Q3 2023 Kite Realty Group Trust Earnings Call

Okay.

Speaker 1: Good day and thank you for standing by. Welcome to the third quarter, 2023, kite-realted group trust earning SCARM friends call. At this time, all participants are in a listen only mode. After the presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone. You will hear a message advising your hand is raised.

Good day and thank you for standing by welcome to the third quarter 2023, Kite Realty Group Trust earnings Conference call. At this time, all participants are in a listen only mode. After the presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

One on your telephone you will hear a message advising your hand this waste to withdraw your question Press Star. One again, please be advised that today's conference is being recorded I would now like to turn the call over to the senior Vice President of corporate marketing and communications Mr. Bryan Mccarthy.

Speaker 1: To withdraw the question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to the Senior Vice President of Corporate Marketing and Communications, Mr. Brian McCart.

Speaker 2: Thank you and good afternoon everyone. Welcome to Kite Realty Group's third quarter earnings call.

Thank you and good afternoon, everyone welcome to Kite Realty group's third quarter earnings call.

Speaker 2: 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 made different material.

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.

Speaker 2: 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 yesterday's earnings press release, available on our website, for reconciliation of these non-GAAP performance measures to our GAAP financial results.

More information about the factors that can adversely affect the companys 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 yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.

Speaker 2: On the call with me today from Kite Realty Group, our chairman and chief executive officer, John Kite, president and chief operating officer, Tom McGowan, executive vice president and chief financial officer, Heath Sear, senior vice president and chief accounting officer, Dave Beewall, and senior vice president, capital markets and investor relations, Tyler Henshaw. I will now turn the call over to John .

On the call with me today from Kite Realty Group are chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom Mcgowan Executive Vice President and Chief Financial Officer Heath Fear Senior Vice President and Chief Accounting Officer.

Dave Buell and senior Vice President capital markets, and Investor Relations Tyler Henshaw I will now turn the call over to John.

Speaker 3: Thanks Brian and thanks everyone for joining us today.

Thanks, Brian and thanks, everyone for joining us today.

Speaker 3: KRG demonstrated another quarter of exceptional execution across our best-in-class operating platform.

<unk> demonstrated another quarter of exceptional execution across our best in class operating platform.

Speaker 3: Since the outset of Project Focus in late 2018, we've strategically positioned our portfolio and balance sheet to thrive in any environment. As a result of our operational intensity, we've outpaced our peers in three key metrics, ABR growth, blended cash spreads, and FFO growth.

So I'll set of project focus in late 2018, we've strategically positioned our portfolio and balance sheet to thrive in any environment.

As a result of our operational intensity, we've outpaced our peers in three key metrics ABR growth blended cash spreads and <unk> growth.

Speaker 3: Regardless of how the next few years unfold, KRG is in the enviable position of moving forward with confidence.

Regardless of how the next few years unfold K R. G as in the unenviable position of moving forward with confidence.

Speaker 3: Turning to our third quarter results, we generated FFO per share of 51 cents. Our same property NOI grew by 4.7% as compared to the same period in 2022, primarily driven by minimum rent growth, lower levels of bad debt and overage rent.

Turning to our third quarter results, we generated <unk> per share of <unk> 51.

Our same property NOI grew by four 7% as compared to the same period in 2022, primarily driven by minimum rent growth lower levels of bad debt and overage rent.

Speaker 3: Alright, our outperformance year today is allowing us to increase our NAREFFO guidance by three cents at the midpoint.

Alright, our outperformance year to date is allowing us to increase our NAREIT <unk> guidance by three cents at the midpoint.

Speaker 3: We're also increasing our same property NOI growth assumption by 100 basis points moving from 3.5% to 4.5% at the midpoint. He will give more details around the quarterly results and our updated guidance.

We're also increasing our same property NOI growth assumption by 100 basis points moving from three 5% to four 5% at the midpoint Keith will give more details around the quarterly results and our updated guidance.

Speaker 3: During the third quarter, TRG signed 214 leases, representing approximately 1.4 million square feet, producing 14.2% blended cash spreads on comparable new and renewal leases.

During the third quarter, <unk> signed 214 leases, representing approximately one 4 million square feet.

<unk> 14, 2% blended cash spreads on comparable new and renewal leases.

Speaker 3: Notably, our non-option renewal spreads for the quarter or 17.8%. This is an incredibly strong number for deals that require minimal capital.

Notably our non option renewal spreads for the quarter were 17, 8%. This is an incredibly strong number for deals that require minimal capital.

Speaker 3: More importantly, KRG earned a 30% return on capital for all new leases for the trailing 12-month period.

More importantly, <unk> earned a 30% return on capital for all new leases for the trailing 12 month period.

Speaker 3: In addition to the strong leasing volume, spreads, and return on capital, we've been successful in achieving higher fixed rent bumps and CPI protects.

In addition to the strong leasing volumes spreads and return on capital we've been successful in achieving higher fixed rent bumps and CPI protection.

Speaker 3: Through the first three quarters of 2023, 82% of our new and non-optional leases have fixed annual rent bumps that are greater than or equal to 3%. And 41% of those leases include CPI protection.

Through the first three quarters of 2023, 82% of our new and non option renewal leases have fixed annual rent bumps that are greater than or equal to 3% and 41% of those leases include CPI protection.

Speaker 3: The average annual fixed rent increases for the new and non-optional renewals year to date was 2.5 percent for both our small shop and anchor tenants, which is a hundred basis points higher than our portfolio average.

The average annual fixed rent increases further new and non option renewals year to date was two 5% for both our small shop and anchor tenants, which is 100 basis points higher than our portfolio average.

Speaker 3: Redefining our long-term embedded growth profile remains a top priority.

Redefining our long term embedded growth profile remains a top priority.

Speaker 3: Last quarter, we noted our plan to leverage our robust leasing demand by being more proactive in recapturing small shop space.

Last quarter, we noted our plan to leverage our robust leasing demand by being more proactive in recapturing small shop space.

Speaker 3: The initiative has been very successful, as evidenced by the 80 basis point sequential increase in our small shop lease rate.

Initiative has been very successful as evidenced by the 80 basis point sequential increase in our small shop lease rate.

Speaker 3: Small Shop Demand has been very diverse and in the past quarter we signed deals with restaurants, medical users, health and beauty, and fitness concepts.

Small shop demand has been very diverse in the past quarter, we signed deals with restaurants medical users health and beauty and fitness concepts.

Speaker 3: On the anchor front, our lease rate took a predictable step backward due to the Bed Bath and Beyond situation.

On the anchor front.

Our lease rate took a predictable step backward due to the bed Bath <unk> beyond situations.

Speaker 3: but we could not be more pleased with a flurry of activity on our empty boxes.

But we could not be more pleased with a flurry of activity on our empty boxes. This past quarter, we signed a total of five box deals at 53% comparable cash spreads.

Speaker 3: This past quarter we signed a total of five box deals at 53% comparable cash spread.

Speaker 3: To date, we have addressed five of the bed bath boxes with an additional eight leases in negotiation, seven in L.O.I.

To date, we've addressed five of the bed Bath boxes with an additional eight leases in negotiation.

Seven in LOI negotiation.

Speaker 3: I'm confident we should have the vast majority of our bed-bath exposure addressed by our next earnings call.

I'm confident we should have the vast majority of our bed Bath exposure addressed by our next earnings call.

Speaker 3: What's even more impressive is the variety of anchor tenets we're partnering with, including grocery, big box wine and spirits, home furnishing, sporting goods, and discount retailers among others.

What's even more impressive is the variety of anchor tenants were partnering with including grocery and big box wine and spirits home furnishing sporting goods and discount retailers among others.

Speaker 3: For the next 18 to 24 months, our best opportunity is to drive value as simple. Least space and commence rent.

The next 18 to 24 months, our best opportunity is to drive value is simple lease space and commence rent.

Speaker 3: KRG has a significant organic growth opportunity at a time when open-air retail is experiencing favorable tailwind.

<unk> has a significant organic growth opportunity at a time when open air retail is experiencing favorable tailwind.

Speaker 3: While our top priority is leasing, we've been consistent in our match funding transaction strategy to further improve the portfolio and minimize earnings dilution, while keeping our rock-solid balance sheet intact.

While our top priority is leasing we've been consistent in our match funding transaction strategy to further improve the portfolio and minimize earnings dilution, while keeping our rock solid balance sheet intact.

Speaker 3: Our transaction activity here today has been a perfect example.

Our transaction activity year to date has been a perfect example, we.

Speaker 3: We sold four assets, bought an asset, and used excess proceeds from the dispositions to pay down debt.

We sold four assets bought an asset and used excess proceeds from the dispositions to pay down debt.

Speaker 3: We recently sold Ricer Town Plaza in the Baltimore MSA and East Side in the Dallas MSA.

We recently sold Reiser town Plaza in the Baltimore, MSA and east side and the Dallas MSA.

Speaker 3: We determined the downside risk at each asset eclipsed our ability to drive above-average returns. Conversely, we acquired Prestonwood Place in Addison, Texas, an affluent, highly desirable suburb of Dallas.

We determined the downside risk at each asset eclipsed our ability to drive above average returns. Conversely, we acquired Preston would place in Addison, Texas and affluent highly desirable suburb of Dallas.

