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Kimco Realty 10-K 2007 Documents found in this filing:
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2006
OR
For
the transition period from
to
Commission file number 1-10899
Kimco Realty Corporation
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code (516) 869-9000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes
þ No o
Indicate by check mark whether the Registrant (i) 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 (ii) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12-b of the Exchange Act.
Large Accelerated Filer þ Accelerated filer
o Non-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o No
þ
The aggregate market value of the voting stock held by non-affiliates of the Registrant was
approximately $9.8 billion based upon the closing price on the New York Stock Exchange for such
stock on January 31, 2007.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock,
as of the latest practicable date.
251,162,635 shares as of January 31, 2007.
Table of Contents
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference to the Registrant’s definitive proxy
statement to be filed with respect to the Annual Meeting of Stockholders expected to be held on May
17, 2007.
Index to Exhibits begins on page 63.
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PART I
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, together with other statements and information publicly
disseminated by Kimco Realty Corporation (the “Company” or “Kimco”) contains certain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends
such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 and includes this
statement for purposes of complying with 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, debt, or other sources of financing on favorable terms, (iv) changes in
governmental laws and regulations, (v) the level and volatility of interest rates and foreign
currency exchange 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.
SHARE 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 annual report on Form 10-K and
the accompanying Consolidated Financial Statements and Notes thereto have been adjusted to reflect
this Stock Split.
Item 1. Business
General Kimco Realty Corporation, a Maryland corporation, is one of the nation’s largest
owners and operators of neighborhood and community shopping centers. The Company is a
self-administered real estate investment trust (“REIT”) and manages its properties through present
management, which has owned and operated neighborhood and community shopping centers for over 45
years. The Company has not engaged, nor does it expect to retain, any REIT advisors in connection
with the operation of its properties. As of January 31, 2007, the Company had interests in 1,348
properties, totaling approximately 175.4 million square feet of gross leasable area (“GLA”) located
in 45 states, Canada, Mexico and Puerto Rico. The Company’s ownership interests in real estate
consist of its consolidated portfolio and in portfolios where the Company owns an economic
interest, such as properties in the Company’s investment management program, where the Company
partners with institutional investors and also retains management (See Recent Developments —
Operating Real Estate Joint Venture Investments and Note 7 of the Notes to Consolidated Financial
Statements included in this annual report on Form 10-K). The Company believes its portfolio of
neighborhood and community shopping center properties is the largest (measured by GLA) currently
held by any publicly-traded REIT.
The Company’s executive offices are located at 3333 New Hyde Park Road, New Hyde Park, New York
11042-0020 and its telephone number is (516) 869-9000. Unless the context indicates otherwise, the
term the “Company” as used herein is intended to include all subsidiaries of the Company.
The Company’s web site is located at http://www.kimcorealty.com. The information contained on our
web site does not constitute part of this Annual Report on Form 10-K. On the Company’s web site
you can obtain, free of charge, a copy of our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act of 1934, as amended, as soon as reasonably practicable
after we file such material electronically with, or furnish it to, the Securities and Exchange
Commission (the “SEC”).
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History The Company began operations through its predecessor, The Kimco Corporation, which
was organized in 1966 upon the contribution of several shopping center properties owned by its
principal stockholders. In 1973, these principals formed the Company as a Delaware corporation,
and in 1985, the operations of The Kimco Corporation were merged into the Company. The Company
completed its initial public stock offering (the “IPO”) in November 1991, and commencing with its
taxable year which began January 1, 1992, elected to qualify as a REIT in accordance with Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). In 1994, the
Company reorganized as a Maryland corporation.
The Company’s growth through its first 15 years resulted primarily from the ground-up development
and construction of its shopping centers. By 1981, the Company had assembled a portfolio of 77
properties that provided an established source of income and positioned the Company for an
expansion of its asset base. At that time, the Company revised its growth strategy to focus on the
acquisition of existing shopping centers and creating value through the redevelopment and
re-tenanting of those properties. As a result of this strategy, a majority of the operating
shopping centers added to the Company’s portfolio since 1981 have been through the acquisition of
existing shopping centers.
During 1998, the Company, through a merger transaction, completed the acquisition of The Price
REIT, Inc., a Maryland corporation, (the “Price REIT”). Prior to the merger, Price REIT was a
self-administered and self-managed equity REIT that was primarily focused on the acquisition,
development, management and redevelopment of large retail community shopping center properties
concentrated in the western part of the United States. In connection with the merger, the Company
acquired interests in 43 properties, located in 17 states. With the completion of the Price REIT
merger, the Company expanded its presence in certain western states including California, Arizona
and Washington. In addition, Price REIT had strong ground-up development capabilities. These
development capabilities, coupled with the Company’s own construction management expertise, provide
the Company, on a selective basis, the ability to pursue ground-up development opportunities.
Also during 1998, the Company formed Kimco Income REIT (“KIR”), an entity in which the Company held
a 99.99% limited partnership interest. KIR was established for the purpose of investing in
high-quality properties financed primarily with individual non-recourse mortgages. The Company
believed that these properties were appropriate for financing with greater leverage than the
Company traditionally used. At the time of formation, the Company contributed 19 properties to
KIR, each encumbered by an individual non-recourse mortgage. During 1999, KIR sold a significant
interest in the partnership to institutional investors. As of December 31, 2006, the Company holds
a 45.0% non-controlling limited partnership interest in KIR and accounts for its investment in KIR
under the equity method of accounting. (See Recent Developments — Operating Real Estate Joint
Venture Investments and Note 7 of the Notes to Consolidated Financial Statements included in this
annual report on Form 10-K.)
The Company has expanded its management business through the establishment of other various
institutional joint venture programs in which the Company has non-controlling interests ranging
generally from 5% to 45%. The Company’s largest joint venture, Kimco Prudential Joint Venture
(“KimPru”), was formed in 2006, in connection with the Pan Pacific Retail Properties Inc. (“Pan
Pacific”) merger transaction, with Prudential Real Estate Investors (“PREI”), which holds
approximately $4.1 billion in assets. The Company earns management fees, acquisition fees,
disposition fees and promoted interests based on value creation. As of December 31, 2006, the
Company’s assets under management were valued at approximately $14.0 billion, comprising 458 of
properties. (See Recent Developments — Operating Real Estate Joint Venture Investments and Note 7
of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)
In connection with the Tax Relief Extension Act of 1999 (the “RMA”) which became effective January
1, 2001, the Company is permitted to participate in activities which it was precluded from
previously 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 subsidiaries under the Code, subject to
certain limitations. As such, the Company, through its taxable REIT subsidiaries, is engaged in
various retail real estate related opportunities, including (i) merchant building through its
wholly-owned taxable REIT subsidiary, Kimco Developers, Inc. (“KDI”), which is primarily engaged in
the ground-up development of neighborhood and community shopping centers and subsequent sale
thereof upon completion (see Recent Developments — Ground-Up Development), (ii) retail real estate
advisory and disposition services, which primarily focus on leasing and disposition strategies for
real estate property interests of both healthy and distressed retailers and
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(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.
The Company has continued its geographic expansion with investments in Canada, Mexico and Puerto
Rico. During October 2001, the Company formed the RioCan Venture with (“RioCan Venture”) 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 Company accounts for this investment under the equity method of
accounting. The Company has expanded its presence in Canada with the establishment of other joint
venture arrangements. During 2002, the Company, along with various strategic co-investment
partners, began acquiring operating and development properties located in Mexico. During 2006, the
Company acquired interests in shopping center properties located in Puerto Rico through joint
ventures in which the Company holds controlling ownership interests. (See Recent Developments —
Operating Properties and Operating Real Estate Joint Venture Investments and Notes 3 and 7 of the
Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)
The Company generated equity in income from its unconsolidated Canadian investments in real estate
joint ventures of approximately $21.1 million and $21.6 million during 2006 and 2005, respectively.
In addition, income from other unconsolidated Canadian real estate investments approximately $13.9
million and $6.6 million during 2006 and 2005, respectively.
The Company recognized equity in income from its unconsolidated Mexican investments in real estate
joint ventures of approximately $11.8 million and $2.2 million during 2006 and 2005, respectively.
The Company’s revenues from its consolidated Mexican subsidiaries aggregated approximately $2.4
million and $1.2 million during 2006 and 2005, respectively.
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.
Investment and Operating Strategy The Company’s investment objective has been to increase
cash flow, current income and, consequently, the value of its existing portfolio of properties, and
to seek continued growth through (i) the strategic re-tenanting, renovation and expansion of its
existing centers and (ii) the selective acquisition of established income-producing real estate
properties and properties requiring significant re-tenanting and redevelopment, primarily in
neighborhood and community shopping centers in geographic regions in which the Company presently
operates. The Company has and will continue to consider investments in other real estate sectors
and in geographic markets where it does not presently operate should suitable opportunities arise.
