Kimco Realty Corp. (NYSE: KIM) today reported results for the second quarter ended June 30, 2015.

Highlights:

  • Reported funds from operations (FFO) of $0.44 per diluted share for the second quarter of 2015 representing a 29.4% increase over the comparable 2014 period; FFO as adjusted was $0.37 per diluted share for the second quarter of 2015 reflecting a 5.7% increase over the same period in 2014;
  • U.S. same-property net operating income (NOI) increased 3.7% for the second quarter compared to the same period in 2014;
  • U.S. portfolio pro-rata rental-rate leasing spreads increased 11.9% with rental rates for new leases up 26% and renewals/options increasing 8.7%;
  • Business simplification continued – reduced joint venture ownership with the acquisition of the remaining 24.7% ownership interest in the $341.1 million KIF II portfolio and sold last remaining retail properties in Mexico; and
  • Recognized $32.4 million gain on sale of 6.4 million shares of SUPERVALU Inc. (NYSE:SVU) common stock.

Financial Results

Net income available to common shareholders for the second quarter of 2015 was $112.4 million, or $0.27 per diluted share, compared to $74.9 million, or $0.18 per diluted share, for the second quarter of 2014. For the six months ended June 30, 2015, net income available to common shareholders was $408.2 million, or $0.98 per diluted share, compared to $147.4 million, or $0.36 per diluted share, through June 30, 2014.

FFO, a widely accepted supplemental measure of REIT performance, was $182.7 million, or $0.44 per diluted share, for the second quarter of 2015 compared to $141.2 million, or $0.34 per diluted share, for the second quarter of 2014. For the six months ended June 30, 2015, FFO was $336.2 million, or $0.81 per diluted share compared to $279.6 million, or $0.68 per diluted share, for the same period last year.

FFO as adjusted, which excludes the effects of non-operating impairments as well as transactional income and expenses, was $152.7 million, or $0.37 per diluted share, for the second quarter of 2015 compared to $143.2 million, or $0.35 per diluted share, for the second quarter of 2014. FFO as adjusted for the six months ended June 30, 2015 was $299.9 million, or $0.73 per diluted share, compared to $284.0 million, or $0.69 per diluted share, for the same period in 2014.

A reconciliation of net income to FFO and FFO as adjusted is provided in the tables accompanying this press release.

Operating Results

Second quarter 2015 shopping center portfolio operating results demonstrate continuous progress and reflect the positive impact from the company’s portfolio transformation efforts:

  • Pro-rata occupancy in the U.S. and combined portfolios (including Canada) ended the quarter at 95.7% and 95.5%, respectively. This represents an increase of 70 basis points for both the U.S. and combined portfolios over the second quarter of 2014.
  • U.S. shopping center portfolio pro-rata occupancy for anchor space (10,000 square feet and greater) was 98.4%, a 60 basis-point increase from the second quarter of 2014. The pro-rata occupancy for small shop space increased 170 basis points to 88% during this same period.
  • U.S. same-property NOI increased 3.7%, including a 50 basis point increase from the inclusion of redevelopments, compared to the second quarter of 2014. For the six months ended June 30, 2015, same-property NOI increased 3.4%, including a 40 basis point increase from the inclusion of redevelopments, compared to the same period last year.
  • U.S. portfolio pro-rata rental-rate leasing spreads increased 11.9% with rental rates for new leases up 26% and renewals/options increasing 8.7%.
  • Total leases executed in the combined portfolio: 477 new leases, renewals and options totaling 1.8 million pro-rata square feet.

Investment Activity

The company continues to upgrade its portfolio with high-quality acquisitions and the selective disposition of retail properties in secondary markets. Since the company initiated its portfolio transformation in September 2010, Kimco has acquired 197 properties for a gross amount of $5.1 billion while selling 253 properties totaling $2.4 billion. The result has been a significant upgrade and repositioning of the company’s portfolio with fewer properties overall but with larger, higher-quality assets in key long-term growth markets.

