Kimco Realty Corporation (KIM) Q4 2012 Earnings Report, Transcript and Summary

David F. Bujnicki - Vice President of Investor Relations and Corporate Communications David B. Henry - Vice Chairman, Chief Executive Officer, President, Chief Investment Officer and Member of Executive Committee Glenn G. Cohen - Chief Financial Officer, Executive Vice President and Treasurer Michael V. Pappagallo - Chief Operating Officer and Executive Vice President Milton Cooper - Executive Chairman and Chairman of Executive Committee Mike Melson - Managing Director of Latin America Operations

R.J. Milligan - Raymond James & Associates, Inc., Research Division Christy McElroy - UBS Investment Bank, Research Division Quentin Velleley - Citigroup Inc, Research Division Paul Morgan - Morgan Stanley, Research Division Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division Caitlin Burrows - Goldman Sachs Group Inc., Research Division Richard C. Moore - RBC Capital Markets, LLC, Research Division Michael W. Mueller - JP Morgan Chase & Co, Research Division Andrew Schaffer Cedrik Lachance - Green Street Advisors, Inc., Research Division Michael Gorman - Cowen and Company, LLC, Research Division Craig R. Schmidt - BofA Merrill Lynch, Research Division Vincent Chao - Deutsche Bank AG, Research Division Samit Parikh - ISI Group Inc., Research Division Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Good morning, and welcome to the Kimco Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Bujnicki. Please go ahead.

Thanks, Laura. Thank you, all, for joining Kimco's fourth quarter 2012 earnings call. With me on the call this morning is Milton Cooper, our Executive Chairman; Dave Henry, President and Chief Executive Officer; Mike Pappagallo, Chief Operating Officer; Glenn Cohen, Chief Financial Officer; as well as other key executives who will be available to address questions at the conclusion of our prepared remarks. As a reminder, statements made during the course of this call may be deemed forward-looking statements. It is important to note that the company’s actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to the company's SEC filings that address such factors that could cause actual results to differ materially from those forward-looking statements. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Examples include, but are not limited to, funds from operations and net operating income. 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 1 question so that all of our callers have an opportunity to speak with management. If you have additional questions, please rejoin the queue. With that, I'll now turn the call over to Dave Henry.

Good morning, and thanks for joining us today. We are happy to report strong fourth quarter and full year financial results as well as continued progress on our key goals and objectives. As customary, Glenn and Mike will provide details and color and Milton will close with some general observations. Overall, the shopping center industry in our portfolio in particular continues to demonstrate steady and sustained improvement across the board, benefiting from population growth and very little new development. Effective rents and occupancy rates are increasing at an accelerating rate. Our key metrics or vital signs, as we like to say, are very strong with 11 straight quarters of positive same-store NOI growth and an occupancy rate just under 94%, representing our highest level since the start of the recession and very high leasing spreads. Store opening counts continues to hit multiyear highs and small store vacancy levels are improving, while the economy continues to be fragile with uncertain fiscal policies. We are optimistic about the 2013 financial performance of our portfolio and the shopping center industry. During the quarter, we made good progress on several of our key objectives. Our sales contract with Starwood Capital on the InTown portfolio is now firm with no due diligence contingencies, and the sale is expected to close in the second quarter when the complicated loan assumption process is completed. The InTown properties themselves continue to perform well. During the quarter, Blackstone signed a definitive agreement with UBS Wealth Management-North American Property Fund, to purchase their equity interest in 2 large Kimco-managed UBS retail joint ventures, encompassing 40 high-quality shopping centers containing approximately 5.6 million square feet. The total transaction value is approximately $1.1 billion. And Kimco is the current operating partner and presently owns approximately 18% of the combined ventures. We have reached preliminary agreement with Blackstone to increase our ownership interest from 18% to 33% and to continue to provide management and leasing services to the new joint venture. Also, as previously announced, we are very pleased to continue our participation in a 6-year-old service-led consortium, which is now acquiring just under 900 grocery stores across 5 established and distinguished grocery brands. The transaction will reunite the Albertsons stores the consortium already owns, approximately 200, with the Albertsons currently operated by SUPERVALU, approximately 400. In addition to the obvious synergies, all of the brands should benefit from the proven operating management team led by Bob Miller. I would also like to again note our progress in recycling the Kimco shopping center portfolio. During 2012, we sold 68 shopping center properties in the U.S., which in general read or not in our key long-term markets, were represented lower quality assets. At the same time, during 2012, we acquired 24 additional shopping centers with generally excellent demographics, strong tenants and long-term growth. We are committed to continuing quarter-by-quarter to upgrade our portfolio, focusing on larger properties within our key markets. The sale of the remaining non-strategic and non-retail investments will provide the capital to acquire additional high-quality retail assets. On the international front, Canada continues to perform very well with high occupancies and growing retailer demand. We are particularly proud that Target has selected one of the RioKim joint venture properties, Danforth, to open their very first Canadian Target store. This will be the first of 25 Target store openings per quarter in Canada, which should be transformational in the Canadian retail industry. With 9 new scheduled Targets in our Canadian joint ventures, we are confident of both income and occupancy growth. In our Latin American portfolio, we are encouraged by the continued lease up progress in our Mexican properties, coupled with a suddenly very vibrant real estate capital market. Four recent Mexican IPOs and several follow-on equity offerings of the fertile Mexican REIT, Fibra Uno are driving property values higher as the existing REITs, perspective REITs and Mexican insurance companies and pension funds are all looking for quality real estate properties. The Mexican economy is also performing well with a GDP growth rate of approximately 4%, unemployment at 5% and a very strong manufacturing sector. Mexico is now the fourth largest car manufacturer in the world. With respect to South America, where we own a small property portfolio consisting of 2 projects in Brazil, 2 in Peru and 11 in Chile, we have decided to monetize over time our investments. Notwithstanding impressive projected GDP growth rates, we simply do not have the scale or an efficient tax structure to meaningfully grow the South American portfolio. We do expect to sell our South American properties at a gain, given the robust real estate market in South America. However, capital gain taxes will be significant in several of the countries. In the future, we expect to focus our energies on North America and as mentioned before, concentrate on certain key primary core markets which in general are highlighted by strong demographics, limited retail per capita, barriers to entry, larger sized properties and higher population densities. We are determined to achieve over time a consensus among our shareholders and analysts that Kimco truly owns and operates great products. And now, I would like to turn to Glenn to discuss the financial details of the quarter, to be followed by Mike and Milton.

