10-K405: Annual report [Sections 13 and 15(d), S-K Item 405]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1996

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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

3333 New Hyde Park Road, New Hyde Park NY 11042-0020
(Address of principal executive offices) Zip Code

Registrant's telephone number, including area code (516)869-9000
Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, par value $.01 per share New York Stock Exchange

Depositary Shares, each representing one-
tenth of a share of 7-3/4% Class A
Cumulative Redeemable Preferred Stock,
par value $1.00 per share. New York Stock Exchange

Depositary Shares, each representing one-
tenth of a share of 8-1/2% Class B
Cumulative Redeemable Preferred Stock,
par value $1.00 per share. New York Stock Exchange

Depositary Shares, each representing one-
tenth of a share of 8-3/8% Class C
Cumulative Redeemable Preferred Stock,
par value $1.00 per share. New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:

None
(Title of class)

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X

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 X No

The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $947 million based upon the closing price on the
New York Stock Exchange for such stock on February 28, 1997.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.

36,232,385 shares as of February 28, 1997.

-1 of 89-


DOCUMENTS INCORPORATED BY REFERENCE

Part II incorporates certain information by reference to the following exhibits
to this annual report on Form 10-K: Exhibit 3.4, Articles Supplementary relating
to the Registrant's 8-3/8% Class C Cumulative Redeemable Preferred Stock;
Exhibit 3.3, Articles Supplementary relating to the Registrant's 8 1/2% Class B
Cumulative Redeemable Preferred Stock; Exhibit 4.4, Certificate of Designations
relating to the Registrant's 7 3/4% Class A Cumulative Redeemable Preferred
Stock; Exhibits 4.5, 4.6 and 4.7, Indenture, First Supplemental Indenture and
Second Supplemental Indenture, respectively, each relating to the Registrant's
public bond issues, and Exhibit 10.4, Credit Agreement relating to the
Registrant's revolving credit facility.

Part III incorporates certain information by reference to the Registrant's
definitive proxy statement to be filed with respect to the Annual Meeting of
Stockholders to be held on May 28, 1997.

Index to Exhibits begins on page 29.

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TABLE OF CONTENTS
Form
10-K
Report
Item No. Page
- -------- -------
PART I

1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 10

3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 12

4. Submission of Matters to a Vote of Security Holders . . . . 12

Executive Officers of the Registrant . . . . . . . . . . . . 20

PART II

5. Market for the Registrant's Common Equity

and Related Shareholder Matters . . . . . . . . . . . . . 21

6. Selected Financial Data . . . . . . . . . . . . . . . . . . 22

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 24

8. Financial Statements and Supplementary Data . . . . . . . . 26

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . 26

PART III

10. Directors and Executive Officers of the Registrant . . . . . 27

11. Executive Compensation . . . . . . . . . . . . . . . . . . . 27

12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . 27

13. Certain Relationships and Related Transactions . . . . . . . 27

PART IV

14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 28

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PART I

Item 1. Business

General Kimco Realty Corporation (the "Company") is one of the nation's largest
owners and operators of neighborhood and community shopping centers. As of
February 28, 1997, the Company's portfolio was comprised of interests in 208
neighborhood and community shopping center properties, 2 regional malls and 57
retail store leases comprising a total of approximately 32.6 million square feet
of leasable space located in 37 states. The Company believes its portfolio of
neighborhood and community shopping center properties is the largest (measured
by gross leasable area, "GLA") currently held by any publicly-traded real estate
investment trust ("REIT"). The Company is a self-administered REIT and manages
its properties through present management which has owned and operated
neighborhood and community shopping centers for over 30 years. The Company has
not engaged, nor does it expect to retain, any REIT advisors in connection with
the operation of its properties.

The Company's executive offices are located at 3333 New Hyde Park Road, New Hyde
Park, New York 11042-0020 and its telephone number is (516)869-9000. Unless the
context indicates otherwise, the term the "Company" as used herein is intended
to include subsidiaries of the Company.

History The Company began operations through its predecessor, The Kimco
Corporation, which was organized in 1966 upon the contribution of several
shopping center properties owned by its principal stockholders. In 1973, these
principals formed the Company as a Delaware corporation, and in 1985, the
operations of The Kimco Corporation were merged into the Company. The Company
completed its initial public stock offering (the "IPO") in November 1991, and
reorganized as a Maryland corporation during 1994.

The Company's growth through its first fifteen years resulted primarily from the
ground-up development and construction of its shopping centers. By 1981, the
Company had assembled a portfolio of 77 properties that provided an established
source of income and positioned the Company for an expansion of its asset base.
At that time, the Company revised its strategy to focus on the acquisition of
existing shopping centers because it believed generally that available financial
returns did not justify the risks of continued ground-up development of
properties. Furthermore, the Company's management believed that existing
properties with below market-rate leases were available in the market at
attractive prices. The Company considers such properties to offer greater
leasing flexibility in the event space becomes available or should there be an
overcapacity of space in the local economy. The Company also believes that
opportunities exist to create value through the redevelopment and re-tenanting
of existing shopping centers. As a result of this change in strategy, the
Company has developed only 2 of the 190 property interests added to its
portfolio since 1981, as compared with 68 of the 77 properties owned prior to
that time.

Investment and Operating Strategy The Company's investment objective has been to

increase cash flow, current income and consequently the value of its existing
portfolio of properties, and to seek continued growth through (i) the strategic
re-tenanting, renovation and expansion of its existing centers, and (ii) the
selective acquisition of established income-producing real estate properties,
and properties requiring significant re-tenanting and redevelopment - all
primarily neighborhood and community shopping centers in geographic regions
where the Company presently operates. The Company intends to consider
investments in other real estate sectors and in geographic markets where it does
not presently operate should suitable opportunities arise.

The Company's neighborhood and community shopping center properties are designed
to attract local area customers and typically are anchored by a supermarket,
discount department store or drugstore tenant offering day-to-day necessities
rather than high-priced luxury items. The Company may either purchase or lease
income-producing properties in the future, and may also participate with other
entities in property ownership through partnerships, joint ventures or similar
types of co-ownership. While the Company has historically held its properties
for long-term investment, and accordingly has placed strong emphasis on its
ongoing program of regular maintenance, periodic

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renovation and capital improvement, it is possible that properties in the
portfolio may be sold, in whole or in part, as circumstances warrant. The
Company emphasizes equity real estate investments but may, in its discretion,
invest in mortgages, other real estate interests and other investments.

The Company seeks to reduce its operating and leasing risks through
diversification achieved by the geographic distribution of its properties and a
large tenant base, avoiding dependence on any single property or tenant. At
December 31, 1996, the Company's single largest neighborhood and community
shopping center and tenant accounted for only approximately 2.3% and 4.2%,
respectively, of the Company's annualized base rental revenues.

The Company intends to maintain a conservative debt capitalization with a ratio
of debt to total market capitalization of approximately 50% or less. As of
December 31, 1996, the Company had a debt to total market capitalization ratio
of approximately 20%.

The Company has authority to offer shares of capital stock or other senior
securities in exchange for property and to repurchase or otherwise reacquire its
Common Stock or any other securities and may engage in such activities in the
future. At all times, the Company intends to make investments in such a manner
as to be consistent with the requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), to qualify as a REIT unless, because of circumstances
or changes in the Code (or in Treasury Regulations), the Board of Directors
determines that it is no longer in the best interests of the Company to qualify
as a REIT. The Company's policies with respect to such activities may be
reviewed and modified from time to time by the Company's Board of Directors
without the vote of the stockholders.


Competition As one of the original participants in the growth of the shopping
center industry and one of the nation's largest owners and operators of
neighborhood and community shopping centers, the Company has established close
relationships with a large number of major national and regional retailers and
maintains a broad network of industry contacts. Management is associated with
and/or actively participates in many shopping center and REIT industry
organizations. Notwithstanding these relationships, there are numerous
commercial developers and real estate companies that compete with the Company in
seeking properties for acquisition and tenants who will lease space in these
properties.

Capital Resources Completion of the Company's IPO, which resulted in net cash
proceeds of approximately $116 million, permitted the Company to significantly
deleverage its real estate portfolio and has made available the public debt and
equity markets as the Company's principal source of capital for the future. A
$100 million, unsecured revolving credit facility established in June 1994,
which is scheduled to expire in June 1999, has made available funds to both
finance the purchase of properties and meet any short-term working capital
requirements. The Company has also implemented a $150 million medium-term notes
program pursuant to which it may from time to time offer for sale its senior
unsecured debt for any general corporate purposes, including (i) funding
specific liquidity requirements in its business, including property acquisitions
and redevelopment costs, and (ii) better managing the Company's debt maturities.
(See Note 7 of the Notes to Consolidated Financial Statements included in this
annual report.)

Since the IPO, the Company has completed additional offerings of its public
unsecured debt and equity raising in the aggregate over $900 million for the
purposes of repaying indebtedness, acquiring interests in neighborhood and
community shopping centers and for expanding and improving properties in the
portfolio.

It is management's intention that the Company continually have access to the
capital resources necessary to expand and develop its business. Accordingly, the
Company may seek to obtain funds through additional equity offerings or debt
financing in a manner consistent with its intention to operate with a
conservative debt capitalization policy.

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The Company anticipates that adequate cash will be available from operations to
fund its operating and administrative expenses, regular debt service obligations
and the payment of dividends in accordance with REIT requirements in both the
short-term and long-term.

Inflation and Other Business Issues Substantially all of the Company's leases
contain provisions designed to mitigate the adverse impact of inflation. Such
provisions include clauses enabling the Company to receive payment of additional
rent calculated as a percentage of tenants' gross sales above predetermined
thresholds ("percentage rents"), which generally increase as prices rise, and/or
escalation clauses, which generally increase rental rates during the terms of
the leases. Such escalation clauses are often related to increases in the

consumer price index or similar inflation indices. In addition, many of the
Company's leases are for terms of less than 10 years, which permits the Company
to seek to increase rents upon renewal to market rates. Most of the Company's
leases require the tenant to pay an allocable share of operating expenses,
including common area maintenance costs, real estate taxes and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. The Company periodically evaluates its
exposure to short-term interest rates and will, from time to time, enter into
interest rate protection agreements which mitigate, but do not eliminate, the
effect of changes in interest rates on its floating-rate loans.

As an owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults or nonrenewal of
tenant leases, environmental matters, financing availability and changes in real
estate and zoning laws. The success of the Company also depends upon trends in
the economy, including interest rates, income tax laws, governmental regulations
and legislation and population trends.

Operating Practices Nearly all operating functions, including leasing, legal,
construction, data processing, maintenance, finance and accounting, are
administered by the Company from its executive offices in New Hyde Park, New
York. The Company believes it is critical to have a management presence in its
principal areas of operation; accordingly, the Company also maintains regional
offices in Boca Raton and Orlando, Florida; Philadelphia, Pennsylvania; and
Dayton and Cleveland, Ohio. A total of 91 persons are employed at the Company's
executive and regional offices.

The Company's regional offices are generally staffed by a manager and the
support personnel necessary to both function as local representatives for
leasing and promotional purposes and to complement the corporate office efforts
to ensure that property inspection and maintenance objectives are achieved. The
regional offices are important in reducing the time necessary to respond to the
needs of the Company's tenants. Leasing and maintenance personnel from the
corporate office also conduct regular inspections of each shopping center.

The Company employs a total of 63 persons at several of its larger properties in
order to more effectively administer its maintenance and security
responsibilities.

Management Information Systems Virtually all operating activities are supported
by a sophisticated computer software system designed to provide management with
operating data necessary to make informed business decisions on a timely basis.
These proprietary systems have been developed by the Company over the last
fifteen years and reflect a commitment to quality management and tenant
relations. The Company has integrated an advanced mid-range computer with
personal computer technology, creating a management information system that
facilitates the development of property cash flow budgets, forecasts and related
management information.

Qualification as a REIT The Company has elected, commencing with its taxable
year which began January 1, 1992, to qualify as a REIT under Sections 856
through 860 of the Code. If, as the Company believes, it is organized and
operates in such a manner so as to qualify and remain qualified as a REIT


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under the Code, the Company generally will not be subject to Federal income tax,
provided that distributions to its stockholders equal at least the amount of its
REIT taxable income as defined under the Code.

Recent Developments

Shopping Center Acquisitions -

In January 1996, the Company acquired Vine Street Square shopping center,
located on West Vine Street in Kissimmee, FL for approximately $6.6 million. The
property comprises approximately 134,000 square feet of GLA and has been
redeveloped to accommodate occupancy by Office Max and Kash N' Karry.

In March 1996, the Company acquired the Century Plaza and Oakcreek Village
shopping centers, located in Orlando, FL and Durham, NC, respectively. These
properties were purchased in separate transactions for an aggregate purchase
price of approximately $12.2 million. Century Plaza is a 129,000 square foot
shopping center located on South Semoran Boulevard anchored by Ross Stores and
Big Lots. Tenants at Oakcreek Village, which comprises 116,000 square feet of
GLA on Chapel Hill Boulevard, include TJ Maxx and Durham Sporting Goods.

In April 1996, the Company acquired a free-standing 41,000 square foot facility
occupied by the Kroger Company. This property, located on North Garland Avenue
in Garland, TX, was purchased for approximately $1 million.

In May 1996, the Company joint ventured the acquisition of fee title to Hayden
Plaza, a community shopping center located on North Cave Creek Road in Phoenix,
AZ. The Company's interest in this property, comprising 187,000 square feet of
GLA and anchored by Home Depot, was acquired for $1.7 million. The Company had
previously acquired a leasehold estate in the anchor store premises at this
shopping center.

In August 1996, the Company acquired White Lake Commons shopping center located
in Clarkston, MI. This 157,000 square foot shopping center, located on Dixie
Highway, was acquired for approximately $11.5 million and is anchored by A&P
Supermarkets and Franks Nursery.

Retail Property Acquisitions-

In January 1996, the Company entered into two sale-leaseback transactions
pursuant to which it acquired fee title to 16 retail properties from Venture
Stores ("Seller/Tenant"), a family value department store operator. These
properties, which comprise approximately 1.6 million square feet of GLA in
Texas, Iowa, Oklahoma, Illinois, and Kansas, were acquired by the Company for an
aggregate purchase price of $40 million. Simultaneously, the Company executed
two long-term net leases with the Seller/Tenant covering the 16 locations
pursuant to which this Seller/Tenant may remain in occupancy and continue to
conduct business in these premises.

In August 1996, the Company acquired interests in 16 retail properties,
including 2 properties to which the Company and its affiliates already held fee

title, for an aggregate price of approximately $21.8 million. These property
interests, located in Pennsylvania (12) and New Jersey (4), and aggregating
approximately 1.6 million square feet of GLA, were acquired from a retailer
which had elected to discontinue operations of its discount department store
division. The Company has executed a long-term net lease with Kohl's Department
Stores covering 6 of these locations and has signed leases with Value City and
J.C. Penney for two additional locations. The Company is actively involved in
negotiations concerning the re-tenanting and redevelopment of the remaining
properties.

Other Property Acquisitions-

In December 1996, the Company acquired a joint venture interest in a 53,000
square foot building located on Market Street in Upper Darby, PA for
approximately $.9 million. The upper floors of this multi-story facility will

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be redeveloped for occupancy by Mercy Health Corporation, a leading healthcare
system in the Philadelphia market, while the ground floor will be redesigned for
complementary retail tenants.

The Company, as a regular part of its business operations, will continue to
actively seek properties for acquisition which have below market-rate leases or
other cash flow growth potential.

Property Redevelopments -

The Company has an ongoing program to reformat and re-tenant its properties to
maintain or enhance its competitive position in the marketplace. During 1996,
the Company substantially completed the redevelopment of 7 shopping centers in
its portfolio, including properties located in Great Barrington, MA; Coral
Springs, FL; West Mifflin, PA; Centerville, OH; Jennings, MO; Springfield, MO
and Kissimmee, FL, at a total cost of approximately $15 million. The Company is
currently involved in redeveloping several other shopping centers, most notably
its properties in Charles Town, WV; North Miami, FL; Philadelphia, PA; Richboro,
PA; Westmont, NJ and Plainview, NY. Each redevelopment represents an opportunity
for the Company to capitalize on its leasing, site planning, design and
construction expertise. The Company anticipates its capital commitment toward
these and other redevelopments during 1997 will be approximately $40 million.
These projects, which are currently proceeding on schedule and in line with the
Company's budgeted costs, are expected to contribute to growth in the Company's
funds from operations in the future.

Property Dispositions -

In September 1996, the Company disposed of a property in Watertown, NY. Cash
proceeds from the disposition totaling approximately $1.8 million, together with
an additional $2.2 million cash investment, were used to acquire an exchange
shopping center property located in Lafayette, IN during January 1997.

Financings -


Debt. In June 1996, the Company amended its $100 million, unsecured revolving
credit facility with a group of banks to provide, among other things, for a
reduction in the annual fee payable on that portion of the facility which
remains unused from time to time. The facility term was also extended one year
and is now scheduled to expire on June 30, 1999.

In August 1996, the Company redeemed $50 million unsecured floating-rate bonds
bearing interest at LIBOR plus .50% with the proceeds of a $50 million unsecured
medium-term note priced at LIBOR plus .12%. (See Note 7 of the Notes to
Consolidated Financial Statements included in this annual report.)

Equity. On February 2, 1996 the Company completed a primary public stock
offering of 2,200,000 shares of Common Stock at $26.50 per share. The proceeds
from this sale of Common Stock, net of related transaction costs of
approximately $3.4 million, totaled approximately $55 million. Such proceeds
have been used primarily for the acquisition of neighborhood and community
shopping centers.

On April 10, 1996, the Company completed a public offering of 4,000,000
Depositary Shares, each representing 1/10 of a share of the Company's 8-3/8%
Class C Cumulative Redeemable Preferred Stock, par value $1.00 per share (the
"Depositary Shares"), at $25.00 per Depositary Share. The proceeds from this
sale of Depositary Shares, net of related transaction costs of approximately
$3.6 million, totaled approximately $96.4 million. Such proceeds have been used
primarily for shopping center and retail property acquisitions and the property
redevelopments described above.

See Note 12 of the Notes to Consolidated Financial Statements included in this
annual report.

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KC Holdings, Inc.

To facilitate the Company's November 1991 IPO, forty-six shopping center
properties and certain other assets, together with indebtedness related thereto,
were transferred to subsidiaries of KC Holdings, a newly formed corporation that
is owned by the stockholders of the Company prior to the IPO. The Company,
although having no ownership interest in KC Holdings or its subsidiary
companies, was granted ten-year, fixed-price options to reacquire the real
estate assets owned by KC Holdings' subsidiaries, subject to any liabilities
outstanding with respect to such assets at the time of an option exercise. As of
February 28, 1997, KC Holdings' subsidiaries had conveyed fourteen shopping
center properties back to the Company and had disposed of ten additional centers
in transactions with third parties. The members of the Company's Board of
Directors who are not also shareholders of KC Holdings have unanimously approved
the purchase of each of the fourteen shopping centers that have been reacquired
by the Company from KC Holdings. (See Notes 10 and 14 of the Notes to
Consolidated Financial Statements included in this annual report.)

The Company manages 18 of KC Holdings' 22 shopping center properties pursuant to
a management agreement. KC Holdings' other four shopping center properties are
managed by unaffiliated joint venture partners.


Acquisition Option -

The Company holds 10-year acquisition options which expire in November 2001, to
reacquire interests in the 22 shopping center properties owned by KC Holdings'
subsidiaries. The option exercise prices are fixed and payable in shares of
Common Stock or, in the event payment in the form of Common Stock could
jeopardize the Company's status as a REIT, an equivalent value in cash. If the
Company exercises its options to acquire all the remaining shopping center
properties, the maximum aggregate amount payable to KC Holdings would be
approximately $11.1 million, or approximately 330,000 shares of Common Stock
(assuming shares valued at the closing price on the New York Stock Exchange of
$33.63 per share as of February 28, 1997). The Company would acquire the
properties subject to any existing mortgage indebtedness and other liabilities
on the properties. The acquisition options enable the Company to obtain any
appreciation in the value of these properties over the option exercise prices,
while eliminating the Company's interim exposure to leverage and operating
risks.

The option exercise prices for the shopping center properties are generally
equal to 10% of KC Holdings' share of the mortgage debt which was outstanding on
the properties at the date of the IPO. If, however, the market value of the
Company's Common Stock at the time an option is exercised is less than $13.33
per share (the IPO price), then the option exercise price will decline
proportionately (subject to maximum reduction of 50%).

The 22 shopping center properties subject to the acquisition options are held in
8 subsidiaries of KC Holdings. Thirteen of these properties are subject to a
single lease and/or a single cross-collateralized mortgage and are therefore
held by a single subsidiary. Four of the properties, which are owned in two
separate joint ventures and managed by unaffiliated joint venture partners, are
held by two additional subsidiaries, and the remaining five shopping center
properties are each held by separate subsidiaries. The Company may exercise its
acquisition options separately with respect to each subsidiary.

The acquisition options may be exercised by either (i) a majority of the
Company's directors who are not also stockholders of KC Holdings, provided that
the pro forma annualized net cash flows of the properties to be acquired exceed
the dividend yield on the shares issued to exercise each option, or (ii) a
majority of the Company's stockholders who are not also stockholders of KC
Holdings.

KC Holdings' subsidiaries may sell any of the properties subject to the
acquisition options to any third party unaffiliated with KC Holdings or its
stockholders, provided that KC Holdings provides the Company with a 30-day right
of first refusal notice with regard to such sale. KC Holdings may cause such a
selling subsidiary to distribute any sale proceeds to KC Holdings or

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its stockholders, provided that the option exercise price with respect to such
subsidiary is reduced by the amount that is distributed, and further provided

that no amount may be distributed so as to cause the option exercise price for
any subsidiary to be reduced to less than $1.

Each of KC Holdings' subsidiaries may pay dividends to KC Holdings to the extent
of net operating cash flow. In addition, any KC Holdings subsidiary may make
distributions to KC Holdings in excess of net operating cash flow, provided that
the option exercise price with respect to such subsidiary is reduced by the
amount of such distribution, and further provided that no amount may be
distributed so as to cause the option exercise price for any subsidiary to be
reduced to less than $1. KC Holdings may increase the indebtedness in its
subsidiaries for the purpose of improving, maintaining, refinancing or operating
the related shopping center properties. Such indebtedness may include borrowings
from the stockholders of KC Holdings.

In the event of a complete casualty or a condemnation of a property held by any
of KC Holdings' subsidiaries, the acquisition option will terminate with respect
to such property and the option shall continue to be effective with respect to
any other properties held by such subsidiary.

Each of KC Holdings' subsidiaries has agreed with the Company that it will
engage in no activities other than in connection with the ownership, maintenance
and improvement of the properties that it owns and only to the extent that the
Company could engage in such activities without receiving or earning
non-qualifying income (in excess of certain limits) under the REIT provisions of
the Code or without otherwise impairing the Company's status as a REIT. In
addition, KC Holdings has covenanted not to engage in any other real estate
activity. The Company has agreed not to make loans to KC Holdings or its
subsidiaries.

Exchange Listings

The Company's Common Stock, Class A Depositary Shares, Class B Depositary Shares
and Class C Depositary Shares are traded on the New York Stock Exchange under
the trading symbols "KIM", "KIMprA", "KIMprB" and "KIMprC", respectively.

Item 2. Properties

Real Estate Portfolio As of February 28, 1997 the Company's shopping center
portfolio was comprised of approximately 27.5 million square feet of GLA in 208
neighborhood and community shopping center properties and 2 regional malls,
located in 29 states. Neighborhood and community shopping centers comprise the
primary focus of the Company's current portfolio, representing approximately 96%
of the Company's total shopping center GLA. As of February 28, 1997
approximately 87% of the Company's neighborhood and community shopping center
space was leased, and the average annualized base rent per leased square foot
was $6.21 ($6.42 as adjusted to eliminate the effect of 1996 property
acquisitions). Such occupancy percentage would approximate 90%, as adjusted to
eliminate the effect of the Company's August 1996 retail properties acquisition
as discussed in Recent Developments - Retail Property Acquisitions.

The Company's neighborhood and community shopping center properties, generally
owned and operated through subsidiaries or joint ventures, had an average size
of approximately 126,000 square feet as of February 28, 1997. The Company
retains its shopping centers for long-term investment and consequently pursues a

program of regular physical maintenance together with major renovations and
refurbishing to preserve and increase the value of its properties. These
projects usually include renovating existing facades, installing uniform
signage, resurfacing parking lots and enhancing parking lot lighting.

The Company's neighborhood and community shopping centers are usually "anchored"
by a national or regional discount department store, supermarket or drugstore.
As one of the original participants in the growth of the shopping center
industry and one of the nation's largest owners and operators of shopping
centers, the Company has established close relationships with a large number of
major national and regional retailers. National and regional companies that are
tenants in the Company's shopping center properties include

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Kohls Department Stores, Venture Stores, WalMart, Toys/Kids 'R Us, Hills
Department Stores, TJX Companies, Schottenstein Stores and KMart Corp.

A substantial portion of the Company's income consists of rent received under
long-term leases. Most of the leases provide for the payment of fixed base
rentals monthly in advance and for the payment by tenants of an allocable share
of the real estate taxes, insurance, utilities and common area maintenance
expenses incurred in operating the shopping centers. Although a majority of the
leases require the Company to make roof and structural repairs as needed, a
number of tenant leases place that responsibility on the tenant, and the
Company's standard small store lease provides for roof repairs to be reimbursed
by the tenant as part of common area maintenance. The Company's management
places a strong emphasis on sound construction and safety at its properties.

Approximately 1,000 of the Company's 2,364 leases also contain provisions
requiring the payment of additional "percentage rents" should the tenants' gross
sales levels exceed predetermined thresholds. Percentage rents accounted for
approximately 3% of the Company's revenues from rental property for the year
ended December 31, 1996.

Minimum base rental revenues and operating expense reimbursements accounted for
approximately 97% of the Company's total rental revenues for the year ended
December 31, 1996. The Company's management believes that the average base rent
per square foot for the Company's existing leases is generally lower than the
prevailing market rate base rents in the geographic regions where the Company
operates, reflecting the potential for future growth.

The Company seeks to reduce its operating and leasing risks through geographic
and tenant diversity. No single neighborhood and community shopping center
accounted for more than 1.5% of the Company's total shopping center gross
leasable area or more than 2.3% of total annualized base rental revenues as of
December 31, 1996. No single tenant accounted for more than 4.2% of total
annualized base rental revenues as of December 31, 1996. The Company maintains
an active leasing and capital improvement program that, combined with the high
quality of the locations, has made, in management's opinion, the Company's
properties attractive to tenants.

The Company's management believes its experience in the industry and its

relationships with numerous national and regional tenants gives it an advantage
in an industry where ownership is fragmented among a large number of property
owners.

Given its intention to primarily focus its portfolio on neighborhood and
community shopping centers, the Company may, if suitable opportunities arise,
sell its regional malls or exchange them for a portfolio of neighborhood and
community shopping centers.

Retail Store Leases In addition to its neighborhood and community shopping
center portfolio and two regional malls, the Company holds interests in retail
store leases relating to approximately 5.1 million square feet of anchor store
premises in 57 neighborhood and community shopping centers located in 23 states.
As of February 28, 1997 approximately 99% of these premises had been sublet to
retailers which lease the stores pursuant to net lease agreements providing for
average annualized base rental payments to the Company of $3.84 per square foot.
The Company's average annualized base rental obligation pursuant to its retail
store leases with the fee owners of such subleased premises is approximately
$2.78 per square foot. The average remaining primary term of the Company's
retail store leases (and similarly the remaining primary terms of its sublease
agreements with the tenants currently leasing such space) is approximately 4.3
years, excluding options to renew such leases for terms which generally range
from 10-30 years.

Ground-Leased Properties The Company has 21 shopping center properties that are
subject to long-term ground leases where a third party owns and has leased the
underlying land to the Company (or an affiliated joint venture) to construct
and/or operate a shopping center. The Company or the joint venture pays rent for
the use of the land and generally is responsible for all costs and expenses
associated with the building and improvements. At the end of

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these long-term leases, unless extended, the land together with all improvements
revert to the land owner.

Undeveloped Land Although the Company does not own any unimproved land tracts
that it intends to develop as new shopping centers, the Company does own parcels
of land adjacent to certain of its existing shopping centers that are held for
possible expansion. At times, should circumstances warrant, the Company may
develop or dispose of these parcels.

The table on pages 13 to 19 sets forth more specific information with respect to
each of the Company's shopping center properties as of December 31, 1996.

Item 3. Legal Proceedings

The Company is not presently involved in any litigation nor to its knowledge is
any litigation threatened against the Company or its subsidiaries that, in
management's opinion, would result in any material adverse effect on the
Company's ownership, management or operation of its properties, or which is not
covered by the Company's liability insurance.


Item 4. Submission of Matters to a Vote of Security Holders

None

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Property Chart