UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10899
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Kimco Realty Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 13-2744380
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 11042
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(Address of principal executive offices - zip code)
(516) 869-9000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12-b of the Exchange Act).
Yes X No
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Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12-b-2 of the Exchange Act).
Yes No X
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APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
227,283,664 shares outstanding as of October 31, 2005.
1 of 47
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets as of September 30, 2005
and December 31, 2004 3
Condensed Consolidated Statements of Income for the Three
and Nine Months ended September 30, 2005 and 2004 4
Condensed Consolidated Statements of Comprehensive Income for
the Three and Nine Months Ended September 30, 2005 and 2004 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2005 and 2004 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 28
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 39
Item 4. Controls and Procedures 40
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 41
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 41
Item 3. Defaults Upon Senior Securities 41
Item 4. Submission of Matters to a Vote of Security Holders 41
Item 5. Other Information 41
Item 6. Exhibits 41
2
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
SEPTEMBER 30, DECEMBER 31,
2005 2004
----------- -----------
Assets:
Operating real estate, net of accumulated depreciation
of $723,818 and $634,642, respectively $ 3,072,729 $ 3,095,360
Investments and advances in real estate joint ventures 666,088 595,175
Real estate under development 479,914 362,220
Other real estate investments 252,856 188,536
Mortgages and other financing receivables 145,034 140,717
Cash and cash equivalents 69,940 38,220
Marketable securities 204,996 123,771
Accounts and notes receivable 64,034 52,182
Other assets 212,885 153,416
----------- -----------
$ 5,168,476 $ 4,749,597
=========== ===========
Liabilities:
Notes payable $ 1,836,475 $ 1,608,925
Mortgages payable 310,084 353,071
Construction loans payable 210,570 156,626
Dividends payable 77,903 71,489
Other liabilities 264,496 216,195
----------- -----------
2,699,528 2,406,306
----------- -----------
Minority interests 124,174 106,891
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock , $1.00 par value, authorized 3,600,000 shares
Class F Preferred Stock, $1.00 par value, authorized 700,000 shares
Issued and outstanding 700,000 shares 700 700
Aggregate liquidation preference $175,000
Common stock, $.01 par value, authorized 300,000,000 shares
Issued and outstanding 227,252,825 and 224,852,812 shares, respectively 2,273 2,249
Paid-in capital 2,241,995 2,199,419
Retained earnings/(Cumulative distributions in excess of net income) 30,357 (3,749)
----------- -----------
2,275,325 2,198,619
Accumulated other comprehensive income 69,449 37,781
----------- -----------
2,344,774 2,236,400
----------- -----------
$ 5,168,476 $ 4,749,597
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues from rental property $ 130,441 $ 120,330 $ 388,177 $ 386,366
--------- --------- --------- ---------
Rental property expenses:
Rent 2,618 2,662 7,851 8,441
Real estate taxes 16,715 15,796 49,270 48,508
Operating and maintenance 14,013 12,100 45,681 41,462
--------- --------- --------- ---------
33,346 30,558 102,802 98,411
--------- --------- --------- ---------
97,095 89,772 285,375 287,955
Mortgage and other financing income 3,303 3,179 9,873 9,637
Management and other fee income 6,946 6,008 22,076 18,836
Depreciation and amortization (26,627) (23,623) (79,364) (75,301)
General and administrative expenses (14,084) (11,034) (38,837) (31,652)
Interest, dividends and other investment income 9,141 8,595 17,594 13,170
Other income/(expense), net (1,810) 4,790 9,346 10,994
Interest expense (33,890) (25,740) (93,027) (81,134)
--------- --------- --------- ---------
40,074 51,947 133,036 152,505
Benefit/(provision) for income taxes 860 24 (4,073) (5,395)
Income from other real estate investments 13,432 5,119 41,961 20,414
Equity in income of real estate joint ventures, net 18,052 13,864 57,140 39,792
Minority interests in income, net (3,663) (2,312) (10,711) (7,059)
Gain on sale of development properties,
net of tax of $2,433, $1,047, $9,575 and $4,935, respectively 8,121 1,571 18,835 7,404
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 76,876 70,213 236,188 207,661
--------- --------- --------- ---------
DISCONTINUED OPERATIONS:
Income from discontinued operating properties 2,821 2,825 5,130 6,235
Loss on operating properties held for sale/sold -- (913) (2,615) (5,064)
Gain on disposition of operating properties 4,964 6,386 14,425 12,498
--------- --------- --------- ---------
INCOME FROM DISCONTINUED OPERATIONS 7,785 8,298 16,940 13,669
--------- --------- --------- ---------
Gain on transfer of operating properties, net -- -- 2,151 --
Gain on disposition of operating properties 682 -- 682 --
--------- --------- --------- ---------
682 -- 2,833 --
--------- --------- --------- ---------
NET INCOME 85,343 78,511 255,961 221,330
Preferred stock dividends (2,909) (2,909) (8,728) (8,728)
--------- --------- --------- ---------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 82,434 $ 75,602 $ 247,233 $ 212,602
========= ========= ========= =========
Per common share:
Income from continuing operations:
-Basic $ 0.33 $ 0.30 $ 1.02 $ 0.89
========= ========= ========= =========
-Diluted $ 0.32 $ 0.30 $ 1.00 $ 0.88
========= ========= ========= =========
Net income :
-Basic $ 0.36 $ 0.34 $ 1.09 $ 0.96
========= ========= ========= =========
-Diluted $ 0.36 $ 0.33 $ 1.07 $ 0.94
========= ========= ========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net income $ 85,343 $ 78,511 $ 255,961 $ 221,330
--------- --------- --------- ---------
Other comprehensive income:
Change in unrealized gain on marketable securities 11,190 2,799 29,480 9,056
Change in unrealized gain on warrants -- 1,296 -- 2,547
Change in unrealized gain/(loss) on foreign
currency hedge agreements (839) (8,125) 2,665 (5,275)
Foreign currency translation adjustment 1,861 9,399 (477) 5,776
--------- --------- --------- ---------
Other comprehensive income 12,212 5,369 31,668 12,104
--------- --------- --------- ---------
Comprehensive income $ 97,555 $ 83,880 $ 287,629 $ 233,434
========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
-------------------------
2005 2004
--------- ---------
Cash flow from operating activities:
Net income $ 255,961 $ 221,330
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 80,563 77,608
Loss on operating properties held for sale/sold/transferred 2,765 5,064
Gain on sale of development properties (28,410) (12,339)
Gain on sale/transfer of operating properties (17,408) (12,498)
Minority interests in income, net 10,711 7,059
Equity in income of real estate joint ventures, net (57,140) (39,792)
Income from other real estate investments (32,329) (15,293)
Distributions of unconsolidated investments 87,544 64,384
Change in accounts and notes receivable (11,319) (796)
Change in accounts payable and accrued expenses 31,533 20,638
Change in other operating assets and liabilities (2,139) (21,292)
--------- ---------
Net cash flow provided by operating activities 320,332 294,073
--------- ---------
Cash flow from investing activities:
Acquisition of and improvements to operating real estate (278,883) (202,347)
Acquisition of and improvements to real estate under development (271,063) (107,469)
Investment in marketable securities (70,807) (24,624)
Proceeds from sale of marketable securities 27,537 16,573
Proceeds from transferred operating properties 128,537 314,449
Investments and advances to real estate joint ventures (173,359) (98,075)
Reimbursements of advances to real estate joint ventures 108,389 73,506
Other real estate investments (93,177) (55,388)
Reimbursements of advances to other real estate investments 13,912 15,942
Investment in mortgage loans receivable (68,379) (69,724)
Collection of mortgage loans receivable 65,791 48,739
Settlement of net investment hedges (34,580) --
Proceeds from sale of operating properties 49,283 41,858
Proceeds from sale of development properties 204,142 120,103
--------- ---------
Net cash flow (used for) provided by investing activities (392,657) 73,543
--------- ---------
Cash flow from financing activities:
Principal payments on debt, excluding
normal amortization of rental property debt (52,259) (15,151)
Principal payments on rental property debt (6,338) (6,120)
Principal payments on construction loan financings (70,019) (54,816)
Proceeds from mortgage/construction loan financings 216,430 265,720
Borrowings under revolving credit facilities 74,316 55,000
Repayment of borrowings under revolving credit facilities (151,326) (100,000)
Proceeds from issuance of unsecured senior notes 422,429 200,000
Repayment of unsecured senior notes (130,250) (464,000)
Financing origination costs (7,854) --
Redemption of minority interests in real estate partnerships (12,520) (3,781)
Dividends paid (215,441) (198,480)
Proceeds from issuance of stock 36,877 39,755
--------- ---------
Net cash flow provided by (used for) financing activities 104,045 (281,873)
--------- ---------
Change in cash and cash equivalents 31,720 85,743
Cash and cash equivalents, beginning of period 38,220 48,288
--------- ---------
Cash and cash equivalents, end of period $ 69,940 $ 134,031
========= =========
Interest paid during the period (net of capitalized interest
of $8,567, and $6,380, respectively) $ 72,981 $ 68,326
========= =========
Income taxes paid during the period $ 11,596 $ 10,180
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
------------------------
1. Interim Financial Statements
Principles of Consolidation -
The accompanying Condensed Consolidated Financial Statements include
the accounts of Kimco Realty Corporation (the "Company"), its subsidiaries, all
of which are wholly owned, and all entities in which the Company has a
controlling interest or has been determined to be a primary beneficiary of a
variable interest entity in accordance with the provisions and guidance of
Financial Accounting Standards Board ("FASB") Interpretation No. 46(R),
Consolidation of Variable Interest Entities ("FIN 46(R)"). All inter-company
balances and transactions have been eliminated in consolidation. The information
furnished is unaudited and reflects all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
These Condensed Consolidated Financial Statements should be read in conjunction
with the Company's Annual Report on Form 10-K and current report on Form 8-K
dated July 18, 2005.