Thanks, Dave, and good morning. We finished 2012 with a strong fourth quarter and delivered full year FFO as adjusted per share growth of 5% over 2011. It was very encouraging as we were able to accomplish this during a period of meaningful asset recycling, which will continue during 2013. Our operating metrics of sustained side NOI growth occupancy and leasing spreads continue to deliver increasing positive levels. We have accelerated our shopping center recycling program and we're in the final stage of monetizing our non-retail assets. In addition, we have been opportunistic in the capital markets, which further strengthened our balance sheet metrics and liquidity position. As we reported last night, FFO as adjusted came in at $0.33 per share, up 10% from the $0.30 level last year. This brings full year 2012 FFO as adjusted to $1.26 per share, reaching the top end of our guidance range. Headline FFO for the fourth quarter was $0.31 per share, which includes a $0.04 per share charge related to the noncash expense associated with the redemption of our $460 million, 7.75% preferred stock and net transaction income of $0.02 per share, primarily from promotes earned on several preferred equity investments. We experienced very solid operating metrics during the fourth quarter. Combined same-site NOI growth was 3.4% including the positive impact of currency of 20 basis points. This is the highest level in the past 5 years. U.S. same-site NOI was the primary driver, delivering 3.1% growth. For the full year, combined same-site NOI growth reached 2.9%, excluding the negative currency impact of 60 basis points. Occupancy climbed to 94% on a gross basis and 92.8% on a pro-rata basis, up 30 basis points and 40 basis points sequentially and 70 basis points from the year ago. Leasing spreads were strong at 11.8% with new leases up 25.5% and renewals and options up 6.1%. We continue to be very active on the recycling front. We sold 34 shopping center assets during the quarter, providing $180 million in proceeds and quickly redeployed the capital by purchasing 9 properties in our key territories, further evidencing our execution of the up quality trade. We expect to pursue this objective through 2013 and beyond. The non-retail assets are down to $398 million and we have contracts or offers on over $130 million, including InTown Suites and certain of our urban assets. We expect to monetize over $200 million during 2013, bringing the non-retail exposure to a nominal amount of our $10 billion balance sheet. In November, we took another trip to the perpetual preferred market, issuing $175 million at a coupon of 5 and 5/8%, using the proceeds toward the repayment of a 6%, $199 million maturing bond. In 2012, we issued a total of $800 million of perpetual preferred stock at a blended coupon of 5.78% and redeemed $635 million of perpetual preferred with a blended coupon of 7.45%. Although we reported one-time noncash charges of approximately $22 million or $0.05 per share impacting LOI and FFO for 2012, we will benefit by over $13 million a year or $0.03 per share in real cash savings and reduced fixed charges going forward. We've improved our net debt to recurring EBITDA to 5.7x, a level better than the 6X we committed to at our 2010 Investor Day. We remain focused on the importance of balance sheet strength with a target range of net debt to recurring EBITDA of 5.5X to 6X and a fixed charge coverage of at least 2.5X. Our liquidity position's in excellent shape with over $1.4 billion of immediate liquidity. We are pleased with our execution and results for 2012, delivering a total return to our shareholders of almost 24%. There is more to be done. Let me comment on our 2013 outlook. We have completed our detailed property by property budget analysis and recognized that we will continue a very active shopping center portfolio recycling program further operating an overall portfolio of quality. That being said, properties we are disposing of typically have higher cap rates than properties we are acquiring. As a result, this upgrade of the portfolio might impact our near-term growth rate, but the improvement in portfolio quality should lead to increased earnings growth and higher net asset value for the long-term. In addition, the disposition of InTown Suites expected during the second quarter has a $0.03 to $0.04 per share impact versus 2012. We will benefit from the positive capital markets activities we concluded during 2012 and expect further positive results in 2013 by reducing our overall debt costs. We are affirming our 2013 FFO as adjusted per share guidance range of $1.28 to $1.33 with a midpoint of $1.31. At the midpoint range, the FFO per share growth is a solid 4%. This guidance is based solely on recurring flows and does not include any transaction in commerged [ph] sense, including results from our recently announced participation in the SUPERVALU transaction. Assumptions used to determining the guidance range included increase in occupancy of 50 to 75 basis points, combined positive same-site NOI growth of 2.5% to 3.5%, a significant acquisition and disposition activity. The guidance range is dependent on timing of this activity. In addition, it is worth reminding everyone that there is some seasonality in our quarterly earnings. For example, the timing of our annual equity compensation awards, which occurs in the first quarter and the timing of refinancing of our maturing debt. Our capital plan once again does not assume any new equity requirements and supports our recently increased dividend level of $0.21 per quarter, which equates to an FFO payout ratio of 64%, one of the lowest in the industry. Now I'll turn it over to Mike.

