Kite Realty Group Trust Q1 2025 Earnings Report

Kite Realty Group Trust EPS Results

• Actual EPS: $0.53
• Consensus EPS: $0.51
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Kite Realty Group Trust Revenue Results

• Actual Revenue: $221.76 million
• Expected Revenue: $211.07 million
• Beat/Miss: Beat by +$10.69 million
• YoY Revenue Growth: N/A

Kite Realty Group Trust Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 1:00PM ET

Kite Realty Group Trust (NYSE:KRG) (NYSE: KRG) is a publicly traded equity real estate investment trust focused on the ownership, development and management of high-quality retail properties across the United States. Established in 2014 through a spin-off from a legacy real estate platform, Kite Realty’s portfolio is anchored by grocery, necessity-based and service-oriented tenants. The trust concentrates on neighborhood and community shopping centers in primary and select secondary markets, seeking to deliver stable cash flow and long-term value to shareholders.

The company’s core operations encompass strategic acquisitions, ground-up developments and redevelopment projects. Kite Realty maintains an active pipeline of new-construction and repositioning initiatives designed to capture favorable demographic trends and enhance asset performance. Its property management arm oversees leasing, tenant relations and day-to-day operations, allowing the organization to optimize occupancy levels and maintain strong in-place rent growth across its portfolio.

Kite Realty’s portfolio spans multiple regions of the United States, with concentrations in the Southeast, Midwest, Southwest and Mid-Atlantic. The trust’s disciplined market-selection process targets trade areas with strong population growth, above-average household incomes and healthy vacancy fundamentals. Its tenant roster includes a diverse mix of national grocers, value-oriented retailers, fitness concepts, medical service providers and quick-service restaurants, reflecting a focus on necessities and daily-use offerings that help mitigate retail volatility.

Leadership at Kite Realty is headed by Steven V. Smith, Chief Executive Officer, who brings over three decades of real estate experience, including roles in property development, capital markets and strategic planning. The senior management team combines expertise in finance, investment underwriting and operations, supporting a culture of disciplined growth and capital stewardship. Headquartered in Indianapolis, Indiana, Kite Realty continues to pursue selective growth opportunities while maintaining a strong balance sheet and a flexible operating model.

Kite Realty Group Trust Q1 2025 Earnings Call Transcript

Key Takeaways

• Kite delivered strong Q1 results with blended cash leasing spreads near 14%, non-option renewal spreads at 20%, same-store NOI up 3.1%, and raised 2025 NAREIT and core FFO guidance by $0.02.
• Formed a joint venture with GIC to acquire Legacy West, an immediately FFO-accretive, top-tier mixed-use asset offering 2.6% embedded rent bumps versus a 1.7% portfolio average and modestly increasing leverage by 0.2× while staying within 5–5.5× net debt/EBITDA.
• Leasing momentum remains healthy, with new shop leases starting at $41 per square foot (20% above the portfolio average) and weighted average rent bumps up 360 basis points, plus a robust anchor backfill pipeline across grocery, off-price, apparel, fitness, and home furnishings.
• Maintains a strong balance sheet, plans to fund Legacy West via asset dispositions (e.g., Fullerton Metro) and revolver borrowings, and has adjusted its bad debt reserve for modest economic uncertainty without changing its same-store NOI outlook.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Kite Realty Group Trust First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today's conference, Brian McCarthy, Senior Vice President of Corporate Marketing and Communications. Please go ahead.

[Bryan McCarthy, Senior Vice President of Corporate Marketing & Communications at Kite Realty Group Trust]

Thank you, and good afternoon, everyone. Welcome to Kite Realty Group's first quarter earnings call. Some of today's comments contain forward looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10 ks.

[Bryan McCarthy, Senior Vice President of Corporate Marketing & Communications at Kite Realty Group Trust]

Today's remarks also include certain non GAAP financial measures. Please refer to yesterday's earnings press release available on our website for a 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 Fuel and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. Given the number of participants on the call, we kindly ask that you limit yourself to one question and one follow-up. If you have additional questions, we ask that you please rejoin the queue. I will now turn the call over to John.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Thanks, Brian. KRG had an excellent start to 2025, highlighted by our strong first quarter operating results, a guidance raise and a landmark acquisition in a joint venture with GIC. I'm proud of our team's ability to navigate the recent macroeconomic environment and focus on sound execution. This is in no small part due to our incredibly strong balance sheet that allows us to respond opportunistically to any potential economic disruption. Demand for space in our high quality seniors high quality centers continues to remain healthy, allowing our team to produce solid spreads, generate strong returns on capital, improve our embedded growth and enhance our merchandising mix.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Blended cash leasing spreads in the first quarter were just under 14%, highlighted by 20% non option renewal spreads. We continue to emphasize our non option renewal spreads, as we believe they are the best barometer for mark to market potential in our portfolio. Our new leasing volume was more heavily weighted to the small shop side of our business this quarter. We are encouraged to grow the shop lease rates sequentially, giving the seasonality that generally occurs in the first quarter. To accompany the leasing volume, starting rents for comparable new shop leases in the first quarter were nearly $41 per square foot, approximately 20% higher than our current portfolio average.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

