Units are paid quarterly
at the rate of the Company's common stock dividend multiplied by
1.1057. The value of the units is included in Minority interests in
partnerships on the accompanying Consolidated Balance Sheets.
During March 2001, the Company issued 29,638 shares of common stock at
$27.67 per share in connection with the exercise of its option to
acquire a 50% interest in a joint venture consisting of three
shopping center properties from KC Holdings.
During November 2001, the Company completed a primary public stock
offering of 2,250,000 shares of common stock priced at $32.85 per
share. The net proceeds from this sale of common stock, totaling
approximately $70.1 million (after related transaction costs of
$3.8 million) was used primarily to invest equity capital in a new
joint venture formed with G.E. Capital Real Estate and for
additional equity capital in KIR (see Note 6).
During December 2001, the Company completed a primary public stock
offering of 1,500,000 shares of common stock priced at $33.57 per
share. The net proceeds from this sale of common stock, totaling
approximately $47.6 million (after related transaction costs of
$2.7 million) was used for general corporate purposes, including
(i) the investment of additional equity capital in KIR (see Note 6)
and (ii) the development, redevelopment and expansion of properties
in the Company's portfolio.
Additionally, during November 2001, the Company announced the
redemption of all outstanding depositary shares of the Company's
7-1/2% Class D Cumulative Convertible Preferred Stock (the "Class D
Preferred Stock") in exchange for shares of the Company's common
stock. The Board of Directors set January 3, 2002 as the mandatory
redemption date on which all outstanding depositary shares of Class
D Preferred Stock would be redeemed. Holders of the Class D
Preferred Stock on the redemption date received 0.93168 shares of
the Company's common stock, as adjusted for the Company's
three-for-two common stock split, for each depositary share
redeemed. During 2001, 3,258,642 depositary shares of the Class D
Preferred Stock were voluntarily converted to common stock by the
holders. On January 3, 2002, the remaining 923,900 depositary
shares of the Class D Preferred Stock were redeemed for common
stock by the Company and a final dividend payment of 43.4680 cents
per Class D Depositary share was paid on January 15, 2002.
40
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
At December 31, 2002, the Company had outstanding 3,000,000 Depositary
Shares (the "Class A Depositary Shares"), each such Class A
Depositary Share representing a one-tenth fractional interest of a
share of the Company's 7-3/4% Class A Cumulative Redeemable
Preferred Stock, par value $1.00 per share (the "Class A Preferred
Stock"), 2,000,000 Depositary Shares (the "Class B Depositary
Shares"), each such Class B Depositary Share representing a
one-tenth fractional interest of a share of the Company's 8-1/2%
Class B Cumulative Redeemable Preferred Stock, par value $1.00 per
share (the "Class B Preferred Stock") and 4,000,000 Depositary
Shares (the "Class C Depositary Shares"), each such Class C
Depositary Share representing a one-tenth fractional interest of a
share of the Company's 8-3/8% Class C Cumulative Redeemable
Preferred Stock, par value $1.00 per share (the "Class C Preferred
Stock").
Dividends on the Class A Depositary Shares are cumulative and payable
quarterly in arrears at the rate of 7-3/4% per annum based on the
$25.00 per share initial offering price, or $1.9375 per depositary
share. The Class A Depositary Shares are redeemable, in whole or in
part, for cash on or after September 23, 1998 at the option of the
Company, at a redemption price of $25 per depositary share, plus
any accrued and unpaid dividends thereon. The Class A Depositary
Shares are not convertible or exchangeable for any other property
or securities of the Company. The Class A Preferred Stock
(represented by the Class A Depositary Shares outstanding) ranks
pari passu with the Company's Class B Preferred Stock, and Class C
Preferred Stock as to voting rights, priority for receiving
dividends and liquidation preferences as set forth below.
Dividends on the Class B Depositary Shares are cumulative and payable
quarterly in arrears at the rate of 8-1/2% per annum based on the
$25.00 per share initial offering price, or $2.125 per depositary
share. The Class B Depositary Shares are redeemable, in whole or in
part, for cash on or after July 15, 2000 at the option of the
Company at a redemption price of $25.00 per depositary share, plus
any accrued and unpaid dividends thereon. The redemption price of
the Class B Preferred Stock may be paid solely from the sale
proceeds of other capital stock of the Company, which may include
other classes or series of preferred stock. The Class B Depositary
Shares are not convertible or exchangeable for any other property
or securities of the Company. The Class B Preferred Stock
(represented by the Class B Depositary Shares outstanding) ranks
pari passu with the Company's Class A Preferred Stock, and Class C
Preferred Stock as to voting rights, priority for receiving
dividends and liquidation preferences as set forth below.
