Kimco Realty Corp (KIM) 2006 Q3 法說會逐字稿

Good morning. My name is Rich and I will be your conference operator today. At this time I would like to welcome everyone to the KIMCO third quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. [OPERATOR INSTRUCTIONS]. Thank you. It is now my pleasure to turn the floor to your host, Scott Onufrey. Sir, you may begin your conference.

Thank you, Rich. Thank you all for joining us for Kimco Realty third 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 managements hope, 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 too, 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 Vice Chairman, and Milton Cooper our Chairman and CEO. Mike Flynn, our President and Vice Chairman, and several other key executives are also available to take your 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. And good morning. Our fiscal third quarter has provided further evidence of an effective business model with contributions from numerous sources. Operating results were again strong posting a 12% increase in FFO per share to $0.56 for the nine-month period FFO per share rose 12.4% to $1.63.

As a consequence of these results, we are again increasing our full year FFO estimates to rage of $2.18, and $2.20 per share or $0.02 higher than indicated in our prior call. The high end of this range will represent a 10% increase on a full year basis. A growth rate that is consistent with our longer term objective and on the heels of a 13% and 10% FFO increase over the prior 2 fiscal years. Not all bad when you consider the base of FFO dollars to grow is about 35% higher than the next largest company in the shopping center sector, and we do with a conservative balance sheet structure that supports one of the highest credit ratings in reed land.

As we mentioned in the press release, we are moving towards closing the merger transaction with Pan Pacific tomorrow and the subsequently entered into a joint venture with Prudential Real Estate investment management. Through three separate accounts, cruel will provide $1.1 billion in capital to secure an 85% position in the portfolio. Kimco will retain a 15% position and assume portfolio asset management and leasing duties. It might be worthwhile to spend a minute to explain the capitalization structure and its effect on Kimco.

Total capital required to complete the deal $3.8 billion which represents the total asset value of about 4.1 billion, less about $300 million in assumed mortgages. This capital requirement will be funded with new CMBS financing on individual assetts aggregating about 1.3 billion on all of those properties identified as long-term hold in the joint venture, and an additional $1.2 billion from a syndicated term loan to fully finance a group of properties designated for sale. The balance will be funded with the equity capital from Prudential and Kimco.

You must to understand, as part of the merger consideration to PNP shareholders is in the form of Kimco stock which will aggregate over 400 million. Additional, Kimco will assume the existing $630 million of Pan Pacific bond. Because Kimco's invest in the JV with Prudential is only $200 million for its 15% share, we will wind up with over $830 million in cash from the stock and bond components. Part of this money will be used to clear existing balances on our credit facility and refinance a few of our own pending bond maturities, leaving about $450 million of available cash balances and a fully available credit line to fund additional investments without having to go to the market.

In effect, between cash and existing credit facilities, we have over $1 billion to move quickly if we see opportunities we like and yet the balance sheet structure remains intact and credit statistics remain virtually unchanged. With respect to the third quarter operating results, our core shopping center holdings continue to perform well as we maintain our focus on asset management and selective acquisitions, our consolidated property portfolio increased net operating income by almost 15% or $16.6 million to a level 112.3 million, primarily driven by the effect of acquisitions net of transfers as well as solid internal growth.

In addition, core properties held in joint venture form, primarily in Canada and Mexico, generated higher FFO contribution, increasing by $3.7 million for the quarter. The same site growth rate for the core portfolio for this quarter was 4.3% while same-site occupancy grew from 94.4 to 94.9% in the year-over-year time frame. The investment management business with institutional investors also benefited from higher levels of assets under management and strong performance in each of the portfolios.

The FFO contribution, which represents earnings on our investment and the related fee streams,increased by 14.8 million to $35.9 million for the third quarter. Included in this quarter's amounts was $9.3 million in promote income recognized from our Kimco, GE real estate joint venture and the accumulated disposition activity has resulted in the accrued return exceeding the minimum IRR hurdle.

This first venture called crop one, is closed to new investment and we have established a second pool for future acquisitions and have jump started wit the sale of two former con over properties. We expect a substantial number of remaining crop one assets to be sold over the course of the next 12 months.

This income contribution from the investment management platform, will continue to grow as the PAN Pacific assets come on line this quarter as well as the impact of the third quarter acquisitions noted in our press release. In addition we expect that the pending acquisition of the crow holdings retail assets will find there way into one or more institutional programs at or close to the transaction closing date which will most likely be early first quarter 2007.

The third platform, our operating business also contributed to the third quarter's results. Preferred equities earnings increased by $3 million for the quarter to 11.8 million. Kimco developers generated $6.4 million in gains for the quarter primarily from sale of the Cypress town center project to our partnership with GE pension trust as well as the partnership buyout and some earn-outs receives from prior sales. The quarter end and year to date amounts are lower than last year, but within our expectation.

As we indicated previously, more projects will be earmarked into joint ventures, which will be beneficial to our management business but reduce our reported gain due do the retained interest. Year to date interest will be reduced by $1 million due to that requirement. The former con over portfolio is now virtually complete with the sale of two assets into the new joint venture with GE real estate, as I mentioned earlier. And these sales generated about $4.5 million of profits after tax.

One question that I know will be asked is the marketing increase in overhead expenses. From the June quarter these expenses increased by $6 million. About $4 million of this amount reflects the impact of FAS-123R a current year revision to stock option accounting, which requires immediate expense recognition of all options granted to persons who are retirement eligible.

