Kimco Realty Corp (KIM) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, I will be your conference facilitator today. At this time, I would like to welcome everyone to the Kimco Realty Corporation fourth quarter earnings conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host, Mr. Scott Onufrey. Sir, the floor is yours.

Thank you. Thank you for joining us for Kimco's fourth quarter earnings conference call. First, I would like to read into the 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 with us. We realize that many of you on today's call are curious about our involvement in the recently announced agreements to acquire Albertsons. However, due to the pending nature of the transaction and certain confidentiality agreements, we will not be able to comment on the transaction or take questions regarding our participation. This is consistent with our long-standing policy of not discussing transactions prior to closing.

As always, we're happy to take other questions at the conclusion of our prepared remarks. In the interest of fairness, we request that you respect the limit of two questions with appropriate follow-up so that all of our callers have an opportunity to speak with management. Feel free to return to the queue if you have additional questions. I will now turn the call over to Mike Pappagallo.

Thank you, Scott. Good morning. A lot of good things came together for us late in our fourth quarter, which propelled us to a record level of quarterly FFO of $127.5 million. FFO per share of $0.55 was $0.04 above the consensus, as well as the estimates we provided to you at our last conference call, and over 22% higher than last year's fourth quarter. These results powered us to a full-year FFO per share of $2, a 13% jump from 2004.

As importantly, we have continued this momentum with a fast start out of the gate for the current year. As you all know, we previously announced the closing of a 19 property portfolio in California for $134 million and have a healthy pipeline of opportunity. Although the fourth quarter results contain the usual range of activities that you have come to except from a Kimco financial report, I'd like to focus my prepared comments by reflecting on the full year results. Recognizing our quarterly reporting obligations, we nonetheless feel that results generated from our multi-faceted business model can be better understood when viewed over a longer timeframe. The harvesting of investments or timing of transactions tends to skew 90 day numbers. Using the full-year results is probably a better report card.

Although certain individual transactions may get the disproportionate amount of press, there are three fundamental components that continue to be the drivers of our successful operating results. First, improving portfolio performance and continuing quality enhancement, which contributed to solid internal growth. Second, further buildup of assets under management through our institutional investment programs. And third, the continuous expansion of relationships and corresponding investment opportunities in; structured finance, real estate liquidation repositioning activities and ground-up development projects. Our ongoing program to maximize return and quality in our core real estate holdings continues to bear fruit.

Over 2.7 million square feet of new leases were signed or renewed on existing space in the U.S. portfolio at an average 10% rent [buff] to an average rent of $9.22 with relatively low dollars spent on new leases and virtually no money spent on renewals. We disposed of $100 million worth of marginal or unproductive properties. We replaced these properties with shopping centers in areas with solid demographics, barriers to entry or below market rents. We accelerated the initiative to increase the number and scope of redevelopment and expansion projects in the portfolio and plan to spend about $100 million in 2006.

All of this work translated into a 100 basis point increase in occupancy over the past year. A shift in geographic concentration, whereby almost 40% of the parent portfolio is in California, New York, Florida and the three major population centers in Canada. And excellent internal growth rates that average 3.5% for the year, as well as 3.3% for the quarter. Note, that these internal growth rates exclude the effect of any lease termination income or normal GAAP accounting adjustments.

I would encourage you to take a look at our most recent supplemental report. We've provided a few charts demonstrating the shift in our portfolio composition over the past six years. Complimenting our portfolio's success, the management business continues to expand and increase its impact in our business results. We added almost 3.5 million square feet of new properties and increased assets under management at year-end to approximately $6 billion.

Our FFO contribution, including fees, increased by 34% to $109 million for the full year. But as you know, there is more to the Kimco strategy and we are proud of our creative transaction activity that has been generated over the past few years. We encourage more of it. We're not deterred by concerns of lumpy earnings or difficulty in computing a number for a NAV exercise or that we have to keep generating these new opportunities to keep our earnings growing.

Our merchant building business concluded a successful year by generating almost $23 million in after-tax profits. Including, five full property dispositions and over 40 individual parcel sales and established 12 new projects this past year. The existing inventory represents $1 billion of net project costs, and that doesn't include the cost of anchor-owned spaces that represent another $250 million of project size. And Gary Friedman informs me that we're evaluating additional projects of between $750 to $1 billion. Also on a full-year basis, there was almost a doubling of income contributions from the aggregate of business activities ranging from preferred equity to retailer financings and real estate disposition activities.

The combined total of income from the other real estate investments and mortgage financings grew from $45 million to $85 million. Most of the increase was the growth in income from Preferred Equity, which jumped from 11.4 million to 32.8 million on a full-year basis. As well as sales of certain holdings in Frank's Nursery and Blue Ridge land. We also received a large prepayment fee on our mortgage financing to ShopCo stores, which was paid off in connection with its privatization transaction late in the year. This item was responsible for the large increase in mortgage income in the fourth quarter.

Our Kimco Select portfolio also yielded results. As you know, we actively acquire debt and equity securities where we see upside and the security of the underlying real estate value. We are careful and have a good track record. Our marketable securities portfolio has grown both in value and from additional purchases. Altogether, this portfolio income grew by $9.5 million for the full year. An interesting element of this extensive growth in our book of business is that the aggregate external capital, employed by Kimco to achieve these results, was a relatively low requirement of $570 million. And of this amount, $190 million require to our ground-up development activities, primarily the KDI merchant building portfolio.

