Kite Realty Group Trust (KRG) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2012 Kite Realty Group Trust earnings conference call. My name is Fab, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Adam Basch, Investor Relations. Please proceed.

Thank you, operator. 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 would like to turn the call over to John Kite.

Thanks, Adam. Good afternoon, and welcome to our third-quarter earnings call. Thank you all for attending today, especially in light of the difficulty being on the call with the effects of the storm. We appreciate you coming on with us today.

We posted another solid quarter as we continue to execute on our operating portfolio and balance sheet objectives. The operating results for the quarter continued their positive trends. FFO for the quarter was $0.11 per diluted share, meeting our expectation, as well as the consensus estimates. The year-to-date FFO, as adjusted for the charges recognized earlier in 2012, was $0.33. We recorded another quarter of positive NOI growth and rent growth in the portfolio. Our same-property NOI for the quarter was up 1.9% over a strong prior year and increased 2.8% with bad debt expense added back. In addition, our aggregate cash rent spreads increased 4.1% for the quarter.

Our portfolio retail leasing percentage increased 40 basis points over the prior quarter to 93.4% as our small-shop percentage increased to 81.8%. This small-shop percentage is our highest level since the second quarter of 2008 and represents 120 basis point increase over the prior quarter. The small-shop tenants that drove this increase include high quality national tenants like Charming Charlie at International Speedway Square, Kirkland's at Boulevard Crossing, and several prominent quick-service restaurants, including Five Guys and Buffalo Wild Wings, throughout the portfolio. We continue to look into opportunities to enhance our operating assets in our current retail portfolio.

For example, we're in final stages of lease negotiations to execute a new 20-year lease with Publix in one of our shopping centers in Florida, which will trigger a redevelopment of the center. This renovation is anticipated to be complete by the end of 2013. In addition, we are in late-stage lease negotiations with a high-quality specialty grocer at two of our existing centers to backfill an empty anchor space in one center and to enhance the overall tenant lineup of another. These expansions and retenanting opportunities add long-term value to our centers and provide strong cash returns on incremental capital spent.

During the quarter, we also continued to execute on our capital recycling strategy. We're pursuing the sale of several unanchored centers and limited growth assets. We sold two operating properties in the quarter, including Coral Springs Plaza, a single-tenant Toys "R" Us in Fort Lauderdale, for proceeds of approximately $9.5 million. In addition, we moved one retail operating property and two commercial properties to the discontinued operating section in the income statement as these three properties were considered to be held for sale as of September 30. The sale of the two commercial properties closed on October 31, and we anticipate closing on the sale of Preston Commons, an associated residual land in Frisco, Texas, in the fourth quarter.

The three properties will generate approximately $8.5 million of net proceeds, after paying off the property-level debt. We anticipate redeploying the proceeds into a retail asset. After the sale of the two office assets, we reduced the percentage of NOI coming from non-retail properties to 5%. The two remaining commercial assets are the 30 South Meridian corporate headquarters building and associated parking garage, as well as the mixed-use office component of Eddy Street Commons.

To date, we have generated total proceeds from dispositions of consolidated properties of approximately $75 million. After adjusting the Marysville asset for the JV partner's 50% share, our share of the hotel -- of the total proceeds would be approximately $60 million. As we discussed on our last call, as well as during our recent equity offering, we're seeing more acquisition opportunities in our target markets. During the quarter, we acquired a center in Vero Beach, Florida, for $15 million in an off-market transaction. The newly named 12th Street Plaza is a 97% leased, 138,000 square foot neighborhood shopping center, anchored by Publix and Stein Mart. Publix sales at this location significantly exceed their overall store average on a per square foot basis.

We are making good progress on our due diligence and anticipate closing in early December on a 194,000 square foot community shopping center in Greenville, South Carolina. The property is anchored by Bed Bath & Beyond, Old Navy, Party City, Shoe Carnival, and several other national tenants. The property was built in 2000 and is currently 95% leased. The center's in-place rents are slightly below market and is located in the primary trade area of Greenville.

