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Section 1: 10-Q (FORM 10-Q)

kim20190930_10q.htm
0000879101KIMCO REALTY CORPfalse--12-31Q32019Fair value measurement as of date of deconsolidation.The Company utilized an aggregate $31.0 million associated with Internal Revenue Code 1031 sales proceeds.The effect of the assumed conversion of certain convertible units had an anti-dilutive effect upon the calculation of Net income available to the Company's common shareholders per share. Accordingly, the impact of such conversions has not been included in the determination of diluted earnings per share calculations. Additionally, there were 0.5 million and 2.3 million stock options that were not dilutive as of September 30, 2019 and 2018, respectively.Representing 101 property interests and 21.6 million square feet of GLA, as of September 30, 2019, and 109 property interests and 23.2 million square feet of GLA, as of December 31, 2018.Includes extension optionsThe Company determined that the valuation of its Senior Unsecured Notes were classified within Level 2 of the fair value hierarchy and its unsecured revolving credit facility was classified within Level 3 of the fair value hierarchy. The estimated fair value amounts classified as Level 2, as of September 30, 2019 and December 31, 2018, were $4.8 billion and $4.0 billion, respectively. The estimated fair value amounts classified as Level 3, as of September 30, 2019 and December 31, 2018, were $199.8 million and $97.6 million, respectively.Gross leasable area (#"GLA#")The Company manages these joint venture investments and, where applicable, earns property management fees, construction management fees, property acquisition and disposition fees, leasing management fees and asset management fees.Redemption charges resulting from the difference between the redemption amount and the carrying amount of the respective preferred stock class on the Company's Condensed Consolidated Balance Sheets are accounted for in accordance with the FASB's guidance on Distinguishing Liabilities from Equity. These charges were subtracted from net income attributable to the Company to arrive at net income available to the Company's common shareholders and used in the calculation of earnings per share.During the nine months ended September 30, 2018, a joint venture investment distributed cash proceeds resulting from the refinancing of an existing loan of which the Company's share was $3.6 million. The distribution was in excess of the Company's carrying basis in this joint venture investment and as such was recognized as income.The Company determined that its valuation of its mortgages and construction loan were classified within Level 3 of the fair value hierarchy.Includes capitalized costs of interest, real estate taxes, insurance, legal costs and payroll of $27.4 million and $24.9 million, as of September 30, 2019 and December 31, 2018, respectively.During the nine months ended September 30, 2018, the Company recorded an adjustment of $3.9 million to the estimated redemption fair market value of a noncontrolling interest in accordance with the provisions of the respective joint venture agreement and ASC 480 - Accounting for Redeemable Equity Instruments.Includes non-recourse liabilities of consolidated VIEs at September 30, 2019 and December 31, 2018 of $145,075 and $143,186, respectively. See Footnote 11 of the Notes to Condensed Consolidated Financial Statements.During the nine months ended September 30, 2019, the Company reclassified this project to Real estate, net of accumulated depreciation and amortization on the Company's Condensed Consolidated Balance Sheets, as it is now the Company's intention to discontinue development of this project and to market it for sale as is. The as is value, estimated fair value, was below the carrying value and as such, the Company recorded an impairment charge of $11.5 million during the nine months ended September 30, 2019.Includes restricted assets of consolidated variable interest entities (#"VIEs#") at September 30, 2019 and December 31, 2018 of $229,716 and $239,012, respectively. See Footnote 11 of the Notes to Condensed Consolidated Financial 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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

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 incorporation or organization)

  

(I.R.S. Employer Identification No.)

 

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)

 

        N/A        

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on

which registered

Common Stock, par value $.01 per share.

 

KIM

 

New York Stock Exchange

Depositary Shares, each representing one-thousandth of a share of 5.500% Class J Cumulative Redeemable, Preferred Stock, $1.00 par value per share.

 

KIMprJ

 

New York Stock Exchange

Depositary Shares, each representing one-thousandth of a share of 5.125% Class L Cumulative Redeemable, Preferred Stock, $1.00 par value per share.

