Kimco Realty Corp (KIM) 2010 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to Kimco's second quarter earnings conference call. Please be aware, today's conference is being recorded.

(Operator instructions).

At this time, it is my pleasure to introduce your speaker today, Dave Bujnicki. Please proceed, Mr. Bujnicki.

Thank you, Mindy.

Thank you all for joining the second quarter 2010 Kimco earnings call. With me on the call this morning are Milton Cooper, Executive Chairman, Dave Henry, President and Chief Executive Officer, Mike Pappagallo, Chief Operating Officer, Glenn Cohen, Chief Financial Officer, Barbara Pooley, Chief Administrative Officer, as well as other key executives who will be available to address questions at the conclusion of our prepared remarks.

As a reminder, statements made during the course of this call represent the Company and management's hopes, intentions, beliefs, expectations, or projections of the future, which are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those forward-looking statements, is contained in the Company's SEC filings.

During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors to 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 website.

Finally, during the Q&A portion of the call we request that you respect the limit of one question so that all of our callers have an opportunity to speak to 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 your questions.

With that, I will now turn the call over to Dave Henry.

Good morning. I would like to begin by warmly congratulating both Glenn Cohen, our new Chief Financial Officer, and Barbara Pooley, our new Chief Administrative Officer. Both Glenn and Barb are key members of our senior management team, and all of us at Kimco are proud to see them assume more responsibility under their new roles. Congratulations, and well deserved, Glenn and Barb.

I do believe it's worth noting, and hopefully comforting to our shareholders, that almost all of the senior leadership have been with the Company for many years. Glenn Cohen, 15 years, Mike Pappagallo, 13 years, Rob Nadler, 12 years, Bruce Rubenstein, 12 years, Scott Onufrey, 11 years, me, almost ten, and of course Milton, for a lot. I believe this shows stability and a very good working relationship among the senior team, which has continued during and despite the challenging times of the past two years.

With respect to the quarter, our portfolio produced solid financial and operating results, with strengthening metrics and vital signs. Our national retailers, in particular, are cautiously optimistic, and have selectively resumed their expansion strategies. In late May, at the ICSC convention, the environment was dramatically different than that of last year's meeting. Many retailers were again seeking new store locations, and beginning to be concerned about a decreasing supply of available locations, and virtually no new development projects. While still a tenant market, the position of retail landlords is improving, which should be reflected over time in our leasing spreads, same store NOI, renewals and occupancy.

Mike Pappagallo will give some additional insight on portfolio performance, but I would note there are still geographic differences in leasing activity and occupancy. The New York metro area, our mid-Atlantic region, Puerto Rico and Canada continue to be very strong, offsetting softness in Southern California, Florida, Arizona, and Nevada. That said, we have seen a pickup in activity even in these markets over the past few months. Overall, we feel very good about the signs of improvement in our portfolio and the underlying trends.

We also had a busy quarter in terms of our institutional joint ventures. We have now closed three separate transactions and two separate joint ventures with BIG Shopping Centres, an Israeli public company, which owns and develops shopping centers in Israel. As part of their diversification strategy, we are pleased that they have selected Kimco as a primary operating partner to source, manage, and lease US shopping center properties. During the quarter, we also officially closed our joint venture with Canada Pension Plan Investment Board, with an initial portfolio of five properties. We plan to add one additional property to the venture in the third quarter. We also added one property earlier in the quarter to our existing joint venture with Cisterra, an opportunity fund based in California. As we have previously discussed, we remain committed to the institutional joint venture model, as a source of capital and as a way to enhance earnings, compete for high quality retail assets, and achieve scale, in terms of both operating costs and relationships with retailers. We believe that the long-term recurring fees embedded in the joint ventures will provide a portion of our future earnings growth.

I would also like to provide the usual quarterly update on the four focus issues, company leverage, retail joint venture debt guarantees, placement of the PL Retail Assets in institutional joint ventures, and the disposition of the non-retail portfolio. Glenn will give more specifics, but our debt to EBITDA ratio stands at 6.4, well on our way to the 6.0 level promised by 2012. On the retail joint venture guarantees, we are all very happy to report that the original $1.2 billion of retail institutional joint venture debt guaranteed by Kimco has now been reduced to zero. We continue to pledge that we will not provide Kimco parent debt guarantees as part of any future institutional joint venture.

With respect to the PL Retail portfolio, we have now placed seven assets, representing approximately 60% of the portfolio NOI, in joint ventures with CPPIB and BIG. There are several other PL assets which may be part of a larger joint venture placement in the future.

