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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, 2003
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
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Kimco Realty Corporation
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(Exact name of registrant as specified in its charter)
Maryland 13-2744380
- --------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 New Hyde Park Road, New Hyde Park, NY 11042
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(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 an accelerated filer
(as defined in rule 12-b of the Act).
Yes X No
----- ------
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.
107,338,000 shares outstanding as of July 31, 2003.
1 of 32
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31,
2002.
Condensed Consolidated Statements of Income for the Three and Six Months
Ended June 30, 2003 and 2002.
Condensed Consolidated Statements of Comprehensive Income for the Three and
Six Months Ended June 30, 2003 and 2002.
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2003 and 2002.
Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and Notes thereto.
These unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to reflect a fair statement of the results for
the interim periods presented, and all such adjustments are of a normal
recurring nature.
Results of Operations
Revenues from rental property increased $6.8 million or 6.2% to $118.3
million for the three months ended June 30, 2003, as compared with $111.5
million for the corresponding quarter ended June 30, 2002. Similarly, revenues
from rental property increased $18.9 million or 8.5% to $241.7 million for the
six months ended June 30, 2003, as compared with $222.8 million for the
corresponding six month period ended June 30, 2002. These net increases resulted
primarily from the combined effect of (i) the acquisition of 10 operating
properties during 2003 and throughout calendar year 2002 (13 shopping center
properties) providing incremental revenues of $10.4 million and $18.3 million
for the three and six months ended June 30, 2003, respectively (ii) the
completion of certain development and redevelopment projects and new leasing
within the portfolio providing incremental revenues of approximately $6.5
million and $16.1 million, respectively, as compared to the corresponding three
and six months, offset by (iii) a decrease in revenues of $4.0 million and $8.2
million for the three and six months ended June 30, 2003, respectively,
resulting from the bankruptcy filing of Kmart Corporation ("Kmart") and Ames
Department Stores, Inc. ("Ames") and subsequent rejection of leases and (iv) a
decrease of revenues of approximately $6.1 million and $7.3 million for the
three and six months ended June 30, 2003, respectively, resulting from the sale
of certain development properties and tenant buyouts during 2002 and the six
months ended June 30, 2003.
2
Rental property expenses, including depreciation and amortization,
increased approximately $4.4 million or 9.1% to $52.4 million for the three
months ended June 30, 2003, as compared with $48.0 million for the corresponding
quarter ended June 30, 2002. Rental property expenses including depreciation and
amortization, increased $10.6 million or 11.1% to $106.4 million for the six
months ended June 30, 2003, as compared with $95.8 million for the corresponding
period in the preceding year. The rental property expense component of operating
and maintenance and depreciation and amortization increased approximately $4.5
million and $11.1 million for the three and six months ended June 30, 2003,
respectively, as compared to the corresponding periods in 2002. These increases
are primarily due to increased snow removal costs and property acquisitions
during 2003 and 2002.
Equity in income of real estate joint ventures, net increased $1.7
million to $10.1 million for the three months ended June 30, 2003, as compared
to $8.4 million for the corresponding period in 2002. Similarly, equity in
income of real estate joint ventures, net increased $4.0 million to $19.3
million for the six months ended June 30, 2003, as compared with $15.3 million
for the corresponding period in 2002. This increase is primarily attributable to
the equity in income from the Kimco Income REIT joint venture investment
("KIR"), the RioCan joint venture investment ("RioCan Venture") and the Kimco
Retail Opportunity Portfolio joint venture investment ("KROP"). The Company has
made additional capital investments in these joint ventures for the acquisition
of additional shopping center properties by the ventures throughout 2002 and the
six months ended June 30, 2003.
Minority interests in income of partnerships, net increased $1.5
million to $1.8 million for the three months ended June 30, 2003, as compared to
$0.3 million for the corresponding period in 2002. Similarly, minority interests
in income of partnerships, net increased $2.9 million to $3.4 million for the
six months ended June 30, 2003, as compared to $0.5 million for the
corresponding period in 2002. This increase is primarily due to the acquisition
of a shopping center property acquired through a newly formed partnership in
2002 by issuing approximately 2.4 million downREIT units valued at $80.0
million. The downREIT units are convertible at a ratio of 1:1 into the Company's
common stock and are entitled to a distribution equal to the dividend rate on
the Company's common stock multiplied by 1.1057.
Mortgage financing income decreased $0.6 million to $6.6 million for
the three months ended June 30, 2003, as compared to $7.2 million for the
corresponding quarter ended June 30, 2002. This decrease is primarily due to
lower interest income earned related to certain real estate lending activities
during the three months ended June 30, 2003 as compared to the same period last
year. Mortgage financing income increased $3.8 million to $12.1 million for the
six months ended June 30, 2003, as compared to $8.3 million for the
corresponding six month period ended June 30, 2002. This increase is primarily
due to increased interest income earned related to certain real estate lending
activities during the six months ended June 30, 2003 as compared to the same
period in 2002.
3
Interest, dividends and other investment income decreased approximately
$0.7 million and $5.4 million for the three and six months periods ended June
30, 2003, respectively, as compared to the corresponding periods in 2002. These
decreases are primarily due to less realized gains on the sale of certain
marketable equity and debt securities and decreased dividend income as a result
of the sale of securities during 2002 and the six months ended June 30, 2003.
Interest expense increased approximately $2.8 million and $4.1 million
for the three and six months ended June 30, 2003, respectively, as compared with
the same periods in 2002. These increases are primarily due to higher average
outstanding borrowings during the respective periods.
During February 2003, the Company reached agreement with a lender in
connection with two individual non-recourse mortgages encumbering two former
Kmart sites. The Company paid approximately $8.3 million in full satisfaction of
these loans which aggregated approximately $14.7 million. As a result of this
transaction, the Company recognized a gain on early extinguishment of debt of
approximately $6.3 million during the first quarter of 2003.
Effective January 1, 2001, the Company has elected taxable REIT
subsidiary status for its wholly-owned development subsidiary Kimco Developers,
Inc. ("KDI"). KDI is primarily engaged in the ground-up development of
neighborhood and community shopping centers and the subsequent sale thereof upon
completion. During the six months ended June 30, 2003, KDI sold 11 out-parcels
and three recently completed projects, in separate transactions, for
approximately $67.7 million, which resulted in the recognition of pre-tax gains
of approximately $7.0 million and the deferral of a pre-tax gain of
approximately $3.3 million. The deferred gain will be recognized during the
third quarter 2003 under the installment method in accordance with SFAS No. 66,
Accounting for Sales of Real Estate.
During the six months ended June 30, 2002, KDI sold its project in
Miamisburg, OH and three out-parcels, in separate transactions, for
approximately $13.1 million, which resulted in pre-tax gains of approximately
$4.3 million.
During the six months ended June 30, 2003, the Company (i) disposed of,
in separate transactions, five operating properties for an aggregate sales price
of approximately $47.9 million, including the assignment of approximately $1.7
million in mortgage debt encumbering one of the properties, (ii) terminated four
leasehold positions in locations where a tenant in bankruptcy had rejected its
lease and (iii) transferred one operating property to KROP for a price of
approximately $26.3 million which approximated its net book value. These
dispositions resulted in net gains of approximately $2.4 million for the six
months ended June 30, 2003. For those property dispositions for which SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FASB No.
