Kimco Realty - 10-K annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

Form 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[NO FEE REQUIRED]

For the fiscal year ended December 31, 2008

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[NO FEE REQUIRED]

For the transition period from __________ to __________

Commission file number 1-10899

Kimco Realty Corporation

(Exact name of registrant as specified in its charter)

3333 New Hyde Park Road, New Hyde Park, NY   11042-0020

(Address of principal executive offices - zip code)

(516) 869-9000

(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(g) of the Act:

Securities Registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [X]  No [   ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes [   ]  No [X]

Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.    Yes [X]  No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     [X]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12-b of the Exchange Act.

Large Accelerated Filer   [X]     Accelerated Filer   [   ]     Non-Accelerated Filer   [   ]     Smaller Reporting Company   [   ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   [   ]     No   [X]

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $8.3 billion based upon the closing price on the New York Stock Exchange for such stock on June 30, 2008.

 (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.

271,084,295 shares as of February 19, 2009.

Page 1 of 411

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference to the Registrant's definitive proxy statement to be filed with respect to the Annual Meeting of Stockholders expected to be held on May 12, 2009.

Index to Exhibits begins on page 67.

TABLE OF CONTENTS

2

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. & nbsp;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, including real estate values, (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, (vii) valuation of joint venture investments, (viii) valuation of marketable secu rities and other investments and (ix) increases in operating costs. Accordingly, there is no assurance that the Company’s expectations will be realized.

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 50 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, 2008, the Company had interests in 1,950 properties, totaling approximately 182.2 million square feet of gross leasable area (“GLA”) located in 45 states, Puerto Rico, Canada, Mexico, Chile, Brazil and Peru. 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.

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.

3

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.< /P>

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 $3.4 billion in undepreciated real estate assets at book value.  The Company earns management fees, acquisition fees, disposition fees and promoted interests based on value creation.  (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, 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, Chile, Brazil and Peru. 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 a cquired an interest in four shopping center properties located in Chile through a joint venture in which the Company holds a non-controlling ownership interest. During 2008, the Company acquired interests in two shopping center properties in Brazil through a joint venture in which the Company holds a controlling ownership interest and a land parcel for ground-up development located in Peru through a joint venture in which the Company holds a controlling 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, however, these investments are subject to volatility within the equity and debt markets.

4

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, 2008, the Company's single largest neighborhood and community shopping center accounted for only 1.0% of the Company's annualized base rental revenues and only 0.9% of the Company’s total shopping center GLA.  At December 31, 2008, the Company’s five largest tenants were The Home Depot, TJX Companies, Sears Holdings, Kohl’s and Wal-Mart, which represent approximately 3.3%, 2.8%, 2.5%, 2.2% and 1.8%, 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 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 part of its investment strategy, will selectively seek investments for its taxable REIT subsidiaries as suitable opportunities arise.

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, however, these investments are subject to volatility within the equity and debt markets.

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.

5

Capital Strategy and Resources

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 $6.1 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 $1.7 billion available for general corporate purposes.  At December 31, 2008, the Company had approximately $707.7 million outstanding on these facilities.  

Capital markets have experienced extreme volatility and deterioration since the third quarter 2008. As available, the Company will continue to access these markets.  In addition to capital markets, the Company had over 390 unencumbered property interests in its portfolio as of December 31, 2008.  The Company has capacity within its bond and other debt covenants to raise up to $1.3 billion in secured financing on these unencumbered properties.

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, 2008, a total of 680 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, 2008, the Company also employs a total of 54 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.

6

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 2008 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, 2008. (See Notes 3, 4, 5, 7 and 10 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

Operating Properties -

Acquisitions -

During 2008, the Company acquired, in separate transactions, eight operating properties, comprising an aggregate 1.0 million square feet of GLA for an aggregate purchase price of approximately $194.5 million, including the assumption of approximately $96.2 million of non-recourse mortgage debt encumbering four of the properties.

Dispositions -

During 2008, the Company disposed of seven operating properties and a portion of four operating properties, in separate transactions, for an aggregate sales price of approximately $73.0 million, which resulted in an aggregate gain of approximately $20.0 million.  In addition, the Company partially recognized deferred gains of approximately $1.2 million on three properties relating to their transfer and partial sale in connection with the Kimco Income Fund II transaction described below.  

