Kimco Realty Corp (KIM) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Kimco Realty Corporation first quarter earnings conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to introduce your host, Mr. Scott Onufrey. Sir, the floor is yours.

Thanks, Elsa. Thank you all for joining us for Kimco's first quarter earnings conference call.

First, I would like to read into the record the Safe Harbor statement. The statements made during the course of this conference call state the Company's and management's hopes, intentions, beliefs, expectations or projections of the future, which are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained from time-to-time in the Company's SEC filings.

During this presentation, management may make reference to certain non-GAAP financial measures we believe help investors better understand Kimco's operating results. Examples include but are not limited to funds from operations and net operating income. Reconciliations for these non-GAAP financial measures are available on our website.

Presenting this morning are Mike Pappagallo, our CFO, Dave Henry, our Chief Investment Officer, and Milton Cooper, our Chairman and CEO. Mike Flynn, our President, and several other key executives are also available for your questions at the conclusion of our prepared remarks.

I will now turn the call over to Mike Pappagallo.

Thanks, Scott. Good morning, all.

We have opened up 2005 on solid footing, posting FFO per share of $0.94 for the first quarter, an improvement of 5.6% from 2004 levels. The results were a penny higher than consensus and support our view of achieving full-year FFO levels of between $3.78 and $3.83 per share.

From an activity standpoint, the past three months were characterized by solid growth in same-site net operating income, further expansion of our investment management programs through transfers of earmarked properties, harvesting profit in our preferred equity and merchants building unit, and completing a cross-section of investing activity through direct shopping center purchases, preferred equity investments and financial assets.

The absolute levels of net operating income in our majority owned assets dropped $8.6 million to 95.1 million, reflecting the impact of the series of transfers of the mid-Atlantic and other assets throughout 2004 and into this first quarter, thereby significantly impacting comparability. The swing in NOI was about $8 million, when isolating the effect of these transfers net of new acquisitions. And additionally, the prior year NOI amounts included lease termination income of 2.5 million, as well as an installment of the K-Mart rejection claim to compensate for lost rents. On a purely same-site basis, NOI for this quarter was $82.5 million, representing an increase of 3 million or 3.7% from the prior year's quarter.

Occupancies experienced a mild dip of 20 basis points from December 2004 levels to 93.4%. The driver was a combination of the effect of the transfers to the management programs and the bankruptcy of the Odd Job chain, which resulted in 75,000 square foot reported vacancy across five locations. One other interesting statistic is that there is about 175,000 square feet of space across five locations that have purposefully been kept vacant to accommodate our re-development plans at those sites. As Mike Flynn mentioned in our last conference call, we think we can reach an occupancy level of over 94% by the end of 2005, but it might not be a straight line in getting there.

More significant for the long-term growth prospects are the number of projects and opportunities in the core portfolio to create value and increase NOI and cash flow over time. We have expanded the list of active projects in the supplemental disclosure to give you a little better insight into some of the things going on. But I will defer to Milton to give you a more in-depth perspective of this program later on.

With regard to the transfers to our investor programs that I mentioned earlier, this quarter's activity saw additions to our GE program, a sale of a property and commencement of re-development at another one in the Kimco income REIT, and the execution of an arrangement with UBS Wealth Management for five properties. In this series, Kimco holds a 20% interest, serves as the manager, and receives an excess participation of cash flow and residuals.

The investor programs continue to provide excellent earnings contribution. While here, remains a steady anchor program, generating $9.5 million of FFO, including fees for the quarter, the remaining programs generated 18.5 million for the first quarter, more than double last year's 8.8 million.

Outside of the parent and joint venture portfolios, the reported operating results once again demonstrated contributions from a variety of sources. In this quarter, the merchant building business sold two projects and a portion of an auto mall project in Chandler, Arizona. Total profits, net of tax, were $5.2 million. We also benefited from additional sales and income from the on-going Kimco portfolio liquidation, and also captured our first land sale profits from our holdings with Blue Ridge.

Finally, our preferred equity business activity continues to accelerate, both on the buy and sell side. We originated three new deals in the quarter and monetized one position with total FFO contribution of $6.8 million for this quarter. The additional earnings from Kimsouth, Blue Ridge and preferred equity were the key drivers in the jump of the quarterly income from other real estate investments that's shown on the operating statement.

In the financing markets, we were busy in the Canadian marketplace. Specifically, we increased our Canadian dollar denominated credit facility from $150 to $250 million. And in April, we entered the Canadian bond market by raising a five-year Canadian $150 million bond priced at 75 basis points over the Canadian government's five-year note, for an all end rate of 4.45%. Proceeds of this issuance will reduce short-term Canadian outstandings and fund maturing FX contracts. Canadian term debt will now be part of Kimco's permanent debt stack, in part to hedge the corresponding Canadian dollar asset base. These actions complimented a $100 million issuance completed earlier this year in the first quarter in U.S., with a coupon of 4.9% that was used to finance 2005 scheduled maturities.

With that, I'll turn it over to Dave Henry to talk a little bit more about investment activity.