Thanks, Glenn. Good morning. We were very pleased with the fourth quarter performance metrics for occupancy spreads and organic growth, but more importantly, the overall shape and direction the portfolio is taking for the long-term. In reflecting on the portfolio trends over the past year, I'd offer that a couple of metrics underscore what is happening in the U.S. portfolio. As reported, overall U.S. occupancy increased by 80 basis points over the course of the year to 93.9%. First, the occupancy attributable to what we delineate as anchor space over 10,000 square feet increased 50 basis points this year to 96.9%. Meanwhile, the smaller shops spaces increased 170 basis points to 84.2%. Those numbers not only point to the ongoing demand for real estate by larger national or regional chains, but also showed a steady -- slow and steady improvement in the economic climate, as evidenced by the increasing absorption of space by the smaller users. However, peeling back the onion a bit more, the bulk of the increase in the anchor space was the consequence of our disposition activity, and absorption was about flat, a concern you might think initially, but I view it as the opposite. The available space from bankruptcy such as RoomStore and Syms or the end of term vacancies from Kmart and various supermarkets were absorbed very quickly, a very different world than a few years ago. And the value of those spaces was evident by the new leasing spreads of almost 28% for the full year. As mentioned in the last call, in between the singles and doubles of leasing deals, the occasional home run is hit with the recapture of older boxes with below-market rent entered decades ago, and we certainly gained that benefit this past year. With over 1,000 leases that were originally signed more than 20 years ago in the portfolio, I feel there is still a bit more harvesting to be done with future lease rollover. The second observation is an offshoot of the previous point regarding the turnover of the box space. While the rapid absorption underscores the demand, retenanting always comes with some downtime. And that inevitably causes a slight drag on same-site NOI metrics, which on a full-year basis was 2.5% for the U.S. However, the commencement of brands for these newer leases should result in improvement of the same-store metric for 2013, particularly as we move through the year. Of course if we have a similar level of rollover, we may have a similar level of drag, but the overall signals in growth appetite across the board remains very positive. So with all these positive vibes, there are still no shortage of concerns, most notably what will or will not happen in Washington this year that impacts the economy and consumer confidence, not to mention how the business and general media will overdramatize anything that happens, be it good or bad. And despite the encouraging advances of many brick-and-mortar retailers to integrate e-commerce into their business models, online retail's impact on shopping centers cannot be ignored. In response, we are focusing our energy on positioning the portfolio for long-term sustainable cash flow and growth. In that vein, we've been very pleased with the acceleration of the asset recycling. In the fourth quarter, we sold over 3.9 million square feet of properties, generating $180 million in proceeds for reinvestment. We've brought the full-year tally to 68 properties covering 7.7 million square feet and $385 million of cash to Kimco. Those sales were doubled to 200 -- to 2011 pace, and our target is another 60 to 75 properties in 2013. The dispositions are an important part of an ongoing push to focus our resources and invest capital in what we consider the company's key territories. We remain convinced that a national platform that covers most all of the largest MSAs in the country, a property-base that allows us to serve as one of the top landlords to most national retailers, and that our base is broad enough to maintain a spread of financial risk, it has enough depth in major markets to capture new opportunities is our core investment proposition. While this model doesn't give you necessarily the highest comparable demographics or average rents, but what it does do from the recycling efforts, the particular metrics will improve. And most importantly is to focus and maintain that reservoir of assets to generate stable and consistent NOI growth. Our program is simple, exit properties in our key territories where we perceive risk, where that maximum potential has been reached, and also exit properties in other smaller markets that have no particular economies of scale over the limited opportunity set to grow. Much of the capital generated from the dispositions have been pushed back into existing properties in 2 ways; first, the reinvestment through leasing with incremental returns, redevelopment and overall upgrade of the property base; and second, by increasing our ownership stakes in properties through a buyout of some or all of the interest in joint venture partners. I'd like to point out that in no case were these buyouts forced or the result of a dispute. It was generally the consequence of the partner wanting to monetize the position and Kimco determining that the property fit well into its longer term objectives in our key markets and territory. We expect this trend to continue into the next few years. In our portfolio outside the U.S., prior contests mentioned of differentiation and focus on key markets and territories also comes to bear. We remain committed to our Canadian portfolio exposure as a linchpin of the overall quality foundation of the company's assets and cash flows. And even if we're not increasing that exposure in the current high-priced, limited opportunity environment in Canada, things run in cycles. And we want to hang around the hoop for the long-term. In Latin America, Dave provided you with our strategic thinking. But what I can add is that the Mexico portfolio has built positive momentum and is reflective of some of the good fundamentals in direct Mexican economy. This portfolio contributed over $57 million to net operating income this year, an increase of 16% before currency impacts. With that, I'll turn it over to Milton.

