Our U.S. shopping center portfolio is getting stronger all the time. Our international business is solid and growing. And with a healthy balance sheet and strong relationships with both retailers and investors, we have the fuel we need to continue to grow.
2011 Operating Review
Dear Fellow Shareholders, Partners and Associates:
The past year – our 20th as a public company – was one of steady progress for Kimco. We continued to strengthen both our industry-leading shopping center portfolio and our balance sheet, and now, with signs of sustainable economic recovery starting to show, the company is well-positioned to capitalize on what we believe will be growing demand for high-quality retail real estate in 2012.
Even in the face of economic headwinds, our 2011 performance was very solid. Our reported and recurring Funds from Operations (FFO) both rose 5 percent, beating our original estimates. Reported FFO was $517.2 million, or $1.27 per diluted share, and recurring FFO – which strips out non-operating impairments and non-recurring profits and losses – was $489.8 million, or $1.20 per diluted share.
Since the U.S. stock market hit bottom in March 2009, Kimco has delivered a total return to its investors of 182 percent – beating the S&P 500, virtually all of our major competitors, and the FTSE NAREIT Equity REIT Index. We more than weathered the storm, and now that the clouds are breaking, we see blue skies of opportunity ahead.
READY FOR THE REBOUND
Kimco is ideally positioned to take advantage of such opportunity. Our U.S. shopping center portfolio – made up of high-quality properties, situated in top markets, with stable tenants – is getting stronger all the time. Our international business is solid and growing. And with a very healthy balance sheet and strong relationships with both retailers and investors, we have the fuel we need to continue to grow.
In the U.S., interest rates remain at historic lows and real estate is attracting capital again. The job market and other economic indicators are improving. There is renewed optimism for a gradual recovery in the housing market. Retailers are once again focused on growth.
The vital signs of our business are also improving. The fourth quarter of 2011 was our seventh consecutive quarter of positive, same-site net operating income growth – a steady turnaround from the negative results we saw at the bottom of the market in 2009 and early 2010. And for all of 2011, our leasing spreads – the difference between the ending rent of an old lease and the starting rent of a new lease on the same space – increased 350 basis points, to 2.6 percent.
Our occupancy rates for both anchor spaces and small shops are also trending higher. The 50-basis-point increase in our overall U.S. occupancy rate in 2011 was driven by a combination of positive absorption from national big-box retailers, the effect of selling lower-occupancy properties in the bottom tier of our portfolio, and adding higher-occupancy centers in key markets. We ended the year with a gross occupancy rate in the U.S. of 93.2 percent.
We’re also seeing steady improvement in the occupancy rate of our small-shop space (under 10,000 square feet) – a positive sign of the health of smaller retailers, a vital component of our tenant mix and a key to our future growth.
DELIVERING ON OUR STRATEGY
For the last 18 months, we have focused on delivering against a business strategy designed to increase the value of our shopping center portfolio; divest non-retail assets; grow our business in a disciplined and opportunistic manner; enhance the strength and flexibility of our balance sheet, and, above all, create value for our shareholders. We continue to make solid and steady progress on all fronts.
Creating More Value in Our Shopping Centers
Kimco owns and operates the largest retail real estate portfolio in North America. At year end, we owned interests in 946 shopping centers with 138 million square feet of leasable space across 44 U.S. states, Puerto Rico, Canada, Mexico and South America.
While our size is important and advantageous to us, it’s the quality of our portfolio that really matters. Two-thirds of our strategic portfolio in the U.S. is located in the top 30 Metropolitan Statistical Areas (MSAs) of the nation, the areas with the greatest population density and fastest income and population growth. The median household income in the trading areas around these centers (that is, within a three-mile radius) is, on average, 14 percent higher than for the MSA as a whole.
High-quality retail real estate in attractive markets will always be in demand. Such was the case in 2011, when national retailers – having retrenched and reconfigured their businesses during the downturn – were once again seeking growth by increasing their store counts. More than 37,000 stores were opened in 2011, and one estimate suggests an additional 70,000 will be opened in the U.S. over the next two years. That growing need for space came against a backdrop of virtually non-existent commercial development in our sector.
The dearth of available space, combined with sustained population growth and improving GDP numbers, is causing effective rents to rise, particularly in Long Island, South Florida, Baltimore/Washington, Puerto Rico and Canada. Together, these markets make up about a third of our base rent.
