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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

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

 

For the quarterly period ended March 31, 2017

 

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, 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

 

(Do not check if a smaller reporting 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 12-b-2 of the Exchange Act). Yes ☐ No ☒

 

As of April 18, 2017, the registrant had 425,655,081 shares of common stock outstanding.

 



 

 

PART I FINANCIAL INFORMATION
     

Item 1.

Financial Statements of Kimco Realty Corporation and Subsidiaries (Unaudited)

  

  

  

  

Condensed Consolidated Financial Statements -

  

  

  

  

  

Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

3

  

  

  

  

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2017 and 2016

4

  

  

  

  

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016

5

  

  

  

  

Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2017 and 2016

6

  

  

  

  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

7

  

  

  

Notes to Condensed Consolidated Financial Statements

8

  

  

  

Item 2.

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

19

  

  

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

  

  

 

Item 4.

Controls and Procedures

28

  

  

  

PART II OTHER INFORMATION

  

  

Item 1.

Legal Proceedings

29

  

 

Item 1A.

Risk Factors

29

  

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

29

   

Item 6.

Exhibits

29

  

 

Signatures

31

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Assets:

               

Operating real estate, net of accumulated depreciation of $2,345,766, and $2,278,292, respectively

  $ 9,345,513     $ 9,394,755  

Investments in and advances to real estate joint ventures

    504,847       504,209  

Real estate under development

    391,388       335,028  

Other real estate investments

    208,305       209,146  

Mortgages and other financing receivables

    22,585       23,197  

Cash and cash equivalents

    167,454       142,486  

Marketable securities

    7,702       8,101  

Accounts and notes receivable, net

    176,054       181,823  

Other assets

    424,571       431,855  

Total assets (1)

  $ 11,248,419     $ 11,230,600  
                 

Liabilities:

               

Notes payable, net

  $ 4,053,158     $ 3,927,251  

Mortgages payable, net

    1,071,725       1,139,117  

Dividends payable

    124,680       124,517  

Other liabilities

    542,279       549,888  

Total liabilities (2)

    5,791,842       5,740,773  

Redeemable noncontrolling interests

    97,031       86,953  
                 

Commitments and Contingencies

               
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 6,029,100 shares 32,000 shares issued and outstanding (in series) Aggregate liquidation preference $800,000

    32       32  

Common stock, $.01 par value, authorized 750,000,000 shares issued and outstanding 425,639,715 and 425,034,113 shares, respectively

    4,256       4,250  

Paid-in capital

    5,927,172       5,922,958  

Cumulative distributions in excess of net income

    (726,610 )     (676,867 )

Accumulated other comprehensive income

    6,485       5,766  

Total stockholders' equity

    5,211,335       5,256,139  

Noncontrolling interests

    148,211       146,735  

Total equity

    5,359,546       5,402,874  

Total liabilities and equity

  $ 11,248,419     $ 11,230,600  

 

(1)

Includes restricted assets of consolidated variable interest entities (“VIEs”) at March 31, 2017 and December 31, 2016 of $330,443 and $333,705, respectively. See Footnote 6 of the Notes to Condensed Consolidated Financial Statements.

(2)

Includes non-recourse liabilities of consolidated VIEs at March 31, 2017 and December 31, 2016 of $181,360 and $176,216, respectively. See Footnote 6 of the Notes to Condensed Consolidated Financial Statements.

 

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

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 
                 

Revenues

               

Revenues from rental properties

  $ 289,391     $ 293,091  

Management and other fee income

    4,197       4,111  
                 

Total revenues

    293,588       297,202  
                 

Operating expenses

               

Rent

    2,783       2,818  

Real estate taxes

    38,269       34,472  

Operating and maintenance

    34,230       34,553  

General and administrative

    30,574       31,929  

Provision for doubtful accounts

    1,404       3,475  

Impairment charges

    1,617       5,840  

Depreciation and amortization

    92,074       84,856  

Total operating expenses

    200,951       197,943  
                 

Operating income

    92,637       99,259  
                 

Other income/(expense)

               

Other income/(expense), net

    1,273       (170 )

Interest expense

    (46,482 )     (52,451 )

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

    47,428       46,638  
                 

Benefit/(provision) for income taxes, net

    493       (12,112 )

