Kite Realty Group Trust (KRG) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. You joined the Q2 2018 Kite Realty Group Trust Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded. I would now like to turn the call over to your host, SVP of Marketing and Communications, Mr. Bryan McCarthy. Sir, you may begin.

Thank you and good afternoon, everyone. Welcome to Kite Realty Group second 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 could adversely affect the company's results, please see our SEC filings, including our most recent 10-Q.

Today's remarks also includes 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 Kite Realty Group are Chief Executive Officer, John Kite; Chief Operating Officer, Tom McGowan; Senior Vice President Capital Markets and Corporate Treasurer Wade Achenbach; and Senior Vice President, Chief Accounting Officer, Dave Buell. I will now turn the call over to John.

Thanks, Bryan, good afternoon, everyone. We had another strong quarter, executing on our stated objectives, and I'm pleased with our performance. As set forth in our earnings press release, FFO was $45.7 million or $0.53 per diluted share, while AFFO was $38.7 million, which was up 4% from the previous quarter. Same-store NOI increased 1.5% compared to last year. Our blended cash rent spreads on comparable new leases and renewals was 10.3%. And we hit several key milestones and made significant improvements in the quarter by improving ABR to $16.66 per square foot, lowering our net debt-to-EBITDA ratio to 6.5x, and raising our liquidity level to nearly $1 billion. We're also very excited about our new partnership with TH Real Estate.

This was the product of several months of discussions about working together. We contributed 3 properties in exchange for a 20% ownership interest, and $89 million in net proceeds, which we used to pay down debt.

We'll continue to manage the day-to-day operations of the properties and receive management and leasing fees. The 3 properties we contributed were Livingston Shopping Center in Livingston New Jersey, Plaza Volente in Austin, Texas and Tamiami Crossing in Naples, Florida. The properties traded at a high 5 cap, which demonstrates the private market value of our well-positioned, open-air centers, it also highlights the current disconnect between private and public valuations.

The Transaction helps us take a substantial step forward in realizing our goal of lowering net debt-to-EBITDA to the low 6x range.

As of June 30, our net debt to EBITDA ratio was 6.5x, down from 6.8x at the end of the quarter -- at the end of Q1. As a reminder, we do not have any preferred stock. Of equal importance, we have only $21 million of debt maturing through the end of 2020, and our weighted average maturity is 5.2 years. We'll continue to look for additional opportunities in this environment to take advantage of the attractive private market valuations. I anticipate we'll look to sell another approximately $100 million worth of assets in order to reach our near-term leverage goal. We remain committed to our investment-grade balance sheet, and are working to further strengthen all of our metrics.

In regard to leasing, we continued making progress this quarter on our Big Box Surge Initiative. We executed 2 additional anchor leases this quarter, and our anchor leased percentage was 95% as of the end of June 30. In addition, we maintained our small shop leased percentage at a strong level of 90.4%, one of the highest in our peer group and 120 basis points higher than this period last year.

We were also able to stabilize our office building here in Indianapolis. We executed a new 56,000 square-foot lease with Carrier corporation, to replace the majority of the space vacated by the Indiana Supreme Court. And we executed 2 additional lease renewals. Combined cash rents spread for the building were strong at 24%.

Our 30 South office property is now stabilized with a leased percentage of just under 96%. With respect to the CFO position, we remain committed to finding the best possible person. We're currently in the process of interviewing external and internal candidates, however, we do not have to rush into anything, as our finance and accounting teams are in great shape under the strong leadership of Wade Achenbach and Dave Buell.

Finally, we've revised earnings guidance to reflect the contribution of the 3 properties to the TH joint venture. This adjustment was solely due to the joint venture contribution. Everything else has been according to plan. Thanks everyone for joining us today, and we look forward to questions.

(Operator Instructions) Our first question comes from the line of Christy McElroy of Citigroup.

Just following up on the guidance. Just regarding the same-store guidance. Can you talk about how the range has unchanged, but the year-end occupancy forecast is down? Is that a timing issue, where the average occupancy doesn't change much, but the lease commencement's are being pushed into 2019? Or are there other positives for the growth rate that are offsetting the lower occupancy projection?

Well, I actually think it's a little combination of both Christy. I mean, when you look at where we are obviously, we did hold it, the same-store guidance intact in the first half of the year at 1.5%. We had factored in bad debt into the same-store guidance for the whole year, of course. So we've kind of been pretty conservative. We've left another just under $1.5 million of our remaining bad debt reserve in the same-store guidance. Although, we only used little over $800,000 in the first half of the year.

