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EX-32.1 - EXHIBIT 32.1 - KIMCO REALTY CORPex_96675.htm
EX-31.2 - EXHIBIT 31.2 - KIMCO REALTY CORPex_96674.htm
EX-31.1 - EXHIBIT 31.1 - KIMCO REALTY CORPex_96673.htm
EX-12.2 - EXHIBIT 12.2 - KIMCO REALTY CORPex_96672.htm
EX-12.1 - EXHIBIT 12.1 - KIMCO REALTY CORPex_96671.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 September 30, 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 October 16, 2017, the registrant had 425,653,409 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 September 30, 2017 and December 31, 2016

3

  

  

 

  

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016

4

  

   

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016

5

  

   

  

Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 2016

6

  

   

  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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 21
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk 32

  

   

Item 4.

Controls and Procedures 33
     
  PART II OTHER INFORMATION  
     

Item 1.

Legal Proceedings 34
     

Item 1A. 

Risk Factors 34
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 34
     

Item 3.

Defaults Upon Senior Securities 34
     

Item 4.

Mine Safety Disclosures 34
     

Item 5.

Other Information 35
     

Item 6. 

Exhibits 35
     

Signatures

36

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Assets:

               

Operating real estate, net of accumulated depreciation of $2,458,806 and $2,278,292 respectively

  $ 9,771,654     $ 9,394,755  

Investments in and advances to real estate joint ventures

    509,448       504,209  

Real estate under development

    361,264       335,028  

Other real estate investments

    213,859       209,146  

Mortgages and other financing receivables

    22,538       23,197  

Cash and cash equivalents

    156,588       142,486  

Marketable securities

    14,044       8,101  

Accounts and notes receivable, net

    182,012       181,823  

Other assets

    470,834       431,855  

Total assets (1)

  $ 11,702,241     $ 11,230,600  
                 

Liabilities:

               

Notes payable, net

  $ 4,700,423     $ 3,927,251  

Mortgages payable, net

    850,848       1,139,117  

Dividends payable

    123,270       124,517  

Other liabilities

    603,417       549,888  

Total liabilities (2)

    6,277,958       5,740,773  

Redeemable noncontrolling interests

    16,139       86,953  
                 

Commitments and Contingencies

               
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 6,017,400 and 6,029,100 shares, respectively, 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 425,633,409 and 425,034,113 shares, respectively

    4,256       4,250  

Paid-in capital

    5,926,392       5,922,958  

Cumulative distributions in excess of net income

    (715,621 )     (676,867 )

Accumulated other comprehensive income

    (1,727 )     5,766  

Total stockholders' equity

    5,213,332       5,256,139  

Noncontrolling interests

    194,812       146,735  

Total equity

    5,408,144       5,402,874  

Total liabilities and equity

  $ 11,702,241     $ 11,230,600  

 

(1)

Includes restricted assets of consolidated variable interest entities (“VIEs”) at September 30, 2017 and December 31, 2016 of $647,230 and $333,705, respectively.  See Footnote 6 of the Notes to Condensed Consolidated Financial Statements.

(2)

Includes non-recourse liabilities of consolidated VIEs at September 30, 2017 and December 31, 2016 of $408,112 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 OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Revenues

                               

Revenues from rental properties

  $ 290,919     $ 279,286     $ 873,153     $ 859,492  

Management and other fee income

    3,926       5,790       12,456       14,274  
                                 

Total revenues

    294,845       285,076       885,609       873,766  
                                 

Operating expenses

                               

Rent

    2,764       2,728       8,312       8,274  

Real estate taxes

    38,363       37,703       115,379       107,966  

Operating and maintenance

    33,197       32,590       102,862       100,366  

General and administrative

    28,588       27,983       86,395       89,840  

Provision for doubtful accounts

    701       1,092       4,201       5,752  

Impairment charges

    2,944       10,073       34,280       68,126  

Depreciation and amortization

    88,443       96,827       275,787       264,436  

Total operating expenses

    195,000       208,996       627,216       644,760  
                                 

Operating income

    99,845       76,080       258,393       229,006  
                                 

Other income/(expense)

                               

Other income, net

    1,101       4,358       3,813       3,176  

Interest expense

    (47,258 )     (46,552 )     (139,830 )     (149,482 )

Early extinguishment of debt charges

    (1,753 )     (45,674 )     (1,753 )     (45,674 )

Income/(loss) 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

    51,935       (11,788 )     120,623       37,026  
                                 

Benefit/(provision) for income taxes, net

    697       (61,426 )     2,224       (73,292 )

