Kimco Realty - 10-K annual report

PART I

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K, together with other statements and information publicly disseminated by Kimco Realty Corporation (the "Company" or "Kimco") contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions.  Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company’s control and which could materially affect actual results, performances or achievements.  Factors which may cause actual results to differ materially from current expectations include, but are not limited to, (i) general economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing on favorable terms, (iv) changes in governmental laws and regulations, (v) the level and volatility of interest rates and foreign currency exchange rates, (vi) the availability of suitable acquisition opportunities and (vii) increases in operating costs. Accordingly, there is no assurance that the Company’s expectations will be realized.

SHARE SPLIT

As of August 23, 2005, the Company effected a two-for-one split (the "Stock Split") of the Company’s common stock in the form of a stock dividend paid to stockholders of record on August 8, 2005.  All common share and per common share data included in this annual report on Form 10-K and the accompanying Consolidated Financial Statements and Notes thereto have been adjusted to reflect this Stock Split.

Item 1.  Business

General  

Kimco Realty Corporation, a Maryland corporation, is one of the nation's largest owners and operators of neighborhood and community shopping centers.  The terms "Kimco", the "Company", "we", "our" and "us" each refer to Kimco Realty Corporation and our subsidiaries unless the context indicates otherwise.  The Company is a self-administered real estate investment trust ("REIT") and its management has owned and operated neighborhood and community shopping centers for over 45 years.  The Company has not engaged, nor does it expect to retain, any REIT advisors in connection with the operation of its properties.  As of December 31, 2007, the Company had interests in 1,973 properties, totaling approximately 183 million square feet of gross leasable area ("GLA") located in 45 states, Canada, Mexico, Puerto Rico and Chile. The Company’s ownership interests in real estate consist of its consolidated portfolio and in portfolios where the Company owns an economic interest, such as properties in the Company’s investment management programs, where the Company partners with institutional investors and also retains management (See Note 7 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K).  The Company believes its portfolio of neighborhood and community shopping center properties is the largest (measured by GLA) currently held by any publicly traded REIT.

The Company's executive offices are located at 3333 New Hyde Park Road, New Hyde Park, New York 11042-0020 and its telephone number is (516) 869-9000.  Unless the context indicates otherwise, the term the "Company" as used herein is intended to include all subsidiaries of the Company.

The Company’s web site is located at http://www.kimcorealty.com.  The information contained on our web site does not constitute part of this Annual Report on Form 10-K.  On the Company’s web site you can obtain, free of charge, a copy of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and

amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as amended, as soon as reasonably practicable after we file such material electronically with, or furnish it to, the Securities and Exchange Commission (the "SEC").

History

The Company began operations through its predecessor, The Kimco Corporation, which was organized in 1966 upon the contribution of several shopping center properties owned by its principal stockholders.  In 1973, these principals formed the Company as a Delaware corporation, and in 1985, the operations of The Kimco Corporation were merged into the Company.  The Company completed its initial public stock offering (the "IPO") in November 1991, and commencing with its taxable year which began January 1, 1992, elected to qualify as a REIT in accordance with Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code").  In 1994, the Company reorganized as a Maryland corporation.

The Company's growth through its first 15 years resulted primarily from the ground-up development and construction of its shopping centers.  By 1981, the Company had assembled a portfolio of 77 properties that provided an established source of income and positioned the Company for an expansion of its asset base.  At that time, the Company revised its growth strategy to focus on the acquisition of existing shopping centers and creating value through the redevelopment and re-tenanting of those properties.  As a result of this strategy, a majority of the operating shopping centers added to the Company’s portfolio since 1981 have been through the acquisition of existing shopping centers.

During 1998, the Company, through a merger transaction, completed the acquisition of The Price REIT, Inc., a Maryland corporation, (the "Price REIT").  Prior to the merger, Price REIT was a self-administered and self-managed equity REIT that was primarily focused on the acquisition, development, management and redevelopment of large retail community shopping center properties concentrated in the western part of the United States.  In connection with the merger, the Company acquired interests in 43 properties, located in 17 states.  With the completion of the Price REIT merger, the Company expanded its presence in certain western states including Arizona, California and Washington.  In addition, Price REIT had strong ground-up development capabilities.  These development capabilities, coupled with the Company’s own construction management expertise, provide the Company the ability to pursue ground-up development opportunities on a selective basis.

Also during 1998, the Company formed Kimco Income REIT ("KIR"), an entity in which the Company held a 99.99% limited partnership interest.  KIR was established for the purpose of investing in high-quality properties financed primarily with individual non-recourse mortgages.  The Company believed that these properties were appropriate for financing with greater leverage than the Company traditionally used.  At the time of formation, the Company contributed 19 properties to KIR, each encumbered by an individual non-recourse mortgage.  During 1999, KIR sold a significant interest in the partnership to institutional investors, thus establishing the Company’s investment management program.  The Company holds a 45.0% non-controlling limited partnership interest in KIR and accounts for its investment in KIR under the equity method of accounting.  (See Note 7 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

The Company has expanded its investment management program through the establishment of other various institutional joint venture programs in which the Company has non-controlling interests ranging generally from 5% to 45%.  The Company’s largest joint venture, Kimco Prudential Joint Venture ("KimPru"), was formed in 2006, in connection with the Pan Pacific Retail Properties Inc. ("Pan Pacific") merger transaction, with Prudential Real Estate Investors ("PREI"), which holds approximately $3.6 billion in assets.  The Company earns management fees, acquisition fees, disposition fees and promoted interests based on value creation.  As of December 31, 2007, the Company’s assets under management were valued at approximately $14.0 billion, comprising 441 properties.  (See Note 7 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

In connection with the Tax Relief Extension Act of 1999 (the "RMA") which became effective January 1, 2001, the Company is permitted to participate in activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Code, subject to certain limitations.  As such, the Company, through its taxable REIT subsidiaries, is engaged in various retail real estate related opportunities, including (i) merchant building through its

wholly-owned taxable REIT subsidiaries, including Kimco Developers, Inc. ("KDI"), which are primarily engaged in the ground-up development of neighborhood and community shopping centers and subsequent sale thereof upon completion (see Recent Developments - Ground-Up Development), (ii) retail real estate advisory and disposition services, which primarily focus on leasing and disposition strategies for real estate property interests of both healthy and distressed retailers and (iii) acting as an agent or principal in connection with tax-deferred exchange transactions.  The Company will consider other investments through taxable REIT subsidiaries should suitable opportunities arise.

