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Kite Realty Group Trust Reit (KRG) Q2 2021 Earnings Call Transcript

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KRG earnings call for the period ending June 30, 2021.

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Kite Realty Group Trust Reit (KRG 3.40%)
Q2 2021 Earnings Call
Aug 3, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Quarter 2021 Kite Realty Group Trust Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Mr. Bryan McCarthy, Senior Vice President of Marketing and Communications. Sir, please go ahead.

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Bryan McCarthy -- Senior Executive Vice President of Marketing and Communications

Thank you, and good morning, everyone. Welcome to Kite Realty Group's second 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; 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.

John A. Kite -- Chairman and Chief Executive Officer

Thanks, Mark, Bryan, and good morning, everybody. Thanks for joining us today. I think I would say that the only thing maybe more compelling than our quarterly results is the impending merger between Kite Realty Group and RPAI. Regarding that, please note at this time, we're unable to provide any additional information beyond what we've disclosed publicly to date. What I can tell you is that every day we learn more about our RPAI, our conviction regarding the merits of this transaction grows exponentially. We are very much looking forward to discussing the outlook of the combination after we close the merger. In the meantime, the primary goal on both sides is continued operational outperformance. With respect to our second quarter results, the continuing theme is retailer demand. During the quarter, we leased 637,000 square feet, which is nearly double the amount of square footage as compared to the second quarter in 2019 and an additional 211,000 square feet sequentially. Blended lease spreads were 14.7% and 9.2% on a GAAP and cash basis, respectively. The outsized volume widens our total retail portfolio lease to occupied spread to 310 basis points with current signed, not opened NOI of approximately $12 million. Our anchor acceleration program is also progressing nicely. We've signed three anchor leases this quarter for a cumulative total of seven anchor leases since the program's inception. These seven leases are expected to generate cash yields of over 36%. The specific details of our executed and potential anchor leases are laid out on page four of our investor presentation. Not only will we realize a healthy uptick in NOI based on these deals, but we're vastly improving the merchandising mix and creating value. Backfilling empty Stein Mart spaces with tenants such as Adidas, Aldi and Total Wine, will dramatically increase traffic and compress the cap rate of the underlying synergy. With respect to the remaining boxes, demand remains extremely strong with several leases in negotiation and at the LOI stage. We look forward to providing more details on these deals on our next call. We've also been experiencing healthy demand for our small shop space across a variety of categories such as beauty and cosmetics, healthcare, service tenants and the return of fast casual and full-service restaurants.

The strong box and small shop demand resulted in a portfolio retail leased rate of 91.5%. This 100 basis point increase from last quarter is indicative of the continuing recovery in our financials. On page three of our investor presentation, our total 2021 revenues will be only 2% lower than the annualized first quarter of 2020. Many of you asked when will we fully recover to pre-pandemic levels, while we still don't know the exact date, we do know that we're quickly gaining ground. While the last 18 months have been tumultuous, to say the least, through it all, we remain focused and work to operate from an offensive posture. Today, we find ourselves driving toward the completion of a transformative merger. The opportunity currently in front of us was only made possible by virtue of the successful execution of a series of initiatives prior to the end of 2019. This puts KRG in one of the strongest financial positions in our sector, which allowed us to intensely focus on operations during COVID, which resulted in sector-leading collection rates. I think it's worth taking a look back at the hard work over the past several years that put us into this position of strength. During Project Focus, we shed our lower growth in most vulnerable assets, resulting in a portfolio of high-quality properties with long-term durable cash flows. We exited some low growth markets to focus on markets that are benefiting from favorable demographic trends. We reduced our leverage and cleared out our near-term maturities. Our net debt to EBITDA currently sits at 6.4 times despite the fact that our lease rate dropped by over 500 basis points in 2020. We dialed down our development pipeline and structured our non-retail projects to minimize risk and capital outlay. We started in this business as developers across all property types. If there's one thing we learned is that development should never be a financial mandate, but rather a risk-adjusted decision around the highest and best use of the property. We also learned, like most things in life, when it comes to development, timing is everything. Finally, we assembled the best team in the industry, a team that embodies our intentional and results-driven culture, a team that is poised to get even stronger once we join forces with RPAI. Nothing ever happens great without great people. With all this in mind, the next bold move we are taking doesn't represent a new direction for KRG, but rather the next step down a path that we are firmly committed to. Before I turn it over to Heath, I want to again thank the KRG and RPAI teams. It's been an intense few months, and it's going to remain that way through the end of the year. I have the utmost confidence that the teams will remain focused, maintain operational excellence and emerge as a unified best-in-class platform. Now I'd like to turn the call to Heath.

