Kimco Realty Corporation (KIM) Q3 2011 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Kimco's Third Quarter Earnings Conference Call. Please be aware, today's conference is being recorded. [Operator Instructions] At this time, it is my pleasure to introduce your speaker today, Dave Bujnicki. Please go ahead, sir.

Thanks, Audrey. Thank you, all for joining the third quarter 2011 Kimco earnings call. With me on the call this morning are Milton Cooper, Executive Chairman; Dave Henry, President and Chief Executive Officer; Mike Pappagallo, our Chief Operating Officer; Glenn Cohen, Chief Financial Officer, as well as other key executives, who will be available to address questions at the conclusion of our prepared remarks. As a reminder, statements made during the course of this call represent the company and management's hopes, intentions, beliefs, expectations or projections of the future, which are forward-looking statements. It is important to note that the company’s actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained in the SEC filings. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Examples include, but are not limited to, funds from operations and net operating income. Reconciliations of these non-GAAP financial measures are available on our website. Finally, during the Q&A portion of the call, we request that you respect the limit of one question, so that all of our callers have an opportunity to speak with management. Feel free to return to the queue, if you have additional questions, and if we have time at the end of the call, we will address them. With that, I now turn the call over to Dave Henry.

Good morning. And thanks for calling in today. We are very pleased with our third quarter results and we believe that they represent continued, solid and steady progress across the board on our key goals and objectives. With an uncertain and soft economic environment, we are happy to have focused the past 2 years on strengthening our balance sheet spelling numerous lower quality and nonstrategic shopping centers and reducing our non-retail portfolio by more than 50%, from $1.2 billion in early 2009 to $564 million today. We believe that this number will be under $500 million by year end, representing only 4.5% of our assets. While our InTown portfolio continues to be evaluated by at least 2 potential buyers. It is fair to say that there is no imminent sale transaction to report, even though the properties continued to perform very well with FFO returns exceeding 20%. We thank Scott Griffith, CEO of InTown, and his team for their continued hard work and strong results. For those that recently read the Wall Street Journal article about our dispositions of mixed used urban assets, I would like to put in a good word and clarifying comment for our New York City redevelopment partner, Beck Street Capital. Since our joint venture was formed in 2003, we've had great success with Beck Street Capital, together we have acquired, renovated and repositioned 10 buildings in Manhattan, which generally can be characterized as street-level retail properties with apartments or office on the upper floors. To date, we have sold 8 of the 10 buildings, most recently 82 Christopher Street this quarter, all at significant gains. The remaining 2 New York City buildings are also high-quality, well-located properties, which will be sold upon completion of planned renovation and rezoning initiatives. Despite the weak figures for employment, housing and consumer sentiment, consumers' spending and retail sales remain solid with good back-to-school numbers and most experts are expecting holiday sales to be up 2% to 3%, helped by an extra shopping day this year. Discounters like Marshall's, Ross Stores, Bed Bath, Ecko, et cetera, are all doing especially well and expanding aggressively. With virtually no new development in our sector, population growth and positive GDP, retailers are taking second looks at existing vacancies and being more aggressive on effective rents. Despite the Borders and A&P bankruptcies, our portfolio of metrics, or as we like to say, vital signs, continue to improve under Mike Pappagallo's leadership, and he will provide further details in a moment. Overall, we had a very good strong quarter, highlighted by Glenn Cohen's successful closing of our new 4-year $1.75 billion line of credit provided by 28 individual banks. With respect to new businesses, subsequent to June 30, we acquired 6 shopping centers, totaling $117 million and comprising approximately 730,000 square feet. Details are contained in our earnings release, but I do want to emphasize that we continue to be very selective, careful and cautious on the acquisition front. Internationally, Canada continues to deliver with 97% portfolio occupancy and continued expansion activity from both Canadian and U.S. retailers. Marshalls opened a sixth location in Toronto and continues to negotiate new deals. Including one for a new building in our large development project in Montréal. The target acquisition of 220 Zellers leases in Canada is particularly exciting and transformational. Of Kimco's 15 Zellers leases, 9 locations will become new Target stores. One will be a new Wal-Mart, and one a new Sobey's grocery store, and 4 will remain Zellers for the time being. The first Target in Canada is expected to open in January of 2013 and smaller retailers are anxious to locate near the new Target stores. In Mexico, GDP grew by 3.9% in the first half of 2011 and the economy is expected to remain strong in the second half as well. Same-store sales generally are up 4.2% through July with clothing and shoe sale up 8%. Both U.S., Mexican retailers are again expanding aggressively, including Wal-Mart, Home Depot, Office Depot, Bed Bath & Beyond, Chedraui, Opel and Cynapiles[ph]. During the quarter, our total occupancy of the portfolio, including development assets, reached 82%. At the risk of stating it too many times, every lease, including the 8%, it contained full annual cost-of-living escalators and many leases have percentage rent provision, all of which should serve us well in future years. I would like to close by mentioning that this afternoon, Kimco will celebrate its 20th anniversary as a public company by ringing the closing bell of the New York Stock Exchange. It's a wonderful milestone for all of us at Kimco. And we are particularly indebted to Milton and Marty Kimmel for blazing the trail 20 years ago as the first IPO of the modern retailer. Now I would like to turn to Glenn to discuss the financial details of our third quarter to be followed by Mike and then Milton.

