Bryan McCarthy - SVP-Marketing & Communications John Kite - Chief Executive Officer Tom McGowan - Chief Operating Officer.

Christy McElroy - Citi Group Todd Thomas - KeyBanc Capital Markets Collin Mings - Raymond James Alexander Goldfarb - Sandler O’Neill Craig Schmidt - Bank of America Jeff Donnelly - Wells Fargo Linda Tsai - Barclays.

Good day, ladies and gentlemen, and thank you for your patience. You have joined the Q2 2018 at Kite Reality Group Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, this conference maybe 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's 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 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 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, David Buell. I will now turn the call over to John..

Thanks Bryan. Good afternoon everyone. While 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 rents 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 6.5 times and raising our liquidity level to nearly $1 billion.

We are also [technical difficulty] our new partnership with TH Real Estate, the products of several months of discussions about working together. We contributed three properties in exchange for 20% ownership interest and $89 million in net proceeds which we used to pay down debt.

We will continue to manage the day-to-day operations of the properties and receive management and leasing fees. The three properties we contributed were Livingston Shopping Center and 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. Transaction helps us take a substantial step forward in realizing our goal of lowering net debt to EBITDA to the low 6 times range.

As of June 30, our net debt to EBITDA was 6.5 times down from 6.8 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 will 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 further to strengthen all of our metrics. In regard to leasing, we continued making progress this quarter on our Big Box Surge initiative. We executed two additional anchor leases this quarter and our anchor lease was 95% as of the end of June 30.

In addition we maintained our small shop lease [technical difficulty] strong level of 90.4% highest in our peer group and 120 basis points higher in 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 two additional lease renewals combined cash rent spreads for the bill [technical difficulty] 24%.

Our 36 property is now stabilized with the least percentage of just under [technical difficulty]. With respect to the FFO 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 revised earnings guidance to reflect the contribution of the three 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 Citi Group. Your line is open..

Hi, good afternoon.

Just following up on the guidance just regarding the same-store guidance, can you talk about how the range is unchanged, but the year-end occupancy forecast is down? Is that a timing issue where the average occupancy doesn't change much but the least commencements are being pushed into 2019 or there are other positives to 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 [technical difficulty] are 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 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-pretty conservative shape there. So, I feel like that's reasonable..

Okay.

So, just to be clear, is lease commencement timing an issue here 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 in the beginning of the year and we [technical difficulty] Toys was intact and then filed back thereafter.

So, getting six of those boxes back all at once right now is obviously going to take time. So, yes, there will - and I said this last call, this is not a one-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 a release specifically the 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 had 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 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 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 a $100 million, $90 million of debt paydown, and actually all we did is, the midpoint of our guidance went down a penny. So, frankly pretty good transaction when you think about from a deleveraging perspective and the impact on our earnings.

And again that’s half way through the year, so you look at next year and you’ve got a whole year of that, right? And, then what was the second part, 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 delusion, 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 factor into that cap rate. So, when you look at all three deals that we sold in, it’s kind of blend in the high 5 cap off of the NOI that we currently had. And, we say that from the perspective of where people are trying to figure out valuation, etcetera.

But so that - there was no fees associated with the cap rate..

Okay. Thank you..

Thank you..

Thank you. Our next question comes from the line of Todd Thomas of KeyBanc Capital Markets. Your line is open..

Hi, thanks, good afternoon.

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

Well Todd, there is nothing specific that I would point you to right now, this is just what we are looking at is potential. So, all options are open to us.

We would look at either quite frankly, 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 another - that’s another bucket of capital for us to turn to in different scenarios.

But in terms of $100 million, there is really no timing on that, that’s just me simply saying that we are 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 are making excellent progress, we are close and that’s all, the sense of what we would need to do to get there and that’s what we intend to do. But there is not a timing associated with that..

Okay.

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

Yes, look, I mean, one of the things I mentioned or we’ve talked about with the investment community with them directly is first of all, this is a great group, I mean, they are one of the largest asset managers out there and real-estate over a $100 billion of assets. We are very fortunate to partner with them.

And, I think we have a good working relationship and it’s - there 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 are 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 it’s a 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, three part - to the second part of that three parter, the lease percentage has been impacted, so it’s completely out of the end of June 30. The economic occupancy is yet to be, in fact that will be impacted in Q3 in the same-store. I think it’s going to be about just under 70 basis points impact to economic.

