Kite Realty Group Q1 2026 Earnings Call - Disciplined Capital Recycling and Embedded Rent Growth Fuel Portfolio Transformation

Alexander Goldfarb, Analyst, Piper Sandler0: Good day, and welcome to the Kite Realty Group Q1 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Bryan McCarthy, Senior Vice President, Corporate Marketing & Communications. Please go ahead.

Bryan McCarthy, Senior Vice President, Corporate Marketing & Communications, Kite Realty Group: Thank you. 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-K. Today’s remarks also include certain non-GAAP financial measures. Please refer to today’s earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.

On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer, John A. Kite, President and Chief Operating Officer, Thomas K. McGowan, President and Chief Financial Officer, Heath R. Fear, Senior Vice President and Chief Accounting Officer, Adam Jaworski, and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. Given the number of participants on the call, we ask that you limit yourself to one question and one follow-up. If you have additional questions, we ask that you please rejoin the queue. I’ll now turn the call over to John.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thanks, Bryan, good morning, everyone. We entered 2026 with an ambitious set of operational and strategic goals. Through the first quarter, we are firmly on target. Tenant demand remains healthy. Our signed-not-open pipeline remains elevated, and the underlying fundamentals of our portfolio have never been stronger. This is a result of deliberate work over the past two years to reshape KRG into a higher caliber, faster growing, and more resilient company. We’ve sold over $600 million of non-core assets, entered into strategic and transformational joint ventures, repurchased shares at pricing well below consensus NAV, and repositioned the portfolio squarely toward higher growth and higher quality grocery anchored lifestyle and mixed use assets. These actions are proactive, decisive, and disciplined, designed to capitalize on the disconnect between public and private market values while fundamentally elevating the company.

The KRG you see today is significantly improved from where it was 24 months ago. The first quarter was another clear example of that discipline in action. We repurchased 6 million common shares for approximately $152 million and sold Quorum Plaza, a non-core lower growth asset. Together with the activity completed in 2025, we have now repurchased 16.9 million shares for $400 million at an average price of $23.67, representing a compelling arbitrage, buying our own stock at an FFO yield meaningfully wider than the yields at which we have sold lower growth assets. As we advance through 2026, we will continue to evaluate capital recycling opportunities that further optimize the portfolio and support our long-term strategic objectives. None of this is possible without the strength and versatility of our balance sheet.

Our ability to sell assets, repurchase stock, enter into strategic joint ventures, fund growth, and continue investing in the portfolio is a direct result of the disciplined financial posture we have maintained over multiple years. We remain committed to operating with conservative leverage, ample liquidity, and meaningful financial flexibility, which allows us to stay opportunistic while continuing to protect the long-term durability of the platform. That discipline is translating directly into operating performance. Demand for space in our high-quality centers remains exceptionally healthy, and our first quarter results reflect both the strength of the portfolio and the quality of our execution. Same property NOI increased 3.6% in the first quarter, a strong start to the year. During the quarter, we executed 151 new and renewal leases, representing over 700,000 sq ft.

Blended cash leasing spreads were 13.5%, including 31.3% on new leases. Our non-option renewal spreads were 12.3%, demonstrating the continued mark-to-market potential embedded within our portfolio. Our lease rate stands at 94.7%, a 90 basis point increase year-over-year, reflecting the continued absorption of our inventory by high-quality, well-capitalized retailers. During the quarter, we signed new leases with a variety of sought-after concepts, including On Running, Reformation, Warby Parker, Total Wine, and Barnes & Noble. ABR per sq ft reached $22.89 at quarter-end, a 6.5% increase year-over-year. Our signed-not-open pipeline remains elevated at approximately $36 million of NOI, representing a 350 basis point spread between our leased and occupied rates.

The average ABR for leases in our Signed-not-open pipeline is $28 a sq ft. Embedded rent escalators are the first stone in the foundation of long-term total return, contractual growth that compounds over time. Two years ago, our embedded rent escalators were just 156 basis points. Today, they stand at 182 basis points. As we advance towards our 200 basis point target, that trajectory is driven by factors within our control: strong lease structures, disciplined merchandising, and the deliberate reshaping of our portfolio. Simply put, KRG is in an exceptional position. We have a better portfolio, a rock-solid balance sheet, a more durable growth profile, and a team that continues to execute with urgency, discipline, and focus.