144") is applicable, the operations and gain or loss on the sale of the property
have been included in the caption Discontinued operations in the Condensed
Consolidated Statements of Income.
4
During the six months ended June 30, 2002, the Company disposed of one
operating property in Massapequa, NY for a sales price of approximately $4.1
million, including the assignment of approximately $2.7 million of mortgage
debt. Gain on sale of this property was approximately $0.5 million. Cash
proceeds from this disposition were used to acquire an exchange shopping center
property located in Springfield, MO. In accordance with FASB No. 144 the
operations and gain on sale of the property have been included in the caption
Discontinued operations in the Condensed Consolidated Statements of Income.
Net income for the three and six months ended June 30, 2003 was $61.3
million and $132.3 million, respectively. Net income for the three and six
months ended June 30, 2002 was $61.1 million and $121.9 million, respectively.
On a diluted per share basis, net income decreased $0.08 to $0.46 for the three
month period ended June 30, 2003 as compared to $0.54 for the corresponding
quarter in the previous year. On a diluted per share basis, net income improved
$0.02 to $1.09 for the six month period ended June 30, 2003 as compared to $1.07
for the corresponding period in 2002. These results are primarily attributable
to (i) significant leasing within the portfolio which improved operating
profitability, (ii) increased contributions from KIR, the RioCan Venture and
KROP, and (iii) increases in gains from KDI development sales. The diluted per
share results were partially offset by a reduction in net income available to
common shareholders of $0.07 resulting from the deduction of original issuance
costs associated with the redemption of the Company's 7 3/4% Class A, 8 1/2%
Class B and 8 3/8% Class C Cumulative Redeemable Preferred Stocks. The increase
in net income for the three and six months ended June 30, 2003 as compared to
the same periods last year includes the gain on early extinguishment of debt
during 2003 and gains/(losses) on the disposition of operating properties.
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,
2003, the Company's five largest tenants include The Home Depot, Kmart
Corporation, Kohl's, TJX Companies and Wal-Mart, which represented approximately
3.0%, 3.0%, 2.8%, 2.7% and 1.9%, respectively, of the Company's annualized base
rental revenues including the proportionate share of base rental revenues from
properties in which the Company has less than a 100% economic interest.
On January 14, 2003, Kmart announced it would be closing an additional
326 locations relating to its January 22, 2002 filing of protection under
Chapter 11 of the U.S. Bankruptcy Code. Nine of these locations (excluding the
KIR portfolio which includes three additional locations and Kimsouth Realty,
Inc., ("Kimsouth") an entity in which the Company holds a 44.5% non-controlling
interest, which includes two additional locations) are leased from the Company.
The annualized base rental revenues from these nine locations are approximately
$4.3 million. As of June 30, 2003, Kmart rejected its lease at seven of these
locations representing approximately $3.3 million of annualized base rental
revenues. The Company is currently negotiating leases with prospective tenants
at six of these sites and has terminated its ground lease at one site. No
assurance can be provided that the remaining locations will be leased in the
near term or at comparable rents previously paid by Kmart.
5
The Company generally will have the right to file claims in connection
with these rejected leases for lost rent equal to three years of rental
obligations as well as other amounts related to obligations under the leases.
Actual amounts to be received in satisfaction of these claims will be subject to
Kmart's final plan of reorganization which became effective May 6, 2003 and the
availability of funds to pay creditors such as the Company.
During May 2003, the Company suspended debt service payments on an
individual non-recourse mortgage loan with an outstanding principal balance of
approximately $9.3 million. This non-recourse loan encumbers a former Kmart site
located in Chicago, IL. The Company is actively negotiating settlement terms
with the respective lender.
Liquidity and Capital Resources
It is management's intention that the Company continually have access
to the capital resources necessary to expand and develop its business. As such,
the Company intends to operate with and maintain a conservative capital
structure with a level of debt to total market capitalization of 50% or less. As
of June 30, 2003, the Company's level of debt to total market capitalization was
29%. In addition, the Company intends to maintain strong debt service coverage
and fixed charge coverage ratios as part of its commitment to maintaining its
investment-grade debt ratings. The Company may, from time to time, seek to
obtain funds through additional equity offerings, unsecured debt financings
and/or mortgage financings and other debt and equity alternatives in a manner
consistent with its intention to operate with a conservative debt structure.
Since the completion of the Company's IPO in 1991, the Company has
utilized the public debt and equity markets as its principal source of capital
for its expansion needs. Since the IPO, the Company has completed additional
offerings of its public unsecured debt and equity, raising in the aggregate over
$3.0 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.
During June 2003, the Company established a $500.0 million unsecured
revolving credit facility, which is scheduled to expire in August 2006. This
credit facility, which replaced the Company's $250.0 million unsecured revolving
credit facility, has made available funds to both finance the purchase of
properties and meet any short-term working capital requirements. As of June 30,
2003 there was $190.0 million outstanding under this credit facility.
6
During May 2003, the Company filed a shelf registration statement on
Form S-3 for up to $1.0 billion of debt securities, preferred stock, depositary
shares, common stock and common stock warrants. As of June 30, 2003, the Company
had $923.5 million available for issuance under this shelf registration
statement.
The Company has a $250.0 million medium-term notes ("MTN") program
pursuant to which it may, from time to time, offer for sale its senior unsecured
debt for any general corporate purposes, including (i) funding specific
liquidity requirements in its business, including property acquisitions,
development and redevelopment costs and (ii) managing the Company's debt
maturities.
In addition to the public equity and debt markets as capital sources,
the Company may, from time to time, obtain mortgage financing on selected
properties. As of June 30, 2003, the Company had over 380 unencumbered property
interests in its portfolio.
In connection with its intention to continue to qualify as a REIT for
federal income tax purposes, the Company expects to continue paying regular
dividends to its stockholders. These dividends will be paid from operating cash
flows which are expected to increase due to increased investment in properties
and other real estate related opportunities, growth in operating income from the
existing portfolio and from other sources. Since cash used to pay dividends
reduces amounts available for capital investment, the Company generally intends
to maintain a conservative dividend payout ratio, reserving such amounts as it
considers necessary for the expansion and renovation of shopping centers in its
portfolio, debt reduction, the acquisition of interests in new properties and
other investments as suitable opportunities arise, and such other factors as the
Board of Directors considers appropriate.
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, availability under its revolving credit facility,
issuance of equity and public debt, as well as other debt and equity
alternatives, will provide the necessary capital required by the Company. Cash
flows from operations were $155.0 million for the six months ended June 30,
2003, as compared to $144.4 million for the corresponding period ended June 30,
2002.
7
Effects of Inflation
Many of the Company's leases contain provisions designed to mitigate
the adverse impact of inflation. Such provisions include clauses enabling the
Company to receive payment of additional rent calculated as a percentage of
tenants' gross sales above pre-determined thresholds, which generally increase
as prices rise, and/or escalation clauses, which generally increase rental rates
during the terms of the leases. Such escalation clauses often include increases
based upon changes in the consumer price index or similar inflation indices. In
addition, many of the Company's leases are for terms of less than 10 years,
which permits the Company to seek to increase rents to market rates upon
renewal. Most of the Company's leases require the tenant to pay an allocable
share of operating expenses, including common area maintenance costs, real
estate taxes and insurance, thereby reducing the Company's exposure to increases
in costs and operating expenses resulting from inflation. The Company
periodically evaluates its exposure to short-term interest rates and foreign
currency exchange rates and will, from time to time, enter into interest rate
protection agreements and/or foreign currency hedge agreements which mitigate,
but do not eliminate, the effect of changes in interest rates on its
floating-rate debt and fluctuations in foreign currency exchange rates.
