Good morning and welcome to the Kimco's Second Quarter 2016 Earnings Conference Call. All participants will be in 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 and good morning and thank you for joining Kimco's second quarter earnings call. With me on the call this morning is Conor Flynn, President and Chief Executive Officer; Ross Cooper, our Chief Investment Officer, and Glenn Cohen, our CFO. In addition, other members of our executive team are also available to address questions at the conclusion of our prepared remarks; including Milton, our Executive Chairman; Dave Jamieson, our EVP of Asset Management and Operations; and Ray Edwards, our Executive Vice President of Retailer Services. As a reminder, statements made during the course of this call may be deemed forward-looking. And 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. 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. With that, I'll turn the call over to Conor.

Thanks Dave. Good morning everyone. Today we will report on major milestones that encompass our 2020 vision. I will give a quick update on the execution of our strategic goals, quarterly metrics and development and redevelopment pipelines before turning it over to Ross to cover acquisitions and dispositions, followed by Glenn to discuss our financial results. We are making great strides in creating long term shareholder value as we continue to simplify and strengthen our business. With our recent Canadian dispositions, our strategic exit from Canada is over 90% complete. And we have further reduced our joint venture investment. More specifically, the number of properties in our JV portfolio now stands at 152 as compared to 551 sites in 2010, a decrease of 72%. And the overall value of the joint venture portfolio is currently $5.4 billion gross as compared to $12.3 billion gross in 2010, a decrease of 56%. We are further simplifying our capital structure by redeeming our Canadian bonds to coincide with our exit of Canada. We will also prepay an unsecured bond and a portion of our US mortgages that come due in 2017, to take full advantage of the all time low rate environment and further extend our maturity profile. We continue to monitor and evaluate opportunities in the capital markets, including the use of our ATM to improve the balance sheet as we strive to achieve our publicly stated goal of achieving an A minus A3 credit rating. All of these efforts will put Kimco in a position of strength for the next cycle and move us closer to our 2020 vision. Internally we will be merging our primary taxable REIT subsidiary into the parent company, thus transferring long term hold assets into the REIT structure to simplify and make our holdings more efficient.…

Thanks, Conor. With the execution of our second quarter transaction activity completed, we took another big step towards our goals of reducing leverage, joint ventures and non-core market ownership. The largest driver of our progress was the continued and accelerated pace of our Canadian exit, highlighted by the Anthem transaction which closed last month. Coupled with the sale of several additional Canadian assets, we have now sold over 90% of our Canadian LOI with the remainder to be sold by year end. In the US we took advantage of the strong investor demand for shopping centers with the disposition of 12 assets for $220 million. This included the sale of our last remaining asset in Mississippi as well as other non-core assets in markets, such as Council Bluffs, Iowa and Overland Park, Kansas. The blended cap rate on the dispositions for the quarter was 6.6% which was in line with our expectations. We will continue to selectively prune the portfolio to enhance the overall quality on a go forward basis. On the acquisition side, we remain laser focused on high quality assets with both long and short term growth located within strong demographic areas. As previously announced, the acquisition of our partner share in Oakwood Plaza and Dania not only provides Kimco with 100% ownership of two of the largest and highest quality projects in the portfolio but also further achieves the goal of JV reduction. Additionally, we are excited to announce the planned acquisition of the Kentlands marketplace, a 250,000 square foot Whole Foods anchored center in Gaithersburg, Maryland. This metro DC asset provides a unique opportunity to own a highly coveted infill asset with excellent grocery sales of almost $1300 a square foot and also has significant near term upside and redevelopment potential. Closing is anticipated in the…