Thanks, Dave. Good morning. It's been a little over a year since our Investor Day where we outlined a strategy with focus on the ownership and operation of shopping centers, the value creation and continued lease up of our identified, strategic shopping center portfolio and the growth and their recurring operating cash flows. As part of our strategy, we are committed to recycling capital from sales of retail assets deemed nonstrategic and monetizing the non-retail assets, while strengthening our balance sheet metrics. Our third quarter results demonstrate significant progress toward our stated objectives. Third quarter recurring FFO per share was $0.30 compared to $0.28 last year, a 7.1% per share increase. Our recurring FFO included positive NOI growth of $6.8 million or 4.6% from the shopping center portfolio. About 40% of the growth is organic with a continued lease-up of our Latin America portfolio, further positive performance in the U.S. portfolio. This is evidenced by the positive operating vital signs of 3.3% combined same-site NOI growth, which includes U.S., Canada and Latin America and represents our sixth consecutive positive quarter for this metrics. Combined gross occupancy at 93% and positive leasing spreads of 2.7% from new leases, renewals and options. Down to the growth is from acquisition activity. The recurring $0.30 level excludes $12 million of nonrecurring income and $7.5 million of noncash impairment charges. The nonrecurring income is attributable to another distribution from our Albertsons investments, participation income from disposition of several preferred equity investments and one urban asset. The noncash impairment from transaction-oriented, related primarily to sales or pending sales of certain nonstrategic assets. As such, headline FFO per share came in at $0.31 compared to $0.27 per share last year. Based on our 9-month results of recurring FFO per share of $0.90, we've tightened our guidance range for the recurring FFO per share from $1.17 to $1.21, to $1.19 to $1.20. As a reminder, this guidance range does not include noncash impairments or nonrecurring income. It was definitely a productive quarter for us. We sold 10 nonstrategic operating properties this quarter, which produced gains of $6.4 million, which as we all know, were not included in FFO. We have sold 33 assets since we announced this program for total proceeds of $134 million, yet another 6 under contracts, and we're evaluating offers on 21 other properties, which could provide proceeds in excess of $200 million if all the transactions were completed. We continue to make progress on the monetization of the non-retail assets. We sold about $35 million this quarter reducing the remaining balance of $564 million. And we expect to monetize another $75 million before our next conference call in February, bringing the total reductions to over $300 million since the beginning of the year, which is well ahead of our plan even without the sale of InTown this year. It should be noted that the assets sold during 2011, produced a net gain of $9 million and we will continue to use a measured approach to maximize the value of the remaining non-retail assets. Proceeds from the disposition of assets have been redeployed by acquiring shopping center assets in the key markets we have targeted. We have purchased 6 assets since the end of the second quarter for $117 million. Our balance sheet metrics continue to improve, and our liquidity position is very strong. We ended the quarter with net debt to recurring EBITDA at 6x, the level we expected to achieve by the end of 2012. We began the year on 6.3x. Our total consolidated debt level is under $4 billion at the end of the third quarter, and our consolidated debt maturity are very manageable with only $385 million due in 2012 and $650 million due in 2013. Our access to capital remains strong with an investment grade rating of BBB+ and a stable outlook. As we announced last week, we completed a new $1.75 billion unsecured revolving credit facility, supported by commitments from 28 banks. We're very pleased by the support and interest we received during the syndication process, our pending commitments of over $2.8 billion. The term is 4 years with a one-year extension option as the company's election with a final maturity on October of 2016. Borrowings on new facility are priced at LIBOR plus 105, one of the lowest spreads in the REIT industry. The facility replaced both our U.S. facility and our Canadian facility, which was scheduled to mature during 2012. Looking forward, although we have not finalized our details property-by-property budget process, we are providing initial guidance of 2012 for recurring FFO per share of $1.22 to $1.26. This guidance range is based solely on recurring flows and does not include any transaction income or impairments. Using the midpoint of the 2012 guidance range yields an increase in recurring FFO per share of about 4%. The range is dependent on the timing of certain non-retail dispositions, including InTown Suites, the timing of acquisitions and dispositions and foreign currency exchange rates. Our initial capital plans for 2012 requires no new equity as we expect to continue our capital recycling program. We will provide more specific assumptions on the next conference call. As a result of our 2011 performance and expectations for 2012, our Board of Directors has approved an increase in the quarterly cash dividend of $0.01 to 0.19 per quarter, a 5.6% increase on an annualized basis. Our FFO payout ratio will remain conservative at a level of just over 50%. And with that, I'll turn it over to Mike.

