Kite Realty Group Trust (KRG) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Kite Realty Group Trust First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference maybe recorded. I would now like to turn the conference over to Ms. Ashley Underwood with Investor Relations. Ma’am, you may begin.

Thank you, and good afternoon, everyone. Welcome to Kite Realty Group’s first quarter earnings call. Much of today’s comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company’s results please see our SEC filings, including our most recent 10-K. Today’s remarks also include certain non-GAAP financial measures. Please refer to yesterday’s earnings press release available on our website for a reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from the company are Chief Executive Officer, John Kite; Chief Operating Officer, Tom McGowan; Chief Financial Officer, Dan Sink. And with that, I’d like to turn the call over to John.

Thanks, Ashley. Good afternoon, everyone, thank you for joining us. Let me first start by acknowledging our announcement earlier this week that Dan will be leaving the company at the end of June. I want to publicly thank Dan for his 18-plus years of service and let him know that I and our entire team deeply appreciate everything that he’s done for this company, and I’m sure that he will continue to support us in every way possible. So thanks again, Dan. Now with respect to the first quarter we continue to make positive strides towards our stated objectives for 2018. We met out disposition goal with the sales of Memorial Commons in Goldsboro, North Carolina; and Trussville Promenade in Birmingham, Alabama. These sales combined to generate $63 million in gross proceeds at a blended low 8% cap, which were used to pay down the line-of-credit. This allowed us to further reduce our office supply exposure and completed our exit from the Alabama market. The ABR for both these centers was well below our operating portfolio average, with a blended ABR of $10.63. As a result of these sales the total ABR for the portfolio increased by $0.23 from the end of 2017. While we have not contemplated any additional transactions in the guidance, we will continue to explore the sale of assets, where pricing remains attractive and fair value can be achieved and we would then capitalize on that to further drive down leverage. With respect to leasing our Big Box Surge initiative gained momentum in the first quarter as we executed two leases for former vacant boxes. Gander Outdoors, the rebranded concept owned by Camping World will be replacing the former 30,000 square foot Gander Mountain at Bayport Commons in Tampa, Florida. And Party City is replacing the former 11,000 square foot Home Consignment at Centennial Gateway in Las Vegas. In addition, we currently have five executed letters of intent with high quality anchored tenants and have commenced lease negotiations on several of these deals. Our aggregate cash lease spread for 56 of the 58 comparable new and renewal leases was 8.2%, 16.5% for new leases and 7% for renewals. Our overall spread was negatively affected by two leases. One was a replacement anchor tenant that did not require us to invest any capital. The other was a renewal at a non-core property. Touching on operations, we have several notable openings during the quarter including Aldi at Bolton Plaza, Skechers Outlet at Eastern Beltway, Nordstrom Rack at Portofino Shopping Center and Pet Supermarket at Waxahachie Crossing. Our ABR per square foot reset a new high at $16.57 including our 3-R properties. Our small shop lease percentage remained steady at 90.5% one of the highest in our peer group and 190 basis points higher than this time last year. We also grew our same-store NOI 1.5% during the quarter, which was impacted by a 70 basis point decrease in economic occupancy as well as the lease amendments executed with Toys“R”Us. We continue to push our fixed CAM initiative and experiencing great success. We’ve now converted 25% of our portfolio. In fact, every new and renewal lease negotiated in the first quarter included fixed CAM most with embedded annual bumps. Moving on to our 3-R activity, we successfully transitioned Burnt Store Marketplace in Punta Gorda, Florida to our operating portfolio with an annualized return of 11.5% based on cost of approximately $9 million. As of March 31, we have six 3-R projects under construction with total estimated cost of $61.5 million to $66.5 million and an overall project return in the range of 8% to 9%. All these projects are expected to stabilize throughout the remainder of the year. One of the properties stabilizing this year is Fishers Station in Indianapolis, Indiana. Recently we received notification that Kroger Marketplace does not plan to open at this location. However, we have an executed 20 year ground lease that requires rent payments starting in September. Turning to the balance sheet, we’re continuing to chip away at our leverage and ended the quarter with net debt to EBITDA of 6.76 times versus 6.92 times at the end of 2017. We have only $48.7 million of debt maturing through the end of 2020 and our weighted average maturity is 5.3 years. As of quarter end our liquidity was over $420 million. This includes our unsecured revolving credit facility, which we recast earlier this week and was 1.5 times oversubscribed, increasing it size from 500 million to 600 million. By recasting we were able to lower leverage pricing and extend the term to April 24, 2022. We remain committed to our investment grade balance sheet and continuing to work to further strengthen our metrics. Lastly, we are reaffirming our stated 2018 full year guidance for FFO, as defined by NAREIT of $1.98 to $2.04. Thanks to everyone for joining us today. And operator we’re ready for questions.

