Apr 30, 2009
Kimco Realty Corporation (KIM)
Executives
Barbara Pooley – VP, Finance and IR Mike Pappagallo – EVP, CFO, and Chief Administrative Officer David Henry – Vice Chairman, President, and Chief Investment Officer David Lukes – COO Milton Cooper – Chairman and CEO Glenn Cohen – Treasurer
Analysts
Mark Biffert – Oppenheimer & Co. Paul Morgan – Morgan Stanley Michael Mueller – JPMorgan Quentin Velleley – Citi David Wigginton – Macquarie Jay Haberman – Goldman Sachs Rich Moore – RBC Capital Markets Nathan Isbee – Stifel Nicolaus Alexander Goldfarb – Sandler O'Neill Jeff Donnelly – Wachovia Jim Sullivan – Green Street Advisors Michael Bilerman – Citi
Operator
Good day, ladies and gentlemen, and welcome to Kimco's First Quarter Earnings Conference Call. Please be aware today's conference is being recorded.
As a reminder, all lines are muted to prevent background noise. After the speakers’ remarks there will be a formal question-and-answer session.
(Operator instructions). At this time, it is my pleasure to introduce your speaker for today Barbara Pooley.
Please proceed, Ms. Pooley.
Barbara Pooley
Thank you, Jennifer. Thank you all for joining us on the first quarter 2009 Kimco earnings call.
With me on the call this morning are Milton Cooper, Chairman and CEO; Dave Henry, President and Chief Investment Officer; Mike Pappagallo, our Chief Financial Officer; and David Lukes, Executive Vice President and Chief Operating Officer. Other key executives are also available to take your call at the conclusion of our prepared remarks.
As a remainder, statements made during the course of this call represent the company and management’s hopes, intentions, beliefs, expectations or projections of the future which are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements.
Information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained in the company's SEC filings. During this presentation, management may make reference to certain non-GAAP financial measures that we believe will help investors better understand Kimco's operating results.
Examples include but are not limited to funds from operations and net operating income. Reconciliations of these non-GAAP financial measures are available on our website.
Finally, during the Q&A portion of the call, we request that you respect the limit of one question with appropriate follow-up so that all of our callers have an opportunity to speak with management. Feel free to return to the queue if you have additional questions and if we have time at the end of the call, we will address those questions.
I'll now turn the call over to Mike Pappagallo.
Mike Pappagallo
Thank you, Barbara and good morning. The ongoing recession, credit market dislocation and pressures in asset pricing have continued to reek havoc in the REIT and general real estate markets.
Recognizing these challenges, our priorities over the past three months have been focused in three areas. First, holding the line on shopping center portfolio performance, second aggressively addressing liquidity in capital structure, and third, cost reduction actions including organizational realignment and certain manpower reductions in force.
Capital markets activities were the headline event. With the company completing its $747 million common equity raise and a $220 million two-year unsecured term loan facility.
Both transactions closed earlier this month. In addition, we have continued to tap into our large pool of unencumbered assets to access secured financing.
Through April 25th, we have closed on two new mortgages aggregating $135 million with an additional $323 million of financing either under commitment or term sheet. We are also well down the tracks to expend about $100 million of maturities on our construction financing.
Finally, in conjunction with the equity raise, pulled back the quarterly dividend level to $0.06 per share for the balance of the year to preserve capital. This dividend rate when added to the first half quarterly run rate of $0.44 will result in a full-year 2009 dividend payout of $1 per share.
Our normalized quarterly rate will be reset in 2010 based on our projections of recurring cash flow and what is required for re-compliance. Support for that equity raise was substantial and the market has demonstrated that support for the transaction notwithstanding its dilutive effects on earnings as is witnessed by the increase in the stock price since that date.
As a consequence of these capital market transactions, we have substantially all of our capacity available under our credit facilities and our credit metrics have improved. And importantly the extent of debt maturities has been reduced.
On the company balance sheet, our debt maturities are $266 million for the rest of 2009, $295 million for 2010 and $693 million for 2011. Our base capital plant to fund those maturities involved very manageable amounts of capital raising.
As I just mentioned, we have $323 million of financing commitments in hand essentially taking care of the remaining maturities for 2009. For 2010 and 2011, we will seek additional mortgage financing but at much lower levels in this year and we will still retain a significant number of unencumbered properties somewhere in the 370 property range.
We will also pursue more asset sales particularly from the non-retail portfolio. Our plan does not even consider needing to reenter the bond market until 2011, but we will certainly jump in if conditions improve.
And this plan considers minimal utilization of our $1.7 billion capacity on the credit facility which provides additional comfort in the plan execution and prepares us for a most likely a smaller facility on maturity in 2012. On the joint venture level, we have also made significant progress in refinancing and extending debt coming due with over $300 million in financing that are either closed or committed over $135 million of loans already expended between one to three years.
We also closed on two property sales in the Prudential Kimco portfolio reducing the 2009 pay down requirement to $155 million. A deeper dive into the joint venture debt profile reveals a couple of things.
First on a composite basis, the loan to value of maturing debt over the next three years using a nine cap rate on the asset NOI is 52%, 62%, and 61% respectively. Some properties are higher, some are lower.
