kim20130723_10q.htm


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

 

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

 

For the quarterly period ended June 30, 2013

 

or

 

 

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

 

For the transition period from                 to                

 

Commission File Number:   1-10899

 

Kimco Realty Corporation

(Exact name of registrant as specified in its charter)

 

Maryland 

  

13-2744380 

(State or other jurisdiction of incorporation or organization)

  

(I.R.S. Employer Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

(516) 869-9000

(Registrant’s telephone number, including area code)

 

        N/A        

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12-b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act). Yes ☐ No ☒

 

As of July 24, 2013, the registrant had 409,639,452 shares of common stock outstanding.

 



 

 
 

 

 

PART I FINANCIAL INFORMATION 

     

Item 1.

Financial Statements of Kimco Realty Corporation and Subsidiaries

  

  

  

  

Condensed Consolidated Financial Statements -

  

  

  

  

  

Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012

3

  

  

  

  

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and 2012

4

  

  

  

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012

5

  

  

  

  

Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2013 and 2012

6

  

  

  

  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012

7

  

  

  

Notes to Condensed Consolidated Financial Statements

8

  

  

  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

  

  

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

  

  

  

Item 4.

Controls and Procedures

33

  

  

  

PART II

OTHER INFORMATION

  

  

Item 1.

Legal Proceedings

33

  

  

Item 1A.

Risk Factors

33

  

  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

  

  

  

Item 4.

Mine Safety Disclosures

33

     

Item 6.

Exhibits

34

  

  

Signatures

35

  

 
2

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES  

CONDENSED CONSOLIDATED BALANCE SHEETS  

(Unaudited) 

(in thousands, except share information)  

 

   

June 30,

2013

   

December 31,

2012

 

Assets:

               

Operating real estate, net of accumulated depreciation of $1,835,280 and $1,745,462, respectively

  $ 7,284,151     $ 7,104,562  

Investments and advances in real estate joint ventures

    1,392,418       1,428,155  

Real estate under development

    96,950       97,263  

Other real estate investments

    316,043       317,557  

Mortgages and other financing receivables

    74,088       70,704  

Cash and cash equivalents

    156,450       141,875  

Marketable securities

    71,009       36,541  

Accounts and notes receivable

    160,398       171,540  

Other assets

    436,964       383,037  

Total assets

  $ 9,988,471     $ 9,751,234  
                 
                 

Liabilities:

               

Notes payable

  $ 3,284,014     $ 3,192,127  

Mortgages payable

    1,180,760       1,003,190  

Dividends payable

    98,326       96,518  

Other liabilities

    473,604       445,843  

Total liabilities

    5,036,704       4,737,678  

Redeemable noncontrolling interests

    85,486       81,076  
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 5,961,200 shares, 102,000 shares issued and outstanding (in series)

Aggregate liquidation preference $975,000

    102       102  

Common stock, $.01 par value, authorized 750,000,000 shares issued and outstanding 409,616,877 and 407,782,102 shares, respectively

    4,096       4,078  

Paid-in capital

    5,685,943       5,651,170  

Cumulative distributions in excess of net income

    (906,070 )     (824,008 )

Accumulated other comprehensive income

    (61,798 )     (66,182 )

Total stockholders' equity

    4,722,273       4,765,160  

Noncontrolling interests

    144,008       167,320  

Total equity

    4,866,281       4,932,480  

Total liabilities and equity

  $ 9,988,471     $ 9,751,234  

 

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

 

 
3

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES  

CONDENSED CONSOLIDATED STATEMENTS OF INCOME  

(Unaudited)  

(in thousands, except per share data)  

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2013

   

2012

   

2013

   

2012

 
                                 

Revenues

                               

Revenues from rental properties

  $ 237,079     $ 217,809     $ 467,371     $ 429,892  

Management and other fee income

    9,049       8,710       17,442       18,136  
                                 

Total revenues

    246,128       226,519       484,813       448,028  
                                 

Operating expenses

                               

Rent

    3,380       2,924       6,705       6,187  

Real estate taxes

    28,858       27,985       58,306       55,592  

Operating and maintenance

    31,445       26,756       59,567       52,413  

General and administrative expenses

    31,420       30,908       65,535       65,314  

Provision for doubtful accounts

    3,266       2,551       5,199       5,624  

Impairment charges

    35,366       92       35,764       325  

Depreciation and amortization

    63,409       59,731       125,136       118,299  

Total operating expenses

    197,144       150,947       356,212       303,754  
                                 

Operating income

    48,984       75,572       128,601       144,274  
                                 

Other income/(expense)