So it's essentially, when you look at what's happened with Toys (technical difficulty) and a few other things, we felt kind of leaving that intact made sense, it's early to really adjust it upward in any way, but if things go similar to the first half of the year as it relates to bad debt, we're very -- pretty conservative shape there. So I feel like that's reasonable.

Okay. So just to be clear, is the lease commencement timing and if you hear, and how should we be thinking about any delays, just heading into 2019? And as we think about the growth rate into next year?

Okay. So as it relates to '19, it's a little different question than '18, right? So lease commencement for '18 is exactly, at this point, how we've been projecting it. If you recall in the last earnings call, and maybe even the one before that, talking about the Big Box leasing patterns, I mean, they generally take 12 to 15 months to get these things producing income. So since Toys was -- at the beginning of the year when we laid out guidance Toys was intact, and then filed bankruptcy thereafter. So getting 6 of those boxes back, all at once right now is obviously, going to take time. So yes, there's -- there will -- and I said this last call, this is not a 1-year thing, when you get these boxes back that quickly. So sure, some of this will push into '19, as we lease these boxes. But as it relates specifically to Toys, since we're talking about that, we have pretty good activity there. I'd say frankly, faster activity with that than we've seen with some of the other boxes in the past.

Okay. And then just regarding the impact of the JV on FFO guidance. You already talked about doing this deal on a relatively FFO neutral basis with the debt pay down. Is there a timing differential that would cause that drag? And related to that, maybe you can talk about the fee structure? And how that might impact things?

Well, as it relates to the FFO impact, if I understand your question. That's simply a product of us selling the assets into the joint venture and retaining 20% and selling 80%. So obviously, we've lost that NOI that you wouldn't -- you would not make that up through fees. And this is a very straightforward deal where the fees are property management leasing. So I think going into -- if you think about it, that was almost $100 million, $90 million of debt pay down, and actually all we did is the midpoint of our guidance went down $0.01. So frankly, pretty good transaction, when you think about it from a deleveraging perspective and the impact on earnings. And again, that's halfway through the year. So you look at next year and you've got a whole year of that, right? So -- and then what was the second part of that, I'm sorry, Christy, because you're cutting out on that question?

Sure, I think that answered it. It sounds like the debt paydown and the fees offset some of the dilution, but not entirely. And I guess the other part of the question was just around the fee structure, is it a normal fee structure? And maybe how did that factor into calculating the cap rate on the deal, you talked about high 5?

Yes, the cap rate is purely off of the NOI. There was no fees factored into the cap rate. So when you look at all 3 deals that we sold in, it's kind of -- it blended as a high 5 cap off of the NOI that we currently had. And I only say that from a perspective of where people are trying to figure out valuations et cetera. But so that -- there was no fees associated with the cap rate.

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

John, you mentioned $100 million of additional dispositions in order to reach your leverage target. Would these be outright sales? Or is something that you would consider and your new joint venture partner would consider doing in a similar format to the joint venture transaction you did during the quarter?

Well, Todd, there's nothing specific that I would point you to right now. This is just what we're looking at as potential. So all options are open to us. We would look at either quite frankly, it would depend on whether the asset was one that we wanted to stay involved in or whether we thought this asset was an asset that we would just outright sell and due to various factors, right? So not determined, but both available to us. And one of the nice things about having the JV is that it's another bucket of capital for us to turn to in different scenarios. But in terms of the $100 million, there is nearly no timing on that, that's just me simply saying, that we're looking at options. That amount, kind of assumed -- valuations kind of gets us to where we're in that low 6x range, which we've been pretty clear about, where we want to be. And after just a few years ago, when the leverage was probably 9.5x. So we're making excellent progress, we're close. And that's all the sense of what we would need to do to get there. And that's what we probably -- that's what we intend to do. But there's not a timing associated with that.

Okay. And how about on the other side of the equation then in terms of acquisitions, maybe within this joint venture format. What is the appetite like from your partner there? And are you and your partner considering acquisitions, I guess, from the third party owners as well?

No, look, one of the things I mentioned -- or we've talked about with the investment community and with them directly is first of all, this is a great group. I mean, one of the largest asset manager is out there in real estate over $100 billion of assets. We're very fortunate to partner with them. And we have -- I think that we have a good working relationship. And it's -- there's definitely opportunities. Anything that we would -- we worked hard to get ourselves into this position of having a very, very strong balance sheet. So we would not jeopardize that in anyway. So that's something we will think about, as we move forward. But for sure, we're going to be -- we are and going to be talking to them in the future about various opportunities. And since they have a very attractive cost of capital, and we have some good expertise, I think it's a good marriage.

