Kimco Realty Corporation (KIM) — Q4 2018 Earnings Call Transcript

Good morning, and thank you for joining Kimco's Fourth Quarter 2018 Earnings Call. Joining me on the call are Conor Flynn, our Chief Executive Officer; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, Kimco CFO; David Jamieson, our Chief Operating Officer; as other members of our Executive team are present and available to answer questions during the call. 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 which 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. Reconciliations of these GAAP to non-GAAP financial measures can be found in the Investor Relations area of our website. With that, I'll turn the call over to Conor.

Thanks, Dave, and good morning, everyone. Today, I'll give a brief overview of our 2018 achievements, discuss the retail real estate landscape facing us in 2019 and outline some of the things we hope to accomplish this year. Ross will then follow with an update on the transaction market, and Glenn will close with our financials and outlook for this year. A year ago, we set some ambitious goals for leasing, development and disposition, but we knew it would require extraordinary execution. Here, we're one year later, and I'm proud to announce that we've exceeded those goals and delivered positive results across the board. We've surpassed the high end of our initial guidance range for FFO and same-site NOI and achieved an all-time high small shop occupancy at over 91%. We completed several development and redevelopment projects, including our first large-scale Signature Series mixed-use development and exceeded our goal for disposition, enabling us to end the year with a much stronger and better positioned portfolio. These accomplishments are a testament to the exceptional efforts of our quality team. I want to thank all of our associates who live and breathe Kimco. Notwithstanding our 2018 accomplishments, we will not and cannot rest. On the contrary, how we respond to the challenges and opportunities of 2019 and beyond will determine our future success. Winston Churchill famously said, 'If you don't take change by the hand, it will grab you by the throat.' These words ring true as much today as when they were first spoken. Change is occurring all around us, and the retail real estate landscape is not immune. As the retail environment continues to evolve with new concepts and strategies to meet the needs and demands of today's consumer, the status quo is not an option. E-commerce and distribution have dramatically changed some of the most long-standing retail concepts, trade areas, store counts, and even what constitutes a sale, just to name a few. 2019 will produce new winners and underperformers. Store sizes will change, and more e-commerce retailers will open physical locations. So while the demand for high-quality real estate in 2018 remained strong, as evidenced by our solid performance, the landscape in 2019 and beyond continues to change, and we've repositioned our portfolio to capture those opportunities that change inevitably brings. Our strategy is simple: own the best real estate in the top 20 markets where consumer demand is high and supply is constrained. Our portfolio is now tightly concentrated in high-growth areas where there are significant barriers to entry. We have removed the drag from underperforming assets and have invested in our best assets and our people. We believe that the high-quality, open-air shopping center that comprises our portfolio is the right product for the future. The physical store is here to stay. It may look different in the years to come, but the physical store continues to be the heartbeat of a healthy brand experience and the cheapest and most effective form of customer acquisition. Moreover, many retailers have made it clear that they value the visibility, convenience, accessibility, and modest occupancy costs that our sites offer. More specifically, retailers value the visibility of stores from nearby streets and highways, which serves as an important marketing tool. In addition, as more and more retailers add quick and collect shopping to their customer experience, retailers find that the local convenience and easy access of open-air shopping centers to be a marketing advantage. Retailers are also seeking other sites because of their suitability for redevelopment and our plans to create mixed-use campuses that include residential, hospitality, and entertainment components, not to mention drive-throughs, quick and collect areas, and home delivery options. So while the threat from e-commerce is real, we believe that in those instances where the mall space is competing with high-quality, open-air space, open-air space will often win out. As a case in point, in 2018, we were able to lease 80% of our Toys 'R' Us boxes in just six short months, bringing in retailers that will enhance the overall volume and experience at these centers. Similarly, if opportunities arise, we're confident that we can create value, and it's worth noting that our exposure is now limited to just 13 locations that represent 60 basis points of Kimco's total. Our Signature Series developments and redevelopments continue to come online, and we expect 2019 to be another year of successful milestones for these projects. Dania Phase I is now open and operating at over 93% leased. Phase II is under construction with strong leasing momentum. We've just added Phase III to the pipeline, as demand continues to be robust in the Fort Lauderdale Beach market. Our Lincoln Square mixed-use project in Philadelphia continues to shine and was recently voted the best new building in Philly by local residents in an online poll. The Whittemore City mixed-use project in the D.C. market is topped off and will start to lease up later this year, perfectly timed to benefit from its ideal location directly across from Amazon's new headquarters. Construction of the Boulevard Staten Island is progressing nicely and the project is now over 92% pre-leased. We believe the Signature Series portfolio will be a key driver of growth as the current projects are completed and the pipeline with new carefully selected redevelopment opportunities. 2019 is set to be an exciting year at Kimco as we capitalize on our Transform portfolio and drive increased cash flow and value. And now, I'll turn it over to Ross.

