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EX-32 - EXHIBIT 32.1 - KIMCO REALTY CORPex32-1.htm


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

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

 

For the quarterly period ended June 30, 2014

 

or

 

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

 

For the transition period from                 to                

 

Commission File Number:   1-10899

 

Kimco Realty Corporation

(Exact name of registrant as specified in its charter)

 

Maryland

  

13-2744380

(State or other jurisdiction of incorporation or organization)

  

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

 

3333 New Hyde Park Road, New Hyde Park, NY 11042

(Address of principal executive offices) (Zip Code)

 

(516) 869-9000

(Registrant’s telephone number, including area code)

 

        N/A        

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

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)    Yes ☒   No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

  

 

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

 

As of July 23, 2014, the registrant had 411,056,083 shares of common stock outstanding.



 

 
 

 

  

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements of Kimco Realty Corporation and Subsidiaries

  

  

  

  

Condensed Consolidated Financial Statements -

  

  

  

  

  

Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013

3

  

  

  

  

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2014 and 2013

4

  

  

  

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2014 and 2013

5

  

  

  

  

Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2014 and 2013

6

  

  

  

  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013

7

  

  

  

Notes to Condensed Consolidated Financial Statements

8

  

  

  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

  

  

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

  

  

  

Item 4.

Controls and Procedures

31

  

  

  

PART II

OTHER INFORMATION

  

  

Item 1.

Legal Proceedings

31

  

  

Item 1A.

Risk Factors

32

  

  

Item 6.

Exhibits

32

  

  

Signatures

33

 

 
2

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS 

(Unaudited)

(in thousands, except share information) 

 

   

June 30,

   

December 31,

 
   

2014

   

2013

 

Assets:

               

Operating real estate, net of accumulated depreciation of $1,941,902 and $1,878,681, respectively

  $ 7,752,897     $ 7,146,845  

Investments and advances in real estate joint ventures

    1,128,254       1,257,010  

Real estate under development

    79,760       97,818  

Other real estate investments

    264,687       274,641  

Mortgages and other financing receivables

    23,467       30,243  

Cash and cash equivalents

    192,183       148,768  

Marketable securities

    75,019       62,766  

Accounts and notes receivable

    162,148       164,326  

Other assets

    511,957       481,213  

Total assets

  $ 10,190,372     $ 9,663,630  
                 
                 

Liabilities:

               

Notes payable

  $ 3,533,306     $ 3,186,047  

Mortgages payable

    1,197,065       1,035,354  

Dividends payable

    104,786       104,496  

Other liabilities

    515,133       482,054  

Total liabilities

    5,350,290       4,807,951  

Redeemable noncontrolling interests

    91,363       86,153  
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 5,961,200 shares, 102,000 shares issued and outstanding (in series) Aggregate liquidation preference $975,000

    102       102  

Common stock, $.01 par value, authorized 750,000,000 shares issued and outstanding 411,019,382 and 409,731,058 shares, respectively

    4,110       4,097  

Paid-in capital

    5,715,543       5,689,258  

Cumulative distributions in excess of net income

    (1,033,535 )     (996,058 )

Accumulated other comprehensive income

    (59,592 )     (64,982 )

Total stockholders' equity

    4,626,628       4,632,417  

Noncontrolling interests

    122,091       137,109  

Total equity

    4,748,719       4,769,526  

Total liabilities and equity

  $ 10,190,372     $ 9,663,630  

 

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

 

 
3

 

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES                 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME                 

(Unaudited)                 

(in thousands, except per share data)                 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2014

   

2013

   

2014

   

2013

 
                                 

Revenues

                               

Revenues from rental properties

  $ 251,723     $ 218,070     $ 484,592     $ 431,999  

Management and other fee income

    8,526       9,049       17,567       17,442  
                                 

Total revenues

    260,249       227,119       502,159       449,441  
                                 

Operating expenses

                               

