K I M C O
KK I M C O
K I M C O
R E A L T Y C O R P O R A T I O N
R E A L T Y C O R P O R A T I O N
R E A L T Y C O R P O R A T I O N
2 0 0 7 A N N U A L R E P O R T
158674KRC_CVR_R1.indd 1
3/25/08 8:19:16 AM
Kimco Realty Corporation is the largest owner, operator and manager of neighborhood
and community shopping centers in the Western Hemisphere. We have equity interests in 1,973 properties
totaling 183 million square feet – holdings that create value for communities, retailers and our investors.
Since our initial public off ering in 1991, through the end of 2007, Kimco has generated a
total annualized return for shareholders in excess of 20%.
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158674_IFC_R2.indd 1
3/26/08 3:30:56 PM
Dear Fellow Shareholders, Partners and Associates:
In 2007, Kimco established two new records, and we’re
proud of the one we had control over. We achieved a record
17.2% increase in our funds from operations per share – but
also saw a record 19% decline in the market value of our
common shares. Stock markets can be fickle, indeed! Nev-
ertheless, Kimco enjoyed an outstanding year as measured
by a number of yardsticks, all of which are contributing to
long-term shareholder value. Accomplishments during 2007
include:
• Funds from operations (“FFO”), a widely accepted
measure of REIT performance, were the highest in
our history at $669.8 million, a 23.1% increase from
$544.3 million in 2006. On a per diluted share basis,
funds from operations grew 17.2% to $2.59 per share
in 2007 from $2.21 per share in 2006.
• Occupancy at year end was 96.3%, the highest
in the company’s history.
• Growth in same-store net operating income
averaged 4.1%.
• The dividend to shareholders increased by 11.1% to
$1.60 per share from $1.44 per share.
• We continued our international expansion, doubling
our retail assets in Mexico from 28 to 58 properties,
adding 4.5 million square feet of shopping center
space. We also added four centers in Chile and estab-
lished a joint venture in Brazil.
• We provided yet more flexibility to our balance sheet
by expanding our credit capacity by approximately
$700 million, ending the year with total credit facili-
ties of $1.8 billion.
These achievements were ignored by the stock market,
which, of course, has disappointed us. We should remem-
ber, however, that the market does periodically reward – and
punish – companies for short-term issues having little to do
with their longer-term business accomplishments and pros-
pects. So permit me to outline in this letter Kimco’s raison
d’etre, where we are now, and our strategy for the future.
Milton Cooper
Chairman and
Chief Executive Officer
1
Why We Love Open-Air Shopping Centers
fi
Th
Our passion for the ownership of open-air shopping centers
was inspired many years ago by the film, “Gone With Th
e Th
Wind,” when Th omas Mitchell, playing the role of Gerald
O’Hara, said to Vivien Leigh (Scarlett), “Do you mean to tell
me, Katie Scarlett O’Hara, that Tara, that land, doesn’t mean
anything to you? Why, land is the only thing in the world
worth workin’ for, worth fi ghtin’ for, worth dyin’ for, because
it is the only thing that lasts.”
fi
After viewing the movie, I left the theatre and instantly want-
ed to become a Land Baron! If my parents were Rockefellers
or Astors, I might have had a shot at this, but my father was
an immigrant from Minsk – and land was the furthest thing
from his mind!
I believe that well-located land in a growing economy is
one of the best, and least risky, long-term investments. It
is irreplaceable, indestructible, and a natural hedge against
inflation.
fl
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But, like cows, which are unproductive unless fed and pro-
vided for, raw land provides no cash flow (indeed, because
of real estate taxes, cash fl ow is negative). Th
Th
ere have always
been real estate investments with very high land components,
such as parking lots, drive-in theatres and orange groves, that
could generate income – but they have not been of an asset
class that allowed a substantial portion of the purchase price
to be financed through non-recourse mortgages. Such mort-
gages, of course, limit the investor’s risk.
fi
Th
In 1958, a New England retailer, Zayre Department Stores,
was desirous of opening its first discount store in Florida,
fi
and came to see us. Th e total cost of construction was $7 per
square foot, and what intrigued us was that, since parking
was required, the development project required five times as
much land as building space. The rent stream from the ten-
Th
ant’s lease would be adequate to service a non-recourse mort-
gage that would finance 90% of the total cost and provide a
return to the equity investors. The mortgage would be fully
amortized over time while the land increased in value.
Th
fi
fi
So, our tenant’s lease enabled us to “land bank.” We im-
mediately became attracted to – and passionate about – the
open-air shopping center business! Our basic thesis, then and
now, is that the appreciation of well-located land, over time,
creates substantial value for its owner, and certainly more
than offsets depreciation of the modest, one-story buildings
sitting on that land.
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Th
Th is is, of course, the rationale for the reporting by REIT
organizations of FFO, a process which adds depreciation
expense to GAAP net income – the very real depreciation of
the building is offset, at the least, by a like amount of land
appreciation. And that rationale is much more compelling
for open-air shopping centers with a large land component
than for offi ce buildings, apartment houses, industrial prop-
erties, hotels and other property types.
ffi
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158674_Narr_R2 2
3/28/08 6:43:49 AM
We also believe that the best open-air shopping center
investments, from the point of view of both safety and long-
term cash fl ow growth, are centers that are occupied under
leases with below-market rents.
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Long-term leases with credit-worthy tenants have bond-
like characteristics; this is our defense. The future residual
value of the land is our offense. Of course, the credit quality
of the tenant is vital if the rent for the tenant’s space is at
market or above. But, credit quality is not quite so impor-
tant if the tenant is paying rent of $100,000 per annum and
market rent, for similar space, based on location and other
factors, is $200,000 per annum. Below-market leases, there-
fore, allow us, over time, to harvest the difference between
the market rent and the contract rent, which will drive
meaningful growth in our cash flows as rents are brought up
to market value. Furthermore, below-market leases provide
protection from extended cash flow declines if the retailer
goes out of business.
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fl
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Kimco Realty, including its pre-IPO predecessors, has
owned and developed shopping centers since 1958. As a
result, our portfolio enjoys many leases whose commence-
ment dates go back many, many years. Set forth below is a
schedule of lease commencement dates for square footage
in the Kimco portfolio where leases were entered into more
than 15 years ago.
ffi
Real estate is a cyclical business, and there will be periods
where tenants encounter economic diffi culties – and owners
may have to endure temporary reductions of rental streams.
(We experienced this, for instance, when Kmart Corporation
fi led for bankruptcy in 2002.) Nevertheless, I do believe that
fi
our retail tenants, most of whom sell items that are everyday
necessities, e.g., groceries, prescriptions and services, will be
less aff ected in diffi
ffi
cult economic periods than those ten-
ants whose sales volumes depend on discretionary, high-end
purchases.
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A History of Long-Term, Stable Relationships
Date of Lease
Commencement
Properties
100% Owned
by Kimco
Square
Footage
Properties
Owned by
Joint Venture
Square
Footage
Total
Properties
Total
Square
Footage
Prior to 12/31/73
1974 thru 1983
1984 thru 1993
4
64
130
803
1,124,151
2,583,107
23
83
565,386
2,194,251
87
213
1,689,537
4,777,358
10,921,196
642
11,484,027
1,445
22,405,223
GRAND TOTALS
997
14,628,454
748
14,243,664
1,745
28,872,118
158674_Narr_R2 3
3
3/28/08 6:43:50 AM
Our Institutional Joint Ventures –
The Funds Management Business
Economics 101 teaches us that price is a function of supply
and demand. An increase in supply causes downward pres-
sure on price. It follows that when a company issues com-
mon stock it increases its supply, often resulting in a de-
crease in stock price. This is particularly true if new shares
are issued at a dilutive price, such as below a company’s
net asset value. Furthermore, equity is normally the most
expensive form of capital. Thus, we are normally reluctant
to issue new Kimco shares to fund our growth initiatives.
One way around this dilemma, of course, is to retain ac-
cumulated earnings, and use that for expansion capital.
However, the ability of a REIT to do this is limited, as it
must distribute at least 90% of its taxable net income each
year to maintain its REIT status. Indeed, a REIT’s retained
cash flow is generally limited to the amount by which
its “adjusted” funds from operations (FFO, less straight-
lined rents and routine property capital expenditures), or
“AFFO,” exceeds its dividend payout.
In 2007, our REIT AFFO, when coupled with the after-tax
earnings of our taxable subsidiary, exceeded our dividend
requirements by roughly $270 million. At the same time,
Kimco’s new investments totaled about $2.9 billion last
year; this amount substantially exceeded our retained cash
flow. Accordingly, if these investments were made solely
for the REIT’s own account, we would have had to raise
$2.7 billion of new capital – and, since Kimco is commit-
ted to maintaining a very strong balance sheet with equity
Kimco’s Pentagon Centre promises to create significant
incremental value over time.
The long-term growth prospects for our rental streams are
not just limited to bringing below-market rents up to mar-
ket. Many of our shopping centers were developed years ago
in new suburbs. These suburbs have now become mature
suburbs, where land available for new development is in
very short supply. Some of our shopping centers will even-
tually have a much higher value as space for office buildings
or residential projects. An example is our Pentagon Centre,
located in very close proximity to the Pentagon. Perhaps
the aerial photo of our property (above) best illustrates my
point. We will seek, whenever possible, to acquire or build
properties of this type, as they create incremental value for
our shareholders over time.
4
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Th
comprising at least two-thirds of its capital structure, it is
obvious that a substantial equity offering would have been
required. Th is compels us to place much of our new property
investments into institutional joint ventures. In these joint
ventures, Kimco co-invests and manages so that the returns
on our investment, including management fees, provide a
total return that is very satisfactory and exceeds our cost of
capital. It also allows us to team up with institutions that
have a lower cost of capital, and a long-term time horizon.
As our company has always sought to be innovative and op-
portunistic, capturing unique real estate-related investment
opportunities, we plan to expand our investment manage-
ment business with new concepts that will benefit both our
institutional clients and our shareholders. We very much like
this business, and expect that it will continue to generate at-
tractive returns with only modest risk.
fi
Our Development Business
Kimco is committed to creating value for its shareholders.
And, to do this, we must invest our capital at a spread to its
cost. Despite a modest weakening in the pricing of some real
estate in some markets, as well as a slowing U.S. economy,
desirable properties are not being offered at fi
fi
re-sale prices,
and investment yields that are available today do not provide
a suffi cient spread over our cost of capital. Accordingly, we
continue to look kindly upon the investment management
business, and we believe that the returns available from that
business mandate that we continue to grow it.
ffi
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In addition to shopping centers, we have created for our
interested institutional investors a fund to invest in retail
land in Mexico. We have made a modest cash capital con-
tribution, and we manage the Mexico Land and Develop-
ment Fund. While we remain optimistic about the virtues of
investing in land in excellent locations, Kimco will continue
to be very selective, and will not normally buy and inventory
land for its own account.
Th
Th
Kimco began its business many years ago purely as a de-
veloper. Suburbs were growing, retailers were expanding,
and there were very few quality suburban shopping centers
that were available for purchase. We shifted our emphasis
to acquiring shopping centers in the 1980’s, when liquid-
ity improved and purchase prices became more attractive.
We eventually re-entered the development business with the
acquisition of The Price REIT, which had a very active devel-
opment backlog. The development business has always been
cyclical, but has been a profitable business for us – after-tax
yields for the past three years have averaged 13.3%. We are
blessed with a talented group of people who understand the
development business, and have been successful with the
merchant developer model (that is, build and sell). The timeTh
frame from the commencement of construction through the
realization of a gain on a sale was usually less than two years.
And the wind was at our backs, as a significant decline in
capitalization rates, together with an expanding development
inventory, provided us with very attractive returns.
fi
fi
158674_Narr_R2 5
5
3/28/08 6:43:51 AM
fi
But, of course, the profi table development of new shopping
centers is joined at the hip with the appetites of retailers to
expand their locations. And that expansion is often fueled,
in substantial part, by new housing and growth in subdivi-
sions. Retailers like to see a proliferation of new rooftops
when they commit to leasing space in new shopping centers.
But the significant slow-down in new home construction in
response to over-supply, rising unsold home inventories and
the reduced availability of home mortgages is significantly
reducing the retailers’ thirst for expansion.
fi
fi
fi
fi
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In our view, development remains a very good business.
However, the merchant building model, which has delivered
relatively quick and substantial developers’ profits in a very
hospitable environment, may no longer create as much value
as a business model which focuses on fewer but potentially
more profitable developments, many of which will require
as long as five to seven years to reach full fruition. We will
adapt to this changing environment by creating an institu-
tional joint venture model with a build-and-hold strategy.
We will again co-invest – but our investors must accept a
timeframe that will require them to be patient with respect
to the realization of their investment gains. Although the
period from commencement to the harvesting of gains may
be longer, we will earn both long-term management fees and
a fair share of the value created.
Our Global Initiative
fi
Th
In 2001, we entered Canada, our first initiative outside of
the U.S. The rationale for investment in Canada was com-
pelling. We were able to acquire interests in centers that
were, in many instances, occupied by the same retailers as
in our U.S. centers, and we were able to do so at higher cap
rates and at lower interest rates. (At that time, the Cana-
dian Dollar was equivalent to 66 cents per U.S. Dollar and
Canadian retail property cap rates averaged 9 ¾%.) It didn’t
take long for other investors, as well, to recognize these
investment opportunities, and now cap rates in the U.S.
and Canada are similar. We are still bullish on Canadian real
estate, but our picnic is over!
South of the border, we are now the largest owner of retail
real estate in Mexico. Mexico has an expanding middle
class – new suburbs and housing developments are springing
up and growing rapidly. In short, it’s a dream scenario for
retailers, and our U.S.-based tenants such as Home Depot,
Wal-Mart, Best Buy, Costco and HEB are all expanding their
operations quickly in Mexico. We have equity interests in 34
completed centers and 24 more under development, com-
prising more than 12 million square feet.
Kimco also has equity interests in an additional 8 million
square feet of net-leased industrial and warehouse space in
Mexico with strong U.S. tenants such as Goodyear, Cessna
and Hallmark. We continue to be very excited about the
long-term investment opportunities in Mexico, and we have
developed the resources and partnerships to take advantage
of them.
6
158674_Narr_R2 6
3/28/08 6:43:51 AM
Looking further south, we have established retail joint
ventures with four local partners in South America (three in
Chile and one in Brazil). Chile, Brazil and Peru all represent
growth areas for us, and we anticipate forming a Kimco-
sponsored South America fund to increase our presence in
these markets.
fi
We believe that our ability to expand our business outside
of the U.S. will be significantly enhanced, over time, with
our new relationship with Valad Property Group, an Aus-
tralia-based property fund manager, investor, developer and
investment banker. Kimco and Valad have very similar busi-
ness models and strong funds management platforms. Dave
Henry, our Vice Chairman and Chief Investment Officer, ffi
who has known Valad management for years, and I think
the world of Steven Day, Valad’s CEO, and I am confident
that our two fi rms can indeed enhance each other’s growth
prospects over time.
fi
fi
Other Business Units
We have been very active in developing other complemen-
tary business activities during the past several years, includ-
ing our Kimco Developers, Inc., Kimco Preferred Equity,
Kimco Retailer Services and Kimco Select units. These are
operating businesses in which we have been successful over
an extended period of time, and they have contributed to
our earnings growth.
Th
Th
Th ese enterprises are often countercyclical, and therefore
can provide us with opportunities during economic down-
turns that others may not have – in particular, our Retailer
Services business has thrived in times of stress, as we utilize
our talents and long-standing relationships to work with
troubled retailers.
We also use our contacts and relationships to capture oppor-
tunities outside of the retail real estate space. Of course, we
will always approach only those investments with partners
that have the requisite level of expertise and solid track
records.
Most often, our required investment in each transaction is
modest, as we attempt to disperse risk. However, the pay-
back can be quite substantial in relation to the investment.
Such was the case with our investment in a consortium to
acquire certain business operations of the Albertsons gro-
cery chain, which has already returned over 2 ½ times our
original investment of $50 million. We expect that we will
generate even greater returns over the next few years as the
Albertsons’ business team executes on its business strategy.
Dividends
fi
Kimco maintains a conservative dividend policy. Over the
past five years, our dividends have averaged only 61% of our
FFO, and this has enabled us to retain ample free cash flow
to grow our business. We have increased our dividend each
year since our IPO in 1991; last year our dividend was in-
creased by 11.1%, refl ecting continued growth in our FFO
and our confi dence in the future. A safe, growing dividend is
a keystone of our philosophy.
fi
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158674_Narr_R2 7
7
3/28/08 6:43:51 AM
Peering Into Th e Future
fl
Our strategy must be influenced, in the short term, by
changes in the U.S. economy. For the past few years, our na-
tion has had a “negative savings” rate. Simply put, this means
that the American consumer has spent more than he or she
has earned. Th e shortfall had to be made up by borrow-
ing – and the borrowing was predicated on the rising equity
values of American homes. But the party is now over – and
consumer spending growth is receding from the levels of the
past few years.
Th
Retailers are, of course, aware of this and have become more
cautious; they are, for the most part and with some excep-
tions, slowing the opening of new stores. Kimco’s growth
expectations will not be exempt from the effects of this slow-
down; it will have an effect. And yet, I believe that we enjoy
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some insulation from the severity of a downturn.
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A good part of our tenant base consists of retailers – grocery,
drug and discount stores – that sell every-day staples, and
their sales shouldn’t be affected by a consumer retrenchment
in the same way as fashion or apparel retailers.
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Also, our income stream is stable, thanks to many long-term
leases with good credits; these leases have bond-like charac-
teristics, providing downside protection in difficult economic
environments. We have been through many cycles in our
history and have prospered even in times of stress.
ffi
fi
In order to seize the opportunities that may be created by
disruptions in the financial markets and the economy, one
must have access to capital. One of the cornerstones of our
business philosophy is to maintain a strong balance sheet,
with low debt. We have been successful in this, and capital
should continue to be available to us as opportunities arise.
But the availability of capital must be supplemented by a
management team that can execute and act quickly, using
good, solid business judgment. We are so fortunate to have
the talented team that we do – a team that weighs, in equal
measure, both opportunity and risk. I am grateful for the
energy and dedication of our Kimco team, along with the
many partners and associates that have helped us grow and
prosper. Above all else, we will continue to dedicate ourselves
to perform well for all those who rely upon us.
Sincerely,
Milton Cooper
Chairman and Chief Executive Officerffi
8
158674_Narr_R2 8
3/28/08 6:43:51 AM
Kimco Realty Corporation owns interests in
946 shopping centers totaling 144 million square feet.
9
Villages at UrbanaFrederick County, Maryland Chambersburg Crossing, Chambersburg, Pennsylvania
10
Airport PlazaFarmingdale, New YorkSuburban SquareArdmore, Pennsylvania 2 0 0 7 O p e r at i n g r e v i e w
Left: Michael J. Flynn
Vice Chairman, President
and Chief Operating Officer
Right: David Lukes
Executive Vice President
Our Foundation
Redevelopment
Our redevelopment strategy allows us to create value for our
shareholders by satisfying the constant and growing demand
for new housing, office buildings, medical facilities and
retail space in high-density areas. We focus on maximizing
value from our existing low-density properties by thoroughly
analyzing the highest and best use for such centers, thereby
helping to solve a critical planning problem for mature com-
munities. Our initiatives include adding density to existing
sites (Cupertino Village in northern California), re-tenant-
ing to better meet current demographics (Plaza del Sol in
Phoenix, Arizona), as well as completely reconfiguring older
centers in first-ring suburban communities to better serve
local market demand (Westlake Shopping Center in Daly
City, California).
Factoria Marketplace in Bellevue, Washington, illustrates the
value we create through several of these measures. Originally
built in the 1970s and expanded through the 1990s, the
529,000-square-foot, enclosed mall was developed in phases
to support the growing population of Bellevue.
Neighborhood and community shopping centers have been
the foundation of Kimco’s business since Marty Kimmel
and Milton Cooper developed their first shopping center in
Miami in 1958 – 50 years ago. Since then, Kimco has grown
to include almost 1,000 shopping center properties across
the U.S., Canada, Mexico and Chile.
With the aim of delivering above average growth from these
properties, as well as remaining well protected in more
adverse economic conditions, Kimco has always sought
properties with below-market rents in strong demographic
markets. We find that these properties, while often underval-
ued in our portfolio, offer substantial upside. For example,
Richmond Shopping Center in Staten Island, New York, has
approximately 68% of its gross leasable area (“GLA”) com-
ing up for renewal in the next three to five years. This mar-
ket is in high demand from retailers; if we did nothing else
but bring expiring rents up to market, the net asset value of
the property would increase by approximately $50 million.
Overall, we estimate we would have $250-$300 million in
incremental value in our portfolio simply by bringing rents
up to market, even though such value cannot be recognized
when pricing our properties using current net operating
income (“NOI”) flows.
Flagler Park Plaza, Miami, Florida
William Brown
Senior Vice President, Redevelopment
11
121222
158674_Narr_R2 12
3/28/08 6:44:12 AM
Current redevelopment plans include reconfi guring the center’s re-
tail and common space, and converting the facility into an open-air
venue. Once completed, the redesigned Factoria Marketplace will
boast 151,000 square feet of additional retail space, larger interior
common areas and exterior pedestrian plazas, more than 400 new
residential units and expanded outdoor dining opportunities. In
addition to providing capital for this project, Kimco will leverage
its strong relationships with virtually every national retailer to se-
cure leasing arrangements with appropriate, credit-worthy national
tenants in advance of construction.
Bellevue,, WWashington
158674_Narr_R2 13
13
3/28/08 6:44:15 AM
“Kimco’s business model provides
multiple ways to sustain growth
through changing economic cycles.”
David B. Henry
Vice Chairman and
Chief Investment Officer
Evolving Strategy
Kimco’s business model provides multiple ways to sustain
growth through changing economic cycles. In good times,
rents increase rapidly and the underlying value of Kimco’s
real estate assets rises. In stable economic periods, rents
increase more modestly, but solid growth still occurs in our
portfolio as our below-market rents are brought up to mar-
ket value. In more difficult times, Kimco’s shopping center
portfolio maintains a defensive posture due to the more
stable, recession-resistant characteristics of our retailers; the
higher degree of credit-worthiness of such tenants, and the
staggered expiration of our leases.
In recent years, Kimco has aggressively pursued growth
through the investment management model. Since 1998,
when we established our investment management busi-
ness, we have grown the number of properties we manage
Working Together for Sustained Growth
to almost 350 with 14 different institutional partners. With
approximately $14 billion in assets under management, we
have successfully leveraged our management expertise and
increased our total returns through various fee structures and
promoted interests. For example, in 2007, we recognized
$39.3 million of promoted interest from our joint venture
with GE Real Estate, as well as $13 million in acquisition
and disposition fees from this and other joint ventures. This
is in addition to the $42 million earned as recurring income
from ongoing management and other fees. In total, our
2007 FFO from investment management programs grew by
more than $57 million, or 44%, from 2006.
We continue to adapt different products to our investment
management model. This year, we added the Mexico Land
and Development Fund, a $325 million discretionary fund
to acquire land for future sale or development in Mexico.
We are forming future funds for additional greenfield
development and urban redevelopment projects in Mexico
and throughout South America. Additionally, we expect that
our strategic alliance with Australia’s Valad Property Group,
launched in the first quarter of 2008, will enhance our
institutional partner network, bringing further depth to our
investment management business.
Westlake Shopping Center, Daly City, California
Lauren Holden
Senior Portfolio
Manager
Edward Senenman
Vice President,
Acquisitions
Scott Onufrey
Vice President,
Investment Management
14
Fremont Hub
Fremont, California
15
Towson PlaceTowson, Maryland We have interests in over 140 properties in Latin America totaling
21 million square feet, including 24 centers under development.
16
Centro Sur PlazaMexico “Latin America represents a land of opportunity
for Kimco – a young, growing population
and increasing stability, liquidity, and prosperity
are generating unprecedented demand for retail.”
Michael Melson
Vice President, KRC Mexico
International Expansion
Latin America has been one of the fastest-growing segments
of our business. In 2007, we increased our investments
there by almost $350 million, adding more than 50 new
properties. Bolstered by a developing middle class, shift-
ing demographics and a more efficient financial infrastruc-
ture, Mexico has been our primary investment target. The
number of operating properties Kimco owns in Mexico has
nearly tripled in the past year, from 12 to 34. We also initi-
ated eight new development projects and grew our American
Industries industrial portfolio by 18 properties in 2007. In
Chile, we entered the market with the acquisition of four
properties in Santiago through a 50/50 joint venture with
Patio S.A.
Improving marketplace dynamics in both Mexico and Chile
offer a more attractive climate for investing. Both countries
have well-established governments and banking infrastruc-
tures, and their retail markets are growing and becoming
increasingly sophisticated as the rising middle class demands
more and better shopping venues. At the end of 2007,
Kimco had 24 properties under development totaling more
than nine million square feet. Investment in these properties
will exceed $750 million when completed. Beyond Mexico
and Chile, we are also exploring new investments in Brazil,
Peru and Costa Rica.
Latin American Team Spearheads Rapid Expansion
left to right: Jonathan Lipsky, Director, Investment; Steven Reisinger, Director of Finance;
Francisco Covarrubias, Director, Investment; Fernando Garcia, Director, Investment;
Marla Naylor, Real Estate, Investment Closer; Jose Villamizar, Controller
17
“Our strong balance sheet, well-staggered
debt maturity schedule and ample liquidity
position will be crucial as we navigate
through the choppy credit markets in 2008.”
Glenn G. Cohen
Vice President and Treasurer
Capital Structure
From the time our company went public in 1991, a consis-
tent theme for Kimco has been to maintain a strong balance
sheet and have the necessary access to capital to grow the
business and take advantage of opportunities in good times
and bad. During 2007, we experienced both favorable and
challenging economic conditions. During the first half of the
year, investment capital was readily available and in April,
we were able to issue a $300 million, 5.70% fixed-rate,
ten-year unsecured bond. In addition, we sourced over $1
billion of non-recourse mortgages at very attractive rates for
our joint-venture programs. During the second half of the
year, however, the credit crisis began in earnest and raising
capital became more difficult, as spreads on both unse-
cured and secured debt widened dramatically. As the capital
markets began their meltdown, we were in the process of
renewing our $850 million revolving credit facility, which
was scheduled to mature in July 2008. We are pleased to
report that we agreed with a syndicate of 29 banks on a new
four-year, $1.5 billion revolving credit facility with a one-
year extension option, a reduced spread and more flexible
terms. In addition, during October 2007, we were able to
tap the public preferred equity market, raising $460 million
of 7.75% perpetual preferred stock, with no stated maturity
date. We were also successful in renewing our $250 million,
Canadian Dollar-denominated revolving credit facility for
an additional three years, with a one-year extension option,
under similar terms as our earlier $1.5 billion facility. As
a result of these refinancing actions, we closed 2007 with
approximately $1.4 billion in immediate liquidity with a
debt-to-market capitalization of just 30%. Our strong bal-
ance sheet, well-staggered debt maturity schedule and ample
liquidity position will be crucial as we navigate through the
choppy credit markets in 2008.
Kimco’s dividend has grown 9.3%
on an annualized basis since our IPO.
Experience the power
of dividend reinvestment.
