Good day, and welcome to the Kimco's Fourth Quarter 2018 Earnings Conference Call and Webcast. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mr. David Bujnicki, Senior Vice President, Investor Relations and Strategy. Please go ahead..

Good morning, and thank you for joining Kimco's Fourth Quarter 2018 Earnings Call.

Joining me on the call are Conor Flynn, our Chief Executive Officer; Ross Cooper, President and Chief Investment Officer; Glenn Cohen, Kimco CFO; David Jamieson, our Chief Operating Officer; as other members of our Executive team are present and available to answer questions during the call.

As a reminder, statements made during the course of this call may be deemed forward-looking and it's important to note that the company's actual results could differ materially from those projected in such forward-looking statements due to a variety of risks, uncertainties and other factors.

Please refer to the company's SEC filings I address such factors. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results.

Reconciliations of these GAAP to non-GAAP financial measures can be found in the Investor Relations area of our website. With that, I'll turn the call over to Conor..

Thanks, Dave, and good morning, everyone. Today, I'll give a brief overview of our 2018 achievements, discuss the retail real estate landscape facing us in 2019 and outline some of the things we hope to accomplish this year.

Ross will then follow with an update on the transaction market, and Glenn will close with our financials and outlook for this year. A year ago, we set some ambitious goals for leasing, development and disposition, but we knew it'll require extraordinary execution.

Here, we're one year later, and I'm proud to announce that we've exceeded those goals and delivered positive results across the board. We've surpassed the high-end of our initial guidance range for FFO and same-site NOI and achieved an all-time high-small shop occupancy at over 91%.

We completed several development and redevelopment projects, including our first large-scale Signature Series mixed-use development and exceeded our goal for disposition, enabling us to end the year with a much stronger and better position portfolio. These accomplishments are testament to the exceptional efforts of our quality team.

I want to thank all of our associates who live and breathe the Kimco Notwithstanding our 2018 accomplishments, we'll not and cannot rest. On the contrary, how we respond to the challenges and opportunities of 2019 and beyond will determine our future success.

Winston Churchill famously said, if you don't take change by the hand, it will grab you by the throat. These words ring true as much today as when they were first Change is occurring all around us, and the retail real estate landscape is not immune.

And as the retail environment continues to evolve with new concepts and strategies to meet the needs and demands of today's consumer, the status quo is not an option. E-commerce and distribution have dramatically changed some of the most long-standing retail concepts, trade area, store counts and even what constitutes sale, just to name a few.

2019 will produce new winners and underperformers. Store sizes will change, and more e-commerce retailers will open physical locations.

So while the demand for high-quality real estate in 2018 remain strong, as evidenced by our solid performance, the landscape in 2019 and beyond continues to change, and we've repositioned our portfolio to capture those opportunities that change inevitably brings.

Our strategy is simple own the best real estate in the top 20 markets where consumer demand is high and supply constraints. Our portfolio is now tightly concentrated in high-growth areas where there are significant barriers to entry. We have removed the drag from underperforming assets and have invested in our best assets and our people.

We believe that the high-quality, open-air shopping center that comprises our portfolio is the right product for the future. First half, the physical store is here to stay.

It may look different in the years to come, but the physical store continues to be the heartbeat of a healthy brand experience and the cheapest and most effective form of customer acquisition. Moreover, many retailers have made it clear that they price the visibility, convenience, accessibility and modest occupancy cost that our sites offer.

More specifically, retailers value with visibility of store nearby streets and highways has an important marketing tool. In addition, as more and more retailers add quick and collect shopping to their customer experience, retailers find that the local convenience and easy access of open-air shopping centers to be a marketing advantage.

Retailers are also seeking other sites because of their suitability for redevelopment and our plans to create mixed-use campuses that had residential, hospitality and entertainment components, not to mention drive throughs, quick and collect areas and home delivery house.

So while the threat of from is real, we believe that in those instances where the mall space is competing with high-quality, open-air space, open-air space will often win out.

As a case in point, in 2018, we were able to lease 80% of our Toys"R"Us boxes in just six short months, bringing in driving retailers that will enhance the overall volume and experience at these centers.

Similarly, if opportunities arrive at the we're confident that we can create value and worth noting is our exposure in now limited to just 13 locations that represent 60 basis points of Kimco's total Our Signature Series developments and redevelopments continue to come online, and we expect 2019 to be another year of successful milestones for these projects.

Dania Phase I is now opened and operating and over 93% leased. Phase II is under construction with strong leasing momentum. And we've just added Phase III to the pipeline, as demand continues to be robust in the market of Fort Lauderdale Beach.

