Kimco Realty Corporation (KIM) Q4 2014 Earnings Report, Transcript and Summary

Good morning, and welcome to the Kimco Realty Corp., Fourth Quarter 2014 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Bujnicki. Please go ahead.

Thanks Dan. Thank you all for joining Kimco's fourth quarter and full year 2014 earnings call. With me on the call this morning are Milton Cooper, our Executive Chairman; Dave Henry, CEO; Conor Flynn, President and Chief Operating Officer; Glenn Cohen, our CFO as well as other key executives who will be available to address questions at the conclusion of our prepared remarks. As a reminder, statements made during the course of this call may be deemed forward-looking, and it's important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties, and other factors. Please refer to the company's SEC filings that address such factors that may differ materially from those forward-looking statements. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Examples include, but are not limited to, funds from operations and net operating income. Reconciliation of these non-GAAP financial measures are available on our Web site. With that, I'll turn the call over to Dave Henry.

Good morning and thank you for joining us today. We are very happy to top-off a great year with solid fourth quarter financial results and operating metrics. Our strong portfolio of fundamentals were led by same-site NOI growth exceeding 4% for the second straight quarter and reaching our highest portfolio occupancies since early 2008. Small shop occupancy also showed a sharp increase as local stores and small national retailers recover from the recession and proceed with their expansion plans. While retailers in general achieved mixed results in 2014, discounters and service-oriented tenants such as health clubs and restaurants continue their aggressive growth in the phase of a shrinking inventory of retail space. As a result, effective rents are climbing in our portfolio and across the entire open air shopping center sector. Lower gas prices, accelerating household formation and continued limited development activity all bode well for the shopping center industry fundamentals in 2015. The omni-channel sales approach is increasingly being embraced by national retailers with e-commerce success depending on brick and mortar stores providing market presence, product showrooms and fulfillment capabilities. Amazon and many other Internet retailers will indeed be leasing retail space in the coming years. Glenn and Conor will cover many of the financial and operating specifics in their comments today. But, I would like to highlight several prominent successes. First, we have now essentially completed our exit from Latin America with favorable cap rates somewhat offset by declining currency exchange rates. Second, after lengthy negotiations we reached agreement and on Monday closed and acquired the remaining 2/3rds ownership of the Kimco Blackstone portfolio of 39 high-quality retail properties. And finally, early last week Kimco together with its consortium partners led by Cerberus completed the acquisition and merger and of Safeway with Albertsons and various other prominent grocers including Shaw's, Jewel, ACME and United Supermarkets comprising more than 2,200 stores. Kimco will hold slightly less than 10% of the merged operating companies and related real estate approximately 50% of which is owned real-estate. As outlined in our earnings release, we have also substantially upgraded our U.S. portfolio with disposition of 91 shopping centers in 2014, while also acquiring 60 high-quality properties during the same period. While our recycling and upgrading strategy is not unique the scale of our actions in 2014 exceeded our peers and the resulting improved demographics and rent metrics of our portfolio are substantial noteworthy and promised to deliver excellent future growth. Looking at our Canadian operations and responding to related inquiries, our occupancy remains very strong at 96% and we are fortunate to have the full guarantee of Targets U.S. parent for all nine of our Targets stores in Canada. Canadian Tire, Cosco, Wal-mart, Home Depot and Metro Grocery stores have all expressed interest in some of our target locations. And it is quite possible that we will end up with stronger tenants and a significant financial settlement from Target USA. Separately, while the lower Canadian dollar does impact property level NOI, we estimate $0.02 for 2015 at current levels. Our initial investment in Canada remains hedged through Canadian dollar mortgages on the individual properties and our Canadian dollar denominated bonds. In addition, our local operating partners continue to do an excellent job leasing and managing the properties. Property values and prices also remain at historic high levels in Canada due to strong demand from pension funds and other institutional investors. During the quarter as Glenn will note we monetized one more Canadian preferred equity investment at a substantial gain. Overall and moving forward across our entire portfolio, it is clear that our emphasis will be on investing capital in our own properties through redevelopment and expansions complemented with several selective new ground-up projects. Conor will discuss in detail these plans, but we are pleased with our progress in growing this pipeline and the associated accretive economics. The third-party acquisition market for high-quality properties is heated and very competitive. As a result wherever possible we continue to purchase the equity interest of our institutional partners when they choose to monetize their investments. In these situations, we have a distinct advantage due to our knowledge and long-term management of the assets coupled with a potential savings in terms of transfer taxes, brokerage fees and mortgage assumption costs. Given the portfolio upgrade, we have completed to-date an improving industry fundamentals. We feel very positive about 2015. Now, I would like to turn to Glenn and Conor with Milton batting clean-up as usual.

