filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
76K characters. Original on sec.gov · Markdown
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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,” “plan,” “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 impact of competition, including the availability of acquisition or development opportunities and the costs associated with purchasing and maintaining assets; (iii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iv) 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, (v) the potential impact of e-commerce and other changes in consumer buying practices, and changing trends in the retail industry and perceptions by retailers or shoppers, including safety and convenience, (vi) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and the costs associated with purchasing and maintaining assets and risks related to acquisitions not performing in accordance with our expectations, (vii) the Company’s ability to raise capital by selling its assets, (viii) disruptions and increases in operating costs due to inflation and supply chain disruptions, (ix) risks associated with the development of mixed-use commercial properties, including risks associated with the development, and ownership of non-retail real estate, (x) changes in governmental laws and regulations, including, but not limited to, changes in data privacy, environmental (including climate change), safety and health laws, and management’s ability to estimate the impact of such changes, (xi) the Company’s failure to realize the expected benefits of the merger with RPT Realty (the “RPT Merger”), (xii) the risk of litigation, including shareholder litigation, in connection with the RPT Merger, including any resulting expense, (xiii) 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, (xiv) the possibility that, if the Company does not achieve the perceived benefits of the RPT Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline, (xv) valuation and risks related to the Company’s joint venture and preferred equity investments and other investments, (xvi) collectability of mortgage and other financing receivables, (xvii) impairment charges, (xviii) criminal cybersecurity attacks, disruption, data loss or other security incidents and breaches, (xix) risks related to artificial intelligence, (xx) impact of natural disasters and weather and climate-related events, (xxi) pandemics or other health crises, (xxii) our ability to attract, retain and motivate key personnel, (xxiii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (xxiv) the level and volatility of interest rates and management’s ability to estimate the impact thereof, (xxv) changes in the dividend policy for the Company’s common and preferred stock and the Company’s ability to pay dividends at current levels, (xxvi) unanticipated changes in the Company’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity, (xxvii) the Company’s ability to continue to maintain its status as a REIT for U.S. federal income tax purposes and potential risks and uncertainties in connection with its UPREIT structure, and (xxviii) other risks and uncertainties identified under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. 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 in other filings with the Securities and Exchange Commission (“SEC”).
The following discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes thereto. These unaudited financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.
Executive Overview
Kimco Realty Corporation is a REIT, of which substantially all of the Company’s assets are held by, and substantially all of the Company’s operations are conducted through, Kimco OP, either directly or through its subsidiaries, as the Company’s operating company. The Company is the managing member and exercises exclusive control over Kimco OP. As of September 30, 2024, the Parent Company owned 99.84% of the outstanding limited liability company interests (the “OP Units”) in Kimco OP.
The Company is North America’s largest publicly traded owner and operator of open-air, grocery-anchored shopping centers and a growing portfolio of mixed-use assets. The terms “Kimco,” the “Company,” “we,” “our” and “us” each refers to Kimco Realty Corporation and its subsidiaries, unless the context indicates otherwise. 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 is a self-administered real estate investment trust (“REIT”) and has owned and operated open-air shopping centers for over 60 years. The Company has not engaged, nor does it expect to retain, any REIT advisors in connection with the operation of its properties. As of September 30, 2024, the Company had interests in 567 U.S. shopping center properties, aggregating 100.5 million square feet of gross leasable area (“GLA”), located in 30 states. In addition, the Company had 67 other property interests, primarily including net leased properties, preferred equity investments, and other investments, totaling 5.5 million square feet of GLA. 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’s primary business objective is to be the premier owner and operator of open-air, grocery-anchored shopping centers, and a growing portfolio of 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;
increasing cash flows for reinvestment and/or for distribution to shareholders while maintaining conservative payout ratios;
maintaining strong debt metrics and our A-/BBB+/Baa1 unsecured debt ratings;
continuing growth in desirable demographic areas with successful retailers, primarily focused on grocery anchors; and
increasing the number of entitlements for residential use.
On September 9, 2024, Fitch Ratings assigned the Company a rating of A- for its senior unsecured debt, assigned a BBB credit rating for its preferred stock, and assigned its ‘Stable’ rating outlook. As a result, the Company achieved certain interest rate reductions and facility fee reduction for its unsecured revolving credit facility (the “Credit Facility”) and unsecured term loans.
RPT Merger
On January 2, 2024, RPT Realty merged with and into the Company, with the Company continuing as the surviving public company, pursuant to the definitive merger agreement (the “Merger Agreement”) between the Company and RPT, which was entered into on August 28, 2023. As a result of the RPT Merger, three Company acquired 56 open-air shopping centers, including 43 wholly owned and 13 joint venture assets, comprising 13.3 million square feet of gross leasable area, to the Company’s existing portfolio. The Company also obtained RPT’s 6% stake in a 49-property net lease joint venture.
Under the terms of the Merger Agreement, each RPT common share was converted into 0.6049 of a newly issued share of the Company’s common stock, together with cash in lieu of fractional shares, and each 7.25% Series D Cumulative Convertible Perpetual Preferred Share of RPT was converted into the right to receive one depositary share representing one one-thousandth of a share of the Company’s 7.25% Class N Cumulative Convertible Perpetual Preferred Stock, par value $1.00 per share (the “Class N Preferred Stock”). In connection with the RPT Merger, the Company issued 53.0 million shares of common stock, 1,849 shares of Class N Preferred Stock, and 953,400 OP Units. See Footnote 3 of the Notes to Condensed Consolidated Financial Statements for further details on the RPT Merger.