Speaker 3: The asset's existing tenancy shows demand for the property is strong but will further upgrade the merchandising mix and drive operational efficiency.

The assets existing tenancy shows demand for the property is strong but will further upgrade the merchandising mix and drive operational efficiencies press.

Speaker 3: Prestonwood Place instantly enhances the quality of our already dominant Dallas footprint.

Crestwood place instantly enhances the quality of our already dominant Dallas footprint.

Speaker 3: We will be showcasing several of our assets to the investment community next year with our 4 in 24 series.

We will be showcasing several of our assets to the investment community next year with our four in 'twenty four series, we look forward to seeing many of you at our first event in February and Naples, Florida.

Speaker 3: We look forward to seeing many of you at our first event in February in Naples, Florida.

Speaker 3: I started the call discussing the transformation KRG has made over the past five years. We've always been a team with unparalleled operational acumen and pride in ourselves being a real estate first organization.

I started the call discussing the transformation <unk> has made over the past five years, we've always been a team with unparalleled unparalleled operational acumen and pride in ourselves being a real estate first organization.

Speaker 3: Now we've implemented a best-in-class operating platform onto an expanded high-quality portfolio, while possessing one of the best balance sheets in the sector.

Now we've implemented a best in class operating platform onto an expanded high quality portfolio, while possessing one of the best balance sheets in the sector.

Speaker 3: Thank you to our team for its continued dedication and commitment, and now I'll turn the call to Heath.

Thank you to our team for its continued dedication and commitment now I'll turn the call to Heath.

Speaker 2: Good afternoon. In this industry, we are fond of saying good things happen to good real estate. With that in mind, I'm pleased to report that KRG team has produced another spectacular quarter.

Good afternoon, and this industry, we are fond of saying good things happen to good real estate with that in mind I am pleased to report that <unk> team has produced another spectacular quarter.

Speaker 3: For Q3, KRG earned 51 cents of NAREIT FFO per share based on same property NOI growth of 4.7% on a year-over-year basis.

For Q3 for Q3, <unk> earned 51 cents of NAREIT <unk> per share based on same property NOI growth of four 7% on a year over year basis.

Speaker 2: The quarterly same property outperformance was driven by a 240 basis point increase in minimum rent, a 30 basis point increase in net recoveries, a 160 basis point increase due to low or bad debt, and a 40 basis point increase in overage rent and other revenue. Year-to-date, KRD has earned $1.54 of NAIRIT FFO per share and increased same property NOI by 5.5% on a year-over-year basis. The components of our year-to-date outperformance closely track the quarterly themes.

Quarterly same property outperformance was driven by a 240 basis point increase in minimum rent of 30 basis point increase in net recoveries of 160 basis point increase due to lower bad debt and a 40 basis point increase in overage rent and other revenue year.

Year to date <unk> has earned a $1 54 of NAREIT <unk> per share and increased same property NOI by five 5% on a year over year basis, the components of our year to date outperformance closely track the quarterly themes.

Speaker 3: We are raising our NAREIT FFO guidance to a range of $1.99 to $2.03 per share, representing a three-cent increase at the midpoint. Two-and-a-half pennies are attributable to same-property NOI outperformance, while the other half penny is related to non-cash rent associated with rejection of certain bed, bath, and beyond leases.

We are raising our NAREIT <unk> guidance to a range of $1 99 to 203 per share representing a <unk> <unk> increase at the midpoint to five pennies are attributable to same property NOI outperformance, while the other half penny is related to noncash rent associated with rejection of certain bed bath and beyond leases.

Speaker 2: At the midpoint, our updated full year guidance assumes bad debt of 45 basis points of total revenues for the full year of 2023, no additional termination fees, and no further transactional activity. We continue to operate the business from a position of strength, in large part based on our balance sheet. I'm pleased to report that S&P has upgraded our rating outlook to positive from stable. And we are optimistic that this will result in a full upgrade to BBB rating in the next 12 to 18 months.

At the midpoint, our updated full year guidance assumes bad debt of 45 basis points of total revenues for the full year of 2023, no additional termination fees and no further transactional activity.

We continue to operate the business from a position of strength in large part based on our balance sheet. I am pleased to report that S&P has upgraded our rating outlook to positive from stable and we are optimistic that this will result in a full upgrade to triple B rating in the next 12 to 18 months.

Speaker 2: We've come a long way in five years, and we are uncompromising in our commitment to maintaining a balance sheet that affords us a disproportionate amount of security and optionality. We continue to remain opportunistic as relates to the unsecured bond market, while our abundance of liquidity affords a patient posture as we contemplate our 2024 maturities.

We've come a long way in five years, and we are uncompromising in our commitment to maintaining a balance sheet that affords us a disproportionate amount of security and Optionality. We continue to remain opportunistic as it relates to the unsecured bond market, while our abundance of liquidity affords a patient posture as we contemplate our tour.

Speaker 4: KRG is a dedicated and committed organization anchored in an efficient operating platform and a strong balance sheet. I'm proud of the progress we've made and I'm excited for what the future holds.

'twenty maturities.

<unk> is a dedicated and committed organization anchored in an efficient operating platform and a strong balance sheet.

Proud of the progress we've made and I'm excited for what the future holds.

Speaker 1: Thank you for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions. Thank you. And as a reminder to ask the question, simply press star one one on your telephone one moment while we compile our roster.

Thank you for joining the call today operator. This concludes our prepared remarks. Please open the line for questions. Thank you and as a reminder to ask a question simply press star one on your telephone.

Meanwhile, we compile our Q&A roster.

Okay.

Speaker 1: Thank you so much. One moment for our first question. And it comes from the line of Craig Mailman with Citi. Please proceed.

Thank you so much and one moment for our first question.

Any comments.

From the line of Craig Mailman with Citi. Please proceed.

Hey, guys.

Speaker 5: John , I just want to go back. It sounds like that that's actually going to be done pretty quick here. And you'd always said, you know, you want the right opportunity versus kind of just the speed and backfilling them.

John I just wanted to go back it sounds like that that's actually going to be done.

Pretty quick here and you'd only.

You want the right opportunity versus kind of just the speed of back several months.

Speaker 5: Clearly, you obviously feel like you got the right tenant mix here. How did the rents stack up versus what your original pro forma was on the backfillless boxes? How many of them were you able to keep single-penant versus ultimate-happiness?

Hum.

Clearly you obviously feel like you've got the right tenant next year, how did the rents kind of stack up versus what your original pro forma wise on the backfill those boxes and how many of them are you able to keep single tenant versus ultimately having to split out.

Speaker 3: I mean, overall it's tracking as we've been talking about, I would say the rents are probably in the 20 to 30% range in terms of a premium over past rents. We continue to get very strong returns on capital, just as important as the spread.

Sure.

I mean overall its tracking as as we've been talking about.

I would say that the rents are probably in the 20% to 30%.

Now range in terms of a premium over past rents we continue to get very strong returns on capital just as important as the spread.

Speaker 3: And the timing is, you know, look, I think it's probably been more robust than we thought in terms of how quickly we've been able to assimilate the roster, but, you know, we were still maintaining the discipline around making smart decisions around which tenants we're doing business with. No real change there, Craig. Tom, you want to...

And the timing is.

Look I think I think it's probably been more robust than than we thought in terms of how quickly we've been able to assimilate the roster but.

We're still maintaining the discipline around making smart decisions around which tenants we're doing business with.

No no real change there Craig Tom you want to add anything.

Speaker 6: Yeah, I think a simple way of looking at it is right now we have 16 boxes that we're negotiating leases with and 14 negotiating L O I's and inside that we have nice numbers of bedbath eight on negotiating leases and seven and negotiating L O I's. So you can see there's tremendous activity on that front, but in reality we look at it, we have 35.

The simple way of looking at it as right now we have 16 boxes that we're negotiating leases less than 14 negotiating LOI is inside that we have nice numbers of bed bath on negotiating leases.

Seven one negotiating LOI. So you can see there is tremendous activity on that front, but in reality, we look at it we have 35.

Speaker 6: vacant anchor boxes and that's what we're really focused on is making sure we get those all taken care of and that's simply a subset of that. So as you go through these numbers that we're talking about today, we're going to be down to just several.

Vacant anchor boxes, and that's what we're really focused on is making sure we get those.

It's all taken care of in bed Bath simply a subset of that so as you go through these numbers that we're talking about today or going to be down to just several several box other than we're going to continue to bang on those as we as we work through the end of the year. So we're very encouraged on our progress.

Speaker 6: Several boxes in. We're going to continue to bang on those as we work through the end of the year. So we're very encouraged on our progress and would always accomplish.

And what all we have accomplished.

Speaker 5: Thanks for that. And then, Heath, you kind of touched quickly on, you know, evaluating opportunities in the debt market here. I believe you guys have some legacy RPII debt rolling. Could you kind of talk about

Great. Thanks for that and then Keith you kind of touched quickly on you know evaluating opportunities.

That market here.

I believe you guys have some legacy RPI debt rolling could you kind of talk about.

Speaker 5: What may be the cash impact or gap impact of those where you had some purchase accounting issues and what the open impact could be. And I don't know if you have it handy, but just in 24 and 25, kind of what the gap you put on those RPI, the charities look like relative to kind of...