Heath Fear -- Executive Vice President and Chief Financial Officer

Good morning, everyone. Like John, I couldn't be more thrilled about the impending merger. Having spent two years at RPAI, I am uniquely positioned to understand the quality of the combined portfolios, the cultural similarities and the potential of the platform. Turning to our first quarter results. We generated $0.34 of NAREIT FFO, and we also generated $0.34 of FFO as adjusted. As a reminder, we are guiding to 2021 FFO on an as-adjusted basis, so as to reduce the noise associated with the 2020 receivables and 2020 bad debt. As set forth on page 19 of our supplemental, the net 2020 collection impact in the second quarter was minimal with the collection of $1.6 million of prior bad debt, offset by $500,000 of accounts receivable, we now deem uncollectible. We continue to refrain from giving same-property NOI guidance for 2021, provided that we are committed to reporting the same. Our same-property NOI growth for the second quarter is 10.1%, primarily driven by a reduction in bad debt as compared to the prior year period. This includes the benefit of approximately $500,000 of previously not bad debt that we collected in the first quarter. Excluding those amounts, our same-store NOI growth would be 8.9%. That 120 basis point difference is just noise from 2020 and is precisely why we didn't provide guidance on this metric. It's also important to note that when comparing same-store results across the peer group for 2021, keep in mind that KRG consistently achieved the highest levels of rent collections in 2020. With respect to outstanding accounts receivable items, as of last Friday, the balance on our outstanding deferred rents stands at $2.1 million compared to $6.1 million as of December 31, 2020. Furthermore, less than $0.5 million of deferred rent payments are currently delinquent, of which 70% is already reserved. The current outstanding balance on our small business loan program is $1.2 million as compared to $2.2 million at inception and not a single borrower under the program is delinquent. Our balance sheet and liquidity profile not only remains solid, but continue to improve. Our net debt-to-EBITDA was 6.4 times, down from 6.6 times last quarter. Pro forma for the $12 million of signed-but-not-opened NOI, our net debt-to-EBITDA is six times. Excluding future lease-up costs, we have only $17 million of outstanding capital commitments and of roughly $620 million of liquidity. We are extremely pleased with the flexibility in our balance sheet. We are raising our 2021 guidance of FFO as adjusted to be between $1.29 and $1.35 per share, an increase of $0.02 at the midpoint. Our guidance assumes full year 2021 bad debt of approximately $6.4 million, of which $2.6 million had been realized as of June 30, 2021. This guidance assumes no additional transactional activity including the previously announced merger. We are looking forward to closing the merger with RPAI, and I am excited to provide 2022 guidance for the combined company. Thank you to everyone for joining the call today. Again, as John mentioned earlier, we are unable to answer any questions on the pending merger. So please focus your attention on our operating results. Operator, this concludes our prepared remarks. Please open the line for questions.

Questions and Answers:

Heath Fear -- Executive Vice President and Chief Financial Officer

[Operator Instructions] Our first question comes from the line of Floris Van Dijkum from Compass Point. Sir your line is open!

Floris Van Dijkum -- Compass Point -- Analyst

Morning guys, thanks for taking my question. So it looks like it's a pretty good quarter. Just -- Maybe if you can just comment on -- I think on page five, you put in the potential NOI growth in this portfolio, which is, as a percentage of your existing NOI, is pretty high 14%. How do you see that falling over the next couple of years? And how confident are you that, that's going to occur?

Unidentified Speaker

Morning Floris

John A. Kite -- Chairman and Chief Executive Officer

I mean -- sorry -- did you say how do I see it in falling?