I want to thank the entire KRG team for the hard work that got us here and for the continued energy, commitment, and conviction required to keep raising the bar. I’ll now turn it over to Heath.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Thank you and good afternoon. After the first quarter, KRG is exactly where we want to be: on offense, on plan, and operating from a position of strength. We are elevating the portfolio, sharpening the platform, and building momentum for another highly productive year. Turning to our results, KRG generated $0.52 of NAREIT FFO per share and $0.52 of Core FFO per share in the first quarter. Same property NOI increased 3.6% in the first quarter, driven primarily by a 250 basis point contribution from higher minimum rents, a 55 basis point improvement in net recoveries, and a 45 basis point improvement in overage rent. On our last call, I indicated our expectation for same property NOI growth in 2026 to be lower in the first half of the year and accelerate in the second half.

It’s important to note that the 3.6% result in Q1 exceeded our expectations as a result of higher than anticipated overage rent, lower than anticipated bad debt, and the reversal of a large real estate tax reserve. As for the trajectory of same property NOI for the balance of the year, we anticipate a moderation into the second quarter, followed by a re-acceleration to the back half of the year as the rents from our large signed-not-open pipelines begin to commence. Due to outperformance in Q1, we are increasing our 2026 same property NOI range by 25 basis points at the midpoint. As illustrated on page 5 of our investor deck, the uptick in our same store guidance is being offset by a corresponding reduction in our recurring but unpredictable items.

As a result, we are affirming our NAREIT FFO and Core FFO guidance of $2.06-$2.12 per share based on a same property NOI growth range of 2.5%-3.5%. A bad debt reserve of 95 basis points of total revenues at the midpoint, reflecting our actual first quarter results blended with a continuing assumption of 100 basis points for the balance of the year. Interest expense, net of interest income, excluding unconsolidated joint ventures of $121.2 million at the midpoint, up from $121 million.

This guidance fully incorporates the incremental $100 million of stock we have repurchased since our last earnings call and further contemplates $170 million of 1031 acquisitions scheduled to close in the second quarter. This represents a $60 million increase as compared to original guidance. $145 million of non-core and/or tax loss trip dispositions, with $12.5 million closed in the first quarter and the balance closing in the back half of the year. This represents a $30 million increase in the disposition pool as compared to original guidance. As a reminder, to the extent the aforementioned 1031 acquisitions or non-core sales are not completed, it could result in a special dividend for 2026.

The changes in our transaction assumptions are opportunistic and a continuation of our disciplined focus on matching sources and uses in an earnings-friendly manner. John alluded to moving to the back half of the year, we will continue to evaluate opportunities to further refine our portfolio, provided that we’re able to prudently deploy the proceeds. Our balance sheet remains one of the strongest in the sector. As of March 31st, our net debt to EBITDA was 5.2x, consistent with our long-term range of low to mid-5s. It is worth taking a step back to appreciate the level of transactional activity we’ve executed over the past 18 months while still maintaining one of the lowest leverage profiles in the sector. We have access to over $1 billion in total liquidity, providing us with significant flexibility to pursue value-enhancing opportunities.

Thank you to the KRG team for the relentless efforts in driving our results and creating long-term value for our stakeholders. Operator, this concludes our prepared remarks. Please open the line for questions.

Alexander Goldfarb, Analyst, Piper Sandler0: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. You may return to the queue. Please stand by while we compile the Q&A roster. Our first question will come from the line of Cooper Clark with Wells Fargo. Your line is open.

Cooper Clark, Analyst, Wells Fargo: Great. Thanks for taking the question. As we think about the share buyback program moving from $300 million to $600 million, just curious about the willingness to potentially upsize disposition volumes even higher in the back half of the year as we think about the $145 million of non-core assets contemplated in the back half, given the demand for product in the market today and the ability to improve portfolio quality with potentially minimum dilution as we think about buybacks coupled with 1031 acquisitions.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Sure. Hey, Cooper. Yeah, I think as we said in the prepared remarks, we’re gonna continue to evaluate the market and evaluate the opportunities. We wanna execute what we have in front of us, in terms of the 1031 opportunities, you know, to try to close on in the next quarter. And it’s always gonna be a function of where cost of capital is, what the opportunities are to reposition the capital. I think we’re trying to make it clear that we’re reviewing that’s a potential opportunity.

you know, if, if you go and look at what we’ve done in the last year, and you include in what Heath had said is in the guidance, I mean, you’re talking about if we execute on that’s like $750 million approximately of sales. This is significant. We continue to try to do that in a very meaningful way in the sense of how we manage the total portfolio, manage the balance sheet, and manage, you know, protecting earnings as good as we can. That’s a long-winded answer of saying, yeah, that’s a possibility, but a lot of factors involved in that. Heath, you wanna add to that?

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: No, that was great.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Okay.

