May 3, 2013
Executives
Adam Basch – Investor Relation John A. Kite – Chairman and Chief Executive Officer Daniel R.
Sink – Executive Vice President and Chief Financial Officer Thomas K. McGowan : President and Chief Operating Officer
Analysts
Todd Thomas – KeyBanc Capital Markets Craig Smith – Bank of America RJ Milligan – Raymond James & Associates Carol Kemple – Hilliard Lyons Tammi Fique – Wells Fargo Securities, LLC Nathan Isbee – Stifel Nicolaus Jeffrey Donnelly – Wells Fargo Securities, LLC
Operator
Good day, ladies and gentlemen, and welcome to the Quarter One 2013 Kite Realty Group Trust Earnings Conference Call. My name is Patrick, and I will your operator for today.
At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session.
(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the conference over to Mr.
Adam Basch, Investor Relations. Please proceed, sir.
Adam Basch
Thanks, operator. The Company's remarks today will include certain forward-looking statements that are not historical facts and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. The Company refers you to the documents filed by the Company from time to time with the SEC, which discusses these and other factors that could adversely affect the Company’s results.
On the call with me today from the company are Chief Executive Officer, John Kite; Chief Operating Officer, Tom McGowan; and Chief Financial Officer, Dan Sink. And I’d like to turn the call over to John Kite.
John A. Kite
Thanks, Adam and good afternoon and welcome to our first quarter earnings call. The retail environment continues to be strong, as credit tenants are looking for quality real estate and dependable sponsors to grow their top-line revenues.
Our team is capitalizing on the current favorable market conditions with strong leasing momentum, acquiring developing and redeveloping high quality assets and opportunistically raising money in the capital markets. We started 2013 with three primary goals.
First continue to focus on the strong operating performance of our portfolio; second, stabilize the majority of the in-process development pipeline by the end of the year, and third continue to strengthen our balance sheet by acquiring quality real estate with equity in order to accelerate our deleveraging process. The continued strong performance of our operating portfolio was demonstrated by the following.
FFO for the quarter was $0.14 per diluted share, our total portfolio rent and recoveries grew approximately 15% year-over-year. We recorded another solid increase in our NOI growth that same property NOI increased 5.2% over a strong prior year.
Our aggregate rent spread increased 16% for new and renewals leases and we increased our total retail lease percentage to 94.5% and our small shop percentage to 83.3%, up from 94.2% and 82.5% respectively in the prior quarter. Second, we’re focused on stabilizing the in-process development pipeline by year end as well as beginning construction on the Phase II Parkside Town Commons and finalizing the acre tenant leasing on Holly Springs Phase II.
During the quarter, a marketplace at Delray Marketplace in Delray Beach, Florida, we had approximately 160,000 square feet of tenants open, including Publix, Frank Theatres, Charming Charlie, Jos. A.
Bank, Chico’s, White House Black Market and many others. Leasing results has been very good as we are approximately 85% leased and have recently received additional commitments from three national retailers.
225,000 square feet over the Phase I of our Holly Springs Towne Center development near Raleigh, North Carolina, including anchor’s Target, Dick’s Sporting Goods, Michael’s, Petco, as well as Charming Charlie, Pier 1, Starbucks, and Children’s Place. The center is also 85% leased with sufficient tenant interest that fully stabilize the asset later this year.
At Four Corner Square redevelopment project located in Maple Valley, Washington, in a Seattle suburb. We opened Grocery Outlet and Do It Best Hardware.
The center is currently 87% leased as we quickly moved towards stabilization. We plan to open the Walgreens store in the first quarter of 2014.
Our Rangeline Crossing redevelopment in Carmel, Indiana, is now approximately 95% leased. Earth Fare, a specialty organic brochure planned to open in the second quarter along with the majority of the in line tenants including Panera Bread, Old National Bank and Verizon, while Walgreens plan to open in the first quarter of next year.
As we approached the stabilization of these four key projects, with a total project cost of $195 million, and an approximate aggregate 6.5% yield on cost. We anticipate our NOI contribution to be approximately 50% of the stabilized total by the end of June, up from 20% at the end of March, and 55% at the end of September, and 75% by the end of December.
In addition, Phase I Parkside Town Commons is now 60% pre-leased and the site work for the entire project is well underway for anticipated opening in March of 2014. We also executed leases with anchor tenants in excess of 150,000 square feet in Phase II of Parkside, including two concepts owned by Dick's Sporting Goods, Golf Galaxy, and Field & Stream, as well as Petco and Frank Theaters.
The Field & Stream at Parkside will be a flagship location of this new outdoor sporting concept. We will continue to aggressively lease the remainder of Phase II and we anticipate commencing construction in late 2013, or early 2014.
At Holly Springs Phase II, we have two of the four anchor tenants committed, and we plan to make additional progress on the final plans during 2013. We anticipate starting this project in mid 2014.
During the quarter the tenant openings at various development projects brought our CIP bounce down by $50 million, or 25%, from year end. As we look back at the level of our CIP balance several years ago, and the quality of the projects we have on our balance sheet, I’m very proud of our team for executing on our plan to complete these-high quality large projects.
The approximate 1 million square feet from these projects is now starting to come into the portfolio, and will provide solid cash flow growth for many years to come. Finally, we’re making significant progress on our deleveraging strategy as we have acquired over a 125 million of unencumbered retail assets this December of last year.
