Kimco Realty Corporation 2005 Annual Report 122900_inside_cvr 4/12/06 10:36 AM Page 1 Historical Total Return Analysis (November 1991 to March 2006) Kimco forms the Kimco Income REIT (KIR), establishing the Company's investment management business Legislation signed establishing Taxable REIT Subsidiaries (TRS) Merger with Price REIT establishing a national platform Acquired 94 locations from Venture Stores Purchased 16 former Clover Stores and simultaneously leased several to Kohl's First Retailer Services Transaction: Kimco acquires 60 former Woolco store leases Initial Public Offering November 1991 126 Property Interests Kimco pays first dividend: $0.44 per share per quarter (pre-splits) Kimco completes property transactions in excess of $1.2 billion, acquires 1,000th property interest Kimco and institutional investors acquire Price Legacy Corp. Merger with Mid-Atlantic REIT increases presence in Maryland and Northern Virginia Kimco Developers Inc. formed and sells first development project from TRS Kimco forms joint venture with RioCan REIT and acquires first Canadian shopping centers Kimco acquires first shopping center in Mexico Direct Stock Purchase and Dividend Reinvestment Plan Experience the Power of Dividend Reinvestment (November 1991 to March 2006) Total Return with Dividends Reinvested = 1,926% Kimco added to the S&P 500 Index KIM: 1,926% NAREIT: 676% S&P: 357% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Indexed TRA (November 1991) Note: Includes reinvestment of dividends Source: Bloomberg $100,000 invested in Kimco shares at the IPO would be approximately $1.9 million on March 31, 2006, including the reinvestment of dividends. Company Profile Kimco Realty Corporation, operating as a real estate investment trust (REIT), is the largest publicly traded owner and operator of neighborhood and community shopping centers in North America. In addition, the Company develops retail properties for sale, invests in real estate-related securities and mortgages secured by retail real estate and provides capital and expertise to retailers with surplus real estate. Kimco held its initial public offering in November 1991 and has generated a total annualized return for share- holders, including the reinvestment of dividends, of 23.3% through March 31, 2006. Table of Contents Letter from the Chairman and CEO 46 1 9 20 32 33 2005 Operating Review Portfolio of Properties Funds From Operations Reconciliation Selected Financial Data 34 Management’s Discussion and Analysis of Financial Condition and Results of Operations Report of Independent Registered Public Accounting Firm 47 Consolidated Financial Statements 51 Notes to Consolidated Financial Statements 77 78 80 Glossary of Terms Corporate Directory Board of Directors IBC Direct Stock Purchase and Dividend Reinvestment Plan 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 Price Appreciation Total Return with Dividends Reinvested Indexed TRA (November 1991) Source: Bloomberg Price Appreciation = 814% Call today to learn how to reinvest your dividend or purchase shares directly from Kimco. 1.866.557.8695 The Company’s Direct Stock Purchase and Dividend Reinvestment Plan provides investors with the following advantages: • a low-cost method to acquire Kimco common stock • an efficient way to reinvest dividends in Kimco stock to acquire additional shares without a brokerage commission • account credited with both full and fractional shares • simplified record-keeping with easy-to-read account statements Simply call the number listed above to enroll today. 122900_Text1_R2 4/5/06 10:29 AM Page 1 Letter from Chairman and CEO Dear Fellow Shareholders, Partners and Associates: “The further backward you can look, the farther forward you can see.” Winston Churchill. Kimco enjoyed yet another outstanding year in 2005, which will be reviewed in more detail in the letter that follows mine. I would like, in my comments, to discuss with you how our business has changed over the years in response to changing economic and industry conditions, how we have capitalized on those changes and how we are positioning our company to take advantage of further changes to come. We developed our first retail property in 1958. It was a time of vibrant growth – new suburbs were sprouting everywhere, and so were new retail concepts. It was an era unknown to outsourcing, off shoring, or massive global competition, and so U.S. automobile manufacturers were busy building new plants. The annual rent for our first development project was $1 per square foot. For the next ten years or so, development was our primary business. Over that period of time, as a result of rising land and construction costs, as well as increasing demand for retail space, the average annual rent of our major tenants increased to approximately $3 per square foot. This was a period of such persistent and predictable growth that almost anything we developed was bound to increase in value – and so there was no reason to sell any of our properties. Eventually, however, retailer competition intensified, and there came a time when landlords experienced high-profile bankruptcies of retailers whose credit was thought to be beyond question. Do you remember W. T. Grant? Our own experience with these bankruptcies, as painful as they were in the short term, had several beneficial consequences. It gave us the opportunity to learn the intricacies of the retailer bank- ruptcy process and provided a valuable tutorial, helping us to understand the value of retailers' leases containing contract rents that were below market rents. It also became clear that the sales volume of the retailer was a major factor in determining the value of any retailer leasehold. We also learned that if the sales at two locations were similar – but the rents at one were substantially less than the other – the leasehold with the lower rent was clearly more valuable. It followed that, from the real estate owner's perspective, properties with contract rents below market provided a safer and more reliable income stream – and thus had greater value than market rate leases. Yet, in the development business, negotiated rental rates for new tenants are set at levels approxi- mating market rent. This practice caused us to shift our focus from development to the 1 122900_Text1_R2 4/5/06 10:29 AM Page 2 acquisition of existing properties with below market rents. Properties with leases substantially below market have always been among our favorite investments – they provide a secure income stream with the possibility of increased revenue in the event of a tenant default as well as insurance against tenant financial difficulties. In the late 1980's, due to overbuilding, high interest rates and defaults resulting from excessive real estate borrowing, “real estate” became a dirty word. The banks shut their doors to even the most savvy and experienced real estate borrowers, and conventional wisdom viewed non-recourse mort- gage financing as a dinosaur that had become extinct. Adding insult to injury, real estate people were blamed for the savings and loan debacle. In this discouraging environment, the IPO road for REITs was considered a rock-bound trace in the wilderness. In 1991, the total market capitalization of all equity REITs combined was less than $9 billion, and many believed that it would never rise much beyond that level. Despite these obstacles, our organization decided to seek to become a public company and raise equity as a per- manent source of capital. In November 1991, our $128 million initial public offering was consummated. Kimco shares traded down for a short period of time after our IPO – but we were public! We believe that the principal responsibility of a public company is to reinvest the money that its investors entrust to it at a spread to its cost of acquiring that capital. In the early 1990's this task was not difficult. Cap rates were high, and we could buy plain vanilla real estate at an attractive spread to our capital cost. However, this favorable environment didn't last long, as competition for property acquisitions began to heat up. Within a few years, the REIT industry spawned a veritable flood of new equity offerings, with each new REIT seeking capital to expand its asset base. Emerson noted, “Imitation is the highest form of flattery.” – and we were flattered in the extreme! The huge expansion of the REIT industry beginning in 1993 and the greater availability of capital reflected healthier real estate markets for most of the decade of the 1990’s. But job growth ground to a halt in the early years of the 21st century due to a recession and the effects of 9/11, and most real estate owners suffered declining occupancy rates. Eventually, however, fundamentals improved steadily, and beginning about three years ago, real estate, as an asset class, has been perceived as a very stable and desirable investment; capital began to flow into real estate investments at an unprecedented pace. This resulted in higher real estate prices, declining cap rates and diminishing returns. We responded to this new trend in several ways. 2 122900_Text1_R2 4/5/06 10:29 AM Page 3 We began to anticipate this new trend as early as 1999 when we formed our first institutional joint venture, the Kimco Income REIT (“KIR”). Our belief was that the combination of management fees and our return on investment would result in a total return that would exceed our cost of cap- ital even as cap rates drifted lower and would provide us with very satisfactory returns. And, of course, it permitted us to achieve a desirable return for our investing partners. We steadily expanded this business and located a number of quality institutions that wanted to co-invest with us, and our investment management business has since grown apace. In each of these Funds, the property acquisitions and investments are subject to the approval of the investing institutions. Today we manage property investments for Institutional Funds and others in which we co-invest that have an aggregate portfolio value of approximately $7,500,000,000. We very much like this business, and plan to grow it substantially in the years ahead. Also, as returns on U.S. real estate became less enticing, we expanded our strategy to focus on new investments both north and south of our borders. Cap rates in Canada were substantially higher than in the U.S. for shopping center investments that boasted many of the same favorable attrib- utes, and the competitive landscape was to our liking. We were also very fortunate, as we were able to persuade Dave Henry to join our organization in 2001; Dave was very active in the Canadian and Mexican real estate markets while an executive at GE Capital – he knew the terri- tory and he knew the players. Dave's knowledge and persistence were instrumental in helping us to seize these opportunities. We now have interests in 117 properties in Canada, comprising over 13 million square feet. Although cap rates in Canada no longer have a substantial spread over U.S. cap rates and much of the low-hanging fruit has been picked, we believe that Canada offers a number of attractive development and preferred equity opportunities, which we continue to pursue. In addition to Canada – and again with the help of Dave Henry's knowledge and experience – we have been investing south, in Mexico. After substantial study of the Mexican economy and real estate markets, we made our first investment there in 2002. We like the growth prospects in what is now the ninth largest economy in the world, the work ethic of the Mexican people and the relatively modest amount of retail space that now exists. We continue to find excellent investment opportunities in Mexico and expect to maintain strong relationships with both local and U.S. retailers which continue to expand in the Mexican market. In addition to finding attractive investments with excellent returns outside of the U.S., we also believe that our diversification has lowered our risk profile. Today more than 10% of our FFO comes from Canada and Mexico – our two neighbors with enormous natural resources and good growth opportunities. 3 122900_Text1_R2 4/5/06 10:29 AM Page 4 So much for our history and how we have responded to changes in market conditions. Now, let's look forward and consider how evolving dynamics in the U.S. economy and real estate markets are changing how we do business today and how we will do business in the future. What have not changed are our commitments to our shareholders – first, to provide a safe and growing dividend to those shareholders who desire income; and, second, to provide stock appreciation prospects via new growth opportunities for those shareholders who most value growth. To meet these commitments, we must focus on three main objectives: First, we will continue the quest for our “Dream Portfolio.” Our Dream Portfolio consists of properties that reflect the following five characteristics: 1. Located in densely populated markets; 2. Significant supply constraints that limit competition; 3. Anchored by productive stores in the top 25% of the retailer's chain; 4. Below market rents; and 5. Redevelopment and expansion potential. I have discussed, in past letters, grouping our real estate businesses into two baskets – one Defensive and one Opportunistic. The underpinning of our Defensive Basket is the ownership of core retail real estate. Our continuing objective is to own the most productive assets in the most attractive long-term markets with high barriers to entry, and we must vigilantly monitor them. Due to globalization and its increasing competitive pressures, we have again been reminded in recent years that not all commercial real estate will necessarily increase in value. For example, as manufacturing employment in the U.S. has declined in certain sectors and markets, some areas of the country have experienced negative population growth; we must be cognizant of this and other new risks. As a result of this concern, we began a program of selling properties that no longer meet our long- term objectives. We continue to cull our investment portfolio and sell those assets that may involve above-average risk in the light of changing demographics and market conditions. While this is an ongoing process, we have already made enormous progress. Our portfolio today is first rate and continues to strengthen; fully 40% of our core Kimco portfolio is now located in California, New York, Florida and major Canadian cities. Furthermore, over 70% of our revenue is currently derived from properties located within the largest 25 Core Based Statistical Areas (“CBSAs”). 4 122900_Text1_R2 4/5/06 10:29 AM Page 5 Second, we must become the premier investment manager of retail real estate. We and our investor partners complement each other, and we have common objectives. The investor partner benefits by enjoying a lower cost of capital and, as we are a partner with a strong and established track record and have our own “skin in the game,” we bring much to the table. I would also note that Kimco has a unique competitive advantage in two of the few remaining real estate sectors that has yet to be commoditized – information and relationships. Several factors contribute to help us build and maintain this competitive edge. As one of the largest owners of shopping centers, we have properties in most of the top 100 CBSA's, supported by 25 regional offices. This local presence and expertise provides us with a sound infrastructure that enables us to intensively manage our existing properties and efficiently source new opportunities. We have strong and deep relationships in place with most of the U.S. national retailers and many of the leading regional retailers as well. This helps us keep a careful eye on how our existing stores are performing, provides a vehicle to market our vacancies and enables us to evaluate potential acquisition and development opportunities. We have negotiated proven and widely-accepted leases with most of the national retailers, which results in accelerated lease signings and, therefore, less down time prior to new store openings. Our leasing and property management teams are leaders in the industry. Additionally, we have a dedicated and highly creative redevelopment and construction team, specializing in adding density and mixed-use components where the economics are advantageous. Our first-rate accounting and lease administration teams are supported by state-of-the-art systems, which enable us to closely monitor the cash flows of each property. Our sizeable footprint and far-reaching relationships provide us with real-time market information, which enables us to consistently stay ahead of changing trends and market dynamics. Our dedi- cated, professional Associates synthesize and implement this information on a local basis to ensure that we remain ahead of the curve and continue to lead the market. Third, in order to create extra value for those of our shareholders who seek substantial capital appreciation on their investment in Kimco, we must continue to expand our Opportunistic Basket. A world class team of knowledgeable, motivated entrepreneurs allows us to be very fast on our feet and create value by seizing opportunities that we can turn to our advantage. Our efforts were greatly enhanced in 1999 when Congress passed the REIT Modernization Act. This provided for the formation of “taxable REIT sub- sidiaries” that could engage in non-rental revenue businesses not previously allowed to REIT organizations. 5 122900_Text1_R2 4/5/06 10:29 AM Page 6 This legislation was made-to-order for us, and we filled the blank canvas that Congress created with several permitted initiatives. Just one example of this was merchant building, which gave rise to KDI, our development business. We also became active in opportunities involving distressed retailers owning solid real estate properties and leaseholds. These and other value-creating busi- nesses carried on at Kimco are described more fully in the management letter that follows. We must, of course, generate higher returns from these opportunistic businesses, and always in excess of our cost of capital. We at Kimco have always been alert for unusual opportunities to create extra value for our share- holders. In this regard, I'd like to remind you that real estate ownership can take different forms, some of which are providing us with unique opportunities for our Opportunistic Basket. The most basic form of real estate investment is a “fee simple ownership” of real estate. It is easy to understand – the owner simply owns the real estate, including all improvements upon the underlying land. This basic kind of real estate ownership is very much in demand today by investors of all types, and capital is widely available for its purchase. Indeed, cap rates for such real estate are, today, as low as they have been for many years, which is good – it enhances the value of our owned proper- ties – but also bad – today's low cap rates make it very difficult to create substantial value by simply buying such real estate in the open market. And, it is certainly possible, perhaps even likely, that cap rates for basic real estate will remain near their present low levels, give or take 100 basis points, for the foreseeable future. This makes it important for us to consider other forms of interests in commercial real estate. These other forms are often more complex – but also potentially more rewarding. Mortgages are interests in real estate. Leaseholds are interests in real estate. Debtor-in-possession financing can create another form of interest in real estate. Ownership in stock of corporations that own property and/or leasehold interests is yet another form. The trade-off for this complexity, of course, is that investment yields can be significantly higher; we have been able to capture these high yields in a number of transactions we have done over the years, e.g., Atlantic Realty, Blue Ridge and the Montgomery-Ward Designation Rights transactions. Consistent with our belief that making invest- ments of the type that others may not understand can create substantial value for our shareholders, we will continue to look for opportunities that are off the beaten track, such as our investment in Albertson's. And we have done well with these unusual investments throughout our history. However, we do understand that they frequently bear higher than average risk, and thus, they will never amount to more than a modest percentage of Kimco's equity market cap. Of course, risk is 6 122900_Text1_R2 4/5/06 10:29 AM Page 7 often elevated in these types of interests, and so we must continue to carefully apply our expertise and judgment, while always being mindful of the prospective risk-adjusted returns on these investments. Let me conclude with a few final thoughts. The best designed strategy, no matter how prescient, is worthless unless executed well. Not only must we understand the potential risks and rewards of any proposed transaction, we must also maintain a very strong balance sheet so that we will always have speedy access to capital to take advantage of new and unique opportunities. We will continue to maintain modest debt leverage, keep our coverage ratios strong and watch our debt maturities closely. We should also never forget that value creation through the capture of unique opportunities requires effective and highly motivated business leaders who, in turn, know the importance of strong and loyal people to help make things happen. To do that is never easy. We believe we have been successful in this endeavor by understanding the importance of three key motivational factors and acting accordingly: 1. We have created and are careful to maintain a corporate soul that will nurture the best intentions and highest goals of the individual and which instills both pride and responsibility; 2. We continue to foster a corporate culture in which individuals can feel that they can grow, both spiritually and intellectually, and enjoy a sense of accom- plishment by virtue of their unique contributions; and 3. We provide the opportunity for our Associates to create personal wealth and financial independence by contributing to a successful team effort. We have structured a compensation program over the years at Kimco which emphasizes equity incentives and de-emphasizes cash compensation; this creates a commonality of goals in the cre- ation of value for our shareholders as well as our Associates. It also creates a moral imperative to work toward building an ever more valuable enterprise, as the cash compensation is often not ade- quate, by itself, to create wealth. As we accomplish this mission, everyone wins. This has been highly successful and rewarding throughout our history as a public company, as the stock options provided to ALL of our people have created over $300 million of value. And, of course, the devoted efforts of our Associates have proven rewarding to our shareholders as well. Despite all of the perturbations in the U.S. economy and real estate markets – and, yes, the 7 122900_Text1_R2 4/5/06 10:29 AM Page 8 changes that seem to continually occur – our per share funds from operations since our IPO have compounded at an average annual rate of 10.7%. Investors seem to have appreciated this, as our stock price alone – not including dividends – has grown by over 810% from our IPO in November 1991 through March 2006 (easily topping the S&P's return of 245% during this time period). Furthermore, the total return on Kimco stock of 1,926% has substantially exceeded the total return of the NAREIT equity index of 676% during that time period. These, I think it's fair to say, are accomplishments of which we can all be proud. But, of course, there is more to do, and we can not rest. Additional challenges arrive almost daily in this ever-flattening world, and we look forward to meeting them. In the letter that follows mine, my splendid Associates, Dave Henry, Mike Flynn and Mike Pappagallo, report to you further on a remarkable record year. They are fabulous leaders with great integrity and are wonderful mentors for our team. I began this letter with the following Churchill quote, “The further backward you can look, the far- ther forward you can see.” Our outside Directors have outstanding backgrounds and experience and, by virtue of their tremendous and constant interest in our company, have – individually and collectively – helped us to look both backward and forward. Dick Dooley brings us the benefit of his long-time activities as Chief Investment Officer of Massachusetts Mutual Life Insurance Company. Joe Grills was the Chief Investment Officer of the IBM Retirement Funds. Pat Hughes served for over ten years as the Chief Executive Officer of Mid-Atlantic Realty Trust. Frank Lourenso is a legend in the middle-market business at JPMorgan Chase. Richard Saltzman headed Merrill Lynch's Real Estate Investment Banking Division for many years. And, of course, my long- time friend and partner, Marty Kimmel, has seen it all! He has not sold a single Kimco share, and in fact, has bought shares each and every year for the past decade, and I have followed him. Finally, I would like to express my sincere thanks to all of you – our Kimco shareholders, partners and Associates – for your continued confidence and support. I feel so very proud to have it! Sincerely, Milton Cooper 8 122900_Text1_R2 4/5/06 10:29 AM Page 9 2005 Operating Review Dear Fellow Shareholders: 2005 proved to be another outstanding year for your Company. Our multi-faceted business model propelled us to record financial results, including an increase in funds from operations (FFO) per share of 13.0% to $2.00, the highest level of earnings in our history (as adjusted for stock splits over that time period). On an absolute basis, FFO was $465 million compared to $405 million a year earlier, an increase of 14.6%. This amount represents the 13th consecutive increase in FFO, since our first full year of operations as a public company in 1992. Shareholders enjoyed a full year dividend of $1.245 per share, which represented a 9.2% increase from 2004 levels, and the total return to our investors was over 15.4%. Funds from operations is not a GAAP financial measure, but we, like most in the REIT industry, feel it is a useful tool when measuring the operating performance of our Company. We provide a reconciliation of FFO from net income later in this report. Net income for the year was very strong and also a record at $363.6 million or $1.52 per share. These are increases of 22.4% and 20.6%, respectively, over the year earlier amounts. No matter how you measure it, 2005 was an excellent year for your Company. Our responsibility to you is to maintain a safe and growing dividend and steadily increasing earn- ings within a framework of prudent risk management and a sound capital structure. Our financial results this past year continued to support these long-term objectives. Kimco's compound annual growth rate in FFO per share is 10.7% in the 13-year period since its initial public offering, while providing an average annual total return of 22%, while consistently maintaining one of the most con- servative balance sheets in the industry. The source of this success – and the means to continue to do so in the future – can be traced to the ongoing execution of three primary business priorities: 1. Improving portfolio performance and continuing quality enhancement of our core shopping center holdings, which generate solid increases in net operating income and cash flow; 2. Further build-up of assets under management through our existing and new institutional investment programs; and 3. Continuous expansion of relationships and corresponding investment oppor- tunities in structured finance, real estate liquidation repositioning activities and development projects. 9 122900_Text1_R2 4/5/06 10:29 AM Page 10 Our ongoing program to maximize return and quality in our core real estate holdings continue to bear fruit. Over 2.7 million square feet of new leases were signed or renewed on existing space in the U.S. portfolio at an average 10% increase in rent, to an average rent of $9.22 per square foot with relatively low dollars spent on new leases and virtually no money on renewals. We also disposed of $100 million worth of marginal or unproductive properties and replaced them with shopping centers in areas with solid demographics, significant barriers to entry or below market rents. We accelerated the initiative to increase the number and scope of redevelopment and expansion projects in the portfolio; we invested $70 million improving existing properties in the portfolio; and we plan to spend an additional $100 million in 2006. Michael J. Flynn Vice Chairman, President and Chief Operating Officer All of this work translated into: a) A 100 basis point increase in occupancy over the past year to 94.6% b) A shift in geographic concentration whereby 40% of the parent portfolio is in California, New York, Florida, and the three major populations centers in Canada; and c) Excellent internal growth that averaged 3.5% for the year. It is important to note that this internal growth rate excludes the effect of lease termination income and normal GAAP accounting adjustments. Funds From Operations (per diluted common share) $2.00 1.50 1.00 0.50 0.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 10 122900_Text1_R2 4/5/06 10:29 AM Page 11 David B. Henry Vice Chairman and Chief Investment Officer Michael V. Pappagallo Executive Vice President and Chief Financial Officer Kimco Preferred Equity The catalyst behind these improvements has been an intense focus on asset management, initiated by Jeff Olson, President of our Western, Northeast and Southeast regional operations. A business plan is established for every asset in our portfolio, with a thor- ough assessment of each asset's strengths, weaknesses, threats and opportunities. This disciplined process has spurred us to more aggressive decisions on disposition candidates as well as redevelopment strategies that might involve non-retail development if greater value can be created. Included in this Annual Report is a series of Kimco’s Preferred Equity business unit partners with strong regional property owners and developers to acquire, build, recapitalize, renovate or redevelop shopping centers. Kimco's preferred equity invest- ment program continues to provide a meaningful contribution to FFO and growth in the Company's invested assets. Funds From Operations (in millions) $500 400 300 200 100 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 11 122900_Text1_R2 4/5/06 10:29 AM Page 12 charts that illustrate the shift in our portfolio composition over the past few years and serves as an interim report card to our ultimate objective of owning the highest quality portfolio with superior demographics, embedded rent growth and ongoing value creation opportunities. We will continue to use our own balance sheet to acquire properties, particularly those that have redevelopment potential, below market leases, or to facilitate a complex acquisition structure to achieve seller objectives. Given our size, experience and relationships, we have all the tools to con- tinue to be successful in acquiring a number of high-quality retail properties in 2006 and beyond. While we anticipate selective purchases for our own account, the focus of our acquisition capabilities will be to further expand our funds management business – primarily the business of investing capital and managing shopping center assets on behalf of institutional and other partners. With these strong partners, we are very competitive buyers of class “A” retail properties. Our assets under management continue to grow rapidly; we added almost 2.7 million square feet of new properties during the past year, which increased our total assets under management at year-end to approximately $7.5 billion. Kimco Select Investments and Retail Property Solutions Kimco Select Investments seeks to invest in real estate and real estate securities where special cir- cumstances offer premium returns. With the nation’s largest portfolio of community shopping centers, we can quickly underwrite complex transactions and geographically diverse properties or collateral pools. We make various secondary market investments including under-performing mortgage loans, secured bank debt and corporate securities. In a real estate market where prices remain aggressive, our approach of managing assets for others – with a minority investment position to ensure alignment of interests – has allowed us to generate solid financial returns for our shareholders while satisfying the objectives of our part- ners. There is a franchise value associated with this business, not only from the ability to generate highly predictable management fees but also from success-based provisions such as incentive fees and promoted inter- ests and the intangible benefits that accrue when you deliver results for your customer. The aggregate FFO contribution from our funds management and co-investment pro- gram activities was approximately $79 million in 2005, an increase of 28.5% over 2004. The continued availability of capital and investors seeking to invest in real estate bodes well for the growth prospects of this business. Retail Property Solutions has been formed specifi- cally to assist retailers in maximizing the value of their real estate assets by converting fixed assets to cash, capping the potential exposure of stores that are dark or considered for closure and providing resources necessary to deal with real estate. 12 122900_Text1_R2 4/5/06 10:29 AM Page 13 Kimco Developers, Inc. Kimco Developers, Inc. is one of Kimco Realty Corporation’s taxable REIT subsidiaries. Our company leverages the same business principals and expertise that Kimco has used since the development of our first shopping center over 35 years ago. Kimco Developers pursues the development of qual- ity open-air retail shopping centers with national credit tenants, both on our own and through joint ventures with quality developers. These projects will be supermarket-anchored, power centers or lifestyle centers. We evaluate sites for their intrinsic real estate value and tenant interest in the market. Our relationships with the dominant national retailers are extremely strong, they advise us of their interest in various locations and their desire to find locations in strategic markets. Whether we are acquiring assets for our own portfolio or on behalf of others, our underwriting and asset management skills remain a critical consideration. We have developed and continue to invest in people and an organization designed to deal with the rapid growth of assets and the specific needs of our numerous partners. We are fortunate to have a dedicated and savvy group of real estate managers, connected through an interactive, regional-based operating structure, to deliver value to our partners. Direct and joint shopping center owner- ship and management may be enough for some, but we feel there is so much more that we can deliver to our shareholders by capitalizing on the skills of our Kimco Associates and the long standing relationships we have established. We are proud of our history of sourcing cre- ative and complex transactions; we encourage it throughout the organization and continue to cultivate the people, relationships and support infrastructure to further expand these “opportu- nity businesses.” Our merchant development subsidiary, Kimco Developers Inc. (KDI) has remained an important contributor to our overall profitability since its establishment five years ago and in 2005, achieved its highest-ever level of profits from its project disposition activities of $22.8 million (after-tax). We benefit from Jerry Friedman's 30 years of experience in the development business and his keen insights into maximizing value for both the KDI portfolio as well as for all of Kimco's development activities. KDI has continued to grow through a very successful joint venture model whereby we provide capital and leasing assistance to very capable regional development partners. This formula has worked well for us because we leverage our regional partners’ experience and knowledge of the local market, entitlement process, construction practices and neighborhood trends. We are very proud of our relationships with regional partners and in most cases, these relationships are long standing ones and cover many individual projects. 