Kimco Realty Corp (KIM) 2013 Q3 法說會逐字稿

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

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to David Bujnicki, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

Thanks, Laura. Thank you all for joining Kimco's third-quarter 2013 earnings call.

With me on the call this morning are Milton Cooper, our Executive Chairman; Dave Henry, President and Chief Executive Officer; Glenn Cohen, Chief Financial Officer; Conor Flynn, Chief Operating 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, and it's 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 factors, risks, and other uncertainties.

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. 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 all of our callers have an opportunity to speak with management.

If you have additional questions, please rejoin the queue. With that, I turn the call over to Dave Henry.

Good morning and thanks for calling in this morning.

We are happy to report another strong quarter of financial results and progress on our key goals and objectives. Glenn and Conor will provide the details, but, in general, our operating metrics are excellent and reflect the continued strength of the neighborhood and community shopping center industry.

Leasing activity continues to be robust with increasing rents and excellent leasing spreads. National retailers remain committed to significant expansion plans and almost all geographic areas are reporting improving trends and very little new construction activity.

Coupled with population increases and positive if not strong GDP growth, we expect our key metrics and recurring rental revenues to remain solid as we enter 2014. As an interesting and encouraging data point, shopping center industry NOI growth has reached a post-recession high according to a database maintained by NCREIF, The National Council of Real Estate Investment Fiduciaries. It is clear that the fundamentals of our business continue to look very positive.

With respect to our results for the quarter, we are making great progress on our major objectives. In Latin America, we have now sold over the past two quarters 24 shopping centers and 84 industrial buildings, aggregating a gross sales price of well over $1.06 billion. We also expect to sell our remaining seven properties in South America by year-end and we are actively negotiating the sale of 27 additional shopping centers in Mexico. While many of these sales involve multiple joint venture arrangements, we believe we will have largely completed the sale of most of our remaining Mexico assets by early next year.

Our Canadian portfolio remains a strong and important contributor to our earnings. Portfolio occupancy continues to be very high and many US-based retailers are continuing to expand into Canada, with Target and Marshall's leading the charge. Property prices are at exceedingly high levels with pension funds and REITs both chasing a limited supply of high quality properties.

In the US, with our non-retail portfolio at $120 million today, and on track to be both less than $100 million and less than 1% of our total assets by year-end, please permit us to turn the page and concentrate on our recycling efforts which entail investing in our retail redevelopment pipeline and selective acquisitions of high quality retail properties in the US and Canada.

This has become our top priority and we are pleased with our success on both fronts. Looking at our US shopping center portfolio, Conor has done an outstanding job together with our regional presidents of identifying and growing our portfolio of redevelopment projects and this activity will be a very important contributor to our earnings in future years.

As Conor will detail, in most cases we can achieve double-digit returns on the incremental capital invested, while also creating a higher quality, more valuable property overall. Retailers are increasingly willing to pay higher rents as part of a property redevelopment or renovation plan, and this both increases our projected returns and also makes more redevelopment projects financially viable. In general, we believe that both our redevelopment projects and our joint venture partner buyout activities, such as the recent UBS and KIF acquisitions, represent the most attractive and accretive use of capital for us.

On the acquisition front, purchases of high quality shopping centers in primary markets are becoming more difficult as cap rates continue to decline for the best properties. That said, we are very excited about winning the recently announced large Boston portfolio due to its growth and redevelopment potential and its large presence in the supply constrained New England market.

Conor will provide more details on this portfolio. And why we are so pleased to be adding these properties to our Northeastern region. As a final comment, we are continuing to sell our non-strategic US retail properties in a disciplined and methodical process. Conor and the regional President screen each of our properties for long-term risk such as tenant sales, demographic trends, tenant credit, et cetera, as well as markets with lower long-term growth prospects.

We have now sold 133 retail properties since late 2010, comprising almost 14 million square feet. This represents a major change in the profile of our portfolio in terms of both quality and markets. Over time, we are determined to continue to enhance our truly great national portfolio of high quality retail assets in key markets with terrific long-term growth prospects.

Now, I would like to turn to Conor and Glenn, to be followed by Milton with his general observations and trends.

Thanks, Dave, and good morning.

Our solid third-quarter results are highlighted by the excellent performance of our core operating portfolio delivering positive same site NOI growth for the 14th consecutive quarter, positive leasing spreads, and increased occupancy levels.

In addition, we have been very active on the capital recycling front with the accelerated monetization of our Latin America assets and redeploying the proceeds to acquire high quality US shopping center assets in our key markets, with demographics and household income levels greater than the national average.

Now, for some specifics about the quarterly results. As we reported last night, FFO as adjusted, which represents our recurring FFO and excludes transactional income and expense and nonoperating impairments, was $0.33 for the quarter as compared to $0.31 last year, a 6.5% increase.

The key drivers of the growth rate, $10 million increase in NOI produced by the operating portfolio and reduced preferred stock costs of $7 million. Offset by the lower non-retail income of $10 million, primarily attributable to the sale of InTown Suites and other non-retail investments during that period.

FFO as adjusted for the nine months is $1 per diluted share, and based on our year-to-date results we are tightening our FFO as adjusted per share guidance range to $1.32 to $1.33, from the previous range of $1.31 to $1.33. Headline FFO, which represents the official NAREIT definition, came in at $0.34 per diluted share, as compared to $0.29 last year.

Current quarter headline FFO includes transaction income of $15 million from the profit participation on the disposition of a portfolio with non-retail preferred equity investments, offset by a $7 million net of tax non-cash equity loss recognized from the additional Albertsons investment made earlier this year. We remain positive on the initial trends and future potential upside from the Albertsons transaction.

