David F. Bujnicki - Vice President of Investor Relations & Corporate Communications David B. Henry - Vice Chairman, Chief Executive Officer, President, Director and Member of Executive Committee Glenn G. Cohen - Chief Financial Officer, Executive Vice President and Treasurer Conor C. Flynn - Chief Operating Officer, Chief Investment Officer and Executive Vice President Milton Cooper - Executive Chairman and Chairman of Executive Committee

Paul Morgan - MLV & Co LLC, Research Division Christy McElroy - Citigroup Inc, Research Division Craig R. Schmidt - BofA Merrill Lynch, Research Division Sameer Kanal Jason White - Green Street Advisors, Inc., Research Division Ryan Peterson Haendel Emmanuel St. Juste - Morgan Stanley, Research Division Richard C. Moore - RBC Capital Markets, LLC, Research Division Michael W. Mueller - JP Morgan Chase & Co, Research Division James W. Sullivan - Cowen and Company, LLC, Research Division Christopher R. Lucas - Capital One Securities, Inc., Research Division

Good morning, and welcome to the Kimco Realty Corporation Second Quarter Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to David Bujnicki, Vice President of Investor Relations and Communications. Go ahead, sir.

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

Good morning, and thank you very much for calling in this morning. We are very pleased to report strong second quarter results. Glenn and Conor will provide specific details, but our operating metrics continue to be excellent, led by significant increases in portfolio occupancy, including small shop space, and our 16th straight quarter of solid leasing spreads for both new leases and renewals. With respect to the retail industry overall, the fundamentals remain strong with effective rents and occupancy improving across the board. National retailers continue to expand in the face of population growth, positive GDP, and limited new retail supply. The annual ICSC shopping center convention in Las Vegas in May was upbeat with attendance and the number of exhibitors increasing over prior years. Given the increase in market rents, we are beginning to see the first signs of new development activity, although by no means near the size and scope of the large speculative projects built prior to 2009. In general, national retailers have found effective online strategies to complement their physical store presence, and the top 3 retailers in online sales growth all have physical stores, Macy's, Walmart and Apple. Overall, it is encouraging to note that retail sales per person have increased by 16% from the prior peak in 2008. Consumer confidence now is at the highest level since October 2007, and retailers, in general, are very optimistic about the back-to-school shopping season. Looking at the neighborhood and community shopping center sector itself, the industry is strong and healthy. And we believe most of our retail tenants fall in the internet-resistant category as they generally focus on necessity-based goods and services. Services alone account for 2/3 of consumer spending and are growing. Restaurants, dry cleaners, health clubs, urgent care centers, nail salons are all examples of…

Thanks, Dave, and good morning. Let me provide some detail on the results reported last night. As a reminder, we use the term FFO as adjusted to represent recurring FFO, which excludes transactional income and expense and nonoperating impairments. Headline FFO represents the official NAREIT definition. FFO as adjusted per share was $0.35 for the second quarter, up from $0.34 last quarter and $0.35 a year ago. For the 6 months ended, FFO as adjusted per share was $0.69 as compared to $0.67 last year, a 3% increase. The key drivers of our second quarter FFO as adjusted performance were attributable to increased U.S. shopping center NOI of approximately $19 million from higher occupancy levels and increased rental rates, coupled with contributions from the significant acquisition activity completed. We also benefited from lower interest expense of $2.2 million as a result of the reduced borrowing costs on our recent debt issuances. These increases were reduced by the sales of the InTown Suites investment and the American Industries portfolios last year, which contributed $11 million of FFO to the second quarter last year. In addition, NOI was reduced by $8.5 million from the sales of the assets in Mexico and Latin America. Headline FFO per share for the second quarter was $0.34, which includes $2 million of transactional income associated with the gains on land sales and promotes earned on the disposition of preferred equity interests. Headline FFO also includes $4 million of transactional expenses related to acquisition costs, and severance related to the wind down of our Latin America operations. The property operations team delivered strong operating results this quarter. U.S. occupancy reached 95%, up 30 basis points from last quarter and up 110 basis points from a year ago. This is the highest occupancy level in 5.5 years, and…