In addition to strong starting rents, new and non option renewal SHOP leases signed in the first quarter of twenty twenty five have weighted average rent bumps of three sixty basis points, which is nearly 100 basis points higher than the shop leases executed just three years ago. Pushing our portfolio to a higher cruising speed remains the primary focus for our team as we continue improving on our long term growth profile. Demand for our anchor spaces remains strong as larger format tenants focus beyond short term headlines, making decisions designed to benefit their businesses for decades across multiple economic cycles. We're making great progress on backfills evidenced by the depth of demand in our pipeline, including grocery, off price retailers, full line apparel, fitness, sporting goods and home furnishings. Our strong first quarter results culminated in a $02 increase to NAREIT and core FFO per share guidance.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Keith will provide more details on the components of the raise, but first I'd like to discuss our recent acquisition of Legacy West in a joint venture with GIC. Opportunities to acquire iconic mixed use assets are rare. Given our strong presence in the Dallas MSA and strategic objective to increase exposure to high caliber assets, we viewed Legacy West as a property that aligns with our investment criteria and long term portfolio vision. Recognizing the magnitude of the opportunity, we proactively approached GIC to explore forming a joint venture. We could not be more enthusiastic about our partnership.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Additional transaction details are outlined in our earnings release and investor presentation. But Legacy West unequivocally represents a pivotable step forward for KRG. Legacy West instantly enhances our portfolio quality and solidifies KRG's position as one of the prominent owners and operators of significant lifestyle and misused assets. The leasing synergies within the balance of our portfolio are powerful, enabling us to deepen relationships with leading brands like Aritzia, Fox Restaurant Group, Lululemon, Sephora, Viore, and West Elm, just to name a few. And the acquisition also fosters new relationships with luxury tenants, including LVMH and Carrington.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

As we implement our proven operating platform on this asset, we expect to capitalize on significant mark to market opportunities and further elevate the merchandising mix. The transaction is immediately accretive to FFO per share, while modestly increasing pro form a leverage by 0.2 times, keeping us comfortably at or below our long term net debt to EBITDA target of five to 5.5 times. Our first quarter results capped off by this game changing acquisition and joint venture are the product of disciplined capital allocation, a best in class operating platform, and prudent balance sheet management. While we have more work to do for the balance of 2025, we are battle tested and energized team that will always strive to outperform expectations. I'm confident in our ability to produce strong results in 2025 and deliver long term value for all our stakeholders.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Thanks to the team. And now I'll turn it to Heath to discuss details of Q1.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Thank you, and good afternoon. Before diving into our quarterly results and increased guidance, I want to take a moment to thank KRG and GIC teams that worked on the acquisition of Legacy West. We've been focusing on this transaction since November, and we could not be more excited about putting our stamp on one of the nation's top open air mixed use destinations. Turning to our results, for the first quarter of twenty twenty five, KRG earned $0.55 of NAREIT FFO per share and $0.53 of core FFO per share. Both NAREIT and core FFO benefited from a $03 contribution from a large termination fee we received from a single tenant.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

As we previously discussed, termination fees are a recurring but unpredictable part of our business, and this particular fee will compensate us for downtime and releasing costs. Same property NOI grew 3.1%, driven by a three fifty basis point increase from minimum rent, a 90 basis point increase in net recoveries as partially offset by higher bad debt as compared to the unusually low levels in Q1 of twenty twenty four. Based on the first quarter outperformance and our revised outlook for the balance of the year, we were increasing our 2025 NAREIT and core FFO per share guidance by $02 each at the midpoints. The components of our guidance range included $01 related to net transaction activity, and the other $0 was driven by the aforementioned termination fee being higher than we originally anticipated. Our same property NOI range remained unchanged from original guidance, as did our full year credit disruption assumption of 195 basis points of total revenues.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

It's important to note that we increased the midpoint of our general bad debt reserve by 15 basis points to 100 basis points of total revenues, while decreasing the anchor bankruptcy impact by 15 basis points to 95 basis points of total revenues. The change in the general bad debt bucket is reflective of the increased economic uncertainty, while the change in the anchor bankruptcy reserve is driven by better than expected outcomes. Last quarter, we estimated that a total of five of the 29 bankrupt anchor boxes would be assumed, and that is exactly where we will end up. Subsequent to quarter end, we executed an additional four new leases, some of which have Brent commencement dates in the later part of 2025. For another 12 boxes, we have selected the tenant and we are in active negotiations.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