13 122900_Text1_R2 4/5/06 10:29 AM Page 14 Our existing shopping center development project pipeline, including 12 new projects that commenced in 2005, represents $1.0 billion of net project cost, not including the cost of the anchor-owned spaces that represent another $250 million of project size. In addition, we are continuously evaluating addi- tional projects, and have a shadow pipeline of between $750 million to $1 billion, further supporting the ability of this business to generate consistent merchant building profits and serve as a source of product for our institutional joint venture programs. Our Preferred Equity business, led by JoAnn Carpenter, has achieved scale and critical momentum in building a portfolio with investments in over 150 properties. The growth in value of the under- lying equity participations in these properties are the seeds of future earnings and profits for our company. In addition, being able to acquire, develop and lend on retail properties gives Kimco a range of products to offer our customers and clients. In many cases, we have bought properties and later provided joint venture capital to the same real estate owners or developers. In certain situ- ations, we extend our preferred equity product to opportunities outside the retail real estate space, with careful consideration to the level of subordinated equity, experience of the owner/operator and often enhanced collateralization features to mitigate risk. Regardless of the collateral type, we focus on properties we would otherwise want to own directly at our underwriting and investment levels. Kimco Realty Corporation Combined Major Tenant Profile (ranked by annualized base rent) Tenant Name(1) # of Locations Leased GLA (in thousands) % of Leased GLA HOME DEPOT TJX COMPANIES SEARS HOLDINGS KOHL'S ROYAL AHOLD WAL-MART BEST BUY LINEN ‘N THINGS COSTCO BED BATH & BEYOND 34 109 42 35 35 25 44 31 17 43 2,764 2,247 3,148 2,418 1,158 1,819 1,144 593 1,277 783 4.3% 3.5% 4.9% 3.8% 1.8% 2.8% 1.8% 0.9% 2.0% 1.2% 17,351 27.0% (1) Schedule reflects ten largest tenants from all tenant leases in which Kimco has an economic ownership interest at their proportionate ratios. Represents approximately 8,200 leases to 4,000 tenants totaling approximately $998 million of annual base rent. 14 122900_Text1_R2 4/5/06 10:29 AM Page 15 Kimco's Focus on Acquiring Great Properties Has Improved Portfolio Quality 1999 Combined Geographic Diversification by Base Rental Revenue 2005 Combined Geographic Diversification by Base Rental Revenue Other 32.3% Other 36.3% Florida 13.5% Florida 11.3% Illinois 10.6% Ohio 8.3% New Jersey 4.6% Missouri 5.1% New York 8.2% New Jersey 4.5% Texas 4.7% California 5.5% Texas 6.1% Pennsylvania 5.8% Ohio 5.0% Pennsylvania 5.3% California 10.1% New York 8.9% Canada 8.1% Illinois 5.8% 1999 Combined Major Tenant by Base Rental Revenue 2005 Combined Major Tenant by Base Rental Revenue Kmart 13.3% Home Depot 3.6% Kohl’s 2.7% Home Depot 2.7% Ames 2.3% TJX Companies 1.8% Wal-Mart 1.8% Toys”R”Us 1.7% Costco 1.4% Office Max 1.4% Best Buy 1.1% Other 69.8% 15 TJX Companies 3.2% Sears Holdings 2.7% Kohl’s 2.5% Royal Ahold 2.0% Wal-Mart 1.8% Best Buy 1.7% Linen ‘n Things 1.5% Costco 1.4% Other 78.3% Bed Bath & Beyond 1.3% 122900_Text1_R2 4/5/06 10:29 AM Page 16 Gross Leasable Area (square feet in millions) 150 120 90 60 30 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 In our Retailer Services business, led by Ray Edwards, we continue to provide capital to retailers through innovative sale-leaseback and leasehold financing transactions. We also participate in pri- vate equity acquisitions, in which retail assets are a substantial component of the transaction or in real estate liquidation services that generally require nominal or short-term capital and generate fees or profit participations. Kimco's nationwide network of real estate offices, long-standing relation- ships with retailers and in depth experience in evaluating leasehold positions will all continue to make us a strong partner for private equity opportunities in our sector. One such example is our investment in FNC Realty. In last year’s letter, we described our investment in Frank's Nursery and Crafts where we had provided Debtor-in-Possession (DIP) financing. In July of this year, we co-sponsored Frank's emergence from bankruptcy as a newly-formed real estate company called FNC Realty. We have been successful selling 11 of the original 55 sites and will be executing on redevelopment or disposition strategies for the remaining properties over the next 12 to 18 months. Kimco Select, our opportunistic investment business, has also had success across a broad range of investment products and property types. The Kimco Select portfolio includes public securi- ties of real estate companies and retail companies, be it common stock, preferred stock, or secured and unsecured debentures. Our marketable securities portfolio has grown, both in value and from additional purchases, and posted strong earnings gains during 2005. In addi- tion to security purchases, the Kimco Select basket includes a limited number of investments in non-retail property types such as hospitality, industrial or office projects, where we join with reli- 16 122900_Text1_R2 4/5/06 10:29 AM Page 17 Total Property Interests 1,200 1,000 800 600 400 200 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 able operating partners with extensive experience in those collateral types and where we see a value or arbitrage opportunity. The Kimco Select model not only capitalizes on short-term profit opportunities but also can operate as patient money. A perfect example is our investment in the Blue Ridge Companies, for which we have held a stock position for many years and maintain Board and management positions. The company owns over 17,000 acres of land in the Pocono Mountains in Pennsylvania. In 2005, we participated in a rights offering that enabled us to control over 54% of the company and positions us to benefit from the long-term strategy of residential development of these land holdings. To that end, Blue Ridge recently received approval for 2,000 units with an additional 2,000 unit plan under evaluation. The consequence of this broad array of opportunities was tangible; there was almost a doubling of income contributions from the aggregate of activities ranging from preferred equity, to mortgage and other financings, and real estate disposition activities. The combined total of income from the other real estate investments and mortgage financings grew from $45 million to $85 million, led by the growth in income from our preferred equity business, which increased from $11.4 million to $32.8 million. In addition, our income from our marketable securities positions increased by $9.6 million over the prior year, or almost 52%. Our investment strategies in Canada and Mexico have also grown substantially and have begun to deliver a significant contribution to our annual earnings. In fact, the profile of our investment base 17 122900_Text1_R2 4/5/06 10:29 AM Page 18 – direct shopping center ownership, joint ventures, ground-up developments, preferred equity investments, marketable securities and mortgage financings – now exist in these two markets in a simi- lar fashion as we have established in the U.S. In Canada, we are pleased to report that Kimco now has equity interests in 117 properties compris- ing more than 13 million square feet. Over the past two years, our Canadian business has shifted from direct property acquisitions to a combination of preferred equity investments and develop- ment projects. We have expanded our circle of Canadian partners to include a number of smaller regional public and private companies in addition to our long standing relationship with RioCan. Canada remains a very attractive market for us due to its strong, resource-rich economy, growing population, stable pro-growth government and generally higher property yields. We anticipate con- tinued success in building our portfolio of Canadian real estate investments in 2006. In Mexico, we have continued to increase both our acquisition and development activities. During the year, we commenced 9 new retail development projects and we have a very strong pipeline. Our portfolio of acquired retail projects now exceeds 17 properties with 12 other approved projects in the closing process. Anchor tenants include HEB, Wal-Mart, Home Depot and Sam's Club, which are all expanding rapidly in Mexico. We remain excited about the potential to grow with our U.S.-based tenants as they expand their operations in Mexico. As the ninth largest economy in the world and with 1/25 of the retail space per capita of the U.S., Mexico represents a very attractive market. An interesting element of this extensive growth in our book of business is that the aggregate exter- nal capital employed by Kimco to achieve these results was a relatively low requirement of $570 million; of this amount, $190 million relates to our ground-up development activities, primarily the KDI merchant building portfolio. Outside of development, total capital required to fund the business in 2005 was only $380 million, and of that amount, over half was denominated in foreign currencies to match our Canadian and Mexican asset base. These low capital requirements were easily met from our existing financing facilities and reflect the strong, free cash flow, the recycling of capital from sales of properties and investments and transfers or direct purchase into joint ventures. We were particularly proud of launching a successful private placement of $150 Canadian dollar-denominated bonds, becoming the first U.S. REIT to issue long-dated paper in the Canadian bond market. And notwithstanding the resultant increase in debt levels on the balance sheet, the debt coverage ratios are still extremely strong. 18 122900_Text1_R2 4/5/06 10:29 AM Page 19 Dividend Growth (per common share) $1.50 1.20 0.90 0.60 0.30 0.00 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006* *Current annualized quarterly dividend. Overall, Kimco's strong core property portfolio, growing asset management business, international expansion and our four primary operating businesses will combine to provide a solid and stable platform for growing our earnings, dividends and overall enterprise value. This business model, as Milton likes to say, “will deliver the goods to our shareholders” for years to come. Sincerely, Michael J. Flynn Vice Chairman, President, and Chief Operating Officer David B. Henry Vice Chairman and Chief Investment Officer Michael V. Pappagallo Executive Vice President and Chief Financial Officer 19 122900_Text1_R2 4/5/06 10:29 AM Page 20 Portfolio of Properties Interests Owned or Managed Site Center Name City GLA Site Center Name City GLA Alaska 1108 Kenai S.C. Kenai 146,759 480 740 465 949 Alabama Fairfield S.C. Belleview Plaza Hoover Center Mobile Festival Centre Arizona Marana Ina Road Poca Fiesta S.C. Hayden Plaza South Mesa Riverview Mesa Riverview 1141 Main Street at Anthem 1121 Chandler Auto Mall 549 Costco Plaza Talavi Towne Center 576 578/579 Talavi Towne Center 1148/A North Canyon Ranch 1024 679 745 1178 1179 1143A Mesa Pavilions Metro Square North 553 Camelback BMW 527 Hayden Plaza North 540 Costco Plaza 557 Plaza @ Mountainside 647 Asante Retail Center 1180 580A Costco Plaza 1144/A The Groves 1023 Valencia Road Fairfield Fairfield Hoover Mobile Anthem Chandler Glendale Glendale Glendale Glendale Marana Mesa Mesa Mesa Mesa Mesa Phoenix Phoenix Phoenix Phoenix Phoenix Surprise Tempe Tempe Tucson California Costco Plaza La Palma S.C. Madison Plaza Devonshire Plaza East Avenue Market Place Laband Village S.C. Costco Plaza 280 Metro Center Olive Tree Plaza Corona Hills Plaza Covina Town Square Westlake S.C. 541 106 543 269 1315 1335 544 1026A 1321 546 037 186 Alhambra Anaheim Carmichael Chatsworth Chico Chino Hills Chula Vista Colma Corning Corona Covina Daly City 86,566 103,161 115,347 527,625 15,000 ^ - ^ 333,388 81,500 30,325 70,428 191,008 144,617 100,929 448,000 ^ - ^ 307,375 230,164 16,410 153,180 333,382 131,621 - ^ 237,018 228,000 190,174 195,455 15,396 210,306 75,875 * 19,560 73,352 356,335 213,532 11,350 486,958 269,433 529,841 20 Kohl's S.C. Elk Grove Village Waterman Plaza Kohl's S.C. Fremont Hub River Park Oceangate Commerce Oceangate II Commerce Gold Country Center Jackson Creek Plaza La Mirada Theater Center Raley's Union Square Yosemite North S.C. Montebello Town Square Morgan Hill South Napa Market Place Plaza Di Northridge 1028 1316 1330 1106 951A 1165 977 9004 1317 1318 551 1325 1312 040 1032 1327 1336 1036A Novato Fair S.C. 556 1115A 1322 1195 1326 1320 1146 1155 1323 039 1157 1167 1156/B Morena Plaza 1334 759 559 1324 705 991 1158 324 1329 762 1149 038 1328 1319 1107 9074 Target Plaza Linda Mar S.C. Pony Express S.C. Poway City Centre Red Bluff S.C. North Point Plaza Redwood City Roseville Plaza Power Inn Vista Balboa Center Carmel Mountain Rancho San Diego Marigold S.C. Magnolia Square S.C. Home Depot Plaza Fulton Market Place Santee Town Center Santee Trolley Square Costco Plaza The Center Village at Weber Ranch Palm Plaza S.C. Redhawk I Torrance Promenade Truckee Crossroads Lander Marketplace Kmart S.C. Tustin Marketplace El Cajon Elk Grove Elk Grove Folsom Fremont Fresno Hawthorne Hawthorne Jackson Jackson La Mirada Manteca Merced Montebello Morgan Hill Napa Northridge Novato Oxnard Pacifica Pollock Pines Poway Red Bluff Redding Redwood City Roseville Sacramento San Diego San Diego San Diego San Diego San Luis Obispo San Ramon Santa Ana Santa Rosa Santee Santee Signal Hill Stockton Stockton Temecula Temecula Torrance Truckee Turlock Tustin Tustin 123,343 30,130 7,880 108,255 495,979 121,107 182,605 * 21,507 * 67,665 23,100 260,092 19,455 27,350 251,489 103,362 349,530 158,812 133,862 171,580 168,878 12,000 122,005 23,200 21,876 49,429 188,493 20,103 117,410 35,000 98,474 411,375 174,428 41,913 134,400 41,565 103,903 311,437 153,291 152,919 45,615 342,336 345,113 266,847 26,553 22,415 108,413 524,000 ^ 122900_Text1_R2 4/5/06 10:29 AM Page 21 Site Center Name City GLA Site Center Name City GLA 682 685 689 686 780 680 683 367 1248 1022 684 034 1249 1340 029 548 1250 500 554 1251 608 Colorado Village on the Park Quincy Place S.C. East Bank S.C. Spring Creek S.C. Woodman Valley S.C. West 38th Street S.C. Englewood Plaza Fort Collins S.C. Greeley Commons Greenwood Village Heritage West S.C. Connecticut Branhaven Plaza Branford Plaza Derby S.C. Elm Plaza West Farm S.C. Farmington Plaza Hamden Mart Home Depot Plaza Southington Plaza Waterbury Plaza Delaware Camden Square Blue Hen Dover Value City S.C. 1089 501 278 1055A Milford Commons 1038A Brandywine Commons Florida 154,485 Aurora 44,174 Aurora 152,981 Aurora 107,310 Colorado Springs 61,453 Colorado Springs 18,405 Denver 80,330 Englewood 105,862 Fort Collins 138,818 Greeley Greenwood Village 196,726 Lakewood 82,581 Branford Branford Derby Enfield Farmington Farmington Hamden North Haven Southington Waterbury Dover Dover Elsmere Milford Wilmington 191,352 40,180 53,346 136,470 184,572 48,318 341,502 331,919 47,743 137,943 6,000 - ^ 114,530 61,100 165,805 574 636 101 005 152 698 1252 011 739 529 982 1186 Altamonte Springs 271,101 Altamonte Springs Boca Raton Boynton Beach Bradenton Bradenton Bradenton Renaissance Centre Pearl Arts S.C. Camino Square Boynton West S.C. Lakeside Plaza Bayshore Gardens Bradenton Plaza Plaza at Brandon Town Center Brandon Butler Plaza Freedom Ford Northwood Oaks Curlew Crossing S.C. Casselberry Clearwater Clearwater Clearwater 94,193 73,549 197,362 30,938 162,997 37,097 143,785 103,161 75,552 84,441 * 207,071 Coral Square Promenade Coral Springs Coral Springs Maplewood Plaza Gold Coast Lincoln Mercury Cutler Ridge Providence Plaza Sports Authority Plaza Cypress Creek Hialeah Dodge Oakwood Plaza 623 673 521 Deltona 9002 East Orlando 174 Fort Lauderdale 1154 Hialeah 525 Hollywood 150 Hollywood 1150/A Oakwood Plaza North Hollywood 1151/A-C Oakwood Bus Center Homestead Homestead Towne Square 203/B Jacksonville Southside Square S.C. 141 Jacksonville Regency Plaza 207 Pablo Creek Plaza East Jacksonville 1034 Shoppes at Amelia Concourse Jacksonville 1112/A Jacksonville Avenues Walks 1189 Jensen Beach Marketplace Square 619 Jensen Beach Square One S.C. 954 Key Largo Tradewinds S.C. 022 Kissimmee Vine Street Square 613 Lakeland Merchants Walk 123 Lakeland Grove at Lakeland Square 9062 Largo Wal-Mart Plaza 124 Largo Tri-City Plaza 139 Largo Selmon's Plaza 196 Lauderdale Lakes 120 Reef Plaza Lauderhill 290-293 Ft. Lauderdale Plaza Leesburg 136 Loxahatchee 489 Margate 604 127 Melbourne 668 Leesburg Shops Grove Market S.C. Peppertree Plaza Nasa Plaza The Shoppes of 129 134 135 390 522 523 524 634 702 735 1153 9021 1247 1192 677 West Melbourne Grove Gate S.C. Coral Way Plaza Coral Way Plaza Miller Road S.C. Potamkin Toyota I Potamkin Toyota II Miami Lakes Chevrolet South Miami S.C. Grove Gate S.C. Opa Locka S.C. Kendale Lakes Plaza Mall of the Americas Plantation Crossing Miramar Town Center Tri-Cities Shopping Plaza Melbourne Miami Miami Miami Miami Miami Miami Miami Miami Miami Miami Miami Miami Middleburg Miramar Mount Dora 55,597 86,342 37,640 80,567 * 131,981 229,034 23,625 50,000 871,723 137,196 207,714 51,002 205,696 68,000 ^ 4,000 ^ 45,000 ^ 173,356 197,731 207,332 130,983 229,383 104,862 149,472 215,916 56,668 115,341 181,416 13,468 75,194 * 260,729 168,737 148,660 104,908 79,273 87,305 83,380 29,166 17,117 86,900 63,604 1,615 103,161 402,801 651,011 * 2,000 ^ - ^ 120,430 21 * Preferred Equity ^ Property under development or land held for development 122900_Text1_R2 4/5/06 10:29 AM Page 22 Portfolio of Properties Interests Owned or Managed Site Center Name City GLA Site Center Name City GLA Southgate S.C. Ives Dairy Crossing Shady Oaks S.C. Argyle Village Square S.C. Orange Park Bayhill Plaza Sun Plaza Fern Park Plaza Grant Square Sand Lake Plaza Century Plaza Lee Road S.C. Millenia Plaza Big Lots Plaza Flamingo Marketplace Whole Foods Center Sample Plaza Palm Aire Marketplace The Piers S.C. Riviera Square Seminole Centre Tuttlebee Plaza Southeast Plaza Landings Plaza Mariner Village Riverside Centre S.C. Oak Tree Plaza Village Commons S.C. The Plaza at Citrus Park Busch Plaza Mission Bell S.C. West Village Westgate Plaza Carrollwood Commons Wellington Marketplace Babies“R”Us Plaza Cross County Plaza 761 340 665 263 024 115 121 125 618 638 749 1159 195 9022 251 118 1126 716 113 392 171 378 9086 495 1293 128 715 003 743 1124 9031 9061 664/B 507 633 1152 111-511 Belmart Plaza 208 New Port Richey 66,500 North Miami Beach 108,795 248,497 Ocala 50,299 179,065 114,434 131,646 110,788 236,486 132,856 103,161 154,447 82,730 137,259 * 60,414 66,838 140,312 103,294 46,390 160,994 102,455 129,700 148,591 * 69,917 * 62,942 118,979 105,655 340,506 106,986 168,210 100,538 * 100,200 * 203,134 171,955 * 80,845 357,537 81,073 95,188 Orlando Orlando Orlando Orlando Orlando Orlando Orlando Orlando Palatka Pembroke Pines Plantation Pompano Beach Pompano Beach Port Richey Riviera Beach Sanford Sarasota Sarasota Sarasota Spring Hill St. Augustine St. Petersburg Tallahassee Tampa Tampa Tampa Tampa Tampa Tampa Wellington West Palm Beach West Palm Beach West Palm Beach Winter Haven Chain O' Lakes Plaza Georgia Augusta Square Masters Glen 635 9058 044/A/B Augusta Exchange 9076 159 187 724 Austell Plaza Gainesville Towne Center Macon Plaza Town & Country S.C. Augusta Augusta Augusta Austell Gainesville Macon Marietta 112,537 259,513 * 530,915 83,790 * 142,468 127,252 105,405 22 185 632 048 1030 215 Savannah Centre Largo Plaza Snellville Pavilion Lowe's S.C. Robins Plaza Hawaii Savannah Savannah Snellville Valdosta Warner Robins 187,076 88,325 311,033 175,396 10,125 1331 Kihei Center Kihei 17,897 Idaho 1333 1142A Nampa Plaza Nampa Treasure Valley Marketplace Nampa - ^ - ^ Illinois Beltline Highway S.C. Arlington Heights S.C. Aurora Commons Yorkshire Plaza Wind Point S.C. Belleville S.C. Bloomington Commons Oakland Commons S.C. Northfield Square Mall Calumet Center Carbondale Mall Pinetree Plaza Neil Street S.C. 87th Street Center Countryside Plaza Crestwood Center Crystal Lake S.C. Crystal Lake Plaza Northland Plaza S.C. Downers Grove Downers Grove Center Butterfield Square 802 896 890 1294A 051 808 176 1111 825 836 848 043 870 856 846 887 891 1253 722 764 852 695A 224-387 Town & Country S.C. 1254 881 862 822 1255 1256 9215 1257 838 Evergreen Park Plaza Belleville Road S.C. Forest Park Mall Randall S.C. Hillside Plaza Lake Zurich Plaza Lansing Landings Libertyville Plaza Matteson Center Alton Arlington Heights Aurora Aurora Batavia Belleville Bloomington Bloomington Bradley Calumet City Carbondale Champaign Champaign Chicago Countryside Crestwood Crystal Lake Crystal Lake DeKalb Downers Grove Downers Grove Downers Grove Elgin Evergreen Park Fairview Heights Forest Park Geneva Hillside Lake Zurich Lansing Libertyville Matteson 159,824 80,040 91,182 361,984 272,410 81,490 188,250 73,951 80,535 159,634 80,535 111,720 102,615 102,011 117,005 79,903 80,390 30,461 80,562 144,770 141,906 192,639 186,432 42,676 192,073 98,371 110,188 39,805 29,938 320,157 * 27,510 157,885 122900_Text1_R2 4/5/06 10:29 AM Page 23 Site Center Name City GLA Site Center Name City GLA Mount Prospect Center 839 Mundelien S.C. 874 Naper West Plaza 863 Naperville Plaza 1258 Norridge Center 845 Marketplace of Oaklawn 758 835 Oak Lawn Center 837/337 22nd Street Plaza Orland Park S.C. 809 Value City S.C. 175 Evergreen Square 832 Rockford Crossings 1184A Free State Bowls 1047 Round Lake Beach Plaza 1259 Streets of Woodfield 492 East Woodfield Square 694A Skokie Pointe 854 Streamwood S.C. 897 Lake Plaza 886 Waukegan Plaza 1261 Woodgrove Festival 563 Indiana Mount Prospect Mundelien Naperville Naperville Norridge Oak Lawn Oak Lawn Oakbrook Terrace Orland Park Ottawa Peoria Rockford Rolling Meadows Round Lake Beach Schaumburg Schaumburg Skokie Streamwood Waukegan Waukegan Woodridge 192,547 89,692 102,327 45,048 116,914 94,707 165,337 176,263 131,546 60,000 156,067 89,047 37,225 55,862 629,374 167,690 58,455 81,000 90,555 39,455 161,272 9115 9111 9104 9105 397 398 132 1297 9106 153 851 9116 133 388 9107 145 671 697 9110 9108 1262 895 9112 9012 9013 Batesville Chesterton Covington Dillsboro Evansville Evansville Felbram Fort Wayne Greencastle Greenwood Griffith The Waters of Batesville The Waters of Duneland The Waters of Covington The Waters of Dillsboro Plaza East Plaza West Felbram S.C. Fort Wayne Plaza The Waters of Greencastle Greenwood S.C. Griffith Center The Waters of Huntingburg Huntingburg Indianapolis Linwood Square Indianapolis Target 31 South S.C. Indianapolis The Waters of Indianapolis Lafayette Lafayette S.C. Lafayette Sagamore @ 26 S.C. Lafayette Marketplace Lafayette The Waters of Clifty Falls Madison The Waters of Martinsville Martinsville Merrillville Plaza K's S.C. The Waters of Muncie Lauren's Corner Blackiston Mill Merrillville Mishawaka Muncie New Albany New Albany 42,028 * 30,320 * 40821 * 66,185 * 192,933 149,182 27,400 - 32,200 * 168,577 114,684 43,498 * 165,220 185,589 25,469 * 90,500 235,998 214,876 47,391 * 30,060 * 39,102 82,100 32,131 * 10,600 * 31,753 * 9014 9113 9117 9109 183 883 777 9114 812 858 757 813 847 811 814 805 736 815 561 751 267 1263 1102A 795 140 752 1183 9009 1025 274 670A 297 9095 Matthews Center New Albany The Waters of New Castle New Castle The Waters of Princeton The Waters of Rising Sun Erskine Village Erskine Plaza South Third Street S.C. The Waters of Yorktown Princeton Rising Sun South Bend South Bend Terre Haute Yorktown Iowa Clive Plaza Davenport Center Home Depot S.C. Home Depot S.C. Dubuque Center Waterloo Plaza Kansas Tall Grass Center Home Depot Center Topeka S.C. Shopko S.C. Westgate Market Wichita S.C. Kentucky Kroger S.C. Florence Plaza Turfway Crossing Hinkleville Center South Park S.C. Louisiana Acadian Village Hammond Aire Plaza Coursey Commons S.C. Centre at Westbank Houma Power Center Acadiana Square Lake Forest S.C. Bayou Walk Maine Clive Davenport Des Moines Des Moines Dubuque Waterloo East Wichita Overland Park Topeka West Wichita Wichita Wichita Bellevue Florence Florence Hinkleville Lexington Baton Rouge Baton Rouge Baton Rouge Harvey Houma Lafayette New Orleans Shreveport 39,412 * 24,860 * 39,494 * 16,323 * 121,122 81,668 73,828 31,726 * 90,000 91,035 156,506 111,847 82,979 104,074 96,011 120,164 103,161 96,319 133,771 103,161 53,695 38,963 99,578 85,229 258,713 103,161 349,907 67,755 181,660 98,586 244,733 190,000 93,669 * 200 Bangor S.C. Bangor 86,422 23 * Preferred Equity ^ Property under development or land held for development 122900_Text1_R2 4/5/06 10:29 AM Page 24 Portfolio of Properties Interests Owned or Managed Site Center Name City GLA Site Center Name City GLA Maryland York Road Plaza Putty Hill Plaza Greenbrier S.C. Club Centre Fullerton Plaza Ingleside S.C. Rolling Road Plaza Security Square S.C. 1042 1048A 1052A 1064A 1067A 1084D Wilkens Beltway Plaza 1085A 1187A 1050A 1051A Harford Business Center River Hill Village Center 235 Clinton Bank Building 1040 Clinton Bowl 1041 Snowden Square S.C. 156 Kings Contrivance 212 Wilde Lake Plaza 216 Lynx Lane Village Center 222 Columbia Crossing 201A Dorsey's Search 206A Village Center 211B/C Hickory Ridge Harpers Choice 213A Famous Dave's Ribs 1230A Shoppes at Easton 1069A Enchanted Forest S.C. 1046A Villages at Urbana 1088 Gaithersburg S.C. 463 Arundel Plaza 1037A Glen Burnie Village 1049A Hagerstown S.C. 221 Shawan Plaza 1068 Landover Center 468 Laurel Plaza 173 Laurel Plaza 214 Southwest Plaza 1073 Lutherville Station 1054A Orchard Square 1058A 1057A North East Station 1264 Owings Mills Plaza 1056A New Town Village 1059/A 1060 1061A 1078 1077A 1063D-G Radcliffe Center 104A Patriots Office Perry Hall Square S.C. Super Fresh Plaza Timonium S.C. Timonium Crossing Towson Place Baltimore Baltimore Baltimore Baltimore Baltimore Baltimore Baltimore Baltimore Bel Air Bel Air Clarksville Clinton Clinton Columbia Columbia Columbia Columbia Columbia Columbia Columbia Columbia Columbia Easton Ellicott City Fredrick County Gaithersburg Glen Burnie Glen Burnie Hagerstown Hunt Valley Landover Laurel Laurel Linthicum Lutherville Lutherville North East Owings Mills Owings Mills Pasadena Perry Hall Perry Hall Timonium Timonium Towson Towson 44,170 152,834 112,722 49,629 77,287 77,365 90,903 90,830 115,927 26,900 105,907 2,544 26,412 50,000 86,032 55,791 23,835 73,299 86,456 100,521 91,165 6,780 113,330 139,898 64,105 88,277 249,746 75,257 117,718 94,653 232,903 75,924 81,550 7,872 163,709 12,333 83,690 37,920 116,303 38,727 177,307 65,059 127,097 59,799 84,280 669,926 24 1079 1080 1092 1081A Waverly Woods Village Ctr. Woodstock Waldorf Bowl Waldorf Firestone Pulaski Industrial Park Waldorf Waldorf White Marsh Massachusetts Cambridge Park Plaza Foxborough Plaza Barrington Plaza Great Festival at Hyannis S.C. Shops at the Pond 9035 033 609 1114A 1117A 1045A Del Alba Plaza 1198 481 North Quincy Plaza Shrewsbury S.C. Cambridge Foxborough Barrington Hyannis Marlborough Pittsfield Quincy Shrewsbury 1266 667 143 1267 1268 146 1269 138 747 1270 119 335 180 1271 607 271 606 1272 014 1004 552 1273 1274 785 Michigan Canton Twp. Clarkston Clawson Clinton Twp. Dearborn Heights Canton Twp. Plaza White Lake Commons Clawson Center Clinton Plaza Dearborn Heights Plaza Downtown Farmington Ctr. Farmington Grand Rapids Plaza Maple Hill Mall Southfield S.C. Lansing Plaza Century Plaza Beltline Plaza Novi S.C. Okemos Plaza Cross Creek S.C. Cambridge Crossing Green Orchard S.C. Grand Rapids Kalamazoo Lansing Lansing Livonia Muskegon Novi Okemos Taylor Troy Walker Minnesota Eden Prairie Eden Prairie Plaza Arbor Lakes Retail Center Maple Grove Maplewood Town Center Maplewood Minnetonka Ridgedale Festival Center Roseville Roseville Plaza St. Paul St. Paul Plaza Virginia Thunderbird Mall Mississippi 26,128 4,500 - ^ 103,547 135,572 * 118,844 131,235 225,634 104,125 72,014 80,510 108,418 40,149 144,943 165,801 39,102 34,442 96,983 68,632 242,485 103,161 34,068 44,185 79,215 60,000 30,520 141,549 223,697 338,928 40,879 466,437 110,625 120,220 37,340 31,322 63,550 1128 157 Turtle Creek Crossing Ridgewood Court Hattiesburg Jackson 168,000 ^ 50,000 122900_Text1_R2 4/5/06 10:29 AM Page 25 Site Center Name City GLA Site Center Name City GLA 9064 9065 9066 Center Park North Regency Purple Creek Ridgeland Ridgeland Ridgeland 41,079 * 61,568 * 79,808 * 1275 875 850 154 744 806 707 889 833 803 244 872 625 789 869 598 798 162 804 829 830 831 834 840 Missouri Ballwin Plaza Plaza at De Paul Crystal Center Shop & Save S.C. Hub S.C. Independence S.C. North Point S.C. Joplin Mall Kansas Center Kirkwood Crossing Lemay S.C. Manchester S.C. Primrose Marketplace Primrose Marketplace Springfield S.C. Home Depot Plaza Center Point S.C. Gravois Plaza Kings Highway S.C. Overland Crossing Creve Coeur S.C. Dunn Center South County Center Cave Springs S.C. Nebraska Ballwin Bridgeton Crystal City Ellisville Independence Independence Joplin Joplin Kansas City Kirkwood Lemay Manchester Springfield Springfield Springfield St. Charles St. Charles St. Louis St. Louis St. Louis St. Louis St. Louis St. Louis St. Peters 33,486 101,592 100,724 118,080 103,161 184,870 155,416 80,524 150,381 253,662 66,698 89,305 277,590 84,916 202,926 8,000 84,460 129,093 176,273 170,779 113,781 174,967 128,765 175,121 741 1103 Frederick S.C. Sorensen Park Plaza Omaha Omaha 92,332 107,000 ^ Nevada 508 1009 1313 1314 Warm Springs Promenade Henderson Canyon Pointe S.C. Comp USA Center Del Monte Plaza Las Vegas Reno Reno 140,000 ^ 151,076 31,317 36,627 New Hampshire 1012A Webster Square 1345 620 New London Center Rockingham Mall Nashua New London Salem 179,220 104,910 344,076 New Jersey Bayonne Broadway 1133 Bricktown Plaza 1276 Bridgewater Plaza 1277 The Promenade 573/A Stop & Shop Plaza 306 Marlton Plaza 643 Hillview S.C. 1014 Cinnaminson S.C. 645 Cinnaminson S.C. 945 032 Millside Plaza 1194A Delran Shopping Center Deptford Plaza 1278 East Windsor Village 047 Franklin Towne Center 587 Hazlet Plaza 1279 Hillsborough Promenade 441 Kmart Plaza 1191 Holmdel Towne Center 1007 Holmdel Commons 1008 Howell Plaza 1280 Kenvil Plaza 1281 Strauss Auto Plaza 184 Maple Shade 1171 North Brunswick Plaza 617 Piscataway Town Center 558 Ridgewood S.C. 615 Sea Girt Plaza 1282 Hamilton Plaza 9094 Wayne Plaza 1160 Long Branch Plaza West 1283 Westmont Plaza 614 585 586 591 New Mexico Sycamore Plaza Plaza Paseo Del Norte Juan Tabo Plaza New York Bayonne Bricktown Bridgewater Bridgewater Cherry Hill Cherry Hill Cherry Hill Cinnaminson Cinnaminson Delran Delran Deptford East Windsor Franklin Hazlet Hillsborough Hillsborough Holmdel Holmdel Howell Kenvil Linden Mapleshade North Brunswick Piscataway Ridgewood Sea Girt Trenton Wayne Long Branch Westmont 23,901 56,680 45,486 370,545 124,750 129,809 209,185 121,852 16,556 78,584 37,679 33,526 249,029 138,364 47,680 416,776 55,552 300,010 234,739 46,410 44,583 13,340 201,351 409,879 97,348 24,280 35,240 71,150 * 348,063 74,379 192,254 Albuquerque Albuquerque Albuquerque 37,758 183,912 59,722 1043A 1134 1135 360 750 1346 9040 030 Colonie Plaza Bayridge S.C. Bellmore S.C. Bridgehampton Commons Concourse Plaza Castle Hill Strauss Bronx Plaza Mill Basin Plaza Albany Bayridge Bellmore Bridgehampton Bronx Bronx Bronx Brooklyn 135,801 21,106 24,802 287,587 228,638 3,720 28,378 * 80,708 25 * Preferred Equity ^ Property under development or land held for development 122900_Text1_R2 4/5/06 10:29 AM Page 26 Portfolio of Properties Interests Owned or Managed Site Center Name City GLA Site Center Name City GLA 1019 1020 1130 1131 1347 453 454 456 605 1181 575 545 1193 1341 Two Guys Auto Glass Genovese Drug Store Kings Highway S.C. Ralph Avenue Homeport Utica Avenue Strauss Elmwood Plaza Shops @ Seneca Tops Plaza Centereach Mall Central Islip Town Center King Kullen Plaza Home Depot Plaza Northport Retail The Center at East Northport Elmont S.C. Elmont Plaza Franklin Square S.C. Meadowbrook Commons North Shore Triangle Scotia Crossing Great Neck Shops Hampton Bays Plaza Walgreens of Freeport Hicksville Plaza Liberty Avenue Strauss Latham Farms Merrick Blvd. Strauss 1132 1284 1136 027 025 1098 701 354 021 1137 1348 008 1349 1017/A Douglaston S.C. 237 1352 1129 028 041 020 1145 9057 9059 9100 9101 1109A 1138 1018 116 218 1351 1044A 105 Manhasset Center E. 14th Street Strauss Duane Reade Merrick Commons Galleria at Crystal Run Munsey Park Smithtown Perry Street Plaza Greenwich Street Plaza Christopher Street Plaza Second Street Plaza Bleeker Street Plaza North Massapequa S.C. American Muffler Shop Manetto Hill Plaza 44 Plaza Jamacia Avenue Strauss Columbia Plaza East End Commons Brooklyn Brooklyn Brooklyn Brooklyn Brooklyn Buffalo Buffalo Buffalo Centereach Central Islip Commack Copiague East Northport East Northport Elmont Elmont Franklin Square Freeport Glen Cove Glenville Great Neck Hampton Bays Hempstead Hicksville Jamacia Latham Laurelton Little Neck Manhasset Manhattan Maspeth Merrick Middletown Munsey Park Nesconset New York New York New York New York New York North Massapequa Oceanside Plainview Poughkeepsie Queens Village Rensselaer Riverhead 7,500 10,000 29,671 41,076 5,200 141,285 152,991 101,066 380,084 25,000 ^ 265,409 163,999 - ^ 26,016 27,078 28,700 17,864 173,031 49,346 - ^ 14,385 70,990 13,905 40,231 5,770 616,130 7,435 48,275 188,494 9,566 22,500 107,871 80,000 72,748 55,580 15,622 * 5,187 * 6,375 * 8,015 * 13,181 * 29,610 1,856 88,222 167,668 14,649 132,648 183,928 26 Henrietta S.C. 427 149/426 West Gates S.C. 031 601 674 1285 1343 109 1161 1140 026 801 1350 Forest Avenue S.C. Richmond S.C. Greenridge Plaza Staten Island Plaza Stop & Shop Plaza Syosset S.C. Westbury Plaza White Plains S.C. Yonkers S.C. Shoprite S.C. Romaine Avenue Strauss North Carolina Rochester Rochester Staten Island Staten Island Staten Island Staten Island Staten Island Syosset Westbury White Plains Yonkers Yonkers Yonkers Crossroads Plaza Wellington Park Centrum @ Crossroads Park Place S.C. Woodlawn Marketplace Independence Square 1096 1119A/B University Commons 483 696 002/A 959B 144 192 380-384 Tyvola Mall 016 639 528 602 275 1094 1177 1033 177 477 479 Burlington Commerce Park Burlington Burlington Cary Cary Cary Cary Charlotte Charlotte Charlotte New Hope Commons Durham Oakcreek Village Durham Franklin Ford Franklin Akers Center Gastonia Greensboro Landmark Station Senate/Hillsborough Crossing Hillsborough Shoppes @ Midway Plantation Knightdale The Centrum Pleasant Valley Promenade Wakefield Commons II Edgewater Place 485 Wakefield Commons I 1005A 126 Sutton Square S.C. Cloverdale Plaza Ohio Pineville Raleigh Raleigh Raleigh Raleigh Raleigh Winston-Salem 245 419 220 345 246 242 188 Harvest Plaza West Market Plaza Barberton S.C. Beavercreek Plaza Kmart Plaza Cambridge Square Belden Village Commons Akron Akron Barberton Beavercreek Brunswick Cambridge Canton 129,238 185,153 177,118 212,375 101,337 39,760 47,270 32,124 398,602 24,577 56,361 43,560 10,329 - ^ 208,870 86,015 102,787 315,797 133,901 110,300 139,269 233,800 408,292 116,186 26,326 240,957 103,494 - ^ 142,494 ^ 269,710 372,684 77,000 ^ 65,000 ^ 85,465 101,846 137,433 76,438 138,363 95,452 148,210 171,223 79,165 172,419 122900_Text1_R2 4/5/06 10:29 AM Page 27 Site Center Name City GLA Site Center Name City GLA Centerville Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus 120,498 378,901 223,731 121,242 308,277 88,317 89,742 34,086 39,069 254,152 191,089 142,743 129,008 135,650 99,262 112,862 72,355 * 532,607 163,131 247,524 141,616 116,374 213,728 89,490 * 89,915 * Cross Pointe S.C. Colerain Towne Center Ridgewater Plaza Glenway Plaza Cassinelli Square Glenway Crossing Ridgewater Plaza Highland Plaza Montgomery Plaza Georgesville Square Morse Plaza South Hamilton S.C. Olentangy Plaza West Broad Plaza South High Plaza North West Square Columbus Plaza Market Square at Montrose Copley Dayton Shiloh Springs Plaza Dayton Dayton Dayton Dayton Grove City Hilliard Huber Heights Kent Mentor Mentor Miamisburg 405 017 413 415 420 482 513 1286 1287 019 401 402 403 407 424 597 9082 1013 131 309/11/13 Woodman Plaza Salem Plaza 404 406 Value City Plaza 308/310 Oak Creek Plaza 9083 9084 006 437/637 Tops Plaza Mentor Plaza 399 Erie Commons 417 Mallwoods Centre 714 Middleburg Heights Plaza Middleburg Heights 104,342 409 99,862 Tops Plaza 414 - ^ High Park Center 486 10,400 High Park Center 486M 67,748 * Reynoldsburg 9085 130,704 Sharonville Plaza 276 120,522 Southland 75 S.C. 320 253,510 Tri-County Commons 018 149,464 Kmart Plaza 416 160,702 130 Arlington Square 242,124 178/423 Westerville Plaza 128,180 234 157,424 410 North Olmstead Orange Township Orange Township Reynoldsburg Sharonville Springboro Pike Springdale Springfield Upper Arlington Westerville Wickliffe Willoughby Hills 318,468 106,500 103,910 235,577 6,000 Grove City Hilliard Plaza Northpark Center Town Square Chardon Bishop Plaza Oklahoma 001/A 555 Parkway Plaza Centennial Plaza Norman Oklahoma City 262,624 233,797 876 810 Broadway Plaza Woodlands Marketplace Oklahoma City South Tulsa 103,027 4,090 Pennsylvania 300,188 120,211 109,717 39,235 90,183 87,022 1173/A Home Depot Plaza Center Square S.C. 649 Braddock Hills 341 Brookhaven Plaza 1288 Carlisle Marketplace 1338 Stonehedge Square 1075A 1083A Wayne Plaza 460 148 223 312 210 661 469 658 1289 191 651 375 158 266 326 227 193A 656 723 1337 268 659 373 1110A Holiday Center 049 648 342 294 526 612 650 660 1290 1353 1185 9020 Chippewa Plaza Duquesne Plaza Ridge Pike Plaza Norriton Square Pocono Plaza Eastwick Wellness Center Acme Supermarket S.C. Whiteland Town Center Exton Plaza Fairview Plaza Bucks Crossing Gettysburg Plaza Westmoreland Mall Halifax Plaza Hamburg Wellness Center Hamburg Harrisburg Harrisburg West S.C. Harrisburg Harrisburg East S.C. Havertown Township Line S.C. Horsham Village Mall Horsham Horsham Point Howe Township Newport Plaza Landsdale Ralph's Corner S.C. Middletown Middletown Plaza Monroeville Montgomery Montgomery Square Morrisville Morrisville S.C. New Kensington New Kensington S.C. Philadelphia Cottman & Castor S.C. Northeast Auto Philadelphia Cottman & Bustleton Center Philadelphia Philadelphia Frankford Avenue S.C. Philadelphia The Gallery Philadelphia Plaza Philadelphia Washington Avenue Strauss Philadelphia Allegheny Parking Cranberry Commons Bensalem Blue Bell Braddock Hills Brookhaven Carlisle Carlisle 122,396 Chambersburg 215,206 Chippewa 69,733 Duquesne 165,385 Eagleville 133,569 East Norriton 168,506 East Stroudsburg 36,511 Eastwick 60,685 Exton 85,184 Exton Exton 43,534 Fairview Township 69,579 * 86,575 Feasterville 14,584 Gettysburg 50,000 Greensburg 54,150 * Halifax Township 15,400 121,672 175,917 80,938 105,569 75,206 66,789 * 84,470 38,953 143,200 257,565 2,437 108,950 213,444 753-3 277,123 82,345 133,309 52,300 9,343 467,927 167,072 * Pittsburgh Pittsburgh 27 * Preferred Equity ^ Property under development or land held for development 122900_Text1_R2 4/5/06 10:30 AM Page 28 Portfolio of Properties Interests Owned or Managed Site Center Name City GLA Site Center Name City GLA Pottstown Richboro Scott Township Richland Shrewsbury Souderton Springfield 1062A 389 464 9096 1070A 760 288 662 1082A Wayne Heights Mall 385 653 1190 1291 502 371 372 Pottstown Plaza Crossroads Plaza Carnegie Plaza Richland Marketplace Shrewsbury Square S.C. County Line Plaza Springfield S.C. Upper Darby Wellness Center Upper Darby Waynesboro West Mifflin Century III Mall Whitehall Whitehall Mall Macarthur Towne Center Whitehall Whitehall Whitehall Plaza Williamsport Loyal Plaza York Mount Rose Plaza York West Market St. Plaza 161,727 110,357 69,288 - 94,706 67,396 218,907 48,936 112,149 84,279 84,524 151,273 33,475 293,931 * 59,016 35,500 Rhode Island 691 1011 Marshalls Plaza Mashpaug Commons Cranston Providence 129,907 71,735 South Carolina St. Andrews Center Westwood Plaza West Ashley Shoppes Crossroads Center Gallery S.C. Cherrydale Point Patriots Plaza North Rivers Marketplace Tennessee Charleston Charleston Charleston Florence Greenville Greenville Mt. Pleasant North Charleston 157,416 186,740 136,276 113,922 148,532 295,928 116,868 267,632 Chattanooga Hamilton Crossing S.C. Chattanooga Red Bank S.C. Hendersonville Hendersonville Plaza Madison Northside Marketplace Madison Old Towne Village Madison Rivergate Station Wolfchase Plaza Memphis Hickory Ridge Commons Memphis Memphis Trolley Station Nashville Hickory Hollow S.C. Nashville Marketplace at Rivergate Nashville The Shoppes at Rivergate 50,000 50,588 6,400 189,299 175,593 240,318 40,000 87,962 167,243 99,909 109,012 172,135 254 631 1001 646 676 1147 937A 622 168 253 287 007 282 1118 013 484 594 004 583 588 28 Texas Allen Amarillo Amarillo Arlington Austin Austin Austin Austin Austin Austin Austin Austin Baytown Beaumont Beaumont Brownsville Burleson Burleson Burleson Cedar Hill Colleyville Corpus Christi Dallas Dallas Dallas Dallas Dallas Denton East Plano Euless Fort Worth Fort Worth Fort Worth Garland Garland Garland Georgetown Crème De La Crème 1309 Westgate Plaza 879 Westgate Plaza 879A Arlington Center 866 Arboretum Crossing 564 Center of the Hills 589 Palmer Crossing 1116 Parkline Shopping Center 9023 Homestead Plaza 9068 Lincoln Village 9072 Round Rock West 9175 Century South 9176 Baytown Village S.C. 823 Dowlen Towne Center 444 Dowlen Towne Center 444A Las Tiendas Plaza 1197 South Towne Crossing 1101 Gateway Station 496/A Gateway Station 496B Cedar Hill Crossing 712 Crème De La Crème 1308 Islands Plaza S.C. 878 Plaza Rios 160 Big Town Mall 170 Expressway Plaza 172 Cityplace Market 565 Hillside Village 9005 Denton Plaza 9080 Accent Plaza 816 Euless Town Center 783 Montgomery Plaza 1100 Fort Worth Plaza 9081 Fossil Creek 9097 Broadmoor Village 566 Broadway Center 820 Garland Plaza 9078 Republic Square 9070 The Centre at Copperfield Harris County 1122A Fountains on the Lake 042 Center at Baybrook 567 Sharpstown Court 719 Westheimer Plaza 817 1006 Northwest Marketplace 1086/A Cypress Towne Center 1355 9089 Houston Houston Houston Houston Houston Houston Houston Houston Copperwood Village One City Centre 21,162 343,989 142,747 96,127 191,760 157,852 108,028 92,030 * 88,829 * 178,700 * 131,764 * 207,358 * 86,240 82,000 ^ 44,000 ^ - ^ 44,000 ^ 61,000 ^ 280,430 187,800 20,188 125,454 125,195 - ^ 49,701 83,867 165,190 * 61,036 * 100,598 61,453 152,000 ^ 56,875 * 68,492 * 62,000 103,600 69,775 * 115,158 * 144,066 589,201 405,161 84,188 96,500 185,332 189,000 ^ 350,398 593,288 122900_Text1_R2 4/5/06 10:30 AM Page 29 Site Center Name City GLA Site Center Name City GLA 655A 9151 9150 1113 1125 568 569 590 9079 678 256 270 391 570 1016 010 010 472 9041 768A 572 978 717/B 9054 9001 9071 1099B 1003 Houston Woodforest S.C. Killeen Killeen Marketplace Lake Jackson Marketplace Lake Jackson Lake Worth Towne Crossing Lake Worth Laredo Rio Norte S.C. Lewisville Shops at Vista Ridge Lewisville Shops at Vista Ridge Lewisville Shops at Vista Ridge Lewisville Lewisville Plaza Lubbock South Plains Plaza Mesquite Kroger Plaza Mesquite Big Town Mall Big Town Bowlanes Mesquite Mesquite Town Centre Plaza Mesquite N. Braunfels New Braunfels Pasadena Fairway Plaza Pasadena Fairway Marketplace Plano Berkeley Square Plano Preston Towne Crossing Plano Parker Plaza S.C. Richardson Richardson Plaza Sunset Ridge S.C. San Antonio Forum at Olympia Parkway San Antonio San Marcos San Mar Plaza Southlake Wyndham Plaza Southlake Southlake Marketplace Temple Towne Center Temple Market Street-The Woodlands Woodlands Utah 113,831 22,793 * 35,315 * 220,000 ^ 251,381 74,837 123,560 93,668 58,280 * 108,326 79,550 101,040 - 209,766 86,479 169,190 241,097 124,987 * 169,834 * 149,343 115,579 102,363 * 181,000 ^ 185,092 * 67,488 * 132,609 * 274,786 399,000 ^ 103 Costco Plaza Ogden 142,628 Vermont 1120 Manchester S.C. Manchester 53,483 Virginia Alexandria Plaza Pentagon Centre Burke Town Plaza Southpark S.C. 1292 1162 1039A 467 1227A Waffle House Costco Plaza 547 Spotsylvania Crossing 1074A Central Park 1200 Firestone Tire 1241A Skyline Village Plaza 466 Alexandria Arlington Burke Colonial Heights Dumfries Fairfax Fredericksburg Fredericksburg Fredericksburg Harrisonburg 28,800 337,429 124,148 60,909 1,702 323,262 141,857 272,398 • 7,200 - 944 1071A 672 1076A 462 800 9006 1235A 1123 952A 1228A 1231A 1236A Dukes Plaza Skyline Village Festival at Manassas Sudley Towne Plaza Westpark Center Burlington Coat Center Oxbridge Square BB & T Valley View S.C. Towne Square Chick-fil-A Ruby Tuesday's Carlos O'Kelly's Mexican Cafe 1239A Dairy Queen 1295/A Doc Stone Commons 1332A 1175 1021A 225 915-920 Smoketown Station 1072A Stafford Marketplace Dulles Town Crossing Potomac Run Plaza Gordon Plaza Smoketown Plaza 1188 542 035 167A 050 1031 330 285 376 595 Washington Factoria Mall Cordata Center Pavilions Center Franklin Park Commons Parkway Super Center Hazel Dell Towne Center West Virginia Charles Town Plaza Huntington Plaza Martin's Food Plaza Riverwalk Plaza Wisconsin Harrisonburg Harrisonburg Manassas Manassas Richmond Richmond Richmond Richmond Roanoke Roanoke Stafford Stafford Stafford Stafford Stafford Stafford Sterling Sterling Woodbridge Woodbridge Woodbridge Bellevue Bellingham Federal Way Spokane Tukwila Vancouver 139,956 150,404 117,525 107,233 84,683 128,612 127,801 3,060 81,789 301,923 4,211 4,400 7,310 3,549 101,042 331,730 737,503 361,079 189,563 494,283 272,174 432,093 188,885 200,126 129,785 459,071 77,000 ^ Charles Town Huntington Martinsburg South Charleston 209,086 2,400 43,212 188,833 381 Badger Plaza Racine 157,150 29 * Preferred Equity ^ Property under development or land held for development • Represents 37 net leased properties at Central Park 122900_Text1_R2 4/5/06 10:30 AM Page 30 Portfolio of Properties Interests Owned or Managed Site Center Name City GLA Site Center Name City GLA Canada Alberta 509 510 512 9042 9043 9141 514 911 9044 9142 9143 9046 515 519 9139 9140 9052 9090 259 531 9049 516 9053 517 9045 518 533 9050 9048 9051 534 9047 Calgary Calgary Calgary Calgary Calgary Calgary Shawnessey Centre Shoppes @ Shawnessey Brentwood Village Sunridge Power Centre Heritage Hill Plaza Calgary Plaza South Edmonton Common Edmonton Centre Grande Prairie Park West Mall Lethbridge Plaza Lethbridge S.C. Grande Prairie Hinton Lethbridge Lethbridge British Columbia Coach House Square Clearbrook Town Square Abbotsford Power Centre Burnaby Plaza Courtenay Plaza Sunnycrest Mall Summit S.C. Langley Power Centre Langley Gate Fraser Crossing The Junction Northport Plaza Parkwood Place S.C. College Heights Plaza Peninsula Village S.C. Strawberry Hill S.C. Newton Town Centre Waneta Plaza Dollarton Village S.C. Tillicum Centre Westbank Towne Centre Manitoba 100 Mile House Abbotsford Abbotsford Burnaby Courtenay Gibsons Kamloops Langley Langley Langley Mission Port Alberni Prince George Prince George Surrey Surrey Surrey Trail Vancouver Victoria Westbank 306,010 162,988 312,331 148,054 * 149,617 * 6,308 * 428,745 63,413 137,657 * 4,000 * 9,568 * 69,051 * 188,253 215,213 8,694 * 4,024 * 102,261 * 128,209 * 228,314 151,802 34,926 * 256,592 32,877 * 372,725 83,627 * 170,725 332,817 108,294 * 166,928 * 35,652 * 457,169 111,175 * 9144 Winnipeg Plaza Winnipeg 4,200 * New Brunswick 9145 9146 Fredericton Plaza Moncton Plaza Fredericton Moncton 6,742 * 4,655 * 30 Ontario Barrie Plaza Barrie S.C. Barrie Center Brantford Plaza Walker Place Burlington Plaza Cambridge Plaza Cornwall Plaza Georgetown Plaza Guelph Plaza Hamilton Plaza Hamilton S.C. Hamilton Center London Plaza London S.C. London Center Maple Plaza Grand Park Clarkson Crossing Mississauga Plaza 404 Town Centre Green Lane Centre North Bay Plaza Ottawa Plaza Lincoln Fields S.C. Boulevard S.C. I Boulevard S.C. II Boulevard S.C. III Agincourt Nissan Morningside Nissan Ontario Street Plaza Ontario Street S.C. Talbot Plaza LaSalle Plaza Centre Sudbury Sudbury Plaza Crouse Plaza Arrow Plaza Adelaide Plaza Trethewey Plaza The Albion Centre Leaside Centre Shoppers World Danforth RioCan Marketplace Don Mills Plaza 7/400 Power Centre Barrie Barrie Barrie Brantford Burlington Burlington Cambridge Cornwall Georgetown Guelph Hamilton Hamilton Hamilton London London London Maple Mississauga Mississauga Mississauga Newmarket Newmarket North Bay Ottawa Ottawa Ottawa Ottawa Ottawa Scarborough Scarborough St. Catherines St. Catherines St. Thomas Sudbury Sudbury Sudbury Toronto Toronto Toronto Toronto Toronto Toronto Toronto Toronto Toronto Vaughn 9136 9137 9138 9118 986 9123 9124 9119 0449 9125 9126 9130 9134 9129 9135 9010 0446 988 9003 9121 537 793 9120 9127 535 538 539 791 1245 1246 9122 9133 9131 9128 797 9030 0273 0447 0459 0983 770 911 980 981 9174 491 5,324 * 1,733 * 6,897 * 12,894 * 69,857 9,116 * 15,730 * 4,000 * 23,375 * 3,600 * 6,500 * 4,125 * 10,445 * 5,700 * 8,152 * 86,612 * 54,200 * 118,637 201,599 30,797 * 249,379 160,231 8,497 * 4,448 * 289,531 91,462 125,984 77,011 20,506 13,433 38,993 * 5,418 * 3,595 * 9,643 * 389,213 170,000 ^ 74,359 * 33,275 * 119,964 * 53,315 * 349,399 133,035 328,820 164,121 - * 237,932 * 122900_Text1_R2 4/5/06 10:30 AM Page 31 Site Center Name City GLA Site Center Name City GLA Mexico 9147 9063 9148 921 9093 9103 9018 9099 9149 189 9033 9060 9032 181 9034 9008 9098 9092 Acapulco Multiplaza Las Palmas Cancun Hyatt Cancun Cancun Multiplaza Kabah Ciudad Juarez Plaza Lopez Mateos Guadalajara Plaza Centro Sur Multiplaza del Valle Guadalajara Super Plaza Las Haciendas Mexico City Multiplaza Arboledas Mexico City Centro Comercial Magno Deco Mexico City Monterrey Plaza Bella Anahuac Pachuca Plaza Universidad Hidalgo Pachuca Puerta de Hierro Plaza Real Diamante Reynosa Reynosa Plaza Real Saltillo Centro Comercial La Nogalera Saltillo Plaza Excelencia San Luis Macroplaza Insurgentes Multiplaza Tuxtepec Saltillo San Luis Potosi Tijuana Tuxtepec 170,223 305,000 92,152 240,224 291,000 ^ 69,000 ^ 144,000 ^ 195,000 ^ 22,000 ^ 267,322 120,000 ^ 102,000 ^ 326,000 ^ 174,704 149,000 ^ 121,943 182,000 ^ 104,000 ^ Total Number of Properties Owned or Managed 1,061 † Total GLA Owned or Managed 128,733,027 § † § Total includes 58 properties in the AI Portfolio. Total includes 5,671,130 square feet in the AI Portfolio. 