Kite Realty Group Trust (KRG) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Kite Realty Group Trust First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be 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.

Some 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; and 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 has 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 continued to make positive strides towards our stated objectives for 2018. We met our 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 where our operating portfolio averaged 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've 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 2 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 5 executed letters of intent with high-quality anchor 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 2 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 had 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 Faxon Crossing. Our ABR per square foot reset a new high of $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 are 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 had 6 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 of 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 6.76x versus 6.92x 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 1.5x oversubscribed, increasing its 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 are 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.

(Operator Instructions) And our first question will come from the line of Christy McElroy with Citi.

Just with regard to the 2 leases that impacted the spreads, these appear to be one-offs. But could you also say that they were necessary to preserve occupancy here? The leasing environment for box space isn't getting any better with more supply, the space coming with Toys. Do you foresee 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 were only 2 leases.

Right. Well, Christy, I mean, first of all, in the quarter, we did like 11 box deals, so this is 2 of 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 a company of size that we can benefit from it and we can get hurt by it. And in this particular case, it definitely impacted the numbers. That said, one of the deals, as we mentioned, was a re-tenanting of a space that we put no capital into. So on a 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 is 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 could walk through the numbers on the tenant fallout. You had the original $2.1 million projected from the impact of Toys and then the $3.2 million buffer. Now with the Toys liquidation you obviously lost rent and recovery, how much does that eat into that buffer, the $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. And we -- which 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 would have about $0.01 impact of that lost rent that would be unbudgeted. So it's, 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/REIT reserve for the Toys "R" Us lost rent.

Yes. Said 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.

Got it.

Oh, wait. Aren't -- no like -- no farewell to Dan, Christy? I mean, come on now.

Oh, I said my farewell the other day.

Oh, you did.

But you will absolutely be missed. And I was going to ask about a replacement, but I'll leave that to somebody else. But Dan, you can never be replaced.

And our next question will come from the line of Todd Thomas with KeyBanc Capital Markets.

I've already said my farewell to Dan as well, but I'll acknowledge it again. First question, just regarding dispositions. 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 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 I've -- as I've said, we're really only going to do things on a fair value basis. We're 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. But -- 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 6x. 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 in redevelopment and TI. So as long as those things today relatively similar to what 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 be up about 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?

I think we can point to what we've done, right. When you look at last year, we sold over -- if you look at the end of -- the 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 the Midwest, right. So that was pretty representative at that time. This year, we sold to lower-quality assets, one in Birmingham and one in Goldsboro, North Carolina. And that was a low 8 blended cap rate that we view those -- obviously, we view 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's the difficulty in selling $500 million, $900 million at a time when you're doing these big portfolio deals versus we're intending to do more one-off stuff, which enables us to price it maybe a little more effectively or maybe selling 2 or 3 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 and where it is. You leverage that 50%, you're getting a pretty darn good return so I think still pretty decent. But we're early in the year, and you've got this 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 in materials and labor? And is it having an impact at all? And if so, how are you mitigating those rising costs?

Sorry. I'll start, and Tom, you could finish it. In general, there's -- you continue to see pressure on pricing. I think Tom, maybe oil going up to $70 is going to impact some things because petroleum is a big part of all this, but it hasn't cost us any specific issues. But you can, Tom, address both.

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

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

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

Yes. I mean, we're actively engaged. Obviously, we're -- frankly, we are where 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. We'd hope to announce something soon. And at that point, it would be pretty clear that we were well back on our way to stabilization of the building.

Yes. So our goal, our road map is clear as day, and we've got a couple of deals internally throughout the building that we're very confident on. And now we're just looking for this large transaction that we have some confidence in.

Okay, okay. That's helpful. And then just maybe going back to Todd's question. Can you guys put 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 get a fair value for. Obviously, you guys took an impairment during the quarter as it relates to an asset that the whole period changed on. So maybe -- just maybe refine that a little bit more on the types of deals that, to the extent you do go to the market with, that you think you could get fair value for right now.

Sure. Good question. Well, I think, first of all, as I was trying to lay out, in the assets that we have sold so far have generally been assets that we didn't deem as long-term holds, 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, that kind of facilitated our deeper dive into what other assets we might look at, which then, in turn, was -- which is what created the impairment that you were 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 period. 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 try 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 creative.