Thank you, Conor, and good morning. All in all, it was an excellent year in terms of the execution by our team, and I couldn't be prouder. We finished the year selling an additional 16 shopping centers and two land parcels during the fourth quarter, totaling $357 million gross, with $228.4 million being Kim's share. For the full year, we sold 68 centers and eight parcels with a value in excess of $1.1 billion, with approximately $940 million as Kim's share, exceeding the high end of our $800 million to $900 million guidance range. The weighted average blended cap rate on these sales is closer to the low end of our targeted range, right at 7.6%. In order to maximize the pricing, we primarily utilized the one-off approach, consummating 71 individual transactions. Selling this level of properties on a one-off basis is no easy task, and again, it is a real testament to our team, which includes the deal team, the legal staff, the accounting and tax departments, and many others that had a critical role in making sure the execution went smoothly. The steps we have taken in 2018 have enhanced the overall quality of our portfolio and have consisted of the right geographic locations. The redevelopment and value-creation opportunities will generate a sustained and growing level of recurring cash flow that will drive a higher NAV. We've now sold over $8 billion of real estate since 2010, reinvesting the capital into higher-quality real estate in major markets with substantial future growth opportunities. As we previously indicated, given the success of our disposition activity in 2018, we anticipate substantially fewer asset sales with just a modest level of asset pruning in 2019. Proceeds will primarily be used to fund expected development and redevelopment activity. As the current trends in the market suggest, we continue to see strong investor demand for shopping centers. During the fourth quarter, we sold a grocery-anchored property at a sub-5% cap rate, with another Northern California grocery deal under contract at sub-5%. With the 10-year treasury retreating back below 3%, pricing remains strong at all levels of quality with healthy demand. Overall, the supply of new shopping centers on the market for sale has decreased, and several REITs, including Kimco, have reduced their disposition pipelines for 2019. This will serve to keep the supply-demand balance favorable for sellers, with cap rates being low for the foreseeable future. On the acquisitions front, we anticipate maintaining a very disciplined and selective approach, focusing primarily on redevelopment opportunities within the portfolio. We still continue to evaluate strategic opportunities that come along to enhance the value of our holdings. Subsequent to year-end, we closed on a modest $31 million sale-leaseback transaction with Albertsons to acquire the grocery anchors at three of our Tier 1 West Coast assets. This included one location in San Diego and two Safeway locations in Phoenix and Truckee, California. We look forward to the opportunities and challenges ahead, and I'll now pass it to Glenn.

