-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JI6X0Vl+v+xJVpSItgPjV1/AkAMguN6cniaJeHc+ixOtJkhz2uHI8Y327McjTIVb D5K3/iOfsKKHmi3JFAMzIA== 0001125282-05-005697.txt : 20051104 0001125282-05-005697.hdr.sgml : 20051104 20051104164637 ACCESSION NUMBER: 0001125282-05-005697 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051104 DATE AS OF CHANGE: 20051104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIMCO REALTY CORP CENTRAL INDEX KEY: 0000879101 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 132744380 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10899 FILM NUMBER: 051180890 BUSINESS ADDRESS: STREET 1: 3333 NEW HYDE PARK RD STREET 2: PO BOX 5020 CITY: NEW HYDE PARK STATE: NY ZIP: 11042 BUSINESS PHONE: 5168699000 MAIL ADDRESS: STREET 1: 3333 NEW HYDE PARK ROAD STREET 2: PO BOX 5020 CITY: NEW HYDE PARKQ STATE: NY ZIP: 11042 10-Q 1 b409570_10q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 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 (I.R.S. Employer Identification No.) incorporation or organization) 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) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b of the Exchange Act). Yes X No ---- ---- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act). Yes No X ---- ---- APPLICABLE ONLY TO CORPORATE ISSUERS: ------------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 227,283,664 shares outstanding as of October 31, 2005. 1 of 47 PART I FINANCIAL INFORMATION Item 1. Financial Statements Page ---- Condensed Consolidated Financial Statements - Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 3 Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 2005 and 2004 4 Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2005 and 2004 5 Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2005 and 2004 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 28 Item 3. Quantitative and Qualitative Disclosures about Market Risk 39 Item 4. Controls and Procedures 40 PART II OTHER INFORMATION Item 1. Legal Proceedings 41 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41 Item 3. Defaults Upon Senior Securities 41 Item 4. Submission of Matters to a Vote of Security Holders 41 Item 5. Other Information 41 Item 6. Exhibits 41 2 KIMCO REALTY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE INFORMATION)
SEPTEMBER 30, DECEMBER 31, 2005 2004 ----------- ----------- Assets: Operating real estate, net of accumulated depreciation of $723,818 and $634,642, respectively $ 3,072,729 $ 3,095,360 Investments and advances in real estate joint ventures 666,088 595,175 Real estate under development 479,914 362,220 Other real estate investments 252,856 188,536 Mortgages and other financing receivables 145,034 140,717 Cash and cash equivalents 69,940 38,220 Marketable securities 204,996 123,771 Accounts and notes receivable 64,034 52,182 Other assets 212,885 153,416 ----------- ----------- $ 5,168,476 $ 4,749,597 =========== =========== Liabilities: Notes payable $ 1,836,475 $ 1,608,925 Mortgages payable 310,084 353,071 Construction loans payable 210,570 156,626 Dividends payable 77,903 71,489 Other liabilities 264,496 216,195 ----------- ----------- 2,699,528 2,406,306 ----------- ----------- Minority interests 124,174 106,891 ----------- ----------- Commitments and contingencies Stockholders' equity: Preferred stock , $1.00 par value, authorized 3,600,000 shares Class F Preferred Stock, $1.00 par value, authorized 700,000 shares Issued and outstanding 700,000 shares 700 700 Aggregate liquidation preference $175,000 Common stock, $.01 par value, authorized 300,000,000 shares Issued and outstanding 227,252,825 and 224,852,812 shares, respectively 2,273 2,249 Paid-in capital 2,241,995 2,199,419 Retained earnings/(Cumulative distributions in excess of net income) 30,357 (3,749) ----------- ----------- 2,275,325 2,198,619 Accumulated other comprehensive income 69,449 37,781 ----------- ----------- 2,344,774 2,236,400 ----------- ----------- $ 5,168,476 $ 4,749,597 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 KIMCO REALTY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Revenues from rental property $ 130,441 $ 120,330 $ 388,177 $ 386,366 --------- --------- --------- --------- Rental property expenses: Rent 2,618 2,662 7,851 8,441 Real estate taxes 16,715 15,796 49,270 48,508 Operating and maintenance 14,013 12,100 45,681 41,462 --------- --------- --------- --------- 33,346 30,558 102,802 98,411 --------- --------- --------- --------- 97,095 89,772 285,375 287,955 Mortgage and other financing income 3,303 3,179 9,873 9,637 Management and other fee income 6,946 6,008 22,076 18,836 Depreciation and amortization (26,627) (23,623) (79,364) (75,301) General and administrative expenses (14,084) (11,034) (38,837) (31,652) Interest, dividends and other investment income 9,141 8,595 17,594 13,170 Other income/(expense), net (1,810) 4,790 9,346 10,994 Interest expense (33,890) (25,740) (93,027) (81,134) --------- --------- --------- --------- 40,074 51,947 133,036 152,505 Benefit/(provision) for income taxes 860 24 (4,073) (5,395) Income from other real estate investments 13,432 5,119 41,961 20,414 Equity in income of real estate joint ventures, net 18,052 13,864 57,140 39,792 Minority interests in income, net (3,663) (2,312) (10,711) (7,059) Gain on sale of development properties, net of tax of $2,433, $1,047, $9,575 and $4,935, respectively 8,121 1,571 18,835 7,404 --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS 76,876 70,213 236,188 207,661 --------- --------- --------- --------- DISCONTINUED OPERATIONS: Income from discontinued operating properties 2,821 2,825 5,130 6,235 Loss on operating properties held for sale/sold -- (913) (2,615) (5,064) Gain on disposition of operating properties 4,964 6,386 14,425 12,498 --------- --------- --------- --------- INCOME FROM DISCONTINUED OPERATIONS 7,785 8,298 16,940 13,669 --------- --------- --------- --------- Gain on transfer of operating properties, net -- -- 2,151 -- Gain on disposition of operating properties 682 -- 682 -- --------- --------- --------- --------- 682 -- 2,833 -- --------- --------- --------- --------- NET INCOME 85,343 78,511 255,961 221,330 Preferred stock dividends (2,909) (2,909) (8,728) (8,728) --------- --------- --------- --------- NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 82,434 $ 75,602 $ 247,233 $ 212,602 ========= ========= ========= ========= Per common share: Income from continuing operations: -Basic $ 0.33 $ 0.30 $ 1.02 $ 0.89 ========= ========= ========= ========= -Diluted $ 0.32 $ 0.30 $ 1.00 $ 0.88 ========= ========= ========= ========= Net income : -Basic $ 0.36 $ 0.34 $ 1.09 $ 0.96 ========= ========= ========= ========= -Diluted $ 0.36 $ 0.33 $ 1.07 $ 0.94 ========= ========= ========= =========
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 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED) (IN THOUSANDS)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Net income $ 85,343 $ 78,511 $ 255,961 $ 221,330 --------- --------- --------- --------- Other comprehensive income: Change in unrealized gain on marketable securities 11,190 2,799 29,480 9,056 Change in unrealized gain on warrants -- 1,296 -- 2,547 Change in unrealized gain/(loss) on foreign currency hedge agreements (839) (8,125) 2,665 (5,275) Foreign currency translation adjustment 1,861 9,399 (477) 5,776 --------- --------- --------- --------- Other comprehensive income 12,212 5,369 31,668 12,104 --------- --------- --------- --------- Comprehensive income $ 97,555 $ 83,880 $ 287,629 $ 233,434 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 KIMCO REALTY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (Unaudited) (in thousands)
Nine Months Ended September 30, ------------------------- 2005 2004 --------- --------- Cash flow from operating activities: Net income $ 255,961 $ 221,330 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 80,563 77,608 Loss on operating properties held for sale/sold/transferred 2,765 5,064 Gain on sale of development properties (28,410) (12,339) Gain on sale/transfer of operating properties (17,408) (12,498) Minority interests in income, net 10,711 7,059 Equity in income of real estate joint ventures, net (57,140) (39,792) Income from other real estate investments (32,329) (15,293) Distributions of unconsolidated investments 87,544 64,384 Change in accounts and notes receivable (11,319) (796) Change in accounts payable and accrued expenses 31,533 20,638 Change in other operating assets and liabilities (2,139) (21,292) --------- --------- Net cash flow provided by operating activities 320,332 294,073 --------- --------- Cash flow from investing activities: Acquisition of and improvements to operating real estate (278,883) (202,347) Acquisition of and improvements to real estate under development (271,063) (107,469) Investment in marketable securities (70,807) (24,624) Proceeds from sale of marketable securities 27,537 16,573 Proceeds from transferred operating properties 128,537 314,449 Investments and advances to real estate joint ventures (173,359) (98,075) Reimbursements of advances to real estate joint ventures 108,389 73,506 Other real estate investments (93,177) (55,388) Reimbursements of advances to other real estate investments 13,912 15,942 Investment in mortgage loans receivable (68,379) (69,724) Collection of mortgage loans receivable 65,791 48,739 Settlement of net investment hedges (34,580) -- Proceeds from sale of operating properties 49,283 41,858 Proceeds from sale of development properties 204,142 120,103 --------- --------- Net cash flow (used for) provided by investing activities (392,657) 73,543 --------- --------- Cash flow from financing activities: Principal payments on debt, excluding normal amortization of rental property debt (52,259) (15,151) Principal payments on rental property debt (6,338) (6,120) Principal payments on construction loan financings (70,019) (54,816) Proceeds from mortgage/construction loan financings 216,430 265,720 Borrowings under revolving credit facilities 74,316 55,000 Repayment of borrowings under revolving credit facilities (151,326) (100,000) Proceeds from issuance of unsecured senior notes 422,429 200,000 Repayment of unsecured senior notes (130,250) (464,000) Financing origination costs (7,854) -- Redemption of minority interests in real estate partnerships (12,520) (3,781) Dividends paid (215,441) (198,480) Proceeds from issuance of stock 36,877 39,755 --------- --------- Net cash flow provided by (used for) financing activities 104,045 (281,873) --------- --------- Change in cash and cash equivalents 31,720 85,743 Cash and cash equivalents, beginning of period 38,220 48,288 --------- --------- Cash and cash equivalents, end of period $ 69,940 $ 134,031 ========= ========= Interest paid during the period (net of capitalized interest of $8,567, and $6,380, respectively) $ 72,981 $ 68,326 ========= ========= Income taxes paid during the period $ 11,596 $ 10,180 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 KIMCO REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ------------------------ 1. Interim Financial Statements Principles of Consolidation - The accompanying Condensed Consolidated Financial Statements include the accounts of Kimco Realty Corporation (the "Company"), its subsidiaries, all of which are wholly owned, and all entities in which the Company has a controlling interest or has been determined to be a primary beneficiary of a variable interest entity in accordance with the provisions and guidance of Financial Accounting Standards Board ("FASB") Interpretation No. 46(R), Consolidation of Variable Interest Entities ("FIN 46(R)"). All inter-company balances and transactions have been eliminated in consolidation. The information furnished is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. These Condensed Consolidated Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K and current report on Form 8-K dated July 18, 2005. Income Taxes - The Company and its qualified REIT subsidiaries file a consolidated federal income tax return. The Company has made an election to qualify, and believes it is operating so as to qualify, as a Real Estate Investment Trust (a "REIT") for federal income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under Section 856 through 860 of the Internal Revenue Code, as amended (the "Code"). However, in connection with the Tax Relief Extension Act of 1999, which became effective January 1, 2001, the Company is now permitted to participate in certain activities which it was previously precluded from in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries under the Code. As such, the Company will be subject to federal and state income taxes on the income from these activities. During the nine months ended September 30, 2005, the Company's provision for federal and state income taxes was approximately $13.6 million relating to activities conducted in its taxable REIT subsidiaries. 7 Earnings Per Share - On July 21, 2005, the Company's Board of Directors declared a two-for-one split (the "Stock Split") of the Company's common stock which was effected in the form of a stock dividend paid on August 23, 2005 to stockholders of record on August 8, 2005. All share and per share data included in the accompanying Condensed Consolidated Financial Statements and Notes thereto have been adjusted to reflect this Stock Split. The following table sets forth the reconciliation of earnings and the weighted average number of shares used in the calculation of basic and diluted earnings per share (amounts presented in thousands, except per share data):
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Computation of Basic Earnings Per Share: Income from continuing operations $ 76,876 $ 70,213 $ 236,188 $ 207,661 Gain on transfer/disposition of operating properties, net 682 -- 2,833 -- Preferred stock dividends (2,909) (2,909) (8,728) (8,728) --------- --------- --------- --------- Income from continuing operations applicable to common shares 74,649 67,304 230,293 198,933 Income from discontinued operations 7,785 8,298 16,940 13,669 --------- --------- --------- --------- Net income applicable to common shares $ 82,434 $ 75,602 $ 247,233 $ 212,602 ========= ========= ========= ========= Weighted average common shares outstanding 227,017 223,052 226,310 222,302 Basic Earnings Per Share: Income from continuing operations $ 0.33 $ 0.30 $ 1.02 $ 0.89 Income from discontinued operations 0.03 0.04 0.07 0.07 --------- --------- --------- --------- Net income $ 0.36 $ 0.34 $ 1.09 $ 0.96 ========= ========= ========= =========
8 Computation of Diluted Earnings Per Share: Income from continuing operations applicable to common shares (a) $ 74,649 $ 67,304 $230,293 $198,933 Income from discontinued operations 7,785 8,298 16,940 13,669 -------- -------- -------- -------- Net income for diluted earnings per share $ 82,434 $ 75,602 $247,233 $212,602 ======== ======== ======== ======== Weighted average common shares outstanding - basic 227,017 223,052 226,310 222,302 Effect of dilutive securities (a): Stock options 4,716 4,190 4,275 4,216 -------- -------- -------- -------- Shares for diluted earnings per share 231,733 227,242 230,585 226,518 ======== ======== ======== ======== Diluted Earnings Per Share: Income from continuing operations $ 0.32 $ 0.30 $ 1.00 $ 0.88 Income from discontinued operations 0.04 0.03 0.07 0.06 -------- -------- -------- -------- Net income $ 0.36 $ 0.33 $ 1.07 $ 0.94 ======== ======== ======== ========
