Kimco Realty Corporation (KIM) — Q4 2016 Earnings Call Transcript

Thanks, Steven. Good morning and thank you for joining Kimco’s fourth quarter 2016 earnings call. With me on the call this morning is Conor Flynn, our President and Chief Executive Officer; Ross Cooper, the Chief Investment Officer; and Glenn Cohen, the CFO. In addition, there are other members of our executive team that are also available to address you during the conclusion of our prepared remarks, including Milton, Dave Jamieson and Ray Edwards. As a reminder, statements made during the course of this call may be deemed forward-looking. 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 also available on our website. With that, I’m going to turn the call over to Conor.

Good morning and thank you for joining us. Today I will provide a progress update on our 2020 vision, as well as our view of the current retail environment. We will also provide an update on our portfolio activities, and Glenn will cover our fourth quarter and full-year results, as well as provide color on our 2017 guidance and outlook. 2016 was a very productive year for Kimco and the team has been executing on our four key strategic goals, which are to, one, significantly improve the quality of the portfolio. Two, unlock the embedded growth. Three, strengthen the balance sheet, and four, develop and motivate employees to further strengthen our team. In line with our 2020 vision to create a high-quality major metro-focused portfolio that is U.S centric, we undertook and completed a large disposition program during the year. We were able to divest assets at an opportune time when rates were hovering near all-time lows and demand for open-air centers was at an all-time high. At our December 2015 Investor Day, we outlined a five-year strategy, recognizing that our path to achieve our 2020 goals may not be linear. As you saw in our press release, the sale of our lowest quality international properties will have a short-term impact on our FFO in 2017. Glenn will cover this shortly. Our portfolio of high-quality shopping centers is now tightly concentrated in the best markets in the U.S. And our signature series of redevelopment and development projects are progressing. Regarding redevelopments, we completed $160 million in projects during 2016, including our first mixed-use property, producing an incremental return on investment of 9.6%. We’ve positioned our portfolio to be defensive in nature with long-term leases that have significant mark-to-market opportunities upon lease expiration or recapture. Each redevelopment takes advantage of these opportunities to unlock the highest and best use. Turning to our development properties. Grand Parkway, Phase I and Phase II are moving along nicely with potential for an early delivery on Phase II. At Dania, we’ve parted ways with Costco for Phase I and are moving towards developing a high-quality open-air center that will complement the live-work-play environment we are developing in Phase II and improve the overall returns for the project. Small shop leasing continues to be a bright spot as our year-end occupancy of 89.9% neared an all-time high with no signs of slowing down heading into 2017, as small business sentiment is at a multi-year high. The leading small shop categories are primarily service and food-based providing a complimentary offering to our open-air centers. Finally, our balance sheet continues to improve with a tremendous effort by Glenn and his team to lengthen our debt maturity profile to one of the longest in the REIT universe, and opportunistically tap into the bond market to further reduce our borrowing costs. Now let me provide some insight into what we are seeing in the retail environment. Supply and demand in our portfolio continues to remain in balance even as we anticipate a choppy 2017 for the retail sector. Several of our top tenants have reported positive same-store sales. The continued sales growth in store openings, specifically for off-price retailers gives us confidence and we see continued absorption of current open-air supply and high-quality centers and forecast a modest increase in our overall occupancy in 2017. That being said, we need to remain ahead of the challenges facing brick-and-mortar retail. We believe marginal locations will suffer with store closures. The first wave of shadow supply from department stores will have little to no impact on our portfolio, although we continue to monitor this closely. Our disposition program took this into account and we successfully exited locations where we thought pricing power would be negatively impacted. Our team executed leases on three former Sports Authority boxes, in addition to 12 anchor leases with retailers that include Lifetime Fitness, Dick Sporting Goods, and multiple fitness and off-price retailers. We continue to see demand for space that ranges across multiple categories, including the off-price sector, traditional and specialty grocers, flex format target, which we recently opened in one of our Long Island assets, sporting goods, arts and crafts, home improvement, theaters, beauty, pet supplies, furniture, fitness, and entertainment. To be clear, physical retail is not going away and will continue to be critical to the long-term success of the omni-channel approach to best serve today’s customers. However, it is now more important than ever to have dominant locations with the best tenant lineup. We feel good about the work we have done to competitively position Kimco. We continue to focus on the long-term as real estate necessitates a prolonged view. Our 2020 vision provides visibility over the next four years of improving earnings growth and value creation. The risk profile of our portfolio is dramatically different from just a few years ago. We have scale, liquidity, and broad geographic and tenant diversity with multiple levers for growth going forward. Finally, our earnings stream now recurring and predictable will enable us to continue to grow the dividend over time. Finally, we are excited to welcome Mary Hogan to our Board of Directors. She will be a great addition to the team. And with that, I will now turn the call over to Ross.