Thank you. [Operator Instructions] And our first question will come from the line of Christy McElroy with Citi. Your line is now open.

Hi, good afternoon, everyone. Just with regards to the two leases that impacted the spreads, these appear to be one-off. But could you also say that they were necessary to preserve occupancy here? The leasing environment for box lease isn’t getting any better with more supply of these coming with Toys; these forcedly having to do more of these types of deals such that you could continue to see pressure on spreads on a blended basis. They were obviously very impactful to the overall economics, even though there are only two leases.

Right. Well, Christy, I mean, first of all in the quarter we did like a 11 box deals, so this is two of the 11. I understand the question as it relates to is this a continued trend, but it sounds cliché, but each one of these deals have its own story. And we’re company of size that we can benefit from it and we can get hurt by it. In this particular case it definitely impacted the numbers. That said, one another deal as we mentioned was a re-tenanting of a space that we put no capital into. So on net effective basis, maybe it wasn’t tremendously different. And then the second deal I pointed out was a non-core asset that is likely going to be a situation where it’s not a long-term hold of that asset. So in that particular case we have the opportunity to stabilize it and we took that opportunity. So I think it’s too early to try to draw trends from all this. We’ll see, I mean, there’s still a lot left to play out in the year. And we feel like we’re in a pretty good position. And frankly, sometimes on these deals you just have to say no and you see where it goes. But I think it’s a little early to say that’s where everything is going right now.

Okay. And then just with regard to guidance, maybe we can walk through the numbers on the tenant fallout. You’ve had the original $2.1 million projected from the impact of Toys and then $3.2 million buffer. Now with the Toys liquidation between lost rent and recovery, how much is that even to that buffered $3.2 million? So where do you sort of stand on room for additional fallout that may yet occur?

Yes. So after the first quarter we had about $450,000 of bad debt, which would go against the $3.2 million. So we’ve got about $2.75 million remaining. So if you look at the Toys "R" Us piece of that, we had a $2.1 million for Toys in our 2018 budget. When we put that into the budget that left about $1.6 million of ABR exposure remaining for the full year. And assuming Toys closes in June we have about $0.01 impact of that loss rhythm beyond budgeted, so let’s say roughly $800,000. So as you could see, if the trends on bad debt continue as we – as they did in the first quarter, we would have sufficient space to be able to utilize part of that bad debt provision/rent reserve for the Toys "R" Us lost rent.

Yes. Said in another way, Christy, even if we used another $850,000 against Toys we’d still have just under $2 million available to us in the bad debt reserve, which based on the first quarter feels pretty – I mean, feels reasonable. It’s early, but that feels pretty good.

Okay, got it. Thank you, guys.

Wait. Aren’t you – no – like, no farewell to Dan, Christy? I mean, come on now.

I said. I said my farewell the other day, but he’d absolutely be missed. And I was going to ask about replacement, but I’ll leave that to somebody else. But Dan, you can never be replaced.

He’s looking a little gloomy. I mean, come on now.

All right.

Thank you.

Thank you, or Christy.

Thank you. And our next question will come from the line of Todd Thomas with KeyBanc Capital Markets. Your line is now open.

Hi, thanks, good afternoon. I’ve already said my farewell to Dan as well, but I’ll acknowledge it again. First question, just regarding disposition, so John, you commented that no additional sales are contemplated in guidance but that you are exploring some potential transactions. Can you just talk about how much more you might contemplate selling into this market? And to the extent you sell additional assets here, what’s the best use of capital at this point to redeploy proceeds?

