Kimco Realty Corp (KIM) 2011 Q2 法說會逐字稿

Good day everyone, and welcome to Kimco's second-quarter earnings conference call. Today's event is being recorded. As a reminder, all lines are muted to prevent background noise. After the speaker remarks there will be a formal question-and-answer session. (Operator Instructions).

At this time it is my pleasure to introduce your speaker, Mr. Dave Bujnicki. Please go ahead sir.

Thanks, Felicia. Thank you all for joining the second-quarter 2011 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; 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's and management's hopes, intentions, beliefs, expectations or projections of the future, which are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained 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 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 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 your questions.

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

Good morning, and thanks for calling in today. While worrisome clouds remain in the US and around the world, ranging from the European debt crisis to continued US challenges in housing, employment and deficit spending, the US economic recovery continues its positive momentum and the retail industry is once again expanding.

A recent RBC analysis is particularly encouraging as it notes that its research base of 2,200 retailers plan a total of approximately 73,000 new store openings over the next 24 months. This is expected to translate into increases in effective rents, occupancy and leasing spreads in our industry.

At Kimco we are very pleased with our second-quarter results and we believe that they represent solid and steady progress on our key 2011 objectives. Increasing occupancy to just under 93%, same-store NOI growth exceeding 3%, and positive leasing spreads of 2.1% all combine to show very solid second-quarter portfolio vital signs. Mike and Glenn will provide further details. But overall we are confident and optimistic about the balance of the year and our full-year operating results.

Permit us to take one final bow for completing the sale of the Valad bond at a price exceeding our basis. That done, we are turning our full attention to the disposition of the InTown portfolio, as InTown represents the last major piece of our nonretail portfolio.

While no bidder achieved the minimum pricing level established by the joint venture partnership in the first round of bids, three potential purchasers are still fully engaged in due diligence and are trying to reach the necessary price level.

We are also encouraged because the InTown portfolio itself continues to improve dramatically in terms of RevPAR growth and EBITDA metrics. On an annualized basis the portfolio EBITDA is now within 6% of its pre-recession high, and our annualized FFO return exceeds 20% on our equity investment.

The InTown portfolio, like the rest of the Extended Stay industry, is experiencing substantial rate and occupancy increases. In addition to the possible sale of the InTown portfolio this year, we anticipate the sale, or repayment through refinancing, of an additional $75 million of nonretail investments over the balance of the year. As a result, the nonretail portfolio should finish the year at less than 4% of our total gross asset.

Through property sales, refinancings, partner buyouts and the conversion into pari passu joint ventures, the retail preferred equity portfolio has also declined from $297 million and 125 properties to $136 million and 81 properties over the past 18 months.

With respect to new business we continue to acquire high-quality retail properties in our core market in a deliberate, patient and disciplined manner. So far this year we have closed on 7 properties totaling $165 million for both our institutional joint ventures and our own portfolio. Additionally, we currently have a firm pipeline of 10 additional property acquisitions totaling a further $190 million.

Internationally Canada is performing wonderfully with portfolio occupancy of 97%, strong currency, low mortgage rates and continued US retailer expansion into the Canadian market. Illustrating this trend, our RioCan Kimco joint venture owns 9 Zellers stores, of which 8 will be converted to new Target stores, and one will become a new Walmart store.

Ed Sonshine and his team did a terrific job negotiating these transactions and converting 9 out of 9 Zellers stores in our joint portfolio. Bravo, Ed.

In Mexico we are also benefiting from a strengthening currency and making good progress in leasing our new retail development. We even approved our first new project this year, a small development project in Mexico City, 94% preleased to Walmart.

Despite the violent headlines, the Mexican economy is strong, with 2011 GDP growth expected to exceed 4%. The unemployment rate is 5.4%, and the country has added 400,000 new jobs so far this year. US and Mexican retailers are both expanding and leasing activity is finally increasing in small store space, which has been very soft for the past two years.

Overall, we remain committed to our strategic goals of improving our portfolio metrics and financial results, while selling in a measured way both our nonretail assets and selected nonstrategic retail properties, and then using the resulting proceeds to acquire additional high-quality shopping centers in our core markets and reducing leverage over time.

Now I would like to turn it over to Glenn to discuss the details of our quarterly results, and then Mike will provide an operations overview, and Milton will then close with his perspective.

Thanks, Dave. Good morning. The positive results produced during the second quarter are a continuation of our progress toward our strategic objectives, which Dave has just articulated.

As we reported last night, recurring FFO per share was $0.30 for the second quarter compared to $0.28 last year. The $0.30 level excludes $0.02 or $8 million of non-cash impairment charges attributable to the disposition of certain nonstrategic retail assets and $0.01 or $4.6 million of nonrecurring income, primarily related to the monetization of certain nonretail assets, including the Valad convertible bond we have previously announced.

