Teleconferencia de resultados del T3 de 2026 de Kite Realty Group (KRG): Eleva sus previsiones ante el fortalecimiento del arrendamiento

Puntos clave

• Kite Realty Group Trust generó un FFO subyacente de 0,52 dólares por acción en el tercer trimestre de 2026. El NOI de las mismas propiedades aumentó un 3,6% interanual y un 3,7% en lo que va de año.
• La dirección elevó las previsiones de FFO subyacente para 2026 en 0,01 dólares en el punto medio, hasta un rango de 2,08 a 2,12 dólares por acción. La perspectiva de crecimiento del NOI de las mismas propiedades aumentó al 3,4%-3,9%.
• KRG firmó contratos de arrendamiento por más de 1,2 millones de pies cuadrados repartidos en 160 operaciones entre nuevos contratos y renovaciones. Los diferenciales de caja comparables combinados alcanzaron el 14,6%, incluyendo un 33,7% en renovaciones y un 18,3% en renovaciones sin opción.
• La tasa de ocupación comercial alcanzó el 95,3%, lo que supone un aumento de 50 puntos básicos respecto al trimestre anterior y de 140 puntos básicos en términos interanuales. El diferencial entre espacio arrendado y ocupado alcanzó un máximo histórico de 360 puntos básicos, lo que representa 38,8 millones de dólares en NOI potencial.
• Desde principios de 2025, el proyecto Elevate ha generado más de 1.000 millones de dólares mediante la venta de 22 activos no estratégicos. KRG ha recompra aproximadamente 22 millones de acciones por un importe de unos 539 millones de dólares, a un precio medio de 24,46 dólares.
• KRG cerró el trimestre con una ratio de deuda neta frente al EBITDA ajustado de 5,2 veces, una liquidez aproximada de 1.100 millones de dólares y casi el 90% del NOI procedente de activos libres de cargas. Fitch elevó la calificación crediticia de la compañía a BBB+ con perspectiva estable.

Datos financieros principales

El crecimiento del NOI de las mismas propiedades incluyó 183 puntos básicos procedentes de los incrementos de alquiler contractuales, 115 puntos básicos derivados de los diferenciales de renta y aumentos de ocupación, 25 puntos básicos por menor morosidad y 22 puntos básicos por mayores rentas variables por ventas.

Rendimiento operativo y del negocio

La actividad de arrendamiento de KRG en el tercer trimestre superó los 1,2 millones de pies cuadrados. La compañía cerró 160 operaciones entre contratos nuevos y renovaciones con un diferencial de caja comparable combinado del 14,6%. Los diferenciales en renovaciones alcanzaron el 33,7%, mientras que las renovaciones sin opción llegaron al 18,3%, los datos más sólidos de 2026 en ambas métricas.

La tasa de ocupación comercial ascendió al 95,3%. El arrendamiento de tiendas ancla mejoró en 190 puntos básicos, mientras que la tasa de alquiler en locales pequeños aumentó 40 puntos básicos intertrimestralmente y 90 puntos básicos interanualmente, situándose en el 92,7%.

La dirección identificó los locales pequeños como una palanca de crecimiento clave. La exposición a este tipo de establecimientos ha aumentado en 700 puntos básicos como porcentaje del alquiler base anualizado desde el cuarto trimestre de 2022. La renta media en locales pequeños roza los 38 dólares por pie cuadrado, más del doble del promedio del conjunto de la cartera, según detalló la empresa.

El diferencial entre espacio arrendado y ocupado se amplió hasta un máximo histórico de 360 puntos básicos, equivalente a 38,8 millones de dólares en NOI. La directiva prevé que aproximadamente una cuarta parte de ese NOI empiece a contabilizarse en el cuarto trimestre de 2026 y unos 24 millones de dólares se incorporen a lo largo de 2027.

Desde comienzos de 2024, KRG ha suscrito 67 contratos de arrendamiento para tiendas ancla con 38 marcas, lo que abarca aproximadamente 1,6 millones de pies cuadrados. Los inquilinos de ámbito nacional representaron el 91% de dichos contratos. Los diferenciales de caja comparables fueron del 31%, con un retorno sobre el capital reportado del 29%.

La «velocidad de crucero» del crecimiento de las rentas integradas en la cartera alcanzó los 188 puntos básicos, un incremento de 32 puntos básicos desde el inicio de 2024. La dirección indicó que la mayor parte de esta mejora procedió de la contratación de alquileres más que de las ventas de activos, y prevé que la tasa avance gradualmente hacia el 2%, aunque no ofreció un calendario concreto.

Proyecto Elevate y asignación de capital

El proyecto Elevate está próximo a su conclusión. Desde el inicio de 2025, KRG ha vendido 22 propiedades no estratégicas por más de 1.000 millones de dólares y ha recompra alrededor de 22 millones de acciones por unos 539 millones de dólares. El precio medio de recompra fue de 24,46 dólares.

Asimismo, el programa ha eliminado más de 60 ubicaciones de tiendas ancla en riesgo. Cinco inquilinos incluidos en la lista de seguimiento han dejado de figurar entre los 25 principales inquilinos por volumen de exposición de KRG.