Cooper Clark, Analyst, Wells Fargo: Great. Thanks. Moving towards the economic occupancy side, I believe current economic occupancy sits about 260 basis points below your historical highs, as many of your peers are near or above historical high economic occupancy. Curious if you could just talk about the opportunity set there longer term, and how much the S&O pipeline may contribute to higher absolute economic occupancy levels in the back half of 2026 and 2027, as we also contemplate some more regular wage churn.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Sure. I mean, we think we’re bullish on our ability to continue to push occupancy higher, you know, both economic and lease rate. We are, you know, year-over-year, we’re up, obviously, you know, sequentially slightly down, which is not unusual in the first quarter. If you look back over the past, you know, four or five years, I think five years probably, three of those first quarters are slightly down, you know, sequentially. What we’re focused on is the year-over-year growth. We do think there’s real opportunity based on lack of supply and continued strong demand.

As we tried to point out, we’re very focused in on proper merchandising, and we’re very focused in on getting the right retailers in the right spaces, and trying to pursue this embedded rent growth that is gonna pay dividends in the future. You know, we’re not in a super hurry to hit any particular number, but we do feel like there is really strong demand. That’s part of what we’re doing in terms of repositioning the portfolio, is in the sense that this stronger portfolio will be able to maintain higher occupancy over longer periods of time. Again, yes, we believe we have plenty of room to run.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: I would add a lot of attention, questions, and comments have been around the transactional activity and refining the portfolio. At the end of the day, you know, one of the biggest opportunities in front of us is that core opportunity of leasing. If you look across the peer set, as you said in your question, Cooper, you know, we’ve got the most room to run in terms of just growing organically. While all this other stuff is certainly moving us along, let’s not lose focus of the fact that we’ve got the most occupancy run left.

Cooper Clark, Analyst, Wells Fargo: Great. Thank you.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thanks.

Alexander Goldfarb, Analyst, Piper Sandler0: Thank you. One moment for our next question. That will come from the line of Sameer Kanal with Bank of America Securities. Your line is open.

Alexander Goldfarb, Analyst, Piper Sandler1: Good afternoon, everybody. I guess, John or Heath, maybe expand on your comments on capital recycling, maybe broadly kind of what you’re seeing in the transaction market, you know, the interest level that you’ve gotten for your assets that you could potentially sell down the road. Thanks.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Sure. I’ll start with that, Sameer. I mean, it’s, there is a strong demand for, you know, open air retail, and it’s coming from really, you know, many, many avenues. I would say in the last, you know, six months, you know, nine months, but even six weeks, you see a lot more institutional capital positioning to want to be in the space, you know, a rotation, if you will. That obviously puts, you know, that puts pressure on cap rates to move down over time. We really still haven’t seen a movement in interest rates. If that happens in addition, that would be additional fuel. Really, even without that, the demand is strong.

I think when people look at their portfolio and they look at how they balance it and they look at risk-adjusted returns, you know, our product screens well. I mean, you know, we still have this ability, we hope, to continue to do what we’re doing, which is to, if we’re gonna recycle capital, we wanna recycle it into higher growth assets. Honestly, if you look at page 6 of our investor deck, it kind of shows you know, what we’re doing. I think a couple pages later, which is the page 6 shows the increase and decrease, you know, that we’ve had in various product types. A couple pages later, you see the embedded rent growth, you can chart that that’s going up.

You know, as long as we’re able to sell these lower growth assets at, you know, yields, you know, well inside the stock yield, that’s attractive. Now, how we deploy that capital comes down to a complex set of items based on taxable income and 1031 opportunities and stock price, et cetera. It’s really a real estate exercise. I wanna remind everybody of that. We are very focused on the real estate exercise. Obviously, the equation relates in the sum of what do we do with the capital. It’s complex, but right now we think there’s opportunities. Heath, you wanna.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: I would just say, Sameer, there isn’t a pocket of historical retail capital that hasn’t been reignited. The breadth of the demand is just incredible. And frankly, it’s better to be a seller right now than it is to be a buyer. With that said, you know, we do have some traction on some of these 1031 acquisitions that we’ve been talking about. Yeah, but the market is very, very constructive right now.

Alexander Goldfarb, Analyst, Piper Sandler1: Got it. I guess my second question, Heath, is on the, you know, on the guidance, right? Aside, you raised same store, low-end, high-end, we didn’t see a follow-through on FFO. Maybe you, Heath, can unpack that. I think that would be helpful. Thanks.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Sure. If you’re on page 5, you’ll see that the same store did boost us up half a penny on a full year basis, but then that was offset by a corresponding reduction in a recurring but unpredictable item. Basically, that item is still there. It’s just being pushed into 2027. Timing wise, we thought it was 2026, and it’s being pushed into early 2027. Nothing happening there. That’s why with the same store bump didn’t flow through to FFO.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Other thing I would add to that, Sameer, is obviously we held Q2, Q3, Q4 bad debt at 100 basis points. You know, I think the first quarter was closer to 75, but I think we view it as very early in the year. I think we’re always reticent in the first quarter to really jump on to too much. You’ve still got 75% of the year to unfold. I think you can look at it as prudent, in my opinion, to not jump on a lot of these things that may or may not happen. I think bad debt and then just, you know, recurring but unpredictable are two big categories. I mean, especially on recurring unpredictable, I think if you look at last year, we were like $21 million. I think our guidance is closer to $10.

you know, we’ll see how the year plays out. A lot of things left to happen, but the core business is very strong.