Economic Conditions
The economy continues to face challenges which could impact the Company and its tenants, including elevated inflation rates. In response to the elevated rate of inflation, the Federal Reserve steadily increased interest rates in 2022 and 2023. During September 2024, the Federal Reserve reduced the target range for federal funds rate by 0.50% to 4.75%-5.00%, which cut its overnight borrowing rate by 0.50%, as it believed certain indicators suggested that economic activity has continued to expand and inflation has made downward progress. This reduction is intended to support growth and stabilize the labor market. Fluctuations of certain economic data and indicators could impact future interest rate considerations by the Federal Reserve. Despite this reduction, interest rate levels could adversely impact the business and financial results of the Company and its tenants. In addition, slower economic growth and the potential for a recession could have an adverse effect on the Company and its tenants. This could negatively affect the overall demand for retail space, including the demand for leasable space in the Company’s properties.
Any of these events could materially adversely impact the Company’s business, financial condition, results of operations or stock price. The Company continues to monitor economic, financial, and social conditions and will assess its asset portfolio for any impairment indicators. 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.
Effects of Inflation
Many of the Company’s long-term leases contain provisions designed to help 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. To assist in partially mitigating the Company’s exposure to increases in costs and operating expenses, including common area maintenance costs, real estate taxes and insurance, resulting from inflation, the Company’s leases include provisions that either (i) require the tenant to pay an allocable share of these operating expenses or (ii) contain fixed contractual amounts, which include escalation clauses, to reimburse these operating expenses.
Results of Operations
Comparison of the three and nine months ended September 30, 2024 and 2023
Results from operations for the three and nine months ended September 30, 2024 reflect the results of the Company’s Merger with RPT on January 2, 2024.
The following table presents the comparative results from the Company’s Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2024, as compared to the corresponding periods in 2023 (in thousands, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Revenues from rental properties, net | $ | 502,875 | $ | 441,816 | $ | 61,059 | $ | 1,498,001 | $ | 1,319,162 | $ | 178,839 | ||||||||||||
| Management and other fee income | 4,757 | 4,249 | 508 | 13,616 | 12,635 | 981 | ||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Rent (1) | (4,239 | ) | (3,939 | ) | (300 | ) | (12,744 | ) | (12,097 | ) | (647 | ) | ||||||||||||
| Real estate taxes | (64,996 | ) | (57,875 | ) | (7,121 | ) | (194,538 | ) | (173,002 | ) | (21,536 | ) | ||||||||||||
| Operating and maintenance (2) | (88,744 | ) | (76,604 | ) | (12,140 | ) | (262,267 | ) | (226,919 | ) | (35,348 | ) | ||||||||||||
| General and administrative (3) | (33,850 | ) | (33,697 | ) | (153 | ) | (103,238 | ) | (101,180 | ) | (2,058 | ) | ||||||||||||
| Impairment charges | (375 | ) | (2,237 | ) | 1,862 | (4,277 | ) | (14,043 | ) | 9,766 | ||||||||||||||
| Merger charges | - | (3,750 | ) | 3,750 | (25,246 | ) | (3,750 | ) | (21,496 | ) | ||||||||||||||
| Depreciation and amortization | (144,688 | ) | (127,437 | ) | (17,251 | ) | (447,555 | ) | (382,983 | ) | (64,572 | ) | ||||||||||||
| Gain on sale of properties | 551 | - | 551 | 944 | 52,376 | (51,432 | ) | |||||||||||||||||
| Other income/(expense) | ||||||||||||||||||||||||
| Special dividend income | - | - | - | - | 194,116 | (194,116 | ) | |||||||||||||||||
| Other income, net | 22,203 | 8,377 | 13,826 | 39,953 | 19,080 | 20,873 | ||||||||||||||||||
| Gain/(loss) on marketable securities, net | 79 | 13,225 | (13,146 | ) | (27,613 | ) | 17,642 | (45,255 | ) | |||||||||||||||
| Interest expense | (76,216 | ) | (60,424 | ) | (15,792 | ) | (224,122 | ) | (182,404 | ) | (41,718 | ) | ||||||||||||
| (Provision)/benefit for income taxes, net | (128 | ) | 729 | (857 | ) | (72,355 | ) | (61,127 | ) | (11,228 | ) | |||||||||||||
| Equity in income of joint ventures, net | 20,981 | 16,257 | 4,724 | 63,413 | 57,589 | 5,824 | ||||||||||||||||||
| Equity in income of other investments, net | 216 | 2,100 | (1,884 | ) | 9,468 | 8,741 | 727 | |||||||||||||||||
| Net income attributable to noncontrolling interests | (2,443 | ) | (2,551 | ) | 108 | (6,693 | ) | (9,208 | ) | 2,515 | ||||||||||||||
| Preferred dividends, net | (7,961 | ) | (6,285 | ) | (1,676 | ) | (23,864 | ) | (18,736 | ) | (5,128 | ) | ||||||||||||
| Net income available to the Company's common shareholders | $ | 128,022 | $ | 111,954 | $ | 16,068 | $ | 220,883 | $ | 495,892 | $ | (275,009 | ) | |||||||||||
| Net income available to the Company's common shareholders: | ||||||||||||||||||||||||
| Diluted per common share | $ | 0.19 | $ | 0.18 | $ | 0.01 | $ | 0.32 | $ | 0.80 | $ | (0.48 | ) |
(1)
Rent expense primarily relates to ground lease payments for which the Company is the lessee.
(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.
(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.
Net income available to the Company’s common shareholders was $128.0 million for the three months ended September 30, 2024, as compared to $112.0 million for the comparable period in 2023. On a diluted per common share basis, net income available to the Company’s common shareholders for the three months ended September 30, 2024 was $0.19, as compared to $0.18 for the comparable period in 2023.
Net income available to the Company’s common shareholders was $220.9 million for the nine months ended September 30, 2024, as compared to $495.9 million for the comparable period in 2023. On a diluted per common share basis, net income available to the Company’s common shareholders for the nine months ended September 30, 2024 was $0.32, as compared to $0.80 for the comparable period in 2023.
The following describes the changes of certain line items included on the Company’s Condensed Consolidated Statements of Income that the Company believes changed significantly and affected Net income available to the Company’s common shareholders during the three and nine months ended September 30, 2024, as compared to the corresponding periods in 2023.