Thank you, Glen. Good morning, everyone. The U.S. shopping center portfolio posted up solid operating metrics once again this quarter. With positive same-store NOI, positive leasing spreads and a 20 basis point increase in pro rata occupancy over the prior quarter. On a gross basis, occupancy has climbed 50 basis points since last year's third quarter, even after the effects of the Borders and A&P supermarket bankruptcy that mixed about 40 basis points off the current 92.9% level. That said, we've already made excellent progress with respect to the over 550,000 square feet of vacant space left by the Borders and A&P situations. Of the 19 boxes vacated, we currently have new leases signed for 3 locations are negotiating leases before '13. Shooting for 8 of those to be signed by the end of the year, leaving 3 sites without significant activity. Some of the new users and potential users are familiar names, including Ross Stores, Ulta Cosmetics, TJX Companies and Michaels. The national change continue to be the driver of the positive absorption in the portfolio. For the first 9 months of the year, we signed almost 900,000 square feet of leases with the national and retailers that are listed on our top 50 tenant list. The steady growing lead of activity with national retailers has experienced year and last, we feel, is more reflective of the mindset and perspective of those retailers despite the uncertain economy. Call it sensible and strategic growth, it is stark contrast to the alternating panic and euphoria exhibited by the financial press and the stock market in reaction to every morsel of economic data. And as Dave mentioned, we expect the decent holiday season on the heels of the best back-to-school season since 2007. But the absence of fear will not cause us to become complacent. Consumer spending, while improving, has gained from the trade-off from savings, not growth in disposable income. Comp sales numbers across the spectrum have been uneven, there will always be store closings, retrenchment of retailer business models and particularly with the advance of e-commerce, stages in space leaves and footprint. The most recent announcement from the GAAP is illustrative of both situations taking place. At Kimco, we do not expect to be impacted much, as most of our locations are the Old Navy banner that spaces in the 15,000 to 18,000 square foot range with many lease maturities 3 to 10 years out. We believe strongly that the best way to be successful in this environment is to continue with the programs we laid out to investors a year ago at the Investor Day. As part of that program, recycling of assets, for which Glenn has provided you with his statistics. We're also focused on value creation through redevelopment, out-parcel leasing and smaller scale space reconfiguration and re-tenanting in our core strategic portfolio. It seems that redevelopment opportunities are in every REIT managements minds these days, and that's no surprise as the returns are generally much better than the returns available in the acquisition market. We've been carrying about $100 million to $150 million worth of active projects at any given time over the past few years. But the longer-range pipeline continues to grow. We currently have about 10 projects in the design and entitlement space with another 30 under evaluation. Not all of those pan out, but it underscores the focus in energy and maximizing value being given in this area. Dave provided some commentary on our non-U.S. businesses, allow me to add an additional perspective. In Latin America, our team is well underway to achieving its new leasing target of 700,000 square feet for the current fiscal year. The overall occupancy level of all of our projects, including those not yet stabilized, has steadily increased from 74% at the beginning of 2010 to just under 82% mentioned earlier. We are aggressively targeting 90% by the end of 2012, and positive signs are bound to help us get there, including interest -- increased interest from key Mexico retailers, including Liverpool and Palacio De Hierro. We will also start to generate cash flows very soon from our Viña del Mar development of Chile, Wal-Mart's leader format and Sodimac opening soon. Canada continues to be the pillar of strength in the portfolio, 97% occupancy level and 11% combined positive leasing spread over the past 12 months and over 5% same-store NOI growth, even without the effect of a strong Canadian dollar, which in turn, underscores the relative attractiveness of the economy. In the third quarter, our Canadian shopping center investments generated about 9% of our pro rata NOI. We'd like it to be higher, although acquisitions are hard to come by. So we continue to explore the possibilities of converting some of our remaining preferred equity investments due to parity with some joint ventures and obtain larger economic positions in those assets. Over the past 12 months, the combined contribution of our Latin American and Canadian investments have ranged between 15% to 18% of NOI. And we would expect that contribution to continue to increase, particularly as more of the Mexico developments reach stabilization. An international component of our shopping center portfolio is one that we feel will be an ongoing source of core growth, and will clear it as a hedging of the uncertainties in the U.S. economy. With that, I'll turn it over to Milton.