The Company’s neighborhood and community shopping center properties are designed to attract local
area customers and typically are anchored by a discount department store, a supermarket or a
drugstore tenant offering day-to-day necessities rather than high-priced luxury items. The Company
may either purchase or lease income-producing properties in the future and may also participate
with other entities in property ownership through partnerships, joint ventures or similar types of
co-ownership. Equity investments may be subject to existing mortgage financing and/or other
indebtedness. Financing or other indebtedness may be incurred simultaneously or subsequently in
connection with such investments. Any such financing or indebtedness will have priority over the
Company’s equity interest in such property. The Company may make loans to joint ventures in which
it may or may not participate.
In addition to property or equity ownership, the Company provides property management services for
fees relating to the management, leasing, operation, supervision and maintenance of real estate
properties.
While the Company has historically held its properties for long-term investment, and accordingly
has placed strong emphasis on its ongoing program of regular maintenance, periodic renovation and
capital improvement, it is possible that properties in the portfolio may be sold, in whole or in
part, as circumstances warrant, subject to REIT qualification rules.
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The Company seeks to reduce its operating and leasing risks through diversification achieved by the
geographic distribution of its properties and a large tenant base. At December 31, 2006, the
Company’s single largest neighborhood and community shopping center accounted for only 1.6% of the
Company’s annualized base rental revenues and only 0.8% of the Company’s total shopping center GLA.
At December 31, 2006, the Company’s five largest tenants were The Home Depot, TJX Companies, Sears
Holdings, Kohl’s, and Wal-Mart, which represent approximately 3.5%, 2.9%, 2.5%, 2.2% and 2.1%,
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.
In connection with the RMA, which became effective January 1, 2001, the Company has expanded its
investment and operating strategy to include new real estate related opportunities which the
Company was precluded from previously in order to maintain its qualification as a REIT. As such,
the Company, has established a merchant building business through its KDI subsidiary. KDI makes
selective acquisitions of land parcels for the ground-up development of neighborhood and community
shopping centers and subsequent sale thereof upon completion. Additionally, the Company has
developed a business which specializes in providing capital, real estate advisory services and
disposition services of real estate controlled by both healthy and distressed and/or bankrupt
retailers. These services may include assistance with inventory and fixture liquidation in
connection with going-out-of-business sales. The Company may participate with other entities in
providing these advisory services through partnerships, joint ventures or other co-ownership
arrangements. The Company, as a regular part of its investment strategy, will continue to actively
seek investments for its taxable REIT subsidiaries.
The Company emphasizes equity real estate investments including preferred equity investments, but
may, at its discretion, invest in mortgages, other real estate interests and other investments. The
mortgages in which the Company may invest may be either first mortgages, junior mortgages or other
mortgage-related securities. The Company provides mortgage financing to retailers with significant
real estate assets, in the form of lease- hold interests or fee-owned properties, where the Company
believes the underlying value of the real estate collateral is in excess of its loan balance. In
addition, the Company will acquire debt instruments at a discount in the secondary market where the
Company believes the real estate value of the enterprise is substantially greater than the current
value.
The Company may legally invest in the securities of other issuers, for the purpose, among others,
of exercising control over such entities, subject to the gross income and asset tests necessary for
REIT qualification. The Company may, on a selective basis, acquire all or substantially all
securities or assets of other REITs or similar entities where such investments would be consistent
with the Company’s investment policies. In any event, the Company does not intend that its
investments in securities will require it to register as an “investment company” under the
Investment Company Act of 1940.
The Company has authority to offer shares of capital stock or other senior securities in exchange
for property and to repurchase or otherwise reacquire its common stock or any other securities and
may engage in such activities in the future. At all times, the Company intends to make investments
in such a manner as to be consistent with the requirements of the Code to qualify as a REIT unless,
because of circumstances or changes in the Code (or in Treasury Regulations), the Board of
Directors determines that it is no longer in the best interests of the Company to qualify as a
REIT.
The Company’s policies with respect to the aforementioned activities may be reviewed and modified
from time to time by the Company’s Board of Directors without the vote of the Company’s
stockholders.
Capital Strategy and Resources The Company intends to operate with and maintain a
conservative capital structure with a level of debt to total market capitalization of approximately
50% or less. As of December 31, 2006, the Company’s level of debt to total market capitalization
was 23%. 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.
It is management’s intention that the Company continually have access to the capital resources
necessary to expand and develop its business. Accordingly, the Company may, from time to time,
seek to obtain funds through additional equity offerings, unsecured debt financings and/or
mortgage/construction loan financings and other capital 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
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the IPO, the Company has completed additional offerings of its public unsecured debt and equity,
raising in the aggregate over $4.9 billion. Proceeds from public capital market activities have
been used for 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. In March 2006, the Company was added to the S &
P 500 Index, an index containing the stock of 500 Large Cap corporations, most of which are U.S.
corporations.
The Company has an $850.0 million unsecured credit facility, (the “Credit Facility”) which is
scheduled to expire in July 2008. 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 December
31, 2006, there was no outstanding balance under this credit facility.
Additionally, the Company has a Canadian denominated (“CAD”) $250.0 million unsecured revolving
credit facility with a group of banks. This facility originally bore interest at the CDOR Rate, as
defined therein, plus 0.50% and is scheduled to expire in March 2008. During January 2006, the
facility was amended to reduce the borrowing spread to 0.45% and to modify the covenant package to
conform to the Company’s $850.0 million U.S. Credit Facility. Proceeds from this facility are used
for general corporate purposes including the funding of Canadian denominated investments. As of
December 31, 2006, there was no outstanding balance under this facility.
The Company also has a three-year Mexican Peso denominated (“MXP”) 500.0 million unsecured
revolving credit facility. This facility bears interest at the TIIE Rate, as defined therein, plus
1.00% and is scheduled to expire in May 2008. Proceeds from this facility are used to fund peso
denominated investments. As of December 31, 2006, there was no outstanding balance under this
facility.
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 purpose, including (i)
funding specific liquidity requirements in its business, including property acquisitions,
development and redevelopment costs, and (ii) managing the Company’s debt maturities. (See Note 11
of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)
During March 2006, the Company issued $300.0 million of fixed rate unsecured senior notes under its
MTN program. This fixed rate MTN matures March 15, 2016 and bears interest at 5.783% per annum.
The proceeds from this MTN 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 June 2006, the Company entered into a third supplemental indenture, under the indenture
governing its medium-term notes and senior notes, which amended the (i) total debt test and secured
debt test by changing the asset value definition from undepreciated real estate assets to total
assets, with total assets being defined as undepreciated real estate assets, plus other assets (but
excluding goodwill and amortized debt costs) and (ii) maintenance of unencumbered total asset value
covenant by increasing the requirement of the ratio of unencumbered total asset value to
outstanding unsecured debt from 1 to 1 to 1.5 to 1. Additionally, the same amended covenants were
adopted within the Canadian supplemental indenture, which governs the 4.45% Canadian Debentures due
in 2010. As a result of the amended covenants, the Company has increased its borrowing capacity by
approximately $2.0 billion.
During August 2006, Kimco North Trust III, a wholly-owned subsidiary of the Company, completed the
issuance of $200.0 million Canadian denominated senior unsecured notes. The notes bear interest at
5.18% and mature on August 16, 2013. The proceeds were used by Kimco North Trust III to pay down
outstanding indebtedness under the existing credit
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facility, to fund long-term investments in Canadian real estate and for general corporate purposes.
In connection with the October 31, 2006, Pan Pacific merger transaction, the Company assumed $630.0
million of unsecured notes payable. These notes bear interest at fixed rates ranging from 4.70% to
7.95% per annum and have maturity dates ranging from June 29, 2007 to September 1, 2015 (see Recent
Developments — Operating Real Estate Joint Venture Investments — Pan Pacific Retail Properties
Inc., and Note 7 of the Notes to Consolidated Financial Statements included in this annual report
on Form 10-K).
During 2006, the Company repaid its $30.0 million 6.93% fixed rate notes, which matured on July 20,
2006, $100.0 million floating rate notes, which matured on August 1, 2006, and $55.0 million 7.50%
fixed rate notes, which matured on November 5, 2006.
In addition to the public debt and equity markets as capital sources, the Company may, from
time-to-time, obtain mortgage financing on selected properties and construction loans to partially
fund the capital needs of ground-up development projects. As of December 31, 2006, the Company’s
consolidated property portfolio had over 390 unencumbered property interests representing over 81%
of the Company’s 2006 net operating income.
During March 2006, the Company completed a primary public stock offering of 10,000,000 shares of
the Company’s common stock (“Common Stock”). The net proceeds from this sale of Common Stock,
totaling approximately $405.5 million (after related transaction costs of $2.5 million) were
primarily used to repay the outstanding balance under the Company’s U.S. revolving credit facility,
partial repayment of the outstanding balance under the Company’s Canadian denominated credit
facility and for general corporate purposes.
During March 2006, the shareholders of Atlantic Realty Trust (“Atlantic Realty”) approved a
proposed merger with the Company and the closing occurred on March 31, 2006. As consideration for
this transaction, the Company issued Atlantic Realty shareholders 1,274,420 shares of Common Stock,
excluding 748,510 shares of Common Stock that were to be received by the Company, at a price of
$40.41 per share. (See Note 17 of the Notes to Consolidated Financial Statements included in this
annual report on Form 10-K.)