Greenville is a very vibrant market with strong demographics and home to the North American headquarters for GE Engineering, Hubble Lighting, and Michelin, as well as having the large corporate presence of BMW, Fluor, and Lockheed Martin. We are also tracking several assets in our targeted markets, including a late-stage negotiation on a grocery-anchored center -- we are soon to execute. As we are focused on deploying the proceeds from the offering and cash from our recent non-asset sales into retail assets with good, strong value and up-side potential.

On the development and redevelopment side of the business, I would like to provide a brief update on several of our in-process projects. The Delray Marketplace development is approximately 77% pre-leased. Vertical construction will be substantially complete by year-end. Several tenants will take possession or open in the fourth quarter of this year, with the remainder scheduled to open in the first half of 2013. We're very excited to get this project open and operating, and anticipate the asset will be a strong addition to our portfolio upon completion.

The Holly Springs Towne Center development near Raleigh, North Carolina, is experiencing solid leasing momentum, with pre-leasing increasing to approximately 85%. Vertical construction is well underway, and we expect phase 1 to be substantially complete in the spring of 2013. At Rangeline Crossing in Carmel, Indiana, we have added Walgreen's to the expanding tenant roster. The redevelopment project is now almost 91% pre-leased and is under construction. We plan to close on a construction loan for the project before the end of 2012, and we will have the majority of the tenants, including Earth Fare, a specialty organic grocer, open by July of 2013.

Four Corner Square, a redevelopment projected located in Maple Valley, Washington, a Seattle suburb, is over 85% pre-leased. We closed on a $23 million construction loan with US Bank in July, and vertical construction is well underway, and we anticipate an early 2013 opening. Oleander Place in Wilmington, North Carolina, anchored by Whole Foods, is now 100% leased. We anticipate delivering the redevelopment project to the operating portfolio in the fourth quarter. In addition, our Parkside Town Commons development project near Raleigh, North Carolina, continues to have strong leasing momentum, with several national retailers in late-stage lease negotiations. We plan to begin the site work in early 2013, with an expected opening in mid 2014.

Moving to the balance sheet, we continue to focus on four very important objectives. First, to improve our flexibility with an increased number unencumbered assets; to reduce debt to EBITDA while maintaining value for our shareholders; and to term-out and stagger debt maturities; as well as reduce CIP as a percentage of total assets. The completion of our $200 million in-process development pipeline will reduce our consolidated CIP to under $50 million, or less than 5% of our total assets. Now that this pipeline is almost 84% pre-leased and has construction funding committed, we've significantly mitigated our risk and anticipate 15% to 20% NOI growth from these projects.

We've also minimized the risk on our near-term debt maturity schedule, as 2013 maturities are only $30 million. As we complete our construction projects, we anticipate terming out the debt, as these projects were underwritten for the permanent financing market. We're also analyzing terming out a portion of our credit line for five years to place into it the 2018 maturity slot, where we currently have only approximately $7 million of debt coming due. In closing, we have a number of exciting projects well underway and nearing completion. Our developments and redevelopments are taking shape with solid NOI growth on the horizon, and we are ahead of plan with our asset recycling objectives, as we prune the portfolio of assets that don't fit into our long-term growth strategy.

Finally, our acquisition pipeline is providing new growth opportunities in our target markets as we are pursuing grocery and community centers with strong anchor sales, and sub markets with solid demographics at purchase prices below replacement costs. With that, we would like to thank you again for participating and look forward to talking to you over the next several quarters, and we would open the call for any questions. Operator.

Thank you.

(Operator Instructions)

Your first question will come from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

In terms of the non-core asset sales, it sounds like there might be more to do on that front. What should we be thinking about heading into 2013? How many properties does this pool consist of, and what kind of gross proceeds could this represent? Also, I'm just curious who the buyers of some of these assets are.

