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 June 30, 2006
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-10899
Kimco Realty Corporation
(Exact name of registrant as specified in its charter)
Maryland 13-2744380
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 11042
(Address of principal executive offices - zip code)
(516) 869-9000
(Registrant's telephone number, including area code)
______________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No[_]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12-b of the Exchange Act.
Large Accelerated filer [X] Accelerated filer [_] Non-accelerated filer [_]
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]
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.
240,645,899 shares outstanding as of June 30, 2006.
PART I
FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets as of June 30, 2006 and
December 31, 2005. 3
Condensed Consolidated Statements of Income for the Three
and Six Months Ended June 30, 2006 and 2005. 4
Condensed Consolidated Statements of Comprehensive Income for
the Three and Six Months Ended June 30, 2006 and 2005. 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2006 and 2005. 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 38
Item 4. Controls and Procedures 39
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 42
Item 6. Exhibits 42
2
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
JUNE 30, DECEMBER 31,
2006 2005
---------- ------------
Assets:
Operating real estate, net of accumulated depreciation
of $768,973 and $740,127, respectively $3,856,241 $3,209,158
Investments and advances in real estate joint ventures 817,953 735,648
Real estate under development 809,024 611,121
Other real estate investments 388,466 283,035
Mortgages and other financing receivables 142,017 132,675
Cash and cash equivalents 122,346 76,273
Marketable securities 203,479 206,452
Accounts and notes receivable 65,548 64,329
Other assets 356,776 215,945
---------- ----------
$6,761,850 $5,534,636
========== ==========
Liabilities:
Notes payable $2,389,037 $2,147,405
Mortgages payable 488,111 315,336
Construction loans payable 261,706 228,455
Dividends payable 82,323 78,169
Other liabilities 338,594 255,213
---------- ----------
3,559,771 3,024,578
---------- ----------
Minority interests 308,799 122,844
---------- ----------
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 241,192,479 shares; outstanding 240,645,899 shares at June 30, 2006;
Issued and outstanding 228,059,056 shares at December 31, 2005 2,406 2,281
Paid-in capital 2,740,934 2,255,332
Retained earnings 100,213 59,855
---------- ----------
2,844,253 2,318,168
Accumulated other comprehensive income 49,027 69,046
---------- ----------
2,893,280 2,387,214
---------- ----------
$6,761,850 $5,534,636
========== ==========
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 SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenues from rental property $151,502 $125,824 $293,314 $254,274
-------- -------- -------- --------
Rental property expenses:
Rent 2,944 2,603 5,857 5,113
Real estate taxes 19,904 16,209 37,455 32,151
Operating and maintenance 17,820 13,513 35,427 30,810
-------- -------- -------- --------
40,668 32,325 78,739 68,074
-------- -------- -------- --------
110,834 93,499 214,575 186,200
Mortgage and other financing income 8,716 3,465 12,910 6,570
Management and other fee income 12,340 7,477 19,735 15,130
Depreciation and amortization (35,673) (26,714) (65,121) (51,854)
General and administrative expenses (16,567) (12,747) (33,300) (24,750)
Interest, dividends and other investment income 12,054 4,410 24,344 8,472
Other (expense)/income, net (3,134) 12,093 8,898 11,156
Interest expense (42,010) (30,239) (81,912) (58,635)
-------- -------- -------- --------
46,560 51,244 100,129 92,289
Benefit/(provision) for income taxes 3,257 (2,252) 1,680 (4,827)
Income from other real estate investments 15,430 11,684 33,747 28,013
Equity in income of real estate joint ventures, net 26,761 14,707 43,512 39,088
Minority interests in income, net (8,053) (3,881) (13,816) (6,970)
Gain on sale of development properties,
net of tax of $4,423, $3,664, $5,632, and $7,143, respectively 6,635 5,495 8,447 10,714
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS 90,590 76,997 173,699 158,307
-------- -------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operating properties 614 1,865 2,125 3,391
Minority interest in income from discontinued operating properties (1,470) (31) (1,521) (78)
Loss on operating properties held for sale/sold (813) (2,615) (813) (2,615)
Gain on disposition of operating properties, net of taxes 18,429 7,065 30,055 9,461
-------- -------- -------- --------
INCOME FROM DISCONTINUED OPERATIONS 16,760 6,284 29,846 10,159
-------- -------- -------- --------
Gain on transfer of operating properties 1,394 706 1,394 2,301
Loss on transfer of operating properties -- (150) -- (150)
-------- -------- -------- --------
1,394 556 1,394 2,151
-------- -------- -------- --------
NET INCOME 108,744 83,837 204,939 170,617
Preferred stock dividends (2,909) (2,909) (5,819) (5,819)
-------- -------- -------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $105,835 $ 80,928 $199,120 $164,798
======== ======== ======== ========
Per common share:
Income from continuing operations:
-Basic $ 0.37 $ 0.33 $ 0.72 $ 0.68
======== ======== ======== ========
-Diluted $ 0.36 $ 0.32 $ 0.71 $ 0.67
======== ======== ======== ========
Net income:
-Basic $ 0.44 $ 0.36 $ 0.85 $ 0.73
======== ======== ======== ========
-Diluted $ 0.43 $ 0.35 $ 0.83 $ 0.72
======== ======== ======== ========
Weighted average shares outstanding for net income calculations:
-Basic 240,554 226,435 234,647 225,951
======== ======== ======== ========
-Diluted 246,048 230,545 240,065 230,042
======== ======== ======== ========
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 SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2006 2005 2006 2005
-------- ------- -------- --------
Net income $108,744 $83,837 $204,939 $170,617
-------- ------- -------- --------
Other comprehensive income:
Change in unrealized gain/(loss) on marketable securities (3,390) 8,446 (22,280) 18,290
Change in unrealized gain on foreign currency hedge agreements 149 1,702 339 3,504
Foreign currency translation adjustment 2,580 (616) 1,922 (2,338)
-------- ------- -------- --------
Other comprehensive income (661) 9,532 (20,019) 19,456
-------- ------- -------- --------
Comprehensive income $108,083 $93,369 $184,920 $190,073
======== ======= ======== ========
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
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
-----------------------
2006 2005
--------- -----------
Cash flow from operating activities:
Net income $ 204,939 $ 170,617
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 65,527 53,892
Loss on operating properties held for sale/sold/transferred 813 2,765
Gain on sale of development properties (14,079) (17,857)
Gain on sale/transfer of operating properties (33,537) (11,762)
Minority interests in income of partnerships, net 15,336 7,048
Equity in income of real estate joint ventures, net (43,512) (39,088)
Income from other real estate investments (25,696) (19,534)
Distributions of unconsolidated investments 69,237 57,862
Change in accounts and notes receivable 545 (7,074)
Change in accounts payable and accrued expenses 16,810 2,043
Change in other operating assets and liabilities (16,248) (4,887)
--------- -----------
Net cash flow provided by operating activities 240,135 194,025
--------- -----------
Cash flow from investing activities:
Acquisition of and improvements to operating real estate (395,144) (207,177)
Acquisition of and improvements to real estate under development (240,860) (145,313)
Investment in marketable securities (53,641) (55,261)
Proceeds from sale of marketable securities 38,736 8,753
Proceeds from transferred operating properties 77,003 88,665
Investments and advances to real estate joint ventures (132,919) (83,101)
Reimbursements of advances to real estate joint ventures 62,821 54,001
Other real estate investments (135,924) (51,476)
Reimbursements of advances to other real estate investments 26,326 5,768
Investment in mortgage loans receivable (89,130) (34,763)
Collection of mortgage loans receivable 79,627 32,928
Other investments (95,533) --
Settlement of net investment hedges -- (18,754)
Proceeds from sale of operating properties 53,729 33,644
Proceeds from sale of development properties 71,516 139,041
--------- -----------
Net cash flow used for investing activities (733,393) (233,045)
--------- -----------
Cash flow from financing activities:
Principal payments on debt, excluding normal amortization of
rental property debt (12,056) (30,969)
Principal payments on rental property debt (4,970) (4,024)
Principal payments on construction loan financings (32,963) (38,608)
Proceeds from mortgage/construction loan financings 97,573 100,233
Borrowings under revolving credit facilities 171,068 --
Repayment of borrowings under revolving credit facilities (234,419) (146,739)
Proceeds from issuance of unsecured notes 300,000 422,429
Repayment of unsecured notes/term loan -- (130,250)
Financing origination costs (9,246) (4,524)
Redemption of minority interests in real estate partnerships (7,132) (4,358)
Dividends paid (160,427) (143,389)
Proceeds from issuance of stock 431,903 28,376
--------- -----------
Net cash flow provided by financing activities 539,331 48,177
--------- -----------
Change in cash and cash equivalents 46,073 9,157
Cash and cash equivalents, beginning of period 76,273 38,220
--------- -----------
Cash and cash equivalents, end of period $ 122,346 $ 47,377
========= ===========
Interest paid during the year (net of capitalized interest of $9,646,
and $5,350, respectively) $ 72,201 $ 60,019
========= ===========
Income taxes paid during the period $ 3,350 $ 7,338
========= ===========
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, including where the Company 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)") or meets
certain criteria of a sole general partner or managing member as identified, in
accordance with Emerging Issues Task Force ("EITF") Issue 04-5, Investors
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").