Okay, great. And then can you give us an update on Toys "R" Us, as it relates to the 6 boxes there, the current status. I guess -- is the vacancy for all of those boxes in the quarter and leased and occupancy stats or there's anything still sort of open and operating or paying rent at this point? And can you give us an update also on your expectations around the potential mark-to-market on backfilling those boxes?

Okay, well, 3 parter. So the second part of that 3 parter. The lease percentage has been impacted. So it's completely out as the end of June 30. The economic occupancy is yet to be impacted, that will be impacted in Q3 in the same-store. I think it's going to be about just under 70 basis point impact to economic. But as far as the lease percentage, it's out, , and frankly, it's just out of everything, they're gone. And so we've taken that into account in all of our guidance. So that's a good thing. As it relates to the activity, I can turn -- I can let Tom unleash the hounds and tell you about all the deals we're doing. But the reality is, there is good action there. I mean, of the 6 deals, couple of them are already in lease kind of negotiation, some LOI's. We've got some other things happening, that's kind of why, relative to the other boxes we've gotten back in the past (technical difficulty) and Sports Authorities and the others, there's a tremendous amount of interest around this. As you probably followed through the bankruptcy process, a lot of retailers going after the property directly. So we feel good about it, but it takes time, Todd. I mean, these -- just things take time. So I wanted to -- everything we're doing, all of the numbers we're reporting out there are with the thought behind there is a timeline associated with this. And that's the reality of it.

As it relates to the -- the nice thing about Toys, the overall average rent is, I think, it's under $12, it's like $11.80, something. And actually, with one of those leases -- you take one of those leases out and it's $8.50 -- $8.40. So we're in pretty good shape, specifically, relating to Toys, as it relates to the -- as where the leases will come in. Couple of those are ground leases, so obviously, those are very low rents and those will be replaced by higher rents when building leases, because we now own the building, thankfully they gave it to us. So we feel good about that, Todd. We feel good about that. I mean, that's one retailer out of all these other retailers, but in that particular case, we feel good. Tom you want to add?

Yes, the only thing I'd add, Todd, is that 4 of these boxes are in the 30,000 square-foot range, which is a really nice square footage for us, to backfill. And I think that has really helped us as we try to find potential suitors for the locations. But that has been a big help. And we've talked about in the past how other bankruptcies, such as the Sports Authority, those are in the 40s, which are a little more challenging, but we feel good about where we're positioned without saying too much moving forward.

Our next question comes from Collin Mings of Raymond James.

First question. John, just -- as you contemplated the new JV, and as you evaluate additional future opportunities, maybe talk bigger picture, how you think about the tradeoff there kind of delivering and recognizing some value versus adding some structural complexity of the company?

Sure. Look, first of all, this is our only joint venture of this kind of magnitude. So complexity wise, I don't view this as very complex at this current stage. It's a very straightforward arrangement. And we've pointed out in the past, I think, that we are not -- we or they are not obligated to do anything more than what we've done in this initial joint venture. That said, we highly respect these guys, and we want to work with them where we can. And our current -- at our current cost of capital, this is pretty attractive. So -- and we also -- and we're pretty transparent about where we wanted to get from a deleveraging perspective. And this accelerated that. And it was quite frankly, it's pretty accretive from an NAV perspective, when you look at what we did. So bottom line is, I think, it's a smart deal for us, smart deal for them, and we'll see where it goes. But we're not looking to make things very complex. We like things to be pretty streamlined. So the assets that we sold, it made sense at the time. And we're -- as I mentioned, we're very close to achieving our goal. And in terms of our low 6x net debt-to-EBITDA, and from there, we want to be very leverage-neutral in what we do. And that gives us a better opportunity to pivot at that point to looking to grow in a smart way.

Okay,. And then, just can you discuss on the impairment during the quarter. Was that tied to a property that was contributed to the JV? Or is there something out there just tide to maybe some of the future assets, as you're contemplating that's driving that impairment charge?

