Kimco Realty Corp (KIM) 2013 Q1 法說會逐字稿

Good morning and welcome to Kimco's first-quarter 2013 earnings conference call. All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation there will be an opportunity to ask questions.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to David Bujnicki, Vice President. Please go ahead.

Thanks, Sue. Thank you all for joining Kimco's first-quarter 2013 earnings call. With me on the call this morning are Milton Cooper, our 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 may be deemed 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 due to a variety of risks, uncertainties, and other factors. Please refer to the Company's SEC filings that address such factors that could cause actual results to differ materially from those forward-looking statements.

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. Reconciliation 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. If you have additional questions, please rejoin the queue.

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

Good morning, and thanks for joining us today.

We are pleased to report very solid first-quarter results, as well as continued progress on our key goals and objectives. As usual, Glenn and Mike will provide details and color and Milton will close with some general observations. Perhaps due to the recovering housing market and record stock market highs and fund inflows, the consumer continues to spend despite the sequester and the ongoing fiscal stalemate in Washington. Retailer store opening plans have reached a five-year high; and, when coupled with virtually no new supply of retail space, effective rents are beginning to escalate in many geographic regions. Most industry analysts believe that retail development will remain limited for several more years, which bodes well for continued improvement in shopping center metrics, including occupancy, same-site NOI, and leasing spreads.

Looking at first-quarter results, we are particularly happy with the same-site NOI growth of 4%, a five-year high and our 12th straight quarter of positive same-site NOI growth. Leasing activity was also strong, with close to 700 new leases, renewals, and exercised options, and leasing spreads of 13.5% for new leases and 2.7% for renewals and options. Small-store occupancy also continues to recover, with certain regions, like the Northeast, especially strong.

With respect to some of our key goals for 2013, the InTown sale remains on-track for a late May-early June closing, following a lengthy loan assumption process. Yesterday, we also sold a New York City non-retail property for $7.3 million and we have another New York non-retail property under firm contract for $38.5 million, which should close in June. In addition, we anticipate selling in the second quarter several of our large remaining non-retail properties in other geographic areas.

In Mexico, one of our joint ventures has executed a firm contract, with closing subject only to Mexican government anti-trust approval, to sell nine of our existing shopping centers for a gross price of approximately $271 million, representing a substantial gain to Kimco. As mentioned on our last earnings call, the real estate capital markets in Mexico have surged and we are taking advantage of sharply higher prices to sell some of our assets. We anticipate additional sales if the markets remain strong. In South America, regarding our portfolio of 15 properties, we have reached either tentative agreement to sell our equity interest to local operating partners or we have retained third-party sales agents to market the properties. We expect disposition activities will be completed by year-end with a modest aggregate gain. Our reasons for selling remain as discussed last quarter -- lack of scale and expensive tax structures limiting our economic returns.

In the US, our joint venture with Blackstone to acquire the UBS Wealth Management North American Fund position in 39 high-quality shopping centers is scheduled to close over the next 30 to 60 days. We also are very pleased with the closing of the Cerberus-led SUPERVALU transaction, which reunited the Albertsons stores our venture already owns with the Albertsons stores formerly operated by SUPERVALU; while also purchasing four other supermarket brands -- Acme, Jewel, Shaw's, and Star Market -- and making a direct investment in SUPERVALU and its post-closing operations, including Save-a-Lot stores. We are pleased to note that our SUPERVALU shares have materially appreciated since the closing.

Other US investment activity since the beginning of the year primarily involved opportunistic purchases of joint venture equity interest from five different institutional partners, totaling $53 million. As Milton has mentioned, our third-party asset management portfolio, totaling roughly $10 billion, remains an excellent reservoir of off-market opportunities to acquire full interest and control of high-quality retail properties.

During the quarter, we also acquired the second phase of a large grocery-anchored shopping center complex in the high-income community of Wilton, Connecticut. Owning both phases of the property provides us with maximum flexibility to renovate and expand the property. We also remain committed to upgrading our property portfolio and transitioning towards larger properties in more densely populated Kimco core markets, where we expect superior job growth and higher retailer productivity and rents. Our scorecard since the fall of 2010 consists of the disposition of 112 properties totaling $854 million, and the acquisition of 64 properties totaling roughly $1.5 billion. The market continues to improve for B properties and secondary markets and we expect to close numerous additional sales over the balance of the year.