Well, thanks, Mike. The environment for our type of retail property continues to improve. Absorptions are forecasted to outpace completions for the foreseeable future. Retail store opening plans are at a multiyear high. So while consumers will feel the impact of the end of the payroll tax holiday, some major economic indicators are pointing in the right direction. Above all, labor market is slowly improving and home prices continue to recover. Now as you've heard from my partners, we feel pretty good about our business. A business plan is on our track. And since our Investor Day on September 23, 2010, we acquired properties of total cost of $1.3 billion and disposed of sites at a gross price of $800 million, a total transaction volume of over $2 billion. And this illustrates that there has been a meaningful transformation of the portfolio. Please rest assured that we disposed of properties that we felt did not meet our criteria for future growth and acquired properties that we want to own long-term. The upgrade of our portfolio will greatly improve our long-term growth prospects and the property metrics and related demographics. Well, there are 3 aspects of Kimco's business that distinguish us. First, a national platform that enables us to service the needs of retailers in any part of the United States. Two, we have joint ventures which own approximately $10 billion of real estate that have and will continue to serve as an attractive source of acquisitions over time. And three, a long-term track record of retail-related opportunities that includes profitable transactions with Venture Stores, Gold Circle, Hechinger's, Montgomery Ward, Service Merchandise, Kmart, Ames, Albertsons, Woolworths, Frank's Nursery, Strawbridge & Clothier, Sprouts, [indiscernible], I could go on and on. Now we are confident that the SUPERVALU investment will also prove rewarding over time. We continue to have the same management team headed by the legendary Bob Miller that created extraordinary value for our Albertsons investment. And I'd like to conclude by thanking our associates for the wonderful job they are doing executing on our plan. I'm excited by the future and opportunities I see ahead. Now with this, I'm very happy to take any questions.

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

[Operator Instructions] And our first question is from R.J. Milligan of Raymond James. R.J. Milligan - Raymond James & Associates, Inc., Research Division: Can you talk about specifically the SUPERVALU investment, whether or not that's purely a return expectation or whether you think it could have other positive effects on that core portfolio? And I guess whether or not you see this? And from Milton's comments, it sounds like you don't see this as a one-off opportunity, but you will continue to look at opportunistic -- opportunities and investments as they come along?

