Kimco Realty Corp (KIM) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Kimco's third-quarter earnings conference call. Please be aware today's conference is being recorded. As a reminder, all lines are muted to prevent background noise. After the speakers' remarks there will be a formal question-and-answer session. (Operator Instructions)

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

Thank you all for joining the third-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 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 SEC's -- in the 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 them.

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

Good morning, and thanks for calling in today. We are very pleased with our third-quarter results and we believe that they represent continued solid and steady progress across the board on our key goals and objectives.

With an uncertain and soft economic environment, we are happy to have focused the past two years on strengthening our balance sheet, selling numerous lower-quality and nonstrategic shopping centers, and reducing our non-retail portfolio by more than 50%, from $1.2 billion in early 2009 to $564 million today. We believe that this number will be under $500 million by year-end, representing only 4.5% of our assets.

While our InTown portfolio continues to be evaluated by at least two potential buyers, it is fair to say that there is no imminent sale transaction to report, even though the properties continued to perform very well with FFO returns exceeding 20%. We thank Scott Griffith, CEO of InTown, and his team for their continued hard work and strong results.

For those that recently read The Wall Street Journal article about our dispositions of mixed-use urban assets, I would like to put in a good word and clarifying comment for our New York City redevelopment partner, Beck Street Capital.

Since our joint venture was formed in 2003 we have had great success with Beck Street Capital. Together we have acquired, renovated and repositioned 10 buildings in Manhattan, which generally can be characterized as street-level retail properties, with apartments or office on the upper floors. To date we have sold eight of the 10 buildings, most recently 82 Christopher Street this quarter, all at significant gains.

The remaining two New York City buildings are also high-quality, well-located properties which will be sold upon completion of planned renovations and rezoning initiatives.

Despite the weak figures for employment, housing and consumer sentiment, consumer spending and retail sales remain solid with good back-to-school numbers, and most experts expecting holiday sales to be up 2% to 3%, helped by an extra shopping day this year.

Discounters like Marshalls, Ross Stores, Bed Bath, PETCO, etc., are all doing especially well and expanding aggressively. With virtually no new development in our sector, population growth and positive GDP, retailers are taking second looks at existing vacancies and being more aggressive on effective rents.

Despite the Borders and A&P bankruptcies, our portfolio metrics, or as we like to say, vital signs, continued to improve under Mike Pappagallo's leadership, and he will provide further details in a moment.

Overall, we had a very good, strong quarter, highlighted by Glenn Cohen's successful closing of our new four-year $1.75 billion line of credit provided by 28 individual banks.

With respect to new business, subsequent to June 30 we acquired six shopping centers totaling $117 million and comprising approximately 730,000 square feet. Details are contained in our earnings release, but I do want to emphasize that we continue to be very selective, careful and cautious on the acquisition front.

Internationally, Canada continues to deliver with 97% portfolio occupancy and continued expansion activity from both Canadian and US retailers. Marshalls opened a sixth location in Toronto and continues to negotiate new deals, including one for a new building in our large development project in Montreal.

The Target acquisition of 220 Zellers leases in Canada is particularly exciting and transformational. Of Kimco's 15 Zellers leases, nine locations will become new Target stores, one will be a new Wal-Mart, and one a new Sobeys grocery store, and four will remain Zellers for the time being. The first Target in Canada is expected to open in January of 2013 and smaller retailers are anxious to locate near the new Target stores.

In Mexico, GDP grew by 3.9% in the first half of 2011 and the economy is expected to remain strong in the second half as well. Same-store sales generally are up 4.2% through July, with clothing and shoe sales up 8%. Both US and Mexican retailers are again expanding aggressively, including Wal-Mart, Home Depot, Office Depot, Bed Bath & Beyond, Chedraui, Coppel and Cinepolis.

During the quarter our total occupancy of the portfolio, including development assets, reached 82%. At the risk of stating it too many times, every lease, including the anchor tenants, contained full annual cost of living escalators, and many leases have percentage rent provisions, all of which should serve us well in future years.

I would like to close by mentioning that this afternoon Kimco will celebrate its 20th anniversary as a public company by ringing the closing bell at the New York Stock Exchange. It is a wonderful milestone for all of us at Kimco, and we are particularly indebted to Milton and Marty Kimmel for blazing the trail 20 years ago as the first IPO of the modern REIT era.

Now I would like to turn to Glenn to discuss the financial details of our third quarter to be followed by Mike and then Milton.

Thanks, Dave. Good morning. It's been a little over a year since our investor day where we outlined the strategy which would focus on the ownership and operation of shopping centers, the value creation and continued lease-up of our identified strategic shopping center portfolio, and the growth in their recurring operating cash flows.

As part of our strategy, we are committed to recycling capital from sales of retail assets deemed nonstrategic and monetizing the non-retail assets while strengthening our balance sheet metrics. Our third-quarter results demonstrate significant progress toward our stated objectives.

