Thank you for standing by, and welcome to the Kite Realty Group Trust third quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. Now I would like to introduce your host for today's program, Bryan McCarthy, Senior Vice President, Corporate Communications. Please go ahead, sir.
Thank you, and 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 Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to today'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, President and Chief Financial Officer, Heath Fear, Senior Vice President and Chief Accounting Officer, Adam Jaworski, Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw, and Vice President, Capital Markets and Investor Relations, Cooper Clark. Given the number of participants on the call, we ask that you limit yourself to one question and one follow-up. If you have additional questions, we ask that you please rejoin the queue. I will now turn the call to John.
All right. Thank you, Bryan. Good morning, everyone. Strong leasing this quarter underscored the earnings power of our core portfolio as Project Elevate nears completion. We signed more than 1.2 million square feet of leases, further strengthened the credit quality of our tenant base, improved our rent escalators, maintained the strength of our balance sheet, and upgraded our credit rating. During the quarter, we executed 160 new and renewal leases with blended comparable cash spreads of 14.6%. New lease spreads were 33.7%, and non-option renewal spreads were 18.3%, our strongest result of the year on both measures.
Our retail lease rate increased 50 basis points sequentially to 95.3%, up 140 basis points year-over-year, led by a 190 basis point improvement in our anchor lease rate. Our leased occupied spread widened 10 basis points in the third quarter and now stands at a record 360 basis points, which equates to $38.8 million of NOI. Roughly a quarter of that NOI is expected to commence in the fourth quarter, with approximately $24 million more coming online over the course of 2027. The quality of that leasing matters just as much as the volume. Over the past few years, our team has been highly selective in re-merchandising the space that we've recaptured.
Since the start of 2024, we've executed 67 anchor leases with 38 different brands, 91% of them national tenants, for a total of approximately 1.6 million square feet at comparable cash spreads of 31% and a 29% return on capital. Two recent Container Store backfills tell the story, L.L.Bean at One Loudoun and Arhaus at Southlake Town Square, together at a combined cash spread of more than 50%. In each case, we added a best-in-class operator that drives traffic to the entire center, higher credit, stronger annual bumps, and concepts that bring shoppers back repeatedly.
While anchors have been a key focus in our re-merchandising efforts, small shops continue to see strong demand and leasing momentum, and that's where we see the most upside from here. Shop lease rate in the third quarter increased 40 basis points sequentially and 90 basis points year-over-year to 92.7%. Our exposure to shop space has increased 700 basis points as a percentage of ABR since the fourth quarter of 2022, accelerating our internal growth and de-risking our tenant credit profile.
Additionally, our shop exposure commands average rents of nearly $38/sq ft , more than twice our average anchor, while requiring less capital spend. Continuing to increase our exposure to shop tenants through selective capital recycling and pushing our existing shop occupancy higher is a top priority for our team and a meaningful lever for growth. We continue to make incredible progress on Project Elevate. Since the start of 2025, we've sold 22 non-core assets for over $1 billion and repurchased roughly 22 million shares for approximately $539 million at an average price of $24.46, well below consensus NAV.
Through Project Elevate, we've exited more than 60 at-risk anchor locations, and five watch list tenants have rolled off of our top 25 list, leaving us with a higher quality portfolio and a more durable and de-risked cash flow stream. That brings me to what matters the most, the core portfolio, and why we believe it positions KRG to deliver stronger organic growth with less risk over the long term. Compared with year-end 2022, power centers have gone from 19% of our ABR to 13%, while lifestyle and mixed use has grown from 21%- 28%.
The centers we sold through Project Elevate averaged roughly $18.60 of base rent per square foot. That's about 20% below our portfolio today, and carried embedded rent bumps more than 30 basis points below the retained portfolio. Our portfolio's cruising speed has reached 188 basis points, up 32 basis points since the start of 2024. The vast majority of that improvement has come through leasing, not dispositions. We continue to see upside to current occupancy levels and expect our signed-not-open pipeline to remain elevated throughout 2026 and 2027.
