Kite Realty Group Trust (KRG) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2017 Kite Realty Group Trust Earnings Conference Call. (Operator Instructions) I would now like to introduce your host for today's conference, Ashley Underwood, Investor Relations. Ashley, you may begin.

Thank you, and good afternoon. Welcome to Kite Realty Group's Second Quarter Earnings Call. Much of today's comments contain forward-looking statements that are based on assumptions 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; and Chief Financial Officer, Dan Sink.

And now I would like to turn the call over to John.

Thanks, Ashley. Good afternoon, everyone. We finished the first half of 2017 strong and continue to make solid progress towards our strategic goals.

First, I'd like to highlight some of our operational achievements for the second quarter. We generated FFO, as defined by NAREIT, of $0.54 per share. We grew same-store NOI 3.2% during the quarter, which is just above the top end of our stated guidance. And if you exclude the impact of our 3-R initiative, same-store NOI would have been 3.8%.

ABR for the retail operating portfolio and redevelopment assets increased to $16.20 at the end of the second quarter. We're nearing our goal of achieving 90% leased from small shops. We finished the quarter at a new high of 89.2%, which is a 90 basis point increase from the same period in the prior year.

Our retail property recovery ratio also hit a new high at 93.1%, reflecting continued tight expense control and success shifting our tenants to fixed CAM. Our strong leasing activity in the second half of last year allowed us to open 42 tenants in the second quarter. Examples include Trader Joe's, Morton's Steakhouse, Party City and T-Mobile.

We continue to focus our leasing efforts on prospective tenants that provide consumer services, food offerings or otherwise operate experiential businesses. This emphasis was especially evident in the second quarter, with only 1% of the square footage opened in the apparel category.

Our leasing team continues to generate profitable new deals and diversify our tenant mix. Our aggregate cash lease spreads for new and renewal leases was 9.8% for the quarter. Excluding one large single tenant anchor lease that was renewed at a flat rate, the blended spread was 10.6%.

We executed 164,000 square feet of new leases, with tenants that included Sketchers, Pet Supplies Plus and Around the Clock Fitness. We also successfully renewed 45 leases that included strong retailers like Publix, PetSmart and Starbucks, which is a testament to our high-quality real estate.

I'd like to make an additional note regarding our same-property NOI performance for the quarter. Our 3.2% same-property NOI growth was driven by a 1.1% increase in the economic lease percentage as well as our corporate objective to drive annual rent growth from our small shop leases. The year-over-year increase in annual contractual rent bumps embedded in our leases reached 1.7% this quarter.

The effects of tenant bankruptcies on our performance to date has been minimal. We lost 124,000 square feet of occupancy from recent bankruptcies, including the loss of our only hhgregg store, our only Marsh Supermarket and 5 rue21s in the second quarter. However, we were able to offset much of this loss with the openings that I referred to earlier.

Looking at our remaining exposure to tenants that have been in the news recently, we are currently anticipating the closure of our single Gander Mountain store and one of our 9 Payless stores in the third quarter. So far this year, in addition to ICSC, we have had productive portfolio review meetings with 18 of our top retail tenants, with whom we have multiple locations, to discuss opportunities within our portfolio and the overall health in their existing locations. These discussions have continued to strengthen our overall tenant relationships and have provided valuable knowledge in regards to their growth plans and business strategies.

Regarding our initiative to strategically recycle capital, during the quarter, we completed the sales of 3 properties at a blended cap rate of 6.8%. We used the $54.7 million in proceeds from these sales to pay down our line of credit. Our total asset sales for the first half of 2017 are approximately $78 million or $23 million above the top end of our original 2017 disposition guidance.

Turning to the second quarter development activity. We transitioned Phase 2 of Parkside Town Commons in the Raleigh, North Carolina to our operating portfolio at 95.4% leased. The overall center is anchored by Target, Harris Teeter, Stein Mart, Hobby Lobby, Frank CineBowl & Grille and Golf Galaxy.