Third-quarter recurring FFO per share was $0.30 compared to $0.28 last year, a 7.1% per-share increase. Our recurring FFO included positive NOI growth of $6.8 million or 4.6% from the shopping center portfolio. About 40% of the growth is organic with the continued lease-up of our Latin America portfolio and further positive performance in the US portfolio.

This is evidenced by the positive operating vital signs of 3.3% combined same-site NOI growth, which includes US, Canada and Latin America, and represents our sixth consecutive positive quarter for this metric. Combined gross occupancy at 93% and positive leasing spreads of 2.7% from the new leases, renewals and options. The balance of the growth is from acquisition activity.

The recurring $0.30 level excludes $12 million of nonrecurring income and $7.5 million of non-cash impairment charges. The nonrecurring income is attributable to another distribution from our Albertsons investment, participation income from disposition of several preferred equity investments, and one urban asset. The non-cash impairments are transaction oriented, related primarily to the sale or pending sale of certain nonstrategic assets. As such, headline FFO per share came in at $0.31 compared to $0.27 per share last year.

Based on our nine-month results of recurring FFO per share of $0.90 we have tightened our guidance range for recurring FFO per share from $1.17 to $1.21 to $1.19 to $1.20. As a reminder, this guidance range does not include non-cash impairments or nonrecurring income.

It was definitely a productive quarter for us. We sold 10 nonstrategic operating properties this quarter which produced gains of $6.4 million, which as we all know are not included in FFO. We have sold 33 assets since we announced this program for total proceeds of $134 million. We have another six under contract and are evaluating offers on 21 other properties, which could provide proceeds in excess of $200 million if all the transactions were completed.

We continue to make progress on the monetization of the non-retail assets. We sold about $35 million this quarter, reducing the remaining balance to $564 million, and we expect to monetize another $75 million before our next conference call in February bringing the total reduction to over $300 million since the beginning of the year, which is well ahead of our plan even without the sale of InTown this year.

It should be noted that the assets sold during 2011 produced a net gain of $9 million, and we will continue to use a measured approach to maximize the value of the remaining non-retail assets.

Proceeds from the disposition of assets have been redeployed by acquiring shopping center assets in the key markets we have targeted. We have purchased six assets since the end of the second quarter for $117 million.

Our balance sheet metrics continue to improve and our liquidity position is very strong. We ended the quarter with net debt to recurring EBITDA at 6 times, a level we expected to achieve by the end of 2012. We began the year at 6.3 times.

Our total consolidated debt level is under $4 billion at the end of the third quarter, and our consolidated debt maturities are very manageable with only $385 million due in 2012 and $650 million due in 2013. Our access to capital remains strong with an investment grade rating of BBB+ and a stable outlook.

As we announced last week, we completed a new $1.75 billion unsecured revolving credit facility supported by commitments from 28 banks. We were very pleased by the support and interest we received during the syndication process, obtaining commitments of over $2.8 billion. The term is four years with a one-year extension option at the Company's election with a final maturity in October of 2016. Borrowings on the new facility are priced at LIBOR plus 105, one of the lowest spreads in the REIT industry.

The facility replaced both our US facility and our Canadian facility, which was scheduled to mature during 2012.

Looking forward, although we have not finalized our detailed property-by-property budget process, we are providing initial guidance for 2012 (technical difficulty) per share of $1.22 to $1.26. This guidance range is based solely on recurring flows and does not include any transaction income or impairments.

Using the midpoint of the 2012 guidance range yields an increase in recurring FFO per share of about 4%. The range is dependent on the timing of certain non-retail dispositions, including InTown Suites, the timing of acquisitions and dispositions, and foreign currency exchange rates.

Our initial capital plan for 2012 requires no new equity as we expect to continue our capital recycling program. We will provide more specific assumptions on the next conference call.

As a result of our 2011 performance and expectations for 2012, our Board of Directors has approved an increase in the quarterly cash dividend of $0.01 to $0.19 per quarter, a 5.6% increase on an annualized basis. Our FFO payout ratio will remain conservative at a level of just over 60%.

And with that I will turn it over to Mike.

Thank you, Glenn. Good morning, everyone. The US shopping center portfolio posted up solid operating metrics once again this quarter with positive same-store NOIs, positive leasing spreads, and a 20 basis point increase in pro rata occupancy over the prior quarter.

On a gross basis, occupancy has climbed 50 basis points since last year's third quarter, even after the effects of the Borders and A&P Supermarket bankruptcies that nicked about 40 basis points off the current 92.9% level.

That said, we have already made excellent progress with respect to the over 550,000 square feet of vacant space left by the Borders and A&P situation. Of the 19 boxes vacated we currently have new leases signed for three locations, are negotiating leases for 13, shooting for eight of those to be signed by the end of the year, leaving three sites without significant activity.

