UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DD.C..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 endedMarch 31,, 2020 2021
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.) |
500 North Broadway, Suite 201, Jericho, NY 11753
(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 | Name of each exchange on |
| ||
Common Stock, par value $.01 per share. | KIM | 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 April 14, 2020,21, 2021, the registrant had 432,525,409433,459,202 shares of common stock outstanding.
PART I - FINANCIAL INFORMATION
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)
March 31, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
Assets: | ||||||||||||||||
Real estate, net of accumulated depreciation and amortization of $2,552,669 and $2,500,053, respectively | $ | 9,179,554 | $ | 9,209,053 | ||||||||||||
Real estate, net of accumulated depreciation and amortization of $2,727,002 and $2,717,114, respectively | $ | 9,410,039 | $ | 9,346,041 | ||||||||||||
Real estate under development | 230,602 | 220,170 | 5,672 | 5,672 | ||||||||||||
Investments in and advances to real estate joint ventures | 585,591 | 578,118 | 592,791 | 590,694 | ||||||||||||
Other real estate investments | 178,393 | 194,400 | 117,437 | 117,140 | ||||||||||||
Cash and cash equivalents | 451,796 | 123,947 | 253,852 | 293,188 | ||||||||||||
Marketable securities | 767,989 | 706,954 | ||||||||||||||
Accounts and notes receivable, net | 220,215 | 218,689 | 200,655 | 219,248 | ||||||||||||
Operating lease right-of-use assets, net | 97,790 | 99,125 | 101,433 | 102,369 | ||||||||||||
Other assets | 361,193 | 354,365 | 249,835 | 233,192 | ||||||||||||
Total assets (1) | $ | 11,305,134 | $ | 10,997,867 | $ | 11,699,703 | $ | 11,614,498 | ||||||||
Liabilities: | ||||||||||||||||
Notes payable, net | $ | 5,303,656 | $ | 4,831,759 | $ | 5,045,868 | $ | 5,044,208 | ||||||||
Mortgages and construction loan payable, net | 404,879 | 484,008 | ||||||||||||||
Mortgages payable, net | 295,613 | 311,272 | ||||||||||||||
Dividends payable | 126,473 | 126,274 | 5,366 | 5,366 | ||||||||||||
Operating lease liabilities | 91,546 | 92,711 | 95,833 | 96,619 | ||||||||||||
Other liabilities | 488,168 | 516,265 | 510,704 | 470,995 | ||||||||||||
Total liabilities (2) | 6,414,722 | 6,051,017 | 5,953,384 | 5,928,460 | ||||||||||||
Redeemable noncontrolling interests | 17,943 | 17,943 | 17,852 | 15,784 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock, $1.00 par value, authorized 7,054,000 shares; Issued and outstanding (in series) 19,580 shares; Aggregate liquidation preference $489,500 | 20 | 20 | ||||||||||||||
Common stock, $.01 par value, authorized 750,000,000 shares; Issued and outstanding 432,525,409 and 431,814,951 shares, respectively | 4,325 | 4,318 | ||||||||||||||
Preferred stock, $1.00 par value, authorized 7,054,000 shares; Issued and outstanding (in series) 19,580 shares; Aggregate liquidation preference $489,500 | 20 | 20 | ||||||||||||||
Common stock, $.01 par value, authorized 750,000,000 shares; Issued and outstanding 433,448,386 and 432,518,743 shares, respectively | 4,334 | 4,325 | ||||||||||||||
Paid-in capital | 5,747,277 | 5,765,233 | 5,763,868 | 5,766,511 | ||||||||||||
Cumulative distributions in excess of net income | (942,031 | ) | (904,679 | ) | (104,909 | ) | (162,812 | ) | ||||||||
Total stockholders' equity | 4,809,591 | 4,864,892 | 5,663,313 | 5,608,044 | ||||||||||||
Noncontrolling interests | 62,878 | 64,015 | 65,154 | 62,210 | ||||||||||||
Total equity | 4,872,469 | 4,928,907 | 5,728,467 | 5,670,254 | ||||||||||||
Total liabilities and equity | $ | 11,305,134 | $ | 10,997,867 | $ | 11,699,703 | $ | 11,614,498 | ||||||||
(1) | Includes restricted assets of consolidated variable interest entities (“VIEs”) at March 31, |
(2) | Includes non-recourse liabilities of consolidated VIEs at March 31, |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Revenues | ||||||||||||||||
Revenues from rental properties, net | $ | 286,004 | $ | 290,634 | $ | 278,871 | $ | 286,004 | ||||||||
Management and other fee income | 3,740 | 4,376 | 3,437 | 3,740 | ||||||||||||
Total revenues | 289,744 | 295,010 | 282,308 | 289,744 | ||||||||||||
Operating expenses | ||||||||||||||||
Rent | (2,835 | ) | (2,692 | ) | (3,035 | ) | (2,835 | ) | ||||||||
Real estate taxes | (39,652 | ) | (39,347 | ) | (38,936 | ) | (39,652 | ) | ||||||||
Operating and maintenance | (42,408 | ) | (40,896 | ) | (46,520 | ) | (42,408 | ) | ||||||||
General and administrative | (21,017 | ) | (25,831 | ) | (24,478 | ) | (21,017 | ) | ||||||||
Impairment charges | (2,974 | ) | (4,175 | ) | 0 | (2,974 | ) | |||||||||
Depreciation and amortization | (69,397 | ) | (71,561 | ) | (74,876 | ) | (69,397 | ) | ||||||||
Total operating expenses | (178,283 | ) | (184,502 | ) | (187,845 | ) | (178,283 | ) | ||||||||
Gain on sale of properties | 3,847 | 23,595 | 10,005 | 3,847 | ||||||||||||
Operating income | 115,308 | 134,103 | 104,468 | 115,308 | ||||||||||||
Other income/(expense) | ||||||||||||||||
Other (expense)/income, net | (3,422 | ) | 2,622 | |||||||||||||
Other income, net | 3,357 | 1,245 | ||||||||||||||
Gain/(loss) on marketable securities, net | 61,085 | (4,667 | ) | |||||||||||||
Interest expense | (46,060 | ) | (44,395 | ) | (47,716 | ) | (46,060 | ) | ||||||||
Income before income taxes, net, equity in income of joint ventures, net, and equity in income from other real estate investments, net | 65,826 | 92,330 | 121,194 | 65,826 | ||||||||||||
Provision for income taxes, net | (43 | ) | (630 | ) | (1,308 | ) | (43 | ) | ||||||||
Equity in income of joint ventures, net | 13,648 | 18,754 | 17,752 | 13,648 | ||||||||||||
Equity in income of other real estate investments, net | 10,958 | 6,224 | 3,787 | 10,958 | ||||||||||||
Net income | 90,389 | 116,678 | 141,425 | 90,389 | ||||||||||||
Net income attributable to noncontrolling interests | (289 | ) | (509 | ) | (3,483 | ) | (289 | ) | ||||||||
Net income attributable to the Company | 90,100 | 116,169 | 137,942 | 90,100 | ||||||||||||
Preferred dividends | (6,354 | ) | (14,534 | ) | (6,354 | ) | (6,354 | ) | ||||||||
Net income available to the Company's common shareholders | $ | 83,746 | $ | 101,635 | $ | 131,588 | $ | 83,746 | ||||||||
Per common share: | ||||||||||||||||
Net income available to the Company: | ||||||||||||||||
Net income available to the Company's common shareholders: | ||||||||||||||||
-Basic | $ | 0.19 | $ | 0.24 | $ | 0.30 | $ | 0.19 | ||||||||
-Diluted | $ | 0.19 | $ | 0.24 | $ | 0.30 | $ | 0.19 | ||||||||
Weighted average shares: | ||||||||||||||||
-Basic | 429,735 | 419,464 | 430,524 | 429,735 | ||||||||||||
-Diluted | 430,505 | 420,763 | 432,264 | 430,505 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 20202021 and 20192020
(Unaudited)
(in thousands)
Cumulative | Total | Cumulative Distributions in Excess | Preferred Stock | Common Stock | Paid-in | Total Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions in | Preferred Stock | Common Stock | Paid-in | Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excess of Net Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | 116,169 | - | - | - | - | - | 116,169 | 509 | 116,678 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | - | - | - | - | - | - | - | (92 | ) | (92 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (132,703 | ) | - | - | - | - | - | (132,703 | ) | - | (132,703 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | - | - | - | - | - | - | - | (685 | ) | (685 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | - | - | - | 783 | 8 | (8 | ) | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted stock | - | - | - | (187 | ) | (2 | ) | (3,250 | ) | (3,252 | ) | - | (3,252 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | - | - | - | 52 | - | 681 | 681 | - | 681 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | - | - | - | - | - | 5,178 | 5,178 | - | 5,178 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2019 | $ | (804,241 | ) | 43 | $ | 43 | 422,037 | $ | 4,220 | $ | 6,119,855 | $ | 5,319,877 | $ | 76,981 | $ | 5,396,858 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
of Net Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2020 | $ | (904,679 | ) | 20 | $ | 20 | 431,815 | $ | 4,318 | $ | 5,765,233 | $ | 4,864,892 | $ | 64,015 | $ | 4,928,907 | $ | (904,679 | ) | 20 | $ | 20 | 431,815 | $ | 4,318 | $ | 5,765,233 | $ | 4,864,892 | $ | 64,015 | $ | 4,928,907 | ||||||||||||||||||||||||||||||||||||||
Net income | 90,100 | - | - | - | - | - | 90,100 | 289 | 90,389 | 90,100 | - | 0 | - | 0 | 0 | 90,100 | 289 | 90,389 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | - | - | - | - | - | - | - | (262 | ) | (262 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (262 | ) | (262 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (127,452 | ) | - | - | - | - | - | (127,452 | ) | - | (127,452 | ) | (127,452 | ) | - | 0 | - | 0 | 0 | (127,452 | ) | 0 | (127,452 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | - | - | - | - | - | - | - | (555 | ) | (555 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (555 | ) | (555 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | - | - | - | 921 | 9 | (9 | ) | - | - | - | 0 | 0 | 0 | 921 | 9 | (9 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | - | - | - | (274 | ) | (3 | ) | (5,156 | ) | (5,159 | ) | - | (5,159 | ) | 0 | 0 | 0 | (274 | ) | (3 | ) | (5,156 | ) | (5,159 | ) | 0 | (5,159 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | - | - | - | 63 | 1 | 980 | 981 | - | 981 | 0 | 0 | 0 | 63 | 1 | 980 | 981 | 0 | 981 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | - | - | - | - | - | 5,729 | 5,729 | - | 5,729 | 0 | - | 0 | - | 0 | 5,729 | 5,729 | 0 | 5,729 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interests | - | - | - | - | - | (19,500 | ) | (19,500 | ) | (609 | ) | (20,109 | ) | 0 | - | 0 | - | 0 | (19,500 | ) | (19,500 | ) | (609 | ) | (20,109 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | $ | (942,031 | ) | 20 | $ | 20 | 432,525 | $ | 4,325 | $ | 5,747,277 | $ | 4,809,591 | $ | 62,878 | $ | 4,872,469 | $ | (942,031 | ) | 20 | $ | 20 | 432,525 | $ | 4,325 | $ | 5,747,277 | $ | 4,809,591 | $ | 62,878 | $ | 4,872,469 | ||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2021 | $ | (162,812 | ) | 20 | $ | 20 | 432,519 | $ | 4,325 | $ | 5,766,511 | $ | 5,608,044 | $ | 62,210 | $ | 5,670,254 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 137,942 | - | 0 | - | 0 | 0 | 137,942 | 3,483 | 141,425 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | 0 | - | 0 | - | 0 | 0 | 0 | (169 | ) | (169 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (80,039 | ) | - | 0 | - | 0 | 0 | (80,039 | ) | 0 | (80,039 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | (370 | ) | (370 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 0 | 0 | 0 | 1,442 | 14 | (14 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | 0 | 0 | 0 | (521 | ) | (5 | ) | (9,087 | ) | (9,092 | ) | 0 | (9,092 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | 0 | 0 | 0 | 8 | 0 | 160 | 160 | 0 | 160 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | 0 | - | 0 | - | 0 | 6,298 | 6,298 | 0 | 6,298 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | $ | (104,909 | ) | 20 | $ | 20 | 433,448 | $ | 4,334 | $ | 5,763,868 | $ | 5,663,313 | $ | 65,154 | $ | 5,728,467 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash flow from operating activities: | ||||||||||||||||
Net income | $ | 90,389 | $ | 116,678 | $ | 141,425 | $ | 90,389 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 69,397 | 71,561 | 74,876 | 69,397 | ||||||||||||
Impairment charges | 2,974 | 4,175 | 0 | 2,974 | ||||||||||||
Equity award expense | 5,905 | 5,477 | 6,457 | 5,905 | ||||||||||||
Gain on sale of properties | (3,847 | ) | (23,595 | ) | (10,005 | ) | (3,847 | ) | ||||||||
(Gain)/loss on marketable securities, net | (61,085 | ) | 4,667 | |||||||||||||
Equity in income of joint ventures, net | (13,648 | ) | (18,754 | ) | (17,752 | ) | (13,648 | ) | ||||||||
Equity in income of other real estate investments, net | (10,958 | ) | (6,224 | ) | (3,787 | ) | (10,958 | ) | ||||||||
Distributions from joint ventures and other real estate investments | 35,894 | 28,524 | 19,198 | 35,894 | ||||||||||||
Change in accounts and notes receivable | (1,526 | ) | 878 | |||||||||||||
Change in accounts and notes receivable, net | 18,593 | (1,526 | ) | |||||||||||||
Change in accounts payable and accrued expenses | 5,456 | 2,837 | 15,387 | 5,456 | ||||||||||||
Change in other operating assets and liabilities | (24,787 | ) | (26,299 | ) | ||||||||||||
Change in other operating assets and liabilities, net | (34,936 | ) | (29,454 | ) | ||||||||||||
Net cash flow provided by operating activities | 155,249 | 155,258 | 148,371 | 155,249 | ||||||||||||
Cash flow from investing activities: | ||||||||||||||||
Acquisition of operating real estate | (7,073 | ) | - | (84,312 | ) | (7,073 | ) | |||||||||
Improvements to operating real estate | (54,973 | ) | (51,345 | ) | (20,569 | ) | (54,973 | ) | ||||||||
Improvements to real estate under development | (16,578 | ) | (26,286 | ) | 0 | (16,578 | ) | |||||||||
Investments in marketable securities | - | (157 | ) | |||||||||||||
Proceeds from sale of marketable securities | 163 | 39 | 50 | 163 | ||||||||||||
Investments in and advances to real estate joint ventures | (5,282 | ) | (5,638 | ) | (1,805 | ) | (5,282 | ) | ||||||||
Reimbursements of investments in and advances to real estate joint ventures | 1,914 | 1,435 | 967 | 1,914 | ||||||||||||
Investments in and advances to other real estate investments | (478 | ) | (6,771 | ) | (419 | ) | (478 | ) | ||||||||
Reimbursements of investments in and advances to other real estate investments | 343 | 0 | ||||||||||||||
Investment in other financing receivable | - | (48 | ) | (397 | ) | 0 | ||||||||||
Collection of mortgage loans receivable | 40 | 160 | 37 | 40 | ||||||||||||
Proceeds from sale of operating properties | 13,264 | 72,069 | ||||||||||||||
Proceeds from sale of properties | 22,181 | 13,264 | ||||||||||||||
Proceeds from insurance casualty claims | 2,450 | 1,000 | 0 | 2,450 | ||||||||||||
Net cash flow used for investing activities | (66,553 | ) | (15,542 | ) | (83,924 | ) | (66,553 | ) | ||||||||
Cash flow from financing activities: | ||||||||||||||||
Principal payments on debt, excluding normal amortization of rental property debt | (75,681 | ) | (3,224 | ) | (12,272 | ) | (75,681 | ) | ||||||||
Principal payments on rental property debt | (2,742 | ) | (3,137 | ) | (2,661 | ) | (2,742 | ) | ||||||||
Proceeds from construction loan financing | - | 3,300 | ||||||||||||||
Proceeds under the unsecured revolving credit facility, net | 475,000 | - | ||||||||||||||
Proceeds from the unsecured revolving credit facility, net | 0 | 475,000 | ||||||||||||||
Financing origination costs | (5,145 | ) | (3 | ) | 0 | (5,145 | ) | |||||||||
Payment of early extinguishment of debt charges | - | (771 | ) | |||||||||||||
Redemption/distribution of noncontrolling interests | (20,926 | ) | (773 | ) | (539 | ) | (20,926 | ) | ||||||||
Dividends paid | (127,255 | ) | (132,521 | ) | (80,039 | ) | (127,255 | ) | ||||||||
Proceeds from issuance of stock, net | 981 | 681 | 160 | 981 | ||||||||||||
Change in other financing liabilities | (5,079 | ) | (3,176 | ) | ||||||||||||
Net cash flow provided by/(used for) financing activities | 239,153 | (139,624 | ) | |||||||||||||
| Shares repurchased for employee tax withholding on equity awards | (9,082 | ) | (5,149 | ) | ||||||||||||
Change in tenants' security deposits | 650 | 70 | ||||||||||||||
Net cash flow (used for)/provided by financing activities | (103,783 | ) | 239,153 | |||||||||||||
Net change in cash and cash equivalents | 327,849 | 92 | (39,336 | ) | 327,849 | |||||||||||
Cash and cash equivalents, beginning of the period | 123,947 | 143,581 | 293,188 | 123,947 | ||||||||||||
Cash and cash equivalents, end of the period | $ | 451,796 | $ | 143,673 | $ | 253,852 | $ | 451,796 | ||||||||
Interest paid during the period including payment of early extinguishment of debt charges of $0 and $771, respectively (net of capitalized interest of $4,364 and $3,137 respectively) | $ | 25,383 | $ | 27,026 | ||||||||||||
Interest paid during the period (net of capitalized interest of $296 and $4,364, respectively) | $ | 29,383 | $ | 25,383 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Organization
Kimco Realty Corporation, a Maryland corporation, is one of North America’s largest publicly traded owners and operators of open-air, grocery-anchored shopping centers and mixed-use properties.assets. The terms “Kimco,” the “Company,” “we,” “our” and “us” each referrefers to Kimco Realty Corporation and our subsidiaries, unless the context indicates otherwise. The Company, its 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.
