May 6, 2010
Executives
Barbara Pooley – SVP, Finance and IR Dave Henry – President and CEO Mike Pappagallo – COO and CFO Milton Cooper – Executive Chairman Rob Nadler – President, Central Region
Analysts
Jay Habermann – Goldman Sachs Quentin Velleley – Citi Jeffrey Donnelly – Wells Fargo Nathan Isbee – Stifel Nicolaus David Wigginton – Macquarie Research Alexander Goldfarb – Sandler O'Neill Rich Moore – RBC Capital Markets Steve Sakwa – ISI Group Michael Mueller – J.P. Morgan Paul Morgan – Morgan Stanley Ross Nussbaum – UBS Chris Lucas – Robert W.
Baird Nathan Isbee – Stifel Nicolaus Mike Bilerman – Citi Dave Fick – Stifel Nicolaus
Operator
Good day, ladies and gentlemen and welcome to the Kimco 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 today, Barbara Pooley. Please proceed, Miss Pooley.
Barbara Pooley
Thank you, Cindy. Thank you all for joining the first quarter 2010 Kimco earnings call.
With me on the call this morning are Milton Cooper, Executive Chairman, Dave Henry, President and Chief Executive Officer and Mike Pappagallo, Chief Operating and Chief Financial Officer. Rob Nadler, President of Kimco's Central Region is also on today's call as well as other key executives who will be available to address questions at the conclusion of our prepared remarks.
As a reminder, statements made during the course of this call represent the company and management's hopes, intentions, beliefs, expectations or projections of the future which are forward-looking statements. It's 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 help investors better understand Kimco 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 web site.
Finally, during the Q&A portion of the call, we request that you respect the limit of one question so that all of our callers may 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'll address those questions.
I'll now turn the call over to Dave Henry.
Dave Henry
Good morning. First, I'd like to begin by formally thanking David Lukes for his hard work and contributions to our company over the past seven years.
David is a talented real estate executive and we wish him the very best in his new role as CEO of Mall Properties, Inc. At the same time, we are very pleased that Mike Pappagallo has become our new Chief Operating Officer.
For an interim period, Mike will also retain his CFO responsibilities. With his senior finance staff and our region Presidents adding additional duties to ensure a smooth transition across the board.
While I have promised Mike that I would keep the superlative to a minimum, so I would like to note Mike's industry recognized accomplishments over 13 years as our CFO and our strong belief that Mike is well qualified to assume the key operating role in our firm. Congratulations and well deserved, Mike.
In terms of our first quarter, we are happy to report solid financial and operating results. Mike will provide the details.
But it is clear that leasing activity in aggregate is increasing and our portfolio key metrics, such as occupancy, leasing spreads and same store NOI are improving after a very rough 2009. Our tenants, which in general are necessity based or discount oriented retailers, are showing much improved comparable sales and are again looking to expand selectively.
I encourage all of our shareholders and the analyst community to review page 29 of our supplemental financial report which lists our 50 largest tenants. The financial strength and prospect of almost all of these tenants gives us great confidence in the stability and reliability of our future rental revenues.
During the quarter, we also made good progress on each of the four key objectives we discussed in detail in our last earnings call, company leverage level, retail joint venture debt guarantees, placement of the PL retail assets in institutional joint ventures and the disposition of our non-retail portfolio. With respect to leverage, our debt to EBITDA ratio declined from 6.8 to 6.3 during the first quarter and we are well advanced towards our 2012 goal of a 6.0 ratio.
On the retail joint venture debt guarantees, the amount has been further reduced from $331 million to $311 million during the quarter. And as mentioned on our last call, we expect that the remaining amount will be fully repaid by the maturity date of August 15 with Kimco and Prudential each paying their respective share of the debt, 15% and 85% respectively.
As a point of reference, the total amount of retail joint venture debt guaranteed by Kimco was originally $1.2 billion, which has been reduced to the current level, $311 million through property sales and partnership contributions. With respect to the PL retail portfolio, we are very pleased that five of the largest assets totaling 370 million have been transferred to a new institutional joint venture with CPPIB, Canada Pension Plan Investment Board.
We are proud to have been selected by CPPIB to be an operating partner for neighborhood and community shopping centers in the U.S. and we anticipate substantially increasing the number of assets in the venture.
We also expect to close this week an additional new joint venture worth two more PL retail properties totaling $67 million. Together these ventures will represent more than 50% of the PL retail assets in terms of net income.
On the last of our four objectives, the disposition of properties and investments in our non-retail portfolio, debt repayments and security sales since our last call total approximately 10 million, however, we do have an additional 27 million of properties under firm contracts, a further 25 million of properties under conditional sales contracts and $11 million in scheduled debt repayments, all expected to close in the second quarter. We believe our goal of reducing the non-retail portfolio by a minimal of $200 million by year-end remains fully on schedule.
Overall, the market outlook has greatly improved in terms of both property values and underlying fundamentals. There continues to be increasing amounts of capital reentering the commercial real estate sector and cap rates have declined materially over the past six months.
In our case, it is encouraging to have an increasing number of first class institutional partners which are actively seeking to invest with us in high quality neighborhood and community shopping centers. At the property level, as mentioned, we are seeing increasing signs of stability with rent levels firming and retailers once again looking at expansion opportunities.