Good morning. I am pleased to report that Kimco continues to be active across a broad front of business investments and initiatives. In the U.S., Kimco acquired equity interest in five shopping centers to date in 2005. The shopping centers comprise 445,000 square feet and are located in Clearwater, Florida, Poway, California, Hillsborough, New Jersey, Delran, New Jersey and Madison, Tennessee.

In addition, we were busy during the quarter transferring previously acquired properties into various joint ventures with institutional partners. To date, in 2005, we have transferred three properties into our joint venture with GE real estate, totaling $54 million and comprising 482,000 square feet. Overall, the GE venture has purchased 46 properties at a total cost of 739 million, of which seven properties and two out-parcels have now been sold for gross proceeds of $81 million. The portfolio itself continues to perform very well with occupancy at 95%.

During the quarter, we also formed a new institutional joint venture with UBS Wealth Management. To start the venture, five properties previously acquired by Kimco were transferred into the venture at an aggregate cost of $77 million. The new UBS venture is specifically targeted towards high-quality neighborhood and community centers anticipated to be held long-term.

In our joint venture with New York Common, and several other investors here, we sold one property and purchased another shopping center adjacent to an existing property in the portfolio. Overall, the KIR venture consists of 69 shopping centers, totally 4.2 million square feet and is 96 -- 97% occupied.

In our Kimsouth joint venture with Lazard on the former Conover property trust portfolio, three additional properties were sold in the first quarter of 2005. To date, the Kimsouth venture has sold 31 properties, totaling 3.3 million square feet at an aggregate price of 262 million. We are targeting the sale of the remaining eight properties in the portfolio this year.

Our preferred equity business was also active during the quarter. Within the U.S., we closed on four new preferred equity transactions totaling $5.2 million. Overall, the preferred equity program, including several Canadian transactions, now is committed of a total of $221 million or 74 existing properties and 16 development properties. Seven properties have been sold to date and the program now has outstanding investments of approximately 180 million in 83 different properties.

Our merchant building business, KDI, was also active during the quarter. KDI completed the sale of two shopping centers and portions of five additional projects, generating proceeds of $86 million. In addition, KDI acquired five new projects for development and invested approximately $48 million in its current pipeline of 25 shopping center developments.

In Kimco Select, our opportunistic investment business, we invested approximately $26 million in various debt instruments, secured by retail real estate in various locations. We also have a contract to purchase, at a discount, four mortgages secured by Winn-Dixie stores in the face amount of $17 million. In retail property solutions, where we provide capital and services directly to retailers, Kimco closed on its previously announced loan to Penn Traffic, as a part of the company's exit from bankruptcy.

Looking outside the U.S., in Canada, Kimco closed on two additional preferred equity investments with Sterling Center Corp., an existing joint venture partner in three preferred equity transactions. The two new preferred equity transactions involve two existing shopping centers in St. Eustache, Quebec, and one to be developed shopping center in Waterloo, Ontario.

South of the U.S. border, in Mexico, Kimco continues to increase its acquisition and development activity. During the quarter, we closed on two new development properties, a 177,000 square foot shopping center anchored by Home Depot in Pachuca, Mexico, and 171,000 square foot shopping anchored by a Wal-Mart Super Center in Acapulco, Mexico. Our Mexico portfolio now consists of nine properties; five existing shopping centers and four shopping centers under development. In addition, six additional development projects, totaling 1.8 million square feet, are in the closing process. Anchor tenants include Wal-Mart, HEB, and Home Depot.

Our joint venture with GE Real Estate in Mexico also continues to grow. During the quarter, GE purchased a 50% interest in our Wal-Mart shopping center under development in Huetuetoca, bringing total assets in the GE-Kimco joint venture to approximately $80 million in Mexico. Kimco received asset management and development fees under the terms of its venture with GE in Mexico. Also in Mexico, Kimco together with AMB provided capital to G. Acción, a public real estate company to become a new private company. Kimco now owns approximately 20% of the new private company, which will continue to be one of our major joint venture partners in the acquisition and development of shopping centers in Mexico.

Now I would like to introduce Milton for his comments.

Thank you, David. I would like to spend a few minutes with you sharing our enthusiasm for the future of our core shopping center holdings.

Less than three years ago, our occupancy plummeted to 85.1%, as a result of K-Mart store closings. Through an incredible amount of hard work and focus, our occupancy is now over 93%. The clouds of the perfect storm caused by the K-Mart bankruptcy have lifted and we are now focusing on harvesting what I believe to be enormous value from our core portfolio.

Our objective is to have one of the highest quality portfolios with demographics that are compelling. We are culling the portfolio and disposing of properties that, in our view, do not have adequate growth. And this program will continue.

On the other hand, we do have many properties with substantial potential of increased value. Many of our properties are located in in-fill locations with strong demographics. As an example, we own a large number of shopping centers in the borough of Staten Island in the city of New York. We are embarking on a very substantial re-development program. We have identified over 45 properties for re-development this year, with an estimate -- estimated investment of $275 million. Approximately $230 million would be for properties owned by the REIT, and the balance are owned by joint ventures. We are also working on proposed re-developments for an additional 75 properties. The growth rate on a same property basis in our core holdings has been strong and we believe, with our re-development program, that growth rate will continue. There is excitement throughout the Company for the creation of value in our core portfolio.

