Kite Realty Group Trust's CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: Kite Realty (KRG)

Kite Realty Group Trust (NYSE:KRG)

Q3 2013 Earnings Conference Call

November 1, 2013 13:00 ET

Executives

Adam Basch - Investor Relations

John Kite - Chief Executive Officer

Dan Sink - Chief Financial Officer

Analysts

Todd Thomas - KeyBanc Capital

Josh Patinkin - BMO

Craig Schmidt - Bank of America

Carol Kemple - Hilliard Lyons

Tammi Fique - Wells Fargo Securities

Ben Yang - Evercore

RJ Milligan - Raymond James & Associates

Chris Lucas - Capital One Securities

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Kite Realty Group Trust Earnings Conference Call. My name is Derrick, and I’ll be your operator for today. At this time all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions)

I would now like to turn the conference over to Mr. Adam Basch of Investor Relations. Please proceed.

Adam Basch - Investor Relations

Thank you, Derrick. The company’s remarks today will include certain forward-looking statements that are not historical facts and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. The company refers you to the documents filed by the company from time to time with the SEC, which discusses these and other factors that could adversely affect the company’s results.

On the call with me today from the company are Chief Executive Officer, John Kite, Chief Operating Officer, Tom McGowan, and Chief Financial Officer, Dan Sink.

And now I’d like to turn the call over to John Kite.

John Kite - Chief Executive Officer

Thanks, Adam. Good afternoon everyone and welcome to our third quarter earnings call. We’re extremely pleased with our top tier performance during the quarter as we continue to execute on our strategic plan through focused balance sheet and operational management. We’re able to gain significant flexibility through the expansion of our unsecured term loan which allows us to stagger debt maturities and reduce our borrowing cost.

In addition, we posted another quarter of strong same property NOI performance at 4.9% and we raised our same-store guidance 75 basis points at the midpoint. For the third quarter, we generated FFO of $0.13 per share after reduction for certain items which exceeded the consensus estimate. These results represented 18% per share increase over the prior year. Our total retail lease percentage increased 50 basis points to 95.9%. And our shop lease percentage increased 220 basis points to 86.7% over the prior quarter.

The small shop increase was a result of our team's concentrated effort over the last several quarters. We were able to lease approximately 33,000 square feet to various regional and national tenants. This is the highest shop leasing percentage since our IPO in 2004. We continue to have 330 basis point variance between the leased and occupied percentages which will yield strong future NOI growth.

Our aggregate cash rent spreads increased 3.2% consisting of 3.6% for new and 2.8% for renewal leases, our 16th consecutive quarter of positive leasing spreads. But particular note, we backfilled the leased will then occupy former Best Buy space with Gander Mountain at Bayport Commons. This transaction had an adverse effect on our lease spreads but will help enhance traffic to the shopping center. Gander Mountain plants are open in the fourth quarter of 2013.

As I previously mentioned our same property NOI growth is 4.9% over a solid prior quarter marking our 10 consecutive quarter same property NOI growth. These consecutive quarter numbers are significant because they show continuing in the sustainable positive momentum within our portfolio. It’s also a testament to the strength of our real estate and our systematic approach of maximizing value. As a result of our consistent positive same property results, we were able to increase our 2013 same property NOI guidance to a range of 4% to 4.5%.

We’re also nearing the completion of some of our larger development and redevelopment process. Our developments under construction represent 845,000 owned square feet and are 79.2% pre-leased or committed up from 76.6% at the end of the second quarter. Our redevelopment projects under construction represents 350,000 square feet and are 89.3% pre-leased or committed up from 88% during the previous quarter. We anticipate Holly Springs Phase I in Raleigh, North Carolina. Four Corner Square in Seattle, Washington and Delray Marketplace in Delray Beach, Florida to be fully deliver to operations over the next two quarters.

Our project costs for these three projects total approximately $182 million. And then aggregate yield of approximately 6.5% on a fully loaded basis. The GAAP NOI contribution was 56% in September and we anticipate that fourth quarter of 2013 and the first quarter of 2014 to be 61% and 75% respectively on annualize basis. We also continue to make progress on our 380,000 square foot Parkside Town Commons project in Raleigh, North Carolina.

The first phase is 82% pre-leased and well underway. Target planning their opening in March 2014 and Harris Teeter in June of 2014. The second phase is 60% pre-leased and site work has commenced. Anchor tenant deliveries are scheduled in the first quarter of 2014. We anticipate closing on our $85 million construction loan for both phases prior to the end of the year. On the redevelopment side we began the redevelopment of Kings Lake Square in Naples Florida. Redevelopment consist of a new and expanded Publix grocery store as well as upgrading the façade and parking field for the entire center. This will result in an square footage gain for Publix of approximately 15% and are nearly 20-year lease for us.

These changes will significantly improve the overall quality and sustainability of this asset as we anticipate positive rental growth as a result of the additional invested capital. We’ll continue to use our development expertise that upgrades and enhance our existing portfolio. Now that we’ve made significant progress pushing through our land inventory, we’ll be looking for portfolio enhancing opportunities within. Development and redevelopment projects under construction will add another 1.2 million square feet of on GOA to our operating portfolio of top quality projects in major MSAs throughout country. These legacy development projects were once deemed to significant risk for the company are now tremendous assets with outstanding tenants in high growth markets.

On the balance sheet side, we successfully expanded our $125 million term loan to $230 million and reduced the rate to LIBOR plus 145 to 245 basis points a decrease of between 25 to 65 basis points across the leverage grid. The term loan was upside from the original plan as the bank syndicate was $55 million oversubscribed. The proceeds were primarily used to pay down a line of credit and payoff our existing loan of Ridge Plaza in New Jersey. We’ll continue to increase the size and quality of our unencumbered pool as well as NOI's opportunities to reduce our floating rate debt exposure primarily relating to our construction loans.

On to our investment activity. We acquired Toringdon market for $15.9 million our first acquisition in Charlotte North Carolina market. The property benefits from a 5 mile population of 170,000 people and average household incomes of $107,000. We acquired the grocery-anchored center debt free an attractive 7% going in new. This acquisition continues the path we pursued over the last 24 months of acquiring high quality assets in our target markets. We also sold Cedar Hill Village and Cedar Hill Texas for $8 million.

Continuing our initiative to sell lower growth assets and approve the overall quality of our portfolio. This 44,000 square foot center was anchored by 24 Hour Fitness and a non-owned JC Penney.

Turning to guidance, we rate guidance as a result of our strong operating performance. Our as adjusted 2013 FFO guidance is now within the range of $0.47 to $0.48 for diluted common share from our previous guidance of $0.45 to $0.48 per diluted common share. This guidance excludes from FFO with debt extinguishment gain mentioned earlier (indiscernible).

In closing, we will continue to report higher balance sheet over the coming quarters while simultaneously enhancing our portfolio quality through active management and leasing as well as target acquisition and sale activity. The third quarter highlighted by the expansion of our term loan and continued velocity on the leasing front marks another step forward for company in terms of achieving 2013 objectives we laid out at the beginning of the year consistently improving operating portfolio performance, looking forward to completion of our development and redevelopment projects, acquiring high quality shopping centers and continuing to de-lever and improve the balance sheet.

Well the number of our development and redevelopment projects nearing completion and the corresponding NOI coming online all with growth from select acquisitions, we look forward to significant cash flow growth and are confident that we’re well positioned for a solid 2014.

This concludes the remarks and we’re ready for questions, operator.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question will be coming from line of Todd Thomas, KeyBanc Capital.

Todd Thomas - KeyBanc Capital

Hi, good morning. Jordan Sadler is here with me as well.

John Kite

Good morning.

Dan Sink

Good morning.

Todd Thomas - KeyBanc Capital

Good morning. First question, just the – the 370 basis points dealt between the lease rate in economic occupancy in the same-store. What’s some more appropriate gap in the portfolio and what’s the timeframe like to capture that embedded rental income? I guess, maybe you could just walk through some of the big leases, some of the bigger chunks that will come online over the next two to three quarters.

John Kite

Well, John. I think Dana and I will both comment. But, in terms of the – the appropriate level I mean lot of it has to do with the fact that we have had so much positive leasing activity and it takes time obviously to go from a signed lease to a paying tenant. So, the spread at that level is pretty reflective of what it’s been for a while but I would say as we continue to lease-up for portfolio maybe 200 basis points is a more normal rate than 300. So I think it’s a sense of testament to the activity that we’ve had and I think the point we’re trying to make is that we still have significant NOI growth ahead over the next two years. So we just want to make sure people understand. We’re really in the early innings of delivering the NOI from the lease-up and the portfolio from the development, re-development pipeline. Dan, you want to..

Dan Sink

Yeah, more specific start on the 330 if you look at the 330 basis points is about 200,000 square feet and of that 200,000 square feet roughly a 175,000 square feet relates to tenants that are going to be opening for business, the anchor tenant such as Fresh Market at Lithia, LA Fitness at Stoney Creek Commons, Total Wine at International Speedway Square. So there is a lot of those Sprouts at El Paso as well. So you look at a lot of these solid tenants are going to be opening up and that’s what John mentioned, its about $2 million of NOI. A lot of these tenants, the walls are up, they are soon to be open, I’d say most of them would be able to buy (mid 14) probably is a reasonable estimate.

John Kite

Todd, I think that Dan just said the great thing about that is several of those examples are at existing operating properties where we came back in and adding GOA via tenant enhancement. So it’s not just the development deals, it’s really a lot of that is enhancing (Disney) assets. And then as we said in the prepared remarks that is going to be a big focus of ours over the next couple of years due to the supply environment that we are in.

Todd Thomas - KeyBanc Capital

Okay. That’s helpful. And then if I could just shift over to the acquisition environment, just curious as we get close to the end of the year here, if you could talk about some of the new deals that you’ve seen come to market. Just wondering I guess how the pipeline looks today versus say three months ago in last quarter’s call?

John Kite

Well we’re always looking at that activity and the deal we mentioned in Charlotte and the type of deal we like doing and there is definitely opportunities out there. We are always looking at various opportunities but we also have an underwriting methodology as we’d like to fix to in terms of our target markets and going in yields and upside potential. So there is definitely a lot out there for us to look at but at the end of the day we have a very specific underwriting that we’re looking at, it’s going to keep us in that type of shopping center activity.

Todd Thomas - KeyBanc Capital

Based on what you are saying today, do you think it’s reasonable to expect similar pace of deals in 2014?

John Kite

Yeah I think based on what we’re seeing today we’re just going to keep doing what we’ve been doing and so yeah I think the market is favorable and we will keep trying to find those opportunities as I said in the markets that we are pursuing. I think if your question revolves around cap rates I think it’s clear that cap rates are continuing to be where they’ve been. So that hasn’t really changed anything in terms of what we’re looking at.

Todd Thomas - KeyBanc Capital

Okay. And then just last question for Dan, I was just wondering what the current plan and expectation around the $20 million CMBS maturity that’s backed by the headquarters office tower at 30 South as it comes up early next year?

Dan Sink

Really its ours, we are clear about that, towers close or maybe in any map, but the reason we acted subsequent to the end of the quarter we paid off that particular mortgage with the line of credit and we hope to finalizing new zones secured by the building before the end of the year. So we’re going to do it on bank balance sheet and we should have that coast open before December 31.

Todd Thomas - KeyBanc Capital

Okay. That’s helpful. Thank you.

John Kite

Thank you.

Operator

Your next question will come from the line of Josh Patinkin, BMO.

Josh Patinkin - BMO

Hi, good afternoon guys.

John Kite

Hey Josh.

Josh Patinkin - BMO

So, John I was curious about your comments about this wave of development that you are about to get past being a transformative event for the company. As you look forward about $150 million in new development pipeline today on an asset base about $1.5 billion in enterprise at least. What’s the comfortable level moving forward and how do you feel about new development deals you are looking at today?

John Kite

Well I think as we talk a lot about Josh is that we’ve been working to bring the development CIP kind of in line with what we think is a comfortable level. So right now our CIP is below 10% around 8% I think and as a percentage of total asset, so that’s way down from obviously a few years ago when we were north of 20% where it was too big. So I think that the comfort level we have is that 5% to 10% range of CIP is total assets, which is just one way of measuring it, but that’s a pretty simple way of measuring it and we are comfortable with that.

I think the point we’re trying to make is we can stay very busy on the development front vis-à-vis the existing pipeline that we have because we have a couple Phase II projects obviously coming up and then also in terms of the re-development activity that we’re doing which could also be part of CIP. So at these levels I mean that we’re going to develop between $75 million and $150 million a year that’s probably going – right now obviously it would be on the lower end and as we start finishing these up then we’ll be looking to find new opportunities if the returns are warranted.

Josh Patinkin - BMO

So digging out a bit more into the returns and how your underwriting growth, you have an 8.1% yield preferred security outstanding kind of how does – within that context how does that stand up against how your underwriting development versus acquisition perhaps on an IRR basis?

John Kite

I’m not sure we looked at it from the context of the pricing on the preferred to the yields that we are getting because we don’t really think of marrying that capital together that way. But the preferred is that eight in a quarter right now and frankly that’s high. So we look at that as an opportunity in 2015 because our view is hard to look out that far, but when you see what’s going on in the world today it’s hard for us to imagine significant interest rate increases over the next 24 months. So I think we look at it more from the perspective of IRRs than we kind of unleverage returns than we do anything else and the bottom line is that’s one of the reasons is you don’t see a lot of development today is that the returns that you can generate on a ground-up development are basically below double-digits and that doesn’t appear to us to be very warranted from a risk perspective. So that’s why you see what you see and we get higher returns in the redevelopment. So we’re definitely staying very busy and we’re definitely looking at significant NOI growth despite that environment.

Josh Patinkin - BMO

Okay. And then lastly on the – on your market exposures been building up some assets in markets outside of Indiana. Is that a focus are you trying to diversify away from that geography or is it more just deal specific?

John Kite

I mean I think we’ve been saying this the last couple of years that the exposure of Indiana was at a level that we didn’t – it needs to be any more of that and frankly we brought it down over the last couple of years. So that’s part of it, its not fully driving it, we’ve been pretty clear that currently we like the markets in the Midwest, the Southeast and Texas, there is a reason for that, we see significant opportunity in those markets, we see limited supply, we see good rent growth, we see that the manufacturing base in the countries come back a bit. So markets that we are in kind of make sense and then the recent acquisitions that you’ve seen us do in the Southeast we’ve gotten great properties, the great prices would get upsize. So it’s really driven more on that drop and specifically saying we’re looking to do something less in Indiana which is more of where we see better growth opportunities.

Josh Patinkin - BMO

Okay. Thanks guys.

John Kite

Thank you.

Operator

Your next question will be from the line of Craig Schmidt, Bank of America.

Craig Schmidt - Bank of America

Good afternoon.

John Kite

Hi, Craig.

Dan Sink

Hi, Craig.

Craig Schmidt - Bank of America

Hi, I was wondering on the three development projects under construction. What are the NOI contributions in the third quarter and what you might think would be in the fourth quarter?

Dan Sink

Yes, on a (clinical note) on a percentage basis we kind of touched on that script when you look at Delray, Holly and Four Corner those specific assets were the ones we want to touch on specifically in the script, that’s not a $182 million, 6.5% yield and the GAAP NOI was 56% in September and we anticipate being 61% in December and 75% in margin next year. So that’s kind of a breakdown of those three assets. We also will have, we want to be particular in those three assets, but also you can start getting contributions from Bolton Plaza, the LA Fitness opened there as well as, as we mentioned from Parkside that’s going to be coming on late first quarter early second so that will be Harris Teeter shops and of course Target is not known but that will be opened as well as direct traffic. So that’s kind of the breakdown. And then as we mentioned not only do we have those three assets, we also had the anchor tenants in our operating centers that we anticipate those coming on as well between now and the second quarter next year.

Craig Schmidt - Bank of America

Great. And then what is the rent differential between Best Buy and Gander Mountain?

John Kite

It’s a pretty big spread, I think it was somewhere around again first of all that’s a trick, Best Buy was paying probably 60% above our box average like in the 16.50 range and I think the Gander deal was around 11, 11.50. So significant spread but even the Gander deal was at a premium to our average box rent. So bottom line on that deal is that Best Buy was just a very high rent that really and wasn’t logical.

Craig Schmidt - Bank of America

And I’m assuming you’ll get an occupancy lift with Gander Mountain once they finally open?

John Kite

No, well I mean we get in occupied, it will shrink the spread between occupied and lease but the space was leased.

Dan Sink

That’s one of the tenants that is causing the gap on the 330 basis point spread.

John Kite

But very small relative to the 330.

Craig Schmidt - Bank of America

Okay. Thank you.

John Kite

Thank you.

Operator

Your next question is from the line of Carol Kemple, Hilliard Lyons.

Carol Kemple - Hilliard Lyons

Good afternoon.

John Kite

Hey Carol.

Carol Kemple - Hilliard Lyons

Hey do you have any acquisitions or dispositions under contract now that you think will close by the end of the year?

John Kite

Acquisitions or dispositions under contract now, I don't think so.

Carol Kemple - Hilliard Lyons

Yes. And where did the 1.4 million lease termination fee come from?

John Kite

That came from the Best Buy lease termination as we were saying and then that we replaced Gander Mountain replaced there.

Carol Kemple - Hilliard Lyons

Okay, thanks.

John Kite

Thanks.

Dan Sink

Thanks.

Operator

Your next question is from the line of Tammi Fique, Wells Fargo Securities.

Tammi Fique - Wells Fargo Securities

Hi, I was just wondering what your lease spreads would have been without the impact of the Best Buy lease in the quarter and also there was an impact on the third quarter NOI growth?

John Kite

Tammi, the lease spreads would have definitely been double-digits without it might come more in line of where we’ve been last couple of quarters. And then what was the second part of the question?

Tammi Fique - Wells Fargo Securities

Just wondering if there was an impact on third quarter NOI growth?

John Kite

Impact on third quarter NOI growth.

Tammi Fique - Wells Fargo Securities

Yeah, from that coming off off-line?

Dan Sink

Yeah I mean it was a small number, Best Buy came out as rent probably in the middle of the quarter so there rent impacted it obviously none of the lease term fee was rent through the same store calculation. So there was a small impact from the Best Buy moving out but nothing that obviously had not happened and the 4.9 would have been greater but we did not include just to reiterate any lease term fees in our same-store NOI.

John Kite

Yeah Tammi we will try and not to run away from the group too much. So we figured 4.9 was good enough.

Tammi Fique - Wells Fargo Securities

That was very good.

John Kite

Yeah.

Tammi Fique - Wells Fargo Securities

Are there any other above market leases like the Best Buy lease that you kind of see on the horizon that could, that you may lose that tenant?

John Kite

I mean that’s the point I was making, 16.50 is a big number. We have a handful of box leases that are low teens but I can’t think of anything that we’re aware of right now, there is a tenant struggling that’s paying that kind of rent off the top of the head I mean obviously we have over 90 box tenants. So thereafter we have them but I think the litmus test is to say if our average box tenants paying 10.30 I mean this thing was pretty fair out there.

Tammi Fique - Wells Fargo Securities

Got it. And then I guess just turning to the loan at South Meridian, I think you might have touched on this, but forgive me if I missed it, but you said that you’re foregoing to be getting a new loan on that for the fourth quarter…

John Kite

Correct.

Dan Sink

Yeah, that’s correct.

Tammi Fique - Wells Fargo Securities

Okay. And just curious what you think the terms will be on that?

Dan Sink

I think it's, on bank balance sheet it's going to probably be 7 years on the extensions and the rate is that probably into all the end rate that mid fours would be my projection on that and technically on the bank balance sheet will do a 7 year deal sometime we do 5 plus 2 you know and I think under this scenario we're gong to do a whole 7 year deal in the mid fours.

Tammi Fique - Wells Fargo Securities

And will that be $20.1 million as well or is it going to be higher or lower than that?

Dan Sink

Is probably, is got to be in that range right now we're working through finalizing the appraisal that kind of thing my guess as it would be somewhere in between $17 million and $20 million once we get it all underwritten.

Tammi Fique - Wells Fargo Securities

Okay. Okay, I think that’s all from me.

John Kite

That’s great, thanks.

Operator

Your next question will come from the line of Ben Yang, Evercore.

Ben Yang - Evercore

Hi good morning guys.

John Kite

Hey, Hey Ben.

Ben Yang - Evercore

Hey. What that $1.4 million leased term fee falling in your guidance or was that more of a surprise for you guys?

Dan Sink

We typically at the beginning here Ben we put together other property related revenue where we have various transactions that will go through there, since we went public we've always had a lot of sales, lease termination fees and various other items that will occur during the year because being a developer we have the opportunity to make cash full and get -- we have the benefit of those kind of things where we're building developments in getting you know inventory of outlots or 6 or 7 outlots per developer which is a great opportunity to turn cash flow and recycle at low cap rates like we did in on a cap REIT in the first quarter of this year selling it at a 5 capital on that outlots and it covers all clauses. So I think when you look at and we have a bucket of other property related revenue was this adding up anticipated at the beginning of the year I wouldn’t say it was anticipated in and of itself be on a leased term fee at this location. But you know we try that, we put guidance together, be very clear on there is opportunities out there and -- on this when we're able to capitalize on.

John Kite

Yeah I think it's then if I, if you see the range that you see with us is because that stuff like this that would you know that gets us to the top or even above the top. So that I mean we don't know whether that’s going to happen nine months out but we know that stuff is going to happen and it happens all the time that’s part of the business.

Ben Yang - Evercore

Yeah I mean I understand that, but just that was somewhat large for the quarter and so just wondering if that was at the price may be you know that's might have been part of the reason that you were able to kind of lease consensus because obviously we don't have the type of visibility.

John Kite

Right.

Ben Yang - Evercore

But I mean, and then just kind of a clarification obviously leased term fees are not in your same-store number, but some of these other stuff when you built residential at Eddy Street Commons when you get that in trends with (indiscernible). Is that in your same-store number or you would take that out as well?

Dan Sink

That is not in the same-store number. Residential, residential sales you know Eddy Street Commons was a mixed use developer we've been benefiting from you know that have been able to sell these residential loss right now of the built inventory we don't have any remaining that about you know 40 to 50 of additional residential units that will be coming on as demand you know as presented. But those definitely are I mean right now it's a cash, it’s a cash same-store number that you know we tried to be very clear on what we're including and excluding you know on a comparative basis.

Ben Yang - Evercore

Great, got it. Thank you.

John Kite

Okay, thanks.

Operator

(Operator Instructions) Your next question is from the line of RJ Milligan, Raymond James & Associates.

RJ Milligan - Raymond James & Associates

Good afternoon guys.

Dan Sink

Hey RJ.

John Kite

Hey, hey what's up RJ?

RJ Milligan - Raymond James & Associates

John, I wanted to jump more into the small shop occupancy gain for the quarter or I guess year-over-year pretty significant and I just wanted to as may be get a few examples as to who is taking space if there is any sort of geographies that are doing particularly well and may be the mix between sort of the local mom and pops and some of the national and regional retailers?

John Kite

Yeah RJ, look I mean we had a lot of success in small shop leasing and I'm trying to say in the remarks that I think you remember probably last year we started talking about focusing on small shops because we've been so successful on our box leasing. And you know so we had a big focus on it. I would tell you that in the end of this day there has been a real strong increase really across the board and demand so from national tenants yeah a good example is the Starbucks as an example who 18 months ago you know people would say they're done, they’re closing stores, they got too many stores. Now Starbucks is open lots of stores or opening you know stores that they closed.

You know everybody overreacted in terms of closures probably in 2010. And so a lot of that here you see a lot of these national guys who are really scrambling to find space so that happening. The national franchised players you know have done a great of developing franchisees I think I said two years ago that one of the results of the great possession were that a lot of people they took early retirements and started new businesses and a lot of those were franchisers you know I know that anecdotal but didn't we know it because we deal them. So you're seeing a lot of that. We've seen a lot of we’ve seen some mom and pops also start businesses in a similar way where they had a you know in early retirement or pay out in a (indiscernible) et cetera. So there was a lot of capital flow here to the entrepreneurial side of the world and we've benefited from them.

RJ Milligan - Raymond James & Associates

And is there, just sort of anecdotally can you break out to say year-to-date small shop leasing between the more national or regional franchisees versus the true mom and pops?

Dan Sink

And I think as the break out as it similar to what it’s always been it’s probably two-thirds national and franchise type players and one-third mom and pops as generally what we see as frankly as because we have a better real estate and that's what they're attracted to. So, I think that's probably continuing.

RJ Milligan - Raymond James & Associates

Okay, thanks for the color, was very helpful. And I was just wondering about the, looking forward is there plans and we've been hearing from a lot of the other shopping centers, are there plans to and you guys don't have a ton of vacancy but demolished any of the smaller-size boxes and put in you know open them up to a more of junior box type retailer?

John Kite

I think look a lot of this and it’s a great question about a bigger topic. The bottom line is you know RJ when you look at what's going on in the space, between 2006 and 2009 there was 600 million square feet of shopping centers supply delivered, okay. so in 2009 and 2012 64 million square feet. So what does that mean that was going on in our business the whole story the reason you see those kind of thing is happening as we're able to you know we're in the driver seat as it related to high quality product. So, we are going through our portfolio you know kind of every day saying, where, where we have upside, where we have tenants are paying below market rent or below our property, by the way our rents exceed the markets so below our property rents.

And then that's what we’re doing in fact we have two or three cases right now you know Tom was showing me one yesterday that were going to produce you know next week you know fairly significant redevelopment on the recent acquisition where we're going to move people around and increase rents and that's why we bought the property. And we're going to continue to do that. so yeah, I think that happening but it's really happening because there is you know there is no new supply and you look out you know over the next five years you continue to see that guys like us that have the skill set will execute. If you don't have the skill set and you're really just a manager of assets can't do that. so, we're looking that's another thing we look at when we're looking at acquisitions you know can we buy that from guys that aren't in the business they're really just financial players or they're just kind of shepherds of assets. That's a great thing for us to do. So, sorry for the long answer, but you know your question is really about what's going on in the business.

RJ Milligan - Raymond James & Associates

No it’s helpful. Thanks guys.

John Kite

Thank you.

Dan Sink

Thank for the question.

Operator

We have a follow up from the line of Tammi Fique, Wells Fargo Securities.

Tammi Fique - Wells Fargo Securities

Yeah, just wanted to ask about you know you did in that quarter and this year so far of about a $100 million and that in combination with $75 million to $100 million of development spend you know those levels we should be expecting going forward?

Dan Sink

I think those levels are generally comfortable and kind of you know it’s always specific to opportunities. So, those are more general - general of nations. So, really, Tammy, it’s what opportunities are presented to us, what we find. We still have some dispositions to do. But unlike some of the other players, we’re delivering very top tier operating results right now. So, it’s not like we have a portfolio that needs to be significantly cold. Our portfolio is operating at a very high level. All we’re trying to do is make it better but we never quit and we just don’t stop. So, yeah we’ll continue to do that kind of range but A if we find something that we think we can add value to that, we’ll be all over it.

Tammi Fique - Wells Fargo Securities

And I guess, with regard to funding that, you did mention disposition, is that how we should be thinking about on the equity portion of the funding for those or should we expect that you could potentially come back to the equity market?

John Kite

I think as we always say, we’re always analyzing the most efficient and best priced capital against what we’re doing and against what we’re investing in. So, if we can disclose something and turn around and reinvest like we just did, where we brought a center for $16 and $8 of million of it essentially came from the sale of a lower growth asset, that’s a great way for us to do that. Those are good for one-offs. And then, if you find opportunities that are bit bigger, you may look to pair that with the appropriate equity as long as it was a strong deal. So, I think it’s really dependent on the deal itself.

Tammi Fique - Wells Fargo Securities

Okay. And then just one last question related to Dominick, just kind of curious what your discussions with Safeway has been on the one Dominick they have in their portfolio?

John Kite

Yeah, unfortunately it’s the later part of your question, we have one. So, right now our conversations with them through the leasing group is that – not much, they’re marketing their entire huge portfolio. I think they got – they got bidding process going on for their leases and we’re hopeful that we would get somewhere there that’s going to put a little more effort into it. So, well see. But right now it’s early.

Tammi Fique - Wells Fargo Securities

Okay, great. Thank you, very much.

Dan Sink

Thanks.

John Kite

Thanks a lot.

Operator

Your next question will be from the line of Chris Lucas, Capital One Securities.

Chris Lucas - Capital One Securities

Good afternoon guys. Thanks for taking my question. Just a kind of a follow up to the balance sheet topic. What level of credit facility balance outstanding are you guys comfortable sort of add and how much dry powder on that are you wanting to keep in place. Got some debt maturities coming up, just trying to understand how we should be thinking about the credit facility?

John Kite

Well, obviously we were pretty excited to get to credit facility paid down pretty far where we had only about $35 million I think drawn on the $200 million facility. So, the bottom-line as we want the credit facility in place for a more opportunistic interim financing activities not for medium term or longer financing activities. So, that kind of room that we have on, right now it’s great it hasn’t slowed especially with someone inactive as we are in value creation, it will have been pull up. So, I would say the level we’re at is a good level. And Dan just mentioned before the more we – more unencumbered assets that we continue to add to our pool, bigger that will get.

So, for a company our size at a $4.5 billion an assets to have over – to have north of a $100 million of liquidity at all times is a comfortable level. And that we obviously don’t have any maturity issues. And so we’re in a pretty good place and we just keep trying to stagger out the maturity schedule. So, it’s really more about staggering it and the overall likes of it, I think is what we’re trying to say.

Chris Lucas - Capital One Securities

Okay, great. Thank you.

John Kite

Yeah. Thank you.

Operator

At this time, I’m showing no further questions in queue, I will like to turn the conference back over to Mr. John Kite for any closing remark.

John Kite - Chief Executive Officer

Okay. Well, again, thank you everyone for joining us. And as we said we are extremely pleased with the performance that our company has delivered and that our key that we have together as support. And we think we’re really moving in a right direction, in fact dwell into it and really looking into 2014. And we a significant NOI growth ahead of us and we have significant value creation opportunities ahead of us. And as we said, I think the biggest thing we want to make sure everyone is aware off. The market is strong and our company is stronger today than it’s ever been. And we’re really looking for to the next call and the rest of the year. Thanks a lot. Bye, bye.

Operator

Ladies and gentlemen, that conclude today’s conference. We thank you for your participation. You may now disconnect. Have a great weekend.

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