Thanks, Ross, and good morning. We ended 2018 with a stronger and higher-quality portfolio, the result of successful execution on the disposition front, strong leasing activity, and the completion of several Signature development projects. With a strong balance sheet and strong liquidity position, we're poised to begin growing again. Now let me first provide some details on our 2018 fourth quarter and full-year results, and then commentary on our 2019 guidance. NAREIT FFO per diluted share was $0.35 for the fourth quarter, bringing the full year 2018 amount to $1.47. Included in the full-year results was net transactional income, which is net of transactional expenses of $7.7 million or $0.02 per diluted share. This was comprised primarily of profit participations from our preferred equity investments, receipt of insurance proceeds related to our Puerto Rico properties in excess of our book basis, and various land sale gains, offset by $12.8 million of early prepayment charges related to our unsecured bond payoffs. For 2017, NAREIT FFO per diluted share was $0.38 for the fourth quarter and $1.55 for the full year, which included $11.3 million or $0.03 per diluted share of net transactional income. FFO as adjusted, which excludes transactional income and expenses and non-operating impairments, was also $0.35 per diluted share for the fourth quarter of 2018 compared to $0.39 for the same quarter in 2017. The primary driver of the decrease was a reduction of $22 million in NOI from the sale of over $900 million of assets during 2018, offset by a $6 million reduction in financing costs due to lower debt. The full-year 2018 FFO as adjusted came in at $1.45 per diluted share, in line with our previous guidance. This compares to $1.52 per diluted share for 2017. Here again, the primary driver of the decrease is lower NOI of $27 million related to the asset dispositions during 2017 and 2018. The proceeds from the sales were used to fund development and redevelopment investments of $420 million, reduce outstanding debt by $400 million, and buy back $75 million of our common stock at a weighted average price of $14.72 a share. Turning to the operating portfolio, we continue delivering excellent results. Pro-rata occupancy for 2018 was 95.8%, with anchor occupancy at 97.4% and small-shop occupancy at 91.1%, the highest level of small-shop occupancy we've ever reported. Anchor occupancy was impacted by the Toys 'R' Us and Sears bankruptcies during the year. However, as Conor mentioned, excellent progress has been made on releasing those boxes. Pro-rata leasing spreads remain strong for the fourth quarter, with new leasing spreads increasing 12.2%, while renewals and options produced a 5.6% increase, bringing total combined leasing spreads to 7% for the fourth quarter. For the full year 2018, combined leasing spreads were a positive 8.3%. We're pleased to report same-site NOI growth of 2.6% for the fourth quarter and 2.9% growth for the full year of 2018, which exceeded the high end of our previously increased guidance range of 2.7%. Most encouraging is that the same-site NOI is primarily the result of accelerated rent growth produced from the significant leasing activity over the past year. On the balance sheet front, we finished 2018 with consolidated net debt to recurring EBITDA of 6x and 7.5x on a basis, which includes our pro-rata share of joint venture debt and perpetual preferred issuances. Our total consolidated debt stands at $4.87 billion, which is $605 million lower than the amount at the end of 2017. Our consolidated weighted average debt maturity profile is 10.5 years, with no debt maturities in 2019 and only $45 million of debt coming due in our joint ventures this year. Our liquidity position is in excellent shape, with over $2.1 million of availability from our revolving credit facility and cash on hand. Now for some color on 2019 guidance and the underlying assumptions. As a reminder, our 2019 guidance excludes any transactional income and expense. As such, our guidance for 2019 NAREIT defined FFO and FFO as adjusted are the same. Our initial FFO guidance range for 2019 is $1.44 to $1.48 per diluted share. This guidance range takes into account the impact of the new lease accounting announcement, which among other things, now requires the expensing of certain previously capitalized internal leasing and legal costs associated with leasing activities. The impact is approximately $12 million or $0.03 per diluted share. Without this change, our year-over-year growth in recurring FFO per share would have been 2.8% at the midpoint of our guidance range. Also included in the guidance range is the dilutive impact from the 2018 disposition program. Other assumptions include incremental NOI of $16 million to $18 million coming online from our completed development projects, as well as a $5 million to $10 million reduction in interest expense attributable to the lower debt level. Our initial range for same-site NOI growth is 1.5% to 2.5%. The range considers the impact of the Toys 'R' Us and Sears leases already rejected, as well as potential from additional bankruptcies. The range also considers the growth opportunities that exist from the 240 basis point spread between our leased versus economic occupancy. We begin 2019 with great enthusiasm and look forward to being back on the path of sustained growth for years to come. And with that, we'd be happy to answer your questions.

We begin 2019 with great enthusiasm and look forward to being back on the path of sustained growth for years to come. And with that, we'd be happy to answer your questions.

Conor, you opened up talking about change in the status quo not being an option. You meant ramping supply that's out there. Just wondered how we should think about this from a capital spending perspective, both in terms of needing to invest more in existing assets to protect and improve conditions, but also attract tenants? And so not just from a development spend with a direct ROI, but allowances, building spend, additional capital you might need to spend in this environment?