Our company-wide annual stock option grant occurred in the third quarter and due to the new rules much more expense is recognized in the current period than what would have occurred under prior rules or amortization of these non-cash expenses would have been spread over the vesting period. We also incurred additional costs for our investor day in September which as you know will never be an annual event for Kimco. Looking ahead to next year, we are establishing preliminary earnings guidance in the range of $2.37 to $2.47 per share. Which is approximately a 8-12% growth rate from the range of our 2006+ estimates.

That range is a level consistent with our dividend increase of 9.1% approved last quarter. It's consistent with our past track record of FFO increases and consistent with our overall strategy to grow earnings by an average of 10% over the next five years. With that, I'll turn it over to Dave Henry.

Thanks, Mike. Good morning. I am pleased to report that we had another strong quarter of new business activity across many fronts. The signature transaction for the quarter is certainly the completion of our merger with Pan Pacific Retail Properties, scheduled for tomorrow. As Mike outlined, Prudential real estate investors will be our institutional partner for the entire real estate portfolio and will maintain an 85% ownership in the property portfolio. Kimco will co-invest 15% and be the operating partner for the joint venture.

We feel terrific about the high quality of the Pan Pacific properties and we look forward with working with Prudential to create value in the portfolio. In the U.S., in addition to the Pan Pacific transaction, we acquired 65 additional property interests during the quarter, comprising 4.7 million square feet at an average cost of $621 million. Of note, our coinvestment program with UBS wealth management add 15 retail properties totaling 526 million, including the airport property, that we discussed during our last at the conference call.

Our UBS joint venture has been particularly active and the recent property acquisitions included a 10-property portfolio located in Florida. Largely anchored by public supermarkets comprising 722,000 square feet and purchased at a cost of $158 million. Other UBS venture properties purchased during the quarter included 167,000 square foot shopping center in suburban Chicago, a 78,000 square foot Whole Foods anchored shopping center in Duluth, Georgia, and two properties purchased from other Kimco institutional joint ventures.

As the operating partner in numberous joint ventures, Kimco can help arrange and expedite the sale of one institution's interest to another. Thereby providing liquidity and minimizing transaction costs. Our joint venture with GE pension trust acquired Cyprus town center, a 196,000 square foot retail center in Cypress, Texas.

Recently completed by Kimco developers,KDI. the transaction is note worthy because it indicates the beginning of sell some of the very best KDI-developed properties into our institutional joint ventures. Historically, KDI as been strictly a merchant builder and we are now moving towards a model for many of the properties with cooperation of our local development partners, we'll be placed in our longer term institutional joint ventures. This may reduce current earnings for KDI, but will produce higher future returns and help us grow ours a set management business.

Other property acquisitions during the quarter included 6 of the 7 properties in the shopping center portfolio in Porta Rico we announced last quarter. We hope to close the seventh property in the fourth quarter. As part of increasing our business and our portfolio in Puerto Rico, we approved our first equity transaction in Puerto Rico, which involves the recapitalization of the recently renovated 119,000 shopping center in Vega, Baja, Puerto Rico.

Also on the U.S. new business front, we are pleased to reached an agreement with GE real estate to acquire the retail portion of the real estate portfolio they are acquiring from pro holdings. The retail portfolio contains 19 high-quality properties comprising 3.6 million square feet, located primarily in California, New York, and Washington DC.

These properties are also targeted for our institutional joint venture programs. Our preferred equity program was also very busy during the quarter. Since last quarter we closed on nine preferred equity transactions totaling $31 million and comprising 16 individual properties. Overall our preferred equity program including Canadian transactions, has now closed 90 separate transactions, totaling 460 million and representing 244 individual properties. Included in this property total are 8 buildings we have acquired over the past three years in the Bleeker street area of Greenwich Village in downtown Manhattan. Although the buildings are relatively small, each of them are characterized by retail on the ground floor and rental apartments on the higher floors.

Together with our local partners our business plan is to up grade the retail space and convert the residential apartments into condominiums. Overall in the Preferred Equity we have a wonderful diversified portfolio in terms of both the number of partners and the geographic dispersion of the properties. Looking at development in the U.S., Kimco developers was also active selling 1 completed project and portions of 3 additional properties. In addition, KDI commenced development on a new 275,000 square foot shopping center located in Frisco, Texas, a suburb of Dallas.

The KDI pipeline of development properties is substantial and totals 15 new projects with an aggregate project cost of $900 million. In our retailer services business where we provide capital and services directly to retailers, Kimco provided a $33 million combined term and revolver debtor and position loan to Strauss Discount Auto, secured by all of the assetts of the company including owned and leased real estate. In addition and in connection with the aquistion of certain Albertson's assets, Kimco and it's partners acquired the underline fee position of 50 store locations and one shopping center in two separate transactions totaling $175 million. Kimco also invested $9.5 million through its participation in the asset purchase of Furniture World, which included four stores in New Hampshire.

With respect to our international investment activities, we have strong quarter in Mexico where we continue to build both momentum and aquistion. On the development side, we closed on three new transactions, a redevelopment of an existing Wal-Mart shopping center in [inaudible]Mexico, which will eventually contain 360,000 square feet , a new Wal-Mart anchored project in Mexicali, Mexico, which will contain 421,000 square feet and a new 386,000 square foot HEB anchored shopping center in Monterey, Mexico. On the acquisition side, in Mexico, we acquired 186,000 square foot multi-tenant industrial facility anchored by International paper. This facility joins our other 59 net-leased properties in our joint venture with American Industries in Mexico.