Thanks, Ross and good morning. We continue to execute on the key components of our 2020 vision that Conor and Ross described. Our 2020 vision is focused on both the left side of the balance sheet as well as the right side as we continue to further improve our debt metrics and balance sheet position. Now for some color on the quarter and further details regarding the three strategic initiatives we announced last night which we believe will further improve our capital structure as well as our recurring growth profile and tax efficiency in both the short term and long term. Headline FFO per share which represents the official NAREIT definition was $0.38 for the second quarter, meeting First Call consensus. As a reminder, our consensus estimate is based on NAREIT defined FFO. Included in the headline result is one penny per share attributable to profit participation from the sale of a preferred equity investment. Headline FFO per share for the second quarter last year was $0.44 which included $0.08 per share attributable to the gain on the sale of our marketable securities investment in SUPERVALU. FFO as adjusted or recurring FFO, which excludes transactional income and expense and non-operating impairments was $0.37 per diluted share for the second quarter, the same level as last year. We achieved this level despite a $17 million decrease in net operating income primarily attributable to the significant Canadian and U.S. property dispositions over the past year. This was largely offset by a $15 million reduction in financing costs related to lower debt levels, lower interest rates on debt refinancing and the redemption of our 6.9% preferred stock last year. For the six months FFO as adjusted per share is $0.74, up from $0.73 for the comparable period last year and on target with…

We're ready to move on to the Q&A portion of the call due to the large volume of participants in the queue. We request that you respect a one question limit with the appropriate follow up. This will provide all of our callers an opportunity to speak with management. If you have additional questions you're welcome to rejoin the queue. Kate, you can take our first caller.

[Operator Instructions] The first question comes from Christy McElroy of Citi.

Hi good morning everyone. Glenn, just on the U.S. debt paydown portion, just want to make sure that I understand the timing of the sources and uses. I realize the note paydown will be in August but, or the mortgages will be prepaid then also? And then what's the expectation for sort further asset sale timing in the second half in terms of funding it and then when would you expect to do another bond deal, if so? And then just trying to get a sense for where the line of credit stands at year end?

So we ended really good shape – well, I’ll take in pieces. The line of credit, we ended with about $100 million on, so we have plenty of capacity on a $1.75 billion credit facility. As it relates to the mortgages that we will be prepaying, that will probably happen on September 1, notices have been sent to them and then the bonds will be paid at the end of the month. So we have roughly -- it's 30 days, 35 days and we will monitor the bond market closely and probably be active sooner than later I would guess. As it relates to the asset sales, again there's a fair amount, I think Ross mentioned that there's twenty assets that are either under contract or that we have whoppers on. So the second part of the year you'll see another few hundred million dollars of sales that will help fund all these transactions that we're doing. As it relates to Canadian bonds, the cash -- most of the cash is already sitting on the balance sheet.

And then just a quick follow up on the TRS merger I think that 8 million of the 29 million annual savings, that’s presumably most of that 8 million in the corporate tax provisions, and how much is the reduced administrative costs that could impact G&A within that number?

It's a few hundred thousand dollars because you're dealing with less tax returns and there’s a lot of other compliance related issues that will be able to mitigate.

The next question comes from Craig Schmidt of Bank of America.

I guess for Ross, given your description of the environment, I'm wondering if you think cap rates could even go lower for a community strip shopping centers in major metro markets in the latter half of 2016?

Yeah we absolutely do. And I think nobody has been touting that for a while now and we absolutely have seen in the market on deals that we're chasing particularly those core markets that I mentioned in the scripts and they continue to go lower. Unlevered IRR expectations are in the 5s and we continue to be disciplined but we feel that there's opportunities if we pick our spots which we will continue to do similar to this Kentlands acquisitions in D.C.

And has this accelerated post Brexit decision?

I think we've seen it over the course of the year. That certainly has factored into I think a renewed vigor and search for yield that you just – you can't find it anywhere else and a lot of investors have continued to focus on on the U.S. shopping center industry.

The next question comes from Samir Khanal of Evercore ISI.

Good morning guys. Just trying to get a better understanding of same store NOI growth for the second half. Are you expecting more clawbacks on sort of the reserves you took in Sports Authority previously? I mean year to date you're trending at about 2.3%. I'm just trying to get a better sense as to how you get to the midpoint of guidance, the 3%. I know you have some of the Anna's Linen and some of the A&P boxes that will start paying rent but is there anything else that we’re missing to get to kind of the midpoint or the high end of guidance?