Some of the new users and potential users are familiar names, including Ross Stores, Ulta cosmetics, TJX Companies and Michaels. The national chains continue to be the driver of the positive absorption in the portfolio. For the first nine months of the year we signed almost 900,000 square feet of leases with the national retailers that are listed on our top 50 tenant list.

The steady drumbeat of activity with national retailers experienced this year and last we feel is more reflective of the mindset and perspective of those resellers, despite the uncertain economy. Call it sensible and strategic growth. It is in stark contrast to the alternating panic and euphoria exhibited by the financial press and the stock market in reaction to every morsel of economic data. As Dave mentioned, we expect a decent holiday season on the heels of the best back-to-school season since 2007.

But the absence of fear will not cause us to become complacent. Consumer spending, while improving, has gained from the trade-off from savings, not growth in disposable income. Comp sales numbers across the spectrum have been uneven. There'll always be store closings, retrenchment of retailer business models, and particularly with the advance of e-commerce, changes in space needs and footprint.

The most recent announcement from The Gap is illustrative of those situations taking place. For Kimco we do not expect to be impacted much as most of our locations are the Old Navy banner with spaces in the 15,000 to 18,000 square foot range, with many lease maturities three to 10 years out.

We believe strongly that the best way to be successful in this environment is to continue with the program we laid out to investors a year ago at the investor day. As part of that program recycling of assets for which Glenn has provided you with the statistics.

We are also focused on value creation through redevelopment, out parcel leasing and smaller scale space reconfiguration and re-tenanting in our core strategic portfolio. It seems that redevelopment opportunities are on every REIT management's minds these days. And that is no surprise as returns are generally much better than the returns available in the acquisition market.

We have been carrying about $100 million to $150 million worth of active projects at any given time over the past two years, but the longer-range pipeline continues to grow. We currently have about 10 projects in the design and entitlement phase with another 30 under evaluation. Not all of those pan out, but it underscores the focus and energy in maximizing value being given in this area.

Dave provided some commentary on our non-US businesses. Allow me to add an additional perspective.

In Latin America our team is well on the way to achieving its new leasing target of 700,000 square feet for the current fiscal year. The overall occupancy level of all of our projects, including those not yet stabilized, has steadily increased from 74% at the beginning of 2010 to just under 82% mentioned earlier.

We are aggressively targeting 90% by the end of 2012, and positive signs abound to help us get there, including increased interest from key Mexico retailers, including Liverpool and Palacio de Hierro. We will also start to generate cash flow very soon from our Vina del Mar development in Chile with Wal-Mart's [leader] format and Sodimac opening soon.

Canada continues to be the pillar of strength in the portfolio -- 97% occupancy levels and 11% combined positive leasing spread over the past 12 months, and over 5% same-store NOI growth even without the effect of the strong Canadian dollar, which in turn underscores the relative attractiveness of the economy.

In the third quarter our Canadian shopping center investments generated about 9% of our pro rata NOI. We would like it to be higher, although acquisitions are hard to come by. So we continue to explore the possibilities of converting some of our remaining preferred equity investments into pari passu joint ventures and obtain larger economic positions in those assets.

Over the past 12 months the combined contribution of our Latin America and Canadian investments have ranged between 15% to 18% of NOI. We would expect that contribution to continue to increase, particularly as more of the Mexico developments reach stabilization. That international component of our shopping center portfolio is one that we feel will be an ongoing source of core growth and will serve as a hedge against the uncertainties in the US economy.

With that I will turn it over to Milton.

Thanks, Mike. Our strategy is to be the premier owner and manager of retail properties and to continue to seize opportunities relating to retail real estate. And we have a long track record in this activity going back to Ames stores, Franks Nurseries, Venture Stores, Montgomery Ward, Strawbridge & Clothier, and most recently Albertson.

Thus far we have received cash proceeds of 5 times our original investment in Albertsons, and there is more to come. In reviewing our large and diversified portfolio I believe that we are relatively well-positioned to face any economic headwinds. We are Home Depot's largest landlord with 45 locations, and principally they are a ground lessee where they have invested in the buildings and we have leased the land to them.

We are the largest landlord of Costco, where consumers are buying more and more. We have over 140 TJX stores and 71 Ross stores, off-price retailers that are benefiting by the value-seeking consumer. By the way, last night Costco, Ross stores and TJX reported excellent same-store sales.

I take comfort that our contract rents are below market in many instances. My own view is that if you own real estate and it is leased at market or below you are in the real estate business. To the extent that rents are above market, you are in the mezzanine lending business. We like the real estate business better.

The investor is looking for safety and yield and the demand to own hard assets in the United States is such that in my opinion cap rates will decline.

Now this November is the 20th anniversary of our IPO, but in fact, we have been active in retail real estate for 30 years before that. We have been through many cycles and changes in the marketplace, and it is interesting to look back and reflect on our performance compared to other asset classes.