Equity in income of joint ventures, net

    9,142       11,537       37,044       190,155  

Gain on change in control of interests

    -       6,584       71,160       53,096  

Equity in income of other real estate investments, net

    19,909       3,774       61,952       22,532  
                                 

Income/(loss) from continuing operations

    81,683       (51,319 )     293,003       229,517  
                                 

Gain on sale of operating properties, net of tax

    40,533       9,771       62,102       75,935  
                                 

Net income/(loss)

    122,216       (41,548 )     355,105       305,452  
                                 

Net income attributable to noncontrolling interests

    (1,186 )     (1,997 )     (13,926 )     (4,875 )
                                 

Net income/(loss) attributable to the Company

    121,030       (43,545 )     341,179       300,577  
                                 

Preferred stock redemption charge

    (7,014 )     -       (7,014 )     -  

Preferred stock dividends

    (12,059 )     (11,555 )     (35,169 )     (34,665 )
                                 

Net income/(loss) available to the Company's common shareholders

  $ 101,957     $ (55,100 )   $ 298,996     $ 265,912  
                                 

Per common share:

                               

Net income/(loss) available to the Company:

                               

-Basic

  $ 0.24     $ (0.13 )   $ 0.70     $ 0.63  

-Diluted

  $ 0.24     $ (0.13 )   $ 0.70     $ 0.63  
                                 

Weighted average shares:

                               

-Basic

    423,688       420,073       423,574       416,829  

-Diluted

    424,311       420,073       424,193       418,234  

 

 

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 September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Net income/(loss)

  $ 122,216     $ (41,548 )   $ 355,105     $ 305,452  

Other comprehensive income:

                               

Change in unrealized loss/gain on marketable securities

    153       51       (1,466 )     18  

Change in unrealized loss on interest rate swaps

    103       327       308       (432 )

Change in foreign currency translation adjustment

    (8,056 )     (1,383 )     (6,335 )     971  

Other comprehensive (loss)/income:

    (7,800 )     (1,005 )     (7,493 )     557  
                                 

Comprehensive income/(loss)

    114,416       (42,553 )     347,612       306,009  
                                 

Comprehensive income attributable to noncontrolling interests

    (1,186 )     (1,997 )     (13,926 )     (4,875 )
                                 

Comprehensive income/(loss) attributable to the Company

  $ 113,230     $ (44,550 )   $ 333,686     $ 301,134  

 

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, 2017 and 2016

(Unaudited)

(in thousands)

 

   

Cumulative

   

Accumulated

                                                                 
   

Distributions

   

Other

                                           

Total

                 
   

in Excess

   

Comprehensive

   

Preferred Stock

   

Common Stock

   

Paid-in

   

Stockholders'

   

Noncontrolling

   

Total

 
   

of Net 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/deemed contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       507       507  
                                                                                 

Comprehensive income:

                                                                               

Net income

    300,577       -       -       -       -       -       -       300,577       4,875       305,452  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized gain on marketable securities

    -       18       -       -       -       -       -       18       -       18  

Change in unrealized loss on interest rate swaps

    -       (432 )     -       -       -       -       -       (432 )     -       (432 )

Change in foreign currency translation adjustment, net

    -       971       -       -       -       -       -       971       -       971  
                                                              -               -  

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (3,240 )     (3,240 )

Dividends ($0.765 per common share; $1.1250 per

                                                                               

Class I Depositary Share, and $1.0313 per

                                                                               

Class J Depositary Share, and $1.0547 per

                                                                               

Class K Depositary Share, respectively)

    (357,068 )     -       -       -       -       -       -       (357,068 )     -       (357,068 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (7,288 )     (7,288 )

Issuance of common stock, net

    -       -       -       -       10,701       107       285,757       285,864       -       285,864  

Surrender of restricted stock

    -       -       -       -       (270 )     (3 )     (6,901 )     (6,904 )     -       (6,904 )

Exercise of common stock options

    -       -       -       -       1,151       12       20,732       20,744       -       20,744  

Amortization of equity awards

    -       -       -       -       -       -       11,387       11,387       -       11,387  

Balance, September 30, 2016

  $ (628,826 )   $ 6,145       32     $ 32       425,013     $ 4,250     $ 5,919,856     $ 5,301,457     $ 130,505     $ 5,431,962  
                                                                                 

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/deemed contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       48,867       48,867  

Comprehensive income:

                                                                               

Net income

    341,179       -       -       -       -       -       -       341,179       13,926       355,105  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized loss on marketable securities

    -       (1,466 )     -       -       -       -       -       (1,466 )     -       (1,466 )

Change in unrealized loss on interest rate swaps

    -       308       -       -       -       -       -       308       -       308  

Change in foreign currency translation adjustment

    -       (6,335 )     -       -       -       -       -       (6,335 )     -       (6,335 )
                                                                                 