Thanks Dave and good morning. Our theme from our December 2013 Investor Day was TSR Plus, transformation, simplification, redevelopment and activities from our Plus business. We have successfully executed all these initiatives throughout the year and we are proud that our TSR Plus strategy delivered a TSR, total shareholder return of 32.4% for 2014. Now some to details on our fourth quarter and full year results and some additional color on our 2015 guidance range. As we reported last night, headline FFO per diluted share, which represents the official NAREIT definition was $0.38 in the fourth quarter which includes the $0.03 per share of transactional income related to the monetization of several preferred equity interest in the U.S. and Canada. For the full year headline FFO per diluted share was $1.45, a 7.4% increase as compared to a $1.35 per share for 2013. Our FFO was adjusted, our recurring FFO which excludes non-operating impairment and transactional income and expense was $0.35 per diluted share for the fourth quarter a 6.1% increase compared to last year and brings a full year to $1.40 per share a 5.3% increase over the 2013 level of $1.33 per share and achieving the high-end of our guidance range. It's important to note that we accomplished this despite the $0.05 per share dilutive impact of disposing of higher cap rate assets including a substantial portion of our assets in Mexico and many non-strategic U.S. assets. Our strong performance is the direct result of the significant portfolio transformation, which is delivering solid operating metrics including fourth quarter U.S. same-site NOI growth of 4.3% bringing the full year U.S. same-site NOI growth of 3.3%. Over 70% of the NOI growth is attributable to minimum rent increases. Our combined same-site NOI growth which includes our Canadian operations was 4% for the fourth quarter and 3.3% as well for the full year excluding the negative impact of currency of 90 basis points and 80 basis points respectively. Occupancy is approaching 96% and our leasing spreads were strong with full year leasing spreads of 19.5% and 6.3% for renewals and options bringing combined leasing spreads to 8.8% for 2014. We continued to execute on the simplification part of our strategy. During the fourth quarter we acquired seven assets from joint venture with Dick and sold eight other properties from this joint venture. We also sold 23 assets in Mexico and two assets in Peru for total proceeds of $161 million and have now substantially liquidated our investment in both countries. As previously mentioned upon substantial liquidation of an investment in a foreign country, the impact of foreign currency translation is recognized in earnings. As such we recognized a non-FFO charge of $134.3 million which was applied against the respective gains and losses on the assets sold. This is substantially offset with non-FFO gains net impairments of $107.8 million recognized during the quarter from the sale of 66 operating properties sold, generating total proceeds of approximately $420 million. In addition, as Dave mentioned we closed this week on the previously announced $925 million transaction to acquire the remaining 2/3rds interest of our joint venture with Blackstone. The 39 properties in the venture are wholly-owned. With regard to our balance sheet, we finished the year with solid debt metrics with net debt to recurring EBITDA of 5.5x and fixed charge coverage of 3.2x, the strong levels coupled with over $1.7 billion of the immediate liquidity from the availability on our revolving credit facility and cash on hand provided us the capacity to fund the Blackstone JV buyout. Subsequent to year end we refinanced our $400 million term-loan with a new $650 million term-loan priced at LIBOR plus 95 basis points among the lowest borrowing spread in the REIT industry. This term-loan has initial term of 2 years and 3 one-year extension options at our option with a final maturity date in 2020 providing us maximum flexibility. Our debt maturities for 2015 are very manageable with less than $500 million of maturities and a significant portion not doing for the latter part of 2015 with an average rate of 5.2% on the maturing debt, we view this as an excellent opportunity to reduce our cost of capital. Now to some more color on the guidance for 2015. As we discussed on our last earnings call NAREIT has been strongly advocating that all reporting companies provide guidance in accordance with the official NAREIT FFO definition as part of an effort to have an industry-wide consistency. As such, we are introducing an initial 2015 FFO per diluted share guidance range of $1.45 to $1.53 in accordance with NAREIT request. Our initial 2015 FFO was adjusted per share guidance range is $1.42 to $1.44. The level of growth takes into account the dilutive impact of $0.12 associated with the significant capital recycling and joint venture buyout executed during 2014. We view 2015 as a bridge year where we absorb the impact of our transformation program in order to position the company for superior long-term earnings growth in 2016 and beyond. In addition, the guidance consists the investments made in land parcels for future development totaling over $100 million and our Plus business investments in our Supervalu and Safeway acquisitions, which are currently non-earning, which should provide excellent growth potential in the future. Several of the underlying assumptions used to develop the guidance range include an overall increase in U.S. occupancy of 25 to 50 basis points; U.S. same property NOI growth of 3% to 3.5%; acquisitions of $1.1 billion to $1.3 billion, which includes the $925 million from the recently closed buyout of Blackstone; and dispositions of $550 million to $750 million. In addition, the guidance range includes a $0.02 per share negative impact of the strengthening U.S. dollar on our Canadian denominated flows. The headline guidance ranging includes net transactional income of $20 million to $38 million, which is excluded from our FFO as adjusted. The net transactional income includes acquisition cost of $6 million. The guidance range is sensitive to timing of acquisitions, dispositions, redevelopments coming online and lease-up and financing initiatives. Our 2015 plan strongly supports our recently increased common dividend level of $0.24 per quarter, which equates to an FFO pay-out ratio in the mid-60s percent range one of the lowest in the industry. Now, I will turn it over to Conor.