During 2007, the Company transferred 11 operating properties to a wholly-owned consolidated entity, Kimco Income Fund II (“KIF II”), for an aggregate purchase price of approximately $278.2 million, including non-recourse mortgage debt of $180.9 million, encumbering 11 of the properties.  During 2008, the Company transferred an additional three properties for $73.9 million, including $50.6 million in non-recourse mortgage debt. During 2008, the Company sold a 26.4% non-controlling ownership interest in the entity to third parties for approximately $32.5 million, which approximated the Company’s cost.  The Company continues to consolidate this entity.

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 2008, the Company substantially completed the redevelopment and re-tenanting of various operating properties.  The Company expended approximately $68.9 million in connection with these major redevelopments and re-tenanting projects during 2008. 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 $50.0 million to $80.0 million during 2009.

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 after 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 Latin America 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, 2008, the Company had in progress a total of 47 ground-up development projects, consisting of 11 merchant building projects, of which seven are anticipated to be substantially complete during the first half of 2009, one U.S. ground-up development project, 29 ground-up development projects located throughout Mexico, three ground-up development projects located in Chile, two ground-up development projects located in Brazil and one ground-up development project located in Peru.

7

Merchant Building -

As of December 31, 2008, the Company had in progress 11 merchant building projects, of which seven are anticipated to be substantially complete during the first half of 2009, located in six states.  During 2008, the Company expended approximately $111.9 million in connection with construction costs and the purchase of land related to these projects and those sold during 2008.  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 Miramar, FL and Middleburg, FL, the estimated recoverable value will not exceed their estimated cost.  This is primarily due to adverse changes in local market conditions and the uncertainty of their recovery 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, 2008, of $7.9 million, representing the excess of the carrying values of the pr ojects over their estimated fair values.  The Company anticipates its capital commitment toward its merchant building projects will be approximately $70.0 million to $75.0 million during 2009.  The proceeds from the sale of completed ground-up development projects during 2009, 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 2008, the Company acquired three land parcels, in separate transactions, for an aggregate purchase price of approximately $9.7 million.

During 2008, the Company obtained individual construction loans on three merchant building projects.  Additionally, the Company repaid a construction loan on one merchant building project. At December 31, 2008, total loan commitments on the Company’s 16 outstanding construction loans aggregated approximately $364.2 million of which approximately $268.3 million has been funded. These loans have scheduled maturities ranging from two months to 42 months and bear interest at rates ranging from 1.81% to 3.19% at December 31, 2008.  Approximately $194.0 million of the outstanding loan balance matures in 2009.  These maturing loans are anticipated to be repaid with operating cash flows, borrowings under the Company’s credit facilities and additional debt financings.  In addition, the Company may pursue or exercise existing extension options with lenders where available.

Dispositions -

During 2008, the Company sold, in separate transactions, (i) two completed merchant building projects, (ii) 21 out-parcels, (iii) a partial sale of one project and (iv) a partnership interest in one project for aggregate proceeds of approximately $73.5 million and received approximately $4.1 million of proceeds from completed earn-out requirements on three previously sold merchant building projects.  These sales resulted in gains of approximately $21.9 million, net of income taxes of $14.6 million.

U.S. Long-Term Investment Projects -

As of December 31, 2008, the Company had in progress one U.S. long-term investment project.  The Company anticipates its capital commitment towards this project will be up to $8 million, before reimbursements, during 2009.  

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.  

During 2008, the Albertson’s joint venture disposed of 121 operating properties for an aggregate sales price of approximately $564.0 million, resulting in a gain of approximately $552.3 million, of which Kimsouth’s share was approximately $73.1 million.  During 2008, Kimsouth recognized equity in income, net from the Albertson’s joint venture of approximately $64.4 million before income taxes, including the $73.1 million in gains and $15.0 million from cash received in excess of the Company’s investment.  As a result of these transactions, Kimsouth fully reduced its deferred tax asset valuation allowance and utilized all of its remaining net operating loss  (“NOL’s”) carry-forwards, which provided a tax benefit of approximately $3.1 million.(See Notes 3 and 22 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

Additionally, during 2008, the Albertson’s joint venture acquired six operating properties and four leasehold properties for approximately $26.0 million, including the assumption of approximately $5.8 million in non-recourse mortgage debt encumbering one of the properties.