Well, thanks, Mike. Our strategy to be the premier owner and manager of retail properties as they continue to seize opportunities relating to retail real estate. And we have a long track record from this activity going back to any stores, Frank's Nursery, Venture Stores, Montgomery Wards, Strawbridge & Clothier, and most recently, Albertsons. Thus far, we have received cash proceeds of 5x our original investment in Albertsons and there is more to come. In reviewing a large and diversified portfolio, I believe that we are relatively well positioned to face any economic headwinds. We are Home Depot's largest landlord with 45 locations. And principally, they are a ground blessing, what they have addressed it in the buildings, and we have leased the land to them. We are the largest landlord of Costco, where consumers are buying more and more. We have over 140 TJX stores, 71 Ross stores, off-price retailers that are benefiting by the value-seeking consumer. By the way, last night, Costco, Ross stores and TJX reported excellent same-store sales. And I take comfort that our contract brands are below market in many instances. My own view is that if you own real estate, and it is leased and marketed or below. If you are in the real estate business, to the extent that rents are above markets, you were in the mezzanine lending business. We like the real state business better. The investors are looking for safety and yield and the demand to own hard assets in the United States is such that in my opinion, cap rates will decline. Now this November is the 20th anniversary of our IPO, but in fact, we have been active in retail real estate for 30 years before that. We have been through many cycles of changes in the marketplace. And it's interesting to look back and reflect on our performance, compared to other asset class. The recent analysis showed that funds matured 6.1% from 1991 to 2010 on an annualized basis. Both had annual returns of 7.2% in the same period. The S&P, 507, 7.7% and oil 8%. The REIT index was up 10.5 annually, and I am proud and pleased that since our IPO in November '91, our annualized total return has been approximately 13%. We all work hard to continue to outperform. We have a great team that's committed to executing our strategy. But I thank you and we're delighted to answer any questions you may have.

Audrey, as Mr. Cooper said, we're ready for the Q&A portion of the call.

[Operator Instructions] And we'll go first to Steve Sakwa with ISI Group.

Glenn, I was wondering if you could just give us a little more detail. The same-store NOI number trended down a little bit this quarter, I realized it can fluctuate quarter-to-quarter. But also I know that there were some bad debt that might have played a role in that. Can you just may be give us a little more detail on the same-store? And also, we noticed that the straight-line receivable number came down by a couple of million dollars, and I'm just wondering if there's anything that you guys are doing differently as you reserve for tenants?

Can I take that one, it's the last bastion of financial data that I have in same-store NOI. So, yes, this quarter was affected to a slight degree by the Borders and A&P bankruptcies kind of a marginal effect. The straight-line rent receivable was really more the consequence of some of the sales that we had in the quarter. So those are really are the 2 drivers. Bad debt, again a marginal improvement year-over-year and that's reflective of really where the economy and our experience has been. But as you know, historically, if you look at it, we're a very conservative posture on the development and establishment of the reserves. So we're not going to have any really wild fluctuation in our bad debt from period to period. We also had a pretty good comp when you look at last year. So you put all of those factors together, that was really the driver. There are a lot of small things with respect to the same-store NOI changes quarter-over-quarter, nothing that's of any headline though.

I think there was on [indiscernible] include in it. Yes.

Next we'll move to Nathan Isbee at Stifel, Nicolaus. Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division: Just, David, can you just talk about how the hotel portfolio has performed over the last 3 months? And what your expectations for NOI are in 2012? And I know it's a little early, but probably if you can talk about the trends there.

The trends continue to be very strong including the last 3 months of the REVPAR continues to increase high single-digit year-over-year. And we believe 2012, the EBITDA will be back to the levels that was right before we bought it. So we still feel very good about what's going at InTown Suites, and I will take a minute just to remind everybody, it's roughly 1% of our assets. It's performing very well. We have a great management team headquartered in Atlanta. And we're confident that we will sell this portfolio to the right buyer at the right time. Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just one quick follow-up on the acquisitions this quarter. There was 2 JV where you bought your JV partner, one in Corpus Christi, one is in Pensacola. Are those assets that you just bought for your portfolio or this positioning them better for sales, given that they are not in the top 20 limits that you've been targeting?

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

We'll go next to Christy McElroy with UBS.