Tras el cierre del trimestre, KRG completó la venta del inmueble de oficinas médicas Carillon por 33 millones de dólares y prevé cerrar en breve otra transacción por 19 millones de dólares. La directiva también estimó ingresar unos 100 millones de dólares procedentes de dos ventas adicionales de activos durante el resto de 2026 y otros 70 millones de dólares en el primer trimestre de 2027.

Según la dirección, la concreción de las ventas planificadas para 2026 generaría suficientes pérdidas fiscales para compensar las plusvalías registradas a principios de año, evitando así tener que repartir un dividendo extraordinario.

En el mes de septiembre, KRG adquirió la propiedad plena del suelo bajo el centro comercial Pella Manor por 52 millones de dólares a través de una permuta fiscal 1031. La dirección estima que la propiedad total podría comprimir la tasa de capitalización de salida del activo entre 75 y 100 puntos básicos.

KRG recompró además 63 millones de dólares en acciones durante el tercer trimestre a una rentabilidad del FFO de aproximadamente el 8%. La directiva prevé que los orígenes de fondos del proyecto Elevate superen a las aplicaciones en unos 200 millones de dólares, lo que aportará margen para atender los vencimientos de 2027, realizar nuevas recompras de acciones o abordar adquisiciones idóneas.

Previsiones de la directiva

La dirección elevó las previsiones de FFO subyacente para 2026 a 2,08-2,12 dólares por acción e incrementó las perspectivas de crecimiento del NOI de las mismas propiedades al 3,4%-3,9%.

La perspectiva actualizada incluye una venta de terrenos adicional prevista para el cuarto trimestre de 2026. La directiva confirmó que la operación supondrá aproximadamente 0,01 dólares por acción en plusvalías.

De cara a 2027, la dirección destacó como principales impulsos potenciales los 38,8 millones de dólares procedentes de la cartera de contratos firmados pendientes de apertura, la mejora de las subidas contractuales de las rentas y la menor exposición a inquilinos en la lista de seguimiento. También señaló un impacto contable negativo sin salida de caja de unos 0,03 dólares por acción y la previsible ausencia de los elevados ingresos por intereses registrados en 2026 ligados a la actividad de permutas 1031.

La directiva vislumbra una vía para alcanzar una tasa de arrendamiento del 94% en locales pequeños y del 98% en tiendas ancla, si bien no proporcionó previsiones formales de contratación ni una programación temporal definida.

Riesgos y aspectos a vigilar

• Completar las ventas de activos restantes es indispensable para que KRG evite distribuir un dividendo extraordinario. La directiva detalló que la exposición pendiente ascenderá a unos 60 millones de dólares tras el inminente cierre de la transacción.
• La dirección advirtió de que unos tipos de interés persistentemente elevados podrían terminar afectando al precio de las transacciones. Los activos de menor calidad ya están mostrando mayores dificultades para ser comercializados en comparación con los inmuebles de alta calidad.
• El incremento de los costes de la deuda ha complicado las adquisiciones, dado que los costes de financiación y las rentabilidades iniciales de los inmuebles se han equiparado.
• Una parte de las previsiones de 2026 depende de las plusvalías por venta de terrenos y otros conceptos recurrentes pero impredecibles. Estas partidas sumaron unos 14 millones de dólares en la guía para 2026, frente a los 21 millones de dólares de 2025.
• El momento en que los alquileres firmados pero no abiertos se conviertan en NOI seguirá siendo relevante para el crecimiento de 2027.

Puntos destacados del turno de preguntas de los analistas

Asignación de capital: La directiva indicó que mantener un balance sólido sigue siendo la prioridad actual, si bien KRG podría emplear el exceso de fondos previsto en la recompra de acciones. Destinar la totalidad del capital a recompras situaría la deuda neta frente al EBITDA ajustado en unas 5,5 veces, según la empresa. Entre otras opciones se incluyen amortizar los 175 millones de dólares en bonos canjeables al 0,75% con vencimiento en abril de 2027 o llevar a cabo adquisiciones que alcancen los umbrales de rentabilidad exigidos.

Mercado de transacciones: KRG describió como relativamente estable el mercado de activos comerciales al aire libre de alta calidad. La directiva señaló que las transacciones con activos de inferior calidad son más difíciles de concretar, mientras que los precios de los inmuebles más sólidos se han mantenido firmes en general.

Condiciones de arrendamiento: La dirección afirmó que el poder negociador del arrendador ha mejorado en las cláusulas de actualización de rentas, de coarrendamiento, de usos restringidos y de opciones de renovación. Los inquilinos también se han mostrado más flexibles en cuanto al tamaño y configuración de las tiendas debido a que la demanda supera la oferta disponible en los mercados de KRG.

Legacy West: La directiva indicó que el activo ha superado las expectativas iniciales. La renta base media comercial era de unos 65 dólares por pie cuadrado en el momento de la adquisición, y desde entonces KRG no ha firmado ningún contrato comercial por debajo de los 100 dólares por pie cuadrado, sin contar un eventual contrato de alquiler de gran superficie para restauración.