The Company has continued its geographic expansion with investments in Canada, Mexico,  Puerto Rico and Chile. During October 2001, the Company formed the RioCan Venture ("RioCan Venture") with RioCan Real Estate Investment Trust ("RioCan", Canada’s largest publicly traded REIT measured by GLA) in which the Company has a 50% non-controlling interest, to acquire retail properties and development projects in Canada.  The Company accounts for this investment under the equity method of accounting.  The Company has expanded its presence in Canada with the establishment of other joint venture arrangements.  During 2002, the Company, along with various strategic co-investment partners, began acquiring operating and development properties located in Mexico.  During 2006, the Company acquired interests in shopping center properties located in Puerto Rico through joint ventures in which the Company holds controlling ownership interests.  During 2007, the Company acquired an interest in four shopping center properties located in Chile through a joint venture in which the Company holds a non-controlling ownership interest. (See Notes 3 and 7 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

In addition, the Company continues to capitalize on its established expertise in retail real estate by establishing other ventures in which the Company owns a smaller equity interest and provides management, leasing and operational support for those properties.  The Company also provides preferred equity capital for real estate entrepreneurs and provides real estate capital and advisory services to both healthy and distressed retailers.  The Company also makes selective investments in secondary market opportunities where a security or other investment is, in management’s judgment, priced below the value of the underlying assets.

Investment and Operating Strategy

The Company's investment objective has been to increase cash flow, current income and, consequently, the value of its existing portfolio of properties and to seek continued growth through (i) the strategic re-tenanting, renovation and expansion of its existing centers and (ii) the selective acquisition of established income-producing real estate properties and properties requiring significant re-tenanting and redevelopment, primarily in neighborhood and community shopping centers in geographic regions in which the Company presently operates.  The Company has and will continue to consider investments in other real estate sectors and in geographic markets where it does not presently operate should suitable opportunities arise.

The Company's neighborhood and community shopping center properties are designed to attract local area customers and typically are anchored by a discount department store, a supermarket or a drugstore tenant offering day-to-day necessities rather than high-priced luxury items.  The Company may either purchase or lease income-producing properties in the future and may also participate with other entities in property ownership through partnerships, joint ventures or similar types of co-ownership.  Equity investments may be subject to existing mortgage financing and/or other indebtedness.  Financing or other indebtedness may be incurred simultaneously or subsequently in connection with such investments.  Any such financing or indebtedness would have priority over the Company’s equity interest in such property. The Company may make loans to joint ventures in which it may or may not participate.

In addition to property or equity ownership, the Company provides property management services for fees relating to the management, leasing, operation, supervision and maintenance of real estate properties.

While the Company has historically held its properties for long-term investment and accordingly has placed strong emphasis on its ongoing program of regular maintenance, periodic renovation and capital improvement, it is possible that properties in the portfolio may be sold, in whole or in part, as circumstances warrant, subject to REIT qualification rules.

The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties and a large tenant base.  As of December 31, 2007, the Company's single largest

neighborhood and community shopping center accounted for only 1.7% of the Company's annualized base rental revenues and only 0.8% of the Company’s total shopping center GLA.  At December 31, 2007, the Company’s five largest tenants were The Home Depot, TJX Companies, Sears Holdings, Kohl’s and Wal-Mart, which represent approximately 3.2%, 2.8%, 2.3%, 2.0% and 1.9%, respectively, of the Company’s annualized base rental revenues, including the proportionate share of base rental revenues from properties in which the Company has less than a 100% economic interest.

In connection with the RMA, which became effective January 1, 2001, the Company has expanded its investment and operating strategy to include new real estate-related opportunities which the Company was precluded from previously in order to maintain its qualification as a REIT.  As such, the Company has established a merchant building business through its wholly owned taxable REIT subsidiaries, which make selective acquisitions of land parcels for the ground-up development primarily of neighborhood and community shopping centers and subsequent sale thereof upon completion.  Additionally, the Company has developed a business which specializes in providing capital, real estate advisory services and disposition services of real estate controlled by both healthy and distressed and/or bankrupt retailers.  These services may include assistance with inventory and fixture liquidation in connection with going-out-of-business sales.  The Company may participate with other entities in providing these advisory services through partnerships, joint ventures or other co-ownership arrangements. The Company, as a regular part of its investment strategy, will continue to actively seek investments for its taxable REIT subsidiaries.

The Company emphasizes equity real estate investments including preferred equity investments, but may, at its discretion, invest in mortgages, other real estate interests and other investments. The mortgages in which the Company may invest may be either first mortgages, junior mortgages or other mortgage-related securities.  The Company provides mortgage financing to retailers with significant real estate assets, in the form of leasehold interests or fee-owned properties, where the Company believes the underlying value of the real estate collateral is in excess of its loan balance.  In addition, the Company will acquire debt instruments at a discount in the secondary market where the Company believes the asset value of the enterprise is greater than the current value.

The Company may legally invest in the securities of other issuers, for the purpose, among others, of exercising control over such entities, subject to the gross income and asset tests necessary for REIT qualification.  The Company may, on a selective basis, acquire all or substantially all securities or assets of other REITs or similar entities where such investments would be consistent with the Company’s investment policies.  In any event, the Company does not intend that its investments in securities will require it to register as an "investment company" under the Investment Company Act of 1940.

The Company has authority to offer shares of capital stock or other senior securities in exchange for property and to repurchase or otherwise reacquire its common stock or any other securities and may engage in such activities in the future.  At all times, the Company intends to make investments in such a manner as to be consistent with the requirements of the Code to qualify as a REIT unless, because of circumstances or changes in the Code (or in Treasury Regulations), the Board of Directors determines that it is no longer in the best interests of the Company to qualify as a REIT.

