kim20170930_10q.htm

 



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

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.)

 

3333 New Hyde Park Road, New Hyde Park, NY 11042

(Address of principal executive offices) (Zip Code)

 

(516) 869-9000

(Registrant’s telephone number, including area code)

 

        N/A        

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)    Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 12-b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

(Do not check if a smaller reporting 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 is a shell company (as defined in Rule 12-b-2 of the Exchange Act). Yes  No ☒

 

As of October 16, 2017, the registrant had 425,653,409 shares of common stock outstanding.

 



 

 

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements of Kimco Realty Corporation and Subsidiaries (Unaudited)

  

  

  

  

Condensed Consolidated Financial Statements -

  

  

  

  

  

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

3

  

  

 

  

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016

4

  

   

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016

5

  

   

  

Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 2016

6

  

   

  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016

7

     

Notes to Condensed Consolidated Financial Statements

8
     

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations 21
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk 32

  

   

Item 4.

Controls and Procedures 33
     
  PART II OTHER INFORMATION  
     

Item 1.

Legal Proceedings 34
     

Item 1A. 

Risk Factors 34
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 34
     

Item 3.

Defaults Upon Senior Securities 34
     

Item 4.

Mine Safety Disclosures 34
     

Item 5.

Other Information 35
     

Item 6. 

Exhibits 35
     

Signatures

36

 

2

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Assets:

               

Operating real estate, net of accumulated depreciation of $2,458,806 and $2,278,292 respectively

  $ 9,771,654     $ 9,394,755  

Investments in and advances to real estate joint ventures

    509,448       504,209  

Real estate under development

    361,264       335,028  

Other real estate investments

    213,859       209,146  

Mortgages and other financing receivables

    22,538       23,197  

Cash and cash equivalents

    156,588       142,486  

Marketable securities

    14,044       8,101  

Accounts and notes receivable, net

    182,012       181,823  

Other assets

    470,834       431,855  

Total assets (1)

  $ 11,702,241     $ 11,230,600  
                 

Liabilities:

               

Notes payable, net

  $ 4,700,423     $ 3,927,251  

Mortgages payable, net

    850,848       1,139,117  

Dividends payable

    123,270       124,517  

Other liabilities

    603,417       549,888  

Total liabilities (2)

    6,277,958       5,740,773  

Redeemable noncontrolling interests

    16,139       86,953  
                 

Commitments and Contingencies

               
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 6,017,400 and 6,029,100 shares, respectively, 32,000 shares issued and outstanding (in series) Aggregate liquidation preference $800,000

    32       32  

Common stock, $.01 par value, authorized 750,000,000 shares issued and outstanding 425,633,409 and 425,034,113 shares, respectively

    4,256       4,250  

Paid-in capital

    5,926,392       5,922,958  

Cumulative distributions in excess of net income

    (715,621 )     (676,867 )

Accumulated other comprehensive income

    (1,727 )     5,766  

Total stockholders' equity

    5,213,332       5,256,139  

Noncontrolling interests

    194,812       146,735  

Total equity

    5,408,144       5,402,874  

Total liabilities and equity

  $ 11,702,241     $ 11,230,600  

 

(1)

Includes restricted assets of consolidated variable interest entities (“VIEs”) at September 30, 2017 and December 31, 2016 of $647,230 and $333,705, respectively.  See Footnote 6 of the Notes to Condensed Consolidated Financial Statements.

(2)

Includes non-recourse liabilities of consolidated VIEs at September 30, 2017 and December 31, 2016 of $408,112 and $176,216, respectively.  See Footnote 6 of the Notes to Condensed Consolidated Financial Statements.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Revenues

                               

Revenues from rental properties

  $ 290,919     $ 279,286     $ 873,153     $ 859,492  

Management and other fee income

    3,926       5,790       12,456       14,274  
                                 

Total revenues

    294,845       285,076       885,609       873,766  
                                 

Operating expenses

                               

Rent

    2,764       2,728       8,312       8,274  

Real estate taxes

    38,363       37,703       115,379       107,966  

Operating and maintenance

    33,197       32,590       102,862       100,366  

General and administrative

    28,588       27,983       86,395       89,840  

Provision for doubtful accounts

    701       1,092       4,201       5,752  

Impairment charges

    2,944       10,073       34,280       68,126  

Depreciation and amortization

    88,443       96,827       275,787       264,436  

Total operating expenses

    195,000       208,996       627,216       644,760  
                                 

Operating income

    99,845       76,080       258,393       229,006  
                                 

Other income/(expense)

                               

Other income, net

    1,101       4,358       3,813       3,176  

Interest expense

    (47,258 )     (46,552 )     (139,830 )     (149,482 )

Early extinguishment of debt charges

    (1,753 )     (45,674 )     (1,753 )     (45,674 )

Income/(loss) from continuing operations before income taxes, net, equity in income of joint ventures, net, gain on change in control of interests and equity in income from other real estate investments, net

    51,935       (11,788 )     120,623       37,026  
                                 

Benefit/(provision) for income taxes, net

    697       (61,426 )     2,224       (73,292 )

Equity in income of joint ventures, net

    9,142       11,537       37,044       190,155  

Gain on change in control of interests

    -       6,584       71,160       53,096  

Equity in income of other real estate investments, net

    19,909       3,774       61,952       22,532  
                                 

Income/(loss) from continuing operations

    81,683       (51,319 )     293,003       229,517  
                                 

Gain on sale of operating properties, net of tax

    40,533       9,771       62,102       75,935  
                                 

Net income/(loss)

    122,216       (41,548 )     355,105       305,452  
                                 

Net income attributable to noncontrolling interests

    (1,186 )     (1,997 )     (13,926 )     (4,875 )
                                 

Net income/(loss) attributable to the Company

    121,030       (43,545 )     341,179       300,577  
                                 

Preferred stock redemption charge

    (7,014 )     -       (7,014 )     -  

Preferred stock dividends

    (12,059 )     (11,555 )     (35,169 )     (34,665 )
                                 

Net income/(loss) available to the Company's common shareholders

  $ 101,957     $ (55,100 )   $ 298,996     $ 265,912  
                                 

Per common share:

                               

Net income/(loss) available to the Company:

                               

-Basic

  $ 0.24     $ (0.13 )   $ 0.70     $ 0.63  

-Diluted

  $ 0.24     $ (0.13 )   $ 0.70     $ 0.63  
                                 

Weighted average shares:

                               

-Basic

    423,688       420,073       423,574       416,829  

-Diluted

    424,311       420,073       424,193       418,234  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Net income/(loss)

  $ 122,216     $ (41,548 )   $ 355,105     $ 305,452  

Other comprehensive income:

                               

Change in unrealized loss/gain on marketable securities

    153       51       (1,466 )     18  

Change in unrealized loss on interest rate swaps

    103       327       308       (432 )

Change in foreign currency translation adjustment

    (8,056 )     (1,383 )     (6,335 )     971  

Other comprehensive (loss)/income:

    (7,800 )     (1,005 )     (7,493 )     557  
                                 

Comprehensive income/(loss)

    114,416       (42,553 )     347,612       306,009  
                                 

Comprehensive income attributable to noncontrolling interests

    (1,186 )     (1,997 )     (13,926 )     (4,875 )
                                 

Comprehensive income/(loss) attributable to the Company

  $ 113,230     $ (44,550 )   $ 333,686     $ 301,134  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

`

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Nine Months Ended September 30, 2017 and 2016

(Unaudited)

(in thousands)

 

   

Cumulative

   

Accumulated

                                                                 
   

Distributions

   

Other

                                           

Total

                 
   

in Excess

   

Comprehensive

   

Preferred Stock

   

Common Stock

   

Paid-in

   

Stockholders'

   

Noncontrolling

   

Total

 
   

of Net Income

   

Income

   

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

Equity

   

Interests

   

Equity

 
                                                                                 

Balance, January 1, 2016

  $ (572,335 )   $ 5,588       32     $ 32       413,431     $ 4,134     $ 5,608,881     $ 5,046,300     $ 135,651     $ 5,181,951  
                                                                                 

Contributions/deemed contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       507       507  
                                                                                 

Comprehensive income:

                                                                               

Net income

    300,577       -       -       -       -       -       -       300,577       4,875       305,452  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized gain on marketable securities

    -       18       -       -       -       -       -       18       -       18  

Change in unrealized loss on interest rate swaps

    -       (432 )     -       -       -       -       -       (432 )     -       (432 )

Change in foreign currency translation adjustment, net

    -       971       -       -       -       -       -       971       -       971  
                                                              -               -  

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (3,240 )     (3,240 )

Dividends ($0.765 per common share; $1.1250 per

                                                                               

Class I Depositary Share, and $1.0313 per

                                                                               

Class J Depositary Share, and $1.0547 per

                                                                               

Class K Depositary Share, respectively)

    (357,068 )     -       -       -       -       -       -       (357,068 )     -       (357,068 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (7,288 )     (7,288 )

Issuance of common stock, net

    -       -       -       -       10,701       107       285,757       285,864       -       285,864  

Surrender of restricted stock

    -       -       -       -       (270 )     (3 )     (6,901 )     (6,904 )     -       (6,904 )

Exercise of common stock options

    -       -       -       -       1,151       12       20,732       20,744       -       20,744  

Amortization of equity awards

    -       -       -       -       -       -       11,387       11,387       -       11,387  

Balance, September 30, 2016

  $ (628,826 )   $ 6,145       32     $ 32       425,013     $ 4,250     $ 5,919,856     $ 5,301,457     $ 130,505     $ 5,431,962  
                                                                                 

Balance, January 1, 2017

  $ (676,867 )   $ 5,766       32     $ 32       425,034     $ 4,250     $ 5,922,958     $ 5,256,139     $ 146,735     $ 5,402,874  

Contributions/deemed contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       48,867       48,867  

Comprehensive income:

                                                                               

Net income

    341,179       -       -       -       -       -       -       341,179       13,926       355,105  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized loss on marketable securities

    -       (1,466 )     -       -       -       -       -       (1,466 )     -       (1,466 )

Change in unrealized loss on interest rate swaps

    -       308       -       -       -       -       -       308       -       308  

Change in foreign currency translation adjustment

    -       (6,335 )     -       -       -       -       -       (6,335 )     -       (6,335 )
                                                                                 

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (1,203 )     (1,203 )

Dividends ($0.81 per common share; $1.1250 per Class I Depositary Share, and $0.9625 per Class I Depositary Share Redeemed, and $1.0313 per Class J Depositary Share, and $1.0547 per Class K Depositary Share, and $0.1602 per Class L Depositary Share, respectively)

    (379,933 )     -       -       -       -       -       -       (379,933 )     -       (379,933 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (13,513 )     (13,513 )

Issuance of common stock

    -       -       -       -       776       8       (8 )     -       -       -  

Issuance of preferred stock

                    9       9                       217,566       217,575               217,575  

Surrender of restricted stock

    -       -       -       -       (239 )     (2 )     (5,597 )     (5,599 )     -       (5,599 )

Exercise of common stock options

    -       -       -       -       62       -       1,174       1,174       -       1,174  

Amortization of equity awards

    -       -       -       -       -       -       15,290       15,290       -       15,290  

Redemption of preferred stock

    -       -       (9 )     (9 )     -       -       (224,991 )     (225,000 )     -       (225,000 )

Balance, September 30, 2017

  $ (715,621 )   $ (1,727 )     32     $ 32       425,633     $ 4,256     $ 5,926,392     $ 5,213,332     $ 194,812     $ 5,408,144  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Nine Months Ended September 30,

 
   

2017

   

2016

 

Cash flow from operating activities:

               

Net income

  $ 355,105     $ 305,452  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    275,787       264,436  

Impairment charges

    34,280       68,126  

Deferred taxes

    (238 )     56,143  

Early extinguishment of debt charges

    1,753       45,674  

Equity award expense

    17,836       15,292  

Gain on sale of operating properties

    (62,102 )     (81,873 )

Gain on change in control of interests

    (71,160 )     (53,096 )

Equity in income of joint ventures, net

    (37,044 )     (190,155 )

Equity in income from other real estate investments, net

    (61,952 )     (22,532 )

Distributions from joint ventures and other real estate investments

    41,071       70,043  

Change in accounts and notes receivable

    (189 )     3,779  

Change in accounts payable and accrued expenses

    37,884       23,931  

Change in Canadian withholding tax receivable

    4,138       (5,257 )

Change in other operating assets and liabilities

    (41,353 )     (55,437 )

Net cash flow provided by operating activities

    493,816       444,526  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate and other related net assets

    (110,802 )     (181,548 )

Improvements to operating real estate

    (136,534 )     (102,084 )

Acquisition of real estate under development

    (10,010 )     (51,588 )

Improvements to real estate under development

    (121,764 )     (42,042 )

Investment in marketable securities

    (9,822 )     (2,466 )

Proceeds from sale of marketable securities

    2,442       1,907  

Investments in and advances to real estate joint ventures

    (26,788 )     (50,058 )

Reimbursements of investments in and advances to real estate joint ventures

    17,529       70,669  

Distributions from liquidation of real estate joint ventures

    -       135,648  

Return of investment from liquidation of real estate joint ventures

    -       190,102  

Investment in other real estate investments

    (666 )     (233 )

