Kite Realty Group Trust (KRG) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2014 Kite Realty Group Trust earnings conference call. My name is Denise and I'll be the operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now turn the conference over to Mr. Adam Basch, Manager of Finance. Please proceed.

Thank you and good afternoon, everyone. Welcome to Kite Realty Group's second-quarter 2014 earnings call. The Company's remarks today will include certain forward-looking statements that are not historical facts and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. The Company refers you to the documents filed by the Company from time to time with the SEC, which discusses these and other factors that could adversely affect the Company's results.

On the call with me today from the Company are Chief Executive Officer, John Kite; Chief Operating Officer, Tom McGowan; and Chief Financial Officer, Dan Sink. And now I would like to turn the call over to John Kite.

Thanks, Adam, and welcome everyone who is joining us today for our second-quarter earnings call. We would like to extend a special welcome to those of you who are listening to our call for the first time today. Our team had a large list of action items leading up to and coming out of the merger and I'm pleased to report that we've already executed on a number of those.

I'd like to start with a brief overview of what we've accomplished since the merger. We've completed all of our pre-merger objectives, including the sale of all the single tenant assets, the sale of two of the three apartment assets with a third under construction, the sale of the securities portfolio, and we've successfully assumed all debt on the date of the closing. We successfully welcomed approximately 40 new team members into our Organization. We added a number of individuals with strong operational and management experience who are making an immediate impact to the new assets and our regional team structure.

We fully integrated and converted lease and accounting data from the former Inland Diversified systems. This will allow many of our new IT infrastructure components to begin streamlining data analysis to further enhance decision-making. We've reached out to our over 1,000 tenants -- our new 1,000 tenants, introducing our Company and operating policies and making sure all parties are aware of the transaction and have access to anything they need through our Company.

We've amended our line of credit and term loan, extending the maturity and credit capacities of both. We've completed a full review of the portfolio and identified several opportunities to enhance assets, as well as disposed of non-core assets.

I'd like to take the opportunity to thank Barry Lazarus, the former President of Inland Diversified, and his transition team for the significant efforts in cooperation in helping us achieve our merger objectives. Due to the merger closing after quarter-end, our quarterly reporting press releases and remarks on this call today will not include any combined information as of June 30. However, in order to assist you in your analysis of the combined Company, we have provided pro-forma combined data in our supplemental, including a list of the properties with the annualized base rent added through the merger and the combined debt summaries.

At the same time we were preparing for the closing of the merger, we produced another exceptional quarter in all aspects of our Business. FFO per share for the quarter was $0.13 as adjusted for the Inland merger costs. Compared to the second quarter of last year, FFO as adjusted was up $0.03, or an approximate 30% increase.

These positive results have been driven by our anchor tenant opening, the successful lease-up of our development and redevelopment assets, and the integration of the nine-property portfolio we acquired late last year. These internal and external growth initiatives have significantly increased our free cash flow, enhanced the overall quality of our portfolio, and continue to strengthen our balance sheet.

Our same-property net operating income increased 4.4% in the second quarter, reflecting our team's sixth quarter of exceeding 4% growth. We will continue to focus on further increasing occupancy and generating positive releasing spreads throughout the combined portfolio. During the second quarter, our team executed 45 new and renewal leases for approximately 175,000 square feet, with an aggregate rent spread of 13.9%. Renewals were up 7.7%, while new leases were up 32%.

We announced in June, that seven new anchor tenants totaling 151,000 square feet had recently opened. The ability to identify and execute on value-add opportunities using our development and redevelopment background is one of the truly unique skill sets our team brings to the table.

Our team has worked diligently to identify similar prospects throughout the combined portfolio. We're very excited to have a larger, more diverse portfolio of high-quality assets to continue to use our prudent real estate skills to deliver top-tier results.

Turning to our ongoing development and redevelopment projects, we continue to make progress on our 380,000 square foot Parkside Town Commons project in Raleigh, North Carolina. The first phase is 92% leased, and as we had previously announced, Target, Harris Teeter, and PETCO are now opened.

The second phase of Parkside is 64% pre-leased or committed, with vertical construction well underway and we have good momentum to be approximately 80% pre-leased by year-end. We expect Field & Stream and Golf Galaxy to both open in September, and Frank Theatres to open in the second quarter of next year.

