David Bujnicki - Senior Vice President Conor Flynn - Chief Executive Officer Ross Cooper - President and Chief Investment Officer Glenn Cohen - Chief Financial Officer David Jamieson - Chief Operating Officer Jeremy Metz - BMO Capital Markets Christy McElroy - Citi Craig Schmidt - Bank of America Greg McGinniss - Scotiabank Rich Hill - Morgan Stanley Alexander Goldfarb - Sandler O'Neill Steve Sakwa - Evercore ISI Vince Tibone - Green Street Advisors Derek Johnston - Deutsche Bank Wesley Golladay - RBC Capital Markets Haendel St. Juste - Mizuho Michael Mueller - JPMorgan Chris Lucas - Capital One Securities Ki Bin Kim - SunTrust Linda Tsai - Barclays

Good morning. And welcome to the Kimco's Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to David Bujnicki, Senior Vice President. Please go ahead.

Good morning. And thank you for joining Kimco's third 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's CFO; David Jamieson, our Chief Operating Officer, as well as other members of our executive team that are present and available to answer questions during the call. As a reminder, statements made during the course of the call may be deemed forward-looking. And it is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to the Company's SEC filings that address such factors. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in the Investor Relations area of our Web site. With that, I'll turn the call over to Conor.

Thanks Dave and good morning everyone. Today, I'll provide an overview of our third quarter performance and give an update on our leasing and redevelopment progress, two critical components of our growth strategy. Ross will then report on our quarterly transaction activity and describe the overall transactional environment. Finally, Glenn will provide details on key metrics and our updated 2018 guidance. Overall, the economy is healthy and consumer confidence is near at 18-year high as we enter the critical holiday season. Retail sales growth projections for this holiday season from both the National Retail Federation and ICSC are north of 4%, and we anticipate that our transformed portfolio will benefit from increased traffic and purchasing power. Having made the strategic decision to increase our dispositions in 2018, our portfolio is now well positioned to embrace the dynamic change in retail that is unfolding right before our eyes, and moving at a faster pace than anyone could have imagine. We were seeing major shifts in consumer preferences and shopping habits, impacting every retail category, which has resulted in a form of retail Darwinism. While some legacy retailer have been unable to adapt and compete in the renew environment, resulting in reorganization or liquidation, there are many more savvy well capitalized and experienced retailers who have successfully adapted their business models and are flourishing. We are also seeing many new and creative concepts stepping in and grabbing market share at a rapid cliff. Off-price continues to thrive. Our recent National Retail Federation survey showed that 89% of consumers shop at discount retailers and their appeal spans across ages and income groups. Retailers like Walmart and Target have gone on the offensive with acquisitions or new store concepts and the results are showing. Target, for example, recorded traffic growth of 6.4% in its…

Thank you, Conor. We had another very productive quarter on the transaction side, setting us up for a strong year-end. In the third quarter, we sold 10 shopping centers for $154 million KIM share. An additional sale occurred yesterday in Greenville South Carolina for $37 million. With those closings behind us, we have now sold 49 centers year-to-date with total Kim share proceeds of approximately $722 million, exceeding the bottom end of our range of $700 million to $900 million provided at the beginning of the year. As such, we are raising the low end of the dispositions guidance for a new range of $800 million to $900 million. The blended cap rate through the third quarter remains within the target range of 7.5% to 8% and we anticipate ending the year firmly within set range. As we previously indicated, given the success of our disposition activity this year, our 2019 disposition plans anticipate only a modest level of asset pruning with proceeds being used primarily to fund redevelopment. As we enter the year with our right-sized portfolio, the major focus for the Company is the internal growth opportunities. In terms of transactions market color, investor demand for shopping centers remain strong across all quality levels and geographic locations. Core institutional asset sales continue to be very competitive with substantial capital raise and dry-powder chasing limited opportunities. Cap rates for this product continues to be sticky with transactions in the low 5s and high 4s in several coastal markets. Value-add investors continue to seek yield and are willing to stretch for asset that meet their criteria and provide upside potential. There has been a tangible increase in investor demand for our assets earmarked for disposition over the course of the year with private equity capital plentiful and debt readily available from traditional lenders, as well as non-traditional financing sources. We've also been approached by interested parties evaluating larger portfolio opportunities. However, at this stage of our disposition program, we continue to focus on finishing off the remainder of the asset sales on a one-off basis. We still believe that is the best way to maximize value. Glenn will now provide additional detail on our financial performance for the quarter.

