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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10899
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Kimco Realty Corporation
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(Exact name of registrant as specified in its charter)
Maryland 13-2744380
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 11042
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(Address of principal executive offices - Zip Code)
(516) 869-9000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
--------------------------------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
57,721,230 shares outstanding as of October 31, 1998
1 of 20
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Financial Statements -
Condensed Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997.
Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1998 and 1997.
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997.
Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and Notes thereto.
These unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to reflect a fair statement of the results
for the interim periods presented, and all such adjustments are of a normal
recurring nature.
Results of Operations
Revenues from rental property increased $47.3 million or 93.0% to
$98.1 million for the three months ended September 30, 1998, as compared with
$50.8 million for the corresponding quarter ended September 30, 1997.
Similarly, revenues from rental property increased $89.2 million or 63.2% to
$230.5 million for the nine months ended September 30, 1998, as compared with
$141.3 million for the corresponding nine month period ended September 30,
1997. These increases resulted primarily from the combined effect of (i)
property acquisitions during the nine month period ended September 30, 1998
(54 shopping center properties and 3 retail properties) providing revenues of
$13.5 million and $20.2 million for the three and nine month periods ended
September 30, 1998, respectively, (ii) acquisitions throughout calendar year
1997 (14 shopping center properties and 49 retail properties) providing
incremental revenues of $7.4 million and $34.6 million as compared to the
corresponding three and nine month periods in 1997, (iii) the acquisition of
The Price REIT, Inc. as of June 19, 1998 (the "Price REIT Acquisition")
providing revenues of $24.9 million and $28.2 million for the three and nine
month periods ended September 30, 1998, respectively, and (iv) new leasing,
property redevelopments and re-tenanting within the portfolio at improved
rental rates.
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Rental property expenses, including depreciation and amortization,
increased $30.5 million or 99.7% to $61.1 million for the three months ended
September 30, 1998, as compared with $30.6 million for the corresponding
quarter ended September 30, 1997. The rental property expense components of
rent, real estate taxes and depreciation and amortization increased $1.8
million, $6.7 million and $7.8 million, respectively, for the three month
period ended September 30, 1998, as compared with the corresponding quarter in
the preceding year. Similarly, rental property expenses, including
depreciation and amortization, increased $60.5 million or 75.0% to $141.2
million for the nine months ended September 30, 1998, as compared with $80.7
million for the corresponding nine month period ended September 30, 1997.
Rent, real estate taxes and depreciation and amortization increased by $6.5
million, $14.1 million and $12.7 million, respectively, for the nine month
period ended September 30, 1998 as compared with the corresponding period in
the preceding year. These rental property expense increases are primarily due
to the property acquisitions during the nine months ended September 30, 1998,
the Price REIT Acquisition and incremental costs related to property
acquisitions throughout 1997. Interest expense increased $10.4 million and
$20.7 million for the three and nine month periods ended September 30, 1998,
respectively, reflecting higher average outstanding borrowings as compared to
the corresponding periods in 1997. The higher outstanding borrowings resulted
from the (i) issuance of an aggregate $100 million unsecured medium-term notes
during May and July 1997 and an additional $290 million of unsecured
medium-term notes during the nine months ended September 30, 1998, (ii) the
assumption of additional mortgage debt during 1997 and the nine months ended
September 30, 1998 in connection with certain property acquisitions, (iii) the
assumption of approximately $250 million of unsecured debt and $60 million of
mortgage debt in connection with the Price REIT Acquisition and (iv) increased
borrowings under the Company's unsecured revolving credit facilities. These
increased borrowings were reduced by the July 1998 repayment of $50 million
medium-term notes which matured and the early repayment of approximately $57.0
million of mortgage debt in September 1998.
General and administrative expenses increased approximately $2.5
million or 83.5% to $5.5 million for the three months ended September 30,
1998, as compared with $3.0 for the corresponding quarter ended September 30,
1997. Similarly, general and administrative expenses increased approximately
$4.0 million or 46.5% for the nine months ended September 30, 1998 as compared
with the corresponding period in the preceding year. The increase is due
primarily to additional personnel costs in connection with the growth of the
Company, including the impact of the Price REIT Acquisition.