The Company’s response to the COVID-19 pandemic -Pandemic –
In March 2020, The coronavirus disease 2019 (“COVID-19”) was recognized as a pandemic by the World Health Organization (WHO). Shortly thereafter, the President of the United States declared a national emergency throughout the United States. The COVID-19pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant volatility in U.S. and international debt and equity markets. Thecontinues to impact of COVID-19 on the retail real estate industry for both landlords and tenants has been wide ranging, including, buttenants. The extent to which the COVID-19 pandemic impacts the Company’s financial condition, results of operations and cash flows, in the near term, will continue to depend on future developments, which are highly uncertain and cannot be predicted at this time. The Company’s business, operations and financial results will depend on numerous evolving factors that the Company is not limitedable to predict at this time, including the temporary closuresduration and scope of many businesses, "shelter in place" orders, social distancing guidelines and otherthe pandemic, governmental, business and individual actions that have been and continue to be, taken in response to the COVID-19 pandemic. There has also been reduced consumer spending duepandemic, the distribution and effectiveness of vaccines, the impact on economic activity from the pandemic and actions taken in response, the effect on the Company’s tenants and their businesses, the ability of tenants to job losses, government restrictionsmake their rental payments, additional closures of tenants’ businesses and the impact of opening and reclosing of communities in response to COVID-19 and other effects attributable tothe resurgence of COVID-19.
The COVID-19 pandemic, while still unfolding, has significantly impacted eachAny of these events could materially adversely impact the Company’s stakeholders. The Company is awarebusiness, financial condition, results of the critical role its shopping centers play in the communities they serve, often providing access to essential goods and services such as groceries, drug stores, and medical care. With very few exceptions, the Company’s shopping centers generally remain open to continue to provide access to these essential goods and services, and the Company has taken steps to protect the shoppers and tenants at its sites, following the guidance of the Centers for Disease Control and Prevention (CDC) and the WHO.
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, a substantial tax and spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic. The Company continues to monitor the impact of the COVID-19 pandemic closely, as well as any effects that may result from the CARES Act.
As of March 31, 2020, the Company has not incurred any significant disruptions to its business activities. Management cannot, at this point, estimate ultimate losses related to the COVID-19 pandemic, and accordingly no impairment charges were reflected in the Company’s Condensed Consolidated Statements of Income related to this matter.operations or stock price. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess its asset portfolio for any impairment indicators. In addition, the extent to which the COVID-19 pandemic impacts the Company’s financial condition, results of operations and cash flows, in the near term, will depend on future developments, which are highly uncertain and cannot be predicted at this time. The Company will continue to monitor for any material or adverse effects resulting from the COVID-19 pandemic. See Footnote If the Company has determined that any of its assets are impaired, the Company would be required to take impairment charges, and such amounts could be material.
Since the outbreak of the COVID-1619 to the Notes topandemic, the Company’s Condensed Consolidated Financial Statements for additional discussion.
The health and safety of the Company’s employees andtenants had or continue to have temporarily or permanently closed their families is a top priority.businesses. Others had, or continue to have, shortened their operating hours or offered reduced services. The Company has, takenand continues to have, worked with tenants to grant rent deferrals or forgiveness of rent on a tenant-by-tenant basis. The development and distribution of COVID vaccines throughout the necessary stepscountry have assisted in allowing many restrictions to protect its employeesbe lifted, providing a path to recovery. There have been additional improvements to the real estate industry as the pandemic continues to redefine the needs of consumers across the country. There has been an increase in demand for warehouse space to satisfy fulfilment and to empower them to work from homedistribution needs as well as certain retail spaces, which provide essential goods such as grocers and care for their family members and children whose lives have also been impacted.pharmacies.
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The Company will continuecontinues to evaluate individual situations as they arisesee an increase in collections of rental payments, however, the effects COVID-19 has had on its tenants is still heavily considered when evaluating the adequacy of the collectability of the lessee’s total accounts receivable balance, including the corresponding straight-line rent receivable. Management’s estimate of the collectability of accrued rents and adjust its approach as appropriate, withaccounts receivable is based on the goalbest information available to enable its employees to be as productive as possible while offering themmanagement at the flexibility they need to care for themselves and their families.time of evaluation.
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, 20192020 (the “10-K”), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020,2021 that would duplicate those included in the 10-K are not included in these Condensed Consolidated Financial Statements.
Reclassifications -
Certain amounts in the prior period have been reclassified in order to conform to the current period’s presentation. For comparative purposes, the Company reclassified $4.7 million of loss on marketable securities, net from Other income, net to Gain/(loss) on marketable securities, net on the Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 2020. On the Company’s Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020, the Company reclassified (i) $5.1 million of Cash flows used for Change in other financing liabilities to Cash flows used for Shares repurchased for employee tax withholdings on equity awards of $5.1 million and Cash flows provided by Change in tenant’s security deposits of $0.1 million and (ii) $4.7 million in Change in other operating assets and liabilities to (Gain)/loss on marketable securities, net, for comparative purposes.
Subsequent Events -
The Company has evaluated subsequent events and transactions for potential recognition or disclosure in its condensed consolidated financial statements (See FootnotesCondensed Consolidated Financial Statements (see Footnote 817 and 16 to the Notes toof the Company’s Condensed Consolidated Financial Statements).
New Accounting Pronouncements –
In April 2020, the FASB staff developed a question-and-answer document, Topic 842 and Topic 840: Accounting for Lease Concessions related to the Effects of the COVID-19 Pandemic, which focuses on the application of the lease guidance in Topic 842, Leases, and Topic 840, Leases (if Topic 842 has not yet been adopted) for lease concessions related to the effects of the COVID-19 pandemic. The FASB staff has been made aware that, given the unprecedented and global nature of the COVID-19 pandemic, it may be exceedingly challenging for entities to determine whether existing contracts provide enforceable rights and obligations for lease concessions and, if so, whether those concessions are consistent with the terms of the contract or are modifications to a contract. As such, an entity can elect not to evaluate whether certain relief provided by a lessor in response to the COVID-19 pandemic is a lease modification. An entity that makes this election can then elect to apply the modification guidance to that relief or account for the concession as if it were contemplated as part of the existing contract. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.
Some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. A deferral affects the timing of cash receipts, but the amount of the consideration is substantially the same as that required by the original contract. The FASB staff expects that there will be multiple ways to account for those deferrals, none of which the FASB staff believes are preferable to the others. Two of those methods are:
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As of March 31, 2020, the Company did not provide and/or enter into lease concessions related to the COVID-19 pandemic as a lessor or lessee related to rental income/expense recognized during the three months ended March 31, 2020. The Company is currently assessing and continuing to evaluate the impact of this lease guidance for any lease concessions related to the effects of the COVID-19 pandemic on the Company’s financial position and/or results of operations subsequent to March 31, 2020.
The following table represents ASUsASU to the FASB’s ASC that,have been adopted by the Company as of March 31, 2020, are not yet effective for the Company and for which the Company has not elected early adoption, where permitted:date listed:
ASU | Description |
Date | Effect on the financial statements or other significant matters | ||||||||
ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) | The amendments clarify the interaction between the accounting for equity securities, equity method investments, and certain derivative instruments. This ASU, among other things, clarifies that an entity should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323 for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. | January 1, |
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3. Real Estate
Acquisitions of Operating Properties -
During the three months ended March 31, 2020,2021, the Company acquired the following operating property,properties, through a direct asset purchasepurchases (in thousands):
Purchase Price | Purchase Price | |||||||||||||||||||||||||||
Property Name | Location | Month Acquired | Cash | GLA* | Location | Month Acquired | Cash | Other Consideration** | Total | GLA* | ||||||||||||||||||
North Valley Parcel | Peoria, AZ | Feb-20 | $ | 7,073 | 9 | |||||||||||||||||||||||
Distribution Center #1 | Lancaster, CA | Jan-21 | $ | 58,723 | $ | 11,277 | $ | 70,000 | 927 | |||||||||||||||||||
Distribution Center #2 | Woodland, CA | Jan-21 | 27,589 | 6,411 | 34,000 | 508 | ||||||||||||||||||||||
| $ | 86,312 | $ | 17,688 | $ | 104,000 | 1,435 | ||||||||||||||||||||||
* Gross leasable area ("GLA")
** Consists of the fair value of the assets acquired which exceeded the purchase price upon closing. The transaction was a sale-leaseback with the seller which resulted in the recognition of a prepayment of rent of $17.7 million in accordance with ASC 842,Leases at closing. The prepayment of rent will be amortized over the initial term of the lease through Revenues from rental properties, net on the Company's Condensed Consolidated Statements of Income. See Footnote 10 of the Company’s Condensed Consolidated Financial Statements for additional discussion regarding fair value allocation of partnership interest for noncontrolling interests.
Included in the Company's Condensed Consolidated Statements of Income is $1.6 million in total revenues from the date of acquisition through March 31, 2021 for operating properties acquired during the year.
Purchase Price Allocation -
The purchase price for this acquisitionthese acquisitions is allocated to real estate and related intangible assets acquired, as applicable, in accordance with our accounting policies for asset acquisitions. The purchase price allocation for the propertyproperties acquired during the three months ended March 31, 2020,2021, is as follows (in thousands):
Allocation as of March 31, 2020 | Weighted-Average | ||||||
Land | $ | 935 | n/a | ||||
Buildings | 4,610 | 50.0 | |||||
Building improvements | 221 | 45.0 | |||||
Tenant improvements | 382 | 19.4 | |||||
In-place leases | 925 | 19.4 | |||||
Net assets acquired | $ | 7,073 | |||||
Real Estate Under Development –
Allocation as of March 31, 2021 | Weighted Average | |||||||
Land | $ | 19,527 | n/a | |||||
Building | 87,691 | 50.0 | ||||||
Building improvements | 6,251 | 45.0 | ||||||
Tenant improvements | 711 | 20.0 | ||||||
In-place leases | 11,120 | 20.0 | ||||||
Below-market leases | (21,300 | ) | 60.0 | |||||
Net assets acquired | $ | 104,000 | ||||||
The Company is engaged in a real estate development project located in Dania Beach, FL for long-term investment. Construction is currently planned to continue on this real estate development project during the COVID-
Dispositions -
The table below summarizes the Company’s disposition activity relating to consolidated operating properties and parcels (dollars in millions):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Aggregate sales price | $ | 13.5 | $ | 74.2 | $ | 23.0 | $ | 13.5 | ||||||||
Gain on sale of properties | $ | 3.8 | $ | 23.6 | $ | 10.0 | $ | 3.8 | ||||||||
Number of properties sold | 1 | 5 | 1 | 1 | ||||||||||||
Number of out-parcels sold | - | 2 | ||||||||||||||
Number of parcels sold | 4 | 0 | ||||||||||||||
Impairments-
| (1) | Before noncontrolling interests of $3.0 million and taxes of $1.0 million for the three months ended March 31, 2021. |
During the three months ended March 31, 2020 and 2019, the Company recognized aggregate impairment charges of $3.0 million and $4.2 million, respectively, related to adjustments to property carrying values for properties which the Company has marketed for sale as part of its active capital recycling program and as such has adjusted the anticipated hold period for such properties. The Company’s estimated fair values of these properties were primarily based upon estimated sales prices from signed contracts or letters of intent from third party offers. See Footnote 11 to the Notes to the Company’s Condensed Consolidated Financial Statements for fair value disclosure.
The COVID-19 pandemic has significantly impacted the retail sector in which the Company operates and if the effects of the pandemic are prolonged, it could have a significant adverse impact to the underlying industries of many of the Company’s tenants. Management cannot, at this point, estimate ultimate losses related to the COVID-19 pandemic, and accordingly no impairment charges were reflected in the accompanying financial statements related to this matter. The Company will continue to monitor the economic, financial, and social conditions resulting from this pandemic and will assess its asset portfolio for any impairment indicators. If the Company has determined that any of its assets are impaired the Company would be required to take impairment charges and such amounts could be material.
4. Investments in and Advances to Real Estate Joint Ventures
The Company has investments in and advances to various real estate joint ventures. These joint ventures are engaged primarily in the operation of shopping centers which are either owned or held under long-term operating leases. The Company and the joint venture partners have joint approval rights for major decisions, including those regarding property operations. As such, the Company holds noncontrolling interests in these joint ventures and accounts for them under the equity method of accounting.
The table below presents joint venture investments for which the Company held an ownership interest at March 31, 20202021 and December 31, 20192020 (dollars in millions):
Ownership | The Company’s Investment | ||||||||||
Joint Venture | Interest | March 31, 2020 | December 31, 2019 | ||||||||
Prudential Investment Program (1) | 15.0% | $ | 169.6 | $ | 169.5 | ||||||
Kimco Income Opportunity Portfolio (“KIR”) (1) | 48.6% | 177.7 | 175.0 | ||||||||
Canada Pension Plan Investment Board (“CPP”) (1) | 55.0% | 156.6 | 151.7 | ||||||||
Other Joint Venture Programs | Various | 81.7 | 81.9 | ||||||||
Total* | $ | 585.6 | $ | 578.1 | |||||||
* Representing 98 property interests and 21.3 million square feet of GLA, as of both March 31, 2020 and December 31, 2019.
Ownership | The Company’s Investment | |||||||||||
Joint Venture | Interest | March 31, 2021 | December 31, 2020 | |||||||||
Prudential Investment Program (1) | 15.0% | $ | 175.7 | $ | 175.1 | |||||||
Kimco Income Opportunity Portfolio (“KIR”) (1) | 48.6% | 179.0 | 177.4 | |||||||||
Canada Pension Plan Investment Board (“CPP”) (1) | 55.0% | 161.7 | 159.7 | |||||||||
Other Joint Venture Programs |
| Various | 76.4 | 78.5 | ||||||||
Total* | $ | 592.8 | $ | 590.7 | ||||||||
* | Representing 95 property interests and 21.3 million square feet of GLA, as of March 31, 2021, and 97 property interests and 21.2 million square feet of GLA, as of December 31, 2020. |
(1) | 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. |
The table below presents the Company’s share of net income for the above investments which is included in Equity in income of joint ventures, net on the Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 20202021 and 20192020 (in millions):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
Joint Venture | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Prudential Investment Program | $ | 2.6 | $ | 2.9 | $ | 2.6 | $ | 2.6 | ||||||||
KIR | 9.8 | 14.5 | 8.7 | 9.8 | ||||||||||||
CPP | 1.0 | 1.4 | 2.1 | 1.0 | ||||||||||||
Other Joint Venture Programs | 0.2 | - | 4.4 | 0.2 | ||||||||||||
Total | $ | 13.6 | $ | 18.8 | $ | 17.8 | $ | 13.6 | ||||||||
During the three months ended March 31, 2019,2021, certain of the Company’s real estate joint ventures disposed of four operating2 properties, in separate transactions, for an aggregate sales price of $54.5$53.7 million. These transactions resulted in an aggregate net gain to the Company of $3.4$4.2 million for the three months ended March 31, 2019.2021.