Equity in income of joint ventures, net

    14,733       69,933  

Gain on change in control of interests

    10,188       -  

Equity in income of other real estate investments, net

    3,687       10,799  
                 

Income from continuing operations

    76,529       115,258  
                 

Gain on sale of operating properties, net of tax

    1,686       26,896  
                 

Net income

    78,215       142,154  
                 

Net income attributable to noncontrolling interests

    (1,482 )     (1,441 )
                 

Net income attributable to the Company

    76,733       140,713  
                 

Preferred stock dividends

    (11,555 )     (11,555 )
                 

Net income available to the Company's common shareholders

  $ 65,178     $ 129,158  
                 

Per common share:

               

Net income available to the Company:

               

-Basic

  $ 0.15     $ 0.31  

-Diluted

  $ 0.15     $ 0.31  
                 

Weighted average shares:

               

-Basic

    423,381       412,630  

-Diluted

    424,146       414,145  

 

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

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 
                 

Net income

  $ 78,215     $ 142,154  

Other comprehensive income:

               

Change in unrealized gain on marketable securities

    28       2  

Change in unrealized loss on interest rate swaps

    188       (604 )

Change in foreign currency translation adjustment

    503       2,510  

Other comprehensive income:

    719       1,908  
                 

Comprehensive income

    78,934       144,062  
                 

Comprehensive income attributable to noncontrolling interests

    (1,482 )     (1,441 )
                 

Comprehensive income attributable to the Company

  $ 77,452     $ 142,621  

 

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

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

(in thousands)

 

   

Cumulative

Distributions

in Excess

of Net

   

Accumulated

Other

Comprehensive

   

Preferred Stock

   

Common Stock

   

Paid-in

   

Total

Stockholders'

   

Noncontrolling

   

Total

 
   

Income

   

Income

   

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

Equity

   

Interests

   

Equity

 

Balance, January 1, 2016

  $ (572,335 )   $ 5,588       32     $ 32       413,431     $ 4,134     $ 5,608,881     $ 5,046,300     $ 135,651     $ 5,181,951  
                                                                                 

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       -       -  
                                                                                 

Comprehensive income:

                                                                               

Net income

    140,713       -       -       -       -       -       -       140,713       1,441       142,154  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized gain on marketable securities

    -       2       -       -       -       -       -       2       -       2  

Change in unrealized loss on interest rate swaps

    -       (604 )     -       -       -       -       -       (604 )     -       (604 )

Change in foreign currency translation adjustment

    -       2,510       -       -       -       -       -       2,510       -       2,510  
                                                              -                  

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (1,078 )     (1,078 )

Dividends ($0.255 per common share; $0.3750 per Class I Depositary Share, and $0.3438 per Class J Depositary Share. and $0.3516 per Class K Depositary Share, respectively)

    (118,481 )     -       -       -       -       -       -       (118,481 )     -       (118,481 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (1,276 )     (1,276 )

Issuance of common stock

    -       -       -       -       4,487       45       100,911       100,956       -       100,956  

Surrender of restricted stock

    -       -       -       -       (228 )     (2 )     (5,906 )     (5,908 )     -       (5,908 )

Exercise of common stock options

    -       -       -       -       592       6       10,539       10,545       -       10,545  

Amortization of equity awards

    -       -       -       -       -       -       6,586       6,586       -       6,586  

Balance, March 31, 2016

  $ (550,103 )   $ 7,496       32     $ 32       418,282     $ 4,183     $ 5,721,011     $ 5,182,619     $ 134,738     $ 5,317,357  
                                                                                 

Balance, January 1, 2017

  $ (676,867 )   $ 5,766       32     $ 32       425,034     $ 4,250     $ 5,922,958     $ 5,256,139     $ 146,735     $ 5,402,874  

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       2,310       2,310  

Comprehensive income:

                                                           

Net income

    76,733       -       -       -       -       -       -       76,733       1,482       78,215  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized gain on marketable securities

    -       28       -       -       -       -       -       28       -       28  

Change in unrealized loss on interest rate swaps

    -       188       -       -       -       -       -       188       -       188  

Change in foreign currency translation adjustment

    -       503       -       -       -       -       -       503       -       503  
                                                                                 

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (1,066 )     (1,066 )

