Kimco Realty Corporation 2006 Annual Report HISTORICAL TOTAL RETURN ANALYSIS (November 1991 to February 2007) $100,000 invested in Kimco shares at the IPO would be approximately $2.6 million on February 28, 2007, 12 including the reinvestment of dividends. 11 10 9 KIM: 2,511% 7 8 5 6 4 3 2 NAREIT: 758% 1 S&P: 387% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Indexed TRA (November 1991) Note: Includes reinvestment of dividends Source: Bloomberg and Ilios Partners 1 3 5 6 7 8 11 Initial Public Offering First Retailer Services Merger with Price REIT Kimco forms the Kimco Kimco Developers Inc. Kimco acquires first Kimco completes prop- November 1991 Transaction: Kimco establishing a national Income REIT (KIR), formed and sells first shopping center in erty transactions in acquires 60 former platform establishing the development project Mexico excess of $1.2 billion, 126 Property Interests Woolco store leases Company's investment from TRS acquires 1,000th prop- Acquired 94 locations management business 9 erty interest 2 4 from Venture Stores Kimco forms joint Merger with Mid- Kimco pays first divi- Purchased 16 former Legislation signed estab- venture with RioCan Atlantic REIT increases 12 dend: $0.44 per share Clover Stores and simul- lishing Taxable REIT REIT and acquires first presence in Maryland Kimco added to the per quarter (pre-splits) taneously leased several Subsidiaries (TRS) Canadian shopping and Northern Virginia S&P 500 Index to Kohl's centers 10 Acquired Pan Pacific Kimco and institutional Retail Properties, Inc. investors acquire Price and interests in 138 Legacy Corp. shopping centers Company Profile Kimco Realty Corporation, operating as a real estate invest- mortgages secured by retail real estate and provides capital ment trust (REIT), is the largest publicly traded owner and and expertise to retailers with surplus real estate. operator of neighborhood and community shopping centers Kimco held its initial public offering in November 1991 in North America. In addition, the Company develops retail and has generated a total annualized return for shareholders, properties for sale, invests in real estate-related securities and including the reinvestment of dividends, of 23.8% through February 28, 2007. Table of Contents Letter from the Chairman and CEO. 1 Report of Independent Registered Public Accounting Firm. 44 2006 Operating Review. 7 Consolidated Financial Statements . 45 Portfolio of Properties . 18 Notes to Consolidated Financial Statements . 49 Funds From Operations Reconciliation. 30 Glossary of Terms . 78 Selected Financial Data . 31 Board of Directors. 79 Management’s Discussion and Analysis Corporate Directory . 80 of Financial Condition and Results of Operations . 32 Direct Stock Purchase and Dividend Reinvestment Plan . IBC Letter from Chairman and CEO “The only constant is change. To adapt to change, you must be innovative and constantly seek new opportunities.” Dear Fellow Shareholders, Partners and Associates: This past November marked our 15th anniversary as a public company. At the time of our IPO in 1991, I kept thinking about the opening lines of A Tale of Two Cities – “It was the best of times, it was the worst of times.” That period was the best of times – available real estate cash flow yields were in the double digits. It was the worst of times as capital was so scarce. Real estate investors could reap tremendous invest- ment returns – if only they could find the capital! Just prior to our IPO, the banks closed their doors to real estate lending. An entire industry – the savings & loans – virtually disappeared and has yet to re-surface. Our IPO price, split-adjusted, was $4.44 – only eight times the next year’s projected funds from operations (FFO), and our stock carried an 8.6% dividend yield. The total offering was $128 million, and involved a three-week road trip; we barely squeaked through! Insiders had to buy new shares to make it happen, and the stock traded down after the closing. And now, 15 years later, once again it is the best of times, and it is the worst of times! It’s the best of times in that we are enjoying a veritable flood of global liquidity; capital remains abundant and much of it thirsts for commercial real estate. The total market cap of all REITs at the time of our IPO was less than $10 billion, but today there are many REITS that each have market caps in excess of that. While it required a three-week road show to raise $128 million 15 years ago, we were able to raise $400 million in just one hour at the time of our admission to the S&P 500. And yet it is also the worst of times in that commercial real estate, today, is being offered at prices that would make it diffi- cult for us, as buyers, to generate the kind