Finally, and given its importance to our tenants and the shopping center industry, I would like to comment on the Main Street Fairness legislation. After passing two test votes, the Senate has scheduled a final vote on the legislation for Monday at 5.30 PM. Unlike the cloture vote, which required 60 votes to advance the Main Street Fairness bill, Monday's vote requires 51 votes to pass the Senate and move on to the House. We are cautiously optimistic, but again respectfully request a kind word of support from anyone who has a direct relationship with a US Senator. Putting our retail tenants on an equal footing with e-commerce retailers is simply long overdue.

Now I would like to turn to Glenn to discuss the financial results of the quarter, to be followed by Mike and Milt.

Thanks, Dave, and good morning.

We are very pleased to have 2013 start off the same way 2012 ended, on very positive footing. Our first-quarter results are a clear product of the execution of our business strategy, focused on improving metrics at the property operating level, further recycling of capital to acquire up-quality assets, and maintaining a strong balance sheet with plenty of immediate liquidity. Let me provide some color on the first-quarter results.

As we reported last night, FFO as adjusted per share came in at $0.32, as compared to $0.31 for the same quarter last year, in line with our expectations. FFO as adjusted excludes $5.2 million of transaction income primarily from a [promote arm] from a disposition of a non-retail preferred equity position, and $2.5 million of transaction cost primarily related to the acquisition activity. As a result, our headline FFO per share came in at $0.33 per share versus $0.31 per share last year.

The operating team kicked off the year with above-planned results. We delivered combined same-property net operating income growth of 4%, including a positive 20 basis point impact from currency. Our US same-property NOI growth was 3.7%. This is our highest quarterly increase in same-site NOI in over five years, fueled by an improving economic environment and the upgrading of the portfolio. In addition, we continue to see positive results on the leasing front, evidenced by the strong leasing spreads delivered. Although US occupancy was modestly lower by 20 basis points from year-end, the result of the typical flow-out after the holiday season, occupancy remained at a solid level of 93.7%, 90 basis points higher than a year ago. We spent a good portion of the first quarter teeing up transactions as we continue to pursue capital recycling. We expect to conclude the InTown Suites sale during the second quarter, netting proceeds to us of approximately $90 million. The impact of this anticipated sale has already been incorporated into our guidance range.

We have other non-retail dispositions in the works; and expect that by the end of 2013, the non-retail asset discussion should be a thing of the past. We have continued to work the retail shopping center portfolio as well, signing contracts for the sale of 14 properties for an aggregate sale price of approximately $111 million and, as Dave mentioned, a contract for the sale of our interest in 9 assets in Mexico, which is expected to yield proceeds of $94 million and a substantial non-FFO gain. Proceeds from these sales, totaling close to $300 million, are anticipated to be used to reduce debt and acquire assets in our key target markets. As you know, another of our standard objectives has been to further simplify the business model. To that end we have acquired the remaining interest in four more properties in our key target markets from our various joint venture partners, and increased our ownership percentage in another JV program. We expect to continue to explore opportunities to acquire properties from the joint venture programs over time.

On the capital front, we have made significant progress on the refinancing of maturing debt both on the consolidated balance sheet and in the joint venture programs. We refinanced our 8.58% MXN1 billion facility -- approximately $80 million -- with a new five-year floating-rate peso facility at a spread of 135 basis points over the Mexican 28-day rate, which today equates to an annual rate of approximately 5.7%. This loan is prepayable without penalty at any time, giving us plenty of flexibility. In addition, we paid off a $100 million 6.125% bond, leaving us with just $175 million of US bonds maturing this year; and a CAD200 million bond which matures in August, which we expect to refinance in the Canadian bond market later this year. On the non-recourse mortgage front, we have closed six transactions and have executed term sheets on nine more deals totaling over $513 million. The weighted average interest rate savings is approximately 170 basis points compared to the debt being replaced.