We have funded the majority of these acquisitions with successful equity raises in October of 2012 and April of 2013, for a total of $145 million with minimal impact to earnings. These all equity acquisitions will help us to reduce our debt-to-EBITDA between 1 to 1.5 terms, as well as provide an additional cash flow to fund our operations including redevelopment cost and tenant improvements.
We’re also deleveraging organically as we stabilized our large development assets. We had a number of tenants opened in the first quarter and this activity will continue throughout the rest of this year and next.
These events will enable us to achieve debt-to-EBITDA of around 7.5 times in 2014. We’ve also improved our net-to-enterprise value from 63% at the end of 2011 to 52% at the end of the fist quarter.
From a long-term perspective, we’re beginning to investigate some new opportunities resulting from portfolio meetings with Nashville tenants. Our leasing team has an impressive schedule with many of the top retailers in our industry at the upcoming ICSC in Las Vegas.
Subsequent to the end of the quarter, we were able to deploy 90% of the recent equity offering in two prime assets in Nashville and Indianapolis, both of which were acquired in off-market transactions. Anchor tenant sales at these centers are very strong and we see an upside at both locations.
We’ll continue to look for additional opportunities in the Nashville market, as the growth and demographics are very appealing from a real estate perspective. Turning to guidance.
We’re increasing our 2013 FFO guidance from a range of $0.43 to $0.47 to a range of $0.44 to $0.48. A couple of items to note in the first quarter results, G&A expense was approximately $300,000 higher in Q1 than we project for each of the next three quarters.
We’re currently discussing a restructuring of debt on our Kedron Village property. Until an agreement is in place, we must continue to improve $350,000 of default interest each quarter, although we don’t expect to pay that accrued amount.
We incurred $180,000 of transaction costs that were specifically excluded from our original guidance, and we anticipate that our retail recovery ratio will be closer to 82% to 83% on a run rate basis versus the 79% recorded this quarter. In addition, we have increased our same property NOI guidance from 2% to 3% to 3% to 4%.
This increase results from an increase in our minimum cash rent. We also don’t anticipate significant FFO coming from land sales in the remainder of 2013.
Our guidance has provided us annual number and three quarters remain in 2013. We exceeded the upper end of our transactional guidance of $0.02 to $0.04 in the first quarter by $0.001.
Therefore, we felt that it was prudent this early in the year to increase the midpoint of guidance by $0.001 to account for the transactional gains in the quarter. In closing, we’re off to a great start to the year with significant tenant openings at our developments, sourcing high quality acquisitions, maintaining strong metrics in our operating portfolio, and accelerating our deleveraging plan.
The NOI growth, we anticipated is now beginning to flow through the income statement. This concludes our remarks.
Operator, we open the line for questions, please.
Operator
(Operator Instructions) Your first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.
Todd Thomas – KeyBanc Capital Markets
Hi, good afternoon.
John A. Kite
Hey, Todd.
Todd Thomas – KeyBanc Capital Markets
Hi. You guys put up a very impressive same-store print on top of last year’s big number.
I was just wondering maybe you could shed some light on where the upside was, relative to your forecast for the quarter?
John A. Kite
Todd, I mean, I think we kind of cover a little bit and it’s basically traditional rent, and kind of the point I wanted to make in terms of pointing out that our rent and recoveries were up 15% year-over-year. So, I mean, there are some specifics that Dan might want to add to in terms of the actual tenant openings, but bottom line is we just – we obviously had an increase in rent coming in a little bit quicker than we thought we would.
Dan, do you want to?
Daniel R. Sink
Yeah, I take a couple of specifics as applied to (inaudible) two anchor tenants that moved in that's DSW and HomeGoods. We had some additional tenants moving and in and start paying cash rent at Cobblestone.
And in addition to that, we have various small shop tenants with 5,000 to 6,000 square feet and this is really year-over-year comparisons which make a difference, 1% of same-store and $140,000 or so. So those are some items that kind of make that up of.
As John mentioned, it’s primarily cash rent year-over-year comparisons.
Todd Thomas – KeyBanc Capital Markets
Okay, and then, just digging in on the two acquisitions that were completed in April. They are largely stabilized from an occupancy standpoint.
I was just wondering if there are any value creation opportunities at either site, maybe build out some pads or maybe some adjacent land nearby for expansion or any near-term lease role where there might be some upside?
Daniel R. Sink
Yeah, I think all of lease up when we take in individually, the property we bought in Nashville is just an excellent property locationally, it’s a power center that has been owned by kind of an institutional fund and have had different property manager, different leasing agent, different owners. So the opportunity here, again, this is why we try to find acquisitions like this that are off market.
Is that we can come in and consolidated all three of those functions and immediately begin to look to improve the property. The sales here are strong.
I mean this is in the Franklin sub-market in Nashville which is one of the two best sub-markets in Nashville. And so we absolutely think we can improve it.
If there is a process, it’s going to take time, but we absolutely think we can improve it not only in the tenant base, but potentially add GLA. And so we’re really looking forward to it.
And again when you acquire it at $170 a foot, you got opportunities to do that. In terms of the Indianapolis acquisition, like almost the real estate is obviously different, but very similar in strength.
This is at the core of Indianapolis, the 82nd and Allisonville corridor in Castleton. And again, this was previously owned by an insurance company.
Pat has done a good job of filling the center but we think there is a lot of opportunity here. We think there is a lot of upside here.
