David F. Bujnicki - Vice President of Investor Relations & Corporate Communications David B. Henry - Vice Chairman, Chief Executive Officer and Member of Executive Committee Glenn Gary Cohen - Chief Financial Officer, Executive Vice President and Treasurer Conor C. Flynn - President and Chief Operating Officer Milton Cooper - Co-Founder, Executive Chairman and Chairman of Executive Committee Raymond Edwards - Vice President of Retailer Services Ross Cooper - Chief Investment Officer and Executive Vice President

Christy McElroy - Citigroup Inc, Research Division Samir Khanal - Evercore ISI, Research Division Craig R. Schmidt - BofA Merrill Lynch, Research Division James W. Sullivan - Cowen and Company, LLC, Research Division Haendel Emmanuel St. Juste - Morgan Stanley, Research Division Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division Jason White - Green Street Advisors, Inc., Research Division James Bambrick - RBC Capital Markets, LLC, Research Division Nathan Isbee - Stifel, Nicolaus & Company, Incorporated, Research Division

Good morning, and welcome to the Kimco's First Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Bujnicki. Please go ahead, sir.

Thanks, Frank. Thank you, all, for joining Kimco's first quarter 2015 earnings call. With me on the call this morning are Milton Cooper, our Executive Chairman; Dave Henry, Chief Executive Officer; Conor Flynn, President and Chief Operating Officer; and Glenn Cohen, CFO; 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. Before we begin, I want to mention that Kimco plans to host an Investor Day on December 10 of this year in New York City. We will be sending a save-the-date notice out shortly with more details, but wanted to make everyone on this call aware of it so you can mark it on your calendar. Thank you. And with that, I will turn the call over to Dave Henry.

Good morning, and thank you for joining our call today. We are very pleased to report strong first quarter financial results and operating metrics. Glenn and Conor will cover the specific details, but the solid fundamentals of our portfolio continued to drive excellent FFO earnings growth and same-site NOI increases. Small shop occupancy improvements are particularly encouraging as the economy continues to recover. While recent retail sales growth has been modest, national retailers are still committed to robust expansion plans, all in the face of a declining inventory of retail space. Discounters and service-oriented tenants, such as theaters, health clubs and restaurants, continue to expand rapidly, helping to increase effective rents and occupancy in our portfolio and across the open air shopping center sector. Lower gas prices are also expected to give a boost to consumer spending and in a good sign for shopping centers. Rich Moore of RBC continues to point to 5-year high levels of planned new store openings, while Craig Schmidt of BofA Merrill notes a recovery of retailers focusing on the middle class. The renewed strength of middle-class purchasing power is expected to disproportionately benefit neighborhood and community shopping centers anchored by conventional grocery stores, casual and fast-casual dining and discount anchors such as Walmart, Target and Kohl's. Overall, we feel terrific going into 2015 as new supply remains muted despite population growth, growing household formation and the slow but steady growth of the U.S. economy. With respect to our overall strategy, we've essentially completed our exit from Latin America, with pending deals on our last shopping center in Mexico and various land parcels. We also continue to take advantage of a strong market for shopping centers, even in secondary markets, by selling both our second tier assets as well as those located outside our long-term…

Thanks, David, and good morning. 2015 is off to a strong start. Our solid first quarter results are the product of strong execution on all fronts, including leasing, acquisitions, dispositions, redevelopments and capital raising. As we reported last night, headline FFO per share, which represents the official NAREIT definition, was $0.37, up from $0.34 last year, an 8.8% increase and $0.02 higher than first call consensus. The improved performances is attributable to higher NOI contribution from the operating portfolio, lower G&A expenses and higher transactional income from our investment in Albertsons, which contributed $6.5 million or $0.015 per share growth year-over-year. FFO as adjusted or recurring FFO, which excludes nonoperating impairments and transactional income and expense, was $0.36 per diluted share for the first quarter, up from $0.34 last year, a 5.9% increase. This level of per share growth was achieved even after a $0.055 per share diluted impact from the significant transformational portfolio, including the substantial liquidation of our share of assets in Mexico totaling $480 million, nonstrategic U.S. asset sales of $850 million and the impact from currency fluctuations. The diluted impact was more than offset by the purchase of 5 quality assets totaling $2.1 billion over the past year, many from our joint venture programs including the Kimstone acquisition during the first quarter, and by our reduced debt cost from refinancing higher coupon debt. Our portfolio operating team kicked off the year with solid results, delivering U.S. same-site NOI growth of 3.2% and combined same-site NOI growth, which includes Canada, of 3%, before the negative 100 basis point impact on currency. The same-site NOI growth was achieved primarily from top line revenue growth generated from increased occupancy, which is 95.7% for both the U.S. and the combined portfolios. Leasing spreads were strong with a 19.1% increase on…