During May 2006, the Company filed a shelf registration statement on Form S-3ASR, which is
effective for a three year term, for the unlimited future offerings, from time to time, of debt
securities, preferred stock, depositary shares, common stock and common stock warrants.
On September 25, 2006, Pan Pacific stockholders approved the proposed merger with the Company and
the closing occurred on October 31, 2006. Under the terms of the merger agreement, the Company
agreed to acquire all of the outstanding shares of Pan Pacific for a total merger consideration of
$70.00 per share. As permitted under the merger agreement, the Company elected to issue $10.00 per
share of the total merger consideration in the form of Common Stock. As such, the Company issued
9,185,847 shares of Common Stock valued at $407.7 million, which was based upon the average closing
price of the Common Stock over the ten trading days immediately preceding the closing date. (See
Recent Developments — Operating Real Estate Joint Venture Investment — Pan Pacific Retail
Properties Inc. and Note 7 of the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K.)
The Company anticipates that cash flows from operating activities will continue to provide adequate
capital to fund its operating and administrative expenses, regular debt service obligations and the
payment of dividends in accordance with REIT requirements in both the short term and long term. In
addition, the Company anticipates that cash on hand, free cash flow generated by the operating
business, availability under its revolving credit facilities, and issuance of equity and public
debt, as well as other debt and equity alternatives, will provide the necessary capital required by
the Company. Cash flow from operating activities (see Consolidated Statements of Cash Flows) was
$455.6 million for the year ended December 31, 2006, as compared to $410.8 million for the year
ended December 31, 2005.
Competition As one of the original participants in the growth of the shopping center
industry and one of the nation’s largest owners and operators of neighborhood and community
shopping centers, the Company has established close relationships with a large number of major
national and regional retailers and maintains a broad network of industry contacts. Management is
associated with and/or actively participates in many shopping center and REIT industry
organizations. Notwithstanding these relationships, there are numerous regional and local
commercial developers, real estate companies, financial institutions and other investors who
compete with the Company for the acquisition of properties and other investment opportunities and
in seeking tenants who will lease space
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in the Company’s properties.
Inflation and Other Business Issues 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 predetermined thresholds (“Percentage Rents”), which generally increase as prices rise,
and/or escalation clauses, which generally increase rental rates during the terms of the leases.
Such escalation clauses include increases 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 upon renewal to market rates. Most of the Company’s leases
require tenants to reimburse the Company for their 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 fluctuations in foreign
currency exchange rates and will, from time-to-time, enter into interest rate protection agreements
and foreign currency hedge agreements which mitigate, but do not eliminate, the effect of changes
in interest rates on its floating-rate debt and changes in foreign currency exchange rates.
Operating Practices Nearly all operating functions, including leasing, legal,
construction, data processing, maintenance, finance and accounting, are administered by the Company
from its executive offices in New Hyde Park, New York and supported by the Company’s regional
offices. The Company believes it is critical to have a management presence in its principal areas
of operation and accordingly, the Company maintains regional offices in various cities throughout
the United States. A total of 618 persons are employed at the Company’s executive and regional
offices.
The Company’s regional offices are generally staffed by a regional business leader and the operating personnel
necessary to both function as local representatives for leasing and promotional purposes, to
complement the corporate office’s administrative and accounting efforts and to ensure that property
inspection and maintenance objectives are achieved. The regional offices are important in reducing
the time necessary to respond to the needs of the Company’s tenants. Leasing and maintenance
personnel from the corporate office also conduct regular inspections of each shopping center.
The Company also employs a total of 14 persons at several of its larger properties in order to more
effectively administer its maintenance and security responsibilities.
Qualification as a REIT The Company has elected, commencing with its taxable year which
began January 1, 1992, to qualify as a REIT under the Code. If, as the Company believes, it is
organized and operates in such a manner so as to qualify and remain qualified as a REIT under the
Code, the Company generally will not be subject to federal income tax, provided that distributions
to its stockholders equal at least the amount of its REIT taxable income as defined under the Code.
In connection with the RMA, which became effective January 1, 2001, the Company is permitted to
participate in activities which the Company was precluded from previously 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 subsidiaries under the Code, subject to certain limitations. The primary
activities conducted by the Company in its taxable REIT subsidiaries during 2006 included, but were
not limited to, (i) the ground-up development of shopping center properties and subsequent sale
thereof upon completion (see Recent Developments — Ground-Up Development), (ii) real estate
advisory and disposition services, and (iii) acting as an agent or principal in connection with tax
deferred exchange transactions. As such, the Company was subject to federal and state income taxes
on the income from these activities.
Recent Developments
Operating Properties -
Acquisitions -
During 2006, the Company acquired, in separate transactions, 40 operating properties, comprising an
aggregate 4.8 million square feet of GLA, for an aggregate purchase price of approximately $1.1
billion, including the assumption of approximately $297.7 million of non-recourse mortgage debt
encumbering 20 of the properties, issuance of approximately $247.6 million of redeemable units
relating to 10 properties and issuance of approximately $51.5 million of Common Stock relating to
one property. Details of these transactions are as follows (in thousands):
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During the year ended December 31, 2006, the Company acquired interests in seven shopping center
properties, included in the table above, located in Caguas, Carolina, Mayaguez, Trujillo Alto,
Ponce, Manati, and Bayamon, Puerto Rico, valued at an aggregate $451.9 million. The properties were
acquired through the issuance of units from a consolidated subsidiary and consist of approximately
$158.6 million of floating and fixed rate redeemable units, approximately $45.8 million of
redeemable units, which are redeemable at the option of the holder, the assumption of approximately
$131.2 million of non-recourse mortgage debt encumbering six of the properties and approximately
$116.3 million in cash. The Company has the option to settle the redemption of the $45.8 million
redeemable units with Common Stock or cash. The aggregate value of the units is included in
Minority interests on the Company’s Consolidated Balance Sheets.
During April 2006, the Company acquired interests in two shopping center properties, included in
the table above, located in Bay Shore and Centereach, NY, valued at an aggregate $61.6 million.
The properties were acquired through the issuance of units from a consolidated subsidiary and
consist of approximately $24.2 million of redeemable units, which are redeemable at the option of
the holder, approximately $14.0 million of fixed rate redeemable units and the assumption of
approximately $23.4 million of non-recourse mortgage debt. The Company has the option to settle
the redemption of the $24.2 million redeemable units with Common Stock or cash. The aggregate
value of the units is included in Minority interests on the Company’s Consolidated Balance Sheets.
During June 2006, the Company acquired an interest in an office property, included in the table
above, located in Albany, NY, valued at approximately $39.9 million. The property was acquired
through the issuance of approximately $5.0 million of redeemable units from a consolidated
subsidiary, which are redeemable at the option of the holder after one year, and the assumption of
approximately $34.9 million of non-recourse mortgage debt. The Company has the option to settle
the redemption of the redeemable units with Common Stock or cash. The aggregate value of the units
is included in Minority interests on the Company’s Consolidated Balance Sheets.
Dispositions -
During 2006, the Company (i) disposed of, in separate transactions, 28 operating properties and one
ground lease for an aggregate sales price of approximately $270.5 million, which resulted in a net
gain of $71.7 million, net of income taxes of $2.8 million relating to the sale of two properties,
and (ii) transferred five operating properties to joint ventures in which the Company has 20%
non-controlling interests for an aggregate price of approximately $95.4 million, which resulted in
a gain of approximately $1.4 million from one transferred property.
During November 2006, the Company disposed of a vacant land parcel located in Bel Air, MD, for
approximately $1.8 million resulting in a $1.6 million gain on sale. This gain is included in
Other income, net on the Company’s Consolidated Statements of Income.
Redevelopments -
The Company has an ongoing program to reformat and re-tenant its properties to maintain or enhance
its competitive position in the marketplace. During 2006, the Company substantially completed the
redevelopment and re-tenanting of various operating properties. The Company expended approximately
$62.2 million in connection with these major redevelopments and re-tenanting projects during 2006.
The Company is currently involved in redeveloping several other shopping centers in the existing
portfolio. The
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Company anticipates its capital commitment toward these and other redevelopment projects will be
approximately $125.0 million to $150.0 million during 2007.
Ground-Up Development -
The Company is engaged in ground-up development projects which consist of (i) merchant building
through the Company’s wholly-owned taxable REIT subsidiary, KDI, which develops neighborhood and
community shopping centers and the subsequent sale thereof upon completion, (ii) U.S. ground-up
development projects which will be held as long-term investments by the Company and (iii) various
ground-up development projects located in Mexico and Canada for long-term investment (see Recent
Developments — International Real Estate Investments and Note 3 of the Notes to Consolidated
Financial Statements included in this annual report on Form 10-K). The ground-up development
projects generally have substantial pre-leasing prior to the commencement of construction. As of
December 31, 2006, the Company had in progress a total of 45 ground-up development projects
including 23 merchant building projects, six domestic ground-up development projects, and 16
ground-up development projects located throughout Mexico. These projects are currently proceeding
on schedule and substantially in line with the Company’s budgeted costs of approximately $1.8
billion.