Alexander Goldfarb, Analyst, Piper Sandler1: Got it. Thanks a lot, guys.

Alexander Goldfarb, Analyst, Piper Sandler0: Thank you. One moment for our next question. That will come from the line of Todd Thomas with KeyBanc Capital Markets.

Alexander Goldfarb, Analyst, Piper Sandler3: Yeah. Hi, thanks. Good afternoon. Beyond the capital recycling that you have lined up right now and with what’s under contract, would you move forward with, you know, the dispositions without new investment opportunities lined up? Is the plan really only to activate, you know, incremental dispositions, you know, if you have something on the buy side?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Hey, Todd. I mean, as you know, our goal is always to kind of pair these things. You know, we’ve got this saying where we like to do stuff in pods, you know, buying and selling. Of course, you know, we’re also opportunistic and if we think that there’s a really excellent opportunity to recycle out of a lower growth asset at an attractive yield versus other yields, you know, that is possible that we would do that in front of, you know, knowing exactly where that capital would go. Again, this is what a really strong balance sheet affords you that opportunity to be, you know, to be forward-thinking. You know, the goal is to always try to couple these things. We’ll see how that plays out, Todd.

Alexander Goldfarb, Analyst, Piper Sandler3: Okay. Does the current disposition pool, the, I guess $145 million, although I think you mentioned the $12.5 was included in that in the first quarter. Does that pool include City Center? Can you provide an update on progress for that asset disposition?

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Yeah, it does include City Center, Todd. Listen, we had hoped to transact it on City Center by now. As we said in the past, it’s a complicated vertical asset, and the plan is still to transact before the end of the year.

Alexander Goldfarb, Analyst, Piper Sandler3: Okay. All right. Thank you.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thank you.

Alexander Goldfarb, Analyst, Piper Sandler0: One moment for our next question. That will come from the line of Michael Goldsmith with UBS. Your line is open.

Michael Goldsmith, Analyst, UBS: Good morning. Thanks a lot for taking my question. First question is just on the same store NOI growth for the quarter. It sounds like you were pleasantly surprised with the upside to that number, driven in part by maybe upsides to the overage rent and then that recovery. Is there anything in the backdrop that is driving those numbers maybe higher than you were expected? Maybe what would you kind of see as kind of the run rate number for the second quarter before it re-accelerates as the snow starts to kick in? Thanks.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: It was basically the outperformance was ratable between 3 things, was bad debt overage and also that real estate tax reversal. Again, as I said in my opening remarks, you’ll see it moderate into the second quarter and then re-accelerate to the back half of the year. To your earlier point, it was, you know, it was higher than we’d anticipated. You know, moving into the, to the back 3 quarters, we still have opportunity to outperform on bad debt. We had 80 basis points, I’m sorry, 75 basis points of bad debt in the quarter. We’re still assuming 100. There’s still some things that we hope to be able to outperform in the same store line as we move throughout the year.

Michael Goldsmith, Analyst, UBS: For the record, I’m not complaining that the number is higher. I just want to communicate that.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: We weren’t complaining either. We were happy.

Michael Goldsmith, Analyst, UBS: You know, you highlighted a significant arbitrage between asset sale yields and your equity buyback yield. Stock has been doing well. Shares are up 8% this year, up 10% in the last month. You know, at what point would you think to slow or pause your repurchases and have to look into, you know, start to look at some other ways to reallocate capital from here?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Yeah, I mean, obviously, as we alluded to, that is one of the variables as we move through the year. As we sit here today, we’re still in a pretty good position as it relates to discount to NAV and, you know, Core FFO yield relative to where we think we can sell assets that we would wanna sell. That’s a moving target, and we’ll see how that goes. It’s just kind of one of those things, it is what it is. You know, we’ll address it as it comes. I think, you know, right now our strategy is, again, it’s really real estate based and future growth based. We wanna figure out how to best do that. If this isn’t part of the plan, there are other things we can do.

Obviously last year we did pay a special dividend. We’ll see how that goes in the future. It’s just too many variables to really say, Michael, where that’s gonna be, you know, tomorrow or a month from now. Heath Fear, you wanna add to that? No, it’s great. Okay. Thank you.

Michael Goldsmith, Analyst, UBS: Thank you very much. Good luck in the second quarter.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thank you.