As of June 30, we had one remaining development asset under construction at Holly Springs Phase 2 also in Raleigh, North Carolina. We're adding an upscale 28,000 square-foot O2 Fitness to a high-quality tenant lineup that includes AMC Theatres, Bed Bath & Beyond and DSW. We expect O2 Fitness to open in the first half of 2018.

With respect to the redevelopments, we're continuing to make good progress on our 3-R initiative as we completed 3 more projects in the second quarter: Centennial Gateway in Las Vegas, Market Street Village in Fort Worth and Northdale Promenade in Tampa. Our total investment in these projects was $6.2 million at a return of 19.5%.

The overall return on these projects improved from our original underwriting as we are able to come in under budget on the overall cost to complete the projects. At the end of the second quarter, we had 7 assets under construction, with total costs ranging from $68.5 million to $74 million and expected returns in the 8% to 9% range.

Among these projects is our latest addition, Rampart Commons in Las Vegas. We are successfully executing on our redevelopment plan by terminating, relocating and renegotiating leases at a substantial portion of the center and redeveloping a substantial portion of the center. The center will now be anchored by a robust lineup of tenants, which includes Williams Sonoma, Pottery Barn, Ann Taylor, P.F. Chang's, Flower Child and North Italia. Both of those restaurants are part of the successful Sam Fox restaurant group.

Looking at our balance sheet, we believe that we're in one of the strongest positions in our history. At the end of the second quarter, we had only $83 million of debt maturing through 2020, with a weighted average maturity of 6 years and liquidity of $416 million. Our variable rate debt percentage as a total was lowered to 5% at June 30. As we stated last quarter, we continue to focus on reaching our strategic goal and our stated goal of low 6x net debt-to-EBITDA. We continue to make progress as we reached 6.77x due partially to the additional dispositions for 2017.

Lastly, we're updating our guidance for 2017 FFO ,as defined by NAREIT, to a range of $2.01 to $2.05 per diluted share while maintaining the midpoint of the range of $2.03. We have exceeded the top end of our initial expectations for land sale gains, which was offset by additional dispositions and accelerated redevelopment efforts at certain of our 3-R properties, like the previously mentioned Rampart.

In summary, we're very pleased with our results for the first half of the year. We continue to execute on our operational efforts and maintain our leasing momentum. Our 3-R initiative continues to make progress and is on track. Our balance sheet, once again, is as strong as it's been, and we're looking forward to delivering strong results throughout the remainder of the year.

Thanks for your time, and we're ready for questions, operator.

(Operator Instructions) Our first question comes from the line of Alexander Goldfarb of Sandler O'Neill.

The first question is just on the leasing environment and your expectations for the retailers. So I guess the first thing, John, is you mentioned one of your 9 Payless's closing. As you look around in the -- of all the retailers that have announced store closings but have yet to execute, is that the only one that you expect? Or is your view that you guys will be affected by a number of more closings in the back half of the year or heading into '18?

Well, I mean, as it relates specifically to that tenant, Payless, I mean, we've obviously...

Well, not specifically to just them, but using that as an example. Tenants in general that have announced plans to close but haven't yet executed, what's your anticipation for the impact?

I think tenants in general, I mean, I -- obviously, we're only halfway through the year, Alex. So I think there's still probably more to come. But I'd say, based on our discussions with the retailers, as we mentioned, we have been doing a lot of portfolio reviews. And many of the tenants that your -- people are talking about as challenged still have pretty good business models and platforms, and we think many of those will continue to survive and thrive eventually. I mean, some of these guys obviously have to get a smaller footprint to thrive, but most of that seems to have happened. So it's hard to say exactly, but as we sit here today, it feels like the first quarter and second quarter, quite a bit happened. And as we're looking into the back half of the year, we're going to continue to be conservative, but I think it feels like it's lightened up a little bit. Tom, you want to add anything?