In total, over 70% of the 29 boxes are being addressed. Finally, the sequential increase in our net interest expense assumption is driven by the acquisition of Legacy West, which we will partially fund on a revolving credit facility with the goal of paying down the balance from planned disposition set forth on page 19 of our investor deck. Please note that as of last night, our Fullerton Metro asset is under contract with a nonrefundable earnest money deposit. As John mentioned, our disciplined capital allocation strategy and tremendous balance sheet afforded us the opportunity to acquire Legacy West together with GIC. Holding aside the exceptional quality and potential of this asset, upon completion of the associated transactions, we will upgrade the quality of our portfolio, de risked our underlying cash flows, created immediate earnings accretion and improved our long term growth profile.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

We still have some work to do on the transactional front, but it's important to mention that if we had to finance the Legacy West transaction with unsecured debt, the annualized core FFO accretion would be approximately $0.25 and our leverage would remain within our long term range of five to 5.5 times net debt to EBITDA. Please note that our new joint venture is to be treated as unconsolidated entity for accounting purposes. We have yet to finalize our purchase price accounting and our NAREIT FFO guidance assumes no impact from non cash items. As the conference circuit heats up, we look forward to seeing many of you in the coming weeks to talk about our progress and this amazing acquisition. Again, thank you to the KRG team for a great quarter, and we'll push for continued success.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Operator, this concludes our prepared remarks. Please open the line for questions.

[Operator]

Our first question comes from Todd Thomas with KeyBanc Capital Markets.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Hi, thanks. Good afternoon. On Legacy West, a couple of questions. I was wondering if you can comment on the expected NOI growth rate in the near term and how that compares to the Kite portfolio in general. And can you share what the current occupancy rate is at the office and retail components?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Let me start with that, Todd. In terms of the growth rate, what we can tell you is that the embedded rent bumps on the deal, which I think is in our presentation, are 2.6%. So obviously that's well above the average of the rest of the portfolio, which is at 1.7%. So that's obviously a good start to that. And then the other thing that we mentioned think in the remarks is that we believe that there is significant mark to market opportunity here.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

So over the next three years, I think about 30% of the deals roll over either at with fair market value options or no options at all. So, I mean, at this point it's early, but there's no question that that was a big part of our underwriting process, both ours and GICs, in the sense that we thought there was excellent upside here. Keith, do you want to

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

hit the second one? Yeah, the office is 98.7% leased and the retail is 95% leased, as is the res sheet.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay. And then in terms of the office, I realize you just sort of onboarded the property here recently, but in general, is there a way to characterize the office demand and discuss how it's performed? Is there any recent leasing or tenant turnover that you can discuss? And what's the remaining lease duration for the office segment look like?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I'll start with that and maybe Tom can give some commentary. I mean, this is extremely strong office product, obviously highlighted by 98% lease percentage, which literally I think there's one space and there's action on that one space. And again, even here the overall rents are below market. This is the kind of office products you want to own, highly amenitized, the tenants are very happy to be there. The sub market, by the way, is very strong in Plano.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I think the sub market is like 95% leased. So look, we feel great about it. Tom, do you want to add to that?

[Thomas McGowan, President & COO at Kite Realty Group Trust]

Yeah, Todd, I would add that there are 72 companies in the Forbes Global two thousand in the small submarket. So it's kind of amazing the actual number and then there are three Fortune 1,000 headquarters as well. So you just have this extremely unique submarket. And the great thing that we learned as we went through all the tenants and we had the discussions is just from a recruiting standpoint, the environment inside Legacy West was a huge marker for them, just in terms of their ability to want to stay there and, and working with the mayor and economic development groups, there's a lot on the horizon. So we feel very good about this market.

[Thomas McGowan, President & COO at Kite Realty Group Trust]

And I think it's reflected by the tremendous amount of strong companies that have located here.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

And Todd, the average duration that's on the office leases around six years. I will tell you, obviously, we were very conservative in how we underwrote it. And while the big mark to market opportunity is really in the retail portion, we're looking at the recent rents and deals that were signed in the office. There's also opportunity for us to push rents there as well. So again, very conservative in our underwriting.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Love the balance sheets of the underlying tenants. But yeah, we're very happy about the office piece.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay, great. That's helpful. If I could just sneak one more in quickly about the relationship here with GIC, is there interest to expand the relationship with additional investments either third party acquisitions or by seeding additional assets above and beyond what's sort of currently contemplated?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Sure. I mean, the answer is yes. I mean, we have we're very happy about our partnership with GIC and, we've worked very well together over the last several months. As you saw in the investor presentation and as part of our sources and uses, are actively working on a second joint venture contributing seed assets into that, which we highlighted in the presentation. So, you know, obviously that's a lot in a short period of time with a new partnership, but, you know, the long term vision is quite aligned between both Kite and GIC.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

So it's early, but I would suggest that we have other opportunities.

[Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay, great. Thank you.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Thank you.

[Operator]

Our next question comes from Craig Mailman with Citi.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Hey, guys. Just want to follow-up on the shift in sort of the bad debt reserve. I know you guys feels like the outcome feels a little bit better on the bankruptcies, but you shifted the same amount of reserve to just general. Are you guys seeing anything on the AR side or having conversations with tenants or putting additional tenants on the watch list that or is it just kind of the general uncertainty in the market right now that's leading to some conservatism on that front?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Yeah, well, anchor reserve went down because some of the tenants stayed open longer than we had assumed. And also we signed four new leases for those spaces and a couple of them are opening up in '25. So better result on the act, which is giving us that 15 basis points back. And then there's nothing specific. There's no increase in aged AR, Craig.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

It's just a matter of saying, hey, you know what, the world's a little crazy, so why don't we take that 15 basis points and put it in that general bad debt bucket? Really just shifting it over with nothing Craig,

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

it's still early, right? It's first quarter, so we're into the second quarter now. I think it was a smart thing to do in light of the world that we're living in. But as he said, I mean, that's one of the good things about our system internally is we do a bottoms up every month of every tenant. And so we have a really good pulse on where AR is and where the small shop health is.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

And that pulse is still very strong, but I think it's prudent at this point in the year.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Okay, that's fair. And then just on the transaction environment, you guys are kind of selling some things into the third party market. What's been the reception for some of those power center type deals, the bidding pool sizes, kind of sensitivity on pricing that you're seeing?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I mean, right now, it remains healthy. As Heath mentioned the prepared remarks, the deal we have, which is kind of a larger format deal in LA that was on the market went hard last night, at the pricing that we thought it would. So I think there's still some very active acquisition buyers out there. There's liquidity. Look, I think there's uncertainty geopolitically, but on the ground operationally, it's a lot better.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

So I think we continue to see good demand and cap rates continue to be very competitive. I mean, the ten year is in the low four range. So you can make things work, especially with NOI growth. I think it's a pretty good market and we'll see how the rest of the year kind of evolves.

[Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.]

Perfect, thank you.

[Operator]

Our next question comes from Floris van Dijkum with Compass Point.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Hey, guys. A couple more questions on Legacy West, if you don't mind indulging me. You mentioned that the average tenant sales north of $1,000 a square foot. I believe the in place rents are somewhere in the $60 a foot range. What are the new leases being signed at?

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

What kind of mark to market are you expecting? Then I guess the follow on question, and you indicated that this is not in your results yet because you haven't had the purchase accounting yet. But what would that do if you were to have to recognize that in terms of purchase accounting for returns, sorry, for your income that you have to recognize? How much of an impact would that be further upside to this acquisition in terms of earnings?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Well, let me start with just overall in terms of where we think the rents are and what the potential market is. Without getting into specifics, I think it's easy to kind of look at the fact that the health ratios, certainly in the retail component are low. I mean, we're talking mid to low single digits, or mid to high single digits in health ratios, luxury lower than the overall. So I think we're very comfortable that there is upside there and whether that's 20%, twenty five %, thirty % upside, we'll see over the next three years. But there's no question that that was part of both GICs and KITE's real excitement about the asset was there was mark to market opportunity.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

In terms of the purchase accounting, I mean, it's obviously, as we mentioned, too early to say. It's why we will continue to give you both NAREIT FFO and core FFO to highlight the differences. But suffice to say, there will be purchase accounting and there's also a mark to market on the debt. So we'll see the net result of that, but we'll be a little more focused on the core and we'll be more focused on the actual cash flow and NOI growth floors.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Great. And then maybe the follow on question. Additional asset sales. I know you talked about your GIC venture, and obviously you've got three assets that I guess two are now hard. One is still sort of in the works, but should hopefully join them as well.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

How many more asset sales do you expect to be able to complete? And how many of those potentially could be used for share repurchase opportunities?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Well, you know, again, level, Floris, We mentioned on the last call that we have a strategy around the repositioning of the portfolio and the repatriation of cash. And so it's hard to say right now based on the fluidity of the market and where people feel transactions will occur. So we don't have a specific number that we are out there saying is going to happen in the next X number of months. But we were pretty clear that there are assets that we think are tradable that we could again repatriate that into whatever we think the highest and best use of that capital is. So I think it's too early to say, but there's no question that we think the market is somewhat supportive right now and probably gets even more supportive as we move through the year.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

So I think we're just going to have to see how that evolves. Heath, anything to add to Thanks,

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Tom. That's it for me. Thanks.