During January 1998, the Company disposed of a shopping center
property in Pinellas Park, FL. Cash proceeds from the disposition totaling
$2.3 million, together with an additional $7.1 million cash investment, were
used to acquire an exchange shopping center property located in Cranston, RI
during March 1998.
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During September 1998, the Company repaid certain mortgage loans
resulting in an extraordinary charge of approximately $4.9 million, or on a
per-basic share basis, $.09 and $.10 for the three and nine month periods
ended September 30, 1998, respectively. This extraordinary charge represents
the premiums paid in connection with the early satisfaction of certain
mortgage loans.
Net income for the three and nine months ended September 30, 1998 was
$31.3 million and $84.3 million, respectively. Net income for the three and
nine months ended September 30, 1997 was $20.6 million and $62.3 million,
respectively. On a per-basic share basis net income improved $.06 and $.17 for
the three and nine month periods ended September 30, 1998, respectively, after
adjusting for the extraordinary charge in the three and nine month periods
ended September 30, 1998 and the gains on sales of shopping center properties
in the respective periods in 1998 and 1997, reflecting the effect of property
acquisitions, including the Price REIT Acquisition, property redevelopments
and increased leasing activity which strengthened operating profitability.
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Liquidity and Capital Resources
Since the Company's initial public stock offering in November 1991,
the Company has completed additional offerings of its public unsecured debt
and equity raising in the aggregate in excess of $1.6 billion for the purposes
of acquiring interests in neighborhood and community shopping center
properties, repaying indebtedness and for expanding and improving properties
in the portfolio. Management believes the public debt and equity markets will
be the Company's principal source of capital for the future. During August
1998, the Company established a $215 million unsecured revolving credit
facility (the "Credit Facility") with a consortium of banks. This Credit
Facility replaces both the (i) $100 million credit facility established in
June 1994 and (ii) the $150 million interim credit facility established in
March 1998. The Credit Facility has made available funds to both finance
property acquisitions and meet any short-term working capital requirements. As
of September 30, 1998, there was $120 million outstanding under the Credit
Facility. The Company has also 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 and
development and redevelopment costs and (ii) managing the Company's debt
maturities.
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 and
growth in rental revenues in the existing portfolio and from other sources.
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, repayment of
debt, the acquisition of interests in new properties as suitable opportunities
arise, and such other factors as the Board of Directors considers appropriate.
It is management's intention that the Company continually has access
to the capital resources necessary to expand and develop its business.
Accordingly, the Company may seek to obtain funds through additional equity
offerings or debt financings in a manner consistent with its intention to
operate with a conservative debt capitalization policy.
The Company anticipates that cash flows from operations will continue
to provide adequate capital to fund its operating and administrative expenses,
regular debt service obligations and the payment of dividends in accordance
with REIT requirements in both the short-term and long-term. In addition, the
Company anticipates that cash on hand, availability under its revolving credit
facility, issuance of equity and public debt, as well as other debt and equity
alternatives, will provide the necessary capital required by the Company. Cash
flows from operations increased
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to $125.2 million for the nine months ended September 30, 1998 as compared to
$100.2 million for the corresponding period ended September 30, 1997.
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 will, from time to time, enter into interest rate
protection agreements which mitigate, but do not eliminate, the effect of
changes in interest rates on its floating-rate loans.
Impact of Year 2000
Like most corporations, the Company is reliant upon technology to run
its business. Many computer systems process dates using two digits to identify
the year, and some systems are unable to properly process dates beginning with
the year 2000. We have completed our assessment and have substantially
addressed the impact of the Year 2000 issue on our business. We expect that
our systems, including hardware and software, will be Year 2000 compliant by
the end of the first quarter of 1999. We cannot guarantee that our third-party
vendors, partners or others will be Year 2000 compliant. If such third-party
vendors, partners and others encounter problems in addressing the Year 2000
issue, those problems could have an impact on our business. We are currently
addressing the development of a contingency plan in the event that our systems
or the systems of our third-party vendors, partners or others fail to meet the
demands of the Year 2000 issue. We do not believe the costs connected with the
development of this plan will have a material adverse effect on our
operations.