Thank you, Conor. Overall we had a very productive year on the investment side, with over $1.5 billion of transactional activity. This was highlighted by the accelerated exit of our Canadian investments, the sale of 31 assets in our U.S portfolio for $410 million, and select third-party and JV acquisitions totaling $457 million Kimco share. On the acquisition side, we acquired two former JV assets in California with longer-term redevelopment opportunities and strategic locations in the San Francisco, Oakland MSA, as well as the Los Angeles Anaheim MSA. In addition, we acquired a sprout-anchored center in Temecula, Southern California. This center included a vacant Sports Authority box, which provides a solid immediate upside opportunity, which we are in the process of finalizing. This was one of only two assets we bought from the open market all year, evidencing the discipline we employ when evaluating our investment decisions. We are pleased with the investment execution for 2016, which was consistent with the expedited portfolio transformation strategy we initiated in 2013. While the nature of these sales has had a dilutive impact on the overall portfolio growth profile for the coming year, we are confident that it was the correct decision resulting in the core portfolio we have today. On the investment landscape, we continue to see a bifurcation in pricing between high-quality core markets and those outside the major institutional focus. While cap rates on the best of the best assets remain sticky and at all-time lows, the non-core secondary and tertiary assets, particularly those without a grocery component, continue to rise. We are in the fortunate position of having significant redevelopment and selective ground-up opportunities to help grow our portfolio, which allows us to be patient as we look for strategic investments that are accretive and enhance the portfolio. In January, we acquired Plaza Del Prado, a high-quality grocery-anchored center in Chicago, Illinois. The asset is located within a high-income, high barriers to entry submarket anchored by a Jewel supermarket. This center was developed in 1978 and contains original tenants both in-line and on out-parcels with leases that are coming due with no further options. This will allow us to push rent significantly in the next few years and maximize value. Our Albertsons relationship also provides an opportunity to create new parcels, which will be mutually beneficial to both tenant and landlord. For 2017, we’re providing for a range of $300 million to $400 million of acquisitions and $250 million to $350 million of dispositions, making us the modest net acquirer for the year. Glenn will provide additional color and insight on our guidance and financial performance for the quarter.

