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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-10899
KIMCO REALTY CORPORATION
(Exact name of registrant as specified in its charter)
| Maryland | 13-2744380 | |
|---|---|---|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
500 North Broadway, Suite 201, Jericho, NY 11753
(Address of principal executive offices) (Zip Code)
(516) 869-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $.01 per share. | KIM | New York Stock Exchange |
| Depositary Shares, each representing one-thousandth of a share of 5.125% Class L Cumulative Redeemable, Preferred Stock, $1.00 par value per share. | KIMprL | New York Stock Exchange |
| Depositary Shares, each representing one-thousandth of a share of 5.250% Class M Cumulative Redeemable Preferred Stock, $1.00 par value per share. | KIMprM | New York Stock Exchange |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | ||
|---|---|---|---|---|---|
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $8.8 billion based upon the closing price on the New York Stock Exchange for such equity on June 30, 2021.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
As of February 10, 2022, the registrant had 616,719,061 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference to the Registrant's definitive proxy statement to be filed with respect to the Annual Meeting of Stockholders expected to be held on April 26, 2022.
Index to Exhibits begins on page 45.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K (“Form 10-K”), together with other statements and information publicly disseminated by Kimco Realty Corporation (the “Company”) 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 the 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,” “commit,” “anticipate,” “estimate,” “project,” “will,” “target,” “forecast” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which, in some cases, are beyond the Company’s control and 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 adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) the reduction in the Company’s income in the event of multiple lease terminations by tenants or a failure of multiple tenants to occupy their premises in a shopping center, (iv) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (v) the Company’s ability to raise capital by selling its assets, (vi) increases in operating costs, (vii) risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company following the Merger (defined below), (viii) the possibility that, if the Company does not achieve the perceived benefits of the Merger (defined below) as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline, (ix) the risk of shareholder litigation in connection with the Merger, including any resulting expense, (x) changes in governmental laws and regulations and management’s ability to estimate the impact of such changes, (xi) valuation and risks related to the Company’s joint venture and preferred equity investments, (xii) valuation of marketable securities and other investments, including the shares of Albertsons Companies, Inc. common stock held by the Company, (xiii) impairment charges, (xiv) pandemics or other health crises, such as coronavirus disease 2019 (“COVID-19”), (xv) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (xvi) the level and volatility of interest rates and management’s ability to estimate the impact thereof, (xvii) changes in the dividend policy for the Company’s common and preferred stock and the Company’s ability to pay dividends at current levels, (xviii) unanticipated changes in the Company’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity, and (xix) the other risks and uncertainties identified under Item 1A, “Risk Factors” and elsewhere in this Form 10-K and in the Company’s other filings with the Securities and Exchange Commission (“SEC”). Accordingly, there is no assurance that the Company’s expectations will be realized. The Company disclaims any intention or obligation to update the forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to refer to any further disclosures the Company makes or related subjects in the Company’s quarterly reports on Form 10-Q and current reports on Form 8-K that the Company files with the SEC.
Overview
Kimco Realty Corporation, a Maryland corporation, is North America’s largest publicly traded owner and operator of open-air, grocery-anchored shopping centers, including mixed-use assets. The terms “Kimco,” the “Company,” “we,” “our” and “us” each refer to Kimco Realty Corporation and our subsidiaries, unless the context indicates otherwise. In statements regarding qualification as a real estate investment trust (“REIT”), such terms refer solely to Kimco Realty Corporation. The Company’s mission is to create destinations for everyday living that inspire a sense of community and deliver value to our many stakeholders.
The Company began operations through its predecessor, The Kimco Corporation, which was organized in 1966 upon the contribution of several shopping center properties owned by its principal stockholders. In 1973, these principals formed the Company as a Delaware corporation, and, in 1985, the operations of The Kimco Corporation were merged into the Company. The Company completed its initial public stock offering (the “IPO”) in November 1991, and, commencing with its taxable year which began January 1, 1992, elected to qualify as a REIT in accordance with Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). If, as the Company believes, it is organized and operates in such a manner so as to qualify and remain qualified as a REIT under the Code, the Company generally will not be subject to U.S. federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income, as defined in the Code. The Company maintains certain subsidiaries that made joint elections with the Company to be treated as taxable REIT subsidiaries (“TRSs”), that permit the Company to engage through such TRSs in certain business activities that the REIT may not conduct directly. A TRS is subject to federal and state taxes on its income, and the Company includes a provision for taxes in its consolidated financial statements. In 1994, the Company reorganized as a Maryland corporation. In March 2006, the Company was added to the S&P 500 Index, an index containing the stock of 500 Large Cap companies, most of which are U.S. corporations. The Company's common stock, Class L Depositary Shares and Class M Depositary Shares are traded on the New York Stock Exchange (“NYSE”) under the trading symbols “KIM”, “KIMprL”, and “KIMprM”, respectively.
The Company is a self-administered REIT and has not engaged, nor does it expect to retain, any REIT advisors in connection with the operation of its properties. The Company’s ownership interests in real estate consist of its consolidated portfolio and portfolios where the Company owns an economic interest, such as properties in the Company’s investment real estate management programs, where the Company partners with institutional investors and also retains management.
The Company began to expand its operations through the development of real estate and the construction of shopping centers but revised its growth strategy to focus on the acquisition and redevelopment of existing shopping centers that include a grocery component. The Company also expanded internationally within Canada, Mexico, Chile, Brazil and Peru, but has since exited all international investments. Additionally, the Company developed various residential and mixed-use operating properties and continues to obtain entitlements to embark on additional projects of this nature through re-development opportunities. More recently, in August 2021, the Company expanded through a merger with Weingarten Realty Investors (“Weingarten”) to further enhance its portfolio in coastal and sun belt regions, see further discussion below.
The Company implemented its investment real estate management format through the establishment of various institutional joint venture programs, in which the Company has noncontrolling interests. The Company earns management fees, acquisition fees, disposition fees as well as promoted interests based on achieving certain performance metrics.
In addition, the Company has capitalized 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 has also provided preferred equity capital to real estate professionals and, from time to time, provides real estate capital and management services to both healthy and distressed retailers. The Company has also made selective investments in secondary market opportunities where a security or other investment is, in management’s judgment, priced below the value of the underlying assets, however these investments are subject to volatility within the equity and debt markets.
As of December 31, 2021, the Company had interests in 541 shopping center properties (the “Combined Shopping Center Portfolio”), aggregating 93.3 million square feet of gross leasable area (“GLA”), located in 29 states. In addition, the Company had 50 other property interests, primarily through the Company’s preferred equity investments and other investments, totaling 6.3 million square feet of GLA.
Weingarten Merger
On August 3, 2021, Weingarten merged with and into the Company, with the Company continuing as the surviving public company (the “Merger”), pursuant to the definitive merger agreement (the “Merger Agreement”) between the Company and Weingarten which was entered into on April 15, 2021. The Merger brought together two industry-leading retail real estate platforms with highly complementary portfolios and created the preeminent open-air shopping center and mixed-use real estate owner in the country. As a result of the Merger, the Company acquired 149 properties, including 30 held through joint venture programs. The increased scale in targeted growth markets, coupled with a broader pipeline of redevelopment opportunities, has positioned the combined company to create significant value for its shareholders. Under the terms of the Merger Agreement, each Weingarten common share was entitled to 1.408 newly issued shares of the Company’s common stock plus $2.89 in cash, subject to certain adjustments specified in the Merger Agreement.
On July 15, 2021, Weingarten’s Board of Trust Managers declared a special cash distribution of $0.69 per Weingarten common share (the “Special Distribution”) payable on August 2, 2021, to shareholders of record on July 28, 2021. The Special Distribution was paid in connection with the Merger and to satisfy REIT taxable income distribution requirements. Under the terms of the Merger Agreement, Weingarten’s payment of the Special Distribution adjusted the cash consideration paid by the Company at the closing of the Merger from $2.89 per Weingarten common share to $2.20 per Weingarten common share and had no impact on the payment of the share consideration of 1.408 newly issued shares of Company common stock for each Weingarten common share owned immediately prior to the effective time of the Merger. In connection with the Merger the Company issued 179.9 million shares of common stock. See Footnote 2 to the Notes to the Company’s Consolidated Financial Statements for additional discussion regarding the Merger.
COVID-19 Pandemic
The coronavirus disease 2019 (“COVID-19”) pandemic continues to impact the retail real estate industry for both landlords and tenants. The extent to which the COVID-19 pandemic impacts the Company’s financial condition, results of operations and cash flows, in the near term, will continue to depend on future developments, which are uncertain at this time. The Company’s business, operations and financial results will depend on numerous evolving factors, including the duration and scope of the pandemic, governmental, business and individual actions that have been and continue to be taken in response to the pandemic, the distribution and effectiveness of vaccines, impacts on economic activity from the pandemic and actions taken in response, the effects of the pandemic on the Company’s tenants and their businesses, the ability of tenants to make their rental payments, additional closures of tenants’ businesses and impacts of opening and reclosing of communities in response to the increase in positive COVID-19 cases. Any of these events could materially adversely impact the Company’s business, financial condition, results of operations or stock price. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess its asset portfolio for any impairment indicators. In addition, the Company will continue to monitor for any material or adverse effects resulting from the COVID-19 pandemic. If the Company has determined that any of its assets are impaired, the Company would be required to take impairment charges, and such amounts could be material.
The development and distribution of COVID-19 vaccines has assisted in allowing many restrictions to be lifted, providing a path to recovery. The U.S. economy continues to build upon the reopening trend as businesses reopen to full capacity and stimulus is flowing through to the consumer. The overall economy continues to recover but several issues including the lack of qualified employees, inflation risk, supply chain bottlenecks and COVID-19 variants have impacted the pace of the recovery.
Business Objective and Strategies
The Company has developed a strong nationally diversified portfolio of open-air, shopping centers located in drivable first-ring suburbs primarily within 20 major metropolitan sun belt and coastal markets, which are supported by strong demographics, significant projected population growth, and where the Company perceives significant barriers to entry. As of December 31, 2021, the Company derived 85% of its annualized base rent from these top major metro markets. The Company’s shopping centers provide essential, necessity-based goods and services to the local communities and are primarily anchored by grocery, home improvement, pharmacy and off-price tenants.
The Company’s focus on high-quality locations has led to significant opportunities for value creation through the reinvestment in its assets to add density, replace outdated shopping center concepts, and better meet changing consumer demands. In order to add density to existing properties, the Company has obtained multi-family entitlements for 6,013 units of which 2,218 units have been constructed as of December 31, 2021. The Company continues to place strategic emphasis on live/work/play environments and in reinvesting in its existing assets, while building shareholder value. This philosophy is exemplified by the Company’s Signature SeriesTM properties Dania Pointe, Grand Parkway Marketplace, Kentlands Market Square, Lincoln Square, Mill Station, Pentagon Centre, Suburban Square, Cupertino Village, The Marketplace at Factoria, Westlake S.C. and The Boulevard.
The strength and security of the Company’s balance sheet remains central to its strategy. The Company’s strong balance sheet and liquidity position are evidenced by its investment grade unsecured debt ratings (Baa1/BBB+) by two major ratings agencies. The Company maintains one of the longest average debt maturity profiles in the REIT industry, now at 8.5 years. The Company expects to continue to take steps to reduce leverage, unencumber assets and improve its debt coverage metrics as mixed-use projects and redevelopments continue to come online and contribute additional cash flow growth.
Business Objective
The Company’s primary business objective is to be the premier owner and operator of open-air, grocery-anchored shopping centers, including mixed-use assets, in the U.S. The Company believes it can achieve this objective by:
| ● | increasing the value of its existing portfolio of properties and generating higher levels of portfolio growth; |
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| ● | increasing cash flows for reinvestment and/or for distribution to shareholders while maintaining conservative payout ratios; |
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| ● | improving debt metrics and upgraded unsecured debt ratings |
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| ● | continuing growth in desirable demographic areas with successful retailers, primarily focused on grocery anchors; and |
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| ● | increasing the number of entitlements for residential use. |
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Business Strategies
The Company believes with its strong core portfolio and its recent acquisitions, it will continue to achieve higher occupancy levels, increased rental rates and rental growth in the future. To effectively execute the Company’s strategy and achieve its strategic goals the Company identified the following growth components to focus on:
Organic Growth – aim to incorporate annual rent increases for small shop leases and rental increases every five years for anchors.
Leasing and Mark to Market Opportunities – focus on increasing occupancy across the entire portfolio including strong post-pandemic leasing volume. In addition, the Company will direct its attention on bringing historic below-market anchor leases closer to market rates.
(Re)development and Repositioning Pipeline – economic stabilization of its Signature Series projects and obtaining additional multi-family entitlements where opportunity presents itself.
Accretive Capital Deployment (Acquisitions, “Plus”/Structured Investments) – opportunistic acquisition and structured investment platform focused on accretive unique opportunities.
Albertsons Monetization – monetize the Company’s marketable security investment while maintaining maximum optionality.
ESG – strong commitments in the areas of climate change, Diversity, Equity & Inclusion (“DE&I”) and small business support.
The Company believes it is well positioned for sustainable growth with its high quality portfolio, which was most recently enhanced with the Weingarten merger, accretive and opportunistic capital allocation, financial strength and environmental, social and governance leadership.
The Company has identified the following areas where it is well positioned for sustainable growth in the future.
High Quality Portfolio & Operating Platform
Deliver consistent funds from operations (“FFO”) growth from a portfolio of well-located, essential-anchored shopping centers and mixed-use assets.
| ● | 85% of the portfolio is anchored by grocery stores, home improvement and pharmacy tenants |
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| ● | Located in the drivable first-ring suburbs of the Company’s top 20 major metropolitan sun belt and coastal markets |
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Accretive & Opportunistic Capital Allocation
Generate additional internal and external growth through accretive acquisitions, (re)development and "Plus"/Structured investments
| ● | Opportunistic acquisition and structured investment platform ("Plus" business) focused on accretive unique opportunities |
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| ● | The “Plus” business encompasses investment opportunities with retailers who have significant real estate holdings. The Company believes it can utilize its structured investment program to take advantage of opportunities resulting from market dislocation in the form of preferred equity investments and/or mezzanine financing for qualified real estate owners in need of capital |
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Operating Platform
Provide critical last-mile solutions to its diverse pool of tenants who continue to adapt and generate robust leasing demand.
| ● | The demand for physical stores by omni-channel retailers has continued to increase |
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| ● | Retail market recovery since the onset of COVID-19 has resulted in an increase in sales volume across most retail categories |
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Environmental, Social & Governance (“ESG”) Leadership
With over 60-years of delivering value to investors, tenants, employees, and communities.
| ● | ESG approach is aligned with core business strategy |
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| ● | Proactive approach to quantifying, disclosing and managing climate, reputational and other risks | |
|---|---|---|
| ● | Commitment to DE&I, ethics and governance best practices at the Board, Management, and employee levels |
Financial Strength
Maintain a strong balance sheet and liquidity position with an emphasis on reduced leverage and a sustainable and growing dividend. The Company has:
| ● | Over $2.3 billion of immediate liquidity, including the Company’s $2.0 billion unsecured revolving credit facility |
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| ● | Ownership of 39.8 million shares of Albertsons Companies, Inc. (valued at $1.2 billion at December 31, 2021) |
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| ● | A 8.5 years consolidated debt maturity profile, one of the longest in the REIT industry |
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| ● | Over 480 unencumbered properties, approximately 87% of the centers in the Company’s portfolio |
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The Company reduces its operating and leasing risks through diversification achieved by the geographic distribution of its properties and a large tenant base. As of December 31, 2021, no single open-air shopping center accounted for more than 2.0% 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, or more than 2.0% of the Company’s total shopping center GLA. Furthermore, at December 31, 2021, the Company’s single largest tenant represented only 3.7%, and the Company’s five largest tenants aggregated less than 11.7%, 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.
As one of the original participants in the growth of the shopping center industry and the nation's largest owners and operators of open-air shopping centers, the Company has established close relationships with major national and regional retailers and maintains a broad network of industry contacts. Management is associated with and/or actively participates in many shopping center and REIT industry organizations. Notwithstanding these relationships, there are numerous regional and local commercial developers, real estate companies, financial institutions and other investors who compete with the Company for the acquisition of properties and other investment opportunities and in seeking tenants who will lease space in the Company’s properties.
Government Regulation
Compliance with various governmental regulations has an impact on our business, including our capital expenditures, earnings and competitive position, which can be material. We incur costs to monitor and take actions to comply with governmental regulations that are applicable to our business, which include, among others, federal securities laws and regulations, applicable stock exchange requirements, REIT and other tax laws and regulations, environmental and health and safety laws and regulations, local zoning, usage and other regulations relating to real property and the Americans with Disabilities Act of 1990.
In addition, see “Item 1A – Risk Factors” for a discussion of material risks to us, including, to the extent material, to our competitive position, relating to governmental regulations, and see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” together with our audited consolidated financial statements and the related notes thereto for a discussion of material information relevant to an assessment of our financial condition and results of operations, including, to the extent material, the effects that compliance with governmental regulations may have upon our capital expenditures and earnings.
Human Capital Resources
The Company believes that our employees are one of our strongest resources and that a variety of perspectives and experiences found in a diverse workforce spark innovation and enrich company culture. The Company is committed to diversity, equity and inclusion best practices in all phases of the employee life cycle, including recruitment, training and development and promotion.