Our Lincoln Square mixed-use project in Philadelphia continues to shine and was recently voted the best new building in Philly by local residents in an online poll. The Whittemore city mixed-use project in the D.C.

market is topped off and will start to lease up later this year, perfectly timed to benefit from its ideal location directly across from Amazon's new headquarters. Construction of the Boulevard Staten Island is progressing nicely in place and the project is now over 92% pre-leased.

We believe the Signature Series portfolio will be a key driver of growth as the current projects are completed and the pipeline with new carefully selected redevelopment opportunities. 2019 is said to be an exciting year at Kimco as we capitalize on our Transform portfolio and drive increase cash flow and value. And now, I'll turn it over to Ross..

Thank you, Conor, and good morning. All in all, it was an excellent year in terms of the execution by our team, and I couldn't be more prouder. We finished the year selling an additional 16 shopping centers and two land parcels during the fourth quarter, totaling $357 million gross, with $228.4 million Kim share.

For the full year, we sold 68 center and eight parcels with a value in excess of $1.1 billion, with approximately $940 million as Kim share, exceeding the high-end of our $800 million to $900 million guidance range. The weighted average blended cap rate on these sales closer to low end of our targeted range right at 7.6%.

In order to maximize the pricing, we primarily utilize the one-off approach consummating 71 individual transactions.

So in this level of properties on a one-off basis is no easy task, and again, a real testament to our team, which includes the deal team, the legal staff, the accounting and tax departments and many others that had a critical role in making sure the execution went over smoothly.

The steps we have taken in 2018 have enhanced the overall quality of our portfolio and consisted the right and geographic locations. The redevelopment and value-creation opportunities would generate a sustained and growing level of recurring cash flow that will drive a higher NAV.

We've now sold over $8 billion of real estate since 2010, reinvesting the capital higher-quality real estate in major markets with substantial future growth opportunities. As we previously indicated, given the success of our disposition activity in 2018, we anticipate substantially fewer asset sales with just a modest level of asset pruning in 2019.

Proceeds will be used primarily fund expected development and redevelopment activity. As the current trends in the market, we continue to see strong investor demand for shopping centers. During the fourth quarter, we sold a grocery and that sub-5% cap rate, with another Northern California grocery deal under contract at sub-5%.

And with the 10-year treasury retreating back below 3%, pricing remain strong in all levels of quality with healthy demand. Overall, the supply of new shopping centers on the market-for-sale has decreased at several and REITs, including Kimco, have reduced their disposition pipelines for 2019.

This will serve to keep the supply-demand balance favorable for sellers with cap REITs being low for the foreseeable future. On the acquisitions front, we anticipate maintaining a very disciplined and selective approach with our most accretive use of funds earmarks primarily redevelopment opportunities within the portfolio.

We still continue to evaluate strategic opportunities that come along and enhance the value of our holdings. Subsequent to year-end, we closed on a modest $31 million sale leaseback transaction with Albertson's to acquire the grocery anchors at three of our Tier 1 West Coast assets.

This included one location in San Diego and two Safeway located in Phoenix and Truckee, California. We'll look forward to the opportunities and challenges ahead, I'll now pass to the Glen.

Thanks, Ross, and good morning. We ended 2018 with a stronger and higher-quality portfolio, the result of successful execution on the disposition front, strong leasing activity and the completion of several Signature development projects. With a strong balance sheet and strong liquidity position, we're poised to begin growing again.

Now let me first provide some details on our 2018 fourth quarter and full year results and then commentary on our 2019 guidance. NAREIT FFO per diluted share was $0.35 for the fourth quarter, bringing the full year 2018 amount to $1.47.

Included in the full year results was net transactional income, which is net of transactional expenses of $7.7 million or $0.02 per diluted share.

This was comprised primarily of profit participations from our preferred equity investments, receipt of insurance proceeds related to our Puerto Rico properties in excess of our book basis and various land sale gains offset by $12.8 million of early prepayment charges related to our unsecured bond payoffs.

For 2017, NAREIT FFO per diluted share was $0.38 for the fourth quarter and $1.55 for the full year, which included $11.3 million or $0.03 per diluted share of net transactional income.

FFO as adjusted, which excludes transactional income and expenses and non-operating impairments, was also $0.35 per diluted share for the fourth quarter of 2018 compared to $0.39 for the same quarter in 2017.

The primary driver of the decrease was a reduction of $22 million in NOI from the sale of over $900 million of assets during 2018, offset by a $6 million reduction in financing costs due to lower debt Full year 2018 FFO as adjusted came in at $1.45 per diluted share, in line with our previous guidance.

This compares to $1.52 per diluted share for 2017. Here, again, the primary driver of the decrease is lower NOI of $27 million related to the asset dispositions during 2017 and 2018.