Dividends on the Class C Depositary Shares are cumulative and payable
quarterly in arrears at the rate of 8-3/8% per annum based on the
$25.00 per share initial offering price, or $2.0938 per depositary
share. The Class C Depositary Shares are redeemable, in whole or in
part, for cash on or after April 15, 2001 at the option of the
Company at a redemption price of $25.00 per depositary share, plus
any accrued and unpaid dividends thereon. The redemption price of
the Class C Preferred Stock may be paid solely from the sale
proceeds of other capital stock of the Company, which may include
other classes or series of preferred stock. The Class C Depositary
Shares are not convertible or exchangeable for any other property
or securities of the Company. The Class C Preferred Stock
(represented by the Class C Depositary Shares outstanding) ranks
pari passu with the Company's Class A Preferred Stock and Class B
Preferred Stock as to voting rights, priority for receiving
dividends and liquidation preferences as set forth below.
Voting Rights - As to any matter on which the Class A Preferred Stock,
Class B Preferred Stock, and Class C Preferred Stock (collectively,
the "Preferred Stock") may vote, including any action by written
consent, each share of Preferred Stock shall be entitled to 10
votes, each of which 10 votes may be directed separately by the
holder thereof. With respect to each share of Preferred Stock, the
holder thereof may designate up to 10 proxies, with each such proxy
having the right to vote a whole number of votes (totaling 10 votes
per share of Preferred Stock). As a result, each Class A, each
Class B, and each Class C Depositary Share is entitled to one vote.
41
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Liquidation Rights - In the event of any liquidation, dissolution or
winding up of the affairs of the Company, the Preferred Stock
holders are entitled to be paid, out of the assets of the Company
legally available for distribution to its stockholders, a
liquidation preference of $250.00 per share ($25.00 per Class A,
Class B, and Class C Depositary Share, respectively), plus an
amount equal to any accrued and unpaid dividends to the date of
payment, before any distribution of assets is made to holders of
the Company's common stock or any other capital stock that ranks
junior to the Preferred Stock as to liquidation rights.
17. Transactions with Related Parties:
During 2002, the Company, along with its joint venture partner provided
KROP short-term interim financing for all acquisitions by KROP for
which a mortgage was not in place at the time of closing. All such
financing bears interest at rates ranging from Libor plus 4.0% and
4.25% and have maturities of less than one year. As of December 31,
2002, KROP had outstanding short-term interim financing to GECRE
and the Company totaling $17.3 million each. The Company earned
$0.8 million during 2002 related to such interim financing.
The Company provides management services for shopping centers owned
principally by affiliated entities and various real estate joint
ventures in which certain stockholders of the Company have economic
interests. Such services are performed pursuant to management
agreements which provide for fees based upon a percentage of gross
revenues from the properties and other direct costs incurred in
connection with management of the centers. The Consolidated
Statements of Income include management fee income from KC Holdings
of less than $0.4 million for each of the years ended December 31,
2002, 2001 and 2000, respectively.
In November 1991 the Company was granted Acquisition Options to
reacquire the real estate assets owned by KC Holdings'
subsidiaries. The remaining Acquisition Options expired in November
2001 with regard to the real estate assets which the Company had
not reacquired.
In March 2001, the Company exercised its option to acquire a 50%
interest in a joint venture from KC Holdings. The joint venture
consists of three shopping center properties located in Buffalo,
NY. This joint venture interest 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 (29,638 shares valued at $27.67 per share).
Reference is made to Notes 6, 13, and 16 for additional information
regarding transactions with related parties.
18. Commitments and Contingencies:
The Company and its subsidiaries are primarily engaged in the operation
of shopping centers which are either owned or held under long-term
leases which expire at various dates through 2087. The Company and
its subsidiaries, in turn, lease premises in these centers to
tenants pursuant to lease agreements which provide for terms
ranging generally from 5 to 25 years and for annual minimum rentals
plus incremental rents based on operating expense levels and
tenants' sales volumes. Annual minimum rentals plus incremental
rents based on operating expense levels comprised approximately 99%
of total revenues from rental property for each of the three years
ended December 31, 2002, 2001 and 2000, respectively.