Thanks, Ross, and good morning. We finished 2016 with solid fourth quarter and full-year results, bringing to a close our first year execution on our 2020 vision strategy. We now have a high-quality portfolio of assets in our key markets, which will produce strong cash flow growth and future upside from our development pipeline and select ground-up developments. We’ve dramatically simplified our business by exiting essentially all our foreign investments and reducing the number of joint ventures. With over 85% of our total NOI now coming from consolidated assets, we’ve also strengthened our balance sheet by reducing leverage and extending our debt maturity profile as we strive to upgrade our secured debt ratings to A-/A3. Although these strategic initiatives have a muting effect on 2017 FFO growth, we’ve set the foundation for our future growth as lease-up continues, the low market leases are recaptured, and redevelopments and development start generating cash flow. Our vision is clear. Our team is focused on execution and we remain confident about our future. Now to some details on our fourth quarter and full-year results and further color regarding our 2017 guidance. NAREIT FFO per share was $0.38 for the fourth quarter. Included in NAREIT FFO is $5.3 million of impairment charges related to land parcels sold during the quarter and under contract. These charges were more than offset by gains from the extinguishment of debt related to three properties. NAREIT FFO per share for the full year came in at $1.32, achieving the upper end of our guidance range. The 2016 full-year results include charges of $0.20 per share related to the third quarter 2016 strategic initiatives to prepay $350 million of Canadian denominated debt, $428 million of US debt, as well as the merger of our taxable REIT subsidiary into the REIT. FFO as adjusted or recurring FFO, which excludes transactional income and expenses and non-operating impairments was also $0.38 per share for the fourth quarter, $0.01 above the $0.37 per share reported last year. Versus the prior year, our fourth quarter results include decreases in consolidated NOI of $3.8 million and FFO contribution from joint ventures of $12.4 million attributable to the significant dispositions of U.S. and Canadian assets throughout 2016. These decreases were offset by lower financing costs of $13.9 million attributable to lower debt balances in refinancing. Specifically, lower rates were coupled with the redemption of the $175 million 6.9% preferred stock in the fourth quarter last year. In addition, G&A expenses were lowered by $4 million and tax expense was lowered by $2.8 million due to the TRS merger. Overall, our fourth quarter FFO as adjusted grew to $160.4 million from $153.1 million last year, an increase of 4.8%. Our full-year 2016 FFO as adjusted was $1.50 per share, the midpoint of our guidance range and an increase of 2.7% from the $1.46 per share reported in 2015. We achieved this growth despite the $7 million negative impact from the Sports Authority bankruptcy, and the $73 million dilutive impact from the disposition activity. To put it in perspective, our pro rata EBITDA increased by $64 million to $919 million in 2016. Although we were still able to increase our FFO as adjusted by $26 million or 4.3% increase. The key contributors were debt reduction and financing cost savings of $70 million and recurring income tax savings of $13 million. Our portfolio operating metrics remain strong as we ended the year with an occupancy level of 95.4%, up 30 basis points sequentially, including anchor occupancy at 97.3%. The remaining vacant Sports Authority boxes had a negative impact on occupancy of 75 basis points and as Conor mentioned, our operating team is actively working on the releasing effort. Leasing spreads were very strong for the fourth quarter delivering 36.5% for new leases, 7.1% renewals and options, and 14.8% combined. For the full-year, combined leasing spreads were a solid 12%. Same-site NOI growth was 2.7% for the fourth quarter driven by minimum rent increases of 180 basis points and improved recoveries of 90 basis points, with redevelopment sites contributing 80 basis points. The Sports Authority bankruptcy had a negative impact of 110 basis points on those figures. For the full-year, same-site NOI growth was 2.8% and included 70 basis points from redevelopment sites, and a 70 basis point impact from the Sports Authority bankruptcy. Turning to the balance sheet. We finished 2016 with consolidated net debt to recurring EBITDA of 5.9x. As part of our 2020 vision, we’re targeting a range of 5x to 5.5x, as we continue to pursue an unsecured debt ratings upgrade. We were active in the bond market during the quarter pricing $750 million of unsecured bonds on November 1 from the price of a $400 million, 2.7% bond due in 2024, and a $350 million 4.125% 30-year bond due in 2026. During 2016, we issued a total of $1.4 billion of new unsecured bonds at a weighted average coupon of approximately 4.2% and a weighted average term of 16.3 years. Just over the past year, we have reduced our consolidated debt by $310 million, and increased our weighted average maturity profile from 5.3 years to about 7 years. In addition, we’ve completed the renewal and expansion of our revolving credit facility, providing us additional liquidity. The new $2.25 billion facility has a final maturity date in 2022 and replaces a $1.75 billion facility, which was due to mature in 2018, further extending our maturity profile. Let me turn a moment on 2017 guidance and the underlying assumptions. As I mentioned on our previous call, beginning in 2017 we're providing guidance, excluding any transactional income or expense. As such, our 2017 NAREIT defined FFO guidance and FFO as adjusted guidance were the same. We will incorporate transactional income or expense as it occurs. Our guidance for 2017 is a range of $1.50 to $1.54 per share with a midpoint of $1.52. The guidance range takes into account the dilution of $22 million or $0.05 per share associated with the transformation of the portfolio from the 2016 U.S. and Canadian dispositions. For 2017, our guidance assumes we will be a modest net acquirer as Ross mentioned. As it relates to same-site NOI growth, the guidance includes a range of 2% to 3%, which incorporates downtime related to the lease-up of the vacant Sports Authority boxes and an appropriate credit loss reserve as we carefully monitor the current retail environment. The same-site guidance also includes a positive contribution from redevelopments of 20 to 40 basis points, which is lower than the 70 basis point contribution in 2016 as we anticipate an acceleration in projects coming offline during the year. We continue to invest in our development pipeline, which has a short-term drag on earnings growth, but expect our Grand Parkway project to begin cash flowing in the second half of the year. Our significant redevelopment and development projects will be an important contributor to our growth in 2018 and beyond. Lastly, I want to remind you that historically our first quarter G&A expense is approximately a penny per share higher than the other three quarters due to the timing related to employee equity award expense. And with that, we will be happy to answer your questions.

We are ready to move to the Q&A portion of the call. Due to the large volume of participants in the queue, we request a one question limit with an appropriate follow-up. This will provide all the callers an opportunity to speak with management. If you have additional questions, you are more than welcome to rejoin the queue. Steven, you can take the first caller.

Hi. Good morning, everyone. Glenn, following up on your comments regarding guidance, can you share your outlook for bankruptcies and store closures in 2017 given the pressure on box occupancy from closures? You mentioned having an appropriate reserve as you monitor the retail environment. Within your same-store NOI growth forecast, what assumptions are you incorporating to address this risk? As you work to release space, should we expect to see more pressure on releasing spreads?

No, I don’t think you will see pressure so much on releasing spreads. I mean, some of the assumptions that are in the same-site NOI growth is we do expect a similar impact from the Sports Authority bankruptcy in 2017, so around 70 basis points as well. And we also have a higher credit loss reserve than we’ve had in the past a little bit. We usually use somewhere between 50 and 75 basis points. Part of our guidance has had 75 to 100 basis points to account for what’s going on in the current retail environment.

And so what would you target in, in terms of that higher credit loss reserve? What are you looking for in terms of additional retailer store closings and bankruptcies? And are there any retailers that you’re specifically thinking are at risk?