But that statistic at least gives a perspective that these joint venture programs are far from over leverage and the financing gap is manageable from both Kimco and the partners’ perspective. Second, of all the joint venture programs, the bulk of the maturing debt through 2011 is one of three programs, Prudential, the Kimco Income REIT, and PL Retail with DRA Advisors.
To Pru Kimco JV financing commitments have been discussed at length and we continue to feel comfortable that the Prudential’s sponsored funds will make good on their majority share of the financing obligation associated with the maturing term facility maturing over the next two years. The Kimco Income REIT benefits from an extremely well loan to value about 40% which will facilitate re-financing.
The PL Retail portfolio is more highly leverage and we have factored in paying our share of any financing gap in our capital plan. To the extent that we may have to fund additional amounts, we would enjoy a 15% preferential return on any fund’s advance, which would represent an excellent investment on this asset pool.
On the asset side of the ledger, the shopping center portfolio has demonstrated its resiliency despite the economic headwinds. Key operating metrics were as follows.
Occupancy at March 31 was 92.6%, as compared to 93.8% at December 31. Over half of the net decline was due to the vacancies resulting from the bankruptcies of Circuit City and Value City.
Same-store net operating income was minus 0.5%, clearly at the better end of the range of between 0% to minus 0.2% offered to the investment community earlier this year and positive leasing spreads were realized during the quarter in the US portfolio. David Lukes will provide you more insight on the portfolio performance in a bit.
Quarterly funds from operations was $0.43, although this level represented a decline from the 2008 level of $0.64 per share, the current level met consensus estimates. Prior year results included a significant amount of transactional gains, whereas the current year earnings contained few and relatively minor one-time items.
Backing out transaction gains and taxes, the comparative FFO per share was about $0.41 per share versus $0.47 last year. Interestingly the net operating income from our consolidated portfolio was flat with the decline being driven by lower income from deferred equity and non-core portfolio, the effect of foreign currency changes, particularly the Mexican peso and a modest dilution from more shares outstanding from the September 2008 equity raise.
We did not incur any impairment charges for the quarter as there were little change in the assumptions underlying the evaluations of strategies associated with the assets since filing of our Form 10-K, but this area will continue to be a focus of management and continued declines in asset values could result in reserves being required as we go through the year. During the quarter, the company completed two reductions in force in January and March, coupled with actions taken in the fourth quarter; headcount has been reduced by 89 persons.
In addition, certain salaries were rolled back in certain areas including each of us in the Office of the Chairman and a variety of other cost saving actions were implemented. These actions should result in a reduction of cost of over $20 million on an annualized basis and will start to have an impact beginning of the second quarter.
As a consequence of the equity offering, our 2009 earnings guidance has been reduced to the range of $1.33 to $1.45 per share. At the low end of our guidance, the dilutive effect of the offering was about $0.37.
The reduced earnings guidance range that many of you saw when we announced the offering contemplated 70 million shares. We actually issued a 105 million due to the heavy demand and as a result, the numbers had to be adjusted down further.
And as I indicated in the prior earnings call, our guidance range represents in-place FFO, meaning an estimate without regard to any potential impairments, any incremental effect of acquisitions or other new business generation or the new accounting rules related to acquisition cost is incurred. We tightened up the range from the $0.20 spread in our prior call to $0.12, primarily by bringing in the high end of the range down to reflect the limited availability of transactional activity.
I would draw your attention to our supplemental financial package on our website. In that document, we present an extremely detailed analysis of the components of our earnings guidance by business activity and financial statement line item, as well as providing assumptions for using your evaluation work.
Finally, if you read our annual report to shareholders or at various investor forums over the couple of months, you’ve heard us spend a great deal of time reframing our business strategy, one that revolves around the pure ownership and management of retail centers across North America. And as part of that effort, we will also begin a process of developing the optimal approach to ultimately exit those assets that do not need this core shopping center strategy.
These non-core assets aggregate over $900 million, net of property specific debt. This portfolio is diverse and consist of securities, mixed use assets, deferred equity positions, hotel investments, and other various other things.
Over the next couple of months, we’re going to finalize strategies for this portfolio, making realistic assessments as to asset value holding periods needed to rebuild value and the best source of this capital to facilitate the ultimate monetization of these assets. This process will not only allow us to isolate resources to execute, but also allow us more focus – to focus most of our resources and capital to enhance the value of our core shopping center franchise.
With that, I will turn it over to Dave.
David Henry
Thanks Mike. As usual, Mike has provided an excellent and detailed summary of our financial results and the many moving parts of this past quarter.
We are very all very proud that our equity offering was over subscribed and then we were able to obtain $220 million of unsecured bank debt in a very difficult credit market. We are continuing to position our balance sheet to take the advantage of retail acquisition opportunities as they arise over the next several years.
In that light, I would like to expand on Mike’s comments about our business strategy and how we are changing to leverage our strengths and adapt in today’s marketplace. As mentioned before, part of our company, our expertise and our 50 year history all lie in retail real estate.
In today’s tough environment it has become crystal clear that we can create the most value for our shareholders by focusing on equity ownership of retail properties with long-term recurring cash flows. Short-term debt instruments, marketable securities, and non-retail investments are non-core areas of our company’s experience and strength.
We do believe that as the operating partner with proven property management, leasing and development expertise, we can continue to attract institutional capital in our retail sector that will enable us to grow and earn enhanced returns. Joint venture capital together with funds from our own balance sheet will help us grow long-term and be a consolidator of public and private shopping center portfolio.