Jeremy, I think it's a good question. I mean, when you think about what landlords need to do today, we can't sit back. We really have to be engaged with driving traffic and not rely solely on the retailers being the focal point of the experience. On the spending purposes, you really have to look at our costs, which have been relatively stable for the last few quarters in terms of deal costs, specific backfilling that we've been doing. On the redevelopment side, that's where we see real opportunity for growth and the value of our real estate. You see now that we've completed our first mixed-use redevelopment, and it was voted best new building in Philly and is way ahead of our internal expectations. We have a big pipeline of future redevelopment opportunities. When we look at our opportunities within the portfolio for mixed-use, it's pretty significant, but we continue to see the demand be there for our repositioning portfolio. I think the overwhelming sentiment when you talk to retailers today is that they are going to be investing in their most productive stores, and we want to invest alongside them. They're going to be remodeling, they're going to be adding significant technology inside the store. When we look at what we can do from a landlord perspective, we can add amenities as well, whether it's Wi-Fi, whether it's right pickups, location, but significant below market leases are obviously still a critical advantage to Kimco. That's where we see we can unlock the value of our real estate through repositioning.

Okay. Second for me. Just in terms of the guidance, you obviously have a range here for 2019. Wonder if you can walk us through what you're baking into the top and bottom in terms of tenant disruptions? And then how the releasing of Toys and Kmarts fit into that? And then maybe a quick update on Albertsons and what your best-case scenario would look like?

You're going beyond that follow up.

Sorry—the guidance then. How about just the guidance?

Our guidance includes a few things, some of which I've already mentioned. But with regard to credit loss, there's a 100 basis points of credit loss that’s baked into the numbers. So that gets you at the lower end. You'd have further bankruptcies, potentially that would also have some impact on the lower end. On the upper end of the guidance, again, if better credit loss comes in, that will be a positive factor. Further lease up and additional rent commencements as we go through the year are another part of the positive side.

Two other things that also impact the same-site, Jeremy, is that there's about a 35 to 40 basis point impact from the loss of Toys for 2018 and 2019 same-site levels.

In addition, a key component to the growth is the developments coming online. As I've mentioned, it's $16 million to $18 million of incremental NOI that is included in the numbers. So depending on the timing of that, speed or slowdown for any reason has some impact as well within that guidance range.

About your third question; this is Ray. Recently, Albertsons announced their earnings for the third quarter, showing notable improvements in their business operations with store sales rising by 2% year-over-year. They confirmed their EBITDA for the fiscal year will be between $2.65 billion and $2.7 billion, reflecting an approximate 8% increase compared to last year. Additionally, they have reduced their debt by $1 billion as of the end of the third quarter and completed a $650 million sale-leaseback to further lower the company's debt. They are making significant strides and are effectively motivating their team. They are in a strong position to determine the next steps for the company in the coming years.

Just had some questions regarding your 2019 guidance. So first on the 2% same-site NOI guidance. You mentioned a 100 basis points of credit loss. How does that 100 basis points of credit loss compare to previous years of guidance? Second, income tax and other is expected to benefit by 1 or 2 pennies in 2019 versus the negative $0.01 hit in 2018. So anymore color around that? And lastly, in the fourth quarter, you capitalized $2 million more G&A than you did in the third quarter. Half of that I can see is tied to just more leasing volume, which is great, but is there any element of G&A that you're capitalizing incrementally more or less in 2019 vs. 2018?

Okay. So let me try to take a piece at a time here. In terms of credit loss for prior years, it has run anywhere between 75 and 125 basis points in total. I think if you look for 2018, the credit loss was around 70 basis points. So we came in a little bit better for the year. So again, we feel comfortable at this 100 basis point credit loss level, and that kind of takes part of the guidance.

To be clear, the 100 basis points is the exact same as the previous year. So there has been running a little bit better, but we feel that's the right number for now to use as our assumption.

As it relates to the other category, again, that's an item for all our other accounts, including corporate taxes, non-real estate income, interest, dividend income, and other non-real estate depreciation and amortization. That number can vary year-to-year. If you went back to 2016, it was a positive number. Last year, it was somewhat of an expense. We do expect higher interest dividend and other investment income from our non-real estate investments as well as lower tax expense during 2019. During 2018, there were certain deferred tax valuation allowances that we took that won't repeat. I guess your last question was on the G&A just quarter-over-quarter; you're right. So the leasing activity was strong. So you have some internal leasing commissions that were capitalized as well as we do capitalize internal construction. So the construction activity on the site is another component to the G&A capitalization as well as some system development capitalization related to the new ERP system that we're putting in place.