Floris Van Dijkum -- Compass Point -- Analyst

So -- when -- over what time period do you see that occurring, I should say. Sorry, it's probably a little less clear in the question. And how certain is it because part of that is obviously -- is dependent on lease-up and demand, and what are you seeing in terms of tenant demand?

John A. Kite -- Chairman and Chief Executive Officer

Sure. I mean it's really all dependent on lease-up, right? So I think we're very -- let's put it this way, after the quarter that we just had in leasing, we feel very good about achieving somewhere on that chart. We said that the potential is 14%. We, kind of, give you a little view to the right of that in that Investor Presentation page of what it looks like in terms of 5%, 10%, 15% growth. So across the board that looks very good as it relates to value for the company. But when you lease 600-plus thousand square feet in a quarter, which is a significant chunk of our total square footage in one quarter. Yes, I think we feel pretty good about that, Floris. And when you look at the demand across the spectrum that I, kind of,, mentioned in the prepared remarks, the demand is wide. I mean, it's not just in one segment of the market. And remember, this is against the backdrop of no supply, no new supply, really. So I think we feel very confident that we will continue to lease as we are. It's not only leasing space, look at the spreads that we generated on those leases. So I'd have to say it was better than a pretty good quarter. I'd say it was a great quarter in that regard.

Heath Fear -- Executive Vice President and Chief Financial Officer

Floris, I'll add, if you look at that 14%, you look at the components of it, you already have 6% with just signed not opened of $12 million of NOI. Half of that is coming online this year. And then with respect to the anchor lease-up, which is another 5%, we told you that we have 27 boxes, seven of them were done and also our materials, we're telling you that we have five are in lease negotiations and five in LOI. So we've already had a beat on 17 of about 27%. So we think this is going to be a fairly quick exercise. It's not going to be overnight, but as John said, the demand remains strong.

Floris Van Dijkum -- Compass Point -- Analyst

Great. Thanks. And maybe another question. I guess, a follow-up on cap rates that you're seeing in the private markets, and what that -- and where you think your own cap -- you put that obviously in that same slide in page four as well, but where you think cap rates for KRG should be at? And what is the market missing?

John A. Kite -- Chairman and Chief Executive Officer

Well, I mean, to the second question, I would say that the cap rates we put on that page five of the investor presentation, we think KRG is in that spread somewhere as it relates to -- and that's based on what we're seeing in the private market. I mean, that's not just a swag, that's what's occurring in the private market. I think you're familiar with -- there's a pretty sizable portfolio that is going to trade soon in the low five cap rate. We looked at the portfolio, good portfolio, it's being bought by one of the private equity sponsors to my knowledge. And it's going to trade in the low 5s and it's a good portfolio, but I wouldn't say that it's one of the best I've seen. And I think it's really hard to get product. And it's again why we're so excited about our pending merger is that what we are going to do together, how we're going to do it, you just can't replicate that. And when you find these quality portfolios and they get on the market, you have 15 legitimate bidders, all cash, hard money, I mean it's very, very aggressive when people go after properties like this. So I think that it is what it is. It's maintained that kind of 5% to 6% range that we talked about. I just -- and I don't see that changing, Floris. I think right now that there's just not enough product and you look at yields in the market that you can get in other places, you look at the durability of these cash flows and you look at the upside, right, that occurs when you're buying something right now because there's usually a little bit of vacancy. So I mean, that's a long-winded answer for us, but the cap rate's certainly where I think we would -- we should be represented would be on that page five, somewhere in that range of cap rates that we displayed, that 5.5% to 6.5%. And on the lower end of that, not the higher end.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks John, appreciate it.

John A. Kite -- Chairman and Chief Executive Officer

Yes thank you

Operator

Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Sir your line is open.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey good morning and thank you. So John, as you guys think about RPAI and then also the getting back into regular normal course acquisitions or ramping up the redevelopment program or undertaking new external investments, how do you think about, sort of, the balancing of the management time needed to integrate RPAI versus getting back out and doing the normal course investments, especially as you just indicated to Floris, like, the investment market is certainly heating up.