Alexander Goldfarb, Analyst, Piper Sandler0: One moment for our next question. That will come from the line of Floris van Dijkum with Ladenburg Thalmann.

Floris van Dijkum, Analyst, Ladenburg Thalmann: Hey, guys. Thanks. Just curious, the $36 million Signed-not-open pipeline, not all of it is same store. I think, you know, only 84% of it is in the same store pool. Is that a Legacy West that’s not part of the same store pool? Maybe talk about, you know, the upside there and when that will get recognized in same store.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Yeah, it’s really two elements there, Floris. One of it’s Legacy West, and we have an annual same store concept. Legacy West won’t be in the same store bucket until we’ve owned it for a full calendar year. You’ll see it in 2027 as part of the same store pool. The other piece that’s not included in same store are the leases that we’re executing at Loudoun. Those are the two major components outside of same store that comprise the sign not open pipeline.

Floris van Dijkum, Analyst, Ladenburg Thalmann: Got it. As of my follow-up question, you know, I know you put a little thing out there about, you know, obviously you’ve done a lot of anchor repositioning. You’ve added a number of new grocer concepts to your portfolio, a number of Trader Joe’s and a couple of Whole Foods. Can you talk about the returns on capital there? Presumably, that’s the return on direct return on invested capital. Maybe talk about, I’m curious, the Centennial, you know, we were out in Vegas with you guys on your four by four, I can’t remember what it was. Maybe it was NAREIT or maybe ICSC. Obviously you repositioned one of those boxes into a Whole Foods. What has that done?

What do you typically see in terms of the knock-on effect to shop leasing and rents in your portfolio or when you add a, you know, one of those grocers to your property? What would you say would be your fully adjusted return on capital if you were to include those things in there?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Floris van Dijkum, there’s no doubt that if we bring in a Trader Joe’s, we bring in a Whole Foods Market, there’s tremendous impact, and it’s just that continual shop that occurs through the day. Both of those are tremendous drivers for us. Without question, when you have a new retailer, a new grocer like that, when new deals are going in the committee, it helps tremendously. Plus that consistent shop helps drive additional sales throughout. You have the cap rate compression component, and then in addition, you have the lease up through new committee deals, and you’re driving sales inside your existing tenant base. We always find a way to generate strong returns on these boxes.

If you carry that in, you know, that factor, you know, grows incrementally to a, to a number probably 2 to 3 times more than what that would start off with in terms of like 200, 300 basis points. It’s wildly attractive for us to reposition like that. Floris, the returns we’re generating on capital are like in the 30% range. Depends on the deal. Could be 20, could be 40. Generally speaking, that’s just, you know, return on capital spent for that retailer. We don’t look at it relative to the, you know, how that might impact the adjacent space other than the ability, as Tom said, to drive a cap rate down, you know, by adding a grocer. Again, it’s not all about that, it’s about merchandising too.

You know, when you look at adding how much we’ve done in terms of adding Trader Joe’s and adding Whole Foods, then the next thing you know, the quality of the surrounding shop grows. Maybe that’s why our ABR and our Signed-not-open is $28, right? Versus the portfolio average of $23.50, I guess, somewhere close to that. I think it’s definitely moving us in the right direction.

Floris van Dijkum, Analyst, Ladenburg Thalmann: Thanks. Yeah, by the way, your ABR growth even year-over-year is 6.5%, which is, I think pretty juicy. I mean, is that one of the highest growths that you’ve experienced?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Yeah, I mean, it’s been a pretty good growth rate over the last five years, actually. I don’t have it in front of me, but 6.5 is pretty strong. You know, when you look at our ABR and you add into that our embedded rent growth and you compare that to the peer group, it doesn’t reflect where we trade.

Floris van Dijkum, Analyst, Ladenburg Thalmann: Thanks, John.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: You bet.

Alexander Goldfarb, Analyst, Piper Sandler0: One moment for our next question. That will come from the line of Michael Mueller with JPMorgan. Your line is open.

Michael Mueller, Analyst, JPMorgan: Yeah. Hi. Maybe somewhat of a follow-up, aside from general portfolio leasing capital, is there any visibility as to how much your annual development or major redevelopment investment could grow to over the next, say, three to five years?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Hey, Michael. You know, we don’t generally, as you know, we don’t throw out a number at the beginning of the year and say, we’re gonna spend $X million on development, redevelopment because we don’t like people to chase a target versus, you know, chasing great opportunities. We’ve been pretty moderated on that in the last couple of years because of the significant spend that we’ve had in just the lease-up portfolio, which is obviously on a risk-adjusted basis, a much higher return. You know, as we look out over the next 3 years, that begins to slow down in terms of the internal lease-up capital, ’cause we’re spending about a little over $100 million a year right now over the next two and a half years.