Our recurring FFO, which increased 5% from last year, was fueled by positive NOI growth, up $11 million or 7.5% from the shopping center portfolio. About half of the growth was from acquisitions and incremental growth from our Latin America portfolio as lease-up continues, and the other half from organic growth in the US portfolio with all our regions beating our plan for the quarter.

Now although not included in FFO, we did sell three other nonstrategic retail assets, which produced gains of $4.7 million. We will continue to focus on recurring FFO, which excludes both nonrecurring income and non-cash impairment charges.

As Dave mentioned, our key shopping center operating metrics, occupancy, same-site NOI and leasing spreads were all positive for the quarter. Occupancy for the combined portfolio, without regard to ownership percentage, increased to 93.1%, up 30 basis points from last quarter and 30 basis points from a year ago.

Looking just at the US portfolio, occupancy reached 92.9%, up 40 basis points from last quarter and up 50 basis points from a year ago.

Same-site NOI increased 3.1% from the combined portfolio, including the US, Canada and Latin America. The US same-site growth was 2.6%, representing the fifth consecutive positive quarter for this metric.

Leasing spreads were also positive with an overall 2.1% increase from new leases, renewals and options. Mike will provide more color about the portfolio in just a moment.

Our previously stated capital recycling program has also gained momentum during the quarter, with a disposition of 11 nonstrategic assets providing proceeds of $48.5 million. Those proceeds were quickly put to work with the acquisition of two wholly-owned assets and one property in a joint venture. The gross acquisition cost was $75 million, subject to an aggregate debt of $43 million on two of the properties.

We are currently in contract negotiations to sell 10 other nonstrategic retail assets, and actively marketing over 40 other properties. We remain comfortable with our target range of $150 million in nonstrategic dispositions for 2011.

We continue our focus on the monetization of the nonretail portfolio, which now stands at just over $600 million, and we expect several other nonretail preferred equity investments to be liquidated by the end of the year providing an additional amount of $75 million.

Our balance sheet metrics strengthened further during the quarter. We ended the quarter with net debt to recurring EBITDA at 6 times compared to 6.3 times at the beginning of the year, a level we expected to achieve by the end of 2012.

Our liquidity position is in excellent shape with over $1.7 billion of availability on our credit facilities, and our capital plan is on track. And with less than $90 million in maturities for the balance of the year, we do not foresee the need for a public capital raising in the near term.

With regard to the joint venture programs, we have been successful in refinancing the maturing debt in the various ventures. We have closed on eight mortgages for $147 million in proceeds, and have another four expected to close in early August for another $70 million, at rates ranging from 4.68% to 5.79% of 10-year money.

Although spreads have widened recently, mortgage financing remains available at attractive rates from insurance companies, commercial banks, and the CMBS market.

As for guidance, as we have attained recurring FFO of $0.59 per share for the first half of the year, we are comfortable reaffirming our recurring FFO guidance range of $1.17 to $1.21 per share. Again, this guidance range does not include non-cash impairments or nonrecurring income.

Similar to last quarter, assumptions in determining guidance include occupancy improvement of 50 basis points by year-end, same-site NOI growth of 1% to 3% from the combined portfolio, incremental contribution from the Latin America portfolio of approximately $8 million, and additional acquisition activity with dispositions in the latter half of the year.

This guidance range incorporates the $0.03 impact resulting from the early repayment of the Valad and Whiterock bonds.

One last point. Yesterday we declared our quarterly common dividend of $0.18 per share. We continue to have a conservative FFO payout ratio of approximately 60%.

With that, I will turn it over to Mike.

Thanks, Glenn, good morning. We are, obviously, quite pleased at the direction the shopping center portfolio is taking, as evidenced by these array of portfolio metrics reported for the quarter.

The improvement in occupancy, the continuation of positive same-site NOI results and stabilizing leasing spreads not only reflect a shift in shopping center fundamentals over the past year, but also the outstanding efforts of the Kimco organization.

By now the takeaways from the shopping center convention in May have all been reported and analyzed by the research and investment community, but nonetheless it bears repeating that demand from national retailers continues and remains strong, and the absence of new supply has improved prospects for filling existing second and third generation space.

The appetite to expand is most notable for the smaller format users, including franchise-based businesses and national chains such as Anna's Linens and ULTA Cosmetics, each of whom are looking to double their store count over the next few years.

Yet despite this healthier environment, it seems that there are always clouds that confront retailing, and in turn, challenges for shopping center owners, and this period is no exception. There is no shortage of questions about the effect of online retailing on brick-and-mortar space, the trending for smaller footprints for many box retailers, the difficulty of mom-and-pops to access credit to form and build new business, concerns over cost inflation, and the potential impact on operating margins in the second half of the year, all overlaid by an uneven recovery, stubborn unemployment and even scarier reminders of the people in Washington running this country.