Reimbursements of investments and advances to other real estate investments

    40,514       11,489  

Collection of mortgage loans receivable

    760       688  

Reimbursements of other investments

    -       500  

Proceeds from sale of operating properties

    76,869       262,708  

Proceeds from sale of development properties

    -       4,551  

Net cash flow (used for)/provided by investing activities

    (278,272 )     248,243  
                 

Cash flow from financing activities:

               

Principal payments on debt, excluding normal amortization of rental property debt

    (678,939 )     (602,079 )

Principal payments on rental property debt

    (11,508 )     (15,316 )

Proceeds from mortgage loan financings

    206,000       -  

(Repayments)/proceeds from unsecured revolving credit facility, net

    (42 )     226,447  

Proceeds from issuance of unsecured notes

    1,250,000       650,000  

Repayments under unsecured term loan/notes

    (460,988 )     (861,850 )

Financing origination costs

    (22,975 )     (14,033 )

Payment of early extinguishment of debt charges

    (2,461 )     (45,674 )

Change in tenants' security deposits

    891       1,240  

Contributions from noncontrolling interests

    1,422       -  

Conversion/distribution of noncontrolling interests

    (95,410 )     (3,190 )

Dividends paid

    (381,182 )     (354,112 )

Proceeds from issuance of stock, net

    218,750       306,809  

Redemption of preferred stock

    (225,000 )     -  

Net cash flow used for financing activities

    (201,442 )     (711,758 )
                 

Change in cash and cash equivalents

    14,102       (18,989 )
                 

Cash and cash equivalents, beginning of period

    142,486       189,534  

Cash and cash equivalents, end of period

  $ 156,588     $ 170,545  
                 

Interest paid during the period (net of capitalized interest of $10,671 and $3,762, respectively)

  $ 118,736     $ 194,234  
                 

Income taxes paid during the period (net of refunds received of $8,323 and $86,100, respectively)

  $ (6,694 )   $ 34,296  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                        

1. Interim Financial Statements

 

Business -

 

Kimco Realty Corporation and subsidiaries (the "Company"), affiliates and related real estate joint ventures are engaged principally in the ownership, management, development and operation of open-air shopping centers, which are anchored generally by discount department stores, grocery stores or drugstores. Additionally, the Company provides complementary services that capitalize on the Company’s established retail real estate expertise.

 

The Company elected status as a Real Estate Investment Trust (a “REIT”) for federal income tax purposes beginning in its taxable year ended December 31, 1991 and operates in a manner that enables the Company to maintain its status as a REIT.  As a REIT, with respect to each taxable year, the Company must distribute at least 90 percent of its taxable income (excluding capital gain) and does not pay federal income taxes on the amount distributed to its shareholders.  The Company is not generally subject to federal income taxes if it distributes 100 percent of its taxable income.  Most states, where the Company holds investments in real estate, conform to the federal rules recognizing REITs.  Certain subsidiaries have made a joint election with the Company to be treated as taxable REIT subsidiaries (“TRSs”), which permit the Company to engage in certain business activities which the REIT may not conduct directly.  A TRS is subject to federal and state income taxes on its income, and the Company includes, when applicable, a provision for taxes in its condensed consolidated financial statements.  The Company is subject to and also includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. These investments are held by the Company at the REIT level and not in the Company’s taxable REIT subsidiaries. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries.

 

Principles of Consolidation -

 

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company. The Company’s subsidiaries include subsidiaries which are wholly-owned and all entities in which the Company has a controlling financial interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity (“VIE”) in accordance with the Consolidation guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). All inter-company balances and transactions have been eliminated in consolidation.  The information presented in the accompanying Condensed Consolidated Financial Statements is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.  These Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited Annual Report on Form 10-K for the year ended December 31, 2016 (the “10-K”), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, that would duplicate those included in the 10-K are not included in these Condensed Consolidated Financial Statements.

 

Subsequent Events -

 

The Company has evaluated subsequent events and transactions for potential recognition or disclosure in the condensed consolidated financial statements (see Footnote 9).

 

8

 

Earnings Per Share -

 

The following table sets forth the reconciliation of earnings and the weighted average number of shares used in the calculation of basic and diluted earnings per share (amounts presented in thousands except per share data):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Computation of Basic and Diluted Earnings/(Loss) Per Share:

                               

Net income/(loss) available to the Company's common shareholders

    101,957       (55,100 )     298,996       265,912  

Earnings attributable to participating securities

    (526 )     (502 )     (1,596 )     (1,493 )

Net income/(loss) available to the Company’s common shareholders for basic earnings/(loss) per share

    101,431       (55,602 )     297,400       264,419  

Distributions on convertible units

    24       -       43       -  

Net income/(loss) available to the Company’s common shareholders for diluted earnings/(loss) per share

    101,455       (55,602 )     297,443       264,419  
                                 

Weighted average common shares outstanding – basic

    423,688       420,073       423,574       416,829  

Effect of dilutive securities (a):

                               

Equity awards

    513       -       556       1,405  

Assumed conversion of convertible units

    110       -       63       -  

Weighted average common shares outstanding – diluted

    424,311       420,073       424,193       418,234  
                                 

Net income/(loss) available to the Company's common shareholders:

                               

Basic earnings/(loss) per share

    0.24       (0.13 )     0.70       0.63  

Diluted earnings/(loss) per share

    0.24       (0.13 )     0.70       0.63  

 

(a)

The effect of the assumed conversion of certain convertible units had an anti-dilutive effect upon the calculation of Income from continuing operations per share. Accordingly, the impact of such conversions has not been included in the determination of diluted earnings/(loss) per share calculations. Additionally, there were 2,314,908 and 3,545,000 stock options that were not dilutive as of September 30, 2017 and 2016, respectively.

 

The Company's unvested restricted share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings.

 

New Accounting Pronouncements

 

The following table represents Accounting Standard Updates (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”) that are not yet effective for the Company and for which the Company has not elected early adoption, where permitted:

 

ASU

Description

Effective

Date

Effect on the financial

statements or other significant

matters

ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting

The amendment provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance will be applied prospectively to awards modified on or after the adoption date.

 

January 1, 2018; Early adoption permitted

The adoption is not expected to have a material effect on the Company’s financial position and/or results of operations.

ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (“Subtopic 610-20”): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

The amendment clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and defines the term in substance nonfinancial asset. ASU 2017-05 also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty.  Subtopic 610-20, which was issued in May 2014 as part of ASU 2014-09, discussed below, provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity is required to apply the amendments in ASU 2017-05 at the same time it applies the amendments in ASU 2014-09 discussed below. An entity may elect to apply the amendments in ASU 2017-05 either retrospectively to each period presented in the financial statements in accordance with the guidance on accounting changes in ASC Topic 250, Accounting Changes and Error Corrections, paragraphs 10-45-5 through 10-45-10 (i.e. the retrospective approach) or retrospectively with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption (i.e. the modified retrospective approach). An entity may elect to apply all of the amendments in ASU 2017-05 and ASU 2014-09 using the same transition method, or alternatively may elect to use different transition methods.

January 1, 2018; Early adoption is permitted if adopted with ASU 2014-09

The Company will adopt the provisions of Subtopic 610-20 in the first quarter of fiscal 2018, using the modified retrospective approach.  Upon adoption, the Company will appropriately apply the guidance to prospective disposals of nonfinancial assets within the scope of Subtopic 610-20.

 

9

 

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

The new guidance introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses.

 

January 1, 2020; Early adoption permitted

The adoption is not expected to have a material effect on the Company’s financial position and/or results of operations.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

 

ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

 

ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations

 

ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying performance obligations and licensing

 

ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-scope improvements and practical expedients

 

ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 was anticipated to be effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption was not permitted.

 

In August 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09 by one year making it effective for the first interim period within annual reporting periods beginning after December 15, 2017.

 

Subsequently, in March 2016, the FASB issued ASU 2016-08, which further clarifies the implementation guidance on principal versus agent considerations, and in April 2016, the FASB issued ASU 2016-10, an update on identifying performance obligations and accounting for licenses of intellectual property.

 

Additionally, in May 2016, the FASB issued ASU 2016-12, which includes amendments for enhanced clarification of the guidance. Early adoption is permitted as of the original effective date.

January 1, 2018; Early adoption permitted as of original effective date, which was January 1, 2017

The Company’s revenue-producing contracts are primarily leases that are not within the scope of this standard, except for the lease component relating to common area maintenance (“CAM”) reimbursement revenue, which will be within the scope of this standard upon the effective date of ASU 2016-02 discussed below. The Company continues to evaluate the effect the adoption will have on the Company’s other sources of revenue which include management and other fee income. However, the Company currently does not believe the adoption will significantly affect the timing of the recognition of the Company’s management and other fee income. The Company plans to adopt this standard using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of adoption.

 

ASU 2016-02, Leases (Topic 842)

This ASU sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840).

January 1, 2019; Early adoption permitted

The Company continues to evaluate the effect the adoption will have on the Company’s financial position and/or results of operations. However, the Company currently believes that the adoption will not have a material impact for operating leases where it is a lessor and will continue to record revenues from rental properties for its operating leases on a straight-line basis. However, for leases where the Company is a lessee, primarily for the Company’s ground leases and administrative office leases, the Company will be required to record a lease liability and a right of use asset on its Consolidated Balance Sheets at fair value upon adoption. In addition, direct internal leasing costs will continue to be capitalized, however, indirect internal leasing costs previously capitalized will be expensed. Within the terms of the Company’s leases where the Company is the lessor, the Company is entitled to receive reimbursement amounts from tenants for operating expenses such as real estate taxes, insurance and other CAM. CAM reimbursement revenue will be accounted for in accordance with Topic 606 upon adoption of this ASU 2016-02. The Company continues to evaluate the effect the adoption will have on this source of revenue. However, the Company currently does not believe the adoption will significantly affect the timing of the recognition of the Company’s CAM reimbursement revenue.

 

 

10

 

The following ASU’s to the FASB’s ASC have been adopted by the Company:

 

ASU

Description

Adoption Date

Effect on the financial statements or other significant matters

ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business

The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.

January 1, 2017; Elected early adoption

The Company’s operating property acquisitions during the nine months ended September 30, 2017, qualified for asset acquisition treatment under ASC 360, Property, Plant, and Equipment, rather than business combination treatment under ASC 805 Business Combinations, and resulted in the capitalization of asset acquisition costs rather than directly expensing these costs.

 

ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

The update simplifies several aspects of accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.

 

January 1, 2017

The adoption did not have a material effect on the Company’s financial position and/or results of operations.

 

2. Operating Property Activities

 

Acquisitions of Operating Real Estate -

 

During the nine months ended September 30, 2017, the Company acquired the following operating properties, in separate transactions, through direct asset purchases or consolidation due to change in control resulting from the purchase of additional interests or obtaining control through the modification of a joint venture investment:

 

       

Purchase Price (in thousands)

 

Property Name

Location

Month

Acquired/

Consolidated

 

Cash*

   

Debt

   

Other

Consideration**

   

Total

   

GLA***

 

Plantation Commons

Plantation, FL (1)(3)

Jan-17

  $ -     $ -     $ 12,300     $ 12,300       60  

Gordon Plaza

Woodbridge, VA (1)(3)

Jan-17

    -       -       3,100       3,100       184  

Plaza del Prado

Glenview, IL

Jan-17

    39,063       -       -       39,063       142  

Columbia Crossing Parcel

Columbia Crossing, MD

Jan-17

    5,100       -       -       5,100       25  

The District at Tustin Legacy

Tustin, CA (2)(3)

Apr-17

    -       206,000       98,698       304,698       688  

Jantzen Beach Center

Portland, OR

Jul-17

    131,927       -       -       131,927       722  

Del Monte Plaza Parcel

Reno, NV

Jul-17

    24,152       -       -       24,152       83  

Gateway Station Phase II

Burleson, TX

Aug-17

    15,355       -       -       15,355       79  

Jantzen Beach Center Parcel

Portland, OR

Sep-17

    6,279       -       -       6,279       25  

Webster Square Outparcel

Nashua, NH

Sep-17

    4,985       -       -       4,985       22  
        $ 226,861     $ 206,000     $ 114,098     $ 546,959       2,030  

 

11


* The Company utilized an aggregate $115.9 million associated with Internal Revenue Code §1031 sales proceeds.

** Includes the Company’s previously held equity interest investment.

*** Gross leasable area ("GLA")

 

(1)

The Company acquired from its partners, their ownership interest in properties that were held in joint ventures in which the Company had noncontrolling interests. The Company now has a controlling interest in these properties and has deemed these entities to be VIEs for which the Company is the primary beneficiary and now consolidates these assets.

(2)

Effective April 1, 2017, the Company and its partner amended its joint venture agreement relating to the Company’s investment in this property. As a result of this amendment, the Company now controls the entity and consolidates the property. This entity is deemed to be a VIE for which the Company is the primary beneficiary.

(3)

The Company evaluated these transactions pursuant to the FASB’s Consolidation guidance and as a result, recognized gains on change in control of interests resulting from the fair value adjustments associated with the Company’s previously held equity interests, which are included in the purchase price above in Other Consideration. The Company’s current ownership interests and gains on change in control of interests recognized as a result of these transactions are as follows (in thousands):

 

Property Name

 

Current

Ownership

Interest

   

Gain on change

in control of

interests

 

Plantation Commons

    76.25%     $ 9,793  

Gordon Plaza

    40.62%       395  

The District at Tustin Legacy

 

(a)

      60,972  
            $ 71,160  

 

 

(a)

The Company’s share of this investment is subject to change as a result of a waterfall computation which is dependent upon property cash flows (54.27% as of date of consolidation).