The shopping center portfolio metrics of occupancy, leasing spreads, and same site NOI growth continue to produce positive results. Total occupancy has increased to 94%, up 60 basis points from a year ago and 20 basis points from the beginning of the year. Separately, US occupancy has increased to 94.4%, up 50 basis points from the beginning of the year.

US leasing spreads are up 7.3%, with new leases at 13.7% and renewals and options at 8.4%. Our combined same site NOI growth was 2.3% for the quarter, including the negative impact from currency of 20 basis points and the negative impact of 20 basis points from adding a large development property in Mexico.

Combined same site NOI growth for the nine months is 3.4%, and we maintain our combined same site NOI guidance range of 3% to 4%. In addition, we have added a new page in our supplemental package providing further detail about the makeup of same site NOI. We hope you find it helpful.

With regard to capital recycling, we had a very active quarter, selling eight US properties providing $53.3 million in proceeds, and the sale of five retail assets in Mexico, nine retail assets in Chile, and an 84-property industrial portfolio in Mexico, providing aggregate additional proceeds of approximately $260 million.

We recorded non-FFO aftertax gains of $81.6 million, and impairments of $14.3 million from all these sales and additional US assets under contract. Also, we recorded non-FFO impairment charges of $76.7 million related to 14 Mexican shopping centers, which are part of a pool of 27 assets we are negotiating to sell. We expect significant gains on the other 13 properties which will be recognized upon closing. The gains and impairments from our Latin America transactions are all before the impact of currency, which has been influenced by the current strength of the US dollar.

Under US Generally Accepted Accounting Principles, not until a company has substantially liquidated its investment in a foreign country can the impact of foreign currency translation be recorded in earnings. As of September 30, the unrealized loss due to currency associated with our Mexico and South America assets was $113 million, and remains in the balance sheet account of accumulated other comprehensive income. The final impact of currency will apply to the respective gains and losses on the sale of these operating properties and thus will not impact FFO at the time it is recognized.

Proceeds from the sale transactions were used to acquire four shopping center properties in our key markets for $67 million, with the balance earmarked for the Boston portfolio and other US assets already under contract totaling over $575 million. We continue to maintain our focus on the right side of the balance sheet as well, taking advantage of the continuing low interest rate environment to lower our own cost of capital.

To that end, we issued a $200 million Canadian denominated seven year unsecured bond at a coupon of 3.855%, and repaid a maturing 5.18% bond of the same amount providing an annual savings of $2.6 million. Our liquidity position is in excellent shape with over $1.6 billion available on our revolving credit facility, and our net debt to recurring EBITDA is now at 5.4 times, which is just under our target range of 5.5 to 6 times.

As we look forward to 2014, our debt maturities are very manageable. Our next bond maturities don't occur until June of 2014, and we have already repaid $50 million of mortgage maturities due in 2014 subsequent to quarter end. As we look forward to 2014, we are introducing an initial 2014 FFO as adjusted guidance range of $1.36 to $1.40 per share.

Please keep in mind that we have not completed our full property by property forecast process. The guidance range is based solely on recurring flows and does not include transaction income or expenses which would be included in headline FFO.

As such, we will provide more specific guidance assumptions on our next call, including same site NOI growth expectations and occupancy targets, which we expect will continue to be positive. Our forecast includes recurring retail flows reaching close to $1 billion, and de minimus recurring non-retail flows of $2 million.

In addition, the guidance range takes into account the dilutive effect of the Latin America and non-strategic dispositions, as well as the reduced non-retail flows. Using the midpoint of the 2014 guidance range of $1.38, we yield an increase in recurring FFO per share of about 4%.

The range is dependent upon timing of our continued capital recycling activities including the monetization of our Latin America assets, asset acquisitions, lease-up, and redevelopments coming online. Lastly, but most important, we are pleased to announce that based on our 2013 performance and expectations for 2014, our Board of Directors has approved an increase in the quarterly cash dividend of $0.015 per common share to $0.225 per quarter, an increase of 7.1% on an annualized basis. Our FFO as adjusted payout ratio will remain conservative at about 65%, among the lowest in our peer group.

We look forward to seeing many of you at our Investor Day on December 12 in New York. And with that, I'll turn it over to Conor.

Thanks very much, Glenn.

Our third-quarter performance continues to evidence the consistent strength of the battle tested Kimco portfolio, even during unsettling economic times, and highlights the safety of our recurring FFO due to our industry leading tenant and geographic diversity.

Our goal is to make Kimco a pure play North American retail real estate investment company that can provide a best-in-class margin of safety, and produce consistent and increasing dividends with above average same site NOI growth through leasing, redevelopment, and accretive acquisitions.

I wanted to provide updates on the three major strategic initiatives I mentioned on our last call, all of which are aimed at upgrading our core US portfolio. First, we continue to actively scour the portfolio for sale opportunities. Since June 30, we have completed the sale of 12 US centers for an aggregate gross sales price of $205.9 million, at an average implied cap rate of 7.6%.

Year-to-date we have executed on the sale of 25 properties for an aggregate gross sales price of $287.9 million, with an average implied cap rate of 7.9%. We have an additional 14 properties currently under contract.

We believe that the extended low interest rate environment and the strong demand for cash flowing assets makes for an optimal time to pare down our portfolio in a meaningful way. We have identified an additional 60 assets that we are now moving to our disposition list and targeting for sale in 2014.

We have identified these assets as low growth or at-risk properties and are below Kimco's average demographics and major metrics. We see opportunity to continue to reshape, redevelop, and rethink the future of Kimco.