KDI -
As of December 31, 2006, KDI had in progress 23 ground-up development projects located in ten
states. In addition, KDI manages the construction of five domestic projects for the Company.
During 2006, KDI expended approximately $468.7 million in connection with the purchase of land and
construction costs related to these projects and those sold during 2006. 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 development projects will be approximately
$400 million to $450 million during 2007. The proceeds from the sale of completed ground-up
development projects during 2007, proceeds from construction loans and availability under the
Company’s revolving lines of credit are expected to be sufficient to fund these anticipated capital
requirements.
Acquisitions -
During 2006, KDI acquired various land parcels, in separate transactions, for an aggregate purchase
price of approximately $101.0 million. The estimated project costs for these newly acquired
parcels are approximately $194.3 million with completion dates ranging from June 2007 to June 2009.
Details of these acquisitions are as follows:
During 2006, the Company obtained individual construction loans on three ground-up development
projects and repaid construction loans on five ground-up development projects. In addition, the
Company assigned a $7.2 million construction loan, which bore interest at LIBOR plus 1.75% and was
scheduled to mature in November 2006, in connection with the sale of its partnership interest in
one project. At December 31, 2006, total loan commitments on the Company’s 13 outstanding
construction loans aggregated approximately $330.9 million of which approximately $271.0 million
has been funded. These loans have maturities ranging from two months to 31 months and bear
interest at rates ranging from 6.87% to 7.32% at December 31, 2006.
Dispositions -
During 2006, KDI sold, in separate transactions, six of its recently completed projects, its
partnership interest in one project and 30 out-parcels for approximately $260.0 million. These
sales resulted in pre-tax gains of approximately $37.3 million. Details are as follows:
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Long-Term Investment Project -
During 2006, the Company acquired land in Chambersburg, PA, for a purchase price of approximately
$8.9 million. The land will be developed into a 0.4 million square foot retail center with a total
estimated project cost of approximately $31.6 million.
Operating Real Estate Joint Venture Investments -
Kimco Prudential Joint Venture (“KimPru”) -
On July 9, 2006, the Company entered into a definitive merger agreement with Pan Pacific. Under the
terms of the agreement, the Company agreed to acquire all of the outstanding shares of Pan Pacific
for total merger consideration of $70.00 per share. As permitted under the merger agreement, the
Company elected to issue $10.00 per share of the total merger consideration in the form of Common
Stock to be based upon the average closing price of the Common Stock over ten trading days
immediately preceding the closing date.
On September 25, 2006, Pan Pacific stockholders approved the proposed merger and the closing
occurred on October 31, 2006. In addition to the merger consideration of $70.00 per share, Pan
Pacific stockholders also received $0.2365 per share as a pro-rata portion of Pan Pacific’s regular
$0.64 per share dividend for each day between September 26, 2006 and the closing date.
The transaction had a total value of approximately $4.1 billion, including Pan Pacific’s
outstanding loans totaling approximately $1.1 billion. As of October 31, 2006, Pan Pacific owned
interests in 138 operating properties, which comprised approximately 19.9 million square feet of
GLA, located primarily in California, Oregon, Washington and Nevada.
Funding for this transaction was provided by approximately $1.3 billion of new individual
non-recourse mortgage loans encumbering 51 properties, a $1.2 billion two year credit facility
provided by a consortium of banks and guaranteed by the joint venture partners described below and
the Company, the issuance of 9,185,847 shares of Common Stock valued at approximately $407.7
million, the assumption of approximately $630.0 million of unsecured bonds and approximately $289.4
million of existing non-recourse mortgage debt encumbering 23 properties and approximately $300.0
million in cash. With respect to the $1.2 billion guarantee by the Company, PREI, as defined
below, guaranteed reimbursement to the Company of 85% of any guaranty payment the Company is
obligated to make.
Immediately following the merger, the Company commenced its joint venture agreements with
Prudential Real Estate Investors (“PREI”) through three separate accounts managed by PREI. In
accordance with the joint venture agreements, all Pan Pacific assets, the respective non-recourse
mortgage debt and the $1.2 billion credit facility mentioned above were transferred to the separate
accounts. PREI contributed approximately $1.1 billion on
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behalf of institutional investors in three of its portfolios. The Company holds 15%
non-controlling ownership interests in each of these joint ventures, collectively KimPru, with a
total aggregate investment of approximately $194.8 million, and will account for these investments
under the equity method of accounting. In addition, the Company will manage the portfolios and
earn acquisition fees, leasing commissions, property management fees and construction management
fees.
During November 2006, KimPru sold an operating property for a sales price of approximately $5.3
million. There was no gain or loss recognized in connection with this sale.
Kimco Income REIT (“KIR”) -
The Company has a non-controlling limited partnership interest in KIR, manages the portfolio and
accounts for its investment under the equity method of accounting. Effective July 1, 2006, the
Company acquired an additional 1.7% limited partnership interest in KIR, which increased the
Company’s total non-controlling interest to approximately 45.0%.
During 2006, KIR disposed of two operating properties and one land parcel, in separate
transactions, for an aggregate sales price of approximately $15.2 million. These sales resulted in
an aggregate gain of approximately $4.4 million of which the Company’s share of the gain was
approximately $1.9 million.
In April 2005, KIR entered into a three-year $30.0 million unsecured revolving credit facility,
which bears interest at LIBOR plus 1.40%. As of December 31, 2006, there was $14.0 million
outstanding under this facility.
As of December 31, 2006, the KIR portfolio was comprised of 66 operating properties aggregating
approximately 14.0 million square feet of GLA located in 19 states.
KROP Venture (“KROP”) -
During 2001, the Company formed the KROP joint venture with GE Capital Real Estate (“GECRE”), in
which the Company has a 20% non-controlling interest and manages the portfolio. The Company
accounts for its investment in KROP under the equity method of accounting.
During 2006, the Company recognized equity in income of KROP of approximately $34.0 million,
including profit participation of approximately $22.2 million.
During 2006, KROP acquired one operating property from the Company for an aggregate purchase price
of approximately $3.5 million.
During 2006, KROP sold three operating properties to a joint venture in which the Company has a 20%
non-controlling interest for an aggregate sales price of approximately $62.2 million. These sales
resulted in an aggregate gain of approximately $26.7 million. As a result of its continued 20%
ownership interest in these properties, the Company deferred recognition of its share of these
gains. In addition, KROP sold one operating property to a joint venture in which the Company has a
19% non-controlling interest for a sales price of $96.0 million. This sale resulted in a gain of
approximately $42.3 million, of which the Company deferred 19% of its share of the gain as a result
of its continued ownership interest in the property.
Also during 2006, KROP sold nine operating properties, one out-parcel and one land parcel, in
separate transactions, for an aggregate sales price of approximately $171.4 million. These sales
resulted in an aggregate gain of approximately $49.6 million of which the Company’s share was
approximately $9.9 million.
During 2006, KROP obtained one non-recourse, non-cross collateralized variable rate mortgage for
$14.0 million on a property previously unencumbered with a rate of LIBOR plus 1.10%.
Additionally during 2006, KROP obtained a one-year $15.0 million unsecured term loan, which bears interest at LIBOR plus 0.5%. This loan is guaranteed by the Company and
GECRE has guaranteed reimbursement to the Company of 80% of any guaranty payment the Company is
obligated to make.
As of December 31, 2006, the KROP portfolio was comprised of 25 operating properties aggregating
approximately 3.6 million square feet of GLA located in 10 states.
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During August 2006, the Company and GECRE agreed to market for sale the remaining properties within
the KROP venture.
PL Retail LLC (“PL Retail”) -
The Company has a 15% non-controlling limited partnership interest in PL Retail, manages the
portfolio and accounts for its investment under the equity method of accounting.
During May 2006, PL Retail sold one operating property for a sales price of approximately $42.1
million, which resulted in a gain of approximately $3.9 million of which the Company’s share was
approximately $0.6 million.
Additionally during 2006, PL Retail sold one of its operating properties to a newly formed joint
venture in which the Company has a 19% non-controlling interest for a sales price of approximately
$109.0 million. No gain was recognized by the Company from this transaction as a result of its
continued ownership interest.
Proceeds of approximately $17.0 million from these sales were used by PL Retail to fully repay the
remaining balance of mezzanine financing and a promissory note that were previously provided by the
Company.
During 2005, PL Retail entered into a $39.5 million unsecured revolving credit facility, which
bears interest at LIBOR plus 0.675% and was scheduled to mature in February 2007. During 2007, the loan was extended to February 2008 at a reduced rate of LIBOR plus 0.45%. This facility is guaranteed by
the Company and the joint venture partner has guaranteed reimbursement to the Company of 85% of any guaranty payment the Company is obligated to make. As of December 31, 2006, there was $39.5 million
outstanding under this facility.
As of December 31, 2006, the PL Retail portfolio was comprised of 23 operating properties
aggregating approximately 5.8 million square feet of GLA located in seven states.