The Company has been and will continue to be an equal opportunity employer committed to hiring, developing, and supporting a diverse equitable, and inclusive workplace. To ensure full implementation of this equal employment policy, we will take steps to ensure that persons are recruited, hired, assigned and promoted without regard to race, national origin, religion, age, color, sex, pregnancy, sexual orientation, gender identity and expression, disability, genetic information or protected veteran status, or any other characteristic protected by local, state, or federal laws, rules, or regulations. All of our employees must adhere to a Code of Business Conduct and Ethics that sets standards for appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of discrimination and/or retaliation.
In order to attract and retain high performing individuals, we are committed to partnering with our employees to provide opportunities for their professional development and promote their health and well-being. We also offer our employees a broad range of company-paid benefits, and we believe our compensation package and benefits are competitive with others in our industry. Our benefits programs include a robust offering of medical, dental, vision, life, disability and other ancillary benefits requiring very low employee contributions. The Company has been recognized as a Great Place to Work® based on surveys and feedback collected from its employees for four consecutive years. Additionally, the Company was designated a Best Place to Work for LGBTQ+ Equality and has achieved a perfect score on the Human Rights Campaign Foundation’s 2022 Corporate Equality Index, a nationally recognized benchmarking survey and report measuring corporate policies and practices related to LGBTQ+ workplace equality.
The Company’s executive and management team promotes a true “open door” environment in which all feedback and suggestions are welcome. Whether it be through regular all employee calls, department meetings, frequent training sessions, Coffee Connections with the executive team, use of our BRAVO recognition program, awarding of iPads for Ideas, or participation in our flagship LABS (Leaders Advancing Business Strategy) program, associates are encouraged to be inquisitive and share ideas. Those ideas have resulted in a number of programs and benefit enhancements.
The Company promotes physical health, including access to a national gym membership program for associates and their family members as well as host to regular wellness and nutrition seminars and health screenings. The Company also feels it is important that our associates are engaged and active in the community. At our headquarters and in each of our regions, a committee of employees host numerous volunteer and social activities that are derived from employee sentiment. Whether we’re participating in walks, runs, meal servings, food drives, toy drives, the Company promotes and supports associate volunteerism with two volunteer days off per year and a company matching program in support of each associates charitable endeavors. In addition, each year, the Company provides $100,000 in education scholarships for children of our associates, which is managed by an independent third-party.
The Company's executive offices are located at 500 North Broadway, Suite 201, Jericho, NY 11753, a mixed-use property that is wholly owned by the Company, and its telephone number is (516) 869-9000. Nearly all operating functions, including leasing, legal, construction, data processing, maintenance, finance and accounting are administered by the Company from its executive offices in Jericho, New York and supported by the Company’s regional offices. As of December 31, 2021, a total of 606 persons were employed by the Company of which 32% were located in our corporate office with the remainder located in 26 offices throughout the United States. The average tenure of our employees was 9.3 years.
The health and safety of the Company’s employees and their families is a top priority. The Company always takes the necessary steps to protect its employees, especially during the COVID-19 pandemic where employees were empowered to work from home and care for their family members and children. The Company will continue to evaluate individual situations as they arise and adjust its approach as appropriate, with the goal of enabling its employees to be as productive as possible while offering them the flexibility they need to care for themselves and their families. The following are steps that were taken by the Company in response to the COVID-19 pandemic:
| ● | The Company established a flexible work from home arrangement. This included immediate and extensive technology training on virtual meetings and remote working as well as safety protocols. |
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| ● | The Company benefited from recent investments in new technology and software, as its entire team is equipped with new laptops and cellular capability to enable them to work remotely. |
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| ● | The Company’s human resources and information technology teams are available to all employees to address any needs or concerns they may have. |
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| ● | Associates are provided paid time off to care for themselves or family members diagnosed with COVID-19. | |
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| ● | The Company has increased communications at all levels and established virtual meetings such that executives are accessible to answer any questions and transparently keep associates informed. |
Cybersecurity
The Company’s Audit Committee receives quarterly briefings from the Company’s Chief Information Officer regarding the emerging cybersecurity threat and risk landscape as well as the Company's security program and related readiness, resiliency, and response efforts.
The Company has a Cyber Risk Committee (“Cyber Committee”) which reviews and reports on technology-based security issues. The Cyber Committee is comprised of senior management from various business units within the Company and meets quarterly to review the status of the Company's overall security program as well as controls and procedures and to stay up-to-date of relevant legislative, regulatory and technical developments.
The Company utilizes a variety of administrative, technical and physical safeguards that take into account the nature of our IT environment, information assets and cyber risks posed by both internal and external threats. The Company has incorporated cybersecurity coverage in its insurance policies. The Company's goal is to keep its data and systems, as well as its employees safe from cybersecurity threats. The Company is not aware of any information security breaches over the last three years.
The Company has invested in employee security awareness training and also conducts internal phishing exercises. When potential security issues arise, the Company conducts a prompt investigation and analysis to determine what steps to take in response to protect the Company and its valued employees and key stakeholders.
Environment, Social and Governance (“ESG”) Programs
The Company is focused on building a thriving and viable business, one that succeeds by delivering long-term value for its stakeholders. The Company’s ESG programs are aligned with its core business strategy of creating destinations for everyday living that inspire a sense of community and deliver value to its many stakeholders.
The Company identified the following five pillars which outline the Company's strategic priorities within of our ESG program. This framework was enhanced in Februrary of 2021 with sixteen newly defined, comprehensive ESG goals. These goals expand upon our commitment with clear targets in each pillar:
The Company is committed to best-in-class ESG disclosure, and has aligned its annual reporting with standards from the Global Reporting Initiative (“GRI”), Sustainability Accounting Standards Board (“SASB”) (now known as the Value Reporting Foundation) and Task Force on Climate-related Financial Disclosures (“TCFD”). Additional ESG information of relevance to stakeholders can be found on the Company’s website, the contents of which are not incorporated by reference and do not form a part of this Form 10-K.
The Company's Board of Directors (the “Board”) sets the Company's overall ESG program objectives and oversees enterprise risk management. The Nominating and Corporate Goverance Committee of the Board is responsible for ESG program oversight and performance evaluation.
The Company recognizes that climate change is one of the most significant stakeholder issues of our times, threatening the viability of economic and environmental systems globally. The scientific community has studied climate change and a consensus exists that warming is occurring outside the boundaries of historical planetary trends due in significant part to human activity. As a real estate portfolio owner, the Company monitors physical and transition risks as well as opportunities posed to its business by climate change and quantifies and discloses the climate impacts of its activities. The Company’s science-based emissions reduction goals are aligned with the Paris Climate Accord which we believe put the company on pace to achieve net zero emissions by 2050.
Climate risks and opportunities are evaluated at both the corporate and individual asset level. The following table summarizes relevant climate risks identified as a part of the Company’s ongoing risk assessment process. The Company may be subject to other climate risks not included below.
| Climate Risk | Description | |
|---|---|---|
| Physical | ||
| Windstorms | Increased frequency and intensity of windstorms, such as hurricanes, could lead to property damage, loss of property value and interruptions to business operations | |
| Sea Level Rise | Rising sea levels could lead to storm surge and other potential impacts for low-lying coastal properties leading to damage, loss of property value and interruptions to business operations | |
| Flooding | Change in rainfall conditions leading to increased frequency and severity of flooding could lead to property damage, loss of property value and interruptions to business operations | |
| Wildfires | Change in fire potential could lead to permanent loss of property, stress on human health (air quality) and stress on ecosystem services | |
| Heat and Water Stress | Increases in temperature could lead to droughts and decreased available water supply could lead to higher utility usage, supply interruptions and reputational issues in local communities | |
| Transition | ||
| Regulation | Regulations at the federal, state and local levels could impose additional operating and capital costs associated with utilities, energy efficiency, building materials and building design | |
| Reputation | Increased interest among retail tenants in building efficiency, sustainable design criteria and "green leases", which incorporate provisions intended to promote sustainability at the property, could result in decreased demand for outdated space |
The Company’s approach in mitigating these risks include but are not limited to (i) carrying additional insurance coverage relating to flooding and windstorms, (ii) maintaining a geographically diversified portfolio, which limits exposure to event driven risks and (iii) creating a form “green lease” for its tenants which incorporates varied criteria that align landlord and tenant sustainability priorities as well as establishing green construction criteria.
In 2020, the Company issued $500.0 million in 2.70% notes due 2030 in its inaugural green bond offering. The net proceeds from this offering are allocated to finance or refinance, in whole or in part, recently completed, existing or future eligible green projects, in alignment with the four core components of the Green Bond Principles, 2018 as administered by the International Capital Market Association. Additionally, the Company’s $2.0 billion Credit Facility (as defined below) is a green credit facility which incorporates rate adjustments associated with attainment (or nonattainment) of Scope 1 and 2 greenhouse gas emissions reductions.
The Company believes its industry leading ESG initiatives led to its 2021 listing on the Dow Jones Sustainability North America Index (“DJSI North America Index”), designed for investors who recognize that sustainable business practices are critical to generating long-term shareholder value. The Company also is a constituent of the FTSE4Good Index Series, designed to measure the performance of companies related to ESG practices.
Information About Our Executive Officers
The following table sets forth information with respect to the executive officers of the Company as of December 31, 2021:
| Name | Age | Position | Joined Kimco | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Milton Cooper | 92 | Executive Chairman of the Board of Directors | Co-Founder | ||||||
| Conor C. Flynn | 41 | Chief Executive Officer | 2003 | ||||||
| Ross Cooper | 39 | President and Chief Investment Officer | 2006 | ||||||
| Glenn G. Cohen | 57 | Executive Vice President, Chief Financial Officer and Treasurer | 1995 | ||||||
| David Jamieson | 41 | Executive Vice President, Chief Operating Officer | 2007 |
Available Information
The Company’s website is located at http://www.kimcorealty.com. The information contained on our website does not constitute part of this Form 10-K. On the Company’s website you can obtain, free of charge, a copy of this Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as amended, as soon as reasonably practicable, after we file such material electronically with, or furnish it to, the SEC. The public may read and obtain a copy of any materials we file electronically with the SEC at http://www.sec.gov.
We are subject to certain business and legal risks including, but not limited to, the following:
Risks Related to Our Business and Operations
Adverse global market and economic conditions may impede our ability to generate sufficient income and maintain our properties.
Our properties consist primarily of open-air shopping centers, including mixed-use assets, and other retail properties. Our performance, therefore, is generally linked to economic conditions in the market for retail space. The economic performance and value of our properties is subject to all of the risks associated with owning and operating real estate, including but not limited to:
| ● | changes in the national, regional and local economic climate; |
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| ● | local conditions, including an oversupply of, or a reduction in demand for, space in properties like those that we own or operate; |
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| ● | trends toward smaller store sizes as retailers reduce inventory and develop new prototypes; |
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| ● | increasing use by customers of e-commerce and online store sites; |
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| ● | the attractiveness of our properties to tenants; |
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| ● | market disruptions due to global pandemics; |
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| ● | the ability of tenants to pay rent, particularly anchor tenants with leases in multiple locations; |
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| ● | tenants who may declare bankruptcy and/or close stores; |
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| ● | competition from other available properties to attract and retain tenants; |
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| ● | changes in market rental rates; |
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| ● | the need to periodically pay for costs to repair, renovate and re-let space; |
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| ● | ongoing consolidation in the retail sector; |
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| ● | the excess amount of retail space in a number of markets; |
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| ● | changes in operating costs, including costs for maintenance, insurance and real estate taxes; |
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| ● | the expenses of owning and operating properties, which are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the properties; |
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| ● | changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes; |
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| ● | acts of terrorism and war and acts of God, including physical and weather-related damage to our properties; |
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| ● | the continued service and availability of key personnel; and |
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| ● | the risk of functional obsolescence of properties over time. |
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Competition may limit our ability to purchase new properties or generate sufficient income from tenants and may decrease the occupancy and rental rates for our properties.
Numerous commercial developers and real estate companies compete with us in seeking tenants for our existing properties and properties for acquisition. Open-air shopping centers, including mixed-use assets, or other retail shopping centers with more convenient locations or better rents may attract tenants or cause them to seek more favorable lease terms at or prior to renewal. Retailers at our properties may face increasing competition from other retailers, e-commerce, outlet malls, discount shopping clubs, telemarketing or home shopping networks, all of which could (i) reduce rents payable to us; (ii) reduce our ability to attract and retain tenants at our properties; or (iii) lead to increased vacancy rates at our properties. We may fail to anticipate the effects of changes in consumer buying practices, particularly of growing online sales and the resulting retailing practices and space needs of our tenants or a general downturn in our tenants’ businesses, which may cause tenants to close stores or default in payment of rent.
We face competition in the acquisition or development of real property from others engaged in real estate investment that could increase our costs associated with purchasing and maintaining assets. Some of these competitors may have greater financial resources than we do. This could result in competition for the acquisition of properties for tenants who lease or consider leasing space in our existing and subsequently acquired properties and for other investment or development opportunities.
Our performance depends on our ability to collect rent from tenants, including anchor tenants, our tenants’ financial condition and our tenants maintaining leases for our properties.
At any time, our tenants may experience a downturn in their business that may significantly weaken their financial condition. As a result, our tenants may delay a number of lease commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close stores or declare bankruptcy. Any of these actions could result in the termination of tenants’ leases and the loss of rental income attributable to these tenants’ leases. In the event of a default by a tenant, we may experience delays and costs in enforcing our rights as landlord under the terms of the leases.
In addition, multiple lease terminations by tenants, including anchor tenants, or a failure by multiple tenants to occupy their premises in a shopping center could result in lease terminations or significant reductions in rent by other tenants in the same shopping centers under the terms of some leases. In that event, we may be unable to re-lease the vacated space at attractive rents or at all, and our rental payments from our continuing tenants could significantly decrease. The occurrence of any of the situations described above, particularly involving a substantial tenant with leases in multiple locations, could have a material adverse effect on our financial condition, results of operations and cash flows.
A tenant that files for bankruptcy protection may not continue to pay us rent. A bankruptcy filing by, or relating to, one of our tenants or a lease guarantor would bar all efforts by us to collect pre-bankruptcy debts from the tenant or the lease guarantor, or their property, unless the bankruptcy court permits us to do so. A tenant bankruptcy could delay our efforts to collect past due balances under the relevant leases and could ultimately preclude collection of these sums. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold, if at all.
E-commerce and other changes in consumer buying practices present challenges for many of our tenants and may require us to modify our properties, diversify our tenant composition and adapt our leasing practices to remain competitive.
Many of our tenants face increasing competition from e-commerce and other sources that could cause them to reduce their size, limit the number of locations and/or suffer a general downturn in their businesses and ability to pay rent. We may also fail to anticipate the effects of changes in consumer buying practices, particularly of growing online sales and the resulting change in retailing practices and space needs of our tenants, which could have an adverse effect on our results of operations and cash flows. We are focused on anchoring and diversifying our properties with tenants that are more resistant to competition from e-commerce (e.g. groceries, essential retailers, restaurants and service providers), but there can be no assurance that we will be successful in modifying our properties, diversifying our tenant composition and/or adapting our leasing practices.
Our expenses may remain constant or increase, even if income from our Combined Shopping Center Portfolio decreases, which could adversely affect our financial condition, results of operations and cash flows.
Costs associated with our business, such as common area expenses, utilities, insurance, real estate taxes, mortgage payments, and corporate expenses are relatively inflexible and generally do not decrease in the event that a property is not fully occupied, rental rates decrease, a tenant fails to pay rent or other circumstances cause our revenues to decrease. In addition, inflation could result in higher operating costs. If we are unable to lower our operating costs when revenues decline and/or are unable to pass along cost increases to our tenants, our financial condition, results of operations and cash flows could be adversely impacted.
We may be unable to sell our real estate property investments when appropriate or on terms favorable to us.
Real estate property investments are illiquid and generally cannot be disposed of quickly. The capitalization rates at which properties may be sold could be higher than historic rates, thereby reducing our potential proceeds from sale. In addition, the Code includes certain restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on terms favorable to us within a time frame that we would need. All of these factors reduce our ability to respond to changes in the performance of our investments and could adversely affect our business, financial condition and results of operations.
Certain properties we own have a low tax basis, which may result in a taxable gain on sale. We may utilize 1031 exchanges to mitigate taxable income; however, there can be no assurance that we will identify properties that meet our investment objectives for acquisitions. In the event that we do not utilize 1031 exchanges, we may be required to distribute the gain proceeds to shareholders or pay income tax, which may reduce our cash flow available to fund our commitments.
We may acquire or develop properties or acquire other real estate related companies, and this may create risks.
We may acquire or develop properties or acquire other real estate related companies when we believe that an acquisition or development is consistent with our business strategies. We may not succeed in consummating desired acquisitions or in completing developments on time or within budget. When we do pursue a project or acquisition, we may not succeed in leasing newly developed or acquired properties at rents sufficient to cover the costs of acquisition or development and operations. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention from other activities. Acquisitions or developments in new markets or industries where we do not have the same level of market knowledge may result in poorer than anticipated performance. We may also abandon acquisition or development opportunities that management has begun pursuing and consequently fail to recover expenses already incurred and will have devoted management’s time to a matter not consummated. Furthermore, our acquisitions of new properties or companies will expose us to the liabilities of those properties or companies, some of which we may not be aware of at the time of the acquisition. In addition, development of our existing properties presents similar risks.
