kim20150331_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 March 31, 2015

 

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 April 22, 2015, the registrant had 412,752,614 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 March 31, 2015 and December 31, 2014

3

  

  

  

  

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014

4

  

  

  

  

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014

5

  

  

  

  

Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2015 and 2014

6

  

  

  

  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014

7

  

  

  

Notes to Condensed Consolidated Financial Statements

8

  

  

  

Item 2.

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

20

  

  

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

  

  

  

Item 4.

Controls and Procedures

30

  

  

  

PART II

OTHER INFORMATION

  

  

Item 1.

Legal Proceedings

31

  

  

Item 1A.

Risk Factors

31

  

  

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

31

   

Item 6.

Exhibits

31

  

  

Signatures

32

 

 
2

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 

   

March 31,

   

December 31,

 
   

2015

   

2014

 

Assets:

               

Operating real estate, net of accumulated depreciation of $2,007,594 and $1,955,406, respectively

  $ 9,357,990     $ 7,930,489  

Investments and advances in real estate joint ventures

    886,328       1,037,218  

Real estate under development

    133,894       132,331  

Other real estate investments

    248,099       266,157  

Mortgages and other financing receivables

    73,418       74,013  

Cash and cash equivalents

    220,977       187,322  

Marketable securities

    105,253       90,235  

Accounts and notes receivable

    178,367       172,386  

Other assets

    529,562       371,249  

Total assets

  $ 11,733,888     $ 10,261,400  
                 
                 

Liabilities:

               

Notes payable

  $ 3,679,237     $ 3,171,742  

Mortgages payable

    2,042,014       1,424,228  

Dividends payable

    111,357       111,143  

Other liabilities

    602,821       561,042  

Total liabilities

    6,435,429       5,268,155  

Redeemable noncontrolling interests

    91,527       91,480  
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 5,959,100 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 412,709,199 and 411,819,818 shares, respectively

    4,127       4,118  

Paid-in capital

    5,767,838       5,732,021  

Cumulative distributions in excess of net income

    (809,849 )     (1,006,578 )

Accumulated other comprehensive income

    50,956       45,122  

Total stockholders' equity

    5,013,174       4,774,785  

Noncontrolling interests

    193,758       126,980  

Total equity

    5,206,932       4,901,765  

Total liabilities and equity

  $ 11,733,888     $ 10,261,400  

 

 

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 March 31,

 
   

2015

   

2014

 
                 

Revenues

               

Revenues from rental properties

  $ 275,506     $ 219,152  

Management and other fee income

    7,950       9,041  
                 

Total revenues

    283,456       228,193  
                 

Operating expenses

               

Rent

    3,554       3,305  

Real estate taxes

    36,072       29,350  

Operating and maintenance

    33,902       26,076  

General and administrative expenses

    32,705       37,121  

Provision for doubtful accounts

    2,297       1,452  

Impairment charges

    6,391       161  

Depreciation and amortization

    74,569       56,060  

Total operating expenses

    189,490       153,525  
                 

Operating income

    93,966       74,668  
                 

Other income/(expense)

               

Mortgage financing income

    1,136       1,699  

Interest, dividends and other investment income

    217       53  

Other expense, net

    (985 )     (2,424 )

Interest expense

    (52,578 )     (50,243 )
                 

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

    41,756       23,753  
                 

Provision for income taxes, net

    (12,717 )     (8,515 )

Equity in income of joint ventures, net

    97,550       53,261  

Gain on change in control of interests, net

    139,801       3,744  

Equity in income of other real estate investments, net

    14,369       3,353  
                 

Income from continuing operations

    280,759       75,596  
                 

Discontinued operations

               

(Loss)/income from discontinued operating properties, net of tax

    (15 )     16,435  

Impairment/loss on operating properties, net of tax

    (60 )     (5,508 )

Gain on disposition of operating properties, net of tax

    -       9,337  

(Loss)/income from discontinued operations

    (75 )     20,264  
                 

Gain on sale of operating properties

    32,055       -  
                 

Net income

    312,739       95,860  
                 

Net income attributable to noncontrolling interests

    (2,397 )     (8,860 )
                 