There are no silver bullets to solve these issues. To deal with the challenges our approach is simple -- invest in and extract as much value from our core group of assets that have the greatest ability to generate stable and increasing cash flows in any environment. Find external opportunities that have similar potential, and eliminate those assets that in our judgment have more risk than reward over the long-term.

In the US portfolio what I am particularly encouraged by is the number of value creation opportunities starting to percolate from our existing property base. In addition to the projects that are active, we are seeing an increase in opportunities in the evaluation stage, as well situations where the key anchor leases have been signed and the approval and resultant remerchandising process has begun.

For example, I am sure you have all heard us talk about the potential in our portfolio in the New York City Borough of Staten Island. The redevelopment of the Richmond Avenue site with a brand-new Target store, and an overhaul of the rest of the center, will begin construction later this year after a 2.5 year planning and entitlement process.

At another location in the northern part of the Island, we signed a lease with Stop & Shop for a new 55,000 square-foot store, so in the existing big-box vacancy in the center and absorbing the balance of the vacant space. It is a very long approval process in New York City, but the plan calls for an opening in early 2014, and will include a complete upgrade and renovation of the center.

In yet another center in the southeast part of the Island, a potential redevelopment of the center is on the drawing board, and targeted upon the expiration of the anchor tenant's lease, an anchor paying $2.26 in rent, about 6 to 7 times below market.

I call out these three locations as the type of opportunities we are seeing in our core market. Similar projects are on the drawing board in Palm Beach Gardens and Live Oak, Florida; Farmingdale, New York; Columbia, Maryland; and Deptford, New Jersey.

While the redevelopment stories are the most interesting, core leasing activity and creative approaches to increase ancillary income sources are being applied across the entire portfolio. And that is where I feel our superb operating team will make a big difference.

We are making investments right now in sophisticated energy management systems to reduce site operating costs, as well as pursuing revenue through programs, such as the solar program, with three locations online and three others approved.

Being nimble and responding to mix changes will be critical to be successful. A recent ICSC publication pointed out that only about two-thirds of shopping center space consists of pure retail use, and adding on restaurants brings that up to about 79%, leaving about one-fifth of space occupied by nonretail users.

I point that out as service tenants and nontraditional use can be an important part of a successful center. And our tenant relations and portfolio review program will be increasingly focused on franchise service, medical and other nontraditional use to make sure all bases are covered.

On the exit side of the equation the program to dispose of nonstrategic shopping centers has begun to pick up speed. In addition to the 14 properties totaling 1.2 million square feet sold through the first half of the year, as Glenn mentioned, we have another 10 under contract negotiation. And no surprise, the profile of these assets is markedly different than our strategic pool.

The aggregate of assets sold and under contract since we kicked off this process last year has had a composite occupancy of 81%, an average base rent of $8.21, and demographic statistics that are anywhere from 10% to 25% less than the corresponding statistics for the strategic portfolio.

While not an overnight process, I am confident this program has the commitment of the entire Company and will demonstrably change and enhance the quality profile of the portfolio.

There is still a lot of work to do, but interestingly the opportunity to increase earnings and operating cash flow and consequently value, not only comes from executing on the individual asset strategies in our core shopping center assets, but also the dislodging of low-yielding assets on the balance sheet.

Those certain assets accumulated at the last market peak, as well as some of our shopping center assets filled the development cycle, primarily in Mexico, but also a few properties from the vestiges of our former merchant building business.

This opportunity either by increasing the operating yield of certain assets, as well as recycling out of unproductive assets, can be an additional source of earnings growth in the future.

Milton, final comments?

Thanks, Mike. Well, Dave, Glenn and Mike covered a great deal, so I will be very, very brief. When I reflect on the quarter the word that comes to mind is quality -- quality of properties and quality of people. The quality of a shopping center is tied at the hip with the ability of the center to generate a sustained and growing cash flow.

The historic results of our portfolio will probably show a growing same-store NOI from tenant selling essential nondiscretionary items or from tenants that have strong credit and occupy spaces under long-term leases.

The quality of our people is a source of great pride to me. Working with our associates we see their passion for the business. Our regional presidents are solid, energetic entrepreneurs and managers.

Dave, Mike and Glenn have been with Kimco a long time. Dave has been with us for over 11 years. And I had the opportunity to work with Dave for many years before he joined Kimco while we was at GE Capital Real Estate.

Mike has been with us for approximately 14 years, and Glenn for 16 years. You may note that I have been at Kimco for a somewhat longer period. So I am comfortable with the quality of our people and our portfolio, and I know it will result in growing cash flow. Growing cash flow leads to increased share value, and that is why we are here.

With that, we would be delighted to entertain your questions.

The question and answer session will be conducted electronically. (Operator Instructions). Jay Habermann, Goldman Sachs.

It is Jay Habermann here everyone. Just a question on the InTown Suites portfolio -- you mentioned the three potential purchasers at this point -- and EBITDA that is pretty close to where it was going back in time, so I guess at the peak of the cycle. Can you give us some sense of your expectation for the second half of the year?