[Operator]

Our next question comes from RJ Milligan with Raymond James.

[RJ Milligan, Managing Director at Raymond James]

Hey, good afternoon, guys. First, Heath, I wanted to touch on the guidance. Curious, on the lease term fees, how much was in original guidance? And how much, is there now embedded in guidance? I just would have thought after the term fee or the 7,500,000.0 of term fees in 1Q, the guy would have moved higher than that penny.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

So we had visibility into that termination when we gave guidance. So we thought it was going be about 2 pennies, and then we ended up negotiating it, we did better. So it turned up being 3 pennies. That's why you're only seeing a 1¢ increase in the guidance from termination fees.

[RJ Milligan, Managing Director at Raymond James]

And so then what's included in guidance for the remainder of the year?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

In terms of termination fees? Yes. Well, so in general, if you saw year over year, we said there was going be 1 more penny in 2025 versus 'twenty four, and sort of that recurring but unpredictable bucket. So now that's going to be 2 pennies. So if you do the math and go back, we do have some additional term fees, not nearly of this magnitude in guidance for the balance of the year, and we do have a land sale gain as well, which we have visibility into as well.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

So again, net net, zero two more of those type of items in guidance as opposed to 2020

[RJ Milligan, Managing Director at Raymond James]

Legacy West transaction, I'm just curious how you guys deliberated between asset sales and using the proceeds for Legacy West versus buying back stock.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Sure. I think, RJ, I mean, great question. Obviously, we're at a point in time today where the stock is at a level that doesn't make sense. As you know, deals like this take a long time and gestation. And if you go back to the beginning of when we heavily engaged in this deal, our stock was at a much higher price.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

But most importantly, assets like this that we truly believe is an iconic open air, one of the best in the country, they just don't come around very often. And there was actually quite a bit of product on the market over the last several months. And this is, by far was the best opportunity because of the mark to market, because of the asset, the quality. So we did, you know, we heavily debate, you know, what's the best place for capital to go. And when we looked at the potential growth and we looked at the underlying asset and quality and we looked at the strength of our joint venture and long term strength of that with GIC, it was clearly the right place to be.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

But obviously, we'll see how the rest of the year plays out, and we'll see what other opportunities we have throughout the year, whether that be through things such as that or buying back stock or whatever the highest and best use would be. But we do take it seriously and try to do the best we can to underwrite it at the point in time. But the fact of the matter is these play out over multiple quarters, as you know.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

And John, I'm going to

[RJ Milligan, Managing Director at Raymond James]

push you a little bit, if that's okay. But based on your comments from the time that these transactions take, would it be fair to say that if your stock was currently trading where it is today, that you would have considered instead buying back stock?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I mean, it's hard to be hypothetical, but yeah, I mean, if the deal was happening today, it obviously would underwrite differently. But that being said, in the end, this was really about the long term value creation opportunity that we saw here. And we thought that was the and still think that is the best pace to be. There's long term value to be created. And I think in the end, will be very significant.

[RJ Milligan, Managing Director at Raymond James]

Appreciate that. Thanks, guys. Thank you.

[Operator]

Our next question comes from Daniel Purpera with Green Street.

[Daniel Purpura, Senior Associate - Equity Research at Green Street Advisors, LLC]

Hello. The composition of your portfolio has shifted more to mixed use properties now with the acquisition of RPAI and now Legacy West. Can you talk about the benefits of these properties over a traditional grocery anchored center? And then do you see your portfolio or this portfolio shift continuing?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I think first of all, in terms of the benefits, we tried to highlight that earlier. I mean, the embedded rent growth, the quality of the asset, the scarcity of the asset, these are all things that are very specific to things to assets like Legacy West. So clearly the growth rate and just the value creation when you can get into these deals at below market rents is really powerful. But that being said, I mean, we still have our portfolio is still pivoted across the spectrum of various retail genres, in the quarter we acquired a grocery anchored center in West Palm Beach, Florida. So we continue to be very focused on that as well. I think what we're trying to do over time is pivot a little away from the centers that have you know, more percentage risk associated with the boxes. It doesn't mean that we'll be out of that, it just means it's going be a smaller part of the portfolio, over time. So what we should get as a result of this is better cash flow growth and better NAV over time. That's the objective.