Mike, just going back to your comments about the decline in the personal savings helping to fuel our consumer spending. Is this something that worries you going into 2012? Is it an unsustainable trend. Is this something that retailers are talking about at all? And if we do sort of hit a breaking point and see a pullback in spending patterns, how quickly do you think retailers could pull back on new store opening plans? So basically, how sensitive are they to changes and trends this time around?

Well, first, Christy, you know that I worry about everything, one among thousands of things. But yes, it is concerning and I think behind some of the comments that we made is that we continue to look around the corner. We are worried about the sustainability of the recovery from the fact that there really isn't a lot of true wage and income growth. Now as that translates into retailer plans, the other point I tried to make was that, their growth again is being what I'd call, strategic. It's very smart, they are not opening stores just to make numbers. They're very cognizant that spending patterns can change. That's why, it's the least, in our portfolios, we were seeing much of the growth coming from the value-conscious shoppers, we're looking at our tenant base, who was appealing for that value conscious-shopper. In some cases, it's about existing strong retailers who were trying to capitalize on existing markets or enter new markets where others might have fallen apart. So I don't think you're going to the see retailers stop on the dime, if there are turned down drifts with respect to consumer spending. They factored that into their plans, I think they're being very careful in terms of how they approach footprint growth and new store openings.

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

I'll just add one more too. The national retailers that we talk to, the plan their store count many years in advance. They allocate their capital budgeting many years in advance. There is a momentum to the store expansion plans that are pretty locked in, we see no evidence of any pullback at this point. And as Mike points out, many of the retailers in our portfolio are these very strong discounters that are growing by 100 stores a year well into the future.

Next, we'll move to Jay Habermann at Goldman Sachs.

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

There really is a big difference between very high quality shopping centers in what they call either gateway or prime market and just about everything else. For those very strong core properties in these primary markets, cap rates have dropped down below 6%, it's really quite amazing. And it continues to be very strong demand for other centers, even if they're good properties in secondary locations, cap rates are good 100 basis points higher, I would say. And there continues to be a lot less demand for secondary markets and any assets are considered be assets.

Next we'll move to Quentin Velleley at Citi.

It's Michael Bilerman speaking. And I could've told you long before the investment that Canada was going to be the pillar of strength.

That's why we went there, Mike. [ph]

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

Well, we continue to explore opportunities both are tough in this environment, M&A pricing is difficult as Milton has pointed out over the years, you end up paying for their investment bankers, their lawyers, your bankers and their shareholders want a premium and all that. And many of these M&A targets have made it through this great recession, if you will. They've solved their liquidity. There's no urgency or pressure of them to sell the company. So there's not a lot of opportunities on the surface, although we continue to evaluate them as they come up. In terms of retailers, which is you're right, our core strength of Kimco, we continue to look at opportunities. These things come in very lumpy, if you will, Albertsons and Montgomery Wards and they're generally big deals, and they're difficult to predict. Also the number of retailers that actually own their own real estate is a diminishing number. Many retailers are solely leases and it's much more difficult to find value creation opportunities in a portfolio of leases than it is owned stores like we were able to do in Albertsons.

And to finish that off, Michael, that's why although we can't predict that future, one school of thought is just less about M&A and accumulation of assets, which needs to be carefully considered in the future environment where e-commerce becomes more prevalent, and maybe in our case more about diversity through international growth, continued to utilize the investment management model to gain better returns on an existing U.S. real state and again focusing on those top 200 properties that have the most organic growth. I think as we look at it today, that's basically the recipe for us as opposed to and after the cumulation of this core group of assets.

Maybe just a follow-up for Glenn. You talked about guidance for next year being preliminary, but you mentioned the sale of non-retail and potentially InTown Suites and acquisitions and dispositions and FX having an effect on the numbers. Maybe you can just broadly outline, obviously, with Intown Suites being like 12% FFO yield, those things could be dilutive. So I'm just trying to understand what sort of baked in to this $1.22 to $1.26, related to those activities that you mentioned in your opening comments?

Sure, no problem. By the way, InTown Suites is like 20% FFO yield, not a 12% FFO. So to your point, it will have an impact when it does get sold and we have part of this preliminary budget, assume that it would get sold by the end of the second quarter. So it has -- that's part of why we have the variance in the range. We put in some preliminary numbers such as monetizing roughly $200 million of the non-retail assets and they are earning assets. So they have an impact, we continue again the recycling programs. so we have estimated around $150 million of further sales, so the timing of those acquisitions and then the dispositions, they're going to come into play. I think the biggest driver, when you look at it, is what we expect to happen on our total retail shopping center portfolio. In there, we see somewhere between 3% and 5% growth. And it's really going to come from the upside of leases that we've signed that haven't come on board. The continued lease-up of Mexico, and so we feel pretty good about where that's going to go. However, I will tell you, we have not finished all of our detailed property-by-property budgets, and that's where we'll be able to give a better indication about what same-site NOI growth will be, and where we really expect occupancy to be, however, we do feel that they will be positive.