Kimco/UBS Joint Ventures (“KUBS”) -
The Company has joint venture investments with UBS Wealth Management North American Property Fund
Limited (“UBS”) in which the Company has non-controlling interests ranging from 15% to 20%. These
joint ventures, (collectively “KUBS”), were established to acquire high quality retail properties
primarily financed through the use of individual non-recourse mortgages. Capital contributions are
only required as suitable opportunities arise and are agreed to by the Company and UBS. The
Company manages the properties and accounts for its investments under the equity method of
accounting.
During 2006, KUBS acquired 15 operating properties for an aggregate purchase price of approximately
$447.8 million, which included approximately $136.8 million of non-recourse debt encumbering 13
properties, with maturities ranging from three to ten years with interest rates ranging from 4.74%
to 6.20%.
Additionally during 2006, KUBS acquired one operating property from the Company, and five operating
properties from joint ventures in which the Company has 15% to 20% non-controlling interests, for
an aggregate purchase price of approximately $297.0 million, including the assumption of
approximately $93.2 million of non-recourse mortgage debt, encumbering two of the properties, with
maturities ranging from six to seven years with interest rates ranging from 5.64% to 5.88%.
As of December 31, 2006, the KUBS portfolio was comprised of 31 operating center properties
aggregating approximately 5.0 million square feet of GLA located in 11 states.
Other Real Estate Joint Ventures —
During 2006, the Company acquired, in separate transactions, 18 operating properties and one ground
lease, through joint ventures in which the Company has non-controlling interests. These properties
were acquired for an aggregate purchase price of approximately $606.0 million, including
approximately $349.9 million of non-recourse mortgage debt encumbering 12 of the properties. The
Company’s aggregate investment in these joint ventures was approximately $48.9 million. The
Company accounts for its investment in these joint ventures under the equity method of accounting.
Details of these transactions are as follows (in thousands):
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During 2006, joint ventures, in which the Company has non-controlling interests ranging from 10% to
50%, disposed of, in separate transactions, six properties for an aggregate sales price of
approximately $62.4 million. These sales resulted in an aggregate gain of approximately $8.1
million, of which the Company’s share was approximately $2.0 million.
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 December 31, 2006, the
Company’s carrying value of its investments and advances in real estate joint ventures was
approximately $1.1 billion.
International Real Estate Investments -
Canadian Investments -
During March 2006, the Company acquired an interest in a portfolio of eight properties located in
various cities throughout Canada through a newly formed joint venture in which the Company has a
non-controlling interest. The Company’s investment in the joint venture was approximately CAD
$28.0 million (approximately USD $24.0 million), which includes funding for various renovation
costs. The joint venture purchased the properties for approximately CAD $100.0 million
(approximately USD $86.0 million), subject to approximately CAD $81.2 million (USD $69.6 million)
of cross-collateralized mortgage debt.
During 2006, the Company provided through 12 separate Canadian preferred equity investments, an
aggregate of approximately CAD $121.3 million (approximately USD $104.0 million) to developers and
owners of 32 real estate properties.
The Company applies the equity method of accounting for the Canadian investments described
above.
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Mexican Investments -
During January 2006, the Company transferred 50% of its 60% interest in an operating property in
Guadalajara, Mexico, to a joint venture partner for approximately $12.8 million, which approximated
its carrying value. As a result of this transaction, the Company now holds a 30% non-controlling
interest and continues to account for its investment under the equity method of accounting.
During June 2006, the Company acquired, through a newly formed joint venture, in which the Company
has a non-controlling interest, a 0.1 million square foot development project in Puerta Vallarta,
Mexico, for a purchase price of MXP 65.4 million (approximately USD $5.7 million). Total estimated
project costs are approximately USD $7.3 million. The Company accounts for this investment under
the equity method of accounting.
Additionally, during June 2006, the Company transferred 50% of its 60% interest in a development
property located in Tijuana, Baja California, Mexico, to a joint venture partner for approximately
$6.4 million, which approximated its carrying value. As a result of this transaction, the Company
now holds a 30% non-controlling interest and continues to account for its investment under the
equity method of accounting.
During July 2006, the Company acquired the completed improvements on a recently acquired
development property located in Saltillo, Mexico, for approximately MXP 43.6 million (approximately
USD $4.0 million).
During August 2006, the Company sold 50% of its 100% interest in a development property located in
Monterrey, Mexico, to a joint venture partner for approximately $9.6 million, which approximated its
carrying value. The Company accounts for its remaining 50% non-controlling interest under the
equity method of accounting.
During November 2006, the Company acquired an operating property for a purchase price of MXP 180.0
million (approximately USD $16.5 million) in Mexicali, Baja California, Mexico, comprising
approximately 0.1 million square feet of GLA.
During 2006, the Company acquired, in separate transactions, ten operating properties, through a
joint venture in which the Company has a 50% non-controlling interest. These properties were
acquired for an aggregate purchase price of approximately $35.1 million. The Company accounts for
its investment in this joint venture under the equity method of accounting.
During 2006, the Company acquired, in separate transactions, nine parcels of land in various cities
throughout Mexico for an aggregate purchase price of approximately MXP 1.3 billion (approximately
USD $119.3 million). The properties were at various stages of construction at acquisition and will
be developed into retail centers aggregating approximately 3.4 million square feet. Total
estimated remaining project costs are approximately USD $324.2 million.
Other Real
Estate Investments -
Preferred Equity Capital -
The Company maintains a Preferred Equity program, which provides capital to developers and owners
of real estate properties. During 2006, the Company provided in separate transactions, an
aggregate of approximately $223.9 million in investment capital to developers and owners of 101
real estate properties, including the Canadian investments described above. As of December 31,
2006, the Company’s net investment under the Preferred Equity program was approximately $400.4
million relating to 215 properties. For the year ended December 31, 2006, the Company earned
approximately $40.1 million, including $12.2 million of profit participation earned from 16 capital
transactions from these investments.
Other 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 was
renamed Kimsouth Realty, Inc., (“Kimsouth”). As of January 1, 2006, Kimsouth consisted of five
properties.
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During May 2006, the Company acquired an additional 48% interest in Kimsouth for approximately
$22.9 million, which increased the Company’s total ownership to 92.5%. As a result of this
transaction, the Company became the controlling shareholder and had, therefore, commenced
consolidation of Kimsouth upon the closing date.
During June 2006, Kimsouth contributed approximately $51.0 million, of which $47.2 million, or 92.5%
was provided by the Company to fund its 15% non-controlling interest in a newly formed joint
venture with an investment group to acquire a portion of Albertson’s Inc. To maximize investment
returns, the investment group’s strategy, with respect to this joint venture, includes refinancing,
selling selected stores and the enhancement of operations at the remaining stores. This investment
is included in Other assets in the Consolidated Balance Sheets. During February 2007, this joint
venture completed the disposition of certain operating stores and a refinancing of the remaining
assets held in the joint venture. As a result of these transactions, Kimsouth received a cash
distribution of approximately $121.3 million.
During July 2006, Kimsouth contributed approximately $3.7 million to fund its 15% non-controlling
interest in a newly formed joint venture with an investment group to acquire 50 grocery anchored
operating properties. During September 2006, Kimsouth contributed an additional $2.2 million to
this joint venture to acquire an operating property in Sacramento, CA, comprising approximately 0.1
million square feet of GLA, for a purchase price of approximately $14.5 million. This joint
venture investment is included in Investment and advances in real estate joint ventures in the
Consolidated Balance Sheets and is accounted for under the equity method of accounting.
During 2006, Kimsouth sold two properties for an aggregate sales price of approximately $9.8
million and transferred two properties to a joint venture in which the Company has an 18%
non-controlling interest for an aggregate price of approximately $54.0 million, which included the
repayment of approximately $23.1 million in mortgage debt.
Mortgages and Other Financing Receivables -
During January 2006, the Company provided approximately $16.0 million as its share of a $50.0
million junior participation in a $700.0 million first mortgage loan in connection with a private
investment firm’s acquisition of a retailer. This loan participation bore interest at LIBOR plus
7.75% per annum and had a two-year term with a one-year extension option and was collateralized by
certain real estate interests of the retailer. During June 2006, the borrower elected to pre-pay
the outstanding loan balance of approximately $16.0 million in full satisfaction of this loan.
Additionally, during January 2006, the Company provided approximately $5.2 million as its share of
an $11.5 million term loan to a real estate developer for the acquisition of a 59-acre land parcel
located in San Antonio, TX. This loan is interest only at a fixed rate of 11.0% for a term of two
years payable monthly and collateralized by a first mortgage on the subject property. As of
December 31, 2006, the outstanding balance on this loan was approximately $5.2 million.
During February 2006, the Company committed to provide a one-year $17.2 million credit facility at
a fixed rate of 8.0% for a term of nine months and 9.0% for the remaining term to a real estate
investor for the recapitalization of a discount and entertainment mall that it currently owns.
During 2006, this facility was fully paid and terminated.
