Kimco Realty Corp (KIM) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Kimco's first quarter earnings conference call. Please be aware today's conference is being recorded. At a reminder, all lines are muted to prevent background noise. After the speakers' remarks, there will be I a formal question-and-answer session. (Operator Instructions). At this time, it is my pleasure to introduce your speaker for today, Barbara Pooley. Please proceed, Ms. Pooley.

Thank you, Jennifer. Thank you all for joining us on the first quarter 2009 Kimco earnings call. With me on the call this morning are Milton Cooper, Chairman and CEO; Dave Henry, President and Chief Investment Officer; Mike Pappagallo, Chief Financial Officer; and David Lukes, Executive Vice President and Chief Operating Officer. Other key executives are also available to take your call at the conclusion of our prepared remark.

As a reminder, statements made during the course of this call represent the Company and managements hopes, intentions, beliefs, expectations, or projections of the future are are forward-looking statements. It is important to note 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 in the Company's SEC filings. During this presentation, management may make reference to certain non-GAAP financial measures that 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 of these non-GAAP financial measures are available on our web site.

Finally, during the Q&A portion of the call, we request that you respect the limit of one question 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, and if we have time at the end of the call we will address those questions.

I will now turn the call over to Mike Pappagallo.

Thank you, Barbara. Good morning. The on going recession, credit market dislocation and pressures in asset pricing have continued to reak havoc in the REIT and general real estate markets. Recognizing these challenges, our priorities over the past three months have been focused in three areas. First, holding the the line on shopping center portfolio performance, second, aggressively addressing liquidity and capital structure and third, cost reduction actions including organizational realignment and certain has been power reductions in force.

Capital Markets activities were the head line event, with the Company completing a $747 million common equity raise, and a $220 million two-year unsecured term loan facility. Both transactions closed earlier this month. In addition, we have continued to tap into our large pool of unincumbered assets accessed secured financing. Through April 25th, we have closed on new two mortgages aggregating $135 million, with an additional $323 million of financing either under commitment or term sheet. We are also well down the tracks to extend about $100 million of maturities on our construction financing. Finally, in conjunction with the equity raise, the pull backs of quarterly dividend level to $0.06 per share for the balance of the year to preserve capital. This dividend rate, when added to the first half quarterly run rate of $0.44, will result in a full-year 2009 dividend pay out of $1.00 per share. A normalized quarterly rate will be reset in 2010 based on our projections of recurring cash flow and what is required for recompliance. Support for that equity raise was substantial, and the market has demonstrated that support for the transaction notwithstanding its dilutive effects on earnings, as is witnessed by the increase in the stock price since that date.

As a consequence of these Capital Markets transactions we have substantially all of our capacity available under our credit facilities and our credit metrics have improved. As importantly, the extent of debt maturities has been reduced. On the Company balance sheet our debt maturities are $266 million for the rest of 2009, $295 million for 2010, and $693 million for 2011. Our base capital plan to fund those maturities involves very manageable amounts of capital raising. As I just mentioned, we have $323 million of financing commitments in hand, essentially taking care of the remaining maturities for 2009. For 2010 and 2011, we will see additional mortgage financing, but at much lower levels than this year, and we will still retain a significant number of unencumbered property, somewhere in the 370 property range. We will also pursue more asset sales, particularly from the nonretail portfolio. Our plan does not even consider needing to reenter the bond market until 2011, but we will certainly jump in if conditions improve. This plan considers minimal utilization of our $1.7 billion capacity on the credit facility, which provides additional comfort in the plan execution and prepares us for a most likely smaller facility, upon maturity in 2012.

On the joint venture level, we have also made significant progress in refinancing and extending debt coming due, with over $300 million in financing that is either closed or committed, over $135 million of loans extended between one to three years. We also closed on two property sales in the Prudential Kimco portfolio, reducing the 2009 pay down requirement to $155 million. A deeper dive into the joint venture debt profile reveals a couple of things. First, on a composite basis, the loan to value of maturing debt over the next three years using a noncap rate is 52%, 62% and 61% respectively. Some properties are higher, some are lower, but that statistic at least gives a perspective that these joint venture programs are far from overleveraged and the financing gap is manageable from both the Kimco and partners' perspective. Second, of all the joint venture programs, the bulk of the maturing debt through 20111 is in one of three programs, Prudential, the Kimco income REIT, and [PO Retail], which we are advisors.

The true Kimco JV financing commitments have been discussed at length, and we continue to feel comfortable that the Prudential-sponsored funds will make good on their majority share of the financing obligation associated with the maturing term facility maturing over the next two years. The Kimco income REIT benefits from an extremely low loan to value, about 40%, which will facilitate refinancing. The P&L retail portfolio is more likely leveraged, and we have factored in paying our share of any financing gap in our capital plan. To the extent that we have to fund additional amounts we would enjoy a 15% preferential return on funds advance, which would represent an excellent investment on this asset pool.