Revenues from rental properties, net –
The increase in Revenues from rental properties, net of $61.1 million for the three months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily from (i) a net increase in revenues from tenants of $44.0 million due to properties acquired through the RPT Merger, (ii) a net increase in revenues from tenants of $16.7 million, primarily due to an increase in leasing activity and net growth in the current portfolio, and (iii) an increase in revenues of $3.0 million due to properties acquired during 2023, partially offset by (iv) a decrease in net straight-line rental income of $2.2 million and (v) a decrease in revenues of $0.4 million due to dispositions during 2024 and 2023.
The increase in Revenues from rental properties, net of $178.8 million for the nine months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily from (i) a net increase in revenues from tenants of $133.3 million due to properties acquired through the RPT Merger, (ii) a net increase in revenues from tenants of $42.6 million, primarily due to an increase in leasing activity and net growth in the current portfolio, and (iii) an increase in revenues of $13.4 million due to properties acquired during 2023, partially offset by (iv) a decrease in revenues of $6.1 million due to dispositions during 2024 and 2023 and (v) a decrease in net straight-line rental income of $4.4 million.
Real estate taxes –
The increase in Real estate taxes of $7.1 million and $21.5 million for the three and nine months ended September 30, 2024, respectively, as compared to the corresponding periods in 2023, is primarily due to properties acquired during 2024 and 2023, primarily related to the RPT Merger, partially offset by dispositions during 2024 and 2023.
Operating and maintenance –
The increase in Operating and maintenance expense of $12.1 million for the three months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) an increase of $8.4 million resulting from properties acquired related to the RPT Merger and (ii) an increase in repairs and maintenance expense of $3.5 million.
The increase in Operating and maintenance expense of $35.3 million for the nine months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) an increase of $25.0 million resulting from properties acquired related to the RPT Merger and (ii) an increase in repairs and maintenance expense of $9.5 million.
Impairment charges –
During the nine months ended September 30, 2024 and 2023, the Company recognized impairment charges related to adjustments to property carrying values of $4.3 million and $14.0 million, respectively, 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.
Merger charges –
During the nine months ended September 30, 2024 and 2023, the Company incurred costs of $25.2 million and $3.8 million, respectively, associated with the RPT Merger, primarily comprised of severance, professional and legal fees.
Depreciation and amortization –
The increase in Depreciation and amortization of $17.3 million for the three months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) an increase of $32.4 million resulting from properties acquired during 2024 and 2023, primarily related to the RPT Merger, and (ii) an increase of $2.2 million due to depreciation commencing on certain redevelopment projects that were placed into service during 2024 and 2023, partially offset by (iii) a net decrease of $17.3 million, primarily from fully depreciated assets, write-offs due to demolition and tenant vacates and dispositions during 2024 and 2023.
The increase in Depreciation and amortization of $64.6 million for the nine months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) an increase of $89.1 million resulting from properties acquired during 2024 and 2023, primarily related to the RPT Merger, and (ii) an increase of $14.0 million due to depreciation commencing on certain redevelopment projects that were placed into service during 2024 and 2023, partially offset by (iii) a net decrease of $38.5 million, primarily from fully depreciated assets, write-offs due to demolition and tenant vacates and dispositions during 2024 and 2023.
Gain on sale of properties –
During the nine months ended September 30, 2024, the Company disposed of 11 operating properties and seven land parcels, in separate transactions, for an aggregate sales price of $254.1 million, which resulted in aggregate gains of $0.9 million. During the nine months ended September 30, 2023, the Company disposed of four operating properties and 11 land parcels, in separate transactions, for an aggregate sales price of $175.0 million, which resulted in aggregate gains of $52.4 million.
Special dividend income –
During the nine months ended September 30, 2023, the Company received $194.1 million representing its share of the Albertsons Companies Inc. (“ACI”) special dividend payment.
Other income, net –
The increase in Other income, net of $13.8 million for the three months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) a net increase in mortgage and other financing income of $8.8 million, and (ii) an increase of $4.8 million due to mark-to-market fluctuations of an embedded derivative liability.
The increase in Other income, net of $20.9 million for the nine months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) a net increase in mortgage and other financing income of $10.6 million, (ii) an increase of $8.7 million due to mark-to-market fluctuations of an embedded derivative liability, (iii) an increase in interest income of $5.3 million due to higher levels of cash on hand, (iv) a decrease in environmental remediation expense of $4.7 million, (v) an increase in income of $3.8 million from settlement of contracts, and (vi) an increase of $1.2 million from insurance proceeds, partially offset by (vii) a decrease of $8.7 million relating to net settlement gains recognized upon liquidation of the Company’s defined benefit plan during 2023 and (viii) a decrease in dividend income of $5.2 million, primarily due to the sale of the remaining shares of ACI common stock held by the Company.
Gain/(loss) on marketable securities, net –
The change in Gain/(loss) on marketable securities, net of $13.1 million and $45.3 million for the three and nine months ended September 30, 2024, respectively, as compared to the corresponding periods in 2023 is due to mark-to-market fluctuations and the sale of the remaining shares of ACI common stock held by the Company during 2024 and 2023.
Interest expense –
The increase in Interest expense of $15.8 million and $41.7 million for the three and nine months ended September 30, 2024, respectively, as compared to the corresponding periods in 2023, is primarily due to (i) the issuance of unsecured notes during 2023 and 2024 and (ii) increased levels of borrowings and assumptions of unsecured notes and term loans in connection with the RPT Merger, partially offset by (iii) the paydown of unsecured notes during 2024 and 2023.
(Provision)/benefit for income taxes, net –
The change in (Provision)/benefit for income taxes, net of $11.2 million for the nine months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to the Company’s sale of shares of ACI common stock during 2024 and 2023, which generated taxable long-term capital gains. The Company anticipates retaining the proceeds from the sale during 2024 and, as a result, recorded federal and state income taxes on these gains.