Thanks, Ross and good morning. Our third quarter performance further exemplifies our continued focus on execution of our strategic plan. Leasing continues at a brisk pace, our signature suites projects are beginning to come online, our disposition target is in range and our balance sheet and liquidity position are in solid shape. For the fourth quarter, NAREIT FFO was $0.34 per diluted share, which includes $0.03 per share charge from the early extinguishment about $300 million 6.875% bonds and $0.01 per share from transactional income, primarily from gains on land sales. FFO was adjusted, which excludes transactional income and charges and non-operating impairments, was $0.36 per diluted share for the third quarter as compared to $0.38 per diluted share for the same quarter last year. The decrease is a direct result of our aggressive disposition program, which resulted in the sale of $922 million of assets during the past 15 months and a corresponding reduction of NOI of approximately $16 million during the quarter. The proceeds from the dispositions we used to fund our development and redevelopment programs, which are beginning to produce cash flow, as well as the debt reduction. Our transformed portfolio with over 80% of our annual base rents coming from assets in our top 20 markets nationwide is producing strong operating metrics. Our programmed anchor occupancy was 97.6% at the end of the quarter despite the 40 basis point impact from the Toys R Us boxes that vacated during the quarter, and as Conor mentioned, are being addressed at the speedy pace. Our leasing spreads for new leases remained double digit positive and lease options and renewals produced 7.9% increase. Same side NOI growth was 2.3% for the third quarter and includes a contribution of 10 basis points from redevelopment projects. Most encouraging was the 3.5%…

Before we start the Q&A, I just want to offer a reminder that you may ask a question with an additional follow-up. If you have any further questions, you are welcome to rejoin the queue. Anita, you can take our first caller.

[Operator instructions] The first question today comes from Jeremy Metz with BMO Capital Markets. Please go ahead.

Ross, I was hoping you can give a little more detail about the stuff you sold in the quarter in terms of occupancy, and what the mark-to-market profile look likes for those assets. And then you mentioned moving to a more modest level of sales next year. Can you put some rough numbers around what exactly that could mean?

In terms of the sales this quarter, the total amount of $154 million was a little bit less than previous quarters, but continued to be primarily geographically located within the Midwest and a couple of other assets outside of the Central part of the country. Occupancy remains very high on the disposition side just around 95% for the quarter. So we are selling fairly stabilize assets. As we get into next year, as we mentioned, it will be a meaningfully less number. We are very confident in the right size portfolio that we have by the end of this year. So we’ll continue to prune assets and fund redevelopment opportunities with that, and really focus on the recurring FFO growth for 2019. But it will be a modest number.

So is that $200 million to $300 million, is that kind of a fair ballpark to put it?

I think when you look at our redevelopment spend, which will be started in that low to mid $200 million number, the dispositions are really earmarked for that.

And second one from me, just in terms of the bankruptcies here, the 21 Toys' boxes. How many of those are peer re-tenant boxes as is versus where you’re going to need to break it up? And then can you also comment on Mattress Firm. You have the 62 leases. So do you know at this point how many are on that near term closing list? And then the rent is north of $29 in aggregate, so a little about the portfolio level. So is it fair to assume that the rents will come down here as you re-lease those or any range you can frame around that opportunity?

First, let’s address the Toys R Us, question. In terms of those that have already been awarded at auction or signed, there were six initially. So there is no downtime in rents. They are assumed either by retailers or other operators. From there, we’ve had since before this call seven executed, six have what’s should have been single tenant backfills, one of which is a box split and then that brings you to 13. Of the remaining, we have six that are in negotiation, LOI negotiation, of which three of the six will be single tenant backfills. So out of that group, you only see four that could be potential box splits. And then on the remaining two there, they are currently flagged and are under contract for disposition. So what we've seen is really single tenant has been the dominant use for these boxes, which is obviously helped reduce the overall cost required to reposition the boxes. And then as it relates to Mattress Firm I'll turn it over to Glenn.

With regard to Mattress Firm, eight of our 62 properties were listed sites to close in the first month of the filling and for now, we don’t know of any store closings. We’re working with the company. We might figure a few more might fall out as they might see want rent reductions that we don’t want to give to them. But it should be pretty fast pace with them assuming by middle of November to have a plan improve to come out of bankruptcy shortly thereafter at 100% plan to the unsecured creditors.

And we're comfortable with the mark-to-market on those locations. We feel like they're pretty much right at market. We don't see any see any rent roll downs. Typically, they like to be right up in front either on a pad or on NCAP. And as our small shop occupancy, as you know, it's just hit all time highs. There is significant demand for those locations from service tenants, from restaurants, from financials. So we feel really strong that those bases will be recaptured and leased very quickly.

Next question comes from Christy McElroy with Citi. Please go ahead.

Just with regards to the 14 Sears Kmart boxes, in terms of being ready to recapture them. I know it's early in the process. But just wondering how much progress you're looking to potentially make in the context of the bankruptcy process. And what impact does Bridgehampton being collateral in the debt financing have on your ability to get back at some point?

So on the Kmart's the 14. So what we know today is that there will be four coming back to us. And right now, it actually has to go to auction. One of which is slated for dispo and then other remaining three, we have LOIs and negotiation for the balance of those boxes for single tenant users. And as a reminder as well, one of those is in one joint venture where we own 15%, while the other is -- and eventually in which we own 49%. So from a cost standpoint, we feel very comfortable there. That said, it still needs to go to auction, auction date has not yet been set yet. So what we've been doing and what we've messaged clearly over prior quarters is we've constantly prepared for this event and we continue to be out in the market preleasing these boxes with contingent leases. So if and when we do get them back, we'll be ready to act.