Yes, the only thing I would add is, just to give you one example, Ascena. We went out to Philadelphia and spent time with them, and we have 34 units and really spent time on 17 and 18 and are confident that we can work through those. So I think the key is to get both parties to figure out what's best moving forward. And at this point, we feel like our momentum's strong in terms of decreasing this exposure that we may have expected once before.

And then how much do you think rent concessions will play into whatever the upcoming plans are? Or is your view that where the leases are for these tenants that you have ample ability to backfill and therefore, anyone asking for rent reduction will be, I guess, sort of shown the door, if you will?

Yes, I mean, I think you know, Alex, that these are always on a kind of deal-by-deal basis. But if you want to look at it from more of a macro view, I think we still believe that if we have good spaces and we happen to have a tenant in a good space that is not performing, that's more their issue than our issue. So we would hold the line in that case. If we felt like there was a space that was challenged for a particular reason, we might be more open to something. But as you can kind of see from the results, there hasn't been much of that in the way of giving concessions. And in the cases where we've said we can backfill the space, certain tenants have left. So that's part of our business. It's always been part of our business, and it will always be. But right now, it doesn't feel dramatically different than it ever has.

Our next question comes from the line of Christy McElroy of Citi.

Just following up on Alex' first question. Given the second half deceleration inherent in your same-store NOI growth range, just trying to get a sense for the bigger factors that get you closer to the bottom versus the top of that range. It sounds like part of it's uncertainty around how many more closures you could see, but it sounds like you're also pretty comfortable in that regard. Just trying to get a sense for how conservative the range is today and if there's upside potential there.

Yes, Christy, this is Dan. I mean, as we look at the balance of the year, we will be impacted on the same-store by the tenant bankruptcies that John discussed. But we have other factors. We have a number of tenant openings that will help offset that. So therefore, that's why we tightened the range at this point. So again, it is -- we still have 6 months remaining. We do have about 100 basis points of spread between leased versus occupied in the total retail portfolio. So that's why -- that's what gave us the comfort to tighten the range, and we still feel like we have some upside there.

Yes, the only thing I'd add to that, Christy, is I think you were accurate in saying, yes, we're halfway through the year, but that's not like being 3/4 of the way through the year. So we're still leaving room for things that we don't necessarily expect. And frankly, if that turns out to be better than what we think, then you would see that outperform, not underperform.

I think you had previously talked about 100 basis points of reserve for bad debt for the year. Is that still about right?

That's generally what we start the year out with in terms of our budget. And then as I think you know, we exceeded that in this quarter, but we're still kind of -- so we've added that to where we are for the year, and we're kind of assuming that for the back half of the year, we'll still be at that 100 basis points. And so that also kind of ties into your previous question from an earnings perspective. Obviously, we could do a little bit better if that came in better than expected.

Got it. Okay. And then just lastly, you had some dispositions, more dispositions in the quarter. Just given what you're seeing in today's transaction market, what's your desire to potentially sell more? And what would cause you to be a buyer today?

Well, I think in terms of selling more, we -- this is kind of going to be part of our overall strategy and slowly but surely, continuing to sell properties that we don't think meet the long-term objectives. I mean, the 3 properties that we sold fit that bill pretty square on in the sense that each one of them had their individual stories about why, but ultimately, we just didn't think these were good long-term holds. I think that there are -- there is a possibility in the current environment that we could sell more, but there's -- obviously, we have to believe that we're getting a fair price. And I think that -- and it just depends on what we may get approached on and what's happening in each one of these particular markets as it relates to. So that's a possibility, but hard to say right this second.

And then as it relates to being a buyer, again, cost of capital is a huge part of that. So we're going to be very mindful of that. And I would say that if there's a chance that we sold some other assets, we might be in a 1031 position, where we'd want to do some acquisitions for exchange purposes. But as we sit here right now today, to buy something on our own balance sheet at this current cost of capital in the sense of an asset that we would want and an asset that we think we can grow, we'll see. I mean, that's a little tougher, but it's possible.