Dividend Growth (per common share)
Total Return with Dividends Reinvested = 1,861%
$1.5
$1.5
1.2
0.9
0.6
0.3
719%
719%
0.0
93
94
95
92
96
93
97
94
98
95
99
96
00
97
01
98
02
99
03
00
04
01
05
02
06
03
07
04
05
06
91
07
92
93
94
91
95
92
96
93
97
94
98
95
99
96
00
97
01
98
02
99
03
00
04
01
05
02
06
03
07
04
05
06
07
Dividend + Dividend Reinvestment
Dividend + Dividend Reinvestment
Price Appreciation
Price Appreciation
1.2
0.9
0.6
0.3
0.0
92
18
Ensuring Success – From Start to Finish
Adela Miller
Director of Developement
and Construction
Eliot Stedman
Senior Property Manager
Michael Landstad
Assistant Property Manager
Mesa Riverview, a 1.2 million square foot center located in Mesa, Arizona,
is anchored by Wal-Mart, Bass Pro Shops, Cinemark Theatre and Home Depot.
19
“Even more important than our business
model itself is the ability of our people to
adapt to changes in economic, real estate
and credit cycles.”
Michael V. Pappagallo
Executive Vice President and
Chief Financial Officer
Strategic Positioning
The dramatic changes in credit markets and economic con-
ditions that began in mid-2007 have jolted the commercial
real estate industry out of the euphoria that existed for much
of the past five years. The dramatic decline and volatility of
REIT stock prices has dampened the allure of commercial
real estate investments, and has challenged expectations for
short-term operating results. Under these challenging condi-
tions, it is even more important to reaffirm our longer-term
business objectives.
Our stated goal is to maintain average earnings growth of
10% a year over the long term, and dividend growth at a
similar pace. We recognize that growth in any single year
may be higher or lower, so our focus is on achieving long-
term, sustainable earnings patterns that will foster continu-
ing increases in the enterprise value, and ultimately share-
holder value. We believe two conditions are necessary to
accomplish this goal: the right business model, and the right
people. We feel we have both.
Our business model contains all of the necessary compo-
nents to maintain our growth over the long term: a high-
quality, diverse shopping center portfolio with intrinsic
growth and redevelopment potential; a funds management
platform that benefits from extensive relationships and a
strong track record of performance; a commitment to inter-
national expansion, especially in the fast-growing markets of
Mexico and other parts of Latin America; a lineup of nimble
business units able to seize newly emerging growth oppor-
tunities in fast-changing markets, and a rock-solid balance
sheet to facilitate access to capital. Even more important
than the model itself is the ability of our people to adapt the
model to changes in economic, real estate and credit cycles.
The pace of change continues to accelerate, and the imme-
diacy of information and global interdependencies require
companies to dramatically increase their reaction time to
those changes.
The most well-defined and adaptive business strategy has
little value unless it can be executed, and execution is
ultimately dependent on people. This is our competitive ad-
vantage. Our associates are singularly focused on the success
of the company as a whole. Our culture is one that insists
on integrity and fair dealing, and, in turn, fosters teamwork
and open communication. An adaptive business model can
not work unless people are willing to face the realities of the
market and embrace change. Kimco is fortunate to have an
abundance of people who see opportunity in change, and
who respond rapidly to capitalize on it.
Same store NOI growth has exceeded 4%
for each of the last 8 quarters.
Annual growth in funds from operations
has averaged 11.1% since our IPO.
Same Store NOI Growth
Funds From Operations (per diluted common share)
8%
8%
7
6
5.5
5
5.5
5.5
7
6
5
4
3
2
1
0
20
4
3
2
1
0
1Q06
5.5
4.3
6.1
6.1
4.3
4.0
4.0
4.0
4.2
4.0
4.2
4.1
4.1
2Q06
1Q06
3Q06
2Q06
4Q06
3Q06
1Q07
4Q06
2Q07
1Q07
3Q07
2Q07
4Q07
3Q07
4Q07
$3.0
$3.0
2.5
2.0
1.5
1.0
0.5
0.0
2.5
2.0
1.5
1.0
0.5
0.0
93
92
94
92
95
93
96
94
97
95
98
96
99
97
00
98
01
99
02
00
03
01
04
02
05
03
06
04
07
05
06
07
92
93
94
95
92
96
93
97
94
98
95
99
96
00
97
01
98
02
99
03
00
04
01
05
02
06 07
03
04
05
06 07
92
93
94
95
92
96
93
97
94
98
95
99
96
00
97
01
98
02
99
03
00
04
01
05
02
06 07
03
04
05
06 07
Kimco Realty Corporation and Subsidiaries
Reconciliation From Net Income To Funds From Operations
Reconciliation From Net Income To Funds From Operation
(in thousands, except per share data)(unaudited)
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 - real estate jv's, net of
minority interests
Preferred stock redemption costs
Preferred stock dividends
Funds from Operations
Per common share
Basic
Diluted
Weighted Average Shares Outstanding
Basic
Diluted
2007
2006
2005
2004
2003
$ 442,830
$ 428,259
$ 363,628
$ 297,137
$ 307,879
(5,914)
(44,826)
187,779
(71,776)
(16,549)
144,319
(31,611)
(13,776)
108,032
(15,390)
(4,045)
102,872
(50,834)
—
89,068
109,611
—
(19,659)
$ 669,821
71,731
—
(11,638)
$ 544,346
50,059
—
(11,638)
$ 464,694
36,400
—
(11,638)
$ 405,336
29,456
(7,788)
(14,669)
$ 353,112
$
$
2.66
2.59(1)
$
$
2.27
2.21(1)
$
$
2.05
$
2.00(1) $
1.82
1.77(1)
$
$
1.65
1.61(1)
252,129
262,824(1)
239,552
250,315(1)
226,641
235,634(1)
222,859
231,909(1)
214,184
222,337(1)
(1) Reflects the potential impact if certain units were converted to common stock at the beginning of the period. Funds from operations would be increased by $10,083, $8,587,
$6,693, $6,113 and $5,771 for the years ended December 31, 2007, 2006, 2005, 2004 and 2003, respectively.
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 jv's, net of
$
minority interests
Gain on disposition of operating properties, net of
minority interests
Gain on disposition of joint venture operating properties
$
1.65
0.71
0.42
(0.02)
(0.17)
1.70
0.58
0.29
(0.29)
(0.07)
$
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)
—
FFO per diluted common share
p
$
2.59
$
2.21
$
2.00
$
1.77
$
1.61
21
Kimco Realty Corporation and Subsidiaries
Selected Financial Data
The following table sets forth selected, historical, consolidated financial data for the Company and should be read in conjunction with
the Consolidated Financial Statements of the Company and Notes thereto and Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in this annual report on Form 10-K.
The Company believes that the book value of its real estate assets, which reflects the historical costs of such real estate assets less
accumulated depreciation, is not indicative of the current market value of its properties. Historical operating results are not necessarily
indicative of future operating performance.
Year ended December 31,
(2)
2007
2006
2005
(in thousands, except per share information)
2004
2003
Operating Data:
Revenues from rental property (1)
Interest expense (3)
Depreciation and amortization (3)
Gain on sale of development properties (4)
Gain on transfer/sale of operating properties, net (3)
Benefit for income taxes (5)
Provision for income taxes (6)
Income from continuing operations (7)
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
$
$
$
$
$
$
$
$
$
$
$
361,934
1.36
1.33
252,129
257,058
1.52
681,553
213,674
189,650
40,099
2,708
30,346
$ 587,547
$ 170,677
$ 139,263
37,276
$
$
2,460
$
— $
17,253
$ 345,309
$ 501,569
$ 126,432
$ 100,517
33,636
$
2,833
$
— $
$
10,989
$ 324,894
$ 488,021
$ 105,898
94,651
$
$
16,835
$
— $
$
8,320
$ 273,393
$ 446,096
$ 101,351
78,817
$
17,495
$
3,177
— $
—
— $
$
8,514
$ 234,195
$
$
$
1.39
1.36
239,552
244,615
1.38
$
$
$
1.38
1.36
226,641
230,868
1.27
$
$
$
1.17
1.15
222,859
227,143
1.16
$
$
$
0.99
0.97
214,184
217,540
1.10
December 31,
2007
2006
2005
2004
2003
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
$ 7,325,035
$ 9,097,816
$ 4,216,415
$ 3,894,574
$ 6,001,319
$ 7,869,280
$ 3,587,243
$ 3,366,959
$4,560,406
$5,534,636
$2,691,196
$2,387,214
$4,092,222
$4,749,597
$2,118,622
$2,236,400
$4,174,664
$4,641,092
$2,154,948
$2,135,846
$
665,989
$ (1,507,611)
584,056
$
$ 455,569
$ (246,221)
59,444
$
$ 410,797
$ (716,015)
$ 343,271
$ 365,176
$ (299,597)
$ (75,647)
$ 308,632
$ (637,636)
$ 341,330
(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, 2007, 2006, 2005, 2004 and 2003 and properties
classified as held for sale as of December 31, 2007, which are reflected in discontinued operations in the Consolidated Statements of Income.
(3) Does not include amounts reflected in discontinued operations.
(4) Amounts exclude income taxes
(5) Does not include amounts reflected in discontinued operations and extraordinary gain. Amounts include income taxes related to gain on sale of development properties, gain
d
on transfer/sale of operating properties, and adjustment for property carrying value.
(6) Amounts include income taxes related to gain on sale of development properties and gain on transfer/sale of operating properties.
(7) Amounts include gain on transfer/sale of operating properties, net of tax.
22
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
e e
This nnual eport , together with other
statements
and information publicly disseminated by Kimco Realty
Corporation (the “Company” 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, debt or other sources of 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.
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
relationships 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 operations.
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 December 31, 2007, the
Company had interests in 1,973 properties totaling approximately
183 million square feet of GLA located in 45 states, Canada,
Mexico, Puerto Rico and Chile.
The Company is self-administered and self-managed through
present management, which has owned and managed
neighborhood 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, administered by the Company.
In connection with the Tax Relief Extension Act of 1999 (the
“RMA”), which became effective January 1, 2001, the Company is
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 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 wholly owned taxable REIT
subsidiaries, which are 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 focus 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
investments through taxable REIT subsidiaries should suitable
opportunities 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
management’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 2007
performance, the Board of Directors increased the quarterly
dividend per common share to $0.40 from $0.36, effective for the
third quarter of 2007.
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
beneficiary 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
23
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Certain Rights (“EITF 04-5”). The Company applies these
provisions to each of its joint venture investments to determine
whether the cost, equity or consolidation method of accounting is
appropriate. 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, valuation of real estate, joint venture investments and
realizability of deferred tax assets. Application of these
assumptions requires the exercise of judgment as to future
uncertainties, and, as a result, actual results could materially 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
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
bankruptcy 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
management’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.
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.
Upon acquisition of operating real estate properties, the
Company estimates the fair value of acquired tangible assets
(primarily consisting of land, building, building improvements and
tenant improvements) and identified intangible assets and liabilities
(primarily consisting of above and below-market leases, in-place
leases and tenant relationships), assumed debt and redeemable units
issued 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 and building
improvements
Fixtures, leasehold
and tenant improvements
(including certain identified
intangible assets)
15 to 50 years
Terms of leases or useful lives,
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 and projects which the Company may hold
as long-term investments. These assets are carried at cost. 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 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.
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
24
Kimco Realty Corporation and Subsidiaries
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
Company’s exposure to losses to the amount of its equity
investment, and due to the lender’s exposure to losses, a lender
typically will require a minimum 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
unconsolidated 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.
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
(undiscounted 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 allowances.
Results of Operations
Comparison 2007 to 2006
Increase/
(Decrease)
2006
2007
(
amounts in thousands)
%
change
Revenues from rental
property (1)
Rental property expenses: (2)
Rent
Real estate taxes
Operating and maintenance
Depreciation and
amortization (3)
$681.6 $587.5
$94.1
16.0%
$ 12.1 $ 11.5
74.6
72.7
$185.7 $158.8
83.6
90.0
$ 0.6
9.0
17.3
$26.9
5.2%
12.1%
23.8%
16.9%
$189.7 $139.3
$50.4
36.2%
(1) Revenues from rental property increased primarily from the combined effect of (i)
the acquisition of operating properties during 2006 and 2007, providing
incremental revenues of approximately $85.5 million, (ii) an overall occupancy
increase from the consolidated shopping center portfolio to 95.9% at December 31,
2007, as compared to 95.1% at December 31, 2006, due to growth in rental rates
from renewing expiring leases, the completion of certain redevelopment and
development projects and tenant buyouts providing incremental revenues of
approximately $14.6 million for the year ended December 31, 2007 as compared to
the corresponding period in 2006, offset by (iii) a decrease in revenues of
approximately $6.0 million for the year ended December 31, 2007 as compared to
the corresponding period in 2006, resulting from the transfer of operating
properties to various unconsolidated joint venture entities, and the sale of certain
properties during 2007 and 2006.
(2) Rental property expenses increased primarily due to operating property acquisitions
during 2007 and 2006 which were partially offset by operating property
dispositions including those transferred to various joint venture entities.
(3) Depreciation and amortization increased primarily due to operating property
acquisitions during 2007 and 2006 which were partially offset by operating
property dispositions including those transferred to various joint venture entities.
Mortgage and other financing income decreased $4.6 million to
$14.2 million for the year ended December 31, 2007, as compared
to $18.8 million for the corresponding period in 2006. This
decrease is primarily due to the recognition of accretion income of
approximately $6.2 million, resulting from the early prepayment of
a mortgage receivable in 2006 partially offset by an overall increase
in interest income on mortgage receivables entered into in 2007
and 2006.
Management and other fee income increased approximately
$14.2 million for the year ended December 31, 2007, as compared
to the corresponding period in 2006. This increase is primarily due
to increased property management fees and other transaction
related fees related to the growth in the Company’s co-investment
programs.
General and administrative expenses increased approximately
$26.6 million for the year ended December 31, 2007, as compared
to the corresponding period in 2006. This increase is primarily due
to personnel-related costs, primarily due to growth within the
Company’s co-investment programs and the overall continued
growth of the Company.
Interest, dividends and other investment income decreased
approximately $24.9 million for the year ended December 31,
25
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
2007, as compared to the corresponding period in 2006. This
decrease is primarily due to a decrease in realized gains resulting
from the sale of certain marketable securities during 2007 as
compared to the corresponding period in 2006.
Other (expense)/income, net decreased approximately $19.5
million to $10.6 million of an expense for the year ended
December 31, 2007, as compared to $8.9 million in income for the
corresponding period in 2006. This decrease is primarily due to (i)
the receipt of fewer shares during 2007 as compared to 2006 of
Sears Holding Corp. common stock received as partial settlement
of Kmart pre-petition claims and (ii) an increase in Canadian
withholding charges on profit participation proceeds received
during 2007 relating to capital transactions from a Canadian
preferred equity investment.
Interest expense increased approximately $43.0 million for the
year ended December 31, 2007, as compared to the corresponding
period in 2006. This increase is due to higher interest rates and
higher outstanding levels of debt during the year ended December
31, 2007, as compared to the same period in 2006.
Benefit for income taxes increased $48.9 million for the year
ended December 31, 2007, as compared to the corresponding
period in 2006. This increase is primarily due to the reduction of
approximately $31.2 million of NOL valuation allowance and a tax
benefit of approximately $10.1 million from operating losses
recognized in connection with the Albertson’s investment.
Equity in income of real estate joint ventures, net increased
$67.8 million to $173.4 million for the year ended December 31,
2007, as compared to $105.5 million for the corresponding period
in 2006. This increase is primarily the result of (i) an increase in
equity in income from the Kimco Realty Opportunity Portfolio
(“KROP”) joint venture investment primarily resulting from profit
participation of approximately $39.3 million and gains on sale/
transfer of operating properties during 2007 of which the
Company’s share of gains were $12.8 million for the year ended
December 31, 2007, (ii) an increase in equity in income from the
Kimco Income Opportunity Portfolio (“KIR”) joint venture
investment primarily resulting from gains on sale of operating
properties during 2007 of which the Company’s share of gains was
$20.7 million for the year ended December 31, 2007 and (iii) the
Company’s growth of its various other real estate joint ventures due
to additional capital investments for the acquisition of additional
operating properties by the ventures throughout 2007 and 2006,
partially offset by net operating losses and excess cash distribution
from the Albertson’s joint venture of approximately $7.9 million
during 2007.
During 2007, the Company sold, in separate transactions, (i)
four recently completed merchant building projects, (ii) 26
out-parcels, (iii) 74.3 acres of undeveloped land and (iv) completed
partial sales of two projects, for aggregate total proceeds of
approximately $310.5 million and approximately $3.3 million of
proceeds from completed earn-out requirements on previously sold
projects. These transactions resulted in gains of approximately
$24.1 million, after income taxes of $16.0 million.
As part of the Company’s ongoing analysis of its merchant
building projects, the Company has determined that for two of its
projects, located in Jacksonville, FL and Anchorage, AK, the
recoverable value will not exceed their estimated cost. This is
primarily due to adverse changes in local market conditions and
the uncertainty of those conditions in the future. As a result, the
Company has recorded an aggregate pre-tax adjustment of property
carrying value on these projects for the year ended December 31,
2007, of $8.5 million, representing the excess of the carrying value
of the projects over their estimated fair value.
During 2006, the Company sold six recently completed
merchant building projects, its partnership interest in one project
and 30 out-parcels, in separate transactions, for approximately
$260.0 million. These sales resulted in gains of approximately $25.1
million, after income taxes of $12.2 million. These gains exclude
approximately $1.1 million of gain relating to one project, which was
deferred due to the Company’s continued ownership interest.
During 2007, the Company (i) disposed of six operating
properties and completed partial sales of three operating properties,
in separate transactions, for an aggregate sales price of
approximately $40.0 million, which resulted in an aggregate net
gain of approximately $6.4 million, after income tax of
approximately $1.6 million and (ii) transferred one operating
property, which was acquired in the first quarter of 2007, to a joint
venture in which the Company holds a 15% non-controlling
ownership interest for an aggregate price of approximately $4.5
million, which represented the net book value.
Additionally, during 2007, two consolidated joint ventures in
which the Company had preferred equity investments disposed of,
in separate transactions, their respective properties for an aggregate
sales price of approximately $66.5 million. As a result of these
capital transactions, the Company received approximately $22.1
million of profit participation, before minority interest of
approximately $5.6 million. This profit participation has been
recorded as income from other real estate investments and is
reflected in Income from discontinued operating properties in the
Company’s Consolidated Statements of Income.
During 2006, the Company disposed of (i) 28 operating
properties and one ground lease for an aggregate sales price of
$270.5 million, which resulted in an aggregate net gain of
approximately $71.7 million, net of income taxes of $2.8 million
relating to the sale of two properties, and (ii) transferred five
operating properties, to joint ventures in which the Company has
20% non-controlling interests for an aggregate price of
approximately $95.4 million, which resulted in a gain of
approximately $1.4 million from one transferred property.
Net income for the year ended December 31, 2007 was $442.8
million or $1.65 on a diluted per share basis as compared to $428.3
million or $1.70 on a diluted per share basis for the corresponding
period in 2006. This change is primarily attributable to (i) an
increase in revenues from rental properties primarily due to
acquisitions of operating properties during 2007 and 2006, (ii) an
increase in equity in income of real estate joint ventures achieved
26
Kimco Realty Corporation and Subsidiaries
from profit participation and gains on sale of joint venture
operating properties and additional capital investments in the
Company’s joint venture programs for the acquisition of additional
operating properties throughout 2007 and 2006, (iii) earnings of
$75.5 million related to the Albertson’s investment monetization,
partially offset by, (iv) a decrease in income resulting from the sale
of certain marketable securities during the corresponding period in
2006 and (v) a decrease in gains on sale of operating properties in
2007 as compared to 2006.
Comparison 2006 to 2005
Increase/
(Decrease)
2006
2005
(amounts in thousands)
%
change
Revenues from rental
property (1)
Rental property expenses: (2)
Rent
Real estate taxes
Operating and maintenance
Depreciation and
amortization (3)
$587.5 $501.6
$85.9
17.1%
$ 11.5 $ 10.0
64.1
58.2
$158.8 $132.3
74.6
72.7
$ 1.5
10.5
14.5
$26.5
15.0%
16.4%
24.9%
20.0%
$139.3 $100.5
$38.8
38.6%
(1) Revenues from rental property increased primarily from the combined effect of (i)
the acquisition of operating properties during 2006 and 2005, providing
incremental revenues for the year ended December 31, 2006 of approximately
$72.3 million, (ii) an overall increase in shopping center portfolio occupancy to
95.1% at December 31, 2006, as compared to 94.6% at December 31, 2005 and
the completion of certain redevelopment and development projects providing
incremental revenues of approximately $33.6 million for the year ended December
31, 2006 as compared to the corresponding period in 2005, offset by (iii) a decrease
in revenues of approximately $20.0 million for the year ended December 31, 2006,
as compared to the corresponding period in 2005, resulting from the transfer of
operating properties to various unconsolidated joint venture entities, tenant
ll
buyouts, and the sale of certain properties during 2005 and 2006.
(2) Rental property expenses increased primarily due to operating property acquisitions
during 2006 and 2005 which were partially offset by operating property
dispositions including those transferred to various joint venture entities.
(3) Depreciation and amortization increased primarily due to operating property
acquisitions during 2006 and 2005 which were partially offset by operating
property dispositions including those transferred to various joint venture entities.
Mortgage and other financing income decreased $8.8 million to
$18.8 million for the year ended December 31, 2006, as compared
to $27.6 million for the corresponding period in 2005. This
decrease is primarily due to the recognition in 2005 of a
prepayment fee of $14.0 million received by the Company relating
to the early repayment by Shopko of its outstanding loan with the
Company, offset by accretion income of approximately $6.2
million received in 2006, resulting from an early prepayment of a
mortgage receivable in June 2006, which had been acquired at
a discount.
Management and other fee income increased approximately
$10.2 million for the year ended December 31, 2006, as compared
to the corresponding period in 2005. This increase is primarily due
to incremental fees earned from the Kimsouth portfolio and
growth in the Company’s other co-investment programs.
General and administrative expenses increased approximately
$20.8 million for the year ended December 31, 2006, as compared
to the corresponding period in 2005. This increase is primarily due
to personnel-related costs including the non-cash expensing of
stock options granted and the overall continued growth of the
Company.
Interest, dividends and other investment income increased
approximately $27.5 million for the year ended December 31,
2006, as compared to the corresponding period in 2005. This
increase is primarily due to greater realized gains on the sale of
certain marketable securities and increased interest and dividend
income as a result of higher cash balances and the growth in the
marketable securities portfolio during 2006 as compared to 2005.
Interest expense increased $44.2 million for the year ended
December 31, 2006, as compared to the corresponding period in
2005. This increase is due to higher interest rates and higher
outstanding levels of debt during this period as compared to the
same period in the preceding year.
Income from other real estate investments increased $20.3
million to $77.1 million for the year ended December 31, 2006, as
compared to $56.8 million for the corresponding period in 2005.
This increase is primarily due to (i) increased investment in the
Company’s Preferred Equity program which contributed $40.1
million for the year ended December 31, 2006, including $12.2
million of profit participation earned from 16 capital transactions,
as compared to $32.8 million for the corresponding period in
2005, including $12.6 million of profit participation earned from
six capital transactions and (ii) pre-tax profits of $7.9 million from
the transfer of two properties from Kimsouth to a joint venture in
which the Company has an 18% non-controlling interest. These
profits exclude amounts that have been deferred as a result of the
Company’s continued ownership interest.
Equity in income of real estate joint ventures, net increased
$28.1 million to $105.5 million for the year ended December 31,
2006, as compared to $77.5 million for the corresponding period
in 2005. This increase is primarily attributable to (i) increase in
equity in income from the KROP joint venture primarily resulting
from profit participation of approximately $22.2 million and gains
from the sale of nine operating properties, one land parcel and one
out-parcel during 2006 of which the Company’s share of gains was
$9.9 million for the year ended December 31, 2006, and (ii) 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 by the ventures throughout 2006 and 2005.
During 2006, the Company sold six recently completed
merchant building projects, its partnership interest in one project
and 30 out-parcels, in separate transactions, for approximately
$260.0 million. These sales resulted in gains of approximately
$25.1 million, after income taxes of $12.2 million. These gains
exclude approximately $1.1 million of gain relating to one project,
which was deferred due to the Company’s continued ownership
interest.
27
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
During 2005, the Company sold, in separate transactions, 41
out-parcels and six recently completed merchant building projects
for approximately $264.1 million. These sales provided gains of
approximately $22.8 million, after income taxes of approximately
$10.8 million.
During 2006, the Company disposed of (i) 28 operating
properties and one ground lease for an aggregate sales price of
$270.5 million, which resulted in an aggregate net gain of
approximately $71.7 million, net of income taxes of $2.8 million
relating to the sale of two properties, and (ii) transferred five
operating properties, to joint ventures in which the Company has
20% non-controlling interests for an aggregate price of
approximately $95.4 million, which resulted in a gain of
approximately $1.4 million from one transferred property.
During 2005, the Company disposed of, in separate
transactions, (i) 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.
Net income for the year ended December 31, 2006 was $428.3
million. Net income for the year ended December 31, 2005 was
$363.6 million. On a diluted per share basis, net income improved
$0.18 to $1.70 for the year ended December 31, 2006, as compared
to $1.52 for the corresponding period in 2005. These increases are
attributable to (i) an increase in revenues from rental properties
primarily due to acquisitions in 2006 and 2005, (ii) increased
income from other real estate investments primarily due to
increased investments in the Company’s Preferred Equity program,
(iii) an increase in equity in income of real estate joint ventures
achieved from profit participation and gains on sale of joint venture
operating properties and additional capital investment in the
Company’s joint venture programs for the acquisition of additional
operating properties throughout 2006 and 2005, (iv) increased
gains on sales of operating properties in 2006 and (v) increased
income contributed from the marketable securities portfolio in
2006 as compared to 2005, partially offset by, (vi) an increase in
interest expense due to higher interest rates and increased
borrowings during 2006.
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, 2007, the Company’s five
largest tenants were The Home Depot, TJX Companies, Sears
Holdings, Kohl’s and Wal-Mart, which represented approximately
3.2%, 2.8%, 2.3%, 2.0% and 1.9%, respectively, of the Company’s
annualized base rental revenues, including the proportionate share
of base rental revenues from properties in which the Company has
less than a 100% economic interest.
Liquidity and Capital Resources
The Company’s capital resources include access to liquidity in
the capital markets, mortgage and construction loan financing and
immediate access to unsecured revolving credit facilities with
aggregate bank commitments of approximately $1.8 billion.
The Company’s cash flow activities are summarized as follows
(in millions):
Year Ended December 31,
Net cash flow provided by
operating activities
Net cash flow used for
investing activities
Net cash flow provided by
financing activities
g
Operating Activities
p
2007
2006
2005
$
666.0 $ 455.6 $ 410.8
$ (1,507.6) $ (246.2) $ (716.0)
$
584.1 $ 59.4 $ 343.3
Cash flows provided from operating activities for the year ended
December 31, 2007 were approximately $666.0 million, as compared
to approximately $455.6 million for the comparable period in 2006.
The increase of approximately $210.4 million is primarily
attributable to increased cash flows due to (i) the acquisition of
properties during 2007 and 2006, (ii) an increase in revenues from
rental properties due to an overall occupancy increase from the
consolidated shopping center portfolio, growth in rental rates from
lease renewals and the completion of certain re-development and
development projects and (iii) an increase in distributions from joint
ventures primarily received from the Company’s investment in
KROP resulting from the distribution of profit participation
proceeds and distributions from the Albertson’s investment.