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.
Income Taxes -
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 Sections 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 six months ended June 30, 2006 and 2005, the
Company's provision for federal and state income taxes was approximately $4.0
million and $12.0 million, respectively, 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 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 Six Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
Computation of Basic Earnings Per Share:
Income from continuing operations $ 90,590 $ 76,997 $173,699 $158,307
Gain on transfer of operating properties, net 1,394 556 1,394 2,151
Preferred stock dividends (2,909) (2,909) (5,819) (5,819)
-------- -------- -------- --------
Income from continuing operations
applicable to common shares 89,075 74,644 169,274 154,639
Income from discontinued operations 16,760 6,284 29,846 10,159
-------- -------- -------- --------
Net income applicable to common shares $105,835 $ 80,928 $199,120 $164,798
======== ======== ======== ========
Weighted average common shares
outstanding 240,554 226,435 234,647 225,951
======== ======== ======== ========
Basic Earnings Per Share:
Income from continuing operations $ 0.37 $ 0.33 $ 0.72 $ 0.68
Income from discontinued operations 0.07 0.03 0.13 0.05
-------- -------- -------- --------
Net income $ 0.44 $ 0.36 $ 0.85 $ 0.73
======== ======== ======== ========
8
Computation of Diluted Earnings Per Share:
Income from continuing operations
applicable to common shares $ 89,075 $ 74,644 $169,274 $154,639
Distributions on convertible units (a) 209 -- 363 --
-------- -------- -------- --------
Income from continuing operations for diluted
earnings per share 89,284 74,644 169,637 154,639
Income from discontinued operations 16,760 6,284 29,846 10,159
-------- -------- -------- --------
Net income for diluted earnings per share $106,044 $ 80,928 $199,483 $164,798
======== ======== ======== ========
Weighted average common shares outstanding
- basic 240,554 226,435 234,647 225,951
Effect of dilutive securities:
Stock options 4,861 4,110 4,864 4,091
Assumed conversion of convertible units (a) 633 -- 554 --
-------- -------- -------- --------
Shares for diluted earnings per share 246,048 230,545 240,065 230,042
======== ======== ======== ========
Diluted Earnings Per Share:
Income from continuing operations $ 0.36 $ 0.32 $ 0.71 $ 0.67
Income from discontinued operations 0.07 0.03 0.12 0.05
-------- -------- -------- --------
Net income $ 0.43 $ 0.35 $ 0.83 $ 0.72
======== ======== ======== ========
(a) For the three and six months ended June 30, 2006 and 2005, the effect
of certain convertible 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 an equity participation plan (the "Plan") pursuant to
which a maximum of 42,000,000 shares of the Company's common stock may be issued
for qualified and non-qualified options and restricted stock grants. Options
granted under the Plan generally vest ratably over a three or five year term,
expire ten years from the date of grant and are exercisable at the market price
on the date of grant, unless otherwise determined by the Board of Directors at
its sole discretion. Restricted stock grants vest 100% on the fifth anniversary
of the grant. In addition, the Plan provides for the granting of certain options
to each of the Company's non-employee directors (the "Independent Directors")
and permits such Independent Directors to elect to receive deferred stock awards
in lieu of directors' fees.
9
Prior to January 1, 2003, the Company accounted for the Plan 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). 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.
During December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123(R)"), which is a revision of Statement 123.
SFAS No. 123(R) supersedes Opinion 25. Generally, the approach in SFAS No.
123(R) is similar to the approach described in Statement 123. However, SFAS No.
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the statement of operations based on
their fair values. Pro-forma disclosure is no longer an alternative under SFAS
No. 123(R). SFAS No. 123(R) is effective for fiscal years beginning after
December 31, 2005. The Company began expensing stock based employee compensation
with its adoption of the prospective method provisions of SFAS No. 148,
effective January 1, 2003, as a result, the adoption of SFAS No. 123(R) did not
have a material impact on the Company's financial position or results of
operations.
The cost related to stock-based employee compensation included in the
determination of net income for the three and six months ended June 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. There was no difference in amounts for the three and six months ended June
30, 2006. 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 for the three and six months ended June 30, 2005 (amounts presented
in thousands except for per share data):
Three Months Six Months
Ended June 30, Ended June 30,
2005 2005
-------------- --------------
Net income, as reported $83,837 $170,617
Add: Stock based employee compensation
expense included in reported net income 1,047 2,072
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (1,197) (2,371)
------- --------
10
Pro Forma Net income - Basic $83,687 $170,318
======= ========
Earnings Per Share
Basic - as reported $ 0.36 $ 0.73
======= ========
Basic - pro forma $ 0.36 $ 0.73
======= ========
Net income for diluted earnings per share $80,928 $168,012
Add: Stock based employee compensation
expense included in reported net income 1,047 2,072
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (1,197) (2,371)
------- --------
Pro Forma Net income - Diluted $80,778 $167,713
======= ========
Earnings Per Share
Diluted - as reported $ 0.35 $ 0.72
======= ========
Diluted - pro forma $ 0.35 $ 0.72
======= ========
In addition, there were approximately 63,750 and 3,405,000 stock options
that were anti-dilutive as of June 30, 2006 and 2005, respectively.
The fair value of each option award is estimated on the date of grant using
the Black-Scholes option pricing formula. The more significant assumptions
underlying the determination of such fair values for options granted during the
three and six months ended June 30, 2006 and 2005 were as follows:
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
2006 2005 2006 2005
------ ------ ------ ------
Weighted average fair value of options
granted $ 5.44 $ 2.57 $ 4.82 $ 3.77
Weighted average risk-free interest rates 5.00% 3.78% 4.75% 3.69%
Weighted average expected option lives 6.50 3.75 6.50 3.75
Weighted average expected volatility 17.68% 17.92% 17.56% 17.90%
Weighted average expected dividend
yield 4.45% 5.48% 4.66% 5.54%
11
Weighted- Aggregate
Average Intrinsic
Exercise Price Value
Shares Per Share (in millions)
---------- -------------- -------------
Options outstanding, January 1, 2006 14,551,296 $22.06
Exercised (1,081,120) $17.46
Granted 107,750 $34.66
Forfeited (56,070) $27.68
----------
Options outstanding, March 31, 2006 13,521,856 $22.50 $245.3
Exercised (167,375) $16.17
Granted 93,500 $36.97
Forfeited (41,514) $28.67
----------
Options Outstanding, June 30, 2006 13,406,467 $22.66 $185.4
==========
Options exercisable -
June 30, 2005 9,339,551 $17.01 $113.4
========== ====== ======
June 30, 2006 7,120,483 $17.82 $132.9
========== ====== ======
The exercise prices for option outstanding as of June 30, 2006, range from
$9.46 to $40.64 per share. The weighted-average remaining contractual life for
options outstanding as of June 30, 2006, was approximately 7.1 years. Options to
purchase 8,605,352 shares of the Company's commons stock were available for
issuance under the Plan at June 30, 2006.
Cash received from options exercised under the Plan was approximately $21.6
million and $24.6 million for the six months ended June 30, 2006 and 2005,
respectively. The total intrinsic value of options exercised during the three
and six months ended June 30, 2006 was approximately $3.4 million and $23.6
million, respectively, and was approximately $6.2 million and $23.0 million,
respectively, for the corresponding 2005 periods.