9055 9132 536 976 Waterloo Westside Marketplace Waterloo Weber Plaza Kendalwood Park Plaza Whitby Thickson Ridge Power Centre Whitby 100,000 * 5,274 * 155,945 363,039 Prince Edward Island 733 Charlottetown Mall Charlottetown 389,936 Quebec 9024 9029 610 9028 921 9025 9088 985 9015 9016 9017 9087 9159 9160 9161 9162 9163 9164 9165 9166 9167 9168 9169 9170 9171 9172 9173 9027 9026 9056 9075 Alma Chandler Carrefour Alma Plaza Place Du Havre Chandler Centre Regional Chateauguay Chateauguay Carrefour Gaspe Greenfield Park Galeries Jonquiere St. Martin Plaza Centre Jacques-Cartier Losch Plaza Rue Thibault Plaza Rue Kimber Plaza Pascal Gagnon Quebec Plaza Quebec S.C. 1 Place Du Commerce 2 Place Du Commerce 3 Place Du Commerce 4 Place Du Commerce 40 Place De Commerce 8 Place Du Commerce Elgar S.C. Playskool Champlain Grd Lease St. Laurent Plaza St. Laurent S.C. St. Maurice Plaza St. Paul Plaza Carrefour Jeannois Place Du Saguenay Carrefour Grande Cote Centre 25e Gaspe Greenfield Park Jonquiere Laval Longueuil Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Montreal Roberval Saguenay Ste. Eustache Ste. Eustache 257,738 * 58,329 * 211,391 140,059 * 364,003 226,273 * 100,175 * 213,461 208,500 * 61,500 * 85,151 * 101,305 * 62,679 * 63,394 * 67,906 * 18,310 * 69,744 * 68,765 * 92,907 * 55,323 * 10,157 * 28,035 * - * 109,504 * 54,013 * 68,900 * 53,312 * 119,131 * 284,117 * 89,077 * 26,606 * 31 * Preferred Equity ^ Property under development or land held for development Preferred stock redemption costs Preferred stock dividends Funds from Operations Per Common Share Basic Diluted Weighted Average Shares Outstanding Basic Diluted Kimco Realty Corporation and Subsidiaries Reconciliation From Net Income To Funds From Operations (in thousands, except per share information) Year Ended Dec. 31, 2005 2004 2003 2002 2001 Funds from Operations Net income Gain on disposition of operating properties, net of minority interests Gain on disposition of joint venture operating properties Depreciation and amortization Depreciation and amortization — $ 363,628 $ 297,137 $ 307,879 $ 245,668 $ 236,538 (31,611) (15,390) (50,834) (12,778) (3,040) (13,776) 108,032 (4,045) 102,872 — 89,068 — 76,674 — 74,209 real estate joint ventures, net of minority interests 50,059 36,400 — (11,638) $ 405,336 29,456 (7,788) (14,669) $ 353,112 17,779 — (18,437) $ 308,906(2) 12,718 — (24,553) $ 295,872 (11,637) $ 464,695 2.05 2.00(1) $ $ 1.82 1.77(1) $ $ 1.65 1.61(1) $ $ 1.48 1.46(1) $ $ 1.54 1.49(3) 226,641 235,634(1) 222,859 231,909(1) 214,184 222,337(1) 208,916 211,938(1) 192,634 202,326(3) (1) Reflects the potential impact if certain units were converted to common stock at the beginning of the period. F FO would be increased by $6,693, $6,113, $5,771, and $1,423 for the years ended December 31, 2005, 2004, 2003 and 2002 respectively. , (2) 2002 FFO was reduced from $1.52 to $1.46 for the year ended December 31, 2002 to include gains on early extin uishment of debt of $22,255 and adjustments to property carrying values of g ($33,030). (3) Reflects the potential impact if the class D preferred stock were converted to common stock at the beginning of the period. FFO would be increased by $6,115 for the year ended December 31, 2001. Reconciliation of diluted net income per common share to diluted funds from operations per common share Diluted earnings per common share Depreciation and amortization Depreciation and amortization - real estate interests joint ventures, net of minority Gain on disposition of operating properties, net of minority interests Gain on disposition of joint venture operating properties $ 1.52 0.46 0.21 (0.13) (0.06) $ 1.26 0.44 0.16 (0.07) (0.02) $ 1.31 0.40 0.13 (0.23) — $ 1.08 0.36 0.08 (0.06) — $ 1.08 0.37 0.06 (0.02) — FFO per diluted common share $ 2.00 $ 1.77 $ 1.61 $ 1.46 $ 1.49 32 Kimco Realty Corporation and Subsidiaries Selected Financial Data (in thousands, except per share information) Year ended December 31, (2) Operating Data: Revenues from rental property (1) Interest expense (3) Depreciation and amortization (3) Gain on sale of development properties Gain on transfer/sale of operating properties,net (3) Provision for income taxes Income from continuing operations Income per common share, from continuing operations: Basic Diluted Weighted average number of shares of common stock: Basic Diluted Cash dividends declared per common share December 31, Balance Sheet Data: Real estate, before accumulated depreciation Total assets Total debt Total stockholders’ equity Cash flow provided by operations Cash flow used for investing activities Cash flow provided by (used for) financing activities 2005 2004 2003 2002 2001 $ 522,545 $ 127,711 $ 105,942 33,636 $ 2,833 $ $ 11,254 $ 334,083 $ $ $ 1.42 1.40 226,641 230,868 1.27 $ 507,641 $ 107,177 99,616 $ $ 16,835 $ $ 8,320 $ 281,019 $ 466,225 $ 102,391 83,212 $ 17,495 $ 3,177 — $ $ 8,514 $ 243,586 $ 419,038 84,885 $ 68,096 $ $ 15,880 $ $ 12,904 $ 235,610 $ 415,064 86,088 $ 65,761 $ 13,418 $ 3,040 — $ $ 19,376 $ 210,875 $ $ $ 1.21 1.19 222,859 227,143 1.16 $ $ $ 1.03 1.02 214,184 217,540 1.10 $ $ $ 1.04 1.03 208,916 210,922 1.05 $ $ $ 0.97 0.95 192,634 202,326 0.98 2005 2004 2003 2002 2001 $4,560,406 $5,534,636 $2,691,196 $2,387,214 $ 410,797 $ (716,015) $ 343,271 $ 4,092,222 $ 4,749,597 $ 2,118,622 $ 2,236,400 $ 365,176 $ (299,597) (75,647) $ $ 4,174,664 $ 4,641,092 $ 2,154,948 $ 2,135,846 $ 308,632 $ (637,636) $ 341,330 $ 3,398,971 $ 3,758,350 $ 1,576,982 $ 1,908,800 $ 278,931 $ (396,655) 59,839 $ $ 3,201,364 $ 3,387,342 $ 1,328,079 $ 1,892,647 $ 287,444 $ (150,059) (62,635) $ (1) Does not include (i) revenues from rental property relating to unconsolidated joint ventures, (ii) revenues relating to the investment in retail stores leases and (iii) revenues from properties included in discontinued operations. (2) All years have been adjusted to reflect the impact of operating properties sold during the years ended December 31, 2005, 2004, 2003 and 2002 and properties classified as held for sale as of December 31, 2005, which are reflected in discontinued operations in the Consolidated Statements of Income. (3) Does not include amounts reflected in discontinued operations. Forward-Looking Statements This annual report, together with other statements and information publicly disseminated by Kimco Realty Corporation (the “Com- pany” or “Kimco”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company’s control and which could materially affect actual results, performances or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, (i) general economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or general downturn in their business, (iii) financing risks, such as the inability to obtain equity or debt financing on favorable terms, (iv) changes in governmental laws and regulations, (v) the level and volatility of interest rates and foreign currency exchange rates, (vi) the availability of suitable acquisition opportunities and (vii) increases in operating costs. Accordingly, there is no assurance that the Company’s expectations will be realized. 33 Kimco Realty Corporation and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Annual Report. Historical results and percentage relation- ships set forth in the Consolidated Statements of Income contained in the Consolidated Financial Statements, including trends which might appear, should not be taken as indicative of future opera- tions. Executive Summary Kimco Realty Corporation is one of the nation’s largest publicly-traded owners and operators of neighborhood and community shopping centers. As of February 6, 2006, the Company had interests in 1,046 properties totaling approximately 135.5 million square feet of GLA located in 44 states, Canada and Mexico. The Company is self-administered and self-managed through present management, which has owned and managed neighbor- hood and community shopping centers for over 45 years. The executive officers are engaged in the day-to-day management and operation of real estate exclusively with the Company, with nearly all operating functions, including leasing, asset management, maintenance, construction, legal, finance and accounting, admin- istered by the Company. In connection with the Tax Relief Extension Act of 1999 (the “RMA”), which became effective January 1, 2001, the Company is now permitted to participate in activities which it was precluded from previously in order to maintain its qualification as a Real Estate Investment Trust (“REIT”), so long as these activities are conducted in entities which elect to be treated as taxable subsidiar- ies under the Code, subject to certain limitations. As such, the Company, through its taxable REIT subsidiaries, is engaged in various retail real estate-related opportunities including (i) mer- chant building, through its Kimco Developers, Inc. (“KDI”) subsidiary, which is primarily engaged in the ground-up develop- ment of neighborhood and community shopping centers and the subsequent sale thereof upon completion, (ii) retail real estate advisory and disposition services, which primarily focuses on leasing and disposition strategies of retail real estate controlled by both healthy and distressed and/or bankrupt retailers and (iii) acting as an agent or principal in connection with tax deferred exchange transactions. The Company will consider other invest- ments through taxable REIT subsidiaries should suitable opportu- nities arise. In addition, the Company continues to capitalize on its established expertise in retail real estate by establishing other ventures in which the Company owns a smaller equity interest and provides management, leasing and operational support for those properties. The Company also provides preferred equity capital for real estate entrepreneurs and provides real estate capital and advisory services to both healthy and distressed retailers. The Company also makes selective investments in secondary market opportunities where a security or other investment is, in manage- ment’s judgment, priced below the value of the underlying real estate. The Company’s strategy is to maintain a strong balance sheet while investing opportunistically and selectively. The Company intends to continue to execute its plan of delivering solid growth in earnings and dividends. As a result of the improved 2005 perform- ance, the Board of Directors increased the quarterly dividend per common share to $0.33 from $0.305, effective for the fourth quarter of 2005. Critical Accounting Policies The Consolidated Financial Statements of the Company include the accounts of the Company, its wholly-owned subsidiaries and all entities in which the Company has a controlling interest including where the Company has been determined to be a primary benefici- ary of a variable interest entity in accordance with the provisions and guidance of Interpretation No. 46 (R), Consolidation of Variable Interest Entities or meets certain criteria of a sole general partner or managing member in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying Consolidated Financial Statements and related notes. In preparing these financial statements, management has made its best estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates are based on, but not limited to, historical results, industry standards and current economic conditions, giving due consideration to materiality. The most significant assumptions and estimates relate to revenue recognition and the recoverability of trade accounts receivable, depreciable lives and valuation of real estate. Applica- tion of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. Revenue Recognition and Accounts Receivable Base rental revenues from rental property are recognized on a straight-line basis over the terms of the related leases. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the lessee. These percentage rents are recorded once the required sales level is achieved. Operating expense reimbursements are recognized as earned. Rental income may also include payments received in connection with lease termination agreements. In addition, leases typically provide for reimbursement to the Company of common area maintenance, real estate taxes and other operating expenses. The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. The Company analyzes accounts receivable 34 Kimco Realty Corporation and Subsidiaries and historical bad debt levels, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bank- ruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Company’s reported net income is directly affected by manage- ment’s estimate of the collectability of accounts receivable. Real Estate The Company’s investments in real estate properties are stated at cost, less accumulated depreciation and amortization. Expendi- tures for maintenance and repairs are charged to operations as incurred. Significant renovations and replacements, which improve and extend the life of the asset, are capitalized. Upon acquisition of operating real estate properties, the Company estimates the fair value of acquired tangible assets (consisting of land, building and improvements) and identified intangible assets and liabilities (consisting of above and below- market leases, in-place leases and tenant relationships) and assumed debt in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Based on these estimates, the Company allocates the purchase price to the applicable assets and liabilities. The Company utilizes methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The useful lives of amortizable intangible assets are evaluated each reporting period with any changes in estimated useful lives being accounted for over the revised remaining useful life. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets, as follows: Buildings Fixtures, building and leasehold 15-to-50 years Terms of leases or useful lives, improvements (including certain identifi ed intangible assets) whichever is shorter The Company is required to make subjective assessments as to the useful lives of its properties for purposes of determining the amount of depreciation to reflect on an annual basis with respect to those properties. These assessments have a direct impact on the Company’s net income. Real estate under development on the Company’s Consolidated Balance Sheets represents ground-up development of neighborhood and community shopping center projects which are subsequently sold upon completion. These assets are carried at cost and no depreciation is recorded. The cost of land and buildings under development includes specifically identifiable costs. The capital- ized costs include pre-construction costs essential to the develop- ment of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs of person- nel directly involved and other costs incurred during the period of development. The Company ceases cost capitalization when the property is held available for occupancy upon substantial comple- tion of tenant improvements, but no later than one year from the completion of major construction activity. If, in management’s opinion, the estimated net sales price of these assets is less than the net carrying value, an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property. A gain on the sale of these assets is generally recognized using the full accrual method in accordance with the provisions of SFAS No. 66, Accounting for Real Estate Sales. Long-Lived Assets On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties (including any related amortizable intangible assets or liabilities) may be impaired. A property value is considered impaired only if management’s estimate of current and projected operating cash flows (undis- counted and without interest charges) of the property over its remaining useful life is less than the net carrying value of the property. Such cash flow projections consider factors such as expected future operating income, trends, and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred, the carrying value of the property would be adjusted to an amount to reflect the estimated fair value of the property. When a real estate asset is identified by management as held for sale, the Company ceases depreciation of the asset and estimates the sales price of such asset net of selling costs. If, in management’s opinion, the net sales price of the asset is less than the net book value of such asset, an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property. The Company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties, investments in joint ventures and other investments. The Company’s reported net income is directly affected by management’s estimate of impairments and/or valuation allow- ances. Results of Operations Comparison 2005 to 2004 Revenues from rental property increased $14.9 million or 2.9% to $522.5 million for the year ended December 31, 2005, as compared with $507.6 million for the year ended December 31, 2004. This net increase resulted primarily from the combined effect of (i) acquisitions during 2005 and 2004 providing incre- mental revenues of $33.8 million for the year ended December 31, 2005 and (ii) an overall increase in shopping center portfolio occupancy to 94.6% at December 31, 2005, as compared to 93.6% at December 31, 2004 and the completion of certain redevelop- ment projects and tenant buyouts providing incremental revenues of approximately $18.1 million for the year ended December 31, 2005, as compared to the corresponding period last year, offset by (iii) a decrease in revenues of approximately $37.0 million for the year ended December 31, 2005, as compared to the corresponding period last year, resulting from the sale of certain properties and the transfer of operating properties to various unconsolidated joint venture entities during 2005 and 2004. 35 Kimco Realty Corporation and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Rental property expenses, including depreciation and amortiza- tion, increased approximately $14.0 million or 6.1% to $243.9 million for the year ended December 31, 2005, as compared with $229.9 million for the preceding year. These increases are primarily due to operating property acquisitions during 2005 and 2004, which were partially offset by property dispositions and operating properties transferred to various unconsolidated joint venture entities. Mortgage and other financing income increased $12.6 million to $27.6 million for the year ended December 31, 2005, as compared to $15.0 million for the year ended December 31, 2004. This increase primarily relates to a $14.0 million prepayment fee received by the Company relating to the early repayment by Shopko of its outstanding loan with the Company. Management and other fee income increased approximately $5.0 million to $30.5 million for the year ended December 31, 2005, as compared to $25.4 million in the corresponding period in 2004. This increase is primarily due to incremental fees earned from growth in the co-investment programs. General and administrative expenses increased approximately $12.6 million to $56.8 million for the year ended December 31, 2005, as compared to $44.2 million in the preceding calendar year. This increase is primarily due to (i) a $1.4 million increase in professional fees, due in part to compliance with section 404 of the Sarbanes-Oxley Act, (ii) a $3.0 million increase due to the expens- ing of the value attributable to stock options granted, and (iii) increased personnel and systems related costs associated with the growth of the Company. Interest, dividends and other investment income increased approximately $9.6 million to $28.4 million for the year ended December 31, 2005, as compared to $18.7 million in 2004. This increase is primarily due to greater dividend income and realized gains on the sale of certain marketable securities during 2005 as compared to the preceding year. equity in income from the Kimco Income REIT joint venture investment (“KIR”) resulting from the sale of two operating properties during 2005 which provided an aggregate gain of $20.2 million, of which the pro-rata share to the Company was $8.7 million, (ii) increased equity in income in three joint venture investments resulting from the sale of two operating properties and one development property during 2005, which provided aggregate gains of approximately $17.9 million, of which the pro-rata share to the Company was approximately $8.8 million, and (iii) the Company’s growth of its various other real estate joint ventures. The Company has made additional capital investments in these and other joint ventures for the acquisition of additional shopping center properties throughout 2005 and 2004. During 2005, KDI, the Company’s wholly-owned development taxable REIT subsidiary, in separate transactions, sold six recently completed projects and 41 out-parcels for approximately $264.1 million. These sales provided gains of approximately $22.8 million, net of income taxes of approximately $10.8 million. During 2004, KDI, the Company’s wholly-owned development taxable REIT subsidiary, in separate transactions, sold five recently completed projects, three completed phases of projects and 28 out- parcels for approximately $169.4 million. These sales provided gains of approximately $12.4 million, net of income taxes of approximately $4.4 million. During 2005, the Company (i) disposed of, in separate transac- tions, 20 operating properties for an aggregate sales price of approximately $93.3 million, (ii) transferred three operating properties to KROP for an aggregate price of approximately $49.0 million and (iii) transferred 52 operating properties to various joint ventures in which the Company has non-controlling interests ranging from 15% to 50% for an aggregate price of approximately $183.1 million. For the year ended December 31, 2005, these transactions resulted in gains of approximately $31.9 million and a loss on sale/transfer from four of the properties for $5.2 million. Interest expense increased $20.5 million to $127.7 million for During 2004, the Company (i) disposed of, in separate transac- the year ended December 31, 2005, as compared with $107.2 million for the year ended December 31, 2004. This increase is primarily due to an overall increase in average borrowings out- standing during the year ended December 31, 2005, as compared to the preceding year, resulting from the funding of investment activity during 2005. Income from other real estate investments increased $27.8 million to $57.9 million for the year ended December 31, 2005, as compared to $30.1 million for the preceding year. This increase is primarily due to increased investment in the Company’s Preferred Equity program, which contributed income of $32.8 million during 2005, including an aggregate of approximately $12.6 million of promoted interests earned from six capital transactions during 2005, as compared to $11.4 million in 2004. Equity in income of real estate joint ventures, net increased $21.1 million to $77.5 million for the year ended December 31, 2005, as compared with $56.4 million for the corresponding period in 2004. This increase is primarily attributable to (i) the increased tions, 16 operating properties and one ground lease for an aggre- gate sales price of approximately $81.1 million, including the assignment of approximately $8.0 million of non-recourse mort- gage debt encumbering one of the properties; cash proceeds of approximately $16.9 million from the sale of two of these proper- ties were used in a 1031 exchange to acquire shopping center properties located in Roanoke, VA, and Tempe, AZ, (ii) transferred 17 operating properties to KROP for an aggregate price of approxi- mately $197.9 million and (iii) transferred 21 operating properties to various co-investment ventures in which the Company has non- controlling interests ranging from 10%-to-30% for an aggregate price of approximately $491.2 million. For the year ended Decem- ber 31, 2004, these dispositions resulted in gains of approximately $15.8 million and a loss on sale from three of the properties of approximately $5.1 million. As part of the Company’s periodic assessment of its real estate properties with regard to both the extent to which such assets are consistent with the Company’s long-term real estate investment 36 Kimco Realty Corporation and Subsidiaries objectives and the performance and prospects of each asset, the Company determined in 2004 that its investment in an operating property comprised of approximately 0.1 million square feet of GLA, with a net book value of $3.8 million, might not be fully recoverable. Based upon management’s assessment of current market conditions and lack of demand for the property, the Company reduced its anticipated holding period of this invest- ment. As a result of the reduction in the anticipated holding period, together with reassessment of the potential future operating cash flow for the property and the effects of current market conditions, the Company determined that its investment in this asset was not fully recoverable and recorded an adjustment of property carrying value of approximately $3.0 million in 2004. This adjustment was included, along with the related property operations in the line Income from discontinued operating properties, in the Company’s Consolidated Statements of Income. For those property dispositions for which SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) is applicable, the operations and gain or loss on the sale of the property have been included in the caption Discon- tinued operations in the Company’s Consolidated Statements of Income. Net income for the year ended December 31, 2005, was $363.6 million, compared to $297.1 million for the year ended December 31, 2004. On a diluted per share basis, net income increased $0.26 to $1.52 for the year ended December 31, 2005, as compared to $1.26 for the previous year. This increase is attributable to (i) increased income from other real estate investments, primarily from the Company’s Preferred Equity program, (ii) an increase in equity in income of real estate joint ventures achieved from gains on sales of joint venture operating properties and additional capital investments in the Company’s joint venture programs for the acquisition of additional shopping center properties throughout 2005 and 2004, (iii) increased income contributed from mortgage and other financing receivables as compared to last year and (iv) increased gains on sale/transfer of development and operating prop- erties during 2005, as compared to the same period during 2004. Comparison 2004 to 2003 Revenues from rental property increased $41.4 million or 8.9% to $507.6 million for the year ended December 31, 2004, as compared with $466.2 million for the year ended December 31, 2003. This net increase resulted primarily from the combined effect of (i) acquisitions during 2004 and 2003 providing incre- mental revenues of $40.4 million for the year ended December 31, 2004 and (ii) an overall increase in shopping center portfolio occupancy to 93.6% at December 31, 2004, as compared to 90.7% at December 31, 2003 and the completion of certain redevelop- ment projects and tenant buyouts providing incremental revenues of approximately $16.6 million for the year ended December 31, 2004, as compared to the corresponding period in the preceding year, offset by (iii) a decrease in revenues of approximately $15.6 million for the year ended December 31, 2004, as compared to the corresponding period in the preceding year, resulting from the sale of certain properties and the transfer of operating properties to various unconsolidated joint venture entities during 2004 and 2003. Rental property expenses, including depreciation and amortiza- tion, increased approximately $26.3 million or 12.9% to $229.9 million for the year ended December 31, 2004, as compared with $203.5 million for the preceding year. This increase was primarily due to operating property acquisitions during 2004 and 2003, which were partially offset by property dispositions and operating properties transferred to various unconsolidated joint venture entities. Mortgage and other financing income decreased $3.8 million to $15.0 million for the year ended December 31, 2004, as compared to $18.9 million for the year ended December 31, 2003. This decrease was primarily due to lower interest and financing income earned related to certain real estate lending activities during 2004 as compared to the preceding year. Management and other fee income increased approximately $10.1 million to $25.4 million for the year ended December 31, 2004, as compared to $15.3 million in the corresponding period in 2003. This increase was primarily due to incremental fees earned from growth in the co-investment programs and fees earned from disposition services provided to various retailers. General and administrative expenses increased approximately $5.9 million to $44.2 million for the year ended December 31, 2004, as compared to $38.3 million in the preceding calendar year. This increase was primarily due to (i) a $0.9 million increase in professional fees, mainly attributable to compliance with section 404 of the Sarbanes-Oxley Act, (ii) a $1.6 million increase due to the expensing of the value attributable to stock options granted, (iii) increased staff levels related to the growth of the Company and (iv) other personnel-related costs, associated with a realignment of our regional operations. Other income/(expense), net increased approximately $14.2 million to $10.1 million for the year ended December 31, 2004, as compared to the preceding year. This increase was primarily due to a prior-year write-down in the carrying value of the Company’s equity investment in Frank’s Nursery, Inc., offset by increased income in 2004 from other equity investments. Interest expense increased $4.8 million to $107.2 million for the year ended December 31, 2004, as compared with $102.4 million for the year ended December 31, 2003. This increase was primarily due to an overall increase in average borrowings outstanding during the year ended December 31, 2004, as compared to the preceding year, resulting from the funding of investment activity during 2004. During 2003, the Company reached agreement with certain lenders in connection with three individual non-recourse mort- gages encumbering three former Kmart sites. The Company paid approximately $14.2 million in full satisfaction of these loans, which aggregated approximately $24.0 million. As a result of these transactions, the Company recognized a gain on early extinguish- ment of debt of approximately $9.7 million during 2003. 