Acquisitions:

  • As previously announced, Kimco acquired the remaining ownership interests in the 14-property Kimco Income Fund II (KIF II) portfolio from three existing joint venture partners based on a gross value of $341.1 million. Kimco, which previously held a 75.3% ownership interest in this consolidated joint venture, paid approximately $30.5 million for the remaining 24.7% equity interest. The KIF II portfolio is a geographically-diversified, primarily grocery-anchored portfolio totaling 1.9 million square feet across nine states including four sites located in California. The properties feature a well-known lineup of national retailers including Kroger, Giant Food, Ross Stores, Bed Bath & Beyond, Best Buy, DSW and Burlington Stores, Inc.
  • The company purchased several improved parcels adjacent to existing Kimco Tier 1 shopping centers: Milleridge Inn at Whole Foods-anchored Jericho Commons (Jericho, N.Y.); Michael’s at Nordstrom Rack-anchored West Farms (Farmington, Conn.), the fee interest and several to-be-developed pad parcels at Jewel-Osco-anchored 87th Street Center (Chicago, Ill.) and two well-positioned outparcels at Woodgrove Festival (Chicago, Ill.) for an aggregate price of $26.3 million.
  • Subsequent to the second quarter, Kimco acquired the remaining 80% interest in the 465,000-square-foot Montgomery Plaza shopping center (Dallas-Fort Worth-Arlington MSA) from RioCan Real Estate Investment Trust (RioCan) for $58.3 million based upon a gross value of $72.9 million. Montgomery Plaza is anchored by Super Target (shadow anchor), Marshalls, Ross Dress for Less, PetSmart and Michaels, and also features two luxury residential condo towers offering the potential to add additional density in the future.

Dispositions:

  • Kimco sold ownership interests in 13 U.S. properties totaling 1.3 million square feet for a gross sales price of $130.0 million. The company’s pro-rata share from these sales was $92.1 million.
  • The company disposed of several properties in Mexico during the second quarter of 2015 including its three remaining shopping centers for $14.0 million. In addition, the company sold 13 land parcels and one building in Mexico for a gross sales price of $23.3 million. Kimco’s share from these sales totaled $22.9 million.
  • Also during the second quarter of 2015, the company sold seven wholly owned net-leased restaurant properties for a gross sales price of $14.5 million.
  • Kimco currently has 47 properties for sale that are under contract or with an accepted offer totaling approximately $332.0 million, of which the company’s share from these sales is anticipated to be approximately $191.4 million.

SUPERVALU, Inc.

As previously announced, the company sold 6.4 million shares of SUPERVALU Inc. (NYSE: SVU) common stock. As a result of this transaction, Kimco received approximately $58.6 million in net proceeds and recognized a gain on sale of approximately $32.4 million, or $0.08 per diluted share, during the second quarter of 2015. After this sale, Kimco still holds 1.8 million shares of SUPERVALU Inc. common stock.

2015 Guidance

Kimco has increased its 2015 full-year guidance range for FFO and FFO as adjusted as well as transactional income, net and disposition volume:

           
       

Revised Guidance

  

Previous Guidance

FFO (per diluted share):       $1.52 - $1.56   $1.50 - $1.55
FFO as adjusted (per diluted share):       $1.43 - $1.46   $1.42 - $1.45
Transactional Income, net       $37 million - $42 million   $33 million - $41 million
Dispositions (Kimco’s share of price)       $800 million - $1.1 billion   $550 million - $750 million
 

The company’s 2015 full-year operational guidance range for occupancy, same-property NOI and acquisitions remain as follows:

         
U.S. Portfolio Occupancy       +25 to +50 basis points
U.S. Same-Property NOI       +3.00% to +3.50%
Acquisitions (Kimco’s share of price)       $1.1 billion - $1.3 billion
     

Dividend Declarations

  • Kimco’s board of directors declared a quarterly cash dividend of $0.24 per common share, payable on October 15, 2015, to shareholders of record on October 5, 2015, with an ex-dividend date of October 1, 2015. This dividend represents a 6.7% increase over the previous dividend paid for the comparable period in 2014.
  • The board of directors also declared quarterly dividends with respect to the company’s various series of cumulative redeemable preferred shares (Class H, Class I, Class J and Class K). All dividends on the preferred shares will be paid on October 15, 2015, to shareholders of record on October 2, 2015, with an ex-dividend date of September 30, 2015.