Net income attributable to the Company

    310,342       87,000  
                 

Preferred dividends

    (14,573 )     (14,573 )
                 

Net income available to the Company's common shareholders

  $ 295,769     $ 72,427  
                 

Per common share:

               

Income from continuing operations:

               

-Basic

  $ 0.72     $ 0.14  

-Diluted

  $ 0.71     $ 0.14  

Net income attributable to the Company:

               

-Basic

  $ 0.72     $ 0.18  

-Diluted

  $ 0.71     $ 0.18  
                 

Weighted average shares:

               

-Basic

    410,433       408,367  

-Diluted

    415,396       409,444  
                 

Amounts attributable to the Company's common shareholders:

               

Income from continuing operations

  $ 295,844     $ 58,776  

(Loss)/income from discontinued operations

    (75 )     13,651  

Net income

  $ 295,769     $ 72,427  

 

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 March 31,

 
                 
   

2015

   

2014

 
                 

Net income

  $ 312,739     $ 95,860  

Other comprehensive income:

               

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

    15,718       (3,678 )

Change in unrealized loss on interest rate swaps

    (352 )     -  

Change in foreign currency translation adjustment, net

    (9,532 )     (8,388 )

Other comprehensive income/(loss)

    5,834       (12,066 )
                 

Comprehensive income

    318,573       83,794  
                 

Comprehensive income attributable to noncontrolling interests

    (2,397 )     (8,682 )
                 

Comprehensive income attributable to the Company

  $ 316,176     $ 75,112  

 

 

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 Three Months Ended March 31, 2015 and 2014

(Unaudited)

(in thousands)

 

    Cumulative Distributions in Excess of     Accumulated Other Comprehensive     Preferred Stock     Common Stock     Paid-in    

Total

Stockholders'

    Noncontrolling     Total  
   

 Net Income

     Income    

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

 Equity

   

 Interests

   

 Equity

 
                                                                                 

Balance, January 1, 2014

  $ (996,058 )   $ (64,982 )     102     $ 102       409,731     $ 4,097     $ 5,689,258     $ 4,632,417     $ 137,109     $ 4,769,526  
                                                                                 

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       -       -  
                                                                                 

Comprehensive income:

                                                                               

Net income

    87,000       -       -       -       -       -       -       87,000       8,860       95,860  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized gain on marketable securities

    -       (3,678 )     -       -       -       -       -       (3,678 )     -       (3,678 )

Change in foreign currency translation adjustment

    -       (8,210 )     -       -       -       -       -       (8,210 )     (178 )     (8,388 )
                                                                                 

Redeemable noncontrolling interests

    -       -       -       -       -       -       -       -       (1,693 )     (1,693 )

Dividends ($0.225 per common share; $0.4313 per

                                                                               

Class H Depositary Share and $0.3750 per

                                                                               

Class I Depositary Share, and $0.3438 per

                                                                               

Class J Depositary Share. and $0.3516 per

                                                                               

Class K Depositary Share, respectively)

    (106,937 )     -       -       -       -       -       -       (106,937 )     -       (106,937 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (18,979 )     (18,979 )

Issuance of common stock

    -       -       -       -       697       7       11,444       11,451       -       11,451  

Surrender of restricted stock

    -       -       -       -       (123 )     (1 )     (2,838 )     (2,839 )     -       (2,839 )

Exercise of common stock options

    -       -       -       -       201       2       3,301       3,303       -       3,303  

Amortization of equity awards

    -       -       -       -       -       -       4,704       4,704       -       4,704  

Balance, March 31, 2014

  $ (1,015,995 )   $ (76,870 )     102     $ 102       410,506     $ 4,105     $ 5,705,869     $ 4,617,211     $ 125,119     $ 4,742,330  
                                                                                 

Balance, January 1, 2015

  $ (1,006,578 )   $ 45,122       102     $ 102       411,820     $ 4,118     $ 5,732,021     $ 4,774,785     $ 126,980     $ 4,901,765  
                                                                                 

Contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       66,163       66,163  
                                                                                 

Comprehensive income:

                                                                               

Net income

    310,342       -       -       -       -       -       -       310,342       2,397       312,739  

Other comprehensive income, net of tax:

                                                            -                  

Change in unrealized gain on marketable securities

    -       15,718       -       -       -       -       -       15,718       -       15,718  

Change in unrealized loss on interest rate swaps

    -       (352 )     -       -       -       -       -       (352 )     -       (352 )

Change in foreign currency translation adjustment

    -       (9,532 )     -       -       -       -       -       (9,532 )     -       (9,532 )
                                                              -                  

Redeemable noncontrolling interests

    -       -       -       -       -       -       -       -       (1,522 )     (1,522 )

Dividends ($0.24 per common share; $0.4313 per

                                                                               

Class H Depositary Share and $0.3750 per

                                                                               

Class I Depositary Share, and $0.3438 per

                                                                               

Class J Depositary Share. and $0.3516 per

                                                                               

Class K Depositary Share, respectively)

    (113,613 )                                                     (113,613 )     -       (113,613 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (260 )     (260 )

Issuance of common stock

    -       -       -       -       539       5       2,975       2,980       -       2,980  

Surrender of restricted stock

    -       -       -       -       (204 )     (2 )     (5,170 )     (5,172 )     -       (5,172 )

Exercise of common stock options

    -       -       -       -       554       6       10,252       10,258       -       10,258  

Sale of interests in investments, net of tax of $16 million

    -       -       -       -       -       -       23,336       23,336       -       23,336  

Amortization of equity awards

    -       -       -       -       -       -       4,424       4,424       -       4,424  

Balance, March 31, 2015

  $ (809,849 )   $ 50,956       102     $ 102       412,709     $ 4,127     $ 5,767,838     $ 5,013,174     $ 193,758     $ 5,206,932  

 

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

 

 
6

 

 

KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Three Months Ended March 31

 
                 
   

2015

   

2014

 

Cash flow from operating activities:

               

Net income

  $ 312,739     $ 95,860  

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

               

Depreciation and amortization

    74,569       61,666  

Impairment charges

    6,473       6,893  

Equity award expense

    8,394       8,139  

Gain on sale of operating properties

    (32,055 )     (9,337 )

Gains on change in control of interests

    (139,801 )     (3,744 )

Equity in income of joint ventures, net

    (97,550 )     (53,261 )

Equity in income from other real estate investments, net

    (14,369 )     (3,353 )

Distributions from joint ventures and other real estate investments

    93,560       68,691  

Change in accounts and notes receivable

    (5,981 )     5,799  

Change in accounts payable and accrued expenses

    11,985       12,340  

Change in other operating assets and liabilities

    (1,424 )     (8,180 )

Net cash flow provided by operating activities

    216,540       181,513  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate and other related net assets

    (537,223 )     (95,321 )

Improvements to operating real estate

    (29,888 )     (21,990 )

Improvements to real estate under development

    (2,021 )     (62 )

Investment in marketable securities

    -       (4,556 )

Proceeds from sale of marketable securities

    700       219  

Investments and advances to real estate joint ventures

    (29,720 )     (18,988 )

Reimbursements of investments and advances to real estate joint ventures

    28,488       53,660  

Investment in other real estate investments

    (239 )     (318 )

Reimbursements of investments and advances to other real estate investments

    17,946       3,245  

Collection of mortgage loans receivable

    292       6,949  

Investment in other investments

    (190,278 )     -  

Proceeds from sale of operating properties

    81,037       71,336  

Net cash flow used for investing activities

    (660,906 )     (5,826 )
                 

Cash flow from financing activities:

               

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

    (49,286 )     (72,839 )

Principal payments on rental property debt

    (7,155 )     (5,690 )

Proceeds under unsecured revolving credit facility, net

    40,000       132,288  

Proceeds from issuance of unsecured term loan/notes

    1,000,000       -  

Repayments under unsecured term loan/notes

    (500,000 )     -  

Financing origination costs

    (7,894 )     (5,844 )