New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). This new model applies when either (i) the equity
investors (if any) do not have a controlling financial interest or (ii) the
equity investment at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46 requires additional
disclosures. The Company's exposure to losses associated with its unconsolidated
joint ventures is limited to its carrying value in these investments. The
Company is evaluating the potential impact of the adoption of FIN 46 on the
Company's financial position and results of operations.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities ("FASB No. 149"). This
statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under FASB Statement No. 133, Accounting
for Derivatives Instruments and Hedging Activities. The provisions of this
statement are effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003. The adoption
of FASB No. 149 is not expected to have a material adverse impact on the
Company's financial position or results of operations.
8
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("FASB
No. 150"). This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
provisions of this statement are effective for financial instruments entered
into or modified after May 31, 2003, and otherwise are effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
is evaluating the potential impact of the adoption of FASB No. 150 on the
Company's financial position and results of operations.
Forward-Looking Statements
This quarterly report on Form 10-Q, together with other statements and
information publicly disseminated by the Company contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe the Company's
future plans, strategies and expectations, are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project" or
similar expressions. You should not rely on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond the Company's control and which could materially affect
actual results, performances or achievements. Factors which may cause actual
results to differ materially from current expectations include, but are not
limited to, (i) general economic and local real estate conditions, (ii) the
inability of major tenants to continue paying their rent obligations due to
bankruptcy, insolvency or general downturn in their business, (iii) financing
risks, such as the inability to obtain equity or debt financing on favorable
terms, (iv) changes in governmental laws and regulations, (v) the level and
volatility of interest rates, (vi) the availability of suitable acquisition
opportunities and (vii) increases in operating costs. Accordingly, there is no
assurance that the Company's expectations will be realized.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of June 30, 2003, the Company had approximately $443.0 million of
floating-rate debt outstanding, including $190.0 million on its unsecured
revolving credit facility. The interest rate risk on $185.0 million of such debt
has been mitigated through the use of interest rate swap agreements (the
"Swaps") with major financial institutions. The Company is exposed to credit
risk in the event of non-performance by the counter-party to the Swaps. The
Company believes it mitigates its credit risk by entering into these Swaps with
major financial institutions. The Company believes the interest rate risk
represented by the remaining $258.0 million of floating-rate debt is not
material to the Company or its overall capitalization.
9
As of June 30, 2003, the Company has Canadian investments totaling CAD
$184.8 million (approximately USD $137.1 million) comprised of marketable
securities and real estate joint ventures. In addition, the Company has Mexican
real estate investments of approximately MXN $399.5 million (approximately USD
$39.1 million). The foreign currency exchange risk has been mitigated through
the use of foreign currency forward contracts (the "Forward Contracts") and a
cross currency swap (the "CC Swap") with major financial institutions. The
Company is exposed to credit risk in the event of non-performance by the
counter-party to the Forward Contracts and the CC Swap. The Company believes it
mitigates its credit risk by entering into the Forward Contracts and the CC Swap
with major 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, 2003,
the Company had no other material exposure to market risks.
Item 4. Controls and Procedures
The Company's management, with the participation of the Company's chief
executive officer and chief financial officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's chief executive officer and
chief financial officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonable likely to materially affect,
the Company's internal control over financial reporting.
10
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
JUNE 30, DECEMBER 31,
2003 2002
--------------- ---------------
Assets:
Operating real estate, net of accumulated depreciation
of $548,204 and $516,558, respectively $ 2,825,519 $ 2,669,648
Investments and advances in real estate joint ventures 459,977 390,484
Real estate under development 265,492 234,953
Other real estate investments 96,651 99,542
Mortgages and other financing receivables 75,569 94,024
Cash and cash equivalents 57,949 35,962
Marketable securities 63,230 66,992
Accounts and notes receivable 54,185 55,012
Other assets 113,760 110,261
--------------- ---------------
$ 4,012,332 $ 3,756,878
=============== ===============
Liabilities:
Notes payable $ 1,502,250 $ 1,302,250
Mortgages payable 207,409 230,760
Construction loans payable 61,474 43,972
Other liabilities, including minority interest in partnerships 283,319 272,568
--------------- ---------------
2,054,452 1,849,550
--------------- ---------------
Stockholders' Equity:
Preferred stock, $1.00 par value, authorized 3,600,000 shares
Class A Preferred Stock, $1.00 par value, authorized 345,000 shares
Issued and outstanding 0 and 300,000, respectively -- 300
Aggregate liquidation preference $0 and $75,000, respectively
Class B Preferred Stock, $1.00 par value, authorized 230,000 shares
Issued and outstanding 0 and 200,000, respectively -- 200
Aggregate liquidation preference $0 and $50,000, respectively
Class C Preferred Stock, $1.00 par value, authorized 460,000 shares
Issued and outstanding 0 and 400,000, respectively -- 400
Aggregate liquidation preference $0 and $100,000, respectively
Class F Preferred Stock, $1.00 par value, authorized 700,000 shares
Issued and outstanding 700,000 and 0, respectively 700 --
Aggregate liquidation preference $175,000 and $0, respectively
Common stock, $.01 par value, authorized 200,000,000 shares
Issued and outstanding 107,299,018 and 104,601,828 shares, respectively 1,073 1,046
Paid-in capital 2,019,699 1,984,820
Cumulative distributions in excess of net income (76,774) (85,367)
--------------- ---------------
1,944,698 1,901,399
Accumulated other comprehensive income 14,478 7,401
Notes receivable from officer stockholders (1,296) (1,472)
--------------- ---------------
1,957,880 1,907,328
--------------- ---------------
$ 4,012,332 $ 3,756,878
=============== ===============
The accompanying notes are an integral part of these
condensed consolidated financial statements
11
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 2003 and 2002
(in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Real estate operations:
Revenues from rental property $ 118,335 $ 111,469 $ 241,665 $ 222,757
--------------- --------------- --------------- ---------------
Rental property expenses:
Rent 2,788 2,933 5,570 5,836
Real estate taxes 15,645 15,715 30,532 30,721
Operating and maintenance 13,396 11,357 30,015 23,110
--------------- --------------- --------------- ---------------
31,829 30,005 66,117 59,667
--------------- --------------- --------------- ---------------
86,506 81,464 175,548 163,090
Equity in income of real estate joint
ventures, net 10,138 8,391 19,292 15,309
Minority interests in income of
partnerships, net (1,806) (268) (3,397) (476)
Income from other real estate investments 4,909 3,651 9,809 8,112
Mortgage financing income 6,616 7,223 12,128 8,287
Management and other fee income 3,661 3,640 6,563 6,539
Depreciation and amortization (20,573) (18,032) (40,327) (36,105)
--------------- --------------- --------------- ---------------
Income from real estate operations 89,451 86,069 179,616 164,756
--------------- --------------- --------------- ---------------
Other investments:
Interest, dividends and other investment