On the asset side of the ledger, the shopping center portfolio has demonstrated its resiliency despite the economic headwinds. Key operating metrics was follows, occupancy at March 31, 92.6% as compared to 93.8% at December 31. Over half of the net decline was due to the vacancies resulting from bankruptcies of Circuit City and Value City. Same-store net operating income was minus 0.5%, clearly at the better end of the range of between 0% to minus 2% offered to the investment community early they are year and positive leasing spreads were realized during the quarter in the US portfolio. David Lukes will provide you more insight on the portfolio performance in a bit. Quarterly funds from operations was $0.43, although this level represented a decline from the 2008 level of $0.64 per share, the current level met consensus estimates. Prior year results include a significant amount of transactional gains, whereas the current year earnings contained few and relatively minor one-time items. Backing out transaction gains and taxes the comparative FFO per share was $0.41 per share versus $0.47 last year.

Interestingly, the net operating income from our consolidated portfolio was flat ,with a decline being driven by lower income from preferred equity and noncore portfolio, the effect of foreign currency changes, particularly the Mexican peso and a modest delusion from more shares outstanding from the September 2008 equity raise. We did not incur any impairment charges for the quarter as there was little change in the assumptions underlying the valuations and strategies associated with the asset since the filing of our Form 10-K. But this area will continue to be a focus of management, and continued declines in asset values could result in reserves being required as we go through the year. During the quarter, the Company completed two reductions in force in January and March, coupled with actions in the fourth quarter, head count has been reduced by 89 persons. In addition, certain salaries were rolled back in certain areas, including each of us in the office of the Chairman and a variety of other cost savings actions were implemented. These should result in a reduction of costs of over $20 million on an annualized basis will start to have an impact beginning in the second quarter.

As a consequence of the equity offering, our 2009 earnings guidance has been reduced to a range of $1.33 to $1.45 per share. At the low end of low guidance the dilutive effect of the offering was about $0.37. The reduced earnings guidance range that many of you saw when we announced the offering contemplated 70 million shares. We actually issued 105 million shares due to the heavy demand, and as a result, the numbers have to be adjusted down further. As I indicated in the prior earnings cal,l our guidance range represents in place FFO, meaning an estimate without regard to any potential impairments, any incremental effect of acquisitions or other new business generation, or the new accounting rules related to acquisition costs have incurred. We tightened up the range from the $0.20 spread in our prior call to $0.12, primarily by bringing in the high end of the range down to reflect the limited availability of transactional activity.

I would draw your attention to our supplemental financial package on the web site. In that document we present a extremely detailed analysis of the components of our earnings guidance by business activity and financial statement line item, as well as providing assumptions for use in your evaluation work. Finally, if you read our annual report to shareholders or various investor forms the past couple of months, you've have heard us spend a great deal of time reframing our business strategy, one that revolves around the pure ownership of management and retail centers across North America. As part of that effort, we will begin a process of developing the optimal approach to ultimately exit those assets that do not meet this core shopping center strategy. These noncore assets aggregate over $900 million net of property specific debt. This portfolio is diverse and consists of securities, mixed use asset, deferred equity, hotel invests and various other things. Over the next couple of months, we are going to finalize strategies for this portfolio, making realistic acessments as to asset value, holding periods needed to rebuild value, and the best sources of capital to facility the ultimate monetization of these assets. This process will not only allow us to isolate resources and to execute, but also focus most of our resources and capital to enhance the value of our core shopping center franchise.

With that I will turn it over to Dave.

Thanks, Mike. As usual, Mike has provided an excellent and detailed summary of our financial results and the many moving parts of this past quarter. We are all very proud that our equity offering was oversubscribed, and that we were able to obtain $220 million of unsecured bank debt in a very difficult credit market. We are continuing to position our balance sheet to take advantage of retail acquisition opportunities as they arise over the next several years. In that light, I would like to expand on Mike's comments about our business strategy, and how we are changing to leverage our strengths and adapt in today's marketplace.

As mentioned before, the heart of our company and our expertise and our 50 year history all lie in retail real estate. In today's tough environment, it has become crystal clear that we create the most value for our shareholders by focusing on equity ownership of retail properties, with long-term recurring cash flows. Short-term debt instruments, marketable securities, and nonretail investments, are not core areas of our Company's experience and strength. We do believe that as the operating partner with proven property management, leasing and development expertise, we can continue to attract institutional capital in our retail sector that will enable us to grow and earn enhanced returns. Joint venture capital, together with funds from our own balance sheet, will help us grow long-term and be a consolidator of public and private shopping center portfolios.

