Kimco Realty Corporation
Q2 2013 Earnings Call Transcript

Published: 1 Aug 2013

[Operator:]

Good morning, and welcome to the Kimco Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. David Bujnicki, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

[David F. Bujnicki:]

Thanks, Yusef. Thank you all for joining Kimco's Second 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, our Chief Financial Officer; Conor Flynn, our 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 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. Reconciliations of these non-GAAP financial measures are available on our website. And 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'll now turn the call over to Dave Henry.

[David B. Henry:]

Good morning, and thank you for joining us today. We are pleased to report a very strong and eventful second quarter. In addition to solid financial results, we've made excellent progress on many of our long-standing key goals and objectives. First, let me officially welcome and introduce Conor Flynn, our Chief Operating Officer. To those on the call who may not have met Conor over the years, Conor has now passed his 10-year anniversary with Kimco in a wide variety of regional operating roles, most recently as President of the Western region. Conor brings to the senior team a wealth of field experience, including leasing, property management, construction, asset management, redevelopment, acquisitions and dispositions. Conor is a proven manager and leader, and we are very happy to have him join us here in New Hyde Park. Giving up sunny, seasonal and exotic San Francisco to relocate to New York shows Conor's dedication and commitment to Kimco. I encourage everyone who has not met Conor to spend some time with him as opportunities arise at industry events, analyst roadshows or property tours. Glenn will provide financial details for the quarter this morning. But in general, we are very pleased across the board in terms of exceeding our income projections and delivering very strong operating metrics. Overall, our industry maintains its quarter-by-quarter recovery. Retailers continue to grow their expansion plans and, coupled with a 35-year low in new supply, effective rents are moving up materially. Consumer spending and retail sales are also doing well despite the sequester and the beginning of rising interest rates. The annual ICSC meeting in late May in Las Vegas was very positive, with attendance up significantly and a net increase of 100 exhibitors in the convention hall. Planned new store openings continue at a 5-year high, and most retailers remain optimistic about 2013. In retrospect, and with full credit to Glenn, our timing on our $350 million 10-year bond was wonderful, and we were also very happy with the 7-year $200 million Canadian bond we issued 2 weeks ago. The new Kimco bonds, together with last year's preferred stock offerings and our steady stream of mortgage refinancings, have created substantial interest rate savings for years to come. During the quarter, we also achieved several important milestones. Permit us a small celebratory dance as we note the final closing of the InTown sale, which, together with a large number of other nonretail property sales, results in a current total of nonretail assets of approximately $180 million, representing approximately 1.5% of our total assets. We truly believe that the nonretail aspect of the company is now almost completely behind us, and our energies can be totally focused on delivering strong operating metrics and significant improvements in the demographics and profile of our high-quality retail property portfolio. We're committed to continuing our recycling efforts whereby low-quality, secondary market assets will be sold and replaced with high-quality properties in our core primary markets. Our scorecard to date, selling 121 properties since December 2010, totaling approximately $900 million, while concurrently adding 66 properties, totaling approximately $1.5 billion, reflects our commitment to this ongoing program to upgrade our portfolio. With respect to Latin America, we closed on the previously announced sale of Kimco's interest in a portfolio of 9 shopping centers in Mexico for a gross sales price of $274 million. In addition, the pending sale of our industrial portfolio in Mexico to Terrafina for $600 million remains on track, with Terrafina shareholders voting to approve the transaction on June 17. As a final note, we also sold our interest in 9 of our 16 South American properties last week to Patio, our primary operating partner in Chile, for a gross sales price of $50.2 million, which includes existing debt of $35 million and a solid gain. We anticipate the remaining 7 South American assets will be sold by year end, 5 of which are currently under agreement. The second quarter was also noteworthy with respect to the purchase of a number of properties and joint venture equity interests from existing institutional partners. The previously announced purchase of UBS Wealth Management's equity interest by a new Blackstone/Kimco joint venture was completed based on a gross purchase price of $1.1 billion and a nice accretive cap rate. During the quarter, we also acquired essentially full ownership of 2 large properties, Marketplace at Factoria and Canyon Square Plaza, from existing joint venture partners for a gross purchase price of $146 million, while also increasing our ownership stake in both the Kimco Income REIT, KIR, and the Kimco Income Fund, KIF. As Milton has noticed -- had noted before, our large joint venture portfolio represents a reservoir of opportunities to acquire high-quality properties on a negotiated basis, whereby we benefit from having managed and leased the properties for many years and being able to easily assume any existing debt. Now I would like to turn to Glenn to discuss the financial details for the quarter, to be followed by Conor's in-depth discussion of our U.S. portfolio results. And then Milton will, as usual, bat clean-up with several general observations and trends.