As we wait for the right opportunities, we will continue to focus on asset management, value creation and selective dispositions of our existing assets, both our shopping centers and our non-core real estate holdings. We have created a detailed business plans for each asset with dedicated personnel who have responsibility and ownership for the execution of the business plans.
We have also increased and enhanced our portfolio review process to make sure we have our best managers providing suggestions and help in making things happen at the property level. Redevelopment potential, replacement tenants, expense reductions, alternative uses, partner relationships and property debt terms all have heightened focus and intensity for all of us on the management team.
Given the enormous changes in asset values and credit markets over the past six months, it is still early for most transactions as sellers and buyers struggle to find stabilized cap rates and reliable cash flows. We do believe however that developers, property owners, institutions, and public companies are beginning to conclude there will be substantial consolidation in our sector.
Public REITs still own a very small percentage of the 50,000 shopping centers in the US. And the importance of scale, balance sheet capacity and expensive relationships is becoming apparent.
As David Lukes can better relate, for the first time in years, the actual owner of a shopping center has become very important to prospective retail tenants as they try to verify the tenant improvements will be completed as promised and properties will be well maintained. Many retailers have been adversely affected by partially completed development projects, landlord bankruptcies, and lender foreclosures.
Today it is critical for tenants to have a strong well-capitalized landlord and this is now helping us as we compete for a decreasing number of expanding retailers. There is more turmoil to come in the real estate and financial markets, but we think we are now well positioned to manage our portfolio through these times and to take advantage of the opportunities that will surely arise.
We like our neighborhood at community shopping center sector, but large numbers of retailers selling essential goods and services, our 13,000 leases and 7,000 tenants provide us with great diversity and will stand us in good step. Now David Lukes will provide us details on our US portfolio operations and performance.
David Lukes
Good morning. I would like to start by giving you some thoughts on our last 90 days of work and finish with our strategy going forward.
If fears started this quarter then confidence has ended it. By almost any measure, the company had a very strong leasing quarter.
We executed 477 leases in our US portfolio, 160 of those were new leases and 317 of which were renewals. These contracts represented a total of 2.6 million square feet, which is about a 30% increase over the same quarter last year.
Rent spread as Mike mentioned remained positive at 10.6% for new leases and 3.5% for auctions and renewals. We’ve completed new deals in every region of the country even though it’s hit hard by the recession and continued to see renewal activity in very high numbers.
Despite the positive momentum, however, we are very mindful of the fact that strong headwinds persist for our tenants and we are not blind to the realities of the current market. Because of this, I want to focus my discussion on one word, trend.
Many retailers have trended down for sales. Occupancy is still trending down.
The number of tenant expanding is trended down. And the time to take to execute a lease has trended up.
All of these facts point to a continued difficult environment and certainly are not a recipe for success in a normal market. The trend in the market is to the negative, it sways, movement, drift, course and tendency is the challenge.
We have a bias for action, however and I would like to discuss our strategy. As any golfer knows, a put on a flat green tends straight, but a put on a rolling green can hamper the path.
We have a number of methods for changing the path of the current trend and part of our success this quarter on the leasing front particularly is our focus on obstructing a negative trend. Our first method is research.
Angela Comstock, who runs our Tenant Relations Department performed over 75 portfolio reviews last year and has continued to increase her program this quarter. Typically we use these reviews to enhance our relationships with existing tenants and provide them with a many of opportunities at a single sitting, which usually bears fruit as the decision makers can get direct feedback from our leasing agents and the time to close the deal is shortened.
We recently added staff to Angela’s department and have a deeper focus on research than we have in the past, increasing much more demographic information to target specific missing pieces of a property’s (inaudible). We are advertising in medical journals, call calling nontraditional users, working directly with franchised operators to expand the regional footprint.
Specifically our research in the San Francisco market showed us that some of our best local tenant had only one location. We worked closely with one of these tenants and we’re able to expand their concepts to another one of our properties 10 miles away.
We hired consultants for them, assisted in their store design, and helped with the construction. In this case, researching our own tenants yielded a new lease that’s paying $40 a square foot net.
Our second method is marketing. When retailers are expanding, a successful leasing program will aim to get an outside share of the expansion units.
In a market like today, our marketing is based on the simple fact that most tenants we signed will be relocations from nearby properties or renewals from our existing tenants with a sizeable increase in calling and prospect into existing local businesses. We know that the risk of a business relocating is that their sales need to grow.
Our sales data, we are trying to be very creative in structuring deals to entice intra-market moves. This is one reason why we will sometimes roll down an option rent for an anchor tenant to secure additional term and then use that back as a benefit to a local merchant that desires strong co-tenancy for a long period of time to get through this troubled environment.
We did this is Aurora, Colorado with our strongest banker and are achieving higher occupancy and shop rents than the in-place tenants that exist. Our third method is cost.
We have restructured the way we are handling our national property management initiatives and have created a position responsible for leveraging our size to implement cross-regional efforts. Chris Freeman has been named Vice President of Property Management and resumed responsibility for this program.
He has been a proven leader in our Charlotte office and we look forward to his work ahead. For example, in many markets throughout the country now have a larger labor pools than the past few years and we are rebidding most of our controllable account contractors that are seeing a 20% to 30% decline in certain line items related to maintenance, cleaning, sweeping, trash removal, and landscaping.