Outside of development, the total capital required to fund the business in 2005 was only $380 million. And of that amount, over half was denominated in foreign currencies to our Canadian and Mexican asset base. These low capital requirements were easily met from our existing financing facilities and reflect the strong free cash flow, the recycling of capital from sales of properties and investments and transfers or direct purchases into joint ventures. And notwithstanding the resulting increase in debt levels on the balance sheet, the book coverages are still extremely strong. Fixed charges did not waiver from the 3.8 times level from one year ago.

So, the book is closed on 2005, but there is no resting on our laurels. It's right back to work. In our evaluation of 2006 earnings targets, I'm encouraged by the pace of our acquisitions so far, which allow us to generate returns and to offset much of the dilutive effect of the expected disposition in our core portfolio. I'm increasing the estimates range by $0.03 per share from previous guidance to a range from between $2.12 to $2.16 per share, primarily to account for the incremental acquisition impact. And with that, I'd like to turn it over to Dave Henry.

Good morning. Thanks, Mike. As outlined in detail in our year-end press release and this morning's earnings release, Kimco had a very strong fourth quarter, an excellent start in 2006 in terms of our new business activities. This morning instead of giving you more specifics on the individual property transactions, I'd like to discuss in general our new business programs and why we are optimistic about our various business units and initiatives.

Looking at the U.S., both acquisition and development activities remain robust with solid pipelines entering 2006. With our strong institutional partners, we are very competitive buyers of high-quality retail properties. Our assets under management continue to grow rapidly and the related fees enhanced our co-investment returns. On occasion, Kimco will also continue to use its own balance sheet to acquire properties. Particularly those that have redevelopment potential, long-term below market leases or need a complex acquisition structure to achieve seller objectives.

Given our size, relationships, and high quality institutional partners, we have all the tools we need to continue to be successful in acquiring a large number of domestic retail properties in 2006 and beyond. With respect to development, our KDI subsidiary, led by Jerry Friedman, has continued to grow through a very successful joint venture model. Whereby we provide capital and leasing assistance to very capable, regional development partners. This formula has worked well for us because we leverage our regional partners' experience and knowledge at the local market, entitlement process, construction practices, and neighborhood trends. We are very proud of our relationships with our regional partners. And in most cases, these relationships are long-standing ones and cover many individual properties.

Our Preferred Equity business, led by JoAnn Carpenter, has also achieved scale and critical momentum in building a portfolio that now exceeds 150 properties. The equity participations in these Preferred Equity investments represents the seeds of future earnings and profits for our Company. In addition, being able to acquire, develop, and lend on retail properties; gives Kimco a range of products to offer our customers and clients. In many cases, we have bought properties and later provided joint venture Capital to the same real estate owners or developers.

In our retailer services business, led by Ray Edwards, we continue to provide capital to retailers through innovative sale/leaseback and leasehold financing transactions. We also participate in private equity acquisitions in which retail assets are a substantial component of the transaction. Kimco's nationwide network of real estate offices, long standing relationships with retailers, and in-depth experience in evaluating leasehold positions will all continue to make us a strong partner for private equity opportunities in our sector.

Kimco Select, our opportunistic investment business, has also had success across a broad range of investment products and property types. The the Kimco Select portfolio includes public securities of proven venture partners, such as RioCan, secured and unsecured debentures of real estate rich public companies, short-term secured real estate loans and opportunistic property acquisitions. In a limited number of cases, Kimco has invested in non-retail property types. Such as, self storage and industrial, where we have reliable operating partners with extensive experience. Our international business has also grown substantially and has begun to deliver a significant contribution to our annual earnings.

In Canada, we are happy to report that Kimco now has equity interest in 117 properties, comprising more than 13 million square feet. Over the past two years, our Canadian business has shifted from direct property acquisitions to a combination of preferred equity investments and development projects. We are pleased to have expanded our circle of Canadian partners to include a number of smaller, regional, public, and private companies in addition to our long-standing relationship with RioCan. Canada remains a very attractive market for us due to its strong, resource-rich economy, growing population, stable pro-growth government and generally higher property yields. We anticipate continued success in building our portfolio of Canadian real estate investments in 2006.

In Mexico, we have continued to increase both our acquisitions and development activities. During the fourth quarter, we commenced five new retail development projects and we have a very strong pipeline. Our portfolio of closed retail projects now exceeds 17 properties with 12 other approved projects in the closing process.

Anchor tenants include HEB, Wal-Mart, Home Depot, and Sam's Club, which are all expanding rapidly in Mexico. We continue to be excited about the potential to grow with our U.S.-based tenants as they expand their operations in Mexico. As the ninth largest economy in the world and with 1/25 of the retail space per capita of the U.S., Mexico represents a very attractive market for us.

Overall, Kimco's international expansion, together with our strong core portfolio, our growing asset management business and our four distinct operating businesses; all combine to provide a solid and stable platform for growing our Company and our earnings. This business model, as Milton likes to say, will deliver the goods to our shareholders. Now, I'd like to introduce Milton for his comments.