It would be latter. It's -- there is nothing tide to the contribution of that joint -- JV there. So it's really just part of our normal quarterly process, where we review all of our properties. And it generally comes down to what you're assuming the whole period is. So in this case, a couple of assets, looking at potentially shortening the holding period -- or actually shortening the holding period creates that impairment. So it's that simple. And yes, it's -- (technical difficulty) where we go. And hopefully, we'll be able to do these things in little amount of time.

Okay. But I asked in response to prior question, there's no kind of formal timeline, as you think about that $100 million though? Right now, John is that fair.?

No, there is not a formal timeline. But obviously, we're actively looking at it. And we'd like to get something done. And -- but what I've always said about that is, we're very focused on fair value. So we're -- we will not sell assets below fair value. And if we find the right mix and the right opportunity, we'll do it. If we don't, we won't. So it's something that we want to do but we don't have to.

Okay. And then, John just maybe -- as you're focused on this de-levering, just how you're approaching ramping backup kind of the 3-R pipeline? Still some projects obviously there, but a lot of the cost, the dollar spent are already behind you on that front. Just maybe talk about that as well?

Sure. I mean, in terms of what we've have done so far, we've delivered a little over $70 million in the last couple of years. At almost 9.5% return. There's probably another $36.5-40 million out there that are almost complete. And that's also averaging the exact same return. So that's good. I mean, going forward, we are constantly reviewing it. Tom and I talk about it all the time, we're looking at assets that we think have some other value creation potential.

So I'm not suggesting that, that process stops, but obviously, right now when we look at our free cash flow, and we think about where we want to deploy that free cash flow, over the next couple of years, we have a lot to do in the Big Box leasing. And that's our first objective. And we're making very good strides there. We know exactly what we're doing. We know what (technical difficulty) are going to be. And we want to continue to maintain that very healthy balance sheet, which in a situation, where we could be heading into different times. You never know. So we'll be positioned very well regardless of where the macro goes. But as it relates to the overall redevelopment activities, I think we have our primary objective, which is to finish what we have, which we're very close, obviously. And then, deploy capital into these boxes over the next whatever, 15 months. And then assess it from there.

Our next question comes from Alexander Goldfarb of Sandler O'Neill.

Just a few quick questions for you. Going back to Christy's question on the same-store. I didn't pick it up, but why is occupancy -- why do you expect it to drop to 50 basis points, is that because of the assets that went into the JV? Or what's driving that?

Are you talking about the midpoint of our lease percentage?

Yes.

Yes, that's simply because at the time -- our previous guidance, Toys was in that. So the majority of that, I mean, like 70-plus percent of that number -- of that ratio is Toys. And then you've got a -- I think, we've probably have OfficeMax in there, and a couple of other small things. So that really, Alex, is a fact that's just Toys. Economic -- now remember, that's lease percentage. Economic occupancy in the same-store pool will be hit in Q3 by Toys. And that's about 70 bps. But as it relates to all of our numbers FFO, same-store NOI that's already -- all that's accounted for. Go ahead sorry.

Okay and then -- no, no that's cool. Sorry.

I was only going to mention that I was trying to point that the same-store NOI guidance still has significant bad debt reserve in Q3 and Q4.

Got it. And it sounds like you're not using nearly as much as you anticipated?

Well, we didn't in the first half of the year. We'll see how the second half goes.

And then $3 million in the land games that you have in the numbers. When are you expecting that? Is that third quarter or fourth quarter?

Now that's what occurred this quarter. So we had a ground lease sale of an actual ground lease and then we had a small land sale, which we had assumed in our guidance. And now we've achieved what we thought we would for the year. And there's really -- I mean, anything can happen, but at this point there's nothing else budgeted there.

Okay. And then just finally, when you think forward, it sounds like you're increasing your dispositions by $100 million, if I heard correctly? And I'm going to assume those are going to be similar sort of high 5s type cap rate. It sounds like everything going together that 2019 FFO is going to be negatively impacted? Or are we missing some positives that will offset the sales?

Well, I mean look, there's no doubt, when we're selling assets and in turn paying down debt, that's going to impact FFO. So we're clearly saying that our objective is to lower debt-to-EBITDA to the point where we think it's long-term sustainable. And that's what we're very close to doing. So yes, I mean, it will clearly impact '19 if we do that. But the reality of that is, I don't know yet what the cap rates will be, so I don't know what the impact will be. And we'll deal with that when we're looking at 2019. I mean, there's other positives that could occur, since we already have significant amount of box leasing in process. It's possible, we can get some offsets from that. There's financing things going on. So -- and then there's 3-R, NOI, you've got to remember there's another $5 million of NOI coming from 3-R. So I -- we haven't put '19 numbers out there. And I'm sure everyone else has, but we haven't. So that's how you want to look at that. We look at it from a perspective of being in a very, very strong position. And being able to kind of pivot at that point to how do we -- how we're growing, what are we doing with new redevelopments, all that stuff.