The table below presents debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at March 31, 20202021 and December 31, 20192020 (dollars in millions):
As of March 31, 2020 | As of December 31, 2019 | As of March 31, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Joint Venture | Mortgages and Notes Payable, Net | Weighted Average Interest Rate | Weighted Average Remaining Term (months)* | Mortgages and Notes Payable, Net | Weighted Average Interest Rate | Weighted Average Remaining Term (months)* | Mortgages and Notes Payable, Net | Weighted Average Interest Rate | Weighted Average Remaining Term (months)* | Mortgages and Notes Payable, Net | Weighted Average Interest Rate | Weighted Average Remaining Term (months)* | ||||||||||||||||||||||||||||||||||||
Prudential Investment Program | $ | 537.0 | 2.91 | % | 43.8 | $ | 538.1 | 3.46 | % | 46.8 | $ | 494.6 | 2.03 | % | 34.2 | $ | 495.8 | 2.05 | % | 37.2 | ||||||||||||||||||||||||||||
KIR | 561.4 | 4.15 | % | 32.0 | 556.0 | 4.39 | % | 28.4 | 524.3 | 3.27 | % | 28.9 | 536.9 | 3.87 | % | 25.3 | ||||||||||||||||||||||||||||||||
CPP | 84.9 | 3.25 | % | 39.0 | 84.8 | 3.25 | % | 42.0 | 85.0 | 3.25 | % | 27.0 | 84.9 | 3.25 | % | 30.0 | ||||||||||||||||||||||||||||||||
Other Joint Venture Programs | 414.4 | 3.62 | % | 78.5 | 415.2 | 3.87 | % | 80.9 | 382.7 | 3.59 | % | 89.8 | 423.4 | 3.41 | % | 86.7 | ||||||||||||||||||||||||||||||||
Total | $ | 1,597.7 | $ | 1,594.1 | $ | 1,486.6 | $ | 1,541.0 | ||||||||||||||||||||||||||||||||||||||||
* Includes extension options
The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess its joint venture portfolio for any impairment indicators. If the Company has determined that any of its assets are impaired, the Company would be required to take impairment charges, and such amounts could be material.
5. Other Real Estate Investments
The Company has provided capital to owners and developers of real estate properties and loans through its Preferred Equity Program. The Company’s maximum exposure to losses associated with its preferred equity investments is primarily limited to its net investment. As of March 31, 2020,2021, the Company’s net investment under the Preferred Equity Program was $159.6$99.4 million relating to 205111 properties, including 195101 net leased properties. During the three months ended March 31, 2021, the Company recognized income of $3.2 million from its preferred equity investments. During the three months ended March 31, 2020, the Company recognized income of $11.1 million from its preferred equity investments, including profit participation of $6.3 million. During the three months ended March 31, 2019, the Company recognized income of $6.5 million from its preferred equity investments, including profit participation of $1.0 million. These amounts are included in Equity in income of other real estate investments, net on the Company’s Condensed Consolidated Statements of Income.
6. Marketable Securities
The amortized cost and unrealized gains, net of marketable securities as of March 31, 2021 and December 31, 2020, are as follows (in thousands):
As of March 31, 2021 | As of December 31, 2020 | |||||||
Marketable securities: | ||||||||
Amortized cost | $ | 114,480 | $ | 114,531 | ||||
Unrealized gains, net | 653,509 | 592,423 | ||||||
Total fair value | $ | 767,989 | $ | 706,954 | ||||
During the three months ended March 31, 2021 and 2020, there were net unrealized gains on marketable securities of $61.1 million and net unrealized losses on marketable securities of $4.7 million, respectively. These net unrealized gains and losses are included in Gain/(loss) on marketable securities, net on the Company’s Condensed Consolidated Statements of Income. See Footnote 12 of the Company’s Condensed Consolidated Financial Statements for fair value disclosure.
7.Accounts and Notes Receivable
The components of accounts and notes receivable, net of potentially uncollectible amounts as of March 31, 2021 and December 31, 2020, are as follows (in thousands):
| March 31, 2021 | December 31, 2020 | |||||
| Billed tenant receivables | $ | 24,219 | $ | 25,428 | ||
| Unbilled CAM, insurance and tax reimbursements | 25,052 | 35,982 | ||||
| Deferred rent receivables | 9,995 | 17,328 | ||||
| Other receivables | 5,120 | 4,880 | ||||
| Straight-line rent receivables | 136,269 | 135,630 | ||||
| Total accounts and notes receivable, net | $ | 200,655 | $ | 219,248 | ||
8.Leases
Lessor Leases
The Company'sCompany’s primary source of revenues areis derived from lease agreements, which includes rental income and expense reimbursement. The Company'sCompany’s lease income is comprised of minimum base rent, expense reimbursements, percentage rent, lease termination fee income, ancillary income, amortization of above-market and below-market rent adjustments and straight-line rent adjustments.
The disaggregation of the Company'sCompany’s lease income, which is included in RevenueRevenues from rental properties on the Company'sCompany’s Condensed Consolidated Statements of Income, as either fixed or variable lease income based on the criteria specified in ASC 842, for the three months ended March 31, 20202021 and 2019,2020, is as follows (in thousands):
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Lease income: | ||||||||
Fixed lease income (1) | $ | 217,155 | $ | 214,804 | ||||
| Variable lease income (2) | 58,907 | 66,516 | ||||||
Above-market and below-market leases amortization, net | 9,942 | 9,314 | ||||||
Total lease cost | $ | 286,004 | $ | 290,634 | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Lease income: | ||||||||
Fixed lease income (1) | $ | 212,393 | $ | 218,873 | ||||
Variable lease income (2) | 60,776 | 57,189 | ||||||
Above-market and below-market leases amortization, net | 5,702 | 9,942 | ||||||
Total lease income | $ | 278,871 | $ | 286,004 | ||||
(1) | Includes minimum base rents, expense reimbursements, ancillary income and straight-line rent adjustments. |
(2) | Includes minimum base rents, expense reimbursements, percentage rent, lease termination fee income and ancillary income. |
Lessee Leases
The Company currently leases real estate space under noncancelablenon-cancelable operating lease agreements for ground leases and administrative office leases. The Company’s leases have remaining lease terms ranging from less than one year to 51.964.8 years, some of which include options to extend the terms for up to an additional 75 years. The Company does not include any of its renewal options in its lease terms for calculating its lease liability as the renewal options allow the Company to maintain operational flexibility and the Company is not reasonably certain it will exercise these renewal options at this time. The weighted-averageAt March 31, 2021, the weighted average remaining non-cancelable lease term for the Company’s operating leases was 21.020.5 years at March 31, 2020. The weighted-averageand the weighted average discount rate was 6.65% at March 31, 2020. 6.54%. The Company’s operating lease liabilities are determined based on the estimated present value of the Company’s minimum lease payments under its lease agreements. The discount rate used to determine the lease liabilities is based on the estimated incremental borrowing rate on a lease by lease basis. When calculating the incremental borrowing rates, the Company utilized data from (i) its recent debt issuances, (ii) publicly available data for instruments with similar characteristics, (iii) observable mortgage rates and (iv) unlevered property yields and discount rates. The Company then applied adjustments to account for considerations related to term and security that may not be fully incorporated by the data sets.
The components of the Company’s lease expense, which are included in rent expense and general and administrative expense on the Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 20202021 and 2019,2020, were as follows (in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Lease cost: | ||||||||||||||||
Operating lease cost | $ | 2,598 | $ | 3,328 | $ | 2,830 | $ | 2,598 | ||||||||
Variable lease cost | 727 | 269 | 683 | 727 | ||||||||||||
Total lease cost | $ | 3,325 | $ | 3,597 | $ | 3,513 | $ | 3,325 | ||||||||
7.Other Assets
Mortgages and Other Financing Receivables -
The Company has various mortgages and other financing receivables which consist of loans acquired and loans originated by the Company. The Company reviews payment status to identify performing versus non-performing loans. As of March 31, 2020, the Company had a total of seven loans aggregating $7.8 million, all of which were identified as performing loans.
Assets Held-For-Sale -
At March 31, 2020, the Company had a property classified as held-for-sale at a net carrying amount of $1.3 million (including accumulated depreciation and amortization of $1.1 million). The Company’s determination of the fair value of the property was based upon an executed contract of sale with a third party, which is in excess of the book value of this property.
8.9. Notes Mortgages and Construction LoanMortgages Payable
Notes Payable –
In February 2020, the Company closed onobtained a new $2.0 billion unsecured revolving credit facility (the “Credit Facility”) with a group of banks, which replaced the Company’s existing $2.25 billion unsecured revolving credit facility.banks. The Credit Facility is scheduled to expire in March 2024, with two additional six-month options to extend the maturity date, at the Company’s discretion, to March 2025. The Credit Facility is a green credit facility tied to sustainability metric targets, as described in the agreement. The Company achieved such targets, which effectively reduced the rate on the Credit Facility by one basis point. The Credit Facility, which accrues interest at a rate of LIBOR plus 77.576.5 basis points (1.76%(0.88% as of March 31, 2020)2021), can be increased to $2.75 billion through an accordion feature. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum indebtedness ratios and (ii) minimum interest and fixed charge coverage ratios. As of March 31, 2020,2021, the Credit Facility had an0 outstanding balance, of $675.0 million and $0.3$0.3 million appropriated for letters of credit and the Company was in compliance with its covenants.
On April 1, 2020, the Company entered into a new $375.0 million unsecured term loan credit facility pursuant to a credit agreement (the “Term Loan”), with a group of banks, which is scheduled to expire in April 2021, with a one-year extension option to extend the maturity date, at the Company’s discretion, to April 2022. The Term Loan accrues interest at a rate of LIBOR plus 140 basis points or, at the Company’s option, a spread of 40 basis points to the base rate defined in the Term Loan, that in each case fluctuates in accordance with changes in the Company’s senior debt ratings. The Term Loan can be increased by an additional $750.0 million through an accordion feature. Pursuant to the terms of the Term Loan, the Company is subject to covenants that are substantially the same as those in the Credit Facility. During April 2020, borrowings under the Term Loan were increased to $590.0 million through the accordion feature.
Mortgages and Construction LoanMortgages Payable -
In August 2018, the Company closed on a construction loan commitment of $67.0 million relating to one development property. This loan commitment was scheduled to mature in August 2020, with six additional six-month options to extend the maturity date to August 2023, and bore interest at a rate of LIBOR plus 180 basis points. During the three months ended March 31, 2020, this construction loan was fully repaid.
During the three months ended March 31, 2020,2021, the Company repaid $8.8$12.3 million of mortgage debt (including fair market value adjustment of $0.1 million) that encumbered an operating property.
9.10. Noncontrolling Interests
Noncontrolling interests represent the portion of equity that the Company does not own in entities it consolidates as a result of having a controlling interest or determining that the Company was the primary beneficiary of a VIE in accordance with the provisions of the FASB’s Consolidation guidance. The Company accounts and reports for noncontrolling interests in accordance with the Consolidation guidance and the Distinguishing Liabilities from Equity guidance issued by the FASB. The Company identifies its noncontrolling interests separately within the equity section on the Company’s Condensed Consolidated Balance Sheets. The amounts of consolidated net income attributable to the Company and to the noncontrolling interests are presented separately on the Company’s Condensed Consolidated Statements of Income.
During the three months ended March 31, 2020, the Company acquired its partner’s interests in a consolidated entity for a purchase price of $20.0 million. This transaction resulted in a net decrease in Noncontrolling interests of $0.5 million and a corresponding net increase in Paid-in capital of $19.5 million on the Company’s Condensed Consolidated Balance Sheets. There are no remaining partners in this consolidated entity.
Included within noncontrolling interests are units that were determined to be contingently redeemable that are classified as Redeemable noncontrolling interests and presented in the mezzanine section between Total liabilities and Stockholder’s equity on the Company’s Condensed Consolidated Balance Sheets.
The following table presents the change in the redemption value of the Redeemable noncontrolling interests for the three months ended March 31, 20202021 and 20192020 (in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Balance at January 1, | $ | 17,943 | $ | 23,682 | $ | 15,784 | $ | 17,943 | ||||||||
Fair value allocation to partnership interest (1) | 2,068 | 0 | ||||||||||||||
Income | 262 | 92 | 169 | 262 | ||||||||||||
Distributions | (262 | ) | (90 | ) | (169 | ) | (262 | ) | ||||||||
Balance at March 31, | $ | 17,943 | $ | 22,684 | $ | 17,852 | $ | 17,943 | ||||||||
(1) | During January 2021, KIM RDC, LLC (“KIM RDC”), a wholly owned subsidiary of the Company, and KP Lancewood LLC (“KPR Member”) entered into a joint venture agreement wherein KIM RDC has a 100% controlling interest and KPR Member is entitled to a profit participation. The joint venture acquired 2 operating properties for a gross fair value of $104.0 million (see Footnote 3 of the Company’s Condensed Consolidated Financial Statements). This joint venture is accounted for as a consolidated VIE (see Footnote 11 of the Company’s Condensed Consolidated Financial Statements). |
10.11. Variable Interest Entities (“VIE”)
Included within the Company’s consolidated operating properties at both March 31, 20202021 and December 31, 2019,2020, are 23 and 22 consolidated entities, respectively, that are VIEs, for which the Company is the primary beneficiary. These entities have been established to own and operate real estate property. The Company’s involvement with these entities is through its majority ownership and management of the properties. The entities were deemed VIEs primarily because the unrelated investors do not have substantive kick-out rights to remove the general or managing partner by a vote of a simple majority or less, and they do not have substantive participating rights. The Company determined that it was the primary beneficiary of these VIEs as a result of its controlling financial interest. At March 31, 2021, total assets of these VIEs were $1.1 billion and total liabilities were $96.7 million. At December 31, 2020, total assets of these VIEs were $1.0 billion and total liabilities were $65.5 million. At December 31, 2019, total assets of these VIEs were $0.9 billion and total liabilities were $70.9$62.1 million.
The majority of the operations of these VIEs are funded with cash flows generated from the properties. The Company has not provided financial support to any of these VIEs that it was not previously contractually required to provide, which consists primarily of funding any capital expenditures, including tenant improvements, which are deemed necessary to continue to operate the entity and any operating cash shortfalls that the entity may experience.
Additionally, included within the Company’s real estate development projects at December 31, 2019, is one consolidated entity that was a VIE, for which the Company was the primary beneficiary. This entity had been established to develop a real estate property to hold as a long-term investment. The Company’s involvement with this entity is through its majority ownership and management of the property. This entity was deemed a VIE primarily because the equity investments at risk were not sufficient to permit the entity to finance its activities without additional financial support. The initial equity contributed to this entity was not sufficient to fully finance the real estate construction as development costs are funded by the partners throughout the construction period. The Company determined that it was the primary beneficiary of this VIE as a result of its controlling financial interest. At December 31, 2019, total assets of this real estate development VIE were $346.9 million and total liabilities were $82.5 million. During the three months ended March 31, 2020 the Company purchased the partner’s noncontrolling interest and maintains full ownership of the entity. As a result, the entity is no longer a VIE.
All liabilities of these consolidated VIEs are non-recourse to the Company (“VIE Liabilities”). The assets of the unencumbered VIEs are not restricted for use to settle only the obligations of these VIEs. The remaining VIE assets are encumbered by third party non-recourse mortgage debt and a construction loan.debt. The assets associated with these encumbered VIEs (“Restricted Assets”) are collateral under the respective mortgages and a construction loan and are therefore restricted and can only be used to settle the corresponding liabilities of the VIE. The table below summarizes the consolidated VIEs and the classification of the Restricted Assets and VIE Liabilities on the Company’s Condensed Consolidated Balance Sheets as follows (dollars in millions):
As of March 31, 2020 | As of December 31, 2019 | As of March 31, 2021 | As of December 31, 2020 | |||||||||||||
Number of unencumbered VIEs | 19 | 19 | 20 | 19 | ||||||||||||
Number of encumbered VIEs | 3 | 4 | 3 | 3 | ||||||||||||
Total number of consolidated VIEs | 22 | 23 | 23 | 22 | ||||||||||||
Restricted Assets: | ||||||||||||||||
Real estate, net | $ | 99.1 | $ | 228.9 | $ | 97.1 | $ | 97.7 | ||||||||
Cash and cash equivalents | 1.6 | 9.2 | 1.6 | 1.8 | ||||||||||||
Accounts and notes receivable, net | 2.0 | 3.8 | 1.6 | 1.9 | ||||||||||||
Other assets | 1.5 | 3.6 | 1.6 | 1.1 | ||||||||||||
Total Restricted Assets | $ | 104.2 | $ | 245.5 | $ | 101.9 | $ | 102.5 | ||||||||
VIE Liabilities: | ||||||||||||||||
Mortgages and construction loan payable, net | $ | 37.6 | $ | 104.5 | ||||||||||||
Mortgages payable, net | $ | 36.2 | $ | 36.5 | ||||||||||||
Operating lease liabilities | 5.5 | 5.5 | ||||||||||||||
Other liabilities | 27.9 | 48.9 | 55.0 | 20.1 | ||||||||||||
Total VIE Liabilities | $ | 65.5 | $ | 153.4 | $ | 96.7 | $ | 62.1 | ||||||||
11.12. Fair Value Measurements
All financial instruments of the Company are reflected in the accompanying Condensed Consolidated Balance Sheets at amounts which, in management’s estimation, based upon an interpretation of available market information and valuation methodologies, reasonably approximate their fair values except those listed below, for which fair values are disclosed. The valuation method used to estimate fair value for fixed-rate and variable-rate debt is based on discounted cash flow analyses, with assumptions that include credit spreads, market yield curves, trading activity, loan amounts and debt maturities. The fair values for marketable securities are based on published values, securities dealers’ estimated market values or comparable market sales. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition.