The Company anticipates that cash flows from operating
activities 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 anticipates that cash on hand, borrowings under its
revolving credit 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, 2007, was
primarily attributable to (i) cash flow from the diverse portfolio of
rental properties, (ii) the acquisition of operating properties during
2007 and 2006, (iii) new leasing, expansion and re-tenanting of
core portfolio properties and (iv) growth in the Company’s joint
venture and Preferred Equity programs.
g
Investing Activities
Cash flows used for investing activities for the year ended
December 31, 2007 were approximately $1.5 billion, as compared
to approximately $246.2 million for the comparable period in
2006. This increase in cash utilization of $1.3 billion resulted
primarily from an increase in acquisition of and improvements to
operating real estate and real estate under development and a
28
Kimco Realty Corporation and Subsidiaries
decrease in proceeds received from transferred operating/
development properties, partially offset by reimbursements of
advances to real estate joint ventures received in 2007 as compared
to 2006.
The proceeds from the sales of 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.
Acquisitions and Redevelopments
Dispositions and Transfers
During the year ended December 31, 2007, the Company
expended approximately $1.0 billion 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,
2007, the Company expended approximately $70.1 million in
connection with these major redevelopments and re-tenanting
projects. The Company anticipates its capital commitment toward
these and other redevelopment projects during 2008 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, 2007, the Company
expended approximately $413.2 million for investments and
advances to real estate joint ventures and received approximately
$293.5 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.)
Ground-up Development
The Company is engaged in ground-up development projects
which consist of (i) merchant building through the Company’s
wholly-owned taxable REIT subsidiaries, which develop
neighborhood and community shopping centers and the
subsequent sale thereof upon completion, (ii) U.S. 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 for long-term investment. (See Recent
Developments - International Real Estate Investments and Note 3
of the Notes to Consolidated Financial Statements included in this
Annual Report.) The ground-up development projects generally
have significant pre-leasing prior to the commencement of
construction. As of December 31, 2007, the Company had in
progress a total of 60 ground-up development projects including 27
merchant building projects, nine U.S. ground-up development
projects, and 24 ground-up development projects located
throughout Mexico.
During the year ended December 31, 2007, the Company
expended approximately $640.9 million in connection with the
purchase of land and construction costs related to these projects
and those sold during 2007. The Company anticipates its capital
commitment during 2008 toward these and other development
projects will be approximately $200.0 million to $250.0 million.
During the year ended December 31, 2007, the Company
received net proceeds of approximately $359.2 million relating to
the sale of various operating properties and ground-up development
projects and approximately $69.9 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.)
g
Financing Activities
Cash flows provided from financing activities for the year ended
December 31, 2007 were approximately $584.1 million, as
compared to approximately $59.4 million for the comparable
period in 2006. This increase of approximately $524.7 million
resulted primarily from (i) an increase in borrowings under the
Company’s revolving credit facilities in 2007 due to increased
investment activity during 2007, (ii) an increase in proceeds from
mortgage/construction loan financing and (iii) a decrease in the
repayment of borrowings under the revolving credit facilities in
2007 as compared to 2006, partially offset by an increase in
dividends paid.
It is management’s intention that the Company continually has
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,
2007, the Company’s level of debt to total market capitalization
was 30%. 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 common and preferred 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 $5.7
billion. Proceeds from public capital market activities have been
used for the purposes of, among other things, repaying
indebtedness, acquiring interests in neighborhood and community
shopping centers, funding ground-up development projects,
expanding and improving properties in the portfolio and other
investments. In March 2006, the Company was added to the S &
P 500 Index, an index containing the stock of 500 Large Cap
corporations, most of which are U.S. corporations.
29
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
During October 2007, the Company established a new $1.5
billion unsecured U.S. revolving credit facility (the “U.S. Credit
Facility”) with a group of banks, which is scheduled to expire in
October 2011. This credit facility, which replaced the Company’s
$850.0 million unsecured U.S. revolving facility, which was
scheduled to expire in July 2008, has made available funds to
finance general corporate purposes, including (i) property
acquisitions, (ii) investments in the Company’s institutional
management programs, (iii) development and redevelopment costs
and (iv) any short-term working capital requirements. Interest on
borrowings under the U.S. Credit Facility accrues at LIBOR plus
0.375% and fluctuates in accordance with changes in the
Company’s senior debt ratings. As part of this U.S. Credit Facility,
the Company has a competitive bid option whereby the Company
may auction up to $750.0 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. A facility fee of 0.125% per annum is payable
quarterly in arrears. As part of the U.S. Credit Facility, 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 U.S.
Credit Facility, the Company, among other things, is subject to
covenants requiring the maintenance of (i) maximum leverage
ratios on both secured and unsecured debt and (ii) minimum
interest and fixed coverage ratios. As of December 31, 2007, there
was approximately $259.0 million outstanding under this credit
facility, of which approximately $9.0 million (approximately 4.5
million Pounds Sterling) was outstanding under the alternative
currency sub-limit.
The Company also has a three-year CAD $250.0 million
unsecured credit facility with a group of banks. This facility bore
interest at the CDOR Rate, as defined, plus 0.45%, and was
scheduled to expire in March 2008. During October 2007, the
facility was amended to modify the covenant package to conform
to the Company’s U.S. Credit Facility. The facility was further
amended in January 2008, to extend the maturity date to 2011,
with an additional one-year extension option, at a reduced rate of
CDOR plus 0.375%, subject to change in accordance with the
Company’s senior debt ratings. Proceeds from this facility are used
for general corporate purposes, including the funding of Canadian
denominated investments. As of December 31, 2007, there was no
outstanding balance under this credit facility.
Additionally, the Company has a three-year MXP 500.0 million
unsecured revolving credit facility. This facility bears interest at
the TIIE Rate, as defined therein, plus 1.00%, subject to change in
accordance with the Company’s senior debt ratings, and is
scheduled to mature in May 2008 with an additional one-year
extension option. Proceeds from this facility are used to fund peso
denominated investments. As of December 31, 2007, there was
MXP 250.0 million (approximately USD $22.9 million)
outstanding under this credit facility.
The Company is currently negotiating a five-year fixed rate
MXP 1.0 billion term loan. Proceeds from this loan will be used to
pay the outstanding balance on the MXP 500.0 million unsecured
revolving credit facility and for funding Mexican denominated
investments.
During August 2007, the Company obtained a $200.0 million
unsecured term loan that bore interest at LIBOR plus 0.325%.
The term loan was scheduled to mature on December 14, 2007.
The Company utilized these proceeds to partially repay the
outstanding balance on the Company’s U.S. Credit Facility. The
term loan was fully repaid in October 2007.
The Company has 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. (See Note 11 of the
Notes to Consolidated Financial Statements included in this
Annual Report.)
During April 2007, the Company issued $300.0 million of
ten-year Senior Unsecured Notes at an interest rate of 5.70% per
annum payable semi-annually in arrears. These notes were sold at
99.984% of par value. Net proceeds from the issuance were
approximately $297.8 million, after related transaction costs of
approximately $2.2 million. The proceeds from this issuance were
primarily used to repay a portion of the outstanding balance under
the Company’s U.S. Credit Facility and for general corporate
purposes. These notes were issued in conjunction with a fourth
supplemental indenture, which removed the financial covenant
requirements for this issuance and future offerings under the
indenture as amended.
During the year ended December 31, 2007, the Company
repaid the following senior unsecured notes: (i) its $30.0 million
7.46% fixed rate notes, which matured on May 20, 2007, (ii) its
$55.0 million 5.75% fixed rate notes, which matured on June 29,
2007, (iii) its $20.0 million 6.96% fixed rate notes which matured
on July 16, 2007, (iv) its $50.0 million 7.86% fixed rate notes,
which matured on November 1, 2007, (v) its $50.0 million 7.90%
fixed rate notes, which matured on December 7, 2007 and (vi) its
$10.0 million 6.70% fixed rate notes, which matured on December
14, 2007. Additionally, the Company repaid its $35.0 million
4.96% fixed rate Senior Unsecured Notes, which matured on
November 30, 2007.
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 its ground-up development projects. As
of December 31, 2007, the Company had over 390 unencumbered
property interests in its portfolio.
During 2007, the Company (i) obtained an aggregate of
approximately $285.8 million of non-recourse mortgage debt on 12
operating properties, (ii) assumed approximately $83.7 million of
individual non-recourse mortgage debt relating to the acquisition
30
Kimco Realty Corporation and Subsidiaries
of eight operating properties, including approximately $2.5 million
of fair value debt adjustments and (iii) paid off approximately $81.6
million of individual non-recourse mortgage debt that encumbered
11 operating properties.
During 2007, the Company obtained individual construction
loans on five merchant building projects and assumed one loan in
connection with the acquisition of a merchant building project.
Additionally, the Company repaid construction loans on three
merchant building projects. As of December 31, 2007, the
Company had a total of 15 construction loans with commitments
of up to $360.3 million of which approximately $245.9 million has
been funded. These loans had scheduled maturities ranging from
one month to 33 months (excluding any extension options which
may be available to the Company) and bear interest at rates ranging
from 6.78% to 7.48% at December 31, 2007.
During May 2006, the Company filed a shelf registration
statement on Form S-3ASR, which is effective for a term of
three-years, for the unlimited future offerings, from time-to-time,
of debt securities, preferred stock, depositary shares, common stock
and common stock warrants.
During October 2007, the Company issued 18,400,000
Depositary Shares (the “Class G Depositary Shares”), after the
exercise of an over-allotment option, each representing a one-
hundredth fractional interest in a share of the Company’s 7.75%
Class G Cumulative Redeemable Preferred Stock, par value $1.00
per share (the “Class G Preferred Stock”). Dividends on the Class
G Depositary Shares are cumulative and payable quarterly in
arrears at the rate of 7.75% per annum based on the $25.00 per
share initial offering price, or $1.9375 per annum. The Class G
Depositary Shares are redeemable, in whole or part, for cash on or
after October 10, 2012, 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 G Depositary Shares are
not convertible or exchangeable for any other property or securities
of the Company. Net proceeds from the sale of the Class G
Depositary Shares, totaling approximately $444.5 million (after
related transaction costs of $15.5 million) were used for general
corporate purposes, including funding property acquisitions,
investments in the Company’s institutional management programs
and other investment activities. The Company also used a portion
of the proceeds to partially repay amounts outstanding under its
U.S. Credit Facility.
During 2007, the Company received approximately $38.1
million through employee stock option exercises and the dividend
reinvestment program.
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
investments. 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 $384.5
million in 2007, compared to $332.6 million in 2006 and $293.3
million in 2005.
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. The
Company’s Board of Directors declared a quarterly dividend of
$0.40 per common share payable to shareholders of record on
January 2, 2008, which was paid on January 15, 2008.
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 28 years.
As of December 31, 2007, the Company’s total debt had a weighted
average term to maturity of approximately 5.5 years. In addition,
the Company has non-cancelable operating leases pertaining to its
shopping center portfolio. As of December 31, 2007, the Company
has 79 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 19 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, 2007 (in millions):
2008
2009
2010
2011
2012
after Total
There-
Long-Term Debt,
including
interest (1)(2)
Operating Leases
Ground Leases
Retail Store Leases
$ 742.9 $523.6 $500.7 $817.0 $405.8 $2,448.4 $5,438.4
$ 11.4 $ 10.9 $
3.7 $
$
3.9 $
9.0 $
3.6 $
6.7 $
3.1 $
6.0 $ 115.6 $ 159.6
17.6
1.3 $
2.0 $
(1) maturities utilized do not reflect extension options, which range from six months to
two years.
(2) for loans which have interest at floating rates, future interest expense was calculated
using the rate as of December 31, 2007.
The Company has $100.0 million of medium term notes, $25.3
million of senior unsecured notes, $84.4 million of mortgage debt
and $260.9 million of construction loans scheduled to mature in
31
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
2008. The Company anticipates satisfying these maturities with a
combination of operating cash flows, its unsecured 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
$30.7 million.
In June 2006, the FASB issued Financial Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”), which
clarifies the accounting for uncertainty in income taxes recognized
in a company’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. The
interpretation prescribes a recognition threshold and measurement
attribute criteria for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. The interpretation also provides guidance on de-
recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition.
The Company adopted the provisions of FIN 48 on January 1,
2007. The Company does not have any material unrecognized tax
benefits, therefore the adoption of FIN 48 did not have a material
impact on the Company’s financial position or results of
operations.
During June 2007, the Company entered into a joint venture, in
which the Company has a non-controlling ownership interest, and
acquired all of the common stock of InTown Suites Management,
Inc. This investment was funded with approximately $186.0
million of new cross-collateralized non-recourse mortgage debt
with a fixed interest rate of 5.59%, encumbering 35 properties, a
$153.0 million three-year unsecured credit facility, which bears
interest at LIBOR plus 0.325% and is guaranteed by the Company
and the assumption of $278.6 million cross-collateralized non-
recourse mortgage debt with fixed interest rates ranging from
5.19% to 5.89%, encumbering 86 properties. The joint venture
partner has pledged its equity interest for any guaranty payment
the Company is obligated to pay. The outstanding balance on the
three-year unsecured credit facility was $149.0 million as of
December 31, 2007. The joint venture obtained an interest rate
swap at 5.37% on $128.0 million of this debt. The swap is
designated as a cash flow hedge and as such adjustments are
recorded in Other comprehensive income.
During 2007, the Company entered into a joint venture, in
which the Company has a non-controlling ownership interest, to
acquire a property in Houston, Texas. This investment was funded
with a $24.5 million one-year unsecured credit facility with an
additional one-year extension option, which bears interest at
LIBOR plus 0.375% and is guaranteed by the Company. The
outstanding balance on this credit facility as of December 31, 2007
was $24.5 million.
During April 2007, the Company entered into a joint venture,
in which the Company has a 50% non-controlling ownership
interest to acquire a property in Visalia, CA. Subsequent to this
acquisition the joint venture obtained a three-year $6.0 million
three-year promissory note which bears interest at LIBOR plus
0.75%, and has an extension option of two-years. This loan is
jointly and severally guaranteed by the Company and the joint
venture partner. As of December 31, 2007, the outstanding
balance on this loan was $6.0 million.
The KimPru joint ventures, entities in which the Company
holds a 15% non-controlling interest, with Prudential Real Estate
Investors (“PREI”) through three separate accounts managed by
PREI obtained a $1.2 billion two-year credit facility provided by a
consortium of banks and guaranteed by the Company. PREI
guaranteed reimbursement to the Company of 85% of any
guaranty payment the Company is obligated to make. As of
December 31, 2007, there was $702.5 million outstanding under
this credit facility, which bears interest at LIBOR plus 0.45% and is
scheduled to mature in October 2008.
During 2006, an entity in which the Company has a preferred
equity investment, located in Montreal, Canada, obtained a
non-recourse construction loan, which is collateralized by the
respective land and project improvements. Additionally, the
Company has provided a guaranty to the lender and the developer
partner has provided an indemnity to the Company for 25% of all
debt. As of December 31, 2007, there was CAD $72.6 million
(approximately USD $74.0 million) outstanding on this
construction loan.
In connection with the construction of its development projects
and related infrastructure, certain public agencies require
performance and surety bonds be posted to guarantee that the
Company’s obligations are satisfied. These bonds expire upon the
completion of the improvements and infrastructure. As of December
31, 2007, there were approximately $90.4 million bonds outstanding.
Additionally, the RioCan Venture, an entity in which the
Company holds a 50% non-controlling interest, has a CAD $7.0
million (approximately USD $7.1 million) letter of credit facility.
This facility is jointly guaranteed by RioCan and the Company
and had approximately CAD $5.5 million (approximately USD
$5.6 million) outstanding as of December 31, 2007, relating to
various development projects.
During 2005, an entity in which the Company has a preferred
equity investment obtained a CAD $22.5 million (approximately
USD $22.9 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
March 2008. The Company and its partner in this entity each
have a limited and several guarantee of CAD $7.5 million
(approximately USD $7.6 million) on this facility. As of December
31, 2007, there was CAD $21.1 million (approximately USD $21.5
million) outstanding on this facility.
32
Kimco Realty Corporation and Subsidiaries
During 2005, PL Retail, a joint venture in which the Company
holds a 15% non-controlling interest, entered into a $39.5 million
unsecured revolving credit facility, which bears interest at LIBOR
plus 0.45% and was scheduled to mature in February 2008. During
2008, the loan was extended to February 2009. This facility is
guaranteed by the Company and the joint venture partner has
guaranteed reimbursement to the Company of 85% of any guaranty
payment the Company is obligated to make. As of December 31,
2007, there was $24.6 million outstanding under this facility.
Additionally, during 2005, the Company acquired three
operating properties and one land parcel, through joint ventures, in
which the Company holds 50% non-controlling interests.
Subsequent to these acquisitions, the joint ventures obtained four
individual one-year loans aggregating $20.4 million with interest
rates ranging from LIBOR plus 0.50% to LIBOR plus 0.55%.
During 2007, one of these properties was sold for a sales price of
approximately $10.5 million, including the pay down of $5.0 million
of debt. During 2007, two of these term loans were extended until
May 2008 and one was extended until October 2008. As of
December 31, 2007, there was an aggregate of $15.4 million
outstanding on these loans. These loans are jointly and severally
guaranteed by the Company and the joint venture partner.
financed with a term loan, which is 50% guaranteed by the
Company, with a commitment of up to $28.0 million of which
$28.0 million was outstanding as of December 31, 2007. This loan
bears interest at LIBOR plus 1.55%, or 6.78% at December 31,
2007, and is scheduled to mature in September 2008.
Unconsolidated Real Estate Joint Ventures
The Company has investments in various unconsolidated real
estate joint ventures with varying structures. 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 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. (See Note 7 of the Notes to Consolidated Financial
Statements included in this Annual Report.) These investments
include the following joint ventures:
Off-Balance Sheet Arrangements
Merchant Building Joint Ventures
At December 31, 2007, the Company has two merchant
building projects through unconsolidated joint ventures in which
the Company has 50% non-controlling interests. One project is
financed with a $113.0 million ten-year permanent note, which
bears interest at a rate of 5.55% per annum. The other project is
Venture
KimPru (c)
KIR (d)
PL Retail (e)
KUBS (f )
RioCan Venture (g)
Kimco
Ownership
Interest
15.00%
45.00%
15.00%
17.89%(a)
50.00%
Number of
Properties
127
63
22
43
35
Total GLA
(in thousands)
19,837
13,117
5,578
6,166
8,199
Non-Recourse
Mortgage Payable
(in millions)
$2,085.5
$1,018.7
$ 658.2
$ 770.2
$ 763.9
Recourse Notes
Payable
(in millions)
$702.5(b)
$ —
$ 24.6(b)
$ —
$ —
Number of
Encumbered
Properties
92
61
22
43
35
Average
Interest Rate
5.66%
6.96%
6.17%
5.70%
6.12%
Weighted
Average
Term (months)
70.1
41.4
26.0
89.2
67.0
(a) Ownership % is a blended rate.
(b) See Contractual Obligations and Other Commitments regarding guarantees by the Company and its joint venture partners.
(c) Represents the Company’s joint ventures with Prudential Real Estate Investors.
(d) Represents the Kimco Income REIT, formed in 1998.
(e) Represents the Company’s joint venture formed from the acquisition of the Price Legacy Corporation.
(f) Represents the Company’s joint ventures with UBS Wealth Management North American Property Fund Limited.
(g) Represents the Company’s joint venture with RioCan Real Estate Investment Trust.
s
33
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company has various other unconsolidated real estate joint
ventures with varying structures. As of December 31, 2007, these
unconsolidated joint ventures had individual non-recourse
mortgage loans aggregating approximately $2.9 billion. The
Company’s share of these non-recourse mortgages was
approximately $707.7 million. (See Note 7 of the Notes to
Consolidated Financial Statements included in this Annual
Report.)
Other Real Estate Investments
The Company maintains a Preferred Equity program, which
provides capital to developers and owners of real estate properties.
The Company accounts for its preferred equity investments under
the equity method of accounting. As of December 31, 2007, the
Company’s net investment under the Preferred Equity Program
was approximately $484.1 million relating to 258 properties. As of
December 31, 2007, these preferred equity investment properties
had individual non-recourse mortgage loans aggregating
approximately $1.7 billion. Due to the Company’s preferred
position in these investments, the Company’s 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 primarily limited
to its invested capital.
Additionally, during July 2007, the Company invested
approximately $81.7 million of preferred equity capital in a
portfolio comprised of 403 net leased properties which are divided
into 30 master leased pools with each pool leased to individual
corporate operators. These properties consist of a diverse array of
free-standing restaurants, fast food restaurants, convenience and
auto parts stores. As of December 31, 2007 these properties were
encumbered by third party loans aggregating approximately $433.0
million with interest rates ranging from 5.08% to 10.47% with a
weighted average interest rate of 9.3% and maturities ranging from
1.4 years to 15.2 years.
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, 2007, 18 of these properties were sold,
whereby the proceeds from the sales were used to pay down
the mortgage debt by approximately $32.1 million. As of
December 31, 2007, the remaining 12 properties were encumbered
by third-party non-recourse debt of approximately $48.8 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 debt has been offset against the related net rental
receivable under the lease.
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-
determined 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 Company 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 September 2006, the FASB issued Statement of Financial
Accounting Standards (“SFAS”) No. 157, Fair Value Measurement
(“SFAS No. 157”), which defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value
measurement. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007. During
February 2008, the FASB issued a Staff Position that will (i)
partially defer the effective date of SFAS No. 157 for one year for
certain nonfinancial assets and nonfinancial liabilities and (ii)
remove certain leasing transactions from the scope of SFAS
No. 157. The impact of adopting SFAS No. 157 is not expected to
have a material impact on the Company’s financial position or
results of operations.
34
Kimco Realty Corporation and Subsidiaries
parent. The objective of this statement is to improve the relevance,
comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards that require: (i)
the ownership interests in subsidiaries held by parties other than
the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but
separate from the parent’s equity, (ii) the amount of consolidated
net income attributable to the parent and to the non-controlling
interest be clearly identified and presented on the face of the
consolidated statement of income, (iii) changes in a parent’s
ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently and requires
that they be accounted for similarly, as equity transactions, (iv)
when a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured at
fair value, the gain or loss on the deconsolidation of the subsidiary
is measured using the fair value of any noncontrolling equity
investment rather than the carrying amount of that retained
investment and (v) entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. This statement is effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is
prohibited. The Company is currently assessing the impact the
adoption of SFAS No. 160 would have on the Company’s financial
position and 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, 2007, 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 currency. The
instruments’ actual cash flows are denominated in U.S. dollars,
Canadian dollars and Mexican pesos as indicated by geographic
description ($USD equivalent in millions).
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (“SFAS
No. 159”). SFAS No. 159 permits entities to choose to measure
many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option
has been elected are reported in earnings. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. The impact of
SFAS No. 159 is not expected to have a material impact on the
Company’s financial position or results of operations.
In June 2007, the AICPA issued Statement of Position 07-1,
Clarification of the Scope of the Audit and Accounting Guide for
Investment Companies and Accounting by Parent Companies and
Equity Method Investors for Investments in Investment Companies
(“SOP 07-1”). SOP 07-1 sets forth more stringent criteria for
qualifying as an investment company than does the predecessor
Audit Guide. In addition, SOP 07-1 establishes new criteria for a
parent company or equity method investor to retain investment
company accounting in their consolidated financial statements.
Investment companies record all their investments at fair value
with changes in value reflected in earnings. SOP 07-1 was to be
effective for the Company’s 2008 fiscal year, however, in October
2007 the FASB agreed to propose an indefinite delay, and, in
February 2008, the FASB issued a final Staff Position to
indefinitely delay the effective date of SOP 07-1.
In December 2007, the FASB issued SFAS No. 141 (revised
2007), Business Combinations (“SFAS No. 141(R)”). The objective
of this statement is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting
entity provides in its financial reports about a business combination
and its effects. To accomplish that, this Statement establishes
principles and requirements for how the acquirer: (i) recognizes and
measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any non-controlling interest in the
acquiree, (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase and (iii)
determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of
the business combination. This statement applies prospectively to
business combinations for which the acquisition date is on or after
the first annual reporting period beginning on or after December
15, 2008. An entity may not apply it before that date. The
Company is currently assessing the impact the adoption of SFAS
No. 141(R) would have on the Company’s financial position and
results of operations.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an
Amendment of ARB No. 51(“SFAS No. 160”). A noncontrolling
interest, sometimes called a minority interest, is the portion of
equity in a subsidiary not attributable, directly or indirectly, to a
35
Kimco Realty Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
2008
2009
2010
2011
2012
2013+
Total
Fair Value
U.S. Dollar Denominated
Secured Debt
Fixed Rate
Average Interest Rate
Variable Rate
Average Interest Rate
Unsecured Debt
Fixed Rate
Average Interest Rate
Variable Rate
Average Interest Rate
Canadian Dollar Denominated
Unsecured Debt
Fixed Rate
Average Interest Rate
Mexican Pesos Denominated
Unsecured Debt
Variable Rate
Average Interest Rate
$ 84.4
$ 60.7
$ 18.0
$ 45.1
$ 52.8
$ 435.2
$ 696.2
$ 682.1
7.18%
7.04%
8.47%
7.43%
7.26%
$ 260.9
$ 73.1
$ 54.1
6.00%
6.69%
6.70%
$ —
—
$ —
—
$
6.20%
0.4
7.25%
6.61%
$ 388.5
$ 388.5
5.71%
$ 125.3
$ 180.0
$ 76.1
$ 360.3
$ 217.0
$ 1,528.1
$ 2,486.8
$ 2,454.9
$
4.61%
2.4
6.25%
6.98%
$ —
—
$
5.54%
6.5
7.52%
6.35%
$ 259.0
5.28%
6.00%
$ —
—
$
5.47%
—
—
5.71%
$ 267.9
$ 267.9
5.35%
$ —
—
$ —
—
$ 151.8
4.45%
$ —
—
$ —
—
$ 202.4
$ 354.2
$ 349.4
5.18%
4.87%
$ 22.9
8.92%
$ —
—
$ —
—
$ —
—
$ —
—
$
—
—
$
22.9
8.92%
$
22.9
Based on the Company’s variable-rate debt balances, interest
expense would have increased by approximately $6.8 million in
2007 if short-term interest rates were 1.0% higher.
As of December 31, 2007, the Company had (i) Canadian
investments totaling CAD $476.8 million (approximately USD
$482.5 million) comprised of real estate joint venture investments
and marketable securities, (ii) Mexican real estate investments of
approximately MXP 8.0 billion (approximately USD $734.8
million) and (iii) Chilean real estate investments of approximately
1.6 billion Chilean Pesos (“CLP”) (approximately USD $3.0
million). The foreign currency exchange risk has been partially
mitigated through the use of local currency denominated debt.
The Company has not, and does not plan to, enter into any
derivative financial instruments for trading or speculative purposes.
As of December 31, 2007, 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.
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
Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and
maintaining 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, 2007.