Our retail lease rate is still 80 basis points below our high-water mark of 96.1%, and we see a clear path to push small shops towards 94% and anchors towards 98%. With 18 anchor spaces, roughly 485,000 sq ft left to lease, and virtually no new supply, we believe there is plenty of runway left for occupancy gains. Finally, a word on the capital markets. We believe private real estate capital remains under-allocated to open-air retail, and that is beginning to change. But capital alone does not create value in this business. Leasing, merchandising, and operating execution do. Platforms with experienced leasing teams and deep tenant relationships are uniquely positioned to benefit.
Our partnership with GIC is clear evidence that sophisticated capital partners value what the KRG platform delivers, and that dynamic is creating real opportunities for operators who can execute. Simply put, the work of reshaping KRG is nearly complete. We have a higher-quality portfolio, a stronger tenant base, a fortress balance sheet, and a platform built to grow. I want to thank the entire KRG team for their relentless effort in getting us here and continuing to push forward. I would like to turn it to Heath.
Thank you, and good morning. Our third-quarter results once again reflect the durability of our core portfolio and the discipline behind our capital allocation. We generated $0.52 of Core FFO per share in the third quarter. Same property NOI grew 3.6% in the third quarter and 3.7% year-to-date. Same property NOI growth year-over-year was primarily driven by 183 basis points from embedded rent bumps, 115 basis points from rent spreads and occupancy gains, 25 basis points from lower bad debt, and 22 basis points from higher overage rent.
Reflecting our strong year-to-date results, we are raising our 2026 Core FFO and NAREIT FFO guidance by a penny at the midpoint to a range of $2.08-$2.12 per share. We are also raising our same property NOI growth outlook by 15 basis points at the midpoint to a range of 3.4%-3.9%. When considering our updated Core FFO guidance in the context of our accelerating same property assumptions and other items, it is important to refer to page five of our investor deck. On the transactional front, last quarter, we anticipated $225 million of asset sales for the remainder of 2026.
Yesterday, we closed on a $33 million sale of Carillon Medical Office Building in Largo, Maryland. In the very near term, we are expected to close on the sale of an additional asset for $19 million in gross proceeds. For the balance of the year, we anticipate closing on another two assets that will generate approximately $100 million in gross proceeds and an additional $70 million expected to close in the first quarter of 2027.
The tax losses generated by the 2026 sales will be sufficient to cover the gains we generated earlier this year, and if completed, will thereby avoid the need for a special dividend. Last quarter, we anticipated $110 million of 1031 acquisitions. In September, we acquired the fee interest in the land beneath our Pelham Manor Shopping Plaza in the New York MSA for $52 million through a 1031 exchange. Pelham Manor is a high-quality center in a supply-constrained market, anchored by Lidl and one of the top-performing BJ's Wholesale Clubs in the country.
Acquiring the ground lessor's fee interest gives the full ownership of the real estate, and we estimate it compresses the property's exit cap by 75 basis points- 100 basis points. Based on our ability to avoid a special dividend through tax loss sales, we elected not to pursue any additional 1031 acquisitions, and rather use those dollars to acquire $63 million of our stock in the third quarter at an approximate 8% FFO yield. When Project Elevate is complete, we expect sources to exceed uses by approximately $230 million, which gives us real optionality.
We could fund the majority of our 2027 maturities, including our $175 million of 75 basis point exchangeable notes due in April, repurchase shares when the math is compelling, or pursue acquisitions that beat our return thresholds. We also continue to evaluate opportunities to put our platform to work using alternative forms of capital at attractive returns. In the current environment, our bias remains toward balance sheet strength, and we will make those calls with the same return-focused discipline that has guided Project Elevate from the start.
Our recent capital markets activity underscores the strength of our credit. Late in the second quarter, we priced $345 million of 3.25% exchangeable senior notes due in 2032, which closed on July 2nd. The coupon is 75 basis points inside the 4% notes that help retire, and approximately 200 basis points inside where we could have issued conventional unsecured debt. The initial exchange price represented a 22.5% premium, and with a capped call, our effective exchange price is $41.91, a 45% premium to our share price at the time of the offering.