Rent

    3,498       3,376       6,803       6,697  

Real estate taxes

    32,521       27,640       63,655       55,929  

Operating and maintenance

    31,394       27,074       60,041       51,751  

General and administrative expenses

    28,827       31,319       66,008       65,321  

Provision for doubtful accounts

    1,901       3,019       3,610       4,895  

Impairment charges

    88,373       24,839       90,643       25,237  

Depreciation and amortization

    65,963       58,673       125,647       116,385  

Total operating expenses

    252,477       175,940       416,407       326,215  
                                 

Operating income

    7,772       51,179       85,752       123,226  
                                 

Other income/(expense)

                               

Mortgage financing income

    428       1,430       2,127       2,416  

Interest, dividends and other investment income

    411       6,479       450       9,048  

Other expense, net

    (322 )     (1,840 )     (2,541 )     (4,838 )

Interest expense

    (52,821 )     (55,018 )     (103,421 )     (108,476 )
                                 

Income/(loss) from continuing operations before income taxes, equity in income of joint ventures, gain/(loss) on change in control of interests and equity in income from other real estate investments

    (44,532 )     2,230       (17,633 )     21,376  
                                 

Benefit/(provision) for income taxes, net

    586       12,204       (7,539 )     (3,127 )

Equity in income of joint ventures, net

    45,025       59,504       98,286       83,616  

Gain/(loss) on change in control of interests, net

    65,598       (1,459 )     69,342       21,711  

Equity in income of other real estate investments, net

    7,014       8,200       10,367       19,363  
                                 

Income from continuing operations

    73,691       80,679       152,823       142,939  
                                 

Discontinued operations

                               

Income from discontinued operating properties, net of tax

    2,299       9,095       13,688       17,138  

Impairment/loss on operating properties sold, net of tax

    (4,636 )     (38,371 )     (8,634 )     (41,202 )

Gain on disposition of operating properties, net of tax

    20,207       1,869       29,544       4,365  

Income/(loss) from discontinued operations

    17,870       (27,407 )     34,598       (19,699 )
                                 

Gain on sale of operating properties, net of tax

    389       -       389       540  
                                 

Net income

    91,950       53,272       187,810       123,780  
                                 

Net income attributable to noncontrolling interests

    (2,438 )     (2,133 )     (11,298 )     (4,871 )
                                 

Net income attributable to the Company

    89,512       51,139       176,512       118,909  
                                 

Preferred dividends

    (14,573 )     (14,573 )     (29,147 )     (29,147 )
                                 

Net income available to the Company's common shareholders

  $ 74,939     $ 36,566     $ 147,365     $ 89,762  
                                 

Per common share:

                               

Income from continuing operations:

                               

-Basic

  $ 0.14     $ 0.16     $ 0.29     $ 0.27  

-Diluted

  $ 0.14     $ 0.16     $ 0.29     $ 0.27  

Net income attributable to the Company:

                               

-Basic

  $ 0.18     $ 0.09     $ 0.36     $ 0.22  

-Diluted

  $ 0.18     $ 0.09     $ 0.36     $ 0.22  
                                 

Weighted average shares:

                               

-Basic

    408,902       407,640       408,636       407,154  

-Diluted

    410,005       408,831       409,682       408,163  
                                 

Amounts attributable to the Company's common shareholders:

                               

Income from continuing operations

  $ 57,871     $ 64,386     $ 120,166     $ 110,296  

Income from discontinued operations

    17,068       (27,820 )     27,199       (20,534 )

Net income

  $ 74,939     $ 36,566     $ 147,365     $ 89,762  
                                 

 

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

 

 
4

 

 .

