Dear Fellow Shareholders, Partners and Associates:
2009 was certainly a tumultuous year. Driven by the financial crisis in late 2008 and the abrupt reduction in consumer spending, capital became scarce and expensive, confidence plummeted and the commercial real estate industry felt the pain. Kimco, of course, was not immune to the effects of these forces, and our financial results were impacted. Our reported Funds from Operations (FFO), the most common measure of a REITs´ financial performance, fell to $0.82 per share in 2009 from $2.02 per share in 2008, including certain non-cash impairment charges; excluding those charges, the comparable amounts were $1.33 per share in 2009 and $2.49 per share in 2008. The most significant factors in the decline were the reduction in profits generated from transactional activity – (about $0.53), and the effect of recapitalizing our balance sheet with fresh equity capital last year (about $0.48).
“We are committed to equity ownership of quality retail
real estate which will provide long-term recurring income.”
Despite the decline in overall reported earnings and FFO, we are comforted by the fact that our core business has been resilient. Shopping center operating profits were down only slightly (about two cents per share); even more importantly, we made solid progress on a number of fronts that bode well for our future:
- Closed 2009 with occupancy of 92.8%, despite the loss of over 3 million square feet of space from the headline bankruptcies of Linens `n Things, Circuit City, Value City Furniture and others. Of the 75 original vacancies, 50 boxes are either re-leased, subject to a letter of intent with a new user, sold, or subject to a guaranty from a credit tenant. We are encouraged by the up-tick in occupancy reflected in our fourth quarter 2009 results;
- Executed over 8 million square feet of new leases, renewals, and option exercises;
- Completed construction work at the majority of our U.S. and Mexico development projects, allowing us to focus exclusively on leasing strategies to increase operating cash flow from these properties;
- Raised over $2.2 billion of capital during the year, despite the extraordinarily difficult climate during much of the year. This included over $1.1 billion of common equity to help reduce our debt load, as well as over $800 million in mortgage financing to fund maturing debt in our joint venture programs and provide capital for our own balance sheet when attractive alternatives were scarce. We are particularly proud of executing a $220 million term loan in the spring of 2009, when REIT credit markets were virtually shut down. The support of many of our long-standing banking relationships was particularly gratifying during that time;
- Worked strategically with our existing institutional joint venture partners to both further their business strategies and enhance Kimco´s stature as a preferred partner in quality shopping center investments. During the year, we sold over $150 million of properties from our joint venture with Prudential Real Estate Investors; acquired a full interest in 12 other properties from those joint ventures; and acquired our partner´s interest in PL Retail, a portfolio of 21 high quality assets, for a gross transaction price of $825 million.
Increasing shareholder value remains THE primary responsibility of every public company management team. In the 18 years since our initial public offering, we have continued to seek intelligent and creative ways to maximize that value under one consistent operating philosophy: Maintain a portfolio of assets with strong defensive attributes that ensure consistent cash flow to support dividends while utilizing talent, relationships, creativity, and access to capital to grow the business. Over the years, we expanded our shopping center holdings with a series of adjunct business initiatives, many of which were complementary investments in retail real estate - businesses such as merchant development and providing capital to other shopping center retailers and investors. We also employed capital outside the world of retail real estate. As the events of late 2008 and 2009 unfolded, it became clear to us that, while Kimco earned large profits from these businesses, the shareholder value we hoped to create was not being fully realized. As a result, Kimco made a commitment to rebuild shareholder value by returning to its roots and pursuing a simplified business strategy through focusing exclusively on investments in retail real estate, through either direct ownership or equity ownership interests in joint ventures.
Why the exclusive focus back to shopping centers? Retail real estate is where Kimco can and has differentiated itself by capitalizing on our competitive advantages.
David B. Henry
Vice Chairman, President & Chief Executive Officer
Michael V. Pappagallo
Chief Operating Office & Chief Financial Officer