Income Taxes -
The Company and its qualified REIT subsidiaries file a consolidated
federal income tax return. The Company has made an election to qualify, and
believes it is operating so as to qualify, as a Real Estate Investment Trust (a
"REIT") for federal income tax purposes. Accordingly, the Company generally will
not be subject to federal income tax, provided that distributions to its
stockholders equal at least the amount of its REIT taxable income as defined
under Section 856 through 860 of the Internal Revenue Code, as amended (the
"Code"). However, in connection with the Tax Relief Extension Act of 1999, which
became effective January 1, 2001, the Company is now permitted to participate in
certain activities which it was previously precluded from in order to maintain
its qualification as a REIT, so long as these activities are conducted in
entities which elect to be treated as taxable REIT subsidiaries under the Code.
As such, the Company will be subject to federal and state income taxes on the
income from these activities. During the nine months ended September 30, 2005,
the Company's provision for federal and state income taxes was approximately
$13.6 million relating to activities conducted in its taxable REIT subsidiaries.
7
Earnings Per Share -
On July 21, 2005, the Company's Board of Directors declared a
two-for-one split (the "Stock Split") of the Company's common stock which was
effected in the form of a stock dividend paid on August 23, 2005 to stockholders
of record on August 8, 2005. All share and per share data included in the
accompanying Condensed Consolidated Financial Statements and Notes thereto have
been adjusted to reflect this Stock Split.
The following table sets forth the reconciliation of earnings and the
weighted average number of shares used in the calculation of basic and diluted
earnings per share (amounts presented in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Computation of Basic Earnings Per Share:
Income from continuing operations $ 76,876 $ 70,213 $ 236,188 $ 207,661
Gain on transfer/disposition of operating
properties, net 682 -- 2,833 --
Preferred stock dividends (2,909) (2,909) (8,728) (8,728)
--------- --------- --------- ---------
Income from continuing operations
applicable to common shares 74,649 67,304 230,293 198,933
Income from discontinued operations 7,785 8,298 16,940 13,669
--------- --------- --------- ---------
Net income applicable to common shares $ 82,434 $ 75,602 $ 247,233 $ 212,602
========= ========= ========= =========
Weighted average common shares
outstanding 227,017 223,052 226,310 222,302
Basic Earnings Per Share:
Income from continuing operations $ 0.33 $ 0.30 $ 1.02 $ 0.89
Income from discontinued operations 0.03 0.04 0.07 0.07
--------- --------- --------- ---------
Net income $ 0.36 $ 0.34 $ 1.09 $ 0.96
========= ========= ========= =========
8
Computation of Diluted Earnings Per Share:
Income from continuing operations
applicable to common shares (a) $ 74,649 $ 67,304 $230,293 $198,933
Income from discontinued operations 7,785 8,298 16,940 13,669
-------- -------- -------- --------
Net income for diluted earnings per share $ 82,434 $ 75,602 $247,233 $212,602
======== ======== ======== ========
Weighted average common shares
outstanding - basic 227,017 223,052 226,310 222,302
Effect of dilutive securities (a):
Stock options 4,716 4,190 4,275 4,216
-------- -------- -------- --------
Shares for diluted earnings per share 231,733 227,242 230,585 226,518
======== ======== ======== ========
Diluted Earnings Per Share:
Income from continuing operations $ 0.32 $ 0.30 $ 1.00 $ 0.88
Income from discontinued operations 0.04 0.03 0.07 0.06
-------- -------- -------- --------
Net income $ 0.36 $ 0.33 $ 1.07 $ 0.94
======== ======== ======== ========
(a) For the three and the nine months ended September 30, 2005 and
2004, the effect of the assumed conversion of downREIT units would have an
anti-dilutive effect upon the calculation of Income from continuing operations
per share. Accordingly, the impact of such conversion has not been included in
the determination of diluted earnings per share calculations.
The Company maintains a stock option plan (the "Plan") for which prior
to January 1, 2003, the Company accounted for under 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. Effective January 1, 2003, the Company adopted the prospective
method provisions of Statement of Financial Accounting Standards ("SFAS") No.
148, Accounting for Stock-Based Compensation - Transition and Disclosure an
Amendment of FASB Statement No. 123 ("SFAS No. 148"), which applies the
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123") to all employee awards granted, modified or settled after
January 1, 2003. Awards under the Company's Plan generally vest ratably over a
three or five-year term and expire ten years from the date of grant. Therefore,
the cost related to stock-based employee compensation included in the
determination of net income for the three and nine months ended September 30,
2005 is less than that which would have been recognized if the fair value based
method had been applied to all awards since the original effective date of SFAS
No. 123. 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 (amounts presented in thousands, except per share
data):
9
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net income, as reported $ 85,343 $ 78,511 $ 255,961 $ 221,330
Add: Stock based employee
compensation expense included in
reported net income 1,111 381 3,184 1,059
Deduct: Total stock based employee
compensation expense determined
under fair value based method for all
awards (1,261) (798) (3,632) (2,309)
--------- --------- --------- ---------
Pro Forma Net Income - Basic $ 85,193 $ 78,094 $ 255,513 $ 220,080
========= ========= ========= =========
Earnings Per Share
Basic - as reported $ 0.36 $ 0.34 $ 1.09 $ 0.96
========= ========= ========= =========
Basic - pro forma $ 0.36 $ 0.34 $ 1.09 $ 0.95
========= ========= ========= =========
Net income applicable to common
shares for diluted earnings per share $ 82,434 $ 75,602 $ 247,233 $ 212,602
Add: Stock based employee
compensation expense included in
reported net income 1,111 381 3,184 1,059
Deduct: Total stock based employee
compensation expense determined
under fair value based method for all
awards (1,261) (798) (3,632) (2,309)
--------- --------- --------- ---------
Pro Forma Net Income applicable to
commons shares - Diluted $ 82,284 $ 75,185 $ 246,785 $ 211,352
========= ========= ========= =========
Earnings Per Share
Diluted - as reported $ 0.36 $ 0.33 $ 1.07 $ 0.94
========= ========= ========= =========
Diluted - pro forma $ 0.36 $ 0.33 $ 1.07 $ 0.93
========= ========= ========= =========
In addition, there were approximately 990,000 and 125,000 stock options
that were anti-dilutive as of September 30, 2005 and 2004, respectively.
10
New Accounting Pronouncements -
In December 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, (revised 2004) Share-Based Payment ("SFAS No. 123(R)"),
which supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees
and its related implementation guidance. SFAS No. 123(R) established standards
for the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that are based on
the fair value of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. SFAS No. 123(R) focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R) is effective for fiscal years
beginning after December 15, 2005. The impact of adopting SFAS No. 123 (R) is
not expected to have a material impact on the Company's financial position or
results of operations.
In December 2004, the FASB issued Statement No. 153, Exchange of
Non-monetary Assets - an amendment of APB Opinion No. 29 ("SFAS No. 153"). The
guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is
based on the principle that exchanges of non-monetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. This Statement amends
Opinion No. 29 to eliminate the exception for non-monetary assets that do not
have commercial substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. SFAS No. 153 is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The impact
of adopting SFAS No. 153 did not have a material impact on the Company's
financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections ("SFAS No. 154"), which replaces Accounting Principle Board Opinion
No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154 changes the requirements for the
accounting for and reporting of a change in accounting principles. It requires
retrospective application to prior periods' financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. This statement
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005.
In September 2005, the Emerging Issues Task Force ("EITF") issued Issue
04-5, Investor's Accounting for an Investment in a Limited Partnership When the
Investor is the Sole General Partner and the Limited Partners Have Certain
Rights, ("EITF 04-5"). At issue is what rights held by the limited partner(s)
preclude consolidation in circumstances in which the sole general partner would
consolidate the limited partnership in accordance with U.S. generally accepted
accounting principles. The assessment of limited partners' rights and their
impact on the presumption of control of the limited partnership by the sole
general partner should be made when an investor becomes the sole general partner
and should be reassessed if (i) there is a change to the terms or in the
exercisability of the rights of the limited partners, (ii) the sole general
partner increases or decreases its ownership of limited partnership interests,
or (iii) there is an increase or decrease in the number of outstanding limited
partnership interests. This issue is effective no later than for fiscal years
beginning after December 15, 2005 and as of June 29, 2005 for new or modified
arrangements. The impact of adopting EITF 04-5 is not expected to have a
material impact on the Company's financial position or results of operations.
11
2. Operating Property Activities and Other Investments
Acquisitions -
During January 2005, the Company acquired a shopping center property
located in Clearwater, FL, comprising approximately 0.2 million square feet of
gross leasable area ("GLA"), for a purchase price of approximately $17.7
million.
During March 2005, the Company acquired the remaining 40% interest in a
shopping center property located in Temple, TX, in which the Company had
previously owned a 60% interest, for a purchase price of approximately $0.9
million. During June 2005, the Company transferred this property to a newly
formed joint venture in which the Company now has a 20% non-controlling
interest.
