Kite Realty Group Trust (KRG) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q4 2014 Kite Realty Group Trust earnings conference call. My name is Tia and I'll be your operator for today.

(Operator Instructions).

I would now like to turn the call over to your host for today, Maggie Kofkoff with Investor Relations. Please proceed.

Thank you and good afternoon, everyone. Welcome to Kite Realty Group's fourth-quarter 2014 earnings call.

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 discuss 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. Now I'd like to turn the call over to John.

Thank, Maggie and good afternoon, everyone. Welcome to our fourth-quarter earnings call. We appreciate you spending the time with us today, as we're excited about the performance of our business during 2014 and the milestones that we have accomplished.

We are very positive about our prospects for 2015, which is reflected in the nearly 5% dividend increase we are announcing today in conjunction with earnings. This marks the second dividend increase we have made in the last year and underscores how energized and bullish we are about the future of our Company.

We've said it before, but 2014 was an incredibly productive and transformative year for Kite. We successfully executed on a number of strategic and balance sheet initiatives. We closed and fully integrated the $2.1 billion merger with Inland Diversified, and achieved the $17 million of synergies we estimated at the time of the transaction.

We exceeded the midpoint of our initial FFO guidance while decreasing the net debt to EBITDA by nearly a full turn to 6.5 times. Over the last 12 months, we have increased the dividend by over 13%. We grew AFFO per share year over year by nearly 19% to $1.77 per share. While expanding the portfolio and growing FFO, AFFO, and free cash flow, we continued to strengthen our balance sheet, which was recognized this fall when both Moody's and Standard and Poor's awarded us investment grade ratings.

We regionalized our leasing and asset management efforts by adding five regional offices across the country as we further enhance our market intelligence in key markets and hired several talented employees to help maximize this effort. We acted swiftly and efficiently when we announced plans to shed 15 non-core assets, of which the second tranche is on track to close near the end of the first quarter. Most recently, in December, we announced the $32 million off-market acquisition of Rampart Commons, an extremely well-located asset in the Summerlin area of Las Vegas.

[Our] portfolio has dramatically increased and elevated not only in size, but in asset quality and future growth opportunities. In addition to the southeast and our home base in the midwest, we've gained scale and meaningful footprint in Las Vegas and in North Carolina, Texas, and the Tri-State area. As a result of our entry into these new markets and the enhanced quality of our assets, we've grown our portfolio's ABR by 15% to $15.15. The scale of our shopping centers has grown over the last year as well. The average size of our portfolio centers is now over 200,000 square feet, which is more than a 12% increase over the prior year.

From an operational standpoint, the fourth quarter rounds out a very strong year for Kite, and the results are consistent with our target range, finishing 2014 with FFO per share of $2.02, which is above the midpoint of our original guidance from last February. For the fourth quarter, FFO as adjusted was $0.50 per share, which is nearly 9% increase over the same period last year. Our retail recovery ratio hit an all-time high of 89.6%, as we continue to squeeze efficiencies from tenant reimbursement revenue and achieve broader expense control. Leasing momentum maintained pace during 2014, as our team executed 229 new leases and renewal leases for approximately 1.2 million square feet. During the fourth quarter and on a comparable basis, we executed 55 leases with a blended cash rent spread of 7.5%. Our same-property net operating income grew another 4.8% for the quarter and 4.7% for the full year. Same-property NOI benefited from our continued focus on maximizing recoveries, which contributed 1.2% of the overall 4.8% for the quarter.

Turning to development, we continue to make progress on our outstanding projects in the Raleigh, North Carolina, area. Phase one of Parkside Town Commons is fully operational and is over 90% leased. In the second phase of the project, Golf Galaxy and Field & Stream opened in September of this year. Both Frank Theatres and the small shops will begin opening in the second quarter, with stabilization of the center expected in 2016. Phase two of Holly Springs remains on track, with Bed Bath & Beyond, DSW to open in the third quarter of this year and construction to commence on Carmike Cinemas in the second quarter.