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (1,203 )     (1,203 )

Dividends ($0.81 per common share; $1.1250 per Class I Depositary Share, and $0.9625 per Class I Depositary Share Redeemed, and $1.0313 per Class J Depositary Share, and $1.0547 per Class K Depositary Share, and $0.1602 per Class L Depositary Share, respectively)

    (379,933 )     -       -       -       -       -       -       (379,933 )     -       (379,933 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (13,513 )     (13,513 )

Issuance of common stock

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

Issuance of preferred stock

                    9       9                       217,566       217,575               217,575  

Surrender of restricted stock

    -       -       -       -       (239 )     (2 )     (5,597 )     (5,599 )     -       (5,599 )

Exercise of common stock options

    -       -       -       -       62       -       1,174       1,174       -       1,174  

Amortization of equity awards

    -       -       -       -       -       -       15,290       15,290       -       15,290  

Redemption of preferred stock

    -       -       (9 )     (9 )     -       -       (224,991 )     (225,000 )     -       (225,000 )

Balance, September 30, 2017

  $ (715,621 )   $ (1,727 )     32     $ 32       425,633     $ 4,256     $ 5,926,392     $ 5,213,332     $ 194,812     $ 5,408,144  

 

 

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,

 
   

2017

   

2016

 

Cash flow from operating activities:

               

Net income

  $ 355,105     $ 305,452  

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

               

Depreciation and amortization

    275,787       264,436  

Impairment charges

    34,280       68,126  

Deferred taxes

    (238 )     56,143  

Early extinguishment of debt charges

    1,753       45,674  

Equity award expense

    17,836       15,292  

Gain on sale of operating properties

    (62,102 )     (81,873 )

Gain on change in control of interests

    (71,160 )     (53,096 )

Equity in income of joint ventures, net

    (37,044 )     (190,155 )

Equity in income from other real estate investments, net

    (61,952 )     (22,532 )

Distributions from joint ventures and other real estate investments

    41,071       70,043  

Change in accounts and notes receivable

    (189 )     3,779  

Change in accounts payable and accrued expenses

    37,884       23,931  

Change in Canadian withholding tax receivable

    4,138       (5,257 )

Change in other operating assets and liabilities

    (41,353 )     (55,437 )

Net cash flow provided by operating activities

    493,816       444,526  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate and other related net assets

    (110,802 )     (181,548 )

Improvements to operating real estate

    (136,534 )     (102,084 )

Acquisition of real estate under development

    (10,010 )     (51,588 )

Improvements to real estate under development

    (121,764 )     (42,042 )

Investment in marketable securities

    (9,822 )     (2,466 )

Proceeds from sale of marketable securities

    2,442       1,907  

Investments in and advances to real estate joint ventures

    (26,788 )     (50,058 )

Reimbursements of investments in and advances to real estate joint ventures

    17,529       70,669  

Distributions from liquidation of real estate joint ventures

    -       135,648  

Return of investment from liquidation of real estate joint ventures

    -       190,102  

Investment in other real estate investments

    (666 )     (233 )

Reimbursements of investments and advances to other real estate investments

    40,514       11,489  

Collection of mortgage loans receivable

    760       688  

Reimbursements of other investments

    -       500  

Proceeds from sale of operating properties

    76,869       262,708  

Proceeds from sale of development properties

    -       4,551  

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

    (278,272 )     248,243  
                 

Cash flow from financing activities:

               

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

    (678,939 )     (602,079 )

Principal payments on rental property debt

    (11,508 )     (15,316 )

Proceeds from mortgage loan financings

    206,000       -  

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

    (42 )     226,447  

Proceeds from issuance of unsecured notes

    1,250,000       650,000  

Repayments under unsecured term loan/notes

    (460,988 )     (861,850 )

Financing origination costs

    (22,975 )     (14,033 )

Payment of early extinguishment of debt charges

    (2,461 )     (45,674 )

Change in tenants' security deposits

    891       1,240  

Contributions from noncontrolling interests

    1,422       -  

Conversion/distribution of noncontrolling interests

    (95,410 )     (3,190 )

Dividends paid

    (381,182 )     (354,112 )

Proceeds from issuance of stock, net

    218,750       306,809  

Redemption of preferred stock

    (225,000 )     -  

Net cash flow used for financing activities

    (201,442 )     (711,758 )
                 

Change in cash and cash equivalents

    14,102       (18,989 )
                 

Cash and cash equivalents, beginning of period

    142,486       189,534  

Cash and cash equivalents, end of period

  $ 156,588     $ 170,545  
                 

Interest paid during the period (net of capitalized interest of $10,671 and $3,762, respectively)

  $ 118,736     $ 194,234  
                 

Income taxes paid during the period (net of refunds received of $8,323 and $86,100, respectively)

  $ (6,694 )   $ 34,296  

 

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 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.