Thanks, Glenn, and good morning everyone. Today I will give a brief summary of our portfolio metrics, a quick update on acquisitions and dispositions followed by an update on redevelopments. The fourth quarter and full year results reflect our best efforts to reposition the portfolio to a vibrant collection of high-quality, high-growth assets located in dense key metro markets that have the highest growth in population, wages and employment. We are positioned to give our shareholders unmatched safety in terms of tenant and geographic diversity along side stable and recurring growth. The U.S. portfolio achieved an increase in occupancy of 80 basis points pro rata for the year to end at 95.7%. The occupancy gains were primarily driven by the increase in small shop demand as the U.S. small shop occupancy rose 280 basis points from the beginning of the year to finish at 88% pro rata an increase of 100 basis points of our prior quarter. Resurgence in small shop leasing continues as this quarter we completed 66% of our small shop deals with local operators. The three major categories that make up the bulk of our small shop leasing include personal care services, restaurants and medical offices. Anchor occupancy also gained 10 basis points pro rata over prior quarter to finish at 98.3%. Leasing spreads continued to show the strong demand per space resulting in combined leasing spreads of 9.4% for the quarter. The U.S. same-site NOI of 4.3% for the quarter is a strong result driven by significant rent commences, contractual rent increases and redevelopment is coming online. Competition in our key markets for acquisitions continues to escalate with no end of capital chasing high-quality real estate. Acquisitions for the fourth quarter were geared towards off-market, value-added projects where we are able to leverage our strength. Braelinn Village, a Kroger anchored center in Alpharetta, Atlanta suburb has expiring below-market Kmart lease that we believe as a significant redevelopment potential. In addition, we have acquired four development parcels where we plan to build and hold these long-term strong assets to create shareholder value. One is the Whole Foods development in Wynnewood, Pennsylvania that is now under construction and located on the Main Line where we continue to expand our presence along side our flagship Suburban Square asset. The Christiana, Delaware site was purchased from Sears and sits adjacent to GGPs Christiana Mall where retailers can take advantage of a tax-free environment and the site will take advantage of the significant frontage along I-95. In Florida, the Dania Beach development site sits adjacent to our dominant Oakwood Plaza. Nearly 3 miles of frontage along I-95 that comprise these two properties will create a dynamic and signature asset. Finally, we have acquired a development parcel in Houston, Texas near the Woodlands and the new Exxon-Mobil campus that fronts the new Grand Parkway. The location of this asset is what we call a hole in the donut for retailers, as they are eager to capture this new positive growth in this affluent and highly educated market. Notwithstanding the current oil price volatility, our project has generated significant retailer interest at an early stage and we expect to execute leases with anchorage tenant throughout 2015. These four projects amount to projected gross costs of $469 million, where targeted returns between 7% and 8%, a measured development approach where we can take advantage of our local expertise will enable us to build upon our growing redevelopment pipeline. For 2015, we plan to leverage our industry-leading relationships to continue to source off-market transactions. A good example is the recently announced consolidation of the Blackstone JV in line with our stated strategy to simplify the business and further transform our portfolio; this transaction will significantly improve the wholly-owned asset base of Kimco and add a few notable redevelopment projects. Turning to dispositions, in the fourth quarter we sold 41 properties, 29 wholly-owned and 12 in joint ventures for a pro rata share from these sales of $325 million. Pricing for these Tier-2 assets continue to show improved strength as public and private capital chase deals to the very low interest environment. For the year, we completed the sales of 91 U.S. shopping centers for a gross sales price of $1 billion including $249 million of mortgage debt. The company's pro rata share from these sales was $710 million and the blended cap rate on our dispositions for the year was 7.5%. We believe we are in the sweet spot for dispositions and are targeting another $600 million for dispositions in 2015 to effectively complete the transformation of the portfolio by exiting our low growth assets in secondary markets. Our redevelopment program continues to produce significant results. Every asset we own goes through a methodical review process that takes into account all opportunities including current and future, retail and non-retail, so we leave no stone unturned to help create long-term shareholder value. Our real estate is in demand not only from our normal role at expanding retailers, but also new sources including specialty grocers, outlet concepts, European retailers and developers of apartments, medical offices and hotels. For the year, we completed 34 projects with the total gross cost of $68 million with a ROI of 13.9%. These projects continued to improve net asset value and contributed 90 basis points to our same-site NOI this year. As you look to 2015, we target gross projects of $200 million with a ROI of 8% to 10%. We have made significant progress this year. But, there is still work to be done as we continue to evolve and position ourselves as the best in class capital allocator and redevelopment operation. In this next cycle, it will be imperative for us to focus on the capacity to sustain significant income growth when the interest rate environment shifts. As we near our all time high in occupancy, we will look to our redevelopment and development pipeline to generate significant recurring income growth. The demand for space continues to outpace supply as we enter into 2015; we are cautiously optimistic due to the fundamental drivers of our industry. Employment growth, cheap gas prices and consumer confidence all combined to form a powerful shopping base in the U.S. that is ready to ramp-up consumption especially for off-price and essential goods. Our retailer services group continues to provide us with invaluable information and recently found that this dramatic fall in gas prices has been a boon for our grocery concepts. We completed our strategic initiative of increasing our percentage of ABR from grocery-anchorage properties from 58% to over 65% and we will continue to push this initiative in 2015. Our asset class is now competing at a higher level. As we have noticed many of our retailers that straddle the line between open-air shopping centers and the enclosed mall world have been outperforming in the open-air environment. Combining the favorable supply and demand balance, in addition to the safety to U.S. investments provide a nice runway of growth that had for owning well-located open-air centers. As we look to 2015, our strategic goals remain focused on completing our transformation, simplification and expanding our redevelopment efforts to include strategic ground-up developments. And now, I will turn it over to Milton for his closing remarks.

Well, thank you, Conor. I believe that our retail estate portfolio is in a particularly sweet spot. The decline in gasoline prices is much, much more important on a relative basis to our retail tenants, the super mall, the drug store, the off-price retailers and many other retailers that sell essential goods and service. It's much more important to them than it is to high-end luxury retailers. I would also note that the major department stores are opening up more off-price units than ever before. There are 35 Nordstrom Rack stores planned over the next two years. Hudson Bay has stated they believe the value concepts will capture much of the growth in retail over the next five years and they are accelerating their expansion of their Saks Off Fifth brand. Even Macy's announced, they will explore in off-price business in addition to their existing Bloomingdale's outlet concept. I also believe that cap rates will continue to decline. The spread between the 10-year treasury rate and cap rate should be narrower. The U.S. has the best legal system in the world for property rights. Global investors and pension funds are increasing their allocation to U.S. real estate, which should create further demand and the dollar is getting much more respect. At Kimco over the past year, we have invested in the future growth of the company. These investments include the Blackstone purchase, a myriad of redevelopment projects and the development sites in Florida, Delaware, Pennsylvania and Texas. But for me personally, the most stimulating part is the bench strength of the Kimco team. I see passion and creative ability and a fierce energy to create value. Our team has dozens of new initiatives and programs to increase our operating income and NAV. And with that, we are happy to take any questions.

We are ready to move to the Q&A portion of the call. We request that you respect the limit of one question so that all of our callers have an opportunity to speak with management. If you have additional questions you are welcome to rejoin the queue. Dan, you may take our first caller.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Christy McElroy of Citi.

Hi. Good morning, everyone. As the largest shopping center REIT by market cap and coming into 2015 as a net acquirer and a potential equity issuer, this sort of feels like an appropriate question for you guys. Dave as you mentioned the private market for acquisitions is competitive. You had a lot of success buying out JV partners in terms in the last couple of years. But, historically you have been a willing public REIT acquirer even though you haven't in recent years. So I'm wondering what's your view on where the public REITs are trading versus private market values and is there a scenario where you would consider leveraging your equities to buy another couple of REITs?