The proceeds from the sales were used to fund development and redevelopment investment of $420 million, reduces outstanding debt by $400 million and buyback $75 million of our common stock at a weighted average price of $14.72 a share. Turning to the operating portfolio. We continue delivering excellent results.

Pro-rata occupancy for 2018 at 95.8%, with anchor occupancy at 97.4% and small-shop occupancy at 91.1%., the highest level of small-shop occupancy we've ever reported. Anchor occupancy was impacted by the Toys"R"Us and Sears bankruptcies during the year. However, as Conor mentioned, excellent progress has been made on releasing those boxes.

Pro-rata leasing spreads remain strong for the fourth quarter, with new leasing spreads increasing 12.2%, renewals and options produced a 5.6% increase, bringing total combined leasing spreads to 7% for the fourth quarter. For the full year 2018, combined leasing spreads were a positive 8.3%.

We're pleased to reflect same-site NOI growth of 2.6% for the fourth quarter and 2.9% growth for the full year of 2018, which exceeded the high end of our previously increased guidance range of 2.7%.

Most encouraging is that the same-site NOI is primarily the result of accelerated rent growth produced from the significant leasing activity over the past year.

On the balance sheet front, we finished 2018 with consolidated net debt to recurring EBITDA of 6x and 7.5x on basis, which includes our pro-rata share of joint venture debt and perpetual preferred issuances. Our total consolidated debt stands at $4.87 billion, which is $605 million lower than the amount at the end of 2017.

Our consolidated weighted average debt maturity profile is 10.5 years, with no debt maturities in 2019 and only $45 million of debt coming due in our joint venture this year. Our liquidity position is in excellent shape with over $2.1 million of availability from our revolving credit facility and cash on hand.

Now for some color on 2019 guidance and the underlying assumptions. As a reminder, our 2019 guidance excludes any transactional income and expense. As such, our guidance for 2019 NAREIT defined FFO and FFO as adjusted are the same. We'll incorporate transactional income and expense as it occurs.

Our initial FFO guidance range for 2019 is $1.44 to $1.48 per diluted share. This guidance range takes into account the impact of the new lease accounting announcement, which among other things, now requires the expensing of certain previously capitalized internal leasing and legal costs associated with leasing activities.

The impact is approximately $12 million or $0.03 per diluted share. Without this change, our year-over-year growth in recurring FFO per share would have been 2.8% at the midpoint of our guidance range. Also included in the guidance range is the dilutive impact from the 2018 disposition program.

Other assumptions include incremental NOI of $16 million to $18 million coming online from our completed development projects as well as a $5 million to $10 million reduction in interest expense attributable to the lower debt level. Our initial range for same-site NOI growth is 1.5% to 2.5%.

The range considers the impact of the Toys"R"Us and Sears leases already rejected as well as potential from additional bankruptcies. The range also considers the growth opportunities that exist from the 240 basis point spread between our leased versus economic occupancy.

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

[Operator Instructions]..

[Operator Instructions]. The first question comes from Jeremy Metz with BMO Capital Markets..

Conor, you opened up talking about change in the status quo not being an option. You meant ramping supply that's out there.

Just wondered how we should think about this from a capital spending perspective, both in terms of needing to more invest in existing assets to protect and improve conditioning, but also attract tenants? And so not just from a development spend with a direct ROI, but allowances, building spend, additional capital you need to - might need to spend in this environment?.

Jeremy, I think, it's a good question. I mean, when you think about what landlords need to do today, we can't sit back. We really have to be engaged with driving traffic and just not rely on the retailers being the ones that are the focal point of the experience.

So on the spending purposes, you really got to look at our costs have been relatively stable for the last few quarters in terms of deal costs, specific backfilling that we've been doing. On the redevelopment side, that's where we feel real opportunity for growth and the value our real estate.

You see now that we've completed our first mixed-use redevelopment. And it was voted best new building in Philly and it's way ahead of our internal expectations. We have a big pipeline of future redevelopment opportunities.

When look at our opportunities within the portfolio for mixed-use is pretty significant, but we continue to see the demand be there for our repositioning portfolio. I think the overwhelming seen when you talk to retailers today is that they're going to be investing in their most productive stores, and we want to invest alongside them.

They're going to be remodeling, they're going to be adding significant technology inside the store. And when we look at what we can do from a landlord perspective, we can add amenities as well, whether it's Wi-Fi, whether it's right pickups, location, but significant below market leases are, obviously, still a critical advantage to Kimco.

And that's where we see we can unlock the value of our real estate through repositioning..

Okay. Second for me.