Plans to start construction in the fall of 2014 on Phase II of Holly Springs Towne Center, also in Raleigh, North Carolina. The project encompasses 133,000 square feet, with a planned opening in the second half of early next year. Phase II is approximately 80% pre-leased and will be anchored by Bed Bath and DSW.

On the redevelopment side, we completed the total renovation of King's Lake Square in Naples during the quarter and moved it into operations. This redevelopment consists of a new and expanded 45,000 square foot Publix grocery store, which opened in the first week of April, as well as an upgraded facade and parking field throughout the entire center. Also as planned, we moved Hamilton Crossing in Carmel, Indiana into the redevelopment pipeline, as the Office Depot lease expired and we chose not to renew so that we could reposition the asset.

As we look forward and continue to evaluate our expanded portfolio as a result of the merger, we are aggressively looking for upgrading and enhancement opportunities, and we've identified and are analyzing approximately $100 million of potential development and redevelopment prospects. These projects would range from anchor retenanting to full redevelopment of the center.

We've been very successful in continuing to enhance our balance sheet. In connection with the closing of the merger, we expanded our $200 million unsecured revolving facility to $500 million and reduced the rate to LIBOR plus 140 to 200 basis points, a decrease of between 25 to 50 basis points across the leverage grid.

At the same time, we also reduced the rate on our $230 million term loan to LIBOR plus 135 to 190 basis points, a decrease of between 10 and 55 basis points across the leverage grid. With both facilities, we have short-term extension options and expansion features totaling $420 million.

We were also able to increase the size and quality of our unencumbered pool, which is now valued at approximately $1.3 billion. We also paid off the debt of our recently completed Four Corner Square and Rangeline Crossing assets, with available cash at the time of the closing.

After the amendment of the line and the closing of the merger, we now have liquidity in excess of $400 million and the weighted average maturity of our debt portfolio increased from 3 1/2 years to over 5 years. We now have a significant liquidity cushion to fund the $270 million in maturities coming due over the next 24 months, if necessary. This amount can also be reduced to [$180 million] if extension options are exercised.

Now I'd like to take a moment to make some comments on the transaction market. In the many deals we track, we've seen a noticeable drop in cap rates at the beginning of the year. Transaction market is robust and competition in our markets remains fierce, which presents attractive opportunities to improve our portfolio through selected dispositions and selected acquisitions. We've carefully deployed capital when we find opportunities to add value at reasonable prices and will continue to do so.

There will also be opportunities to divest assets that are either non-core or in markets where our continued presence may not meet our strategic objectives. Currently anticipate selling up to 15 properties from the former Inland Diversified portfolio and we're in early discussions with a potential buyer of all the assets.

In connection with the merger, we announced changes to the membership of our Board. Two of our long-standing trustees, Dr. Richard Cosier and Gerald Moss retired after serving since our initial public offering. I'd like to thank both of them for their counsel and support over the years.

We've welcomed Lee Daniels, Gerry Grupe, and Charles Wurtzebach, all former independent trustees of Inland Diversified, to our Board. These individuals bring a wealth of exceptional and diverse knowledge and expertise to our Board and we're excited to have them as part of the team.

Around the merger, we've made a number of public filings that we wanted to make sure people saw and understood. The filings included a recent 8-K with updated employment agreements. In those agreements, among other changes, we removed the tax gross [up] and added a double trigger on the change of control.

Looking into 2015, we would expect that our G&A ratios will be lower than the majority of our peers, with G&A to revenue of approximately 5% and G&A to gross assets of less than 50 basis points. While we've always focused on running a lean Organization, the merger has allowed us to generate more efficiencies in how we operate the Business.

We are increasing the midpoint of our full-year 2014 FFO guidance to a range of $0.49 to $0.52 per common diluted share. Our guidance range and the underlying assumptions include the operations of the combined Company for the second half of the year, but exclude the costs related to the merger.

Guidance includes the following assumptions in second half of the year: G&A ranging from $3.5 million to $4 million per quarter; same-store guidance for the Kite Portfolio at or slightly above the top end of the range. As I mentioned earlier, we've provided a detailed annualized base rent and debt information for the combined portfolio in our appendix of our supplemental.

We're very pleased to have been able to raise the guidance after issuing over $1 billion of equity in the merger while significantly deleveraging and fortifying our balance sheet. We are, of course, pleased that we successfully closed on the merger, but we remain extremely focused on continuing to execute on the integration of the new asset.