Capital Strategy and Resources

The Company intends to operate with and maintain a conservative capital structure with a level of debt to total market capitalization of approximately 50% or less.  As of December 31, 2007, the Company’s level of debt to total market capitalization was 30%.  In addition, the Company intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to maintaining its investment-grade debt ratings.  It is management's intention that the Company continually have access to the capital resources necessary to expand and develop its business.  Accordingly, the Company may, from time-to-time, seek to obtain funds through additional common and preferred equity offerings, unsecured debt financings and/or mortgage/construction loan financings and other capital alternatives in a manner consistent with its intention to operate with a conservative debt structure.

Since the completion of the Company's IPO in 1991, the Company has utilized the public debt and equity markets as its principal source of capital for its expansion needs.  Since the IPO, the Company has completed additional offerings of its public unsecured debt and equity, raising in the aggregate over $5.7 billion.  Proceeds from public capital market

activities have been used for repaying indebtedness, acquiring interests in neighborhood and community shopping centers, funding ground-up development projects, expanding and improving properties in the portfolio and other investments, among other things.  The Company also has revolving credit facilities totaling approximately $1.8 billion available for general corporate purposes.  At December 31, 2007 the Company had approximately $282.2 million outstanding on the facilities.  In March 2006, the Company was added to the S & P 500 Index, an index containing the stock of 500 Large Cap companies, most of which are U.S. corporations.  For further discussion regarding capital strategy and resources, see Management’s Discussion and Analysis of Results of Operations and Financial Condition - Financing Activities.

Competition  

As one of the original participants in the growth of the shopping center industry and one of the nation's largest owners and operators of neighborhood and community shopping centers, the Company has established close relationships with a large number of major national and regional retailers and maintains a broad network of industry contacts.  Management is associated with and/or actively participates in many shopping center and REIT industry organizations.  Notwithstanding these relationships, there are numerous regional and local commercial developers, real estate companies, financial institutions and other investors who compete with the Company for the acquisition of properties and other investment opportunities and in seeking tenants who will lease space in the Company’s properties.

Operating Practices

Nearly all operating functions, including leasing, legal, construction, data processing, maintenance, finance and accounting, are administered by the Company from its executive offices in New Hyde Park, New York and supported by the Company’s regional offices.  The Company believes it is critical to have a management presence in its principal areas of operation and accordingly, the Company maintains regional offices in various cities throughout the United States.  As of December 31, 2007, a total of 682 persons are employed at the Company's executive and regional offices.

The Company's regional offices are generally staffed by a regional business leader and the operating personnel necessary to both function as local representatives for leasing and promotional purposes, to complement the corporate office’s administrative and accounting efforts and to ensure that property inspection and maintenance objectives are achieved.  The regional offices are important in reducing the time necessary to respond to the needs of the Company's tenants.  Leasing and maintenance personnel from the corporate office also conduct regular inspections of each shopping center.

As of December 31, 2007, the Company also employs a total of 44 persons at several of its larger properties in order to more effectively administer its maintenance and security responsibilities.

Qualification as a REIT  

The Company has elected, commencing with its taxable year which began January 1, 1992, to qualify as a REIT under the Code.  If, as the Company believes, it is organized and operates in such a manner so as to qualify and remain qualified as a REIT under the Code, the Company generally will not be subject to federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under the Code.

In connection with the RMA, the Company’s taxable subsidiaries may participate in activities from which the Company was previously precluded, subject to certain limitations.  The primary activities of the Company’s taxable REIT subsidiaries during 2007 included, but were not limited to, (i) the ground-up development of shopping center properties and subsequent sale thereof upon completion (see Recent Developments - Ground-Up Development), (ii) real estate advisory and disposition services, including the Company’s investment in Albertson’s described below and (iii) acting as an agent or principal in connection with tax deferred exchange transactions.  The Company was subject to federal and state income taxes on the income from these activities.

Recent Developments

The following describes the Company’s significant transactions completed during the year ended December 31, 2007. (See Notes 3, 4 and 7 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

Operating Properties - -

Acquisitions - -

During 2007, the Company acquired, in separate transactions, 43 operating properties, comprising an aggregate 3.6 million square feet of GLA for an aggregate purchase price of approximately $1.0 billion, including the assumption of approximately $114.3 million of non-recourse mortgage debt encumbering nine of the properties.

Dispositions - -

During 2007, the Company (i) disposed of six operating properties and completed partial sales of three operating properties, in separate transactions, for an aggregate sales price of approximately $40.0 million, which resulted in an aggregate net gain of approximately $6.4 million, after income tax of approximately $1.6 million, and (ii) transferred one operating property, which was acquired in the first quarter of 2007, to a joint venture in which the Company holds a 15% non-controlling ownership interest for an aggregate price of approximately $4.5 million, which represented the net book value.

Additionally, during 2007, two consolidated joint ventures in which the Company had preferred equity investments disposed of, in separate transactions, their respective properties for an aggregate sales price of approximately $66.5 million.  As a result of these capital transactions, the Company received approximately $22.1 million of profit participation, before minority interest of approximately $5.6 million.  This profit participation has been recorded as income from other real estate investments and is reflected in Income from discontinued operating properties in the Company’s Consolidated Statements of Income.

Redevelopments -

The Company has an ongoing program to reformat and re-tenant its properties to maintain or enhance its competitive position in the marketplace.  During 2007, the Company substantially completed the redevelopment and re-tenanting of various operating properties.  The Company expended approximately $70.1 million in connection with these major redevelopments and re-tenanting projects during 2007. The Company is currently involved in redeveloping several other shopping centers in the existing portfolio.  The Company anticipates its capital commitment toward these and other redevelopment projects will be approximately $90.0 million to $110.0 million during 2008.  

Ground-Up Development -

The Company is engaged in ground-up development projects which consist of (i) merchant building through the Company’s wholly-owned taxable REIT subsidiaries, which develop neighborhood and community shopping centers and the subsequent sale thereof upon completion, (ii) U.S. ground-up development projects which will be held as long-term investments by the Company and (iii) various ground-up development projects located in Mexico for long-term investment (see Recent Developments - International Real Estate Investments and Note 3 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K).  The ground-up development projects generally have significant pre-leasing prior to the commencement of construction. As of December 31, 2007, the Company had in progress a total of 60 ground-up development projects including 27 merchant building projects, nine U.S. ground-up development projects, and 24 ground-up development projects located throughout Mexico.