In terms of the EBITDA or in terms of getting the sale done?

Getting the sale done.

We remain somewhat optimistic. The first round bid, as I mentioned, did not come to that minimum price, but they weren't that far away either. So we are hoping to get one of these three bidders up to that minimum pricing level. And so we are hopeful.

What is particularly encouraging, as I mentioned though, is at the property level it is doing better every single week. And we are, of course, immediately giving that information to these three bidders to try to get them to that price.

So there is no guarantee we will get there, but we're going to be patient about it, and in the meantime the FFO we are throwing off is very impressive.

How close are they at this point to your minimum level?

8%, 9%.

Okay, thank you.

Christy McElroy, UBS.

I just wanted to follow up on Jay's question. To what extent, if at all, have the financing markets impacted demand for in sort of the overall sale process of the InTown portfolio?

And what is your sense for how private market demand for hotel assets have changed over the last three to six months? I am just trying to get a sense for the process and what the biggest challenges have been.

Well, taking your second question first, I think the market for hotels has picked up dramatically. People recognize it as a hard asset that you can reprice every day. And with the hint of inflation down the road, hotels have come into favor, especially when you can buy way below replacement cost. So you are seeing a lot of activity in the hotel sector.

Now, it was driven, in my opinion, first by the opportunity funds rather than the hotel companies themselves, as they look to come in at low prices. But now you're seeing across the board demand.

In terms of the availability of financing, that's also increased, although I will say lenders in general are leery of hotels, and they underwrite very conservatively and they're not going to be aggressive. I doubt this is the place that the CMBS market is going to focus as it comes back. But there is financing available, especially for these stronger companies that are buying hotels.

What gets the bidders to your minimum level? Is it an overall improvement in fundamentals or an incremental improvement in fundamentals, or is it incremental improvement in financing markets?

Probably a combination of both. What we are hoping is they look at this hockey stick trend that we are seeing at the property level, and for the first time in years we have been able to push rate as well as occupancy. So driving that RevPAR now is proven rate demand.

I will just give you -- since we had a couple of questions on InTown, I will give you an interesting anecdote. We are seeing a pickup in demand as AT&T and Verizon spend literally billions of dollars building out their cellular network. So these construction workers that are doing this are staying at InTown Suites and other extended stay facilities for months on end. And this is the type of tenant that we need to be able to drive rates. So it is encouraging.

Thank you.

Jeffrey Donnelly, Wells Fargo.

I guess it is to Glenn and Mike. Concerning your 2011 guidance of 1% to 3% combined portfolio same-store NOI, I think year-to-date you're up just shy of about 2.5%, so what do you see on the horizon that would cause your full-year same-store NOI assumption to come in towards the low end of your NOI guidance?

The only reason why we dialed back and kept that low end is because we have the immediacy of the Borders bankruptcy and liquidation. So in the short term that will take a nick out of occupancy and cash flow.

We are confident that with respect to the Borders locations, which prior to bankruptcy we had 16, that they will be filled in due course. The interest and activity has been quite good. We have been very pleased with the level of interest from various box units the like, but in the short term, Jeff, it may take a little bite out of the range.

Okay.

David Wigginton, DISCERN.

A topic that seems to be gaining momentum and has come up on recent mall conference calls is the demand for space that mall operators are seeing from traditional big-box retailers. I guess to the extent that this is occurring in your markets can you maybe talk about the competition for malls for these types of tenants and what your strategy is in response to that competition? And maybe just provide us with an idea of how big of a potential threat that is to your business in the short to medium term.

We have Rob Nadler, President of our Central Region on the phone. And, Rob, if you could just give a perspective, because your portfolio obviously has many box retailers involved. And just maybe some assessment of what you're seeing in the competitive landscape in terms of malls.

David, I think what is occurring in the mall arena is the lack of development of outdoor retail, strip retail, is forcing the retailers and the boxes to be more adaptable and more flexible than they ever have been before.

Now that is playing out very well for our ability to backfill -- and our success in backfilling our boxes. These guys, I think, will be first to tell you that their preference is still going to be the convenience and the low cost of being outside and not attached to the mall, but I think that they are in some instances being forced, so to speak, to look at the mall as an expansion vehicle with the lack of new construction going on.

But the cost of operating within a strip and power center format is by far the superior way for these guys to continue to look to grow. And as reported earlier, our lease-up of our second-generation boxes has been very brisk over the last 12-month period.

So I think it is more a function -- it is probably happening more outside our core markets, more in the secondary markets than it is in the core markets, because for the most part in the core markets the malls have held up fairly well and don't have the type of vacancy to be able to attract the big boxes.

Thank you.

I would just add one perspective. There is roughly 800 malls in the United States. And depending on how you define the neighborhood and community shopping centers, there is somewhere between 50 and 100,000 the neighborhood and community centers. So it is not -- even if every single mall had the demand it is not going to change the dynamics of our industry.