As we wait for the right opportunities, we will continue to focus on asset management and value creation and selective dispositions of our existing assets, both our shopping centers and our noncore real estate holdings. We have created detailed business plans for each asset, with dedicated personnel who have responsibility and ownership for the execution of the business plans. We have also increased and enhanced our portfolio review process to make sure we have our best managers providing suggestions and help in making things happen at the property level. Redevelopment potential, replacement tenants, expense reduction, alternative uses, partner relationships and property debt terms all have heightened focus and intensity for all of us on the management team.

Given the enormous changes in asset values and credit markets over the past six months, it is still early for most transactions, as sellers and buyers struggle to find stabilized cap rates and reliable cash flows. We do believe, however, that developers, property owners institutions and public companies are beginning to conclude that there will be substantial consolidation in our sector. Public REITs still own a very small percentage of the 50,000 shopping centers in the US, and the importance of scale, balance sheet capacity, and extensive tenant relationships is becoming apparent. As David Lukes can better relate, for the first time in years, the actual owner of a shopping center has become very important to perspective retail tenants. As they try to verify that tenant improvements will be completed as promised and properties will be well maintained.

Many retailers have been adversely affected by land lord bankruptcies and lender foreclosures. Today it is critical to have a strong, well capitalized land lord. This is now helping us as we compete for a decreasing number of expanding retailers. There is more turmoil to come in the real estate and financial markets, but we think we are now well positioned to manage our portfolio through these times and to take advantage of the opportunities that will surely arise. We like our neighborhood and community shopping center sector, with large numbers of retailers selling essential goods and services. Our 13,000 leases and 7,000 tenants provide us with great diversity and will stand us in good stead.

Now, David Lukes will provide us details on our US portfolio operation and performance.

Good morning. I would like to start by giving you thoughts on our last 90 days of work and finish with the strategy going forward. If fear started this quarter, then confidence has ended it. By any measure, the Company had a very strong leasing quarter. We executed 477 leases and our US portfolio, 160 of those were new leases and 317 of which were renewals. These contracts represented a total of 2.6 million square feet which is about a 30% increase over the same quarter last year. Rent spread, as Mike mentioned, remained positive at 10.6% for new leases and 3.5% for options and renewals. We completed new deals in every region of the country even those hit hardest by the recession and continue to see renewal activity in very high numbers. Despite the positive momentum, however, we are very mindful of the fact that strong headwinds exist for our tenants, and we are not blind to the realities of the market.

Because of this, I want to focus my discussion on one word, trend. Many retailers are have trended down for sales. Occupancy is still trending down. The number of tenants expanding is trending down, and the time it takes to execute a lease has trended up. All of these facts point to a continued difficult environment and certainly are not a recipe for success in a normal market. The trend in the market is to the negative. It's sway, movement, drift, and tendency is a challenge. We have a bias for action, however, and I would like to discuss our strategy. As any golfer knows a put on a flat green tends straight but a pat on a rolling green can hamper the path. We have a number of methods for changing the path of the current trend, and part our success this quarter, on the leasing front particularly, is our focus on obstructing a negative trend. Our first method is research. [Angela Comestock], who runs our tenant relations department performed over 75 portfolio reviews last year and has continued to increase her program this quarter. Typically we use these reviews to enhance our relationships with existing tenants and provide them with a menus of opportunities at a single sitting, which usually bears fruit, as the decision can get direct feedback from our leasing agents and the time to close a deal is shortened.

We recently added staff to Angela's department and have a deeper focus on research than we have in the past. We are using much more demographic information to target specific missing pieces of a property tenant mix. We are advertising in medical journals, cold calling nontraditional users, working directly with franchised operators to expand the regional footprint. Specifically, our research in the San Francisco market showed us that our best local tenants had only one location. We worked closely with one of these tenants and were able to expand their concept to another one of our properties ten miles away. We hired consultants for them, assisted in their store design, and helped bid the construction. In this case, researching our own tenants yielded a new lease paying over $40 a square foot net.

Our second method is marketing. When retailers are expanding, a successful leasing program will aim to get an outside share of the expansion units. In a market like today, our marketing is based on the simple fact that most tenants we sign will be relocations from near by properties or renewals from our existing tenants. We have had a sizable increase in cold calling and prospecting to existing local businesses. We know that the risk of a business relocating is that their sales need to grow. Armed with sales data, we are trying to be creative in structuring deals to entice intra-market moves. This is one reason why we will some times roll down an option rent for an anchor tenant to secure additional term and use that fact as a benefit to a local merchant who desires strong cotenancy for a long period of time to get through this troubled environment. We did this in Aurora, Colorado, with our strongest anchor and are receiving higher occupancy and shop rents than the in place tenants that exist. Our third method is cost. We have restructured the way we are handling our national property management initiatives and create a position responsible for leveraging our size to implement cross regional efforts.