At our core, shopping center holdings constitute the vast majority of our asset base. And I'm actually confident that it will increase in value and cash flow. And that flow will be augmented by our other business units that are gaining momentum with energized business leaders. A combination of core growth and momentum from our other business units bodes well for our future, and we're very, very excited, and with that, we will be delighted to answer any questions.

Elsa, we will now take the questions.

Thank you.

[OPERATOR INSTRUCTIONS] Now our first question is coming from Michael Bilerman with Smith Barney. Please proceed with your question.

Good morning. John Litt's on the phone me as well. Can you just elaborate a little bit more on the re-development opportunity? How much of deliveries do you guys expect to come every year? You talk about the $230 million pipeline today. How much do you think will come every year, and what sort of yields do you think you’re going to be able to garner on that capital spend?

I think that the right amount will be replicated in each of the next two or three years. I think the yields will be double digit. And for example, what we're doing is we're taking every property where a lease may be expiring, and we looked last week at some properties in the city of New York that there will be leases expiring, and we don't intend to renew those for retail. We'll be -- we're thinking of high rise residential.

So every property that we've owned for a long time, where there may be other uses -- and that's part of our excitement, Michael, in the re-development program. It is not limited to just re-developing in -- for retail. It will be re-development for other purposes.

Okay. And then in terms of, Mike, I think you mentioned the Blue Ridge landfill gain, I guess that is the one that shows up in some of the other U.S. joint ventures. What was your share of the gain? And how much of an ongoing program this year will that generate?

In this case, Michael, Blue Ridge actually is a consolidated enterprise on the Kimco account. The land sale actually falls into the caption called "income from other real estate investments." It is about -- so therefore, you've got the full amount of the gain, and in a different mind, you’ve got the requisite minority interest. The gain was approximately $3 million.

Now, as it relates to the future, these things will be a little lumpy, these land sales and more, outside of the broader development that's going on in the development of the golf course and adjunct to the two ski resorts. So, it will happen in time, but I think we probably won't really see more activity in Blue Ridge as it relates to the core re-development until '06.

And how much was the corresponding deduct of minority business for the $3 million gain?

We own about 54% of Blue Ridge.

Okay. And then how much was -- then what was the land sale gain that was included in the other JV's and how much was your share?

Okay, that was -- that appears on the JV schedule. That was a 50%-owned enterprise that we sold the land in, and our share was 2 million.

John, did you have a question?

Yes, a couple questions. First, can you just describe the UBS JV a little more, some of the terms on that?

Sure, it is an 80/20 venture with the UBS Wealth Management group out of Switzerland. It is kind of interesting to note that they manage more than $600 billion in all assets categories. For us, it was an excellent opportunity to team up with an asset management core holding for the long term. There is no end date for the venture. So, it is an excellent opportunity for us to buy very high quality properties and hold them for an indefinite term with the UBS folks.

Is this some sort of a promote --

Yes.

And what's the size and the debt you’ll carry?

Yes, there is a promote. I would rather not get into too much specifics, but there's acquisition fees, there's a promote structure, there's an annual asset management fee. So the economics for Kimco are attractive. The initial size is $77 million and we have another property for $28 million scheduled to go in there -- in there shortly. We anticipate using this as a vehicle for the very high -- the high end properties that are trading at very aggressive prices. The total amount expected over time is about $650 million.

And what's the debt it operates at?

The initial debt was 65-70%, somewhere in that area. It will be lower leverage. It won't be as high leverage as, for instance, our venture with GE.

And when you say the very high-end properties, are those sort of the high-end, low-cap, low growth?

Stable. Let's call it stable.

Are they in densely populated markets?

Again, the target is -- the target is very high quality in good metropolitan areas with a good tenant base, and perhaps a more stable income profile than some of the value-added properties we're buying for GE and others.

Separately, you mentioned in your press release this $26 million investment in real estate securities. I was wondering if you could elaborate on that.

Hi, this is Ray Edwards. Good morning all. Kimco had a couple investments. We bought about a 15 to $17 million of face (ph) of secured debt collateralized by 55 drugstores, primarily Rite-Aid and others throughout the country. That was the bulk of it. Other ones were just smaller investments in other retail operations of about $3 million each.

So this is not publicly traded equity securities?

Debt securities.

Debt securities.

Yes, but I mean so there is no equity in there, so what's your thoughts about equity securities in the future?

Well, we're not -- I'm not really investing primarily in equity securities. We like debt securities, you know, with real estate on the line as our collateral.

I mean from time-to-time, we do invest in equity securities. I think you saw the announcement that we bought a million shares of First Union. So these are opportunistic investments that we make from time to time.

And that would not fall in Kimco Select?

Right.

Got it.

That's more of our securities portfolio.

Kimco Select is more looking for opportunistic bonds and mortgages that are trading at a discount, secured by retail real estate that we think we can underwrite very well.

Right. Thanks.

And most of that concluded in the marketable securities that you now have $172 million of?

Yes.

And how much of that is the debt investment or more of the Kimco Select versus the RioCan stake and the First Union stake and the G. Acción stake?

Probably about 65% or 70%, things like G. Acción, RioCan, et cetera, and 30% stress bond and so on. And that's because we move in and out of those distressed situations relatively quickly, so you're not going to have a large balance at any one time, unless there are special situations.