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
                                 
   

2014

   

2013

   

2014

   

2013

 
                                 

Net income

  $ 91,950     $ 53,272     $ 187,810     $ 123,780  

Other comprehensive income:

                               

Change in unrealized gain/(loss) on marketable securities, net

    11,789       (540 )     8,111       6,228  

Change in foreign currency translation adjustment, net

    5,493       (35,515 )     (2,896 )     (2,504 )

Other comprehensive income/(loss)

    17,282       (36,055 )     5,215       3,724  
                                 

Comprehensive income

    109,232       17,217       193,025       127,504  
                                 

Comprehensive income attributable to noncontrolling interests

    (2,441 )     (200 )     (11,123 )     (4,211 )
                                 

Comprehensive income attributable to the Company

  $ 106,791     $ 17,017     $ 181,902     $ 123,293  

 

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

 

 
5

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 

For the Six Months Ended June 30, 2014 and 2013

(Unaudited)

(in thousands)

 

   

Cumulative

Distributions in Excess

   

Accumulated

Other

Comprehensive

   

Preferred Stock

           

Common Stock

           

Paid-in

   

Total

Stockholders'

     

Noncontrolling

     

Total

 
   

of Net Income

   

Income

   

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

Equity

     

Interests

     

Equity

 
                                                                                     

Balance, January 1, 2013

  $ (824,008 )   $ (66,182 )     102     $ 102       407,782     $ 4,078     $ 5,651,170     $ 4,765,160       $ 167,320       $ 4,932,480  
                                                                                     

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -         858         858  
                                                                                     

Comprehensive income:

                                                                                   

Net income

    118,909       -       -       -       -       -       -       118,909         4,871         123,780  

Other comprehensive income, net of tax:

                                                                                   

Change in unrealized gain on marketable securities

    -       6,228       -       -       -       -       -       6,228         -         6,228  

Change in foreign currency translation adjustment

    -       (1,844 )     -       -       -       -       -       (1,844 )       (660 )       (2,504 )
                                                                                     

Redeemable noncontrolling interests

    -       -       -       -       -       -       -       -         (3,222 )       (3,222 )

Dividends ($0.42 per common share; $0.8625 per Class H Depositary Share and $0.7500 per Class I Depositary Share, and $0.6875 per Class J Depositary Share. and $0.7032 per Class K Depositary Share, respectively)

    (200,971 )             -       -       -       -       -       (200,971 )       -         (200,971 )

Distributions to noncontrolling interests

    -               -       -       -       -       -       -         (5,063 )       (5,063 )

Issuance of common stock

    -               -       -       560       5       9,208       9,213         -         9,213  

Surrender of restricted stock

    -               -       -       (212 )     (2 )     (3,174 )     (3,176 )       -         (3,176 )

Exercise of common stock options

    -               -       -       1,487       15       27,927       27,942         -         27,942  

Acquisition of noncontrolling interests

    -               -       -       -       -       (5,430 )     (5,430 )       (20,096 )       (25,526 )

Amortization of equity awards

    -               -       -       -       -       6,242       6,242         -         6,242  

Balance, June 30, 2013

  $ (906,070 )   $ (61,798 )     102     $ 102       409,617     $ 4,096     $ 5,685,943     $ 4,722,273  

 

  $ 144,008  

 

  $ 4,866,281  
                                                                                     

Balance, January 1, 2014

  $ (996,058 )   $ (64,982 )     102     $ 102       409,731     $ 4,097     $ 5,689,258     $ 4,632,417       $ 137,109       $ 4,769,526  
                                                                                     

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -         2,313         2,313  
                                                                                     

Comprehensive income:

                                                                                   

Net income

    176,512       -       -       -       -       -       -       176,512         11,298         187,810  

Other comprehensive income, net of tax:

                                                                                   

Change in unrealized gain on marketable securities

    -       8,111       -       -       -       -       -       8,111         -         8,111  

Change in foreign currency translation adjustment

    -       (2,721 )     -       -       -       -       -       (2,721 )       (175 )       (2,896 )
                                                                                     

Redeemable noncontrolling interests

    -       -       -       -       -       -       -       -         (3,224 )       (3,224 )