Contributions from noncontrolling interests, net

    105,498       -  

Dividends paid

    (113,400 )     (106,762 )

Proceeds from issuance of stock

    10,258       3,303  

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

    478,021       (55,544 )
                 

Change in cash and cash equivalents

    33,655       120,143  
                 

Cash and cash equivalents, beginning of period

    187,322       148,768  

Cash and cash equivalents, end of period

  $ 220,977     $ 268,911  
                 

Interest paid during the period (net of capitalized interest of $1,134 and $297, respectively)

  $ 37,564     $ 30,979  
                 

Income taxes paid during the period

  $ 4,055     $ 9,567  

 

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 presented in the accompanying Condensed Consolidated Financial Statements is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.  These Condensed Consolidated Financial Statements should be read in conjunction with the Company's 2014 Annual Report on Form 10-K for the year ended December 31, 2014 (“10-K”), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, 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 8).

 

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. These investments are held by the Company at the REIT level and not in the Company’s taxable REIT subsidiary. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries.

 

 
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

March 31,

 
   

2015

   

2014

 

Computation of Basic Earnings Per Share:

               

Income from continuing operations

  $ 280,759     $ 75,596  

Gain on sale of operating properties

    32,055       -  

Net income attributable to noncontrolling interests

    (2,397 )     (8,860 )

Discontinued operations attributable to noncontrolling interests

    -       6,613  

Preferred stock dividends

    (14,573 )     (14,573 )

Income from continuing operations available to the common shareholders

    295,844       58,776  

Earnings attributable to unvested restricted shares

    (1,341 )     (422 )

Income from continuing operations attributable to common shareholders

    294,503       58,354  

(Loss)/income from discontinued operations attributable to the Company

    (75 )     13,651  

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

  $ 294,428     $ 72,005  
                 

Weighted average common shares outstanding

    410,433       408,367  
                 

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

               

Income from continuing operations

  $ 0.72     $ 0.14  

Income from discontinued operations

    -       0.04  

Net income

  $ 0.72     $ 0.18  
                 

Computation of Diluted Earnings Per Share:

               

Income from continuing operations attributable to common shareholders

  $ 294,503     $ 58,354  

(Loss)/income from discontinued operations attributable to the Company

    (75 )     13,651  

Distributions on convertible units

    817       -  

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

  $ 295,245     $ 72,005  
                 

Weighted average common shares outstanding – basic

    410,433       408,367  
Effect of dilutive securities (a):                

Equity awards

    3,393       1,077  

Assumed conversion of convertible units

    1,570       -  

Shares for diluted earnings per common share

    415,396       409,444  
                 

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

               

Income from continuing operations

  $ 0.71     $ 0.14  

Income from discontinued operations

    -       0.04  

Net income

  $ 0.71     $ 0.18  

 

  

(a)

For the three months ended March 31, 2014, 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 6,857,810 and 10,905,076 stock options that were not dilutive at March 31, 2015 and 2014, 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.

 

 
9

 

  

New Accounting Pronouncements

 

In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-03, Interest - Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendments in ASU 2015-03 are effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company elected to early adopt ASU 2015-03 beginning in its fiscal year 2015 (see Footnote 9). The adoption of ASU 2015-03 did not have a material impact on the Company’s financial position or results of operations.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter, early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material effect on the Company’s consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). The amendments in ASU 2014-08 change the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The amendments in ASU 2014-08 are effective for fiscal years beginning after December 15, 2014. The Company adopted ASU 2014-08 beginning January 1, 2015 and appropriately applied the guidance prospectively to disposals of its operating properties. Prior to January 1, 2015, properties identified as held-for-sale and/or disposed of were presented in discontinued operations for all periods presented. The adoption and implementation of this ASU resulted in the operations of certain current period dispositions in the ordinary course of business to be classified within continuing operations on the Company’s Condensed Consolidated Statements of Income. The adoption did not have an impact on the Company’s financial position or cash flows. The disclosures required by this ASU have been incorporated in the notes included herein.