A recent analysis showed that bonds returned 6.1% from 1991 to 2010 on an annualized basis. Gold had annual returns of 7.2% in the same period; the S&P 500 7.7% and oil 8%. The REIT index was up 10.5% annually.

And I am proud and pleased that since our IPO in November 1991 our annualized total return has been approximately 13%. We will work hard to continue to outperform. We have a great team that is committed to executing our strategy.

So I thank you and we are delighted to answer any questions you may have.

As Mr. Cooper said, we are ready for the Q&A portion of the call.

(Operator Instructions) Steve Sakwa, ISI Group.

Glenn, I was wondering if you could just give us a little more detail. The same-store NOI number trended down a little bit this quarter. I realize it can fluctuate quarter to quarter, but I also know that there was some bad debt that might have played a role in that. Could you just maybe give us a little more detail on the same-store?

And also, we noticed that the straight line receivable number came down by a couple million dollars, and I'm just wondering if there is anything that you guys are doing differently as you reserve for tenants.

Steve, can I take that one? It is the last bastion of financial data that I have on same-store NOI. So, yes, this quarter was affected to a slight degree by the Borders and A&P bankruptcies from a marginal effect.

The straight line rent receivable was really more the consequence of some of the sales that we had in the quarter. So those really are the two drivers.

Bad debt, again a marginal improvement year-over-year and that is reflective of really where the economy and our experience has been. But as you know, historically, we have always had a very conservative posture on the development and establishment of reserves, so we are not going to have any really wild fluctuations in our bad debt from period to period.

We also had a pretty good comp when you look at last year. So you put all those factors together those were really the drivers. There were a lot of small things with respect to the same-store NOI changes quarter-over-quarter, nothing that is of any headline note.

Our same-store is on a cash basis, so we don't include any of it in GAAP.

That help?

Nathan Isbee, Stifel Nicolaus.

Just, David, can you just talk about how the hotel portfolio has performed over the last three months and what your expectations for NOI are in 2012? I know it is a little early yet, but broadly if you can talk about the trends there.

The trends continue to be very strong, including the last three months. RevPAR continues to increase high single-digits year-over-year and we believe 2012 the EBITDA will be back to the levels it was right before we bought it. So we still feel very good about what is going on at InTown Suites.

And I will take a minute just to remind everybody it is roughly 1% of our assets. It is performing very well. We have a great management team headquartered in Atlanta. And we are confident that we will sell this portfolio to the right buyer at the right time.

Okay, and then just one quick follow-up. On the acquisitions this quarter there was two JVs -- where you bought out your JV partner, one in Corpus Christi, one in Pensacola. Are those assets that you just bought for your portfolio just positioning them better for sale, given that they are not in that top 20 MSA that you have been targeting?

Yes, in one case we actually bought the underlying fee for the leasehold position of the property that we've had for many, many years. In the other case it was part of the portfolio -- larger portfolio and Albertsons, they also owned some third-party real estate. We had owned a part of it. We had managed it previously, so we found an opportunity that made sense. So we already had an economic interest in both of those assets, but previously.

All right, thanks.

Christy McElroy, UBS.

Mike, just going back to your comments about the decline in personal savings helping to fuel consumer spending, is this something that worries you going into 2012 as being an unsustainable trend? Is it something that retailers are talking about at all?

And if we do sort of hit a breaking point and see a pullback in spending patterns, how quickly do you think retailers could pull back on new store opening plans? So, basically, how sensitive are they to changes and trends this time around?

Well, first, you know that I worry about everything so one among thousands of things. But, yes, it is concerning. I think behind some of the comments that we made is that we continue to look around the corner. We are worried about the sustainability of the recovery; the fact that there really isn't a lot of true wage and income growth.

Now as that translates into some retailer plans, the other point I tried to make was that their growth again is being what I would call strategic. It is very smart. They are not opening stores just to make numbers. They are very cognizant that spending patterns can change.

That is why, at least in our portfolio, you were seeing much of the growth coming from the value -- to the value conscious shopper. We are looking at our tenant base who is appealing to that value conscious shopper. And in some cases, it is about existing strong retailers who are trying to capitalize on existing markets or enter new markets where others may have fallen apart.

So I don't think you're going to see the retailers stop on a dime if there some downdrafts with respect to consumer spending. They have factored that into their plans, and I think they're being very careful in terms of how they approach footprint growth and new store openings. Milton?

I just wanted to add one thing. Our population grows by 3 million people a year, so close your eyes and visualize a city with no retail of 3 million people. And, also, visualize that there are no new malls being built. So where does that growth have to come from? Retailers in the non-mall sector. So you are bound to have enough growth just from that sector so I think we will see growth.