During April 2006, the Company provided two separate mortgages aggregating $14.5 million on a
property owned by a real estate investor. Proceeds were used to pay off the existing first
mortgage, buyout the existing partner and for redevelopment of the property. The mortgages bear
interest at 8.0% per annum and mature in 2008 and 2013. These mortgages are collateralized by the
subject property. As of December 31, 2006, the aggregate outstanding balance on these mortgages
was approximately $15.0 million, including $0.5 million of accrued interest.
During May 2006, the Company provided a CAD $23.5 million collateralized credit facility at a fixed
rate of 8.5% per annum for a term of two years to a real estate company for the execution of its
property acquisitions program. The credit facility is guaranteed by the real estate company. The
Company was issued 9,811 units, valued at approximately USD $0.1 million, and warrants to purchase
up to 0.1 million shares of the real estate company as a loan origination fee. During August 2006,
the Company increased the credit facility to CAD $45.0 million and received an additional 9,811
units, valued at approximately USD $0.1 million, and warrants to purchase up to 0.1 million shares
of the real estate company. As of December 31, 2006, the outstanding balance on this credit
facility was approximately CAD $3.6 million (approximately USD $3.1 million).
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During September 2005, a newly formed joint venture, in which the Company had an 80% interest,
acquired a 90% interest in a $48.4 million mortgage receivable for a purchase price of
approximately $34.2 million. This loan bore interest at a rate of three-month LIBOR plus 2.75% per
annum and was scheduled to mature on January 12, 2010. A 626-room hotel located in Lake Buena
Vista, FL, collateralized the loan. The Company had determined that this joint venture entity was a
Variable Interest Entity (“VIE”) and had further determined that the Company was the primary
beneficiary of this VIE and had, therefore, consolidated it for financial reporting purposes. During
March 2006, the joint venture acquired the remaining 10% of this mortgage receivable for a purchase
price of approximately $3.8 million. During June 2006, the joint venture accepted a pre-payment of
approximately $45.2 million from the borrower as full satisfaction of this loan.
During August 2006, the Company provided $8.8 million as its share of a $13.2 million 12-month term
loan to a retailer for general corporate purposes. This loan bears interest at a fixed rate of
12.50% with interest payable monthly and a balloon payment for the principal balance at maturity.
The loan is collateralized by the underlying real estate of the retailer. Additionally, the
Company funded $13.3 million as its share of a $20.0 million revolving Debtor-in-Possession
facility to this retailer. The facility bears interest at LIBOR plus 3.00% and has an unused line
fee of 0.375%. This credit facility is collateralized by a first priority lien on all the
retailer’s assets. As of December 31, 2006, the Company’s share of the outstanding balance on this
loan and credit facility was approximately $7.6 million and $4.9 million, respectively.
During September 2006, the Company provided a MXP 57.3 million (approximately USD $5.3 million)
loan to an owner of an operating property in Mexico. The loan, which is collateralized by the
property, bears interest at 12.0% per annum and matures in 2016. The Company is entitled to a
participation feature of 25% of annual cash flows after debt service and 20% of the gain on sale of
the property. As of December 31, 2006, the outstanding balance on this loan was approximately MXP
57.8 million (approximately USD $5.3 million).
During November 2006, the Company committed to provide a MXP 124.8 million (approximately USD $11.5
million) loan to an owner of a land parcel in Acapulco, Mexico. The loan, which is collateralized
with an operating property owned by the borrower, bears interest at 10% per annum and matures in
2016. The Company is entitled to a participation feature of 20% of excess cash flows and 20% of
the gain on sale of the property. As of December 31, 2006, the outstanding balance on this loan
was approximately MXP 12.8 million (approximately USD $1.2 million).
During December 2006, the Company provided $5.0 million as its share of a one-year $27.5 million
mortgage loan to a real estate developer. The proceeds were used to pay off the existing debt. The
loan is collateralized by a parcel of land and bears interest at a fixed rate of 13%, which is
payable monthly with any unpaid accrued interest and principal payable at maturity. As of December
31, 2006, the outstanding balance on this loan was approximately $5.0 million.
Financing Transactions -
Non-Recourse Mortgage Debt -
During 2006, the Company (i) obtained an aggregate of approximately $52.7 million of individual
non-recourse mortgage debt on five operating properties, (ii) assumed approximately $253.6 million
of individual non-recourse mortgage debt relating to the acquisition of 19 operating properties,
including approximately $2.9 million of fair value debt adjustments, (iii) consolidated
approximately $27.1 million of non-recourse mortgage debt relating to the purchase of additional
ownership interests in various entities, (iv) paid off approximately $61.9 million of individual
non-recourse mortgage debt that encumbered 16 operating properties and (v) assigned approximately
$3.9 million of non-recourse mortgage debt relating to the sale of one operating property.
Unsecured Debt -
During March 2006, the Company issued $300.0 million of fixed rate unsecured senior notes under its
MTN program. This fixed rate MTN matures March 15, 2016, and bears interest at 5.783% per annum.
The proceeds from this MTN 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 June 2006, the Company entered into a third supplemental indenture, under the indenture
governing its medium-term notes and senior notes. This amended the (i) total debt test and secured
debt test by changing the asset value definition from undepreciated
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real estate assets to total assets, with total assets being defined as undepreciated real estate
assets, plus other assets (but excluding goodwill and amortized debt costs) and (ii) maintenance of
unencumbered total asset value covenant by increasing the requirement of the ratio of unencumbered
total asset value to outstanding unsecured debt from 1 to 1 to 1.5 to 1. Additionally, the same
amended covenants were adopted within the Canadian supplemental indenture, which governs the 4.45%
Canadian Debentures due in 2010. In connection with the consent solicitation, the Company incurred
costs aggregating approximately $5.8 million, of which $1.8 million was related to costs paid to
third parties, which were expensed. The remaining $4.0 million was related to fees paid to note
holders, which were capitalized and are being amortized over the remaining term of the notes.
During 2006, the Company repaid its $30.0 million 6.93% fixed rate notes, which matured on July 20,
2006, $100.0 million floating rate notes, which matured August 1, 2006, and $55.0 million 7.50%
fixed rate notes, which matured on November 5, 2006.
During August 2006, Kimco North Trust III, a wholly-owned subsidiary of the Company, completed the
issuance of $200.0 million Canadian denominated senior unsecured notes. The notes bear interest at
5.18% and mature on August 16, 2013. The proceeds were used by Kimco North Trust III, to pay down
outstanding indebtedness under the existing Canadian credit facility and to fund long-term
investments in Canadian real estate.
In connection with the October 31, 2006, Pan Pacific merger transaction, the Company assumed $650.0
million of unsecured notes payable, including $20.0 million of fair value debt premiums. These
notes bear interest at fixed rates ranging from 4.70% to 7.95% per annum and have maturity dates
ranging from June 29, 2007, to September 1, 2015.
Construction Loans -
During 2006, the Company obtained construction financing on three ground-up development projects
for an original loan commitment of up to $83.8 million, of which approximately $36.0 million was
funded as of December 31, 2006. As of December 31, 2006, the Company had a total of 13
construction loans with commitments of up to $330.9 million, of which $271.0 million had been
funded to the Company. These loans had maturities ranging from two months to 31 months and
variable interest rates ranging from 6.87% to 7.32% at December 31, 2006.
Credit Facility -
The Company has a CAD $250.0 million unsecured revolving credit facility with a group of banks.
This facility originally bore interest at the CDOR Rate, as defined, plus 0.50% and is scheduled to
expire in March 2008. During January 2006, the facility was amended to reduce the borrowing spread
to 0.45% and to modify the covenant package to conform to the Company’s $850.0 million U.S. Credit
Facility. Proceeds from this facility are used for general corporate purposes including the
funding of Canadian denominated investments. As of December 31, 2006, there was no outstanding
balance under this facility.
Equity -
During March 2006, the Company completed a primary public stock offering of 10,000,000 shares of
Common Stock. The net proceeds from this sale of Common Stock, totaling approximately $405.5
million (after related transaction costs of $2.5 million) were primarily used to repay the
outstanding balance under the Company’s U.S. revolving credit facility, partial repayment of the
outstanding balance under the Company’s Canadian denominated credit facility and for general
corporate purposes.
During March 2006, the shareholders of Atlantic Realty approved a proposed merger with the Company,
and the closing occurred on March 31, 2006. As consideration for this transaction, the Company
issued Atlantic Realty shareholders 1,274,420 shares of Common Stock, excluding 748,510 shares of
Common Stock that were to be received by the Company, at a price of $40.41 per share. (See Note 17
of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.)
During May 2006, the Company filed a shelf registration statement on Form S-3ASR, which is
effective for a three-year term, for the unlimited future offerings, from time to time, of debt
securities, preferred stock, depositary shares, common stock and common stock warrants.