We moved Tamiami Crossing from land held for development to our active development pipeline. Tamiami Crossing is a well-positioned 25-acre parcel in Naples, Florida, and we expect the project to contain approximately 120,000 square feet, with construction commencing in the second quarter. We're excited about the leasing momentum on this development, as in addition to Stein Mart we're in the late stages of lease negotiation with four other junior boxes and expect to announce specific lease transactions later in the second quarter.

We're confident that the actions taken to date greatly enhance the quality of our portfolio. Our top 10 properties, which represent about 25% of revenue, are a great example of that, and include assets like City Center in White Plains, New York; Centennial in Las Vegas; and Portofino in the Woodlands area of Houston. Combined, our top 10 assets have an ABR of over $20 per square foot. These properties also have a strong demographic profile, with the average population north of 200,000 people and household incomes averaging $93,000 in the trade area. The merger was a big factor in the portfolio transformation, as 7 of these top 10 properties come from the transaction.

In December, we closed on the first tranche of the $318 million sale we announced last fall. And we remain on track to close the second tranche at the end of the first quarter. As discussed on our last call, we intend on using the remaining $116 million in net proceeds from both tranches to first reduce net debt and then prudently redeploy back into high quality assets. We're focused on further enhancing our portfolio's quality, which is why we seized the opportunity to shed what we deemed to be non-core assets at the same cap rate as the overall merger.

The acquisition market remains extremely competitive and we intend to further enhance the quality of our portfolio, even if that means acquiring less today for a longer term benefit going forward. We're analyzing several other opportunities, but we'll be prudent in the acquisition market if it stays as intensely competitive as it is today. That said, we're excited about the $32 million acquisition of Rampart Commons in the Summerlin area of Las Vegas, which we announced at the end of the year. We found the right opportunity in the right market and we executed the deal at an attractive price. Rampart Commons is a great addition to our portfolio and has expanded our footprint in Las Vegas to now include seven properties and over 2.5 million square feet of GLA.

On to the balance sheet, we continue to improve our financial flexibility by extending our debt maturities to five years, reducing our average interest rate on our debt to less than 4%, while executing on our strategic objective of maintaining liquidity to cover the next two years of maturities. We achieved our short-term leverage target of 6.5 times net debt to EBITDA and we plan in the near term to further reduce this metric to approximately 6 times. A portion of the reduction will happen organically, as substantially completed development projects are finalized, and stabilized NOI comes online. The investment grade ratings are important because they provide access to the public debt markets. With the low rate environment, the public market provides another attractive funding source that allows us to unencumber assets and extend debt maturities at equivalent or lower interest expense over the next two years.

Looking forward to 2015, we expect another highly productive year. We've instituted multiple cost-cutting initiatives as we aggressively manage and operate our newer assets. Our road map is designed to identify, manage, and monitor opportunities that help us further grow recurring cash flow. We do this primarily through managing expenses to the lowest prudent level at each property and maximizing recoveries from tenants. We recently brought in an in-house real estate tax expert. Along with some internal software upgrades, this has allowed us to further increase our control and focus on the tax appeal process, and we're already seeing significant benefits from this.

We're establishing our initial 2015 FFO guidance to be within a range of $1.90 to $2 per diluted common share. As mentioned in our press release, the guidance range is impacted by a couple of strategic initiatives, including the dilution of approximately $0.15 relating to the sale of non-core assets between last quarter and the first quarter of 2015. That said, our increasing cash flow and anticipated decreasing CapEx is expected to result in a neutral impact to our AFFO year over year. Our initial guidance range also includes acquisition assumptions that are comprised of only $80 million, which are the opportunities that we have identified to date. That said, we're very prepared to spend additional capital to acquire assets if the right opportunities arise at the right prices.

The guidance range is also inclusive of opportunistic capital markets activity to continue our strategic plan to enhance the flexibility of our balance sheet. Our investment-grade ratings provide opportunities to further decrease our average interest rate, extend debt maturities and unencumber additional assets. A potential bond issuance would be substantially additive and accretive to earnings over the long term, but our guidance range assumes a $0.04 to $0.05 dilutive impact in 2015. Our 8.25% preferred note is callable at the end of 2015 and we have approximately $132 million of secured debt expiring on six assets in 2016 with a blended rate of 5.9%. So the benefits of our funding plan will begin to positively impact earnings in 2016.