I think you’ve seen recently, Christy, that a number of retailers have come out with mixed results and you’ve seen a couple of them actually have some credit rating downgrades. So, when we look at our retail rolodex, there are some healthy retailers that are driving a lot of growth and have some healthy numbers for new store openings. And there are some that are obviously still fighting the fight in terms of trying to figure out the omni-channel approach. So, for us, we figured it was the best approach to increase the bad credit loss for this year, and as we look forward, we think the improved portfolio will shine.

And Christy, the reserve that we do set is not a specific reserve. It's more of a general reserve that we use to monitor just over the course of the year.

Thanks, Flynn.

Thanks. Good morning, everyone. Could you just talk a little bit more about the Costco anchor loss and your Dania Pointe project? Maybe give a little more background into what happened as that changed over the past quarter?

Sure. So originally we actually had the Dania project as a power center lineup and as you’ve seen we actually changed Phase II to a high-density live-work-play mixed-use development. Now Phase I we had an executed lease in place with Costco and as part of that lease there were some framework on site level cost contributions by both parties which we were trying to finalize. At the same time, the demand from other junior anchors to be a part of Phase I really exceeded what we could accommodate with Costco being in place. So with this knowledge, we felt we wanted to change direction and now it would be the best time because the junior anchor line up really would be more complementary to Phase II and offer us better economics than if we went with the flat ground lease with Costco, who mutually agreed to allow us to move in this direction.

Does losing a Costco have a potentially ongoing impact on the demand for the other junior anchors?

Costco is really a destination-oriented tenant and I think because of the strength of this real estate. We felt that originally they would be a great lead anchor for our power center development. But because of the strict location, the freeway visibility from I-95, the demand from the junior anchors really actually ticked up regardless of this Costco as a part of the development.

Okay. Thank you for that. And the second question, I noticed your tenant allowances for new leases, I know that includes some redevelopment projects, but it seems to have ticked up kind of pretty noticeably to maybe about 50% of rental value. Just curious, you can make any comments around that?

Sure. As you probably saw in one of our press releases, we did execute a Lifetime Fitness and West Elm leases at our Suburban Square. That is a very TI-intensive redevelopment part of the program there. So actually, over half of the TI that you see in that line item is really tied to redevelopments and that was obviously a big piece of it.

Okay. Thank you.

Hey, good morning, guys. In terms of the dispositions, you didn’t quite hit your 2016 targets of $1.1 billion, $1.2 billion. So is some of that stuff that you wanted to or planned this on 2016 rolling into 2017 and therefore maybe a little front-end loaded and is that also perhaps having an impact on a cap rate range that you provided? I guess it would have thought that going forward at this point, the assets you are selling are of better quality and therefore would command a lower cap rate and we’ve been seeing now that you’ve gotten rid of all the non-core assets.

Yes, I think that’s an accurate statement. And you know we're very pleased with the fourth quarter and the full-year execution on the disposition program. But as evidenced by the relatively modest activity in Q4, we did experience a little bit of a pullback from buyers, particularly the last two months of the year with uncertainty regarding policy change in interest rates and things of that nature. So a few of the year-end deals were delayed, which we expect to bring forward in the first half of this year. That being said, pricing on those deals that we did close met the high end of our value expectation. So, we do have pretty good clarity on the first half of this year and so we're comfortable with the stated guidance for '17. But it is definitely true that the quality of the assets that are within that pipeline going forward is significantly higher than what we've seen in years past, so we're comfortable with the expectation that we set forth.

All right. And then, just one for Glenn. Can you walk us through what sort of capital raising is in guidance? Should we assume, you look to pre-fund some of that $450 million of secured debt that’s coming due with a bond offering here sometime early in '17 and then what should we think of beyond that? Thanks.

Yes. You’re pretty spot on that. We will probably do a bond, late first quarter or early second quarter, depending on market conditions and deal with the refinancing. We have plenty of liquidity. Renewing our credit facility has given us a lot more dry powder, so we’ve flexibility to pick the right spot when we want to go the bond market and there is very, very modest equity. There is really nothing that’s really in there other than expectations of stock options and equity awards that go into our equity numbers for the year.

Hi. Good morning. Regarding the FFO range, I’m trying to understand where you ended the fourth quarter at $0.38. If you annualize that, it aligns with the midpoint of your range, and you have occupancy growth along with same-store NOI growth at 2.5%. Could you clarify what factors are offsetting the same-store results to maintain the midpoint around where you finished the year?

When considering G&A expenses in the fourth quarter, it's important to note that they shouldn't be viewed as a standard run rate due to some seasonal factors, and the total G&A amount tends to increase as the quarter progresses. If you annualize this, the figure would likely be closer to $0.37, which is part of the challenge. Financing costs will vary based on the assumptions made for refinancing the debt, adding another element to overall guidance. Additionally, we no longer have the impact of foreign contributions. The projected 2% to 3% same-site NOI growth is compensating for the foreign and Canadian contributions we experienced last year.