A $1 of rent is no different than a $1 in hand to a tenant and we are working very hard to reduce total occupancy cost for our tenants. Some of the success is no doubt related to the fact that we have a large portfolio in many markets and are able to group our contracts with major vendors to get savings simply because we can offer larger contracts.
Lastly, our fourth method is corporate strength Oddly enough it comes down to money. Brokers want to get paid, tenant needs security that the TI allowance would pay, and vendors are valuing good credit.
I have no doubt that many of the deals we secure this quarter are directly related to the fact that we pay in full and we pay on time. It’s been taken for granted over the past several years, but it is a stark reality today.
If I come back to the production for the quarter, I can offer some interesting data points. Of the 2.2 million square feet that vacated our centers this quarter, 74% were big-box and junior anchors and 84% of those were related to only four tenants, Linens, Shoe Pavilion, Steve & Barry’s, and Value City.
The remaining vacancies were small shops, almost 60% of which was in the West Coast and Florida. Our programs I outlined above however were in many case have geared towards securing new shops small tenants.
Of the total square foot leased this quarter, over half was small shops and again half of those were in the West Coast and in Florida. So to summarize, the shop we think throughout the country is churning, but the net absorption is mildly negative.
The junior anchor of vacancies related to bankruptcy has continued to be our major source of occupancy decline, it is the greatest challenge we face in maintaining dominant at our centers. As I stated before, shopping centers are actively on the move, some are trending down and some are trending up.
Our actions going forward are part of the clear operating strategy to leverage our science and our history and our talents. We intend to produce results.
And with that, I will turn it over to Mil.
Milton Cooper
Thanks David. We’re in a very difficult environment for retailers.
Recent public statistics indicate that the savings rate has jumped from 1% to 5%. And if the consumer is saving more, it follows and the consumer is spending less.
The consumer is postponing discretionary purchases and is trading down. Fortunately for Kimco on a relative basis, we had some insulation from these downturns.
A large percentage of our retail space is occupied with super markets, warehouse clubs, and off price retailers. We have infill locations.
Our tenants enjoy a low occupancy cost in relation to their sales and our rents are below market. In my view, we own one of the most underappreciated portfolios in the history of retail.
Our vision is to be the premier owner and manager of retail properties in North America and our plan is to dispose over time assets we do not manage and non-shipping centers. At the present time, our equity market cap is approximately $4 billion, our preferred is $635 million, and our debt $4 billion.
Our goal is to achieve a capitalization as at least 75% equity using conservative estimates and value. A strong capital structure and a strong portfolio should result in strong results for our shareholders.
I personally feel energized about our vision and our potential opportunities to grow our business. We have a great team, wonderful properties and a focused strategy that will then create a premium evaluation for our company.
Barbara?
Barbara Pooley
Okay, Jennifer, we are ready to take questions.
Operator
Okay, thank you. (Operator instructions).
And we'll take our first question from Mark Biffert with Oppenheimer & Co.
Mark Biffert – Oppenheimer & Co.
Good morning. I was wondering if you can talk a little bit about the Mexico portfolio, your view for completing some of the ones that you haven’t broken ground on or starting the ones that you haven’t broken ground on as well as any cutbacks that you might be making in the contrary.
Mike Pappagallo
Sure. By the end of this year, we believe that all but one of our development properties in Mexico will be physically completed.
It will take some time to reach stabilization on these properties, but the development program will be largely completed by the end of this year, swine flu aside which is the real wild card right now. The Mexican portfolio is actually holding up quite well.
Our stabilized occupancy is about 96%, 95.5% on our properties that are in service that hasn’t declined in service. The number of new leases equaled about what we had in terms of the vacates for the – for this quarter and our rents are largely as projected.
We are seeing some softening. But in general, the anchor tenants are continuing to do very well.
The Home Depots of the world which have announced the – a largely eliminating their development programs in the US are continuing to expand in Mexico. Wal-Mart has announced 250 new stores in all of Latin America and many of them in Mexico.
So the anchor tenants continue to do quite well. And I think it’s – fundamentally it’s related to the fact that there are just so few shopping centers in Mexico.
There’s been a 100 and sum million people, there is just few retail and first class properties to service that. So long-term, we still feel good about Mexico.
Now everything that could happen to that poor country has been happening in terms of the violence from the drug trade, the swine flu and now an earthquake in Mexico City. So it is very difficult to project out.
But I think long-term we have very good properties in the fundamentals that are in place in Mexico are strong. Because the development program is winding down, we have made some expense reductions, we have cut about 20% of our staff and our operating expenses related to Mexico and we will see some of those savings translate over time.
But it’s very difficult to project going forward, given what’s going on right now.
Operator
And we'll take our next question from Paul Morgan with Morgan Stanley.
Paul Morgan – Morgan Stanley
Could you talk a little bit about – you mentioned that briefly in the context of negotiations with anchors, but just about the general trend of tenants coming back and asking for rent relief and how you are handling that right now? How – what – 80% of their requests are you granting?
And then how many of them maybe related to co-tenancy triggers that are in the lease?