Well, there is certainly a scenario we would consider it. And we do think there continues to be a difference between properties on the private market and how us as a public company are valuing. We think the implied cap rate of our stock is much too high compared to the high-quality properties that are being traded out there on the private markets. So there certainly is an arbitrage that exits out there. But as you know, M&A in our sector is difficult basically there is a process, you end up paying their bankers, your bankers, their accounts, your accounts. These deals are fully shopped. And yes, we have experienced doing it. We have done five over the last I think 15 years and we are proud of those. And we certainly continue to look at opportunities. We are focused however on if we do M&A on portfolios that will enhance the quality of our own portfolio. So the inventory of public portfolios out there that we attract our interest is narrower than perhaps it would have been in the past when we looked at all kinds of the yield. So we will see what happens over time and if things become imply we certainly look. I think it's known that we together with others looked at AmREIT which met that high-quality profile about it. It is noteworthy that a private buyer bought it.

Acknowledging the quality bias, would you have a bias towards larger format centers or smaller neighborhood centers if you were to buy a large portfolio today?

Yes, sure.

We prefer the larger formats. I think it gives us a little it more redevelopment potential. That being said we know that if we want to become a more urban portfolio that we may have to acquire some smaller parcels and then look to try and enhance that by acquiring adjacent sites around those parcels.

Thank you, guys.

Our next question comes from Craig Schmidt of Bank of America. Please go ahead.

Thank you. Regarding the guidance of $1.1 billion to $1.3 billion, how much of that do you think will be acquisitions from JV partners?

Well, again, you have $925 million that we closed on already this week. So you have the bulk of it that's done that way. We will continue to look for some work. But, I would say that balance of its really going to be one-off transactions that we find probably on an off market basis that might be an asset or two that we can buy out. But, we have done the bulk of that heavy lifting I think go in our – buying out large joint venture partners that are willing to part with their assets that's the norm.

We continue to have some discussions with some that are interested. So I wouldn't say it's – that we are completely finished. But the bigger ones as we have talked – as we mentioned in the past have told us they like to hold for the long-term. But we are talking to some of the others.

Thank you.

Our next question comes from Samir Khanal of Evercore ISI. Please go ahead.

Good morning, guys. Just looking at kind of your international market today, I mean you have exited pretty much all of Latin America, I think most of the bulk – to dispose and that was kind of in the U.S. of $600 million in 2015. But, with the soft Canadian currency and can that – is that a market that you kind of think about for the long-term, as you kind of balance the currency risk there and possibly kind of a better opportunity to invest elsewhere?

We certainly take a look at what we have in Canada and what we should do with what we have in Canada. One of the problems we have had as we have mentioned on these calls over the years is growing what we have had properties prices up there are exceptionally high. And we have taken advantage of it in modest ways. We have continued to monetize our preferred equity investments while we have sold quite a few properties in Canada. But, together with some of our partners we have put properties on the market up there. So I think it's more likely than not that you will see our exposure and our investment platform in Canada to go down over time rather than stay the same.

Okay, great. Thanks.

Thanks Samir.

Our next question comes from Paul Morgan of MLV. Please go ahead.

Hi. Good morning. Just and thinking in about the consolidation in office supply space where you have got more than 100 staples and office depots and as you look at that real estate, I know retailers have been circling a lot of those stores for a long time. I mean how do you think about the mark-to-market within in your portfolio? And then broadly how consolidation of that REIT might play out in terms of – is there enough term left that will be a lot of sub-lease activity or would you be able to recapture and could be a catalyst for redevelopment et cetera?

Yes. It's a good question. The first thing to note is that the two companies will operate business as usual as they go through the FTC process. So as we look out the next three years we have clearly 42 sites that are just coming due. The good thing is that the boxes that these office supply users occupy are in the highest demand in terms of our shopping center space. So 98.3% occupancy in our boxes over 10,000 square feet. And these boxes have come up in the next three years. They are about 10% to 15% below market. So we do believe that they are going to analyze a strategy if they are approved by the FTC that will then clarify what their needs are going forward. But, we believe this is a nice opportunity for us to continue to add specialty grocers to our shopping centers where we can increase our percentage of ABRs from a grocery component. And there is plenty of demand for all the TJX concepts, Ross, Bed Bath & Beyond concepts. If you think about these are boxes that once you add up a dynamic retailer that will cause more traffic it should have a trickle down effect that will impact and enhance the residual shopping center. So we look at it as a net positive, but at the end of the day, as a landlord you are always sad to see another retailer combine because it's one left that it's going to be bidding on that space when it comes available. So even though it's probably necessary for that sector, we do like to think the more retailers is better for us.

Our next question comes from George Auerbach of Credit Suisse. Please go ahead.

Thanks. Good morning. For the fourth quarter in 2014, it looks like TIs and LCs were about 18% or so the value of your new leases in the U.S. up from about 15% in 2013. I guess how should we expect capital cost to trend in 2015 and 2016 on new leases. And how do you think that impacts the cash rent spreads on your new leases relative to the call 20% spreads on new and 9% overall, that you achieved in 2014.

I think that's probably a common range in terms of going forward, you will still see the tenant improvement allowance and landlord work range from third quarter to fourth quarter and that is going forward for 2015. That being said, we are getting close to our stabilization point of occupancy, so when new leases come in unless it's a transformative used where we are going from a soft good player to a grocery box or a say a bank branch to a restaurant that's where you really see the up tick in the cost that you need to reposition those boxes and that's probably what's driving that up tick in the fourth quarter because we did execute a number of grocery deals as well as restaurant deals.

Still going forward is 15% a better number?

I think the 10% to 15% is a good range to think about.

Thank you.

You're welcome.

Our next question comes from Jason White of Green Street Advisors. Please go ahead.

Good morning. I was just wondering why 2015 is the right time to be a net acquire and what factors will lead to materially depart from your initial guidance this year?