(a) For the three and the nine months ended September 30, 2005 and 2004, the effect of the assumed conversion of downREIT units would have an anti-dilutive effect upon the calculation of Income from continuing operations per share. Accordingly, the impact of such conversion has not been included in the determination of diluted earnings per share calculations. The Company maintains a stock option plan (the "Plan") for which prior to January 1, 2003, the Company accounted for under the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation (an interpretation of APB Opinion No. 25), issued in March 2000. Effective January 1, 2003, the Company adopted the prospective method provisions of Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure an Amendment of FASB Statement No. 123 ("SFAS No. 148"), which applies the recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123") to all employee awards granted, modified or settled after January 1, 2003. Awards under the Company's Plan generally vest ratably over a three or five-year term and expire ten years from the date of grant. Therefore, the cost related to stock-based employee compensation included in the determination of net income for the three and nine months ended September 30, 2005 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding stock awards in each period (amounts presented in thousands, except per share data): 9
Three Months Nine Months Ended September 30, Ended September 30, ------------------------- ------------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Net income, as reported $ 85,343 $ 78,511 $ 255,961 $ 221,330 Add: Stock based employee compensation expense included in reported net income 1,111 381 3,184 1,059 Deduct: Total stock based employee compensation expense determined under fair value based method for all awards (1,261) (798) (3,632) (2,309) --------- --------- --------- --------- Pro Forma Net Income - Basic $ 85,193 $ 78,094 $ 255,513 $ 220,080 ========= ========= ========= ========= Earnings Per Share Basic - as reported $ 0.36 $ 0.34 $ 1.09 $ 0.96 ========= ========= ========= ========= Basic - pro forma $ 0.36 $ 0.34 $ 1.09 $ 0.95 ========= ========= ========= ========= Net income applicable to common shares for diluted earnings per share $ 82,434 $ 75,602 $ 247,233 $ 212,602 Add: Stock based employee compensation expense included in reported net income 1,111 381 3,184 1,059 Deduct: Total stock based employee compensation expense determined under fair value based method for all awards (1,261) (798) (3,632) (2,309) --------- --------- --------- --------- Pro Forma Net Income applicable to commons shares - Diluted $ 82,284 $ 75,185 $ 246,785 $ 211,352 ========= ========= ========= ========= Earnings Per Share Diluted - as reported $ 0.36 $ 0.33 $ 1.07 $ 0.94 ========= ========= ========= ========= Diluted - pro forma $ 0.36 $ 0.33 $ 1.07 $ 0.93 ========= ========= ========= =========
In addition, there were approximately 990,000 and 125,000 stock options that were anti-dilutive as of September 30, 2005 and 2004, respectively. 10 New Accounting Pronouncements - In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, (revised 2004) Share-Based Payment ("SFAS No. 123(R)"), which supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and its related implementation guidance. SFAS No. 123(R) established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. SFAS No. 123(R) focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) is effective for fiscal years beginning after December 15, 2005. The impact of adopting SFAS No. 123 (R) is not expected to have a material impact on the Company's financial position or results of operations. In December 2004, the FASB issued Statement No. 153, Exchange of Non-monetary Assets - an amendment of APB Opinion No. 29 ("SFAS No. 153"). The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion No. 29 to eliminate the exception for non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The impact of adopting SFAS No. 153 did not have a material impact on the Company's financial position or results of operations. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections ("SFAS No. 154"), which replaces Accounting Principle Board Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles. It requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. In September 2005, the Emerging Issues Task Force ("EITF") issued Issue 04-5, Investor's Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights, ("EITF 04-5"). At issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U.S. generally accepted accounting principles. The assessment of limited partners' rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership of limited partnership interests, or (iii) there is an increase or decrease in the number of outstanding limited partnership interests. This issue is effective no later than for fiscal years beginning after December 15, 2005 and as of June 29, 2005 for new or modified arrangements. The impact of adopting EITF 04-5 is not expected to have a material impact on the Company's financial position or results of operations. 11 2. Operating Property Activities and Other Investments Acquisitions - During January 2005, the Company acquired a shopping center property located in Clearwater, FL, comprising approximately 0.2 million square feet of gross leasable area ("GLA"), for a purchase price of approximately $17.7 million. During March 2005, the Company acquired the remaining 40% interest in a shopping center property located in Temple, TX, in which the Company had previously owned a 60% interest, for a purchase price of approximately $0.9 million. During June 2005, the Company transferred this property to a newly formed joint venture in which the Company now has a 20% non-controlling interest. Additionally, during March 2005, the Company acquired two operating properties, located in New York, NY, through newly formed joint ventures in which the Company holds 95% economic interests, for an aggregate purchase price of approximately $11.6 million. Simultaneously with the closing, each property was encumbered with an individual non-recourse floating-rate mortgage aggregating approximately $9.1 million. These loans mature in April 2007 and bear interest at LIBOR plus 2% and LIBOR plus 2.25% (5.86% and 6.11%, respectively, at September 30, 2005). Based upon the provisions of FIN 46(R), the Company has determined that these entities are variable interest entities ("VIE"). The Company has further determined that the Company is the primary beneficiary of these VIEs and has therefore consolidated these entities for financial reporting purposes. The Company's maximum exposure to loss associated with these entities is primarily limited to the Company's aggregate capital investment, which was approximately $3.4 million at September 30, 2005. During April 2005, the Company acquired an operating property located in Poway, CA, comprising approximately 0.1 million square feet of GLA, for a purchase price of approximately $19.5 million. 12 During May 2005, the Company acquired, in separate transactions, two parcels of land located in Saltillo and Pachuca, Mexico, for an aggregate purchase price of approximately $14.6 million. The properties will be developed into retail centers with an aggregate total projected cost of approximately $34.1 million. During June 2005, the Company acquired a portfolio of 45 operating properties, comprising approximately 0.3 million square feet of GLA, located in Virginia and Maryland, for a purchase price of approximately $85.3 million. During August 2005, the Company obtained approximately $65.0 million of crossed-collateralized non-recourse mortgage debt encumbering all 45 operating properties. This mortgage debt matures in September 2015 and bears interest at a fixed-rate of 4.94% per annum. During September 2005, the entire portfolio of 45 properties and the associated debt was transferred to a newly formed unconsolidated joint venture in which the Company has a 15% non-controlling interest. During 2005, the Company acquired ten self-storage facilities through an existing joint venture in which the Company holds an approximate 93.5% economic interest, for a purchase price of approximately $39.9 million including the assumption of approximately $7.5 million of non-recourse fixed-rate mortgage debt encumbering three of these properties. As of September 30, 2005, this entity owns 17 self-storage facilities located in various states. The Company has cross-collateralized 14 of these properties with approximately $44.0 million of non-recourse floating-rate mortgage debt which matures in November 2007 and has an interest rate of LIBOR plus 2.75% (6.61% at September 30, 2005). Based upon the provisions of FIN 46(R), the Company has determined that this entity is a VIE. The Company has further determined that the Company is the primary beneficiary of this VIE and has therefore consolidated this entity for financial reporting purposes. The Company's maximum exposure to loss associated with this entity is primarily limited to the Company's carrying value of this investment, which was approximately $16.0 million at September 30, 2005. Dispositions - During the nine months ended September 30, 2005, the Company (i) disposed of, in separate transactions, 13 operating properties for an aggregate sales price of approximately $60.1 million, (ii) transferred three operating properties to KROP, as defined below, for an aggregate price of approximately $49.0 million, and (iii) transferred 52 operating properties to various joint ventures in which the Company has non-controlling interests ranging from 15% to 50% for an aggregate price of approximately $232.1 million. For the nine months ended September 30, 2005, these transactions resulted in an aggregate net gain of approximately $14.6 million. During June 2005, the Company disposed of a vacant land parcel located in New Ridge, MD for approximately $5.6 million resulting in a $4.6 million gain on sale. This gain is included in Other income, net on the Company's Condensed Consolidated Statements of Income. 13 Other Investments - From 2000 through 2002 the Company acquired approximately $28.9 million face amount of Frank's Nursery and Crafts, Inc. ("Frank's"), 10.25% bonds for an aggregate purchase price of approximately $11.3 million. During February 2001, Frank's filed for protection under Chapter 11 of the United States Bankruptcy Code. During May 2002, Frank's plan of reorganization was confirmed by the Bankruptcy court and Frank's emerged from bankruptcy. Pursuant to Frank's reorganization plan the Company received approximately 4.3 million shares of Frank's common stock valued at $2.34 per share in settlement of its Frank's bond investment. As a result of this conversion the Company held an approximate 27% interest in Frank's and began accounting for its investment on the equity method. In addition, the Company began providing loans to Frank's under a revolving credit facility, which was collateralized by certain real estate interests of Frank's. As an inducement to make these loans, Frank's issued the Company approximately 4.4 million warrants with an exercise price of $1.15 per share. During September 2004, Frank's again filed for protection under Chapter 11 of the United States Bankruptcy Code. The Company committed to provide Frank's, in addition to its revolving credit facility, with $27.0 million of debtor-in-possession financing for a term of one year at an interest rate of Prime plus 1.00%. From the petition date until July 26, 2005, Frank's operated its business as a debtor-in-possession and during this period had completely liquidated its inventory and ceased operations as a retailer. Frank's plan of reorganization included a Company sponsored re-capitalization plan in which the Company, along with several other significant shareholders, agreed to re-capitalize Frank's with approximately $104.0 million in cash in exchange for debt and equity securities and convert Frank's from a publicly held retail company to a privately held real estate company. On July 27, 2005, Frank's emerged from Chapter 11 bankruptcy pursuant to a bankruptcy court approved plan of reorganization as FNC Realty Corporation ("FNC"). Pursuant to the reorganization plan, shareholders of Frank's were offered cash of $0.75 per share or the right to exchange Frank's common stock for FNC common stock on a 1:1 basis. FNC's capitalization included the issuance of approximately $27.0 million of common stock and $77.0 million of fixed-rate 7% convertible senior notes. The notes mature in July 2008, and may be converted at anytime by the holder for common shares of FNC at $0.75 per share. Proceeds from the issuance of common stock and convertible senior notes were used to repay all claims pursuant to the plan of reorganization, including amounts owed to the Company under its revolving credit facility and debtor-in-possession financing agreement. 14 Pursuant to the plan of reorganization the Company received common shares of FNC representing an approximate 27% ownership interest in exchange for its interests in Frank's. In addition, the Company acquired an additional 24.5% interest in the common shares of FNC for cash of approximately $17 million, thereby increasing the Company's ownership interest to approximately 51%. This acquisition of additional shares includes the exercise of warrants previously issued by Frank's to the Company. The Company also acquired approximately $42 million of fixed-rate 7% convertible senior notes issued by FNC. As a result of the increase in ownership interest from 27% to 51%, the Company became the controlling shareholder and therefore, commenced consolidation of FNC effective July 27, 2005. The acquisition of the additional 24.5% ownership interest has been accounted for as a step acquisition under the provisions of SFAS No. 141 "Business Combinations", with the purchase price being allocated to the identified assets and liabilities of FNC. As of July 27, 2005, FNC had approximately $154 million of net operating loss carry-forwards ("NOLs"), which may be utilized to offset future taxable income of FNC. As Frank's had recurring losses and was in bankruptcy, the realization of the NOLs was uncertain. Accordingly, a full valuation allowance was recorded against the deferred tax asset relating to these NOLs. Of the total amount of available NOLs, the Company has estimated approximately $124 million is unrestricted and $30 million is restricted (limited to utilization of $1.1 million per year). The Company has evaluated the level of valuation allowance required and determined, based upon the expected investment strategy for FNC, that approximately $27 million of the allowance should be reduced and recorded as an adjustment to the purchase price allocation. As of July 27, 2005, FNC held interests in 55 properties with approximately $16.1 million of non-recourse mortgage debt encumbering 16 of the properties. These loans bear interest at fixed rates ranging from 7.00% - 7.75% and maturity dates ranging from August 2014 through June 2022. The Company's investment strategy with respect to FNC includes re-tenanting, re-developing and disposition of the properties. From July 27, 2005 through September 30, 2005, FNC disposed of six properties, in separate transactions, for an aggregate sales price of approximately $6.8 million. 3. Discontinued Operations In accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long Lived Assets ("SFAS No. 144"), the Company reports as discontinued operations assets held-for-sale (as defined by SFAS No. 144) and operating properties sold in the current period. All results of these discontinued operations are included in a separate component of income on the Condensed Consolidated Statements of Income under the caption Discontinued operations. This reporting has resulted in certain reclassifications of 2004 financial statement amounts. 15 The components of Income from operations related to discontinued operations for the three and nine months ended September 30, 2005 and 2004 are shown below. These include the results of operations through the date of sale for each property sold during 2005 and 2004 and the operations for the applicable period for those assets classified as held-for-sale as of September 30, 2005 (in thousands):