Newly acquired or re-developed properties may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential. It is also possible that the operating performance of these properties may decline under our management. As we acquire additional properties, we will be subject to risks associated with managing new properties, including lease-up and tenant retention. In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing management structure. We may not succeed with this integration or effectively manage additional properties, particularly in secondary markets. Also, newly acquired properties may not perform as expected.
We face risks associated with the development of mixed-use commercial properties.
We operate, are currently developing, and may in the future develop, properties either alone or through joint ventures with other persons that are known as “mixed-use” developments. This means that in addition to the development of retail space, the project may also include space for residential, office, hotel or other commercial purposes. We have less experience in developing and managing non-retail real estate than we do with retail real estate. As a result, if a development project includes a non-retail use, we may seek to develop that component ourselves, sell the rights to that component to a third-party developer with experience developing properties for such use or partner with such a developer. If we do not sell the rights or partner with such a developer, or if we choose to develop the other component ourselves, we would be exposed not only to those risks typically associated with the development of commercial real estate generally, but also to specific risks associated with the development and ownership of non-retail real estate. In addition, even if we sell the rights to develop the other component or elect to participate in the development through a joint venture, we may be exposed to the risks associated with the failure of the other party to complete the development as expected. These include the risk that the other party would default on its obligations necessitating that we complete the other component ourselves, including providing any necessary financing. In the case of residential properties, these risks include competition for prospective residents from other operators whose properties may be perceived to offer a better location or better amenities or whose rent may be perceived as a better value given the quality, location and amenities that the resident seeks. We will also compete against condominiums and single-family homes that are for sale or rent. In the case of office properties, the risks also include changes in space utilization by tenants due to technology, economic conditions and business culture, declines in financial condition of these tenants and competition for credit worthy office tenants. In the case of hotel properties, the risks also include increases in inflation and utilities that may not be offset by increases in room rates. We are also dependent on business and commercial travelers and tourism. Because we have less experience with residential, office and hotel properties than with retail properties, we expect to retain third-parties to manage our residential and other non-retail components as deemed warranted. If we decide to not sell or participate in a joint venture and instead hire a third-party manager, we would be dependent on them and their key personnel who provide services to us and we may not find a suitable replacement if the management agreement is terminated, or if key personnel leave or otherwise become unavailable to us.
Construction projects are subject to risks that materially increase the costs of completion.
In the event that we decide to redevelop existing properties, we will be subject to risks and uncertainties associated with construction and development. These risks include, but are not limited to, risks related to obtaining all necessary zoning, land-use, building occupancy and other governmental permits and authorizations, risks related to the environmental concerns of government entities or community groups, risks related to changes in economic and market conditions between development commencement and stabilization, risks related to construction labor disruptions, adverse weather, acts of God or shortages of materials and labor which could cause construction delays and risks related to increases in the cost of labor and materials which could cause construction costs to be greater than projected and adversely impact the amount of our development fees or our financial condition, results of operations and cash flows.
Supply chain disruptions and unexpected construction expenses and delays could impact our ability to timely deliver spaces to tenants and/or our ability to achieve the expected value of a construction project or lease, thereby adversely affecting our profitability.
The construction and building industry, similar to many other industries, are experiencing worldwide supply chain disruptions due to a multitude of factors that are beyond our control. Materials, parts and labor have also increased in cost over the past year or more, sometimes significantly and over a short period of time. We may incur costs for a property renovation or tenant buildout that exceeds our original estimates due to increased costs for materials or labor or other costs that are unexpected. We also may be unable to complete renovation of a property or tenant space on schedule due to supply chain disruptions or labor shortages, which could result in increased debt service expense or construction costs. Additionally, some tenants may have the right to terminate their leases if a renovation project is not completed on time. The time frame required to recoup our renovation and construction costs and to realize a return on such costs can often be significant and materially adversely affect our profitability.
The Americans with Disabilities Act of 1990 could require us to take remedial steps with respect to existing or newly acquired properties.
Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990 (the “ADA”). Investigation of a property may reveal non-compliance with this Act. The requirements of the ADA, or of other federal, state or local laws or regulations, also may change in the future and restrict further renovations of our properties with respect to access for disabled persons. Future compliance with this Act may require expensive changes to the properties.
We do not have exclusive control over our joint venture and preferred equity investments, such that we are unable to ensure that our objectives will be pursued.
We have invested in some properties as a co-venturer or a partner, instead of owning directly. In these investments, we do not have exclusive control over the development, financing, leasing, management and other aspects of these investments. As a result, the co-venturer or partner might have interests or goals that are inconsistent with ours, take action contrary to our interests or otherwise impede our objectives. These investments involve risks and uncertainties. The co-venturer or partner may fail to provide capital or fulfill its obligations, which may result in certain liabilities to us for guarantees and other commitments. Conflicts arising between us and our partners may be difficult to manage and/or resolve and it could be difficult to manage or otherwise monitor the existing business arrangements. The co-venturer or partner also might become insolvent or bankrupt, which may result in significant losses to us.
In addition, joint venture arrangements may decrease our ability to manage risk and implicate additional risks, such as:
| ● | our joint venture partner having potentially inferior financial capacity, diverging business goals and strategies and the need for their continued cooperation; |
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| ● | our inability to take actions with respect to the joint venture activities that we believe are favorable to us if our joint venture partner does not agree; |
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| ● | our inability to control the legal entity that has title to the real estate associated with the joint venture; |
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| ● | our lenders may not be easily able to sell our joint venture assets and investments or may view them less favorably as collateral, which could negatively affect our liquidity and capital resources; |
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| ● | our joint venture partners can take actions that we may not be able to anticipate or prevent, which could result in negative impacts on our debt and equity; and |
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| ● | our joint venture partners’ business decisions or other actions or omissions may result in harm to our reputation or adversely affect the value of our investments. |
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Our joint venture and preferred equity investments generally own real estate properties for which the economic performance and value is subject to all the risks associated with owning and operating real estate as described above.
We may not be able to recover our investments in marketable securities, mortgage receivables or other investments, which may result in significant losses to us.
Our investments in marketable securities are subject to specific risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer, which may result in significant losses to us. Marketable securities are generally unsecured and may also be subordinated to other obligations of the issuer. As a result, investments in marketable securities are subject to risks of:
| ● | limited liquidity in the secondary trading market; |
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| ● | substantial market price volatility, resulting from changes in prevailing interest rates; |
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| ● | subordination to the prior claims of banks and other senior lenders to the issuer; |
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| ● | the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations; and |
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| ● | the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic downturn. |
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These risks may adversely affect the value of outstanding marketable securities and the ability of the issuers to make distribution payments.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Footnote 9 to the Notes to the Company’s Consolidated Financial Statements included in this Form 10-K for additional discussion regarding the shares held by the Company of Albertsons Companies, Inc. (“ACI”).
Our investments in mortgage receivables are subject to specific risks relating to the borrower and the underlying property. In the event of a default by a borrower, it may be necessary for us to foreclose our mortgage or engage in costly negotiations. Delays in liquidating defaulted mortgage loans and repossessing and selling the underlying properties could reduce our investment returns. Furthermore, in the event of default, the actual value of the property collateralizing the mortgage may decrease. A decline in real estate values will adversely affect the value of our loans and the value of the properties collateralizing our loans.
Our mortgage receivables may be or become subordinated to mechanics' or materialmen's liens or property tax liens. In these instances, we may need to protect a particular investment by making payments to maintain the current status of a prior lien or discharge it entirely. Where that occurs, the total amount we recover may be less than our total investment, resulting in a loss. In the event of a major loan default or several loan defaults resulting in losses, our investments in mortgage receivables would be materially and adversely affected.
The economic performance and value of our other investments, which we do not control and are in retail operations, are subject to risks associated with owning and operating retail businesses, including:
| ● | changes in the national, regional and local economic climate; |
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| ● | the adverse financial condition of some large retailing companies; |
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| ● | increasing use by customers of e-commerce and online store sites; and |
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| ● | ongoing consolidation in the retail sector. |
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A decline in the value of our other investments may require us to recognize an other-than-temporary impairment (“OTTI”) against such assets. When the fair value of an investment is determined to be less than its amortized cost at the balance sheet date, we assess whether the decline is temporary or other-than-temporary. If we intend to sell an impaired asset, or it is more likely than not that we will be required to sell the impaired asset before any anticipated recovery, then we must recognize an OTTI through charges to earnings equal to the entire difference between the asset’s amortized cost and its fair value at the balance sheet date. When an OTTI is recognized through earnings, a new cost basis is established for the asset, and the new cost basis may not be adjusted through earnings for subsequent recoveries in fair value.
Our real estate assets may be subject to impairment charges.
We periodically assess whether there are any indicators that the value of our real estate assets and other investments may be impaired. A property’s value is considered to be impaired only if the estimated aggregate future undiscounted property cash flows are less than the carrying value of the property. In our estimate of cash flows, we consider factors such as trends and prospects and the effects of demand and competition on expected future operating income. If we are evaluating the potential sale of an asset or redevelopment alternatives, the undiscounted future cash flows consider the most likely course of action as of the balance sheet date based on current plans, intended holding periods and available market information. We are required to make subjective assessments as to whether there are impairments in the value of our real estate assets and other investments. Impairment charges have an immediate direct impact on our earnings. There can be no assurance that we will not take additional charges in the future related to the impairment of our assets. Any future impairment could have a material adverse effect on our results of operations in the period in which the charge is taken.
We intend to continue to sell our lesser quality assets and may not be able to recover our investments, which may result in significant losses to us.
There can be no assurance that we will be able to recover the current carrying amount of all of our lesser quality properties and investments and those of our unconsolidated joint ventures in the future. Our failure to do so would require us to recognize impairment charges for the period in which we reached that conclusion, which could materially and adversely affect our financial condition, results of operations and cash flows.
We have completed our efforts to exit Mexico, Chile, Brazil, Peru and Canada, however, we cannot predict the impact of laws and regulations affecting these international operations, including the United States Foreign Corrupt Practices Act, or the potential that we may face regulatory sanctions.
Our international operations have included properties in Mexico, Chile, Brazil, Peru and Canada and are subject to a variety of United States and foreign laws and regulations, including the United States Foreign Corrupt Practices Act and foreign tax laws and regulations. Although we have completed our efforts to exit our investments in Mexico, South America and Canada, we cannot assure you that our past practices will continue to be found to be in compliance with such laws or regulations. In addition, we cannot predict the manner in which such laws or regulations might be administered or interpreted, or when, or the potential that we may face regulatory sanctions or tax audits as a result of our international operations.
We face risks relating to cybersecurity attacks and security incidents which could cause loss of confidential information, disrupt operations and materially affect our business and financial results.
We, like all businesses, are subject to cyberattacks and security incidents, which threaten the confidentiality, integrity, and availability of our systems and information resources. Those attacks and incidents may be due to intentional or unintentional acts by employees, contractors or third-parties, who seek to gain unauthorized access to our or our service providers’ systems to disrupt operations, corrupt data, or steal confidential information through malware, computer viruses, ransomware, social engineering (e.g., phishing attachments to e-mails) or other vectors. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources.
The risk of a cybersecurity breach or operational disruption, particularly through a cyber incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our information technology (“IT”) networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations and, in some cases, may be critical to the operations of certain of our tenants. Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Employees working remotely has amplified certain risks to our business. The number of points of potential cyberattack, such as laptops and mobile devices have increased and any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks or other disruption to our technology infrastructure, may adversely affect our business. Cyber criminals are targeting their attacks on individual employees, utilizing interest in pandemic related information to increase business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems which extend to multiple platforms throughout the Company.
While we maintain some of our own critical IT networks and related systems, we also depend on third-parties to provide important software, technologies, tools and a broad array of services and functions, such as payroll, human resources, electronic communications and certain finance functions, among others. In addition, in the ordinary course of our business, we collect, process, transmit and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information.
Our measures to prevent, detect and mitigate these threats, such as password protection, firewalls, backup servers, threat monitoring, log aggregation, vulnerability scanning, data encryption, periodic penetration testing and multifactor authentication, may not be successful in preventing a security incident or data breach or limiting the effects of such a breach. Furthermore, the security measures employed by third-party service providers may prove to be ineffective at preventing breaches of their systems. This is particularly so because attack methodologies change frequently or are not recognized until launched, and we also may be unable to investigate or remediate incidents because attackers are increasingly using techniques and tools designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
The primary risks that could directly result from the occurrence of a cyberattack or security incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We could be required to expend significant capital and other resources to address an attack or incident, which may not be covered or fully covered by our insurance and which may involve payments for investigations, forensic analyses, legal advice, public relations advice, system repair or replacement, or other services, in addition to any remedies or relief that may result from legal proceedings. Our financial results may be negatively impacted by such attacks and incidents or any resulting negative media attention.
A cyber incident could:
| ● | disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; |
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| ● | result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines; |
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| ● | result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; |
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| ● | result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; |
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| ● | result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space; |
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| ● | require significant management attention and resources to remediate systems, fulfill compliance requirements and/or to remedy any damages that result; |
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| ● | subject us to regulatory enforcement, including investigative costs and fines or penalties, as the White House, SEC and other regulators have increased their focus on companies’ cybersecurity vulnerabilities and risks; |
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| ● | subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements or other causes of action; or |
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| ● | damage our reputation among our tenants, investors and associates. |
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The Company has cybersecurity coverage incorporated in its insurance policies; however these policies may not be sufficient to cover any or all expenses associated with the aforementioned risks. Moreover, cyber incidents perpetrated against our tenants, including unauthorized access to customers’ credit card data and other confidential information, could diminish consumer confidence and consumer spending and negatively impact our business.
We may be subject to liability under environmental laws, ordinances and regulations.
Under various federal, state, and local laws, ordinances and regulations, we may be considered an owner or operator of real property and may be responsible for paying for the disposal or treatment of hazardous or toxic substances released on or in our property, as well as certain other potential costs relating to hazardous or toxic substances (including governmental fines and injuries to persons and property). This liability may be imposed whether or not we knew about, or were responsible for, the presence of hazardous or toxic substances. The Company has environmental insurance coverage on certain of its properties, however this coverage may not be sufficient to cover any or all expenses associated with the aforementioned risks.
Natural disasters, severe weather conditions and the effects of climate change could have an adverse impact on our financial condition, results of operations and cash flows.
Our operations are located in areas that are subject to natural disasters and severe weather conditions such as hurricanes, tornados, earthquakes, snowstorms, floods and fires, and the frequency of these natural disasters and severe weather conditions may increase due to climate change. The occurrence of natural disasters, severe weather conditions and the effects of climate change, including extreme temperatures and ambient temperature increases, can delay new development or redevelopment projects, decreases the attractiveness of locations, increase investment costs to repair or replace damaged properties (or make repair or replacement impossible), increase operation costs, including the cost of energy at our properties, increase costs for future property insurance, negatively impact the tenant demand for lease space and cause substantial damages or losses to our properties which could exceed any applicable insurance coverage. The incurrence of any of these losses, costs or business interruptions may adversely affect our financial condition, results of operations and cash flows.
We anticipate the potential effects of climate change will increasingly impact the decisions and analysis we make with respect to our properties, since climate change considerations can impact the relative desirability of locations and the cost of operating and insuring real estate properties. In addition, changes in government legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our development or redevelopment projects without a corresponding increase in revenues, which may adversely affect our financial condition, results of operations and cash flows.
Pandemics or other health crises may adversely affect our tenants’ financial condition and the profitability of our properties.
Our business and the businesses of our tenants could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the outbreak of novel coronavirus (COVID-19).
Such events could result in the complete or partial closure of one or more of our tenants’ manufacturing facilities or distribution centers, temporary or long-term disruption in our tenants’ supply chains from local and international suppliers, and /or delays in the delivery of our tenants’ inventory.
The profitability of our properties depends, in part, on the willingness of customers to visit our tenants’ businesses. The risk, or public perception of the risk, of a pandemic or media coverage of infectious diseases could cause employees or customers to avoid our properties, which could adversely affect foot traffic to our tenants’ businesses and our tenants’ ability to adequately staff their businesses. Such events could adversely impact tenants’ sales and/or cause the temporary closure of our tenants’ businesses, which could severely disrupt their operations and have a material adverse effect on our business, financial condition and results of operations.
The Company’s business, financial condition, results of operations or stock price has and may continue to be adversely impacted by the COVID-19 pandemic and such impact could be material.
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the WHO. The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide. The COVID-19 pandemic significantly impacted the retail sector in which the Company operates. The majority of the Company’s tenants and their operations have been, and may continue to be, impacted. Through the duration of the pandemic, a substantial number of tenants had to temporarily or permanently close their business, shortened their operating hours or offer reduced services for some period of time. Impacts of new variants of COVID-19 could result in the complete or partial closure of one or more of our tenants’ manufacturing facilities or distribution centers, temporary or long-term disruption in our tenants’ supply chains from local and international suppliers, and/or delays in the delivery of our tenants’ inventory.
New variants of COVID-19 could adversely affect our tenants’ businesses and our tenants’ ability to adequately staff their businesses. Such events could severely disrupt their operations and have a material adverse effect on our business, financial condition and results of operations. A downturn in our tenants’ businesses that significantly weakens their financial condition could cause them to delay lease commencements or decline to extend or renew leases upon expiration and could lead to additional failures to make rental payments when due, store closures or bankruptcies, and we may be unable to collect past due balances under relevant leases.