Also if you factor in that, when you’re doing your guidance range, you do some sensitivities, so when we set out our acquisitions and dispositions range. As Ross said, some of it could be more front-end loaded, especially dispositions with acquisitions on the back-end side. So it plays into that.

I would also just note that some of our redevelopments that are becoming offline, specifically three of them. One in Highland, Boulevard adds up to almost $4 million of rents that’s coming offline in '17.

That's helpful. Regarding the same-store guidance, you mentioned the 70 basis point impact from Sports Authority and your range for the full year. Should we anticipate an increase in the latter part of the year as more of that space becomes available, or is it expected to remain steady throughout the year?

No, it's definitely you’re going to start to see, especially if same-site is cash based. So the team is doing a good job getting leases signed, but you need the cash to start flowing for it to start coming into the same-site numbers that we report. So clearly it will wind up in the latter part of the third and the fourth quarters and start fueling what happens in 2018 and beyond as well.

You’ll see that in the physical, the economic occupancy.

Yes, it's about 230 basis points of a spread, the physical versus the leased occupancy, rather the leased versus economic occupancy. So that expanded a little bit during the quarter and probably over the course of the year shrink down.

Right. Yes, so the occupancy would also kind of ramp, obviously you’ve got an occupancy increase in the guidance there, but that will be kind of second half of the year mostly?

That’s correct.

Yes.

Good morning out there. So, first question for you. Glenn, have the rating agencies or how have the rating agencies changed as far as you guys going for credit upgrade at the same time you have the redevelopment program, but now they’re added news headlines of retailers having issues, bankruptcies, etcetera. So have the rating agencies changed the goal post for you as far as what you need to achieve for the upgrade based on the retail environment, or is it still the same that it was when you talked about at your Investor Day last year?

I mean, I would say on the surface it's the same. They haven't really changed, but the rating agencies also watch the macro issues, so I’m sure that will be part of the conversation with them. But I think it really comes down to us meeting the balance of the metrics that they're looking for, which is really trying to bring the net debt to recurring EBITDA down into that low 5 range. So we’ve got a little bit more work to do there, but when we look at all the other metrics that the agencies look at, we really need them from size of the company, equity market cap, consolidated NOI coming from the portfolio, clearly the simplification of the business with no foreign investments and no currency exposure. They’re not really concerned about our development or redevelopment pipelines either, because relative to $18 billion of assets, it's fairly modest.

In the debt maturity profile.

Okay.

Right, and the debt maturity profile has been dramatically improved as well.

Could you clarify your guidance regarding the 75 to 100 basis point buffer for bad credit compared to the historical range of 25 to 50? If you experience store closings, does the credit loss in your guidance account for both the impact of lost rental income and the downtime from these closings? Or is it only reserved for unpaid rent that you are owed, without considering the outlook for the rest of the year?

Well, it's a general reserve, so it will account for some portion of the lost rent, but if you lost some in January for the full year, it wouldn’t cover that.

Okay. Thank you.

Thanks, guys. I wanted to focus a little bit on the small shop leasing and just try and get a little bit better handle on where you think that number can go over the next 12 to 24 months? And just maybe give us a little bit of flavor for the discussions that you're having for tenants and how you are thinking about leasing the space that is vacant today may be versus what you were doing over the last year or two?

Sure, Steve. We finished up the year at 89.9%. Our target for year-end was 90%. We actually came 9,000 square feet short of that target. So, if you're willing to lease the 9,000 square foot vacancy, we have one available for you. But going forward, we clearly think there's more run room there, small shop activity has been very strong for us. Just in terms of last quarter of the 107 deals we did, 27 of them were with restaurants, 21 were with personal care services, 12 were with medical uses, and 5 were with mobile operators. So you see that the fitness, the services in the restaurant and food components really are the driving force behind the occupancy lift there. And small shop optimism I think when you look at it from a business perspective with the new administration is actually near all-time highs. So when we look at our pipeline of opportunities there, we think we can push it to 90.5% and hopefully push that even higher. Our all-time high was 90%, so clearly if we can push that up to the 91% range or even higher, that will be fantastic.

Okay. Thanks very much.

Hey, good morning, guys. You mentioned a pullback of buyers in the fourth quarter leading to a little bit later disposition activity. I was curious, are you seeing any movement in cap rates, especially within the big boxes given some of the retailer weakness? Are you seeing any change in the spread between big box and grocery-anchored centers in terms of cap rates?

