Margaret Kofkoff - Investor Relations John Kite - Chief Executive Officer Tom McGowan - Chief Operating Officer Dan Sink - Chief Financial Officer.

Todd Thomas - KeyBanc Capital Markets Craig Schmidt - Bank of America Merrill Lynch Christy McElroy - Citi Alex Goldfarb - Sandler O’Neill Carol Kemple - Hilliard Lyons Chris Lucas - Capital One Securities Colin Ming - Raymond James Tammy Feak - Wells Fargo Securities Nathan Isbee - Stifel.

Good day ladies and gentlemen, and welcome to the First Quarter 2015 Kite Realty Group Trust Earnings Conference Call. My name is Lisa, and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

[Operator Instructions] I will now like to turn the conference over to Ms. Maggie Kofkoff, manager of Investor Relations. Please proceed..

Thank Lisa and good morning everyone. Welcome to Kite Realty Group’s first quarter 2015 earnings call. Today’s comments may 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 more recent 10-K. Today’s remarks may 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. 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’d like to turn the call over to John..

Thanks Maggie and good morning everyone. Welcome to our first quarter earnings call. We appreciate you spending time with us today as we’re excited to share the results of another strong quarter.

We continue to be optimistic about 2015, which is why we increased the mid-point of our full year guidance for FFO as adjusted from $1.95 to $1.97 per diluted common share. I’ll walk through the details of our revised guidance and underlying assumptions shortly.

Our first quarter performance was a result of our strategic focus, which remains anchored on operational excellence and consistently executing on our stated initiatives. We continue to deliver on our corporate objectives both from an operational and balance sheet standpoint.

We generated FFO per share as adjusted or $0.50 for the quarter, exceeding expectations. We increased our AFFO per share 13% year-over-year to $0.44 per share. We reported strong same-store NOI growth of 4.4% outpacing our peers and marking the ninth consecutive quarter in excess of 4%.

We hit our leasing goals for the quarter with a portfolio generating a positive 7.1% cash renewal spread and we continue to target the high end of our stated objective of 5% to 8% for renewals.

Operationally, we've had an extremely efficient quarter reporting our highest ever retail recovery ratio at 91.3%, which remains comfortably above our high 80's target. We further strengthened our balance sheet by lowering our net debt to adjusted EBITDA to 6.2 times from 6.5 times last quarter.

As a testament to the quality of our portfolio, we grew our ABR 13% to $15.20, compared to this time last year. We carefully pruned our portfolio by closing on the final tranche of a select group of 15 non-strategic assets. We successfully upgraded our high-quality portfolio and refined our geographic focus by exiting four states.

And lastly, we started prudently redeploying a portion of those proceeds in our recent acquisition of Colleyville Downs, a Whole Foods-anchored Centre in the MSA of Dallas, Texas, while executing on our disposition strategy of substantially upgrading the portfolio.

Before turning to the balance sheet, I’d like to highlight a few of our operational achievements during the quarter. We’ve made a focus effort to update and improve our internal systems and we are seeing dividends as we increase efficiencies in enhanced expense controls.

For example, last year in the fourth quarter, we set a new record for the company by achieving a retail recovery ratio of 89.6%.

In the first quarter of 2015, we further raise the bar by increasing our retail recovery ratio to 91.3%, a portion of this improvement relates to focusing on the acquired portfolios CAM and tax recoveries and recognizing and other half a penny to $0.01 per share of recovery revenues.

We remained focused on keeping our retail recovery ratio in the high 80s and have developed a plan given our updated system and enhanced expertise of our team to monitor and achieve that goal consistently in the future. As part of these cost and operating efficiency initiatives we achieved savings both on our insurance cost and real estate taxes.

From an insurance perspective, our seamless transition of the expanded portfolio and are extremely low loss history in both property level and general liability insurance resulted in a 20% reduction in premiums during our first quarter annual renewal.

With respect to the real estate taxes, our in-house tax team has implemented top tier property tax management software, which efficiently manages the appeal process. We've already identified over $2 million in tax savings in less than a year.

Lastly, we've optimized our waste collection process by implementing a direct to tenant billing approach, which creates operational efficiencies and alleviates pressures on CAM in many cases.

With respect to energy savings, as we execute on our sustainability initiatives, we started converting select properties lighting to energy efficient alternatives.

We structured this program so that the landlord does not incur any additional cost, yet we are able to reduce energy and maintenance cost for our properties while still delivering high-quality lighting to our tenants and customers at reduced rates. We plan to continue rolling out the program over time, which will result in incremental savings.

We also continued to focus on sharing our operational expertise with our customers and tenants. Having started as a small family owned business over 50 years ago, it is our company's culture to grow and support local business throughout the states we operate.