Additionally, during March 2005, the Company acquired two operating
properties, located in New York, NY, through newly formed joint ventures in
which the Company holds 95% economic interests, for an aggregate purchase price
of approximately $11.6 million. Simultaneously with the closing, each property
was encumbered with an individual non-recourse floating-rate mortgage
aggregating approximately $9.1 million. These loans mature in April 2007 and
bear interest at LIBOR plus 2% and LIBOR plus 2.25% (5.86% and 6.11%,
respectively, at September 30, 2005). Based upon the provisions of FIN 46(R),
the Company has determined that these entities are variable interest entities
("VIE"). The Company has further determined that the Company is the primary
beneficiary of these VIEs and has therefore consolidated these entities for
financial reporting purposes. The Company's maximum exposure to loss associated
with these entities is primarily limited to the Company's aggregate capital
investment, which was approximately $3.4 million at September 30, 2005.
During April 2005, the Company acquired an operating property located
in Poway, CA, comprising approximately 0.1 million square feet of GLA, for a
purchase price of approximately $19.5 million.
12
During May 2005, the Company acquired, in separate transactions, two
parcels of land located in Saltillo and Pachuca, Mexico, for an aggregate
purchase price of approximately $14.6 million. The properties will be developed
into retail centers with an aggregate total projected cost of approximately
$34.1 million.
During June 2005, the Company acquired a portfolio of 45 operating
properties, comprising approximately 0.3 million square feet of GLA, located in
Virginia and Maryland, for a purchase price of approximately $85.3 million.
During August 2005, the Company obtained approximately $65.0 million of
crossed-collateralized non-recourse mortgage debt encumbering all 45 operating
properties. This mortgage debt matures in September 2015 and bears interest at a
fixed-rate of 4.94% per annum. During September 2005, the entire portfolio of 45
properties and the associated debt was transferred to a newly formed
unconsolidated joint venture in which the Company has a 15% non-controlling
interest.
During 2005, the Company acquired ten self-storage facilities through
an existing joint venture in which the Company holds an approximate 93.5%
economic interest, for a purchase price of approximately $39.9 million including
the assumption of approximately $7.5 million of non-recourse fixed-rate mortgage
debt encumbering three of these properties. As of September 30, 2005, this
entity owns 17 self-storage facilities located in various states. The Company
has cross-collateralized 14 of these properties with approximately $44.0 million
of non-recourse floating-rate mortgage debt which matures in November 2007 and
has an interest rate of LIBOR plus 2.75% (6.61% at September 30, 2005). Based
upon the provisions of FIN 46(R), the Company has determined that this entity is
a VIE. The Company has further determined that the Company is the primary
beneficiary of this VIE and has therefore consolidated this entity for financial
reporting purposes. The Company's maximum exposure to loss associated with this
entity is primarily limited to the Company's carrying value of this investment,
which was approximately $16.0 million at September 30, 2005.
Dispositions -
During the nine months ended September 30, 2005, the Company (i)
disposed of, in separate transactions, 13 operating properties for an aggregate
sales price of approximately $60.1 million, (ii) transferred three operating
properties to KROP, as defined below, for an aggregate price of approximately
$49.0 million, and (iii) transferred 52 operating properties to various joint
ventures in which the Company has non-controlling interests ranging from 15% to
50% for an aggregate price of approximately $232.1 million. For the nine months
ended September 30, 2005, these transactions resulted in an aggregate net gain
of approximately $14.6 million.
During June 2005, the Company disposed of a vacant land parcel located
in New Ridge, MD for approximately $5.6 million resulting in a $4.6 million gain
on sale. This gain is included in Other income, net on the Company's Condensed
Consolidated Statements of Income.
13
Other Investments -
From 2000 through 2002 the Company acquired approximately $28.9 million
face amount of Frank's Nursery and Crafts, Inc. ("Frank's"), 10.25% bonds for an
aggregate purchase price of approximately $11.3 million. During February 2001,
Frank's filed for protection under Chapter 11 of the United States Bankruptcy
Code. During May 2002, Frank's plan of reorganization was confirmed by the
Bankruptcy court and Frank's emerged from bankruptcy. Pursuant to Frank's
reorganization plan the Company received approximately 4.3 million shares of
Frank's common stock valued at $2.34 per share in settlement of its Frank's bond
investment. As a result of this conversion the Company held an approximate 27%
interest in Frank's and began accounting for its investment on the equity
method. In addition, the Company began providing loans to Frank's under a
revolving credit facility, which was collateralized by certain real estate
interests of Frank's. 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.
During September 2004, Frank's again filed for protection under Chapter
11 of the United States Bankruptcy Code. The Company committed to provide
Frank's, in addition to its revolving credit facility, with $27.0 million of
debtor-in-possession financing for a term of one year at an interest rate of
Prime plus 1.00%. From the petition date until July 26, 2005, Frank's operated
its business as a debtor-in-possession and during this period had completely
liquidated its inventory and ceased operations as a retailer.
Frank's plan of reorganization included a Company sponsored
re-capitalization plan in which the Company, along with several other
significant shareholders, agreed to re-capitalize Frank's with approximately
$104.0 million in cash in exchange for debt and equity securities and convert
Frank's from a publicly held retail company to a privately held real estate
company.
On July 27, 2005, Frank's emerged from Chapter 11 bankruptcy pursuant
to a bankruptcy court approved plan of reorganization as FNC Realty Corporation
("FNC"). Pursuant to the reorganization plan, shareholders of Frank's were
offered cash of $0.75 per share or the right to exchange Frank's common stock
for FNC common stock on a 1:1 basis. FNC's capitalization included the issuance
of approximately $27.0 million of common stock and $77.0 million of fixed-rate
7% convertible senior notes. The notes mature in July 2008, and may be converted
at anytime by the holder for common shares of FNC at $0.75 per share. Proceeds
from the issuance of common stock and convertible senior notes were used to
repay all claims pursuant to the plan of reorganization, including amounts owed
to the Company under its revolving credit facility and debtor-in-possession
financing agreement.
14
Pursuant to the plan of reorganization the Company received common
shares of FNC representing an approximate 27% ownership interest in exchange for
its interests in Frank's. In addition, the Company acquired an additional 24.5%
interest in the common shares of FNC for cash of approximately $17 million,
thereby increasing the Company's ownership interest to approximately 51%. This
acquisition of additional shares includes the exercise of warrants previously
issued by Frank's to the Company. The Company also acquired approximately $42
million of fixed-rate 7% convertible senior notes issued by FNC.
As a result of the increase in ownership interest from 27% to 51%, the
Company became the controlling shareholder and therefore, commenced
consolidation of FNC effective July 27, 2005. The acquisition of the additional
24.5% ownership interest has been accounted for as a step acquisition under the
provisions of SFAS No. 141 "Business Combinations", with the purchase price
being allocated to the identified assets and liabilities of FNC.
As of July 27, 2005, FNC had approximately $154 million of net
operating loss carry-forwards ("NOLs"), which may be utilized to offset future
taxable income of FNC. As Frank's had recurring losses and was in bankruptcy,
the realization of the NOLs was uncertain. Accordingly, a full valuation
allowance was recorded against the deferred tax asset relating to these NOLs. Of
the total amount of available NOLs, the Company has estimated approximately $124
million is unrestricted and $30 million is restricted (limited to utilization of
$1.1 million per year).
The Company has evaluated the level of valuation allowance required and
determined, based upon the expected investment strategy for FNC, that
approximately $27 million of the allowance should be reduced and recorded as an
adjustment to the purchase price allocation.
As of July 27, 2005, FNC held interests in 55 properties with
approximately $16.1 million of non-recourse mortgage debt encumbering 16 of the
properties. These loans bear interest at fixed rates ranging from 7.00% - 7.75%
and maturity dates ranging from August 2014 through June 2022. The Company's
investment strategy with respect to FNC includes re-tenanting, re-developing and
disposition of the properties. From July 27, 2005 through September 30, 2005,
FNC disposed of six properties, in separate transactions, for an aggregate sales
price of approximately $6.8 million.
3. Discontinued Operations
In accordance with SFAS No. 144, Accounting for Impairment or Disposal
of Long Lived Assets ("SFAS No. 144"), the Company reports as discontinued
operations assets held-for-sale (as defined by SFAS No. 144) and operating
properties sold in the current period. All results of these discontinued
operations are included in a separate component of income on the Condensed
Consolidated Statements of Income under the caption Discontinued operations.
This reporting has resulted in certain reclassifications of 2004 financial
statement amounts.
15
The components of Income from operations related to discontinued
operations for the three and nine months ended September 30, 2005 and 2004 are
shown below. These include the results of operations through the date of sale
for each property sold during 2005 and 2004 and the operations for the
applicable period for those assets classified as held-for-sale as of September
30, 2005 (in thousands):
Three Months ended Nine Months ended
September 30, September 30,
------------------------ -----------------------
2005 2004 2005 2004
-------- -------- -------- --------
Discontinued operations:
Revenues from rental property $ 1,654 $ 3,710 $ 6,429 $ 12,590
Rental property expenses (256) (799) (1,892) (3,933)
-------- -------- -------- --------
Income from property operations 1,398 2,911 4,537 8,657
Depreciation and amortization (44) (772) (1,198) (2,306)
Interest expense -- (174) 182 (605)
Other 1,467 860 1,609 489
-------- -------- -------- --------
Income from discontinued operating
properties 2,821 2,825 5,130 6,235
Loss on operating properties held for
sale/sold -- (913) (2,615) (5,064)
Gain on disposition of operating
properties 4,964 6,386 14,425 12,498
-------- -------- -------- --------
Income from discontinued
operations $ 7,785 $ 8,298 $ 16,940 $ 13,669
======== ======== ======== ========
During March 2005, the Company reclassified as held-for-sale three
shopping center properties comprising approximately 0.4 million square feet of
GLA. The book value of each of these properties, aggregating approximately $17.1
million, net of accumulated depreciation of approximately $8.4 million, did not
exceed each of their estimated fair values. As a result, no adjustment of
property carrying value was recorded. The Company's determination of the fair
value for each of these properties, aggregating approximately $22.1 million, was
based upon executed contracts of sale with third parties less estimated selling
costs. The Company completed the sale of these properties during the quarter
ended June 30, 2005.