Chris Freeman has been named Vice President of Property Management and assumed responsibility for this program. He has been a proven leader in our Charlotte office, and we look forward to his work ahead. For example, many markets throughout the country now have a larger labor pool than the past few years and we are rebidding most of our controllable cam contracts and are seeing a 20% to 30% decline in certain line items related to maintenance, cleaning, sweeping, trash removal, and landscaping. A dollar in rent is no different than a dollar in cam to a tenant, and we are working hard to reduce total occupancy costs for our tenants. Some of this no doubt related to fact we have a large portfolio in many markets, and are able to group our contracts with major vendors to get savings simply because we can offer larger contracts.

Lastly, our fourth method is corporate strength. Oddly enough, it comes down to money. Brokers want to get paid, tenants need security that the TI allowance will be paid, and vendors are valuing good credit. I have no doubt that many of the deals we secure this quarter are directly related to the fact that we pay in full and we pay on time. It has been taken for granted over the past several years, but it is a stark reality today. If I come back to the production for the quarter, I can offer some interesting data points, of the 2.2 million square feet that vacated our centers this quarter, 74% were big box and junior anchors, and 84% of those were related to only four tenants, Linens, Shoe Pavilion, Steve and Barry's and Value City. The remaining vacancies were small shops, almost 60% of which was in the west coast and Florida.

Our programs I outlined above, however, were in many cases geared toward securing new shops small tenants. Of the total square foot lease this quarter, over half was small shops, and again half of those on the west coast and in Florida. To summarize, the shop leasing throughout the country is churning but the net absorption is mildly negative. The junior anchor vacancies related to bankruptcies continue to be our major source of occupancy decline as the greatest challenge we face in maintaining dominance at our centers. As I stated before, shopping centers are actively on the move, some are trending down and some are trending up. Our actions going forward are part of a clear operating strategy to leverage our size and our history and our talent. We intend to produce results.

With that I will turn it over to Milton.

Thanks, David. We are in a very difficult environment for retailers. Recent published statistics indicate that the savings rate has jumped from 1% to 5%. And if he consumer is saving more, it as follows that the consumer is spending less. The consumers is postponing discretionary purchases and is trading down. Fortunately for Kimco, on a relative basis we have some insulation from these downturns. A large percentage of our retail space is occupied with supermarkets, warehouse clubs, and off price retailers. We have locations, our tenants enjoy a low occupancy cost in relation to their sales, and our rents are below market. In my view, we own one of the most underappreciated portfolios in the history of retail.

Our vision is to be the premier owner and manager of retail properties in North America, and our plan is to dispose over time, assets we do not manage and nonshopping centers. At the present time, our equity margin cap is approximately $4 billion, of preferred, $635 million in our debt. Our goal is to achieve a capitalization of at least 75% equity using conservative estimates value. A strong capital structure and a strong portfolio should result in strong results for our shareholders. I personally feel energized about our vision and the potential opportunity to grow our business. We have a great team, wonderful properties, and a focused strategy that will create a premium valuation for our company. Barbara.

Okay, Jennifer, ready to take questions

Thank you. (Operator Instructions). And we will pause for a moment to assemble our queue. We will take our first question from Mark Biffert with Oppenheimer and Company.

Good morning. I was wondering if you can talk a little bit about the Mexico portfolio, your view for completing some of the ones you haven't broken ground or starting the ones you haven't broken ground on, as well as any cut backs that you might be making in the country?

Sure. By the end of this year, we believe that all but one of our development properties in Mexico will be physically completed . It will take some time to reach stabilization on these properties, but the development program will be largely completed by the end of this year. Swine flu aside, which is a real wild card right now, the Mexican portfolio is actually holding up quite well. Our stabilized occupancy is about 96%, 95.5% on our properties that are in service, as you define in service. The number of new leases equaled about what we had in terms of vacates for this quarter, and our rents are largely as projected.

We are seeing some softening, but in general, the anchor tenants are continuing to do very well, the Home Depots of the world which have announced that largely eliminating their development programs in the US are continuing to expand in Mexico. Walmart has announced 250 new stores in all of Latin America, many of them in Mexico. So the anchor tenants continue to do quite well. And I think it fundamentally, it is related to the fact that just so few shopping centers in Mexico, with a 100 some million people, there's just very few retail and first class properties to service that. So long term we still feel good about Mexico.

Now, everything that could happen to that poor country has been happening, in terms of the violence from the drug trade, the swine flu, and now an earthquake in Mexico City. So it is very difficult to project out, but I think long term we have very good properties, and the fundamentals that is are in place in Mexico are strong. Because the development program is winding down, we have made some expense reductions. We have cut about 20% of our staff and our operating expenses related to Mexico, and we will see some of those savings translate over time. But it is very difficult to project going forward given what's going on right

We will take our next question from Paul Morgan with Morgan Stanley.