What may be the.

The cash impact or the impact of those where you had some purchase accounting issues and what the ultimate impact could be and I don't know if you have it handy, but just in 2004 and 25 kind of what the GAAP coupon of those RPI.

Maturities look like relative to.

Maybe turning to the P&L.

Speaker 4: Sure, thanks Craig. So we discussed last time in the call that the non-cash impact from retiring the RPI debt in next quarter, it's around two cents.

Sure. Thanks, Craig.

Discussed last time on the call that the noncash impact from retiring the RPI debt and next quarter its around <unk> into.

Speaker 4: into 2024. And then in terms of the cash impact, and Melissa, you can make your own sort of

Into 2024, and then in terms of the cash impact on the most of you can make your own sort of.

Speaker 4: Assumptions here and based on timing, do we take out the 270 maturities early? Do we take it out late?

Assumptions here and based on timing or do we take out the 270 maturities early do we have taken out late.

Speaker 4: The debt that we're paying off is at 3.75%. And so currently, you know, indicative rates right now in a 10-year deal are somewhere around 7%. Obviously, there'll be some negative interest rate arbitrage into 2024. But again, it'll be very dependent on timing. The earlier, obviously, the more impact into 2024. But yeah, so on the non-cash basis, it's two cents. Then, you know, I'm

The debt that we're paying off.

375%.

Currently our indicative rates right now on a 10 year deal or somewhere around 7%. So obviously there'll be there'll be some negative interest rate arbitrage into 2024, but again it will be very dependent on timing.

Earlier, obviously, the more impacted the 2024, but yes, so on a noncash basis, it's two <unk>.

And then on the.

Speaker 4: on the negative refinancing arbitrage call it somewhere between two and four cents.

On a negative refinancing arbitrage call it somewhere between two and four.

Speaker 5: And if I just like, okay, and if I just looked at, you know, one of your, look at your total debt at the interest rate, I think you get to like 31 or 32 million of, of a, of, uh,

Depending on a tightening cycle.

Okay, and if I just looked at one year will get your total debt at the interest rate I think you get to like 31 or $32 million.

Sure.

Speaker 5: Inter-suffent run rate versus 20 times the 20 through. That's $7 million to our gap. And yet predominantly all, this is RPI. Differentials or anything else for them to do that.

Interest expense run rate versus 25, thats running through that $7 million gap, yet predominantly all just as RPI differ.

A differential or is there anything else running through that.

Predominantly yes.

Speaker 5: Okay, and then just one last quick one. Did you guys have any below market lease adjustments that impacted Sainsbury's FFO this quarter?

Okay and then just one last quick one did you guys have any below market lease adjustments that impacted same store in <unk> this quarter.

Yes, I think it was like.

Speaker 4: Oh, not same. Not same. Not you meant FFO, not thing store now. We have about a million dollars impacted from that F and B.I. and rejections in the quarter on a FFO basis, but not on a same store basis. Great. Thanks, guys. Thanks.

Not saying that.

<unk> not same store, we had about $1 million.

Impacted from bed Bath and beyond rejections in the quarter on a <unk> basis, but not on a same store basis.

Great. Thanks, guys.

Thanks.

Thank you my mom and for our next question. Please.

Speaker 1: And it comes from the line of Leacy, with a Bank of America. Leacy, please go ahead.

And he comes from the line of Lisa Gill with Bank of America. Lisa. Please go ahead.

Speaker 7: Good morning. I'm hoping to get some more color around the disposition that closed during the quarter. It's particularly

Hi, good morning.

I was hoping to get some more color around the disposition.

During the quarter.

Particularly just on pricing.

Speaker 3: During the quarter, are you are? Yeah, I mean, look, I think we talked a little bit about the fact that the assets we were selling, we believe, didn't meet, you know, kind of our long term goals. So that being said, I mean, the pricing was pretty attractive. So I would say the assets that we dispose, if you look at the total of 2023 versus just the quarter, so that all the assets we've disposed in 23 would be like in the high five cap range.

During the quarter.

Yes, I mean look I think we talked a little bit about the fact that the <unk>.

<unk>, we were selling we believe didn't meet kind of our long term goals.

So that being said I mean, the pricing was pretty attractive.

So I would say that assets that we dispose if you look at the total of 2023 versus just the quarter. So that all of the assets. We've disposed in 'twenty three would be like in the high five cap range.

Speaker 3: So we've done pretty well on the discbos. Again, a lot of that is, you know, not people aren't really necessarily pricing things that just going and cap rates, they're looking at what their potential IRR is. So some of these had some lease up opportunity as well.

So we've done pretty well on the dispose again a lot of that is.

People arent really necessarily pricing things that just going in cap rates, they're looking at what their potential IRR is so some of these had some lease up opportunity as well.

Speaker 7: And just, they're one of the slides in your most recent deck.

Okay.

And just one.

One of the slides in your most recent Jack.

Speaker 7: details, you know, anchors like Adidas, Kendra Scott, Sephora, opening in power centers, and we're definitely seeing tenants become increasingly agnostic to.

<unk>.

Details.

Anchors like Adidas Kendra, Scott Sephora opening in power centers.

We are definitely seeing kind of become increasingly agnostic Q.

Speaker 7: center format. So just curious on what the pricing power is like on tenants of this type, you know, wanting to open in space is not.

Center format.

So just curious on what the pricing power is like on tenants of this type.

<unk>.

Wanting to open interfaces not.

Speaker 7: so typical to their typical format and how that might impact terms of

So typical to two there they.

They are typical format and how that might impact.

At the least.

Speaker 3: Let me just start macro and Tom can kind of jump in too. I mean, the pricing power that we believe we have is really a function of the real estate and that carries through regardless of the tenant that we're working with. I would say that tenants such as the ones you mentioned, generally speaking, are coming out of shopping centers or malls that have higher cost to operate in than they would in an open air center.

Let me, let me just start macro and all and Tom can kind of jump into I mean.

The pricing power that we believe we have is really a function of the real estate and that carries through regardless of the tenants that we're working with.

I would say that tenants such as the ones you mentioned Jerry.

Generally speaking are coming out of of shopping centers or malls that have higher cost to operate in than they would in an open air Center.

Speaker 3: So, you know, it gives us plenty of opportunity to price it effectively. But certainly we still see excellent opportunities to drive.

So it gives us plenty of opportunity to price it effectively but certainly we still see excellent opportunities to drive.

Speaker 6: You know, the spreads, as you can see from our results. So, but Tom, if you want to give any color, yeah, I mean, we, uh, we have quite a few tenants in that category. If you think about it, are you athletic, arrhythmia, Nike, and the list goes on and on?

The spreads as you can see from our results so, but Tom if you want to give any color yeah I mean, we.

We have quite a few tenants in that category, if you think about it or flatter.

<unk>.

Nike.

Speaker 6: So we are able to drive rents without question. Sometimes when you deal with this type of tenant, the tenant allowance number may be elevated a little bit differently than what we would see typically inside our shopping centers. But what we're looking for ultimately is a strong return and we've been successful on all counts getting those type of tenants.

The list goes on and on.

So we are able to drive rents without question, sometimes when you deal with this type of talent.

Tenant allowance number may be elevated a little bit differently than what we would see typically inside of our shopping centers.

We're looking for ultimately is.

Strong return and we have been successful on all accounts getting those type of tenants to pay what we need and generate strong strong leasing spreads.

Speaker 6: to pay what we need and generate strong leasing spreads.

Speaker 6: But they've been a welcome addition to our tenant lineup for sure.

But they have.

They've been they've been a welcome addition to our tenant lineup for sure.

Speaker 7: Okay, and to confirm on the bad debt reserve assumption for the full year, that's $45,000.

Okay and can you confirm on the bad debt reserve.

For the full year, that's 45 basis points.

Speaker 7: Was that reaffirmed for the year or lowered and how does that compare to what we should expect as a normal run?

Great.

<unk> reaffirmed for the year are lowered and.

How does that compare to what we should expect at a normal.

Speaker 4: Yeah, well, again, it's 45 basis points for the, for the entire year, but it's 75 basis points of revenues for the fourth quarter.

Run rate.

Yes, so again, it's 45 basis points for the for the entire year, but at 75 basis points of revenues for the fourth quarter, but I would tell you that a typical run rate is somewhere between 75 and 100 basis points. So we are running below tip.

Speaker 4: And I'll tell you that a typical run rate is somewhere between 75 and 100 bases points. So we are running below.

Speaker 4: typical bad debt um... this this year and i believe last quarter or total blended for the first part of the question was about eighty five basis points for the year but you know based on the only ten basis points of bad debt in the third quarter so now our full year blended number is forty five basis points but you know when you're looking into next year think about seventy five to a hundred basis points of bad debt as a normalized number

Typical bad debt.

This year and I believe last quarter, our total blended for the first part of your question with some of our 85 basis points for the year, but based on the only 10 basis points of bad debt in the third quarter. So now our full year blended number is 45 basis points, but when youre looking into next year think about 75 to 100 basis points of bad debt as a normalized number.

Alright, thanks very much.

Speaker 1: Thank you. One moment for our next question.

Thank you gentlemen for our next question please.

Speaker 1: And it comes from the line of corner and material with a pipe or sandler. Please proceed.