On September 25, 2006, Pan Pacific stockholders approved the proposed merger with the
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Company and the closing occurred on October 31, 2006. Under the terms of the merger agreement, the
Company agreed to acquire all of the outstanding shares of Pan Pacific for total merger
consideration of $70.00 per share. As permitted under the merger agreement, the Company elected to
issue $10.00 per share of the total merger consideration in the form of Common Stock. As such, the
Company issued 9,185,847 shares of Common Stock valued at $407.7 million, which was based upon the
average closing price of the Common Stock over the ten trading days immediately preceding the
closing date. (See Recent Developments — Operating Real Estate Joint Venture Investments — Pan
Pacific Retail Properties Inc. and Note 7 of the Notes to Consolidated Financial Statements
included in this Annual Report on Form 10-K.)
During 2006, the Company received approximately $43.8 million through employee stock option
exercises and the dividend reinvestment program.
Exchange Listings
The Company’s common stock and Class F Depositary Shares are traded on the NYSE under the trading
symbols “KIM” and “KIMprF”, respectively.
Item 1A. Risk Factors
Set forth below are the material risks associated with the purchase and ownership of the Company’s
equity and debt securities. As an owner of real estate, the Company is subject to certain business
risks arising in connection with the underlying real estate, including, among other factors, the
following:
i) Loss of the Company’s tax status as a real estate investment trust could have significant
adverse consequences to the Company and the value of its securities.
The Company elected to be taxed as a REIT for federal income tax purposes under the Code commencing
with the taxable year beginning January 1, 1992. The Company currently intends to operate so as to
qualify as a REIT and believes that the Company’s current organization and method of operation
comply with the rules and regulations promulgated under the Code to enable us to qualify as a REIT.
Qualification as a REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial and administrative interpretations. The determination of
various factual matters and circumstances not entirely within the Company’s control may affect the
Company’s ability to qualify as a REIT. For example, in order to qualify as a REIT, at least 95% of
the Company’s gross income in any year must be derived from qualifying sources, and the Company
must satisfy a number of requirements regarding the composition of the Company’s assets. Also, the
Company must make distributions to stockholders aggregating annually at least 90% of the Company’s
net taxable income, excluding capital gains. In addition, new legislation, regulations,
administrative interpretations or court decisions could significantly change the tax laws with
respect to qualification as a REIT, the federal income tax consequences of such qualification or
the desirability of an investment in a REIT relative to other investments. Although the Company
believes that it is organized and has operated in such a manner, the Company can give no assurance
that it has qualified or will continue to qualify as a REIT for tax purposes.
If the Company loses its REIT status, it will face serious tax consequences that will substantially
reduce the funds available to pay dividends to Company stockholders. If the Company fails to
qualify as a REIT:
In addition, if the Company fails to qualify as a REIT, it would not be required to make
distributions to stockholders.
As a result of all these factors, the Company’s failure to qualify as a REIT could impair its
ability to expand its business and raise capital, and could adversely affect the value
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of the Company’s securities.
ii) Adverse market conditions and competition may impede the Company’s ability to generate
sufficient income to pay expenses and maintain properties.
The economic performance and value of the Company’s properties are subject to all of the risks
associated with owning and operating real estate including:
iii) Downturns in the retailing industry likely will have a direct impact on the Company’s
performance.
The Company’s properties consist primarily of community and neighborhood shopping centers and other
retail properties. The Company’s performance therefore is linked to economic conditions in the
market for retail space generally. The market for retail space has been or could be adversely
affected by weakness in the national, regional and local economies, the adverse financial condition
of some large retailing companies, the ongoing consolidation in the retail sector, the excess
amount of retail space in a number of markets, and increasing consumer purchases through catalogues
and the internet. To the extent that any of these conditions occur, they are likely to impact
market rents for retail space.
iv) Failure by any anchor tenant with leases in multiple locations to make rental payments to the
Company because of a deterioration of its financial condition or otherwise, could impact the
Company’s performance.
The Company’s performance depends on its ability to collect rent from tenants. At any time, the
Company’s tenants may experience a downturn in their business that may significantly weaken their
financial condition. As a result, the Company’s tenants may delay a number of lease commencements,
decline to extend or renew leases upon expiration, fail to make rental payments when due, close
stores or declare bankruptcy. Any of these actions could result in the termination of the tenants’
leases and the loss of rental income attributable to the terminated leases. In addition, lease
terminations by an anchor tenant or a failure by that anchor tenant to occupy the premises could
result in lease terminations or reductions in rent by other tenants in the same shopping centers
under the terms of some leases. In that event, the Company may be unable to re-lease the vacated
space at attractive rents or at all. The occurrence of any of the situations described above,
particularly if it involves a substantial tenant with leases in multiple locations, could impact
the Company’s performance.
v) The Company may be unable to collect balances due from tenants in bankruptcy.
The Company cannot give assurance that any tenant that files for bankruptcy protection will
continue to pay rent. A bankruptcy filing by or relating to one of the Company’s tenants or a lease
guarantor would bar all efforts by the Company to collect pre-
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bankruptcy debts from the tenant or the lease guarantor, or their property, unless the Company
receives an order permitting it to do so from the bankruptcy court. A tenant or lease guarantor
bankruptcy could delay the Company’s efforts to collect past due balances under the relevant
leases and could ultimately preclude collection of these sums. If a lease is assumed by the tenant
in bankruptcy, all pre-bankruptcy balances due under the lease must be paid to the Company in full.
However, if a lease is rejected by a tenant in bankruptcy, the Company would have only a general
unsecured claim for damages. Any unsecured claim the Company holds may be paid only to the extent
that funds are available and only in the same percentage as is paid to all other holders of
unsecured claims, and there are restrictions under bankruptcy laws which limit the amount of the
claim the Company can make if a lease is rejected. As a result, it is likely that the Company will
recover substantially less than the full value of any unsecured claims it holds.
vi) Real estate property investments are illiquid, and therefore the Company may not be able to
dispose of properties when appropriate or on favorable terms.
Real estate property investments generally cannot be disposed of quickly. In addition, the federal
tax code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable
to other types of real estate companies. Therefore, the Company may not be able to vary its
portfolio in response to economic or other conditions promptly or on favorable terms.
vii) We may acquire or develop properties or acquire other real estate related companies and this
may create risks.
We may acquire or develop properties or acquire other real estate related companies when we believe
that an acquisition or development is consistent with our business strategies. We may not, however,
succeed in consummating desired acquisitions or in completing developments on time or within
budget. In addition, we may face competition in pursuing acquisition or development opportunities
that could increase our costs. When we do pursue a project or acquisition, we may not succeed in
leasing newly developed or acquired properties at rents sufficient to cover their costs of
acquisition or development and operations. Difficulties in integrating acquisitions may prove
costly or time-consuming and could divert management’s attention. Acquisitions or developments in
new markets or industries where we do not have the same level of market knowledge may result in
poorer than anticipated performance. We may also abandon acquisition or development opportunities
that we have begun pursuing and consequently fail to recover expenses already incurred and have
devoted management time to a matter not consummated. Furthermore, our acquisitions of new
properties or companies will expose us to the liabilities of those properties or companies, some of
which we may not be aware at the time of acquisition. In addition, development of our existing
properties presents similar risks.
viii) There is a lack of operating history with respect to our recent acquisitions and development
of properties and we may not succeed in the integration or management of additional properties.
These properties may not have characteristics or deficiencies currently unknown to us that affect
their value or revenue potential. It is also possible that the operating performance of these
properties may decline under our management. As we acquire additional properties, we will be
subject to risks associated with managing new properties, including lease-up and tenant retention.
In addition, our ability to manage our growth effectively will require us to successfully integrate
our new acquisitions into our existing management structure. We may not succeed with this
integration or effectively manage additional properties. Also, newly acquired properties may not
perform as expected.
ix) The Company does not have exclusive control over its joint venture investments, so the Company
is unable to ensure that its objectives will be pursued.
The Company has invested in some cases as a co-venturer or partner in properties, instead of owning
directly. These investments involve risks not present in a wholly-owned ownership structure. In
these investments, the Company does not have exclusive control over the development, financing,
leasing, management and other aspects of these investments. As a result, the co-venturer or partner
might have interests or goals that are inconsistent with the Company’s interests or goals, take
action contrary to the Company’s interests or otherwise impede the Company’s objectives. The
co-venturer or partner also might become insolvent or bankrupt.
x) We have significant international operations that carry additional risks.
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We invest in, and conduct, operations outside the United States. The inherent risks that we face
in international business operations include, but are not limited to:
Each of these risks might impact our cash flow or impair our ability to borrow funds, which
ultimately could adversely affect our business, financial condition, operating results and cash
flows.
xi) The Company’s financial covenants may restrict its operating and acquisition activities.
The Company’s revolving credit facilities and the indentures under which the Company’s senior
unsecured debt is issued contain certain financial and operating covenants, including, among other
things, certain coverage ratios, as well as limitations on the Company’s ability to incur secured
and unsecured debt, make dividend payments, sell all or substantially all of the Company’s assets
and engage in mergers and consolidations and certain acquisitions. These covenants may restrict
the Company’s ability to pursue certain business initiatives or certain acquisition transactions.
In addition, failure to meet any of the financial covenants could cause an event of default under
and/or accelerate some or all of the Company’s indebtedness, which would have a material adverse
effect on the Company.
xii) The Company may be subject to environmental regulations.