Looking back over the past 14 quarters, our same-store NOI has averaged 4% growth and our combined rent spreads have been over 12%. I can assure you that our team has been and will continue to work tirelessly to ensure that the merger will be a valuable event for our shareholders. I'm especially proud of our employees, who managed to deliver outstanding results, while balancing the demands of the merger.

We are very excited about the future of our Company, including the many benefits we'll derive from the merger, as well as the continued outperformance of our portfolio. We believe that the strength and scale of our Company will allow us greater access to strategic opportunities and operational efficiencies, while generating an attractive total return to our shareholder. Thank you and this concludes our remarks and we are ready for questions.

(Operator Instructions)

Todd Thomas, KeyBanc Capital Markets.

Hi. Thanks. Good afternoon and congratulations on closing the merger. Just curious now that the deal is closed, I'm guessing you've had about a month of insight and are working with shareholder services more closely with regard to your new investors. Any sense what the reception has been like or the posture from your new investors?

Well, Todd, it's -- we don't have exactly accurate data on what you're looking for in terms of how many shareholders have retained the stock or not, but certainly everyone we've talked to has been very positive. Everyone we've talked to sees a great deal of potential value moving forward, so all of our comments have been positive. Obviously, over the past month, we've had significant volume so there has obviously been quite a bit of volume but the stock has performed okay in light of that volume, but of course we think there's a lot of upside from where we are today.

Okay. And I was curious regarding the 1-for-4 reverse stock split, I was just wondering if you could run through the Board's rationale there?

Sure. There's a lot of rationale, there's several points to it, but one of the things that we were very focused on coming out of the merger was that the Company had really gone through a transformation in every way, in terms of the size and scale of the business, the quality of the business, having an equity market cap in excess of $200 million, and all the great growth that we've had, that we've generated already.

So the fact that we were a single-digit stock was a concern for various reasons, one of which was that the single-digit stocks tend to be stocks that high-frequency trading revolves around. The percentage movements are large so that creates a volatility that's unnecessary. There are some funds that will not own single-digit stocks, so those were a couple things that were important to us.

Also one of the things we looked at was having 330 million plus shares outstanding. It's a large number of shares to have outstanding and in order for investors to have material stakes in the Company, when you are trading at that level, it can be expensive to trade in the shares based on commissions paid per share. That was another thing we thought about.

So we looked at a lot of different things. Mainly just the transformation of the Company and the fact that it's such a stronger Company led us to the thought process and then when we looked at those individual data points of volatility, cost, et cetera. It just made a lot of sense to us.

Okay. That's helpful. And then, your original guidance, when you announced the merger, you had talked about incremental G&A of between $6 million and $8 million, and you talked about your G&A expectations through the back half of the year, $3.5 million to $4 million for the combined Company now. Is that a good run rate to think about going forward? Is the integration complete from your perspective?

No. That's not a good run rate, but I'll let Dan.

Hey, Todd. If you look at this year, we wanted to give some visibility into the last two quarters of 2014. So if you look at it from a run rate for 2015, one of the key points, and as you mentioned -- we mentioned an incremental $6 million to $8 million, and when you look at where we are from a property operating perspective and the recoverability, or the non-recoverability of a portion of that, and the additional G&A, I would say we're going to be at the high end or slightly above the high end of the $6 million to $8 billion. So when you look into next year, I would say, you're probably in between $4 million and $4.5 million a quarter, versus what we're looking at this year, between $3.5 million and $4 million.

Okay. And then just lastly, for you, Dan, actually on page 8 of the financial supplement, footnote 4, where you provide the adjustment for the mid-quarter [rank] commencements. Do have that number? It's missing from the supplement?

Yes. I can get that for you, Todd. We pulled that out as we got the combined Company. It didn't have as large an impact on NAV as it did when we were not doubled in size, so we dropped that out. I can definitely get that for you. My guess is it's probably going to be roughly between $100,000 to $200,000, but we'll [pull] it out.

All right. Great. Thank you.

Thanks.

Christy McElroy, Citi.

Hi. Good afternoon. This is Katy McConnell on for Christy. Within the new guidance range, can you talk about the non-cash impacts to revenue and interest expense from the merger? So if the deal is still roughly neutral on an AFFO basis?