Great. Thank you.

Thank you. Our next question is coming from Ross Nussbaum with Banc of America. Please go ahead.

Hi, good morning, everyone. I want to follow up on the First Union REIT investment that you made. Was that related to First Union's takeover battle with Sizma (ph), or what's the motivation there?

Absolutely not. We thought that there might be some -- we thought it was priced well, and nothing other than a minor investment. No relation to Sizma.

Okay. David, perhaps you could discuss, what was the thinking behind selling the asset inside of here this quarter? And what has to happen for you to continue selling assets there?

Well, that asset, we had -- we were concerned about an A & P rent that we thought was above market and we received a fairly good price, and that was really the basis of just viewing an asset and making a decision as to dispose of it.

So it was really a one-off situation.

Yes.

There is not an ongoing sale program that's going to be reoccuring with you?

No.

It was a normal part of the asset management review process between ourselves and (indiscernible) common fund and their advisors felt that it was time to exit the property. And to Milton's point, we got a pretty attractive offer, so we moved on it. But this is not going to be a program.

Okay. My final question is, to what extent did your pursuit of Toys 'R' Us have any bearing on the overall level of investment activity you had in the quarter? Did it serve to take up so much of your time that you didn't pursue other opportunities?

No, not at all. The Toys 'R' Us situation was a cast of thousands involved in pursuing that enterprise. And you know, one component of our business, Ray Edwards and his team, were involved with it. But as it relates to the other facets of the business, the core acquisition, preferred equity, most of those folks really had no involvement in the process. It was more just a situation of available opportunity that we were happy with in the marketplace in general that resulted in --

So as we go throughout the year here, should we be assuming that the -- that the acquisition pace is going to be picking up a bit?

This is Tom Caputo. I would say that's correct. The acquisition markets, as you know, are very competitive right now. But we continue to be very active, working primarily with owners of property in negotiated transactions as opposed to participating in the bid process. We're reviewing a number of opportunities now and, in fact, if you look at our current pipeline, we have several properties under contract. We're well down the road on due diligence. We expect they will close and those properties have a value in excess of $200 million.

Thank you very much.

Thank you. Our next question is coming from Ian Weissman with UBS. Please proceed with your question.

Yes, good morning. Just another question on the re-development strategy. Is this renewed focus for the Company in response to the difficult acquisition environment? Or are you seeing major re-tenanting opportunities in your portfolio?

No, Ian, what happened -- you know what happened to the enormous amount of space that became available, and vacant as a result of the K-Mart bankruptcy, so our focus was to get that space leased, moved and, really, an obligation of co-tenants, et cetera. Now that that's done, the logical focus is the portfolio and what can be done, and back to the basics that we did. Now you might say, golly, couldn't we do both at the same time? And the answer is, we really couldn't. Not with the amount of space that was vacant.

Okay. I guess my next question is for David or Ray. Last week, the bankruptcy courts approved the reorganization of Frank's Nursery. Can you provide some color on the opportunities on the 41 remaining properties you guys have?

Well, basically, where we are with this is the disclosure statement was approved last week. And it's still subject to shareholder vote, which is going to occur and is supposed to be counted beginning of June. But basically, what we've done is there are about 41 properties that Frank has. We, at this point, are really the secure lender. We own some of the equity, not all of it, but working with Frank's board, are looking and talking and having discussions with a number of retailers to re-develop the site at this point. It is still premature. They really can't go forward and exercise on going -- on re-development plan until the plan is deemed effective, and that won't be for another two months or so. So it is just, you know, fielding some inquiries and keeping people interested in the sites at this point.

Are these re-tenanting opportunities, or are they ground-up development opportunities at the site?

Both. There will be a mixture; some ground leases, some knock down, some re-tenanting, it is going to be across the board.

So opportunity is not taking into account your '05 guidance, is that correct?

Mr. Pappagallo?

That is correct.

Okay.

(inaudible) working on any respect between the time the plan is approved and the normal re-development processing time-frame, you won't see any flows coming in, if everything is successful and goes according to plans until well into '06.

And finally, Milton, last week we saw some negative comments out of Costco surrounding higher gas prices and, in addition, we've heard a lot of buzz about the potential road block with consumer spending related to higher interest rates. I guess my question is, are higher energy costs and certainly considerably higher mortgage payments a real threat to retail sales growth over the next few years, or are the market's concerns overblown?

I think it is a real threat, and I think that you will have to add to that heating oil. And it can't bode well for consumer spending.

Is that a negative outlook on retail over the next couple of years? In your opinion?

You know, I'm not sure. I certainly thought that retail would have been less vibrant in the the last year, and I think you're going to find -- in retail, I think it is going to be -- in focusing you have to be very specific with those retailers who deliver the goods for their customers. By that, price-wise, value wise, et cetera, there will be a shifting. And the good retailers will increase their share of market. I think you know that every month the department store share of market does decline. But it can't bode well for retail, in general.

Okay. Thank you very much.

Thank you. Our next question is coming from David Fick with Legg Mason. Please go ahead.

Good morning. Can you talk about the amount of cash that you expect Kim to put in from equity perspective in each of the major co-investment vehicles over the next year?