The fourth quarter, how much of that led through in your thinking for 2019 guidance?

G&A capitalization will actually be less in 2019, primarily due to the $12 million that I mentioned for the internal leasing and legal commissions being expensed for the new guidance.

Conor, feels like this year situation is still in a bit of a flux despite Eddie getting his way. Could you give us your updated expectations on what's baked into the midpoint of 2019 guidance regarding closures? And then what you expect on redevelopment expense? And maybe just some color on the interest you're seeing from retailers on those boxes as well?

Well, as Glenn mentioned, we have the low end of the guidance really focused on liquidation of the actual entities there, but we'll have to wait and see. I mean, it's very clear that there are different forces at work there. There will be a meeting on Monday to decide on the fee. So we'll have to wait and see. We obviously have not been sitting back. We've been proactive in terms of the locations we have remaining, but we don't necessarily have any visibility yet. As soon as we gain visibility, we'll be able to share it. But again, as I mentioned in my remarks, we're very confident in our platform and being able to create value on those locations.

Okay. And just one more follow-up here. Given that small-shop occupancy has been up year-after-year, which is nice to see, I'm just curious where you've been seeing the most success with small-shop leasing and whether or not you expect this trend to continue in 2019?

Yes. I mean, we continue to see growth in the health and wellness sector; the service sector with hair salons, nails, and specialty fitness is continuing to be a growing category as well as medical, urgent care facilities, etc., continuing to rise to the top, complemented by S&P as a growing category with all the franchises that continue to expand and do well. So we'll continue to pursue that on a go-forward basis. I think the other big component of us exceeding our small shop trend is the retention levels. Our retention levels are significantly higher than they've been in the past, which is directly attributable to a higher-quality portfolio. When you just look at the velocity of vacates in our small shop year-over-year, it's down almost 30% to 40%. So there's evidence that we're retaining higher-quality tenants for longer and they’re renewing. So we'll continue to see that trend going forward.

Just following up on some of your comments around project deliveries. You've talked about an incremental $20 million of NOI from development and redevelopment projects in 2019. Can you provide an update and maybe some greater context around those expectations? I know that the 1.5% and 2.5% growth range seems to be excluding redevelopment impact, but can you disclose what you expect that redevelopment impact to be in your reported range?

Christy, it's Glenn. So the $20 million that we've mentioned during the year, as I noted in my prepared remarks, the range we're using is $16 million to $18 million. The reason is that more has come online actually at the end of 2018. So the incremental amount—the total number is still the same, but the incremental amount is just a little bit less. The projects are moving along, and the lease-up has gone very well. So it's baked into the numbers, again, that $16 million to $18 million of incremental development NOI coming off from those projects.

On the redevelopment impact on the same-site NOI guidance range will be very muted for this year, similar to last year.

Okay. And then just some clarification on Toys and Mattress Firm. You had talked about the boxes being 80% re-leased. I think Dave you had mentioned a 35 to 40 basis point net impact on same-store. Can you talk about the timing of the commencements for any of those commencements in 2019 that would be impactful? And then just on Mattress Firm, it looks like you closed 11 stores in Q4. The rent contribution went down by $1.4 million. Was that entirely the result of the closures? Or do you provide rent relief on the remaining 51 as well?

As it relates to the Toys boxes, we'll start to see the cash flow from the re-leasing accelerate to the back half of this year. So that helps offset some of the total impact about 25 basis points of dilution for 2019. About the balance of our boxes that we have with a number of tenants. We feel good about the remaining basis that we have. Regarding Mattress Firm...

With regards to the stores that are continued to operate, about 30% to 35% of them, there are some rent modifications of lease-term modifications that we've worked out with them. For all the sites besides those they had with us, they did reject 8 or 9 of the locations. We actually negotiated on one site to have a lease termination backfill opportunity on that. Another site had a lease expiration occurring during the bankruptcy. The store we expected to close and to get back, but we have—the majority of the stores are operating. It’s a company that came out of bankruptcy, converting $3.3 billion of debt into equity. It’s a very strong balance sheet for the company going forward. So net-net, we have a much better credit on the 50-odd stores we have with them.