And then with regards to Bridgehampton, typically, one is that was an bankruptcy. Almost usually all the leases are part of collateral, so they're very selective here in what they did. But if there is reorganization around the company, which they're trying to do or going to [indiscernible], probably Bridgehampton will be part of that and we might not get it back. But if it's a wind down then it's doesn't matter and we'll have an opportunity to get the property back to that time.

And then, Conor, you talked a bit about the big changes in retail happening at a faster pace whenever. Just from a bigger picture perspective. Can you put in context how you're thinking about the necessary CapEx spend in that environment? So you have on hand the revenue generating redevelopment investigation opportunities created but then there is also this elevated pace of re-tenanting churn. And how you're thinking about that relative to trying to get back to free cash flow positive after dividend?

When you look at our strategic goals for the long term for Kimco, we were very vocal about what we wanted to do with the portfolio to really transform the geographic locations. We're big believers in the top-line markets in the U.S. that's where we see population growth, that's where we see barriers to entry and that's where we see retailers want to be. And they want to concentrate their store base there. So what we found is the demand for the locations in those areas have been really actually stronger than we anticipated. And that's why you're seeing us be I think well ahead of where are we anticipated for our Toy R Us leasing, because those boxes really are concentrated in our best markets. There will be some tenant churn, as you mentioned. We've gone through a point where the legacy retailers that have not invested in the store and not put the customer really as a focal point, those are the boxes that are coming back to us. But the beauty of Kimco is our diversity, when you look at our tenant diversity, we feel like it's unmatched. If you look at the ability of us to mark-to-market on those boxes gives us great potential to really generate significant return on investment for our shareholders. And what we continue to focus on, whether it's the Toys' boxes or the Kmart boxes, we look at it as an opportunity. We look at it as a way that we've got the right portfolio now that we can unlock the value for our shareholders by repositioning the real estate with great quality tenants that are going to drive more traffic. And then you get the halo effect that will really drive the surrounding rents on the spaces that have been living with some of these retailers that have not been driving traffic for an extended period of time. And so that’s where the focus has been of the Company and we're very excited to turn the page and head into '19 with the trim down portfolio tightly concentrated in our best metro markets with the big redevelopment pipeline that’s just starting about to deliver as you've seen with Lincoln Square and others where we've got, I think, the right mix of projects and place making that really makes a difference in today's world, because you can't just lineup boxes next to each other and think that someone who's going to shop it, you've got to lien, you've got to create the place, you’ve got to do more from n landlord perspective.

Just one quick follow up on that, it sounded like the Toys' boxes, a few of them are going to be box foots. I can imagine these Kmart boxes, a bunch of them are going to be box splits. What impact is that have on the timeline to getting free cash flow positive? I think originally you were talking about potentially next year. I had to imagine that this CapEx spend continued to eat into that?

Well, remember six were awarded from the Toys', so we actually have no capital outlay there. And the majority of the Toys' boxes are actually individual tenants taking the existing boxes. And the cost has actually been pretty modest when you look at the TI and landlord work there. Right now, it's right in that range of $35 to $40 a foot for the Toys' location. So, we feel like we've been careful and cognizant of the CapEx that are going into these boxes. You're right when you split a box, it takes little bit longer to get the rent to commence. But since the lion share of these boxes have been single tenant users, we feel like we can get those paying tenants open quicker. And you've seen that with the compression of the leased economic occupancy spread. We put a lot of effort and put more resources behind expediting rent commencement dates and you're starting to see that happen.

Don’t forget, these are also revenue generating -- this is revenue generating CapEx. This is not just maintaining same rents. You have rents on these Sears boxes that are at 5 bucks a foot. So there is a fair amount of revenue generation that’s going to come from it.

Next question comes from Craig Schmidt with Bank of America. Please go ahead.

Looking toward future redevelopment efforts, will you be actually replacing existing anchors, given just view on winners and losers in the space?

I think that’s always part of the business, Craig. When you look at how to generate the most traffic to your assets, you really want to try and put together the tenants that are going to drive traffic at all points during the day. And so, this is a long-term business. Typically, our retailers sign long-term leases. So, we would have love to been repositioning our real estate over the years with the best-in-class. But many times, the real estate is controlled by these long-term leases. So, as these boxes have been coming back to us, you've seen us get the mark-to-market opportunity, as well as the repositioning opportunity to drive more traffic. And so there has been a lot more repositioning with the off-price players. When you look at TJX and all their banners, including their newest concepts, they are doing quite well; Homesense and Sierra Trading Post, Burlington and Rawson and then Sprouts Farmers Market; the Specialty Grocers, where we're doing a lot of deals with Sprouts and Trader Joe's and Whole Foods. Those are the types of players that we get really excited about, because it compresses the cap rate on the whole assets and it also drives tremendous amount of traffic.