37 Kimco Realty Corporation and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Income from other real estate investments increased $7.3 million to $30.1 million for the year ended December 31, 2004, as compared to $22.8 million for the preceding year. This increase was primarily due to increased investment in the Company’s Preferred Equity program, which contributed income of $11.4 million during 2004, as compared to $4.6 million in 2003. Equity in income of real estate joint ventures, net increased $14.1 million to $56.4 million for the year ended December 31, 2004, as compared with $42.3 million for the preceding year. This increase was primarily attributable to the equity in income from the increased investment in the RioCan joint venture investment (“RioCan Venture”), the Kimco Retail Opportunity Portfolio joint venture investment (“KROP”) and the Company’s growth of its various other real estate joint ventures. The Company had made additional capital investments in these and other joint ventures for the acquisition of additional shopping center properties throughout 2004 and 2003. During 2004, KDI, the Company’s wholly-owned development taxable REIT subsidiary, in separate transactions, sold 28 out- parcels, three completed phases of projects and five recently completed projects for approximately $169.4 million. These sales provided gains of approximately $12.4 million, net of income taxes of approximately $4.4 million. During the year ended December 31, 2003, KDI sold four projects and 26 out-parcels, in separate transactions, for approxi- mately $134.6 million which resulted in gains of approximately $10.5 million, net of income taxes of $7.0 million. During 2004, the Company (i) disposed of, in separate transac- tions, 16 operating properties and one ground lease for an aggre- gate sales price of approximately $81.1 million, including the assignment of approximately $8.0 million of non-recourse mort- gage debt encumbering one of the properties; cash proceeds of approximately $16.9 million from the sale of two of these proper- ties were used in a 1031 exchange to acquire shopping center properties located in Roanoke, VA, and Tempe, AZ, (ii) transferred 17 operating properties to KROP for an aggregate price of approxi- mately $197.9 million and (iii) transferred 21 operating properties to various co-investment ventures in which the Company has non- controlling interests ranging from 10%-to-30% for an aggregate price of approximately $491.2 million. For the year ended Decem- ber 31, 2004, these dispositions resulted in gains of approximately $15.8 million and a loss on sale from three of the properties of approximately $5.1 million. As part of the Company’s periodic assessment of its real estate properties with regard to both the extent to which such assets are consistent with the Company’s long-term real estate investment objectives and the performance and prospects of each asset, the Company determined in 2004 that its investment in an operating property comprised of approximately 0.1 million square feet of GLA, with a net book value of $3.8 million, might not be fully recoverable. Based upon management’s assessment of current market conditions and lack of demand for the property, the Company reduced its anticipated holding period of this invest- ment. As a result of the reduction in the anticipated holding period, together with reassessment of the potential future operating cash flow for the property and the effects of current market conditions, the Company determined that its investment in this asset was not fully recoverable and recorded an adjustment of property carrying value of approximately $3.0 million in 2004. This adjustment was included, along with the related property operations in the line Income from discontinued operating properties, in the Company’s Consolidated Statements of Income. During 2003, the Company disposed of, in separate transac- tions, (i) ten operating shopping center properties for an aggregate sales price of approximately $119.1 million, including the assign- ment of approximately $1.7 million of mortgage debt encumbering one of the properties, (ii) two regional malls for an aggregate sales price of approximately $135.6 million, (iii) one out-parcel for a sales price of approximately $8.1 million, (iv) transferred three operating properties to KROP for a price of approximately $144.2 million, (v) transferred an operating property to a newly formed joint venture in which the Company has a non-controlling 10% interest for a price of approximately $21.9 million and (vi) termi- nated four leasehold positions in locations where a tenant in bankruptcy had rejected its lease. These transactions resulted in gains of approximately $50.8 million. During 2003, the Company identified two operating proper- ties, comprised of approximately 0.2 million square feet of GLA, as “Held for Sale” in accordance with SFAS No. 144. The book value of these properties, aggregating approximately $19.5 million, net of accumulated depreciation of approximately $2.0 million, exceeded their estimated fair value. The Company’s determination of the fair value of these properties, aggregating approximately $15.4 million, was based upon contracts of sale with third parties less estimated selling costs. As a result, the Company recorded an adjustment of property carrying values of $4.0 million. This adjustment was included, along with the related property opera- tions for the current and comparative years, in the caption Income from discontinued operations in the Company’s Consolidated Statements of Income. For those property dispositions for which SFAS No. 144 was applicable, the operations and gain or loss on the sale of the property have been included in the caption Discontinued opera- tions in the Company’s Consolidated Statements of Income. Income from continuing operations for the year ended Decem- ber 31, 2004, was $281.0, compared to $243.6 million for the year ended December 31, 2003. On a diluted per share basis, income from continuing operations improved $0.17 to $1.19 for the year ended December 31, 2004, as compared to $1.02 for the preceding year. This improved performance was primarily attributable to (i) the incremental operating results from the acquisition of operating properties during 2004 and 2003, including the Mid-Atlantic Realty Trust transaction, (ii) an increase in equity in income of real estate joint ventures resulting from additional capital investments in the RioCan Venture, KROP and other joint venture investments for the acquisition of additional shopping center properties during 38 Kimco Realty Corporation and Subsidiaries 2004 and 2003, (iii) an increase in management and other fee income related to the growth in the co-investment programs, (iv) increased income from other real estate investments and (v) significant leasing within the portfolio, which improved operating profitability. Net income for the year ended December 31, 2004, was $297.1 million, compared to $307.9 million for the year ended December 31, 2003. On a diluted per share basis, net income decreased $0.05 to $1.26 for the year ended December 31, 2004, as compared to $1.31 for the year ended December 31, 2003. This decrease was primarily attributable to lower income from discontinued opera- tions of $48.2 million for the year ended December 31, 2004, compared to the preceding year due to property sales during 2004 and 2003 and gains on early extinguishment of debt during 2003. In addition, the diluted per share results for the year ended December 31, 2003, were decreased by a reduction in net income available to common stockholders of $0.04 resulting from the deduction of original issuance costs associated with the redemption of the Company’s 7¾ % Class A, 8½ % Class B and 8⅜% Class C Cumulative Redeemable Preferred Stocks during the second quarter of 2003. Tenant Concentrations The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties, avoiding dependence on any single property, and a large tenant base. At December 31, 2005, the Company’s five largest tenants were The Home Depot, TJX Companies, Sears Holdings, Kohl’s and Royal Ahold, which represented approxi- mately 3.6%, 3.2%, 2.7%, 2.5% and 2.0%, respectively, of the Company’s annualized base rental revenues, including the propor- tionate share of base rental revenues from properties in which the Company has less than a 100% economic interest. Liquidity and Capital Resources The Company’s cash flow activities are summarized as follows facilities, issuance of equity and public debt, as well as other debt and equity alternatives, will provide the necessary capital required by the Company. Net cash flow provided by operating activities for the year ended December 31, 2005, was primarily attributable to (i) cash flow from the diverse portfolio of rental properties, (ii) the acquisition of operating properties during 2004 and 2005, (iii) new leasing, expansion and re-tenanting of core portfolio properties and (iv) growth in the Company’s joint venture and Preferred Equity programs. Investing Activities Acquisitions and Redevelopments During the year ended December 31, 2005, the Company expended approximately $376.0 million towards acquisition of and improvements to operating real estate. (See Note 3 of the Notes to the Consolidated Financial Statements included in this Annual Report.) The Company has an ongoing program to reformat and re- tenant its properties to maintain or enhance its competitive position in the marketplace. During the year ended December 31, 2005, the Company expended approximately $55.5 million in connection with these major redevelopments and re-tenanting projects. The Company anticipates its capital commitment toward these and other redevelopment projects during 2006 will be approximately $90.0 million to $110.0 million. The funding of these capital requirements will be provided by cash flow from operating activities and availability under the Company’s revolving lines of credit. Investments and Advances to Real Estate Joint Ventures During the year ended December 31, 2005, the Company expended approximately $267.3 million for investments and advances to real estate joint ventures and received approximately $130.6 million from reimbursements of advances to real estate joint ventures. (See Note 7 of the Notes to the Consolidated Financial Statements included in this Annual Report.) (in millions): Year Ended December 31, Net cash flow provided by operating activities Net cash flow used for investing 2005 2004 2003 Ground-up Development $ 410.8 $ 365.2 $ 308.6 activities $(716.0) $ (299.6) $ (637.6) Net cash flow provided by (used for) financing activities $ 343.3 $ (75.6) $ 341.3 Operating Activities The Company anticipates that cash flows from operations will continue to provide adequate capital to fund its operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in both the short term and long term. In addition, the Company antici- pates that cash on hand, borrowings under its revolving credit 39 The Company is engaged in ground-up development projects which consists of (i) merchant building through the Company’s wholly-owned taxable REIT subsidiary, KDI, which develops neighborhood and community shopping centers and the subse- quent sale thereof upon completion, (ii) ground-up development projects which will be held as long-term investments by the Company and (iii) various ground-up development projects located in Mexico and Canada for long-term investment. All ground-up development projects generally have substantial pre-leasing prior to the commencement of construction. As of December 31, 2005, the Company had in progress a total of 38 ground-up development projects including 26 merchant building projects, five domestic ground-up development projects, six ground-up development Kimco Realty Corporation and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) projects located throughout Mexico and one ground-up develop- ment project located in Canada. During the year ended December 31, 2005, the Company expended approximately $452.7 million in connection with the purchase of land and construction costs related to these projects and those sold during 2005. These projects are currently proceed- ing on schedule and substantially in line with the Company’s budgeted costs. The Company anticipates its capital commitment during 2006 toward these and other development projects will be approximately $300 million to $350 million. The proceeds from the sales of the completed ground-up development projects, proceeds from construction loans and availability under the Company’s revolving lines of credit are expected to be sufficient to fund these anticipated capital requirements. (See Note 3 of the Notes to the Consolidated Financial Statements included in this Annual Report.) Dispositions and Transfers During the year ended December 31, 2005, the Company received net proceeds of approximately $348.4 million relating to the sale of various operating properties and ground-up development projects and approximately $128.5 million from the transfer of operating properties to various joint ventures. (See Notes 3 and 7 of the Notes to the Consolidated Financial Statements included in this Annual Report.) Financing Activities It is management’s intention that the Company continually have access to the capital resources necessary to expand and develop its business. As such, the Company intends to operate with and maintain a conservative capital structure with a level of debt to total market capitalization of 50% or less. As of December 31, 2005, the Company’s level of debt to total market capitalization was 26%. In addition, the Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintaining its investment-grade debt ratings. The Company may, from time-to-time, seek to obtain funds through additional equity offerings, unsecured debt financings and/or mortgage/construction loan financings and other capital alternatives in a manner consistent with its intention to operate with a conservative debt structure. Since the completion of the Company’s IPO in 1991, the Company has utilized the public debt and equity markets as its principal source of capital for its expansion needs. Since the IPO, the Company has completed additional offerings of its public unsecured debt and equity, raising in the aggregate over $4.2 billion for the purposes of, among other things, repaying indebted- ness, acquiring interests in neighborhood and community shopping centers, funding ground-up development projects, expanding and improving properties in the portfolio and other investments. The Company has an $850.0 million unsecured revolving credit facility, which is scheduled to expire in July 2008. This credit facility has made available funds to both finance the purchase of properties and other investments and meet any short-term working capital requirements. As of December 31, 2005, there was $200.0 million outstanding under this credit facility. During September 2004, the Company entered into a three- year Canadian denominated (“CAD”) $150.0 million unsecured credit facility with a group of banks. This facility bears interest at the CDOR Rate, as defined, plus 0.50%, and is scheduled to expire in September 2007. During March 2005, this facility was in- creased to CAD $250.0 million and the scheduled maturity date was extended to March 2008. During January 2006, the facility was further amended to reduce the borrowing spread to 0.45% and to modify the covenant package to conform to the Company’s $850.0 million U.S. Credit Facility. Proceeds from this facility will be used for general corporate purposes including the funding of Canadian denominated investments. As of December 31, 2005, there was CAD $110.0 million (approximately USD $94.7 million) outstanding under this credit facility. During May 2005, the Company entered into a three-year Mexican Peso-denominated (“MXP”) 500.0 million unsecured revolving credit facility. This facility bears interest at the TIIE Rate, as defined, plus 1.00% and is scheduled to expire in May 2008. Proceeds from this facility will be used to fund peso denominated investments. As of December 31, 2005, there was MXP 500.0 million (approximately US $46.7 million) outstanding under this credit facility. The Company has an MTN program pursuant to which it may, from time-to-time, offer for sale its senior unsecured debt for any general corporate purposes, including (i) funding specific liquidity requirements in its business, including property acquisitions, development and redevelopment costs and (ii) managing the Company’s debt maturities. As of December 31, 2005, the Com- pany had $250.0 million available for issuance under the MTN program. (See Note 11 of the Notes to Consolidated Financial Statements included in this Annual Report.) In addition to the public equity and debt markets as capital sources, the Company may, from time-to-time, obtain mortgage financing on selected properties and construction loans to partially fund the capital needs of KDI. As of December 31, 2005, the Company had over 380 unencumbered property interests in its portfolio. During July 2005, the Company filed a shelf registration statement on Form S-3 for up to $1.0 billion of debt securities, preferred stock, depositary shares, common stock and common stock warrants. As of December 31, 2005, the Company had $750.0 million available for issuance under this shelf registration statement. In connection with its intention to continue to qualify as a REIT for federal income tax purposes, the Company expects to continue paying regular dividends to its stockholders. These dividends will be paid from operating cash flows, which are expected to increase due to property acquisitions, growth in operating income in the existing portfolio and from other invest- 40 Kimco Realty Corporation and Subsidiaries ments. Since cash used to pay dividends reduces amounts available for capital investment, the Company generally intends to maintain a conservative dividend payout ratio, reserving such amounts as it considers necessary for the expansion and renovation of shopping centers in its portfolio, debt reduction, the acquisition of interests in new properties and other investments as suitable opportunities arise and such other factors as the Board of Directors considers appropriate. Cash dividends paid increased to $293.3 million in 2005, compared to $265.3 million in 2004 and $246.3 million in 2003. Although the Company receives substantially all of its rental payments on a monthly basis, it generally intends to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution will be invested by the Company in short-term money market or other suitable instruments. Contractual Obligations and Other Commitments The Company has debt obligations relating to its revolving credit facilities, MTNs, senior notes, mortgages and construction loans with maturities ranging from less than one year to 29 years. As of December 31, 2005, the Company’s total debt had a weighted average term to maturity of approximately 4.9 years. In addition, the Company has non-cancelable operating leases pertaining to its shopping center portfolio. As of December 31, 2005, the Company has 60 shopping center properties that are subject to long-term ground leases where a third party owns and has leased the underlying land to the Company to construct and/or operate a shopping center. In addition, the Company has 22 non- cancelable operating leases pertaining to its retail store lease portfolio. The following table summarizes the Company’s debt maturities and obligations under non-cancelable operating leases as of December 31, 2005, (in millions): 2006 2007 2008 2009 2010 There- after Total $286.8 $290.3 $555.3 $201.9 $198.8 $1,158.1 $2,691.2 Long-Term Debt Operating Leases Ground Leases Retail Store Leases $ $ 11.3 $ 10.6 $ 10.5 $ 10.0 $ 2.4 $ 4.4 $ 5.2 $ 3.3 $ 8.3 $ 140.8 $ 191.5 19.3 2.0 $ 2.0 $ The Company has $185.0 million of medium term notes, $14.1 million of mortgage debt and $87.7 million of construction loans maturing in 2006. The Company anticipates satisfying these maturities with a combination of operating cash flows, its unse- cured revolving credit facilities, new debt issuances and the sale of completed ground-up development projects. The Company has issued letters of credit in connection with completion and repayment guarantees for construction loans encumbering certain of the Company’s ground-up development projects and guaranty of payment related to the Company’s insurance program. These letters of credit aggregate approximately $34.8 million. 41 Additionally, the RioCan Venture, an entity in which the Company holds a 50% non-controlling interest, has a CAD $7.0 million (approximately USD $6.0 million) letter of credit facility. This facility is jointly guaranteed by RioCan and the Company and had approximately CAD $4.6 million (approximately USD $4.0 million) outstanding as of December 31, 2005, relating to various development projects. In addition to the letter of credit facility, various additional Canadian development projects in which the Company holds interests ranging from 33 ⅓% to 50% have letters of credit issued aggregating approximately CAD $3.5 million (approximately USD $3.0 million) at December 31, 2005. During 2005, a joint venture entity in which the Company has a non-controlling interest obtained a CAD $22.5 million credit facility to finance the construction of a 0.1 million square foot shopping center property located in Kamloops, B.C. This facility bears interest at Royal Bank Prime Rate (“RBP”) plus 0.5% per annum and is scheduled to mature in May 2007. The Company and its partner in this entity each have a limited and several guarantee of CAD $7.5 million on this facility. As of December 31, 2005, there was no outstanding balance on this facility. During 2005, the Company obtained a term loan and construc- tion financing on two ground-up development projects for an aggregate net loan commitment amount of up to $50.5 million of which approximately $22.4 million was outstanding at December 31, 2005. As of December 31, 2005, the Company had 15 construction loans with total commitments of up to $343.5 million of which $228.5 million had been funded to the Company. These loans had maturities ranging from 4 months to 31 months and interest rates ranging from 6.04% to 6.64% at December 31, 2005. Off-Balance Sheet Arrangements Ground-Up Development Joint Ventures At December 31, 2005, the Company has three ground-up development projects through unconsolidated joint ventures in which the Company has 50% non-controlling interests. The projects are financed with individual non-recourse construction loans with total aggregate loan commitments of up to $219.6 million of which $58.8 million has been funded. These loans have variable interest rates ranging from 4.89% to 8.25% at December 31, 2005, and maturities ranging from 4 months to 18 months. Unconsolidated Real Estate Joint Ventures The Company has investments in various unconsolidated real estate joint ventures with varying structures. These investments include the Company’s 43.3% non-controlling interest in KIR, the Company’s 50% non-controlling interest in the RioCan Venture, the Company’s 20% non-controlling interest in KROP, the Company’s 15% non-controlling interest in Price Legacy and varying non-controlling interests in other real estate joint ventures. These joint ventures operate either shopping center properties or are established for development projects. Such arrangements are generally with third-party institutional investors, local developers and individuals. The properties owned by the joint ventures are Kimco Realty Corporation and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) primarily financed with individual non-recourse mortgage loans. Non-recourse mortgage debt is generally defined as debt whereby the lenders’ sole recourse with respect to borrower defaults is limited to the value of the property collateralized by the mortgage. The lender generally does not have recourse against any other assets owned by the borrower or any of the constituent members of the borrower, except for certain specified exceptions listed in the particular loan documents. The KIR joint venture was established for the purpose of investing in high quality real estate properties financed primarily with individual non-recourse mortgages. The Company believes that these properties are appropriate for financing with greater leverage than the Company traditionally uses. As of December 31, 2005, KIR had interests in 68 properties comprising 14.2 million square feet of GLA. As of December 31, 2005, KIR had individual non-recourse mortgage loans of approximately $1.1 billion on 65 of these properties. These non-recourse mortgage loans have maturi- ties ranging from less than one year to 14 years and rates ranging from 4.99% to 8.52%. As of December 31, 2005, the Company’s pro-rata share of non-recourse mortgages relating to the KIR joint venture was approximately $485.4 million. (See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report.) The RioCan Venture was established with RioCan Real Estate Investment Trust to acquire properties and development projects in Canada. As of December 31, 2005, the RioCan Venture consisted of 34 shopping center properties and one development project with approximately 8.1 million square feet of GLA. As of December 31, 2005, the RioCan Venture had individual, non-recourse mortgage loans on 33 of these properties and a construction loan on its development property aggregating approximately CAD $706.3 million (USD $607.8 million). These loans have maturities ranging from less than one year to 28 years and rates ranging from 3.91% to 9.05%. As of December 31, 2005, the Company’s pro- rata share of these non-recourse loans relating to the RioCan Venture was approximately CAD $349.2 million (USD $300.5 million). (See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report.) The Kimco Retail Opportunity Portfolio (“KROP”), a joint venture with GE Capital Real Estate (“GECRE”), was established to acquire high-growth potential retail properties in the United States. As of December 31, 2005, KROP consisted of 38 shopping center properties with approximately 5.6 million square feet of GLA. As of December 31, 2005, KROP had non-recourse mortgage loans totaling $481.9 million, with fixed rates ranging from 4.25% to 8.64% and variable rates ranging from LIBOR plus 1.3% to LIBOR plus 2.2%. KROP has entered into a series of interest rate cap agreements to mitigate the impact of changes in interest rates on its variable-rate mortgage agreements. Such mortgage debt is collateralized by the individual shopping center property and is payable in monthly installments of principal and interest. At December 31, 2005, the weighted average interest rate for all mortgage debt outstanding was 6.09% per annum. As of December 31, 2005, the Company’s pro-rata share of non-recourse mortgage loans relating to the KROP joint venture was approxi- mately $96.4 million. Additionally, the Company and GECRE may provide interim financing. All such financings bear interest at rates ranging from LIBOR plus 4.0% to LIBOR plus 5.25% and have maturities of less than a year. As of December 31, 2005, KROP had no outstanding short term interim financing due to the Company or GECRE. (See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report.) During December 2004, the Company acquired the Price Legacy Corporation through a newly formed joint venture, PL Retail LLC (“PL Retail”), in which the Company has a non- controlling 15% interest. In connection with this transaction, the joint venture acquired 33 operating properties aggregating approxi- mately 7.6 million square feet of GLA located in ten states. During the year ended December 31, 2005, PL Retail disposed of nine operating properties, in separate transactions, for an aggregate sale price of approximately $21.8 million. As of December 31, 2005, PL Retail consisted of 25 operating properties aggregating approxi- mately 6.8 million square feet of GLA. As of December 31, 2005, PL Retail had approximately $777.3 million outstanding in non- recourse mortgage debt, of which approximately $507.2 million had fixed rates ranging from 4.66% to 9.00% and approximately $270.1 had variable rates ranging from 5.74% to 9.59%. The fixed-rate loans have maturities ranging from three to 11 years and the variable-rate loans have maturities ranging from one to three years. Additionally, the Company had provided PL Retail approxi- mately $30.6 million of secured mezzanine financing. This interest-only loan bears interest at a fixed rate of 7.5% and matures in December 2006. Proceeds from property sales during 2005 of approximately $21.8 million were used to partially repay the mezzanine financing that was provided by the Company. The Company also provided PL Retail a secured short-term promissory note of approximately $8.2 million. This interest-only note bore interest at LIBOR plus 4.5% and was scheduled to mature in June 2005. During 2005, this note was amended to bear interest at LIBOR plus 6% and is now payable on demand. As of December 31, 2005, PL Retail had approximately $8.9 million outstanding on the mezzanine financing and approximately $8.2 million outstand- ing on the promissory note. As of December 31, 2005, the Compa- ny’s pro-rata share of non-recourse mortgages relating to PL Retail was approximately $116.6 million. (See Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report.) The Company has various other unconsolidated real estate joint ventures with varying structures. As of December 31, 2005, these unconsolidated joint ventures had individual non-recourse mort- gage loans aggregating approximately $1.5 billion. The Company’s pro-rata share of these non-recourse mortgages was approximately $520.6 million. (See Note 7 of the Notes to Consolidated Finan- cial Statements included in this Annual Report.) 42 Kimco Realty Corporation and Subsidiaries Other Real Estate Investments During November 2002, the Company, through its taxable REIT subsidiary, together with Prometheus Southeast Retail Trust, completed the merger and privatization of Konover Property Trust, which has been renamed Kimsouth Realty, Inc., (“Kimsouth”). The Company acquired 44.5% of the common stock of Kimsouth, which consisted primarily of 38 retail shopping center properties comprising approximately 4.6 million square feet of GLA. Total acquisition value was approximately $280.9 million including approximately $216.2 million in mortgage debt. The Company’s investment strategy with respect to Kimsouth includes re-tenant- ing, repositioning and disposition of the properties. As a result of this strategy, Kimsouth has sold 33 properties as of December 31, 2005. As of December 31, 2005, the Kimsouth portfolio was comprised of five properties, including the remaining office component of an operating property sold in 2004, totaling 1.2 million square feet of GLA with non-recourse mortgage debt of approximately $29.4 million encumbering the properties. All mortgages payable are collateralized by certain properties and are due in monthly installments. As of December 31, 2005, interest rates ranged from 6.06% to 9.22% and the weighted-average interest rate for all mortgage debt outstanding was 8.35% per annum. As of December 31, 2005, the Company’s pro-rata share of non-recourse mortgage loans relating to the Kimsouth portfolio was approximately $13.1 million. During June 2002, the Company acquired a 90% equity participation interest in an existing leveraged lease of 30 properties. The properties are leased under a long-term bond-type net lease whose primary term expires in 2016, with the lessee having certain renewal option rights. The Company’s cash equity investment was approximately $4.0 million. This equity investment is reported as a net investment in leveraged lease in accordance with SFAS No. 13, Accounting for Leases (as amended). The net investment in leveraged lease reflects the original cash investment adjusted by remaining net rentals, estimated unguaranteed residual value, unearned and deferred income and deferred taxes relating to the investment. As of December 31, 2005, 14 of these properties were sold, whereby the proceeds from the sales were used to pay down the mortgage debt by approximately $24.2 million. As of December 31, 2005, the remaining 16 properties were encumbered by third- party non-recourse debt of approximately $58.7 million that is scheduled to fully amortize during the primary term of the lease from a portion of the periodic net rents receivable under the net lease. As an equity participant in the leveraged lease, the Company has no recourse obligation for principal or interest payments on the debt, which is collateralized by a first mortgage lien on the properties and collateral assignment of the lease. Accordingly, this debt has been offset against the related net rental receivable under the lease. The Company maintains a preferred equity program, which provides capital to developers and owners of shopping centers. The Company accounts for its investments in preferred equity invest- ments under the equity method of accounting. As of December 31, 2005, the Company’s invested capital in its preferred equity investments approximated $225.9 million relating to 133 real estate properties. As of December 31, 2005, these preferred equity investment properties had individual non-recourse mortgage loans aggregating approximately $703.3 million. Due to the Company’s preferred position in these investments, the Company’s pro-rata share of each investment is subject to fluctuation and is dependent upon property cash flows. The Company’s maximum exposure to losses associated with its preferred equity investments is limited to its invested capital. Effects of Inflation Many of the Company’s leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company to receive payment of additional rent calculated as a percentage of tenants’ gross sales above pre-deter- mined thresholds, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses often include increases based upon changes in the consumer price index or similar inflation indices. In addition, many of the Company’s leases are for terms of less than 10 years, which permits the Company to seek to increase rents to market rates upon renewal. Most of the Company’s leases require the tenant to pay an allocable share of operating expenses, including common area maintenance costs, real estate taxes and insurance, thereby reducing the Company’s exposure to increases in costs and operating expenses resulting from inflation. The Com- pany periodically evaluates its exposure to short-term interest rates and foreign currency exchange rates and will, from time-to-time, enter into interest rate protection agreements and/or foreign currency hedge agreements which mitigate, but do not eliminate, the effect of changes in interest rates on its floating-rate debt and fluctuations in foreign currency exchange rates. New Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123, (revised 2004) Share-Based Payment (“SFAS No. 123(R)”), which super- sedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123(R) established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) is effective for fiscal years beginning after December 15, 2005. The impact of adopting this statement is not expected to have a material impact on the Company’s financial position or results of operations. 43 Kimco Realty Corporation and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) In December 2004, the FASB issued Statement No. 153, Exchange of Non-monetary Assets - an amendment of APB Opinion No. 29 (“SFAS No. 153”). The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion No. 29 to eliminate the exception for non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The impact of adopting this statement did not have a material impact on the Company’s financial position or results of operations. In March 2005, the FASB issued Interpretation No. 47, Ac- counting for Conditional Asset Retirement Obligations (“FIN 47”). FIN 47 requires an entity to recognize a liability for a condi- tional asset retirement obligation when incurred if the liability can be reasonably estimated. FIN 47 clarifies that the term “Condi- tional Asset Retirement Obligation” refers to a legal obligation (pursuant to existing laws or by contract) to perform an asset retire- ment activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 was effective no later than fiscal years ended after December 15, 2005. The Company adopted FIN 47 as required, effective December 31, 2005, and the initial application of FIN 47 did not have a material impact on the Company’s financial position or results of operations. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), which replaces Accounting Principle Board Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles. It requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. In September 2005, the EITF issued Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights (“EITF 04-5”). At issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U.S. generally accepted accounting principles. The assessment of limited partners’ rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership of limited partnership interests or (iii) there is an increase or decrease in the number of outstanding limited partner- ship interests. This issue is effective no later than for fiscal years beginning after December 15, 2005, and as of June 29, 2005, for new or modified arrangements. The impact of adopting EITF 04- 5 is not expected to have a material impact on the Company’s financial position or results of operations. Quantitative and Qualitative Disclosures About Market Risk The Company’s primary market risk exposure is interest rate risk. The following table presents the Company’s aggregate fixed rate and variable rate domestic and foreign debt obligations outstanding as of December 31, 2005, with corresponding weighted-average interest rates sorted by maturity date. The information is presented in U.S. dollar equivalents, which is the Company’s reporting cur- rency. The instruments actual cash flows are denominated in U.S. dollars, Canadian dollars and Mexican pesos, as indicated by geo- graphic region ($ in USD equivalent in millions). 2006 2007 2008 2009 2010 2011+ Total Fair Value Domestic Secured Debt Fixed Rate Average Interest Rate Variable Rate Average Interest Rate Unsecured Debt Fixed Rate Average Interest Rate Variable Rate Average Interest Rate $ 9.7 9.08% $ 92.1 6.40% $ — — $ 95.3 $ 59.4 $ 21.9 $ 19.7 $ 191.1 7.13% 7.88% 8.47% 7.41% $ 54.5 6.20% 6.11% $ — — $ — — $ — — $ $ 301.8 7.52% 241.9 6.26% $ $ 317.4 241.9 $ 85.0 $ 195.0 $ 100.0 $ 180.0 $ 50.0 $ 967.0 $ 1,577.0 $ 1,640.0 7.30% 7.14% 3.95% 6.98% 4.62% 5.30% 5.72% $ 100.0 4.45% $ — — $ 200.0 4.68% $ — — $ — — $ — — $ 300.0 $ 300.0 4.60% 44 Kimco Realty Corporation and Subsidiaries 2006 2007 2008 2009 2010 2011+ Total Fair Value Canadian Unsecured Debt Fixed Rate Average Interest Rate Variable Rate Average Interest Rate Mexican Unsecured Debt Variable Rate Average Interest Rate $ — — $ — — $ — — $ — — $ — — $ 94.7 3.78% $ — — $ — — $ 129.1 4.45% $ — — $ — — $ — — $ — — $ — — $ 46.7 9.66% $ — — $ — — $ — — $ $ $ 129.1 4.45% 94.7 3.78% $ $ 126.7 94.7 46.7 9.66% $ 46.7 Based on the Company’s variable-rate debt balances, interest expense would have increased by approximately $6.8 million in 2005 if short-term interest rates were 1% higher. As of December 31, 2005, the Company has Canadian invest- ments totaling CAD $311.8 million (approximately USD $268.3 million) comprised of a real estate joint venture investments and marketable securities. In addition, the Company has Mexican real estate investments of MXP 2.3 billion (approximately USD $215.4 million). The foreign currency exchange risk has been partially mitigated through the use of local currency denominated debt, foreign currency forward contracts (the “Forward Contracts”) and a cross currency swap (the “CC Swap”) with major financial institutions. The Company is exposed to credit risk in the event of non-performance by the counter-party to the Forward Contracts and the CC Swap. The Company believes it mitigates its credit risk by entering into the Forward Contracts and the CC Swap with major financial institutions. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of December 31, 2005, the Company had no other material exposure to market risk. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures [as such term is defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)] as of the end of the period covered by this report. Based on such evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. Changes in Internal Control over Financial Reporting There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter to which this report relates that have materially affected, or are reasonable likely to materially affect, the Compa- ny’s internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintain- ing adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein. 45 Kimco Realty Corporation and Subsidiaries Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Kimco Realty Corporation: We have completed integrated audits of Kimco Realty Corpora- tion’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements and financial statement schedules In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Kimco Realty Corpora- tion and its Subsidiaries (collectively, the “Company”) at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended Decem- ber 31, 2005, in conformity with accounting principles generally accepted in the United States of America. These financial state- ments and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial state- ment presentation. We believe that our audits provide a reasonable basis for our opinion. Internal control over financial reporting Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Report- ing appearing under Controls and Procedures in Management’s Discussion and Analysis of Financial Condition and Results of Operations, that the Company maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Compa- ny’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Account- ing Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understand- ing of internal control over financial reporting, evaluating manage- ment’s assessment, testing and evaluating the design and operating effectiveness of internal control and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. New York, New York March 6, 2006 46 Kimco Realty Corporation and Subsidiaries Consolidated Balance Sheets (in thousands, except share information) Assets: Real Estate Rental property Land Building and improvements Less, accumulated depreciation and amortization Real estate under development Real estate, net Investment and advances in real estate joint ventures Other real estate investments Mortgages and other financing receivables Cash and cash equivalents Marketable securities Accounts and notes receivable Deferred charges and prepaid expenses Other assets Liabilities & Stockholders’ Equity: Notes payable Mortgages payable Construction loans payable Accounts payable and accrued expenses Dividends payable Other liabilities Minority interests Commitments and contingencies Stockholders’ Equity Preferred stock, $1.00 par value, authorized 3,600,000 shares Class F Preferred Stock, $1.00 par value, authorized 700,000 shares Issued and outstanding 700,000 shares Aggregate liquidation preference $175,000 Common stock, $.01 par value, authorized 300,000,000 shares Issued and outstanding 228,059,056 and 224,852,812 shares, respectively Paid-in capital Retained earnings/(cumulative distributions in excess of net income) Accumulated other comprehensive income The accompanying notes are an integral part of these consolidated financial statements. 