The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:
| ● | a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action; |
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| ● | the reduced economic activity severely impacts our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or in part, or to otherwise seek modifications of such obligations; |
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| ● | the reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending; |
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| ● | difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a prolonged severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us; |
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| ● | the financial impact of a pandemic could negatively impact our future compliance with financial covenants of our Credit Facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our Credit Facility and pay dividends; |
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| ● | any impairment in value of our real estate assets that is recorded as a result of weaker economic conditions; |
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| ● | a continued decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our portfolio of properties; and |
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| ● | a deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants. |
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The extent to which the COVID-19 pandemic continues to impact our business, results of operations, financial condition and stock price will depend on numerous evolving factors that are highly uncertain and which we may not be able to predict, including the duration and scope of the pandemic, governmental, business and individual actions that have been and continue to be taken in response to the pandemic, the impact on economic activity from the pandemic and actions taken in response, the impact on our employees and other operational disruptions or difficulties we may face, the effect on our tenants and their businesses, the ability of tenants to pay their contracted rents and any additional closures of our tenants’ businesses. These effects, individually or in the aggregate, could adversely impact our tenant’s ability to pay their contracted rent. Any of these events could materially adversely impact our business, financial condition, results of operations or stock price.
Financial disruption or a prolonged economic downturn could materially and adversely affect the Company’s business.
Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, resulting in heightened credit risk, reduced valuation of investments and decreased economic activity. Moreover, many companies have experienced reduced liquidity and uncertainty as to their ability to raise capital during such periods of market disruption and volatility. In the event that these conditions recur or result in a prolonged economic downturn, our results of operations, financial position or liquidity could be materially and adversely affected. These market conditions may affect the Company's ability to access debt and equity capital markets. In addition, as a result of recent financial events, we may face increased regulation.
Corporate responsibility, specifically related to ESG factors and commitments, imposes additional costs and expose us to new risks.
The importance of sustainability evaluations is becoming more broadly accepted by investors and shareholders. Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies and investment funds based upon ESG or “sustainability” metrics. Many investment funds focus on positive ESG business practices and sustainability scores when making investments and may consider a company’s sustainability score as a reputational or other factor in making an investment decision. In addition, investors, particularly institutional investors, use these scores to benchmark companies against their peers and if a company is perceived as lagging, these investors may engage with companies to require improved ESG disclosure or performance. We may face reputational damage or additional costs in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies. In addition, the criteria by which companies are rated may change, which could cause us to receive lower scores than previous years. A low sustainability score could result in a negative perception of the Company, or exclusion of our common stock from consideration by certain investors who may elect to invest with our competition instead. In addition, as part of our corporate responsibility, we have adopted certain ESG goals, including greenhouse gas emissions reduction targets and other sustainability initiatives. If we cannot not meet these goals fully or on time, we may face reputational damage.
Our success depends largely on the continued service and availability of key personnel.
We depend on the deep industry knowledge and efforts of key personnel, including our executive officers, to manage our day-to-day operations and strategic business direction. Our ability to attract, retain and motivate key personnel may significantly impact our future performance, and if any of our executive officers or other key personnel depart the Company, for any reason, we may not be able to easily replace such individual. The loss of the services of our executive officers and other key personnel could have a material adverse effect on our financial condition, results of operations and cash flows.
Risks Related to Our Debt and Equity Securities
We may be unable to obtain financing through the debt and equity markets, which would have a material adverse effect on our growth strategy, our financial condition and our results of operations.
We cannot assure you that we will be able to access the credit and/or equity markets to obtain additional debt or equity financing or that we will be able to obtain financing on terms favorable to us. The inability to obtain financing on a timely basis could have negative effects on our business, such as:
| ● | we could have great difficulty acquiring or developing properties, which would materially adversely affect our investment strategy; |
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| ● | our liquidity could be adversely affected; |
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| ● | we may be unable to repay or refinance our indebtedness; |
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| ● | we may need to make higher interest and principal payments or sell some of our assets on terms unfavorable to us to fund our indebtedness; or |
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| ● | we may need to issue additional capital stock, which could further dilute the ownership of our existing stakeholders. |
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Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on terms favorable to us, if at all, and could significantly reduce the market price of our publicly traded securities.
We are subject to financial covenants that may restrict our operating and acquisition activities.
Our Credit Facility and the indentures under which our senior unsecured debt is issued contain certain financial and operating covenants, including, among other things, certain coverage ratios and limitations on our ability to incur debt, make dividend payments, sell all or substantially all of our assets and engage in mergers and consolidations and certain acquisitions. These covenants may restrict our ability to pursue certain business initiatives or certain acquisition transactions that might otherwise be advantageous. In addition, failure to meet any of the financial covenants could cause an event of default under our Credit Facility and the indentures and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us.
We have a substantial amount of indebtedness and may need to incur more in the future.
We have substantial indebtedness, including indebtedness assumed in the Merger with Weingarten. The level of indebtedness could have adverse consequences on our business, such as:
| ● | requiring the Company to use a substantial portion of our cash flow from operations to service our indebtedness, which would reduce the available cash flow to fund working capital, capital expenditures, development projects, and other general corporate purposes and reduce cash for distributions; |
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| ● | limiting our ability to obtain additional financing to fund our working capital needs, acquisitions, capital expenditures, or other debt service requirements or for other purposes; |
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| ● | increasing our costs of incurring additional debt; |
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| ● | subjecting us to floating interest rates; |
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| ● | limiting our ability to compete with other companies that are not as highly leveraged, as we may be less capable of responding to adverse economic and industry conditions; |
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| ● | restricting the Company from making strategic acquisitions, developing properties, or exploiting business opportunities; |
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| ● | restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness; |
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| ● | exposing the Company to potential events of default (if not cured or waived) under covenants contained in our debt instruments that could have a material adverse effect on our business, financial condition, and operating results; |
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| ● | increasing our vulnerability to a downturn in general economic conditions; and |
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| ● | limiting our ability to react to changing market conditions in its industry. |
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The impact of any of these potential adverse consequences could have a material adverse effect on our results of operations, financial condition, and liquidity.
Impacts from transition away from London Inter-bank Offered Rate (“LIBOR”).
A portion of our long-term indebtedness bears interest at fluctuating interest rates based on LIBOR for deposits of U.S. dollars. LIBOR and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the ICE Benchmark Administration Limited, the administrator of LIBOR, extended the transition dates of certain LIBOR tenors to June 30, 2023, after which LIBOR reference rates will cease to be provided. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR, or whether LIBOR will continue to be published by its administrator based on these submissions, or on any other basis, after such dates. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.
Changes in market conditions could adversely affect the market price of our publicly traded securities.
The market price of our publicly traded securities depends on various market conditions, which may change from time-to-time. Among the market conditions that may affect the market price of our publicly traded securities are the following:
| ● | the extent of institutional investor interest in us; |
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| ● | the reputation of REITs generally and the reputation of REITs with portfolios similar to ours; |
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| ● | the attractiveness of the securities of REITs in comparison to securities issued by other entities, including securities issued by other real estate companies; |
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| ● | our financial condition and performance; |
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| ● | the market’s perception of our growth potential, potential future cash dividends and risk profile; |
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| ● | an increase in market interest rates, which may lead prospective investors to demand a higher distribution rate in relation to the price paid for our shares; and |
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| ● | general economic and financial market conditions. |
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We may change the dividend policy for our common stock in the future.
The decision to declare and pay dividends on our common stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Directors and will depend on our earnings, operating cash flows, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness including preferred stock, the annual distribution requirements under the REIT provisions of the Code, state law and such other factors as our Board of Directors deems relevant or are requirements under the Code or state or federal laws. Any negative change in our dividend policy could have a material adverse effect on the market price of our common stock.
Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change of control transaction, even if such a change in control may be in our best interest, and as a result may depress the market price of our securities.
Our charter contains certain ownership limits. Our charter contains various provisions that are intended to preserve our qualification as a REIT and, subject to certain exceptions, authorize our directors to take such actions as are necessary or appropriate to preserve our qualification as a REIT**.** For example, our charter prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock, and more than 9.8% in value of the aggregate outstanding shares of all classes and series of our stock. Our Board of Directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. The restrictions on ownership and transfer of our stock may:
| ● | discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests; or |
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| ● | result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares. |
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Risks Related to Our Status as a REIT and Related U.S. Federal Income Tax Matters
Loss of our tax status as a REIT or changes in U.S. federal income tax laws, regulations, administrative interpretations or court decisions relating to REITs could have significant adverse consequences to us and the value of our securities.
We have elected to be taxed as a REIT for U.S. federal income tax purposes under the Code. We believe that we are organized and operate in a manner that has allowed us to qualify and will allow us to remain qualified as a REIT under the Code. However, there can be no assurance that we have qualified or will continue to qualify as a REIT for U.S. federal income tax purposes.
Qualification as a REIT involves the application of highly technical and complex Code provisions, for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the U.S. Internal Revenue Service (the “IRS”) and U.S. Department of the Treasury. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, regulations, administrative interpretations or court decisions could significantly and negatively change the tax laws with respect to qualification as a REIT, the U.S. federal income tax consequences of such qualification or the desirability of an investment in a REIT relative to other investments.
In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our stock, the composition of our assets and the sources of our gross income. Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, excluding net capital gains. Furthermore, we own a direct or indirect interest in certain subsidiary REITs which have elected to be taxed as REITs for U.S. federal income tax purposes under the Code. Provided that each subsidiary REIT qualifies as a REIT, our interest in such subsidiary REIT will be treated as a qualifying real estate asset for purposes of the REIT asset tests. To qualify as a REIT, the subsidiary REIT must independently satisfy all of the REIT qualification requirements. The failure of a subsidiary REIT to qualify as a REIT could have an adverse effect on our ability to comply with the REIT income and asset tests, and thus our ability to qualify as a REIT.
If we were to lose our REIT status, we would face serious tax consequences that would substantially reduce the funds available to pay distributions to stockholders for each of the years involved because:
| ● | we would not be allowed a deduction for dividends to stockholders in computing our taxable income and we would be subject to the regular U.S. federal corporate income tax; |
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| ● | we could possibly be subject to the federal alternative minimum tax ("AMT") for taxable years prior to 2018, when AMT was in effect, or increased state and local taxes; |
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| ● | unless we were entitled to relief under statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified; and |
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| ● | we would not be required to make distributions to stockholders. |
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Our failure to qualify as a REIT or new legislation or changes in U.S. federal income tax laws including with respect to qualification as a REIT or the tax consequences of such qualification, could also impair our ability to expand our business or raise capital and have a materially adverse effect on the value of our securities.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, which could adversely affect our financial condition, results of operations, cash flows and per share trading price of our common stock.
To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each year, excluding net capital gains, and we will be subject to regular U.S. federal corporate income taxes on the amount we distribute that is less than 100% of our net taxable income each year, including capital gains. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. While we have historically satisfied these distribution requirements by making cash distributions to our stockholders, a REIT is permitted to satisfy these requirements by making distributions of cash or other property, including, in limited circumstances, its own stock. Assuming we continue to satisfy these distribution requirements with cash, we may need to borrow funds to meet the REIT distribution requirements and avoid the payment of income and excise taxes even if the then prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for U.S. federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of cash reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market's perception of our growth potential, our current debt levels, the market price of our common stock, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations, cash flows and per share trading price of our common stock.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for U.S. federal income tax purposes.
A REIT's net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, or is held through a taxable REIT subsidiary, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for these reduced rates. U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (i.e., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning before January 1, 2026. Although this deduction reduces the effective tax rate applicable to certain dividends paid by REITs (generally to 29.6% assuming the shareholder is subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends that constitute qualified dividend income. Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends treated as qualified dividend income, which could materially and adversely affect the value of the shares of REITs, including the per share trading price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Real Estate Portfolio. As of December 31, 2021, the Company had interests in 541 shopping center properties aggregating 93.3 million square feet of GLA located in 29 states. In addition, the Company had 50 other property interests, primarily through the Company’s preferred equity investments and other investments, totaling 6.3 million square feet of GLA. Open-air shopping centers comprise the primary focus of the Company's current portfolio. As of December 31, 2021, the Company’s Combined Shopping Center Portfolio, including noncontrolling interests, was 94.4% leased.
The Company's open-air shopping center properties, which are generally owned and operated through subsidiaries or joint ventures, had an average size of 172,516 square feet as of December 31, 2021. The Company generally retains its shopping centers for long-term investment and consequently pursues a program of regular physical maintenance together with redevelopment, major renovations and refurbishing to preserve and increase the value of its properties. This includes renovating existing facades, installing uniform signage, resurfacing parking lots and enhancing parking lot lighting. During 2021, the Company expended $100.8 million in connection with property redevelopments and $62.9 million related to improvements.
The Company's management believes its experience in the real estate industry and its relationships with numerous national and regional tenants gives it an advantage in an industry where ownership is fragmented among a large number of property owners. The Company's open-air shopping centers are usually "anchored" by a grocery store, home improvement centers, off-price retailer, discounter or service-oriented tenant. As one of the original participants in the growth of the shopping center industry and the nation's largest owner and operator of shopping centers, the Company has established close relationships with a large number of major national and regional retailers. Some of the major national and regional companies that are tenants in the Company's shopping center properties include TJX Companies, The Home Depot, Albertsons Companies, Ross Stores, Amazon/Whole Foods Market, PetSmart, Ahold Delhaize, Kroger, Burlington Stores and Walmart.
The Company reduces its operating and leasing risks through diversification achieved by the geographic distribution of its properties and a large tenant base. As of December 31, 2021, no single open-air shopping center accounted for more than 1.4% 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, or more than 1.4% of the Company’s total shopping center GLA. At December 31, 2021, the Company’s five largest tenants were TJX Companies, The Home Depot, Albertsons Companies, Ross Stores and Amazon/Whole Foods Market, which represented 3.7%, 2.2%, 2.0%, 1.9% 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.
A substantial portion of the Company's income consists of rent received under long-term leases. Most of the leases provide for the payment of fixed-base rentals monthly in advance and for the payment by tenants of an allocable share of the real estate taxes, insurance, utilities and common area maintenance expenses incurred in operating the shopping centers (certain of the leases provide for the payment of a fixed-rate reimbursement of these such expenses). Although many of the leases require the Company to make roof and structural repairs as needed, a number of tenant leases place that responsibility on the tenant, and the Company's standard small store lease provides for reimbursements by the tenant as part of common area maintenance. Additionally, many of the leases provide for reimbursements by the tenant of capital expenditures.
Minimum base rental revenues and operating expense reimbursements accounted for 98% and other revenues, including percentage rents, accounted for 2% of the Company's total revenues from rental properties for the year ended December 31, 2021. The Company's management believes that the base rent per leased square foot for many of the Company's existing leases is generally lower than the prevailing market-rate base rents in the geographic regions where the Company operates, reflecting the potential for future growth. Additionally, a majority of the Company’s leases have provisions requiring contractual rent increases. The Company’s leases may also include escalation clauses, which provide for increases based upon changes in the consumer price index or similar inflation indices.
As of December 31, 2021, the Company’s consolidated operating portfolio, comprised of 428 shopping center properties aggregating 70.8 million square feet of GLA, was 94.2% leased. The consolidated operating portfolio consists entirely of properties located in the U.S., inclusive of Puerto Rico. For the period January 1, 2021 to December 31, 2021, the Company increased the average base rent per leased square foot, which includes the impact of tenant concessions, in its consolidated portfolio of open-air shopping centers from $18.16 to $19.05, an increase of $0.89. This increase primarily consists of (i) a $0.67 increase relating to properties acquired in connection with the Merger, (ii) a $0.16 increase relating to rent step-ups within the portfolio and new leases signed, net of leases vacated and (iii) a $0.06 increase relating to acquisitions/dispositions and properties moved into the operating portfolio.
The Company has a total of 8,193 leases in the consolidated operating portfolio. The following table sets forth the aggregate lease expirations for each of the next ten years, assuming no renewal options are exercised. For purposes of the table, the Total Annual Base Rent Expiring represents annualized rental revenue, excluding the impact of straight-line rent, for each lease that expires during the respective year. Amounts in thousands, except for number of leases data:
| Year Ending December 31, | Number of Leases Expiring | Square Feet Expiring | Total Annual Base Rent Expiring | % of Gross Annual Rent | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (1) | 244 | 575 | $ | 13,745 | 1.2 | % | |||||||||||
| 2022 | 986 | 4,274 | $ | 89,935 | 7.6 | % | |||||||||||
| 2023 | 1,223 | 8,023 | $ | 145,031 | 12.2 | % | |||||||||||
| 2024 | 1,180 | 7,908 | $ | 147,564 | 12.4 | % | |||||||||||
| 2025 | 1,031 | 7,749 | $ | 142,265 | 12.0 | % | |||||||||||
| 2026 | 1,007 | 9,302 | $ | 150,014 | 12.6 | % | |||||||||||
| 2027 | 658 | 7,670 | $ | 119,638 | 10.1 | % | |||||||||||
| 2028 | 443 | 4,941 | $ | 88,739 | 7.5 | % | |||||||||||
| 2029 | 377 | 3,494 | $ | 64,267 | 5.4 | % | |||||||||||
| 2030 | 303 | 2,483 | $ | 54,898 | 4.6 | % | |||||||||||
| 2031 | 347 | 2,547 | $ | 56,215 | 4.7 | % |
| (1) | Leases currently under a month-to-month lease or in process of renewal. |
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During 2021, the Company executed 1,147 leases totaling over 7.5 million square feet in the Company’s consolidated operating portfolio comprised of 409 new leases and 738 renewals and options. The leasing costs associated with these new leases are estimated to aggregate $84.8 million or $38.65 per square foot. These costs include $65.3 million of tenant improvements and $19.5 million of external leasing commissions. The average rent per square foot for (i) new leases was $21.90 and (ii) renewals and options was $17.02. The Company will seek to obtain rents that are higher than amounts within its expiring leases, however, there are many variables and uncertainties which can significantly affect the leasing market at any time; as such, the Company cannot guarantee that future leases will continue to be signed for rents that are equal to or higher than current amounts.