Our next question comes from the line of Collin Mings of Raymond James.

First question for me. Just a nice pickup there in the small shop leasing. Just can you talk a little bit more about what drove that? And then maybe along those lines, is there anything that you have focused more on in context of just the current environment of go ahead and trying to get that occupancy rate up?

Sure. I mean, I think we kind of talked about the tenants that we are targeting, and a lot of that is in the small shop category in terms of what we throw around like FF&E, that -- which would be food, fitness and entertainment. So we're very focused on making sure that we're getting these experiential users. And they're not always -- often these are smaller tenants. So I think in the first half of this year, a lot of the deals that we've done have been in those categories. That's one of the nice things about our platform and the type of properties that we own, is that they're very easy to transition into those type of users. It's not complicated. And those type of users always want good access, and they always want good visibility. And we always deliver that. So in terms of that, I'd say that's something that we're very focused on. And the fact that we've owned good real estate, we're able to keep driving growth, both in occupancy and in rents. Tom, you want to add to that?

Yes, the other component is we've really tried to broaden the realm of the different types of tenants that we look at, and John mentioned that. But we're really focusing on mix and sustainability; how we bring the right people in at the right time to these centers. And I think the fact that we've broadened our view of various uses has really helped us, and that's driving that percentage. It's also driving rate, and it's creating additional leverage for us as we move through this process.

Okay. That's helpful, guys. I think -- one other thing I just wanted to touch on. I know you touched on Ascena already, but just broadly, recognizing there's -- you touched on a couple of these. But just as far as watchlists, any particular tenants again that you're thinking about in particular? And maybe along those lines, just in the context of the environment, John, I'm curious, your take, Publix, your second-largest tenant, just what's your sense of the whole Amazon, Whole Foods transaction?

Well, in regards to the first part of your question, I mean, we generally try to stay away from naming individual names and projecting their decline or something. But bottom line is, I mean, there's a universe of tenants right now. It's probably much more heavily weighted to the apparel side of the business. It has had real struggles, and one of the great things I've mentioned many times is that's just a small exposure for us. So in terms of other tenants, we feel pretty decent about our list of tenants, and we think that most of them are going to perform well. There will still be some that struggle, and there will be some that struggle that we're not even thinking about right now. But the reality is, there's a demand for our product type due to the fact that there's very, very low supply and there's even lower supply of A quality real estate that we own.

As it relates to Publix and Amazon and I guess your comment regarding Amazon buying -- or I should say preparing to buy Whole Foods, look, I think I view that as a -- situation maybe a little differently. I think they realized they needed to be -- if they're going to be in that business, they have to have a physical presence. That business is extremely hard to execute on the delivery side with perishables. So they bought a company or they're buying a company that has good real estate, is well positioned. And I think they kind of have to be there, if they're going to really be in that business. Now reality is, it's a very, very low-margin business, it's a challenge, but it has a lot of revenue. So they probably like that part of it.

As it relates to Publix and the other players, everybody's stepping up their game in that business. I think Walmart is doing phenomenal things, and frankly, I think Amazon is reacting to Walmart, not vice versa. So it will be interesting as this all plays out. But as it relates to -- very specifically to Publix, look, they have a very, very strong position in Florida and throughout the Southeast, and it's just a phenomenal company, so I think they will continue to be very strong.

Our next question comes from the line of Craig Schmidt of Bank of America.

My question has to do with the sort of the acceleration and the redevelopment, thinking of Ramparts. We've heard the various supermarkets are getting more aggressive in terms of opening new stores. I just wondered what the general merchandise anchors are feeling. Are you seeing more interest in -- from them to take part in redevelopment projects?