And again we acquired this less than $150 a foot also off market. So when you look at the pieces of real estate involved here and you look at what we are capable of doing, is that these are two great acquisitions for us.
Todd Thomas – KeyBanc Capital Markets
Okay. And then just lastly moving over to Delray.
It sounds like momentum, leasing momentum for the remaining 15% fairly steady here, with a lot of the anchors open now. You mentioned the three additional leases that you’re negotiating.
I was just wondering if those three deals come to fruition, what that would take the pre-leased or the leased rate to at the center. And then also just wondering, if there's been any feedback on how business has been just in the first few months or so from Publix and the theater, any of the other key anchors or apparel retailers, or if it’s still a little too early to tell.
Daniel R. Sink
Yeah, I mean, the feedback has been excellent. The property is off to a great start.
It’s extremely busy. There was a lot of pent-up demand in the market for an asset of this quality.
So we’re very excited by the anecdotal feedback. It’s obviously early from a sales perspective, but anecdotally it’s excellent, a lot of traffic, very busy.
So that part is good. In terms of the lease-up, again, we’ll just continue to believe to maintain that we believe it will be stabilized by year-end, approximately 90%.
Tom, do you want to add anything to that?
Thomas K. McGowan
Yes, I think, one key point is you see in this quarter right now, we’re about 65% occupied and by the end of the summer in the August, we’re going to be at 78%. So you’re showing a lot of great growth on the occupancy side.
And if you take a look at 200,000 square feet of executed leases, right now, we have activity of around 39,000 square feet of leases being negotiated as well as LOI is being negotiated. So you can see we can hit that hurdle that John talked about and fairly short order of things go up.
John A. Kite
One another thing, Todd, I just want to make sure based on your note that you don’t understood what we were doing with guidance and that we’re trying to keep this very simple. And just to be clear, say for this early in the year, we held all else equal, and all we did with guidance is raise by a $0.001 because exceeded our transactional guidance by a $0.001.
So I just want to make sure that clear based on the note. And so there is no confusion in that.
But we did not get into the other aspects of the variabilities, there is a lot of variabilities when you’re in the first quarter. So I think - we feel very good about that and we feel its conservative and this early in the year.
You really need to hold all else equal and just go with that one metric.
Todd Thomas – KeyBanc Capital Markets
All right thank you.
Operator
Your next question comes from the line of Craig Smith with Bank of America. Please proceed.
Craig Smith – Bank of America
Thank you. What’s the line item in the P&L, does the three land parcels that were sold show up in?
Daniel R. Sink
Craig, this is Dan, It goes through other property related revenue. And if you go to page 12 of the supplemental, we break that out specifically and on the first footnote that includes $4.2 million of land sales.
Craig Smith – Bank of America
Great thank you.
Daniel R. Sink
No problem.
Craig Smith – Bank of America
And then I’m curious how you screen potential properties. And it was interesting to see that you start with something in Nashville.
I’m just curious, what is kind of the screening process you maybe first applied to potential acquisitions?
John A. Kite
Yes, Craig basically what we’ve been doing is we feel like that we’re concentrating in kind of three geographic regions, so that’s the Midwest, the Southeast and Texas. So, when we do upon in terms of looking at opportunities is we’re picking regionally.
So in the Southeast region, we’ve been extremely active of course in Florida and North Carolina recently, South Carolina. So start to begin to study other markets demographically and growth, and just both from kind of a pure demographic standpoint and a retailer penetration standpoint, and that’s how we ended up quite.
I’d say for the last two or three years, we’ve been looking at deals in Nashville and just didn’t come across what we like. So, again, we really try to do as much as we can off market.
So this opportunity came to us via relationship. We had already been well versed in Nashville.
So once we – the opportunity came to us, we struck pretty quickly. We’re just really happy to get an off market get it done.
We got to move quickly. So that’s it.
I mean I think the bottom like, we love the Nashville market, and it’s extremely vibrant. We’ve got downtown Nashville obviously is on fire with Vanderbilt and medical community and convention center.
Everything really spurs from there. There is a lot of similarities by the way to the Indianapolis market and the Nashville market.
So that makes us comfortable. So really (inaudible) and then the other two acquisitions we did recently, obviously, Orlando, we already know the market well and Indianapolis, we better know that well.
So that’s how we do it.
Craig Smith – Bank of America
Okay. Thank you.
John A. Kite
Thank you.
Operator
Your next question comes from the line of RJ Milligan with Raymond James and Associates. Please proceed.
RJ Milligan – Raymond James & Associates
Hey, good afternoon, guys.
John A. Kite
Hey, RJ.
RJ Milligan – Raymond James & Associates
John, curious what else is out there in terms of acquisitions? What are you seeing in the market?
Are there any other markets that you guys are looking at, that's not currently in your portfolio? And then how do you think about acquisitions versus, yields on acquisitions versus yields on redevelopment or development, going forward.
John A. Kite
Sure. Yeah, we are actively engaged in looking at other opportunities.
I think we were one of their early players in these type of acquisitions, which are deemed as not primary markets like a Nashville or Indianapolis or Orlando and it is starting obviously gain traction. So we’ve to be mindful of that which is why we try to do everything we can to find unique opportunities.
But there are we are seeing more. So I would say we continue to be active in those geographic kind of regions that we discussed.
And we are looking itself also in other markets within the Carolinas for example. So Carolina is a very strong other parts of we are looking at other stuff in Nashville.