Dividends ($0.27 per common share; $0.3750 per Class I Depositary Share, $0.3438 per Class J Depositary Share, and $0.3516 per Class K Depositary Share, respectively)

    (126,476 )     -       -       -       -       -       -       (126,476 )     -       (126,476 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (1,250 )     (1,250 )

Issuance of common stock

    -       -       -       -       776       8       (8 )     -       -       -  

Surrender of restricted stock

    -       -       -       -       (200 )     (2 )     (4,989 )     (4,991 )     -       (4,991 )

Exercise of common stock options

    -       -       -       -       30       -       560       560       -       560  

Amortization of equity awards

    -       -       -       -       -       -       8,651       8,651       -       8,651  

Balance, March 31, 2017

  $ (726,610 )   $ 6,485       32     $ 32       425,640     $ 4,256     $ 5,927,172     $ 5,211,335     $ 148,211     $ 5,359,546  

 

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

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

Cash flow from operating activities:

               

Net income

  $ 78,215     $ 142,154  

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

               

Depreciation and amortization

    92,074       84,856  

Impairment charges

    1,617       5,840  

Equity award expense

    9,631       7,877  

Gain on sale of operating properties

    (1,686 )     (30,883 )

Gain on change in control of interests

    (10,188 )     -  

Equity in income of joint ventures, net

    (14,733 )     (69,933 )

Equity in income from other real estate investments, net

    (3,687 )     (10,799 )

Distributions from joint ventures and other real estate investments

    13,258       26,730  

Change in accounts and notes receivable

    5,769       1,247  

Change in accounts payable and accrued expenses

    7,885       8,869  

Change in other operating assets and liabilities

    (21,103 )     (29,002 )

Net cash flow provided by operating activities

    157,052       136,956  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate and other related net assets

    (38,390 )     (11,436 )

Improvements to operating real estate

    (30,053 )     (32,866 )

Acquisition of real estate under development

    (10,010 )     (12,895 )

Improvements to real estate under development

    (44,434 )     (5,333 )

Proceeds from sale of marketable securities

    457       1,850  

Investments in and advances to real estate joint ventures

    (16,874 )     (17,505 )

Reimbursements of investments in and advances to real estate joint ventures

    13,523       28,327  

Distributions from liquidation of real estate joint ventures

    -       50,902  

Return of investment from liquidation of real estate joint ventures

    -       40,000  

Investment in other real estate investments

    (114 )     (190 )

Reimbursements of investments in and advances to other real estate investments

    3,779       2,921  

Collection of mortgage loans receivable

    243       231  

Proceeds from sale of operating properties

    56,498       79,245  

Proceeds from sale of development properties

    -       4,551  

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

    (65,375 )     127,802  
                 

Cash flow from financing activities:

               

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

    (59,100 )     (101,205 )

Principal payments on rental property debt

    (4,544 )     (5,971 )

(Repayments)/proceeds from unsecured revolving credit facility, net

    (15,042 )     180,000  

Proceeds from issuance of unsecured notes

    400,000       -  

Repayments under unsecured term loan/notes

    (250,000 )     (300,000 )

Financing origination costs

    (9,905 )     (91 )

Payment of early extinguishment of debt charges

    (588 )     -  

Change in tenants' security deposits

    316       594  

Conversion/distribution of noncontrolling interests

    (2,092 )     -  

Dividends paid

    (126,315 )     (117,030 )

Proceeds from issuance of stock, net

    561       111,411  

Net cash flow used for financing activities

    (66,709 )     (232,292 )
                 

Change in cash and cash equivalents

    24,968       32,466  
                 

Cash and cash equivalents, beginning of period

    142,486       189,534  

Cash and cash equivalents, end of period

  $ 167,454     $ 222,000  
                 

Interest paid during the period (net of capitalized interest of $2,883 and $1,699, respectively)

  $ 24,286     $ 39,508  
                 

Income taxes paid during the period

  $ 2,801     $ 23,960  

 

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. Interim Financial Statements

 

Business -

 

Kimco Realty Corporation and subsidiaries (the "Company"), affiliates and related real estate joint ventures are engaged principally in the ownership, management, development and operation of open-air shopping centers, which are anchored generally by discount department stores, grocery stores or drugstores. 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 will 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.

