Dear Fellow Shareholders, Partners and Associates:
Kimco entered 2010 with a commitment to reinvigorate the power and promise of our shopping center franchise. We are pleased to report that we accomplished the things we set out to do, and after two years of suboptimal stock performance, our shareholders realized a total return of 39% in 2010, including an increase in the quarterly common dividend of 12.5%, to an annualized level of 72 cents per common share.
We exceeded our financial targets by reaching $1.13 per share in Funds from Operations (FFO), the most common measure of a REIT’s financial performance. Our Recurring Funds from Operations—which adjusts FFO for transaction profits and losses and impairment charges—increased by just under 5%, to $465.4 million.
Regaining Momentum
In our letter to you last year, we highlighted certain priorities for 2010 that we felt were necessary to steady the business, increase shareholder value and position us for future growth. Twelve months later, we have made significant progress toward those goals.
Focusing Our Resources on Shopping Center Value-Creation
Most real estate companies felt the sting of the economic recession and financial crisis that overwhelmed the business environment in 2008 and much of 2009. During that time, demand for space fell, along with the rents retailers were willing to pay. Small businesses were hit particularly hard.
In 2010, the momentum shifted. While the smaller store owners still faced headwinds in a credit-constrained environment, national retailers trimmed their expenses, improved their inventory management, and enhanced their profitability and balance sheets. And as the economic climate started to recover, they began to search for ways to expand their businesses again. With available high-quality space at a premium, Kimco benefited from the increased demand for such properties by signing more than 2.6 million square feet of new leases in the U.S. during the year. In addition, we successfully extended with our existing tenants more than 900 leases encompassing over 4.3 million square feet. Our total portfolio ended the year with an occupancy level of 93%, a 40-basis- point improvement from the beginning of the year.
Another encouraging sign was the positive operating results we achieved from our same-site portfolio. (This metric compares the change in income for properties operating in both periods being measured.) We generated positive same-site net operating income in each of the last three quarters of 2010, after experiencing five consecutive quarters of negative results. This turnaround was faster than most of Kimco’s retail REIT peers and underscores the resilience of our portfolio. It’s also a testament to the tireless efforts of our operating team, whose focus never waivered from improving property-level occupancy and reducing expenses, while also finding ways to generate additional revenue through creative ancillary income programs.
The improving economic landscape also created more opportunities to enhance value in our shopping centers through redevelopment, re-tenanting and expansion. Our redevelopment at St. Andrews Center in Charleston, S.C., is now complete and features a new Harris Teeter supermarket. We also initiated a variety of new projects during 2010 that we will harvest over the next few years. For example, we demolished a vacant box from the Value City Furniture bankruptcy to build a new Giant Food supermarket and add an additional outparcel at our Springfield Shopping Center in Springfield, Pa.; similarly, in Elsmere, Del., we are building a BJ’s Wholesale Club. In Pittsburgh, we attracted Whole Foods to our Wexford Plaza Center, thereby eliminating a line of vacant shop space. Our pipeline continues to grow, and we have new projects commencing in both Miami and Lakeland, Fla.
As the leasing environment picked up in the U.S. during the latter half of 2009 and throughout 2010, a similar trend was emerging in Mexico. All of Kimco’s 55 shopping centers in Mexico have completed construction, and 31 of those properties are now fully operational. Activity in Mexico picked up markedly over the past year as we leased more than 700,000 square feet of new space, resulting in an additional $9 million contribution to Kimco’s earnings from this portfolio.
Kimco entered 2010 with a commitment to reinvigorate the power and promise of our shopping center franchise. We are pleased to report that we accomplished the things we set out to do, and after two years of suboptimal stock performance, our shareholders realized a total return of 39% in 2010, including an increase in the quarterly common dividend of 12.5%, to an annualized level of 72 cents per common share.
We exceeded our financial targets by reaching $1.13 per share in Funds from Operations (FFO), the most common measure of a REIT’s financial performance. Our Recurring Funds from Operations—which adjusts FFO for transaction profits and losses and impairment charges—increased by just under 5%, to $465.4 million.
Regaining Momentum
In our letter to you last year, we highlighted certain priorities for 2010 that we felt were necessary to steady the business, increase shareholder value and position us for future growth. Twelve months later, we have made significant progress toward those goals.
Focusing Our Resources on Shopping Center Value-Creation
Most real estate companies felt the sting of the economic recession and financial crisis that overwhelmed the business environment in 2008 and much of 2009. During that time, demand for space fell, along with the rents retailers were willing to pay. Small businesses were hit particularly hard.
In 2010, the momentum shifted. While the smaller store owners still faced headwinds in a credit-constrained environment, national retailers trimmed their expenses, improved their inventory management, and enhanced their profitability and balance sheets. And as the economic climate started to recover, they began to search for ways to expand their businesses again. With available high-quality space at a premium, Kimco benefited from the increased demand for such properties by signing more than 2.6 million square feet of new leases in the U.S. during the year. In addition, we successfully extended with our existing tenants more than 900 leases encompassing over 4.3 million square feet. Our total portfolio ended the year with an occupancy level of 93%, a 40-basis- point improvement from the beginning of the year.
Another encouraging sign was the positive operating results we achieved from our same-site portfolio. (This metric compares the change in income for properties operating in both periods being measured.) We generated positive same-site net operating income in each of the last three quarters of 2010, after experiencing five consecutive quarters of negative results. This turnaround was faster than most of Kimco’s retail REIT peers and underscores the resilience of our portfolio. It’s also a testament to the tireless efforts of our operating team, whose focus never waivered from improving property-level occupancy and reducing expenses, while also finding ways to generate additional revenue through creative ancillary income programs.
The improving economic landscape also created more opportunities to enhance value in our shopping centers through redevelopment, re-tenanting and expansion. Our redevelopment at St. Andrews Center in Charleston, S.C., is now complete and features a new Harris Teeter supermarket. We also initiated a variety of new projects during 2010 that we will harvest over the next few years. For example, we demolished a vacant box from the Value City Furniture bankruptcy to build a new Giant Food supermarket and add an additional outparcel at our Springfield Shopping Center in Springfield, Pa.; similarly, in Elsmere, Del., we are building a BJ’s Wholesale Club. In Pittsburgh, we attracted Whole Foods to our Wexford Plaza Center, thereby eliminating a line of vacant shop space. Our pipeline continues to grow, and we have new projects commencing in both Miami and Lakeland, Fla.
As the leasing environment picked up in the U.S. during the latter half of 2009 and throughout 2010, a similar trend was emerging in Mexico. All of Kimco’s 55 shopping centers in Mexico have completed construction, and 31 of those properties are now fully operational. Activity in Mexico picked up markedly over the past year as we leased more than 700,000 square feet of new space, resulting in an additional $9 million contribution to Kimco’s earnings from this portfolio.