The Company recognized stock options expense of $1.4 million and $2.8
million for the three and six months ended June 30, 2006, respectively and $1.0
million and $2.1 million for the three and six months ended June 30, 2005,
respectively. As of June 30, 2006, the Company had $11.1 million of total
unrecognized compensation cost related to unvested stock compensation granted
under the Company's Plan. That cost is expected to be recognized over a weighted
average period of approximately 2.7 years.
New Accounting Pronouncements -
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
12
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 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 did not have a material impact on the Company's financial position or
results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,
Accounting for Income Taxes ("FIN 48"), regarding accounting for and disclosure
of uncertain tax positions. This guidance seeks to reduce the diversity in
practice associated with certain aspects of the recognition and measurement
related to accounting for income taxes. This interpretation is effective for
fiscal years beginning after December 15, 2006. The Company does not expect the
adoption of FIN 48 to have a material impact on the Company's results of
operations and financial position.
2. Operating Property Activities
Acquisitions -
During the six months ended June 30, 2006, the Company acquired, in
separate transactions, 33 operating properties, comprising an aggregate 3.2
million square feet of a gross leasable area ("GLA"), for an aggregate purchase
price of approximately $680.5 million including the assumption of approximately
$133.5 million of non-recourse mortgage debt encumbering eleven of the
properties, issuance of approximately $169.0 million of redeemable units
relating to six properties and the issuance of approximately $51.5 million of
Company common stock ("Common Stock") relating to one property. Details of these
transactions are as follows (in thousands):
13
Purchase Price
-----------------------------------
Debt Assumed/
Month Stock or
Property Name Location Acquired Cash Units Issued Total GLA
------------------------- --------------------- ---------- -------- ------------- -------- -----
Portfolio - 19 properties Various: CA, NV, & HI Jan-06 $114,430 $ 19,124 $133,554 815
Groves at Lakeland Lakeland, FL Feb-06 1,500 -- 1,500 105
625 Broadway New York, NY Feb-06 36,600 -- 36,600 83
387 Bleecker Street New York, NY Feb-06 3,700 -- 3,700 --
Cupertino Village Cupertino, CA Mar-06 27,400 38,000 65,400 115
Poway Center Poway, CA Mar-06 (a) 3,500 -- 3,500 16
Plaza Centro Caguas, PR Mar-06 35,731 71,774(b) 107,505 438
Los Colobos Carolina, PR Mar-06 36,684 41,719(b) 78,403 343
Hylan Plaza Staten Island, NY Mar-06 -- 81,800(c) 81,800 358
Tyler St Plaza Riverside, CA Apr-06 10,100 -- 10,100 86
Market at Bay Shore Bay Shore, NY Apr-06 -- 39,673(d) 39,673 177
Pathmark S.C. Centereach, NY Apr-06 -- 21,955(d) 21,955 102
Western Plaza Mayaguez, PR June-06 3,500 30,340(d) 33,840 226
Mallside Plaza Portland, ME Jun-06 23,100 -- 23,100 91
Pearl Towers Albany, NY Jun-06 -- 39,868(d) 39,868 253
-------- -------- -------- -----
$296,245 $384,253 $680,498 3,208
======== ======== ======== =====
(a) Acquired additional square footage of existing property.
(b) Represents the value of units issued, see additional disclosure below.
(c) Represents the value of common stock issued by the Company relating to the
merger transaction with Atlantic Realty Trust ("ART") including $30.3
million issued to the Company's subsidiaries representing the 37% of ART
previously owned (See Note 10).
14
(d) Represents the value of units issued and debt assumed, see additional
disclosure below.
During the six months ended June 30, 2006, the Company acquired interests
in three shopping center properties located in Caguas, Carolina and Mayaguez,
Puerto Rico, valued at an aggregate $219.1 million. The properties were acquired
through the issuance of units from a consolidated subsidiary and consist of
approximately $94.7 million of floating and fixed rate redeemable units,
approximately $31.1 million of redeemable units, which are redeemable at the
option of the holder, the assumption of approximately $18.0 million of
non-recourse mortgage debt encumbering one of the properties and approximately
$75.3 million in cash. The Company has the option to settle the redemption of
the $31.1 million redeemable units with Common Stock or cash. The aggregate
value of the units is included in Minority interests on the accompanying
Condensed Consolidated Balance Sheets.
The Company has committed to acquire four additional shopping center
properties located in Puerto Rico, comprising an aggregate of approximately 1.2
million square feet of GLA, with an aggregate value of approximately $229.1
million. Consideration for these additional property acquisitions will consist
of approximately $38.6 million of cash, approximately $14.7 million of
redeemable units, which are redeemable at the option of the holder,
approximately $61.7 million of floating and fixed rate redeemable units and the
assumption of approximately $114.1 million of non-recourse mortgage debt. The
Company has the option to settle the redemption of the $14.7 million redeemable
units with Common Stock or cash. The additional acquisitions are scheduled to
close the earlier of the completion of the mortgage assumptions or December 1,
2006.
During April 2006, the Company acquired interests in two shopping center
properties located in Bay Shore and Centereach, NY, valued at an aggregate $61.6
million. The properties were acquired through the issuance of units from a
consolidated subsidiary and consist of approximately $24.2 million of redeemable
units, which are redeemable at the option of the holder, approximately $14.0
million of fixed rate redeemable units and the assumption of approximately $23.4
million of non-recourse mortgage debt. The Company has the option to settle the
redemption of the $24.2 million redeemable units with Common Stock or cash. The
aggregate value of the units is included in Minority interests on the
accompanying Condensed Consolidated Balance Sheets.
During June 2006, the Company acquired interest in an office property
located in Albany, NY valued at approximately $39.9 million. The property was
acquired through the issuance of approximately $5.0 million of redeemable units
from a consolidated subsidiary, which are redeemable at the option of the holder
after one year, and the assumption of approximately $34.9 million of
non-recourse mortgage debt. The Company has the option to settle the redemption
with Common Stock or cash. The aggregate value of the units is included in
Minority interests on the accompanying Condensed Consolidated Balance Sheets.
15
Dispositions -
During the six months ended June 30, 2006, the Company disposed of 13
operating properties for an aggregate sales price of approximately $121.9
million, which resulted in a net gain of approximately $29.2 million, net of
income taxes of $2.2 million relating to the sale of one property, and
transferred five operating properties to joint ventures in which the Company has
20% non-controlling interests for an aggregate price of approximately $95.4
million, which resulted in a gain of approximately $1.4 million.
3. Discontinued Operations
The Company reports as discontinued operations properties held-for-sale and
operating properties sold in the current period. The 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 2005
financial statement amounts.
The components of Income from operations related to discontinued operations
for the three and six months ended June 30, 2006 and 2005 are shown below. These
include the results of operations through the date of sale for each property
sold during 2006 and 2005 and the operations for the applicable period for those
assets classified as held-for-sale as of June 30, 2006 (in thousands):
Three Months Ended Six Months
June 30, Ended June 30,
------------------ -----------------
2006 2005 2006 2005
------- ------- ------- -------
Discontinued operations:
Revenues from rental property $ 1,118 $ 3,758 $ 3,392 $ 8,237
Rental property expenses (466) (1,250) (1,103) (3,019)
------- ------- ------- -------
Income from property operations 652 2,508 2,289 5,218
Depreciation and amortization (167) (995) (406) (2,038)
Interest expense (93) -- (208) (172)
Other 222 352 450 383
------- ------- ------- -------
Income from discontinued operating
properties 614 1,865 2,125 3,391
Provision for income taxes (2,124) -- (2,200) --
Minority interest in income from
discontinued operating
properties (1,470) (31) (1,521) (78)
Loss on operating properties held
for sale/sold (813) (2,615) (813) (2,615)
16
Gain on disposition of operating
properties 20,553 7,065 32,255 9,461
------- ------- ------- -------
Income from discontinued
operations $16,760 $ 6,284 $29,846 $10,159
======= ======= ======= =======
During the three months ended March 31, 2006, the Company classified as
held-for-sale six shopping center properties comprising approximately 0.1
million square feet of GLA. The book value of each of these properties,
aggregating approximately $24.3 million, did not exceed each of their estimated
fair values. As a result, no adjustment of property carrying value had been
recorded. The Company's determination of the fair value for each of these
properties, aggregating approximately $29.5 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, 2006.