The second update relates to our $800 million redevelopment initiative. Reinvesting in our high quality assets through redevelopment is critical to our future growth and achieving a higher net asset value. This quarter, the Cupertino, California redevelopment passed the last appeal hearing and is now active in garnering significant leasing activity.

The existing 114,000 square foot grocery anchored center will be getting a full makeover and will be adding 25,000 square feet of new retail, a parking garage, and a phase 2 pad site which is being held for future upside with interest from hotel operators, pharmacies, and financial users.

The newly remodeled asset will share a new signalized intersection with a future 2.8 million square foot Apple 2 headquarters that will house 12,000 employees. In addition, the anchor redevelopment of our Richmond Avenue site on Staten Island is now complete, and Target, who is on the ground lease, opened their doors this month to significant fanfare. The grand opening was a big success and video of the event can be found on our award winning website and blog at Kimcorealty.com.

The Richmond Avenue redevelopment still has two outparcels under construction for Bank of America and Miller's Ale House that will complete the redevelopment and improves incremental NOI totaling close to $2 million, for an ROI of 42%. If we ascribe a cap rate of 6%, this project will create over $28 million of additional net asset value. The Richmond Avenue project is just one of five former Kmart locations that are now in different stages of redevelopment. New anchors for these projects include Target, Whole Foods, TJX, Ross, Burlington Coat, and Sports Authority.

We currently have 41 active leases with Kmart and Sears and two that expire in 2017 with no remaining options, located in Los Angeles and Staten Island, creating a nice reservoir of future redevelopment opportunities. Since last quarter, we have moved $42 million of redevelopment projects from the planning stage into the active category.

The active redevelopment pipeline currently consists of gross costs of $214 million, incremental NOI projected at $21.1 million, with a blended ROI of 10.2%. The $800 million redevelopment pipeline includes $320 million of projects in the planning stage and an additional $275 million of projects under evaluation.

The third update relates to our initiative to focus new investments in our core markets that have significant barriers to entry with above average growth. This quarter, three out of four acquisitions were made through off-market transactions, taking advantage of our deep relationships with owners, brokers, and retailers to source accretive deals in this highly competitive environment.

I would also like to mention the recent Boston portfolio that is now under contract. We believe this portfolio has significant upside with below market leases, redevelopment potential, and includes a few urban locations surrounded by the campuses of Harvard, MIT, and Boston College, that could potentially add significant density.

Our leasing and development team are thoroughly energized by the unique opportunity. As for our metrics, I am happy to report the following results. Our US same site NOI growth was 2.7%. About 80% of that growth was driven by new leases with rent commencement dates that occurred over the prior quarter.

Also contributing to the growth were healthy contractual rent increases. The 2.7% same site NOI growth is the 14th consecutive quarter of positive same site growth and, excluding redevelopments, our US same site NOIs would be 3.1%.

As Glenn mentioned, we have added a detailed breakdown of our same site NOI so you have a clearer picture of our portfolio. Leasing volume continues to be strong and we have signed 183 new leases in the US for a total of over 900,000 gross square feet, driving our overall occupancy levels up 40 basis points gross and 60 basis points pro rata over occupancy in Q3 2012.

US occupancy alone increased 100 basis points pro rata over the same quarter last year. On a US same site basis, occupancy grew 70 basis points pro rata year-over-year, mainly due to positive net absorption. Quarter over last quarter, overall occupancy was up 30 basis points pro rata and 20 basis points gross.

Anchor occupancy increased 40 basis points to 97.4%. Small shop occupancy was up 40 basis points to 84.7%, an 80-basis point increase from the third quarter of 2012. The increase in small shop occupancy continues to be driven by positive net absorption and the disposition of riskier assets.

Our small shop space percentage of total GLA at 24% is amongst the lowest in the industry. Given that demand for large boxes is very strong and occupancies are high for this space across our sector, Kimco is benefiting from this trend through higher rents for a larger portion of our portfolio.

Our combined leasing spreads have now been positive for nine consecutive quarters. Third-quarter leasing spreads were a healthy 13.7%, mainly driven by our junior anchor deals. However, both mid-sized shops, or those between 5,000 and 10,000 square feet, and small shops, those under 5,000 square feet, reported positive pro rata spreads as well.

Additionally, we continue to see the advantage of old leases in our portfolio coming to the end of their term. A former Firestone Tires lease from 1973, paying only $3.21 in Savannah, Georgia, was replaced with a Jared's Galleria of Jewelry at a rent of $25 a foot.

Renewals and options additionally posted a positive spread of 4.8%, driven mainly by an old under market Rite Aid lease from 1983 paying $30 a foot in Bridgehampton, New York and renewing at $47 a foot with no tenant improvement allowance or landlord work.

This past quarter we have spent a large amount of time in the field touring over 100 assets, and I am excited by the creative and collaborative approach of our team, which is what makes Kimco so special. We have proven that our recycling efforts have been meaningful to date and the improved quality of the portfolio has reinforced the pride of ownership among all of our employees.

We now have close to 50% of our NOI coming from the following 10 metro areas. 12% from the New York, New Jersey, Long Island area, 5% each from Los Angeles, Miami, and Philadelphia, 4% each from DC and Baltimore, 3% each from San Francisco, Phoenix, San Juan, and Chicago. And our average base rent is now $12.92, up 11.2% from our last Investor Day in 2010. While we are pleased with our overall progress, we still have work to do. And we will continue to reshape Kimco portfolio and constantly work toward becoming the best in our industry.

And now, I will turn it over to Milton for his final remarks.

Well, thanks, Conor. Conor's passion and enthusiasm for our business is contagious to all of us.