Merchant Building -

As of December 31, 2007, the Company had in progress 27 merchant building projects located in 13 states.  During 2007, the Company expended approximately $269.6 million in connection with the purchase of land and construction costs related to these projects and those sold during 2007.  As part of the Company’s ongoing analysis of its merchant building projects, the Company has determined that for two of its projects, located in Jacksonville, FL and Anchorage, AK, the recoverable value will not exceed their estimated cost.  This is primarily due to adverse changes in local market conditions and the uncertainty of those conditions in the future.  As a result, the Company has recorded an aggregate pre-tax adjustment of property carrying value on these projects for the year ended December 31, 2007, of $8.5 million, representing the excess of the carrying values of the projects over their estimated fair values.

The Company anticipates its capital commitment toward its merchant building projects will be approximately $200.0 million to $250.0 million during 2008.  The proceeds from the sale of completed ground-up development projects during 2008, proceeds from construction loans and availability under the Company’s revolving lines of credit are expected to be sufficient to fund these anticipated capital requirements.

Acquisitions -

During 2007, the Company acquired six land parcels, in separate transactions, for an aggregate purchase price of approximately $69.8 million.  The estimated project costs for these newly acquired parcels are approximately $95.2 million with completion dates ranging from October 2008 to June 2010.  

During 2007, the Company obtained individual construction loans on five merchant building projects and assumed one loan in connection with the acquisition of a merchant building project.  Additionally, the Company repaid construction loans on three merchant building projects. At December 31, 2007, total loan commitments on the Company’s 15 outstanding construction loans aggregated approximately $360.3 million of which approximately $245.9 million has been funded.  These loans have scheduled maturities ranging from one month to 33 months (excluding any extension options which may be available to the Company) and bear interest at rates ranging from 6.78% to 7.48% at December 31, 2007.

Dispositions -

During 2007, the Company sold, in separate transactions, (i) four of its recently completed merchant building projects, (ii) 26 out-parcels, (iii) 74.3 acres of undeveloped land and (iv) completed partial sales of two projects, for an aggregate total proceeds of approximately $310.5 million and received approximately $3.3 million of proceeds from completed earn-out requirements on previously sold projects.  These sales resulted in pre-tax gains of approximately $40.1 million.

U.S. Long-Term Investment Projects - -

During 2007, the Company expended approximately $7.7 million in connection with the purchase of undeveloped land in Union, NJ, which will be developed into a 0.2 million square foot retail center and approximately $21.5 million in connection with the purchase of three redevelopment properties located in Bronx, NY, which will be redeveloped into mixed-use residential/retail centers aggregating 0.1 million square feet.

As of December 31, 2007, the Company had in progress a total of nine U.S. long-term investment projects. The Company anticipates its capital commitment toward these projects will be approximately $60.0 million to $80.0 million during 2008.  The proceeds from construction loans and availability under the Company’s revolving lines of credit are expected to be sufficient to fund these anticipated capital requirements.

Kimsouth -

During June 2006, Kimsouth, a consolidated taxable REIT subsidiary in which the Company holds a 92.5% controlling interest, contributed approximately $51.0 million to fund its 15% non-controlling interest in a newly formed joint venture with an investment group to acquire a portion of Albertson’s Inc.  To maximize investment returns, the investment group’s strategy with respect to this joint venture, includes refinancing, selling selected stores and enhancing operations at the remaining stores.  During 2007, this joint venture completed the disposition of certain operating stores and a refinancing of the remaining assets in the joint venture.  As a result of these transactions Kimsouth received cash distributions of approximately $148.6 million.  Kimsouth has a remaining capital commitment obligation to fund up to an additional $15.0 million for general purposes.  Due to this remaining capital commitment, $15.0 million is included in Other liabilities in the Company’s Consolidated Balance Sheets.

During 2007, Kimsouth’s income from the Albertson’s joint venture aggregated approximately $49.6 million, net of income tax.  This amount includes (i) an operating loss of approximately $15.1 million, net of an income tax benefit of approximately $10.1 million, (ii) distribution in excess of Kimsouth’s investment of approximately $10.4 million, net

of income tax expense of approximately $6.9 million and (iii) an extraordinary gain of approximately $54.3 million, net of income tax expense of approximately $36.2 million, resulting from purchase price allocation adjustments.  Additionally, the Company reduced the valuation allowance that was applied against the Kimsouth net operating losses ("NOLs") resulting in an income tax benefit of approximately $31.2 million.  (See Notes 3 and 22 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

Additionally, during the year ended December 31, 2007, the Albertson’s joint venture acquired two operating properties for approximately $20.3 million, including the assumption of $18.5 million in non-recourse mortgage debt.

Investment and Advances in Real Estate Joint Ventures -

The Company has various institutional and non-institutional joint venture programs in which the Company has various non-controlling interests which are accounted for under the equity method of accounting.  (See Note 7 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

Acquisitions -

During 2007, the Company acquired, in separate transactions, 171 operating properties, through joint ventures in which the Company has various non-controlling interests for an aggregate purchase price of approximately $1.7 billion, including the assumption of approximately $867.1 million of non-recourse mortgage debt encumbering 158 of the properties and $177.5 million in proceeds from unsecured credit facilities obtained by two of the joint ventures.  The Company’s aggregate investment in these joint ventures was approximately $235.8 million.

Dispositions -

During 2007, joint ventures in which the Company has non-controlling interests disposed of, in separate transactions, (i) 44 properties for an aggregate sales price of approximately $1.3 billion resulting in an aggregate gain of approximately $145.0 million, of which the Company’s share was approximately $56.6 million and (ii) two vacant parcels of land for an aggregate sales price of $6.7 million, which represented their net book value.

Additionally, during 2007, joint ventures in which the Company has non-controlling interests transferred 17 operating properties for an aggregate sales price of approximately $825.2 million, including approximately $427.1 million of non-recourse mortgage debt, to newly formed joint ventures in which the Company holds 15% non-controlling ownership interests and manages.  As a result of these transactions, the Company recognized profit participation of approximately $3.7 million and deferred its share of the gain related to its remaining ownership interest in the properties.  

Also, during 2007, joint ventures in which the Company has non-controlling interests sold six operating properties to the Company for a sales price of approximately $151.9 million including the assumption of $50.3 million in non-recourse mortgage debt.  The Company’s share of the gain related to these transactions has been deferred.