 

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 audited 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 September 30, 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 (see Footnote 9).

 

 

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

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Computation of Basic and Diluted Earnings/(Loss) Per Share:

                               

Net income/(loss) available to the Company's common shareholders

    101,957       (55,100 )     298,996       265,912  

Earnings attributable to participating securities

    (526 )     (502 )     (1,596 )     (1,493 )

Net income/(loss) available to the Company’s common shareholders for basic earnings/(loss) per share

    101,431       (55,602 )     297,400       264,419  

Distributions on convertible units

    24       -       43       -  

Net income/(loss) available to the Company’s common shareholders for diluted earnings/(loss) per share

    101,455       (55,602 )     297,443       264,419  
                                 

Weighted average common shares outstanding – basic

    423,688       420,073       423,574       416,829  

Effect of dilutive securities (a):

                               

Equity awards

    513       -       556       1,405  

Assumed conversion of convertible units

    110       -       63       -  

Weighted average common shares outstanding – diluted

    424,311       420,073       424,193       418,234  
                                 

Net income/(loss) available to the Company's common shareholders:

                               

Basic earnings/(loss) per share

    0.24       (0.13 )     0.70       0.63  

Diluted earnings/(loss) per share

    0.24       (0.13 )     0.70       0.63  

 

(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/(loss) per share calculations. Additionally, there were 2,314,908 and 3,545,000 stock options that were not dilutive as of September 30, 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

 

The following table represents Accounting Standard Updates (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”) that are not yet effective for the Company and for which the Company has not elected early adoption, where permitted:

 

ASU

Description

Effective

Date

Effect on the financial

statements or other significant

matters

ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting

The amendment provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance will be applied prospectively to awards modified on or after the adoption date.

 

January 1, 2018; Early adoption permitted

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

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

The amendment 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, discussed below, 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 discussed below. 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 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, or alternatively may elect to use different transition methods.

January 1, 2018; Early adoption is permitted if adopted with ASU 2014-09

The Company will adopt the provisions of Subtopic 610-20 in the first quarter of fiscal 2018, using the modified retrospective approach.  Upon adoption, the Company will appropriately apply the guidance to prospective disposals of nonfinancial assets within the scope of Subtopic 610-20.

 

 

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

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.

 

January 1, 2020; Early adoption permitted

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

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

 

ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

 

ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations

 

ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying performance obligations and licensing

 

ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-scope improvements and practical expedients

 

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, 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, which further clarifies the implementation guidance on principal versus agent considerations, and in April 2016, the FASB issued ASU 2016-10, an update on identifying performance obligations and accounting for licenses of intellectual property.

 

Additionally, in May 2016, the FASB issued ASU 2016-12, which includes amendments for enhanced clarification of the guidance. Early adoption is permitted as of the original effective date.

January 1, 2018; Early adoption permitted as of original effective date, which was January 1, 2017

The Company’s revenue-producing contracts are primarily leases that are not within the scope of this standard, except for the lease component relating to common area maintenance (“CAM”) reimbursement revenue, which will be within the scope of this standard upon the effective date of ASU 2016-02 discussed below. The Company continues to evaluate the effect the adoption will have on the Company’s other sources of revenue which include management and other fee income. However, the Company currently does not believe the adoption will significantly affect the timing of the recognition of the Company’s management and other fee income. The Company plans to adopt this standard using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of adoption.

 

ASU 2016-02, Leases (Topic 842)

This ASU 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).

January 1, 2019; Early adoption permitted

The Company continues to evaluate the effect the adoption will have on the Company’s financial position and/or results of operations. However, the Company currently believes that the adoption 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 costs will continue to be capitalized, however, indirect internal leasing costs previously capitalized will be expensed. Within the terms of the Company’s leases where the Company is the lessor, the Company is entitled to receive reimbursement amounts from tenants for operating expenses such as real estate taxes, insurance and other CAM. CAM reimbursement revenue will be accounted for in accordance with Topic 606 upon adoption of this ASU 2016-02. The Company continues to evaluate the effect the adoption will have on this source of revenue. However, the Company currently does not believe the adoption will significantly affect the timing of the recognition of the Company’s CAM reimbursement revenue.

 

 

 

The following ASU’s to the FASB’s ASC have been adopted by the Company:

 

ASU

Description

Adoption Date

Effect on the financial statements or other significant matters

ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business

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.

January 1, 2017; Elected early adoption

The Company’s operating property acquisitions during the nine months ended September 30, 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.