And then what is the climate of the smaller space, the small business in terms of taking new space?

The climate for our small shops has been very, very strong. When you look at 90.8% on our small shop occupancy, which is by far in a way the highest we've ever seen in the Company. It's just evidenced you have small businesses that are continuing to look to open locations. The franchise model has been very successful in this last run up. It gives people an opportunity to focus on the business less so on specifically trying to find a business, so they can take an existing business and just start performing. You've seen the carriers doing well, the financials doing well, fast casual, QSRs, all very, very active. You can be excited of the fact too that Amazon with the Amazon Go rollouts, how that trends, the pace of that no one knows. But just again, it's further illustrating that there is high-high for a great quality real estate on the small shop category.

We have been putting a lot of focus, Craig, on services. When you look at the makeup of our small shop tenant base, we always had the hair salon, the nail salon and now we've really seen a boost when you look at the business element in the health and wellness and beauty that has just been a major, major shift in terms of demand. And we continue to see it expand and we like those uses, because we haven’t been able to figure out what’s the Internet resistant type use like those fitness players where you can’t do that online here.

And just to add a little also. Having transform portfolio with all the sales we’ve done, I mean it's part of the evidence that it's working. Now getting to 90.8% of small shop, it's proves where the profits are. You have properties that are in higher demographic areas, higher household incomes, higher density, higher population, it's just better market and they lead to being able to add more small shop space to the centers.

The next question comes from Greg McGinniss with Scotiabank. Please go ahead.

I was just curious what percent of taxable income is currently being distributed and how you’re thinking about dividend raises considering the level of dispositions this year and the mid 80% if full payout I believe you have talked about before?

We are comfortable with the dividend level is today. Again, we are focused on continuing to grow our EBITDA and our recurring FFO as we go forward. And each quarter we go ahead and we analyze and look and discuss with our board where the dividend level is. For now, we're fine and very comfortable where it is and we’ll go quarter-by-quarter and continue to monitor.

As we have mentioned before, we have a very large redevelopment pipeline that’s now prefunded and preleased and starting to deliver. And that really showcasing what we believe is going to really grow the recurring the FFO and EBITDA levels in '19 and '20. So, that’s where we've been investing as we want to create the places that people want to come back to time and time again, which will really help us drive free cash flow.

So how do you think about that discrepancy or -- matching out of the mid 80% for payout goal or increasing the dividend, I guess?

Again, it’s a balance and we’re going to continue to grow recurring FFO and EBITDA and then talk with our board and see when it makes sense to continue to grow our dividend.

And with disposition and funding earmarked for redevelopment next year. Should we expect another year of pretty limited acquisitions? I mean, is there anything even worth buying at this point?

I mean, there are certainly assets in the market that we like. We continue to be very selective and I would imagine it will be an extremely modest level for next year. As I mentioned in the prepared remarks, the cap rates and the prices for the high quality stocks is still very aggressive with low cap rates. With where our cost of capital is today, it doesn't make sense for us to be acquiring in the open market. So, we'll continue to monitor. We see everything that's out there. We're building long term relationships for acquisition opportunities when our cost of capital does come back. But for now, our priority is clearly the redevelopment spend where we get significantly better yield than what we would planned on the open market.

We have a very deep pipeline of redevelopment projects. And the team is spending a lot of human capital working on getting entitlements for future projects that will take us several years out. So we feel pretty comfortable that where we can deploy our capital accretively.

We will always be looking for adjacent parcels and things that could potential add to our redevelopment potential where it makes sense for value creation opportunities.

Next question comes from Rich Hill with Morgan Stanley. Please go ahead.

Maybe I want to just spend a little bit more time on the cash flow side of the argument part of the debate. So, when I'm looking at your consolidated -- your condensed consolidated statement of income, it looks like your revenue came down quarter-over-quarter. Is that just due to you pruning your portfolio, or are there other things that we should be considering?

No, it's a direct correlation to the amount of sales. As I mentioned, over the last 15 months, we've sold over $900 million of assets. That's what it relates to.

But then at the same time, it looks like CapEx is up to maybe stable at the same time. Is that just because -- to go back to what was previously discussed. Is that just because you're spending more line on development at this point?

We are between the developments, the redevelopments. Again, we put some money back into the Sports Authority boxes that are not starting to see come on line. If you look at our lease to economic spread, that's actually narrowed by 50 basis points. So again, that's from more than capital that we put in to get those flows starting.

Once we get the 10-Q, I may have some additional questions. But thank you guys, I appreciate it.

The next question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead.

Just two questions. First, Glenn, just with Sears, Mattress Firm, Toys, being the biggies. As we think about NOI this year versus next, how much NOI is going to be coming out of 2019 as these retailers wind down with an understanding you're going go back selling but still probably not till later in the later. And I understand that Sears maybe restructure it, so maybe that some of that NOI doesn't go away. But just can you quantify it of how much NOI is going to come out of on an annualized basis out of 2019. And then we can guess at when that may start to get come back online in the later part.