Absolutely right. The -- a, our role in the SUPERVALU transaction is as a real estate partner. We have been retained and have a fee arrangement, but our principal job is to help in the monetization of surplus real estate aspects of the transactions that require real estate expertise. And I suspect that out of that activity, there will be opportunities for acquisitions, and it should be accretive. An example, we own 50% of a wonderful property in Chicago. And who owns the other 50%? Jewel. For years, we were trying to buy Jewel from the then SUPERVALU management. Never got any place. New management sees it. They want to monetize their half. We will wind up buying a property that we wanted to buy for years. And other illustrations, we had a wonderful Shaw's Supermarket in New England. The volume, the period before SUPERVALU bought it, was $36 million, and we were thinking of expanding it. [indiscernible], the SUPERVALU management came in, the plans to expand and drop. That volume today, led from $36 million down to $19 million. So you could see the kind of upside in the profitability and also what extra volume does to the value of the real estate. Well, basically, we're excited about a profit participation but most important, what it can lead to in real estate opportunities and enhancing our portfolio. Now this is not going to detract from what we've always wanted, being fast in our footwork to seize opportunities [indiscernible].

And our next question is from Christy McElroy of UBS.

Mike, I just wanted to follow up on your comments on occupancy. You talked about anchor space, but did your acquisitions and dispositions last year have any impact on your small-shop occupancies? So what would've been the year-over-year change on a same-space basis? And I guess, a similar question for 2013. Your occupancy guidance is up 50 to 75 basis points. How much of that is a result of capital recycling?

Yes. In looking at the overall growth in 2012, the occupancy increased. About 2/3 of it was due to disposition, 1/3 of it was due to net absorption, in terms of the increase in the overall occupancy. And when you break down the increase in net absorption, it was clearly driven by small shop. So volume was driven by small shop in terms of the occupancy increase, but rate, that is the leasing spreads, was driven more by the anchor because we had that significant rollover positive leasing spreads, of older leases that came due. So that's 2012. As we look to 2013, while we haven't refined it down to the exact percentage, our occupancy projections are probably -- about half or more is focused on absorption and less than half is due to the recycling energy. And I think that's just the consequence of having moved out of a lot of very low occupancy difficult properties. The next round of asset, so to speak, in the 60 to 75 that I talked about, is less about poor quality and poor occupancy and more about markets, where we don't have a significant presence, reasonably good properties, but are just not a market where we have a lot of heft. And as a result, the occupancy in those properties is more to the Kimco averages.

And next, we have a question from Quentin Velleley of Citigroup.

Just in terms of Blackstone buying UBS' joint venture assets and you increasing your stake, I think you said it was about $1.1 billion, which would imply about a 7 cap rate. I'm not sure if that math is correct. And then, just also I recall that you'd advised Blackstone on when they took the U.S. assets of Centro. Are you sort of viewing this joint venture as a long-term joint venture that could possibly grow or is it something more opportunistic?

Well, first of all, the parties have asked us not to comment on the specific cap rate, and so for -- so, I'll leave you to your math on that part. But we do value our relationship with Blackstone very much. We have a great working relationship with them. As you may remember, they purchased our Valad note and we did work with them on the original Centro transaction. So we have a good working relationship with them. And we're very pleased to be able to come to terms with Blackstone to increase our stake in this wonderful portfolio. It's very high quality assets. And so, we're very happy to be going from 18% to 33%. And we're very happy to continue our role as the operating partner and continue to be paid for that. So we value them and we hope to do other things in the future with them.

And the next question is from Paul Morgan of Morgan Stanley.

Going to the asset recycling, so you said 60 to 75 properties this year, but that the composition may be a little bit higher quality. I mean, so you were around that range in 2012 and it was $600 million or so. In terms of a dollar volume, should we assume more? And then most of those proceeds were used to -- for higher quality acquisitions. Is that the way we should think of it this year? And then, kind of what will be the -- is the cap rate spread narrowing relative to last year because of the improvement quality of the asset sale?

I would say, Paul, that yes, that will be 60 to 75, that it is slightly higher quality than what we've been selling the past couple of years. It's also a mix between assets that are held by the REIT as well as in joint venture assets. And not only institutional joint ventures but the array of smaller joint venture relationships that we've had, many legacy deals that we've had for years and years. So to try and put a circle around it, we've just thought about it in terms of net cash to Kimco, what it might generate in 2013. And based on some estimates, the targeted properties we are probably figuring somewhere between to $350 million to $430-some-odd million debt cash to Kimco. And that represents the purchase price minus any debt, particularly in joint ventures and in our pro-rata share.

Is the -- you've mentioned this, is the spread, cap rate spread narrowing, then we should think of that?