In our two primary international markets, Canada and Mexico, both countries are showing significant increases in GDP, positive job growth, stronger currencies and retailer expansion, all of which bode well for our portfolio. I would like to complete my comments by once again restating our corporate strategy in very simple terms.
We are committed to the equity ownership of neighborhood and community shopping centers, which provide long-term recurring rental revenues. We will enhance our earnings through recurring fee income from institutional joint ventures, international retail property investments and opportunistic retail real estate purchases from retailers.
We believe this formula will provide very reliable and dependent above average income and dividend growth for our shareholders. Now I'd like to turn it over to our new COO, Mike Pappagallo.
Mike Pappagallo
Thanks, Dave. Good morning, all.
Before I review the operating activity for the quarter, I want to spend the moment on the recent change in my responsibility. I'm certainly honored that Milton, Dave from Board has placed their confidence in my ability to assume the direction of our operation portfolio.
I will provide a different perspective and approach to the role. Everybody knows me, as finance and operations guy.
And I won't pretend to have 30 years of on-the-ground real estate experience with deep retailer relationships, but the good news is that Kimco has plenty of them, as well as the seasoned experts in leasing, property management, development and construction and operation. Many of you in the investment community have met these operating leaders and through our schedule of property tours, industry events and the upcoming Investor Day, you will have further opportunity to get to know them better.
The Bob and I as a President of our Central Region is now charged with the additional responsibility of ensuring that our leasing strategies, tenant activities nationwide are executed seamlessly and ensuring that we continue to cultivate and expand our retail relationships through an already top notch national program. Rob will also be helping me establishing those new relationships and on the nuances of executing deals.
But ultimately my focus on the COO role will be the execution of our overall business strategy by simply sizing the real estate, financed and business support operations together to meet our goals. The related raise is the stability and advisability of continuing in the CFO role.
Recognizing the strong financial leaders that I have in operations, finance, accounting and treasury, my role over the past couple of years has very much been strategic in terms of directional changes in balance sheet management, external communication and sponsoring the ongoing upgrade of our system's processes and organization. This gives us a bit of breathing room in assessing how we want us to address the COO role, but I don't see us missing a beat on any finance execution, in the meantime while we sort through the final organizational structure.
We were quite pleased with the operating results for the quarter. While headline FFO per share was $0.31 it includes both impairment charges on a few smaller assets, as well as some transactional income.
Should our – both of those items and it results in FFO per share from recurring sources of $0.28 per share, which exceeded this estimates by a penny. More importantly, our shopping center vital signs continue to show progress, reflecting the improved leasing activity over the past six months.
Portfolio occupancy ended the quarter at 92.8%, equal to the year-end level. Certainly the absence of Big Bob's or junior anchor bankruptcies relieved a lot of pressure that usually occurs post holiday, but we're still happy with the momentum gains since late last year, this year is also reflected in our same site in operating levels, which is only negative 0.2% for the quarter at the better end of our expectation.
While I always caution into reading into quarterly figures on NOI, this level when viewed in relation to the past five or six quarters underscores the improved operating climate and shifts to more stable metrics. As I have quickly learned from our operating team and what is apparent from our own portfolio activity and substantial number of tenant portfolio reviews that we conduct is that the focus of retailers is on repositioning existing stores and/or in filling new stores in existing markets.
The shutdown in virtually all new development is starting to have an effect on the supply and demand balance. While the retailer community is focusing more on existing markets and less on speculative areas, that is not necessarily translated into much pricing power for landlords as there is still too much available space in too many markets.
Nonetheless, a positive new leasing spread of 1.1%, excluding the effect of new deals on two former linens and circuit boxes was a healthy sign as it relates to the Kimco portfolio and once again demonstrates that the overall lower average rent is having a moderate effect on leasing rollover pressure. We spent part of last week with our regional leaders, a recurring theme that came up that one of the keep advantages of our size is access and response, simply defined, having the benefit of access to virtually all of the retailers, having insight into their current performance in our location as well as their plans and strategies and how we can help them and therefore being able to respond with alternatives and deal terms to benefit both sides.
It may not mean getting the extra dollar of rent, but it certainly can mean and has meant retaining a tenant at a location or packaging solutions for them across the portfolio. I feel this will be a primary driver in maintaining and ultimately increasing occupancy over time.
In addition to pursuing occupancy improvements, we will need to take a closer look at potential dispositions of properties with long-term risks. The markets may still be a bit too thin for significant transactional activity now, but we must get ready.
Shifting gears, in terms of balance sheet management, the program of further enhancing liquidity and strengthening key health ratios continues forward. Our fixed charge ratio improved by one tick to 2.5 times and net debt EBITDA dropped to 6.5 times as Dave mentioned.
However, I will note that that number was helped by the higher than anticipated transaction income in the quarter. If you pull out the number related to the unbudgeted transaction, the ratio was closer to 6.6 times, still representing an improvement from last quarter.
Subsequent to quarter end, we hit the Canadian markets with a $150 million eight year note at a rate of 5.99%, thereby successfully refinancing the maturing Canadian Bond of the same amount. The corporate debt maturity schedule looks as sound as ever with about 10% to 15% of the total debt stack of $4.5 million maturing each year from 2011 through 2018 and for this year the remaining maturities are less than $60 million.
With a much better environment and a low risk corporate debt structure, translation, the balance sheet ain't a problem. We remain focused on extracting ourselves from non-productive and non-strategic assets.