Our regional approach helps us identify top candidate annually to participate in our recently developed tenant mentorship program.

This initiative was formed with a third-party consulting firm and focuses across our client’s business platforms, including their business plans, marketing strategies, financial efficiencies, and internal controls and systems in two recent case studies both in the restaurant industry.

After participating in our mentorship program, our clients saw material growth in revenues improved cost efficiencies and enhanced ability to monitor their business segment returns. On leasing side of the business, activity has accelerated in 2015 and in the first quarter our team executed 77 leases for nearly 400,000 square feet.

On a comparable basis, we executed 52 leases with a blended cash rent spread of 9%. Select anchor and junior anchor new and renewal leases executed in the quarter include examples of like T.J. Maxx and Stein Mart at our Portofino Asset in Houston. Ross and Market Street Village in Dallas, and Hobby Lobby at Cedar Hill Plaza also in Dallas.

All segments of our portfolio continued to hit our target leasing objectives from a renewal spread perspective. And notably the Och-Ziff and Inland assets outperformed our legacy portfolio by a over 300 basis points in leasing spreads during the quarter.

Same store NOI grew another 4.4% for the quarter and represents a more meaningful portion of our overall portfolio with assets contributing to our same-store pool growing from 43% to now nearly 55%. This strong performance was made up of approximately 230 basis points from contractual rent growth, enhanced CAM recoveries, and other ancillary revenue.

The remaining balance is from continued gains in economic occupancy. Our outlook for the remainder of the year continues to be positive. Turning to development, we moved the first phase of Parkside Town Commons to our operating portfolio in the first quarter.

The asset is fully operational and over 90% leased from an economic standpoint when including the NAV accretive ground leases with Harris Teeter, Bank of America and Chick-Fil-A. Our three remaining development projects include the second phases of Parkside and Holly Springs in Raleigh, and Tamiami in Naples Florida.

Development progress continues at Holly Springs Phase II as we recently completed the building pads and vertical construction is underway. In aggregate, the three projects are approximately 80% preleased or committed as of the first quarter.

We anticipate to begin construction at Tamiami within the next several weeks as we recently signed Marshall's and Ulta to join Stein Mart. Parkside II, which is anchored by Golf Galaxy and Field & Stream will have Frank Theatres in several additional small shop openings in second quarter.

In addition, phase II of Holly Springs remains on track with Bed Bath & Beyond and DSW to open in the third quarter of this year and construction to commence on Carmike Cinemas in the second quarter.

We’ve added some new cash NOI disclosure in our supplemental on page 27 to provide some clarity around the incremental cash NOI from the development and redevelopment pipeline.

We plan on providing additional disclosure in our supplemental beginning next quarter to update the investor community on the progress of our $100 million RRR objective which we define as repositioning, repurposing and redevelopment projects.

We were in the late stage lease negotiations at multiple properties as well as finalizing project plans at several assets including a planned $10 million redevelopment at Cool Springs in Nashville, approximately $15 million redevelopment at City Center in White Plains, New York, a $7.5 million redevelopment at Burnt Store and a $2.7 million repositioning phase I of [indiscernible].

We anticipate incremental returns of between 8% to 10%. In December, we closed on the first tranche of $318 million sale we announced last fall and in mid-March we closed on the final tranche which resulted in $167 million of gross proceeds and net proceeds of just over $100 million.

While we will always be reviewing our portfolio for potential sale opportunities, this completes the majority of the pruning we had earmarked for the near term. As discussed previously, we plan to use the net proceeds from both tranches to first reduce the net debt and then prudently redeploy back into high-quality assets.

We’ve already made strides on both of these objectives in the first quarter. While the acquisition market remains competitive, we intend to further enhance the quality of our portfolio even if it means acquiring less today for long-term benefit going forward.

Consistent with our focus on quality, the opportunities we are analyzing are concentrated in and around the core of our regional offices. They are top tier assets in high-growth markets and on average tend to have going in mid five cap rates with upside potential.

We are currently working on several transactions and in April we seized a unique opportunity in the MSA of Dallas, Texas to acquire Colleyville Downs in an half market transaction.

The Whole Foods-anchored shopping center is well positioned in a densely populated desirable market with an estimated population of 80,000 people and average household income of $127,000 both within a three mile radius.

Many of the existing leases predate the new Whole Foods and further support our ability to create additional value through lease up and below market rent opportunities while substantially increasing the quality of the tenancy. On to the balance sheet, we continue to execute on our strategy of maintaining a flexible balance sheet.

Consistent with our simple approach to corporate structure, earlier this year we purchased the remaining interest from our partner and the one of our top assets City Centre in White Plains, New York. Since we previously own the majority of the asset and controlled the centre, it is not part of our updated acquisition guidance assumption.

