Executive Chairman Milton Cooper and Vice Chairman, President, CEO David Henry, Executive Vice President, CFO & Treasurer Glenn Cohen and Executive Vice President & COO Michael V. Pappagallo are representing Kimco Realty Corp. at REIT Week.
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Below are notes from the session:
8:47 Pappagallo: Leasing environment has been on positive track last ... year-and-a-half. Lot of national retailers looking to increase footprints and market share. ... Small users are also being aggressive to improve market share. Segment that continues to suffer is moms and pops (which cannot access credit markets).
8:50 Pappagallo: Occupancy is 92.5 percent. By end of year we will show an increase. Seeing stabilization in markets in terms of rents. In some place it is starting to increase. It's still lower than the heights of a few years ago. So you should see downward drift in releasing spreads. ... But with weaker retailers being replaced by stronger retailers, the prognosis is positive.
8:52 Pappagallo: Looking to move about 150 assets. Have sold about 17 so far and (other deals in the works). Look to reinvest in 25 markets where we have significant presence or want to have a more significant presence. ... So far in 2011 have closed on 6 assets with 825,000 square feet. A few were acquired with institutional joint partners. We very often will be doing business with external partners where we can benefit from fee structure.
8:54 Pappagallo: In addition to U.S., continue to focus on Canada and Mexico. Canada has been nothing but a good news story. Our portfolio is 97 percent leased. Our largest exposure--Zeller's--will soon become Targets. We are looking forward to having that anchor tenant in many of our locations.
Mexico has been a development story. ... Occupancy is 80 percent and looking to get to 84 percent. ... Mexican market is recovering like U.S. ... We expect Mexico lease up will contribute to $7 million to $9 million in FFO. ... We are dispersed throughout the entire country. ... Beyond the headlines, Mexico continues to have many of the baseline characteristics that are good for shopping center growth.
8:56 Pappagallo: In terms of what we've sold so far, has not been much of an effect from FFO or negative arbitrage. ... Many are low occupancy and have not generated much NOI. ... We think in longer term that our estimate of these exits is about a 9 cap. ... Yes, we expect some negative arb in terms of what we are reinvesting in, but think the upside is bigger than any immediate effects on FFO.
8:58 Henry: Got the larger national retailers that are quite healthy again. Balance sheets strong, earnings are good and they are expanding again. Two years ago they were in retreat. ... Occupancy of tenants above 5,000 square feet is in the high 90s. Big boxes are quite healthy and seeing a lot of new leasing activity. Marshalls, Ross, TJX are expanding and beginning to worry about store count in future years. With virtually no new development they have to take a second look at spaces they may have passed on.
9:00 Henry: In general there is a momentum. There is an economic recovery. We're seeing it in retail. We have a little more pricing power than we did a year ago. ... (However), the recovery has to have stronger legs--need housing market to recover, have to see employment get better, need to see community banks lending more. ... Smaller banks are still back on their heels a bit and they are not aggressively lending to the small guys. The recovery has to have more strength in it. I think we'd all agree that it's weak.
9:05 Pappagallo: In terms of new leases and renewals, in last 12 months our composite new leases are about 2 percent from previous rental levels. In any one quarter it can be up 5 or down 10. ... In terms of what you will see us reporting in rest of 2011 and 2012, will see negative territory. ... Bulk of leasing is trying to keep tenants in space when lease is up. On those we're about flat. That's a more important indicator of where markets are and where they are stabilizing. ... With lack of new stability, it will add to pricing power from landlord's perspective.
9:08 Pappagallo: Redevelopment for us is any sort of expansion, outparcel development or redos of centers. Have about $90M of projects disclosed in our supplement. At any given time that's a good rough number to use. ... There is no one number that we use for returns. Generally we like to look at a double-digit return on a redevelopment or expansion scenario. ... I think more than anything in the next three to five years, that's where (growth will come) in Kimco portfolio, especially as the company pares down to the 600 core assets in the portfolio.
9:11 Cohen: Starting to see financing available not just for A quality properties, but for B quality properties as well. There are a variety of capital sources available. Capital markets are wide open. We wish we could take more advantage, but don't have a lot of debt maturities in the next two years.
9:15 Cooper: Fundamentals are weak. No matter what we do, we have close to 10 percent unemployment. ... We don't have wage growth. ... What puzzles me is that the consumer continues to shop and sales have not been affected so far. There's a disconnect between the fundamentals and the enormous liquidity that's out there. ... What we have is no new development, and no matter what the problems in the U.S. are, our population grows by 3 million people per year. So I think values will increase and cap rates will continue to decline.
That concludes the session