I will just add one more too. The national retailers that we talk to, they plan their store count many years in advance. They allocate their capital budgeting many years in advance. There is a momentum to the store expansion plans that are pretty locked in. We see no evidence of any pullback at this point.

And as Mike points out, many of the retailers in our portfolio are these very strong discounters that are growing by 100 stores a year well into the future.

Thanks, guys.

Jay Habermann, Goldman Sachs.

Dave, you mentioned being somewhat cautious on acquisitions and clearly cap rates are still tight. Can you give us some update in terms of what you are seeing, I guess, in core retail for the core versus the value-add and maybe difference in pricing that has transpired in the last couple of months?

There really is a big difference between very high quality shopping centers in what they call either gateway or prime markets and just about everything else. For those very strong core properties in these primary markets cap rates have dropped down below 6% -- it is really quite amazing -- and continues to be very strong demand.

For other centers, even if they are good properties in secondary locations, cap rates are a good 100 basis points higher I would say. And there continues to be a lot less demand for secondary markets and any assets that are considered a B asset.

Quentin Velleley, Citi.

It is Michael Bilerman speaking. And I could have told you long before you made the investment that Canada was going to be the pillar of strength of the portfolio. (laughter)

Of course, that is why we went there.

Of course. Just a question, as you think about growth going forward, M&A and obviously the buyout of retailers for real estate has been a good contributing factor to Kimco's growth over the last couple of decades. How much do you see that playing a part as we move forward in consolidation, both on the REIT M&A front but also on the retailer front?

Well, we continue to explore opportunities. Both are tough in this environment. M&A pricing is difficult. As Milton has pointed out over the years, you end up paying for their investment bankers, their lawyers, your bankers; the shareholders want a premium and all that.

And many of these M&A targets have made it through this great recession, if you will. They have solved their liquidity. There is no urgency or pressure of them to sell the company. So there is not a lot of opportunities on the surface, although we continue to evaluate them as they come up.

In terms of retailers, which is, you are right, a core strength of Kimco, we continue to look at opportunities. These things come in very lumpy, if you will -- Albertsons and Montgomery Wards -- and they are generally big deals and they are difficult to predict.

Also the number of retailers that actually own their own real estate is a diminishing number. Many retailers are solely leases, and it is much more difficult to find value creation opportunities in a portfolio of leases than it is owned stores, like we were able to do in Albertsons.

To finish that thought, that is why, although we can't predict that future, one school of thought is it is less about M&A and accumulation of assets which need to be carefully considered in a future environment where e-commerce becomes more prevalent and maybe in our case more about diversity through international growth, continue to utilize the investment management model to gain better returns on existing US real estate, and, again, focusing on those top few hundred properties that have the most organic growth. I think as we look at it today that is basically the recipe book for us as opposed to massive accumulation of disparate group of assets.

Right, that is helpful. Then maybe just as a follow-up for Glenn. You talked about guidance for next year being preliminary, but you mentioned the sale of non-retail and potentially InTown Suites and acquisitions and dispositions and FX having an effect on the numbers.

Maybe you can just broadly outline -- obviously with InTown Suites being a 12% FFO yield those things could be dilutive. So I'm just trying to understand what is sort of baked into this $1.22 to $1.26 related to those activities that you mentioned in your opening comments.

Sure, no problem. By the way, InTown Suites is a 20% FFO yield, not a 12% FFO yield. So to your point, it will have an impact when it does get sold and we have part of its preliminary budget assume that it would get sold by the end of the second quarter. So it has -- that is part of why we have the variance in the range.

We put in some preliminary numbers, such as monetizing roughly $200 million of the non-retail assets, and they are earning assets so they have an impact. We continue, again, the recycling program, so we have estimated around $150 million of further sales. So the timing of those acquisitions and then the dispositions, they're going to come into play.

I think the biggest driver, when we look at it is what we expect to happen on our total retail shopping center portfolio. There we see somewhere between 3% and 5% growth. And it is really going to come from the upside of leases that we have signed that haven't come on board, the continued lease-up of Mexico. So we feel pretty good about where that is going to go.

However, I will tell you we have not finished all of our detailed property-by-property budgets, and that is where we will be able to give a better indication about what same-site NOI growth will be and where we really expect occupancy to be. However, we do feel that they will be positive.

Right, and then so absent the sales FFO would be higher?

Correct, yes.

Okay, thank you.

Paul Morgan, Morgan Stanley.

Just to follow up, I guess, you say you haven't done the bottom up to get to same-store NOI, but that said, is there anything that you see from the non-US portfolio that would lead you to think that it won't be driving the combined same-store numbers up meaningfully again? Obviously it is double once you include Canada and LatAm in there. Is that looking good as well on a preliminary basis for next year?

On a preliminary basis, again, it does look good. However, we have to be cautious somewhat about where currency impacts are. The Mexican peso has vacillated quite a bit during the year and it does have impact on those earnings. But overall we do expect continued lease-up, significant lease-up in the Latin America portfolio.