On the fourth issue, the non-retail dispositions, we made modest progress during the quarter, with the portfolio reduced by $44 million. There are approximately $50 million of other transactions pending which we hope to close in the third quarter. The promised time frame remains two to four years, but we will do everything prudent to accelerate this and the environment has become more favorable as investors become more aggressive, buying all types of real estate assets.

At the end of the day, our future financial results will be determined by our retail portfolio of more than 900 properties and related retail investments, which together represent 92% of our balance sheet assets. The diversity, granularity, and stability of our retail portfolio is second to none, and we believe that the income from our 14,000 leases provides a very solid platform for reliable dividend payments, cash flow and opportunistic retail acquisitions.

To that end and to reinforce Kimco's strategic focus, we are hosting an investor day on September 23 on Long Island, at which time we will provide a deeper perspective on our strategy, our asset base, and our management bench stripe.

Now I'd like to turn it over to our new Chief Financial Officer, Glenn Cohen.

Thanks, Dave. Good morning.

Before we review the second quarter operating results, I want to take a moment to thank Milton, Dave, the rest of the Board, and Mike Pappagallo for the opportunity to serve as Kimco's CFO. I am honored by the confidence they have placed in my ability to assume guidance of our financial strategy, as Mike focuses on the operating strategy. It's an incredible team to be a part of and I am enthusiastic about our prospects ahead. Over my 15 years at Kimco, 13 of which have been as Treasurer and most recently Chief Accounting Officer, I have established many wonderful relationships in the banking and capital markets arena. I look forward to meeting with many of you on the call today in the analyst and investment community in the coming weeks. I also want to congratulate Barbara Pooley on her appointment to Chief Administrative Officer. And now, to the quarterly results.

The second quarter results can best be characterized as further signs of stability and positive momentum. While headline FFO per share was $0.26, this includes $19.9 million, or $0.05, of non-cash impairment charges, primarily related to the transfer of assets from our existing joint venture programs to newly formed joint ventures. There was nonrecurring income as well, totaling $10.5 million, or roughly $0.03, primarily attributable to the monetization of non-retail assets, as well as acquisition fees in connection with the formation of the new joint ventures. Excluding both impairments and transactions, FFO per share from recurring sources is $0.28, which exceeds consensus by $0.01.

We are encouraged by the improvements shown in US same property net operating income, which was positive this quarter at 2.1% year-over-year, and continued success on the occupancy and leasing fronts. June occupancy for Kimco's combined portfolios was 92.7%, which is calculated based on Kimco's pro rata interest in our properties and represents a 40 basis point increase from June 2009, while 10 basis points down from last quarter. However, in looking at occupancy of Kimco's combined portfolios without regard to percentage ownership, occupancy increased by 20 basis points from March. The difference between the gross occupancy and pro rata occupancies, reflect the change in percentage ownerships on certain assets that were put into new joint ventures with the Canadian pension plan and BIG Shopping Centre joint ventures that Dave mentioned earlier. Mike will provide further insight on the performance of our operating properties momentarily.

With regard to balance sheet management, we continue our focus on coverage metrics and liquidity position. Our fixed charge coverage stands at 2.4 times, and net debt to EBITDA has improved to 6.4 times from 6.8 times at year-end. We are on track to achieve our stated goal of 6.5 times by the end of 2010, and 6 times by the end of 2012. Our absolute debt level is lower by $265 million as compared to March 31, resulting from the transfer of three former encumbered PL Retail Assets to the new CPP joint venture, and the retainment of $62 million of other maturing debt.

During the quarter, we completed the refinancing of our CAD150 million Canadian denominated bond which matured in April, with a new Canadian denominated CAD150 million eight-year bond at 5.99%. We have approximately $50 million of consolidated debt maturing for the balance of the year and less than $400 million for 2011. Our debt maturity profile is well staggered through 2019, and with approximately $1.6 billion of immediate liquidity, we are in excellent shape.

We are pleased with the success of our refinancing objectives in the joint venture programs as well. Year to date, we have closed on over $95 million of nonrecourse mortgages, and have signed term sheets for another $65 million, which we are in the process of closing. The largest portion of the joint venture debt maturing in 2010 was the guaranteed PK sale facility. The remaining $287.5 million was repaid in full yesterday, with our partner providing 85% of the requirement. Joint venture debt maturities remaining for the balance of 2010 are approximately $120 million. As I have just stated, we have term sheets for more than half already.

We continue to make progress on the disposition of non-retail assets with $44 million disposed of since the end of the first quarter, and $52 million year-to-date. We are actively marketing certain of the urban mixed use assets and have signed leases with prominent retailers at three of the New York City assets, which will enhance their marketability. As a result of the positive performance for the first six months, we are increasing our FFO guidance before impairments to a range of $1.14 to $1.18 per diluted share, an increase of $0.04 from the low end.