Yes, we have seen certain private buyers exercise a level of caution over the past few months, especially as interest rates have risen close to 75 basis points during that timeframe. The secondary and tertiary market buyer typically requires leverage, so it definitely has an impact on pricing. And we have seen the spread between the core product that we and other institutions are trying to buy and those that are non-core, the spread is widened, particularly for the non-grocery product. I would say that at one point in time, at the beginning of last year, the spread between power and grocery was minimal, as low as maybe a 50 basis point range. We’ve seen that widen to at least a 100 basis points for similar quality location. So we're very pleased that we're in the position that we’re in that we have executed on the fair majority of our dispositions, and we will continue to clean up a few assets, beginning half of this year and through the balance of the year, but that's how we see the marketplace today.

Excellent. Thank you.

Yes, good morning. Let me see what’s left on my list here. Glenn, I guess a question for you. So, recently we saw an update from FASB and NAREIT will once again allow for REITs to capitalize acquisition-related expenses after having to expense them for the last seven years. And clearly this has been one of the reasons for the offshoots of the different NAREIT FFO definitions, including FFO as adjusted, which is a term that you guys use. So while the new rules become effective for REITs this December, there is an early adoption clause. So I’m curious on what’s your view of the new standard and when you plan to adopt, especially in light of the amount of transaction activity you have outlined for this year.

We are pleased that they are returning to the previous methods and allowing you to capitalize them, as it makes more sense, and we intend to adopt this early. One of the advantages is that it reduces the difference between NAREIT FFO and FFO as adjusted.

But you did say you plan to early adopt, so there is nothing in the current numbers and when or are you willing to discuss when that will be?

We are planning to current adopt effective January 1.

Okay. So you’re saying that the number that we will see from you guys over the next couple of quarters will reflect the new standard, okay.

Correct.

Good morning. Thank you for taking my call. I have a quick question. I appreciate your transparency regarding shadow supply. Referring to the operating metrics you've reported, I noticed that your new leasing spreads are quite impressive, while the new renewals seem to be more stable or possibly slightly declining. Can you provide some insight into what you’re hearing from tenants regarding renewals? Are tenants concerned about the shadow exposure you've mentioned, and what do you think is driving the strong new lease spreads?

On the new leasing spreads, we clearly think that below-market leases is where Kimco shines and we have that as our acquisition thesis for a long, long time, having great real estate with low market leases. So as you know, these leases are long in tenure and they take a long time to get at, but when they do come to maturity or we are unable to recapture them, that’s really when we can unlock the value and mark those leases to market. So a few of the deals that we talked about already, Lifetime Fitness will end at replacing the Macy's at Suburban Square, and some of our other former Kmart boxes that we were able to reposition, really were the drivers of our new store lease spreads there. Renewal spreads are healthy as well, because they actually include options. So options actually are usually a little bit below what our normal renewal spreads are, so when you lump those two together, that’s actually a very healthy renewal on option spreads for us and when you combine that with new leasing spreads, obviously it's where you get to our double-digit combined leasing spreads. From a retail environment standpoint, location is key. Everything is very much a local level decision for retailers. When they look at the opportunity set or what’s available in the market, typically we think our product is actually insulated from the shadow supply that we’ve been talking about. Many times our retailer base doesn't necessarily want to deal with having an interior entrance; they just prefer to have an exterior entrance and a big field of parking. And they also like to have that co-tenancy with the best-in-class open-air shopping center retailers and the visibility from the street. So all those things combined we clearly think that our reposition portfolio is in good shape and should continue to produce solid spread results.

Got it. Thank you for that insight. As you look ahead, I know we've talked before about how you've effectively minimized risks associated with potential store closures, but there are factors beyond your control. Could you briefly address your strategies for lease renewals before any potential store closures, perhaps using Sears as an example?

Yes. The key obviously is, with supply and demand is that a huge flood of supply doesn’t hit the market at the same time. So what we've seen so far is that there has just been a steady drift of supply and that actually is relatively healthy for us as we are able to recapture boxes that are below market and reposition them with best-in-class retailers. So if there were a large-scale bankruptcy that changes that dynamic, clearly that would have pricing pressure on both new leases and renewals. So we have been looking at our portfolio and making very local decisions on if we think now is the time to renew a tenant and lock them in longer term, then we do engage them with that conversation. As you’ve seen with our occupancy, it continues to tick up. As you see with our spreads, we continue and are able to produce solid spread results. So, so far the supply and demand is in our favor, especially since we're repositioned in the best markets in the U.S.

Great. That’s helpful. I will jump back in the queue.

Good morning, everyone. Maybe just following up on that last question, I know you have done a good job of selling off a lot of the higher risk assets or properties that may be impacted by shadow supply, but as you think about the expiration schedule over the next say two years, if there is more than just a trickle that we’ve seen so far, I guess what percentage of your portfolio would you characterize that as that risk is currently?