And with a rapid improvement of those capital markets and stabilizing fundamentals, there has been a market increase in activity surrounding certain of our non-retail assets. As Dave mentioned, we have over $50 million of contracts out on a variety of our urban mixed use assets, as well as a pay off of a loan from a healthcare facility of $11 million.
Our New York assets have seen an increase in leasing activity which will position us for additional marketing later in the year. Add to that the 10 million sold since the beginning of the year and we are feeling better about the rate and pace of these dispositions.
That said, we recognize that there's two single large positions in the non-retail portfolio remain of the lot now the in town suites investment which will take longer to monetize. With the FFO yield on these two positions together are about 8% and with the prospect of improvement of rep for the rebuild in town, we think conditions will get better for us to dispose of that asset.
So we look to the balance of the year, we've tightened the range of our guidance by increasing the low end by $0.3, resulting in a range of 1.10 to 1.15 per share excluding impairments. These reflect mostly the asking for major Bankruptcy occurring in the first quarter.
That said, for now, we are leaving our expectations on occupancy and same store NOI the same and we'll have much more clarity once we hit the six month mark. With that I'll turn it over to Milton.
Milton Cooper
Well, thanks, Mike. As Dave has outlined our strategy for Kimco, it's simply back to basics and being the premier shopping center company with a footprint in North America.
We will monetize our non-shopping centers as expeditiously as practical and as Mike and Dave have pointed out, progress has already been made in this connection. Our existing shopping center portfolio is geographically and tenant diverse.
The only tenants whose rent exceed 1.5% of our total revenue are home depot, TJX, Kmart, Wal-Mart, Kohl's, Costco best by real our hold and Bed Bath & Beyond, all retailers with strong balance sheets selling everyday essentials to the consumer. Home Depot, the tenant with the highest percent of revenues has 44 locations with us.
On approximately 40 of these locations, we own the ground, lease it to Home Depot and Home Depot has constructed the buildings at their own expense. Now, our institutional management program enables us to compete aggressively to acquire high quality shopping centers at low cap rates, a combination of the low yield for the best properties and our profit on the various management fees, promotes, et cetera, provides us with a return in the double digits.
We will grow this business and there refuse to be no shortage of investor's desire us of the solid year. Our development to exposure is the minimus.
So we should have safe, growing cash flows in both stormy and sunny times. What I love about our portfolio is the fact that the land is such a high proportion of total value.
The improvements which have modest one-story buildings set on land that because of parking requirements is usually five times as large as the footprint of the building. Overtime, our tenant streams will enable us to profitably hold the land for higher and better retail uses in the future.
Now, we've been through many cycles and we've watched the manic depressive mood swings of the American consumer and we can never predict consumer's appetite to save or spend, but as I have pointed out many times, the population of the U.S. will grow by about 3 million people a year and at the end of ten years, we will add the present population of Canada, Australia, so as night follows day, land values, commercially zoned land, will substantially increase.
Last week, I spent some time in Canada to celebrate our joint venture with Canadian Pension Plan Investment Board. We have a fabulous platform in Canada and a great leader in our Kelly Smith.
A 50% interest in RioCan our joint venture has grown in value and has a wonderful base of future growth, Kudos to Dave Henry, who brought us to Canada, when the Canadian dollar was $0.65 and cap rates were in the high nines. Now, permit me to say a few words about Mike Pappagallo.
This month we celebrate Mike's permits at Kimco since it will be 13 years since he joined us, we met for the first time when he was the CFO at GE Capital Real Estate. It didn't take more than 40 seconds to know that Mike was perfect for us.
His energy is contagious, not only to me, but the entire team. Our team is thrilled with his new role and so am I.
We have wonderful bench with invigorated energized outlook and we're confident we can deliver positive results for all of our constituencies. And now we'd be delighted to answer any questions.
Barbara Pooley
Thanks, Milton. We're ready to move ton the – on to the question-and-answer portion of the call.
Please respect the limit of one question. Operator we're ready to take questions.
Operator
(Operator Instructions) And we'll take our first question from Jay Habermann with Goldman Sachs.
Jay Habermann – Goldman Sachs
Hey, good morning, everyone. Mike, congratulations.
Question for Dave, I guess, starting off with joint ventures. I guess, looking specifically at through Kim and the UBS portfolios, I guess given the lower yields on these two investments, can you just comment I guess specifically on the operations, first at Prukim and then secondarily, can you give us plans on asset sales or the identifying of new joint venture partners?
Dave Henry
Well, let me take the latter first. It's been particularly encouraging to us to watch the flood of investors step back into the commercial real estate markets.
This time a year ago – this time a year ago, most investors were very gun shy and whether it was core investments or what they call value investments or core plus, there just wasn't – there just weren't many institutions that were interested. Now with a whiff of inflation in the air and alternative investments providing such low, low income, real estate has regained its favored status and we have existing institutional investors that we have assets with that have asked us to source and find new assets and we have new institutional partners, such as CPP and Cisterra, which we announced today, actively looking to grow their venture assets with us.
So we believe we have plenty of sources of capital. Our mission as the operating partner is to find product for these institutions.
To date, at least over the past six, seven months, the source of the product has been in our existing joint ventures. We have institutions such as DRA and Pru and UBS wealth management all desiring to reduce the number of assets that they have with us to meet other needs that they have.
So that's been the primary source of assets for our institutional partners. But as time goes on, we are certainly in the hunt for new assets and because of our size and scope; we believe we will be successful in finding new assets.