 

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 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”) 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 2016 Annual Report on Form 10-K for the year ended December 31, 2016 (the “10-K”), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, 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 condensed consolidated financial statements.

 

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

 
   

March 31,

 
   

2017

   

2016

 

Computation of Basic and Diluted Earnings Per Share:

               

Net income available to the Company's common shareholders

    65,178       129,158  

Earnings attributable to participating securities

    (531 )     (629 )

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

    64,647       128,529  

Distributions on convertible units

    -       13  

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

  $ 64,647     $ 128,542  
                 

Weighted average common shares outstanding – basic

    423,381       412,630  

Effect of dilutive securities (a):

               

Equity awards

    765       1,453  

Assumed conversion of convertible units

    -       62  

Weighted average common shares outstanding – diluted

    424,146       414,145  
                 

Net income available to the Company's common shareholders:

               

Basic earnings per share

  $ 0.15     $ 0.31  

Diluted earnings per share

  $ 0.15     $ 0.31  

 

 

(a)

The effect of the assumed conversion of certain convertible units had an anti-dilutive effect upon the calculation of Income from continuing operations per share. Accordingly, the impact of such conversions has not been included in the determination of diluted earnings per share calculations. Additionally, there were 3,445,600 and 5,235,280 stock options that were not dilutive as of March 31, 2017 and 2016, 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 February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (“Subtopic 610-20”): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017-05 clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and defines the term in substance nonfinancial asset. ASU 2017-05 also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty.  Subtopic 610-20, which was issued in May 2014 as part of ASU 2014-09, provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity is required to apply the amendments in ASU 2017-05 at the same time it applies the amendments in ASU 2014-09. An entity may elect to apply the amendments in ASU 2017-05 either retrospectively to each period presented in the financial statements in accordance with the guidance on accounting changes in FASB’s Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, paragraphs 10-45-5 through 10-45-10 (i.e. the retrospective approach) or retrospectively with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption (i.e. the modified retrospective approach). An entity may elect to apply all of the amendments in ASU 2017-05 and ASU 2014-09 using the same transition method, and alternatively may elect to use different transition methods. The Company is currently in the process of evaluating the impact the adoption of ASU 2017-05 will have on the Company’s financial position and/or results of operations.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years, with early application of the guidance permitted. The Company has elected to early adopt ASU 2017-01 at the beginning of its fiscal year ended December 31, 2017, including its interim periods within the year, and appropriately applied the guidance to its asset acquisitions of operating properties. Under this update, the Company’s operating property acquisitions during the three months ended March 31, 2017, qualified for asset acquisition treatment under ASC 360, Property, Plant, and Equipment, rather than business combination treatment under ASC 805 Business Combinations, and resulted in the capitalization of asset acquisition costs rather than directly expensing these costs.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new guidance introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. The standard is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early application of the guidance permitted. The adoption of ASU 2016-13 is not expected to have a material effect on the Company’s financial position and/or results of operations.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). The update simplifies several aspects of accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption was permitted. The adoption of ASU 2016-09 did not have a material effect on the Company’s financial position and/or results of operations.

 

  

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company continues to evaluate the effect the adoption of ASU 2016-02 will have on the Company’s financial position and/or results of operations. However, the Company currently believes that the adoption of ASU 2016-02 will not have a material impact for operating leases where it is a lessor and will continue to record revenues from rental properties for its operating leases on a straight-line basis. However, for leases where the Company is a lessee, primarily for the Company’s ground leases and administrative office leases, the Company will be required to record a lease liability and a right of use asset on its Consolidated Balance Sheets at fair value upon adoption. In addition, direct internal leasing overhead costs will continue to be capitalized, however, indirect internal leasing overhead costs previously capitalized will be expensed under ASU 2016-02.