I think when you look at our anchor lease expiration schedule, it's relatively modest over the next few years and we do conduct regular portfolio reviews with our tenants. And the nice thing about the portfolio reviews we’ve been doing not only with the ones that are continuing to expand, but the ones that have pulled back on their store opening is their portfolio health with us is extremely hot. And so we continue to think that the reposition portfolio gives us good insight into the retailer quality we have. And even the ones that maybe are on our watch list, the stores that we have with them are actually performing quite well. So that gives us some good insight into how we can perform over the next few years, if there is a dislocation in terms of supply.

I mean, you look at the leasing expiration schedule, we note historically that somewhere around 75% of the leases have an option to exercise. So if you take that into account, you’re only looking at somewhere between 2% and 3% a year of real true roll to deal with.

I understand that this dynamic could change if there are many choices available, but I'm on the same page. Now, in terms of the...

The only thing I would add to that is if there is an option opportunity for retailer and their leases below market, there is usually a higher percentage chance they are going to take that.

That's a good point. Regarding the difficult environment we've been discussing and the rise in the credit reserve, as we consider the expected increase in occupancy by the end of the year and the usual seasonality we experience in the first quarter, should we anticipate a drop-off greater than what we've seen in the past couple of years?

I think it will be relatively consistent in the first quarter. We do see some seasonality there and obviously there are some retailers that did not perform over the holiday season. But we think that over the year we will be able to have a modest increase in occupancy, both in small shop as well as anchor boxes.

Okay. Thank you.

Good morning, guys. Conor, I just want to go back and say I recognize that the 2020 plan isn't linear, but the guidance that you guys gave was a little bit behind the pace that you had outlined in that plan. I'm just curious, in your mind is that a function of timing around development or redevelopment, is it conservatism on your part or is it maybe indicative of the fundamentals just starting off a little bit softer that maybe was anticipated when that plan was authored?

No, it really comes down to timing. We remain very confident in achieving our 2020 vision. We understood that a lot of work was needed to reach our current position, and I’m pleased with how we’ve executed. In terms of the disposition program, we managed to act within the right timeframe and executed it perhaps faster than we expected. This year, our goal is to increase FFO while also decreasing leverage, which is usually challenging. We are focused on achieving this as we pursue our 2020 vision. We have completed the major dispositions and have begun to increase our spending on redevelopment and development, which is not yielding immediate results yet. However, for 2018, 2019, and 2020, we anticipate significant growth from these projects as they come online, and we believe that’s the direction we’re heading.

That’s useful. And maybe just one for Glenn. In regards to the 2017 guidance the 2% to 3% same-store NOI, do you have that broken out for, I guess, I will call kind of core organic NOI growth and the redevelopment contribution separated?

Yes, the redevelopments should add between 20 and 40 basis points. The rest will come from organic growth, which is significantly lower than last year, where we had a contribution of 70 basis points from redevelopments in 2016. This change is mainly due to more projects becoming operational that will drive growth in 2018 and beyond.

Great. Thanks, guys.

Thanks. Hi. You obviously had the new developments going on, as well as the residential tower, but looking at the consolidated redevelopments, it looks like you’ve four projects for about $70 million that are coming on in '17 and '18. I guess, how do you see the average pipeline size there and what the investment could be annually over the next say 3 to 5 years?

Yes, the redevelopment projects we were outlining for '17 are actually back loaded. Many of those projects are delivering in Q3 and Q4. And so that’s why again it doesn't necessarily flow through the full-year, but we do see the flow in the '18 pickup and continue to think as we deliver those projects there as you’ve seen we’ve been able to promote more projects into the active pipeline from the shadow supply. So when we look at our shadow pipeline, the key for our team is to really pull those forward as quickly as possible, so we can continue to grow that active pipeline. And we’ve been successful in doing that and continue to think we're just getting started on a redevelopment plan.

Great. Thank you. I had a question on the redevelopment, sort of a follow-up question, I guess. I know you still have 20 Sears leases in your portfolio. One of them is disappearing this year, I guess at Highlands, so there will be 19. But I was curious about the shadow department store exposure you guys have and in your acquisition guidance for the upcoming year $300 million to $400 million, do you have any acquisitions in there of some of those potential shadow anchor boxes that you might want to take back in your portfolio?

When you look at our Kmart and Sears exposure, we’ve been obviously salivating to get those backs for a long period of time, and a lot of those are coming due without any more options remaining. So we’ve been able to actually put redevelopment plans in place for every single one if and when they come back early or if we were able to strike a deal to recapture boxes early. So, the plan is still in place to redevelop those boxes and continue to show the mark to market of over 300% for that portfolio. So we obviously are watching that closely. In terms of recapturing and having that in our acquisition target, there is no acquisition baked in for recapture of those boxes. We have constant dialogue with all of our retailers, especially the ones that have assets that are way below market and continue to try and see if there is an opportunity for us to recapture early, but in our guidance there's nothing baked in for that.

Great. Thanks, guys.