 

ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

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.

 

January 1, 2017

The adoption did not have a material effect on the Company’s financial position and/or results of operations.

 

2. Operating Property Activities

 

Acquisitions of Operating Real Estate -

 

During the nine months ended September 30, 2017, the Company acquired the following operating properties, in separate transactions, through direct asset purchases or consolidation due to change in control resulting from the purchase of additional interests or obtaining control through the modification of a joint venture investment:

 

       

Purchase Price (in thousands)

 

Property Name

Location

Month

Acquired/

Consolidated

 

Cash*

   

Debt

   

Other

Consideration**

   

Total

   

GLA***

 

Plantation Commons

Plantation, FL (1)(3)

Jan-17

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

Gordon Plaza

Woodbridge, VA (1)(3)

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  

The District at Tustin Legacy

Tustin, CA (2)(3)

Apr-17

    -       206,000       98,698       304,698       688  

Jantzen Beach Center

Portland, OR

Jul-17

    131,927       -       -       131,927       722  

Del Monte Plaza Parcel

Reno, NV

Jul-17

    24,152       -       -       24,152       83  

Gateway Station Phase II

Burleson, TX

Aug-17

    15,355       -       -       15,355       79  

Jantzen Beach Center Parcel

Portland, OR

Sep-17

    6,279       -       -       6,279       25  

Webster Square Outparcel

Nashua, NH

Sep-17

    4,985       -       -       4,985       22  
        $ 226,861     $ 206,000     $ 114,098     $ 546,959       2,030  

 


* The Company utilized an aggregate $115.9 million associated with Internal Revenue Code §1031 sales proceeds.

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

*** Gross leasable area ("GLA")

 

(1)

The Company acquired from 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.

(2)

Effective April 1, 2017, the Company and its partner amended its joint venture agreement relating to the Company’s investment in this property. As a result of this amendment, the Company now controls the entity and consolidates the property. This entity is deemed to be a VIE for which the Company is the primary beneficiary.

(3)

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  

The District at Tustin Legacy

 

(a)

      60,972  
            $ 71,160  

 

 

(a)

The Company’s share of this investment is subject to change as a result of a waterfall computation which is dependent upon property cash flows (54.27% as of date of consolidation).

 

Included in the Company’s Condensed Consolidated Statements of Operations are $17.8 million and $12.1 million in revenues from rental properties from the date of acquisition through September 30, 2017 and 2016, respectively, for operating properties acquired during each of the respective years.

 

The Company adopted ASU 2017-01 effective January 1, 2017 and applied the guidance to its operating property acquisitions during the nine months ended September 30, 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/consolidated during the nine months ended September 30, 2017, are as follows (in thousands): 

 

Land

  $ 190,226  

Buildings

    293,355  

Above-market leases

    11,992  

Below-market leases

    (30,246 )

In-place leases

    42,412  

Building improvements

    30,917  

Tenant improvements

    12,737  

Mortgage fair value adjustment

    (6,222 )

Other assets

    5,090  

Other liabilities

    (3,302 )

Net assets acquired

  $ 546,959  

 

As of September 30, 2017, the allocation adjustments and revised allocations for properties accounted for as business combinations during the year ended December 31, 2016, are as follows (in thousands): 

 

   

Allocation as of

December 31, 2016

   

Allocation

Adjustments

   

Revised Allocation as

of September 30, 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 nine months ended September 30, 2017, the Company disposed of 15 consolidated operating properties and eight parcels, in separate transactions, for an aggregate sales price of $230.2 million. These transactions resulted in (i) an aggregate gain of $62.1 million and (ii) aggregate impairment charges of $13.0 million.

 

At September 30, 2017, the Company had one property classified as held-for-sale at a carrying amount of $14.9 million, net of accumulated depreciation of $2.9 million, which is included in Other assets on the Company’s Condensed Consolidated Balance Sheets. The Company’s determination of the fair value of the property was based upon an executed contract of sale with a third party.

 

Impairments

 

During the nine months ended September 30, 2017, the Company recognized aggregate impairment charges of $34.3 million. These impairment charges consist of (i) $13.0 million related to the sale of certain operating properties, as discussed above, (ii) $5.1 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) $16.2 million related to a property for which the Company has re-evaluated its long-term plan for the property due to unfavorable local market conditions. The Company’s estimated fair values of these properties were primarily based upon estimated sales prices from (i) signed contracts or letters of intent from third party offers or (ii) a discounted cash flow model. See Footnote 11 for fair value disclosure.

 

Hurricane Impact

 

The impact of Hurricanes Harvey, which hit Texas on August 25, 2017, and Irma, which hit Florida on September 10, 2017, resulted in minimal damage to the Company’s properties located in Texas and Florida.