The portfolio is performing very well and is presently 98% leased. During the quarter Kimco also funded a $5.3 million participating mortgage on a 99,000 square foot shopping center Guadalajara, Mexico. Over all, our portfolio in Mexico now contains 85 properties containing more than 12.5 million square feet. In Canada, in addition to the previously announced 1.2 million square foot development project in Montreal, Kimco also recently acquired two additional self storage properties in its joint venture with Apple self storage. The projects are located in Quebec city and Toronto and the Apple storage venture now currently owns and operates 12 self storage facilities in eastern Canada. I encourage you to visit the Apple self storage website, which further details the portfolio and our venture operations.

Also in Canada, Kimco recently agreed to increase it's existing line of credit to white rock wheat from $23.5 million to $45 million Canadian. As part of the facility, Kimco receives white rock wheat and stock. Now, I would like to introduce Milton for his comments.

Thank, Dave. In our past call, I have talked about our strategy, and I think everyone is familiar with it. But the best strategy is worthless without execution, and execution requires people and our number one priority is training, mentoring, motivating and stimulating people, people who can execute. And I don't just name the top business leaders. The company size is such that what is essential is that a team and staff of associates with an entrepreneurial spirit, who can make things happen in over 1,000 properties and on many different business units.

It requires an entrepreneurial street-smart, motivated individual, who can read eyeballs, who can look at the eyeballs of a contractor and smell if Kimco is getting the right price, who is look at the eyeballs of a perspective tenant and sense whether that tenant can prosper or fail, who can look at the eyeballs of leasing brokers to determine whether they will really work a property with respect of a tenant or just take a listing and sit on it, a person who can eyeball a property and be creative in what can be done. This is our company's business challenge. Yes, our shareholders returns have been good. But we can't kid ourselves.

Part of the success has been a compression of cap rates and a rising enthusiasm for read stocks in real estates, but the results would not have been the same without tall leaped people. We can't control cap rates. We can't control interest rates. We can't control consumer spending, but we must control our emphasis on people and use all of our energy to mentor, motivate, stimulate and attract people and have them grow with us. I am saying this, not only to confirm our priority, but It is my way of thanking all of the many associates in Kimco that have made so many things happen for us. We had a very, very short window to commit to the Pan Pacific deal.

The due diligence that was required in such a very short time period was accomplished by a group of associates who worked 18 to 20 hours a day and weekends, and got the job done in time, a remarkable accomplishment. Every day the nitty-gritty of leasing, maintenance, contesting real estate taxes, creating value through different uses and redevelopment, all of the many tasks that create value are executed by a group of people who think like an owner and are enthusiastic about what they do.

The key to maintaining this spirit is something that is essential to delivering the goods for you, me, and the people who make it happen. Now I would like to close with a happy statistic. In the past few weeks, our share price reached a price that equated to, on a split adjusted basis, $200 per share or 10 times our IPO price. Not too shaby. On that note, we will be happy to respond to questions.

Rich, we will now take questions.

[OPERATOR INSTRUCTIONS]. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Christy MCLEROY of Banc of America.

Good morning. I'm here with Ross Nussbaum, as well. Mike you discussed the fees that you'll be receiving on the new Prudential JV? If you could just walk us through the economics behind each of the fees including the asset management fees, which I didn't see listed in your press release and then just more broadly as you talk to potential JV partners including your talks with Prudential, have you had to reduce your fees at all from what you have been able to get historically given that investment yields have come down, in order to make the economics work for your partners with respect to their potential investment returns?

That was mouthful. In trying to break-- break things down, we are going to receive from the Prudential structure leasing fees in market rate management fee, which will I be approximately 4%. We will receive an acquisition fee. We will not receive asset management fees the way the deal is currently contemplated to be structured, and that, we will earn-- we will earn some excess return over a minimum IRR thresh hold that's about the extent that I'm going to disclose the specifics on the fees.

In terms of your other question, we obviously negotiated in good faith with Prudential and came up with what we felt to be a fair-- a fair package of fees to compensate us for the services to be performed. I wouldn't consider that we had to stretch or to reduce fees or the structure in any way to win the deal or to win Prudential over. I think it was a fair and balanced negotiation, and we came up with an appropriate package.

I think it's fair to add that the institutional demand for high quality shopping centers as represented by Pan Pacific remain very strong and the fee structure is commensurate.

Okay. I know you do a number of projects for local JV partners. Can you walk us through what your partners equity stake would typically be and how the economics usually work once the project is completed both for the merchant projects and develop and hold projects? And then can you also break out your pro-ratta share of in progress develop between the merchant building develop and hold properties, but assumes that the numbers in the supplemental are on a gross basis.

I'll take a stab at both, answering that-- the second one first. We roughly identified about half of the KDI's properties as potential hold properties, rather than strictly merchant build properties. Now, that may change over time depending on what our local partners wish to do, but right now I'd say it looks like about 50% of the on going pipeline

In terms of a typical KDI deal, Jerry can also add his input, but we-- we provide a lion's share of the capital somewhere between 90 to 100% of the equity capital required. We charge a preferred return and generally the profits are split 50/50 above that preferred return. The developer makes a development fee, leasing commissions are generally shared, depending on whether we or the local operating partner provides the leasing, and that's essentially the-- the deal. Now, no two deals with ever the same, but that's a pretty typical deal. What is your pro rata share of your in-process development pipeline?