Good morning, guys. Glenn, a quick question for you. You have a fair amount of or actually fairly significant amount of preferred that I think are redeemable this year. How do you think about the opportunity there, particularly given the spread that they currently yield relative to where you’re able to issue 30-year bonds?

Well, relative to 30-year bonds, the savings at least on the first preferred debts are going to be available to be redeemed would be in March is a 6%. We are probably somewhere around 4.5, 4.125% if we did a 30-year bond today. So there's some potential. However, that's not baked into our guidance. Again, we’re focusing on net debt to recurring EBITDA on a consolidated basis. So we’ve just got to watch carefully where it makes sense to do that. The other two coupons are 5.5% and 5.125% that become callable later in the year. Again, nothing baked into guidance in terms of redeeming those, but again, at the right point those could be an opportunity.

Okay. And then just a quick follow-up on an earlier question about the same-store bucket for this year. The 20 to 40 basis points redevelopment contribution, is that a net number so is that adjusting out for some of the de-leasing that you are doing for redevelopment, or is that a gross contribution on a positive side, excluding the de-leasing that you would do in prep for redevelopment?

That’s the net of it together.

The net of it together. Okay, great. Thank you. Appreciate it.

Hi. You mentioned that some of the hurting retailers still did reasonably well at your centers. Was there also a regional bias to that in terms of geographies that performed the best?

No, when we examined the portfolio with our retailers, they generally have a national presence with us, and as we reviewed the various locations of our assets, there wasn't any significant regional disparity. We assessed each property individually and found that every store was performing well for them. This provided us with assurance.

Thanks. And then in terms of traffic, in your earlier comments, I think you said that cap rates have widened for centers without a grocery component. Is that directly tied to the idea that the grocery component is more internet resistant so you are seeing a divergence in traffic for those centers with a grocery versus those that don't have one?

Yes, that can certainly be a part of it. I think that the institutional investor has been a bit more active on the grocery side. But even that being said, so long as it's within the core market we have seen some power centers with or without a grocery component still be attractive to investors. It really depends on the location, the quality of the real estate and making sure that within a power center there's not too many retailers of which are on a watch list or not considered Internet resistant. So it is a little bit of a side-by-side analysis in that regard. But we're just continuing to be careful and make sure that those assets that we look to acquire, particularly if there is not a grocery anchor sort of fit the parameters that we’ve set out which is below-market rents and making sure that we consistently see upside or value creation opportunities within those assets.

Thanks.

Good morning, guys. Just a follow-up. I was curious, General Growth made a comment on their earnings call that retailers are increasingly channel agnostic between sort of online malls and shopping center distribution. Are you seeing more, I guess, call them nontraditional retailers appear on your leasing prospect lists or and I guess how many of those ultimately may be moved to leases? Just curious what you might be seeing out there.

We are continuously looking to expand our network of retailers in our shopping centers, and we are noticing an increase in entertainment, service, and fitness options. We have added our first Lifetime Fitness and West Elm deals to our portfolio. I believe that as retail begins to integrate various channels, that observation holds true. We have been discussing this trend for some time.

Nothing specifically like mall-based tenants or maybe even with outlet-based tenants that are kind of knocking on your door?

Sephora is probably the one that comes to mind where they have been actively working with us to expand and talk about the open-air center as their real growth vehicle going forward because they’re already in all of the A malls. So when you look at the portfolio of retailers in malls that would fit with some of our centers, you really got to pick the best-in-class, because you want to be careful there.

Maybe one last question. You are about 65% preleased across both phases at Grand Parkway. I'm curious if some of the challenges in Houston's economy have affected leasing economics or the leasing pace there, or has it been fairly resilient?

The site is quite unique, as it is situated in an area where there is practically no retail within a five-mile radius. Despite fluctuations in oil prices and other challenges affecting Houston, we have observed robust retailer demand in that location, and Target is set to open in a few months. All the junior boxes in Phase I are leased, restaurants are beginning to lease up, and small shops are filling in well. We have not noticed any pullback in that area.

Okay, great. Thanks guys.

Hi. I wanted to follow up on Albertsons. I understand it’s not included in your guidance, but could you provide any updates on your thoughts regarding monetization? While the IPO route is one option, you’ve mentioned the possibility of exploring other avenues, possibly involving real estate or private markets. Is there any progress being made on that front?

No, I think you saw that the S1 has been updated. We continue to look at all opportunities there. We still think it’s a phenomenal investment for the Company long-term, and continue to see how we can either monetize a portion of it or work with the real estate. So that is a continued ongoing effort for us.

I think the Company is watching closely to see how and when and how quickly the deflation impact starts to subside, which will really help the business and that should lead to other opportunities.

Okay, great. Thanks.

We will just end it on that. So thanks everyone for participating in the call. And just a reminder, additional information for the Company can be found in our supplemental on the website. Thanks so much.