Yes. I think, Craig, I think we are. I think if you look at Ramparts, kind of a unique asset in the sense of its location and the tenancy. But the tenancy that we have there is not kind of off-price driven, it's more almost luxury-driven because it's very, very high-quality real estate. With Williams Sonoma and Pottery Barn and the fact that we're bringing in 2 -- many people may not know this, but the Sam Fox restaurant group is a very hot restaurant group. It has very interesting restaurants within it, and that's very exciting to us. So yes, I'd say that anytime you have good real estate, there's a broad spectrum of retailers that we can go to, to attract. And we've been pretty successful with that. When you look at all the different deals that we've done, we've had a lot of different tenants within them. So Tom, you want to add to that?

Yes, I would say right now, we have, out of several boxes, we were working very specifically with grocery players. And we still maintain our position that it's great to have that hybrid approach, where if you can bring the food offering in, you get the consistent traffic, it's always a win. Rampart may be an example of a location where we have enough demand, that that would not make sense as a specific use because leasing momentum's strong. But we are working very aggressively with them on multiple sites.

Our next question comes from the line of Carol Kemple of Hilliard Lyons.

This is a relatively small number in the grand scheme of things, but your overage rent was down quite a bit year-over-year. But in the first quarter, it was actually up over the first quarter of '16. Is there anything specific going on there?

No, a lot of it's just timing when we get to the tenant sales because we can't accrue the revenue until we're confident that they're over their sales limit. So we're constantly working with the tenants to get us timely sales reports, and we really can't book the revenue until we're comfortable that it exceeded the amount in their lease.

Our next question comes from the line of Chris Lucas of Capital One Securities.

Hey, John, just on the contractual rent bump number you mentioned, the 1.7 percentage, I want to make sure I heard, is that for -- is that portfolio-wide now or is that on recent lease deals that you've -- that that's what you've averaged?

That is in our same-property pool that I'm referring to, and a big portion of that would be driven by the small shop tenants because that's where we're getting the significant annual increases, Chris. So that really kind of goes back. Now when -- I mean, it's applicable -- it will eventually be applicable to all of our properties, but it's in the comparable period. So it's in our same-store pool.

Sure. And then, I guess, if we were to ask that same question, say, 2 years ago, what would that number have been roughly?

I mean, it was like 1.1%, I think, 2, 3 years ago, right, Dan?

That's correct.

Yes. So it's come up quite a bit, Chris, and a big part of that is just our focus on it. And I think you know we started talking about that like 3 years ago, that we really need a focus on the small shops. People put a lot of emphasis on the box deals, but we want -- we knew that we had upside there, and so we put a plan together to drive that, and it's been very successful. And we're not going to stop driving. We want that number to keep getting higher, and quite frankly, the lower-and-lower-quality inventory levels that are out there, we should be able to drive that number.

Great. And then I'm just curious on the conversations you're having on the portfolio reviews with tenants who have indicated they have store closing interests. As you guys think about over the years and different -- dealing with different retailers, are the conversations today any different than you would have had, say, a couple of years ago with, say, the office guys or prior kind of cycle situations where tenants were looking to downsize? Is there something different about today? Or is it basically the same sort of goal, which is they're just looking at eliminating nonprofitable stores?

I mean, I would say, from our perspective, our opinion, it's not tremendously different. Maybe the only difference is, that for whatever reason, it's -- people love to talk about it, so there's a lot of talking heads in this area. But as it relates to our direct contact and working with our customers, it's something that we've always dealt with, and tenants always want to get the best deals they can.

Now clearly, as I mentioned, I'd say that the apparel business has seemed to take the brunt of these problems, and fortunately for us, we have a lot going on in the other segments. So if we were much more heavily weighted to apparel, it probably would be a bigger issue. But I don't think it's that much different, Chris. I mean, maybe it's a little more emphasized and perhaps more has come about at the same time in the last, say, 18 months. But generally, we've always been doing this, and that's why you have move-ins and you have move-outs. I mean, we opened 40 stores. We probably closed 20. That's just what we do.