Conference Call and Supplemental Materials

Kimco will hold its quarterly conference call on Wednesday, July 29, 2015, at 10:00 a.m. EDT. The call will include a review of the company’s second quarter 2015 results as well as a discussion of the company’s strategy and expectations for the future. To participate, dial 1-888-317-6003 (Passcode: 2310641).

A replay will be available through 9:00 a.m. EDT on July 29, 2016 by dialing 1-877-344-7529 (Passcode: 10066927). Access to the live call and replay will be available on the company's website at investors.kimcorealty.com.

About Kimco

Kimco Realty Corp. (NYSE: KIM) is a real estate investment trust (REIT) headquartered in New Hyde Park, N.Y., that is North America’s largest publicly traded owner and operator of open-air shopping centers. As of June 30, 2015, the company owned interests in 727 shopping centers comprising 107 million square feet of leasable space across 39 states, Puerto Rico, Canada and Chile. Publicly traded on the NYSE since 1991, and included in the S&P 500 Index, the company has specialized in shopping center acquisitions, development and management for more than 50 years. For further information, please visit www.kimcorealty.com, the company’s blog at blog.kimcorealty.com, or follow Kimco on Twitter at www.twitter.com/kimcorealty.

Safe Harbor Statement

The statements in this release state the company’s and management’s intentions, beliefs, expectations or projections of the future and are forward-looking statements. It is important to note that the company’s actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially from current expectations include, but are not limited to, (i) general adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the company, (iv) the company’s ability to raise capital by selling its assets, (v) changes in governmental laws and regulations, (vi) the level and volatility of interest rates and foreign currency exchange rates and management’s ability to estimate the impact thereof, (vii) risks related to the company’s international operations, (viii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with the company’s expectations, (ix) valuation and risks related to the company’s joint venture and preferred equity investments, (x) valuation of marketable securities and other investments, (xi) increases in operating costs, (xii) changes in the dividend policy for the company’s common stock, (xiii) the reduction in the company’s income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xiv) impairment charges and (xv) unanticipated changes in the company’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained from time to time in the company’s SEC filings. Copies of each filing may be obtained from the company or the SEC.

The company refers you to the documents filed by the company from time to time with the SEC, specifically the section titled “Risk Factors” in the company’s Annual Report on Form 10-K for the year ended December 31, 2014, as it may be updated or supplemented in the company’s Quarterly Reports on Form 10-Q and the company’s other filings filed with the SEC, which discuss these and other factors that could adversely affect the company’s results.

       

Condensed Consolidated Statements of Income

(in thousands, except share information)

(unaudited)

 
Three Months Ended Six Months
June 30, June 30,
2015 2014 2015 2014

Revenues

Revenues from rental properties $ 289,080 $ 237,432 $ 564,586 $ 456,584
Management and other fee income   4,981     8,526     12,931     17,567  
Total revenues   294,061     245,958     577,517     474,151  
 

Operating expenses

Rent 3,012 3,498 6,566 6,802
Real estate taxes 36,700 30,722 72,772 60,072
Operating and maintenance 36,109 28,981 70,011 55,057
General and administrative expenses 29,307 28,773 62,012 65,893
Provision for doubtful accounts 1,107 1,741 3,404 3,193
Impairment charges 15,459 25,636 21,850 25,797
Depreciation and amortization   80,155     62,117     154,724     118,177  
Total operating expenses   201,849     181,468     391,339     334,991  

Operating income

92,212 64,490 186,178 139,160
 

Other income/(expense)

Mortgage financing income 916 428 2,052 2,127
Interest, dividends and other investment income 32,102 326 32,319 379
Other income/(expense), net 470 (483 ) (515 ) (2,912 )
Interest expense (56,130 ) (52,469 ) (108,708 ) (102,711 )