Our liquidity position is strong, with over $1.2 billion of immediate availability. As a result of the positive operating performance delivered for the first quarter, we are increasing our same-site NOI growth expectations by 25 basis points, bringing it to a growth range of 2.75% to 3.75%. In addition, we are increasing the lower end of the 2013 guidance to $1.29, bringing the FFO per share as adjusted guidance range to $1.29 to $1.33. At the mid-point of $1.31 per share, this represents a 4% growth rate compared to 2012; and, as I mentioned, incorporates the sale and impact of InTown. Please keep in mind -- our guidance range does not include transaction income or expenses.

And with that, I will turn it over to Mike for a more in-depth look at the shopping center portfolio.

Thanks Glenn, good morning.

First-quarter portfolio performance reflects the combination of solid market fundamentals in our sector, but also the specific actions we have taken over the past couple of years through recycling of the portfolio and investments made to create value in our core asset base. The US same-site growth number of 3.7% was driven essentially by growth in minimum rents, as leases signed over the past year began to hit the books as our tenants opened for business; as well as improved overall credit loss across the portfolio. The occupancy levels in total were 70 basis points higher than a year ago and 90 basis points in the US. That movement reflects the combination of positive absorption, [regressive] disposition of underperforming assets, and selected acquisition activity. On a US same-site basis, the occupancy rose 30 basis points, with the balance being the effect of the acquisition and disposition activity.

As Glenn stated, we saw a marginal decline in the leased occupancy since December of 20 basis points -- a similar first-quarter pattern over the past few years. I would note that for the space under 10,000 square-feet, 50% of the fall-out was due not from mom-and-pops, but the closure of nine Fashion Bug stores as a consequence of Ascena Group's acquisition of their parent company and decision to shut down that chain. Overall, small-shop trends continued to improve, albeit slowly. We are encouraged that the new deal spread, even for the smallest spaces, between 0 to 5,000 square-feet, has turned positive this past quarter. Overall, the new leasing spreads again posted double-digits; and renewals and options also remained sturdy with the overall 3.8% increase. With overall leasing spreads positive for seven straight quarters, it is apparent that we are in a self-sustaining recovery in rental rates.

All of these metrics reinforce a much more favorable leasing and operating environment. That isn't new news for the best properties and best markets. Yet where I am more encouraged is the pick-up in action for assets that have had little since the slow emergence from the days of the financial crisis. And one example is our center in Anchorage, Alaska, one of the last developments from our former merchant building program. We secured a Bass Pro Shops lease for a new 75,000 square-foot store that will scrape and replace over 58,000 square feet of existing vacancies.

Retailer demand continues to be strong and it is now advancing for opportunities to come out of the ground with new projects. While Dave pointed out that new retail development will remain limited by historical standards, we do have a couple of opportunities that seem to be coming together. One, a Phase II land of a property we built in Boise, Idaho years ago, and another at a prime location in Christiana, Delaware, near the mall. Things aren't fully baked but are getting there; and I offer these examples simply to indicate that well-positioned real estate in established corridors is getting the attention of retailers as in-place inventory is filling up. That said, the focus continues to be what we can do with existing properties in terms of redevelopment and expansions, and investments there still yield the highest relative return.

One other type of investment we are making is strengthening the operational backbone of the business and thinking creatively about the future. Some of the initiatives are described on our website, including the energy management and sustainability programs, and leasing programs such as the KEYS, and a fast-track finance program, as well as social media outreach. Well, we've drilled it down even further, and re-thinking how we approach the management of properties and tenants with new standards for property visits and capital planning, tenant communication practices, and better internal coordination. We are also piloting a Wi-Fi deployment and data analytics that will support tenant strategies and enhance our prospecting tactics at certain of our larger centers.

Lastly, as Dave reported, much of our acquisition activity in the first quarter involved either partner buy-outs or the purchase of adjacent GLA of existing shopping centers -- in effect, investing with a much lower degree of risk due to our in-place knowledge of the asset. And while it may appear that we took a breather on the disposition side, we have closed two property sales since the end of March, and between the 14 others under contract and 4 accepted offers, we also have an additional 22 in the market today.

And with that, I will turn it over to Milton.

Well, thanks, Mike.