And it comes from the line of Conor Mitchell with Piper Sandler. Please proceed.

Speaker 8: Hey, thanks for taking my question. So just thinking about since COVID, the municipal approval process has been pretty slow, you know, some of the employees are still working for home for a while. So I guess first, if there's any change in that, maybe it's sped up a little bit or it still is really still have to push them along. And then just a few other follow-up on that is, are there any markets or certain geographies that are slower than others? Or are you kind of waiting on the process to speed up the bill? and

Okay.

Hey, Thanks for taking my question.

So just thinking about since COVID-19 the municipal approval process has been pretty slow.

We're still working from home for a while so I guess first has there been any change of that maybe it sped up a little better.

Yes, really still have to push that along and then just a few other follow ups on that is are there any markets or certain geographies that are slower than Alberta, Sir.

Waiting on the process to speed up the bill.

Okay.

Speaker 8: So you guys adjusted the timeline for opening locations for retailers and how are those conversations?

So you guys adjusted the timelines for opening locations for retailers and how are those conversations going.

Speaker 3: Well, as far as the approval process, I mean, there hasn't been a lot of change in that. It really over the last several years. It's never easy.

Well as far as the approval process I mean, there hasnt been a lot of change in that really over the last several years, it's never easy.

Speaker 3: really in any particular market to get the approvals on the kind of timeline that we'd like to, but that's our job. That's what we do. And we push that very hard. And I think we're quite successful at it.

Really in any particular market to get the approvals on the kind of timeline that we'd like to but that's our job. That's what we do and we pushed that very hard and I think were quite successful at it.

Speaker 3: I mean, if anything, they're trying to get as open as fast as possible in this environment. And so we try to do everything we can to create a situation where we can get tenants open. And you have to realize that it's not just getting open as fast as possible. You also have to deal with tenants.

In terms of tie.

Timing with tenants I mean, if anything theyre trying to get as open as fast as possible in this environment.

And so we try to do everything we can.

To create a situation, where we can get tenants open.

And you have to realize that it's not just getting open as fast as possible. You also have to deal with tenants who have certain restrictions on the time of year that they'll open which I think people always underestimate the impact that that has but overall I mean, we are in an environment, where the retailer recognizes that.

Speaker 3: who have certain restrictions on the time of year that they'll open, which I think people always underestimate the impact that that has.

Speaker 3: But overall, I mean, we're in an environment where the retailer recognizes that opening a store a quarter early is a tremendous benefit to them. Perhaps even more so than it is to us. So I think we're in, you know, we're gonna keep trying to push that as much as we possibly can.

Opening a store a quarter early is a tremendous benefit to them, perhaps even more so than it is to us. So I think we're in we're going to keep trying to push that as much as we possibly can.

Speaker 6: Yeah, one other thing that we do to help expedite is, we get to the tenant last week where TJ Maxx, tomorrow we're taking off to get with five below. And that's another key point of being able to push deals along is getting front of the customer, which we're doing a lot of right now.

Yes.

Other thing that we do to help expedite.

As we get to the tenant last week <unk> T. J Maxx tomorrow were taken off to get with five below and Thats.

Another key point of being able to push deals along is getting front of the customer, but which we're doing a lot of right now.

Speaker 8: and then I appreciate the color. And then think about the competition for available space and then the growing demand. And then think about the competition for available space and then the growing demand.

Paul.

Okay I appreciate the color.

And then thinking about the competition for available space.

And then.

Growing demands.

Speaker 8: In terms of that, the thinking about the ability for you guys to.

Unknown Executive: Good day and thank you for standing by.

In terms of that the thinking about the ability.

Unknown Executive: Welcome to the third quarter of 2023, Kite Realty Group Trust earnings conference call. At this time, all participants are in a listen only mode. After the presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone. You will hear a message advising your hand is raised. To withdraw the question, press star 1-1 again. Please, the advisor today's conference is being recorded.

For you guys too.

Kind of backtrack.

Speaker 8: backtrack some tenant-friendly terms and maybe flip that around to landlord.

Backtracked semi tenant friendly terms and maybe put that around to landlord friendly terms, you talked a little bit about the small shop piece of that and then overall is there a way to maybe accelerate the mark to market is just recapture some more upside with all the competition for space.

Speaker 8: You talked a little bit about the small shop piece of that and then overall, is there a way to maybe accelerate the mark to market or just recapture some more upside with all of the competition for space?

Speaker 3: Uh, I mean, look, I mean, the competition is for space is robust, so, you know, I think all you really have to do right now is look at.

I mean look I mean, the competition is for space is robust so.

Bryan McCarthy: I would now like to turn the call over to the senior vice president of corporate marketing and communications, Mr. Bryan McCarthy. Thank you and good afternoon everyone. Welcome to Kite Realty Group's third quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results made different 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 10K. Today's remarks also include certain non-gap financial measures. Please refer to yesterday's earnings press release, available on our website, for reconciliation of these non-gap performance measures to our gap financial results.

Are you really have to do right now is look at <unk>.

Speaker 3: Look at our results and some of the other players results in the sense of what we're able to drive. And certainly you can see the economics of what we're doing, but beyond the economics.

Look at our results and some of the other.

Players results in the sense of what we're able to drive in.

Certainly you can see the economics of what we're doing but beyond the economics.

Speaker 3: um... certainly were very engaged in and that's what takes time in this process to try to get you know the best possible

Certainly we're very engaged and that's what takes time in this process to try to get the best possible.

Speaker 3: best possible lease that we can, but recognizing that we're partners with our customers, the retailers, and both parties have to be successful. So it's a process, but there's no question that supply and demand is quite favorable for us right now, and it continues to look that that's going to be the trend for certainly at least the medium term. So we will continue to lean into that and do what we do.

Best possible lease that we can but recognizing that we're partners with our customers the retailers and both parties have to be successful. So it's a process, but there's no question that supply and demand is quite favorable for US right now and it continues to look that thats going to be the trend.

For us certainly at least the medium term. So we will continue continue to lean into that and do what we do.

Bryan McCarthy: On the call with me today from Kite Realty Group, our chairman and chief executive officer, John Kite, president and chief operating officer, Tom McGowan, executive vice president and chief financial officer, Heath Sear, senior vice president and chief accounting officer, Dave Buehl and senior vice president, capital markets and investor relations, Tyler Henshaw.

Okay I appreciate it thank you.

Speaker 1: Thank you. One moment for our next question.

Thank you.

Moment for our next question.

Speaker 1: And he comes from the line of Dory Kastin with Wells Fargo Securities, please proceed.

And it comes from the line of Dori Kesten with Wells Fargo Securities. Please proceed.

Speaker 9: Thanks. Good afternoon. A little bit of a follow up. You've had a good success in getting your six rent bombs over 3% for new leases this year versus last. Are you seeing any resistance in any market in that push?

Hi, Thanks, good afternoon, a little bit of a follow up you've had.

Good success in getting your fixed rent bumps over 3% for new leases this year versus last.

John Kite: I will now turn the call over to John. Thanks, Bryan and thanks everyone for joining us today. KRG demonstrated another quarter of exceptional execution across our best in class operating platform.

Any any resistance in any markets in that question.

Speaker 3: I'm sorry, Dory, did you say resistance from a market, you know, from a particular market or just in general?

Did you Im sorry, Dougherty did you say Martin resistance from a market from a particular market or just in general.

John Kite: Since the outset of project focus in late 2018, we've strategically positioned our portfolio and balance sheet to thrive in any environment. As a result of our operational intensity, we've outpaced our peers in three key metrics, ABR growth, blended cash spreads and FFO growth. Regardless of how the next few years unfold, KRG is in the inevitable position of moving forward with confidence. Turning to our third quarter results, we generated FFO per share of 51 cents, our same property NOI grew by 4.7 percent as compared to the same period in 2022, primarily driven by minimum rent growth, lower levels of bad debt and overage rent.

Well in general and if there is any.

With just kind of in a certain market.

Speaker 3: Oh, no, I don't think it's necessarily market driven. It's again, this is a certainly comes down to each individual shopping center has its own merits. And so each individual deal is different. You know, we don't really look at that in a broad way. But in terms of pushback, look, I think the retailers are aware that there's limited amount of high quality space. They want that space. They want to partner with.

Oh, no I don't think its necessarily market driven it's again this is a <unk>.

Certainly comes down to each individual shopping center has its own merits.

So each individual deal is different we don't really look at that on a broad way, but in terms of pushback I think the retailers are aware that there is limited amount of high quality space, they want that space they want to partner with.

Speaker 3: You know, an owner like us that, you know, puts a lot back into these properties and is, you know, we try to be the best possible partner we can be to the customer. So I think that's helpful. In terms of market segments. I mean, really, again, if you just look at the math, in terms of what we've been able to do this year, and the amount of in particular on the small shop side of the business,

An owner like us that puts a lot back into these properties and as we try to be the best possible partner, we can be to the customer. So I think that's helpful. In terms of market segments. I mean really again, if you just look at the math in terms of what we've been able to do this year and.

John Kite: All right, our outperformance year-to-date is allowing us to increase our na-read FFO guidance by three cents at the midpoint. We're also increasing our same property NOI growth assumption by 100 basis points moving from three and a half percent to four and a half percent at the midpoint.