income 5,291 5,965 7,693 13,092
Other income/(loss), net (1,419) 13 (1,101) 3,885
--------------- --------------- --------------- ---------------
3,872 5,978 6,592 16,977
--------------- --------------- --------------- ---------------
Interest expense (24,877) (22,068) (47,600) (43,532)
General and administrative expenses (8,900) (7,654) (17,515) (15,181)
Gain on early extinguishment of debt -- -- 6,262 --
--------------- --------------- --------------- ---------------
Income from continuing operations
before income taxes 59,546 62,325 127,355 123,020
Provision for income taxes (1,241) (2,150) (2,514) (5,788)
--------------- --------------- --------------- ---------------
Income from continuing operations 58,305 60,175 124,841 117,232
Discontinued operations:
Income from discontinued operating properties 529 334 850 1,603
Gain/(loss) on disposition of operating
properties, net (867) 546 2,413 546
--------------- --------------- --------------- ---------------
Income/(loss) from discontinued
operations (338) 880 3,263 2,149
--------------- --------------- --------------- ---------------
Gain on sale of development properties,
net of tax of $2,253, $0, $2,802 and $1,712,
respectively 3,379 -- 4,203 2,568
--------------- --------------- --------------- ---------------
Net Income 61,346 61,055 132,307 121,949
Original issuance costs associated with the
redemption of preferred stock (7,787) -- (7,787) --
Preferred stock dividends (4,241) (4,609) (8,850) (9,219)
--------------- --------------- --------------- ---------------
Net income available to common
shareholders $ 49,318 $ 56,446 $ 115,670 $ 112,730
=============== =============== =============== ===============
Per common share:
Income from continuing operations
- Basic $ 0.47 $ 0.53 $ 1.07 $ 1.06
=============== =============== =============== ===============
- Diluted $ 0.47 $ 0.53 $ 1.06 $ 1.05
=============== =============== =============== ===============
Net income
- Basic $ 0.47 $ 0.54 $ 1.10 $ 1.08
=============== =============== =============== ===============
- Diluted $ 0.46 $ 0.54 $ 1.09 $ 1.07
=============== =============== =============== ===============
The accompanying notes are an integral part of these
condensed consolidated financial statements
12
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months ended June 30, 2003 and 2002
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Net income $ 61,346 $ 61,055 $ 132,307 $ 121,949
--------------- --------------- --------------- ---------------
Other comprehensive income:
Unrealized gain on marketable securities 1,324 2,753 2,756 1,009
Unrealized gain on interest rate swaps 132 1,285 197 2,533
Unrealized gain on warrants 2,856 881 3,473 1,170
Unrealized gain (loss) on foreign currency
hedge agreements (14,212) 458 (11,495) 400
Foreign currency translation adjustment 13,486 -- 12,146 --
--------------- --------------- --------------- ---------------
Other comprehensive income 3,586 5,377 7,077 5,112
--------------- --------------- --------------- ---------------
Comprehensive income $ 64,932 $ 66,432 $ 139,384 $ 127,061
=============== =============== =============== ===============
The accompanying notes are an integral part of these
condensed consolidated financial statements
13
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months ended June 30, 2003 and 2002
(in thousands)
--------------- ---------------
2003 2002
--------------- ---------------
Cash flow provided by operations $ 154,959 $ 144,353
--------------- ---------------
Cash flow from investing activities:
Acquisition of and improvements to operating real estate (263,104) (44,579)
Acquisition of and improvements to real estate under development (83,006) (49,342)
Investment in marketable securities (20,698) (32,024)
Proceeds from sale of marketable securities 36,024 37,939
Reimbursements of advances to joint ventures -- 1,382
Investments and advances to real estate joint ventures (93,504) (74,278)
Reimbursements of advances to real estate joint ventures 29,712 9,016
Other real estate investments (13,761) (8,625)
Redemption of minority interests in real estate partnerships (3,465) --
Investment in mortgage loans receivable (24,057) (90,102)
Collection of mortgage loans receivable 21,144 7,276
Proceeds from sale of mortgage loan receivable 36,723 --
Investments in leveraged lease -- (3,968)
Investment in and advances received ffrom designation rights -- (2,000)
Proceeds from sale of operating properties 76,584 --
Proceeds from sale of development properties 34,512 13,138
--------------- ---------------
Net cash flow used for investing activities (266,896) (236,167)
--------------- ---------------
Cash flow from financing activities:
Principal payments on debt, excluding
normal amortization of rental property debt (12,476) --
Principal payments on rental property debt (2,770) (3,032)
Principal payments on construction loan financings (14,998) --
Proceeds from mortgage financings 21,360 11,200
Proceeds from construction loan financings 32,500 --
Borrowings under revolving credit facility 150,000 140,000
Proceeds from issuance of medium-term note 50,000 --
Payment of unsecured obligation -- (11,300)
Dividends paid (124,575) (117,676)
Proceeds from issuance of stock 259,883 6,234
Redemption of preferred stock (225,000) --
--------------- ---------------
Net cash flow provided by financing activities 133,924 25,426
--------------- ---------------
Change in cash and cash equivalents 21,987 (66,388)
Cash and cash equivalents, beginning of period 35,962 93,847
--------------- ---------------
Cash and cash equivalents, end of period $ 57,949 $ 27,459
=============== ===============
Interest paid during the period $ 50,502 $ 44,116
=============== ===============
Income taxes paid during the period $ 9,255 $ 2,890
=============== ===============
Supplemental schedule of noncash investing/financing activities:
Acquisition of real estate interest by assumption of mortgage debt $ -- $ 3,477
=============== ===============
Disposition of real estate interest by assignment of mortgage debt $ 23,068 $ 2,667
=============== ===============
Proceeds held in escrow from sale of real estate interests $ -- $ 501
=============== ===============
Notes received upon disposition of real estate interests $ 14,490 $ --
=============== ===============
Notes received upon exercise of stock options $ 100 $ 528
=============== ===============
Declaration of dividends paid in succeeding period $ 59,238 $ 57,493
=============== ===============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
14
KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
-----------
1. Interim Financial Statements
Principles of Consolidation -
The accompanying Condensed Consolidated Financial Statements include
the accounts of Kimco Realty Corporation (the "Company"), its subsidiaries, all
of which are wholly owned, and all partnerships in which the Company has a
controlling interest. The information furnished is unaudited and reflects all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature. These Condensed Consolidated
Financial Statements should be read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K and Current Report on Form
8-K dated June 6, 2003.
Certain 2002 amounts have been reclassified to conform to the 2003
financial statement presentation.
Income Taxes -
The Company and its qualified REIT subsidiaries file a consolidated
federal income tax return. The Company has made an election to qualify, and
believes it is operating so as to qualify, as a Real Estate Investment Trust (a
"REIT") for federal income tax purposes. Accordingly, the Company generally will
not be subject to federal income tax, provided that distributions to its
stockholders equal at least the amount of its REIT taxable income as defined
under Section 856 through 860 of the Internal Revenue Code, as amended (the
"Code"). However, in connection with the Tax Relief Extension Act of 1999, which
became effective January 1, 2001, the Company is now permitted to participate in
certain activities which it was previously precluded from in order to maintain
its qualification as a REIT, so long as these activities are conducted in
entities which elect to be treated as taxable REIT subsidiaries under the Code.
As such, the Company will be subject to federal and state income taxes on the
income from these activities. During the six months ended June 30, 2003, the
Company's provision for federal and state income taxes was approximately $5.3
million relating to activities conducted in its taxable REIT subsidiaries.