8

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 2008, the Company acquired 2 operating properties, and one leasehold interest through joint ventures in which the Company has non-controlling interests for an aggregate purchase price of approximately $13.8 million. The Company’s aggregate investment resulting from these transactions was approximately $7.9 million.

Dispositions -

During 2008, KimPru sold, in separate transactions, four operating properties for an aggregate sales price of approximately $45.3 million, which approximated their carrying values. Proceeds from these property sales were used to repay a portion of the outstanding balance on its credit facility.  Also during 2008, KIR disposed of one operating property for a sales price of approximately $1.9 million.  This sale resulted in an aggregate loss of approximately $0.6 million of which the Company’s share was approximately $0.3 million.

Financings -

During August 2008, KimPru entered into a new $650.0 million credit facility which matures in August 2009, with the option to extend for one year, and bears interest at a rate of LIBOR plus 1.25%.  KimPru is obligated to pay down a minimum of $165.0 million, among other requirements, in order to exercise the one-year extension option.  The required pay down is expected to be sourced from property sales, other debt financings and/or capital contributions by the partners.  This facility is guaranteed by the Company with a guarantee from PREI to the Company for 85% of any guaranty payment the Company is obligated to make. Proceeds from this new credit facility were used to repay the outstanding balance of $658.7 million under an existing $1.2 billion credit facility, which was scheduled to mature in October 2008 and bore interest at a rate of LIBOR plus 0.45%.

During the year ended December 31, 2008, KIR repaid 16 non-recourse mortgages aggregating approximately $209.6 million, which were scheduled to mature in 2008 and bore interest at rates ranging from 6.57% to 7.28%.  Proceeds from eight individual non-recourse mortgages obtained during 2008, aggregating approximately $218.3 million, bearing interest at rates ranging from 6.0% to 6.5% with maturity dates ranging from 2015 to 2018 were used to fund these repayments.  

In addition, during 2008, two joint venture investments in which the Company holds a 50% interest in each obtained individual non-recourse mortgages totaling $77.0 million. These mortgages have interest rates ranging from 6.38% to 6.47% and maturities ranging from 2018 to 2019. Proceeds from these mortgages were used to retire $36.0 million of mortgage debt encumbering two properties held by the joint ventures.

International Real Estate Investments -

Canadian Investments -

During 2008, the Company acquired, in separate transactions, 12 operating properties located in Canada, through three newly formed joint ventures in which the Company has non-controlling interests. These properties were acquired for an aggregate purchase price of approximately CAD $193.7 million (approximately USD $187.2 million), including CAD $105.6 million (approximately USD $101.7 million) of non-recourse mortgage debt encumbering all 12 of the properties.  The Company’s aggregate investment in these joint ventures was approximately CAD $46.1 million (approximately USD $37.7 million).

During 2008, the Company provided, through three separate Canadian preferred equity investments, an aggregate of approximately CAD $15.3 million (approximately USD $12.5 million) to developers and owners of 11 real estate properties.

The Company recognized equity in income from its unconsolidated Canadian investments in real estate joint ventures of approximately $18.6 million, $22.5 million and $21.1 million during 2008, 2007 and 2006, respectively.  In addition, income from its Canadian preferred equity investments was approximately $23.2 million, $35.1 million and $13.9 million during 2008, 2007 and 2006, respectively.

9

Latin American Investments -

During 2008, the Company acquired, in separate transactions, one operating property located in Valinhos, Brazil for a purchase price of 29.0 million Brazilian Real (“BRL”) (approximately USD $17.4 million) comprising 121,000 square feet of GLA and one operating property in Santiago, Chile, for a purchase price of 1.5 billion Chilean Pesos ("CLP") (approximately USD $4.0 million), comprising 26,000 square feet. (See Note 3 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K).