Okay, thanks.

Craig Schmidt, Bank of America Merrill Lynch.

I was wondering when we think of leasing spreads, especially just your results in the second quarter, do you think they are going to improve going forward from that level, kind of hold at that level, or weaken somewhat in the second half?

I think what we have continued to see is a continued improvement, a forward march from negative territory and starting to get into positive territory. If you look at the new leasing spreads on a full 100% level, we are positive; pro rata, it is slightly negative.

But the point being is we are definitely moving away from a very, very tough environment and we are starting to see continued improvement in terms of renewal and even new leases.

In quarterly reporting there is always going to be those situations where there could be a big tick-up or a big tick-down because of a particular lease. And I am sure with some of the box vacancies, with Borders coming, that not every lease is going to be signed at a higher rent.

But the overall trend, if you map it out from where we were in 2009 to where we are today, I think you are seeing a continued upward momentum. And that trendline, I think, is going to continue, particularly as we get into 2012 and early '13.

That is true for big boxes and [heavy in-line] space?

Clearly for big boxes, and I think that reflects the demand -- the supply/demand imbalances that you just heard from Rob and we have been hearing from many of the strip center operators over the past year.

Small ticket leasing, as we have all talked about, is still tougher, but it more and more is being isolated to certain geographic regions. The last to recover in Kimco, we are seeing some improvement. But parts of Florida are still tough and parts of the West Coast and Vegas are still tough. So it really is a mix equation, but even on the small ticket leasing I think you're starting to see rehabilitation from where we were a year and a half, two years ago.

Thank you.

Paul Morgan, Morgan Stanley.

You guys have been involved in a lot of retailer liquidations one way or the other. I just want to get your thoughts maybe on what you would expect from the Borders lease disposition. And whether you may expect, apart from kind of the direct exposure that you have in your portfolio, whether you may expect a period where there is a pause in the market as retailers look at the opportunities from the 250, 300 or so new full-line stores that are out there and implications for the second half there?

I don't see that the additional vacant space being put on the market from the Borders bankruptcy and liquidation is going to materially change the dynamics that we are experiencing in the marketplace. Many of the same users, the same retailers that we have been talking about [or] that are expanding and are looking for new space are are viewing this as opportunities.

So many of those box retailers that we gave names of during the Linens and Circuit bankruptcies are similarly looking at the Borders boxes. There is even that new contingent -- and I mentioned ULTA Cosmetics as an example, where they may take 10,000 to 20,000 square feet. There are some opportunities for us on single-story Borders through demise -- split the premises and put in two users.

The point being is that I don't think the marketplace is going to be adversely affected or there is going to be any significant change in the dynamics because of this additional space in the Borders bankruptcy. It all still comes down to the better locations and what the relative supply and demand dynamics are in a given market.

I would just add one thing. I think there are some retailers that have been waiting for this to happen, so I think it is something that has been building up for six months. We have had people like Barnes & Noble do one-year extension with us, I think, looking for an opportunity for Borders and things like that. So I think you have already had some buildup in some of these retailers waiting for this to happen, so it should be [profitable].

That comment came from Ray Edwards who runs our Retailer Services business and is well-schooled and well-known in the bankruptcy world.

And one final comment, I think you have seen retailers that now that there are some nice locations coming available taking another look at their expansion plans and increasing those expansion plans. Somebody like Container Corp -- somebody like Container Store is an example of a company that is going to do more this year because of the availability of these prime locations that are coming available. So we don't expect this to be a big overhang on the market.

Do you think you'll end up demising many of yours that are out there?

So far in terms of the relative interest we have seen, no. Just a couple of examples and situations.

Alexander Goldfarb, Sandler O'Neill.

Just a question, with all the recent headlines about private REITs and some of the scrutiny they had been receiving on their valuation metric, I am just curious if you guys see an opportunity to expand more wealth management relationships like the one you have with UBS? Do you think that the transparency that the public REITs provide, you know, provides an opportunity for you to do more UBS-type ventures?

Well, it certainly highlights the attractiveness of doing a programmatic joint venture with a public REIT and an S&P 500 REIT and a blue chip REIT, so we would say, yes, it certainly enhances our ability to grow the investment management business. But as a REIT, we hate to see this publicity that is happening on the private REIT side.

But do you see more wealth management franchises seeking out partners such as yourselves?

Not an immediate demand. As we have mentioned in prior calls, the demand so far has really come from foreign pension funds and foreign insurance companies, as well as domestic institutions like that, and sovereign wealth. We have not seen the private wealth people particularly increase their demand.

It is going to take a lot to wean financial planners that are getting 7% or 8% commission away from that private REIT model, in my opinion.

That doesn't sound surprising. Thank you.

Rich Moore, RBC Capital Markets.