 

Included in the Company’s Condensed Consolidated Statements of Operations are $17.8 million and $12.1 million in revenues from rental properties from the date of acquisition through September 30, 2017 and 2016, respectively, for operating properties acquired during each of the respective years.

 

The Company adopted ASU 2017-01 effective January 1, 2017 and applied the guidance to its operating property acquisitions during the nine months ended September 30, 2017. The purchase price for these acquisitions is allocated to real estate and related intangible assets acquired and liabilities assumed, as applicable, in accordance with our accounting policies for asset acquisitions.

 

The purchase price allocations for properties acquired/consolidated during the nine months ended September 30, 2017, are as follows (in thousands): 

 

Land

  $ 190,226  

Buildings

    293,355  

Above-market leases

    11,992  

Below-market leases

    (30,246 )

In-place leases

    42,412  

Building improvements

    30,917  

Tenant improvements

    12,737  

Mortgage fair value adjustment

    (6,222 )

Other assets

    5,090  

Other liabilities

    (3,302 )

Net assets acquired

  $ 546,959  

 

As of September 30, 2017, the allocation adjustments and revised allocations for properties accounted for as business combinations during the year ended December 31, 2016, are as follows (in thousands): 

 

   

Allocation as of

December 31, 2016

   

Allocation

Adjustments

   

Revised Allocation as

of September 30, 2017

 

Land

  $ 179,150     $ (5,150 )   $ 174,000  

Buildings

    309,493       (30,696 )     278,797  

Above-market leases

    11,982       885       12,867  

Below-market leases

    (31,903 )     (4,716 )     (36,619 )

In-place leases

    44,094       (1,063 )     43,031  

Building improvements

    124,105       41,895       166,000  

Tenant improvements

    12,788       (1,155 )     11,633  

Mortgage fair value adjustment

    (4,292 )     -       (4,292 )

Other assets

    234       -       234  

Other liabilities

    (27 )     -       (27 )

Net assets acquired

  $ 645,624     $ -     $ 645,624  

 

12

 

Dispositions and Assets Held for Sale

 

During the nine months ended September 30, 2017, the Company disposed of 15 consolidated operating properties and eight parcels, in separate transactions, for an aggregate sales price of $230.2 million. These transactions resulted in (i) an aggregate gain of $62.1 million and (ii) aggregate impairment charges of $13.0 million.

 

At September 30, 2017, the Company had one property classified as held-for-sale at a carrying amount of $14.9 million, net of accumulated depreciation of $2.9 million, which is included in Other assets on the Company’s Condensed Consolidated Balance Sheets. The Company’s determination of the fair value of the property was based upon an executed contract of sale with a third party.

 

Impairments

 

During the nine months ended September 30, 2017, the Company recognized aggregate impairment charges of $34.3 million. These impairment charges consist of (i) $13.0 million related to the sale of certain operating properties, as discussed above, (ii) $5.1 million related to adjustments to property carrying values for properties which the Company has marketed for sale as part of its active capital recycling program and as such has adjusted the anticipated hold periods for such properties and (iii) $16.2 million related to a property for which the Company has re-evaluated its long-term plan for the property due to unfavorable local market conditions. The Company’s estimated fair values of these properties were primarily based upon estimated sales prices from (i) signed contracts or letters of intent from third party offers or (ii) a discounted cash flow model. See Footnote 11 for fair value disclosure.

 

Hurricane Impact

 

The impact of Hurricanes Harvey, which hit Texas on August 25, 2017, and Irma, which hit Florida on September 10, 2017, resulted in minimal damage to the Company’s properties located in Texas and Florida.

 

With respect to Hurricane Maria, which hit the island of Puerto Rico on September 20, 2017, the Company is currently assessing damages at its seven operating properties located throughout Puerto Rico, aggregating 2.2 million square feet of GLA. Two of these operating properties, located in the southern region of the island were less impacted and most tenants have resumed operations, while the remaining five operating properties in the northern region sustained varying amounts of damage.  Initial repairs are in progress, however, a final assessment and recovery plan will require additional time.  The Company maintains a comprehensive property insurance policy on these properties with total coverage of up to $62.0 million, as well as business interruption insurance with coverage up to $39.3 million in the aggregate, subject to a collective deductible of $1.2 million. The Company anticipates that all damages and any loss of operations sustained will be covered under these existing policies. As further detailed information becomes available, the Company expects to recognize a charge, which it believes will not have a material effect on the Company’s financial position and/or results of operations.  This charge will result from the write-down of the undepreciated portion of the property that has been permanently damaged, which would be less than the replacement costs and offset by insurance proceeds received by the Company. 

 

3. Real Estate Under Development

 

The Company is engaged in various real estate development projects for long-term investment. As of September 30, 2017, the Company had in progress a total of five active real estate development projects and two additional projects held for future development.

 

The costs incurred to date for these real estate development projects are as follows (in thousands):

 

Property Name

Location

 

September 30, 2017

   

December 31, 2016

 

Grand Parkway Marketplace (1)

Spring, TX

  $ 41,222     $ 94,841  

Dania Pointe 

Dania Beach, FL

    137,743       107,113  

Promenade at Christiana

New Castle, DE

    31,563       25,521  

Owings Mills

Owings Mills, MD

    30,746       25,119  

Lincoln Square (2)

Philadelphia, PA

    62,022       -  

Avenues Walk (3)

Jacksonville, FL

    48,573       73,048  

Staten Island Plaza (4)

Staten Island, NY

    9,395       9,386  
      $ 361,264     $ 335,028  

 

 

(1)

During the nine months ended September 30, 2017, the Company sold a land parcel at this development project for a sales price of $2.9 million. Additionally, as of September 30, 2017, certain aspects of this development project, aggregating $91.0 million, were placed in service and reclassified into Operating real estate, net on the Company’s Condensed Consolidated Balance Sheets. The remaining portion relates to the second phase of this project which is under development.

 

(2)

During the nine months ended September 30, 2017, KIM Lincoln, LLC (“KIM Lincoln”), a wholly owned subsidiary of the Company, and Lincoln Square Property, LP (“Lincoln Member”) entered into a joint venture agreement wherein KIM Lincoln has a 90% controlling interest and Lincoln Member has a 10% noncontrolling interest. The joint venture acquired land parcels in Philadelphia, PA to be held for development for a gross purchase price of $10.0 million. Based upon the Company’s intent to develop the property, the Company allocated the gross purchase price to Real estate under development on the Company’s Condensed Consolidated Balance Sheets. This joint venture is accounted for as a consolidated VIE (see Footnote 6).

 

(3)

Effective April 1, 2017, certain aspects of this development project, aggregating $24.5 million, were placed in service and reclassified into Operating real estate, net on the Company’s Condensed Consolidated Balance Sheets. The remaining portion of the project consists of a mixed-use project to be developed in the future.

 

(4)

Land held for future development.

 

13

 

During the nine months ended September 30, 2017, the Company capitalized (i) interest of $8.4 million, (ii) real estate taxes, insurance and legal costs of $3.7 million and (iii) payroll of $2.8 million, in connection with these real estate development projects.

 

4. Investments in and Advances to Real Estate Joint Ventures

 

The Company and its subsidiaries have investments in and advances to various real estate joint ventures. These joint ventures are engaged primarily in the operation of shopping centers which are either owned or held under long-term operating leases. The Company and the joint venture partners have joint approval rights for major decisions, including those regarding property operations. As such, the Company holds noncontrolling interests in these joint ventures and accounts for them under the equity method of accounting.

 

The table below presents joint venture investments for which the Company held an ownership interest at September 30, 2017 and December 31, 2016 (in millions, except number of properties):

 

   

As of September 30, 2017

   

As of December 31, 2016

 

Venture

 

Ownership

Interest

   

Number of

Properties

   

The

Company's

Investment

   

Ownership

Interest

   

Number of

Properties

   

The

Company's

Investment

 

Prudential Investment Program (“KimPru” and “KimPru II”) (1) (2)

    15.0 %     46     $ 179.0       15.0 %     48     $ 182.5  

Kimco Income Opportunity Portfolio (“KIR”) (2)

    48.6 %     44       149.6       48.6 %     45       145.2  

Canada Pension Plan Investment Board (“CPP”) (2)

    55.0 %     5       122.4       55.0 %     5       111.8  

Other Joint Venture Programs

 

Various

      31       58.4    

Various

      37       64.7  

Total*

            126     $ 509.4               135     $ 504.2  

 

* Representing 24.6 million and 26.2 million square feet of GLA, as of September 30, 2017 and December 31, 2016, respectively.

 

(1)

Represents four separate joint ventures, with four separate accounts managed by Prudential Global Investment Management (“PGIM”), three of these ventures are collectively referred to as KimPru and the remaining venture is referred to as KimPru II.

(2)

The Company manages these joint venture investments and, where applicable, earns acquisition fees, leasing commissions, property management fees, asset management fees and construction management fees.

 

The table below presents the Company’s share of net income for the above investments which is included in Equity in income of joint ventures, net on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016 (in millions):

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

KimPru and KimPru II

  $ 3.2       2.2     $ 9.7       7.5  

KIR

    8.2       7.9       24.7       27.4  

CPP

    1.3       1.3       4.3       6.2  

Other Joint Venture Programs (1)

    (3.6 )     0.1       (1.7 )     149.1  

Total

  $ 9.1     $ 11.5     $ 37.0     $ 190.2  

 

 

(1)

During the three and nine months ended September 30, 2017, the Company recognized a cumulative foreign currency translation loss of $4.8 million as a result of the substantial liquidation of the Company’s investments in Canada during 2017.

     

During the nine months ended September 30, 2017, certain of the Company’s real estate joint ventures disposed of six operating properties and a portion of one property, in separate transactions, for an aggregate sales price of $49.3 million. These transactions resulted in an aggregate net gain to the Company of $0.1 million, before income taxes, for the nine months ended September 30, 2017. In addition, during the nine months ended September 30, 2017, the Company acquired a controlling interest in three operating properties from certain joint ventures, in separate transactions, for a gross fair value of $320.1 million. See Footnote 2 for the operating properties acquired by the Company.

 

During the nine months ended September 30, 2016, certain of the Company’s real estate joint ventures disposed of or transferred interests to joint venture partners in 39 operating properties, in separate transactions, for an aggregate sales price of $959.2 million. These transactions resulted in an aggregate net gain to the Company of $143.3 million, before income taxes, for the nine months ended September 30, 2016. In addition, during the nine months ended September 30, 2016, the Company acquired a controlling interest in six operating properties and one development project from certain joint ventures, in separate transactions, for a gross fair value of $486.2 million.

 

14

 

The table below presents debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at September 30, 2017 and December 31, 2016 (dollars in millions):

 

     

As of September 30, 2017

   

As of December 31, 2016

 

Venture

 

Mortgages

and

Notes

Payable, Net

   

Weighted

Average

Interest Rate

   

Weighted

Average

Remaining

Term

(months)*

   

Mortgages

and

Notes

Payable, Net

   

Weighted

Average

Interest Rate

   

Weighted

Average

Remaining

Term

(months)*

 

KimPru and KimPru II

  $ 626.9       3.35

%

    62.9     $ 647.4       3.07 %     67.5  

KIR

    725.7       4.54

%

    49.7       746.5       4.64 %     54.9  

CPP

    84.9       2.78

%

    7.0       84.8       2.17 %     16.0  

Other Joint Venture Programs

    289.0       4.37

%

    29.8       584.3       5.40 %     23.4  

Total

  $ 1,726.5                     $ 2,063.0                  

 

* Includes extension options

 

5. Other Real Estate Investments

 

Preferred Equity Capital -

 

The Company previously provided capital to owners and developers of real estate properties through its Preferred Equity Program. The Company’s maximum exposure to losses associated with its preferred equity investments is primarily limited to its net investment. As of September 30, 2017, the Company’s net investment under the Preferred Equity Program was $198.1 million relating to 357 properties, including 345 net leased properties.  During the nine months ended September 30, 2017, the Company recognized income of $27.2 million from its preferred equity investments, including $14.8 million of cumulative foreign currency translation gain recognized as a result of the substantial liquidation of the Company’s investments in Canada during 2017. During the nine months ended September 30, 2016, the Company earned $22.3 million from its preferred equity investments, including $10.1 million in profit participation earned from four capital transactions. These amounts are included in Equity in income of other real estate investments, net on the Company’s Condensed Consolidated Statements of Operations.

 

Kimsouth (Albertsons) -

 

Kimsouth Realty Inc. (“Kimsouth”) is a wholly-owned subsidiary of the Company. KRS AB Acquisition, LLC (the “ABS Venture”) is a subsidiary of Kimsouth that has a 14.35% noncontrolling interest (of which the Company’s share is 9.8%), in AB Acquisition, LLC (“AB Acquisition”), a joint venture which owns Albertsons LLC (“Albertsons”), NAI Group Holdings Inc. and Safeway Inc. The Company holds a controlling interest in the ABS Venture and consolidates this entity.