Okay. So the rent modifications right away, whereas the rent loss from the rejected leases is there a delay in that until 2020?

Well, the interesting thing with the rent loss is that because Mattress Firm is going to be under a 100 plan, we're getting about a one-year rent damage claim for all the 10 locations that we've gotten back. So for 2019, we'll cover all the money basically.

So in 2020 is when you'll see the impact.

I guess, can you walk us through sort of doesn't look like you're generating much sort of free cash after the dividend and you still have plans to spend about $300 million on the redevelopment and development piece. So some - you don't have any sort of targets for dispositions here. So I'm just trying to how we should think about the funding of that redevelopment, especially, without any targets for dispositions here? How should we think about that?

Right. So when you think about the development spend and the redevelopment spend, somewhere in this $250 to $325-ish range. There will be dispositions. The dispositions will fund a good portion of that I'd say. The balance because we do not have any expectations to issue equity nor do we have any expectations to raise any other debt or anything during the year, the balance would come from funding from our revolving credit facility and our cash on hand that's available.

You’ll see a level of dispositions that will fund the good portion of the development and redevelopments.

I was wondering how many retailers you think may convert to order online pickup in your portfolio?

Craig, this is Conor. I think it's going to be a trend that continues, and that we will see the majority of them convert to that. You've seen recently that stores are no longer doing e-commerce delivery of groceries. I think a lot of retailers are figuring out how to drive traffic back into the store, and click and collect or buy online and pick up in store has become a boost to not only the actual retailer themselves but to store traffic. I think we’ve seen the lion’s share of them start to implement it, and I think that will continue as the new retail way evolves. I think the shopping center is well-positioned because of its convenience factor to really capture that; because typically, shopping centers are closest to your house or where you work. And buying online and picking up in store is, ultimately, a very convenient way to get what you need.

I mean, they definitely seem to help traffic. Is there also an opportunity to increase the revenue by creating areas for access to help order online and pick up in stores?

Absolutely. I think that when you consider store reformatting, there are going to be ways where they can obviously get the once you get the person inside the store. So there’s a lot of data coming out in terms of how much of the incremental consumer buys something else once they’re inside the store. So retailers, I think, will take advantage of that. We can take advantage of the increased traffic and make sure we’re trying to increase cross-shopping as much as possible and take advantage of that increase in traffic.

Maybe just on the leverage side. So including the joint ventures, you guys are now at 6.3x debt-to-EBITDA. I guess, how does this compare to your target, and kind of how and when do you expect to get there?

Yes. So in terms of leverage, I mean, again, we want to get down to around the 5.5x consolidated net debt to EBITDA and then about a term less when you include the joint ventures and the preferred. So somewhere in that range approaching 6.5x over time. Leverage will stay relatively the same as we go through the year, but you'll start to see it coming down as we look into 2020 with more and more EBITDA growth coming at basically the same debt levels. So you'll start to see it coming down into 2020 and beyond.

Got it. Okay. And then maybe just in terms of the 2018 same-store NOI growth having come in better than expectations, are there any positive surprises you could talk about at the end of 2018? And whether or not they could continue into this year?

I think you had some rent commencements that accelerated, which was definitely helpful. Retention of tenants was obviously very important to the puzzle, and then credit losses were a little bit better as well.

So part of the benefit of the large dispositions we did is that we now have a much better and stronger-performing portfolio than we did a year ago.

I was wondering going to same-store again, can you just run over the 2% guidance vs. the midpoint of 2? It seems like there’s the 30 basis point difference in the credit loss reserve that’s part of it, the 1% budget versus 70bps last year. And then what’s driving the other 60 basis point delta again?

Well, again, you have different populations as we've sold lots of assets. We think that our range of 1.5% to 2.5% is a pretty reasonable place to start for the year. We have taken into account what's happening really at the tenant level. We'll have to see what happens with Kmart and others. So it's really an initial range based on our original forecast—I should say.

And are Kmart and Sears in that credit reserve or are you thinking that separately from that?

There's a good portion of that that is included in that credit reserve.