of investment returns that our shareholders expect. Our world has gone topsy-turvy! What has remained constant, however, are our dual commitments to our loyal shareholders: To pro- vide a very safe and growing dividend and to provide solid growth in per share FFO and enterprise value. And, equally as important, we seek to meet these commitments by assuming only a modest amount of risk. In this letter, I would like to share with you our program and strategy that we believe will enable us to continue to honor these commitments despite today’s low initial yields on commercial real estate. Our complementary businesses are, of course, a key ingredient in allowing us to achieve our objec- tives; so, let’s discuss them. 1 Core Shopping Center Business: First, our core shopping center business provides us with a solid foundation for dividend and cash flow stability, along with steady long-term growth. This business provided 60% of Kimco’s FFO in 2006. Our occupancy at December 31 was at an all-time high, at 95.5%, which is reflective of strong tenant demand for our space and enhances the opportunities to mine our core real estate portfolio for value-creating projects, including redevelopments. But before providing more detail, I would like to offer some historical perspective. Kmart filed for bankruptcy in January of 2002, and as a result, our Company had to deal with vacant Kmart boxes that, in the aggregate, negatively affected over 10 million square feet of our shopping center portfolio. Our occupancy plunged to 84%. Kimco had more vacant space than the total square footage owned by many of the shopping center REITs that were then public. Our prior- ity was to increase occupancy through leasing or selling the vacant Kmarts; this absorbed a significant amount of our energy for close to four years. But we were ultimately successful. Today none of our remaining Kmart properties are vacant, and we have been able to focus all of our time and energy on creating value, both in our existing portfolio and in our other business initiatives. Permit me a brief comment on Kmart before we continue. I was a member of the Creditors’ Committee of Kmart during the bankruptcy proceedings, and at that time, Kmart was suffering very substantial monthly cash flow losses. There were even concerns that Kmart might become adminis- tratively insolvent. Kmart’s management did not have a significant financial stake in the business. But Eddie Lampert saw Kmart’s potential, and he invested substantial sums in the retailer, gained control, and began managing as an owner. What a difference in the outcome for Kmart – and for Kimco, a significant portion of our lost rent was substantially mitigated by our receipt of Kmart shares in payment of our claims! I firmly believe that a business run by owners with a large stake in its success has an enormous leg up on companies where management does not. An illustration: In the tough, fiercely competitive supermarket business, three of the most outstanding chains are all pri- vate – HEB, Wegmans and Publix. We, at Kimco are proud of the fact that the management of your Company continues to maintain a very substantial stake in the ownership of the business. While never forgetting the past, let’s now look ahead. Today we have a significant number of new opportunities within our core shopping center portfolio to further our dual commitments to our shareholders for a safe, growing dividend, and growth in FFO and enterprise value. We believe that our type of shopping center is a superb long-term investment. The ratio of land value to building value is unusually high compared to offices, apartments and large regional malls. There is generally at least four times as much land as building, and the buildings are mostly of one- story construction. Thanks to changing demographics and economic growth, land values have appreciated and, in many instances, the land can support higher and better uses than simply retail space. This redevelopment strategy, of course, is much more effective when our vacancies are less than 5% instead of over 15%! One of many examples that comes to mind is our purchase of Factoria Mall located in the City of Bellevue in the Puget Sound region. Built initially in the 1970s, the property comprises 529,000 square feet of retail space. We felt the property could be redeveloped opportunistically by increasing 2 the density and adding new uses to an asset that has enjoyed a flourishing retail environment. The result is a reconfigured site plan that adds over 150,000 square feet of additional retail gross leasable area (GLA), 400 residential housing units and a new prototype Safeway and Target, along with a promenade of shops and restaurants with a lifestyle theme.