Ground-Leased Properties. The Company has interests in 42 consolidated 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. The Company pays rent for the use of the land and generally is responsible for all costs and expenses associated with the building and improvements. At the end of these long-term leases, unless extended, the land together with all improvements reverts to the landowner.
More specific information with respect to each of the Company's property interests is set forth in Exhibit 99.1, which is incorporated herein by reference.
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 effect on the Company's ownership, management or operation of its properties taken as a whole, or which is not covered by the Company's liability insurance.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information: The Company’s common stock is traded on the NYSE under the trading symbol "KIM".
Holders: The number of holders of record of the Company's common stock, par value $0.01 per share, was 2,869 as of January 31, 2022.
Dividends: Since the IPO, the Company has paid regular quarterly cash dividends to its stockholders. While the Company intends to continue paying regular quarterly cash dividends, future dividend declarations will be paid at the discretion of the Board of Directors and will depend on the actual cash flows of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. The Company’s Board of Directors will continue to evaluate the Company’s dividend policy on a quarterly basis as they monitor sources of capital and evaluate operating fundamentals. The Company is required by the Code to distribute at least 90% of its REIT taxable income. The actual cash flow available to pay dividends will be affected by a number of factors, including the revenues received from operating properties, the operating expenses of the Company, the interest expense on its borrowings, the ability of lessees to meet their obligations to the Company, the ability to refinance near-term debt maturities and any unanticipated capital expenditures. The following table reflects the income tax status of distributions per share paid to common shareholders:
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||||
| Dividend paid per share | $ | 0.68 | $ | 0.82 | ||||
| Ordinary income | 77 | % | 38 | % | ||||
| Capital gains | 3 | % | 61 | % | ||||
| Return of capital | 20 | % | 1 | % |
In addition to common stock offerings, the Company has capitalized on the growth in its business through the issuance of unsecured fixed and floating-rate medium-term notes, underwritten bonds, unsecured bank debt, mortgage debt, convertible preferred stock and perpetual preferred stock. Borrowings under the Company's unsecured revolving credit facility have also been an interim source of funds to both finance the purchase of properties and other investments and meet any short-term working capital requirements. The various instruments governing the Company's issuance of its unsecured public debt, bank debt, mortgage debt and preferred stock impose certain restrictions on the Company regarding dividends, voting, liquidation and other preferential rights available to the holders of such instruments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Footnotes 14, 15 and 18 of the Notes to Consolidated Financial Statements included in this Form 10-K.
The Company does not believe that the preferential rights available to the holders of its Class L Preferred Stock and Class M Preferred Stock, the financial covenants contained in its public bond indentures, as amended, or the credit agreement for its Credit Facility will have an adverse impact on the Company's ability to pay dividends in the normal course to its common stockholders or to distribute amounts necessary to maintain its qualification as a REIT.
The Company maintains a dividend reinvestment and direct stock purchase plan (the "Plan") pursuant to which common and preferred stockholders and other interested investors may elect to automatically reinvest their dividends to purchase shares of the Company’s common stock or, through optional cash payments, purchase shares of the Company’s common stock. The Company may, from time-to-time, either (i) purchase shares of its common stock in the open market or (ii) issue new shares of its common stock for the purpose of fulfilling its obligations under the Plan.
Recent Sales of Unregistered Securities: None.
Issuer Purchases of Equity Securities: During the year ended December 31, 2021, the Company repurchased 1,084,953 shares for an aggregate purchase price of $20.8 million (weighted average price of $19.21 per share) in connection with common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with equity-based compensation plans.
During February 2018, the Company's Board of Directors authorized a share repurchase program, which is scheduled to expire February 29, 2024. Under this program, the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the year ended December 31, 2021. As of December 31, 2021, the Company had $224.9 million available under this common share repurchase program.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 1, 2021 – January 31, 2021 | 75,847 | $ | 15.16 | - | $ | 224.9 | ||||||||||
| February 1, 2021 – February 28, 2021 | 441,944 | 17.89 | - | $ | 224.9 | |||||||||||
| March 1, 2021 – March 31, 2021 | 1,336 | 19.13 | - | $ | 224.9 | |||||||||||
| April 1, 2021 – April 30, 2021 | 3,434 | 19.43 | - | $ | 224.9 | |||||||||||
| May 1, 2021 – May 31, 2021 | 3,565 | 21.45 | - | $ | 224.9 | |||||||||||
| June 1, 2021 – June 30, 2021 | - | - | - | $ | 224.9 | |||||||||||
| July 1, 2021 – July 31, 2021 | - | - | - | $ | 224.9 | |||||||||||
| August 1, 2021 – August 31, 2021 | 556,357 | 20.78 | - | $ | 224.9 | |||||||||||
| September 1, 2021 – September 30, 2021 | - | - | - | $ | 224.9 | |||||||||||
| October 1, 2021 – October 31, 2021 | 1,903 | 21.72 | - | $ | 224.9 | |||||||||||
| November 1, 2021 – November 30, 2021 | 567 | 24.34 | - | $ | 224.9 | |||||||||||
| December 1, 2021 – December 31, 2021 | - | - | - | $ | 224.9 | |||||||||||
| Total | 1,084,953 | $ | 19.21 | - |
Total Stockholder Return Performance: The following performance chart compares, over the five years ended December 31, 2021, the cumulative total stockholder return on the Company’s common stock with the cumulative total return of the S&P 500 Index and the cumulative total return of the NAREIT Equity REITs Index (the “NAREIT Equity REITs”) prepared and published by the National Association of Real Estate Investment Trusts (“NAREIT”). The NAREIT Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property.
Stockholder return performance, presented annually for the five years ended December 31, 2021, is not necessarily indicative of future results. All stockholder return performance assumes the reinvestment of dividends. The information in this paragraph and the following performance chart are deemed to be furnished, not filed.
| Comparison of 5 year cumulative total return data points | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec-16 | Dec-17 | Dec-18 | Dec-19 | Dec-20 | Dec-21 | |||||||||||||||||||
| Kimco Realty Corporation | $ | 100 | $ | 76 | $ | 66 | $ | 99 | $ | 75 | $ | 128 | ||||||||||||
| S&P 500 | $ | 100 | $ | 122 | $ | 116 | $ | 153 | $ | 181 | $ | 233 | ||||||||||||
| NAREIT Equity REITs | $ | 100 | $ | 105 | $ | 100 | $ | 126 | $ | 116 | $ | 167 |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-K. Historical results and percentage relationships set forth in the Consolidated Statements of Income contained in the Consolidated Financial Statements, including trends, should not be taken as indicative of future operations.
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 consolidation guidance of the FASB Accounting Standards Codification. 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 Company evaluates performance on a property specific or transactional basis and 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”).
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP 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 the recoverability of trade accounts receivable, depreciable lives, valuation of real estate and intangible assets and liabilities, and valuation of joint venture investments and other investments. 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.
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 earnings are directly affected by management’s estimate of impairments.
Trade Accounts Receivable
The Company reviews its trade accounts receivable, including its straight-line rent receivable, related to base rents, straight-line rent, expense reimbursements and other revenues for collectability. When evaluating the probability of the collection of the lessee’s total accounts receivable, including the corresponding straight-line rent receivable balance on a lease-by-lease basis, the Company considered the effects COVID-19 has had on its tenants, including the corresponding straight-line rent receivable. The Company’s analysis of its accounts receivable included (i) customer credit worthiness, (ii) assessment of risk associated with the tenant, and (iii) current economic trends. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition bankruptcy claims. The Company includes provision for doubtful accounts in Revenues from rental properties, net. If a lessee’s accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease and will only recognize lease income on a cash basis. In addition to the lease-specific collectability assessment, the analysis also recognizes a general reserve, as a reduction to Revenues from rental properties, for its portfolio of operating lease receivables which are not expected to be fully collectible based on the Company’s historical and current collection experience and the potential for settlement of arrears. Although the Company estimates uncollectible receivables and provides for them through charges against revenues from rental properties, actual results may differ from those estimates. If the Company subsequently determines that it is probable it will collect the remaining lessee’s lease payments under the lease term, the Company will then reinstate the straight-line balance and the lease income will then be limited to the lesser of (i) the straight-line rental income or (ii) the lease payments that have been collected from the lessee.
Real Estate
Valuation of Real Estate, and Intangible Assets and Liabilities
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.
Transaction costs related to acquisitions that qualify as asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be business combinations are expensed as incurred. Also, upon acquisition of real estate operating properties in either an asset acquisition or business combination, 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, where applicable), assumed debt and redeemable units issued at the date of acquisition, based on evaluation of information and estimates available at that date. Fair value is determined based on a market approach, which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets, as follows:
| Buildings and building improvements (in years) | 5 to 50 | |
|---|---|---|
| Fixtures, leasehold and tenant improvements (including certain identified intangible assets) | 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 earnings.
On a continuous basis, management assesses whether there are any indicators, including property operating performance, changes in anticipated holding period, general market conditions and delays of development, 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, net of anticipated construction and leasing costs (undiscounted and unleveraged), of the property over its anticipated hold period is less than the net carrying value of the property. Such cash flow projections consider factors such as expected future costs of materials and labor, 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 reflect the estimated fair value of the property. The Company’s estimated fair values are primarily based upon estimated sales prices from signed contracts or letters of intent from third-parties, discounted cash flow models or third-party appraisals. Estimated fair values that are based on discounted cash flow models include all estimated cash inflows and outflows over a specified holding period. Capitalization rates and discount rates utilized in these models are based upon unobservable rates that the Company believes to be within a reasonable range of current market rates.
See Footnote 3, 4 and 6 of the Notes to Consolidated Financial Statements for further discussion.
Valuation of Joint Venture Investments and Other Investments
On a continuous basis, management assesses whether there are any indicators, including property operating performance and general market conditions, 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 will be measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. Estimated fair values which are based on discounted cash flow models include all estimated cash inflows and outflows over a specified holding period, capitalization rates and discount rates utilized in these models are based upon unobservable rates that the Company believes to be within a reasonable range of current market rates.
See Footnote 1 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies”, for further discussion of the Company’s accounting policies and estimates.
Executive Overview
Kimco Realty Corporation is North America’s largest publicly traded owner and operator of open-air, grocery-anchored shopping centers, including mixed-use assets. 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.
Weingarten Merger
On August 3, 2021, Weingarten Realty Investors (“Weingarten”) merged with and into the Company, with the Company continuing as the surviving public company (the “Merger”), pursuant to the definitive merger agreement (the “Merger Agreement”) between the Company and Weingarten which was entered into on April 15, 2021. The Merger brought together two industry-leading retail real estate platforms with highly complementary portfolios and created the preeminent open-air shopping center and mixed-use real estate owner in the country. As a result of the Merger, the Company acquired 149 properties, including 30 held through joint venture programs. The increased scale in targeted growth markets, coupled with a broader pipeline of redevelopment opportunities, has positioned the combined company to create significant value for its shareholders. Under the terms of the Merger Agreement, each Weingarten common share was entitled to 1.408 newly issued shares of the Company’s common stock plus $2.89 in cash, subject to certain adjustments specified in the Merger Agreement.
On July 15, 2021, Weingarten’s Board of Trust Managers declared a special cash distribution of $0.69 per Weingarten common share (the “Special Distribution”) payable on August 2, 2021 to shareholders of record on July 28, 2021. The Special Distribution was paid in connection with the Merger and to satisfy REIT taxable income distribution requirements. Under the terms of the Merger Agreement, Weingarten’s payment of the Special Distribution adjusted the cash consideration paid by the Company at the closing of the Merger from $2.89 per Weingarten common share to $2.20 per Weingarten common share and had no impact on the payment of the share consideration of 1.408 newly issued shares of Company common stock for each Weingarten common share owned immediately prior to the effective time of the Merger.
The total purchase price of the Merger was $4.1 billion, which consists primarily of 179.9 million shares of the Company’s common stock issued in exchange for Weingarten common shares, plus $281.1 million of cash consideration. The total purchase price was calculated based on the closing price of the Company’s common stock on August 3, 2021, which was $20.78 per share. At the effective time of the Merger, each Weingarten common share, issued and outstanding immediately prior to the effective time of the Merger (other than any shares owned directly by the Company or Weingarten and in each case not held on behalf of third parties) was converted into 1.408 shares of newly issued shares of the Company’s common stock. See Footnote 2 to the Notes to the Company’s Consolidated Financial Statements for additional discussion regarding the Merger.
COVID-19 Pandemic
The COVID-19 pandemic has resulted in a widespread health crisis that adversely affected businesses, economies and financial markets worldwide. The COVID-19 pandemic significantly impacted the retail sector in which the Company operates. The majority of the Company’s tenants and their operations have been, and may continue to be impacted. Through the duration of the pandemic, a substantial number of tenants had to temporarily or permanently close their business, shortened their operating hours or offer reduced services for some period of time.
The development and distribution of COVID-19 vaccines has assisted in allowing many restrictions to be lifted, providing a path to recovery. The U.S. economy continues to build upon the reopening trend as businesses reopen to full capacity and stimulus is flowing through to the consumer. The overall economy continues to recover but several issues including lack of qualified employees, inflation risk, supply chain bottlenecks and COVID-19 variants have impacted the pace of the recovery.
The extent to which the COVID-19 pandemic impacts the Company’s financial condition, results of operations and cash flows, in the near term, will continue to depend on future developments, which continue to be uncertain, including new information that may emerge concerning the severity of COVID-19, variants, the distribution and effectiveness as well as the willingness to take the vaccines, the impact of COVID-19 on economic activity, the effect of COVID-19 on the Company’s tenants and their businesses, the ability of tenants to make their rental payments and any additional closures of tenants’ businesses.
The Company continues to monitor the impact of COVID-19 on the Company’s business, tenants and industry as a whole. The magnitude and duration of the COVID-19 pandemic and its impact on the Company’s operations and liquidity remains uncertain as the pandemic continues to evolve globally and within the United States. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess its asset portfolio for any impairment indicators. In addition, the Company will continue to monitor for any material or adverse effects resulting from the COVID-19 pandemic. If the Company determines that any of its assets are impaired, the Company would be required to take impairment charges, and such amounts could be material.
Although the Company continues to see an increase in collections of rental payments, the effects COVID-19 have had on its tenants are still heavily considered when evaluating the adequacy of the collectability of the tenant’s total accounts receivable balance, including the corresponding straight-line rent receivable. As of December 31, 2021, the Company’s consolidated accounts receivable balance was 35% potentially uncollectible, including receivables from tenants that are being accounted for on a cash basis, and 11% of the Company’s straight-line rent receivables were potentially uncollectible, also inclusive of tenants that are being accounted for on a cash basis. These reserves are primarily attributable to the impact from the COVID-19 pandemic. Management’s estimate of the collectability of accrued rents and accounts receivable is based on the best information available to management at the time of evaluation. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will continue to assess the collectability of its tenant accounts receivables. As such, the Company may determine that further adjustments to its accounts receivable may be required in the future, and such amounts may be material.
Financial Highlights
The following highlights the Company’s significant transactions, events and results that occurred during the year ended December 31, 2021:
Financial and Portfolio Information:
| ● | Completed the strategic Merger with Weingarten on August 3, 2021 (see additional disclosure in Footnote 2 of the Notes to Consolidated Financial Statements included in this Form 10-K). |
|---|
| ● | Net income available to the Company’s common shareholders was $818.6 million, or $1.60 per diluted share, for the year ended December 31, 2021 as compared to $975.4 million, or $2.25 per diluted share, for the year ended December 31, 2020. |
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| ● | FFO was $706.8 million, or $1.38 per diluted share, for the year ended December 31, 2021, as compared to $503.7 million, or $1.17 per diluted share, for the corresponding period in 2020 (see additional disclosure on FFO beginning on page 39). |
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| ● | Same property net operating income (“Same property NOI”) was $864.8 million for the year ended December 31, 2021, as compared to $795.2 million the corresponding period in 2020 (see additional disclosure on Same property NOI beginning on page 39). |
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| ● | Executed 1,147 new leases, renewals and options totaling approximately 7.5 million square feet in the consolidated operating portfolio. |
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| ● | Consolidated operating portfolio occupancy at December 31, 2021 was 94.2% as compared to 93.9% at December 31, 2020. |
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Acquisition and Disposition Activity (see Footnotes 2, 4 and 5 of the Notes to Consolidated Financial Statements included in this Form 10-K):
| ● | Acquired 149 properties, including 30 held through joint venture programs, in conjunction with the Merger. |
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| ● | Acquired two distribution centers for $84.7 million (which were subsequently sold for $108.0 million) and an outparcel at an existing shopping center in Columbia, MD for $12.6 million |
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| ● | Acquired nine properties for an aggregate purchase price of $780.1 million from joint ventures in which the Company previously held noncontrolling ownership interests (a 50% interest in six of these properties was subsequently sold and the Company maintained a 50% noncontrolling ownership interest and deconsolidated the properties) |
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| ● | Disposed of 13 operating properties (including the two distribution centers and the deconsolidation of six operating properties noted above) and 10 parcels, in separate transactions, for an aggregate sales price of $612.4 million, which resulted in aggregate gains of $30.8 million, before noncontrolling interests and taxes. |
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Capital Activity (for additional details see Liquidity and Capital Resources below):
| ● | Issued $500.0 million of 2.25% notes maturing December 2031. |
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| ● | Assumed senior unsecured notes of $1.5 billion (including $95.6 million in fair market value adjustments) and mortgage debt of $317.7 million (including $11.0 million in fair market value adjustments) encumbering 16 operating properties in connection with the Merger. |
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| ● | Assumed $234.1 million of mortgage debt encumbering nine operating properties, repaid $230.5 million of mortgage debt that encumbered 28 operating properties and deconsolidated $170.0 million of mortgage debt relating to six operating properties. |
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| ● | Issued 179.9 million shares of common stock in conjunction with the Merger. |
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| ● | As of December 31, 2021, had $2.3 billion in immediate liquidity, including $334.7 million in cash. |
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As a result of the above debt activity, the Company’s consolidated debt maturity profile, including extension options as of December 31, 2021, is as follows:
| ● | As of December 31, 2021, the weighted average interest rate was 3.39% and the weighted average maturity profile was 8.5 years related to the Company’s consolidated debt. |
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The Company faces external factors which may influence its future results from operations. The convenience and availability of e-commerce has continued to impact the retail sector, which could affect our ability to increase or maintain rental rates and our ability to renew expiring leases and/or lease available space. To mitigate the effect of e-commerce on its business, the Company’s strategy has been to attract local area customers to its properties by providing a diverse and robust tenant base across a variety of retailers, including grocery stores, off-price retailers, discounters or service-oriented tenants, which offer buy online and pick up in store, off-price merchandise and day-to-day necessities rather than high-priced luxury items.