In September, Fitch upgraded KRG to BBB+ with a stable outlook, citing our sustained operational outperformance, our execution of Project Elevate, and the further optimization of our capital structure. Earning an upgrade in the middle of a transformation this scale, recycling roughly $1.1 billion of assets, or about 14% of our enterprise value, speaks to the quality of the portfolio we retained and the discipline with which we did it. As of September 30th, our net debt to adjusted EBITDA was 5.2x , within our long-term range of low to mid-5x .
With no remaining 2026 debt maturities, nearly 90% of our NOI is unencumbered, and we have approximately $1.1 billion of total liquidity. Finally, we look forward to seeing many of you next month at the NAREIT conference in Atlanta, where we will outline the quality and earnings power of our core portfolio. Consider today a preview. We look forward to digging in further in Atlanta. Operator, this concludes our prepared remarks. Please open the line for questions.
Certainly. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. Our first question comes from the line of Jamie Feldman from Wells Fargo. Your question, please.
Great. Thanks for taking the question. Nice to hear that Cooper Clark name up in lights. Congratulations, Coop. I guess just going back to the—
Indeed it is.
Oh, sorry. Go ahead.
Just said, yes, it is good to hear that name in lights.
Amen. So I guess, we've heard from a lot of your peers about what's going on in the transaction market, certainly, whether it's opportunities to make capital infusions in certain parts of the capital stack, some delays in deals getting done. Can you just talk generally about the stuff you're looking at and the stuff you're trying to sell? What is changing, if anything, in terms of how you're willing to underwrite and how maybe buyers are willing to underwrite, and what's changing in their plans, or their Excel models?
Yeah. So I think the transactional markets in general are still very robust, and I think on the quality spectrum, for lower-quality deals, you're probably seeing it's harder to get it across the line. For high-quality deals, you're still seeing pricing fairly maintained. On the three assets that we have left to sell this year, for example, one of them is hard, it's going to close very soon. Two of them, thankfully, we priced those and got those under contract after the rise in interest rates. So the market's still moving. We're still seeing product hit.
So we haven't seen any wholesale changes happening right now in the transactional markets. However, I will say if these rates persist at where they are, perhaps there's some opportunity down the road. With a partner like GIC, we can get things, and we're unlevered, we can get assets at a better price. There certainly could be some opportunity for us. So it's certainly starting to make its way into the markets, Jamie, but we're not seeing any vast changes right away.
Yeah, Jamie, the only thing I would add to that is that, as you know, the vast majority of the assets that we and most of our peers own are quite high quality, and the majority of that doesn't trade with debt as a primary metric to value the asset. Obviously, at some point in time, it's probably part of the analysis if you're going to finance something later, but the majority of these deals are done with cash, certainly on the higher end of the quality spectrum.
And as Heath said, at the lower end, certainly it gets moved around a little bit, but I would say it's actually remarkably stable considering the environment that we're in, not only from a rate perspective, but geopolitically, et c. So I'm quite impressed with how firm the market has been, frankly.
Okay, thank you for that. And then, I guess just to frame, if you're able to the extent there ends up being a special dividend, how do we think about how large that might be, or what needs to get done to not have one?
Yeah, so if we get all these sales done, again, we won't have to do a special dividend. And the one sale which is imminent, which is hard, after that closes, the total remaining exposure is around $60 million. So it's not a terribly large number, and it's worth saying that a special dividend is not the worst use of your capital. But again, we feel very confident. We got these other two assets under contract and hope to close those before the end of the year.
Okay, great. Thank you.
Thanks.
Thank you. Our next question comes from the line of Andrew Reale from Bank of America. Your question, please.
Hi, good morning. Thanks for taking my questions. Maybe just first on the guidance. Just curious, what were the recurring but unpredictable items within the raise this quarter? Then I know the new midpoint sort of implies a bit of an FFO step-up in 4Q. Just curious what is driving that and if it is anything that would sort of carry over into 2027 as a run rate.
Yeah, the land sale that you see in the unpredictable item on page five, that was actually anticipated. That was sales in two-over-twos at our One Loudoun project. We also have in the guide an additional land sale that was not in the guide before, which is happening in the fourth quarter.
