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 endedSeptember 30, 2020 March 31, 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 October 28, 2020,April 21, 2021, the registrant had 432,498,662433,459,202 shares of common stock outstanding.
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Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)
September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
Assets: | ||||||||||||||||
Real estate, net of accumulated depreciation and amortization of $2,662,212 and $2,500,053, respectively | $ | 9,373,537 | $ | 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 | 5,672 | 220,170 | 5,672 | 5,672 | ||||||||||||
Investments in and advances to real estate joint ventures | 589,672 | 578,118 | 592,791 | 590,694 | ||||||||||||
Other real estate investments | 120,148 | 194,400 | 117,437 | 117,140 | ||||||||||||
Cash and cash equivalents | 324,977 | 123,947 | 253,852 | 293,188 | ||||||||||||
Marketable securities | 556,791 | 9,353 | 767,989 | 706,954 | ||||||||||||
Accounts and notes receivable, net | 239,864 | 218,689 | 200,655 | 219,248 | ||||||||||||
Operating lease right-of-use assets, net | 94,807 | 99,125 | 101,433 | 102,369 | ||||||||||||
Other assets | 218,724 | 345,012 | 249,835 | 233,192 | ||||||||||||
Total assets (1) | $ | 11,524,192 | $ | 10,997,867 | $ | 11,699,703 | $ | 11,614,498 | ||||||||
Liabilities: | ||||||||||||||||
Notes payable, net | $ | 5,042,737 | $ | 4,831,759 | $ | 5,045,868 | $ | 5,044,208 | ||||||||
Mortgages and construction loan payable, net | 314,641 | 484,008 | ||||||||||||||
Mortgages payable, net | 295,613 | 311,272 | ||||||||||||||
Dividends payable | 5,366 | 126,274 | 5,366 | 5,366 | ||||||||||||
Operating lease liabilities | 88,893 | 92,711 | 95,833 | 96,619 | ||||||||||||
Other liabilities | 517,185 | 516,265 | 510,704 | 470,995 | ||||||||||||
Total liabilities (2) | 5,968,822 | 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 | 20 | 20 | ||||||||||||
Common stock, $.01 par value, authorized 750,000,000 shares; Issued and outstanding 432,501,817 and 431,814,951 shares, respectively | 4,325 | 4,318 | ||||||||||||||
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 | 5,759,104 | 5,765,233 | 5,763,868 | 5,766,511 | ||||||||||||
Cumulative distributions in excess of net income | (288,491 | ) | (904,679 | ) | (104,909 | ) | (162,812 | ) | ||||||||
Total stockholders' equity | 5,474,958 | 4,864,892 | 5,663,313 | 5,608,044 | ||||||||||||
Noncontrolling interests | 62,469 | 64,015 | 65,154 | 62,210 | ||||||||||||
Total equity | 5,537,427 | 4,928,907 | 5,728,467 | 5,670,254 | ||||||||||||
Total liabilities and equity | $ | 11,524,192 | $ | 10,997,867 | $ | 11,699,703 | $ | 11,614,498 | ||||||||
(1) | Includes restricted assets of consolidated variable interest entities (“VIEs”) at |
(2) | Includes non-recourse liabilities of consolidated VIEs at |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Revenues from rental properties, net | $ | 256,607 | $ | 279,181 | $ | 778,572 | $ | 850,525 | $ | 278,871 | $ | 286,004 | ||||||||||||
Management and other fee income | 3,185 | 3,690 | 9,880 | 12,229 | 3,437 | 3,740 | ||||||||||||||||||
Total revenues | 259,792 | 282,871 | 788,452 | 862,754 | 282,308 | 289,744 | ||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Rent | (2,767 | ) | (2,836 | ) | (8,429 | ) | (8,452 | ) | (3,035 | ) | (2,835 | ) | ||||||||||||
Real estate taxes | (40,403 | ) | (37,519 | ) | (118,733 | ) | (113,871 | ) | (38,936 | ) | (39,652 | ) | ||||||||||||
Operating and maintenance | (42,844 | ) | (39,758 | ) | (124,192 | ) | (123,871 | ) | (46,520 | ) | (42,408 | ) | ||||||||||||
General and administrative | (28,795 | ) | (23,832 | ) | (72,316 | ) | (72,296 | ) | (24,478 | ) | (21,017 | ) | ||||||||||||
Impairment charges | (397 | ) | (19,609 | ) | (3,509 | ) | (41,235 | ) | 0 | (2,974 | ) | |||||||||||||
Depreciation and amortization | (71,704 | ) | (68,874 | ) | (214,660 | ) | (209,440 | ) | (74,876 | ) | (69,397 | ) | ||||||||||||
Total operating expenses | (186,910 | ) | (192,428 | ) | (541,839 | ) | (569,165 | ) | (187,845 | ) | (178,283 | ) | ||||||||||||
Gain on sale of properties | 0 | 9,025 | 5,697 | 47,382 | 10,005 | 3,847 | ||||||||||||||||||
Operating income | 72,882 | 99,468 | 252,310 | 340,971 | 104,468 | 115,308 | ||||||||||||||||||
Other income/(expense) | ||||||||||||||||||||||||
Other (expense)/income, net | (900 | ) | 4,526 | 393 | 7,512 | |||||||||||||||||||
(Loss)/gain on marketable securities, net | (76,931 | ) | (199 | ) | 444,646 | 1,375 | ||||||||||||||||||
Gain on sale of cost method investment | 0 | 0 | 190,832 | 0 | ||||||||||||||||||||
Other income, net | 3,357 | 1,245 | ||||||||||||||||||||||
Gain/(loss) on marketable securities, net | 61,085 | (4,667 | ) | |||||||||||||||||||||
Interest expense | (46,942 | ) | (43,146 | ) | (141,017 | ) | (131,638 | ) | (47,716 | ) | (46,060 | ) | ||||||||||||
Early extinguishment of debt charges | (7,538 | ) | 0 | (7,538 | ) | 0 | ||||||||||||||||||
(Loss)/income before income taxes, net, equity in income of joint ventures, net, and equity in income from other real estate investments, net | (59,429 | ) | 60,649 | 739,626 | 218,220 | |||||||||||||||||||
Income before income taxes, net, equity in income of joint ventures, net, and equity in income from other real estate investments, net | 121,194 | 65,826 | ||||||||||||||||||||||
(Provision)/benefit for income taxes, net | (388 | ) | 3,866 | (482 | ) | 3,580 | ||||||||||||||||||
Provision for income taxes, net | (1,308 | ) | (43 | ) | ||||||||||||||||||||
Equity in income of joint ventures, net | 11,233 | 17,673 | 35,039 | 58,960 | 17,752 | 13,648 | ||||||||||||||||||
Equity in income of other real estate investments, net | 11,155 | 3,265 | 26,895 | 22,758 | 3,787 | 10,958 | ||||||||||||||||||
Net (loss)/income | (37,429 | ) | 85,453 | 801,078 | 303,518 | |||||||||||||||||||
Net income | 141,425 | 90,389 | ||||||||||||||||||||||
Net income attributable to noncontrolling interests | (965 | ) | (1,463 | ) | (1,479 | ) | (2,332 | ) | (3,483 | ) | (289 | ) | ||||||||||||
Net (loss)/income attributable to the Company | (38,394 | ) | 83,990 | 799,599 | 301,186 | |||||||||||||||||||
Net income attributable to the Company | 137,942 | 90,100 | ||||||||||||||||||||||
Preferred stock redemption charges | 0 | (11,369 | ) | 0 | (11,369 | ) | ||||||||||||||||||
Preferred dividends | (6,354 | ) | (13,573 | ) | (19,062 | ) | (42,641 | ) | (6,354 | ) | (6,354 | ) | ||||||||||||
Net (loss)/income available to the Company's common shareholders | $ | (44,748 | ) | $ | 59,048 | $ | 780,537 | $ | 247,176 | |||||||||||||||
Net income available to the Company's common shareholders | $ | 131,588 | $ | 83,746 | ||||||||||||||||||||
Per common share: | ||||||||||||||||||||||||
Net (loss)/income available to the Company: | ||||||||||||||||||||||||
Net income available to the Company's common shareholders: | ||||||||||||||||||||||||
-Basic | $ | (0.10 | ) | $ | 0.14 | $ | 1.80 | $ | 0.58 | $ | 0.30 | $ | 0.19 | |||||||||||
-Diluted | $ | (0.10 | ) | $ | 0.14 | $ | 1.80 | $ | 0.58 | $ | 0.30 | $ | 0.19 | |||||||||||
Weighted average shares: | ||||||||||||||||||||||||
-Basic | 429,994 | 419,823 | 429,899 | 419,663 | 430,524 | 429,735 | ||||||||||||||||||
-Diluted | 429,994 | 421,002 | 431,602 | 420,986 | 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 September 30,March 31, 2021 and 2020 and 2019
(Unaudited)
(in thousands)
Cumulative Distributions in Excess | Preferred Stock | Common Stock | Paid-in | Total Stockholders' | Noncontrolling | Total | Cumulative Distributions in Excess | Preferred Stock | Common Stock | Paid-in | Total Stockholders' | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of Net Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | of Net Income | Issued | Amount | Issued | Amount | Capital | Equity | Interests | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at July 1, 2019 | $ | (835,934 | ) | 43 | $ | 43 | 422,094 | $ | 4,221 | $ | 6,125,572 | $ | 5,293,902 | $ | 73,559 | $ | 5,367,461 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2020 | $ | (904,679 | ) | 20 | $ | 20 | 431,815 | $ | 4,318 | $ | 5,765,233 | $ | 4,864,892 | $ | 64,015 | $ | 4,928,907 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 83,990 | - | 0 | - | 0 | 0 | 83,990 | 1,463 | 85,453 | 90,100 | - | 0 | - | 0 | 0 | 90,100 | 289 | 90,389 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interests income | 0 | - | 0 | - | 0 | 0 | 0 | (94 | ) | (94 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (262 | ) | (262 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (131,797 | ) | - | 0 | - | 0 | 0 | (131,797 | ) | 0 | (131,797 | ) | (127,452 | ) | - | 0 | - | 0 | 0 | (127,452 | ) | 0 | (127,452 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | (2,340 | ) | (2,340 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (555 | ) | (555 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 0 | 0 | 0 | 52 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 921 | 9 | (9 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Surrender of restricted common stock | 0 | 0 | 0 | (14 | ) | 0 | (259 | ) | (259 | ) | 0 | (259 | ) | 0 | 0 | 0 | (274 | ) | (3 | ) | (5,156 | ) | (5,159 | ) | 0 | (5,159 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | 0 | 0 | 0 | 98 | 1 | 1,539 | 1,540 | 0 | 1,540 | 0 | 0 | 0 | 63 | 1 | 980 | 981 | 0 | 981 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of equity awards | 0 | - | 0 | - | 0 | 4,505 | 4,505 | 0 | 4,505 | 0 | - | 0 | - | 0 | 5,729 | 5,729 | 0 | 5,729 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of preferred stock | 0 | (14 | ) | (14 | ) | 0 | 0 | (349,986 | ) | (350,000 | ) | 0 | (350,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | $ | (883,741 | ) | 29 | $ | 29 | 422,230 | $ | 4,222 | $ | 5,781,371 | $ | 4,901,881 | $ | 72,588 | $ | 4,974,469 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interests | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at July 1, 2020 | $ | (200,492 | ) | 20 | $ | 20 | 432,504 | $ | 4,325 | $ | 5,752,658 | $ | 5,556,511 | $ | 61,863 | $ | 5,618,374 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss)/income | (38,394 | ) | - | 0 | - | 0 | 0 | (38,394 | ) | 965 | (37,429 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | (240 | ) | (240 | ) | 0 | - | 0 | - | 0 | 0 | 0 | (169 | ) | (169 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to common and preferred shares | (49,605 | ) | - | 0 | - | 0 | 0 | (49,605 | ) | 0 | (49,605 | ) | (80,039 | ) | - | 0 | - | 0 | 0 | (80,039 | ) | 0 | (80,039 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | (119 | ) | (119 | ) | 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 | (2 | ) | 0 | (4 | ) | (4 | ) | 0 | (4 | ) | 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 | 6,450 | 6,450 | 0 | 6,450 | 0 | - | 0 | - | 0 | 6,298 | 6,298 | 0 | 6,298 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | (288,491 | ) | 20 | $ | 20 | 432,502 | $ | 4,325 | $ | 5,759,104 | $ | 5,474,958 | $ | 62,469 | $ | 5,537,427 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 CHANGES IN EQUITY