And with that, I'll turn it back over to Mike.

Thanks, Glenn. See, that part was easy, but now you're going to have to answer the questions as well.

I'd like to mention that Glenn has successfully raised over $12 billion of capital for Kimco and our joint venture programs over the past 15 years, while also directing the Company's accounting and public reporting requirements. That has been no small task. Along with Glenn, kudos are in order for Barbara Pooley who, in three short years at Kimco, has assumed the leadership of a wide gamut of corporate responsibilities, as well as all property-level planning and administration activity, capitalizing on her deep background in public accounting and human resources, in addition to IR. They both have been particularly supportive of me over the years, and I look forward to even better things from them.

So, now that I'm batting third in the speaking order, I can't help but analogize the characteristics of a number three batter to what the operating side of the shopping center business must possess, the best balance of contact and power hitting skills. And I'm very fortunate that my real estate operating team has continued to hit for both average and power, continuing to fill space in an uncertain economic climate, while seeking new business opportunities in their territories.

Focusing first on the US portfolio, our gross occupancy, that is without regard to ownership percentage, increased by 30 basis points to 92.4% from March, and by 50 basis points from one year ago, on the strength of net absorption. The positive trend was reflected in the increase in US same site net operating income of 2.1% for the quarter. That increase was driven by good old fashion revenue growth, including the impact from rents from new leases, including a Ross stores at our Westlake property, a new Giant supermarket in Timonuim,Maryland, and a Harris Teeter at the Saint Andrews Center in Charleston, South Carolina.

Leasing velocity has also been a bright spot. New lease signings totaled 215 deals for over 1.3 million square feet. That's the sixth consecutive quarterly increase in both number of deals and square footage. New lease square footage exceeded vacated square footage for the fourth consecutive quarter. Deals are being made, with junior and big box demand leading the way, including new signings with TJ Maxx, HomeGoods and Ross. But price points have changed. That's evident by where leasing spreads have trended over the past year. New leases signed on comparable space for the past 12 months has dropped by 4.5%, exclude the former Linens and Circuit boxes and the number is slightly positive at 1.1%.

On renewals, rollover pricing in our portfolio over the past 12 months has averaged about 7% down, which has effectively countered a similar percentage increase from option exercises, thereby resulting in an overall flat impact in spreads on retention. During the last quarter, 66% of the renewal spreads were positive, but the overall statistic was skewed by a few leases in the junior box category, including a couple of deals in which we agreed to a one-year extension at a lower rate as we have positioned a space for potential redevelopment or new tenants. While leasing spread data gets a lot of airtime when it is used as a lens into the current pricing for space, we also like to focus on the opportunity from the vacant space. By one measure, vacant space in the US portfolio alone represents about $70 million in lost space rent. No one is predicting the day of 100% occupancy, but it does underscore the potential upside that remains within the confines of the existing asset base.

Moving beyond the numbers and onto the ground. Despite a very fickle and ambivalent consumer, as evidenced by May and June comp store sales figures, retailers are generating solid profits. Our national and regional retailers are producing strong earnings in an economic environment of higher unemployment and uncertainty. The larger retailers' balance sheets and liquidity positions are in good shape.

Our conversations and meetings with retailers at ICSC in May were focused on growth opportunities and expansion plans. A common theme was concern from retailers on how their pipeline for future growth will be filled without new construction and development. Also, national chains such as Ross are entering new markets, including Chicago, St. Louis and Kansas City. Regional chains such as hhgregg are expanding their geographic reach to areas such as the mid-Atlantic, Pennsylvania and Chicago. With virtually no new development, we are seeing an increase in flexibility and format, and prototypes to take advantage of the available second generation space. For example, Kohl's has unveiled a 60,000 square foot format, and Sports Authority has introduced a 12,000 square foot concept named SA Elite to focus on high-end, higher margin product. Petco has developed and is expanding their Petco Unleashed concept, a 4,000 square foot store merchandising higher margin pet supplies. Dollar Tree is rolling out their Dollar Stop concept, a 4,000 square foot Dollar concept aimed at filling gaps in densely populated markets.

Outside of the US, our Canadian portfolio remains as strong as ever, with high occupancy, first class tenancies and stable income. We are also excited about the recent announcement of Marshall's plans into Canada, reinforcing the attractiveness of the Canadian marketplace to first class retailers.