The amount of in particular on the small shop side of the business.

Speaker 3: you know the great majority of the deals that we're seeing right now are frankly an excess of 3% bumps

The great majority of the deals that we're seeing right now are frankly in excess of 3% bumps. So.

Speaker 3: So I think it's more and more becoming the market. Obviously you have to own good property, but I would say more and more that's becoming the market. And over time, this will begin to pay dividends. But when you only roll, you know, 10 to 13% of your space per year, this is gonna take time to really feed back through. But over the next five years, I think that for sure, you know, the game has changed.

John Kite: He will give more details around the quarterly results and our updated guidance. During the third quarter, KRG signed 214 leases representing approximately 1.4 million square feet, producing 14.2 percent blended cash spreads on comparable new and renewal leases. Notably, our non-option renewal spreads for the quarter were 17.8%. This is an incredibly strong number for deals that require minimal capital. More importantly, CARG earned a 30% return on capital for all new leases for the trailing 12-month period.

I think it's more and more becoming the market.

Obviously, you have to own good property, but I would say more and more of that's becoming a market and over time. This will begin to pay dividends, but when you only role.

<unk>, 13% of your space per year. This is going to take time to really feedback through but over the next five years I think that for sure.

<unk> has changed.

Speaker 9: Okay, thanks. Um, and then are there any updates that you can provide on some of your future development opportunities? Um, Caroline 111 is around their potential monetization or likelihood of you developing parts of that on balance sheet.

Okay. Thanks, and then is there any update that you can provide on some of your future development opportunities Caroline one robin.

There are potential monetization or likelihood of you developing parts of that on balance sheet.

John Kite: In addition to the strong leasing volume, spreads, and return on capital, we've been successful in achieving higher fixed rent bumps and CPI protection. Through the first three quarters of 2023, 82% of our new and non-option renewal leases have fixed annual rent bumps that are greater than or equal to 3%, and 41% of those leases include CPI protection. The average annual fixed rent increases for the new and non-option renewals year-to-date with 2.5% for both our small shop and anchor tenants, which is 100 basis points higher than our portfolio average.

Speaker 6: Sure. First of all, we've have a very limited active development pipeline, which is moving along very well, on time, on budget.

Sure.

First of all we have a very limited active development pipeline, which is moving along very well on time and on budget.

Speaker 6: On the future opportunities, there's several here that we'll start with the first one, Hamilton Crossing and Carmel, a very strong suburb of any NAPLIS. We're working on a plan with 400 apartments and that is an ongoing process of underwriting and trying to understand the particulars of that. Another one is Caroline, which is a 50 acre parcel.

On the future opportunities. There is there is there are several here that we'll start with the first one in Hamilton crossing in Carmel, a very very strong suburb of Indianapolis.

Working on a plan with 400 apartments and that is the ongoing process of underwriting and trying to understand the particulars of that another one is carillon, which is a 50 acre parcel.

Speaker 6: just the east of the city in Washington and that is something that we're taking a very measured approach to in terms of trying to determine the best.

John Kite: Redefining our long-term embedded growth profile remains a top priority. Last quarter, we noted our plan to leverage our robust leasing demand by being more proactive in recapturing small shop space. The initiative has been very successful as evidenced by the 80 basis points sequential increase in our small shop lease rate. Small shop demand has been very diverse, and in the past quarter, we signed deals with restaurants, medical users, health and beauty, and fitness concepts.

Just east of the city, and Washington, and that is something that we're taking a very measured approach to in terms of trying to determine the best utilization in Atlanta, and the best time in which to do that the one that we have the most of them.

Speaker 6: utilization of the land and the best timing in which to do that. The one that we have the most momentum on is One Loudoun and One Loudoun's, you know, one of the great, great growth counties.

<unk> is one Loudoun and one license one of the great great growth counties in the DC area. So we are working on a more particular plan of growth for that project and Thats something that we could probably offer more color as we move into 'twenty four but all of these were being.

Speaker 6: in the D.C. area, so we are working on a more particular plan of growth for that project.

Speaker 6: And that's something that we could probably offer more color as we move into 24. But all of these were being extremely conservative and measured in terms of how we approach them.

John Kite: On the anchor front, our lease rate took a predictable step backward due to the bedbath and beyond situation. But we could not be more pleased with a furry of activity on our empty boxes. This past quarter, we signed a total of five box deals at 53% comparable cash spreads. To date, we have addressed five of the bedbath boxes with an additional eight leases in negotiation, seven in alloy negotiation. I'm confident we should have the vast majority of our bedbath exposure addressed by our next earnings call. What's even more impressive is the variety of anchor tenants we're partnering with, including grocery, big box wine and spirits, home furnishing, sporting goods, and discount retailers among others.

Extremely conservative and measured in terms of how we approach them.

Speaker 3: Tory just let me add that to be specific to your I think to the question in terms of the medical office building at Carillon we're in the process of finishing that.

Sorry, just let me add to be specific to your I think to the question in terms of the medical office building at Carillon were in the process of finishing that and as we said in the past our objective is to get it leased up and sold and that's the that's the path that we're on so we don't intend on owning that long term, but we do want to maximize the value.

Speaker 3: And as we said in the past, our objective is to get it leased up and sold.

Speaker 3: And that's the that's the path that we're on. So, you know, we don't intend on owning that long term, but we do want to maximize the value. So we're, we're still going through some lease up there. And as Tom said, the residual land there is, is, is a different situation than it is at one Loudoun. And so over time, we would look to either monetize it outright or potentially partner with other developers vis-a-vis land contributions, but not

So we're still going through some lease up there and as Tom said the residual land there is a different situation than it is at one loudoun.

And so over time, we would look to either monetize it outright or potentially partner with other developers vis vis land contributions but not.

Speaker 3: Not looking to you know put put significant capital into that whereas

Not looking to put significant capital into that whereas the returns and the quality of one Loudoun Merit us continuing to invest new capital into that.

John Kite: For the next 18 to 24 months, our best opportunity is to drive value as simple. Least space and commence rent. CAREG has a significant organic growth opportunity at a time when open air retail is experiencing favorable tailwinds. While our top priority is leasing, we've been consistent in our match funding transaction strategy to further improve the portfolio and minimize earnings delusion while keeping our rock solid balance sheet intact. Our transaction activity year to date has been a perfect example.

Speaker 3: the returns and the quality of One Loudon merit us continuing to invest new capital into that.

Okay got it thank you.

Thank you.

Speaker 1: Thank you and our next question is from Wesley Gulliday with the Baird. Please proceed.

Thank you and our next question is from Westlake Golladay with Baird. Please proceed.

Speaker 2: Hey everyone, you had a nice spike in the overage rents. Was this, you know, taking advantage of some vacant space you had for some seasonal tenants or is it just strong sales throughout the portfolio?

Hi, everyone you had a nice spike in the overage rents was taken advantage of some vacant space you had for some seasonal tenants or is it just strong sales throughout the portfolio.

John Kite: We sold four assets, bought an asset, and used excess proceeds from the dispositions to pay down debt. We recently sold ricer-town plaza and the Baltimore MSA and eastside and the Dallas MSA. We determined the downside risk at each asset eclipsed our ability to drive above average returns. Conversely, we acquired Prestonwood Place in Addison, Texas, and a fluent, highly desirable suburb of Dallas. The asset's existing tendency shows demand for the property is strong, but we'll further upgrade the merchandising mix and drive operational efficiencies. Press and wood place instantly enhances the quality of our already dominant Dallas footprint.

Speaker 3: Now, Wes, it's really just continued strong sales, as we've talked about in the past. In the last year, overage rent has been materially higher than it has been in previous years. So we just continue to see that growth. I'm sure in, you know, in the current quarter, we'll probably see a little additional rent from short term tenants like Halloween stores, etc. But it's not material.

No. It's really just the continued strong sales.

As we've talked about in the past.

And the last year overage rent has been materially higher than it has been in previous years. So we just continue to see that growth.

I'm sure.

In the current quarter, we will probably see a little additional.

Rent from.

Short term tenants like Halloween stores et cetera, but it's not material.

Speaker 10: And then a follow-up question on the balance sheet, was that $0.02 non-cash impact, is that an annual number, should we rather we do that through next year, and then can you talk about what a potential rating upgrade can do for you on the debt for spreads?

Okay, and then a.

A follow up question on the balance sheet with that too.

Noncash impact is that an annual number or should we rather we do that through next year and then can you talk about what a potential rating upgrade can do for you on the debt for spreads.

John Kite: We'll be showcasing several of our assets to the investment community next year with our 4 and 24 series. We look forward to seeing many of you at our first event in February in Naples, Florida.

Speaker 4: Yeah, I'll answer it in reverse. So on the debt, I think just the outlook change is probably a 5 to 10 basis point proposition. Again, we said we're hopeful in 12 to 18 months that that gets upgraded to a full BBB. Obviously, trying to make progress with Moody's as well. And I've had some good discussion with them. So we're, again, optimistic that we'll see a change from them. And if we get a full ratings upgrade, that's maybe a 25 to 30 basis point.

Yeah I'll answer it in reverse.

The debt I think just did the outlook change is probably a five to 10 basis point proposition.