15
Earnings Per Share -
The following table sets forth the reconciliation of earnings and the
weighted average number of shares used in the calculation of basic and diluted
earnings per share (amounts presented in thousands, except per share data):
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Computation of Basic Earnings Per Share:
Income from continuing operations $ 58,305 $ 60,175 $ 124,841 $ 117,232
Gain on sale of development properties,
net of provision for income taxes 3,379 -- 4,203 2,568
Original issuance costs associated with the
redemption of preferred stock (7,787) -- (7,787) --
Preferred stock dividends (4,241) (4,609) (8,850) (9,219)
--------------- --------------- --------------- ---------------
Income from continuing operations
applicable to common shares 49,656 55,566 112,407 110,581
Income/(loss) from discontinued operations (338) 880 3,263 2,149
--------------- --------------- --------------- ---------------
Net income applicable to common shares $ 49,318 $ 56,446 $ 115,670 $ 112,730
=============== =============== =============== ===============
Weighted average common shares
outstanding 105,179 104,413 104,946 104,356
Basic Earnings Per Share:
Income from continuing operations $ 0.47 $ 0.53 $ 1.07 $ 1.06
Income from discontinued operations -- 0.01 0.03 0.02
--------------- --------------- --------------- ---------------
Net income $ 0.47 $ 0.54 $ 1.10 $ 1.08
=============== =============== =============== ===============
Computation of Diluted Earnings Per Share:
Income from continuing operations
applicable to common shares $ 49,656 $ 55,566 $ 112,407 $ 110,581
Dividends on convertible downREIT units 1,423 -- 2,846 --
--------------- --------------- --------------- ---------------
Income from continuing operations for
diluted earnings per share 51,079 55,566 115,253 110,581
Income/(loss) from discontinued operations (338) 880 3,263 2,149
--------------- --------------- --------------- ---------------
Net income for diluted earnings per share $ 50,741 $ 56,446 $ 118,516 $ 112,730
=============== =============== =============== ===============
Weighted average common shares
outstanding - basic 105,179 104,413 104,946 104,356
Effect of dilutive securities: stock options 1,651 1,093 1,355 1,073
Assumed conversion of Class D Preferred
stock to common stock -- -- -- 8
Assumed conversion of downREIT units 2,383 -- 2,415 --
--------------- --------------- --------------- ---------------
Shares for diluted earnings per share 109,213 105,506 108,716 105,437
--------------- --------------- --------------- ---------------
Diluted Earnings Per Share:
Income from continuing operations $ 0.47 $ 0.53 $ 1.06 $ 1.05
Income from discontinued operations (0.01) 0.01 0.03 0.02
--------------- --------------- --------------- ---------------
Net income $ 0.46 $ 0.54 $ 1.09 $ 1.07
=============== =============== =============== ===============
16
The Company maintains a stock option plan (the "Plan") for which prior
to January 1, 2003 the Company accounted for under the intrinsic value-based
method of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation (an interpretation of APB Opinion No. 25), issued
in March 2000. Effective January 1, 2003, the Company adopted the prospective
method provisions of SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure and Amendment of FASB Statement No. 123 ("FASB No.
148"), which will apply the recognition provisions of FASB No. 123, Accounting
for Stock-Based Compensation ("FASB No. 123") to all employee awards granted,
modified or settled after January 1, 2003. Awards under the Company's Plan
generally vest ratably over a three-year term and expire ten years from the date
of grant. Therefore, the cost related to stock-based employee compensation
included in the determination of net income for the three and six months ended
June 30, 2003 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 FASB No. 123. The following table illustrates the effect on net income
and earnings per share if the fair value based method had been applied to all
outstanding stock awards in each period (amounts presented in thousands, expect
per share data):
17
Three Months Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Net income, as reported $ 61,346 $ 61,055 $ 132,307 $ 121,949
Add: Stock based employee compensation
expense included in reported net income -- -- 15 --
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (737) (788) (1,489) (1,576)
--------------- --------------- --------------- ---------------
Pro Forma Net income - Basic $ 60,609 $ 60,267 $ 130,833 $ 120,373
=============== =============== =============== ===============
Earnings Per Share
Basic - as reported $ 0.47 $ 0.54 $ 1.10 $ 1.08
=============== =============== =============== ===============
Basic - pro forma $ 0.46 $ 0.53 $ 1.09 $ 1.07
=============== =============== =============== ===============
Net income for diluted earnings per share $ 50,741 $ 56,446 $ 118,516 $ 112,730
Add: Stock based employee compensation
expense included in reported net income -- -- 15 --
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (737) (788) (1,489) (1,576)
--------------- --------------- --------------- ---------------
Pro Forma Net income - Diluted $ 50,004 $ 55,658 $ 117,042 $ 111,154
=============== =============== =============== ===============
Earnings Per Share
Diluted - as reported $ 0.46 $ 0.54 $ 1.09 $ 1.07
=============== =============== =============== ===============
Diluted - pro forma $ 0.46 $ 0.53 $ 1.08 $ 1.05
=============== =============== =============== ===============
In addition, there were approximately 12,750 and 1,163,175 stock
options that were anti-dilutive as of June 30, 2003 and 2002, respectively.
New Accounting Pronouncements -
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"), the primary objective of which is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights ("variable interest entities" or "VIEs")
and to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). This new model applies when either (i) the equity
investors (if any) do not have a controlling financial interest or (ii) the
equity investment at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46 requires additional
disclosures. The Company's exposure to losses associated with its unconsolidated
joint ventures is limited to its carrying value in these investments. The
Company is evaluating the potential impact of the adoption of FIN 46 on the
Company's financial position and results of operations.
18
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities ("FASB No. 149"). This
statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under FASB Statement No. 133, Accounting
for Derivatives Instruments and Hedging Activities. The provisions of this
statement are effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003. The adoption
of FASB No. 149 is not expected to have a material adverse impact on the
Company's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("FASB
No. 150"). This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
provisions of this statement are effective for financial instruments entered
into or modified after May 31, 2003, and otherwise are effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
is evaluating the potential impact of the adoption of FASB No. 150 on the
Company's financial position and results of operations.
2. Operating Property Activities
During the six months ended June 30, 2003, the Company acquired 10
operating properties, comprising approximately 1.4 million square feet of gross
leaseable area ("GLA"), for an aggregate purchase price of approximately $223.6
million.
During the six months ended June 30, 2003, the Company (i) disposed of,
in separate transactions, five operating properties for an aggregate sales price
of approximately $47.9 million, including the assignment of approximately $1.7
million in mortgage debt encumbering one of the properties, (ii) terminated four
leasehold positions in locations where a tenant in bankruptcy had rejected its
lease and (iii) transferred one operating property to the Kimco Retail
Opportunity Portfolio ("KROP"), a joint venture with GE Capital Real Estate
("GECRE"), which the Company manages and has a 20% non-controlling interest, for
a price of approximately $26.3 million, which approximated its net book value.
These dispositions resulted in net gains of approximately $2.4 million for the
six months ended June 30, 2003. For those property dispositions for which SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FASB
No. 144") is applicable, the operations and gain or loss on the sale of the
property have been included in the caption Discontinued operations in the
Condensed Consolidated Statements of Income.