When you say pro rata share, I'm having trouble understanding what you are getting at. What is the specific calculation that you are looking for? Like Dave said most all of the projects in merchant building are generally funded entirely by Kimco, and that to the extent that there is a development profit that after a preferred return computed to us, we will generally have half the profit, so I'm a little unclear as to what question you are asking.

Okay. That makes sense. Thank you.

Next question comes from Jonathan Litt of Citigroup.

This is Ann Beach as well with John. Just going back to the Prudential JV, are there any fees, that you know, that were higher that offset Kimco not getting the asset management fee?

No.

No?

No.

Okay. And then--

But there are a whole range of other market-based fees, for instance construction management fees, leasing commissions and so forth, so we feel we are well compensated on the transactions.

Okay. And then maybe this is for Milton. It appears that in the third quarter the consumer continued to be resilient despite gas prices. Now that gas prices have pulled back do you have an outlook on the consumer for '07?

I wish I new. I really don't. I learned over time that it's very hard to guess what the consumer will do. Sorry, I wish-- I wish I could help you.

Okay. And then income from other real estate investments, seemed high, the line item, is there anything that was particularly driving that? Was the promote in there?

No. If your are looking at the quarter over quarter from 2005--

Yes.

-- it was up about $14 million.

Uh-huh.

About 3 million of that was due to increased profits in the preferred equity business, about $8 million was related to the con over sales asset that's had mentioned earlier in my prepared remarks. The number I gave you in that was net of tax in the income from real estate-- other real estate investment it's gross of tax, and then the last item was about $3 million on gain related to the sale of a component of the [inaudible] shown investment. By the way that is not included in our FFO, but it was in our GAAP earnings.

Okay. Thank you.

Your next question comes from Matt Ostrower of Morgan Stanley.

Morning. I guess one of the questions that I think everyone is sort of asking by diving to the fees is-- are you seeing the market for fees change as it seems like-- you know, somebody else seems to get into the asset management business every other day or so?

Not at all. Indeed what we see is the institutional demand is so strong that the level of promote income is increasing. In other words, the yield required or IRR required to trigger a promote has declined. And you can look at some of the press releases of ordeal, and you'll note that.

Okay. I guess to be-- basically taking more risk on the back end from that perspective.

Possibly, yes.

Okay. And then on KDI, we talked about this before, you try to look at the margins using your supplement, which I know is not a perfect way of looking at it, but those looked like they had fallen again this quarter, can you Mike, I guess could you just comment on what you think the real margins are there? Has there been any change?

Yes, you're right, Matt in the sense that wey are constantly looking at our sales dollars relative to the profit recognized in the quarter. And that's because there are a variety of sales, which the profit number includes prior period or earn outs in the current period, may not fully reflect the total deal. We're still seeing, about 15 to 20% margin. When you look at the deals in their entirety, and I think that's the tough thing, because each quarter's profit will include not only part of the profit from the current period sale, but also prior period, the remaining profit on earn out.

I mentioned that the Cypress town center transaction this quarter, sold to an institutional partner, so we did not recognize a piece of the gain, nor will we ever, because it's not part of the basis in the new venture. You would almost have to add another $1 million in profit to kind of make it apples and apples.

Jerry, you might-- you might comment on the current economics of new deals that you see out there in terms of the un leveraged returns and the gross profit margin.

Well, I think that there's a slight construction of the gross profit, but basically, we're still seeing deals that on a cash on cash basis unleveraged that we're still getting the double digit returns before we go forward.

All right. Thank you.

Your next question comes from Scott CEO of UBS.

Good morning. Going back to the asset management fee that you didn't charge or you won't be charging Prudential on the P & P deal, can you walk through the logic behind not charging an asset management fee?

Every deal is different in these joint ventures, and we hesitate to be too candid on the exact fee structure because they are different. Pan Pacific is an enormous transaction for $4 billion, and there's certainly a huge benefit to having one partner, and it eliminates a lot of conflicts. The fees we're getting the 4% property management, and a host of other related property management fees, more than compensate us for the risk we take and the efforts we make in that portfolio, and we're have happy with it.

We think it's very fair. It is true in other ventures we do get a modest asset management fee. But again, it's all part of the gives and gets, and negotiations in each one of these ventures, which are all very different. In some we get higher property management fees some we get lower and so forth. They are all different.

Scott, can I just add something? If we wanted to use a line, and we had in the Pan Pacific transaction a separate $3 billion commitment, so that we could have done it all on our own balance sheet, the trade off was-- and you are right, we probably would have done much better, or better, by taking it down and having a series of smaller transactions, but our feeling was that this was a good partner. It was good to put the entire thing to bed and reserve a power for additional transactions that may come. That's a good question.

That makes sense. Thank you. The next question I have is how does the Prudential joint venture fit in with your other capital partners? For instance UBS is more core focused. How does Peru fit and how do you balance the different buckets?

Peru is an excel rent long-term core investor for high-quality properties. UBS has been particularly active in the same category, but more often on a one off basis and quite frankly the size of the Pan Pacific transaction ruled out UBS to do it on an entirety basis. Peru stepped up early and told us they wanted to do this with us and we proceeded on that basis. Not to take away from any of the large amount of activity we continue to do with UBS. In general, as we mentioned before, we think our job is to match the right investor with the right property, and it is amazing the wide variety of asset types. we investors that want a high IRR perhaps lower quality deals where some piece of execution needs to happen.

We have others, others that want very low leverage or no leverage on their properties. We have some investors that want a specific geographic area of the country. We even have investors that would like us to look for high-quality properties in low to moderate income areas to meet certain needs they have. There's a wide variety of investors and a wide variety of property types and our job is to match them up.