David, we talked about -- at least earlier in the year –- in the previous conference call, that we were earmarking about 600 -- or anticipating about 600 to 650, and that includes the GE venture and other ventures, as well as a gross acquisition amount. And then I think if you, you know, just for argument's sake, you use the 75% leverage, and then in turn say we're 20% of the remaining equity, that would probably give you about $80 to $100 million.

Does that include the UBS transaction?

Yes, well, UBS is part of the overall -- the overall category, the overall bucket of Joint Ventures.

Okay. A couple more details on the UBS deal. Is there an external asset approval process like you've had on some of your other transactions?

We -- we do not have discretion. There is a review process and there are local people in New York that we will run these deals through.

Okay. And now that you -- you have more and more of these things, I know you've talked about it not having been a problem in the past, but how are you now looking at the conflicts that come up on deal sourcing?

I think we have been careful to make sure that we do not have exclusive arrangements with any of the partners, and we do not have open-end discretion with any of the partners. So, our job is to marry up an opportunity with the right investor and give that investor the opportunity to review the asset, look at it carefully, and decide whether they want to invest it with us. And UBS, as a good example, represents a bucket for us that we didn't have before. This is beyond ten years in terms. So when we were looking at properties today that are extremely pricey, having somebody that will go out on a very long-term basis with us is a nice alternative. We still have GE, but that's relatively short term, and we have a number of other relationships that are geared to particular situations. So for so far, it hasn't -- it hasn't been a problem. And I think all -- all of our investors are reasonably happy.

Some of the other REITs that have engaged in these types of transactions have actually filed the agreements in an 8-K. Is there any specific reason that you're that you're not doing that here?

Well, I'll let Mike answer as well, but my feeling is there's not a lot of benefit to the individual investors to have it all comparing, you know, different fee structures, different promote structures. I mean, all of the -- all the agreements are different and it's very difficult to make an apples-to-apples comparison that is fair to the investors and fair to us.

David, the -- most of these individually, from our perspective, are not material items. Also, in certain cases, the other partner is not desired (indiscernible). So in that respect, we've kind of just given broad parameters on what these programs are.

Okay.

Recognizing that, you know, always in the budgeting process of going over -- (inaudible). And if I can clarify one thing, David, when you asked the earlier question. You know, our estimates, at least, or projections from a financial budgeting point of view, we talked about 650 million of acquisition. We'd used about 65% leverage estimate of Kimco in the 20%, so that would pencil out to about Kimco putting in about $50 million worth of equity in those ventures, should all of those numbers come to pass in those percentages.

Okay. And then on the KDI asset sales, these are newly developed assets, and yet they're selling to third parties. Who are the buyers, and sort of what kind of cap rates are you seeing? And why wouldn't these go into your existing funds?

Jerry, would you like to comment on that or do you want us to take a shot?

I can comment as to who the buyers are. You can comment on why they don't go into the existing funds. Our buyers range from other private and public REITs to private individual, to 1031 exchangers. The whole gamut of prospective buyers, private syndicators, too.

Is that money just more aggressive than you'd be willing to be over on the fund side?

Probably, yes. I think that's the case in many situations. And you got to remember, this program was designed as a disciplined merchant build program. These properties were set up and the strategy in terms of who the tenants are and the leasing and the tenant finish work that was put in, it was all designed with the objective of selling these properties upon completion. This is what our partners wanted to do. In many cases, these are joint ventures with local operating partners and they desire to sell and get the profits. So, that's the way they're set up. There may be an occasional property, because we feel so strongly about its long-term promise, that we put in a venture. But, in general, these properties will be sold to the third parties.

And then, lastly, what is the end game for your G. Acción investment? I see that as a little bit different than RioCan and some of your others because it's more diversified and, you know, where do you see that going and -- A, and then B, what does their pipeline look like?

Well, A -- it is similar to RioCan in terms of our equity ownership. It's a passive, minority ownership and a very valued partner. G. Acción will be one of our primary retail partners in terms of the acquisition and development of shopping centers in Mexico. Owning a stake in this platform that's very important to our growth in Mexico and helping them go private just made all the sense in the world to us. You're right in the sense that the company does have other business activities besides retail. They're in housing and they're in industrial, as well. And retail is only one of their three legs on the stool. But again, we like to own ownership stakes in very important partners, so I think it is consistent with what we did with RioCon.

Thank you.

Thank you. Our next question is coming from Matt Ostrower with Morgan Stanley. Please proceed with your question.

Good morning. Just two quick questions. On G&A, I think you guys had previously given an expectation of 5% increase for the year. It was up a lot in the first quarter. I was just wondering if that is still -- if 5% is still a good expectation?

That probably -- when I gave you that 5%, I was thinking along the lines of our cash -- cash spend, kind of what one would normally analyze.

Yes.

The one thing I probably forgot -- I did forget about and neglected to articulate, was the impact of the stock options expense, you know, our options. As you know, we first implemented that standard in January of '03, expensing stock options; and since we have a three-year vesting cycle, the expense builds year-after-year and it's not going to reach a steady state until January '06. So you're going to have a differential, if you look at '04 versus what we think '05 will be, somewhere in the neighborhood of 1.7 versus $5 million. So I've got to tack that on top of the core 5% of it going. So the reality is, on a presentation basis, G&A would probably show maybe year-over-year like a 15% increase. But that's really being driven more by the implementation of stock option accounting, and the three-year vesting cycle than anything else.