But the buyout provides us complete autonomy over further enhancements to the centre, which we’ve planned to commence on in the next 12 months. As we discussed on our last call, we continue to drive down our leverage and target approximately a six times net debt to EBITDA metric.

This quarter, we continue to delever and maintain our investment-grade balance sheet by reducing our net debt to adjusted EBITDA down from 6.5 times to 6.2 times. We also intend to reduce our floating-rate debt exposure to approximately 15% over the next two quarters by refinancing with unsecured fixed rate product.

2015 is off to a strong start as evidenced by our first-quarter results and we continue to expect another highly productive year. We are updating our FFO guidance for 2015 from a midpoint of $1.95 to a new midpoint of $1.97.

Our updated FFO guidance range of $1.93 to $2.00 includes a few revised assumptions; increasing expected same-store NOI growth from $2.5% to 3.5% to 3.0% to 3.5%, raising our acquisition assumptions from $80 million to $125 million.

From our last call, we would remind investors that the guidance range is also inclusive of opportunistic capital markets activity. We are monitoring a number of unsecured products which would help us execute on our strategic plan to further enhance the flexibility of our balance sheet.

Also, our $102 million 8.25% preferred note is callable at the end of 2015. In summary, we are very pleased with our first quarter results. The team continues to execute on our strategic initiatives and deliver strong results that are in line or exceed our targets.

Given our long history of enhancing assets, the operational excellence we continue to report combined with our development expertise provides a long-term competitive advantage for NAV and cash flow growth. We feel excited about the prospects that 2015 has to offer. We look forward to attending ICSC in Vegas in a few weeks.

Our leasing team has a record-setting list of meetings with national retailers as we are set to engage and continue to deliver best in class operating results. As a reminder, we are hosting a property tour and reception in Las Vegas, the Saturday before the conference on May 16.

Given our regional effort and footprint in the Vegas market, we are excited to show our investors some of our assets in person. We hope to see a lot of you there and if there is any questions about this or need any further information, please contact Maggie. Thank you for the time and that concludes our prepared remarks.

Operator, we are open for questions..

[Operator Instructions] And your first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed..

Hi, thanks. Good morning..

Good morning..

Hey, John, there has been some M&A in the space with Blackstone acquiring Excel. So just curious what you think of the current environment, did you take a look at Excel, it seems like a portfolio that would have fit in well with Kite’s portfolio today..

Well first part of it I think we - I think that the environment is very interesting and there is obviously a lot of private capital looking for very few available asset.

So I think that is probably what spur that transaction and I think based on the deal that they did, it’s a very attractive deal and it is very, very hard to assemble that number of strong assets. We knew the company well and we are very familiar with it, but we did not look at the opportunity specifically as it wasn’t really presented that way.

But we certainly knew of it and think it was a great transaction..

Okay. And then you talked about some acquisitions that you are looking at with I guess yield in the mid 5% range with some upside. What kind of upside are you targeting what sort of stabilize yields for these opportunities..

I think each one is different Todd, so it depends on the specific situation. But generally if we can buy something in that mid 5% range that we think has either the wrong tenancy or below market, we would like to get it to more like 6.5% on a stabilized basis.

That is the goal somewhere in that range and I think the one that we specifically mentioned Colleyville, that is what we believe can happen there based on the fact that there is a significant amount of below-market rents due to the fact that the property was redeveloped Whole Foods came in and there were some existing leases that are now rolling over, and we are talking about significant square footage.

So each deal will be different but if we can go in at that range and do what we do, then we should be able to get it up to kind of 6.25%, 6.50% range..

Okay. And then your commentary on the expense recovery ratio was interesting.

What’s the difference in the legacy Kite portfolio and say the inland diversified portfolio for that metric? What are you operating at different levels there?.

Dan, you want to?.

Yeah. Todd, I think one of the main things that we did I think is we were driving through and looking at the year-end recovery in true-ups. We really had an opportunity to go through each lease that we inherited from the merger transaction.

And in doing that, we saw there is some opportunity in neighborhood of $0.005 to $0.01 to really exercise on the languages in the lease and be able to collect more whether it was a fixed-CAM that wasn’t probably been allocated or collected.

So, it is more just really diving in and making sure we are collecting the maximum allowed for the lease, which we have done..

Okay.

Do you have like a long-term target for the portfolios reimbursement ratio? And I guess, Dan, what are you thinking about for the full-year on that? What’s kind of baked in the guidance, I guess, for the recovery ratio for the full year?.

If you look at the full-year, I think as we mentioned in the prepared remarks, our goal is to stay in the high-80s. So I think when you look throughout the year, that’s our objective is to continue to drive that high-80s recovery ratio in the retail portfolio..

Okay, great. Thanks..

Thank you..

And your next question comes from the line of Craig Schmidt with Bank of America Merrill Lynch. Please proceed..