John A. Kite -- Chairman and Chief Executive Officer

Yes. Good question, Alex. I think it's -- time allocation is like capital allocation. We're looking for the highest return we can get whether that's investing our time or investing our capital. And right now, without going beyond what I'm allowed to go beyond, we obviously believe that's the highest return on our time and capital to be integrating the companies after we merge. And of course, we're actively working on that right now. So I think it's a great question because time is money, and we're very focused on that. we've always believed that we're pretty smart capital allocators. And I think that will come to bear here. And there's a lot of opportunity there with that. So -- and then the great thing is when you look at the lease-up platform, and the lease-up opportunities that we have in front of us, and they have in front of them, and we have in front of we, I think it's awesome. So there's just really, really good opportunity there.

Heath Fear -- Executive Vice President and Chief Financial Officer

I'll also mention that And none of us have been relieved of our day jobs. So while the transition activities are happening, we're still out there looking, we're still underwriting things, we're still looking to maintain ourselves offensively. So just because it's not mutually exclusive, right? We are -- the transition activities are above and beyond what we're doing on an everyday basis.

Alexander Goldfarb -- Piper Sandler -- Analyst

Right. But Heath, if I understood what John said, it sounds like the focus of the company post closing is going to be the integration and dealing with the combined portfolio. That's where the bulk of the time will be spent, less so on new external stuff. That's what I took away from that.

John A. Kite -- Chairman and Chief Executive Officer

I think the message, Alex, is that we're very focused, but we're not one dimensional. So we're very capable of being able to get something like this done and integrate it and be efficient. We've done something similar. We were very efficient. We were very ahead of the game. You don't wait until you close and then figure it out. when you close, you're running, you're in a sprint. You're not just waiting around to figure out where the course is. So I think we're very capable of doing that and executing and being aware of what's going on and being aware of the market opportunities, which is what's -- that's why we have a great balance sheet, and you continue to protect that great balance sheet to give you optionality. And I think that's what I was trying to say with the prepared remarks, is that this balance sheet that we have and that we've worked hard to get only gets better, by the way. And then we have lots of optionality with a cheaper cost of capital to boot.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. No, that's helpful. And by the way, John, I didn't know that you did anything other than run. I never knew you just sit or walk. I always thought of you running.

John A. Kite -- Chairman and Chief Executive Officer

I appreciate that. Yes.

Alexander Goldfarb -- Piper Sandler -- Analyst

No problem. I'm not -- so second question is, sort of the COVID question, forgive, but you guys obviously are heavy Sunbelt, heavy Florida. Recently, from what you've heard from your tenants or property managers or -- yes, maybe your own site visits, is there anything in the shopper dynamics, whether it's at the stores, restaurants, etc., that indicates to you that people are starting to go back to the COVID mentality, the hoarding, the limited trips to centers? Or is everyone -- are all the shopping patterns, restaurant patterns, everything is normal, like people, normal shopping trips, lingering all the early bird specials in Florida, the late bird specials, whatever, all those normal people are doing normal stuff? I'm just trying to figure out if the rise of recent COVID, Delta, whatever, is having an impact or it's really not.

John A. Kite -- Chairman and Chief Executive Officer

No. I mean at this point, the no. At this point, we are business as usual we have traveled the country extensively in the last two months and are doing it again this week. So where we are, where we're traveling, where we're going, we're seeing significant demand. We're seeing busy stores, busy restaurants. Obviously, each individual situation, people are going to adhere by what they have to adhere by, I'm not tremendously worried about that at all. I have personal opinions that are informed by a lot of research and data that would lead me to believe that this is going to -- we're going to talk about this a lot for the next several weeks and then we're not. And I think there's a lot of data that would point to that. In fact, you mentioned Florida and some other markets in the South, who are already seeing numbers come down off of the -- what you mentioned, the Delta variant, which is really what is predominantly going around, and it's predominantly going around among unvaccinated people, predominantly. So it is what it is, Alex. It's out there. The media loves it. They'll lean into it, and we'll lean into operations, and I think we'll win.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you

John A. Kite -- Chairman and Chief Executive Officer

Thank you

Operator

Thank you, Our next question comes from the line of Chris Lucas from Capital One Securities. Sir your line is open.