Three Months ended Nine Months ended September 30, September 30, ------------------------ ----------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Discontinued operations: Revenues from rental property $ 1,654 $ 3,710 $ 6,429 $ 12,590 Rental property expenses (256) (799) (1,892) (3,933) -------- -------- -------- -------- Income from property operations 1,398 2,911 4,537 8,657 Depreciation and amortization (44) (772) (1,198) (2,306) Interest expense -- (174) 182 (605) Other 1,467 860 1,609 489 -------- -------- -------- -------- Income from discontinued operating properties 2,821 2,825 5,130 6,235 Loss on operating properties held for sale/sold -- (913) (2,615) (5,064) Gain on disposition of operating properties 4,964 6,386 14,425 12,498 -------- -------- -------- -------- Income from discontinued operations $ 7,785 $ 8,298 $ 16,940 $ 13,669 ======== ======== ======== ========
During March 2005, the Company reclassified as held-for-sale three shopping center properties comprising approximately 0.4 million square feet of GLA. The book value of each of these properties, aggregating approximately $17.1 million, net of accumulated depreciation of approximately $8.4 million, did not exceed each of their estimated fair values. As a result, no adjustment of property carrying value was recorded. The Company's determination of the fair value for each of these properties, aggregating approximately $22.1 million, was based upon executed contracts of sale with third parties less estimated selling costs. The Company completed the sale of these properties during the quarter ended June 30, 2005. During June 2005, the Company reclassified as held-for-sale a shopping center property comprising approximately 0.2 million square feet of GLA. The book value of this property of approximately $25.1 million, net of accumulated depreciation of approximately $1.0 million, did not exceed its estimated fair value. As a result, no adjustment of property carrying value has been recorded. The Company's determination of the fair value of this property of approximately $39.3 million, was based upon an executed contract of sale with a third party less estimated selling costs. 16 During September 2005, the Company reclassified as held-for-sale a shopping center property comprising approximately 0.2 million square feet of GLA. The book value of this property of approximately $3.6 million, net of accumulated depreciation of approximately $1.0 million, did not exceed its estimated fair value. As a result, no adjustment of property carrying value has been recorded. The Company's determination of the fair value of this property of approximately $7.6 million, was based upon an executed contract of sale with a third party less estimated selling costs. During March 2004, the Company reclassified as held-for-sale two shopping center properties comprising approximately 0.3 million square feet of GLA. The book value of these properties, aggregating approximately $8.7 million, net of accumulated depreciation of approximately $4.2 million, exceeded their estimated fair value. The Company's determination of the fair value of these properties, aggregating approximately $4.5 million, was based upon contracts of sale with third parties less estimated selling costs. As a result, the Company recorded a loss resulting from an adjustment of property carrying values of $4.2 million. During March 2004, the Company completed the sale of one of these properties, comprising approximately 0.1 million square feet of GLA, for a sales price of approximately $1.1 million. During June 2004, the Company completed the sale of the other property, comprising approximately 0.2 million square feet of GLA, for a sales price of approximately $3.9 million. 4. Kimco Developers, Inc. ("KDI") During the nine months ended September 30, 2005, KDI, the Company's wholly-owned development taxable REIT subsidiary, acquired various land parcels relating to 12 ground-up development projects for an aggregate purchase price of approximately $113.4 million. During the nine months ended September 30, 2005, KDI sold five of its recently completed projects and 28 out-parcels, in separate transactions, for approximately $201.9 million. These sales provided gains of approximately $18.8 million, net of income taxes of $9.6 million. Additionally, during the nine months ended September 30, 2005, KDI obtained construction financing on three ground-up development projects for an aggregate loan amount of up to $50.5 million, of which approximately $21.8 million was funded as of September 30, 2005. As of September 30, 2005, KDI had 17 loans with total commitments of up to $395.4 million of which $210.6 million had been funded. These loans have original maturities ranging from 18 to 36 months and interest rates ranging from 5.51% to 6.11% at September 30, 2005. 17 5. Investment and Advances in Real Estate Joint Ventures Kimco Income REIT - During 1998, the Company formed Kimco Income REIT ("KIR"), a limited partnership which the Company manages, established to invest in high quality retail properties financed primarily through the use of individual non-recourse mortgages. The Company holds a 43.3% non-controlling limited partnership interest in KIR and accounts for its investment under the equity method of accounting. The Company's equity in income of KIR for the nine months ended September 30, 2005 and 2004 was approximately $21.5 million and $14.4 million, respectively. During March 2005, KIR disposed of an operating property and an out-parcel, in separate transactions, for an aggregate sales price of approximately $43.1 million. These sales resulted in an aggregate gain of approximately $17.8 million of which the pro-rata gain to the Company was approximately $7.7 million. In connection with the sale of the operating property, KIR incurred a $2.0 million loan defeasance charge, of which the Company's pro-rata share was approximately $0.9 million. Additionally, during March 2005, KIR acquired an operating property located in Delran, NJ, for a purchase price of approximately $4.6 million. KIR has a master management agreement with the Company, whereby, the Company will perform services for fees relating to the management, operation, supervision and maintenance of the joint venture properties. For each of the nine months ended September 30, 2005 and 2004, the Company earned management fees of approximately $2.2 million. As of September 30, 2005, the KIR portfolio was comprised of 69 properties aggregating 14.2 million square feet of GLA located in 20 states. RioCan Venture - During October 2001, the Company formed a joint venture (the "RioCan Venture") with RioCan Real Estate Investment Trust ("RioCan", Canada's largest publicly traded REIT measured by GLA) in which the Company has a 50% non-controlling interest, to acquire retail properties and development projects in Canada. The acquisitions and development projects are to be sourced and managed by RioCan and are subject to review and approval by a joint oversight committee consisting of RioCan management and the Company's management personnel. The Company accounts for its investment in the RioCan Venture on the equity method of accounting. 18 As of September 30, 2005, the RioCan Venture consisted of 35 shopping center properties aggregating 8.0 million square feet of GLA. During the nine months ended September 30, 2005 and 2004, the Company recognized equity in income of the RioCan Venture of approximately $16.7 million and $12.3 million, respectively. KROP Venture - During 2001, the Company formed a joint venture (the "Kimco Retail Opportunity Portfolio" or "KROP") with GE Capital Real Estate ("GECRE"), in which the Company has a 20% non-controlling interest and manages the portfolio. The purpose of this joint venture is to acquire established high growth potential retail properties in the United States. Total capital commitments to KROP from GECRE and the Company are for $200.0 million and $50.0 million, respectively, and such commitments are funded proportionately as suitable opportunities arise and are agreed to by GECRE and the Company. The Company accounts for its investment in KROP under the equity method of accounting. During the nine months ended September 30, 2005, KROP acquired four operating properties and one out-parcel, in separate transactions, for an aggregate purchase price of approximately $74.6 million, including the assumption of approximately $26.2 million of individual non-recourse mortgage debt encumbering two of the properties, and preferred units of approximately $4.2 million associated with another property. During the nine months ended September 30, 2005, KROP disposed of two operating properties for an aggregate sales price of approximately $27.3 million. These sales resulted in an aggregate gain of approximately $1.2 million. During the nine months ended September 30, 2004, KROP disposed of four operating properties and two out-parcels for an aggregate sales price of approximately $45.8 million including the assignment of approximately $11.2 million of non-recourse mortgage debt encumbering two of the properties. These sales resulted in an aggregate gain of approximately $14.3 million. As of September 30, 2005, the KROP venture consisted of 39 properties aggregating 5.7 million square feet of GLA located in 14 states. For the nine months ended September 30, 2005 and 2004, the Company recognized equity in income of KROP of approximately $3.3 million and $4.6 million, respectively. Additionally, during the nine months ended September 30, 2005 and 2004, the Company earned management fees of approximately $2.6 million and $1.9 million, respectively and acquisition fees of approximately $0.5 million and $1.7 million, respectively. 19 Other Real Estate Joint Ventures - During December 2004, the Company acquired the Price Legacy Corporation through a newly formed joint venture, PL Retail LLC ("PL Retail"), in which the Company has a 15% non-controlling interest and manages the portfolio. The Company accounts for its investment under the equity method of accounting. In connection with this transaction, PL Retail acquired 33 operating properties aggregating approximately 7.6 million square feet of GLA located in ten states. To partially fund the acquisition, the Company provided PL Retail approximately $30.6 million of secured mezzanine financing. This interest only loan bears interest at a fixed rate of 7.5% and matures in December 2006. During the nine months ended September 30, 2005, PL Retail disposed of eight operating properties, in separate transactions, for an aggregate sales price of approximately $80.9 million, which represented the approximate carrying values of the properties. Proceeds of approximately $21.8 million were used to partially repay the mezzanine financing that was provided by the Company. As of September 30, 2005, the outstanding balance of the mezzanine financing was approximately $8.8 million. During March 2005, a joint venture in which the Company has a 50% non-controlling interest, disposed of two vacant land parcels located in Glendale, AZ, in separate transactions, for an aggregate sales price of approximately $9.9 million. These sales resulted in an aggregate gain of approximately $4.8 million, of which the Company's share was approximately $2.4 million. Additionally, during March 2005, the Company transferred 50% of the Company's 95% interest in a development property located in Huehuetoca, Mexico, to a joint venture partner for approximately $5.3 million, which approximated its carrying value. As a result of this transaction, the Company now holds a 47.5% non-controlling interest in this property and now accounts for its investment under the equity method of accounting. During April 2005, the Company acquired an operating property located in Hillsborough, NJ, comprising approximately 0.1 million square feet of GLA, through a newly formed joint venture in which the Company has a 50% non-controlling interest. The property was acquired for approximately $4.0 million including the assumption of approximately $1.9 million of non-recourse mortgage debt encumbering the property. Subsequent to the purchase the joint venture obtained a $3.2 million one year term loan which bears interest at LIBOR plus 0.55%. This loan is jointly and severally guaranteed by the joint venture partners, including the Company. Proceeds from this loan were used to repay the $1.9 million mortgage encumbering the property. Additionally, during April 2005, the Company acquired land in Pachuca Hildago, Mexico, through a newly formed joint venture in which the Company has a 50% non-controlling interest, for a purchase price of approximately $2.7 million. The property will be developed as a retail center with a projected total cost of approximately $9.3 million. 20 During May 2005, a newly formed joint venture, in which the Company has a 50% non-controlling interest, acquired in separate transactions, two auto dealerships located in Toronto, Canada for an aggregate purchase price of approximately CAD $6.4 million (approximately USD $5.1 million). Additionally, during May 2005, the Company acquired a hotel property located in Cancun, Mexico, through a newly formed joint venture in which the Company has an 80% non-controlling interest. The property was purchased for approximately $19.7 million. Simultaneous with the closing, the property was encumbered with $12.4 million of non-recourse mortgage debt which bears interest at a fixed rate of 7.63% per annum and matures during May 2010. During June 2005, the Company acquired land in Tustin, CA, through a newly formed joint venture in which the Company has a 50% non-controlling interest, for a purchase price of approximately $23.0 million. The property will be developed into a 1.0 million square foot retail center with a total estimated project cost of approximately $149.3 million. The purchase of the land was funded through a new construction loan which bears interest at LIBOR plus 1.70% and is scheduled to mature in October 2007. As of September 30, 2005, this construction loan had an outstanding balance of approximately $34.9 million. Additionally, during June 2005, the Company acquired an additional 25% interest in a joint venture in which the Company had previously held a 7.77% interest for approximately $26.0 million. This joint venture owns an operating property, comprised of approximately 0.5 million square feet of GLA, located in Fremont, CA. The Company now has a 32.77% non-controlling interest in this joint venture and accounts for its investment under the equity method of accounting. During July 2005, the company transferred a development property located in Reynosa, Mexico, to a newly formed joint venture in which the Company has a 50% non-controlling interest, for a price of approximately $6.9 million. The Company now accounts for this investment under the equity method of accounting. Additionally, during July 2005, the Company acquired an interest in an office property located in Houston, TX, comprising approximately 0.6 million square feet of GLA through a newly formed joint venture in which the Company has an 85% non-controlling interest. The Company's investment in the joint venture was approximately $12.2 million. The joint venture purchased the property for approximately $91.1 million subject to $76.5 million of non-recourse mortgage debt which bears interest at a fixed-rate of 5.15% per annum and matures during August 2015. The Company accounts for this investment under the equity method of accounting. 