Well, what I would say is, we had this big opportunity to buy out our Blackstone joint venture which is over $900 million that is the bulk of it. If you look at the balance of what we are doing, we are talking about selling at a mid-point roughly $650 million of assets and acquiring on the other side of that somewhere around another $300 million to $400 million of assets. So again, as Dave mentioned you have a pretty heated market. We are trying to find really good opportunities. But being very disciplined about what we are acquiring. I mean the Blackstone joint venture is the driver.

Definitely the driver and if you think about it, it was a wonderful opportunity for us because there was no broker involved. We could assume the mortgages without any additional costs. We minimized the transfer taxes and we were able to do a negotiated transaction with Blackstone. And so that those opportunities don't come along a lot and $900 million certainly drive us being a net acquirer in the face of very high third-party acquisition prices. So you are right in general but it's just that the Blackstone deal fell right into this year.

I would also just add that our disposition is a lot smaller this year. So when you think of it, we are coming off of a very large disposition year and that tails off because we are nearing the completion of the repositioning.

Okay. Thank you.

Our next question comes from Ross Nussbaum of UBS. Please go ahead.

Yes. Good morning. It's Jeremy here with Ross. I was just wondering if you can give us a little more color on the components of your same-store growth expectations for 2015, what kind of leasing spreads are you baking in and what about expense growth and then just also how much should the development benefit 2015 results?

Yes. In our plan we anticipate redevelopments to have 25 to 40 basis point impact on our same-site NOI growth.

And on the leasing spread side, we baked in high-single digits. So pretty similar to what we saw for this year.

And on the expense side another year of 3-ish percent?

Yes. It should be pretty similar. I mean again, as Conor mentioned we were trying to get close to our stabilized level of occupancy so those costs should maintain themselves. We'll have to see a little bit what happens with snow removal. But, outside of that it should be pretty consistent.

Right.

Okay. Thank you.

Our next question comes from Ryan Peterson of Sandler O'Neill. Please go ahead.

Yes. Hi. Thank you. This quarter your same-site NOI redevelopment added 1.4% but you spoken of that being a lower number next year. Is that related to lower yields on upcoming redevelopment or is that just purely timing?

No. It's not lower yield. It's actually timing because we are talking as the redevelopment can't mature actually you take off sites that you are taking down because you have to take that income off. So we actually have a number of assets that I talked about $200 million or so coming on line. But then, as you look at our pipeline, we actually are taking off quite a bit as well. So if you add that to the benefits, it averages out to about 25 to 40 bps of improvement on same-site NOI.

Okay, great. That's it from me. Thank you.

Our next question comes from Nathan Isbee of Stifel. Please go ahead.

Hi. Good morning. Can you please talk about the land purchases without the pre-leasing and how you make that decision weighing the next got to have development versus recent history of music stopping with a lot of land on the books et cetera?

No problem. Let me walk you through them. The first one Wynnewood, Pennsylvania that was a forward commitment where we actually purchased the property with an executed Whole Foods lease. So it was in essence a ground-up development where we had the Whole Foods lease in place before closing on the land. And it's again in an area where we want to continue to control on the main line. Christina, Delaware that site was actually a six-year labor of love where we were actually working with Sears originally to entitle the project as a JV partner. And then co-develop it going forward. Well – and the entitlements obviously came to a fruition, Sears did no longer wanted participate in the ground-up development process because of the cash involved. So we were able to execute a purchase option for us and take them out of it, so now we are going to be owning that 100% in developing it going forward. We have been working in that project for a number of years as I said. And we are very confident in the rental – the retailer interest going forward. Grand Parkway that site again is a long – the Grand Parkway site in Houston, it's in a perfect location where if you look at the spacing from all of our retailers, its' really positioned nicely to take advantage of not only the new Parkway that's going to be completed but it also has the new Exxon-Mobil campus coming out of the ground and Woodland is a very affluent, very highly educated pocket of population in Houston. And I think we will really drive significant retailer interest and we have already been seeing more demand even from retailers that have been dormant for a number of years are looking at this site as a real opportunity to get a piece of this new development. And then Dania is an adjacent site next to our 100% leased Oakwood Plaza. This is a Fort Lauderdale Airport really a site that will own from Fort Lauderdale Airport all the way down to Highwood, Florida. So I-95 will be controlled by us really for 3 miles. And we think we have significant synergies by controlling the adjacent parcel. And looking at doing complementary uses that we believe will really enhance our existing position and be a signature asset for us going forward. So each of those ground up development have a very specific story and that's why we believe it's a prudent time to step back into the ground of development process because we have been very reluctant at paying sub-5 caps for signature assets. And if we can develop to a 7% or 8% in a key market where we know we are going to own long-term. We think that we can control the process and feel very comfortable with – in 2017 and 2018 bringing these projects on.

All right. That's helpful.

I will just –

I'm sorry.

Let me just add one thing. Although we – there is not a lot of actual sign pre-leases in some of these occasions before we went ahead we knew we had the tenant interest. So we talked to tenants. We knew exactly who wanted to go where before we went ahead with these deals. So yes, technically there is not a basket full of signed leases, but we had the indications from the tenants that they wanted to be in these locations especially Houston and Dania.

All right. That's helpful. I'm going to miss the roller-coaster there on the 95. How much land are you willing – no matter how good these deals are, how much land are you going to put on your books at this point?

I think it's a very measured approach. I think it has to be a very compelling case like the ones we talked about. I feel very comfortable on the staffing levels that we have. We look to really add one signature development project per region and feel very comfortable that we are capable of creating value doing that. So I feel, we will take a very measured approach and look for compelling cases only going forward.

Okay. Thank you.

Our next question comes from Vincent Chao of Deutsche Bank. Please go ahead.

Hey, good morning, everyone. Just wanted to go back to the first question. You talked about a preference for urban areas and large formats. But, just curious geographically you are looking at potentials, would you stick within the current footprint or are you willing to go outside of that and if you are, how are you really thinking about qualities at more demographics? Is it – what is the criteria that you are looking at there? And then I guess between grocer versus power, obviously, you have both, any specific preference would you really mostly focus on grocery-anchor at this point which seems to be an increasing focus for you?