During 2008, the Company acquired (i) 5 land parcels located throughout Mexico for an aggregate purchase price of approximately 368.2 million Mexican Pesos (“MXP”) (approximately USD $33.3 million), (ii) one land parcel located in Lima, Peru for a purchase price of approximately 1.9 million Peruvian Nuevo Sol (“PEN”) (approximately USD $0.7 million), (iii) two land parcels located in Chile for a purchase price of approximately 7.9 billion CLP (approximately USD $16.1 million) and (iv) one land parcel located in Hortolandia, Brazil for a purchase price of approximately 7.4 BRL (approximately USD $3.2 million).  These nine land parcels will be developed into retail centers aggregating approximately 1.7 million square feet of gross leasable area with a total estimated aggregate project cost of approximately USD $195.5 million. These projects are inline with budget and on or close to schedule.

During 2008, the Company acquired, through an unconsolidated joint venture investment, 11 land parcels, in separate transactions, located throughout Mexico for an aggregate purchase price of approximately 554.9 million MXP (approximately USD $48.5 million) which will be held for investment or possible future development.  

In addition, during 2008 the Company acquired, in separate transactions, two land parcels located in Chihuahua and San Luis Potosi, Mexico, and one operating property located in Monterrey, Mexico for an aggregate purchase price of approximately $10.9 million through an existing joint venture in which the Company has non-controlling interests. The Company’s aggregate investment in these joint ventures was approximately $5.5 million.

During 2008, the Company acquired four operating properties located in Santiago, Chile, through a joint venture in which the Company has a non-controlling interest. These properties were acquired for an aggregate purchase price of approximately 2.5 billion CLP (approximately USD $3.8 million).  The Company’s aggregate investment in this joint venture is approximately CLP 1.3 billion (approximately USD $1.9 million).  

The Company recognized equity in income from its unconsolidated Mexican investments in real estate joint ventures of approximately $17.1 million, $5.2 million and $11.8 million during 2008, 2007 and 2006, respectively.

The Company recognized equity in income from its unconsolidated Chilean investments in real estate joint ventures of approximately $0.2 million and $0.1 million during 2008 and 2007, respectively.

The Company’s revenues from its consolidated Mexican subsidiaries aggregated approximately $20.3 million, $8.5 million and $2.4 million during 2008, 2007 and 2006, respectively. The Company’s revenues from its consolidated Brazilian subsidiaries aggregated approximately $0.4 million during 2008.

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 2008, the Company provided, in separate transactions, an aggregate of approximately $51.9 million in investment capital to developers and owners of 28 real estate properties, including the Canadian investments described above.  For the year ended December 31, 2008, the Company earned approximately $66.8 million, including $24.6 million of profit participation earned from 10 capital transactions from these investments.  

Mortgages and Other Financing Receivables -

During 2008, the Company provided financing to six borrowers for an aggregate amount of up to approximately $86.3 million, of which $72.9 million was outstanding as of December 31, 2008.  As of December 31, 2008, the Company had 35 loans with total commitments of up to $208.5 million, of which approximately $181.2 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.)

10

Asset Impairments –

Recent market and economic conditions have been unprecedented and challenging with tighter credit conditions and slower growth throughout 2008.  For the year ended December 31, 2008, continued concerns about the systemic impact of the availability and cost of credit, the U.S. mortgage market, inflation, energy costs, geopolitical issues and declining equity and real estate markets have contributed to increased market volatility and diminished expectations for the U.S. economy.  These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment have contributed to volatility of unprecedented levels and has led to the unprecedented deterioration of U.S. and international equity markets during the fourth quarter of 2008.

Historically, real estate has been subject to a wide range of cyclical economic conditions that affect various real estate markets and geographic regions with differing intensities and at different times.  Different regions of the United States have and may continue to experience varying degrees of economic growth or distress.  The decline in market conditions has also had a negative effect on real estate transactional activity as it relates to the acquisition and sale of real estate assets.

As a result of the volatility and declining market conditions described above, the Company for the year ended December 31, 2008, recognized non-cash impairment charges of approximately $114.8 million, net of income tax benefit of approximately $31.1 million, of which approximately $105.1 million of these charges where taken in the fourth quarter of 2008.

Approximately $92.7 million of the total non-cash impairment charges for the year ended December 31, 2008, were due to the decline in value of certain marketable equity securities and other investments that were deemed to be other-than-temporary.  Of the $92.7 million, approximately $83.1 million of these impairment charges were taken at the end of the fourth quarter of 2008 resulting from the unprecedented deterioration of the equity markets during the fourth quarter and the uncertainty of their future recoverability.