Inside the Kimco portfolio we converted a preferred equity position into a pari passu interest on a 12 property portfolio, currently owned with Anthem properties, our largest preferred equity partner. The result is now a 66% ownership interest in this grocery-anchored portfolio and whose operating results can now be reported similar to our other straight joint venture holdings such as RioCan, meaning an improved and more visible FFO profile.

In Mexico, leasing continues to pick up across the portfolio, with over 300 new leases signed during the first half of 2010. We continue to focus on the lease-up of the Mexico development projects, on which construction is virtually complete. At our largest project La Ciudadela in Gudalajara, a Best Buy is scheduled to open in August, which will also trigger the opening of 30 additional tenants that have already undersigned leases. Our Latin America business leader, Mike Melson, is in Mexico this week, currently meeting with Liverpool, Stenopolis, which is Mexico's largest theater chain, and several other retailers to finalize anchor leases at projects in Nueva Vallarta, Cualta, and Guadalajara. While drug violence in the border cities continues to have an impact, US and Mexican retailers are still focused on growth opportunities. Most recently Bed Bath & Beyond, Lowe's, Target, and Best Buy have announced future expansion plans. We continue to believe in the long-term value proposition for shopping center investment in Mexico.

As important for us to operate effectively with the realities of today, we are also focusing on a strategy to address the realities of the future. At our investor day we will give you a more in-depth perspective of the asset base and strategies, but allow me to offer a few basic observations. Over 50% of the net operating income generated from the 453 consolidated shopping center assets in the US come from about 90 properties. Add the next 50 properties and the proportion of NOI jumps to 66% of the total. This has precipitated a closer look at the smaller, less impactful assets focusing on size, location, growth potential, economies of scale and so on. With our regional leaders, we are actively formulating a recycling strategy of assets, both shorter and longer term, to generate capital for redevelopment and new shopping center opportunities.

We define our core business as the ownership of shopping center assets either, for our own account or jointly with our investment partners. It is a primary goal to maintain and increase that portfolio value. We can't control interest rates. We can pursue an asset by asset strategy that focuses on retaining the best tenants, investing capital to attract new tenants, positioning for future redevelopment opportunities, and pursuing all forms of ancillary income and expense reduction, all focused on increasing operating cash flow.

And now, for some final thoughts, I'll turn it over to Milton.

Well, thanks, Mike. I, too, would like to add my congratulations and thanks to Barbara and Glenn. They have been terrific.

Now, this is not an easy time for the consumer, with double-digit unemployment that is forecasted to continue for some time. On a relative basis, our tenant base is well positioned to meet the challenges facing the economy. Our tenants consist predominantly of stores selling essential items or catering to the consumer who is tending to trade down, and these stores are increasing their share of retail sales. In general, our retailers have had excellent earnings results, and their balance sheets are strong. In addition, the demographics of our portfolio are strong and very, very much underestimated. I would suggest everyone visit our website to review the statistics of the demography.

In the current environment of relatively low interest rates, it is my view that hard assets with safe, stable cash flows will increase in value, sending cap rates lower. Our entire management team is in harmony to be the premiere owner and operator of shopping centers and to dispose, as expeditiously as possible, our non-retail assets. Simply put, our strategy is to deliver a stable, safe, and growing cash flow, and continue to enhance the value of our shopping center portfolio.

And with that, we are all delighted to answer any questions you may have.

Thanks Milton.

To move on to the question and answer portion of the call, please respect the limit of one question. Mindy, we are ready to take questions.

Thank you. (Operator instructions).

We will take our first question from R J Milligan of Raymond James & Associates.

Good morning, everyone.

Can you attribute the improved performance and guidance to any specific asset quality? Are your A assets doing better than expected, I guess in terms of pricing power, or has leasing improved at some of the B assets?

I would just make a point that the guidance improvement is really a combination of overall operating performance improvement, including occupancy and same-store growth, as well as what Glenn has pointed out, that we did have some transactional income related to our non-retail disposition activity that was in excess of what we originally had planned, and that helped to increase the guidance as well.

So you're not seeing any bifurcation between the asset quality in terms of driving that improved guidance?

One thing I would mention is something I referred to in the talk, and that is we are seeing an enormous difference in geography, so both the A and the B assets in some of our stronger geographic areas, such as Long Island, are seeing some definite increase in rents and occupancy over the softer areas, like Las Vegas or Phoenix, where both A and B assets have been adversely impacted. So my quick answer would be, there's more difference in geography than perhaps A and B at this point in the cycle.

Thank you very much.

We will take our next question from Christine McElroy of UBS.

Hello, good morning, guys.