21 Additionally, during the nine months ended September 30, 2005, the Company acquired, in separate transactions, six operating properties comprising approximately 1.1 million square feet of GLA, through newly formed joint ventures in which the company has non-controlling interests ranging from 5% to 50%. The aggregate purchase price for these properties was approximately $159.1 million, including mortgage debt of approximately $68.3 million of non-recourse mortgage debt encumbering two of the properties. The Company accounts for its investment in these joint ventures under the equity method of accounting. During September 2005, the Company transferred 45 operating properties, comprising approximately 0.3 million square feet of GLA, located in Virginia and Maryland to a newly formed unconsolidated joint venture in which the Company has a 15% non-controlling interest. The transfer price was approximately $85.3 million including the assignment of approximately $65.0 million of cross-collateralized non-recourse mortgage debt encumbering all of the properties. Additionally, during 2005, the Company transferred, in separate transactions, five operating properties comprising approximately 0.7 million square feet of GLA, to newly formed joint ventures in which the Company has 20% non-controlling interests, for an aggregate price of approximately $85.6 million, including the assignment of approximately $40.2 million of mortgage debt encumbering three of the properties. The Company accounts for its investments in these joint ventures under the equity method of accounting. The Company's maximum exposure to losses associated with its unconsolidated joint ventures is primarily limited to its carrying value in these investments. As of September 30, 2005, the Company's carrying value in these investments approximated $666.1 million. 6. Other Real Estate Investments Kimsouth - During November 2002, the Company through its taxable REIT subsidiary, together with Prometheus Southeast Retail Trust, completed the merger and privatization of Konover Property Trust, which has been renamed Kimsouth Realty, Inc., ("Kimsouth"). The Company acquired 44.5% of the common stock of Kimsouth, which consisted primarily of 38 retail shopping center properties comprising approximately 4.6 million square feet of GLA. Total acquisition value was approximately $280.9 million including approximately $216.2 million in mortgage debt. The Company's investment strategy with respect to Kimsouth includes re-tenanting, repositioning and disposition of the properties. The Company accounts for its investment in Kimsouth under the equity method of accounting. 22 During the nine months ended September 30, 2005, Kimsouth sold seven properties, in separate transactions, for an aggregate sales price of approximately $78.8 million including the assignment of approximately $23.7 million of non-recourse mortgage debt encumbering two of the properties. For the nine months ended September 30, 2005 and 2004, the Company recognized equity in income of Kimsouth of approximately $6.6 million and $7.9 million, respectively. As of September 30, 2005, Kimsouth consisted of five properties, including the remaining office component of an operating property sold in 2004, aggregating approximately 1.1 million square feet of GLA located in four states. Preferred Equity Capital - During 2002, the Company established a Preferred Equity program, which provides capital to developers and owners of real estate. During the nine months ended September 30, 2005, the Company provided an aggregate of approximately $43.8 million in investment capital to developers and owners of 15 real estate properties. As of September 30, 2005, the Company's net investment under the Preferred Equity program was approximately $193.8 million. During the nine months ended September 30, 2005, the Company earned approximately $22.5 million from these investments, including $7.5 million in profit participation earned from three capital transactions. During the nine months ended September 30, 2004, the Company earned approximately $5.5 million from its preferred equity investments. Other - During the nine months ended September 30, 2005, the Company recognized approximately $3.8 million primarily from land sales relating to the land resource management operations of Blue Ridge / Big Boulder Real Estate, a consolidated entity in which the Company holds an approximate 54% ownership interest. 7. Mortgages and Other Financing Receivables During May 2002, the Company provided a $15 million three-year term loan and a $7.5 million revolving credit facility to Frank's at an interest rate of 10.25% per annum collateralized by 40 real estate interests. Interest is payable quarterly in arrears. During 2003, the revolving credit facility was amended to increase the total borrowing capacity to $17.5 million. During January 2004, the revolving loan was further amended to provide up to $33.75 million of borrowings from the Company. During September 2004, Frank's filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company committed to provide an additional $27.0 million of Debtor-in-Possession financing with a term of one year at an interest rate of Prime plus 1.00% per annum. During July 2005, Frank's emerged from bankruptcy as FNC and repaid all outstanding amounts owed to the Company under the revolving credit facility and the Debtor-in-Possession agreement (See Note 2 of the Notes to Condensed Consolidated Financial Statements). 23 During April 2005, the Company provided a construction loan commitment of up to 52.5 million Mexican Pesos ("MXP") (approximately USD $4.5 million) to a developer for the construction of a new retail center in Acapulco, Mexico. The loan bears interest at a fixed rate of 11.75% and provides for an additional 20% participation of property cash flow, as defined. This facility is initially interest only and then converts to an amortizing loan at the earlier of 120 days after construction completion or upon opening of the anchor tenant. This facility is collateralized by the related property and matures in May 2015. As of September 30, 2005, there was approximately MXP 43.7 million (USD $4.1 million) outstanding on this loan. Additionally, during April 2005, a newly formed joint venture, in which the Company has a 50% non-controlling interest, provided a retailer with a three-year $28.0 million revolving line of credit at a floating interest rate of Prime plus 5.5% per annum. The facility also provides for a 3.0% unused line fee and a 2.50% origination fee. The facility is collateralized by certain real estate interests of the borrower. As of September 30, 2005, the outstanding balance on this facility was $10.0 million of which the Company's share was $5.0 million. During May 2005, a newly formed joint venture, in which the Company has a 44.38% non-controlling interest, provided Debtor-in-Possession financing to a healthcare facility that recently filed for bankruptcy and is closing its operations. The term of this loan is two years and bears interest at prime plus 2.5%. The loan is collateralized by a hospital building, a six-story commercial building, a 12-story 133 unit apartment complex and various other building structures. The Company's share of the outstanding balance of this loan at September 30, 2005 is $2.4 million. Additionally, during May 2005, the Company acquired four mortgage loans collateralized by individual properties with an aggregate face value of approximately $16.6 million for approximately $14.3 million. These performing loans, which provide for monthly payments of principal and interest, bear interest at a fixed-rate of 7.57% and mature on June 1, 2019. As of September 30, 2005, there was an aggregate of approximately $14.2 million outstanding on these loans. During September 2005, a newly formed joint venture, in which the Company has an 80% interest, acquired a $43.6 million mortgage receivable for a purchase price of approximately $34.2 million. The loan bears interest at a rate of three-month LIBOR plus 2.75% per annum and matures on January 12, 2010. The loan is collateralized by a 626 room hotel located in Lake Buena Vista, FL. The Company has determined that this entity is a VIE and has further determined that the Company is the primary beneficiary of this VIE and has therefore consolidated it for financial reporting purposes. 24 8. Notes Payable During February 2005, the Company issued $100.0 million of fixed rate unsecured senior notes under its medium-term notes ("MTN") program. This fixed rate MTN matures in February 2015 and bears interest at 4.904% per annum. The proceeds from this MTN issuance were primarily used for the repayment of all $20.0 million of the Company's fixed rate notes that matured in April 2005, which bore interest at 7.91%, all $10.25 million of the Company's fixed rate notes that matured in May 2005, which bore interest at 7.30%, and partial repayment of the Company's $100.0 million fixed rate notes which matured in June 2005, and bore interest at 6.73%. During June 2005, the Company issued $200.0 million of fixed rate unsecured senior notes under its MTN program. This fixed rate MTN matures in June 2014 and bears interest at 4.82% per annum. The proceeds from this issuance were primarily used to repay a portion of the outstanding balance under the Company's U.S. revolving credit facility and for general corporate purposes. During April 2005, Kimco North Trust III, a wholly-owned entity of the Company, completed the issuance of $150.0 million Canadian denominated senior unsecured notes. The notes bear interest at 4.45% and mature on April 21, 2010. The Company has provided a full and unconditional guarantee of the notes. The proceeds were used by Kimco North Trust III, to pay down outstanding indebtedness under existing credit facilities, to fund long-term investments in Canadian real estate and for general corporate purposes. The senior unsecured notes are governed by an indenture by and among Kimco North Trust III, the Company, as guarantor, and BNY Trust Company of Canada, as trustee dated April 21, 2005. During May 2005, the Company entered into a three-year MXP 500.0 million unsecured revolving credit facility. This facility bears interest at the TIIE Rate, as defined, plus 1.0% and is scheduled to expire in May 2008. Proceeds from this facility will be used to fund peso denominated investments. As of September 30, 2005, there was approximately MXP 330.0 million (approximately USD $30.7 million) outstanding under this facility. During July 2005, the Company established a new $850.0 million unsecured revolving credit facility (the "Credit Facility"), which is scheduled to expire in July 2008. This Credit Facility replaces the Company's $500.0 million unsecured credit facility, which was scheduled to expire in June 2006. Under the Credit Facility funds may be borrowed for general corporate purposes, including the funding of (i) property acquisitions, (ii) development and redevelopment costs and (iii) any short-term working capital requirements. Interest on borrowings under the Credit Facility accrue at a spread (currently 0.45%) to LIBOR and fluctuates in accordance with changes in the Company's senior debt ratings. As part of this Credit Facility, the Company has a competitive bid option whereby the Company may auction up to $425.0 million of its requested borrowings to the bank group. This competitive bid option provides the Company the opportunity to obtain pricing below the currently stated spread to LIBOR of 0.45%. A facility fee of 0.125% per annum is payable quarterly in arrears. In addition, the Company has a $200.0 million sub-limit which provides it the opportunity to borrow in alternative currencies such as Pounds Sterling, Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the Company, among other things, is (i) subject to maintaining certain maximum leverage ratios on both unsecured senior corporate debt and minimum unencumbered asset and equity levels, and (ii) restricted from paying dividends in amounts that exceed 95% of funds from operations, as defined. As of September 30, 2005, there was $80.0 million outstanding under this credit facility. 25 9. 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, 2005 and 2004 (in thousands):
2005 2004 -------- -------- Acquisition of real estate interests by assumption of mortgage debt $ 18,804 $102,950 Disposition/transfer of real estate interests by assignment of mortgage debt $124,683 $308,301 Acquisition of real estate interests by issuance of downREIT units $ -- $ 24,114 Disposition/transfer of a real estate interest by assignment of downREIT units $ 4,236 $ 24,114 Acquisition of real estate interests through proceeds held in escrow $ -- $ 64,292 Proceeds held in escrow from the sale of real estate interests $ 23,144 $ 5,386 Notes received upon disposition of real estate interests $ -- $ 6,277 Declaration of dividends paid in succeeding period $ 77,903 $ 66,774 Consolidation of FNC: Increase in real estate and other assets $ 57,812 $ -- Increase in mortgages payable and other liabilities $ 57,812 $ --