I would like to comment on several distinguishing Kimco attributes -- to wit, our size, tenant mix, and geographic diversity. These attributes provide downside protection and upside opportunities. We are a national Company with a national platform. We are the largest landlord to Home Depot, Target, Costco, Walgreens, TJX Companies -- just to name a few. With such a large number of leases, retailers are inclined to review our portfolio for possible expansional opportunities and work closely with us. Through our geographic diversity, the bulk of our revenues come from locations in the top 30 MSAs in the country, which have strong demographics. Our national platform also helps us underwrite transactions in any part of the nation. As a result, we are a valued real estate partner in the SUPERVALU transactions and other ventures because of our ability to evaluate assets quickly throughout the country. I continue to be optimistic for our SUPERVALU investment and feel confident that the Management team can replicate the remarkable success of our original Albertsons investment.

And now I'd like to comment on cap rates. There is a wonderful blog entitled, Look Ma, No Inflation, by that REIT seer Ralph Block. Ralph postulates that gold, silver, oil, and other commodities are selling far below their February 2012 peak. Future inflation is likely to be in the 1% to 2% range rather than 2% to 3%. And if inflation declines by 1%, cap rates should similarly decline by 1%. And the softening in prices should help the consumer and certainly help retail real estate. Now what defines quality real estate? My definition of quality real estate is real estate that has a safe, sustainable, growing cash flow over an extended period of time in good markets. With 12 straight quarters of positive same-store NOI growth, improving leasing spreads and occupancy levels, our portfolio has outstanding quality, and should warrant low cap rates.

As I have said before, I believe a REIT is nothing more than a common stock that must comply with certain tax requirements. And in valuing a common stock, the most important metric -- management, management, management. And Management must understand the importance of maintaining a balance sheet that always has access to capital. And through our improved fixed-charge coverage, net debt-to-EBITDA level, strong liquidity position, we have accessed debt and preferred stock at a reduced cost. Secondly, we have to be fast on our feet work to seize opportunities. And this has always been a part of our D&A. And third, to continue to strive to be a low-cost provider. We treat the shareholders' money as though it were our own. And I believe our culture continues to meet all of these fundamental tenets. We're gratified with the first-quarter results and feel confident that we can continue to create value for our shareholders. And my thanks go to a superb team of associates.

And with that, we welcome any questions.

Sue, we are ready to move on to the question-and-answer portion of the call.

(Operator Instructions)

Christy McElroy, UBS.

Just wanted to follow-up on the comments about the more frequent buying-in of joint venturer interest in properties. Is this an active strategy where you are approaching your partners to communicate that you are a willing buyer for the right properties in the right price or will we just continue to see some one-off occasional opportunistic purchases? I'm just looking for some color on how aggressively you are pursuing these purchases?

No, Christy we are trying to be proactive and, as we have noted before over time, Management changes, strategies change, of our institutional partners, and many have expressed a willingness to reduce their investment in some of these joint ventures. For us, it is an off-market, opportunistic opportunity for us and there is a win/win in many of these transactions. We manage these portfolios now so we know them very well and an opportunity to do a purchase on a negotiated basis is a wonderful thing for us and it simplifies our platform.

Quentin Velleley, Citi.

Just on your relationship with Blackstone -- they purchased Valad and you had advised him on the Centro deal, and obviously they just recently purchased UBS stake -- there has been media speculations on discussions that you had for purchase of the Brixmor portfolio earlier this year. Can you maybe comment on that speculation?

Well I loved Milton's response to The Wall Street Journal reporter where he said we talk to lots of people. And in fact, there are not many retail REITs we haven't talked to over the years. And that is about all we want to say right now.

Paul Morgan, Morgan Stanley.

With SUPERVALU done, could you talk a little bit more about the transaction and how would you expect your role to play out in near-term and whether -- maybe contrast it with the Albertsons experience and what your role near-term versus a longer-term perspective will be?

Well, the SUPERVALU transaction is a very exciting to me. I'll just take a moment, Paul. There are two pieces of real estate, just as an example, that SUPERVALU has. One is a Star Market in Boston on Boston Street. By the way that Star Market stayed open all night to serve food or refreshments to those injured in the Boston Marathon. That site on Boston, a successful store but there are offers in excess of $25 million by people who want to build a high-rise apartment house. A second illustration is a Jewel store in Chicago in the Gold Coast. And there, there is a huge multi-use retail office and apartment complex plan. So there is, A, a business that is turning around that has been moribund and some of the results are very encouraging with increases in the meat department [running is with me].