As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value Measurements and Disclosures guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
The following are financial instruments for which the Company’s estimated fair value differs from the carrying value (in thousands):
March 31, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||||
Notes payable, net (1) | $ | 5,303,656 | $ | 5,041,889 | $ | 4,831,759 | $ | 4,983,763 | $ | 5,045,868 | $ | 5,306,905 | $ | 5,044,208 | $ | 5,486,953 | ||||||||||||||||
Mortgages and construction loan payable, net (2) | $ | 404,879 | $ | 405,562 | $ | 484,008 | $ | 486,042 | ||||||||||||||||||||||||
Mortgages payable, net (2) | $ | 295,613 | $ | 297,860 | $ | 311,272 | $ | 312,933 | ||||||||||||||||||||||||
(1) | The 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 March 31, |
(2) | The Company determined that its valuation of its mortgages |
The Company has certain financial instruments that must be measured under the FASB’s Fair Value Measurements and Disclosures guidance, including available for sale securities. The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.
The tables below present the Company’s financial assets measured at fair value on a recurring basis at March 31, 20202021 and December 31, 2019,2020, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
Balance at March 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Marketable equity securities | $ | 4,524 | $ | 4,524 | $ | - | $ | - | ||||||||
Balance at March 31, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||
Marketable equity securities | $ | 767,989 | $ | 767,989 | $ | 0 | $ | 0 | ||||||||
Balance at December 31, 2019 | Level 1 | Level 2 | Level 3 | |||||||||||||
Marketable equity securities | $ | 9,353 | $ | 9,353 | $ | - | $ | - | ||||||||
Balance at December 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Marketable equity securities | $ | 706,954 | $ | 706,954 | $ | 0 | $ | 0 | ||||||||
Assets measured at fair value on a non-recurring basis at MarchDecember 31, 2020and December 31, 2019, are as follows (in thousands):
Balance at March 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Real estate | $ | 5,300 | $ | - | $ | - | $ | 5,300 | ||||||||
Balance at December 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Real estate | $ | 24,899 | $ | 0 | $ | 0 | $ | 24,899 | ||||||||
Other real estate investments | $ | 5,464 | $ | 0 | $ | 0 | $ | 5,464 | ||||||||
Balance at December 31, 2019 | Level 1 | Level 2 | Level 3 | |||||||||||||
Real estate | $ | 39,510 | $ | - | $ | - | $ | 39,510 | ||||||||
Other real estate investments | $ | 32,974 | $ | - | $ | - | $ | 62,429 | ||||||||
During the
The Company’s estimated fair values of these properties were primarily based upon estimated sales prices, which were less than the carrying value of the assets, from signed contracts or letters of intent from third party offers. The Company does not have access to the unobservable inputs used to determine the estimated fair values of third party offers. Based on these inputs, the Company determined that its valuation of these investments was classified within Level 3 of the fair value hierarchy. (See Footnote 3 to the Notes to the Company’s Condensed Consolidated Financial Statements for additional discussion regarding impairment charges).
12.13. Incentive Plans
In May 2020, the Company’s stockholders approved the 2020 Equity Participation Plan (the “2020 Plan”), which is a successor to the Restated Kimco Realty Corporation 2010 Equity Participation Plan that expired in March 2020. The 2020 Plan provides for a maximum of 10,000,000 shares of the Company’s common stock to be reserved for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, stock payments and deferred stock awards. At March 31, 2021, the Company had 8.5 million shares of common stock available for issuance under the 2020 Plan.
The Company accounts for equity awards in accordance with FASB’s Compensation – Stock Compensation guidance which requires that all share-based payments to employees, including grants of employee stock options, restricted stock and performance shares, be recognized in the Condensed Consolidated Statements of Income over the service period based on their fair values. Fair value isof performance awards are determined depending on the type of award, using either the Black-Scholes option pricing formula or the Monte Carlo method for performance shares, both of which areis intended to estimate the fair value of the awards at the grant date. Fair value of restricted shares is calculated based on the price on the date of grant.
The Company recognized expenses associated with its equity awards of $5.9$6.5 million and $5.5$5.9 million for the three months ended March 31, 20202021 and 2019,2020, respectively. As of March 31, 2020,2021, the Company had $52.0$53.9 million of total unrecognized compensation cost related to unvested stock compensation granted under the Plans. That cost is expected to be recognized over a weighted average period of approximately 3.33.2 years.
13.14. 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 | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Computation of Basic and Diluted Earnings Per Share: | ||||||||||||||||
Net income available to the Company's common shareholders | $ | 83,746 | $ | 101,635 | $ | 131,588 | $ | 83,746 | ||||||||
Earnings attributable to participating securities | (686 | ) | (625 | ) | (792 | ) | (686 | ) | ||||||||
Net income available to the Company’s common shareholders for basic earnings per share | 83,060 | 101,010 | 130,796 | 83,060 | ||||||||||||
Distributions on convertible units | - | 25 | 9 | 0 | ||||||||||||
Net income available to the Company’s common shareholders for diluted earnings per share | $ | 83,060 | $ | 101,035 | $ | 130,805 | $ | 83,060 | ||||||||
Weighted average common shares outstanding – basic | 429,735 | 419,464 | 430,524 | 429,735 | ||||||||||||
Effect of dilutive securities (1): | ||||||||||||||||
Equity awards | 717 | 1,182 | 1,606 | 717 | ||||||||||||
Assumed conversion of convertible units | 53 | 117 | 134 | 53 | ||||||||||||
Weighted average common shares outstanding – diluted | 430,505 | 420,763 | 432,264 | 430,505 | ||||||||||||
Net income available to the Company's common shareholders: | ||||||||||||||||
Basic earnings per share | $ | 0.19 | $ | 0.24 | $ | 0.30 | $ | 0.19 | ||||||||
Diluted earnings per share | $ | 0.19 | $ | 0.24 | $ | 0.30 | $ | 0.19 | ||||||||
(1) | 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 |
The Company's unvested restricted share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings.
14.15. Stockholders’ Equity
Preferred Stock -
The Company’s outstanding Preferred Stock is detailed below:
As of March 31, 2020 and December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
As of March 31, 2021 and December 31, 2020 | As of March 31, 2021 and December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
Class of Preferred Stock | Shares Authorized | Shares Issued and Outstanding | Liquidation Preference (in thousands) | Dividend Rate | Annual Dividend per Depositary Share |
Par Value | Optional Redemption Date | Shares Authorized | Shares Issued and Outstanding | Liquidation Preference (in thousands) | Dividend Rate | Annual Dividend per Depositary Share | Par Value | Optional Redemption Date | ||||||||||||||||||||||||||||||||||||
Class L | 10,350 | 9,000 | $ | 225,000 | 5.125 | % | $ | 1.28125 | $ | 1.00 | 8/16/2022 | 10,350 | 9,000 | $ | 225,000 | 5.125 | % | $ | 1.28125 | $ | 1.00 | 8/16/2022 | ||||||||||||||||||||||||||||
Class M | 10,580 | 10,580 | 264,500 | 5.250 | % | $ | 1.31250 | $ | 1.00 | 12/20/2022 | 10,580 | 10,580 | 264,500 | 5.250 | % | $ | 1.31250 | $ | 1.00 | 12/20/2022 | ||||||||||||||||||||||||||||||
| 19,580 | $ | 489,500 | 19,580 | $ | 489,500 | |||||||||||||||||||||||||||||||||||||||||||||
Common Stock-
During February 2020, the Company extended its share repurchase program for a term of two years, which will expire in February 2022, pursuant to which the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the three months ended March 31, 2020.2021. As of March 31, 2020,2021, the Company had $224.9 million available under this share repurchase program.
During September 2019, the Company established an at the market continuous offering program (“ATM program”), pursuant to which the Company may offer and sell from time to time shares of its common stock, par value $0.01 per share, with an aggregate gross sales price of up to $500.0 million through a consortium of banks acting as sales agents. Sales of the shares of common stock may be made, as needed, from time to time in “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, including by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise (i) at market prices prevailing at the time of sale, (ii) at prices related to prevailing market prices or (iii) as otherwise agreed to with the applicable sales agent. The Company did not offer for sale any shares of common stock under the ATM program during the three months ended March 31, 2020.
Dividends Declared -
The following table provides a summary of the dividends declared per share:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Common Shares | $ | 0.28000 | $ | 0.28000 | ||||
Class I Depositary Shares (1) | $ | - | $ | 0.37500 | ||||
Class J Depositary Shares (1) | $ | - | $ | 0.34375 | ||||
Class K Depositary Shares (1) | $ | - | $ | 0.35156 | ||||
Class L Depositary Shares | $ | 0.32031 | $ | 0.32031 | ||||
Class M Depositary Shares | $ | 0.32813 | $ | 0.32813 | ||||
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Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Common Shares | $ | 0.17000 | $ | 0.28000 | ||||
Class L Depositary Shares | $ | 0.32031 | �� | $ | 0.32031 | |||
Class M Depositary Shares | $ | 0.32813 | $ | 0.32813 | ||||
15.16. Supplemental Schedule of Non-Cash Investing / Financing Activities
The following schedule summarizes the non-cash investing and financing activities of the Company for the three months ended March 31, 20202021 and 20192020 (in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Acquisition of real estate interests through proceeds held in escrow | $ | - | $ | 30,970 | ||||||||||||
Surrender of restricted common stock | $ | 5,159 | $ | 3,252 | $ | 9,092 | $ | 5,159 | ||||||||
Declaration of dividends paid in succeeding period | $ | 126,473 | $ | 130,444 | $ | 5,366 | $ | 126,473 | ||||||||
Capital expenditures accrual | $ | 47,533 | $ | 70,976 | $ | 36,062 | $ | 47,533 | ||||||||
Lease liabilities arising from obtaining right-of-use assets | $ | 553 | $ | 0 | ||||||||||||
| Allocation of fair value to noncontrollling interests | $ | 2,068 | $ | 0 | ||||||||||||
| Purchase price fair value adjustment to prepaid rent | $ | 15,620 | $ | 0 | ||||||||||||
17.Subsequent Events
Pending Merger with Weingarten Realty Investors
On April 15, 2021, the Company and Weingarten Realty Investors (“Weingarten”) announced that they have entered into a definitive merger agreement under which Weingarten will merge with and into the Company, with the Company continuing as the surviving public company. The parties currently expect the transaction to close during the second half of 2021, subject to customary closing conditions, including the approval of both the Company and Weingarten shareholders. This strategic transaction was unanimously approved by the Board of Directors of the Company and the Board of Trust Managers of Weingarten. Under the terms of the merger agreement, each Weingarten common share will be converted into 1.408 newly issued shares of the Company’s common stock plus $2.89 in cash. Based on the closing stock price for the Company on April 14, 2021, this represents a total consideration of approximately $30.32 per Weingarten share.
16.Subsequent Events
During and subsequent to the first quarter 2020, the world has been impacted by the COVID-19 pandemic. It has created significant economic uncertainty and volatility. The extent to which the COVID-19 pandemic impacts the Company’s business, operations and financial results will depend on numerous evolving factors that the Company is not be able to predict at this time, including the duration and scope of the pandemic, governmental, business and individual actions that have been and continue to be taken in response to the pandemic, the impact on economic activity from the pandemic and actions taken in response, the effect on the Company’s tenants and their businesses, the ability of tenants to make their rental payments and any additional closures of tenants’ businesses. Any of these events could materially adversely impact the Company’s business, financial condition, results of operations or stock price.
As of April 30, 2020, the Company’s shopping centers generally remain open, however, a substantial number of tenants have temporarily closed their businesses, have shortened their operating hours or are offering reduced services. The Company has also observed a substantial increase in the number of tenants that have made late or partial rent payments, requested a deferral of rent payments or defaulted on rent payments.
As a result of these requests and the current economic uncertainty, the Company has taken important steps to offer its support:
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In addition, on April 1, 2020, the Company entered into a new $375.0 million unsecured term loan credit facility, that was subsequently increased to $590.0 million through an accordion feature. See Footnote 8 to the Notes to the Company’s Condensed Consolidated Financial Statements for additional discussion regarding the Term Loan.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by Kimco Realty Corporation (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 includes this statement for purposes of complying with the 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,” “will,” “target,” “forecast” 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 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 adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (iv) the Company’s ability to raise capital by selling its assets, (v) changes in governmental laws and regulations and management’s ability to estimate the impact of such changes, (vi) the level and volatility of interest rates and management’s ability to estimate the impact thereof, (vii) pandemics or other health crises, such as coronavirus disease 2019 (“COVID-19”), (viii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (ix) risks and uncertainties associated with the Company’s and Weingarten Realty Investor’s (“Weingarten”), ability to complete the acquisition on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary shareholder approvals and satisfaction of other closing conditions to consummate the acquisition; (x) the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive transaction agreement relating to the proposed transaction, (xi) risks related to diverting the attention of the Company and Weingarten management from ongoing business operations; failure to realize the expected benefits of the acquisition, (xii) significant transaction costs and/or unknown or inestimable liabilities, (xiii) the risk of shareholder litigation in connection with the proposed transaction, including resulting expense or delay; the risk that Weingarten’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected, (xiv) the Company’s ability to obtain the expected financing to consummate the acquisition, (xv) risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company following completion of the acquisition, (xvi) effects relating to the announcement of the acquisition or any further announcements or the consummation of the acquisition on the market price of the Company’s common stock or Weingarten’s common shares, (xvii) the possibility that, if the Company does not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline, (xviii) valuation and risks related to the Company’s joint venture and preferred equity investments, (x)(xix) valuation of marketable securities and other investments, (xi)including the shares of Albertsons Companies, Inc. common stock held by the Company, (xx) increases in operating costs, (xii)(xxi) changes in the dividend policy for the Company’s common and preferred stock and the Company’s ability to pay dividends at current levels, (xiii)(xxii) the reduction in the Company’s income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xiv)(xxiii) impairment charges, (xv)(xxiv) unanticipated changes in the Company’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity and (xvi)(xxv) the risks and uncertainties identified under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year-ended December 31, 2019.2020. Accordingly, there is no assurance that the Company’s expectations will be realized. The Company disclaims any intention or obligation to update the forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to refer to any further disclosures the Company makes or related subjects in the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that the Company files with the Securities and Exchange Commission (“SEC”).
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.
Executive Overview
Kimco Realty Corporation, a Maryland corporation, is one of North America’s largest publicly traded owners and operators of open-air, grocery-anchored shopping centers and mixed-use assets.assets in the U.S. The terms “Kimco,” the “Company,” “we,” “our” and “us” each referrefers to Kimco Realty Corporation and our subsidiaries, unless the context indicates otherwise. The Company’s mission is to create destinations for everyday living that inspire a sense of community and deliver value to our many stakeholders.
The Company is a self-administered real estate investment trust (“REIT”) and has owned and operated open-air shopping centers for over 60 years. The Company has not engaged, nor does it expect to retain, any REIT advisors in connection with the operation of its properties. As of March 31, 2020,2021, the Company had interests in 401398 U.S. shopping center properties, aggregating 70.069.8 million square feet of gross leasable area (“GLA”), located in 27 states. In addition, the Company had 215122 other property interests, primarily through the Company’s preferred equity investments and other real estate investments, totaling 6.06.7 million square feet of GLA. The Company’s ownership interests in real estate consist of its consolidated portfolio and portfolios where the Company owns an economic interest, such as properties in the Company’s investment real estate management programs, where the Company partners with institutional investors and also retains management.