Thanks, Dave. I would like to discuss Kimco's strategy on risk and growth in its portfolio. Kimco's first shopping center development was in 1958, a time when the United States population growth was vibrant, new suburbs were being developed, the demand for retail space and the growth of many retail chains were dramatic and inflation was on the horizon. Our early deals had rents as low as $1 per square foot. The United States manufacturing was growing and China was of no consequence. In essence, almost anything you owned was bound to increase in value. So, for many years we just never sold.

We all know that the world has changed dramatically. The U.S. manufacturing base has been shrinking, and there are areas of the country that have negative population growth. As a result, our strategy for our portfolio has changed. In the last four years, we have disposed of 80 properties from the core. During the same time period, we also have acquired 140 properties in California, Florida, the Baltimore/Washington corridor and the New York Metro area. These properties offer great upside potential.

Today the state of California is our number one state in terms of revenue. Followed by Florida, New York, and Canada. These four areas account for approximately 40% of our rental revenue. Ohio and Illinois are no longer in the top four. I believe that the top 25 properties in terms of rental revenue have such inherent growth that they would be valued at capital rates below 6%. Kimco has also many freestanding properties net leased to high credits and in today's 1031 exchange market would sell at cap rates in the 5's.

You will note that in the last 12 quarters, we have had consistent same-store cash flow growth that averages 3.5%. We expect this trend will continue as we focus on owning properties with the following five characteristics. One, densely populated markets. Our current portfolio has an average population density within a three mile ring of over 100,000 people, with an average household income of $73,000. Two, severe supply constraints. We are focused on markets where new supply will be limited either by lack of developable land or strict municipal zoning ordinances. Our property in Bridgehampton in the Hamptons is a good example of this.

Three, properties anchored by retailers generating sales in the top 25% of their chain. This provides stability and should limit our exposure should the retail cycle enter a downturn. Four, below market rents. This has been the core of our strategy since 1958 and is the most important driver in our same-store growth.

Let me give you a couple of examples of properties we own in the core. Our Richmond shopping center in Staten Island, New York. It is anchored by 102,000-foot store whose lease expires in five years with no options remaining. They are paying $3 a foot gross, which equates to less than 0 when you deduct real estate taxes in the City of New York. We believe the market rent is in the mid-to-upper 30's per square foot net/net/net.

Another example is our [Dwayne Reid] portfolio situated in Queens, Brooklyn, Long Island and West Chester, New York. All of the leases expire in eight years, and we believe lease rents approximate 2/3 below market. Five: Redevelopment and expansion potential. We have 258 million in projects under redevelopment today with expected unleveraged yields in the low teens. We expect that this pipeline will expand as we are taking a number of our sites, including Pentagon City and Factoria Mall, through zoning changes to allow for higher density and mixed use in the future.

Now, to be candid, the reason I mention this is I think many of the people who have followed us for awhile may not be aware of the changes in our portfolio and the inherent growth progress prospects. We have made great progress and will continue to cull our portfolio, working toward a dream portfolio, which will benefit our shareholders for years to come. We also believe that diversification lowers risk. So today, slightly more than 10% of our FFO comes from Canada and Mexico, our two neighbors with enormous natural resources and good growth opportunities.

As you probably know, for many years Dave Henry covered Canada and Mexico while at GA Capital and developed strong relationships with many Canadians and Mexican real estate owners and developers. Dave has been tireless and fabulous in seeking growth opportunities for us north and south of the border. On the subject of risk, our portfolio's diverse with no single property accounting for 2% of our total value. Our tenant base is diverse and our largest tenant, Home Depot, accounts for only 3.6% of our revenue.

But far, far more important than our portfolio of properties is a wonderful portfolio of people highly skilled, creative, motivated business leaders who carefully measure opportunity and risk and have brought us the record results. I feel absolutely confident they will continue to make money and create value for all of us. And with that, we'd be delighted to take your questions.

We'll take questions now please.

[OPERATOR INSTRUCTIONS] Your first question is coming from Michael Bilerman from Citigroup.

The charts that you include in supplemental are vert helpful and give a very good picture of what has transpired in the last six years. If you were to create a chart that sort of outlined the property types in terms of retail and some of the other stuff that you've bought, how would that shape up?

Michael, it always amazed me how you can get onto this call [laughter] quarter in, quarter out. If your question is in terms of the portfolio composition of retail versus other property types, our thrust always has, is, and will be the retail space. Right now the dollar amount of assets that are not retail, is on our entire balance sheet, is probably about $250 million or so. So, if you were just to think about our balance sheet in terms of the $10 billion size, it's relatively small. And non-retail is really focused on those areas where there is an opportunistic play when we've coupled up with an experienced partner in that sector. So, our dream portfolio will primarily be, continue to be retail, in nature and focused in the five areas that Milton outlined.

And does your 250 include your share of what's in the JV's, if it's other stuff like industrial and Mexico?

That is our investment in all of those non-retail components.

Okay, and then in terms of the other income. When you look at the totality of it, you're at about 175 million in 2005, 145 from all the other and then about 30 million of management fees. How do you see that shaping up going into next year in just the gross amounts? And I don't know if you want to highlight some of the key areas.