The short answer is we can't actually do that, because we don't really know what's going to happen with Sears Kmart. We know that a few of them have been that we expect to get them but we don't know what's going to happen with the other 10. And in the case of Mattress Firm, although, there is eight on the block as Ray mentioned, we don’t know what the final balance is going to be there as well. The other point I would make on the Mattress Firm is on the once that they reject, because it is 100% plan, we are going to wind up getting a full years' worth of rent as part of a rejection claim. So, the Mattress Firm leases, I don’t really think they are going to have a major impact on our '19 NOI. So, it's very, very hard to predict what it's going to be. I think the good news for us is when you look in total, Sears makes up less than 60 basis points, Mattress Firm makes up less than 80 basis points. And it does look like Mattress Firm is going to come out as a rework, so many of those clients will stay in place.

And then the second question is just on Albertsons, thinking for your next steps. What are you guys thinking as far as your position there? Is it worth it -- I mean, it would seem like you don't really get any credit for it. So is pursuing a private sale and just being done with it and not having this linger over. Does that seem more likely, especially if the retail environment seems to be improving? And my understanding is Albertsons had some good sales recently or good earnings recently. Or is your hope still to try and affect either in IPO or some sort of merger?

I think that the IPO route is the way that the company is focused on it. And listen they went to all the noise over eight months of its merger with Rite Aid. And during that time period, they improved the operations they didn’t get distracted from that, sales improved. They reduced their debt levels. They had about $11 billion in net debt a year and half ago and now they have about $9.5 billion in net debt. And they're getting themselves in the right shape for the company with over $1 billion of free cash flow expected in the coming year that they're going to get themselves markets prevailing and allowing us to be in a good position sometime hopefully in '19 to do something on IPO. But again markets have a little direction of whether we can do something or not. But they're running the business very well, improving the business, reducing the debt and it's all we can ask them to do for us right now.

I'd add also Alex that -- again in our '19 numbers, there is nothing in there for Albertsons enrolled; we are focused on our core business of leasing, development, redevelopment; Albertsons when it happens, it's just going to be an outside for us. So it's not in anyone's numbers, it's not in any of our debt metrics or anything else that goes along that line.

I understand, Glenn, but it's still a source of capital. So are you guys dual tracking it where you're running right now possibly, which you have to private people to sell to, if the IPO doesn’t occur? I mean, it just seems like it does help you guys de-lever and get you there where that's more beneficial than maybe maximizing the last dollar.

We're not doing that at this point. We haven’t considered that it, I think. We think we're very bullish on where they are going now and there is a lot of upside if they execute the plan. And you don’t want to leave too much money on the table, so we're not even thinking about that, because we're very bullish on the prospects for the next year or so.

The next question comes from Steve Sakwa with Evercore ISI. Please go ahead.

I guess first question really is on the redevelopment development program. As you just look out for the '19, '20 and maybe even deals that you're contemplating for '21. What kind of returns do you think you can achieve? And what maybe cost pressures are you seeing on the construction side and what rents are there on those yields?

When you look at our pipeline, we actually feel like we're in really good shape, because the developments that we have really in the pipeline right now are all prefunded and heavily preleased and will start to really deliver in '19 and '20; so when you look at Grand Parkway Phase 1 and Phase 2, that’s going into operations now; when you look at Dania Pointe, the Phase 1, we're actually going down next week for the ribbon cutting and it's over 90% preleased and open, and really stabilize in '19; when you look at Lincoln Square, the retail is 100% preleased and we’re now really starting to bring on the multi family section of it with we just actually signed our 100th apartment lease there; and Mill Station, we just opened Cosco, Lowe's expect to open right after that and its over 90% prelease. On the redevelopment side, we’ve got some great projects that are under construction; Pentagon is topped off that’s our large multifamily tower; we sit right above the metro there in Pentagon City and continue to watch that when take shape; the Boulevard in Staten Island continues to take shape, as well as few is going up. The projects that we have currently under construction really have all of Gmax contracts. So even though prices have been rising, we’ve locked in our cost and feel very comfortable with our returns. On the future projects, as we mentioned earlier, we are working hard and entitling a number of projects across the portfolio. And then each one we’re going to have a decision tree of how we fund it, how we’re going to actually create the highest and best returns for our shareholders. And as you have seen in our pipeline, we really identified really where our cost of capital is and how would we best unlock the value for our shareholders. We can sell those entitlements. We can ground those entitlements. We can joint venture those entitlements. And so right now where our cost to capital is, we’re going to look at the portfolio and look at the opportunities we have in the future. And when we get the projects shelve ready then we’re going to take the best approach, going forward. The returns for multifamily have been in that, call it, 6% to 7.5% returns and on retail they have been much higher. And so we're cognizant of where our cost of capital is and the funding requirements and then going forward, we're going to take it on a one off basis and really identify what’s the best way to unlock the value.

So, is there a way for you to just blend it? So on average, the '19 and '20 deliveries you think will have average returns of what?