During the three months ended June 30, 2006, the Company classified as
held-for-sale two shopping center properties comprising approximately 0.3
million square feet of GLA. The book value of each of these properties,
aggregating approximately $2.5 million, did not exceed each of their estimated
fair values. As a result, no adjustment of property carrying value has been
recorded. The Company's determination of the fair value for each of these
properties, aggregating approximately $8.1 million, is based primarily upon
executed contracts of sale with third parties less estimated selling costs.
4. Ground-Up Development
The Company is engaged in ground-up development projects which consist of
(i) merchant building through the Company's wholly-owned taxable REIT
subsidiary, Kimco Developers, Inc. ("KDI"), which develops neighborhood and
community shopping centers and the subsequent sale thereof upon completion, (ii)
U.S. ground-up development projects which will be held as long-term investments
by the Company and (iii) various ground-up development projects located in
Mexico and Canada for long-term investment. The ground-up development projects
generally have substantial pre-leasing prior to the commencement of
construction. As of June 30, 2006, the Company had in progress a total of 41
ground-up development projects including 26 merchant building projects, five
U.S. ground-up development projects and ten ground-up development projects
located throughout Mexico.
KDI -
During the six months ended June 30, 2006, KDI acquired nine land parcels,
in separate transactions, for the ground-up development of shopping centers and
subsequent sale thereof upon completion for an aggregate purchase price of
approximately $37.2 million.
17
During the six months ended June 30, 2006, KDI sold, in separate
transactions, two recently completed projects and 19 out-parcels for
approximately $73.1 million. These transactions resulted in gains of
approximately $8.4 million, net of income taxes of $5.6 million.
Additionally, during the six months ended June 30, 2006, KDI obtained
construction financing on two ground-up development properties for an aggregate
loan amount of up to $55.2 million, of which $12.6 million was outstanding as of
June 30, 2006. As of June 30, 2006, KDI had 14 loans with total commitments of
up to $350.7 million of which $261.3 million has been funded. These loans have
original maturities ranging from 3 to 32 months and interest rates ranging from
6.90% to 7.60% at June 30, 2006.
Long-term Investment Projects -
During March 2006, the Company acquired land in Chambersburg, PA, for a
purchase price of approximately $8.9 million. The land will be developed into a
0.4 million square foot retail center with a total estimated project cost of
approximately $26.1 million.
During the six months ended June 30, 2006, the Company acquired in separate
transactions, land in Monterey and Guadalajara, Mexico, for an aggregate
purchase price of approximately 487.5 million pesos ("MXP") (approximately USD
$44.4 million). The land will be developed into retail centers aggregating 1.1
million square feet. Total estimated project costs are approximately USD $118.6
million.
During June 2006, the Company acquired, through a newly formed joint
venture in which the Company has a non-controlling interest, a 0.1 million
square foot development project in Puerta Vallarta, Mexico for a purchase price
of 65.4 million MXP (approximately USD $5.7 million). Total estimated project
costs are approximately USD $7.0 million. The Company accounts for this
investment under the equity method of accounting.
During June 2006, the Company transferred 50% of its 60% interest in a
development property located in Tijuana Baja, CA, to a joint venture partner for
approximately $6.4 million, which approximated its carrying value. As a result
of this transaction, the Company now holds a 30% non-controlling interest and
continues to account for its investment under the equity method of accounting.
5. FNC Realty Corporation
On July 27, 2005, Frank's Nursery and Crafts, Inc. ("Frank's") emerged from
Chapter 11 bankruptcy pursuant to a bankruptcy court approved plan of
reorganization as FNC Realty Corporation ("FNC"). Pursuant to the plan of
reorganization, the Company received common shares of FNC representing an
approximate 27% ownership interest in exchange for its interest in Frank's. In
18
addition, the Company acquired an additional 24.5% interest in the common shares
of FNC for cash of approximately $17.0 million, thereby increasing the Company's
ownership interest to approximately 51%. The Company also acquired approximately
$42.0 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.
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 4.00% to 7.75% and
maturity dates ranging from June 2012 through June 2022. During December 2005,
FNC pre-paid, without penalty, an aggregate $4.8 million of mortgage debt
encumbering five of its properties. As of June 30, 2006, FNC had approximately
$11.1 million of non-recourse mortgage debt encumbering 11 properties. These
remaining loans bear interest at fixed rates ranging from 4.00% to 7.75% and
maturity dates ranging from May 2012 through July 2014.
The Company's investment strategy with respect to FNC includes
re-tenanting, re-developing and disposition of the properties. From July 27,
2005, through December 31, 2005, FNC disposed of nine properties, in separate
transactions, for an aggregate sales price of approximately $9.4 million. During
the six months ended June 30, 2006, FNC disposed of an additional four
properties and one out-parcel, in separate transactions, for an aggregate sales
price of approximately $13.8 million.
6. 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 six months ended June 30, 2006 and
2005 was approximately $11.8 million and $16.8 million, respectively, which
includes the Company's share of gains from property sales of approximately $0.7
million and $7.7 million, respectively.
During the six months ended June 30, 2006, KIR disposed of an operating
property and an out-parcel, in separate transactions, for an aggregate sales
price of approximately $7.9 million. These sales resulted in an aggregate gain
of approximately $1.6 million of which the Company's share was approximately
$0.7 million.
19
In addition, KIR has a master management agreement with the Company,
whereby, the Company performs services for fees relating to the management,
operation, supervision and maintenance of the joint venture properties. For the
six months ended June 30, 2006 and 2005, the Company earned management fees of
approximately $1.7 million and $1.6 million, respectively.
As of June 30, 2006, the KIR portfolio was comprised of 67 properties
aggregating 14.1 million square feet of GLA located in 20 states.
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. The Company accounts for its
investment in KROP under the equity method of accounting.
During the six months ended June 30, 2006, KROP acquired one operating
property from the Company for an aggregate purchase price of approximately $3.5
million.
During the six months ended June 30, 2006, KROP sold three operating
properties to a joint venture in which the Company has a 20% non-controlling
interest for an aggregate sales price of approximately $62.2 million. These
sales resulted in an aggregate gain of approximately $26.7 million. As a result
of its continued 20% ownership interests in these properties, the Company has
deferred recognition of its share of these gains.
Additionally, during the six months ended June 30, 2006, KROP sold five
operating properties and two out-parcels in separate transactions, for an
aggregate sales price of approximately $108.8 million. These sales resulted in
an aggregate gain of approximately $33.0 million of which the Company's share
was approximately $6.6 million.
As of June 30, 2006, the KROP venture consisted of 30 properties
aggregating 4.4 million square feet of GLA located in 13 states. For the six
months ended June 30, 2006 and 2005, the Company recognized equity in income of
KROP of approximately $7.1 million and $2.5 million, respectively. Additionally,
during each of the six months ended June 30, 2006 and 2005, the Company earned
management fees of approximately $1.7 million. In addition, the Company earned
acquisition/disposition fees of approximately $0.4 million and $0.5 million for
the six months ended June 30, 2006 and 2005, respectively.
20
Other Real Estate Joint Ventures -
During the six months ended June 30, 2006, the Company acquired, in
separate transactions, 32 operating properties, through newly formed joint
ventures in which the Company has non-controlling interests. These properties
were acquired for an aggregate purchase price of approximately $736.8 million,
including the assumption of approximately $223.2 million of non-recourse
mortgage debt encumbering six of the properties. The Company accounts for its
investment in these joint ventures under the equity method of accounting.
Details of these transactions are as follows (in thousands):
Purchase Price
Month ------------------------------
Property Name Location Acquired Cash Debt Total GLA
------------------- -------------------- -------- -------- -------- -------- -----
Stabilus Building Salitillo, Cahuila, Jan-06 $ 2,600 $ -- $ 2,600 63
Mexico
American Industries Chihuahua & San Luis Feb-06 12,200 -- 12,200 224
(3 Locations) Postosi, Mexico
Copperwood Village Houston, TX Feb-06 73,850 -- 73,850 350
Creme De la Creme Allen & Colleyville, Feb-06 2,409 7,229 9,638 41
(2 Locations) TX
Five free standing CO, OR, NM, NY Mar-06 7,000 -- 7,000 162
locations
Edgewater Commons Edgewater, NJ Mar-06 44,104 74,250 118,354 424
Long Gate Shopping Ellicot City, MD Mar-06 36,330 40,200 76,530 433
Ctr
Clackamas Promenade Clakamas, OR Mar-06 35,240 42,550 77,790 237
Westmont Portfolio Various, Canada Mar-06 16,066 69,572 85,638 358
(8 Locations)
Crow Portfolio FL and TX Apr-06 46,698 66,200 112,898 678
(3 Locations)
Great Northeast Philadelphia, PA Apr-06 36,500 -- 36,500 290
Plaza
21
The Center at Hobbs Sturbridge, MA Apr-06 53,100 -- 53,100 231
Brook
Cessna Building Chihuahua, Mexico Apr-06 2,060 -- 2,060 62
Creme de la Creme Coppell, TX Jun-06 1,325 4,275 5,600 20
Westmont Portfolio Houston, TX Jun-06 14,000 47,200 61,200 460
Werner II Juarez, Mexico Jun-06 1,800 -- 1,800 200
-------- -------- -------- -----
$385,282 $351,476 $736,758 4,233
======== ======== ======== =====
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 June 30, 2006, the Company's carrying value of its investments and
advances in real estate joint ventures approximated $818.0 million.