 

During June 2017, the Company and ABS Venture received an aggregate cash distribution of $34.6 million from Albertsons, of which the Company’s combined share was $23.7 million with the remaining $10.9 million distributed to the two noncontrolling interest members in the ABS Venture. This distribution exceeded the Company’s carrying basis and as such was recognized as income and is included in Equity in income from other real estate investments, net on the Company’s Condensed Consolidated Statements of Operations.

 

6. Variable Interest Entities (VIE”)

 

Included within the Company’s consolidated operating properties at September 30, 2017, are 24 consolidated partnership entities that are VIEs, for which the Company is the primary beneficiary. These entities have been established to own and operate real estate property. The Company’s involvement with these entities is through its majority ownership and management of the properties. The entities were deemed VIEs primarily based on the fact that the unrelated investors do not have substantial kick-out rights to remove the general or managing partner by a vote of a simple majority or less and they do not have participating rights. The Company determined that it was the primary beneficiary of these VIEs as a result of its controlling financial interest. At September 30, 2017, total assets of these VIEs were $1.2 billion and total liabilities were $385.6 million.

 

The majority of the operations of these VIEs are funded with cash flows generated from the properties. The Company has not provided financial support to any of these VIEs that it was not previously contractually required to provide, which consists primarily of funding any capital expenditures, including tenant improvements, which are deemed necessary to continue to operate the entity and any operating cash shortfalls that the entity may experience.

 

15

 

Additionally, included within the Company’s real estate development projects at September 30, 2017, are three consolidated partnership entities that are VIEs, for which the Company is the primary beneficiary. These entities have been established to develop real estate properties to hold as long-term investments. The Company’s involvement with these entities is through its majority ownership and management of the properties. These entities were deemed VIEs primarily based on the fact that the equity investments at risk are not sufficient to permit the entities to finance their activities without additional financial support. The initial equity contributed to these entities was not sufficient to fully finance the real estate construction as development costs are funded by the partners throughout the construction period. The Company determined that it was the primary beneficiary of these VIEs as a result of its controlling financial interest. At September 30, 2017, total assets of these real estate development VIEs were $269.3 million and total liabilities were $22.5 million.

 

Substantially all the projected development costs to be funded for these three real estate development projects, aggregating $129.3 million, will be funded with capital contributions from the Company, when contractually obligated. The Company has not provided financial support to these VIEs that it was not previously contractually required to provide.

  

All liabilities of these consolidated VIEs are non-recourse to the Company (“VIE Liabilities”). Of the 27 total VIEs, 22 are unencumbered and the assets of these VIEs are not restricted for use to settle only the obligations of these VIEs. The remaining five VIEs are encumbered by third party non-recourse mortgage debt. The assets associated with these encumbered VIEs (“Restricted Assets”) are collateral under the respective mortgages and are therefore restricted and can only be used to settle the corresponding liabilities of the VIE. The classification of the Restricted Assets and VIE Liabilities on the Company’s Condensed Consolidated Balance Sheets are as follows (in millions):

 

   

September 30, 2017

   

December 31, 2016

 

Restricted Assets:

               

Real estate, net

  $ 630.9     $ 326.9  

Cash and cash equivalents

    10.5       3.8  

Accounts and notes receivable, net

    2.8       1.6  

Other assets

    3.0       1.4  

Total Restricted Assets

  $ 647.2     $ 333.7  
                 

VIE Liabilities:

               

Mortgages payable, net

  $ 341.4     $ 138.6  

Other liabilities

    66.7       37.6  

Total VIE Liabilities

  $ 408.1     $ 176.2  

 

7. Mortgages and Other Financing Receivables

 

The Company has various mortgages and other financing receivables which consist of loans acquired and loans originated by the Company. The Company reviews payment status to identify performing versus non-performing loans. As of September 30, 2017, the Company had a total of 11 loans aggregating $22.5 million, of which all were identified as performing loans.

 

8. Marketable Securities

 

       During the nine months ended September 30, 2017, the Company acquired available-for-sale marketable equity securities for an aggregate purchase price of $9.8 million. At September 30, 2017, the Company’s investment in marketable securities was an aggregate of $14.0 million, which includes an unrealized loss of $1.1 million.

 

9. Notes and Mortgages Payable

 

Notes Payable -

 

In February 2017, the Company closed on a $2.25 billion unsecured revolving credit facility (the “Credit Facility”) with a group of banks, which is scheduled to expire in March 2021, with two additional six month options to extend the maturity date, at the Company’s discretion, to March 2022. This Credit Facility, which accrues interest at a rate of LIBOR plus 87.5 basis points (2.10% as of September 30, 2017), can be increased to $2.75 billion through an accordion feature. The Credit Facility replaced the Company’s $1.75 billion unsecured revolving credit facility that was scheduled to mature in March 2018. In addition, the Credit Facility includes a $500.0 million sub-limit which provides the company the opportunity to borrow in alternative currencies including Canadian Dollars, British Pounds Sterling, Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the Company, among other things, is subject to covenants requiring the maintenance of (i) maximum leverage ratios on both unsecured and secured debt and (ii) minimum interest and fixed coverage ratios. As of September 30, 2017, the Credit Facility had a balance of $25.0 million outstanding and $0.5 million appropriated for letters of credit.

 

16

 

During the nine months ended September 30, 2017, the Company issued the following Senior Unsecured Notes (amounts in millions):

 

 

Date Issued

 

Maturity Date

 

Amount Issued

   

Interest Rate

 

Mar-17

 

Apr-27

  $ 400.0       3.80 %

Aug-17

 

Feb-25

  $ 500.0       3.30 %

Aug-17

 

Sept-47

  $ 350.0       4.45 %

 

During the nine months ended September 30, 2017, the Company repaid the following notes (amounts in millions):

 

Type

 

Date Paid

 

Amount Repaid

   

Interest Rate

 

Maturity Date

Term Loan

 

Jan-17

  $ 250.0    

(a)

 

Jan-17

Medium Term Notes (“MTN”) (b)

 

Aug-17

  $ 211.0       4.30%  

Feb-18

 

  (a) 

Interest rate was equal to LIBOR + 0.95%.

 

(b)

On August 1, 2017, the Company made a tender offer to purchase any and all of these MTN notes outstanding. As a result, the Company accepted the tender of $211.0 million of its $300.0 million outstanding MTN notes on August 10, 2017. In connection with this tender offer, the Company recorded a tender premium of $1.8 million resulting from the partial repayment of the MTN notes. Subsequently, in October 2017, the Company announced its intention to redeem the remaining $89.0 million outstanding on November 1, 2017.

 

Mortgages Payable -

 

During the nine months ended September 30, 2017, the Company (i) consolidated $212.2 million of individual non-recourse mortgage debt (including a fair market value adjustment of $6.2 million) relating to a joint venture operating property which the Company now controls, (ii) paid off $684.6 million of maturing mortgage debt (including fair market value adjustments of $5.7 million) that encumbered 25 operating properties and (iii) obtained a $206.0 million non-recourse mortgage relating to one operating property.

 

10. Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests includes amounts related to partnership units issued by consolidated subsidiaries of the Company in connection with certain property acquisitions.  Partnership units which are determined to be contingently redeemable under the FASB’s Distinguishing Liabilities from Equity guidance are classified as Redeemable noncontrolling interests and presented in the mezzanine section between Total liabilities and Stockholder’s equity on the Company’s Condensed Consolidated Balance Sheets. The amounts of consolidated net income attributable to the Company and to the noncontrolling interests are presented on the Company’s Condensed Consolidated Statements of Operations.

 

The following table presents the change in the redemption value of the Redeemable noncontrolling interests for the nine months ended September 30, 2017 and 2016 (amounts in thousands):

 

   

2017

   

2016

 

Balance at January 1,

  $ 86,953     $ 86,709  

Issuance of redeemable partnership interests (1)

    10,000       -  

Income (2)

    1,203       3,240  

Distributions

    (2,448 )     (3,093 )

Redemption/conversion of redeemable units (3)

    (79,569 )     -  

Balance at September 30,

  $ 16,139     $ 86,856  

 

 

(1)

During the nine months ended September 30, 2017, KIM Lincoln, a wholly owned subsidiary of the Company, and Lincoln Member entered into a joint venture agreement wherein KIM Lincoln has a 90% controlling interest and Lincoln Member has a 10% noncontrolling interest (See Footnote 3).

 

(2)

Includes $1.0 million in fair market value remeasurement for the nine months ended September 30, 2017.

 

(3)

During 2017, the Company redeemed the remaining 79,642,697 Preferred A Units for a total redemption price of $79.9 million, including an accrued preferred return of $0.4 million. These Preferred A Units, which had a par value of $1.00 and return per annum of 5.0%, were issued during 2006 along with the acquisition of seven shopping center properties located in Puerto Rico.

 

11. Fair Value Measurements

 

All financial instruments of the Company are reflected in the accompanying Condensed Consolidated Balance Sheets at amounts which, in management’s estimation, based upon an interpretation of available market information and valuation methodologies, reasonably approximate their fair values except those listed below, for which fair values are disclosed. The valuation method used to estimate fair value for fixed-rate and variable-rate debt is based on discounted cash flow analyses, with assumptions that include credit spreads, market yield curves, trading activity, loan amounts and debt maturities. The fair values for marketable securities are based on published values, securities dealers’ estimated market values or comparable market sales. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition.

 

17

 

As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value Measurements and Disclosures guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

 

The following are financial instruments for which the Company’s estimate of fair value differs from the carrying amounts (in thousands):

 

   

September 30, 2017

   

December 31, 2016

 
   

Carrying

Amounts

   

Estimated

Fair Value

   

Carrying

Amounts

   

Estimated

Fair Value

 

Notes payable, net (1)

  $ 4,700,423     $ 4,676,777     $ 3,927,251     $ 3,890,797  

Mortgages payable, net (2)

  $ 850,848     $ 852,165     $ 1,139,117     $ 1,141,047  

 

 

(1)

The Company determined that the valuation of its Senior Unsecured Notes and MTN notes were classified within Level 2 of the fair value hierarchy and its Term Loan and Credit Facility were classified within Level 3 of the fair value hierarchy. The estimated fair value amounts classified as Level 2 as of September 30, 2017 and December 31, 2016, were $4.7 billion and $3.6 billion, respectively.  The estimated fair value amounts classified as Level 3 as of September 30, 2017 and December 31, 2016, were $18.2 million and $272.5 million, respectively.  

 

(2)

The Company determined that its valuation of Mortgages payable, net was classified within Level 3 of the fair value hierarchy. 

 

The Company has certain financial instruments that must be measured under the FASB’s Fair Value Measurements and Disclosures guidance, including available for sale securities. The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.

 

The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

 

   

Balance at

September 30, 2017

   

Level 1

   

Level 2

   

Level 3

 

Assets:

                               

Marketable equity securities

  $ 12,715     $ 12,715     $ -     $ -  

Liabilities:

                               

Interest rate swaps

  $ 667     $ -     $ 667     $ -  

 

   

Balance at

December 31, 2016

   

Level 1

   

Level 2

   

Level 3

 

Assets:

                               

Marketable equity securities

  $ 6,502     $ 6,502     $ -     $ -  

Liabilities:

                               

Interest rate swaps

  $ 975     $ -     $ 975     $ -  

 

Assets measured at fair value on a non-recurring basis at September 30, 2017 and December 31, 2016, are as follows (in thousands): 

 

   

Balance at

September 30, 2017

   

Level 1

   

Level 2

   

Level 3

 
                                 

Real estate

  $ 40,558     $ -     $ -     $ 40,558  

 

   

Balance at

December 31, 2016

   

Level 1

   

Level 2

   

Level 3

 
                                 

Real estate

  $ 117,930     $ -     $ -     $ 117,930  

 

During the nine months ended September 30, 2017 and 2016, the Company recognized impairment charges related to adjustments to property carrying values of $34.3 million and $68.1 million, respectively. The Company’s estimated fair values of these properties were primarily based upon estimated sales prices from (i) signed contracts or letters of intent from third party offers or (ii) a discounted cash flow model. The Company does not have access to the unobservable inputs used to determine the estimated fair values of third party offers. For the discounted cash flow model, a capitalization rate of 8.50% and a discount rate of 10.00% were utilized in the model based upon unobservable rates that the Company believes to be within a reasonable range of current market rates for this respective investment. Based on these inputs, the Company determined that its valuation of these investments was classified within Level 3 of the fair value hierarchy. (See Footnote 2 for additional discussion regarding impairment charges).