Well, Todd, I mean, as you know, we try to be – we try not to get too specific about what we might do versus what we are going to do. But I think that the market continues to be decent for transactions. And as I’ve said on the last call, we’re looking at assets that we don’t think are core to us. But we would also look at assets that are potentially better assets, but we could take advantage of the arbitrage of the cap rate spreads. So, I mean, I think we’re kind of looking across the spectrum. And tough to comment on how much we would do because as I’ve said, we’re really going to do things on a fair value basis, we’re not going to announce a massive sale and then be put into a corner and have to take something that’s not fair value, which is my concern right now kind of in our space. So I think we’ll be selective, but what we would do with the proceeds, we’ve been pretty clear that we want to continue to drive leverage down to the low 6 times. We’re making great progress towards that. As we achieve that, then we’ll have to think about it. But right now most of what we’ve been doing is associated with deleveraging and proving the balance sheet because our free cash flow has been able to cover whatever capital we need and redevelopment in TI. So as long as those things stay relatively similar to where they are today, that’s what we would do. But as it relates to how much; tough to say that right now.

Okay. And then just in terms of characterizing the environment on a call earlier today there were comments that demand on the West Coast for assets is strong, but that the number of buyers has come in some, and it was suggested that cap rates might above 25 basis points. What are you seeing across your portfolio which has a more non-coastal footprint? How would you characterize the demand maybe for the deals that you sold and generally what you’re seeing today?

Well, I think we can point to what we’ve done, right. When you look at last year, we sold a $100 million and over. If you look at the end of – fourth quarter of 2016, all of 2017, we sold like $130 million of assets at a blended 6.8% cap. And obviously, none of those were coast except people seem to forget that Florida does have water around it. So we did a few deals there, we did a few deals in the Southeast, we did some deals in Midwest, right. So that was pretty representative at that time. This year we sold two lower quality assets, one in Birmingham and one in Goldsboro, North Carolina, and that was a low 8% blended cap rate that we viewed those, obviously we viewed those assets as non-core and towards the bottom of our portfolio. That isn’t tremendously different than it has been in the last year. So I think when you hear these comments maybe from others that that the difficulty in selling $500 million, $900 million at a time when you’re doing these big portfolio deals versus we’re tending to do more one-off stuff, which enables us to price it maybe a little more effectively or maybe selling two or three assets together. So I think trying to paint a broad brush is difficult. I heard people talking about the 10-year. Look, it’s still relatively very low against someone getting a cash yield of whatever, 6%, 7%, 8%, whatever, they’re doing, 5%, depending on the asset where it is. You leverage at 50%, you’re getting a pretty darn good return. So I think it’s still pretty decent. But we’re early in the year and you’ve got these huge disposal plans out there, so we’ll have to see.

Okay. And just I guess last question on construction costs. You guys obviously have some construction underway between the 3-R and development pipelines, and you also have a future pipeline of projects. Can you just talk about what you’re seeing in construction cost increases, both materials and labor is it having an impact at all? And if so, how are you mitigating those rising costs?

I’ll start, Tom’s can finish in. In general there’s – you continue to see pressure on pricing and I think Tom maybe oil gone up $70 is going to impact some things because petroleum is a big part of all this, but it hasn’t caused us any specific issues, but you can – Tom, address those.

Yes, we’ve been tracking it about 3%, and I think the more difficult part right now for us is simply labor, we are having difficult time getting the trades and getting enough certain people. So, we have a couple of projects right now, we are spending having lot of time making sure we’re getting groups from other parts of countries to come in. So I think as time goes on this labor shortage we have halls empty, will create pressure. But all-in-all that’s been manageable at this point around 3%.

All right, thank you.

Thanks.

Thank you. And the next question comes from the line of Collin Mings with Raymond James. Your line is now open.

Hey, good afternoon.

Hey, Collin.

Just first question from me, if you can guys provide any sort of update on the progress towards the leasing the available office space in NV?

Yes. I mean, we are actively engaged, obviously, frankly we’re what I would say very close to signing a new deal that would be very impactful in terms of the space we got back. But we can’t be specific yet, but I would tell you we are very close, would hope to announce something soon. And at that point it would be pretty clear that we will roll back on our way to stabilization of the building.

Yes. So our goal or roadmap is clear as day and we’ve got couple of deals internally throughout the buildings that we are very confident on, and now we’re just looking for this large transaction we have some confidence in.

Okay, okay, that’s helpful. And then just maybe going back to Todd’s question, can you guys shed just maybe a little more color around the types of deals? I think, John, you said, you look to bring stuff to market. Where you think you could a get fair value for? Obviously, you guys are going to impairment during the quarter as it relates to an asset that whole period changed on? So just maybe refine that a little bit more on the types of deals that to the extent that you do go to the market with that you think you could get fair amount of value for right now?