Equity in income of joint ventures, net –
The increase in Equity in income of joint ventures, net of $4.7 million for the three months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) higher equity in income of $6.4 million, primarily due to newly acquired joint ventures in connection with the RPT Merger, partially offset by (ii) lower gains of $1.1 million recognized on sale of properties within various joint venture investments during 2024, as compared to 2023, and (iii) an increase in interest expense of $0.6 million.
The increase in Equity in income of joint ventures, net of $5.8 million for the nine months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to (i) higher equity in income of $16.5 million, primarily due to newly acquired joint
ventures in connection with the RPT Merger, partially offset by (ii) lower gains of $7.5 million recognized on sale of properties within various joint venture investments during 2024, as compared to 2023 and (iii) an increase in interest expense of $3.2 million.
Preferred dividends –
The increase in Preferred dividends of $5.1 million for the nine months ended September 30, 2024, as compared to the corresponding period in 2023, is primarily due to the issuance of the Class N Preferred Stock in connection with the RPT Merger.
Tenant Concentration
The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties and a large tenant base. As of September 30, 2024, the Company had interests in 567 U.S. shopping center properties, aggregating 100.5 million square feet of gross leasable area (“GLA”), located in 30 states. At September 30, 2024, the Company’s five largest tenants were TJX Companies, The Home Depot, Ross Stores, Amazon/Whole Foods and Burlington Stores, Inc., which represented 3.8%, 1.8%, 1.8%, 1.8% and 1.7%, respectively, of the Company’s annualized base rental revenues, including the proportionate share of base rental revenues from properties in which the Company has less than a 100% economic interest.
Liquidity and Capital Resources
The Company’s capital resources include accessing the public debt and equity capital markets, unsecured term loans, mortgages and construction loan financing, and immediate access to the Credit Facility with bank commitments of $2.0 billion, which can be increased to $2.75 billion through an accordion feature.
The Company anticipates that net cash flow provided by operating activities, borrowings under its Credit Facility and the issuance of equity, 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 inflation, interest rates, and other risks detailed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023 as supplemented by the risks and uncertainties identified under Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.
The Company’s cash flow activities are summarized as follows (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash, cash equivalents and restricted cash, beginning of the period | $ | 783,757 | $ | 149,829 | ||||
| Net cash flow provided by operating activities | 766,080 | 881,409 | ||||||
| Net cash flow used for investing activities | (91,855 | ) | (75,961 | ) | ||||
| Net cash flow used for financing activities | (667,938 | ) | (531,015 | ) | ||||
| Net change in cash, cash equivalents and restricted cash | 6,287 | 274,433 | ||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 790,044 | $ | 424,262 |
Operating Activities
Net cash flow provided by operating activities for the nine months ended September 30, 2024 was $766.1 million, as compared to $881.4 million for the comparable period in 2023. The decrease of $115.3 million is primarily attributable to:
the special dividend payment received from ACI of $194.1 million during 2023;
nonrecurring costs incurred in connection with the RPT Merger; and
the disposition of operating properties in 2024 and 2023; partially offset by
additional operating cash flow generated by operating properties acquired during 2024 and 2023, including those acquired in connection with the RPT Merger;
an increase in distributions from the Company’s joint ventures programs; and
new leasing, expansion and re-tenanting of core portfolio properties.
Investing Activities
Net cash flow used for investing activities was $91.9 million for the nine months ended September 30, 2024, as compared to $76.0 million for the comparable period in 2023.
Investing activities during the nine months ended September 30, 2024 primarily consisted of:
Cash inflows:
$301.5 million in proceeds from sale of marketable securities, primarily due to the sale of 14.2 million shares of ACI common
stock;
$85.1 million for collection of mortgage and other financing receivables;
$70.4 million in proceeds from the sale of 11 operating properties and seven land parcels; and
$25.1 million in reimbursements of investments in and advances to real estate joint ventures and other investments.
Cash outflows:
$213.4 million for improvements to operating real estate, primarily related to re-tenanting, tenant improvements and the Company’s active redevelopment pipeline;
$190.2 million for investment in mortgage and other financing receivables, primarily related to new mortgage and other financing receivables;
$149.1 million for the acquisition of RPT;
$10.0 million for a deposit on an acquisition of an operating property acquired in October 2024; and
$9.8 million for investments in and advances to real estate joint ventures and other investments, primarily related to redevelopment projects within these portfolios.
Investing activities during the nine months ended September 30, 2023 primarily consisted of:
Cash inflows:
$291.3 million in proceeds from sale of marketable securities, primarily due to the sale of 14.1 million shares of ACI common stock;
$122.8 million in proceeds from the sale of four operating properties and 11 land parcels; and
$9.3 million in reimbursements of investments in and advances to real estate joint ventures and other investments.
Cash outflows:
$269.5 million for the acquisition/consolidation of four operating properties and four parcels;
$179.1 million for improvements to operating real estate, primarily related to re-tenanting, tenant improvements and the Company’s active redevelopment pipeline;
$35.0 million for investments in and advances to real estate joint ventures and investments in other investments, primarily related to redevelopment projects within these portfolios and a partial paydown of debt within one of the Company’s joint venture investments;
$11.2 million for investment in other financing receivables related to one new mortgage receivable; and
$3.1 million for investment in marketable securities.
Acquisition of Operating Real Estate –
During the nine months ended September 30, 2024, the Company expended $149.1 million in conjunction with the RPT Merger. During the nine months ended September 30, 2024 and 2023, the Company expended $10.0 million and $269.5 million, respectively, for the acquisition of operating real estate properties. The Company anticipates spending up to approximately $150.0 million to $200.0 million towards the acquisition of, or the purchase of additional interests in, operating properties for the remainder of 2024. The Company intends to fund these potential acquisitions with net cash flow provided by operating activities, cash on hand, proceeds from property dispositions, and/or availability under its Credit Facility.