My question is actually a follow-up to that question. Could you give us some color on the overall interest from partners on the equity side of things and how that may have changed in say the past six months? And maybe who some of the most important partners are today in terms of interest in committing new joint venture capital?

Yes, the trend continues in terms of an increasing amount of interest by these life companies and pension funds in getting back into real estate. What has amazed me is how quickly all of them exited two years ago, and how they see the benefit of real estate being a hard asset, being a cash yielding asset that is far better as an alternative than corporate bonds or US treasuries or other things.

We can provide a pretty safe 6% to 7% reasonably leveraged yield for these institutions. So we see it every day in terms of inquiries. Our challenge is finding the products, because pricing has increased to levels where it is difficult for us to justify joining some of these very frenetic bids.

So we are trying to be disciplined, and we are trying to be patient and trying to be very selective in what we buy for our own account and for our institutional partners. But the demand side is strong.

Dave, where would you say geographically that money is coming from. I assume it is international for the most part, but what is the source specifically or maybe broadly of where that is coming from?

Well, in our particular case we have Canadian money, we have Israeli money and we have German money coming through a Swedish bank, SEB. So those are three foreign sources that are active as we speak. I am sure other REITs have other foreign sources. But if you think about it, their currency buys a lot today in terms of US dollar assets. So they are looking at this as a particularly opportune time to buy US real estate, because they can get a lot for their money, and they are still buying at below replacement cost at a time when inflation may be coming back.

Great, thank you.

Cedric Lachance, Green Street Advisors.

Just going back to small shop space for a little bit, Mike, could you give us some details in regards to some of the various drivers on small shops that you are observing? So when you think about demand from the mom-and-pops and demand from national retailers, and perhaps touching a little bit on the financing environment as well for the mom-and-pops.

Well, I think -- to the point, Cedric, is that the mom-and-pops really have not recovered all that much. You are seeing some very slow improvement in some areas, but really that is not where we are seeing the thrust of small store interest. And if you want to say less than 10,000 or less than 5,000 square feet, however you want to play it. Where we are seeing a lot of the interest is from more the national chains, the franchise -- the franchisees, franchisors. Everything from Five Guys Burgers and the auto parts dealerships, et cetera, that are really driving some increased demand for small store available space.

I don't think you're going to see a lot of mom-and-pop robust increase in space demand for -- I think for a period of time. That is the point I was trying to emphasize about the improvement in terms of -- the gradual improvement in small store leasing is really coming from national and regional franchise operators than it is mom-and-pop.

From a rent perspective is this changing the type of rents you are able to change -- to charge if you have more national retailers, or are we still in an environment where it is difficult to gain pricing power on small shop rents?

It is -- of course, it is market and property specific, but because of the relative expansion plans of these smaller users, I would not say that rents are being severely pressured in that regard.

It comes down to what space you're trying to fill -- and the dynamics of filling small store space in a center in Las Vegas versus a center in Long Island are dramatically different. I think that is reflected not only in the occupancy levels but also in the leasing spread level. So it is a bit of a binary situation depending on the market.

That said, overall -- really what I was trying to convey is on an overall basis because of the increase in that relative interest and demand from the smaller national users, I am somewhat optimistic that we, over time, can get that small ticket vacancy up.

Okay, thank you.

Michael Mueller, JPMorgan.

I was wondering if you could talk a little bit more about the difference in the rent spreads on a gross basis and a pro rata basis? I think it was 2.1 or 2.7 versus minus 1. Is there something in there that is a bit of an anomaly or is it a function of you had the process of getting rid of the nonstrategic assets and that is going to help to close the gap or is it something else?

It is purely a mix calculation in terms of where leases were signed and what centers and what our respective ownership interests were. I hate to say it, but it is more math than anything else. And the reason why we wanted to provide -- why we provide gross levels with increasing frequency these days is to give you an overall perspective of where the portfolio dynamics are going. The pro rata information is provided, so you can do your math in your financial model that relates to the effect on Kimco. And that is really it, there is no hidden meaning in those two numbers.

Okay, thank you.

Vincent Chao, Deutsche Bank.

I Just wanted to touch base on the nonstrategic retail sales. It sounds like you've got some stuff that is in the market, and I just wanted to get your commentary on whether or not that increasing interest is translating into better pricing on those types of assets?

I would offer that overall pricing has improved to some extent. I think that is just a reflection to some degree of the market. And that is even starting to open up a little for less than 8 properties. That said, as we have talked about in previous calls, some of the properties that we are looking to exit are structural problems, the [Veer] vacancy, et cetera, and we are looking really and finding per pound buyers. So you really can't apply that broad statement to these very specific issues.

So in general, yes, but I think there are certain situations that are always going to be outside the normal market channel.

Okay, and then just to follow up on A&P. Has there been any final list that has come out of them? I thought they were supposed to make some decisions by the end of this month.

Ray?