The only other change that I would see is it seems that the retailers are really wanting to pair and work more closely with the landlord. That if they have an oversized box, say, Let's try to figure out together. We'll put up the TI to potentially demise the space. We could maybe do a store of the future. How can we make this work? So it seems like it's a little more collaborative right now, which I think is positive, the 2 sides trying to work together in the event that occurs or comes up in these meetings. But they're very helpful just to make sure both sides are on the same page.

Okay. Great. And then my last question is more of just a -- it's a small issue, but just kind of curious. On territory portfolio, there's a footnote that talks about your partner wanting some redemption of their interest. Is the 8.1 that's referenced here part of the $30 million? Or is there -- are there 2 separate interests there in that particular JV?

Yes, we -- the 8.1 is -- we've moved that from basically the mezz equity section to -- up into the accrued liability section. So there's 2 pieces that make up the payment to the territory JV. So I'm not sure which red you referenced on the 30, Chris, but there is -- contractually, they have the ability to be partially redeemed in the document. So they came to us and said they would like to redeem this portion of these units, and that's why we kind of set it up for the end of the year. So I'll look at the numbers specifically and make sure I can do the math for you, if you'd like to catch up after.

Our next question comes from the line of Todd Thomas of KeyBanc Capital Markets.

Just back to the leasing environment a little bit. I'm just wondering if you think that this level of leasing, the rent increases you're getting, the volume in general, whether this is sustainable based on what you're seeing in the pipeline here today as you look out over the next couple of quarters.

Well, Todd, I mean, again, tough to project that very accurately. However, I would say, when we look at what we're doing right now and the deals that we have rolling over in the balance of the year, it feels like the inventory is -- that our levels are pretty acceptable, and there's demand for the spaces that we're trying to fill. So that feels pretty decent. I mean, we kind of look at this from the perspective of what can we really control?

And when we look at our renewals, particularly our nonoption renewals, that's an area that we control, and we continue to get double-digit spreads in those nonoption renewals. And that's a good judge for us of the health of the -- our portfolio and our customers because right there is they can walk away or they can do the deal with us. So if they're staying and paying double-digit increases off the rents we have, that's good. So I'd say it feels pretty decent. Again, you can't really predict what might happen to an individual retailer. But in general, it feels like it's going to sustain pretty much on track.

Okay. And you mentioned some of the categories that are sort of taking space here and that the demand's generally broad-based. I'm just curious maybe what the breakout is between national or regional credits versus locals, if you looked at this quarter and say, last quarter.

I think it's similar. I don't think -- we generally always have a good balance between -- when we're looking at big-box deals, obviously, they're much more weighted towards national retailers. When you're looking at shops or at spaces below 10,000 feet, we have consistently kind of had good spread, average, maybe 1/3, 1/3 type stuff of local players. There would be mom-and-pop shops, restaurants, then national deals like Starbucks and Panera and guys like that. And then also the franchise players who are a combination of national footprints with local operators. And when you look at what we opened in the quarter, I'd say we had a -- that was almost 1/3 of each of those.

So that's been our pace for a long time with small shops that we have that balance, and I think part of it is that's how we -- that's what we emphasize. We emphasize the balance. We don't want to get completely loaded up in any one particular shopping center in a -- on national-only retailers. I mean, we're trying to bring something interesting to each one of these neighborhoods that we're operating in so that people want to come to the shopping centers. I mean, I think that is a big part of what we do, and that's why we've been reasonably successful, is we don't just lease to whoever wants a lease. Our job is to find the right player for that space. So we feel pretty strong that we've done a good job there.

Okay. And then apologies if I missed this, but the Marsh Supermarket that closed in the quarter at Traders Point, I was just wondering if you could speak to the opportunity there to backfill that, whether -- what that opportunity is and whether you have any visibility there at all in terms of replacing Marsh and maybe what type of tenant you might look for there.