18% in certain stores just by improving the meat department and bringing people in.

So that I feel very excited about what the ultimate result is and as I said I feel we can replicate the fantastic result we had in monetizing Albertsons.

And I would just point out that of the 900 stores that we acquired under these five banners, 45% are either owned or long-term ground leases, so it is real-estate-rich from an owner's perspective.

Also, one thing I would point out is, we have 26 locations, 19 under the Albertsons-Jewel banner and then 7 or 8 that are SUPERVALU that we think are to directly benefit from the new ownership in the operation, so our 26 shopping centers directly will benefit [in our] and have better credit and the tenants do better in those locations.

Can you monetize the real estate while at the same time trying to optimize the recovery in the brands? Because I imagine a lot of those stores are also some of their most productive and [so pend] to what extent can you be aggressive on the real estate at the same time as--?

What happened in '06 acquisition was it was not until '09 or 2010 that we monetized that. And the reasoning was we wanted to prove the case out of how we were going to increase the value of the stores because as the operations improve, the ability to monetize that real estate increases dramatically. So at this point, there is just a focus from the Company to improve the operations right now.

Fair. Thank you.

Craig Schmidt, Bank of America.

This is a question for Mike. The leasing activity and spreads at Kimco seem to be peaking at a time that is later than a lot of your peers. Is there any thought on why that is?

Craig, it is tough for me to marry it up against other -- our peers and try and do a relative analysis. But from our perspective, our spreads are very often driven by the larger locations or available spaces that are substantially below market and what we are finding is that in the natural rollover of leases, that we are [seem] to be finding an increasing number of opportunities where we are capturing below-market rents in our process. So I don't know if it's necessarily peaking, but we are continuing to see to some degree an acceleration of these recaptures of below-market rents and that in turn reflects the fact that the retailer demand is increasing. There is more opportunity for us to roll over at very positive rates.

And Craig, one other point, we have over 1,000 leases where the contract rents were entered into over 20 years ago. That is a built-in natural base to increases over time.

So there's something to be said for age, huh?

(Laughter) Not much.

Thanks a lot.

Alexander Goldfarb, Sandler O'Neill.

This is a question for Dave, Dave, you have been pretty vocal for quite some time on the Internet sales tax and while certainly it makes sense for large retailers, the Amazons of the world and folks like that, when you think about it, whether the future of retail is incubating new concepts, whether they open up as a temp tenant or perhaps start online and then grow and then hopefully take space in one of your centers, why would the bar be set so low at $1 million versus a $10 million threshold, just given the complexity of dealing with, of complying with all the various tax jurisdictions across the country, whereas a local operator in one of your centers doesn't need to compete with that. Wouldn't you guys want to promote more incubation of more retailers that ultimately do cross the threshold, have to pay tax, and move into one of your centers?

Let me challenge the assumption that the benefit of this would be mainly the national retailers. The small mom-and-pops have been absolutely devastated by competition from e-commerce, you see it in the occupancy statistics of all of us public retail REITs, our vacancy factors are much higher in the small stores and that is directly the result of e-commerce competition. As an example, for instance, if you are a small jewelry store and somebody comes in and prices an engagement ring and you have to charge the sales tax, and meanwhile they get the color, the karat, all the quality stuff, and go dial-up Blue Nile, and they can save literally hundreds of dollars, and it is another -- a cut to that local jewelry store. I can't tell you how many local, small businesses have been impacted by both this concept of showrooming where people come in, for instance, a children's footwear store where mothers will ask the clerks to measure the shoe sizes of their children and then look at the merchandise and write down serial numbers and then leave and go order it from Groupon or one of these other e-commerce things to avoid paying the tax. [ICSD] has statistics about shoppers, when they go online, if that Internet retailer is beginning to charge sales tax for whatever reason, they will shift to another. And so it is very important to the local stores.

But Dave -- but Dave--?

The start-ups will do just fine. And the -- our local tenants would love to have $1 million exemption on the first $1 million they sell. It is quite frankly too high but it is a compromise in terms of the legislation to get it done.