Do you talk a little bit about you mentioned it briefly in the context of negotiations with anchors, but just about the general trend of tenants coming back and asking for rent relief. And how you're handling that right now. What -- any percentage of the request are you granting? And how many of them may be related to (inaudible) triggers in the lease.

Sure, Paul. I think the last two quarters we probably given a pretty good feedback on what we saw happening, and to review a little bit, last summer probably started with some requests from particularly inland empire, California and then it moved to Florida and Vegas and Phoenix with small shop tenants requesting some help. We really didn't hit the national tenants asking for assistance until maybe January and February, and in both cases, the number of requests has dropped somewhat dramatically in the last month, part of that is that the tenants that we are having trouble can only ask once. So it has kind of moved along. From the anchor tenant perspective, the land lord, and the tenant typically understand that even though one or two units might be doing less than they did the previous year, there are contracts in place, and for the most part, both sides have been respecting those contracts.

So the number of changes to contract rent has been very, very minimal. There have been two locations where we rolled down an option rent in order to preserve occupancy and in turn got an operating covenant which was to avoid a cotenancy from an adjacent unit, but two out of 13,000 is not a notable number, and to date I think the only region that we still are seeing a pretty high volume of people asking for help is in Florida. The number of tenants we've helped in terms of the small shops has really stayed about flat from last quarter. And in those cases, they're primarily payment plans for four to six month periods. So at this point, I think that the noise is still much higher than the reality, more tenants ask than complete an application by a long shot, probably 50 to 1. And the number of tenants that we help is even smaller than that. So it is a pretty minute number. I don't expect that to be a key risk right now unless we see couple of more larger bankruptcies to put a more pressure on a specific center.

We will take our next question from Michael Mueller from JPMorgan.

Hi. Can you hear me.

Yep.

Just wondering if you can comment you talked a lot about the noncore assets, and the desire to get out of those investments and businesses over time. Just wondering, how should we think about that from our standpoint? I know you said you will start the process of evaluating hold times and stuff, but right now would you more expect to try to match with redeployment capital and to other investments as they arise, or do you think you are more likely to just sale out of those and use the proceeds to pay down debt or kind of hold cash? What's the thoughts on matching at this point?

There's two pieces to the question. In terms of the noncore real estate, as you know, we have a fairly eclectic collection of different types of assets, everything from hotels to preferred equity investments and shelf storage portfolios and so forth. Some of these are very good investments and provide a good current return. But long term, they really don't fit our strategy of emphasizing our retail neighborhood and community shopping centers. And we have seen with clarity that the marketplace really values our core expertise in owning and managing our own portfolio of shopping centers. So as time goes forward, we will liquidate and monetize those investments at the right time and in the right circumstance.

In general, the extent is good real estate, we will probably be a little easier to monetize, to the extent it has got troubles. It may take time and energy to create the income necessary to monetize that. We do have tentative asset plans for each of these, and we are beginning to quantify I think everybody has noted, we have been a lot more transparent about the noncore portfolio that we have. We put a little meet on the bone. To the extent we are successful in monetizing that portfolio, we will certainly use the proceeds temporarily to pay down debt as we wait for the right opportunities. As we said in the beginning, it is probably a little early on the opportunity side, cap rates continue to drift up and there's a notable absence of transactions as buyers and sellers try to find the right medium.

Our next question from Quentin Velleley with Citi.

I'm here with Michael Bilerman. In relation to your comments earlier on the refinancing, the debt maturing and the joint venture, I wanted to talk about the Prudential joint venture which is a more highly levered JV and obviously there is some (inaudible) in there. We are hearing that Prudential is getting a lot of redemption requests across their platform. And I'm just wondering, Prudential might be able to inject capital when the debt maturities come up.

I will let Dave answer the discussion about Prudential, but I wanted to clarify one thing, Quentin. You characterized the Prudential portfolio as highly leveraged. I don't believe that to be the case when you look at the portfolio in its totality. The whole category of assets has debt which, by the way, a significant amount doesn't mature until 2016. And those assets were originally leverages at about 50% to 55%. So any way you cut it, even with higher cap rates today, I wouldn't characterize that as highly leveraged. What is highly leveraged, is the sale bucket that we some times refer to where we did draw a credit facility which dollar for dollar covered the asset at the time low cap rates. That's the portfolio that is guaranteed by both Kimco and Prudential. And needs to make good over the course of the next two years.