19
3. Discontinued Operations
In accordance with FASB No. 144, the Company reports as discontinued
operations assets held for sale (as defined by FASB No. 144) and operating
assets sold in the current period. All results of these discontinued operations
are included in a separate component of income on the Condensed Consolidated
Statements of Income under Discontinued operations. This change has resulted in
certain reclassifications of 2002 financial statement amounts.
The components of Income from operations related to discontinued
operations for the three months and six months ended June 30, 2003 and 2002 are
shown below. These include the results of operations through the date of sale
for each property sold during 2003 and 2002 and the operations for the
applicable period for those assets classified as held for sale as of June 30,
2003 (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Discontinued operations:
Revenues from rental property $ 531 $ 4,011 $ 1,569 $ 8,714
Rental property expenses 111 (2,172) (472) (4,449)
--------------- --------------- --------------- ---------------
Income from property operations 642 1,839 1,097 4,265
Depreciation and amortization (113) (1,105) (253) (1,879)
Interest expense -- (416) (11) (797)
Other -- 16 17 14
--------------- --------------- --------------- ---------------
Income from discontinued operating
properties 529 334 850 1,603
Gain/(loss) on disposition of operating
properties, net (867) 546 2,413 546
--------------- --------------- --------------- ---------------
Income/(loss) from discontinued
operations $ (338) $ 880 $ 3,263 $ 2,149
=============== =============== =============== ===============
4. Kimco Developers, Inc. ("KDI")
Effective January 1, 2001, the Company elected taxable REIT subsidiary
status for its wholly-owned development subsidiary, KDI. During the six months
ended June 30, 2003, KDI acquired five 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 $21.7 million.
20
During the six months ended June 30, 2003, KDI sold 11 out-parcels and
three recently completed projects, in separate transactions, for approximately
$67.7 million, which resulted in the recognition of pre-tax gains of
approximately $7.0 million and the deferral of a pre-tax gain of approximately
$3.3 million. The deferred gain will be recognized during the third quarter 2003
under the installment method in accordance with SFAS No. 66, Accounting for
Sales of Real Estate.
Additionally, during the six months ended June 30, 2003, KDI obtained
construction financing on a ground-up development project for an aggregate loan
amount of up to $9.9 million, of which approximately $2.4 million has been
funded to KDI as of June 30, 2003. As of June 30, 2003, KDI had nine loans with
total commitments of up to $127.7 million of which $61.5 million had been funded
to KDI. These loans have maturities ranging from 18 to 36 months and a weighted
average interest rate of 3.71% at June 30, 2003.
5. Investment and Advances in Real Estate Joint Ventures
Kimco Income REIT -
During 1998, the Company formed Kimco Income REIT ("KIR"), a limited
partnership which the Company manages, established to invest in high quality
retail properties financed primarily through the use of individual non-recourse
mortgages. As of June 30, 2003 the KIR portfolio was comprised of 70 properties
aggregating 14.6 million square feet of GLA located in 21 states.
The Company holds a 43.3% non-controlling limited partnership interest
in KIR and accounts for its investment in KIR under the equity method of
accounting. The Company's equity in income of KIR for the six months ended June
30, 2003 and 2002 was approximately $10.1 million and $7.8 million,
respectively. During 2003, the Company contributed approximately $10.8 million
in cash to KIR in connection with its subscription agreement.
In addition, KIR entered into a master management agreement with the
Company, whereby, the Company will perform services for fee relating to the
management, operation, supervision and maintenance of the joint venture
properties. For the six months ended June 30, 2003 and 2002, the Company earned
management fees of approximately $1.4 million and $1.2 million, respectively.
RioCan Venture -
During October 2001, the Company formed a joint venture (the "RioCan
Venture") with RioCan Real Estate Investment Trust ("RioCan", Canada's largest
publicly traded REIT measured by GLA) in which the Company has a 50%
non-controlling interest, to acquire retail properties and development projects
in Canada. The acquisitions and development projects are to be sourced and
managed by RioCan and are subject to review and approval by a joint oversight
committee consisting of RioCan management and the Company's management
personnel. As of June 30, 2003, the RioCan Venture consisted of 29 shopping
center properties and five development projects aggregating 6.9 million square
feet of GLA. During the six months ended June 30, 2003 and 2002 the Company
recognized equity in income of the RioCan Venture of approximately $5.6 million
and $2.6 million, respectively.
21
KROP Venture -
During October 2001, the Company formed KROP, a joint venture with
GECRE which the Company manages and has a 20% non-controlling interest. The
purpose of this venture is to acquire established, high-growth potential retail
properties in the United States. The initial funding for this venture consists
of an equity pool of up to $250.0 million, provided $50.0 million by the Company
and $200.0 million by GECRE. The Company will be responsible for the day-to-day
management, redevelopment and leasing of the properties acquired and will be
paid fees for those services. In addition, the Company will earn fees related to
the acquisition and disposition of the properties by KROP. Capital contributions
will only be required as suitable opportunities arise and are agreed to by the
Company and GECRE.
As of June 30, 2003 the KROP venture consisted of 20 properties
aggregating 2.8 million square feet of GLA located in nine states. For the six
months ended June 30, 2003 and 2002, the Company recognized equity in income of
KROP of approximately $0.9 million and $0.2 million, respectively. Additionally,
during the six months ended June 30, 2003, the Company earned management and
acquisition fees of approximately $1.7 million and $1.2 million, respectively.
Other Real Estate Joint Ventures -
During June 2003, the Company acquired a former Service Merchandise
property located in Novi, MI through a joint venture, in which the Company has a
42.5% non-controlling interest. The property was purchased for a purchase price
of approximately $4.1 million.
During June 2003, the Company acquired a property located in South
Bend, IN, through a joint venture in which the Company has a 37.5%
non-controlling interest. The property was purchased for an aggregate purchase
price of approximately $4.9 million.
Additionally, during the six months ended June 30, 2003, the Company
acquired three properties, in separate transactions, through a joint venture in
which the company has a 50% non-controlling interest. These properties were
purchased for an aggregate purchase price of approximately $41.2 million.
22
6. Other Real Estate Investments
Kimsouth -
During November 2002, the Company through its taxable REIT subsidiary,
together with Prometheus Southeast Retail Trust, completed the merger and
privatization of Konover Property Trust, which has been renamed Kimsouth Realty,
Inc., ("Kimsouth"). The Company acquired 44.5% of the common stock of Kimsouth,
which consisted primarily of 38 retail shopping center properties comprising
approximately 4.6 million square feet of GLA. Total acquisition value was
approximately $280.9 million including approximately $216.2 million in mortgage
debt. The Company's investment strategy with respect to Kimsouth includes
re-tenanting, repositioning and disposition of the properties. During the six
months ended June 30, 2003, Kimsouth sold five properties for net proceeds of
approximately $26.5 million including the assignment of approximately $1.3
million of mortgage debt encumbering one of the properties. For the six months
ended June 30, 2003, the Company recognized equity in income of Kimsouth of $5.9
million before income taxes. Additionally, during the six months ended June 30,
2003, the Company earned management fees of approximately $0.4 million.
Preferred Equity Capital -
During 2002, the Company established a preferred equity program, which
provides capital to developers and owners of shopping centers. As of June 30,
2003, the Company has provided an aggregate of approximately $43.5 million in
investment capital to developers and owners of 15 properties. The Company earned
approximately $1.5 million for the six months ended June 30, 2003 from these
investments.