The Company’s operating strategies areprimary business objective is to (i) ownbe the premier owner and operate its shopping center properties at their highest potential through maximizing and maintaining rental income and occupancy levels, (ii) attract local area customers to itsoperators of open-air, grocery-anchored shopping centers which offer buy online and pick up in store, off-price merchandise and day-to-day necessities rather than high-priced luxury items, and (iii) maintain a strong balance sheet.
The Company’s investment strategy is to invest capital into its high-quality assets which are tightly clustered in major metropolitan markets that provide opportunity for growth while disposing of lesser qualitymixed-use assets in less desirable locations. Through this strategy, the Company has transformed its portfolio and will continue these efforts as deemed necessary to maximize the quality and growth of its portfolio. Property acquisitions are focused in major metropolitan areas allowing tenants to generate higher foot traffic resulting in higher sales volume accompanied with a potential for a mixed-use component.U.S. The Company believes thatit can achieve this will enable it to maintain higher occupancy levels, rental rates and rental growth.objective by:
● | increasing the value of its existing portfolio of properties and generating higher levels of portfolio growth; |
● | increasing cash flows for reinvestment and/or for distribution to shareholders; |
● | continuing growth in desirable demographic areas with successful retailers; and |
● | increasing capital appreciation. |
The Company’s investment strategy also includesCompany further concentrated its business objectives to three main areas:
● | Sustainable Growth – Delivering consistent growth from a portfolio of well-located, essential-anchored shopping centers and mixed-use assets. |
● | Financial Strength – Maintaining a strong balance sheet that will sustain dividend growth, with liquidity to be an opportunistic investor during periods of disruption. |
● | Opportunistic Investment – Generating additional internal and external growth through accretive acquisitions, redevelopments and investments opportunities with retailers who have significant real estate holdings. |
Pending Merger with Weingarten Realty Investors
On April 15, 2021, the Company and Weingarten Realty Investors (“Weingarten”) announced that they have entered into a definitive merger agreement (the "Merger Agreement") under which Weingarten will merge with and into the Company, with the Company continuing as the surviving public company (the “Merger”). The Merger brings together two industry-leading retail re-tenanting, renovationreal estate platforms with highly complementary portfolios, creating the preeminent open-air shopping center and expansionmixed-use real estate owner in the country. The increased scale in targeted growth markets, coupled with a broader pipeline of its existing centers and acquired centers, while also pursuing redevelopment opportunities, positions the combined company to increase overallcreate significant value withinfor its portfolio. The Company may selectively acquire established income-producing real estate properties and properties requiring significant re-tenanting and redevelopment, primarily in geographic regions in which the Company presently operates. Additionally, the Company may selectively acquire land parcels in its key markets for real estate development projects for long-term investment. The Company may consider investments in other real estate sectors and in geographic markets where it does not presently operate should suitable opportunities arise. The Company also continues to simplify its business by reducing the number of joint venture investments.shareholders.
As partUnder the terms of the Merger Agreement, each Weingarten common share will be converted into 1.408 newly issued shares of the Company’s investment strategy each property is evaluatedcommon stock plus $2.89 in cash. Based on the closing stock price for its highestthe Company on April 14, 2021, this represents a total consideration of approximately $30.32 per Weingarten share. The parties currently expect the transaction to close during the second half of 2021, subject to customary closing conditions, including the approval of both the Company and best use, which may include residentialWeingarten shareholders. This strategic transaction was unanimously approved by the Board of Directors of the Company and the Board of Trust Managers of Weingarten.
The Merger will create a national operating portfolio of 559 open-air grocery-anchored shopping centers and mixed-use components. In addition,assets comprising approximately 100 million square feet of gross leasable area. These properties are primarily concentrated in the Company may consider other opportunistic investments relatedtop major metropolitan markets in the United States. The combined company is expected to retailer controlled real estate such as repositioning underperforming retail locations, retail real estate financingbenefit from increased scale and bankruptcy transaction support. The Company hasdensity in key Sun Belt markets, enhanced asset quality, tenant diversity, a capital recycling program that provides forlarger redevelopment pipeline and a deleveraged balance sheet. As a result, the disposition of certain lesser quality assets. If the estimated faircombined company should be uniquely positioned to drive further sustained growth in net operating income and asset value for any of these assets is less than their net carrying values, the Company would be required to take impairment chargescreation through continued strategic leasing and such amounts could be material.asset management.
COVID-19 Pandemic
The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide, and has caused significant volatility in U.S. and international debt and equity markets. The COVID-19 pandemic has significantly impacted the retail sector in which the Company operates, and if the effectsoperates. The majority of the pandemic are prolonged, it could have a significant adverse impact on the underlying industries of many of the Company’s tenants. Accordingly, the Company’s tenants and their operations and, thus, their ability to pay rent, have been impacted, and may continue to be impacted. AtThrough the endduration of April 2020, all the Company’s shopping centers remain open and operational continuing to provide access to tenants providing essential goods and services. However,pandemic, a substantial number of tenants have had to temporarily closedor permanently close their business, have shortened their operating hours or are offeringoffer reduced services. Based on information currently available to us, approximately 44%services for some period of annual base rent across the portfolio comes from tenants that are subject to some form of mandatory closure or have voluntarily closed. As a result, the Company has observed a substantial increase in the number of tenants that have made late or partial rent payments, requested a deferral of rent payments, or defaulted on rent payments, and it is likely that more of our tenants will be similarly impacted in the future. The Company received rent deferral requests approximating 35% of the Company’s pro-rata minimum base rent for the month of April, with the Company selectively granting deferrals for 14% of the minimum base rent for this period. The Company continues to negotiate for the payment of the remaining April rent not yet collected.time.
The impact ofextent to which the COVID-19 onpandemic impacts the Company’s futurefinancial condition, results could be significantof operations and cash flows, in the near term, will largelycontinue to depend on future developments, which arecontinue to be highly uncertain and cannot be predicted at this time, including new information that may emerge concerning the severity of COVID-19, the success of governmental, business and individual actions that have been, and continue to be, taken in response to COVID-19, the distribution and effectiveness of vaccines, the impact of COVID-19 on economic activity, the effect of COVID-19 on the Company’s tenants and their businesses, the ability of tenants to make their rental payments and any additional closures of tenants’ businesses.
The Company is continuingcontinues to monitor the impact of COVID-19 on the Company’s business, tenants and industry as a whole. The magnitude and duration of the COVID-19 pandemic and its impact on the Company’s operations and liquidity isremains uncertain as of the filing date of this Quarterly Report on Form 10-Q as this pandemic continues to evolve globally. However, ifglobally and within the COVID-19 pandemic continues its current trajectory, such impacts could grow and become material and could materially disrupt the Company’s business operations. See Part II. Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q and Footnotes 1, 2, 8 and 16 to the Notes to the Company’s Condensed Consolidated Financial Statements for further discussion of the possible impact of the COVID-19 pandemic on the Company’s business.
As of March 31, 2020, the Company has not incurred any significant disruptions to its business activities.United States. Management cannot, at this point, estimate ultimate losses related to the COVID-19 pandemic, and accordingly no impairment charges were reflected in the accompanying financial statements related to this matter.pandemic. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess its asset portfolio for any impairment indicators. If the Company determines that any of its assets are impaired, the Company would be required to take impairment charges, and such amounts could be material. See Footnote 3 to the Notes to the Company’s Condensed Consolidated Financial Statements for additional discussion regarding impairment charges.
Also, in response toSince the outbreak of the COVID-19 pandemic, the Company’s shopping centers have remained open; however, as noted above, a substantial number of tenants had, or continue to have, temporarily or permanently closed their businesses. Others had, or continue to have, shortened their operating hours or offered reduced services. The Company has, and continues to have, worked with tenants to grant rent deferrals or forgiveness of rent on a tenant-by-tenant basis. The development and distribution of COVID vaccines throughout the country have assisted in April 2020,allowing many restrictions to be lifted, providing a path to recovery. There have been additional improvements to the real estate industry as the pandemic continues to redefine the needs of consumers across the country. There has been an increase in demand for warehouse space to satisfy fulfilment and distribution needs as well as certain retail spaces which provide essential goods such as grocers and pharmacies.
The Company continues to see an increase in collections of rental payments, however, the effects COVID-19 has had on its tenants is still heavily considered when evaluating the adequacy of the collectability of the lessee’s total accounts receivable balance, including the corresponding straight-line rent receivable. As of March 31, 2021, the Company’s consolidated accounts receivable balance was 50% potentially uncollectible, including receivables from tenants that are being accounted for on a cash basis, and 15% of the Company’s straight-line rent receivables were potentially uncollectible, also inclusive of tenants that are being accounted for on a cash basis. These elevated reserves are primarily attributable to the impact from the COVID-19 pandemic. Management’s estimate of the collectability of accrued rents and accounts receivable is based on the best information available to management at the time of evaluation. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will continue to assess the collectability of its tenant accounts receivables. As such, the Company closed on a $375.0 million unsecured term loan credit facility (the "Term Loan")may determine that was subsequently increasedfurther adjustments to $590.0 million through an accordion feature.its accounts receivable may be required in the future, and such amounts may be material.
Results of Operations
Comparison of the three months ended March 31, 2020 31, 2021 and 20192020
The following table presents the comparative results from the Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 2020,2021, as compared to the corresponding periodsperiod in 20192020 (in thousands, except per share data):
Three Months Ended March 31, | ||||||||||||||||||||||||
2020 | 2019 | Change | Three Months Ended March 31, | |||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Revenues from rental properties, net | $ | 286,004 | $ | 290,634 | $ | (4,630 | ) | $ | 278,871 | $ | 286,004 | $ | (7,133 | ) | ||||||||||
Management and other fee income | 3,740 | 4,376 | (636 | ) | 3,437 | 3,740 | (303 | ) | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Rent (1) | (2,835 | ) | (2,692 | ) | (143 | ) | (3,035 | ) | (2,835 | ) | (200 | ) | ||||||||||||
Real estate taxes | (39,652 | ) | (39,347 | ) | (305 | ) | (38,936 | ) | (39,652 | ) | 716 | |||||||||||||
Operating and maintenance (2) | (42,408 | ) | (40,896 | ) | (1,512 | ) | (46,520 | ) | (42,408 | ) | (4,112 | ) | ||||||||||||
General and administrative (3) | (21,017 | ) | (25,831 | ) | 4,814 | (24,478 | ) | (21,017 | ) | (3,461 | ) | |||||||||||||
Impairment charges | (2,974 | ) | (4,175 | ) | 1,201 | - | (2,974 | ) | 2,974 | |||||||||||||||
Depreciation and amortization | (69,397 | ) | (71,561 | ) | 2,164 | (74,876 | ) | (69,397 | ) | (5,479 | ) | |||||||||||||
Gain on sale of properties | 3,847 | 23,595 | (19,748 | ) | 10,005 | 3,847 | 6,158 | |||||||||||||||||
Other income/(expense) | ||||||||||||||||||||||||
Other (expense)/income, net | (3,422 | ) | 2,622 | (6,044 | ) | |||||||||||||||||||
Other income, net | 3,357 | 1,245 | 2,112 | |||||||||||||||||||||
Gain/(loss) on marketable securities, net | 61,085 | (4,667 | ) | 65,752 | ||||||||||||||||||||
Interest expense | (46,060 | ) | (44,395 | ) | (1,665 | ) | (47,716 | ) | (46,060 | ) | (1,656 | ) | ||||||||||||
Provision for income taxes, net | (43 | ) | (630 | ) | 587 | (1,308 | ) | (43 | ) | (1,265 | ) | |||||||||||||
Equity in income of joint ventures, net | 13,648 | 18,754 | (5,106 | ) | 17,752 | 13,648 | 4,104 | |||||||||||||||||
Equity in income of other real estate investments, net | 10,958 | 6,224 | 4,734 | 3,787 | 10,958 | (7,171 | ) | |||||||||||||||||
Net income attributable to noncontrolling interests | (289 | ) | (509 | ) | 220 | (3,483 | ) | (289 | ) | (3,194 | ) | |||||||||||||
Preferred dividends | (6,354 | ) | (14,534 | ) | 8,180 | (6,354 | ) | (6,354 | ) | - | ||||||||||||||
Net income available to the Company's common shareholders | $ | 83,746 | $ | 101,635 | $ | (17,889 | ) | |||||||||||||||||
Net income available to the Company: | ||||||||||||||||||||||||
Net (loss)/income available to the Company's common shareholders | $ | 131,588 | $ | 83,746 | $ | 47,842 | ||||||||||||||||||
Net (loss)/income available to the Company's common shareholders: | ||||||||||||||||||||||||
Diluted per common share | $ | 0.19 | $ | 0.24 | $ | (0.05 | ) | $ | 0.30 | $ | 0.19 | $ | 0.11 | |||||||||||
(1) | Rent expense relates to ground lease payments for which the Company is the lessee. |
(2) | Operating and maintenance expense consists of property related costs including repairs and maintenance costs, roof repair, landscaping, parking lot repair, snow removal, utilities, property insurance costs, security and various other property related expenses. |
(3) | General and administrative expense includes employee-related expenses (including salaries, bonuses, equity awards, benefits, severance costs and payroll taxes), professional fees, office rent, travel |
Net income available to the Company’s common shareholders was $83.7$131.6 million for the three months ended March 31, 2020,2021, as compared to $101.6$83.7 million for the comparable period in 2019.2020. On a diluted per common share basis, net income available to the Company for the three months ended March 31, 20202021 was $0.19$0.30 as compared to $0.24$0.19 for the comparable period in 2019.2020.
The following describes the changes of certain line items included on the Company’s Condensed Consolidated Statements of Income, that the Company believes changed significantly and affected Net income available to the Company's common shareholders during the three months ended March 31, 2020,2021, as compared to the corresponding period in 2019:2020:
RevenueRevenues from rental properties, net , net–
The decrease in Revenues from rental properties, net of $4.6$7.1 million is primarily from (i) a decrease in revenues of $13.1 million due to properties sold during 2020 and 2019, partially offset by (ii) the completion of certain redevelopment and development projects included in the Company’s Signature Series™, which provided incremental revenues for the three months ended March 31, 2021, as compared to the corresponding period in 2020, is primarily from (i) a net decrease in revenues from tenants, including straight-line rental income, primarily due to rent relief provided in association with the COVID-19 pandemic and tenant vacancies for the three months ended March 31, 2021 of $4.5$12.9 million, as compared to the corresponding period in 20192020 and (ii) a decrease in revenues of $0.6 million due to properties sold during 2021 and 2020, partially offset by (iii) acquisitions, tenant buyouts and net growthan increase in the current portfolio, which provided incremental revenueslease termination fee income for the three months ended March 31, 20202021 of $4.0$4.8 million, as compared to the corresponding period in 2019.2020 and (iv) an increase in revenues of $1.6 million due to property acquisitions during 2021.
Operating and maintenance –
The increase in Operating and maintenance expense of $4.1 million for the three months ended March 31, 2021, as compared to the corresponding period in 2020, is primarily due to an increase in snow removal costs and security and property maintenance services.
General and administrative –
The decreaseincrease in General and administrative expense of $4.8$3.5 million for the three months ended March 31, 2021, as compared to the corresponding period in 2020, is primarily due to (i) a reductiondecrease of $2.6$1.6 million primarilyin payroll capitalization due to less active development and redevelopment projects during the three months ended March 31, 2021, as compared to the corresponding period in 2020 and (ii) an increase of $1.9 million due to the fluctuations in value of various directors’ deferred stockstock.
Impairment charges –
During the three months ended March 31, 2020, the Company recognized impairment charges related to adjustments to property carrying values of $3.0 million, for which the Company’s estimated fair values were primarily based upon signed contracts or letters of intent from third party offers. These adjustments to property carrying values were recognized in connection with the Company’s efforts to market certain properties and management’s assessment as to the likelihood and timing of such potential transactions. Certain of the calculations to determine fair values utilized unobservable inputs and, as such, were classified as Level 3 of the FASB’s fair value hierarchy.
Depreciation and amortization –
The increase in Depreciation and amortization of $5.5 million for the three months ended March 31, 2021, as compared to the corresponding period in 2020, is primarily due to (i) an increase of $2.7 million due to depreciation commencing on certain development and redevelopment projects that were placed into service during 2021 and 2020, (ii) an increase of $2.2 million in write-offs of depreciable assets primarily due to tenant vacates during the three months ended March 31, 2020,2021, as compared to the corresponding period in 2019, (ii) a reduction in salary and severance expense for the three months ended March 31, 2020 of $1.8 million, as compared to the corresponding period in 2019, and (iii) a reduction in office rent expensean increase of $0.4$0.6 million as compared to the corresponding period in 2019.resulting from property acquisitions during 2021.