Our relationship with Prudential and our partners in both the [PanPacific] venture and our (inaudible) venture is very a strong relationship, and the different partnerships, precept one, and precept two, and western (inaudible) , I think are the three entities that are actually in the -- PanPacific venture with us. all have capacity to meet their obligations. And (inaudible) to on many occasions that they fully intend to fund their 85% share of any short fall that may arise over time as we meet these refinancings that are coming up over the next couple of years. So we are actually pretty comfortable with our venture, their capacity and so forth. If you do a little research you will find that [precept ]it is a very low leveraged fund in general. They have lots of assets. I think precept is about a $12 billion dollar funds in total. So it has capacity and ability to meet it's

I will use a specific example. In this past quarter, there is one property in the portfolio for $12.2 million, the loan matured. We were still pursuing new financing, Prudential cut the check, or 85% of the check to pay that loan off and didn't hesitate one bit to do it. And that to us, was an actual example of an obligation was required. They didn't think twice about fulfilling their requirement.

We will take our next question from David [Wiggington] with [Nicuary].

Good morning. Mike could you talk a little bit about the loan commitments and term sheets you are working on, specifically who the lenders are, whether it's banks, life insurance companies or what kind not, and what kind of underwriting criteria you are seeing right now.

I will let our [Glen Cohen], our treasurer ,who actually works on the financing to answer that and give you a brief synopsis.

Morning. Basically it is a variety of both insurance companies and local banks we have been able to tap into. Some of the major insurance providers have provided any where from 5 to 7 year debt. One insurance company provided us a 15 year loan, and then we have been able to tap into some of the local banks, some bank that we really used the broker community to get to. Banks like [Intervest] bank, Fidelity Bank Corp, as a couple of examples. You find different rates, the local banks are probably 50 to 75 basis points lower in rate. But overall we have really hit all aspects of the marker from large insurance companies to the smaller community banks.

And I would just say our a long history as a Company has helped us. We have relationships with life companies that go back decades. So at that time when capital is a little bit scarce, life companies that know us and some of them are shareholders, they are joint venture partners, they are bond holders. They are very comfortable with Kimco as a borrower, we have been able to leverage that relationship.

We will take our next question from Jay Haberman with Goldman Sachs.

Hey. Good morning, everyone. Milton, in your comments you peaked my curiosity, you mentioned a 75% equity level. You have talked a bit about the simpler structure, selling of the preferred equity hotels, securities, et cetera. But can you just give us some additional comments as to how you intend to get there? Is Mexico on the table in terms of future dispositions? I know in the past you talked about a fund and then a separate question as well, just thinking about risk, because in the past you guys have been very successful in investing in Albertson's et cetera, I am curious how you think about those opportunities in the future.

Well, the pay down was the result of the disposition of assets, and certainly as we do not intend to have any new preferred equity investments and as preferred equity investments come due, they will be monetized. That probably will take about three years. In so far as Mexico is concerned, as the market gets stronger and cap rates, lower into possibly to exit a stable base. We -- all of it might be a possibility of monetizing that with the fund. So I guess we will just continue to take those steps to reduce debt and get to that point. I think it's a combination of a variety.

I would say that again, even though we feel it is a bit early, ultimately as consolidation comes down the road, and if there are are compelling pricing opportunities, and certainly equity would be one mechanism to acquire those properties in the entire recalibration of our capital structure.

Milton, did you want to make a comment about the opportunistic side of the business.

I think it will be rare. Albertsons was just a wonderful investment, and I would -- my guess is that there will be very few opportunities coming up. If there was something that was so compelling and didn't involve a great deal of capital, we have an obligation by our shareholders to try and seize it. I don't see it as a real probability.

We will take our next question from Rich Moore with RBC Capital Markets.

Good morning. I actually have a follow up to Jay's question. When you look at these investments, whether they're preferred equity, stressed retailer, international type opportunities, anything outside the core US business. I mean are you dismantling our organizational infrastructure related to these non US things? I am wondering, will you be able to actually go into those areas in the future, or are you actually taking the organization apart in those areas?

Well, it is certainly a combination. Part of the 90 people that are no longer employees, some of them have been related to front end of our business in preferred equity and new business and so forth. Certainly as we wind down some of the new business elements of what we have been doing, that has been an area where we have less resources. Many of the people that we have attached to business preferred equity are more actively focused on the asset management elements of that and monetizing those, those situations. Mexico, for instance, we have moved many of our people that were primarily new business and origination into leasing. Some of our best leasing in Mexico is being helped by our own people that have the relationships with the Home Depots and Wal-Marts and the HEBs and so forth. So we have redeployed some people, and we have certainly reduced our staff in some of those businesses as we have tried to align with the strategy we just outlined.

We will take our next question from Nathan Isbee with Stifel Nicolaus.