Thanks Glenn, and good morning, everyone. Today, I will start by recapping our progress on acquisitions and dispositions, followed by updates on our development and redevelopment pipeline and finishing with a quick recap of the operating metrics. Overall, we had a good start to the year and are pleased with the team effort that showcases how Kimco continues to execute on all fronts. The evolution of the open-air shopping center gives our talented team a tremendous opportunity to enhance net asset value. We continue to execute on our transformation and simplification strategy with the previously announced closing of the Kimstone transaction. At the time of closing, the cap rate on the portfolio was approximately 6% and it has since performed above our own internal expectations. In addition, we acquired a Sprouts-anchored center in Houston, also at a 6 cap, which gives us control of 3 corners at the dominant intersection of Highway 6 and Spencer Road. We also acquired 4 adjacent parcels to our Tier 1 portfolio as we look to expand our footprint, where we see the opportunity for future redevelopment. The acquisitions market remains red-hot and we remain disciplined. We continue to be selective about targets and are focused on unlocking opportunities at strategic locations within our core markets. The disposition market does not shown any signs of slowing down, with cap rates continuing to compress for dominant secondary market assets. The definition of core appears to be shifting with numerous buyers willing to step out on the risk spectrum for a slightly higher yield. We sold 6 shopping centers this quarter at an average implied cap rate of 7.25% in addition to 37 triple net assets for a $10 million gain. We plan to have the final phase of our disposition program complete by the end of…

Well, thank you, Conor. Great properties, great people and a great future. That's what I think about when I think of Kimco. Since the announcement of our transformation strategy at our 2010 Investment Day, we have bought and sold over $5 billion for properties. Think about that for a moment. Not only is that a staggering figure in and of itself, it is a size that represents an equity market cap that is larger than many of our peers, but it's also reflective of the transformation of our portfolio. The result? Our portfolio is now better located, of higher quality, more resilient and offers tremendous growth opportunities for redevelopment. A transformation, however, is not limited to our portfolio. It extends to our management team as well. And this is what I'm most enthused about. Our transformed management team led by our future CEO, Conor Flynn, is a unique blend of energy, talent and experience. With our new Chief Investment Officer, Ross Cooper; and our new Executive Vice President of Asset Management, David Jamieson, who joins Conor, Glenn, Ray Edwards, and our spectacular and pragmatic General Counsel, Bruce Rubenstein, I believe we have several -- an executive dream team at Kimco. But that's not all. I've often trumpeted our deep bench strength at Kimco. And that phrase sometimes connotes a backup team and nothing could be further from reality. At our headquarters and in our regions, we have many talented leaders, who are moving Kimco forward every day. These include Will Teichman, our senior Director of Strategic Operations; Chris Freeman, our Vice President of Property Management; and Tom Taddeo, our Chief Investment Officer, and there are many others. And I've watched these talented individuals grow over the years, and I'm even more excited to see what they will accomplish in the years to come. And now we'd be delighted to answer any questions.

We're ready to move to the question-and-answer portion of the call. [Operator Instructions]. Frank, you may take our first caller.

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

Conor, I'm wondering if you could provide your thoughts around Whole Foods, new concepts of lower priced stores aimed at millennials. It sounds like they've already started negotiating some leases for the new stores. If you're able to provide any color on whether or not you had discussions with them and what size and type of locations they're targeting? And also, is this a game changer potential here? Or are they up against some pretty steep competition to that demographic?

Yes, it's a good question, Christy. We have an open dialogue with Whole Foods. As you've heard in my remarks, we have a number of deals pending with them in different forms of construction. So we do think that it's going to be an added benefit to our portfolio, especially when you look at the size that they're considering because many times when we try and add a grocery component to one of our assets, the size of the box sometimes restricts what kind of retailers we can add. So I think their price point going after the millennials, trying to probably be a little bit more competitive with some of the new specialty grocery concepts that have done so well in the recent years. I think that's their strategy, and I think it's a good one because I think that they have, for a long time, been the highest price point in terms of the grocery sector. And I think if they launched a competitive line of millennial-targeted grocery stores, I think it will fit nicely within our portfolio and others.