Let me take the first one on the markets. We very strategically identified our key markets and we want to stay to that map. We always analyzed demographics to see if there is an additional key market that we should be interested in going forward. But for the time being, we feel very dedicated to our map and our key markets and that's where we have been focusing on both for acquisitions, redevelopment and ground-up development. And the question on the grocery versus power center, we like both, we actually think there is a little bit of misprice on the power center right now because of the opportunity to add a grocery component to a power center. So if that opportunity presents itself, we usually jump at it and try and work with adding a grocery component and get that cap rate compression.

I think you mentioned all the screens we would go through everything from the average rents to the particular geographic markets to the types and the size of the assets and whether there is upside in terms of redevelopment. We have not been afraid to buy a large portfolio and then put in the two buckets, a whole bucker if you will. And a sell bucket. So we would continue to look at mixed assortment of assets and then try to tailor to what we want long-term. But, we have spent the last couple of years deciding which markets to focus on long-term and trying to become a little more urban focused and a little more larger asset focused.

Okay. Thanks for that. And just one question on the dispositions which you guys talked about cap rates compressing across the board and obviously now it will be more U.S. focus in terms of assets sales maybe Canada as well. Curious, this year I think the guidance was for 8% cap rates under dispositions, how are you thinking about 2015's dispositions should be – if you are thinking about 7 or less than that?

I think you probably still have it on the low to mid 7s because some of its going to be the – we have a couple of assets that are still remaining in Mexico when you blended all together, so a combined probably 7.5-ish range.

As long as the interest environment stays relatively stable, I think we will continue to see the demand there. So we feel pretty comfortable with that assumption.

Okay. Thanks.

Our next question comes from Jim Sullivan of The Cowen Group. Please go ahead.

Good morning. Thank you. Question for Conor regarding the footprints for the off-priced concepts and the off-priced demand that you are seeing generally. This is really kind of a segue from Milton's comment about expanding demand from the likes of Nordstrom rack and commentary from some of the department store groups that are looking to want to take on more off-priced square feet themselves. And also given what Neiman Marcus just agreed with Sears, I just want to – Conor, when you look at your Kmart boxes and the possibility for redevelopment, re-tenanting. Are you seeing off-priced because of this competitive pressure off-priced footprints expanding or not. And as you think about the redevelopment let's say a theoretical redevelopment of Kmart box, would it be your preference to do a multi-tenant approach in that box or would you be more – would you be just as happy to replace them with a single tenant?

Sure. The first one on the square footage, it really depends on the discounter that you are talking about Saks Off Fifth for example is going a little bit larger than say your prototypical TJX or Ross. They are looking for closer to 30,000 to 40,000 square feet. Now, that being said because the competition is so significant to get into certain assets they are willing to go down to 20,000 to 25,000 square feet. So we still continue to see that range of 20,000 to 30,000 square feet as being the sweet spot for the op price discounter. TJX has gone a little bit smaller from 25,000 to 22,000. Ross continues to be right about the same square footage. But, we think that that's really the sweet spot for the discounter today as they try and figure out how to get the most sales out of their box and continue to refine their business model. And as for Kmart redevelopments, it really depends on the assets where its located, what's the best use for the surrounding community. And what's really going to drive the most sales for that shopping center. If you got a single box Kmart that you are redeveloping, my preference is typically to probably chop it up and do a number of different retailers because then you can really enhance the surrounding retailer. The retailer that – so if you can add a grocery concept to it your small shop will then pick-up on that significant traffic increase. And again, the junior acre space today is probably the most active in terms of our industry and when we look at Kmart boxes the demand for the juniors are really what's driving the rents and really what's driving the growth there. So for us it's been a mix but I would say that going forward it will still be drawn a lot of junior box interests.

Okay. Thank you.

Our next question comes from Rich Moore of RBC Capital Markets. Please go ahead.

Yes. Hi. Good morning guys. I realized that the developments that you are currently undertaking are specific in nature and each as a story. But I'm wondering, do you think there is an industry shift that's sort of being signaled here in terms of the amount of developments that's going to happen in the shopping center sector. And should we think in terms of maybe annual starts for you guys as we look at our models and our thought process for Kimco should we think in terms of $200 million starts a year going forward. Does that make sense?

I think – certainly think it's fair to say that after six years of virtually no development that there are the green shots out there and especially led by the specialty grocers like Whole Foods, you are beginning to see more development. But these are generally a smaller projects and still just a fraction of the number shopping centers that we have developed, at the peak we were developing 2000 shopping centers a year in the United States and so may be it's gone from 100 to a 200 or 300 now, but it still a small fraction. And nobody to my knowledge is doing these million square foot lifestyle all spec centers that take years to get the entitlements. So I think the inventory is going to be limited, but certainly there has been a turning point and the economics are now justifying new construction in selective markets.

But, I think Richard in terms of modeling again; we are being very, very disciplined and careful about where we are acquiring that. To think that we are going to put on $300 million, $400 million a year, I don't think that's the case. The projects there is not that many of them that come along. I mean as Conor mentioned Christina property we have been working on for 6 years. And so this is an example. So I think it's going to be more limited than that.

Yes. I would agree with Glenn and I would just add to that that the apartment developers are driving land prices up so significantly that that retail is still probably going to be muted in terms of ground-up development going forward. It's going to have to be a very selective cases for what make sense going forward.

Okay, very good. Thanks guys.

Our next question comes from Linda Tsai of Barclays. Please go ahead.

Hi. Following up on the off-priced topic, when you look at this off-priced space that's expanding Nordstrom Rack, Macy's, is your sense that these retailers actively prefer a shopping center location over a traditional outlet location all else equal.