Good morning. Your guidance assumes a 90% year end occupancy rate. What is the guidance assume for the low point of occupancy?

Essentially that is the low point.

Okay.

David talked about trending and we just think occupancy is going to continue to trend downward through the year.

As a quick follow up, what does your guidance assume for average occupancy in 2009 and what was it in 2008.

In our modeling Nate, we assumed a ratable decline, so from the beginning of the year, occupancy down to 90%. We weren't any more scientific than that because I think as we had mentioned in the prior conference call, our baseline assumptions we assumed normal trending down drifting, but did not assume wholesale bankruptcies of majors or junior boxes, which would certainly create significant jump or decline in any one quarter. Since we didn't assume that we did the ratable approach.

Next question comes from Alexander Goldfarb with [Chandler O'Neil].

Yes. Hi. Good morning. Just wanted to ask -- Milton, get your thoughts on the existing environment where it seems like creditors whether they're public or government sort of has that push to stress others into bankruptcy and owners seem to know that. So it seems like we have a situation where the [bid register] spreads remains wide and the secondary marks don't recover for a while. Do you think that impedes a recovery or do you see this as a normal thing that happens whenever markets crumble like the way they have?

I think that historically has been the case, and in the past, and part of the issue late bankruptcies was for a period of time, debtor position financing was not available. That has seemed to open up in the last moth or so to us (inaudible). But I think it is a start.

We will take our next questioning from Jeff Donnelly with Wachovia.

Good morning guys. Mike, just a follow up on the disposition on strategic assets, I think you have put in your supplemental which ,thank you by the way, shows you have $1.7 billion book value of those assets. How close is that, I guess I will say ,to market pricing for those assets liquidation at that point just trying to get a view (inaudible) we can be looking at future period of time.

Yes, that's an effective valuation process that I was talking, about because mark to market can be viewed both on a current basis, in other words exiting immediately, and in the list of assets the equity security line is at the mark, that's how accounting works. Where as many of the other assets are at their book values. It is really trying to make a determination in terms of holding period -- can we sale them in the market today, evaluating what price, that will drive some of our strategies, and then to the extent there are reserves that need to be taken, we will no be taking them but at this point, it is too premature to quote a number. I would also remind you that we did take over $100 million worth of impairments in the fourth quarter related to assets, many of which were in the noncore bucket as they related to marketable securities. So, more to come on that.

We will take our next question from Jim Sullivan with Green Street Advisors.

Thank you. There has been a lot of discussion on the call about deleveraging, you reviewed the steps you have taken. You have talked about the steps that you intend to take. I'm curious what your thoughts are with respect to what the right leverage is for your company.

I think the right leverage is 75% equity and 25% debt.

On a static basis. It sounds like you intend to pursue consolidation opportunities and other investments. Your statement sounds very fixed as opposed to something that's fluid and will adjust to margin.

That's the object. Obviously, Jim if there's an acquisition, it would be funded with our own common shares. And we would hope -- Now it can be acquisitions that would revolve interim debt until we're able to find sales of a portion of the portfolio et cetera. But, Jim I just feel that a -- there just as the Duchess of Windsor said that you can't be too thin too rich. You can't have too much equity in an environment as we have. So that would be our goal and that would be where we would like to get to.

We will take our next question from Mark Biffert with Oppenheimer and Company.

You mentioned the biggest part of your [space gibs act] was in the junior anchor part. I am just wondering, when you look ahead in the amount of demand out there for that type of space, if it is limited, would you be looking to do more redevelopment opportunities to drive the yield on those properties.

Sure, Mark. It depends on the location and specific market issues. But generally speaking, there's no question that the supply of junior anchor spaces between say 20,000 and 40,000 feet is much higher than the demand. So there's really three options, one option is to steal a tenant from a neighboring center, which we have been doing. Partly because we have the strength to be able to offer them a turnkey position. Secondly is to wait because if you have got a 30,000 square foot vacancy in a 500,000 square foot property, which has happened to us for instance, in Augusta, Georgia, where we lost a junior anchor but the nervousness about what that means to the shopping center doesn't compel you to do something you think is not the right long term property goal. In some cases we will wait because the property has good if fundamentals and at some point we will demand for that.

The last thing you are suggesting which is some sort of redevelopment, and in those cases, we have numerous times taken a power center that has got maybe four or five junior anchors, and when you lose one many times you can slice off the back of the building and create shop space, which you had an undersupply and the rents are two to three times what the junior was paying, even if you amortize the same square footage you would still come out yield positive. That has been a program we have done over the years, even in the good markets and that will continue. I would say probably a good six month period here where we are using all three strategies just to kind of see where things shake out in certain communities. But there are a lot of different things you can do, especially given the fact that a junior anchor box is typically somewhat new, doesn't need a lot of capital. The column spacing is fairly normal. So there's a lot of positives about these junior anchors that you just need to have a strong leasing team that is working on the right solution.