Just in terms of the guidance, you obviously have a range here for Wonder if you can walk us through what you're baking in to the top and bottom in terms of tenant and disruption? And then how the releasing of Toys and Kmarts into that? And then not maybe a quick update on Albertsons and what your best case scenario would look like?.

You're going beyond that follow up..

Sorry the guidance then.

How about just the guidance?.

So our guidance includes a few things and some of things that I've already mentioned. But credit loss - there's a 100 basis points of credit loss that's baked into the number. So that gets you at the lower end. You'd have further bankruptcies, potentially that would come through.

The impact of Sears and what happens to the rest of the leases there has some impact on the lower end. On the upper end of the guidance, again, if better credit loss comes in, that will be a positive to it. Further lease up and additional rent commencements as we go through the year is another part to the positive side..

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

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

About your third question this is Ray. With regard to Albertson's, I mean, I imagine your couple of weeks ago, they released their earnings for the third quarter. They had - they really had improved the business operations store sales of 2% year-over-year for Albertson's.

There's still - they reaffirmed their $2.65 billion to $2.7 billion EBITDA for the fiscal year, which would give about an 8% increase over last year. They've also paid down $1 billion of debt as of the end of the third quarter and then closed on another $650 million of sale leaseback you that might to further reduce the debt of the company.

So they're doing everything they can [indiscernible] done a great job in motivating the team. And they're really have ride the ship and really in a good shape to see what we ought to do in the coming year or two for the company..

The next question comes from Ki Bin Kim with SunTrust Robinson Humphrey..

Just had some questions regarding your 2019 guidance. So first on the 2% same-site NOI guidance. You mentioned 100 basis points of credit loss. How does that 100 basis points of credit loss compared to previous years of guidance? Second, income tax and other is expected to benefit by 1 or 2 pennies in 2019 versus the negative $0.01 hit in 2018.

So anymore color around that? And last one. In the fourth quarter, you capitalized $2 million more G&A than you did in the third quarter.

Half of I can see is tied to just more leasing volume, which is great, but is there any element of G&A that you're capitalizing incrementally more-or-so in 2019 vs this 2018?.

Okay. So let me try to take a piece at a time here. In terms of credit loss for prior years, it's run anywhere between 75 and 125 basis points in total. I think if you look for 2018, the credit loss was around 70 basis points. So we came in a little bit better for the year.

So again, we feel comfortable at this 100 basis point credit loss level and that kind of takes into part of the guidance..

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

As it relates to the other category, again, that's an item for all our other accounts, including corporate taxes, non-real estate income, interest, dividend income and other non-real estate depreciation and amortization. So that number vary year-to-year. If you went back to 2016, it was a positive number. Last year, it was somewhat of an expense.

We do expect higher interest dividend in other investment income from our non-real estate investments as well as you'll see further interest income that comes from our cash balances just because interest on those balances is higher than it has been as interest rates were a little bit higher from the Fed's activities.

And we also do expect to have lower tax expense during 2019. During 2018, there were certain deferred tax valuation allowances that we took that won't repeat. I guess, your last question was on the G&A just quarter-over-quarter, you're right. So the leasing activity was strong.

So you have some Internet leasing commissions that were capitalized as well as we do capitalize internal construction So the construction activity on the site is another component to the G&A capitalization as well as some system development capitalization related to the new ERP system that we're putting in place..

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

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

The next question comes from Greg McGinniss with Scotiabank..

Conor, feels like this year situation is still in a bit of a flux despite Eddie getting his way.

But could you give us your updated expectations on what's baked into the midpoint of 2019 guidance regarding closures? And then what you expect on redevelopment expense? And maybe just some color on the interest you're seeing from retailers on those boxes as well?.

Well, as Glen mentioned, we have the low end of the guidance, really focused on liquidation of the actual entities there, but we'll have to wait and see. I mean, there's very clear that there are different forces at work there. And I believe it's on Monday when the to meet and decide on the fee. So we'll have to wait and see.

We obviously have not been sitting back. We've been very proactive in terms of the locations we have remaining, but we don't necessarily have any visibility yet. So as soon as we gain visibility, we'll be able to share it. But again, as I mentioned in my remarks, we're very confident in our platform and being able to create value on those locations..

Okay. And just one more follow-up here. So given the small-shop occupancy has been up year-after-year, which is nice to see.

I'm just curious where you've been seeing the most expense, most success with small-shop leasing? And whether or not you expect this trend to continue in 2019?.

Yes.

I mean, we continue to see the growth category and in the health and wellness section, the service the hair salons, nails, the specialty fitness is continuing to be a growing category as well as medical, the urgent care facility, et cetera, continuing to rise the top with complimented by S&P as a growing category with all the franchises that continue to expand and do well.