47 December 31, 2005 December 31, 2004 $ 686,123 $ 626,914 3,263,162 3,949,285 740,127 3,209,158 611,121 3,820,279 735,648 283,035 132,675 76,273 206,452 64,329 84,022 131,923 3,067,254 3,694,168 634,642 3,059,526 398,054 3,457,580 595,175 188,536 140,717 38,220 123,771 52,182 72,653 80,763 $ 5,534,636 $ 4,749,597 $ 2,147,405 $ 1,608,925 315,336 228,455 119,605 78,168 135,609 3,024,578 122,844 353,071 156,626 97,952 71,489 118,243 2,406,306 106,891 700 700 2,281 2,255,332 59,855 2,318,168 69,046 2,387,214 2,249 2,199,419 (3,749) 2,198,619 37,781 2,236,400 $ 5,534,636 $ 4,749,597 Kimco Realty Corporation and Subsidiaries Consolidated Statements of Income (in thousands, except per share information) Revenues from rental property Rental property expenses: Rent Real estate taxes Operating and maintenance Mortgage and other financing income Management and other fee income Depreciation and amortization General and administrative expenses Interest, dividends and other investment income Other income/(expense), net Interest expense Gain on early extinguishment of debt Provision for income taxes Income from other real estate investments Equity in income of real estate joint ventures, net Minority interests in income, net Gain on sale of development properties net of tax of $10,824, $4,401, and $6,998, respectively Income from continuing operations Discontinued operations: Income from discontinued operating properties Gain on early extinguishment of debt Loss on operating properties held for sale/sold Gain on disposition of operating properties Income from discontinued operations Gain on transfer of operating properties Loss on transfer of operating property Gain on sale of operating properties Net income Original issuance costs associated with the redemption of preferred stock Preferred stock dividends Net income available to common shareholders Per common share: Income from continuing operations: -Basic -Diluted Net income : -Basic -Diluted 2005 $ 522,545 Year Ended December 31, 2004 $ 507,641 2003 $ 466,225 10,267 67,022 60,686 137,975 384,570 27,586 30,474 (105,942) (56,803) 28,350 5,393 (127,711) — 185,917 (430) 57,943 77,454 (12,446) 22,812 331,250 5,725 — (5,098) 28,918 29,545 2,301 (150) 682 2,833 363,628 — (11,638) $ 351,990 $ $ $ $ 1.42 1.40 1.55 1.52 10,794 65,530 53,940 130,264 377,377 15,032 25,445 (99,616) (44,235) 18,702 10,124 (107,177) — 195,652 (3,919) 30,127 56,385 (9,660) 12,434 281,019 5,359 — (5,064) 15,823 16,118 — — — — 297,137 — (11,638) $ 285,499 $ $ $ $ 1.21 1.19 1.28 1.26 10,603 58,587 51,145 120,335 345,890 18,869 15,315 (83,212) (38,286) 19,124 (4,125) (102,391) 2,921 174,105 (1,516) 22,828 42,276 (7,781) 10,497 240,409 13,892 6,760 (4,016) 47,657 64,293 — — 3,177 3,177 307,879 (7,788) (14,669) $ 285,422 $ $ $ $ 1.03 1.02 1.33 1.31 Weighted average common shares outstanding: -Basic -Diluted The accompanying notes are an integral part of these consolidated financial statements. 226,641 230,868 222,859 227,143 214,184 217,540 48 Kimco Realty Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (in thousands) Net income Other comprehensive income: Change in unrealized gain on marketable securities Change in unrealized gain on interest rate swaps Change in unrealized (loss)/gain on warrants Change in unrealized gain/(loss) on foreign currency hedge agreements Change in foreign currency translation adjustment Other comprehensive income Comprehensive income Year Ended December 31, 2005 2004 2003 $ 363,628 $ 297,137 $ 307,879 26,689 28,594 — — 2,536 2,040 31,265 — (8,252) (15,102) 15,675 20,915 3,798 620 4,319 (15,465) 16,193 9,465 $ 394,893 $ 318,052 $ 317,344 Consolidated Statements of Stockholders’ Equity For the Years Ended December 31, 2005, 2004 and 2003 (in thousands, except per share information) Preferred Stock Common Stock Issued Amount Issued Amount Paid-in Capital Retained Earnings/ (Cumulative Distributions in Excess of Net Income) Accumulated Other Comprehensive Income Total Stockholders’ Equity Balance, January 1, 2003 900 $ 900 209,204 $ 2,092 $ 1,983,774 $ (85,367) $ 7,401 $ 1,908,800 Net income Dividends ($1.10 per common share; $1.0979, $1.3399, $1.3610, and $1.016 per Class A, Class B, Class C and Class F Depositary Share, respectively) Issuance of common stock Exercise of common stock options Redemption of Class A, B and C preferred stock Issuance of Class F Preferred Stock Other comprehensive income Balance, December 31, 2003 Net income Dividends ($1.16 per common share; $1.6625 Class F Depositary Share, respectively) Issuance of common stock Exercise of common stock options Amortization of stock option expense Other comprehensive income Balance, December 31, 2004 Net income Dividends ($1.27 per common share; $1.6625 Class F Depositary Share, respectively) Issuance of common stock Exercise of common stock options Amortization of stock option expense Other comprehensive income Balance, December 31, 2005 307,879 307,879 (900) 700 (900) 700 9,888 2,156 98 22 192,654 25,766 (224,100) 168,086 700 700 221,248 2,212 2,146,180 226 3,380 2 34 5,419 46,023 1,798 700 700 224,854 2,248 2,199,420 242 2,963 3 30 6,837 44,467 4,608 (252,624) (30,112) 297,137 (270,774) (3,749) 363,628 (300,024) (252,624) 192,752 25,788 (225,000) 168,786 9,465 9,465 16,866 2,135,846 297,137 (270,774) 5,421 46,057 1,798 20,915 2,236,400 363,628 (300,024) 6,840 44,497 4,608 31,265 20,915 37,781 31,265 700 $ 700 228,059 $ 2,281 $ 2,255,332 $ 59,855 $ 69,046 $ 2,387,214 The accompanying notes are an integral part of these consolidated financial statements. 49 Kimco Realty Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands) Cash flow from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Loss on operating properties held for sale/sold/transferred Gain on sale of development properties Gain on sale/transfer of operating properties Gain on early extinguishment of debt Minority interests in income, net Equity in income of real estate joint ventures, net Income from other real estate investments Distributions of unconsolidated investments Change in accounts and notes receivable Change in accounts payable and accrued expenses Change in other operating assets and liabilities Net cash flow provided by operating activities Cash flow from investing activities: Acquisition of and improvements to operating real estate Acquisition of and improvements to real estate under development Investment in marketable securities Proceeds from sale of marketable securities Proceeds from transferred operating/development properties Investments and advances to real estate joint ventures Reimbursements of advances to real estate joint ventures Other real estate investments Reimbursements of advances to other real estate investments Investment in mortgage loans receivable Collection of mortgage loans receivable Other investments Settlement of net investment hedges Proceeds from sale of mortgage loan receivable Proceeds from sale of operating properties Proceeds from sale of development properties Net cash flow (used for) investing activities Cash flow from financing activities: Principal payments on debt, excluding normal amortization of rental property debt Principal payments on rental property debt Principal payments on construction loan financings Proceeds from mortgage/construction loan financings Borrowings under revolving credit facilities Repayment of borrowings under revolving credit facilities Proceeds from issuance of unsecured senior notes/term loan Repayment of unsecured notes/term loan Financing origination costs Redemption of minority interests Dividends paid Proceeds from issuance of stock Redemption of preferred stock Net cash flow provided by (used for) financing activities Change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Interest paid during the year (net of capitalized interest of $12,587, $8,732 and $8,887, respectively) Income taxes paid during the year The accompanying notes are an integral part of these consolidated financial statements. 50 Year Ended December 31, 2005 2004 2003 $ 363,628 $ 297,137 $ 307,879 108,042 5,248 (33,636) (31,901) — 12,446 (77,454) (40,562) 116,765 (12,156) 10,606 (10,229) 410,797 (431,514) (452,722) (93,299) 46,692 128,537 (267,287) 130,590 (123,005) 26,969 (82,305) 90,709 (3,152) (34,580) — 89,072 259,280 (716,015) (66,794) (8,296) (98,002) 265,418 210,188 (156,486) 672,429 (200,250) (9,538) (21,024) (293,345) 48,971 — 343,271 38,053 38,220 $ 76,273 $ 121,087 $ 13,763 102,872 8,029 (16,835) (15,823) — 9,660 (56,385) (23,571) 94,994 (1,742) 2,850 (36,010) 365,176 (351,369) (204,631) (70,864) 22,278 342,496 (203,569) 80,689 (113,663) 34,045 (136,637) 103,819 (1,551) — — 43,077 156,283 (299,597) (54,322) (7,848) (66,950) 348,386 336,675 (100,000) 200,000 (514,000) — (3,781) (265,254) 51,447 — (75,647) (10,068) 48,288 38,220 $ $ 108,117 10,694 $ 89,068 4,016 (17,495) (50,834) (9,681) 7,781 (42,276) (19,976) 67,712 (596) (2,545) (24,421) 308,632 (917,403) (187,877) (23,680) 62,744 — (152,997) 93,729 (52,818) 13,264 (64,652) 41,529 — — 36,723 423,237 90,565 (637,636) (18,326) (5,813) (40,644) 110,816 195,000 (190,000) 650,000 (271,000) — (4,729) (246,301) 387,327 (225,000) 341,330 12,326 35,962 48,288 97,215 15,901 $ $ $ Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements Amounts relating to the number of buildings, square footage, tenant and occupancy data and estimated project costs are unau- dited. 1. Summary of Significant Accounting Policies: Business Kimco Realty Corporation (the “Company” or “Kimco”), its subsidiaries, affiliates and related real estate joint ventures are engaged principally in the operation of neighborhood and commu- nity shopping centers which are anchored generally by discount department stores, supermarkets or drugstores. The Company also provides property management services for shopping centers owned by affiliated entities, various real estate joint ventures and unaffili- ated third parties. Additionally, in connection with the Tax Relief Extension Act of 1999 (the “RMA”), which became effective January 1, 2001, the Company is now permitted to participate in activities which it was precluded from previously in order to maintain its qualification as a Real Estate Investment Trust (“REIT”), so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code, as amended (the “Code”), subject to certain limitations. As such, the Company, through its taxable REIT subsidiaries, is engaged in various retail real estate related opportunities including (i) merchant building, through its Kimco Developers, Inc. (“KDI”) subsidiary, which is primarily engaged in the ground-up development of neighborhood and community shopping centers and the subsequent sale thereof upon completion, (ii) retail real estate advisory and disposition services which primarily focuses on leasing and disposition strategies of retail real estate controlled by both healthy and distressed and/or bankrupt retailers and (iii) acting as an agent or principal in connection with tax deferred exchange transactions. The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties, avoiding dependence on any single property, and a large tenant base. At December 31, 2005, the Company’s single largest neighborhood and community shopping center accounted for only 1.2% of the Company’s annualized base rental revenues and only 0.8% of the Company’s total shopping center gross leasable area (“GLA”). At December 31, 2005, the Company’s five largest tenants were The Home Depot, TJX Companies, Sears Holdings, Kohl’s and Royal Ahold, which represented approxi- mately 3.6%, 3.2%, 2.7%, 2.5% and 2.0%, respectively, of the Company’s annualized base rental revenues, including the propor- tionate share of base rental revenues from properties in which the Company has less than a 100% economic interest. The principal business of the Company and its consolidated subsidiaries is the ownership, development, management and operation of retail shopping centers, including complementary services that capitalize on the Company’s established retail real estate expertise. The Company does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company believes it has a single reportable segment for disclosure purposes in accordance with accounting principles generally accepted in the United States of America. Principles of Consolidation and Estimates a. The accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, all of which are wholly-owned, and all entities in which the Company has a controlling interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity in accordance with the provisions and guidance of Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46(R)”) or meets certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). All intercompany balances and transactions have been eliminated in consolidation. Accounting principles generally accepted in the United States of America (“GAAP”) require the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition and the collectability of trade accounts receivable. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. Minority Interests Minority interests represent the portion of equity that the Company does not own in those entities it consolidates as a result of having a controlling interest or determined that the Company was the primary beneficiary of variable interest entity in accord- ance with the provisions and guidance of FIN 46(R). Minority interests also include approximately 4.8 million convertible units (the “Convertible Units”) issued by the Company valued at $80.0 million related to an interest acquired in a shop- ping center property located in Daly City, CA, in 2002. The Convertible Units are convertible at a ratio of 1:1 into the Compa- ny’s common stock and are entitled to a distribution equal to the dividend rate of the Company’s common stock multiplied by 1.1057. Real Estate Real estate assets are stated at cost, less accumulated deprecia- tion and amortization. If there is an event or a change in circum- stances that indicates that the basis of a property (including any related amortizable intangible assets or liabilities) may not be recoverable, then management will assess any impairment in value by making a comparison of (i) the current and projected operating cash flows (undiscounted and without interest charges) of the 51 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) property over its remaining useful life and (ii) the net carrying amount of the property. If the current and projected operating cash flows (undiscounted and without interest charges) are less than the carrying value of the property, the carrying value would be adjusted to an amount to reflect the estimated fair value of the property. When a real estate asset is identified by management as held for sale, the Company ceases depreciation of the asset and estimates the sales price, net of selling costs. If, in management’s opinion, the net sales price of the asset is less than the net book value of the asset, an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property. Upon acquisition of real estate operating properties, the Company estimates the fair value of acquired tangible assets (consisting of land, building and improvements) and identified intangible assets and liabilities (consisting of above and below- market leases, in-place leases and tenant relationships) and assumed debt in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Based on these estimates, the Company allocates the purchase price to the applicable assets and liabilities. The Company utilizes methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property “as-if-vacant”. The fair value reflects the depreciated replacement cost of the permanent assets, with no trade fixtures included. In allocating the purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the present value of the difference between the contractual amounts to be paid pursuant to the leases and management’s estimate of the market lease rates and other lease provisions (i.e., expense recapture, base rental changes, etc.) measured over a period equal to the estimated remaining term of the lease. The capitalized above-market or below-market intangible is amortized to rental income over the estimated remaining term of the respective leases. In determining the value of in-place leases, management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy. In estimating carrying costs, management includes real estate taxes, insurance, other operating expenses and estimates of lost rental revenue during the expected lease-up periods and costs to execute similar leases including leasing commissions, legal and other related costs based on current market demand. In estimating the value of tenant relationships, management considers the nature and extent of the existing tenant relationship, the expectation of lease renewals, growth prospects, and tenant credit quality, among other factors. The value assigned to in-place leases and tenant relation- ships is amortized over the estimated remaining term of the leases. If a lease were to be terminated prior to its scheduled expiration, all unamortized costs relating to that lease would be written off. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets, as follows: Buildings Fixtures, building and leasehold 15 to 50 years Terms of leases or useful lives, improvements (including certain identified intangible assets) whichever is shorter Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations and replacements, which improve and extend the life of the asset, are capitalized. The useful lives of amortizable intangible assets are evaluated each reporting period with any changes in estimated useful lives being accounted for over the revised remaining useful life. Real Estate Under Development Real estate under development represents both the ground-up development of neighborhood and community shopping center projects which are subsequently sold upon completion and projects which the Company may hold as long-term investments. These properties are carried at cost and no depreciation is recorded on these assets. The cost of land and buildings under development includes specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs of personnel directly involved and other costs incurred during the period of development. The Company ceases cost capitalization when the property is held available for occupancy upon substantial completion of tenant improvements, but no later than one year from the completion of major construction activity. If, in management’s opinion, the net sales price of assets held for resale or the current and projected undiscounted cash flows of these assets to be held as long-term investments is less than the net carrying value, the carrying value would be adjusted to an amount to reflect the estimated fair value of the property. Investments in Unconsolidated Joint Ventures The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting as the Company exercises significant influence, but does not control, these entities. These investments are recorded initially at cost and subsequently adjusted for cash contributions and distributions. Earnings for each investment are recognized in accordance with each respective investment agreement and where applicable, based upon an allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period. The Company’s joint ventures and other real estate investments primarily consist of co-investments with institutional and other joint venture partners in neighborhood and community shopping center properties, consistent with its core business. These joint ventures typically obtain non-recourse third party financing on their property investments, thus contractually limiting the Com- pany’s losses to the amount of its equity investment; and due to the 52 Kimco Realty Corporation and Subsidiaries lender’s exposure to losses, a lender typically will require a mini- mum level of equity in order to mitigate its risk. The Company’s exposure to losses associated with its unconsolidated joint ventures is primarily limited to its carrying value in these investments. On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in uncon- solidated joint ventures may be impaired. An investment’s value is impaired only if management’s estimate of the fair value of the investment is less than the carrying value of the investment and such difference is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. Other Real Estate Investments Other real estate investments primarily consist of Preferred equity investments for which the Company provides capital to developers and owners of real estate. The Company typically accounts for its Preferred equity investments on the equity method of accounting, whereby earnings for each investment are recog- nized in accordance with each respective investment agreement and based upon an allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period. Mortgage and Other Financing Receivables Mortgages and other financing receivables consist of loans purchased and loans originated by the Company. Loan receivables are recorded at stated principal amounts net of any discount or premium or deferred loan origination costs or fees. The related discounts or premiums on mortgages and other loans purchased are amortized or accreted over the life of the related loan receivable. The Company defers certain loan origination and commitment fees, net of certain origination costs, and amortizes them as an adjustment of the loan’s yield over the term of the related loan. The Company evaluates the collectibility of both interest and principal of each of its loans to determine whether it is impaired. A loan is considered to be impaired, when based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the value of the underlying collateral if the loan is collateralized. Interest income on performing loans is accrued as earned. Interest income on impaired loans is recognized on a cash basis. Cash and Cash Equivalents Cash and cash equivalents (demand deposits in banks, commer- cial paper and certificates of deposit with original maturities of three months or less) includes tenants’ security deposits, escrowed funds and other restricted deposits approximating $6.7 million and $0.5 million at December 31, 2005 and 2004, respectively. Cash and cash equivalents balances may, at a limited number of banks and financial institutions, exceed insurable amounts. The Company believes it mitigates its risks by investing in or through major financial institutions. Recoverability of investments is dependent upon the performance of the issuers. Marketable Securities The Company classifies its existing marketable equity securities as available-for-sale in accordance with the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. These securities are carried at fair market value, with unrealized gains and losses reported in stockholders’ equity as a component of Accumulated other comprehensive income (“OCI”). Gains or losses on securities sold are based on the specific identifi- cation method. All debt securities are classified as held-to-maturity because the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Deferred Leasing and Financing Costs Costs incurred in obtaining tenant leases and long-term financing, included in deferred charges and prepaid expenses in the accompanying Consolidated Balance Sheets, are amortized over the terms of the related leases or debt agreements, as applicable. Revenue Recognition and Accounts Receivable Base rental revenues from rental property are recognized on a straight-line basis over the terms of the related leases. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the lessee. These percentage rents are recognized once the required sales level is achieved. Rental income may also include payments received in connection with lease termination agreements. In addition, leases typically provide for reimbursement to the Company of common area maintenance costs, real estate taxes and other operating expenses. Operating expense reimburse- ments are recognized as earned. Management and other fee income consist of property manage- ment fees, leasing fees, property acquisition and disposition fees, development fees and asset management fees. These fees arise from contractual agreements with third parties or with entities in which the Company has a partial non-controlling interest. Fee income is recognized as earned under the respective agreements. Acquisition and disposition fees are recognized when the respective transac- tions are completed. Fee income related to partially owned entities is recognized to the extent attributable to the unaffiliated interest. Gains and losses from the sale of depreciated operating property and ground-up development projects are generally recognized using the full accrual method in accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate (“SFAS No. 66”), provided that various criteria relating to the terms of sale and subsequent involvement by the Company with the properties are met. 53 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Gains and losses on transfers of operating properties result from the sale of partial interest in properties to unconsolidated joint ventures and are recognized using the partial sale provisions of SFAS No. 66. The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bank- ruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Company’s reported net income is directly affected by manage- ment’s estimate of the collectability of accounts receivable. Income Taxes The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its stockhold- ers equal at least the amount of its REIT taxable income as defined under Section 856 through 860 of the Code. In connection with the RMA, which became effective January 1, 2001, the Company is now permitted to participate in certain activities which it was previously precluded from in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable subsidiar- ies under the Code. As such, the Company is subject to federal and state income taxes on the income from these activities. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Foreign Currency Translation and Transactions Assets and liabilities of the Company’s foreign operations are translated using year-end exchange rates, and revenues and expenses are translated using exchange rates as determined throughout the year. Gains or losses resulting from translation are included in OCI as a separate component of the Company’s stockholders’ equity. Gains or losses resulting from foreign currency transactions are translated to local currency at the rates of exchange prevailing at the dates of the transactions. The effect of the transaction’s gain or loss is included in the caption Other income/(expense), net in the Consolidated Statements of Income. Derivative/Financial Instruments The Company measures its derivative instruments at fair value and records them in the Consolidated Balance Sheet as an asset or liability depending on the Company’s rights or obligations under the applicable derivative contract. In addition, the fair value adjustments will be recorded in either stockholders’ equity or earnings in the current period based on the designation of the derivative. The effective portions of changes in fair value of cash flow hedges are reported in OCI and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in the fair value of foreign currency hedges that are designated and effective as net investment hedges are included in the cumulative translation component of OCI to the extent they are economically effective and are subsequently reclassified to earnings when the hedged investments are sold or otherwise disposed of. The changes in fair value of derivative instruments which are not designated as hedging instruments and the ineffective portions of hedges are recorded in earnings for the current period. The Company utilizes derivative financial instruments to reduce exposure to fluctuations in interest rates, foreign currency exchange rates and market fluctuation on equity securities. The Company has established policies and procedures for risk assess- ment and the approval, reporting and monitoring of derivative financial instrument activities. The Company has not entered, and does not plan to enter, into financial instruments for trading or speculative purposes. Additionally, the Company has a policy of only entering into derivative contracts with major financial institutions. The principal financial instruments used by the Company are interest rate swaps, foreign currency exchange forward contracts, cross-currency swaps and warrant contracts. These derivative instruments were designated and qualified as cash flow, fair value or foreign currency hedges (see Note 15). Earnings Per Share On July 21, 2005, the Company’s Board of Directors declared a two-for-one split (the “Stock Split”) of the Company’s common stock which was effected in the form of a stock dividend paid on August 23, 2005 to stockholders of record on August 8, 2005. All share and per share data included in the accompanying Consoli- dated Financial Statements and Notes thereto have been adjusted to reflect this Stock Split. 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): 2005 2004 2003 Computation of Basic Earnings Per Share: Income from continuing operations Gain on transfer/sale of operating $331,250 $ 281,019 $ 240,409 properties, net 2,833 — 3,177 Original issuance costs associated with the redemption of preferred stock Preferred stock dividends Income from continuing operations applicable to common shares Income from discontinued operations Net income applicable to — (11,638) — (11,638) (7,788) (14,669) 322,445 29,545 269,381 16,118 221,129 64,293 common shares $351,990 $ 285,499 $ 285,422 54 Kimco Realty Corporation and Subsidiaries Weighted average common shares outstanding 226,641 222,859 214,184 Basic Earnings Per Share: Income from continuing operations Income from discontinued operations $ Net income Computation of Diluted Earnings Per Share: Income from continuing operations applicable to common shares (a) Income from discontinued operations Net income for diluted earnings $ 1.42 $ 1.21 $ 1.03 0.13 1.55 $ 0.07 1.28 $ 0.30 1.33 $322,445 29,545 $ 269,381 16,118 $ 221,129 64,293 Net income, as reported Add: Stock-based employee compensation expense included in reported net income Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards Pro Forma Net Income — Basic Earnings Per Share 2005 $ 363,628 2004 $ 297,137 2003 $ 307,879 4,608 1,650 148 (5,206) $ 363,030 (3,316) $ 295,471 (3,095) $ 304,932 Basic — as reported Basic — pro forma $ $ 1.55 1.55 $ $ 1.28 1.27 $ $ 1.33 1.32 per share $351,990 $ 285,499 $ 285,422 Net income for diluted earnings per Weighted average common shares share $ 351,990 $ 285,499 $ 285,422 outstanding — Basic 226,641 222,859 214,184 Add: Stock-based employee Effect of dilutive securities (a): Stock options/deferred stock awards Shares for diluted earnings per share Diluted Earnings Per Share: Income from continuing operations $ Income from discontinued 4,227 230,868 4,284 227,143 3,356 217,540 1.40 $ 1.19 $ 1.02 operations Net income 0.12 1.52 $ 0.07 1.26 $ 0.29 1.31 $ (a) The effect of the assumed conversion of convertible units had an anti-dilutive effect upon the calculation of Income from continuing operations per share. Accordingly, the impact of such conversion has not been included in the determination of diluted earnings per share calculations. The Company maintains a stock option plan (the “Plan”), for which prior to January 1, 2003, the Company accounted for under the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations includ- ing FASB Interpretation No. 44, Accounting for Certain Transac- tions involving Stock Compensation (an interpretation of APB Opinion No. 25). Effective January 1, 2003, the Company adopted the prospective method provisions of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure an Amendment of FASB Statement No. 123 (“SFAS No. 148”), which will apply the recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) to all employee awards granted, modified or settled after January 1, 2003. Awards under the Company’s Plan generally vest ratably over a three- or five-year term and expire ten years from the date of grant. Therefore, the cost related to stock- based employee compensation included in the determination of net income is less than that which would have been recognized if the fair value-based method had been applied to all awards since the original effective date of SFAS No. 123. The following table illustrates the effect on net income and earnings per share if the fair value-based method had been applied to all outstanding stock awards in each period (amounts presented in thousands, except per share data): 55 compensation expense included in reported net income 4,608 1,650 148 Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards Pro Forma Net Income — Diluted Earnings Per Share (5,206) $ 351,392 (3,316) $ 283,833 (3,095) $ 282,475 Diluted — as reported Diluted — pro forma $ $ 1.52 1.52 $ $ 1.26 1.25 $ $ 1.31 1.30 These pro forma adjustments to net income and net income per diluted common share assume fair values of each option grant estimated using the Black-Scholes option pricing formula. The more significant assumptions underlying the determination of such fair values for options granted during 2005, 2004 and 2003 include: (i) weighted average risk-free interest rates of 4.03%, 3.30% and 2.84%, respectively; (ii) weighted average expected option lives of 4.80 years, 3.72 years and 3.80 years, respectively; (iii) weighted average expected volatility of 18.01%, 16.69% and 15.26%, respectively, and (iv) weighted average expected dividend yield of 5.30%, 5.59% and 6.25%, respectively. The per share weighted average fair value at the dates of grant for options awarded during 2005, 2004 and 2003 was $3.21, $2.14 and $1.18, respectively. New Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123, (revised 2004) Share-Based Payment (“SFAS No. 123(R)”), which super- sedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123(R) established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) obtains employee services in share-based payment transactions. SFAS No. 123(R) is effective for fiscal years beginning after December 15, 2005. The impact of adopting this statement is not expected to have a material impact on the Company’s financial position or results of operations. In December 2004, the FASB issued Statement No. 153, Exchange of Non-monetary Assets - an amendment of APB Opinion No. 29 (“SFAS No. 153”). The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion No. 29 to eliminate the exception for non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The impact of adopting this statement did not have a material impact on the Company’s financial position or results of operations. In March 2005, the FASB issued Interpretation No. 47, Ac- counting for Conditional Asset Retirement Obligations (“FIN 47”). FIN 47 requires an entity to recognize a liability for a condi- tional asset retirement obligation when incurred if the liability can be reasonably estimated. FIN 47 clarifies that the term “Condi- tional Asset Retirement Obligation” refers to a legal obligation (pursuant to existing laws or by contract) to perform an asset retire- ment activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 was effective no later than fiscal years ended after December 15, 2005. The Company adopted FIN 47 as required effective December 31, 2005 and the initial application of FIN 47 did not have a material impact on the Company’s financial position or results of operations. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), which replaces Accounting Principle Board Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles. It requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. In September 2005, the EITF issued Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights, (“EITF 04-5”). At issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U.S. generally accepted account- ing principles. The assessment of limited partners’ rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership of limited partnership interests or (iii) there is an increase or decrease in the number of outstanding limited partner- ship interests. This issue is effective no later than for fiscal years beginning after December 15, 2005, and as of June 29, 2005, for new or modified arrangements. The impact of adopting EITF 04-5 is not expected to have a material impact on the Company’s financial position or results of operations. Reclassifications Certain reclassifications of prior years’ amounts have been made to conform with the current year presentation. 2. Real Estate: The Company’s components of Rental property consist of the following (in thousands): December 31, Land Buildings and improvements 2005 $ 686,123 2004 626,914 $ Buildings Building improvements Tenant improvements Fixtures and leasehold improvements Other rental property, net (1) 2,696,194 180,005 334,765 17,088 35,110 3,949,285 2,650,107 106,061 263,322 15,697 32,067 3,694,168 Accumulated depreciation and amortization Total (740,127) $3,209,158 (634,642) $ 3,059,526 (1) At December 31, 2005 and 2004, Other rental property, net consisted of intangible assets including $23,539 and $14,232, respectively, of in-place leases, $7,366 and $10,188, respectively, of tenant relationships and $4,205 and $7,647, respectively, of above-market leases. In addition, at December 31, 2005 and 2004, the Company had intangible liabilities relating to below-market leases from property acquisitions of approximately $50.1 million and $50.0 million, respectively. These amounts are included in the caption Other liabilities in the Company’s Consolidated Balance Sheets. 3. Property Acquisitions, Developments and Other Investments: Operating Properties Acquisition of Existing Shopping Centers — During the years 2005, 2004 and 2003, the Company acquired operating properties, in separate transactions, at aggregate costs of approximately $278.0 million, $440.5 million and $293.9 million, respectively. 56 Kimco Realty Corporation and Subsidiaries Ground-Up Development — Merchant Building — During 2005, the Company acquired, in separate transactions, various parcels of land located in Mesa, AZ, and Nampa, ID for an aggregate purchase price of approximately $28.7 million. These properties will be developed into retail centers with an aggregate of approximately 2.2 million square feet of GLA with a total estimat- ed aggregate project cost of approximately $190.7 million. During May and June 2005, the Company acquired, in separate transactions, two parcels of land located in Saltillo and Pachuca, Mexico, for an aggregate purchase price of approximately $14.6 million. The properties will be developed into retail centers with an aggregate total project cost of approximately $34.1 million. During June 2005, the Company acquired land in Tustin, CA, through a newly formed joint venture in which the Company has a 50% non-controlling interest, for a purchase price of approximately $23.0 million. The property will be developed into a 1.0 million square foot retail center with a total estimated project cost of approximately $149.3 million. The purchase of the land was funded through a new construction loan which bears interest at LIBOR plus 1.70% and is scheduled to mature in October 2007. As of December 31, 2005, this construction loan had an outstand- ing balance of approximately $40.4 million. Additionally, during 2005, the Company acquired, in separate transactions, six parcels of land located in various cities throughout Mexico, through newly formed joint ventures in which the Company has non-controlling interests, for an aggregate purchase price of approximately $42.1 million. The properties were at various stages of construction at acquisition and will be developed into retail centers with a projected total aggregate cost of approxi- mately $133.1 million. During July 2004, the Company acquired land in Huehuetoca, Mexico, through a joint venture in which the Company has a 95% controlling interest, for a purchase price of approximately $6.9 million. The property will be developed as a grocery-anchored retail center with a projected total cost of approximately $15.3 million. During August 2004, the Company acquired land located in San Luis Potosi, Mexico, through a joint venture in which the Company currently has a 64.4% controlling interest for a purchase price of approximately $5.8 million. The property was developed into a retail center by the grocery tenant anchoring the project. During December 2004, the Company acquired the completed building improvements from the tenant for a purchase price of approximately 77.2 million pesos (“MXP”) (approximately USD $6.9 million). During December 2004, the Company acquired land located in Reynosa, Mexico for a purchase price of approximately $13.8 million. The property will be developed as a grocery-anchored retail center with a projected total cost of approximately $22.0 million. Effective January 1, 2001, the Company elected taxable REIT subsidiary status for its wholly-owned development subsidiary, KDI. KDI is primarily engaged in the ground-up development of neighborhood and community shopping centers and the subse- quent sale thereof upon completion. During the years 2005, 2004 and 2003, KDI expended approximately $363.1 million, $205.2 million and $208.9 million, respectively, in connection with the purchase of land and construc- tion costs related to its ground-up development projects. These merchant building acquisition and development costs have been funded principally through proceeds from sales of completed projects and construction financings. Other — During 2005, the Company acquired ten self-storage facili- ties through an existing joint venture in which the Company held an approximate 93.5% economic interest, for a purchase price of approximately $39.9 million including the assumption of approximately $7.5 million of non-recourse fixed-rate mortgage debt encumbering three of the properties. Upon completing this purchase, this entity owned 17 self-storage facilities located in various states. The joint venture had cross-collateralized 14 of these properties with approximately $44.0 million of non-recourse floating-rate mortgage debt which was scheduled to mature in No- vember 2007 and had an interest rate of LIBOR plus 2.75%. Based upon the provisions of FIN 46(R), the Company had determined that this entity was a VIE. The Company had further determined that the Company was the primary beneficiary of this VIE and had therefore consolidated this entity for financial reporting purposes. During November and December 2005, this entity disposed of, in separate transactions, four self-storage properties for an aggregate sales price of approximately $18.6 million resulting in an aggregate gain of approximately $5.8 million. Proceeds from these sales were used to pay down approximately $9.8 million of mortgage debt and provided distributions to the partners. As a result of these transac- tions, the Company’s economic interest had significantly decreased and the entity became subject to the reconsideration provisions of FIN 46(R). Based upon this reconsideration event and the provi- sion of FIN 46(R), the Company has determined that this entity is no longer a VIE and has therefore deconsolidated this entity and will now account for this investment under the equity method of accounting. As of December 31, 2005, this entity owned 13 self-storage properties. Three of the properties are encumbered by approximately $7.4 million of fixed-rate individual non-recourse mortgage debt which bears interest at 5.5% per annum and is scheduled to mature in June 2013. The remaining ten properties are cross-collateralized with approximately $33.3 million of vari- able rate debt which bears interest at LIBOR plus 2.75% (7.09% at December 31, 2005) and is scheduled to mature in November 2007. The Company’s maximum exposure to loss associated with this entity is primarily limited to the Company’s carrying value of this investment, which was approximately $14.2 million at Decem- ber 31, 2005. 