Yes. I mean, the cap rate is most likely going be a lower cap rate than what we've experienced in the past couple of years, which is to trend -- tended to be around the 9 cap rate level.

The market for, let's call it, the assets or secondary cities has definitely improved. We're seeing increasing demand, and cap rates are drifting lower. So we're encouraged by that.

And next, we have a question from Nathan Isbee of Stifel, Nicolaus. Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division: With this sale to Blackstone from UBS, was there any management contract change at all?

No. It's important to note that basically, Blackstone is stepping into UBS' Shoes, and all of the fees and different services that we provide will stay as originally negotiated with UBS. Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division: So there's nothing to say that Briggsmore [ph] is going to take it over at any point?

No.

The next question is from Caitlin Burrows of Goldman Sachs.

We noticed that your 2013 guidance range for FFO per share didn't change between what was given in the third quarter earnings but -- between now, but that the components of it did change. Can you go over what made the midpoint of the 2013 forecast for recurring retail go from $955.5 million to $943.5 million, non-retail go from $15 million to $18 million, corporate financing declined from 9 -- or $290.5 million to $280.5 million and G&A go down from $127 million to $124 million?

Sure, but that's definitely more than 1 question. But I'd be happy to take you through that. Obviously, when we put out our preliminary guidance back in October, again, based on best estimates, we actually have more information today. Some of the changes are, you saw during the fourth quarter just some of the aggressive selling that we've begun. And Mike's also talked about a more aggressive shopping center disposition program than what we originally had. So that's driving some of the retail change. And in conjunction with that, because the capital plan has more capital proceeds in it from these transactions, our requirements for an external debt or other capital needs are lower as well. And that's kind of brought down -- that brought down the financing cost that we've now projected in the current guidance. There's a small change in the non-retail. That's really just looking at the impact of InTown. InTown, we've had, beginning of the -- beginning to the middle of the second quarter. Now we think it might be more towards the latter end of the second quarter. So not a real big change there. And on the G&A line, it's really just a bunch of small things that have changed there from lower expectation of consulting and professional cost and lower expectation need for some temporary labor.

The next question is from Rich Moore of RBC Capital Markets.

I'm wrestling a bit with where you are with Mexico at this point. I mean, it seems like before maybe Mexico was something to monetize, but now the economy seems to be doing very well down there. Asset prices are climbing. Maybe it's a place to invest more in. So I guess, what are your current thoughts on your Mexican investment strategy?

Well, first of all, let's go through the list. We are very pleased that there's been a pickup of momentum in terms of leasing activities. So we're seeing it on the ground. The rents are going the right way. The occupancy is going the right way. We're also absolutely fascinated how quickly the capital markets have changed down there. The new public REITs and the demand for product of all types in Mexico is really quite amazing for somebody that's been following Mexico for a long time. Investors are literally pouring into the country looking for real estate. And it's a thin market in terms of quality real estate. So what we have, we think is much more valuable. And to be honest with you, we are looking at different things we can do. The IPO market is robust. We'd be foolish not to look at the IPO market. We have been approached by a number of existing REITs, perspective REITs and funds to acquire some of our high-quality properties. We, as you know, we have different operating partners and we have an institutional partner, capital partner, GE, all of whom have different long-term objectives in Mexico. So we will be going basically property-by-property and partner-by-partner in deciding what to do long-term. Now the other side of the coin is because cap rates have plummeted, it's not very attractive for us to buy properties. These cap rates are very low. So just like Canada, it's unlikely that we're going to increase our stake down there. But we have decided, as I mentioned, in South America to exit. We're just not big enough. Taxes are tough down there and notwithstanding the prognosis for the South American countries down there in terms of the economy, it's just not a good game for us and somewhat of a diversion.

And the next question is from Michael Mueller of JPMorgan. Michael W. Mueller - JP Morgan Chase & Co, Research Division: I guess, looking at the new leasing spreads, they've been pretty strong in the 20s the last 2 quarters. And when you look out to 2013, do you expect it to be at comparable level? And when do you think you start to hit up against tougher comps? Is it '13? Is it '14? Do you have a few more years of visibility?