Cartera de proyectos de desarrollo: El componente comercial de One Loudoun se acerca al 80% de ocupación. KRG está analizando nuevas oportunidades de uso mixto y posibles monetizaciones de suelo, si bien la dirección subrayó que cualquier actividad futura se evaluará bajo el marco de su estructura financiera.

Transcripción completa de la llamada de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Thank you. Thank you for standing by and welcome to the Kite Realty Group Trust Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Bryan McCarthy, Senior Vice President, Corporate Communications. Please go ahead, sir.

Bryan McCarthy

Thank you and good morning, everyone. Welcome to Kite Realty Group's third 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, please visit the Kite Realty about the factors that can adversely affect the company's results. Please see our SEC filings, including our most recent Form 10-K.

Today's remarks also include certain non-GAAP financial measures. Please refer to today's earnings press release available on our website, reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Adam Jaworski; Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw; and Vice President, Capital Markets and Investor Relations, Cooper Clark. Given the number of participants on the call, we ask that you limit yourself to 1 question and 1 follow-up. If you have additional questions, we ask that you please rejoin the queue. I'll now turn the call to John.

John Kite

All right. Thank you, Brian. Good morning, everyone. Strong leasing this quarter underscored the earnings power of our core portfolio as Project Elevate nears completion. We signed more than 1.2 million square feet of leases, further strengthened the credit quality of our tenant base, improved our rent escalators, maintained the strength of our balance sheet, and upgraded our credit rating.

During the quarter, we executed 160 new and renewal leases with blended comparable cash spreads of 14.6%. Renewal spreads were 33.7% and non-option renewal spreads were 18.3%, our strongest result of the year on both measures. Our retail lease rate increased 50 basis points sequentially to 95.3%, up 140 basis points year over year, led by 190 basis point improvement in our anchor lease rate. Our lease occupied spread widened 10 basis points in the third quarter and now stands at a record 360 basis points, which equates to $38.8 million of NOI. Roughly a quarter of that NOI is expected to commence in the fourth quarter, with approximately $24 million more coming online over the course of 2027.

The quality of that leasing matters just as much as the volume. Over the past few years, our team has been highly selective in re-merchandising the space that we've recaptured. Since the start of 2024, we've executed 67 anchor leases with 38 different brands, 91% of them national tenants for a total of approximately 1.6 million square feet at comparable cash spreads of 31% and a 29% return on capital. Two recent Container Store backfills tell the story. LL Bean at 1 Loudoun and Our House at South Lake Town Square, together at a combined cash spread of more than 50%. In each case, we added a best-in-class operator that drives traffic to the entire center, higher credit, stronger annual bumps, and concepts that bring shoppers back repeatedly.

While anchors have been a key focus in our re-merchandising efforts, small shops continue to see strong demand and leasing momentum. And that's where we see the most upside from here. Shop lease rate in the third quarter increased 40 basis points sequentially and 90 basis points year over year to 92.7%. Our exposure to shop space has increased 700 basis points as a percentage of ABR since the fourth quarter of 2022, accelerating our internal growth and de-risking our tenant credit profile. Additionally, our shop exposure commands average rents of nearly $38 a square foot, more than twice our average acre, while requiring less capital spent. Continuing to increase our exposure to shop tenants through selective capital recycling and pushing our existing shop occupancy higher is a top priority for our team and a meaningful lever for growth.

We continue to make incredible progress on Project Elevate. Since the start of 2025, we've sold 22 non-core assets for over $1 billion and repurchased roughly 22 million shares for approximately $539 million at an average price of $24.46, well below consensus NAV. Through Project Elevate, we've exited more than 60 at-risk anchor locations and 5 watch list tenants have rolled off of our top 25 list, leaving us with a higher quality portfolio and a more durable and de-risked cash flow stream.

That brings me to what matters the most, the core portfolio, and why we believe it positions KRG to deliver stronger organic growth with less risk over the long term. Compared with year-end 2022, power centers have gone from 19% of our ABR to 13%, while lifestyle and mixed use has grown from 21% to 28%. The centers we sold through Project Elevate averaged roughly $18.60 of base rent per square foot. That's about 20% below our portfolio today, carried embedded rent bumps more than 30 basis points below the retained portfolio. Our portfolio's cruising speed has reached 188 basis points, up 32 basis points since the start of 2024. And the vast majority of that improvement has come through leasing, not dispositions. We continue to see upside to current occupancy levels and expect our sign-not-open pipeline to remain elevated throughout 2026 and 2027. Our retail lease rate is still 80 basis points below our high water mark of 96.1%. We see a clear path to push small shops towards the 94% and anchors towards 98%. With 18 anchor spaces, roughly 485,000 square feet left to lease, and virtually no new supply, we believe there's plenty of runway left for occupancy gains.

Finally, a word on the capital markets. We believe private real estate capital remains under-allocated to open-air retail, and that's beginning to change. But capital alone does not create value in this business. Leasing, merchandising, and operating execution do. Platforms with experienced leasing teams and deep tenant relationships uniquely positioned to benefit. Our partnership with GIC is clear evidence that sophisticated capital partners value what the KRG platform delivers. And that dynamic is creating real opportunities for operators who can execute. Simply put, the work of reshaping KRG is nearly complete. We have a higher quality portfolio, a stronger tenant base, a fortress balance sheet, and a platform built to grow. I'd like to thank the entire KRG team for their relentless effort in getting us here and continuing to push forward. I'd like to turn it to Heath.