                               

Mortgage financing income

    1,430       1,985       2,416       3,991  

Interest, dividends and other investment income

    6,500       350       9,163       512  

Other (expense)/income, net

    (2,526 )     538       (6,002 )     (3,058 )

Interest expense

    (55,423 )     (56,776 )     (108,970 )     (113,757 )

Income from other real estate investments

    555       416       958       1,143  
                                 

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

    (480 )     22,085       26,166       33,105  
                                 

Benefit/(provision) for income taxes, net

    11,830       (3,302 )     (3,937 )     (8,089 )

Equity in income of joint ventures, net

    59,504       30,352       83,616       65,090  

Gain/(loss) on change in control of interests, net

    (1,459 )     12,147       21,711       14,156  

Equity in income of other real estate investments, net

    8,200       14,074       19,363       25,101  
                                 

Income from continuing operations

    77,595       75,356       146,919       129,363  
                                 

Discontinued operations

                               

Income/(loss) from discontinued operating properties, net of tax

    1,652       (180 )     2,631       1,906  

Impairment/loss on operating properties sold, net of tax

    (27,844 )     (18,111 )     (30,675 )     (27,035 )

Gain on disposition of operating properties

    1,869       11,263       4,365       23,242  

Loss from discontinued operations

    (24,323 )     (7,028 )     (23,679 )     (1,887 )
                                 

Gain on sale of operating properties, net of tax

    -       4,059       540       4,059  
                                 

Net income

    53,272       72,387       123,780       131,535  
                                 

Net income attributable to noncontrolling interests

    (2,133 )     (3,275 )     (4,871 )     (8,785 )
                                 

Net income attributable to the Company

    51,139       69,112       118,909       122,750  
                                 

Preferred stock dividends

    (14,573 )     (20,841 )     (29,147 )     (36,415 )
                                 

Net income available to the Company's common shareholders

  $ 36,566     $ 48,271     $ 89,762     $ 86,335  
                                 

Per common share:

                               

Income from continuing operations:

                               

-Basic

  $ 0.15     $ 0.14     $ 0.28     $ 0.22  

-Diluted

  $ 0.15     $ 0.14     $ 0.28     $ 0.22  

Net income attributable to the Company:

                               

-Basic

  $ 0.09     $ 0.12     $ 0.22     $ 0.21  

-Diluted

  $ 0.09     $ 0.12     $ 0.22     $ 0.21  
                                 

Weighted average shares:

                               

-Basic

    407,640       405,560       407,154       405,916  

-Diluted

    408,831       406,476       408,163       406,827  
                                 

Amounts attributable to the Company's common shareholders:

                               

Income from continuing operations

  $ 60,889     $ 55,394     $ 113,458     $ 90,615  

Income from discontinued operations

    (24,323 )     (7,123 )     (23,696 )     (4,280 )

Net income

  $ 36,566     $ 48,271     $ 89,762     $ 86,335  

 

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

 
4

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

(Unaudited) 

(in thousands)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
                                 
   

2013

   

2012

   

2013

   

2012

 
                                 

Net income

  $ 53,272     $ 72,387     $ 123,780     $ 131,535  

Other comprehensive income:

                               

Change in unrealized (loss)/gain on marketable securities, net

    (540 )     (231 )     6,228       928  

Change in unrealized gain on interest rate swaps, net

    -       179       -       372  

Change in foreign currency translation adjustment, net

    (35,515 )     (44,606 )     (2,504 )     9,572  

Other comprehensive(loss)/ income

    (36,055 )     (44,658 )     3,724       10,872  
                                 

Comprehensive income

    17,217       27,729       127,504       142,407  
                                 

Comprehensive income attributable to noncontrolling interests

    (200 )     (3,109 )     (4,211 )     (11,886 )
                                 

Comprehensive income attributable to the Company

  $ 17,017     $ 24,620     $ 123,293     $ 130,521  
 

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

 

 
5

 

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY  

For the Six Months Ended June 30, 2013 and 2012 

(Unaudited) 

(in thousands) 

 

   

Cumulative Distributions in Excess of Net

   