On the operation side, specifically with Pru Kim, as you know, we are at the tail end of the sale bucket assets that we are selling. We're down to probably a handful and now we have on the market some of what we call the whole assets and some of those assets we have bought, as you know and some are in the market for sale to third parties.
Operator
And we'll take our next question from Mike Bilerman at Citi.
Quentin Velleley – Citi
Hi, it's Quentin here with Michael. Just staying on that topic of the joint ventures, I'm just wondering as you look at your, the amount of joint venture capital that you've got coming in, could you give us some kind of an idea of how much that could translate into in terms of assets under management.
And then maybe whether you could give us an idea of how much of that is going to come from existing joint ventures or Kimco's balance sheet versus, you know, externally acquired assets?
Dave Henry
It's very difficult to predict. It's certainly fair to say that for a while, we'll be running in place in terms of assets under management because most of the transactional activity we have is substituting one institution for another and in some cases; we have increased our percentage ownership of those assets, such as the PL retail assets.
We've actually increased our percentage ownership in that venture. As time goes forward, we will see what success we have in finding new assets and as intimated, we are certainly in the hunt on lots of different things these days and we remain optimistic.
We will be able to find a fair amount of additional new assets to feed our joint venture partners and to resume the growth of our assets under management, but it's too early to predict any, or quantify any significant increase in the assets under management.
Milton Cooper
Quen, the only point I would add is that taking assets from our own balance sheet and placing them into joint ventures is not a primary thrust of our strategy; it's more substituting one partner for another in existing joint ventures or actual new acquisition activity.
Operator
And we'll take our next question from Jeffrey Donnelly with Wells Fargo.
Jeffrey Donnelly – Wells Fargo
Good morning, guys. Milton, you'll have to let us know when Mike will be reading from the Tora to celebrate his bar mitzvah.
Just a quick question, I'm curious really to gauge your sense, I mean all across the economy we're all seeing different kinds of inflection and real estate is certainly not immune from that, but right now tenants certainly seem to have the upper hand in lease negotiations and it feels like we're sort of at a low point right now. When do you feel landlords are going to gain the upper hand in lease negotiations?
What's it going to take? Is it a certain level of occupancy that you see or absorption that's required to get there?
Milton Cooper
Well, let's go back. In '08 and the early part of '09, retailers were sitting on their hands, improving their balance sheets, worried and then they found the world did not end, they were worried with the Lehman bankruptcy and others and they regained confidence.
At this point some, couple of them have entered a phase of desiring to expand, they still want to reduce costs and one of the costs they want to reduce are rents. So it's tough, but the reality is, as you indicated in your question, the momentum is changing because there are not new developments and as the country is growing, retailers can't sit on their hands.
So my sense is that the shift will grow in the favor of the owners of properties and rents will increase overtime. That's my instinct.
Mike Pappagallo
And I would argue we've already seen a fee change. The same real estate departments that were busy reading leases for cotenancy provisions and other outs are now out looking for new store locations.
So there's been a dramatic shift already in the way retailers are looking at leasing space and we're seeing it at the field level. We already have a little bit more pricing power than we had this time last year.
Operator
And we'll take our next question from Nathan Isbee at Stifel Nicolaus.
Nathan Isbee – Stifel Nicolaus
Hi, good morning. Given the rapid cap rate compression that has occurred over the last six months, have you changed your thinking at all about selling off the remainder of the price legacy portfolio, given where you bought it?
Dave Henry
As we said in the very beginning, we really like this portfolio and as we started to discuss it with joint venture partners, in most cases, we talked about increasing our percentage and retaining more of these assets than we had in the past. As I mentioned, we are about to close two more with another institution and we will probably at least complete another deal for a package of five of them.
At that point we may well pause in terms of selling off the rest of those assets, but we intend to fully do what we started to do many months ago and I think a lot of you have been patient while we've completed the debt assumption process. The deals that we are now closing and are now announcing were actually cut many months ago and it just takes a long time to close these things when you are assuming debt.
Operator
And we'll take our next question from David Wigginton at Macquarie.
David Wigginton – Macquarie Research
Good morning. You guys talked about – Michael, you mentioned the Valad and InTown Suites being your two largest non-retail asset holdings.
There's quite a bit of interest right now in chasing hotels across the entire quality spectrum and obviously fundamentals are improving in the space and you mentioned that it's going to take a while to unload that, I mean isn't it possible that you might be able to, I mean, get rid of it now? Are you receiving indications of interest from potential acquirers for that portfolio?
Mike Pappagallo
The answer is yes on both scores. We would certainly be interested in disposing of it and we are having preliminary conversations with potential buyers.
As you know, this is a joint venture where we have another institutional partner and that institutional partner has now indicated a willingness to sell with us. So that was a very important step.
So we can begin discussing the possible sale of that portfolio. However, it hasn't been a good time to sell hotel assets.
It is a better time today, but last year was not a good time. It is improving and we are seeing quite significant RevPAR gains in that portfolio.
So we want to be careful about, exactly when we push the button and who we push it with, but to confirm your point, we are having some discussions.
Operator
And we'll take our next question from Alexander Goldfarb at Sandler O'Neill.
Alexander Goldfarb – Sandler O’Neill
Good morning. Just given the accelerated cap rate compression in the past 60, 90 days, how far out do you think we are before there will be a bid for BMC product or tertiary markets?