Sure, good question. Well, I think first of all as I was trying to layout in the assets that we have sold so far have generally been assets that we didn’t deem as long-term goals. Kind of across the spectrum from what I would call moderate to weaker, which is why you saw the pricing kind of range from high 6% to 8%, right? So as it relates to what we’re looking at going forward, since we hit this our 2018 goal right out of the box in the first quarter, we got kind of facilitated our deeper dive into what other assets we might look at, which then in turn which is what created the impairment you’re referring to. And I think so that’s pretty clear that we’re looking to do some other things, Collin. And I wouldn’t tell you that it’s just one specific type that’s why we did a broad review of a lot of different assets as we always do every quarter, but perhaps looking a little more intently at the whole periods. So I mean, it could be – as I said before, it could be stuff that we view as moderate to non-core or it could be maybe a handful of properties that we view as pretty strong assets, but we want to take advantage of the arbitrage as I mentioned. So we’re really kind of being – what’s the word, we’re going to look at everything and trying to leave no stone unturned and always challenge ourselves as to do we really want to hold this asset long-term, do we think that the NOI growth and the cash flow growth is there. I know that’s very broad, but we aren’t just going to say, yes, we’re just going to sell the bottom 10% of our portfolio, that’s not very accretive.

Okay, okay, fair enough. And then last one from me, I will turn it over. Again, obviously, I kind of referred to you already, but just as far as Dan’s announcement on Monday, John, just maybe discuss the plan there, the process you planned to run, I mean, sort of timeline you going to fight on that front?

Sure. Well, first of all, I’m pretty sure I’m not going to find somebody that I’ve known for 45 years like Dan. I think the process right now is the board and myself are engaged in the conversation around what type of person we’re going to be looking for, we are going to – we’re actively in discussions with ourselves and some outside people about that. And so frankly Dan is going to be leaving us at the end of June; it’s not likely that by the end of June we would have a replacement. So most likely we will be in that situation where we’ll do what we have to do, from an SEC perspective on the things that we need to do. And the great thing about – one of the best things about the Dan is the team that he has created. So in terms of the capital markets side Wade Achenbach has been with Dan and myself for a long time. He’s very, very, very capable of executing there. And our Chief Accounting Officer Dave Buell is also very, very capable. So we have an excellent team, it’s really going to be a matter of what is the right person that can run that team with me going forward. So we’ll do what we have to do it on an interim basis, Collin, but we’re going to run a full process and look out – inside, look outside try to find great person.

Okay, I will turn it over. Thanks, guys.

Thank you. And the next question will come from the line of Craig Schmidt with Bank of America. Your line is now open.

Great, thank you. First I just wanted to wish Dan best of luck in his future endeavors.

Thank you, Craig, I appreciate that.

And enjoy.

He will. I am sure.

The public market has not been the most fun place lately.

I want to try to dial in next quarter and ask the question, we will see how that goes.

Okay, that will be fun. Just looking at the potential store closing beyond Toys, how do you feel about the rest of the year? And is there anything come out with your discussions with the SENA?

Well, in the general macro, I think we feel it’s early, Craig. I don’t think we can be really, really accurate directionally right now just after one quarter. I mean, clearly this quarter in terms of bad debt was better than we had projected to be, so that’s a positive sign. I think the market is pretty tuned in to the retailers that have issues. Most of those retailers generally have been higher leverage players. But there is some good signs out there, maybe it’s stabilizing a bit. Doesn’t mean that we won’t get surprises, we do, that’s why we have the reserve that we mentioned and that’s a pretty comfortable place right now, but things can happen. So I guess macro feels like it’s firming up. We’re not all the way through, it is my view. Micro as it relate to SENA, we talked about that probably on, I don’t know, we’ve talked about SENA for the last year on all of our calls. They continue to be very important customer, we work with them, we’ve gone through a couple different stages with them. Tom, you may want to highlight where we currently are with the next couple of years.

With the SENA fortunately the way they streamlined our company we now have one contact, a great guy in Scott Carver and previously we had to deal with all the various divisions. So in doing that, it has given us a lot more focus and it’s given us the ability to really work together on properties that may not be working for them, where we could get them back and vice-versa, so we have a great working relationship, the first two tranches of our renewals have gone well, we’re going to be meeting again at Las Vegas. But I have to say, the working relationship and where we’re headed right now to stay with the course, we have a lot of confidence in our ability to be successful.