Dividends ($0.45 per common share; $0.8625 per Class H Depositary Share and $0.7500 per Class I Depositary Share, and $0.6875 per Class J Depositary Share. and $0.7032 per Class K Depositary Share, respectively)

    (213,989 )     -       -       -       -       -       -       (213,989 )       -         (213,989 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -         (24,464 )       (24,464 )

Issuance of common stock

    -       -       -       -       697       7       11,444       11,451         -         11,451  

Surrender of restricted stock

    -       -       -       -       (175 )     (2 )     (3,727 )     (3,729 )       -         (3,729 )

Exercise of common stock options

    -       -       -       -       766       8       12,328       12,336         -         12,336  

Acquisition of noncontrolling interests

    -       -       -       -       -       -       (53 )     (53 )       (766 )       (819 )

Amortization of equity awards

    -       -       -       -       -       -       6,293       6,293         -         6,293  

Balance, June 30, 2014

  $ (1,033,535 )   $ (59,592 )     102     $ 102       411,019     $ 4,110     $ 5,715,543     $ 4,626,628       $ 122,091       $ 4,748,719  

 

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

 

 
6

 

  

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Six Months Ended June 30,

 
                 
   

2014

   

2013

 

Cash flow from operating activities:

               

Net income

  $ 187,810     $ 123,780  

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

               

Depreciation and amortization

    129,296       127,042  

Impairment charges

    99,952       81,546  

Gain on sale of operating properties

    (30,907 )     (5,446 )

Equity in income of joint ventures, net

    (98,286 )     (83,616 )

Gains on change in control of interests

    (69,342 )     (21,711 )

Equity in income from other real estate investments, net

    (10,367 )     (19,363 )

Distributions from joint ventures and other real estate investments

    125,694       82,245  

Change in accounts and notes receivable

    2,178       11,142  

Change in accounts payable and accrued expenses

    (1,294 )     6,755  

Change in other operating assets and liabilities

    (8,637 )     (36,846 )

Net cash flow provided by operating activities

    326,097       265,528  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate

    (362,160 )     (145,303 )

Improvements to operating real estate

    (52,875 )     (49,497 )

Improvements to real estate under development

    (107 )     (326 )

Investment in marketable securities

    (4,556 )     (33,588 )

Proceeds from sale/repayments of marketable securities

    219       10,758  

Investments and advances to real estate joint ventures

    (46,644 )     (239,903 )

Reimbursements of investments and advances to real estate joint ventures

    113,757       295,186  

Investment in other real estate investments

    (1,372 )     (23,227 )

Reimbursements of investments and advances to other real estate investments

    12,907       1,200  

Investment in mortgage loans receivable

    -       (11,017 )

Collection of mortgage loans receivable

    7,115       8,779  

Investment in other investments

    -       (21,366 )

Reimbursements of other investments

    -       463  

Proceeds from sale of operating properties

    161,737       110,389  

Net cash flow used for investing activities

    (171,979 )     (97,452 )
                 

Cash flow from financing activities:

               

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

    (233,800 )     (66,206 )

Principal payments on rental property debt

    (11,060 )     (12,094 )

Proceeds from mortgage loan financings

    -       17,374  

Proceeds/(repayments) under unsecured revolving credit facility, net

    143,060       (62,966 )

Proceeds from issuance of unsecured term loan/notes

    500,000       428,118  

Repayments under unsecured term loan/notes

    (294,570 )     (253,225 )

Financing origination costs

    (11,911 )     (6,096 )

Redemption of/distributions to noncontrolling interests, net

    (1,059 )     (27,184 )

Dividends paid

    (213,699 )     (199,164 )

Proceeds from issuance of stock

    12,336       27,942  

Net cash flow used for financing activities

    (110,703 )     (153,501 )
                 