 

KIMprL

 

New York Stock Exchange

Depositary Shares, each representing one-thousandth of a share of 5.250% Class M Cumulative Redeemable, Preferred Stock, $1.00 par value per share.

 

KIMprM

 

New York Stock Exchange

 

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 ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ☒

 

As of October 14, 2019, the registrant had 422,232,515 shares of common stock outstanding.

 



 

 

Table of Contents
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.  
     
Condensed Consolidated Financial Statements of Kimco Realty Corporation and Subsidiaries (Unaudited) -  
     
  Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 3
     
  Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018 4
     
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018

5
     
  Condensed Consolidated Statements of Changes in Equity for the Three Months Ended September 30, 2019 and 2018 6
     
  Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2019 and 2018 7
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 8
     
Notes to Condensed Consolidated Financial Statements. 9
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 24
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk.  36
     
Item 4. Controls and Procedures. 36
     
PART II - OTHER INFORMATION
     
Item 1. Legal Proceedings 37
     
Item 1A. Risk Factors.  37
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 37
     
Item 3. Defaults Upon Senior Securities. 37
     
Item 4. Mine Safety Disclosures. 37
     
Item 5. Other Information. 38
     
Item 6. Exhibits. 38
     
Signatures 39

 

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 

   

September 30, 2019

   

December 31, 2018

 

Assets:

               

Real estate, net of accumulated depreciation and amortization of $2,474,243 and $2,385,287, respectively

  $ 9,172,123     $ 9,250,519  

Real estate under development

    300,976       241,384  

Investments in and advances to real estate joint ventures

    585,467       570,922  

Other real estate investments

    194,675       192,123  

Cash and cash equivalents

    141,310       143,581  

Accounts and notes receivable, net

    191,436       184,528  

Operating lease right-of-use assets, net

    98,210       -  

Other assets

    400,934       416,043  

Total assets (1)

  $ 11,085,131     $ 10,999,100  
                 

Liabilities:

               

Notes payable, net

  $ 4,829,996     $ 4,381,456  

Mortgages and construction loan payable, net

    482,632       492,416  

Dividends payable

    126,203       130,262  

Operating lease liabilities

    91,621       -  

Other liabilities

    556,515       560,231  

Total liabilities (2)

    6,086,967       5,564,365  

Redeemable noncontrolling interests

    23,695       23,682  
                 

Commitments and Contingencies

           
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 7,054,000 shares; undesignated 6,010,240 and 5,996,240 shares, respectively; Issued and outstanding (in series) 28,580 and 42,580 shares, respectively; Aggregate liquidation preference $714,500 and $1,064,500, respectively

    29       43  

Common stock, $.01 par value, authorized 750,000,000 shares; issued and outstanding 422,230,015 and 421,388,879 shares, respectively

    4,222       4,214  

Paid-in capital

    5,781,371       6,117,254  

Cumulative distributions in excess of net income

    (883,741 )     (787,707 )

Total stockholders' equity

    4,901,881       5,333,804  

Noncontrolling interests

    72,588       77,249  

Total equity

    4,974,469       5,411,053  

Total liabilities and equity

  $ 11,085,131     $ 10,999,100  

 

(1)

Includes restricted assets of consolidated variable interest entities (“VIEs”) at September 30, 2019 and December 31, 2018 of $229,716 and $239,012, respectively.  See Footnote 11 of the Notes to Condensed Consolidated Financial Statements.

 

 

(2)

Includes non-recourse liabilities of consolidated VIEs at September 30, 2019 and December 31, 2018 of $149,529 and $143,186, respectively.  See Footnote 11 of the Notes to Condensed Consolidated Financial Statements.