International Real Estate Investments -

Canadian Investments- -

During 2007, the Company acquired, in separate transactions, two operating properties located in Canada, through newly formed joint ventures in which the Company has non-controlling interests. These properties were acquired for an aggregate purchase price of approximately CAD $23.0 million (approximately USD $21.2 million).  The Company’s aggregate investment in these joint ventures was approximately CAD $11.5 million (approximately USD $10.7 million).

During 2007, the Company provided, through five separate Canadian preferred equity investments, an aggregate of approximately CAD $28.0 million (approximately USD $27.6 million) to developers and owners of 17 real estate properties.

The Company generated equity in income from its unconsolidated Canadian investments in real estate joint ventures of approximately $22.5 million and $21.1 million during 2007 and 2006, respectively.  In addition, income from other unconsolidated Canadian real estate investments was approximately $35.1 million and $13.9 million during 2007 and 2006, respectively.

Mexican Investments -

During 2007, the Company acquired, in separate transactions, 18 operating properties located in various cities throughout Mexico, comprising an aggregate 0.8 million square feet of GLA for an aggregate purchase price of approximately 1.0 billion Mexican Pesos ("MXP") (approximately USD $90.4 million). (See Note 3 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

During 2007, the Company transferred in separate transactions, 50% of its 100% interest in seven projects located in Juarez, Tecamac, Mexicali, Cuaulta, Ciudad Del Carmen, Tijuana and Rosarito, Mexico to a joint venture partner for approximately $48.3 million, which approximated their carrying values.  As a result of these transactions, the Company has deconsolidated these entities and now accounts for its investments under the equity method of accounting.

During 2007, the Company acquired, in separate transactions, nine land parcels located in various cities throughout Mexico, for an aggregate purchase price of approximately MXP 1.1 billion (approximately USD $94.8 million).  Seven of these land parcels will be developed into retail centers aggregating approximately 2.8 million square feet of GLA with a total estimated aggregate project cost of approximately MXP 2.3 billion (approximately USD $210.2 million).

During 2007, the Company acquired, through a newly formed joint venture in which the Company has a controlling ownership interest, a 0.3 million square foot development project in Neuvo Vallarta, Mexico, for a purchase price of approximately MXP 119.5 million (approximately USD $11.0 million).  Total estimated project costs are approximately USD $28.3 million.

During 2007, the Company acquired, through a newly formed joint venture in which the Company has a non-controlling interest, a 0.1 million square foot development project in Mexico, for a purchase price of MXP 48.6 million (approximately USD $4.4 million).  Total estimated project costs are approximately USD $14.4 million.

During 2007, the Company acquired, in separate transactions, 21 operating properties located in various cities throughout Mexico, through joint ventures in which the Company has non-controlling interests. These properties were acquired for an aggregate purchase price of approximately MXP 1.4 billion (approximately USD $128.7 million).  The Company’s aggregate investment in these joint ventures was approximately MXP 701.5 million (approximately USD $64.4 million).

The Company recognized equity in income from its unconsolidated Mexican investments in real estate joint ventures of approximately $5.2 million and $11.8 million during 2007 and 2006, respectively.

The Company’s revenues from its consolidated Mexican subsidiaries aggregated approximately $8.5 million and $2.4 million during 2007 and 2006, respectively.

Chilean Investments- -

During April 2007, the Company acquired four operating properties located in Santiago, Chile, through a newly formed joint venture in which the Company has a non-controlling interest. These properties were acquired for an aggregate purchase price of approximately 8.7 billion Chilean Pesos ("CLP") (approximately USD $16.5 million), including the assumption of CLP 5.9 billion (approximately USD $11.1 million) of non-recourse mortgage debt.  The Company’s aggregate investment in this joint venture is approximately CLP 1.6 billion (approximately USD $3.0 million).  The Company recognized equity in income from this investment of approximately $0.1 million during 2007.

Other Real Estate Investments -

Preferred Equity Capital -

The Company maintains a Preferred Equity program, which provides capital to developers and owners of real estate properties.  During 2007, the Company provided in separate transactions, an aggregate of approximately $103.6 million in investment capital to developers and owners of 61 real estate properties, including the Canadian investments described above.  As of December 31, 2007, the Company’s net investment under the Preferred Equity program was

approximately $484.1 million relating to 258 properties. For the year ended December 31, 2007, the Company earned approximately $63.5 million, including $30.5 million of profit participation earned from 18 capital transactions from these investments.

Additionally, during July 2007, the Company invested approximately $81.7 million of preferred equity capital in a portfolio comprised of 403 net leased properties which are divided into 30 master leased pools with each pool leased to individual corporate operators.  These properties consist of a diverse array of free-standing restaurants, fast food restaurants, convenience and auto parts stores.  As of December 31, 2007 these properties were encumbered by third party loans aggregating approximately $433.0 million with interest rates ranging from 5.08% to 10.47% with a weighted average interest rate of 9.3% and maturities ranging from 1.4 years to 15.2 years.

Mortgages and Other Financing Receivables -

During 2007, the Company provided financing to six borrowers for an aggregate amount of up to approximately $96.9 million, of which $62.2 million was outstanding as of December 31, 2007.  As of December 31, 2007, the Company has 30 loans with total commitments of up to $185.0 million of which approximately $152.4 million has been funded. Availability under the Company’s revolving credit facilities are expected to be sufficient to fund these commitments. (See Note 9 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

Financing Transactions -

For discussion regarding financing transactions relating to the Company’s unsecured notes, credit facilities, non-recourse mortgage debt, construction loans and preferred stock issuance, see Management’s Discussion and Analysis of Results of Operations and Financial Condition - Financing Activities and Contractual Obligations and Other Commitments.  (See Notes 11, 12, 13 and 17 of the Notes to Consolidated Financial Statement included in this annual report on Form 10-K.)

Exchange Listings

The Company's common stock, Class F Depositary Shares and Class G Depositary Shares are traded on the NYSE under the trading symbols "KIM", "KIMprF" and “KIMprG”, respectively.

Item 1A. Risk Factors

We are subject to certain business risks including, among other factors, the following:

Loss of our tax status as a real estate investment trust could have significant adverse consequences to us and the value of our securities.