Yeah, it’s Glenn. So we looked at our forecast and it was always anticipated that the back end of it, third and the fourth quarters, had stronger same site NOI growth, because you have more assets – more leases that are actually coming online and starting to pay rent from lease up that was done previously. So we always worked at to that, the second half of the year would be stronger. In terms of the Sports Authority reserve, where we are is probably where it’s going to end at this point because what we've reversed is what we think we're going to collect. Now that they're going to close the rest of the stores, I think the reserve is where it is. So you'll just see further growth come in the third and fourth quarters from really organic things happening at the portfolio level.

And then just in terms of acquisitions, I mean year to date you've done about $150 million. I think you've kept your guidance unchanged at the midpoint about 500 million, just trying to get an idea of what you're seeing in the pipeline at this time?

Sure. I mean we have obviously mentioned the Kentlands deal which is another $95 million which will get us up to the $250 million right in the middle of the range. We continue to evaluate opportunities both from third parties and continue discussions with our joint venture partners. We are fairly confident that we'll be able to assess the JV platform for some other opportunities in the second half of the year. So we're very comfortable with the range that we’ve outlined.

The next question is from Jeremy Metz of UBS.

Hey guys good morning. So going into the year I think the view is really that this is going to be the end of the big transformative sales here. You're obviously largely there but you did raise your disposition expectations again which is offsetting some of the positives from the debt redemptions and the TRS merger. So I guess I'm just wondering was the decision to sell more driven by the opportunity to pull forward some of that debt prepayments or is it a result of better pricing and interest in the market for what you're selling?

Yeah, it's really the latter. We've seen extreme interests and strong pricing of what we've been selling. So we've taken that opportunity to push more out into the market than what was initially contemplated. So as long as we continue to execute and get the pricing we think it's a great opportunity to enhance the quality of the portfolio through the end of this year and then on a go forward basis starting in the beginning of 2017 we will be a much more selective and opportunistic disposition program somewhere in $150 million dollar range plus or minus.

And then one for Glenn, it sounds like there's a bond deal possibly in guidance here. But in terms of ATM used earlier this year I think in the $28 to $29 range, I don't think you've used it since the last call. Your stock price is obviously higher today. So I am just wondering if you considered issuing more equity maybe as opposed to selling some of those assets or more broadly, do you have equity built into your plans for the rest of the year?

Again we look at the entire capital plan for the full company. The ATM is an option for us and it's a balance between the amount of equity issuance and debt issuance to get us to the debt metric level that we want to be at. So we'll continue to monitor the market and where we think it's opportunistic we will take advantage of it.

Nothing built into guidance then?

Nothing further, no.

The next question is from Haendel St. Juste of Mizuho.

Hey good morning. First quick question on the OpEx, I noticed a big drop year over year. What's driving that and is it one time, is it sustainable, some color on that please?

It’s Glenn. Hi Haendel. So you have two categories that are lower. One happened to just be snow removal costs are lower. So I can't predict that for next year, so we will have to see what happens. And then we actually did spend a lot less money on parking lot patching and repairing where this year versus last year, just a sign of where the portfolio looks like and the conditions of the properties today. So I think you have a fairly good run rate where you are now.

And then just curious what does the internalization of the TRS mean for the Kimco plus business going forward?

Well when you think about what we did, it was more about bringing the properties, the shopping center assets back into the REIT structure. These are assets that were developed by us years ago, that were originally part of our merchant development business. We've leased them up, fully developed them. Most of them are long term hold assets. They really belong in the REIT structure. So it's a matter of trying to find the most tax efficient way to bring them back in their appropriate space. With that, though, the Albertsons transaction and the investment in Albertsons comes along with it because we own less than 10% of the investment there and allowed us to bring it back into the REIT. So there is some benefit potentially that could come from it from a tax structuring standpoint but as it relates to the plus business we do have -- still have a separate TRS where if there were things that were appropriate for that we would house them there. This is more about the properties though.

Got you. Since you mentioned Albertsons, any update there on potential thoughts for the IPO?

This is Ray Edwards. While the company still is pursuing the IPO option and the S1 is kept updated and I think it will be updated again next week on that. The company is also another opportunities for us to monetize part of our best move while we’re waiting for the IPO market to come around.