During June 2005, the Company reclassified as held-for-sale a shopping
center property comprising approximately 0.2 million square feet of GLA. The
book value of this property of approximately $25.1 million, net of accumulated
depreciation of approximately $1.0 million, did not exceed its estimated fair
value. As a result, no adjustment of property carrying value has been recorded.
The Company's determination of the fair value of this property of approximately
$39.3 million, was based upon an executed contract of sale with a third party
less estimated selling costs.
16
During September 2005, the Company reclassified as held-for-sale a
shopping center property comprising approximately 0.2 million square feet of
GLA. The book value of this property of approximately $3.6 million, net of
accumulated depreciation of approximately $1.0 million, did not exceed its
estimated fair value. As a result, no adjustment of property carrying value has
been recorded. The Company's determination of the fair value of this property of
approximately $7.6 million, was based upon an executed contract of sale with a
third party less estimated selling costs.
During March 2004, the Company reclassified as held-for-sale two
shopping center properties comprising approximately 0.3 million square feet of
GLA. The book value of these properties, aggregating approximately $8.7 million,
net of accumulated depreciation of approximately $4.2 million, exceeded their
estimated fair value. The Company's determination of the fair value of these
properties, aggregating approximately $4.5 million, was based upon contracts of
sale with third parties less estimated selling costs. As a result, the Company
recorded a loss resulting from an adjustment of property carrying values of $4.2
million. During March 2004, the Company completed the sale of one of these
properties, comprising approximately 0.1 million square feet of GLA, for a sales
price of approximately $1.1 million. During June 2004, the Company completed the
sale of the other property, comprising approximately 0.2 million square feet of
GLA, for a sales price of approximately $3.9 million.
4. Kimco Developers, Inc. ("KDI")
During the nine months ended September 30, 2005, KDI, the Company's
wholly-owned development taxable REIT subsidiary, acquired various land parcels
relating to 12 ground-up development projects for an aggregate purchase price of
approximately $113.4 million.
During the nine months ended September 30, 2005, KDI sold five of its
recently completed projects and 28 out-parcels, in separate transactions, for
approximately $201.9 million. These sales provided gains of approximately $18.8
million, net of income taxes of $9.6 million.
Additionally, during the nine months ended September 30, 2005, KDI
obtained construction financing on three ground-up development projects for an
aggregate loan amount of up to $50.5 million, of which approximately $21.8
million was funded as of September 30, 2005. As of September 30, 2005, KDI had
17 loans with total commitments of up to $395.4 million of which $210.6 million
had been funded. These loans have original maturities ranging from 18 to 36
months and interest rates ranging from 5.51% to 6.11% at September 30, 2005.
17
5. Investment and Advances in Real Estate Joint Ventures
Kimco Income REIT -
During 1998, the Company formed Kimco Income REIT ("KIR"), a limited
partnership which the Company manages, established to invest in high quality
retail properties financed primarily through the use of individual non-recourse
mortgages.
The Company holds a 43.3% non-controlling limited partnership interest
in KIR and accounts for its investment under the equity method of accounting.
The Company's equity in income of KIR for the nine months ended September 30,
2005 and 2004 was approximately $21.5 million and $14.4 million, respectively.
During March 2005, KIR disposed of an operating property and an
out-parcel, in separate transactions, for an aggregate sales price of
approximately $43.1 million. These sales resulted in an aggregate gain of
approximately $17.8 million of which the pro-rata gain to the Company was
approximately $7.7 million. In connection with the sale of the operating
property, KIR incurred a $2.0 million loan defeasance charge, of which the
Company's pro-rata share was approximately $0.9 million.
Additionally, during March 2005, KIR acquired an operating property
located in Delran, NJ, for a purchase price of approximately $4.6 million.
KIR has a master management agreement with the Company, whereby, the
Company will perform services for fees relating to the management, operation,
supervision and maintenance of the joint venture properties. For each of the
nine months ended September 30, 2005 and 2004, the Company earned management
fees of approximately $2.2 million.
As of September 30, 2005, the KIR portfolio was comprised of 69
properties aggregating 14.2 million square feet of GLA located in 20 states.
RioCan Venture -
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 GLA) in which the Company has a 50%
non-controlling interest, to acquire retail properties and development projects
in Canada. The acquisitions 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 accounts for its investment in the RioCan Venture on the
equity method of accounting.
18
As of September 30, 2005, the RioCan Venture consisted of 35 shopping
center properties aggregating 8.0 million square feet of GLA.
During the nine months ended September 30, 2005 and 2004, the Company
recognized equity in income of the RioCan Venture of approximately $16.7 million
and $12.3 million, respectively.
KROP 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. The Company
accounts for its investment in KROP under the equity method of accounting.
During the nine months ended September 30, 2005, KROP acquired four
operating properties and one out-parcel, in separate transactions, for an
aggregate purchase price of approximately $74.6 million, including the
assumption of approximately $26.2 million of individual non-recourse mortgage
debt encumbering two of the properties, and preferred units of approximately
$4.2 million associated with another property.
During the nine months ended September 30, 2005, KROP disposed of two
operating properties for an aggregate sales price of approximately $27.3
million. These sales resulted in an aggregate gain of approximately $1.2
million.
During the nine months ended September 30, 2004, KROP disposed of four
operating properties and two out-parcels for an aggregate sales price of
approximately $45.8 million including the assignment of approximately $11.2
million of non-recourse mortgage debt encumbering two of the properties. These
sales resulted in an aggregate gain of approximately $14.3 million.
As of September 30, 2005, the KROP venture consisted of 39 properties
aggregating 5.7 million square feet of GLA located in 14 states. For the nine
months ended September 30, 2005 and 2004, the Company recognized equity in
income of KROP of approximately $3.3 million and $4.6 million, respectively.
Additionally, during the nine months ended September 30, 2005 and 2004, the
Company earned management fees of approximately $2.6 million and $1.9 million,
respectively and acquisition fees of approximately $0.5 million and $1.7
million, respectively.
19
Other Real Estate Joint Ventures -
During December 2004, the Company acquired the Price Legacy Corporation
through a newly formed joint venture, PL Retail LLC ("PL Retail"), in which the
Company has a 15% non-controlling interest and manages the portfolio. The
Company accounts for its investment under the equity method of accounting. In
connection with this transaction, PL Retail acquired 33 operating properties
aggregating approximately 7.6 million square feet of GLA located in ten states.
To partially fund the acquisition, the Company provided PL Retail approximately
$30.6 million of secured mezzanine financing. This interest only loan bears
interest at a fixed rate of 7.5% and matures in December 2006. During the nine
months ended September 30, 2005, PL Retail disposed of eight operating
properties, in separate transactions, for an aggregate sales price of
approximately $80.9 million, which represented the approximate carrying values
of the properties. Proceeds of approximately $21.8 million were used to
partially repay the mezzanine financing that was provided by the Company. As of
September 30, 2005, the outstanding balance of the mezzanine financing was
approximately $8.8 million.
During March 2005, a joint venture in which the Company has a 50%
non-controlling interest, disposed of two vacant land parcels located in
Glendale, AZ, in separate transactions, for an aggregate sales price of
approximately $9.9 million. These sales resulted in an aggregate gain of
approximately $4.8 million, of which the Company's share was approximately $2.4
million.
Additionally, during March 2005, the Company transferred 50% of the
Company's 95% interest in a development property located in Huehuetoca, Mexico,
to a joint venture partner for approximately $5.3 million, which approximated
its carrying value. As a result of this transaction, the Company now holds a
47.5% non-controlling interest in this property and now accounts for its
investment under the equity method of accounting.
During April 2005, the Company acquired an operating property located
in Hillsborough, NJ, comprising approximately 0.1 million square feet of GLA,
through a newly formed joint venture in which the Company has a 50%
non-controlling interest. The property was acquired for approximately $4.0
million including the assumption of approximately $1.9 million of non-recourse
mortgage debt encumbering the property. Subsequent to the purchase the joint
venture obtained a $3.2 million one year term loan which bears interest at LIBOR
plus 0.55%. This loan is jointly and severally guaranteed by the joint venture
partners, including the Company. Proceeds from this loan were used to repay the
$1.9 million mortgage encumbering the property.
Additionally, during April 2005, the Company acquired land in Pachuca
Hildago, Mexico, through a newly formed joint venture in which the Company has a
50% non-controlling interest, for a purchase price of approximately $2.7
million. The property will be developed as a retail center with a projected
total cost of approximately $9.3 million.
20
During May 2005, a newly formed joint venture, in which the Company has
a 50% non-controlling interest, acquired in separate transactions, two auto
dealerships located in Toronto, Canada for an aggregate purchase price of
approximately CAD $6.4 million (approximately USD $5.1 million).