Income from continuing operations before income taxes,

        

equity in income of joint ventures, gain on change in control

of interests and equity in income from other real estate investments

69,570 12,292 111,326 36,043
 
Benefit/(provision) for income taxes, net 3,628 (940 ) (9,089 ) (9,441 )
Equity in income of joint ventures, net 22,364 45,025 119,914 98,286
Gain on change in control of interests, net - 65,598 139,801 69,343
Equity in income of other real estate investments, net   5,548     7,014     19,917     10,367  
Income from continuing operations   101,110     128,989     381,869     204,598  
 

Discontinued operations

Income/(loss) from discontinued operating properties, net of tax - 8,016 (15 ) 24,437
Impairment/loss on operating properties, net of tax - (65,651 ) (60 ) (71,159 )
Gain on disposition of operating properties, net of tax   -     20,207     -     29,545  
Loss from discontinued operations   -     (37,428 )   (75 )   (17,177 )

Gain on sale of operating properties, net of tax (1)

   26,499     389     58,554     389  
Net income 127,609 91,950 440,348 187,810
Net income attributable to noncontrolling interests (3)   (609 )   (2,438 )   (3,006 )   (11,298 )
Net income attributable to the Company 127,000 89,512 437,342 176,512
Preferred stock dividends   (14,573 )   (14,573 )   (29,146 )   (29,147 )
Net income available to the Company's common shareholders $ 112,427   $ 74,939   $ 408,196   $ 147,365  

Per common share:

Income from continuing operations: (3)
Basic $ 0.27   $ 0.28   $ 0.99   $ 0.42  
Diluted $ 0.27   (2 ) $ 0.27   (2 ) $ 0.98   (2 ) $ 0.42   (2 )
Net income: (4)
Basic $ 0.27   $ 0.18   $ 0.99   $ 0.36  
Diluted $ 0.27   (2 ) $ 0.18   (2 ) $ 0.98   (2 ) $ 0.36   (2 )

Weighted average shares:

Basic   411,317     408,902     411,057     408,636  
Diluted   413,086     413,344     413,148     410,409  
 
(1)     Included in the calculation of income from continuing operations per common share in accordance with SEC guidelines.
(2) Reflects the potential impact if certain units were converted to common stock at the beginning of the period. The impact of the conversion would have an anti-dilutive effect on net income and therefore have not been included.
(3) Includes the net income attributable to noncontrolling interests related to continued operations of ($609) and ($1,623) for the quarters ended June 30, 2015 and 2014, respectively, and ($3,006) and ($3,869) for the six months ended June 30, 2015 and 2014, respectively.
(4) Includes earnings attributable from participating securities of $458 and $501 for the quarters ended June 30, 2015 and 2014, respectively, and $1,940 and $819 for the six months ended June 30, 2015 and 2014, respectively.
 

   

Condensed Consolidated Balance Sheets

(in thousands, except share information)

(unaudited)

 
June 30, December 31,
2015 2014

Assets:

Operating real estate, net of accumulated depreciation
of $2,054,698 and $1,955,406, respectively $ 9,290,447 $ 7,930,489
Investments and advances in real estate joint ventures 880,300 1,037,218
Real estate under development 136,235 132,331
Other real estate investments 240,725 266,157
Mortgages and other financing receivables 22,990 74,013
Cash and cash equivalents 145,832 187,322
Marketable securities 24,251 90,235
Accounts and notes receivable 177,768 172,386
Other assets   548,756     371,249  

Total assets

$ 11,467,304   $ 10,261,400  
 

Liabilities:

Notes payable $ 3,768,945 $ 3,171,742
Mortgages payable 1,768,827 1,424,228
Dividends payable 111,455 111,143
Other liabilities   591,097     561,042  

Total liabilities

  6,240,324     5,268,155  

Redeemable noncontrolling interests

  91,466     91,480  
 

Stockholders' equity:

Preferred stock, $1.00 par value, authorized 5,959,100 shares
102,000 shares issued and outstanding (in series)
Aggregate liquidation preference $975,000 102 102
Common stock, $.01 par value, authorized 750,000,000 shares
issued and outstanding 413,119,292 and 411,819,818 shares, respectively 4,131 4,118
Paid-in capital 5,767,830 5,732,021
Cumulative distributions in excess of net income (796,571 ) (1,006,578 )
Accumulated other comprehensive income   (1,906 )   45,122  

Total stockholders' equity

4,973,586 4,774,785
Noncontrolling interests   161,928     126,980  

Total equity

  5,135,514     4,901,765  

Total liabilities and equity

$ 11,467,304   $ 10,261,400  
 

       
Reconciliation of Net Income Available to Common Shareholders
to Funds From Operations - "FFO"
(in thousands, except per share data)
(unaudited)
 
 
Three Months Ended Six Months
June 30, June 30,
2015 2014 2015 2014
Net income available to common shareholders $ 112,427 $ 74,939 $ 408,196 $ 147,365
Gain on disposition of operating property, net of tax and noncontrolling interests (26,382 ) (19,820 ) (58,463 ) (29,158 )
Gain on disposition of joint venture operating properties and change in control of interests (8,113 ) (87,959 ) (213,865 ) (111,424 )
Depreciation and amortization - real estate related 77,737 65,512 149,892 124,993
Depr. and amort. - real estate jv's, net of noncontrolling interests 17,227 22,886 34,934 49,409
Impairments of operating properties, net of tax and noncontrolling interests   9,818     85,652     15,496     98,417  
Funds from operations 182,714 141,210 336,190 279,602
Transactional charges / (income), net   (29,983 )   2,018     (36,286 )   4,446  
Funds from operations as adjusted $ 152,731   $ 143,228   $ 299,904   $ 284,048  
 
Weighted average shares outstanding for FFO calculations:
Basic   411,317     408,902     411,057     408,636  
Units 1,468 1,519 1,496 1,521
Dilutive effect of equity awards   1,103     2,923     1,281     2,867  
Diluted   413,888   (1 )   413,344   (1 )   413,834   (1 )   413,024   (1 )
 
FFO per common share - basic $ 0.44   $ 0.35   $ 0.82   $ 0.68  
FFO per common share - diluted $ 0.44   (1 ) $ 0.34   (1 ) $ 0.81   (1 ) $ 0.68   (1 )
FFO as adjusted per common share - diluted $ 0.37   (1 ) $ 0.35   (1 ) $ 0.73   (1 ) $ 0.69   (1 )
 
(1) Reflects the potential impact if certain units were converted to common stock at the beginning of the period. Funds from operations would be increased by $336 and $721 for the three months ended June 30, 2015 and 2014, respectively, and $672 and $1,441 for the six months ended June 30, 2015 and 2014, respectively.
 
FFO is a widely accepted supplemental measure of REIT performance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT). Given the company’s business as a real estate owner and operator, Kimco believes that FFO and FFO as adjusted is helpful to investors as a measure of its operating performance. NAREIT defines FFO as net income/(loss) attributable to common shareholders computed in accordance with generally accepted accounting principles, excluding (i) gains or losses from sales of operating real estate assets and (ii) extraordinary items, plus (iii) depreciation and amortization of operating properties and (iv) impairment of depreciable real estate and in substance real estate equity investments. Included in these items are also the company’s share of unconsolidated real estate joint ventures and partnerships. FFO as adjusted excludes the effects of non-operating impairments, transactional income and expenses.