Heath Fear

Thank you and good morning. The third quarter results once again reflect the durability of our core portfolio and the discipline behind our capital allocation. We generated 52 cents of core FFO per share in the third quarter. Same property NOI grew 3.6% in the third quarter and 3.7% year to date. Same property NOI growth year-over-year was primarily driven by 183 basis points from embedded rent bumps, 115 basis points from rent spreads and occupancy gains, 25 basis points from lower bad debt, and 22 basis points from higher overage rent.

Reflecting our strong year-to-date results, we are raising our 2026 core FFO and NAVI FFO guidance by a penny at the midpoint to a range of $2.08 to $2.12 per share. We are also raising our same property NOI growth outlook by 15 basis points at the midpoint to a range of 3.4% to 3.9%. Considering our updated core FFO guidance in the context of our accelerating same property assumptions and other items, it's important to refer to page 5 of our investor deck.

On the transactional front, last quarter we anticipated $225 million of asset sales for the remainder of 2026. Yesterday, we closed in a $33 million sale of Carillon Medical Office Building in Largo, Maryland. In the very near term, we are expected to close on the sale of an additional asset for $19 million in gross proceeds. For the balance of the year, we anticipate closing on another 2 assets that will generate approximately $100 million in gross proceeds and an additional $70 million expected to close in the first quarter of 2027. The tax losses generated by the 2026 sales will be sufficient to cover the gains we generated earlier this year, and if completed, will thereby avoid the need for a special dividend.

Last quarter we anticipated $110 million of 1031 acquisitions. In September, we acquired the fee interest in the land beneath our Pella Manor shopping plaza in the New York MSA for $52 million through a 1031 exchange. Pella Manor is a high-quality center in a supply-constrained market anchored by Lidl and 1 of the top-performing wholesale clubs in the country. Acquiring the ground lease fee interest gives the full ownership of the real estate, and we estimate it compresses the property's exit cap by 75 to 100 basis points. Based on our ability to avoid a special dividend through tax law sales, we elected not to pursue any additional 1031 acquisitions and rather use those dollars to acquire $63 million of our stock in the third quarter and approximate 8% FFO yield.

When Project Elevate is complete, we expect sources to exceed uses by approximately $200 million. $130 million, which gives us real optionality. We could fund the majority of our 2027 maturities, including our $175 million of 75 basis point exchangeable notes due in April, repurchase shares when the math is compelling, or pursue acquisitions that beat our return thresholds. We also continue to evaluate opportunities to put our platform to work using alternative forms of capital at attractive returns. In the current environment, our bias remains toward balance sheet strength, and we will make those calls with the same return-focused discipline that has guided Project Elevate from the start.

Our recent capital markets activity underscores the strength of our credit. Late in the second quarter, we priced $345 million of 3.25% exchangeable senior notes due 2032, which closed on July 2nd. The coupon is 75 basis points inside the 4% notes it helped retire and approximately 200 basis points inside where we could have issued conventional unsecured debt. The initial exchange price represents a 22.5% premium, and with a capped call, our effective exchange price is $41.91, a 45% premium to our share price at the time of the offering. In September, Fitch upgraded KRG to BBB Plus with a stable outlook. This reflects our sustained operational performance, our execution of Project Elevate, and the further optimization of our capital structure. Earning an upgrade in the middle of a transformation of this scale, recycling roughly $1.1 billion of assets, or about 14% of our enterprise value, speaks to the quality of the portfolio we retain and the discipline with which we did it.

As of September 30th, our net debt to adjusted EBITDA was 5.2 times within our long-term range of low to mid-5 times. With no remaining 2026 debt maturities, nearly 90% of our NOI is unencumbered, and we have approximately $1.1 billion of total liquidity. Finally, we look forward to seeing many of you next month at the Navy Conference in Atlanta. We will outline the quality and earnings power of our core portfolio. Consider today a preview. We look forward to digging in further in Atlanta. Operator, this concludes our prepared remarks. Please open the line for questions.

Operator

Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. Our first question comes from the line of Jamie Feldman from Wells Fargo. Your question, please.

Preguntas y respuestas

James Feldman

Great, thanks for taking the question. Nice to hear that Cooper Clark name up in lights. Congratulations, Coop. I guess just going back to the, I'm sorry, go ahead.

Cooper Clark

Who said yes, it is good to hear that name in lights. Amen.

James Feldman

So I guess just, you know, we've heard from a lot of your peers about, you know, what's going on in the transaction market. Certainly, um, you know, whether it's opportunities to make capital infusions in certain parts of the capital stack, um, you know, some delays in deals getting done. Can you just talk generally about, you know, the stuff you're looking at and the stuff you're trying to sell? What is changing, if anything, in terms of, you know, how you're willing to underwrite and how maybe buyers are willing to underwrite and what's changing in their plans or their their Excel models.

Heath Fear

I think the transactional markets in general are still very robust. I think on the quality spectrum, for lower quality deals, you're probably seeing it's harder to get it across the line. For high quality deals, you're still seeing pricing fairly maintained. On the 3 assets that we have left to sell this year, for example, 1 of them is hard that's going to close very soon. 2 of them, thankfully, and got those under contract after the rise in interest rates. So the market's still moving. We're still seeing product hit. So we haven't seen any wholesale changes happening right now in the transactional markets. However, I will say if these rates persist at where they are, perhaps there's some opportunity down the road. You know, with a partner like GIC, you know, we can get things and we're going to get them. Or unlevered, we can get assets at a better price, or it certainly could be some opportunity for us. So it's certainly starting to make its way into the into the markets, Jamie, but we're not seeing any vast changes right away.

John Kite

Jamie, the only thing I would add to that is that, as you know, the vast majority of the assets that we and most of our peers own are quite high quality and the majority of that doesn't trade with debt as a primary metric to value the asset. I mean, obviously at some point in time, it's probably part of the analysis if you're going to finance something later, but the majority of these deals are done with cash, you know, certainly on the the higher end of the quality spectrum. As he said, at the lower end, certainly it gets moved around a little bit, but I would say it's actually remarkably stable considering the environment that we're in, not only from a rate perspective, but geopolitically, et cetera. So I'm quite impressed with how firm the market has been, frankly.

James Feldman

Okay, thank you for that. And then I guess just to frame if you're able to, like, you know, to the extent there ends up being a special dividend, how do we think about how large that might be or what needs to get done to not have one?

Heath Fear

Yes, so if we get all these sales done again, we won't have to do a special dividend. And the 1 cent, which is imminent, which is hard, after that closes, the total remaining exposure is around $60 million. So it's not a terribly large number, and you know, it's worth saying that a special dividend's not the worst use of your capital. But again, we feel very confident. We've got to do it. These other 2 assets under contract and hope to close those before the end of the year.

James Feldman

Okay, great. Thank you.

Operator

Thanks. Thank you. And our next question comes from the line of Andrew Reale from Bank of America. Your question, please.

Andrew Reale

Hi, good morning. Thanks for taking my questions. Maybe just first on the guidance. Just curious, what were the recurring but unpredictable items within the raise this quarter? And then I know the new midpoint sort of implies a bit of an FFO step up in 4Q. Just curious, what's driving that and if it's anything that would sort of carry over into '27 as a run rate.

Heath Fear

Yes, so the land sale that you see in the unpredictable item on page 5, that was actually anticipated. That was sales in 2 over 2s at our Loudoun project. But we also have in the guide an additional land sale that was not in the guide before, which is happening in the fourth quarter.

Andrew Reale

Okay, thanks. Um, maybe just to follow up on that. Just be curious, maybe Heath, if you could talk through some of the main puts and takes for '27. I guess that would sort of include, you know, full year impact from Elevate, some interest impact from, you know, your recent and and some upcoming refis and then I guess just help us think through anything else that's sort of.

Heath Fear

Of a swing factor into next year. Thanks. I think, listen, the biggest tailwind obviously going next year is the organic growth associated with nearly $39 million of signed on open pipeline. Add that to the better embedded bumps that we keep building. You know, the watchlist exposure, which is where the sector is down, but in particularly down for Kite. So those are the great things that are happening for us going into the, into 2027. And then we've mentioned a couple of times, some of the headwinds, we still have about a 3 cent non-cash drag happening into 2027. 1 thing to be mindful of, which we've told people, is that we earned a lot of interest income this year because of our 1031 activity that's not going to repeat until next year. Those are really really the big big pieces that are moving around into 2027.

John Kite

I mean, the only thing I would add to that is you always got the line item of, you know, unpredictable items that reoccur. So that's something that most likely is a little less next year as well, but hard to predict.

Heath Fear

Yes, I mean in 2025 that number was $21 million. This year it's around $14 million. Past 4 years, it's averaging around $14 million. So we'll see. Yes, we'll see.

Operator

Thank you and our next question comes from the line of Craig Newman from Citi. Your question please.

Unknown Speaker

Good morning, guys. Heath, maybe just going back to your comment on the $230 million of excess proceeds and the optionality you have there. I'm just kind of curious. I get the – the maybe interest in paying down that, that really low interest rate debt versus the buybacks. But from a kind of financial standpoint, I mean, what's the cost of the disposition proceeds and what ultimately is less dilutive? Putting it to work into the stock today or, you know, paying down that debt. You guys already at 5.2 times debt to EBITDA, so leverage is not really a too big.

John Kite

I think it's a big of a consideration, I wouldn't think. Hey, Craig, I'll start, but let me just start and then Heath will take over. But I think as Heath said in his prepared remarks, I mean, what we're all about right now is having the most optionality as we go into the end of the year. And there's still some things that haven't occurred, such as these remaining sales. So I think it's important that we continue to kind of lean towards a little more conservatism in the near term. Obviously, if we pay down the debt with those proceeds, that's more dilutive than doing, you know, depending on where the stock is, than doing a buyback. But frankly, it's... as we've been doing this a long time and we're in a very volatile world. So we wanna be as strong as possible to take advantage of some opportunities that would likely occur if we did take a turn down, economically. That being said, we haven't made that decision, which is what we're saying is we're waiting to see how this plays out throughout the balance of the year. So I think I would say that we certainly lean to being a little more conservative right now. That's paid off for us in the past. Having dry powder and then taking advantage of opportunities. But that could change, right? So I think we're just going to be monitoring where things go over the next 2 months. Heath, you want to add to that?

Heath Fear

No, I think that's a great answer. We're not getting those proceeds over time. We got $30 million yesterday, we'll give them about $20 million soon, another $100 million in December, another $75 million in the first quarter of 2017. So as John said, we've got time to figure out what to do. I will tell you, if you look at our capital allocation menu, acquisitions have become a little harder, as debt costs and the year-to-year on an asset that would actually be complementary to our portfolio sort of converged. That makes it a little more difficult. You know, that 75 basis point, convert that's that could be either a temporary or permanent de-levering. So again, we could we could pay that off and decide to lever back up later. So it's just good to be in the drivers, you know, driver side position here and look at our options as we go forward.

Unknown Speaker

That's fair. Appreciate the commentary. Then, just John, you mentioned the path forward to 94% small shop, 90% anchor occupancy. What's the timeframe, particularly on that small shop, you think it would take to get there?

John Kite

As you know, Craig, we don't kind of lay out leasing guidance, but if you just look at the path that we've had in the last year, it's picked up substantially. Some high end shops this quarter. So I think in the next year, as we continue to push forward, you know, that's what our goals are. And the shop environment maintains strength. And 1 thing I would say about the shops, it's not just shops. Is shops contained in very, very strong, anchored, great shopping centers, right? So I think there's a difference to saying people are just throwing the word shop around. They're not all created equal. And I think we're very, you know, we're feeling very good about our portfolio and about the demand that we see. And if you just look at, I mean, you know, we always point to the 1 metric that we think is the most important when it comes to leasing, which is our non-option renewal spreads. 18% is really tremendous. Um, and I I've kind of lost count of how long it we've been in the double-digit range. I don't know, 5 years, 4-plus years. Again, we're not going to set timelines, Craig, but we feel very good about the trajectory.

Heath Fear

And, Craig, I mean, we obviously have some view into the fourth quarter, and we expect nice progress moving forward. So it feels pretty good.

Operator

Great. Thanks, guys. Thank you. Thank you. And our next question comes from the line of Connor Mitchell from UBS. Your question, please.

Unknown Speaker

Hey, good morning. Thanks for taking my question. Um, I guess I'd just like to maybe stick on that at least a spread. thoughts. So, I mean, first, I just want to point out that, you know, you guys had some really good results this quarter, pretty much every every type of lease uh outperformed the prior quarter. But just curious, was there really anything within that deal mix that boosted it or gave it some outperformance, or is this really just representative of the current environment and the demand for Kite's portfolio in space? Yes.

John Kite

Yes, I mean, I think it's broad-based, and we always try to make it clear that 1 quarter in leasing can be moved in any particular direction. But if you look at it over the past year and you look at the increase in the overall portfolio, that really shows you the strength. You know, our focus has been not only on, you know, rent bumps, but also the merchandising. And, you know, we pointed that out in our transcript, which was that, you know, we maybe have been a little more methodical than others about that. So perhaps it's why we're, you know, maybe catching up at this point in time, but that has really, is it going to pay significant dividends over time? Because the whole point of Project Elevate really isn't, it's not short-sighted, it's long-sighted in the sense that our portfolio is now going to grow at a much better embedded clip. Significantly reduced our risk. And over the past, say, year and a half, we've been very active in how we've wanted to prune the portfolio and position the portfolio. And so the point is that that's nearing the end. And so we should be able to take advantage of that over the next 3, 4 years. So, again, that's just a segue from your question, which is it is broad-based. The strength is broad-based. We mentioned how many retailers we've done deals with and the different brands.

Unknown Speaker

And look, the supply continues to be extremely muted. So it's a very favorable leasing environment. And the only thing I would add to that is if you look at the new spreads, which obviously came in very well north of 33%, that as the quality of the portfolio continues to enhance, you know, we're able to get great spreads with people like Flower Child, Viori, Sephora. And, you know, as the quality improves, we're going to continue and expect to see that spread improve with it.

Unknown Speaker

Okay, appreciate all the color. And then, you know, that that kind of improvement of the landscape and the supply-demand dynamic kind of tilting in your favor. I guess I'm just curious, you mentioned the strength of the non-option renewals, kind of what areas of the lease negotiation have you really seen some success, whether that's, know, trimming the options, the terms, maybe lower TIs or higher escalators, just kind of where have you seen the most success and then where are you kind of pointing towards the future of like what else to take advantage of in this environment?

John Kite

I mean, I think all of the above. Our particular focus is, you know, organic growth. I think we've been a leader in that respect when you look at what we've done in the last 4 years. And the rent bumps that we've been able to generate internally. And I mentioned that when you look at our cruising speed of 188 basis points, the great majority of that came through leasing, not through dispositions. So to be up that much in 2 years shows you that we've been successful in that. Focus as it relates to the lease itself, um, that's always a moving target and, you know, we've made a lot of improvement as has the space in the last couple of years. I don't think there's any 1 particular, you know, subparagraph that is more important than another. But certainly, you know, the landlord is in a much better position than it was, you know, pre-COVID.

Heath Fear

I would also mention this idea that the pendulum has swung toward the landlord. It really starts before the lease. I know we've seen that just in the flexibility of formats. You had tenants in the past where they were so strict about how wide, how long, how many square feet, and now the amount of flexibility that they're willing to adapt the spaces that really shows you that the demand is really outstripping the supply. At John's point in the lease, we're improving things like the co-tenancy clause, restricted uses. We're focusing heavily on limiting options. We're giving options. We're trying to do fair market value. So you're seeing every piece of the lease really go under a wholesale improvement.

Operator

I appreciate it. Thank you. Thanks. Thank you. And our next question comes from the line of Floris van Dyck. I come from Ladenburg Thalmann. Your question, please.

Floris Gerbrand Van Dijkum

Hey guys, thanks. Um, in light of the fact that the summit's uh, traded to 1 of your competitors. And this morning, University Village was announced to be bought by Simon. Could you remind us of your Legacy West acquisition and how that asset has performed since – since you've acquired it, how much have rents exceeded your underwriting if they have, and what has happened to your your NOI growth at that asset?

John Kite

Yes, I mean, hey Floris, it's well exceeded expectations. I think we said when we acquired it, the average base retail rent was like 65-ish and we thought we could get to about 30% of the rent roll over 3 years, I believe. And let's just say we, you know, we haven't done a lease in there below $100, uh a retail lease below 100, since we acquired it and outside of maybe a large restaurant deal. So, I mean, I think it's been fabulous. And we obviously have a partner there, so I'm going to be uh cautious with, you know, what we give you on NOIs and et cetera. But suffice to say, it's been very successful and frankly, just kind of, it's been on the same path that South Lake has been on, which is another asset in Dallas that we own, which is similar, which we have told you guys previously that the NOI has gone up tremendously in the 5 years that we've controlled it. So, you know, I think they're 2 good examples of high-quality real estate that we pivoted to utilizing capital that was growing at a much slow rate lower clip and we're very happy with it. So, you know, I think we'll continue to try to find those opportunities.

Floris Gerbrand Van Dijkum

Great. And then my follow-on question is regarding the cruising speed, by the way. Kudos for using that term. You know, it increased 3 basis points over the quarter. Is that sort of the organic rate that we can expect to see over the next couple of years as you, you know, roll your rents to market and improve the bumps that you're getting? Getting and all the terms that you're getting on your new leases? Or how should we think about that cruising speed as it evolves over the next, call it, 18 months?

Heath Fear

Floris just not really linear. I will tell you though that, you know, there may be some assumption that a lot of the cruising speed improvement was by virtue of Project Elevate, but 90% of that improvement is through leasing. So to the extent that we're going to be able to continue to drive, you know, better bumps, especially in the small shops, keep hammering on the anchors to try to get better bumps from them. Well. We do see that climbing towards 2. Does that take 18 months? Does it take 2 years? Not sure, but we will eventually get there. And then when we get to 2.4, we're going to set our sights on 2 and a quarter. So it's really been something that we've been focusing on. It's about creating long-term growth. Once these occupancy gains that we're all experiencing dry up, for us, we want to outperform, and that's the very first, that's the bottom rung of your total return is your bumps.

John Kite

Yes, Floris, I think basically, you know, quarter by quarter, it really depends on the expiration schedule and, you know, whether you're anchor heavy, shop heavy, et cetera. But when you look at it over the long run, I mean, we're... we're making progress on the anchor side of the business as well, which has been a little bit slower to get to than the shop side of the business. But now we are seeing some improvement there. And when we look at the statistics today versus 3 years ago, we're definitely improving. So I think that's it. It's moving in the right direction across the board.

Floris Gerbrand Van Dijkum

Thanks guys.

Operator

Thank you. Thank you. And our next question comes from the line of Todd Thomas from KeyBank Capital Markets. Your question, please.

Todd Thomas

Yes, hi, thanks. I wanted to ask on the $52 million acquisition of the interest to Pella Manor, appreciate the comments about the estimated 75 basis point cap rate compression on an exit by consolidating the fee interest there. But what was the yield achieved from eliminating the ground lease? And does consolidating the fee offer any strategic or future redevelopment flexibility, or was it just? An economic opportunity and really more valuable to own the fee. And also satisfy the 1031.

Heath Fear

Todd, in terms of the yield on the acquisition, we don't want to discuss individual properties. We'll discuss sort of the entire Project Elevate yield on a rolled-up basis in Atlanta. But listen, it was a very easy decision. You're looking at an asset that it's got a ground lease. I think we had maybe 54 years left of term. So we had plenty of term, but ultimately when you get down to 30 or 25 years of term, asset becomes harder to finance, it starts to lose value, harder to sell. So it was really a no-brainer, we had a ROFO, we liked the price, but the yield in terms of a ground lease was attractive especially what was on top of it, you know, Lidl, 1 of the highest performing BJs. So once we got the notice, we exercised it, we used it as a 1031. So it's just, it was a great deal all around.

Todd Thomas

Okay. Is Pelham a long-term hold for the company? Does that fit into the current core portfolio long-term?

John Kite

I mean, Pelham is, you know, obviously we believe in the asset or we probably wouldn't have done that. But even so, Todd, it's like it gives you so much more optionality when you have the fee, right? So I would say yes, it's an asset that we think is a great asset. Constricted environment in terms you're not going to see new development around there. You're probably familiar with that area. That being said, I mean, you know, we'll see. We'll see where the asset goes. As Heath said, we recently replaced a underperforming retailer with Lidl, and, you know, BJ's, is those fabulous business. So yeah, for now, I would say it is, but we'll see how that evolves. And if we were to decide to sell it, we think we would absolutely get back and more what we've just put into it.

Todd Thomas

Okay, that's helpful. And then if I could, just to clarify, Heath, I think you mentioned that the updated guidance includes an additional 1 penny land sale gain in the fourth quarter, is that right? So the third quarter was anticipated and assumed in the guidance, but there will be about a penny land sale gains in the fourth quarter? That's correct. Okay. All right. Thank you.

Operator

Thanks. Thank you. And our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your question please.

Alexander Goldfarb

Hey, morning out there. Two questions. First, Heath, congrats on the credit upgrade. Obviously, your stock is very attractive from a buyback perspective, but you guys also work hard on the balance sheet and obviously reflect in the rating upgrade. Are there limitations on the on the buybacks, as you look at the $200-plus million of cash that you have on hand, can you use all of that for buybacks, or are there balance sheet issues where you may like to, but from rating agencies or leverage, it may not be feasible?

Heath Fear

I mean, if it did the math, Alex, and we used all that to buy back stock, I think we'd be right around 5.5 times net debt to EBITDA. So we'd still be within a range of low to mid 5s, which I think obviously speaks to just the power of the balance sheet and our ability over the course of project, you know, elevate to sell $1.1 billion and a half. Assets in the buyback over a half a billion and not do damage to our leverage just shows you that, you know, when you've got leverage in the low 5s or high 4s, you can do a lot. So we could spend it all on buybacks to answer your question. But again, I think right now our bias is towards balance.

Alexander Goldfarb

Sheet, you know, conservatism. Okay. And then the second question is on small shop, you know, you spoke a lot about wanting to boost it up and more ability, especially with dwindling competitive availability. As we think about small shop, are most of the tenants that you're talking to like national or super regional where the rising 10-year really is a hindrance to their expansion. I'm just trying to understand if the changing credit markets have maybe caused some small shop tenants to pull back. But it seems like more small shop these days is national or super regional, and therefore their balance sheets are strong, even though they're focused on small shop.

John Kite

Yes, Alex, I mean, yeah, I think you're directionally correct that the majority of our shop business is either a national tenant or a franchisee with multiple locations, you know, utilizing a national platform. But we still have a healthy business in what you would call a national business. Consider the mom-and-pop business, which potentially would be more impacted by what you're talking about. But frankly, the majority of the mom-and-pops don't talk about the 10-year treasury. You know, their business is much more granular, much more local. A lot of this is self-financed, which is why it's a strong business. And if you go back to, you know, you go back to COVID, you know, that part of our business was probably the strongest part of our business, which was this idea that the mom and pops were going to do everything in their power to survive, and they did. We like the balance of the shop portfolio, but the point I was also trying to make is that I don't think all shops are created equal. And, you know, our shop portfolio is about 40% of our revenue, and it's located in fabulous, you know, shopping centers that are anchored and vibrant and, you know, so it could be grocery, it could be community, it could be lifestyle, which is why I think you've seen us really grow the rents in that portfolio. So long story short, at this point in time, we haven't seen anything that would give us any indication that that's a significant concern.

Alexander Goldfarb

Thank you, John.

John Kite

You bet.

Operator

Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. And our next question comes from the line of Michael Mueller from J.P. Morgan. Your question please.

Michael Mueller

Yes, thanks. So you have the 1 Loudoun expansion and the phase 2 resi expansions underway. Can you give us a sense if there's any anything from the future opportunities list in the sub that's close to being activated?

John Kite

Sure. I mean, I think, Michael, obviously our focus right now is on the 1 Loudoun opportunity, which is well underway and doing quite well. Um, you know, beyond Loudoun, there's a couple other opportunities that we're reviewing. Um, you know, there's some, you know, some opportunities to maybe actually monetize some land parcels for multifamily. I think for us, we're always looking at what the best outcome is historically over the last few years. We've been looking at joint ventures in the mixed-use components. But we also might look to monetize some of that as well. So I think right now that's the primary focus. I think as we get into 2027, maybe later in 2027, some of that may evolve. We are working on a couple really unique opportunities. But we're doing that within the framework of managing the balance sheet And as Heath just said, we're leaning towards great flexibility with the balance sheet, but that should lead to opportunities in '27 and '28. And beyond the future opportunities, since you brought up 1 Loudoun, 1 Loudoun has really progressed nicely. It's heading towards 80% lease on the retail front. It has a great environment with a really, really strong list of tenants, so that will help us continue to drive that overall asset long-term.

Michael Mueller

Got it. Appreciate it.

Operator

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to John Kite for any further remarks.

John Kite

I just want to say thank you to everyone for joining today and look forward to seeing everybody soon.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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