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Revenues

                               

Revenues from rental properties, net

  $ 279,181     $ 278,699     $ 850,525     $ 867,799  

Management and other fee income

    3,690       4,381       12,229       12,762  

Total revenues

    282,871       283,080       862,754       880,561  
                                 

Operating expenses

                               

Rent

    (2,836 )     (2,702 )     (8,452 )     (8,262 )

Real estate taxes

    (37,519 )     (37,862 )     (113,871 )     (115,570 )

Operating and maintenance

    (39,758 )     (39,265 )     (123,871 )     (123,921 )

General and administrative

    (23,832 )     (21,348 )     (72,296 )     (67,775 )

Provision for doubtful accounts

    -       (1,389 )     -       (4,571 )

Impairment charges

    (19,609 )     (3,336 )     (41,235 )     (33,855 )

Depreciation and amortization

    (68,874 )     (74,972 )     (209,440 )     (236,114 )

Total operating expenses

    (192,428 )     (180,874 )     (569,165 )     (590,068 )
                                 

Gain on sale of properties/change in control of interests

    9,025       28,250       47,382       180,461  
                                 

Operating income

    99,468       130,456       340,971       470,954  
                                 

Other income/(expense)

                               

Other income, net

    4,327       5,219       8,887       14,675  

Interest expense

    (43,146 )     (44,081 )     (131,638 )     (140,458 )

Early extinguishment of debt charges

    -       (12,762 )     -       (12,762 )

Income before income taxes, net, equity in income of joint ventures, net, and equity in income from other real estate investments, net

    60,649       78,832       218,220       332,409  
                                 

Benefit for income taxes, net

    3,866       315       3,580       983  

Equity in income of joint ventures, net

    17,673       16,533       58,960       52,486  

Equity in income of other real estate investments, net

    3,265       5,045       22,758       24,638  
                                 

Net income

    85,453       100,725       303,518       410,516  
                                 

Net income attributable to noncontrolling interests

    (1,463 )     (567 )     (2,332 )     (882 )
                                 

Net income attributable to the Company

    83,990       100,158       301,186       409,634  
                                 

Preferred stock redemption charges

    (11,369 )     -       (11,369 )     -  

Preferred dividends

    (13,573 )     (14,534 )     (42,641 )     (43,657 )
                                 

Net income available to the Company's common shareholders

  $ 59,048     $ 85,624     $ 247,176     $ 365,977  
                                 

Per common share:

                               

Net income available to the Company:

                               

-Basic

  $ 0.14     $ 0.19     $ 0.58     $ 0.86  

-Diluted

  $ 0.14     $ 0.19     $ 0.58     $ 0.85  
                                 

Weighted average shares:

                               

-Basic

    419,823       419,230       419,663       421,106  

-Diluted

    421,002       419,764       420,986       422,443  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net income

  $ 85,453     $ 100,725     $ 303,518     $ 410,516  

Other comprehensive income:

                               

Change in unrealized value on interest rate swap

    -       (72 )     -       344  

Other comprehensive income

    -       (72 )     -       344  
                                 

Comprehensive income

    85,453       100,653       303,518       410,860  
                                 

Comprehensive income attributable to noncontrolling interests

    (1,463 )     (567 )     (2,332 )     (882 )
                                 

Comprehensive income attributable to the Company

  $ 83,990     $ 100,086     $ 301,186     $ 409,978  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months Ended September 30, 2019 and 2018

(Unaudited)

(in thousands)

 

           

Accumulated

                                                                 
   

Cumulative

   

Other

                                           

Total

                 
   

Distributions in

   

Comprehensive

   

Preferred Stock

   

Common Stock

   

Paid-in

   

Stockholders'

   

Noncontrolling

   

Total

 
   

Excess of Net Income

   

Income/(Loss)

   

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

Equity

   

Interests

   

Equity

 

Balance at July 1, 2018

  $ (710,981 )   $ 72       43     $ 43       421,388     $ 4,214     $ 6,117,862     $ 5,411,210     $ 77,768     $ 5,488,978  

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       109       109  

Comprehensive income:

                                                                               

Net income

    100,158       -       -       -       -       -       -       100,158       567       100,725  