Well, I would separate the management fees from those other components because the management fees are such an integral part of our long-term investment management business. And they really need to be looked alongside the core joint venture income from those programs. But with respect to the other areas and looking to 2006, the sum total of those income items I think are roughly going to be on par with 2005. You always have the issues and struggles of trying to know which caption, individual captions are higher or lower. But I think if you added up the sum of the other real estate investments line, mortgage income, securities income, and the other income captions, probably worth about 120 million or something like that. And I think in looking to 2006, it will be an equivalent number. I think more gains will be received from the Preferred Equity business and I certainly don't assume that we'll have large one-timer like the ShopCo prepayment that I mentioned.

And then you exclude KDI from that. Is KDI also expected to be flat or you want that to go up?

With KDI, I've throttled back on the assumption -- as I mentioned on my previous call, we'll probably expect slightly less profits from KDI. Not because of less activity, but from a thinking that certain of the development projects that will be sold will be sold into our investment management programs. And all that will do will reduce the GAAP accounting gain as well as continue to own a piece. So, I'm estimating between maybe $12 to $20 million of net gains in 2006. Kind of a wide range, depending on where we go with these investment programs versus the 22 we had this year.

Okay. And then I guess overall then, you're effectively, if all this stuff is basically flat, to generate above then your 6% to 8% of guidance range, you would probably come into better results from the other sources?

The two primary drivers are -- 2 is the right number. But essentially the drivers are going to be on core growth and core acquisition growth, absolute growth in the institutional programs in terms of income and fees, and an increasing amount of contribution from Mexico as developments come on-line. So, you overshot your allocation but I gave you extra credit because you always seem to be first. Thank you very much. Thank you.

Your next question is coming from Ross Nussbaum from Bank of America Securities.

Good morning, it's Christine McElroy here with Ross. Can you comment on your exposure to Burlington Coat given the recent acquisition by Bain? And have they provided any indications as far as store closings or their plans with regard to operating the business?

Well, our exposure to Burlington Coat is quite, quite low. And if you know anything about Burlington Coat, you'll know that the rents are also low, low, low.

Burlington did not even cut through our top 10 list. So, our exposure is very small, and as Milton pointed out, that's due in part, not only to the number of locations but their very low contribution of rent. We couldn't comment on any information on store closings in any event.

Okay. And you commented on the prepayment fee from ShopCo, what was the size of that fee?

Approximately [$17 million].

I'm sorry?

14, I'm sorry, 14.

14. So, in terms of that line item, the mortgage financing income, what would you think is a good run rate going forward?

I would just subtract out that number.

Okay, thank you.

Thank you. Your next question is coming from Lou Taylor from Deutsche Bank.

Thanks, good morning. Dave, you had kind of alluded to what's in the marketable security portfolio these days, but can you give us a sense for what some of the larger holdings are?

Not really. [laughter] That would be giving it away, Lou.

Just thought I'd ask. I tried. [laughter] And second question is just, as you guys think about your new investments in '06 in terms of acquisition, development, et cetera, could you give us a sense of how it would break down on a percentage basis, acquisitions, development, retail solutions, U.S., Mexico, Canada just from some percentage ranges?

I can give you, Lou, kind of what we pencilled in underlies the basic plan. Primarily on the acquisitions side. The core reacquisitions range between 350 to 750 million. That estimate is based on the $140 million purchased so far, plus the hopefully successful conclusion of the Atlantic Realty merger, which values we saw last at $82 million, as well as the execution of acquisitions in the pipeline. And the wide range reflects the low to high success rate of that pipeline. We're expecting about $150 to $250 million of core dispositions, consistent with the strategy that Milton outlined.

On the institutional joint venture programs, I'm leaving the acquisition volume estimate at about $600 million. And that does not include four properties that were recently acquired from one of our existing programs that are going to be transferred into the UBS program. And that has about a value of $90 million. And the broad assumptions on institutionals are 70% leverage point, with Kimco investing about 20% of the remaining equity. Or said another way, Kimco invests 6% of the total gross acquisition costs. Mexico, certain of the development projects are going to be coming on-line and I think we'll spend about $75 million in additional funds in Mexico in 2006.

Now, those are the primary estimates for acquisition activity. Certainly, the retailer services business as well as investing in marketable securities over the course of the year, they will happen, but as a general matter, Lou, I don't try and put a dollar amount of acquisition estimates, only because these transactions are very creative. They may require no capital. They may be a fee-per-service, they may be a financing, which is liquidated in a six month series. So, it's very difficult to put a gross number on the acquisitions of those areas.

Okay, thank you.

Thank you. Your next person is coming from Matt Ostrower from Morgan Stanley.

I don't want to ask -- obviously, you're not going to answer specific stull on Albertsons, but can you at least make reference to whether your guidance includes anything about Albertsons in it?

It does not, Matt, simply because the probability, the timing of the transaction and its potential affect is too premature.

And I mean, you said the beginning you don't make announcements before they're closed, but if my memory serves, you oftentimes talk about things before they close. Can you explain what's going on here that you can't give more detail at this point?

No, we can't say anything else, Matt, other than what has been publicly released in our press release. Simply for the reasons that Scott articulated earlier.

Okay. And then on the expense margins, they seem to have gone up at least on the year-over-year basis. Can you make reference to what's going on there?