57 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) During June 2004, the Company acquired an operating property through the acquisition of the remaining 50% partnership interest in a joint venture in which the Company held a 50% interest. The property, acquired for approximately $12.5 million, is located in Tempe, AZ and is comprised of 0.2 million square feet of GLA. During December 2004, the Company acquired a shopping center property through the acquisition of the remaining 50% partnership interest in a joint venture in which the Company held a 50% interest. The property, acquired for approximately $4.5 million, is located in Tampa, FL and is comprised of 0.1 million square feet of GLA. Additionally during December 2004, the Company acquired interests in two parking facilities and a medical office building located in Allegheny, PA that are subject to a ground lease, for a purchase price of approximately $29.8 million. equity securities and convert Frank’s from a publicly held retail company to a privately held real estate company. On July 27, 2005, Frank’s emerged from Chapter 11 bankrupt- cy pursuant to a bankruptcy court approved plan of reorganization as FNC Realty Corporation (“FNC”). Pursuant to the reorganiza- tion plan, shareholders of Frank’s were offered cash of $0.75 per share or the right to exchange Frank’s common stock for FNC common stock on a 1:1 basis. FNC’s capitalization included the issuance of approximately $27.0 million of common stock and $77.0 million of fixed-rate 7% convertible senior notes. The notes mature in July 2008, and may be converted at anytime by the holder for common shares of FNC at $0.75 per share. Proceeds from the issuance of common stock and convertible senior notes were used to repay all claims pursuant to the plan of reorganiza- tion, including amounts owed to the Company under its revolving credit facility and debtor-in-possession financing agreement. These operating property acquisitions, development costs and Pursuant to the plan of reorganization, the Company received other investments have been funded principally through the application of proceeds from the Company’s public unsecured debt issuances, proceeds from mortgage and construction financings and availability under the Company’s revolving lines of credit. FNC Realty Corporation — From 2000 through 2002 the Company acquired approximately $28.9 million face amount of Frank’s Nursery and Crafts, Inc. (“Frank’s”), 10.25% bonds for an aggregate purchase price of approximately $11.3 million. During February 2001, Frank’s filed for protection under Chapter 11 of the United States Bankruptcy Code. During May 2002, Frank’s plan of reorganization was confirmed by the Bankruptcy court and Frank’s emerged from bankruptcy. Pursuant to Frank’s reorganization plan, the Company received approximately 4.3 million shares of Frank’s common stock valued at $2.34 per share in settlement of its Frank’s bond invest- ment. As a result of this conversion, the Company held an approxi- mate 27% interest in Frank’s and began accounting for its invest- ment on the equity method. In addition, the Company began providing loans to Frank’s under a revolving credit facility, which was collateralized by certain real estate interests of Frank’s. As an inducement to make these loans, Frank’s issued the Company approximately 4.4 million warrants with an exercise price of $1.15 per share. During September 2004, Frank’s again filed for protection under Chapter 11 of the United States Bankruptcy Code. The Company committed to provide Frank’s, in addition to its revolv- ing credit facility, with $27.0 million of debtor-in-possession financing for a term of one year at an interest rate of Prime plus 1.00%. From the petition date until July 26, 2005, Frank’s operated its business as a debtor-in-possession and during this period had completely liquidated its inventory and ceased operating as a retailer. Frank’s plan of reorganization included a Company sponsored re-capitalization plan in which the Company, along with several other significant shareholders, agreed to re-capitalize Frank’s with approximately $104.0 million in cash in exchange for debt and common shares of FNC representing an approximate 27% ownership interest in exchange for its interests in Frank’s. In addition, the Company acquired an additional 24.5% interest in the common shares of FNC for cash of approximately $17 million, thereby increasing the Company’s ownership interest to approxi- mately 51%. This acquisition of additional shares includes the exercise of warrants previously issued by Frank’s to the Company. The Company also acquired approximately $42 million of fixed- rate 7% convertible senior notes issued by FNC. As a result of the increase in ownership interest from 27% to 51%, the Company became the controlling shareholder and therefore, commenced consolidation of FNC effective July 27, 2005. The acquisition of the additional 24.5% ownership interest has been accounted for as a step acquisition with the purchase price being allocated to the identified assets and liabilities of FNC. As of July 27, 2005, FNC had approximately $154 million of net operating loss carry-forwards (“NOLs”), which may be utilized to offset future taxable income of FNC. As Frank’s had recurring losses and was in bankruptcy, the realization of the NOLs was uncertain. Accordingly, a full valuation allowance was previously recorded against the deferred tax asset relating to these NOLs. Of the total amount of available NOLs, the Company has estimated approximately $124 million is unrestricted and $30 million is restricted (limited to utilization of $1.1 million per year). The Company has evaluated the level of valuation allowance required and determined, based upon the expected investment strategy for FNC, that approximately $27 million of the allowance should be reduced and recorded as an adjustment to the purchase price allocation. As of July 27, 2005, FNC held interests in 55 properties with approximately $16.1 million of non-recourse mortgage debt encumbering 16 of the properties. These loans bear interest at fixed rates ranging from 4.00% to 7.75% and maturity dates ranging from June 2012 through June 2022. During December 2005, FNC pre-paid, without penalty, an aggregate $4.8 million of mortgage debt encumbering five of its properties. The mortgage 58 Kimco Realty Corporation and Subsidiaries debt bore interest at a 7.3% fixed rate per annum and was sched- uled to mature in August 2012. As of December 31, 2005, FNC had approximately $11.4 million of non-recourse mortgage debt encumbering 11 properties. These remaining loans bear interest at fixed rates ranging from 4.00% to 7.75% and maturity dates ranging from June 2012 through June 2022. The Company’s investment strategy with respect to FNC includes re-tenanting, re-developing and disposition of the properties. From July 27, 2005, through December 31, 2005, FNC disposed of nine properties, in separate transactions, for an aggregate sales price of approximately $9.4 million. 4. Dispositions of Real Estate: Operating Real Estate — During 2005, the Company (i) disposed of, in separate transac- tions, 20 operating properties for an aggregate sales price of approximately $93.3 million, (ii) transferred three operating properties to KROP for an aggregate price of approximately $49.0 million, and (iii) transferred 52 operating properties to various joint ventures in which the Company has non-controlling interests ranging from 15% to 50% for an aggregate price of approximately $183.1 million. For the year ended December 31, 2005, these transactions resulted in gains of approximately $31.9 million and a loss on sale/transfer from four of the properties of approximately $5.2 million. During June 2005, the Company disposed of a vacant land parcel located in New Ridge, MD, for approximately $5.6 million resulting in a $4.6 million gain on sale. This gain is included in Other income, net on the Company’s Condensed Consolidated Statements of Income. During 2004, the Company (i) disposed of, in separate transac- tions, 16 operating properties and one ground lease for an aggre- gate sales price of approximately $81.1 million, including the assignment of approximately $8.0 million of non-recourse mort- gage debt encumbering one of the properties; cash proceeds of approximately $16.9 million from the sale of two of these proper- ties were used in a 1031 exchange to acquire shopping center properties located in Roanoke, VA, and Tempe, AZ, (ii) transferred 17 operating properties to KROP, as defined below, for an aggre- gate price of approximately $197.9 million and (iii) transferred 21 operating properties, comprising approximately 3.2 million square feet of GLA, to various co-investment ventures in which the Company has non-controlling interests ranging from 10% to 30% for an aggregate price of approximately $491.2 million. A signifi- cant portion of the properties transferred were acquired in the Mid- Atlantic Merger. Merchant Building — During 2005, KDI sold, in separate transactions, six of its recently completed projects and 41 out-parcels for approximately $264.1 million. These sales resulted in pre-tax gains of approxi- mately $33.6 million. During 2004, KDI sold, in separate transactions, five of its recently completed projects, three completed phases of projects and 29 out-parcels for approximately $170.2 million. These sales resulted in pre-tax gains of approximately $16.8 million. During 2003, KDI sold, in separate transactions, four of its recently completed projects and 26 out-parcels for approximately $134.6 million, which resulted in pre-tax gains of approximately $17.5 million. 5. Adjustment of Property Carry Values: As part of the Company’s periodic assessment of its real estate properties with regard to both the extent to which such assets are consistent with the Company’s long-term real estate investment objectives and the performance and prospects of each asset, the Company determined in December 2004 that its investment in an operating property comprised of approximately 0.1 million square feet of GLA, with a book value of approximately $3.8 million, net of accumulated depreciation of approximately $2.6 million, may not be fully recoverable. Based upon management’s assessment of current market conditions and lack of demand for the property, the Company reduced its anticipated holding period for this invest- ment. As a result, the Company determined that its investment in this asset was not fully recoverable and recorded an adjustment of property-carrying value of approximately $3.0 million to reflect the property’s estimated fair value. The Company’s determination of estimated fair value was based upon third-party purchase offers less estimated closing costs. This property was subsequently sold during 2005 and this adjustment was included along with the related property operations in the line Income from discontinued operating properties in the Company’s Consolidated Statements of Income. 6. Discontinued Operations and Assets Held for Sale: In accordance with SFAS No. 144, Accounting for the Impair- ment or Disposal of Long-Lived Assets (“SFAS No. 144”), the Company reports as discontinued operations assets held-for-sale (as defined by SFAS No. 144) as of the end of the current period and assets sold subsequent to the adoption of SFAS No. 144. All results of these discontinued operations are included in a separate compo- nent of income on the Consolidated Statements of Income under the caption Discontinued operations. This change has resulted in certain reclassifications of 2005, 2004 and 2003 financial state- ment amounts. The components of Income from discontinued operations for each of the three years in the period ended December 31, 2005, are shown below. These include the results of operations through the date of each respective sale for properties sold during 2005, 2004 and 2003 and a full year of operations for those assets classified as held-for-sale as of December 31, 2005, (in thousands): 59 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 2005 2004 2003 Discontinued Operations: Revenues from rental property Rental property expenses Income from property operations Depreciation of rental property Interest expense Other income/(expense) Income from discontinued operating $ 10,769 (3,664) 7,105 (2,100) (571) 1,291 $16,930 (5,311) 11,619 (3,255) (841) (2,164) $ 30,385 (10,443) 19,942 (5,856) (106) (88) properties Gain on early extinguishment of debt Loss on operating properties held for 5,725 — 5,359 — 13,892 6,760 sale/sold (5,098) (5,064) (4,016) Gain on disposition of operating properties 28,918 Income from discontinued operations $ 29,545 15,823 $16,118 47,657 $ 64,293 During March 2005, the Company reclassified as held-for-sale three shopping center properties comprising approximately 0.4 million square feet of GLA. The book value of each of these properties, aggregating approximately $17.1 million, net of accumulated depreciation of approximately $8.4 million, did not exceed each of their estimated fair values. As a result, no adjust- ment of property-carrying value was recorded. The Company’s determination of the fair value for each of these properties, aggregating approximately $22.1 million, was based upon executed contracts of sale with third parties less estimated selling costs. The Company completed the sale of these properties during the quarter ended June 30, 2005. During June 2005, the Company reclassified as held-for-sale a shopping center property comprising approximately 0.2 million square feet of GLA. The book value of this property of approxi- mately $25.1 million, net of accumulated depreciation of approxi- mately $1.0 million, did not exceed its estimated fair value. As a result, no adjustment of property-carrying value had been recorded. The Company’s determination of the fair value of this property of approximately $39.3 million was based upon an executed contract of sale with a third party less estimated selling costs. During December 2004, the Company reclassified as held-for- sale a shopping center property located in Melbourne, FL, compris- ing approximately 0.1 million square feet of GLA. The operations associated with this property for the current and comparative years, have been included in the caption Income from discontinued operations on the Company’s Consolidated Statements of Income. During March 2004, the Company reclassified as held-for-sale two shopping center properties comprising approximately 0.3 million square feet of GLA. The book value of these properties, aggregating approximately $8.7 million, net of accumulated depreciation of approximately $4.2 million, exceeded their estimated fair value. The Company’s determination of the fair value of these properties, aggregating approximately $4.5 million, was based upon contracts of sale with third parties less estimated selling costs. As a result, the Company had recorded a loss resulting from an adjustment of property carrying values of $4.2 million. During March 2004, the Company completed the sale of one of these properties, comprising approximately 0.1 million square feet of GLA, for a sales price of approximately $1.1 million. During June 2004, the Company completed the sale of the other property, comprising approximately 0.2 million square feet of GLA for a sales price of approximately $3.9 million. The loss associated with these transactions, along with the related property operations for the current and comparative years, has been included in the caption Income from discontinued operations on the Company’s Consolidated Statements of Income. During December 2003, the Company identified two operating properties, comprised of approximately 0.2 million square feet of GLA, as held-for-sale. The book value of these properties, aggre- gating approximately $19.4 million, net of accumulated deprecia- tion of approximately $2.1 million, exceeded their estimated fair value. The Company’s determination of the fair value of these properties, aggregating approximately $15.4 million, was based upon contracts of sale with third parties less estimated selling costs. As a result, the Company recorded a loss resulting from an adjustment of property carrying values of approximately $4.0 million. This adjustment is included, along with the related property operations for the current and comparative years, in the caption Income from discontinued operations on the Company’s Consolidated Statements of Income. During 2003, the Company reached agreement with certain lenders in connection with three individual non-recourse mort- gages encumbering three former Kmart sites. The Company paid approximately $14.2 million in full satisfaction of these loans, which aggregated approximately $24.0 million. As a result of these transactions, the Company recognized a gain on early extinguish- ment of debt of approximately $9.7 million during 2003, of which $6.8 million is included in Income from discontinued operations. 7. Investment and Advances in Real Estate Joint Ventures: Kimco Income REIT (“KIR”) — During 1998, the Company formed KIR, an entity that was established for the purpose of investing in high quality real estate properties financed primarily with individual non-recourse mortgages. These properties include, but are not limited to, fully developed properties with strong, stable cash flows from credit- worthy retailers with long-term leases. The Company originally held a 99.99% limited partnership interest in KIR. Subsequent to KIR’s formation, the Company sold a significant portion of its original interest to an institutional investor and admitted three other limited partners. KIR had received total capital commit- ments of $569.0 million, of which the Company subscribed for $247.0 million and the four limited partners subscribed for $322.0 million. During 2004, the KIR partners elected to cancel the remaining unfunded capital commitments of $99.0 million, including $42.9 million from the Company. As of December 31, 2005, the Company had a 43.3% non-controlling limited partner- ship interest in KIR. 60 Kimco Realty Corporation and Subsidiaries In addition, KIR entered into a master management agreement with the Company, whereby the Company will perform services for fees related to management, leasing, operations, supervision and maintenance of the joint venture properties. For the years ended December 31, 2005, 2004 and 2003, the Company (i) earned management fees of approximately $3.1 million, $2.9 million and $2.9 million, respectively, (ii) received reimbursement of adminis- trative fees of approximately $0.5 million, $0.4 million and $0.4 million, respectively, and (iii) earned leasing commissions of approximately $0.3 million, $0.3 million and $0.5 million, respectively. During March 2005, KIR disposed of an operating property and an out-parcel, in separate transactions, for an aggregate sale price of approximately $43.1 million. These sales resulted in an aggregate gain of approximately $17.8 million of which the pro-rata gain to the Company was approximately $7.7 million. In connec- tion with the sale of the operating property, KIR incurred a $2.0 million loan defeasance charge, of which the Company’s pro-rata share was approximately $0.9 million. During October 2005, KIR sold an operating property for a sales price of approximately $8.1 million. This sale resulted in a gain of approximately $2.4 million of which the pro-rata gain to the Company was approximately $1.0 million. During March 2005, KIR purchased a shopping center property located in Delran, NJ, for approximately $4.6 million. In April 2005, KIR entered into a three-year $30.0 million unsecured revolving credit facility which bears interest at LIBOR plus 1.40%. As of December 31, 2005, there were no amounts outstanding under this credit facility. During April 2004, KIR disposed of an operating property located in Las Vegas, NV, for a sales price of approximately $21.5 million, which approximated its net book value. As of December 31, 2005, the KIR portfolio was comprised of 68 shopping center properties aggregating approximately 14.2 million square feet of GLA located in 20 states. RioCan Investments — During October 2001, the Company formed a joint venture (the “RioCan Venture”) with RioCan Real Estate Investment Trust (“RioCan”), in which the Company has a 50% non-controlling interest, to acquire retail properties and development projects in Canada. The acquisition and development projects are to be sourced and managed by RioCan and are subject to review and approval by a joint oversight committee consisting of RioCan management and the Company’s management personnel. Capital contributions will only be required as suitable opportunities arise and are agreed to by the Company and RioCan. During April 2004, the RioCan Venture acquired an operating property located in Mississauga, ON, comprising approximately 0.2 million square feet of GLA, for a purchase price of approxi- mately CA $44.2 million (approximately US $32.3 million). During August 2004, the RioCan Venture obtained approximately CA $28.7 million (approximately US $21.6 million) of mortgage debt on this property. The loan bears interest at a fixed rate of 6.37% with payments of principal and interest due monthly. The loan is scheduled to mature in August of 2014. As of December 31, 2005, the RioCan Venture was comprised of 34 operating properties and one development property consist- ing of approximately 8.1 million square feet of GLA. Kimco / G.E. Joint Venture (“KROP”) During 2001, the Company formed a joint venture (the “Kimco Retail Opportunity Portfolio” or “KROP”) with GE Capital Real Estate (“GECRE”), in which the Company has a 20% non-control- ling interest and manages the portfolio. The purpose of this joint venture is to acquire established high-growth potential retail properties in the United States. Total capital commitments to KROP from GECRE and the Company are for $200.0 million and $50.0 million, respectively, and such commitments are funded proportionately as suitable opportunities arise and are agreed to by GECRE and the Company. During 2005, GECRE and the Company contributed approxi- mately $21.2 million and $5.3 million, respectively, toward their capital commitments. As of December 31, 2005, KROP had unfunded capital commitments of $28.5 million, including $5.7 million by the Company. Additionally, GECRE and the Company provided short-term interim financing for all acquisitions made by KROP without a mortgage in place at the time of acquisition. All such financing bears interest at rates ranging from LIBOR plus 4.0% to LIBOR plus 5.25% and have maturities of less than one year. As of December 31, 2005 and 2004, there were no outstand- ing short-term interim financing due to GECRE or the Company. During 2005, KROP acquired four operating properties and one out-parcel, in separate transactions, for an aggregate purchase price of approximately $74.6 million, including the assumption of approximately $26.2 million of individual non-recourse mortgage debt encumbering two of the properties and preferred units of approximately $4.2 million associated with another property. During 2005, KROP disposed of three unencumbered operat- ing properties and two out-parcels, in separate transactions, for an aggregate sales price of approximately $60.3 million. These sales resulted in an aggregate gain of approximately $18.3 million, of which the Company’s pro-rata share was approximately $3.7 million. During 2005, KROP obtained ten-year individual non- recourse, non-crossed collateralized fixed-rate mortgages aggregat- ing approximately $21.9 million on two of its previously unencum- bered properties with rates ranging from 5.2% to 5.3%. During 2005, KROP obtained two non-recourse, non-crossed collateralized variable rate mortgages for a total of $25.7 million on two properties with rates of LIBOR plus 1.30% and 1.65% with terms of two and three years, respectively. During 2004, KROP acquired 19 operating properties for an aggregate purchase price of approximately $242.6 million, includ- ing the assumption of approximately $63.5 million of individual non-recourse mortgage debt encumbering eight of the properties. During 2004, KROP disposed of five operating properties and three out-parcels for an aggregate sales price of approximately $65.8 61 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) million, including the assignment of approximately $7.2 million of non-recourse mortgage debt encumbering one of the properties. These sales resulted in an aggregate gain of approximately $20.2 million. During 2004, KROP obtained one non-recourse, cross- collateralized, fixed-rate mortgage aggregating $30.7 million on four properties with a rate of 4.74% for five years. KROP also obtained individual non-recourse, non-cross-collateralized fixed- rate mortgages aggregating approximately $22.0 million on two of its previously unencumbered properties with rates ranging from 5.0% to 5.1% with terms of five years. During 2004, KROP obtained one non-recourse, cross- collateralized, variable-rate mortgage aggregating $54.4 million on six properties with a rate of LIBOR plus 2.25% with a term of two years. KROP also obtained one non-recourse, non-cross collateral- ized variable rate mortgage for $23.2 million on one of its previ- ously unencumbered properties with a rate of LIBOR plus 1.8% with a three-year term. In order to mitigate the risks of interest rate fluctuations associated with these variable-rate obligations, KROP entered into interest rate cap agreements for the notional values of these mortgages. As of December 31, 2005, the KROP portfolio was comprised of 38 shopping center properties aggregating approximately 5.6 million square feet of GLA located in 14 states. Other Real Estate Joint Ventures — The Company and its subsidiaries have investments in and advances to various other real estate joint ventures. These joint ventures are engaged primarily in the operation and development of shopping centers which are either owned or held under long- term operating leases. During December 2004, the Company acquired the Price Legacy Corporation through a newly formed joint venture, PL Retail LLC (“PL Retail”), in which the Company has a 15% non- controlling interest and manages the portfolio. In connection with this transaction, PL Retail acquired 33 operating properties aggregating approximately 7.6 million square feet of GLA located in ten states. To partially fund the acquisition, the Company provided PL Retail approximately $30.6 million of secured mezzanine financing. This interest-only loan bears interest at a fixed rate of 7.5% and matures in December 2006. The Company also provided PL Retail a secured short-term promissory note of approximately $8.2 million. This interest-only note bore interest at LIBOR plus 4.50% and was scheduled to mature in June 2005. During 2005, this note was amended to bear interest at LIBOR plus 6.0% and is now payable on demand. During the year ended December 31, 2005, PL Retail disposed of nine operating proper- ties, in separate transactions, for an aggregate sales price of approximately $81.4 million, which represented the approximate carrying values of the properties. Proceeds of approximately $22.0 million were used to partially repay the mezzanine financing that was provided by the Company. As of December 31, 2005, PL Retail had approximately $8.9 million outstanding on the mezza- nine financing and approximately $8.2 million outstanding on the promissory note. As of December 31, 2005, PL Retail consisted of 25 operating properties aggregating approximately 6.8 million square feet of GLA and had approximately $777.3 million out- standing in non-recourse mortgage debt, of which approximately $507.2 million had fixed rates ranging from 4.66% to 9.00%, and approximately $270.1 had variable rates ranging from 5.74% to 9.59%. The fixed-rate loans have maturities ranging from 3-to-11 years and the variable-rate loans have maturities ranging from one- to-three years. During March 2005, a joint venture in which the Company has a 50% non-controlling interest, disposed of two vacant land parcels located in Glendale, AZ, in separate transactions, for an aggregate sales price of approximately $9.9 million. These sales resulted in an aggregate gain of approximately $4.8 million, of which the Company’s share was approximately $2.4 million. Additionally, during March 2005, the Company transferred 50% of the Company’s 95% interest in a developed property located in Huehuetoca, Mexico, to a joint venture partner for approximately $5.3 million, which approximated its carrying value. As a result of this transaction, the Company now holds a 47.5% non-controlling interest and has deconsolidated the investment. The Company now accounts for its investment under the equity method of accounting. During April 2005, the Company acquired an operating property located in Hillsborough, NJ, comprising approximately 0.1 million square feet of GLA, through a newly formed joint venture in which the Company has a 50% non-controlling interest. The property was acquired for approximately $4.0 million includ- ing the assumption of approximately $1.9 million of non-recourse mortgage debt encumbering the property. Subsequent to the purchase, the joint venture obtained a $3.2 million one-year term loan which bears interest at LIBOR plus 0.55% (4.94% at Decem- ber 31, 2005). This loan is jointly and severally guaranteed by the joint venture partners, including the Company. Proceeds from this loan were used to repay the $1.9 million mortgage encumbering the property. During May 2005, the Company acquired a hotel property located in Cancun, Mexico, through a newly formed joint venture in which the Company has an 80% non-controlling interest. The property was purchased for approximately $19.7 million. Simulta- neous with the closing, the property was encumbered with $12.4 million of non-recourse mortgage debt which bears interest at a fixed rate of 7.63% per annum and matures during May 2010. During 2005, the property incurred significant hurricane damage, which has temporarily suspended operations. The Company believes that its property insurance and business interruption insurance will adequately cover losses associated with this event. During May 2005, the Company acquired a $10.2 million mortgage receivable through a newly formed joint venture in which the Company has a 50% non-controlling interest. The mortgage encumbered a property located in Derby, CT, comprising approxi- mately 0.1 million square feet of GLA. During October 2005, the joint venture foreclosed on the property and obtained fee title. 62 Kimco Realty Corporation and Subsidiaries During June 2005, the Company acquired an additional 25% interest in a joint venture in which the Company had previously held a 7.77% interest for approximately $26.0 million. This joint venture owns an operating property, comprised of approximately 0.5 million square feet of GLA, located in Fremont, CA. During December 2005, the Company sold a portion of its interest in this joint venture to a new partner who purchased 70% of this partner- ship. The Company now has a 30% non-controlling interest in this joint venture and accounts for its investment under the equity method of accounting. During July 2005, the Company acquired an interest in an office property located in Houston, TX, comprising approximately 0.6 million square feet of GLA through a newly formed joint venture in which the Company has an 85% non-controlling interest. The Company’s investment in the joint venture was approximately $12.2 million. The joint venture purchased the property for approximately $91.1 million subject to $76.5 million of non-recourse mortgage debt which bears interest at a fixed-rate of 5.15% per annum and matures during August 2015. The Company accounts for this investment under the equity method of accounting. Additionally, during July 2005, the Company transferred a developed property located in Reynosa, Mexico, to a newly formed joint venture in which the Company has a 50% non-controlling interest, for a price of approximately $6.9 million. The Company now accounts for this investment under the equity method of accounting. During October 2005, the Company acquired interests in 57 industrial properties located in Mexico, through a newly formed joint venture in which the Company has a 50% non-controlling interest, for a purchase price of approximately $277.5 million, including the assumption of approximately $167.0 million of non- recourse mortgage debt encumbering 52 properties. The properties comprise approximately 5.6 million square feet of GLA. Additionally, during 2005, the Company acquired, in separate transactions, 12 operating properties comprising approximately 1.7 million square feet of GLA, through newly formed joint ventures in which the company has non-controlling interests ranging from 5% to 50%. The aggregate purchase price for these properties was approximately $265.6 million, including the assumption of approximately $29.1 million of non-recourse mortgage debt encumbering three of the properties. The Company accounts for its investment in these joint ventures under the equity method of accounting. During September 2005, the Company transferred 45 operating properties, comprising approximately 0.3 million square feet of GLA, located in Virginia and Maryland, to a newly formed unconsolidated joint venture in which the Company has a 15% non-controlling interest. The transfer price was approximately $85.3 million including the assignment of approximately $65.0 million of cross-collateralized non-recourse mortgage debt encum- bering all of the properties. Additionally, during 2005, the Company transferred, in separate transactions, five operating properties comprising approxi- mately 0.7 million square feet of GLA, to newly formed joint ventures in which the Company has 20% non-controlling interests, for an aggregate price of approximately $85.6 million, including the assignment of approximately $40.2 million of mortgage debt encumbering three of the properties. During January 2004, the Company acquired a property located in Marlborough, MA, through a joint venture in which the Company has a 40% non-controlling interest. The property was acquired for a purchase price of approximately $26.5 million, including the assumption of approximately $21.2 million of non- recourse mortgage debt encumbering the property. During September 2004, the Company acquired a property located in Pompano, FL, comprising approximately 0.1 million square feet of GLA, through a newly formed joint venture in which the Company has a 20% non-controlling interest, for approximate- ly $20.4 million. During October 2004, the Company transferred 50% of the Company’s 90% interest in an operating property located in Juarez, Mexico, to a joint venture partner for approximately US $5.4 million, which approximated its carrying value. As a result of this transaction, the Company now holds a 45% non-controlling interest in this property and now accounts for its investment under the equity method of accounting. Additionally during October 2004, the Company acquired an operating property located in Valdosta, GA, comprising approxi- mately 0.2 million square feet of GLA, through a newly formed joint venture in which the Company has a 50% non-controlling interest. The property was acquired for a purchase price of approximately $10.7 million, including the assumption of approxi- mately $8.0 million of non-recourse mortgage debt encumbering the property. Also during December 2004, the Company acquired an operating property located in Bellevue, WA, comprising approxi- mately 0.5 million square feet of GLA, through a joint venture in which the Company has a 50% non-controlling interest, for approximately $102.0 million. During 2004, the Company transferred 12 operating proper- ties, comprising approximately 1.5 million square feet of GLA, to a newly formed joint venture in which the Company has a 15% non- controlling interest, for a price of approximately $269.8 million, including an aggregate $161.2 million of individual non-recourse mortgage debt encumbering the properties. Simultaneously with the transfer, the Company entered into a management agreement whereby the Company will perform services for fees related to management, leasing, operations, supervision and maintenance of the joint venture properties. In addition, the Company will earn fees related to the acquisition and disposition of properties by the venture. During 2004, the Company earned management fees and acquisition fees of approximately $1.1 million and $1.3 million, respectively. 63 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Additionally during 2004, the Company transferred, in separate 8. Other Real Estate Investments: transactions, eight operating properties comprising approximately 1.5 million square feet of GLA, to newly formed joint ventures in which the Company has non-controlling interests ranging from 10% to 30%, for an aggregate price of approximately $216.0 million, including the assignment of approximately $95.5 million of non-recourse mortgage debt and $24.1 million of downReit units. Summarized financial information for these real estate joint ventures is as follows (in millions): December 31, Assets: Real estate, net Other assets Liabilities and Partners’ Capital: Mortgages payable Notes payable Construction loans Other liabilities Minority interest Partners’ capital Year Ended December 31, Revenues from rental property Operating expenses Interest Depreciation and amortization Other, net Income from continuing operations Discontinued Operations: Income/(loss) from discontinued operations Gain on dispositions of properties Net income 2005 2004 $ 6,470.4 308.5 $ 6,778.9 $ 4,443.6 58.7 69.6 144.0 81.9 1,981.1 $ 6,778.9 2005 $ 759.0 (214.0) (247.1) (153.7) (8.4) (623.2) 135.8 2004 $ 545.8 (155.6) (171.0) (97.1) (5.8) (429.5) 116.3 $ 5,451.0 200.5 $ 5,651.5 $ 3,781.0 40.0 29.1 115.5 36.5 1,649.4 $ 5,651.5 2003 $ 423.3 (119.2) (137.9) (66.4) (9.3) (332.8) 90.5 (1.7) 52.5 $ 186.6 1.8 20.2 $ 138.3 3.7 0.0 $ 94.2 Other liabilities in the accompanying Consolidated Balance Sheets include accounts with certain real estate joint ventures totaling approximately $13.2 million and $13.7 million at Decem- ber 31, 2005 and 2004, respectively. The Company and its subsidiaries have varying equity interests in these real estate joint ventures, which may differ from their proportionate share of net income or loss recognized in accordance with generally accepted accounting principles. The Company’s maximum exposure to losses associated with its unconsolidated joint ventures is primarily limited to its carrying value in these investments. As of December 31, 2005 and 2004, the Company’s carrying value in these investments approximated $735.6 million and $595.2 million, respectively. 