Accumulated

Other

Comprehensive

   

Preferred Stock

   

Common Stock

   

Paid-in

   

Total

Stockholders'

   

Noncontrolling

   

Total

 
   

Income

   

Income

   

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

Equity

   

Interests

   

Equity

 
                                                                                 

Balance, January 1, 2012

  $ (702,999 )   $ (107,660 )     954     $ 954       406,938     $ 4,069     $ 5,492,022     $ 4,686,386     $ 193,757     $ 4,880,143  
                                                                                 

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       1,201       1,201  
                                                                                 

Comprehensive income:

                                                                               

Net income

    122,750       -       -       -       -       -       -       122,750       8,785       131,535  

Other comprehensive income:

                                                                               

Change in unrealized gain on marketable securities

    -       928       -       -       -       -       -       928       -       928  

Change in unrealized gain on interest rate swaps

    -       372       -       -       -       -       -       372       -       372  

Change in foreign currency translation adjustment

    -       6,471       -       -       -       -       -       6,471       3,101       9,572  
                                                                                 

Redeemable noncontrolling interests

    -       -       -       -       -       -       -       -       (3,148 )     (3,148 )

Dividends ($0.38 per common share; $0.8312 per Class F Depositary Share, $0.9688 per Class G Depositary Share, $0.8625 per Class H Depositary Share, and $0.4208 per Class I Depositary Share, respectively)

    (191,033 )     -       -       -       -       -       -       (191,033 )     -       (191,033 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (8,823 )     (8,823 )

Issuance of common stock

    -       -       -       -       1,093       11       18,055       18,066       -       18,066  

Surrender of common stock

    -       -       -       -       (84 )     -       (1,555 )     (1,555 )     -       (1,555 )

Repurchase of common stock

    -       -       -       -       (1,536 )     (16 )     (28,942 )     (28,958 )     -       (28,958 )

Issuance of preferred stock

    -       -       16       16       -       -       387,214       387,230       -       387,230  

Exercise of common stock options

    -       -       -       -       480       5       7,174       7,179       -       7,179  

Acquisition of noncontrolling interests

    -       -       -       -       -       -       (1,244 )     (1,244 )     (4,392 )     (5,636 )

Amortization of equity awards

    -       -       -       -       -       -       8,016       8,016       -       8,016  

Balance, June 30, 2012

  $ (771,282 )   $ (99,889 )     970     $ 970       406,891     $ 4,069     $ 5,880,740     $ 5,014,608     $ 190,481     $ 5,205,089  
                                                                                 
                                                                                 

Balance, January 1, 2013

  $ (824,008 )   $ (66,182 )     102     $ 102       407,782     $ 4,078     $ 5,651,170     $ 4,765,160     $ 167,320     $ 4,932,480  
                                                                                 

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       858       858  
                                                                                 

Comprehensive income:

                                                                               

Net income

    118,909       -       -       -       -       -       -       118,909       4,871       123,780  

Other comprehensive income, net of tax:

                                                            -               -  

Change in unrealized gain on marketable securities

    -       6,228       -       -       -       -       -       6,228       -       6,228  

Change in foreign currency translation adjustment

    -       (1,844 )     -       -       -       -       -       (1,844 )     (660 )     (2,504 )
                                                                              -  

Redeemable noncontrolling interests

    -       -       -       -       -       -       -       -       (3,222 )     (3,222 )

Dividends ($0.42 per common share; $0.8625 per Class H Depositary Share and $0.7500 per Class I Depositary Share, and $0.6875 per Class J Depositary Share. and $0.7032 per Class K Depositary Share, respectively) 

    (200,971 )             -       -       -       -       -       (200,971 )     -       (200,971 )

Distributions to noncontrolling interests

    -               -       -       -       -       -       -       (5,063 )     (5,063 )

Issuance of common stock

    -               -       -       560       5       9,208       9,213       -       9,213  

Surrender of restricted stock

    -               -       -       (212 )     (2 )     (3,174 )     (3,176 )     -       (3,176 )

Exercise of common stock options

    -               -       -       1,487       15       27,927       27,942       -       27,942  

Acquisition of noncontrolling interests

    -               -       -       -       -       (5,430 )     (5,430 )     (20,096 )     (25,526 )

Amortization of equity awards

    -               -       -       -       -       6,242       6,242       -       6,242  