Chris Lucas -- Capital One Securities -- Analyst

Hey good morning guys. Just a couple of quick ones for me. Just on the pending anchor lease deals, I guess just trying to think through what the timing commencement for rent would be for those? Are these '23, '24 type openings? Or are they something that could -- in '22? Assuming they get done.

Thomas K. McGowan -- President and Chief Operating Officer

Yes. So Chris, an example would be Eddy Street Commons. We'll be opening up the Trader Joe's this month. And we have a nice sequence of deals that we signed in '21. The two in the first quarter of '21, the three in the second quarter. And I think you'll see quite a bit of progress in the third quarter as we take on boxes. But it's a pretty consistent run as you get through the quarters. But we'll see, obviously, the majority of this occurring in 2022.

John A. Kite -- Chairman and Chief Executive Officer

But when we're referring to specifically the pending ones, Chris. I mean, it really -- those deals haven't been signed yet, right? So the pending deals, we'll see when we get them signed. And if they get signed in Q3, then you obviously have a potential opportunity for late '22. If you don't, it's '23, so in terms of when they open and pay rent. That's the beauty of having the significant pipeline that we have, is that the cadence over '22 and '23 will be consistent over each quarter, and it will grow. And it's why I mentioned that in prepared remarks. When our annualized revenue is only down 2%, right, versus where it was pre COVID, and you see this pipeline that we have, that tells you, wow, there's some pretty good runway to [Indecipherable] '19 let alone be there. So I think we're in really good shape. And I think the cadence is great. The team is executing -- this is one of the beauties of having the platform that we have that's been there before. We've executed on a major initiative like this before, and we're executing now. And the difference is our yields are higher. When you look at our return on capital, that's the difference. That's way higher. So I'm pretty psyched about what that means. What that means is more free cash flow, Chris. And as you know, that's what we care about.

Thomas K. McGowan -- President and Chief Operating Officer

And then, Chris, one other thing is, as you look at the tenants that we're replacing, people like Stein Mart, Office Depot, etc., we're bringing an incredibly different quality of tenant that is going to drive massive amounts of additional sales to our centers. So we're hitting a lot of key components as part of this program.

Chris Lucas -- Capital One Securities -- Analyst

Tom, let me follow up to you then. On the anchor deals that you have signed and even in the conversations you're having on other deals. Are the tenants flexible on the space or they stick to a format box there that they want to keep? And then I guess the other question along the same lines related to flexibility is, as it relates to opening, has that bended at all? Is there -- or are they still very focused on some narrow windows throughout the course of the year?

Thomas K. McGowan -- President and Chief Operating Officer

Well, first of all, I would talk about the fact that in terms of delivery, without question. They like to maintain their sequence. There's no question that they like to have stores open in late fall. And if you don't have that, they move over. But we're doing a lot of things upfront by spending capital, getting design moving, working with their construction folks to make sure we're meeting those time frames without question. So that part has been working well. We've got a lot of great relationships without question. And then in terms of handling these deals from start to finish, I think that has continued to go well. The negotiations haven't been tremendously different from what they were in the last several years. So we have this positive momentum. We have people that want to get stores open, and we're going to be in a good situation moving forward in the third quarter as well.

John A. Kite -- Chairman and Chief Executive Officer

So Chris, in terms of your question regarding flexibility -- it's John. Yes, they definitely are more flexible now. And again, that's a supply demand issue, right? You've got lower amounts of supply, and you've got strong demand. The retailers learned a lot through COVID. They adapted their businesses tremendously through COVID. So today, when we're looking at a site plan and we think we have lots more flexibility than we used to relative to a particular retailer's general footprint. And in fact, we've got multiple examples right now of deals we're working that are outside of the traditional footprint. So I think they're much more flexible. They're much more creative. We're more flexible as landlords. I mean we're more flexible in what we're willing to do. So it's a great marriage of that. And that's just because we're both benefiting from this increased consumer demand.

Chris Lucas -- Capital One Securities -- Analyst

Okay. Thank you. And then my last question is going to be just on the shop space demand. Is that mostly coming from national and regional tenants? Or is there some local tenant activity as well? Or has that been, sort of, squashed because of the pandemic impact?