The future minimum revenues from rental property under the terms of all
noncancellable tenant leases, assuming no new or renegotiated
leases are executed for such premises, for future years are
approximately as follows (in millions): 2003, $335.3; 2004, $309.7;
2005, $282.2; 2006, $250.8; 2007, $222.0 and thereafter, $1,333.3.
Minimum rental payments under the terms of all noncancellable operating
leases pertaining to its shopping center portfolio for future years
are approximately as follows (in millions): 2003, $10.9; 2004,
$10.8; 2005, $10.1; 2006, $9.5; 2007, $9.0 and thereafter, $125.1.
42
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
The Company has issued letters of credit in connection with the
collateralization of tax-exempt mortgage bonds, completion
guarantees for certain construction projects, and guaranty of
payment related to the Company's insurance program. These letters
of credit aggregate approximately $14.9 million.
Additionally, the RioCan Venture, an entity in which the Company holds
a 50% non-controlling interest, has a CAD $5.0 million
(approximately USD $3.2 million) letter of credit facility. This
facility is jointly guaranteed by RioCan and the Company and has
approximately CAD $1.0 million (approximately USD $0.6 million)
outstanding as of December 31, 2002 relating to various development
projects.
During 2002, the limited partners in KIR, an entity in which the
Company holds a 43.3% non-controlling interest, contributed $55.0
million towards their respective capital commitments, including
$23.8 million by the Company. As of December 31, 2002, KIR had
unfunded capital commitments of $129.0 million, including $55.9
million from the Company.
KIR maintains a secured revolving credit facility with a syndicate of
banks, which is scheduled to expire in November 2003. This facility
is collateralized by the unfunded subscriptions of certain
partners, including those of the Company. The facility has an
aggregate availability of up to $100.0 million based upon the
amount of unfunded subscription commitments of certain partners.
During January 2003, the aggregate availability under the credit
facility was reduced to $90.0 million. As of December 31, 2002,
there was $15.0 million outstanding under this facility.
19. Incentive Plans:
The Company maintains a stock option plan (the "Plan") pursuant to
which a maximum 13,500,000 shares of the Company's common stock may
be issued for qualified and non-qualified options. Options granted
under the Plan generally vest ratably over a three-year term,
expire ten years from the date of grant and are exercisable at the
market price on the date of grant, unless otherwise determined by
the Board in its sole discretion. In addition, the Plan provides
for the granting of certain options to each of the Company's
non-employee directors (the "Independent Directors") and permits
such Independent Directors to elect to receive deferred stock
awards in lieu of directors' fees.
Information with respect to stock options under the Plan for the years
ended December 31, 2002, 2001 and 2000 is as follows:
Weighted Average
Exercise Price
Shares Per Share
------ ---------
Options outstanding, December 31, 1999 4,869,138 $20.56
Exercised (290,106) $17.03
Granted 1,347,637 $27.09
Forfeited (387,874) $19.07
----------
Options outstanding, December 31, 2000 5,538,795 $22.44
Exercised (1,694,227) $20.62
Granted 2,119,175 $30.71
Forfeited (54,390) $25.76
----------
Options outstanding, December 31, 2001 5,909,353 $25.90
Exercised (307,831) $18.76
Granted 1,562,525 $31.27
Forfeited (61,974) $27.99
----------
Options outstanding, December 31, 2002 7,102,073 $27.37
==========
Options exercisable -
December 31, 2000 2,921,737 $20.13
========= ======
December 31, 2001 2,369,288 $21.98
========= ======
December 31, 2002 3,298,417 $24.06
========= ======
43
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
The exercise prices for options outstanding as of December 31, 2002
range from $14.17 to $33.67 per share. The weighted average
remaining contractual life for options outstanding as of December
31, 2002 was approximately 7.8 years. Options to purchase
1,731,321, 3,293,846 and 913,042 shares of the Company's common
stock were available for issuance under the Plan at December 31,
2002, 2001 and 2000, respectively.
The Company has elected to adopt the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation". Accordingly, no compensation cost has
been recognized with regard to options granted under the Plan in
the accompanying Consolidated Statements of Income. If stock-based
compensation costs had been recognized based on the estimated fair
values at the dates of grant for options awarded, net income and
net income per diluted common share for the years ended December
31, 2002, 2001 and 2000 would have been reduced by approximately
$3.2 million or $0.03 per diluted share, $2.7 million or $0.03 per
diluted share and $2.2 million or $0.03 per diluted share,
respectively. Effective January 1, 2003, the Company will adopt the
prospective method provisions of FASB No. 148, which will apply the
recognition provisions of FASB No. 123 to all employee awards
granted, modified or settled after January 1, 2003.