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
(in thousands)
Cumulative Distributions in Excess | Preferred Stock | Common Stock | Paid-in | Total Stockholders' | Noncontrolling | Total | ||||||||||||||||||||||||||||||
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 | 301,186 | - | 0 | - | 0 | 0 | 301,186 | 2,332 | 303,518 | |||||||||||||||||||||||||||
Redeemable noncontrolling interests income | 0 | - | 0 | - | 0 | 0 | 0 | (279 | ) | (279 | ) | |||||||||||||||||||||||||
Dividends declared to common and preferred shares | (397,220 | ) | - | 0 | - | 0 | 0 | (397,220 | ) | 0 | (397,220 | ) | ||||||||||||||||||||||||
Distributions to noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | (3,499 | ) | (3,499 | ) | |||||||||||||||||||||||||
Issuance of common stock | 0 | 0 | 0 | 838 | 8 | (8 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||||
Surrender of restricted common stock | 0 | 0 | 0 | (236 | ) | (2 | ) | (3,946 | ) | (3,948 | ) | 0 | (3,948 | ) | ||||||||||||||||||||||
Exercise of common stock options | 0 | 0 | 0 | 239 | 2 | 3,349 | 3,351 | 0 | 3,351 | |||||||||||||||||||||||||||
Amortization of equity awards | 0 | - | 0 | - | 0 | 14,219 | 14,219 | 0 | 14,219 | |||||||||||||||||||||||||||
Acquisition of noncontrolling interests | 0 | - | 0 | - | 0 | 489 | 489 | (3,215 | ) | (2,726 | ) | |||||||||||||||||||||||||
Redemption of preferred stock | 0 | (14 | ) | (14 | ) | 0 | 0 | (349,986 | ) | (350,000 | ) | 0 | (350,000 | ) | ||||||||||||||||||||||
Balance at September 30, 2019 | $ | (883,741 | ) | 29 | $ | 29 | 422,230 | $ | 4,222 | $ | 5,781,371 | $ | 4,901,881 | $ | 72,588 | $ | 4,974,469 | |||||||||||||||||||
Balance at January 1, 2020 | $ | (904,679 | ) | 20 | $ | 20 | 431,815 | $ | 4,318 | $ | 5,765,233 | $ | 4,864,892 | $ | 64,015 | $ | 4,928,907 | |||||||||||||||||||
Contributions from noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | 109 | 109 | |||||||||||||||||||||||||||
Net income | 799,599 | - | 0 | - | 0 | 0 | 799,599 | 1,479 | 801,078 | |||||||||||||||||||||||||||
Redeemable noncontrolling interests income | 0 | - | 0 | - | 0 | 0 | 0 | (845 | ) | (845 | ) | |||||||||||||||||||||||||
Dividends declared to common and preferred shares | (183,411 | ) | - | 0 | - | 0 | 0 | (183,411 | ) | 0 | (183,411 | ) | ||||||||||||||||||||||||
Distributions to noncontrolling interests | 0 | - | 0 | - | 0 | 0 | 0 | (1,018 | ) | (1,018 | ) | |||||||||||||||||||||||||
Issuance of common stock | 0 | 0 | 0 | 921 | 9 | (9 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||||
Surrender of restricted common stock | 0 | 0 | 0 | (297 | ) | (3 | ) | (5,326 | ) | (5,329 | ) | 0 | (5,329 | ) | ||||||||||||||||||||||
Exercise of common stock options | 0 | 0 | 0 | 63 | 1 | 980 | 981 | 0 | 981 | |||||||||||||||||||||||||||
Amortization of equity awards | 0 | - | 0 | - | 0 | 17,574 | 17,574 | 0 | 17,574 | |||||||||||||||||||||||||||
Acquisition of noncontrolling interests | 0 | - | 0 | - | 0 | (19,348 | ) | (19,348 | ) | (1,271 | ) | (20,619 | ) | |||||||||||||||||||||||
Balance at September 30, 2020 | $ | (288,491 | ) | 20 | $ | 20 | 432,502 | $ | 4,325 | $ | 5,759,104 | $ | 5,474,958 | $ | 62,469 | $ | 5,537,427 | |||||||||||||||||||
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)
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash flow from operating activities: | ||||||||||||||||
Net income | $ | 801,078 | $ | 303,518 | $ | 141,425 | $ | 90,389 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 214,660 | 209,440 | 74,876 | 69,397 | ||||||||||||
Impairment charges | 3,509 | 41,235 | 0 | 2,974 | ||||||||||||
Early extinguishment of debt charges | 7,538 | 0 | ||||||||||||||
Equity award expense | 18,203 | 15,025 | 6,457 | 5,905 | ||||||||||||
Gain on sale of properties | (5,697 | ) | (47,382 | ) | (10,005 | ) | (3,847 | ) | ||||||||
Gain on marketable securities, net | (444,646 | ) | (1,375 | ) | ||||||||||||
Gain on sale of cost method investment | (190,832 | ) | 0 | |||||||||||||
(Gain)/loss on marketable securities, net | (61,085 | ) | 4,667 | |||||||||||||
Equity in income of joint ventures, net | (35,039 | ) | (58,960 | ) | (17,752 | ) | (13,648 | ) | ||||||||
Equity in income of other real estate investments, net | (26,895 | ) | (22,758 | ) | (3,787 | ) | (10,958 | ) | ||||||||
Distributions from joint ventures and other real estate investments | 135,791 | 78,940 | 19,198 | 35,894 | ||||||||||||
Change in accounts and notes receivable, net | (21,175 | ) | (6,908 | ) | 18,593 | (1,526 | ) | |||||||||
Change in accounts payable and accrued expenses | 42,064 | 29,515 | 15,387 | 5,456 | ||||||||||||
Change in other operating assets and liabilities, net | (32,617 | ) | (57,831 | ) | (34,936 | ) | (29,454 | ) | ||||||||
Net cash flow provided by operating activities | 465,942 | 482,459 | 148,371 | 155,249 | ||||||||||||
Cash flow from investing activities: | ||||||||||||||||
Acquisition of operating real estate | (7,073 | ) | 0 | (84,312 | ) | (7,073 | ) | |||||||||
Improvements to operating real estate | (164,366 | ) | (228,029 | ) | (20,569 | ) | (54,973 | ) | ||||||||
Improvements to real estate under development | (22,358 | ) | (85,609 | ) | 0 | (16,578 | ) | |||||||||
Investments in marketable securities | 0 | (244 | ) | |||||||||||||
Proceeds from sale of marketable securities | 931 | 1,920 | 50 | 163 | ||||||||||||
Proceeds from sale of cost method investment | 227,325 | 0 | ||||||||||||||
Investments in and advances to real estate joint ventures | (14,640 | ) | (22,129 | ) | (1,805 | ) | (5,282 | ) | ||||||||
Reimbursements of investments in and advances to real estate joint ventures | 4,400 | 10,274 | 967 | 1,914 | ||||||||||||
Investments in and advances to other real estate investments | (4,918 | ) | (12,503 | ) | (419 | ) | (478 | ) | ||||||||
Reimbursements of investments in and advances to other real estate investments | 297 | 5,960 | 343 | 0 | ||||||||||||
Investment in other financing receivable | 0 | (48 | ) | (397 | ) | 0 | ||||||||||
Collection of mortgage loans receivable | 114 | 5,402 | 37 | 40 | ||||||||||||
Investment in other investments | (500 | ) | (2,500 | ) | ||||||||||||
Proceeds from sale of properties | 21,718 | 163,199 | 22,181 | 13,264 | ||||||||||||
Proceeds from insurance casualty claims | 2,450 | 3,000 | 0 | 2,450 | ||||||||||||
Net cash flow provided by/(used for) investing activities | 43,380 | (161,307 | ) | |||||||||||||
Net cash flow used for investing activities | (83,924 | ) | (66,553 | ) | ||||||||||||
Cash flow from financing activities: | ||||||||||||||||
Principal payments on debt, excluding normal amortization of rental property debt | (158,556 | ) | (6,198 | ) | (12,272 | ) | (75,681 | ) | ||||||||
Principal payments on rental property debt | (8,036 | ) | (9,265 | ) | (2,661 | ) | (2,742 | ) | ||||||||
Proceeds from construction loan financing | 0 | 8,752 | ||||||||||||||
Proceeds from issuance of unsecured term loan | 590,000 | 0 | ||||||||||||||
Proceeds from issuance of unsecured notes | 900,000 | 350,000 | ||||||||||||||
(Repayments)/proceeds from the unsecured revolving credit facility, net | (200,000 | ) | 100,000 | |||||||||||||
Repayments of unsecured term loan | (590,000 | ) | 0 | |||||||||||||
Repayments of unsecured notes | (484,905 | ) | 0 | |||||||||||||
Proceeds from the unsecured revolving credit facility, net | 0 | 475,000 | ||||||||||||||
Financing origination costs | (17,851 | ) | (7,448 | ) | 0 | (5,145 | ) | |||||||||
Payment of early extinguishment of debt charges | (7,538 | ) | (1,531 | ) | ||||||||||||
Contributions from noncontrolling interests | 109 | 0 | ||||||||||||||
Redemption/distribution of noncontrolling interests | (22,483 | ) | (6,489 | ) | (539 | ) | (20,926 | ) | ||||||||
Dividends paid | (304,320 | ) | (401,280 | ) | (80,039 | ) | (127,255 | ) | ||||||||
Proceeds from issuance of stock, net | 981 | 3,351 | 160 | 981 | ||||||||||||
Redemption of preferred stock | 0 | (350,000 | ) | |||||||||||||
Change in other financing liabilities | (5,693 | ) | (3,315 | ) | ||||||||||||
Net cash flow used for financing activities | (308,292 | ) | (323,423 | ) | ||||||||||||
| 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 | 201,030 | (2,271 | ) | (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 | $ | 324,977 | $ | 141,310 | $ | 253,852 | $ | 451,796 | ||||||||
Interest paid during the period including payment of early extinguishment of debt charges of $7,538 and $1,531, respectively (net of capitalized interest of $11,283 and $10,874, respectively) | $ | 128,591 | $ | 111,224 | ||||||||||||
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 assets. The terms “Kimco,” the “Company,” “we,” “our” and “us” each refers 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.
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, but not limited to, the temporary closures of many businesses, "shelter in place" orders, social distancing guidelines and other governmental, business and individual actions taken in response to the COVID-19 pandemic. There has also been reduced consumer spending due to job losses, government restrictions in response to COVID-19 and other effects attributable to COVID-19.
The Company is aware 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. The Company’s shopping centers 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.