Great. And then just maybe, is there any potential for future lift in occupancy from some small shops or are we sort of optimized here?

I mean, we believe we can continue to increase our occupancy in shops. I mean, we’re obviously at a point where at our high watermark for the company frankly, but we’re also at a point where we continue to see extremely low supply particularly as it relates to high quality locations and properties which we own. So I believe that we can continue to push it not only can we continue to push it, we can continue to improve the merchandising mix. There’s a lot of need stuff going on, there’s a lot of talk obviously about the anchor space but there is a lot going on in the small shop world and we’re very, very – I’d say we’re bullish on our ability to continue to add people that matter to our properties. And you can do a deal with our tenants 2,000, 3,000, 4,000, 5,000 square feet and that can be very impactful to your merchandising mix and bring a lot of people a lot of excitement. So we’re bullish on, we got to continue to push hard it’s not easy. But we’re bullish on.

Okay, thanks.

Thank you.

Thank you. The next question comes from the line of Alexander Goldfarb with Sandler O’Neill. Your line is now open.

Thanks. Hey, good afternoon everyone. Dan best of luck and enjoy retirement.

I liked in your note that you called me a CPA type that was good.

You know you’re always quick with the numbers so.

What about that?

You got to keep the rest of the teams straight there. But just along those CPA comments. You maintain guidance I would assume that there is some sort of impact from Dan going whether there’s a gap in G&A or some sort of going away payment. So is there any impact to G&A that’s in here and maybe there is but it’s offset by something else in the P&L.

Alex, first of all. There’s nothing that we had originally contemplated in that number. That said, that’s part of the reason you have a range of – guidance range it’s early in the year. We likely will have something we haven’t – we haven’t got to that point yet but I’m sure I’m likely that we were likely to have something there. There would obviously be a Q2 event, but it doesn’t appear at this point that it would be something that we would have to change guidance for. But that again, we haven’t crossed that bridge we will and if there’s something there we’ll let you know.

Okay. And then on your comments appreciate upfront that you’re contemplating selling board to take advantage. How much – one of the issues that RIET faces obviously managing the taxable gains and being able to efficiently keep capital whether it’s for stock buybacks. So how much capital or how easy is it for you guys to manage taxable gains if the assets that you’re thinking about selling?

Well, I don’t think it’s easy. I mean it’s why whenever you – it’s one of the factors that you’re going to look at and analyze as it relates to a decision. It probably isn’t going to be the overriding factor because you’re generally making these decisions based off. Do you want to own or not own this real estate? But it is a factor particularly when you’re going to do a portfolio or you’re selling two or three things at one time then that gives you the ability to kind of offset one against the other. But it’s clearly a factor and we don’t want to – we want to be very careful with making sure that we get 100% of that capital to use for either whatever it is that we’re looking to do with it. Certainly there are times where people get put into a position of paying a special dividend that’s still a dividend to shareholders which is a good thing but in our case so far we’ve been able to manage it. And generally not have an issue but I think depending on how much more we would do that becomes more and more of a factors.

So how much right now John, how much could you sell in aggregate this year before it’s an issue.

I mean, if you look Alex, if you look at the first quarter and what we had we sold to $63 million. We were that was a tax efficient sale I think if you go back and look at our typical when you do the REIT paying out 100% of taxable incomes we don’t pay tax. We have right now probably in the range of $20 million to $30 million of additional tax, room, cushion for additional gain to be able to utilize or where we site today. What I mean, look $20 million to $30 million that could be one or two properties gain, so depending on the assets. So it’s a case by case deal Alex, I don’t think globally we would think or we have a ton of ability to sell whatever we want. We’re going to have to look at that.

Okay. And then just final thing, John. I appreciate your comments on the leasing spreads and how – you have to look at each individual deal. But even still over the past few quarters whether it’s a deal that requires an extremely high TI for one or is it’s no TI in which case the rents lower. There always seems to be a dealer to each quarter. So as you look out over your next roll the next sort of 12, 18 months or so. Do you envision that there are more of these one-off type deals that sort of whether it’s the TI or the rent or whether literally just a few deals over the past few quarters that have given rise to this but going forward from what you’re leasing folks are looking at we’re probably not going to see a similar going forward.