A&P has basically got an extension until the end of the year to make decisions on what they're doing. They are striving to reorganize the company. It is really two major things they have to do. One was to get a new supply agreement done with C&S, which they have done. And the second part of it is to negotiate a new agreement with the union, and they are in the midst of doing that.

They are hopeful they will get it done. And with that, they feel they can exit bankruptcy. But it is beyond our (multiple speakers). But, yes, it is still until the end of the year before that will be done.

Nathan Isbee, Stifel Nicolaus.

As you look at the box leases you signed over the last year or so, can you just quantify about how much of those leases and associated NOI have yet to come online? And maybe as an extension, how much will take occupancy in the second half of the year and how much will slide into 2012?

I would -- as a general matter, I'm going to guess half and half between times of signing and when lease rental income starts to flow. And that is just an estimate based on the normal time in terms of turnover of space and tenant spin-out before you go open for business.

Just as a quick follow-up, do you have any data in terms of small shop leases in the centers where you have recently replaced dark boxes versus the rest of the portfolio?

Could you restate the question? I just --.

You have got a big box anchor where it was previously dark, how could that help in small shop tenant leasing?

Oh, absolutely. The question is if we are filling a dark box is it helping small spaces, absolutely.

Do you have any data in terms of differences between those centers where you have replaced versus those that you have not?

Not at my fingertips, no. But just in looking at the small ticket leasing, which if you recall at the end of the year was at 81.6, went down 81.1, and now it is back up to 81.6. A lot of traction that we gained has actually been at those centers where there has been both new openings of mid-box and (inaudible) [box anchors]. I don't have specific statistics, but we know that is where the chronic vacancy was for the most part anyway, so that starts to pick up a little bit. But there is still plenty of room to go.

Okay, thanks.

Quentin Velleley, Citi.

Just going back to the joint ventures, I know in the quarter that BIG did another joint venture asset acquisition with you, and late last year RioCan bought in the US. I'm just curious, could you talk about what you're hearing from RioCan and BIG in terms of their interest in expanding existing joint venture relationships in light of sort of where US asset values have gone?

Well, two very different philosophies, and RioCan can obviously speak for themselves. But their interest is in primarily Texas and the Northeast, that these are two markets that they are focused on growing their investment in the US. They like those markets, and they look for either portfolios or individual transactions where they can grow that footprint.

BIG, an Israeli public company, is more -- has more national scope. And they're probably willing to have just a tad lower quality in exchange for higher yields. RioCan really is focused on very, very high quality stuff, whereas BIG has been a little more flexible in terms of the quality footprint.

But each of the institutional investors we have has a different profile of exactly what they're looking for. Some want leverage; some don't want leverage. Some want certain sections of the country. Some want power centers, some don't. So it is really our job to match the opportunities we have with the right institutional investor, and that is what we have been trying to do. But both of those two in particular continue to aggressively look for acquisitions in the US.

Okay, thank you.

Christy McElroy, UBS.

It is Ross Nussbaum here with Christy. I have a question regarding Borders. Specifically, did you look at bidding on any of the stores? Was there any value to the leases? I remember back to the days of Kmart and Montgomery Ward and just wondering if there is any opportunity here?

Typically with Montgomery Ward and the others there are a lot of (inaudible) properties as well. Borders is strictly leased properties. And typical Borders' lease where landlords put a lot of TI allowance into their coffee shops and things like that, basically drove a pretty high rent that there is not a lot of spread.

Also, what is going to happen here is because of how (inaudible) works, really other than another bookstore that wants to buy this location, a landlord will have a right to say yes or no. So the other users will have some control over who takes our space. It is very narrow who can take a Borders location without having the approval of the landlord to do a deal, unlike the other leases where there are -- any legal use was okay. Here it is very restrictive. But I think some are two story properties and things like that.

So if you are looking to buy the lease, the lease at Borders, you have to think of all those considerations from a purchaser's perspective in having to deal with the landlords and the restrictions thereon. So all of those factors that Ray just mentioned, didn't make it economically viable to do that.

Our history has been driven by buying fee-owned property. So if you look at our opportunistic purchases in Albertsons or Montgomery Ward we were really dealing largely with fees.

Indeed, even a user like Books-A-Million withdrew their bid looking at the complexity.

I appreciate it. Thank you.

Jay Habermann, Goldman Sachs.

I guess I should change my name. Dave, a question for you on Mexico. You sounded much more optimistic, I would say, this quarter versus what we have heard in the past. So can you give us a sense of perhaps timing to stabilize there so achieve the 90%?

A., you are right. I personally am feeling better as we see some small shop leasing activity pickup. That has been the one negative we have been fighting for almost two years now, since Mexico is so tied to the US in terms of the economy while the Walmarts of the world continue to grow rapidly in Mexico. And I think I have mentioned several times they open one store a day in Mexico in many different formats. So while that has gone unabated, the small shop until recently was very slow.