But as far as the least percentage [technical difficulty] and frankly, it’s just out of everything, they’re gone. And, so we’ve taken that into account and 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 of the NOI’s, we’ve got some other things happening, that’s kind of [technical difficulty] relative to the other boxes we’ve gotten back in the past [technical difficulty] sports authority and others, there is a tremendous amount of interest around this as you probably follow 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, just these things take time. So, I wanted to - everything we are doing, all of the numbers we are putting 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 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 are in pretty good shape specifically relating to Toys as it relates to the mark 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? Tom, you want to add?.

The only thing I’ll add to that Todd is that four 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 talked about in the past how other bankruptcies such as sports authority, those are in the 40s, which are a little more challenging, but we feel good about where we are positioned without saying too much moving forward..

Okay, great. Thank you..

Thank you..

Thank you. Our next question comes from Collin Mings of Raymond James. Your line is open..

Thanks. Good afternoon, guys..

Hey Collin..

First question John just as you contemplated the new JV as you have evaluated additional feature opportunities.

Maybe talk bigger picture, how you think about the tradeoff there kind of delevering and recognizing some value versus adding some structure complexity of the company?.

Sure. 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 pointed out in the past I think that we are not - we or they are not obligated to do anything more than what we have 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 cost of capital this is pretty attractive.

So and we also - and we are 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 are 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 as I mentioned we are very close to achieving our goal in terms of our low 6x net debt 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 JV or is there something else there just tied to maybe some of the future assets, as you’re contemplating that driver - that impairment charge?.

It would be latter, there is nothing tied to the contribution that Joint V - 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, they’re looking at potentially shortening the holding period or actually shortening the holding period creates that impairment, so it’s that simple. And, yes [technical difficulty] where we go, and hopefully we will be able to do these things in little of time..

Okay.

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

No, it’s not a formal timeline. But obviously we are actively looking at it and we like to get something done. But what I’ve always said about that is we are very focused on fair value. So, we will not sell assets below fair value and if we find the right mix and the right opportunity, I will do it.

If we don’t we won’t, so it’s something that we want to do, but we don’t have..

Okay.

And, then John just maybe just as you’re focused on this delevering, 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 have done so far, we delivered a little over $70 million in the last couple of years and almost 9.5% return. There is probably another [technical difficulty] out there that were most 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 has 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 very good stride there.

We know exactly what we are doing, we know what the expense are going to be and we want to continue to retain that very healthy balance sheet which in a sense where we could be heading into different times you never know. So, we’ll be positioned very well regardless 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 are very close obviously and then deploy capital into these boxes over the next whatever 15 months and then assess it from there..

Appreciate the color, John. I’ll turn it over..

Sure..

Thank you. Our next question comes from Alexander Goldfarb of Sandler O’Neill. Your question please..

Hey, good afternoon, everyone out there.

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 there. So, the majority of that, I mean, like 70 plus percent of that number of that ratio is Toys and then you’ve got, I think we probably have an Office Max in there and a couple of other small things. So, that really Alex is a fact that’s just Toys.

And, economic occupancy, no 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. Sorry go ahead..

Okay. No, no, that’s cool, sorry..

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

Got it.

And, it sounds like you are not using nearly as much as you anticipated?.

Well, we didn’t in the first half of the year, second half goes..

Okay.

And, then $3 million in the land gains 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 - anything can happen, but at this point there’s nothing else budgeted there..

Okay.

And, then just finally, if we think forward, it sounds like you’re increasing your dispositions by a $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 we’re missing some positives that will offset the sales?.

Well, I mean, look there is no doubt when we are selling assets and turn paying down debt, that’s going to impact FFO. So, we are clearly saying that our objective is the lower debt EBITDA to the point where we think its long-term sustainable and that’s what we are 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 offset from that, there is financing thing going on. So, yes, and there’s 3-R, NOI, we’ve got to remember, there’s another $5 million of NOI coming from 3-R.

So, 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..

Okay. Thank you, John..

Thank you..

Thank you. Our next question comes from Craig Schmidt of Bank of America. Your question please..

Thank you. I mean, we’ve all noticed the overall cadence of store closings has slowed nationally. I’m just wondering and maybe this is 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 the year end percent lease?.

Well, I’ll start and Tom can add. I mean, in terms of, look, when we look out over the past, I think five quarter, we 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 five quarters for us just in our company.

So, generally that’s a positive thing, as it relates to all this as it relates to our guidance with lease percentage, etcetera, 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 are dealing with, it 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 sentiment of the small shop operators? Obviously you have been able to hold your occupancy here north of 90, what is the sentiment, you are hearing from them?.

Look I think the fact that we're over 90 in this environment continues to bode well for our portfolio and our team. I mean 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 that 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 mission that we're getting right now. That's obviously [technical difficulty] so we hope that continues. .

Yes, I mean, if we can keep the small shop base healthy [technical difficulty] closures and continue to lease at the pace that we've been doing.

I mean 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 shops..

Yes, I think I’ll add to that Craig. 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 are that's not how we're thinking about our small shop objectives, just so everyone is clear.

We're looking at the small shop as a great way for us to bring in creative retailers to our [technical difficulty] because it is extremely important that [technical difficulty] interesting retail offerings, right? That, a lot of that today comes from small shop players.

So, it's as much about merchandising mix as it is about occupancy or at least percentage. And, I feel good about that.

I mean 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 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.

.

Thank you for the color. .

Thank you. .

Thank you. Our next question comes from Jeff Donnelly of Wells Fargo. Your question please..

Good afternoon guys. Maybe just to jump around a little bit John, I think you guys and some of the other folks in the space are trading in 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 you see signs that you're getting some convergence out there and I guess but if those conditions hold do you think that the dynamics will lead to privatization in this business? I guess how are you thinking about it?.

Well, I mean, I think we're focused on controlling the controllable 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 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, I mean, there's no doubt that it's there. 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'd - if this maintains, but it's hard to say. I mean obviously stocks can move fast in different directions, but right now I think it's pretty clear that there's a bit of a disconnect. .

And, maybe to switch gears, I'm curious what are you guys seeing in terms of the debt flows and new development starts in your market? I'm just curious I know supply has been relatively low this cycle, but we have seen it creep back a little bit.

Are the - is the movement on land pricing and construction costs, labor costs accelerating to a point where 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 the 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 concerns 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 [technical difficulty] standing and in that mode of want to do that, they're going to pay the rent.

So that’s the answer to 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 is okay, are we thinking that it's going to turn and all of a sudden we're going to turn around there's going to be a lot of new construction, hard to, I mean, that Tom may disagree, but hard for me to imagine any time in the near future that you see significant new construction now. Other sectors you see a lot of it.

You see spec construction, not in this sector..

Does that change the dynamic? I mean with even just redevelopment and leasing decisions right now just even thinking about things like TI packages and some of the redevelopment of particularly Big Box spaces, I guess, I'm wondering if you know 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 and thus 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 you end up with significantly higher steel prices and one of the things we've benefited is from reasonably low oil prices, right? So, I mean, it’s possible Tom..

Yes. Jeff, I don't see it as crippling percentage at this point. If you look at a 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, mix concrete, etcetera.

But ultimately if you think about a split box and you're saying $25 a square foot or whatever that number [technical difficulty] 4%. But these aren't crippling numbers, impactful numbers, but not something that's going to like stop the industry..

Okay, great guys. Thank you. .

Thank you. .

Thank you. [Operator Instructions] Our next question comes from the line of Linda Tsai of Barclays. Your question please..

Hi, how are you thinking about the interplay or priority between different considerations, mainly deleveraging vis-a-via the JV, selling assets outright and then the better scale that you acquired with inland deal four years ago.

And then by extension the 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 to be very strong as it relates to [technical difficulty] and as it relates to its available [technical difficulty].

I think there are a lot of people that have [technical difficulty] and generally when you get long expansions like we're in albeit 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 put the balance sheet in front of growth in terms of earnings and that hasn't 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 [technical difficulty] just being at that point where we can pivot and we can say very confidently our balance sheet [technical difficulty] anyone's not today but close and we're going to be 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 works - we've got more of a manageable cost of capital, then that changes that game.

So, I guess what I'm trying to say is we've been very thoughtful around this and we realize that it has impacted short-term earnings, but we view that as for the benefit of a very long-term game..

Thanks..

Thank you..

Thank you.

At this time I 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..