26 10. Pro Forma Financial Information As discussed in Note 2, the Company and certain of its affiliates acquired and disposed of interests in certain operating properties during the nine months ended September 30, 2005. The pro forma financial information set forth below is based upon the Company's historical Condensed Consolidated Statements of Income for the nine months ended September 30, 2005 and 2004, adjusted to give effect to these transactions as of January 1, 2004. The pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred as of January 1, 2004, nor does it purport to represent the results of future operations. (Amounts presented in millions, except per share figures). Nine Months Ended September 30, ---------------------- 2005 2004 -------- -------- Revenues from rental property $ 383.1 $ 386.9 Net income $ 231.7 $ 223.9 Net income per common share: Basic $ 0.99 $ 0.97 ======== ======== Diluted $ 0.98 $ 0.95 ======== ======== 27 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 include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company's future plans, strategies and expectations, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company's control and which could materially affect actual results, performances or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, (i) general economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or general downturn in their business, (iii) financing risks, such as the inability to obtain equity or debt financing on favorable terms, (iv) changes in governmental laws and regulations, (v) the level and volatility of interest rates, (vi) the availability of suitable acquisition opportunities and (vii) increases in operating costs. Accordingly, there is no assurance that the Company's expectations will be realized. The following discussion should be read in conjunction with the 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. Stock Split As of August 23, 2005, the Company effected a two-for-one split (the "Stock Split") of the Company's common stock in the form of a stock dividend paid to stockholders of record on August 8, 2005. All common share and per common share data included in this quarterly report on Form 10-Q and the accompanying Condensed Consolidated Financial Statements and Notes thereto have been adjusted to reflect this Stock Split. 28 Executive Summary Kimco Realty Corporation is one of the nation's largest publicly-traded owners and operators of neighborhood and community shopping centers. As of October 19, 2005, the Company had interests in 944 properties, totaling approximately 127.0 million square feet of leasable space located in 43 states, Canada and Mexico. The Company is self-administered and self-managed through present management, which has owned and managed neighborhood and community shopping centers for over 45 years. The executive officers are engaged in the day-to-day management and operation of real estate exclusively with the Company, with nearly all operating functions, including leasing, asset management, maintenance, construction, legal, finance and accounting administered by the Company. The Company, through its taxable REIT subsidiaries, is engaged in various retail real estate related opportunities including (i) merchant building, through its Kimco Developers, Inc. ("KDI") subsidiary, which is primarily engaged in the ground-up development of neighborhood and community shopping centers and the subsequent sale thereof upon completion, (ii) retail real estate advisory and disposition services, which primarily focuses on leasing and disposition strategies of retail real estate controlled by both healthy and distressed and/or bankrupt retailers and (iii) acting as an agent or principal in connection with tax deferred exchange transactions. The Company will consider other investments through taxable REIT subsidiaries should suitable opportunities arise. In addition, the Company continues to capitalize on its established expertise in retail real estate by establishing other ventures in which the Company owns a smaller equity interest and provides management, leasing and operational support for those properties. The Company also provides preferred equity capital for real estate entrepreneurs and provides real estate capital and advisory services to both healthy and distressed retailers. The Company also makes selective investments in secondary market opportunities where a security or other investment is, in management's judgment, priced below the value of the underlying real estate. The Company's strategy is to maintain a strong balance sheet while investing opportunistically and selectively. The Company intends to continue to execute its plan of delivering solid growth in earnings and dividends. As a result of the improved 2005 performance, the Board of Directors increased the quarterly dividend per common share to $0.33 from $0.305, effective for the fourth quarter of 2005. 29 Results of Operations Revenues from rental property increased $10.1 million or 8.4% to $130.4 million for the three months ended September 30, 2005, as compared with $120.3 million for the corresponding quarter ended September 30, 2004. Revenues from rental property increased $1.8 million or 0.5% to $388.2 million for the nine months ended September 30, 2005, as compared with $386.4 million for the corresponding nine month period ended September 30, 2004. These net increases resulted primarily from the combined effect of (i) the acquisition of operating properties during 2004 and the nine months ended September 30, 2005, providing incremental revenues for the three and nine months ended September 30, 2005 of $8.8 million and $25.2 million, respectively, (ii) an overall increase in shopping center portfolio occupancy to 94.2% at September 30, 2005, as compared to 92.9% at September 30, 2004 and the completion of certain development and redevelopment projects and tenant buyouts providing incremental revenues of approximately $7.9 million and $16.0 million for the three and nine months ended September 30, 2005 as compared to the corresponding periods last year, offset by (iii) a decrease in revenues of approximately $6.6 million and $39.4 million for the three and nine months ended September 30, 2005, respectively, as compared to the corresponding period last year, resulting from the transfer of operating properties to various unconsolidated joint venture entities and the sale of certain properties during 2004 and the nine months ended September 30, 2005. Rental property expenses, including depreciation and amortization, increased approximately $5.8 million or 10.7% to $60.0 million for the three months ended September 30, 2005, as compared with $54.2 million for the corresponding quarter ended September 30, 2004. Similarly, for the nine months ended September 30, 2005, rental property expenses, including depreciation and amortization, increased $8.5 million or 4.9% to $182.2 million as compared with $173.7 million for the corresponding period in the preceding year. These increases are primarily due to operating property acquisitions during 2005 and 2004 which were partially offset by operating property dispositions including those transferred to various joint venture entities. 30 Management and other fee income increased approximately $0.9 million and $3.2 million, respectively, for the three and nine months ended September 30, 2005, as compared to the corresponding periods in 2004. These increases are primarily due to incremental fees earned from the growth in the Company's joint venture programs. General and administrative expenses increased approximately $3.1 million and $7.2 million, respectively, for the three and nine months ended September 30, 2005, as compared to the corresponding periods in 2004. These increases are primarily due to (i) the non-cash expensing of the value attributable to stock options granted and (ii) personnel-related costs and systems costs related to the growth of the Company's assets under management. Interest, dividends and other investment income increased approximately $0.5 million and $4.4 million for the three and nine month periods ended September 30, 2005, respectively, as compared to the corresponding periods in 2004. These increases are primarily due to greater realized gains on the sale of certain marketable securities for the three and nine months ended September 30, 2005. Other income, net decreased $6.6 million for the three months ended September 30, 2005, as compared to the corresponding period in 2004. This decrease is primarily attributable to the recognition of approximately $6.4 million of income relating to the receipt of Sears Holdings Corp. common stock as partial settlement of Kmart pre-petition claims during the three months ended September 30, 2004. Interest expense increased approximately $8.2 million and $11.9 million, respectively, for the three and nine months ended September 30, 2005, as compared to the corresponding periods in 2004. These increases are primarily due to higher average outstanding borrowings during the respective periods. Income from other real estate investments increased $8.3 million to $13.4 million for the three months ended September 30, 2005, as compared to $5.1 million for the corresponding period in 2004. Similarly, income from other real estate investments increased $21.6 million to $42.0 million for the nine months ended September 30, 2005, as compared to $20.4 million for the corresponding period in 2004. These increases are primarily due to increased investment in the Company's Preferred Equity program which contributed $8.8 million and $22.5 million for the three and nine months ended September 30, 2005, including an aggregate of approximately $7.5 million profit participations earned from three capital transactions during 2005, as compared to $2.3 million and $5.5 million, respectively, for the corresponding periods in 2004. Equity in income of real estate joint ventures, net increased $4.2 million to $18.1 million for the three months ended September 30, 2005, as compared to $13.9 million for the corresponding period in 2004. Similarly, equity in income of real estate joint ventures, net increased $17.3 million to $57.1 million for the nine months ended September 30, 2005, as compared with $39.8 million for the corresponding period in 2004. These increases are primarily attributable to (i) the increased equity in income from the Kimco Income REIT joint venture investment ("KIR") resulting from the sale of an operating property during the first quarter 2005 which provided a gain of $17.8 million, of which the pro-rata share to the Company was $7.7 million, (ii) increased equity in income from a joint venture investment resulting from the sale of a development property during September 2005 which provided a gain of approximately $5.7 million of which the pro-rata share to the Company was approximately $2.7, and (iii) the Company's growth of its various other real estate joint ventures. The Company has made additional capital investments in these and other joint ventures for the acquisition of additional shopping center properties throughout 2004 and the nine months ended September 30, 2005. 31 During the nine months ended September 30, 2005, KDI, the Company's wholly-owned development taxable REIT subsidiary, sold five of its recently completed projects and 28 out-parcels, in separate transactions, for approximately $201.9 million. These sales resulted in gains of approximately $18.8 million, net of income taxes of $9.6 million. During the nine months ended September 30, 2004, KDI, sold in separate transactions, 21 out-parcels, its partnership interest in one project and four recently completed projects for approximately $130.8 million. These sales provided gains of approximately $7.4 million, net of income taxes of approximately $4.9 million. During the nine months ended September 30, 2005, the Company (i) disposed of, in separate transactions, 13 operating properties for an aggregate sales price of approximately $60.1 million, (ii) transferred three operating properties to KROP for an aggregate price of approximately $49.0 million, and (iii) transferred 52 operating properties to various joint ventures in which the Company has non-controlling interests ranging from 15% to 50% for an aggregate price of approximately $232.1 million. For the nine months ended September 30, 2005, these transactions resulted in an aggregate net gain of approximately $14.6 million. During March 2004, the Company reclassified as held-for-sale two shopping center properties comprising approximately 0.3 million square feet of GLA. The book value of these properties, aggregating approximately $8.7 million, net of accumulated depreciation of approximately $4.2 million, exceeded their estimated fair value. The Company's determination of the fair value of these properties, aggregating approximately $4.5 million, was based upon contracts of sale with third parties less estimated selling costs. As a result, the Company recorded a loss resulting from an adjustment of property carrying values of $4.2 million. During March 2004, the Company completed the sale of one of these properties, comprising approximately 0.1 million square feet of GLA, for a sales price of approximately $1.1 million. During June 2004, the Company completed the sale of the other property, comprising approximately 0.2 million square feet of GLA, for a sales price of approximately $3.9 million. In accordance with SFAS No. 144, Accounting for Impairment of Disposal of Long Lived Assets ("SFAS No. 144"), the loss along with the related property operations for the current and comparative years, have been included in the caption Discontinued operations on the Company's Condensed Consolidated Statement of Income. During the nine months ended September 30, 2004, the Company (i) disposed of, in separate transactions, an additional 11 operating properties and one ground lease for an aggregate sales price of approximately $64.4 million, including the assignment of approximately $8.0 million of non-recourse mortgage debt encumbering one of the properties; cash proceeds of approximately $16.9 million from the sale of two of these properties were used in a 1031 exchange to acquire shopping center properties located in Roanoke, VA, and Tempe, AZ, (ii) transferred 16 operating properties to KROP for an aggregate price of approximately $182.9 million, which approximated their net book values, and (iii) transferred 20 operating properties to various co-investment ventures in which the Company has non-controlling interests ranging from 10% to 30% for an aggregate price of approximately $471.8 million. For the nine months ended September 30, 2004, these dispositions resulted in gains of approximately $12.5 million and a loss on sale from one of the properties of approximately $0.9 million. 32 Net income for the three and nine months ended September 30, 2005 was $85.3 million and $256.0 million, respectively. Net income for the three and nine months ended September 30, 2004 was $78.5 million and $221.3 million, respectively. On a diluted per share basis, net income increased $0.03 to $0.36 for the three month period ended September 30, 2005, as compared to $0.33 for the corresponding quarter in the previous year. On a diluted per share basis, net income improved $0.13 to $1.07 for the nine month period ended September 30, 2005, as compared to $0.94 for the corresponding period in 2004. These increases are attributable to (i) increased income from other real estate investments, primarily from the Company's Preferred Equity program, (ii) an increase in equity in income of real estate joint ventures achieved from additional capital investments in the Company's joint venture programs for the acquisition of additional shopping center properties throughout 2004 and the nine months ended September 30. 2005, and gains on sales of joint venture operating properties and (iii) increased gains on sale/transfer of development and operating properties for the three and nine months ended September 30, 2005, as compared to the same periods last year. 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, 2005, the Company's five largest tenants were The Home Depot, TJX Companies, Sears Holdings, Kohl's, and Wal-Mart, which represented approximately 3.6%, 3.3%, 2.8%, 2.6% and 1.9%, respectively, of the Company's annualized base rental revenues including the proportionate share of base rental revenues from properties in which the Company has less than a 100% economic interest. Liquidity and Capital Resources The Company's cash flow activities are summarized as follows (in millions):
Nine Months Ended September 30, ------------------------ 2005 2004 -------- -------- Net cash flow provided by operating activities $ 320.3 $ 294.1 Net cash flow (used for) provided by investing activities $ (392.7) $ 73.5 Net cash flow provided by (used for) financing activities $ 104.0 $ (281.9)