Again, we said we are hopeful in 12 to 18 months of debt gets upgraded to a full triple B, obviously trying to make progress with moodys as well and have had some good discussion with them. So we're again optimistic that we'll see a change from them and if we get a full ratings upgrade thats, maybe a 25 to 30 basis point.

John Kite: I started the call discussing the transformation KRG is made over the past five years. We've always been a team with unparalleled operational acumen and pride in ourselves being a real state first organization. Now we've implemented a best in class operating platform onto an expanded high quality portfolio while possessing one of the best balance sheets in the sector.

Speaker 4: you know, deduction and spread as well. And then in terms of that non-cash, that's happening in June of 2024, and so I wouldn't roll that forward to the following years. So that's just a two-cent hint into next year.

The deduction in spread as well and then in terms of that noncash that's happening in June.

2024, and so I wouldn't roll that forward into the following years. So thats just a <unk> head into next year.

John Kite: Thank you to our team for its continued dedication and commitment and now turn the call to Heath.

Speaker 3: Okay, thanks a lot. I believe it's twice a year, right? Guys. And.

Okay. Thanks, a lot I believe it's twice a year right guys.

Heath Sear: Good afternoon. In this industry, we are fond of saying good things happen to good real state. With that in mind, I'm pleased to report that KRG team has produced another spectacular quarter. For Q3, KRG earned 51 cents of Navy FFO per share based on the same property and a wide growth of 4.7% on a year-over-year basis. The quarterly same property out performance was driven by a 240 basis point increase in minimum rent, a 30 basis point increase in that recoveries, a 160 basis point increase due to lower bad debt, and a 40 basis point increase in over-drented other revenue.

And two quarters.

No.

That's the re differently.

Oh, I got the right, particularly with that the swap.

Talk about the swap John and so you do get a bit what next year right.

Speaker 4: Yeah, I thought that was your question. Now that'll keep running through for another nine years. So but what's what's not about that, and we talked about it before, is that that benefit until we actually do a transaction to attach that swap to. It happens twice a year. So you see that benefit in the second. I'm sorry, in the first quarter. And you see that benefit in the third quarter.

Yes that would have thought that was your question that'll keep earning through for another nine years.

But what's what's out about that and we've talked about it before is that that benefit until we actually do a transaction to attach that swap to it happens twice a year. So you see that benefit in the second I'm sorry in the first quarter and you see that benefit in the third quarter.

Speaker 10: Got it. Okay. That's all for me. Thanks, John , for getting my follow-up.

Got it Okay. That's all for me Thanks, John Forget my follow up.

Heath Sear: Year day KRG has earned $1.54 of Navy FFO per share and increased same property and a wide by 5.5% on a year-over-year basis. The components of our year-to-date out performance closely track the quarterly themes. We are raising our Navy FFO guidance to a range of $1.99 to 203 per share representing a 300 increase at the midpoint. Two and a half pennies are attributable to the same property and a wide out performance, while the other half penny is related to non-cash rent associated with rejection of certain bad, bad, and beyond leases.

Thank you thanks guys.

Speaker 1: Thank you. One moment for our next question. And it comes from the line of Michael Mueller.

Thank you one moment for our next question and it comes from the line of Michael Mueller.

Please proceed.

Speaker 1: Oh, Michael, we lost you. Can you press star 11 again?

Okay.

Michael when we lost you can you press star one again.

Yes.

One moment.

Speaker 1: Mr. Mueller from JPMorgan, please proceed.

Heath Sear: At the midpoint, our updated full-year guidance assumes bad debt of 45 basis points of total revenues for the full year of 2023, no additional termination fees, and no further transactional activity. We continued to operate the business from a position of strength in large part based on our balance sheet. I'm pleased report that S&P has upgraded our rating outlook to positive from stable, and we are optimistic that this will result in a full upgrade to triple B rating in the next 12 to 18 years.

Mr. Mueller from J P. Morgan. Please proceed.

Speaker 11: Yeah. Oh, hi. So two quick ones. One, I know leasing is going very well and sounds like the demand picture is good. But what do you think the macro item would be that would cause retailers to, you know, slow down the decision making? That's the first question. And then just a second quick numbers one. Any any color on fee income trends over the next few quarters?

Yes, hi.

Hi.

Two quick ones.

Leasing is going very well and it sounds like the demand picture is good but what do you think the macro item would be that would cause retailers too.

Slow down the decision, making that's the first question and then just a second quick numbers one any any color on fee income trends over the next few quarters.

Speaker 3: Let me let me start with I'll take the first one first, but what did you mean by any color on the income trend?

Heath Sear: We've come a long way in five years, and we are uncompromising in our commitment to maintaining a balance sheet that affords us a disproportionate amount of security and optionality. We continue to remain an opportunistic as relates to the unsecured bond market, while our abundance of liquidity affords a patient posture as we contemplate our 2024 maturities. KRG is a dedicated and committed organization anchored in an efficient operating platform and a strong balance sheet. I'm proud of the progress we've made, and I'm excited for what the future holds. Thank you for joining the call today. Operator, this concludes our prepare remarks.

Let me, let me start with I'll take the first one first but what did you mean by any color on the income trend.

Speaker 3: Oh, fee income, fee income. Oh, fee. Oh, fee income, fee income. Sorry, I missed the first part of that. We'll hit, I'll do, let's go backwards. Look, I think in terms of, what was the first part of that question? Now I'm lost.

Fee income fee income.

Alright, I missed the first part of that.

Yes.

Let's go backwards.

Look I think in terms of what was the first part of that question now and lost.

Speaker 11: Yeah, it was basically, I know the environment and the demand picture's been pretty good, but what do you think the macro trigger is that retailers would look at this slow decision making?

Yes, it was basically.

The environment that demand picture has been pretty good but what do you what do you <unk>.

The micro trigger is that retailers, Oh, sorry, sorry slower slow decision, making.

Unknown Executive: Please open the line for questions. Thank you.

Speaker 3: You know, look, I think I think it's we're we're certainly in a good environment right now. I think the supply and demand

Look I think I think it's.

We're certainly in a good environment right now I think the supply and demand.

Speaker 3: You know, kind of picture that we have today because there has been such a lack of supply over so many years, you know, puts us in a position where the run rate on this is probably a little longer than normal cycle.

Kind of picture that we have today, because there has been such a lack of supply over so many years.

It puts us in a position where the run rate on this is probably a little longer than normal cycles.

Speaker 3: And as we've talked about in the past, Michael, you know that the retailers, when they're making these decisions, these are longer decisions than, you know, an 18-month look out forward in terms of the economy.

And as we've talked about in the past Michael you know that the retailers when they are making these decisions. These are longer decisions then.

Craig Mailman: Any comments from the line of Craig Mailman with a city? Please proceed. John, I just want to go back. It sounds like bedbath's actually going to be done pretty quick here. And you'd always said, you know, you want the right opportunity versus kind of just the speed and backfilling them. Clearly, you obviously feel like you've got the right kind of mix here. How did the rents kind of stack up versus what your original portfolio was on the backfill with boxes?

18 months out look out forward in terms of the economy. So I think it would have to be a pretty material turn negatively to get people to slow down significantly.

Speaker 3: So I think it would have to be a pretty material turn negatively to get people to slow down.

Speaker 3: significantly, especially in the backdrop of a 3.5% unemployment rate, because as we've all seen, the consumer continues to be pretty buoyant.

Significantly, especially in the backdrop of a three 5% unemployment rate because as you as we've all seen the consumer continues to be pretty buoyant. So I believe that we're in a pretty good spot and it would have to be a very negative.

Speaker 3: So I believe that, you know, we're in a pretty good spot and it would have to be a very negative kind of economic backdrop or something else geopolitically, whatever, it would be a surprise. But when you look at the amount of supply that's out there of high quality retail and the amount of retailers that are investing in their platforms, I think it puts us in a good spot and should continue for a bit.

Craig Mailman: And how many of them were able to keep single credit versus ultimately having this without? Sure. I mean, overall, it's tracking as we've been talking about, I would say the rents are probably in the 20 to 30% range in terms of a premium over past rents. We continue to get very strong returns on capital, just as important as the spread. And the timing is, you know, look, I think I think it's probably been more robust than than we thought in terms of how quickly we've been able to assimilate the roster, but, you know, we were still maintaining the discipline around making smart decisions around which tenants were doing business with.

Economic backdrop, or some something else geopolitically, whatever that would be a surprise, but when you look at the amount of supply that's out there of high quality retail in the amount of retailers that are investing in their platforms I think it puts us in a good spot and should continue for a bit.

Speaker 4: And then, Mike, on the fee income question, the fee incomes from this year are basically from the Hamilton Crossing project. And that one's going to be winding down as we head into 2024. However, there are potential for some other projects to commence. So we don't have perfect visibility into what our fee income will be for 2024. And we'll talk more about that on our February call.

And then Mike on the fee income question the fee incomes from this year are basically from the Hamilton crossing project and that one is going to be winding down as we head into 2024. However, there are some other projects to commence so we don't have perfect visibility into what our fee income will be for 2024, and we will talk more about that on our February call.

Got it okay. Thank you.

Speaker 1: Thanks. Thank you. One moment for our next question, please.

Thanks.