Balance, June 30, 2013

  $ (906,070 )   $ (61,798 )     102     $ 102       409,617     $ 4,096     $ 5,685,943     $ 4,722,273     $ 144,008     $ 4,866,281  

 

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

 

 
6

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

KIMCO REALTY CORPORATION AND SUBSIDIARIES 

(Unaudited) 

(in thousands) 

 

   

Six Months Ended June 30,

 
                 
   

2013

   

2012

 

Cash flow from operating activities:

               

Net income

  $ 123,780     $ 131,535  

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

               

Depreciation and amortization

    127,042       131,191  

Impairment charges

    81,546       34,570  

Gain on sale of operating properties

    (5,446 )     (31,318 )

Equity in income of joint ventures, net

    (83,616 )     (65,090 )

Gains on change in control of interests

    (21,711 )     (14,156 )

Equity in income from other real estate investments, net

    (19,363 )     (25,103 )

Distributions from joint ventures and other real estate investments

    82,245       115,627  

Change in accounts and notes receivable

    11,142       18,320  

Change in accounts payable and accrued expenses

    6,755       114  

Change in other operating assets and liabilities

    (36,846 )     (20,258 )

Net cash flow provided by operating activities

    265,528       275,432  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate

    (145,303 )     (267,427 )

Improvements to operating real estate

    (49,497 )     (61,593 )

Improvements to real estate under development

    (326 )     (1,749 )

Investment in marketable securities

    (33,588 )     -  

Proceeds from sale/repayments of marketable securities

    10,758       118  

Investments and advances to real estate joint ventures

    (239,903 )     (121,242 )

Reimbursements of investments and advances to real estate joint ventures

    295,186       80,023  

Investment in other real estate investments

    (23,227 )     (4,123 )

Reimbursements of investments and advances to other real estate investments

    1,200       6,906  

Investment in mortgage loans receivable

    (11,017 )     (25 )

Collection of mortgage loans receivable

    8,779       9,733  

Investment in other investments

    (21,366 )     (762 )

Reimbursements of other investments

    463       9,151  

Proceeds from sale of operating properties

    110,389       206,107  

Net cash flow used for investing activities

    (97,452 )     (144,883 )
                 

Cash flow from financing activities:

               

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

    (66,206 )     (200,312 )

Principal payments on rental property debt

    (12,094 )     (11,651 )

Proceeds from mortgage/construction loan financings

    17,374       6,276  

Repayments under unsecured revolving credit facility, net

    (62,966 )     (226,220 )

Borrowings under unsecured term loan/notes

    428,118       400,000  

Repayments under unsecured term loan/notes

    (253,225 )     -  

Financing origination costs

    (6,096 )     (1,391 )

Redemption of/distributions to noncontrolling interests

    (27,184 )     (7,548 )

Dividends paid

    (199,164 )     (184,307 )

Proceeds from issuance of stock

    27,942       394,409  

Repurchase of common stock

    -       (28,958 )

Net cash flow (used for) provided by financing activities

    (153,501 )     140,298  
                 

Change in cash and cash equivalents

    14,575       270,847  
                 

Cash and cash equivalents, beginning of period

    141,875       112,882  

Cash and cash equivalents, end of period

  $ 156,450     $ 383,729  
                 

Interest paid during the period (net of capitalized interest of $579 and $926, respectively)

  $ 108,906     $ 113,411  
                 

Income taxes paid during the period

  $ 798     $ 1,584  

  

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

 

 
 7

 

   

KIMCO REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

                                          

 

1. Interim Financial Statements

 

Principles of Consolidation -

 

The accompanying Condensed Consolidated Financial Statements include the accounts of Kimco Realty Corporation and Subsidiaries, (the “Company”). The Company’s Subsidiaries includes subsidiaries which are wholly-owned, and all entities in which the Company has a controlling financial interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity (“VIE”) or meets certain criteria of a sole general partner or managing member in accordance with the Consolidation guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). All inter-company balances and transactions have been eliminated in consolidation.  The information furnished in the accompanying Condensed Consolidated Financial Statements is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.  These Condensed Consolidated Financial Statements should be read in conjunction with the Company's 2012 Annual Report on Form 10-K for the year ended December 31, 2012 ("10-K"), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 that would duplicate those included in the 10-K are not included in these Condensed Consolidated Financial Statements.