So yeah, we are seeing things, no question. In terms of how we balance that against re-development returns, you’ve got to look at risk adjusted returns in terms of how you really look at things.
And re-development is not risk free. So we are while we are able to get kind of double-digit returns in re-development, it takes a lot of effort, it takes a lot of work and it’s very concentrated, and so we balanced that against what we can find in terms of an acquisition that we see upside in.
So none of these acquisitions that we are acquiring, I mean it would be very rare for us to say we are going to buy something at seven and it’s never going to exceed that. So I think we balance in that way and we just, we want to find good real estate and we are wanting to remember that everything we do starts with the real estate.
And then everything else follows, but we have a lot of the real estate and every deal we’ve done that’s the case. So I think we’ve got a pretty balance going right now, I see good upside there and we can bring our development skills into the game when we acquire these centers that have frankly been a bit underutilized
RJ Milligan – Raymond James & Associates
Okay. Thanks.
And so, for the portfolio, including the acquisitions you guys did, can you quantify what you think the redevelopment opportunity is left in the portfolio?
John A. Kite
I don’t know that we put a specific number on it like that RJ because every year we go through a process couple of times a year where we like to sit down and analyze that, and so I don’t know that we have a specific number per se and as our portfolio grows that’s another factor as we are acquiring these assets, some of these may become redevelopment projects because we may end up getting into the demolition phase, et cetera. So I think it’s kind of a bigger picture than that.
Daniel R. Sink
Yeah, RJ just to add to that, in our guidance that we gave, we are going to be looking to redevelop gain full plaza in Florida that we have our Wal-Mart lease expires in May. So that’s an opportunity and we also have, that we talked about last year the projects we’re working on that will be 14 over 13 growth with two fresh markets, one in Tampa and one in Naples, as well as we add two early (inaudible) under construction one in Noblesville Indiana and another in Jacksonville Florida.
So, there's a lot of things in the works I mean those are some regenerating, some redevelopment but we are definitely looking for the opportunity that we can find in the portfolio.
John A. Kite
Yeah, we are not short on opportunities I think its fine RJ because if you think about it, just go back to what I said a minute ago about, it starts to the real estate, you can’t even be in a position to redevelop a project unless you know excellent real estate. So, over time, that’s the beauty of these assets.
As they get older and these things changed, the real estate is still the same and we just need to turn, step in and maximize it. And every time we do a redevelopment, that’s what’s happening.
RJ Milligan – Raymond James & Associates
Okay. Thanks, guys.
Nice quarter.
John A. Kite
All right. Thank you.
Operator
Your next question comes from the line of Carol Kemple with Hilliard Lyons. Please proceed.
Carol Kemple – Hilliard Lyons
Good afternoon.
John A. Kite
Hi, Carol.
Carol Kemple – Hilliard Lyons
Hi, in your operating portfolio, the retail occupancy was 94.5%, what percent was actually leased in paying rents?
John A. Kite
There’s a lot of 284 basis point spread between leased and occupied.
Carol Kemple – Hilliard Lyons
Okay. And with parking revenue, why was it down in the quarter?
Was there a lot of snow removal costs or what led to that decline?
John A. Kite
No, I think the biggest decline is, if you look at it and compare year-over-year, we had a Super Bowl here last year, which we had some additional parking revenue related to that event. So, everything else, I think we remain pretty static.
If the Pacers can continue to play well in the playoffs, so it will be a little better as well.
Carol Kemple – Hilliard Lyons
So this year was a good first quarter run rate?
John A. Kite
Yes.
Carol Kemple – Hilliard Lyons
And then, the property operating expenses, the recoverable ones, they increased at a faster pace than minimum rent increase? What led to that?
John A. Kite
I think a couple of things. I think again, last year was a very, mild winter compared to this year.
It was mild again, but we still have roughly $300,000 of snow removal costs year-over-year. We also had some insurance related costs, because we bought down our windstorm coverage in Florida, probably 5% value to 3% value, just to reduce the risk of the balance sheet.
And I think, lastly, we had some real estate tax assessments that those bounce around a little bit. So I think those are the three primary items.
Carol Kemple – Hilliard Lyons
So should we look at this year or last year, maybe an average of the to for a good run rate going forward?
Daniel R. Sink
Well, I think as John mentioned on the call, I would look at, I think 82% to 83% retail recovery ratio run rate would be a good one to utilize.
Carol Kemple – Hilliard Lyons
Okay, thanks.
Daniel R. Sink
Thanks.
Operator
Your next question comes from the line of Tammi Fique with Wells Fargo Securities. Please proceed.
Tammi Fique – Wells Fargo Securities, LLC
Hi, good afternoon.
John A. Kite
Hey, Tammy.
Tammi Fique – Wells Fargo Securities, LLC
Hi. Just wondering, you have the higher base rent that drove same-store growth NOI higher above the 5% level in the first quarter, and then you have higher recovery ratios coming in the second or fourth quarter of this year.
I guess what's going to cause all NOI growth to decelerate in the coming quarters to get to that 3% to 4% NOI growth level that you announced?
John A. Kite
Again, I think two things on that. First, I think again is the first quarter and we don’t want, we want to make sure everything goes as planned.
I mean as you look out with the economy and some other things and changes that occur, we want to make sure, we don’t have issues with tenants et cetera. We don’t see that coming, but that’s always something back of our mind we’ll provide a guidance.