These pro forma adjustments to net income and net income per diluted
common share assume fair values of each option grant estimated
using the Black-Scholes option pricing formula. The more
significant assumptions underlying the determination of such fair
values for options granted during 2002, 2001 and 2000 include: (i)
weighted average risk-free interest rates of 3.06%, 4.85% and
5.69%, respectively; (ii) weighted average expected option lives of
4.1 years, 5.5 years, and 4.4 years, respectively; (iii) an
expected volatility of 16.12%, 15.76% and 15.82%, respectively, and
(iv) an expected dividend yield of 6.87%, 6.74% and 6.95%,
respectively. The per share weighted average fair value at the
dates of grant for options awarded during 2002, 2001 and 2000 was
$1.50, $1.98 and $2.05, respectively.
The Company maintains a 401(k) retirement plan covering substantially
all officers and employees which permits participants to defer up
to a maximum 10% of their eligible compensation. This deferred
compensation, together with Company matching contributions which
generally equal employee deferrals up to a maximum of 5% of their
eligible compensation, is fully vested and funded as of December
31, 2002. Company contributions to the plan were approximately $0.7
million, $0.7 million and $0.6 million for the years ended December
31, 2002, 2001 and 2000, respectively.
20. Income Taxes:
The Company elected to qualify as a REIT in accordance with the Code
commencing with its taxable year which began January 1, 1992. To
qualify as a REIT, the Company must meet a number of organizational
and operational requirements, including a requirement that it
currently distribute at least 90% of its adjusted REIT taxable
income to its stockholders. It is management's intention to adhere
to these requirements and maintain the Company's REIT status. As a
REIT, the Company generally will not be subject to corporate
federal income tax, provided that distributions to its stockholders
equal at least the amount of its REIT taxable income as defined
under the Code. If the Company fails to qualify as a REIT in any
taxable year, it will be subject to federal income taxes at regular
corporate rates (including any applicable alternative minimum tax)
and may not be able to qualify as a REIT for four subsequent
taxable years. Even if the Company qualifies for taxation as a
REIT, the Company is subject to certain state and local taxes on
its income and property and federal income and excise taxes on its
undistributed taxable income. In addition, taxable income from
non-REIT activities managed through taxable REIT subsidiaries is
subject to federal, state and local income taxes.
44
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Reconciliation between GAAP Net Income and Federal Taxable Income:
The following table reconciles GAAP net income to taxable income for
the years ended December 31, 2002, 2001 and 2000 (in thousands):
2002 2001 2000
(Estimated) (Actual) (Actual)
----------- --------- ---------
GAAP net income $ 245,668 $ 236,538 $ 205,025
Less: GAAP net income of taxable REIT
subsidiaries
(23,573) (29,063) -
--------- --------- ---------
GAAP net income from REIT operations (Note 1) 222,095 207,475 205,025
Net book depreciation in excess of tax depreciation 4,043 3,612 2,889
Deferred and prepaid rents (5,800) (6,647) (7,117)
Exercise of non-qualified stock options (3,000) (15,354) (2,534)
Book/tax depreciation differences from investments
in real estate joint ventures (1,929) (3,206) (2,253)
Other book/tax differences, net 18,365 12,863 (14,240)
--------- --------- ---------
Adjusted taxable income subject to 90% dividend
requirements $ 233,774 $ 198,743 $ 181,770
========= ========= =========
Note 1 - All adjustments to "GAAP net income from REIT operations" are
net of amounts attributable to minority interest and taxable REIT
subsidiaries.
Reconciliation between Cash Dividends Paid and Dividends Paid
Deductions:
Cash dividends paid were equal to the dividends paid deduction for the
years ended December 31, 2002, 2001 and 2000, and amounted to (in
thousands) $235,602, $209,785 and $189,896, respectively.