I'm pleased with our overall progress. Our focus continues to be on quality core markets and simplification. The trading from Mexico to Massachusetts, the upgrading of our portfolio is in full swing. We have sold over $1 billion of shopping centers since our last Investor Day in 2010. Our investments in Super Value and Albertsons continue to proceed according to plan and we expect that there will be very substantial creation of value.

And we also continue to execute on our plan to simplify. Since the beginning of 2012 the number of properties held by joint ventures has been decreased by 133. The GLA in the joint ventures decreased by 19.5 million square feet. And our gross investment value in real estate joint ventures has decreased by $1.7 billion.

Finally, I can never say enough about the quality and depth of our team. I believe it's a key differentiator for us. Our four US regional Presidents manage portfolios so large they could each be independent REITs. Their industry reach and experience is second to none.

Collectively, they have 111 years of experience in the industry and 47 years with Kimco. They are working our portfolio, increasing value, and delivering results. It's a very, very exciting time for Kimco.

And now we'd be delighted to take any questions.

Laura, we're ready to move on to the Q&A portion of the call.

Certainly.

(Operator Instructions)

Our first question will be from Michael Bilerman of Citi.

Yes, thank you. Good morning. Dave, can you just go you through some of the strategic rationale in terms of -- I can understand Latin America in terms of exiting and simplifying as investors can have their own choice to invest in that market through listed players. As much as I love Canada, being a Canadian, couldn't you make the same argument about Canada and just becoming a US pure play and how you think about that dynamic?

You could certainly make that case, Michael. But we have such a wonderful portfolio up there that's driven very strong earnings and we believe there's upside in the portfolio as it stands today. The market up there is so strong and the rents are going to grow even further than they are today.

Our occupancy there, I think, has never been lower than 96%, and it's been a very strong contributor to earnings. And quite frankly, the sale in Canada would trigger taxes that are much more meaningful than the taxes we have in Latin America. So there is a tax consideration, long-term.

We also have wonderful public company operating partners up there such as RioCan and Plaza Corp and both of them are wonderful partners and have created enormous value over time above what we bought. So we consider Canada, those assets, very high quality. Most analysts give us very high marks for our Canadian portfolio. We see continued upside up there.

And many of our US tenants are also there. So, whether it's Target and Walmart and Home Depot and others, we share a common platform with them for Canada. So you're right in terms of your thesis, but I think for now we consider it part of our very high quality international portfolio.

And then the decision to completely exit Mexico, because we heard over the years, Dave, the same thing about, look, there's US tenants and it's US-based leases with US dollar denominated leases for a lot of the anchors. I guess why then now completely deciding to exit Latin America then?

I would say two-fold. One is, despite our passion for the long-term prognosis of Mexico and what's going to happen there, we were really never able to convince the investor and analyst community of that, and our assets there were valued at a discount and our multiple, I think, suffered a bit in terms of Mexico.

And then we got hit with everything from drug violence to the great recession, which took some of the gloss off Mexico. Secondly, it's a wonderful time to exit. The capital markets, after many years of being very silent in Mexico, have exploded in terms of the valuation of assets and we have great assets down there.

In terms of the number of companies that are either public or want to go public, they're trying to aggregate assets. So we think the timing is good in terms of selling and disposing of the assets.

And since we were able never to make a compelling and convincing case, even though we still are strong believers long term in the prospects for Mexico, I don't want anybody to think that this means that we don't think Mexico is a wonderful country with wonderful long-term growth prospects. It's just that for us as a public Company, we never really got credit for being there and it's a good time to go home.

Okay. Thank you.

And the next question will come from Jeff Donnelly of Wells Fargo.

Good morning, guys. Just a follow-up to that. Can you talk about the net proceeds you expect to realize in total from the executed as well as pending sales in Latin America? And what assumptions you've made in your guidance for next year for the timing and maybe yield on reinvestment of those proceeds beyond just the New England purchase you've announced?

Sure, Jeff. In total, you'll probably see around $900 million in total. You've seen what we've already produced so far. And proceeds will be used to really buy US shopping center assets. So, you have things like the Boston portfolio plus many others assets that are currently under contract that total about $575 million.

And redevelopments. I think the redevelopment pipeline is a target for us to really reinvest and it's a great use of our capital at this point.

Just to clarify, were those net proceeds you were saying or is that -- that's the gross figure you expect to realize?

Those would be our net proceeds.

That would be our share.

Our share.

Our share.

Correct. And then those reinvestment opportunities, you think they're more front-ended in 2014?

Well, I think you have about $260 million that will close in the fourth quarter of this year, and then probably about another $300 million -- $350 million that will close in the beginning, first quarter of next year.

Great. Thanks, guys.

And our next question is from Craig Schmidt of Bank of America.

Thank you. I guess my question is on the Boston portfolio. I wonder if, Conor, you could characterize when you can start to capture some of those below market rents, when they roll over? And then how soon you can start pursuing redevelopment projects on that portfolio, as well.

No problem. We actually are pretty excited about the lease rollover in that portfolio. It's got above average growth. When we were underwriting the portfolio and touring the properties, we were pretty excited about the repositioning opportunities.

There's a few significantly below market grocery stores, as well as office supply users that are coming up to the end of their lease term, and we believe that we can either reposition the asset with a best-in-class grocer at significant market rent increases. In addition, we see that the small shops have been relatively flat versus market. So we think that there's upside in the small shops, as well.

It's a highly occupied portfolio, so it is going to be over the next five to 10 years when leases mature that we'll see that growth, but it's a play for us to really see long-term value creation, and that goes for the redevelopments, as well.