Yes. I mean, we're -- it's a 65,000 square-foot store. So it's a pretty good size box. We're actively engaged in that right now. I think it's probably more likely that the box gets split up than the box being one user. That's really, frankly, our desire. That's not always the case in deals like that, but here, in this particular property, we think this is a great opportunity to better merchandise that space because this is a big shopping center, and we want to bring more choices here. We have a theater and we have some restaurants, and we have some really good boxes. So this is a good opportunity for us to spread that out a little bit. We don't want to comment on any names right now, but we're definitely working on deals in that space.

What do you think the replacement rents are relative to where Marsh was? Maybe on a blended basis?

It depends on how we split that up, Todd. Probably, it would be slightly down if we only split it into 2 users. It might be up if we split it into 3 users. It was a pretty good rent. So we got our work cut out for us there. But I think we think that we'll be fine in the overall scheme. And frankly, if we bring in the right users, we might be able to actually get more rent in the surrounding spaces because this tenant wasn't doing any business for years. So it just wasn't helping the tenants around them. So we're actually happy to be getting the space back.

Our next question comes from the line of Jeff Donnelly of Wells Fargo.

Just a handful of questions. Yes, just first, I guess on your tenant watchlist, I mean, I'm just curious what your gut is. I mean, do you think the watchlist you have for tenants today is bigger or smaller as we move into '18?

I think we're probably more focused on it, right, than we have been historically in terms of expanding the watchlist to tenants that we're just kind of really studying their credits and studying whether their P/E owned. So my guess is it's probably a little bigger, Jeff, than historically, but it's also -- we just have a much greater focus on it, trying to cut things off at the pass. I mean, if we can get in front of somebody that we think may have challenges and go to them and say, Look, we can work with you to take the space back. We'd rather do that than wait for someone to file bankruptcy.

Do you think that's causing you to maybe underwrite acquisition prospects a little differently? I mean, I know apparel's not a huge part of the open-air shopping center business, but it does exist certainly at the anchor level, maybe more so than the inline level. And I guess, I'm just wondering, for example, if a category or a tenant you're concerned about, you sort of see more heavily represented, is that causing you to maybe steer away from more apparel-heavy open-air centers or...

Yes, I think, look, if you were looking at a center and there, as you know, there are some large open-air centers that have a JCPenney or a Sears in them or even a Macy's, you're probably going to look at that differently. Now, if you think it's great real estate and you think you've got a chance of getting the space back and the aforementioned tenants might only be paying a couple bucks a foot, maybe you're doing a turnaround deal. So I think that's possible. It would be different with the guys that are apparel that you generally do find in box centers because that's really more store-specific. So we're going to get into the details of that store. It's more the department store players that are mall-based that are more company-specific issues.

Understood. On the -- back on the Whole Foods, Amazon topic, I'm just curious, did you hear anything from other retailers, whether they're grocery competitors or even online retailers? I mean, do they have any kind of reaction in the conversations you've had with them? Or is it nothing substantial?

I mean, I don't think we've had anything -- any concerns or anything like that. I mean, we have 3 centers that have Whole Foods in them. And then in terms of all of our other centers that have grocery stores, look, I just think that the grocery space in general has always been a very competitive space. It's more competitive today than it was, probably less about Whole Foods and more about -- or I should say, Amazon and more about Lidl and Aldi, and those guys stepping up their game, Walmart stepping up their game, Kroger. I mean, look, the bottom line is Whole Foods had problems, and they just -- they continue to have declining same-store numbers. And they ran into an issue where there were kind of bifurcating customers in the sense that only a certain number of people would -- could afford to shop in that store.

And as the other guys raised their game in the organic sector, you didn't have to go to 2 stores, you could do it all at one store. So I think it's changed a lot, and we'll see. We'll see. I mean, the other thing is, I know there's a lot of talk about Amazon bringing in all kinds of different products into the store and making it a mini distribution facility. It's not that simple. I mean, all these shopping centers have generally covenants and restrictions and tenants that have protected uses, and you can't just start selling whatever you want. So I think it's going to be a very interesting thing to watch.