The COVID-19 pandemic has created significant economic uncertainty and volatility and has considerably impacted the Company’s stakeholders.tenants. 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 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 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 make their rental payments, additional closures of tenants’ businesses and the impact of opening and reclosing of communities in response to the resurgence of COVID-19. Any of these events could materially adversely impact the Company’s business, financial condition, results of 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 Company will continue to monitor for any material or adverse effects resulting from the COVID-19 pandemic. 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-19 pandemic, the Company’s shopping centers have remained open; however, 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, also had a substantial number ofand continues to have, worked with tenants that have made lateto grant rent deferrals or partial rent payments, requested a deferralforgiveness of rent payments or defaulted on rent payments. Sincea tenant-by-tenant basis. The development and distribution of COVID vaccines throughout the country have assisted in allowing many restrictions to be lifted, providing a path to recovery. There have been additional improvements to the real estate industry as the pandemic began,continues to redefine the Companyneeds of consumers across the country. There has seenbeen an increase in the number of tenants filingdemand for bankruptcy. 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 evaluate the impactsee an increase in collections of these bankruptcy filings have or will have on collections, vacancies and future rental income. The Company consideredpayments, 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. During the nine months ended September 30,2020, the Company's revenue was reduced by $72.2 million associated with potentially uncollectible revenues, including revenues from tenants that are being accounted for on a cash basis, and disputed amounts, which includes $15.1 million for straight-line rent receivables, primarily attributable to 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 has, and continues to have, worked with tenants to grant rent deferrals or forgiveness of rent on a tenant-by-tenant basis. The deferrals are generally anticipated to be paid within six to 18 months.
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 September 30, 2020March 31, 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 (i) $9.4 million of Marketable securities from Other assets on the Company’s Condensed Consolidated Balance Sheets at December 31, 2019 and (ii) $0.2$4.7 million of loss on marketable securities, net and $1.4 million of gain on marketable securities, net from Other (expense)/income, net to (Loss)/gainGain/(loss) on marketable securities, net on the Company’s Condensed Consolidated Statements of OperationsIncome for the three andmonths ended nineMarch 31, 2020. On the Company’s Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2019,March 31, 2020, respectively.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.Condensed Consolidated Financial Statements (see Footnote 17 of 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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The Company has elected to apply the modification relief as described in (i) above to the lease concessions it has entered into during the nine months ended September 30, 2020, related to the COVID-19 pandemic as a lessor related to rental income recognized.
The following table represents ASUsASU to the FASB’s ASC that,have been adopted by the Company as of September 30, 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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The following ASUs to the FASB’s ASC have been adopted by the Company as of the date listed:
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3. Real Estate
Acquisitions of Operating Properties -
During the ninethree months ended September 30, 2020,March 31, 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.
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 ninethree months ended September 30, 2020,March 31, 2021, is as follows (in thousands):
Allocation as of September 30, 2020 | Weighted Average | |||||||
Land | $ | 935 | n/a | |||||
Building | 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 had a real estate development project located in Dania Beach, FL for long-term investment. During
Dispositions -
The table below summarizes the Company’s disposition activity relating to consolidated operating properties and parcels (dollars in millions):
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Aggregate sales price | $ | 22.6 | $ | 163.8 | $ | 23.0 | $ | 13.5 | ||||||||
Gain on sale of properties | $ | 5.7 | $ | 47.4 | $ | 10.0 | $ | 3.8 | ||||||||
Number of properties sold | 3 | 12 | 1 | 1 | ||||||||||||
Number of out-parcels sold | 0 | 7 | ||||||||||||||
Number of land parcels sold | 1 | 0 | ||||||||||||||
Number of parcels sold | 4 | 0 | ||||||||||||||
Impairments-
During the nine months ended September 30, 2020 and 2019, the Company recognized aggregate impairment charges of $3.5 million and $41.2 million, respectively, related to adjustments to property carrying values for properties which the Company has sold or 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. 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.
| (1) | Before noncontrolling interests of $3.0 million and taxes of $1.0 million for the three months ended March 31, 2021. |
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 September 30, 2020March 31, 2021 and December 31, 20192020 (dollars in millions):
Ownership | The Company’s Investment | Ownership | The Company’s Investment | |||||||||||||||||||||
Joint Venture | Interest | September 30, 2020 | December 31, 2019 | Interest | March 31, 2021 | December 31, 2020 | ||||||||||||||||||
Prudential Investment Program (1) | 15.0% | $ | 176.8 | $ | 169.5 | 15.0% | $ | 175.7 | $ | 175.1 | ||||||||||||||
Kimco Income Opportunity Portfolio (“KIR”) (1) | 48.6% | 176.9 | 175.0 | 48.6% | 179.0 | 177.4 | ||||||||||||||||||
Canada Pension Plan Investment Board (“CPP”) (1) | 55.0% | 156.7 | 151.7 | 55.0% | 161.7 | 159.7 | ||||||||||||||||||
Other Joint Venture Programs | Various | 79.3 | 81.9 |
| Various | 76.4 | 78.5 | |||||||||||||||||
Total* | $ | 589.7 | $ | 578.1 | $ | 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 |
(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/(loss)income for the above investments which is included in Equity in income of joint ventures, net on the Company’s Condensed Consolidated Statements of OperationsIncome for the three and ninemonths ended September 30, 2020March 31, 2021 and 20192020 (in millions):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
Joint Venture | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Prudential Investment Program | $ | 2.3 | $ | 5.6 | $ | 6.8 | $ | 11.3 | $ | 2.6 | $ | 2.6 | ||||||||||||
KIR | 8.2 | 8.8 | 22.9 | 40.6 | 8.7 | 9.8 | ||||||||||||||||||
CPP | 0.9 | 1.1 | 3.6 | 4.2 | 2.1 | 1.0 | ||||||||||||||||||
Other Joint Venture Programs | (0.2 | ) | 2.2 | 1.7 | 2.9 | 4.4 | 0.2 | |||||||||||||||||
Total | $ | 11.2 | $ | 17.7 | $ | 35.0 | $ | 59.0 | $ | 17.8 | $ | 13.6 | ||||||||||||
During the ninethree months ended September 30, 2019,March 31, 2021, certain of the Company’s real estate joint ventures disposed of 8 operating2 properties, in separate transactions, for an aggregate sales price of $240.9$53.7 million. These transactions resulted in an aggregate net gain to the Company of $13.7$4.2 million for the ninethree months ended September 30, 2019.March 31, 2021.
The table below presents debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at September 30, 2020March 31, 2021 and December 31, 20192020 (dollars in millions):
As of September 30, 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 | $ | 496.9 | 2.06 | % | 40.3 | $ | 538.1 | 3.46 | % | 46.8 | $ | 494.6 | 2.03 | % | 34.2 | $ | 495.8 | 2.05 | % | 37.2 | ||||||||||||||||||||||||||||
KIR | 540.6 | 4.00 | % | 26.7 | 556.0 | 4.39 | % | 28.4 | 524.3 | 3.27 | % | 28.9 | 536.9 | 3.87 | % | 25.3 | ||||||||||||||||||||||||||||||||
CPP | 84.9 | 3.25 | % | 33.0 | 84.8 | 3.25 | % | 42.0 | 85.0 | 3.25 | % | 27.0 | 84.9 | 3.25 | % | 30.0 | ||||||||||||||||||||||||||||||||
Other Joint Venture Programs | 423.5 | 3.45 | % | 86.2 | 415.2 | 3.87 | % | 80.9 | 382.7 | 3.59 | % | 89.8 | 423.4 | 3.41 | % | 86.7 | ||||||||||||||||||||||||||||||||
Total | $ | 1,545.9 | $ | 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 September 30, 2020,March 31, 2021, the Company’s net investment under the Preferred Equity Program was $101.2$99.4 million relating to 131111 properties, including 121101 net leased properties. During the ninethree months ended September 30,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 $26.8$11.1 million from its preferred equity investments, including net profit participation of $15.9 million. During the nine months ended September 30, 2019, the Company recognized income of $22.6 million from its preferred equity investments, including net profit participation of $8.6$6.3 million. These amounts are included in Equity in income of other real estate investments, net on the Company’s Condensed Consolidated Statements of Operations.Income.
6. Marketable Securities
The amortized cost and unrealized gains/(losses),gains, net of marketable securities as of September 30, 2020March 31, 2021 and December 31, 2019,2020, are as follows (in thousands):
As of September 30, 2020 | As of December 31, 2019 | |||||||
Marketable securities: | ||||||||
Amortized cost (1) | $ | 114,531 | $ | 12,064 | ||||
Unrealized gains/(losses), net (1) | 442,260 | (2,711 | ) | |||||
Total fair value | $ | 556,791 | $ | 9,353 | ||||
|
|
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 September 30, 2020March 31, 2021 and 2019,2020, thethere were net unrealized gains on marketable securities of $61.1 million and net unrealized losses on marketable securities were $76.9 million and $0.2 million, respectively. In addition, during the nine months ended September 30, 2020 and 2019, the net unrealized gains on marketable securities were $444.6 million and $1.4of $4.7 million, respectively. These net unrealized lossesgains and gainslosses are included in (Loss)/gainGain/(loss) on marketable securities, net on the Company’s Condensed Consolidated Statements of Operations.Income. See Footnote 1112 to the Notes toof the Company’s Condensed Consolidated Financial Statements for fair value disclosure.
Albertsons Companies, Inc. (“ACI”) –
The Company owned 9.29% of the common stock of ACI, one7. of the largest foodAccounts and drug retailers in the United States, and accounted for this $140.2 million investment on the cost method, which was included in Other assets on the Company’s Condensed Consolidated Balance Sheets. During June 2020, ACI issued $1.75 billion of convertible preferred stock and used the net proceeds of $1.68 billion to repurchase approximately 17.5% of ACI’s common stock owned by its current shareholders. As a result of this transaction, the Company received net proceeds of $156.1 million, recognized a gain of $131.6 million, which is included in Gain on sale of cost method investment on the Company’s Condensed Consolidated Statements of Operations and held a 7.5% ownership interest in ACI.Notes Receivable
OnThe components of accounts and notes receivable, net of potentially uncollectible amounts as of June 25,March 31, 2021 and December 31, 2020, ACI announced its initial public offering ("IPO") of 50.0 million shares of its common stock had been priced at $16.00 per share. In connection with this transaction, the Company received net proceeds of $71.4 million, net of fees, from the sale of 4.7 million common shares in ACI and recognized a gain of $59.2 million, which is included in Gain on sale of cost method investment on the Company’s Condensed Consolidated Statements of Operations. The shares began trading on the New York Stock Exchange under the symbol "ACI", on June 26, 2020. As of September 30, 2020, the Company holds 39.8 million common shares in ACI which are accounted for as available-for-sale marketable securities and are included in Marketable securities on the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2020, the Company’s investment in ACI was $551.8 million, including a mark-to-market gain of $448.2 million.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 | ||
During October 2020, ACI declared a cash dividend of $0.10 per share of Class A common stock and Class A-1 common stock. The cash dividend is payable on November 10, 2020 to stockholders of record as of the close of business on October 26, 2020. As a result, the Company anticipates it will receive $4.0 million during the fourth quarter 2020 relating to this dividend distribution.