[Glenn G. Cohen:]

Thanks, Dave, and good morning. Our positive second quarter results are a continuation and testament to the strategy we articulated and have been executing since our 2010 Investor Day. The quarterly results are highlighted by solid operating metrics, the monetization of the nonretail assets and further capital recycling. We have used the proceeds toward the acquisition of higher-quality assets and joint venture interests. In addition, we continue to reduce our cost of capital and maintain a strong balance sheet with excellent liquidity and access to capital. Let me provide some detail around the quarter. As a reminder, we continue to use the term FFO as adjusted to represent recurring FFO, which excludes transactional income and expense and nonoperating impairments. Headline FFO represents the official NAREIT definition. As we reported last night, headline FFO and FFO as adjusted came in at $0.35 each per diluted share, up from $0.34 for headline FFO last year and $0.31 for FFO as adjusted last year, representing a 12.9% increase for FFO as adjusted. Headline FFO includes impairments of $15 million related to undeveloped land under contract and $15 million of transaction income, including marketable security gains. The drivers of the FFO as adjusted growth are primarily attributable to a $7.7 million increase in NOI at the property operating level and reduced debt and preferred stock cost of $7.6 million compared to last year. The operating team delivered strong operating metrics. U.S. occupancy increased 60 basis points, bringing it to 93.9%, and combined occupancy reached 93.7%, a 40-basis-point increase from last year. Our U.S. leasing spreads were 16.7%, with new leases coming in at 28% and renewals and options at 13.7% for the quarter. Our U.S. same-site NOI growth was 4.2%, and combined same-site NOI growth, which includes Canada and Latin America, was 4%, representing the highest levels in the past 6 years. This solid performance is the result of our continued effort to upgrade the portfolio through our capital recycling program. Since mid-2010, we have sold 121 properties with an occupancy of 85% and an average base rent of $8.72 and replaced it with 66 assets with an occupancy of 95.7% and an average base rent of $14.28 in our key markets, with population levels 20% higher and income levels 30% higher. We've also benefited from a portfolio that has hundreds of leases that are over 20 years old with below-market rents and an improving economy during a period of minimal new development. We are focused on the review of each asset and where we perceive significant risk. We will market those assets using the proceeds for future acquisitions of wholly-owned properties and joint venture interests for properties which we already manage. With regard to capital recycling, we sold 20 shopping center assets, of which 9 were in Mexico, generating proceeds to the company of approximately $125 million. We recognized $39 million of non-FFO gains on the sale, offset by impairments of $16 million. Subsequent to quarter end, we sold 9 assets in Chile, leaving us just 7 assets remaining in South America. As for the monetization of nonretail assets, we are just about done. With the sale of InTown Suites and other nonretail investments during the second quarter providing proceeds of $177 million, and the sale of 2 urban assets and certain nonretail-preferred equity investments after quarter end for an additional proceeds of $40 million, the remaining nonretail book value is down to approximately $180 million. We recognized approximately $36 million of impairments on the sale of the urban office properties. We are working on the sale of another $100 million of nonretail assets by the end of the year and, as Dave mentioned, with that, the discussion of nonretail will be history. We have been very proactive on the right side of the balance sheet as well. In May, we tapped the U.S. bond market, raising $350 million at a coupon of 3.125% for 10-year money. And then in July, we executed a $200-million, 7-year Canadian-denominated bond at 3.855%. The proceeds from these issuances were earmarked to repay significantly higher coupon debt, including a $100-million bond at 6.125%, a $75-million bond at 4.7%, an upcoming $100-million bond at 5.19% and mortgage debt with a weighted average of just under 6%. The Canadian proceeds will be used to repay a 5.18% $200-million bond in August. These transactions, coupled with the significant cost savings generated from the $635 million of perpetual preferred stock redeemed last year and replaced with lower coupon preferreds, has provided a portion of the FFO growth. Our liquidity position remains in excellent shape, with over $1.6 billion of immediate liquidity available and less than $150 million of debt maturing for the balance of the year. We remain committed to our BBB+, Baa1 investment grade ratings and expect to continue to operate with a consolidated net debt to recurring EBITDA level between 5.5x and 6x, currently at 5.8x, and a fixed charge coverage of at least 2.5x, currently 2.9x. We are pleased to report that based on the strong first half performance, we are raising our FFO as adjusted per share guidance to $1.31 to $1.33 from the previous guidance range level of $1.29 to $1.33. Please remember, our guidance does not include transactional income or expense, but does include the loss of income from InTown, which was quite profitable. Using the midpoint of $1.32 would represent a 4.8% increase over last year. The guidance estimate incorporates the sale of InTown, as I just mentioned, which has a dilutive impact of approximately $5 million per quarter, or $0.025 for the balance of 2013, and the benefits of all of our refinancing activity. In addition, we have increased our forecast for same-site NOI growth to a range of 3% to 4%, up 50 basis points from the original estimate of 2.5% to 3.5%. It is worth noting that since 2010, we have successfully grown our FFO as adjusted per share each year as we executed a significant recycling program which has yielded a stronger, higher-quality portfolio, exited nonretail assets and significantly improved our balance sheet metrics. And now I'll turn it over to Conor for his inaugural earnings call as COO to discuss the shopping center portfolio.