Under various federal, state, and local laws, ordinances and regulations, the Company may be
considered an owner or operator of real property and may be responsible for paying for the disposal
or treatment of hazardous or toxic substances released on or in the Company’s property, as well as
certain other potential costs which could relate to hazardous or toxic substances (including
governmental fines and injuries to persons and property). This liability may be imposed whether or
not the Company knew about, or was responsible for, the presence of hazardous or toxic substances.
xiii) The Company’s ability to lease or develop properties is subject to competitive pressures.
The Company faces competition in the acquisition, development, operation and sale of real property
from individuals and businesses who own real estate, fiduciary accounts and plans and other
entities engaged in real estate investment. Some of these competitors have greater financial
resources than the Company does. This results in competition for the acquisition of properties, for tenants
who lease or consider leasing space in the Company’s existing and subsequently acquired properties
and for other real estate investment opportunities.
xiv) Changes in market conditions could adversely affect the market price of the Company’s publicly
traded securities.
As with other publicly traded securities, the market price of the Company’s publicly traded
securities depends on various market conditions, which may change from time-to-time. Among the
market conditions that may affect the market price of the Company’s publicly traded securities are
the following:
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Item 1B. Unresolved Staff Comments
None
Item 2. Properties
Real Estate Portfolio As of January 1, 2007, the Company’s real estate portfolio was
comprised of interests in approximately 138.0 million square feet of GLA (not including 36
properties under development comprising 3.5 million square feet of GLA related to the Preferred
Equity program, 38 property interests comprising 0.7 million square feet of GLA related to FNC
Realty, 61 property interests comprising 6.4 million square feet of GLA related to the American
Industries portfolio, 51 property interests comprising 2.5 million square feet of GLA related to
the NewKirk Portfolio and 22.4 million square feet of planned GLA for the 77 ground-up development
projects and undeveloped land parcels) in 1,061 operating properties primarily consisting of
neighborhood and community shopping centers, and 20 retail store leases located in 45 states,
Canada, Mexico and Puerto Rico. The Company’s portfolio includes interests ranging from 5% to 50%
in 397 shopping center properties comprising approximately 63.7 million square feet of GLA relating
to the Company’s investment management program. Neighborhood and community shopping centers
comprise the primary focus of the Company’s current portfolio. As of January 1, 2007,
approximately 95.5% of the Company’s neighborhood and community shopping center space (excluding
the Pan Pacific, KIR, KROP and other institutional co-investment program portfolios) was leased,
and the average annualized base rent per leased square foot of the portfolio was $10.19.
The Company’s neighborhood and community shopping center properties, generally owned and operated
through subsidiaries or joint ventures, had an average size of approximately 131,000 square feet as
of January 1, 2007. The Company generally retains its shopping centers for long-term investment
and consequently pursues a program of regular physical maintenance together with major renovations
and refurbishing to preserve and increase the value of its properties. These projects usually
include renovating existing facades, installing uniform signage, resurfacing parking lots and
enhancing parking lot lighting. During 2006, the Company capitalized approximately $8.4 million in
connection with these property improvements and expensed to operations approximately $14.6 million.
The Company’s neighborhood and community shopping centers are usually “anchored” by a national or
regional discount department store, supermarket or drugstore. As one of the original participants
in the growth of the shopping center industry and one of the nation’s largest owners and operators
of shopping centers, the Company has established close relationships with a large number of major
national and regional retailers. Some of the major national and regional companies that are
tenants in the Company’s shopping center properties include The Home Depot, TJX Companies, Sears
Holdings, Kohl’s, Wal-Mart, Value City, Linens N Things, Burlington Coat, Royal Ahold and Costco.
A substantial portion of the Company’s income consists of rent received under long-term leases.
Most of the leases provide for the payment of fixed base rentals monthly in advance and for the
payment by tenants of an allocable share of the real estate taxes, insurance, utilities and common
area maintenance expenses incurred in operating the shopping centers. Although many of the leases
require the Company to make roof and structural repairs as needed, a number of tenant leases place
that responsibility on the tenant, and the Company’s standard small store lease provides for roof
repairs to be reimbursed by the tenant as part of common area maintenance. The Company’s
management places a strong emphasis on sound construction and safety at its properties.
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Approximately 1,960 of the Company’s 8,260 leases also contain provisions requiring the payment of
additional rent calculated as a percentage of tenants’ gross sales above predetermined thresholds.
Percentage rents accounted for approximately 1% of the Company’s revenues from rental property for
the year ended December 31, 2006.
Minimum base rental revenues and operating expense reimbursements accounted for approximately 99%
of the Company’s total revenues from rental property for the year ended December 31, 2006. The
Company’s management believes that the base rent per leased square foot for many of the Company’s
existing leases is generally lower than the prevailing market-rate base rents in the geographic
regions where the Company operates, reflecting the potential for future growth.
For the period January 1, 2006, to December 31, 2006, the Company increased the average base rent
per leased square foot in its portfolio of neighborhood and community shopping centers from $9.44
to $10.19, an increase of $0.75. This increase primarily consists of (i) a $0.40 increase relating
to acquisitions, (ii) a $0.05 increase relating to dispositions or the transfer of properties to
various joint venture entities, (iii) a $0.02 increase related to the fluctuation in exchange rates
related to Canadian and Mexican-denominated leases and (iv) a $0.28 increase relating to new leases
signed net of leases vacated and rent step-ups within the portfolio.
The Company seeks to reduce its operating and leasing risks through geographic and tenant
diversity. No single neighborhood and community shopping center accounted for more than 0.8% of
the Company’s total shopping center GLA or more than 1.6% of total annualized base rental revenues
as of December 31, 2006. The Company’s five largest tenants at December 31, 2006, were The Home
Depot, TJX Companies, Sears Holdings, Kohl’s and Wal-Mart, which represent approximately 3.5%,
2.9%, 2.5%, 2.2% and 2.1%, 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. The Company maintains an active leasing and capital
improvement program that, combined with the high quality of the locations, has made, in
management’s opinion, the Company’s properties attractive to tenants.
The Company’s management believes its experience in the real estate industry and its relationships
with numerous national and regional tenants gives it an advantage in an industry where ownership is
fragmented among a large number of property owners.
Retail Store Leases In addition to neighborhood and community shopping centers, as of
January 1, 2007, the Company had interests in retail store leases totaling approximately 1.8
million square feet of anchor stores in 20 neighborhood and community shopping centers located in
14 states. As of January 1, 2007, approximately 99.8% of the space in these anchor stores had been
sublet to retailers that lease the stores under net lease agreements providing for average
annualized base rental payments of $4.02 per square foot. The average annualized base rental
payments under the Company’s retail store leases to the landowners of such subleased stores are
approximately $2.41 per square foot. The average remaining primary term of the retail store leases
(and, similarly, the remaining primary term of the sublease agreements with the tenants currently
leasing such space) is approximately three years, excluding options to renew the leases for terms
which generally range from 5 years to 20 years. The Company’s investment in retail store leases is
included in the caption Other real estate investments on the Company’s Consolidated Balance Sheets.
Ground-Leased Properties The Company has interests in 83 shopping center properties that
are subject to long-term ground leases where a third party owns and has leased the underlying land
to the Company (or an affiliated joint venture) to construct and/or operate a shopping center. The
Company or the joint venture pays rent for the use of the land and generally is responsible for all
costs and expenses associated with the building and improvements. At the end of these long-term
leases, unless extended, the land together with all improvements revert to the landowner.
Ground-Up Development Properties The Company is engaged in ground-up development projects
which consists of (i) merchant building through the Company’s wholly-owned taxable REIT subsidiary
KDI, which develops neighborhood and community shopping centers and the subsequent sale thereof
upon completion, (ii) U.S. ground-up development projects which will be held as long-term
investments by the Company and (iii) various ground-up development projects located in Mexico and
Canada for long-term investment (see Recent
Developments —
International Real Estate Investments
and Note 3 of the Notes to Consolidated Financial Statements included in this annual report on Form
10-K). The ground-up development projects generally have substantial pre-leasing prior to the
commencement of the construction. As of December 31, 2006, the Company had in progress a
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total of 45 ground-up development projects including 23 merchant building projects, six domestic
ground-up development projects, and 16 ground-up development projects located throughout Mexico.
As of January 1, 2007, KDI has currently in progress 23 ground-up development projects located in
ten states, which are expected to be sold upon completion. These projects had substantial
pre-leasing prior to the commencement of construction. As of January 1, 2007, the average annual
base rent per leased square foot for the KDI portfolio was $15.91 and the average annual base rent
per leased square foot for new leases executed in 2006 was $15.75.
Undeveloped Land The Company owns certain unimproved land tracts and parcels of land
adjacent to certain of its existing shopping centers that are held for possible expansion. At
times, should circumstances warrant, the Company may develop or dispose of these parcels.
The table on pages 29 to 41 sets forth more specific information with respect to each of the
Company’s property interests.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders
None.
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