[Daniel Purpura, Senior Associate - Equity Research at Green Street Advisors, LLC]

Got it. Thank you. Thanks.

[Operator]

Our next question comes from Andrew Weil with Bank of America.

[Andrew Reale, Equity Research Analyst at Bank of America]

Hey, good afternoon. Thanks for taking my questions. Just on leasing, have there been any changes in how you're approaching conversations with tenants and your leasing strategy overall in recent weeks? And I know you've had success pushing pretty favorable monetary and non monetary provisions within your leases in recent years, but curious if there have been any areas in the lease negotiation lately where you're getting more pushback from tenants.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

No. I mean, at this point, it's pretty much business as usual in the way that we operate with our customers, the retailers. And as we tell you all the time, we engage with them every single day. We mentioned in the prepared remarks that retailers, particularly the national retailers, when they're making decisions, they're thinking about decades of being in that particular property. And so they have to operate throughout the cycles.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

All that being said is, the market is the market and there is concern today, but it hasn't come to fruition at this point, in terms of our negotiations. If anything, the scarcity of the product continues to put us in a very good place as it relates to negotiating. Tom, you want to add? Yeah, mean, the

[Thomas McGowan, President & COO at Kite Realty Group Trust]

only other thing I would add is, I think we see our primary customers wanting to do more portfolio reviews. We actually have one tomorrow where a grocery company is going to assess some of their new target markets and we're going to really dig into that. So I think if anything, we're seeing more interaction, more engagement with these customers to make sure they're able to jump on opportunities as well as us as we move down the road. So we are definitely not seeing a lot of changes at this point other than people really wanting to forecast out opportunities within our portfolio.

[Andrew Reale, Equity Research Analyst at Bank of America]

Okay, thank you. And then just on your active and future developments, how do you feel about yields holding up just given the broader macro uncertainty and potential cost headwinds associated with tariffs?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Again, I mean, at this point in time, the yields have not been impacted by that, but we're very early into this process. So, there may be some impact down the road, but generally when there's impact from that, we are able to get better returns vis a vis the rents or other value engineering. But today, it's too early to see any impact from that.

[Andrew Reale, Equity Research Analyst at Bank of America]

Okay. Thank you.

[Operator]

Our next question comes from Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Hey, good afternoon out there. John, just following up on the previous question on leasing. Do you think that leasing is a good indicator over time of like what's going on in the economy? And what I'm asking for is, do you think that the continued strength we're seeing in retail is more driven by the dwindling availability versus strength of the underlying economy? Just trying to get a sense of how we should interpret the still strong leasing environment, if it's more lack of space or it's more, hey, the retailers see great things in their business and they're continuing to expand.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Alex, I mean, I think it's a combination of lack of space and strength of the retail physical footprint for these retailers to make money. But right now, I would say that it still remains a pretty healthy environment because the product is scarce and the retailers over the last several years have really kind of morphed their businesses and are able to figure out how the whole multifaceted online, in store, all that works. So right now, I think it's a combination. We'll see how this plays out over the next several quarters, but we're still in a pretty good place as of today.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Ellis, I'd also add, this is Heath, that during COVID you saw a lot of these tenants shut down their real estate machine and they fired their real estate teams and it was really hard to get it going again. So I think they're remembering, hey, let's not overreact. This is likely a temporary situation. It's business as usual. Part of their growth depends on them opening up new units.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

So yes, does it feel a little turbulent? But I think the continued growth is them realizing that, as John said before, they're looking to make real estate decisions for ten, fifteen, twenty years. And by definition, they're assuming they're going to be some point of a downside. So again, I think it's the tenants looking back and saying, you know what, let's hold the course and let's stick to our business plan.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Okay. And then the second question is, in your Slide 19, which I give you guys credit for is a great slide. So glad you guys put it out there. You talk about the potential for a special dividend based on the dispositions. And I'm just wondering, obviously, REITs have been pretty good at sheltering taxable gains.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

And apart from doing a ten thirty one, have you I'm assuming you guys explored all other options to shelter. Any capital would just seem in the current environment, retained cash is probably the most valuable asset you have versus a special dividend that I'm not sure you'd get much credit for. So just curious on your thoughts on that.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Well, Alex, we absolutely investigated ways to shelter any potential special dividend. We say it in that day, it's likely required. So that's why we're not giving a range on it. But as you know, when you're purchasing an asset in a partnership, you can't use it to ten thirty one fee sales. But with that said, there's other things like dividend throwbacks, etcetera, that we can use.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

So we are actively looking and we have tremendously good tax advisors of ways to avoid it. But at the end of the day, when you step back, we don't think it's the worst use of capital. And if it's returning cash to our shareholders, and we're doing this incredible transaction, and even after we return that cash, this is still accretive, It feels like that's a great result all around.

[Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies]

Thank you.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Thanks.

[Operator]

Our next question comes from Hongmian Zhang with JPMorgan. Your line may be on mute.

[Hongliang Zhang, Vice President at JP Morgan]

Hello. Can you hear me?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Yes.

[Hongliang Zhang, Vice President at JP Morgan]

Cool. Sorry about that. I guess, two questions. I guess, the first one, it seems like between the asset sales and the JVC funding, all those transactions are coming into, call it, like a mid-7s cap rate. Is that indicative of, I guess, what you'd be selling properties at today?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I mean, it's hard to say across the entire portfolio of what we'd be selling, but I think it's a reasonable kind of cap rate based on the type of products that we're selling. And we felt pretty good about that in terms of how we were growing the remaining cash. So yeah, I think it's a reasonable assumption.

[Hongliang Zhang, Vice President at JP Morgan]

Got it. And I guess on I guess on occupancy, I think your economic slash build occupancy was, call it, like, in the low 90 ones in the first quarter. Where do you think that will trend by the end of the year?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

We don't, we generally don't, don't guide to occupancy, but you're going to see obviously it dip as we lose more of the leases out of the bankruptcy. We still have all of our JoAnn's, then obviously you're going see it start building up as we're turning on the rent. So again, we don't guide to economic all of these documents at the end of the year. But generally, those are the two factors that are going to be impacting it.

[Thomas McGowan, President & COO at Kite Realty Group Trust]

But we're on a very nice pace of backfilling these boxes. And so we're very hopeful that that will continue to increase through the balance of the year. I

[Hongliang Zhang, Vice President at JP Morgan]

will. Thank you.

[Operator]

Our next question comes from Dory Kesten with Wells Fargo.

[Dori Kesten, Director at Wells Fargo Securities]

Thanks. Good afternoon. Are you able to quantify the fees that you'll receive through the potential two GIC JVs?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Dory, no, we're not ready to share those. But we set in our materials at their market, so you can do a survey of various joint ventures and they're going to be in the ballpark.

[Dori Kesten, Director at Wells Fargo Securities]

Got it. And as you walk through your 25 small shop lease expirations, is it your expectation that your fixed rent bumps of 3% plus should continue to grow from the 92% that you achieved this past year?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Yes. I mean, I think if you look at the quarter over quarter results, we continue to make great progress there. Obviously, the portfolio gets leased up, you end up it ends up getting harder and harder to get the growth out of a tougher space to lease. But certainly, 3% north is a very comfortable place for us to assume that we're going to continue to do small shop leases.

[Dori Kesten, Director at Wells Fargo Securities]

Okay. Thank you.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Thank you.

[Operator]

Our next question comes from Wesley Golladay with Baird.

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Hi, everyone. The JV helped you mitigate the risk of taking that down a very large asset. And just kind of curious, you know, at what size of an asset would you want to bring in a JV partner?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

You know, I think it's probably deal by deal specific, Wes, but when you look at this particular asset, it felt like the appropriate size that we should be thinking about that. That being said, our share of the total deal is less than 10% of our undepreciated assets. So again, I think it's a large asset, but it's not crazy large. But I think in this range you would see us consider that. I mean, there's more to it than just the size, but in this range we would consider it.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

And Wes, I'd add one piece of it is a risk diversification. It's a large asset, you bring a partner along. But also when you're looking at these large assets, your counterparty is thinking about the ability of the other side to perform. And I'll tell you that based on our joint venture with GIC, we were at the highest bidder on this asset. And we were able to get the deal awarded to us because of the strength of partnership.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

They looked at Kite's ability to execute along with GIC's ability to execute. And that's why we won the bid. So it's more than just risk allocation. It's also partner with someone that's going to give you a better advantage when you're underwriting and when you're submitting your bid.

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

That's a fair point. And then I guess maybe your other assets in the market, how much does that play into it as well where you can get the immediate synergies?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Which other asset, the seed assets or the

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Well, other assets in the market, yeah. Oh,

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

yeah, 100%.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I misunderstood the question. Yeah, absolutely. As we mentioned, was a big part of our underwriting of the asset was that we are a major player in the market. In fact, own an asset across the street, essentially across the tollway. And then also the fact that we own Southlake, which is a similar asset, very dominant.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

All of a sudden, we own two of probably the top five open air retail assets in Dallas. So that's a pretty major thing. And I think we can kind of cross pollinate tenants across the board and hopefully just lift rents across the board.