Change in unrealized value on interest rate swap

    -       (72 )     -       -       -       -       -       (72 )     -       (72 )

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (94 )     (94 )

Dividends declared to common and preferred shares

    (132,523 )     -       -       -       -       -       -       (132,523 )     -       (132,523 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (503 )     (503 )

Issuance of common stock

    -       -       -       -       26       -       -       -       -       -  

Surrender of restricted common stock

    -       -       -       -       (55 )     -       (798 )     (798 )     -       (798 )

Exercise of common stock options

    -       -       -       -       32       -       457       457       -       457  

Amortization of equity awards

    -       -       -       -       -       -       3,736       3,736       -       3,736  

Adjustment of redeemable noncontrolling interests to estimated fair value

    -       -       -       -       -       -       (3,918 )     (3,918 )     -       (3,918 )

Balance at September 30, 2018

  $ (743,346 )   $ -       43     $ 43     $ 421,391     $ 4,214     $ 6,117,339     $ 5,378,250     $ 77,847     $ 5,456,097  
                                                                                 

Balance at July 1, 2019

  $ (835,934 )   $ -       43     $ 43       422,094     $ 4,221     $ 6,125,572     $ 5,293,902     $ 73,559     $ 5,367,461  

Net income

    83,990       -       -       -       -       -       -       83,990       1,463       85,453  

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (94 )     (94 )

Dividends declared to common and preferred shares

    (131,797 )     -       -       -       -       -       -       (131,797 )     -       (131,797 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (2,340 )     (2,340 )

Issuance of common stock

    -       -       -       -       52       -       -       -       -       -  

Surrender of restricted common stock

    -       -       -       -       (14 )     -       (259 )     (259 )     -       (259 )

Exercise of common stock options

    -       -       -       -       98       1       1,539       1,540       -       1,540  

Amortization of equity awards

    -       -       -       -       -       -       4,505       4,505       -       4,505  

Redemption of preferred stock

    -       -       (14 )     (14 )     -       -       (349,986 )     (350,000 )     -       (350,000 )

Balance at September 30, 2019

  $ (883,741 )   $ -       29     $ 29       422,230     $ 4,222     $ 5,781,371     $ 4,901,881     $ 72,588     $ 4,974,469  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Nine Months Ended September 30, 2019 and 2018

(Unaudited)

(in thousands)

 

           

Accumulated

                                                                 
   

Cumulative

   

Other

                                           

Total

                 
   

Distributions in

   

Comprehensive

   

Preferred Stock

   

Common Stock

   

Paid-in

   

Stockholders'

   

Noncontrolling

   

Total

 
   

Excess of Net Income

   

Income/(Loss)

   

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

Equity

   

Interests

   

Equity

 

Balance at January 1, 2018

  $ (754,375 )   $ (344 )     41     $ 41       425,646.00     $ 4,256     $ 6,152,764     $ 5,402,342     $ 127,903     $ 5,530,245  

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       109       109  

Comprehensive income:

                                                                               

Net income

    409,634       -       -       -       -       -       -       409,634       882       410,516  

Change in unrealized loss on interest rate swap

    -       344       -       -       -       -       -       344       -       344  

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (279 )     (279 )

Dividends declared to common and preferred shares

    (398,605 )     -       -       -       -       -       -       (398,605 )     -       (398,605 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (2,373 )     (2,373 )

Issuance of common stock

    -       -       -       -       1,101       11       (11 )     -       -       -  

Repurchase of common stock

    -       -       -       -       (5,100 )     (51 )     (75,075 )     (75,126 )     -       (75,126 )

Surrender of restricted common stock

    -       -       -       -       (291 )     (2 )     (4,288 )     (4,290 )     -       (4,290 )

Exercise of common stock options

    -       -       -       -       35       -       487       487       -       487  

Amortization of equity awards

    -       -       -       -       -       -       13,065       13,065       -       13,065  

Issuance of preferred stock

    -       -       2       2       -       -       33,112       33,114       -       33,114  