 

18

 

12. Preferred Stock and Common Stock

 

The Company’s outstanding Preferred Stock is detailed below:

 

As of September 30, 2017

Series of

Preferred

Stock

 

Shares

Authorized

   

Shares

Issued and

Outstanding

   

Liquidation

Preference

(in thousands)

   

Dividend

Rate

   

Annual

Dividend per

Depositary

Share

   

 

Par

Value

 

Optional

Redemption

Date

Series I

    18,400       7,000     $ 175,000       6.00 %   $ 1.50000     $ 1.00  

3/20/2017

Series J

    9,000       9,000       225,000       5.50 %   $ 1.37500     $ 1.00  

7/25/2017

Series K

    8,050       7,000       175,000       5.625 %   $ 1.40625     $ 1.00  

12/7/2017

Series L

    10,350       9,000       225,000       5.125 %   $ 1.28125     $ 1.00  

8/16/2022

      45,800       32,000     $ 800,000                            

 

 

As of December 31, 2016

Series of

Preferred

Stock

 

Shares

Authorized

   

Shares

Issued and

Outstanding

   

Liquidation

Preference

(in thousands)

   

Dividend

Rate

   

Annual

Dividend per

Depositary

Share

   

 

Par

Value

 

Optional

Redemption

Date

Series I

    18,400       16,000     $ 400,000       6.00 %   $ 1.50000     $ 1.00  

3/20/2017

Series J

    9,000       9,000       225,000       5.50 %   $ 1.37500     $ 1.00  

7/25/2017

Series K

    8,050       7,000       175,000       5.625 %   $ 1.40625     $ 1.00  

12/7/2017

      35,450       32,000     $ 800,000                            

 

The following Preferred Stock series was issued during the nine months ended September 30, 2017:

 

Series of

Preferred

Stock

 

Date Issued

 

Depositary

Shares

Issued

 

Fractional

Interest per

Share

 

Net

Proceeds,

After

Expenses

(in millions)

   

Offering

Price

 

Optional

Redemption

Date

Series L

 

8/16/2017

    9,000,000  

1/1000

  $ 217.6       25.00  

8/16/2022

 

The following Preferred Stock series was partially redeemed during the nine months ended September 30, 2017:

 

Series of

Preferred

Stock

 

Date Issued

 

Depositary

Shares

Redeemed

   

Redemption

Amount

(in millions)

   

Redemption

Price

 

Redemption

Date

Series I (1)

 

3/20/2012

    9,000,000     $ 225.0     $ 25.00  

9/6/2017

 

 

(1)

On September 6, 2017, the Company partially redeemed 9,000 shares of its issued and outstanding Series I Preferred Stock, representing 56.25% of the issued and outstanding Series I Preferred Stock. In connection with this partial redemption the Company recorded a charge of $7.0 million resulting from the difference between the redemption amount and the carrying amount of the Series I Preferred Stock on the Company’s Condensed Consolidated Balance Sheets in accordance with the FASB’s guidance on Distinguishing Liabilities from Equity. This $7.0 million charge was subtracted from net income/(loss) attributable to the Company to arrive at net income/(loss) available to the Company’s common shareholders and used in the calculation of earnings per share for the nine months ended September 30, 2017.

 

During February 2015, the Company established an at the market continuous offering program (the “ATM program”) which is effective for a term of three years, pursuant to which the Company may offer and sell 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 (the “NYSE”) 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. The Company did not offer for sale any shares of common stock under the ATM program during the nine months ended September 30, 2017. As of September 30, 2017, the Company had $211.9 million available under this ATM program.

 

13. Supplemental Schedule of Non-Cash Investing / Financing Activities

 

The following schedule summarizes the non-cash investing and financing activities of the Company for the nine months ended September 30, 2017 and 2016 (in thousands):

 

   

2017

   

2016

 

Proceeds deposited in escrow through sale of real estate interests

  $ 150,697     $ 66,431  

Acquisition of real estate interests through proceeds held in escrow

  $ 115,853     $ 66,044  

Acquisition of real estate interests by assumption of mortgage debt

  $ -     $ 33,174  

Issuance of common stock

  $ -     $ 85  

Surrender of restricted common stock

  $ (5,599 )   $ (6,904 )

Declaration of dividends paid in succeeding period

  $ 123,270     $ 118,136  

Capital expenditures accrual

  $ 56,879     $ 17,604  

Deemed contribution from noncontrolling interest

  $ 10,000     $ -  

Consolidation of Joint Ventures:

            -  

Increase in real estate and other assets

  $ 325,981     $ 316,772  

Increase in mortgages payable, other liabilities and non-controlling interests

  $ 258,626     $ 194,964  

 

19

 

14. Incentive Plans

 

The Company accounts for equity awards in accordance with FASB’s Compensation – Stock Compensation guidance which requires that all share based payments to employees, including grants of employee stock options, restricted stock and performance shares, be recognized in the Condensed Consolidated Statements of Operations over the service period based on their fair values. Fair value is determined, depending on the type of award, using either the Black-Scholes option pricing formula or the Monte Carlo method for performance shares, both of which are intended to estimate the fair value of the awards at the grant date. Fair value of restricted shares is calculated based on the price on the date of grant.

 

The Company recognized expenses associated with its equity awards of $17.8 million and $15.3 million for the nine months ended September 30, 2017 and 2016, respectively.  As of September 30, 2017, the Company had $32.8 million of total unrecognized compensation cost related to unvested stock compensation granted under the Plans.  That cost is expected to be recognized over a weighted average period of approximately 2.9 years.

 

15. Accumulated Other Comprehensive Income (“AOCI”)

 

The following tables display the change in the components of accumulated other comprehensive income for the nine months ended September 30, 2017 and 2016:

 

   

Foreign

Currency

Translation Adjustments

   

Unrealized

Gain/(Loss) on

Available-for-

Sale

Investments

   

Unrealized

Loss on Interest

Rate Swaps

   

Total

 

Balance as of January 1, 2017

  $ 6,335     $ 406     $ (975 )   $ 5,766  

Other comprehensive income before reclassifications

    3,711       (1,466 )     308       2,553  

Amounts reclassified from AOCI (1)

    (10,046 )     -       -       (10,046 )

Net current-period other comprehensive income

    (6,335 )     (1,466 )     308       (7,493 )

Balance as of September 30, 2017

  $ -     $ (1,060 )   $ (667 )   $ (1,727 )

 

(1)

During 2015, the Company began selling properties within its Canadian portfolio and has continued to liquidate its investments over the last two years.  During the three months ended September 30, 2017, the Company was deemed to have substantially liquidated its investment in Canada, triggered primarily by the receipt of various tax refunds and as a result, recognized a net cumulative foreign currency translation gain.  Amounts were reclassified to the Company’s Condensed Consolidated Statements of Operations as follows (i) $14.8 million of gain was reclassified to Equity in income of other real estate investments, net, and (ii) $4.8 million of loss was reclassified to Equity in income of joint ventures, net.

 

   

Foreign

Currency

Translation Adjustments

   

Unrealized

Gains on

Available-for-

Sale

Investments

   

Unrealized

Loss

on Interest

Rate Swaps

   

Total

 

Balance as of January 1, 2016

  $ 6,616     $ 398     $ (1,426 )   $ 5,588  

Other comprehensive income before reclassifications

    971       18       (432 )     557  

Amounts reclassified from AOCI

    -       -       -       -  

Net current-period other comprehensive income

    971       18       (432 )     557  

Balance as of September 30, 2016

  $ 7,587     $ 416     $ (1,858 )   $ 6,145  

 

20

 

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, 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,” “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 are, in some cases, 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) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (iv) the Company’s ability to raise capital by selling its assets, (v) changes in governmental laws and regulations, (vi) the level and volatility of interest rates and foreign currency exchange rates and managements’ ability to estimate the impact thereof, (vii) risks related to the Company’s international operations, (viii) the availability of suitable acquisition, disposition, development and redevelopment opportunities , and risks related to acquisitions not performing in accordance with our expectations, (ix) valuation and risks related to the Company’s joint venture and preferred equity investments, (x) valuation of marketable securities and other investments, (xi) increases in operating costs, (xii) changes in the dividend policy for the Company’s common stock, (xiii) the reduction in the Company’s income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xiv) impairment charges, (xv) unanticipated changes in the Company’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity and (xvi) the risks and uncertainties identified under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. 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 Current Reports on Form 8-K that the Company files 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 Summary

 

Kimco Realty Corporation is one of the nation’s largest publicly-traded owners and operators of open-air shopping centers. As of September 30, 2017, the Company had interests in 508 shopping center properties aggregating 84.2 million square feet of gross leasable area (“GLA”) located in 32 states, Puerto Rico and Canada. In addition, the Company had 374 other property interests, primarily through the Company’s preferred equity investments and other real estate investments, totaling 5.9 million square feet of GLA.

 

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.

 

The Company’s strategy is to be the premier owner and operator of open-air shopping centers through investments primarily in the U.S.  To achieve this strategy the Company is (i) continuing to transform the quality of its portfolio by disposing of lesser quality assets and acquiring larger, higher quality properties in key markets identified by the Company, for which substantial progress has been achieved as of September 30, 2017, (ii) simplifying its business by: (a) reducing the number of joint venture investments and (b) exiting Mexico, South America and Canada, for which the exit of South America has been completed and Mexico and Canada have been substantially completed, (iii) pursuing redevelopment opportunities within its portfolio to increase overall value and (iv) selectively acquiring land parcels in our key markets for real estate development projects for long-term investment. As part of the Company’s 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 has an active capital recycling program which provides for the disposition of certain U.S. properties. If the Company accepts sales prices for any of these assets that are less than their net carrying values, the Company would be required to take impairment charges and such amounts could be material. In order to execute the Company’s strategy, the Company intends to continue to strengthen its balance sheet by pursuing deleveraging efforts over time, providing it the necessary flexibility to invest opportunistically and selectively, primarily focusing on U.S. open-air shopping centers.

 

21

 

Results of Operations

 

Comparison of the three months ended September 30, 2017 and 2016

 

   

Three Months Ended

         
   

September 30,

         
   

(amounts in millions)

         
   

2017

   

2016

   

Change

   

% change

 
                                 

Revenues from rental property (1)

  $ 290.9     $ 279.3     $ 11.6       4.2 %
                                 

Rental property expenses: (3)

                               

Rent

  $ 2.8     $ 2.7     $ 0.1       3.7 %

Real estate taxes

    38.4       37.7       0.7       1.9 %

Operating and maintenance

    33.2       32.6       0.6       1.8 %
    $ 74.4     $ 73.0     $ 1.4       1.9 %
                                 

Depreciation and amortization (4)

  $ 88.4     $ 96.8     $ (8.4 )     (8.7% )

 

Comparison of the nine months ended September 30, 2017 and 2016

 

   

Nine Months Ended

         
   

September 30,

         
   

(amounts in millions)

         
   

2017

   

2016

   

Change

   

% change

 
                                 

Revenues from rental property (2)

  $ 873.2     $ 859.5     $ 13.7       1.6 %
                                 

Rental property expenses: (3)

                               

Rent

  $ 8.3     $ 8.3     $ -       -  

Real estate taxes

    115.4       108.0       7.4       6.9 %

Operating and maintenance

    102.9       100.4       2.5       2.5 %
    $ 226.6     $ 216.7     $ 9.9       4.6 %
                                 

Depreciation and amortization (5)

  $ 275.8     $ 264.4     $ 11.4       4.3 %

 

(1)

Revenues from rental property increased for the three months ended September 30, 2017, primarily from the combined effect of (i) the acquisition and consolidation of operating properties during 2017 and 2016, providing incremental revenues for the three months ended September 30, 2017 of $15.7 million, as compared to the corresponding period in 2016 and (ii) an increase in revenues of $1.5 million for the three months ended September 30, 2017, as compared to the corresponding period in 2016, primarily due to the completion of certain redevelopment projects and net growth in the current portfolio, providing incremental revenue, partially offset by (iii) a decrease in revenues of $5.6 million for the three months ended September 30, 2017, as compared to the corresponding period in 2016, due to properties sold during 2017 and 2016.

   

(2)

Revenues from rental property increased for the nine months ended September 30, 2017, primarily from the combined effect of (i) the acquisition and consolidation of operating properties during 2017 and 2016, providing incremental revenues for the nine months ended September 30, 2017 of $42.7 million, as compared to the corresponding period in 2016, partially offset by (ii) a decrease in revenues of $22.4 million for the nine months ended September 30, 2017, as compared to the corresponding period in 2016, due to properties sold during 2017 and 2016 and (iii) a decrease in revenues of $6.6 million for the nine months ended September 30, 2017, as compared to the corresponding period in 2016, primarily due to tenant vacates during 2017 and 2016 which includes below market rent write-offs.

 

(3)

Rental property expenses include (i) rent expense relating to ground lease payments for which the Company is the lessee, (ii) real estate tax expense for consolidated properties for which the Company has a controlling ownership interest and (iii) operating and maintenance expense, which 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. Rental property expenses increased for the three and nine months ended September 30, 2017, as compared to the corresponding periods in 2016, primarily due to the acquisition/consolidation of operating properties in 2017 and 2016 and an increase in real estate tax expense primarily due to the receipt of real estate tax refunds during 2016, partially offset by the disposition of properties during 2017 and 2016.  

 

(4)

Depreciation and amortization decreased for the three months ended September 30, 2017 as compared to the corresponding period in 2016, primarily due to fewer tenant vacates, partially offset by the acquisition/consolidation of operating properties in 2017 and 2016.

 

(5)

Depreciation and amortization increased for the nine months ended September 30, 2017, as compared to the corresponding period in 2016, primarily due to the acquisition/consolidation of operating properties in 2017 and 2016, partially offset by property dispositions and tenant vacates in 2017 and 2016 and write-offs relating to the Company’s redevelopment projects in 2016.

 

General and administrative costs include employee-related expenses (salaries, bonuses, equity awards, benefits, severance costs and payroll taxes), professional fees, office rent, travel expense and other company-specific expenses. General and administrative expenses decreased $3.4 million for the nine months ended September 30, 2017, as compared to the corresponding period in 2016, primarily due to reductions in professional fees, public company costs and other personnel related costs.