 

 

2. Operating Property Activities

 

Acquisitions -

 

During the three months ended March 31, 2015, the Company acquired the following properties, in separate transactions (in thousands):

 

                   

Purchase Price

 

Property Name

 

Location

   

Month

Acquired

   

Cash*

   

Debt Assumed

   

Other

   

Total

   

GLA**

 

Elmont Plaza

 

Elmont, NY (1)

   

Jan-15

    $ 2,400     $ -     $ 3,358     $ 5,758       13  

Garden State Pavilion Parcel

 

Cherry Hill, NJ

   

Jan-15

      16,300       -       -       16,300       111  

Kimstone Portfolio (39 properties)

 

Various (2)

   

Feb-15

      513,513       637,976       236,011       1,387,500       5,631  

Copperfield Village

 

Houston, TX

   

Feb-15

      18,700       20,800       -       39,500       165  

Snowden Square Parcel

 

Columbia, MD

   

Mar-15

      4,868       -       -       4,868       25  

Dulles Town Crossing Parcel

 

Sterling, VA

   

Mar-15

      4,830       -       -       4,830       9  

Flagler Park S.C.

 

Miami, FL

   

Mar-15

      1,875       -       -       1,875       5  
                    $ 562,486     $ 658,776     $ 239,369     $ 1,460,631       5,959  

* Includes 1031 sales proceeds of $31.7 million

** Gross leasable area ("GLA")

 

  (1)

The Company acquired from its partner the remaining ownership interest in a property that was held in a joint venture in which the Company had a 50.0% noncontrolling interest. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as a result, recognized a loss on change in control of interest of $0.2 million resulting from the fair value adjustment associated with the Company’s previously held equity interest, which is reflected in the purchase price above in Other.

  (2) The Company acquired from its partner the remaining ownership interest in 39 properties that were held in a joint venture in which the Company had a 33.3% noncontrolling interest. The Company evaluated this transaction pursuant to the FASB’s Consolidation guidance and as a result, recognized a gain on change in control of interest of $140.0 million resulting from the fair value adjustment associated with the Company’s previously held equity interest, which is reflected in the purchase price above in Other.

 

 
10

 

 

The purchase price for these acquisitions has been preliminarily allocated to real estate and related intangible assets acquired and liabilities assumed, as applicable, in accordance with our accounting policies for business combinations. The purchase price allocations and related accounting will be finalized after the Company’s valuation studies are complete. The aggregate purchase price of the properties acquired during the three months ended March 31, 2015, has been preliminarily allocated as follows (in thousands): 

 

Land

  $ 395,363  

Buildings

    830,647  

Above Market Rents

    31,620  

Below Market Rents

    (65,711 )

In-Place Leases

    147,483  

Building Improvements

    118,563  

Tenant Improvements

    21,602  

Mortgage Fair Value Adjustment

    (21,573 )

Other Assets

    2,637  
    $ 1,460,631  

Dispositions –

 

During the three months ended March 31, 2015, the Company disposed of 39 operating properties and three land parcels, in separate transactions, for an aggregate sales price of $96.5 million. These transactions resulted in an aggregate gain of $32.1 million, and aggregate impairment charges of $0.6 million.

 

During the three months ended March 31, 2015, the Company classified as held-for-sale five operating properties. The aggregate book value of these properties was $7.6 million, net of accumulated depreciation of $0.4 million, which is included in Other assets on the Company’s Condensed Consolidated Balance Sheets.  The book value of these properties did not exceed their estimated fair value, less costs to sell, and as such no impairment charges were recognized. The Company’s determination of the fair value of these properties was based upon executed contracts of sale with third parties.

 

Upon the adoption of ASU 2014-08 on January 1, 2015, operations of properties held for sale and operating properties sold during the current period that were not previously classified as held for sale and/or reported as discontinued operations are reported in income from continuing operations as they do not represent a strategic shift that has or will have a major effect on our operations and financial results. Prior to the adoption of ASU 2014-08, the Company reported the operations and financial results of properties held for sale and operating properties sold as Discontinued operations in the Company’s Condensed Consolidated Statements of Income.