Acquisition/deconsolidation of noncontrolling interests

    -       -       -       -       -       -       1,203       1,203       (48,395 )     (47,192 )

Adjustment of redeemable noncontrolling interests to

estimated fair value

                                                    (3,918 )     (3,918 )             (3,918 )

Balance at September 30, 2018

  $ (743,346 )   $ -       43     $ 43       421,391     $ 4,214     $ 6,117,339     $ 5,378,250     $ 77,847     $ 5,456,097  
                                                                                 

Balance at January 1, 2019

  $ (787,707 )   $ -       43     $ 43       421,389     $ 4,214     $ 6,117,254     $ 5,333,804     $ 77,249     $ 5,411,053  

Net income

    301,186       -       -       -       -       -       -       301,186       2,332       303,518  

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (279 )     (279 )

Dividends declared to common and preferred shares

    (397,220 )     -       -       -       -       -       -       (397,220 )     -       (397,220 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (3,499 )     (3,499 )

Issuance of common stock

    -       -       -       -       838       8       (8 )     -       -       -  

Surrender of restricted common stock

    -       -       -       -       (236 )     (2 )     (3,946 )     (3,948 )     -       (3,948 )

Exercise of common stock options

    -       -       -       -       239       2       3,349       3,351       -       3,351  

Amortization of equity awards

    -       -       -       -       -       -       14,219       14,219       -       14,219  

Acquisition of noncontrolling interests

    -       -       -       -       -       -       489       489       (3,215 )     (2,726 )

Redemption of preferred stock

    -       -       (14 )     (14 )     -       -       (349,986 )     (350,000 )     -       (350,000 )

Balance at September 30, 2019

  $ (883,741 )   $ -       29     $ 29       422,230     $ 4,222     $ 5,781,371     $ 4,901,881     $ 72,588     $ 4,974,469  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Nine Months Ended September 30,

 
   

2019

   

2018

 
                 

Cash flow from operating activities:

               

Net income

  $ 303,518     $ 410,516  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    209,440       236,114  

Impairment charges

    41,235       33,855  

Early extinguishment of debt charges

    -       12,762  

Equity award expense

    15,025       14,455  

Gain on sale of properties/change in control of interests

    (47,382 )     (180,461 )

Equity in income of joint ventures, net

    (58,960 )     (52,486 )

Equity in income of other real estate investments, net

    (22,758 )     (24,638 )

Distributions from joint ventures and other real estate investments

    78,940       80,900  

Change in accounts and notes receivable

    (6,908 )     6,317  

Change in accounts payable and accrued expenses

    29,515       26,072  

Change in other operating assets and liabilities

    (59,206 )     (47,075 )

Net cash flow provided by operating activities

    482,459       516,331  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate and other related net assets

    -       (5,407 )

Improvements to operating real estate

    (228,029 )     (193,445 )

Acquisition of real estate under development

    -       (4,592 )

Improvements to real estate under development

    (85,609 )     (175,129 )

Investments in marketable securities

    (244 )     (63 )

Proceeds from sale/repayments of marketable securities

    1,920       677  

Investments in and advances to real estate joint ventures

    (22,129 )     (25,781 )

Reimbursements of investments in and advances to real estate joint ventures

    10,274       7,358  

Investments in and advances to other real estate investments

    (12,503 )     (353 )

Reimbursements of investments in and advances to other real estate investments

    5,960       10,464  

Investment in other financing receivable

    (48 )     (65 )

Collection of mortgage loans receivable

    5,402       7,446  

Investment in other investments

    (2,500 )     (357 )

Proceeds from sale of operating properties

    163,199       596,502  

Proceeds from insurance casualty claims

    3,000       13,500  

Net cash flow (used for)/provided by investing activities

    (161,307 )     230,755  
                 

Cash flow from financing activities:

               

Principal payments on debt, excluding normal amortization of rental property debt

    (6,198 )     (202,725 )

Principal payments on rental property debt

    (9,265 )     (10,025 )