Okay, secondly, when you look at that year-over-year comparison at times when you have an anchor tenant that may move into the third and fourth quarter of 2012 and as you come to the end of the year, you’re comparing year-over-year, that anchor tenant is in both quarters which decelerates at a little bit. Those are the two primary items.
Tammi Fique – Wells Fargo Securities, LLC
Okay. And then with regard to acquisition cost for the deals you completed thus far in the second quarter, what are you expecting within guidance?
John A. Kite
In guidance, we did not utilize that in our guidance numbers. So I think when you look at it, Tammi I think in the next quarter, we’ll have a little bit coming through at the Indianapolis acquisition, we just had with others.
If you’re looking at a quarterly number for this quarter probably a $100,000 to $150,000 is reasonable and then it’s just a matter of one additional activities we have throughout the year.
Tammi Fique – Wells Fargo Securities, LLC
Okay. And then, with the acquisitions, did you disclose cap rates for those?
John A. Kite
No. But we disclosed what we paid per foot and I think we generally said it was kind of at around the seven cap, on average.
Tammi Fique – Wells Fargo Securities, LLC
Okay. And then, are you seeing specific additional opportunities within the Nashville market today, and do you think there’s some critical mass that needs to be reached in order to operate efficiently in the market?
Or is it kind of self-sustaining because of the long-term leases in the power centers?
John A. Kite
Yeah. I mean first, yes, we are currently studying additional opportunities right now in Nashville and so we definitely over the long-term want to become the bigger player there.
Not really for the second part of your question, now we just, we want to be a bigger player because we love the market. In terms of efficiencies, this is one of the things we talked about quite a bit.
I mean when you’re in our business, managing power centers and grocery anchor centers is not that highly incentive relative to the management. So there is not necessarily the need to own a certain number of properties from an efficiency perspective because we have a system that we utilize across the country and managing these assets and that system is very efficient.
So I think we have found that it’s actually a higher return on costs for us or higher on investment to manage from here and this setup a real management. And it doesn’t increase the NOI at all by having X number of properties, the way we increase the NOI by actively and working it to bring in new revenue or lower the operating expenses so.
John A. Kite
Not too concerned about the second part of that and obviously we own some great assets in markets where we own one or two of them, in the market but definitely we want to increase our presence there.
Tammi Fique – Wells Fargo Securities, LLC
Okay. And then just lastly, I was just trying to get some understanding around like the transactional and termination fees, I guess for the year you said it would be $0.02 to $0.04 and I think John you said in your remarks that you exceeded it by $0.01 in the quarter I guess I’m just curious does not include the land sales gains or?
John A. Kite
Yes, it does, that is the land sale gain, and by the way the land sale was the sale of ground lease at a 5 cap which is why we did it and we look at it from a perspective of capital not FFO and we generate a lot of capital out of that deal but yeah, that does include that and the point we were making was, when we set down and put that guidance forward, we didn’t know when, which quarter transaction would occur, this particular transaction with a possibility but it accelerated very quickly so we obviously hit the top end we see this top end of the guidance in the first quarter, which is unusual, which is why we are being conservative around our mid point race it’s just too early for us to really do more than that despite the fact that there are things out there they can help us exceed it.
Tammi Fique – Wells Fargo Securities, LLC
Okay. I guess, what is your new guidance, then, for that?
It was $0.02 to $0.04 before and you are already at $0.05. Where are you with termination and transactional fees for the remainder of the year?
John A. Kite
Really we just, all we did is again this is a kind of a problem of giving too much granular detail on guidance but the bottom-line is we are raising our overall guidance and we are not – and we’re raising our same-store NOI guidance but we are not getting into the various elements of the all the rest of the year of the subsets of it. So, we are just saying we exceeded our transactional projection and we doubt, we don’t believe that we will generate very material transactional income from out of sales for the remaining of the year.
And so, we’re just saying that, financially we got the entire years worth of transactional income in one quarter.
Daniel R. Sink
And I think Tammi when you look at in your question on least term fees piece, I mean it’s difficult, right now we don’t have a lot of visibility into a significant least term fee, so I think, I mean that’s why, again, it’s the first quarter and we’ll update people as the year goes on.
Tammi Fique – Wells Fargo Securities, LLC
Okay, great. Thank you.
John A. Kite
Thanks.
Daniel R. Sink
Thank you.
Operator
Your next question comes from the line of Nathan Isbee with Stifel. Please proceed.
Nathan Isbee – Stifel Nicolaus
Hi, good afternoon.
John A. Kite
Hey.
Daniel R. Sink
Hello.
Nathan Isbee – Stifel Nicolaus
Talking about granular detail, Dan, wasn’t there a second day of Daytona last year?
Daniel R. Sink
Yeah, there was a second of Daytona last year, we have little additional parking.
Nathan Isbee – Stifel Nicolaus
Yeah.
Daniel R. Sink
You are on it man, you are on it.
Daniel R. Sink
Yeah, that was about the average, really granular I think you are talking 20,000.
Nathan Isbee – Stifel Nicolaus
John, if you could just circle back on the Nashville acquisition, could you talk about how you approached this property, given the fact that it is a non-owned grocer anchor and there is some additional competition in the area?
John A. Kite
Sure. I mean first of all, we typically don’t acquire centers that are non, that have a non owned grocer anchor unless they have several other anchors and that’s the case here with this Dick's Sporting Goods Marshalls, JoAnn's and Staples, Panera some other good small shop guys, so there is a comfort level that the center itself is somewhat insulated from what may have from the Kroger..