Mike, you touched on this in your remarks. The big topic has been that a handful of larger tenants like Target were looking for space in 2012 and beyond, given that development starts are pretty much nonexistent. Do you think the developers ultimately succumb to the anchors and start building new centers, even though the shopping leasing isn't there, or will some of the larger stores have to be more flexible and maybe open more smaller format stores?

Well, I think right now what we are experiencing is more the latter, where the retailers are looking to be more flexible in their prototypes and what they can fit into, because let's face it, there still is a significant amount of availability of space in the marketplace. But like anything else, as conditions change and if there is more of a demand, then you will have a situation where there could be potential development. But as we have said before, development generally is going to follow the rooftops. And retailers, I think at this point, are still very focused on surer bets, and surer bets are going to be for the most part the more infiller established markets, which in turn is going to mean that they are going more focused on existing space than brand-new development.

It seems like a lot of the space that is still available is in, call it, undesirable locations. Is that fair to say?

Well, I think maybe what you're suggesting is that it is in those locations, and again using the Phoenix area or Las Vegas, where there is a lot of excess space, and since the rooftops have not come to bear, it is difficult for those retailers to want position growth in those areas. So again, I think that's why as they look at expansion, they are looking at inward and more established locations. It still, is in many respects, a game of musical chairs, but that's the reason why I don't think that pure ground up development is going to be starting up aggressively any time soon.

Thank you.

We will take our next question from Craig Schmidt of Bank of America Merrill Lynch.

Thank you.

I'm wondering if you're anticipating a pickup in leasing spreads as the big boxes sort of become less of a mix, given that many of the Linens 'N Things and Circuit Citys have been released now.

I would just start by saying I do think it is still today's earlier point a little bit more geographically focused and what the relative supply and demand dynamics are, but you know maybe I would ask Rob, Rob Nadler is on with us. And Rob, could you perhaps maybe provide some insight in terms of Craig's question.

Sure. Hello, Craig.

I think it's a realistic assumption to assume that as we continue to make strong progress in taking care of the junior anchor space that the leasing spreads should increase in time accordingly. Clearly, you know, some of the leasing spreads on the junior anchors have been a drag on the overall spread, as Mike had indicated earlier. So I think it's a fair assumption.

Okay. Thank you.

We will take our next question from Quentin Velleley of Citi.

Good morning.

Just going back to the guidance increase, if you look at the very good breakdown you give in the supplemental, it seems like the majority of the increase came from the non-recurring income streams. And Mike, I heard you mention before that part of that was from the sale of some of your non-core -- or your non-retail dispositions. I'm curious whether part of that was also from the formation of the new joint ventures over the quarter.

Yes, I mean part of it is. There were a certain amount of acquisition fees that we earned from forming both the CPP joint venture and the BIG joint venture. Again, there's roughly -- in the quarter there was roughly $0.03 of transaction income. So if you take that with some of the transaction income that we reported in the first quarter as well, relative to where we had our original forecast and budget, there is an increase. So we accordingly increased the guidance, but there is certainly improvement as well in occupancy, so you take it all together, you wind up with an increase that we feel comfortable with at this point.

And just following up, so in the revised guidance is there anything in the second half from the formation -- or acquisition fees from the formation of new joint ventures?

No. Our forecast for the second half of the year really has no non-recurring fees built into it.

Okay. Thank you.

We will take our next question from Jeffrey Donnelly of Wells Fargo.

Good morning, guys.

You've got flat same store NOI forecast for the year, but in year-to-date I think it's running slightly positive. Should we expect, then, obviously, that the back half of the year we are going to see declines, despite what seems like an improving outlook for occupancy?

We originally had minus 2 to 0, and now we have scaled it up because of the second quarter performance. I think at this point to be any more aggressive, I mean, you know, underlying it is an uptick, but any more aggressive probably is a little premature, I think, because there's still the uncertainty in the environment at this point could be too ambitious, probably unwarranted, Jeff, so it's more a reflection of what has transpired as opposed to what we see going forward.

I'm just thinking mathematically. I think year to date you're already positive, but if you're flat for the year, I guess does that mean that the back half of the year would have slower NOI growth or lower NOI growth than the front half?

Not necessarily Jeff. It's just as Mike mentioned that, you know, in looking at we are only halfway through the year, there's been some turmoil in the economic environment recently and, you know, we are just playing it straight and trying to focus on what we think we can reasonably deliver to the shareholder.

Thanks.

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

Hello. Good morning.

Mike, you mentioned that 90 assets comprise 50% of your NOI. I mean, does that imply that you'd like to have a much smaller portfolio and you think about kind of what it would take to get there and kind of what right now the market is for secondary market product or B, C quality assets. Could you maybe think about where -- kind of comment on where cap rates are and kind of how relevant that is, given where you want the portfolio to be?