Next question comes from Samir Khanal from Evercore.

As you mentioned in your opening remarks that the debt to EBITDA number had ticked up in the quarter, which seems to be because of Kimstone. Just trying to -- can you expand on that? And just kind of remind us how that leverage sort of goes back down based on kind of the options you have available? I mean, there is the ATM. I don't think that was utilized. Maybe it's equity raise or even possible asset sales. Just trying to get a sense of how you kind of prioritized these options as you kind of work the leverage down?

Sure, Samir. Well, obviously, the leverage is up due to the Kimstone portfolio. We brought on balance sheet roughly $1.1 billion of debt, and it is our goal to bring it back down to the 6x level. As I mentioned, it's 6.4x today when you really pro forma in the full amount of the EBITDA, right? We closed in the beginning of February, so you're missing a full month of EBITDA. So you have to really start at that 6.4x. And then we have multiple options and levers to pull. Selling the SUPERVALU stock is one piece to it, which happened in the second quarter, so that will help bring down leverage. That's an asset sitting on our books that had no EBITDA, so the cash will go to reduce debt there. We have the balance of our sales that we're working through as well. And we do have our ATM program in place, which, at the right time, we'll be able to use, and we've modeled that into our forecast. So we feel comfortable that we'll get it down one way or another to 6x by the end of the year.

Next question comes from Craig Schmidt from Bank of America.

I'm wondering as you head into Las Vegas, I can see ICSC convention. What are your top priorities? What do you really want to get accomplished with this convention?

The ICSC in Vegas is really -- it's a time and a place to go through the portfolio, but also think strategically with our retail partners. We've obviously upgraded our portfolio. We're adding a lot of redevelopment projects in the out years as well as some development projects. So I'd like to think of it as a way to look at the out years, to try and see what we can do strategically together and where our retailers are expanding and what they're looking for from the landlord today. I think the landlord's perspective has changed in terms of what we want to try and offer at the shopping center. And we want to see what the retailers are looking for as well in terms of what we can do to be a more proactive landlord. So hearing from them, obviously putting -- getting together with some of our largest partners is always a benefit and seeing what they believe is in store for the year ahead and years ahead.

And -- are the retailers pushing to you for new developments to open stores in?

Absolutely. They have some pretty significant store counts that they need to fill, and they are looking at all of our ground-up developments as well as our redevelopment. So they're very aggressive in trying to get into the high-quality shopping centers. And the supply and demand is definitely in the landlord's favor, and we're utilizing that to the best of our ability and making sure that we have the right portfolio to grow with our retailers.

Next question comes from Jim Sullivan from Cowen Group.

Recently, we have seen that Sears has been very active with mall owners to reposition its mall-based Sears locations. I know your Kmart exposure declined in the first quarter. But just curious if they have been more receptive and active to the same strategy with respect to the Kmart locations in your portfolio?

This is Ray Edwards. First off, you should appreciate that the mall locations, Sears owns those properties. And for the mall owners to joint venture with them for the redevelopment is very important. Kimco has lease positions with Kmart. We have a number of locations that have no term remaining for the next 2 to 3 years that we'll be getting back. So we're focused on those, and we are working with them on some other locations, but we have a lot more flexibility with Kmart. They're all leased positions. We're working with them. They don't have control of the spaces for a tremendous amount of time, and we are working with them. We have done deals with Kmart and Sears in the past. And particularly, we closed last year on Christiana, which was a property that they owned, that was a product service center for them. And we worked with them for 5 years to get that site redeveloped. And then upon getting the site rezoned, we were able to acquire the property and develop it on our own. So we have a good relationship with them, and we'll work strategically where it makes sense.

Okay. And then, regarding the comments Conor made regarding the power center redevelopment strategy. Just curious whether you found that grocer-anchored power centers kind of consistently sell at lower cap rates than [indiscernible] when you estimate that, that can result in?