When that moderates through this lease-up, as he said earlier, then all of a sudden you have a lot more, you know, choices to deploy free cash flow. We have a, you know, a very long history in development and redevelopment, and we know how to do it, and we know how to judge risk. I would say we will pivot more to that over the next couple of years, and you’re gonna see us do some smaller projects over the next couple of years. I think our view is we’d rather have more projects of smaller size than, you know, a couple of huge ones.

Right now, we have, you know, we have a large one in our development at One Loudoun, but frankly, you know, it’s very manageable against a $7 billion balance sheet. Long-winded way of saying, I think we can lean into that as the lease-up firms up over the next two years.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: I would add, we shouldn’t construe the lower development spend now with the development opportunity in the portfolio. Lowest hanging fruit’s Loudoun. We still have 35 acres of land after we’re done with this expansion. I think it includes another 1,100 multi-family units, another, you know, 1.7 million square feet of commercial. We’ve got lots of opportunities in the portfolio, but as John said, the current priority right now is leasing. When that spend starts to decline, we will, you know, that pipeline will pick up.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: No doubt. Loudoun’s moving along very nicely in terms of lease-up as well.

Michael Mueller, Analyst, JPMorgan: Got it. Okay, thanks. Second, I apologize if I missed this someplace, but what’s a range of cap rates for the 1031 and non-core sales?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: You know, we didn’t give an exact cap rate range, Michael, but I think in terms of the 1031s, we continue to see opportunities for stuff that we wanna own, very high-quality assets, kind of like in the 8%-9% unlevered IRR range. That’s kind of what we’re pursuing. And as we’ve said before, the type of stuff that we’re selling is kind of in the 7% range, depending on what it is. That’s where the trade is currently.

Michael Mueller, Analyst, JPMorgan: Got it. Okay. Thank you.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thank you.

Alexander Goldfarb, Analyst, Piper Sandler0: One moment for our next question. That will come from the line of Alexander Goldfarb with Piper Sandler. Your line is open.

Alexander Goldfarb, Analyst, Piper Sandler: Hey, good afternoon out there. John, as we look at the S&O pipeline, you know, pretty good ramp from now through 2028. Just sort of curious, is there, you know, is there a way to accelerate this, or is a lot of this just dependent on there are people already in that space and you have to wait for those leases to expire and then just the time it takes to move, you know, for the tenants to build out the space, move in? Just trying to understand any way to accelerate this timing versus it’s structural and there’s really not much you can do because of all the moving pieces and perhaps existing leases that are already there.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Yeah, Alec Feygin, it’s obviously we’re always trying to accelerate the build-outs of these spaces in the S&O pipeline. You know, the majority of, or a lot of this, I should say, I mean, a lot of this space was former anchor space, right? That’s gonna have a longer gestation period. As you know, you know, those generally on average between lease signing and rent commencement could be, you know, 15-18 months, depends on what it is, depends on the level of construction. Also, don’t forget that we have to deal with municipalities in multiple markets that slow you down despite the narrative that that’s changed. I don’t think it’s changed that much. Yeah, we like to accelerate that. We absolutely would.

I mean, in one regard, you’re just pulling forward something you know you’re gonna get, but NPV-wise, it makes sense. We’re pushing hard to accelerate, but I think it is what it is. The good news is the demand is there, the S&O is strong. As I said earlier, if you look at the rents, it really reflects where we’re going as a company. That’s a very positive, you know, thing to take out of that.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Be assured, Alec Feygin, we’re doing everything we can, whether it’s permit expedite or starting drawings right out of real estate committee.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: We try to pull every lever, and it’s a huge objective around here to move those up.

Alexander Goldfarb, Analyst, Piper Sandler: Between you and John, Tom, I never have to worry about, you know, not moving quickly. The second question is, you know, on the heels of the Quorum sale, and you talked about more dispositions, have you sort of outlined how much more of your portfolio you think, I don’t wanna say it’s Quorum-like, but how much more, you know, doesn’t fit as you think about where you wanna take the portfolio? Is it, you know, still 10% more, 20% more, or do you think that most of the lower performing assets are gone and now it’s really sort of fine-tuning based on opportunity? I’m just trying to figure out how much are sort of definitely we gotta sell versus, okay, these are potentials if we have opportunity for something accretive on the other side.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Yeah, I mean, I think obviously we do a robust analysis of the portfolio all the time. There definitely are assets that we believe, you know, don’t fit the, you know, future KRG. As we talked about in the prepared remarks, we still have a goal of pushing our embedded rent growth to two versus where we are today. There’s work to do there. You know, some of these assets that we’re selling, Alec Feygin, are high quality, but lower growth. There are a few, like, you mentioned Quorum, that just didn’t fit at all. There are a handful of properties like that.