Yes. And Paul, one of the reasons why I made the comment about shorter- and longer-term strategies is, in looking at the portfolio, I think the key observation is that there are a lot of properties, and many of them are in smaller markets and so on, they have been around for a very, very long time. And I think more philosophically or broadly, we need to think about ultimately exiting them and redeploying that capital in acquiring other shopping centers over time. So I think a lot of it is going to be, from a long-term perspective, a recycling or a recapitalization.

I realize that the market for B and C properties is not anywhere near as robust and active as A properties, so we are not going to -- we don't have a mind-set of just dumping properties. But I think the strategy going forward does need to consider a more active recycling pace which, other than some activity that we had a few years ago, has really not been an element of Kimco's strategy. And I think that's really what I was trying to get across as we think about the next few years.

It doesn't take -- or does it take you more into kind of the power community center segment than the neighborhood centers? I shouldn't read that into it, because I would imagine that the bigger centers are obviously going to be in that 90 --

It's really more a notion of where do we have product today, where do we have the best leverage in economies of scale today, and also what markets are we not in that maybe we should have an increased exposure to. And utilizing some of the existing asset value in the portfolio to use as the currency or the mechanism to fund that, I think, is really where we are I am thinking.

And as a third element being a little more disciplined about selling the bottom of our portfolio, what our region people feel is truly the worst parts of our portfolio, being more disciplined about recycling that product.

As a reminder, we do have more callers in the queue and we ask that you please limit yourself to one question.

We will take our next question from Jay Habermann of Goldman Sachs.

Thanks. It's Connor Finnerty on for Jay.

Mike, you talked a little bit about the big box space, I guess some of your larger tenants. But could you give a little more color on the in-line stores, some of your smaller tenant activity, and has that changed in the last couple of months?

The level of activity has basically been a push, in the sense that the number of new deals we are signing and the number of vacates,are kind of roughly the same, and as are the spreads and the rollovers. So that -- I think that would probably best characterize the last few months and that certainly has been an improvement from where we were at this time six, nine months ago.

Thanks.

We will take our next question from Jim Sullivan of Cowen and Company.

Good morning.

I see that Winn-Dixie just announced earlier this week that we are going to start closing stores again, I think it's 30 stores this time, and I don't know if they released a list yet publicly. I just wonder if you had any conversations with them and do you know whether that will have any impact on the Winn-Dixie mortgages?

They are announcing their store closing list, I think, tomorrow.

Tomorrow, yes. Winn-Dixie is announcing the 30 stores they are closing tomorrow. They are about a 520 store chain so, it's 5% or 6% of their stores.

With respect to Winn-Dixie, their four sites we have as part of the mortgage that you first asked about, were sites that we acquired prior to their first bankruptcy because they are very profitable stores for Winn-Dixie and sites that we are very comfortable with the price that we are going to be in at, that the value of the property is way above our position in those properties. Additionally, I think we have six or seven Winn-Dixies in our portfolio and for the most part all the rents are relatively cheap, they're 850 or less in rent that we have with them, as well as one of them is a brand-new store that just opened. And they mentioned in the press release, it's only stores that haven't been remodeled that they are going to be closing. There's another site in Boca that Milton is very familiar with, where many years we have owned, that we would love to get back and they control that asset, and we know they will stay there long term, so we are very comfortable with our position in Winn-Dixie.

By the way, that was Ray Edwards.

Thank you.

We will take our next question from Ian Weissman of ISI Group.

Yes, good morning.

You know, the last six weeks we have obviously heard a lot more concern about the fate of the US economy and I know you're talking about considerable strength from the larger national tenants, but in your recent conversations with retailers, are there -- is there pause for concern when they think about the growth, given the back drop of an uncertain US economy?

Rob, if you would like to respond to that.

Sure.

Ian, I have seen despite the, you know, the difficult economic news that has come out, I have seen no curtailment in expansion plans of healthy retailers. In fact, I recently read an RBC report where they were talking about 64,000 stores still on target to open over the next 24 month period which was on a database of 2,200 concept. So we are performing, you know, two times a week portfolio reviews with retailers. There's been no curtailment of expansion plans by the healthy retailers.

Okay. Thank you very much.

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

Yes. Hello.

I was wondering if you could talk a little about the pace of development leasing, looking at the projects that are completed, and it looks like in the operating portfolio about $500 million, 75% occupancy -- or 75% leased rate, or committed rate, and it looks like a lot of the dates where they are expecting to go into occupancy is in mid-2011 and it looks like, you know, part of that can either be from stabilization or after a year. Can you just give us a little bit more picture as to how you think this pipeline stabilizes and over what time frame?