Dave Henry
I think you're already seeing the rationalization start. You've seen buyers say that their business plan was A plus properties at very high cap rates and now it's A properties at lower cap rates, it's diamonds in the rough unquote.
It's – you are already seeing the rationalization process start and you're certainly seeing high-quality assets selling in secondary markets and you're seeing B assets selling in primary markets. So the cycle is starting already, I would argue.
Mike Pappagallo
What I'd add to that, Alex, is that on the lending side, you're seeing the reemergence of the securitization program at least from some of the major money center banks who are starting to create programs. If that degree of capital is reintroduced into the marketplace that will further accelerate the ability to trade on the B type properties.
Operator
And we'll take our next question from Rich Moore at RBC Capital Markets.
Rich Moore – RBC Capital Markets
Yeah, hello. Good morning, guys.
Could you give us an update on Latin America and if things pick up down in Latin America, what you're doing down there, which I assume those economies will pick up like ours will pick up. Will you pursue new things down there with joint venture partners again, with a fund business again or how are you thinking about that?
Dave Henry
Well, let me start – let me start at the – at the beginning. In terms of what we're seeing on the ground in Latin America just like the U.S., we're seeing the economy pick up in some cases dramatically and retailers, once again expanding.
Mexico, obviously is particularly interesting to us. They have strong GDP growth.
They added – I'm trying to read my number here, 296,000 jobs in the first quarter. So unlike the U.S., they're actually adding new jobs in Mexico.
Wal-Mart, as an example, hopes to open 300 new stores in Mexico in 2010 alone. So you're seeing lots of good signs in Mexico.
As we've said many times, our job is to provide the credibility by finishing what we have in Mexico and getting it leased and we are now proud to say that construction is essentially completed. All of our projects are now open for business with anchor tenants in place.
We have some second phases to finish and a total construction budget of only about $20 million to complete what we're doing in Mexico. We do have two larger projects in South America that are commencing now.
But in terms of Mexico, we are largely complete and we have what we think is significant upside as we get that space leased. Time will tell whether new development makes economic sense.
I think rents will have to go up materially and returns will have to be material. And I think we've had some lessons learned in our own mind about building smaller rather than larger projects in Mexico.
But we are certainly open to looking at opportunities from our valued anchor tenants like HEB and Wal-Mart and Home Depot over time. Part of those Home Depots that Milton talked about earlier, a significant number of them are in Mexico and every single one of these ground leases has a full cost of living increase as opposed to our Home Depot leases in the U.S.
So it continues to be intriguing to us to invest in Mexico. Like everybody else, and I'm sorry to be long winded, we have a little bit of concern about the drug violence headlines and so forth.
But the truth is underneath those headlines is a strong economy. Industrial production has picked up substantially, jobs are increasing the auto sector in particular is growing again in Mexico.
So there's some good things happening there, coupled with the fact that it's so understored, less than a 1000 shopping centers for a population of 100 million people.
Operator
We'll take our next question from Steve Sakwa with ISI Group.
Steve Sakwa – ISI Group
Good morning. Dave, I just wanted to kind of stay on the, I guess South American, Mexican development.
Can you just talk a little bit about the demand you're seeing, the lease of that small shop space in Mexico, the expected returns and I know it's a little bit early to think about U.S. development.
But I think you made a comment that some larger stores are having tough times maybe thinking about their 2012 open. So how do you start to think about U.S.
development and what's the right spread between Mexican yields and U.S. yields?
Dave Henry
Those are all tough questions. I think we are seeing and some of our – some of our peers are seeing for instance, several grocery stores want to anchor and build new stores in the U.S.
So you're already seeing a little bit of development happening, driven by strong anchors that want to have new stores and they're willing to pay higher rents to have that done, particularly in markets like the northeast. So I'd say you're seeing the beginnings of it already in the U.S.
Most developers though, can't get financing, most developers can't make the numbers work, so to Milton's point, it's going to be very limited probably for an extended period of time in terms of adding new supply to the U.S. Places like Mexico, you still have concerns.
We saw the currency as an example, decrease by about 40% at the height of the crisis. That is a huge factor in considering what yield you should be willing to invest in new developments in Mexico.
So I would say for us, there has to be a 300 or 400 basis points difference in unleveraged yield to be attractive again because you are taking currency risk as you move into a market like Mexico. In terms of the small stores, I think you asked a question about that, we are seeing increasing demand from the small stores rents are lower than they were in the beginning.
But the leasing activity is accelerating and those rents will accelerate or are beginning to accelerate again. So I think there's a lot of green lights in Mexico for us right now and we're determined to get our centers up to a stabilized occupancy and prove the case.
And then we'll take a look at new opportunities.
Operator
We'll take our next question from Michael Mueller from J.P. Morgan.
Michael Mueller – J.P. Morgan
Yeah, hi. Question on the development pipelines.
Wondering if you could try to put some parameters around how leasing is – how the pace of lease up is occurring. How far out – how far we are out from stabilization on maybe the different buckets in terms of what's recently completed the stuff that's in the operating portfolio, et cetera?
Milton Cooper
Mike, are you focused on the U.S., Mexico or both?
Michael Mueller – J.P. Morgan
Actually, both. And the other question was are you seeing the pace of lease up dramatically differ when you're looking outside of the U.S.
versus in the U.S. as well?