There's a few larger projects that we think are achievable because of significant density that could be added to our urban properties in that portfolio, but then there's also smaller redevelopment potential to add outparcels to a number of properties. It's a little bit of everything in the property portfolio that we're excited and can't wait to dive into.

Thank you.

And the next question is from Andrew Shaffer of Sandler O'Neill.

Thanks. It's good to see the continued progress in selling out of Mexico and Latin America. But looking at the $190 million of combined losses potentially taken, I was wondering what controls have been put in place for you to avoid future non-core investments as you put the $400 million of cash to work that's currently on the balance sheet?

Well, you have our commitment to maintain the strategy we have in terms of focusing on core retail in the US and in Canada. Honestly, we actually made a lot of money in the non-retail assets as well. I mean, it's not all a bad news story there. But we recognize that as a Company with a 50-year history and expertise in retail, that's where we want to be going forward.

And over time, we want to emphasize our key markets in the US where we have scale and relationships of long-standing. We want to emphasize larger scale properties which can unlock opportunities to redevelop and expand those properties. We're going to become a little more urban than suburban because that's where the jobs are going and the population growth.

That's where the retailers are more productive and that's where they want to pay higher rent. We do have a strategy that we're committed to long term and that's where we're going.

The other thing that I would add is, when you look at what will remain subject to currency translation, it's really all --- it would all be in Canada. And in Canada we're naturally hedged because we've issued all Canadian denominated bonds that match our equity portion. So that risk is gone.

And we did that somewhat in Mexico. We have MXN1 billion unsecured facility that is a minor hedge of what's there. But that was what was used.

Okay. Thanks, that's it for me.

And the next question is from Jason White of Green Street Advisors.

Hello, guys. Just wondering when you look at your US portfolio of 700 and some odd assets and you look at your activity over the last few years, or at least on the disposition front, how much of that portfolio do you consider non-core? If you could snap your fingers today and sell a portion, what percentage of that portfolio would that entail?

Today it's less than 10% and we're really focused on growing into the larger assets, the core markets. So, we have broken up our portfolio to see where the juice is, where the growth is, and we have over 550 assets that we deem as really strong long-term core assets with above average growth.

So the lion's share of the portfolio is -- of today is what we determine as core. That said, we did add another 60 assets that I mentioned to our disposition pipeline and we're going to continue to be an active portfolio manager. I think that's now become really going forward a big change for Kimco.

And once we move through this next 60, it will probably be less transactional volume, but still, we'll still be actively managing the portfolio and looking to see where the retail nodes have shifted, where the demographics have shifted, and where we perceive risk and could exit out of properties that we think may have negative growth.

Are there any themes to the vintage of the properties you've been selling or are they just properties that have been acquired throughout time and there's no real rhyme or reason to any chunk of those?

It's been a very detailed process. We've gone back through each region and talked about tertiary markets where we have to either don't have scale in a certain market, where we only may have one asset or two assets in a certain market, and we see that the growth isn't up to Kimco's standards.

Again, if the retailers that are anchoring that property are not producing high sales, we consider that a risk and think that it's time potentially to exit those properties. We also look at the trade areas. We want to see where the growth is coming from in demographics.

So it's been a very detailed approach. And so each time we go through the disposition pipeline, we also take a look at the existing portfolio to see, should we consider adding more, or should we consider taking away more.

Thank you.

And our next question is from Rich Moore from RBC Capital Markets.

Good morning, guys. I'm curious, on the Boston portfolio it sounded like you were saying you had some street retail in there, too, in addition to what you characterized as urban. And I'm just curious whether you do or you don't. I would of course like to hear that.

But what do you think of the street retail concept? It's obviously gotten very hot here recently, and is that something you are looking at or would consider looking at going forward?

It is hard to describe it as street retail because it is urban because it's located in the Boston Metro area, but it does have its own parking field. Really the two most urban properties would be the Trader Joe's that really has its own parking field, as well as the Whole Foods next to Boston College which also has its own parking field.

So, we typically like to have control over the parking field. So, it enables us to create larger redevelopment potential. Street retail, I think, is very limited in terms of your opportunities to create value long term. It's really more of just a re-leasing effort on street retail. So we enjoy having urban properties, but that have critical mass that allows us to create value over time.

Great. Thank you.

The next question is from David Wigginton of DISCERN.

Thanks. Good morning. Just following up on the earlier Canada question, wanted to get a sense of how you view the high and continually rising Canadian household debt levels in the context of your strategy for the market? And do you think the embedded growth you mentioned is potentially at risk as a result of that?

Well, the Canadian economy is actually holding up quite well, and does not have some of the long-term issues that the US has, particularly in the real estate area. It's under-retailed by metrics that you would look at for the US. It has about half the retail per capita that the US has.

It's very difficult to build in Canada at the end of the day, and so for the future, we see continued demand exceeding supply up there, and we continue to see Canada as an attractive expansion market for US retailers. You're seeing a whole slew of retailers go to Canada, a wonderful expansion opportunity, Nordstroms among others going up there recently.

So we're excited about where Canada is going. We're excited about our own portfolio, which is very high quality and if you're ever in the area, we'd be happy to take you for a tour. They're good long-term properties. They've been great performers.

We were very fortunate to buy them at a time when cap rates were very high and the currency was weak. So we have some very large embedded gains in our Canadian portfolio and it's producing very strong earnings, very strong FFO for us and that growth should continue.

How does the tenant base there compare to your US tenant base?