Gain on sale of properties –
During the three months ended March 31, 2021, the Company disposed of an operating property and four parcels, in separate transactions, for an aggregate sales price of $23.0 million, which resulted in aggregate gains of $10.0 million. During the three months ended March 31, 2020, the Company disposed of an operating property for a sales price of $13.5 million, which resulted in a gain of $3.8 million.
DuringGain/(loss) on marketable securities, net –
The gain on marketable securities, net of $61.1 million for the three months ended March 31, 2019,2021, as compared to the loss on marketable securities, net of $4.7 million for corresponding period in 2020, is primarily the result of the mark-to-market fluctuations of the Company’s Albertsons Companies, Inc. (“ACI”) investment, which had its initial public offering (“IPO”) in June 2020. This offering resulted in the Company disposedchanging the classification of five operating properties and two out-parcels, in separate transactions, for an aggregate sales price of $74.2 million. These transactions resulted in aggregate gains of $23.6 million.
Other (expense)/income, net –
The change in Other (expense)/income, net of $6.0 million is primarily dueits ACI investment from a cost method investment to changes in the fair value of available-for-salea marketable securities.security.
Equity in income of joint ventures, net –
The decreaseincrease in Equity in income of joint ventures, net of $5.1$4.1 million for the three months ended March 31, 2021, as compared to the corresponding period in 2020, is primarily due to (i) the recognition ofan increase in net gains of $3.7$4.7 million resulting from the sale of properties within various joint venture investments during the three months endedending March 31, 2019 and2021, as compared to the corresponding period in 2020, partially offset by (ii) lower equity in income of $1.4$0.6 million within various joint venture investments during 2020,2021, as compared to the corresponding period in 2019,2020, primarily resulting from the sale of properties within various joint venture investments during 2019.2021 and 2020.
Equity in income of other real estate investments,, net –
The increasedecrease in Equity in income of other real estate investments, net of $4.7$7.2 million for the three months ended March 31, 2021, as compared to the corresponding period in 2020, is primarily due to a net increasedecrease in profit participation from the sale of properties within the Company’s Preferred Equity Program during 2020,2021, as compared to the corresponding period in 2019.2020.
Net income attributable to noncontrolling interests –
Preferred dividends –
The decreaseincrease in Preferred dividendsNet income attributable to noncontrolling interests of $8.2$3.2 million for the three months ended March 31, 2021, as compared to the corresponding period in 2020, is primarily due to an increase in net gain on sale of properties during the redemption of preferred shares (Classes I, J and K) during 2019.three months ended March 31, 2021, as compared to the corresponding period in 2020.
Tenant Concentration
The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties and a large tenant base. As of March 31, 2021, the Company had interests in 398 U.S. shopping center properties, aggregating 69.8 million square feet of gross leasable area (“GLA”), located in 27 states. At March 31, 2020,2021, the Company’s five largest tenants were TJX Companies, Home Depot, Ahold Delhaize USA, Albertsons and Ross Stores,PetSmart, which represented 3.9%4.0%, 2.5%2.6%, 2.1%, 2.0% and 1.8%2.0%, 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. As discussed above, as a result of the COVID-19 pandemic, the Company has observed a substantial increase in the number of tenants that have made late or partial rent payments, requested a deferral of rent payments, or defaulted on rent payments, and it is likely that more of our tenants will be similarly impacted in the future.
Liquidity and Capital Resources
The Company’s capital resources include accessing the public debt and equity capital markets, unsecured term loan,loans, mortgages and construction loan financing, and immediate access to the Credit FacilityCompany’s unsecured revolving credit facility (the “Credit Facility”) with bank commitments of $2.0 billion which can be increased to $2.75 billion through an accordion feature. In addition, the Company holds 39.8 million shares of ACI, which are subject to certain contractual lock-up provisions.
The Company’s cash flow activities are summarized as follows (in thousands):
Three months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Cash and cash equivalents, beginning of the period | $ | 123,947 | $ | 143,581 | ||||
Net cash flow provided by operating activities | 155,249 | 155,258 | ||||||
Net cash flow used for investing activities | (66,553 | ) | (15,542 | ) | ||||
Net cash flow provided by/(used for) financing activities | 239,153 | (139,624 | ) | |||||
Net change in cash and cash equivalents | 327,849 | 92 | ||||||
Cash and cash equivalents, end of the period | $ | 451,796 | $ | 143,673 | ||||
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash and cash equivalents, beginning of the period | $ | 293,188 | $ | 123,947 | ||||
Net cash flow provided by operating activities | 148,371 | 155,249 | ||||||
Net cash flow used for investing activities | (83,924 | ) | (66,553 | ) | ||||
Net cash flow (used for)/provided by financing activities | (103,783 | ) | 239,153 | |||||
Net change in cash and cash equivalents | (39,336 | ) | 327,849 | |||||
Cash and cash equivalents, end of the period | $ | 253,852 | $ | 451,796 | ||||
Operating Activities
The Company anticipates that cash on hand, net cash flow provided by operating activities, borrowings under its Credit Facility and Term Loan and the issuance of equity and public debt, as well as other debt and equity alternatives, will provide the necessary capital required by the Company. The Company will continue to evaluate its capital requirements for both its short-term and long-term liquidity needs, all of which are highly uncertain and cannot be predicted, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A. Risk Factors. See further discussion relating to the effects of the COVID-19 pandemic in the “COVID-19 Pandemic”, “Investing Activities” and “Financing Activities” sections within this Item 2.pandemic.
Net cash flow provided by operating activities for the three months ended March 31, 2020,2021 was $155.2$148.4 million, as compared to $155.3$155.2 million for the comparable period in 2019.2020. The decrease of $0.1$6.8 million is primarily attributable to:
● | a decrease in distributions from the Company’s joint ventures programs; | |
| ● | rent relief provided to tenants as a result of the COVID-19 pandemic; and | |
● | the disposition of operating properties in |
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● | new leasing, expansion and re-tenanting of core portfolio properties; |
● | changes in operating assets and liabilities due to timing of receipts and payments; and |
● | the acquisition of |
Due to the current economic uncertainty resulting from the COVID-19 pandemic, the Company has been working with its tenants to potentially grant rent deferrals on a tenant-by-tenant basis relating to April rents. The deferrals are anticipated to be paid within a period of one year or less.
In addition, during April 2020, the Company began piloting a Tenant Assistance Program to assist small business tenants in identifying and applying for federal and state aid to help support their businesses during the COVID-19 pandemic. The Company is working in partnership with law firms to provide assistance with the application process at the Company’s expense. Legal professionals will assist tenants in identifying suitable loan programs, identifying potential lending institutions, and preparing and submitting applications.
Investing Activities
Net cash flow used for investing activities was $66.6$83.9 million for the three months ended March 31, 2020,2021, as compared to $15.5net cash flow used for investing activities of $66.6 million for the comparable period in 2019.2020.
Investing activities during the three months ended March 31, 2021 primarily consisted of:
Cash inflows:
● | $22.2 million in proceeds from the sale of a consolidated operating property and four parcels.. |
Cash outflows:
● | $84.3 million for the acquisition of two consolidated operating properties; |
● | $20.6 million for improvements to operating real estate primarily related to the Company’s active redevelopment pipeline; and | |
| ● | $2.2 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project within the Company's joint venture portfolio, and investments in other real estate investments, primarily related to repayment of a mortgage within the Company's Preferred Equity Program. |
Investing activities during the three months ended March 31, 2020 primarily consisted of:
Cash inflows:
● | $13.3 million in proceeds from the sale of a consolidated operating property; and |
● | $2.5 million in proceeds from insurance casualty claims. |
Cash outflows:
● | $71.6 million for improvements to operating real estate primarily related to the Company’s active redevelopment pipeline and improvements to real estate under development; |
● | $7.1 million for the acquisition of operating real estate; and |
● | $5.8 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project within the Company’s joint venture portfolio, and investments in other real estate investments, primarily related to repayment of a mortgage within the Company’s Preferred Equity Program. |
Investing activities during 2019 primarily consisted of:
Cash inflows:
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Cash outflows:
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Acquisition of Operating Real Estate–
During the three months ended March 31, 20202021 and 2019,2020, the Company expended $7.1$84.3 million and $0$7.1 million, (after use of Internal Revenue Code Section 1031 proceeds of $31.0 million in 2019), respectively, towards the acquisition of an operating real estate property adjacent to an existing operating real estate property.properties. The Company anticipates spending approximately up$25.0 million to $75.0$50.0 million towards the acquisition of operating properties for the remainder of 2020.2021, excluding amounts expended in connection with the Merger (see Footnote 17 to the Notes to the Company’s Condensed Consolidated Financial Statements). The Company intends to fundfunding of these acquisitions withcapital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities proceeds from property dispositions and availability under the Company'sCompany’s Credit Facility and Term Loan.Facility.
Improvements to Operating Real Estate–
During the three months ended March 31, 20202021 and 2019,2020, the Company expended $55.0$20.6 million and $51.3$55.0 million, respectively, towards improvements to operating real estate. These amounts consist of the following (in thousands):
Three months Ended March 31, | Three months ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Redevelopment and renovations | $ | 43,871 | $ | 36,357 | $ | 12,908 | $ | 43,871 | ||||||||
Tenant improvements and tenant allowances | 11,102 | 11,937 | 7,661 | 11,102 | ||||||||||||
Other | - | 3,051 | ||||||||||||||
Total improvements (1) | $ | 54,973 | $ | 51,345 | $ | 20,569 | $ | 54,973 | ||||||||
(1) | During the three months ended March 31, |
The Company has an ongoing program to redevelop and re-tenant its properties to maintain or enhance its competitive position in the marketplace. The Company is actively pursuing redevelopment opportunities within its operating portfolio which it believes will increase the overall value by bringing in new tenants and improving the assets’ value. The Company has identified three categories of redevelopment,redevelopment: (i) large scale redevelopment, which involves demolishing and building new square footage,footage; (ii) value creation redevelopment, which includes the subdivision of large anchor spaces into multiple tenant layouts,layouts; and (iii) creation of out-parcels and pads located in the front of the shopping center properties.
Due to the recent COVID-19 pandemic mentioned above, the Company is re-evaluating its current redevelopment and re-tenanting projects and will only move forward with the projects it feels are necessary. The Company anticipates its capital commitment toward these redevelopment projects and re-tenanting efforts for the remainder of 20202021 will be approximately $80.0$75.0 million to $130.0 million.$125.0 million, which does not include any amounts that may result from the Merger (see Footnote 17 to the Notes to the Company’s Condensed Consolidated Financial Statements). The funding of these capital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities and availability under the Company’s Credit Facility.
Real Estate Under Development–Financing Activities
The Company is engaged in select real estate development projects, which are expected to be held as long-term investments. As of March 31, 2020, the Company had one active real estate development project in progress. DuringNet cash flow used for financing activities was $103.8 million for the three months ended March 31, 2020 and 2019,2021, as compared to $239.2 million for the Company expended $16.6 million and $26.3 million, respectively, towards improvements to real estate under development. The Company capitalized (i) interestcomparable period in 2020.
Financing activities during the three months ended March 31, 2021 primarily consisted of:
Cash outflows:
● | $80.0 million of dividends paid; |
● | $14.9 million in principal payment on debt, including normal amortization of rental property debt; and |
● | $9.1 million in shares repurchased for employee tax withholding on equity awards. |
Financing activities during the three months ended March 31, 2020 and 2019, respectively, in connection with its real estate development project. The Company anticipates the total remaining costs to complete this active project to be approximately $25.0 million to $50.0 million. The Company anticipates its capital commitment toward this development project for the remainder of 2020 will be approximately $20.0 million to $40.0 million. The funding of these capital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities, construction financing, where applicable, and availability under the Company’s Credit Facility.
Financing Activities
Net cash flow provided by financing activities was $239.2 million for the three months ended March 31, 2020, as compared to net cash flow used for financing activities of $139.6 million for the comparable period in 2019.
Financing activities during 2020 primarily consisted of:
‐
Cash inflows:
● | $475.0 million in proceeds from borrowings under the Company’s unsecured revolving Credit Facility, net. |
Cash outflows:
● | $127.3 million of dividends paid; |
● | $78.4 million for principal payments on debt (primarily related to the repayment of debt on an encumbered property and the payoff of a construction loan), including normal amortization on rental property debt; |
● | $20.9 million for the redemption/distribution of noncontrolling interests, primarily related to the redemption of certain partnership interests by consolidated subsidiaries; and |
● | $5.1 million for financing origination costs, primarily related to the new unsecured revolving credit facility. |
Financing activities during 2019 primarily consisted of:
Cash inflows:
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Cash outflows:
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The Company continually evaluates its debt maturities, and, based on management’s current assessment, believes it has viable financing and refinancing alternatives that will not materially adversely impact its expected financial results. The Company continues to pursue borrowing opportunities with large commercial U.S. and global banks, select life insurance companies and certain regional and local banks. Due to the recent COVID-19 pandemic mentioned above, the Company has noticed a continuing trend that, although pricing remains dependent on specific deal terms, generally spreads for non-recourse mortgage and construction loan financing have been widening, and the unsecured debt markets are available with elevated credit spreads.
Debt maturities for 2020the remainder of 2021 consist of: $83.6$125.7 million of consolidated debt, $111.6debt; $54.9 million of unconsolidated joint venture debt and $61.9$19.9 million of debt included in the Company’s Preferred Equity Program, assuming the utilization of extension options where available. The 20202021 consolidated debt maturities are anticipated to be repaid with operating cash flows and borrowings from the Credit Facility. The 2021 debt maturities on properties in the Company’s Credit Facilityunconsolidated joint ventures and Preferred Equity Program are anticipated to be repaid through operating cash flows, debt refinancing, where applicable. unsecured credit facilities, proceeds from sales and partner capital contributions, as deemed appropriate.
The Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintain or improve its investment-grade senior, unsecured debt ratings. The Company may, from time-to-time,time to time, seek to obtain funds through additional common and preferred equity offerings, unsecured debt financings mortgages and/or mortgage/construction loan financingfinancings and other capital alternatives.
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 $14.5$15.6 billion. Proceeds from public capital market activities have been used for the purposes of, among other things, repaying indebtedness, acquiring interests in open-air, grocery-anchored shopping centers and mixed-use assets, funding real estate under development projects, expanding and improving properties in the portfolio and other investments.
During February 2018,2021, the Company filed a shelf registration statement on Form S-3, which is effective for a term of three years, for the future unlimited offerings, from time-to-time,time to time, of debt securities, preferred stock, depositary shares, common stock and common stock warrants. The Company, pursuant to this shelf registration statement may, from time-to-time,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.
Common Stock–
During September 2019, the Company established an at the market continuous offering program (the “ATM program"), pursuant to which the Company may offer and sell from time to time shares of its common stock, par value $0.01 per share, with an aggregate gross sales price of up to $500.0 million through a consortium of banks acting as sales agents. Sales of the shares of common stock may be made, as needed, from time to time in “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, including by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise (i) at market prices prevailing at the time of sale, (ii) at prices related to prevailing market prices or (iii) as otherwise agreed to with the applicable sales agent. The Company did not offer for sale any shares of common stock under the ATM program during the three months ended March 31, 2020.
During February 2020, the Company extended its share repurchase program for a term of two years, which will expire in February 2022, pursuant to which the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the three months ended March 31, 2020.2021. As of March 31, 2020,2021, the Company had $224.9 million available under this share repurchase program.
Senior Notes –
The Company’s supplemental indenture governing its senior notes contains the following covenants, all of which the Company is compliant with:
Covenant | Must Be | As of March 31, 2021 | |||
Consolidated Indebtedness to Total Assets | <65% |
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Consolidated Secured Indebtedness to Total Assets | <40% |
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Consolidated Income Available for Debt Service to Maximum Annual Service Charge | >1.50x |
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Unencumbered Total Asset Value to Consolidated Unsecured Indebtedness | >1.50x |
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For a full description of the various indenture covenants, refer to the Indenture dated September 1, 1993; the First Supplemental Indenture dated August 4, 1994; the Second Supplemental Indenture dated April 7, 1995; the Third Supplemental Indenture dated June 2, 2006; the Fourth Supplemental Indenture dated April 26, 2007; the Fifth Supplemental Indenture dated as of September 24, 2009; the Sixth Supplemental Indenture dated as of May 23, 2013; and the Seventh Supplemental Indenture dated as of April 24, 2014, each as filed with the SEC. See the Exhibits Index to our Annual Report on Form 10-K for the year ended December 31, 20192020 for specific filing information.