Yes, it definitely compresses the cap rate when you can add the grocery component into a power center. It's probably between 50 to 150 basis points depending on the location and who the surrounding retailers are. But not just from a cap rate compression standpoint, it's a great thing to boost surrounding retailer sales because the traffic flow is dramatically increased when you have that grocery component. And originally, we thought that this new strategy was only going to be dedicated toward the specialty grocer sector. But what's been a huge boost for us is now the traditional grocers are trying to take advantage of this as well, and it might have something to do with the supply and demand factor where boxes are just not readily available. So when we can put together spaces for these grocery concepts, it's fantastic for us.

Okay, then finally for me. In the past, merchant developers have been a major source of acquisition opportunities in the industry, but development starts have remained relatively low this cycle. I'm just curious, and again, in anticipation of ICSC, I'm just curious whether you're seeing any evidence of any material increase in terms of merchant development starts?

No, we really haven't. We think it's going to remain muted for quite a while. The few developments you are seeing are generally smaller and generally food anchors. So those large 800,000 to 1 million square-foot large scale spec developments of years ago, they just haven't come back yet. So the total supply in terms of new supply, we expect to remain very, very low for a while. Remember, we're still in a recovery mode in terms of rents getting back to previous high levels. So the economics are still tough for developers to make a lot of sense for a lot of [indiscernible].

And multi-family developers are really driving up prices in terms of land. So we really -- when you do a retail development versus a multifamily development, it's really hard to make the numbers pencil.

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

Glenn, I guess one for you, a question on the guidance. In the guidance detail on the back of your supp, we see that the full-year portfolio contribution is up a bit in the forecast for this year versus what you were forecasting last quarter. Despite you leaving these same-store NOI outlook unchanged. So is that reflective of dispositions, perhaps, occurring later in the year than expected? Or maybe you're taking a wait-and-see approach for your same-store NOI guidance and maybe you'll wait until next quarter before revising it upward?

Well, again, it's up. It's up modestly, right? If you look at where it is, it's only a few million dollars up. So it doesn't move the same-site NOI needle all that much. And part of it is a little better performance really coming from this Kimstone portfolio, which is not in the same-site NOI number. But overall, the portfolio is performing better. So it is early in the year, though. But we feel comfortable with our guidance range.

And then a question on the impact for the first quarter of snow. I'm just curious on how much that might have taken a bite out of your NOI in the first quarter?

Yes, we actually saw the snow have a 15 to 20 basis point impact on our same-site NOI numbers this quarter.

Next question comes from Jeff Donnelly from Wells Fargo.

I saw that you're marketing the centers in the big portfolio out on the West Coast, and I was wondering if that was a JV you guys expected to exit outright? Or if that's just part of a -- I'll call it a price discovery process, maybe under a right of first refusal?

It's part of our simplification strategy, that is a JV that back last year, if you remember, we split the portfolio into 2, and this was the remainder of that portfolio. We are in the market with that portfolio, and we'll see what the pricing comes in at. But it's a portfolio that has some good locations, but also is mixed. So we're marketing it as a portfolio to see what kind of price discovery we can find.

And just a follow-up on the TIs on new leases, excluding redevelopment assets, has been running kind of in the $20 a square foot range the last few quarters. I think Kimco used to pride itself on really its lack of TI contribution in prior years. Is that just, I guess, what's necessitated in this environment? Or is that really a function of your shift to sort of a higher quality type of property that's maybe driving increased TI contribution?

I think it's a little of both. Historically, we have been running as the low cost provider and many of our assets, I think, require some upgrading. So you're seeing that in terms of when we reposition an asset with a new anchor, we want to make sure that we bring the asset up to a competitive level. So we are investing quite a bit in terms of redevelopments as well as some property upgrades to help curb appeal, and the TIs have ticked up a little bit, but I think that's part of our strategy going forward.

Next question comes from Jason White from Green Street Advisors.

Just a quick question on size. It looks like obviously guys are the biggest in the group. But as you look at some other sectors, there's kind of behemoths in their group. So is there a benefit to even larger scale in the shopping center peer group? Or is size, once you get to your level, kind of irrelevant?

Well, we think we have 2 benefits. One is the total size and the number of properties we have, but also being national in scale. That helps us with retailers. We're at the top of their list in terms of landlords they want to sit down and talk to and review their expansion plans and their desire to meet their store count. So it does give us a little bit of an edge having so many properties and having so many relationships with these different retailers. It also helps from the cost standpoint on our side. We're more productive and there's more efficiencies in our back office when you spread our cost over so many properties and so many different leases.