It's really case-by-case on which retailer you are talking about, if it's a pure outlet player that's still loves to be in the outlet center then I think that's still their preference. We are starting to see the bleed happen where typically you would use to see Saks Off Fifth only going in an outlet concept where now they were really active in terms of going to our open air shopping centers. The theme I would say for the Bloomingdale's outlet concept and the Neiman Marcus last call. So Nordstrom Rack has always been a player in our space, so that one is not new. But, I do see that those others are now becoming very, very interested in it, in addition to the Nike outlet and a few others. So that I would say is the starting point, I'm not sure if it's going to fall, it would be a continuous trend and have all the outlets look to it to relocate. But, at pricing where significant – the operating cost in an outlet center today are significant, we can offer a pretty big discount to that.

Thanks. And then in light of the RadioShack declaring bankruptcy, I know this was largely anticipated. Any color on how many stores are in your portfolio, are they in the higher quality centers like the office supply stores?

We have 68 RadioShack properties. I can tell you this, last month in January; RadioShack only paid rent on some of the stores. And those are the ones that they thought they want to keep going forward. I think all but two of our stores we got the rent paid. We have been talking with them for the past year as I said we are going to close 200 stores and then we are going to close 1500 stores and most of our stores are not on that list to close. So we are pretty confident that the bulk of that 15 and 2000 stores will be in the open air centers. And a lot of them will be ours. So I think for me – I'm excited that new opportunities are going to come in bring Sprint in there and do a lot of good things in the stores. But, and it looks like as Conor said early on we have had an increase in our small shop based about 280 basis points. So there is a lot of demand, they have good locations, so the ones we get back; I think we will do pretty well with.

And just to put in perspective though because of our large scale all those stores they amount to a total of 170,000 square feet, I know it's a really tiny piece to a puzzle.

And only 0.3%, I think they are so.

Thanks.

Our next question comes from Andrew Rosivach of Goldman Sachs. Please go ahead.

Hi. Good morning. This is Caitlin Burrows. On the similar topic of bankruptcy, some of the mall REITs have reported so far have indicated potential loss of rents this year. From those bankruptcies as you talk about selling small shop space for local businesses, do you think you will face the same risk or it seems your tenants different right now?

We have been monitoring for the past couple of years. We heard during the fall of last year a lot of the mall retailers were having issues, especially the ones that are dealing with the teams, they are not going to the malls any more. So they are getting hurt. And so [indiscernible] and folks like that are being struggling. I'm not seeing that with our shop space tenants at all, it's been very strong on that so we are pretty comfortable on our end that we are not going to see a fall like that.

I would agree our watch list is continuing to shrink I think RadioShack and the office supply sector has been on everybody's radar for a long, long time. And we feel very comfortable with the lease roll over and the opportunity to backfill those spaces that significantly improved rents.

Okay. Thanks.

Our next question comes from Chris Lucas of Capital One Securities. Please go ahead.

Good morning, everyone. Most of my questions have been already asked and answered. But, just on the development pipeline nationally David, are we basically in the clear 2015, 2016 and then 2017 is when you start to think that there is a little bit of a tick up in deliveries and new inventory coming online or is it further out?

I think your term a little bit of pick up is the right term. We just don't see any V-shape to the recovery of development. There was so many difficulties with so many large projects that got caught and talked on the financial prices that going into large scale development much of which is spec is exceptionally hard. And the economics still aren't there. In many markets rents still aren't back to the levels they were six, seven years ago. So it's very hard to make the numbers work and construction financing is very limited. It's just much tougher in our sector to get going again in major developments. So I think you will see a little bit of a U-turn here with development in our sector and you are beginning to see some of it. But again, we are a long way off, years off from major, major addition to supply. It's interesting that retail per capita in the U.S. has actually come down. I mean that's the first time it's happened in a long, long time.

I would just add that the super anchors are really the driver behind a lot of the development in the last cycle. And when you look at the super anchors today Wal-mart is expanding their smaller footprint with their neighborhood concept. If you look at Target, they are expanding their express concept to smaller footprint. Home Depot is not really doing anything new. So a lot of the guys that were out there that were really buying either a piece of land or ground leasing a big portion of a slide to make it feasible are no longer in the game. So if you take them out of the playing field, it's really going to be muted for the next few years. And then we will start to see a tick back up.

Thank you.

Our next question is a follow-up from Christy McElroy. Please go ahead.

Yes. It's Michael Bilerman with Christy. Either Dave or Glenn, I'm just thinking about sort of capital financing alternatives and Glenn, I think you talked a little bit about in guidance that there is a variety of different financing assumptions in your guidance. I think if you back into the weighted average share count, that's embedded in your guidance it's about an extra 10 million shares, so it would appear as though there is some level of equity issuance either off the ATM or direct issuances in the guidance. So I'm wondering as you think about the big Blackstone deal that you did with negotiated transaction, taking on leverage, being a net acquirer, why not have issued the equity earlier or at least timed it better and not take sort of market risk and maybe just help us understand how you are thinking about equity as part of that funding source both within guidance but more strategically about when to rise it.

Sure, Michael. So we have a very strong balance sheet and we have a plenty of liquidity and plenty of levers to pull in terms of our access to capital. And again, we remain very committed to maintaining our BBB+ BAA one ratings. Now, as you know, we haven't issued common equity since 2009 although we continually evaluated our capital needs in connection with our operating strategy, our debt metrics or capital plan and where we believe are any of these. But in terms of being able to have more tools, we are going to establish an ATM program and watch how the rest of our capital plan runs throughout the year. But, starting with a net debt to EBITDA of 5.5x, it gives us the capacity to watch and figure where we are best positioned to – if need to issue equity do it. I mean there are other things that are out there, we have our Supervalu position, which potentially could be monetized and add capital to us. So we really want to see all the pieces come together.

But, I guess that's what embedded in there some level embedded in guidance and if you don't do that – you don't do an equity raise, there is upside to numbers that effectively you dampened FFO per share growth a little bit by embedding some level of equity issuance?

Yes. Again, well, guidance is a range, right? We have run various scenarios some with, some without equity. But, yes, I mean if we don't issue equity you will definitely have upside in those numbers. But, again, we have to balance that with our debt metrics and our desire to maintain our credit ratings where they are.

Thank you.

Our next question is a follow-up from Jim Sullivan of Cowen Group. Please go ahead.