Yeah, I wanted to – as you go forward, is it likely that you’re going to find more redevelopment opportunities coming from the Inland Western side of the portfolio?.

Craig, I think as we mentioned, we got this plan in place that we believe we can start around $100 million of redevelopment over the next two years. And as I pointed out in the call, we’ve got that ball already rolling.

And it’s really a balance, Craig, between the portfolio we acquired from Inland and also the portfolio we acquired from Och-Ziff and then some of our assets. It’s pretty well-balanced. So that’s good. I’m actually – I prefer that we have balance across the portfolio versus just one.

So that means we will have more opportunities in the future because we are really only getting into having operated the Inland portfolio for less than a full year, more will come off that, but we’ve already begun it. So it feels like we can continue to have a reasonable pace when we set these kind of 24 month timelines..

Okay.

And then just in terms of the transaction market, as we moved through 2015, do you think you will still see cap rate compression on strip centers or could they hold or even rise at some point?.

Well, I mean, I think I can tell you where we see it today and what we here in the market and how intensely competitive it is.

And again I personally go back to supply and demand, which again it sometimes exceeds that factor, the fact that there is such – there is always new capital pursuing institutional quality real estate really regardless of where treasury yields are. That’s kind of a byproduct of other things.

In terms of when we are looking to buy something particularly if it’s on the market, you are really talking about a great number of institutional players pursuing assets that we would deem high-quality. So my perspective is cap rates are going to be in this area for a while. I know people are focused on rates and what that impact is.

But as I’ve said before, the great majority of the people we compete against in an institutional Class A asset are cash buyers. So leverages doesn’t come into play. If it does come into play, it’s typically after-the-fact. So I believe that we are in a pretty darn competitive environment.

The fact that we haven’t added any new shopping center supply as an industry for the past seven years is a big, big factor. So, yeah, I mean, long story short, it’s competitive, it looks like it will remain competitive.

So that’s why we are so diligent to try to find things that have some uniqueness to them that if we do pay a cap rate like in the mid-5 we mentioned that we can add value to it. And I think redevelopment skills are needed to do that. If you don’t have those skills, you’re kind of locking in that yield, and that’s the best you are going to do.

So I think that’s why we are comfortable there and excited about that. But it certainly feels right now that this is where cap rates are..

Okay, thanks..

Thank you..

[Operator Instructions] Your next question comes from the line of Christy McElroy with Citi. Please proceed..

Hi, good morning..

Hi..

I’m wondering if you could disclose the purchase price and the cap rate for Colleyville Downs and what was the cap rate on the partner shared City Center?.

We will start with Colleyville. In terms of the price, I can only give you a general here, because we kind of had an agreement with the seller for nondisclosure. But it’s generally cap rate kind of where I mentioned that we were seeing deals. And it kind of....

The 5-ish?.

Yes, kind of mid-5 range..

Okay..

Again, with the upside that we think we can get certainly over 6. And then from a price perspective per foot kind of in that $200 foot range. I don’t want to be too specific. So we felt good. We really felt good about the purchase on a per foot basis and an upside basis..

And then on City Center?.

City Center, we – go ahead, Dan, we looked at that a little differently..

Yes, City Center, it’s tough to give a specific cap rate analysis on that, Christy. I mean, obviously, the partner was being paid as preferred dividend roughly 4% and then we were also, as part of the transaction, gain complete control of advertising kiosk, the parking garage, those kind of things.

So I mean there is a lot of ancillary items to go in versus just looking at specific cap rate, but the transaction overall was very beneficial for the company as we look to enhance the asset..

And then the key was again was the clean slate to actually implement the fully development redevelopment, which was very important..

Great, okay.

Do you have any additional plans, I know it’s – I don’t think there is anything in guidance, but in terms of dispositions this year beyond the tranches you’ve already completed?.

Christy, I think, like we said in the call, we are still analyzing assets and we do it very frequently. So I think anything else from here is most likely going to be almost matched to an acquisition. I don’t see us doing something – we are in a very, very good capital position right now. So we would be looking to recycle if we did that.

And that opportunity could exist, but we really want to make sure that we have something to invest back into that has good growth in it. So that’s our focus right now..

Okay. And then, sorry, if I missed the specifics on this.

I know that you mentioned in terms of the potential bond issuance you are exploring, you are out there sort of right now exploring all different opportunities, but in terms of expected size, timing, pricing, has anything changed in terms of those expectations that may have influenced guidance at all?.

Well, no, I mean, we haven’t changed anything as it relates to that. So we still assume that we will do something. And I think the only change is that the bond market is pretty volatile and has been and so we’ve been very selective. We haven’t wanted to enter the bond market at the wrong time, which can be pretty painful if you do that.

Since we have a lot of alternatives available to us as we said before, we are looking at everything.

And you have that goes, that can turn around fairly quickly kind of a supply and demand thing as well from a standpoint of where the market is, how much supply is out there, the less of that the better, and then maybe the pricing is a little more favorable. So we still assume we will do something.

It’s just we are analyzing two or three different alternatives not just a bond issuance..

Okay, thank you so much..

Sure, thank you..

Your next question comes from the line of Alex Goldfarb with Sandler O’Neill. Please proceed..

Good morning..

Good morning..

Hey, how are you guys. Just a few questions here. First, I guess we will start with the modeling one.

Dan, other property income was up in the first quarter and NCA again was in April, so sort of curious what drove that and then what we should expect for the second quarter?.

Other property related revenue, the majority of that if you look on the NOI page of our supplemental was a lease term fee that we have about $1.4 million. And I think if you look out for the rest of the year, typically, Alex, we will have anywhere from $1 million to $1.2 million in other property related revenue on a quarterly basis.

So I think that gives you a pretty good run rate of what we are looking for in that line item from an annual basis..

Okay. And any extra pickup in the second quarter from the game from parking or anything..

No, right. I mean the parking we will, in parking we typically get an annual basis roughly $500,000 to $600,000 and it’s spread out as you mentioned.

We obviously had the parking garage at University in Notre Dame it’s during the football season both that and our parking garage here downtown we get some activity on, so whether it’s Pacers or Colts, but we, you know it is typically if you look at an NAV or run rates, I would use roughly $500,000 to $600,000 a year..

Okay.

And then as you guys do your re-tenanting and trying to mark to market of the proactive leasing what’s the drag to same-store NOI from that?.

Well I think it really depends on what we're doing per quarter Alex and it really it’s more of a longer-term process and this is something we were trying to make sure people understood. The drag really becomes when we begin to essentially pull down leasing in an asset that we are preparing to move to redevelopment.

So there is a time where assets are still in the operating portfolio and we haven't moved them into redevelopment, an example of which would be White Plains I think, where we were intentionally pulling down occupancy.

So, we have too many of those going on to get into specific each one of them, but that's what creates potential lumpiness in same-store NOI, and one of the things that I want to make sure people understand is the fact that we have been producing very strong same-store over the last, basically two years is because three years ago we implemented a program, a very intense internal operating program that changed the way we do business in terms of how we lease, how we operate, how we manage, how we grind.

Those are all things that take time. So, this is kind of a, we are seeing the fruits of that today and we’re going to do the exact same thing in the Och-Ziff portfolio and the exact same thing in the Inland portfolio.

So, over the next few years, we will begin to implement that and then begin to over the next couple of years see the same type of results. We just need time with the assets. So that's very important that people get that and we’re really happy about everything we've done to position ourselves to grow these assets..

Okay, so from another angle, the 44 that you printed in the first quarter versus your full year guidance that 44 is going to come down because straight-line like the economic occupancy sort of slows down or because you are planning on doing more repositioning where you are going to take the hit on NOI from de-tenanting to re-tenant for this year?.

You hit it, it's both. So it’s a process where you’ve got both of those things going on simultaneously, but again we anticipate as it comes down then it comes back up, you know hopefully later in the year. So that is the process that you will see happen as we start to begin to, as we call it here the Kite way on these assets.

We haven't been running all these assets long enough to implement all this. So that's what you'll see happen and again when we look at how we treat small shops is just a prime example. I mean, we still have a lot of upside in small shops and we have upside in the rollover.

When you look at our expirations, particularly in 2016, we are significantly below our rents in both shops and anchors in almost even the ones that have options to renew are going to renew it up about 8%. So, I think this is all putting into the blender and having us do what we do and then it comes out better on the other end.

I mean that's what we do..

Okay. Thank you..

Thank you..

And your next question comes from the line of Carol Kemple with Hilliard Lyons. Please proceed..

Good morning..

Hi Carol..

Hi.

You're G&A number was a little up from the fourth quarter, is there anything one-time in that or is that a good run rate quarterly?.

Here there is some. On a quarterly basis if you have got our annual guidance, the first quarter typically has some additional cost whether it is a proxy, the annual report, the way that our executive compensation is a result of the subject versus the formulaic approach that we've got.

So some of that goes to the first quarter versus the full year, but if you look at full year guidance we were roughly $16 million to $18 million and right now we’re projected to be at the high end of that and if you, one thing to look at as well when you go through and as we calculate our AFFO Carol, we also, you know there is a significant non-cash compensation expense that's also part of that, I think from a restricted share or OPP program that's part of that number.

So, as you walk through and look at AFFO calculations and cash flow that's an important component..

And then on your retail portfolio, you were 94.9% leased, what was your comments, it was actually paying rent right?.