7. Mortgages and Other Financing Receivables
During August 2001, the Company through a joint venture in which the
Company has a 50% interest, provided $27.5 million of debtor-in-possession
financing (the "Ames Loan") to Ames Department Stores, Inc., ("Ames"), a
retailer in bankruptcy. This loan bore interest at prime plus 6.0%, was
collateralized by all real estate owned by Ames and was scheduled to mature in
August 2003.
During September 2002, the Ames Loan, was restructured as a two-year
$100.0 million secured revolving loan of which the Company has a 40% interest.
This revolving loan is collateralized by all of Ames' real estate interests. The
loan bears interest at 8.5% per annum and provides for contingent interest upon
the successful disposition of the Ames properties. During January 2003, Ames
paid the outstanding balance of approximately $4.1 million. As of June 30, 2003,
there was no balance outstanding on this revolving loan. During the six months
ended June 30, 2003, the Company earned approximately $4.7 million in additional
interest.
23
During March 2002, the Company provided a $50.0 million ten-year loan
to Shopko Stores Inc., at an interest rate of 11.0% per annum collateralized by
15 properties. The Company receives principal and interest payments on a monthly
basis. During January 2003, the Company sold a $37.0 million participation
interest in this loan to an unaffiliated third party. The interest rate of the
$37.0 million participation interest is a variable rate based on LIBOR plus
3.50%. The Company continues to act as the servicer for the full amount of the
loan.
During May 2002, the Company provided a $15.0 million three-year loan
to Frank's Nursery & Crafts, Inc. ("Frank's"), at an interest rate of 10.25% per
annum collateralized by 40 real estate interests. Interest is payable quarterly
in arrears. An additional $17.5 million revolving loan at an interest rate of
10.25% per annum was also established. As of June 30, 2003, the outstanding loan
balance was approximately $15.0 million. As an inducement to make these loans,
Frank's issued the Company approximately 4.4 million warrants with an exercise
price of $1.15 per share, and 5.0 million warrants with an exercise price of
$2.00 per share.
Additionally, during the six months ending June 30, 2003, the Company
provided, in separate transactions, an aggregate $19.7 million of additional
mortgage financing. These loans have maturities generally ranging from three to
30 years and accrue interest at rates ranging from 7.00% to 12.25%.
8. Mortgages Payable
During February 2003, the Company reached agreement with a lender in
connection with two individual non-recourse mortgages encumbering two former
Kmart sites. The Company paid approximately $8.3 million in full satisfaction of
these loans which aggregated approximately $14.7 million. As a result of this
transaction, the Company recognized a gain on early extinguishment of debt of
approximately $6.3 million during the first quarter of 2003.
During May 2003, the Company suspended debt service payments on an
individual non-recourse mortgage loan with an outstanding principal balance of
approximately $9.3 million. This non-recourse loan encumbers a former Kmart site
located in Chicago, IL. The Company is actively negotiating settlement terms
with the respective lender.
9. Debt Financing
During May 2003, the Company issued $50.0 million of fixed-rate
unsecured senior notes under its medium-term notes ("MTN") program. This fixed
rate MTN matures in May 2010 and bears interest at 4.62% per annum, payable
semi-annually in arrears. The proceeds from this MTN issuance were used
primarily for the partial redemption of the Company's 7 3/4% Class A Cumulative
Redeemable Preferred Stock.
24
10. Preferred Stock and Common Stock Transactions
During June 2003, the Company redeemed all 2,000,000 outstanding
depositary shares of the Company's 8 1/2% Class B Cumulative Redeemable
Preferred Stock, par value $1.00 per share ("Class B Preferred Stock"), all
3,000,000 outstanding depositary shares of the Company's 7 3/4% Class A
Cumulative Redeemable Preferred Stock, par value $1.00 per share ("Class A
Preferred Stock") and all 4,000,000 outstanding depositary shares of the
Company's 8 3/8% Class C Cumulative Redeemable Preferred Stock, par value $1.00
per share ("Class C Preferred Stock"), each at a redemption price of $25.00 per
depositary share, totaling $225.0 million, plus accrued dividends.
During June 2003, the Company issued 7,000,000 Depositary Shares (the
"Class F Depositary Shares"), each representing a one-tenth fractional interest
in a share of the Company's 6.65% Class F Cumulative Redeemable Preferred Stock,
par value $1.00 per share (the "Class F Preferred Stock"). Dividends on the
Class F Depositary Shares are cumulative and payable quarterly in arrears at the
rate of 6.65% per annum based on the $25.00 per share initial offering price, or
$1.6625 per annum. The Class F Depositary Shares are redeemable, in whole or
part, for cash on or after June 5, 2008 at the option of the Company, at a
redemption price of $25.00 per depositary share, plus any accrued and unpaid
dividends thereon. The Class F Depositary Shares are not convertible or
exchangeable for any other property or securities of the Company. Net proceeds
from the sale of the Class F Depositary Shares, totaling approximately $169.0
million (after related transaction costs of $6.0 million) were used to redeem
all of the Company's Class B Preferred Stock and Class C Preferred Stock and to
fund a portion of the redemption of the Company's Class A Preferred Stock.
Additionally, during June 2003, the Company completed a primary public
stock offering of 2,070,000 shares of Common Stock. The net proceeds from this
sale of common stock, totaling approximately $76.0 million (after related
transaction costs of $0.7 million) will be used for general corporate purposes,
including the acquisition of interests in real estate properties as suitable
opportunities arise.
11. Tenant Concentration
On January 14, 2003, Kmart announced it would be closing an additional
326 locations relating to its January 22, 2002 filing of protection under
Chapter 11 of the U.S. Bankruptcy Code. Nine of these locations (excluding the
KIR portfolio which includes three additional locations and Kimsouth which
includes two additional locations) are leased from the Company. The annualized
base rental revenues from these nine locations are approximately $4.3 million.
As of June 30, 2003, Kmart rejected its lease at seven of these locations
representing approximately $3.3 million of annualized base rental revenues. The
Company is currently negotiating leases with prospective tenants at six of
theses sites and has terminated its lease at one site. No assurance can be
provided that the remaining locations will be leased in the near term or at
comparable rents previously paid by Kmart.
25
As of June 30, 2003, Kmart represented 3.0% of annualized base rents
and 5.1% of leased GLA.
The Company generally will have the right to file claims in connection
with rejected leases for lost rent equal to three years of rental obligations as
well as other amounts related to obligations under the leases. Actual amounts to
be received in satisfaction of these claims will be subject to Kmart's final
plan of reorganization which became effective May 6, 2003 and the availability
of funds to pay creditors such as the Company.
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, 2003. The pro forma financial information set forth
below is based upon the Company's historical Condensed Consolidated Statements
of Income for the six months ended June 30, 2003 and 2002, adjusted to give
effect to these transactions as of January 1, 2002.
The pro forma financial information is presented for informational
purposes only and may not be indicative of what actual results of operations
would have been had the transactions occurred as of January 1, 2002, nor does it
purport to represent the results of future operations. (Amounts presented in
millions, except per share figures).