 

With respect to Hurricane Maria, which hit the island of Puerto Rico on September 20, 2017, the Company is currently assessing damages at its seven operating properties located throughout Puerto Rico, aggregating 2.2 million square feet of GLA. Two of these operating properties, located in the southern region of the island were less impacted and most tenants have resumed operations, while the remaining five operating properties in the northern region sustained varying amounts of damage.  Initial repairs are in progress, however, a final assessment and recovery plan will require additional time.  The Company maintains a comprehensive property insurance policy on these properties with total coverage of up to $62.0 million, as well as business interruption insurance with coverage up to $39.3 million in the aggregate, subject to a collective deductible of $1.2 million. The Company anticipates that all damages and any loss of operations sustained will be covered under these existing policies. As further detailed information becomes available, the Company expects to recognize a charge, which it believes will not have a material effect on the Company’s financial position and/or results of operations.  This charge will result from the write-down of the undepreciated portion of the property that has been permanently damaged, which would be less than the replacement costs and offset by insurance proceeds received by the Company. 

 

3. Real Estate Under Development

 

The Company is engaged in various real estate development projects for long-term investment. As of September 30, 2017, the Company had in progress a total of five active real estate development projects and two additional projects held for future development.

 

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

 

Property Name

Location

 

September 30, 2017

   

December 31, 2016

 

Grand Parkway Marketplace (1)

Spring, TX

  $ 41,222     $ 94,841  

Dania Pointe 

Dania Beach, FL

    137,743       107,113  

Promenade at Christiana

New Castle, DE

    31,563       25,521  

Owings Mills

Owings Mills, MD

    30,746       25,119  

Lincoln Square (2)

Philadelphia, PA

    62,022       -  

Avenues Walk (3)

Jacksonville, FL

    48,573       73,048  

Staten Island Plaza (4)

Staten Island, NY

    9,395       9,386  
      $ 361,264     $ 335,028  

 

 

(1)

During the nine months ended September 30, 2017, the Company sold a land parcel at this development project for a sales price of $2.9 million. Additionally, as of September 30, 2017, certain aspects of this development project, aggregating $91.0 million, were placed in service and reclassified into Operating real estate, net on the Company’s Condensed Consolidated Balance Sheets. The remaining portion relates to the second phase of this project which is under development.

 

(2)

During the nine months ended September 30, 2017, KIM Lincoln, LLC (“KIM Lincoln”), a wholly owned subsidiary of the Company, and Lincoln Square Property, LP (“Lincoln Member”) entered into 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)

Effective April 1, 2017, certain aspects of this development project, aggregating $24.5 million, were placed in service and reclassified into Operating real estate, net on the Company’s Condensed Consolidated Balance Sheets. The remaining portion of the project consists of a mixed-use project to be developed in the future.

 

(4)

Land held for future development.

 

 

During the nine months ended September 30, 2017, the Company capitalized (i) interest of $8.4 million, (ii) real estate taxes, insurance and legal costs of $3.7 million and (iii) payroll of $2.8 million, in connection with these real estate development projects.

 

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 September 30, 2017 and December 31, 2016 (in millions, except number of properties):

 

   

As of September 30, 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     $ 179.0       15.0 %     48     $ 182.5  

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

    48.6 %     44       149.6       48.6 %     45       145.2  

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

    55.0 %     5       122.4       55.0 %     5       111.8  

Other Joint Venture Programs

 

Various

      31       58.4    

Various

      37       64.7  

Total*

            126     $ 509.4               135     $ 504.2  

 

* Representing 24.6 million and 26.2 million square feet of GLA, as of September 30, 2017 and December 31, 2016, 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 Operations for the three and nine months ended September 30, 2017 and 2016 (in millions):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

KimPru and KimPru II

  $ 3.2       2.2     $ 9.7       7.5  

KIR

    8.2       7.9       24.7       27.4  

CPP

    1.3       1.3       4.3       6.2  

Other Joint Venture Programs (1)

    (3.6 )     0.1       (1.7 )     149.1  

Total

  $ 9.1     $ 11.5     $ 37.0     $ 190.2  

 

 

(1)

During the three and nine months ended September 30, 2017, the Company recognized a cumulative foreign currency translation loss of $4.8 million as a result of the substantial liquidation of the Company’s investments in Canada during 2017.

     

During the nine months ended September 30, 2017, certain of the Company’s real estate joint ventures disposed of six operating properties and a portion of one property, in separate transactions, for an aggregate sales price of $49.3 million. These transactions resulted in an aggregate net gain to the Company of $0.1 million, before income taxes, for the nine months ended September 30, 2017. In addition, during the nine months ended September 30, 2017, the Company acquired a controlling interest in three operating properties from certain joint ventures, in separate transactions, for a gross fair value of $320.1 million. See Footnote 2 for the operating properties acquired by the Company.