Lastly, can you comment on how net is that 4% property management fee? I mean, does that involve a higher level of costs? And then how scalable is the business over all in terms of how many new resources you have to put on as you continue to roll out the investment management platform?

Scott, I would say that on an incremental basis, from the standpoint of adding overhead because we did hire a group of-- we'll hire a group of Pan Pacific employees, mostly on the operational and leasing side, that you could safely estimate that about 60 to 65% of that management fee is the upside or the profit margin, I should say. Thank you very much.

Your next question comes from David Fick of Stifel Nicolaus.

Good morning.

Good morning.

Can you comment on the inland deal and how far you got into that deal and pricing?

David, I think we would like to leave it that we took a very hard look at the inland deal and just leave it at that.

Okay. I'm wondering what your motivation is for issuing shares in the PMP deal given that you effectively through that deal raising equity for cash, and why you wouldn't do an all-cash deal given that your investment in both the existing and forward pipeline appears to be mostly externally funded? I hear you in terms of use of proceeds, but I'm not seeing it in reality.

David, it's a good question, and it's never an easy balance to make. All of us aimore issuing equity. On the other hand we have a rating equity constituency and we have the strong instinct that there will be very substantial opportunities available, and we have to have the fire power. It was a call candidly they made after a lot of back and forth, and change our mind 10 times.

There isn't an exact science on issuing equity. The advantage that this had in issuing equity is it was without cause, and it was to a group that probably liked our sector, so we thought it was a good execution-- that doesn't mean change the basic decision whether you do it or don't do it, but having made the decision that we should do it because this was a good execution. I'll never have an exact answer of when and when not to issue equity.

I think it's fair to also add, though, that the level of activity across the board continues to build.

Huge.

And the pipeline across all of our different business, so it's fair to look forward.

That's a good segue to my final question, that is operationally, you have got huge, huge need for field resources. And I'm wondering how you feel right now about our ability to manage at the ground level all of these assets that you are taking on. I know you must feel you that can. But what are you doing specifically to ensure that Kimco's asset management approach is consistent?

David, that is really the best question that you could ask, because if you heard my remarks, that was my focus. Mike Flynn and I and our team-- I think spending 80% of our time on motivating a group of young people and training them and watching-- that's why I talked about the eyeball. There's nothing that's more important, and I have never felt better-- oddly enough-- because Mike and I were talking this morning, about the level of talent we have, and it how it's growing, and their enthusiasm is so contagious, it really makes me get further excited. It's our number 1 priority as I said before, and that we're doing. I feel good about it.

Thank you.

Your next question comes from Michael Daimler will of UBS.

Hi, good morning. I have a couple of questions regarding the pro forma outlook for your balance sheet . First being, what is your pro forma debt ratio after giving effect of the JV sale? And can you kind of walk through what the net real estate assets look like following [inaudible].

I'm Glenn Cohen, Kimco's Treasurer. Our debt ratios, really, are not going to change once this transaction closes between the issuance of the equity, and the assumption of the bond debt. Our debt's market cap is going to stay somewhere around 25% and our coverage ratios are still going to be in the high 3s. 3.8 on debt service coverage and around 3.4, 3.5 on fixed charge coverage. So, we have taken all of that into account and we'll wind up with a lot of cash able to further the investment in the company.

And as for the cash, I mean, 830 million, that's coming in from the JV sale and from what other sources?

Well you have-- you have the issue-- between the issuance of the stock and the bonds that are being assumed, when we'll all said and done, those two pieces are roughly a little over $1 billion. Our investment in the JV is only 200 million so the net of it all will be, we'll wind up with about 800 million in cash and the first slug of the cash will reduce our outstanding on our credit facility. At the end of the quarter we have 360 million in outstanding on our U.S. line. That will immediately be paid down.

And-- and the actual funds from the JV will come, from as we mentioned earlier, the CMBS financing and the term loan financing as well as the cash equity from Prudential.

Okay. One final question, I heard you say you are going to assume all kinds Pan Pacific notes? There is no talk for early retirement at this stage?

No.

Thank you.

Your next question comes from Lou Taylor of Deutsche Bank.

Thanks. Mike, along a management issue, with regards to G&A ,what is a good run rate, or what are your expectations for next year?

Every time someone asks me about the run rate, I blow it. So, I'm presuming this year-- this year will be no different, but in terms of 2007, we're thinking that, at this point the overhead estimate is probably going to be about 85-- $85 million, which includes about $12 million worth of stock option expense.

Okay.

Okay. Write that down, Lou so that a year from now, you'll see how far off I was.

All right. Going into the record. Dave, can you talk a little bit of the percentage of KDI developments that you either hope or intend to sell to your long-term institutional funds, maybe in '07 and maybe a little longer term?

Well, again, the longer-term objective is about 50%, as we carefully go through these projects? And quite frankly there's some that we're not prepared to recommend to our institutional partners, and we do think we should take advantage of today's market and stole third parties. We have got about 50% of them-- we would like to sell to-- to our partners, or we will recommend selling to our partners. I don't know exactly what the breakdown will be for next year but my guess is we'll be close to that.

A follow-up along those lines. What is the transfer pricing mechanism between KDI and the funds?