The effectiveness of our internal control over financial reporting
as of December 31, 2007 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
36
Kimco Realty Corporation and Subsidiaries
Report of Independent Registered Public Accounting Firm
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
February 27, 2008
To the Board of Directors and Stockholders
of Kimco Realty Corporation:
In our opinion, the accompanying consolidated balance sheets
k
and the related consolidated statements of income and
comprehensive income, of shareholders’ equity and cash flow
present fairly, in all material respects, the financial position of
Kimco Realty Corporation and its Subsidiaries at December 31,
2007 and 2006, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
2007, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2007, based on criteria
established in Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible
for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included
in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express opinions
on these financial statements and on the Company’s internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
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 statement presentation. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide
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
37
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
Investments 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
Total assets
Liabilities & Stockholders' Equity:
Notes payable
Mortgages payable
Construction loans payable
Accounts payable and accrued expenses
Dividends payable
Other liabilities
Total liabilities
Minority interests
Commitments and contingencies
Stockholders' equity:
Preferred Stock , $1.00 par value, authorized 3,232,000 and 3,600,000 shares, respectively
Class F Preferred Stock, $1.00 par value, authorized 700,000 shares
Issued and outstanding 700,000 shares
Aggregate liquidation preference $175,000
Class G Preferred Stock, $1.00 par value, authorized 184,000 shares
Issued and outstanding 184,000 shares
Aggregate liquidation preference $460,000
Common stock, $.01 par value, authorized 750,000,000 and 300,000,000 shares, respectively
Issued 253,350,144 and 251,416,749, shares; outstanding 252,803,564
and 250,870,169, respectively.
Paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
q
The accompanying notes are an integral part of these consolidated financial statements.
38
December 31,
2007
December 31,
2006
$ 1,262,879
4,917,750
6,180,629
977,444
5,203,185
1,144,406
6,347,591
1,246,917
615,016
153,847
87,499
212,988
88,017
121,690
224,251
$ 9,097,816
$ 3,131,765
838,736
245,914
161,526
112,052
265,090
4,755,083
448,159
$
978,819
3,984,518
4,963,337
806,670
4,156,667
1,037,982
5,194,649
1,067,918
451,731
162,669
345,065
202,659
83,418
95,163
266,008
$ 7,869,280
$ 2,748,345
567,917
270,981
163,668
93,222
232,946
4,077,079
425,242
700
184
700
—
2,528
3,677,509
180,005
3,860,926
33,648
3,894,574
$ 9,097,816
2,509
3,178,016
140,509
3,321,734
45,225
3,366,959
$ 7,869,280
Kimco Realty Corporation and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
p p
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 (expense)/income, net
Interest expense
p
Income from continuing operations before income taxes, income from
other real estate investments, equity in income of joint ventures,
minority interests in income, gain on sale of development properties and
adjustment of property carrying values
Benefit/(provision) for income taxes
Income from other real estate investments
Equity in income of joint ventures, net
Minority interests in income, net
Gain on sale of development properties,
net of tax of $16,040, $12,155 and $10,824, respectively
g
j
Adjustment of property carrying values, net of tax of $3,400, $0 and $0, respectively
p p
p
Income from continuing operations
Discontinued operations:
Income from discontinued operating properties
Minority interests in income
Loss on operating properties held for sale/sold
Gain on disposition of operating properties, net of tax
g p p
p
p
Income from discontinued operations
Gain on transfer of operating properties
Loss on transfer of operating property
p
Gain on sale of operating properties, net of tax
g p p
Total gain on transfer or sale of operating properties, net of tax
Income before extraordinary item
Extraordinary gain from joint venture resulting from purchase price
allocation, net of tax and minority interest
Net income
Preferred stock dividends
Net income available to common shareholders
Per common share:
Income from continuing operations:
-Basic
-Diluted
Net income :
-Basic
-Diluted
Weighted average shares:
-Basic
-Diluted
The accompanying notes are an integral part of these consolidated financial statements.
2007
$ 681,553
Year Ended December 31,
2006
$ 587,547
2005
$ 501,569
(12,131)
(83,571)
(90,013)
14,197
54,844
(189,650)
(103,882)
30,951
(10,590)
(213,674)
78,034
44,490
78,524
173,363
(34,144)
24,059
(5,100)
359,226
32,773
(5,848)
(1,832)
5,538
30,631
—
—
2,708
2,708
392,565
(11,531)
(74,607)
(72,701)
18,816
40,684
(139,263)
(77,324)
55,822
8,928
(170,677)
165,694
(4,387)
77,062
105,525
(26,166)
25,121
—
342,849
13,914
(1,585)
(1,421)
72,042
82,950
1,394
—
1,066
2,460
428,259
(10,012)
(64,067)
(58,167)
27,586
30,474
(100,517)
(56,475)
28,345
5,071
(126,432)
177,375
(165)
56,751
77,454
(12,164)
22,812
—
322,063
15,485
(573)
(5,098)
28,918
38,732
2,301
(150)
682
2,833
363,628
50,265
442,830
(19,659)
$ 423,171
—
428,259
(11,638)
$ 416,621
—
363,628
(11,638)
$ 351,990
$
$
$
$
1.36
1.33
1.68
1.65
$
$
$
$
1.39
1.36
1.74
1.70
$
$
$
$
1.38
1.36
1.55
1.52
252,129
257,058
239,552
244,615
226,641
230,868
39
Kimco Realty Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income:
Change in unrealized gain/(loss) on marketable securities
Change in unrealized gain/(loss) on foreign currency hedge agreements
Change in foreign currency translation adjustment
Other comprehensive income
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
2007
Year ended December 31,
2006
2005
$ 442,830
$ 428,259
$ 363,628
(25,803)
(1,470)
15,696
(11,577)
(26,467)
143
2,503
(23,821)
26,689
2,536
2,040
31,265
$ 431,253
$ 404,438
$ 394,893
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share information)
Balance, January 1, 2005
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
Net income
Dividends ($1.38 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, 2006
Net income
Dividends ($1.52 per common share; $1.6625
Class F Depositary Share, and $0.4359 per
Class G Depositary Share, respectively)
Issuance of common stock
Exercise of common stock options
Issuance of Class G Preferred Stock
Amortization of stock option expense
Other comprehensive income
Balance, December 31, 2007
Preferred Stock
Issued Amount
Common Stock
Issued
Amount
Paid-in
Capital
Retained
Earnings /
(Cumulative
Distributions
in Excess of
Net Income)
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
700
$ 700
224,854
$ 2,248
$ 2,199,420 $
(3,749)
$
37,781
$ 2,236,400
242
2,963
3
30
6,837
44,467
4,608
700
700
228,059
2,281
2,255,332
20,614
2,197
206
22
870,465
42,007
10,212
700
700
250,870
2,509
3,178,016
50
1,884
1
18
184
184
2,413
40,546
444,283
12,251
363,628
(300,024)
59,855
428,259
(347,605)
140,509
442,830
(403,334)
363,628
(300,024)
6,840
44,497
4,608
31,265
2,387,214
428,259
(347,605)
870,671
42,029
10,212
(23,821)
3,366,959
442,830
(403,334)
2,414
40,564
444,467
12,251
(11,577)
31,265
69,046
(23,821)
45,225
(11,577)
884
$ 884 252,804 $ 2,528
$ 3,677,509 $ 180,005
$
33,648
$ 3,894,574
The accompanying notes are an integral part of these consolidated financial statements.
40
Kimco Realty Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Extraordinary item
Loss on operating properties held for sale/sold/transferred
Adjustment of property carrying values
Gain on sale of development properties
Gain on sale/transfer of operating properties
Minority interests in income of partnerships, net
Equity in income of joint ventures, net
Income from other real estate investments
Distributions from joint ventures
Cash retained from excess tax benefits
Change in accounts and notes receivable
Change in accounts payable and accrued expenses
g
Change in other operating assets and liabilities
Net cash flows provided by operating activities
p
p
g
g
y p
Cash flows 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
Reimbursements of other investments
Settlement of net investment hedges
Proceeds from sale of operating properties
Proceeds from sale of development properties
Net cash flows used for investing activities
p p
p
g
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 credit facilities
Repayment of borrowings under credit facilities
Proceeds from issuance of unsecured senior notes
Repayment of unsecured senior notes
Financing origination costs
Redemption of minority interests in real estate partnerships
Dividends paid
Cash retained from excess tax benefits
Proceeds from issuance of stock
y
p
Net cash flows provided by financing activities
g
Change in cash and cash equivalents
y
g
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Interest paid during the year (net of capitalized interest of $25,505, $22,741, and
q
q
g
y
$12,587, respectively)
y)
p
g
p
Income taxes paid during the year
y
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2006
2005
2007
$
442,830
$ 428,259
$ 363,628
191,270
(50,265)
1,832
8,500
(40,099)
(9,800)
39,992
(173,363)
(64,046)
403,032
(2,471)
(4,876)
1,361
(77,908)
665,989
(1,077,202)
(640,934)
(55,235)
35,525
69,869
(413,172)
293,537
(192,890)
87,925
(97,592)
94,720
(26,688)
55,361
—
59,450
299,715
(1,507,611)
(82,337)
(14,014)
(78,295)
413,488
627,369
(343,553)
300,000
(250,000)
(10,819)
(80,972)
(384,502)
2,471
485,220
584,056
(257,566)
345,065
87,499
144,767
—
1,421
—
(37,276)
(77,300)
27,751
(106,930)
(54,494)
152,099
(2,926)
(17,778)
38,619
(40,643)
455,569
(547,001)
(619,083)
(86,463)
83,832
1,186,851
(472,666)
183,368
(254,245)
74,677
(154,894)
125,003
(123,609)
16,113
(953)
110,404
232,445
(246,221)
(61,758)
(11,062)
(79,399)
174,087
317,661
(653,219)
478,947
(185,000)
(11,442)
(31,554)
(332,552)
2,926
451,809
59,444
268,792
76,273
$ 345,065
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
215,121
14,292
$ 153,664
9,350
$
$ 121,087
$ 13,763
41
$
$
$
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share information)
Amounts relating to the number of buildings, square footage,
tenant and occupancy data and estimated project costs are
unaudited.
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
community 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 unaffiliated third parties.
Additionally, in connection with the Tax Relief Extension Act
of 1999 (the “RMA”), which became effective January 1, 2001, the
Company is 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 it’s wholly-owned taxable REIT subsidiaries including
Kimco Developers, Inc. (“KDI”), which are 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, 2007, the Company’s single
largest neighborhood and community shopping center accounted
for only 1.7% 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, 2007, the Company’s five
largest tenants were The Home Depot, TJX Companies, Sears
Holdings, Kohl’s and Wal-Mart, which represented approximately
3.2%, 2.8%, 2.3%, 2.0% and 1.9%, respectively, of the Company’s
annualized base rental revenues, including the proportionate share
of base rental revenues from properties in which the Company has
less than a 100% economic interest.
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 (“GAAP”).
Principles of Consolidation and Estimates
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.
GAAP requires 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 and related intangible assets and
liabilities, depreciable lives, revenue recognition, the collectability
of trade accounts receivable, and the realizability of deferred tax
assets. 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 a variable interest entity in
accordance with the provisions and guidance of FIN 46(R).
Minority interests also include partnership units issued from
consolidated subsidiaries of the Company in connection with
certain property acquisitions. These units have a stated redemption
value or a redemption amount based upon the Adjusted Current
Trading Price, as defined, of the Company’s common stock
(“Common Stock”) and provide the unit holders various rates of
return during the holding period. The unit holders generally have
the right to redeem their units for cash at any time after one year
from issuance. The Company typically has the option to settle
redemption amounts in cash or Common Stock for the issuance of
convertible units. The Company evaluates the terms of the
partnership units issued in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity, and EITF D-98, Classification and Measurement of
Redeemable Securities, to determine if the units are mandatorily
redeemable and as such accounts for them accordingly.
42
Kimco Realty Corporation and Subsidiaries
Real Estate
Real estate assets are stated at cost, less accumulated
depreciation and amortization. If there is an event or a change in
circumstances 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
property over its estimated holding period, 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, building improvements and tenant
improvements) and identified intangible assets and liabilities
(consisting of above and below-market leases, in-place leases and
tenant relationships), assumed debt and redeemable units issued in
accordance with SFAS No. 141, Business Combinations (“SFAS
No. 141”), at the date of acquisition, based on evaluation of
information and estimates available at that date. Based on these
estimates, the Company allocates the initial purchase price to the
applicable assets and liabilities. As final information regarding fair
value of the assets acquired and liabilities assumed is received and
estimates are refined, appropriate adjustments are made to the
purchase price allocation. The allocations are finalized within
twelve months of the acquisition date.
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. Mortgage debt
premiums are amortized into interest expense over the remaining
term of the related debt instrument. Unit discounts and premiums
are amortized into Minority interest in income, net over the period
from the date of issuance to the earliest redemption date of the
units.
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
relationships 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 and building
improvements
Fixtures, leasehold
and tenant improvements
(including certain identified
intangible assets)
15 to 50 years
Terms of leases or useful lives,
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. 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
43
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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
Company’s exposure to losses to the amount of its equity
investment; and due to the lender’s exposure to losses, a lender
typically will require a minimum 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
unconsolidated 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 recognized
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.
Mortgages and Other Financing Receivables
Mortgages and other financing receivables consist of loans
acquired 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 collectability of both interest and
principal on each loan 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,
commercial paper and certificates of deposit with original
maturities of three months or less) includes tenants’ security
deposits, escrowed funds and other restricted deposits
approximating $0.6 million at December 31, 2007 and 2006.
Cash and cash equivalent balances may, at a limited number of
banks and financial institutions, exceed insurable amounts. The
Company believes it mitigates risk 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
identification 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.
On a periodic basis, management assesses whether there are any
indicators that the value of the Company’s marketable securities
may be impaired. A marketable security is impaired only if
management’s estimate of fair value of the security is less than the
carrying value of the security 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
security over the estimated fair value in the security.
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
44
Kimco Realty Corporation and Subsidiaries
terms of the related leases or debt agreements, as applicable. Such
capitalized costs include salaries and related costs of personnel
directly involved in successful leasing efforts.
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
reimbursements are recognized as earned.
Management and other fee income consists of property
management 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.
Management and other fee income, including acquisition and
disposition fees, are recognized as earned under the respective
agreements. Management and other fee income related to partially
owned entities are 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 SFAS 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.
Gains and losses on transfers of operating properties result from
the sale of a 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
bankruptcy 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
management’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
stockholders 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 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
subsidiaries 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.
The Company provides a valuation allowance for deferred tax
assets for which it does not consider realization of such assets to be
more likely than not.
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, 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 fluctuations on equity securities. The
Company has established policies and procedures for risk
assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company has not
45
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 16).
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
Consolidated 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):
2007
2006
2005
Computation of Basic Earnings Per Share:
Income from continuing
operations before
extraordinary gain
Gain on transfer of operating
properties, net
Gain on sale of operating
properties, net of tax
Preferred stock dividends
Income from continuing
operations before
extraordinary gain applicable
to common shares
Income from discontinued
operations
Extraordinary gain
Net income applicable to
common shares
Weighted average common
shares outstandingg
Basic Earnings Per Share:
Income from continuing
operations before
extraordinary gain
Income from discontinued
operations
$ 359,226
$ 342,849
$322,063
—
2,708
(19,659)
1,394
1,066
(11,638)
2,151
682
(11,638)
342,275
333,671
313,258
30,631
50,265
82,950
—
38,732
—
$ 423,171
$ 416,621
$351,990
252,129
239,552
226,641
$
1.36
$
1.39
$
1.38
0.12
0.20
1.68
0.35
—
1.74
$
0.17
—
1.55
$
Extraordinary gain
Net income
Computation of Diluted Earnings Per Share:
Income from continuing
$
operations before
extraordinary gain for diluted
earnings per share (a)
$ 342,275
$ 333,671
$313,258
46
Income from discontinued
operations
Extraordinary gain
Net income for diluted
earnings per share
g
Weighted average common
shares outstanding – Basic
Effect of dilutive securities (a):
Stock options/deferred stock
awards
Shares for diluted earnings per
2007
2006
2005
30,631
50,265
82,950
—
38,732
—
$ 423,171
$ 416,621
$351,990
252,129
239,552
226,641
4,929
5,063
4,227
common share
257,058
244,615
230,868
Diluted Earnings Per Share:
Income from continuing
operations before
extraordinary gain
Income from discontinued
operations
Extraordinary gain
Net income
$
1.33
$
1.36
$
1.36
0.12
0.20
1.65
$
0.34
—
1.70
$
0.16
—
1.52
$
(a) The effect of the assumed conversion of certain convertible units had an anti-
dilutive effect upon the calculation of Income from continuing operations before
extraordinary gain per share. Accordingly, the impact of such conversions has not
been included in the determination of diluted earnings per share calculations.
In addition, there were approximately 3,017,400, 71,250, and
2,195,400 stock options that were anti-dilutive as of December 31,
2007, 2006 and 2005, respectively.
Stock Compensation
The Company maintains an equity participation plan (the
“Plan”) pursuant to which a maximum of 42,000,000 shares of
Common Stock may be issued for qualified and non-qualified
options and restricted stock grants. Options granted under the Plan
generally vest ratably over a three year term for options granted prior
to August 1, 2005 or five year term for options granted after August
1, 2005, 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 of Directors at its sole discretion. Restricted stock
grants generally vest 100% on the fifth anniversary of the grant. 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.
Prior to January 1, 2003, the Company accounted for the Plan
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 including
FASB Interpretation No. 44, Accounting for Certain Transactions
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
Kimco Realty Corporation and Subsidiaries
applies 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.
During December 2004, the FASB issued SFAS No. 123 (revised
2004), “Share-Based Payment” (“SFAS No. 123(R)”), which is a
revision of Statement 123. SFAS No. 123(R) supersedes Opinion 25.
Generally, the approach in SFAS No. 123(R) is similar to the
approach described in Statement 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the statement of
operations based on their fair values. Pro-forma disclosure is no
longer an alternative under SFAS No. 123(R). SFAS No. 123(R) was
effective for fiscal years beginning after December 31, 2005. The
Company began expensing stock based employee compensation with
its adoption of the prospective method provisions of SFAS No. 148,
effective January 1, 2003, as a result, the adoption of SFAS No.
123(R) did not have a material impact on the Company’s financial
position or results of operations.
The non-cash expense 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. There was no difference in amounts for the
years ended December 31, 2007 or 2006. 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 2005 (amounts presented in thousands, except per share data):
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
Basic – as reported
p
Basic – pro forma
p
Net income for diluted earnings per share
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 – Diluted
Earnings Per Share
p
Diluted – as reported
p
Diluted – pro forma
2005
$363,628
4,608
(5,206)
$363,030
1.55
$
$
1.55
$351,990
4,608
(5,206)
$351,392
$
$
1.52
1.52
The pro forma adjustments to net income and net income per
diluted common share assume fair value of each option award is
estimated on the date of grant using the Black-Scholes option
pricing formula. The more significant assumptions underlying the
determination of such fair values for options granted during the
year ended December 2005 were as follows:
Weighted average fair value of options granted
Weighted average risk-free interest rates
Weighted average expected option lives
Weighted average expected volatility
Weighted average expected dividend yield
New Accounting Pronouncements
2005
$ 3.21
4.03%
4.80
18.01%
5.30%
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurement (“SFAS No. 157”), which defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurement. This statement is
effective for financial statements issued for fiscal years beginning
after November 15, 2007. During February 2008, the FASB issued
a Staff Position that will (i) partially defer the effective date of
SFAS No. 157, for one year for certain nonfinancial assets and
nonfinancial liabilities and (ii) remove certain leasing transactions
from the scope of SFAS No. 157. The impact of adopting SFAS
No. 157 is not expected to have a material impact on the
Company’s financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (“SFAS
No. 159”). SFAS No. 159 permits entities to choose to measure
many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option
has been elected are reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The
impact of adopting SFAS No. 159 is not expected to have a material
impact on the Company’s financial position or results of
operations.
In June 2007, the AICPA issued Statement of Position 07-1,
Clarification of the Scope of the Audit and Accounting Guide for
Investment Companies and Accounting by Parent Companies and
Equity Method Investors for Investments in Investment Companies
(“SOP 07-1”). SOP 07-1 sets forth more stringent criteria for
qualifying as an investment company than does the predecessor
Audit Guide. In addition, SOP 07-1 establishes new criteria for a
parent company or equity method investor to retain investment
company accounting in their consolidated financial statements.
Investment companies record all their investments at fair value
with changes in value reflected in earnings. SOP 07-1 was to be
effective for the Company’s 2008 fiscal year, however, in October
2007 the FASB agreed to propose an indefinite delay and in
February 2008, the FASB issued a final Staff Position to
indefinitely delay the effective date of SOP 07-1.
In December 2007, the FASB issued SFAS No. 141 (revised
2007), Business Combinations (“SFAS No. 141(R)”). The objective
of this statement is to improve the relevance, representation,
47
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Real Estate:
The Company’s components of Rental property consist of the
following (in thousands):
December 31,
Land
Buildings and improvements
Buildings
Building improvements
Tenant improvements
Fixtures and leasehold improvements
Other rental property (1)
Accumulated depreciation and
amortization
Total
2007
$1,262,879
2006
$ 978,819
3,559,464
566,720
549,490
33,932
208,144
6,180,629
2,980,369
301,584
528,479
22,216
151,870
4,963,337
(977,444)
$5,203,185
(806,670)
$4,156,667
(1) At December 31, 2007 and 2006, Other rental property consisted of intangible
assets including $130,598 and $88,328 respectively, of in-place leases, $21,555
and $15,705 respectively, of tenant relationships, and $55,991 and $47,837
respectively, of above-market leases.
In addition, at December 31, 2007 and 2006, the Company had
intangible liabilities relating to below-market leases from property
acquisitions of approximately $182.3 million and $120.6 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 property acquisitions, ground-up development costs
and other investments have been funded principally through the
application of proceeds from the Company’s public equity and
unsecured debt issuances, proceeds from mortgage and
construction financings, availability under the Company’s
revolving lines of credit and issuance of various partnership units.
faithfulness, and comparability of the information that a reporting
entity provides in its financial reports about a business combination
and its effects. To accomplish that, this Statement establishes
principles and requirements for how the acquirer: (i) recognizes and
measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any non-controlling interest in the
acquiree, (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase and (iii)
determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of
the business combination. This statement applies prospectively to
business combinations for which the acquisition date is on or after
the first annual reporting period beginning on or after December
15, 2008. An entity may not apply it before that date. The
Company is currently assessing the impact the adoption of SFAS
No 141(R) would have on the Company’s financial position and
results of operations.
In December 2007, the FASB issued SFAS No. 160, Non-
Controlling Interest in Consolidated Financial Statements in
Amendment of ARB No. 51 (“SFAS No. 160”). A non-controlling
interest, sometimes called a minority interest, is the portion of
equity in a subsidiary not attributable, directly or indirectly, to a
parent. The objective of this statement is to improve the relevance,
comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards that require: (i)
the ownership interest in subsidiaries held by parties other than the
parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but
separate from the parent’s equity, (ii) the amount of consolidated
net income attributable to the parent and to the non-controlling
interest be clearly identified and presented on the face of the
consolidated statement of income, (iii) changes in a parent’s
ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently and requires
that they be accounted for similarly, as equity transactions, (iv)
when a subsidiary is deconsolidated, any retained non-controlling
equity investment in the former subsidiary be initially measured at
fair value, the gain or loss on the deconsolidation of the subsidiary
is measured using the fair value of any non-controlling equity
investment rather than the carrying amount of that retained
investment, and (v) entities provide sufficient disclosures that
clearly identity and distinguish between the interest of the parent
and the interest of the non-controlling owners. This statement is
effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. Earlier adoption
is prohibited. The Company is currently assessing the impact the
adoption of SFAS No. 160 would have on the Company’s financial
position and results of operations.
Reclassification
Certain reclassification of prior years’ amounts have been made
to conform with the current year presentation.
48
Kimco Realty Corporation and Subsidiaries
Operating Properties
Acquisition of Operating Properties —
During the year ended December 31, 2007, the Company
acquired, in separate transactions, 61 operating properties,
comprising an aggregate 4.4 million square feet of GLA, for an
aggregate purchase price of approximately $1.1 billion including
the assumption of approximately $114.3 million of non-recourse
mortgage debt encumbering nine of the properties. Details of
these transactions are as follows (in thousands):
Location
Month
Acquired
Purchase Price
Debt
Assumed
Cash
Total GLA
Property Name
U.S. acquisitions:
3 Properties
Embry Village
Various
Jan-07(1)
$ 22,535 $ 19,480 $
42,015
Atlanta, GA
Feb-07
Park Place
Morrisville, NC Mar-07(2)
35 North Third
Philadelphia, PA Mar-07
46,800
10,700
2,100
—
10,700
—
46,800
21,400
2,100
Street
Cranberry
Commons II
Pittsburgh, PA Mar-07(3)
1,431
3,108
4,539
17
Lake Grove
Lake Grove, NY
Apr-07(4)
1628 Walnut St
Philadelphia, PA
Apr-07
2 Properties
Flagler Park
2 Properties
Various
Apr-07(5)
Miami, FL
Apr-07
Various May-07(6)
Suburban Square
Ardmore, PA May-07
1701 Walnut St
Philadelphia, PA May-07
31,500
3,500
62,800
95,000
36,801
215,000
12,000
—
—
—
—
16,800
31,500
3,500
62,800
95,000
53,601
— 215,000
—
30 West 21st St
New York, NY May-07
6,250
18,750
Chatham Plaza
Savannah, GA
June-07
2 Properties
Birchwood
Portfolio
(11 Properties)
Various
June-07(7)
Long Island, NY
July-07
44,600
16,920
92,090
—
—
—
12,000
25,000
44,600
16,920
92,090
240
215
170
2
158
2
436
350
169
359
15
5
199
22
280
493-497
Boston, MA
July-07
5,650
—
5,650
20
Commonwealth
Ave
3 Properties
Philadelphia, PA
July-07(8)
Highlands Square
Clearwater, FL
July-07(9)
Mooresville, NC
Aug-07
60,890
4,531
41,000
Corona, CA
Aug-07
32,000
127-129 Newbury
Boston, MA
Oct-07
11,600
—
—
—
—
—
—
Glendale, AZ Nov-07(10)
12,500
Chambersburg,
PA
Nov-07(2)
6,849
14,289
Rockford Crossing
Rockford, IL
Dec-07(2)
Harvey, LA
Dec-07(2)
3,867
11,551
11,033
20,149
12,500
21,138
14,900
31,700
109
132
89
182
890,465
114,309
1,004,774
3,628
Various, Mexico Mar-07
51,500
—
51,500
488
Mexico
Dec-07
38,909
—
38,909
273
Mooresville
Crossings
Corona Hills
Marketplace
St
Talavi
Wayne Plaza
Center at
Westbank
Mexican
Acquisitions:
Waldo’s Mexico
Portfolio (17
properties)
Gran Plaza
Cancun
(3) The Company acquired this property from a venture in which the Company had a
preferred equity investment.
(4) The Company provided a $31.0 million preferred equity investment to a newly
formed joint venture in which the Company has a 98% economic interest for the
acquisition of this operating property and has determined under the provisions of
FIN 46(R) that this joint venture is a VIE and that the Company is the primary
beneficiary. As such, the Company has consolidated this entity for accounting and
reporting purposes.
(5) The Company acquired, in separate transactions, these two properties located in
Chico, CA and Auburn, WA from a joint venture in which the Company holds a
15% non-controlling interest.
(6) Two properties acquired in separate transactions, located in Sparks, NV and San
Diego, CA.
(7) Two properties acquired in separate transactions, located in Boston, MA and
Philadelphia, PA.
(8) Three mixed use residential/retail properties acquired in separate transactions,
located in Philadelphia, PA.
(9) The Company provided a $4.3 million preferred equity investment to a newly
formed joint venture in which the Company has a 94% economic interest for the
acquisition of this operating property and has determined under the provisions of
FIN 46(R) that this joint venture is a VIE and that the Company is the primary
beneficiary. As such, the Company has consolidated this entity for accounting and
reporting purposes.