Okay, thanks. Maybe just to follow up on that, just be curious, maybe Heath, if you could talk through some of the main puts and takes for 2027. I guess that would sort of include full-year impact from Project Elevate, some interest impact from your recent and some upcoming refis, and then I guess just help us think through anything else that's sort of a swing factor into next year. Thanks.
Yeah. I think, listen, the biggest tailwind obviously going into next year is the organic growth associated with the nearly $39 million of signed-not-open pipeline. Add that to the better embedded bumps that we keep building, the lossless exposure, which for the sector is down, but in particularly down for Kite. So those are the great things that are happening for us going into 2027. Then we've mentioned a couple of times some of the headwinds. We still have about a $0.03 non-cash drag happening into 2027. One thing to be mindful of, which we've told people, is that we earned a lot of interest income this year because of our 1031 activity that's not going to repeat into next year. Those are really the big pieces that are moving around into 2027.
The only thing I would add to that is you always got the line item of unpredictable items that reoccur. So, that's something that most likely is a little less next year as well, but hard to predict.
Yeah. In 2025, that number was $21 million. This year, it's around $14 million. If you go to the past four years, it's averaging around $14 million. So, we'll see.
Yeah, we'll see.
Thank you.
Thank you. Our next question comes from the line of Craig Mailman from Citi. Your question, please.
Hey. Good morning, guys. Heath, maybe just going back to your comment on the $230 million of excess proceeds and the optionality you have there. I am just kind of curious. I get the maybe interest in paying down that really low interest rate debt versus the buybacks. But from a kind of financial standpoint, what is the cost of the disposition proceeds, and what ultimately is less dilutive? Kind of putting it to work into the stock today or paying down that debt? You guys are already at 5.2x debt to EBITDA, so leverage is not really too big of a consideration, I wouldn't think.
Hey, Craig, I'll start, but let me just start, and then Heath will take over. I think, as Heath said in his prepared remarks, what we're all about right now is having the most optionality as we go into the end of the year, and there's still some things that haven't occurred, such as these remaining sales. I think it's important that we continue to kind of lean towards a little more conservatism in the near term. Obviously, if we pay down the debt with those proceeds, that's more dilutive, depending on where the stock is, than doing a buyback.
But frankly, as we've been doing this a long time, and we're in a very volatile world, we want to be as strong as possible to take advantage of some opportunities that would likely occur if we did take a turn down economically. That being said, we haven't made that decision, which is what we're saying, is we're waiting to see how this plays out throughout the balance of the year. I think I would say that we certainly lean to being a little more conservative right now. That's paid off for us in the past with having dry powder and then taking advantage of opportunities. But that could change, right. I think we're just going to be monitoring where things go over the next two months. Heath, you want to add to that?
No, I think that's a great answer. Also realize we aren't getting those proceeds over time, right. We got $30 million yesterday. We'll get another $20 million soon, another $100 million in December, another $75 million in the first quarter of 2027. As John said, we've got time to figure out what to do. I will tell you, if you looked at our capital allocation menu, acquisitions have become a little harder as debt costs and the yield on an asset that would actually be complementary to our portfolio have sort of converged.
That makes it a little more difficult. That 75 basis point convert, that could be either a temporary or permanent delevering. Again, we could pay that off and decide to lever back up later. It's just good to be in the driver's side position here and look at our options as we go forward.
All right. That's fair. Appreciate the commentary. Then, John, you mentioned the path kind of forward to 94% small shop, 90% occupancy, or anchor occupancy. What's the timeframe, particularly on that small shop, you think it would take to get there?
Well, as you know, Craig, we do not kind of lay out leasing guidance. But if you just look at the path that we have had in the last year, it has picked up substantially. And we have eclipsed our kind of all-time high in shops this quarter. So, I think in the next year, as we continue to push forward, that is what our goals are. And the shop environment maintains strength. And one thing I would say about the shops, it is not just shops. It is shops contained in very, very strong, anchored, great shopping centers, right? So, I think there is a difference to saying people just throw the word shop around.
They are not all created equal. And I think we are feeling very good about our portfolio and about the demand that we see. If you just look at the We always point to the one metric that we think is the most important when it comes to leasing, which is our non-option renewal spreads. 18% is really tremendous. And I have kind of lost count of how long we have been in the double-digit range, I do not know, five years, four-plus years. So, again, we are not going to set timelines, Craig, but we feel very good about the trajectory.