Change in cash and cash equivalents

    43,415       14,575  
                 

Cash and cash equivalents, beginning of period

    148,768       141,875  

Cash and cash equivalents, end of period

  $ 192,183     $ 156,450  
                 

Interest paid during the period (net of capitalized interest of $737 and $579, respectively)

  $ 102,478     $ 108,906  
                 

Income taxes paid during the period

  $ 10,465     $ 798  

 

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

 

 
7

 

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

                                          

 

1. Interim Financial Statements

 

Principles of Consolidation -

 

The accompanying Condensed Consolidated Financial Statements include the accounts of Kimco Realty Corporation and Subsidiaries, (the “Company”). The Company’s Subsidiaries includes subsidiaries which are wholly-owned, and all entities in which the Company has a controlling financial interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity (“VIE”) or meets certain criteria of a sole general partner or managing member 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 furnished 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 2013 Annual Report on Form 10-K for the year ended December 31, 2013 ("10-K"), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, that would duplicate those included in the 10-K are not included in these Condensed Consolidated Financial Statements.

 

Subsequent Events -

 

The Company has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements. (See Footnote 4).

 

Income Taxes -

 

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, the Company must distribute at least 90 percent of its taxable income and will not pay federal income taxes on the amount distributed to its shareholders.  Therefore, the Company is not 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 (“TRS”), which permit the Company to engage in certain business activities in which the REIT may not conduct directly.  A TRS is subject to federal and state income taxes on the income from these activities and the Company includes 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 subsidiary. 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.

 

 
8

 

 

Earnings Per Share -

 

The following table sets forth the reconciliation of earnings and the weighted average number of shares used in the calculation of basic and diluted earnings per share (amounts presented in thousands except per share data):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2014

   

2013

   

2014

   

2013

 

Computation of Basic Earnings Per Share:

                               

Income from continuing operations

  $ 73,691     $ 80,679     $ 152,823     $ 142,939  

Gain on sale of operating properties, net of tax

    389       -       389       540  

Net income attributable to noncontrolling interests

    (2,438 )     (2,133 )     (11,298 )     (4,871 )

Discontinued operations attributable to noncontrolling interests

    802       413       7,399       835  

Preferred stock dividends

    (14,573 )     (14,573 )     (29,147 )     (29,147 )

Income from continuing operations available to the common shareholders

    57,871       64,386       120,166       110,296  

Earnings attributable to unvested restricted shares

    (410 )     (352 )     (819 )     (705 )

Income from continuing operations attributable to common shareholders

    57,461       64,034       119,347       109,591  

Income/(loss) from discontinued operations attributable to the Company

    17,068       (27,820 )     27,199       (20,534 )

Net income attributable to the Company’s common shareholders for basic earnings per share

  $ 74,529     $ 36,214     $ 146,546     $ 89,057  
                                 

Weighted average common shares outstanding

    408,902       407,640       408,636       407,154  
                                 

Basic Earnings Per Share Attributable to the Company’s Common Shareholders:

                             

Income from continuing operations

  $ 0.14     $ 0.16     $ 0.29     $ 0.27  

Income/(loss) from discontinued operations

    0.04       (0.07 )     0.07       (0.05 )

Net income

  $ 0.18     $ 0.09     $ 0.36     $ 0.22  
                                 

Computation of Diluted Earnings Per Share:

                         

Income from continuing operations attributable to common shareholders

  $ 57,461     $ 64,034     $ 119,347     $ 109,591  

Income/(loss) from discontinued operations attributable to the Company

    17,068       (27,820 )     27,199       (20,534 )

Net income attributable to the Company’s common shareholders for diluted earnings per share

  $ 74,529     $ 36,214     $ 146,546     $ 89,057  
                                 

Weighted average common shares outstanding – basic

    408,902       407,640       408,636       407,154  
Effect of dilutive securities (a):                                

Equity awards

    1,103       1,191       1,046       1,009  

Shares for diluted earnings per common share

    410,005       408,831       409,682       408,163  
                                 

Diluted Earnings Per Share Attributable to the Company’s Common Shareholders:

                             

Income from continuing operations

  $ 0.14     $ 0.16     $ 0.29     $ 0.27  

Income/(loss) from discontinued operations

    0.04       (0.07 )     0.07       (0.05 )

Net income

  $ 0.18     $ 0.09     $ 0.36     $ 0.22  

 

  

(a)

For the three and six months ended June 30, 2014 and 2013, the effect of certain convertible units would have an anti-dilutive effect upon the calculation of Income from continuing operations per share.  Accordingly, the impact of such conversion has not been included in the determination of diluted earnings per share calculations.  Additionally, there were 8,952,148 and 9,070,328 stock options that were not dilutive at June 30, 2014 and 2013, respectively.

 

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.

 

New Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09 Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). The amendments in ASU 2014-08 change the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The amendments in ASU 2014-08 are effective for fiscal years beginning after December 15, 2014. Early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-08 will have on future disposals.

 

 
9

 

 

In February 2013, the FASB issued new guidance regarding liabilities, ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU 2013-04”), effective retrospectively for fiscal years beginning after December 15, 2013 and interim periods within those years. The amendments require an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, the amendments require an entity to disclose the nature and amount of the obligation, as well as other information about the obligations. The adoption of ASU 2013-04 did not have a material impact on the Company’s financial position or results of operations.

 

2. Operating Property Activities

 

Acquisitions -

 

During the six months ended June 30, 2014, the Company acquired the following properties, in separate transactions (in thousands):

 

       

Purchase Price

 

Property Name

Location

Month

Acquired

 

Cash

   

Debt Assumed

   

Other

   

Total

   

GLA*

 

North Valley Leasehold

Peoria, AZ

Jan-14

  $ 3,000     $ -     $ -     $ 3,000       -  

LaSalle Properties (3 properties)

Various (1)

Jan-14

    62,239       23,269       7,642       93,150       316  

Harrisburg Land Parcel

Harrisburg, PA

Jan-14

    2,550       -       -       2,550       -  

Crossroads Plaza

Cary, NC

Feb-14

    18,691       72,309       -       91,000       489  

Quail Corners

Charlotte, NC (2)

Mar-14

    9,398       17,409       4,943       31,750       110  

KIF 1 Portfolio (12 properties)

Various (3)

Apr-14

    128,699       157,010       122,291       408,000       1,589  

Fountain at Arbor Lakes (2 Land Parcels)

Maple Grove, MN

Apr-14

    900       -       -       900       -  

Boston Portfolio (24 properties)

Various

Apr-14

    149,486       120,514       -       270,000       1,426  

Vinnin Square

Swampscott, MA

May-14

    2,550       -       -       2,550       6  
        $ 377,513     $ 390,511     $ 134,876     $ 902,900       3,936  

* Gross leasable area ("GLA")

 

 

(1)

The Company acquired three properties from a joint venture in which the Company has an 11% noncontrolling interest. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as such recognized a gain of $3.7 million from the fair value adjustment associated with the Company’s original ownership due to a change in control, which is reflected in the purchase price above in Other.

 

(2)

The Company acquired a 65.4% controlling ownership interest in this property and the seller retained a 34.6% noncontrolling interest in the property. The partner has the ability to put its partnership interest to the Company. As such, the Company has recorded the partners share of the property’s fair value of $4.9 million as Redeemable noncontrolling interests on the Company’s Condensed Consolidated Balance Sheets.

 

(3)

The Company acquired from its partners the remaining ownership interest in a joint venture which holds 12 encumbered properties for which the Company had a 39.1% noncontrolling interest. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as a result, recognized a gain of $65.6 million from the fair value adjustment associated with the Company’s original ownership due to a change in control, which is reflected in the purchase price above in Other. Subsequently, the Company repaid $128.4 million in debt encumbering ten of the properties. Additionally, during June 2014, the Company sold one of the properties to a third party.