Improvements to Operating Real Estate –
During the nine months ended September 30, 2024 and 2023, the Company expended $213.4 million and $179.1 million, respectively, for improvements to operating real estate. These amounts consist of the following (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Redevelopment and renovations | $ | 94,520 | $ | 98,902 | ||||
| Tenant improvements and tenant allowances | 118,921 | 80,243 | ||||||
| Total improvements | $ | 213,441 | $ | 179,145 |
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 the remainder of 2024 will be approximately $50.0 million to $100.0 million. The funding of these capital requirements will be provided by net cash flow provided by operating activities, cash on hand, proceeds from property dispositions, and/or availability under the Company’s Credit Facility.
Financing Activities
Net cash flow used for financing activities was $667.9 million for the nine months ended September 30, 2024, as compared to $531.0 million for the comparable period in 2023.
Financing activities during the nine months ended September 30, 2024 primarily consisted of:
Cash inflows:
$860.0 million in proceeds from issuance of unsecured term loans; and
$500.0 million in proceeds from issuance of unsecured notes.
Cash outflows:
$1.2 billion in repayments of unsecured notes;
$507.8 million of dividends paid;
$310.0 million in repayments of unsecured term loans;
$19.0 million in principal payments on debt (related to the repayment of debt on three encumbered properties), including normal amortization on rental property debt;
$15.3 million in shares repurchased for employee tax withholding on equity awards;
$13.9 million in redemption/distribution of noncontrolling interests; and
$7.0 million in financing origination costs related to new unsecured term loans and unsecured notes.
Financing activities during the nine months ended September 30, 2023 primarily consisted of:
Cash inflows:
$3.7 million in proceeds from issuance of stock.
Cash outflows:
$446.6 million of dividends paid;
$57.7 million in principal payment on debt, including normal amortization of rental property debt;
$16.2 million in shares repurchased for employee tax withholding on equity awards;
$8.9 million in redemption/distribution of noncontrolling interests; and
$6.0 million in financing origination costs, in connection with the Company’s Credit Facility.
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. As of September 30, 2024, the Company had consolidated floating rate debt totaling $17.0 million. 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.
There are no debt maturities for the remainder of 2024. 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.
The Company utilizes the public debt and equity markets as its principal source of capital for its expansion needs through offerings of its public unsecured debt and equity. 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, expanding and improving properties in the portfolio and other investments.
During January 2023, the Company filed a shelf registration statement on Form S-3, which is effective for a term of three years, for 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 January 2023, the Company filed a registration statement on Form S-8 for its 2020 Equity Participation Plan (the “2020 Plan”), which was previously 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, deferred stock awards and long-term incentive plan units. At September 30, 2024, the Company had 3.0 million shares of common stock available for issuance under the 2020 Plan.
Preferred Stock –
Under the terms of the Merger Agreement, each 7.25% Series D Cumulative Convertible Perpetual Preferred Share of RPT was converted into the right to receive one depositary share representing one one-thousandth of a share of Class N Preferred Stock of the Company having the rights, preferences and privileges substantially as set forth in the Merger Agreement, in each case, without interest, and subject to any withholding required under applicable law, upon the terms and subject to the conditions set forth in the Merger Agreement.
The Company’s Board of Director’s authorized the repurchase of up to 891,000 depositary shares of Class L preferred stock, 1,047,000 depositary shares of Class M preferred stock, and 185,000 depositary shares of Class N preferred stock, representing an aggregate of up to 2,123 shares of the Company’s preferred stock, par value $1.00 per share, through February 28, 2026. During the nine months ended September 30, 2024, the Company repurchased the following preferred stock:
| Class of Preferred Stock | Depositary Shares Repurchased | Purchase Price (in thousands) | ||||||
| Class N | 80 | $ | 5 |
On August 22, 2024, the Company filed a preliminary prospectus supplement for a tender offer to purchase for cash any and all of its outstanding Class N Preferred Stock. The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities, nor are they soliciting offers to buy these securities, in any jurisdiction where the offer or sale is not permitted.
Common Stock –
During September 2023, 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, as amended, 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. The Company did not issue any shares under the ATM Program during the nine months ended September 30, 2024. As of September 30, 2024, the Company had $500.0 million available under this ATM Program.
The Company has a common share repurchase program, which is scheduled to expire on February 28, 2026. 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 common share repurchase program during the nine months ended September 30, 2024. As of September 30, 2024, the Company had $224.9 million available under this common share repurchase program.
In connection with the RPT Merger, each RPT common share issued and outstanding immediately prior to the effective time of the RPT Merger was converted into 0.6049 shares of newly issued shares of Kimco common stock, resulting in 53.0 million common shares issued to effect the RPT Merger.
Senior Unsecured Notes –
The Company’s indenture governing its senior unsecured notes contains the following covenants, all of which the Company is compliant with:
| Covenant | Must Be | As of September 30, 2024 | ||
| Consolidated Indebtedness to Total Assets | < 60% | 38% | ||
| Consolidated Secured Indebtedness to Total Assets | < 40% | 1% | ||
| Consolidated Income Available for Debt Service to Maximum Annual Service Charge | > 1.50x | 4.4x | ||
| 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; Seventh Supplemental Indenture dated as of April 24, 2014; and the Eighth
Supplemental Indenture dated as of January 3, 2023, each as filed with the SEC. In connection with the merger with Weingarten, the Company assumed senior unsecured notes which have covenants that are similar to the Company’s existing debt covenants for its senior unsecured notes. Please refer to the form Indenture included in Weingarten’s Registration Statement on Form S-3, filed with the Securities and Exchange Commission on February 10, 1995, the First Supplemental Indenture, dated as of August 2, 2006 filed with Weingarten’s Current Report on Form 8-K dated August 2, 2006, and the 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 to our Annual Report on Form 10-K for the year ended December 31, 2023 for specific filing information.