 

22

 

During the nine months ended September 30, 2017 and 2016, the Company recognized impairment charges related to adjustments to property carrying values of $34.3 million and $68.1 million, respectively, for which the Company’s estimated fair values of these properties were primarily based upon estimated sales prices from (i) signed contracts or letters of intent from third party offers or (ii) discounted cash flow models. 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 and the long-term plan for certain properties. Certain of the calculations to determine fair value utilized unobservable inputs and as such are classified as Level 3 of the fair value hierarchy.

 

Other income, net decreased $3.3 for the three months ended September 30, 2017, as compared to the corresponding period in 2016. This decrease is primarily due to a decrease in income from the Company’s investment in retail store leases related to the termination of a lease during the three months ended September 30, 2016.

 

Interest expense decreased $9.7 million for the nine months ended September 30, 2017, as compared to the corresponding period in 2016. This decrease is primarily due to the Company’s utilization of net proceeds from unsecured debt offerings during 2017 and 2016 to payoff secured debt which had higher interest rates. As a result, the Company effectively lowered its overall interest rate on borrowings for the nine months ended September 30, 2017, as compared to the corresponding period in 2016.

 

During the nine months ended September 30, 2017, the Company incurred early extinguishment of debt charges aggregating $1.8 million in connection with the tender premium on Medium Term Notes that were partially tendered prior to maturity.

 

During the nine months ended September 30, 2016, the Company incurred early extinguishment of debt charges aggregating $45.7 million in connection with the optional make-whole provisions of unsecured notes that were repaid prior to maturity and prepayment penalties on a mortgage encumbering 10 operating properties, which the Company also paid prior to the scheduled maturity date.

 

Benefit/(provision) for income taxes, net changed $62.1 million to a benefit of $0.7 million for the three months ended September 30, 2017, as compared to a provision of $61.4 million for the corresponding period in 2016. This change is primarily due to (i) a decrease in tax provision of $63.5 million resulting from the recognition of a valuation allowance as a result of the Company’s merger of its taxable REIT subsidiary into a wholly-owned LLC of the Company on August 1, 2016.

 

Benefit/(provision) for income taxes, net changed $75.5 million to a benefit of $2.2 million for the nine months ended September 30, 2017, as compared to a provision of $73.3 million for the corresponding period in 2016. This change is primarily due to (i) a decrease of $63.5 million resulting from the recognition of a valuation allowance as a result of the Company’s merger of its taxable REIT subsidiary into a wholly-owned LLC of the Company on August 1, 2016 and (ii) a decrease in foreign tax expense of $31.0 million primarily relating to the sale of certain unconsolidated properties during 2016 within the Company’s Canadian portfolio which were subject to foreign taxes at a consolidated reporting entity level, partially offset by (iii) a decrease in tax benefit of $17.1 million primarily related to impairments recognized during the nine months ended September 30, 2016 and (iv) an increase of $2.0 million resulting from the favorable settlement of a tax audit during the nine months ended September 30, 2016.

 

Equity in income of joint ventures, net decreased $153.1 million for the nine months ended September 30, 2017, as compared to the corresponding period in 2016. This decrease is primarily due to (i) a decrease in net gains of $149.8 million resulting from fewer sales of properties and ownership interests within various joint venture investments, during the nine months ended September 30, 2017, as compared to the corresponding period in 2016, (ii) the recognition of cumulative foreign currency translation loss of $4.8 million as a result of the substantial liquidation of the Company’s investments in Canada during 2017 and (iii) lower equity in income of $4.6 million primarily resulting from the sales of properties within various joint venture investments and the acquisition of partnership interests in joint ventures by the Company during 2017 and 2016, partially offset by (iv) a decrease in impairment charges of $6.1 million recognized during 2017, as compared to 2016.

 

During the nine months ended September 30, 2017, the Company acquired, in separate transactions, a controlling interest in three operating properties from certain joint venture partners in which the Company had noncontrolling interests. As a result of these transactions, the Company recorded an aggregate gain on change in control of interests of $71.2 million related to the fair value adjustments associated with its previously held equity interest in the operating properties.

 

During the nine months ended September 30, 2016, the Company acquired six operating properties and one development project from a joint venture in which the Company had a noncontrolling interest. As a result of these transactions, the Company recorded an aggregate gain on change in control of interests of $53.1 million related to the fair value adjustments associated with its previously held equity interest in the operating properties.

 

Equity in income of other real estate investments, net increased $16.1 million for the three months ended September 30, 2017, as compared to the corresponding period in 2016. This increase is primarily due to (i) the recognition of cumulative foreign currency translation gain of $14.8 million as a result of the substantial liquidation of the Company’s investments in Canada during 2017 and (ii) an increase in earnings and profit participation from capital transactions within the Company’s Preferred Equity Program of $1.3 million during the three months ended September 30, 2017, as compared to the corresponding period in 2016.

 

23

 

Equity in income of other real estate investments, net increased $39.4 million for the nine months ended September 30, 2017, as compared to the corresponding period in 2016. This increase is primarily due to (i) an increase of $34.6 million in equity in income from the Albertsons joint venture resulting from cash distributions received in excess of the Company’s carrying basis during the nine months ended September 30, 2017, and (ii) the recognition of cumulative foreign currency translation gain of $14.8 million as a result of the substantial liquidation of the Company’s investments in Canada during 2017, partially offset by (iii) a decrease in earnings and profit participation from capital transactions within the Company’s Preferred Equity Program of $10.0 million during the nine months ended September 30, 2017, as compared to the corresponding period in 2016.

 

During the nine months ended September 30, 2017, the Company disposed of 15 consolidated operating properties and eight parcels, in separate transactions, for an aggregate sales price of $230.2 million. These transactions resulted in (i) an aggregate gain of $62.1 million and (ii) aggregate impairment charges of $13.0 million.

 

During the nine months ended September 30, 2016, the Company disposed of 26 consolidated operating properties and one out-parcel, in separate transactions, for an aggregate sales price of $334.9 million. These transactions resulted in (i) an aggregate gain of $75.9 million, after income tax expense, and (ii) aggregate impairment charges of $7.8 million, before noncontrolling interest expense of $0.2 million.

 

Net income attributable to noncontrolling interests increased $9.1 million for the nine months ended September 30, 2017, as compared to the corresponding period in 2016. This increase is primarily due to an increase in equity in income attributable to the Company’s noncontrolling partners in the Albertsons joint venture during 2017.

 

Net income available to the Company's common shareholders was $102.0 million for the three months ended September 30, 2017, as compared to a net loss of $55.1 million for the three months ended September 30, 2016. On a diluted per share basis, net income available to the Company’s common shareholders for the three months ended September 30, 2017, was $0.24 per share, as compared to a net loss of $0.13 per share for the three months ended September 30, 2016. These changes are primarily attributable to (i) a decrease in provision for income taxes, net, (ii) an increase in gains on sale of operating properties, (iii) a decrease in early extinguishment of debt charges, (iv) an increase in equity in income of other real estate investments, net, (v) a decrease in impairment charges of operating properties, (vi) a decrease in depreciation and amortization expense, (vii) incremental earnings due to the acquisition of operating properties during 2017 and 2016 as well as increased profitability from the Company’s operating properties, partially offset by (viii) an increase in preferred stock redemption costs and (ix) a decrease from gain on change of control of interests.

 

Net income available to the Company's common shareholders was $299.0 million for the nine months ended September 30, 2017, as compared to $265.9 million for the nine months ended September 30, 2016. On a diluted per share basis, net income available to the Company’s common shareholders for the nine months ended September 30, 2017, was $0.70 as compared to $0.63 for the nine months ended September 30, 2016. These changes are primarily attributable to (i) a decrease in provision for income taxes, net, (ii) a decrease in early extinguishment of debt charges, (iii) an increase in equity in income of other real estate investments, net, (iv) a decrease in impairment charges of operating properties, (v) a decrease in interest expense, (vi) an increase from gain on change of control of interests and (vii) incremental earnings due to the acquisition of operating properties during 2017 and 2016 as well as increased profitability from the Company’s operating properties, partially offset by (viii) a decrease in equity in income of joint ventures, net, resulting from the sales of properties within various joint venture investments and the acquisition of partnership interests in joint ventures by the Company during 2017 and 2016, (ix) a decrease in gains on sale of operating properties, (x) an increase in preferred stock redemption costs and (xi) an increase in depreciation and amortization expense.

 

 Tenant Concentration

 

The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties, avoiding dependence on any single property, and a large tenant base.  At September 30, 2017, the Company’s five largest tenants were TJX Companies, The Home Depot, Ahold Delhaize, Bed Bath & Beyond and Albertsons, which represented 3.7%, 2.5%, 2.1%, 1.9% 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, mortgage and construction loan financing, borrowings under term loans and immediate access to an unsecured revolving credit facility (the “Credit Facility”) with bank commitments of $2.25 billion which can be increased to $2.75 billion through an accordion feature.

 

24

 

The Company’s cash flow activities are summarized as follows (in millions): 

 

   

Nine Months Ended

September 30,

 
   

2017

   

2016

 

Net cash flow provided by operating activities

  $ 493.8     $ 444.5  

Net cash flow (used for)/provided by investing activities

  $ (278.3 )   $ 248.2  

Net cash flow used for financing activities

  $ (201.4 )   $ (711.8 )

 

Operating Activities

 

The Company anticipates that cash on hand, 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.  Cash flows provided by operating activities for the nine months ended September 30, 2017, were $493.8 million, as compared to $444.5 million for the comparable period in 2016.  This increase of $49.3 million is primarily attributable to (i) an increase of cash flow due to new leasing, expansion, re-tenanting of core portfolio properties and a decrease in interest expense, (ii) changes in operating assets and liabilities due to timing of receipts and payments and (iii) a change in Canadian withholding tax receivables related to the sale of various Canadian investments during 2016, partially offset by (iv) a decrease in operational distributions from the Company’s joint venture programs, due to the sale of certain joint ventures during 2017 and 2016.

 

Investing Activities

 

Cash flows used for investing activities for the nine months ended September 30, 2017, were $278.3 million, as compared to cash flows provided by investing activities of $248.2 million for the comparable period in 2016. This change of $526.5 million resulted primarily from (i) a decrease in return of investment and distributions from liquidation of real estate joint ventures of $325.8 million, primarily due to the liquidation of certain Canadian joint ventures in 2016, (ii) a decrease in proceeds from the sale of operating properties and development properties of $190.4 million, (iii) an increase in improvements to real estate under development of $79.7 million, (iv) a decrease of $53.1 million in reimbursements of investments in and advances to real estate joint ventures and (v) an increase in improvements to operating real estate of $34.5 million, partially offset by (vi) a decrease in acquisition of operating real estate and other related net assets of $70.7 million, (vii) a decrease in acquisition of real estate under development of $41.6 million, (viii) an increase in reimbursements of investments and advances to other real estate investments of $29.0 million and (ix) a decrease in investments in and advances to real estate joint ventures of $23.3 million.

 

Acquisitions of Operating Real Estate and Other Related Net Assets-

 

During the nine months ended September 30, 2017 and 2016, the Company expended $110.8 million and $181.5 million, respectively, towards the acquisition of operating real estate properties. The Company continues to transform its operating portfolio through its capital recycling program by acquiring what the Company believes are high quality U.S. retail properties and disposing of lesser quality assets. The Company anticipates acquiring approximately $140.0 million to $165.0 million of operating properties during the remainder of 2017. The Company intends to fund these acquisitions with proceeds from property dispositions, cash flow from operating activities, assumption of mortgage debt, if applicable, and availability under the Company’s revolving line of credit.

 

Improvements to Operating Real Estate-

 

During the nine months ended September 30, 2017 and 2016, the Company expended $136.5 million and $102.1 million, respectively, towards improvements to operating real estate. These amounts consist of the following (in thousands):

 

   

Nine Months Ended

September 30,

 
   

2017

   

2016

 

Redevelopment and renovations

  $ 116,577     $ 58,984  

Tenant improvements and tenant allowances

    12,324       37,237  

Other

    7,633       5,863  

Total (1)

  $ 136,534     $ 102,084  

 

 

(1)

During the nine months ended September 30, 2017 and 2016, the Company capitalized interest of $2.3 million and $1.9 million, respectively, and capitalized payroll of $2.5 million and $1.7 million, respectively, in connection with the Company’s improvements to operating real estate.

 

25

 

During the nine months ended September 30, 2017 and 2016, the Company capitalized personnel costs of $10.0 million and $9.8 million, respectively, relating to deferred leasing costs.

 

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 has identified three categories of redevelopment, (i) large scale redevelopment, which involves demolishing and building new square footage, (ii) value creation redevelopment, which includes the subdivision of large anchor spaces into multiple tenant layouts, and (iii) creation of out-parcels and pads which are located in the front of the shopping center properties. The Company anticipates its capital commitment toward these redevelopment projects and re-tenanting efforts during the remainder of 2017 will be approximately $75.0 million to $100.0 million. The funding of these capital requirements will be provided by cash flow from operating activities and availability under the Company’s revolving line of credit.