Obviously Kroger drives daily traffic, so that’s a part of the shopping center. But we studied that pretty significantly and we got comfortable that the balance of this center was very strong, vis-à-vis the sales of the tenants and this again part of being a player that has national relationships.
We’re able to determine what’s going on there and what kind of upside we saw. So that’s how we got to comfortable with kind of that part of that in May.
And then secondly, we love the real estate which is the excellent, excellent real estate. In terms of the Kroger itself, it’s kind of a whole other animal.
Yes, there’s other competition in the area. We obviously don’t own Kroger.
So we’ll be very focused on what’s going on with that and we’ll try to be in a position to be a player with that, if the opportunity would exists.
Nathan Isbee – Stifel Nicolaus
Okay. I mean in your underwriting, are you expecting the Kroger to be open in three years?
Or not?
John A. Kite
Well again in our underwriting there is no NOI coming from it. There is no co-tenancy associated with it and the tenants are operating independently of it.
And physically it’s in the location in the shopping center that it’s not like in between two other boxes, so it’s not an end cap in the center. So we didn’t, we do know risks to the NOI based on them solely.
But again for some reason Kroger wasn’t there or it was a different tenant or the building was dark. What I am trying to say is the opportunities arises for something to happen with that box, we’re the natural player to be there to do something with it.
Nathan Isbee – Stifel Nicolaus
Sure okay, thanks. And then on Delray, you have, I guess, the two biggest categories are presented in our restaurants and apparel, if you look at the last 15%, are you looking to bring in perhaps other uses into the centers is that your, are you looking to bring in more apparel?
John A. Kite
Well, I think we’re looking for a mix like we said all along, we mentioned that we are negotiating with 3 national players that happen to be apparel oriented, but we're also talking to a lot of unique locals, so I think that's been in the fixed asst the property so far as that we have a mixture, we have a good mixture of kind of the standard fare and then we have some unique players, so I think we like to fill it out in the same way, I think we’d like to create the environment that the people want to go there not only on the weekends but daily, so a little [above] and I also think that we can become more selective I mean we are heading to a point of being 90% leased or committed, it gives our leasing team an opportunity to really step back and think and create leasing pressure and pressures we really complete the balance of the project, so as we get to that 90% point we feel very, very good in terms of our leasing leverage.
Nathan Isbee – Stifel Nicolaus
Okay and have any restaurants beyond the Maxes and the Cedar opened yet?
John A. Kite
We do, yes, we do have a restaurant in (inaudible) and we’ll have another one (inaudible) opening fairy soon, so that activity continues to improve and that's going to help us traffic wise and already you are hearing very encouraging things in terms of the number of cars, the number of trucks coming to this property, so we're already looking into it and contemplating have that lease up for all the factors and what we need to do react.
Nathan Isbee – Stifel Nicolaus
Okay. And then, John just finally, in your prepared remarks, I think you said you are looking at additional opportunities based on conversations with retailers.
Am I correct in assuming you're talking about new development there?
John A. Kite
I think we are talking about couple of things Nick, basically what we are saying is that the retailers are approaching us because they are reaching utilization, they can’t, they are having a tough time getting new opportunities. So they are starting to approach us from a geographic perspective, do you have anything in XYZ market so I mean that is kind of what we are talking about that there is activity there, and so it’s possible that we could find opportunities that we think make sense.
And I was trying to be clear that this is over time, this is not like tomorrow.
Nathan Isbee – Stifel Nicolaus
Sure.
John A. Kite
But it is starting to make us, give us some visibility to where things will be in the next few years and I think really clear that as we’ve been hearing, and the TR breeze have been talking about for at least two years that the pendulum is swinging so much because it’s starting to twinge pretty quickly relative to the retailer landlord kind of a pressure points. So that I think they are trying to come to guys like us because there’s very few of us left.
So say what do you have? What’s out there, what else that we not know about.
Now that doesn’t change our opinion that we want to be cautious around that and we want to be, we are keeping our balance sheet we are improving our balance sheet and we are not going to change that we are going to keep improving it. So but it does give you an idea of what it means relative to supplying demand and I think that’s why we are seeing, that’s why our same-store NOIs growing, that’s why our comp operational revenue is growing, and our occupancy is growing, made, its just that simple.
And ultimately there will be additional development, but it’s going to be continue to be very limited.
Nathan Isbee – Stifel Nicolaus
Right. Are you looking at any specific projects that you don't own the land yet?
Daniel R. Sink
No, I mean people have brought things to us that we don’t own the land and have said, would you be interested in this? But, we are looking at a couple of unique situations where someone where we’ve been asked to come to an already existing development.
So, it’s things like that. But nothing where we are out looking for a large part of the land, that’s a no.
Yeah, as John mentioned, the great part about is that they spend very few people developing to the extent that we have. And these retailers understand that we have the machine, we have the ability to deliver.
So when they do have an opportunity that is the reason we’ve been getting some calls and it just gives us an opportunity to take the [calm] look at the opportunity and make good decisions.
Nathan Isbee – Stifel Nicolaus
Right. Is it safe to assume, and perhaps you can just give us some color on some ironclad rules that you've instituted, in terms of risk management on the development side?
Daniel R. Sink
Ironclad, yeah. I think as you know, we’ve just, first and foremost, we’re going to continue to drive our leverage down.