The next question is from Paul Morgan of Canaccord.

Hi, good morning. Just a follow-up on that. So you mentioned that the transactional income that you are expecting is still back end loaded. But I guess I understood that when you said that last quarter, that was referring to Albertsons, at least largely. Can you help me understand that since that’s probably not going to happen at least the way maybe you anticipated it earlier in the year? How do I think about Albertsons and then the transactional backend loaded number?

The transactional income is still premised on some level of monetization of our Albertsons investment, that's what’s there. Ray?

Yes, I mean, in 2013 October when they tried the IPO it didn't work out. We kept – as I said before the S-1 updated on file to do that. But as markets are fickle, the partners have gotten together and looking at other opportunities as a path to monetize part of our investment and we're considering to doing that, and that might be a vehicle for us to monetize and we're optimistic it will happen this year. So we're on track for it.

And then just real quick, you mentioned the cap rate compression for major metro assets. How widespread do you think you might see that? Is it something that's trickling into secondary markets or B assets or is this kind of institutional quality demand that's driving it and so more kind of restrictive?

Well certainly on the institutional assets, they continue to compress. In the secondary markets we're still seeing very strong pricing. Our dispositions in the U.S. are still in the high 6s, low 7s. Particularly with assets that have a grocer, that is a dominant grocer within that market we're still seeing very strong pricing even in the secondary and tertiary markets. Where there's a little bit of softness is more in the commodity type retail, where there's no true value add and are relatively flat asset with no grocer is starting to see a little bit of trickle upwards in cap rates but still well within the range of expectation and within pricing that we're comfortable selling.

The next question is from Alexander Goldfarb of Sandler O'Neill

Good morning. Glenn, just to clarify, on the guidance it sounded on one hand like you were including a bond offering just because you're going to get $9.5 million of benefit this year from the TRS and the bond take outs, and yet then it sounded like you weren't including an unsecured deal in your numbers this year. So can you just clarify what's in it? And then maybe it's just that the bond deal may be so late in the year that it doesn't impact this year's numbers?

No, I mean the guidance does contemplate refinancing what we're calling on the USI with a bond. So that is the guidance.

And then because you guys traditionally give you next year's guidance with the third quarter, you mentioned at the start about all the preferreds being callable next year and maybe the ones in the 5s are still attractive but certainly you've got a 6% one out there. As we think about our 2017 numbers, we are obviously adjusting for the TRS and the bond take outs. Should we also be thinking about the preferreds coming out or is that a decision that you just mentioned they’re callable but we shouldn't read anything into that?

Again as we get – first of all, well as far as guidance we don't do guidance in the third quarter, we do it later. And second, I’ve mentioned it because it is another opportunity for us to further reduce our overall cost of capital -- again but it's going to be subject to market conditions at the time and where rates are. So I throw it out because it's something that is near term. It's on our radar screen.

The next question comes from Vincent Chao of Deutsche Bank.

Hey, good morning, everyone. Just going back to the commentary about the strong pricing environment that caused you to increase your dispo guidance for the year and then also thinking about the comment about a more normalized level in 2017, I guess if we continue to see pricing hold up and maybe even improve over the back half of this year, should we be thinking about something more than $150 million just as you look to take advantage of that pricing?

Well we really feel like we're at the end of our transformation, so we'll continue to be opportunistic. But we're very happy with the level of the portfolio, the quality of the assets that we have once this year is completed. So we will always evaluate the quality of the properties, where the risk levels are, if markets are moving and things of that nature. But we don't anticipate any larger scale disposition program beyond this year.

And then just maybe the situation in Puerto Rico for a second. I'm curious if you can provide some commentary on what you're seeing there.

Sure, the Puerto Rico portfolio is holding up nicely. The occupancy is still above 95%, same site was positive. But obviously relatively muted, so it's one that with the recent announcement of the PROMESA I think that the optimism is taking hold on the island. Clearly they have some issues to work through on the debt levels but we think from the shopping center standpoint the traffic volume is still very very high. They still are strong. So we think overall the outlook has gotten a bit brighter recently.