The lease versus occupied is about 170 basis point difference in the portfolio..

And then at this point do you have any retailers on your watch list that you are concerned about for the remainder of the year?.

Yes I mean, I think we've talked about a lot Carol, it hasn’t changed much. From my perspective, I think it is, we're watching the obvious office supply situation, Tom in leading beyond that..

That’s the big one and we just don't have quite a bit of time at the office both Office Depot, Office Maxx and Staples to make sure we’re positioned properly when that potential merger occurs, but we feel like that's a situation we are very comfortable with. So that's the big one we have our eye on..

I think RadioShack obviously we talked about that last quarter, that's already really taken hold and about half of the RadioShack's have converted to the Sprint Stores and then we’ve already released of the remaining, we released a couple of them in significant spreads. So that's gone one well..

It has gone real well..

Okay, thanks..

Thank you..

[Operator Instructions] Your next question comes from the line of Chris Lucas with Capital One Securities, please proceed..

Good morning guys.

Just a quick detailed questioned Dan, there is a, on the adjustment on AFFO there was a $486,000 reduction entitled other non-cash adjustments, is that a collection of items or was that a singular item?.

It was a singular item related to the lease termination income.

So what happens on that Chris is we received, it was a ground lease that we received a lease termination on and what happens when you get a cash payment, as well as on a ground lease you get the building back, so you’ve got to value the building as it’s coming back on your books because previously we did not own the structure.

So, we work through that analysis in detail with our accounting group and that is why that's deemed a non-cash item..

Okay, and then John you had mentioned a little bit about some of your balance sheet options in front you, I guess thinking about the preferred redemption, it's a little early, but I guess the question I would have is how are you thinking about that as it relates to, if you decided to move forward when called at, what sort of capital would you use and would you think about pre-funding there, given the turbulence in the capital markets, at this point..

To the second part of that I don't think right now we would think about three funding it, based on the fact that we are pretty comfortable that we will be in a good position regardless of what happens here in the short-term because of eight [ph] in the quarter.

So, we are pretty good shape and generally doing something in early is priced in and you end up paying for it.

So, I would say in terms of how we would do it, again that's going to have a lot to do with where we are here at the end of the year, in the capital markets, but we have a lot of alternatives because again its 8.25%, we can look to a lot of places whether that be cash, whether that be some sort of asset sales/portion of it and debt refinancing.

There are just so many different things we can look at, who-knows where we will be then. But the call is at our option, so we will be able to be ready for it, we will plan for it, and I think we feel very comfortable Chris that whatever we do, it will be accretive..

Okay.

And then just you also talked a little bit of about the competitive environment as it related to asset acquisitions and I guess maybe if you could give us some color on - is that a function of just more capital or is there just a drifted supply relative to say a year ago?.

My personal opinion is that the supply - the lack of supply is a big driver here. Now obviously real estate has a lot of capital flowing towards real estate but frankly there has been volatility in that capital in the last several months, but the lack of good supply hasn’t changed that is a constant.

There just isn’t enough new development in the United States in high-quality properties. These are large centers that are well located, well tenanted. So when they do become available, there is – there can be a feeding currency based on the fact that you just don’t get that many opportunities to get good real estate.

And I would say that the common denominator is we are looking at very good real estate. So again that shrinks the bucket even more. Also I think institutional investors worldwide, when you are looking at the kind of global economy that we are in right now which is no matter what anybody says we are in a very low growth period of time.

And so yes people are going to seek alternatives that that could change interest rates globally not just in the United States, but globally were to significantly rise. But when you look at where interest rates are relative to cap rates, there is still significant spread there.

So that’s why I personally keep saying we are far away from that despite the volatility and the reality on the ground Chris when we are looking at assets and especially when we don’t have the luxury of buying of market when we have to look at something that is marketed.

These things go the final round might be four different bits and you are talking about 6, 7 people looking to buy the same asset that all good check. So it’s very competitive. I can’t overstate that..

Great. Thank you guys..

Thank you..

Your next question comes from the line of Colin Ming with Raymond James. Please proceed..

Hey, good morning. Congrats on the quarter. Couple of questions.

First I just thinking about just the moment and leasing up some smaller shop space, can you talk a little bit more about what you are seeing maybe if there is any reasonable variances? What are you seeing here in Florida and then just any sort of variances as far as pricing power?.

Just starting off with the leasing situation, it’s been pretty firm. It’s been pretty strong I think in terms of when we look at our results for the quarter, we did a significant - the deals were pretty balanced between what we would call national and regional tenants and local tenants. So there has been good balance there.

There is definitely certain segments of the market that have - that are really on fire like Fast, Casual and the Dining segment for example. Regionally we see the same. We see opportunities obviously Florida, in your specific question to Florida, Florida is our biggest market, it’s our biggest opportunity.

We have a huge focus in Florida; we have basically one large regional office in Orlando and then a couple of satellite offices as well. So we have a lot of people on the ground in Florida because we understand it’s a great opportunity for us. The market in Florida has definitely strengthened.

I think that the state has done a wonderful job of diversifying and growing. So I mean I think we feel very good about it.

Tom, do you want to add anything to that?.

Yeah. We’re going to constantly concentrate on Florida for simple factors, we have closer to 280,000 square feet of vacant space in that market which makes up about 40% of our small shop vacancy. So that is where we have applied the resources, that’s where we are focused.

And I think the positive is we have a new team and they are coming into the own, and from a production standpoint we are really looking forward to seeing advancements as we move to the next couple of quarters. But we have the assets, we’ve got a quality, we’ve got the team in place, now it’s time to execute and derive that number on..

Okay. That’s helpful. And then just following up on earlier question just it relates to your comment about potential disposition activity from here, any particular themes as you think about continuing to recycle some capital I think in the past you’ve mentioned one in the recycle with just a handful of single tenanted assets.

Just any more thing that you can add as far as what you would look to exit..

I don’t think it would be as macro as what we have just done that was very geography-based and segment. We looked at it that from the perspective of those markets. Today it’s going to be more about the individual assets and their growth profile. We are very focused on growing cash flow, that’s what drives this business.

So if we feel like we are in a position where we can’t grow cash flow or cash flow is at risk in a particular asset, then that’s a kind of property that we would look to dispose off and trade in two, hard look to buy an asset to replace it that has a better profile.

And also the quality, we are wanting to make it very clear that the lot of the results that we are driving and that people are seeing are because of the quality of our assets as well as other people. So I think we’ve really turned the business around in that regard and we are going to continue to do that..

Okay.

And then just going back to the question as far as the cap rate compression and the deal environment, as you think about the secondary markets in the Excel, how much do you think cap rates have moved call it year-over-year since beginning of the year even, how do you quantify that?.

Sure. I think it’s moved down in every segment. So I think this is the typical thing what happens is that, whatever you want to define as the gateway cities, they compress and then it goes from there.

And I can tell you that in every high quality property that we have looked at and pursued, whether that be in Dallas, whether that be in Orlando, whether that in any of the markets we are in, in the East Coast and New Jersey and Texas, and Oklahoma city, all of the assets we’ve looked at that we deem as the kind of quality we want to buy.

Those don’t trade with the six in front of them anymore. You have to get them there.

They are all trading kind of in that mid 5% depending on what it is mid to high 5% and that’s just the reality of the market and it doesn’t surprise me one bit based on guys like us can come in and grow the NOI, and reposition the assets with our national relationships and they come out the other end worth more.

So it’s where it is and in my personal opinion that has so much to do with the supply and demand characteristics of institutional quality real estate that far exceeds what’s going in with any other thing that you would look at..

Okay.

So would you say that, that you’ve seen cap rates by compressor are moved this much in the secondary markets as kind of top tier gateway city markets?.

Yeah. I think on a percentage basis right, so if we are buying something that we think is a high quality asset in a market that we like, like Dallas for example, if that asset was trading in one of the deemed great gateway markets you are going to knock another 50 basis points off it at least.

So that’s why you see pricing where it is and there is real opportunity there..

Okay. And then one last one and I will turn it over.

Just on the acquisition front, any discussions or opportunities that you see as far as to acquire some non-owned anchor space across the portfolio?.

I mean we are always talking to our customers, our tenant about opportunities like that and – but those aren’t as plentiful as you might think.

But there are opportunities, for example, where with some of the larger box guys like Target, for example, where we are going in and working with them in conjunction with them to monetize excess real estate, for example, where we can create outparcels together and where we can try to do things together.

So, yeah, I mean, I think it’s just another example of how rare it is to get great real estate. I mean that’s why you see these guys monetizing those assets because people are desperate to get high-quality real estate..

Okay, great. See you guys in a couple of weeks..

Thank you..

Your next question comes from the line of Tammy Feak with Wells Fargo Securities. Please proceed..

Thank you. Good morning..

Good morning..

I’m just curious, last quarter you were fairly confident in surpassing the $80 million you had in acquisition guidance and obviously you’ve increased the guidance thereto $125 million.

I guess is there still some ability or desire to do more than that this year or cap rates at this point somewhat prohibitive?.

I mean, I think, there is a desire to do more Tammy assuming that we can kind of continue to execute acquisitions like the deal we did in Dallas.

So we are definitely working on couple of other transactions and we would like to do more than that and, of course, that’s why we raised it to $125 million because we obviously think a couple of them will happen. But we are being selective and we want to find things that we think we can grow because of the competitive nature.

We are not afraid to buy high-quality real estate at a fair value, but we really would like to be able to grow it. So that’s what kind of makes it tough to just throw a specific number out because everything we are doing is very specific..

Okay.

And then, I guess, what your – maybe following up on that what’s your appetite for maybe larger portfolio acquisitions today and then how scalable do you think your ground platform is?.

Well, to the second question, I think the platform is very scalable.

I think the great thing about what we’ve done in the last year and a half because this goes back to Och-Ziff before the Inland acquisition is it really made us dig in and then understand a platform and really dig in and understand – really literally what do we need per property, what do we need per tenant, what do we need to do in asset management, what do we need to do in leasing, what do we need to in accounting, finance, et cetera, where we feel very comfortable that we can judge our capacity and also know what we would need to add to it.

And just remember that we did add a lot of people when we did the deal – the two deals, but we were able to very quickly integrate that. So we feel very comfortable with scale.

The other part is trickier from a portfolio perspective, how much of that portfolio is strong, I mean there is a couple of portfolios that people have talked about that are floating around that we passed on based on the fact that we weren’t willing to take on several weak properties to get a handful of good properties.

So we are always going to make sure that the real estate drives it. So we are looking at everything. I mean if we get the opportunity, if we get presented the opportunity, some of these things sometimes you don’t get presented them and you can’t do anything about it. But as long as we get the opportunity we will look at it..

Okay great thanks.

And then I’m sorry if I missed this, but what was sort of better relative to your internal expectations that gave you comfort and increase in the annual NOI growth guidance at this time, was it the cost efficiencies in insurance, tax savings that you talked about or lower tenant follow-up maybe you could just give some color on that, thank you..

Yes, I think it was everything, I think when you go back and look at the composition of that 4.4%, over half of that was just through contractual rent and CAM and things that we were able to drive just from our leases. And then the other half of it was through the compression of economic occupancy, having tenants actually begin to pay rents.

So based on the fact that that was a good blend and we can look out into the future and mind you that we've been pretty clear that that number will move around, but we were comfortable that at the end of the year that we feel pretty good about going into the end of the year and where we will be..

Okay and then just last one, you talked a little bit about Florida, but I guess I'm just sort of curious where you think Florida is in the recovery compared with maybe some of your other markets?.

I think as we mentioned, I think Florida has recovered very well. I think that the state has done a nice job of diversifying the economy away from solely tourism that it was once before and now you’ve got these very interesting markets. Florida is like three states, North Florida, Central Florida, and South Florida all very different.

They all have their own very special unique opportunities well represented in all three of those kind of many states if you will and if you look at the growth, Florida's growth and both Florida and Texas growing at a better place than most of the other states.

We feel good, I mean look we've got work to do, we've got a lot of properties there, we have opportunity to increase our shop occupancy there, but we have a great asset. So this is like we're pretty fired up about the opportunity there..

Okay great, thank you..

Thank you..

And your next question comes from the line of Nathan Isbee with Stifel, please proceed..

Hi good morning..

Good morning..

Good morning..

Just looking at your anchor lease expirations for next year, just was about 26 or 27 of them were significantly below the average of the rest of your portfolio, can you just comment about how many of those are true expirations without options and what type of visibility you have in terms of releasing them or replacing them and what type of rents?.

Yes, I think first of all when we look at over the next two years Nat, this year included since we still got a big chunk of this year, you know we've got 35, I believe leases coming up in the next two years. The great majority of them have options.

So over 70% of them have options, but those actions have bumps, I think they average around 8% on the ones that have options. So, you're talking about maybe of that maybe less than 20% of them do not have options.

So that's a good opportunity, that's probably like six leases that's a very good opportunity for us, but when you look at it, I would say that you would look to the fact that the majority have options, but the good thing is event those options have a better average of an 8% increase..

And the 30% that don't, I mean what type of spreads can we expect?.

I mean, I think it's deal by deal, right. So if you look at the overall average you're looking at rents that are pretty far below our total average right. So if you're looking at something that's expiring at nine bucks, you know on an anchor lease, there is going to be good opportunity there, I mean that's I think it's probably 40% below our average.

So, I think, but again it's case by case Nat, it will also depend on do we want to put capital in, do we not want to put capital in, these are things that will drive the ultimate spread, but I feel pretty comfortable that over the next two years both in shops and anchors that we have good opportunity there..

All right, thank you..

Thank you..

There are no additional questions. At this time, I would like to turn the presentation back over to Mr. John Kite for closing remarks..

Well I want to take the opportunity to thank everyone for joining us today. We are very excited about the opportunity to continue to drive the results and we look forward to talking to you next quarter and hopefully some of you I see [indiscernible] in Las Vegas in a few weeks. Thank you..

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect, have a great day..