 

Subsequent Events -

 

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

 

Income Taxes -

 

The Company elected status as a Real Estate Investment Trust (a “REIT”) for federal income tax purposes beginning in its taxable year ended December 31, 1991 and operates in a manner that enables the Company to maintain its status as a REIT.  As a REIT, the Company must distribute at least 90 percent of its taxable income and will not pay federal income taxes on the amount distributed to its shareholders.  Therefore, the Company is not subject to federal income taxes if it distributes 100 percent of its taxable income.   Most states, where the Company holds investments in real estate, conform to the federal rules recognizing REITs.  Certain subsidiaries have made a joint election with the Company to be treated as taxable REIT subsidiaries (“TRS”), which permit the Company to engage in certain business activities in which the REIT may not conduct directly.  A TRS is subject to federal and state income taxes on the income from these activities and the Company includes a provision for taxes in its condensed consolidated financial statements.  The Company is subject to and also includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. 

 

 
8

 

 

Earnings Per Share -

 

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

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2013

   

2012

   

2013

   

2012

 

Computation of Basic Earnings Per Share:

                               
                                 

Income from continuing operations

  $ 77,595     $ 75,356     $ 146,919     $ 129,363  

Gain on sale of operating properties, net of tax

    -       4,059       540       4,059  

Net income attributable to noncontrolling interests

    (2,133 )     (3,275 )     (4,871 )     (8,785 )

Discontinued operations attributable to noncontrolling interests

    -       95       17       2,393  

Preferred stock dividends

    (14,573 )     (20,841 )     (29,147 )     (36,415 )

Income from continuing operations available to the common shareholders

    60,889       55,394       113,458       90,615  

Earnings attributable to unvested restricted shares

    (352 )     (313 )     (705 )     (627 )

Income from continuing operations attributable to common shareholders

    60,537       55,081       112,753       89,988  

Loss from discontinued operations attributable to the Company

    (24,323 )     (7,123 )     (23,696 )     (4,280 )

Net income attributable to the Company’s common shareholders for basic earnings per share

  $ 36,214     $ 47,958     $ 89,057     $ 85,708  
                                 

Weighted average common shares outstanding

    407,640       405,560       407,154       405,916  
                                 

Basic Earnings Per Share Attributable to the Company’s Common Shareholders:

                         

Income from continuing operations

  $ 0.15     $ 0.14     $ 0.28     $ 0.22  

Loss from discontinued operations

    (0.06 )     (0.02 )     (0.06 )     (0.01 )

Net income

  $ 0.09     $ 0.12     $ 0.22     $ 0.21  
                                 

Computation of Diluted Earnings Per Share:

                         

Income from continuing operations attributable to common shareholders

  $ 60,537     $ 55,081     $ 112,753     $ 89,988  

Loss from discontinued operations attributable to the Company

    (24,323 )     (7,123 )     (23,696 )     (4,280 )

Net income attributable to the Company’s common shareholders for diluted earnings per share

  $ 36,214     $ 47,958     $ 89,057     $ 85,708  
                                 

Weighted average common shares outstanding – basic

    407,640       405,560       407,154       405,916  

Effect of dilutive securities (a):

                               

Equity awards

    1,191       916       1,009       911  

Shares for diluted earnings per common share

    408,831       406,476       408,163       406,827  
                                 

Diluted Earnings Per Share Attributable to the Company’s Common Shareholders:

                         

Income from continuing operations

  $ 0.15     $ 0.14     $ 0.28     $ 0.22  

Loss from discontinued operations

    (0.06 )     (0.02 )     (0.06 )     (0.01 )

Net income

  $ 0.09     $ 0.12     $ 0.22     $ 0.21  

 

  

(a) 

For the three and six months ended June 30, 2013 and 2012, the effect of certain convertible units would have an anti-dilutive effect upon the calculation of Income from continuing operations per share.  Accordingly, the impact of such conversion has not been included in the determination of diluted earnings per share calculations.  Additionally, there were 9,070,328 and 14,343,058 stock options that were not dilutive at June 30, 2013 and 2012, respectively. 

 

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

 

New Accounting Pronouncements -

 

In February 2013, the FASB issued new guidance regarding liabilities, Accounting Standards Update ("ASU") 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU 2013-04”), effective retrospectively for fiscal years beginning after December 15, 2013 and interim periods within those years. The amendments require an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, the amendments require an entity to disclose the nature and amount of the obligation, as well as other information about the obligations. The adoption of ASU 2013-04 is not expected to have a material impact on the Company’s financial position or results of operations.