John A. Kite -- Chairman and Chief Executive Officer

And No, I think that's what we -- what I was trying to say in the prepared remarks, Chris, it's extremely broad-based. I mean when you look at the deals we did in this quarter, we basically did, for example, on -- even in just looking at renewals and you look at the type of retailers that are renewing, it's across the board. Guys like Pure Barre and The Joint and Sally Beauty and Torchy's Tacos and Orange Theory. And then new deals. We're doing new deals with noodles and Joint is doing new deals, restaurants are doing new deals. So it's -- I think the small shop space is probably more broad-based than it's ever been. And I think there's been a lot of business formation coming out of COVID. And I remember, we talked about restaurants in COVID and the failure rate and then it was just amazing how quickly new restaurant concepts came up. And chefs who are in one restaurant moved to another, created their own. The franchise business is strong. Look, the reality is the consumer is strong. Debt levels at the consumer level are very reasonable, frankly, and there's a lot of money moving in the system. So -- and again, low supply, great real estate, great locations. It's another reason why we love the upcoming deal. We both have both of those.

Thomas K. McGowan -- President and Chief Operating Officer

Yes. The diversity is unbelievable compared to where we were five years ago.

John A. Kite -- Chairman and Chief Executive Officer

Yes

Thomas K. McGowan -- President and Chief Operating Officer

Yes. All these medical services, pet services, educational, it just goes on and on, which is a great benefit to us.

John A. Kite -- Chairman and Chief Executive Officer

And I think, Chris, it's -- I think it's a point worth talking about for a little bit because it is the open air platform in a nutshell. It is that pliability, that flexibility that we have in these retail distribution points that aren't massive that we can control and redirect the average square footage of these things is less than 200,000 square feet. It is not hard for us to adapt and move them around. And they also all generally have more parking than they really need. So we have that upside as well. that we're now tapping into and that communities are beginning to realize doesn't make sense. These old parking ratios don't really make sense. So look, I like this open air business in this platform it's got so much room to run. And we're really in the beginning of a new era of retailers expanding into our types of properties because of this last mile point that we have that is just unmatchable. I mean, an online retailer can never match that. And that's what we're super excited about.

Chris Lucas -- Capital One Securities -- Analyst

Great, thank you for answering my question this morning.

John A. Kite -- Chairman and Chief Executive Officer

Thank you

Operator

Thank you [Operator Instructions] Our next question comes from the line of Craig Schmidt from Bank of America. Sir your line is open.

Craig Schmidt -- Bank of America -- Analyst

Thank you. I guess keeping on small shop and anchor shop -- it looks like the anchors sequentially increased 120 bps and the small shops increased 30 bps. Is it a matter of needing the anchors to be in place to drive the small shops? Or is there some hesitancy from the small shops that they're not growing to the same pace as the anchors?

Thomas K. McGowan -- President and Chief Operating Officer

Yes, great question. And I think it's -- look, I think generally, in these situations when -- especially coming out of COVID, national retailers move quickly, right? Small shop retailers are entrepreneurial. They got to put it together. I don't think it's unusual for the anchors to lead. And it is true, generally speaking, anchors draw -- small shop players are drawn by the anchor composition. So I think it bodes well for the future of the small shop program. And we want that to increase. We want that 30 basis points to come up. Also, when we had a very specific hit in the big box side with the Stein Mart dislocation. And that enabled us to kind of market that in one way, right? Like, we had people literally coming, Craig, saying, "Show us every Stein Mart box," while they were still going through bankruptcy, right? So I think we just got a quick head start there, but I don't think it's indicative of anything that we would worry about moving forward. And I think the best thing -- we mentioned this since we're talking about small shops, when you look at -- we always talk about how do you judge health, Craig? I mean the small shops, we did 20 small shop non-option renewals. We talked about that a lot in the past when a small shop tenant lease expires and they have no options. I mean we got an 11% cash spread on that. That gives you an indication of real health in the small shop space.

Craig Schmidt -- Bank of America -- Analyst

Great. And then I guess looking at the elevated leasing volumes, are you expecting that to continue into the third and fourth quarter? Or maybe it would be a dip to sort of the pre-pandemic levels of leasing?