David Lukes
Sure Paul. I think the last two quarters we’d have probably given pretty feedback on what was saw happening and to review a little bit, last summer, it probably started with some requests from particularly Inland Empire in California that it kind of moved to Florida, and Vegas, and Phoenix with small shop tenants requesting some help.
We really didn’t hit the national tenants asking for assistance until maybe January and February. And in both cases, the number of requests has dropped somewhat dramatically in the last month.
And part of that is that the tenants that were having trouble can only ask one since therefore it’s kind of moved along. And from the anchor tenant perspective, the landlord and the tenant typically understand that even though one or two units might be doing less than they did the previous year, there are contracts in place and for the most part, both sides have been respecting those contracts.
So the number of changes to contract rent has been very, very minimal. There have been two locations where we’ve rolled down an option rent in order to preserve occupancy and then return for that got an operating covenant, which was to avoid a co-tenancy from an adjacent unit.
But two out of 13,000 is not a notable number and to date I think the only reason that we still are seeing a pretty high volume of people asking for help is in Florida. The number of tenants that we’ve helped in terms of the small shops has really stayed about flat from last quarter and in those cases, they’re primarily payment plans for four to six month period.
And so at this point, I think that the noise is still much higher than the reality, more tenants ask then complete an application by long shot probably 50 to one. And the number of tenants we help is even smaller than that.
So it’s a pretty minute number, I don’t really expect that to be a key risk right now unless we see a couple of more larger bankruptcies to put a lot more pressure on a specific center.
Operator
We'll take our next question from Michael Mueller with JPMorgan.
Michael Mueller – JPMorgan
Hi, can you hear me?
Mike Pappagallo
Yes.
Michael Mueller – JPMorgan
Yes, okay, great. I was just wondering if you can comment, you talked a lot about the non-core assets and the desire to get out of those investments and businesses over time.
Just wondering how should we think about that from our standpoint. I know you said you were going to start process of evaluating whole times and stuff.
But right now, would you more expect to try to match with redeploying the capital into other investments as they arise or do you think you’re more likely to sell out of those and use the proceeds to pay down debt or kind of hold the cash. I mean what’s the stuff – thoughts on matching at this point?
David Henry
There’s two pieces to the question. In terms of the non-core real estate, as you know, we have a fairly a collected collection of different types of assets, everything from hotels to deferred equity investment, and self storage portfolio, and then so forth.
Some of these are very good investments and provide a good current return, but long-term they really don’t fit our strategy of emphasizing our retail neighborhood and community shopping centers. And we have seen with clarity that the marketplace really values our core expertise in owning and managing our own portfolio of shopping centers.
So as time goes forward, we will liquidate and monetize those investments at the right time and in the right circumstances. In general, we’ve said it’s good real estate.
It will probably be a little easier to monetize to the extent it’s got troubles that might take time and energy to create the income necessary to monetize that and we do have tentative asset plans for each of these and we are beginning to quantify it. I think everybody has noted we’ve been a lot of more transparent about the non-core portfolio that we have.
And so we put a little meat on the bone. To the extent we are successful in monetizing that portfolio, we will certainly use the proceeds temporarily to pay down debt.
As we wait for the right opportunities as we said in the beginning, it’s probably a little early on the opportunity side. Cap rates continue to drift up and there is a notable absence of transactions as buyers and sellers try to find the right medium.
Operator
Our next question is from Quentin Velleley with Citi.
Quentin Velleley – Citi
Yes, hi, I am here with Michael Bilerman. Just in relation to your comments earlier on the refinancing the debt maturing the joint ventures, I just wanted to talk about the approved joint venture which is one of your more highly levers JVs and obviously there is some CVS [ph] in there.
All we are hearing that the – that Prudential are getting a lot of redemption requests across their platform and I am just wondering how Prudential might be able to inject capital when the debt maturities come up?
Mike Pappagallo
I will let Dave answer the discussion about Prudential, but I wanted to clarify one thing Quentin, if you characterize the Prudential, it’s highly leveraged. I don’t believe that to be the case when you look at the portfolio in its totality.
The whole category of assets has debt which by the away significant amount doesn’t mature until 2016. And those assets were recently leveraged at about 50% to 55%.
So anyway you cut it even with higher cap rates today, I wouldn’t characterize that as highly leveraged. What is highly leveraged is the sale bucket that we sometimes refer to where we did draw a credit facility which dollar for dollar covered the asset and at the time low cap rates, that’s the portfolio that is guaranteed by both Kimco and Prudential.
And needs to make good over the course of the next two years.
David Henry
Our relationship with Prudential and our partners in both the Pan Pacific venture and our Trammell Crow venture is a very strong relationship. And the different Prisa partnerships, Prisa I and Prisa II and Western Teamster I think are the three entities that are actually in the Pan Pacific venture with us.
All have capacity to meet their obligation and they have (inaudible) to us on many occasions that they full intent to fund their 85% share of any shortfall that may arise over time as we meet these refinancings that are coming up over the next couple of years. So we are actually pretty comfortable with our venture with Pru, their capacity and so forth.
I think if you do a little research, you will find that Prisa is a low leveraged fund in general. They have lots of assets.
I think Prisa is about a $12 billion fund in total, so it has that capacity and ability to meet its obligations.
David Lukes
I will use a specific example, on this past quarter, there was one property in the portfolio for $12.2 million of the loan matured, we were still pursuing new financing. Prudential cut the check or 85% of the check to pay that loan off and didn’t hesitate one bit to do it.