7.8. Leases
Lessor Leases
The Company’s primary source of revenues is derived from lease agreements, which includes rental income and expense reimbursement. The Company’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’s lease income, which is included in RevenueRevenues from rental properties on the Company’s Condensed Consolidated Statements of Operations,Income, as either fixed or variable lease income based on the criteria specified in ASC 842, for the ninethree months ended September 30, 2020March 31, 2021 and 2019,2020, is as follows (in thousands):
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Lease income: | ||||||||||||||||
Fixed lease income (1) | $ | 596,105 | $ | 651,839 | $ | 212,393 | $ | 218,873 | ||||||||
Variable lease income (2) | 164,967 | 181,898 | 60,776 | 57,189 | ||||||||||||
Above-market and below-market leases amortization, net | 17,500 | 16,788 | 5,702 | 9,942 | ||||||||||||
Total lease income | $ | 778,572 | $ | 850,525 | $ | 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 non-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 51.564.8 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. TheAt March 31, 2021, the weighted average remaining non-cancelable lease term for the Company’s operating leases was 20.920.5 years at September 30, 2020. Theand the weighted average discount rate was 6.66% at September 30, 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 OperationsIncome for the ninethree months ended September 30, 2020March 31, 2021 and 2019,2020, were as follows (in thousands):
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Lease cost: | ||||||||||||||||
Operating lease cost | $ | 7,782 | $ | 9,592 | $ | 2,830 | $ | 2,598 | ||||||||
Variable lease cost | 2,104 | 1,408 | 683 | 727 | ||||||||||||
Total lease cost | $ | 9,886 | $ | 11,000 | $ | 3,513 | $ | 3,325 | ||||||||
8.9. Notes Mortgages and Construction LoanMortgages Payable
Notes Payable –
In February 2020, the Company obtained 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 76.5 basis points (0.91%(0.88% as of September 30, 2020)March 31, 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 September 30, 2020,March 31, 2021, the Credit Facility had 0 outstanding balance, 0 amount$0.3 million appropriated for letters of credit and the Company was in compliance with its covenants.
InMortgages Payable -
During the April 2020,three months ended March 31, 2021, the Company entered into a new unsecured term loan credit facility with total outstanding borrowingsrepaid $12.3 million of $590.0 million (the “Term Loan”) pursuant to a credit agreement with a groupmortgage debt (including fair market value adjustment of banks. The Term Loan was scheduled to mature 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 accrued 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,$0.1 million) that in each case fluctuated in accordance with changes in the Company’s senior debt ratings. The Term Loan could be increased byencumbered an additional $750.0 million through an accordion feature. Pursuant to the terms of the Term Loan, the Company was subject to covenants that were substantially the same as those in the Credit Facility. During July 2020, the Term Loan was fully repaid and the facility was terminated.operating property.
In July 2020, the Company issued $500.0 million in unsecured notes (the “Green Bond”), which are scheduled to mature in October 2030 and accrue interest at a rate of 2.70% per annum. The net proceeds from this offering are allocated to finance or refinance, in whole or in part, recently completed, existing or future Eligible Green Projects, in alignment with the four core components of the Green Bond Principles, 2018 as administered by the International Capital Market Association. Eligible Green Projects include projects with disbursements made in the three years preceding the issue date of the notes.
In August 2020, the Company issued $400.0 million in senior unsecured notes, which are scheduled to mature in March 2028 and accrue interest at a rate of 1.90% per annum.
During the three months ended September 30, 2020, the Company fully redeemed all $484.9 million of its 3.20% senior unsecured notes outstanding which were scheduled to mature in May 2021. As a result, the Company incurred a prepayment charge of $7.5 million, which is included in Early extinguishment of debt charges on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020.
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. This construction loan was fully repaid in January 2020.
During the nine months ended September 30, 2020, the Company repaid $92.0 million of mortgage debt (including fair market value adjustment of $0.4 million) that encumbered four operating properties.
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 Operations.
During the nine months ended September 30, 2020, the Company acquired its partners’ interests in two consolidated entities, in separate transactions, for an aggregate purchase price of $20.6 million. This transaction resulted in a net decrease in Noncontrolling interests of $1.3 million and a corresponding net decrease in Paid-in capital of $19.3 million on the Company’s Condensed Consolidated Balance Sheets. There are no remaining partners in one of these consolidated entities.Income.
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 ninethree months ended September 30, 2020March 31, 2021 and 20192020 (in thousands):
Nine Months Ended September 30, | 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 | 845 | 279 | 169 | 262 | ||||||||||||
Distributions | (845 | ) | (266 | ) | (169 | ) | (262 | ) | ||||||||
Balance at September 30, | $ | 17,943 | $ | 23,695 | ||||||||||||
Balance at March 31, | $ | 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 September 30, 2020March 31, 2021 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 September 30,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 $64.7$62.1 million. At December 31, 2019, total assets of these VIEs were $0.9 billion and total liabilities were $70.9 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 nine months ended September 30, 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 September 30, 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 | $ | 98.3 | $ | 228.9 | $ | 97.1 | $ | 97.7 | ||||||||
Cash and cash equivalents | 2.4 | 9.2 | 1.6 | 1.8 | ||||||||||||
Accounts and notes receivable, net | 1.8 | 3.8 | 1.6 | 1.9 | ||||||||||||
Other assets | 1.6 | 3.6 | 1.6 | 1.1 | ||||||||||||
Total Restricted Assets | $ | 104.1 | $ | 245.5 | $ | 101.9 | $ | 102.5 | ||||||||
VIE Liabilities: | ||||||||||||||||
Mortgages and construction loan payable, net | $ | 37.0 | $ | 104.5 | ||||||||||||
Mortgages payable, net | $ | 36.2 | $ | 36.5 | ||||||||||||
Operating lease liabilities | 5.5 | 5.5 | ||||||||||||||
Other liabilities | 27.7 | 48.9 | 55.0 | 20.1 | ||||||||||||
Total VIE Liabilities | $ | 64.7 | $ | 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):
September 30, 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) | $ | 5,042,737 | $ | 5,298,739 | $ | 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) | $ | 314,641 | $ | 315,301 | $ | 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 |
(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 September 30, 2020March 31, 2021 and December 31, 2019,2020, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
Balance at September 30, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Marketable equity securities | $ | 556,791 | $ | 556,791 | $ | 0 | $ | 0 | ||||||||
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 | $ | 0 | $ | 0 | ||||||||
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 September 30, 2020 and December 31, 2019,2020 are as follows (in thousands):
Balance at September 30, 2020 | Level 1 | Level 2 | Level 3 | |||||||||||||
Real estate | $ | 5,300 | $ | 0 | $ | 0 | $ | 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 | $ | 0 | $ | 0 | $ | 39,510 | ||||||||
Other real estate investments | $ | 32,974 | $ | 0 | $ | 0 | $ | 32,974 | ||||||||
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 September 30, 2020,March 31, 2021, the Company had 10.08.5 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 OperationsIncome 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 $18.2$6.5 million and $15.0$5.9 million for the ninethree months ended September 30, 2020March 31, 2021 and 2019,2020, respectively. As of September 30, 2020,March 31, 2021, the Company had $39.6$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 3.03.2 years.
The Company recognized severance costs associated with employee retirements and terminations of $8.7 million and $1.1 million during the nine months ended September 30, 2020 and 2019, respectively.
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 September 30, | Nine Months Ended September 30, | March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Computation of Basic and Diluted Earnings Per Share: | ||||||||||||||||||||||||
Net (loss)/income available to the Company's common shareholders | $ | (44,748 | ) | $ | 59,048 | $ | 780,537 | $ | 247,176 | |||||||||||||||
Net income available to the Company's common shareholders | $ | 131,588 | $ | 83,746 | ||||||||||||||||||||
Earnings attributable to participating securities | (251 | ) | (654 | ) | (5,259 | ) | (1,939 | ) | (792 | ) | (686 | ) | ||||||||||||
Net (loss)/income available to the Company’s common shareholders for basic earnings per share | (44,999 | ) | 58,394 | 775,278 | 245,237 | |||||||||||||||||||
Net income available to the Company’s common shareholders for basic earnings per share | 130,796 | 83,060 | ||||||||||||||||||||||
Distributions on convertible units | 0 | 0 | 119 | 20 | 9 | 0 | ||||||||||||||||||
Net (loss)/income available to the Company’s common shareholders for diluted earnings per share | $ | (44,999 | ) | $ | 58,394 | $ | 775,397 | $ | 245,257 | |||||||||||||||
Net income available to the Company’s common shareholders for diluted earnings per share | $ | 130,805 | $ | 83,060 | ||||||||||||||||||||
Weighted average common shares outstanding – basic | 429,994 | 419,823 | 429,899 | 419,663 | 430,524 | 429,735 | ||||||||||||||||||
Effect of dilutive securities (1): | ||||||||||||||||||||||||
Equity awards | 0 | 1,120 | 1,496 | 1,273 | 1,606 | 717 | ||||||||||||||||||
Assumed conversion of convertible units | 0 | 59 | 207 | 50 | 134 | 53 | ||||||||||||||||||
Weighted average common shares outstanding – diluted | 429,994 | 421,002 | 431,602 | 420,986 | 432,264 | 430,505 | ||||||||||||||||||
Net (loss)/income available to the Company's common shareholders: | ||||||||||||||||||||||||
Net income available to the Company's common shareholders: | ||||||||||||||||||||||||
Basic earnings per share | $ | (0.10 | ) | $ | 0.14 | $ | 1.80 | $ | 0.58 | $ | 0.30 | $ | 0.19 | |||||||||||
Diluted earnings per share | $ | (0.10 | ) | $ | 0.14 | $ | 1.80 | $ | 0.58 | $ | 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 September 30, 2020 and December 31, 2019 | |||||||||||||||||||||||||
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 | ||||||||||||||||||
Class L | 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 | |||||||||||||||
| 19,580 | $ | 489,500 | |||||||||||||||||||||||
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 | ||||||||||||||||||
Class L | 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 | |||||||||||||||
| 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 ninethree months ended September 30, 2020.March 31, 2021. As of September 30, 2020,March 31, 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 nine months ended September 30, 2020.
Dividends Declared -
The following table provides a summary of the dividends declared per share:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Common Shares (1) | $ | 0.10000 | $ | 0.28000 | $ | 0.38000 | $ | 0.84000 | ||||||||
Class I Depositary Shares (2) | $ | 0 | $ | 0.24583 | $ | 0 | $ | 0.99583 | ||||||||
Class J Depositary Shares (2) | $ | 0 | $ | 0.34375 | $ | 0 | $ | 1.03125 | ||||||||
Class K Depositary Shares (2) | $ | 0 | $ | 0.23047 | $ | 0 | $ | 0.93359 | ||||||||
Class L Depositary Shares | $ | 0.32031 | $ | 0.32031 | $ | 0.96093 | $ | 0.96093 | ||||||||
Class M Depositary Shares | $ | 0.32813 | $ | 0.32813 | $ | 0.98439 | $ | 0.98439 | ||||||||
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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 ninethree months ended September 30, 2020March 31, 2021 and 20192020 (in thousands):
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Acquisition of real estate interests through proceeds held in escrow | $ | 0 | $ | 30,970 | ||||||||||||
Surrender of restricted common stock | $ | 5,329 | $ | 3,948 | $ | 9,092 | $ | 5,159 | ||||||||
Declaration of dividends paid in succeeding period | $ | 5,366 | $ | 126,203 | $ | 5,366 | $ | 126,473 | ||||||||
Capital expenditures accrual | $ | 41,373 | $ | 73,958 | $ | 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.