Two points there. Most of the under development assets, as we have talked about, is Mexico and we have seen the gradual pick up in the leasing pace there. I had mentioned earlier in my prepared remarks about certain anchor activity that is happening, and what will naturally follow that will be the small stores. So that pickup is continuing, and we feel comfortable about the stabilization dates that we have put forth in the supplemental report.

You know, on the US side, there are still a handful of properties that are completed but are still approaching stabilization, and there leasing continues to be relatively slow and a gradual pickup at least within the short term, I don't expect a material pickup in occupancy in those centers.

Okay. Thanks.

We will take our next question from Vincent Chao of Deutsche Bank.

Good morning, everyone.

Just a question -- building on an earlier question about some of the constrained markets where supply demand is more favorable for the landlords. Just wondering if you could help us frame how you can go about capitalizing on that dynamic given that, you know, likely that your assets are pretty fully occupied in those markets as well, and trying to buy them right now would probably be a pretty expensive proposition.

Well, it starts with the fact that we have more pricing power for both renewals and the vacancies we have in these stronger markets, so our discussions with both our existing tenants and potential tenants are much more favorable than this time last year in these stronger markets. As the economy continues to recover even in the softer markets, we hope to follow that same pattern, so as we have these portfolio reviews, particularly with the national retailers, I think one thing that didn't come out is while our national retailers are definitely playing more offense, the mom and pops in general continue to have a difficult time, and we see that across all geographic regions. So we are hoping that the positive trends continue, that our different regions have more success growing rents and growing occupancy, and clearly the stronger regions are where we would like to add properties, if we can buy them right. By the same token, we don't want to overpay just because something is in a strong market.

Okay.

I guess can you help frame maybe what the lease rolls and the vacancy looks like in those better markets?

We are not prepared to answer that level of detail in this call.

Okay. Thank you.

We will take our next question from Laura Clark of Greenstreet Advisors.

Good morning.

In regards to the 6.4 times debt to EBITDA number that you quote, why don't you highlight the debt to EBITDA ratio that includes your unconsolidated ventures, given that roughly 33% of your total assets are held in joint ventures? Isn't this a better representation of your total balance sheet risk?

We look at the consolidated balance sheet because that's where the risks are. We want to make sure that you can cover the debt that's the -- really you're looking at the unsecured bond holders and what can cover, so you look at really all the flows that are coming from that consolidated portfolio. That's what that measure is based on. You know, it's your net debt to EBITDA, the debt that's on that balance sheet.

I would add one thing that -- and it's something that I know we talk a lot about and that, now that David made the point, that we have now paid off all of that joint venture debt in which we had a hook into -- or they had a hook into us and we won't do it again, we think it is inappropriate to include any pro rata analysis of joint venture secured non-recourse debt onto the parent balance sheet. And an analysis of the joint venture, capitalization and debt ratios et cetera there is worthwhile, but independent from the corporate balance sheet.

Okay. Thank you.

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

Hello. Good morning, guys.

Question for you, Mike, on Mexico and Chile. You made the comment that you thought things were, you know, leasing was looking a little better and as I kind of scanned down the metrics, it looks like in the second quarter occupancy dipped a bit, average based rents dipped a bit, leasing spreads were better, but they're still a little bit negative. And I'm wondering if you can kind of reconcile that for us and also is this -- is Latin America something that might stretch out as far as from your point of view as far as leasing goes, in terms of getting the leasing done?

Hello, Rich. This is Barbara.

In the occupancy number, remember that we were only including the stabilized property so that, that's only about 33% of the GLA that is in that metric. When you look at the overall occupancy for Mexico, it kicked up about 70 basis points, and the leasing velocity continues fairly strongly on track to what we have said, we are not changing anything in terms of the commitment to the $7 million to $9 million of additional NOI coming online from Mexico in this year as part of the $35 million that's the bogey that's out there that we have discussed. Does that --

Okay. Great. Thanks, Barb, yes, that answers it.

Okay.

We will take our next question from Scott O'Donnell of MetLife.

Good morning.

Milton used the adjective expeditiously to describe the disposition of the non-core investments and yet, when I look at the balance sheet detail disclosures and your supplementals going back to year-end 2008, it doesn't seem like there's been much movement in the numbers. So, am I missing something, number one? And number two, have you guys established targets for how quickly you want to dispose of some of these investments?

We would make a couple points.

One, if you go back to April of last year when we really focused on the -- and bucketized, if you will, the non-retail assets, we have sold about $163 million. Granted, we disposed of the easiest ones first which were some of our securities and marketable securities and things like that, but we've always said from the very beginning three to five years, then two to four years as time has gone on.

