凱特房地產集團 (KRG) 2026 年第三季財報電話會議：隨著租賃業務強勁而上調財測指引

重點摘要

• Kite Realty Group Trust 2026 年第三季每股核心 FFO 為 0.52 美元。同店淨營運收入 (NOI) 年增 3.6%，今年以來累計成長 3.7%。
• 管理層將 2026 年每股核心 FFO 指引中位數上調 0.01 美元至 2.08 美元至 2.12 美元。同店 NOI 成長展望上調至 3.4% 至 3.9%。
• KRG 簽署了 160 份新租約與續租租約，面積超過 120 萬平方英呎。綜合可比現金租金價差為 14.6%，其中續租價差為 33.7%，非選擇權續租價差為 18.3%。
• 零售租賃率達到 95.3%，季增 50 個基點，年增 140 個基點。已租賃與已入住率之間的差距達到創紀錄的 360 個基點，相當於 3,880 萬美元的潛在 NOI。
• 自 2025 年初以來，Elevate 專案透過出售 22 處非核心資產籌集了超過 10 億美元。KRG 以 24.46 美元的平均價格庫藏股買回約 2,200 萬股，總額約 5.39 億美元。
• KRG 在本季結束時的淨債務對調整後 EBITDA 比率為 5.2 倍，流動資金約 11 億美元，且近 90% 的 NOI 來自無擔保資產。惠譽將該公司的信用評等上調至 BBB+，展望穩定。

核心財務數據

同店 NOI 成長包含：內建租金上漲貢獻 183 個基點、租金價差與入住率提升貢獻 115 個基點、壞帳減少貢獻 25 個基點，以及超額租金增加貢獻 22 個基點。

業務與營運表現

KRG 第三季的租賃活動覆蓋面積超過 120 萬平方英呎。該公司完成了 160 份新租約與續租租約，綜合可比現金租金價差為 14.6%。續租價差達到 33.7%，而非選擇權續租價差為 18.3%，這兩項指標均創下 2026 年的最佳表現。

零售租賃率升至 95.3%。主力店租賃率提升 190 個基點，而小型店面租賃率季增 40 個基點、年增 90 個基點至 92.7%。

管理層將小型店面視為重要的成長槓桿。自 2022 年第四季以來，小型店面佔年化基礎租金的比例增加了 700 個基點。據該公司稱，小型店面的平均租金每平方英呎接近 38 美元，是投資組合平均水平的兩倍以上。

已租賃與已入住率之間的差距擴大至創紀錄的 360 個基點，相當於 3,880 萬美元的 NOI。管理層預計其中約四分之一的 NOI 將於 2026 年第四季開始貢獻，約 2,400 萬美元將在 2027 年期間陸續開出。

自 2024 年初以來，KRG 已與 38 個品牌簽署了 67 份主力店租約，覆蓋面積約 160 萬平方英呎。全國性租戶佔這些租約的 91%。可比現金租金價差為 31%，資本回報率據報導為 29%。

投資組合的內建租金成長「巡航速度」達到 188 個基點，自 2024 年初以來提升了 32 個基點。管理層表示，大部分改善來自租賃活動而非資產出售，並預計該成長率隨著時間推移將朝 2% 邁進，但並未提供確切的時間表。

Elevate 專案與資本配置

Elevate 專案已接近尾聲。自 2025 年初以來，KRG 已出售 22 處非核心物業，金額超過 10 億美元，並以約 5.39 億美元庫藏股買回約 2,200 萬股，平均買回價格為 24.46 美元。

該計畫還排除了 60 多個面臨風險的主力店位置。五家列入觀察名單的租戶已從 KRG 的前 25 大租戶名單中剔除。

KRG 在本季結束後完成了以 3,300 萬美元出售 Carillon 醫療辦公大樓的事宜，並預計另一筆 1,900 萬美元的交易將於短期內完成。管理層還預計在 2026 年剩餘時間內透過另外兩處資產出售獲得約 1 億美元，並於 2027 年第一季獲得另外 7,000 萬美元。

據管理層表示，完成計劃中的 2026 年資產出售將產生足夠的稅務虧損，以抵銷今年早些時候確認的獲利，從而免去發放特別股利的需要。

9 月期間，KRG 透過 1031 同類財產置換以 5,200 萬美元收購了 Pella Manor 購物廣場的土地所有權。管理層估計，擁有完整所有權可使該物業的退出資本化率壓縮 75 至 100 個基點。

KRG 還在第三季以約 8% 的 FFO 收益率買回了 6,300 萬美元的股票。管理層預計 Elevate 專案的資金來源將超出資金用途約 2 億美元，這為因應 2027 年到期債務、買回股票或進行符合條件的收購提供了彈性。

管理層指引

管理層將 2026 年每股核心 FFO 指引上調至 2.08 美元至 2.12 美元，並將同店 NOI 成長展望提升至 3.4% 至 3.9%。

更新後的展望包含預計在 2026 年第四季進行的額外土地出售。管理層證實，該筆交易相當於每股約 0.01 美元的土地出售獲利。

針對 2027 年，管理層將 3,880 萬美元已簽約但尚未開業的待發放管道、合約租金調升的改善以及觀察名單曝險減少列為主要的潛在利多。此外，管理層也指出每股約 0.03 美元的非現金拖累因素，以及預期將不再有與 2026 年 1031 置換活動相關的高額利息收入。

管理層看到了小型店面租賃率邁向 94% 以及主力店租賃率邁向 98% 的途徑，但並未提供正式的租賃指引或固定的時間表。

風險與關注領域

• KRG 必須完成剩餘的資產出售才能免於發放特別股利。管理層表示，即將完成的交易閉合後，剩餘曝險約為 6,000 萬美元。
• 管理層表示，利率持續高企最終可能會影響交易定價。品質較低的資產已經被證明比品質較高的物業更難進行交易。
• 較高的債務成本使收購變得更具挑戰性，因為融資成本與初始物業收益率已經趨於一致。
• 2026 年的部分展望取決於土地出售收益以及其他經常性但難以預測的項目。這些項目在 2026 年指引中總計約 1,400 萬美元，而 2025 年則為 2,100 萬美元。
• 已簽約但尚未開業租約轉換為 NOI 的時間點，對於 2027 年的成長依然相當重要。

分析師問答亮點

資本配置：管理層表示，維護資產負債表強度仍是目前的優先事項，儘管 KRG 可以將預期的多餘資金用於庫藏股買回。根據公司的說法，將所有資金用於買回股票將使淨債務對調整後 EBITDA 的比率留在約 5.5 倍。其他選項包括償還 2027 年 4 月到期的 1.75 億美元 0.75% 可交換票據，或是尋求符合回報門檻的收購。

交易市場：KRG 將高品質露天零售資產的市場形容為相對穩定。管理層表示，品質較低的資產交易較難完成，而較強勁資產的定價總體保持堅挺。

租賃條款：管理層表示，房東在租金調漲條款、共同租賃條款、限制用途以及續租選擇權方面的談判籌碼有所提升。由於需求超過 KRG 市場的可用供應，租戶在店面規模與配置方面也變得更加具有彈性。

Legacy West：管理層表示，該資產的表現已超出最初預期。收購時平均零售基礎租金約為每平方英呎 65 美元，自此之後，排除可能的一筆大型餐廳租約外，KRG 未曾簽署過每平方英呎低於 100 美元的零售租約。

開發管道：One Loudoun 的零售部分租賃率已接近 80%。KRG 正評估額外的複合用途機會與潛在土地變現，但管理層強調未來的活動將在其資產負債表框架內進行評估。

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管理層陳述

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.

分析師問答

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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