In between 7% and 8%, I think when you look at the blended, because of the multifamily projects that we have coming online that that brings it into 7% to 8% range.

And I realized you're not giving 2019 guidance. But as you just look forward and think about the tenant watch list and a lot of things that’s happened this year and maybe the timing of like the Sears Kmart was under there this year and maybe next year. As you just look at the watch list today, how does that stack up versus maybe a year ago? And would you consider or think that your reserves would need to be as big next year as they were coming into this year?

The watch list is something obviously we talk about a lot and we continue to see that. Actually it's getting a little bit smaller with these legacy retailers liquidating and going out of business. And so, when you look at our exposure, it really is modest compared to what it has been in years past. Sears Kmart, for example, even though we have 14 locations one of them is actually already subleased to a public retailer. So we don’t think we'd lose any income or have any capital outlay there at all. We think that three of the four that are going to auction, there is a chance that a number of those locations might be purchased at auction, because of the below market leases, so again. limiting our downtime and our costs on some of those locations. I mean, clearly, there is still some disruption going on in retail and we're cognizant of that. We don’t want to sound overly optimistic but we look at the portfolio, we look at where we’re positioned and we think that the normal run rate going forward of that 100 basis points of bad debt reserve is something that we continue and we'll have going forward as we look at years '19 and '20.

The next question comes from Vince Tibone with Green Street Advisors. Please go ahead.

For the seven Toys' boxes that have already been re-leased. When do you expect those tenants to open and start paying rents and what was the mark-to-market on those spaces?

So the mark-to-market has been pretty much in the mid-single digits, low to mid-single digits. And in terms of flows of those, we'd expect to start seeing them coming in the back half of '19 and into '20 as well. So again, six of the seven of those are single tenant uses. So, those will be push forward and start find a little bit sooner than the others.

Were those spreads you're expecting on these spaces or is that in line with your expectations maybe a year ago?

I mean, most of the significantly below market leases were one that were picked up in auctions. So when you look at the whole portfolio, the whole mark-to-market opportunity was higher. And then for those that we had remaining, they were slightly close to the market. So that's about in line with what we were expecting.

My next question is for Ross. You mentioned Kimco was approached by interested buyers about potential portfolio deals. Do you still feel that portfolio deals are being discounted by buyer versus the pricing you could achieve by selling individual assets?

I think there is still a modest level of discount but it's certainly narrowed somewhere that the discount for portfolios was when there were discussions that we were having at the early part of the year. So, I do think that there are large private equity groups that are getting a bit more constructive on retail and looking at opportunities within portfolios. So, you may see that as we get into '19 with some other portfolio owners. But for us, we're at the tail end of this program. So, we just have -- we're going to finish it off with the one-off strategy.

The next question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Could you talk about cap rates that you've seen for different formats? Have you seen any divergence between power centers versus grocery anchored, especially with recent pushes into online grocery, any changes in demand or pricing?

I think for the core major market assets, grocery anchored products is still very much in favor, particularly for the best-in-class grocers. So, there are couple of examples in Raleigh, Portland, Northern California. We've seen grocery anchored deals either closed or priced sub-5%. I would agree with the premise that as you get a little bit outside of the real major institutional type of assets that buyers are being much more critical of who the grocer is, what their performance is, if their rent is replacable. Whereas in years past, I believe that having a grocery anchored was an automotive all the proof type of investment for an investor. So, I think there is a bit of a blending now between grocery power if you're outside the major institutional markets, people are just much more focused on who the retailer is, how their performance is, how their rent compares to market and if there is any additional upside. So, that's really what we're seeing in the marketplace today.

And no TIs and CapEx associated with new leasing activity in 3Q, it did looked a bit higher than previous quarters and the volumes looked a little light. Of course, I understand this is a volatile statistic Q-over-Q and a slightly smaller portfolio. But was this related to a specific new lease or is it consistent with breaking up some of the bigger boxes and something that may remain elevated into 2019 if there's any insight there that you can share please?

You're spot on it was driven by a few leases that elevated the cost side. But what's also more important to look at is on the new rent side. So when you look at the trailing forward or just over 19 bucks, in this quarter we're at over $22 a foot. So there is a significant gain there as well more than compensate for the slight increase of the additional cost and that's where it was driven by. So you strip those out and you're pretty much back in your trailing four and the trend we assume will continue.

Next question comes from Wesley Golladay with RBC. Please go ahead.

Looking at the Toys R Us, you had six Toys' boxes awarded to others. And I think you mentioned maybe some of the Kmart's maybe assumed by others. Could you talk about who are those entities might be, is it retailers with construction teams, landlords, et cetera?

So on those that we have assumed, they were all primarily retailers. So they would be managing their own construction, so doing their construction absolutely and then you get on the Kmart's same thing. And these operators, retailers, off price graphs have been popular with the Toys', those who have been the drivers of it, furniture fitness, et cetera.