 

In January 2013, the FASB released ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). This guidance is the culmination of the board’s redeliberation on reporting reclassification adjustments from accumulated other comprehensive income. The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic pension cost), companies would instead cross reference to the related footnote for additional information (e.g., the pension footnote). The new requirements were effective for public companies in interim and annual reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Company’s financial statement presentation or disclosures.  

 

 
9

 

 

In December 2011, the FASB released ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires companies to provide new disclosures about offsetting and related arrangements for financial instruments and derivatives. The provisions of ASU 2011-11 are effective for reporting periods beginning on or after January 1, 2013, and are required to be applied retrospectively. The adoption of ASU 2011-11 did not have a material impact on the Company’s financial statement disclosures.

 

Reclassifications –

 

Certain reclassifications have been made to previously recorded amounts to conform to the current year presentation, Specifically, the Company is presenting on its Condensed Consolidated Statements of Income its Provision for doubtful accounts as a separate line item included in Operating expenses, which during 2012 was included in Revenues from rental properties. Additionally, the Company made certain other immaterial reclassifications to the Company’s Condensed Consolidated Balance Sheets as of December 31, 2012 to conform to the current year presentation.

 

2. Operating Property Activities

 

Acquisitions -

 

During the six months ended June 30, 2013, the Company acquired the following properties, in separate transactions (in thousands):

 

  

  

  

  

Purchase Price 

Property Name 

Location 

Month

Acquired 

  

Cash 

 

  

Debt Assumed 

  

Other 

  

  

Total 

  

  

GLA* 

Santee Trolley Square(1)

Santee, CA

Jan-13

 

$

26,863

 

$

48,456

 

$

22,681

   

$

98,000

 

311

Shops at Kildeer (2)

Kildeer, IL

Jan-13

   

-

   

32,724

   

-

     

32,724

 

168

Village Commons S.C.  

Tallahassee, FL

Jan-13

   

7,100

   

-

   

-

     

7,100

 

125

Putty Hill Plaza (3)

Baltimore, MD

Jan-13

   

4,592

   

9,115

   

489

     

14,196

 

91

Columbia Crossing II S.C.  

Columbia, MD

Jan-13

   

21,800

   

-

   

-

     

21,800

 

101

Roseville Plaza (Parcel)

Roseville, MN

Jan-13

   

5,143

   

-

   

-

     

5,143

 

80

Wilton River Park (4)

Wilton, CT

Mar-13

   

777

   

36,000

   

5,223

     

42,000

 

187

Canyon Square (5)

Santa Clarita, CA

Apr-13

   

1,950

   

13,800

   

-

     

15,750

 

97

JTS Portfolio (6)

Baton Rouge, LA

Apr-13

   

-

   

43,267

   

11,733

     

55,000

 

520

Factoria Mall (7)

Bellevue, WA

May-13

   

37,283

   

56,000

   

37,467

     

130,750

 

510

6 Out-parcels

Various

Jun-13

   

   13,053

   

-

   

-

     

13,053

 

97

  

  

  

  

$ 

118,561 

 

$ 

239,362 

 

$ 

77,593 

   

$ 

435,516 

 

2,287 

* Gross leasable area ("GLA")

 

(1)

This property was acquired from a joint venture in which the Company had a 45% noncontrolling interest.  The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as such recognized a gain of $22.7 million, before income tax, from the fair value adjustment associated with the Company’s original ownership due to a change in control, which is reflected in the purchase price above in Other.

(2)

This property was acquired from a joint venture in which the Company had a 19% noncontrolling interest. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance. This transaction resulted in a change in control with no gain or loss recognized.

(3)

The Company acquired the remaining 80% interest in an operating property from an unconsolidated joint venture in which the Company had a 20% noncontrolling interest.  The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as such recognized a gain of $0.5 million from the fair value adjustment associated with the Company’s original ownership due to a change in control, which is reflected in the purchase price above in Other.

(4)

The acquisition of this property included the issuance of $5.2 million of redeemable units, which are redeemable at the option of the holder after one year and earn a yield of 6% per annum, which is included in the purchase price above in Other. In connection with this transaction, the Company provided the sellers a $5.2 million loan at a rate of 6.5%, which is secured by the redeemable units.