33 Operating Activities The Company anticipates that cash flows from operations will continue to provide adequate capital to fund its operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in both the short term and long term. In addition, the Company anticipates that cash on hand, borrowings under its revolving credit facilities, issuance of equity and public debt, as well as other debt and equity alternatives, will provide the necessary capital required by the Company. Net cash flow provided by operating activities for the nine months ended September 30, 2005 was primarily attributable to (i) cash flow from the diverse portfolio of rental properties, (ii) the acquisition of operating properties during 2004 and the nine months ended September 30, 2005, (iii) new leasing, expansion and re-tenanting of core portfolio properties, and (iv) growth in the Company's joint venture and Preferred Equity programs. Investing Activities Acquisitions and Redevelopments - During the nine month period ended September 30, 2005, the Company expended approximately $240.7 million towards acquisition of and improvements to operating real estate. (See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.) The Company has an ongoing program to reformat and re-tenant its properties to maintain or enhance its competitive position in the marketplace. During the nine months ended September 30, 2005, the Company expended approximately $38.2 million in connection with these major redevelopments and re-tenanting projects. The Company anticipates its capital commitment toward these and other redevelopment projects will be approximately $52.1 million for the remainder of 2005. The funding of these capital requirements will be provided by cash flow from operating activities and availability under the Company's revolving lines of credit. Investments and Advances to Real Estate Joint Ventures - During the nine month period ended September 30, 2005, the Company expended approximately $173.4 million for investments and advances to real estate joint ventures and received approximately $108.4 million from reimbursements of advances to real estate joint ventures. (See Note 5 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.) 34 Ground-up Development - KDI is primarily engaged in the ground-up development of neighborhood and community shopping centers and the subsequent sale thereof upon completion. As of September 30, 2005, KDI had in progress 23 ground-up development projects located in eight states. These projects had significant pre-leasing activity prior to the commencement of construction. During the nine months ended September 30, 2005, KDI expended approximately $271.1 million in connection with the purchase of land and construction costs related to these projects and those sold during 2005. These projects are currently proceeding on schedule and substantially in line with the Company's budgeted costs. The Company anticipates its capital commitment toward these and other development projects will be approximately $100.0 million to $125.0 million for the remainder of 2005. The proceeds from the sales of the completed ground-up development projects during 2005 and proceeds from construction loans are expected to be sufficient to fund these anticipated capital requirements. Dispositions and Transfers - During the nine month period ended September 30, 2005, the Company received net proceeds of approximately $253.4 million relating to the sale of various operating properties and ground-up development projects and approximately $128.5 million from the transfer of operating properties to various joint ventures. (See Notes 2, 4 and 5 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.) Financing Activities It is management's intention that the Company continually have access to the capital resources necessary to expand and develop its business. As such, the Company intends to operate with and maintain a conservative capital structure with a level of debt to total market capitalization of 50% or less. As of September 30, 2005, the Company's level of debt to total market capitalization was 24%. In addition, the Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintaining its investment-grade debt ratings. The Company may, from time to time, seek to obtain funds through additional equity offerings, unsecured debt financings and/or mortgage financings and other debt and equity alternatives in a manner consistent with its intention to operate with a conservative debt structure. Since the completion of the Company's IPO in 1991, the Company has utilized the public debt and equity markets as its principal source of capital for its expansion needs. Since the IPO, the Company has completed additional offerings of its public unsecured debt and equity, raising in the aggregate over $3.9 billion for the purposes of, among other things, repaying indebtedness, acquiring interests in neighborhood and community shopping centers, funding ground-up development projects, expanding and improving properties in the portfolio and other investments. 35 During July 2005, the Company established a new $850.0 million unsecured credit facility, (the "Credit Facility") which is scheduled to expire in July 2008. This Credit Facility replaces the Company's $500.0 million unsecured credit facility, which was scheduled to expire in June 2006. Under the Credit Facility funds may be borrowed for general corporate purposes, including the funding of (i) property acquisitions, (ii) development and redevelopment costs and (iii) any short-term working capital requirements. Interest on borrowings under the Credit Facility accrue at a spread (currently 0.45%) to LIBOR and fluctuates in accordance with changes in the Company's senior debt ratings. As part of this Credit Facility, the Company has a competitive bid option whereby the Company may auction up to $425.0 million of its requested borrowings to the bank group. This competitive bid option provides the Company the opportunity to obtain pricing below the currently stated spread to LIBOR of 0.45%. A facility fee of 0.125% per annum is payable quarterly in arrears. In addition, the Company has a $200.0 million sub-limit which provides it the opportunity to borrow in alternative currencies such as Pounds Sterling, Japanese Yen or Euros. Pursuant to the terms of the Credit Facility, the Company, among other things, is (i) subject to maintaining certain maximum leverage ratios on both unsecured senior corporate debt and minimum unencumbered asset and equity levels, and (ii) restricted from paying dividends in amounts that exceed 95% of funds from operations, as defined. As of September 30, 2005, there was $80.0 million outstanding under this credit facility. During September 2004, the Company entered into a three-year Canadian denominated ("CAD") $150.0 million unsecured revolving credit facility with a group of banks. This facility bears interest at the CDOR Rate, as defined, plus 0.50% and was scheduled to expire in September 2007. During March 2005, this facility was increased to CAD $250.0 million and the scheduled maturity date was extended to March 2008. Proceeds from this facility will be used for general corporate purposes including the funding of Canadian denominated investments. As of September 30, 2005, there was CAD $116.0 million (approximately USD $99.8 million) outstanding under this facility. During May 2005, the Company entered into a three-year Mexican Peso denominated ("MXP") 500.0 million unsecured revolving credit facility. This facility bears interest at the TIIE Rate, as defined, plus 1.00% and is scheduled to expire in May 2008. Proceeds from this facility will be used to fund peso denominated investments. As of September 30, 2005, there was MXP 330.0 million (approximately USD $30.7 million) outstanding under this facility. During July 2005, the Company filed a shelf registration statement on Form S-3 for up to $1.0 billion of debt securities, preferred stock, depositary shares, common stock and common stock warrants. As of September 30, 2005, the Company had $1.0 billion available for issuance under this shelf registration statement. 36 The Company also has a medium-term notes ("MTN") program pursuant to which it may, from time to time, offer for sale its senior unsecured debt for any general corporate purposes, including (i) funding specific liquidity requirements in its business, including property acquisitions, development and redevelopment costs and (ii) managing the Company's debt maturities. As of September 30, 2005, the Company had $100.0 million available for issuance under this MTN program. 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. As of September 30, 2005, the Company had approximately 380 unencumbered property interests in its portfolio. In connection with its intention to continue to qualify as a REIT for federal income tax purposes, the Company expects to continue paying regular dividends to its stockholders. These dividends will be paid from operating cash flows which are expected to increase due to increased investment in properties and other real estate related opportunities, growth in operating income from the existing portfolio and from other sources. Since cash used to pay dividends reduces amounts available for capital investment, the Company generally intends to maintain a conservative dividend payout ratio, reserving such amounts as it considers necessary for the expansion and renovation of shopping centers in its portfolio, 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. Effects of Inflation Many of the Company's leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company to receive payment of additional rent calculated as a percentage of tenants' gross sales above pre-determined thresholds, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses often include increases based upon changes in the consumer price index or similar inflation indices. In addition, many of the Company's leases are for terms of less than 10 years, which permits the Company to seek to increase rents to market rates upon renewal. Most of the Company's leases require the tenant to pay an allocable share of operating expenses, including common area maintenance costs, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. The Company periodically evaluates its exposure to short-term interest rates and foreign currency exchange rates and will, from time to time, enter into interest rate protection agreements and/or foreign currency hedge agreements which mitigate, but do not eliminate, the effect of changes in interest rates on its floating-rate debt and fluctuations in foreign currency exchange rates. 37 New Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123, (revised 2004) Share-Based Payment ("SFAS No. 123(R)"), which supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and its related implementation guidance. SFAS No. 123(R) established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. SFAS No. 123(R) focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) is effective for fiscal years beginning after December 15, 2005. The impact of adopting SFAS No. 123 (R) is not expected to have a material impact on the Company's financial position or results of operations. In December 2004, the FASB issued Statement No. 153, Exchange of Non-monetary Assets - an amendment of APB Opinion No 29 ("SFAS No. 153"). The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion No. 29 to eliminate the exception for non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The impact of adopting SFAS No. 153 did not have a material impact on the Company's financial position or results of operations. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections ("SFAS No. 154"), which replaces Accounting Principle Board Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles. It requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. 38 In September 2005, the Emerging Issues Task Force ("EITF") Issue 04-5, Investor's Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights, ("EITF 04-5"). At issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U.S. generally accepted accounting principles. The assessment of limited partners' rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership of limited partnership interests, or (iii) there is an increase or decrease in the number of outstanding limited partnership interests. This issue is effective no later than for fiscal years beginning after December 15, 2005 and as of June 29, 2005 for new or modified arrangements. The impact of adopting EITF 04-5 is not expected to have a material impact on the Company's financial position or results of operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk The following table presents the Company's aggregate fixed rate and variable rate debt obligations outstanding as of September 30, 2005, with corresponding weighted-average interest rates sorted by maturity date ($ in millions):
Fair 2005 2006 2007 2008 2009 2010+ Total Value --------- --------- --------- --------- --------- --------- --------- --------- Secured Debt - ------------- Fixed Rate -- $ 9.7 -- $ 60.1 $ 22.0 $ 160.8 $ 252.6 $ 268.5 Average Interest Rate -- 9.08% -- 7.14% 7.84% 7.46% 7.48% Variable Rate $ 0.1 $ 108.1 $ 116.8 $ 43.1 -- -- $ 268.1 $ 268.1 Average Interest Rate 5.61% 5.91% 5.90% 5.96% -- -- 5.91% Unsecured Debt - -------------- Fixed Rate $ 70.0 $ 85.0 $ 195.0 $ 100.0 $ 180.0 $ 896.0 $ 1,526.0 $ 1,568.4 Average Interest Rate 7.44% 7.30% 7.14% 3.95% 6.98% 5.09% 5.73% Variable Rate -- $ 100.0 -- $ 210.5 -- -- $ 310.5 $ 310.5 Average Interest Rate -- 3.41% -- 4.58% -- -- 4.20%
The Company has investment in various unconsolidated real estate joint ventures with varying structures. These joint ventures primarily operate shopping center properties or are established for development projects. The properties owned by the joint ventures are primarily financed with individual non-recourse mortgage loans. Non-recourse mortgage debt is generally defined as debt whereby the lenders' sole recourse with respect to borrower defaults is limited to the value of the property collateralized by the mortgage. The lender generally does not have recourse against any other assets owned by the borrower or any of the constituent members of the borrower, except for certain specified exceptions listed in the particular loan documents. As of September 30, 2005, these real estate joint ventures had individual non-recourse mortgage loans aggregating approximately $4.4 billion. The Company's maximum exposure to losses associated with its real estate joint venture investments is primarily limited to its net invested capital, which at September 30, 2005, was approximately $666.1 million. 39 As of September 30, 2005, the Company has Canadian investments totaling CAD $309.4 million (approximately USD $266.2 million) comprised of investments in real estate joint ventures and marketable securities. In addition, the Company has Mexican real estate and mortgage financing investments of approximately MXN 1.03 billion (approximately USD $95.8 million). The foreign currency exchange risk on these investments has been mitigated through the use of local currency denominated debt, foreign currency forward contracts (the "Forward Contracts") and a cross currency swap (the "CC Swap") with major financial institutions. As of September 30, 2005, the total amount of investments hedged by these instruments is approximately CAD $271.2 million and approximately MXN 412.4 million. The Company is exposed to credit risk in the event of non-performance by the counter-party to the Forward Contracts and the CC Swap. The Company believes it mitigates its credit risk by entering into the Forward Contracts and the CC Swap with major institutions. The Company has not, and does not plan to, enter into any derivative financial instruments for trading or speculative purposes. As of September 30, 2005, the Company had no other material exposure to market risks. 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 in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonable likely to materially affect, the Company's internal control over financial reporting. 40 PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is not presently involved in any litigation, nor to its knowledge is any litigation threatened against the Company or its subsidiaries, that in management's opinion, would result in any material adverse effect on the Company's ownership, management or operation of its properties, or which is not covered by the Company's liability insurance. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information Not Applicable Item 6. Exhibits 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. 10.16 Employment Agreement between Kimco Realty Corporation and Jerald Friedman, dated September 21, 2005. 41 31.1 Certification of the Company's Chief Executive Officer, Milton Cooper, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Company's Chief Financial Officer, Michael V. Pappagallo, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Company's Chief Executive Officer, Milton Cooper, and the Company's Chief Financial Officer Michael V. Pappagallo, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 42 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KIMCO REALTY CORPORATION November 3, 2005 /s/ Milton Cooper - ---------------------------- --------------------------- (Date) Milton Cooper Chief Executive Officer November 3, 2005 /s/ Michael V. Pappagallo - ---------------------------- --------------------------- (Date) Michael V. Pappagallo Chief Financial Officer 43 EX-10.16 2 b409570ex_10-16.txt JERRY FRIEDMAN EMPLOYMENT AGREEMENT Exhibit 10.16 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated September 21, 2005 is made by and between Kimco Realty Corporation (the "Company"), a Maryland corporation, and Jerald Friedman (the "Executive"). 1. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, upon the terms and subject to the conditions set forth in this Agreement. 2. Certain Definitions. (a) "Base Salary" is defined in Section 6(a) (b) "Bonus" is defined in Section 6(b). (c) "Automobile" is defined in Section 6(c). (d) "Benefits" is defined in Section 6(e). (e) "Board" means the Board of Directors of the Company. (f) "Calendar Quarter" shall mean each of the three-month periods ending March 31, June 30, September 30 and December 31 of each year. (g) "Cause" For purposes of this Agreement, "Cause" shall mean any of the following (i) conviction of a crime (including conviction on a nolo contendere plea) involving the commission by Executive of a felony or of a criminal act involving, in the good faith judgment of the Board, fraud, dishonesty, or moral turpitude; (ii) deliberate and continual refusal to perform employment duties reasonably requested by the Company or an affiliate after thirty (30) days' written notice by certified mail of such failure to perform, specifying that the failure constitutes cause (other than as a result of vacation, sickness, illness or injury); (iii) fraud or embezzlement determined in accordance with the Company's normal, internal investigative procedures consistently applied in comparable circumstances; or (iv) gross misconduct or gross negligence in connection with the business of the Company or an affiliate which has a substantial adverse effect on the Company or the affiliate (v) violation of any of the company policies prohibiting harassment or discrimination in the workplace. (h) "Change in Control" For purposes of this Agreement, a "Change in Control" shall mean (i) a sale of all or substantially all of the assets of the Company to a Person who is not an Affiliate of the Company or an entity in which the shareholders of the Company immediately prior to such transaction do not control more than 50% of the voting power immediately following the transaction, (ii) a sale by any Person resulting in more than 50% of the voting stock of the Company being held by a Person or Group that does not include Company or (iii) a merger or consolidation of the Company into another entity which is not an Affiliate of the Company or an entity in which the shareholders of the Company immediately prior to such transaction do not control more than 50% of the voting power immediately following the transaction. (i) "Significantly Disabled" For purposes of this Agreement, Executive shall be "Significantly Disabled" (also referred to as "Significant Disability") if Executive is physically or mentally incapacitated so as to render Executive incapable of performing his usual and customary duties under this Agreement with or without reasonable accommodation. Executive's receipt of disability benefits under the Company's long-term disability benefits plan (the "LTD Plan") or receipt of Social Security disability benefits shall be deemed conclusive evidence of Total Disability for purpose of this Agreement; provided, however, that in the absence of Executive's receipt of such long-term disability benefits or Social Security benefits, the Board may, in its reasonable discretion (but based upon appropriate medical evidence), determine that Executive is Significantly Disabled. (j) "Effective Date" shall mean January 1, 2006. (k) "Stock Options" is defined in Section 6(d). (l) "Term of Employment" is defined in Section 3. (m) "Renewed Term of Employment" is defined in Section 4. (n) "Annual Salary" is defined in Section 6(a). 3. Term of Employment. The period of Executive's employment under this Agreement shall begin as of the Effective Date and shall continue until December 31, 2007 (the "Term of Employment "), unless sooner terminated in accordance with Section 7 below or unless renewed pursuant to Section 4 or extended by mutual agreement of the parties. 4. Renewal. If this Agreement is not otherwise terminated, it will automatically renew for a term of one (1) year (the "Renewed Term of Employment") effective on the day after the Term of Employment ends (the "renewal date"), unless either party hereto gives written notice of non-renewal at least ninety (90) days prior to the end of the Term of Employment. 5. Duties and Responsibilities. (a) During the Term of Employment and any Renewed Term of Employment, the Executive shall serve as President of Kimco Developers Inc. In such capacity, Executive shall perform the customary duties and have the customary responsibilities of such positions and such other duties as may be assigned to Executive from time to time by the officer to whom Executive reports or by the designee of the Company's Chief Executive Officer. Page 2 of 12 (b) Executive agrees to faithfully serve the Company, devote his full working time, attention and energies to the business of the Company, its subsidiaries and affiliated entities, and perform the duties under this Agreement to the best of his abilities. (c) Executive agrees (i) to comply with all applicable laws, rules and regulations, and all requirements of all applicable regulatory, self-regulatory, and administrative bodies; (ii) to comply with the Company's rules, procedures, policies, requirements, and directions; and (iii) not to engage in any other business or employment without the written consent of the Company except as otherwise specifically provided herein. (d) In connection with his employment during the Term of Employment and Renewed Term of Employment, the Executive shall be based at the Company's Los Angeles, CA offices, or such other location as shall be agreed between the Executive and the Company. 6. Compensation and Benefits. (a) Base Salary. During the Term of Employment or Renewed Term of Employment, if any, the Executive shall receive a base salary ("Base Salary") at a rate of $500,000 per annum (or such greater amount as shall be recommended by the Company's Chief Executive Officer and approved by the Executive Compensation Committee, which shall be referred to as "Annual Salary"), payable semi-monthly. Such base salary shall be reviewed at least annually. (b) Bonus. For each twelve month period during the Employment Term in which Development Company profits are realized, Employee shall be eligible to receive a bonus, less all required deductions ("Yearly Bonus"). The total Yearly Bonus during each twelve month period ending on December 31 shall be an amount equal to fifteen percent (15%) of Development Company Profits or $450,000, whichever is less. The Yearly Bonus shall be paid to Employee at the end of each Calendar Quarter in the amount of $112,500 for the first three Calendar Quarters and, at the end of the fourth Calendar Quarter, in an amount equal to the difference between $337,500 and i) fifteen percent (15%) of Development Company Profits or ii) $450,000, whichever is less. In the event fifteen percent (15%) of Development Company Profits for the twelve month period ending on December 31 is less than the $337,500 already received by Executive during the first three Calendar Quarters, he will reimburse to the Company the overpayment, which is the difference between $337,000 and fifteen percent (15%) of Development Company Profits. The Yearly Bonus to be earned by the Employee shall not be in excess of $450,000 for any said twelve month period ending on December 31, unless the Executive Compensation Committee of the Board so states in writing. Page 3 of 12 Development Company Profit shall be calculated by Kimco for each Development Company project that is, in whole or in part, either sold or is subject to a written contract of sale which, in Kimco's reasonable judgment is probable to be sold, such Development Company Profit to be determined by Kimco in accordance with Development Company's books and records and also in accordance with generally accepted accounting principles. Consistent with past practice that has developed in the determination of Development Company Profit, Kimco shall determine Development Company Profit without consideration or offset for taxes, and Kimco shall continue to earn a 10% priority return on all funds contributed to a project (whether it be in the form of debt or equity capital). (c) Automobile. During the term of Employment the Company shall also provide Executive with a car allowance in the amount of $8,400 per year, paid in equal installments in Executive's weekly paycheck (d) Equity Compensation. Executive shall be eligible to be granted options to purchase shares of the Company's common stock ("Stock Options") in accordance with the terms of the Stock Option Plan for Key Employees and Outside Directors of Kimco Realty Corporation (the "Amended and Restated 1998 Equity Participation Plan") and may be eligible for future grants as well. In accordance with the above mentioned "Amended and Restated 1998 Equity Participation Plan", he is also entitled to participate in the Restricted Stock Program. (e) Benefits. During the Term of Employment or Renewed Term of Employment, if any, the Executive shall be entitled to participate in or receive benefits under the employee benefit plans (including health, welfare and insurance plans) and other arrangements made available by the Company to its senior employees generally (collectively "Benefits"), subject to and on a basis consistent with the terms, conditions and overall administration of such plans or arrangements. (f) Business Expenses. The Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in the performance of his duties to the Company hereunder provided that such expenses are incurred for business reasons and accounted for in accordance with the Company's policy. (g) No Waiver. The Executive shall also be entitled to such other benefits or terms of employment as are required by law. 7. Termination of Employment. The Executive's employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate upon his death. Page 4 of 12 (b) Disability. If the Company determines in good faith that the Executive is Significantly Disabled during the Term of Employment, the Company may give the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that within the 30 days after such receipt, the Executive shall not have returned to full-time performance of his duties with or without a reasonable accommodation. (c) Cause. The Company may terminate the Executive's employment hereunder for Cause. (d) Without Cause. The Company may terminate the Executive's employment at any time hereunder without Cause upon thirty (30) days notice. (e) Expiration of Term of Employment and Ninety Day Notice Not to Renew. Executive's employment hereunder shall terminate upon expiration of the Term of Employment upon written notice by either party provided ninety (90) days before the expiration of the Term of Employment in accordance with Section 3, above, or if this Agreement is renewed, before expiration of the Renewed Term of Employment, if applicable. The giving of notice not to renew shall not constitute a termination without Cause. (f) Notice of Termination. Any termination of the Executive's employment hereunder (other than by reason of the Executive's death or expiration of the Term of Employment or Renewed Term of Employment, if any) shall be communicated by a notice of termination to the other parties hereto. For purposes of this Agreement, a "notice of termination" shall mean a written notice which (i) indicates the specific termination provision in the Agreement relied upon, (ii) sets forth in reasonable detail any facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision indicated and (iii) specifies the effective date of the termination. 8. Compensation Following Termination of Employment. Upon termination of Executive's employment under this Agreement, Executive (or his/her designated beneficiary or estate, as the case may be) shall be entitled to receive the following compensation: (a) Base Salary and Accrued but Unpaid Expenses and Vacation. The Company shall pay Executive any Base Salary for services rendered to the date of termination, any accrued but unpaid expenses required to be reimbursed under this Agreement, and any vacation accrued, but unused, to the date of termination. (b) Other Compensation and Benefits. Except as otherwise provided under this Agreement, Page 5 of 12 (i) any other compensation or benefits to which Executive may be entitled at the time of termination shall be determined and paid in accordance with the terms of such plans, policies and arrangements providing such compensation or benefits, and (ii) except as provided hereunder, Executive shall have no right to receive any other compensation, or to participate in any other plan, arrangement or benefit, with respect to future periods after such termination or resignation. (c) Additional Compensation Payable Following Termination without Cause. If the Executive's employment shall terminate without Cause (pursuant to Section 7(d)), and if Executive executes a "Separation Agreement and General Release" in substantially the same form as attached hereto as Exhibit A, the Company shall provide the following compensation and benefits to Executive unless the Change in Control provisions of Section 23 below apply: (i) Base Salary. The Company shall pay the Executive a severance benefit equal to the greater of A) the remaining Base Salary payments to which Executive would be entitled for the remainder of the Term of Employment (or if this Agreement is renewed, the Renewed Term of Employment) if such termination had not occurred or B) one year's payment of Base Salary. Such payments shall be made at the same time and in the same manner as such compensation had been paid prior to such termination of employment. (ii) Bonus. The Company shall pay to the Executive a bonus in an amount equal to the total number of Yearly Bonuses he would have received during each twelve month period ending on December 31 occurring during the Term of the Contract (or if this Agreement is renewed, during the Renewed Term of Employment) calculated at a rate of $450,000 (less all required deductions) per twelve month period ending on December 31 less any payments he already has received towards any Yearly Bonuses during the Term of the Contract (or if this Agreement is renewed, during the Renewed Term of Employment). For example, if the Executive is terminated without cause after six months of the Term of Contract has expired and he already has received two payments of $112,500 toward his yearly bonus for the first year of the Term of Contract, he would receive $675,000, which is the remainder of $900,000 minus $225,000 (i.e., two years @$450,000 = $900,000 - two payments of $112,500 = $675,000). (iii) Continuation of Benefits. The Company shall make all necessary payments for and provide all Benefits to Executive under this Agreement as if his employment had continued until the end of the Term of Employment (or if this Agreement is renewed, until the end of the Renewed Term of Employment) or for one year, whichever is greater. Page 6 of 12 (iv) Vesting of Stock Options and Restricted Stock. All outstanding unvested Stock Options and Restricted Stock shall become immediately vested and fully exercisable. (v) Upon death or Significant Disability, the Executive (or such Payee as the Executive shall have designated on the signature page hereof) shall be entitled to six (6) months of Annual Salary and any options with respect to common stock options of the Company then held by Executive, which are not yet exercisable shall thereupon become exercisable in accordance with the terms of such option. (d) No Other Compensation. If Executive's employment is terminated by reason of Cause or resignation by Executive (other than in accordance with Section 23 below following a Change in Control) or Expiration of the Term of Employment or Renewed Term of Employment, if any, then Executive shall not be entitled to any other compensation or benefits from the Company except as described in Section 8(a) and (b) above. 