Forward-looking Statements
This quarterly report on Form 10-Q includes certain forward-looking
statements, reflecting the Company's and management's intentions and
expectations, however, many factors which may affect the actual results are
difficult to predict. Factors that may cause actual results to differ
materially from current expectations include general economic conditions,
local real estate conditions, capital availability, increases in interest
rates and increases in operating costs. Accordingly, there is no
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assurance that the Company's expectations will be realized.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
7
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KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- -------------------
<S> <C> <C>
Assets:
Real estate, net of accumulated depreciation
of $239,930,486 and $207,408,091, respectively $ 2,650,747,449 $ 1,196,788,068
Investments and advances in real estate joint ventures 58,780,260 9,794,142
Investment in retail store leases 15,570,543 15,938,041
Cash and cash equivalents 30,780,884 30,978,178
Accounts and notes receivable 24,117,472 16,203,454
Other assets 94,589,966 74,188,241
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$ 2,874,586,574 $ 1,343,890,124
================= ===================
Liabilities:
Notes payable $975,250,000 $410,250,000
Mortgages payable 156,906,342 121,363,908
Other liabilities, including minority interests
in partnerships 182,567,371 68,957,005
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1,314,723,713 600,570,913
----------------- -------------------
Stockholders' Equity:
Preferred stock, $1.00 par value, authorized 3,470,000 and 5,000,000
shares, respectively
Class A Preferred Stock, $1.00 par value, authorized 345,000 shares
Issued and outstanding 300,000 shares 300,000 300,000
Aggregate liquidation preference $75,000,000
Class B Preferred Stock, $1.00 par value, authorized 230,000 shares
Issued and outstanding 200,000 shares 200,000 200,000
Aggregate liquidation preference $50,000,000
Class C Preferred Stock, $1.00 par value, authorized 460,000 shares
Issued and outstanding 400,000 shares 400,000 400,000
Aggregate liquidation preference $100,000,000
Class D Convertible Preferred Stock, $1.00 par value, authorized 700,000 shares
Issued and outstanding 429,159 shares 429,159 -
Aggregate liquidation preference $107,289,750
Class E Preferred Stock, $1.00 par value, authorized 65,000 shares
Issued and outstanding 65,000 shares 65,000 -
Aggregate liquidation preference $65,000,000
Common stock, $.01 par value, authorized 100,000,000 shares
Issued and outstanding 57,567,729 and 40,394,805 575,677 403,948
shares, respectively
Paid-in capital 1,675,767,238 857,658,054
Cumulative distributions in excess of net income (117,874,213) (115,642,791)
----------------- -------------------
1,559,862,861 743,319,211
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$2,874,586,574 $1,343,890,124
================= ===================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
8
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KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months ended September 30, 1998 and 1997
---------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues from rental property $ 98,085,066 $ 50,822,619 $ 230,537,696 $ 141,294,177
------------- ------------- ------------- -------------
Rental property expenses:
Rent 3,460,803 1,644,698 9,019,514 2,499,182
Real estate taxes 13,262,698 6,573,729 31,572,123 17,479,097
Interest 19,575,852 9,181,521 42,987,028 22,252,562
Operating and maintenance 9,223,790 5,397,149 23,143,929 16,687,602
Depreciation and amortization 15,542,603 7,776,881 34,433,287 21,737,600
------------- ------------- ------------- -------------
61,065,746 30,573,978 141,155,881 80,656,043
------------- ------------- ------------- -------------
Income from rental property 37,019,320 20,248,641 89,381,815 60,638,134
Income from investment in retail store leases 901,436 895,107 2,729,684 2,704,761
------------- ------------- ------------- -------------
37,920,756 21,143,748 92,111,499 63,342,895
Management fee income 999,049 891,031 2,530,342 2,754,842
General and administrative expenses (5,489,327) (2,991,139) (12,493,986) (8,526,158)
Other income, net 2,676,418 1,597,444 6,071,472 4,474,666
------------- ------------- ------------- -------------
Income before gain on sale of shopping center
property and extraordinary items 36,106,896 20,641,084 88,219,327 62,046,245
Gain on sale of shopping center property -- -- 901,249 243,995
------------- ------------- ------------- -------------
Income before extraordinary items 36,106,896 20,641,084 89,120,576 62,290,240
Extraordinary items (4,851,528) -- (4,851,528) --
------------- ------------- ------------- -------------
Net Income $ 31,255,368 $ 20,641,084 $ 84,269,048 $ 62,290,240