We have our own internal stretch targets about getting to 90%, which is probably within the next 12 months. But more formally I would say realistically 18 months to 24 months away until we get to a full 90% occupancy level.

And what we have been doing, you are seeing some of our official stats weaken in terms of occupancy, because under our rules we add these newly completed properties into the basket, if you will, and these drag down the occupancy, even though our total occupancy for the whole portfolio is now, I think, Glenn, over (multiple speakers).

It is 81%.

81%. So the way some of us are looking at this is we look at all of our shopping centers in Mexico and quarter-by-quarter it continues to climb, and we feel good about that.

And then as I mentioned, we feel very good about the long-term prognosis for Mexico. The economy is doing quite well. Manufacturing activity is strong related to both auto and aerospace. Oil, is obviously a big plus for Mexico. Rising consumer demand. Less than 1,000 shopping centers in Mexico compared to 100,000 in the US and so forth. So all of those stuff bode well for us over time.

And the fact that every single one of our leases has a cost-of-living increase annually in those leases is also helping us long-term as well. And we have gotten the added benefit of the currency lately.

Okay, and then just switching back to the US, maybe for Mike. On the space that has been vacant for more than a year, where are we in that process? Has most of that been addressed at this point or just what remains there?

In terms of releasing space that has been vacant more than a year?

Yes, with the sort of non-same-store space in terms of the leasing stats.

There continues to be certain boxes that have been vacant for many years. I think if you're talking about all space has been more than vacant for more than a year being absorbed, clearly not the case.

Okay, thank you.

Again, if you focus on our bigger space we are 96%, 97% leased. So the bigger boxes are not the challenge for us. The challenge for us is the stuff under 5,000 square feet, and there we are in the low 80%'s and moving upward. And for us we think that is great upside. So the big boxes are not the focus.

I guess, maybe Jay, what is behind your question?

That is what we don't understand. What is behind that?

The portion of leasing essentially that was non-same-store in the most recent quarter, I guess, a sense of how that is going to trend going forward, as you think about the leasing going from here going forward.

I think to Jay's point, there is always going to be some dynamic of that continuing -- that non-same -- that non-comparable space being leased up, but it is really going to have to be in the small ticket arena. Because as Dave just indicated, you're almost at 97% (inaudible).

Thank you.

Samit Parikh, ISI Group.

I had just a question on pricing power in the small shop leasing. Looking at your supplemental right now, sort of, I guess, the new leases signed this quarter look like they're mostly small shops signed in the mid-15s. On your lease expiration schedule the small shop leases expiring next year are around $20 a foot. How comparable is that space? Essentially is it apples-to-apples? And if that is the case, are you guys sort of that far away from where the market is of your expiring small shop leases?

It is not apples-to-apples, that is the issue, because you're just dealing with a different inventory. Because national you're going to have different locations maturing at different times and that will change the mix.

However, we still know that the small ticket leasing is still more pressured relative to the big box in terms of leasing spread. And depending on the market you could be down -- you could still be down 10% plus in certain areas of the country on leasing spreads for the small ticket.

Then just last question, for the remainder of the year what is baked into your guidance for occupancy for NOI loss from Blockbuster and Borders?

The total NOI is -- or rent is actually 0.2% of our total rents on an annual basis. So the effect is going to be really de minimis. And we took it out for planning purposes.

And that is Borders. What about Blockbuster?

Same thing.

Okay, thanks a lot.

Jeffrey Donnelly, Wells Fargo.

Just tafollow-up on a modeling question. I guess two parts. The marketable securities portfolio was significantly cut back in the quarter. Is that a one-way change for you guys?

And I guess as a follow-up, can you talk about the interest dividends and other income line in the back half of the year? Because in Q2 there was sort of a $10 million nonrecurring pop, but I am wondering if, given the light of the direction of that securities portfolio, should we expect that will be meaningfully cutback in the back half of the year?

Well, the marketable securities, the size of the portfolio is only about $40 million today. The biggest item, obviously, was the Valad convertible note, which is gone. And we had, obviously -- in our original guidance we weren't planning to sell that until sometime actually having matured back in 2013. So, as I mentioned in the guidance, we had to take that into account.

But in terms of where we are, there is a small amount of securities that is left. So we don't plan to grow that at all. As a matter of fact, you will actually see it continue to decrease as we go further in the year. As another bond matures later in the year that will get paid off.

And in terms of the interest dividends and other investment income, there is a little bit of a pop this quarter from the distribution received on a private equity investment where we had virtually no basis. So that is part of the nonrecurring flows that we pulled out anyway. So you will see that number come down a little bit.

Okay, that is helpful. Thank you.

That does conclude today's conference call. At this time I will turn the conference back to our host.

Thanks, Felicia. A final reminder, our supplemental is posted on our website at www.KimcoRealty.com. Thanks for participating today.

That concludes our call. Thank you for your participation.