They're similar properties. These are largely open air properties. We do have some enclosed properties, but they're largely open air, both grocery anchored and big box centers, spread across -- as you know, Canada has six major cities and they're primarily located in these six areas. But it is a national portfolio and, as I mentioned, we've got some very wonderful operating partners that are very good at what they do.

Okay. Thanks.

And our next question is from Brandon Cheatham of SunTrust Robinson Humphrey. Mr. Cheatham, please go ahead.

Sorry.

Brandon Cheatham, are you on the line?

Hello, can you hear me?

Yes, we can.

Sorry about that. I was on mute. On the capital recycling plans, for the net proceeds you expect to get from the Mexican assets, on the acquisition front given where cap rates have come over the last three or four months, are there any markets where you're hesitant to enter into and how do you expect to add value with those proceeds?

We look very hard at acquisition opportunities, and I think Conor hit it on the head when he said our first preference is off-market and negotiated opportunities that come from long-standing relationships and the size of our Company. We do look at an awful lot of things and then we screen these opportunities on a couple factors.

One, whether these are markets that we're already in and we like the long-term demographics and trends of those markets. And then we look at the properties themselves, whether we believe that this great embedded growth of the NOI and whether there's redevelopment possibilities and other things that can really drive some earnings for those properties.

So we know it's a good time to be careful. And we are trying to be careful in underwriting in depth these opportunities, but we do see a lot, and we're fairly confident that we can redeploy that capital into high quality properties with some upside.

The other advantage we do have is the regional framework that we've set up. So we have all these people on the ground in their particular regions who are scouring and talking to brokers, private property owners, and the like. And that's really where we've been able to source many of these deals both on a, whether it be brokered or on a private negotiated standpoint.

So I guess overall uses of those proceeds expectations haven't changed?

Right. We do believe we can redeploy this capital at good long-term NOI growth patterns.

Plus feed the redevelopment pipeline.

Okay. Thank you.

Next we have a question from Michael Mueller of JPMorgan.

Hello. I think you touched on this a little bit earlier with specific transactions slated to close later this year. But if we're thinking about 2014 as a whole and thinking in terms of your pro rata share of, say, acquisitions and dispositions, do you think you're a net acquirer in 2014, or do you think it's a wash, or do you think you're still a net seller?

Michael, I think you're going to see us be a net acquirer by somewhere in the $150 million-ish range when we put it all together.

Okay.

Net acquirer in the US, so it's --

Yes, net acquirer in the US, yes.

In the US. What about overall, though, if we're thinking about that?

Overall, as well. We're going to take the proceeds from the Latin America sales, as well as the sales from the US assets we're selling, and redeploy them primarily into the US assets that we've already earmarked.

And free cash flow.

Yes.

Got it. Okay. Thank you.

Next we have a question from Ross Nussbaum of UBS.

Hello, guys. Good morning. Can we talk a little more philosophically about your investment management program? And I'm wondering if you think, just as though the market never really gave you full credit for the Latin American investments, do you think that the market doesn't fully recognize the benefits of the investment management program?

And I know you've already been reducing some of that exposure, but is it reasonable to assume that over the next couple years, particularly as you have a number of those relationships where the debt is maturing, that you're going to step into 100% ownership and continue to take full ownership and simplify from that perspective?

Yes. I'll take them one at a time. Yes, I do believe the market doesn't give you full credit, and does give you a bit of a discount, depending on the amount and the magnitude of the joint ventures. I think you've got some of the highest quality companies in the REIT world that do have specific joint ventures.

In our case, we have an awful lot of them. We have over two dozen institutional partners in various forms and we have all sorts of programmatic joint ventures and co-mingled funds. And we recognize that perhaps we have much too many of them, and you have seen us reduce that number and you will continue to see us reduce the number of joint ventures and partners over time, and we think that's a good thing.

That doesn't mean we think joint ventures are bad and joint ventures can lead to opportunities and certainly has helped us in terms of incremental earnings from fees and promotes and things like that. Secondly, there's that intangible that we have found and discovered that certain partners want out at certain times, and we are able to take advantage of that and get what we believe is a discount for them owning a partial interest and saving on brokerage fees and assumption costs and things like that.

So we're able to take advantage of that. And UBS is an excellent example, because our cost to buy back a bigger share of that portfolio, the cap rate was over a 7% and those assets would trade, we think, as 100% owned assets, a 6% or even lower than a 6%. So there was value created through the acquisition of that portfolio.

So those opportunities we continue to look for, and we're proactive about finding those and we've done a good job I think finding those opportunities. So over time, philosophically you'll see us have less joint ventures, and we believe that will help in terms of the multiple and so forth.

And in terms of dollars, we're talking here -- there's over $10 billion of assets at play, of which you've got in some cases 15% stakes in or 33% stakes in. Are we going to be talking over the next couple years here of $5 billion-plus of what would effectively be acquisitions from that built-in pipeline?

No, no. In the first place, of that 10, Kimco probably owns more than 40% of that 10 to start with, on average. And you have the debt, obviously, to boot. So you start with our average ownership being 40%, you take out the debt, and so forth.

And we do have partners that we value very highly such as GE Pension and Prudential which have made it clear that they're long-term holders. They're not interested in buying out. And some of the larger ones that have expressed an interest, such as UBS and several years ago DRA, we have consummated those transactions.

So the future opportunities, I think, are going to be smaller, but we're working at them. And again, I think one of the goals is to take those two dozen institutional investors down to perhaps five or six for a longer time period.

Thank you.

And the next question is from Samit Parikh of ISI.

Hello, good morning. I hate to keep asking about the transactional activity next year, and how it relates to your guidance. But just to clarify, so if you said $900 million of net proceeds, and $150 million of a net acquirer, you're probably acquiring a little bit over $1 billion here.