           
Reconciliation of Income From Continuing Operations to
Combined Same Property Net Operating Income "NOI" and
U.S. Same Property NOI
(in thousands)
(unaudited)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Income from continuing operations $ 101,110 $ 128,989 $ 381,869 $ 204,598
Adjustments:
Management and other fee income (4,981 ) (8,526 ) (12,931 ) (17,567 )
General and administrative expenses 29,307 28,773 62,012 65,893
Impairment charges 15,459 25,636 21,850 25,797
Depreciation and amortization 80,155 62,117 154,724 118,177
Other expense, net 22,642 52,198 74,852 103,117
(Benefit)/provision for income taxes, net (3,628 ) 940 9,089 9,441
Gain on change in control of interests, net - (65,598 ) (139,801 ) (69,343 )
Equity in income of other real estate investments, net (5,548 ) (7,014 ) (19,917 ) (10,367 )
Non same property net operating income (19,458 ) (2,882 ) (37,475 ) (4,198 )
Non-operational expense from joint ventures, net 38,183 32,947 4,315 62,655
Impact from foreign currency   -     (2,560 )   -     (5,003 )
Combined Same Property NOI $ 253,241 $ 245,020 $ 498,587 $ 483,200
Canadian Same Property NOI   (19,965 )   (20,039 )   (39,835 )   (39,692 )
U.S. Same Property NOI $ 233,276   $ 224,981   $ 458,752   $ 443,508  
 
 
Combined Same Property NOI and U.S. Same Property NOI are supplemental non-GAAP financial measures of real estate companies’ operating performance and should not be considered an alternative to net income in accordance with GAAP or as a measure of liquidity. Combined Same Property NOI and U.S. Same Property NOI are considered by management to be important performance measures of Kimco's operations, and management believes that these measures are frequently used by securities analysts and investors as measures of Kimco's operating performance as these measures include only the net operating income of properties that have been owned for the entire current and prior year reporting periods including those properties under redevelopment and excluding properties under development and pending stabilization. As such, Combined Same Property NOI and U.S. Same Property NOI assist in eliminating disparities in net income due to the development, acquisition or disposition of properties during the particular periods presented, and thus provide a more consistent performance measure for the comparison of the operating performance of Kimco's properties.
 
 
Combined Same Property NOI (and U.S. Same Property NOI) is calculated using revenues from rental properties (excluding straight-line rents, lease termination fees and above/below market rents and includes charges for bad debt) less operating and maintenance expense, real estate taxes, rent expense and the impact for foreign currency, plus Kimco's proportionate share of Combined Same Property NOI from unconsolidated real estate joint ventures, calculated on the same basis. Combined Same Property NOI includes all properties that are owned for the entire current and prior year reporting periods and excludes properties under development and properties pending stabilization. Properties are deemed stabilized at the earlier of (i) reaching 90% leased or (ii) one year following their inclusion in operating real estate. U.S. Same Property NOI excludes the company’s Canadian properties which are included in Combined Same Property NOI. Kimco’s method of calculating Combined Same Property NOI and U.S. Same Property NOI may differ from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
 

           
Reconciliation of Projected Diluted Net Income Per Common Share
to Projected Diluted Funds From Operations Per Common Share
(unaudited)
 
 
Projected Range
Full Year 2015

Low

High

Projected diluted net income available to common
shareholder per share $ 1.30 $ 1.42
 
Projected depreciation & amortization 0.71 0.73
 
Projected depreciation & amortization real estate
joint ventures, net of noncontrolling interests 0.15 0.17
 
Gain on disposition of operating properties,
net of tax and noncontrolling interests (0.14 ) (0.21 )
 
Gain on disposition of joint venture operating properties,
and change in control of interests (0.54 ) (0.59 )
 
Impairments of operating properties, net of tax
and noncontrolling interests 0.04 0.04
   
Projected FFO per diluted common share $ 1.52 $ 1.56
 
Transactional income, net (0.09 ) (0.10 )
   
Projected FFO, as adjusted per diluted common share $ 1.43   $ 1.46  
 
Projections involve numerous assumptions such as rental income (including assumptions on percentage rent), interest rates, tenant defaults, occupancy rates, foreign currency exchange rates (such as the US-Canadian rate), selling prices of properties held for disposition, expenses (including salaries and employee costs), insurance costs and numerous other factors. Not all of these factors are determinable at this time and actual results may vary from the projected results, and may be above or below the range indicated. The above range represents management’s estimate of results based upon these assumptions as of the date of this press release.