Proceeds from construction loan financing

    8,752       30,366  

Proceeds under the unsecured revolving credit facility, net

    100,000       122,254  

Proceeds from issuance of unsecured notes

    350,000          

Repayments under unsecured notes

    -       (315,095 )

Financing origination costs

    (7,448 )     (1,208 )

Payment of early extinguishment of debt charges

    (1,531 )     (13,308 )

Contributions from noncontrolling interests

    -       109  

Redemption/distribution of noncontrolling interests

    (6,489 )     (6,046 )

Dividends paid

    (401,280 )     (397,232 )

Proceeds from issuance of stock, net

    3,351       33,601  

Redemption of preferred stock

    (350,000 )     -  

Repurchase of common stock

    -       (75,126 )

Change in other financing liabilities

    (3,315 )     (4,778 )

Net cash flow used for financing activities

    (323,423 )     (839,213 )
                 

Net change in cash and cash equivalents

    (2,271 )     (92,127 )

Cash and cash equivalents, beginning of the period

    143,581       238,513  

Cash and cash equivalents, end of the period

  $ 141,310     $ 146,386  
                 

Interest paid during the period including payment of early extinguishment of debt charges of $1,531 and $13,308, respectively (net of capitalized interest of $10,874 and $13,319 respectively)

  $ 111,224     $ 141,371  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                        

 

1. Business and Organization

 

Kimco Realty Corporation and subsidiaries (the “Company”), affiliates and related real estate joint ventures are engaged principally in the ownership, management, development and operation of open-air shopping centers, which are anchored generally by grocery stores, off-price retailers, home improvement centers, discounters and/or service-oriented tenants. Additionally, the Company provides complementary services that capitalize on the Company’s established retail real estate expertise.

 

The Company elected status as a Real Estate Investment Trust (a “REIT”) for federal income tax purposes beginning in its taxable year ended December 31, 1991 and operates in a manner that enables the Company to maintain its status as a REIT.  As a REIT, with respect to each taxable year, the Company must distribute at least 90 percent of its taxable income (excluding capital gain) and does not pay federal income taxes on the amount distributed to its shareholders.  The Company is not generally subject to federal income taxes if it distributes 100 percent of its taxable income.  Most states, where the Company holds investments in real estate, conform to the federal rules recognizing REITs.  Certain subsidiaries have made a joint election with the Company to be treated as taxable REIT subsidiaries (“TRSs”), which permit the Company to engage in certain business activities which the REIT may not conduct directly.  A TRS is subject to federal and state income taxes on its income, and the Company includes, when applicable, a provision for taxes in its condensed consolidated financial statements.  The Company is subject to and also includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. These investments are held by the Company at the REIT level and not in the Company’s taxable REIT subsidiaries. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries.

 

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation -

 

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company. The Company’s subsidiaries include subsidiaries which are wholly-owned or which the Company has a controlling interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity (“VIE”) in accordance with the Consolidation guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). All inter-company balances and transactions have been eliminated in consolidation. The information presented in the accompanying Condensed Consolidated Financial Statements 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 audited Annual Report on Form 10-K for the year ended December 31, 2018 (the “10-K”), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, that would duplicate those included in the 10-K are not included in these Condensed Consolidated Financial Statements.

 

Revenues and Trade Accounts Receivable -

 

The Company’s primary source of revenues are derived from lease agreements which fall under the scope of ASU 2016-02, Leases (Topic 842), (“Topic 842”), which includes rental income and expense reimbursement income. The Company also has revenues which are accounted for under ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“Topic 606”) which include fees for services performed at various unconsolidated joint ventures for which the Company is the manager. These fees primarily include property and asset management fees, leasing fees, development fees and property acquisition/disposition fees. Also affected by Topic 606 are gains on sales of properties and tax increment financing (“TIF”) contracts. The Company presents its revenue streams on the Company’s Condensed Consolidated Statements of Income as Revenues from rental properties, net and Management and other fee income.