So, we’re not going to be doing anything that we think would materially impair that. So, I think what we’re saying is, as we’ve said for quite a while now, that we like our CIP to kind of fluctuate between 5% and 10% of our total assets and occasionally, within one quarter or another and they see that.
But that’s kind of our goal is to be in that range, and for right now, with 2013 and 2014, and quite frankly, the first half of 2015, our existing developments are going to accomplish that. So it would be on the margin where we would be doing things.
But to say ironclad, we still have to be opportunistic because we create value and time to make money, if we did nothing and we never make money. So, I mean, I think you suggest adjusted against what your opportunities are, but we are extremely mindful of our balance sheet.
We work very hard, as we said, to get the leverage down. And it’s not yet where we want it to be, but it’s very quickly getting there.
And then, so I think internally everyone knows that, but we certainly are going to always look at opportunities and we’re going to be very cautious around non-income producing assets
Nathan Isbee - Stifel Nicolaus
And preleasing as well I would assume?
Daniel R. Sink
Yeah, and I think, Gosh, if there’s anybody that knows that, it’s us, because if you look at our development pipeline, we’re 85% leased in our development pipeline versus the competition very few people are have that, certainly on a size adjusted basis. We’ve leased more space in development than anyone.
So, I think we understand that very well.
John A. Kite
And I think that’s also seeing in our future development pipeline. John mentioned, we’re Parkside is from the second phase perspective, we’re making huge, huge advances in terms of what we are there and before we move, it’s going to be both.
Nathan Isbee - Stifel Nicolaus
Okay, great. Thank you so much.
John A. Kite
Thanks, Nathan.
Operator
Your next question comes from the line of Jeff Donnelly with Wells Fargo. Please proceed.
Jeffrey Donnelly – Wells Fargo Securities, LLC
Good afternoon, guys.
John A. Kite
Hey, Jeff
Jeffrey Donnelly – Wells Fargo Securities, LLC
I think we’re going to push you over an hour, so you’re going to have to keep going granular.
John A. Kite
All right. Let’s go, baby.
Jeffrey Donnelly – Wells Fargo Securities, LLC
I’m curious with the projects that you’re buying. Do you think the NOI growth at those centers is going to exceed the growth of some of your existing portfolio?
John A. Kite
I mean I think we look at that every time Jeff and we try to find things, and we think are going to a lease data in the range of our NOI growth. Now quite frankly our NOI growth has accelerated quite a bit as we talk about and a lot of that is again we’re doing a good job of generating lease and recovery revenue but we are also doing a good job in the small shop category of getting our leases that have annual bumps in them.
So I do think that’s what we have to the equation and then we aggressively price our real estate (inaudible). One thing you got think about is if you look at our total portfolio, sales per foot is obviously a much biggerish deal in the model space, but we care about the lot and we think that our overall health ratio for our tenant is below 10%.
So that means we can aggressively go after more rent. And we are doing that, so I do think that these acquisitions enable that opportunity I think the two that we just did in Capilton I am sorry in Indianapolis and in national our three big unit although the national has definitely good amount of small shop space, but we can you can increase the NOI on assets by doing the had deal you know that’s where we will sit down with the development team the leasing team, the asset management team, and we handle these assets to figure out what are they missing.
Tom and I spend a lot of time talking about we are going to get revenue out of every square inch of that property. So that’s something we’re very focused on and that’s probably the next level of our company and actually is the really focus on that.
So a long way to say yes, if you think we can do that? I think we are doing an excellent in same-store NOI, and it puts pressure on us, continue to do it, so that’s why Dan said, relative to guidance it’s early in the year, things will move around on a company our size we are confident that the asset quality, that we’ve added is part via our same-store NOIs where it is today versus four years ago.
Jeffrey Donnelly – Wells Fargo Securities, LLC
I guess as related to the acquisition side, how do you think about, I know you might not necessarily be a seller, but how do you think about exit cap rates when you're running those acquisitions? Do you guys use the traditional sort of spread your entry cap rate or how do you think about it differently?
John A. Kite
Yeah, I mean we think about relative to IRRs, and when we buy real estate we’re both the cash yield buyer and an IRR guy, because we are real estate people, so in the end of the day no matter, what costly capital is we are going to care about what the IRR is so I think that we do talk about that a lot, it’s tough Jeff because, you know it’s all about timing right, I mean if we were really an IRR player like a Blackstone, or some one with that nature, we would, the faster you reposition and sell the higher your IRR and so in fact that exceeds whatever your cap rates compression would be time is a big player.
Daniel R. Sink
So we do look at it, and I think that if we are acquiring these in that kind of seven cap range, based on the NOI growth, based on what I just said us figuring where there is NOI, that doesn’t even exist today, that we can create. Yeah, I mean you can get double digit, IRRs with conservative levers, with cap rates would exists that are maybe 25 bps below where you sold, you don’t have to go much further than that to get double-digit IRRs.
Jeffrey Donnelly – Wells Fargo Securities, LLC
Yeah, I’m curious about – in negotiations with retailers, have you seen them maybe relent more on deal terms like free rent options or just other aspects that maybe are a little less visible to us? And I don't know if there's a difference in your view between maybe Big Box, Jr.
Box space and Shops space in the last few quarters?
Daniel R. Sink
Yeah. And I think that’s the thing that you never see, right.
It’s – what you see is the rent and the length of lease, and there are so many more to it than that. And frankly, we fight so hard in every category.
But probably the biggest change is that we are able to quite honestly, you got to have a good enough real estate say no, and that’s what we talk about all the time. If you have a good enough real estate, you’re in a position to say no, if you don’t, you aren’t.