In connection with the Reorganization, Kimco OP became the issuer of the senior notes and the Parent Company has provided a full and unconditional guarantee of Kimco OP’s obligations under each series of senior notes previously issued and outstanding.
During September 2024, the Company issued $500.0 million in senior unsecured notes, which are scheduled to mature in March 2035 and accrue interest at a rate of 4.85% per annum. These senior unsecured notes are guaranteed by the Company. The Company intends to use the net proceeds from this offering for general corporate purposes.
During the nine months ended September 30, 2024, the Company fully repaid the following notes payables (dollars in millions):
| Type | Date Paid | Amount Repaid | Interest Rate | Maturity Date | ||||||
| Unsecured note | Jan-24 | $ | 246.2 | 4.45% | Jan-24 | |||||
| Unsecured notes (1) | Jan-24 | $ | 511.5 | 3.64%-4.74% | Jun-25-Nov-31 | |||||
| Unsecured note | Mar-24 | $ | 400.0 | 2.70% | Mar-24 |
(1)
The Company incurred a make-whole charge of $0.3 million resulting from this early repayment of these notes, which are included in Merger charges on the Company’s Condensed Consolidated Statements of Income.
Credit Facility –
On September 9, 2024, Fitch Ratings assigned the Company a rating of A- for its senior unsecured debt, assigned a BBB credit rating for its preferred stock, and assigned its ‘Stable’ rating outlook. As a result, the Company achieved certain interest rate reductions and facility fee reduction for its Credit Facility and unsecured term loans.
The Company has a $2.0 billion Credit Facility with a group of banks. The Credit Facility is scheduled to expire in March 2027 with two additional six-month options to extend the maturity date, at the Company’s discretion, to March 2028. The Credit Facility is guaranteed by the Parent Company. The Credit Facility can be increased to $2.75 billion through an accordion feature. The Credit Facility is a green credit facility tied to sustainability metric targets, as described in the agreement. The Credit Facility accrues interest at a rate of Adjusted Term SOFR, as defined in the terms of the Credit Facility, plus 77.5 basis points and fluctuates in accordance with the Company’s credit ratings. The interest rate can be further adjusted upward or downward based on the sustainability metric targets and the Company’s credit rating outlook, as defined in the agreement. As of September 30, 2024, the interest rate on the Credit Facility is Adjusted Term SOFR plus 68.5 basis points (5.53% as of September 30, 2024) after reductions for sustainability metrics achieved and an upgraded credit rating profile. Pursuant to the terms of the Credit Facility, the Company is subject to certain covenants. As of September 30, 2024, the Credit Facility had no outstanding balance and no appropriations for letters of credit.
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 September 30, 2024 | ||
| Total Indebtedness to Gross Asset Value (“GAV”) | < 60% | 35% | ||
| Total Priority Indebtedness to GAV | < 35% | 1% | ||
| Unencumbered Asset Net Operating Income to Total Unsecured Interest Expense | > 1.75x | 4.5x | ||
| Fixed Charge Total Adjusted EBITDA to Total Debt Service | > 1.50x | 4x |
Term Loans –
The Company entered into a Seventh Amended and Restated Credit Agreement, through which the term loans assumed in connection with the RPT Merger were terminated (fully repaid) and new term loans were issued to replace the assumed loans. The new term loans retained the amounts and maturities of the assumed term loans, however, the rates (Adjusted Term SOFR plus 0.905% and fluctuate based on credit rating profile and achieving sustainability metric targets, as described in the agreement) and covenants were revised to match those within the Company's Credit Facility. The following unsecured term loans were assumed, terminated and issued (dollars in millions):
| Type | Date Paid | Amount Repaid | Interest Rate (1) | Maturity Date | ||||||
| Unsecured term loan | Jan-24 | $ | 50.0 | 4.15% | Nov-26 | |||||
| Unsecured term loan | Jan-24 | $ | 100.0 | 4.11% | Feb-27 | |||||
| Unsecured term loan | Jan-24 | $ | 50.0 | 3.43% | Aug-27 | |||||
| Unsecured term loan | Jan-24 | $ | 110.0 | 3.71% | Feb-28 |
(1)
As of September 30, 2024, the interest rate on these term loans is Adjusted Term SOFR plus 81.0 basis points after reductions for sustainability metrics achieved and an upgraded credit rating profile. The Company entered into 20 swap rate agreements with various lenders swapping the interest rates to all-in fixed rates (ranging from 4.5793% to 4.7801% as of September 30, 2024).
On January 2, 2024, Kimco OP entered into a new $200.0 million unsecured term loan credit facility (the “Term Loan Credit Facility”) pursuant to a credit agreement, among Kimco OP, TD Bank, N.A., as administrative agent, and the other parties thereto. The Term Loan Credit Facility accrues interest at a spread (currently 0.800% after reductions for sustainability metrics achieved and an upgraded credit rating profile) to the Adjusted Term SOFR Rate (as defined in the credit agreement), that fluctuates in accordance with changes in Kimco’s senior debt ratings. In addition, during the three months ended September 30 2024, the Company amended the Term Loan Credit Facility, in separate transactions, to increase the aggregate principal amount from $200.0 million to $550.0 million. The additional $350.0 million is subject to the same terms as the existing Term Loan Credit Facility. As of September 30, 2024, the Company had six swap rate agreements with various lenders swapping the overall interest rate on the $550.0 million Term Loan Credit Facility to an all-in fixed rate of 4.6122%.
Mortgages Payable –
During the nine months ended September 30, 2024, the Company repaid $11.8 million of mortgage debt that encumbered three operating properties.
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 re-development and re-tenanting projects. As of September 30, 2024, the Company had over 525 unencumbered property interests in its portfolio.