(10)The Company acquired an additional 50% ownership interest in this operating
property, as such the Company now holds a 100% interest in this property and
consolidates it for financial reporting purposes.
During 2006, the Company acquired, in separate transactions,
40 operating properties, comprising an aggregate 4.8 million
square feet of GLA, for an aggregate purchase price of
approximately $1.1 billion, including the assumption of
approximately $297.7 million of non-recourse mortgage debt
encumbering 20 of the properties, issuance of approximately
$247.6 million of redeemable units relating to 10 properties and
issuance of approximately $51.5 million of Common Stock relating
to one property. Details of these transactions are as follows
(in thousands):
60,890
4,531
68
76
41,000
155
32,000
149
Property Name
Location
Portfolio – 19
properties
Various: CA, NV,
& HI
Purchase Price
Debt
Assumed/
Stock or Units
Issued
Month
Acquired
Cash
Total GLA
Jan-06
$ 114,430 $ 19,124
$ 133,554
815
11,600
9
Groves at
Lakeland, FL
Feb-06
1,500
—
1,500
105
Lakeland
625 Broadway
New York, NY
387 Bleecker
Street
New York, NY
Feb-06
Feb-06
36,600
27,750
3,700
2,960
Cupertino Village
Cupertino, CA Mar-06
27,400
38,000
Poway Center
Plaza Centro
Los Colobos
Poway, CA Mar-06(1)
Caguas, PR Mar-06
Carolina, PR Mar-06
3,500
35,731
36,684
—
71,774(2)
107,505
41,719(2)
Hylan Plaza
Staten Island, NY Mar-06
— 81,800(3)
Tyler St Plaza
Riverside, CA
Market at Bay
Bay Shore, NY
Apr-06
Apr-06
10,100
—
— 39,673(2)
Shore
Pathmark S.C.
Centereach, NY
Apr-06
— 21,955(2)
Western Plaza
Mayaguez, PR
June-06
4,562
30,378(2)
64,350
6,660
65,400
3,500
78,403
81,800
10,100
39,673
21,955
34,940
23,100
39,868
5,050
21,343
83
—
115
16
438
343
358
86
177
102
226
91
253
—
126
49
$ 980,874 $ 114,309 $1,095,183
4,389
Mallside Plaza
Portland, ME
June-06
23,100
—
(1) Three properties acquired in separate transactions, located in Alpharetta, GA,
Southlake, TX and Apopka, FL.
(2) The Company acquired these properties from a joint venture in which the Company
holds a 20% non-controlling interest.
Pearl Towers
19 Greenwich
Western Plaza
Albany, NY
June-06
— 39,868(2)
New York, NY
Sept-06
Mayaguez, PR
Sept-06
1,010
1,900
4,040
19,443(2)
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Los Colobos
Plaza Centro
Trujillo Alto
Plaza
Ponce Town
Center
100 Van Dam
Street
Rexville Town
Center
Fountains at
Arbor Lakes
Property Name
Location
Month
Acquired
Carolina, PR
Sept-06
Purchase Price
Debt
Assumed/
Stock or Units
Issued
24,414(2)
Cash
2,034
Total GLA
26,448
25,350
33,437
228
139
201
Caguas, PR
Sept-06
16,165
9,185(2)
Trujillo Alto, PR
Sept-06
7,379
26,058(2)
Ponce, PR
Oct-06
3,679
38,974(2)
42,653
193
Villa Maria S.C.
Manati, PR
New York, NY
Oct-06
Oct-06
1,382
3,650
6,825(2)
16,400
8,207
20,050
70
—
Bayamon, PR Nov-06
6,813
66,766(2)
73,579
186
Maple Grove,
MN
Dec-06
95,025
—
95,025
407
$ 436,344 $ 627,106
$1,063,450 4,758
(1) Acquired additional square footage of existing property.
(2) Represents the value of units issued and/or debt assumed, see additional disclosure
below.
(3) Represents the value of Common Stock issued by the Company relating to the
merger transaction with Atlantic Realty, including $30.3 million issued to the
Company’s subsidiaries representing the 37% of Atlantic Realty previously owned
(See Note 17 of the Notes to Consolidated Financial Statements included in this
annual report on Form 10-K).
Included in the 2006 acquisitions above is the acquisition of
interests in seven shopping center properties, located in Caguas,
Carolina, Mayaguez, Trujillo Alto, Ponce, Manati, and Bayamon,
Puerto Rico, valued at an aggregate $451.9 million. The properties
were acquired through the issuance of units from a consolidated
subsidiary and consist of approximately $158.6 million of floating
and fixed-rate redeemable units, approximately $45.8 million of
redeemable units, which are redeemable at the option of the holder,
the assumption of approximately $131.2 million of non-recourse
mortgage debt encumbering six of the properties and approximately
$116.3 million in cash. The Company has the option to settle the
redemption of the $45.8 million redeemable units with Common
Stock or cash. During 2007, the holders of the $45.8 million in
redeemable units, redeemed $26.3 million of such units. The
Company opted to settle these units in cash. Additionally, during
2007, $3.0 million of the $158.6 million in floating and fixed rate
redeemable units were redeemed by the holders. The aggregate
remaining value of the units is included in Minority interests on
the Company’s Consolidated Balance Sheets.
During April 2006, the Company acquired interests in two
shopping center properties, included in the table above, located in
Bay Shore and Centereach, NY, valued at an aggregate $61.6
million. The properties were acquired through the issuance of
units from a consolidated subsidiary and consist of approximately
$24.2 million of redeemable units, which are redeemable at the
option of the holder, approximately $14.0 million of fixed-rate
redeemable units and the assumption of approximately $23.4
million of non-recourse mortgage debt. The Company has the
option to settle the redemption of the $24.2 million redeemable
units with Common Stock or cash. During 2007, $1.1 million of
50
the $24.2 million in redeemable units were redeemed by the holder
in cash at the option of the Company. The aggregate remaining
value of the units is included in Minority interests on the
Company’s Consolidated Balance Sheets.
During June 2006, the Company acquired an interest in an
office property, included in the table above, located in Albany, NY,
valued at approximately $39.9 million. The property was acquired
through the issuance of approximately $5.0 million of redeemable
units from a consolidated subsidiary, which are redeemable at the
option of the holder after one year, and the assumption of
approximately $34.9 million of non-recourse mortgage debt. The
Company has the option to settle the redemption of the redeemable
units with Common Stock or cash. The aggregate value of the
units is included in Minority interests on the Company’s
Consolidated Balance Sheets.
The aggregate purchase price of the above mentioned 2007 and
2006 properties have been allocated to the tangible and intangible
assets and liabilities of the properties in accordance with SFAS No.
141, at the date of acquisition, based on evaluation of information
and estimates available at such date. As final information regarding
the fair value of the assets acquired and liabilities assumed is
received and estimates are refined, appropriate adjustments will be
made to the purchase price allocation. The allocations are finalized
no later than twelve months from the acquisition date. The total
aggregate purchase price was allocated as follows:
Land
Buildings
Below Market Rents
Above Market Rents
In-Place Leases
Other Intangibles
Building Improvements
Tenant Improvements
2007
$ 327,970
623,311
(62,802)
13,629
41,281
10,181
105,716
35,897
$1,095,183
2006
$ 335,224
410,146
(38,681)
35,293
73,847
7,215
84,405
156,001
$1,063,450
Ground-Up Development —
The Company is engaged in ground-up development projects
which consists of (i) merchant building through the Company’s
wholly-owned taxable REIT subsidiaries, which develop
neighborhood and community shopping centers and the
subsequent sale thereof upon completion, (ii) U.S. 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 for long-term investment. The ground-up
development projects generally have significant pre-leasing prior to
the commencement of construction. As of December 31, 2007, the
Company had in progress a total of 60 ground-up development
projects including 27 merchant building projects, nine U.S.
ground-up development projects, and 24 ground-up development
projects located throughout Mexico.
Kimco Realty Corporation and Subsidiaries
Merchant Building —
Kimsouth —
During the years 2007, 2006 and 2005, the Company expended
During November 2002, the Company through its taxable REIT
approximately $269.6 million, $287.0 million and $385.3 million,
respectively, in connection with the purchase of land and
construction costs related to its merchant building projects. These
costs have been funded principally through proceeds from sales of
completed projects and construction loans.
Long-term Ground-up Development —
During 2007, the Company expended approximately $7.7
million in connection with the purchase of undeveloped land in
Union, NJ, which will be developed into a 0.2 million square foot
retail center and approximately $21.5 million in connection with
the purchase of three redevelopment properties located in Bronx,
NY, which will be redeveloped into mixed-use residential/retail
centers aggregating 0.1 million square feet. These projects have a
total estimated project cost of approximately $71.5 million.
During 2007, the Company acquired, in separate transactions,
nine land parcels located in various cities throughout Mexico, for an
aggregate purchase price of approximately MXP 1.1 billion
(approximately USD $94.8 million). Seven of these land parcels will
be developed into retail centers aggregating approximately 2.8 million
square feet of GLA with a total estimated aggregate project cost of
approximately MXP 2.3 billion (approximately USD $210.2 million).
During 2007, the Company acquired, through a newly formed
joint venture in which the Company has a controlling ownership
interest, a 0.3 million square foot development project in Neuvo
Vallarta, Mexico, for a purchase price of approximately MXP 119.5
million (approximately USD $11.0 million). Total estimated
project costs are approximately USD $28.3 million.
During 2007, the Company acquired, through a newly formed
joint venture in which the Company has a non-controlling interest,
a 0.1 million square foot development project in Tuxtepec, Mexico,
for a purchase price of MXP 48.6 million (approximately USD
$4.4 million). Total estimated project costs are approximately
USD $14.4 million.
During 2006, the Company acquired land in Chambersburg,
PA and Anchorage, AK for an aggregate purchase price of
approximately $12.2 million. The properties will be developed into
retail centers with approximately 0.7 million square feet of GLA
with total estimated project costs of approximately $62.7 million.
During June 2006, the Company acquired, through a newly
formed joint venture in which the Company has a non-controlling
interest, a 0.1 million square foot development project in Puerta
Vallarta, Mexico, for a purchase price of MXP 65.4 million
(approximately USD $5.7 million). Total estimated project costs
are approximately USD $7.3 million.
During 2006, the Company acquired, in separate transactions,
nine parcels of land located in various cities throughout Mexico,
for an aggregate purchase price of approximately MXP 1.3 billion
(approximately USD $119.3 million). The properties were at
various stages of construction at acquisition and will be developed
into retail centers aggregating approximately 3.4 million square
feet. Total estimated remaining project costs are approximately
USD $312.4 million.
subsidiary, together with Prometheus Southeast Retail Trust,
completed the merger and privatization of Konover Property Trust,
which has been renamed Kimsouth Realty, Inc. (“Kimsouth”). In
connection with the merger, 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
included re-tenanting, repositioning and disposition of the properties.
As of January 1, 2006, Kimsouth consisted of five properties.
During 2006, Kimsouth sold two properties for an aggregate
sales price of approximately $9.8 million and transferred two
properties to a joint venture in which the Company has an 18%
non-controlling interest for an aggregate price of approximately
$54.0 million, which included the repayment of approximately
$23.1 million in mortgage debt.
During May 2006, the Company acquired an additional 48%
interest in Kimsouth for approximately $22.9 million, which increased
the Company’s total ownership to 92.5%. As a result of this
transaction, the Company became the controlling shareholder and had
therefore, commenced consolidation of Kimsouth upon the closing
date. The acquisition of the additional 48% ownership interest has
been accounted for as a step acquisition with the purchase price being
allocated to the identified assets and liabilities of Kimsouth.
As of May 2006, Kimsouth had approximately $133.0 million
of net operating loss carry-forwards (“NOLs”), which may be
utilized to offset future taxable income of Kimsouth. The
Company evaluated the need for a valuation allowance based on
projected taxable income and determined that a valuation
allowance of approximately $34.2 million was required. As such, a
purchase price adjustment of $17.5 million was recorded (See Note
22 for additional information).
During June 2006, Kimsouth contributed approximately $51.0
million, of which $47.2 million or 92.5% was provided by the
Company, to fund its 15% non-controlling interest in a newly
formed joint venture with an investment group to acquire a portion
of Albertson’s Inc. To maximize investment returns, the
investment group’s strategy with respect to this joint venture,
includes refinancing, selling selected stores and the enhancement of
operations at the remaining stores. Kimsouth accounts for this
investment under the equity method of accounting. During the
year ended December 31, 2007, this joint venture completed the
disposition of certain operating stores and a refinancing of the
remaining assets in the joint venture. As a result of these
transactions Kimsouth received cash distributions of approximately
$148.6 million. Kimsouth has a remaining capital commitment
obligation to fund up to an additional $15.0 million for general
purposes. Due to this remaining capital commitment, $15.0
million is included in Other liabilities in the Company’s
Consolidated Balance Sheets.
51
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During the year ended December 31, 2007, Kimsouth’s income
from the Albertson’s joint venture aggregated approximately $49.6
million, net of income tax. This amount includes (i) an operating
loss of approximately $15.1 million, net of an income tax benefit of
approximately $10.1 million, (ii) distribution in excess of
Kimsouth’s investment of approximately $10.4 million, net of
income tax expense of approximately $6.9 million, and (iii) an
extraordinary gain of approximately $54.3 million, net of income
tax expense of approximately $36.2 million, resulting from purchase
price allocation adjustments as determined in accordance with SFAS
No. 141. In accordance with Accounting Principles Board Opinion
18, The Equity Method of Accounting for Investments in Common
Stock, the Company has classified its 15% share of the
extraordinary gain, net of income taxes, as a separate component on
the Company’s Consolidated Statements of Income.
During 2007, Kimsouth sold its remaining property for an
aggregate sales price of approximately $9.1 million. This sale
resulted in a gain of approximately $7.9 million, net of income taxes.
As a result of the Albertson’s transaction and the property sale
described above, the Company has reduced the valuation allowance
that was applied against the Kimsouth NOLs resulting in an
income tax benefit of approximately $31.2 million. At December
31, 2007, Kimsouth has deferred tax assets of approximately $14.8
million representing the tax effect of approximately $37.9 million
of NOLs that expire from 2021 to 2023. The Company believes
that it is more likely than not that a net deferred tax asset of
approximately $11.7 million will be realized on future tax returns,
primarily from the generation of future taxable income and
therefore, a valuation allowance of $3.1 million has been
established for a portion of these deferred tax assets.
During 2007, the Albertson’s joint venture acquired two
operating properties for approximately $20.3 million, including the
assumption of $18.5 million in non-recourse mortgage debt.
During July 2006, Kimsouth contributed approximately $3.7
million to fund its 15% non-controlling interest in a newly formed
joint venture with an investment group to acquire 50 grocery
anchored operating properties. During September 2006,
Kimsouth contributed an additional $2.2 million to this joint
venture to acquire an operating property in Sacramento, CA,
comprising approximately 0.1 million square feet of GLA, for a
purchase price of approximately $14.5 million. This joint venture
investment is included in Investment and advances in real estate
joint ventures in the Consolidated Balance Sheets.
4. Dispositions of Real Estate:
Operating Real Estate —
During 2007, the Company (i) disposed of six operating
properties and completed partial sales of three operating properties,
in separate transactions, for an aggregate sales price of
approximately $40.0 million, which resulted in an aggregate net
gain of approximately $6.4 million, after income tax of
approximately $1.6 million, and (ii) transferred one operating
property, which was acquired in the first quarter of 2007, to a joint
venture in which the Company holds a 15% non-controlling
ownership interest for an aggregate price of approximately $4.5
million, which represented the net book value.
During 2007, FNC Realty Corporation, a consolidated entity in
which the Company holds a 53% controlling ownership interest,
disposed of, in separate transactions, seven properties and completed
the partial sale of an additional property for an aggregate sales price
of $10.4 million. These transactions resulted in pre-tax profits of
approximately $4.7 million, before minority interest of $3.3 million.
This income has been recorded as Income from other real estate
investments in the Company’s Consolidated Statements of Income.
Additionally, during 2007, two consolidated joint ventures in
which the Company had preferred equity investments disposed of,
in separate transactions, their respective properties for an aggregate
sales price of approximately $66.5 million. As a result of these
capital transactions, the Company received approximately $22.1
million of profit participation, before minority interest of
approximately $5.6 million. This profit participation has been
recorded as income from other real estate investments and is
reflected in Income from discontinued operating properties in the
Company’s Consolidated Statements of Income.
During 2006, the Company disposed of (i) 28 operating
properties and one ground lease for an aggregate sales price of
approximately $270.5 million, which resulted in an aggregate net
gain of approximately $71.7 million, net of income taxes of $2.8
million relating to the sale of two properties, and (ii) transferred
five operating properties, to joint ventures in which the Company
has 20% non-controlling interests for an aggregate price of
approximately $95.4 million, which resulted in a gain of
approximately $1.4 million from one transferred property.
During November 2006, the Company disposed of a vacant
land parcel located in Bel Air, MD, for approximately $1.8 million
resulting in a $1.6 million gain on sale. This gain is included in
Other income (expense), net on the Company’s Consolidated
Statements of Income.
During 2005, the Company (i) disposed of, in separate
transactions, 20 operating properties for an aggregate sales price of
approximately $93.3 million, (ii) transferred three operating
properties to KROP, as defined below, 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 (expense), net on the Company’s Consolidated
Statements of Income.
52
Kimco Realty Corporation and Subsidiaries
Merchant Building —
During 2007, the Company sold, in separate transactions, (i)
four of its recently completed merchant building projects, (ii) 26
out-parcels, (iii) 74.3 acres of undeveloped land, and (iv) completed
partial sales of two projects, for an aggregate total proceeds of
approximately $310.5 million and received approximately $3.3
million of proceeds from completed earn-out requirements on
previously sold projects. These sales resulted in pre-tax gains of
approximately $40.1 million.
During 2006, the Company sold, in separate transactions, six of
its recently completed projects, its partnership interest in one
project and 30 out-parcels for approximately $260.0 million.
These sales resulted in pre-tax gains of approximately $37.3
million.
During 2005, the Company 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
approximately $33.6 million.
5. Adjustment of Property Carrying Values:
As part of the Company’s ongoing analysis of its merchant
building projects, the Company has determined that for two of its
projects, located in Jacksonville, FL and Anchorage, AK, the
recoverable value will not exceed their estimated cost. This is
primarily due to adverse changes in local market conditions and
the uncertainty of those conditions in the future. As a result, the
Company has recorded an aggregate pre-tax adjustment of property
carrying value on these projects for the year ended December 31,
2007, of $8.5 million, representing the excess of the carrying values
of the projects over their estimated fair values.
6. Discontinued Operations and Assets Held for Sale:
The Company reports as discontinued operations assets
held-for-sale as of the end of the current period and assets sold
during the period. All results of these discontinued operations are
included in a separate component of income on the Consolidated
Statements of Income under the caption Discontinued operations.
This has resulted in certain reclassifications of 2007, 2006, and
2005 financial statement amounts.
The components of Income from discontinued operations for
each of the three years in the period ended December 31, 2007, are
shown below. These include the results of operations through the
date of each respective sale for properties sold during 2007, 2006,
and 2005 and a full year of operations for those assets classified as
held-for-sale as of December 31, 2007 (in thousands):
Discontinued operations:
Revenues from rental property
Rental property expenses
Depreciation and amortization
Interest expense
Income from other real estate
investments
Other (expense)/income
Income from discontinued operating
properties
Provision for income taxes
Minority interest in income
Loss on operating properties held for
2007
2006
2005
$ 4,449
(1,794)
(1,620)
(9)
$21,651
(5,369)
(5,503)
(2,590)
$31,746
(9,381)
(7,525)
(1,851)
34,740
(2,993)
3,705
2,020
1,192
1,304
32,773
13,914
— (2,096)
(1,585)
(5,848)
15,485
—
(573)
sale/sold
(1,832)
(1,421)
(5,098)
Gain on disposition of operating
properties
Income from discontinued operations
p
5,538
$ 30,631
74,138
$82,950
28,918
$38,732
During 2007, the Company classified as held-for-sale ten
shopping center properties comprising approximately 0.6 million
square feet of GLA. The book value of each of these properties,
aggregating approximately $80.7 million, net of accumulated
depreciation of approximately $4.9 million, did not exceed each of
their estimated fair values. As a result, no adjustment of property
carrying value has been recorded. The Company’s determination of
the fair value for each of these properties, aggregating
approximately $116.8 million, is based primarily upon executed
contracts of sale with third parties less estimated selling costs.
During 2007, the Company completed the sale of five of these
properties and reclassified one property as held-for-use.
During 2006, the Company reclassified as held-for-sale 13
operating properties comprising 0.8 million square feet of GLA.
The aggregate book value of these properties was approximately
$36.5 million, net of accumulated depreciation of approximately
$5.9 million. The book value of one property exceeded its
estimated fair value by approximately $0.6 million, and, as a result,
the Company recorded a loss resulting from an adjustment of
property carrying value of approximately $0.6 million. The
remaining properties had fair values exceeding their book values,
and, as a result, no adjustment of property carrying value was
recorded. The Company’s determination of the fair value for each
of these properties, aggregating approximately $50.0 million, is
based primarily upon executed contracts of sale with third parties
less estimated selling costs. The Company completed the sale of
these operating properties during 2006 and 2007.
During 2005, the Company reclassified as held-for-sale four
operating properties comprising approximately 0.6 million square
feet of GLA. The book value of each of these properties,
aggregating approximately $42.2 million, net of accumulated
depreciation of approximately $9.4 million, did not exceed each of
their estimated fair values. As a result, no adjustment of property
53
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
carrying value was recorded. The Company’s determination of the
fair value for each of these properties, aggregating approximately
$61.4 million, was based upon executed contracts of sale with third
parties less estimated selling costs. The Company completed the
sale of these properties during 2005 and 2006.
7. Investment and Advances in Real Estate Joint Ventures:
Kimco Prudential Joint Ventures (“KimPru”) —
On July 9, 2006, the Company entered into a definitive merger
agreement with Pan Pacific Retail Properties Inc. (“Pan Pacific”),
which closed on October 31, 2006. Under the terms of the
agreement, the Company agreed to acquire all of the outstanding
shares of Pan Pacific for total merger consideration of $70.00 per
share. As permitted under the merger agreement, the Company
elected to issue $10.00 per share of the total merger consideration
in the form of Common Stock to be based upon the average closing
price of the Common Stock over ten trading days immediately
preceding the closing date. Within a day of the merger, the
Company commenced its planned joint venture agreements with
Prudential Real Estate Investors (“PREI”) through three separate
accounts managed by PREI, whereby, PREI contributed
approximately $1.1 billion. In accordance with the joint venture
agreements, all Pan Pacific assets and the respective debt were
transferred to the separate accounts. There was no difference
between the Company’s basis in the assets contributed and the
amount of the equity the Company was credited with in the
separate accounts. The Company holds 15% non-controlling
ownership interests in each of these joint ventures and accounts for
these investments under the equity method of accounting.
On September 25, 2006, Pan Pacific stockholders approved the
proposed merger and the closing occurred on October 31, 2006.
In addition to the merger consideration of $70.00 per share, Pan
Pacific stockholders also received $0.2365 per share as a pro-rata
portion of Pan Pacific’s regular $0.64 per share dividend for each
day between September 26, 2006 and the closing date.
The transaction had a total value of approximately $4.1 billion,
including Pan Pacific’s outstanding debt totaling approximately
$1.1 billion. As of October 31, 2006, Pan Pacific owned interests
in 138 operating properties, which comprised approximately 19.9
million square feet of GLA, located primarily in California,
Oregon, Washington, and Nevada.
Funding for this transaction was provided by approximately
$1.3 billion of new individual non-recourse mortgage loans
encumbering 51 properties, a $1.2 billion two-year credit facility,
which bore interest at LIBOR plus 0.375% in the first year, and is
currently at LIBOR plus 0.45% provided by a consortium of banks
and guaranteed by the joint venture partners and the Company, the
issuance of 9,185,847 shares of Common Stock valued at
approximately $407.7 million, the assumption of approximately
$630.0 million of unsecured bonds and approximately $289.4
million of existing non-recourse mortgage debt encumbering 23
properties and approximately $300.0 million in cash. With respect
to the guarantee by the Company, PREI guaranteed reimbursement
to the Company of 85% of any guaranty payment the Company is
obligated to make.
As of December 31, 2007 the above mentioned mortgages bear
interest at rates ranging from 4.92% to 8.30% and have maturities
ranging from 15 months to 106 months.
The following reconciliation describes the sources and uses of
funds related to the acquisition of Pan Pacific, the commencement
of the Company’s joint venture agreements with PREI, and
provides a reconciliation of the Company’s aggregate initial
investment in the three joint ventures of approximately $194.8
million (in millions):
Total Purchase Price
Less:
New individual non-recourse mortgage loans
Two-year credit facility
Assumed mortgages
Amount to be funded
Funding Provided:
Company Common Stock issued
Pan Pacific bonds assumed by the Company
Cash
Amount funded
Reconciliation of the Company’s Investment:
Company Common Stock issued
Pan Pacific bonds assumed by the Company
Acquisition costs
Less:
Cash proceeds to the Company from PREI’s
contribution into the joint ventures
Company’s initial investment
p
$ 4,100.0
(1,300.0)
(1,200.0)
(289.4)
$ 1,310.6
$
407.7
630.0
272.9
$ 1,310.6
$
407.7
630.0
1.8
1,039.5
(844.7)
194.8
$
During 2007, KimPru sold, in separate transactions, 27
operating properties, two of which were sold to the Company and
one development property in separate transactions, for an aggregate
sales price of approximately $517.0 million. These sales resulted in
an aggregate loss of approximately $2.8 million, of which the
Company’s share was approximately $0.4 million.
Proceeds from property sales were used to repay a portion of the
outstanding balance on the $1.2 billion credit facility. As of
December 31, 2007, there was $702.5 million outstanding under
this credit facility, which currently bears interest at LIBOR plus
45.0 bps and is scheduled to mature in October 2008.
During November 2006, KimPru sold an operating property
for a sales price of $5.3 million. There was no gain or loss
recognized in connection with this sale.
Additionally, during January 2007, the Company and PREI
entered into a new joint venture in which the Company holds a
15% non-controlling interest, which acquired 16 operating
properties, aggregating 3.3 million square feet of GLA, for an
aggregate purchase price of approximately $822.5 million,
54
Kimco Realty Corporation and Subsidiaries
including the assumption of approximately $487.0 million in
non-recourse mortgage debt. Six of these properties were
transferred from a joint venture in which the Company held a 5%
non-controlling ownership interest. One of the properties was
transferred from a joint venture in which the Company held a 30%
non-controlling ownership interest. As a result of this transaction,
the Company recognized profit participation of approximately $3.7
million and recognized its share of the gain. The Company will
manage these properties and accounts for its investment in this
joint venture under the equity method of accounting.
As of December 31, 2007, the KimPru portfolio was comprised
of 127 shopping center properties aggregating approximately 19.8
million square feet of GLA located in 6 states.
Kimco Income REIT (“KIR”) —
The Company has a non-controlling limited partnership
interest in KIR and manages the portfolio. Effective July 1, 2006,
the Company acquired an additional 1.7% limited partnership
interest in KIR, which increased the Company’s total non-
controlling interest to approximately 45.0%.