Actually it works pretty well when you think about it. Because the KDI business model is we are using a local operating partner, which had 50% of the profit, and in these-- in these ventures, we negotiate to purchase our local partner's interest out. So the price to our institutional venture partner is determined by the price we're able to negotiate with your partner. We do not mark up the price to our institutional partners. So in an arm's length transaction we are negotiating with our local partner who is obviously incentives to get the highest price he can. There are some certain savings that will accrue to us and our institutional partner by dealing directly with your partner.

There's no brokerage fee. Sometimes we can avoid the assumptions costs and that sort of stuff so, it's kind of a win/win for both of our institutional partners and our local partner, and the transfer of pricing is established through both negotiating with that local partner.

Your next question comes from Christine Kim of Deutsche Bank.

I'm actually covered, thanks.

Your next question comes from Craig Smith of Merrill Lynch.

Good morning. I guess this is a Mike Flynn question. Given the occupancy at 95%, is there any room, still for growth, and where can you possibly take that occupancy level to?

I would say, yes, Craig, there's no out about it being a mature portfolio, that we have this program, as you know where we're continuously evaluating each of the properties. And we are inclined today-- we do consider the percentage of occupancy as being important, but more important is the creating the value. So that if, again, we see some vacant spots that by holding them longer, perhaps we can get a better mix in the shopping center and

In time we'll basically create a better cap rate for the property. That may be part of the decision. So I think today that, yes, I would say very definitely there's desire in the program to increase the occupancy beyond 95, but it may be take us a little longer to jump at filling a vacant-- vacant box, because we want to think about the impact when we lock in or perhaps with options, maybe over 10-- maybe 15 years, but the impact of that deal is going to be on the embedded value of what we have created.

Okay. And given Wal-Mart's announcement of slowing domestic store growth, I was wondering if you are hearing anything similar among any of your other big box tenants?

No, not at all.

The same-store 4.3, same-store NOI does that include the benefits of redevelopment.

Yes, it does.

And do you know what it would be without that?

I can give you a broad slide. It is a very broad term at least in our nomenclature, and it's probably about half and half.

Okay. Thanks a lot.

Your next question comes from Dennis Maloney of Goldman Sachs.

Hi, good morning. Just a follow up on some of your previous commentary. The the extent that you have in investors with overlapping investment criteria and given their various appetite for real estate how do you manage expectations for product in this environment?

Again, we start with we don't have any discretionary capital on our side. There's no exclussives. There's no obligations to present to a particular investor or no expectations on the investor that he will get a certain share, and part of-- if there is overlapping there really hasn't been any significant overlap today.

Now that may-- that may grow over time and then we might switch to a rotation policy or something like that. But today we have been able to manage it in terms of discussing with the investors exactly what they are looking for, and the size of their appetite and we have been able to keep our investors happy to my knowledge we haven't lost a single investor from this process yet.

And then for my second question, just wondering what your thoughts are on the relative attractiveness of Brazil, relative to Mexico?

We have had our folks take a hard look at-- at Brazil, and we continue to look at Brazil. Brazil is a big country, obviously the demographics are very attractive, and a place, as a place to invest. It is difficult, though, in terms of the currently, and that's something we're weighing very carefully. As most people know we have announced that we will close our first deal in South America in Chile, which is a lot more stable environment in many respects, so we're going to start in Chile and see how it goes.

Thank you.

Your next question comes from Dan Sullivan or Wachovia.

Good morning, guys I appreciate you walking through the structure and the steps in the Pan Pacific transaction. I just want to make sure I'm 100% clear as to what is going to happen to the PMP bondholders. It sounds like Kimco is going to assume the bonds at the Kimco level. Am I correct in assume they are going to be kept at the Kimco level when the PNP assets are put into the subsidiary crew, putting them away -- the bonds are not going to be put down into that subsidiary? Is that correct?

The company is going to merge first with Pan Pacific. The bonds will stay at the Kimco level, and Kimco will become the guarantor of the bonds.

Okay. Thank you very much.

Your next question comes from Steve Sakwa of Merrill Lynch.

Good morning. Mike Pappagallo, I just want to circle back on the G&A, if we think about, kind of what you recorded this quarter and you back out the 4 million that related to the options, is it fair to assume the 18 million is kind of a quarterly run rate. The lease-- kind of as we finish up this year and then that number is going to grow as we go into '07?

I think in a rough or order of magnitude that's about right, Steve. So when you are thinking about something like 85 million for next year and a number that may be kind of in the low 70s, you kind of still growing G&A maybe in the 15, 20% range, which I guess seems to be a little drag on earnings as you are building out this platform.

At what point or what size do you get, I guess more efficiency or more scale at the G&A level?

I'll take a stab, we're not only investing for our asset management business, but we have a number of operating businesses such as Preferred Equity in Mexico and South America, we're also investing for the future too. So you should not look at the incremental G&A as related to solely asset management.

Maybe asked differently. If you are going to try to grow earnings 10%, sort of plus over the next five years, should we assume a significantly hirer growth rate in G&A over next five years in order to achieve that 10% earnings growth?

It is going to increase, and I think you should assume it, whether-- whether it's 15%, I don't think so. But it will-- it will continue to grow, and for the very same points that Dave mentioned. The asset management business will continue to grow over time we will get economies of scale at that-- at that level, but as the last few years have demonstrated, we have committed resources into other areas.

I think it was a question that was brought in earlier about having a sufficient amount of resources to execute, and that does require bringing in good people and populating some of our new activities, you know, other areas, even in our retailer services and in our Kimco select business, I mean, those are highly complex businesses that require a lot of brain power, and we have brought on individuals in those areas to help us build to the future, and increase the capacity in those areas. So you know, it's tough, Steve, to kind of put percentages on it, because it's not a simplistic model of just putting on shopping center assets and trying to bing out some efficiencies.