With demand and rents up, Kimco signed nearly 2,500 leases totaling more than 8 million square feet in 2011. Of those, 487 were new leases for 1.5 million square feet, and 1,169 were lease renewals and options for 4.5 million square feet. Importantly, the company signed more than 800 new leases totaling nearly 2 million square feet for spaces vacant for more than a year – a clear sign that available inventory is being quickly absorbed.
Indeed, the number of available anchor spaces in the Kimco portfolio – 10,000 square feet or greater – has been reduced to a little more than 100 boxes, or only 2.5 percent of our total gross leasable area.
The strong demand for quality anchor space is clearly evident in two recent bankruptcies – A&P and Borders. We quickly signed new leases with supermarket tenants for each of three former A&P stores in our portfolio. And of the 16 Borders locations, four have already been re-leased and we expect another eight to be filled by mid-2012. Unlike previous bankruptcies, the composite leasing spreads on these properties are slightly positive, compared with the negative spreads of two years ago.
In this improving environment, we are relentlessly focused on enhancing the value of our shopping center portfolio. We don’t want just the largest portfolio, we want the highest-quality portfolio in our industry.
Trading Up to Higher Quality
We’re increasing quality by continuously recycling our portfolio, divesting non-strategic assets and trading up to superior
properties in top-tier locations where growth prospects, population, and disposable income are highest.
Kimco is a company that has grown through 50-plus years of acquisitions. Among the larger portfolios we’ve purchased, asset quality has varied. In some cases, properties that were once attractive to us no longer fit our long-term, strategic focus. In our portfolio review 18 months ago, we identified approximately 150 such “non-strategic” properties – shopping centers that are outside our primary operating markets, do not fit our desired asset profile, or have limited opportunity for growth or repositioning. Those properties represented about 10 percent of our base rental income.
The list has since expanded, and we have made good progress on it. On the heels of selling nine non-strategic centers in 2010, we sold another 31 non-strategic properties in 2011, for $158 million, including $35 million of mortgage debt. These properties – 25 wholly owned shopping centers and six unconsolidated joint-venture properties – totaled 2.6 million square feet and were less than 80 percent occupied.
In the same period, we bought for our wholly owned portfolio 17 high-quality shopping centers, virtually all of them in our core markets and with an overall occupancy rate of 97.6 percent. These properties – along with four joint-venture acquisitions – were purchased for $494 million and added 3.6 million square feet to our leasable space.
At the end of 2011, Kimco had 122 non-strategic U.S. shopping centers remaining in its portfolio. These properties total 12 million square feet, with about 85 percent gross occupancy, and represent about 8 percent of the company’s total base rental income.
In addition to our ongoing efforts to improve portfolio quality, another way we are enhancing the value of our properties is through redeveloping, re-tenanting and expanding the strongly situated shopping centers we already have.
Among the major projects currently underway, we’re redeveloping for Nordstrom Rack an empty box formerly leased by Linens ’n Things at the West Farm Shopping Center in Farmington, Conn., and opening up an area around the Cinemark
theater at our Mesa Riverview center in Arizona to improve visibility, parking and traffic flow. At our Metro Crossing center
in Council Bluffs, Iowa, we’ve just added new big-box space for T.J. Maxx, and we’re constructing another box for Ulta and adding a new small-shop building. In Hollywood, Fla., at our Oakwood Plaza center, we’re demolishing a former Barnes & Noble store and replacing it with new space for Sports Authority, while expanding an existing BJ’s Wholesale Club store.
Most recently, in Pompano, Fla., we negotiated a lease termination of an announced Kmart closing, and are currently pursuing a redevelopment of that space for a supermarket and a sporting goods retailer. In San Diego, we took an empty space still under lease to a supermarket tenant and re-let the space to a fitness club alongside a sporting goods co-tenant at a much higher spread.
Growing Our International Business
The U.S. isn’t the only place where the retail real estate marketis on the rise. In Mexico, GDP grew 3.9 percent in 2011 (higher growth than Brazil for the first time in eight years) and both the currency and retail sales strengthened. Same-store sales in Mexico rose 8 percent in the fourth quarter of 2011, and 5 percent for the full year.
Against this backdrop, we are seeing increased leasing demand from national and international tenants. Of the 55 shopping centers we own in Mexico, 43 are now fully operational, and our overall occupancy rate has climbed to 84 percent. During 2011, we signed more than 700,000 square feet of new leases, with gross annual base rent of about $10 million, and our target is an additional 800,000 square feet in 2012, which will push our occupancy rate close to 90 percent. It is worth noting that virtually all of our leases in Mexico contain full annual-cost-ofliving escalators, and our anchor tenants paid percentage rents of more than $2 million in 2011.
In Canada, our occupancy rate remains high, at 97 percent, and retailer expansion continues to fuel strong demand for space. A notable example is Target, which has committed to open 60 new stores in Canada beginning in early 2013. Canada is an attractive market for retailers: the nation’s economy is strong, with low interest rates, moderate unemployment levels, and GDP forecast to grow by 2 percent in 2012. To capitalize on the growing demand, we continue to make strategic additions to our portfolio. In December, we bought a high-quality, grocery-anchored center in the greater Vancouver market, and we expect to close on another attractive grocery-anchored center in Edmonton shortly.
Exiting Non-Retail Assets
Kimco is focusing all of its energies on being the premier owner and operator of high-quality shopping centers in North America, and, as such, we’re intent on exiting non-retail investments that do not fit with our core competency. The value of such assets stood at $1.2 billion in early 2009, but after reducing our non-retail portfolio by $286 million, or 36 percent, in 2011, our non-retail assets are now down to $495 million, or less than 4.5 percent of our total gross assets.
Our largest remaining non-retail investment, the InTown Suites portfolio of extended-stay facilities, is attracting strong interest from investors, as it continues to perform very well, with substantial growth in revenue per available room. Several parties are conducting due diligence, and we’re confident of selling the portfolio in the near term.
Strengthening Our Balance Sheet
A healthy balance sheet and ample liquidity are crucial to our efforts to build a stronger, more valuable portfolio of high-quality shopping centers. During 2011, we continued to improve our debt metrics, lowering our consolidated net-debt-to-recurring- EBITDA ratio to 6.2 times, on our way to 6.0 times by the end of 2012. Each of the three major credit rating agencies continues to maintain its investment-grade rating on our unsecured bonds and preferred stock securities.
Our immediate liquidity currently stands at more than $1.4 billion, thanks to the $1.75 billion unsecured U.S. revolving credit facility we announced in October. The new facility, with one of the lowest borrowing spreads in our industry, replaced our previous $1.5 billion U.S. and $250 million Canadian dollar-denominated revolving credit facilities, which were scheduled to mature in 2012. Our existing consolidated debt maturities are well staggered, with only $353 million of maturing debt coming due in 2012, mostly in the latter half of the year, and our access to capital remains strong.
Leveraging Relationships
In addition to acquiring properties for its own portfolio, Kimco also expanded its retail footprint in 2011 by investing in property with joint-venture partners. These partners provide access to lower-cost capital – a competitive advantage for Kimco as it bids on higher-quality properties.
Among our joint-venture purchases in the U.S. during 2011, Kimco and its partners bought two shopping centers, totaling
545,000 square feet, in Quakertown, Pa., and Selden, N.Y. In Canada, we increased our ownership interest in an existing joint venture to 90 percent, and with the same partner, converted a retail preferred equity investment into a pari-passu joint venture, and separately acquired an 88,000-square-foot, grocery-anchored shopping center in Chilliwack, British Columbia.
2012: STAYING THE COURSE
For 2012, we will remain focused on our long-term objectives, while accelerating the pace of our activity in response to improving market conditions and new opportunities. As always, we will do everything we possibly can to create more value for our shareholders.
Toward that overarching objective, our main priorities this year are:
Kimco’s business is based on this value proposition: owning well positioned shopping centers in strong markets with stable and credit-worthy tenants provides a consistent stream of income that will generate steady and increasing dividends over time, as well as potential appreciation. We are particularly attracted to shopping centers anchored by supermarkets or discounters with a large food component, because such retailers drive repeat traffic, the kind that creates long-term value.
Stability + growth. That’s our focus, and our equation for success.
THE QUALITY OF KIMCO
Kimco already is the largest owner and operator of retail real estate in North America. But being the biggest is not enough. We also want to be the best.
What does it mean to be the best? Beyond the high quality and superior location of our properties, it comes down to one word: service.
We know our success is inextricably linked to the success of our 8,500 tenants. That’s why we continuously invest in our properties to create and maintain the most attractive shopping environments for consumers. More than that, we take the time to learn the business plans of our retailer partners, meet with them on a regular basis, and work together to help them minimize operating issues and maximize store performance. We listen.
Being attentive means developing innovative solutions to our retailers’ most pressing problems. Take, for instance, small retailers, the “mom and pop” shops that are the backbone of the local economy. These retailers were hit hardest in the recent recession. To offer a hand, Kimco will soon unveil a program that connects small retailers with a variety of resources, support and sources of funding to help them regain their footing and get growing again.
Through our FastTrack Franchise program, we’re also working with a number of national franchisors to have our locations pre-approved based on their criteria. We can then market those spaces to prospective franchisees and streamline the entire site-selection process. We’re also developing a program that soon will offer attractive incentives to qualified entrepreneurs interested in starting up their own retail businesses.
These initiatives help small retailers, the local economy and Kimco, because they enable us to fill valuable small-shop space. It’s a win-win-win, and an example of the creativity we put into managing our shopping center portfolio for results.
That creativity shows in so many ways. Take, for example, our sustainability program. We are actively managing our utility
costs with more efficient lighting, equipment, and irrigation systems, and our solar power initiative will employ millions of square feet of rooftop space to deliver clean, reliable and costeffective power to Kimco tenants.
From our sustainability drive to innovative leasing solutions and investment management services, Kimco people are always thinking beyond the box, reaching higher and doing more. Every day, they come to work determined to deliver great results for our shareholders, tenants, equity investment partners, and their co-workers down the hall. They are the best in the industry, the true quality of Kimco, and we’re proud to call them our colleagues.
Even in the face of economic headwinds, our 2011 performance was very solid. Our reported and recurring Funds from Operations (FFO) both rose 5 percent, beating our original estimates. Reported FFO was $517.2 million, or $1.27 per diluted share, and recurring FFO – which strips out non-operating impairments and non-recurring profits and losses – was $489.8 million, or $1.20 per diluted share.
Since the U.S. stock market hit bottom in March 2009, Kimco has delivered a total return to its investors of 182 percent – beating the S&P 500, virtually all of our major competitors, and the FTSE NAREIT Equity REIT Index. We more than weathered the storm, and now that the clouds are breaking, we see blue skies of opportunity ahead.
READY FOR THE REBOUND
Kimco is ideally positioned to take advantage of such opportunity. Our U.S. shopping center portfolio – made up of high-quality properties, situated in top markets, with stable tenants – is getting stronger all the time. Our international business is solid and growing. And with a very healthy balance sheet and strong relationships with both retailers and investors, we have the fuel we need to continue to grow.
In the U.S., interest rates remain at historic lows and real estate is attracting capital again. The job market and other economic indicators are improving. There is renewed optimism for a gradual recovery in the housing market. Retailers are once again focused on growth.
The vital signs of our business are also improving. The fourth quarter of 2011 was our seventh consecutive quarter of positive, same-site net operating income growth – a steady turnaround from the negative results we saw at the bottom of the market in 2009 and early 2010. And for all of 2011, our leasing spreads – the difference between the ending rent of an old lease and the starting rent of a new lease on the same space – increased 350 basis points, to 2.6 percent.
Our occupancy rates for both anchor spaces and small shops are also trending higher. The 50-basis-point increase in our overall U.S. occupancy rate in 2011 was driven by a combination of positive absorption from national big-box retailers, the effect of selling lower-occupancy properties in the bottom tier of our portfolio, and adding higher-occupancy centers in key markets. We ended the year with a gross occupancy rate in the U.S. of 93.2 percent.
We’re also seeing steady improvement in the occupancy rate of our small-shop space (under 10,000 square feet) – a positive sign of the health of smaller retailers, a vital component of our tenant mix and a key to our future growth.
DELIVERING ON OUR STRATEGY
For the last 18 months, we have focused on delivering against a business strategy designed to increase the value of our shopping center portfolio; divest non-retail assets; grow our business in a disciplined and opportunistic manner; enhance the strength and flexibility of our balance sheet, and, above all, create value for our shareholders. We continue to make solid and steady progress on all fronts.
Creating More Value in Our Shopping Centers
Kimco owns and operates the largest retail real estate portfolio in North America. At year end, we owned interests in 946 shopping centers with 138 million square feet of leasable space across 44 U.S. states, Puerto Rico, Canada, Mexico and South America.
While our size is important and advantageous to us, it’s the quality of our portfolio that really matters. Two-thirds of our strategic portfolio in the U.S. is located in the top 30 Metropolitan Statistical Areas (MSAs) of the nation, the areas with the greatest population density and fastest income and population growth. The median household income in the trading areas around these centers (that is, within a three-mile radius) is, on average, 14 percent higher than for the MSA as a whole.
High-quality retail real estate in attractive markets will always be in demand. Such was the case in 2011, when national retailers – having retrenched and reconfigured their businesses during the downturn – were once again seeking growth by increasing their store counts. More than 37,000 stores were opened in 2011, and one estimate suggests an additional 70,000 will be opened in the U.S. over the next two years. That growing need for space came against a backdrop of virtually non-existent commercial development in our sector.
The dearth of available space, combined with sustained population growth and improving GDP numbers, is causing effective rents to rise, particularly in Long Island, South Florida, Baltimore/Washington, Puerto Rico and Canada. Together, these markets make up about a third of our base rent.
With demand and rents up, Kimco signed nearly 2,500 leases totaling more than 8 million square feet in 2011. Of those, 487 were new leases for 1.5 million square feet, and 1,169 were lease renewals and options for 4.5 million square feet. Importantly, the company signed more than 800 new leases totaling nearly 2 million square feet for spaces vacant for more than a year – a clear sign that available inventory is being quickly absorbed.
Indeed, the number of available anchor spaces in the Kimco portfolio – 10,000 square feet or greater – has been reduced to a little more than 100 boxes, or only 2.5 percent of our total gross leasable area.
The strong demand for quality anchor space is clearly evident in two recent bankruptcies – A&P and Borders. We quickly signed new leases with supermarket tenants for each of three former A&P stores in our portfolio. And of the 16 Borders locations, four have already been re-leased and we expect another eight to be filled by mid-2012. Unlike previous bankruptcies, the composite leasing spreads on these properties are slightly positive, compared with the negative spreads of two years ago.
In this improving environment, we are relentlessly focused on enhancing the value of our shopping center portfolio. We don’t want just the largest portfolio, we want the highest-quality portfolio in our industry.
Trading Up to Higher Quality
We’re increasing quality by continuously recycling our portfolio, divesting non-strategic assets and trading up to superior
properties in top-tier locations where growth prospects, population, and disposable income are highest.
Kimco is a company that has grown through 50-plus years of acquisitions. Among the larger portfolios we’ve purchased, asset quality has varied. In some cases, properties that were once attractive to us no longer fit our long-term, strategic focus. In our portfolio review 18 months ago, we identified approximately 150 such “non-strategic” properties – shopping centers that are outside our primary operating markets, do not fit our desired asset profile, or have limited opportunity for growth or repositioning. Those properties represented about 10 percent of our base rental income.
The list has since expanded, and we have made good progress on it. On the heels of selling nine non-strategic centers in 2010, we sold another 31 non-strategic properties in 2011, for $158 million, including $35 million of mortgage debt. These properties – 25 wholly owned shopping centers and six unconsolidated joint-venture properties – totaled 2.6 million square feet and were less than 80 percent occupied.
In the same period, we bought for our wholly owned portfolio 17 high-quality shopping centers, virtually all of them in our core markets and with an overall occupancy rate of 97.6 percent. These properties – along with four joint-venture acquisitions – were purchased for $494 million and added 3.6 million square feet to our leasable space.
At the end of 2011, Kimco had 122 non-strategic U.S. shopping centers remaining in its portfolio. These properties total 12 million square feet, with about 85 percent gross occupancy, and represent about 8 percent of the company’s total base rental income.
In addition to our ongoing efforts to improve portfolio quality, another way we are enhancing the value of our properties is through redeveloping, re-tenanting and expanding the strongly situated shopping centers we already have.
Among the major projects currently underway, we’re redeveloping for Nordstrom Rack an empty box formerly leased by Linens ’n Things at the West Farm Shopping Center in Farmington, Conn., and opening up an area around the Cinemark
theater at our Mesa Riverview center in Arizona to improve visibility, parking and traffic flow. At our Metro Crossing center
in Council Bluffs, Iowa, we’ve just added new big-box space for T.J. Maxx, and we’re constructing another box for Ulta and adding a new small-shop building. In Hollywood, Fla., at our Oakwood Plaza center, we’re demolishing a former Barnes & Noble store and replacing it with new space for Sports Authority, while expanding an existing BJ’s Wholesale Club store.
Most recently, in Pompano, Fla., we negotiated a lease termination of an announced Kmart closing, and are currently pursuing a redevelopment of that space for a supermarket and a sporting goods retailer. In San Diego, we took an empty space still under lease to a supermarket tenant and re-let the space to a fitness club alongside a sporting goods co-tenant at a much higher spread.
Growing Our International Business
The U.S. isn’t the only place where the retail real estate marketis on the rise. In Mexico, GDP grew 3.9 percent in 2011 (higher growth than Brazil for the first time in eight years) and both the currency and retail sales strengthened. Same-store sales in Mexico rose 8 percent in the fourth quarter of 2011, and 5 percent for the full year.
Against this backdrop, we are seeing increased leasing demand from national and international tenants. Of the 55 shopping centers we own in Mexico, 43 are now fully operational, and our overall occupancy rate has climbed to 84 percent. During 2011, we signed more than 700,000 square feet of new leases, with gross annual base rent of about $10 million, and our target is an additional 800,000 square feet in 2012, which will push our occupancy rate close to 90 percent. It is worth noting that virtually all of our leases in Mexico contain full annual-cost-ofliving escalators, and our anchor tenants paid percentage rents of more than $2 million in 2011.
In Canada, our occupancy rate remains high, at 97 percent, and retailer expansion continues to fuel strong demand for space. A notable example is Target, which has committed to open 60 new stores in Canada beginning in early 2013. Canada is an attractive market for retailers: the nation’s economy is strong, with low interest rates, moderate unemployment levels, and GDP forecast to grow by 2 percent in 2012. To capitalize on the growing demand, we continue to make strategic additions to our portfolio. In December, we bought a high-quality, grocery-anchored center in the greater Vancouver market, and we expect to close on another attractive grocery-anchored center in Edmonton shortly.
Exiting Non-Retail Assets
Kimco is focusing all of its energies on being the premier owner and operator of high-quality shopping centers in North America, and, as such, we’re intent on exiting non-retail investments that do not fit with our core competency. The value of such assets stood at $1.2 billion in early 2009, but after reducing our non-retail portfolio by $286 million, or 36 percent, in 2011, our non-retail assets are now down to $495 million, or less than 4.5 percent of our total gross assets.
Our largest remaining non-retail investment, the InTown Suites portfolio of extended-stay facilities, is attracting strong interest from investors, as it continues to perform very well, with substantial growth in revenue per available room. Several parties are conducting due diligence, and we’re confident of selling the portfolio in the near term.
Strengthening Our Balance Sheet
A healthy balance sheet and ample liquidity are crucial to our efforts to build a stronger, more valuable portfolio of high-quality shopping centers. During 2011, we continued to improve our debt metrics, lowering our consolidated net-debt-to-recurring- EBITDA ratio to 6.2 times, on our way to 6.0 times by the end of 2012. Each of the three major credit rating agencies continues to maintain its investment-grade rating on our unsecured bonds and preferred stock securities.
Our immediate liquidity currently stands at more than $1.4 billion, thanks to the $1.75 billion unsecured U.S. revolving credit facility we announced in October. The new facility, with one of the lowest borrowing spreads in our industry, replaced our previous $1.5 billion U.S. and $250 million Canadian dollar-denominated revolving credit facilities, which were scheduled to mature in 2012. Our existing consolidated debt maturities are well staggered, with only $353 million of maturing debt coming due in 2012, mostly in the latter half of the year, and our access to capital remains strong.
We are relentlessly focused on enhancing the value of our shopping centerportfolio. We don’t want just the largest portfolio, we want the highest-qualityportfolio in our industry.
Leveraging Relationships
In addition to acquiring properties for its own portfolio, Kimco also expanded its retail footprint in 2011 by investing in property with joint-venture partners. These partners provide access to lower-cost capital – a competitive advantage for Kimco as it bids on higher-quality properties.
Among our joint-venture purchases in the U.S. during 2011, Kimco and its partners bought two shopping centers, totaling
545,000 square feet, in Quakertown, Pa., and Selden, N.Y. In Canada, we increased our ownership interest in an existing joint venture to 90 percent, and with the same partner, converted a retail preferred equity investment into a pari-passu joint venture, and separately acquired an 88,000-square-foot, grocery-anchored shopping center in Chilliwack, British Columbia.
2012: STAYING THE COURSE
For 2012, we will remain focused on our long-term objectives, while accelerating the pace of our activity in response to improving market conditions and new opportunities. As always, we will do everything we possibly can to create more value for our shareholders.
Toward that overarching objective, our main priorities this year are:
- Continuing the quality trade-up in our shopping center portfolio – We’re intent on upgrading our shopping center portfolio by aggressively selling lower-quality properties outside our core markets, and reinvesting the proceeds in redeveloping or expanding our strongly situated centers. We’ll also use the proceeds to selectively acquire high-quality properties in our top 20 to 30 markets, targeting assets that offer growth potential and a good return on our investment. In the last 15 months, we have sold about $200 million of non-strategic assets, and our objective is to sell at least $250 million of such assets in 2012. On the purchase front, we’re targeting about $350 million worth of acquisitions this year.
- Enhancing shopping center performance – Our people are focused on extracting maximum value and increasing cash flow from each of our shopping centers through proactive property management. That means concentrating on the basics: improving occupancy rates, recapturing lost rents, retaining existing tenants, reducing expenses and generating additional revenue streams through creative ancillary income programs. Our goal for 2012 is to grow same-site net operating income in the range of 1.5 percent to 3.5 percent, and to increase our combined portfolio occupancy by 50 to 100 basis points.
- Continuing to strengthen our financial position – We’re ever mindful of the financial fuel needed to run our business and give us maximum flexibility to achieve our objectives. That means being able to access capital from a variety of sources, strengthening our balance sheet by reducing debt levels over the long term, and employing a conservative capital structure. Our goal is to reduce our consolidated net-debt-to-recurring- EBITDA ratio to 6.0 times by the end of 2012.
- Leasing up our Mexico portfolio – To meet the growing demand for space from international and local retailers, Kimco has expanded its Mexico portfolio in recent years, and is now driving to increase overall occupancy from the current 84 percent to approximately 90 percent by the end of the year.
- Completing the disposition of our non-retail assets – Our core competency is shopping centers, and to sharpen that focus, we’re aggressively selling our non-retail assets. We expect to bring the size of this portfolio down to less than $250 million in 2012, or about 2 percent of our total gross assets.
Kimco’s business is based on this value proposition: owning well positioned shopping centers in strong markets with stable and credit-worthy tenants provides a consistent stream of income that will generate steady and increasing dividends over time, as well as potential appreciation. We are particularly attracted to shopping centers anchored by supermarkets or discounters with a large food component, because such retailers drive repeat traffic, the kind that creates long-term value.
Stability + growth. That’s our focus, and our equation for success.
THE QUALITY OF KIMCO
Kimco already is the largest owner and operator of retail real estate in North America. But being the biggest is not enough. We also want to be the best.
What does it mean to be the best? Beyond the high quality and superior location of our properties, it comes down to one word: service.
We know our success is inextricably linked to the success of our 8,500 tenants. That’s why we continuously invest in our properties to create and maintain the most attractive shopping environments for consumers. More than that, we take the time to learn the business plans of our retailer partners, meet with them on a regular basis, and work together to help them minimize operating issues and maximize store performance. We listen.
Being attentive means developing innovative solutions to our retailers’ most pressing problems. Take, for instance, small retailers, the “mom and pop” shops that are the backbone of the local economy. These retailers were hit hardest in the recent recession. To offer a hand, Kimco will soon unveil a program that connects small retailers with a variety of resources, support and sources of funding to help them regain their footing and get growing again.
Through our FastTrack Franchise program, we’re also working with a number of national franchisors to have our locations pre-approved based on their criteria. We can then market those spaces to prospective franchisees and streamline the entire site-selection process. We’re also developing a program that soon will offer attractive incentives to qualified entrepreneurs interested in starting up their own retail businesses.
These initiatives help small retailers, the local economy and Kimco, because they enable us to fill valuable small-shop space. It’s a win-win-win, and an example of the creativity we put into managing our shopping center portfolio for results.
That creativity shows in so many ways. Take, for example, our sustainability program. We are actively managing our utility
costs with more efficient lighting, equipment, and irrigation systems, and our solar power initiative will employ millions of square feet of rooftop space to deliver clean, reliable and costeffective power to Kimco tenants.
From our sustainability drive to innovative leasing solutions and investment management services, Kimco people are always thinking beyond the box, reaching higher and doing more. Every day, they come to work determined to deliver great results for our shareholders, tenants, equity investment partners, and their co-workers down the hall. They are the best in the industry, the true quality of Kimco, and we’re proud to call them our colleagues.