John A. Kite -- Chairman and Chief Executive Officer

I don't think -- look, I think we're in this unique situation where there's a lot of pent-up demand. We certainly think we're elevated, and we will continue to lease a lot of square footage. I can't predict exactly how much. As we mentioned on the call, we have several leases in negotiation that happened to be anchors. That's a lot of square footage. So I think over the next couple of quarters, you have -- likely to have some pretty strong square footage numbers. But honestly, Craig, we never really get very fascinated with a quarterly number in anything. We just -- it's a quarter. It is not representative of the next couple of years or whatever. It's a quarter. So we'll continue to pound away the leasing team, and frankly, the whole company is focused on this outcome of leasing. And that's, as you know, that's the way we are. We drive to that goal. We will hit those goals, and we want to outperform them. But the demand is just so broad-based I can't say enough about our platform and the quality of the real estate and the demand that's out there in the retail universe because they're making money at our shopping centers. It's kind of that basic.

Craig Schmidt -- Bank of America -- Analyst

Ok thank you

John A. Kite -- Chairman and Chief Executive Officer

Thank you

Operator

Thank you, Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Sir your line is open.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Yes. Hi good morning, John, you touched on development in your prepared remarks. I mentioned that development decisions are considered carefully and the timing is everything. You have a few projects in process today. How are you thinking about development over the next couple of years? It seems like lease economics have improved and I'm just curious if there's an appetite to take on some additional development exposure as you think about allocating capital?

John A. Kite -- Chairman and Chief Executive Officer

I think, look, for our current balance sheet, it's appropriately sized, and we're being appropriate in terms of our risk-based math that we go through, Todd. And we have a -- as you know, we have a couple of projects in the pipeline that are more mixed use in nature. They -- we're very -- feeling very good about those. I think as we get through, we're going to focus on executing on those. I think our main -- the main reason to discuss that is going forward, having -- when the company has a bigger balance sheet, you can look at that in a different light because you're not going further out on the risk spectrum. I think the timing is good and certain pieces of real estate to take advantage of that. So that's an exciting future opportunity. But as we sit today, just KRG's balance sheet, I think we're going about it appropriately.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And then just a question for Heath on the balance sheet. It looks like you moved some cash in the short-term instruments. Can you speak to that? And what sort of yield you're generating? And I guess how long you might look to keep that cash invested?

Heath Fear -- Executive Vice President and Chief Financial Officer

Sure. That's the proceeds from the exchangeable notes that we did, Todd. And that's in there probably to the end of the year, and we're getting 50 basis points on that. So rather than have it sit there and get nothing, we decided to put it in a short-term instrument. And then as the debt in 2022 comes open to par, we'll start tapping that money and we have to pay off our secured debt in 2022.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Ok got it, alright thats all thank you.

Unidentified Speaker

Thank you

Operator

Thank you. Our next question comes from the line of Wes Golladay from Baird. Sir your line is open.

Wes Golladay -- Baird -- Analyst

Yes, good morning everyone. I want to go back to more of a bigger picture question here. I guess in short, do you think we can get back to the early 2000s pricing power based on the supply and demand and balance that we're seeing, I guess, going forward?

John A. Kite -- Chairman and Chief Executive Officer

I don't know. I mean if you look back to that time frame, there was obviously great demand, and the difference then was that people were leaning into new construction in a big way. So over the next few years, you take 2000 to 2004, there was a tremendous amount of stuff built. And I think over time, that diluted the pricing power. I think this has a longer, maybe a more gradual gestation period in that, Wesley, and that this pricing power is a little different. I mean this is a supply demand equilibrium that's in really good shape. Demand is strong, supply is low. I think we continue to think that if we continue to drive these leasing spreads that's obviously indicative of good pricing power. So it's, kind of, a stay tuned, right, depending on what happens over in the economy in general. But the best thing that I can say regarding that supply is going to remain very moderate. It's going to be muted. I think people will -- there's not a lot of people looking to build ground up. It's a very complicated process. It's why I said development and it's something that it's great to have the opportunity to do it in a measured way because you're not competing with a lot of people. There's just not a lot of competition there that continue -- that allows us to continue to get those spreads. So look, we're excited about what we see in front of us. We've never had this much opportunity in terms of lease up in front of us. And I think this quarter, kind of, exemplifies what this team can do.