 

During the nine months ended September 30, 2016, certain of the Company’s real estate joint ventures disposed of or transferred interests to joint venture partners in 39 operating properties, in separate transactions, for an aggregate sales price of $959.2 million. These transactions resulted in an aggregate net gain to the Company of $143.3 million, before income taxes, for the nine months ended September 30, 2016. In addition, during the nine months ended September 30, 2016, the Company acquired a controlling interest in six operating properties and one development project from certain joint ventures, in separate transactions, for a gross fair value of $486.2 million.

 

 

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, 2017 and December 31, 2016 (dollars in millions):

 

     

As of September 30, 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

  $ 626.9       3.35

%

    62.9     $ 647.4       3.07 %     67.5  

KIR

    725.7       4.54

%

    49.7       746.5       4.64 %     54.9  

CPP

    84.9       2.78

%

    7.0       84.8       2.17 %     16.0  

Other Joint Venture Programs

    289.0       4.37

%

    29.8       584.3       5.40 %     23.4  

Total

  $ 1,726.5                     $ 2,063.0                  

 

* 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 September 30, 2017, the Company’s net investment under the Preferred Equity Program was $198.1 million relating to 357 properties, including 345 net leased properties.  During the nine months ended September 30, 2017, the Company recognized income of $27.2 million from its preferred equity investments, including $14.8 million of cumulative foreign currency translation gain recognized as a result of the substantial liquidation of the Company’s investments in Canada during 2017. During the nine months ended September 30, 2016, the Company earned $22.3 million from its preferred equity investments, including $10.1 million in profit participation earned from four capital transactions. These amounts are included in Equity in income of other real estate investments, net on the Company’s Condensed Consolidated Statements of Operations.

 

Kimsouth (Albertsons) -

 

Kimsouth Realty Inc. (“Kimsouth”) is a wholly-owned subsidiary of the Company. KRS AB Acquisition, LLC (the “ABS Venture”) is a subsidiary of Kimsouth that has a 14.35% noncontrolling interest (of which the Company’s share is 9.8%), in AB Acquisition, LLC (“AB Acquisition”), a joint venture which owns Albertsons LLC (“Albertsons”), NAI Group Holdings Inc. and Safeway Inc. The Company holds a controlling interest in the ABS Venture and consolidates this entity.

 

During June 2017, the Company and ABS Venture received an aggregate cash distribution of $34.6 million from Albertsons, of which the Company’s combined share was $23.7 million with the remaining $10.9 million distributed to the two noncontrolling interest members in the ABS Venture. This distribution exceeded the Company’s carrying basis and as such was recognized as income and is included in Equity in income from other real estate investments, net on the Company’s Condensed Consolidated Statements of Operations.

 

6. Variable Interest Entities (VIE”)

 

Included within the Company’s consolidated operating properties at September 30, 2017, are 24 consolidated partnership 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 September 30, 2017, total assets of these VIEs were $1.2 billion and total liabilities were $385.6 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 September 30, 2017, are three consolidated partnership 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 its majority ownership and management of the properties. These entities were deemed VIEs primarily based on the fact that the equity investments at risk are not sufficient to permit the entities to finance their activities without additional financial support. The initial equity contributed to these entities 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 these VIEs as a result of its controlling financial interest. At September 30, 2017, total assets of these real estate development VIEs were $269.3 million and total liabilities were $22.5 million.

 

Substantially all the projected development costs to be funded for these three real estate development projects, aggregating $129.3 million, will be funded with capital contributions from the Company, when contractually obligated. The Company has not provided financial support to these VIEs that it was not previously contractually required to provide.

  

All liabilities of these consolidated VIEs are non-recourse to the Company (“VIE Liabilities”). Of the 27 total VIEs, 22 are unencumbered and the assets of these VIEs are not restricted for use to settle only the obligations of these VIEs. The remaining five VIEs are encumbered by third party non-recourse mortgage debt. The assets associated with these encumbered VIEs (“Restricted Assets”) are collateral under the respective mortgages and are therefore restricted and can only be used to settle the corresponding liabilities of the VIE. The classification of the Restricted Assets and VIE Liabilities on the Company’s Condensed Consolidated Balance Sheets are as follows (in millions):

 

   

September 30, 2017

   

December 31, 2016

 

Restricted Assets:

               

Real estate, net

  $ 630.9     $ 326.9  

Cash and cash equivalents

    10.5       3.8  

Accounts and notes receivable, net

    2.8       1.6  

Other assets

    3.0       1.4  

Total Restricted Assets

  $ 647.2     $ 333.7  
                 

VIE Liabilities:

               

Mortgages payable, net

  $ 341.4     $ 138.6  

Other liabilities

    66.7       37.6  

Total VIE Liabilities

  $ 408.1     $ 176.2  

 

7. Mortgages and Other Financing Receivables

 

The Company has various mortgages and other financing receivables which consist of loans acquired and loans originated by the Company. The Company reviews payment status to identify performing versus non-performing loans. As of September 30, 2017, the Company had a total of 11 loans aggregating $22.5 million, of which all were identified as performing loans.