We will take your next question from Quentin Velleley with Citi.

Good morning. It is Michael [Bilerman] speaking. Mike, can you reconcile the same-store NOI, you said it was down about 50 basis points. When you look at your occupancy, whether it be the consolidated portfolio, the total portfolio without management, with management, somewhere in the realm of 350 to 400 basis point decline year-over-year, the operating margin is down 71.5% or 70%. I am just trying to piece everything together to really understand what is bringing that same store up relative to what would be a head line lower number.

There are a couple of factors --I know David can chime in as well, but certainly with respect to occupancy that kind of rolls during the quarter and represents a period end number certain of the vacate boxes that we have, still have rent guarantees from them, CVS being the prime example on some of the Linens boxes, so occupancies are down but income is still flowing. With respect to margins, they did deteriorate to a certain extent, a lot of that was due though to snow removal costs. So those -- that's what appears to be slightly down there. But David--

The one thing I was going to add it is fairly simple from a big picture in that like I said earlier, 74% of our square footage that vacated this quarter was junior anchor and big box and last quarter it was equally as high. So if you look at the the trend, square footage that has been going out driving occupancy down, is very large spaces, and if you look at the tenants that went out, Steve and Barrys, Value City, Circuit City, generally they had very, very low rents compared to the average on the portfolio. So even though the occupancy is dropping faster, the NOI is not going to catch up unless you get to the point where you start to eat into shop spaces going out, which is primarily why I mentioned that 600,000 square feet of shops vacated this quarter and we we released 525,000 square feet of it. You are getting some churn in the shops and the rent spread ares are still positive and giving buoyancy to the NOI.

Is there anything on the development or redevelopment or FX that would be altering that number at all and I really appreciate all of the disclosure, especially the guidance matrix, so maybe the next step is trying to get a little more NOI detail. But I am just trying to piece it all together.

I would not say that there was any one driver to that certainly some of the economics within our Mexico portfolio and consolidated and joint ventures was adversely affected to a certain extent by a negative FX because the Mexican peso weakened, but I think if you are looking at a high level, Michael, in saying the occupancies trended down and margins got tougher, I think the occupancy discussion which David pointed out, about the compensation, the margin deterioration was more a consequence of more timing orientation and the significant amount more of snow removal costs which has, does have an effect period over period on the margin comparability as you look past all of that and you call out the accounting adjustments as we normally do and coupled with that the guarantees that I talked about on a few of the things that have been vacant and we are still earning cash rent. All of those things drive the dichotomy between the lower occupancy and yet a more muted reduction in same-store NOI. We hear you with respect to the analysis.

That dark space is still (inaudible) is it like 50 basis point impact on the number just from magnitude wise.

I couldn't tell you off the top. I'd have to look at that and get back to you.

To clarify, just on Prudential, how much of the $4.3 billion in assets is sales versus whole. Just to we can break it out in terms of understanding the leverage of the --

The carrying value of the sale bucket is about $500 million.

Thank you.

Our next question comes from Jeff Donnelly with Wachovia.

Just a follow up for David. Are you on the break out your existing vacancy force and maybe talk about the proportion of spaces overall that are either over 10,00 or 20,000 square feet? I guess how many boxes are we looking at right now that are unoccupied whether leased or not?

I probably could not do that off the top of my head. People probably have to work on that.

Okay. Thank you.

Next question comes from Jim Sullivan with Green Street Advisors.

A follow up to my own question, if the target is ultimately 75% equity, I am making the assumption that's a multiyear kind of process to get there.

Yes.

In the past, your management team has focused investors on a 10% annual type of growth rate, it would seem like it would be very difficult for the Company to accomplish both of those goals delever to the point where you have 75% equity. Still to lever the kind of earnings growth that you have outlined in the past, can you comment on how you do both of those at the same time?

Yes. One of the things we are saying probably won't be able to do both in that we think about the best value enhancement strategy for our shareholders, that deleveraging and keeping a high proportion of equity focusing on the recurring cash flow shopping center portfolio judicious acquisition and investment is not necessarily going to yield 10% growth because we are moving away from a lot of the --what we are calling the noncore more opportunistic, more transactional oriented type businesses, which helped to very much drive that 10% growth. I think what you said is really the economic expression or the financial expression of what our business strategy underlies and that ultimately we will attempt to build a more valuable company, even if it means more muted growth, more muted levels of FFO growth.

That does conclude today's question-and-answer session. At this time, I would like to turn the conference back over to Barbara Pooley for any additional comments.

As a reminder, our supplemental is on our web site at www.kimcorealty.com. Thanks, everyone, for participating today.