The Company recognized non-cash impairment charges of $15.5 million against the carrying value of its investment in its unconsolidated joint ventures with PREI, reflecting an other-than-temporary decline in the fair value of its investment resulting from further significant declines in the real estate markets during the fourth quarter of 2008.  Also, impairments of approximately $6.6 million, net of income tax benefit, were recognized on real estate development projects including Plantations Crossing located in Middleburg, FL and Miramar Town Center located in Miramar, FL, previously described.  These development project impairment charges are the result of adverse changes in local market conditions and the uncertainty of their recovery in the future. (See Notes 5, 7 and 10 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K.)

In addition to the impairment charges above, the Company recognized impairment charges during 2008 of approximately $11.2 million, before income tax benefit of approximately $4.5 million, relating to certain properties held by an unconsolidated joint venture within the KimPru joint venture that are deemed held-for-sale or were transitioned from held-for-sale to held-for-use properties. These impairment charges are included in Equity in income of joint ventures, net in the Company’s Consolidated Statements of Income. 

Financing Transactions -

During September 2008, the Company completed a primary public stock offering of 11,500,000 shares of the Company’s common stock (“Common Stock”).  The net proceeds from this sale of Common Stock, totaling approximately $409.4 million (after related transaction costs of $0.6 million) were used to partially repay the outstanding balance under the Company’s U.S. revolving credit facility.  

For discussion regarding financing transactions relating to the Company’s unsecured notes, credit facilities, non-recourse mortgage debt and construction loans, 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 and legal risks including, but not limited to, the following:

Risks Related to Our Status as a Real Estate Investment Trust

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

11

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.

Risks Related to Adverse Global Market and Economic Conditions

Recent market and economic conditions have been unprecedented and challenging with slower growth and tighter credit conditions through the end of 2008.  These adverse market conditions and competition may impede our ability to generate sufficient income to pay expenses, maintain properties, pay dividends and refinance debt.

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.

The retail shopping sector has been negatively affected by recent economic conditions.  Adverse economic conditions have forced some weaker retailers, in some cases, to declare bankruptcy and close stores. Certain retailers have announced store closings even though they have not filed for bankruptcy protection.  These downturns in the retailing industry likely will have a direct impact on our performance.  Continued store closings or declarations of bankruptcy by our tenants may have a material adverse effect on the Company’s overall performance.  Adverse general or local economic conditions could result in the inability of some tenants of the Company to meet their lease obligations and could otherwise adversely affect the Company’s ability to attract or retain tenants.

12

Our properties consist primarily of community and neighborhood shopping centers and other retail properties. Our performance therefore is generally linked to economic conditions in the market for retail space.  In the future, the market for retail space could 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 these tenants’ leases.  In the event of a default by a tenant, we may experience delays and costs in enforcing our rights as landlord under the terms of our leases.

In addition, multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center could result in lease terminations or significant 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, and our rental payments from our continuing tenants could significantly decrease.  The occurrence of any of the situations described above, particularly if it involves a substantial tenant with leases in multiple locations, could have a material adverse effect on 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.

Risks Related to Our Acquisition, Development, Operation, and Sale of Real Property

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 management has begun purs uing 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.

13

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 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 may have greater financial resources than we do.  This could result 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.

Risks Related to Our Joint Venture and Preferred Equity Investments

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. If the co-venturer or partner defaults on their obligations, we may be required to fulfill their obligation ourselves.  The co-venturer or partner also might become insolvent or bankrupt, which may result in significant losses to us.

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

Risks Related to Our International Operations

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.

14

Risks Related to Our Financing Activities

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

The capital and credit markets have become increasingly volatile and constrained as a result of adverse conditions that have caused the failure and near failure of a number of large financial services companies.   We cannot assure you that we will be able to access the capital and credit markets to obtain additional debt or equity financing or that we will be able to obtain financing on favorable terms. The inability to obtain financing could have negative effects on our business, such as:

·

we could have great difficulty acquiring or developing properties, which would 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.

Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at all, and could significantly reduce the market price of our publicly traded securities.

Risks Related to the Market Price of Our Publicly Traded Securities

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.

Risks Related to Our Marketable Securities and Mortgage Receivables

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

15

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 significant 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.

The issuers of our marketable securities also might become insolvent or bankrupt, which may result in significant losses to us.

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.

Risks Related to Environmental Regulations

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 were responsible for, the presence of hazardous or toxic substances.

Item 1B. Unresolved Staff Comments

None

Item 2.  Properties

Real Estate Portfolio  As of December 31, 2008, the Company's real estate portfolio was comprised of interests in approximately 160.8 million square feet of GLA in 1,407 operating properties primarily consisting of neighborhood and community shopping centers, and 16 retail store leases located in 45 states, Puerto Rico, Canada, Mexico, Chile, Brazil, and Peru.  This 160.8 million square feet of GLA does not include 16 properties under development comprising 1.2 million square feet of GLA related to the Preferred Equity program, 29 property interests comprising 0.6 million square feet of GLA related to FNC Realty, 402 property interests comprising 2.3 million square feet of GLA related to a net lease portfolio, 49 property interests comprising 2.4 million square feet of GLA related to the NewKirk Portfolio and 13.3 million square feet of planned GLA for 47 ground-up development projects.  The Company’s portfolio includes interests ranging from 5% to 50% in 481 shopping center properties comprising approximately 73.5 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, 2008, the Company’s total shopping center portfolio, comprised of total GLA of 126.9 million from 893 properties, was approximately 93.9% leased.

16

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 142,000 square feet as of December 31, 2008.  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 2008, the Company capitalized approximately $16.1 million in connection with these property improvements and expensed to operations approximately $21.4 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, Royal Ahold, Best Buy, 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 22.8% 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, 2008. Additionally, a majority of the Company’s leases have built-in contractual rent increases as well as escalation clauses. Such escalation clauses often include increases based upon changes in the consumer price index or similar inflation indices.

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, 2008.  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.

As of December 31, 2008, the Company’s consolidated portfolio, comprised of 53.4 million of GLA, was 93.2% leased.  For the period January 1, 2008 to December 31, 2008, the Company increased the average base rent per leased square foot in its consolidated portfolio of neighborhood and community shopping centers from $10.35 to $10.69, an increase of $0.34.  This increase primarily consists of (i) a $0.01 increase relating to acquisitions, (ii) a $0.12 increase relating to dispositions or the transfer of properties to various joint venture entities and (iii) a $0.21 increase relating to new leases signed net of leases vacated and rent step-ups within the portfolio.  

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 0.9% of the Company's total shopping center GLA or more than 1.0% of total annualized base rental revenues as of December 31, 2008. The Company’s five largest tenants at December 31, 2008, were The Home Depot, TJX Companies, Sears Holdings, Kohl’s and Wal-Mart, which represent approximately 3.3%, 2.8%, 2.5%, 2.2% and 1.8%, 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, 2008, the Company had interests in retail store leases totaling approximately 1.5 million square feet of anchor stores in 16 neighborhood and community shopping centers located in 11 states.  As of December 31, 2008, approximately 95.9% 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 $4.12 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 $2.13 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 four years, excluding options to renew the leases for terms which generally range f rom five years to 20 years.  The Company’s investment in retail store leases is included in the caption Other real estate investments in the Company’s Consolidated Balance Sheets.

17

Ground-Leased Properties  The Company has interests in 48 consolidated shopping center properties and interests in 26 shopping center properties in unconsolidated joint ventures 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 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 Latin America 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, 2008, the Company had in progress a total of 47 ground-up development projects, consisting of 11 merchant building projects, of which seven are anticipated to be substantially complete during the first half of 2009, one U.S. ground-up development project, 29 ground-up development projects located throughout Mexico, three ground-up development projects located in Chile, two ground-up development projects located in Brazil and one ground-up development project located in Peru.

As of December 31, 2008, the Company had in progress 11 merchant building projects located in six 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, 2008, the average annual base rent per leased square foot for the merchant building portfolio was $14.87 and the average annual base rent per leased square foot for new leases executed in 2008 was $17.58.

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 19 through 40 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.

18