============= ============= ============= =============
Net income applicable to common shares $ 23,357,687 $ 16,031,659 $ 66,717,893 $ 48,461,965
============= ============= ============= =============
Per common share:
Income before extraordinary items
Basic $0.50 $0.44 $1.52 $1.33
----- ----- ----- -----
Diluted $0.49 $0.43 $1.50 $1.32
----- ----- ----- -----
Net income
Basic $0.41 $0.44 $1.42 $1.33
----- ----- ----- -----
Diluted $0.41 $0.43 $1.40 $1.32
----- ----- ----- -----
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
9
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KIMCO REALTY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30, 1998 and 1997
----------------------------------
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Cash flow provided by operations $125,184,553 $100,186,622
--------------- ---------------
Cash flow from investing activities:
Acquisition of and improvements to real estate (468,794,078) (173,518,344)
Investment in marketable securities (7,930,449) (1,968,889)
Acquisition of real estate through joint venture investment (18,663,994) (907,068)
Advances to affiliated companies - (12,036,000)
Investment in mortgage loans receivable (1,980,760) -
Repayment of mortgage loans receivable 1,456,200 -
Construction advance to real estate joint ventures (1,673,778) -
Proceeds from disposition of shopping center property 2,300,000 1,550,000
--------------- ---------------
Net cash flow used for investing activities (495,286,859) (186,880,301)
--------------- ---------------
Cash flow from financing activities:
Principal payments on debt, excluding
normal amortization of rental
property debt (61,807,502) (4,650,000)
Principal payments on rental property
debt (3,317,926) (860,754)
Proceeds from mortgage financing 9,000,000 -
Proceeds from issuance of medium-term notes 290,000,000 100,000,000
Repayment of medium-term notes (50,000,000) -
Borrowings under revolving credit facilities 220,000,000 -
Repayment of borrowings under revolving credit facilities (145,000,000) -
Dividends paid (75,385,211) (60,583,605)
Proceeds from issuance of stock 186,415,651 138,008,781
--------------- ---------------
Net cash flow provided by financing activities 369,905,012 171,914,422
--------------- ---------------
Change in cash and cash equivalents (197,294) 85,220,743
Cash and cash equivalents, beginning of period 30,978,178 37,425,206
--------------- ---------------
Cash and cash equivalents, end of period $ 30,780,884 $122,645,949
=============== ===============
Interest paid during the period $ 32,205,190 $ 17,050,469
=============== ===============
Supplemental schedule of noncash investing/financing activity:
Acquisition of real estate interests by issuance of common stock,
preferred stock, and assumption of debt $977,541,812 $ 59,235,192
=============== ===============
Declaration of dividends paid in succeeding period $33,661,066 $ 20,524,382
=============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
10
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KIMCO REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
_____________
1. Interim Financial Statements
The accompanying Condensed Consolidated Financial Statements include
the accounts of Kimco Realty Corporation (the "Company"), its subsidiaries,
all of which are wholly owned, and all majority-owned partnerships. The
information furnished is unaudited and reflects all adjustments which are, in
the opinion of management, necessary to reflect a fair statement of the
results for the interim periods presented, and all such adjustments are of a
normal recurring nature. These Condensed Consolidated Financial Statements
should be read in conjunction with the financial statements included in the
Company's Annual Report on Form 10-K.
Certain account balances in the accompanying Condensed Consolidated
Balance Sheet as of December 31, 1997, have been reclassified to conform to
the current year presentation.
2. Common Stock Offerings
During April and May 1998, the Company completed the sale of an
aggregate 3,039,507 shares of common stock in five separate transactions
consisting of (i) a primary public stock offering of 460,000 shares of common
stock priced at $36.0625 per share, and (ii) four direct placements of 415,945
shares, 546,075 shares, 837,000 shares and 780,487 shares of common stock
priced at $36.0625, $36.625, $36.25 and $38.4375 per share, respectively.
The shares of common stock sold in the direct placements were
deposited in separate unit investment trusts. The net proceeds from these
offerings totaling approximately $106.0 million (after related transaction
costs of approximately $5.9 million) were used for general corporate purposes,
including the acquisition of interests in neighborhood and community shopping
centers and the expansion and improvement of certain properties in the
Company's portfolio.