The next question is from Ki Bin Kim of SunTrust.

Thank you. Could you just comment on the Dania project in Pentagon? It seems like some of the numbers have changed a little bit and I'm just wondering if it's a cosmetic choice in terms of to take out a Phase 2 disclosure or is there actually a change in the scope of the project?

Sure we actually broke out the both projects in phases. So like we talked about earlier most of our projects have what we're calling off ramps and phases that we can actually see if we want to go or no go on the projects. So on Pentagon, the Phase 1 as I mentioned is really the parking deck that's nearing completion and then the first tower that's entitled and is ready to go vertical as soon as the parking deck is complete. The second phase on Pentagon is the second tower. So again we will monitor the absorption rate and the rents and where they're coming in and then make the determination on the second tower if and when it's appropriate. Dania, same thing, first phase we broke out that costs. So you can see exactly what goes into the first phase, and that’s the Costco portion as well as some junior anchors that we're moving along nicely. The second phase there is going to be more of a higher density play. So we broke that out as well, as I mentioned H&M lease is fully executed, so the pre-leasing is starting to move forward on that as well. So we wanted to give you a bit more granularity on the phasing opportunities we have on some of these larger scale projects.

And just a follow-up on a previous question on Albertsons, you mentioned that you might partially monetize it before IPO, if I heard that correctly. How do you think about that? Because I'm guessing there's probably a pretty decent liquidity discount that you would have to take if you wanted to monetize it before the shares are publicly traded. So what goes on behind that thought process there?

Well I think for us and our partners, we don't think the discount would be that great, first of all. And we would be selling out large of a piece of the investment. So what we feel that will do for us is one, put up a little money in our pocket but also validate the valuation that we feel we have in Albertsons and hopefully you will add 15% to 20% to the valuation after we announced a transaction.

The next question comes from Michael Mueller of JPMorgan.

Yeah, hi. You talked about for the Sports Authorities 6 to 12 months, I think, to address the remaining boxes, what time period do you see most of the boxes actually occupied and rent paying, like how far down the road?

We have pretty clear visibility into the absorption that we think is going to occur. We have LOIs working on eighteen of the boxes right now that are pretty close to fully executed. So we actually think we have a chance to be cautiously optimistic that a lot of them will be done before the end of the year. But again we want to -- it's probably going to take six to twelve months before all of them are fully occupied and the rent starts to come in. So we do have one lease that's fully executed with a grocery store, that’s 33% above prior rent and we continue to see what other opportunities exist to add grocery components going forward to the opportunities that we have.

So that 6 to 12 was actually occupied rent paying, not just addressed and leased?

Correct.

Next question is from Richard Hill of Morgan Stanley.

I had a quick question about the rental rate releasing spreads. First of all, congrats on getting those to highest level in three years. I had a question, though. It looks like there were some absolute increases between new leases and renewals but maybe also an additional weighting towards new leases over renewals. Am I thinking about that correctly? And if so, is there anything there? Are you seeing more leasing velocity on this space? What drove that?

Well clearly you’re seeing that occupancy is hitting near an all time high. So when spaces come available there's usually a bidding war to get high quality real estate in this market. So that’s clearly what’s driving the rental spread both in the new leases and typically now when you see renewals come up it’s more option notices that are coming in rather than say pure renewals because people are worried about giving up their high quality real estate because they know there is a chance that they might lose it if they don't exercise that option.

The next question comes from Collin Mings of Raymond James.

Good morning, guys. Just going back to Alex's question, where do you think you could price preferreds today?

Preferreds today we are probably in the low 5s. I mean in the 5s.

The next question comes from Chris Lucas of Capital One Securities.

Good morning, everyone. I guess as you guys have moved very far down the line on simplification, I was curious as to what your thoughts are on the remaining JVs and whether there has been any additional conversations with your partners in terms of how those may be either dissolved or whatever.