I'm thinking you're probably referring to the operating and maintenance line as to revenues?

Yes.

I think there are probably three things that influenced that in this quarter versus the fourth quarter. First is there is an increase in insurance premiums. Our renewal is in October 1, so we did experience an increase in insurance premiums, primarily because of experience related to wind storms and the like, which didn't dramatically affect results, but certainly has a bearing on the insurance renewal. That was one item. Second item, is relatively speaking, we have more snow removal costs this fourth quarter versus last year's fourth quarter.

And the third item is with respect to the former Frank's Nursery, FNC Realty. As we own a majority position in that, we consolidate its books of account. As you know, that is primarily a redevelopment play. But we have certain interim leases, and along with it operating leases, which along with it comes the expense, and there's probably about $600,000 worth of expense in our operating lines, which don't have a very large recovery. So in total, the sum of those three items were about 1.4 million in the operating and maintenance line, and the relative recovery rates on that was less. I think if anything, that explains year-over-year why the operating expense margin over revenues is a little less.

And will that abate, especially given Franks, will that abate in the next year?

Over time. Because the Frank's Nursery strategy is going to be a long-tail development cycle. I think as Ray's team begins to increase the number of releases, even short-term leases over the period of the redevelopment, that it should improve it.

Great, thank you.

Thank you. Your next question is coming from Paul Morgan from FBR.

Good morning. Milton, when you talked about getting your to your dream portfolio, I'm just wondering how far you think you are from that? You say 40% is in those core states, there's supply constraint and 10% outside the U.S. Ultimately, how much of your dream portfolio is outside of the U.S. and in those markets?

Well, let me -- I guess there will two parts for one, the timeframe and two, how much is outside of the U.S. I would say it's going to be probably another two to three years additional culling. Outside of the U.S. and the dream portfolio really, which consists by the way of many of the same retailers in the United States that we have in Canada and Mexico, I'm going to guess that that might be 15%, but that's a guess.

Okay. My other question is on the Blockbuster Movie Gallery segment. Can you just comment on maybe whether -- obviously there's been struggles there. Whether as a whole you think that the portfolio rents are above or below market and if you have it at hand, your total exposure to that space?

Do we have our Blockbuster total exposure?

It's small. I don't have it here.

It didn't make our list, so we think it's small. We can guess track, guesses here --

This is Jeff, how are you?

Good.

In general the Blockbuster locations are on the end cap. They're below-market leases, and we would be happy to get back most of that space if that opportunity would ever arise.

Okay, great. Thanks.

Thank you. Your next question is coming from Chris Capolongo from Deutsche Banc.

You can pass over me, thanks.

Thank you. Your next question is coming from David Fick from Stifel, Nicolaus.

Good morning. Milton, you talk about your top 25 assets would go below 6% cap rates. Since you're offering cap rate guidance, what do you think about the average for your portfolio?

Well, I can point you to Jeff, who's been analyzing it.

Yes, hi, Dave, how are you?

Good.

Yes. We have been taking a close look at it and comparing its private market evaluations. And for starters, I think the perception out there is that our portfolio quality's a little different, which is one of the reasons why we included the data in the supplemental packages. But on the whole, the better quality sites are in the five and low six's today. And I think our portfolio quality is a better quality portfolio. So, I would say in that range is generally speaking where we think the valuations are.

Okay. You guys have mentioned the acquisition environment is looking a little more favorable. What does that mean in terms of acquisition cap rates?

Well, we think we have a very strong backlog of activities. I don't -- thus far, I don't see a raising of cap rates. The demand to own real estate is still so strong, David, that at this point in time sellers have not really lowered their horizon. I don't see them lowering at this point -- an increase in cap rates at this point.

Thank you.

Thank you. Your next question is coming from Scott Crowe from UBS.

Good morning. I noticed that your non-rental FFO contribution's running at about 30% for the fourth quarter and that's up from a run rate of about 20% in 2004. I'm just wondering if you have in mind some set limit of how much you want to have contributed from non-rental incomes going forward?

Scott, could you just clarify when you say "non-rental income sources," how are you defining that?

Well, what's coming from management fees, what's coming from your Preferred Equity business, the mortgage refinancing and the other income.

I don't really foresee us having a cap. We don't talk about it in terms of a cap number. But in just looking at our -- and talking about our business strategy and the relative growth of the things that we are trying to do, I think what you will see, or at least my best guess as we go forward, is that the relative proportion will stay the same. I think as I indicated to a previous caller's comments, that a lot of the growth in 2006 will relatively speaking, be in the core and in the joint venture lines relative to the other sources. And the interesting thing about the other sources is that there may always be a one-off opportunity that may generate a significant dollar amount. A one-time gain like the ShopCo transaction that we talked about.

But even when you break down those other sources, as you indicated, in that pile are such things as Preferred Equity, which for us is again a different way of investing in real estate, primarily a retail real estate. It doesn't maybe fit into a nice category called core. But utilizing our same underwriting techniques, our analysis, risk management, it is fundamentally a conventional or a standard investment in Kimco. It's just that we're not acquiring fee titles, and I think that's one of the things, and what we still struggle a lot in speaking with folks is that just acquiring fee title to assets and putting on your balance sheet is clearly -- it's one of the most expensive ways to invest today.