During July 1998, the Company completed the sale of an aggregate
1,315,498 shares of common stock in three separate transactions consisting of
(i) a primary public stock offering of 510,000 shares of common stock priced
at $39.4375 per share, and (ii) two direct placements of 375,000 and 430,498
shares of common stock priced at $38.2575 and $38.56 per share, respectively.
The net proceeds from these offerings totaling approximately $49.9 million
(after related transaction costs of approximately $1.2) were used for general
corporate purposes, including the acquisition of neighborhood
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and community shopping centers and the expansion and improvement of certain
properties in the Company's portfolio.
During September 1998, the Company completed the sale of an aggregate
750,000 shares of common stock priced at $38.75 per share in a primary public
stock offering. In addition, during October 1998, the Company sold an
additional 112,500 shares of common stock pursuant to an election by the
underwriter to exercise, in full, their over-allotment option. The net proceeds
from these sales of common stock, total approximately $31.6 million (after
related transaction costs of approximately $1.8 million). The net proceeds
have been used for general corporate purposes, including the acquisition of
neighborhood and community shopping centers and the expansion and improvement
of certain properties in the Company's portfolio.
3. Property Acquisitions
During the nine months ended September 30, 1998, the Company and its
affiliates acquired interests in 19 neighborhood and community shopping center
properties comprising approximately 2.2 million square feet of gross leasable
area ("GLA") in 11 states for an aggregate purchase price of approximately
$186.7 million, including the assumption of approximately $20.8 million in
mortgage debt.
4. Retail Properties Acquisition
During January 1998, the Company, through an affiliated entity,
acquired fee interest in three properties from a retailer in the Chicago, IL
market comprising approximately 516,000 square feet of GLA for an aggregate
purchase price of approximately $23.7 million. These properties include
approximately 70,000 square feet of showroom space and adjoining warehouses of
approximately 100,000 square feet at each location. Simultaneous with this
transaction, the Company leased, to a national furniture retailer, the
showroom portion of each property under individual long-term leases. The
Company is currently planning the redevelopment of the warehouse portion of
each property.
During the nine months ended September 30, 1998, the Company
has invested approximately $19.0 million in a partnership which has acquired
and leased-back 11 automotive dealerships. The Company has a 50% interest in
this partnership.
5. Venture Stores, Inc. Properties Acquisitions
On July 1, 1998, certain subsidiaries of the Company acquired a
portfolio of 30 fee and leasehold positions from Metropolitan Life Insurance
Company ("Met Life") consisting of 29 neighborhood and community shopping
center properties and one office/distribution facility. These properties,
comprising approximately 3.8 million square feet of GLA located in five states,
were acquired for an aggregate purchase price of
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approximately $167.5 million. The properties were leased to Venture Stores,
Inc. ("Venture") under a single master lease agreement.
On July 17, 1998, the Company acquired Venture's leasehold position at 88
locations, including the 30 locations acquired from Met Life, 56 locations
pursuant to two unitary leases currently in place with the Company and two
other locations. The purchase price for the leasehold positions is $95
million, less certain closing adjustments, but is subject to upward adjustment
based on the Company's ability to re-tenant the properties over a two year
period. At closing, the Company made an initial cash payment to Venture of
approximately $50 million. Simultaneous with this transaction, the Company
leased 46 of these locations to a national retailer.
During August 1998, the Company acquired from Venture five additional
leasehold positions, including two leases already in place with the Company,
for an aggregate purchase price of approximately $2.2 million. Simultaneous
with this transaction, the Company leased these five locations, along with
five other former Venture spaces, to a national retailer.
The Company has leased 74 of the 93 former Venture locations acquired
in the above transactions. The Company is currently negotiating with other
major retailers concerning the re-tenanting of the remaining locations.
6. Property Dispositions
During January 1998, the Company disposed of a shopping center
property in Pinellas Park, FL. Cash proceeds from the disposition totaling
$2.3 million, together with an additional $7.1 million cash investment, were
used to acquire an exchange shopping center property located in Cranston, RI
during March 1998.
7. Debt Financings
During June 1998, the Company issued $100 million of unsecured
medium-term notes ("MTNs"). These MTNs mature in June 2005 and bear interest
at a fixed rate of 6.73% per annum. The Company issued an additional $30
million of MTNs during July 1998. These MTNs mature in July 2006 and bear
interest at a fixed rate of 6.93% per annum.