Well, Todd, take it two questions. Basically, we have three to four other assets that we're marketing that we think we could do something with, that we could sell. The buyers are some of -- it depends on the asset. We're selling some small, unanchored centers that are going to be more private owners who are potentially using 1031 transactions or leverage, and then we've obviously sold a couple larger projects to a publicly traded company, a large, non-traded REIT, as well. So I think it's a combination. There's a lot of activity in the market, and really, there's pretty good depth in each of these asset classes. That's what's making it a little bit more attractive right now.

For the three to four properties on the market, any sense for what type of value you would assign to that?

Again, depends on, a couple of them are smaller, one of them is bigger, so I would say somewhere between $20 million and $30 million.

Okay. And then, I think you mentioned that there was going to be a land sale alongside the Preston Commons disposition. Are you expecting to record a gain in FFO at all in the fourth quarter on that?

Todd, as far as in the fourth quarter on that, the land that we're selling there is, for the most part, breakeven, so there's nothing to record from an FFO on that land sale. It will reduce our land held for development by the proceeds that we get from that asset.

Okay. And then just moving over to Delray marketplace, just wondering how much visibility you have with regard to the remaining GLA left to lease, the last 20% or so at this point. On past calls, it sounded like leasing was coming in a little bit ahead of expectations, rents were trending a bit higher. Is that positively impacting where the overall yield on the development project will stabilize?

Well, in terms of the, as we've talked about quite a bit, the majority of the remaining leasing is small-shop leasing. So to answer your question, yes, the rents are obviously higher in the small-shop leasing, and it continues to be on track to exceed what we thought it would a bit in terms of rents. In terms of the overall returns, it's kind of where we've taken you guys in the past that these development projects are returning close to 7% all in, probably a bit below that, and then around north of 10% on incremental returns. So both of those metrics continue on this project and, quite frankly, the pipeline itself.

And, Todd, I think with the fact that the project is coming to completion, that's going to give us a nice surge as it relates to the balance of the leasing. It is really coming together. From a visual standpoint, these local tenants, et cetera, can now really put their teeth in it and make some decisions.

Okay. And then just a follow-up on that lastly. You mentioned that some of the property will commence rent before year-end. What portion of it will commence rent before year-end, and how will the rest of it trend into the first half of '13?

Yes, Todd, before the end of the year, I think we're focused on getting both anchor tenants. We're not sure whether the -- They're definitely going to take possession and be fixturing, so from an income statement perspective, we will be recognizing minimum rent. As far as their opening and timing of their opening and some of those items, we're in constant contact with those tenants, but some of them that don't have a specific date, whether it's the middle, end of December, beginning of January, that they're going to be paying cash rent, but we will start recognizing straight-line rent from those tenants as they take possession and fixture their stores.

Yes, so there will be a lot of activity on the turnover front as we head into November and then through December. So we have a fairly significant tracking system as we go through that.

Okay, great, thank you.

Thanks.

Your next question will come from the line of RJ Milligan with Raymond James & Associates.

First question, to follow-up on Todd's questions, do you guys plan on marketing either the remaining two office properties, the Eddy Street or the headquarters?

We look at everything, RJ, so it's something that we're going to be thinking about in 2013. They're very different in their nature, right? The building in Indianapolis, obviously, we are here, it's our office building, so there's some things that revolve around that in terms of whether we would sell it or not. The office building at Notre Dame is kind of part of the overall development, and it's full, or close to full. So I think we'd look at both of them, but I think we've got it down now to the point now where we're talking 95% of our income comes from retail assets, and obviously, as we deliver these other projects, it's going to get even higher, so we'll have the non-retail down to 2 percentage points within one year. So it's going to become, I don't want to use the word de minimis, but it's obviously not a material impact either way.

Okay. And would you say that the non-core asset sales over the past, say, two quarters, are more driven by the strategy of really focusing on your core portfolio, or is it more driven by, the pricing is attractive now, this is a great time to sell?