Additionally, during May 2005, the Company acquired a hotel property
located in Cancun, Mexico, through a newly formed joint venture in which the
Company has an 80% non-controlling interest. The property was purchased for
approximately $19.7 million. Simultaneous with the closing, the property was
encumbered with $12.4 million of non-recourse mortgage debt which bears interest
at a fixed rate of 7.63% per annum and matures during May 2010.
During June 2005, the Company acquired land in Tustin, CA, through a
newly formed joint venture in which the Company has a 50% non-controlling
interest, for a purchase price of approximately $23.0 million. The property will
be developed into a 1.0 million square foot retail center with a total estimated
project cost of approximately $149.3 million. The purchase of the land was
funded through a new construction loan which bears interest at LIBOR plus 1.70%
and is scheduled to mature in October 2007. As of September 30, 2005, this
construction loan had an outstanding balance of approximately $34.9 million.
Additionally, during June 2005, the Company acquired an additional 25%
interest in a joint venture in which the Company had previously held a 7.77%
interest for approximately $26.0 million. This joint venture owns an operating
property, comprised of approximately 0.5 million square feet of GLA, located in
Fremont, CA. The Company now has a 32.77% non-controlling interest in this joint
venture and accounts for its investment under the equity method of accounting.
During July 2005, the company transferred a development property
located in Reynosa, Mexico, to a newly formed joint venture in which the Company
has a 50% non-controlling interest, for a price of approximately $6.9 million.
The Company now accounts for this investment under the equity method of
accounting.
Additionally, during July 2005, the Company acquired an interest in an
office property located in Houston, TX, comprising approximately 0.6 million
square feet of GLA through a newly formed joint venture in which the Company has
an 85% non-controlling interest. The Company's investment in the joint venture
was approximately $12.2 million. The joint venture purchased the property for
approximately $91.1 million subject to $76.5 million of non-recourse mortgage
debt which bears interest at a fixed-rate of 5.15% per annum and matures during
August 2015. The Company accounts for this investment under the equity method of
accounting.
21
Additionally, during the nine months ended September 30, 2005, the
Company acquired, in separate transactions, six operating properties comprising
approximately 1.1 million square feet of GLA, through newly formed joint
ventures in which the company has non-controlling interests ranging from 5% to
50%. The aggregate purchase price for these properties was approximately $159.1
million, including mortgage debt of approximately $68.3 million of non-recourse
mortgage debt encumbering two of the properties. The Company accounts for its
investment in these joint ventures under the equity method of accounting.
During September 2005, the Company transferred 45 operating properties,
comprising approximately 0.3 million square feet of GLA, located in Virginia and
Maryland to a newly formed unconsolidated joint venture in which the Company has
a 15% non-controlling interest. The transfer price was approximately $85.3
million including the assignment of approximately $65.0 million of
cross-collateralized non-recourse mortgage debt encumbering all of the
properties.
Additionally, during 2005, the Company transferred, in separate
transactions, five operating properties comprising approximately 0.7 million
square feet of GLA, to newly formed joint ventures in which the Company has 20%
non-controlling interests, for an aggregate price of approximately $85.6
million, including the assignment of approximately $40.2 million of mortgage
debt encumbering three of the properties. The Company accounts for its
investments in these joint ventures under the equity method of accounting.
The Company's maximum exposure to losses associated with its
unconsolidated joint ventures is primarily limited to its carrying value in
these investments. As of September 30, 2005, the Company's carrying value in
these investments approximated $666.1 million.
6. Other Real Estate Investments
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 4.6 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. The Company
accounts for its investment in Kimsouth under the equity method of accounting.
22
During the nine months ended September 30, 2005, Kimsouth sold seven
properties, in separate transactions, for an aggregate sales price of
approximately $78.8 million including the assignment of approximately $23.7
million of non-recourse mortgage debt encumbering two of the properties. For the
nine months ended September 30, 2005 and 2004, the Company recognized equity in
income of Kimsouth of approximately $6.6 million and $7.9 million, respectively.
As of September 30, 2005, Kimsouth consisted of five properties,
including the remaining office component of an operating property sold in 2004,
aggregating approximately 1.1 million square feet of GLA located in four states.
Preferred Equity Capital -
During 2002, the Company established a Preferred Equity program, which
provides capital to developers and owners of real estate. During the nine months
ended September 30, 2005, the Company provided an aggregate of approximately
$43.8 million in investment capital to developers and owners of 15 real estate
properties. As of September 30, 2005, the Company's net investment under the
Preferred Equity program was approximately $193.8 million. During the nine
months ended September 30, 2005, the Company earned approximately $22.5 million
from these investments, including $7.5 million in profit participation earned
from three capital transactions. During the nine months ended September 30,
2004, the Company earned approximately $5.5 million from its preferred equity
investments.
Other -
During the nine months ended September 30, 2005, the Company recognized
approximately $3.8 million primarily from land sales relating to the land
resource management operations of Blue Ridge / Big Boulder Real Estate, a
consolidated entity in which the Company holds an approximate 54% ownership
interest.
7. Mortgages and Other Financing Receivables
During May 2002, the Company provided a $15 million three-year term
loan and a $7.5 million revolving credit facility to Frank's at an interest rate
of 10.25% per annum collateralized by 40 real estate interests. Interest is
payable quarterly in arrears. During 2003, the revolving credit facility was
amended to increase the total borrowing capacity to $17.5 million. During
January 2004, the revolving loan was further amended to provide up to $33.75
million of borrowings from the Company. During September 2004, Frank's filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The Company committed
to provide an additional $27.0 million of Debtor-in-Possession financing with a
term of one year at an interest rate of Prime plus 1.00% per annum. During July
2005, Frank's emerged from bankruptcy as FNC and repaid all outstanding amounts
owed to the Company under the revolving credit facility and the
Debtor-in-Possession agreement (See Note 2 of the Notes to Condensed
Consolidated Financial Statements).
23
During April 2005, the Company provided a construction loan commitment
of up to 52.5 million Mexican Pesos ("MXP") (approximately USD $4.5 million) to
a developer for the construction of a new retail center in Acapulco, Mexico. The
loan bears interest at a fixed rate of 11.75% and provides for an additional 20%
participation of property cash flow, as defined. This facility is initially
interest only and then converts to an amortizing loan at the earlier of 120 days
after construction completion or upon opening of the anchor tenant. This
facility is collateralized by the related property and matures in May 2015. As
of September 30, 2005, there was approximately MXP 43.7 million (USD $4.1
million) outstanding on this loan.
Additionally, during April 2005, a newly formed joint venture, in which
the Company has a 50% non-controlling interest, provided a retailer with a
three-year $28.0 million revolving line of credit at a floating interest rate of
Prime plus 5.5% per annum. The facility also provides for a 3.0% unused line fee
and a 2.50% origination fee. The facility is collateralized by certain real
estate interests of the borrower. As of September 30, 2005, the outstanding
balance on this facility was $10.0 million of which the Company's share was $5.0
million.
During May 2005, a newly formed joint venture, in which the Company has
a 44.38% non-controlling interest, provided Debtor-in-Possession financing to a
healthcare facility that recently filed for bankruptcy and is closing its
operations. The term of this loan is two years and bears interest at prime plus
2.5%. The loan is collateralized by a hospital building, a six-story commercial
building, a 12-story 133 unit apartment complex and various other building
structures. The Company's share of the outstanding balance of this loan at
September 30, 2005 is $2.4 million.
Additionally, during May 2005, the Company acquired four mortgage loans
collateralized by individual properties with an aggregate face value of
approximately $16.6 million for approximately $14.3 million. These performing
loans, which provide for monthly payments of principal and interest, bear
interest at a fixed-rate of 7.57% and mature on June 1, 2019. As of September
30, 2005, there was an aggregate of approximately $14.2 million outstanding on
these loans.
During September 2005, a newly formed joint venture, in which the
Company has an 80% interest, acquired a $43.6 million mortgage receivable for a
purchase price of approximately $34.2 million. The loan bears interest at a rate
of three-month LIBOR plus 2.75% per annum and matures on January 12, 2010. The
loan is collateralized by a 626 room hotel located in Lake Buena Vista, FL. The
Company has determined that this entity is a VIE and has further determined that
the Company is the primary beneficiary of this VIE and has therefore
consolidated it for financial reporting purposes.
24
8. Notes Payable
During February 2005, the Company issued $100.0 million of fixed rate
unsecured senior notes under its medium-term notes ("MTN") program. This fixed
rate MTN matures in February 2015 and bears interest at 4.904% per annum. The
proceeds from this MTN issuance were primarily used for the repayment of all
$20.0 million of the Company's fixed rate notes that matured in April 2005,
which bore interest at 7.91%, all $10.25 million of the Company's fixed rate
notes that matured in May 2005, which bore interest at 7.30%, and partial
repayment of the Company's $100.0 million fixed rate notes which matured in June
2005, and bore interest at 6.73%.
During June 2005, the Company issued $200.0 million of fixed rate
unsecured senior notes under its MTN program. This fixed rate MTN matures in
June 2014 and bears interest at 4.82% per annum. The proceeds from this issuance
were primarily used to repay a portion of the outstanding balance under the
Company's U.S. revolving credit facility and for general corporate purposes.