Credit Facility –
In February 2020, the Company closed onobtained a new $2.0 billion Credit Facility with a group of banks, which replaced the Company’s existing $2.25 billion unsecured revolving credit facility.banks. The Credit Facility is scheduled to expire in March 2024, with two additional six-month options to extend the maturity date, at the Company’s discretion, to March 2025. The Credit Facility is a green credit facility tied to sustainability metric targets, as described in the agreement. The Company achieved such targets, which effectively reduced the rate on the Credit Facility by one basis point. The Credit Facility, which accrues interest at a rate of LIBOR plus 77.576.5 basis points (1.76%(0.88% as of March 31, 2020)2021), can be increased to $2.75 billion through an accordion feature. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum indebtedness ratios and (ii) minimum interest and fixed charge coverage ratios. As of March 31, 2020,2021, the Credit Facility had anno outstanding balance, of $675.0 million and $0.3 million appropriated for letters of credit.credit and the Company was in compliance with its covenants.
Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to maintenance of various covenants. The Company is currently in compliance with these covenants. The financial covenants for the Credit Facility are as follows:
Covenant | Must Be | As of March 31, 2021 | |||
Total Indebtedness to Gross Asset Value (“GAV”) | <60% |
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Total Priority Indebtedness to GAV | <35% | 1% | |||
Unencumbered Asset Net Operating Income to Total Unsecured Interest Expense | >1.75x |
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Fixed Charge Total Adjusted EBITDA to Total Debt Service | >1.50x | 3.3x |
For a full description of the Credit Facility’s covenants, refer to the Amended and Restated Credit Agreement dated as of February 27, 2020, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 28, 2020.
Term Loan–
On April 1, 2020, the Company entered into a new $375.0 million Term Loan pursuant to a credit agreement, with a group of banks, which is scheduled to expire in April 2021, with a one-year extension option to extend the maturity date, at the Company’s discretion, to April 2022. The Term Loan, accrues interest at a rate of LIBOR plus 140 basis points or, at the Company’s option, a spread of 40 basis points to the base rate defined in the Term Loan, each of which fluctuates in accordance with changes in the Company’s senior debt ratings. The Term Loan can be increased by an additional $750.0 million through an accordion feature. Pursuant to the terms of the Term Loan, the Company is subject to covenants that are substantially the same as those in the Credit Facility. During April 2020, borrowings under the Term Loan were increased to $590.0 million through the accordion feature.
Mortgages and Construction Loan Payable –
In August 2018, the Company closed on a construction loan commitment of $67.0 million relating to one development property. This loan commitment was scheduled to mature in August 2020, with six additional six-month options to extend the maturity date to August 2023, and bore interest at a rate of LIBOR plus 180 basis points. During the three months ended March 31, 2020, this construction loan was fully repaid.
During the three months ended March 31, 2020,2021, the Company repaid $8.8$12.3 million of mortgage debt (including fair market value adjustment of $0.1 million) that encumbered an operating property.
In addition to the public equity and debt markets as capital sources, the Company may, from time-to-time,time to time, obtain mortgage financing on selected properties and construction loan financing to partially fund the capital needs of its real estate development projects. As of March 31, 2020,2021, the Company had over 320330 unencumbered property interests in its portfolio.
COVID-19 –
In light of the ongoing spread ofAs the COVID-19 pandemic andcontinues to evolve, an uncertainty remains in relation to the uncertainty related to its unfoldinglong-term economic impact it will have. As a result, the Company ishas focused on itscreating a strong liquidity position, including: (i) itsincluding, but not limited to, maintaining availability under the new $2.0 billion ($2.75 billion with the accordion feature) unsecured revolving credit facility, (ii) its new $375.0 million Term Loan entered into on April 1, 2020 and was subsequently increased to $590.0 million through the accordion feature, (iii) $451.8 million ofCredit Facility, cash and cash equivalents on hand at March 31, 2020, and (iv) as mentioned above, over 320having access to unencumbered property interests.
The Company is continuingcontinues to monitor the impact of COVID-19 on the Company’s business, tenants and industry as a whole. The magnitude and duration of the COVID-19 pandemic and its impact on the Company’s operations and liquidity is uncertain as of the filing date of this Quarterly Report on Form 10-Q as this pandemic continues to evolve globally.globally and within the United States. However, if the COVID-19 pandemic continues, on its current trajectory, such impacts could grow, and become material and could materially disrupt the Company’s business operations and materially adversely affect the Company’s liquidity.
Dividends–
The Company’s Board of Directors will continue to evaluate the Company’s dividend policy on a quarterly basis as the Board of Directors monitorsthey monitor sources of capital and evaluatesevaluate the impact of the economy and capital markets availability on operating fundamentals. Since cash used to pay dividends reduces amounts available for capital investment, the Company generally intends to maintain a dividend payout ratio that reserves 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. Cash dividends paid for common and preferred issuances of stock for the three months ended March 31, 2021 and 2020 and 2019 were $127.3$80.0 million and $132.5$127.3 million, respectively.
Although the Company receives substantially all of its rental payments on a monthly basis, it generally has paidintends to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution will be invested by the Company in short-term money market or other suitable instruments. The Company’s Board of Directors will continue to monitor the impact the COVID-19 pandemic has on the Company's financial performance and economic outlook. The Company’s objective is to establish a dividend level which maintains compliance with the Company’s REIT taxable income distribution requirements. On January 28, 2020,February 22, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.28$0.17 per common share payable to shareholders of record on April 2, 2020,March 10, 2021, which was paid on March 24, 2021. On April 15, 2020. As a result of the COVID-19 pandemic and the future economic uncertainties, out of an abundance of caution,27, 2021, the Company’s Board of Directors has temporarily suspended thedeclared a quarterly cash dividend of $0.17 per common share payable to shareholders of record on its common shares. The Company’s Board of Directors will continueJune 9, 2021, which is scheduled to monitor the Company’s financial performance and economic outlookbe paid on a monthly basis and, at a later date, intends to reinstate the common dividend during 2020 of at least the amount equal to the Company's REIT taxable income distribution requirements.June 23, 2021.
The Company’s Board of Directors declared quarterly dividends with respect to the Company’s classes of cumulative redeemable preferred shares (Classes L and M). All dividends on preferred shares were paid on April 15, 2020,2021, to shareholders of record on April 1, 2020.2021. Additionally, the Company’s Board of Directors declared quarterly dividends with respect to the Company’s classes of cumulative redeemable preferred shares (Classes L and M). All dividends on the preferred shares are scheduled to be paid on July 15, 2020,2021, to shareholders of record on July 1, 2020.2021.
Funds From Operations
Funds From Operations (“FFO”) is a supplemental non-GAAP financial measure utilized to evaluate the operating performance of real estate companies. NAREIT defines FFO as net income/(loss) available to the Company’s common shareholders computed in accordance with generally accepted accounting principles in the United States (“GAAP”), excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis. The Company also made an election to exclude from its calculation of FFO (i) gains and losses on the sale of assets and impairments of assets incidental to its main business and (ii) mark-to-market changes in the value of its equity securities. As such, the Company does not include gains/impairments on land parcels, gains/losses (realized or unrealized) from marketable securities, allowance for credit losses on mortgage receivables or gains/impairments on preferred equity participations in NAREIT defined FFO. As a result of this election, the Company will no longer disclose FFO available to the Company’s common shareholders as adjusted (“FFO as adjusted”) as an additional supplemental measure. The incidental adjustments noted above which were previously excluded from NAREIT FFO and used to determine FFO as adjusted are now included in NAREIT FFO and therefore the Company believes FFO as adjusted is no longer necessary.
The Company presents FFO available to the Company’s common shareholders as it considers it an important supplemental measure of our operating performance and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO available to the Company’s common shareholders when reporting results. Comparison of our presentation of FFO available to the Company’s common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.
FFO is a supplemental non-GAAP financial measure of real estate companies’ operating performances, which does not represent cash generated from operating activities in accordance with GAAP and therefore, should not be considered an alternative for net income or cash flows from operations as a measure of liquidity. Our method of calculating FFO available to the Company’s common shareholders may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The Company’s reconciliation of net income available to the Company’s common shareholders to FFO available to the Company’s common shareholders is reflected in the table below (in thousands, except per share data).
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Net income available to the Company’s common shareholders | $ | 83,746 | $ | 101,635 | ||||
Gain on sale of properties | (3,847 | ) | (23,595 | ) | ||||
Gain on sale of joint venture properties | (18 | ) | (4,690 | ) | ||||
Depreciation and amortization – real estate related | 68,707 | 71,260 | ||||||
Depreciation and amortization – real estate joint ventures | 10,564 | 10,161 | ||||||
Impairment charges of depreciable real estate properties | 3,441 | 6,408 | ||||||
Profit participation from other real estate investments, net | (6,283 | ) | (1,030 | ) | ||||
Loss/(gain) on marketable securities | 4,667 | (1,503 | ) | |||||
Provision for income taxes (1) | 1 | - | ||||||
Noncontrolling interests (1) | (505 | ) | (248 | ) | ||||
FFO available to the Company’s common shareholders | $ | 160,473 | $ | 158,398 | ||||
Weighted average shares outstanding for FFO calculations: | ||||||||
Basic | 429,735 | 419,464 | ||||||
Units | 638 | 927 | ||||||
Dilutive effect of equity awards | 717 | 1,182 | ||||||
Diluted (2) | 431,090 | 421,573 | ||||||
FFO per common share – basic | $ | 0.37 | $ | 0.38 | ||||
FFO per common share – diluted (2) | $ | 0.37 | $ | 0.38 | ||||
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net income available to the Company’s common shareholders | $ | 131,588 | $ | 83,746 | ||||
Gain on sale of properties | (10,005 | ) | (3,847 | ) | ||||
Gain on sale of joint venture properties | (5,283 | ) | (18 | ) | ||||
Depreciation and amortization - real estate related | 74,113 | 68,707 | ||||||
Depreciation and amortization - real estate joint ventures | 10,007 | 10,564 | ||||||
Impairment charges | 1,068 | 3,441 | ||||||
Profit participation from other real estate investments, net | 195 | (6,283 | ) | |||||
(Gain)/loss on marketable securities, net | (61,085 | ) | 4,667 | |||||
Provision for income taxes (1) | 1,046 | 1 | ||||||
Noncontrolling interests (1) | 2,626 | (505 | ) | |||||
FFO available to the Company’s common shareholders | $ | 144,270 | $ | 160,473 | ||||
Weighted average shares outstanding for FFO calculations: | ||||||||
Basic | 430,524 | 429,735 | ||||||
Units | 654 | 638 | ||||||
Dilutive effect of equity awards | 1,606 | 717 | ||||||
Diluted (2) | 432,784 | 431,090 | ||||||
FFO per common share – basic | $ | 0.34 | $ | 0.37 | ||||
FFO per common share – diluted (2) | $ | 0.33 | $ | 0.37 | ||||
(1) | Related to gains, impairments, and depreciation on properties, where applicable. |
(2) | Reflects the potential impact if certain units were converted to common stock at the beginning of the period, which would have a dilutive effect on FFO available to the Company’s common shareholders. FFO available to the Company’s common shareholders would be increased by |
Same Property Net Operating Income(Income (“Same property NOI”NOI”)
Same property NOI is a supplemental non-GAAP financial measure of real estate companies’ operating performance and should not be considered an alternative to net income in accordance with GAAP or cash flows from operations as a measure of liquidity. The Company considers Same property NOI as an important operating performance measure because it is frequently used by securities analysts and investors to measure only the net operating income of properties that have been owned by the Company for the entire current and prior year reporting periods. It excludes properties under redevelopment, development and pending stabilization; properties are deemed stabilized at the earlier of (i) reaching 90% leased or (ii) one year following a project’s inclusion in operating real estate. Same property NOI assists in eliminating disparities in net income due to the development, acquisition or disposition of properties during the particular period presented, and thus provides a more consistent performance measure for the comparison of the Company's properties.
Same property NOI is calculated using revenues from rental properties (excluding straight-line rent adjustments, lease termination fees, TIFs and amortization of above/below market rents) less charges for bad debt, operating and maintenance expense, real estate taxes and rent expense plus the Company’s proportionate share of Same property NOI from unconsolidated real estate joint ventures, calculated on the same basis. The Company’s method of calculating Same property NOI available to the Company’s common shareholders may differ from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The following is a reconciliation of Net income available to the Company’s common shareholders to Same property NOI (in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Net income available to the Company’s common shareholders | $ | 83,746 | $ | 101,635 | ||||||||||||
Net income available to the Company’s common shareholders | $ | 131,588 | $ | 83,746 | ||||||||||||
Adjustments: | ||||||||||||||||
Management and other fee income | (3,740 | ) | (4,376 | ) | (3,437 | ) | (3,740 | ) | ||||||||
General and administrative | 21,017 | 25,831 | 24,478 | 21,017 | ||||||||||||
Impairment charges | 2,974 | 4,175 | - | 2,974 | ||||||||||||
Depreciation and amortization | 69,397 | 71,561 | 74,876 | 69,397 | ||||||||||||
Gain on sale of properties | (3,847 | ) | (23,595 | ) | (10,005 | ) | (3,847 | ) | ||||||||
Interest and other expense, net | 49,482 | 41,773 | 44,359 | 44,815 | ||||||||||||
(Gain)/loss on marketable securities, net | (61,085 | ) | 4,667 | |||||||||||||
Provision for income taxes, net | 43 | 630 | 1,308 | 43 | ||||||||||||
Equity in income of other real estate investments, net | (10,958 | ) | (6,224 | ) | (3,787 | ) | (10,958 | ) | ||||||||
Net income attributable to noncontrolling interests | 289 | 509 | 3,483 | 289 | ||||||||||||
Preferred dividends | 6,354 | 14,534 | 6,354 | 6,354 | ||||||||||||
Non same property net operating income | (18,193 | ) | (28,757 | ) | (15,039 | ) | (16,282 | ) | ||||||||
Non-operational expense from joint ventures, net | 19,016 | 14,793 | 11,963 | 19,014 | ||||||||||||
Same property NOI | $ | 215,580 | $ | 212,489 | ||||||||||||
Same property NOI | $ | 205,056 | $ | 217,489 | ||||||||||||
Same property NOI increaseddecreased by $3.1$12.4 million or 1.5%5.7% for the three months ended March 31, 2020,2021, as compared to the corresponding period in 2019.2020. This increasechange is primarily the result of (i) an increase ina reduction of revenue associated with rent waivers, potentially uncollectible revenues from rental propertiesand disputed amounts.
Leasing Activity
During the three months ended March 31, 2020,2021, the Company executed 224262 leases totaling over 1.92.3 million square feet in the Company’s consolidated operating portfolio comprised of 4696 new leases and 178166 renewals and options. The leasing costs associated with these new leases are estimated to aggregate $13.9$18.9 million or $44.38$34.22 per square foot. These costs include $11.5$13.9 million of tenant improvements and $2.4$5.0 million of external leasing commissions. The average rent per square foot onfor (i) new leases was $19.70$22.18 and on(ii) renewals and options was $16.91.$14.99.