We really have three large remaining JV partners left and that’s really Prudential, CPP, and the New York Common Fund. So they're all great partners and they're all longstanding relationships that we've had over the years. And typically they're long term holders. So I don't see any sort of large transaction in the near term but there's always bites at the apple that we think we can get on the margin whether it's a smaller portfolio of properties or a few here and there that we can -- that we're able to acquire, similar to the Dania and Oakwood transaction that we announced this quarter. So again we will take the opportunities when they present themselves. But again we're really down to three large major partners that are all great partners and long term holders of high quality real estate.

Right, also two of those ventures, the common fund venture that we have, we own almost 50% of it and with CPP we own 55% of it. So we are a major stakeholder in those.

And Glenn, just a quick follow up on the guidance adjustment as it related to the transactional income expense line. Can you just sort of walk -- prior guidance was $25 million to $42 million of gains. Now it’s $40 million to $59 million of loss. You've given us the one number, the $89 million for some of these strategic investments. I guess I am curious as to what the other delta might be.

That's really it, it’s the same as what we had before. The difference is our expectation of some monetization of Albertsons in the number. So the only change to the guidance that occurred really relates around the $89 million, it’s maybe a penny difference because we actually had some transactional income that's already done, so the preferred equity investment that was sold this quarter and the one from last quarter gave us a penny of headline FFO.

The next question is from Jason White of Green Street Advisors.

Hey guys, just going back to cap rates for a minute. You talked about some of the higher quality properties trading at lower cap rates. What are you seeing on the middle, the higher end like some of the properties you're selling? Are those cap rates compressing as well?

Yes, they’ve really maintained the levels that we've seen for the last nine to twelve months. So in the U.S. and some of the secondary markets we are in the high 6s into the low 7s. And if there's a grocery anchor even if it's outside of the core markets we've sold a couple of assets in the high 5s and the low 6s. So we still feel really good about where cap rates are. We have not seen them change materially and the buyer pools have been a bit shallow for the last twelve months compared to the beginning stages into the middle of 2015. But those groups are still very serious, they're able to get financing when they need it and we haven't really seen any hiccups in the deals that we've put under contract and getting it across the finish line.

And then just one in your same-store NOI guidance. If you look at the top end of your range, is that still on the table? It kind of implies a pretty high growth rate in the back half of the year with the Sports Authority headwind. Is there any way of achieving that high end at this point?

I mean there's always a way depending on how quickly certain lease starts [ph] and then cash starts flowing. Again we've been guiding what's the middle, somewhere in the three, 3 to 3.1 range but it's a range. So we don't control everything that happens but we do feel comfortable towards that middle end of that range.

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

Hello, guys, good morning. I'm curious, have you seen any change at Kmart recently, any difference in that retailer or maybe any difference in your discussions with them?

We really haven't. I think there was some news stories that came out recently about some of the employee sentiment, and that I think was taken maybe out of context on certain stores. The two leases that we had actually coming due this quarter both of them exercised options. So I think that gives you some insight into it's still very much a trying to make do of what they can. But we continue to monitor it. We only have 21 sites left, a little less than 1% of ABR. We have four coming due in 2017 without any options that are all redevelopments. And so we're still continuing to monitor the situation and look to try and redevelop that real estate.

This is Ray. I mean Kmart has a lot of flexibility because they haven't signed up lease in twenty years. So every one of the leases is probably the last five years of the main term with an option period. So they have a lot of flexibility to renew leases and we’re making money like they did with a couple of hours and where they’re not making money get out of them without having the big lease disposition programs. So they have a lot of flexibility on the Kmart side to wind down stores in a short period of time.

The next question comes from R.J. Milligan of Baird.

Sorry about that, guys. Glenn, a question about 2017. As we look into the next year, what do you anticipate the potential impact to same-store NOI growth will be from the empty Sports Authority boxes? I know it's going to be partially offset by higher rental rates. Just curious if you could give us a range as to what you think the impact might be.

It’s probably in the 50 to 60 basis point range.

And largely depending on timing of when those leases start paying rent?

Yes. End of Q&A

There are no additional questions at this time. This concludes our question and answer session. I would like to turn the conference back over to David Bujnicki for closing remarks.

Thanks Kate and everyone that participate on our call today. As a reminder, additional information for the company can be found in our supplemental that is posed to the website. Have a nice day.

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