Thanks, Glenn. Today I will update our progress on acquisitions and disposition, and then cover the progress on our redevelopments. Finally, I will recap the leasing and operations activity for the quarter. As outlined in our press release, we had a very active second quarter, acquiring a large portfolio in Boston and buying out our partners from the Kimco Income Fund. After the quarter end, we also bought our partner SEB's interest in 10 properties. Since the beginning of the second quarter, we have acquired 46 properties with a gross value in excess of $950 million, primarily in our key territories. The quality and demographics of these assets are excellent, and the blended cap rate is 6.2%. While we are active in the open market, we are proceeding with caution due to historic low cap rates and continue to search for acquisitions with redevelopment opportunities that will allow our skilled associates the opportunity to unlock value for our shareholders. Recent transactions on high-quality assets reflect aggressive pricing, making our redevelopment pipeline an even more attractive use of our capital right now. Turning to dispositions. During the second quarter, Kimco's sold ownership interest in 15 U.S. properties, 7 wholly-owned and 8 held in joint ventures, totaling 1.7 million square feet for a gross sales price of $185.6 million, including $23.3 million of mortgage debt. The implied cap rate for these assets is a blended 7.4%, and the company's share of the proceeds from these sales is $121.5 million. Cap rates continue to compress across all quality levels as the thirst for yield has investors stepping out on the risk spectrum in search of places to put capital to work. I'm pleased with the pace of our dispositions so far this year, as we have sold 37 properties at a blended 7.8%…

Well, thank you, Conor. From time to time over the years I have trumpeted the fact that, as compared to other real estate assets, one of the unique attributes of neighborhood community shopping centers is the very, very high ratio of land to total value. The typical shopping center is comprised of a one-story building and 5x as much land as the square footage of the building's footprint. The land component often exceeds the parking requirements, and thus becomes an additional asset. In a growing economy, land is one of the best and least risky long-term investments. It is irreplaceable, indestructible and a natural hedge against inflation. And as the land increases in values, it allows the center's extra land to be set aside for a land bank, as I like to say, for additional investment opportunities. In the meantime, the revenue generated from the improvements covers the real estate taxes and other tariff costs and other carrying costs of the land. Today the opportunities that land banking affords us can take many forms, including the expansion of existing centers, development of our parcels, sales to third parties and possibly mixed-use development. As markets change and evolve, it is incumbent upon us to make sure that we are maximizing each asset's value in order to maximize top shareholder return. In addition to our redevelopment projects spearheaded by Conor, we have on occasion drawn down from our land bank to unlock additional value in a mixed-use context. Where the opportunities for mixed-use projects exist, we are careful to make sure that any non-retail component enhances the primary retail component. It is this synergy that increases the overall asset's value. So for example, in 2 quality centers in Washington, D.C. and Boca Raton, we are working with the best-in-class developers to build…

As Milton indicated, we're ready for the Q&A portion of the call.

[Operator Instructions] First question comes from Paul Morgan from MLV. Paul Morgan - MLV & Co LLC, Research Division: If I heard you right, the 44 assets that are under contract were at an 8.5 cap rate, is that right?

That's correct. Paul Morgan - MLV & Co LLC, Research Division: Is there anything that's higher than what you're blended number has been? Is there anything in terms of the mix that's noteworthy there? I mean, obviously you've been talking about cap rates across the quality spectrum compressing. And as we think about in the rest of the year and into 2015 and look at the quality of what you have that you'd like to sell from then on, I mean, is -- what's the right number to think of?

It's a fair assumption to say that the cap rate will continue to decrease over time. 8.5% is really the last tranche of assets that we're moving out of from the Midwest. And it's a portfolio deal that we are anticipating to close this year. And once that's completed, the assets that we will continue to look to dispose of will be at a lower cap rate.

Next question comes from Christy McElroy from Citi.

With your growing ground-up development initiative, can you talk a little bit more about some of the markets you're targeting and the yield you're underwriting?

We've started to look at our key markets. For all of our ground-up developments going forward we would develop to hold long-term. So these are our key markets where we already have boots on the ground and a portfolio of assets. And we are looking at potential adjacent parcels. We're also looking at areas where there's a lot of growth, whether it's employment or population growth. So Houston is one that we're looking at right now. Fort Lauderdale is another one that we're looking at, as well as Christiana, Delaware. So those are the 3 that I think we're really focused on to see if we could put together development deals for the next stage of the cycle. And we're underwriting to somewhere between a 7.5 to 9.5 yield.

Next question comes from Craig Schmidt of Bank of America.

I wonder if we could get a little bit more color on the reason you're expecting the anticipated acceleration in same-store NOI in the second half, whether it's leases signed, not occupied, the pickup in small shops or maybe even a little more friendly currency exchange market?

Yes. No problem, that's a good question. We still have a large cushion between our property leased occupancy and our economic occupancy. There's actually 230 basis points between the 2. So those are deals that are fully baked and are yet to start flowing. And those we anticipate to come online in the second half of the year. We actually budgeted -- each year we do an in-depth asset by asset budget, and we saw that the second half of the year was actually significantly higher in terms of our same-site NOI growth. The other thing to keep in mind is we are coming off a pretty tough comp, up 4.2% in the second quarter of last year.

Next question comes from Sameer Kanal from ISI Group.