Okay. I think I get that. And then on acquisitions and for KDI, acquisitions you had talked about $150 million net core. Just wondering if that's the net core, you know, positive acquisitions for the year, just wondering if that still holds? And then for KDI, I think you said gains would be roughly flat for the year, and wondering if that is still a reasonable run rate?

Well, in terms of the acquisitions on the core, to echo Tom's point, we are seeing some positive momentum. So I think those targets are still definitely within range.

Are they too conservative, Mike?

I wouldn't say conservative, no. I think I'm still comfortable with that as a good target point for '05. And for KDI -- see, I would say we're still roughly the same as last year. I mean, I think there is the opportunity to maybe have come in a couple of a million dollars higher on that line item, since Jerry's got a few offers on deals which originally we weren’t expecting until the beginning of '06. But, the investment committee is going to evaluate whether we want to take them. I feel very comfortable with comparability to last year, as far as equaling last year's net KDI profits, and if the market continues perhaps we can get a couple million more. But it is still too early to tell, and as we go through the year I will give you more clarity on that.

Okay. And did you give same store NOI growth?

3.7%.

And I guess the last one, I'm sorry, I said only two question, but --

We're used to it.

Yes. I guess, Milton, just a question for you. I know you never comment specifically about individual deals, but it just seems like it has been such a huge flurry of LDO activity on the retail front. Any comment on what you're seeing there, regardless of whether it has anything to do with Kimco bidding or anything, but just -- does it mean anything for your business, I guess, is the main question. And I guess, if you feel comfortable, are there any opportunities there for you guys?

There is an enormous amount of money in the private equity funds, and I guess Sarbanes-Oxley, many public retailers would like to be private, so there is an awful lot of activity. I don't think it will be that significant for us.

Does it not negatively impact your credit, though? The credit of your –- of the credit of the tenants paying your rent, though?

It does, and -- but again, I think you know our view, that it is the location that counts, and to be sure your rent is below market, that retailers come and go. And in one sense, it does affect it, in that the creditworthiness is somewhat diminished. On the other hand, if a retailer can focus on its business, and management has a greater stake and they focus on the customer rather than Sarbanes-Oxley analysts, et cetera, that's a positive counter balance.

Okay. Great. Thank you.

Thank you. Our next question is coming from Lou Taylor with Deutsche Bank. Please go ahead.

Yes, thank you. Mike, can you just talk about the impact the increased re-development pipeline may have on earnings this year, next year, specifically from assets that might be taken out of service?

In terms of the effect in '05, Lou, most of the things that you see described on the development list have pretty much been factored in the '05 numbers. These things, as you know, they evolve, they come on stream over time in varying phases. Particularly the larger ones, I think like the West Lake Shopping Center, so I don't expect much impact in '05 either way outside of our core plan. I think most of these starts, or these activities, will be more operational in the '06-plus time frame than they are today.

Similarly, I don't expect much negative from the standpoint of downtime or shuttering tenants. Those also have been factored into our views and where we're going to wind up in '05. And I had mentioned earlier in my prepared remarks that we have 175,000 square foot vacant -- intentionally left vacant. Many of those pieces are in -- are part of these re-developments that we're talking about. So the fact that they are zero-flow today has already been considered in our projections.

Okay. In terms of, as you add to the re-development pipeline going forward, just what's your general accounting policy with regards to assets that are quote-unquote going to stay in service versus those that will be quote-unquote taken out of service, and subsequent cost capitalized? Is it a -- is it a scope of a project $5 million plus or minus? What's your -- how are you going to characterize the different opportunities?

It is never -- (inaudible) the capitalization component in things that are out of service and when projects start. Generally we will take the larger projects, and it has been, you know, a little bit of judgment in terms of what are the larger projects. But at any one time maybe there are no more than five to seven projects that we look at, analyze, and from a financial point of view, if they're under re-development, begin to capitalize carrying cost, interests and so on. For most of the smaller projects, or, you know, one-off activities, it is a lost tenant or if we're holding the tenant or the space out for future re-development, we'll just let the normal cost flow-through as a reduction to operating income.

Great. Thank you.

Thank you. Our next question is coming from Jeff Donnelly with Wachovia Securities. Please go ahead.

Good morning, guys. David, I was curious, is Kimco looking at the GE self-storage portfolio that's in the market, either as an equity investor or lender?

No. No. We have -- we have, through our venture with Dean Jernigan bought seven facilities from Storage USA on a one-off basis, but we're not looking at the whole kit and kaboodle.

Okay, thanks. And then a question for Mike. I apologize. I missed a portion of your opening comment, so sorry if you touched on this. But best I can tell, total operating expenses in the core portfolio were up significantly on a per square foot basis when you consider that the aggregate dollars of operating and real estate taxes rose year-over-year about 4%, but on a 9% decline in your prorata share of the portfolio square footage. What drove that increase?