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

We've all noticed the overall cadence of store closings has slowed nationally. I'm just wondering and maybe this for Tom, are you seeing an expansion or increase in terms of open to buy? And may that help you hit the high end of year-end percent leased.

Well, I'll start and Tom can add. I terms of -- look our -- when we look out over the past, I think 5 quarters, we've still continue to be net positive on store openings. So this quarter, we were net positive, I think we've had one negative in the last 5 quarters for us, just in our company. So generally, that's a positive thing. As it relates to all of this, as it relates to our guidance with lease percentage and et cetera. We generally are pretty conservative there. Because we know how long it takes. So that's my point of view. Tom you want to?

I think the key from our perspective is that we have the interest, we have various buckets that we're dealing with. We've got the midrange size boxes, the junior boxes and then the ones that are larger, which really helps us diversify different sizes of boxes throughout the portfolio. So I think from our perspective, it's about the art of speed in moving these deals as quickly as possible to try to bring that income as quickly as possible. But we have, I believe, the tools in place to attempt to be successful with that.

And what is the sentiments of the small shop operators? Obviously, you've been able to hold your occupancy here north of 90%. What is the sentiments, you're getting from them?

Look, I think, the fact, that we are over 90% in this environment continues to bode well for our portfolio and our team. We feel like we have a very, very strong, aggressive leasing team, they battle, they're fighters. And that's what we want. The reality is this is a supply and demand business. We feel like, we're on the right side of that equation as it relates to small shops, which is why we're at over 90% all-time plus highs in this business. So that's a good thing. And it doesn't hurt when you get the kind of economic (technical difficulty) that we're getting right now. That's obviously important so we hope that continues.

Yes, if we can keep the small shop base healthy and we can avoid closures and continue to lease at the pace that we've been doing. We feel like we've got a runway and the diversification once again in these shops will service restaurants, with health and medical, it brings different opportunities to us that we haven't seen in the past. We have a positive outlook on small shops.

The only thing I'll add to that Criag, we don't really look at it from a perspective of we're at 90%, we're at 89%, we're at 88%, whatever we're, that's not how we're thinking about our small shop objectives, just so everyone's clear. We're looking at the small shop as a great way for us to bring in creative retailers to our centers. Because it is extremely important that centers have interesting retail offerings, right? That -- a lot of that today comes through small shop players. So it's as much about merchandising mix, as it is about occupancy or lease percentage. So and I feel good about that. We're really doing some cool stuff in the marketing side of our business, working directly with these retailers, having to get some energy around it. And that's going to be become more and more important, because bottom line is, if you want to succeed in this business, you've got to innovate, right? So we're innovating in that area and that's -- we're going to keep doing that.

Our next question comes from Jeff Donnelly of Wells Fargo.

Maybe just a jump around a little bit around, John. I think you guys and some of the other folks in the space are trading a pretty significant discounts to NAV and yet, we're seeing more and more capital getting put to work on single asset. And even small portfolio deals in the private market. If those conditions hold, or I guess my question is, do you think those conditions are going to hold? Do see signs that you're getting some convergence out there? And I guess, but if those conditions hold, do you think the dynamics will lead to privatization in this business? I guess, how are you thinking about it?

Well, I think we're focused on controlling the controllables, Jeff. And that's -- we feel like we do a pretty good job. I think, we feel like our operating statistics and metrics are as good as any -- as good as most people in this business and certainly equal to companies who trade at significant premiums to what we do. That's for whatever reason it is. Do I think that these conditions remain? Probably, I mean, I think that there's generally in the investing world outside of our little world of people who do this every day. There's a lot of other things to choose from. I think you've got interesting things going on with what's occurred with the tax cuts. So we'll see. As it relates to where that drives stock valuations. I think in terms of private capital specifically with real estate, there is no doubt that it's there, there's -- but there's no doubt that it's interested in individual acquisitions, which we've seen whether that parlays into acquisitions at the corporate level. I wouldn't be surprised over the next whatever period of time. If you -- if this maintains. But it's hard to say. I mean, obviously, stocks can move fast and in different directions, but right now, I think it's pretty clear that there's a bit of a disconnect.

And maybe just switch gears. I'm curious what you guys are seeing in terms of the depth of new development starts in your market? I'm just curious, I know supplies have been relatively low this cycle, but we have seen it creep back a little bit. Are the -- is the move on land pricing and construction, cost, labor cost accelerating to a point where it just no longer pencils?

Look I mean, we can talk, but obviously, people talk about construction costs. But in our history of doing this business, rarely has the cost of construction stopped you from doing something. It might impact a yield, it might impact a particular deal, right now, there's no doubt that there's been -- there's an environment of increasing cost. There's concern with tariffs, we probably view that as temporary versus long-term. But really the issue in construction is labor. It's been that way for a while, it's going to continue to be that way. But if retailers are expanding, and in that mode of wanting to do that, they're going to pay the rents. So that is (technical difficulty) the issue. And people are -- there's a lot less people that develop shopping centers than there was 10 years ago. So I think it's just a combination of all these events, which in the end by the way, ironically, is a good thing. This is how we're continuing to drive rent spreads. So we feel like it's okay. Are we thinking that it's going to turn and all of a sudden we're going to turn and there's going to be a lot of new construction, hard to -- unless Tom may disagree, it's hard for me to imagine any time in the near future, that you see significant new constructions, now. Other sectors, yeah you see a lot of it. You see spec construction, not in this sector.

Does that change the dynamic. With even just redevelopment and leasing decision right now, I am even thinking about things like TI packages and some of the redevelopments of particularly Big Box spaces. I guess, I'm wondering if the rise in construction and labor costs that you're seeing is that material enough that it's affecting what you're spending on TI's enough, the rents you have to pay? And I guess do the retailers get that?

I mean, it's possible. I mean, again, it would depend on how long and how far that increase would go. And obviously, if this -- if you end up with significantly higher steel prices and one of the things we benefited is from reasonably low oil prices, right? So I mean, it's possible. Tom?

Jeff, I don't see it as a crippling percentage at this point. If you look at it year-over-year, total construction cost, we're up about 4.3%. And you've got a lot of push on material that ties back to steel, aluminum, lumber, asphalt, bricks, concrete et cetera. But ultimately, if you think about a split box and you're saying $25 of square foot or whatever that number is, it's 4%. But these aren't crippling numbers, impactful numbers, but not something that's going to (technical difficulty) stop the industry.

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

How are you thinking about the interplay or priority between different considerations, mainly deleveraging vis-a-via the JV, selling assets out right. And then the better scale that you acquired with the inland deal 4 years ago. And then by extension of scale that's required to be a public shopping center company?

It's a good question, Linda. Look, I think one of the most important things that we do is asset allocation and capital allocation. So I think we think about it in terms of where we currently are in our -- in the total picture of our cost of capital, strength of our balance sheet, offset by whatever growth potential we have. And sometimes those things all work together and sometimes they work separately. So obviously, in this last couple of years, we have been pretty clear that we want to position the balance sheet to be very strong, as it relates to its (technical difficulty) and as it relates to its available capital I think there are a lot of people that have (technical difficulty) and generally, when you get long expansions like we're in, albeit at the front end of the expansion was half of normal, right? So that's probably why this is much longer than normal. People become what's the word, they just become a little complacent with that availability of that capital. We don't want to be in that position, we want to be in a position of supreme strengths under any condition. So that means that some of this has -- definitely we've put the balance sheet in front of growth in terms of earnings. And that has -- slightly impacts maybe the scale of the company. But when you look at our ability to operate the business in a very efficient way, we're at the top of the spectrum in terms of our efficiency ratios. So that's not going to hurt us. But I do think we're trying to indicate to people that we're close of being at that point where we can pivot and we can say very confidently our balance sheet is as strong as anyone's, not today but close. And we're going to the able to take advantage of whatever opportunities is put out there. And if the cost of our capital continues to be diminished, then we have that joint venture opportunity, we have that partnership opportunity with a very, very strong player. if it's recognized, and we've got more of a manageable cost of capital, then that changes that game. So I guess I'm trying to say is we've been very thoughtful around this and we realize that it can -- it has impacted short-term earnings. But we view that as for the benefit of a very long-term game.

At this time I'd like to turn the call back over to CEO, John Kite. For any closing remarks. Sir?

Thanks a lot everyone for joining us today. We appreciate it, and look forward to talking to you soon.

Thank you, sir. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. And have a wonderful day.