7. Other Real Estate Investments
Preferred Equity Capital -
The Company maintains a preferred equity program, which provides capital to
developers and owners of real estate. During the six months ended June 30, 2006,
the Company provided an aggregate of approximately $135.9 million in investment
capital to developers and owners of 73 real estate properties. As of June 30,
2006, the Company's net investment under the preferred equity program was
approximately $348.9 million relating to 199 properties. During the six months
ended June 30, 2006, the Company earned approximately $18.1 million, including
$5.3 million in profit participation earned from three capital transactions.
During the six months ended June 30, 2005, the Company earned approximately
$13.7 million from these investments, including a $3.1 million profit
participation earned from one capital transaction.
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"). In connection with the merger, 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 included re-tenanting, repositioning and disposition of the
properties.
22
During May 2006, the Company acquired an additional 48% interest in
Kimsouth for approximately $22.9 million, which increased the Company's total
ownership to 92.5%. As a result of this transaction, the Company became the
controlling shareholder and has therefore, commenced consolidation of Kimsouth
upon the closing date. The acquisition of the additional 48% ownership interest
has been accounted for as a step acquisition with the purchase price being
allocated to the identified assets and liabilities of Kimsouth.
Prior to consolidating Kimsouth, the Company accounted for its investment
under the equity method. For the six months ended June 30, 2006 and 2005, the
Company recognized equity in income of Kimsouth of approximately $0.5 million
and $6.4 million, respectively.
During June 2006, Kimsouth contributed approximately $51.0 million, of
which $47.2 million or 92.5% was provided by the Company, to fund its 15%
non-controlling interest in a newly formed joint venture with an investment
group to acquire a food and drug store retailer. This investment is included in
other assets in the Condensed Consolidated Balance Sheets and will be accounted
for under the equity method of accounting.
During the six months ended June 30, 2006, Kimsouth sold one property for
an aggregate sales price of approximately $5.0 million.
As of June 30, 2006, Kimsouth consisted of four properties, including the
remaining office component of an operating property sold in 2004, aggregating
approximately 1.0 million square feet of GLA located in four states and its
investment in the food and drug store retailer joint venture.
8. Mortgages and Other Financing Receivables
During January 2006, the Company provided approximately $16.0 million as
its share of a $50.0 million junior participation in a $700.0 million first
mortgage loan, in connection with a private investment firm's acquisition of a
retailer. This loan participation bore interest at LIBOR plus 7.75% per annum
and had a two year term with a one year extension option and was collateralized
by certain real estate interests of the retailer. During June 2006, the borrower
elected to pre-pay the outstanding loan balance of approximately $16.0 million
in full satisfaction of this loan.
Additionally, during January 2006, the Company provided approximately $5.2
million as its share of an $11.5 million term loan to a real estate developer
for the acquisition of a 59 acre land parcel located in San Antonio, TX. This
loan is interest only at a fixed rate of 11.0% for a term of one year payable
monthly and collateralized by a first mortgage on the subject property. As of
June 30, 2006, the Company's outstanding balance on this loan was approximately
$5.2 million.
23
During February 2006, the Company committed to provide a one year $17.2
million credit facility at fixed rate of 8.0% for a term of six months and 9.0%
for the remaining term to a real estate investor for the recapitalization of a
discount and entertainment mall that it currently owns. As of June 30, 2006,
there was no outstanding balance on this credit facility.
During April 2006, the Company provided two separate mortgages aggregating
$14.5 million on a property owned by a real estate investor for usage in the
payoff of the existing first mortgage, buyout of the existing partner and
redevelopment of the property. The mortgages bear interest at 8.0% per annum and
mature in 2008 and 2013. These mortgages are collateralized by the subject
property. As of June 30, 2006, the aggregate outstanding balance on these
mortgages was approximately $14.5 million.
During May 2006, the Company provided a Canadian denominated ("CAD")
collateralized credit facility of CAD $23.5 million at a fixed rate of 8.5% per
annum for a term of two years to a real estate company for the execution of its
property acquisitions under contract and within its pipeline. The credit
facility is guaranteed by the real estate company. The Company was issued 39,244
units, valued at approximately $0.1 million, and warrants to purchase up to 0.5
million shares of the real estate company as a loan origination fee. As of June
30, 2006, the outstanding balance on this credit facility was approximately CAD
$12.0 million (approximately USD $10.7 million).
During September 2005, a newly formed joint venture, in which the Company
had an 80% interest, acquired a 90% interest in a $48.4 million mortgage
receivable for a purchase price of approximately $34.2 million. This loan bore
interest at a rate of three-month LIBOR plus 2.75% per annum and was scheduled
to mature on January 12, 2010. A 626-room hotel located in Lake Buena Vista, FL
collateralized the loan. The Company had determined that this joint venture
entity was a VIE and had further determined that the Company was the primary
beneficiary of this VIE and had therefore consolidated it for financial
reporting purposes. During March 2006, the joint venture acquired the remaining
10% of this mortgage receivable for a purchase price of approximately $3.8
million. During June 2006, the joint venture accepted a pre-payment of
approximately $45.2 million from the borrower as full satisfaction of this loan.
9. Notes Payable
During March 2006, the Company issued $300.0 million of fixed rate
unsecured senior notes under its medium-term notes ("MTN") program. This fixed
rate MTN matures March 15, 2016 and bears interest at 5.783% per annum. The
proceeds from this MTN 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.
24
During June 2006, the Company entered into a third supplemental indenture,
under the indenture governing its medium-term notes and senior notes, which
amended the (i) total debt test and secured debt test by changing the asset
value definition from undepreciated real estate assets to total assets, with
total assets being defined as undepreciated real estate assets, plus other
assets (but excluding goodwill and amortized debt costs) and (ii) maintenance of
unencumbered total asset value covenant by increasing the requirement of the
ratio of unencumbered total asset value to outstanding unsecured debt from 1 to
1 to 1.5 to 1. Additionally, the same amended covenants were adopted within the
Canadian supplemental indenture, which governs the 4.45% Canadian Debentures due
in 2010. In connection with the consent solicitation, the Company incurred costs
aggregating approximately $5.8 million, of which $1.8 million was related to
costs paid to third parties, which were expensed. The remaining $4.0 million was
related to fees paid to note holders, which were capitalized and are being
amortized over the remaining term of the notes.
10. Common Stock Transactions
During March 2006, the Company completed a primary public stock offering of
10,000,000 shares of the Company's common stock. The net proceeds from this sale
of common stock, totaling approximately $405.5 million (after related
transaction costs of $2.5 million) were primarily used to repay the outstanding
balance under the Company's U.S. revolving credit facility, partial repayment of
the outstanding balance under the Company's Canadian denominated credit facility
and for general corporate purposes.
During December 2005, the Company and Atlantic Realty Trust ("Atlantic
Realty") entered into a definitive merger agreement whereby Atlantic Realty
would merge with and into a wholly owned subsidiary of the Company (the
"Merger"). Pursuant to the merger agreement the Company would acquire Atlantic
Realty for an aggregate value equal to $82.5 million plus the amount of Atlantic
Realty's cash on hand at closing and certain agreed upon expenses less merger
expenses and other liabilities, including certain liabilities under Atlantic
Realty's tax agreement with Ramco-Gershenson Properties Trust. The Merger
consideration was paid in shares of the Company's common stock ("Common Stock")
valued on the final full trading day immediately preceding the closing. Prior to
the Merger, the Company and its subsidiaries owned approximately 37% of the
common stock of Atlantic Realty.