64 Preferred Equity Capital — The Company maintains a Preferred Equity program, which provides capital to developers and owners of real estate properties. During 2005 the Company provided, in separate transactions, an aggregate of approximately $84.3 million in investment capital to developers and owners of 79 real estate properties. During 2004, the Company provided, in separate transactions, an aggregate of approximately $101.0 million in investment capital to developers and owners of 54 real estate properties. As of December 31, 2005, the Company’s net investment under the Preferred Equity program was approximately $225.9 million relating to 131 properties. For the years ended December 31, 2005, 2004 and 2003, the Company earned approximately $32.8 million, including $12.6 million from promoted interests earned from six capital transactions, $11.4 million, including $3.9 million from promoted interests earned from four capital transactions, and $4.6 million, including $1.7 million from promoted interests earned from two capital transac- tions, respectively, from these investments. Summarized financial information relating to the Company’s preferred equity investments is as follows (in millions): December 31, Assets: Real estate, net Other assets Liabilities and Partners’ Capital: Notes and mortgages payable Other liabilities Partners’ capital Year Ended December 31, Revenues from Rental Property Operating expenses Interest Depreciation and amortization Other, net Gain on disposition of properties Net income 2005 2004 $ 945.0 65.5 $ 1,010.5 $ 703.3 19.7 287.5 $ 1,010.5 2005 $ 118.5 (42.0) (38.9) (19.3) (1.2) (101.4) 17.1 49.8 66.9 $ 2004 61.6 (19.4) (21.2) (9.6) (0.3) (50.5) 11.1 4.4 15.5 $ $ $ $ $ $ $ $ 715.5 29.3 744.8 548.3 15.4 181.1 744.8 2003 38.8 (12.2) (16.1) (5.3) — (33.6) 5.2 0.8 6.0 The Company’s maximum exposure to losses associated with its Preferred Equity investments is primarily limited to its invested capital. As of December 31, 2005 and 2004, the Company’s invested capital in its Preferred Equity investments approximated $225.9 million and $157.0 million, respectively. Kimco Realty Corporation and Subsidiaries Investment in Retail Store Leases — The Company has interests in various retail store leases relating to the anchor store premises in neighborhood and community shopping centers. These premises have been sublet to retailers who lease the stores pursuant to net lease agreements. Income from the investment in these retail store leases during the years ended December 31, 2005, 2004 and 2003, was approximately $9.1 million, $3.9 million and $0.3 million, respectively. These amounts represent sublease revenues during the years ended December 31, 2005, 2004 and 2003, of approximately $17.8 million, $13.3 million and $12.3 million, respectively, less related expenses of $7.4 million, $8.0 million and $10.6 million, respectively, and an amount which, in management’s estimate, reasonably provides for the recovery of the investment over a period representing the expected remaining term of the retail store leases. The Company’s future minimum revenues under the terms of all non-cancelable tenant subleases and future minimum obligations through the remaining terms of its retail store leases, assuming no new or renegotiated leases are executed for such premises, for future years are as follows (in millions): 2006, $7.7 and $5.2; 2007, $7.1 and $4.4; 2008, $5.7 and $3.3; 2009, $4.4 and $2.4; 2010, $3.6 and $2.0; and thereafter, $3.4 and $2.1, respectively. Kimsouth — During November 2002, the Company, through its taxable REIT subsidiary, together with Prometheus Southeast Retail Trust, completed the merger and privatization of Konover Property Trust, which has been renamed Kimsouth Realty, Inc., (“Kimsouth”). The Company acquired 44.5% of the common stock of Kimsouth, which consisted primarily of 38 retail shopping center properties comprising approximately 4.6 million square feet of GLA. Total acquisition value was approximately $280.9 million, including approximately $216.2 million in assumed mortgage debt. The Company’s non-controlling investment in Kimsouth differs from its share of historical net book value of assets and liabilities of Kimsouth. The Company’s investment strategy with respect to Kimsouth includes re-tenanting, repositioning and disposition of the properties. During 2005, Kimsouth disposed of seven shopping center properties, in separate transactions, for an aggregate sales price of approximately $78.9 million, including the assignment of approxi- mately $23.7 million of mortgage debt encumbering two of the properties. During 2005, the Company recognized pre-tax profits from the Kimsouth investment of approximately $4.9 million, which is included in the caption Income from Other Real Estate Investments on the Company’s consolidated Statements of Income. During 2004, Kimsouth disposed of 11 shopping center properties, in separate transactions, for an aggregate sales price of approximately $110.2 million, including the assignment of approximately $2.7 million of mortgage debt encumbering one of the properties. During 2004, the Company recognized pre-tax profits from the Kimsouth investment of approximately $10.6 million, which is included in the caption Income from Other Real Estate Investments on the Company’s Consolidated Statements of Income. During 2003, Kimsouth disposed of 14 shopping center properties, in separate transactions, for an aggregate sales price of approximately $84.0 million, including the assignment of approxi- mately $18.4 million of mortgage debt encumbering six of the properties. During 2003, the Company recognized pre-tax profits from the Kimsouth investment of approximately $12.1 million. Selected financial information for Kimsouth is as follows (in millions): December 31, Assets: Real estate held for sale Other assets Liabilities and Stockholders’ Equity: Mortgages payable Other liabilities Stockholders’ equity 2005 2004 $ 56.7 6.5 $ 63.2 $ 29.4 0.7 33.1 $ 63.2 $ 111.5 7.6 $ 119.1 $ 77.5 1.5 40.1 $ 119.1 Year Ended December 31, Discontinued Operations Revenues from rental property Operating expenses Interest Depreciation and amortization Other, net Gain on disposition of properties Adjustment of property carrying values Net income/(loss) from 2005 2004 2003 $ 9.0 (6.9) (3.1) (0.3) (0.5) (1.8) 12.6 (2.4) $ 21.8 (7.5) (7.9) (4.5) (0.4) 1.5 8.7 (14.3) $ 34.4 (10.5) (13.7) (9.5) (0.1) 0.6 12.8 — discontinued operations $ 8.4 $ (4.1) $ 13.4 As of December 31, 2005, the Kimsouth portfolio was com- prised of five properties, including the remaining office component of an operating property sold in 2004, aggregating approximately 1.2 million square feet of GLA located in four states. Leveraged Lease — During June 2002, the Company acquired a 90% equity participation interest in an existing leveraged lease of 30 properties. The properties are leased under a long-term bond-type net lease whose primary term expires in 2016, with the lessee having certain renewal option rights. The Company’s cash equity investment was approximately $4.0 million. This equity investment is reported as a net investment in leveraged lease in accordance with SFAS No. 13, Accounting for Leases (as amended). During 2002 and 2003, eight of these properties were sold, whereby the proceeds from the sales were used to pay down the mortgage debt by approximately $18.7 million. 65 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) During 2004, three properties were sold, whereby the proceeds 9. Mortgages and Other Financing Receivables: from the sales were used to pay down the mortgage debt by approximately $5.5 million. During 2005, an additional three properties were sold, whereby the proceeds from the sales were used to pay down the mortgage debt by approximately $2.9 million. As of December 31, 2005, the remaining 16 properties were encumbered by third-party non- recourse debt of approximately $52.8 million that is scheduled to fully amortize during the primary term of the lease from a portion of the periodic net rents receivable under the net lease. As an equity participant in the leveraged lease, the Company has no recourse obligation for principal or interest payments on the debt, which is collateralized by a first mortgage lien on the properties and collateral assignment of the lease. Accordingly, this obligation has been offset against the related net rental receivable under the lease. At December 31, 2005 and 2004, the Company’s net invest- ment in the leveraged lease consisted of the following (in millions): Remaining net rentals Estimated unguaranteed residual value Non-recourse mortgage debt Unearned and deferred income Net investment in leveraged lease 2005 $ 68.9 43.8 (52.8) (55.9) $ 4.0 2004 $ 72.5 48.8 (58.4) (59.1) $ 3.8 Ward Venture — During March 2001, through a taxable REIT subsidiary, the Company formed a real estate joint venture (the “Ward Venture”), in which the Company has a 50% interest, for purposes of acquir- ing asset designation rights for substantially all of the real estate property interests of the bankrupt estate of Montgomery Ward LLC and its affiliates. These asset designation rights have provided the Ward Venture the ability to direct the ultimate disposition of the 315 fee and leasehold interests held by the bankrupt estate. The asset designation rights expired in August 2002 for the leasehold positions and expired in December 2004 for the fee- owned locations. During the marketing period, the Ward Venture was responsible for all carrying costs associated with the properties until the property was designated to a user. During 2004, the one remaining property was sold pursuant to an installment sales agreement. Per the agreement, the purchase price for this property will be paid by November 15, 2006. During 2004, the Ward Venture completed transactions on four properties and the Company recognized pre-tax profits of approxi- mately $2.5 million. During 2003, the Ward Venture completed transactions on seven properties and the Company recognized pre-tax profits of approximately $3.5 million. During May 2002, the Company provided a secured $15 mil- lion three-year term loan and a secured $7.5 million revolving credit facility to Frank’s at an interest rate of 10.25% per an- num collateralized by 40 real estate interests. Interest is payable quarterly in arrears. During 2003, the revolving credit facility was amended to increase the total borrowing capacity to $17.5 million. During January 2004, the revolving loan was further amended to provide up to $33.75 million of borrowings from the Company. During September 2004, Frank’s filed for protection under Chap- ter 11 of the U.S. Bankruptcy Code. The Company committed to provide an additional $27.0 million of Debtor-in-Possession financ- ing with a term of one year at an interest rate of Prime plus 1.00% per annum. During July 2005, Frank’s emerged from bankruptcy as FNC and repaid all outstanding amount owed to the Company under the revolving credit facility and Debtor-in-Possession agree- ment (See Note 3 of the Notes to Consolidated Financial State- ments included in this Annual Report). During April 2005, the Company provided a construction loan commitment of up to 53.5 million Mexican Pesos (“MXP”) (approximately USD $5.0 million) to a developer for the construc- tion of a new retail center in Acapulco, Mexico. The loan bears interest at a fixed rate of 11.75% and provides for an additional 20% participation of property cash flow, as defined. This facility is initially interest only and then converts to an amortizing loan at the earlier of 120 days after construction completion or upon opening of the anchor tenant. This facility is collateralized by the related property and matures in May 2015. As of December 31, 2005, there was approximately MXP 53.5 million (USD $5.0 million) outstanding on this loan. Additionally, during April 2005, a newly formed joint venture, in which the Company has a 50% non-controlling interest, provided a retailer with a three-year $28.0 million revolving line of credit at a floating interest rate of Prime plus 5.5% per annum. The facility also provides for a 3.0% unused line fee and a 2.50% origination fee. The facility is collateralized by certain real estate interests of the borrower. As of December 31, 2005, the outstand- ing balance on this facility was $10.2 million of which the Compa- ny’s share was $5.2 million. During May 2005, a newly formed joint venture, in which the Company has a 44.38% non-controlling interest, provided Debtor- in-Possession financing to a healthcare facility that recently filed for bankruptcy and is closing its operations. The term of this loan is two years and bears interest at prime plus 2.5%. The loan is collateralized by a hospital building, a six-story commercial building, a 12-story 133-unit apartment complex and various other building structures. The Company’s share of the outstanding balance of this loan at December 31, 2005, is $2.9 million. Additionally, during May 2005, the Company acquired four mortgage loans collateralized by individual properties with an aggregate face value of approximately $16.6 million for approxi- mately $14.3 million. These performing loans, which provide for monthly payments of principal and interest, bear interest at a fixed- 66 Kimco Realty Corporation and Subsidiaries rate of 7.57% and mature on June 1, 2019. As of December 31, 2005, there was an aggregate of approximately $14.1 million outstanding on these loans. During September 2005, a newly formed joint venture, in which the Company has an 80.00% interest, acquired a $43.6 million mortgage receivable for a purchase price of approximately $34.2 million. The loan bears interest at a rate of three-month LIBOR plus 2.75% per annum and matures on January 12, 2010. The loan is collateralized by a 626 room hotel located in Lake Buena Vista, FL. The Company has determined that this entity is a VIE and has further determined that the Company is the primary beneficiary of this VIE and has therefore consolidated it for financial reporting purposes. As of December 31, 2005, the outstanding loan balance, net of discount, was approximately $35.0 million. During October 2005, the Company provided a construction loan commitment of up to $38.1 million to a developer for acquisition and re-development of a retail center located in Richland Township, PA. The loan is interest only at a rate of LIBOR plus 220 basis points and matures in October of 2007. As of December 31, 2005, the outstanding balance on this loan was approximately $3.2 million. During March 2002, the Company provided a $50.0 million ten-year loan to Shopko Stores, Inc., at an interest rate of 11.0% per annum collateralized by 15 properties. The Company receives principal and interest payments on a monthly basis. During January 2003, the Company sold a $37.0 million participation interest in this loan to an unaffiliated third party. The interest rate on the $37.0 million participation interest is a variable rate based on LIBOR plus 3.50%. The Company continued to act as the servicer for the full amount of the loan. During December 2005, Shopko elected to prepay the outstanding loan balance of approxi- mately $46.7 million in full satisfaction of this loan. Shopko, also paid a prepayment penalty to the Company of $14.0 million. During December 2005, the Company provided a construction loan commitment of up to MXP 39.9 million (approximately USD $3.7 million) to a developer for the construction of a new retail center in Magno Deco, Mexico. The loan bears interest at a fixed rate of 11.75% and provides for an additional 20% participation of property cash flow, as defined. This loan is collateralized by the related property and matures in May 2015. As of December 31, 2005, there was approximately MXP 38.7 million (USD $3.6 million) outstanding on this loan. During July 2004, the Company provided an $11.0 million five-year term loan to a retailer at a floating interest rate of Prime plus 3.00% per annum or, at the borrower’s election, LIBOR plus 5.50% per annum. The facility was interest only, payable monthly in arrears and was collateralized by certain real estate interests of the borrower. During December 2005, the borrower elected to prepay the outstanding loan balance of $11.0 million in full satisfaction of this loan. During March 2002, the Company provided a $15.0 million three-year term loan to Gottchalks, Inc., at an interest rate of 12.00% per annum collateralized by three properties. The Company received principal and interest payments on a monthly basis. During March 2004, Gottchalks, Inc., elected to prepay the remaining outstanding loan balance of approximately $13.2 million in full satisfaction of this loan. During 2003, the Company provided a five-year $3.5 million term loan to Grass America, Inc. (“Grass America”) at an interest rate of 12.25% per annum collateralized by certain real estate interests of Grass America. The Company received principal and interest payments on a monthly basis. During May 2004, Grass America elected to prepay the remaining outstanding loan balance of approximately $3.5 million in full satisfaction of this loan. During April 2004, the Company provided a $2.7 million term loan at a fixed rate of 11.00% and a $4.1 million revolving line of credit at a fixed rate of 12.00% to a retailer. Both facilities are interest only, payable monthly and mature May 1, 2007. As of December 31, 2005, the aggregate outstanding loan balance of these facilities was approximately $4.0 million. During May 2004, the Company provided a construction loan commitment of up to MXP 51.5 million (approximately USD $4.7 million) to a developer for the construction of a retail center in Cancun, Mexico. The loan bears interest at a fixed rate of 11.25% and provides for an additional 20.00% participation of property cash flows, as defined. This facility is initially interest only and then converts to an amortizing loan at the earlier of 120 days after construction completion or upon opening of the grocery anchor tenant. This facility is collateralized by the related property and matures in May 2014. As of December 31, 2005, there was approximately MXP 46.9 million (USD $4.4 million) outstanding on this loan. During September 2004, the Company acquired a $3.5 million mortgage receivable for $2.7 million. The interest rate on this mortgage loan is Prime plus 1.00% per annum with principal and interest paid monthly. This loan matures in February 2006 and is collateralized by a shopping center comprising 0.3 million square feet of GLA in Wilkes-Barre, PA. During May 2005, the borrower elected to prepay the outstanding loan balance in full satisfaction of this loan. During December 2004, the Company provided a $5.2 million interest-only five-year term loan to a grocery chain. The interest rate on this loan is Prime plus 6.50% per annum payable monthly in arrears and is collateralized by certain real estate interests of the borrower. As of December 31, 2005, the outstanding loan balance was approximately $4.1 million. Additionally during December 2004, the Company acquired a $3.3 million 6.90% mortgage receivable for $2.2 million. This mortgage loan pays principal and interest quarterly and matures in February 2019 and is collateralized by a medical office facility in Somerset, PA. As of December 31, 2005, the outstanding loan was approximately $2.2 million. During December 2003, the Company provided a four-year $8.25 million term loan to Spartan Stores, Inc. (“Spartan”) at a fixed rate of 16.00% per annum. This loan was collateralized by 67 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) the real estate interests of Spartan, with the Company receiving principal and interest payments monthly. During December 2004, Spartan elected to prepay the remaining outstanding loan balance of approximately $7.6 million in full satisfaction of this loan. During December 2003, the Company, through a taxable REIT subsidiary, acquired a $24.0 million participation interest in 12% senior secured notes of the FRI-MRD Corporation (“FRI- MRD”) for $13.3 million. These notes, which are currently non- performing, are collateralized by certain equity interests and a note receivable of a FRI-MRD subsidiary. 10. Marketable Securities: The amortized cost and estimated fair values of securities available-for-sale and held-to-maturity at December 31, 2005 and 2004, are as follows (in thousands): December 31, 2005 Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Amortized Cost $ 85,613 $ 63,466 $ (56) $ 149,023 Available-for-sale: Equity securities Held-to-maturity: Other debt securities Total marketable securities 57,429 $ 143,042 3,615 $ 67,081 (1,953) $ (2,009) 59,091 $ 208,114 December 31, 2004 Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Amortized Cost $ 61,042 $ 36,808 $ (87) $ 97,763 Available-for-sale: Equity securities Held-to-maturity: Other debt securities Total marketable securities 26,008 $ 87,050 2,166 $ 38,974 (30) (117) 28,144 $ 125,907 $ As of December 31, 2005, the contractual maturities of Other debt securities classified as held-to-maturity are as follows: within one year, $1.7 million; after one year through five years, $10.3 million; after five years through ten years, $26.7 million and after ten years, $19.3 million. Actual maturities may differ from contractual maturities as issuers may have the right to prepay debt obligations with or without prepayment penalties. 11. Notes Payable: The Company has implemented a medium-term notes (“MTN”) program pursuant to which it may, from time to time, offer for sale its senior unsecured debt for any general corporate purposes, including (i) funding specific liquidity requirements in its business, including property acquisitions, development and redevelopment costs, and (ii) managing the Company’s debt maturities. As of December 31, 2005, a total principal amount of approxi- mately $1.2 billion in senior fixed-rate MTNs was outstanding. These fixed-rate notes had maturities ranging from seven months to ten years as of December 31, 2005, and bear interest at rates ranging from 3.95% to 7.90%. Interest on these fixed-rate senior unsecured notes is payable semi-annually in arrears. Proceeds from these issuances were primarily used for the acquisition of neighbor- hood and community shopping centers, the expansion and improvement of properties in the Company’s portfolio and the repayment of certain debt obligations of the Company. During February 2005, the Company issued $100.0 million of fixed-rate unsecured senior notes under its MTN program. This fixed-rate MTN matures in February 2015 and bears interest at 4.904% per annum. The proceeds from this MTN issuance were primarily used for the repayment of all $20.0 million of the Company’s fixed-rate notes that matured in April 2005, which bore interest at 7.91%; all $10.25 million of the Company’s fixed-rate notes that matured in May 2005, which bore interest at 7.30%; and partial repayment of the Company’s $100.0 million fixed-rate notes, which matured in June 2005 and bore interest at 6.73%. During June 2005, the Company issued $200.0 million of fixed-rate unsecured senior notes under its MTN program. This fixed-rate MTN matures in June 2014 and bears interest at 4.82% per annum. The proceeds from this issuance were primarily used to repay a portion of the outstanding balance under the Company’s U.S. revolving credit facility and for general corporate purposes. During November 2005, the Company issued an aggregate $250.0 million of fixed-rate unsecured senior notes under its MTN program. The Company issued a $150.0 million MTN which matures in November 2015 and bears interest at 5.584% per annum and a $100.0 million MTN which matures in February 2011 and bears interest at 5.304% per annum. Proceeds from these MTN issuances were used for general corporate purposes and to repay a portion of the outstanding balance under the Company’s U.S. revolving credit facility. A portion of the outstanding balance related to the repayment of the Company’s $50.0 million 7.68% fixed-rate notes, which matured on November 1, 2005, and to the repayment of the Company’s $20.0 million 6.83% fixed which matured on November 14, 2005. During April 2005, Kimco North Trust III, a wholly-owned entity of the Company, completed the issuance of $150.0 million Canadian-denominated senior unsecured notes. The notes bear interest at 4.45% and mature on April 21, 2010. The Company has provided a full and unconditional guarantee of the notes. The proceeds were used by Kimco North Trust III to pay down outstanding indebtedness under existing credit facilities, to fund long-term investments in Canadian real estate and for general corporate purposes. The senior unsecured notes are governed by an indenture by and among Kimco North Trust III; the Company, as guarantor; and BNY Trust Company of Canada, as trustee dated April 21, 2005. During July 2004, the Company issued $100.0 million of floating-rate unsecured senior notes under its MTN program. This floating-rate MTN matures August 1, 2006, and bears interest at LIBOR plus 20 basis points per annum (4.45% at 68 Kimco Realty Corporation and Subsidiaries December 31, 2005), payable quarterly in arrears commencing November 1, 2004. The proceeds from this MTN issuance were primarily used for the repayment of the Company’s $85.0 million floating-rate unsecured notes due August 2, 2004, which bore interest at LIBOR plus 50 basis points per annum. The remaining proceeds were used for general corporate purposes. During August 2004, the Company issued $100.0 million of fixed-rate unsecured senior notes under its MTN program. This fixed-rate MTN matures in August 2011 and bears interest at 4.82% per annum payable semi-annually in arrears. The proceeds from this MTN issuance were used to repay the Company’s $50.0 million, 7.62% fixed-rate unsecured senior notes that matured in October 2004 and the Company’s $50.0 million, 7.125% senior notes which matured in June 2004. As of December 31, 2005, the Company had a total principal amount of $549.1 million in fixed-rate unsecured senior notes. These fixed-rate notes had maturities ranging 11 months to seven years as of December 31, 2005, and bear interest at rates ranging from 4.45% to 7.50%. Interest on these fixed-rate senior unsecured notes is payable semi-annually in arrears. The scheduled maturities of all unsecured senior notes payable as of December 31, 2005, were approximately as follows (in millions): 2006, $185.0; 2007, $195.0; 2008, $100.0; 2009, $180.0; 2010, $179.1; and thereafter, $967.0. During July 2005, the Company established a new $850.0 million unsecured revolving credit facility (the “Credit Facility”), which is scheduled to expire in July 2008. This Credit Facility replaces the Company’s $500.0 million unsecured credit facility, which was scheduled to expire in June 2006. Under the Credit Facility funds may be borrowed for general corporate purposes, including the funding of (i) property acquisitions, (ii) development and redevelopment costs and (iii) any short-term working capital requirements. Interest on borrowings under the Credit Facility accrue at a spread (currently 0.45%) to LIBOR and fluctuates in accordance with changes in the Company’s senior debt ratings. As part of this Credit Facility, the Company has a competitive bid option whereby the Company may auction up to $425.0 million of its requested borrowings to the bank group. This competitive bid option provides the Company the opportunity to obtain pricing below the currently stated spread to LIBOR of 0.45%. A facility fee of 0.125% per annum is payable quarterly in arrears. In addition, the Company has a $200.0 million sub-limit which provides it the opportunity to borrow in alternative currencies such as Pounds Sterling, Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the Company, among other things, is (i) subject to maintaining certain maximum leverage ratios on both unsecured senior corporate debt and minimum unencumbered asset and equity levels and (ii) restricted from paying dividends in amounts that exceed 95% of funds from operations, as defined. As of December 31, 2005, there was $200.0 million outstanding (4.68% at December 31, 2005) under the Credit Facility. During September 2004, the Company entered into a three- year Canadian-denominated (“CAD”) $150.0 million unsecured revolving credit facility with a group of banks. This facility bears interest at the CDOR Rate, as defined, plus 0.50% and is sched- uled to expire in September 2007. During March 2005, this facility was increased to CAD $250.0 million, and the scheduled maturity date was extended to March 2008. During January 2006, the facility was further amended to reduce the borrowing spread to 0.45% and to modify the covenant package to conform to the Company’s $850.0 million U.S. credit facility. Proceeds from this facility will be used for general corporate purposes including the funding of Canadian-denominated investments. As of December 31, 2005, there was CAD $110.0 million (approxi- mately US $94.7 million, 3.78% at December 31, 2005) outstand- ing under this facility. During May 2005, the Company entered into a three-year Mexican Peso-Denominated (“MXP”) 500.0 million unsecured revolving credit facility. This facility bears interest at the TIIE Rate, as defined, plus 1.00% and is scheduled to expire in May 2008. Proceeds from this facility will be used to fund peso- denominated investments. As of December 31, 2005, there was MXP 500.0 million (approximately USD $46.7 million 9.66% at December 31, 2005) outstanding under this facility. In accordance with the terms of the Indenture, as amended, pursuant to which the Company’s senior unsecured notes have been issued, the Company is (a) subject to maintaining certain maximum leverage ratios on both unsecured senior corporate and secured debt, minimum debt service coverage ratios and minimum equity levels and (b) restricted from paying dividends in amounts that exceed by more than $26.0 million the funds from operations, as defined, generated through the end of the calendar quarter most recently completed prior to the declaration of such dividend; however, this dividend limitation does not apply to any distribu- tions necessary to maintain the Company’s qualification as a REIT providing the Company is in compliance with its total leverage limitations. 12. Mortgages Payable: During 2005, the Company (i) obtained an aggregate of approximately $95.6 million of individual non-recourse mortgage debt on 53 operating properties, (ii) assumed approximately $79.7 million of individual non-recourse mortgage debt relating to the acquisition of 11 operating properties, including approximately $6.3 million of fair value debt adjustments, (iii) consolidated approximately $33.2 million of non-recourse mortgage debt relating to the purchase of additional ownership interest in various entities, (iv) assigned approximately $119.8 million of individual non-recourse mortgage debt relating to the transfer of 49 operating properties to various co-investment ventures in which the Com- pany has non-controlling interests ranging from 10% to 30%, (v) paid off approximately $66.9 million of individual non-recourse mortgage debt that encumbered 11 operating properties, (vi) deconsolidated approximately $41.4 million of non-recourse mortgage debt relating to the reduction of the Company’s econom- ic interest in a joint venture and (vii) assigned approximately $7.8 69 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) million of non-recourse mortgage debt relating to the sale of an operating property. During 2004, the Company (i) obtained an aggregate of approximately $217.6 million of individual non-recourse mortgage debt on 15 operating properties, (ii) assumed approximately $158.0 million of individual non-recourse mortgage debt relating to the acquisition of 12 operating properties, including approximately $6.0 million of fair value debt adjustments, (iii) assigned approxi- mately $323.7 million of individual non-recourse mortgage debt relating to the transfer of 24 operating properties to various co- investment ventures in which the Company has non-controlling interests ranging from 10% to 30%, (iv) paid off approximately $47.9 million of individual non-recourse mortgage debt that encumbered four operating properties and (v) assigned approxi- mately $9.3 million of non-recourse mortgage debt relating to the sale of one operating property. During 2003, the Company reached agreement with certain lenders in connection with three individual non-recourse mort- gages encumbering three former Kmart sites. The Company paid approximately $14.2 million in full satisfaction of these loans, which aggregated approximately $24.0 million. As a result of these transactions, the Company recognized a gain on early extinguish- ment of debt of approximately $9.7 million during 2003, of which $6.8 million is included in Income from discontinued operations. Mortgages payable, collateralized by certain shopping center properties and related tenants’ leases, are generally due in monthly installments of principal and/or interest which mature at various dates through 2035. Interest rates range from approximately 4.00% to 10.50% (weighted-average interest rate of 7.48% as of December 31, 2005). The scheduled principal payments of all mortgages payable, excluding unamortized fair value debt adjust- ments of approximately $15.5 million, as of December 31, 2005, were approximately as follows (in millions): 2006, $21.7; 2007, $17.3; 2008, $60.0; 2009, $20.5; 2010, $23.2; and thereafter, $157.1. One of the Company’s properties was encumbered by approxi- mately $6.4 million in floating-rate, tax-exempt mortgage bond financing. The rate on these bonds was reset annually, at which time bondholders had the right to require the Company to repurchase the bonds. The Company had engaged a remarketing agent for the purpose of offering for resale the bonds in the event they were tendered to the Company. All bonds tendered for redemption in the past were remarketed and the Company had arrangements, including letters of credit, with banks, to both collateralize the principal amount and accrued interest on such bonds and to fund any repurchase obligations. During 2004, the Company fully paid the outstanding balance of this tax-exempt mortgage bond financing. 13. Construction Loans Payable: During 2005, the Company obtained a term loan and construc- tion financing on two ground-up development projects for an aggregate original loan commitment amount of up to $50.5 million, of which approximately $22.4 million was outstanding at December 31, 2005. As of December 31, 2005, the Company had a total of 15 construction loans with total commitments of up to $343.5 million, of which $228.5 million had been funded. These loans had maturities ranging from four to 31 months and variable interest rates ranging from 6.04% to 6.64% at December 31, 2005. These construction loans are collateralized by the respective projects and associated tenants’ leases. The scheduled maturities of all construction loans payable as of December 31, 2005, were approximately as follows (in millions): 2006, $87.7; 2007, $86.3; and 2008, $54.5. 14. Fair Value Disclosure of Financial Instruments: All financial instruments of the Company are reflected in the accompanying Consolidated Balance Sheets at amounts which, in management’s estimation based upon an interpretation of available market information and valuation methodologies, reasonably approximate their fair values except those listed below, for which fair values are reflected. The valuation method used to estimate fair value for fixed-rate debt and minority interests relating to mandatorily redeemable non-controlling interests associated with finite-lived subsidiaries of the Company is based on discounted cash flow analyses. The fair values for marketable securities are based on published or securities dealers’ estimated market values. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition. The following are financial instruments for which the Company’s estimate of fair value differs from the carrying amounts (in thousands): December 31, 2005 2004 Carrying Amounts $ 206,452 $ 2,147,405 $ 315,336 Estimated Fair Value $ 208,114 $ 2,172,031 $ 330,897 Carrying Amounts $ 123,771 $ 1,608,925 $ 353,071 Estimated Fair Value $ 125,907 $ 1,663,474 $ 375,566 $ 1,782 $ 4,934 $ 2,057 $ 3,842 Marketable Securities Notes Payable Mortgages Payable Mandatorily Redeemable Minority Interests (termination dates ranging from 2019 – 2027) 15. Financial Instruments - Derivatives and Hedging: The Company is exposed to the effect of changes in interest rates, foreign currency exchange rate fluctuations and market value fluctuations of equity securities. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. The principal financial instruments generally used by the Company are interest rate swaps, foreign currency exchange forward contracts, cross currency swaps and warrant contracts. The Company, from time to time, hedges the future cash flows of its floating-rate debt instruments to reduce exposure to interest rate risk principally through interest rate swaps with major financial institutions. The Company had no interest rate swaps outstanding during 2004 and 2005. 70 Kimco Realty Corporation and Subsidiaries As of December 31, 2005 and 2004, respectively, the Company had foreign currency forward contracts designated as net invest- ment hedges of its Canadian investments in real estate of approxi- mately CAD $5.2 million and CAD $184.6 million. During 2005, the Company settled approximately CAD $179.4 million of CAD forward contracts. The Company did not sell or substantially liquidate any of the hedged investments. As of December 31, 2004, the Company had a foreign currency forward contract designated as a fair value hedge of its Canadian investments in real estate aggregating approximately CAD $5.0 million. In April 2005, the Company settled the CAD $5.0 million foreign currency contract. In addition, the Company had a cross currency swap with an aggregate notional amount of approximately $82.4 million pesos (“MXP”) (approximately USD $7.8 million) designated as a hedge of its Mexican real estate investments at December 31, 2005 and 2004, respectively. The Company has designated these foreign currency agreements as net investment hedges of the foreign currency exposure of its net investment in Canadian and Mexican real estate operations. The Company believes these agreements are highly effective in reducing the exposure to fluctuations in exchange rates. As such, gains and losses on these net investment hedges were reported in the same manner as a translation adjustment. During 2005 and 2004, respectively, $0.7 million and $15.1 million of unrealized losses and $3.2 million and $0.0 million of unrealized gains were included in the cumulative translation adjustment relating to the Company’s net investment hedges of its Canadian and Mexican investments. During 2001, the Company acquired warrants to purchase 2.5 million shares of common stock of a Canadian REIT. The Company designated the warrants as a cash flow hedge of the variability in expected future cash outflows upon purchasing the common stock. The change in fair value of the warrants represent- ing unrealized gains was recorded in OCI. The net unrealized gains, since inception recorded in OCI as of December 31, 2004, were approximately $12.5 million. The Company exercised its warrants in October of 2004. During 2005, the Company sold 0.2 million shares of common stock of the Canadian REIT resulting in a reclassification of $0.7 million of OCI balance to earnings as other income. The following tables summarize the notional values and fair values of the Company’s derivative financial instruments as of December 31, 2005 and 2004: As of December 31, 2005 Hedge Type Foreign currency forwards — net investment MXP cross currency swap — net investment Notional Value CAD $5.2 million 1.4013 Rate Maturity 7/06 Fair Value (in millions) ($0.8) MXP $82.4 million 7.227 10/07 ($0.2) 71 As of December 31, 2004 Notional Value CAD $184.6 million 1.4013— 1.6194 Rate Maturity 1/05— 7/06 Fair Value (in millions) $ (37.5) MXP $82.4 million 7.227 10/07 $ 0.3 CAD $5.0 million 1.5918 4/05 $ (1.0) Hedge Type Foreign currency forwards — net investment MXP cross currency swap — net investment Foreign currency forward — fair value As of December 31, 2005 and 2004, these derivative instru- ments were reported at their fair value as other liabilities of $1.0 million and $38.5 million, respectively, and other assets of $0.3 million as of December 31, 2004. The Company does not expect to reclassify to earnings any of the current balance during the next 12 months. 