[Conor C. Flynn:]

Thanks, Glenn. I'd like to thank, Milton, Dave and the Board of Directors for the opportunity and confidence that they have placed in me. Our second quarter portfolio performance is not only indicative of the solid market fundamentals in our sector, but also highlights our successful efforts to improve our portfolio and previews where we are headed in the future. We have improved the quality of our portfolio by focusing on 3 major initiatives

[Milton Cooper:]

Well, thanks, Conor. Our entire management team is excited about their interaction with Conor. His enthusiasm for retail real estate and his creative energy to enhance value through redevelopments is absolutely contagious. Conor's passion is redevelop, redevelop, redevelop, and I think it's a great menu. When a center can be expanded at double-digit returns, it is not only a superb use of capital, but it increases traffic and enhances the value of the existing center. We have almost 900 properties that will provide Conor with a wonderful canvas to work with. Now having said that, our portfolio has undergone a dramatic transformation. When Kimco first started back in 1958, we were acquirers. The strategy was that whatever we owned would, over time, substantially increase in value as the country grew, suburbs grew, inflation grew, et cetera, et cetera. So by way of habit, we were acquirers and accumulated large portfolios for both public and private companies. Over the past 3 years, we have kicked the habit and our strategy has been much more refined. We have been selling where we perceive risk, and we buy higher-quality properties with growing cash flows. And we've started to see the benefits of this strategy in our metrics. I would like to also give you my thoughts on valuations. When a common stock or any security is bought, its multiple depends to a great extent on future growth from the business. When a property is acquired, there is an Argus run for 5 or 10 years, and the cap rate depends upon the growth and future rental streams. And it follows that a portfolio should be similarly valued. Our portfolio has had 13 straight quarters of increases in same-store growth, and so far this year, our same-store growth has been outstanding. And we believe we can continue to deliver strong recurring growth into the foreseeable future, and hence, an increased valuation. Now additionally, we've always had an opportunistic bed by creating values out of opportunities with retailers with strong real estate, referred to as our plus business. Our plus business has created substantial value and profits that can be reinvested into high-quality shopping centers with recurring income. In this connection, we are pleased with the results of SUPERVALU and confident that the new management will increase the value of almost 8.2 million shares that we acquired in March. We are excited, we are motivated and we are moving forward to our goal of being a world-class retail REIT with growing cash flows and growing dividends. And now, we'd be delighted to answer any questions.

[David F. Bujnicki:]

Yusef, we're ready for the Q&A portion of the call.

[Operator:]

[Operator Instructions] Our first question comes from Christy McElroy with UBS.

[Christy McElroy:]

Glenn, can you discuss what your bond issue might have looked like if done today from a pricing standpoint? Can you provide some sort of general comments around the changes you've seen in the financing markets over the last 2 months and whether or not you've seen any impact on private market transaction pricing? I know there's a couple of questions in there.