 

In May 2014, the FASB issued 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 was anticipated to be effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption was not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), which delayed the effective date of ASU 2014-09 by one year making it effective for the first interim period within annual reporting periods beginning after December 15, 2017. Subsequently, in March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations,” which further clarifies the implementation guidance on principal versus agent considerations, and in April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying performance obligations and licensing,” an update on identifying performance obligations and accounting for licenses of intellectual property. Additionally, in May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-scope improvements and practical expedients,” which includes amendments for enhanced clarification of the guidance. Early adoption is permitted as of the original effective date. The Company’s revenue-producing contracts are primarily leases that are not within the scope of this standard. As a result, the Company does not expect the adoption of ASU 2014-09 to have a material impact on the Company’s rental income. The Company continues to evaluate the effect the adoption of ASU 2014-09 will have on the Company’s other sources of revenue. These include management and other fee income and reimbursement amounts the Company receives from tenants for operating expenses such as real estate taxes, insurance and other common area maintenance. However, the Company currently does not believe the adoption of ASU 2014-09 will significantly affect the timing of the recognition of the Company’s management and other fee income and reimbursement revenue.

 

2. Operating Property Activities

 

Acquisitions of Operating Real Estate -

 

During the three months ended March 31, 2017, the Company acquired the following operating properties, in separate transactions (in thousands):

 

       

Purchase Price

 

Property Name

Location

Month

Acquired

 

Cash

   

Debt

Assumed

   

Other

Consideration*

   

Total

   

GLA**

 

Plantation Commons

Plantation, FL (1)

Jan-17

  $ -     $ -     $ 12,300     $ 12,300       60  

Gordon Plaza

Woodbridge, VA (1)

Jan-17

    -       -       3,100       3,100       184  

Plaza del Prado

Glenview, IL

Jan-17

    39,063       -       -       39,063       142  

Columbia Crossing Parcel

Columbia Crossing, MD

Jan-17

    5,100       -       -       5,100       25  
        $ 44,163     $ -     $ 15,400     $ 59,563       411  

* Includes the Company’s previously held equity interest investment.

** Gross leasable area ("GLA")

 

(1)

The Company acquired from certain of its partners, their ownership interest in properties that were held in joint ventures in which the Company had noncontrolling interests. The Company now has a controlling interest in these properties and has deemed these entities to be VIEs for which the Company is the primary beneficiary and now consolidates these assets. The Company evaluated these transactions pursuant to the FASB’s Consolidation guidance and as a result, recognized gains on change in control of interests resulting from the fair value adjustments associated with the Company’s previously held equity interests, which are included in the purchase price above in Other Consideration. The Company’s current ownership interests and gains on change in control of interests recognized as a result of these transactions are as follows (in thousands):

 

Property Name

 

Current

Ownership

Interest

   

Gain on change

in control of

interests

 

Plantation Commons

    76.25%     $ 9,793  

Gordon Plaza

    40.62%       395  
            $ 10,188  

 

   

The Company adopted ASU 2017-01 effective January 1, 2017 and applied the guidance to its operating property acquisitions during the three months ended March 31, 2017. The purchase price for these acquisitions is allocated to real estate and related intangible assets acquired and liabilities assumed, as applicable, in accordance with our accounting policies for asset acquisitions.

 

The purchase price allocations for properties acquired during the three months ended March 31, 2017, are as follows (in thousands): 

 

Land

  $ 14,516  

Buildings

    34,135  

Above-market leases

    1,418  

Below-market leases

    (1,345 )

In-place leases

    2,724  

Building improvements

    7,064  

Tenant improvements

    961  

Other assets

    90  

Net assets acquired

  $ 59,563  

 

The allocation adjustments and revised allocations for properties accounted for as business combinations during the year ended December 31, 2016 as of March 31, 2017, are as follows (in thousands): 

 

   

Allocation as of 

December 31, 

2016

   

Allocation

Adjustments

   

Revised Allocation 

as of March 31, 

2017

 

Land

  $ 179,150     $ (5,150 )   $ 174,000  

Buildings

    309,493       (30,696 )     278,797  

Above-market leases

    11,982       885       12,867  

Below-market leases

    (31,903 )     (4,716 )     (36,619 )

In-place leases

    44,094       (1,063 )     43,031  

Building improvements

    124,105       41,895       166,000  

Tenant improvements

    12,788       (1,155 )     11,633  

Mortgage fair value adjustment

    (4,292 )     -       (4,292 )

Other assets

    234       -       234  

Other liabilities

    (27 )     -       (27 )

Net assets acquired

  $ 645,624     $ -     $ 645,624  

 

Dispositions and Assets Held for Sale 

 

During the three months ended March 31, 2017, the Company disposed of four consolidated operating properties and two out-parcels, in separate transactions, for an aggregate sales price of $57.8 million. These transactions resulted in (i) an aggregate gain of $1.7 million and (ii) aggregate impairment charges of $1.2 million.