But given the lower cap rates on the acquisitions, it's probably a net push on the transactional activity relating to NOI. Can you go over the other drivers that get you to the guidance range to next year internally, what you're thinking since you have to deal with dilution of the hotel portfolio completely coming off and other dispositions earlier this year?

Right. So Samit, we're going through our final review of all of our properties, but embedded in there will be redevelopments that come online, contractual rent bumps, interest cost savings from the refinancings that we've done, as well as bringing these acquisitions on at a particular time.

So we think when we put it all together that we're comfortable with this initial guidance range that we put out, but as I mentioned, we will give you more detail on our next call when we have finalized the review of our 800 properties.

I would just add, historically, we haven't had the large dilution you might have expected when you take into account that we have sold non-retail assets that were not producing income, such as our large urban portfolio in Philadelphia and others. So as we sold those assets, we got cash in that wasn't earning for us.

Secondly, as we wound down our preferred equity portfolio, we've been fortunate including this quarter to get large profit participations, which is real cash, which can be used to buy new properties and offsets that dilution. And then third, over the last couple years the home run investment in Albertsons produced quite a bit of distributions to us that was real cash that goes into the kitty, as well.

And then we have our free cash flow of $100 million or so a year. So you put all that in the blender and you don't quite have the dilution you might think about on paper when you're selling at 8%-ish and buying at 6%-ish.

Okay. So just to clarify the last question, the $1.36 to $1.40 (see press release) range next year, that includes probably some promotional income activity from some of these sales?

No. No, there's no transaction income or expense in those numbers. This is purely coming from the operating portfolio and the management of G&A costs and interest costs.

My point was we've gotten cash that we have now --

Got it.

-- used to invest in income producing assets.

Thank you.

And our next question is from Nate Isbee of Stifel.

Hello, good morning. Dave, just going back to that discussion about unwinding some new joint ventures. You are marketing a small portfolio here in the Mid-Atlantic that seems to be what I would call real high-quality core assets.

They are joint ventures. And is that a property specific issue? Is that a pricing disagreement with the seller? And as much as it's been an opportunity for you in the past, is it getting harder to come to an agreement with some of your joint venture partners?

No, I think the specific ones you're referring to is a situation where we've agreed with the partner it's probably best just to put them on the market. There was the bid ask on several of them and there was an asset that we didn't want to buy. So we agreed to put those on the market.

Okay. So I mean, it's not like you did the DRA, you did the UBS, and as you get farther into this process you're finding it more difficult?

No. In some cases you have a partner that does want to go home, but you can't quite agree on a price and so those properties are marketed. But at the end of the day, you'll have one less venture and one less institutional partner.

All right. Thank you.

And I think part of it is you'll get some nice price discovery out of this, too, and you'll see these things are going to trade at a very low cap rate.

They will. Thanks.

And our next question is from Chris Lucas of Capital One.

Good morning, guys. David, just a basic question about the transaction environment, which is -- could you just give us some color as to how cap rates have trended over the last six months and what the opportunity set has looked like in terms of the change in volume of deals available?

I guess I would make three points in general and then open it up to others to comment. But the very high quality properties continue to be very competitive, and if anything, cap rates continue to go down notwithstanding the slight rise in interest rates ever since May. There's been no fall-off in the demand or competitive nature for the A quality properties.

Secondly, in terms of the B properties, both in quality and perhaps secondary markets, there has been a pick-up in demand for B properties as people are unable to buy the A properties and the yields are a little higher and there's still a very positive leverage available. And there's more debt available now for B properties.

So we see the assets that we've been selling, B assets, call it 8.5 average, go down to 7.5 average. So cap rates have continued to come down on the B assets overall. And the third point I wanted to make is I think beginning in May with the prospect of rates rising over time, you've seen sellers saying maybe the train is starting to leave the station.

So I'd say a few more properties are coming to market than have been in the market as people try to make sure that they catch these high prices. So I think you'll see the number of assets on the market continue to go up, which should lead for opportunities.

That said, the demand side remains high. The pension funds and the life insurance companies, the sovereigns, the REITs, and so forth, real estate is back in favor. It's a hard asset with a good cash yield. You can still buy below replacement costs while cap rates are still at historic lows.

The NOI is down that you're capping, so you're able to buy on a price per foot basis that still seems reasonable compared to replacement costs. So, I think you're going to see a good dynamic market coming into 2014, both from a buyer and seller side.

Laura.

Yes, okay. I wasn't sure if he was done, sorry. We have our next question from Luke McCarthy from Deutsche Bank.

Hello, guys, good morning. I know you talked a little bit about in your early comments that in general across the board, at least domestically, things are very strong geographically. Can you just talk about where you're seeing relative softness, and is that where we should expect you to focus your dispositions?

And then, secondly, given what you just said about cap rates and that potentially making things a little bit more challenging on a deal by deal basis as an acquirer, can you talk a little bit about the sustainable level of redevelopment we should expect from you guys as you recycle that capital moving forward?

Sure. Why don't I start on the first part. We see the highest growth recently in the Northeast and the Mid-Atlantic from a same site NOI growth perspective. And that's really why we're so excited about the recent Boston portfolio, is because we've got a track record, we've got boots on the ground, we've got a Boston office, and we've always wanted to expand that portfolio. It's just been very hard to find accretive acquisitions in that territory.

So that area I think is one for us that we earmarked as a very high growth potential and we see it consistently quarter-over-quarter producing significant results. The next portion of the question on where we're targeting dispositions, it's really going through each and every region.