We're constantly going to be growing all of the different platforms and as a consequence of that extensions will continue to go up. Our job is to make sure the profits are delivered in excess so that we can have a composite 10% FFO growth.

Understood. If I could switch gears, back to international. Dave, can you maybe either tell us which countries you could target or give us characteristics of countries that would be more favorable versus others to help us think through where the next few steps may be internationally?

We do like South America and Latin America over all as the target as opposed to perhaps, Asia or India, we're focusing our resources on central and South America at this time. Obviously Argentina and Brazil is a big market with the bigger demographics, but they are more complicated countries to invest in.

Something like Costa Rica of Guatemala is a little easier for us to strike there first. We have added some people to take a hard look at these countries and we're doing our country studies, and we'll give you an update over time.

Is there just a dollar amount that you would want to be able to get in a country that says it's worthwhile?

No, not a bit. As you know, for instance, we have-- we have invested heavily in Porta Rico and despite a population of only 4 million people. We think the demographics and spending habit and the level of entry are all attractive places for us.

Chile has about 15 million people but the capital city of Santiago has almost 7 million people so that is an attractive market to us. I think we look at cities and countries anywhere over-- you know, a couple million people as possible places to invest. When you look at the other factors, which are what is our competition, what is the prognosis for growing income and creating value at the property level?

Okay. Thanks.

Your next question comes from Michael Mueller of J.P. Morgan.

Yes, hi, couple of things. First of all on the numbers side. I apologize if I missed this. Mike, where is the promote imbedded? I think you said it was income from other real estate?

It is in the equity from income from joint ventures line, Mike, which is towards the bottom of the operating statement.

Okay. And second, just on a bigger picture side, seeing a lot of M&A these days it seems like in the triple net space, and it looks like it's an area that you dappled on in the past and institutional capital seems to be going toward it. Can you talk about how you look at these space these days?

I don't think it's any secret we're one of the people that took a look at trust street. It's an attractive portfolio for us, and we would look at over companies that have the same sort of characteristics, as we look at our own portfolio, we have almost 900 restaurants in our own portfolio. So we're looking at a company that has 2200 was appealing to us, and we did take a very hard look at trust street and we might look at other similar portfolios and the net-lease portfolio is something we're taking a look at.

And what about flexibility in terms of the property type, the various property types that they have out there. I mean, how far would you stretch or not stretch in terms of property type?

Well, again, under the theory that you are starting with net lease properties and I can relate it to again, trust street, which we took a look at. That was intriguing to us because these were out partial and cab sites with generally restaurants on them, very comfortable to our own portfolio.

So we-- we thought we had some expertise to take a hard look at that. Obviously net leases can cover a wide variety of property types. We do have 60 net leased industrial buildings in Mexico, so we think we're equipped to underwrite them as well. Whether it's distribution or industrial or restaurants, net lease is a property type that is not too far a field from what we do.

Okay. Thanks.

We have a follow-up question from David of Stifel Nicolaus.

Hi, It is David here with a few quick follow ups. Your '07 guidance, what are you assuming in regards to acquisitions? I know you are talking about a pretty strong pipeline.

We just made some preliminary estimates of new business. The core portfolio, net of dispositions, will probably be about 3 to $400 million, and new volume on the joint venture of the institutional management, probably-- we're kind of initially forecasting about $2 billion, about $100 million on preferred equity and then probably, in the neighborhood of $150 to 200 on what I call the all other, but it's things you'll see from retailer services, Kimco select, along the same-- if you look at this past year of 2006, things like the Albertson's investment, which alone is $50 million. Those are kind of the broad ranges of preliminary estimates that we used to build our own framework for our earnings estimates.

Okay. And just one other question, on '07, your leasing spread, your last few quarters have been in the mid-20s, is that something you can expect going forward or should it more moderate back more to the average?

It's hard to take one point in time and use it as a predicative device for the future. We know we have seen quarter consistent to quarters and trailing averages to be in excess of 15%, so there may be some moves up and down, but we're still seeing well above double digit releasing spreads.

Okay. Thank you.

Your next question comes from Paul Morgan of FBR.

Morning. In terms of development pipeline-- I mean there's a number of projects in there that are complete, and some of them pretty big, and I just want to get a sense of kind of the shadow pipeline for next year, whether that number in the merchant business is likely to level off or decline as-- as you sell off what is in there. I don't see a lot that has been put in for 2007 delivery.

Jerry, we would like to take a stab.

Certainly. The pipeline that we're talking about-- you have to realize the development is not a one or two year process. It takes several years for entitlement, development and then sales. So most of the pipeline that will be coming into the portfolio in '07 and some of them might even close in '08, will be sale-- will be developed over a two to three-year period, then sold. I don't know if they answers your question, but there's a continual replenishing of projects in what we call our portfolio.

I guess I'm just trying to get a sense of will things be completed in 2007 that aren't on the schedule right now?

Oh--. No-- I don't think that we'll--

That would be the case, no. So then it would seem probable that it would level off and maybe decline as you sell some of the assets that are already completed?

Well, another thing I would mention, and Jerry, correct me if I'm wrong, but I think the size and the scope of some of the projects that are under development are very large projects so even though there may be the same number as those historically, but the volume and the amount of our investment will be going up.