During August 1998, the Company issued $60 million of floating rate
MTNs. These floating rate MTNs mature in August 2000 and bear interest at
LIBOR plus .15% per annum. Interest on these MTNs resets and is payable for
each quarter at the end of such quarter. Concurrent with this issuance, the
Company entered into an interest rate swap agreement for the term of these
MTNs which effectively fixed the interest rate on these MTNs at 5.91% per
annum. The proceeds from this MTN issuance were used to prepay certain
mortgage loans with a principal amount of approximately $57 million bearing
interest at 10.54% per annum plus prepayment
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premiums of approximately $4.9 million.
Additionally, during August 1998, the Company issued $100 million of
remarketed reset notes under our MTN program. The remarketed reset notes
mature in August 2008 and bear interest initially at a floating rate of LIBOR
plus .30% per annum. Interest on these notes resets and is payable for each
quarter at the end of such quarter. After an initial period of one year, the
interest rate spread applicable to each subsequent period will be determined
pursuant to a Remarketing Agreement between the Company and a financial
institution, as the remarketing agent. Concurrent with this issuance, the
Company entered into an interest rate swap agreement which effectively fixed
the interest rate at 5.92% per annum during the initial one year period. The
proceeds from the MTN issuance were used, in part, to repay $50 million MTNs
that matured in July 1998.
8. Price REIT Merger
On January 13, 1998, the Company, REIT Sub, Inc., a Maryland
corporation and a wholly owned subsidiary of the Company ("Merger Sub") and
The Price REIT, Inc., a Maryland corporation, ("Price REIT"), signed a
definitive Agreement and Plan of Merger dated January 13, 1998, as amended
March 5, 1998 and May 14, 1998, (the "Merger Agreement"). On June 19, 1998,
the shareholders of the Company and the shareholders of Price REIT approved
the issuance of the Merger Consideration (as defined in the Merger Agreement)
and the Merger, respectively, and Price REIT was merged into Merger Sub.
Prior to the Merger, Price REIT was a self-administered and
self-managed equity REIT that was primarily focused on the acquisition,
development, management and redevelopment of destination retail shopping
center properties known as "power centers." As of June 19, 1998, Price REIT
owned or had interests in 43 properties, consisting of 39 power and community
centers, one stand-alone retail warehouse, one project under development and
two undeveloped land parcels, located in 17 states containing approximately
8.0 million square feet of GLA.
In connection with the Merger, holders of Price REIT common stock
received one share of Kimco common stock and 0.36 shares of Kimco Class D
Depositary Shares (the "Class D Depositary Shares"), each Class D Depositary
Share representing a one-tenth fractional interest in a new issue of Kimco
7.5% Cumulative Convertible Preferred Stock, par value $1.00 per share (the
"Class D Preferred Stock"), for each share of Price REIT common stock. On June
19, 1998, the Company issued 11,921,992 shares of its common stock and 429,159
shares of Class D Preferred Stock (represented by 4,291,590 Class D Depositary
Shares) in connection with the Merger. Additionally, in connection with the
Merger, the Company issued 65,000 shares of a new issue of Kimco Class E
Floating Rate Cumulative Preferred Stock, par value $1.00 per share (the
"Class E Preferred Stock", represented by 650,000 Class E Depositary Shares,
(the "Class E Depositary
14
<PAGE>
Shares")), each Class E Depositary Share representing a one-tenth fractional
interest in the Class E Preferred Stock. The Merger was accounted for using
the purchase method of accounting for financial reporting purposes.
Dividends on the Class D Depositary Shares are cumulative and payable
quarterly in arrears at the rate per depositary share equal to the greater of
(i) 7.5% per annum based on the $25 per share initial value, or $1.875 per
share or (ii) the cash dividends on the shares of the Company's common stock
into which a Class D Depositary Share is convertible, plus $.0275 per quarter.
The Class D Depositary Shares are convertible at any time into the Company's
common stock at a conversion price of $40.25 per share of common stock or a
conversion rate of 0.62112 for each Class D Depositary Share. The Class D
Depositary Shares may be redeemed in whole, or from time to time, in part, on
any date on or after June 19, 2001 at the option of the Company if, for any 20
trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the average closing price per share of the
Company's common stock exceeds 120% of the conversion price or $48.30 per
share.