During 2007, KIR disposed of three operating properties, in
separate transactions, for an aggregate sales price of approximately
$149.3 million. These sales resulted in an aggregate gain of
approximately $46.0 million of which the Company’s share was
approximately $20.7 million.
During 2006, KIR disposed of two operating properties and
one land parcel, in separate transactions, for an aggregate sales
price of approximately $15.2 million. These sales resulted in an
aggregate gain of approximately $4.4 million of which the
Company’s share was approximately $1.9 million.
In April 2005, KIR entered into a three-year (plus two one-year
extension options) $30.0 million unsecured revolving credit facility
which bears interest at LIBOR plus 1.40%. As of December 31,
2007, there was no outstanding balance under this credit facility
and as of December 31, 2006, there was an outstanding balance of
$14.0 million under this credit facility.
As of December 31, 2007, the KIR portfolio was comprised of
63 shopping center properties aggregating approximately 13.1
million square feet of GLA located in 18 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.
As of December 31, 2007, the RioCan Venture was comprised
of 34 operating properties and one joint venture investment
consisting of approximately 8.2 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-
controlling interest and manages the portfolio. During August
2006, the Company and GECRE agreed to market for sale the
properties within the KROP venture.
During 2007, KROP sold seven operating properties for an
aggregate sales price of approximately $162.9 million. These sales
resulted in an aggregate gain of $43.1 million of which the
Company’s share was approximately $8.6 million.
During 2007, KROP transferred ten operating properties for an
aggregate sales price of approximately $267.8 million, including
approximately $111.6 million of non-recourse mortgage debt, to a
new joint venture in which the Company holds a 15% non-
controlling ownership interest. As a result of this transaction, the
Company has deferred its share of the gain related to its remaining
ownership interest in the properties. The Company will manage
this new joint venture and accounts for this investment under the
equity method of accounting.
Additionally, during 2007, KROP sold four operating properties
to the Company for an aggregate sales price of approximately $89.1
million, including the assumption of $41.9 million in non-recourse
mortgage debt. The Company’s share of the gains related to these
transactions has been deferred.
During 2006, KROP acquired one operating property from the
Company for an aggregate purchase price of approximately $3.5 million.
During 2006, KROP sold three operating properties to a joint
venture in which the Company has a 20% non-controlling interest
for an aggregate sales price of approximately $62.2 million. These
sales resulted in an aggregate gain of approximately $26.7 million.
As a result of its continued 20% ownership interest in these
properties, the Company has deferred recognition of its share of
these gains. In addition, KROP sold one operating property to a
joint venture in which the Company has a 19% non-controlling
interest for an aggregate sales price of $96.0 million. This sale
resulted in a gain of approximately $42.3 million. As a result of its
continued 19% ownership interest in this property, the Company
deferred the portion of its gain attributable to its continued
ownership interest.
Additionally, during 2006, KROP sold nine operating
properties, one out-parcel and one land parcel, in separate
transactions, for an aggregate sales price of approximately $171.4
million. These sales resulted in an aggregate gain of approximately
$49.6 million of which the Company’s share was approximately
$9.9 million.
During 2006, KROP obtained one non-recourse, non-cross
collateralized variable rate mortgage for $14.0 million on a property
previously unencumbered with a rate of LIBOR plus 1.10%.
Additionally during 2006, KROP obtained a one-year $15.0
million unsecured term loan, which bore interest at LIBOR plus
0.5%. This loan is guaranteed by the Company and GECRE has
guaranteed reimbursement to the Company of 80% of any
guaranty payment the Company is obligated to make. During
2007, this loan was fully paid off.
55
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
As of December 31, 2007, the KROP portfolio was comprised
of four operating properties aggregating approximately 0.6 million
square feet of GLA located in three states.
The Company’s equity in income from KROP for the year
ended December 31, 2007, exceeded 10% of the Company’s
income from continuing operations, as such the Company is
providing summarized financial information for KROP as follows
(in millions):
December 31,
Assets:
Real estate, net
Other assets
Liabilities and Members’ Capital:
Mortgages payable
Notes payable
Other liabilities
Minority interest
Members’ capital
Year Ended December 31,
Revenues from rental property
Operating expenses
Interest
Depreciation and amortization
Other, net
Income/(loss) from continuing
operations
Discontinued Operations:
Income from discontinued
operations
Gain on dispositions of properties
Net income
2007
2006
$137.4
4.5
$141.9
$ 492.5
19.8
$ 512.3
$113.4
—
3.8
3.9
20.8
$141.9
2007
$ 17.1
(4.8)
(7.2)
(5.2)
(0.7)
(17.9)
2006
$ 54.7
(14.5)
(17.9)
(15.8)
(0.6)
(48.8)
$ 337.6
22.2
8.3
4.4
139.8
$ 512.3
2005
$ 86.1
(22.7)
(27.4)
(24.6)
(1.2)
(75.9)
(0.8)
5.9
10.2
3.1
147.8
$150.1
5.4
110.1
$ 121.4
0.9
6.2
$ 17.3
Kimco/UBS Joint Ventures (“KUBS”) —
The Company has joint venture investments with UBS Wealth
Management North American Property Fund Limited (“UBS”) in
which the Company has non-controlling interests ranging from
15% to 20%. These joint ventures, (collectively “KUBS”), were
established to acquire high quality retail properties primarily
financed through the use of individual non-recourse mortgages.
Capital contributions are only required as suitable opportunities
arise and are agreed to by the Company and UBS. The Company
manages the properties.
During 2007, KUBS acquired twelve operating properties for
an aggregate purchase price of approximately $354.3 million,
which included approximately $94.6 million of assumed non-
recourse debt encumbering eight properties and $73.5 million of
new non-recourse debt encumbering four properties. These
mortgage loans have combined maturities ranging from four to
seventeen years and interest rates ranging from 5.29% to 8.39%.
During 2006, KUBS acquired 15 operating properties for an
aggregate purchase price of approximately $447.8 million, which
included approximately $136.8 million of non-recourse debt
encumbering 13 properties, with maturities ranging from three to
ten years and bear interest at rates ranging from 4.74% to 6.20%.
Additionally during 2006, KUBS acquired one operating
property from the Company and five operating properties from
joint ventures in which the Company has 15% to 20% non-
controlling interests, for an aggregate purchase price of
approximately $297.0 million, including the assumption of
approximately $93.2 million of non-recourse mortgage debt
encumbering two of the properties, with maturities ranging from
six to seven years with interest rates ranging from 5.64% to 5.88%.
As of December 31, 2007, the KUBS portfolio was comprised of
43 operating properties aggregating approximately 6.2 million
square feet of GLA located in 12 states.
PL Retail —
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 bore interest at a fixed
rate of 7.5% and was repaid during 2006.
During 2007, PL Retail sold one operating property for a sales
price of $40.1 million which resulted in a gain of approximately
$13.5 million, of which the Company’s share was approximately
$2.0 million. Proceeds from this sale were used to partially pay
down the outstanding balance on PL Retail’s revolving credit
facility described below.
During 2007, PL Retail obtained two non-recourse mortgage
loans for an aggregate total of $84.0 million on a previously
unencumbered property which bears interest at LIBOR plus 1.15%
and 2.55%, respectively. These mortgage loans are scheduled to
mature in May 2010.
Additionally during 2007, PL Retail obtained a non-recourse
mortgage loan for $48.9 million on three properties, which bears
interest at 5.95% and is scheduled to mature in September 2012.
During 2006, PL Retail sold one operating property for a sales
price of approximately $42.1 million, which resulted in a gain of
approximately $3.9 million of which the Company’s share was
approximately $0.6 million.
Additionally during 2006, PL Retail sold one of its operating
properties to a newly formed joint venture in which the Company
has a 19% non-controlling interest for a sales price of approximately
$109.0 million. As a result of the Company’s continued ownership
no gain was recognized from this transaction. Proceeds of
approximately $17.0 million from these sales were used by PL Retail
to repay the remaining balance of mezzanine financing and the
promissory note which were previously provided by the Company.
56
Kimco Realty Corporation and Subsidiaries
During 2005, PL Retail entered into a $39.5 million unsecured
revolving credit facility, which bore interest at LIBOR plus 0.675%
and was scheduled to mature in February 2007. During 2007, the
loan was extended to February 2009 at a reduced rate of LIBOR
plus 0.45%. This facility is guaranteed by the Company and the
joint venture partner has guaranteed reimbursement to the
Company of 85% of any guaranty payment the Company is
obligated to make. As of December 31, 2007, there was $24.6
million outstanding under this facility.
As of December 31, 2007, PL Retail consisted of 22 operating
properties aggregating approximately 5.6 million square feet of
GLA located in seven 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 2007, the Company acquired, in separate transactions,
177 operating properties, through joint ventures in which the
Company has various non-controlling interests. These properties
were acquired for an aggregate purchase price of approximately
$1.3 billion, including the assumption of approximately $612.1
million of non-recourse mortgage debt encumbering 142 of the
properties and $177.5 million in proceeds from unsecured credit
facilities obtained by two joint ventures. The Company accounts
for its investment in these joint ventures under the equity method
of accounting. The Company’s aggregate investment in these joint
ventures was approximately $261.1 million. Details of these
transactions are as follows (in thousands):
Purchase Price
Month
Acquired
Cash
Debt
Total GLA
Jan-07(1) $
2,175 $
4,039
$
6,214
30
Property Name
Cypress Towne
Center
(Phase II)
Location
Houston,
TX
Perimeter Expo
Atlanta, GA Mar-07
Cranberry Commons
(Phase I)
Pittsburgh,
PA
Mar-07(2)
Westgate Plaza
Tampa, FL Mar-07(2)
Sequoia Mall &
Visalia, CA
Apr-07
62,150
9,961
4,000
29,550
—
18,500
8,100
—
62,150
28,461
12,100
29,550
Apr-07
5,374
11,148
16,522
Tower
Patio (4 Properties)
Cranberry Commons
(Phase II)
550 Adelaide Street
East
K-Mart
Shopping Ctr
Santiago,
Chile
Pittsburgh,
PA
Toronto,
Ontario
Pompano
Beach, FL
May-07(3)
4,539
May-07
9,900
Jun-07
7,800
—
—
—
—
176
150
100
235
95
17
31
4,539
9,900
7,800
103
3,968
146
American Industries
(2 Properties)
Chihuahua,
Mexico
Jun-07
3,968
New York,
NY
Jun-07(4)
5,000
25,000
30,000
Various
Jun-07
155,800
617,607(5)
773,407
Frederick 125th St
In Town Suites
(127 extended stay
residential
properties,
16,364 units)
Property Name
American Industries
(6 Properties)
1150 Provincial
Road
Location
Various,
Mexico
Windsor,
Ontario
Purchase Price
Month
Acquired
Jul-07
Cash
13,300
Debt
—
Total GLA
13,300
202
Jul-07
11,346
—
11,346
48
In Town Suites
Various
Jul-07
1,156
39,744
40,900
—
(9 extended stay
residential
properties, 129
units)
2 Properties
American Industries
Various,
Mexico
Reynosa,
Mexico
Jul-07
57,729
Aug-07
3,579
—
—
57,729
246
3,579
—
California Portfolio
(3 Properties)
Various, CA
(6)
In Town Suites
(extended stay
residential property,
129 units)
Louisville,
KY
American Industries
(9 Properties)
Various,
Mexico
Oct-07
7,900
31,300
39,200
600
Oct-07
3,150
—
3,150
—
Oct-07
44,535
—
44,535
483
Harston Woods (1
Property, 411
residential units)
Willowick
(1 Property, 171
residential units)
Euless, TX
Nov-07
2,300
9,700
12,000
—
Houston,
TX
Nov-07
14,051
24,500
38,551
—
American Industries Chihuahua,
Mexico
Dec-07
5,600
—
5,600
—
$ 464,863 $ 789,638
$1,254,501 2,682
(1) This property was transferred from KDI.
(2) These properties were transferred from ventures in which the Company had
preferred equity investments.
(3) This property was transferred from the Company.
(4) This property was purchased for redevelopment purposes.
(5) Includes approximately $278.6 million of assumed cross-collateralized non-recourse
mortgage debt with interest rates ranging from 5.19% to 5.89%, encumbering 86
n
properties, $186.0 million of new cross-collateralized non-recourse mortgage debt
with an interest rate of 5.59%, encumbering 35 properties and a $153.0 million
three-year unsecured credit facility, which bears interest at LIBOR plus 0.325%
(5.55% as of December 31, 2007), and is guaranteed by the Company. The joint
venture partner has pledged its equity interest for any guaranty payment the
Company is obligated to pay.
(6) Three properties acquired located in Pleasanton, CA, Laguna Hills, CA and San
Diego, CA.
During 2007, the Company transferred in separate transactions,
50% of its 100% interest in seven projects located in Juarez,
Tecamac, Mexicali, Cuaulta, Ciudad Del Carmen, Tijuana, and
Rosarito, Mexico to a joint venture partner for approximately $48.3
million, which approximated their carrying values. As a result of
these transactions, the Company has deconsolidated these entities
and now accounts for its investments under the equity method of
accounting.
During 2007, joint ventures in which the Company has
20
—
non-controlling interests disposed of, in separate transactions, (i)
seven properties for an aggregate sales price of approximately
$467.3 million resulting in an aggregate gain of approximately
$42.7 million, of which the Company’s share was approximately
$24.9 million, and (ii) two vacant parcels of land for an aggregate
sales price of $6.7 million, which resulted in no gain or loss.
57
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During 2006, the Company acquired, in separate transactions,
During June 2006, the Company transferred 50% of its 60%
36 operating properties and one ground lease, through joint
ventures in which the Company has various non-controlling
interests. These properties were acquired for an aggregate purchase
price of approximately $726.7 million, including approximately
$419.5 million of non-recourse mortgage debt encumbering 20 of
the properties. The Company’s aggregate investment in these joint
ventures was approximately $90.4 million. Details of these
transactions are as follows (in thousands):
Property Name
Stabilus Building
American Industries
(3 Locations)
Crème de la Crème
(2 Locations)
Five free-standing
locations
Edgewater Commons
Long Gate Shopping Ctr
Clackamas Promenade
Westmont Portfolio
(8 Locations)
Crow Portfolio (3
Locations)
Great Northeast Plaza
Cessna Building
Crème de la Crème
Westmont Portfolio
Werner II
Purchase Price
Month
Acquired
Cash
Debt
Total GLA
Jan-06 $
2,600 $
— $
2,600
63
Feb-06
12,200
—
12,200
224
Feb-06
2,409
7,229
9,638
41
Mar-06
7,000
—
7,000
162
Mar-06
44,104
74,250
118,354
424
Mar-06
36,330
40,200
76,530
433
Mar-06
35,240
42,550
77,790
237
Mar-06
16,066
69,572
85,638
358
Location
Saltillo,
Cahuila,
Mexico
Chihuahua
& San Luis
Postosi,
Mexico
Allen &
Colleyville,
TX
CO, OR,
NM, NY
Edgewater,
NJ
Ellicot City,
MD
Clakamas,
OR
Various,
Canada
FL and TX
Apr-06
46,698
66,200
112,898
678
Philadelphia,
PA
Chihuahua,
Mexico
Coppell, TX
Houston, TX
Juarez,
Mexico
Apr-06
36,500
—
36,500
290
Apr-06
2,060
—
2,060
62
Jun-06
Jun-06
Jun-06
1,325
14,000
1,800
13,332
1,000
4,275
47,200
—
5,600
61,200
1,800
20
460
200
25,650
38,982
196
Cypress Towne Center
Cypress, TX
Aug-06
Bustleton Dunkin
Donuts (ground lease)
Philadelphia,
PA
Aug-06
American Industries
American Industries
(ITT)
American Industries
(Columbus)
American Industries
(Zodiac)
Juarez,
Mexico
Chihuahua,
Mexico
Juarez,
Mexico
Chihuahua,
Mexico
Aug-06
8,000
Nov-06
3,152
Nov-06
2,174
Nov-06
3,100
1,000
2
8,000
187
3,152
57
2,174
39
—
—
—
—
—
Conroe Marketplace
Conroe, TX Dec-06
18,150
42,350
60,500
244
$ 307,240 $ 419,476 $ 726,716 4,457
During January 2006, the Company transferred 50% of its 60%
interest in an operating property in Guadalajara, Mexico, to a joint
venture partner for approximately $12.8 million, which
approximated its carrying value. As a result of this transaction, the
Company now holds a 30% non-controlling interest and continues
to account for its investment under the equity method of accounting.
58
interest in a development property located in Tijuana, Baja
California, Mexico, to a joint venture partner for approximately
$6.4 million, which approximated its carrying value. As a result of
this transaction, the Company now holds a 30% non-controlling
interest and continues to account for its investment under the
equity method of accounting.
During August 2006, the Company sold 50% of its 100%
interest in a development property located in Monterrey, Mexico,
to a joint venture partner for approximately $9.6 million, which
approximated its carrying value. The Company accounts for its
remaining 50% interest under the equity method of accounting.
During 2006, joint ventures in which the Company has
non-controlling interests ranging from 10% to 50%, disposed of, in
separate transactions, six properties for an aggregate sales price of
approximately $62.4 million. These sales resulted in an aggregate
gain of approximately $8.1 million, of which the Company’s share
was approximately $2.0 million.
Summarized financial information for these real estate joint
ventures (excluding KROP, which is presented separately above) is
as follows (in millions):
December 31,
Assets:
2007
2006
Real estate, net
Other assets
Liabilities and Partners’/Members’ Capital:
Mortgages payable
Notes payable
Construction loans
Other liabilities
Minority interest
Partners’/Members’ capital
$ 12,176.0
1,317.5
$ 13,493.5
$11,345.0
419.0
$11,764.0
$ 7,901.1
917.6
39.8
278.6
101.3
4,255.1
$ 13,493.5
$ 6,593.9
1,366.3
24.2
168.4
102.6
3,508.6
$11,764.0
Year Ended December 31,
Revenues from rental property
Operating expenses
Interest
Depreciation and amortization
Other, net
2007
$ 1,452.0
(435.4)
(497.9)
(383.8)
(18.2)
(1,335.3)
2006
$ 952.4
(273.1)
(305.9)
(207.5)
(12.4)
(798.9)
2005
$ 672.9
(191.3)
(219.7)
(129.1)
(7.2)
(547.3)
operations
116.7
153.5
125.6
Discontinued Operations:
Income/(loss) from discontinued
operations
Gain on dispositions of properties
Net income
2.2
164.5
283.4
2.8
24.6
$ 180.9
(2.6)
46.3
$ 169.3
$
3,100
80
Income from continuing
Kimco Realty Corporation and Subsidiaries
Other liabilities included in the Company’s accompanying
Consolidated Balance Sheets include accounts with certain real
estate joint ventures totaling approximately $16.9 million and $13.5
million at December 31, 2007 and 2006, 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 GAAP.
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, 2007 and 2006,
the Company’s carrying value in these investments approximated
$1.2 billion and $1.1 billion, respectively.
8. Other Real Estate Investments:
Preferred Equity Capital —
The Company maintains a Preferred Equity program, which
provides capital to developers and owners of real estate properties.
During 2007 the Company provided, in separate transactions, an
aggregate of approximately $103.6 million in investment capital to
developers and owners of 61 real estate properties. During 2006,
the Company provided, in separate transactions, an aggregate of
approximately $223.9 million in investment capital to developers
and owners of 101 real estate properties. As of December 31, 2007,
the Company’s net investment under the Preferred Equity program
was approximately $484.1 million relating to 258 properties. For
the years ended December 31, 2007, 2006 and 2005, the Company
earned approximately $63.5 million including $30.5 million of
profit participation earned from 18 capital transactions, $40.1
million, including $12.2 million of profit participation earned from
16 capital transactions, and $32.8 million, including $12.6 million
of profit participation earned from six capital transactions,
respectively, from these investments.
Two of the capital transactions described above for the year
ended December 31, 2007, were the result of the transfer of two
operating properties, in separate transactions, to a joint venture in
which the Company holds a 15% non-controlling interest for an
aggregate price of approximately $40.6 million, including the
assumption of approximately $26.6 million in non-recourse debt.
These sales resulted in an aggregate profit participation of
approximately $1.4 million.
Also, included in the capital transactions described above for
the year ended December 31, 2007, was the transfer of an operating
property to the Company for approximately $4.5 million, including
the assumption of $3.1 million in non-recourse mortgage debt. As a
result of the Company’s acquisition of this property, the Company
did not recognize any profit participation.
Additionally, during 2007, the Company invested
approximately $81.7 million of preferred equity capital in a
portfolio comprised of 403 net leased properties which are divided
into 30 master leased pools with each pool leased to individual
corporate operators. These properties consist of a diverse array of
free-standing restaurants, fast food restaurants, convenience and
auto parts stores. As of December 31, 2007, these properties were
encumbered by third party loans aggregating approximately $433.0
million with interest rates ranging from 5.08% to 10.47% with a
weighted average interest rate of 9.3% and maturities ranging from
1.4 years to 15.2 years.
Summarized financial information relating to the Company’s
preferred equity investments is as follows (in millions):
2007
December 31,
Assets:
2006
Real estate, net
Other assets
Liabilities and Partners’/Members’ Capital:
Notes and mortgages payable
Other liabilities
Partners’/Members’ capital
$ 2,223.3
701.3
$ 2,924.6
$ 1,683.8
113.4
$ 1,797.2
$ 2,157.7
86.2
680.7
$ 2,924.6
$ 1,239.7
55.2
502.3
$ 1,797.2
Year Ended December 31,
Revenues from Rental Property
Operating expenses
Interest
Depreciation and amortization
Other, net
Gain on disposition of properties
Net income
2007
$ 266.3
(87.5)
(111.1)
(60.3)
(1.1)
6.3
90.5
$ 96.8
2006
$ 177.6
(58.6)
(61.6)
(34.2)
(4.4)
18.8
49.4
$ 68.2
2005
$ 118.5
(42.0)
(38.9)
(19.3)
(1.2)
17.1
49.8
$ 66.9
The Company’s maximum exposure to losses associated with its
preferred equity investments is primarily limited to its invested
capital. As of December 31, 2007 and 2006, the Company’s
invested capital in its preferred equity investments approximated
$484.1 million and $400.4 million, respectively.
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, 2007, 2006 and 2005, was approximately $1.2
million, $1.3 million and $9.1 million, respectively. These amounts
represent sublease revenues during the years ended December 31,
2007, 2006 and 2005, of approximately $7.7 million, $8.2 million
and $17.8 million, respectively, less related expenses of $5.5 million,
$5.7 million and $7.4 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): 2008, $6.3 and $3.9; 2009, $5.9 and $3.7; 2010, $5.2
and $3.6; 2011, $4.1 and $3.1; 2012, $2.3 and $2.0 and thereafter,
$1.0 and $1.3, respectively.
59
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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).
From 2002 to 2006, 16 of these properties were sold, whereby
the proceeds from the sales were used to pay down the mortgage
debt by approximately $28.3 million.
During 2007, an additional two properties were sold, whereby
the proceeds from the sales were used to pay down the mortgage
debt by approximately $3.0 million. As of December 31, 2007, the
remaining 12 properties were encumbered by third-party non-
recourse debt of approximately $48.8 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, 2007 and 2006, the Company’s net
investment 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
g
2007
$ 55.0
36.0
(43.9)
(43.3)
3.8
$
2006
$ 62.3
40.5
(48.4)
(50.7)
$ 3.7
9. Mortgages and Other Financing Receivables:
The Company has various mortgages and other financing
receivables which consist of loans acquired and loans originated by
the Company. For a complete listing of the Company’s mortgages
and other financing receivables at December 31, 2007, see
Financial Statement Schedule IV included on page 132 of this
annual report Form 10-K.
Reconciliation of Mortgage loans and other financing
receivables on Real Estate:
The following table reconciles Mortgage loans and other
financing receivables on Real Estate from January 1, 2005 to
December 31, 2007:
Balance at January 1
Additions:
New mortgage loan
Additions under existing
mortgage loans
Capitalized loan costs
Amortization of discount
Deductions:
Collections of principal
Charge Off
Amortization of premium
Amortization of loan costs
Balance at December 31
2007
$ 162,669
2006
$ 132,675
2005
$ 140,717
62,362
104,892
90,886
38,122
675
271
54,815
1,305
673
6,920
377
865
(105,277 )
(1,837)
(2,298)
(840)
$ 153,847
(97,501)
(609)
(33,003)
(578)
$ 162,669
(103,860)
(1,000)
(1,513)
(717)
$ 132,675
10. Marketable Securities:
The amortized cost and estimated fair values of securities
available-for-sale and held-to-maturity at December 31, 2007 and
2006, are as follows (in thousands):
December 31, 2007
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Estimated
Fair
Value
Amortized
Cost
$ 114,896 $ 24,846 $(13,706) $ 126,036
Available-for-sale:
Equity securities
Held-to-maturity:
Other debt securities
86,952
3,747
(4,284)
86,415
Total marketable
securities
Available-for-sale:
Equity securities
Held-to-maturity:
$ 201,848 $ 28,593 $(17,990) $ 212,451
December 31, 2006
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Estimated
Fair
Value
Amortized
Cost
$ 82,910 $ 38,718 $ (1,775) $119,853
Other debt securities
82,806
3,451
(639)
85,618
Total marketable
securities
$165,716 $ 42,169 $ (2,414) $205,471
For each of the securities in the Company’s portfolio with
unrealized losses, the Company reviews the underlying cause of the
decline in value and the estimated recovery period, as well as the
severity and duration of the decline. In the Company’s evaluation,
the Company considers its ability and intent to hold these
investments for a reasonable period of time sufficient for the
Company to recover its cost basis. At December 31, 2007, the
aggregate unrealized loss of $18.0 million relates to marketable
securities with an aggregate fair value of $83.3 million. The
Company does not believe that the decline in value of any of these
securities is other-than-temporary at December 31, 2007.
60
Kimco Realty Corporation and Subsidiaries
As of December 31, 2007, the contractual maturities of Other
debt securities classified as held-to-maturity are as follows: within
one year, $1.4 million; after one year through five years, $39.2
million; after five years through 10 years, $28.9 million; and after
10 years, $17.5 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.
During the year ended December 31, 2007, the Company
repaid the following Senior Unsecured Notes: (i) its $30.0 million
7.46% fixed rate notes, which matured on May 20, 2007, (ii) its
$55.0 million 5.75% fixed rate notes, which matured on June 29,
2007, (iii) its $20.0 million 6.96% fixed rate notes which matured
on July 16, 2007, (iv) its $50.0 million 7.86% fixed rate notes,
which matured on November 1, 2007, (v) its $50.0 million 7.90%
fixed rate notes, which matured on December 7,2007 and (vi) its
$10.0 million 6.70% fixed rate notes, which matured on December
14, 2007. Additionally, the Company repaid its $35.0 million
4.96% fixed rate Senior Unsecured Notes, which matured on
November 30, 2007.
As of December 31, 2007, a total principal amount of
approximately $1.3 billion in senior fixed-rate MTNs was
outstanding. These fixed-rate notes had maturities ranging from
seven months to eight years as of December 31, 2007, and bear
interest at rates ranging from 3.95% to 7.56%. 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 neighborhood 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 March 2006, the Company issued $300.0 million of
fixed rate unsecured senior notes under its MTN program. This
fixed rate MTN matures March 15, 2016 and bears interest at
5.783% per annum. The proceeds from this MTN 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 June 2006, the Company entered into a third
supplemental indenture, under the indenture governing its
medium-term notes and senior notes, which amended the (i) total
debt test and secured debt test by changing the asset value
definition from undepreciated real estate assets to total assets, with
total assets being defined as undepreciated real estate assets, plus
other assets (but excluding goodwill and unamortized debt costs),
and (ii) maintenance of unencumbered total asset value covenant
by increasing the requirement of the ratio of unencumbered total
asset value to outstanding unsecured debt from 1 to 1 to 1.5 to 1.