Craig, we obviously have some view into the fourth quarter, and we expect nice progress moving forward. So, feels pretty good.
Great. Thanks, guys.
Thank you.
Thank you. Our next question comes from the line of Connor Mitchell from UBS. Your question, please.
Hey. Good morning. Thanks for taking my question. I guess I would just like to maybe stick on that leasing spread thought. First, I just want to point out that you guys had some really good results this quarter. Pretty much every type of lease outperformed the prior quarter. But just curious, was there really anything within that deal mix that boosted it or gave it some outperformance, or is this really just representative of the current environment and the demand for Kite's portfolio and space?
Yeah. I think it is broad-based, and we always try to make it clear that one quarter in leasing can be moved in any particular direction. But if you look at it over the past year and you look at the increase in the overall portfolio, that really shows you the strength. Our focus has been not only on rent bumps, but also the merchandising. We pointed that out in our transcript, which was that we maybe have been a little more methodical than others about that. So, perhaps it is why we are maybe catching up at this point in time.
But that is going to pay significant dividends over time, because the whole point of Project Elevate really is not shortsighted. It is long-sighted in the sense that our portfolio is now going to grow at a much better embedded clip, and we have significantly reduced our risk. Over the past, say, year and a half, we have been very active in how we have wanted to prune the portfolio and position the portfolio.
The point is that that is nearing the end, so we should be able to take advantage of that over the next three, four years. Again, that is just a segue from your question, which is, it is broad-based. The strength is broad-based. We mentioned how many retailers we have done deals with and the different brands. Look, the supply continues to be extremely muted. So, it is a very favorable leasing environment.
The only thing I would add to that is, if you look at the new spreads, which obviously came in very well at north of 33%, as the quality of the portfolio continues to enhance, we are able to get great spreads with people like Flower Child, Vuori, Sephora. As the quality improves, we are going to continue and expect to see that spread improve with it.
Okay. Appreciate all the color. Then, that kind of improvement of the landscape and the supply-demand dynamic kind of tilting in your favor, I guess I am just curious, you mentioned the strength of the non-option renewals. What areas of the lease negotiation have you really seen some success, whether that is trimming the options, the terms, maybe lower TIs or higher escalators? Just kind of where have you seen the most success, and then where are you kind of pointing towards the future of what else to take advantage of in this environment?
I think all of the above. Our particular focus is organic growth. I think we have been a leader in that respect when you look at what we have done in the last four years and the rent bumps that we have been able to generate internally. I mentioned that, when you look at our cruising speed of 188 basis points, the great majority of that came through leasing, not through dispositions.
So, to be up that much in two years shows you that we have been successful in that focus. As it relates to the lease itself, that is always a moving target, and we have made a lot of improvement, as has the space in the last couple years. I do not think there is any one particular sub-paragraph that is more important than another. But certainly, the landlord is in a much better position than it was pre-COVID.
I would also mention, this idea that the pendulum has swung toward the landlord, it really starts before the lease. I know we've seen that just in the flexibility of formats. You had tenants in the past where they were so strict about how wide, how long, how many square feet, and now the amount of flexibility that they're willing to adapt to the spaces that are left really shows you that the demand is really outstripping the supply. To John's point in the lease, we're improving things like the co-tenancy clause, restricted uses. We're focusing heavily on limiting options. If we're giving options, we're trying to do fair market value. You're seeing every piece of the lease really go under a wholesale improvement.
I appreciate it. Thank you.
Thanks.
Thank you. Our next question comes from the line of Floris van Dijkum from Ladenburg Thalmann. Your question, please.
Hey, guys. Thanks. In light of the fact that The Summit traded to one of your competitors, and this morning, University Village was announced to be bought by Simon, could you remind us of your Legacy West acquisition and how that asset has performed since you've acquired it. How much have rents exceeded your underwriting, if they have, and what has happened to your NOI growth at that asset?