The Class D Preferred Stock (represented by the Class D Depositary
Shares outstanding) ranks pari passu with the Company's 7 3/4% Class A
Cumulative Redeemable Preferred Stock, 8 1/2% Class B Cumulative Redeemable
Preferred Stock, 8 3/8 % Class C Cumulative Redeemable Preferred Stock and the
Class E Floating Rate Cumulative Preferred Stock (represented by the Class E
Depositary Depositary Shares) as described below, as to voting rights priority
for receiving dividends and liquidation preferences.
Dividends on the Class E Depositary Shares are cumulative at the rate
of LIBOR plus 2.00% per annum (7.68% per annum initial rate) based on the
initial issue price of $100 per depositary share. The dividend rate on Class E
Depositary Shares resets and is payable quarterly in arrears. The Class E
Preferred Stock (represented by the Class E Depositary Shares) is redeemable
at the option of the Company for 150 days after the effective time of the
Merger (the "Repurchase Termination Date") at a price equal to the liquidation
preference plus accrued and unpaid dividends. If not redeemed during this 150
day period, the Class E Preferred Stock will not be redeemable again until
after the fifth anniversary of the Repurchase Termination Date. The redemption
price of the Class E Preferred Stock must be paid solely from the sale of
proceeds of other capital stock of the Company, which may include other
classes or series of preferred stock. The Class E Depositary Shares are not
convertible or exchangeable for any other property or securities of the
Company. The Class E Preferred Stock ranks pari passu with the Class A, Class
B, Class C and Class D Preferred Stock as described above, as to voting
rights, priority for receiving dividends and liquidation preferences.
9. Investment in Retail Store Leases
Income from the investment in retail store leases for the nine months
ended September 30, 1998 and 1997 represents sublease revenues of
approximately $15.1 million and $15.8 million, respectively, less related
expenses of $11.1 million and
15
<PAGE>
$11.5 million, respectively, and amounts, which in management's estimation,
reasonably provide for the recovery of the investment over a period
representing the expected remaining term of the retail store leases.
10. Net Income Per Common Share
The following table sets forth the basic and diluted weighted average
numbers of common shares outstanding for each period used in the calculation
of basic and diluted net income per common share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic EPS - weighted
average number of common
shares outstanding 56,697,990 36,633,269 47,138,161 36,375,024
Effect of dilutive securities -
stock options 566,348 451,719 564,871 461,047
---------- ---------- ---------- ----------
Diluted EPS - weighted
average number of Common shares 57,264,338 37,084,988 47,703,032 36,836,071
========== ========== ========== ==========
</TABLE>
The effect of the conversion of the Class D Preferred Stock would
have an anti-dilutive effect upon the calculation of net income per common
share. Accordingly, the impact of such conversion has not been included in the
determination of diluted net income per common share.
11. Pro Forma Financial Information
As discussed in Notes 3, 5, 6 and 8, the Company and certain of its
affiliates acquired and disposed of interests in certain shopping center
properties during the nine months ended September 30, 1998. The pro forma
financial information set forth below is based upon the Company's historical
Condensed Consolidated Statements of Income for the nine months ended
September 30, 1998 and 1997, adjusted to give effect to these transactions as
of January 1, 1997.
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 as of January 1, 1997, nor does
it purport to represent the results of future operations. (Amounts presented
in millions, except per share figures).
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
---- ----
<S> <C> <C>
Revenues from rental property $293.1 $247.6
Income before extraordinary items $110.7 $102.3
Net Income $105.9 $102.3
Per common share:
Income before extraordinary items:
Basic $1.60 $1.63
====== ======
Diluted $1.58 $1.61
====== ======
Net income:
Basic $1.51 $1.63
====== ======
Diluted $1.49 $1.61
====== ======
</TABLE>
12. Extraordinary Items
During September 1998, the Company repaid certain mortgage loans
resulting in an extraordinary charge of approximately $4.9 million, or on a
per-basic share basis $.09 and $.10 for the three and nine month periods ended
September 30, 1998, respectively. This extraordinary charge represents the
premiums paid in connection with the early satisfaction of certain mortgage
loans.