 

Impairment Charges -

 

During the three months ended March 31, 2015, the Company recognized aggregate impairment charges of $6.4 million which are included in Impairment charges under Operating expenses on the Company’s Condensed Consolidated Statements of Income. These impairment charges consist of (i) $0.5 million related to the sale of certain operating properties, as discussed above, and (ii) $5.9 million related to an adjustment to the carrying value of one property which the Company has decided to market for sale as part of its active capital recycling program and as such has adjusted the anticipated hold period for such property. The Company’s estimated fair value on this property was determined based upon an estimated sales price. (See Footnote 11 for fair value disclosure).

 

3. Discontinued Operations

 

During 2014 and prior to the Company’s adoption of ASU 2014-08 on January 1, 2015, as further discussed in Note 2, operations of properties held-for-sale and assets sold during the period were classified as discontinued operations. 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 2014 financial statement amounts. Since adoption of ASU 2014-08 individual property dispositions including dispositions during the current period will no longer qualify as a discontinued operation under the new guidance.

 

The components of income and expense relating to discontinued operations for the three months ended March 31, 2015 and 2014 are shown below. These include the results of operations through the date of each respective sale for properties sold during 2014 and the operations for the applicable period for assets classified as held-for-sale as of December 31, 2014 (in thousands):

 

   

Three Months Ended
March 31,

 
   

2015

   

2014

 

Discontinued operations:

               

Revenues from rental property

  $ 124     $ 30,549  

Rental property expenses

    (49 )     (6,939 )

Depreciation and amortization

    -       (5,606 )

Provision for doubtful accounts, net

    (57 )     (537 )

Interest expense, net

    -       (393 )

Other expense, net

    (12 )     (184 )

Income from discontinued operating properties, before income taxes

    6       16,890  

Impairment of property carrying value, net, before income taxes

    (82 )     (6,732 )

Gain on disposition of operating properties, net, before income taxes

    -       9,337  

Benefit for income taxes, net

    1       769  

(Loss)/income from discontinued operating properties

    (75 )     20,264  

Net income attributable to noncontrolling interests

    -       (6,613 )

(Loss)/income from discontinued operations attributable to the Company

  $ (75 )   $ 13,651  

 

 
11

 

  

4. Investments and Advances in Real Estate Joint Ventures

 

The Company and its subsidiaries have investments in and advances to various real estate joint ventures.  These joint ventures are engaged primarily in the operation of shopping centers which are either owned or held under long-term operating leases. The Company and the joint venture partners have joint approval rights for major decisions, including those regarding property operations.  As such, the Company holds noncontrolling interests in these joint ventures and accounts for them under the equity method of accounting.  The table below presents joint venture investments for which the Company held an ownership interest at March 31, 2015 and December 31, 2014 (in millions, except number of properties):

 

   

As of March 31, 2015

   

As of December 31, 2014

 

Venture

 

Ownership Interest

   

Number

of

Properties

   

GLA

   

Gross

Real

Estate

   

The

Company's

Investment

   

Ownership Interest

   

Number

of

Properties

   

GLA

   

Gross

Real

Estate

   

The

Company's

Investment

 

Prudential Investment Program (“KimPru” and “KimPru II”) (1) (2) (3)

    15.0 %     59       10.3     $ 2,695.7     $ 173.7       15.0 %     60       10.6     $ 2,728.9     $ 178.6  

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

    48.6 %     54       11.5       1,491.2       151.4       48.6 %     54       11.5       1,488.2       152.1  

Kimstone (2) (4)

    -       -       -       -       -       33.3 %     39       5.6       1,098.7       98.1  

BIG Shopping Centers (2)

    50.1 %     6       1.0       151.6       -       50.1 %     6       1.0       151.6       -  

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

    55.0 %     7       2.4       508.8       191.2       55.0 %     7       2.4       504.0       188.9  

SEB Immobilien (2)

    15.0 %     3       0.4       85.9       2.4       15.0 %     3       0.4       86.0       2.5  