Right, and perhaps in sales, FFO will be higher.

Correct, yes.

We'll move next to Paul Morgan of Morgan Stanley.

Just a sort of a follow-up, I guess. You said you haven't done the bottom-up to get to same-store NOI. But kind of that said, is there anything that you see from the non-U.S. portfolio that would lead you to think that it won't be driving the combined same-store numbers, up meaningfully again? Obviously, it's going to double once you include the Canada and Lat Am in there. I mean, is that looking good as well on a preliminary basis for next year?

On a preliminary basis, again, it does look good. However, we have to be cautious somewhat about what our currency impacts are. The Mexican pesos vacillated quite a bit during the year and it does have impact on those earnings. But overall, we do expect continued lease-up, significant lease-up in the Latin America portfolio. Mike had mentioned just coming online of a large Chile project. So those are up kind of built in already. But, again, we still need all the bottom line property-by-property details to really give a fair estimation of where we think occupancy and same-store NOI growth will come from.

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

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

I mean, is there any way you could characterize that? I mean, what a total investment would be or are they sort of anchor additions or anything more substantive as a rule?

If you wanted a preliminary -- a number, Paul, the combination of everything that we have in the pipeline, including those, those various phases whether it's entitlement, under evaluation, active, and as we think about redevelopment as well as complex leasing strategies and out-parcel, probably the total tab is about $300-plus million. But again, I caution about saying that is the number, because some of these deals, some of these concepts will fall by the wayside and be replaced by others. So hopefully, that'll just give you a perspective, of that one point in time, what our regional leadership is looking at in terms of value creation and footprint addition.

We'll go next to Rich Moore of RBC Capital Markets.

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

What I would say to you, Rich, in terms of those leasing spread metrics, you're dealing with a very small, a finite population and a certain of the centers has been influenced by competitive factors at certainty of those locations. So we won't shy away from the fact that for a subset of the Mexico portfolio, that comparable spread positions are lower. But in the broader context, there's a significant amount of the Mexico NOI is coming from, in effect, first-generation space, still we feel comfortable that the absolute numbers will increase according to our plan. And I'll let Dave answer, but I still see no diminution in the interest of both U.S. and Mexico retailers to invest in these locations.

As the #1 champion of Mexico around the table here, I can tell you we still feel very, very strong about what's going on in Mexico. If anything, retail interest is accelerating. We recently talked to Bed Bath & Beyond, they're jumping in with both lead in Mexico. Wal-Mart continues, as I mentioned this before, to open one store a day in Mexico. Home Depot, we just did another Home Depot deal and in Mexico. And you have the Mexican retailers now accelerating their expansion plans, it's a grocer that's well-capitalized and expanding greatly. The economy is strong underneath, as I mentioned. So if anything, we see some momentum in Mexico coming out of the recession, notwithstanding the headlines the order of violence and things like that. The basic case for Mexico remains strong. There's only 1,000 shopping centers in Mexico for 100 million people versus 100,000 shopping centers in the U.S. for 300 million people. So it's a very different situation down there and over time, it should help us. And we are able to get leases, we cannot get in the U.S. with percentage rents with cost of living escalators and things like that. So we still feel very good, and we believe it will drop a fair amount of income -- incremental income into our earnings next year.

I think the thing to remember about the metrics in Mexico is that the leasing structure are really small -- a number of leases really small square footage, that only lasts 2 to 3 years. They're experiencing a small negative, what we don't put into the Mexico same spread numbers as just like Dave mentioned, is things like all of the cost of living increases annually on all the anchor tenant. So it's a little bit of a misleader when you look at the leasing spreads in Mexico.

We'll go next to Alex Goldfarb at Sandler O'Neill. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Dave, just a question for you. You've been quite active and vocal on the Internet tax. Just sort of curious just given the law of unintended consequences and regulations that Washington has put out that end up affecting business in ways that hadn't been foreseen, is there a concern that by advocating sort of a national tax or that Internet people pay tax that somehow there's some unintended consequence and that it hurts retail as opposed to helping it?