Yes. When you look at the FAS and the debt marks, when you look out into 2015 as well as 2014, the mark-to-market debt, we're still finalizing these numbers, but let's say that, that's going to be probably in the neighborhood of $1 million to $1.5 million a quarter, from a debt mark perspective. And then straight-line rent and lease marks again, we're finalizing those, but those are probably as well right around $1 million a quarter.

So that's initially for 2014 and we're -- those numbers for 2015, obvious when you talk about straight-line rent, that's just -- that can move around a little bit. As far as the lease marks and debt marks, that can give you a good projection. Something important to point out is from the lease mark perspective, initially there's, as we talked about on the call when we were walking through the transaction, we had $20 million of above-market leases and $90 million of below-market leases.

What's important is the $20 million above-market leases are going to burn off quicker, so then our FAS adjustment in the first few years will be less than that in the future when the $90 million starts to roll through. Hopefully that is helpful, but that's generally what it looks like. Again, we're finalizing the numbers with valuations and walking through that because we just got the final numbers in June.

Great. That's really helpful. Thank you.

Thanks.

Craig Schmidt, Bank of America.

Thank you. I just wanted to dig a little more in the divesting of the non-core, non-strategic assets. Did you say that you're in early discussions to possibly sell the entire subset of those assets?

Yes, Crag, what we said is we had identified up to 15 properties that we wanted to dispose of or to sell. And then we are in early conversations with someone who's interested in all 15. So yes, that is what we said.

Okay. And then would that include assets that maybe don't not make a lot of sense from a geography standpoint?

Yes, Craig. It's generally -- it's either geographically-driven that we've talked about in the past, that some of the assets in the mid-central part of the country that are geographically not suited for us. And then a couple smaller assets that really aren't suited for us, that are less geography-driven and more just the scope of the property.

But we've spent a lot of time on it and we feel comfortable that, that's the right set of properties to sell. And then we would a lot of opportunity to redeploy the proceeds in a lot of different ways. So we are -- again, it's early, so anything can happen, but we are in early conversations right now.

Okay. That was quick. Thank you.

Thank you.

Tammi Fique, Wells Fargo Securities.

Hi. Just following up on Craig's question, if you sold all 15 properties, can you give us an idea of what the range of values would be, just total aggregate dollars you could raise from that? And then after selling those 15 that you've identified, what can we expect from Kite on an annual basis in terms of capital recycling?

Well, in terms of the second question, the annual recycling is something that's -- again, once we -- if we got through this initial phase of selling these 15 properties, then we are down to feeling as though we have the portfolio that we want and that we think we can grow. But we'll always been on the margin, looking at that bottom 10% now.

That becomes really a smaller number because it's not really 10% anymore as we've tweaked the portfolio and believe that we still have a lot of growth left in it. But we'll continue to sell assets more on a one-off basis than on a [false] basis, is what I am trying to say.

In terms of the proceeds, it's early to get into that. Again, 15 properties isn't -- as you can imagine, that's not $20 million, it's a significant number. But it's too early for us to get into the number.

Okay. Thanks. And then, with regard to NOI growth guidance for 2014, it didn't change when including the Inland portfolio and I was under the impression that the growth profile of the Inland portfolio was slightly lower than that of Kite. I'm just curious if it implies that the NOI growth of the Kite Portfolio is better than you expected or if the Inland portfolio is better than you expected? And then does that guidance include the impact of ground leases?

Well, a couple things. First of all, in terms of our 2014 guidance, that's Kite same-store NOI guidance, the Diversified portfolio won't be in for a year. Typically that's our -- we don't put it in for a year once we bring in a new property. So right now we're dealing with Kite guidance.

And in terms of what we had said earlier, and I know a few people had written notes around a decelerating second half, the bottom line is we're half way through the year, we still have two quarters to go. We've tried to make clear in our prepared remarks that are same-store NOI guidance will be at or above, most likely, the top end of our guidance.

If we're at or around that 4% level, as we projected, we're outperforming the sector by over 100 basis points. So we're very happy with where we are and we were trying to point out that our portfolio is generating top-tier, if not very close to the top, same-store NOI growth over the last 14 quarters and its with the assets that we own, which over that period of time haven't included assets in California, in Los Angeles, or San Francisco or Boston.