So two questions. First, just going back to Sears, because I think the bankruptcy, the hearing is on Monday. If he does win, how does this affect the centers where you have the 13 Sears Kmart? How does this affect your plans for those centers? And were these centers potentially on your list for adding to the redevelopment such that as you were looking over the next few years, these would provide growth, Glenn, maybe help you get to that mid-80s FAD payout for the dividend? Or were these centers that don’t matter either way if Sears stays or goes?

You're right about the meeting on Monday. We'll have to see how it unfolds. The 13 are in our current pipeline for redevelopment, but clearly, some of them lend themselves to future redevelopment. We don't have visibility on which ones we'll be able to recapture, but as I mentioned earlier, we've not been sitting back. We've been proactive getting ready to recapture all of them. We'll have to wait and see in terms of where the visibility is coming from and then see what we can recapture. There's a lot of value we believe is latent in our platform that we can create, and we'll see if we can recapture them.

Okay. And then just overall big picture, are you guys now done with all the unwinding of all the legacy investments? Going forward, as we think about Kimco, this is the portfolio that will be, Glenn, to your point on funding redevelopment, going to be sort of match funding for dispositions? Or do you think that possibly, let's say, cap rates hardened or something like that, we may see another big wave of sales from you guys?

No, I think you're spot on. When you look at the portfolio today, we feel like we've really done the heavy lifting to transform the portfolio to what we believe is a high-quality, high barrier-to-entry that we can unlock a lot of value from going forward. We put a lot of time and effort into getting the portfolio to where we believe the future of retail is headed. That convenience factor we believe is so critical to the consumer today. Now we're really excited to showcase what the portfolio can do and how much redevelopment opportunity exists in the future as we work to unlock the highest and best use from our asset base. So to your point, we believe we'll transform the assets, and now it's on us to continue to grow going forward.

Conor, I guess, the question for you on non-real estate investments. I'm just curious thinking about the longer-term picture for that. Should we expect your income from that—your other income bucket—to continue to decline over the next two years?

Can you repeat that? I didn't catch that, Haendel.

Sorry about that. Question on how you're thinking longer-term about non-real estate investments—your non-real estate investments. I’m curious about how the income from your other income bucket, should we expect that to continue to decline over the next two years?

We've always had an opportunistic investment arm to the company that looks to potential retailers that are real estate rich. The key there is real estate rich. When we look at how much real estate they still own on the coast, we believe long-term that investment has paid off quite handsomely to date. We believe that's a pretty unique opportunity that we have at Kimco. Now the population of retailers that actually have meat rich—that may limit the opportunities in the future. We also want to measure how much we have invested at any one point in time. So our focus is really on harvesting and making sure that we can redeploy that capital back into the portfolio, fund redevelopment, pay down debt, and get to our long-term positioning that we desire.

Sure. I think the market remains very healthy for the assets that we sold. The buyers are still able to generate broad debt financing within the markets. Obviously, with the 10-year staying below 3%, that really helped the cash on cash returns for our investors, for our buyers on these properties. The occupancy of the sites sold over the course of the year was right around the 93% range. So it gives a little bit of value-add opportunity for potential buyers but relatively stable for the most part. The rents of what we sold were just under $12, running at $11.73 to be exact for the sold sites. I think that the assets that we’ll be looking to sell in 2019, we’ll really be opportunistic with that set of opportunities for potential buyers. We can ensure that the one we bring to market maximizes value. We executed this year at a blended 7.6% cap rate, and that should be more or less in line with expectations for what we saw in 2019, depending on that specific population if and when we move forward with certain assets. Demand continues to be healthy. We have a higher-quality asset base even within the potential disposition candidates. We’ll just have to see how the year progresses, but we’re very comfortable with the target we're putting out this year.

There's still a very large disconnect between public and private pricing. I think when you look at the shopping center as a whole, there are trades that happen every day. The price discovery occurs regularly. For us to execute on $1 billion of disposition and seeing that it's really in that 7.6% cap rate range, I feel we've executed well on our strategy. We're starting to see significant capital formation for shopping centers from private equity and other owners, with the fundamentals we've been producing consistently. This really sets our sector apart from others in the retail world, as the fundamentals are starting to shine and people are starting to notice.

Thank you very much for participating in our call today. I'm available to answer any follow-up questions you may have, and I hope you enjoy the rest of your day.