The Company’s portfolio is focused on major metropolitan-area U.S. markets, predominantly on the east and west coasts and in the sun belt region, which are supported by strong demographics, significant projected population growth, and where the Company perceives significant barriers to entry. The Company owns a predominantly grocery-anchored portfolio clustered in the nation’s top markets which positioned the Company to overcome many of the challenges brought upon by COVID-19. The Company believes it can continue to increase its occupancy levels, rental rates and overall rental growth. In addition, the Company, on a selective basis, has developed or redeveloped projects which include residential and mixed-use components.
As part of the Company’s investment strategy, each property is evaluated for its highest and best use, which may include residential and mixed-use components. In addition, the Company may consider other opportunistic investments related to retailer controlled real estate, such as, repositioning underperforming retail locations, retail real estate financing and bankruptcy transaction support. The Company may continue to dispose of certain properties. If the estimated fair value for any of these assets is less than their net carrying values, the Company would be required to take impairment charges and such amounts could be material. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A. “Risk Factors.”
Results of Operations
Comparison of the years ended December 31, 2021 and 2020
Results from operations for the year ended December 31, 2021 reflect the results of the Company’s Merger with Weingarten on August 3, 2021 and as a result only reflect the combined operations for five months. Future periods will reflect the combined operations for the entire year. Therefore, our historical financial statements may not be indicative of future operating results.
The following table presents the comparative results from the Company’s Consolidated Statements of Income for the year ended December 31, 2021, as compared to the corresponding period in 2020 (in thousands, except per share data):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | ||||||||||
| Revenues | ||||||||||||
| Revenues from rental properties, net | $ | 1,349,702 | $ | 1,044,888 | $ | 304,814 | ||||||
| Management and other fee income | 14,883 | 13,005 | 1,878 | |||||||||
| Operating expenses | ||||||||||||
| Rent (1) | (13,773 | ) | (11,270 | ) | (2,503 | ) | ||||||
| Real estate taxes | (181,256 | ) | (157,661 | ) | (23,595 | ) | ||||||
| Operating and maintenance (2) | (222,882 | ) | (174,038 | ) | (48,844 | ) | ||||||
| General and administrative (3) | (104,121 | ) | (93,217 | ) | (10,904 | ) | ||||||
| Impairment charges | (3,597 | ) | (6,624 | ) | 3,027 | |||||||
| Merger charges | (50,191 | ) | - | (50,191 | ) | |||||||
| Depreciation and amortization | (395,320 | ) | (288,955 | ) | (106,365 | ) | ||||||
| Gain on sale of properties | 30,841 | 6,484 | 24,357 | |||||||||
| Other income/(expense) | ||||||||||||
| Other income, net | 19,810 | 4,119 | 15,691 | |||||||||
| Gain on marketable securities, net | 505,163 | 594,753 | (89,590 | ) | ||||||||
| Gain on sale of cost method investment | - | 190,832 | (190,832 | ) | ||||||||
| Interest expense | (204,133 | ) | (186,904 | ) | (17,229 | ) | ||||||
| Early extinguishment of debt charges | - | (7,538 | ) | 7,538 | ||||||||
| Provision for income taxes, net | (3,380 | ) | (978 | ) | (2,402 | ) | ||||||
| Equity in income of joint ventures, net | 84,778 | 47,353 | 37,425 | |||||||||
| Equity in income of other investments, net | 23,172 | 28,628 | (5,456 | ) | ||||||||
| Net income attributable to noncontrolling interests | (5,637 | ) | (2,044 | ) | (3,593 | ) | ||||||
| Preferred dividends | (25,416 | ) | (25,416 | ) | - | |||||||
| Net income available to the Company's common shareholders | $ | 818,643 | $ | 975,417 | $ | (156,774 | ) | |||||
| Net income available to the Company's common shareholders: | ||||||||||||
| Diluted per share | $ | 1.60 | $ | 2.25 | $ | (0.65 | ) |
| (1) | Rent expense relates to ground lease payments for which the Company is the lessee. |
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| (2) | Operating and maintenance expense consists of property related costs including repairs and maintenance costs, roof repair, landscaping, parking lot repair, snow removal, utilities, property insurance costs, security and various other property related expenses. |
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| (3) | General and administrative expense includes employee-related expenses (including salaries, bonuses, equity awards, benefits, severance costs and payroll taxes), professional fees, office rent, travel and entertainment costs and other company-specific expenses. |
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Net income available to the Company’s common shareholders was $818.6 million for the year ended December 31, 2021, as compared to $975.4 million for the comparable period in 2020. On a diluted per share basis, net income available to the Company’s common shareholders for the year ended December 31, 2021, was $1.60 as compared to $2.25 for the comparable period in 2020. For additional disclosure, see Footnote 27 of the Notes to Consolidated Financial Statements included in this Form 10-K.
The following describes the changes of certain line items included on the Company’s Consolidated Statements of Income, that the Company believes changed significantly and affected Net income available to the Company’s common shareholders during the year ended December 31, 2021, as compared to the corresponding period in 2020:
Revenue from rental properties, net –
The increase in Revenues from rental properties, net of $304.8 million is primarily from (i) an increase in revenues of $197.6 million due to properties acquired, primarily resulting from the Merger, (ii) a net decrease in credit losses from tenants of $86.8 million primarily due to increased collections, (iii) an increase in net straight-line rental income of $28.5 million primarily due to a decrease in reserves, increase in leasing activity and the Merger, and (iv) an increase in lease termination fee income of $9.4 million partially offset by (v) a net decrease in revenues of $17.5 million, primarily due to tenant vacancies and dispositions for the year ended December 31, 2021, as compared to the corresponding period in 2020.
Real estate taxes –
The increase in Real estate taxes of $23.6 million is primarily due to an increase in properties acquired through the Merger.
Operating and maintenance –
The increase in Operating and maintenance expense of $48.8 million is primarily due to (i) an increase in operating expenses of $31.8 million relating to properties acquired through the Merger, (ii) an increase in utilities, repairs and maintenance, insurance and advertising costs of $11.3 million, primarily due to the reopening of markets throughout the country and (iii) an increase in snow removal costs of $5.7 million.
General and administrative –
The increase in General and administrative expense of $10.9 million is primarily due to (i) an increase in employee-related expenses of $16.2 million primarily related to increased staffing due to the Merger and higher performance based compensation bonuses and (ii) an increase of $1.9 million primarily due to the fluctuations in value of various directors’ deferred stock, partially offset by (iii) a decrease in severance charges related to employee retirement and terminations of $8.1 million during the year ended December 31, 2021, as compared to the corresponding period in 2020.
Impairment charges –
During the years ended December 31, 2021 and 2020, the Company recognized impairment charges of $3.6 million and $6.6 million, respectively, primarily related to adjustments to property carrying values for which the Company’s estimated fair values were primarily based upon signed contracts or letters of intent from third-party offers. These adjustments to property carrying values were recognized in connection with the Company’s efforts to market certain properties and management’s assessment as to the likelihood and timing of such potential transactions. Certain of the calculations to determine fair values utilized unobservable inputs and, as such, were classified as Level 3 of the FASB’s fair value hierarchy. For additional disclosure, see Footnotes 6 and 17 of the Notes to Consolidated Financial Statements included in this Form 10-K.
Merger charges –
During the year ended December 31, 2021, the Company incurred costs of $50.2 million associated with the Merger. These charges are primarily comprised of severance costs and professional and legal fees.
Depreciation and amortization –
The increase in Depreciation and amortization of $106.4 million is primarily due to (i) an increase of $108.1 million primarily resulting from property acquisitions in connection with the Merger during 2021 and (ii) an increase of $8.3 million due to depreciation commencing on certain development and redevelopment projects that were placed into service during 2021 and 2020, partially offset by (iii) a decrease of $11.8 million due to write-offs of depreciable assets primarily due to tenant vacates and dispositions during 2020 and 2021.
Gain on sale of properties –
During 2021, the Company disposed of 13 operating properties and 10 parcels (including the deconsolidation of 6 operating properties), in separate transactions, for an aggregate sales price of $612.4 million, which resulted in aggregate gains of $30.8 million. During 2020, the Company disposed of three operating properties and four parcels, in separate transactions, for an aggregate sales price of $31.8 million, for which certain of the transactions resulted in aggregate gains of $6.5 million.
Other income, net –
The increase in Other income, net of $15.7 million is primarily due to (i) an increase in dividend income of $12.9 million primarily from the shares of ACI common stock held by the Company and (ii) a net increase in mortgage and other financing income of $4.7 million primarily due to new loans issued during 2021 and 2020, (iii) an increase in net periodic benefit income of $3.6 million relating to the Company's defined benefit plan, partially offset by (iv) an increase of $2.8 million in costs associated with potential transactions for which the Company is no longer pursuing.
Gain on marketable securities, net –
The decrease in Gain on marketable securities, net of $89.6 million is primarily the result of mark-to-market fluctuations of the shares of ACI common stock held by the Company, which were obtained during ACI’s initial public offering (“IPO”) in June 2020. The IPO resulted in the Company changing the classification of its ACI investment from a cost method investment to a marketable security.
Gain on sale of cost method investment –
In June 2020, the Company recognized an aggregate gain of $190.8 million related to (i) a $131.6 million gain resulting from ACI’s partial repurchase of its common stock from existing shareholders in conjunction with its issuance of convertible preferred stock and (ii) a gain of $59.2 million in connection with the partial sale of the shares of ACI common stock held by the Company during ACI’s IPO.
Interest expense –
The increase in Interest expense of $17.2 million is primarily due to (i) increased levels of borrowings and assumptions of unsecured notes and mortgages in connection with the Merger and public debt offerings and (ii) a decrease in capitalized interest due to certain development and redevelopment projects that were placed into service during 2021 and 2020, partially offset by (iii) the repayment of unsecured notes and mortgages during 2021 and 2020.
Early extinguishment of debt charges –
During 2020, the Company fully redeemed $484.9 million of its outstanding 3.20% senior unsecured notes, which were scheduled to mature in May 2021. As a result, the Company incurred a prepayment charge of $7.5 million for the year ended December 31, 2020.
Equity in income of joint ventures, net –
The increase in Equity in income of joint ventures, net of $37.4 million is primarily due to (i) an increase in equity in income of $18.7 million within various joint venture investments during 2021, as compared to the corresponding period in 2020, primarily resulting from a decrease in credit losses due to collections from tenants, including straight-line rental income, (ii) an increase in net gains of $16.6 million resulting from the sale of properties within various joint venture investments during 2021, as compared to the corresponding period in 2020, and (iii) an increase in equity in income of $3.5 million resulting from ownership interests acquired in unconsolidated joint ventures in connection with the Merger, partially offset by (iv) an increase in impairment charges of $1.4 million recognized during 2021, as compared to the corresponding period in 2020.
Equity in income of other investments, net –
The decrease in Equity in income of other investments, net of $5.5 million is primarily due to a decrease in equity in income and profit participation from the sale of properties within the Company’s Preferred Equity Program during 2021 and 2020, partially offset by an increase in equity in income from new investments during 2021 and 2020.
Net income attributable to noncontrolling interests –
The increase in Net income attributable to noncontrolling interests of $3.6 million is primarily due to (i) an increase in net gain on sale of properties, within consolidated joint ventures, during 2021, as compared to the corresponding period in 2020 and (ii) an increase in net income attributable to noncontrolling interests recognized in connection with the Merger.
Comparison of the years ended December 31, 2020 and 2019
Information pertaining to fiscal year 2019 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on February 23, 2021.
Liquidity and Capital Resources
The Company’s capital resources include accessing the public debt and equity capital markets, mortgage financing, and immediate access to an unsecured revolving credit facility (the “Credit Facility”) with bank commitments of $2.0 billion which can be increased to $2.75 billion through an accordion feature. In addition, the Company holds 39.8 million shares of ACI, which had a value of $1.2 billion at December 31, 2021, which are subject to certain contractual lock-up provisions that expire in June 2022.
The Company’s cash flow activities are summarized as follows (in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||||
| Cash, cash equivalents and restricted cash, beginning of year | $ | 293,188 | $ | 123,947 | ||||
| Net cash flow provided by operating activities | 618,875 | 589,913 | ||||||
| Net cash flow used for investing activities | (476,259 | ) | (33,273 | ) | ||||
| Net cash flow used for financing activities | (101,141 | ) | (387,399 | ) | ||||
| Net change in cash, cash equivalents and restricted cash | 41,475 | 169,241 | ||||||
| Cash, cash equivalents and restricted cash, end of year | $ | 334,663 | $ | 293,188 |
Operating Activities
The Company anticipates that cash on hand, net cash flow provided by operating activities, borrowings under its Credit Facility and the issuance of equity and public debt, as well as other debt and equity alternatives, will provide the necessary capital required by the Company. The Company will continue to evaluate its capital requirements for both its short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part I, Item 1A. Risk Factors. See further discussion relating to the effects of the COVID-19 pandemic in the “COVID-19 Pandemic” and “Financing Activities” sections within this Item 7.
Cash flows provided by operating activities for the year ended December 31, 2021, were $618.9 million, as compared to $589.9 million for the comparable period in 2020. The increase of $29.0 million is primarily attributable to:
| ● | the acquisition of operating properties during 2021 and 2020, including those acquired from the Merger; and |
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| ● | new leasing, expansion and re-tenanting of core portfolio properties, partially offset by |
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| ● | a decrease in distributions from the Company’s joint ventures programs; |
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| ● | nonrecurring costs incurred in connection with the Merger during 2021; |
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| ● | changes in operating assets and liabilities due to timing of receipts and payments; |
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| ● | rent relief provided to tenants as a result of the COVID-19 pandemic; and |
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| ● | the disposition of operating properties in 2021 and 2020. |
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Investing Activities
Cash flows used for investing activities were $476.3 million for 2021, as compared to $33.3 million for 2020.
Investing activities during 2021 consisted primarily of:
Cash inflows:
| ● | $302.8 million in proceeds from the sale of 13 consolidated properties and 10 parcels (including the deconsolidation of 6 operating properties); |
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| ● | $111.9 million in reimbursements of investments in and advances to real estate joint ventures and other investments primarily due to the sale of properties within the investments; and |
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| ● | $13.8 million in collection of mortgage and other financing receivables. |
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Cash outflows:
| ● | $356.0 million for the acquisition of 11 consolidated operating properties and one parcel; |
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| ● | $264.0 million net cash consideration paid in conjunction with the Merger; |
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| ● | $163.7 million for improvements to operating real estate primarily related to the Company’s active redevelopment pipeline; |
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| ● | $67.1 million for investments in and advances to other investments, primarily related to a preferred equity investment located in San Antonio, TX; |
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| ● | $41.9 million for investment in other financing receivables; and |
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| ● | $12.6 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project within the Company’s joint venture portfolio; |
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Investing activities during 2020 consisted primarily of:
Cash inflows:
| ● | $227.3 million in proceeds from the partial sale of the Company’s ACI cost method investment prior to its IPO and the sale of 4.7 million shares of ACI common stock during its IPO; |
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| ● | $30.5 million in proceeds from the sale of three operating properties and four parcels; |
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| ● | $17.9 million in reimbursements of investments in and advances to real estate joint ventures and reimbursements of investments in and advances to other investments, primarily related to the sale of properties within the joint venture portfolio and the Company’s Preferred Equity Program; and |
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| ● | $2.5 million in proceeds from insurance casualty claims. |
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Cash outflows:
| ● | $243.6 million for improvements to operating real estate primarily related to the Company’s active redevelopment pipeline and improvements to real estate under development; |
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| ● | $30.8 million for investments in and advances to real estate joint ventures, primarily related to a redevelopment project and the repayment of a mortgage within the Company’s joint venture portfolio, and investments in other investments, primarily related to an investment in a new preferred equity investment and the repayment of mortgages within the Company’s Preferred Equity Program; |
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| ● | $25.0 million for investment in other financing receivable; and |
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| ● | $12.6 million for the acquisition of operating real estate. |
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Acquisitions of Operating Real Estate and Other Related Net Assets
During the years ended December 31, 2021 and 2020, the Company expended $619.9 million and $12.6 million, respectively, towards the acquisition of operating real estate properties, including the Merger in 2021. The Company anticipates spending approximately $100.0 million to $200.0 million towards the acquisition of operating properties during 2022. The Company intends to fund these acquisitions with cash flow from operating activities, proceeds from property dispositions and/or availability under its Credit Facility.