 

8. Marketable Securities

 

       During the nine months ended September 30, 2017, the Company acquired available-for-sale marketable equity securities for an aggregate purchase price of $9.8 million. At September 30, 2017, the Company’s investment in marketable securities was an aggregate of $14.0 million, which includes an unrealized loss of $1.1 million.

 

9. Notes and Mortgages Payable

 

Notes Payable -

 

In February 2017, the Company closed on a $2.25 billion unsecured revolving credit facility (the “Credit Facility”) with a group of banks, which is scheduled to expire in March 2021, with two additional six month options to extend the maturity date, at the Company’s discretion, to March 2022. This Credit Facility, which accrues interest at a rate of LIBOR plus 87.5 basis points (2.10% as of September 30, 2017), can be increased to $2.75 billion through an accordion feature. The Credit Facility replaced the Company’s $1.75 billion unsecured revolving credit facility that was scheduled to mature in March 2018. In addition, the Credit Facility includes a $500.0 million sub-limit which provides the company the opportunity to borrow in alternative currencies including Canadian Dollars, British Pounds Sterling, Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum leverage ratios on both unsecured and secured debt and (ii) minimum interest and fixed coverage ratios. As of September 30, 2017, the Credit Facility had a balance of $25.0 million outstanding and $0.5 million appropriated for letters of credit.

 

 

During the nine months ended September 30, 2017, the Company issued the following Senior Unsecured Notes (amounts in millions):

 

 

Date Issued

 

Maturity Date

 

Amount Issued

   

Interest Rate

 

Mar-17

 

Apr-27

  $ 400.0       3.80 %

Aug-17

 

Feb-25

  $ 500.0       3.30 %

Aug-17

 

Sept-47

  $ 350.0       4.45 %

 

During the nine months ended September 30, 2017, the Company repaid the following notes (amounts in millions):

 

Type

 

Date Paid

 

Amount Repaid

   

Interest Rate

 

Maturity Date

Term Loan

 

Jan-17

  $ 250.0    

(a)

 

Jan-17

Medium Term Notes (“MTN”) (b)

 

Aug-17

  $ 211.0       4.30%  

Feb-18

 

  (a) 

Interest rate was equal to LIBOR + 0.95%.

 

(b)

On August 1, 2017, the Company made a tender offer to purchase any and all of these MTN notes outstanding. As a result, the Company accepted the tender of $211.0 million of its $300.0 million outstanding MTN notes on August 10, 2017. In connection with this tender offer, the Company recorded a tender premium of $1.8 million resulting from the partial repayment of the MTN notes. Subsequently, in October 2017, the Company announced its intention to redeem the remaining $89.0 million outstanding on November 1, 2017.

 

Mortgages Payable -

 

During the nine months ended September 30, 2017, the Company (i) consolidated $212.2 million of individual non-recourse mortgage debt (including a fair market value adjustment of $6.2 million) relating to a joint venture operating property which the Company now controls, (ii) paid off $684.6 million of maturing mortgage debt (including fair market value adjustments of $5.7 million) that encumbered 25 operating properties and (iii) obtained a $206.0 million non-recourse mortgage relating to one operating property.

 

10. Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests includes amounts related to partnership units issued by consolidated subsidiaries of the Company in connection with certain property acquisitions.  Partnership units which are determined to be contingently redeemable under the FASB’s Distinguishing Liabilities from Equity guidance 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 amounts of consolidated net income attributable to the Company and to the noncontrolling interests are presented on the Company’s Condensed Consolidated Statements of Operations.

 

The following table presents the change in the redemption value of the Redeemable noncontrolling interests for the nine months ended September 30, 2017 and 2016 (amounts in thousands):

 

<
   

2017

   

2016

 

Balance at January 1,

  $ 86,953     $ 86,709  

Issuance of redeemable partnership interests (1)

    10,000       -  

Income (2)

    1,203       3,240  

Distributions

    (2,448 )     (3,093 )

Redemption/conversion of redeemable units (3)