Okay but the Groupons, the Zappos, those guys are already big enough where they would have to pay the sales tax. I'm thinking about a small start-up selling whatever wares, for them up, it is costly, that is why the $1 million just seems very low, $10 million seems a bit more appropriate, so--?

It is not that costly. As part of the legislation, software will be made available for these people to very easily do it. Amazon already offers a service to collect the sales tax for Internet e-commerce guys. So it just making a level playing field. Why should an Internet seller located in some other place that is selling to a state that collects sales tax not have to pay that sales tax on the residential purchases? Remember this is not a new tax. They are already obligated to pay a use tax, the purchaser. So it is just that nobody pays it so there is an obvious advantage. So yes, we feel very strongly about it, all of us retail landlords feel very strongly, and if you think I feel strongly about it, call up Mr. Simon. It is just long overdue.

Vincent Chao, Deutsche Bank.

Just a question on the development commentary about supplies [thing] -- well but also trying to tie it up back to the comments about retailers opening stores at a faster pace than in quite a while, and also the improving B market -- from all of those comments, can we just reasonably assume that retailers would prefer to move into a B-quality asset or a secondary market at this point versus paying up for development in maybe a better market?

I still -- I personally believe that is the case because many retailers were hurt with these development projects in the last recession that were partially-built bankruptcies, foreclosures, they were not able to deliver the projects on time. And this time around, retailers simply do not want to wait several years while these projects get entitled, the range for construction financing, do pre-leasing, and rents have not returned to the previous levels necessary to make the economics work that well. So I still believe it is going to be quite a few years before you see any significant ramp-up of activity and the retailers are looking for space that either retailers are struggling with and are willing to give back or perhaps a secondary location just to get open right away and meet their store count, by the way.

So it sounds like more of a speed issue and obviously they had some history with the development projects but speed-wise, that is just meeting their needs more? Because obviously you have another set of risks associated with secondary and B-class properties, different from development risk, but so it still sounds like they are still preferring that? Okay. Thanks.

Samit Parikh, ISI.

Just wanted to reference back to something you said earlier, the 1,000 leases that are very low rents with upside. Can you quantify what percentage of your ABR those 1,000 leases represent?

Don't have the answer at our fingertips, Samit, but we can certainly get back to with that.

Okay. Can I get one more in then?

Absolutely. (Laughter) That was a test [game]. We already get granular on these calls, right?

Glenn, just a question for you on the financing, what is your -- how are you -- are you leaning towards at all calling some of your bonds that are maturing later this year and early next year that -- where you can probably issue new 10-year at low, mid 3%s and looks like you guys don't really have any maturities in the corporate bond area beyond 2019?

I do not see us calling our bonds -- again the [make holds] and yield maintenance that go with them it is very, very expensive -- it is real cash that has got to come out of our pockets and if you look at our overall coupons, outside of the bond that we issued in 2010, we don't have a coupon that has got more than a [four] or a [five] handle on it. So we're going to take it as they come. As I mentioned, we have $175 million of bonds that mature this year. We have a lot of activity that we've all talked about in the pipeline in terms of dispositions. We want to let the capital plan come together a little bit more -- we'll get a better feel over the next 90 days or so and then we will make determinations about when and if to tap into the US bond market.

Cedrik Lachance, Green Street Advisors.

I will try a multi-part question on Mexico. In regards to your disposition that you just completed, can share with us, if you explore or you still -- if you have explore -- or if you still explore public [exit while] Mexico, what was the cap rate on this transaction that you just completed? And--?

I'll--

Sorry, go ahead. I'll start with these two.

Yes. Multiple part question. Well let me take the second one first. The Cap rate was a 7.9% on actual 2012 NOI, so that is one aspect. As we looked at what is going on in Mexico and as we mentioned on the last quarter, the surge of capital markets activity and the increasing value of our real estate has generated a number of discussions here. We did look at maybe joining the crowd in terms of taking our platform public but as you know we are not an operator in Mexico. We are an investor, if you will. We have multiple operating partners and so we feel the best execution to the extent that prices stay this high is to sell into these public companies or people that want to become public. So it is just an excellent window of opportunity for us if the markets continue this strong.

And are your partners potential buyers of your assets?

Yes.

Rich Moore, RBC Capital Markets.