So the point we're trying to make is we drive results. And we think we can drive those same results when we combine the portfolios as we are now. And we have very set goals in terms of how to do that. What I was trying -- one of the things we wanted to get the point across to the market is the fascination with geography relative to quality is clearly missing the boat in terms of companies that can drive NOI growth and cash flow growth.

The other thing, this NOI that we are driving, is also part of this cash flow growth. If you look at the two deals that we just completed, the [Ogzid] transaction and the Diversified merger, we've grown our free cash flow by $0.12, $0.14, $0.15 a share, big numbers. So that was a long answer to your question, but we feel very good about that right now and we feel good about integrating it and continuing to drive.

Okay. Then maybe just one follow-up to that, with regard to the spread between leased and occupied, do you know what that was for the second quarter?

Yes, for the second quarter, Tammi, for the whole portfolio, it was about 230 basis points spread between leased and occupied. And if you look at the same-store pool economic occupancy, there was about a 50 basis point spread.

Okay, so on the same-store portfolio, last quarter it was 350 basis points and this quarter it was 50 basis point?

Just to be clear that -- that's why -- there's a -- it's physical and economic occupancy. Last time we made the physical occupancy discrepancy and right now on the physical occupancy side, it's probably closer to 190 to 200 basis points versus the 300 some-odd that you had last quarter. So we're going to put that in, in future quarters in the supplemental and make it clear that it's economic occupancy versus physical.

Okay, great. That's very helpful. Thank you guys very much.

R.J. Milligan, Raymond James & Associates.

Good afternoon, guys. John, I was wondering if you could give us a little bit of color on how the [Ogzif] portfolio is performing. It was a pretty big addition to the asset base. It's not in the same-store pool. I was wondering if you could give us some color as to how it's performing relative to the -- how you guys underwrote it and if maybe if you could give us an NOI growth number for that portfolio?

Yes, it's performing very well, R.J. In terms of we've already made significant lease enhancements. I can't give you today the same-store number on it, but bottom line is it's definitely performing above where we thought it would and then we are about to embark on -- we're looking at a couple redevelopment opportunities there, so we're very pleased with that.

And yes, at the time we acquired it, it was a 20% increase in the size of the Company so it was a big deal and that was one of the points I was trying to make is that in terms of integration, we integrated that very quickly. But we feel as though the results will be generally in line with what we are producing in the rest of the portfolio, is what I would tell you.

Okay. And with the performance above how you guys underwrote it, is that outperformance being driven by better lease-up or quick lease-up than you had expected? Is it better rents? What's driving that performance?

Yes. First of all, we underwrote it from an IRR perspective with a vacancy factor beyond the existing vacancy, so we were -- we wanted to make sure that we didn't have any surprises and that has not happened. We have not lost vacancy really across the board in any way. So that's one of the reasons it's outperforming, that we just were very conservative from an IRR perspective.

We have begun to push rents in the portfolio. We have one property, specifically, in Jacksonville, where we are being very cautious around doing new deals, so that ones more of a redevelopment play, so that will be a little bit slower. But we're, for example, we are pushing rents in both Houston properties pretty significantly.

We've announced a deal that we're working on in the Woodlands to replace a tenant that we are doing a lease termination with, but that's a box deal that'll be a significant spread to the previous rent. So yes, we're just applying our elbow grease to that portfolio that didn't have it before.

And it's a real similar scenario where the properties were -- the structure was such that the way that we do the business, the way that we operate, gives us a lot of runway to jump in there and really leverage our retail relationships and push rents. So it's a combination of those things and it's just great real estate. That's really the most important thing.

Great. Thanks, John.

Thank you.

Carol Kemple, Hilliard Lyons.

Good afternoon. Hey. How do you all expect your merger cost to be spread out over the third and fourth quarter? Will they all be all be in one quarter or will it be about even?

Yes. Carol, this is Dan. We're going to have -- we will ramp the merger costs up in the third quarter, so we will have everything in the booked. When you look at, in totality, we estimated originally about $25 million. The third quarter, you'll see roughly about $19 million in Q3.

We've pretty much got the totals ironed out. So in totality, it will be about $27 million versus the $25 million we originally projected, primarily relating to a couple million dollars of debt assumption cost just to get the 50 [loans] over and assumed on a timely basis. That was the primary [spread] difference.

Okay. And then your parking revenue is up about 4 times what it was last year. Was there anything specific related to that?