 

Revenues from rental properties, net

 

Revenues from rental properties, net are comprised of minimum base rent, percentage rent, lease termination fee income, amortization of above-market and below-market rent adjustments and straight-line rent adjustments. Upon the adoption of Topic 842, the Company elected the lessor practical expedient to combine the lease and non-lease components, determined the lease component was the predominant component and as a result, accounted for the combined components under Topic 842. Non-lease components include reimbursements paid to the Company from tenants for common area maintenance costs, real estate taxes and other operating expenses. The combined components are included in Revenues from rental properties, net on the Company’s Condensed Consolidated Statements of Income.

 

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Base rental revenues from rental properties are recognized on a straight-line basis over the terms of the related leases. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the lessee.  These percentage rents are recognized once the required sales level is achieved.  Rental income may also include payments received in connection with lease termination agreements.  Lease termination fee income is recognized when the lessee provides consideration in order to terminate an existing lease agreement and has vacated the leased space. If the lessee continues to occupy the leased space for a period of time after the lease termination is agreed upon, the termination fee is accounted for as a lease modification based on the modified lease term. Upon acquisition of real estate operating properties, the Company estimates the fair value of identified intangible assets and liabilities (including above-market and below-market leases, where applicable). The capitalized above-market or below-market intangible asset or liability is amortized to rental income over the estimated remaining term of the respective leases, which includes the expected renewal option period for below-market leases.

 

Also included in Revenues from rental properties, net are ancillary income and TIF income. Ancillary income is derived through various agreements relating to parking lots, clothing bins, temporary storage, vending machines, ATMs, trash bins and trash collections, seasonal leases, etc. The majority of the revenue derived from these sources are through lease agreements/arrangements and are recognized in accordance with the lease terms described in the lease. The Company has TIF agreements with certain municipalities and receives payments in accordance with the agreements. TIF reimbursement income is recognized on a cash-basis when received.

 

Trade Accounts Receivable

 

The Company reviews its trade accounts receivable, including its straight-line rent receivable, related to base rents, straight-line rent, expense reimbursements and other revenues for collectability. The Company analyzes its accounts receivable, customer credit worthiness and current economic trends when evaluating the adequacy of the collectability of the lessee’s total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy claims. Effective January 1, 2019, in accordance with the adoption of Topic 842 the Company includes provision for doubtful accounts in Revenues from rental properties, net. If a lessee’s accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease and will only recognize lease income on a cash basis. If the Company subsequently determines that it is probable it will collect the remaining lessee’s lease payments under the lease term, the Company will then reinstate the straight-line balance and the lease income will then be limited to the lesser of (i) the straight-line rental income or (ii) the lease payments that have been collected from the lessee. The Company’s reported net earnings are directly affected by management’s estimate of the collectability of its trade accounts receivable. Trade accounts receivable, primarily derived from expense reimbursements that are being disputed by the lessee, will not be written-off as it is presumed the Company will collect these receivables upon resolution with the tenant.

 

Leases -

 

The FASB issued Topic 842, which amended the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for those leases classified as operating leases.

 

The Company adopted this standard effective January 1, 2019 under the modified retrospective approach and elected the optional transition method to apply the provisions of Topic 842 as of the adoption date, rather than the earliest period presented. As such, the requirements of Topic 842 were not applied in the comparative periods presented in the Company’s Condensed Consolidated Financial Statements. The Company also elected the package of practical expedients, which permits the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) any initial direct costs for any existing leases as of the effective date. The Company did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.

 

Lessor

 

In July 2018, the FASB issued guidance codified in ASU 2018-11, Leases - Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provides a practical expedient, which allows lessors to combine non-lease components with the related lease components if (i) both the timing and pattern of transfer are the same for the non-lease component(s) and related lease component, and (ii) the lease component would be classified as an operating lease if accounted for separately. The single combined component is accounted for under Topic 842 if the lease component is the predominant component and is accounted for under Topic 606 if the non-lease components are the predominant components. Lessors are permitted to apply the practical expedient to all existing leases on a retrospective or prospective basis. The Company elected the practical expedient to combine its lease and non-lease components that meet the defined criteria and will account for the combined lease component under Topic 842 on a prospective basis.