Craig Mailman: No, no real change there, Craig, Tom, you want anything? Yeah, I think a simple way of looking at it is right now we have 16 boxes that we're negotiating leases with and 14 negotiating L.O.I.s and inside that we have nice numbers of bad bath eight on negotiating leases and seven and negotiating L.O.I.s. So you can see there's tremendous activity on that front, but in reality we look at it, we have 35 vacant anchor boxes and that's what we're really focused on is making sure we get those those all taken care of and that's simply a subset of that.

Thank you one moment for our next question. Please.

Speaker 1: All right, it comes from the line of Linda Tsai with Jeffries. Please proceed.

Alright, and then comes from the line of Linda Tsai with Jefferies. Please proceed.

Speaker 12: Hi, I'm just going back to bad dead on the 75 to 100 bits. Does that reflect higher than average conservatism or is it based on a bottoms up forecasting process? Just wondering if you have some specific tenants in mind.

Hi, just going back to bad debt on the 75 to 100 bps does that reflect higher than average conservatism or is it based on a bottoms up forecasting process. Just wondering if you had some specific tenants in mind.

Speaker 4: Little listen, I take the 75-owner basis points is just history. So when we look back and say, where is bad debt typically land? That's where it typically lands. In terms of forecasting for it, of course, we do a bottoms up analysis every year when we go into our budgeting season. And then when we go into our earning season in February and give guidance for the full year, we'll give a number that we think based on both our specific assumptions. And then some general assumptions will give you a sort of a blended bad debt number that we think we're gonna experience. And then we'll give a number that we think we're gonna experience.

Yes.

Nevertheless, I think the 75 to 100 basis points is just history. So when we look back and say where does bad debt typically land thats, where it typically lands.

In terms of forecasting forward of course, we do a bottoms up analysis every year when we go into our budgeting season.

Craig Mailman: So as you go through these numbers that we're talking about today, we're going to be down to just several several boxes and we're going to continue to bang on those as we as we work through the end of the year. So we're very encouraged on our progress and would always accomplish. Thanks for that. And then he if you kind of touched quickly on you know evaluating opportunities in that market here. I believe you guys have some legacy RPI debt rolling could you kind of talk about what may be the you know the cash impact or or gap impact of those when you had some purchase account and issues and what the open impact could be.

And then when we go into our earnings season in February and give guidance for the full year, we will give a number that we think.

Based off of both of our sort of our our specific assumptions and then some general assumptions will give you a sort of a blended bad debt number that we think we're going to experience.

Speaker 4: I will tell you that going into next year, you can be assured that we're not going to start at 45 basis points like we're experiencing this year, and that will probably start with something more conservative than that. But yeah, that's how we basically do our bad debt assumptions. So again, we'll talk more in February , but assume that we're going to be at a more normalized number on our assumptions.

I will tell you that going into next year, you can be assured that we're not going to start a 45 basis points like we're experiencing this year and that will probably start with something more conservative in that but.

But yes, that's how we basically do the.

Our bad debt assumption. So again, we'll talk more in February, but but assume that we're going to be at a more normalized number on our assumption.

Speaker 3: I mean, we obviously, Linda, we do go through every month. We go through the receivables monthly. And when we're doing our reserves, we do do a bottoms-up analysis of that. But when we're looking out in the future and we're trying to look at normalization, that's what this is really about. It's really just...

We obviously Linda we do go through every month, we go through the receivables monthly.

And when we're doing our reserves, we do we do do a bottoms up analysis of that but we're more looking out in the future and we're trying to look at normalization Thats. What this is really about it it's really just.

Craig Mailman: And I don't know if you have it handy, but just in 24 and 25 kind of with the gap to part of those RPI. The charities look like we're all good to, on maybe returning to the PNL. Sure, thanks, Craig. So we discussed last time in the call that the non-cash impact from retiring the RPI debt in next quarter. It's around two cents into 2024. And then in terms of the cash impact, I'm going to listen, you can make your own sort of assumptions here and based on timing, do we take out the 270 maturities early?

Speaker 3: At some point you've got a normal, or not have to, but at some point it's likely that we would normalize.

At some point, you've got a normal or not have to but at some point, it's likely that we would normalize.

Craig Mailman: Do we take it out late? The debt that we're paying off is at 3.75% and so currently, you know, indicative rates right now in a 10-year deal are somewhere around 7%. So obviously there will be some negative interest rate arbitrage into 2024. But again, it'll be very dependent on timing. The earlier, obviously, the more impacted to 2024. But yeah, so on the non-cash basis, it's two cents. And then, you know, on the negative refinancing arbitrage, you know, call it somewhere between two and four cents.

Speaker 3: And that's why we're saying that 75 to 100 and that's why the beginning of that would be the fourth quarter at 75 bits. But, you know, that, as we sit here at this very second, that seems conservative.

And that's why we're saying that 75 to 100 and Thats why the beginning of that would be the fourth quarter at 75 bps, but.

That as we sit here at this very second that seems conservative.

Yes.

Speaker 12: Were you surprised that bad debt kind of came in as low as it has year to date and just given the strength and the overall environment, would you expect, you know, to.

What are you surprised that bad debt kind of came in as low as it has year to date and just given the strength in the overall environment would you expect.

Speaker 12: that number, that historical number to be a bit conservative because the environment is stronger.

That number that historical number to be a bit conservative because.

The environment is stronger.

Speaker 11: Yeah, I don't know, Linda. I think, yes, were we surprised? Clearly, we were surprised because we started out the year at 1.25, you know, 125 bps. So we were surprised. And I think even if you look at this quarter, I mean, it was

Yes, I don't know Linda I think yes were we surprised.

Clearly we were surprised because we started out the year at 125 125 bps. So we were surprised.

And I think even if you look at this quarter I mean it was.

Craig Mailman: Okay. And if I just looked at, you know, one year, look at your total debt at the interest rate, I think you get like 31 or 32 million of annual interest expense run rate versus 25 that's running through, that's 7 million to our gap. Is that predominantly all? This is RPI, differential or is there anything else to run through that? Yes, predominantly yes. Okay. And then just one last quick one. Did you guys have any low-market lease adjustments that impacted St. George FFO this quarter?

Speaker 3: As we said, it was essentially almost nothing in terms of bad debt, and then we had prior period collections that continue to happen.

As we said it was essentially almost nothing in terms of bad debt and then we had prior period collections that continue to happen.

Speaker 3: So when you add the prior period collections to the current environment, I mean, that's what's creating that.

So when you add the prior period collections to the current environment, I mean, thats whats, creating that bad debt line item.

Speaker 11: bad debt line item. And then, you know, certainly from a things tour perspective, but looking out,

And then <unk>.

From a same store perspective, but looking out.

Speaker 11: It's really going to depend on, you know, how next year unfolds and what the economy brings and.

It's really going to depend on.

How next year unfolds and what the.

The economy brings in.

Speaker 11: You know, I think it who knows, I think we're just assuming at this point in time that we're going to reach that normalization or that, you know, return to the mean, so to speak, but.

Craig Mailman: Yeah, I think it was like, oh, not, not the way you meant FFO, not the thing store. Now, we have about a million dollars impacted from that F and beyond rejections in the quarter on an FFO basis, but not on a same-store basis. Great. Thanks, guys. Thanks. Thank you.

I think who knows I think we're just assuming at this point in time that we're going to reach that normalization or that return to the mean so to speak but <unk>.

Unknown Executive: One moment for our next question, please.

Speaker 11: Who knows? It's just hard to say right now. It could continue the way it is, which would be great, but we're assuming that, you know, for purposes of numbers that it kind of normalizes.

Who knows it's just hard to say right now.

Continue the way it is which would be great, but we're assuming that for purposes of numbers.

It kind of normalizes.

Speaker 12: Thanks for that color. And then just one follow up. What do you think leasing capital will look like in 24 versus in 23?

Thanks for that color and then just one follow up.

Lucy Doiken: And it comes from the line of Lucy Doiken. With a Bank of America, Lucy, please go ahead. Hi, good morning. I'm hoping to get some more color around the disposition that closed during the quarter, particularly just, you know, on pricing. During the quarter? Yeah, I mean, look, I think we talked a little bit about the fact that the assets we were selling, we believe didn't meet, you know, kind of our long-term goals.

Leasing capital will look like in 'twenty four verses in 'twenty three.

Speaker 11: I think if you look at where we've been over the last couple quarters and you track, you know, as we put our trailing

I think if you look at where we've been over the last couple of quarters and you track.

Speaker 11: numbers in the in the SUP, you can see that numbers have gone up, costs have gone up, and that's really a more of a reflection of the type of leases that we're doing in a particular quarter, i.e., you know, if we have a handful of anchored tenants

We put our trailing.

Numbers in the sub you can see the numbers have gone up costs have gone up and that's really a more of a reflection of the type of leases that were doing in a particular quarter I E. If we have a handful of anchor tenants.

Speaker 11: That, you know, there's a significant amount of work done on the space that's going to bring that number up. And, you know, in the following quarter if we do a ton of renewals and not unless new deals that numbers coming down so

That.

There is a significant amount of work done on the space Thats going to bring that number up.

Lucy Doiken: So that being said, I mean, the pricing was pretty attractive. So I would say the assets that we dispose, if you look at the total of 2023 versus just the quarter, so that all the assets we've disposed in 23 would be like in the high five cap range. So we've done pretty well on the dispose. Again, a lot of that is, you know, not people aren't really necessarily pricing things that just going and cap rates, they're looking at what their potential IRR is. So some of these have some lease-up opportunity as well.