Milton Cooper
Well, I would take – or echo Dave's position that most of the remaining lease up requirements are occurring in Mexico and we have seen a pick up from where we were six, nine months ago. What we've talked about in terms of those projects, which are recently completed construction and now we're focusing on stabilization.
It's going to be a two year period before we reach stabilization. Different projects have different time lines, but I think that's a rough order of justice.
The U.S. is a very different situation where we have been out of the development business now, the KBI business for quite a period of time.
We do have a series of remaining projects which do require some further lease up. That's more assets specific, so I think in that situation that – of those remaining projects, I believe there are somewhere in the neighborhood of five projects that are in operating, but are still pending stabilization.
I think it will be at least another year plus before we get those stabilized. And that again, reflective of the market, reflective of the areas that they are in and what was a very severe lack of demand a year plus ago, so it will take some time.
But the good news in all of that is that proportioned to our entire portfolio is relatively small as we think about the U.S. component.
Operator
We'll take our next question from Paul Morgan with Morgan Stanley.
Paul Morgan – Morgan Stanley
Hey, good morning. On the junior anchors, are you seeing any new takers of that space or I mean is the industry still really dependent on that, I mean the current set of junior anchors deciding to get more aggressive on store openings and if that's so, how selectively are you starting to see that?
Milton Cooper
Rob, perhaps you could address that question in terms of users.
Rob Nadler
Yeah. There is a few new Bed, Bath & Beyond, for instance, is very aggressive with their Christmas Tree, which is a junior anchor size store that's in its infancy right now.
Similarly, Bed, Bath has their Bye, Bye, Baby, which is very similar to a Babies R Us and is under 30 stores today and in its infancy in terms of growth. You're seeing tenants like Nordstrom Rack being very aggressive, Ross with their DD's concept being very aggressive.
TJ Max looking at some new concepts in the 10,000 to 12,000 square feet being aggressive. So we're seeing an increase.
It's not wildly crazy, but we are seeing an increase and as mentioned earlier, we're seeing a nice stabilization of rents and several of these guys are sitting on a lot of cash and unable to fill their expansion needs today, again due to a lack of new development that's occurring.
Operator
(Operator Instructions) Our next question is a follow-up from Mike Bilerman at Citi.
Quentin Velleley – Citi
Yeah, hi. It's Quentin here again.
Just in terms of your leasing spreads and I know that you exclude leases that or new leases on space that's been vacant for more than 12 months. Could you give us a sense of what kind of spreads, new leases that have been granted in 12 months are vacant and what those spreads would have been?
Milton Cooper
Quentin, could you repeat the second part of your statement because you were fading out? I apologize.
Quentin Velleley – Citi
Yeah. I was just asking basically what the leasing spreads on new leases would have been if you had have included space that was vacant for more than 12 months?
Milton Cooper
Okay. Since we're reporting on a 12-month basis, I don't have that on my fingertips but we will…
Barbara Pooley
We do have it. I do have it.
I'm looking – I had somebody go run get it because we did look at down 24-months to see what that looked like.
Milton Cooper
Give us a couple of minutes and we'll have it for you.
Dave Henry
We'll address it before the end of the call, Quentin, okay?
Mike Pappagallo
These people are calculating it as we speak.
Barbara Pooley
We'll come back to you, Quentin.
Mike Pappagallo
We promise, we'll let you back in.
Milton Cooper
We got it, Quentin. It's 10%.
10% on new leases, flat on renewals so in the aggregate, it's minus 2% when you put in the new leases and the renewals together. So you're looking at a 24-month down time.
Does that help?
Quentin Velleley – Citi
Yeah. Got you.
Thanks.
Milton Cooper
Yeah. Okay.
Operator
And we'll take our next question from Ross Nussbaum with UBS.
Ross Nussbaum – UBS
Good morning, everyone. I'm curious what your reaction is to the first quarter retail sales numbers and I don't know if you had a chance to look at the April comps that just came in that were largely disappointing with a good two thirds of retailers missing expectations.
How much of what we saw in the first quarter do you think was a little bit of a flash in the pan, knee-jerk. How sustainable do you think it is, how concerned are you about what you see in the economy and do you think that the renewed interest from retailers is something that could recool off again, 6, 12 months from now?
Mike Pappagallo
It's a very good question. I am – I have been waiting for the report, so I've not studied April.
I have been anxiously waiting, as you know, March was very, very good fueled by, I think a lot of pent up demand as well as a Easter falling in the first week of April and a lot of the sales hitting in March. Recent meetings that I had in fact as recently as yesterday and the day before with several national retailers, there continues to be just cautious optimism on these guys' behalf, that the consumer is not – the consumer is still buying mostly out of need today and mostly looking to buy necessity goods, which fits well for our particular portfolio.
So they're not coming back in herds, but they are coming back. They have pent up demand.
The economy seems to be stabilizing and growing again, confidence is increasing, although unemployment figures are still not where people would like to be with the housing sector, but the retailers I talk to are cautiously optimistic. It's very interesting, again, the lack of new product, the guys that have survived this great recession, the solid retailers with good financial statements are sitting on very healthy earnings today.
They've done an excellent job of downsizing their overhead and their costs and watching their margins and inventory control. They're in very good position today and some are very actually frustrated, not being able to find as many locations as they would like to fill.
I was with Shoe Carnival yesterday who was looking for 30 to 35 and only has 10 to 12 spots right now that they'd like to fill, again, sitting on a lot of cash and in position to grow. So I'm optimistic, cautiously so, but I think there will be good, steady growth this year and I've not – again, I've not studied April but I'm anxious to take a look at it.