The shareholders of Atlantic Realty approved the Merger on March 30, 2006,
and the closing occurred on March 31, 2006. As consideration for this
transaction, the Company issued Atlantic Realty shareholders 1,274,420 shares of
Common Stock, excluding 748,510 shares of Common Stock that were to be received
by the Company, at a price of $40.41 per share.
25
The acquisition of the remaining 63% ownership interest in Atlantic Realty
has been accounted for as a step acquisition with the purchase price being
allocated to the identified assets and liabilities acquired including an
operating property located in Staten Island, NY, comprising approximately 0.4
million square feet of GLA.
11. Supplemental Schedule of Non-Cash Investing/Financing Activities
The following schedule summarizes the non-cash investing and financing
activities of the Company for the six months ended June 30, 2006 and 2005 (in
thousands):
2006 2005
-------- -------
Acquisition of real estate interests by issuance of
Common Stock and/or assumption of mortgage debt $181,925 $18,804
Disposition/transfer of real estate interests by
assignment of mortgage debt $ 3,863 $59,683
Acquisition of real estate interests by issuance of
redeemable units $167,342 $ --
Disposition/transfer of a real estate interest by
assignment of downREIT units $ -- $ 4,236
Acquisition of real estate interests through proceeds
held in escrow $ 42,136 $ --
Proceeds held in escrow from the sale of real estate
interests $ 49,135 $11,408
Acquisition of real estate through the issuance of an
unsecured obligation $ 10,586 $ --
Declaration of dividends paid in succeeding period $ 82,323 $72,052
Consolidation of Kimsouth:
Increase in real estate and other assets $ 28,377 $ --
Increase in mortgages payable and other liabilities $ 28,377 $ --
12. 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 six months
ended June 30, 2006. The pro forma financial information set forth below is
based upon the Company's historical Condensed Consolidated Statements of Income
for the six
26
months ended June 30, 2006 and 2005, adjusted to give effect to these
transactions at the beginning of each year.
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 at the beginning of each year, nor does it
purport to represent the results of future operations. (Amounts presented in
millions, except per share figures).
Six Months Ended
June 30,
----------------
2006 2005
------- ------
Revenues from rental property $309.1 $287.4
Net income $177.9 $150.4
Net income per common share:
Basic $ 0.73 $ 0.64
====== ======
Diluted $ 0.72 $ 0.63
====== ======
13. Subsequent Events
On July 9, 2006, the Company entered into a definitive merger agreement
with Pan Pacific Retail Properties Inc. ("Pan Pacific"). Under the terms of the
agreement, the Company will acquire all of the outstanding shares of Pan Pacific
for a total merger consideration of $70.00 per share in cash. The Company may
elect to issue up to $10.00 per share of the total merger consideration in the
form of Common Stock to be based upon the ten-day average closing price two days
prior to the Pan Pacific stockholders' meeting to approve the transaction.
The transaction has a total value of approximately $4.0 billion, including
Pan Pacific's outstanding debt totaling approximately $1.1 billion and
approximately $2.9 billion in equity value. The Company has received financing
commitments totaling up to $3.0 billion, which may be used to fund all or a
portion of the total merger consideration. The Company expects to target a
substantial number of the properties for its strategic co-investment programs.
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, debt, or other sources of
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 July
20, 2006, the Company's portfolio was comprised of 1,118 properties totaling
approximately 143.6 million square feet of leasable space located in 45 states,
Canada, Mexico and Puerto Rico.
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.
On July 9, 2006, the Company entered into a definitive merger agreement
with Pan Pacific Retail Properties Inc. ("Pan Pacific"). Under the terms of the
agreement, the Company will acquire all of the outstanding shares of Pan Pacific
for a total merger consideration of $70.00 per share in cash. The Company may
elect to issue up to $10.00 per share of the total merger consideration in the
form of Common Stock to be based upon the ten-day average closing price two days
prior to the Pan Pacific stockholders' meeting to approve the transaction.
29
The transaction has a total value of approximately $4.0 billion, including
Pan Pacific's outstanding debt totaling approximately $1.1 billion and
approximately $2.9 billion in equity value. The Company has received financing
commitments totaling up to $3.0 billion, which may be used to fund all or a
portion of the total merger consideration. The Company expects to target a
substantial number of the properties for its strategic co-investment programs.
Results of Operations
Revenues from rental property increased $25.7 million or 20.4% to $151.5
million for the three months ended June 30, 2006, as compared with $125.8
million for the corresponding quarter ended June 30, 2005. Similarly, revenues
from rental property increased $39.0 million or 15.3% to $293.3 million for the
six months ended June 30, 2006, as compared with $254.3 million for the
corresponding six month period ended June 30, 2005. These net increases resulted
primarily from the combined effect of (i) the acquisition of operating
properties during 2005 and the six months ended June 30, 2006, providing
incremental revenues for the three and six months ended June 30, 2006 of
approximately $18.2 million and $28.4 million, respectively, (ii) an overall
increase in shopping center portfolio occupancy to 94.8% at June 30, 2006, as
compared to 94.1% at June 30, 2005 and the completion of certain redevelopment
and development projects providing incremental revenues of approximately $10.7
million and $19.0 million, respectively, for the three and six months ended June
30, 2006 as compared to the corresponding period in 2005, offset by (iii) a
decrease in revenues of approximately $3.2 million and $8.4 million for the
three and six months ended June 30, 2006, respectively, as compared to the
corresponding periods last year, resulting from the transfer of operating
properties to various unconsolidated joint venture entities and the sale of
certain properties during 2005 and the six months ended June 30, 2006.
Rental property expenses, including depreciation and amortization,
increased approximately $17.3 million or 29.3% to $76.3 million for the three
months ended June 30, 2006, as compared with $59.0 million for the corresponding
quarter ended June 30, 2005. Similarly, for the six months ended June 30, 2006,
rental property expenses, including depreciation and amortization, increased
$23.9 million or 20% to $143.9 million as compared with $119.9 million for the
corresponding period in the preceding year. These increases are primarily due to
operating property acquisitions during 2006 and 2005 which were partially offset
by operating property dispositions including those transferred to various joint
venture entities.
Mortgage and other financing income increased $5.3 million to $8.7 million
for the three months ended June 30, 2006, as compared to $3.5 million for the
corresponding period in 2005. Similarly mortgage financing income increased $6.3
million to $12.9 million for the six months ended June 30, 2006, as compared to
$6.6 million for the corresponding period in 2005. These increases are primarily
due to the recognition of accretion income of approximately $6.2 million,
resulting from an early pre-payment of a mortgage receivable, which had been
acquired at a discount.
30
Management and other fee income increased approximately $4.8 million and
$4.6 million, respectively, for the three and six months ended June 30, 2006, as
compared to the corresponding periods in 2005. These increases are primarily due
to incremental fees earned from the Kimsouth portfolio and growth in the
Company's other co-investment programs.
General and administrative expenses increased approximately $3.8 million
and $8.6 million, respectively for the three and six months ended June 30, 2006,
as compared to the corresponding periods in 2005. These increases are primarily
due to personnel-related costs including the non-cash expensing of stock options
granted, attributable to the growth of the Company.
Interest, dividends and other investment income increased approximately
$7.6 million and $15.9 million for the three and six month periods ended June
30, 2006, respectively, as compared to the corresponding periods in 2005. These
increases are primarily due to greater realized gains on the sale of certain
marketable securities and increased interest and dividend income as a result of
the growth in the marketable securities portfolio during 2005 and the six months
ended June 30, 2006.
Other (expense)/income, net decreased $15.2 million and $2.3 million,
respectively, for the three and six months ended June 30, 2006, as compared to
the corresponding periods in 2005. These decreases are primarily attributable to
lower gains on land sales as compared to the corresponding periods in 2005 and a
decrease of $6.2 million in the three months ended June 30, 2006, as compared to
the prior period, due to the receipt of Sears Holdings Corp. common stock as
partial settlement of Kmart pre-petition claims.
Interest expense increased $11.8 million and $23.3 million for the three
and six months ended June 30, 2006, as compared to the corresponding periods in
2005. These increases are due to higher interest rates and higher outstanding
levels of debt during these periods as compared to the same periods in the
preceding year.