Sure. Yes, I just thinking of the comments – Conor's comment earlier in the prepared remarks about sustaining growth going forward after this so called bridge year. And then with what David had to say about the likely pace of development returning in the upside and the value creation that provides. I'm just curious Conor when we go back into your presentation the company did at the end of 2013, the internal growth rate talking about 3% plus and a range of 2.5% to 3.5%. And as we are approaching this kind of peak occupancy rate that the company has been able to achieve historically 96 and change. Are you expecting that the redevelopment contribution which of course you will include in the same-store NOI combined with higher spread, do you expect that's going to be able to replace the inability to push occupancy any further and sustain same-store NOI 3% plus? What do you think that we have to assume the same-store is just going to have to come down?

No. We do agree with that assumption that that's really what's going to drive it to 3% plus. And this year as the bridge year, we are focused on delivering 3% to 3.5% of same-site NOI and then 2016 and 2017 is actually when a lot of our leases mature that are significantly below market. So we think that's going to be a nice mark-to-market opportunity just to continue our growth either occupancy hits stabilization. You couple that with our redevelopment program and that's really what we are excited about a lot in the potential. Because our low ABR has grown significantly and we continue to think that that's a nice upside for us going forward.

And if I can just add to that the redevelopment contribution therefore should continue to be running at a level substantially above what the development contribution would likely be?

That's correct.

Okay.

And remember market rents are moving for us as occupancies get to these peak level for everybody market rents are jumping a bit. So that will continue to help as well.

Sure. Thanks.

Our next question is a follow-up from Rich Moore of RBC Capital Markets. Please go ahead.

Yes, again guys. I got kind of a mundane question to ask you. With the commentary you made about the two numbers you want to show now the two sets of guidance you want to show one for NAREIT and one for adjusted. How do you – since you got us on the phone, how do you want us to show this to FirstCall, I mean should we switch now to a NAREIT definition in what we report to FirstCall or do you want us to stay with the adjusted?

No. I think we run our business based on our recurring flows. I mean NAREIT is very focused on headline that's their desire. We run our business and we determine our dividend based on our recurring flows. So we have provided both because we were request to, but we run our business on a recurring.

I would just add maybe Michael Bilerman who certainly has been one of the stronger proponents of making sure there is a consistent measurement for non-dedicated REIT investors to look at. So that's why NAREIT has been so adamant. That if you are going to give guidance on something make sure you also give guidance on the official. Yes, there is only one official SEC approved definition of FFO. And so that's why we have started to give guidance as well as the recurring guidance. If you listen to David Simmons call, he was particularly adamant about it. We want to attract non-dedicated REIT investors to our space. So if we can do our part with giving guidance on the official definition we are going to do that.

Okay. To do that I think Dave, we got to show that way too though and –

We would agree. We would agree.

We agree.

We would agree.

Okay, great. Thank you, guys.

Our next question comes from Mike Mueller of JPMorgan. Please go ahead.

Yes. Hi. I was wondering, can you talk about what you are seeing on the ground in Houston and then Florida?

On the ground in Houston was the question –

And Florida.

I will just take it, Conor knows much more specifics than I do. But, in talking to some of our favorite partners and clients and relationships in Houston, they all start-off by saying we want to remind you that this is not the first time we have been to the rodeo. In other words they have been through ups and downs in energy prices and they feel very good about the long-term prospects of Texas and Houston in particular. The economy has diversified. And a lot of the energy projects are very long-tailed projects. These things take 10 years to put an offshore drilling rig actually in there and producing. So there is a lot of capital. It continues to flow into approved projects. Secondly, they remind us, there is a lot of capital waiting to come back in and take advantage of any distress that's there. And we have been particularly pleasantly surprised by the level of tenant interest in our new site in Houston notwithstanding the recent fall in prices. They like that site. They like Houston long-term. And these retailers are going to be there. So with that Conor?

I think that Houston has done a pretty good job in diversifying their economy. So clearly it's still tied closely to the – with oil prices. But the Exxon-Mobil campus is fully funded. It's consolidating all their offices. They are going to have over 12,000 employees there. These are all highly educated affluent workers. Woodland is the hardest area in terms of Texas and housing prices maybe average house stays on the market there about for a week before it's gobbled up. And we continue to see occupancy hit all time high in Houston. Our retail occupancy in Houston is higher than our portfolio average and we think that there is huge demand for retailers to continue to expand there. And the Grand Parkway is a new outer loop of Houston, so if you think of where the growth has gone Woodland is actually outside of the Grand Parkway. So the Grand Parkway is almost like in-field location that has the highest income in dense area of Woodlands outside of it. So it's actually starting to fill-in nicely. So with that, we feel very comfortable with the investment in the spacing of the retailers.

Okay. Thanks.

And our final question comes from Jason White of Green Street Advisors. Please go ahead.

Just a quick follow-up as you buy these larger portfolios out of your JVs, just curious how many of those properties is going to fall on the top tier of your portfolio versus maybe some just to have to kind of take with the portfolio and are you intending on selling any of those assets that may not fall within your top tier?

Yes. Just as a note, our JV platform was originally developed so that we could access cheaper cost of capital, so we can go after the higher quality assets. So in general as a footnote the JV properties were and have historically a higher quality property than our core portfolio. But, as we consolidated it, many of those properties are in our Tier-1 portfolio now. And as we analyze the JV buyouts, we continue to run our filters through to see which one has fall into our Tier-1 bucket and which one has fall into our Tier-2 bucket, which would then be sold-off. So it's really a fine approach to analyzing not only the asset that we can potentially acquire. But the good thing is as we continue to manage all these assets we know them inside now have a very good idea what we want to do it as soon as we get the opportunity to control it.

So that largely immaterial amount of the JV acquisition properties that you would see selling over the next couple of years?

That's correct. That's a good assumption.

Great. Thanks.

This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Thanks Dan. To everyone that participated on our call today, as a reminder additional information for the company can be found in our supplemental that's also posted to our Web site. Have a good day today.

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