[Glenn G. Cohen:]

Sure, sure, Christie. Well, certainly, the one big difference for sure is just look at the base treasury rate. When we did our bond, we issued when the 10-year treasury was 196. Now you're looking at basically a 260 treasury. And spreads have definitely widened out a little bit. I mean, our spread on that deal was 125 over. Today, we'd probably be around 140, 145. And if you asked me that 2 weeks ago, I probably would tell you it was about 160. So markets move pretty quickly on that side of the world, but it's definitely gotten better and you're seeing more traction. But rates' all-in coupons are definitely higher. The Canadian bond is a different -- it's a different market. It's a smaller market there. Those are done as private placement deals. So again, we feel pretty good about what we were able to do. That market is probably around the same where it is today. So we're probably, on a 7-year deal, somewhere around 180 over. As far as it relates to transactions, we really haven't seen a drop-off in transactions because of it. You still have a pretty wide spread between really where 10-year treasuries are and cap rates from a historic basis. So it really hasn't slowed things down. The CMBS market is open. The bank market is open. The bond market is open. So for right now, it looks pretty healthy to be able to conduct and to transact.

[Operator:]

Our next question comes from Craig Schmidt with Bank of America.

[Craig R. Schmidt:]

While I recognize you're never done with the culling of the portfolio, I wonder where you think you stand with the recycling of the retail portfolio at this point?

[Glenn G. Cohen:]

Craig -- I mean, again, it's something that we continue to look at. Conor and I have -- these 2 months here, we've spent a lot of time looking at the list, working through it and making further decisions about it. There's definitely more that we want to sell, but the amount of ABR that those assets make up, it's pretty -- getting to a level point where it's pretty modest. The assets are smaller. But you're going to continue to see us sell assets, and you're going to -- I think, as you look out 2, 3, 4, 5 years, it just becomes part of the fabric of the business. We are going to continue and analyze where properties, in our view, have risk. And if we see a declining NOI in the future, where the population growth is going the wrong way, you're going to see us market those assets. It's just a different view and a different look at how we view the portfolio today.

[Conor C. Flynn:]

I would agree. I think that actively managing the portfolio is something that's just become a fabric of our company. And going forward, we're just going to continue to take a look at the shifts in retail nodes, the shifts in demographics, and continue to analyze each and every site individually and look to see if it's opportunistic to exit.

[Craig R. Schmidt:]

I'm just wondering -- I've sort of got a sense that we may be shifting into a little bit heavier redevelopment mode as opposed to a buying and selling mode. But thanks for the feedback.

[Conor C. Flynn:]

That's accurate. I think we're definitely -- you're going to see us shift much more into reinvesting in our properties and taking the funds that we can generate from our dispositions and reinvesting into our existing portfolio and redevelopment pipeline.

[David B. Henry:]

Craig, we've basically concluded there's 2 wonderful ways to invest capital. One is in redevelopment, where it's so accretive and so incremental to our earnings; and secondly, buying out joint venture partners because we're able to achieve better-than-average cap rates on those acquisitions. Because we're buying partial interest, we can assume the debt, there's no broker, it's negotiated off-market and so forth. So both of those are wonderful places for us to invest capital on, and that's where we've been concentrating.

[Operator:]

Our next question comes from Samit Parikh with ISI.

[Samit Parikh:]

David, can you just sort of remind us what's left now in Latin America? You said you've sold -- subsequent to the quarter, you've sold 9 assets in Chile. So there's 7 left there, and sort of what the value, you believe, of the -- I guess it's remaining retail assets there are in Mexico, as well, and sort of what your thought process is in terms of the timing of probably disposing of those assets, going forward?

[David B. Henry:]

Yes. Well, let me take it in 2 pieces. We're definitely committed to exit in whole in South America. And of those 7 remaining assets, 5 are essentially spoken to. The 2 in Brazil are still formally on the market and being marketed by Brookfield. But we think we're close on them. The biggest asset we have in South America remains our multi-story mall in Viña del Mar, and we have a tentative deal on that, and that should happen over the next couple of months. So that will essentially clean up South America. Mexico, the market continues to be wide open in terms of the acquisition appetite by the Fibras, or the Mexican REITs, both existing Fibras and Friba want-to-bes, I guess I would say, and we continue to get some nice offers on the remaining properties we have, which are roughly, depending on how you count, maybe 35 shopping centers plus some net lease properties. Plus, we have our Kimco land fund. We've got a one-off industrial property still that wasn't included in the Terrafina sale. So we've got some multiple stuff down there. So we are looking at offers on those. We have not signed any agreements on those in terms of contracts. But it remains an intriguing window of opportunity to sell Mexico assets at cap rates, quite frankly, we didn't think we'd see on an exit.