Mike had mentioned the coming online of a large Chile project. So those are built-in already. But, again, we still need all the bottom line property-by-property details to really give a fair estimation of where we think occupancy and same-store NOI growth would come from.

Okay, then just a quick follow-up. I think you mentioned -- I heard you say that you are working on another 30 or so projects in terms of redevelopment, is that right?

Yes, the 30 are things that we have on the drawing board currently under evaluation, and it cuts across the entire US portfolio.

Is there any way you could characterize it? What a total investment would be or are these anchor additions or anything more substantive as a rule?

If you wanted a preliminary number, the combination of everything that we have in the pipeline, including those various phases, whether it is entitlement, under evaluation, active, and as we think about redevelopment as well as complex leasing strategies and out parcels, probably the total tab is about $300 million plus. But, again, I caution about saying that is the number because some of these deals -- some of these concepts will fall by the wayside and replaced by others.

But hopefully that will just give you a perspective of at any one point in time what our regional leadership is looking at in terms of value creation and footprint additions.

That is great. Thanks.

Rich Moore, RBC Capital Markets.

With more properties coming into the Mexico portfolio, and obviously that expanding, but then some of the metrics it looked like in the quarter maybe leasing spreads, a couple of others, were not as strong. I'm wondering what you are thinking, what your expectations are for NOI pickup in that portfolio, and whether you see the same enthusiasm from retailers -- US retailers, I guess -- for Mexican assets.

What I would say in terms of those leasing spreads metrics, you're dealing with a very small -- a finite population, and in certain of the centers has been influenced by competitive factors at certain of those locations. So we won't shy away from the fact that for a subset of the Mexico portfolio that comparable spread positions are lower.

But in the broader context there is a significant amount of the Mexico NOI is coming from in effect first-generation space. Still we feel comfortable that the absolute numbers will increase according to our plan.

I will let Dave answer, but I still see no diminution in the interest of both US and Mexico retailers to invest in these locations.

As the number one champion of Mexico around the table here, I can tell you we still feel very, very strong about what is going on in Mexico. If anything, retailer interest is accelerating. We recently talked to Bed Bath & Beyond; they are year jumping in with both feet in Mexico. Wal-Mart continues -- I mentioned this before -- to open one store a day in Mexico. Home Depot, we just did another Home Depot deal in Mexico.

And you have the Mexican retailers now accelerating their expansion plans. Chedraui is a grocer that is well-capitalized and expanding greatly. The economy is strong underneath that, as I mentioned, so if anything, we see some momentum in Mexico coming out of the recession, notwithstanding the headlines, border violence and things like that.

The basic case for Mexico remains strong. There is only 1,000 shopping centers in Mexico for 100 million people versus 100,000 shopping centers in the US for 300 million people. So it is a very different situation down there and over time it should help us.

And we are able to get leases we cannot get in the US with percentage rents, with cost-of-living escalators and things like that. So we still feel very good. And we believe it will drop a fair amount of income -- incremental income into our earnings next year.

I think the thing to remember about the metrics in Mexico is that the leasing structure really -- a really small number of leases, really small square footage that only lasts two to three years. So they are experiencing a small negative. What we don't put into the Mexico spread numbers, just like Dave mentioned, is things like all of the cost of living increases annually on all the anchor tenants. So it is a little bit of a misleader when you look at the leasing spreads in Mexico.

Okay, great. Thank you guys.

Alex Goldfarb, Sandler O'Neill.

Dave, just a question for you. You have been quite active and vocal on the Internet tax. Just curious, just given the law of unintended consequences and regulations that Washington has put out that end up affecting business in ways that had not been foreseen, is there a concern that by advocating sort of a national tax or that Internet people pay tax that somehow there is some unintended consequence and that it hurts retail as opposed to helping it?

Well, let's clarify. Nobody is advocating a national sales tax. This is a sales -- a state sales collections issue.

Right, right.

So there are 44 some states that have a state sales tax. All we are advocating, and I'm particularly vocal because I am serving one year as Chairman of the ICSC, is for a basic level playing field out there. It is blatantly unfair that our tenants that pay us rent and pay real estate taxes have to collect state sales taxes and the Amazons of the world do not. And it has a significant impact. In some states it is 9.4% in terms of the state sales tax.

University of Tennessee has a great study out showing that states are going to miss out on some $23 billion of sales tax revenue because of the growing online sales where they do not collect taxes.

So in my mind it is a fairness issue. It is a tax revenue issue for the state at a time when most of these states are under pressure. And, quite frankly, it is also a jobs issue.

For every $1 million of incremental sales from a brick-and-mortar retailer it adds roughly four jobs to the economy. For every $1 million of Internet sales it is less than one job. So it is a big difference and worth the good fight.