Probably the bigger number would be the properties that just don’t have the growth profile that we’re looking for, and that we also think are potentially a little more tethered to at-risk future tenant issues, right? There is a portion there, but it’s not a huge portion, and this is more methodical around the underlying, you know, future growth and real estate quality.

Alexander Goldfarb, Analyst, Piper Sandler: Is it like-

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Yeah, I’ll just add, you know. I’m sorry, Alec, go ahead.

Alexander Goldfarb, Analyst, Piper Sandler: No, you go and then I’ll follow up.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: I was gonna say, when we started this disposition program, we did the best we could to ensure folks this is not a multi-year program that’s gonna result in, you know, a FFO dilution over 3, 4, 5 years. This was trying to get this done in 2025 and 2026. As John said, there’s a handful left, and if we can get it done, if we deploy the proceeds in a prudent manner, we will. If we don’t, that’s okay too. You know, we’re always, you know, sort of cycling out of 1, 2, 3 assets a year, and that’s sort of the expectation. If we can get it done this year, we will.

Alexander Goldfarb, Analyst, Piper Sandler: Okay, that’s helpful. Listen, thank you.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Thank you.

Alexander Goldfarb, Analyst, Piper Sandler0: One moment for our next question. That will come from the line of Alec Feygin with Baird.

Alec Feygin, Analyst, Baird: Hey, thanks for taking my question. One for me is about Legacy West. Curious how it’s performed versus initial expectations, and if there’s been any incremental opportunities with new tenants expanding from Legacy West to other assets in the portfolio.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thank you for that. Legacy West has performed marvelously. It’s been a great asset for us and our partner. We’ve made really significant progress in a short period of time on increasing rents, particularly on the retail front. As you followed, I’m sure we’ve announced lots of new leases that we’ve signed since we bought it. The mark to market on the rents has been exactly what we thought it would be. You know, when we acquired the center, the ABR and the retail component was like $65 a foot, we’re doing deals north of $100 a foot routinely. That’s spectacular. The multifamily side has picked up a lot in the last quarter quite well. The office is really strong.

This is really high quality office in a very sought after little slice of a fabulous sub-market in Plano. Obviously, AT&T has recently announced their global headquarters there, which is just one of a few major announcements that they’ve had in Plano. We feel really good about that. In terms of transferring of opportunities to other parts of the portfolio, it was another reason that we wanted to add it to our portfolio. When you now look at, for example, our top three lifestyle assets, Southlake, Legacy West and One Loudoun, and you look at the NOI it’s generating versus the I think it’s about 15% of our ABR now, just those three assets, but it’s like, you know, 5% or 10% of our total GLA.

It shows you the strength of that, and now we’re doing deals across the portfolio, you know, with these high quality tenants that now are very aware of KRG. It’s been a massive win for us, a massive win for our partner, and, you know, we’re looking forward to trying to find more of those opportunities.

Alec Feygin, Analyst, Baird: Awesome. That’s it for me. Thanks, guys.

Heath R. Fear, President and Chief Financial Officer, Kite Realty Group: Thank you.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thank you.

Alexander Goldfarb, Analyst, Piper Sandler0: One moment for our next question. That will come from the line of Craig Mailman with Citi. Your line is open.

Craig Mailman, Analyst, Citi: Hey, guys. Heath, maybe let’s go back to your comment about, you know, the strength of the operating portfolio, to maybe step away from CapEx cycle for a minute. Just as just looking at kind of the percent leased here over the last, you know, several quarters. Anchor obviously has been doing well, but small shop, you know, you briefly got over 92% and it’s back down slightly below it. I mean, what’s the timeframe or the outlook internally to get this, you know, maybe to 93% plus? What’s been kind of the obstacle to ramp it as quickly as you ramped anchor?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: You know, we don’t guide to occupancy, Craig, but we have said publicly before that, you know, we think by the end of this year, you know, we should be at occupancy levels that are approximating our historical highs, you know, right before COVID. The good news is that we don’t think that that’s a ceiling at all. We’ve seen a lot of our peers sort of bust through their historical high water marks, and we intend to as well. You know, at the end of last quarter, we were at 92.1, I think, in the small shop space, which was 40 basis points away from where we were at historical high. Took a seasonal step back.

We can at least wade through 92.5% to maybe 93% or 94% on the small shop space. On the anchor side, the step back at this quarter on a sequential basis was related to Value City. Again, we are, you know, we are busy backfilling those boxes and making great progress. We’re very, very bullish on our occupancy opportunity. Again, it is the largest and most meaningful opportunity in the peer set, right? We’ve got, as I said before in the past, you know, everyone’s gonna peak on their occupancy gains in terms of their same store. Ours is coming at a different time, and we’re gonna start seeing that in the back half of this year into 2027.