[Operator:]

Our next question comes from Jeffrey Donnelly with Wells Fargo.

[Jeffrey J. Donnelly:]

Maybe just a follow-up to Craig's question. But as Milton said, Conor, you have a pretty big canvas to be looking at, and I guess, just in the U.S., you have, I think, about 70 million square feet of retail space, and 70% of that is in your top 40 metros. I know you're focused -- or I guess I'd say you seem focused now more on being better rather than bigger. And then when you think about 3 to 5 years forward, do you expect to see similar metrics for Kimco's portfolio? I mean, will they be equivalently sized or equivalently concentrated? Or do you expect to sort of change that mix over the next 3 to 5 years?

[Conor C. Flynn:]

Yes, I think you're going to see us continue look to acquire larger assets that have more meat on the bone, is what we like to say, or more redevelopment opportunities. Those -- really, when you have the acreage involved in a site that's quite large, you have a lot more opportunity to focus on creating value on the property. I think you'll still see us selling out some of our smaller tertiary markets and looking to invest in high-quality properties in our core markets and with a constant analysis towards value creations. So I think going forward, we may not change in GLA, but our site count may change, but as a focus of -- toward the lower assets with higher potential for redevelopments.

[Jeffrey J. Donnelly:]

And you're not -- put differently, you'd be substantially smaller than being in 40-plus metros?

[Conor C. Flynn:]

I think that's accurate.

[Glenn G. Cohen:]

Yes, jeff, it's Glenn. I would say we plan to maintain our national presence. That is something that's very important to us. So you may see us shrink some of the markets that we're in, but the national presence and the diversity and tenant mix that we offer, we think, is a real differentiator for us. So we don't expect that to change.

[David B. Henry:]

It's all within the context of upgrading the portfolio. So it's going to be higher and higher quality over time.

[Operator:]

Our next question comes from Cedrik Lachance with Green Street Advisors.

[Cedrik Lachance:]

I just want to follow-up, actually, on that question through the national presence being important to you guys. What -- can you be specific, I guess, in describing what you see as the benefits of this large national presence versus -- would be the benefits of being more concentrated into, let's say, a dozen markets?

[Milton Cooper:]

Cedric, it's Milton. I'm going to take a shot. It's a good question. And let me say first, from my perspective, national diversified portfolio geographically tenant mitigates risk. In my mind, it gives to me a measure of safety from a point of view of what may happen in a particular month. But most important, the national platform helps our business in this sense. If a retailer wants to -- if a foreign retailer wants to come to the United States, interested in non-mall locations, what a better place to start than Kimco? And it also is an advantage, Cedric, to our plus business. Because when retailers have issues and come, and we have -- in the SUPERVALU, in the -- all of the Save A Lots, we're being compensated and we get opportunities nationally. So the national platform is in a wonderful advantage in that connection, Cedric.

[Conor C. Flynn:]

I would just add that on our portfolio reviews with our retailers, we're really focused on the regional players that are looking to become national. Sprouts Farmers Market is a good example, where they've started out west and are now growing nationally, and we can offer -- and we can show them an opportunity list that is really unmatched by our peers. And we're the largest landlord for a lot of these tenants as well, so that becomes opportunistic when we're going through renewals or looking for opportunities for these retailers.

[Operator:]

Our next question comes from Wes Golladay with RBC Capital Markets.

[Wes Golladay:]

Kimco has been very active buying centers from the joint venture partners. Can you comment on how big of an opportunity this will be going forward?

[David B. Henry:]

Well, we still manage a combined portfolio of almost $10 billion, of which about 60% is held by all kinds of third parties. We probably have 2 dozen institutional and other partners remaining, some of which have indicated an interest to be -- to dispose of their interest. So we continue to have discussions. I'd say UBS was particularly large, so I don't anticipate -- or we don't anticipate a very large one like that. But we are due -- in discussions with some of the moderate-sized partners, and we hope to bring them to fruition in the near future. And as I said, it's probably, next to the redevelopment, #2 on what we want to do. So we're being very proactive in this.

[Operator:]

Our next question comes from Brandon Cheatham with SunTrust.