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 and in any of our subsequently filed Quarterly Reports on Form 10-Q.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 refers 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 September 30, 2020,March 31, 2021, the Company had interests in 400398 U.S. shopping center properties, aggregating 70.169.8 million square feet of gross leasable area (“GLA”), located in 27 states. In addition, the Company had 140122 other property interests, primarily through the Company’s preferred equity investments and other real estate investments, totaling 5.56.7 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 charges,creation 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 effects of the pandemic are prolonged, it could have a significant adverse impact on the underlying industries of many of the Company’s tenants.operates. The majority of the Company’s tenants and their operations have been impacted, and may continue to be impacted, affecting their ability to pay rent.impacted. Through the duration of the pandemic, a substantial number of tenants have had to temporarily or permanently close their business, shortened their operating hours or offer reduced services for some period of time. As
The extent to which the COVID-19 pandemic impacts the Company’s financial condition, results of September 30, 2020, mandated or voluntary tenantoperations and cash flows, in the near term, will continue to depend on future developments, which continue 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 represented 2.8% of annual base rent for alltenants’ businesses.
The Company continues to monitor the impact of COVID-19 on the Company’s business, tenants and industry as a whole. The magnitude and duration of the Company's wholly owned locationsCOVID-19 pandemic and its impact on the Company's share of ownership in joint ventures (collectively,Company’s operations and liquidity remains uncertain as this pandemic continues to evolve globally and within the "pro-rata annual base rent"). As a result,United States. Management cannot, at this point, estimate ultimate losses related to the COVID-19 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 has also haddetermines 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-19 pandemic, the Company’s shopping centers have remained open; however, as noted above, a substantial number of tenants thathad, or continue to have, made latetemporarily or partial rent payments, requested a deferral of rent payments,permanently closed their businesses. Others had, or defaulted on rent payments, and it is likely that more of the Company’s tenants will be similarly impacted in the future. Additionally, since the pandemic began, thecontinue to have, shortened their operating hours or offered reduced services. The Company has, seen an increase in the number of tenants filing for bankruptcy. As of September 30, 2020, there were 140 leases or 2.3% of pro-rata annual base rent within the Company’s portfolio associated with tenants in bankruptcy. The Companyand continues to evaluate the impact these bankruptcy filings have, or will have on collections, vacancies and future rental income. During the second and third quarter of 2020, the Company granted selective deferrals for approximately 20% and 5%, respectively, of its pro-rata annual base rent and collected 74% and 89%, respectively, of its pro-rata annual base rent. The Company continues to negotiate for the payment of the remaining rents not yet collected as well as workworked with tenants to grant rent deferrals or forgiveness of rent on a tenant by tenanttenant-by-tenant basis. The Companydevelopment and distribution of COVID vaccines throughout the country have assisted in 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 also collected 90% of the pro-rata annual base rentbeen an increase in demand for the month of October 2020.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 consideredcontinues to see an increase in collections of rental payments, however, the impactseffects 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. DuringAs of March 31, 2021, the nine months ended September 30, 2020, the Company's revenueCompany’s consolidated accounts receivable balance was reduced by $72.2 million associated with50% potentially uncollectible, revenues and disputed amounts, including revenuesreceivables from tenants that are being accounted for on a cash basis, which includes $15.1 million forand 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 may determine that further adjustments to its accounts receivable may be required in the future, and such amounts may be material.
The impact of COVID-19 on the Company’s future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, 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 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 continues 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 and within the United States. However, if 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, 3 and 4 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. Management cannot, at this point, estimate ultimate losses related to the COVID-19 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.
As a result of the current economic uncertainty and the impact to many of the Company’s tenants, the Company has taken important steps to offer its support, including:
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The health and safety of the Company’s employees and their families is a top priority. The Company has taken the necessary steps to protect its employees and to empower them to work from home and care for their family members and children, whose lives have also been impacted.
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The Company has begun its office reopening plan by allowing a small portion of its employees the option to work from specific offices that meet certain criteria. The Company has implemented CDC-approved protocols and developed detailed plans to prioritize the well-being of its employees. All employees were shown a training video and are required to test negative for COVID-19 at least five business days prior to returning to the office. Each employee is subject to a daily health screening questions in order to enter the office. The Company will continue to make necessary adjustments to its plans as facts and circumstances change and evolve.
The Company will continue to evaluate individual situations as they arise and adjust its approach as appropriate, with the goal to enable its employees to be as productive as possible while offering them the flexibility they need to care for themselves and their families.
Results of Operations
Comparison of the three months ended March 31, 2021 and nine months ended September 30, 2020and 2019
The following table presents the comparative results from the Company’s Condensed Consolidated Statements of OperationsIncome for the three and nine months ended September 30, 2020,March 31, 2021, as compared to the corresponding periodsperiod in 20192020 (in thousands, except per share data):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | Three Months Ended March 31, | ||||||||||||||||||||||||||||||
2021 | 2020 | Change | ||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||
Revenues from rental properties, net | $ | 256,607 | $ | 279,181 | $ | (22,574 | ) | $ | 778,572 | $ | 850,525 | $ | (71,953 | ) | $ | 278,871 | $ | 286,004 | $ | (7,133 | ) | |||||||||||||||
Management and other fee income | 3,185 | 3,690 | (505 | ) | 9,880 | 12,229 | (2,349 | ) | 3,437 | 3,740 | (303 | ) | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||
Rent (1) | (2,767 | ) | (2,836 | ) | 69 | (8,429 | ) | (8,452 | ) | 23 | (3,035 | ) | (2,835 | ) | (200 | ) | ||||||||||||||||||||
Real estate taxes | (40,403 | ) | (37,519 | ) | (2,884 | ) | (118,733 | ) | (113,871 | ) | (4,862 | ) | (38,936 | ) | (39,652 | ) | 716 | |||||||||||||||||||
Operating and maintenance (2) | (42,844 | ) | (39,758 | ) | (3,086 | ) | (124,192 | ) | (123,871 | ) | (321 | ) | (46,520 | ) | (42,408 | ) | (4,112 | ) | ||||||||||||||||||
General and administrative (3) | (28,795 | ) | (23,832 | ) | (4,963 | ) | (72,316 | ) | (72,296 | ) | (20 | ) | (24,478 | ) | (21,017 | ) | (3,461 | ) | ||||||||||||||||||
Impairment charges | (397 | ) | (19,609 | ) | 19,212 | (3,509 | ) | (41,235 | ) | 37,726 | - | (2,974 | ) | 2,974 | ||||||||||||||||||||||
Depreciation and amortization | (71,704 | ) | (68,874 | ) | (2,830 | ) | (214,660 | ) | (209,440 | ) | (5,220 | ) | (74,876 | ) | (69,397 | ) | (5,479 | ) | ||||||||||||||||||
Gain on sale of properties | - | 9,025 | (9,025 | ) | 5,697 | 47,382 | (41,685 | ) | 10,005 | 3,847 | 6,158 | |||||||||||||||||||||||||
Other income/(expense) | ||||||||||||||||||||||||||||||||||||
Other (expense)/income, net | (900 | ) | 4,526 | (5,426 | ) | 393 | 7,512 | (7,119 | ) | |||||||||||||||||||||||||||
(Loss)/gain on marketable securities, net | (76,931 | ) | (199 | ) | (76,732 | ) | 444,646 | 1,375 | 443,271 | |||||||||||||||||||||||||||
Gain on sale of cost method investment | - | - | - | 190,832 | - | 190,832 | ||||||||||||||||||||||||||||||
Other income, net | 3,357 | 1,245 | 2,112 | |||||||||||||||||||||||||||||||||
Gain/(loss) on marketable securities, net | 61,085 | (4,667 | ) | 65,752 | ||||||||||||||||||||||||||||||||
Interest expense | (46,942 | ) | (43,146 | ) | (3,796 | ) | (141,017 | ) | (131,638 | ) | (9,379 | ) | (47,716 | ) | (46,060 | ) | (1,656 | ) | ||||||||||||||||||
Early extinguishment of debt charges | (7,538 | ) | - | (7,538 | ) | (7,538 | ) | - | (7,538 | ) | ||||||||||||||||||||||||||
(Provision)/benefit for income taxes, net | (388 | ) | 3,866 | (4,254 | ) | (482 | ) | 3,580 | (4,062 | ) | ||||||||||||||||||||||||||
Provision for income taxes, net | (1,308 | ) | (43 | ) | (1,265 | ) | ||||||||||||||||||||||||||||||
Equity in income of joint ventures, net | 11,233 | 17,673 | (6,440 | ) | 35,039 | 58,960 | (23,921 | ) | 17,752 | 13,648 | 4,104 | |||||||||||||||||||||||||
Equity in income of other real estate investments, net | 11,155 | 3,265 | 7,890 | 26,895 | 22,758 | 4,137 | 3,787 | 10,958 | (7,171 | ) | ||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | (965 | ) | (1,463 | ) | 498 | (1,479 | ) | (2,332 | ) | 853 | (3,483 | ) | (289 | ) | (3,194 | ) | ||||||||||||||||||||
Preferred stock redemption charges | - | (11,369 | ) | 11,369 | - | (11,369 | ) | 11,369 | ||||||||||||||||||||||||||||
Preferred dividends | (6,354 | ) | (13,573 | ) | 7,219 | (19,062 | ) | (42,641 | ) | 23,579 | (6,354 | ) | (6,354 | ) | - | |||||||||||||||||||||
Net (loss)/income available to the Company's common shareholders | $ | (44,748 | ) | $ | 59,048 | $ | (103,796 | ) | $ | 780,537 | $ | 247,176 | $ | 533,361 | $ | 131,588 | $ | 83,746 | $ | 47,842 | ||||||||||||||||
Net (loss)/income available to the Company: | ||||||||||||||||||||||||||||||||||||
Net (loss)/income available to the Company's common shareholders: | ||||||||||||||||||||||||||||||||||||
Diluted per common share | $ | (0.10 | ) | $ | 0.14 | $ | (0.24 | ) | $ | 1.80 | $ | 0.58 | $ | 1.22 | $ | 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 and entertainment costs and other company-specific expenses. |
Net loss available to the Company’s common shareholders was $44.7 million for the three months ended September 30, 2020, as compared to net income available to the Company’s common shareholders of $59.0 million for the comparable period in 2019. On a diluted per common share basis, net loss available to the Company for the three months ended September 30, 2020 was $0.10 as compared to net income available to the Company of $0.14 for the comparable period in 2019.
Net income available to the Company’s common shareholders was $780.5$131.6 million for the ninethree months ended September 30, 2020,March 31, 2021, as compared to $247.2$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 ninethree months ended September 30, 2020March 31, 2021 was $1.80$0.30 as compared to $0.58$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 Operations,Income, that the Company believes changed significantly and affected Net (loss)/income available to the Company's common shareholders during the three and nine months ended September 30, 2020,March 31, 2021, as compared to the corresponding periodsperiod in 2019:2020:
RevenueRevenues from rental properties, net , net–
The decrease in Revenues from rental properties, net of $22.6$7.1 million for the three months ended September 30, 2020,March 31, 2021, as compared to the corresponding period in 2019,2020, is primarily from (i) an increasea net decrease in adjustments associated with potentially uncollectible revenues, including revenues from tenants, that are being accounted for on a cash basis, and disputed amounts, including straight-line rent receivables,rental income, primarily due to rent relief provided in association with the COVID-19 pandemic and tenant vacancies for the three months ended September 30, 2020March 31, 2021 of $20.7$12.9 million, as compared to the corresponding period in 20192020 and (ii) a decrease in revenues of $6.3$0.6 million due to properties sold during 20202021 and 2019,2020, partially offset by (iii) the completion of certain redevelopment and development projects includedan increase in the Company’s Signature Series™, which provided incremental revenueslease termination fee income for the three months ended September 30, 2020March 31, 2021 of $2.3$4.8 million, as compared to the corresponding period in 2019,2020 and (iv) acquisitions, tenant buyouts and net growth in the current portfolio, which provided incremental revenues for the three months ended September 30, 2020 of $2.1 million, as compared to the corresponding period in 2019.