We have elected to be taxed as a REIT for federal income tax purposes under the Code.  We currently intend to operate so as to qualify as a REIT and believe that our current organization and method of operation complies with the rules and regulations promulgated under the federal income tax code to enable us to qualify as a REIT.

Qualification as a REIT involves the application of highly technical and complex federal income tax code provisions for which there are only limited judicial and administrative interpretations.  The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT.  New legislation, regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT, the federal income tax consequences of such qualification or the desirability of an investment in a REIT relative to other investments.  There can be no assurance that we have qualified or will continue to qualify as a REIT for tax purposes.

If we lose our REIT status, we will face serious tax consequences that will substantially reduce the funds available to pay dividends to stockholders. If we fail to qualify as a REIT:

·

we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates;

·

we could be subject to the federal alternative minimum tax and possibly increased state and local taxes;

·

unless we were entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we were disqualified; and

·

we would not be required to make distributions to stockholders.

As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and could adversely affect the value of our securities.

Adverse market conditions and competition may impede our ability to generate sufficient income to pay expenses and maintain properties.

The economic performance and value of our properties is subject to all of the risks associated with owning and operating real estate including:

·

changes in the national, regional and local economic climate;

·

local conditions, including an oversupply of, or a reduction in demand for, space in properties like those that we own;

·

the attractiveness of our properties to tenants;

·

the ability of tenants to pay rent;

·

competition from other available properties;

·

changes in market rental rates;

·

the need to periodically pay for costs to repair, renovate and re-let space;

·

changes in operating costs, including costs for maintenance, insurance and real estate taxes;

·

the fact that the expenses of owning and operating properties are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the properties; and

·

changes in laws and governmental regulations, including those governing usage, zoning, the environment and taxes.

Downturns in the retailing industry likely will have a direct impact on our performance.

Our properties consist primarily of community and neighborhood shopping centers and other retail properties. Our performance therefore is linked to economic conditions in the market for retail space generally.  The market for retail space could in the future be adversely affected by:

·

weakness in the national, regional and local economies;

·

the adverse financial condition of some large retailing companies;

·

ongoing consolidation in the retail sector;

·

the excess amount of retail space in a number of markets; and

·

increasing consumer purchases through catalogues and the internet.

Failure by any anchor tenant with leases in multiple locations to make rental payments to us because of a deterioration of its financial condition or otherwise, could impact our performance.

Our performance depends on our ability to collect rent from tenants. At any time, our tenants may experience a downturn in their business that may significantly weaken their financial condition. As a result, our tenants may delay a number of lease commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close stores or declare bankruptcy. Any of these actions could result in the termination of the tenants’ leases and the loss of rental income attributable to the terminated leases.  In addition, lease terminations by an anchor tenant or a failure by that anchor tenant to occupy the premises could result in lease terminations or reductions in rent by other tenants in the same shopping centers under the terms of some leases. In that event, we may be unable to re-lease the vacated space at attractive rents or at all.  The occurrence of any of the situations described above, particularly if it involves a substantial tenant with leases in multiple locations, could impact our performance.

We may be unable to collect balances due from tenants in bankruptcy.

A tenant that files for bankruptcy protection may not continue to pay us rent. A bankruptcy filing by or relating to one of our tenants or a lease guarantor would bar all efforts by us to collect pre-bankruptcy debts from the tenant or the lease guarantor, or their property, unless the bankruptcy court permits us to do so.  A tenant or lease guarantor bankruptcy could delay our efforts to collect past due balances under the relevant leases and could ultimately preclude collection of these sums. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages.  As a result, it is likely that we would recover substantially less than the full value of any unsecured claims it holds, if at all.

We may be unable to sell our real estate property investments when appropriate or on favorable terms.

Real estate property investments are illiquid and generally cannot be disposed of quickly. In addition, the federal tax code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies.  Therefore, we may not be able to vary its portfolio in response to economic or other conditions promptly or on favorable terms.

We may acquire or develop properties or acquire other real estate related companies and this may create risks.

We may acquire or develop properties or acquire other real estate related companies when we believe that an acquisition or development is consistent with our business strategies. We may not succeed in consummating desired acquisitions or in completing developments on time or within budget. We face competition in pursuing these acquisition or development opportunities that could increase our costs.  When we do pursue a project or acquisition, we may not succeed in leasing newly developed or acquired properties at rents sufficient to cover the costs of acquisition or development and operations.  Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention.  Acquisitions or developments in new markets or industries where we do not have the same level of market knowledge may result in poorer than anticipated performance.  We may also abandon acquisition or development opportunities that it has begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a matter not consummated.  Furthermore, our acquisitions of new properties or companies will expose us to the liabilities of those properties or companies, some of which we may not be aware at the time of acquisition.  In addition, development of our existing properties presents similar risks.

There is a lack of operating history with respect to our recent acquisitions and development of properties and we may not succeed in the integration or management of additional properties.

These properties may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential.  It is also possible that the operating performance of these properties may decline under our management.  As we acquire additional properties, we will be subject to risks associated with managing new properties, including lease-up and tenant retention.  In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing management structure.  We may not succeed with this integration or effectively manage additional properties. Also, newly acquired properties may not perform as expected.

We do not have exclusive control over our joint venture and preferred equity investments, such that we are unable to ensure that our objectives will be pursued.

We have invested in some cases as a co-venturer or partner in properties instead of owning directly.  In these investments, we do not have exclusive control over the development, financing, leasing, management and other aspects of these investments. As a result, the co-venturer or partner might have interests or goals that are inconsistent with us, take action contrary to our interests or otherwise impede our objectives. The co-venturer or partner also might become insolvent or bankrupt.

We may not be able to recover our investments in our joint venture or preferred equity investments, which may result in losses to us.

Our joint venture and preferred equity investments generally own real estate properties for which the economic performance and value is subject to all the risks associated with owning and operating real estate as described above.

We have significant international operations that carry additional risks.