Additionally, the same amended covenants were adopted within the
Canadian supplemental indenture, which governs the 4.45%
Canadian Debentures due in 2010. In connection with the consent
solicitation, the Company incurred costs aggregating approximately
$5.8 million, of which $1.8 million was related to costs paid to
third parties, which were expensed. The remaining $4.0 million
was related to fees paid to note holders, which were capitalized and
are being amortized over the remaining term of the notes.
During 2006, the Company repaid its (i) $30.0 million 6.93%
fixed rate notes, which matured on July 20, 2006, (ii) $100.0
million floating rate notes, which matured August 1, 2006, and
(iii) $55.0 million 7.50% fixed rate notes, which matured on
November 5, 2006.
As of December 31, 2006, a total principal amount of
approximately $1.4 billion in senior fixed-rate MTNs was
outstanding. These fixed-rate notes had maturities ranging from
five months to nine years as of December 31, 2006, 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 neighborhood 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 April 2007, the Company issued $300.0 million of
ten-year Senior Unsecured Notes at an interest rate of 5.70% per
annum payable semi-annually in arrears. These notes were sold at
99.984% of par value. Net proceeds from the issuance were
approximately $297.8 million, after related transaction costs of
approximately $2.2 million. The proceeds from this issuance were
primarily used to repay a portion of the outstanding balance under
the Company’s U.S. Credit Facility and for general corporate
purposes. These notes were issued in conjunction with a fourth
supplemental indenture, which removed the financial covenant
requirements for this issuance and future offerings under the
indenture as amended.
As of December 31, 2007, the Company had a total principal
amount of $1.2 billion in fixed-rate unsecured senior notes. These
fixed-rate notes had maturities ranging from nine months to nine
years as of December 31, 2007, and bear interest at rates ranging
from 4.70% to 7.95%. Interest on these fixed-rate senior unsecured
notes is payable semi-annually in arrears.
During August 2006, Kimco North Trust III, a wholly-owned
entity of the Company, completed the issuance of $200.0 million
Canadian denominated senior unsecured notes. The notes bear
interest at 5.18% and mature on August 16, 2013. The proceeds
were used by Kimco North Trust III, to pay down outstanding
indebtedness under the existing Canadian credit facility and to
fund long-term investments in Canadian real estate.
In connection with the October 31, 2006 Pan Pacific merger
transaction, the Company assumed $650.0 million of unsecured
notes payable, including $20.0 million of fair value debt premiums.
61
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
At December 31, 2007, the remaining notes bear interest at fixed
rates ranging from 4.70% to 7.95% per annum and have maturity
dates ranging from September 18, 2008 to September 1, 2015.
As of December 31, 2006, the Company had a total principal
amount of $1.3 billion in fixed-rate unsecured senior notes. These
fixed-rate notes had maturities ranging from six months to nine
years as of December 31, 2006, and bear interest at rates ranging
from 4.45% to 7.95%. Interest on these fixed-rate senior unsecured
notes is payable semi-annually in arrears.
The scheduled maturities of all unsecured notes payable as of
December 31, 2007, were approximately as follows (in millions):
2008, $125.3; 2009, $180.0; 2010, $76.0; 2011, $360.3; 2012,
$217.0; and thereafter, $1,528.1.
During October 2007, the Company established a new $1.5
billion unsecured U.S. revolving credit facility (the “U.S. Credit
Facility”) with a group of banks, which is scheduled to expire in
October 2011. This credit facility, which replaced the Company’s
$850.0 million unsecured U.S. revolving facility which was
scheduled to expire in July 2008, has made available funds to
finance general corporate purposes, including (i) property
acquisitions, (ii) investments in the Company’s institutional
management programs, (iii) development and redevelopment costs,
and (iv) any short-term working capital requirements. Interest on
borrowings under the U.S. Credit Facility accrues at LIBOR plus
0.375% and fluctuates in accordance with changes in the
Company’s senior debt ratings. As part of this U.S. Credit Facility,
the Company has a competitive bid option whereby the Company
may auction up to $750.0 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. A facility fee of 0.125% per annum is payable
quarterly in arrears. As part of the U.S. Credit Facility, 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 U.S.
Credit Facility, the Company, among other things, is subject to
covenants requiring the maintenance of (i) maximum leverage
ratios on both unsecured and secured debt, and (ii) minimum
interest and fixed coverage ratios. As of December 31, 2007, there
was approximately $259.0 million outstanding under this credit
facility, of which approximately $9.0 million (approximately 4.5
million Pounds Sterling) was outstanding under the alternative
currency sub-limit.
During August 2007, the Company obtained a $200.0 million
unsecured term loan that bore interest at LIBOR plus 0.325%.
The term loan was scheduled to mature on December 14, 2007.
The Company utilized these proceeds to partially repay the
outstanding balance on the Company’s U.S. revolving credit
facility. The term loan was fully repaid in October 2007.
The Company also has a three-year CAD $250.0 million
unsecured credit facility with a group of banks. This facility bore
interest at the CDOR Rate, as defined, plus 0.45%, and was
scheduled to expire in March 2008. During October 2007, the
facility was amended to modify the covenant package to conform
to the Company’s U.S. Credit Facility. The facility was further
amended in January 2008, to extend the maturity date to 2011,
with an additional one-year extension option, at a reduced rate of
CDOR plus 0.375%, subject to change in accordance with the
Company’s senior debt ratings. Proceeds from this facility are used
for general corporate purposes, including the funding of Canadian
denominated investments. As of December 31, 2007, there was no
outstanding balance under this credit facility.
Additionally, the Company has a three-year MXP 500.0 million
unsecured revolving credit facility. This facility bears interest at the
TIIE Rate, as defined therein, plus 1.00%, subject to change in
accordance with the Company’s senior debt ratings, and is
scheduled to mature in May 2008 with an additional one-year
extension option. Proceeds from this facility are used to fund peso
denominated investments. As of December 31, 2007, there was
MXP 250.0 million (approximately USD $22.9 million)
outstanding under this credit facility.
The Company is currently negotiating a five-year fixed rate
MXP 1.0 billion term loan. Proceeds from this loan will be used to
pay the outstanding balance on the MXP 500.0 million unsecured
revolving credit facility and fund Mexican denominated
investments.
In accordance with the terms of the Indenture, as amended,
pursuant to which the Company’s senior unsecured notes, except
for the $300.0 million issued under the fourth supplemental
indenture, described above, 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 distributions 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 2007, the Company (i) obtained an aggregate of
approximately $285.8 million of individual non-recourse mortgage
debt on 12 operating properties, (ii) assumed approximately $83.7
million of individual non-recourse mortgage debt relating to the
acquisition of eight operating properties, including approximately
$2.5 million of fair value debt adjustments, (iii) obtained
approximately $3.2 million of additional funding on three
previously encumbered properties, and (iv) paid off approximately
$81.6 million of individual non-recourse mortgage debt that
encumbered 11 operating properties.
During 2006, the Company (i) obtained an aggregate of
approximately $52.7 million of individual non-recourse mortgage
debt on five operating properties, (ii) assumed approximately $253.6
million of individual non-recourse mortgage debt relating to the
acquisition of 19 operating properties, including approximately $2.9
62
Kimco Realty Corporation and Subsidiaries
million of fair value debt adjustments, (iii) consolidated
approximately $27.1 million of non-recourse mortgage debt relating
to the purchase of additional ownership interests in various entities,
(iv) paid off approximately $61.9 million of individual non-recourse
mortgage debt that encumbered 16 operating properties, and (v)
assigned approximately $3.9 million of non-recourse mortgage debt
relating to the sale of an operating property.
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
4.95% to 10.50% (weighted-average interest rate of 6.6% as of
December 31, 2007). The scheduled principal payments of all
mortgages payable, excluding unamortized fair value debt
adjustments of approximately $11.3 million, as of December 31,
2007, were approximately as follows (in millions): 2008, $212.9;
2009, $78.2; 2010, $47.6; 2011, $52.3; 2012, $57.4; and thereafter,
$379.0.
13. Construction Loans Payable:
During 2007, the Company obtained construction financing on
five merchant building projects and assumed one loan associated
with a separate project for an aggregate original loan commitment
amount of up to $187.1 million, of which approximately $80.9
million was outstanding at December 31, 2007. As of December
31, 2007, the Company had a total of 15 construction loans with
total commitments of up to $360.3 million, of which $245.9
million had been funded. These loans have scheduled maturities
ranging from one month to 33 months (excluding any extension
options which may be available to the Company) and bear interest
at rates ranging from 6.60% to 7.48% at December 31, 2007.
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, 2007, were
approximately as follows (in millions): 2008, $143.9, 2009, $66.1
and 2010, $35.9.
During 2006, the Company obtained construction financing
on three ground-up development projects for an aggregate original
loan commitment amount of up to $83.8 million, of which
approximately $36.0 million was outstanding at December 31,
2006. The Company assigned a $7.2 million construction loan,
which bore interest at LIBOR plus 1.75% and was scheduled to
mature in November 2006, in connection with the sale of its
partnership interest in one project. As of December 31, 2006, the
Company had a total of 13 construction loans with total
commitments of up to $330.9 million, of which $271.0 million had
been funded. These loans had maturities ranging from two to 31
months and variable interest rates ranging from 6.87% to 7.32% at
December 31, 2006. 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, 2006, were approximately as follows (in millions):
2007, $164.3; 2008, $81.5; and 2009, $25.2.
14. 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 a variable interest entity in
accordance with the provisions and guidance of FIN 46(R).
During 2006 the Company acquired seven shopping center
properties located throughout Puerto Rico. The properties were
acquired through the issuance of approximately $158.6 million of
non-convertible units, approximately $45.8 million of convertible
units, the assumption of approximately $131.2 million of non-
recourse debt and $116.3 million in cash. Minority interests
related to these acquisitions was approximately $233.0 million of
units, including premiums of approximately $13.5 million and a
fair market value adjustment of approximately $15.1 million (the
“Units”). The Company is restricted from disposing of these assets,
other than through a tax free transaction until November 2015.
The Units consisted of (i) approximately 81.8 million Preferred
A Units par value $1.00 per unit, which pay the holder a return of
7.0% per annum on the Preferred A Par Value and are redeemable
for cash by the holder at anytime after one year or callable by the
Company any time after six months and contain a promote feature
based upon an increase in net operating income of the properties
capped at a 10.0% increase, (ii) 2,000 Class A Preferred Units, par
value $10,000 per unit, which pay the holder a return equal to
LIBOR plus 2.0% per annum on the Class A Preferred Par Value
and are redeemable for cash by the holder at anytime after
November 30, 2010, (iii) 2,627 Class B-1 Preferred Units, par value
$10,000 per unit, which pay the holder a return equal to 7.0% per
annum on the Class B-1 Preferred Par Value and are redeemable by
the holder at anytime after November 30, 2010 for cash or at the
Company’s option, shares of the Company’s common stock, equal
to the Cash Redemption Amount, as defined, (iv) 5,673 Class B-2
Preferred Units, par value $10,000 per unit, which pay the holder a
return equal to 7.0% per annum on the Class B-2 Preferred par
value and are redeemable for cash by the holder at anytime after
November 30, 2010 and (v) 640,001 Class C DownReit Units,
valued at an issuance price of $30.52 per unit which pay the holder
a return at a rate equal to the Company’s common stock dividend
and are redeemable by the holder at anytime after November 30,
2010, for cash or at the Company’s option, shares of the Company’s
common stock equal to the Class C Cash Amount, as defined.
During 2007, 2,438 units, or $24.4 million, of the Class B-1
Preferred Units were redeemed and 61,804 units, or $1.9 million,
of the Class C DownREIT Units were redeemed under the Loan
provision of the Agreement. The Company opted to settle these
units in cash not stock. Additionally, 300 units, or $3.0 million, of
the Class B-2 Preferred Units were redeemed through transfer to a
charitable organization, as permitted under the provisions of the
Agreement. Minority interest relating to the units was $187.6
million and $230.6 million as of December 31, 2007 and 2006,
respectively.
63
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During 2006 the Company acquired two shopping center
properties located in Bay Shore and Centereach, NY during 2006.
Included in Minority interests are approximately $41.6 million,
including a discount of $0.3 million and a fair market value
adjustment of $3.8 million, in redeemable units (the “Redeemable
Units”), issued by the Company. The properties were acquired
through the issuance of $24.2 million of Redeemable Units, which
are redeemable at the option of the holder; approximately $14.0
million of fixed rate Redeemable Units and the assumption of
approximately $23.4 million of non-recourse debt. The
Redeemable Units consist of (i) 13,963 Class A Units, par value
$1,000 per unit, which pay the holder a return of 5% per annum of
the Class A par value and are redeemable for cash by the holder at
anytime after April 3, 2011 or callable by the Company anytime
after April 3, 2016, and (ii) 647,758 Class B Units, valued at an
issuance price of $37.24 per unit, which pay the holder a return at a
rate equal to the Company’s common stock dividend and are
redeemable by the holder at anytime after April 3, 2007 for cash or
at the option of the Company for Common Stock at a ratio of 1:1,
or callable by the Company anytime after April 3, 2026. The
Company is restricted from disposing of these assets, other than
through a tax free transaction, until April 2016 and April 2026 for
the Centereach, NY, and Bay Shore, NY, assets, respectively.
During 2007, 30,000 units, or $1.1 million par value, of
the Class B Units were redeemed by the holder in cash at the
option of the Company. Minority interest relating to the units was
$40.4 million and $41.6 million as of December 31, 2007 and
2006 respectively.
Minority interests also includes 138,015 convertible units issued
during 2006, by the Company, which are valued at approximately
$5.3 million, including a fair market value adjustment of $0.3
million, related to an interest acquired in an office building located
in Albany, NY. These units are redeemable at the option of the
holder after one year for cash or at the option of the Company for
the Company’s common stock at a ratio of 1:1. The holder is
entitled to a distribution equal to the dividend rate of the
Company’s common stock. The Company is restricted from
disposing of these assets, other than through a tax free transaction,
until January 2017.
Minority interests also includes 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
shopping center property located in Daly City, CA, in 2002. The
Convertible Units are convertible at a ratio of 1:1 into Common
Stock and are entitled to a distribution equal to the dividend rate of
the Company’s common stock multiplied by 1.1057.
15. 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
64
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,
2007
2006
Marketable Securities
Notes Payable
Mortgages Payable
Mandatorily Redeemable
Minority Interests
(termination dates ranging
from 2019 – 2027)
Carrying
Amounts
$ 201,848
$3,131,765
$ 838,738
Carrying
Amounts
202,659 $
Estimated
Estimated
Fair Value
Fair Value
$ 212,451 $
205,471
$3,095,004 $ 2,748,345 $ 2,762,751
581,846
$ 824,609 $
567,917 $
$
3,070
$
6,521 $
1,263 $
4,436
16. 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 equity 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.
During 2007, the Company entered into an interest rate swap
with a notional amount of $18.75 million (which commenced on
May 15, 2007). The interest rate swap is designated as a cash flow
hedge and is hedging the variability of floating rate interest
payments on the debt of a consolidated subsidiary. No hedge
ineffectiveness on this cash flow hedge was recognized during
2007. For the year ended December 31, 2007, the change in net
unrealized gains/losses on this hedge was reported in the
consolidated statements of stockholders’ equity as a $0.2 million
net loss. Amounts reported in accumulated other comprehensive
income related to derivatives will be reclassified to interest expense
as interest payments are made on the variable-rate debt. The change
in net unrealized gains/losses on cash flow hedges reflects a
reclassification of $28,000 of net unrealized gains from
accumulated other comprehensive income to reduce interest
expense for the year ended December 31, 2007.
As of December 31, 2006, the Company had two interest rate
swaps with notional amounts of $21.5 million and $6.25 million
outstanding that were designated as cash flow hedges. During
Kimco Realty Corporation and Subsidiaries
2007, these swaps were early terminated for a gain of $0.1 million.
For the year ending December 31, 2007 and 2006, the change in
net unrealized gains/losses on these hedges was reported in the
consolidated statements of stockholders’ equity as a $0.3 million
(net gain) and $0.1 million (net loss), respectively. The change in
net unrealized gains/losses on cash flow hedges reflects a
reclassification of $21,000 of net unrealized gains from
accumulated other comprehensive income to reduce interest
expense for the year ended December 31, 2007.
As of December 31, 2006, the Company had a cross currency
interest rate swap with an aggregate notional amount of
approximately MXP 82.4 million (approximately USD $7.6
million) designated as a hedge of its Mexican real estate
investments. This cross currency interest rate swap matured during
October 2007. Additionally, the Company had foreign currency
forward contracts designated as net investment hedges of its
Canadian investments in real estate that the Company settled
during 2006. These agreements were 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 in accordance with SFAS
No. 52, Foreign Currency Translation. During 2007 and 2006,
respectively, $0.0 million and $0.2 million of unrealized losses and
$0.3 million and $0.3 million of unrealized gains were included in
the cumulative translation adjustment relating to the Company’s
net investment hedges of its Mexican and Canadian investments.
The following tables summarize the notional values and fair
values of the Company’s derivative financial instruments as of
December 31, 2007 and 2006:
As of December 31, 2007
Hedge Type
Interest rate swaps - cash flow
Notional Value
$18.75 million 5.062%
Rate Maturity
5/09
Fair Value
(in millions USD)
($0.20)
As of December 31, 2006
Hedge Type
Notional Value
Rate Maturity
Fair Value
(in millions USD)
MXP cross currency
MXP 82.4 million
7.227%
10/07
$0.10
swap - net
investment
Interest rate swaps
$6.25 million - $21.5 million 6.455% - 6.669% 3/09 – 3/16
($0.10)
cash flow
As of December 31, 2007 and 2006, respectively, these
derivative instruments were reported at their fair value as other
liabilities of ($0.2 million) and ($0.1) million and other assets of
$0.0 million and $0.1 million. The Company expects to reclassify
to earnings less than $1.0 million of the current OCI balance
during the next 12 months.
17. Preferred Stock, Common Stock and Convertible Unit
Transactions:
During October 2007, the Company issued 18,400,000
Depositary Shares (the “Class G Depositary Shares”), after the
exercise of an over-allotment option, each representing a one-
hundredth fractional interest in a share of the Company’s 7.75%
Class G Cumulative Redeemable Preferred Stock, par value $1.00
per share (the “Class G Preferred Stock”). Dividends on the Class
G Depositary Shares are cumulative and payable quarterly in
arrears at the rate of 7.75% per annum based on the $25.00 per
share initial offering price, or $1.9375 per annum. The Class G
Depositary Shares are redeemable, in whole or part, for cash on or
after October 10, 2012 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 G Depositary Shares are
not convertible or exchangeable for any other property or securities
of the Company. Net proceeds from the sale of the Class G
Depositary Shares, totaling approximately $444.5 million (after
related transaction costs of $15.5 million) were used for general
corporate purposes, including funding property acquisitions,
investments in the Company’s institutional management programs
and other investment activities. The Company also used a portion
of the proceeds to partially repay amounts outstanding under its
U.S. Credit Facility. The Class G Preferred Stock (represented by
the Class G Depositary Shares outstanding) ranks pari passu with
the Company’s Class F Preferred Stock as to voting rights, priority
for receiving dividends and liquidation preference as set forth
below.
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
Preferred Stock, par value $1.00 per share (the “Class F Preferred
Stock”). Dividends on the Class F Depositary Shares are
cumulative 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
redeemable, 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. The Class F
Preferred Stock (represented by the Class F Depositary Shares
outstanding) ranks pari passu with the Company’s Class G
Preferred Stock as to voting rights, priority for receiving dividends
and liquidation preference as set forth below.
Voting Rights - As to any matter on which the Class F Preferred
Stock may vote, including any action by written consent, each
share of Class F 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 Class F 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 Class F Preferred Stock). As a result, each Class F
Depositary Share is entitled to one vote.
As to any matter on which the Glass G Preferred Stock may
vote, including any action by written consent, each share of the
Class G Preferred Stock shall be entitled to 100 votes, each of
which 100 votes may be directed separately by the holder thereof.
With respect to each share of Class G Preferred Stock, the holder
65
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
thereof may designate up to 100 proxies, with each such proxy
having the right to vote a whole number of votes (totaling 100 votes
per share of Class G Preferred Stock). As a result, each Class G
Depositary Share is entitled to one vote.
Liquidation Rights - In the event of any liquidation, dissolution
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 Class F Preferred share and $2,500.00
per Class G Preferred share ($25.00 per Class F and Class G
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 March 2006, the Company completed a primary public
stock offering of 10,000,000 shares of the Company’s common
stock. The net proceeds from this sale of Common Stock, totaling
approximately $405.5 million (after related transaction costs of
$2.5 million) were primarily used to repay the outstanding balance
under the Company’s U.S. revolving credit facility, partial
repayment of the outstanding balance under the Company’s
Canadian denominated credit facility and for general corporate
purposes.
During March 2006, the shareholders of Atlantic Realty Trust
(“Atlantic Realty”) approved the proposed merger with the
Company and the closing occurred on March 31, 2006. As
consideration for this transaction, the Company issued Atlantic
Realty shareholders 1,274,420 shares of Common Stock, excluding
748,510 shares of Common Stock that were to be received by the
Company, at a price of $40.41 per share.
On September 25, 2006, Pan Pacific stockholders approved the
proposed merger with the Company and the closing occurred on
October 31, 2006. Under the terms of the merger agreement, the
Company agreed to acquire all of the outstanding shares of Pan
Pacific for total merger consideration of $70.00 per share. As
permitted under the merger agreement, the Company elected to
issue $10.00 per share of the total merger consideration in the form
of Common Stock. As such, the Company issued 9,185,847 shares
of Common Stock valued at $407.7 million, which was based upon
the average closing price of the Common Stock over the ten trading
days immediately preceding the closing date.
During 2006, the Company acquired interests in seven
shopping center properties located throughout Puerto Rico. The
properties were acquired through the issuance of approximately
$158.6 million of non-convertible units, approximately $45.8
million of convertible units, approximately $131.2 million of
non-recourse debt and $116.3 million in cash.
The convertible units consist of (i) 2,627 Class B-1 Preferred
Units, par value $10,000 per unit and 640,001 Class C
DownREIT Units, valued at an issuance price of $30.52 per unit.
Both the Class B-1 Units and the Class C DownREIT Units are
redeemable by the holder at anytime after November 30, 2010 for
cash or at the Company’s option, shares of the Company’s common
stock. During 2007, 2,438 units, or $24.4 million, of the Class
B-1 Preferred Units were redeemed and 61,804 units, or $1.9
million, of the Class C DownREIT Units were redeemed under
the Loan provision of the Agreement. The Company opted to settle
these units in cash. Additionally, 300 units, or $3.0 million, of the
Class B-2 Preferred Units were redeemed through transfer to a
charitable organization, as permitted under the provisions of the
Agreement.
The number of shares of Common Stock issued upon
conversion of the Class B-1 Preferred Units would be equal to the
Class B-1 Cash Redemption Amount, as defined, which ranges
from $6,000 to $14,000 per Class B-1 Preferred Unit depending on
the Common Stock’s Adjusted Current Trading Price, as defined,
divided by the average daily market price for the 20 consecutive
trading days immediately preceding the redemption date.
Prior to January 1, 2009, the number of shares of Common
Stock issued upon conversion of the Class C DownREIT Units
would be equal to the Class C Cash Amount which equals the
number of Class C DownREIT Units being redeemed, multiplied
by the Adjusted Current Trading Price, as defined. After January
1, 2009, if the Adjusted Current Trading Price is greater than
$36.62 then the Class C Cash Amount shall be an amount equal to
the Adjusted Current Trading Price per Class C DownREIT Unit.
If the Adjusted Current Trading Price is greater than $24.41 but
less than $36.62, then the Class C Cash Amount shall be an
amount equal to $30.51 per Class C DownREIT Unit; or is less
than $24.41, then the Class C Cash Amount shall be an amount
per Class C DownREIT Unit equal to the Adjusted Current
Trading Price multiplied by 1.25.
During April 2006, the Company acquired interests in two
shopping center properties, located in Bay Shore and Centereach,
NY, valued at an aggregate $61.6 million. The properties were
acquired through the issuance of units from a consolidated
subsidiary and consist of approximately $24.2 million of
Redeemable Units, which are redeemable at the option of the
holder, approximately $14.0 million of fixed rate Redeemable Units
and the assumption of approximately $23.4 million of non-recourse
mortgage debt. The Company has the option to settle the
redemption of the $24.2 million redeemable units with Common
Stock, at a ratio of 1:1, or cash. During 2007, 30,000 units, or $1.1
million par value, of the Class B Units were redeemed by the
holder. The Company opted to settle these units in cash.
During June 2006, the Company acquired an interest in an
office property, located in Albany, NY, valued at approximately
$39.9 million. The property was acquired through the issuance of
approximately $5.0 million of redeemable units from a consolidated
subsidiary, which are redeemable at the option of the holder after
one year, and the assumption of approximately $34.9 million of
non-recourse mortgage debt. The Company has the option to settle
the redemption with Common Stock, at a ratio of 1:1, or cash.
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
66
Kimco Realty Corporation and Subsidiaries
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
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.
Dividends on the Convertible Units are paid quarterly at the rate of
the Company’s common stock dividend multiplied by 1.1057.
18. 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, 2007, 2006 and 2005 (in thousands):
2007
2006
2005
Acquisition of real estate interests
by issuance of Common Stock and/or
assumption of debt
Acquisition of real estate interest by
issuance of redeemable units
Disposition/transfer of real estate interest by
assignment of downREIT units
Acquisition of real estate interests through
$ 82,614
$ 1,627,058
$ 73,400
$
$
— $ 247,475
$
—
— $
— $
4,236
proceeds held in escrow
$ 68,031
$ 140,802
$
—
Disposition/transfer of real estate interests by
assignment of mortgage debt
Proceeds held in escrow through sale of
real estate interest
Acquisition of real estate through the
issuance of an unsecured obligation
Investment in real estate joint venture by
contribution of property
Deconsolidation of Joint Venture:
Decrease in real estate and other assets
Decrease in construction loan and other
liabilities
Declaration of dividends paid in
succeeding period
Consolidation of FNC:
Increase in real estate and other assets
Increase in mortgage payable and
other liabilities
Consolidation of Kimsouth:
Increase in real estate and other assets
Increase in mortgage payable and other
liabilities
$
$
$
$
— $ 293,254
$ 166,108
— $
39,210
$ 19,217
— $
10,586
$
—
—
—
—
— $
— $
— $
93,222
$ 78,169
740
$113,074
$113,074
$112,052
$
$
$
$
$
$
$
$
— $
— $ 57,812
— $
— $ 57,812
— $
28,377
— $
28,377
$
$
—
—
19. Transactions with Related Parties:
During 2006, the Company, along with its joint venture
partner, provided Kimco Retail Opportunity Portfolio II (“KROP
II”) short-term interim financing for all acquisitions by KROP II
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 a rate of LIBOR plus 2.0%. At December 31, 2007 and
2006, KROP II had a total of approximately $0.00 and $22.2
million, respectively, of outstanding short-term interim financing
due to GECRE and the Company, of which the Company’s share is
50%. The Company earned approximately $178,000 and
$248,000 during 2007 and 2006, 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
bore interest at a fixed rate of 7.5% per annum payable monthly in
arrears and was repaid during 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
was payable on demand. During 2006, PL Retail fully repaid to
the Company the promissory note.