Characterization of Distributions:
The following characterizes distributions paid for the years ended
December 31, 2002, 2001 and 2000 (in thousands):
2002 2001 2000
---- ---- ----
Preferred Dividends
Ordinary income $17,935 96% $26,253 100% $26,376 100%
Capital gain 764 4% - - - -
-------- ---- -------- ---- -------- ----
$18,699 100% $26,253 100% $26,376 100%
Common Dividends
Ordinary income $208,040 96% $174,380 95% $163,520 100%
Capital gain 8,863 4% - - - -
Return of capital - - 9,152 5% - -
-------- ---- -------- ---- -------- ----
$216,903 100% $183,532 100% $163,520 100%
Total dividends
distributed $235,602 $209,785 $189,896
======== ======== ========
Taxable REIT Subsidiaries ("TRS"):
Commencing January 1, 2001, the Company is subject to federal, state
and local income taxes on the income from its TRS activities.
Income taxes have been provided for on the asset and liability method
as required by Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes. Under the asset and liability method,
deferred income taxes are recognized for the temporary differences
between the financial reporting basis and the tax basis of the TRS
assets and liabilities.
The Company's TRS income and provision for income taxes for the years
ended December 31, 2002 and 2001, are summarized as follows (in
thousands):
45
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
2002 2001
---- ----
Taxable income before income taxes $36,477 $48,439
------- -------
Less provision for income taxes:
Federal 10,538 15,682
State and local 2,366 3,694
------- -------
Total tax provision 12,904 19,376
------- -------
TRS net income $23,573 $29,063
======= =======
There was no provision for income taxes for the year ended December 31,
2000.
Deferred tax assets of approximately $4.4 million as of December 31,
2002 and 2001 and deferred tax liabilities of approximately $1.7
million as of December 31, 2002, are included in the caption Other
assets and Other liabilities on the accompanying Consolidated
Balance Sheets at December 31, 2002 and 2001, respectively. These
deferred tax assets and liabilities relate primarily to differences
in the timing of the recognition of income/(loss) between GAAP and
tax basis of accounting of (i) real estate joint ventures, (ii)
other real estate investments and (iii) other deductible temporary
differences.
The income tax provision differs from the amount computed by applying
the statutory federal income tax rate to taxable income before
income taxes as follows (in thousands):
2002 2001
---- ----
Federal provision at statutory tax rate (35%) $12,767 $16,954
State and local taxes, net of federal benefit 2,010 2,422
Other (1,873) -
-------- ------
$12,904 $19,376
======= =======
21. Supplemental Financial Information:
The following represents the results of operations, expressed in
thousands except per share amounts, for each quarter during years
2002 and 2001:
2002 (Unaudited)
----------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- -------
Revenues from rental property(1) $112,051 $112,307 $109,961 $115,675
Net income $ 60,894 $ 61,055 $ 60,756 $ 62,963
Net income per common share:
Basic $ .54 $ .54 $ .54 $ .56
Diluted $ .53 $ .54 $ .53 $ .56
2001 (Unaudited)
---------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- -------
Revenues from rental property(1) $115,762 $113,314 $109,641 $110,269
Net income $ 56,053 $ 59,352 $ 59,250 $ 61,883
Net income per common share:
Basic $ .52 $ .55 $ .55 $ .58
Diluted $ .51 $ .55 $ .54 $ .56
(1) All periods have been adjusted to reflect the impact of operating
properties sold during the three months ended March 31, 2002 and during
the year ended December 31, 2002, and properties classified as held for
sale as of December 31, 2002 which are reflected in Discontinued
operations in the Consolidated Statements of Income.
46
KIMCO REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 2002, 2001 and 2000
(in thousands)
Accounts and notes receivable in the accompanying Consolidated Balance
Sheets are net of estimated unrecoverable amounts of approximately
$5.8 million and $4.3 million at December 31, 2002 and 2001,
respectively.
22. Pro Forma Financial Information (Unaudited):
As discussed in Notes 2 and 3, the Company and certain of its
subsidiaries acquired and disposed of interests in certain
operating properties during 2002. The pro forma financial
information set forth below is based upon the Company's historical
Consolidated Statements of Income for the years ended December 31,
2002 and 2001, adjusted to give effect to these transactions as of
January 1, 2001.
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 on January
1, 2001, nor does it purport to represent the results of operations
for future periods. (Amounts presented in millions, except per
share figures.)
Years ended December 31,
------------------------
2002 2001
---- ----
Revenues from rental property $472.9 $476.7
Net income $235.6 $237.7
Net income per common share:
Basic $2.08 $2.21
===== =====
Diluted $2.06 $2.17
===== =====