Well, let's clarify. Nobody is advocating a national sales tax. This is a sale -- a state sale collection issue. So there are 44-some states that have a state sales tax. All we're advocating, and I'm particularly vocal, because I'm serving one year as Chairman of the ICSE is for a basic level playing field out there. It is blatantly unfair that our tenants that pay us rent and pay real estate taxes have to collect state sales taxes and the Amazons of the world do not. And it has a significant impact, in some states, it's 9.4% in terms of the state sales tax. University of Tennessee has a great study out showing that states are going to miss out on some $23 billion of sales tax revenue, because of the growing online sales where they do not collect taxes. So in my mind, it's a fairness issue. It's a tax revenue issue for the state at a time when most of these states are under pressure. And quite frankly, it's also a job issue for every $1 million of incremental sales on brick-and-mortar retail, it adds roughly 4 jobs to the economy. For every $1 million of Internet sales, it's less than one job. So it's a big difference and worth the good fight. Now there's, 3 different bills in Congress, 2 in the Senate and one in the House, so this thing is gaining momentum, but it has nothing to do with a national sales tax. It simply will empower the states to force the online retailers to collect the sales taxes that are already due and payable by people. And people buy books from Amazon, and Amazon does not collect the tax. They're still required under state laws to pay the tax. They just don't, and technically, if they get audited, they're forced to pay penalties and interest. So it's pretty clear to me and most of us in the shopping center business that this thing should be corrected. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: I didn't to say national sales tax, I meant just making, imposing or mandating that the Internet folks collect tax, and I appreciate that I think you said small business would be exempted. But it seems like retailers are increasingly coordinating their strategy so that bricks-and-mortar and online works together, so that people can shop one place, pick up at another or return to bricks-and-mortar. So it almost seems like just naturally, the bricks-and-mortar guys have a clear leg up, because they can offer full service, whereas the Internet only don't have that advantage. So that's why I'm surprised that they'd be losing sales as opposed to gaining.

I think you're right, over time it will all merge, including the fact that Amazon will be forced to collect the sales tax. And you may see Amazon open bricks-and-mortar stores themselves as they try to take advantage of a dual strategy. I mean, just look at Apple, Apple's success with their stores. They used to sell almost everything online. They now have huge success by going to the brick-and-mortar stores.

[Operator Instructions] We'll go next to Cedrik Lachance at Green Street Advisors.

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

We, at the level of effort and in energy is dedicated to both is just how you approach it. Our regional president and their teams that have very strong and deep relationship with the national retailers. So I'll use the word, easy, but the ability for us to make deals resolve problems, understand their growth plans and get things done is really -- starts at a very high level and very efficient. The majority of our leasing teams are focusing both directly and through local brokerage sort of the local brokerage community to emphasize and focus on small floors, the mom-and-pop, the smaller national franchisees, et cetera to try and solicit and to make some headway in the small store category. So clearly, Cedrik we're not biased, one way towards the other. It's just the realities of the marketplace that it is tougher in the economy and in this environment. To gain a lot of traction, particularly in the mom-and-pop. So that's why a lot of our strategy, the bottoms-up assessment of what properties, that's longer-term sustain power versus those that do not. And I think if one looks into our non-strategic shopping centers, I don't have the information at my fingertips. But you probably see that these small store occupancy is even lower than the 81.x percent that we report on an overall basis. So that's a consideration as well in terms of, which property to keep versus, which property we ultimately want to exit.

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

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

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

We'll go next to Jeffrey Donnelly of Wells Fargo.

I guess maybe to build a little bit on an Alex's question. Dave, I know percentage rents are a material part of your story per se, but I'm curious how do you think lease clauses, pertaining to percentage rents, more so over time in the retail industry to address the reality that consumers are changing, they're buying returned goods and they could purchase online, but return in your stores. And similarly, retailers really seem to be more focused than ever on margin rather than unit growth and store sales. I'm just wondering if you think that percentage rent clauses -- your historically distributing on unit level of sales might not really kind of capture what's going on in the store anymore.

Well, let me take a stab at this. I mean, in the neighborhood and community shopping center business, there are not a lot of leases with percentage rents, we're just very different than the mall guys. I think in the U.S., less than 1% in the U.S. We just happen to be getting it in Mexico because we're early and we have a little bit of a pricing power. I expect over time we will not be able to negotiate for percentage rents. As an example, we have some older Wal-Mart leases that we first hit in Mexico where we were able to negotiate for percentage rents, our new Wal-Mart leases, we do not get percentage rent. So I suspect the percentage of leases where we're able to negotiate for percentage rent will gradually decline in Latin America and will remain very, very small in the U.S. So for our particular business, neighborhood and community shopping centers, we don't see it as a significant factor in terms of our revenues. In terms of the complexity for mall landlords, they are already playing this battle, about not being paid percentage rent for sales that are indirectly done in their stores. Because these stores are used as return vehicles for things purchased on the Internet and exchanges. So it becomes very complicated, and I think you talked to Bobby, Tom and Billy or David, Simon, they can go into it a lot more, but it is a growing issue for the mall issues on exactly how they could collect their percentage rent from mall tenants.