I don’t think we’re in a position to say that because it’s early in the year. And we are not immune to the overall environment. That said, I think the part of this is our size when you look at the size of the company and then you look at the size of a box. How much rent it generated out of that box. It’s going to impact us. Now again, we will benefit from that as well, so at some point in time. But right now Alex, I think there will be other deals out there that we would consider to be one-off deals. But it’s why I tried to make the comment that we did – if you look at it on an absolute basis, when you do 11 anchor deals and only two of them are these kind of aberrations. That gives you sense that the majority your deals are doing good. But it doesn’t change the fact that it significantly impacted the spreads. But we still grew NOI 1.5% in the same store pool which was at the top end of our guidance. So, this business always have these winners and losers on the deals. I think there will continue to be some challenges but will also see some good upside. I mean if you look at the Toys "R" Us boxes, I mean our average rent in there is $11 you take one of the deals out the average rent is $8, against to $12 average anchor rent that’s pretty good. So we should see some opportunities as well. And we’ll point that out if we have a huge spread on a particular deal, we’ll say that we had a big spread on a particular deal. But overall, it feels like there is adequate demand to fill these boxes over time. But none of this happens overnight it takes time.

Okay, thank you John.

Thank you.

Thank you. And the next question comes from the line of Chris Lucas with Capital One Securities. Your line is now open.

Good afternoon guys. John already talked to Dan. So okay we’re good on that front.

No one talk to me, but they’ll talk to Dan.

Well, I tried to reach you.

I know I called you back come on.

You sure did and I appreciate that. Just appreciate the comments on sort of the current conditions. I guess, I was trying to think through – we always talk about tenant fall out and sort of split between credit issues and then retention issues. I was wondering, if you could maybe comment on sort of what you’re seeing in retention it was quite positive quite honestly that you really saw a consistent lease rate in the shop space between a fourth quarter and first quarter that usually seasonally tough transition period. Just maybe if you could give some senses to what you’re seeing on the retention side and what your expectations are for this year particularly maybe to last year.

I mean, I think actually the retention this our normal expirations and retention hold is generally been what has been – it’s been very consistent for the last several years. The kind of upheaval has been very specific to these retailers who have had their own problems, right. And the issue with this Chris as you know, the general – the world wants to make this a systemic retail issue when it really isn’t. It really is specific to these particular retailers whose business models either fell behind or whose balance sheets became an animal that just ate him up. And so I don’t think that retention has changed all and again, I don’t know how we could maintain almost 91% lease in our small shop portfolio it was truly an apocalypse, you just couldn’t. So I think that there is ability for us to continue to do pretty well there. But I don’t know I mean I feel like it’s not terribly different. Tom, you want to add to that.

I always get confidence from the fact that we feel like there are users to back to fill these spaces. We’ve been active on the grocery front everyone knows the names of Whole Foods and Sprout and others. But the value players continue to be very, very aggressive – as aggressive as they’ve ever been. And then you got entertainment, so we’ve got a variety of tenets that we’re able to go after to sell these spaces. And as long as we continue to have that confidence level, I mean, we feel like we can get our job done and early execute on the box search. It takes time, but we’ve got the opportunities in front of us to be successful.

One other data point Chris that we don’t talk about a lot is when you look at AR, we’re in really good shape probably as good a shape as we’ve been in, in the last three years in terms of our over 90% – just on an absolute basis on a percentage basis. And frankly, we reserved 90% of that anyway. So it’s pretty stable, but again, that doesn’t mean that you won’t – as we all know, that you won’t have a couple of these other challenge retailers succumb but because the rest of the world is in pretty good shape, we should be okay there.

Great. Thank you. That’s all I had today. Appreciate the time.

Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Jeff Donnelly with Wells Fargo. Your line is now open.

Good afternoon guys. John, I promise I’ll never call you a CPA type. But I mean in the best way Dan. I guess the question on the environment just building on your answer to Chris’s question. If we’re not in a period I guess, I’ll call it secular erosion of some retailers and you feels its more retailer specific. Are you able to kind of handicap, I know it’s subjective, but how far along do you think we are through this process of maybe chewing for the retailers that have bad business models? Or having some of the high rents in the industry kind of pull down toward something that’s more achievable? If you’re got there are kind of in the sixth inning of this, the third inning of this. How do you think about that?

