Q2 2022 Kite Realty Group Trust Earnings Call
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Ladies and gentlemen, thank you for standing by and walk through the Q2 2022 Kite Realty Group Trust earnings Conference call at the time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the special need to press star one on your telephone.
I would now like to turn the call over to your host Bryan Mccarthy you may begin.
Thank you and good afternoon, everyone.
Welcome to kite Realty group's second quarter earnings call.
Most of today's comments contain forward looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties.
Actual results may differ materially from these statements for more information about the factors that can adversely affect the companys 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 yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures.
Our GAAP financial results.
On the call with me today from Kite Realty Group are chairman and Chief Executive Officer, John Kite.
Didn't and Chief operating officer.
Mcgowan.
Decorative vice President and Chief Financial Officer Heath Fear senior.
Senior Vice President and Chief Accounting Officer, Dave fuel and senior Vice President capital markets and Investor Relations.
Miller Henshaw I will now turn the call over to John .
Alright, thanks, very much Brian and good morning to everyone.
While I'm very pleased to announce that <unk> has once again achieved outstanding quarterly results.
Despite the volatile macro landscape, we refused to get distracted and are attacking the opportunities in front of us with a continued sense of urgency.
In fact, one of our core values at <unk> is urgency.
And we will leverage this mindset to take full advantage of the strong demand for our high quality real estate.
As reported yesterday <unk> generated <unk> <unk> per share of <unk> 49.
Beating consensus estimates by <unk>, <unk>, and representing a 44% increase per share over the comparable period last year.
As set forth on page five of our Investor presentation. This massive year over year accretion is accompanied by meaningful improvements across every metric that historically correlates to earnings multiples.
Our same property NOI growth for the quarter was three 8% and four 9% year to date eight we'll discuss guidance and provide more details around the components of each metric, but suffice to say, we're outperforming both internal and external expectations across the board.
The primary driver of <unk> results has been the outstanding leasing demand, we're seeing across our portfolio.
We signed 206 leases, representing nearly $1 2 million square feet this quarter.
Drawn leasing volume was bolstered by superior blended cash spreads for a comparable new and renewal leases of 13, 2% excluding.
Excluding option renewals blended cash spreads for comparable new and non option renewals or 18, 7%.
For the first half of the year, we leased approximately $2 3 million square feet at a blended cash spread for comparable new and renewal leases up 14, 5%.
Our retention ratio for the quarter and year to date remains elevated at 90%.
The leasing environment for the <unk> portfolio remains extremely constructive.
Covid forced many retailers to re imagine the use of their physical footprint to best serve the consumer.
Five years ago, self checkout focus and curbside pickup did not exist in the same capacity as it does today.
The structural shifts and how open air retail is utilized by retailers and consumers as a resulted in an 18 month period of record low retail bankruptcies record high leasing volumes and brick and mortar sales growth outpacing the growth in e-commerce.
During our continuous discussions with retailers.
We're making long term real estate decisions to secure the best visit physical locations to serve their customer.
One of our major focuses for the balance of 2022 is delivering our $41 million signed not open pipeline, which is sector, leading on a percentage of NOI basis.
As a reminder, our signed not opened pipeline is contractually obligated rent that is scheduled to come online as outlined on page nine of our investor presentation.
Thus far in 2022 tenants have commenced rent ahead of our internal budget, which is a testament to the intensity and dedication of the <unk> platform.
In a period, where supply chain issues remain prevalent we're thrilled with our construction and tenant coordination teams ability to deliver spaces on time, coupled with the urgency retailers are showing to open the source.
Our team is acutely equipped to handle such challenges from a position of strength considering the breadth of experience we have in the construction industry.
Our signed not open pipeline bodes extremely well for our growth trajectory going into 2023 as the rents from those leases will be fully realized as a reminder, the $41 million of signed not open NOI is only a portion of the near term growth opportunity as shown on page eight of our investor presentation.
Please see our active developments and the balance of our portfolio to pre pandemic levels would equate to an additional $25 million of NOI coming online over the next few years.
Looking out across our sector the remaining near term leasing upside embedded in our portfolio is quite compelling.
While our near term capital outlays, primarily dedicated to leasing.
We continue to allocate and raise capital in a measured approach to improve our portfolio.
During the second quarter, we sold Plaza del Lago and Chicago for approximately $59 million.
At a cap rate that is extremely accretive relative to the assets that we've acquired in 2022.
The blended cap rate on our acquisitions. This year sits at 575% with Unlevered IRR is expected to be in excess of 8%.
In addition to our previously announced acquisitions in Dallas and Las Vegas, We acquired Palms Plaza, a 68000 square foot neighborhood center for $35 $8 million.
<unk> pauses as an infill location in Boca Raton, Florida anchored by a highly productive specialty grocer generating approximately <unk> hundred dollars per square foot in sales.
Year to date, we've completed $102 million of acquisitions in our target markets and $66 million in dispositions.
On the development front, we stabilized two projects this quarter shops at quarter field, and one loudoun residential shops.
Shops at quarter field as a 61000 square foot neighborhood center anchored by all D. An la fitness, which is 100% leased.
The one Loudoun residential project added 378 multifamily units to our exceptional development project in Loudoun County, one of the wealthiest counties in the country.
As a company we now have a financial interest in over 600 multifamily units and we're in discussions with joint venture partners to add up to an additional 1000 units over the next few years.
The one Loudoun apartments are approximately 90% leased which is output outperforming our initial expectations on base rent and absorption.
Which highlights the multi use demand at one loudoun.
Both projects were seamlessly transfer transition during the merger.
And with $80 million remaining to spend on our active developments, we are very comfortable with our outstanding capital commitments and relative in relationship to our balance sheet position.
<unk> is executing on each strategic initiative, we laid out when we announced the merger.
As the top five open air shopping center, REIT or increased relevance to our customers clearly evident in the strong leasing volumes at outsized spreads.
In turn we are adding high quality tenants and brands to enhance the merchandising mix in our portfolio.
We're also making progress on the value creation opportunities through completing the active developments and determining the best use for our land bank.
Each strategic benefit is.
It is operating on the shoulders of a rock solid balance sheet with our net debt to EBITDA now standing at five three times one of the lowest in the sector.
We've often been asked to compare the performance of legacy <unk> and legacy <unk> assets, both internally and externally we are reticent to bifurcate the two portfolios because they now operate as one.
That being said <unk>.
Extreme accretion associated with the merger was not just a function of the attractive deal terms bottomline across every meaningful metric the legacy Rps assets have benefited from the <unk> operating platform.
For example for the first three five years prior to <unk> ownership, the legacy RPI portfolio achieved non option renewal spreads of 4%.
Since the merger closed non option renewal spreads have been 13%.
This is a prime example of how <unk> has been able to create more pricing fiction friction and significantly increase rents across the very high quality portfolio from RPI.
Moreover, since we executed the merger on a year over year basis, <unk> increased <unk> by 44% increased our leased percentage by 230 basis points.
All the while delivering double digit blended comparable cash lease spreads and increasing our ABR per square foot by 6%. We've also improved key demographic metrics, including three mile average household income up 13% and three mile population up 34%.
I gave these metrics to drive home the point that the underlying quality of our portfolio has undoubtedly improved and our results speak for themselves.
Our team is laser focused on continuing to produce strong operational results to prove that we have.
A best in class portfolio with outsized opportunities for future growth.
The culmination of all the great things I've, just discussed is allowing us to raise our 2022 <unk> as adjusted guidance to.
To a range of $1 80 to $1 86, a <unk> <unk> increase per share at the midpoint.
We're also raising our 2022 the same property NOI growth assumption to a range of three five to four 5% an increase of $1 two 5% at the midpoint.
As always I am very proud of the <unk> team not only for their results, but for their extreme hard work and dedication and competitiveness.
<unk> is nothing without our people and our collective efforts, we've accomplished a lot of the team, but our best days absolutely lie ahead, I will now turn the call over to Heath to provide more color on quarter results et cetera.
Afternoon, and thank you for joining us today, our second quarter results are so compelling I'm going to skip the cultural introduction and dive right in.
For the second quarter <unk> generated 49 of <unk> per share both on a NAREIT and on an as adjusted basis as compared to NAREIT, our as adjusted <unk> results exclude the positive impact of $1 million of prior period collections.
Same property NOI grew by three 8% this quarter with 290 basis points of this growth being driven by contractual rent bumps increased occupancy and an increase in net recoveries. As you may recall, we had budgeted our same store results to be muted in the second quarter and accelerate into the back half of the year.
Due to our continued leasing outperformance lower levels of bad debt and expense timing our same store results this quarter beat our internal budget.
Given our same store guidance was increased to 4% at the midpoint. It is safe to assume that our same store growth for the balance of the year is expected to be largely in line with what we experienced this quarter.
As John noted earlier, we are raising <unk> as adjusted guidance by <unk> <unk> at the midpoint to a range of $1 80 to $1 86 per share the variance from NAREIT <unk> is approximately <unk>.
Which represents $2 million of prior period collections through the second quarter offset by our estimate of $4 million of nonrecurring merger related costs.
Approximately <unk> of the increase are attributable to same property NOI in the form of leasing outperformance lower bad debt and a higher retention rate. The other three are primarily attributable to unbudgeable land sale gains and termination fees.
Our full year guidance does not include any additional material amounts for these recurring but unpredictable items.
Furthermore, at the mid point of our <unk> as adjusted guidance, we lowered our bad debt assumption to 1% of revenues, which is at the high end of our historical bad debt run rate.
Our balance sheet and liquidity metrics not only remained strong but continue to improve our net debt to EBITDA is five three times down from five seven times last quarter and down from six four times from the same period in 2021 are steady decline in leverage is not only an indication of our commitment to a strong balance sheet position, but evidenced.
The EBITDA growth, we have experienced to date in.
In addition to record low leverage for <unk>, we had two key capital market transactions closed subsequent to quarter end we.
We increased the borrowing capacity on our revolving credit facility to $1 1 billion from $850 million, which is a more appropriate size of the company.
Our revolving credit facility is currently undrawn.
We also issued a seven year $300 million unsecured term loan, which is being used to address 2023 maturities and slots nicely into our maturity ladder and.
In connection with the loan we entered into a three year swap, which fixes the interest rate at approximately three 9%.
Currently only 7% of our debt is floating rate.
It's important to note that together these two transactions served to eliminate our refinancing risk through 2023.
Once the volatility has worked its way out of the fixed income space. We look forward to re embracing the public debt markets until such time, we have a variety of liquidity levers to finance our business at competitive rates our balance sheet is in a phenomenal position to not only weather any storm, but to also take advantage of any opportunities that present themselves.
To everyone for joining the call today operator. This concludes our prepared remarks. Please open the line for questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
We'll pause for a moment.
Okay.
One moment for our first question.
Our first question.
Okay.
Okay.
Lauren Your line is open.
Hi, Mike.
My question Floris here.
Yes Youre welcome.
Could you <unk> go ahead.
Yes, sorry, the connection was a little bad there.
So you guys just had.
Reported killer spreads.
No.
Strong lease volumes.
You are showing 44% accretion.
Based on the RPI transaction.
I'd love to get your comments on why you think your stock prices, where it is today.
Hey, Floris.
Great question.
Look.
From our perspective.
We knew when we did the transaction that do.
Due to many reasons, but particularly the size and complexity.
Doing a transaction like that that they would certainly be plenty of.
It would be pretty easy to sit back and say well, we will see what happens right, let's let's see what these guys can do.
It's more of a show me story and I think we understood that so now for the last basically two and two thirds quarters.
We've been a combined company and we have absolutely shown that and we've shown that we were.
The thesis behind this the thesis behind the combination was absolutely correct.
And we've now been able to demonstrate pretty concretely that it was a great transaction, so that being said.
The market when it looks at a show me at once it wants lots of data and we think we've delivered it.
Not going to sit here and say, what we think specifically.
The price should be.
That's more of your job.
The investment communities.
Desires, but I think candidly when you look at the data that we give you you know when you look at the NAV page for example that we put in our sub debt that not everybody does which gives you every component you could you could simply insert.
Our market cap rate for.
Quality shopping centers such as ours.
Our market cap rate for high quality ground leases.
And I guarantee you that would spit something out between 26% and $30, Let's say and then you look at earnings multiples from.
Real competitive peers that are generally between 14 and 16 and you look at where our multiple is so thats. Another metric that you could just easily kind of come up with that same range of number.
And then just NAV that are published by the Street.
Price targets et cetera, so everything correlates into a much higher stock price, we think we'll get there.
We do understand that people wanted to make sure that we were capable of taking on something as complex and this quickly integrating but it's because of the what I said before floors. It's the people that we have is the people that are now part of this combined entity.
You know these people pretty well, it's not only a competent group, but it's a very competitive group. So I think that will come shortly but certainly phenomenal opportunity as we sit here today for investors.
Thanks, John and maybe if I can if I can follow up with.
You guys have.
Probably your strongest balance sheets or financial health that you've had as a public company.
At least as far as I can I can recall.
And.
Obviously, the marketed and a little bit of a flux right now as people try to grapple with.
Higher interest rate.
And potentially higher cap rates could mean.
Where do you think could you could find some interesting opportunities maybe not today, but down the road.
Our existing markets and where do you think you could potentially deploy some capital.
Sure I mean in terms of specifically looking at opportunities.
Within the markets.
I think we've kind of demonstrated our ability.
To do that pretty effectively just yet just this year.
As I mentioned on the call we sold a couple of properties.
And bought properties in a very accretive manner.
Selling for.
For example, the property that we sold in Chicago and I use the word at an extremely accretive cap rate relative to our blended 575 and I mean extremely.
We can do that I mean, we have that ability to kind of pair those trades.
That's our focus right now, Florida because of the disconnect in the equity.
And the equity value, we're going to be smart about it we're going to look to pair some trades.
The fact that we've been able to buy in Dallas, and Las Vegas and now Boca.
Sell an asset in Chicago, we like that trade in.
So I do think there are opportunities and by the way as I mentioned on the prepared remarks.
Buying something in the mid to high five that has a growth trajectory that the ones that we did.
We can still deliver high sevens eights irr's, so I think thats very very intriguing, but when we're looking at capital allocation, let's be clear, we still have a lot to do in terms of lease up.
And it's great because it's just future upside, but we're going to be spending significant capital on the balance of this year and all the way through next year and lease up but if you just look at the returns Floris like for example of all the deals. We did this quarter I think we did like 180, whatever almost 190 total deals.
Our return on capital averaged 24% tough to beat that alright. So thats. The focus we have the development pipeline that we have another $80 million to spend we've been doing great. There as well and these are super high quality projects. So.
We look at as sources and uses across the board when we think about capital allocation and we look at returns right. So I don't know it was a long winded answer.
But.
A lot of opportunity there.
Thanks, John I can tell from Europe from your response, Youre clearly passionate about the opportunity at hand.
Absolutely the whole team is.
Thanks Scott.
For our next question.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your Touchtone telephone.
Our next question comes from Craig Mailman with Citi. Your line is open.
Hey, guys.
Quick question.
Yes.
Just to occupied spread contracted.
Quarter over quarter, but your SME.
Value went up $4 million.
That just a function of the loudon residential.
And the activity there or is there something else going on with on your line kind of rent levels.
No I just think for first of all it's the mix of what's opening what's being signed basically is why that why that contracted but the spread came out basically what I'm, saying Craig is that we are starting to ramp up our opening activities. So thats opening at a swift pace.
We're leasing again, but it all has to do with what mix of deals are you opening Olympics of deals are you signing so yes, the total amount increased but the spread has contracted.
Okay.
And then you guys lowered your bad debt expectations I'm just curious.
Is that tied to any one tenant.
A different way than what you had thought and could you just give an update on kind of what the watch list looks like.
No I think the reason we lowered it from one quarter to one is because we've got six months under our belt now.
And so our need to be conservative for a full year versus the need to be conservative for six months is different. So again I think it's basically just taking our actual bad debt results in <unk>.
To have a nice conservative outlook for the remaining of the year now we blend down to 1%. So I don't think Theres any there is no particular tenants there's nothing that we're worried about.
Again, as John said with record low bankruptcies sure Theres some folks on the watch list, but in the watch is certainly much smaller than it was pre pandemic. So we still feel very good about our collection rates and our bad debt levels going into the balance of the year.
Great. Thank you.
One moment for our next question.
Our next question comes from Todd Thomas with Keybanc capital markets. Your line is open.
Hi, Thanks. Good afternoon first question I, just want to follow up on.
The <unk> pipeline I guess, the leasing backlog and I'm just curious given the pipeline.
For leasing today and tenant demand today do you expect to see the pipeline continuing to grow from here or do you think it's sort of it's sort of peaked.
Commencements might might accelerate in the back half of the year.
Hey, Todd how are you.
I think we see it being relatively flat.
I think the next next quarter, we will see some nice nice growth on the anchor side.
But I think our cadence of tenants coming then that begin paying rent.
That's kind of be at a pretty good clip as we now we opened 61% of that number in 2022 and the balance in 'twenty. Three so we think it's pretty steady but.
We love the volume, we love the size of the <unk>.
We expect to maintain that level.
Okay and then.
Touched on sort of the developments and.
The pipeline a little bit in your prepared remarks, but I'm just curious if you could talk a little bit.
More about the pace of development leasing and demand for space at.
The projects in the active pipeline and also whether you potentially move forward.
Than expected on any future projects that are in the.
I guess the entitled Land pipeline.
Well, just just to touch on a few.
Landing that tradition.
That was a fresh market ground up deal.
Some small shop that is moving very rapidly.
We expect that project.
To move into full occupancy as scheduled in our original pro forma.
The the Loudon commercial.
Was there last week, it's moving along.
Extremely well with a with a group of tremendous tenants Sephora Lulu Lemon just a great lineup, so thats going well.
We're really on pace in terms of what we're expecting out of that portfolio then to the second part of your question of some of the future opportunities.
We have a lot that we expect to report on in the next quarter and we're making progress at carillon were making progress at one Loudoun in terms of some of our rezoning activities. Hamilton crossing is one where we will likely see strong activity in the next quarter, but I think.
For the most part we're very pleased where we are but we're going to probably hold off and provide more information next quarter on a lot of good things happening in that way.
Yes.
Okay, and then Heath.
Two questions for you one it looked like.
Recoveries contributed to same store growth in the quarter and I know the portfolio is a relatively high percentage of.
Fixed cam leases.
So it looks like pretty solid expense controls overall in the quarter do you expect to see a positive contribution.
Yes.
Going forward throughout the balance of the year do you expect a little bit more volatility.
In terms of expenses and recoveries.
So Todd answers sort of yes, and no as occupancy increases obviously, we'll see net recoveries go up however, as I mentioned in my remarks, we had some timing in the second quarter is getting pushed into the other quarters, which helped contribute to our outperformance on same store in the second quarter. So you'll have that sort of offsetting the occupancy increases.
B, the fact that we'll be spending more in the back half of the year.
See increases will be the fact that we'll be spending more in the back half of the year.
Okay.
Okay Alright.
Alright, great. Thank you.
One moment for our next question.
Our next question comes from Alexander Goldfarb with Piper Sandler Your line is open.
Okay.
Good afternoon out there and then.
<unk>.
Two questions, both sort of tackling something from two different ways.
John .
All of the retail costs have been Super strong on David's call. He spoke about.
Maybe some issues with teen and value.
But your call obviously very bullish are you seeing any impact at all any part of the of the of the retail or restaurant or tenant spectrum, meaning like are you seeing value customers.
<unk> back or are those.
Tenants pulling back or just everything across every tenant that Tom brings you youre like its goal thats great lets do it.
Okay.
Absolutely.
No.
Alex I think.
There's a lot there's a lot of narrative out there but.
Our our performance is our performance it's been very strong.
When we look at what's going on in Q3, there's really not anything that we see happening day by day in Q3 that is different than what happened in Q2.
There's very strong demand in the one great thing about the.
The open air platform is that we have such a diversity and particularly our platform I should say, we have a really big diver.
Diversity of tenants that we deal with on a daily basis.
It's just across the spectrum. So your specific question about value.
Seen that commentary around value retailers, but look at the value retailers that we're dealing with and the strength of those companies.
Like a T J R a ross or.
Burlington any of the guys that are in that category are very strong and as I said on my prepared remarks, they don't make real estate decisions based on short term environments.
They are making long term decisions so.
Is it possible that over the next few quarters, there would be a key.
<unk> here or there.
Of course, it's possible, but in terms of what we're seeing and what we're hearing every day.
There is absolute demand for the spaces, which is the friction that's creating the pricing power. So.
At this point I don't see any kind of material crack at all.
Suffice to say things change, but right now Alex.
Business is continuing to be very strong.
Let me ask you from this angle.
Some of the retailers I mean summary shows having great results great earnings great credits.
Others.
On the opposite side as you talk to your to your Compadre is.
At the tenants at the retailers and especially the ones where they arent having such good earnings are they saying anything different or I'm, just trying to understand and especially as it impacts the stocks when retailers print bad numbers, everyone goes Oh sell the landlord and I'm just trying to understand the linkage.
If there is one and if youre seeing anything.
Yes, I mean, it's a bit of a second derivative in that regard right because.
There is enough strength and.
Against a backdrop of relatively low supply. So sure. If there is a particular retailer that may have a problem. We at this point have others that want the space.
Anytime in the last.
Year, plus where theres been a well documented struggling retailers retailer, who we get inbounds can we review all of those spaces that you have with X Y Z tenant that continues so I mean, you've talked about this in the past Alex I mean, there has been almost no material addition.
<unk> two <unk> two high quality retail real estate in the last 15 years. So that is a massive part of this equation I think it enables us to kind of be selective.
Thank you.
Thank you.
One moment for our next question.
Our next question comes from Chris Lewis with capital One your line is open.
Hi, good afternoon everybody.
Just a couple of questions if I can.
I could.
Heath just on the recovery numbers I guess I'm, just curious as to whether or not you're starting to see any positive impact from sort of the type approach to the rps portfolio in terms of the recovery metrics.
Yes, Chris there's a couple of forms obviously.
And scale being able to purchase and scale and procure and scale. So we're just running the entire organization and the entire portfolio more efficiently and then just taking some of our best practices principles like fixed Cam for example, and we're starting to convert a lot of the.
Of the legacy RPI leases into fixed Cam our conversion ratio. So far this year is around 84%.
And so those absolutely been helping.
The recovery ratio so in general as I mentioned this before Youll see our NOI margin.
Start to improve in every 25 basis points of NOI margin improvement over this portfolio is one penny of <unk>. So as we have more time with this portfolio and we start.
Applying our our operating standards at our operating platform.
You should see those numbers revert back to historical norms, which was sort of 75% on the NOI margin.
High eighties on recovery ratios. So we think this is a gift that keeps on giving with that said, Chris it's not an overnight game, it's going to take us several years to get the portfolio back to the historical ratios we had before.
Great. Thank you for that.
John you talked about the sort of diversity of your portfolio geography product type.
I guess I'm just curious given the demand is the one area that you would highlight as being particularly strong whether it is product type or geography or box size that you say look that's where we're killing it.
Sure, Chris I mean, again I think.
Look in the mixture of assets that we have we had really strong performance across the board.
I mean theres no doubt that in the last couple of quarters lifestyle and mixed use assets have generated extremely positive rent growth.
But that's to be expected as the reopening.
Things of that nature so.
That would be an area I would look at that I think has been extremely positive by the same token.
Some of the spreads we've gotten in the box spaces, which are a little more power oriented have been very very strong again lack of supply strong demand.
And it's why we have continued to say we love the mixture of assets that this combination has created and I think it's second to none.
We can compete with anybody on quality, which is why I tried to mention in my remarks, the increases in quality are equal to the increase in <unk>. Okay. So I want I want investors and analysts in particular to focus on that one to focus on the fact that these results don't just come.
We drive hard but these are great assets so.
We loved the composition.
And then I guess last follow up question relates back to the capital allocation question.
<unk> got a strong ethanol pipe pipeline that will start producing.
We'll commence rents over the next several quarters.
Just on that alone should drive the leverage levels down.
Trading somewhere north of 7% on an implied cap rate, where do buybacks fit in your in your thought processes at this point.
Yes, Chris good.
Good question, obviously, when we look at buying.
Buybacks of stock, we look at that from.
With a lens of extreme intensity around capital allocation and sources and uses.
And balance sheet strength, so and the one thing that Heath mentioned in this call.
His prepared remarks was that literally up until.
A week ago.
We were looking at $500 million of debt maturities plus or minus in 2023.
With having to understand what the solution to that is.
The public debt market, obviously went away.
We're able to execute the team was able to execute at a fantastic.
Term loan.
And we enhanced the are we grew the line of credit by $250 million capacity, just that capacity in the $300 million term loan would address that risk so <unk>.
While that risk was out there we go.
Going to be very cautious around that on top of that we have as we mentioned.
You go back to Covid and one of the things that people may have forgotten is that we took a bigger hit on occupancy really than any peer.
But yet our NOI disruption wasn't as bad right in our rent collection was outstanding. So we're filling that space that takes a lot of capital. That's another capital allocation thought process that we look at and as I said on the call or on the remarks, we're generating 20 plus percent spreads on most.
Of that capital in terms of <unk>.
Lease up so.
In the it's in the Hopper, we're looking at it and we wanted to get this behind US now, it's something that we're going to take a much more.
We'll look at and we will see we will see where it goes it's definitely something that is a potential Chris but we're going to have to we're focused on leasing up space and generating returns as well.
Great. Thank you that's all I had this afternoon.
Thank you.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Number four our next question.
Our next question comes from Richard Milligan with Raymond James Your line is open.
Yes, Hey, good afternoon guys.
Most of my questions have been answered, but I wanted to focus on.
On the balance sheet, a little bit East next year, you have about $250 million of debt maturing.
Curious what the average interest rate is there and where do you think you can refinance it today.
Yes, so RJ thats, probably around between four and four 5% remaining for the balance of 2023 and again as we mentioned we're looking forward to the bond market define in which case, we'd like to be out in the public bond market in late this year early in 2023.
Good news is RJ and Youll see this disclosed in our in our queue.
We ended up doing a trade in late December of last year, where we did a forward swap in basically locked in the 10 year at.
154 basis points. So when we go out to do a new deal wherever the tenure is we'll have obviously this great trade and.
And so we think that we can probably.
Our refinance that debt with a new bond issuance again, taking into account. This this forward somewhere around between four and four in the quarter.
It should be relatively neutral in terms of interest expense on our ability to replace.
Replace that debt for 2023.
Okay. That's helpful.
Going back through my notes from the announcement of the RPI merger.
It certainly wasn't a big hammering point and I don't think you guys spent a lot of time talking about refined RPI debt, but.
Has the higher interest rate environment changed any of your accretion expectations, given obviously the higher debt costs.
How big of a part of the story our thesis was that.
Again over the next several years it seems like it will be relatively flat.
We modeled.
Where we thought we'd be issuing debt at when we were analyzing the merger. It was obviously at rates that are lower than they are now however, I don't think it's moving the accretion needle.
So materially that we wouldn't have done the transaction I think interest rates could be even higher than they are now and that this transaction based on the extreme accretion still makes sense.
Yes, yes, we underwrote Walter that costs, but we have so much tremendous cushion on accretion.
We're still feeling amazingly good about about the transaction, yes, I would just add to that our JV.
Definitely has not impacted what the results are going to be from the from the combination in fact as you can see the <unk>.
NOI growth the rent growth the speed of leasing those things are better than what we projected and of course, the quality of real estate.
I really want to hammer home the quality of the real estate is evident in the results. So we're hoping that the NAV accretion jumps out at people because thats significant.
I know you are seeing that.
So I guess fair to say that the the outsized sort of fundamental performance versus underwriting far out offsets.
Higher interest rates versus underwriting.
That's a good way of looking at it yes.
Alright, that's it from me thanks, guys.
Great. Thank you very much.
One of them.
Understood.
Our next question comes from Anthony Powell with Barclays. Your line is open.
Hi, Good afternoon question on leverage so you talked a few times about going down to five three times.
You have some.
Leasing capital and development, maybe some share buybacks, what's your current comfort level, taking that up as you pursue these opportunities at this point of cycle.
Anthony <unk>, our long term target of somewhere between five and five five so very happy where we are at five three I will say that obviously the leasing spend will start to increase as we start to turn on that $41 million of signed not open. So I wouldn't be surprised to see that leverage level creep up maybe to <unk> six are somewhat similar.
Around that neighborhood towards the end of the year, but EBITDA five six we feel very very comfortable in this in this current environment.
It's distractive balance sheet that really allows us to.
As John said to ignore this.
The growing course of uncertainty.
And just really focus on operations so our.
Our balance sheets in great shape, we're going to take care of our maturities.
And we're going to keep executing and taking advantage of the current environment.
Okay, Thanks, and maybe one more just.
We hear all the time about retailers in this environment.
What are you looking for to get more conservative what kind of tenant conversations would you be flagging to you got to.
See some weakness would it be coming from larger tenants small SaaS I'm curious kind of what tenants you think with weakness in this environment first.
What are you monitoring.
I mean look.
At this point, we're not seeing a lot of weakness I know people want to see it but we're not seeing it.
I think.
It really depends on the particular segment that we're talking about.
<unk>.
We monitor everybody.
You hear names that are struggling with some of their restructuring.
Bed bath or whatever but we continue to be very well positioned there with our real estate right. So I think.
To be honest Anthony this is opportunistic really.
Some of these tenants who are struggling candidly have lower rents.
Went through this with Stein Mart, we were so.
Unfortunately, COVID-19 was why it happened, but we got back those spaces and we've released them at really strong spreads. So we're totally comfortable with getting some space back.
Because of the demand exceeds the supply there so Tom anything.
You hear sometimes conversations about fast casual because you have you have the pressure of cost of goods sold you have labor.
But I think across the board, we're seeing these type of customers not trading down.
<unk>, Great example, where youre seeing people stay sticky within their lines and not trading down which is a great sign for the consumer as well as our customers, but we're going to always watch those four wall numbers, we're going to always watch health ratios, which we do.
As a standard practice, but so far we like how the consumer has been sticky and staying in their lines.
Alright, thank you.
Thank you.
One moment for our next question.
Our next question comes from Craig Schmidt with Bank of America. Your line is open.
Thank you.
There was a big pickup obviously in small shops.
In terms of lease I.
Im wondering is the month of July and August are you still seeing health.
Healthy appetite.
Despite the macro.
When headwinds.
Yes, absolutely we are still seeing a healthy appetite.
When we look at the quarter that just happened Craig.
As I said, we did one point.
A little over 1 million square feet of leasing the average size of those leases. There were 186 deals average size was 6000 seat. So that means we're encompassing all kinds of different.
Retailers and when we look at as I said I mean, we're basically sitting here in the third quarter were through July the leasing pace remains we had a real estate committee last week with 20 deals. We got one next week with 20 deals.
And again I know that people want some negative news to fit their narrative, but the reality is this is a strong business. We have a lot of choices and we have fabulous real estate to generate top tier results for the last two two plus quarters. So.
Still still looks pretty good man just to be a little more specific we are 89, three right now from a small shop.
Occupancy perspective were up quarter over quarter 80 bps. So it shows the strong strong quarter.
And the best part of that is we still have 320 basis points to get to a high level mark prior to the pandemic, which shows a lot of growth yet to come but John has hit it right. It's diversity. We can cover all forms it's not it's not the dry cleaner.
Subway Center anymore, we are drawn from everybody.
Which gives us just great opportunities across the board.
Do you think he can break 90% by year end.
I mean of course, we could.
Just a matter of continuing to push but Craig we've never been focused on that the metric of where the lease percentages. It's more about what's the quality of what's the cash flow growth, we're going to generate out of those deals. So.
We're not going to say exactly what we think it'll be because that's just a fool's errand I mean, we really want to get the best possible tenants and continue to grow cash flow. So we will see where it is at year end, but there's no doubt in the next.
Year year, and a half we want to get back to where we were I mean, there's no question and then begin to exceed that.
Great and then.
Just a question a bit more out of curiosity.
Why aren't more of your redevelopment project located in the Sunbelt.
I mean, it's just a factor of where are right now it's not anything beyond that and of course, a lot of what's going on in the development pipeline right now is vis vis the combination of the two companies and what large projects were active underway with the.
The legacy RPI properties, but one of the projects. We just did as Tom mentioned was.
The ground up deal.
In port St Lucie and the fresh market deal. So we have lots of opportunities in the sunbelt.
We will continue to find that and in fact, when you look at the acquisitions that we just did I would say that certainly two of the three have significant.
Potential for us to improve and add to.
So I would stay tuned on that I think that'll continue but.
The opportunity there.
A word opportunity is that in itself, it's opportunistic what presents itself right. So we take them one at a time.
Okay. Thank you.
Thank you.
And I'm not showing any further questions at this time I'd like to turn the call back over to John Kite for any closing remarks.
Okay. Thank you everybody for joining us we really appreciate the time.
And we look forward to talking to you in person soon thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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