Alexander Goldfarb, Analyst, Piper Sandler2: Yeah. One other thing that we’ve been doing, Craig, is we’ve been very proactive in terms of trying to improve the mix. If somebody’s coming off of a non-option scenario, I mean, what we’ll do right away is we’ll just say, "Hey, if we can do better, we’re gonna move them out and, you know, end up with a better quality tenant." We’ve been doing a lot of that inside these numbers, and we’ll continue to do it, but we’re absolutely ending up with great decisions and great tenants.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Craig, I think you remember me talking a couple years ago about the fact that we’re never going to lease space quickly. We’re gonna lease space in a very, very diligent way, that’s part of what Tom means is that, you know, can we take deals maybe faster by accepting a tenant that we don’t love or a rent structure that we don’t love, particularly rent growth? Yeah, we could. If you look at our statistics relative to the peers, I mean, there’s no doubt we were, you know, in my opinion, a market leader in rent growth in the small shop space, right?

If you look at where we were in, you know, 2019 versus where we are today in 4% a year, small shop growth, it’s incredible in terms of the number of tenants we’ve been able to convert, you know, to 4% or, you know, north of 3, right? If you do a bunch of deals at 2% rent growth, you’re gonna do them faster. If you’re diligent about this and you end up with the right tenants that are growing at 3.5% to 4% in the shops, you’re gonna thank me for that in 2 years.

Craig Mailman, Analyst, Citi: No, that makes sense. I appreciate the detail there. Maybe actually shifting back to the capital recycling. John, I think you said $750 million of kind of sales is what you guys have left. Is that right?

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: No, what I said was, if you look at what we sold last year, and then you combine what he’s pointed out that we are, you know, targeting to sell this year, combined, that’s like, I think, close to $750 million. That’s what I said there. You know, we’ll see if we hit that. We still have to do another $130 million, I think, this year, to get to that number. That’s just what we have identified, Craig.

Craig Mailman, Analyst, Citi: Gotcha. I guess the gist of my question is gonna be if you could snap your fingers today, kind of where would the mix of kind of neighborhood, regional power, lifestyle ultimately be to where you feel like the risk-adjusted returns are maximized? Maybe as you look at what you would have to sell to get there, kind of how much of it is in the more difficult bucket versus there’s definitely pockets of capital that would want and would be sort of easy to medium difficulty.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Yeah, I mean, obviously everybody kind of classifies what’s power versus what’s a community center, maybe a little differently. If you look at how we have identified it in our investor presentation, you know, our power is down 500 basis points, and we’re at about 19% of our portfolio relative to ABR is in power. You know, we’ve said we’d like to get that down, you know, to, I don’t know, 12%, 13%, 14%. There’s some really high-quality assets in there. If you look at our regional community versus our neighborhood community and shop and grocery, we’d like to pivot that more to the neighborhood side as well. You know, maybe the same amount, maybe another 5%-10%.

Really, in the end, it’s not gonna be about, you know, oh, we’ve got this perfect composition on a percentage basis. It’s gonna be more about the embedded rent growth and the quality of the real estate, Craig. Again, I would challenge you to look at where our, you know, where we trade, where our ABR is, what our embedded rent growth is, and what the higher, you know, multiple guys are at. It is what it is. As long as it’s there, we’ll continue to try and take advantage of that in the way that we can. Certainly, the private institutional investors are well aware of that and well aware of what’s going on in our space. It’s odd to me, but it is what it is, which I keep saying.

It’s odd to me, but, that we wouldn’t actually, as a group, trade at a premium for the liquidity, but it’s actually vice versa. You know? You’re trading at a discount, for the liquidity, which is quite odd. At any rate, I do think there’s real opportunity there to improve that, Craig. We’re gonna have to take it one step at a time. We’ve identified what we have, and we’ll see. We still got three quarters of the year left. As he said, if those opportunities avail themselves, we’ll try to take advantage of that. After the end of this year, then we would think, man, we have the portfolio composition is really good.

As, again, as he said, we’re just back to the normal, you know, paired trades, a couple deals here, a couple deals there.

Craig Mailman, Analyst, Citi: Great. Thanks.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: Thank you.

Alexander Goldfarb, Analyst, Piper Sandler0: Thank you. I’m showing no further questions in the queue at this time. I would like to turn the call back over to Mr. John Kite for any closing remarks.

John A. Kite, Chairman and Chief Executive Officer, Kite Realty Group: I just, again, wanna thank everyone for joining us today, and have a great day.

Alexander Goldfarb, Analyst, Piper Sandler0: This concludes today’s program. Thank you all for participating. You may now disconnect.