(5)

This property was acquired from a joint venture in which the Company has a 15% noncontrolling interest. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance. This transaction resulted in a change in control with no gain or loss recognized.

(6)

The Company acquired the remaining interest in a portfolio of office properties from a preferred equity investment in which the Company held a noncontrolling interest. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as such recognized a change in control loss of $9.6 million from the fair value adjustment associated with the Company’s original ownership, which is reflected in the purchase price above in Other. The debt assumed in connection with this transaction of $43.3 million was repaid in April 2013.

(7) The Company acquired an additional 49% interest in this operating property from an unconsolidated joint venture in which the Company had a 50% noncontrolling interest. As such the Company now consolidates this investment. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as a result, recognized a gain of $8.2 million from the fair value adjustment associated with the Company’s original ownership due to a change in control, which is reflected in the purchase price above in Other. 

 

 
10

 

 

The aggregate purchase price of the properties acquired during the six months ended June 30, 2013 has been allocated as follows (in thousands):

 

Land

  $ 128,048  

Buildings

    226,155  

Above Market Rents

    10,403  

Below Market Rents

    (14,178 )

In-Place Leases

    19,497  

Building Improvements

    57,884  

Tenant Improvements

    11,466  

Mortgage Fair Value Adjustment

    (3,884

)

Other Assets

    1,405  

Other Liabilities

    (1,280 )
    $ 435,516  

 

During the six months ended June 30, 2013, the Company acquired the remaining ownership interest in FNC Realty Corporation (“FNC”) of 17.3% for $20.3 million. As a result of this transaction the Company now owns 100% of FNC. The Company had previously and continues to consolidate FNC. Since there was no change in control from this transaction, the purchase of the additional interest resulted in a decrease in noncontrolling interest of $19.6 million and a decrease in the Company’s Paid-in capital of $0.7 million during 2013.

 

Additionally, during the six months ended June 30, 2013, the Company acquired the remaining interest in three previously consolidated joint ventures for $6.5 million. The Company continues to consolidate these entities as there was no change in control from these transactions. The purchase of the remaining partnership interests resulted in an aggregate decrease in noncontrolling interest of $0.4 million and an aggregate decrease of $4.8 million, after income taxes, to the Company’s Paid-in capital, during the six months ended June 30, 2013.

 

Dispositions –

 

During the six months ended June 30, 2013, the Company disposed of 13 operating properties, in separate transactions, for an aggregate sales price of $100.8 million. These transactions, which are included in Discontinued Operations, resulted in an aggregate gain of $4.4 million and impairment charges of $20.8 million, after income taxes.

 

Additionally, during the six months ended June 30, 2013, the Company disposed of two land parcels for an aggregate sales price of $10.9 million and recognized impairment charges of $0.3 million related to these transactions.

 

Impairment Charges -

 

During the six months ended June 30, 2013, the Company recognized aggregate impairment charges of $35.5 million, which are included in Impairment charges under Operating expenses on the Company’s Condensed Consolidated Statements of Income, relating to (i) two land parcels and four operating properties based upon purchase price offers aggregating $39.5 million, and (ii) a cost method investment, based upon a fair value estimate of $7.0 million using a discounted cash flow model (see Footnote 12). The operating property impairments resulted from the Company’s efforts to market certain assets and management’s assessment as to the likelihood and timing of such potential transactions. The impairment of the cost method investment was based upon a review of the underlying cause of the decline in value, as well as the severity and duration of the decline. As a result of such review, the Company determined that the decline was deemed to be other-than-temporary.

 

3. Discontinued Operations

 

The Company reports as discontinued operations, properties held-for-sale as of the end of the current period and assets sold during the period. The results of these discontinued operations are included as a separate component of income on the Condensed Consolidated Statements of Income under the caption Discontinued operations.  This reporting has resulted in certain reclassifications of 2012 financial statement amounts.

 

 
11

 

  

The components of income and expense relating to discontinued operations for the three and six months ended June 30, 2013 and 2012 are shown below. These include the results of operations through the date of each respective sale for properties sold during 2013 and 2012 and the operations for the applicable period for those assets classified as held-for-sale as of June 30, 2013 (in thousands):

 

   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

 
   

2013