I'll just add one quick thing, Jeff, that on the ground, in terms of day-to-day lease negotiations, to Dave's point, percentage rents are never that big a deal as a percentage of rent clauses. What we find from time to time though is we're negotiating with our retailer arm wrestling in terms of the rent as we're settling on or rent that we think is below market, but we believe in the center. Then we'll introduce the percentage clause, if the retailer does prevail in their projected sales level. With that, we see it more as an upside and not as necessarily a negative side, because we're both nonrepliant on those closed right now.

And I know it's small, but every bit counts and it's just a shift in industry. Actually if I can ask one just second question is, how do you think about net absorption per space? Specifically in your U.S. portfolio over the next few years, because again a lot of retailers are opening stores, but they're also downsizing and closing older, larger format stores. So maybe the -- I know you and other folks talk about unit growth, but I'm wondering if that's really the right metric for measuring retailer expansion plans, I'm just curious how you think about that.

Well, and just looking at the recent history. What you've seen is certainly significant positive absorption on anchors or 10,000 square foot involved and what you had, to echo Paul's comments, is a couple of years ago, a bloodbath in terms of the small space and now it's stabilizing. It's a bit of standoff, but there is a positive churn. As we move forward, I mean, we clearly as different retail formats begin to think and actively pursue a downsizing strategy and the footprint strategy, it will become a deal-by-deal, side-by-side assessment of how we can, in effect, fill in the excess space. And that, in turn, depends on, which of those retailers or regional retailers or national retailers are growing. So the example, which we've done in a couple of cases is working with Best Buy, and they are downsizing. They substracted about 10,000-plus square feet in couple of our locations and we put in Ulta Cosmetics who is a growing retail chain, and we're able to satisfy that. Now that's not going to happen in all of the cases, but I think in terms of leasing, the big box, the big-box retailers who may be downsized to a certain extent, it's going to be filled by most retailers that are growing. And the small store, it will be more driven by the economy in general than any other that I mentioned.

And we do have industries that are still growing. I mean, we've talked in the past about the restaurant industry, casual dining and fast food. There's a lot of growth in there as people continue to eat out more and more. So maybe electronics is shrinking and having more of a direct impact from the Internet, but the restaurant business is growing. To throw a compliment, Rich Marseilles, I mean, we love his study that shows currently on a survey of the 2,200 national retailers, I think, they're going to open somewhere around 72,000 new stores over the next 24 months. So to us, that means there's probably going to be net growth, even though some of the store prototypes are smaller.

The next one from Jim Sullivan at Cowen and Company.

First of all, I'd like to make a comment to really to Milton and to congratulate him for the anniversary and the track record. I think all of us in the industry owe him a debt of gratitude for being a pioneer of this phase of the REIT industry and how he's conducted himself over the years. Secondly, I do have a question. And the question that relates to your disposition strategy. You still have this 9% of the U.S. portfolio that's in your nonstrategic column, and I'm curious how you think about the process of disposing of these, whether it's a selling them in 1s and 2s or small packages as opposed to doing a large portfolio transaction. Some of your peers both in the sector and outside of the sector have done some large portfolio transactions in the past year, and I'm curious how you assess the efficiencies and the pricing alternatives that you get if you do a transaction like that.

Well, you make a good point. In our case that we have a significant number of assets and the effect on our rents is -- and we started was only 10%, so really what that tells, Jim, is that a lot of this kind of first evolution is relatively insignificant properties that take a disproportionate amount of work and markets that we may not have much of a presence. So because of that, it has been somewhat of a one deal at a time as we pursue local operators. That's been the primary way to get this done. We haven't made any decisions about exiting broad slacks of markets or in particular cities or things of that nature. That said, in addition to the one strategy, we have been entertaining a couple of scenarios whereby we will put in multiple properties into a package. We're evaluating a couple of those and pursuing with a couple of potential buyers. Again, it will be on a relative basis, it's small, because again we're only talking about properties that equate to 10%. I think the message I'd like to bring out though is that, this for us is a first evolution of trying to remove some of the high end number but smaller impact type of properties. This notion of recycling and reconsideration of a particular property and long-term viability is going to be a continuous process for the company as we move forward. And what might be a property that's, because of the particular circumstances, we may consider strategic or in good shape, the changing dynamics of a given market or sub-market, may cause us to think differently in 2 years. So this will evolve and continue, but at this point, for stage 1, as I call it, we'll probably continue to be on a one-off or small package base.

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

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

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