I would just add that I think size makes a difference when you have a controlling interest in specific submarkets. So as you can see when you look at our map, we're trying to get a lot more concentrated around the major gateway markets because we believe that there is significant pricing power when you can control significant submarkets, and that's what we're trying to get to. I don't think that the size necessarily matters in our sector because of the amount of strip centers that are in the population. But if you can concentrate your ownership around corridors, retail corridors that are very successful, then you can use us to your advantage.

So if Kimco was to, say, double in size, you don't think there's much incremental benefit to the extra square footage added?

It really depends on where those -- when you double in size, where those assets are. If you own the 3 or 4 corners in the best market, absolutely, then you can definitely use that to your advantage as leases roll and you can see how to upgrade the tenants and push rents. But again, and maybe, it'll add significant redevelopment opportunities when you do control a lot more real estate. But it really is, I think, market specific and what you want to try and capture there, is where the growth is coming from.

Next question comes from James Bambrick from RBC Capital Markets.

Regarding the 37 net leased properties you sold in the quarter, were those the same net leased assets you acquired a couple of years ago? And also does that eliminate your net lease exposure? Or do you have a bit more that you're looking to sell?

These R&D part of the portfolio, a large portfolio of net leased restaurants we did acquire a couple of years ago that was fairly public. So far, we've sold 42 of those net leased restaurants. Original cost was about $58 million, we've sold them for $70 million. So there were some nice gains in that. We have 29 more to go, 20 of them are under agreement to sell, so we are liquidating those net leased restaurants. But you shouldn't confuse these net leased restaurants with our net leases that we have lots of different net leases with different types of tenants. We just think it's a great time to sell these net leased restaurants and some of these are in secondary markets and the 1031 market in particular is very aggressive right now.

Next question comes from Nathan Isbee from Stifel. Nathan Isbee - Stifel, Nicolaus & Company, Incorporated, Research Division: Some recent press reports have the Safeway consortium preparing to tee it up for an IPO. Can you discuss what you've accomplished there so far and how close you are to an event?

Again, this is Ray Edwards. With regard -- the Safeway transaction [indiscernible] closed in the end of January this year. And the one thing that is public, that is out there, is that we did come to agreement with SUPERVALU regarding the transitional service agreement and the wind down of our dependency on them, so we can be a standalone company. So that's what we're really focused on. Bob Miller and his team are working on merging a 20-store [ph] chain right now and focused really on getting that done. We're very happy with its performance to date. As to what our exit strategy is? Obviously, you think about that every day, but it's really too early to tell where we're going to be and how it's going to end up.

[Operator Instructions] Next question comes from Jim Sullivan from Cowen Group.

Sure. Just a quick follow-up question here. Conor, you had mentioned about the acquisition market for secondary markets particularly being red-hot. And I'm just curious -- obviously, it's been a strong appetite across the quality spectrum, but I'm just curious, in your view, if you think that the cap rate -- we're seeing cap rate compression between primary and secondary markets or whether the spread remains where it was, say, about a year ago?

This is Ross Cooper. I would say that there is a little bit of compression certainly between the secondary markets and the primary. But at the same time, you're also seeing the primary markets continue to go further lower, as Milton has indicated in prior quarters that he expects. So there is a little bit of compression certainly, but we're also seeing the A quality in primary markets come down a little bit as well. So it's a good time to be a seller in those secondary markets, but it's also a pretty challenging market to be buying in the A and primary markets as well.

I know that can be difficult to assess exactly why this might be happening, but do you see more buyers out there for the secondary markets now than they did a year ago? And there was reference to the yield-driven acquisition strategy. But does there just seem to be more funds teed up who want entry into that product type?

Yes, I would absolutely say that's accurate. On our disposition when we're in the market, we're seeing significantly more bidders and all different types of bidders, both private institutions, bidding on properties that a couple of years ago may not have had the same response. So we're very excited about where we are on our exit strategy for the secondary market assets and expect that to continue through the end of the year.

It may be worth adding that the growing CMBS ability of obtaining financing is helping for the secondary market acquisitions. CMBS is back and financing is available for the secondary assets now.

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

Thanks, Frank, and to everybody that participated on our call today. As a reminder, additional information for the company can be found on our supplemental as posted on our website. Have a good day.

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