 

Real Estate Under Development-

 

The Company is engaged in select real estate development projects, which are expected to be held as long-term investments. As of September 30, 2017, the Company had in progress a total of five active real estate development projects and two additional projects held for future development. The Company anticipates the total remaining costs to complete these projects to be approximately $225.0 million to $275.0 million. The Company anticipates its capital commitment toward these development projects during the remainder of 2017 will be approximately $75.0 million to $100.0 million. The funding of these capital requirements will be provided by cash flow from operating activities and availability under the Company’s revolving line of credit.

 

Financing Activities

 

Cash flows used for financing activities for the nine months ended September 30, 2017, were $201.4 million, as compared to $711.8 million for the comparable period in 2016.  This change of $510.4 million resulted primarily from (i) an increase in proceeds from issuance of unsecured notes of $600.0 million, (ii) a decrease in repayments under unsecured term loan/notes of $400.9 million, (iii) an increase in proceeds from mortgage loan financings of $206.0 million and (iv) a decrease in payment of early extinguishment of debt charges of $43.2 million, partially offset by (v) a decrease in proceeds from unsecured revolving Credit Facility, net of $226.5 million, (vi) an increase in redemption of preferred stock of $225.0 million, (vii) an increase in conversion/distribution of noncontrolling interests of $92.2 million, (viii) a decrease in proceeds from issuance of stock, net of $88.1 million, (ix) an increase in principal payments on debt of $73.1 million and (x) an increase in dividends paid of $27.1 million.

 

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. The Company has noticed a continuing trend that, although pricing remains dependent on specific deal terms, spreads for non-recourse mortgage financing stabilized, the unsecured debt markets are functioning well and credit spreads are at manageable levels.

 

Debt maturities for the remainder of 2017 consist of $12.4 million of consolidated debt, which relates to a non-recourse mortgage that is currently in default for which the Company is working with the special servicer on a resolution.

 

The Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintain its investment-grade debt ratings. The Company may, from time-to-time, seek to obtain funds through additional common and preferred equity offerings, unsecured debt financings and/or mortgage/construction loan financings and other capital alternatives.

 

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 $13.6 billion. Proceeds from public capital market activities have been used for the purposes of, among other things, repaying indebtedness, acquiring interests in open-air shopping centers, funding real estate development projects, expanding and improving properties in the portfolio and other investments.

 

During February 2015, 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 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.

 

26

 

Preferred Stock-

 

During August 2017, the Company issued 9,000,000 Depositary Shares (the "Series L Depositary Shares"), each representing a one-thousandth fractional interest in a share of the Company's 5.125% Series L Cumulative Redeemable Preferred Stock, $1.00 par value per share. Dividends on the Series L Depositary Shares are cumulative and payable quarterly in arrears at the rate of 5.125% per annum based on the $25.00 per share initial offering price, or $1.28125 per annum.  The Series L Depositary Shares are redeemable, in whole or part, for cash on or after August 16, 2022, at the option of the Company, at a redemption price of $25.00 per depositary share, plus any accrued and unpaid dividends thereon.  The Series L Depositary Shares are not convertible or exchangeable for any other property or securities of the Company.  The net proceeds received from this offering of $217.6 million were used for general corporate purposes, including the reduction of borrowings outstanding under the Company’s revolving credit facility and the redemption of shares of the Company’s preferred stock.

 

On August 7, 2017, the Company called for the partial redemption of 9,000,000 of its outstanding depositary shares of the Company’s 6.00% Series I Cumulative Redeemable Preferred Stock, $1.00 par value per share (the "Series L Preferred Stock"), representing 56.25% of the issued and outstanding Series I Preferred Stock. The aggregate redemption amount of $225.0 million plus accumulated and unpaid dividends of $1.9 million, was paid on September 6, 2017. Upon partial redemption, the Company recorded a charge of $7.0 million resulting from the difference between the redemption amount and the carrying amount of the Series I Preferred Stock on the Company’s Condensed Consolidated Balance Sheets in accordance with the FASB’s guidance on Distinguishing Liabilities from Equity. This $7.0 million charge was subtracted from net income/(loss) attributable to the Company to arrive at net income/(loss) available to the Company's common shareholders and used in the calculation of earnings per share for the nine months ended September 30, 2017.

 

At the Market Continuous Offering Program (“ATM program”) –

 

During February 2015, the Company established an ATM program, which is effective for a term of three years, pursuant to which the Company may offer and sell 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 NYSE 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. The Company did not offer for sale any shares of common stock under the ATM program during the nine months ended September 30, 2017. As of September 30, 2017, the Company had $211.9 million available under this ATM program.

 

Medium Term Notes (“MTN”) and Senior Notes

 

The Company’s supplemental indentures governing its MTN and senior notes contains the following covenants, all of which the Company is compliant with:

 

Covenant

  

Must Be

  

As of September 30,

2017

Consolidated Indebtedness to Total Assets

 

<65%

 

40%

Consolidated Secured Indebtedness to Total Assets

 

<40%

 

6%

Consolidated Income Available for Debt Service to Maximum Annual Service Charge

 

>1.50x

 

4.8x

Unencumbered Total Asset Value to Consolidated Unsecured Indebtedness

 

>1.50x

 

2.6x

 

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 Exhibits Index to our Annual Report on Form 10-K for the year ended December 31, 2016 for specific filing information.

 

During March 2017, the Company issued $400.0 million of Senior Unsecured Notes at an interest rate of 3.80% payable semi-annually in arrears which are scheduled to mature in April 2027. The Company used the net proceeds from the issuance of $395.5 million, after the underwriting discount and related offering costs, for general corporate purposes including to pre-fund near-term debt maturities and to reduce borrowings under the Company’s revolving Credit Facility.

 

During August 2017, the Company issued $500.0 million of Senior Unsecured Notes at an interest rate of 3.30% payable semi-annually in arrears which are scheduled to mature in February 2025. In addition, the Company issued $350.0 million of Senior Unsecured Notes at an interest rate of 4.45% payable semi-annually in arrears which are scheduled to mature in September 2047. The Company used the aggregate net proceeds from these issuances of $840.0 million, after the underwriting discounts and related offering costs, for general corporate purposes including to pre-fund near-term debt maturities and to reduce borrowings under the Company’s revolving Credit Facility.

 

27

 

On August 1, 2017, the Company made a tender offer to purchase any and all of its $300.0 million 4.30% MTN notes outstanding. As a result, the Company accepted the tender of $211.0 million of its $300.0 million outstanding MTN notes on August 10, 2017. In connection with this tender offer, the Company recorded a tender premium of $1.8 million resulting from the partial repayment of this note. Subsequently, in October 2017, the Company announced its intention to redeem the remaining $89.0 million outstanding on November 1, 2017.

 

Credit Facility -

 

In February 2017, the Company closed on a $2.25 billion unsecured revolving Credit Facility with a group of banks, which is scheduled to expire in March 2021, with two additional six month options to extend the maturity date, at the Company’s discretion, to March 2022. This Credit Facility, which accrues interest at a rate of LIBOR plus 87.5 basis points (2.10% as of September 30, 2017), can be increased to $2.75 billion through an accordion feature. The Credit Facility replaced the Company’s $1.75 billion unsecured revolving credit facility that was scheduled to mature in March 2018. In addition, the Credit Facility includes a $500.0 million sub-limit which provides the company the opportunity to borrow in alternative currencies including Canadian Dollars, British Pounds Sterling, Japanese Yen or Euros. As of September 30, 2017, the Credit Facility had a balance of $25.0 million outstanding and $0.5 million appropriated for letters of credit.

 

Pursuant to the terms of the Credit Facility, the Company, among other things, is subject covenants requiring the maintenance of (i) maximum leverage ratios on both unsecured and secured debt and (ii) minimum interest and fixed coverage ratios.  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, 2017

Total Indebtedness to Gross Asset Value (“GAV”)

 

<60%

 

42%

Total Priority Indebtedness to GAV

 

<35%

 

5%

Unencumbered Asset Net Operating Income to Total Unsecured Interest Expense

 

>1.75x

 

4.6x

Fixed Charge Total Adjusted EBITDA to Total Debt Service

 

>1.50x

 

2.8x

 

For a full description of the Credit Facility’s covenants refer to the Amended and Restated Credit Agreement dated as of February 1, 2017, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 30, 2017.

 

Term Loan

 

The Company had a $650.0 million unsecured term loan (“Term Loan’) which was scheduled to mature in January 2017, with three one-year extension options at the Company’s discretion. The Term Loan accrued interest at LIBOR plus 95 basis points. During November 2016, the Company repaid $400.0 million of borrowings under the Company’s Term Loan and in January 2017, the Company repaid the remaining $250.0 million balance and terminated the agreement.

 

Mortgages Payable

 

During the nine months ended September 30, 2017, the Company (i) consolidated $212.2 million of individual non-recourse mortgage debt (including a fair market value adjustment of $6.2 million) relating to a joint venture operating property which the Company now controls, (ii) paid off $684.6 million of maturing mortgage debt (including fair market value adjustments of $5.7 million) that encumbered 25 operating properties and (iii) obtained a $206.0 million non-recourse mortgage relating to one operating property.

 

In addition to the public equity and debt markets as capital sources, the Company may, from time-to-time, obtain mortgage financing on selected properties and construction loans to partially fund the capital needs of its real estate development projects. As of September 30, 2017, the Company had over 380 unencumbered property interests in its portfolio.

 

Dividends

 

In connection with its intention to continue to qualify as a REIT for federal income tax purposes, the Company expects to continue paying regular dividends to its stockholders. These dividends will be paid from operating cash flows. 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 conservative dividend payout ratio, reserving such amounts as it considers necessary for the expansion and renovation of shopping centers in its portfolio, debt reduction, the acquisition of interests in new properties and other investments as suitable opportunities arise and such other factors as the Board of Directors considers appropriate.  Cash dividends paid for the nine months ended September 30, 2017 and 2016 were $381.2 million and $354.1 million, respectively.

 

28

 

Although the Company receives substantially all 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. On July 25, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.27 per common share payable to shareholders of record on October 4, 2017, which was paid on October 16, 2017. Additionally, on October 24, 2017, the Company’s Board of Directors declared an increased quarterly cash dividend of $0.28 per common share, an annualized increase of 3.7%, payable to shareholders of record on January 2, 2018, which is scheduled to be paid on January 16, 2018.

 

The Board of Directors also declared quarterly dividends with respect to the Company’s various series of cumulative redeemable preferred shares (Series I, Series J, Series K and Series L). All dividends on the preferred shares are scheduled to be paid on January 16, 2018, to shareholders of record on January 2, 2018.

 

Hurricane Impact -

 

The impact of Hurricanes Harvey, which hit Texas on August 25, 2017, and Irma, which hit Florida on September 10, 2017, resulted in minimal damage to the Company’s properties located in Texas and Florida.

 

With respect to Hurricane Maria, which hit the island of Puerto Rico on September 20, 2017, the Company is currently assessing damages at its seven operating properties located throughout Puerto Rico, aggregating 2.2 million square feet of GLA. Two of these operating properties, located in the southern region of the island were less impacted and most tenants have resumed operations, while the remaining five operating properties in the northern region sustained varying amounts of damage.  Initial repairs are in progress, however, a final assessment and recovery plan will require additional time.  The Company maintains a comprehensive property insurance policy on these properties with total coverage of up to $62.0 million, as well as business interruption insurance with coverage up to $39.3 million in the aggregate, subject to a collective deductible of $1.2 million. The Company anticipates that all damages and any loss of operations sustained will be covered under these existing policies. As further detailed information becomes available, the Company expects to recognize a charge, which it believes will not have a material effect on the Company’s financial position and/or results of operations.  This charge will result from the write-down of the undepreciated portion of the property that has been permanently damaged, which would be less than the replacement costs and offset by insurance proceeds received by the Company. 

 

Other -

 

The Company is subject to taxes on its activities in Canada, Puerto Rico and Mexico.  In general, under local country law applicable to the structures the Company has in place and applicable treaties, the repatriation of cash to the Company from its subsidiaries and joint ventures in Canada, Puerto Rico and Mexico generally is not subject to withholding tax. The Company is subject to and also includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. These investments are held by the Company at the REIT level and not in the Company’s taxable REIT subsidiary. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries.

 

Funds From Operations

 

Funds From Operations (“FFO”) is a supplemental non-GAAP financial measure utilized to evaluate the operating performance of real estate companies. The National Association of Real Estate Investment Trusts (“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) gains or losses from sales of operating real estate assets and change in control of interests, plus (ii) depreciation and amortization of operating properties and (iii) impairment of depreciable real estate and in substance real estate equity investments and (iv) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis.

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.

 

The Company also presents FFO available to the Company’s common shareholders as adjusted as an additional supplemental measure as it believes it is more reflective of its core operating performance and provides investors and analysts an additional measure to compare the Company’s performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. FFO available to the Company’s common shareholders as adjusted is generally calculated by the Company as FFO available to the Company’s common shareholders excluding certain transactional income and expenses and non-operating impairments which management believes are not reflective of the results within the Company’s operating real estate portfolio.