9. Survival. The expiration or termination of the Term of Employment or Renewed Term of Employment, if any, shall not impair the rights or obligations of any party hereto which shall have accrued hereunder prior to such expiration. 10. Disputes. Any dispute or controversy arising under, out of, in connection with or in relation to this Agreement shall, at the election and upon written demand of any party to this Agreement, be finally determined and settled by arbitration in Los Angeles County, California or as otherwise agreed to by the parties, in accordance with National Rules for Resolution of Employment Disputes of the American Arbitration Association (available at www.adr.org), and judgment upon the award may be entered in any court having jurisdiction thereof. The single arbitrator shall be selected by mutual agreement of the parties or by striking names pursuant to AAA procedures. The arbitrator shall permit adequate discovery and shall issue a written award. The Company shall bear all costs of arbitration that would not be incurred in court. The parties shall bear their own attorneys' fees and allowable litigation costs, except as awarded by the arbitrator. The arbitrator shall be empowered to award any remedy available under the substantive law that is the subject of the claim. Provisional remedies shall be permitted to the extent allowed under the California Arbitration Act. The prevailing party in any such proceeding shall be entitled to collect from the other party, all legal fees and expenses as permitted by law. 11. Restrictive Covenants. This Section 11 shall not apply in the event of termination following a Change in Control (as defined in Section 2(h), above), pursuant to Section 23, below. Page 7 of 12 (a) Confidentiality. (i) During Executive's Term of Employment or Renewed Term of Employment, if any, with the Company, Executive will not use or disclose to any individual or entity any Confidential Information (as defined below) except (i) in the performance of Executive's duties for the Company, (ii) as authorized in writing by the Company, or (iii) as required by law or legal process, provided that prior written notice of such required disclosure is provided to the Company and that all reasonable efforts to preserve the confidentiality of such information shall be made. (ii) As used herein, "Confidential Information" shall mean information that (i) is used or potentially useful in the Company's business, (ii) the Company treats as proprietary, private or confidential, and (iii) is not generally known to the public. "Confidential Information" includes, without limitation, information relating to the Company's products or services; marketing, selling or business or development plans; current or prospective customer, client, landlord, owner and tenant lists and data, trade secrets, call lists, manuals, policies, memoranda, notes, records, technical data, sketches, plans, drawings, formulae, research and development data, sources of supply and material, operating and cost data, financial information and personnel information. "Confidential Information" also includes proprietary and/or confidential information of the Company's customers, clients, landlords, owners, tenants, suppliers and business or joint venture partners who may share such information with the Company pursuant to a confidentiality agreement or otherwise. (b) Non-Solicitation. (i) While employed by the Company or, if he resigns or is deemed to have resigned from employment (e.g., job abandonment), until December 31, 2007, Executive shall not in any capacity employ or solicit for employment, or recommend that another person employ or solicit for employment, any person who is then and was at any time during Executive's employment an employee, sales representative or agent of the Company or any subsidiary or affiliate of the Company. (ii) Executive agrees that while employed by the Company or, if he resigns or is deemed to have resigned from employment (e.g., job abandonment), until December 31, 2007, he will not, on behalf of himself, or any other person, firm or corporation, solicit any of the Company's customers, clients, landlords, owners, tenants, and business or joint venture partners with whom he has had contact while working for the Company; nor will Executive in any way, directly or indirectly, for himself, or any other person, firm, corporation or entity, divert, or take away any of the Company's customers, clients, landlords, owners, tenants, suppliers and business or joint venture partners with whom Executive has had contact. For purposes of this Section, the term "contact" shall mean engaging in any communication, whether written or oral, with the customer, client, landlord, owner, tenant, supplier and business or joint venture partner or any representative thereof, or obtaining any information with respect to such customer, client, landlord, owner, tenant, supplier and business or joint venture partner or representative thereof. Page 8 of 12 (c) Remedies for Breach of Confidentiality and Non-Solicitation Provisions of this Agreement. Executive acknowledges that this Section 11, its terms and his compliance are necessary to protect the Company's Confidential and Proprietary Information, its business and its goodwill, and that a breach of any of Executive's promises contained in this Section 11 will irreparably and continually damage the Company to an extent that money damages may not be adequate. For these reasons, Executive agrees that in the event of a breach or threatened breach by the Executive of this Section 11, the Company shall be entitled to a temporary restraining order and preliminary injunction restraining Executive from such breach, without the posting of a bond. Nothing contained in this Section shall be construed as prohibiting the Company from pursuing any other remedies available for such breach or threatened breach or any other breach of this Agreement. The Company and Executive further acknowledge and agree that it may be difficult, if not impossible; to compute the actual damages that will be suffered by the Company upon Executive's violation of this Section 11. It is agreed, therefore, that in the event Executive breaches these provisions, Executive shall pay to the Company liquidated damages of a full year's salary during any period of breach and forfeit any payments due under Agreement, or any actual damages that the Company may incur as a result of such breach, whichever amount is greater, in addition to any other damages, including without limitation punitive damages, attorney's fees and costs, awarded by a court or arbitrator related to any breach of these provisions. (d) Effect of Termination of Employment. Notwithstanding the provisions of Section 7(e) of this Agreement, the period of Executive's employment for purposes of determining the applicability of the restrictions contained in Section 11 of this Agreement shall include any period during which Executive is employed by the Company's successors or assigns. Upon termination of employment, as defined herein and for whatever cause, Executive shall immediately deliver to the Company or its successors or assigns, all Company property, including without limitation all Confidential Information as defined above. 12. Withholding of Taxes. The Company shall withhold from any compensation and benefits payable under this Agreement all applicable federal, state, local, or other taxes. Page 9 of 12 13. Binding on Successors. This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. The Company shall cause any successor to all or substantially all of its assets or business to assume this Agreement. 14. Governing Law. This Agreement is being made and executed in and is intended to be performed in the State of New York, and shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of New York without regard to its conflict or choice of law rules. 15. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Notices. Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent, by telex, telecopy, facsimile transmission, or certified or registered mail, postage prepaid, as follows: If to the Company, addressed to: 3333 New Hyde Park Rd. New Hyde Park, NY 11042 Att: Vice President of Human Resources If to the Executive, to him at the address set forth below under his signature; or at any other address as any party shall have specified by notice in writing to the other parties in accordance herewith. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. This Agreement shall not become enforceable until executed by the Company. 18. Entire Agreement. The terms of this Agreement, which are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company, may not be contradicted by evidence of any prior or contemporaneous agreement and supersedes any and all prior agreements. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement. Page 10 of 12 19. Amendments; Severability; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and approved by the Executive Compensation Committee of the Board of Directors; or by an arbitrator or court seeking to render enforceable through "judicial" modification an otherwise unenforceable provision. By an instrument in writing similarly executed, the Executive or the Company may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform, provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity. Should an arbitrator or Court determine that any part of this Agreement is invalid, the Court or arbitrator shall sever the invalid portion such that the remainder of the Agreement remains in full force and effect. 20. No Inconsistent Actions; Cooperation. (a) The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement. (b) Each of the parties hereto shall cooperate and take such actions, and execute such other documents as may be reasonably requested by the other in order to carry out the provisions and purposes of this Agreement. 21. No Alienation of Benefits. To the extent permitted by law the benefits provided by this Agreement shall not be subject to garnishment, attachment or any other legal process by the creditors of the Executive, his beneficiary or his estate. 22. Indemnification. The Company shall provide indemnification to the Executive to the extent permitted by the Company's corporate bylaws and under New York law. 23. Change in Control. (a) Requirements for Additional Compensation. If a Change in Control occurs and the Executive's employment is terminated for any reason, at any time by the Company without Cause pursuant to Section 7(d) above, or by the Executive if prior to the end of the 60-day period beginning on the date of the Change in Control, the Company shall provide the Executive with the additional compensation and benefits described in this Section 23. (b) Lump Sum Payment. The Company shall pay Executive an amount equal to the lesser of: Page 11 of 12 (i) The amount of Base Salary under this Agreement (or any salary of greater amount he was receiving as was determined pursuant to Section 6(a)) and bonus (defined by the amount of bonus he most recently received or the Executive's minimum bonus, if he has never yet received a bonus), that would have been payable to the Executive if he had continued in employment until the end of the Term of Employment or Renewed Term of Employment, if any; or (ii) The greatest payment which in combination with all other payments to which he would be entitled, would not constitute an "excess parachute payment" as such term is defined in Section 280(G)(b)(1) of the Internal Revenue Code. The amount determined under this subsection (b) of this Section 23 will be paid to Executive in a single lump sum within thirty (30) days after his last day of employment. (c) Continuation of Benefits. The Company shall make all necessary payments for and provide all Benefits to Executive under this Agreement as if his employment had continued until the later of the end of the Term of Employment (or if the Agreement is renewed, the Renewed Term of Employment) or the end of the one-year period beginning on his date of termination. (d) Vesting of Stock Options and Restricted Stock. All outstanding unvested Stock Options and Restricted Stock shall become immediately vested and fully exercisable. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. KIMCO REALTY CORPORATION, a Maryland corporation By: /s/ Paul Weinberg ------------------------------ EXECUTIVE /s/ Jerald Friedman - ----------------------------------- Jerald Friedman 603 N. Walden Drive Beverly Hills, CA 90210 Page 12 of 12 EX-31.1 3 b409570ex_31-1.txt CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Milton Cooper, Chief Executive Officer, certify that: 1. I have reviewed this report on Form 10-Q of Kimco Realty Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 3, 2005 /s/ Milton Cooper ---------------------- Milton Cooper Chief Executive Officer EX-31.2 4 b409570ex_31-2.txt CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael V. Pappagallo, Chief Financial Officer, certify that: 1. I have reviewed this report on Form 10-Q of Kimco Realty Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted account principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 3, 2005 /s/ Michael V. Pappagallo ------------------------- Michael V. Pappagallo Chief Financial Officer EX-32.1 5 b409570ex_32-1.txt SECTION 906 CERTIFICATION EXHIBIT 32.1 SECTION 906 CERTIFICATION Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Kimco Realty Corporation (the "Company") hereby certifies, to such officer's knowledge, that: (i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2005 (the "Report") fully complies with the requirements of Section 13 (a) or Section 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 3, 2005 /s/ Milton Cooper ------------------------- Milton Cooper Chief Executive Officer Date: November 3, 2005 /s/ Michael V. Pappagallo ------------------------- Michael V. Pappagallo Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----