While we have enjoyed two consecutive years of same-property NOI growth, averaging 4.75%, we expect this trend to moderate to a more stable range of 2.5% to 3.5% in 2015, primarily due to the spread between leased and occupied returning to normal levels. In addition to the occupancy gains, we are taking advantage of several re-tenanting opportunities in the [Oxiv] portfolio, which enters the same property pool in the first quarter. As an example, we replaced the former Conns Electronics store in our Portofino asset with TJ Maxx at a very attractive rent spread. This re-tenanting opportunity marks the initial step of a substantial amount of redevelopment we plan to start over the next couple of years at this exceptionally well-located property.

As we look beyond the next 12 months, we have multiple strategic growth initiatives in place that excite us about the future of Kite. These include stabilizing our current development projects throughout 2015 and 2016; reducing our overall cost of capital and increasing our balance sheet flexibility as opportunities arise; utilizing our vast development expertise to drive returns via redevelopment, repositioning and repurposing of assets; and acquiring assets both opportunistically and efficiently to further grow our NOI.

As we move into 2015, we are in a completely different place than we were when we started 2014. Then, we had a $1.8 billion enterprise value; now over $4 billion. We had a net debt to EBITDA ratio in the mid 7s; now in the mid 6s. We had free cash flow of roughly $10 million; now $50 million. We had $200 million in liquidity; now we have comfortably, $0.5 billion in liquidity. We were a small strip center REIT with a concentrated geographic presence; now we're a mid-cap REIT with an expanded footprint, a greatly improved asset base and a very strong balance sheet.

In summary, we're very pleased with our fourth quarter and year-end results. The team has worked incredibly hard throughout 2014 and we're very optimistic about the initiatives we have set forth for 2015 and beyond. The growth opportunities look right in front of us and we look forward to taking advantage of it. Thank you for your time. And this concludes our prepared remarks.

Operator, we're ready for questions, please.

(Operator Instructions).

The first question comes from the line of Christy McElroy with Citi. Please proceed.

Good afternoon, guys.

Hey, Christy.

Hey. So with regard to the $80 million of acquisitions embedded in your guidance, those are identified to date; as you said, you have some visibility there. Can you discuss expected timing and pricing and do you have anything under contract today?

Well, Christy, in terms of the timing and everything, as of today we're negotiating on a couple deals. So I wouldn't say that we're completely under contract. But we feel confident enough about those that was why we were willing to put that in guidance. I can't really give you the timing of that, although obviously it's February today, so we've kind of layered that in throughout the year, which is part of guidance.

And in terms of pricing, the market is extremely competitive. Most of the things we're looking at we feel like we have some growth opportunity, but I can't be very specific yet because we haven't finished, we haven't finalized it. Suffice to say, it's why we were very conservative as it relates to the guidance.

On Rampart Commons, specifically what was the cap rate on that acquisition and what role did the debt piece possibly play in the pricing of that deal?

Well, the debt played a bit of a role, although I think we were comfortable that it wasn't that long. So we can deal with that I think next year. But in terms of -- I take that back, actually it is longer term debt. So we felt like that it wasn't high enough that it hurt the asset in terms of the amount of debt. It was very low leverage. But yes, I think it's a factor in why we were able to pick it up where we did.

It was an off-market transaction. So that helped us. But in terms of the price, you're talking about low 6 range, but again, it's an extremely high quality asset in the Summerlin area; very, very good demographics. We have some redevelopment potential that we think is in the very near term. But I think it was a little over $30 million acquisition and the debt was around $12 million. So it wasn't that big a factor.

Lastly, with regard to your same store NOI guidance for 2015, you talked about the Occid portfolio entering the pool, but when do the Inland assets enter the same-store pool? And is there any difference at all in the expected growth rate as the pool stands today versus when the Inland properties are contributed?

The Inland assets will enter the pool in the third quarter. So as the guidance that we have given takes into account both Occid coming in and Inland coming in in the third quarter and then the layering in of everything in the fourth quarter. So I don't think that is really that big a part of it and then one of the things that we talked about last quarter was, as a matter of fact, we are tracking the leasing spreads in each of the portfolios.

Now, again, as I mentioned last quarter, we don't think about it that way in the Company because it's all one Company, one portfolio. But those spreads were pretty tight as it relates to renewals. Just to be specific, in the legacy KRG portfolio the renewal spreads were 5.8%. In the Occid portfolio they were 5.6% and in the Inland portfolio, they were actually the highest at 6.3%.

So honestly, the biggest impact to our same-store guidance is the fact that we started off the previous year with a 330 basis point spread between leased and occupied, which I think is down to 130 basis points. So you've seen a significant compression from leased to occupied. And I think that's the biggest thing, is that we've taken in most of that. So it really doesn't have a lot to do with which portfolio we're talking about and just that we're leasing it up and there's less to do there.

Thank you.

Thank you.

The next question comes from the line of Todd Thomas with KeyBanc. Please proceed.

Hi, thanks. Good afternoon. Back to acquisitions, I was curious now that you have a much more geographic diversified portfolio, where should we think about new investments being located? Is there a market or a strategy, geographically, that we should think about going forward here?

Sure. When we look at what we're pursuing right now, we're talking about -- as I think about it, we've got activity in assets in all of our markets, but for the midwest in terms of what we're pursuing right now. So a couple of the assets we're looking at are in Texas, some in the northeast, southeast; so kind of across the board. We're not currently actively pursuing an asset in the midwest, but that can change.

Again, that's why we -- and I know that was a big impact to everyone's numbers, but that's why our guidance was what we feel to be very reasonably conservative in the acquisition side, is that the market is so competitive. We didn't want to put a number out there and then feel like we had to chase down cap rate. That's what, I think, some people have done.

But in terms of the markets themselves, we definitely see opportunity across the board and we're getting -- as a good example, the Rampart acquisition in Las Vegas, that was sourced from our Las Vegas office directly and it was off market. That's what we're hoping these regional offices will help us do even more of, is being a player locally, which is always going to find us more deals.

Okay. And then in terms of leasing, sounds like the junior anchor spaces are where there's the most activity, where the most demand is today and your anchor space is 99% leased. What's the environment like in your portfolio for smaller shop space, getting the higher rents, getting the small shop occupancy up a bit?

I think it's good. We've talked about this before. We have a goal of getting our small shop occupancy to 90% over the next couple years. We're still in that close to 86% range. We're tough. We don't make it easy to get deals done internally. That's why we're getting 6% renewal spreads. That's why we're getting all of our new small shop deals grow at 3% a year or better. If we let down that guard and we were more accommodative on that side, ultimately it would hurt us. It would help us in the short run and it would hurt us in the long run.

I think the market is strong for in small shops. If you look at the number of deals that we did during the quarter, we did a lot of deals. We did a lot of shop deals and it's a combination of national and local. So we feel good, but when you're driving the kind of rents that we're driving and you're making sure that the leases are extremely -- that are favorable to us, that takes some time. And that's why we are where we are. Tom, you want to add in.

Yes, Todd, a cup couple points. Number one is, through the dispositions we've obviously increased the quality of the portfolio, which will help us, number one. Number two, John talked about the regional structure that we have throughout the country and the addition of quality leasing people, so we're expecting those two factors to really propel us. But we're seeing the opportunities and at this point it's banging away and getting these deals done pursuant to budget. We feel like we've got the pieces in place to be successful.

Okay. The last quick one on the guidance, maybe for Dan. Curious if you could tell us what's baked in for other property related revenue and income for the year, the overage bucket, some additional condo sales at Eddy Street, what's the right range to be thinking about for the year.

I think, Todd, when you look at other property related revenue, I think it's going to be pretty consistent year over year when you look at the NOI page in our supplemental. It typically ranges $1 million to $1.2 million a quarter, in that range, similar to what we've done in the past four or five quarters shown on that page.

The Eddy Street condo sales or residential sales, there's only a few of those remaining. So that's kind of muted for 2015. We'll be finishing that up. And as far as overage rent, if you look, this quarter we generated about $422,000 of overage rent. I think on an annual basis you'll probably see that number in the $750 million to $1 million range from a guidance perspective.

Okay. Great. Thank you.

Thanks.

(Operator Instructions).

The next question comes from the line of Craig Schmidt with Bank of America. Please proceed.

Thank you. Will you guys be ramping up your redevelopment efforts to mitigate the slowing same-property growth?

You know, Craig, I think we're definitely focused on and we use the word; we have the three R's, redevelopment, reposition, and repurpose and that's very important inside the walls here in that, yes, we are ramping that up. We are looking for those opportunities. And I think that as it relates to the same-store slowdown, I guess that's the right word. We were at such a compression, we were compressing that leased to occupied number over the last two years because we had a lot of box deliveries.

And those are big numbers. So I don't feel like we're slowing down in terms of what we're doing on the shop side and that's where most of it's coming. We're actually growing that, the NOI there pretty favorably and I think that's why we want to focus on the fact that our renewal spreads are pretty darn strong. When you can be a close to 6% on a renewal spread, that's pretty good.

So, yes, we will be looking at these opportunities. They take time. And that's why we said, Craig, that over the next two years that we think we'll start $100 million of projects across the board in terms of value creation. And hopefully that pace will quicken or will accelerate, I should say. But we're going to be smart about spending those dollars and make sure we get high returns.

Great. What is your Radio Shack exposure right now?

I think we have like 13 Radio Shacks. Remember, these are only 1,200 square foot spaces, so I think the total square footage comes down to like 30,000 square feet. It's really not a big impact, probably. Obviously, if every single store were to close, it's not great. But we're, frankly of those 13, we're already engaged in 9 of them with activity.

This has been the worst kept secret since I don't know when. So we've been working on this for well over a year and quite frankly, most of our leasing people are excited to get that space back. And again, with nine of them active that just shows you, we've been getting calls from tenants. I would guess a few of our stores will convert to the Sprint stores. So not a big issue.

To add on to that, the average rent on those are very attractive. We really look at it from an upside perspective across the board.

Are you seeing in your small shop space more mom and pops and independents, given the improved small business outlook?

Yes, I think, Craig, we see a good balance. I think there's probably -- some of the mom and pops have gravitated to franchise businesses. So you see less. Say five years ago versus today, that's a bad example. Before the downturn versus today; I would say before the downturn there were probably more independent stores. A lot of that is we prefer dealing with small shop players that have a franchise behind them because it brings business plans, it brings capital, it brings advertising.

So I think we've gravitated to that. But the good thing is, is we have options. In general, when we have good spaces, we have multiple small shop players for that space and it also creates less down time. We're always going to have turn over in this business, but it feels like today there's a lot less down time than there used to be. So I think overall the environment is good in the small shop space.

Thank you.

Thank you.

The next question comes from the line of Andrew Schaffer with Sandler O'Neill. Please proceed.

Thank you. Going back to the acquisitions, are you guys looking at any of your current joint ventures as potential sources?

Yes, I think we are. We have a couple opportunities within there, but as you know, Andrew, we don't have a ton of JVs. So it's not like a company that has a huge JV program. But I think we're going to try to do some stuff on the margin there and probably a couple buyouts. We're working on some buyouts that could be interesting. And that would obviously simplify, but this is not a complicated company by any means. We're pretty straightforward that way.

I think just in terms of the acquisitions themselves, I want to make something clear. We intend on beating our acquisition guidance, but I'm not going to chase down a cap rate because I threw out a big $300 million guidance number. So I think that's what's happening here, is that we're being very conservative. We're putting out there the deals that we're actively engaged in tying up. And then we've got a whole year ahead of us to exceed that and we obviously have a lot of capital.

You're talking about a company that's got $0.5 billion of liquidity with constant two years of coverage on maturities. That's a strong business model. So I think we'll do well there and I think we'll find unique opportunities. If you look pack, probably 70% of what we bought over the last couple years has been off-market. That also makes it a little more challenging to predict. So that's part of that as well.

Thanks. And secondly, I know it's a little early in the process, but can you comment on the potential mark-to-market on your Staples and Office Depot exposure and if that potentially creates a larger opportunity for redevelopment or development?

Yes, I think first of all, high level in terms of the Staples, Office Depot situation, a couple things. One, as you know, we've been working on the Office Depot, OfficeMax situation for a year. And we already were well engaged in that with our 20 or 21 stores that we have there. The Staples really doesn't add a lot to the element for us because we only have six Staples, I think. So it's really about the total office supply picture.

From a mark-to-market perspective, our rents are generally in line. That's really more of a center by center thing. I think our total rent is around $13 there. So it's going to be -- that's above our current anchor average, but the reality is that's where we're doing deals today.

And we haven't talked about that much, but when you look at the next two years, both in our anchor expirations and our shop expirations, we still have growth there. Mark-to-market, I think it's case by case. But definitely opportunity because it's the right size box and that's the -- this 20,000 square foot range box is what there's a lot of demand for.

Great. Thanks. That's it for me.

Thank you.

The next question comes from the line of Chris Lucas with Capital One. Please proceed.

Good afternoon, everyone. A couple of questions on guidance. Specific to same store NOI growth, I want to make sure, should we be expecting essentially fairly consistent same-store NOI growth numbers throughout because the pool does change dramatically. I want to make sure I understand that pace.

I think what you'll see is, as we begin the year, it's going to be a little more weighted to where we ended the year. And then the middle quarters is when stuff starts to change because things are coming online. So that probably compresses a little bit or comes down a little bit.

But then as we end the year, we think we accelerate probably back up as we get opportunities with the new assets coming in, which is where we're stepping in and making deals in a portfolio that previously someone else was making deals. So I think it's going to be one of these things where it moderates a little bit and then comes up a little bit to the end.

And then if I could dig down a little bit more on that. Do you have a sense as to the contribution of same-store NOI as relates to occupancy pickup, revenue growth and OpEx improvement?

Yes, in this particular quarter we don't have those particular details for next year, but in this quarter as far as rent bumps and ancillary revenue such as additional out-lots, new ground leases, et cetera, that was about 2% of the 4.8%, new leases, occupancy gains was about 1.7%. And then as John mentioned on the call, on the script, about 1.2% were increased tenant recoveries as we've really focused our efforts.

Tom's got the operational group focused on maximizing based on tenant leases and expense recoveries, how can we maximize that margin. So that's what this quarter looks like. I think when you roll out to next year, I think the focus is going to be rent bumps and the ancillary side of it. As John mentioned, the occupancy has closed the gap a little bit. A lot of the anchors that we were working on have taken possession of their space. I think that's looking out to next year, those are going to be the couple big drivers.

And then Dan, while I got you, on G&A for guidance for next year, can we use fourth quarter as a good run rate? What should we be looking at?

I think as we put in the release, $16 million to $18 million. I think we've been pretty consistent since the merger, saying that number was going to be $4 million to $4.5 million a quarter, which still drives to the $16 million to $18 million. I think, obviously, we typically give a range and we land on the midpoint so I think that would probably be a good thing to use in your model.

And then John, I know it's early in the new year, but as it relates to tenant fallout, are you guys seeing anything other than the conversation about Radio Shack or the Staples, Office Depot circumstance? Is there anything that you're seeing in the first five weeks of the year in terms of tenant fallout that concerns you?

No, I don't think so. I think as I said, the Radio Shack thing has been around for a long time. We'll see what happens on the Staples merger. That's still got to get done. But no, I think it remains generally pretty healthy. Certainly, when we see small shop space come back to us, if it's a local tenant, as I mentioned, we generally have people interested. It's funny, a lot of our leasing people get called constantly on centers that are full. So at this point, Chris, it looks to be generally the same as last year. But it is early. A lot can happen.

Right. Last question from me, on the development pipeline, you added the new project this quarter, starting to see some of your peers add new parcels, purchased parcels to their development pipeline. Can you remind us what the status is, of what I would call your legacy land, and what your thoughts are about new parcel acquisition for future ground-up development and where you guys are thinking about that in your business plan right now?

Sure. When you look at it, the project we're doing now, Tamiami, was one of, what I would say, is the last larger parcels remaining that we could develop. We have another parcel in Raleigh that is probably the next large parcel behind that that we're actively pursuing some activity. That's adjacent to the Super Walmart that we opened there a few years ago.

After that, probably the project that has the most upside is the Pan Am parcel in downtown Indianapolis, which will eventually be a large mixed-use project. Outside of that, we're talking about smaller parcels, more like out parcels. So we're getting to the point where we've pretty much worked through that, which is why we're actively engaged in the repurposing of existing assets.

Great. Thank you.

(Operator Instructions).

The next question comes from the line of Tammi Fique with Wells Fargo. Please proceed.

Hi. Good afternoon. I was curious, as you think about potentially doing more acquisitions than the $80 million outlined, is your plan to match fund dispositions with acquisitions? And then do you have a portfolio of properties that you've identified already that you'd potentially sell?

Well, I think we start, Tammi, with the fact that when the second tranche closes, we'll have $116 million in cash. So, if we were to pursue deals leverage neutral, obviously we would do almost double that. I think what we're going to do is see what comes our way in terms of those acquisitions, as we talked about. We mentioned that we've done a lot of work with the balance sheet and we feel very, very comfortable that our balance sheet is strong.

That said, to bring the leverage down another couple turns or notches, I'll say, not full turns but notches, it's important to us; because, again, one of these days it's going to be more about the balance sheet. That will come again. And we want to be in that position to take advantage of those opportunities. That's why we're so focused on having the liquidity that we have.

But all that being said, yes, I think we'll first use that cash to the extent we find the deals that we like and then it's all about where we want to end up in our capital structure and where we want our leverage to be. Once we achieve that point where we think we're at a long-run leverage position, then deals would be done essentially leverage neutral.

Okay. So you're saying you do not have properties today that you have identified or are marketing for sale?

We don't have a portfolio of stuff on the market. We definitely have properties identified that we think that if we had a good use of funds, good use for the proceeds, that we would consider selling. It's part of the reason why we did what we did at the end of last year, which was to take advantage of the environment which, again, is short-term dilutive, long-term accretive.

So, I think we would try to plan it such that we had an immediate use of the proceeds, because we're now down to a position where we sold what we felt like we needed to sell in terms of assets that did not meet our criteria. So now going forward, it will probably be more on the margin of what we're doing.

Okay. Great. And then one more. Where do you think, Dan, that you would price on an unsecured bond today?

Really low. I think when you look at, overall, when you look at the transactions that have been done and where we sit, I would say in the low 4[%]s.

Or better. This is John.

Or better. That's the hope, yes. Thank you so much.

They're going to need to be real competitive if they want us to pull the trigger.

The next question comes from the line of Collin Mings with Raymond James. Please proceed.

Thanks. Good afternoon, guys. A lot of my questions have already been answered. Given the drop in oil prices and overall concerns about the Texas economy, can you update us on what you're hearing from your tenants on the ground there? And then you mentioned that you were looking at a couple of assets potentially in Texas. Have you seen any impact as far as the transaction market or influence on cap rates, given some of the concerns about the state's economy?

Great question. In terms of what we do on the retail side, quite frankly at this point we've seen no impact from a cap rate perspective. If anything, the deals we're looking at in Texas, the cap rates are lower today than they were six months ago when oil was higher. So it's really more about scarcity of high-quality product than it is about, I think, oil in the short run. Now, obviously Houston is more impacted than the other markets. It's more impacted than Dallas and Austin and San Antonio.

Even in Houston, the deals that we've seen trade there have been at very aggressive prices. But again, remember that we made a big deal out of the fact that our portfolio is now really strong and we have a group of assets that, based on what I'm seeing today in cap rates, it would be hard to buy what we own with a six in front of it. It's gotten to be very challenging in that regard.

The deals that we're looking at happen not to be in Houston right now, but we would absolutely do a deal in Houston if we found the right one. But no, I think it's early in that game and when you look at the state in totality, they've done a great job of really diversifying away. But look, the reality is, it's a factor. But certainly hasn't come into play in cap rates at this point.

Okay. Great. Thank you.

Thank you.

There are no more questions in queue at this time. I would now like to turn the call back over to John Kite for closing remarks.

Okay. Again, wanted to just close on the fact that we had what we felt like was an outstanding year. The Company is in a great position from a liquidity perspective and we are absolutely excited about what we see in front of us and look forward to continuing to grow the business. Thank you for your support. Bye-bye.

Ladies and gentlemen, thank you for your participation in today's conference. That concludes the presentation. You may now disconnect. Have a great day.