But from our perspective, it is clearly not the only way. And so many of the things that we branch out into, in acquiring different positions, may appear when looking and analyzing the income statements the other income or non-revenue rental sources but they really are a first cousin. And I think we just need to continue to educate and articulate our details of what comprises our income statement to give people a sense that it's Kimco doing what it does best.

Right. Thanks. And just quickly on KDI quickly, I noticed that the Q4, you came in at about $4 million, which is a slight slowdown, I suppose, for the run rate you had at Q3, which is about 8. Is there anything particular behind that?

No, there really isn't. It's really just KDI more than any single thing is transactions. They can be ups and the downs. They're going to be due to specifically closing a deal. And with all the other things on the table and Jerry and I confer frequently about timing of transactions and just relative to what we wanted to accomplish in 2005. We were happy closing down the shop with the transactions and the numbers that you see. But we're ready to go in '06 again with the next round of dispositions.

Great. Just lastly, when do you think you'll be in a position to talk about Albertsons? When do you anticipate that to close?

I understand that at least it's a four to five month process between regulatory approvals and the like.

Okay, great. Thanks, guys.

Thank you. Your next question is coming from Jeff Donnelly from Wachovia Securities.

Good morning, guys. Milton, you had discussed focusing on high quality assets, high-barrier markets going forward. It looks like about 23, I think, of your recent acquisitions in the first quarter are multi-tenant properties, but they average just 30,000 square feet. I think you paid guys about 260 a foot. Can assets of that size be operated profitably? And is that representative of those assets I guess for your dream portfolio?

Hi, it's Jeff again. And most of those properties that you're referring to came from a portfolio called the FHK portfolio, which we acquired, which was 20 properties on the whole. And it was an opportunistic investment for us in a negotiated transaction. So, I would not expect that we would continue to acquire smaller properties like that, but this was just a portfolio play for us.

And most of these are a shadow anchorage in all cases. So, the thing to realize is; granted our investment was only on a relatively small amount of square footage, that these were all shadow anchored by a group build additions.

And if I could just ask one follow-up to that, is was just about -- off your pipeline. Your anticipated redevelopment expenditures for '06 look like they declined by about $20 million in the prior quarter to about, I think from 130 million to 110 million. And I think the cost of your total redevelopment pipeline appears to have declined by more than the amount of projects that would have been completed in the quarter. Did you guys determine that some assets weren't suitable for redevelopment?

The biggest change, Jeff, in moving some things around, we created a new section of our supplemental, which we call ground-up developments, where we incorporated not only KDI, but Mexico and some other things. And one of the projects that is teed up, that's truly a ground-up, which was listed as redevelopment, and the other was a Gabler Farms project, which Jeff, I believe is in Virginia or Maryland?s

I think it's Virginia.

So that really, one of the moves from that particular disclosure, was that we moved it to a ground-up development.

Great. That looks like the lion's share of it. Thanks.

Thank you. Your next question is coming from Thomas Youn from Green Street Advisors.

Hi, it's Greg Andrews here with Thomas Youn. Could you help me understand what this prepayment fee related to ShopCo really was? I just didn't understand the description of it.

We previously had a mortgage outstanding where -- which was secured by a variety of ShopCo properties. ShopCo went private at the end of the fourth quarter. And in connection with that privatization, they prepaid a variety of obligations that they had. One of which was the outstanding mortgage to us. And the total liquidation, including the pre-payment penalty which was embedded in the mortgage documents was paid. And so we obtained an upside from that transaction.

So, is the amount you referred to strictly a prepayment fee or was it also reflective of say buying that debt at some sort of discount?

No, it simply was the prepayment fee. That was originated at par and it had certain prepayments conditions based on pretty standard calculations of face versus what the current Treasury curve would indicate.

Okay. Great, thanks. And then a question for Milton. The assets under management today, I think you said were 6 billion. Where do you see that figure heading over say the next three years?

It will rise dramatically. And it's hard to estimate what the figure will be but my guess, and it's just a guess, it will rise by at least 25% a year or more.

So, no slowdown in appetite on the part of institutions for owning real estate?

Not at all.

Okay, thank you.

Thank you. Your next question is coming from Dave AuBuchon from A.G. Edwards.

Relative to your rank growth expectations, where would you invest an incremental dollar capital right now, internationally or maybe your growth core markets of California, New York and Florida?

The easiest place for us to invest with the lowest risk and perhaps the highest returns is redeveloping our own properties in our core portfolio. That stuff is really, really profitable and very little risk since we already own the land. Second, for me is international, especially Mexico. The unleveraged returns are quite attractive. And we anticipate that cap rates will continue to move down in Mexico. And because you have things embedded in the leases, like percentage rents and a full CPI even with your anchor tenants, the top-line ranked growth in Mexico should also be great. In addition to that, then our co-investment programs would be third on my personal list. The returns on our co -- or the equity the we co-invested is very high when you leverage it with the asset management fees, the property management fees, the leasing commissions, the acquisitions, the promote structure and so forth. We get -- it's a very profitable vehicle for us to grow.

And how much with you say your pool of properties in your core growth markets, how much would kind of fall into the redevelopment bucket over the next two to three years, in terms of allocating at least some capital?