 

As a lessor, the Company’s recognition of rental revenue remained mainly consistent with previous guidance, apart from the narrower definition of initial direct costs that can be capitalized. The new standard defines initial direct costs as only the incremental costs that would not have been incurred if the lease had not been obtained. Under Topic 842 initial direct costs include commissions paid to third parties, including brokers, leasing and referral agents and internal leasing commissions paid to employees for successful execution of lease agreements. These initial direct costs are capitalized and generally amortized over the term of the related leases using the straight-line method. Internal employee compensation, payroll-related benefits and certain external legal fees are considered indirect costs associated with the execution of lease agreements and will no longer be capitalized; these costs will be included in general and administrative expense. As a result of electing the package of practical expedients described above, existing leases and related initial direct costs have not been reassessed prior to the effective date, and therefore, adoption of the lease standard did not have an impact on the Company’s previously reported Condensed Consolidated Statements of Income for initial direct costs.

 

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Lessee

 

The Company’s leases where it is the lessee primarily consist of ground leases and administrative office leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date of the lease and are based on the present value of lease payments over the lease term. The Company utilized an incremental borrowing rate based on the information available at adoption of Topic 842 in determining the present value of lease payments since these leases do not provide an implicit rate. Variable lease payments are excluded from the lease liabilities and corresponding ROU assets, as they are recognized in the period in which the obligation for those payments is incurred. Many of the Company’s lessee agreements include options to extend the lease, which it did not include in its minimum lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. Upon the adoption of Topic 842, the Company recognized $106.0 million of ROU assets, including net intangible assets of $7.3 million, which were reclassified from Real estate, net to Operating lease right-of-use assets, net and $98.7 million of corresponding Operating lease liabilities for its operating leases on the Company’s Condensed Consolidated Balance Sheets. See Footnote 7 to the Notes to the Company’s Condensed Consolidated Financial Statements for further details.

 

Reclassifications -

 

      Certain amounts in the prior period have been reclassified in order to conform to the current period’s presentation. In conjunction with the adoption of Topic 842 discussed above, the Company reclassified during the three and nine months ended September 30, 2018: (i) $58.0 million and $182.9 million of Reimbursement income, respectively, and (ii) $5.6 million and $16.8 million of Other rental property income, respectively, to Revenues from rental properties, net on the Company’s Condensed Consolidated Statement of Income. The reclassification is solely for comparative purposes as the Company has not elected to adopt Topic 842 retrospectively.

 

Subsequent Events -

 

The Company has evaluated subsequent events and transactions for potential recognition or disclosure in its condensed consolidated financial statements.

 

New Accounting Pronouncements -

 

       The following table represents ASUs to the FASB’s ASC that, as of September 30, 2019, are not yet effective for the Company and for which the Company has not elected early adoption, where permitted:

 

ASU

Description

Effective

Date

Effect on the financial

statements or other significant

matters

ASU 2018-17, Consolidation (Topic 810) – Targeted Improvements to Related Party Guidance for Variable Interest Entities

The amendment to Topic 810 clarifies the following areas:

(i)   Applying the variable interest entity (VIE) guidance to private companies under common control, and

(ii)  Considering indirect interests held through related parties under common control, and for determining whether fees paid to decision makers and service providers are variable interests.

 

This update improves the accounting for those areas, thereby improving general purpose financial reporting. Retrospective adoption is required.

 

January 1, 2020; Early adoption permitted

The adoption of this ASU is not expected to have a material impact on the Company’s financial position and/or results of operations.

ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

 

The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

January 1, 2020; Early adoption permitted

The adoption of this ASU is not expected to have a material impact on the Company’s financial position and/or results of operations.

 

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ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement