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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998

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
- -------------------------- ------------------------

Depositary Shares, each representing
one-tenth of a share of 7-1/2% Class D
Cumulative Convertible 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 whether the registrant (i) 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 (ii) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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
---
The aggregate market value of the voting stock held by nonaffiliates of
the registrant was approximately $2.0 billion based upon the closing price on
the New York Stock Exchange for such stock on March 1, 1999.

(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.
60,168,783 shares as of March 1, 1999.

Page 1 of 69






DOCUMENTS INCORPORATED BY REFERENCE


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 expected to be held on May 20, 1999.

Index to Exhibits begins on page 37.


2






TABLE OF CONTENTS

Form
10-K
Report
Item No. Page
- -------- ------
PART I

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

2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 15

3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 16

4. Submission of Matters to a Vote of Security Holders . . . . 16

Executive Officers of the Registrant . . . . . . . . . . . . 25


PART II

5. Market for the Registrant's Common Equity
and Related Shareholder Matters . . . . . . . . . . . . . 27

6. Selected Financial Data . . . . . . . . . . . . . . . . . . 28

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 30

7A. Quantitative and Qualitative Disclosures About Market Risk. . 34

8. Financial Statements and Supplementary Data . . . . . . . . 34

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . 34



PART III

10. Directors and Executive Officers of the Registrant . . . . . 35

11. Executive Compensation . . . . . . . . . . . . . . . . . . . 35

12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . 35

13. Certain Relationships and Related Transactions . . . . . . . 35



PART IV

14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 36


3





PART I


FORWARD-LOOKING STATEMENTS


This annual report on Form 10-K, together with other statements and
information publicly disseminated by Kimco Realty Corporation (the "Company"or
"Kimco") contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995 and include this statement for purposes of complying with
these safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe our future plans, strategies and
expectations, are generally identifiable by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project" or similar
expressions. You should not rely on forward-looking statements since they
involve known and unknown risks, uncertainties and other factors which are, in
some cases, beyond the Company's control and which could materially affect
actual results, performances or achievements. Factors which may cause actual
results to differ materially from current expectations include, but are not
limited to,(i) general economic and local real estate conditions, (ii)
financing risks, such as the inability to obtain equity or debt financing on
favorable terms, (iii) changes in governmental laws and regulations, (iv) the
level and volatility of interest rates (v) the availability of suitable
acquisition opportunities and (vi) increases in operating costs. Accordingly,
there is no assurance that the Company's expectations will be realized.

Item 1. Business

General Kimco Realty Corporation is one of the nation's largest owners and
operators of neighborhood and community shopping centers. As of March 1, 1999,
the Company's portfolio was comprised of 440 property interests including 368
neighborhood and community shopping center properties, two regional malls, 60
retail store leases, three parcels of undeveloped land, one distribution
center, one stand-alone retail warehouse and five projects under development
comprising a total of approximately 57.2 million square feet of leasable space
located in 40 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 more than 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 that better
opportunities existed to create value through the redevelopment and
re-tenanting of existing shopping centers. Furthermore, the Company's
management believed that existing properties with below market-rate leases
were available in the market at attractive prices. As a result of this
strategy, the Company has developed only two of the 291 neighborhood and
community shopping centers added to the portfolio since 1981, as compared with
68 of the 77 properties owned prior to that time.

4





During 1998, the Company, through a merger transaction, completed the
acquisition of The Price REIT, Inc., a Maryland corporation (the "Price REIT")
(see Recent Developments - Price REIT Merger). Prior to the merger, Price REIT
was a self-administered and self-managed equity REIT that was primarily
focused on the acquisition, development, management and redevelopment of large
retail community shopping center properties concentrated in the western part
of the United States. With the completion of the Price REIT merger, the
Company expanded its presence in certain western states including California,
Arizona and Washington. In addition, Price REIT had strong ground-up
development capabilities. These development capabilities, coupled with the
Company's own construction management expertise, provides the Company, on a
selective basis, the ability to pursue ground-up development opportunities.

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, (ii)
the selective acquisition of established income-producing real estate
properties and properties requiring significant re-tenanting and
redevelopment, primarily in neighborhood and community shopping centers and
(iii)the selective acquisition of land parcels for the development of
neighborhood and community shopping centers in geographic regions in which 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. Equity investments may be
subject to existing mortgage financing and other indebtedness or such
financing or indebtedness may be incurred in connection with acquiring such
investments. Any such financing or indebtedness will have priority over the
Company's equity interest in such property. The Company may make loans to
joint ventures in which it may or may not participate in the future.

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 renovation and capital improvement, it is
possible that properties in the portfolio may be sold, in whole or in part, as
circumstances warrant, subject to REIT qualification rules.

The Company emphasizes equity real estate investments, but may, at its
discretion, invest in mortgages, other real estate interests and other
investments. The mortgages in which the Company may invest may be either first
mortgages, junior mortgages or other mortgage-related securities.

The Company may legally invest in the securities of other issuers, for the
purpose, among others, of exercising control over such entities, subject to
the gross income and asset tests necessary for REIT qualification. The Company
may, on a selective basis, acquire all or substantially all securities or
assets of other REITs or similar entities where such investments would be
consistent with the Company's investment policies. In any event, the Company
does not intend that its investments in securities will require it to register
as an "investment company" under the Investment Company Act of 1940. 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. At December 31, 1998, the Company's single largest
neighborhood and community shopping center accounted for only 1.5% of the
Company's annualized base rental revenues and only 1.0% of the Company's total
shopping center GLA. At December 31, 1998, the Company's five largest tenants
include Kmart Corporation, The Home Depot, Kohls, Toys/Kids R' Us and TJX
Companies, which represent approximately 13.7%, 3.0%, 2.5%, 1.8% and 1.5%,
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, 1998, the Company had a debt to total market capitalization
ratio of approximately 32%.


5




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 the aforementioned activities may be
reviewed and modified from time to time by the Company's Board of Directors
without the vote of the Company's 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, real estate companies, financial institutions and other
investors that compete with the Company in seeking properties for acquisition
and tenants who will lease space in these properties.

Capital Resources Since the completion of the Company's IPO in 1991, the
Company has utilized the public debt and equity markets as its principal
source of capital. Since the IPO, the Company has completed additional
offerings of its public unsecured debt and equity, raising in the aggregate
over $1.9 billion for the purposes of repaying indebtedness, acquiring
interests in neighborhood and community shopping centers and for expanding and
improving properties in the portfolio.

During August 1998, the Company established a $215 million, unsecured
revolving credit facility, which is scheduled to expire in August 2001. This
credit facility, which replaced both the Company's $100 million unsecured
revolving credit facility and $150 million interim credit facility, has made
available funds to both finance the purchase of properties and meet any
short-term working capital requirements. As of December 31, 1998 there were no
borrowings outstanding under the Company's unsecured revolving credit
facility.

The Company has also implemented a $200 million medium-term notes program (the
"MTN 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, development and redevelopment costs, and (ii) managing the
Company's debt maturities. (See Note 7 of the Notes to Consolidated Financial
Statements included in this annual report on Form 10-K.)

In addition to the public debt and equity markets as capital sources, the
Company may, from time to time, obtain mortgage financing on selected
properties. As of December 31, 1998, the Company had over 300 unencumbered
property interests in its portfolio.

Additionally, on August 31, 1998, the Company filed a shelf registration on
Form S-3 for up to $750 million of debt securities, preferred stock,
depositary shares, common stock and common stock warrants. As of March 1,
1999, the Company had approximately $493.2 million available for issuance
under this shelf registration statement.

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,
unsecured debt financings and/or mortgage financings in a manner consistent
with its intention to operate with a conservative debt capitalization policy.

The Company anticipates that cash flows from operations will continue to
provide adequate capital to fund its operating and administrative expenses,
regular debt service obligations and all dividend payments in accordance with
REIT requirements in both the short-term and long-term. In addition, the
Company anticipates that cash on hand, borrowings under its revolving credit
facility, issuance of equity and public debt, as well as other debt and equity
alternatives, will provide the necessary capital required by the Company.

6




Inflation and Other Business Issues Many 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 include 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
debt.

As an owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including, among other factors,
defaults or nonrenewal of tenant leases, the financial condition and stability
of tenants, retailing trends, environmental matters and changes in real estate
and zoning laws. The success of the Company also depends upon trends in the
economy, including, but not limited to, interest rates, the availability of
financing and capital on satisfactory terms, 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, Orlando and Tampa, Florida; Philadelphia, Pennsylvania;
Dayton and Cleveland, Ohio; Chicago, Illinois; Charlotte, North Carolina;
Phoenix, Arizona and Los Angeles, California. A total of 199 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 also employs a total of 59 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 are continually expanded and
enhanced by the Company 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
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

Price REIT Merger --

On January 13, 1998, the Company, REIT Sub, Inc., a Maryland corporation and a
wholly owned subsidiary of the Company ("Merger Sub") and Price REIT, signed a
definitive Agreement and Plan of Merger dated January 13, 1998, as amended
March 5, 1998 and May 14, 1998 (the "Merger Agreement"). On June 19, 1998,
upon approval by the shareholders of the Company and Price REIT, Price REIT
was merged into Merger Sub, whereupon the separate existence of Price REIT
ceased (the "Merger").

7





In connection with the Merger, the Company acquired interests in 43
properties, located in 17 states, consisting of 39 retail community centers,
one stand-alone retail warehouse, one project under development and two
undeveloped land parcels, containing approximately 8.0 million square feet of
GLA. The overall occupancy rate of the retail community centers was
approximately 98%.

For financial reporting purposes, the Merger was accounted for under the
purchase method of accounting. Under the terms of the Merger Agreement each
share of Price REIT common stock was exchanged for one share of Kimco common
stock and .36 shares of depositary shares (the "Class D Depositary Shares"),
each Class D Depositary Share representing a one-tenth fractional interest in
a new issue of Kimco 7.5% Class D Cumulative Convertible Preferred Stock, par
value $1.00 per share (the "Class D Preferred Stock"). On June 19, 1998, the
Company issued 11,921,992 shares of its common stock and 429,159 shares of
Class D Preferred Stock (represented by 4,291,590 Class D Depositary Shares)
in connection with the Merger. The total Merger consideration was
approximately $960 million, including the assumption of approximately $310
million of debt. Management has allocated the purchase price based on the fair
value of assets and liabilities assumed. Such allocations are based on
preliminary estimates, and are subject to revision.

Additionally, in connection with the Merger, on May 18,1998, the Company
entered into a purchase agreement with Price REIT and LB I Group Inc., an
affiliate of Lehman Brothers Inc. ("LB I"), under which LB I agreed to
purchase $65 million Class A Floating Rate Cumulative Preferred Stock of Price
REIT ("Price REIT Preferred Stock"). In connection with the purchase
agreement, Price REIT issued 65,000 shares of Price REIT Preferred Stock to LB
I (with a total liquidation preference and purchase price of $65 million). As
part of the Merger, the Company assumed Price REIT's obligations under the
purchase agreement and, as part of the Merger consideration, the Price REIT
Preferred Stock was exchanged for 650,000 depositary shares (the "Class E
Depositary Shares"), each representing a one-tenth fractional interest in
65,000 shares of a new issue of Kimco Floating Rate Class E Cumulative
Redeemable Preferred Stock, par value $1.00 per share (the "Class E Preferred
Stock").

Dividends on the Class D Depositary Shares are cumulative and payable
quarterly in arrears at the rate per depositary share equal to the greater of
(i) 7.5% per annum based on a $25 per share initial value, or $1.875 per
share, or (ii) the cash dividends on the shares of the Company's common stock
into which a Class D Depositary Share is convertible plus $.0275 per quarter.
The Class D Depositary Shares are convertible at any time into the Company's
common stock at a conversion price of $40.25 per share of common stock or a
conversion rate of 0.62112 for each Class D Depositary Share. The Class D
Depositary Shares may be redeemed in whole, or from time to time, in part, on
any date on or after June 19, 2001 at the option of the Company if, for any 20
trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the average closing price per share of the
Company's common stock exceeds 120% of the conversion price or $48.30 per
share.

The dividend rate on the Class E Preferred Stock was equal to LIBOR plus 2%
per annum, adjusted quarterly, and had an initial dividend rate of 7.68% per
annum. The Class E Preferred Stock was redeemable at the option of the Company
for 150 days after its issuance at a price equal to the liquidation preference
of $1,000 per share plus accrued and unpaid dividends. The Company exercised
its option in November 1998 to redeem all of the Class E Preferred Stock for
$65.065 million, representing the liquidation preference of $65 million and
approximately $65,000 of accrued dividends. (See Note 3 of the Notes to
Consolidated Financial Statements included in this annual report on Form
10-K.)

Shopping Center Acquisitions -

In January 1998, the Company acquired seven properties, in separate
transactions, consisting of: (i) Village on the Park I and II, adjoining
shopping centers located in Aurora, Colorado, which are anchored by TJ Maxx
and contain approximately 146,000 square feet of GLA; (ii) Phar-Mor Plaza,
located in Englewood, Colorado, which is anchored by Phar-Mor and contains
approximately 80,000 square feet of GLA; (iii) Heritage West Shopping Center,
located in Lakewood, Colorado, which is anchored by Safeway Stores and
contains approximately 83,000 square feet of GLA; (iv) Quincy Place Shopping
Center, located in Aurora, Colorado, which is anchored by Blockbuster and
contains approximately 44,000 square feet of GLA; (v) Spring Creek Shopping
Center, located in Colorado Springs, Colorado, which is anchored by Cub Foods
and contains approximately 108,000 square feet of GLA; (vi) East Bank Shopping
Center, located in Aurora, Colorado, which is anchored by Albertson's and
contains approximately 111,000 square feet of GLA; and (vii) West 38th Street
Shopping Center, a single tenant property, located in Denver, Colorado,
occupied by Payless Drugs comprising approximately 18,000 square feet of GLA.
These properties were acquired for an aggregate purchase price of
approximately $43.9 million, including the

8




assumption of approximately $1.4 million and $2.8 million of mortgage debt
encumbering Phar-Mor Plaza and Quincy Place Shopping Center, respectively.

In February 1998, the Company acquired The Shoppes at West Melbourne, located
in West Melbourne, Florida, for a purchase price of approximately $11.0
million. The shopping center contains approximately 148,000 square feet of GLA
and is anchored by Service Merchandise.

In March 1998, the Company acquired three properties, in separate
transactions, consisting of (i) Marshalls Plaza, (ii) South Plains Plaza and
(iii) Poca Fiesta Shopping Center. Marshalls Plaza, located in Cranston, Rhode
Island, is anchored by Marshalls and contains approximately 130,000 square
feet of GLA. South Plains Plaza, located in Lubbock, Texas, is anchored by
PetsMart and OfficeMax and contains approximately 108,000 square feet of GLA.
Poca Fiesta Shopping Center, located in Mesa, Arizona, is anchored by Ross
Stores, and contains approximately 136,000 square feet of GLA. These
properties were acquired for an aggregate purchase price of approximately
$33.5 million, including the assumption of approximately $6.6 million and
$10.0 million of mortgage debt encumbering South Plains Plaza and Poca Fiesta
Shopping Center, respectively.

In April 1998, the Company acquired Wellington Park Shopping Center for a
purchase price of approximately $10.9 million. Wellington Park Shopping
Center, located in Cary, North Carolina, is anchored by Lowes Food and
contains approximately 103,000 square feet of GLA.

In May 1998, the Company acquired three properties, Bayshore Gardens Shopping
Center, Lafayette Marketplace and the Phar-Mor building, in separate
transactions, for an aggregate purchase price of approximately $37.1 million,
which included the issuance of partnership units valued at approximately $5.0
million in connection with the Bayshore Gardens acquisition. Bayshore Gardens
Shopping Center, located in Bradenton, Florida, is anchored by Publix and TJ
Maxx, and contains approximately 163,000 square feet of GLA. Lafayette
Marketplace, located in Lafayette, Indiana, is anchored by Michaels and
Staples, and contains approximately 190,000 square feet of GLA. The Phar-Mor
building, located in Greenville, South Carolina, is a 60,000 square foot
building adjacent to a property previously acquired by the Company in December
1997 and is occupied by Phar-Mor.

In July 1998, the Company acquired, in separate transactions, three
neighborhood and community shopping centers comprising approximately 381,000
square feet of GLA in three states, for an aggregate purchase price of
approximately $35.3 million. The properties acquired include (i) Shoppes at
Rivergate, (ii)Center of the Hills and (iii) Juan Tabo Plaza. Shoppes at
Rivergate, located in Goodlettsville, Tennessee, is anchored by Uptons
Department Store and Stein Mart and contains approximately 171,000 square feet
of GLA. Center of the Hills, located in Austin, Texas, is anchored by H.E.B.
Grocery and contains approximately 153,000 square feet of GLA. Juan Tabo
Plaza, located in Albuquerque, New Mexico, is anchored by Walgreens and
contains approximately 57,000 square feet of GLA.

In September, 1998, the Company acquired Northwest Square located in Columbus,
Ohio for approximately $15.1 million. This shopping center is anchored by
Borders Books and contains approximately 113,000 square feet of GLA.

In October 1998, the Company acquired 3 shopping centers, in separate
transactions, for approximately $51.0 million, including the assumption of
approximately $28.4 million of mortgage debt in connection with two of the
acquisitions. The properties acquired include (i) Oak Park Commons located in
Plainfield, New Jersey; (ii) Trolley Station, located in Memphis, Tennessee
and (iii) Vista Ridge Plaza, located in Lewisville, Texas. Oak Park Commons is
anchored by A&P Supermarkets and Sears Hardware, and contains approximately
137,000 square feet of GLA. Trolley Station is anchored by Toys R' Us and
OfficeMax, and contains approximately 167,000 square feet of GLA. Vista Ridge
Plaza is anchored by Drug Emporium and contains approximately 94,000 square
feet of GLA.

During November, 1998, the Company acquired Westgate Plaza and North Point
Shopping Center, in separate transactions, for an aggregate purchase price of
approximately $33.0 million, $22.1 million of which was financed with mortgage
debt on one of the properties. Westgate Plaza, located in Amarillo, Texas, is
anchored by Kmart and Builders Square, and contains approximately 238,000
square feet of GLA. North Point Shopping Center, located in Joplin, Missouri,
is anchored by Hobby Lobby, and contains approximately 147,000 square feet of
GLA.

9




During December, 1998, the Company acquired three properties, in separate
transactions, for an aggregate purchase price of approximately $32.2 million.
Santee Town Center Promenade, located in Santee, California is anchored by
Office Depot and Ross Stores, and contains approximately 97,000 square feet of
GLA. Village Commons Shopping Center, located in Tallahassee, Florida, is
anchored by Stein Mart and Ben Franklin and contains approximately 106,000
square feet of GLA. The Piers Shopping Center located in Port Richey, Florida,
is anchored by Staples and Circuit City and contains approximately 103,000
square feet of GLA.

Venture Stores, Inc. Properties Acquisition -

In August 1997, certain subsidiaries of the Company acquired certain real
estate assets from Venture Stores, Inc. ("Venture") consisting of interests in
49 fee and leasehold properties totaling approximately 5.9 million square feet
of leasable area located in seven states. The aggregate price was
approximately $130 million, consisting of $70.5 million in cash and the
assumption of approximately $59.5 million of existing mortgage debt on certain
of these properties. Simultaneously with this transaction, the Company entered
into a long-term unitary net lease with Venture covering all premises occupied
by Venture on these properties. As a result of this transaction, Venture was
the primary or sole tenant at 60 of the Company's locations as of December 31,
1997.

In January 1998, Venture filed for protection under Chapter 11 of the United
States Bankruptcy Code. On April 27, 1998, Venture announced it would
discontinue its retail operations and that it had reached an agreement to sell
its leasehold position at 89 locations to the Company, including 56 properties
pursuant to two unitary leases already in place with the Company, 30
properties pursuant to a master lease with Metropolitan Life Insurance Company
("Metropolitan Life") and three properties leased by Venture from others. The
purchase price for the leasehold positions was $95.0 million, less certain
closing adjustments, but is subject to upward adjustment based on the
Company's success in re-tenanting the properties over a two-year period. On
July 17, 1998, the Company purchased the leasehold positions with an initial
cash payment to Venture of approximately $50 million. Simultaneous with this
transaction, the Company leased 46 of these locations to Kmart Corporation. As
a result of these additional leases to Kmart Corporation, Kmart Corporation
accounted for approximately 13.7% of the Company's annualized base rental
revenues as of December 31, 1998.

The Company also reached an agreement with Metropolitan Life to purchase the
30 fee and leasehold positions which were leased by Metropolitan Life to
Venture, for an aggregate purchase price of $167.5 million. This transaction
was completed on July 1, 1998.

During August 1998, the Company acquired from Venture five additional
leasehold positions, including two leases already in place with the Company,
for an aggregate purchase price of approximately $2.2 million. Simultaneous
with this transaction, the Company leased these five locations, along with
five other former Venture locations, to a national retailer.

As of December 31, 1998, the Company has leased substantially all of the
vacant space at 76 locations and sold 2 of the locations acquired in the above
transactions (See Recent Developments - Property Dispositions). The Company is
currently negotiating with other major retailers concerning the re-tenanting
of the remaining locations.

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 Developments and 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 1998,
the Company substantially completed the redevelopment and re-tenanting of
various shopping centers, most notably, its properties in Richboro,
Pennsylvania; Mesa, Arizona; Upper Arlington, Ohio; Orlando, Florida and
Charleston, South Carolina. The Company expended approximately $40 million in
connection with its major redevelopment and re-tenanting projects during 1998.
The Company is currently involved in redeveloping several other shopping
centers, including its properties in Salem, New Hampshire; North Miami,
Florida and Manhasset, New York. The Company anticipates its capital
commitment toward these and other redevelopment projects will be approximately
$30 million during 1999.

10




As of December 31, 1998, the Company was in progress on three ground-up
development projects located in Bridgewater, New Jersey, Houston, Texas and
Cedar Hill, Texas. These projects were substantially pre-leased prior to the
commencement of construction. During 1998, the Company expended approximately
$28.6 million in connection with the purchase of land and construction costs
related to these projects. The Company anticipates its capital commitment
toward these and other development projects including projects scheduled to
begin in early 1999 in Chandler, Arizona and San Antonio, Texas, will be
approximately $120 million during 1999.

Each development and redevelopment project represents an opportunity for the
Company to capitalize on its leasing, site planning, design and construction
expertise. 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 -

During January 1998, the Company disposed of a property in Pinellas Park,
Florida. Proceeds from the disposition totaling approximately $2.3 million,
together with an additional $7.1 million cash investment, were used to acquire
an exchange shopping center property located in Cranston, Rhode Island during
March 1998.

During December 1998, the Company disposed of a vacant distribution center and
adjacent facility located in O'Fallon, Missouri, which were acquired as part
of the Venture transactions, for $10 million, which amount approximated their
net book value.

Kimco Select Investments -

Kimco Select Investments, a New York general partnership ("Kimco Select"), was
formed in 1997 to provide the Company, through its 90% ownership interest, the
opportunity to make investments outside of its core neighborhood and community
shopping center business. Although potential investments may be largely
retail-focused, Kimco Select may invest in other asset categories. Kimco
Select will focus on investments where the intrinsic value in the underlying
assets may provide potentially superior returns relative to the inherent risk.
These investments may be in the form of direct ownership of real estate,
mortgage loans, public and private debt and equity securities that Kimco
Select believes are undervalued, unoccupied properties, properties leased to
weak or bankrupt tenants and other assets.

Kimco Select is managed by David M. Samber, formerly President and Chief
Operating Officer of the Company, who owns the remaining 10% ownership
interest in Kimco Select. The Company has made an initial commitment of $35
million towards investments by Kimco Select and may increase its commitment as
management deems appropriate.

During January 1998, Kimco Select, through a partnership investment, acquired
fee interests in three properties from a retailer in the Chicago, IL market
comprising approximately 516,000 square feet of GLA for an aggregate purchase
price of approximately $23.7 million. These properties include approximately
70,000 square feet of showroom space and adjoining warehouses of approximately
100,000 square feet at each location. Simultaneous with this transaction, the
Company leased, to a national furniture retailer, the showroom portion of each
property under individual long-term leases. The Company is currently planning
the redevelopment of the warehouse portion of each property.

During 1998, Kimco Select, through a partnership investment, acquired a
leasehold position and expended approximately $2.4 million to construct a
50,000 square foot ambulatory care facility, which is anchored by Wellness
Place, a regional health care provider, and contains complementary retail
space. This property is located in Trexlertown, Pennsylvania.

During 1997, Kimco Select through a partnership investment, acquired an
interest in a multi-story building in Eastwick, PA. This 39,000 square foot
property, and a 53,000 square foot property in Upper Darby, PA previously
acquired, have been redeveloped as ambulatory care facilities, which are
anchored by Mercy Health Corporation, a leading regional health care system
and contain complementary retail space. During 1998, Kimco Select obtained
mortgage financing of $9.0 million on these properties. This fixed-rate
non-recourse mortgage bears interest at 7% per annum and matures in 2008.
Through December 31, 1998, acquisition and redevelopment costs related to
these two properties totaled approximately $13 million.

11




Kimco Select has also acquired (i) various first mortgage loan participations,
(ii) certain public bonds and (iii) joint venture interests in two entities
which own 3 office buildings in Miami, FL. The aggregate acquisition costs
related to these investments was approximately $4.3 million.

Other Transactions -

During 1998, the Company invested approximately $19.0 million in a partnership
which acquired and leased-back 11 automotive dealerships. The Company has a
50% interest in this partnership.

In December 1998, the Company invested approximately $3.6 million in a
partnership which acquired a shopping center property in Bronx, New York for
approximately $34 million, including mortgage debt of approximately $27
million. The Company has a 50% interest in this partnership.

In addition, the Company acquired a first mortgage on a shopping center in
Manhasset, New York for approximately $21 million and has entered into a
contract to acquire fee title to this property.

Financings -

Unsecured Debt. During 1998, the Company issued an aggregate principal amount
of $290 million of unsecured notes under its MTN program. These unsecured
notes are comprised of (i) $100 million seven-year fixed-rate notes bearing
interest at 6.73% per annum and maturing in June 2005, (ii) $30 million
eight-year fixed-rate notes bearing interest at 6.93% per annum and maturing
in July 2006, (iii) $60 million two-year floating-rate notes bearing interest
at Libor plus .15% per annum and maturing in August 2000 and (iv) $100 million
ten-year Remarketed Reset notes bearing interest initially at LIBOR plus .30%
and maturing in August 2008. The Company has entered into interest rate swap
agreements which have effectively fixed the interest rate on the $60 million
floating-rate notes and $100 million Remarketed Reset notes at 5.91% per annum
and 5.92% per annum, respectively. The net proceeds from these issuances were
used to repay indebtedness and for the acquisition of neighborhood and
community shopping centers. (See Note 7 of the Notes to Consolidated Financial
Statements included in this annual report on Form 10-K.)

Mortgage Financing. During November 1998, the Company obtained mortgage
financing aggregating approximately $272.3 million on 20 of its properties.
The mortgages are non-recourse, non-cross collateralized ten-year first
mortgages, which bear interest at an average fixed rate of 6.585%. These
properties were financed in anticipation of the commencement of the New
Investment Vehicle (See Recent Developments-New Investment Vehicle). The net
proceeds from these mortgages were used primarily for the acquisition of
neighborhood and community shopping centers.

Credit Facility. On August 21, 1998, the Company established a $215 million
unsecured revolving credit facility (the "Credit Facility") with a group of
banks. The Credit Facility is scheduled to expire in August 2001. Under the
terms of the Credit Facility, funds may be borrowed for general corporate
purposes, including (i) funding property acquisitions and (ii) development and
redevelopment costs. Interest on borrowings under the Credit Facility accrues
at a spread (currently .50%) to LIBOR, which fluctuates in accordance with
change in the Company's senior debt ratings. This Credit Facility replaced the
Company's (i) $100 million unsecured revolving credit facility and (ii) $150
million interim credit facility.

Equity. During 1998, the Company completed 16 public stock offerings issuing
an aggregate 7.6 million shares of common stock at prices ranging from
$36.0625 to $39.6875 per share. The net proceeds from these sales of common
stock, totaling approximately $278.3 million (after related transaction costs
of approximately $11.5 million), have been used primarily for the acquisition
of neighborhood and community shopping centers and the redemption of the Class
E Preferred Stock issued in connection with the Merger. (See Notes 2 and 3 of
the Notes to Consolidated Financial Statements included in this annual report
on Form 10-K.)

12




New Investment Vehicle

In view of recent market conditions, the Company has decided to explore the
creation of a new entity that would invest in real estate that it believes
would be more appropriately financed through greater leverage than the Company
traditionally uses. These properties would include, but not be limited to,
fully developed properties with strong, stable cash flows from credit-worthy
retailers with long-term leases that have limited near-term potential for
growth through redevelopment or re-tenanting. The Company has preliminarily
established from our existing portfolio an initial portfolio of properties
with an estimated net equity value of approximately $110 million for this
entity. The Company has reached an agreement in principle with an
institutional investor to participate in this new investment vehicle. The
investors' initial capital commitment will equal the equity value of the
initial portfolio to be contributed by the Company. The agreement in principle
is subject to completion and final approval by the Company and the investor.

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, Inc. ("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 December 31, 1998, 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 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 on Form 10-K.) 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
the Company's 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 280,000 shares
of the Company's common stock (assuming shares valued at the closing price on
the NYSE of $39.69 per share as of December 31, 1998). 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.

13



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
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.

Subsequent Events

Property Acquisitions / Disposition -

During January and February 1999, the Company acquired five neighborhood and
community shopping center properties comprising approximately .7 million
square feet of GLA for approximately $79.0 million, including the assumption
of $8.5 million of mortgage debt encumbering one of the properties. These
properties are primarily anchored by supermarket or discount department store
tenants, including Kmart Corporation, Kroger and TJ Maxx.

The Company disposed of a property in Morrisville, PA during February 1999.
Cash proceeds from the disposition totaling $1.6 million approximated the
property's net book value.

Financings -

During February 1999, the Company issued $130 million 6-7/8% fixed-rate Senior
Notes due 2009. Interest on the notes is payable semi-annually in arrears. The
notes were sold at 99.85% of par value. Net proceeds from this issuance,
totaling approximately $128.9 million, after related transaction costs of
approximately $.9 million, were used, in part, to repay $100 floating-rate
senior notes that matured during February 1999 and for general corporate
purposes.

Exchange Listings
The Company's common stock, Class A Depositary Shares, Class B Depositary
Shares, Class C Depositary Shares and Class D Depositary Shares are traded on
the NYSE under the trading symbols "KIM", "KIMprA", "KIMprB", "KIMprC" and
"KIMprD" respectively.

14




Item 2. Properties

Real Estate Portfolio As of January 1, 1999 the Company's real estate
portfolio was comprised of approximately 56.7 million square feet of GLA in
365 neighborhood and community shopping center properties, two regional malls,
61 retail store leases, three parcels of undeveloped land, one distribution
center, one stand-alone retail warehouse and three projects under development,
located in 40 states. Neighborhood and community shopping centers comprise the
primary focus of the Company's current portfolio, representing approximately
98% of the Company's total shopping center GLA. As of January 1, 1999,
approximately 91% of the Company's neighborhood and community shopping center
space was leased, and the average annualized base rent per leased square foot
of the neighborhood and community shopping center portfolio was $7.97.

The Company's neighborhood and community shopping center properties, generally
owned and operated through subsidiaries or joint ventures, had an average size
of approximately 135,000 square feet as of January 1, 1999. 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. During
1998, the Company capitalized approximately $6.1 million in connection with
these property improvements.

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
Kmart Corporation, Kohl's, The Home Depot, WalMart, TJX Companies, Toys/Kids
R' Us, Shopko, Ames, A & P and Costco.

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 1,600 of the Company's 4,100 leases also contain provisions
requiring the payment of additional rent calculated as a percentage of
tenants' gross sales above predetermined thresholds. Percentage Rents
accounted for approximately 2% of the Company's revenues from rental property
for the year ended December 31, 1998.

Minimum base rental revenues and operating expense reimbursements accounted
for approximately 98% of the Company's total revenues from rental property for
the year ended December 31, 1998. The Company's management believes that the
average base rent per square foot for many of 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.

15




The Company has been able to capitalize on the below market-rate leases in its
existing shopping center portfolio to obtain increases in rental revenues
through the renewal of leases or strategic re-tenanting of space. From January
1, 1998 to December 31, 1998, excluding the effect of (i) 1998 acquisitions
and (ii) the acquisition of Price REIT, the Company increased the average base
rent per leased square foot on its portfolio of neighborhood and community
shopping centers from $6.31 to $7.00, an increase of $.69 per square foot,
which was attributable to (i) general leasing activity within the existing
portfolio and (ii) the re-leasing of the Venture locations in connection with
the acquisition of 94 leasehold positions (See Recent Developments Venture
Stores, Inc. Properties Acquisitions). The effect of 1998 acquisitions,
including the acquisition of Price REIT which had an average rent per square
foot of $10.19 at the time of the acquisition, increased the overall rent per
leased square foot of the shopping center portfolio by $.97, thus bringing the
average rent per leased square foot to $7.97 as of December 31, 1998. The
average annual base rent per leased square foot for new leases executed in
1998 was $9.30.

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 1.0% of the Company's total shopping center GLA or
more than 1.5% of total annualized base rental revenues as of December 31,
1998. The Company's five largest tenants include Kmart Corporation, The Home
Depot, Kohl's, Toys/Kids R' Us and TJX Companies, which represent
approximately 13.7%, 3.0%, 2.5%, 1.8% and 1.5%, respectively, of the
annualized base rental revenues at December 31, 1998. 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 real estate 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.

Retail Store Leases In addition to our neighborhood and community shopping
centers, as of January 1, 1999, we had interests in retail store leases
totaling approximately 5.5 million square feet of anchor stores in 61
neighborhood and community shopping centers located in 24 states. As of
January 1, 1999, approximately 93% of the space in these anchor stores had
been sublet to retailers that lease the stores under net lease agreements
providing for average annualized base rental payments to us of $4.14 per
square foot. Our average annualized base rental payments under our retail
store leases to the land owners of such subleased stores is approximately
$2.75 per square foot. The average remaining primary term of our retail store
leases (and similarly the remaining primary terms of our sublease agreements
with the tenants currently leasing such space) is approximately 4 years,
excluding options to renew the leases for terms which generally range from 5
to 25 years.

Ground-Leased Properties The Company has 54 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
these long-term leases, unless extended, the land together with all
improvements revert to the land owner.

Undeveloped Land The Company owns certain unimproved land tracts that it
intends to develop as new shopping centers (See Recent Developments - Property
Developments and Redevelopments) and owns 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 17 to 24 sets forth more specific information with respect
to each of the Company's shopping center properties as of December 31, 1998.

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.

16


PROPERTY CHART