Income from other real estate investments increased $3.7 million to $15.4
million for the three months ended June 30, 2006, as compared to $11.7 million
for the corresponding period in 2005. Similarly, income from other real estate
investments increased $5.7 million to $33.7 million for the six months ended
June 30, 2006, as compared to $28.0 million for the corresponding period in
2005. These increases are primarily due to (i) increased investment in the
Company's Preferred Equity program which contributed $8.2 million and $18.1
million for the three and six months ended June 30, 2006, including $5.3
million of profit participation earned from three capital transactions, as
compared to $7.0 million and $13.7 million for the corresponding periods in
2005, including a $3.1 million profit participation earned from one capital
transaction.
31
Equity in income of real estate joint ventures, net increased $12.1 million
to $26.8 million for the three months ended June 30, 2006, as compared to $14.7
million for the corresponding period in 2005. Similarly, equity in income of
real estate joint ventures, net increased $4.4 million to $43.5 million for the
six months ended June 30, 2006, as compared with $39.1 million for the
corresponding period in 2005. These increases are primarily attributable to (i)
increased equity in income from the Kimco Income REIT joint venture investment
("KIR") resulting from the sale of an operating property and one out-parcel
during the six months ended June 30, 2006 which provided a gain of $1.6 million,
of which the pro-rata share to the Company was $0.7 million, (ii) increased
equity in income from the Kimco Retail Opportunity Fund joint venture investment
("KROP") resulting from the sale of five operating properties and two
out-parcels during 2006 of which the pro-rata share of gains to the Company were
$0.3 million and $6.6 million for the three and six months ended June 30, 2006,
respectively, 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 by the ventures throughout 2005 and the six months ended June 30,
2006.
During the six months ended June 30, 2006, KDI, sold two recently completed
projects and 19 out-parcels, in separate transactions, for approximately $73.1
million. These sales resulted in gains of approximately $8.4 million, net of
income taxes of $5.6 million.
During the six months ended June 30, 2005, KDI, sold in separate
transactions, 21 out-parcels and four recently completed projects for
approximately $146.0 million. These sales provided gains of approximately $10.7
million, net of income taxes of approximately $7.1 million
During the six months ended June 30, 2006, the Company disposed of 13
operating properties for an aggregate sales price of $121.9 million, which
resulted in an aggregate net gain of approximately $29.2 million, net of income
taxes of $2.2 million relating to the sale of one property, and transferred five
operating properties to joint ventures in which the Company has a 20%
non-controlling interest for an aggregate price of approximately $95.4 million,
which resulted in a gain of approximately $1.4 million for one transferred
property.
During the six months ended June 30, 2005, the Company disposed of, in
separate transactions, nine operating properties for an aggregate sales price of
$38.8 million, (ii) transferred three operating properties to KROP for an
aggregate price of approximately $49.0 million, and (iii) transferred six
operating properties to various co-investment ventures in which the Company has
non-controlling interests ranging from 20% to 47.5% for an aggregate price of
approximately $90.9 million. For the six months ended June 30, 2005, these
transactions resulted in an aggregate net gain of approximately $9.0 million.
32
Net income for the three and six months ended June 30, 2006 was $108.7
million and $204.9 million, respectively. Net income for the three and six
months ended June 30, 2005 was $83.8 million and $170.6 million, respectively.
On a diluted per share basis, net income increased $0.08 to $0.43 for the three
month period ended June 30, 2006, as compared to $0.35 for the corresponding
quarter in the previous year. On a diluted per share basis, net income improved
$0.11 to $0.83 for the six month period ended June 30, 2006, as compared to
$0.72 for the corresponding period in 2005. These increases are attributable to
(i) an increase in revenues from rental properties primarily due to acquisitions
in 2005 and the six months ended June 30, 2006, (ii) increased gains on sales of
operating properties for the three and six months ended June 30, 2006, (iii)
increased income contributed from the marketable securities portfolio as
compared to the same period last year, partially offset by, (iv) an increase in
interest expense due to higher interest rates and higher borrowings during 2006.
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 June 30,
2006, the Company's five largest tenants were The Home Depot, TJX Companies,
Sears Holdings, Kohl's, and Wal-Mart, which represented approximately 3.5%,
3.1%, 2.7%, 2.4% and 1.8%, 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):
Six Month Period
Ended June 30,
-----------------
2006 2005
------- -------
Net cash flow provided by operating activities $ 240.1 $ 194.0
Net cash flow used for investing activities $(733.4) $(233.0)
Net cash flow provided by financing activities $ 539.3 $ 48.2
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
33
operating activities for the six months ended June 30, 2006 was primarily
attributable to (i) cash flow from the diverse portfolio of rental properties,
(ii) the acquisition of operating properties during 2005 and the six months
ended June 30, 2006, (iii) new leasing, expansion and re-tenanting of core
portfolio properties, and (iv) growth in the Company's co-investment and
Preferred Equity programs.
Investing Activities
Acquisitions and Redevelopments -
During the six month period ended June 30, 2006, the Company expended
approximately $368.5 million towards acquisition of and improvements to
operating real estate.
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
six months ended June 30, 2006, the Company expended approximately $26.6 million
in connection with these major redevelopments and re-tenanting projects. The
Company anticipates its capital commitment toward these and other redevelopment
projects during 2006 will be approximately $70.0 million to $90.0 million. 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 six month period ended June 30, 2006, the Company expended
approximately $132.9 million for investments and advances to real estate joint
ventures and received approximately $62.8 million from reimbursements of
advances to real estate joint ventures.
Ground-up Development -
The Company is engaged in ground-up development projects which consists of
(i) merchant building through the Company's wholly-owned taxable REIT
subsidiary, KDI, which develops neighborhood and community shopping centers and
the subsequent sale thereof upon completion, (ii) ground-up development projects
which will be held as long-term investments by the Company and (iii) various
ground-up development projects located in Mexico and Canada for long-term
investment. All ground-up development projects generally have substantial
pre-leasing prior to the commencement of construction. As of June 30, 2006, the
Company had in progress a total of 41 ground-up development projects including
26 merchant building projects, five U.S. ground-up development projects and ten
ground-up development projects located throughout Mexico.
During the six months ended June 30, 2006, the Company expended
34
approximately $240.9 million in connection with the purchase of land and
construction costs related to these projects. These projects are currently
proceeding on schedule and substantially in line with the Company's budgeted
costs. The Company anticipates its capital commitment during 2006 toward these
and other development projects will be approximately $300 million to $350
million. The proceeds from the sales of the completed ground-up development
projects, proceeds from construction loans and availability under the Company's
revolving lines of credit are expected to be sufficient to fund these
anticipated capital requirements.
Dispositions and Transfers -
During the six month period ended June 30, 2006, the Company received net
proceeds of approximately $125.2 million relating to the sale of various
operating properties and ground-up development projects and approximately $77.0
million from the transfer of operating properties to various co-investment
ventures.
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 June
30, 2006, the Company's level of debt to total market capitalization was 25%. 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/ construction loan financings and other capital alternatives in
a manner consistent with its intention to operate with a conservative debt
structure.
Since the completion of the Company's initial public offering ("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 $4.9 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.
The Company has an $850.0 million unsecured revolving credit facility,
which is scheduled to expire in July 2008. This credit facility has made
available funds to both finance the purchase of properties and other investments
and meet any short-term working capital requirements. As of June 30, 2006, there
was $75.0 million outstanding under this credit facility.
Additionally, the Company has a Canadian denominated ("CAD") $250.0
35
million unsecured credit facility with a group of banks. This facility
originally bore interest at the CDOR Rate, as defined, plus 0.50%, and is
scheduled to expire in March 2008. During January 2006, the facility was amended
to reduce the borrowing spread to 0.45% and to modify the covenant package to
conform to the Company's $850.0 million U.S. Credit Facility. Proceeds from this
facility will be used for general corporate purposes including the funding of
Canadian denominated investments. As of June 30, 2006, there was CAD $175.0
million (approximately USD $156.8 million) outstanding under this credit
facility.
The Company also has a 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 June
30, 2006, there was MXP 500.0 million (approximately USD $43.9 million)
outstanding under this facility.
The Company 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.
During March 2006, the Company issued $300.0 million of fixed rate
unsecured senior notes under its MTN program. This fixed rate MTN matures March
15, 2016 and bears interest at 5.783% per annum. The proceeds from this MTN
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.