I think at minimum, 100 million, with conceivably be more as more projects are identified.

On like an annual basis?

On an annual basis.

Yes. I think at least for the next two or three years, Dave, I think you should see that number coming through our redevelopment work.

Okay. And Milton, you mentioned in your prepared comments that you would like to see your anchor retailers in the top 25% of their particular class. Where with you rank your portfolio right now and how much work do you have to do on that side?

I think we're pretty close, actually, because we've been focusing on it so much.

It's Jeff.

Yes, and I think with the asset sales that are designated, it will get us that much closer. So, I actually don't think we're that far from our dream portfolio.

Okay, thank you. Thank you.

Your next question is coming from Alexander Goldfarb from Lehman Brothers.

Yes, hi, good morning. I just have two quick questions for you. Going back, you spoke about possibly like a 15% type range for international exposure. If you can just comment, do you see that being just Canada and Mexico or would you see other markets? I know that you've said no to China, but I'm wondering other possibly Latin-American markets, rather international markets?

I think that's exactly right. We look at Mexico as perhaps a stepping stone to going farther south, south America, Latin-American, intrigue us very much, especially as our big box U.S. retailers expand to South America and Latin America, and we're also looking on a selective basis in Europe.

Europe as well?

Yes.

Would that be -- on the European front, is that Eastern, Western?

It's Western Europe.

Western Europe. And then on the Latin American front, would that mean a jump to a Brazil or an Argentina?

Yes.

Okay, and my next question is, a number of conference calls ago, you guys spoke about residential as being part of a mixed use potential. I think you even referenced that Bridgehampton property. Can you just provide us an update on the residential? If you see that still as something that's going to be meaningful to the Company or if it is just going to be sort of a small part that may be at a few properties, but not really something that would meaningfully contribute?

This is Jeff Olson again. And interestingly, last week I was in Florida at the ICSE Open Air Conference, and the main theme there was mixed use development. So, I'd add to your comment on residential, also office and other types. And personally, I believe as an industry, that we have barely scratched the surface on maximizing asset value, provided that the land costs remains stable and high as they are today. The municipalities are under a lot of pressure to provide live, work, play environments for their residents along with increasing their tax base. So there are a lot of suburban communities at this point that really don't have a place to call their downtown.

And this is exactly what happened to us at Westlake, where we promised the City that we would give them the Main Street if in turn they allowed us to increase the retail density. The concept that works best in urban locations where there are supply constraints and where there are a significant population where it's already in place. And with our portfolio, I would say in residential and office would fall into play in sites like we own in Bellevue, Washington, where we're very close on working through entitlements and selling off 450 residential units there. Pentagon City, Staten Island, New York, Montebello, California, La Mirada California and a number of locations in South Florida. So, I do believe this trend will continue but it takes a while to get it through.

Okay, and just as a quick follow-up to that. Where you have towns that are sort of desiring the creation of downtowns, are they coming at you initially with incentives or is that something that sort of comes out later?

It's both. It just depends on the location. We got a cold call last week from a city manager in California who basically told us he had 100,000 square foot office tenant and he couldn't find them space anywhere. And offered up our site as an example, and they would be willing to work with us if we could figure out a way to accommodate them. It's very premature and it is hard working through some lease restrictions from current tenants, but the cities are actively engaged.

Thank you very much for your time.

Thank you. Your next question is coming from Eduardo [Abish] from Millenium Partners.

Hi, good morning. First question, what do you see as your G&A run rate for '06?

The underlying budget 2006 have a total G&A of about $65 million.

$65 million. Thank you. And my second question has to do -- geographically, can you give us a sense of what you're seeing in different parts of the U.S. in terms of rent growth and maybe supply concerns of more product coming to market in different -- in the coasts and maybe in the middle?

Again, I think it's the coastal markets that are generating the most demand; And specifically, in California where you have not only a lot of population density, but the population is growing at a pretty rapid pace as well. And then certainly in the New York tri-state area where retailers have tried for years to break into this market, we are seeing them become much more aggressive in entering the New York tri-state market.

Okay. Thank you.

Thank you. Your next question is coming from Michael Mueller from J.P. Morgan.

Hi, good morning. Couple things. First of all, what was the actual sequential occupancy increase if you exclude the impact of acquisitions and dispositions?

Honestly, Michael, I'm not going to be able to recite those numbers just pulling out acquisitions, so we would have to get back to you on that one. Although I do think that when you look at the statistics, the run rate of statistics that are published in the supplemental, I don't think you're going to get a material variance in terms of the trend line. Granted acquisitions went into the core that were generally more highly occupied, no question there, and it was also helped by dispositions that were of lower occupancy. But I think the most relevant thing is that, as a general trend line, the occupancy, even on a same-store basis, did continue in a similar uptick as the rest of the portfolio overall.

Okay. So it's up. Okay. And then going back to I guess Page 26 in the supplemental and looking at the leasing in Canada and Mexico, it looks like the rents were close to $15. And if you take the TI's out and amortize that, it looks like the effective rents were below the expiring levels. Just wondering if there's anything odd going on there or how we should interpret that?

Could you just refer back to the numbers again? Back -- you said Page 26 of the supplemental?