[Brandon Cheatham:]

It's Brandon Cheatham. I also have Ki Bin Kim on the line. Just was wondering if you guys could comment real quick on -- with the rise in interest rates, how that's changed valuations, and specifically, if you could break out any differentiation between the high-quality assets that you guys are looking to purchase versus the low-quality that you are looking to sell?

[Milton Cooper:]

The first metric that you have to look at is the difference between buying a bond, the 10-year treasury, and an income-producing piece of real estate. The major difference is that with inflation, at the end of 10 years, the purchaser of bond is lucky to have purchasing power of maybe 60%. In a shopping center, you not only have a growing asset but residual values are higher. And historically, while there is a direct connection between cap rates and interest rates, there are limits. There was a time when the prime rate was 21%, treasuries were double-digits. But during that time, cap rates did not go above 10%. So they have been kept in a band that's much narrower than the fluctuation of interest rates. And you have an addition, the benefits on a portion of your cash flow and buying real estate assets tax-free by way of depreciation. So historically, while there is a connection, it's not a direct connection.

[David B. Henry:]

And I would also add, there remains fierce competition for the A -- the prime-quality assets out there. So the east hills [ph] of the world have seen no real slow down in the competitive bidding for the very high-quality assets in primary markets, and those cap rates have definitely continued to be less than 6 for many of those high-quality assets. Also, the general trend towards favorable pricing for even the B assets continues. There's just more money chasing these B assets because there's been frustration out there that people can't acquire the A assets. So the cap rates have continued to drift down into the B category. So as a very general comment, I'd say stuff we sold that was clearly B or B- a couple of years ago were in the 9s, now they're in the 7s. So -- and we haven't seen that back up at all.

[Operator:]

Our next question comes from Nathan Isbee with Stifel.

[Nathan Isbee:]

You've had some success over the last year or so. It seems it's becoming more regular pulling some of these older leases out of the bag with well-below-market rents that you've been able to redo at much higher rents. And you have made reference to the 1,000 leases in your portfolio that are older than 20 years. Can you stratify, perhaps, as we look out over the next few years, how many of them potentially are coming due, just to give a sense of what type of growth it could provide to the portfolio beyond just the favorable macro momentum?

[Glenn G. Cohen:]

Nate, it's a little tough because many of them have options in them. So it really depends on when they're exercised, whether they're exercised or not exercised. So it's a little bit tough to really pinpoint it specifically. But we know, and as you've seen quarter-after-quarter, we get them. I mean, the Kohl's example is a great one. I mean, it's a very old lease at under $2 a foot. You bring this to market. So it's a real benefit of the age and size of the portfolio. Well, Nate, I'm going to out on a limb and give you one example just to make you feel good. We have a property in the city of New York. There's a 100,000-foot tenant who is paying probably a rent that with taxes is almost flat, 0 or negative. And on that 100,000 feet, I think we'll go from 0, negative just to $20 a foot in 2017. That's the one example I can give you.

[Nathan Isbee:]

Okay. I mean, of those 1,000, how many would you say are coming -- or don't have any renewal options left?

[Conor C. Flynn:]

I think it's about 500. So we're running that analysis, and we're digging into the expiration schedules to see where the options are. Some of them have fair market value options or are escalators involved that -- what we can take a deeper dive into. But it's about 500 of the 1,000.

[Operator:]

Our next question comes from Michael Mueller with JP Morgan.

[Michael W. Mueller:]

If we're thinking about the non-retail asset sales, which are wrapping up, what you're doing in Mexico and just the non-core U.S. properties, and then kind of match that up against what you're doing with the JV buyouts, third-party acquisitions, on a look-forward basis, does it feel like you're going to be a net acquirer going forward for the balance of the year and, say, 2014?

[Glenn G. Cohen:]

Well, I would say, for the balance of the year, we're probably going to be a net seller if it all comes out the way we think it will. Coming into 2014, what we'll -- we'll give you a better feel for it probably on the next call, but my guess is you'll probably be a net acquirer somewhat in 2014, but it's going to -- Mike, it's going to be about us looking at assets that aren't just based on what that initial cap rate is. It's really about where we see growth and opportunity in those assets. You're not going to see us buying large, large portfolios of assets that we think have issues with them. It's really -- we're going to be very, very judicious and careful and disciplined about what we're acquiring.