During April 2005, Kimco North Trust III, a wholly-owned entity of the
Company, completed the issuance of $150.0 million Canadian denominated senior
unsecured notes. The notes bear interest at 4.45% and mature on April 21, 2010.
The Company has provided a full and unconditional guarantee of the notes. The
proceeds were used by Kimco North Trust III, to pay down outstanding
indebtedness under existing credit facilities, to fund long-term investments in
Canadian real estate and for general corporate purposes. The senior unsecured
notes are governed by an indenture by and among Kimco North Trust III, the
Company, as guarantor, and BNY Trust Company of Canada, as trustee dated April
21, 2005.
During May 2005, the Company entered into a three-year MXP 500.0
million unsecured revolving credit facility. This facility bears interest at the
TIIE Rate, as defined, plus 1.0% and is scheduled to expire in May 2008.
Proceeds from this facility will be used to fund peso denominated investments.
As of September 30, 2005, there was approximately MXP 330.0 million
(approximately USD $30.7 million) outstanding under this facility.
During July 2005, the Company established a new $850.0 million
unsecured revolving credit facility (the "Credit Facility"), which is scheduled
to expire in July 2008. This Credit Facility replaces the Company's $500.0
million unsecured credit facility, which was scheduled to expire in June 2006.
Under the Credit Facility funds may be borrowed for general corporate purposes,
including the funding of (i) property acquisitions, (ii) development and
redevelopment costs and (iii) any short-term working capital requirements.
Interest on borrowings under the Credit Facility accrue at a spread (currently
0.45%) to LIBOR and fluctuates in accordance with changes in the Company's
senior debt ratings. As part of this Credit Facility, the Company has a
competitive bid option whereby the Company may auction up to $425.0 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 0.45%. A facility fee of 0.125% per annum is payable quarterly in
arrears. In addition, the Company has a $200.0 million sub-limit which provides
it the opportunity to borrow in alternative currencies such as Pounds Sterling,
Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the
Company, among other things, is (i) subject to maintaining certain maximum
leverage ratios on both unsecured senior corporate debt and minimum unencumbered
asset and equity levels, and (ii) restricted from paying dividends in amounts
that exceed 95% of funds from operations, as defined. As of September 30, 2005,
there was $80.0 million outstanding under this credit facility.
25
9. Supplemental Schedule of Non-Cash Investing/Financing Activities
The following schedule summarizes the non-cash investing and financing
activities of the Company for the nine months ended September 30, 2005 and 2004
(in thousands):
2005 2004
-------- --------
Acquisition of real estate interests by assumption of
mortgage debt $ 18,804 $102,950
Disposition/transfer of real estate interests by
assignment of mortgage debt $124,683 $308,301
Acquisition of real estate interests by issuance of
downREIT units $ -- $ 24,114
Disposition/transfer of a real estate interest by
assignment of downREIT units $ 4,236 $ 24,114
Acquisition of real estate interests through proceeds
held in escrow $ -- $ 64,292
Proceeds held in escrow from the sale of real estate
interests $ 23,144 $ 5,386
Notes received upon disposition of real estate
interests $ -- $ 6,277
Declaration of dividends paid in succeeding period $ 77,903 $ 66,774
Consolidation of FNC:
Increase in real estate and other assets $ 57,812 $ --
Increase in mortgages payable and other liabilities $ 57,812 $ --
26
10. Pro Forma Financial Information
As discussed in Note 2, the Company and certain of its affiliates
acquired and disposed of interests in certain operating properties during the
nine months ended September 30, 2005. The pro forma financial information set
forth below is based upon the Company's historical Condensed Consolidated
Statements of Income for the nine months ended September 30, 2005 and 2004,
adjusted to give effect to these transactions as of January 1, 2004.
The pro forma financial information is presented for informational
purposes only and may not be indicative of what actual results of operations
would have been had the transactions occurred as of January 1, 2004, nor does it
purport to represent the results of future operations. (Amounts presented in
millions, except per share figures).
Nine Months Ended
September 30,
----------------------
2005 2004
-------- --------
Revenues from rental property $ 383.1 $ 386.9
Net income $ 231.7 $ 223.9
Net income per common share:
Basic $ 0.99 $ 0.97
======== ========
Diluted $ 0.98 $ 0.95
======== ========
27
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This quarterly report on Form 10-Q, together with other statements and
information publicly disseminated by the Company contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe the Company's
future plans, strategies and expectations, are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project" or
similar expressions. You should not rely on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond the Company's control and which could materially affect
actual results, performances or achievements. Factors which may cause actual
results to differ materially from current expectations include, but are not
limited to, (i) general economic and local real estate conditions, (ii) the
inability of major tenants to continue paying their rent obligations due to
bankruptcy, insolvency or general downturn in their business, (iii) financing
risks, such as the inability to obtain equity or debt financing on favorable
terms, (iv) changes in governmental laws and regulations, (v) the level and
volatility of interest rates, (vi) the availability of suitable acquisition
opportunities and (vii) increases in operating costs. Accordingly, there is no
assurance that the Company's expectations will be realized.
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and Notes thereto.
These unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to reflect a fair statement of the results for
the interim periods presented, and all such adjustments are of a normal
recurring nature.
Stock Split
As of August 23, 2005, the Company effected a two-for-one split (the
"Stock Split") of the Company's common stock in the form of a stock dividend
paid to stockholders of record on August 8, 2005. All common share and per
common share data included in this quarterly report on Form 10-Q and the
accompanying Condensed Consolidated Financial Statements and Notes thereto have
been adjusted to reflect this Stock Split.
28
Executive Summary
Kimco Realty Corporation is one of the nation's largest publicly-traded
owners and operators of neighborhood and community shopping centers. As of
October 19, 2005, the Company had interests in 944 properties, totaling
approximately 127.0 million square feet of leasable space located in 43 states,
Canada and Mexico.
The Company is self-administered and self-managed through present
management, which has owned and managed neighborhood and community shopping
centers for over 45 years. The executive officers are engaged in the day-to-day
management and operation of real estate exclusively with the Company, with
nearly all operating functions, including leasing, asset management,
maintenance, construction, legal, finance and accounting administered by the
Company.
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, (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 and (iii) acting as an agent or
principal in connection with tax deferred exchange transactions. The Company
will consider other investments through taxable REIT subsidiaries should
suitable opportunities arise.
In addition, the Company continues to capitalize on its established
expertise in retail real estate by establishing other ventures in which the
Company owns a smaller equity interest and provides management, leasing and
operational support for those properties. The Company also provides preferred
equity capital for real estate entrepreneurs and provides real estate capital
and advisory services to both healthy and distressed retailers. The Company also
makes selective investments in secondary market opportunities where a security
or other investment is, in management's judgment, priced below the value of the
underlying real estate.
The Company's strategy is to maintain a strong balance sheet while
investing opportunistically and selectively. The Company intends to continue to
execute its plan of delivering solid growth in earnings and dividends. As a
result of the improved 2005 performance, the Board of Directors increased the
quarterly dividend per common share to $0.33 from $0.305, effective for the
fourth quarter of 2005.
29
Results of Operations
Revenues from rental property increased $10.1 million or 8.4% to $130.4
million for the three months ended September 30, 2005, as compared with $120.3
million for the corresponding quarter ended September 30, 2004. Revenues from
rental property increased $1.8 million or 0.5% to $388.2 million for the nine
months ended September 30, 2005, as compared with $386.4 million for the
corresponding nine month period ended September 30, 2004. These net increases
resulted primarily from the combined effect of (i) the acquisition of operating
properties during 2004 and the nine months ended September 30, 2005, providing
incremental revenues for the three and nine months ended September 30, 2005 of
$8.8 million and $25.2 million, respectively, (ii) an overall increase in
shopping center portfolio occupancy to 94.2% at September 30, 2005, as compared
to 92.9% at September 30, 2004 and the completion of certain development and
redevelopment projects and tenant buyouts providing incremental revenues of
approximately $7.9 million and $16.0 million for the three and nine months ended
September 30, 2005 as compared to the corresponding periods last year, offset by
(iii) a decrease in revenues of approximately $6.6 million and $39.4 million for
the three and nine months ended September 30, 2005, respectively, as compared to
the corresponding period last year, resulting from the transfer of operating
properties to various unconsolidated joint venture entities and the sale of
certain properties during 2004 and the nine months ended September 30, 2005.
Rental property expenses, including depreciation and amortization,
increased approximately $5.8 million or 10.7% to $60.0 million for the three
months ended September 30, 2005, as compared with $54.2 million for the
corresponding quarter ended September 30, 2004. Similarly, for the nine months
ended September 30, 2005, rental property expenses, including depreciation and
amortization, increased $8.5 million or 4.9% to $182.2 million as compared with
$173.7 million for the corresponding period in the preceding year. These
increases are primarily due to operating property acquisitions during 2005 and
2004 which were partially offset by operating property dispositions including
those transferred to various joint venture entities.
30
Management and other fee income increased approximately $0.9 million
and $3.2 million, respectively, for the three and nine months ended September
30, 2005, as compared to the corresponding periods in 2004. These increases are
primarily due to incremental fees earned from the growth in the Company's joint
venture programs.
General and administrative expenses increased approximately $3.1
million and $7.2 million, respectively, for the three and nine months ended
September 30, 2005, as compared to the corresponding periods in 2004. These
increases are primarily due to (i) the non-cash expensing of the value
attributable to stock options granted and (ii) personnel-related costs and
systems costs related to the growth of the Company's assets under management.