One your leasing spreads, you guys put out at close to 10% on a blended basis here. Looking forward, maybe into next year, do think this is a good run rate? I mean the demand is certainly strong from retailers to maybe push renewals maybe into the low-double digits and mid to high double-digits do you think for new leases?

The demand is definitely there to continue on that trend. It will probably -- spreads tend to be driven sometimes by one large deal so you need to keep that in mind. But overall, because our portfolio is large, we do believe that our spreads will continue on that trend. The demand from retailers is not subsiding, and we continue to see, really, a good pipeline of new deals, not only on spaces we currently have vacant, but on spaces we plan to recapture. So I think that's a fair assumption.

Next question comes from Jason White from Green Street Advisors.

Just a quick question on your redevelopment pipeline. I know this is a tough question to pinpoint, but if you can kind of broad brush, when you look at the amount of the spend that's going to be on -- in deferred maintenance type projects versus true kind of expansion projects, can you kind of split that out in what's parking lots and roofs versus actual new square footage?

We can go in and give you more detail on that and break it out for you. Right now, the way that we look at our redevelopment projects, it's really all-encompassing. So if we have an old Kmart that we need to reposition and demolish, improving the parking lot, improving the site lighting, improving everything at the asset really goes into the redevelopment project. But if it's a smaller scale project where we're taking down only a portion of the asset and expanding it for a junior box, those are ones that really -- the majority of the costs go into the expansion of the box rather than more site improvements. But we can go into more detail there and break it out for you.

[Operator Instructions] Next question comes from Ryan Peterson from Sandler O'Neill.

Just 1 question for me. I wanted to ask, given the demand for large boxes and scarcity of that space, is it possible that the economics might start to make sense for you to deepen small shop space and create more big boxes?

It's a good question. We actually have seen that be a trend, where junior boxes are actually stepping up their rents to be able to make the economics work. We have done it on a number of different sites where we combine small shops and expand out the back of the shopping center. TJ Maxx, Ross are the two that are probably the most active in that space because there's such a lack of new product and lack of supply. So there's definitely that occurring in our portfolio, and we're actually working on a number of those deals going forward as well.

Next question comes from Haendel St. Juste from Morgan Stanley.

So you've talked extensively about the captive acquisition opportunities with your existing JVs. So my question is on the cap rate spread differential between open market purchases and these JV opportunities. And I understand every deal is different. It looks like the Boston portfolio and open market deal was acquired at about a 6-ish flat yield, while the recent SEB JV was consummated at a high 6 yield. So wondering, should we view this as a representative spread? And then also, can you talk about potential disposition and redevelopment opportunities within both portfolios?

Well, first of all, they vary widely. Over the past couple of years, as we've been aggressively talking with our partners, some of these deals are tougher negotiations than others. And the portfolios themselves are very different. You're right there was quite a different spread differential between the SEB transaction and the Boston portfolio. In general, we believe there's around a 50 basis points difference, if you take a look at them altogether. And a lot of that savings is not necessarily a difference in just a negotiating grade. It's the fact that there is a true win-win in these situations. There's generally not a third-party broker involved. There's generally much less transfer taxes involved. We're not talking about mortgage assumption fees. We have the right to do these things. These are very quick acquisitions. We don't have to do a lot of due diligence. We know these assets. We've been managing them. So truly is a win-win in many cases here.

And on the dispositions and redevelopment question. We will be selling 2 assets out of the Boston portfolio, 3 assets out of the SEB portfolio, and we've already completed 1 of 2 out of the KIF portfolio. And then on the redevelopment question, because we've been managing the SEB and KIF portfolios, we've worked over those assets pretty significantly, and the majority of our redevelopment potential comes from the Boston portfolio. There's a number of out parcels we plan to -- we actually have in the market right now to users as well as some mixed-use components where we have to go through a lengthy entitlement process in Boston, that we are optimistic about, long term, in creating value there.

Next question comes from Ross Nussbaum from UBS Securities.

Jeremy Mertz [ph] here. Obviously you guys are making some good progress in the small shop space. You mentioned a fair amount of leases of mom-and-pops this quarter. Can you just talk about where you see small shop occupancy going in the next 12 to 24 months? Does it get up to 90%? And also, what do you think is helping drive a bit of the rebound in mom-and-pop?

It's a good question. I think in 24 months, we should see it get to 90%. We do have a large pipeline of pending deals that will continue on this trend in the upward momentum. We've shifted our focus to the small shop space because we think that's really a large portion of our growth going forward. But we do see still growth involved in the junior anchors and the vacancies we have left there, as well. So we do anticipate that, that will continue. And we see the rebound in local businesses. It's pretty apparent in our key markets that the mom-and-pop has come back in a major way. Hair salons, nail salons, service-based industries, restaurants, family businesses have all come back to our shopping centers. And we anticipate that to continue as the economy strengthens. The housing market seems to continue to improve. And that should coordinate -- that should correlate to more small shop deals.