Tenant Lease Expirations
At March 31, 2020,2021, the Company has a total of 5,4185,264 leases in the U.S.its consolidated operating portfolio. The following table sets forth the aggregate lease expirations for each of the next ten years, assuming no renewal options are exercised. For purposes of the table, the Total Annual Base Rent Expiring represents annualized rental revenue, excluding the impact of straight-line rent, for each lease that expires during the respective year. Amounts in thousands, except for number of lease data:
Year Ending December 31, | Number of Leases Expiring | Square Feet Expiring | Total Annual Base Rent Expiring | % of Gross Annual Rent | Number of Leases Expiring | Square Feet Expiring | Total Annual Base Rent Expiring | % of Gross Annual Rent | |||||||||||||||||||||||
| (1) | 169 | 488 | $ | 11,161 | 1.4 | % | 175 | 504 | $ | 11,487 | 1.4 | % | |||||||||||||||||||
2020 | 355 | 1,646 | $ | 30,684 | 3.7 | % | |||||||||||||||||||||||||
2021 | 759 | 5,499 | $ | 87,791 | 10.7 | % | 413 | 2,196 | $ | 38,140 | 4.7 | % | |||||||||||||||||||
2022 | 827 | 5,943 | $ | 103,750 | 12.7 | % | 802 | 5,204 | $ | 93,466 | 11.5 | % | |||||||||||||||||||
2023 | 719 | 5,783 | $ | 98,796 | 12.1 | % | 738 | 5,766 | $ | 98,818 | 12.1 | % | |||||||||||||||||||
2024 | 671 | 5,238 | $ | 94,827 | 11.6 | % | 673 | 5,109 | $ | 94,217 | 11.6 | % | |||||||||||||||||||
2025 | 497 | 4,514 | $ | 76,368 | 9.3 | % | 625 | 5,255 | $ | 94,322 | 11.6 | % | |||||||||||||||||||
2026 | 269 | 4,050 | $ | 57,768 | 7.1 | % | 470 | 6,256 | $ | 89,401 | 11.0 | % | |||||||||||||||||||
2027 | 249 | 3,226 | $ | 49,630 | 6.1 | % | 270 | 3,741 | $ | 56,674 | 7.0 | % | |||||||||||||||||||
2028 | 314 | 3,241 | $ | 61,421 | 7.5 | % | 320 | 3,383 | $ | 61,164 | 7.5 | % | |||||||||||||||||||
2029 | 254 | 2,639 | $ | 45,857 | 5.6 | % | 251 | 2,679 | $ | 47,301 | 5.8 | % | |||||||||||||||||||
2030 | 171 | 1,624 | $ | 29,474 | 3.6 | % | 206 | 1,708 | $ | 33,119 | 4.1 | % | |||||||||||||||||||
2031 | 160 | 1,215 | $ | 25,487 | 3.1 | % | |||||||||||||||||||||||||
(1) | Leases currently under month-to-month lease or in process of renewal. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company’s primary market risk exposure is interest rate risk. The Company periodically evaluates its exposure to short-term interest rates and will, from time-to-time, enter into interest rate protection agreements which mitigate, but do not eliminate, the effect of changes in interest rates on its floating-rate debt. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. The following table presents the Company’s aggregate fixed rate and variable rate debt obligations outstanding, including fair market value adjustments and unamortized deferred financing costs, as of March 31, 2020,2021, with corresponding weighted average interest rates sorted by maturity date. The Company had no variable rate debt outstanding at March 31, 2021. The table does not include extension options where available (amounts in millions).
2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
Secured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | 83.6 | $ | 143.7 | $ | 150.8 | $ | 12.0 | $ | 9.9 | $ | 4.9 | $ | 404.9 | $ | 405.6 | ||||||||||||||||
Average Interest Rate | 5.29 | % | 5.39 | % | 4.06 | % | 3.23 | % | 6.73 | % | 7.08 | % | 4.86 | % | ||||||||||||||||||
Unsecured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | - | $ | 484.1 | $ | 497.3 | $ | 348.4 | $ | 397.3 | $ | 2,908.4 | $ | 4,635.5 | $ | 4,416.5 | ||||||||||||||||
Average Interest Rate | - | 3.20 | % | 3.40 | % | 3.13 | % | 2.70 | % | 3.73 | % | 3.50 | % | |||||||||||||||||||
Floating Rate | $ | - | $ | - | $ | - | $ | - | $ | 668.2 | $ | - | $ | 668.2 | $ | 625.4 | ||||||||||||||||
Average Interest Rate | - | - | - | - | 1.76 | % | - | 1.76 | % | |||||||||||||||||||||||
Based on the Company’s variable-rate debt balances, interest expense would have increased by $1.7 million for the three months ended March 31, 2020, if short-term interest rates were 1.0% higher.
2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
Secured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | 125.7 | $ | 145.8 | $ | 12.0 | $ | 7.8 | $ | - | $ | 4.3 | $ | 295.6 | $ | 297.9 | ||||||||||||||||
Average Interest Rate | 5.42 | % | 4.05 | % | 3.23 | % | 6.73 | % | - | 7.08 | % | 4.71 | % | |||||||||||||||||||
Unsecured Debt | ||||||||||||||||||||||||||||||||
Fixed Rate | $ | - | $ | 498.3 | $ | 348.9 | $ | 398.0 | $ | 497.6 | $ | 3,303.1 | $ | 5,045.9 | $ | 5,306.9 | ||||||||||||||||
Average Interest Rate | - | 3.40 | % | 3.13 | % | 2.70 | % | 3.30 | % | 3.42 | % | 3.33 | % | |||||||||||||||||||
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.
There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
OTHER INFORMATION
The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.
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 taken as a whole, or which is not covered by the Company's liability insurance.
Except as set forth below, as of the date of this report, there are no material changes to our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Risks Relating to the Merger
The Company’sMerger may not be completed on the terms or timeline currently contemplated, or at all.
Although the Company and Weingarten have entered into a definitive Merger Agreement on April 15, 2021 under which Weingarten will merge with and into the Company, the completion of the Merger is subject to certain conditions, including:
(1) | approval of the Company's stockholders and Weingarten's stockholders of the Merger in separate stockholder meetings; |
(2) | approval for listing on the NYSE of the common stock of the Company to be issued in connection with the Merger; |
(3) | effectiveness of the registration statement for our shares being issued pursuant to the Merger and such registration statement not being the subject of any stop order or proceeding seeking a stop order; |
(4) | no injunction or law prohibiting the Merger; |
(5) | accuracy of each party’s representations, subject in most cases to materiality or material adverse effect qualifications; |
(6) | material compliance with each party’s covenants; and |
(7) | receipt by each of Weingarten and the Company of an opinion to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code and of an opinion that each of Weingarten and the Company qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Neither Weingarten nor the Company can provide assurances that the Merger will be consummated on the terms or timeline currently contemplated, or at all. |
Our stockholders may be diluted by the Merger.
The Merger may dilute the ownership position of our stockholders. Upon completion of the Merger, our legacy stockholders will own approximately 71% of the issued and outstanding shares of our common stock, and legacy Weingarten stockholders will own approximately 29% of the issued and outstanding shares of our common stock. Consequently, our stockholders may have less influence over our management and policies after the effective time of the Merger than they currently exercise over our management and policies.
Failure to complete the Merger could adversely affect our stock price and our future business and financial results.
If the Merger is not completed, our ongoing businesses may be adversely affected and we will be subject to numerous risks, including the following:
● | upon termination of the Merger Agreement under specified circumstances, Weingarten may be required to pay the Company a termination fee of $115.0 million; |
● | we are paying substantial costs relating to the Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration preparation costs that have already been incurred or will continue to be incurred until the closing of the Merger; |
● | our management focusing on the Merger instead of on pursuing other opportunities that could be beneficial to the Company without realizing any of the benefits of having the Merger completed; and |
● | reputational harm due to the adverse perception of any failure to successfully complete the Merger. |
If the Merger is not completed, we cannot assure our stockholders that these risks will not materialize or will not materially affect the business, financial condition, results and our stock prices.
The pendency of the Merger could adversely affect the business and operations or stock price hasof the Company and may continue to be adversely impacted by the COVID-19 pandemic and such impact could be material.Weingarten.
In March 2020,connection with the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide, and has caused significant volatility in U.S. and international debt and equity markets. There is significant uncertainty around the extent and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy.
Our business and the businessespending Merger, some of our and Weingarten’s tenants have been adversely affected by the COVID-19 pandemic and actions taken to contain or prevent its spread. A substantial number of tenants have temporarily closed their businesses, have shortened their operating hoursvendors may delay or are offering reduced services. As a result, the Company has observed a substantial increase in the number of tenants that have made late or partial rent payments, requested a deferral of rent payments, or defaulted on rent payments, and it is likely that more of our tenants will be similarly impacted in the future. Impacts of COVID-19 could also result in the complete or partial closure of one or more of our tenants’ manufacturing facilities or distribution centers, temporary or long-term disruption in our tenants’ supply chains from local and international suppliers, and/or delays in the delivery of our tenants’ inventory.
Even after governmental restrictions are lifted, our tenants may continue to be impacted by economic conditions resulting from COVID-19 or public perception of the risk of COVID-19,defer decisions, which could adversely affect foot traffic tothe revenues, earnings, funds from operations, cash flows and expenses of the Company and Weingarten, regardless of whether the Merger is completed. Similarly, current and prospective employees of the Company and Weingarten may experience uncertainty about their future roles with the Company following the Merger, which may materially adversely affect our tenants’ businesses and our tenants’Weingarten’s ability to adequately staffattract and retain key personnel during the pendency of the Merger. In addition, due to interim operating covenants in the Merger Agreement, we and Weingarten may be unable (without the other party’s prior written consent), during the pendency of the Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
Risks Relating to the Company after Completion of the Merger
We expect to incur substantial expenses related to the Merger.
We expect to incur substantial expenses in completing the Merger and integrating the business, operations, networks, systems, technologies, policies and procedures of the Company and Weingarten. There are a large number of processes that must be integrated in the merger, including leasing, billing, management information, purchasing, accounting and finance, sales, payroll and benefits, fixed asset, lease administration and regulatory compliance. While we and Weingarten have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of integration expenses.
Our stockholders may be diluted by the Merger and the trading price of shares of the combined company may be affected by factors different from those affecting the price of shares of our common stock before the Merger
The Merger may dilute the ownership position of our stockholders. Upon completion of the Merger, our legacy stockholders will own approximately 71% of the issued and outstanding shares of our common stock, and legacy Weingarten stockholders will own approximately 29% of the issued and outstanding shares of our common stock. Consequently, our stockholders may have less influence over our management and policies after the effective time of the Merger than they currently exercise over our management and policies. The results of our operations and the trading price of our common stock after the Merger may also be affected by factors different from those currently affecting our results of operations and the trading prices of our common stock. For example, some of our and Weingarten’s existing institutional investors may elect to decrease their businesses. Such eventsownership in the combined company. Accordingly, the historical trading prices and financial results of the Company and Weingarten may not be indicative of these matters for the combined company after the Merger.
Following the Merger, we may be unable to integrate the business of Weingarten successfully or realize the anticipated synergies and related benefits of the Merger or do so within the anticipated time frame.
The Merger involves the combination of two companies which currently operate as independent public companies. We will be required to devote significant management attention and resources to integrating the business practices and operations of Weingarten. Potential difficulties we may encounter in the integration process include the following:
● | the inability to successfully combine the businesses of the Company and Weingarten in a manner that permits the Company to achieve the cost savings anticipated to result from the Merger, which would result in some anticipated benefits of the Merger not being realized in the time frame currently anticipated, or at all; |
● | the inability to successfully realize the anticipated value from some of Weingarten’s assets, particularly from the redevelopment projects; |
● | lost sales and tenants as a result of certain tenants of either of the Company or Weingarten deciding not to continue to do business with the combined company; |
● | the complexities associated with integrating personnel from the two companies; |
● | the additional complexities of combining two companies with different histories, cultures, markets, strategies and customer bases; |
● | the failure by the Company to retain key employees of either of the two companies; |
● | potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the merger; and |
● | performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the Merger and integrating the companies’ operations. |
For all these reasons, you should be aware that it is possible that the integration process could severely disrupt their operationsresult in the distraction of our management, the disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could adversely affect the ability of the Company to maintain relationships with tenants, vendors and employees or to achieve the anticipated benefits of the Merger, or could otherwise adversely affect our business and financial results.
Following the Merger, we will have a substantial amount of indebtedness and may need to incur more in the future.
We have substantial indebtedness and, in connection with the Merger, will incur additional indebtedness. The incurrence of new indebtedness could have adverse consequences on our business following the Merger, such as:
● | requiring the Company to use a substantial portion of our cash flow from operations to service our indebtedness, which would reduce the available cash flow to fund working capital, capital expenditures, development projects, and other general corporate purposes and reduce cash for distributions; |
● | limiting our ability to obtain additional financing to fund our working capital needs, acquisitions, capital expenditures, or other debt service requirements or for other purposes; |
● | increasing our costs of incurring additional debt; |
● | increasing our exposure to floating interest rates; |
● | limiting our ability to compete with other companies that are not as highly leveraged, as we may be less capable of responding to adverse economic and industry conditions; |
● | restricting the Company from making strategic acquisitions, developing properties, or exploiting business opportunities; |
● | restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness; |
● | exposing the Company to potential events of default (if not cured or waived) under covenants contained in our debt instruments that could have a material adverse effect on our business, financial condition, and operating results; |
● | increasing our vulnerability to a downturn in general economic conditions; and |
● | limiting our ability to react to changing market conditions in its industry. |
The impact of any of these potential adverse consequences could have a material adverse effect on our business, financial condition and results of operations. A downturn in our tenants’ businesses that significantly weakens their financial condition could cause them to delay lease commencements or decline to extend or renew leases upon expiration and could lead to additional failures to make rental payments when due, store closures or bankruptcies, and we may be unable to collect past due balances under relevant leases. We have begun to receive requests for rent relief from some of our tenants. We are assessing these requests on a case-by-case basis and have agreed and may continue to agree to certain relief. It is likely there will be additional requests for relief in the future.
In addition, like many other companies, due to government mandates, we have instructed our employees to work from home, which, especially if this persists for a prolonged period of time, may have an adverse impact on our employees, operations and systems.
The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, financial condition, and stock price will depend on numerous evolving factorsliquidity.
Counterparties to certain agreements with the Company or Weingarten may exercise their contractual rights under such agreements in connection with the Merger.
We and Weingarten are each party to certain agreements that are highly uncertaingive the counterparty certain rights following a “change in control,” including in some cases the right to terminate such agreements. Under some such agreements, for example certain debt obligations, the Merger may constitute a change in control and which wetherefore the counterparty may not be able to predict, includingexercise certain rights under the duration and scopeagreement upon the closing of the pandemic, governmental, business and individual actionsMerger. Any such counterparty may request modifications of its respective agreements as a condition to granting a waiver or consent under its agreement. There is no assurance that have been and continue to be taken in response tosuch counterparties will not exercise their rights under the pandemic,agreements, including termination rights where available, that the impact on economic activity from the pandemic and actions taken in response, the impact on our employeesexercise of any other operational disruptions or difficulties we may face, the effect on our tenants and their businesses, the ability of tenants to pay their contracted rents and any additional closures of our tenants’ businesses. These effects, individually or in the aggregate,such rights will adversely impact our tenant’s ability to pay their contracted rent. Any of these events could materially adversely impact our business, financial condition, results of operations or stock price.
Financial disruption or a prolonged economic downturn could materially and adversely affect the Company’s business.
Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which has been exacerbated by the COVID-19 pandemic, resulting in heightened credit risk, reduced valuation of investments and decreased economic activity. Moreover, many companies have experienced reduced liquidity and uncertainty as to their ability to raise capital during such periods of market disruption and volatility. In the event that these conditions recur ornot result in a prolonged economic downturn, our resultsmaterial adverse effect or that any modifications of operations, financial position or liquidity could be materially and adversely affected. These market conditions may affectsuch agreements will not result in a material adverse effect to the Company's ability to access debt and equity capital markets. In addition, as a result of recent financial events, we may face increased regulation. Many of the other risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 identify risks that result from, or are exacerbated by, financial economic downturn. These include risks related to our real estate assets, the competitive environment and regulatory developments.combined company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the three months ended March 31, 2020,2021, the Company repurchased 270,708519,127 shares for an aggregate purchase price of $5.1$9.1 million (weighted average price of $19.02$17.50 per share) in connection with common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted stock awards under the Company’s equity-based compensation plans.
During February 2020, the Company extended its share repurchase program for a term of two years, which will expire in February 2022, pursuant to which the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the three months ended March 31, 2020.2021. As of March 31, 2020,2021, the Company had $224.9 million available under this share repurchase program.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||
January 1, 2020 – January 31, 2020 | 30,631 | $ | 20.63 | - | $ | 224.9 | ||||||||||
February 1, 2020 – February 29, 2020 | 238,412 | 18.82 | - | 224.9 | ||||||||||||
March 1, 2020 – March 31, 2020 | 1,665 | 17.76 | - | 224.9 | ||||||||||||
Total | 270,708 | $ | 19.02 | - | ||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||
January 1, 2021 – January 31, 2021 | 75,847 | $ | 15.16 | - | $ | 224.9 | ||||||||||
February 1, 2021 – February 28, 2021 | 441,944 | 17.89 | - | 224.9 | ||||||||||||
March 1, 2021 – March 31, 2021 | 1,336 | 19.13 | - | 224.9 | ||||||||||||
Total | 519,127 | $ | 17.50 | - | ||||||||||||
Item 3.Defaults Upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
Not applicable.
None.
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.
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31.1 | ||
31.2 | ||
32.1 | ||
101.INS | Inline XBRL Instance Document - the | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
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.
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| KIMCO REALTY CORPORATION | |
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| April 30, 2021 |
| /s/ Conor C. Flynn |
(Date) |
| Conor C. Flynn | |
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| Chief Executive Officer | |
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| April 30, 2021 |
| /s/ Glenn G. Cohen |
(Date) |
| Glenn G. Cohen | |
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| Chief Financial Officer |