We invest in, and conduct operations outside the United States.  The risks we face in international business operations include, but are not limited to:

·

currency risks, including currency fluctuations;

·

unexpected changes in legislative and regulatory requirements;

·

potential adverse tax burdens;

·

burdens of complying with different permitting standards, labor laws and a wide variety of foreign laws;

·

obstacles to the repatriation of earnings and cash;

·

regional, national and local political uncertainty;

·

economic slowdown and/or downturn in foreign markets;

·

difficulties in staffing and managing international operations; and

·

reduced protection for intellectual property in some countries.

Each of these risks might impact our cash flow or impair our ability to borrow funds, which ultimately could adversely affect our business, financial condition, operating results and cash flows.

We may be unable to obtain financing through the debt and equities market, which may have a material adverse effect on our growth strategy, our results of operations, and our financial condition.

Market conditions may make it difficult to obtain financing, and we cannot assure you that we will be able to obtain additional debt or equity financing or that we will be able to obtain it on favorable terms. The inability to obtain financing could have negative effects on our business, such as:

·

We could have difficulty acquiring or developing properties, which could materially adversely affect our business strategy;

·

Our liquidity could be adversely affected;

·

We may be unable to repay or refinance our indebtedness;

·

We may need to make higher interest and principal payments or sell some of our assets on unfavorable terms to fund our indebtedness; and

·

We may need to issue additional capital stock, which could further dilute the ownership of our existing shareholders.

Financial covenants to which we are subject may restrict our operating and acquisition activities.

Our revolving credit facilities and the indentures under which our senior unsecured debt is issued contain certain financial and operating covenants, including, among other things, certain coverage ratios, as well as limitations on our ability to incur debt, make dividend payments, sell all or substantially all of our assets and engage in mergers and consolidations and certain acquisitions.  These covenants may restrict our ability to pursue certain business initiatives or certain acquisition transactions that might otherwise be advantageous.  In addition, failure to meet any of the financial covenants could cause an event of default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us.

We may be subject to environmental regulations.

Under various federal, state, and local laws, ordinances and regulations, we may be considered an owner or operator of real property and may be responsible for paying for the disposal or treatment of hazardous or toxic substances released on or in our property, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property).  This liability may be imposed whether or not we knew about, or was responsible for, the presence of hazardous or toxic substances.

We face competition in leasing or developing properties.

We face competition in the acquisition, development, operation and sale of real property from others engaged in real estate investment.  Some of these competitors have greater financial resources than us.  This results in competition for the acquisition of properties for tenants who lease or consider leasing space in our existing and subsequently acquired properties and for other real estate investment opportunities.

Changes in market conditions could adversely affect the market price of our publicly traded securities.

As with other publicly traded securities, the market price of our publicly traded securities depends on various market conditions, which may change from time-to-time.  Among the market conditions that may affect the market price of our publicly traded securities are the following:

·

the extent of institutional investor interest in us;

·

the reputation of REITs generally and the reputation of REITs with portfolios similar to us;

·

the attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other real estate companies);

·

our financial condition and performance;

·

the market’s perception of our growth potential and potential future cash dividends;

·

an increase in market interest rates, which may lead prospective investors to demand a higher distribution rate in relation to the price paid for our shares; and

·

general economic and financial market conditions.

We may not be able to recover our investments in marketable securities or mortgage receivables, which may result in losses to us.

Our investments in marketable securities are subject to specific risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer, which may result in losses to us.  Marketable securities are generally unsecured and may also be subordinated to other obligations of the issuer.  As a result, investments in marketable securities are subject to risks of:

·

limited liquidity in the secondary trading market;

·

substantial market price volatility resulting from changes in prevailing interest rates;

·

subordination to the prior claims of banks and other senior lenders to the issuer;

·

the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations; and

·

the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic downturn.

These risks may adversely affect the value of outstanding marketable securities and the ability of the issuers to make distribution payments.  

We invest in mortgage receivables.  Our investments in mortgage receivables normally are not insured or otherwise guaranteed by any institution or agency.  In the event of a default by a borrower it may be necessary for us to foreclose our mortgage or engage in costly negotiations.  Delays in liquidating defaulted mortgage loans and repossessing and selling the underlying properties could reduce our investment returns.  Furthermore, in the event of default, the actual value of the property securing the mortgage may decrease. A decline in real estate values will adversely affect the value of our loans and the value of the mortgages securing our loans.

Our mortgage receivables may be or become subordinated to mechanics' or materialmen's liens or property tax liens. In these instances we may need to protect a particular investment by making payments to maintain the current status of a prior lien or discharge it entirely.  In these cases, the total amount we recover may be less than our total investment, resulting in a loss. In the event of a major loan default or several loan defaults resulting in losses, our investments in mortgage receivables would be materially and adversely affected.

Item 1B. Unresolved Staff Comments

None

Item 2.  Properties

Real Estate Portfolio  As of December 31, 2007, the Company's real estate portfolio was comprised of interests in approximately 154.6 million square feet of GLA in 1,391 operating properties primarily consisting of neighborhood and community shopping centers, and 19 retail store leases located in 45 states, Canada, Mexico, Puerto Rico and Chile.  This 154.6 million square feet of GLA does not include 17 properties under development comprising 2.5 million square feet of GLA related to the Preferred Equity program, 30 property interest comprising 0.6 million square feet of GLA related to FNC Realty, 401 property interests comprising 2.3 million square feet of GLA related to a net lease portfolio, 55 property interest comprising 2.8 million square feet of GLA related to the NewKirk Portfolio and 20.5 million square feet of planned GLA for 60 ground-up development projects.  The Company’s portfolio includes interests ranging from 5% to 50% in 471 shopping center properties comprising approximately 72.4 million square feet of GLA relating to the Company’s investment management programs and other joint ventures.  Neighborhood and community shopping centers comprise the primary focus of the Company's current portfolio.  As of December 31, 2007, the Company’s total shopping center portfolio, representing 100% of total GLA of 124.0 million from 886 properties, was approximately 96.3% leased.

The Company's neighborhood and community shopping center properties, which are generally owned and operated through subsidiaries or joint ventures, had an average size of approximately 140,000 square feet as of December 31, 2007.  The Company generally retains its shopping centers for long-term investment and consequently pursues a program of regular physical maintenance together with major renovations and refurbishing to preserve and increase the value of its properties.  These projects usually include renovating existing facades, installing uniform signage, resurfacing parking lots and enhancing parking lot lighting.  During 2007, the Company capitalized approximately $9.1 million in connection with these property improvements and expensed to operations approximately $19.7 million.