 

The aggregate purchase price of the properties acquired during the six months ended June 30, 2014, has been preliminarily allocated as follows (in thousands): 

 

Land

  $ 257,277  

Buildings

    428,521  

Above Market Rents

    19,131  

Below Market Rents

    (51,359 )

In-Place Leases

    71,655  

Building Improvements

    183,619  

Tenant Improvements

    16,751  

Mortgage Fair Value Adjustment

    (22,944 )

Other Assets

    249  
    $ 902,900  

 

 
10

 

 

Dispositions –

 

During the six months ended June 30, 2014, the Company disposed of 18 operating properties, in separate transactions, for an aggregate sales price of $199.8 million, including five operating properties in Mexico. These transactions, which are included in Discontinued Operations on the Company’s Condensed Consolidated Statements of Income, resulted in an aggregate gain of $30.3 million, before income taxes and noncontrolling interests and aggregate impairment charges of $3.1 million, before income taxes and noncontrolling interests.

 

Impairment Charges -

 

During the six months ended June 30, 2014, the Company recognized aggregate impairment charges of $90.6 million, which are included in Impairment charges under Operating expenses on the Company’s Condensed Consolidated Statements of Income. These impairment charges consist of $88.4 million related to adjustments to property carrying values and $2.2 million related to a cost method investment. The 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 and the anticipated hold period for such properties. During the second quarter ended June 30, 2014, the Company implemented its plan to accelerate its disposition of certain U.S. properties and in accordance with this strategy the Company identified approximately 150 operating properties to sell within the next 18 months. This plan effectively shortened the Company’s anticipated hold period for these properties and as such caused the Company to recognize impairment charges on 18 consolidated operating properties. (See Footnote 12 for fair value disclosure).

 

During the six months ended June 30, 2013, the Company recognized aggregate impairment charges of $25.2 million, which are included in Impairment charges under Operating expenses on the Company’s Condensed Consolidated Statements of Income. These impairment charges consist $17.4 million related to adjustments to property carrying values and $7.8 million relating to a cost method investment. The Company’s estimated fair values as it relates to property carrying values were primarily based upon estimated sales prices from third party offers based on signed contracts or letters of intent. The impairment of the cost method investment was based upon a review of the underlying cause of the decline in value, as well as the severity and duration of the decline. As a result of such review, the Company determined that the decline was deemed to be other-than-temporary.

 

3. Discontinued Operations

 

The Company reports as discontinued operations, properties held-for-sale as of the end of the current period and assets sold during the period. The results of these discontinued operations are included as a separate component of income on the Condensed Consolidated Statements of Income under the caption Discontinued operations.  This reporting has resulted in certain reclassifications of 2013 financial statement amounts.

 

The components of income and expense relating to discontinued operations for the three and six months ended June 30, 2014 and 2013 are shown below. These include the results of operations through the date of each respective sale for properties sold during 2014 and 2013 and the operations for the applicable period for those assets classified as held-for-sale as of June 30, 2014 (in thousands):

 

   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

 
   

2014

   

2013

   

2014

   

2013

 

Discontinued operations:

                               

Revenues from rental property

  $ 6,188     $ 21,607     $ 23,020     $ 40,841  

Rental property expenses

    (1,749 )     (6,563 )     (4,333 )     (12,322 )

Depreciation and amortization

    (1,667 )     (5,597 )     (3,649 )     (10,658 )

Provision for doubtful accounts

    (49 )     (262 )     (329 )     (603 )

Interest (expense)/income, net

    (36 )     338       (72 )     173  

Other expense, net

    (141 )     (207 )     (456 )     (317 )

Income from discontinued operating properties, before income taxes

    2,546       9,316       14,181       17,114  

Impairment of property carrying value, net, before income taxes

    (4,686 )     (53,478 )     (9,309 )