No, typically in the parking revenue column we will have -- in this quarter, we had probably some [NBA genes] in there and then we have got the Daytona 500. So there are some things that go through that line item that are up and down a little bit.

Okay. Thanks.

Thanks.

Chris Lucas, Capital One Securities.

Good afternoon, guys. John, you mentioned that cap rates had drifted down over the last X number of months. Hazard a guess as to what the clearing price would have been for the Inland deal today versus when you nailed down the negotiations for it?

It's obviously tough to say, Chris, but cap rates in general have compressed. When you look at deals that we look at, they've compressed anywhere from 25 to 50 basis points. So it would be logical to say that this would be in that same arena.

So instead of it being a high 6%, more of a low 6%, in that range, depending on -- but again, it's a big deal, big portfolio, a lot of things have to line up to the buyer. But if the assets were priced individually, I don't think there's any question that they would have compressed that 25 to 50 basis points.

Okay. And then you mentioned that you had a pool of assets [sit] on the disposition side. Can you maybe give us a sense of what the percentage of the NOI coming from Inland that those assets represent?

That's another way of giving you the number. It's 15 properties. It's probably -- I don't know, it's less than 20% probably, but it's -- again, it's fairly significant, it's 15 properties, so it's fairly significant, but it's probably less than 20%.

Okay. And then you guys have had it now for a month. How long do think it will take for you to fully vet all of the assets to the point where you know exactly what you're business plan is for both leasing and potential redevelopments?

Well, I can answer that one. That was done. We're done with that. We know exactly plan. One of the benefits of the deal was that, although we announced the deal in February, we began working very hard on the deal in the summer and fall. So our knowledge of the assets is strong and we feel very comfortable around that.

Obviously, operating them and understanding them from a distance are different, so we are operating them now and we have had no surprises of any magnitude that concern us at all. If anything, we've seen a lot of upside that we thought was there, but now we know. There's definitely some potential upside there on the redevelopment [tack], which is why I said that in the combined portfolio, we're analyzing around $100 million of different projects.

There's a couple of those would include stuff that we have within our own portfolio, but we feel -- we are there today in terms of our operational efficiency. We haven't missed a beat. That was what I was trying to get the point across, that for a small Company prior to this, for us to deliver the results that we just delivered and to close on this thing seamlessly, we are very proud of that fact.

You don't get that by accident. You get that by grinding hard, by working hard, and by having great team members, which we do. So we feel very good about it, Chris, and we will begin to seek value right away.

Chris, this is Tom. Only other item I would add is when we picked up over 1,000 and one of the things that we have initiative to do is get out and personally see each and every one of those 1,000 tenants across 60 properties. That has been accomplished and that was one of the big goals that we had, is to maintain the customer relationship attitude, so that was one of the big things we wanted to do because ultimately it the starts with the customer.

Okay. Great. Thanks a lot, guys.

Thanks.

(Operator Instructions)

Nathan Isbee, Stifel.

Hi. Good afternoon.

Hi Nate.

Would you be able to update us on where you guys stand going forward with the dividend policy, given the bigger-sized Company and perhaps [hit the] -- if you desire to make some of the legacy shareholders somewhat whole from a dividend perspective?

Sure. When you look at it, Nate, this is purely from a payout ratio perspective, we're obviously very conservative in our dividend. Historically, we have always, over the last few years, we've had a great deal of need for external capital to fund the developments and redevelopments and [TIs], et cetera, but now we're clearly in a much, much different place as it relates to free cash flow.

And again, one of the things we talked about was the fact that we have significantly increased our free cash flow, not just from this deal but also from the [Oxdif] deal, so our last two major acquisitions were extremely accretive to cash flow. That's what run businesses. Free cash flow is what runs businesses, not demographics or NOI or anything else, it's free cash flow, so we're really excited about that.

We, obviously, in terms of -- we really look at it as though we have a shareholder base. Obviously, we have more retail shareholders today than we did. That will evolve over time. And so we really view as we have a shareholder base that we want to return results to and so total shareholder return is a big thing.

So we're going to look at that going into next year and we're going to see where we think our -- where our net cash flow is and what our opportunities are internally. But as we've already said, we certainly are in a much better position to look at raising that over time.

Did you consider doing a significant raise around the time of the merger?

Well, if you remember, right, we did increase the dividend 8% last quarter, not this quarter.

Correct.