And then when we look at the redevelopment budget for next year, I believe at a higher level, it's around $250 million. Is there any part of that budget dedicated to the Siers Kmart redevelopment?

There is a fee to this that we just have as a place holder. But again, we will have to wait and see how that plays out.

Next question comes from Haendel St. Juste with Mizuho. Please go ahead.

Conor, I guess for you. I know you are not ready to talk about 2019 guidance, but obviously '19, looking like a bit of a transition year held back a bit by this years' disposition activities and REIT drag. And the growing 2018 same store NOI base, you have raised guidance now two quarters in a row. I guess, I'm more curious what you think the portfolio, the Kimco portfolio can generate on the same-store NOI and that’s the full growth basis on a more steady-state basis once all the noise settles down? Thanks.

Our goal long-term it to be the best shopping center REIT in the entire sector and we believe that in order to do that, we have to have same site NOI growth. That's really north of 2.5% on a long-term run rate and an FFO growth rate that’s in that 4% to 5% or higher. And so when you look at the portfolio and what we're trying to do that’s our long-term goal to get there. Now, '19 has some hurdles ahead of us because of the accounting change, because of the dispositions that we did and because of the developments redevelopments that are continuing to start to ramp and they continue to ramp from '19 into '20. So, our goal is to get there. We obviously have our work cut off across '19 where we're committed to make it a growth year. And that’s we continue to say is that we have repositioned the portfolio to where we see now we can really run a top quality and top-flight portfolio, going forward.

A question -- follow up on the tenant side. We have seen a number of traditional strip center tenants who are still opening a large number of stores of the Five Below partners starting to go into B&C Mall sometimes or next year here because it's often cheaper. Curious what you’re thinking and seeing on this front and how it impacts your view on tenant retention going forward as the environment for some of these tenants gets more competitive? Thanks.

It's something that we talk about a lot and watch closely. When you look at the competitive set, we continue to look at malls as a competitor. And when you think about though the opportunity set there that retailers are looking at, the mall is really a four headed monster when you look at the anchors that they have. And really the retailers that we're used to doing business with that you listed off, they're really focused on making sure that they have great visibility to the street, big fields of parking and an exterior entrance. And so, when you think about the mall, there's really only probably one or maybe two boxes that could be repositioned to flip to the exterior and retain that type of visibility and that parking field and that exterior entrance. And so it has very limited today and now that we've repositioned the portfolio to be concentrated in the top 20 markets, we believe that if a, A-mall gets a box back, the likelihood of them doing an off-price retailer or a discounter is probably very limited, because they're probably either going to do a luxury and redevelopment or identification for that box. And so, that’s why we continue to look at the portfolio as well positioned for that channel supply that we've been talking about now for a number of years.

Do you have handy what the retention levels have been historically, say the last five years and maybe how we should think -- or how you're thinking about that, going forward.

The retention levels have increased. I mean, when you look at the amount of options and renewals that we're doing, we continue to be pleased with the retention rate. Not only in the junior boxes and anchor boxes, but also in the small shop boxes, we continue to be budget on that assumption. And so, we’ve been watching that closely and I think it's a reflection of the improved portfolio as well. It's pretty evident what's happened with the portfolio when you have options renewals running in high single digits quarter-after-quarter. I mean, that's really when these tenants have the opportunity to move down the stream, go somewhere else if they think they can get a better deal. Yet they are signing renewals and options in high single digit numbers without putting any real capital into it.

Next question comes from Michael Mueller with JP. Morgan. Please go ahead.

When you I guess through the Dania Hill Station and Lincoln Square developments, are we going to see a pipeline of new development opportunities that backfills those?

We're going to continue to look for the Lincoln Square in the world that those are real needles in the haystack and the Dania’s of the world. So, we look at our portfolio and see the huge amount of opportunity on the redevelopment side. And so that's where we're going to focus and continue to look for that organic internal growth that we can add to the pipeline. Dania has multiple phase to it. The second phase obviously is now moving forward. We've been wanting to also keep in mind on Dania Phase 2 is that the apartments are under construction, which we have as a ground lease. And so it's not listed as an anchor but it's one that continues to evolve as that project really comes into a zone in the first phases opening next week. So, as you see the transformation of the portfolio, going forward, I think you're going to see more Pentagons, more of those types of redevelopment versus say these are ground ups.

And that’s where that the team has been working on these entitlements. It's really been able to gain entitlements where we can further identify the properties.

Your next question comes from Chris Lucas with Capital One Securities. Please go ahead.

Glenn, just a quick question on where you stand as it relates to the taxable income given where you expect asset sales to come in and the pricing. Is there any need potentially for special dividend this year given the sizable volume of asset sales?

I mean, we have done a lot of strategic planning to put us in a position where we don't think we will need a special dividend at all. But you'll see the composition of the dividend be very different than what it's been in the past. So it has to had some level of return of capital. Right now, I think there would be no return of capital it will be a pretty good mix of ordinary income and capital gains, because we have not used the 1031 exchange market to defer the gain. So, we have a pretty significant amount of capital gains that are in taxable income this year.