Yes. 11.72-- excuse me, I'm sorry. Forget the $15. The 11.72 for new leases, the 11.03 and then the 4.77 of TI's? Kind of back the TI's out of the new leases. Come up with an effective number of in the high 10's. It's not that far off. Just wondering if there's something pulling that down?

Probably what I'd have to do to answer the question more accurately is to bring them back to local currencies and analyze underneath if there were one or two large projects on the TI basis that may have been defensive or protective in nature. And I'd be happy to forward you that information after I take a closer look at it.

Okay. Thanks.

In general, both in Mexico and Canada, net rents are moving upwards, not flat or down.

Okay, thank you.

Thank you. Your next question is coming from Craig Schmidt from Merrill Lynch.

Good morning. I'm wondering, given the focus of retailers in the top 25%, would we surmise that you would be selling your assets with Sears Holding anchors?

No, Craig, it would depend on the location but there's a site in Staten Island that we own that's anchored by Sears. And depending upon where the rents fall. But the ones that we're held with in general have below market rents and we would love to get that space back. It's a combination of many factors. But the overall theme is; wherever we can create value in our real estate, we'll keep it.

Okay. So you -- obviously the factored those five or six factors you went through during the call, all those are given play, you're not just going to focus on culling the portfolio?

Absolutely.

And looking out to '07 in KDI, do you guys think the development yields will be able to be maintained or come in a little bit? Craig -- Jerry, he wants you to predict 2007 now, so be careful.

I'm always good at predicting, as long as I'm not held to those numbers. I think that currently you'd have -- it depends. The yields I think are going to continue to be strong. I think they're going to be above 10% on our yields, if I had to predict. Whether they're going to drop a little due to construction costs and rent constraints, that I can't predict.

Okay, thanks.

Thank you. Your next question is coming from Rich Moore from KeyBanc Capital Markets.

Hi, good morning, guys. When I look at your debt capacity, it looks like you have a lot of debt capacity. And based on what you've outlined today, it doesn't sound like you need all that debt capacity for what you're doing going forward. How do you guys view the level of debt, how do you manage that and would you buy back stock or something else to bring your debt capacity -- your debt up a little bit? Your capacity down?

Rich, as you've been following us, so you know our views with respect to capital structure and how we will continue to maintain a conservative debt-to-equity balance. Yes, we do have a lot of capacity and there is more room for us from capital structure perspective to increase the levels of debt to capture opportunities, within my view, of not adversely affecting the rating and also keeping the coverages strong. I don't think you'll see us looking back, buying back stock, things of that nature because there are plenty of opportunities that we would invest our incremental capital on.

So, it's a long way of saying we're comfortable with our capital structure. We realize we can increase leverage insignificantly to enhance returns. But I think there's always an element of our philosophy and our business practices where we want to keep the balance sheet strong, flexible and relatively conservative because we're always trying to protect for the downside. So, you'll never see us go too far. Milton would have my head if I did that.

Okay. Fair enough. Thank you. And then on the income statement, the provision for income taxes is down, a benefit to you guys. Is there anything special there? And how do you look at that going forward?

The income taxes is a number, particularly in the fourth quarter, it is a little squirrelly in terms of its relative ratios. And when you stand back and you look at the full year effective tax rate, it's about 34%, give or take, which is probably in the same ballpark as last year. Generally, what happens in fourth quarter, not only the effects of the true-up, but there's one particular nuance with our Kimco Realty Services, TRS. We wait until the end of the year to make a determination on how much of the distribution's coming from our investment in Kim South, former [Conover] is actually a return of capital or a dividend this is for tax purposes now -- dividend subject to the 85% dividend received deduction. And because of most of it this year was due to that, you have kind of a built-in benefit. And because of that, the analysis and recomputation occurred in the fourth quarter. And that's what kind of ratchet down the taxes to almost a benefit for the three-month period.

Okay. Good, thank you guys.

Excuse me, we only have time for one more question.

Thank you. Your final question will be coming from Jamie Feldman from Prudential Equity.

It's a lot of pressure. Could you -- you may have answered this already and I apologize if you did. But can you just talk -- in terms of the guidance revision, exactly, like the acquisition market, exactly in which markets and on what property types did it cause you to change your outlook from the last time you issued guidance?

Jamie, it was just simply a question of what we already have in the bag versus kind of full-year projections. Generally, when I provide guidance for the subsequent year, the tradition of the historical situation has been the acquisitions really don't pick up until the middle part of the year and beyond. This year, because we closed that FHK portfolio that Jeff had referenced and have a couple of other pipelines opportunities in front of us, it was more a timing thing than anything else and an absolute increase in the expectations because of that pipeline. So, it really wasn't due to any specific market or area or anything like that. It was just more timing than anything else

Okay. So if things stay strong through say the first half of the year, there's a likelihood that you could raise it again based on a continuation of the environment?

Well, my core -- the guidance that I offered up had a reacquisition framework of 350 to 750 and joint ventures of 600. So, if materially it changes, sure, I'd have to reevaluate guidance and give you some updated information. But I think that's a pretty wide enough range, coupled with all the other things that go on in our operating accounts that I'm comfortable that we are where we are.

All right, thanks.

Okay, thank you all for joining us. And we look forward to speaking with you again next quarter.

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