Wes Golladay -- Baird -- Analyst

Yes. I think -- I mean it appears to me, it looks like we have a potential setup for 2.5% plus rent growth and supply does take a while to come online. I guess if you had to give me your best estimate, how long it would take to entitle a project and then get it built, would you say that is today?

John A. Kite -- Chairman and Chief Executive Officer

I mean, depending on where you're doing it and what part of the country. If you're going out and buying an unzoned piece of raw land, it's minimum 2, three years minimum. And in certain parts of the country, it's seven years, eight years, 10 years. It really depends. It's -- that's the thing, it's not a light switch. Even if you buy a piece of ground that isn't -- it is zoned. The entitlement process is a very slow process, let alone the zoning process. So I don't know.

Thomas K. McGowan -- President and Chief Operating Officer

Yes. Then you jump into construction delivery and you run into all the issues of unforeseen conditions. So you now as well as anyone, it takes time.

John A. Kite -- Chairman and Chief Executive Officer

And in today's world, the environmental process is tougher, no matter where you are. So it's tough. It's hard to do, which is great. I'm glad it's hard to do. Great. I mean there's just a lot of people got out of this business, Wes, like -- when we were doing this years and years ago, everybody -- every doctor and dentist was developing a strip center, that's over. So it's only people like us that have deep capital, deep relationships and deep knowledge that can do ground-up development.

Thomas K. McGowan -- President and Chief Operating Officer

But then our current situation, we've talked to heads of real estate from some of the biggest national players it's starting to get tougher for them to find locations. The new supply is not coming, the number of bankruptcies has slowed. So it's getting tight, which all works in our favor.

John A. Kite -- Chairman and Chief Executive Officer

Yes, that -- i.e. rent growth.

Wes Golladay -- Baird -- Analyst

Yes. And then I guess as a bigger company, would you plan on having a small allocation to land banking?

John A. Kite -- Chairman and Chief Executive Officer

Well, I mean, yes, I mean, we're not looking to go out and buy raw land. So that's got a kind of saying for that, that I can't say on the phone right now I'll get you that one. One-on-one, I'll give you that one. But I will tell you that, look, we're well positioned to do what's on our balance sheet. When I look forward to the combined company after the merger, we're well positioned to handle that. And that's just good incremental upside. That's all that is.

Wes Golladay -- Baird -- Analyst

Got you. And last one, just on the anchor leasing, and you're about 1/4 of the way through the anchor acceleration. And the capital per square foot is $40. There may be some outliers in there, I'm not sure. But I guess, where is the median one penciling in the net versus the $100 that you're projecting?

John A. Kite -- Chairman and Chief Executive Officer

I mean, we continue to feel pretty good that the projection that we made was pretty conservative. And I think when the project is over and done. It won't be anywhere near $100 in my mind, but it's too early to say. Things can move around. We could end up with some splits. But as we pointed out when we laid out that $100 a foot, that was just us being conservative. And it was in the light of a lot of moving parts as it related to increasing cost out on the supply chain, which has moderated significantly. So overall, construction costs have held pretty firm, even though certain commodities have increased substantially, others have dropped. Margins actually have tightened. So I feel very good about just saying that $100 is very conservative.

Wes Golladay -- Baird -- Analyst

Got it thanks a lot guys

Unidentified Speaker

Thank you

Operator

Thank you [Operator Instructions] There are no more questions on the queue. I will now turn the call over back to Mr. John Kite. Sir, please go ahead.

John A. Kite -- Chairman and Chief Executive Officer

Okay. Great. Just want to thank everybody for joining us. Have a great day. Enjoy the limited amount of summer you have left. Thank you.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Bryan McCarthy -- Senior Executive Vice President of Marketing and Communications

John A. Kite -- Chairman and Chief Executive Officer

Heath Fear -- Executive Vice President and Chief Financial Officer

Unidentified Speaker

Thomas K. McGowan -- President and Chief Operating Officer

Floris Van Dijkum -- Compass Point -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Wes Golladay -- Baird -- Analyst

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