So – and that to us was a natural example of when an obligation was required, they didn’t think twice about fulfilling their requirement.
Operator
And we'll take our next question from David Wigginton with Macquarie.
David Wigginton – Macquarie
Good morning. Mike, could you talk a little bit about the I guess the loan commitments in term sheets you are working on, specifically who the lenders are, whether it’s bank, life insurance or whatnot and what kind of underwriting criteria you are seeing right now?
Mike Pappagallo
I will let Glenn Cohen, our Treasurer, who actually works on the financing to just – to answer that and give you a brief synopsis.
Glenn Cohen
Yes, good morning. Basically it’s a variety of both insurance companies and local banks that we have been able to tap into.
Some of the major insurance companies have provided anywhere between five and seven-year debt. One insurance company provided us a 15-year loan.
And then we’ve been able to tap into some of local banks, some banks that we really used the broker communities to get to. Banks like Intervest Bank, Fidelity Bank Corp., there is a couple of examples, but – and you find different rates.
I mean the local banks are probably 50% to 75% – 50 basis points to 75 basis points lower in rate. But overall, we’ve really hit low aspects of the market from the large insurance companies to the smaller community banks.
Mike Pappagallo
And then I would just add our long history as a company has helped us. We have relationships with life companies that go back decades.
So at a time when capital little bit scares, these life companies that know us and some of them are shareholders, they’re joint venture partners, they’re bond holders, they’re very comfortable with Kimco as a borrower and we have been able to leverage that relationship.
Operator
And we'll take our next question from Jay Haberman with Goldman Sachs.
Jay Haberman – Goldman Sachs
Hi, good morning, everyone. Milton, in your comments, you picked my curiosity, you mentioned obviously a 75% equity level.
You talked a bit about the simpler structure, obviously selling some of the preferred equity hotels, securities, et cetera. But can you just give us some additional comments as to how you intend to get there?
I mean there is Mexico on the table in terms of future dispositions. I know in the past you talked about a fund.
And then a separate question as well. Just thinking about risk, because in the past, you guys have been very successful investing in Albertson’s, et cetera.
I am just curious how you think about those opportunities in the future?
Milton Cooper
Well the pay downs would be a result of the disposition of assets. And certainly we do not intend to have any preferred equity investments and as preferred equity investments come due, they will be monetized and that probably will take about three years.
And so far, as Mexico is concerned if the market that’s stronger in cap rates, lowered and possibly to exit of favorable basis, we would – we (inaudible) there might be a possibility of monetizing that with the fund. So then I guess we will just continue to take those steps to reduce debt and get to that point.
I think it’s a combination of a variety.
David Lukes
Again, and I would say that again even though as we’ve made, we’ve been so fearless a bit early, ultimately as consolidation comes down the road and if there are compelling price – compelling pricing opportunities, then certainly equity would be one mechanism to acquire those properties in the entire recalibration of our capital structure.
Mike Pappagallo
If you want to make this comment though about the opportunistic side of the business, JV Albertson is an example.
Milton Cooper
I think there will be rare, Albertson’s was just a wonderful investment and I would – my guess is that there will be very few opportunities coming up. If there was something that was so compelling and didn’t involve a great deal of capital, we have an obligation for our shareholders to try and seize it.
But I don’t see there is a real problem for money.
Operator
And we will take our next question from Rich Moore with RBC Capital Markets.
Rich Moore – RBC Capital Markets
Hi guys, good morning. I actually have a follow up to Jay’s question.
When you look at these investments whether they’re preferred equity, stressed retailers, international type opportunities, anything outside the core US business, I mean are you dismantling your organizational infrastructure related to these non-US things? I am wondering will you be able to actually go into those areas in the future or you actually that you’re taking the organization apart in those areas.
Mike Pappagallo
Well it’s certainly a combination, part of the 90 people that are no longer employees. Some of them have been related to the front end of our business in preferred equity and in business and so forth.
So certainly as we wind down some of the new business elements of what we have been doing, that has been an area where we have less resource. Many of the people that we have attached to the business for instance in preferred equity are more actively focused on the asset management elements of that and monetizing those situations.
And Mexico for instance, we have moved many of our people that were primarily new business and originations into leasing. Some of our best leasing in Mexico is being helped by our own people that have their relationships with the Home Depots and the Wal-Marts and the AGBs [ph] and so forth.
So we have deployed some people and we’ve certainly reduced our staff in some of those businesses as we try to align with the strategy that we just outlined.
Operator
We will take our next question from Nathan Isbee with Stifel Nicolaus.
Nathan Isbee – Stifel Nicolaus
Hi, good morning. Your guidance assumes a 90% year-end occupancy rate.
What does the guidance assume for the low point of occupancy?
Mike Pappagallo
Essential – essentially that is the low point.
Nathan Isbee – Stifel Nicolaus
Okay.
Mike Pappagallo
David talked about trending and we just occupancy is going to continue to trend down through the year.
Nathan Isbee – Stifel Nicolaus
Okay and I guess just a quick follow-up, so what is your guidance assumed by average occupancy through in 2009 and what was in 2008?