I would just add that the community banking system has recovered fully now and are more aggressive about local lending. Most of these smaller businesses rely on the community banking system. So if you're a jewelry store or a local dry cleaner looking for a second, you really need that community banking system to be healthy. And it is now healthy. And those loans are going up and increasing, so that's healthy.

I would also just add that it's such a local business, real estate, especially for the local users, that in order to target those operators you've got to have people on the ground combing the portfolio for those types of retailers to come into your shopping center. So in order to have that growth, we've really focused on putting more people into the field at the property level.

Next question comes from Rich Moore from RBC Capital Markets.

You suggested it seems that there'll be about another year, I think, of disposition activity before you're largely through with the disposition process. And I'm curious, what is the volume that you think you have left in terms of, I guess, dollars of disposition activity? And then when you're complete, what do you think your long-term same-store NOI growth rate would look like?

We still have about a year left to go on our dispositions pipeline, you're right. We have close to 200 assets still to move, and we think that that's going to be right around $1 billion worth of assets. From the same-site growth perspective, we think we're exiting out of our lower growth assets as well as our at-risk assets that weigh us down for such a large portfolio. And we're still targeting 3% for -- 3% plus for a continual growth rate for our portfolio.

And to somebody's earlier question, we do anticipate the cap rates drifting down from that 8.5% level we've been averaging on this next $1 billion, if you will. So it shouldn't be quite as dilutive as we've had in the past.

Next question comes from Michael Mueller from JPMorgan. Michael W. Mueller - JP Morgan Chase & Co, Research Division: I was wondering if we're thinking about development and redevelopment deliveries over the next 2 years, what sort of an annual number are you contemplating? And then how do you see the mix shifting to include more, I guess, new ground-up activity?

Right now, our focus is really on redevelopment. We've built up the pipeline relatively quickly, and we anticipate $130 million or so to deliver this year, $150 million to deliver next year, $190 million to deliver the year after that, and then $230 million to be delivered in 2017, and then continue to ramp it from there. Our ground-up developments will be additive to the pipeline and should give us a little bit more growth on the out years, because these redevelopments are assets that we can deliver in the near term. While the ground-up development when we go through the entitlement process and the pre-leasing process, it should add growth to our portfolio in the out years.

What is a great sign for our industry and our company is that rents have moved up enough to justify ground-up development now. So that's a significant milestone in terms of recovering from the recession.

Next question comes from Jim Sullivan from Cohen and Associates.

Question for you guys regarding this position on Safeway. There was a shareholder vote recently that was in favor of the deal. And I guess as you proceed toward hopefully completing the deal, you have to go through the FTC. I wonder to what extent, and I can understand if you're not comfortable talking about detail on this, but I wonder to what extent the likelihood of some store closings is having, any impact at all on pricing in the market? I.e, if a lot of the Safeway/Albertsons boxes are going to have to come back on the market with stores being closed. To what extent is that inhibiting demand or pricing or terms on deals for those grocers looking to expand in the market now?

Let me first of all say that there's not any intent to close any stores. What we're working through with the FTC is whether stores have to be divested. And by that, meaning that we have to find other operators that could continue the stores in operation post-closing. And in a sense to keep it a competitive marketplace. So to close a store and cease the operations would not make it competitive [indiscernible]. So the FTC is going to be looking for us to find other buyers that are qualified by the FTC to run these stores. And at this point, there's no planned store closings due to the merging of the companies.

[Operator Instructions] Next question comes from Chris Lucas from Capital One Securities.

David, just a quick follow up on the comments you made about development. When you think about the timeframe over which this has happened, is that a recent phenomenon where rents have met the threshold where development makes sense? And are there -- is this a national or very specific locally phenomenon?

I believe it is a recent occurrence, where rents have significantly jumped and particularly these national retailers are beginning to be particularly anxious about meeting the store count that they've promised Wall Street and internally. And I don't think it's related to any particular market. Obviously, there's stronger markets, and some of these primary markets we've talked about before are magnets for retailers that are obviously looking for where there's job growth and good demographics and population growth, is where these retailers want to expand. And I think Conor gave you a good range in terms of Houston, Florida and New Jersey as being the 3 that we're looking at now. But 6 months ago, we weren't looking at ground-up development. And I doubt many of our peers were, either. So it is a significant milestone, in my opinion, that rents have jumped to this level and the economy is doing well enough and, as I mentioned, consumer confidence being at an all-time high compared going all the way back to October of 2007. I mean, that all bodes well, I think.

This concludes our question-and-answer session. I would now like to turn the conference back over to David Bujnicki for any closing remarks.

Thank you to everybody that participated on our call today. As a reminder, additional information for the company can be found in our supplementals as posted on our website. Have a good day.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.