So we continue to do that on a go-forward basis. I think the other big component of us exceeding our small shop trend is the retention levels. Our retention levels are significantly higher than they've been in the past. And that directly attributed to a higher-quality portfolio.

When you just look at the velocity of vacates in our small shop year-over-year, it's down almost 30% to 40%. So there's evidence that we're retaining higher-quality tenants for longer and they're renewing. So we'll continue to see that trend going forward..

The next question comes from Christine McElroy Tulloch from Citi..

Just following up on some of your comments around project deliveries. You've talked about an incremental $20 million of NOI from development and redevelopment projects in 2019.

Can you provide an update and maybe some greater context around those expectations? And I know that the 1.5% and 2.5% seems range is excluding redevelopment impact, but can you disclose what you expect that, that redevelopment impact to be in your reported range?.

Christie, it's, Glenn. So the $20 million that we've talked about during the year, as I mentioned on - in my prepared remarks, the range we're using is $16 million to $18 million. And the reason is that more has come online actually at the end of 2018.

So the incremental amount - the total number is still the same, but the incremental amount is just a little bit less. So the projects are moving along the lease up has gone very well. So baked into the numbers, again, the $16 million to $18 million of incremental development NOI coming off from those projects..

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

Okay. And then just some clarification on toys and mattress So you had talked about the boxes being 80% re-leased. And I think Dave you had mentioned a 35 to 40 basis point net impact on same-store.

Can you talk about the timing of the commencement to any of those commencements in 2019 that would be impactful? And then just on mattress firm, it looks like you closed 11 stores in Q4. The rent contribution went down by $1.4 million.

Was that entirely the result of the closures? Or do you provide rent release on the remaining 51 as well?.

So as it relates to the toys boxes, we'll start to see the cash flow from the re-leasing accelerate to the back half of this year. So that helps offset some of the total impact about 25 basis points of dilution for '19. And with the balance of our boxes that we have, we have with a number of tenants.

So we feel good about the remaining basis that we have. As it relates to Mattress Firm....

So with regards to the stores that are continued to operate and about 30% to 35% of them, there's some rent modification of lease-term modification that we've worked out with them. We're all the sites. Besides that they had with us, they did reject 8 or 9 of the locations.

We actually negotiated on one site to have - to do lease termination backfill opportunity on that. And then there was another site that actually had lease expiration was occurring during the bankruptcy. So the store we expected to close and to get back, but we have - majority of the stores are operating.

And it's a company that came out of bankruptcy basic converting $3.3 billion of debt and being the balance sheet into equity. So it's a very strong balance sheet for the company going forward. So net-net, we have a much better credit on the 50-odd stores we have with them..

Okay.

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

Well, the interesting thing with the rent loss is that because it's case Mattress Firm case is going to be 100 plan getting about a one year rent damage claim for all the 10 locations that we've gotten back. So for '19, we'll cover all the money basically..

So in '20 is when you'll see the impact..

The next question comes from Samir Khanal from Evercore ISI..

I guess, can you walk us through sort it doesn't look like you're generating much sort of free cash left the dividend and you still have plans to spend about $300 million on the kind of redev and the development piece. So some - you don't have any sort of targets for dispositions here.

So I'm just trying to how should we're thinking about the funding of that redevelopment, especially, without any sort of targets for dispositions here? How should we think about that?.

Right. So when you think about the development spend and the redevelopment spend, somewhere in this $250 to $325-ish range. There will be dispositions. And the dispositions will fund a good portion of that I'd say.

And then the balance because we do not have any expectations to issue equity nor do we have any expectations to range any other debt or anything during the year, the balance would come from funding from our revolving credit facility and our cash on hand that's available..

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

The next question comes from Craig Schmidt with Bank of America Merrill Lynch..

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

Craig, this is Conor. I think it's going to be a trend that continue that will see the majority of them convert to that. You've seen recently that is no longer doing e-commerce delivery of groceries.

I think a lot of retailers are figuring out how to drive traffic back into the store and click and collect or buy online and pick up a store has become a boost to not only the actual retailer themselves, but to the store traffic. So I think we've seen a lion share of them starting to implement it.

And I think that will continue as really as the new retail way evolves. I think the shopping center is well positioned because of the convenience factor to really capture that because typically the shopping centers, they closes to your house or they closes to where you work.

And so buying online and picking up in store is, ultimately, a very convenient way to get what you need..

I mean, they definitely seems to help traffic.

Is there also an opportunity to increase the revenue whether you create areas for access to that help order online and pick up in stores?.

Absolutely. I think when you think of the store reformatting, there's going to be ways where they can, obviously, get the once you get the person inside the store. So there's a lot of data coming out in terms of how much of the incremental consumer once you get them in the store.