The decrease in Revenues from rental properties, net of $72.0 million for the nine months ended September 30, 2020, as compared to the corresponding period in 2019, is primarily from (i) an increase in adjustments associated with potentially uncollectible revenues, including revenues from tenants that are being accounted for on a cash basis, and disputed amounts, including straight-line rent receivables, primarily due to the COVID-19 pandemic, for the nine months ended September 30, 2020 of $69.9 million, as compared to the corresponding period in 2019 and (ii) a decrease in revenues of $27.4$1.6 million due to properties soldproperty acquisitions during 2020 and 2019, partially offset by (iii) acquisitions, tenant buyouts and net growth in the current portfolio, which provided incremental revenues for the nine months ended September 30, 2020 of $14.6 million, as compared to the corresponding period in 2019 and (iv) the completion of certain redevelopment and development projects included in the Company’s Signature Series™, which provided incremental revenues for the nine months ended September 30, 2020 of $10.7 million, as compared to the corresponding period in 2019.
Real estate taxes –
The increase in Real estate taxes expense of $2.9 million for the three months ended September 30, 2020, as compared to the corresponding period in 2019, is primarily due to (i) an increase of $3.7 million related to the completion of certain redevelopment and development projects and an overall increase in assessed values in the current portfolio during the three months ended September 30, 2020, as compared to the corresponding period in 2019, partially offset by (ii) a decrease of $0.8 million due to properties sold during 2020 and 2019.
The increase in Real estate taxes expense of $4.9 million for the nine months ended September 30, 2020, as compared to the corresponding period in 2019, is primarily due to (i) an increase of $8.5 million related to the completion of certain redevelopment and development projects and an overall increase in assessed values in the current portfolio during the nine months ended September 30, 2020, as compared to the corresponding period in 2019, partially offset by (ii) a decrease of $3.6 million due to properties sold during 2020 and 2019.2021.
Operating and maintenance –
The increase in Operating and maintenance expense of $3.1$4.1 million for the three months ended September 30, 2020,March 31, 2021, as compared to the corresponding period in 2019,2020, is primarily due to an increase in snow removal costs and security and property maintenance services.
General and administrative –
The increase in General and administrative expense of $5.0$3.5 million for the three months ended September 30, 2020,March 31, 2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) an increasea decrease of $1.6 million in severance charges relatedpayroll capitalization due to employee retirementless active development and terminations of $8.5 millionredevelopment projects during the three months ended September 30,March 31, 2021, as compared to the corresponding period in 2020 partially offset byand (ii) a decrease in employee-related expensesan increase of $1.4$1.9 million (iii) a reduction in travel and entertainment costs of $0.8 million due to less business related trips during the COVID-19 pandemic, (iv) a decrease of $0.5 million primarily due to the fluctuations in value of various directors’ deferred stock, (v) a reduction in office rent expense of $0.3 million, due to the relocation of the Company’s headquarters to Company-owned office space, and (vi) a decrease in professional fees of $0.3 million forstock.
Impairment charges –
During the three months ended September 30,March 31, 2020, as compared to the corresponding period in 2019.
Impairment charges –
During the nine months ended September 30, 2020 and 2019, the Company recognized impairment charges related to adjustments to property carrying values of $3.5$3.0 million, and $41.2 million, respectively, for which the Company’s estimated fair values were primarily based upon (i) signed contracts or letters of intent from third party offers or (ii) discounted cash flow models.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 $2.8$5.5 million for the three months ended September 30, 2020,March 31, 2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) an increase of $2.3$2.7 million in write-offs of depreciable assets due to tenant vacates during the three months ended September 30, 2020, as compared to the corresponding period in 2019 and (ii) an increase of $1.8 million related to the completion ofdepreciation commencing on certain development and redevelopment projects that were placed into service during 2021 and 2020, and 2019, partially offset by (iii) a decrease(ii) an increase of $1.3$2.2 million resulting from property dispositions in 2020 and 2019.
The increase in Depreciation and amortizationwrite-offs of $5.2 million fordepreciable assets primarily due to tenant vacates during the ninethree months ended September 30, 2020,March 31, 2021, as compared to the corresponding period in 2019, is primarily due to (i)2020 and (iii) an increase of $6.8 million in write-offs of depreciable assets due to tenant vacates during the nine months ended September 30, 2020, as compared to the corresponding period in 2019 and (ii) an increase of $3.8 million related to the completion of certain development and redevelopment projects that were placed into service during 2020 and 2019, partially offset by (iii) a decrease of $5.4$0.6 million resulting from property dispositions in 2020 and 2019.acquisitions during 2021.
Gain on sale of properties –
During the ninethree months ended September 30, 2020,March 31, 2021, the Company disposed of threean operating propertiesproperty and a land parcel,four parcels, in separate transactions, for an aggregate sales price of $22.6$23.0 million, which resulted in aggregate gains of $5.7$10.0 million. During the ninethree months ended September 30, 2019,March 31, 2020, the Company disposed of 12an operating properties and seven out-parcels, in separate transactions,property for an aggregatea sales price of $163.8$13.5 million, which resulted in aggregate gainsa gain of $47.4$3.8 million.
Other (expense)/income,Gain/(loss) on marketable securities, net –
The change in Other (expense)/income,gain on marketable securities, net of $5.4$61.1 million for the three months ended September 30, 2020,March 31, 2021, as compared to the corresponding periods in 2019, is primarily due to (i) settlement proceeds of $3.3 million related to a property condemnation during the three months ended September 30, 2019, and (ii) a decrease of $1.0 million related to the recognition of income from the Company’s Puerto Rico properties, resulting from the receipt of casualty insurance claims in excess of the value of the assets written-off during the three months ended September 30, 2019.
The change in Other (expense)/income, net of $7.1 million for the nine months ended September 30, 2020, as compared to the corresponding periods in 2019, is primarily due to (i) settlement proceeds of $4.3 million related to property condemnations during the nine months ended September 30, 2019, (ii) an increase in environmental remediation costs of $1.0 million for the nine months ended September 30, 2020, as compared to the corresponding period in 2019, (iii) an increase in state and local franchise taxes of $0.8 million due to refunds received during the nine months ended September 30, 2019, as compared to the corresponding period in 2020, (iv) a decrease of $0.6 million related to the recognition of income from the Company’s Puerto Rico properties, resulting from the receipt of casualty insurance claims in excess of the value of the assets written-off during the nine months ended September 30, 2020, as compared to the corresponding period in 2019, and (v) a decrease in demolition costs of $0.4 million for the nine months ended September 30, 2020, as compared to the corresponding period in 2019.
(Loss)/gain on marketable securities, net –
The loss on marketable securities, net of $76.9 million and gain on marketable securities, net of $444.6$4.7 million for the three and nine months ended September 30,corresponding period in 2020, respectively, is primarily the result of the mark-to-market fluctuations of the Company’s Albertsons Companies, Inc. (“ACI”) investment, which launchedhad its initial public offering ("IPO"(“IPO”) in June 2020. This offering resulted in the Company changing the classification of its ACI investment from a cost method investment to a marketable security.
Gain on sale of cost method investment –
In June 2020, the Company recognized an aggregate gain of $190.8 million related to (i) a $131.6 million gain resulting from ACI’s partial repurchase of its common stock from existing shareholders in conjunction with its issuance of convertible preferred stock and (ii) a gain of $59.2 million in connection with the partial sale of the Company’s investment in ACI through ACI’s IPO.
Interest expense –
The increase in Interest expense of $3.8 million and $9.4 million for the three and nine months ended September 30, 2020, as compared to the corresponding periods in 2019, respectively, is primarily due to higher levels of borrowings during 2020, as compared to 2019.
Early extinguishment of debt charges –
During the three months ended September 30, 2020, the Company redeemed $484.9 million of its 3.20% senior unsecured notes outstanding, in separate transactions, which were scheduled to mature in May 2021. As a result, the Company incurred a prepayment charge of $7.5 million for the three months ended September 30, 2020.
(Provision)/benefit for income taxes, net –
The change in (Provision)/benefit for income taxes, net of $4.3 million and $4.1 million for the three and nine months ended September 30, 2020, respectively, as compared to the corresponding periods in 2019, is primarily due to a decrease in federal tax refunds during 2020, as compared to the corresponding periods in 2019.
Equity in income of joint ventures, net –
The decreaseincrease in Equity in income of joint ventures, net of $6.4$4.1 million for the three months ended September 30, 2020,March 31, 2021, as compared to the corresponding period in 2019,2020, is primarily due to (i) lower equity in income of $4.4 million within various joint venture investments during 2020, as compared to the corresponding period in 2019, primarily resulting from the sale of properties within various joint venture investments during 2019 and an increase in adjustments of trade account receivable and straight-line receivable balances associated with the leases accounted for on a cash basis and allowances due to the impact from the COVID-19 pandemic during 2020 and (ii) the recognition of net gains of $2.0$4.7 million resulting from the sale of properties within various joint venture investments during the three months ended September 30, 2019.
The decrease in Equity in income of joint ventures, net of $23.9 million for the nine months ended September 30, 2020,ending March 31, 2021, as compared to the corresponding period in 2019, is primarily due to (i) the recognition of net gains of $15.2 million resulting from the sale of properties within various joint venture investments during the nine months ended September 30, 2019 and2020, partially offset by (ii) lower equity in income of $9.5$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 20192021 and an increase in adjustments of trade account receivable and straight-line receivable balances associated with the leases accounted for on a cash basis and allowances due to the impact from the COVID-19 pandemic during 2020, partially offset by (iii) a decrease in impairment charges of $0.8 million recognized during 2020, as compared to the corresponding period in 2019.2020.
Equity in income of other real estate investments, net –
The increasedecrease in Equity in income of other real estate investments, net of $7.9 million and $4.1$7.2 million for the three and nine months ended September 30, 2020,March 31, 2021, as compared to the corresponding periodsperiod in 2019, respectively,2020, is primarily due to an increasea decrease in profit participation from the sale of properties within the Company’s Preferred Equity Program during 2020,2021, as compared to the corresponding periodsperiod in 2019.2020.
Preferred stock redemption charges –
During September 2019, the Company redeemed all its outstanding Class I and K Preferred Stock and as a result, the Company recorded a redemption charge of $11.4 million. This charge was subtracted from netNet income attributable to the Company to arrive at net income available to the Company’s common shareholders and used in the calculation of earnings per share for the three and nine months ended September 30, 2019.noncontrolling interests –
Preferred dividends –
The decreaseincrease in Preferred dividendsNet income attributable to noncontrolling interests of $7.2 million and $23.6$3.2 million for the three and nine months ended September 30, 2020,March 31, 2021, as compared to the corresponding periodsperiod in 2019, respectively,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 2019three months ended March 31, 2021, as discussed above.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 September 30, 2020,March 31, 2021, the Company’s five largest tenants were TJX Companies, Home Depot, Ahold Delhaize USA, Albertsons and Ross Stores,PetSmart, which represented 4.0%, 2.6%, 2.1%, 2.0% and 1.9%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 loans, mortgages and construction loan financing, and immediate access to the Company’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.
ACI, which are subject to certain contractual lock-up provisions.