 

At March 31, 2017, the Company had two properties classified as held-for-sale at a carrying amount of $2.6 million, net of accumulated depreciation of $0.1 million, which are included in Other assets on the Company’s Condensed Consolidated Balance Sheets. The Company’s determination of the fair value of the properties was based upon executed contracts of sale with third parties. The book value of one of these properties exceeded its estimated fair value, less costs to sell, and as such an impairment charge of $0.2 million was recognized.

 

Impairments

 

During the three months ended March 31, 2017, the Company recognized aggregate impairment charges of $1.6 million. These impairment charges consist of (i) $1.2 million related to the sale of certain operating properties, as discussed above, (ii) $0.2 million related to adjustments to property carrying values for properties which the Company has marketed for sale as part of its active capital recycling program and as such has adjusted the anticipated hold periods for such properties and (iii) $0.2 million related to one property classified as held-for-sale for which the book value exceeded its estimated fair value, as discussed above. The Company’s estimated fair values for these properties were based on third party offers through signed contracts. (See Footnote 10 for fair value disclosure).

 

 

3. Real Estate Under Development

 

The Company is engaged in various real estate development projects for long-term investment. As of March 31, 2017, the Company had in progress a total of seven real estate development projects located in the U.S. These projects will be developed into open-air shopping centers aggregating 2.6 million square feet of GLA, including residential and mixed-use components, with a total estimated aggregate project cost of $674.0 million.

 

The costs incurred to date for these real estate development projects are as follows (in thousands):

 

Property Name

Location

 

March 31, 2017

   

December 31, 2016

 

Grand Parkway Marketplace

Spring, TX

  $ 106,752     $ 94,841  

Dania Pointe (1)

Dania Beach, FL

    114,532       107,113  

Promenade at Christiana

New Castle, DE

    26,041       25,521  

Owings Mills

Owings Mills, MD

    26,787       25,119  

Lincoln Square (2)

Philadelphia, PA

    34,836       -  

Avenues Walk

Jacksonville, FL

    73,048       73,048  

Staten Island Plaza (3)

Staten Island, NY

    9,392       9,386  
      $ 391,388     $ 335,028  

 

 

(1)

Includes $45.9 million of land held for future development.

 

(2)

During the three months ended March 31, 2017, KIM Lincoln, LLC (“KIM Lincoln”), a wholly owned subsidiary of the Company, and Lincoln Square Property, LP (“Lincoln Member”) entered in a joint venture agreement wherein KIM Lincoln has a 90% controlling interest and Lincoln Member has a 10% noncontrolling interest. The joint venture acquired land parcels in Philadelphia, PA to be held for development for a gross purchase price of $10.0 million. Based upon the Company’s intent to develop the property, the Company allocated the gross purchase price to Real estate under development on the Company’s Condensed Consolidated Balance Sheets. This joint venture is accounted for as a consolidated VIE (see Footnote 6).

 

(3)

Land held for future development.

 

4. Investments in and Advances to Real Estate Joint Ventures

 

The Company and its subsidiaries have investments in and advances to various real estate joint ventures. These joint ventures are engaged primarily in the operation of shopping centers which are either owned or held under long-term operating leases. The Company and the joint venture partners have joint approval rights for major decisions, including those regarding property operations. As such, the Company holds noncontrolling interests in these joint ventures and accounts for them under the equity method of accounting.

 

 The table below presents joint venture investments for which the Company held an ownership interest at March 31, 2017 and December 31, 2016 (in millions, except number of properties):

 

   

As of March 31, 2017

   

As of December 31, 2016

 

Venture

 

Ownership

Interest

   

Number of

Properties

   

The

Company's

Investment

   

Ownership

Interest

   

Number of

Properties

   

The

Company's

Investment

 

Prudential Investment Program (“KimPru” and “KimPru II”) (1) (2)

    15.0%       46     $ 179.9       15.0%       48     $ 182.5  

Kimco Income Opportunity Portfolio (“KIR”) (2)

    48.6%       44       147.1       48.6%       45       145.2  

Canada Pension Plan Investment Board (“CPP”) (2)

    55.0%       5       115.2       55.0%       5       111.8  

Other Joint Venture Programs

    Various       33       62.6       Various       37       64.7  

Total*

            128     $ 504.8               135     $ 504.2  

 

* Representing 25.3 million and 26.2 million square feet of GLA, respectively.