That reminds me about four years ago, we were in the ninth inning of the economic expansion. So now we’re in lots of extra innings. I don’t know Jeff, I think tough to make – it’s tough to say specifically, I would tell you that it feels like it’s more than halfway, right. I feel like we’re more than halfway done with it. When you look at who we deal with, when you look at the national. Let’s just focus on the big box retailers. That feels like it’s beginning to stabilize despite the fact that even in the media you’ll read things about even the really, really good retailers they can’t stay this good for that long. Somehow they seem to know that. But on the ground in our conversations with the retailers in the meetings that we have all the time, it feels like it’s more than halfway done. But look, we got a couple big guys out there that continue to struggle a little bit. Our world very different than the enclosed world, I feel like our world got less of that to happen. So I don’t know, feels like we’re more than halfway down, all I can say.

And I know maybe not a lot of time has elapsed on this. Since tax reform was passed and as arguably a really big boost for retailers. Have you guys discerned any kind of change in their attitude towards leasing at the margin, either it’s keeping some stores open that might have been earmarked to close or maybe even more receptive to opening others. Can you sort of discern a shift in their thinking? Or is it just too short of time period?

So far we haven’t – to my knowledge, haven’t had any retailers kind of draw a direct correlation to store openings versus tax reform enabling them to retain more cash flow. I do think that you seem guy clearly reinvesting in the physical store and that certainly is – that would be a potential benefit from an extra whatever $100 million of free cash flow whatever the number is for whatever particular retailer. The guys that are good are going to invest that in the store. The guys that are struggling are not, they’ll do other things with it. But I think the strong retailers and I think – do that Jeff by the number of openings from the top tier players both box and small shop.

Right. And what are your instincts tell you and where the pressure points are in dispositions. I mean, do you find it’s particular deal size or is that just deals that have yield tend to have more support. I mean, I know people sort of think of it in terms of marketer geography. And I recognize it sort of everything matters with real estate. But I’m just curious if you think some qualities out there are much more critical than others to getting deal done.

Yes. Again that’s one of those things it’s very difficult to paint with a broad brush because the buyer pool is so different. I mean, you have buyers that are looking for just stable yield. You have buyers that are looking for some upside, so they want to buy centers with a box or two empty. In fact, sometimes in those cases you get a lower cap rate. Then you have the very, very specific buyers who only want grocery or only want a lifestyle product. So it tough to paint with a broad brush there. But clearly when you look at the activity even in our little world and having sold $200 million over the last year, little over a year and half. We’ve sold in each market that we’re in terms of each territory. So it’s not only one market it’s pretty, pretty broad. And we’re also seeing in the debt markets. There’s strong demand in the debt markets. So again, every – as you said, every, every assets has it’s own story.

Well, I trust you’ll give Dan arousing send off at ICSC. So thanks for the time.

Arousing, yes, yes.

Thank you. And the next question comes from the line of Linda Tsai with Barclays. Your line is now open.

Hi, John, maybe trying to address it earlier. But as you sell out of lower growth assets or once in the secondary markets. What you think the buyers are contemplating for the used B centers. Do you have any sense of how their plans may vary as to whether it’s a grocery anchored or a power center.

Well, Linda I think as I was just saying, you get different types of buyers, what’s the word – identity through each one of these things. So for example, when one of the – of the two assets we just sold a great example. One asset was purchased by an institutional investor who was looking for a stable yield. The second asset was purchased by a more of an opportunistic private guy who levered it up. And there was a vacancy there for him to get whatever, another 50 basis points of return. So I do truly believe there are a lot of different buyers out there right now. And yields versus kind of fixed income returns regardless of the 10 year on decent real estate there’s demand. So again, the cap rate might be more of an art than a science depending on what point in time and what’s vacant, what’s not, what you’re getting credit for on, is there any bad debt all that stuff. There’s art to all that. But scientifically, it’s really just what’s my yield and what’s my risk characteristic.

Thanks. And then just a question for Tom. Have you engaged in any discussions with bet Bed Bath & Beyond? Recently they discussed potentially closing 40 out of the 400 stores that are coming up for renewal over the next two years.

We have – we’ve been in constant conversations was there at a real estate. That’s a continual process for us. In terms of specific closures, we have not gotten into that, we’ve been discussing other issues. But we keep a very close tab on them as we do all of our retailers. But at this point there’s been no specific conversation tied to our portfolio.

Thanks.

Thank you.

Thank you. Thank you. I’m showing no further questions at this time. I would like to turn the call back over to Mr. John Kite for further remarks.

Okay. Again, thank you everyone for joining us. And we look forward to seeing you soon.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes your program. You may all disconnect. Everyone have a great day.