Operator
(Operator Instructions). We'll take our next question from Chris Lucas at Robert W.
Baird.
Chris Lucas – Robert W. Baird
Good morning, everyone. Just a question on the junior box environment.
What do you have left in terms of vacancies and what kind of activity are you seeing on that – on those spaces at this point?
Mike Pappagallo
Well, I can tell you that from the original inventory of Linens, Circuit, Value City and a couple of other smaller junior boxes. We had originally 76 boxes to fill with our per rata share generally about 2 million square feet.
We have successfully released over half of them. There were also eight or nine or so that were sold.
We have seven under letter of intent. That leaves you with about 20 some odd that we are still working in the process and we've had various degrees of interest.
But certainly this is the more difficult – the most difficult space in the portfolio. So there will – there will continue to be efforts on it but it may be longer term, more difficult to lease.
That said, to echo Rob's earlier point, there is an increasing amount of activity by retailers and some pent up frustration in terms of utilizing their cash and increasing their footprint, so over time if the economy continues to improve and their expansion plans can be met, these boxes can be filled. It will most likely result in lower leasing spreads, so there may be some headline continuation of lower – negative leasing spreads because – driven by these releases, but we recognize that's going to be part of the environment and would be more than happy to accept it and fill these but could be chronic vacancy.
But again, putting it all in context, Chris, I mean the 20 some odd boxes that are left represent for Kimco about – on a pro rata basis about 700,000 square feet. You put that in context of our overall portfolio, it's just not very impactful.
Operator
And we'll take a follow-up question from Nathan Isbee at Stifel Nicolaus.
Nathan Isbee – Stifel Nicolaus
Yeah. Given you just closed on the first of – I guess the second generation of joint ventures, aside from Kimco keeping a bigger equity piece, what are some of the other changes that Kimco has implemented in these JVs, i.e.
higher fees?
Mike Pappagallo
I'm glad you asked. It's a very good question.
We are encouraged because as we find new institutional partners, the fee structure has actually improved. Some of these older joint ventures that we have, because they were such large joint ventures, we were not able to negotiate the asset management fees and some of the other fees that we are now able to get in some of the newer joint ventures.
So the economics for us is improved with the new generation of joint venture partners and we are being adequately compensated as the operating partner for a whole host of services that range from property management to leasing, to construction management, to providing financing and so forth. So we're happy about the fee structure of the newer joint ventures.
Operator
And we'll take a follow-up question from Jay Habermann with Goldman Sachs.
Jay Habermann – Goldman Sachs
Hi again. Milton, you made some comments on your top five retailers.
I'm wondering if you can just speak broadly in terms of – I mean do you have a sense that retailers are adequately investing in their stores in terms of CapEx? And this would be their existing stores.
And could you also touch on Sears, Kmart?
Milton Cooper
Well, I guess the exception has been that Sears has historically put relatively little capital in its stores. There seems to be a change in that and they are beginning to do some upgrading.
Now, insofar as Sears and Kmart, their philosophy is it is a cardinal sin to sell anything at a loss, which means they don't have loss leaders and don't generate the same kind of traffic that the other retailers do. That, if you look at the last quarter, has begun to improve.
So the jury is out. Sears has some very sophisticated investors who are fans of – they're Eddie Lambert fans and I think it's going to get better.
Certainly their balance sheet is very strong.
Barbara Pooley
Operator?
Dave Henry
Are there any further questions?
Operator
Yes. Our next question comes from Mike Bilerman with Citi.
This is a follow-up.
Mike Bilerman – Citi
Yes. It's Michael Bilerman speaking this time.
I guess, Dave, just thinking about the PL retail and having done the CPP deal and it sounds like the other couple of transactions that are in the work, as you think back to having bought the assets at around a 7.4 and then all of your contributions, I'm not sure if you were marking those assets up relative to that initial purchase price, in which case, the assets that you're going to wholly own at the end of the day out of that portfolio, you effectively got a higher yield relative to your initial expectations. Can you just walk through sort of that math and where you sort of stand?
Dave Henry
Well, first of all, it was a 7.6. We'd like you to at least give us credit for the higher cap rate, which was public.
You are essentially correct. I have to be careful exactly how we walk you through the math, but you're essentially correct that the cap rate that we sold the assets into the CPP venture were sold at a lower cap rate than the average cap rate that we bought the entire portfolio.
And CPP has authorized us to say that this new cap rate on these assets fully reflects the premium quality of those assets. So the blend, you're right, leaves us with a significantly higher cap rate on the residual assets that we had in the portfolio.
I can't give you the exact math because we are limited from what we can say but your theory is essentially correct.
Mike Bilerman – Citi
It's in the top and the bottom, is that – I mean just round – you don't have to give me the exact, but just somewhere in the round ballpark.
Dave Henry
Again, I – we've negotiated carefully what we can say. We can say that the cap rate paid was less than the average and that the cap rate paid fully reflects the high quality of the assets.
And third, that CPP will pay us asset management fees and other fees that are normally in our joint venture agreements. So net, net, net, it's a very nice deal for both parties.
Mike Bilerman – Citi
And just following up on that just quickly, you think back to, I think you mentioned, substantially increase the joint venture activity or the partners want to substantially increase their funding and you talked about how it would be a little bit of a shuffle between your joint ventures currently. When you think about them going and putting new capital work, CPP going out and buying new assets rather than assets on your books, how much capital are you earmarking for those efforts of new equity capital from your balance sheet and where is that going to – where are you going to source that from?