And then just a quick question, Conor, just on the 14 Sears Kmart boxes, if you were to bucket them between those that could potentially trigger redevelopment versus those that are more likely to simple backfills. Could you give us a sense as to what that split is?

There is a number in there that we've been focused on in terms of large scale mixed Q3 development, and it fits all. It's probably in the 2 to 3 number of ranges. And it's those assets that are in dense urban locations that we've been waiting patiently for. What we have found is that there is a number of individual retailers that are now at the table looking to take the whole box and we could either do that as a ground lease to limit our capital or we can do it as a reverse built-to-suite or just to normal PI fit out. So as we've said, we're focusing on the ones that we have visibility on. And actually that the costs on those are in the $30 to $50 a foot range, which is a very -- probably right within our sweet spot when you look at the rents that we're achieving there and the spread. So as we go through the process, we'll continue to be ready with other retailers at the table if we get the boxes back. But that's really the spread of where we see it going forward.

And then just a quick follow up on Kmart Sears. Is there anything unique or different about their operations in Puerto Rico that we should be thinking about as they go through this process?

I would just tell that they're some of the highest performers in the entire chain. Their sales are incredible there. And so as they -- as a profitable entity were reorganized and see those are ones that create a significant amount of EBITDA for them. So, that's just something to keep in mind. The other thing I should just mention on Puerto Rico is the whole Island has been deemed in opportunity zone, which for is an interesting development as we look at our portfolio down there as that may change the cap rates on the Island.

Next question comes from Ki Bin Kim with SunTrust. Please go ahead.

Going back to your other comments about a pretty strong or stable pricing market for asset sales, I know you’ve been very consistent in your messaging that you don't want to do a lot more in 2019 in terms of dispositions. But what keep you from doing more? Is it really basically that dilution is painful and the stock market doesn't appreciate it. I know the market turn in their mentality about changing asset sales to you can do it but just don't do too much. But just curious overall, why not do more asset sales and bring down your leverage, that's little bit above 7 times to something more in line with your peers?

I mean, I think we're very confident in the portfolio with where it sits today. We're seeing strong results quarter-after-quarter in terms of the performance on the existing portfolio. But you are right. We have stated we are very excited to bring this portfolio back to recurring FFO growth here in '19. But more so than that, we just are really confident within the portfolio and think that we have a right-sized portfolio that has a strong mix of quality, core, grocery anchored centers, as well as an opportunity set for redevelopment that we really believe is unmatched. So, we're excited about the future within this portfolio.

The other thing I would add is when you look at the net debt to EBITDA, it's going to naturally come down, because EBITDA growth from all of the investments that we have made and these developments and redevelopments, they are just beginning now to flow. We have $0.5 billion invested in development projects that are just now beginning to flow. So, as all that EBITDA comes on board '19 and further into '20, you will see leverage come down naturally.

Second question, this might be a tough one. But when you look at the applied cap rate for your internal portfolio today versus 15 months ago pre 900 million of asset sales. I know you're not going to give a cap rate for your portfolio on the call. But directionally, how has your view on the applied cap rate change over that timeframe, and has it come down 25 basis points or 50?

I think when you look at the portfolio that we have today compared to 12 months ago, the significant amount of our best asset take up a bigger percentage of our overall value. And we don't think that’s been represented within the stock price yet. But we're hopeful and we're optimistic that all the work that we've done that we've put into repositioning the portfolio, as well as the redevelopment opportunities that we have as they continue to start flowing, we'll see a narrowing of that gap. But from where we sit today, there is still clearly a big discrepancy between the private market cap rate that would be on our portfolio versus where the implied is today.

The next question comes from Linda Tsai with Barclays. Please go ahead.

I know you have been relying more on data and technology to help retailers understand the attractiveness of your centers. And you have said in the past you still look at 135 mile range, but now density is more of a focus and you can look geo special data to figure out a true trade area. Are there any insights you could share as to which retailers or service providers help expand the trade area? And then on the flip side, does this data help you understand the impact of competing centers and sales cannibalization?

In terms of it that we actually have to draw, it's interesting when you look at, say the ethnic grocers, the aging grocers, they have a significant draw outside your traditional 135, they can pull from 15 to 20 miles away, which is pretty unique. And so, when you see them as an anchor, you keep that into consideration. As it relates to the utilization of data, we continue to be very proactive in that case and partnering with our retailers to get better understanding of how they are utilizing. And so collectively, we can have more of a joint partnership to create the best offering to the end customer, which is really, both our customer and their customer. And that’s what's most important. And with retailers such as Target and others and Walmart, I mean, how they are utilizing to draw people in on the buy online pickup in store and making more customer oriented and customer service-oriented, it's still critical for the evolution of what retail needs to be, going forward. And so you see really the winners and those that are seeing some outstanding performance, it's really a result of those efforts. So for us we see it as a critical part of our business going forward and we'll continue to work with retailers alike.

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

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.