The regions are very large, so it's hard to give you a specific territory that we're exiting. But what -- in general, what we're doing is we're focusing on the core MSAs that are healthy, that are growing, and we're looking to see, okay, where are those assets located that are no longer in the growing markets that we see as potential downside risk, and then exiting those markets.

So you'll see us exit out of areas where we think there's the tertiary market or where retail sales have started to either flatten out or go negative, and we'll continue to prune the portfolio in that regard.

I would just add one comment on the redevelopment side. As we mentioned earlier, as rents start to jump and they are jumping, they're not going up 2% or 3%, they're going up $1, $2, $3, more redevelopments become financially feasible or viable. And that's what's triggering a lot of this.

Redevelopments that didn't make sense two or three years ago now make sense because the retailers are hungrier, they're willing to pay higher rents, and so we're optimistic if that trend line continues, you will unlock other redevelopment in our portfolio with 900 properties or so. We have a lot of inventory and when rents get to the right level and the demands gets there, it triggers even more redevelopment opportunities for us.

Okay. Great. Thanks, guys.

And the next question is from Michael Bilerman of Citi.

Thanks. Glenn, there's been just a lot of numbers thrown out on all the transaction activity. I was wondering if you can just be a little bit specific? What you disclose in the press release in terms of what's been announced, the $230 million of sales, the $270 million that's under contract in Boston, call it $400 million of Mexico and LATAM.

Conor talked about 60 assets that are part of the disposition plan. You also talked about $610 million of acquisitions of which I assume $270 million is Boston. Maybe if you can just be very specific in terms of what is your net share of acquisitions and dispositions in the fourth quarter?

And how much is embedded for next year, because obviously that plays into where numbers will shake out? And then just secondarily, what top-down assumption have you used for same store in coming up with the forecast of $1.36 to $1.40?

So first, let me just clarify the $900 million of proceeds from Mexico. $400 million of that will be in 2013, of which over $325 million of it's already closed. So the balance will come, $500 million or so will come in 2014.

As I mentioned also, we will close on about another $260 million of acquisitions in 2013 during this quarter. There's another $350 million of properties that are under contract including the Boston portfolio. But net-net, when you look to 2014, we're looking at somewhere in total around $800 million of acquisition, of which we've already identified $350 million of it.

So that's there. As far as a same site NOI growth level, as I mentioned, we're going to give you that at the next call, because I want to finish doing it and we want to give you a very good, accurate number, but I am very confident that it will be positive and remain positive.

So from a transaction activity, then, if you have $500 million left to go, either later this year or into next, but then from an acquisition perspective you have a $1.1 billion that's left to close. Am I not thinking about that the right way? I'm trying to think from the instant point --

In total, yes, in total, you're right. We're going to close $260 million this year and around $800 million next year. That's right.

And you're only getting in $500 million of --?

Of which the GAAP is already identified.

But right, you're only getting in $500 million in net cash. So you're going to be spending $600 million?

No. We also have about $300 million or so of retail assets that are part of the 60 assets we announced that we would be selling that's going to come in as well.

So in addition to the $500 million --

Plus we still have a little bit left of the non-retail.

A few non-retail assets that we expect to close.

Right.

Some before year end. We have free cash flow. So we have other sources of cash.

And we have some more closings of sales in the fourth quarter, as well. So you'll get to the net-net, Michael, of roughly $100 million of a net buyer when you're all said and done, $150 million of a net buyer.

From this point, from basically fourth quarter through 2014, $100 million of net which is easily funded through free cash flow?

Correct.

Okay. Thank you.

And our next question is another follow-up from Samit Parikh of ISI.

Hello, thanks for taking my follow-up. Wanted to see if you could comment on the economic situation in Puerto Rico? And what your thoughts are on if that can have an impact on midterm maybe next three to five years, consumer demand and what impact that could have on your exposure out there?

Well, I'll give you just a high level to start with. I mean, Puerto Rico has been in an official economic recession for almost five years now. And notwithstanding that, because the island is so under-retailed, and because culturally the Puerto Ricans just love to shop, our retailers have done well, our shopping centers have done well. And the rent growth is real there and the list of retailers that want to open up in Puerto Rico, notwithstanding the economy and the fiscal situation of Puerto Rico.

The tax proposals that would have meaningfully impacted both landlords and tenants have been muted and taken back off the table recently. So that dark cloud seems to be not as dark as it was. So I think longer term, we're very happy with what we have in Puerto Rico and we feel good that the retailers will continue to do well and our occupancy will continue to be high, and it will be a good contributor to earnings.

Do you think that there's any possibility or how do you handicap the possibility of increased income taxes and maybe a crackdown on the taxing of some of the underground economy over there and what that could do to disposable income?

Again, some of the more Draconian proposals have been tabled. So that was what we as an industry group were a little bit afraid of. Whether they are successful cracking down on underground, that's very difficult to do. You can see that in Mexico and other places.

And I think embedded in the culture of Puerto Ricans, they just love the shops and the tenants that we have are doing well. So yes, it's certainly something we watch and we monitor, and we participate in industry lobbying efforts to make sure that new legislation doesn't hurt us too bad. But I don't think there's anything meaningful that's on the immediate horizon there that causes us to be fearful.

Appreciate the thoughts. Thank you.

And this does conclude our question-and-answer session. I would like to turn the conference back over to David Bujnicki for any closing remarks.

Thanks, Laura, and to everyone that participated on our call today. As a reminder, Kimco will be hosting an Investor Day on December 12 in New York City. Details for this event are available on our website at Kimcorealty.com. We look forward to seeing you there.

Finally, additional information for the Company can be found in our supplemental that is also posted on our website. Have a good day.

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