Mike Pappagallo
In our modeling, Nate, we just – we assumed a ratable decline from the beginning of the year occupancy down to 90%. We weren’t any more scientific than that, because I think as we had mentioned in the prior conference call, base line assumptions we had assumed normal trending down drifting, but did not assume wholesale bankruptcies of majors or junior boxes which would certainly create significant jump or a decline in any one quarter.
Since we didn’t assume that we did the ratable approach.
Operator
Next question comes from Alexander Goldfarb with Sandler O'Neill.
Alexander Goldfarb – Sandler O'Neill
Yes, hi, good morning. Just wanted to ask just Milton to get your thoughts on the existing environment where it seems like creditors whether they’re public or government sort of hesitant to push the stressed donors into bankruptcy and owners seemed to know that.
So it seems like we have a situation where the bid asset spread just remains wide and the secondary markets don’t recover for a while. You think that impedes the recovery or do you see the space plays a normal things that happens whenever markets crumble like the way they have?
Milton Cooper
I think that historically that has been the case and that is in the past. And part of the issue relating to bankruptcies was the – for a period of time, better possession financing was not available and that has seemed to have opened up (inaudible).
I think that probably so. But I think it’s a start.
Operator
And we will take our next question from Jeff Donnelly with Wachovia.
Jeff Donnelly – Wachovia
Good morning, guys. Mike, just a follow up on the disposition and non-strategic assets, I think you have put in your supplemental, but – thank you by the way, it shows you have about $1.7 billion book value of those assets.
How close was that to I guess well say the market pricing for those assets if they were already at liquidation at that point, just trying to get a view in the market-to-market write down that we should be looking at in future period of time?
Mike Pappagallo
Jeff that’s – that is an effective evaluation process that I was talking about, because market-to-market can be viewed both on a current basis, in other words, exiting them immediately. And in that list of assets, the equity securities line is at the market that’s how the accounting works or as many of the other assets are at book values and it is really trying to make a determination in terms of holding period, can we sell them in the market today evaluating what price, that will drive some of our strategy.
And in then in terms of the expense that there are reserves that need to be taken, we will be taking them. But at this point, it’s too premature to quote a number.
I would also remind you as we did take over $100 million worth of impairments in the fourth quarter related to assets many of which were in the non-core bucket as they relate it to marketable securities. So more to come on that.
Operator
We will take our next question from Jim Sullivan with Green Street Advisors.
Jim Sullivan – Green Street Advisors
Thank you. There has been a lot of discussion on the call about deleveraging, you reviewed the steps that you have taken, you have talked about the steps that you intend to take.
I am curious what your thoughts are with respect to what the right leverage is for your company?
Mike Pappagallo
I think the right leverage is 75% equity and 25% debt.
Jim Sullivan – Green Street Advisors
On a static basis, it sounds like you intend to pursue consolidation opportunities and other investments and your statement sounds very fix as opposed to something that’s fluid and will adjust.
Mike Pappagallo
Well that’s the objective. Obviously Jim, if there is an acquisition, it would be funded principally with our own common shares.
And we would hope to be at – now they can be acquisitions that would involve interim debt until we’re able to find sales of a portion of the portfolio, et cetera. But Jim I just feel that a – there – just as the Duchess of Windsor said, that you can’t be too thin and too rich, you can’t have too much equity in an environment as we have.
So that would be a goal and that’s where would like to get to.
Operator
And we will take our next question from Mark Biffert with Oppenheimer & Co.
Mark Biffert – Oppenheimer & Co.
You mentioned that the biggest part of your space givebacks was in the junior anchor part. Just wondering when you look at having the amount of demand that’s out there for that type of space, if it’s limited, would you be looking to do more redevelopment opportunities to drive the yield on those properties?
Mike Pappagallo
Sure Mark. It really depends on the location and the specific market issues.
But generally speaking, there is no question that the supply of junior anchor space is between 20,000 feet and 40,000 feet is much higher than the demand. So there is really three options.
One option is to steal a tenant from the a neighboring center, which we have been doing, partly because we have the strength to be able to offer them a turnkey position. And secondly is to wait, because if you have got a 30,000 foot vacancy and a 0.5 million square foot property, which has happened us for instance in Augusta, Georgia, where we lost a junior anchor, but the nervousness about what that means to the shopping center it doesn’t compel you to do something that you think is not the right long-term property goal.
So in some cases, we will wait, because we know the property has good fundamentals and at some point, we are going to have demand for that. And the last thing is what you are suggesting which is some sort of redevelopment and in those cases, we have numerous times taken a power center that’s got maybe four or five junior anchors and when you lose one, in many times, you can slice off the back of the building and create shop space which you had on undersupply and the rents are two to three times what the (inaudible) is paying.
And so even if you amortize across the original square footage, you still come out and yield positive. So that has been a program that we have done over the years even in the good markets and that that will continue.
I would say there is probably a good six-month period here where we are using all three strategies just to kind of see where things shake out in certain communities. But there are a lot of different things you can do especially given the fact that junior anchor box is typically somewhat new, it doesn’t need a lot of capital in it, the column spacing is fairly normal, so there is a lot of positives about these junior anchors that you just need to have a pretty strong leasing team that’s working on what the right solution is.
Operator
And we will take our next question from Quentin Velleley with Citi.
Michael Bilerman – Citi
Yes, good morning, it’s Michael Bilerman speaking. Mike, can you reconcile a little bit the same store and why you think you said it was down about 50 basis points?
