Operator: And our next question comes from the line of Floris Van Dijkum from Compass Point.
Floris van Dijkum : Thanks for taking my question. So, John, I hear you talk about the discounted multiple and the lack of recognition in the market potentially for some of the significant improvements you’ve done. And I’m curious what your thoughts are to share buybacks because you are generating a fair amount of free cash flow after dividends, you are trading at a discount and your balance sheet, thanks to the work that Heath has done on the balance sheet, is the best or tied for the best or lowest leverage in the shopping center space. Why would you not at least show the markets that you’re undervalued by buying back even if it’s a small amount of stock?
John Kite: Sure. Thanks for the question. Look, I think, first of all — first and foremost, as a team and as a very focused operating platform, we have priorities. And certainly, when you look at the value creation aspect of our priorities, that is something that we think about and contemplate. I think that we will — as we move through the next 1.5 years, Floris, and we execute on our leasing plan, which we are doing rapidly, we will certainly be always evaluating that, and it becomes more and more compelling, the greater amount of free cash flow that we have distributable to — I don’t think it’s our job to go out and buy small amounts of stock to try to prove a point. Our job is to execute, lease the space, create value internally, make great allocation decisions as we have over the past couple of years.
And eventually, either the stock — the value of the business will be reflected, whether that be in the public markets, the private markets, whatever. So, I think — I don’t want you to think we don’t evaluate it because we do. But when we do it, we want it to be material if we do, do it. And we would hope that investors who do, do this for a living would recognize this very quickly.
Floris van Dijkum: John, maybe a follow-up question. I mean, obviously, you put out in your deck. I love the information you guys always provide in your supplemental deck or your investor deck with calls. Significant amount of your leasing over the last three years has had higher rent bumps than 3%, and also fixed CAM. And maybe if you could talk about what do you see as the result of that? What percentage of your existing in-place rents now have those kinds of escalators and CAM recovery? And what’s the upside? What does that do to KRG’s cruising speeds in two years to three years’ time?
John Kite: Yes. I mean the biggest impact to cruising speed would be on the rent side. Obviously, fixed CAM is important, Floris. But when you look at our total revenue, fixed — the CAM element, the reimbursement element is probably 20%, 30% of our total revenue. So, we’re focused on it. It’s impactful. And it’s also impactful operationally from the efficiency perspective and how we differentiate ourselves against our competition. So, we are focused on fixed CAM. And in terms of totality, in terms of number of leases, it’s probably around 50% of the leases that are outstanding. It grows rapidly by quarter. And I think at this point, people that do business with Kite expect that, and they know that is actually better for them.
So, we continue to grow that. And yes, it will help. But where it really, really is going to be helpful and more impactful from a time perspective is on the base rent side. And that’s why we talked about it. And I think we are absolutely the market leader and pushing that. And certainly, when you see that, we gave you the stats about our small shop business, I mean when you’re — when 70% of the deals that you’ve done in one quarter in the small shop business are at 4% or greater, that really indicates that we have a very focused plan organizationally, not just the people that you’re talking to on this call, organizationally. So, we’re wildly successful on that effort and that needs to be pivoted also into the anchor space. And I’ve been very open about the fact that I don’t think it’s appropriate that we, as an industry, have accepted 1% a year bumps or whatever it is when you do your discounted analysis of a 10% bump after five years.
So that’s also a focus, and we’re going to lean into that and that just has to be the entire industry leaning into that. And I think it will. I think as the supply-demand continues to look like it looks today, you’ll see the industry move. So, look, this is great. And remember, by the way, you’re getting these bumps with very good credit profiles across the board and very durable cash flow across the board. I mean look at what we’ve absorbed in the last several years in terms of the GFC and then COVID. So this business is a great business. It’s just going to — I just want the investors to recognize it.
Heath Fear: Floris, this is Heath. Also, if you look at our Naples deck, we gave a slide which talks about our cruising speed. Currently, we call it 2.5% to 3.5% is the cruising altitude. But if you’re just able to convert the small shops, like John discussed, within five years, that moves to 2.75% to 3.75%. And again, that’s not assuming any movement in the anchors. So, we’re hopeful that ultimately, we can see — get the anchors to also make similar moves in their growth rates. But this is planting seeds for better long-term cruising altitude to your point. So, we’re really, really pleased. And I think the numbers that John gave here, 70% of our leases in the small shop side have escalators at 4% or above. That’s just an incredible change than we were seeing two years ago. So, we are moving in the right direction.
Operator: And our next question comes from the line of Craig Mailman from Citi.
Craig Mailman : Heath, just on the penny coming from same store. How much of that is coming from bad debt versus just better other operational kind of metrics?