Now there is three different bills in Congress, two in the Senate and one in the House, so this thing is gaining momentum. But it has nothing to do with a national sales tax. It simply will empower the states to force the online retailers to collect the sales taxes that are already due and payable by people.

When people buy books from Amazon and Amazon does not collect the tax, they are still required under state laws to pay the tax; they just don't. And technically, if they get audited they are forced to pay penalties and interest. It is pretty clear to me and most of us in the shopping center business that this thing should be corrected.

I didn't mean to say national sales tax. I meant just making -- imposing or mandating that the Internet folks collect tax and I appreciate that I think you said small business would be exempted. But it seems like retailers are increasingly coordinating their strategy so that bricks-and-mortar and online works together so that people can shop one place, pickup at another, or return at bricks-and-mortar.

So it almost seems like just naturally the bricks-and-mortar guys have a clear leg up, because they can offer full service whereas the Internet only don't have that advantage. So that is why I'm surprised that they would be losing sales as opposed to gaining.

I think you're right. Over time it will all merge, including the fact that Amazon will be forced to collect state sales tax. And you may see Amazon open bricks-and-mortar stores themselves as they try to take advantage of a dual strategy.

Just look at Apple's success with their stores. They used to sell almost everything online. They now have huge success by going to the brick-and-mortar stores.

Thank you.

(Operator Instructions) Cedrik Lachance, Green Street Advisors.

When you talk about small shop leasing nowadays, I think the national tenants are mentioned more often than not. Is it where you spend the bulk of your time trying to court national tenants to go into small shops or do you still spend a fair amount of your time trying to find mom-and-pop retailers to fill small shop space?

The level of effort and energy is dedicated to both; it is just how you approach it. Our Regional Presidents and their teams have very strong and deep relationships with the national retailers. So I will use the word easy, but the ability for us to make deals, resolve problems, understand their growth plans and get things done is really -- starts at a very high level and is very efficient.

The majority of our leasing teams, though, are focusing both directly and through local brokerage -- the local brokerage community to emphasize and focus on the small stores, the mom-and-pops, the smaller national franchisees, etc., to try and solicit and to make some headway in the small store category.

So clearly, we are not biased one way or the other. It is just the realities of the marketplace that it is tougher in this economy and in this environment. We gained a lot of traction, particularly in the mom-and-pop, so that is why a lot of our strategy and the bottoms up assessment of what properties have longer-term staying power versus those that do not.

And I think if one looks into our nonstrategic shopping centers -- I don't have the information at my fingertips -- but you probably see that the small store occupancy is even lower than the 81.X% that we record on an overall basis. So that is the consideration as well in terms of which properties we keep versus which properties we ultimately want to exit.

And staying on the mom-and-pop theme there, Mike, when you think about the appetite for new space on the part of mom-and-pop retailers now versus perhaps a year ago, how would you gauge the difference in their perception and their desire to increase their footprint?

Actually, I have Paul Puma here with us, who is the President of our Southeast and Florida region. When I say Florida, you certainly know he is on the front and center in terms of small store activity. So, Paul, perhaps you could answer Cedrik's question.

I would be happy to. Thank you, Mike. I think the answer to that question is it's improving and I will just use Florida as an example. I think that the glut of tenant vacates and move-outs and requests for rent reductions are not as significant today as they were a year ago. So I think we are seeing slow growth in many of our markets, consistent growth, stabilization of rents and an improvement in occupancy.

Great. Thank you.

Jeffrey Donnelly, Wells Fargo.

I guess maybe to build a little bit on Alex's question, Dave, I know percentage rents aren't a material part of your story per se, but I am curious how do you think lease clauses pertaining to percentage rents morph over time in the retail industry to address the reality that consumers are changing how they buy and return goods and they could purchase online, but return in your stores.

And, similarly, retailers really seem to be more focused than ever on margin rather than unit growth and store sales. I am just wondering if you think that percentage rent clauses historically distribute on unit level sales might not really capture what is going on in the store anymore.

Well, let me take a stab at this. In the neighborhood and community shopping center business there are not a lot of leases with percentage rents. We are just very different than the mall guys -- I think in the US less than 1%?

It is less than 1%.

Less than 1% in the US. We just happen to be getting it in Mexico because we are early and we have a little bit of pricing power. I expect over time we will not be able to negotiate for percentage rent.

As an example, we have some older Wal-Mart leases that we first did in Mexico where we were able to negotiate for percentage rent. Our new Wal-Mart leases we do not get the percentage rent. So I suspect the percentage of leases that we are able to negotiate for percentage rent will gradually decline in Latin America and will remain very, very small in the US.

So for our particular business, neighborhood and community shopping centers, we don't see it as a significant factor in terms of our revenues. In terms of the complexity for mall landlords, they are already fighting this battle about not being paid percentage rents for sales that are in direct -- indirectly done in their stores, because these stores are used as return vehicles for things purchased on the Internet and exchanges. So it becomes very complicated.