16. Preferred Stock, Common Stock and Convertible Unit Transactions: At January 1, 2003, the Company had outstanding 3,000,000 Depositary Shares (the “Class A Depositary Shares”), each such Class A Depositary Share representing a one-tenth fractional interest of a share of the Company’s 7¾ % Class A Cumulative Redeemable Preferred Stock, par value $1.00 per share (the “Class A Preferred Stock”), 2,000,000 Depositary Shares (the “Class B Depositary Shares”), each such Class B Depositary Share represent- ing a one-tenth fractional interest of a share of the Company’s 8½ % Class B Cumulative Redeemable Preferred Stock, par value $1.00 per share (the “Class B Preferred Stock”) and 4,000,000 Depositary Shares (the “Class C Depositary Shares”), each such Class C Depositary Share representing a one-tenth fractional interest of a share of the Company’s 8⅜ % Class C Cumulative Redeemable Preferred Stock, par value $1.00 per share (the “Class C Preferred Stock”). During June 2003, the Company redeemed all 2,000,000 outstanding Depositary Shares of the Company’s Class B Preferred Stock, all 3,000,000 outstanding Depositary Shares of the Compa- ny’s Class A Preferred Stock and all 4,000,000 outstanding Deposi- tary Shares of the Company’s Class C Preferred Stock, each at a redemption price of $25.00 per Depositary Share, totaling $225.0 million, plus accrued dividends. In accordance with Emerging Issues Task Force (“EITF”) D-42, the Company deducted from the calculation of net income available to common shareholders original issuance costs of approximately $7.8 million associated with the redemption of the Class A Preferred Stock, Class B Preferred Stock and Class C Preferred Stock. During June 2003, the Company issued 7,000,000 Depositary Shares (the “Class F Depositary Shares”), each such Class F Depositary Share representing a one-tenth fractional interest of a share of the Company’s 6.65% Class F Cumulative Redeemable Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Liquidation Rights - In the event of any liquidation, dissolution Disposition of real estate Preferred Stock, par value $1.00 per share (the “Class F Preferred Stock”). Dividends on the Class F Depositary Shares are cumula- tive and payable quarterly in arrears at the rate of 6.65% per annum based on the $25.00 per share initial offering price, or $1.6625 per annum. The Class F Depositary Shares are redeem- able, in whole or part, for cash on or after June 5, 2008, at the option of the Company, at a redemption price of $25.00 per Depositary Share, plus any accrued and unpaid dividends thereon. The Class F Depositary Shares are not convertible or exchangeable for any other property or securities of the Company. Net proceeds from the sale of the Class F Depositary Shares, totaling approxi- mately $169.0 million (after related transaction costs of $6.0 million) were used to redeem all of the Company’s Class B Preferred Stock and Class C Preferred Stock and to fund a portion of the redemption of the Company’s Class A Preferred Stock. Voting Rights - As to any matter on which the Class F Preferred Stock (“Preferred Stock”) may vote, including any action by written consent, each share of Preferred Stock shall be entitled to 10 votes, each of which 10 votes may be directed separately by the holder thereof. With respect to each share of Preferred Stock, the holder thereof may designate up to 10 proxies, with each such proxy having the right to vote a whole number of votes (totaling 10 votes per share of Preferred Stock). As a result, each Class F Depositary Share is entitled to one vote. or winding up of the affairs of the Company, the Preferred Stock holders are entitled to be paid, out of the assets of the Company legally available for distribution to its stockholders, a liquidation preference of $250.00 per share ($25.00 per Class F Depositary Share), plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of the Company’s common stock or any other capital stock that ranks junior to the Preferred Stock as to liquidation rights. During June 2003, the Company completed a primary public stock offering of 2,070,000 shares of the Company’s common stock. The net proceeds from this sale of common stock, totaling approximately $76.0 million (after related transaction costs of $0.7 million) were used for general corporate purposes, including the acquisition of interests in real estate properties. During September 2003, the Company completed a primary public stock offering of 2,760,000 shares of the Company’s common stock. The net proceeds from this sale of common stock, totaling approximately $112.7 million (after related transaction costs of $1.0 million) were used for general corporate purposes, including the acquisition of interests in real estate properties. During October 2002, the Company acquired an interest in a shopping center property located in Daly City, CA, valued at $80.0 million, through the issuance of approximately 4.8 million Convertible Units which are convertible at a ratio of 1:1 into the Company’s common stock. The unit holder has the right to convert the Convertible Units at any time after one year. In addition, the Company has the right to mandatorily require a 72 conversion after ten years. If at the time of conversion the common stock price for the 20 previous trading days is less than $16.785 per share, the unit holder would be entitled to additional shares; however, the maximum number of additional shares is limited to 503,932 based upon a floor common stock price of $15.180. The Company has the option to settle the conversion in cash. Divi- dends on the Convertible Units are paid quarterly at the rate of the Company’s common stock dividend multiplied by 1.1057. The value of the Convertible Units is included in Minority interests in partnerships on the accompanying Consolidated Balance Sheets. 17. Supplemental Schedule of Non-Cash Investing/ Financing Activities: The following schedule summarizes the non-cash investing and financing activities of the Company for the years ended December 31, 2005, 2004 and 2003, (in thousands): Acquisition of real estate interests by assumption of mortgage debt Acquisition of real estate interest by issuance of downREIT units interests by assignment of downREIT units Acquisition of real estate interests through proceeds held in escrow Disposition/transfer of real estate interests by assignment of mortgage debt Proceeds held in escrow through sale of real estate interests Notes received upon disposition of real estate interests Notes received upon exercise of stock options Declaration of dividends 2005 2004 2003 $ 73,400 $151,987 $180,893 $ — $ 28,349 $ 4,236 $ 24,114 $ — $ 69,681 $ $ $ — — — $ 166,108 $320,120 $ 23,068 $ 19,217 $ 9,688 $ 41,194 $ $ — $ 6,277 $ 14,490 — $ — $ 100 paid in succeeding period $ 78,169 $ 71,497 $ 65,969 18. Transactions with Related Parties: The Company, along with its joint venture partner, provided KROP short-term interim financing for all acquisitions by KROP for which a mortgage was not in place at the time of closing. All such financing had maturities of less than one year and bore interest at rates ranging from LIBOR plus 4.0% to LIBOR plus 5.25% for the years ended December 31, 2005 and 2004, respec- Kimco Realty Corporation and Subsidiaries tively. KROP had no outstanding short-term interim financing due to GECRE and the Company as of December 31, 2005 and 2004, respectively. The Company earned approximately $24,000 and $0.2 million during 2005 and 2004, respectively, related to such interim financing. The Company provides management services for shopping centers owned principally by affiliated entities and various real estate joint ventures in which certain stockholders of the Company have economic interests. Such services are performed pursuant to management agreements which provide for fees based upon a percentage of gross revenues from the properties and other direct costs incurred in connection with management of the centers. In December 2004, in conjunction with the Price Legacy transaction, the Company, which holds a 15% non-controlling interest, provided the acquiring joint venture approximately $30.6 million of secured mezzanine financing. This interest-only loan bears interest at a fixed rate of 7.5% per annum payable monthly in arrears and matures in December 2006. The Company also provided PL Retail a secured short-term promissory note for approximately $8.2 million. This interest only note bore interest at LIBOR plus 4.5% and was scheduled to mature in June 2005. During 2005, this note was amended to bear interest at LIBOR plus 6.0% and is now payable on demand. As of December 31, 2005, PL Retail had approximately $8.9 million outstanding on the mezzanine financing and approximately $8.2 million outstand- ing on the promissory note. Reference is made to Notes 7 and 8 for additional information regarding transactions with related parties. 19. Commitments and Contingencies: The Company and its subsidiaries are primarily engaged in the operation of shopping centers which are either owned or held under long-term leases which expire at various dates through 2087. The Company and its subsidiaries, in turn, lease premises in these centers to tenants pursuant to lease agreements which provide for terms ranging generally from 5-to-25 years and for annual mini- mum rentals plus incremental rents based on operating expense levels and tenants’ sales volumes. Annual minimum rentals plus incremental rents based on operating expense levels comprised approximately 99% of total revenues from rental property for each of the three years ended December 31, 2005, 2004 and 2003. The future minimum revenues from rental property under the terms of all non-cancellable tenant leases, assuming no new or renegotiated leases are executed for such premises, for future years are approximately as follows (in millions): 2006, $388.5; 2007, $359.7; 2008, $319.0; 2009, $282.8; 2010, $243.2 and thereafter, $1,437.8. Minimum rental payments under the terms of all non-cancela- ble operating leases pertaining to the Company’s shopping center portfolio for future years are approximately as follows (in millions): 2006, $11.3; 2007, $10.6; 2008, $10.5; 2009, $10.0; 2010, $8.3 and thereafter, $140.8. The Company has issued letters of credit in connection with completion and repayment guarantees for construction loans encumbering certain of the Company’s ground-up development projects and guaranty of payment related to the Company’s insurance program. These letters of credit aggregate approximately $34.8 million. Additionally, the RioCan Venture, an entity in which the Company holds a 50% non-controlling interest, has a CA $7.0 million (approximately US $6.0 million) letter of credit facility. This facility is jointly guaranteed by RioCan and the Company and had approximately CAD $4.6 million (approximately US $4.0 million) outstanding as of December 31, 2005, relating to various development projects. In addition to the letter of credit facility, various additional Canadian development projects in which the Company holds interests ranging from 33⅓% to 50% have letters of credit issued aggregating approximately CAD $3.5 million (approximately US $3.0 million) at December 31, 2005. During 2005, a joint venture entity in which the Company has a non-controlling interest obtained a CAD $22.5 million credit facility to finance the construction of a 0.1 million square foot shopping center located in Kamloops, B.C. This facility bears interest at RBP plus 0.5% per annum and is scheduled to mature in May 2007. The Company and its partner in this entity each have a limited and several guarantee of CAD $7.5 million related to this facility. As of December 31, 2005, there was no outstanding balance on this facility. During 2003, the limited partners in KIR, an entity in which the Company holds a 43.3% non-controlling interest, contributed $30.0 million towards their respective capital commitments, including $13.0 million by the Company. As of December 31, 2003, KIR had unfunded capital commitments of $99.0 million, including $42.9 million from the Company. During 2004, the KIR partners elected to cancel the remaining unfunded capital commitments. The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Management believes that the final outcome of such matters will not have a material adverse effect on the financial position, results of operations or liquidity of the Company. 20. Incentive Plans: The Company maintains a stock option plan (the “Plan”) pursuant to which a maximum of 37,000,000 shares of the Company’s common stock may be issued for qualified and non- qualified options. Options granted under the Plan generally vest ratably over a three- or five-year term, expire ten years from the date of grant and are exercisable at the market price on the date of grant, unless otherwise determined by the Board at its sole discre- tion. In addition, the Plan provides for the granting of certain options to each of the Company’s non-employee directors (the “Independent Directors”) and permits such Independent Directors to elect to receive deferred stock awards in lieu of directors’ fees. 73 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Information with respect to stock options under the Plan for the years ended December 31, 2005, 2004 and 2003, is as follows: Options outstanding, January 1, 2003 Exercised Granted Forfeited Options outstanding, December 31, 2003 Exercised Granted Forfeited Options outstanding, December 31, 2004 Exercised Granted Forfeited Options outstanding, December 31, 2005 Options exercisable — December 31, 2003 December 31, 2004 December 31, 2005 corporate federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under the Code. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property and federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal, state and local income taxes. Reconciliation between GAAP Net Income and Federal Taxable Income: The following table reconciles GAAP net income to taxable income for the years ended December 31, 2005, 2004 and 2003, (in thousands): Weighted-Average Exercise Price Per Share $13.69 $11.96 $21.67 $15.58 $15.62 $13.63 $27.72 $19.25 $19.06 $14.23 $31.15 $23.59 $22.06 Shares 14,204,146 (2,156,406) 3,242,876 (179,006) 15,111,610 (3,379,748) 3,887,500 (379,790) 15,239,572 (2,963,910) 2,515,200 (239,566) 14,551,296 7,239,548 8,135,762 8,167,681 $13.24 $14.95 $17.63 GAAP net income Less: GAAP net income of taxable REIT subsidiaries GAAP net income from REIT 2005 (Estimated) $363,628 2004 (Actual) $ 297,137 2003 (Actual) $ 307,879 (21,666) (19,396) (12,814) The exercise prices for options outstanding as of December 31, 2005, range from $9.13 to $32.86 per share. The weighted-average remaining contractual life for options outstanding as of December 31, 2005, was approximately 7.5 years. Options to purchase 3,817,066, 6,332,266 and 10,219,766 shares of the Company’s common stock were available for issuance under the Plan at December 31, 2005, 2004 and 2003, respectively. The Company maintains a 401(k) retirement plan covering substantially all officers and employees, which permits participants to defer up to the maximum allowable amount determined by the Internal Revenue Service of their eligible compensation. This deferred compensation, together with Company matching contri- butions, which generally equal employee deferrals up to a maxi- mum of 5% of their eligible compensation (capped at $170,000), is fully vested and funded as of December 31, 2005. The Company contributions to the plan were approximately $1.1 million, $1.0 million and $0.8 million for the years ended December 31, 2005, 2004 and 2003, respectively. 21. Income Taxes: The Company elected to qualify as a REIT in accordance with the Code commencing with its taxable year which began January 1, 1992. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a require- ment that it currently distribute at least 90% of its adjusted REIT taxable income to its stockholders. It is management’s intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to operations (a) 341,962 277,741 295,065 Net book depreciation in excess of (less than) tax depreciation Deferred and prepaid rents Exercise of non-qualified stock 6,072 (3,800) 4,716 (7,200) (36,663) (6,000) options (33,752) (28,022) (11,370) Book/tax differences from investments in real estate joint ventures Book/tax difference on sale of (3,350) (6,350) (2,472) real property (33,863) (18,799) (32,319) Valuation adjustment of foreign currency contracts 2,537 (21,697) (15,466) Book adjustment of property carrying values Other book/tax differences, net Adjusted taxable income subject to 90% dividend requirements — 16,980 7,116 8,419 4,016 (6,747) $292,786 $ 215,924 $ 188,044 Certain amounts in the prior periods have been reclassified to conform to the current year presentation. (a) All adjustments to “GAAP net income from REIT operations” are net of amounts attributable to minority interest and taxable REIT subsidiaries. Reconciliation between Cash Dividends Paid and Dividends Paid Deductions (in thousands): For the year ended December 31, 2005, cash dividends paid were equal to the dividends paid deduction and amounted to $293,345. Cash dividends paid exceeded the dividends paid deduction for the years ended December 31, 2004 and 2003 and amounted to $265,254 and $246,301, respectively. 74 Kimco Realty Corporation and Subsidiaries Characterization of Distributions: The Company’s deferred tax assets and liabilities at December The following characterizes distributions paid for the years 31, 2005 and 2004, were as follows (in millions): ended December 31, 2005, 2004 and 2003, (in thousands): 2005 2004 2003 Deferred Tax assets: Operating losses - FNC Other Valuation allowance Total deferred tax assets Deferred tax liabilities Net deferred tax assets 2005 2004 $ $ 59.4 16.3 (33.8) 41.9 (12.8) 29.1 $ — 11.8 — 11.8 (7.3) 4.5 $ Deferred tax assets and deferred tax liabilities are included in the caption Other assets and Other liabilities on the accompanying Consolidated Balance Sheets at December 31, 2005 and 2004. Operating losses and the valuation allowance are due to the Company’s consolidation of FNC for accounting and reporting purposes and relate to pre-bankruptcy emergence operating losses incurred by Frank’s. At December 31, 2005, FNC had approxi- mately $152.2 million of net operating loss carry forwards that expire from 2022 through 2025, with a tax value of approximately $59.4 million. A valuation allowance of $33.8 million has been established for a portion of these deferred tax assets. Other deferred tax assets and deferred tax liabilities relate primarily to differences in the timing of the recognition of income/(loss) between the GAAP and tax basis of accounting for (i) real estate joint ventures, (ii) other real estate investments and (iii) other deductible temporary differences. The Company believes that, based on its operating strategy and consistent history of profitabil- ity, it is more likely than not that the net deferred tax assets of $29.1 million will be realized on future tax returns, primarily from the generation of future taxable income. The income tax provision differs from the amount computed by applying the statutory federal income tax rate to taxable income before income taxes as follows (in thousands): Federal provision at statutory tax rate (35%) 2005 $ 11,522 2004 9,700 $ State and local taxes, net of 2,140 1,801 federal benefit Other (2,408) $ 11,254 (3,181) 8,320 $ 2003 7,465 1,049 — 8,514 $ $ Preferred Dividends Ordinary income $ 10,009 Capital gain 1,629 84% 16% — $ 11,638 100% $ 11,638 100% $ 15,620 100% 86% $ 11,638 100% $ 13,169 2,451 14% — Common Dividends Ordinary income $ 242,268 Capital gain 39,439 Return of capital — 74% 14% 12% $ 281,707 100% $ 253,616 100% $ 230,681 100% 86% $ 210,501 — 14% 43,115 — 83% $ 171,071 31,840 27,770 — 17% Total dividends distributed $ 293,345 $ 265,254 $ 246,301 Taxable REIT Subsidiaries (“TRS”): The Company is subject to federal, state and local income taxes on the income from its TRS activities, which include Kimco Realty Services (“KRS”), a wholly owned subsidiary of the Company and the consolidated entities of FNC and Blue Ridge Real Estate Company/Big Boulder Corporation. Income taxes have been provided for on the asset and liability method as required by Statement of Financial Accounting Stand- ards No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of the TRS assets and liabilities. The Company’s taxable income for book purposes and provi- sion for income taxes relating to the Company’s TRS and taxable entities which have been consolidated for accounting reporting purposes, for the years ended December 31, 2005, 2004 and 2003, are summarized as follows (in thousands): Income before income taxes Less provision for income taxes: Federal State and local Total tax provision 2005 2003 $ 32,920 $ 27,716 $ 21,328 2004 9,446 1,808 11,254 6,939 1,381 8,320 7,104 1,410 8,514 GAAP net income from taxable REIT subsidiaries $ 21,666 $ 19,396 $ 12,814 75 Kimco Realty Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 22. Supplemental Financial Information: The following represents the results of operations, expressed in thousands except per share amounts, for each quarter during the years 2005 and 2004: Accounts and notes receivable in the accompanying Consoli- dated Balance Sheets net of estimated unrecoverable amounts, were approximately $8.5 million and $8.7 million at December 31, 2005 and 2004, respectively. 2005 (Unaudited) Mar. 31 June 30 Sept. 30 Dec. 31 Revenues from rental property(1) $ 129,314 $ 126,658 $ 129,585 $ 136,988 $ 86,780 $ 83,837 $ 85,343 $ 107,668 Net income Net income per common share: Basic Diluted $ $ Revenues from rental property(1) Net income Net income per common share: Basic Diluted .37 $ .37 $ .36 $ .35 $ .36 $ .36 $ .46 .44 2004 (Unaudited) Mar. 31 June 30 Sept. 30 Dec. 31 $137,733 $127,645 $120,000 $122,263 $ 71,389 $ 71,430 $ 78,511 $ 75,807 $ $ .31 $ .30 $ .31 $ .31 $ .34 $ .33 $ .32 .32 (1) All periods have been adjusted to reflect the impact of operating properties sold during 2005 and 2004 and properties classified as held for sale as of December 31, 2005, which are reflected in the caption Discontinued operations on the accompanying Consolidated Statements of Income. 23. Pro Forma Financial Information (Unaudited): As discussed in Notes 3, 4 and 5, the Company and certain of its subsidiaries acquired and disposed of interests in certain operating properties during 2005. The pro forma financial information set forth below is based upon the Company’s historical Consolidated Statements of Income for the years ended December 31, 2005 and 2004, adjusted to give effect to these transactions as of January 1, 2004. The pro forma financial information is presented for informa- tional purposes only and may not be indicative of what actual results of operations would have been had the transactions oc- curred on January 1, 2004, nor does it purport to represent the results of operations for future periods. (Amounts presented in millions, except per share figures.) Year ended December 31, Revenues from rental property Net income Net income per common share: Basic Diluted 2005 $535.5 $331.2 $ 1.41 $ 1.38 2004 $ 521.9 $ 282.4 $ 1.21 $ 1.19 76 122900_Text1_R2 4/5/06 10:30 AM Page 77 Kimco Realty Corporation and Subsidiaries Glossary of Terms Asset Designation Rights Rights to assign, sell, transfer or reject a bankrupt estate’s title and interest in leased or owned properties. Kimco acquired asset designation rights from the former Montgomery Ward stores in 2001 and the former Hechinger stores in 1999. Core-Based Statistical Areas (CBSAs) Metropolitan and Micropolitan Statistical Areas are collectively referred to as Core-Based Statistical Areas. Metropolitan statis- tical areas have at least one urbanized area of 50,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties. Micropolitan statistical areas are a new set of statistical areas that have at least one urban cluster of at least 10,000 but less than 50,000 population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties. Debt Service The periodic payment of principle and interest on unsecured bonds, mortgages or other borrowings. Debtor in Possession (DIP) A company that continues to operate while going through Chapter 11 bankruptcy proceedings. Fee Simple Ownership Real Estate (Fee) Fee ownership of real estate is a fee without limitation or restrictions on transfer of ownership. Fixed Charges Payment of debt service plus preferred stock dividend payments and ground lease payments. Funds From Operations (FFO) A supplemental non-GAAP financial measurement used as a standard in the real estate industry to measure and compare the operating performance of real estate companies. Equal to a REIT’s net income, excluding gains from sales of operating properties, and adding back real estate depreciation. Gross Leasable Area (GLA) Measure of the total amount of leasable space in a commercial property. Internal Growth The maximum rate of growth a given company is able to achieve without funding additional investment. Leasehold Interest in Real Estate Financial interest in real estate evidenced by a contract (lease) whereby one receives the use of real estate or facilities for a spec- ified term and for a specified rent. Lease Rejection Bankruptcy rules permit a tenant in bankruptcy to eliminate its obligations to pay rent under a lease subject to certain payments to landlords for damages. Non-Recourse Mortgage Debt Non-recourse mortgage debt is generally defined as debt whereby the lenders’ sole recourse with respect to borrower defaults is lim- ited to the value of the property collaterized by the mortgage. 1031 Exchange A 1031 exchange allows sellers to defer 100% of the federal and state capital gains taxes associated with the sale of property held for investment purposes. Kimco facilitates exchanges by matching buyers of exchange properties with sellers of investment properties or by selling properties from its portfo- lio of net leased properties to exchange buyers. Payout Ratio The ratio of a REIT’s annual dividend rate to its FFO on a basic per share basis. Real Estate Investment Trust (REIT) A REIT is a company dedicated to owning and, in most cases, oper- ating income-producing real estate, such as shopping centers, offices and warehouses. Some REITs also engage in financing real estate. REIT Modernization Act of 1999 Federal tax law change, the provisions of which allow a REIT to own up to 100% of stock of a taxable REIT subsidiary that can provide services to REIT tenants and others. The law also changed the minimum distribution requirement from 95% to 90% of a REIT’s taxable income—consistent with the rules for REITs from 1960 to 1980. Revolving Credit Facility Credit agreement with a lending institution or institutions, whereby the Company may withdraw funds as needed at a vari- able rate of interest. Kimco’s credit agreement has a limit of $850 million and accrues interest at a spread of 0.45% to LIBOR (London Interbank Offered Rate). Stock Split Occurred on December 22, 1995, December 21, 2001, and August 24, 2005, when Kimco issued new shares of stock at a rate of 0.5, 0.5, and 1.0, respectively for each share owned by shareholders of record in the form of a stock dividend. This action in turn lowered the market price of Kimco stock to a level proportionate to the pre-split price. Taxable REIT Subsidiary (TRS) Created by the REIT Modernization Act of 1999. A TRS is a subsidiary of a REIT that may provide services to the REIT’s tenants and others and is required to pay federal income tax without disqualifying the Company’s REIT status. Total Market Capitalization The total market value of outstanding common stock, the liqui- dation value of preferred stock and all outstanding indebtedness. Total Return A stock’s dividend income plus capital appreciation, before taxes and commissions. 77 122900_Text1_R2 4/5/06 10:30 AM Page 78 Corporate Directory Kimco Realty Corporation and Subsidiaries Executive Officers Milton Cooper Chairman and Chief Executive Officer Michael J. Flynn Vice Chairman, President and Chief Operating Officer David B. Henry Vice Chairman and Chief Investment Officer Executive Offices 3333 New Hyde Park Road Suite 100 New Hyde Park, NY 11042 516-869-9000 www.kimcorealty.com Regional Offices Leasing Mesa, AZ 480-890-1600 Irvine, CA 949-252-3880 Sacramento, CA 916-349-7474 Walnut Creek, CA 925-977-9011 Hartford, CT 860-678-7799 Hollywood, FL 954-923-8444 Margate, FL 954-977-7340 Sanford, FL 407-302-4400 Thomas A. Caputo Executive Vice President Glenn G. Cohen Vice President and Treasurer Raymond Edwards Vice President Jerald Friedman Executive Vice President Bruce M. Kauderer Vice President, Legal General Counsel and Secretary Michael V. Pappagallo Executive Vice President and Chief Financial Officer Canada Toronto, ON 416-593-6622 Mexico Selma, TX 210-566-7610 Largo, FL 727-536-3287 Rosemont, IL 847-299-1160 Columbia, MD 443-367-0110 Lutherville, MD 410-684-2000 Charlotte, NC 704-367-0131 Cary, NC 919-859-7499 New York, NY 212-972-7456 Canfield, OH 330-702-8000 Dayton, OH 937-434-5421 Dallas, TX 214-720-0559 Houston, TX 832-242-6913 Woodbridge, VA 703-583-0071 Development Los Angeles, CA 310-284-6000 Lisle, IL 630-322-9200 78 122900_Text1_R2 4/5/06 10:30 AM Page 79 Corporate Directory Kimco Realty Corporation and Subsidiaries Counsel Latham & Watkins New York, NY Auditors PricewaterhouseCoopers LLP New York, NY Registrar and Transfer Agent The Bank of New York Shareholder Relations Department P.O. Box 11258 Church Street Station New York, NY 10286 1-866-557-8695 Website: www.stockbny.com Email: Shareowners@bankofny.com Stock Listings Investor Relations NYSE—Symbols KIM, KIMprF On May 27, 2005, the Company’s Chief Executive Officer submitted to the New York Stock Exchange the annual certification required by Section 303A.12(a) of the NYSE Company Manual. In addition, the Company has filed with the Securities and Exchange Commission as exhibits to its Form 10-K for the fiscal year ended December 31, 2005 the certifications, required pursuant to Section 302 of the Sarbanes-Oxley Act, of its Chief Executive Officer and Chief Financial Officer relating to the quality of its public disclosure. A copy of the Company’s Annual Report to the U.S. Securities and Exchange Commission on Form 10-K may be obtained at no cost to stockholders by writing to: Scott G. Onufrey Vice President Kimco Realty Corporation 3333 New Hyde Park Road, Suite 100 New Hyde Park, NY 11042 516-869-7288 E-mail: ir@kimcorealty.com Annual Meeting of Stockholders Stockholders of Kimco Realty Corporation are cordially invited to attend the 2006 Annual Meeting of Stockholders scheduled to be held on May 18, 2006, at 270 Park Avenue, New York, NY, Floor 11, at 10:00 a.m. Dividend Reinvestment and Common Stock Purchase Plan The Company’s Dividend Reinvestment and Common Stock Purchase Plan provides common and preferred stockholders with an opportunity to conveniently and economically acquire Kimco common stock. Stockholders may have their dividends automatically directed to our transfer agent to purchase common shares without paying any brokerage commissions. Requests for booklets describing the Plan, enrollment forms and any correspondence or questions regarding the Plan should be directed to: The Bank of New York Kimco Realty Corporation P.O. Box 1958 Newark, NJ 07101-9774 1-866-557-8695 Holders of Record Holders of record of the Company’s com- mon stock, par value $.01 per share, totaled 2,236 as of March 24, 2006. Stock Price and Dividend Information 2005: First Quarter Second Quarter Third Quarter Fourth Quarter 2004: First Quarter Second Quarter Third Quarter Fourth Quarter Stock Price High Low Dividends Paid Per Common Share(1) $29.09 $30.00 $33.35 $33.21 $25.66 $25.60 $25.90 $29.64 $25.90 $26.17 $29.19 $27.81 $21.88 $19.77 $22.42 $25.27 $0.305 $0.305 $0.305 $0.330 $0.285 $0.285 $0.285 $0.285 (1) The Company has determined that the $1.25 dividend per common share paid during 2005 represented 86% ordinary income and a 14% capital gain to its stockholders, or approximately $1.07 represented ordinary income and $0.18 represented a capital gain. The $1.14 dividend per common share paid during 2004 represented 83% ordinary income and a 17% return of capital to its stockholders, or approximately $0.95 represented ordinary income and $0.19 represented a return of capital. Note: All amounts have been adjusted for the 2:1 stock split on August 24, 2005 79 122900_Text1_R2 4/5/06 10:30 AM Page 80 Kimco Realty Corporation and Subsidiaries Board of Directors Martin S. Kimmel Chairman (Emeritus) of the Board of Directors of the Company since November 1991. Chairman of the Board of Directors of the Company for more than five years prior to the Company’s IPO. Founding member of the Company’s predecessor in 1966. Milton Cooper Chairman of the Board of Directors of the Company since November 1991. Founding member of the Company’s prede- cessor in 1966. Mr. Cooper is also a director of Getty Realty Corp. and Blue Ridge Real Estate/Big Boulder Corporation and a former trustee of MassMutual Corporate Investors and MassMutual Participation Investors. Michael J. Flynn Vice Chairman of the Board of Directors of the Company since January 1996 and, since January 1997, President and Chief Operating Officer; Director of the Company since December 1991. Chairman of the Board and President of Slattery Associates, Inc. for more than five years prior to joining the Company in 1996. Mr. Flynn is also Chairman of the Board of Directors of Blue Ridge Real Estate/Big Boulder Corporation. David B. Henry Vice Chairman of the Board of Directors since May 2001 and Chief Investment Officer of the Company. Mr. Henry joined Kimco Realty Corporation after 23 years at General Electric, where he was Chief Investment Officer and Senior Vice President of GE Capital Real Estate and Chairman of GE Capital Investment Advisors. Richard G. Dooley Director of the Company since December 1991. From 1993 to 2003, consultant to, and from 1978 to 1993, Executive Vice President and Chief Investment Officer of Massachusetts Mutual Life Insurance Company. Joe Grills Director of the Company since January 1997. Chief Investment Officer for the IBM Retirement Funds from 1986 to 1993. Mr. Grills is also a Director and Co-Chairman of the Board of certain Merrill Lynch Mutual Funds and Director Emeritus of Duke University Management Company. F. Patrick Hughes Mr. Hughes has been a director since September 2003. Mr. Hughes previously served as CEO, President and Trustee of Mid-Atlantic Realty Trust since its formation in 1993. Mr. Hughes is the former President, Chief Operating Officer and Director of BTR Realty, Inc., having served in such capacity from 1990 to 1993. Mr. Hughes served as CFO and Senior Vice President from 1974 until 1990. Frank Lourenso Director of the Company since December 1991. Executive Vice President of J.P. Morgan Chase & Co. since 1990. Senior Vice President of J.P. Morgan Chase for more than five years prior to that time. Richard B. Saltzman Elected to the Board of Directors in July 2003. Mr. Saltzman is President of Colony Capital LLC, an international real estate investment management firm. Prior to joining Colony, Mr. Saltzman spent 24 years in the investment banking business, primarily specializing in real estate-related businesses and investments. Most recently, he was a Managing Director and Vice Chairman of Merrill Lynch’s investment banking division. As a member of the investment banking operating committee, he oversaw the firm’s global real estate, hospitality and restaurant businesses. 80 122900_inside_cvr 4/12/06 10:36 AM Page 1 Historical Total Return Analysis (November 1991 to March 2006) Kimco forms the Kimco Income REIT (KIR), establishing the Company's investment management business Legislation signed establishing Taxable REIT Subsidiaries (TRS) Merger with Price REIT establishing a national platform Acquired 94 locations from Venture Stores Purchased 16 former Clover Stores and simultaneously leased several to Kohl's First Retailer Services Transaction: Kimco acquires 60 former Woolco store leases Initial Public Offering November 1991 126 Property Interests Kimco pays first dividend: $0.44 per share per quarter (pre-splits) Kimco completes property transactions in excess of $1.2 billion, acquires 1,000th property interest Kimco and institutional investors acquire Price Legacy Corp. Merger with Mid-Atlantic REIT increases presence in Maryland and Northern Virginia Kimco Developers Inc. formed and sells first development project from TRS Kimco forms joint venture with RioCan REIT and acquires first Canadian shopping centers Kimco acquires first shopping center in Mexico Direct Stock Purchase and Dividend Reinvestment Plan Experience the Power of Dividend Reinvestment (November 1991 to March 2006) Total Return with Dividends Reinvested = 1,926% Kimco added to the S&P 500 Index KIM: 1,926% NAREIT: 676% S&P: 357% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Indexed TRA (November 1991) Note: Includes reinvestment of dividends Source: Bloomberg $100,000 invested in Kimco shares at the IPO would be approximately $1.9 million on March 31, 2006, including the reinvestment of dividends. Company Profile Kimco Realty Corporation, operating as a real estate investment trust (REIT), is the largest publicly traded owner and operator of neighborhood and community shopping centers in North America. In addition, the Company develops retail properties for sale, invests in real estate-related securities and mortgages secured by retail real estate and provides capital and expertise to retailers with surplus real estate. Kimco held its initial public offering in November 1991 and has generated a total annualized return for share- holders, including the reinvestment of dividends, of 23.3% through March 31, 2006. Table of Contents Letter from the Chairman and CEO 46 1 9 20 32 33 2005 Operating Review Portfolio of Properties Funds From Operations Reconciliation Selected Financial Data 34 Management’s Discussion and Analysis of Financial Condition and Results of Operations Report of Independent Registered Public Accounting Firm 47 Consolidated Financial Statements 51 Notes to Consolidated Financial Statements 77 78 80 Glossary of Terms Corporate Directory Board of Directors IBC Direct Stock Purchase and Dividend Reinvestment Plan 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 Price Appreciation Total Return with Dividends Reinvested Indexed TRA (November 1991) Source: Bloomberg Price Appreciation = 814% Call today to learn how to reinvest your dividend or purchase shares directly from Kimco. 1.866.557.8695 The Company’s Direct Stock Purchase and Dividend Reinvestment Plan provides investors with the following advantages: • a low-cost method to acquire Kimco common stock • an efficient way to reinvest dividends in Kimco stock to acquire additional shares without a brokerage commission • account credited with both full and fractional shares • simplified record-keeping with easy-to-read account statements Simply call the number listed above to enroll today. Kimco Realty Corporation 3333 New Hyde Park Road, Suite 100 New Hyde Park, NY 11042 Tel: 516-869-9000 Fax: 516-869-9001 www.kimcorealty.com