And when you take a look your occupancy, whether if you had a consolidated portfolio or the total portfolio without management, with management, somewhere in the realm of 350 basis points to 400 basis point decline year-over-year, the operating margin is down 71.5% to 70%. So I am just trying to piece everything together to really understand what is bringing that same store up relative to with your headline lower number?
Mike Pappagallo
There were a couple of factors that David I know wants to chime in as well. But certainly with respect to occupancy, that kind of rolled storing the quarter and represents a period and number certain of the vacate boxes that we have still have rent guarantees from them, CVS being the prime example on some of the Linen’s boxes.
So occupancies are down, but income is still flowing. With respect to margins, they did deteriorate to a certain extent.
A lot of that was due to though to the snow removal costs, so those – so that’s what appeared to be slightly down there. But David, I know that you want to –
David Lukes
Yes, the one thing I was going to add is that it’s fairly simple from a big picture and then like I said earlier, 74% of our square footage that vacated this quarter was junior anchor and big box and last quarter was equally as high. So if you look at the trend, the square footage that’s been going out and driving occupancy down is very large spaces.
And if you look at the tenants that went out Steve & Barry’s, Value City, Circuit City, generally they had very, very low rents compared to the average on the portfolio. So even though the occupancy is dropping faster, the NOI is not going to catch up unless you get to the point that you start to eat into the shop space is going out, which is primarily why I mentioned that $600,000 of shops vacated this quarter and we released $520,000 square feet of them.
So you’re getting some churn in the shops and the rent spread is still positive and that’s what’s giving some buoyancy to the NOI.
Michael Bilerman – Citi
But is there anything maybe on the development or redevelopment or FX that would be altering that number at all and then I really appreciate all the disclosure, especially the guidance metric. So maybe the next step is trying to get a little more NOI, same-store NOI guide of detail.
But I am just trying to piece it all together.
Mike Pappagallo
I would not say that there was one – one driver to that. Certainly some of the economics within our Mexico portfolio and our consolidated and joint venture was adversely affected to a certain extent by negative FX.
The Mexican peso weakened. But I think if you are looking it at a very high level Michael, and saying the occupancies trended down and margins got tougher.
I think the occupancy discussion is what David pointed out about the composition and margins deterioration was more a consequence of more a timing orientation and a significant amount more of snow removal costs, which has does have an effect period-over-period on the margin comparability. But that as you look past all of that and you call out all of the accounting adjustments as we normally do and coupled with that the guarantees that I talked about on a few of the things that have been taken and we’re still earning cash rent.
All of those things I think drives the dichotomy between the lower occupancy and yet a more muted deduction in same-store NOI and we hear you with respect to the analysis.
Michael Bilerman – Citi
All right. And then dark space is still renting, I mean is it like a 50 basis point impact on the number just from magnitude wise?
Mike Pappagallo
I couldn’t tell you off the top, I have to take a look at the impact of it.
Michael Bilerman – Citi
And just last, just on Prudential, how much out of the $4.3 billion of assets is sale versus whole. Just so that we can break it out in terms of understanding the leverage of the –
Mike Pappagallo
The carrying value of the sale bucket is about $500 million.
Michael Bilerman – Citi
Thank you.
Operator
Our next question comes from Jeff Donnelly with Wachovia.
Jeff Donnelly – Wachovia
Yes just a follow-up I guess for David. Are you able to breakout your existing vacancy for or maybe just talk about proportion of your spaces overall that are either save 10,000 square feet or 20,000 square feet.
I guess how many boxes are we looking at right now that are unoccupied, whether they are leased or not?
David Lukes
I probably cannot do that off the top of my head. We will have to probably have to work on that.
Jeff Donnelly – Wachovia
Okay, thank you.
Operator
Next question comes from the Jim Sullivan with Green Street Advisors.
Jim Sullivan – Green Street Advisors
Yes follow-up to my own question. If the target is ultimately 75% equity, I’m making an assumption that that’s a multi-year kind of process to get there.
Mike Pappagallo
Yes.
Jim Sullivan – Green Street Advisors
In the past, your management team has focused investors on a 10% annual type of FFO growth rate. It would seem like it would be very difficult for the company to accomplish both of those goals could delever to the point where you have 75% equity and still deliver the kind of earnings growth that you’ve outlined in the past.
Can you comment on how you do both of those at the same time?
Mike Pappagallo
Jim, I think one other things we are saying is that and we probably won’t be able to do both of that. As we think about the best value enhancement strategy for our shareholders that deleveraging and keeping a high proportion of equity, focusing on the recurring cash flow component of a very secure and stable shopping center portfolio and judicious acquisition and investment is not necessarily going to yield 10% growth, because we are moving away from a lot of the what we’re calling the non-core more opportunistic, more transactional oriented type businesses, which helped to very much drive that 10% growth.
So this and – I think what you’ve said is really the economic expression or the financial expression of what our business strategy underlies and that ultimately we will attempt to build a more valuable company even if it means more, more muted growths and more muted levels of FFO growth.
Operator
That does conclude today’s question-and-answer session. At this time, I would like to turn the conference back over to Barbara Pooley, for any additional comments.
Barbara Pooley
Hi, everybody. As a reminder, our supplemental is in our website at www.kimcorealty.com.
Thanks everyone for participating today.