I didn't cover those in my prepared comments. [Laughter] You sound like me. (multiple speakers) You're comparing, I presume, March over -- March over March?

Correct. I was just looking at -- I know you took some assets out of the core --

Yes, the real driver to comparability, I think, is really the snow removal costs and the operating and maintenance line year-over-year, which is substantially higher in calendar '05 than they were in '04. So I think those are really the largest drivers.

Would you expect that some of those expenses might be, you know, weather permitting, nonrecurring in the same quarter next year?

I think that the better way to look at it is probably the most -- the more recent NOI margin of 72-ish percent is probably the best way to look at, you know, to look at the relative relationship between the expense line and the income line. It will notch up higher in the succeeding quarter slightly, because you're not going to have as much snow removal, so that will impact the calculations. But I think if you work under the notion of a 72% to 73% NOI margin, that should kind of give you a pretty decent indication on where those numbers are going to come in at.

And the other point to consider is in -- again, the revenue line, factoring in you have recoveries of those snow removal costs, that most of the assets that were transferred out or plan to be transferred out, earmarked for the investment program have, other than maybe one. So, the three months of '05, I hate to say this, but it is more of a -- of a run rate or more clear number relative to the properties that are staying in the core than you were a year ago. That said, as Milton talked about the disposition program, comparability is always going to be influenced because we're being much more ambitious in not only redeploying system assets and redeveloping, but also trying to get rid of some of the properties in our portfolio, as well.

Is it fair to say then that, I guess, Q1 was maybe a – on an NOI margin basis, was just maybe at the lower -- lower bound, because I think last year, you guys were on a 74.5% NOI margin.

Yes -- yes, and that would -- the composition from the mid-Atlantic portfolio assets was so substantial, a substantial component, in the comparability. But yes, I would say that the first quarter historically has been the lowest margin quarter because of the effect of the charges for snow and other things, and the related recovery.

Great. Thanks, guys.

Thank you. Our next question is coming from Jim Sullivan with Prudential Equity Group. Please go ahead.

Thank you. Good morning. Just to follow on a little bit from Jeff's questioning here, 3.7% same store growth in the first quarter was fairly impressive. Your indications, your comments there suggest that full-year number is probably going to be a little bit higher than that. Is that right?

I think early on, we were talking about a 3.5 to 4% growth rate, so Jim, I think within those parameters, we're comfortable.

You are going to keep it in that range?

Yes.

Now, the same store pool here, as I understand your comments, I think you said it was about $82 million of NOI. So that's about 60% of what you -- what's wholly owned and your share of the JV portfolios, right?

What's wholly and majority owned on our balance sheet, vis-a-vis non-consolidated or the investment management programs are excluded from that.

Now, with the increase in the re-development activity, which looks to be pretty substantial, will that percentage, that 60% percent -- percentage continue at that level? Or do you think it is going to go down over the next several quarters?

If you could just clarify that 60% that you're referring to, just so I make sure I answer the question correctly. When you say 60% --

I'm looking at 60% of your key operating highlights, you indicated, I think, NOI of 139 million as the number.

I understand now, okay, right, just in terms of adding in that prorata share. That's a hard call. I think what we're trying to come up with is from the core portfolio, recognizing that there aren't going to be a lot of acquisitions in the core relative to the investment program, that we're going to be focused more on expanding NOI through this internal re-development. I still think most of the growth in the acquisition theater or landscape will be accomplished through our investment management program. That said, and as a result of that, you probably will continue to see a little bit of a widening, more dedicated towards the investment management program versus the parent on an absolute basis. But to Milton's comment, I think the combination of those forces, continuing good growth in the core and having all of these programs available to capture opportunities -- (inaudible) environment, is probably the best balance or the best prescription for us.

Now, the -- you know, my take on the comments here, and you know, Milton, correct me if I'm wrong, but what you're talking about here is a much more aggressive asset management strategy on what you call the parent portfolio, and an aggressive pursuit of upside opportunities, you know, particularly you mentioned looking at taking certain anchor -- anchor slots, perhaps, and converting them to residential. That would suggest that, if you will, the hurdle rate for which what you're going to keep and call core and same store is becoming tougher and more difficult, and therefore, you know, long term --

No, no. Not at all. It really is focusing on the opportunity. I think our core -- we think this will help accelerate the growth in the core.

Well, maybe -- maybe I didn't state it correctly, but that's really what I meant, that you're going to have a -- to qualify and meet the hurdle to stay in core, an asset's going to have to be generating pretty respectable growth. Otherwise, you're going to aggressively re-develop it or sell it or --

That's right.

To use the word that you used is to cull it --

Right.

If it didn't meet your demographic profile,

Right.

And that suggested to me an intensified asset management strategy.

That's right.

And so, when you talked about the return on re-development being double-digit, of course double-digit's a pretty wide range, should we be thinking about 10 to 11 or should we be thinking in the teens?

I think you should think higher than 10 to 11. [Laughter] I think --

Okay, you've narrowed the range very slightly. Let me ask you this. When you also, Milton, you talked with a good deal of excitement about the residential opportunities, can you just be a little more explicit in terms of, number 1, whether this is residential with condos and sale of condos or apartments, or have you gotten that far? And then the second part of that, would you expect to have a partner to do that or are you thinking of doing this on your own?