Okay, okay. Fair enough. And then last one for me, and I'll turn it over. Again obviously kind of referred to already. But just as far as Dan's announcements on Monday. John, just maybe discuss the plan there, the process you plan to run. Any sort of time line you begin to find 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 I've known Dan. But I think the process right now is the board and myself are engaged in the conversation around what type of person we are 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, as Dan's going to be leaving at the end of June, it's not likely that by the end of June we would have a replacement. So most likely, we'll 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 that we -- the great thing about -- one of the best things about Dan is the team that he's created. So in terms of the capital market side with 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 on an interim basis, Collin, but we're going to run a full process and look out inside, look outside and try to find a great person.

And the next question will come from the line of Craig Schmidt with Bank of America.

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

Thank you, Craig. Appreciate that.

And enjoy.

He will. I'm sure.

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

No.

In any case...

I'm going to try to dial in next quarter and ask a question. We'll see how that goes.

Okay. That should be fun. Just looking at the potential store closings beyond Toys, how do you feel about the rest of the year? And has anything come out with your discussions with ascena?

Well, in general, macro, we -- I think we feel it's early, Craig. So it's -- I don't think we can be really, really accurate directionally right now just after 1 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, and most of those retailers generally have been the higher leverage players. But there are some good signs out there that 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 relates to ascena, we talked about that probably on -- god, I don't know. We've talked about ascena for the last year on all of our calls. They continue to be a very important customer. We work with them. We've gone through a couple of different stages with them. Tom, you may want to highlight where we currently are with the next couple of years.

Yes. With ascena, fortunately, the way they've streamlined their company, we now have one contact, a great guy named Scott Carver. And previously, we had to deal with all the various divisions. So in doing that, that's -- this has given us a lot more focus, and it's giving us the ability to really work together on properties that may not be working for them or we could get them back and vice versa. So we have a great working relationship. The first 2 tranches of renewals have gone well. We're going to be meeting again in Las Vegas. But I have to say the working relationship and where we're headed right now, if it stays the course, we have a lot of confidence in our ability to be successful.

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

No. I mean, we believe we can continue to increase occupancy in shops. I mean, we're obviously at a point where we're 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 neat 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 are 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 those tenants who's 2,000, 3,000, 4,000, 5,000 square feet, and that could be very impactful to your merchandising mix and bring a lot of people and a lot of excitement. So we're bullish on it. We got to continue to push hard. It's not easy, but we're bullish on it.

The next question comes from the line of Alexander Goldfarb with Sandler O'Neill.

Dan, look, best of luck and enjoy retirement. So just...

I like in your notes that you called me a CPA type. That was good.

You're always quick with the numbers, so...

I don't know about that.

You got to keep the rest of the team straight there. But just along those CPA comments, you maintained guidance. I would assume that you have -- 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 is nothing that we had originally contemplated in that number. That said, that's part of the reason you have a range of -- a guidance range. It's early in the year. We likely will have something. We haven't got to that point yet, but I'm sure unlikely that we were likely to have something there that 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 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, I appreciate it upfront that you're contemplating selling more to take advantage. How much -- one of the issues that REITs face is 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 of 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 2 or 3 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 factor.

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 the $63 million. We were -- that was a tax-efficient sale. I think if you go back and you look at our typical -- when you do the REIT -- paying out 100% of taxable income, so we don't pay any 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 where we sit today. So...

But I mean, look, if $20 million to $30 million, that could be 1 or 2 properties in gain, so depending on the asset. So it's a case-by-case deal, Alex. I don't think globally we would think, "Oh, 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 1 or it's a no TI, in which case the rent is lower, there always seems to be a deal or 2 each quarter. So as you look out over your next roll of 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 warp whether it's the TI or the rent? Or were there 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 as 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 is generated out of that box, it's going to impact us. Now again, we will benefit from that as well, and 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 2 of them are these kind of aberrations, it gives you a sense that the majority of your deals you're doing are 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 has these winners and losers on these deals. I think there'll continue to be some challenges, but there will also be 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 the $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 have 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 these happens overnight. It takes time.

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

John, I already talked to Dan, so I think we're good on that front.

Yes. Apparently, everybody already talked to Dan. No one talked to me, but they'll talk to Dan.

I tried to reach you.

I know. I called you back. Come on.