Okay. And just one comment or question on the Manhattan street retail, is that a unique circumstance there in terms of the tune any or is street retail something you would consider getting more involved in and acquiring?

It really depends very much on the opportunities that-- that we see. We look at a lot of different properties there and we rejected quite a few, but we're very, very happy with what we have. We have had some bids on the total portfolio, well above what we have in the projects, you know, we'll continue to look at them, and if we see any opportunities, it definitely will grow.

Okay. Thanks.

Your next question comes from Gen sum VIN of street street advisors.

Hi, Gregg Andrews with Jim Sullivan. Mike Pappagallo, you mentioned a $3 million gain related to[inaudible] I didn't really understand what that was about. Could you help me understand what it was and why it's not in FFO?

Well, let me tell you the background, we, together with AMB took [inaudible] private I guess about a year and a half ago, and part of their business plan was to sell their very large office building portfolio. That office building portfolio sold recently last quarter at very attractive gain, and that gain flew through a GAAP income rather than FFO.

Yes, we had treated it as most other real estate assets, where we were adding back depreciation, so when the gain came, we didn't recognize it in FFO.

Okay. Yes I-- Ownership of that entity and not just specific properties. And then following up on Mexico, it seems like it's a growing part of your development pipeline. Two questions. One can you tell us a little bit more about the yields expected on the projects that have been added on the development side this quarter in Mexico? And two, could you talk a little bit about how you monitor those developments? My understanding is it's mostly joint venture partners who are building those projects. How do you monitor what they are doing? Do you review and approve each lease and-- and the funding of it as you go along?

Let me take them one at a time. In terms of the development yields, we range anywhere from 13 to 16% unleveraged return on cost, and as we mentioned before, why that's so attractive, unlike the U.S., where it's a relatively flat stabilized yield when you are finished, in Mexico because of percentage rent income, because of cost of living increases in every lease every year, you can project that that gross income is going to increase over time, and so that's one reason why it's so attractive. Similar to KDI we rely on local operating partners, and we have about 10 different local partners in Mexico, all in different geographic regions and some with different expertise than others. They are in general, responsible for the construction of the shopping center, and in general, they guarantee the cost to complete, and in many cases they are the GC or they hire a third-party GC.

Not only do our asset management personal review and approve each of the draws and the plans, and so forth in connection with building these, we have hired an outside construction management firm called FAS, they are based-- I believe they are based in Dallas. And for the larger projects, FAS will actually have one or two people on-site in a trailer and review construction on a daily basis. On the smaller projects they will visit those properties at least twice a month and they will review and approve all of the draw requests. So far so good. We haven't had material cost overrun. Projects have been finished roughly on time and on budget. And FAS has done a wonderful job for us. So, far so good.

On the leasing side, do you review all of the leases and approve them?

Yes, absolutely. And that our own personnel do that. Richard Elwood and others of our team have many years of experience in Mexico with lease review and approvals. We have both outside and inside counsel that also review the leases, so we think we're on top of that as well.

Quick follow-up there, in a typical shopping center in the U.S., even a fair amount of the shop space might be leased to some kind of regional or national chain. In Mexico are most of the shop spaces leased to local tenants or are there similar kinds of chains for the shop space?

It's a mix. There are what we call sub anchors for many of our shopping centers, companies, believe it or not like Wool Worth, which still exists in Mexico, these are all Mexican companies that have literally hundreds of stores in-- in Mexico and they take anywhere from 10 to 20,000 square feet of the shopping center. So they are good national credits and we like growing with them.

But local space is very interesting because it's much smaller than you would expect in the U.S. In the U.S., it is perhaps 2000 square feet and In Mexico it's maybe 400 square feet so these generally are mom and pops, very local operators. Five years ago they might have been selling out of their garage or as street vendors, and now they are taking 400 square feet a first-class shopping center. Thank you.

Your final question comes from Jeff Donnelly of Wachovia Securities.

Good morning, guys. Dave, I guess a question for you to build upon some questions earlier, Kimco has pretty ambitious assets and management growth objectives and to achieve those you got to win more than your fair share of bids for large portfolios, in the last two or three weeks some large ones have transacted. There was a time when the JV structure and Kimco's asset to capital made you guys really your option to loose deals. I don't expect you will share with us your bids, but is there a way you can get comfortable with how competitive kimco was on some eo f the deals recently, for example, did you guys make it to the final round in both circumstances?

Generally, we're invited to the final round. We have-- we have a long history of being a wonderful buyer of properties. We have a track record. We have relationships with many of these people, so we do get invited to the final round. In general, we think that the strengths of the company with 45 years of being in this business, and buying lots of portfolios and lots of companies-- we have bought five public companies over the last five years, Millton has relations that are second to none. We like to call him our Cheif Marketing officer. $6 billion of acquisitions, we're doing quite well and well on our way to growing that asset management business very, very, very strongly. And as you know , there are more and more companies and portfolios available on the market. We feel good about our prospects.

If I can build upon that based on what you are hearing then do you expect to see more consolidation on the public and retail lease rates in the next year?

I personally do. Milton?

I'm not sure. Logically it should happen, but whether it will, we will see. Dave, I guess one last question, then, I recognize cap rates can vary pretty widely.

But can you share with us maybe some rough ranges of where you think large portfolios are typically underwritten in the marketplace?

I think that would be pretty dangerous. If you'll forgive us, we'll stay away from that one.

Thanks. Okay.

Okay. Thank you all for joining us, and we'll talk with you again next quarter. This concludes today's Kimco Real Estate conference call.

You may now disconnect.