Other –
During the nine months ended September 30, 2024, the Company sold its remaining 14.2 million shares of ACI common stock held by the Company, generating net proceeds of $299.1 million. For tax purposes, the Company recognized a long-term capital gain of $288.7 million. The Company anticipates retaining the proceeds from this stock sale for general corporate purposes and, as a result, recorded federal and state income taxes of $72.9 million on the taxable gain.
The Parent Company guarantees the unsecured debt instruments of Kimco OP. These guarantees by the Parent Company are full, irrevocable, unconditional and absolute joint and several guarantees to the holders of each series of such unsecured debt instruments.
The Company has issued letters of credit in connection with 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 September 30, 2024, these letters of credit aggregated $39.8 million.
The Company has investments with funding commitments of $27.5 million, of which $19.3 million has been funded as of September 30, 2024.
In connection with the construction of its development and 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 September 30, 2024, there were $16.2 million in performance and surety bonds outstanding.
The Company provides a guaranty for the payment of any debt service shortfalls on the Sheridan Redevelopment Agency issued Series A bonds, which are tax increment revenue bonds issued in connection with a development project in Sheridan, Colorado. These tax increment revenue bonds have a balance of $41.0 million outstanding at September 30, 2024. 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.
In connection with the RPT Merger, the Company provides a guaranty for the payment of any debt service shortfalls on the City of Jacksonville Series 2005A bonds, which are tax increment revenue bonds issued in connection with a redevelopment project in Jacksonville, FL. Repayment of the bonds is to be made in accordance with a level-payment amortization schedule over 20 years, and repayments are made out of tax revenues generated by the redevelopment. The remaining debt service payments due over the life of the
bonds, including principal and interest, are $4.5 million as of September 30, 2024. There have been no payments made by the Company under this guaranty agreement to date and the Company does not expect to make any payments over the life of the agreement.
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 it 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 that 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 for common and preferred stock for the nine months ended September 30, 2024 and 2023 were $507.8 million and $446.6 million, 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 with institutions that have high credit ratings. The Company’s objective is to establish a dividend level that maintains compliance with the Company’s REIT taxable income distribution requirements. On July 30, 2024, the Company’s Board of Directors declared a quarterly dividend with respect to the Company’s classes of preferred shares (Classes L, M and N), which were paid on October 15, 2024, to shareholders of record on October 1, 2024. In addition, the Company’s Board of Directors declared a quarterly cash dividend of $0.24 per common share which was paid on September 19, 2024 to shareholders of record on September 5, 2024.
On October 29, 2024, the Company’s Board of Directors declared quarterly dividends with respect to the Company’s classes of preferred shares (Classes L, M and N), which are scheduled to be paid on January 15, 2025, to shareholders of record on January 2, 2025. Additionally, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per common share, representing a 4.2% increase from the prior quarterly dividend of $0.24, payable on December 19, 2024 to shareholders of record on December 5, 2024.
Hurricane Impact –
The Company incurred no significant damage to its properties in September and October 2024 as a result of hurricanes Helene and Milton, which primarily hit Florida, South Carolina and Georgia.
Funds From Operations
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 generally accepted accounting principles in the United States (“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, in accordance with 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, mark-to-market gains/losses from marketable securities, allowance for credit losses on mortgage receivables, gains/impairments on other investments or other amounts considered incidental to its main business 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income available to the Company’s common shareholders | $ | 128,022 | $ | 111,954 | $ | 220,883 | $ | 495,892 | ||||||||
| Gain on sale of properties | (551 | ) | - | (944 | ) | (52,376 | ) | |||||||||
| Gain on sale of joint venture properties | (7 | ) | (1,130 | ) | (1,501 | ) | (9,020 | ) | ||||||||
| Depreciation and amortization - real estate related | 143,482 | 126,291 | 443,836 | 379,294 | ||||||||||||
| Depreciation and amortization - real estate joint ventures | 21,218 | 16,244 | 64,161 | 48,390 | ||||||||||||
| Impairment charges (including real estate joint ventures) | 375 | 2,237 | 8,778 | 14,040 | ||||||||||||
| Profit participation from other investments, net | 377 | 479 | (5,299 | ) | (2,282 | ) | ||||||||||
| Special dividend income | - | - | - | (194,116 | ) | |||||||||||
| (Gain)/loss on marketable securities/derivative, net | (4,849 | ) | (6,225 | ) | 25,922 | (10,642 | ) | |||||||||
| Provision/(benefit) for income taxes, net (2) | 59 | (669 | ) | 71,706 | 61,463 | |||||||||||
| Noncontrolling interests (1) | (738 | ) | (575 | ) | (2,367 | ) | (68 | ) | ||||||||
| FFO available to the Company’s common shareholders (3) | $ | 287,388 | $ | 248,606 | $ | 825,175 | $ | 730,575 | ||||||||
| Weighted average shares outstanding for FFO calculations: | ||||||||||||||||
| Basic | 671,231 | 617,090 | 670,851 | 616,888 | ||||||||||||
| Units | 3,293 | 2,562 | 3,245 | 2,555 | ||||||||||||
| Convertible preferred shares | 4,265 | - | 4,265 | - | ||||||||||||
| Dilutive effect of equity awards | 289 | 124 | 193 | 129 | ||||||||||||
| Diluted (2) | 679,078 | 619,776 | 678,554 | 619,572 | ||||||||||||
| FFO per common share – basic | $ | 0.43 | $ | 0.40 | $ | 1.23 | $ | 1.18 | ||||||||
| FFO per common share – diluted (2) | $ | 0.43 | $ | 0.40 | $ | 1.23 | $ | 1.18 |
(1)
Related to gains, impairments, depreciation on properties and gains/(losses) on sales of marketable securities/derivative, where applicable.
(2)
Reflects the potential impact of convertible preferred shares and certain units if converted to common stock at the beginning of the period. FFO available to the Company’s common shareholders would be increased by $2,464 and $584 for the three months ended September 30, 2024 and 2023, respectively. FFO available to the Company’s common shareholders would be increased by $7,370 and $1,752 for the nine months ended September 30, 2024 and 2023, respectively. The effect of other certain convertible securities 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 FFO per share calculations.