As a general statement, Mike, I'd say that in looking at '13, the comps will be lower. And the primary reason is when thinking about our core leasing plan having the anchors at 97% occupied, most of the absorption is going to come and the leasing spreads are going to come from smaller spaces. And the smaller space is a little bit more of a mixed bag. We've got some great upside in certain markets and other markets are pretty tough. We've talked ad nauseam in the past about some of the markets in Vegas and Reno and Central Valley in California, et cetera that seem to temper the leasing spreads. That said, you can expect the unexpected. And what we've seen over the past couple of years, as I mentioned in my prepared remarks, hit that home run or 2 on a big anchor deal that may turn over that gives you some extra juice. On balance, it's going to be positive. I'm not going to predict these big double-digit numbers that we had this year, but more directionally just map this out for the last 3 or 4 years in where we're heading, it's all heading in the right direction and the arrow keeps moving up. That's the best I can offer and I can't think about '14, '15, '16 because there are just too many variables that would affect a leasing spread.

But Mike did hit on a strong asset of Kimco. We've got lots and lots of older leasing. When people look at our average rent, it has upside. So in general, we think we are going to outperform in terms of these leasing spreads. It's just difficult to project these very high double digits to continue.

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

Just wondering, given the recent growth in private REITs, are you finding that they are the primary buyers of the dispositions or you're kind of finding them flocked more to the core product?

We find them A buyer. They're certainly looking for yield and they can find the yield in some of these secondary markets and B assets. But interestingly, we actually find local buyers being particularly aggressive on one-off transactions. They think they can do a little better job in their own market than we can. They're buying some vacancy and that's just fine with us.

And next, there is a question from Cedrik Lachance of Green Street Advisors.

Just looking at CapEx for a second, when I look at, on Page 29, your new leases and the TIs that you provided on the fourth quarter leases were roughly 20% of NOI, is there anything that happened at a few of the leases that you had? Or is there a trend to providing a little more TIs in CapEx nowadays?

Essentially, the TIs and the CapEx that are provided are reflective of the market, the ability to attract the rent in a given market and who's paying the rent. So in our case, the TIs have gone up and as a direct consequence of where the leases are being signed and who's signing them. The big drivers this quarter are Nordstrom Rack in Colombia, replacing a RoomStore, a DSW in Manhasset, New York and Long Island. So we actually recycled an old, underperforming supermarket with an LA Fitness. All of these are relatively high rents because of the market -- that last, LA Fitness was in Staten Island. High-rent markets, drivers with tenants who can't pay the capital, there has to be a capital contribution. And when you look at the net effect of rent, it's still increasing. When you look at the capital cost and proportion to the rent, you're still recovering about 86%, 87% of the gross rent. And that's been the trend over the past couple of years. So on balance looking at dealmaking, not CapEx as a percentage of a static NOI, which could reflect a lot of under-market rents, we feel we're at market. We've not overcharging, so to speak, or we're not buying up rents that sometimes they have that concept that's thrown out there, just reflective of better markets, better tenants, good leases.

Okay. Just staying on the topic and I'll squeeze in a second question on that. Do you think that as you lease some perhaps of the tougher space that you have that you will continue to have CapEx of this nature, roughly 20% of NOI or do you think you can reduce that?

It comes down to the composition of the leases -- the spaces, the sizes. You've seen a growth in capital tenant improvement dollars generally associated with large boxes, larger tenants and better markets. My earlier point that proportionally, more of the leases -- the lease volume in 2013 and probably beyond will be in smaller tenants. I don't think the average ticket price, capital, will probably be lower. But there's still a little bit more runway in some anchor deals that we have on the table. But I can't say we're maybe hitting a high point in '12 and '13 in terms of average TA dollars per square foot. But it clearly is reflective of what -- of the benefit of some of these anchor leases and better markets.

And when you look at the total package, which is the rent we are able to achieve, the free rent provisions, the TI and so forth, as a total effective rent, effective rents are moving up for us. So we suspect that it is not quite a landlord's market, but it's moving a little bit away from the strength that the tenants had to demand huge TI packages and so forth.

And our next question is from Michael Gorman of the Cowen Group.

A quick question for Glenn. You talked about some of the improvements on the balance sheet side and some of the progress you've made there on the debt-to-EBITDA on the fixed charge. And I was just wondering if you could talk about the weighted average maturity for the consolidated debt? It's down around 3 years now, down from over 5, and I'm just kind of wondering how you're thinking about that going forward and where you'd like that to be over the long-term?

Yes. I think you'll see it get extended out a little further. Again, we haven't issued a new bond since August of 2010. But when you see a new bond come, that will be a 10-year deal. So that will certainly extend it out further. We've also paid off some debt with perpetual preferred stock. So you're seeing debt get removed from the balance sheet when you're looking at it and you have no maturity. But in general, we are going to continue to extend out the duration and obviously keep the debt maturity staggered, as we always have.

And the next question is from Craig Schmidt of Bank of America Merrill Lynch.