Six Months Ended June 30,
2003 2002
--------------- ---------------
Revenues from rental property $ 246.7 $ 233.9
Net income $ 130.7 $ 124.8
Net income per common share:
Basic $ 1.09 $ 1.11
=============== ===============
Diluted $ 1.08 $ 1.10
=============== ===============
13. Mid-Atlantic Realty Trust Merger
On June 18, 2003, the Company and Mid-Atlantic Realty Trust
("Mid-Atlantic") announced that the two companies have entered into a definitive
merger agreement (the "Merger Agreement"). Under the terms of the Merger
Agreement, which was unanimously approved by the Boards of both companies, the
Company will acquire all of the outstanding shares of Mid-Atlantic for $21.00
per share in a cash transaction in which Mid-Atlantic will merge with and into a
wholly-owned subsidiary of the Company. The merger will require the approval of
holders of 66 2/3% of Mid-Atlantic's outstanding shares.
26
Subject to certain conditions, limited partners in Mid-Atlantic's
operating partnership will be offered the same cash consideration for each
outstanding unit and will be offered the opportunity (in lieu of cash) to
exchange their interests for preferred units in the operating partnership upon
the closing of the transaction. The merger of the Company does not require the
approval of the limited partners of Mid-Atlantic's operating partnership.
The transaction has a total equity value of approximately $444.0
million based upon Mid-Atlantic's approximately 21 million common shares and
partnership units outstanding. The Company will acquire the properties subject
to Mid-Atlantic's net debt, which, as of March 31, 2003, was approximately
$236.0 million. The merger is subject to customary closing conditions, and is
currently expected to close on or about (but in no event before) September 15,
2003.
The Merger Agreement may be terminated if, among other reasons, the
Mid-Atlantic Board withdraws or modifies its approval in order to accept an
Acquisition Proposal (as defined in the Merger Agreement), provided that
Mid-Atlantic pays the Company a termination fee of $15.5 million and break-up
expenses of up to $2.5 million. In certain other circumstances, the Merger
Agreement may be terminated and result in payment of a termination fee and/or
break-up expenses.
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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. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
In connection with the Annual Meeting of Stockholders held on May 15,
2003 (the "Meeting"), stockholders were asked to vote with respect to (i) the
election of Directors to serve for the ensuing year and (ii) to approve an
increase of the number of shares of the Company's Common Stock subject to Option
under the Company's 1998 Equity Participation Plan by 5,000,000 shares.
A total of 88,715,454 votes were cast regarding Proposal I and Proposal
II as follows:
Proposal I - Election of Directors
Against/
Votes For Withheld
----- --- --------
Nominees:
Martin S. Kimmel 88,715,454 70,192,582 18,522,872
Milton Cooper 88,715,454 70,728,200 17,987,254
Richard G. Dooley 88,715,454 70,236,907 18,478,547
Joe Grills 88,715,454 84,654,143 4,061,311
David B. Henry 88,715,454 84,544,758 4,170,696
Michael J. Flynn 88,715,454 84,535,198 4,180,256
Frank Lourenso 88,715,454 70,043,198 18,672,256
28
Proposal II - Increase of shares subject to Option under the 1998 Equity
Participation Plan by 5,000,000 shares
Votes For Against Abstain
88,715,454 83,626,927 4,633,321 455,206
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits -
4.1 Agreement to File Instruments
Kimco Realty Corporation (the "Registrant") hereby agrees to file with
the Securities and Exchange Commission, upon request of the Commission, all
instruments defining the rights of holders of long-term debt of the Registrant
and its consolidated subsidiaries, and for any of its unconsolidated
subsidiaries for which financial statements are required to be filed, and for
which the total amount of securities authorized thereunder does not exceed 10
percent of the total assets of the Registrant and its subsidiaries on a
consolidated basis.
10.11 Credit Agreement
$500,0000,000 Credit Agreement dated as of June 3, 2003 among Kimco
Realty Corporation, the Several Lenders from Time to Time Parties Hereto,
JPMorgan Chase Bank, as Issuing Lender, Bank One, NA, Wachovia Bank, National
Association as Syndication Agents, UBS AG, Cayman Island Branch, The Bank of
Nova Scotia, New York Agency as Documentation Agents, The Bank of New York,
Eurohypo AG, New York Branch, Keybank National Association, Merrill Lynch Bank
USA, Suntrust as Co-Agents and JPMorgan Chase Bank as Administrative Agent.
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.
29
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.
Form 8-K -
A Current Report on Form 8-K dated April 16, 2003 was filed under Item
5 relating to the unanimous written consent of the Board of Directors of Kimco
Realty Corporation, dated April 7, 2003 adopting the First Amendment to the 1998
Equity Participation Plan.
A Current Report on Form 8-K dated April 28, 2003 was furnished under
Item 9 relating to the announcement of the Company's first quarter 2003
operating results.
A Current Report on Form 8-K dated May 1, 2003 was filed under Item 5
relating to the announcement of the redemption of all 2,000,000 outstanding
depositary shares of the Company's 8 1/2% Class B Cumulative Redeemable
Preferred Stock.
A Current Report on form 8-K dated May 5, 2003 was furnished under Item
9 relating to the certifications of the Company's Chief Executive Officer and
Chief Financial Officer as required by 18 U.S.C. ss. 1350, as created by Section
906 of the Sarbanes-Oxley Act of 2002.
A Current Report on Form 8-K dated May 8, 2003 was filed under Item 5
and Item 7 relating to (i) the Company's announcement of its completed offering
of 7,000,000 depositary shares, each representing a one-tenth interest in a
share of the Company's 6.65% Class F Cumulative Redeemable Preferred Stock, (ii)
the Company's announcement relating to the called redemption of all outstanding
shares of the Company's 7 3/4% Class A Cumulative Redeemable Preferred Stock and
for the redemption of all outstanding shares of the Company's 8 3/8% Class C
Cumulative Redeemable Preferred Stock and (iii) the computation of the Company's
ratio of earnings to fixed charges and ratio of earnings to combined fixed
charges and preferred stock dividends for the three months ended March 31, 2003.
A Current Report on Form 8-K dated May 7, 2003 was filed under Item 7
to disclose the Underwriting and Term Agreements, dated May 7, 2003, by and
among Merrill Lynch, Pierce, Fenner & Smith Incorporated and UBS Warburg LLC
(acting on behalf of themselves and the other named underwriters) and the
Company in connections with the offering of 7,000,000 Depositary Shares each
representing a one-tenth interest in a share of 6.65% Class F Cumulative
Redeemable Preferred Stock.
30
A Current Report on form 8-K dated June 6, 2003 was filed under Item 5,
relating to the Company's election to re-issue in an updated format the
presentation of its historical financial statements filed on Form 10-K for the
year ended December 31, 2002 in accordance with the provisions of Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.
A Current Report on Form 8-K dated June 18, 2003 was filed under Item
5, relating to the announcement and disclosure of the Company's execution of a
definitive merger agreement by and among Mid-Atlantic Realty Trust and the
Company.
A Current Report on Form 8-K dated June 24, 2003 was filed under Item 7
to disclose the Underwriting and Terms Agreement, dated June 24, 2003, by and
between UBS Securities LLC and the Company in connection with the Company's
2,070,000 common stock offering during June 2003.
31
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
August 11, 2003 /s/ Milton Cooper
- -------------------- ------------------------------
(Date) Milton Cooper
Chief Executive Officer
August 11, 2003 /s/ Michael V. Pappagallo
- -------------------- ------------------------------
(Date) Michael V. Pappagallo
Chief Financial Officer
32