Ripco Real Estate Corp., was formed in 1991 and employs
approximately 40 professionals and serves numerous retailers,
REITS and developers. Ripco’s business activities include serving
as a leasing agent and representative for national and regional
retailers including Target, Best Buy, Kohls and many others,
providing real estate brokerage services and principal real estate
investing. Mr. Todd Cooper, an officer and 50% shareholder of
Ripco, is a son of Mr. Milton Cooper, Chief Executive Officer and
Chairman of the Board of Directors of the Company. During
2007 and 2006, the Company paid brokerage commissions of
$257,385 and $266,191, respectively, to Ripco for services rendered
primarily as leasing agent for various national tenants in shopping
center properties owned by the Company. The Company believes
that the brokerage commissions paid were at or below the
customary rates for such leasing services. Additionally, the
Company has the following joint venture investments with Ripco.
During 2005, the Company acquired three operating properties
and one land parcel, through joint ventures, in which the Company
and Ripco each hold 50% non-controlling interests for an
aggregate purchase price of approximately $27.1 million, including
the assumption of approximately $9.3 million of non-recourse
mortgage debt encumbering two of the properties. The Company
accounts for its investment in these joint ventures under the equity
method of accounting. Subsequent to these acquisitions, the joint
ventures obtained four individual one-year loans aggregating $20.4
million with interest rates ranging from LIBOR plus 0.50% to
LIBOR plus 0.55%. During 2007, one of these properties was sold
for a sales price of approximately $10.5 million, including the pay
down of $5.0 million of debt. During 2007, two of these term
67
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
loans were extended until May 2008 and one was extended until
October 2008. As of December 31, 2007, there was an aggregate
of $15.4 million outstanding on these loans. These loans are
jointly and severally guaranteed by the Company and the joint
venture partner.
Reference is made to Note 7 for additional information
regarding transactions with related parties.
20. 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 2095. 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
minimum 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, 2007, 2006 and 2005.
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): 2008, $503.3; 2009,
$466.0; 2010, $420.0; 2011, $370.4; 2012, $319.7 and thereafter;
$1,601.8.
Minimum rental payments under the terms of all non-
cancelable operating leases pertaining to the Company’s shopping
center portfolio for future years are approximately as follows (in
millions): 2008, $11.4; 2009, $10.9; 2010, $9.0; 2011, $6.7; 2012,
$6.0; and thereafter, $115.6.
In June 2006, the FASB issued Financial Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”), which
clarifies the accounting for uncertainty in income taxes recognized
in a company’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”. The
interpretation prescribes a recognition threshold and measurement
attribute criteria for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. The interpretation also provides guidance on de-
recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition.
The Company adopted the provisions of FIN 48 on January 1,
2007. The Company does not have any material unrecognized tax
benefits, therefore the adoption of FIN 48 did not have a material
impact on the Company’s financial position or results of operations.
During June 2007, the Company entered into a joint venture, in
which the Company has non-controlling interest, and acquired all
of the common stock of InTown Suites Management, Inc. This
investment was funded with approximately $186.0 million of new
cross-collateralized non-recourse mortgage debt with an interest
rate of 5.59%, encumbering 35 properties, a $153.0 million
three-year unsecured credit facility, which bears interest at LIBOR
plus 0.325% and is guaranteed by the Company and the
assumption of $278.6 million cross-collateralized non-recourse
mortgage debt with interest rates ranging from 5.19% to 5.89%,
encumbering 86 properties. The joint venture partner has pledged
its equity interest for any guaranty payment the Company is
obligated to pay. The outstanding balance on the three-year
unsecured credit facility was $149.0 million as of December 31,
2007. The joint venture obtained an interest rate swap at 5.37% on
$128 million of this debt. The swap is designated as a cash flow
hedge and as such adjustments are recorded in other
comprehensive income.
During 2007, the Company entered into a joint venture, in
which the Company has a non-controlling ownership interest, to
acquire a property in Houston, Texas. This investment was funded
with a $24.5 million one-year unsecured credit facility, with an
additional one-year extension option, which bears interest at
LIBOR plus 0.375% and is guaranteed by the Company. The
outstanding balance on this credit facility as of December 31, 2007
was $24.5 million.
During April 2007, the Company entered into a joint venture,
in which the Company has a 50% non-controlling ownership
interest to acquire a property in Visalia, CA. Subsequent to this
acquisition the joint venture obtained a $6.0 million three-year
promissory note which bears interest at LIBOR plus 0.75% and has
an extension option of two-years. This loan is jointly and severally
guaranteed by the Company and the joint venture partner. As of
December 31, 2007, the outstanding balance on this loan was $6.0
million.
In October 2007, the Company formed a wholly-owned captive
insurance company, Kimco Insurance Company, Inc., (“KIC”),
which provides general liability insurance coverage for all losses
below the deductible under our third-party policy. The Company
entered into the Insurance Captive as part of its overall risk
management program and to stabilize its insurance costs, manage
exposure and recoup expenses through the functions of the captive
program. The Company capitalized KIC in accordance with the
applicable regulatory requirements. KIC established annual
premiums based on projections derived from the past loss
experience of the Company’s properties. KIC has engaged an
independent third party to perform an actuarial estimate of future
projected claims, related deductibles and projected expenses
necessary to fund associated risk management programs. Premiums
paid to KIC may be adjusted based on this estimate. Like
premiums paid to third-party insurance companies, premiums paid
to KIC may be reimbursed by tenants pursuant to specific lease
terms. The Company believes that the addition of KIC will
provide increased comprehensive insurance coverage at an overall
lower cost than would otherwise be available in the market.
The KimPru joint ventures, entities in which the Company
holds a 15% non-controlling interest, with PREI through three
separate accounts managed by PREI obtained a two-year credit
facility provided by a consortium of banks and guaranteed by the
Company. PREI guaranteed reimbursement to the Company of
85% of any guaranty payment the Company is obligated to make.
As of December 31, 2007, there was $702.5 million outstanding
under this credit facility.
68
Kimco Realty Corporation and Subsidiaries
During 2006, an entity in which the Company has a preferred
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.
The Company evaluated these guarantees in connection with
the provisions of FASB Interpretation No. 45, Guarantor’s
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others and
determined that the impact did not have a material effect on the
Company’s financial position or results of operations.
21. Incentive Plans:
The Company maintains a stock option plan (the “Plan”)
pursuant to which a maximum of 42,000,000 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 year term for grants issued prior to August
1, 2005 and five-year term for grants issued after August 1, 2005,
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 discretion. 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.
During December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”),
which is a revision of Statement 123. SFAS No. 123(R) supersedes
Opinion 25. Generally, the approach in SFAS No. 123(R) is
similar to the approach described in Statement 123. However,
SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the
statement of operations based on their fair values. Pro-forma
disclosure is no longer an alternative under SFAS No. 123(R).
SFAS No. 123(R) is effective for fiscal years beginning after
December 31, 2005. The Company began expensing stock based
employee compensation with its adoption of the prospective
method provisions of SFAS No. 148, effective January 1, 2003, as a
result, the adoption of SFAS No. 123(R) did not have a material
impact on the Company’s financial position or results of
operations.
equity investment, located in Montreal, Canada, obtained a
non-recourse construction loan, which is collateralized by the
respective land and project improvements. Additionally, the
Company has provided a guaranty to the lender and the developer
partner has provided an indemnity to the Company for 25% of all
debt. As of December 31, 2007, there was CAD $72.6 million
(approximately USD $74.0 million) outstanding on this
construction loan.
Additionally, during 2006, KROP obtained a one-year $15.0
million unsecured term loan, which bore interest at LIBOR plus
0.5%. This loan was guaranteed by the Company and GECRE
had guaranteed reimbursement to the Company of 80% of any
guaranty payment the Company was obligated to make. During
2007, KROP paid down the remaining balance of the loan.
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
$30.7 million.
In connection with the construction of its development projects
and related infrastructure, certain public agencies require
performance and surety bonds be posted to guarantee that the
Company’s obligations are satisfied. These bonds expire upon the
completion of the improvements and infrastructure. As of
December 31, 2007, there were approximately $90.4 million bonds
outstanding.
Additionally, the RioCan Venture, an entity in which the
Company holds a 50% non-controlling interest, has a CAD $7.0
million (approximately USD $7.1 million) letter of credit facility.
This facility is jointly guaranteed by RioCan and the Company
and had approximately CAD $5.5 million (approximately USD
$5.6 million) outstanding as of December 31, 2007, relating to
various development projects.
During 2005, a joint venture entity in which the Company has
a non-controlling interest obtained a CAD $22.5 million
(approximately USD $22.9 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 March 2008. The Company and its partner in this
entity each have a limited and several guarantee of CAD $7.5
million (approximately USD $7.6 million) on this facility. As of
December 31, 2007, there was CAD $21.1 million (approximately
USD $21.5 million) outstanding on this facility.
During 2005, PL Retail entered into a $39.5 million unsecured
revolving credit facility, which bore interest at LIBOR plus 0.675%
and was scheduled to mature in February 2007. During 2007, the
loan was extended to February 2009 at a reduced rate of LIBOR
plus 0.45%. This facility is guaranteed by the Company and the
joint venture partner has guaranteed reimbursement to the
Company of 85% of any guaranty payment the Company is
obligated to make. As of December 31, 2007, there was $24.6
million outstanding under this facility.
69
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The fair value of each option award is estimated on the date of
grant using the Black-Scholes option pricing formula. The
assumption for expected volatility has a significant affect on the
grant date fair value. Volatility is determined based on the
historical equity of common stock for the most recent historical
period equal to the expected term of the options. The more
significant assumptions underlying the determination of fair values
for options granted during 2007, 2006, and 2005 were as follows:
Year Ended December 31,
Weighted average fair value of
options granted
Weighted average risk-free
interest rates
Weighted average expected
option lives (in years)
Weighted average expected
volatility
Weighted average expected
dividend yield
2007
2006
2005
$ 7.41
$ 5.55
$ 3.21
4.50%
4.72%
4.03%
6.50
6.50
4.80
19.01% 17.70% 18.01%
3.77%
4.39%
5.30%
Information with respect to stock options under the Plan for the
years ended December 31, 2007, 2006, and 2005, is as follows:
Options outstanding,
January 1, 2005
Exercised
Granted
Forfeited
Options outstanding,
December 31, 2005
Exercised
Granted
Forfeited
Options outstanding,
December 31, 2006
Exercised
Granted
Forfeited
Options outstanding,
December 31, 2007
Options exercisable —
December 31, 2005
December 31, 2006
December 31, 2007
Weighted-Average
Exercise Price
Per Share
Aggregate
Intrinsic value
(in millions)
$19.06
$14.23
$31.15
$23.59
$22.06
$17.80
$39.91
$28.13
$25.93
$20.22
$41.41
$35.87
$145.8
$281.4
Shares
15,239,572
(2,963,910)
2,515,200
(239,566)
14,551,296
(2,196,947)
2,805,650
(366,406)
14,793,593
(1,884,421)
2,971,900
(257,618)
15,623,454
$29.39
$133.7
8,167,681
8,826,881
9,307,184
$17.63
$20.37
$23.10
$118.0
$217.0
$123.8
The exercise prices for options outstanding as of December 31,
2007, range from $10.67 to $53.14 per share. The Company
estimates forfeitures based on historical data. The weighted-
average remaining contractual life for options outstanding as of
December 31, 2007, was approximately 7.1 years. The weighted
average remaining contractual term of options currently exercisable
as of December 31, 2007 was approximately 5.8 years. Options to
purchase 2,996,321, 5,969,396, and 3,817,066, shares of the
Company’s common stock were available for issuance under the
Plan at December 31, 2007, 2006, and 2005, respectively.
Cash received from options exercised under the Plan was
approximately $38.1 million, $39.1 million, and $42.2 million for
the years ended December 31, 2007, 2006, and 2005, respectively.
The total intrinsic value of options exercised during 2007, 2006,
and 2005 was approximately $54.4 million, $42.2 million, and
$46.2 million, respectively.
The Company recognized stock options expense of $12.2
million, $10.2 million, and $4.6 million for the years ended
December 31, 2007, 2006, and 2005, respectively. As of December
31, 2007, the Company had $27.7 million of total unrecognized
compensation cost related to unvested stock compensation granted
under the Company’s Plan. That cost is expected to be recognized
over a weighted average period of approximately 3.6 years.
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
contributions, which generally equal employee deferrals up to a
maximum of 5% of their eligible compensation (capped at
$170,000), is fully vested and funded as of December 31, 2007.
The Company contributions to the plan were approximately $1.5
million, $1.3 million, and $1.1 million for the years ended
December 31, 2007, 2006, and 2005, respectively.
22. 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
requirement 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 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.
70
Kimco Realty Corporation and Subsidiaries
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, 2007, 2006 and 2005
(in thousands):
2007
(Estimated)
$ 442,830 $ 428,259 $ 363,628
2006
(Actual)
2005
(Actual)
(98,542)
(33,795)
(21,666)
344,288
394,464
341,962
30,843
23,826
9,865
(17,345)
(11,964)
(7,398)
(21,019)
(26,822)
(29,144)
18,965
(7,127)
(19,048)
(24,177)
(49,003)
(14,181)
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, Kimsouth and Blue Ridge Real
Estate Company/Big Boulder Corporation.
Income taxes have been provided for on the asset and liability
method as required by SFAS 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 provision
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, 2007, 2006, and 2005,
are summarized as follows (in thousands):
Income before income taxes
Less provision for income taxes:
Federal
State and local
Total tax provision
2007
2005
$109,057 $54,522 $32,920
2006
6,565
3,950
10,515
17,581
3,146
20,727
9,446
1,808
11,254
51
142
2,537
GAAP net income from taxable REIT
subsidiaries
$98,542 $33,795 $21,666
5,892
(5,219)
6,773
The Company’s deferred tax assets and liabilities at December
31, 2007 and 2006, were as follows (in thousands):
GAAP net income
Less: GAAP net income of
taxable REIT subsidiaries
GAAP net income from
REIT operations (a)
Net book depreciation in
excess of tax depreciation
Deferred/prepaid/above and
below market rents, net
Exercise of non-qualified
stock options
Book/tax differences from
investments in real estate
joint ventures
Book/tax difference on sale
of property
Valuation adjustment of
foreign currency contracts
Other book/tax differences,
net
Adjusted taxable income
subject to 90% dividend
requirements
$ 337,498 $ 318,297 $ 291,366
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 years ended December 31, 2007 and 2006 cash
dividends paid exceeded the dividends paid deduction and
amounted to $384,502 and $332,552, respectively. For the year
ended December 31, 2005, cash dividends paid were equal to the
dividend paid deduction and amounted to $293,345.
Characterization of Distributions:
The following characterizes distributions paid for the years
ended December 31, 2007, 2006, and 2005, (in thousands):
2007
2006
2005
Preferred Dividends
Ordinary income
Capital gain
Common Dividends
Ordinary income
Capital gain
Return of capital
Total dividends
distributed
$
7,123
86%
14%
$ 11,638 100% $ 11,638 100% $ 11,638 100%
70% $ 10,009
1,629
30%
61% $
39%
8,200
3,438
4,515
131,558
$ 207,587
86%
14%
—
$ 372,864 100% $ 320,914 100% $ 281,707 100%
66% $ 242,268
39,439
28%
—
6%
56% $ 211,803
89,856
35%
19,255
33,719
9%
$ 384,502
$ 332,552
$ 293,345
Deferred tax assets:
Operating losses
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Net deferred tax assets
2007
2006
$ 64,728
19,163
(36,826)
47,065
(11,663)
$ 35,402
$ 97,288
17,258
(68,018)
46,528
(8,571)
$ 37,957
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, 2007 and 2006.
Operating losses and the valuation allowance are due to the
Company’s consolidation of FNC and Kimsouth for accounting
and reporting purposes. At December 31, 2007, FNC had
approximately $128.1 million of net operating loss carry forwards
that expire from 2022 through 2025, with a tax value of
approximately $50.0 million. A valuation allowance of $33.8
million has been established for a portion of these deferred tax
assets. At December 31, 2007, Kimsouth had approximately $37.9
million of net operating loss carrying forwards that expire from
2021 to 2023, with a tax value of approximately $14.8 million. A
valuation allowance for $3.1 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
71
Kimco Realty Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
estate investments, and (iii) other deductible temporary differences.
The Company believes that, based on its operating strategy and
consistent history of profitability, it is more likely than not that the
net deferred tax assets of $35.4 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):
24. 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 2007. 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, 2007 and 2006, adjusted to give effect to these transactions at
the beginning of each year.
2007
2006
2005
The pro forma financial information is presented for
informational purposes only and may not be indicative of what
actual results of operations would have been had the transactions
occurred at the beginning of each year, 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
Income before extraordinary gain
Net income
Net income before extraordinary gain
per common share:
Basic
Diluted
Net income per common share:
Basic
Diluted
2007
$719.7
$347.6
$397.8
2006
$ 655.3
$ 322.2
$ 322.2
$ 1.30
$ 1.28
$ 1.30
$ 1.27
$ 1.50
$ 1.47
$ 1.30
$ 1.27
Federal provision at statutory
tax rate (35%)
$ 38,170 $ 19,083 $ 11,522
State and local taxes, net of
federal Benefit
Other
Valuation allowance decrease
7,089
(3,552)
(31,192)
2,140
(2,408)
—
$ 10,515 $ 20,727 $ 11,254
3,544
(1,900)
—
23. Supplemental Financial Information:
The following represents the results of operations, expressed in
thousands except per share amounts, for each quarter during the
years 2007 and 2006:
Revenues from rental
property (1)
Net income
Net income per
common share:
Basic
Diluted
Revenues from rental
property (1)
Net income
Net income per
common share:
Basic
Diluted
Mar. 31
2007 (Unaudited)
June 30
Sept. 30
Dec. 31
$ 158,020 $ 170,094 $ 173,712 $ 179,727
$ 153,764 $ 128,022 $ 78,005 $ 83,039
$
$
.60 $
.59 $
.50 $
.49 $
.30 $
.29 $
.28
.28
Mar. 31
2006 (Unaudited)
June 30
Sept. 30
Dec. 31
$ 136,838 $ 145,907 $ 149,124 $ 155,678
$ 96,195 $ 108,738 $ 91,427 $ 131,899
$
$
.41 $
.40 $
.44 $
.43 $
.37 $
.36 $
.52
.51
(1) All periods have been adjusted to reflect the impact of operating properties sold during 2007
and 2006 and properties classified as held for sale as of December 31, 2007, which are
reflected in the caption Discontinued operations on the accompanying Consolidated Statements
of Income.
Accounts and notes receivable in the accompanying
Consolidated Balance Sheets net of estimated unrecoverable
amounts, were approximately $9.0 million and $8.5 million at
December 31, 2007 and 2006, respectively.
72
Kimco Realty Corporation and Subsidiaries
Glossary of Terms
Core-Based Statistical Areas (CBSAs)
Metropolitan and Micropolitan Statistical Areas are collectively
referred to as Core-Based Statistical Areas. Metropolitan statistical
areas have at least one urbanized area of 50,000 or more in popula-
tion, 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 in 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 principal 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 available to common shareholders, excluding gains from
sales of property, 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 specified
term and for a specified rent.
Lease Rejection
Bankruptcy rule that permits 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 limited
to the value of the property collaterized by the mortgage.
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 pro-
vide services to REIT tenants and others. The law also changed the
minimum distribution requirement from 95% to 90% of a REIT’s
taxable income.
Stock Split
An increase in the number of outstanding shares of a company’s
stock, such that the proportionate equity of each shareholder
remains the same. Kimco split its stock on December 22, 1995,
December 21, 2001, and August 24, 2005, when shareholders of
record received new shares in the form of a stock dividend at a rate
of 0.5, 0.5, and 1.0, respectively, for each share owned. This action,
in turn, lowered the market price of Kimco stock to a level propor-
tionate 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 ten-
ants and others and is required to pay federal income tax without
disqualifying the company’s REIT status.
1031 Exchange
A 1031 exchange allows sellers to defer 100% of the
federal and state capital gains taxes associated with the sale of prop-
erty held for investment purposes. Kimco facilitates exchanges by
matching buyers of exchange properties with sellers of investment
properties or by selling properties from its portfolio of net-leased
properties to exchange buyers.
Total Market Capitalization
The total market value of outstanding common stock, the liquida-
tion value of preferred stock and all outstanding indebtedness.
Total Return
A stock’s dividend income plus capital appreciation, before taxes and
commissions.
73
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 Com-
pany 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 predecessor in 1966.
Mr. Cooper is also a director of Getty Realty Corporation 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 Of-
ficer; 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 Manage-
ment Company.
F. Patrick Hughes
Director of the Company 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 of BTR Realty, Inc. from 1974 until 1990.
g
y
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
Director of the the Company since 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.
g
74
Kimco Realty Corporation and Subsidiaries
Corporate Directory
Executive
Officers
Milton Cooper
Chairman and
Chief Executive Officer
Corporate
Management
Paul Dooley
Vice President,
Property Tax/Insurance
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
Jerald Friedman
Executive Vice President
David R. Lukes
Executive Vice President
Glenn G. Cohen
Vice President and Treasurer
Bruce Rubenstein
Vice President,
General Counsel
and Secretary
Leah Landro
Vice President,
Organizational Development
and Compensation Systems
Barbara M. Pooley
Vice President,
Finance and
Investor Relations
Julio Ramon
Director of Finance,
Joint Ventures
Michael D. Schindler
Vice President,
Tax Planning & Strategy
Thomas Taddeo
Vice President,
Chief Information Officer
Paul Weinberg
Vice President,
Human Resources
Paul Westbrook
Director of Accounting
Joel Yarmak
Vice President,
Financial Operations
Executive Offices
Regional Offices
Operations
Management
Edward Boomer
Managing Director,
Canada
William Brown
Senior Vice President,
Redevelopmentt
Michael Melson
Vice President, KRC Mexico
Scott Onufrey
Vice President,
Investment Management
Edward Senenman
Vice President,
Acquisitions
Daniel Slattery
Executive Vice President,
Kimco Developers, Inc.
JoAnn Carpenter
Vice President,
Kimco Preferred Equity
Raymond Edwards
Vice President,
Retailer Services
Fredrick Kurz
Vice President
Kimco Select
Antonio Acevedo
Director of Real Estate,
Puerto Rico
Ralph Conti
Vice President,
Kimco Developers, Inc.
Joseph V. Denis
Vice President,
Construction
Conor Flynn
Vice President,
Western Region
Lauren Holden
Senior Portfolio Manager
Seth Layton
Executive Vice President,
Florida Region
Ruth Mitteldorf
Vice President, Finance
Kimco Developers, Inc.
Robert D. Nadler
President,
Central Region
Paul Puma
Vice President,
Southeast Region
3333 New Hyde Park Road
Suite 100
New Hyde Park, NY 11042
516-869-9000
www.kimcorealty.com
Leasing
Mesa, AZ
480-890-1600
Irvine, CA
949-252-3880
Sacramento, CA
791-0
916-
600
Vista, CA
760-727-1002
Walnut Creek, CA
925-977-9011
Hartford, CT
860-561-0545
Hollywood, FL
954-923-8
444
Lutherville, MD
410-684-2000
Dayton, OH
937-434-5421
Dallas, TX
214-692-3581
Houston, TX
832-242-6913
Woodbridge, VA
703-583-0071
Charlotte, NC
704-367-0131
Raleigh, NC
919-791-3650
New York, NY
212-972-7456
White Plains, NY
914-328-8200
Bellevue, WA
423-373-3500
Largo, FL
727-536-3287
Margate, FL
954-977-7340
Sanford, FL
407-302-4400
Rosemont, IL
847-299-1160
Columbia, MD
443-367-0110
Canfield, OH
330-702-8000
Steven Reisinger
Vice President, Finance
KRC Mexico
Tom Simmons
President,
Mid-Atlantic Region
John Visconsi
SeniorVice President,
Western Region
Joshua Weinkranz
Vice President,
Northeast Region
Development
Los Angeles, CA
310-284-6000
Lisle, IL
630-322-9200
Canada
Toronto, ON
416-593-6622
Mexico
San Antonio, TX
210-566-7610
Puerto Rico
Caguas, PR
787-
704-
2670
75
Kimco Realty Corporation and Subsidiaries
Shareholder Information
Counsel
Latham & Watkins
New York, NY
Auditors
PricewaterhouseCoopers LLP
New York, NY
Registrar and Transfer Agent
The Bank of New York Mellon
P.O. Box 358015
Pittsburgh, PA 15252-8015
1-866-557-8695
Website:
www.bnymellon/shareowner/isd
Email:
shrrelations@bnymellon.com
Stock Listings
NYSE—Symbols
KIM, KIMprF, KIMprG
On June 13, 2007, the Company’s Chief
Executive Officer submitted to the New
York Stock Exchange the annual certifica-
tion 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 Decem-
ber 31, 2007, 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.
Investor Relations
A copy of the Company’s Annual Report to
the U.S. Securities and Exchange Commis-
sion on Form 10-K may be obtained at no
cost to stockholders by writing to:
Barbara M. Pooley
Vice President,
Finance and Investor Relations
Kimco Realty Corporation
3333 New Hyde Park Road, Suite 100
New Hyde Park, NY 11042
1-866-831-4297
E-mail: ir@kimcorealty.com
Annual Meeting of Stockholders
Stockholders of Kimco Realty Corporation
are cordially invited to attend the 2008
Annual Meeting of Stockholders scheduled
to be held on May 13, 2008, at 270 Park Av-
enue, 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 pro-
vides 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 Mellon
P.O. Box 358015
Pittsburgh, PA 15252-8015
1-866-557-8695
Holders of Record
Holders of record of the Company’s com-
mon stock, par value $.01 per share, totaled
3,413 as of March 17, 2008.
Stock Price and Dividend Information
2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2006:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stock Price
High
Low
Dividends Paid Per
Common Share
$53.60
$50.36
$47.58
$47.69
$42.00
$40.57
$43.15
$47.13
$43.59
$36.92
$33.74
$34.74
$32.02
$34.20
$36.18
$42.13
$0.36
$0.36
$0.40
$0.40(a)
$0.33
$0.33
$0.36
$0.36(b)
(a) Paid on January 15, 2008, to stockholders of record on January 2, 2008.
(b) Paid on January 16, 2007, to stockholders of record on January 2, 2007.
76
Historical Total Return Analysis
(November 1991 to December 31, 2007)
$100,000 invested in Kimco shares at the IPO would be
worth approximately $2.0 million on December 31, 2007,
including the reinvestment of dividends.
KIM: 1,861%
NAREIT: 670%
S&P: 436%
Indexed TRA (November 1991) Note: Includes reinvestment of dividends Source: Bloomberg, Ilios Partners and NAREIT
Direct Stock Purchase and Dividend Reinvestment Plan
Experience the Power of Dividend Reinvestment
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 to acquire additional
shares of Kimco stock 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.
Visit Kimco’s web site: www.kimcorealty.com
KimcoNAREIT EquityS&P 50020072006200520042003200220012000199919981997199619951994199319921991
K I M C O R E A LT Y C O R P O R AT I O N
3333 New Hyde Park Road, Suite 100
New Hyde Park, NY 11042
Tel: 516-869-9000 Fax: 516-869-9001
www.kimcorealty.com
K I M C O
K I M C O
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