Just to follow up for a second on Mexico, you've obviously chosen the course for how you want to monetize these assets. Does this particular buyer that you are selling the 9 assets to, is that buyer a potential buyer for more assets or was that a group in the portfolio that was picked maybe out of the total 52 by these guys?

They are n active opportunity for other purchases.

Okay, Dave does it -- one of these I'm curious about -- does it make it hard to get rid of the entire Mexican investment if you piecemeal it? This guy picked 9 interesting projects but that leaves you with maybe 43, as my memory serves me, and then maybe somebody else picks some others? Does it make it hard to get out of everything if you don't just do this more all at once?

No, it is working just fine and the level of interest is quite amazing. And once this deal closes, we can give you more color on who the buyer is and who our operating partners are that joined us in the sale here. So -- but the answer to your question is no, we have an opportunity to sell in whole or in part to multiple interested buyers.

Okay. Thank you.

If I could just interject a previous question about how many leases, the 1,000 leases over 20 years in age, it is about 14% of the gross annualized base rents that we disclosed.

(Operator Instructions)

Christy McElroy, UBS.

It is Ross Nussbaum, here with Christy. Dave, a question on the Latin America asset sales. You referenced the lack of scale and the expensive tax structures as some of the reasons why you are looking at dispose. The question I have is, weren't the tax structures known going in? So what changed with respect to your understanding of the tax structures that would have motivated a sale? And the second part is, how do the tax structures that you had in Latin America differ from what you have up in Canada and why isn't that an issue up in Canada?

Okay, first of all, Latin America is two parts. South America is what we referenced in terms of the reason we are going home is we don't have scale and the taxes are tricky and expensive. And quite frankly, the development returns are not as high as originally projected, so the rents have come down a bit, the cost to develop has not, and the taxes are quite significant. You take a country like Peru, it is about 29% on the actual gross revenues after expenses. So it makes your returns -- so if you thought you are developing to a [13], you're really developing to a [10] or a [9] and then you take the country risk on top of that, and the currency risk and so forth. So it's just -- we couldn't ramp up because the risk reward wasn't there and we don't have scale and so we decided to really focus on other aspects. Mexico does not have that same level of tax issues and it is much more comparable to Canada where we pay very little in terms of tax on current income. There is a capital gains tax on the way out that is quite substantial in Canada, a little less so in Mexico. But again, the returns in Mexico have certainly justified -- the after-tax returns have justified the investment in Mexico whereas South America they did not.

Appreciate it. Thank you.

Quentin Velleley, Citi.

Yes. It's Michael Bilerman. Mike, so that 15% of those leases 20 years and older, what's the mark-to-market then, if we were to look at that 15% of NOI and you were to mark them to market, how much upside or how much NOI upside would there be?

The -- it's a pretty wide range but what I'd suggest is if recent history is a guide, now recognize that 14% are rents and there is going to be -- there are generally renewal options in many of these longer-term leases -- but we would suspect that these larger longer-term deals have anywhere from a 10% to 30% uplift on the existing or the maturing base rent. That is what we have been experiencing in the last two or three years as these older lease rates roll off and we put new tenants in there. So the question for us -- or the challenge for us -- isn't so much the uplift, it is regaining, recapturing the space and gaining liquidity. Sometimes bankruptcies and early terminations -- paying off the existing tenant to get the new tenant in is one strategy. Other times it is sitting and waiting. Other times it is if a particular tenant [in the box] wants to downsize because of a strategic change in their business, that is also an opportunity. So those are the primary drivers or primary events that cause us to capture these below-market rents earlier than the contractual maturity.

Michael, just this one small illustration -- we have 100,000-foot lease at probably $2 of rent in Staten Island that expires in 2017, we will get probably $2 million a year on that instead of $200,000. And there are other illustrations and it is with a more dynamic tenant.

Quentin and I will make sure we have that in the model.

Put it in. Put it in. Count on it. (Laughter)

All right. Thank you.

(Operator Instructions)

Since there are no further questions, this concludes our Q&A session. I would like to turn the conference back over to Mr. Bujnicki for any closing remarks.

Thanks, Sue, and everyone that participated on our call today. As a final reminder, our supplemental is posted on our website at kimcorealty.com. Thanks so much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.