You sure did. I appreciate that. Hey, just appreciate the comments on sort of the current conditions. I guess I was trying to think through -- I know we always talk about tenant fallout 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 on retention that was quite positive, quite honestly, that you really saw a consistent lease rate in the shop space between a fourth quarter and a first quarter that's usually a seasonally tough transition period. Just maybe if you could give some sense as to what you're seeing on the retention side and what your expectations are for this year, particularly as it relates maybe to last year.

Yes. I mean, I think that actually the retention, just our normal explorations and retention hold, has generally been what has been -- has 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 -- but the issue with this, Chris, as you know, is that 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 them up. And so I don't think that retention has changed at all. And again, I don't know how we could maintain almost 91% leased in our small-shop portfolio if it was truly an apocalypse. You just couldn't. So I think that there is an 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 mean...

I always get confidence from the fact that we feel like there are users to backfill these spaces, and we've been active on the grocery front. Everyone knows the names of Whole Foods and Sprouts and others, but the value players continue to be very, very aggressive, as aggressive as they've ever been. And then you got fitness entertainment. So we've got a wide variety of tenants that we're able to go after to fill 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 really execute on this box surge. 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 our AR, we're in really good shape, probably as good a shape as we've been in, in the last 3 years and in terms of our over 90%, just on an absolute basis, on a percentage basis. And frankly, we've 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 challenged retailers succumb. But because the rest of the world is in pretty good shape, we should be okay there.

(Operator Instructions) And our next question comes from the line of Jeff Donnelly with Wells Fargo.

John, I promise I'll never call you a CPA type. But I mean it in the best way, Dan. Just a question on the environment, just building on your answer to Chris's question. If we're not on a period, I guess, of I'll call it secular erosion of some retailers or -- and you feel it's 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 through the retailers that have bad business models or having some of the high rents in the industry kind of pulled down towards something that's more achievable? I mean, is your gut that we're kind of in the sixth inning of this, the third inning of this? I don't know. How do you think about that?

That reminds me of, what, 4 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 -- 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 and 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, you got a couple of big guys out there that continue to struggle a little bit. Our world is very different than the enclosed world. I feel like our worlds got less of that to happen, so I don't know. Feels like we're more than halfway done is all I can say.

And I know maybe not a lot of time has elapsed on this, but since tax reform was passed and was 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 storms open that might have been earmarked to close or maybe getting more receptive to opening others? I mean, have you -- can you sort of discern a shift in their thinking? Or is it just too short a time period?

So far, we haven't, to my knowledge, had any retailers kind of draw direct correlation to store openings versus tax reform, enabling them to retain more cash flow. I do think that you see guys clearly reinvesting in the physical store, and that's certainly is a -- 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 you can see that, Jeff, by the number of openings from the top tier players, both box and small shops.

Right. And then what do your instincts tell you on where the pressure points are in dispositions? I mean, do you find it's a particular deal size? Is it just deals that have yield and have more support? I mean, I know people sort of think of it in terms of market or geography, and I recognize that 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 deals done.

Yes. It's -- again, that's one of those things that'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 yields. You have buyers that are looking for some upside, so they want to buy centers with a box or 2 empty. In fact, sometimes in those cases, you get a lower going-in cap rate. Then you have the very, very specific buyers who only want grocery or only want a lifestyle product. So it's 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, you're little over 1.5 years, we've sold in each category -- each market that we're in, in terms of each territory. So it's not only one market. It's pretty broad. And we're also seeing it in the debt markets. There is strong demand in the debt markets. So again, every -- as you said, every asset has its own story.

And the next question comes from the line of Linda Tsai with Barclays.

John, maybe you started to address this earlier. But as you sell out of lower-growth assets or ones in secondary markets, what do you think the buyers are contemplating for the use of these centers? Do you have any sense of how their plans might vary as to whether it's a grocery-anchored or a power center?

No. Linda, I think, as I was just saying, you got different types of buyer's, what's the word, identity through each one of these things. So for example, when one of the 2 assets we just sold, 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. So -- 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 tenure 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.

And then just a question for Tom. Have you engaged in any discussions with Bed Bath & Beyond? Recently, they discussed potentially closing 40 out of the 400 stores that are coming up for renewal over the next 2 years.

We've been in constant conversations with their head of 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 has been no specific conversation tied to our portfolio.

And 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.