So there's a disciplined approach to this and as most people know, this non-retail portfolio has four components. It has the Valad note, which is fully current at 9.5 %, it's a big receivable, it has a stated maturity. So you can -- you can figure out exactly when that will need to be paid back.

We have our InTown Suite assets, which is a joint venture with a Canadian pension fund. It has some debt attached to it, it is fully earning and earning a double digit FFO return to us at this point as RevPAR increases. That's a little more difficult to market when you have a joint venture partner.

The third piece is a very large number of small preferred equity investments. Each of those investments we have a partner and in many cases we have a lender, very difficult to unwind those things except over time.

Fourth, we have our -- what we call our urban portfolio. That is where we are having some success and we will have more success over the balance of this year.

This quarter, I believe we sold two large assets in Boston and we have targeted others. As I said in my remarks, we have identified a good $50 million of transactions that should happen over the next 90 to 120 days. So the measured pace will definitely continue. We do have plans for each asset. We are trying to accelerate those plans. We are committed to accelerating those plans. But again, we are not going to do anything dumb either.

Thank you.

We will take our next question from Andrew DiZio of Janney Montgomery Scott.

Thanks.

Following up on Jim's earlier question, we're listening to the publicly traded groceries, including and outside of Winn-Dixie, talk about lower sales driven by competition from Walmart, being the expanded fresh offerings and more aggressive pricing. Do you see any additional pressure generally on supermarket anchors or think about potential long-term decline in grocery sales affecting grocery anchor centers near remodeled Walmarts.

Well, the grocers have had the problem of deflation of food prices, and deflation is never a happy event for a retailer. And the supermarkets business has always been very competitive, and the new competition is coming from the warehouse clubs whose margins are able to be lower as they have less product. So what we look at, the realistic is that supermarket business has always been intensely competitive and tough, and we analyze each one of the supermarkets, it's a business that we've watched for a long time, and recognize that for the next year, I think it's going to be difficult. I think it will improve next year.

We will take our next question from Jeffrey Donnelly of Wells Fargo.

Yes, just a follow-up.

Can you tell us what your US leasing spreads were, excluding Linens and Circuit City, for just Q2 2010?

Jeff, I don't have that in front of me at the moment. I just have the 12-month number that I put in the prepared remarks, so we will have to get back to you on that.

If I can ask a follow-up, then, and maybe if Rob Nadler is still on the line, if you look at those 12 month numbers it looks like the releasing spreads on the Circuit City Linens boxes were about, call it 20% to 25% below their prior rents. Is that a good proxy for what's happening in asking rents for anchor boxes say compared to a few years ago?

Just -- Rob can add color. I don't think so. It happened that Linens 'N Things was so aggressive and those were higher rents than were -- in part because their passion to gain share of market and compete with Bed Bath & Beyond. So those rents were higher than our norm and are not typical. Rob, do you want to add anything?

Yes, I think you're correct, Milton. I would agree. Same really would apply with Circuit City which was competing very heavily with Best Buy for space.

We'll take our next question from Laura Clark of Greenstreet Advisors.

Just a quick follow-up question.

Can you provide us with a cap rate on the BIG transaction?

No. Sorry.

I thought I would ask again. Thanks. (overlapping speakers).

Good try. We give you A for effort there, Laura.

Okay. Thanks.

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

Hello. Good morning.

Mike, just circling back to your comments before about the 90 properties out of your wholly owned about 450. Are you seeing the same type of skewing towards the -- of NOI towards the higher quality in your joint ventures and are you having those same discussions with your joint venture partners about possibly selling off some of the lower quality assets?

The ratio, Nate, is not as pronounced when you look at the joint venture scope and reflecting many of those properties were acquired in the last seven to ten years.

Sure.

And they are generally larger centers. That said, we have ongoing and active discussions within the joint ventures about recycling and disposing of particular properties that we feel over the long term are risky. You have seen occasionally properties coming out of the Kimco Income REIT, and that's outside of the larger scale disposition activity from Prudential. So that process does continue in concert with our JV partners.

All right. Thanks.

(Operator Instructions). And at this time there are no other questions.

I'll turn the call back over to Dave Bujnicki for any additional or closing comments.

Thanks, Mindy.

Once again, our investor day will be held on September 23 on Long Island, New York. Invitations to this event will be sent out shortly. If you have not already received a save the date notice, and would like to be included on the invitation mailing, you can do so by contacting me directly.

And a final reminder, our supplemental is posted on our website at www.kimcorealty.com. Thanks again for participating today.

This does conclude today's conference. Thank you for your participation.