So it's not just what they ordered online, but they always seem to buy something else once they're inside the store. So retailers, I think, will take advantage of that. And then we can take advantage of the increase traffic and make sure we're trying to increase cross shopping as much as possible and take advantage of that increase traffic..

The next question comes from Caitlin Burrows from Goldman Sachs..

Maybe just on the leverage side. So including the joint ventures, now you guys are at 6.3x debt to EBITDA.

I guess, how does this compare to your target and kind of how and when do you expect to get there?.

Yes. So in terms of leverage, I mean, again, we want to get down to around the 5.5x consolidated net debt to EBITDA and then about a term less when you on a basis, including the joint ventures and the preferred. So somewhere in that approaching a 6.5x over time.

Leverage will stay relatively the same as we go through the year, but you'll start to see leverage coming down as we look into 2020 with more and more EBITDA growth coming at basically the same debt levels. So you'll start to see it's coming down into 2020 and beyond..

Got it. Okay.

and then maybe just in terms of the 2018 same-store NOI growth having coming better than expectations, are there anything if you can just talk about some of the positive surprises that you saw at the end of 2018? And whether or not they could continue into this year?.

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

So part of the benefit large dispositions we did, we just have a much better and stronger performing portfolio today than we did a year ago..

The next question is from Michael Mueller from JPMorgan..

I was wondering going to same-store again, can you just run over the 2 9 last year versus the midpoint of two this year. It seems like there's the 30 basis point difference in the credit loss reserve that's part of it the 1% budget versus 70 bps last year.

And then what's driving the other 60 basis point delta again?.

Well, again, you have different populations as we've sold lots of assets. And we think that our range of 1.5% to 2.5%, as we roll of our budget, is a pretty reasonable place to start for the year. We have taken into account what's happening really at the tenant level. We'll have to see what happens with Kmart and some other.

So it's really an initial range based on our original forecast - our initial forecast, I should say..

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

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

Okay. And I guess, on the follow-up just something different here. The 275 to 350 development, redevelopment investment that's anticipated for '19.

How do you see that number trending once you go to 2020 and then the next few years out?.

It does start to moderate. I mean, when you look the pipeline of projects that we have in the supplemental, you'll see that the development pipeline starts to skinny down. as those projects really deliver.

And what I mentioned in my script is, we'll be looking to a lot of our redevelopment opportunities as we think that's the best risk adjusted return for the long term for the company.

But we plan to really have, again, that $200 billion to $300 billion range going forward as an annual investment spend and to deliver significant recurring growth for us in the future..

The next question comes from Derek Johnston with Deutsche Bank [ph]..

On FAD dividend payout ratio, where do you expect this year to shake out? And can you give us an idea of what the target is over the next 2 to 3 years? I know it was a bit elevated than '18 due to all the CapEx, but just trying to get an idea where you expected to settle?.

Yes. I think the dividend payout ratio will come down modestly this year a little bit, but again, it's still relatively close to that 100% level.

You'll start to see really start improving as we go into 2020 and 2021 as EBITDA really starts to ramp up from the coming online of our really our development projects and our redevelopment projects starting to kick in, places like Pentagon and The Boulevard on Staten Island.

And then, in terms of the target, we want to try and get back down to a high 80s percent dividend payout coverage..

Okay.

And I guess, as a follow on, how many leases do you have expiring in 2019 and have no remaining options with approximate square footage and mark-to-market if possible?.

Again, most of our anchors have pretty sizable mark-to-market on it. We didn't specifically call out with the mark-to-market is for '19. But again, from what we've done over the last several years, it somewhere in that 30% plus range. So again - and depending on what happens with Kmart, it could really be sizable when you look into '19.

We can follow and give you the specific numbers of the leases that are expiring at that options. And typically, what we've been north of 30% on the mark-to-market when leases more options..

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

So two questions. First, just going back to Sears, because I think the bankruptcy, the hearing on Monday.

So if he does win, how does this affect the centers where you have the 13 Sears Kmart? How does this affect your plans for those centers? And were these centers potentially on your list for adding to the redevelopment such that as you were looking over the next few years, these would provide a growth, Glen, maybe help you get to that sort of mid-80s FAD payout for the dividend? Or were these centers that it doesn't matter either way of Sears stays or goes?.

You're right set for Monday. So we'll have to see how it unfolds. The 13 are in our current pipeline for redevelopment, but clearly, some of them land themselves to future redevelopment. We don't have visibility on which ones we'll be able to recapture.

But clearly, as I mentioned earlier, we've been sitting back, we've been proactive getting ready to recapture all of them. So we'll have to wait and see in terms of where is the visibility is coming from and then see what we can recapture. There's a lot of value we believe with our platform that we can create, and we'll see if we can recapture them.