Interest, dividends and other investment income increased approximately
$0.5 million and $4.4 million for the three and nine month periods ended
September 30, 2005, respectively, as compared to the corresponding periods in
2004. These increases are primarily due to greater realized gains on the sale of
certain marketable securities for the three and nine months ended September 30,
2005.
Other income, net decreased $6.6 million for the three months ended
September 30, 2005, as compared to the corresponding period in 2004. This
decrease is primarily attributable to the recognition of approximately $6.4
million of income relating to the receipt of Sears Holdings Corp. common stock
as partial settlement of Kmart pre-petition claims during the three months ended
September 30, 2004.
Interest expense increased approximately $8.2 million and $11.9
million, respectively, for the three and nine months ended September 30, 2005,
as compared to the corresponding periods in 2004. These increases are primarily
due to higher average outstanding borrowings during the respective periods.
Income from other real estate investments increased $8.3 million to
$13.4 million for the three months ended September 30, 2005, as compared to $5.1
million for the corresponding period in 2004. Similarly, income from other real
estate investments increased $21.6 million to $42.0 million for the nine months
ended September 30, 2005, as compared to $20.4 million for the corresponding
period in 2004. These increases are primarily due to increased investment in the
Company's Preferred Equity program which contributed $8.8 million and $22.5
million for the three and nine months ended September 30, 2005, including an
aggregate of approximately $7.5 million profit participations earned from three
capital transactions during 2005, as compared to $2.3 million and $5.5 million,
respectively, for the corresponding periods in 2004.
Equity in income of real estate joint ventures, net increased $4.2
million to $18.1 million for the three months ended September 30, 2005, as
compared to $13.9 million for the corresponding period in 2004. Similarly,
equity in income of real estate joint ventures, net increased $17.3 million to
$57.1 million for the nine months ended September 30, 2005, as compared with
$39.8 million for the corresponding period in 2004. These increases are
primarily attributable to (i) the increased equity in income from the Kimco
Income REIT joint venture investment ("KIR") resulting from the sale of an
operating property during the first quarter 2005 which provided a gain of $17.8
million, of which the pro-rata share to the Company was $7.7 million, (ii)
increased equity in income from a joint venture investment resulting from the
sale of a development property during September 2005 which provided a gain of
approximately $5.7 million of which the pro-rata share to the Company was
approximately $2.7, and (iii) the Company's growth of its various other real
estate joint ventures. The Company has made additional capital investments in
these and other joint ventures for the acquisition of additional shopping center
properties throughout 2004 and the nine months ended September 30, 2005.
31
During the nine months ended September 30, 2005, KDI, the Company's
wholly-owned development taxable REIT subsidiary, sold five of its recently
completed projects and 28 out-parcels, in separate transactions, for
approximately $201.9 million. These sales resulted in gains of approximately
$18.8 million, net of income taxes of $9.6 million.
During the nine months ended September 30, 2004, KDI, sold in separate
transactions, 21 out-parcels, its partnership interest in one project and four
recently completed projects for approximately $130.8 million. These sales
provided gains of approximately $7.4 million, net of income taxes of
approximately $4.9 million.
During the nine months ended September 30, 2005, the Company (i)
disposed of, in separate transactions, 13 operating properties for an aggregate
sales price of approximately $60.1 million, (ii) transferred three operating
properties to KROP for an aggregate price of approximately $49.0 million, and
(iii) transferred 52 operating properties to various joint ventures in which the
Company has non-controlling interests ranging from 15% to 50% for an aggregate
price of approximately $232.1 million. For the nine months ended September 30,
2005, these transactions resulted in an aggregate net gain of approximately
$14.6 million.
During March 2004, the Company reclassified as held-for-sale two
shopping center properties comprising approximately 0.3 million square feet of
GLA. The book value of these properties, aggregating approximately $8.7 million,
net of accumulated depreciation of approximately $4.2 million, exceeded their
estimated fair value. The Company's determination of the fair value of these
properties, aggregating approximately $4.5 million, was based upon contracts of
sale with third parties less estimated selling costs. As a result, the Company
recorded a loss resulting from an adjustment of property carrying values of $4.2
million. During March 2004, the Company completed the sale of one of these
properties, comprising approximately 0.1 million square feet of GLA, for a sales
price of approximately $1.1 million. During June 2004, the Company completed the
sale of the other property, comprising approximately 0.2 million square feet of
GLA, for a sales price of approximately $3.9 million. In accordance with SFAS
No. 144, Accounting for Impairment of Disposal of Long Lived Assets ("SFAS No.
144"), the loss along with the related property operations for the current and
comparative years, have been included in the caption Discontinued operations on
the Company's Condensed Consolidated Statement of Income.
During the nine months ended September 30, 2004, the Company (i)
disposed of, in separate transactions, an additional 11 operating properties and
one ground lease for an aggregate sales price of approximately $64.4 million,
including the assignment of approximately $8.0 million of non-recourse mortgage
debt encumbering one of the properties; cash proceeds of approximately $16.9
million from the sale of two of these properties were used in a 1031 exchange to
acquire shopping center properties located in Roanoke, VA, and Tempe, AZ, (ii)
transferred 16 operating properties to KROP for an aggregate price of
approximately $182.9 million, which approximated their net book values, and
(iii) transferred 20 operating properties to various co-investment ventures in
which the Company has non-controlling interests ranging from 10% to 30% for an
aggregate price of approximately $471.8 million. For the nine months ended
September 30, 2004, these dispositions resulted in gains of approximately $12.5
million and a loss on sale from one of the properties of approximately $0.9
million.
32
Net income for the three and nine months ended September 30, 2005 was
$85.3 million and $256.0 million, respectively. Net income for the three and
nine months ended September 30, 2004 was $78.5 million and $221.3 million,
respectively. On a diluted per share basis, net income increased $0.03 to $0.36
for the three month period ended September 30, 2005, as compared to $0.33 for
the corresponding quarter in the previous year. On a diluted per share basis,
net income improved $0.13 to $1.07 for the nine month period ended September 30,
2005, as compared to $0.94 for the corresponding period in 2004. These increases
are attributable to (i) increased income from other real estate investments,
primarily from the Company's Preferred Equity program, (ii) an increase in
equity in income of real estate joint ventures achieved from additional capital
investments in the Company's joint venture programs for the acquisition of
additional shopping center properties throughout 2004 and the nine months ended
September 30. 2005, and gains on sales of joint venture operating properties and
(iii) increased gains on sale/transfer of development and operating properties
for the three and nine months ended September 30, 2005, as compared to the same
periods last year.
Tenant Concentration
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
September 30, 2005, the Company's five largest tenants were The Home Depot, TJX
Companies, Sears Holdings, Kohl's, and Wal-Mart, which represented approximately
3.6%, 3.3%, 2.8%, 2.6% 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.
Liquidity and Capital Resources
The Company's cash flow activities are summarized as follows (in
millions):
Nine Months Ended
September 30,
------------------------
2005 2004
-------- --------
Net cash flow provided by operating activities $ 320.3 $ 294.1
Net cash flow (used for) provided by investing activities $ (392.7) $ 73.5
Net cash flow provided by (used for) financing activities $ 104.0 $ (281.9)
33
Operating Activities
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. Net
cash flow provided by operating activities for the nine months ended September
30, 2005 was primarily attributable to (i) cash flow from the diverse portfolio
of rental properties, (ii) the acquisition of operating properties during 2004
and the nine months ended September 30, 2005, (iii) new leasing, expansion and
re-tenanting of core portfolio properties, and (iv) growth in the Company's
joint venture and Preferred Equity programs.
Investing Activities
Acquisitions and Redevelopments -
During the nine month period ended September 30, 2005, the Company
expended approximately $240.7 million towards acquisition of and improvements to
operating real estate. (See Note 2 of the Notes to the Condensed Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q.)
The Company has an ongoing program to reformat and re-tenant its
properties to maintain or enhance its competitive position in the marketplace.
During the nine months ended September 30, 2005, the Company expended
approximately $38.2 million in connection with these major redevelopments and
re-tenanting projects. The Company anticipates its capital commitment toward
these and other redevelopment projects will be approximately $52.1 million for
the remainder of 2005. The funding of these capital requirements will be
provided by cash flow from operating activities and availability under the
Company's revolving lines of credit.
Investments and Advances to Real Estate Joint Ventures -
During the nine month period ended September 30, 2005, the Company
expended approximately $173.4 million for investments and advances to real
estate joint ventures and received approximately $108.4 million from
reimbursements of advances to real estate joint ventures. (See Note 5 of the
Notes to the Condensed Consolidated Financial Statements included in this
Quarterly Report on Form 10-Q.)
34
Ground-up Development -
KDI is primarily engaged in the ground-up development of neighborhood
and community shopping centers and the subsequent sale thereof upon completion.
As of September 30, 2005, KDI had in progress 23 ground-up development projects
located in eight states. These projects had significant pre-leasing activity
prior to the commencement of construction. During the nine months ended
September 30, 2005, KDI expended approximately $271.1 million in connection with
the purchase of land and construction costs related to these projects and those
sold during 2005. These projects are currently proceeding on schedule and
substantially in line with the Company's budgeted costs. The Company anticipates
its capital commitment toward these and other development projects will be
approximately $100.0 million to $125.0 million for the remainder of 2005. The
proceeds from the sales of the completed ground-up development projects during
2005 and proceeds from construction loans are expected to be sufficient to fund
these anticipated capital requirements.