So we have been very focused on the fact that we have high quality real estate and it puts us in a position to be more balanced. In the end of the day, the retailer is the customer, so we want to take care of them, but you have to have a balance negotiation.
And I think that those the devils in the details, and we’ve got much better there and I think it’s definitely moving in landlords favor relative to some other things that were happening in ’09 and ’10 with kick-outs in co-tendency, and all those things. So yeah, it has improved.
It’s still always a challenge. And I think one of the big areas that we’re spending a lot of time on it is exclusives.
We own a shopping centre that we got to have a lot of different things going on, so have to be really cautious around exclusives, that’s an example. And we are and we push back very hard on that.
So, again, another – we can go all day about that, but yeah I think there is a lot of opportunity for us to improve the lease itself
Jeffrey Donnelly – Wells Fargo Securities, LLC
And it’s the last question to it, with ICSC coming up, are there two or three, maybe specific things on your hit list that you want to get addressed while you are out there, whether it’s sort of leasing a particular space, are you trolling for deals, or I'm assuming you're not working in your tan.
John A. Kite
Tom and I will both comment on that. From my perspective, from a macro perspective, first of all, my goals are that we go out there and get deals done.
And we have a – I think you know this, we have a pretty intense process that we go through before we go to Vegas, where every one of our leasing agents has to go through every meeting in order to even be approved to go to Vegas. So we have a vetting process that we do internally.
I will let to Tom really did in detail, but it’s not just going out there to be in Las Vegas. We’re going out there to get deals done.
Tom, you want to?
Thomas K. McGowan
Yes, from a Vegas perspective, we really look at the four pronged approach. One is, we have the operating portfolio.
We’ve got to focus on that portfolio and some of the other things going on inside the company, but we’ve got to get back to the operating portfolio in concentrate there. Second is we have this active process of development, redevelopments and we got to get them stabilize similar to what Dan talked about and get that done as quickly as possible.
The third is being acquisitions. Not only do we have acquisitions, it’s just recently occurred that we need to move quickly and to focus on that in Vegas.
But we’re also looking at opportunities on horizon, as an opportunity for us to really assess those opportunities and make a determination to whether or not tenants have a strength position in those properties or not. And then fourth and finally, there is new opportunity.
You had brought it up as a category on new opportunities. We’ll continue to look at new opportunities, and once again it allows us to hash that out, make a determination is this best suited for our time and resources.
So, we spent a lot of time talking about it. It gets fully valid and the pressures are for our guys.
If they are not in the position to prove to the team in front them all, they have a leasing, that they have a strong enough book, they won’t be out there. So, it’s a lot of pressure for a big investment and we take it very seriously.
Jeffrey Donnelly – Wells Fargo Securities, LLC
And Just one last question, and I'll yield the floor, and I don't want to leave Dan out, but guidance for this year, I guess, you could argue looks conservative. I mean you are running ahead of your NOI growth.
You are already ahead on transactions. Recovery activities are picking up as well.
I guess, why the more conservative posture? Was there something down the road that you're concerned about?
Daniel R. Sink
No, nothing that we’re concerned about. I just think that it never benefit you in the beginning of the year or two, over promise and under deliver.
And I think we did this now for 10 years and things coming up. You don’t anticipate.
There’s nothing out there that we would anticipate. But I think as we look at the business, we had the equity offers, we got the money deployed, we got these assets that are coming into portfolio.
We’ve had a lot of moving parts we got a number of development properties that are coming into the portfolio from a timing perspective, giving those open. As I mentioned, we have the two won LA Fitnesses, the two fresh markets, some other activity on the anchor side.
So, I think there is a lot of positive momentum looking forward, and we just want to make sure that we are cognizant of that it’s the first quarter of the year, and there is three quarters left.
Thomas K. McGowan
And I think even when we laid out our original guidance, Jeff, and I hope with, I’m pretty sure we communicated this, that because of that as Dan, mentioned, the deliveries, the development deliveries, and that’s kind of why we laid out the percentage of what NOI was flowing through the P&L. I mean, right now, we’re only getting 20% of the development NOI and we think by the end of the year, that 75% of development NOI and we’re talking about going from 20% to 75% on $200 million at 6.5 or so yield, one quarter or another can be material to that, and it’s clearly is back and loaded in the end of the year.
So it’s just much more logical – as I said in the very beginning on the call, we had one thing occur in this quarter very different and then you can say the same-store obviously also went-up. So we had two things occur, but the best thing we could do was hold all else equal and say, let’s raise it by a penny, because that’s the one thing that hasn’t we see did in the top end by penny and so we raised the mid point by a penny.
So the same-store NOI growth that obviously is accelerating, but at the same time as Dan mentioned, we’re growing a fairly large quarterly number here for the both interest, that may or may not come into place, just two early to go the next step.
Jeffrey Donnelly – Wells Fargo Securities, LLC
Okay. Thanks guys.
Thomas K. McGowan
All right thank you.
Operator
There are no remaining, all your questions, at this time. I would now like to turn the call back over to Mr.
John Kite for closing remarks.
John Kite
All right. Well, again thank you everyone for joining us this afternoon, and as we said, we’re off to a great start to a year and look forward to seeing you soon.
Operator
Ladies and gentlemen that concludes today’s conference. Thank you for your participation.
You may now disconnect. Have a great weekend.