[David B. Henry:]

That said, I would add, besides ramping up the redevelopment, which takes capital and proactively trying to buyout partners, we continue to have opportunities to buy assets in the marketplace, some of which are intriguing to us, and some of these we may be able to negotiate off-market. So I'm a little more optimistic on the acquisition side given our history and our nature. So I'd say we'll probably be at least even this year. But we'll see.

[Milton Cooper:]

Well, if you take Conor's passion, he's outlined, over time, $750 million of redevelopments at double-digit yields. That, over time, augurs a very healthy increase in our yields and in our flows.

[Operator:]

Our next question is a follow-up question with Samit Parikh with ISI.

[Samit Parikh:]

Dave, I just wanted to ask the question on those -- the low-market leases in a different way. In your opening remarks, you said 35-year low in supply effective rents moving up. Your trailing 12-month blended spreads in the U.S. are around 10%, which really isn't that far off from the 2005, 2006 days. So given that you've been saying that you don't expect much supply to come on in the next few years, do you think blended rent spreads over the next 2, 3 years for Kimco should surpass the prior peak?

[David B. Henry:]

It could well. I personally continue to be fascinated by this lack of new supply. Historically, on average, roughly 100,000 shopping centers out there in the U.S., there's been a new supply of about 2%. Today, we're at a run rate of 0.1%, and it is not expected to increase substantially above that level for several years. The old days of buying 50 to 100 acres and going through years of entitlements and environmental fights and then pre-leasing and then getting construction financing, I -- we just don't see that coming back anytime soon. So although we're all looking at second phases and some redevelopment, it's still not material in terms of substantially increasing the supply of space. So at -- couple that with a 5-year high of retailers opening up stores. 80,000 new stores are going to open up over the next 2 years, so that's really quite amazing demand that we can work with. So we're optimistic that the industry is healthy. We're definitely on the recovery track. We're, of course, subject to some very high-level macro events because we're all about consumer spending and consumer confidence, but that said, the fundamental supply versus demand is shifting back in our favor after a very rough 3 or 4 years.

[Operator:]

Our next question is also a follow-up question with Jeffrey Donnelly with Wells Fargo.

[Jeffrey J. Donnelly:]

The first part is, I always find that the same-store NOI and rent spreads don't necessarily translate down to FFO as I guess I would expect. Can you tell us how much of your portfolio the same-store NOI metric applies to and maybe perhaps in broad strokes how that's calculated for NOI and leasing spreads?

[Glenn G. Cohen:]

Well, from a leasing spreads standpoint, it's a little tough because it depends on when the rent commences. So signing a new lease and having it commence is a different time period than what's embedded in your same-site NOI number because the same-site NOI number is a cash basis. But if you look at our same-site NOI growth, it is roughly -- and I don't know, I think the same-site NOI was up about $7 million. We do it -- we have a disclosure which breaks down the dollars, so maybe that can help you with your model.

[Jeffrey J. Donnelly:]

Okay. Yes, I'll dig into that a little deeper. And maybe just as a follow-up, when you look at leasing spreads and -- I guess this is a question more about whether or not it's possible, Glenn, is that when you guys do the comparisons, for example, on the trailing 4 quarters on new leasing spreads in the U.S., I think the numbers are new rents are 18% and the prior rents are 14%. Are you able to unearth what the TIs were on the previous deal? And the reason I ask is just because if we amortize in the TIs on the current deal, it's about $4 a square foot. So if you think of it like an economic rent versus the prior rent, it would almost appear flat, and I think probably a more interesting analysis would be kind of net of TIs.

[Glenn G. Cohen:]

We haven't done -- we really haven't done that, Jeff. If it's something that could help you, we -- I'm sure Dave Bujnicki could go over some of the details with you after the call.

[David B. Henry:]

And also, if you amortize it over the initial base term, yes, you can get a little nervous about that. But most of these have options built in, and so a reasonable way to look at that is to amortize those TIs over a much smaller period of time.

[Operator:]

[Operator Instructions] Our next question comes from Christy McElroy with UBS, another follow-up question.

[Christy McElroy:]

Conor, just wanted to follow-up on your comments on redevelopment. It sounds like you've identified about $0.5 billion. Milton mentioned $0.75 billion about -- of redevelopment projects, potentially. How does that -- sorry if you've mentioned this, but how does that break out in terms of what you're expecting for annual redevelopment spend? And in your opening remarks, you also mentioned some things that sound like -- more like renovation CapEx. So if you could just sort of talk about what you expect to spend in terms of redevelopment spend and then renovation CapEx? And can you also remind me, in your same-store NOI growth, does that include or exclude the impact of redevelopment?