Other Institutional Programs (2)

 

Various

      50       1.4       327.8       8.4    

Various

      50       1.4       327.8       8.5  

RioCan (5)

    50.0 %     42       8.8       1,017.6       124.2       50.0 %     45       9.3       1,205.8       159.8  

Latin America

 

Various

      11       0.1       83.6       23.3    

Various

      13       0.1       91.2       24.4  

Other Joint Venture Programs (6)

 

Various

      58       9.5       1,353.7       211.7    

Various

      60       9.5       1,401.2       224.3  

Total

            290       45.4     $ 7,715.9     $ 886.3               337       51.8     $ 9,083.4     $ 1,037.2  

 

The table below presents the Company’s share of net income/(loss) for the above investments which is included in the Company’s Condensed Consolidated Statements of Income in Equity in income of joint ventures, net for the three months ended March 31, 2015 and 2014 (in millions):

 

   

Three Months Ended

March 31,

 
   

2015

   

2014

 

KimPru and KimPru II (3)

  $ 1.2     $ 2.6  

KIR

    7.5       6.8  

Kimstone (4)

    0.7       (1.5 )

BIG Shopping Centers

    0.1       0.7  

CPP

    2.5       1.5  

SEB Immobilien

    0.1       0.3  

Other Institutional Programs

    0.1       0.9  

RioCan (5)

    60.6       7.8  

Latin America (8) (9)

    (1.0 )     30.6  

Other Joint Venture Programs (7)

    25.8       3.6  

Total

  $ 97.6     $ 53.3  

 

 

(1)

This venture represents four separate joint ventures, with four separate accounts managed by Prudential Real Estate Investors (“PREI”), three of these ventures are collectively referred to as KimPru and the remaining venture is referred to as KimPru II.

 

(2)

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

 

(3)

During the three months ended March 31, 2015, KimPru II sold an operating property in North Lauderdale, FL for a sales price of $23.2 million and recognized a loss of $0.6 million. The Company’s share of this loss was $0.1 million.

 

(4)

During the three months ended March 31, 2015, the Company purchased the remaining 66.7% interest in the 39-property Kimstone portfolio from Blackstone for a gross purchase price of $1.4 billion, including the assumption of $638.0 million in mortgage debt.

 

(5)

During the three months ended March 31, 2015, the Company sold its noncontrolling interest in three properties and a land parcel to its partner, RioCan, for a total sales price of CAD $238.1 million (USD $190.7 million). The Company recognized a gain of $53.5 million, before income taxes, associated with the transaction.

 

(6)

During the three months ended March 31, 2015, the Company acquired one property from a joint venture in which the Company had a noncontrolling interest for a total sales price of $5.8 million.

 

(7)

During June 2013, the Intown portfolio was sold and the Company maintained its guarantee on a portion of debt that was assumed by the buyer at closing. The transaction resulted in a deferred gain to the Company of $21.7 million due to the Company’s continued involvement through its guarantee of the debt. On February 24, 2015, the outstanding debt balance was fully repaid by the buyer and as such, the Company was relieved of its related commitments and guarantee. As a result, the Company recognized the deferred gain of $21.7 million during the three months ended March 31, 2015.

 

(8)

During the three months ended March 31, 2015, a joint venture in which the Company holds a noncontrolling interest recognized aggregate impairment charges of $2.6 million relating to the pending sale of various land parcels. The Company’s share of these impairment charges was $1.3 million.

 

(9)

During the three months ended March 31, 2014, the Company sold its noncontrolling interest in six operating properties located throughout Mexico for a sales price of $106.7 million. The Company recognized a gain of $28.4 million, before income taxes, associated with the transaction.

 

 
12

 

  

The table below presents debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at March 31, 2015 and December 31, 2014 (dollars in millions):

 

   

As of March 31, 2015

   

As of December 31, 2014

 

Venture

 

Mortgages

and

Notes

Payable

   

Weighted

Average

Interest Rate

   

Weighted

Average

Remaining

Term

(months)*

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