My question's on the 9 new Targets in Canada, you said resulting in incoming occupancy gains. Is that because there were greater vacancies surrounding Zellers' entrances or just a general lift to the shopping center where you can get more in lease spreads going forward?

Generally more of a lift. You've got a lot of tenants that want to be located next to new Targets. So if they're local stores and those are shorter term leases, we expect them to roll to higher rents than they would have if the Zellers was still there. Target is expected to drive a lot of traffic to these centers. And as you know, Target had spent a lot of money fixing up these stores. So it's exciting, it's brand new for Canada. The average Canadian's very excited about Target entering. So we suspect an uplift. And if you talk to RioCan, I think they can give you some more specifics because they're seeing it.

And so, it could happen relatively quickly, at least for you?

Yes, starting -- again, starting in March, you'll have 25 a quarter coming on stream up there.

And the next question is from Vincent Chao of Deutsche Bank.

Sorry if I missed this from earlier, but just going back to the FCU, I think you said the guidance, recurring guidance are -- doesn't include any impacts from that investment. But I guess are you saying that the accounting treatment is such that you're owing to make booking transactional type of income from that or are you just choosing to exclude that impact?

Well, there's a couple of things, Vincent. First of all, the transaction is really in 2 parts. Part of it is going to be in marketable securities, so that will just show up on the balance sheet in that line. Unless there's dividends, there's no real change that would occur. So the mark-to-market just runs through the other comprehensive income line. The other portion, which is the investment in the stores, the accounting isn't resolved yet. We're not sure if we're going to be on the equity method or the cost method. But in general, we're going to treat this as part of our transactional income, right. So we're going to keep the recurring the way we've been showing it all along. And anything that happens relative to this will show up in that transactional income or in the headline number.

And our next question is from Samit Parikh of ISI.

I'm sure you've gotten this call -- this question before from investors. But just curious, can you talk about your outlook on your business sort of over the next year or 2? And how you think about that correlating with the recovery in the housing market?

Well, the housing market is such a vital part of the retail market. When you have new homes built, people need furniture, appliances, there's job growth. So I would say that the new rooftops, new construction, new occupancy is one of the most important parts of increase in activity for retailers. So it's a very important part.

Our next question is from Mary Gilbert of Imperial Capital.

I wanted to follow up on the SUPERVALU transaction, mainly with the investment in the stores that I think you were talking about in the examples that you cited for potential realization opportunities. And so with the example that you've cited let's say, for example, with Shaw's, it sounded like the strategy there would be to improve the operations first before recognizing value. Is that how should we look at it because I wondered if you saw opportunities let's say very soon to maybe sell off some of the non-strategic operations there, being the Jewel stores [ph] the Shaw's and the ACME to focus on the core Albertsons. Do you think that...

It's a pertinent question because we had dinner last night with Bob Miller. And he has said the most important thing in this turnaround is to get the customer back, that to have fresh produce, to have the kind of an excitement in a store where customers can come back. And that will be the first objective turnaround of inception [ph]. Shaw's was once a marvelous place to shop. Anyone who's in New England knows what has happened. Similarly, Jewel had a fantastic share of market. But the objectives are to first get the customer back, get the customer into the store. And that will -- is the #1 priority. There will be -- there is surplus property that's separate and apart from the turnaround of the store level. And that, Ray Edwards, of our company is working on and involved and there will be monetization on there of that.

Can I follow up with that? How soon do you think you would be getting dividend from this as you should with Albertsons, LLC?

We don't know. I mean, Albertsons, we've got 5X money back pretty quickly. And it's going to be hard to say. I happen -- I -- generally I am a pessimist. But with this management team and the skill of the letting the partners that are in the transaction, I think it's going to happen relatively quickly.

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

Just wanted to follow up on Mexico real quick. You talked a lot about cap rates coming down in Mexico. Can you tell me where you think you could transact both the industrial and retail today? And also just quickly on that as well on listing, do you think you need to bulk up the portfolio more to have a successful listing?

I think both in industrial and retail, good properties are going to trade in the 8s now, whereas a year ago it was 9. It's quite amazing and may be headed towards the low 8s, very high quality properties. As you know, the industrial is U.S. dollar rents, whereas the retailer is peso rent. In terms of the size of an offering, no, you could be relatively small. That doesn't seem to be an issue. What was intriguing to us particularly is the new Macquarie REIT because instead of an operating company going public, it's just an asset manager. All of the property management leasing is done by the sellers of those assets into the Macquarie REIT. Macquarie is just an asset manager collecting fees and so forth. So it makes what we have even more viable as a public vehicle, because we're not an operator in Mexico, but -- So it's just amazing what's going on down there.

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

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

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