Additionally, during March 2006, the Company completed a primary public
stock offering of 10,000,000 shares of the Company's common stock. The net
proceeds from this sale of common stock, totaling approximately $405.5 million
(after related transaction costs of $2.5 million) were primarily used to repay
the outstanding balance under the Company's U.S. revolving credit facility,
partial repayment of the outstanding balance under the Company's Canadian
denominated credit facility and for general corporate purposes.
During May 2006, the Company filed a shelf registration statement on Form
S-3ASR for the future offerings, from time to time, of debt securities,
preferred stock, depositary shares, common stock and common stock warrants.
During June 2006, the Company entered into a third supplemental indenture,
under the indenture governing its medium-term notes and senior notes, which
amended the (i) total debt test and secured debt testing by changing the asset
value definition from undepreciated real estate assets to total assets, with
total assets being defined as undepreciated real estate assets, plus other
assets (but excluding goodwill and amortized debt costs) and (ii) maintenance of
unencumbered total asset value
36
covenant by increasing the requirement of the ratio of unencumbered total asset
value to outstanding unsecured debt from 1 to 1 to 1.5 to 1. Additionally, the
same amended covenants were adopted within the Canadian supplemental indenture,
which governs the 4.45% Canadian Debentures due in 2010. As a result of the
amended covenants, the Company has increased its borrowing capacity by
approximately $2.0 billion.
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
and construction loans to partially fund the capital needs of its ground-up
development projects. As of June 30, 2006, the Company had over 400 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 property acquisitions, growth in
operating income in the existing portfolio and from other investments. 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.
Although the Company receives substantially all of its rental payment on a
monthly basis, it generally intends to continue paying dividends quarterly.
Amounts accumulated in advance of each quarterly distribution will be invested
by the Company in a short-term money market or other suitable instruments. Cash
dividends paid for the six months ended June 30, 2006 and 2005 were $160.4
million and $143.4 million, respectively.
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
37
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary market risk exposure is interest rate risk. The
following table presents the Company's aggregate fixed rate and variable rate
domestic and foreign debt obligations outstanding as of June 30, 2006, with
corresponding weighted-average interest rates sorted by maturity date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instruments actual cash flows are denominated in U.S.
dollars, Canadian dollars and Mexican Pesos, as indicated by geographic
description ($ USD equivalent in thousands):
Fair
2006 2007 2008 2009 2010 2011+ Total Value
-------- -------- -------- -------- -------- ---------- ---------- ----------
U.S Dollar
Denominated
Secured Debt Fixed Rate $ 2,189 $ 3,515 $ 96,227 $ 24,081 $ 19,278 $ 323,196 $ 468,486 $ 471,553
Average Interest Rate 8.38% 8.70% 7.59% 7.52% 8.47% 6.98% 7.21%
Variable Rate $ 94,836 $ 99,958 $ 77,373 $ 8,575 -- $ 588 $ 281,330 $ 281,330
Average Interest Rate 7.32% 7.21% 7.06% 6.90% -- 8.25% 7.20%
Unsecured Debt Fixed Rate $ 85,000 $195,000 $100,000 $180,000 $ 50,000 $1,267,000 $1,877,000 $1,845,766
Average Interest Rate 7.30% 7.14% 3.95% 6.98% 4.62% 5.41% 5.73%
Variable Rate $102,007 -- $ 75,000 -- -- -- $ 177,007 $ 177,007
Average Interest Rate 5.39% -- 5.36% -- -- -- 5.38%
Canadian Dollar
Denominated
Unsecured Debt Fixed Rate -- -- -- -- $134,373 -- $ 134,373 $ 128,946
Average Interest Rate -- -- -- -- 4.45% -- 4.45%
Variable Rate -- -- $156,768 -- -- -- $ 156,768 $ 156,768
38
Average Interest Rate -- -- 4.81% -- -- -- 4.81%
Mexican Pesos
Denominated
Unsecured Debt Variable Rate -- -- $ 43,890 -- -- -- $ 43,890 $ 43,890
Average Interest Rate -- -- 8.34% -- -- -- 8.34%
Based on the Company's variable-rate debt balances, interest expense would
have increased by approximately $1.6 million for the six months ended June 30,
2006 if short-term interest rates were 1.0% higher.
As of June 30, 2006, the Company had Canadian investments totaling CAD
$413.3 million (approximately USD $370.2 million) comprised of real estate joint
venture investments and marketable securities. In addition, the Company has
Mexican real estate and mortgage financing investments of approximately MXN $3.9
billion (approximately USD $340.6 million). The foreign currency exchange risk
has been partially mitigated through the use of local currency denominated debt,
a foreign currency forward contract (the "Forward Contract") and a cross
currency swap (the "CC Swap") with major financial institutions. The Company is
exposed to credit risk in the event of non-performance by the counter-party to
the Forward Contract and the CC Swap. The Company believes it mitigates its
credit risk by entering into the Forward Contract and the CC Swap with major
financial institutions.
The Company has not, and does not plan to, enter into any derivative
financial instruments for trading or speculative purposes. As of June 30, 2006,
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
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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.
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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
1. In connection with the Annual Meeting of Stockholders held on May 18,
2006 (the "Meeting"), stockholders were asked to (i) vote with respect to the
election of Directors to serve for the ensuing year, all of whom were elected,
(ii) consider and vote to increase the number of shares of the Company's Common
Stock, par value $0.01 per share, subject to option under the Company's 1998
Equity Participation Plan by 5,000,000 shares, which was approved, (iii) ratify
the appointment of PricewaterhouseCoopers, LLP as the Company's independent
registered public accounting firm, which was approved, and (iv) consider and
vote on a stockholder proposal which was not approved.
Votes were cast regarding Proposal I, Proposal II, Proposal III, and
Proposal IV as follows:
Proposal I - Election of Directors
Against/
Nominees: Votes For Withheld
------------------------------ ----------- ----------- ----------
Martin S. Kimmel 202,113,770 181,522,950 20,590,820
Milton Cooper 202,113,770 155,489,561 46,624,209
Richard G. Dooley 202,113,770 135,321,378 66,792,392
Michael J. Flynn 202,113,770 155,286,845 46,826,925
Joe Grills 202,113,770 182,062,754 20,051,016
David Henry 202,113,770 155,341,431 46,772,339
F.P. Hughes 202,113,770 187,662,856 14,450,914
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Frank Lourenso 202,113,770 135,247,442 66,866,328
Richard Saltzman 202,113,770 182,588,851 19,524,919
Proposal II - To consider and vote to increase the number of shares of the
Company's Common Stock, par value $0.01 per share, subject to option under the
Company's 1998 Equity Participation Plan by 5,000,000 shares, which was
approved.
Votes For Against Abstain
----------- ----------- ---------- -------
170,157,830 153,459,233 16,237,230 461,367
Proposal III - To ratify the appointment of PricewaterhouseCoopers, LLP as the
Company's independent registered public accounting firm, which was approved.
Votes For Against Abstain
----------- ----------- ------- -------
202,113,769 200,966,440 951,521 195,808
Proposal IV - To consider and vote on a stockholder proposal on separate
reporting to stockholders of related party transactions, which was not approved.
Votes For Against Abstain
----------- ---------- ----------- ---------
170,157,832 54,137,628 113,466,288 2,553,916
2. On May 16, 2006, the Company commenced a solicitation of consents from
holders of its medium-term-notes and senior notes in the aggregate principal
amount outstanding of $1,922,000,000 (the "Notes") and 4.45% Canadian Debentures
due 2010 in the aggregate principal amount outstanding of CAD $150,000,000 (the
"Canadian Notes") to seek approval and amend the total debt test and secured
debt test covenant and the maintenance of unencumbered total asset value
covenant. On June 5, 2006 the Company received the requisite consents from the
holders of the Notes and Canadian Notes.
Item 5. Other Information
Not Applicable
Item 6. Exhibits
Exhibits -
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2.1 Agreement and Plan of Merger by and among Kimco Realty Corporation, KRC
Acquisition Inc., KRC CT Acquisition Limited Partnership, KRC PC Acquisition
Limited Partnership, Pan Pacific Retail Properties, Inc., CT Operating
Partnership, L.P. and Western/Pinecreek, Ltd. dated as of July 9, 2006.
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.
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.
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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
July 28, 2006 /s/ Milton Cooper
(Date) ----------------------------------------
Milton Cooper
Chief Executive Officer
July 28, 2006 /s/ Michael V. Pappagallo
(Date) ----------------------------------------
Michael V. Pappagallo
Chief Financial Officer
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