(1)

Represents four separate joint ventures, with four separate accounts managed by Prudential Global Investment Management (“PGIM”), three of these ventures are collectively referred to as KimPru and the remaining venture is referred to as KimPru II.

(2)

The Company manages these joint venture investments and, where applicable, earns acquisition fees, leasing commissions, property management fees, asset management fees and construction management fees.

 

The table below presents the Company’s share of net income for the above investments which is included in Equity in income of joint ventures, net on the Company’s Condensed Consolidated Statements of Income for the three months ended March 31, 2017 and 2016 (in millions):

 

   

Three Months Ended

March 31,

 
   

2017

   

2016

 

KimPru and KimPru II

  $ 3.3     $ 2.2  

KIR

    9.4       7.4  

CPP

    1.7       3.9  

Other Joint Venture Programs

    0.3       56.4  

Total

  $ 14.7     $ 69.9  

 

 

During the three months ended March 31, 2017, certain of the Company’s real estate joint ventures disposed of five operating properties, in separate transactions, for an aggregate sales price of $47.7 million. These transactions resulted in an aggregate net gain to the Company of $0.9 million, before income taxes, for the three months ended March 31, 2017. In addition, during three months ended March 31, 2017, the Company acquired a controlling interest in two operating properties from certain joint ventures, in separate transactions, for a gross purchase price of $15.4 million. See Footnote 2 for the operating properties acquired by the Company.

 

During the three months ended March 31, 2016, certain of the Company’s real estate joint ventures disposed of or transferred interests to joint venture partners in nine operating properties, in separate transactions, for an aggregate sales price of $344.5 million. These transactions resulted in an aggregate net gain to the Company of $54.1 million, before income taxes, for the three months ended March 31, 2016.

 

The table below presents debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at March 31, 2017 and December 31, 2016 (dollars in millions):

 

   

As of March 31, 2017

   

As of December 31, 2016

 

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)*

 

KimPru and KimPru II

  $ 629.3       2.85

%

    66.3     $ 647.4       3.07 %     67.5  

KIR

    737.5       4.58

%

    52.7       746.5       4.64 %     54.9  

CPP

    84.9       2.33

%

    13.0       84.8       2.17 %     16.0  

Other Joint Venture Programs

    496.9       5.38

%

    23.9       584.3       5.40 %     23.4  

Total

  $ 1,948.6                     $ 2,063.0                  

 

* Average Remaining Term includes extension options.

 

5. Other Real Estate Investments

 

Preferred Equity Capital -

 

The Company previously provided capital to owners and developers of real estate properties through its Preferred Equity Program. The Company’s maximum exposure to losses associated with its preferred equity investments is primarily limited to its net investment. As of March 31, 2017, the Company’s net investment under the Preferred Equity Program was $193.1 million relating to 361 properties, including 346 net leased properties.  During the three months ended March 31, 2017, the Company earned $3.8 million from its preferred equity investments.  During the three months ended March 31, 2016, the Company earned $10.8 million from its preferred equity investments, including $6.9 million in profit participation, before taxes, earned from a capital transaction. These amounts are included in Equity in income of other real estate investments, net on the Company’s Condensed Consolidated Statements of Income.

 

6. Variable Interest Entities (“VIE”)

 

Consolidated VIEs

 

Included within the Company’s consolidated operating properties at March 31, 2017, are 23 consolidated entities 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 based on the fact that the unrelated investors do not have substantial kick-out rights to remove the general or managing partner by a vote of a simple majority or less and they do not have participating rights. The Company determined that it was the primary beneficiary of these VIEs as a result of its controlling financial interest. At March 31, 2017, total assets of these VIEs were $911.5 million and total liabilities were $173.7 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 March 31, 2017, are three consolidated entities that are VIEs, for which the Company is the primary beneficiary. These entities have been established to develop real estate properties to hold as long-term investments. The Company’s involvement with these entities is through