Yeah. Hey, Floris. It's well exceeded expectations. I think we said when we acquired it, the average base retail rent was like $65-ish, and we thought we could get to about 30% of the rent roll over three years, I believe. We haven't done a lease in there below $100, a retail lease below $100 since we acquired it, outside of maybe a large restaurant deal. So, I think it's been fabulous. We obviously have a partner there, so I'm going to be cautious with what we give you on NOIs and et c.
Suffice to say, it's been very successful, and frankly, it's been on the same path that Southlake has been on, which is another asset in Dallas that we own, which is similar, which we have told you guys previously that the NOI has gone up tremendously in the five years that we've controlled it. So, I think they're two good examples of high-quality real estate that we pivoted to utilizing capital that was growing at a much slower clip, and we're very happy with it. So, I think we'll continue to try to find those opportunities.
Great. My follow-on question is regarding the cruising speed. By the way, kudos for using that term.
Oh, thank you.
It increased 3 basis points over the quarter. Is that sort of the organic rate that we can expect to see over the next couple of years as you roll your rents to market and improve the bumps that you're getting and all the terms that you're getting on your new leases? Or how should we think about that cruising speed as it evolves over the next, call it, 18 months?
Floris, it's not really linear. I will tell you, though, that there may be some assumption that a lot of the cruising speed improvement was by virtue of Project Elevate, but 90% of that improvement's through leasing. To the extent that we're going to be able to continue to drive better bumps, especially in the small shops, keep hammering on the anchors to try to get better bumps from them as well. We do see that climbing towards 2%. Does that take 18 months?
Does it take two years? Not sure, but we will eventually get there. When we get to 2%, Floris, we're going to set our sights on 2.25%. So, it's really been something that we've been focusing on. It's about creating long-term growth. Once these occupancy gains that we're all experiencing dry up, for us, we want to outperform, and that's the very first, that's the bottom rung of your total return, is your bumps.
Yeah, Floris, I think obviously, quarter- by- quarter, it really depends on the expiration schedule and whether you're anchor heavy, shop heavy, et c. But when you look at it over the long run, we're making progress on the anchor side of the business as well, which has been a little bit slower to get to than the shop side of the business, but now we are seeing some improvement there. When we look at the statistics today versus three years ago, we're definitely improving. So, I think it's moving in the right direction across the board.
Thanks, guys.
Thank you.
Thank you. Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your question, please.
Yeah. Hi, thanks. I wanted to ask on the $52 million acquisition of the fee interest to Pelham Manor. Appreciate the comments about the estimated 75 basis point cap rate compression on an exit by consolidating the fee interest there. What was the yield achieved from eliminating the ground lease, and does consolidating the fee offer any strategic or future redevelopment flexibility, or was it just an economic opportunity and really more valuable to own the fee, and also satisfy the 1031?
Todd, in terms of the yield on that acquisition, we do not want to discuss sort of individual properties. We will discuss sort of the entire Project Elevate yield on a rolled-up basis in Atlanta. But listen, it was a very easy decision. You are looking at an asset that it has got a ground lease. I think we had maybe 54 years left of term, so we had plenty of term.
But ultimately, when you get down to 30 or 25 years of term, the asset becomes harder to finance, it starts to lose value, harder to sell. So, it was really a no-brainer. We had a ROFO, we liked the price, but the yield in terms of the ground lease was attractive, especially what was on top of it. Lidl, one of the highest performing BJ's. So, once we got the notice, we exercised it, and we used it as a 1031. It was a great deal all around.
Okay. Is Pelham a long-term hold for the company? Does that fit into the current core portfolio long term?
I think Pelham is, obviously, we believe in the asset, or we probably would not have done that. But even so, Todd, it gives you so much more optionality when you have the fee, right? So, I would say yes, it is an asset that we think is a great asset. It is in a very, very constricted environment in terms you are not going to see new development around there.
You are probably familiar with that area. That being said, we will see. We will see where the asset goes. As Heath said, we recently replaced an underperforming retailer with Lidl, and BJ's does fabulous business. So yeah, for now, I would say it is, but we will see how that evolves. And if we were to decide to sell it, we think we would absolutely get back and more what we have just put into it.