Dispositions and Transfers -
During the nine month period ended September 30, 2005, the Company
received net proceeds of approximately $253.4 million relating to the sale of
various operating properties and ground-up development projects and
approximately $128.5 million from the transfer of operating properties to
various joint ventures. (See Notes 2, 4 and 5 of the Notes to the Condensed
Consolidated Financial Statements included in this Quarterly Report on Form
10-Q.)
Financing Activities
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 September 30, 2005, the Company's level of debt to total market
capitalization was 24%. 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
$3.9 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.
35
During July 2005, the Company established a new $850.0 million
unsecured credit facility, (the "Credit Facility") which is scheduled to expire
in July 2008. This Credit Facility replaces the Company's $500.0 million
unsecured credit facility, which was scheduled to expire in June 2006. Under the
Credit Facility funds may be borrowed for general corporate purposes, including
the funding of (i) property acquisitions, (ii) development and redevelopment
costs and (iii) any short-term working capital requirements. Interest on
borrowings under the Credit Facility accrue at a spread (currently 0.45%) to
LIBOR and fluctuates in accordance with changes in the Company's senior debt
ratings. As part of this Credit Facility, the Company has a competitive bid
option whereby the Company may auction up to $425.0 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
0.45%. A facility fee of 0.125% per annum is payable quarterly in arrears. In
addition, the Company has a $200.0 million sub-limit which provides it the
opportunity to borrow in alternative currencies such as Pounds Sterling,
Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the
Company, among other things, is (i) subject to maintaining certain maximum
leverage ratios on both unsecured senior corporate debt and minimum unencumbered
asset and equity levels, and (ii) restricted from paying dividends in amounts
that exceed 95% of funds from operations, as defined. As of September 30, 2005,
there was $80.0 million outstanding under this credit facility.
During September 2004, the Company entered into a three-year Canadian
denominated ("CAD") $150.0 million unsecured revolving credit facility with a
group of banks. This facility bears interest at the CDOR Rate, as defined, plus
0.50% and was scheduled to expire in September 2007. During March 2005, this
facility was increased to CAD $250.0 million and the scheduled maturity date was
extended to March 2008. Proceeds from this facility will be used for general
corporate purposes including the funding of Canadian denominated investments. As
of September 30, 2005, there was CAD $116.0 million (approximately USD $99.8
million) outstanding under this facility.
During May 2005, the Company entered into a three-year Mexican Peso
denominated ("MXP") 500.0 million unsecured revolving credit facility. This
facility bears interest at the TIIE Rate, as defined, plus 1.00% and is
scheduled to expire in May 2008. Proceeds from this facility will be used to
fund peso denominated investments. As of September 30, 2005, there was MXP 330.0
million (approximately USD $30.7 million) outstanding under this facility.
During July 2005, the Company filed a shelf registration statement on
Form S-3 for up to $1.0 billion of debt securities, preferred stock, depositary
shares, common stock and common stock warrants. As of September 30, 2005, the
Company had $1.0 billion available for issuance under this shelf registration
statement.
36
The Company also has 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
September 30, 2005, the Company had $100.0 million available for issuance under
this 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 September 30, 2005, the Company had approximately 380
unencumbered property interests in its portfolio.
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 increased investment in properties
and other real estate related opportunities, growth in operating income from 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.
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.
37
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123, (revised 2004)
Share-Based Payment ("SFAS No. 123(R)"), which supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and its related implementation
guidance. SFAS No. 123(R) established standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. SFAS No. 123(R) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123(R) is effective for fiscal years beginning after
December 15, 2005. The impact of adopting SFAS No. 123 (R) is not expected to
have a material impact on the Company's financial position or results of
operations.
In December 2004, the FASB issued Statement No. 153, Exchange of
Non-monetary Assets - an amendment of APB Opinion No 29 ("SFAS No. 153"). The
guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is
based on the principle that exchanges of non-monetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. This Statement amends
Opinion No. 29 to eliminate the exception for non-monetary assets that do not
have commercial substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. SFAS No. 153 is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The impact
of adopting SFAS No. 153 did not have a material impact on the Company's
financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections ("SFAS No. 154"), which replaces Accounting Principle Board Opinion
No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154 changes the requirements for the
accounting for and reporting of a change in accounting principles. It requires
retrospective application to prior periods' financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. This statement
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005.
38
In September 2005, the Emerging Issues Task Force ("EITF") Issue 04-5,
Investor's Accounting for an Investment in a Limited Partnership When the
Investor is the Sole General Partner and the Limited Partners Have Certain
Rights, ("EITF 04-5"). At issue is what rights held by the limited partner(s)
preclude consolidation in circumstances in which the sole general partner would
consolidate the limited partnership in accordance with U.S. generally accepted
accounting principles. The assessment of limited partners' rights and their
impact on the presumption of control of the limited partnership by the sole
general partner should be made when an investor becomes the sole general partner
and should be reassessed if (i) there is a change to the terms or in the
exercisability of the rights of the limited partners, (ii) the sole general
partner increases or decreases its ownership of limited partnership interests,
or (iii) there is an increase or decrease in the number of outstanding limited
partnership interests. This issue is effective no later than for fiscal years
beginning after December 15, 2005 and as of June 29, 2005 for new or modified
arrangements. The impact of adopting EITF 04-5 is not expected to have a
material impact on the Company's financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following table presents the Company's aggregate fixed rate and
variable rate debt obligations outstanding as of September 30, 2005, with
corresponding weighted-average interest rates sorted by maturity date ($ in
millions):
Fair
2005 2006 2007 2008 2009 2010+ Total Value
--------- --------- --------- --------- --------- --------- --------- ---------
Secured Debt
- -------------
Fixed Rate -- $ 9.7 -- $ 60.1 $ 22.0 $ 160.8 $ 252.6 $ 268.5
Average
Interest Rate -- 9.08% -- 7.14% 7.84% 7.46% 7.48%
Variable Rate $ 0.1 $ 108.1 $ 116.8 $ 43.1 -- -- $ 268.1 $ 268.1
Average
Interest Rate 5.61% 5.91% 5.90% 5.96% -- -- 5.91%
Unsecured Debt
- --------------
Fixed Rate $ 70.0 $ 85.0 $ 195.0 $ 100.0 $ 180.0 $ 896.0 $ 1,526.0 $ 1,568.4
Average
Interest Rate 7.44% 7.30% 7.14% 3.95% 6.98% 5.09% 5.73%
Variable Rate -- $ 100.0 -- $ 210.5 -- -- $ 310.5 $ 310.5
Average
Interest Rate -- 3.41% -- 4.58% -- -- 4.20%
The Company has investment in various unconsolidated real estate joint
ventures with varying structures. These joint ventures primarily operate
shopping center properties or are established for development projects. 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. As of September 30, 2005,
these real estate joint ventures had individual non-recourse mortgage loans
aggregating approximately $4.4 billion. The Company's maximum exposure to losses
associated with its real estate joint venture investments is primarily limited
to its net invested capital, which at September 30, 2005, was approximately
$666.1 million.
39
As of September 30, 2005, the Company has Canadian investments totaling
CAD $309.4 million (approximately USD $266.2 million) comprised of investments
in real estate joint ventures and marketable securities. In addition, the
Company has Mexican real estate and mortgage financing investments of
approximately MXN 1.03 billion (approximately USD $95.8 million). The foreign
currency exchange risk on these investments has been mitigated through the use
of local currency denominated debt, foreign currency forward contracts (the
"Forward Contracts") and a cross currency swap (the "CC Swap") with major
financial institutions. As of September 30, 2005, the total amount of
investments hedged by these instruments is approximately CAD $271.2 million and
approximately MXN 412.4 million. 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 institutions.
The Company has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of September 30,
2005, the Company had no other material exposure to market risks.
Item 4. Controls and Procedures
The Company's management, with the participation of the Company's chief
executive officer and chief financial officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's chief executive officer and
chief financial officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonable likely to materially affect,
the Company's internal control over financial reporting.
40
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently involved in any litigation, nor to its
knowledge is any litigation threatened against the Company or its subsidiaries,
that in management's opinion, would result in any material adverse effect on the
Company's ownership, management or operation of its properties, or which is not
covered by the Company's liability insurance.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not Applicable
Item 6. Exhibits
Exhibits -
4.1 Agreement to File Instruments
Kimco Realty Corporation (the "Registrant") hereby agrees to file with
the Securities and Exchange Commission, upon request of the Commission, all
instruments defining the rights of holders of long-term debt of the Registrant
and its consolidated subsidiaries, and for any of its unconsolidated
subsidiaries for which financial statements are required to be filed, and for
which the total amount of securities authorized thereunder does not exceed 10
percent of the total assets of the Registrant and its subsidiaries on a
consolidated basis.
10.16 Employment Agreement between Kimco Realty Corporation and Jerald
Friedman, dated September 21, 2005.
41
31.1 Certification of the Company's Chief Executive Officer, Milton
Cooper, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Company's Chief Financial Officer, Michael V.
Pappagallo, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Company's Chief Executive Officer, Milton
Cooper, and the Company's Chief Financial Officer Michael V. Pappagallo,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMCO REALTY CORPORATION
November 3, 2005 /s/ Milton Cooper
- ---------------------------- ---------------------------
(Date) Milton Cooper
Chief Executive Officer
November 3, 2005 /s/ Michael V. Pappagallo
- ---------------------------- ---------------------------
(Date) Michael V. Pappagallo
Chief Financial Officer
43