 

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 as a measure of liquidity.  Our method of calculating FFO available to the Company’s common shareholders and FFO available to the Company’s common shareholders as adjusted may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

 

29

 

The Company’s reconciliation of net income available to the Company’s common shareholders to FFO available to the Company’s common shareholders and FFO available to the Company’s common shareholders as adjusted for the three and nine months ended September 30, 2017 and 2016, is as follows (in thousands, except per share data):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

Net income/(loss) available to the Company’s common shareholders

  $ 101,957     $ (55,100 )   $ 298,996     $ 265,912  

Gain on disposition of operating property

    (40,533 )     (9,773 )     (61,394 )     (81,874 )

Gain on disposition of joint venture operating properties and change in control of interests

    -       (9,852 )     (72,185 )     (202,939 )

Depreciation and amortization - real estate related

    87,262       94,814       272,232       257,839  

Depreciation and amortization - real estate joint ventures

    9,562       10,719       29,413       35,621  

Impairment of operating properties

    8,651       16,857       32,294       77,803  

Provision/(benefit) for income taxes (2)

    -       29,005       (39 )     40,797  

Noncontrolling interests (2)

    (1,613 )     (264 )     (3,895 )     (427 )

FFO available to the Company’s common shareholders

    165,286       76,406       495,422       392,732  

Transactional (income)/expense:

                               

Profit participation from other real estate investments

    -       (3 )     (34,573 )     (10,053 )

Gain from land sales

    -       (1,086 )     (1,060 )     (2,352 )

Acquisition and demolition costs

    633       2,347       1,097       3,890  

Impairment of other investments

    1,635       -       11,343       1,058  

Early extinguishment of debt charges

    1,753       45,674       1,753       45,674  

Gain on liquidation of a foreign entity

    (14,822 )     -       (14,822 )     -  

Preferred stock redemption charge

    7,014       -       7,014       -  

Provision for income taxes (3)

    -       36,524       8       38,176  

Noncontrolling interests (3)

    -       285       11,338       285  

Other, net

    (160 )     461       324       (424 )

Total transactional (income)/expense, net

    (3,947 )     84,202       (17,578 )     76,254  

FFO available to the Company’s common shareholders as adjusted

  $ 161,339     $ 160,608     $ 477,844     $ 468,986  

Weighted average shares outstanding for FFO calculations:

                               

Basic

    423,688       420,073       423,574       416,829  

Units

    973       -       854       821  

Dilutive effect of equity awards

    513       1,442       556       1,405  

Diluted

    425,174  (1)     421,515  (1)     424,984  (1)     419,055  (1)
                                 

FFO per common share – basic

  $ 0.39     $ 0.18     $ 1.17     $ 0.94  

FFO per common share – diluted

  $ 0.39  (1)   $ 0.18  (1)   $ 1.17  (1)   $ 0.94  (1)

FFO as adjusted per common share – basic

  $ 0.38     $ 0.38     $ 1.13     $ 1.13  

FFO as adjusted per common share – diluted

  $ 0.38  (1)   $ 0.38  (1)   $ 1.13  (1)   $ 1.12  (1)

 

 

(1)

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 $268 for the three months ended September 30, 2017, and $688 and $621 for the nine months ended September 30, 2017 and 2016, respectively. The effect of other certain convertible units would have an anti-dilutive effect upon the calculation of Net income 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.

 

(2)

Related to gains, impairment and depreciation on operating properties, where applicable.

 

(3)

Related to transactional (income)/expense, where applicable.

 

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 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 including those properties under redevelopment. It excludes properties under 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.

 

30

 

Same property NOI is calculated using revenues from rental properties (excluding straight-line rent adjustments, lease termination fees 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 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,

 
   

2017

   

2016

   

2017

   

2016

 

Net income/(loss) available to the Company’s common shareholders

  $ 101,957     $ (55,100 )   $ 298,996     $ 265,912  

Adjustments:

                               

Management and other fee income

    (3,926 )     (5,790 )     (12,456 )     (14,274 )

General and administrative

    28,588       27,983       86,395       89,840  

Impairment charges

    2,944       10,073       34,280       68,126  

Depreciation and amortization

    88,443       96,827       275,787       264,436  

Interest and other expense, net

    47,910       87,868       137,770       191,980  

(Benefit)/provision for income taxes, net

    (697 )     61,426       (2,224 )     73,292  

Gain on change in control of interests

    -       (6,584 )     (71,160 )     (53,096 )

Equity in income of other real estate investments, net

    (19,909 )     (3,774 )     (61,952 )     (22,532 )

Gain on sale of operating properties, net of tax

    (40,533 )     (9,771 )     (62,102 )     (75,935 )

Net income attributable to noncontrolling interests

    1,186       1,997       13,926       4,875  

Preferred stock redemption charge

    7,014       -       7,014       -  

Preferred stock dividends

    12,059       11,555       35,169       34,665  

Non same property net operating income

    (13,166 )     (12,834 )     (45,577 )     (74,466 )

Non-operational expense/(income) from joint ventures, net

    24,580       25,531       63,611       (67,037 )

Same property NOI

  $ 236,450     $ 229,407     $ 697,477     $ 685,786  

 

Same property NOI increased by $7.0 million or 3.1% for the three months ended September 30, 2017, as compared to the corresponding period in 2016. This increase is primarily the result of (i) an increase of $3.2 million related to lease-up and rent commencements in the portfolio, (ii) an increase in other property income of $3.3 million and (iii) a decrease of $0.5 million of credit losses.

 

Same property NOI increased by $11.7 million or 1.7% for the nine months ended September 30, 2017, as compared to the corresponding period in 2016. This increase is primarily the result of (i) an increase of $8.2 million related to lease-up and rent commencements in the portfolio, (ii) a decrease of $2.8 million of credit losses and (iii) an increase in other property income of $0.7 million.

 

Leasing Activity

 

During the nine months ended September 30, 2017, the Company executed 918 leases totaling 7.1 million square feet in the Company’s consolidated operating portfolio comprised of 330 new leases and 588 renewals and options. The leasing costs associated with new leases are estimated to aggregate $58.0 million or $28.74 per square foot. These costs include $45.1 million of tenant improvements and $12.9 million of external leasing commissions. The average rent per square foot on new leases was $18.53 and on renewals and options was $15.70.

 

Tenant Lease Expirations

 

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, for each lease that expires during the respective year. Amounts in thousands except for number of lease data and percentages:

 

31

 

Year Ending

December 31,

   

Number of Leases

Expiring

   

Square Feet

Expiring

   

Total Annual Base

Rent Expiring

   

% of Gross

Annual Rent

 
(1)       161       604     $ 12,972       1.5

%

2017

      131       525     $ 10,830       1.3

%

2018

      740       3,914     $ 67,353       7.8

%

2019

      896       6,561     $ 99,195       11.5

%

2020

      880       6,174     $ 97,607       11.3

%

2021

      807       6,643     $ 98,950       11.4

%

2022

      821       6,993     $ 106,062       12.3

%

2023

      424       5,459     $ 76,807       8.9

%

2024

      251       2,996     $ 48,414       5.6

%

2025

      227       2,120     $ 35,463       4.1

%

2026

      235       3,853     $ 51,910       6.0

%

2027

      244       3,579     $ 54,942       6.4

%

 

 

(1)

Leases currently under month to month lease or in process of renewal.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Company’s primary market risk exposures are interest rate risk and foreign currency exchange rate risk.  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 September 30, 2017, with corresponding weighted-average interest rates sorted by maturity date.  The table does not include extension options where available. Amounts are in millions.

 

   

2017

   

2018

   

2019

   

2020

   

2021

   

Thereafter

   

Total

   

Fair Value

 

Secured Debt

                                                               

Fixed Rate

  $ 12.4     $ 73.7     $ 2.4     $ 101.0     $ 157.4     $ 403.9     $ 750.8     $ 752.8  

Average Interest Rate

    9.41

%

    4.99

%

    5.29

%

    5.35

%

    5.39

%

    4.29

%

    4.81

%

       
                                                                 

Variable Rate

  $ -     $ -     $ 100.0     $ -     $ -     $ -     $ 100.0     $ 99.4  

Average Interest Rate

    -       -       2.60

%

    -       -       -       2.60

%

       
                                                                 

Unsecured Debt

                                                               

Fixed Rate

  $ -     $ 89.0     $ 299.4     $ -     $ 497.4     $ 3,796.4     $ 4,682.2     $ 4,658.6  

Average Interest Rate

    -       4.30

%

    6.88

%

    -       3.20

%

    3.52

%

    3.72

%

       
                                                                 

Variable Rate

  $ -     $ -     $ -     $ -     $ 18.2     $ -     $ 18.2     $ 18.2  

Average Interest Rate

    -       -       -       -       2.10

%

    -       2.10

%

       

 

Based on the Company’s variable-rate debt balances, interest expense would have increased by $0.9 million for the nine months ended September 30, 2017 if short-term interest rates were 1% higher.

 

The following table presents the Company’s foreign investments in their respective local currencies and the U.S. dollar equivalents:

 

Foreign Investment (in millions)

 

Country

 

Local Currency

   

U.S. Dollars

 

Mexican real estate investments

    53.5     $ 4.8  

Canadian real estate investments

 

19.1

    $ 15.4  

 

The Company has not, and does not plan to, enter into any derivative financial instruments for trading or speculative purposes.

 

Currency fluctuations between local currency and the U.S. dollar, for investments for which the Company has determined that the local currency is the functional currency, for the period in which the Company held its investment result in a cumulative translation adjustment (“CTA”). This CTA is recorded as a component of Accumulated other comprehensive income (“AOCI”) on the Company’s Condensed Consolidated Balance Sheets. The CTA amounts are subject to future changes resulting from ongoing fluctuations in the respective foreign currency exchange rates. Changes in exchange rates are impacted by many factors that cannot be forecasted with reliable accuracy. During the nine months ended September 30, 2017, the Company substantially liquidated its investments in Canada and as such, recognized a net cumulative foreign currency translation gain of $10.0 million. As of a result of the substantial liquidation of the Company’s foreign investments, any future currency changes, which could have a favorable or unfavorable impact, will be recognized as earnings in Other income/(expense), net in the Company’s Condensed Consolidated Statements of Operations.

 

32

 

Item 4.  Controls and Procedures

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

 

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

33

 

PART II

OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

The Company is not presently involved in any litigation nor, to its knowledge, is any litigation threatened against the Company or its subsidiaries that, in management's opinion, would result in any material adverse effect on the Company's ownership, management or operation of its properties taken as a whole, or which is not covered by the Company's liability insurance. 

 

On January 28, 2013, the Company received a subpoena from the Enforcement Division of the SEC in connection with an investigation, In the Matter of Wal-Mart Stores, Inc. (FW-3678), that the SEC Staff is currently conducting with respect to possible violations of the Foreign Corrupt Practices Act. The Company has cooperated, and will continue to cooperate, with the SEC and the U.S. Department of Justice (“DOJ”), which is conducting a parallel investigation. At this point, we are unable to predict the duration, scope or result of the SEC or DOJ investigations.

 

 

Item 1A.  Risk Factors

 

There are no material changes from risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016. 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Issuer Purchases of Equity Securities - During the nine months ended September 30, 2017, the Company repurchased 229,436 shares in connection with common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted stock awards under the Company’s equity-based compensation plans. The Company expended approximately $5.6 million to repurchase these shares.

 

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, 2017 – January 31, 2017

    12,364     $ 25.34       -     $ -  

February 1, 2017 - February 28, 2017

    186,397     $ 25.04       -       -  

March 1, 2017 – March 31, 2017

    452     $ 23.38       -       -  

April 1, 2017 – April 30, 2017

    -     $ -       -       -  

May 1, 2017 – May 31, 2017

    15,625     $ 18.90       -       -  

June 1, 2017 – June 30, 2017

    1,544     $ 17.56       -       -  

July 1, 2017 – July 31, 2017

    1,824     $ 19.51       -       -  

August 1, 2017 – August 31, 2017

    10,314     $ 20.32       -       -  

September 1, 2017 – September 30, 2017

    916     $ 19.62       -       -  

Total

    229,436     $ 24.31       -     $ -  

 

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

34

 

Item 5.  Other Information

 

None.

 

 

Item 6.  Exhibits

 

Exhibits

 

4.1 Agreement to File Instruments

 

Kimco Realty Corporation (the “Registrant”) hereby agrees to file with the Securities and Exchange Commission, upon request of the Commission, all instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries, and for any of its unconsolidated subsidiaries for which financial statements are required to be filed, and for which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis.

 

 

12.1

Computation of Ratio of Earnings to Fixed Charges

  

12.2

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

  

31.1

Certification of the Company’s Chief Executive Officer, Conor C. Flynn, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Certification of the Company’s Chief Financial Officer, Glenn G. Cohen, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

32.1

Certification of the Company’s Chief Executive Officer, Conor C. Flynn, and the Company’s Chief Financial Officer, Glenn G. Cohen, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

XBRL Instance Document

 

101.SCH

XBRL Taxonomy Extension Schema

  

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

  

101.DEF

XBRL Taxonomy Extension Definition Linkbase

  

101.LAB

XBRL Taxonomy Extension Label Linkbase

  

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

 

 

35

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 


 

  

  

  

KIMCO REALTY CORPORATION

  

  

  

  

  

  

  

  

  

  

  

  

October 27, 2017

  

  

/s/ Conor C. Flynn

(Date)

  

  

Conor C. Flynn

  

  

  

Chief Executive Officer

  

  

  

  

  

  

  

  

October 27, 2017

  

  

/s/ Glenn G. Cohen

(Date)

  

  

Glenn G. Cohen

  

  

  

Chief Financial Officer

 

36