Okay.

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

No. I think you're spot on. When you look at the portfolio today, we feel like we've really done the heavy lifting to transform the portfolio to what we believe is a high-quality, high barrier-to-entry that we unlock a lot of value from going forward.

We put a lot of time and effort into getting the portfolio to where we believe the future of retail is headed. That convenience factor that we believe is so critical to the consumer today.

And now, we're really excited to showcase what the portfolio can do and how the tremendous amount of redevelopment opportunity in the future as we work to entitle really unlocking the highest best use from our asset base. So to your point, we believe we'll transform the assets. And now, it's on us to continue to grow going forward..

The next question comes from Haendel St. Juste with Mizuho Securities..

Conor, I guess, the question for you on non-real estate investments. I'm just curious thinking about the longer-term picture for that.

Should we expect your income from that - your other income bucket to continue to declining over the next two years?.

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

Sorry about that.

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

We've always had an opportunistic investment arm of the company that looks potential retailers that are real estate rich. And the key there is real estate rich. And so I think when we look at our how much real estate they still own on the Coast, we believe long term that investment and actually has paid off quite handsomely to date.

So we believe that that's a pretty unique opportunity said that we have a Kimco. Now the population of retailers that actually real estate has So that may limit the opportunities in the future.

And we also want to measure how much we have invested at anyone point in time So our focus is really on harvesting and making sure that we can redeploy that capital back into the portfolio fund redevelopment, pay down debt and get to our long-term positioning that we really want..

Okay. That's helpful. Ross, a follow up, maybe a bit more color on the assets sold in the fourth quarter.

Can you maybe share the average occupancy mark-to-market for assets? And did you notice was there any noticeable change in the buyer profile? And then maybe some color on cap rates this year? I know that you guys have given discrete disposition guidance, but just curious about how you're thinking about cap rates this year versus last year on a like-for-like basis?.

Sure. I think the market remains very healthy on the assets that we sold. The buyers are still able to generate and to receive pretty strong debt financing within the markets. Obviously, the 10-year staying below 3% really helped the cash on cash returns for our investors, for our buyers on these properties.

So the occupancy of the sites that we sold over the course of the year, which is pretty consistent in the fourth quarter, was right around at 93% range. So it gives a little bit of value at opportunity for potential buyer, but relatively stable for the most part.

But when you look at the rents of what we sold, it was just under $12, but $11.73 to be exact of the sold sites. So again, I think, that the assets that j be looking to sell in 2019, we'll really be opportunistic with that set of opportunities for potential buyers. So we can ensure that the one that we bring to market for us to maximize value.

When we executed this year at the blended 7.6% cap rate, I think, that generally speaking that should be more or less in line with expectations for what we saw in '19 depending on that specific population if and when we move forward with certain assets. So I would say that the demand continues to be healthy.

We have a higher-quality asset base even within the potential disposition candidates there. So we'll just have to see how the year progresses, but we're very comfortable with the target that we're putting out year..

There's still a very large disconnect between public and private pricing. I think when you look at the shopping center as a whole, there's trades that happen every day. So it's a very - the price discovery occurs regularly.

And so for us to execute on a $1 billion of disposition and see that it's really in that 7.6% cap rate range, I feel like we've really executed well on our strategy. And now, we're starting significant capital formation for shopping centers from private equity and other owners that the fundamental that we've been producing consistently.

And so that's really where I think differentiates our sector from others in the retail world is the fundamentals are starting to actually shine and people are starting to notice that..

The next question is from Brian Hawthorne from RBC..

I guess, first one, what is driving the higher development/redevelopment spend? I guess, in your 3Q presentation, you had 250 that is for 2019?.

Yes. Some of it's timing. And the spend that was done really during '18. Some of it shifted back into '19, but it's primarily driven by Damien Phase II, Pentagon Phase III and The Boulevard. I mean, those are the predominant sites that are capitals earmarked for..

There's a lot of targeted towards adding Phase III of Damien to the supplemental. That's the new project that we added..

Okay. And then, I guess, on renewal spreads, it looks like there's kind of been trending well over the past 1 2 '17.

I guess, what's drying that? And then how is renewal spreads for the shop space?.

Yes. So on the renewals, our trailing fourth quarter has usually been around at 7%. This quarter, it was slightly lower just over 5%. We did over 200 renewals this quarter. And they're really three that drove to down below that 5%. So if you remove actually bringing back to the trailing around seven. So it's fairly consistent what we've seen in the past.

And on the shop space side, shop spaces, small shops are typically closer to market. And you do see upside on renewals and if they exercise the options around the 3% to 4% range. And so you'll continue to see that going forward, especially, with the higher retention levels..