Are you going to sell more assets or are you going to look to the equity markets to keep your leverage levels in check?
Mike Pappagallo
Well, Mike, the way I would respond to that is from time to time you see a sources and uses of our – for 2010, '11 and '12, we oftentimes publish that in our various public presentations. You will see that we have earmarked an additional estimate of about $100 million per year for what is called acquisition activity and that represents acquisitions, whether it be participation in new JVs, new capital.
You also see on the other side of the ledger that we talk about dispositions of retail properties of a similar amount and that's in addition to the joint venture activity that we – like CP that we've talked about. Bottom line is that that base case plan using $100 million of Kimco equity does not contemplate common equity raised for the purpose.
There are more significant transactions, very accretive transactions as I've said very often. We would pursue the equity market if it makes sense and we can justify an accretive and value enhancing transaction.
But the base case plan now does not require it.
Mike Bilerman – Citi
Thank you.
Operator
And we'll take a follow-up question from Chris Lucas with Robert W. Baird.
Chris Lucas – Robert W. Baird
Yes. Just a – kind of along the same lines, just some – maybe some color on the equity in JVs of 13 million that is – that was in the transactionals profits for the quarter.
Can you give us some context for that?
Mike Pappagallo
The two things there, Chris, there was some – this was some of the transactional activity was generated. In one case, it relates to our investment in Albertson's, where that enterprise did sell some facilities, generating a profit and as you know, the Albertson's transaction gains and losses have historically been recognized in our funds from operation.
It's in a taxable REIT subsidiary. And secondly in one of our operating properties, we did get an excess distribution on a refinancing of distribution.
You can see that as an excess funding or promote, however you want to frame it that also hit the bottom line. Those were the two major drivers of the first quarter transactional activity.
I would also mention that that second item was originally contemplated in our budget and in our FFO guidance that you see in the supplemental. The Albertson's transaction was not.
Chris Lucas – Robert W. Baird
Okay. Great.
Thank you.
Operator
And we'll take our last question today from Nathan Isbee at Stifel Nicolaus.
Dave
Hey it's Dave Fick with Nate. David, following back on your observations regarding Mexico, I think you know I've had a chance to see some of those assets very recently and clearly it's accurate to say there's a lot of population that's underserved but it's very different in its characteristics.
I'm just wondering if you were to take, say, an asset like your Reynosa HEB anchored center and compare it to a similar center across the border in McAllen, what type of risk premiums are appropriate given that there are many fewer investors who might someday be willing to take you out of that asset and given the political and now crime related risk?
Fick – Stifel Nicolaus
Hey it's Dave Fick with Nate. David, following back on your observations regarding Mexico, I think you know I've had a chance to see some of those assets very recently and clearly it's accurate to say there's a lot of population that's underserved but it's very different in its characteristics.
I'm just wondering if you were to take, say, an asset like your Reynosa HEB anchored center and compare it to a similar center across the border in McAllen, what type of risk premiums are appropriate given that there are many fewer investors who might someday be willing to take you out of that asset and given the political and now crime related risk?
Dave Henry
It's difficult to say what the market cap rate in Mexico is today, because there's been a total lack of transactions for a significant period of time and many investors have withdrawn from the Latin American market, as they've chased better opportunities in the US as cap rates went up for a period of time. Now you're seeing that starting to reverse itself again.
You're seeing investors begin to express interest in Latin America, both Mexico and Brazil being high on the – high on the charts. Myself, I believe given that every single lease has a full cost of living factor in it, including our anchors, including the fact that, for instance, every single one of our theaters has a substantial percentage rent provision on top of the CPIs, that that will begin to be very interesting for institutions to acquire these assets that are a much better inflation hedge than retail assets in the U.S.
The credit quality of what we have, as you know, our anchor tenant, our income from anchor tenants, I think it's 36%, something like that in Mexico, which is far higher than others. We have over 30 Wal-Mart leases in Mexico as an example, so I believe that as the market recovers, these centers will be in great demand.
At the peak, they traded at cap rates of 8%. If you remember, there was several very large transactions in Monterey that traded at an 8.
I am not sure I could give you a guess today what the cap rate would be, but it would be above that but I believe it's rapidly going to come back down.
Dave Fick – Stifel Nicolaus
I guess my question is what would be your yield premium required to invest now there compared to a similar asset in the US as opposed to what the market is?
Dave Henry
Well, again, you have two types of assets. Most our investment has been development assets and development yield, as I said, would have to be substantially higher than a U.S.
development yield. I would say in the mid-teens before it would start to be intriguing and most of that income would have to come from pre-leasing and anchor tenants.
In terms of existing assets, I'd say it would have to be definitely double-digits, 11 or 12, something like that as a base case for us to be interested. But again, there's virtually nothing for sale right now.
Dave Fick – Stifel Nicolaus
Great. Thanks.
Dave Henry
And we're still very proud of you seeing our properties on a motorcycle.
Operator
At this time we have no further questions. I'll turn it over to Miss Pooley, for any closing remarks.
Barbara Pooley
Thanks. As a reminder, our supplemental is on our website, www.kimcorealty.com.
Thanks everybody for participating today.
Operator
That does conclude today's conference. Thank you for your participation.