The Company's neighborhood and community shopping centers are usually "anchored" by a national or regional discount department store, supermarket or drugstore.  As one of the original participants in the growth of the shopping center industry and one of the nation's largest owners and operators of shopping centers, the Company has established close relationships with a large number of major national and regional retailers.  Some of the major national and regional companies that are tenants in the Company's shopping center properties include The Home Depot, TJX Companies, Sears Holdings, Kohl’s, Wal-Mart, Best Buy, Linens N Things, Royal Ahold, Bed Bath and Beyond, and Costco.

A substantial portion of the Company's income consists of rent received under long-term leases.  Most of the leases provide for the payment of fixed-base rentals monthly in advance and for the payment by tenants of an allocable share of the real estate taxes, insurance, utilities and common area maintenance expenses incurred in operating the shopping centers.  Although many of the leases require the Company to make roof and structural repairs as needed, a number of tenant leases place that responsibility on the tenant, and the Company's standard small store lease provides for roof repairs to be reimbursed by the tenant as part of common area maintenance.  The Company's management places a strong emphasis on sound construction and safety at its properties.

Approximately 24.3% of the Company's leases also contain provisions requiring the payment of additional rent calculated as a percentage of tenants’ gross sales above predetermined thresholds.  Percentage rents accounted for less than 1% of the Company's revenues from rental property for the year ended December 31, 2007.

Minimum base rental revenues and operating expense reimbursements accounted for approximately 99% of the Company's total revenues from rental property for the year ended December 31, 2007.  The Company's management believes that the base rent per leased square foot for many of the Company's existing leases is generally lower than the prevailing market-rate base rents in the geographic regions where the Company operates, reflecting the potential for future growth.

For the period January 1, 2007 to December 31, 2007, the Company increased the average base rent per leased square foot in its consolidated portfolio of neighborhood and community shopping centers from $9.86 to $10.30, an increase of $0.44.  This increase primarily consists of (i) a $0.25 increase relating to acquisitions, (ii) a $0.07 increase relating to dispositions or the transfer of properties to various joint venture entities and (iii) a $0.12 increase relating to new leases signed net of leases vacated and rent step-ups within the portfolio.  As of December 31, 2007, the Company’s consolidated portfolio was 95.9% leased.

The Company seeks to reduce its operating and leasing risks through geographic and tenant diversity.  No single neighborhood and community shopping center accounted for more than 0.8% of the Company's total shopping center GLA or more than 1.7% of total annualized base rental revenues as of December 31, 2007. The Company’s five largest tenants at December 31, 2007, were The Home Depot, TJX Companies, Sears Holdings, Kohl’s and Wal-Mart, which represent approximately 3.2%, 2.8%, 2.3%, 2.0% and 1.9%, respectively, of the Company’s annualized base rental revenues, including the proportionate share of base rental revenues from properties in which the Company has less than a 100% economic interest.  The Company maintains an active leasing and capital improvement program that, combined with the high quality of the locations, has made, in management's opinion, the Company's properties attractive to tenants.

The Company's management believes its experience in the real estate industry and its relationships with numerous national and regional tenants gives it an advantage in an industry where ownership is fragmented among a large number of property owners.

Retail Store Leases  In addition to neighborhood and community shopping centers, as of December 31, 2007, the Company had interests in retail store leases totaling approximately 1.8 million square feet of anchor stores in 19 neighborhood and community shopping centers located in 13 states.  As of December 31, 2007, approximately 97.4% of the space in these anchor stores had been sublet to retailers that lease the stores under net lease agreements providing for average annualized base rental payments of $4.09 per square foot. The average annualized base rental payments under the Company’s retail store leases to the landowners of such subleased stores are approximately $2.54 per square foot.  The average remaining primary term of the retail store leases (and, similarly, the remaining primary term of the sublease agreements with the tenants currently leasing such space) is approximately two years, excluding options to renew the leases for terms which generally range from five years to 20 years.  The Company’s investment in retail store leases is included in the caption Other real estate investments on the Company’s Consolidated Balance Sheets.

Ground-Leased Properties  The Company has interests in 79 shopping center properties that are subject to long-term ground leases where a third party owns and has leased the underlying land to the Company (or an affiliated joint venture) to construct and/or operate a shopping center.  The Company or the joint venture pays rent for the use of the land and generally is responsible for all costs and expenses associated with the building and improvements.  At the end of these long-term leases, unless extended, the land together with all improvements revert to the landowner.

Ground-Up Development Properties  The Company is engaged in ground-up development projects which consists of (i) merchant building through the Company’s wholly-owned taxable REIT subsidiaries, which develop neighborhood and community shopping centers and the subsequent sale thereof upon completion, (ii) U.S. ground-up development projects which will be held as long-term investments by the Company and (iii) various ground-up development projects located in Mexico for long-term investment (see Recent Developments - International Real Estate Investments and Note 3 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K).  The ground-up development projects generally have significant pre-leasing prior to the commencement of the construction.  As of December 31, 2007, the Company had in progress a total of 60 ground-up development projects including 27 merchant building projects, nine U.S. ground-up development projects and 24 ground-up development projects located throughout Mexico.

As of December 31, 2007, the Company had in progress 27 merchant building projects located in 13 states, which are expected to be sold upon completion.  These projects had significant pre-leasing prior to the commencement of construction.  As of December 31, 2007, the average annual base rent per leased square foot for the merchant building portfolio was $16.48 and the average annual base rent per leased square foot for new leases executed in 2007 was $18.19.

Undeveloped Land  The Company owns certain unimproved land tracts and parcels of land adjacent to certain of its existing shopping centers that are held for possible expansion. At times, should circumstances warrant, the Company may develop or dispose of these parcels.

The table on pages 21 through 33 sets forth more specific information with respect to each of the Company's property interests.

Item 3.  Legal Proceedings

The Company is not presently involved in any litigation nor, to its knowledge, is any litigation threatened against the Company or its subsidiaries that, in management's opinion, would result in any material adverse effect on the Company's ownership, management or operation of its properties taken as a whole, or which is not covered by the Company's liability insurance.

Item 4.  Submission of Matters to a Vote of Security Holders

None.