The next question comes from Linda Tsai with Barclays Capital..

Given the nearly $1 billion in assets in 2018, how much of that represented power centers? And has that changed your overall to this format?.

Yes. It's a good question. We've reduced our exposure to power centers from the dispositions. I would say just to be clear, though, we don't believe that all power centers created equally. So we do feel very agnostic between power grocery depending on location, demographics, density, et cetera. So we did modestly reduce our exposure to power centers.

But again, we're still feeling very comfortable with the power centers that we have remaining in the portfolio.

In terms of the actual number of power centers that we sold this year, yes, it's approximately 12 to 16 depending on the classification but it was about 16 power centers for - I'd say of the top of my head and I could follow with the exact, but it was about 35% to 40% of the asset sales volume sold was through power centers..

And then relative liquidation, what's your exposure there?.

We really don't have anything we have one, I think so it's one..

The next question comes from Chris Lucas with Capital One Securities..

Just a couple of quick questions. You mentioned on the renewal rates that three of them sort of drove the numbers down.

Were those market renewals for those fixed price renewals?.

Sorry the question, again, we've broken out..

I'm sorry.

So on the renewals you mentioned that this lease spread was impacted by three leases, correct?.

Correct..

Okay.

So on those three, were they all mark-to-market renewals? Or were there fixed-price options in those renewals that we're drying that?.

No. There was one Mattress Firm, which was a slight concession for shorter period of time. And then the other one was an adjustment to market. Again, keeping them in place while we look another opportunity to redevelop..

Okay. And then just on the same-store NOI guidance for the year, just curious as to whether the pacing we should expect to ramp towards the back end? Or whether or not we'll sort of stay kind of range bound during the course of the year? How do you guys thinking about....

Quarter-by-quarter, it always moves around little bit, but you'll probably see a higher towards the back end of the year fourth quarter should be higher..

We have a follow-up question from Ki Bin Kim with SunTrust..

In your 2019 guidance, what you're embedding for lease spreads?.

Lease spreads, I think, it's pretty consistent from what it - what happened last year. So I'd say trailing 12.

Okay.

And our lease modifications reflected in the lease spreads that you show in the supplemental?.

[Indiscernible] extend over a year. So on some of those lease modifications 12 months as included..

Okay. And just last one.

Just to be clear, there will be some from Kimco this year, but not in the FFO guidance currently?.

No. I mean, dispositions are in our guidance number. I mean - and again, the dispositions are also, as I mentioned, will fund a good portion of our development and redevelopment spend during the year. So there is a level of disposition that is baked into this guidance number.

We think disposition is part of the natural management function for the company going forward. So in that $200 million to $300 million range, we think it's a natural run rate to continue to constantly evolve our portfolio focus on where demographics occurring and continuing to execute that. So we don't build up a future larger disposition pipeline..

Okay. That's good. Because I think there were some questions from regarding if there was actually in the guidance, but that helps. Thank you..

We have a follow-up question from Samir Khanal with Evercore ISI.

Sorry, I got disconnected before.

but just so wondered follow up on sort of cap rates and question was asked before, primarily on sort of grocery anchor centers and sort of secondary and tertiary markets where you're seeing there, especially, with some of the traditional groceries the anchor, what sort of the headwinds from e-commerce? I mean, have you seen cap rates in kind of that bucket?.

Yes. I think that's an accurate statement. We've seen in the core major markets locations, grocery anchor continues to be very aggressively priced. I mentioned a couple of the examples of ones in the major markets in the West Coast that are sub-5%.

You've seen a little bit of widening out of grocery anchor deals in the secondary and tertiary markets to come more in line with some of the other cap rates on power centers and otherwise within those markets. And we've talked about, there's a pretty significantly changing evolving grocery landscape.

So I think that's something that investors are taking a look and really have to be careful to the sales per square foot as well as the performance and the financial viability of the specific user. So by way of example, again, we talked a little bit about the three sale leaseback properties that we acquired on the West Coast.

Those locations, we're doing a blended $775 a square foot in the sales. So very attractive opportunities. That's where, I think, investors are becoming much more focused on the performance of the existing grocer as well as their financial viability longer term..

Okay.

So if you have a grocer, that's doing sort of below $500 a foot secondary, tertiary market type bucket, how much do you think those cap rates have expanded, let's say, in the last sort of 6 to 9 months?.

Yes. 6 to 9 months, I'd say pushing it back even in the last 12 months from - in 2018 over the course of the year. I think, you've probably seen a widening of maybe 50 or 75 basis points in those secondary and tertiary markets if the grocery performance is not well above the average..

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

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

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