Well, A -- it would depend. We -- one, it may -- it's not only residential. In one case, there's a fairly large office site -- I'll ask Jeff how large would that be?

About 300,000.

About 300,000 square foot office site. So it's a combination of both -- it's a combination in many cases adding second-story, second-story retail, which is -- we looked at a few properties where that's been done, and it's just the highest and best use. Back to basics, Jim.

And should we be -- when I look at your supplemental, the list of projects in the re-development pipeline, virtually all are retail. I know there's a few that are perhaps ambiguous, but when will -- when should we begin to see some of these alternative uses to retail show up in that pipeline schedule?

I think it’s going to be '07, '08 and continuing it’s going to take time.

Okay, very good, I'll leave it there. Thank you.

Thank you. Our next question is coming from Alexander Goldfarb from Lehman Brothers. Please go ahead.

Good morning. Just following up on Jim's question. Perhaps I missed it. Were you going to do the residential development yourselves, or would that be -- you would sell it to a third party.

We would sell it to a third party --

Or joint venture.

Or joint venture.

Okay, okay. So then you'd have the standard (inaudible) gains. Okay. The -- how much do you think that this may total? Is it just one or two sites, or are you actively looking over the entire portfolio and trying to figure out best use for a -- in each location?

I mean -- this is Jeff Olson. That's exactly what we're doing, is we're going through each property and each opportunity. It's hard to quantify it right now other than that we are working with a lot of local partners that have local expertise in this view, and we do expect to start harvesting this over the next two to four years.

Okay, okay. Two to four years. Okay. And going back to the UBS deal, maybe I missed it, did you guys quote a cap rate, a maximum cap rate, on acquisitions that go into it and the implied valuation on the five properties that went into the fund?

No, we did not, and it's -- we're going to look at each individual transaction on its own basis. Again, the objective is very high quality properties that will probably trade at relatively low yield.

Okay, then going to the developments, I know that you spoke a lot about the re-development potential, obviously it was noted in the press release. But if I look back on your balance sheet over the past few years, it's always been, you know, north of 300 million that's been reported on the balance sheet. So, is this -- are we to think of this new amount of 230 or 275, whatever amount it is, as something on top of the existing development pipeline or just sort of a maintenance level, and you're now just bringing it to people's attention to highlight people on this development program?

It would be a -- the development number on the balance sheet would be (inaudible) exclusively for the activities of Kimco (inaudible) of commercial buildings. Any additions or re-development or expansions of the core portfolio here in the real estate number -- operating real estate number on the balance sheet, so the growth that Milton was talking about will come close to that line.

Okay, so the real estate under development includes the KBI stuff?

It's exclusive, it's totally related to the KBI stuff.

Okay, great. Then the final question is for Milton, sort of big picture. A lot of headlines about the opposition of Wal-Mart. Do you think that this is, I mean a specific witch-hunt targeting Wal-Mart or do sense that this is sort of a ground swell against all big box? And then to that, you know, if it's not -- if it's specific to Wal-Mart, does this mean that any other, whether it's a Costco or a Target, is sort of welcome in but, just, we don't want Wal-Mart.

I think the principal resistance generally has been Wal-Mart, arising -- starting with the California strike and the antipathy for organized labor for Wal-Mart. So I -- and I think it appears developers have all said how difficult it is to get a Wal-Mart approval. Now that doesn't mean it's a piece of cake for other retailers, but Wal-Mart, there has been a greater antipathy to than other retailers.

Okay, thank you.

And also, we have time for one more question.

Thank you. Our final question is coming from Mike Mueller with JP Morgan. Please go ahead.

Just one last question for Mike. Going back to the other real estate income line items, if we back out the Blue Ridge gain and get to a run-rate of about 13 million, is that a good run-rate for heading into Q2 or is there something else in there that needs to come out as well?

One day I'll give a run-rate that will actually turn out to be accurate. [Laughter] In that number in other real estate investments, Mike, it mentioned three things; the Blue Ridge transaction, there was also some upside experience in the preferred equity -- preferred equity business when we sold it. Our position was sold and we captured our residuals, as well as the sales on Conover or Kimsouth. So when you look at $16.6 million, it's very difficult to say what's their run-rate, because you still had income being produced from the latter two sources as well as the normal flow that we're getting from our preferred equity business. So, it's almost impossible to give you a run-rate. I think if you look at last -- now this is a stretch, but if you look at last year's first quarter of $6.2 million, I believe it was, other than accounting for growth in the preferred equity business, that quarter did not have any sale or disposal oriented transactions of any material nature.

What about relative to Q4?

Yes, I think that the growth from Q1 '04 to Q4 '04, that was more due to the fact that the preferred equity business was generating much more operating cash flow. So the spike from the fourth quarter to the first quarter of this year is more due to those one-time (inaudible) sales transactions. That said, Mike, next quarter it can be higher still, depending upon what happens with the preferred equity business and with the rest of the Kimsouth portfolio.

Okay, great. Thanks.

Thank you. At this time I would like to turn the floor back over to Mr. Scott Onufrey for any closing and final remarks.

Thank you all for joining us. We look forward to seeing you at our next call.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.