I think if you talk to Bobby Taubman or Billy or David Simon they can go into it a lot more. But it is a growing issue for the mall issues on exactly how they can collect their percentage rent from mall tenants.

I will just add one quick thing, Jeff, that on the ground in terms of day-to-day lease negotiations, to Dave's point, percentage rents are never that big a deal or percentage rent clauses.

What we find from time to time, though, as we are negotiating with a retailer -- arm wrestling in terms of the rent -- if we are settling on a rent that we think is below market, what we believe, in the center, then we will introduce the percentage clause if the retailer does prevail in their projected sales level. So that we see more as an upside, and not as necessarily a negative side since we are so non-reliant on those flows right now.

I know it is small, but every bit counts, and it is just a shift in the industry.

Actually, if I could ask one just second question is -- how do you think about net absorption for space specifically in your US portfolio over the next few years, because, again, a lot of retailers are opening stores, but they are also downsizing and closing older, larger format stores? So maybe the -- I know you and other folks talk about unit growth, but I'm wondering if it is really the right metric for measuring retailer expansion plans. I am just curious how you think about that.

Well, in just looking at the recent history, what you have seen is certainly significant positive absorption on the anchors or 10,000 square foot and above. And what you had, to echo Paul's comments, is a couple of years ago a bloodbath in terms of the small space and now it is stabilized. It is a bit of a standoff, but there is positive churn.

As we move forward, clearly as different retail formats begin to think and actively pursue a downsizing strategy and a footprint strategy, it will become a deal-by-deal, site-by-site assessment of how we can in effect fill in the excess space. And that in turn depends on which of those retailers or regional retailers or national retailers are growing.

So the example, which we have done in a couple of cases, is working with Best Buy in their downsizing. They subtracted about 10,000 plus square feet at a couple of our locations, and we put in Ulta cosmetics, who is a growing retail chain, and were able to satisfy that.

Now that that is not going to happen in all the cases, but I think in terms of leasing the big-box retailers who may be downsizing to a certain extent, it is going to be filled by those retailers that are growing. And the small store it will be more driven by the economy in general than any other dimension.

Thanks.

And we do have industries that are still growing. We have talked in the past about the restaurant industry. Casual dining and fast foods, there is a lot of growth in there as people continue to eat out more and more. So maybe electronics is shrinking and having more of a direct impact on the Internet, but the restaurant business is growing.

To throw a compliment Rich Moore's way, we love his study that shows currently on a survey of 2,200 national retailers, I think they are going to open somewhere around 72,000 new stores over the next 24 months. So to us that means there is probably going to be net growth even though some of the store prototypes are smaller now.

Thank you.

Jim Sullivan, Cowen and Company.

First of all, I would like to make a comment really to Milton and to congratulate him for the anniversary and the track record. I think all of us in the industry owe him a debt of gratitude for being a pioneer of this phase of the REIT industry and how he has conducted himself over the years.

Secondly, I do have a question, and the question relates to your disposition strategy. You still have this 9% of the US portfolio that is in your nonstrategic column. And I'm curious how you think about the process of disposing of these, whether you are selling them in ones and twos or small packages as opposed to doing a large portfolio transaction.

Some of your peers, both in the sector and outside the sector, have done some large portfolio transactions in the past year. And I'm curious how you assess the efficiencies and the pricing alternatives that you get if you do a transaction like that.

You make a good point. In our case we have a significant number of assets and the effect on our rents is -- when we started was only 10%. So really what that tells you is that a lot of this first evolution is relatively insignificant properties that take a disproportionate amount of work in markets that we may not have much of a presence.

So because of that it has been somewhat of a one deal at a time as we pursue local operators. That has been the primary way to get this done. We haven't made any decisions about exiting broad swathes of markets or particular cities or things of that nature.

That said, in addition to the one-by-one strategy, we have been entertaining a couple of scenarios whereby we will put in multiple properties into a package. We are evaluating a couple of those and pursuing with a couple of potential buyers.

Again, it will be on a relative basis small, because again we're only talking about properties that equate to 10%. I think the message I like to bring out though is that this for us is a first evolution of trying to remove some of the high in number, but small in impact type properties.

This notion of recycling, reconsideration of a particular property and long-term viability is going to be a continuous process for the Company as we move forward. And what might be a property that, because of the particular circumstance, we may consider strategic or in good shape, the changing dynamics of a given market or submarket may cause us to think differently in two years.

So this will evolve and continue, but at this point phase one, as I call it, will probably be -- continue to be on a one-off or small package basis.

That does conclude today's question-and-answer session. At this time I would like to turn the conference back over to Mr. Bujnicki for closing remarks.

A final reminder, our supplemental is posted on our website at www.kimcorealty.com. Thank you everybody for participating today.

That does conclude today's conference. Again, thank you for your participation.