Improvements to Operating Real Estate
During the years ended December 31, 2021 and 2020, the Company expended $163.7 million and $221.3 million, respectively, towards improvements to operating real estate. These amounts consist of the following (in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||||
| Redevelopment and renovations | $ | 100,784 | $ | 175,661 | ||||
| Tenant improvements and tenant allowances | 62,915 | 45,617 | ||||||
| Total (1) | $ | 163,699 | $ | 221,278 |
| (1) | During the years ended December 31, 2021 and 2020, the Company capitalized payroll of $4.5 million and $9.4 million, respectively, and capitalized interest of $0.6 million and $9.7 million, respectively, in connection with the Company’s improvements to operating real estate. |
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The Company has an ongoing program to redevelop and re-tenant its properties to maintain or enhance its competitive position in the marketplace. The Company is actively pursuing redevelopment opportunities within its operating portfolio which it believes will increase the overall value by bringing in new tenants and improving the assets’ value. The Company anticipates its capital commitment toward these redevelopment projects and re-tenanting efforts for 2022 will be approximately $150.0 million to $200.0 million. The funding of these capital requirements will be provided by proceeds from property dispositions, net cash flow provided by operating activities and/or availability under the Company’s Credit Facility.
Financing Activities
Cash flows used for financing activities were $101.1 million for 2021, as compared to $387.4 million for 2020.
Financing activities during 2021 primarily consisted of the following:
Cash inflows:
| ● | $500.0 million in proceeds from issuance of 2.25% senior unsecured notes due in 2031; and |
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| ● | $83.0 million in proceeds from issuance of common stock, primarily related to the Company’s at-the-market continuous offering program and the exercise of employee stock options. |
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Cash outflows:
| ● | $382.1 million of dividends paid; |
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| ● | $239.9 million in principal payment on debt, including normal amortization of rental property debt; |
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| ● | $34.6 million in redemption/distribution of noncontrolling interests; |
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| ● | $20.8 million in shares repurchased for employee tax withholding on equity awards; and |
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| ● | $8.2 million in financing origination costs, primarily in connection with the Company’s issuance of $500.0 million of senior unsecured notes. |
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Financing activities during 2020 primarily consisted of the following:
Cash inflows:
| ● | $900.0 million in proceeds from issuance of unsecured notes comprised of (i) $500.0 million of the Company’s unsecured 2.70% Green Bond due 2030 and (ii) $400.0 million of the Company’s unsecured 1.90% Notes due 2028; and |
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| ● | $590.0 million in proceeds from issuance of the Term Loan. |
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Cash outflows:
| ● | $590.0 million in repayments of the Term Loan; |
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| ● | $484.9 million in early redemption of the Company’s 3.20% senior unsecured notes due 2021; |
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| ● | $379.9 million of dividends paid; |
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| ● | $200.0 million in repayments under the Credit Facility, net; |
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| ● | $169.2 million in principal payment on debt (related to the repayment of debt on four encumbered properties), including normal amortization of rental property debt; |
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| ● | $23.3 million for the redemption/distribution of noncontrolling interests, primarily related to the redemption of certain partnership interests by consolidated subsidiaries; |
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| ● | $18.0 million for financing origination costs, primarily related to the Credit Facility, Term Loan, Green Bond and senior unsecured notes; |
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| ● | $7.5 million in payment of early extinguishment of debt charges; and |
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| ● | $5.6 million in other financing related costs. |
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The Company continually evaluates its debt maturities, and, based on management’s current assessment, believes it has viable financing and refinancing alternatives that will not materially adversely impact its expected financial results. The Company continues to pursue borrowing opportunities with large commercial U.S. and global banks, select life insurance companies and certain regional and local banks.
Debt maturities for 2022 consist of: $921.0 million of consolidated debt; $109.3 million of unconsolidated joint venture debt and $2.5 million of debt included in the Company’s Preferred Equity Program, assuming the utilization of extension options where available. The 2022 consolidated debt maturities are anticipated to be repaid with operating cash flows, borrowings from the Credit Facility and public debt offerings, as deemed appropriate. The 2022 debt maturities on properties in the Company’s unconsolidated joint ventures and Preferred Equity Program are anticipated to be repaid through operating cash flows, debt refinancing, unsecured credit facilities, proceeds from sales, of the respective entities and partner capital contributions, as deemed appropriate.
The Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintain or improve its unsecured 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.
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 $16.2 billion. Proceeds from public capital market activities have been used for the purposes of, among other things, repaying indebtedness, acquiring interests in open-air, grocery anchored shopping centers and mixed-use assets, funding real estate under development projects, expanding and improving properties in the portfolio and other investments.
During August 2021, the Company filed a shelf registration statement on Form S-3, which is effective for a term of three years, for the future unlimited offerings, from time to time, of debt securities, preferred stock, depositary shares, common stock and common stock warrants. The Company, pursuant to this shelf registration statement may, from time to time, offer for sale its senior unsecured debt securities 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 May 2020, the Company filed a registration statement on Form S-8 for its 2020 Equity Participation Plan (the “2020 Plan”), which was approved by the Company’s stockholders and is a successor to the Restated Kimco Realty Corporation 2010 Equity Participation Plan that expired in March 2020. The 2020 Plan provides for a maximum of 10,000,000 shares of the Company’s common stock to be reserved for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalents, stock payments and deferred stock awards. At December 31, 2021, the Company had 8.5 million shares of common stock available for issuance under the 2020 Plan. (See Footnote 22 of the Notes to Consolidated Financial Statements included in this Form 10-K).
Common Stock –
During August 2021, the Company established an at-the-market continuous offering program (the “ATM program”) pursuant to which the Company may offer and sell from time-to-time shares of its common stock, par value $0.01 per share, with an aggregate gross sales price of up to $500.0 million through a consortium of banks acting as sales agents. Sales of the shares of common stock may be made, as needed, from time to time in “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, including by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise (i) at market prices prevailing at the time of sale, (ii) at prices related to prevailing market prices or (iii) as otherwise agreed to with the applicable sales agent. In addition, the Company may from time to time enter into separate forward sale agreements with one or more banks. During 2021, the Company issued 3.5 million shares and received net proceeds after commissions of $76.9 million. As of December 31, 2021, the Company had $422.4 million available under this ATM program.
The Company has a share repurchase program, which is scheduled to expire on February 29, 2024. Under this program, the Company may repurchase shares of its common stock, par value $0.01 per share, with an aggregate gross purchase price of up to $300.0 million. The Company did not repurchase any shares under the share repurchase program during the year ended December 31, 2021. As of December 31, 2021, the Company had $224.9 million available under this common share repurchase program.
In connection with the Merger, each Weingarten common share, issued and outstanding immediately prior to the effective time of the Merger, was converted into 1.408 shares of newly issued shares of Kimco common stock, resulting in approximately 179.9 million common shares issued to effect the Merger.
Senior Notes –
During the year ended December 31, 2021, the Company issued the following senior unsecured notes (dollars in millions):
| Date Issued | Maturity Date | Amount Issued | Interest Rate | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Sept-2021 | Dec-2031 | $ | 500.0 | 2.25% |
The Company’s supplemental indenture governing its senior notes contains the following covenants, all of which the Company is compliant with:
| Covenant | Must Be | As of December 31, 2021 | |||
|---|---|---|---|---|---|
| Consolidated Indebtedness to Total Assets | <60% | 38% | |||
| Consolidated Secured Indebtedness to Total Assets | <40% | 2% | |||
| Consolidated Income Available for Debt Service to Maximum Annual Service Charge | >1.50x | 4.3x | |||
| Unencumbered Total Asset Value to Consolidated Unsecured Indebtedness | >1.50x | 2.4x |
For a full description of the various indenture covenants refer to the Indenture dated September 1, 1993; the First Supplemental Indenture dated August 4, 1994; the Second Supplemental Indenture dated April 7, 1995; the Third Supplemental Indenture dated June 2, 2006; the Fourth Supplemental Indenture dated April 26, 2007; the Fifth Supplemental Indenture dated as of September 24, 2009; the Sixth Supplemental Indenture dated as of May 23, 2013; and the Seventh Supplemental Indenture dated as of April 24, 2014, each as filed with the SEC. See the Index to Exhibits included in this Form 10-K for specific filing information.
In connection with the Merger, the Company assumed senior unsecured notes of $1.5 billion (including fair market value adjustment of $95.6 million), which have scheduled maturity dates ranging from October 2022 to August 2028 and accrue interest at rates ranging from 3.25% to 6.88% per annum. The senior unsecured notes assumed during the Merger have covenants that are similar to the Company’s existing debt covenants for its senior unsecured notes. Please refer to the Indenture dated May 1, 1995 filed with Weingarten’s Form S-3 to the Registration Statement, with the Securities and Exchange Commission on May 1, 1995, First Supplemental Indenture, dated as of August 2, 2006 filed with Weingarten’s Current Report on Form 8-K dated August 2, 2006, Second Supplemental Indenture, dated as of October 9, 2012 filed with Weingarten’s Current Report on Form 8-K dated October 9, 2012. See the Exhibits Index for specific filing information.
In February 2022, the Company announced the early redemption of its $500.0 million 3.40% senior unsecured notes outstanding, which were scheduled to mature in November 2022. The Company plans to redeem these notes on March 2, 2022 and as a result, the Company will incur a prepayment charge of approximately $6.5 million.
In addition, in February 2022, the Company issued $600.0 million in senior unsecured notes, which are scheduled to mature in April 2032 and accrue interest at a rate of 3.20% per annum. The net proceeds from this offering will be used primarily to fund the redemption of the Company’s $500.0 million 3.40% senior unsecured notes outstanding and general corporate purposes.
Credit Facility –
In February 2020, the Company obtained a new $2.0 billion Credit Facility with a group of banks, which replaced the Company’s existing $2.25 billion unsecured revolving credit facility. The Credit Facility is scheduled to expire in March 2024, with two additional six-month options to extend the maturity date, at the Company’s discretion, to March 2025. The Credit Facility is a green credit facility tied to sustainability metric targets, as described in the agreement. The Company achieved such targets, which effectively reduced the rate on the Credit Facility by one basis point. The Credit Facility, which accrues interest at a rate of LIBOR plus 76.5 basis points (0.87% as of December 31, 2021), can be increased to $2.75 billion through an accordion feature. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum indebtedness ratios and (ii) minimum interest and fixed charge coverage ratios. As of December 31, 2021, the Credit Facility had no outstanding balance and appropriations for letters of credit of $1.9 million.
Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to maintenance of various covenants. The Company is currently in compliance with these covenants. The financial covenants for the Credit Facility are as follows:
| Covenant | Must Be | As of December 31, 2021 | ||||
|---|---|---|---|---|---|---|
| Total Indebtedness to Gross Asset Value (“GAV”) | <60% | 34% | ||||
| Total Priority Indebtedness to GAV | <35% | 1% | ||||
| Unencumbered Asset Net Operating Income to Total Unsecured Interest Expense | >1.75x | 4.4x | ||||
| Fixed Charge Total Adjusted EBITDA to Total Debt Service | >1.50x | 3.9x |
For a full description of the Credit Facility’s covenants refer to the Amended and Restated Credit Agreement dated as of February 27, 2020, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 28, 2020. See the Index to Exhibits included in this Form 10-K for specific filing information.
Mortgages Payable –
During 2021, the Company (i) assumed $234.1 million of individual non-recourse mortgage debt through the consolidation of nine operating properties, (ii) repaid $230.5 million of mortgage debt (including fair market value adjustment of $1.2 million) that encumbered 28 operating properties and (iii) deconsolidated $170.0 million of individual non-recourse mortgage debt relating to six operating properties for which the Company no longer holds a controlling interest.
In connection with the Merger, the Company assumed mortgage debt of $317.7 million (including fair market value adjustment of $11.0 million) that encumber 16 operating properties, which have scheduled maturity dates ranging from April 2022 to August 2038 and accrue interest at rates ranging from 3.50% to 6.95% per annum.
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 to partially fund the capital needs of its real estate under development projects. As of December 31, 2021, the Company had over 480 unencumbered property interests in its portfolio.
COVID-19 –
As the COVID-19 pandemic continues to evolve, uncertainty remains regarding the long-term economic impact it will have. As a result, the Company has focused on creating a strong liquidity position, including, but not limited to, maintaining availability under its Credit Facility, cash and cash equivalents on hand and having access to unencumbered property interests.
The Company continues to monitor the impact of COVID-19 on the Company’s business, tenants and industry as a whole. The magnitude and duration of the COVID-19 pandemic and its impact on the Company’s operations and liquidity remains uncertain as this pandemic continues to evolve globally and within the United States. However, if the COVID-19 pandemic continues, such impacts could grow, become material and materially disrupt the Company’s business operations and materially adversely affect the Company’s liquidity.
Dividends –
In connection with its intention to continue to qualify as a REIT for U.S. federal income tax purposes, the Company expects to continue paying regular dividends to its stockholders. These dividends will be paid from operating cash flows. The Company’s Board of Directors will continue to evaluate the Company’s dividend policy on a quarterly basis as the Board of Directors monitors sources of capital and evaluates the impact of the economy and capital markets availability on operating fundamentals. Since cash used to pay dividends reduces amounts available for capital investment, the Company generally intends to maintain a dividend payout ratio which reserves 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 were $382.1 million, $379.9 million and $531.6 million in 2021, 2020 and 2019 respectively.
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 will continue to monitor the impact the COVID-19 pandemic has on the Company's financial performance and economic outlook. The Company’s objective is to establish a dividend level that maintains compliance with the Company’s REIT taxable income distribution requirements. On October 26, 2021, the Company’s Board of Directors declared quarterly dividends with respect to the Company’s classes of cumulative redeemable preferred shares (Classes L and M), which were paid on January 17, 2022, to shareholders of record on January 3, 2022. Additionally, on October 26, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.17 per common share, which was paid on December 23, 2021 to shareholders of record on December 9, 2021.
On February 1, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.19 per common share, representing a 11.8% increase from the prior quarterly dividend, payable to shareholders of record on March 10, 2022, which is scheduled to be paid on March 24, 2022. In addition, the Company’s Board of Directors declared a quarterly dividend with respect to the Company’s classes of cumulative redeemable preferred shares (Classes L and M) which are scheduled to be paid on April 15, 2022, to shareholders of record on April 1, 2022.
Contractual Obligations and Other Commitments
The Company has debt obligations relating to its Credit Facility (no outstanding balance as of December 31, 2021), unsecured senior notes and mortgages with maturities ranging from four months to 28 years. As of December 31, 2021, the Company’s consolidated total debt had a weighted average term to maturity of 8.5 years. In addition, the Company has non-cancelable leases pertaining to its shopping center portfolio. As of December 31, 2021, the Company had 42 consolidated 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. Amounts due in 2022 in connection with these leases aggregate $12.7 million. The following table summarizes the Company’s consolidated debt maturities (excluding extension options, unamortized debt issuance costs of $57.3 million and fair market value of debt adjustments aggregating $91.8 million) and obligations under non-cancelable operating leases as of December 31, 2021:
| Payments due by period (in millions) | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||||||
| Long-Term Debt: | |||||||||||||||||||||
| Principal (1) | $ | 923.9 | $ | 713.3 | $ | 654.3 | $ | 794.8 | $ | 778.4 | $ | 3,576.6 | $ | 7,441.3 | |||||||
| Interests (2) | $ | 244.9 | $ | 205.0 | $ | 176.4 | $ | 152.0 | $ | 139.0 | $ | 1,426.1 | $ | 2,343.4 | |||||||
| Non-cancelable leases (3) | |||||||||||||||||||||
| Operating leases (3) | $ | 12.7 | $ | 12.7 | $ | 11.9 | $ | 11.4 | $ | 10.7 | $ | 215.4 | $ | 274.8 | |||||||
| Financing leases (3) | $ | 1.7 | $ | 23.0 | $ | - | $ | - | $ | - | $ | - | $ | 24.7 |
| (1) | Maturities utilized do not reflect extenson options, which range from six months to one year. On February 15, 2022, the Company announced the redemption for its $500.0 million 3.40% senior unsecured notes outstanding, which mature in November 2022. The Company plans to redeem these notes on March 2, 2022 and as a result, the Company will incur a prepayment charge of approximately $6.5 million. In addition, in February 2022, the Company issued $600.0 million in senior unsecured notes, which are scheduled to mature in April 2032 and accrue interest at a rate of 3.20% per annum. The net proceeds from this offering will be used primarily to fund the redemption of the Company's $500.0 million 3.40% senior unsecured notes outstanding. | |
|---|---|---|
| (2) | For loans which have interest at floating rates, future interest expense was calculated using the rate as of December 31, 2021. | |
| (3) | For leases which have inflationary increases, future ground and office rent expense was calculated using the rent based upon initial lease payment. |
The Company has $805.1 million of consolidated unsecured debt and $115.9 million of consolidated secured debt scheduled to mature in 2022. The Company anticipates satisfying the remaining future maturities with operating cash flows, its Credit Facility or public debt offerings, if needed.