Okay, that's helpful. If I could, just to clarify, Heath, I think you mentioned that the updated guidance includes an additional one penny land sale gain in the fourth quarter. Is that right? The third quarter was anticipated and assumed in the guidance, but there will be about a penny of land sale gains in the fourth quarter?
That's correct.
Okay. All right, thank you.
Thanks.
Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your question, please.
Hey, morning out there. Two questions. First, Heath, congrats on the credit upgrade. Obviously, your stock is very attractive from a buyback perspective, but you guys also work hard on the balance sheet and obviously reflect in the rating upgrade. Are there limitations on the buybacks? As you look at the $200+ million of cash that you have on hand, can you use all of that for buybacks, or are there balance sheet issues where you may like to, but from a rating agencies or leverage, it may not be feasible?
If you did the math, Alex, and we used all that to buy back stock, I think we'd be right around 5.5x net debt to EBITDA. So we'd still be within a range of low to mid fives, which I think obviously speaks to just the power of the balance sheet. Our ability over the course of Project Elevate to sell $1.1 billion in assets and to buy back over $500 million and not do damage to our leverage just shows you that when you've got leverage in the low fives or high fours, you can do a lot. We could spend it all on buybacks, to answer your question. But again, I think right now our bias is towards balance sheet conservatism.
Okay. The second question is, on small shop, you spoke a lot about wanting to boost it up and more ability, especially with dwindling competitive availability. As we think about small shop, are most of the tenants that you're talking to, national or super regional, where the rising 10-year really isn't a hindrance to their expansion? I'm just trying to understand if the changing credit markets have maybe caused some small shop tenants to pull back, but it seems like more small shop these days is national or super regional, and therefore, their balance sheets are strong even though they're focused on small shop.
Yeah. Alex, I think you're directionally correct that the majority of our shop business is either a national tenant or a franchisee with multiple locations, utilizing a national platform. But we still have a healthy business in what you would consider the mom-and-pop business, which potentially would be more impacted by what you're talking about. But frankly, the majority of the mom-and-pops don't talk about the 10-year Treasury. Their business is much more granular, much more local. A lot of this is self-financed, which is why it's a strong business.
If you go back to COVID, that part of our business was probably the strongest part of our business, which was this idea that the mom-and-pops were going to do everything in their power to survive, and they did. So, we like the balance of the shop portfolio, but the point I was also trying to make is that I don't think all shops are created equal.
And our shop portfolio is about 40% of our revenue, and it's located in fabulous shopping centers that are anchored and vibrant and could be grocery, could be community, could be lifestyle, which is why I think you've seen us really grow the rents in that portfolio. So, long story short, at this point in time, we haven't seen anything that would give us any indication that that's a significant concern.
Thank you, John.
You bet.
Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. And our next question comes from the line of Michael Mueller from JPMorgan. Your question, please.
Yeah. Hey, thanks. You have the One Loudoun expansion and the phase two resi expansions underway. Can you give us a sense if there is anything from the future opportunities list in the supp that is close to being activated?
Sure. I think, Michael, obviously our focus right now is on the One Loudoun opportunity, which is well underway and doing quite well. Beyond Loudoun, there are a couple other opportunities that we are reviewing. There are some opportunities to maybe actually monetize some land parcels for multifamily. I think for us, we are always looking at what the best outcome is. Historically, over the last few years, we have been looking at joint ventures in the mixed-use components, but we also might look to monetize some of that as well.
I think right now, that is the primary focus. I think as we get into 2027, maybe later in 2027, some of that may evolve. We are working on a couple really unique opportunities. But we are doing that within the framework of managing the balance sheet. As Heath just said, we are leaning towards great flexibility with the balance sheet, but that should lead to opportunities in 2027 and 2028.
Beyond the future opportunities, since you brought up One Loudoun. One Loudoun has really progressed nicely. It is heading towards 80% lease on the retail front and has a great environment with a really, really strong list of tenants. So that will help us continue to drive that overall asset long term.
Got it. Appreciate it. Thank you.
Thank you.
Thank you. This does conclude the question- and- answer session of today's program. I'd like to hand the program back to John Kite for any further remarks.
Just want to say thank you to everyone for joining today, and look forward to seeing everybody soon.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.