The Company’s cash flow activities are summarized as follows (in thousands):
Nine Months Ended September 30, | Three months ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash and cash equivalents, beginning of the period | $ | 123,947 | $ | 143,581 | $ | 293,188 | $ | 123,947 | ||||||||
Net cash flow provided by operating activities | 465,942 | 482,459 | 148,371 | 155,249 | ||||||||||||
Net cash flow provided by/(used for) investing activities | 43,380 | (161,307 | ) | |||||||||||||
Net cash flow used for financing activities | (308,292 | ) | (323,423 | ) | ||||||||||||
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 | 201,030 | (2,271 | ) | (39,336 | ) | 327,849 | ||||||||||
Cash and cash equivalents, end of the period | $ | 324,977 | $ | 141,310 | $ | 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 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 ninethree months ended September 30, 2020March 31, 2021 was $465.9$148.4 million, as compared to $482.5$155.2 million for the comparable period in 2019.2020. The decrease of $16.6$6.8 million is primarily attributable to:
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| ● | rent relief provided | |
● | the disposition of operating properties in | |
● | new leasing, expansion and re-tenanting of core portfolio properties; | |
● | changes in operating assets and liabilities | |
● | the acquisition of |
Due to the current economic uncertainty resulting from the COVID-19 pandemic, the Company has worked, and continues to work, with its tenants to grant rent deferrals or forgiveness of rent on a tenant-by-tenant basis. The deferrals are generally anticipated to be paid within six to 18 months.
Investing Activities
Net cash flow provided byused for investing activities was $43.4$83.9 million for the ninethree months ended September 30, 2020,March 31, 2021, as compared to net cash flow used for investing activities of $161.3$66.6 million for the comparable period in 2019.2020.
Investing activities during the ninethree months ended September 30,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:
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● | $2.5 million in proceeds from insurance casualty claims. |
Cash outflows:
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● | $7.1 million for the acquisition of operating real |
Investing activities during the nine months ended September 30, 2019 primarily consisted of:
Cash inflows:
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Acquisition of Operating Real Estate–
During the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, 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 upapproximately $25.0 million to approximately $25.0$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 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.
Improvements to Operating Real Estate–
During the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, the Company expended $164.4$20.6 million and $228.0$55.0 million, respectively, towards improvements to operating real estate. These amounts consist of the following (in thousands):
Nine Months Ended September 30, | Three months ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Redevelopment and renovations | $ | 135,694 | $ | 185,492 | $ | 12,908 | $ | 43,871 | ||||||||
Tenant improvements and tenant allowances | 28,672 | 42,250 | 7,661 | 11,102 | ||||||||||||
Other | - | 287 | ||||||||||||||
Total improvements (1) | $ | 164,366 | $ | 228,029 | $ | 20,569 | $ | 54,973 | ||||||||
(1) | During the |
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: (i) large scale redevelopment, which involves demolishing and building new square footage; (ii) value creation redevelopment, which includes the subdivision of large anchor spaces into multiple tenant 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 deems are necessary. The Company anticipates its capital commitment toward these redevelopment projects and re-tenanting efforts for the remainder of 20202021 will be approximately $30.0$75.0 million to $50.0 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.
Financing Activities
Net cash flow used for financing activities was $308.3$103.8 million for the ninethree months ended September 30, 2020,March 31, 2021, as compared to $323.4$239.2 million for the comparable period in 2019.2020.
Financing activities during the ninethree months ended September 30, 2020March 31, 2021 primarily consisted of:
Cash inflows:
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Financing activities during the three months ended March 31, 2020 primarily consisted of:
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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 |
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Financing activities during the nine months ended September 30, 2019 primarily consisted of:
Cash inflows:
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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, the Company has noticed significant volatility in the debt markets. Although pricing remains dependent on specific deal terms, generally, spreads for non-recourse mortgage, construction loan financing and unsecured debt are wider than spreads prior to the impact of the COVID-19 pandemic.
Debt maturities for the remainder of 20202021 consist of: $125.7 million of $24.7consolidated debt; $54.9 million of unconsolidated joint venture debt and $8.8$19.9 million of debt included in the Company’s Preferred Equity Program, assuming the utilization of extension options where available. TheseThe 2021 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 unconsolidated joint ventures and Preferred Equity Program are anticipated to be repaid through operating cash flows, debt refinancing, unsecured credit facilities, (where available)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, 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 $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, 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, offer for sale its senior unsecured debt for any general corporate purposes, including (i) funding specific liquidity requirements in its business, including property acquisitions, development and redevelopment costs and (ii) managing the Company’s debt maturities.
During May 2020, the Company filed a registration statement on Form S-8 for its 2020 Equity Participation Plan (the “2020 Plan”), which was approved by the Company’s stockholders and 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 September 30, 2020, the Company had 10.0 million shares of common stock available for issuance under the 2020 Plan.
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 nine months ended September 30, 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 ninethree months ended September 30, 2020.March 31, 2021. As of September 30, 2020,March 31, 2021, the Company had $224.9 million available under this share repurchase program.
Senior Notes –
In July 2020, the Company issued a Green Bond with $500.0 million of unsecured notes, which is scheduled to mature in October 2030 and accrues interest at a rate of 2.70% per annum. The Company intends to allocate an amount equal to the net proceeds from the offering to finance or refinance, in whole or in part, recently completed, existing or future Eligible Green Projects, in alignment with the four core components of the Green Bond Principles, 2018 as administered by the International Capital Market Association. Eligible Green Projects include projects with disbursements made in the three years preceding the issue date of the notes. The Company intends to spend the remaining net proceeds from the offering during the life of the notes.
In August 2020, the Company issued $400.0 million in senior unsecured notes, which are scheduled to mature in March 2028 and accrue interest at a rate of 1.90% per annum.
During the three months ended September 30, 2020, the Company fully redeemed all $484.9 million of its 3.20% senior unsecured notes outstanding, in separate transactions, which were scheduled to mature in May 2021. As a result, the Company incurred aggregate prepayment charges of $7.5 million, which is included in Early extinguishment of debt charges on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020.
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% |
| |||
Consolidated Secured Indebtedness to Total Assets | <40% | 2% | |||
Consolidated Income Available for Debt Service to Maximum Annual Service Charge | >1.50x |
| |||
Unencumbered Total Asset Value to Consolidated Unsecured Indebtedness | >1.50x |
|
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 obtained 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 76.5 basis points (0.91%(0.88% as of September 30, 2020)March 31, 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 September 30, 2020,March 31, 2021, the Credit Facility had no outstanding balance, and no amount$0.3 million appropriated for letters of 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% |
| |||
Total Priority Indebtedness to GAV | <35% |
| |||
Unencumbered Asset Net Operating Income to Total Unsecured Interest Expense | >1.75x |
| |||
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 Term Loan with total outstanding borrowings of $590.0 million pursuant to a credit agreement with a group of banks. The Term Loan was scheduled to mature 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 accrued 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 fluctuated in accordance with changes in the Company’s senior debt ratings. The Term Loan could be increased by an additional $750.0 million through an accordion feature. Pursuant to the terms of the Term Loan, the Company was subject to covenants that were substantially the same as those in the Credit Facility. During July 2020, the Term Loan was fully repaid and the facility was terminated.
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. This construction loan was fully repaid in January 2020.
During the ninethree months ended September 30, 2020,March 31, 2021, the Company repaid $92.0$12.3 million of mortgage debt (including fair market value adjustment of $0.4$0.1 million) that encumbered fouran operating properties.property.
In addition to the public equity and debt markets as capital sources, the Company may, from time to time, obtain mortgage financing on selected properties and construction loan financing to partially fund the capital needs of its real estate development projects. As of September 30, 2020,March 31, 2021, the Company had over 325330 unencumbered property interests in its portfolio.
COVID-19 –
As the COVID-19 pandemic continues to evolve, an uncertainty remains in relation to the long-term economic impact it will have. As a result, the Company has focused on creating a strong liquidity position, by: (i)including, but not limited to, maintaining availability under its $2.0 billion ($2.75 billion with the accordion feature) Credit Facility; (ii) issuing a $500.0 million unsecured Green Bond; (iii) issuing a $400.0 million unsecured senior note; (iv) paying down and terminating its Term Loan; (v) repaying $484.9 million of 2021 senior unsecured notes which extended the Company's weighted average debt maturity profile to 11.1 years, (vi) holding $325.0 million ofFacility, cash and cash equivalents on hand at September 30, 2020; and (vii) as mentioned above, having access to over 325 unencumbered property interests.
The Company continues 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 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 ninethree months ended September 30,March 31, 2021 and 2020 and 2019 were $304.3$80.0 million and $401.3$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. As a result of the COVID-19 pandemic and the future economic uncertainties, out of an abundance of caution, the Company’s Board of Directors had temporarily suspended the dividend on its common shares. In September 2020, the Company’s Board of Directors reinstated a dividend on the Company's common shares and declared a quarterly cash dividend of $0.10 per common share, which was paid on September 24, 2020 to shareholders of record on September 10, 2020. The Company’s Board of Directors will continue to monitor the Company’simpact the COVID-19 pandemic has on the Company's financial performance and economic outlook and expectsoutlook. The Company’s objective is to declare an additionalestablish a dividend on the Company's common shares during the fourth quarter of 2020 to maintainlevel which maintains compliance with the Company’s REIT taxable income distribution requirements. On February 22, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.17 per common share payable to shareholders of record on March 10, 2021, which was paid on March 24, 2021. On April 27, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.17 per common share payable to shareholders of record on June 9, 2021, which is scheduled to be paid on 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 JulyApril 15, 2020,2021, to shareholders of record on JulyApril 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 OctoberJuly 15, 2020,2021, to shareholders of record on OctoberJuly 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 (loss)/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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net (loss)/income available to the Company’s common shareholders | $ | (44,748 | ) | $ | 59,048 | $ | 780,537 | $ | 247,176 | |||||||
Gain on sale of properties | - | (9,025 | ) | (5,697 | ) | (47,382 | ) | |||||||||
Gain on sale of joint venture properties | - | (1,988 | ) | (18 | ) | (15,174 | ) | |||||||||
Depreciation and amortization - real estate related | 71,015 | 68,250 | 212,018 | 208,233 | ||||||||||||
Depreciation and amortization - real estate joint ventures | 9,932 | 9,768 | 30,673 | 30,044 | ||||||||||||
Impairment charges of depreciable real estate properties | 775 | 19,786 | 4,354 | 44,441 | ||||||||||||
Gain on sale of cost method investment | - | - | (190,832 | ) | - | |||||||||||
Profit participation from other real estate investments, net | (8,406 | ) | 1,196 | (15,875 | ) | (8,588 | ) | |||||||||
Loss/(gain) on marketable securities, net | 76,931 | 199 | (444,646 | ) | (1,375 | ) | ||||||||||
Provision for income taxes (1) | 1,500 | - | 1,501 | - | ||||||||||||
Noncontrolling interests (1) | (310 | ) | (309 | ) | (1,373 | ) | (890 | ) | ||||||||
FFO available to the Company’s common shareholders | $ | 106,689 | $ | 146,925 | $ | 370,642 | $ | 456,485 | ||||||||
Weighted average shares outstanding for FFO calculations: | ||||||||||||||||
Basic | 429,994 | 419,823 | 429,899 | 419,663 | ||||||||||||
Units | 658 | 833 | 639 | 839 | ||||||||||||
Dilutive effect of equity awards | 1,192 | 1,120 | 1,496 | 1,273 | ||||||||||||
Diluted (2) | 431,844 | 421,776 | 432,034 | 421,774 | ||||||||||||
FFO per common share – basic | $ | 0.25 | $ | 0.35 | $ | 0.86 | $ | 1.09 | ||||||||
FFO per common share – diluted (2) | $ | 0.25 | $ | 0.35 | $ | 0.86 | $ | 1.08 | ||||||||
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 (loss)/income available to the Company’s common shareholders to Same property NOI (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Net (loss)/income available to the Company’s common shareholders | $ | (44,748 | ) | $ | 59,048 | $ | 780,537 | $ | 247,176 | |||||||||||||||
Net income available to the Company’s common shareholders | $ | 131,588 | $ | 83,746 | ||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||
Management and other fee income | (3,185 | ) | (3,690 | ) | (9,880 | ) | (12,229 | ) | (3,437 | ) | (3,740 | ) | ||||||||||||
General and administrative | 28,795 | 23,832 | 72,316 | 72,296 | 24,478 | 21,017 | ||||||||||||||||||
Impairment charges | 397 | 19,609 | 3,509 | 41,235 | - | 2,974 | ||||||||||||||||||
Depreciation and amortization | 71,704 | 68,874 | 214,660 | 209,440 | 74,876 | 69,397 | ||||||||||||||||||
Gain on sale of properties | - | (9,025 | ) | (5,697 | ) | (47,382 | ) | (10,005 | ) | (3,847 | ) | |||||||||||||
Interest and other expense, net | 55,380 | 38,620 | 148,162 | 124,126 | 44,359 | 44,815 | ||||||||||||||||||
Loss/(gain) on marketable securities, net | 76,931 | 199 | (444,646 | ) | (1,375 | ) | ||||||||||||||||||
Gain on sale of cost method investment | - | - | (190,832 | ) | - | |||||||||||||||||||
Provision/(benefit) for income taxes, net | 388 | (3,866 | ) | 482 | (3,580 | ) | ||||||||||||||||||
(Gain)/loss on marketable securities, net | (61,085 | ) | 4,667 | |||||||||||||||||||||
Provision for income taxes, net | 1,308 | 43 | ||||||||||||||||||||||
Equity in income of other real estate investments, net | (11,155 | ) | (3,265 | ) | (26,895 | ) | (22,758 | ) | (3,787 | ) | (10,958 | ) | ||||||||||||
Net income attributable to noncontrolling interests | 965 | 1,463 | 1,479 | 2,332 | 3,483 | 289 | ||||||||||||||||||
Preferred stock redemption charges | - | 11,369 | - | 11,369 | ||||||||||||||||||||
Preferred dividends | 6,354 | 13,573 | 19,062 | 42,641 | 6,354 | 6,354 | ||||||||||||||||||
Non same property net operating income | (3,890 | ) | (17,485 | ) | (22,497 | ) | (65,440 | ) | (15,039 | ) | (16,282 | ) | ||||||||||||
Non-operational expense from joint ventures, net | 16,494 | 14,611 | 52,272 | 39,529 | 11,963 | 19,014 | ||||||||||||||||||
Same property NOI | $ | 194,430 | $ | 213,867 | $ | 592,032 | $ | 637,380 | ||||||||||||||||
Same property NOI | $ | 205,056 | $ | 217,489 | ||||||||||||||||||||
Same property NOI decreased by $19.4$12.4 million or 9.1%5.7% for the three months ended September 30, 2020,March 31, 2021, as compared to the corresponding period in 2019.2020. This change is primarily the result of a reduction of revenue of $18.9 million associated with rent waivers, potentially uncollectible revenues and disputed amounts.