[Thomas McGowan, President & COO at Kite Realty Group Trust]

Yeah, and from the Dallas market have been substantial today just in terms of opportunities what's out there. So we will definitely build on our momentum in this market.

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Okay, nice. And then one last one on the term income, it looks like it's running through the non same store. Is there any base rent in 1Q not to flow it through? And then also, when should we assume that tenant is backfilled?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

As you kind of broke up in terms of when that tenant gets backfilled, it's an accurate spot, so call it twelve to eighteen months is our average to backfill it. But I missed the first part of your question. It kind of cut out.

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Oh, yeah, sorry about that. Is there anything in the run rate of the non same store that we need to take out in 2Q? And what amount should we put in, call it, late next year?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

No. On our termination fee policy, when we get a termination fee, we count the rent for the twelve months. So there's nothing to remove run rate.

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Okay. I guess would it be safe to assume that maybe a few years of rent?

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Yes. Oh, and how much it was?

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Yeah, I guess the base rent. Yeah, I'm trying to figure out how much credit I need to give you for the, know, call it, you know, to late twenty twenty six. What type of rent we should put in the run rate, because it's a non same store. So we don't have an idea what's going on there.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I think it's too early to say what the backfill rents are going to be, if that's the question.

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Yeah.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Think we lost a little bit and it's breaking up a little, Wes. But I think it's a little early to tell them what the backfill is. I think the point is that we have a lot of capital from the lease termination to reinvest in whatever we do there.

[Heath Fear, Executive VP & CFO at Kite Realty Group Trust]

Thanks a guys.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Thank you.

[Wes Golladay, Senior Research Analyst at Robert W. Baird & Co]

Appreciate it.

[Operator]

Our next question comes from Linda Tsai with Jefferies.

[Linda Tsai, Senior Analyst at Jefferies]

Thanks for taking my question. In terms of sales productivity, how does Legacy West compare to Legacy East and Southlake? And is Legacy West the one with the most amount of luxury retail? Because I know you highlighted those tenants as having higher mark to market rent upside.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Yeah, I think Legacy West would be similar to Southlake in sales productivity, slightly better, but very similar. Better than Legacy East, as Legacy East is we're transitioning the property, recently did a small redevelopment there. So I think Legacy East has a long way to have a lot of upside, which is great. And we're obviously going to be running these properties in conjunction. But yeah, I think between the three of them, we have a lot of opportunity and the sales are strong.

[Linda Tsai, Senior Analyst at Jefferies]

And is there a sense of how much luxury you have across the Kite portfolio? Yeah,

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I mean, think this would be the highest concentration in this particular asset, which is what we were excited about. One of the things we were excited about is it's a whole new channel of tenants for us. So, this would be the concentration at Legacy West.

[Linda Tsai, Senior Analyst at Jefferies]

Thanks. And then how are you feeling about acquiring more for the rest of the year? Are you actually seeing opportunities now, or is it more like pencils down for a bit with the purchase of Legacy West?

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

I think we're always reviewing the market. Today, we're not seeing anything today that would be anything close to what we were able to do here. But I think the market is in a little bit of flux and we expect that to change over the next probably couple of quarters. But we're always in the market. I think as we go down the road and if there's if we have more asset sales, we'll obviously have to look at what we're doing with that.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

But as of right now, there's not something that we're engaged on that is of the quality and growth profile of Legacy West.

[Dori Kesten, Director at Wells Fargo Securities]

Thank you.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Thanks.

[Operator]

That concludes today's question and answer session. I'd like to turn the call back to John Kite for closing remarks.

[John Kite, Chairman and Chief Executive Officer at Kite Realty Group Trust]

Well, again, thank you everyone for joining us today, and we hopefully look forward to seeing most of you in the next month or so. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Bryan McCarthy, Senior Vice President of Corporate Marketing & Communications
• John Kite, Chairman and Chief Executive Officer
• Heath Fear, Executive VP & CFO
• Thomas McGowan, President & COO

Analysts

• Todd Thomas, Managing Director & Equity Research Analyst at KeyBanc Capital Markets
• Craig Mailman, Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.
• Floris van Dijkum, Managing Director at Compass Point Research & Trading
• RJ Milligan, Managing Director at Raymond James
• Daniel Purpura, Senior Associate - Equity Research at Green Street Advisors, LLC
• Andrew Reale, Equity Research Analyst at Bank of America
• Alexander Goldfarb, Managing Director & Senior Analyst at Piper Sandler Companies
• Hongliang Zhang, Vice President at JP Morgan
• Dori Kesten, Director at Wells Fargo Securities
• Wes Golladay, Senior Research Analyst at Robert W. Baird & Co
• Linda Tsai, Senior Analyst at Jefferies