(3)
Includes merger-related charges of $25.2 million ($0.04 per share on a diluted basis) for the nine months ended September 30, 2024. Includes merger-related charges of $3.8 million for both the three and nine months ended September 30, 2023. In addition, includes income related to the liquidation of the pension plan of $4.8 million, net and $5.0 million, net for the three and nine months ended September 30, 2023, respectively.
Same Property Net Operating Income (“Same property NOI”)
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 and nine months ended September 30, 2024 and 2023, the Company included Same property NOI from the RPT properties acquired through the RPT Merger, as the Company owned these properties for the full three and nine months ended September 30, 2024 and 2023. The amount of the adjustment relating to RPT same property NOI for the nine months ended September 30, 2024 and three and nine months ended September 30, 2023, included in the table below, represents the Same property NOI from RPT properties prior to the RPT Merger, which is not included in the Company's Net income available to the Company’s common shareholders.
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 credit losses, 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income available to the Company’s common shareholders | $ | 128,022 | $ | 111,954 | $ | 220,883 | $ | 495,892 | ||||||||
| Adjustments: | ||||||||||||||||
| Management and other fee income | (4,757 | ) | (4,249 | ) | (13,616 | ) | (12,635 | ) | ||||||||
| General and administrative | 33,850 | 33,697 | 103,238 | 101,180 | ||||||||||||
| Impairment charges | 375 | 2,237 | 4,277 | 14,043 | ||||||||||||
| Merger charges | - | 3,750 | 25,246 | 3,750 | ||||||||||||
| Depreciation and amortization | 144,688 | 127,437 | 447,555 | 382,983 | ||||||||||||
| Gain on sale of properties | (551 | ) | - | (944 | ) | (52,376 | ) | |||||||||
| Special dividend income | - | - | - | (194,116 | ) | |||||||||||
| Interest expense and other income, net | 54,013 | 52,047 | 184,169 | 163,324 | ||||||||||||
| (Gain)/loss on marketable securities, net | (79 | ) | (13,225 | ) | 27,613 | (17,642 | ) | |||||||||
| Provision/(benefit) for income taxes, net | 128 | (729 | ) | 72,355 | 61,127 | |||||||||||
| Equity in income of other investments, net | (216 | ) | (2,100 | ) | (9,468 | ) | (8,741 | ) | ||||||||
| Net income attributable to noncontrolling interests | 2,443 | 2,551 | 6,693 | 9,208 | ||||||||||||
| Preferred dividends, net | 7,961 | 6,285 | 23,864 | 18,736 | ||||||||||||
| RPT same property NOI (1) | - | 42,893 | 610 | 121,761 | ||||||||||||
| Non same property net operating income | (10,664 | ) | (14,368 | ) | (36,620 | ) | (43,209 | ) | ||||||||
| Non-operational expense from joint ventures, net | 28,231 | 23,106 | 85,629 | 61,911 | ||||||||||||
| Same property NOI | $ | 383,444 | $ | 371,286 | $ | 1,141,484 | $ | 1,105,196 |
(1)
Amounts for the respective periods, represent the Same property NOI from RPT properties, not included in the Company's Net income available to the Company's common shareholders.
Same property NOI increased by $12.2 million, or 3.3%, for the three months ended September 30, 2024, as compared to the corresponding period in 2023. This increase is primarily the result of (i) a net increase of $11.7 million, primarily related to an increase in rental revenue driven by strong leasing activity and (ii) a decrease in non-recoverable operating expenses of $0.5 million.
Same property NOI increased by $36.3 million, or 3.3%, for the nine months ended September 30, 2024, as compared to the corresponding period in 2023. This increase is primarily the result of (i) a net increase of $31.5 million, primarily related to an increase in rental revenue driven by strong leasing activity and (ii) a decrease in non-recoverable operating expenses of $4.8 million.
Leasing Activity
During the nine months ended September 30, 2024, the Company executed 1,205 leases totaling 8.0 million square feet in the Company’s consolidated operating portfolio, comprised of 326 new leases and 879 renewals and options. The leasing costs associated with these new leases are estimated to aggregate $67.0 million, or $39.21 per square foot. These costs include $51.3 million of tenant improvements and $15.7 million of external leasing commissions. The average rent per square foot for (i) new leases was $22.97 and (ii) renewals and options was $19.44.
Tenant Lease Expirations
At September 30, 2024, the Company has a total of 9,279 leases in its 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) | 102 | 425 | $ | 9,031 | 0.6 | % | ||||||||||
| 2024 | 137 | 501 | $ | 11,936 | 0.8 | % | ||||||||||
| 2025 | 1,037 | 6,357 | $ | 123,373 | 8.5 | % | ||||||||||
| 2026 | 1,305 | 11,206 | $ | 190,194 | 13.1 | % | ||||||||||
| 2027 | 1,359 | 10,631 | $ | 199,158 | 13.7 | % | ||||||||||
| 2028 | 1,352 | 11,320 | $ | 219,211 | 15.1 | % | ||||||||||
| 2029 | 1,249 | 10,257 | $ | 192,729 | 13.3 | % | ||||||||||
| 2030 | 651 | 5,445 | $ | 111,800 | 7.7 | % | ||||||||||
| 2031 | 417 | 2,828 | $ | 61,624 | 4.2 | % | ||||||||||
| 2032 | 425 | 3,246 | $ | 61,970 | 4.3 | % | ||||||||||
| 2033 | 446 | 3,532 | $ | 67,349 | 4.6 | % | ||||||||||
| 2034 | 417 | 3,148 | $ | 70,676 | 4.9 | % |
(1)
Leases currently under month-to-month lease or in process of renewal.
Previous: Cover and table of contents · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk.