Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2019 Kite Realty Group Trust Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Bryan McCarthy, Senior Vice President, Marketing and Communications. Please go ahead, sir.
Thank you. Good morning, everyone. Welcome to Kite Realty Group's third quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.
On the call with me today from Kite Realty Group, are Chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom McGowan, Executive Vice President and Chief Financial Officer, Heath Fear, Executive Vice President, Portfolio Management, Wade Achenbach, Senior Vice President and Chief Accounting Officer, Dave Buell, and Senior Vice President, Capital Markets and Investor Relations, Jason Colton. I will now turn the call over to John.
Thanks, Bryan. Good morning, everybody. Before reviewing our results, I wanted to take a minute to discuss Project Focus. In February, we announced a bold plan to sell up to half a billion dollars of non-core assets and de-leverage the balance sheet. Here we are just eight months later, we've sold 20 assets for $502 million in gross proceeds. I'm incredibly grateful and proud of the team for executing so flawlessly. Some interesting facts about Project Focus. Pricing was exactly as expected, resulting in a blended cap rate on these non-core assets of approximately 8%. We transacted with 16 different buyers across a spectrum of investor profiles. The average weighted closing date was late June versus our original expectation of late August. After we announced our plan, we were often asked, "Why now?" I don't think we could have picked a better time.
Not only did we deliver on the total gross proceeds, the resulting impacts are in line with that we expected. The lower growth non-core assets we sold had an ABR of $14.66. This compares to our pro forma portfolio ABR of $17.70. We've got a more focused portfolio with approximately 76% of KRG's ABR now located in the Southern and Western United States. These are markets that stand to benefit from migration and demographic trends that are undeniably accelerating. As of today, we've got zero drawn on our $600 million line of credit, which allows us to satisfy all debt maturities through 2025. Taking into account the three sales after the end of the quarter, our net debt to EBITDA is 5.9 times. We started the year with net debt to EBITDA of 6.7 times. As a reminder, we have no outstanding preferreds.
Bottom line, we have an improved and more focused portfolio with a balance sheet that's affording us tremendous optionality as we head into 2020. With Project Focus behind us, it naturally begs the question, what's next? Internally, we've been referring to this as Beyond Focus. It's not an elaborate plan. Rather, it's a commitment to three anchoring principles: produce consistent earnings growth through superior operations and prudent capital allocation, gain scale in our target markets, and maintain an investment-grade, low leverage balance sheet. Earnings growth is all about focusing on operations, filling vacancy, pushing gross rent spreads, embedding contractual bumps, implementing fixed CAM, uncovering organic redevelopment opportunities, and doing all of this with high-quality tenants. As for gaining scale in our target markets, our current cost of capital requires us to be resourceful and creative.
Match funding opportunistic acquisitions with select dispositions is likely, provided that it's not at cross-purposes with growing our earnings and maintaining leverage goals. Most importantly, we'll continue to chop away at our discount to NAV. Switching gears to acquisitions, during the quarter, we purchased 140,000 sq ft community center in Indianapolis for $29 million. We were able to purchase this Whole Foods-anchored and Target shadow-anchored center in an off-market transaction. We have great expectations for this asset, with plans to upgrade the tenancy and drive rents to levels that reflect the high-quality real estate. This brings total acquisitions for 2019 at $58.5 million, approximately a 7% blended cap rate. Let's take a look at our earnings and operational highlights. We generated adjusted FFO of $33 million or $0.39 per share. For the nine months ended September 30th, we generated adjusted FFO of $1.26 per share.
We grew same property NOI by 2.3% compared to last year, driven primarily by increases in base rent and expense savings. During the third quarter, we executed 70 new and renewal leases for over 560,000 sq ft. It's important to note that 15 of the renewals were anchor tenants, representing approximately 340,000 sq ft, and all but one of these leases had positive rent spreads. Over the trailing 12 months, we've executed 322 new and renewal leases for over 2.2 million sq ft. We continue to make very good progress with our big box surge program, signing another lease in the third quarter. This brings the total of big box leases to nine year to date and 21 since the beginning of 2018. The 21 boxes we've signed since 2018 include over 556,000 sq ft. The 15 comparable leases had a cash spread of approximately 17%.
As of September 30, we've opened 10 of the 21 new leases, with the remainder anticipated to open in Q4 of 2019 and early 2020. An item to note, the estimated total capital cost associated with the 21 leases is approximately $44 million, with an estimated return on cost of over 15%. Some investors have asked us about the depth of our redevelopment pipeline. While the big box surge has been our de facto redevelopment pipeline with better risk-adjusted returns. As a result of our significant leasing efforts, our retail anchored lease rate stands at 97%, a 230 basis point year-over-year increase. Our retail small shop lease rate is 92%, 110 basis point year-over-year increase, and still an all-time high for KRG. Our total portfolio economic occupancy is currently at 92.1%, which is a 330 basis point spread to our lease percentage of 95.4%.
This spread equates to over $8 million of NOI that will come online over the next 18 months, with over $5 million attributable to the success of the big box surge. Turning to guidance, we're raising our 2019 same property NOI growth assumption by 25 basis points at the midpoint to a range of 2%-2.5%. We're also tightening the 2019 FFO guidance to $1.63-$1.67 per share, which maintains our midpoint of $1.65 per share. The positive impacts of our improved same-store assumption are roughly offset by us having achieved the higher end of the disposition range. We said at the beginning of the year we're going to embark on a strategy to not only focus and improve the portfolio, but to also delever the company. We accomplished exactly what we laid out and are extremely pleased with the results.
I'm fortunate to partner with Tom and Heath and to be surrounded by a team with intense passion and drive. Our company is now well-positioned for the future growth with a fortress-like balance sheet and a more focused strategy concentrating on the Southern United States. With that, operator, we're ready for questions. Thank you.
Thank you. Again, ladies and gentlemen, if you do have a question at this time, please press star then one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Christy McElroy of Citi. Your line is now open.
Thank you so much, and good morning, guys. Just with the looking at your guidance for the rest of the year, so the midpoint of Q4 is $0.39, annualized at the $1.56. Should we think about that as a good sort of post-disposition base or run rate from which to consider things like AFFO dividend payout and free cash flow to invest? Or are there other factors to consider that it would be reset lower than that?
I would say on a run rate basis, Christy, obviously we lost some revenue in the fourth quarter, so we're still $0.39 as compared to the third quarter. That's really being made up by term fees that we've already received. Whether that's not a good run rate, the term fees were about $0.03. I'd probably say that's just a little bit high on a run rate.
Yeah, I know, Christy, I would just add, if you go back to what we laid out last quarter in terms of the assumed dilution, from the total impact of the asset sales, really the only difference is the pull forward of the acceleration of the two months sooner. As you think about 2020, and we're obviously not talking about 2020 guidance or anything like that, what we had laid out previously was pretty accurate relative to the dilution from the sales.
Just as you think about, and I know you're not giving 2020 guidance yet, just as you think about sort of that ongoing run rate, how are you considering dividend paying capability and sort of as you look ahead to this next period of time where you're not going to be disposing more match funding, not disposing to reduce leverage, it's more looking at it from a growth perspective. How are you thinking about that free cash flow to component from which to invest in redevelopment, retenanting, and acquisitions?
Sure. I think it's very similar to what we talked about last quarter, which was that obviously, we took that into consideration when we embarked on the plan, and we knew that we had been, quite frankly, very conservative on the payout ratio historically and had room to execute on this plan. As you look at it in 2019 and 2020, those are really the years where you have significant spend on the big box surge, which honestly, if you look at what we spent year-to-date in 2019 and what's remaining to spend, as I pointed out, the $44 million that we're spending on those 21 leases, that's two times our normal rate that we would be spending per year. It's the same as it was that we laid out, which was that we knew that 2019 and 2020, we would be bumping up against that.
We are comfortable that the cash flow growth that is coming from the box leasing and the shop leasing and the redevelopments that will be coming online is sufficient to grow cash flow in 2021 and 2022 to a comfortable level at the existing dividend. As I pointed out, we had raised the dividend significantly over the previous five years, and we think that at this point, the dividend is in a place that we're comfortable with, but wouldn't necessarily be looking to raise it. Long answer, but it's the same as last quarter. We're very comfortable, and when we look at our projections and we look at the leasing that we've done and the cash flow that's coming online in 2021 and inspected in 2022, we feel pretty good about that.
Okay, great. Thank you.
Thank you.
Thank you. Our next question comes from Todd Thomas of KeyBanc Capital Markets. Your line is now open.
Hi, thanks. Good morning. First question, just regarding Project Focus here and the reduction in leverage and following up on that a little bit. I believe you originally had a target of mid to high five times on a debt-to-EBITDA basis for leverage, and the dispositions came in at the high end of the range. I'm just curious what the variance, relative to your forecast was that prevented leverage from coming down a little closer to the low end of the range. Are there any updated thoughts about leverage around that longer-term target for the company?
Yeah, Todd, the target is mid to high five, but we said from the very beginning, should we achieve the high end of the range, that's our net debt to EBITDA at 5.9. We're exactly where we thought we were going to be.
Yeah, I think when we talk about mid to high fives, Todd, that's over a period of time. We never said that we would be at five and a half, for example, right now. When you look at where we are, and you make some assumptions over the next couple of years, we could move down to the mid five times. As Heath said earlier, we want to be in this range because that creates more optionality. Remember, this is also in the backdrop of a debt maturity schedule that is extremely favorable and a $600 million undrawn line of credit.
It's really less about whether it's 5.5 or 5.7 or 5.9, and more about the optionality of a very strong balance sheet and a very strong cash position, which is really why we're very comfortable when we look out over the next couple of years that we're in a good position to be able to look to grow the business in the future. That's what this was all about, strengthening the company, positioning us to grow.
Okay. In terms of additional investments here following Nora Plaza, can you just talk about what else you're sort of seeing and how we should think about acquisitions heading into 2020?
Sure. I think let's talk about it in a macro level. As I said in my prepared remarks, first of all, Project Focus was just that, a very focused operation. It was very focused on a small set of goals, and we achieved each one of them. What we're now thinking about is going forward, how can we participate in acquiring assets, adding value to existing assets, growing cash flow, growing earnings, with our current cost of capital. That's what I was referring to in the potential and likelihood of us continuing to sell a handful of assets, match fund those with acquisitions with better growth profiles. As we look at that, we have to be cognizant of how can we acquire assets that we want with our cost of capital.
I think it's a limited exercise, but there will be a handful more dispositions, there'll be a handful more acquisitions, and very similar to what we just acquired in the Whole Foods center that you mentioned. In terms of the competitive nature, if that's what you're referring to, it's extremely competitive to buy quality assets, much more so than I think maybe the market even realizes. Obviously, if we can sell half a billion in 8 months at the exact numbers that we anticipated we would, it shows you the depth of the market. It's a competitive environment, but we think we can find opportunities in our target markets that have good upside.
Okay. That's helpful. Just a last quick one for Heath on the model. Straight line rent flipped this quarter, so it detracted from GAAP rental income. Was there anything one time in the quarter? Should we expect that to normalize going forward?
There was a $1 million straight line receivable write-off related to one of our bankrupt tenants.
Okay, got it. Thank you.
It'll normalize next quarter.
Thank you. Our next question comes from Daniel Santos of Sandler O'Neill. Your line is now open.
Hey, good morning. Thanks for taking my question. My first one is on bad debt. It's come in below budget this year. Would you say that tenants are in an overall better position, or are you expecting to see a bit of a retailer purge after the holiday season?
Well, I think our bad debt is right in line with what we projected it to be. When we look at the fourth quarter, we're comfortable with our remaining bad debt reserve. As I said, we're not getting into 2020 right now. I think in a macro, when you look at the total retailer landscape, and you look at the comings and goings, if you will, it's a pretty positive environment. When you look at the statistics, that it kind of amazes me that people just seem to gloss over the statistics that we're generating. 97% leased in our big boxes. That's a pretty phenomenal number. What that means is that we have eight vacant boxes out of 280. That's pretty healthy business. I think that, look, we're back to the normal when you have tenants that do well, tenants that don't do well.
Our job as landlords is to own great real estate so that we have lots of optionality. I think that's probably where we are. Tom, you want to add anything to the tenant landscape?
Yeah, I think one of the best parts that we're seeing is just diversification in general on the tenant side. You look at the 21 boxes that we've done, 17 were done on single accounts, then we had only two tenants that had two spaces each. That just shows you that we're not focused on one or two tenants. We're focused on a wide variety of groups, and these are groups that we spent a lot of time. We've been on a lot of portfolio trips this year, just making sure we nurture those relationships. I think the same holds true on the small shop components as we are able to work with the Bed Baths, the Sephora, the Torrid's, Versona, a lot of nice names, as well as our overall grouping of tenants that we go after each and every year.
I think the theme is we got optionality, and we're going to continue to use that leverage as we move forward with a limited amount of inventory.
Got it. That's helpful. Just keeping with the sort of tenant theme, there was an article this morning about Kroger reporting strong results just after following their sort of two-year restructuring plan. Would you say that this is sort of one-off to Kroger, or are you feeling more positively on grocery store health and grocery anchored assets?
Look, as far as our portfolio goes, our grocers are very healthy. It's no different than any other segment or sub-segment of the retail landscape. You have winners and losers, clearly the winners in the space are investing in the physical platform. Kroger has a lot of things going on as it relates to buy online and pick up in store and things of that nature. The fundamental similarity amongst the successful retailers is a strong physical footprint that supports the online business. Kroger's done a great job in that particular instance of doing that. Quite frankly, by the same token, you can look at a grocer like a Publix who is a little more traditional, but executes at an extreme level. I think from my personal perspective, the grocery business is strong. Doesn't mean that there won't be some players that struggle.
Again, with our portfolio, the strength of our real estate, especially the strength of it today as it relates to the beginning of the year, we feel extremely comfortable with that sector.
Great, thanks. That's really helpful.
Thank you. Our next question comes from Floris van Dijkum of Compass Point. Your line is now open.
Great. Thanks for taking my question, guys.
Morning.
Morning. I was wondering if you guys could maybe comment on your fixed CAM initiative, and what kind of impact you expect that to have going forward on your earnings as well as on your margins?
Sure. I would just say, again, the fixed CAM initiative is something that we've been working on for the past four years, I'll say, in terms of intensely. I think it's a positive both for the landlord and the retailers because it simplifies kind of an arcane, older, complex process of dealing with CAM reconciliations at the end of a year, having that stretch out into the following year, having to go back and forth on what expenses were disputable and non-disputable. The fixed CAM eliminates all of that, enables both us and the retailer to budget the cost of occupancy for the year and really simplifies it. Obviously, we're also able to grow it on an annual basis. Tom, you want to add to it?
Yeah. I think the key for us. The simplification points that John talked about. At the same time, we can now try to accelerate this by doing more of a portfolio-wide fixed CAM initiative with some of our larger boxes. I think we're starting to see more and more companies. We were just at Burlington and having discussions about what's the best way to execute on that. There'll always be discussions on what the annual bumps are inside the fixed CAM initiative. We are very much entrenched and dedicated to this process because we know the great benefits to the company.
Yeah. Floris, for some facts here. 37% of our leases are on fixed CAM now, and 76% of our leases are new, and renewal leases are turning to fixed CAM. Do the math, look at our turnovers, we should have over 55% of our leases in two years will be on fixed CAM. What you'll see also, you'll see our recovery ratio should also increase. It's a great program. It causes a lot less noise at the year-end in terms of CAM reconciliations. It's a win-win for both sides.
Really, Floris, our focus is our gross rents. I think people sometimes lose sight of. They get very fixated on this ABR. In the end of the day, it's really the AGR that is the most important thing. What is your gross rent? What are you recovering? What is the occupancy cost for the tenant? That's what this business is. I think you'll see us pivot more and more to conversing with you guys about our gross rents, because I think they compare very favorably.
If we look across to the mall sector, certainly, some of the better operators like Simon and, before it got bought, GGP, actually, the recoveries were a profit center. Would it be possible where you guys get to more than 100% expense recoveries, if you were to obviously institute this on a greater percentage of your portfolio?
Obviously, it depends on the overall occupancy of the portfolio and the nature of each individual deal. Look, I don't think we're so focused on it as a profit center. That's maybe a sub-result of the efficiency. We're more focused on the efficiency. Ultimately, that efficiency can lead to a more profitable enterprise, both in terms of cost associated with overseeing this complex process and simplifying it. There's a cost savings there in a lot of different ways. Over time, for both the retailer and the landlord, I think it's just a better way to run the business, and hopefully, that does turn into somewhat of a profit center, but that's not the drive behind it.
Great. One more follow-up, if I may. Just on the Whole Foods acquisition. If you're insinuating it's done at around a seven cap, that seems high for that kind of grocer anchor center. Where is the upside? Should we assume it's pretty flat income, or do you think that you can really drive rents going forward?
As it relates to the price, it's an off-market transaction, and we feel like it was good execution for everybody. We're happy with that, and we're pleased with the number, let's put it that way. As it relates to going forward, we're really more focused on IRRs anyway. The going-in cap rate can be deceiving on any particular deal. Here, it's favorable to the IRR, and the IRR will obviously exceed that. I think the upside is in the fact that this is a property that is extremely well-located. We believe we can do with it what we've done with other properties in the market, which sit on what we would call very strong real estate, arguably irreplaceable real estate.
Ultimately, over time, we will invest capital, we will get strong returns, we will ultimately drive the rents vis-a-vis that, and the IRRs, we think will be strong. Looking at one deal, you can get kind of caught up in that. It's a great deal for us, and there's definitely upside.
Yeah. The only thing I would add is part of this decision, beyond simply the retailers, we've really focused on the real estate, and we have this tremendous 12-acre parcel, and that parcel can create value over the years. That was a big part of it being in the best sub-market in the city. Target just enhanced the store with significant renovations. Whole Foods is doing well. That all leads us to believe that we can be successful there.
Great. That's it for me. Thanks, guys.
Thank you.
Thank you. Our next question comes from Craig Schmidt of BOA. Your line is now open.
Thank you. I think you guys have eight Dressbarn out of the 22 Ascena. I wonder if you could tell me what the ABR on those eight stores are, and if you've done any or expect to do any releasing prior to year-end.
Yeah. The total rent for those Dressbarn on an annual basis is $1,000,004. And with respect to date and locations, three of them have been committed. One we sold, one we're in advanced negotiations, and three are prospecting. That's the Dressbarn update.
Okay. how long do you think?
I was just gonna say, Craig, we got very early action on this. We had a trip set up within a week. We expect three of those leases to be signed here very shortly.
What type of tenants, I'm not looking for a name, but just the type of business are those replacements in?
It's somewhat of a tricky size component whenever you're getting into that eight to 10,000. We have national retailers off costs in terms of the actual use itself. One of the groups will be taking three of those spaces. They are good, strong national tenants that we're working with.
Great. Thank you.
Thanks.
Thank you. We do have a follow-up question from Christy McElroy of Citi. Your line is now open.
Great. Thank you. Just thinking about the trajectory of same-store NOI growth and the drivers of base rent growth. With the spread in the lease to commence rate widening further in Q3, John, you mentioned, I think, $8 million of NOI coming online over the next 18 months. How much of a tailwind is there in the commencement of executed leases sort of as we look forward the next one to two quarters versus the kind of the longer term? Would you anticipate that spread remaining wide for a little while, then narrowing sort of into next year? Is that a near-term narrowing you expect?
Christy, 40% of that's gonna come online this year, and another 60% will come on in the first half of 2020. You should see that spread decline fairly rapidly over the course of the next three quarters.
Okay. Just to follow up on the recovery ratio discussion, it looks like, in part, the same-store growth rate was helped by that decline in real estate taxes year-over-year, in Q3. What drove that? Was there sort of, kind of a one-time easy comp there, or is there a longer tailwind on the recovery rate there? You talked about in the context of Floris's question about the move to fixed CAM, but I'm just wondering about the taxes.
The higher recovery ratio in Q2 versus Q3 was really just expense timing. Some of the expenses we had budgeted for Q2 rolled into Q3, which is why we're sort of high, low 90s versus 92, I think, in Q2. Yeah. Yeah. That's it.
Okay. Yeah. I just didn't know if there was something in the tax that was, like, a one-time recovery or something like that.
No.
Okay.
Yeah.
And then just-
Sorry.
Yeah, just lastly, looking back on the changes you made geographically within the portfolio in 2019, most notably, you exited out of Virginia and New Hampshire, Wisconsin. Are there any other markets that you'd look to exit out as you further cull the portfolio as you're kind of match funding in the future? What markets are you targeting? You talked about gaining scale in target markets. What markets are you looking to gain scale in specifically?
Yeah. I think in terms of future exiting, it's a little premature probably right now to say, but I do think that there will be continued narrowing of that. There may be a couple more markets that we get out of, Christy, and I just wanna be careful with that right this minute. As far as where we wanna be, more importantly, I think, it's continuing that theme of the markets that we think will benefit from what we are seeing, as I said, kind of undeniable migration into these, what we call the warmer, cheaper markets, in the southeastern United States, in Texas, in Las Vegas. We're seeing good demographic movement in Salt Lake. Really that southern and kind of southwestern, but for Vegas markets, we continue to think there's a lot of opportunity there.
In terms of narrowing the scope, even though we just bought an asset in Indy, we continue to narrow the Midwestern scope a little bit. We have a handful of assets in a couple other markets. Yes, it is likely that a couple other markets we'll exit from and really try to bolster our position in those 15 to 20 markets in what we're defining as the kind of southern and western U.S.
Okay. Thanks for the time, guys.
Thank you.
Thank you. Our next question comes from Collin Mings of Raymond James. Your line is now open.
Thanks. Good morning, everyone. I just wanted to go back to some of the discussions, actually a few calls ago, John. Can you maybe just provide us an update on your thoughts around joint venture opportunities? I know you left the door open as it relates to it being a potential avenue to complete Project Focus, but just what are your thoughts as you look forward as far as growth opportunities?
I think we're still interested in the potential of expanding our joint venture platform. As I mentioned in the prepared remarks, we're very focused on capital allocation, Prudent capital allocation. In terms of our current cost of capital, that means that we have to be very thoughtful around what we would do going forward in any type of acquisition. JV is a potential opportunity there. I think there is a lot of institutional capital that's queued up, looking for opportunities. Look, obviously, you've seen a ton of money go into other sectors. Some of them seem to be a little long in the tooth to me, that's just me. I think when you look at the retail sector, particularly, the open air space, there's tremendous opportunities here.
I think people are beginning to really take note of that, which is kind of why I was talking about when you just look at the metrics, when you just look at our occupancies, our spreads, our NOI growth, relative to value, to me, it's like alarm bells going off. This is a good place to be. Yeah, we will continue to have discussions, and I wouldn't be surprised. There's nothing imminently today, but we're interested in that potential.
Okay. That's a helpful update on that front. Then just one other question from me, just to clarify and follow up on Todd's and Christy's questions on acquisitions. Just anything else under contract at the moment?
Acquisition-wise, no. There's nothing under the contract that I know of right this second, but we're certainly analyzing things. As I mentioned, there'll be a handful more rebalancing opportunities here, where we can, maybe a handful more dispose and a handful of acquisitions. We're talking moderate size. After that, we will be very focused on these core markets that we want to be in. The deal that we just acquired off-market is a great example of our skill set, to acquire, what we believe to be a gem at an excellent opportunity for us. We can do that in Indy, we can do that in Raleigh, we can do that in Nashville, we can do that in Dallas, we can do that in Houston, we can do that in Salt Lake. I can go on and on.
There's places for us to focus once we get through this.
All right. Thank you, John.
Thank you.
Thank you. Again, ladies and gentlemen, if you do have a question at this time, please press star then one on your touchtone telephone. Our next question comes from Chris Lucas of Capital One Securities. Your line is now open.
Hey, good morning, everybody. Just a couple of quick follow-ups, if I could. Just on the Dressbarn, did you guys agree to some sort of exit with them? Is there expected rent in fourth quarter? If you could give us how much, that'd be great.
Chris, like a lot of the peers, we agreed to keep them in to the end of the year. We expect that they'll be in through the end of the year. Our current assumptions are that they will be gone after that. As Tom mentioned when he answered the question, we only have, I think, three that are kind of unspoken for right now, and we're negotiating with tenants. As he mentioned, the spaces are a little different size. Some of them are 6,500, some of them are 8,500. We've worked with that. It really is a testament to the demand and the depth of this space. No different than the toys. Nobody really talks about toys anymore, but I think we only have one Toysbox that we don't have a deal in right now.
That's not like in. The tremendous underlying strength in our sector is not being, in my personal opinion, recognized in terms of tenancy. I kind of spun off on you there a little bit.
That's okay, John. Then just on the current portfolio as it sits, do you have a sense as to what the annual embedded growth rate is on the contractual embedded growth rate is on that portfolio?
On which portfolio?
The one that exists today.
Oh.
Basically, what the same store will be for next year.
Yeah. I think it's around $160 around 1.6% embedded.
1.6?
Yep.
Okay. That's the whole portfolio, right?
Right.
Okay. Just as it relates to the Project Focus, is there any additional G&A cost we should be looking for in the fourth quarter?
G&A cost related to Project Focus?
Project Focus. Yeah.
No. You mean, like, referring to, like, commissions and things like that, or?
No. More things like when you've exited markets and if you've had.
Oh.
issues to deal with.
No. There's nothing specific to that at this point.
Okay. Yeah, that covers it for me. Thank you.
All right. Thank you.
Thanks, Chris.
Thank you. Ladies and gentlemen, this does conclude your question and answer session. I would now like to turn the conference back over to John Kite for any closing remarks.
Okay. Well, I just wanted to thank everybody and look forward to seeing many of you next week at Nareit. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.