Same property NOI decreased by $45.3 million or 7.1% for the nine months ended September 30, 2020, as compared to the corresponding period in 2019. This change is primarily the result of (i) a reduction of revenue associated with potentially uncollectible revenues and disputed amounts of $57.4 million, partially offset by (ii) an increase in revenues from rental properties of $8.4 million primarily related to lease-up and rent commencements in the portfolio and (iii) a decrease in operating expenses of $3.7 million.
Leasing Activity
During the ninethree months ended September 30, 2020,March 31, 2021, the Company executed 563262 leases totaling over 4.32.3 million square feet in the Company’s consolidated operating portfolio comprised of 12796 new leases and 436166 renewals and options. The leasing costs associated with these new leases are estimated to aggregate $28.3$18.9 million or $34.70$34.22 per square foot. These costs include $22.8$13.9 million of tenant improvements and $5.5$5.0 million of external leasing commissions. The average rent per square foot onfor (i) new leases was $19.93$22.18 and on(ii) renewals and options was $17.46.$14.99.
Tenant Lease Expirations
At September 30, 2020,March 31, 2021, the Company has a total of 5,3025,264 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) | 166 | 454 | $ | 10,601 | 1.3 | % | 175 | 504 | $ | 11,487 | 1.4 | % | ||||||||||||||||||||||
2020 | 106 | 398 | $ | 7,944 | 1.0 | % | ||||||||||||||||||||||||||||
2021 | 705 | 4,901 | $ | 78,293 | 9.7 | % | 413 | 2,196 | $ | 38,140 | 4.7 | % | ||||||||||||||||||||||
2022 | 816 | 5,734 | $ | 100,314 | 12.4 | % | 802 | 5,204 | $ | 93,466 | 11.5 | % | ||||||||||||||||||||||
2023 | 732 | 5,799 | $ | 98,061 | 12.1 | % | 738 | 5,766 | $ | 98,818 | 12.1 | % | ||||||||||||||||||||||
2024 | 660 | 5,184 | $ | 94,301 | 11.6 | % | 673 | 5,109 | $ | 94,217 | 11.6 | % | ||||||||||||||||||||||
2025 | 579 | 5,103 | $ | 89,555 | 11.0 | % | 625 | 5,255 | $ | 94,322 | 11.6 | % | ||||||||||||||||||||||
2026 | 322 | 4,566 | $ | 65,026 | 8.0 | % | 470 | 6,256 | $ | 89,401 | 11.0 | % | ||||||||||||||||||||||
2027 | 251 | 3,290 | $ | 50,823 | 6.3 | % | 270 | 3,741 | $ | 56,674 | 7.0 | % | ||||||||||||||||||||||
2028 | 308 | 3,190 | $ | 60,268 | 7.4 | % | 320 | 3,383 | $ | 61,164 | 7.5 | % | ||||||||||||||||||||||
2029 | 246 | 2,591 | $ | 45,134 | 5.6 | % | 251 | 2,679 | $ | 47,301 | 5.8 | % | ||||||||||||||||||||||
2030 | 206 | 1,711 | $ | 32,863 | 4.1 | % | 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 September 30, 2020,March 31, 2021, with corresponding weighted average interest rates sorted by maturity date. The Company had no variable rate debt outstanding at September 30, 2020.March 31, 2021. The table does not include extension options where available (amounts in millions).
2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | Fair Value | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||
Secured Debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed Rate | $ | - | $ | 140.9 | $ | 148.3 | $ | 12.0 | $ | 8.8 | $ | 4.6 | $ | 314.6 | $ | 315.3 | $ | 125.7 | $ | 145.8 | $ | 12.0 | $ | 7.8 | $ | - | $ | 4.3 | $ | 295.6 | $ | 297.9 | ||||||||||||||||||||||||||||||||
Average Interest Rate | - | 5.39 | % | 4.06 | % | 3.23 | % | 6.73 | % | 7.08 | % | 4.74 | % | 5.42 | % | 4.05 | % | 3.23 | % | 6.73 | % | - | 7.08 | % | 4.71 | % | ||||||||||||||||||||||||||||||||||||||
Unsecured Debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed Rate | $ | - | $ | - | $ | 497.8 | $ | 348.6 | $ | 397.6 | $ | 3,798.7 | $ | 5,042.7 | $ | 5,298.7 | $ | - | $ | 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 | % | 3.40 | % | 3.33 | % | - | 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.
The Company’s business, financial condition, results of operations or stock price has and may continueRisks Relating to be adversely impacted by the COVID-19 pandemic and such impact could be material.Merger
In March 2020, 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 had a significant adverse effect on 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 long-term impactMerger may not be completed on the U.S. economy. 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 business andstockholders may be diluted by the businessesMerger.
The Merger may dilute the ownership position of our tenants have been adversely affected bystockholders. Upon completion of the COVID-19 pandemicMerger, our legacy stockholders will own approximately 71% of the issued and actions taken to contain or prevent its spread. A substantial number of tenants have temporarily or permanently closed their businesses, have shortened their operating hours or offered reduced services. As a result, the Company has also had a substantial 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 moreoutstanding shares of our tenantscommon stock, and legacy Weingarten stockholders will be similarly impacted inown approximately 29% of the future. Impacts of COVID-19 could also result in the complete or partial closure of one or moreissued and outstanding shares of our tenants’ manufacturing facilities or distribution centers, temporary or long-term disruption incommon stock. Consequently, our tenants’ supply chains from localstockholders may have less influence over our management and international suppliers, and/or delays inpolicies after 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 perceptioneffective time of the risk of COVID-19, which could adversely affect foot traffic toMerger than they currently exercise over our tenants’ businessesmanagement and our tenants’ ability to adequately staff their businesses. Such events could severely disrupt their operations and 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 received 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. Extended periods of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. While most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, many employees may have additional personal needs to attend to and employees may become sick themselves and be unable to work. Decreased effectiveness of our team could adversely affect our results due to our inability to meet in person with potential tenants, longer time periods to review and approve leases, longer time to respond to tenant and property issues, or other decreases in productivity that could seriously harm our business.policies.
The COVID-19 pandemic, or aFailure to complete the Merger could adversely affect our stock price and our future pandemic, could also have materialbusiness and adverse effects onfinancial results.
If the Merger is not completed, our abilityongoing businesses may be adversely affected and we will be subject to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:numerous risks, including the following:
● | upon termination of the Merger Agreement under specified circumstances, Weingarten may be required to pay the Company a |
● | 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 results and our stock prices.
The pendency of the Merger could adversely affect the business and operations of the Company and Weingarten.
In connection with the pending Merger, some of our and Weingarten’s tenants or vendors may delay or defer decisions, which could adversely affect the 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 and Weingarten’s ability to attract 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 ownership 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:
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● | 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 |
For all these reasons, you should be aware that it is possible that the integration process could result 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 |
● | increasing our vulnerability to a downturn in general economic conditions; and |
● | limiting our ability to |
The extent to which the COVID-19 pandemic continues to impact of any of these potential adverse consequences could have a material adverse effect on 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 employees and other operational disruptions or difficulties we may face, the effect on our tenants and their businesses, the abilityexercise 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 resultcombined company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the ninethree months ended September 30, 2020,March 31, 2021, the Company repurchased 288,885519,127 shares for an aggregate purchase price of $5.3$9.1 million (weighted average price of $18.39$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 September 30, 2020.March 31, 2021. As of September 30, 2020,March 31, 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 | ||||||||||||
April 1, 2020 – April 30, 2020 | - | - | - | 224.9 | ||||||||||||
May 1, 2020 – May 31, 2020 | 17,157 | 8.76 | - | 224.9 | ||||||||||||
June 1, 2020 – June 30, 2020 | 1,020 | 12.72 | - | 224.9 | ||||||||||||
July 1, 2020 – July 31, 2020 | - | - | - | 224.9 | ||||||||||||
August 1, 2020 – August 31, 2020 | - | - | - | 224.9 | ||||||||||||
September 1, 2020 – September 30, 2020 | - | - | - | 224.9 | ||||||||||||
Total | 288,885 | $ | 18.39 | - | ||||||||||||
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.
31.1 | ||
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101.INS | Inline XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
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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| /s/ Conor C. Flynn |
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| Conor C. Flynn |
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| Chief Executive Officer |
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| /s/ Glenn G. Cohen |
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| Glenn G. Cohen |
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| Chief Financial Officer |