The Company has issued letters of credit in connection with the completion and repayment guarantees, primarily on certain of the Company’s redevelopment projects and guaranty of payment related to the Company’s insurance program. At December 31, 2021, these letters of credit aggregated $44.5 million.
In connection with the construction of its development/redevelopment projects and related infrastructure, certain public agencies require posting of performance and surety bonds to guarantee that the Company’s obligations are satisfied. These bonds expire upon the completion of the improvements and infrastructure. As of December 31, 2021, the Company had $12.7 million in performance and surety bonds outstanding.
The Company has two investments that have investment funding commitments totaling $27.0 million, of which $4.3 million has been funded as of December 31, 2021. The Company’s remaining commitment to fund related to these investments is $22.7 million in total as of December 31, 2021.
In connection with the Merger, the Company now provides a guaranty for the payment of any debt service shortfalls on Series A bonds issued by the Sheridan Redevelopment Agency which are tax increment revenue bonds issued in connection with a property owned by the Company in Sheridan, Colorado. These tax increment revenue bonds have a balance of $49.7 million outstanding at December 31, 2021. The bonds are to be repaid with incremental sales and property taxes and a public improvement fee ("PIF") to be assessed on current and future retail sales and, to the extent necessary, any amounts we may have to provide under a guaranty. The revenue generated from incremental sales, property taxes and PIF have satisfied the debt service requirements to date. The incremental taxes and PIF are to remain intact until the earlier of the payment of the bond liability in full or 2040.
Off-Balance Sheet Arrangements
Unconsolidated Real Estate Joint Ventures
The Company has investments in various unconsolidated real estate joint ventures with varying structures. These joint ventures primarily operate shopping center properties. The properties owned by the joint ventures are primarily financed with individual non-recourse mortgage loans, however, the Company, on a selective basis, has obtained unsecured financing for certain joint ventures. As of December 31, 2021, the Company did not guarantee any joint venture unsecured 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 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 Footnote 7 of the Notes to Consolidated Financial Statements included in this Form 10-K).
Debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at December 31, 2021, aggregated $1.6 billion. As of December 31, 2021, these loans had scheduled maturities ranging from four months to 9.5 years and bore interest at rates ranging from 1.30% to 6.38%. Approximately $109.3 million of the aggregate outstanding loan balance matures in 2022. These maturing loans are anticipated to be repaid with operating cash flows, debt refinancing, unsecured credit facilities, proceeds from sales of the respective entities, and partner capital contributions, as deemed appropriate (see Footnote 7 of the Notes to Consolidated Financial Statements included in this Form 10-K).
Other Investments
The Company has provided capital to owners and developers of real estate properties and loans through its Preferred Equity Program. As of December 31, 2021, the Company’s net investment under the Preferred Equity Program was $98.7 million relating to 39 properties, including 28 net leased properties, which are accounted for as direct financing leases. As of December 31, 2021, these preferred equity investment properties had non-recourse mortgage loans aggregating $237.4 million. These loans have scheduled maturities ranging from two months to 2.5 years and bear interest at rates ranging from 4.19% to 8.88%. 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 limited to its invested capital.
Funds From Operations
FFO is a supplemental non-GAAP financial measure utilized to evaluate the operating performance of real estate companies. NAREIT defines FFO as net income/(loss) available to the Company’s common shareholders computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis. The Company also made an election, per the NAREIT Funds From Operations White Paper-2018 Restatement, to exclude from its calculation of FFO (i) gains and losses on the sale of assets and impairments of assets incidental to its main business and (ii) mark-to-market changes in the value of its equity securities. As such, the Company does not include gains/impairments on land parcels, gains/losses (realized or unrealized) from marketable securities, allowance for credit losses on mortgage receivables or gains/impairments on preferred equity participations in NAREIT defined FFO.
The Company presents FFO available to the Company’s common shareholders as it considers it an important supplemental measure of our operating performance and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO available to the Company’s common shareholders when reporting results. Comparison of our presentation of FFO available to the Company’s common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.
FFO is a supplemental non-GAAP financial measure of real estate companies’ operating performances, which does not represent cash generated from operating activities in accordance with GAAP and, therefore, should not be considered an alternative for net income or cash flows from operations as a measure of liquidity.
The Company’s reconciliation of net income available to the Company’s common shareholders to FFO available to the Company’s common shareholders is reflected in the table below (in thousands, except per share data).
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income available to the Company’s common shareholders | $ | 75,327 | $ | 194,880 | $ | 818,643 | $ | 975,417 | ||||||||
| Gain on sale of properties | - | (787 | ) | (30,841 | ) | (6,484 | ) | |||||||||
| Gain on sale of joint venture properties | (11,596 | ) | (30 | ) | (16,879 | ) | (48 | ) | ||||||||
| Depreciation and amortization - real estate related | 132,797 | 73,578 | 392,095 | 285,596 | ||||||||||||
| Depreciation and amortization - real estate joint ventures | 15,949 | 9,658 | 51,555 | 40,331 | ||||||||||||
| Impairment charges (including real estate joint ventures) | 3,932 | 4,043 | 7,145 | 8,397 | ||||||||||||
| Gain on sale of cost method investment | - | - | - | (190,832 | ) | |||||||||||
| Profit participation from other investments, net | (9,824 | ) | 2,210 | (8,595 | ) | (13,665 | ) | |||||||||
| Loss/(gain) on marketable securities, net | 37,347 | (150,108 | ) | (505,163 | ) | (594,753 | ) | |||||||||
| (Benefit)/provision for income taxes (1) | (25 | ) | (74 | ) | 2,152 | 1,426 | ||||||||||
| Noncontrolling interests (1) | (3,835 | ) | (337 | ) | (3,285 | ) | (1,710 | ) | ||||||||
| FFO available to the Company’s common shareholders (3) | $ | 240,072 | $ | 133,033 | $ | 706,827 | $ | 503,675 | ||||||||
| Weighted average shares outstanding for FFO calculations: | ||||||||||||||||
| Basic | 614,150 | 430,103 | 506,248 | 429,950 | ||||||||||||
| Units | 3,878 | 666 | 2,627 | 639 | ||||||||||||
| Dilutive effect of equity awards | 2,410 | 1,364 | 2,422 | 1,475 | ||||||||||||
| Diluted (2) | 620,438 | 432,133 | 511,297 | 432,064 | ||||||||||||
| FFO per common share – basic | $ | 0.39 | $ | 0.31 | $ | 1.40 | $ | 1.17 | ||||||||
| FFO per common share – diluted (2) | $ | 0.39 | $ | 0.31 | $ | 1.38 | $ | 1.17 |
| (1) | Related to gains, impairment and depreciation on properties, where applicable. | |
|---|---|---|
| (2) | Reflects the potential impact if certain units were converted to common stock at the beginning of the period, which would have a dilutive effect on FFO available to the Company’s common shareholders. FFO available to the Company’s common shareholders would be increased by $856 and $92 for the three months ended December 31, 2021 and 2020, respectively, and $1,053 and $309 for the years ended December 31, 2021 and 2020, respectively. The effect of other certain convertible units would have an anti-dilutive effect upon the calculation of FFO available to the Company’s common shareholders per share. Accordingly, the impact of such conversion has not been included in the determination of diluted earnings per share calculations. | |
| (3) | Includes Merger charges of $50.2 million recognized during the year ended December 31, 2021, in connection with the Merger. In addition the three months and year ended December 31, 2021, includes a pension valuation adjustment of $3.0 million of income included in Other income, net on the Company's Consolidated Statement of Income. |
Same Property Net Operating Income
Same property NOI is a supplemental non-GAAP financial measure of real estate companies’ operating performance and should not be considered an alternative to net income in accordance with GAAP or cash flows from operations as a measure of liquidity. The Company considers Same property NOI as an important operating performance measure because it is frequently used by securities analysts and investors to measure only the net operating income of properties that have been owned by the Company for the entire current and prior year reporting periods. It excludes properties under redevelopment, development and pending stabilization; properties are deemed stabilized at the earlier of (i) reaching 90% leased or (ii) one year following a project’s inclusion in operating real estate. Same property NOI assists in eliminating disparities in net income due to the development, acquisition or disposition of properties during the particular period presented, and thus provides a more consistent performance measure for the comparison of the Company's properties.
For the three months ended December 31, 2021 and 2020, the Company included Same property NOI from the Weingarten properties acquired through the Merger, as the Company owned these properties for the full three months ended December 31, 2021. The amount of the adjustment relating to Weingarten same property NOI for the three months ended December 31, 2020, included in the table below, represents the Same property NOI from Weingarten properties prior to the Merger, which is not included in the Company's Net income available to the Company’s common shareholders. Same property NOI from properties acquired through the Merger was excluded for the years ended December 31, 2021 and 2020, as the Company did not own these properties for the full year ended December 31, 2021.
Same property NOI is calculated using revenues from rental properties (excluding straight-line rent adjustments, lease termination fees, TIFs and amortization of above/below-market rents) less charges for bad debt, operating and maintenance expense, real estate taxes and rent expense plus the Company’s proportionate share of Same property NOI from unconsolidated real estate joint ventures, calculated on the same basis. The Company’s method of calculating Same property NOI available to the Company’s common shareholders may differ from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The following is a reconciliation of Net income available to the Company’s common shareholders to Same property NOI (in thousands):
| Three Months Ended December 31, (1) | Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income available to the Company’s common shareholders | $ | 75,327 | $ | 194,880 | $ | 818,643 | $ | 975,417 | ||||||||
| Adjustments: | ||||||||||||||||
| Management and other fee income | (4,249 | ) | (3,125 | ) | (14,883 | ) | (13,005 | ) | ||||||||
| General and administrative | 28,985 | 20,901 | 104,121 | 93,217 | ||||||||||||
| Impairment charges | 2,643 | 3,115 | 3,597 | 6,624 | ||||||||||||
| Merger charges | - | - | 50,191 | - | ||||||||||||
| Depreciation and amortization | 133,633 | 74,295 | 395,320 | 288,955 | ||||||||||||
| Gain on sale of properties | - | (787 | ) | (30,841 | ) | (6,484 | ) | |||||||||
| Interest and other expense, net | 49,503 | 42,162 | 184,323 | 190,323 | ||||||||||||
| Loss/(gain) on marketable securities, net | 37,347 | (150,108 | ) | (505,163 | ) | (594,753 | ) | |||||||||
| Gain on sale of cost method investment | - | - | - | (190,832 | ) | |||||||||||
| Provision for income taxes, net | 483 | 496 | 3,380 | 978 | ||||||||||||
| Equity in income of other investments, net | (12,807 | ) | (1,733 | ) | (23,172 | ) | (28,628 | ) | ||||||||
| Net income attributable to noncontrolling interests | 268 | 565 | 5,637 | 2,044 | ||||||||||||
| Preferred dividends | 6,354 | 6,354 | 25,416 | 25,416 | ||||||||||||
| Weingarten same property NOI (2) | - | 80,288 | - | - | ||||||||||||
| Non same property net operating income | (15,825 | ) | (7,623 | ) | (206,992 | ) | (22,605 | ) | ||||||||
| Non-operational expense from joint ventures, net | 9,987 | 16,238 | 55,214 | 68,510 | ||||||||||||
| Same property NOI | $ | 311,649 | $ | 275,918 | $ | 864,791 | $ | 795,177 |
| (1) | Same property NOI from properties acquired through the Merger are included in the three months ended December 31, 2021 and 2020 but excluded for the years ended December 31, 2021 and 2020. |
|---|
| (2) | Amounts for the three months ended December 31, 2020, represent the Same property NOIs from Weingarten properties, not included in the Company's Net income available to the Company's common shareholders. |
|---|
Same property NOI increased by $35.7 million, or 12.9%, for the three months ended December 31, 2021, as compared to the corresponding period in 2020. This increase is primarily the result of (i) a decrease in credit losses of $15.7 million due to increased collections, (ii) an increase in revenues from rental properties of $11.4 million primarily related to a decrease in tenant rent abatements and vacancies as a result of the COVID-19 pandemic during 2020, as compared to 2021, and (iii) an increase of $8.6 million from properties acquired through the Merger.
Same property NOI increased by $69.6 million, or 8.8%, for the year ended December 31, 2021, as compared to the corresponding period in 2020. This increase is primarily the result of (i) a decrease in credit losses of $92.3 million due to increased collections, partially offset by (ii) a decrease in revenues from rental properties of $18.8 million primarily related to a decrease in tenant rent abatements and vacancies as a result of the COVID-19 pandemic and (iii) an increase in non-recoverable operating expenses of $3.9 million.
Effects of Inflation
Many of the Company's long-term 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 as a result of 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 include escalation clauses or 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.
New Accounting Pronouncements
See Footnote 1 of the Notes to Consolidated Financial Statements included in this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company’s primary market risk exposure is interest rate risk. 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 debt. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. The following table presents the Company’s aggregate fixed rate and variable rate debt obligations outstanding, including fair market value adjustments and unamortized deferred financing costs, as of December 31, 2021, with corresponding weighted-average interest rates sorted by maturity date. The table does not include extension options where available (amounts in millions).
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Secured Debt | ||||||||||||||||||||||||||||||||
| Fixed Rate | $ | 115.9 | $ | 55.8 | $ | 6.1 | $ | 54.8 | $ | - | $ | 216.1 | $ | 448.7 | $ | 449.8 | ||||||||||||||||
| Average Interest Rate | 4.08 | % | 3.95 | % | 6.74 | % | 3.50 | % | - | 4.29 | % | 4.12 | % | |||||||||||||||||||
| Unsecured Debt | ||||||||||||||||||||||||||||||||
| Fixed Rate | $ | 805.1 | $ | 659.7 | $ | 661.9 | $ | 757.8 | $ | 788.7 | $ | 3,353.9 | $ | 7,027.1 | $ | 7,330.7 | ||||||||||||||||
| Average Interest Rate | 3.39 | % | 3.30 | % | 3.37 | % | 3.48 | % | 3.06 | % | 3.38 | % | 3.35 | % |
Item 8. Financial Statements and Supplementary Data
The response to this Item 8 is included in our audited Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are contained in Part IV, Item 15 of this Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
On August 3, 2021, the Company completed the Merger and accordingly the Company’s management has integrated Weingarten’s operations into its internal control over financial reporting, as necessary, to accommodate modifications to its business processes related to the Merger transaction. None of these integration activities had a material impact on our system of internal control over financial reporting.
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 the Company’s disclosure controls and procedures are effective as of December 31, 2021.
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 ended December 31, 2021, that have materially affected, or are reasonably 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) and 15d-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 the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to “Proposal 1—Election of Directors,” “Corporate Governance,” “Committees of the Board of Directors,” “Executive Officers,” “Other Matters” and if required, “Delinquent Section 16(a) Reports” in our definitive proxy statement to be filed with respect to the Annual Meeting of Stockholders expected to be held on April 26, 2022 (“Proxy Statement”).
We have adopted a Code of Conduct. The Code of Conduct is available at the Investors/Governance/Governance Documents section of our website at www.kimcorealty.com. A copy of the Code of Ethics is available in print, free of charge, to stockholders upon request to us at the address set forth in Item 1 of this Annual Report on Form 10-K under the section “Business - Overview.” We intend to satisfy the disclosure requirements under the Securities and Exchange Act of 1934, as amended, regarding an amendment to or waiver from a provision of our Code of Ethics by posting such information on our website.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to “Compensation Discussion and Analysis,” “Executive Compensation Committee Report,” “Compensation Tables,” “Corporate Governance – Risk Oversight,” “Compensation of Directors” and “Other Matters” in our Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to “Security Ownership of Certain Beneficial Owners and Management” and “Compensation Tables” in our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to “Certain Relationships and Related Transactions,” “Director Independence" and “Corporate Governance” in our Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to “Independent Registered Public Accountants” in our Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
None.
- Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 | |||
|---|---|---|---|
| By: | /s/ Conor C. Flynn |
| Conor C. Flynn | |
|---|---|
| Chief Executive Officer |
Dated: February 28, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | |
|---|---|---|---|
| /s/ Milton Cooper | Executive Chairman of the Board of Directors | February 28, 2022 | |
| Milton Cooper | |||
| /s/ Conor C. Flynn | Chief Executive Officer and Director | February 28, 2022 | |
| Conor C. Flynn | |||
| /s/ Frank Lourenso | Director | February 28, 2022 | |
| Frank Lourenso | |||
| /s/ Richard Saltzman | Director | February 28, 2022 | |
| Richard Saltzman | |||
| /s/ Philip Coviello | Director | February 28, 2022 | |
| Philip Coviello | |||
| /s/ Mary Hogan Preusse | Director | February 28, 2022 | |
| Mary Hogan Preusse | |||
| /s/ Valerie Richardson | Director | February 28, 2022 | |
| Valerie Richardson | |||
| /s/ Henry Moniz | Director | February 28, 2022 | |
| Henry Moniz | |||
| /s/ Glenn G. Cohen | Executive Vice President - | February 28, 2022 | |
| Glenn G. Cohen | Chief Financial Officer and Treasurer | ||
| /s/ Paul Westbrook | Vice President - | February 28, 2022 | |
| Paul Westbrook | Chief Accounting Officer |
ANNUAL REPORT ON FORM 10-K
Next: Item 8. , ITEM 15 (a) (1) and (2)