And that was not part of the Inland deal, it was really driven off of the [Oxdif] and all of our development deliveries, et cetera. So, no, we didn't -- we obviously thought about it relative to the Inland deal. We thought about the dividend, and clearly their shareholder base is very sensitive to it.

But we also explained that there's a lot of great things we can do with our capital, driving IRR internally. So we thought about it, but at this point, we felt like it was too early, but now we have good visibility certainly through the year and into next year and we feel very good about free cash flow. So we'll have lots of choices, which is a good thing.

Definitely. And then can you break out the components of your same-store growth this quarter? The 4.4% growth, how much of that was rent growth versus occupancy growth, maybe what the economics physical occupancy increase was year-over-year?

Yes, the economic occupancy grew -- year-over-year, was about 50 basis points, Nate. Base rent was the primary driver in -- economic occupancy around 50 basis points. If you walk through -- we're getting a lot of good momentum off of the objectives of annual rent bumps and just driving rent increases that you've seen in our cash rent spreads.

But how much are your -- I'm sorry. Go ahead?

So when you look at, the base rent was probably 5.5% of the increase, and recoveries were off 1.3%, let's say. So that's in the ballpark of where we were on the 4.4%.

So help me understand that. If your economic occupancy was only up 50 basis point, how much of your portfolio rolled over the last year?

When you look at that -- there's not significant. One of our objectives is to try to maintain an excess of 80% of any renewals so we've been doing better than that recently but--

Nate, what you've got to look at is the bump -- the elements of that are -- if you look at this quarter, the cash spread on renewals at almost 8% was way above our historical number, which has been -- I don't have it in front of me, but more like a 4% number.

Right.

So we drove a lot of that through renewals, which is a really good sign. And then when you look at just the general roll over, obviously, when can look at the cash rent spreads, just in the general roll over, we grew it. So I don't think I have an exact number for you that you're looking for in terms of how much of that was new tenants coming in versus renewals, but you can tell by the renewal jump that, that was a big part of it.

And some of this is the fact that, when we started our initiative three years ago, in terms of requiring these 3% annual increases on small shop rents, some of this is going to not be expiration, but just annual increases in rents. So you're not going to really see through the expiration schedule. Does that make sense?

Yes. Well, how much are your average leases -- what would you say is the average bump on an annual basis from your leases?

Yes, if you're looking for the -- just what we're getting out of the -- how much of that 4.4% is just the guys paying more rent every year? That's probably like a 1.5% number, that contractual that goes into that, because not everybody's falling at the same time and this is something that we just have begun to do over the last couple (inaudible) so it's probably around there.

Okay. And then finally, a question that has to be asked, can you just talk a little bit about the changes in the executive comp that's taken place since the merger?

Sure. It has to be asked? Is that an -- is there something in the Bible about that? I didn't see that. But thank you for bringing it up, because it's good. No. Basically we were trying to point out that -- and it was very confusing for everyone over the last couple months because we've had so many filings around the merger, over the last month, particularly, that a lot of stuff gets lost.

Really what happened here is that, in addition to obviously the -- again, this is my view of what the compensation committee, but obviously they have -- they do things independently of what -- just independently. So bottom line is that, in addition to the transaction, and looking at the Company being in a completely different place relative to market cap, size of Company, complexity, that was one thing that was looked at just in terms of comparable comp.

Another thing that was looked at was the fact that the Company has really transformed, not just in this deal, but over the last three years or four years, the Company has really transformed. So we had old employment agreements that dated back to 2004, that really had never been updated, had just been rolled over.

Frankly, some of the provisions within those agreements were really not market and not very friendly in terms of shareholder rights. So those were amended and updated and we did point that out, so that was also part of it, part of how they viewed the comp. And the grants, in particular, were more global, and they weren't transaction grants so to speak, they were really global in all these elements of new agreements, bigger Company, more complexity, great performance, all that stuff, that's what was looked at.

All right. That's helpful. And let me just be clear, as I'm sure you know, I know nothing about the Bible (laughter).

Well I guess you do. Thanks, Nate.

We have no further questions. I would now turn the call back over to Management for closing remarks. Please proceed.

Again, thank you everyone for joining us. We just want to reiterate how excited we are to move forward with the new Company and we've got a lot of opportunity ahead of us and we look forward to continuing to drive top-tier results. Thank you.

This concludes today's conference. You may now disconnect. Have a great day.