[Conor C. Flynn:]

It includes it. I'll start with the last question. And just going through the redevelopment pipeline, the projects that were added, which Mr. Cooper referenced earlier, is that we're looking at every single asset, and it can range inside the projects. So the specifics of the ones that became active this quarter, it's an LA Fitness being built in Staten Island, it's a Burlington Coat being built in Florida, it's a relocation and an expansion for ULTA Cosmetics, it's developing a PetSmart in Puerto Rico, it's downsizing a Best Buy and then adding an ULTA, it's splitting boxes, it's also adding outparcels in California and redeveloping and adding significant GLA on a few other properties. So the range of scope of what you're looking for in a redevelopment project can vary greatly. And I think on the timing side of it, it can be very lumpy. There's -- if you've ever done a rehab project even in your own house, you know how the timing of it can be very hard to pinpoint. But on our analysis of active projects, we tend to think that those will be at -- that we are spending money on currently, that those flows will hit in the 1- to 3-year period. And then the ones that are in the planning phase will hit in the 3- to 5-year period. And then the future ones will be 5 to 10 out. So that gives you a little bit of a perspective of the timing of it.

[David B. Henry:]

I think it's also fair to use Milton's wonderful word, "reservoir of opportunities," when you look at our very large portfolio of shopping centers that Conor has taken a hard relook at and has found many more redevelopment prospects than perhaps we've found before. So you've seen a rededicated, reenergized look at this stuff, and it's yielding results.

[Christy McElroy:]

So if I think about it in general terms, just sort of annual starts and annual spend, I know it can be lumpy, but over the next few years?

[Glenn G. Cohen:]

Christy, it's Glenn. You probably should expect us to spend somewhere between $100 million and $150 million a year. And again, depending on how -- to Conor's point, it gets a little lumpy. If it's a bigger project, we might spend more. But I think that's at least a target range to start with.

[Operator:]

Our next and last question comes from Brandon Cheatham with SunTrust.

[Ki Bin Kim:]

This is actually Ki Bin. Just a couple of quick cleanup questions. One, what is your small-shop occupancy? What was it at the peak on an apples-to-apples basis? And I...

[Glenn G. Cohen:]

Well, the small-shop occupancy, we started only tracking it maybe 4, 5 years ago. We think, at its peak, it was right around 90%, so that was its peak. Today, we're sitting at around, what, 84.3%? So we feel that there's definitely more upside to come there.

[Conor C. Flynn:]

That's correct. I mean, I think you're starting to see the small shop health really improve. Even if you look at our spreads on just the small shops, over 60% of them were positive, which is a very, very unique factor for us because it's been flat to negative in the past. So we're starting to see that health metric improve.

[Ki Bin Kim:]

So we can model this -- as I model this -- low-single digit positive? So most of the positive leasing spreads were on the 10,000 square feet and greater space? Is that right?

[Conor C. Flynn:]

That's correct.

[Ki Bin Kim:]

Okay. And just a last question. You guys have gone through a lot of capital recycling and it seems like you probably have more pull-through to reinvest. How do you -- so how does that impact your acquisition parameters? And should we expect that you guys are going to buy more higher-quality, somewhat stabilized assets? Or would you actually be willing to take on more of these at-risk, or you can add value on acquisitions?

[David B. Henry:]

We do intend to be very disciplined. Just because we have some more money coming in, we're not going to be particularly aggressive. We're disciplined. We do look for properties that have, a, very high quality; and b, growth embedded in the asset. And we are looking as best we can for off-market opportunities, where we leverage relationships of Milton's or others to get those kinds of deals. And again, we refer you back to the opening, where our first place to put capital is into our own properties, where we can get wonderfully accretive incremental yields. Secondly, buying out partners where the cap rates are generally above market. And then third, looking for these selective opportunities where there's good growth and very high quality.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the conference back over to David Bujnicki for any closing remarks.

[David F. Bujnicki:]

Thanks, Yusef. And we appreciate everybody that participated on our call today. As a final reminder, our supplemental is posted on our website at kimcorealty.com. Thank you very much.

[Operator:]

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