Yes. I agree. And on Publix, I mean, they've been an acquirer of some of the centers that they occupy down in Florida. I guess, are they -- from what you've seen of that, I mean, do they sort of pay good prices? Is that an opportunity for you to maybe selectively monetize some of your Publix assets to them?

Yes. I mean, I think bottom line is they have -- they are continuing to be a big buyer because they generate a huge amount of cash flow, and so that is a good opportunity for us to reposition assets in certain cases. I would say they're a market buyer. They're smart guys. They're not just going to go overpay. Now generally, they probably like to buy centers where their stores do well, or they think they want to expand a store and they would rather be controlling the asset than dealing with us. But it's nice to have another incremental buyer. I mean, no doubt about that.

And just one last one. On the financing side, I'm just curious, any sense on how the financing market might have changed in the last 6 to 9 months in terms of its attitude towards sort of a power center, really kind of -- a strip center that's not anchored by grocery is really what I'm thinking, versus one that is grocery-anchored? Have you seen pricing on that more power center format change in any material way? Or has it been pretty steady?

I think there was a period of time where on the CMBS side of the world, there was concerns around some power center deals and loans. But I'd say it was probably a little -- it was really in the CMBS part of the world. I mean, look, we just -- in the last 3 quarters, we've sold several assets, 4 assets, I guess, in the last 3 quarters. And we've had power centers in there and we've had grocery centers in there, and those were privately financed. So I think that there's a market for it, but I think there might have been some confusion around it in the CMBS side of the world.

(Operator Instructions) Our next question comes from the line of Linda Tsai of Barclays.

This might be somewhat of an oversimplification. You might have partially answered this already, but when you think about store closures, it's a double-edged sword. On the one hand, it's sort of a headache but also an opportunity. So all else equal, if you take a property that best exemplifies the typical Kite shopping center, what do you think is less that, an inline closing or an anchor closing? I mean, I know an anchor closing probably takes more time and money to reposition, but you could also positively impact the character and traffic of the center. So how do you think about this?

Interesting question, Linda. I mean, I just gave an example of a box closing at -- in one of our deals that was -- that we were, like, good. We need to get this tenant out because it's not doing any sales and -- but frankly, it's a pain. I mean, there's a lot of work involved and there's capital involved, but it can be a long-term gain for short-term pain is how I would look at the box deals. On the small shop side, it's just much more normal day-to-day business. I mean, there's no -- as I said, we opened 40 stores. We closed 20. So we're always in that business of opening and closing on the small shop side. We don't -- we prefer not to have tenants close.

But generally there, a lot of that is influenced by our desire to get new tenants and either not renew someone or not carry them if they're not paying their rent, et cetera. So I don't think you can simply say one's kind of more or one's better than the other. There's no doubt that a big-box closing will impact you much more because of the size and the percentage of rent that comes from that box. But on the other hand, you could literally completely turn around your shopping center and get significant NAV accretion by closing out a weak box. And there's an example of that, that we'll probably talk about next quarter, in a deal where we're bringing in a very high-credit box deal to replace a very low-credit box deal, and it's awesome. So it just depends on the situation.

Okay. And then what was temporary tenancy like in the quarter? And under what scenarios are you willing to engage in shorter leases?

Temporary tenancy is really basically the same. We're kind of pumping along at the same number we have for the last several quarters. It's a very minor number for us. And our temporary tenants are really more at certain -- Halloween and Christmas and times like that. Although we do have a couple of million dollars a year probably of revenue that we generate on the temporary side, but against the big backdrop, it's not that material.

Ladies and gentlemen, I'm showing no further questions in the queue. I'd like to turn the call back to John Kite for closing remarks.

I just want to take the time to thank everyone for joining us. I look forward to talking to you soon. Goodbye.

Ladies and gentlemen, this does conclude our conference. You may now disconnect. Everyone, have a wonderful day.