13. Subsequent Events:
Pursuant to the terms of Price REIT purchase agreement dated May 18, 1998
between the Company, Price REIT and the purchaser of the Class E Preferred
Stock, the Class E Preferred Stock is redeemable at the option of the Company
for 150 days after the effective time of the Merger at a price equal to the
liquidation preference plus accrued and unpaid dividends. On November 5, 1998,
the Company exercised its option and redeemed the 65,000 shares of Class E
Preferred Stock, represented by 650,000 Class E Depositary Shares for
$65,000,000, representing the liquidation preference and approximately $65,000
of accrued dividends.
On November 5, 1998, the Company, through special purpose entities, obtained
mortgage financing aggregating approximately $182.5 million at a fixed
interest rate of 6.585% for the term of the loans on 10 of its properties. The
mortgages consist of individual, non-recourse, non-cross collateralized first
mortgages.
On November 10, 1998 the Company completed the sale of an aggregate 820,000
shares of common stock in two separate transactions consisting of two primary
public stock offerings of 650,000 and 170,000 shares of common stock each
priced at $39.6875 per share. The net proceeds from these sales of common
stock totaled approximately $31 million (after related transaction costs of
$1.5 million).
17
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently involved in any litigation, nor to its
knowledge is any litigation threatened against the Company or its
subsidiaries, that in management's opinion, would result in any material
adverse effect on the Company's ownership, management or operation of its
properties, or which is not covered by the Company's liability insurance.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits -
4.1 Agreement to File Instruments
Kimco Realty Corporation (the "Registrant") hereby agrees to file
with the Securities and Exchange Commission, upon request of the Commission,
all instruments defining the rights of holders of long-term debt of the
Registrant and its consolidated subsidiaries, and for any of its
unconsolidated subsidiaries for which financial statements are required to be
filed, and for which the total amount of securities authorized thereunder does
not exceed 10 percent of the total assets of the Registrant and its
subsidiaries on a consolidated basis.
18
<PAGE>
Form 8-K -
A current report on Form 8-K was filed on July 9, 1998 to disclose
certain historical and pro forma financial information for certain properties
acquired from the Metropolitan Life Insurance Company on July 1, 1998.
A current report on Form 8-K was filed on August 10, 1998 to disclose
certain historical financial information for certain properties acquired in
May and July 1998 and pro forma information for (i) all shopping center
acquisitions acquired from January 1998 through July 1998, and (ii) the Price
REIT, Inc. merger.
A current report on Form 8-K was filed on August 19, 1998 to disclose
updated pro forma information for (i) all shopping center acquisitions
acquired from January 1998 through July 1998, and (ii) the Price REIT, Inc.
merger.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIMCO REALTY CORPORATION
November 13, 1998 /s/ Milton Cooper
- -------------------- ------------------
(Date) Milton Cooper
Chairman of the Board
November 13 , 1998 /s/ Michael V. Pappagallo
- -------------------- --------------------------
(Date) Michael V. Pappagallo
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 30,780,884
<SECURITIES> 26,847,006
<RECEIVABLES> 26,903,602
<ALLOWANCES> 2,786,130
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,890,677,935
<DEPRECIATION> 239,930,486
<TOTAL-ASSETS> 2,874,586,574
<CURRENT-LIABILITIES> 0
<BONDS> 1,132,156,342
0
1,394,159
<COMMON> 575,677
<OTHER-SE> 1,557,893,025
<TOTAL-LIABILITY-AND-EQUITY> 2,874,586,574
<SALES> 230,537,696
<TOTAL-REVENUES> 230,537,696
<CGS> 63,735,566
<TOTAL-COSTS> 63,735,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,987,028
<INCOME-PRETAX> 89,120,576
<INCOME-TAX> 0
<INCOME-CONTINUING> 89,120,576
<DISCONTINUED> 0
<EXTRAORDINARY> 4,851,528
<CHANGES> 0
<NET-INCOME> 84,269,048
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.40
<FN>
Financial Data Schedule information has been extracted from the Registrant's
Condensed Consolidated Balance Sheet (non-classified) as of September 30, 1998
and the Condensed Consolidated Statement of Income for the nine months then
ended.
</FN>
</TABLE>