I think you look at everything, right? But you start with, what do you want your portfolio to be comprised of? That's where you start, and you start with, what is the asset quality within it? And then, in order to execute, you need a liquid market, and we have a liquid market. So I think it's a combination of those two things, but clearly the strategic idea of eliminating smaller, non-anchored centers is a primary business objective because the anchored centers have provided more growth for us and have more stability. And then the geographic things that we've done and are doing, in terms of tightening our geography and making it more clear to the market where we're pursuing and want to be, so I think it's all those combined, RJ, but clearly there's liquidity. It's hard to find returns, and even the assets that we deem non-core or things that we don't want, other people do want. So that tells something you right there.

Thanks, John. And quick question for Dan, guidance maintained -- It seems like there's a pretty big range, even, not on a pennies basis, but still a pretty big range for the fourth quarter, and I was just wondering what would drive to you hit the low end versus the top end there.

With the recent equity offering and the redeployment of those proceeds, when it happens during the quarter somewhat drives that answer. Typically, RJ, we give ourselves some room. We normally give a range, and has been our practice for several years, we guide towards the middle. So I think that's the important thing to look at. I mean, is there opportunities with transactional-type items that we could reach the high end? Yes, but I think we're saying, for the most part, we're guiding towards the middle, and if you look at, in the redeployment of the equity offering and those proceeds, that's what will have an effect on the fourth quarter number, as well as the year.

I think, particularly as it relates to the top end, because sometimes we can't predict that someone may come to us and say, hey, I want to buy this, and I want to buy it by year-end, if it's an out lot, as an example. That happens, and that's would drive that. But again, as Dan said, we're really comfortable with the midpoint of guidance.

Okay, great. Thanks, guys.

Thanks.

Your next question will come from the line of Nathan Isbee with Stifel Nicolaus.

Just looking back at your most recent acquisition, clearly they have healthy yields relative to some of the other markets where people are acquiring. Can you talk about the rents, in-place rents, on those properties and where you think they are relative to market as those leases mature?

Sure. I would say that when you look at the two that we did in Florida, you have shop rents in Vero Beach in the high teens, mid to high teens, which we think is below market, and the anchor rents are below $10, which we also think is below market. So that's that one. If you look at the deal we did in Stuart, Florida, shop rents are higher, but the anchor rents are actually lower. And I think, as you know, we acquired that one with a very below-market anchor rent. So the shop rents there are probably in the kind of low-$20 range, which we think is probably closer to market. And then the asset that we're in due diligence on in South Carolina, the box rents are kind of between $9 and $11, which, single digits is below market, and I think that you're probably a $10 to $12 box market there. So we have some opportunity. And then the shop rent, there's just not a lot of shops there, but they're kind of in the high teens, so we think we have opportunity. So I don't know how much of the pricing is driven on -- obviously the NOI is what we're buying. And so from a price-per-square-foot, it's probably driving some of the discount that we're getting, but on a cap rate basis, that's an absolute metric, and we're getting these -- the majority of these are off-market, and I think we're negotiating good deals.

Okay. And then, in terms of the Indiana state office building you're looking to sell, can you just talk about appetite from investors for office space in Indianapolis today, and what type of cap rates they're willing to pay?

Sure. But to be clear, Nate, we actually sold the two, so those are closed.

Okay.

So those are done. That's not really a cap rate transaction, because they were both leases with the state of Indiana, and the original lease document had a purchase right in the document which they exercised, and it was profitable for us. If we were to look at selling the other office assets we have, I would say that, depending on the property, cap rates are probably at around high 7%s, low 8% range, depending on the property.

Okay, thanks. And then just moving to Delray real quick, the remaining small-shop space, you say there's growing interest. Would you say that's coming mostly from food users or perhaps other types of retailers as well?

I think it's coming from everybody. If you look at what we did this quarter, in terms of our leasing, I think it's representative of everything we've done. This is macro, but in the quarter, we did 46 deals. 41 of them were small shops, and of those -- I'm sorry, 30 were small shops. But if you look at the balance of it, it was national deals, it was regional deals, and it was mom-and-pop deals. So of the 30 deals that we did, it was good balance. So we feel like that's continuing. In terms of Delray itself, we've done a lot of national leasing there, so, I think Tom mentioned this in an earlier question, but we are now to the point where we are finishing the project, and you will have much more regional, local leasing done when you can actually walk the project and go into the spaces and see where you're going to be. So overall, I think we've had a really good balance of national, regional franchisee, and mom and pop in our portfolio, surprisingly high on the mom-and-pop side, actually. But at this particular project, it's been much more national-leasing-oriented and now is becoming local and regional.

I would also add, with a lot of great new concepts, concepts that you may not be familiar with in the local market that have good strengths, so that will add a little bit of pop and pizzazz to the center, which we're excited about.

Okay, can't wait to see it. When you talk about that the balance, in terms of national, regional versus mom-and-pops, would you say that's changed materially over the last few quarters?

I think the mom-and-pop side has increased for us in the last couple quarters. We look, as I've told you before, we differentiate a national tenant and a national franchisee. Typically the franchisees of a national, like a Subway or a Great Clips, Sport Clips, Massage Envy, guys like that, these are national franchises, but they're typically operated by mom-and-pop operators --

Sure.

But they have a platform behind them. So I would say those and the national small-shop tenants, like Charming Charlie and BW3 and Starbucks and those guys, they have been active for a couple years now. But the mom-and-pop, in terms of our portfolio, seems to have picked up, and that could be for a lot of reasons, but we're happy to see that.

How do you underwrite those mom-and-pops today, looking ahead to that next downturn, trying to give yourself some sort of assurance that they're viable and have some staying power in a downturn?

Well, we do, as I think you know, we do a pretty intense underwriting process when we're sending a lease through our approval process for every tenant. Every lease we sign goes through a pretty rigorous process, and obviously the more capital we are spending, the more intense that process is. So we are looking at -- and we have an internal credit rating system that kind of gives us an idea of what IRR we need to achieve on any capital that we're spending tenant-specific, and then also we look at it from a net present-value perspective. So I would say the way we are doing it today is that we are putting less money, less CapEx into lower credits than we did five years ago. I don't think there's any question about that. And then we're also verifying funds. We go through a lot of rigor in terms of our credit committee, and what it brings back out of it, and what it request of our leasing group. We like to see funds verified for their portion of the work; their money goes in first. I guess I would say we treat it like we're a bank, and we're lending money. That's kind of the bottom line.

Okay. Great. That's very helpful. Thank you.

Thanks.

Your next question will come from the line of Carol Kemple with Hilliard Lyons.

What was the spread between occupancy and leased rates in the quarter?

It's 280 basis points, with the majority of that being tenants that have not yet opened and aren't paying rent yet.

And then the decline in renewal spreads, was that just a couple leases or was that basically overall?

No, Carol, that was, quite frankly, just a few leases. I think if you look at the total, we had the majority of them were positive. I think we did, on the renewal side, we did 19 deals, and I would say, of the 19, five or six of them were negative. So it's the law of small numbers that we have working against us in any one quarter. And frankly we probably benefit from that, like we did last quarter. So last quarter we had large spread increases on a handful of deals, and it drove the number. But when you do 19 renewals, and five or six of them are negative, that's probably not that unusual.

Okay.

And by the way, remember that we, in our spreads, we include everything in terms of how long spaces have been empty. So we're not excluding spaces that have been vacant for more than a year. And I think that throws off some comparisons, because some people do that.

Okay. And then on the income statement, I noticed income from unconsolidated entities increased substantially from the second quarter. Was there anything new there?

I don't think there's anything new specifically to speak of on income from unconsolidated that would have been related to that. Carol, I can look into that and see if there's anything specific, but I can't think there's anything that's going to be-- affect any run rates, or anything of that nature.

Would you say the third quarter amount is a good run rate on a quarterly basis?

I think that's probably a good run rate.

Okay. Thanks.

Thank you.

Your next question will come from the line of Rich Moore with RBC Capital Markets.

First thing for you is, on Parkside, and maybe on some of these other projects that are in the future development pipeline, as you guys have it listed in the supplemental, it seems like they're actually kind of going at this point. I mean, should we anticipate that they move into the main development pipeline here shortly?

Yes, Rich, I think, as you know, we've talked quite a bit about the progress there, so we try to give you good color, and I think I mentioned in my comments about Parkside that we're in very late-stage lease negotiations on several anchor tenants. We're pretty close to closing on the land sale with the major anchor tenant. So we think that Parkside will be under construction next year. And from there, the next largest project is Holly Springs, phase 2, and it's a similar situation, where we're in late LOI stage negotiation on probably a couple box tenants, and we have one lease already signed. So if that also goes our way, we could start late next year on phase 2, but phase 2 for Holly is very much our decision. It has to be the right deal for us. It's great real estate. Phase 1 is doing extremely well. It's only getting better by the day, so we're going to get the right deals. And then, the others, you've got some smaller redevelopments, and the deal in Apex, which is the ground adjacent to Wal-Mart. Long answer to a short question, but, yes, all those things are -- everything feels pretty good, in terms of moving forward.

Just terms of the wheels being in motion from an entitlement perspective, from an engineering perspective, all those things that you have to do to be prepared for a first-quarter event are all underway.

Okay. Good. Got you, guys. Then on Parkside, I assume it would be both phases or both pieces that you show in the supplemental would be underway simultaneously. Is that right?

Well, we've talked about that also being a phased project, but, based on the activity with the way the leasing is coming together, it probably likely will be phased, but pretty close together, unlike Holly, which would have been a significant separation between the two phases. Here you're talking within a year, when one phase starts and another one starts, most likely, based on the leasing progress as of today.

Okay. Good. I got you, John. Thank you. Then on Maple Valley, are you guys planning -- is the idea there to finish it and then sell it, I assume?

Well, I think the idea on Maple Valley is, yes, first and foremost, get it finished, which again we think it would be finished next year. We've kind of indicated that over time that we would ultimately be out of the pacific northwest. So, yes, the idea is that we would ultimately do that, but that's, of course, subject to getting the right valuation and the right timing. But over the long run, the idea is not to be in the pacific northwest.

Okay. Good. Thank you. And then, on Greenville, on that center you're looking at, where is that exactly? Is that the southwest side down by the mall? Is that where you are looking?

Well, we're trying not to be totally specific as to where it is, because we're not closed. But the bottom line is it's in a very strong sub-market, kind of in the 385, 85 intersection corridor.

Okay.

And it's one of the three top primary markets in Greenville -- very, very strong demographics. We're very excited about it and the market itself.

Okay. Good. Thank you. And then, last thing I had for you guys on the bad debt side of things, I guess what are you seeing there? Is the current low level of bad debt going to kind of continue, you think, or I guess what are you seeing there?

Yes, Rich, I think, as John talked about on a previous question, the underwriting that we're doing on the mom-and-pop tenants, the amount of time we're spending with their wherewithal to pay the rent and to do their fixturing, I think overall there's -- As we look at the portfolio, we don't have any major tenant risks out there. Of course we're always going to have some come in and some go out, but when we look at it, I think we feel good about our processes. I think as we do our 2013 guidance, we're not going to be considering that to be a major risk for next year.

Yes. I think our reserves have continued to be accurate and conservative, and during the huge downturn in '09, I think a lot of people obviously experienced losses in excess of 1%, probably, of their revenue, the typical reserve. Today I would say that we're below that, and frankly, it's just a situation where there's less bankruptcies today that we see than there was in '06. So it's an interesting kind of phenomenon of, I guess, we have less players but stronger players.

Okay. Very good. Thank you, guys.

Thanks.

(Operator Instructions)

Your next question will come from the line of Quentin Velleley with Citi.

Just in terms of the development pipeline, I think, as a proportion of growth assets, you're about a little bit over 15% at the moment, and it will drop to 5%. As you spoke earlier, you might add a few more projects in there. How should we think about the development pipeline as a proportion of gross assets going forward? It seems like 5% would be too low for you guys, but maybe 15% sort of pushing it. Is there some kind of target that you want to have in process going forward?

Yes, Quinten, I think, as we've said, right now, the focus is to finish these out, which is going to obviously bring the percentage down to a low level. But I think over time, throughout the different cycles, if we're between 5% and 10%, that's a good place to be. And obviously you would want to be at the lower end, in a weaker cycle, and at the higher end in a better cycle. The fact is that development is so few and far between right now that we're going to be in the lower end of this right now, but we obviously think, as things improve, that we can move in and make things happen. So I would say we're comfortable in that 5% to 10% range, as long as our balance sheet is strong. And we still have work to do to improve the balance sheet, and we're in process of doing that. And as we bring our debt-to-EBITDA down over the next 18 months, like we're going to, in a significant way, then that will enable us to be more aggressive when we need to be.

Okay. And then, post the equity raise, I know you've got the Greenville asset that you are likely to close on in December. How much other capital have you got set aside for acquisitions at the moment?

Well, as you know, the equity raise was approximately $60 million, the Greenville asset is around $30 million. We have some other asset sale capital that we have, so we are in a comfortable position to continue to look for some opportunities, so we have some runway. I mentioned in the remarks that we're close on another deal, which is a smaller grocery-anchored center, in that $8 million to $10 million range, let's say. So I think we're going do what we said; in terms of the $60 million, we think we'll deploy at least $50 million of it straight into acquisitions, maybe more. And then that would give us a little more powder as we go into next year. And through the asset sales and the capital generated there, we'll be doing some recycling as well.

Okay. And then just lastly, in your opening remarks, you spoke about, potentially, a couple of high-productivity grocers coming into some boxes. Can you maybe just talk a little more about that and also just broadly about your leasing priorities for 2013, what we should be thinking about?

Well, clearly for 2013, we continue our push to increase our small-shop leasing. I mentioned that we have achieved a level of occupancy in the shops of close to 82%, which is as good as we've been for a few years, but still not where we want it to be. So we still maintain the goal of being at, at least 85% leased in the shops. Frankly, 85% leased in the shops means that we lease 65,000 square feet, or something like that, of shops; it's not a huge amount. But with tenant losses in other places, it's all about positive absorption. So we're moving in that direction. As it relates to the question about specialty grocers, we are very active on that front, and we are very active with our national tenant relationships. And again, every quarter that goes by, there's less and less available inventory, so we are very focused on making sure that we're close to the tenants to know when they want to make a move, which is what happened in these two deals that we're negotiating right now with a national specialty grocer. We knew where they wanted to be, and we happened to have two holes that could be plugged. So we are going to focus on that. But as far as '13 goes, we very much want to push the NOI up through lease-up in the small shops, and then also, any time we have a chance on the box side through non-option renewals, we want to be in a position to push rents there as well.

Thank you.

Thank you.

Your next question will come from the line of Josh Patinkin with BMO Capital Markets.

Looking at south Florida, you guys have a lot of assets in the Naples area and south Florida in general, and I'm just trying to get a feel. We've heard a lot about Florida housing recovery. Have you seen any of that in your tenants' performance there in terms of consumer spending? Do you get that information?

Yes, we get data, and we get anecdotal. On the anecdotal side, there's no question that the mood is better. I think the risk-taking environment is better. That might have something to do with the mom-and-pop activity, and again, that's been across-the-board in our portfolio. But all-in-all, I always said that I don't think our properties in Florida were hugely impacted by the residential downturn. I think they were more impacted just by the overall consumer confidence that we dealt with for a couple years. But if the actual data that we look at, in terms of housing, stock, and number of houses in foreclosure, all that stuff, doesn't seem to have drawn -- it doesn't seem to be a straight correlation to our increased occupancy. But clearly, the attitude is better, and I think that's the correlation. And then our centers have, because of the quality of our assets, the fact that typically, in whatever sub-market we're in, we are going to be the best or one of the best shopping centers at that intersection. So that means the weaker properties have gotten weaker, and the stronger have gotten stronger. And we're in the stronger category. So that's helped us a lot.

Okay. In those assets, is there any structural vacancy, stuff that will always be vacant? How vacant is it, relative to the rest of the portfolio?

The Florida occupancy is generally in line with our total occupancy, and so structural vacancy, that's hard to say. I mean, each shopping center has its particular weaker space, but that's why, when I look at the leasing that we're doing, in spaces that have been vacant for more than one year, and again, we include in that our numbers, we've done pretty well there, and we have not taken big hits on spaces that have been vacant for more than one year. So to me, that's a sign that A, we're doing a good job of not rolling over, and B, that these are good spaces. And that's why we've been waiting to get the right rents on them. So if you see our occupancy slightly below, in terms of the small shops, to maybe some of the peers, it may have something to do with how we approach the deals. We're not just going to roll over and take any rent, because we see the market improving, and we see supply shrinking. So we'd rather wait a couple months than roll over. But structurally, I think strip centers in general have less of that than, maybe, some of the other, bigger retailer, just because our design is simple and straightforward, and there's very little in the way of space that I would say would be structurally vacant.

Okay. And then finally, how would you say the cash rent spreads compare to Indianapolis, Naples to Indianapolis?

Again, generally, we don't see huge differences in any one quarter. For us, it comes down to what happens to be -- again, since the portfolio is small, relative to others, it comes down to what deals are happening in that particular quarter. But we haven't seen significant differences. I think where we've seen significant differences, probably, in the past, would be in the unanchored strip centers, where we have less power and draw. Those are a little more volatile, in terms of rents up and down. But in the anchored centers, in Indy versus Naples versus Chicago versus Dallas, pretty generally ubiquitous, not huge changes.

Okay. Thanks a lot, guys.

Thank you.

Your next question will come from the line of Tammi Fique with Wells Fargo Securities.

I was just wondering how much of the 2013 lease expirations have been addressed at this point.

The percentage?

Yes.

Typically, in the year, I don't have this right in front of me, but we've probably addressed probably 40% to 50% of it already. And then, we get into the year, and we typically get that up to 75% to 80%. So when I look at 2013, based on the percentage, you got, on the shop side, 3% of our AVRs rolling over, so that's not a huge amount, and on the anchor side, less than 1%. So we're in pretty good shape there.

Okay. And then, in 2013, are you expecting to be a net buyer or seller?

Assuming that everything stays as it is right now and the environment stays the same, we're in the growing mode, so we're going to continue to prune what we think needs to be pruned, but on the flip side of that, we see more opportunities to acquire than we do to sell. So probably, if I had to say right now, more on the net buyer side.

Okay. And then, my last question relates to NOI growth for 2012. The prior guidance range, I think you said in your release that you expected to be above that for this year, so above 2%.

Right.

And year-to-date, you have growth of 3.2%.

Right.

Should we anticipate a negative number in the fourth quarter?

No. I mean, no. I think we're probably going to end the year somewhere close to 3%.

Okay. Great. That's all for me. Thank you so much.

Thanks, Tammy. Okay.

And there are no further questions in the queue. I would now like to turn the call back over to Mr. John Kite for closing remarks.

Again, we want to thank everybody for finding a way to make time and to be on the call today. We really appreciate it and look forward to talking to you next quarter. Thank you.

Thank you all for your participation in today's conference. This does conclude the presentation. You may now disconnect. Have a wonderful day.