And our following quarter, if we do a ton of renewals and novel and less new deals that number is coming down so.

Speaker 11: The number's a little volatile in that respect, but certainly when you kind of think about it on a macro basis, it's a little more expensive today than it was, say, six months ago. However, the returns on capital are even higher because of the demand. So as long as we're getting the return on capital, that's the game. It's not really whether our number's 90 bucks a foot or 75 bucks a foot. It's what's the returns that we're getting.

The numbers a little volatile in that respect, but certainly when you kind of think about it on a macro basis, it's a little more expensive today than it was say six months ago. However, the returns on capital are even higher because of the demand. So as long as we're getting the return on capital Thats the game.

It's not really whether whether our numbers 90 bucks a foot or 75 Bucks a foot. It's what's the returns that we're getting and we're extremely happy with those returns and we're really happy with the quality of the retailers as Tom pointed out the.

John Kite: Okay. And just they're one of the slides in your most recent deck. Details, you know, anchors like Adidas, Kendra Scott, Sephora, opening in power centers, and we're definitely seeing tenants become increasingly agnostic to center formats. So just curious on what the pricing power is like on tenants of this type, you know, wanting to open in space is not so typical to their typical format and how that might impact, um, terms of I believe.

Speaker 11: And we're extremely happy with those returns and we're really happy with the quality of the retailers, as Tom pointed out.

Speaker 11: You know, the different type of people that we're dealing with that are backfilling these boxes are just great.

The different type of people that we're dealing with that are back filling these boxes are just great.

Speaker 4: So, you know, it's a pretty darn good situation right now. It led out, just put those numbers to that. So this year and next year we said we're going to spend around $200 million and we're on track. So think about $100 million total and leasing capital for next year.

So.

It's a pretty pretty darn good situation right now.

Let I'll just put some specific numbers to that so this year and next year, we said, we're going to spend around $200 million and we're on track. So think about $100 million total in leasing capital for next year.

Speaker 11: Thank you. Yeah, so if you ran rate this quarter's TI and LC, it's a pretty good run rate. Thanks. Thank you.

Thank you, yes. So if you yes, if you ran rate this quarters.

Hi, <unk>.

It's pretty pretty good run rate.

John Kite: Let me just start macro and Tom can kind of jump in too. I mean, the pricing power that we believe we have is really a function of the real state, and that carries through regardless of the tenant that we're working with. I would say that tenants such as the ones you mentioned, generally speaking, are coming out of shopping centers or malls that have higher cost to operate in than they would in an open air center.

Thanks, Thank you.

Thank you have a moment for our next question.

Speaker 1: And he comes from the line of Todd Thomas with KeyBank Capital Markets.

And it comes from the line of Todd Thomas with Keybanc capital markets. Please proceed.

Speaker 13: Hi, thanks. Good afternoon. First, I heard your comment on the disposition pricing in general in the quarter, but can you share the cap rate or the initial yield on the acquisition of Preston please?

Hi, Thanks, Good afternoon first I heard I heard your comment on the disposition pricing in general in the quarter, but can you share the cap rate or the initial yield on the acquisition of <unk> in place and.

Speaker 13: What the growth opportunity is for for that asset and then just stepping back. I mean, it seems like there's been a little bit of an uptick in activity more recently. You know, we've seen a bit of activity reported by a number of reads this quarter. Are you seeing additional assets?

What the growth opportunity is for that asset and then just stepping back I mean, it seems like theres been a little bit of an uptick in activity more recently.

John Kite: So, you know, it gives us plenty of opportunity to price it effectively, but certainly we still see excellent opportunities to drive, you know, the spreads, as you can see from our results. So, but Tom, if you want to give any color. Yeah, I mean, we, we have quite a few tenants in that category, if you think about it, are you athletic, or is the Nike and the list goes on and on.

We've seen a bit of activity reported by a number of rates. This quarter are you seeing additional assets.

Speaker 13: you know, surface for, for investment purposes where, you know, there, you could be able to maybe accelerate, um, efforts to put some of the company's dry powder to work in the near term.

Yes.

Surface for investment purposes, where you could be able to maybe accelerate.

Efforts to put some of the company as dry powder to work in the near term.

Speaker 11: Sure. I mean, in terms of cap rates, I mean, we did, as you said, we we did talk about what the dispositions were in 23 terms of the acquisition of the Dallas deal. I would think of it as, you know, kind of a higher six going in. But really, we looked at that on an IRR basis. And we think the IRR is kind of more like eight and a half to maybe even nine, depending on the rollover and the rent that we can generate.

Sure I mean in terms of cap rates I mean, we did as you said.

John Kite: So, we are able to drive rents without question. Sometimes when you deal with this type of tenant, the tenant allowance number may be elevated a little bit differently than what we would see typically inside our shopping centers. But what we're looking for ultimately is a strong return, and we've been successful on all accounts getting those type of tenants to pay what we need and generate strong, strong leasing spreads.

Talk about what the dispositions were in 'twenty three in terms of the acquisition of the Dallas deal I would think of it as you.

Kind of a higher six going in but really we looked at that on an IRR basis, and we think the IRR is kind of more like eight five to maybe even nine depending on the rollover and the rents that we can generate.

Speaker 11: I don't think a lot of people are looking at this right now at going in cap rates. I really think they're looking at IRRs, Todd. So now that being said, you know, it kind of segues into your, your conversation around, you know, other activity and, you know, certainly in terms, haven't had a lot of time to study, for example, the

I don't think a lot of people are looking at this right now at going in cap rates I really think they're looking at IRR is Todd so now that being said.

John Kite: But they've been a they've been a welcome addition to our tenant lineup for sure.

And kind of segways into your your conversation around other activity.

Heath Sear: Okay, and to confirm on the dad that reserve a function for the full year, the 45 basis point, it was that reaffirmed for the year or lowered and how does that compare to what we should expect as a normal run rate. Yeah, well, again, it's 45 basis points for the for the entire year, but it's 75 basis points of revenues for the fourth quarter. And I tell you that a typical run rate is is somewhere between 75 and 100 basis points.

Certainly in terms Havent had a lot of time to study for example.

Speaker 11: the spin transaction curbside or whatever, that transaction, but I will tell you that what I did notice is, you know, it looked like there was $650 million of assets.

The spin transaction curbside or whatever.

That transaction, but I will tell you that what I did notice it looked like there was $650 million of asset sales in the quarter.

Speaker 11: you know, at cap rates kind of like a mid-6 or 6.5 cap, I think that's a pretty good indication that the market is strong and that there's not a lot of product and when product comes up, you know, that looks like a pretty good mark to me and based on where, you know, certainly we are trading, that just goes to show you the disconnection between kind of the stock and private market cap rates.

At at cap rates kind of like a mid six or six five cap I think thats a pretty good indication that the market is strong.

Theres not a lot of product and when product comes up.

Heath Sear: So, we are running below typical bad debt this year. And I believe last quarter are total blended for the first part of your question was something like 85 basis points for the year. But, you know, based on the only 10 basis points of bad debt in the third quarter. So now our full year blended number is 45 basis points. But, you know, when you're looking into next year, think about 75 to 100 basis points of bad debt as a normalized number.

That looks like a pretty good mark to me and based on where certainly we are trading.

That just goes to show you the disconnection between kind of the stock and private market cap rates, but I think that yes, I mean.

Speaker 11: But I, but I think that, yeah, I mean, there looks like things are starting to happen, which is probably not a surprise as we go into a new year and into the, you know, finishing out the last year. But I do think that was a nice mark.

Looks like things are starting to happen.

There's probably not a surprise as we go into a new year and into the finishing out the last year, but I do think that was a nice mark.

Unknown Executive: Thank you very much. Thank you. One moment for our next question, please.

Speaker 13: So, I guess following up on that, are there opportunities for you to take advantage of, you know, that private market bid? Are there additional disposition opportunities for you where you could, you know, maybe prune the portfolio a little bit further?

So I guess following up on that.

Todd Thomas: I mean, it comes from the line of corner and make you with pipe or sandler, please proceed. Hey, thanks for taking my question. Thank you about since COVID, the municipal approval process has been pretty slow, you know, some of the employees are still working for home for a while.

Are there opportunities for you to take advantage of that.

That private market bid or there are additional disk.

Disposition opportunities for you, where you could maybe prune the portfolio a little bit further.

Speaker 11: I mean, I think as we, you know, as we said in the call, we're not anticipating any further activity in 2023.

I mean, I think as we as we as.

As we said in the call we're not anticipating any further activity in 2023.

Todd Thomas: So, I guess first, has there been any change in that maybe it's sped up a little bit or it still is really still have to push them along. And then just a few other follow up on that is, are there any markets or certain geographies that are slower than others or you're kind of waiting on the process to speed up the bill.

Speaker 11: But as we look at 2024, certainly that is one of the things that we will be looking at in terms of capital, like, you know, should we be recycling capital when we see the disconnection in the NAV versus the stock price? And we can look at that in various forms.

But as we look at 2024, certainly that is one of the things that we will be looking at in terms of.

Capital like we can should we be recycling capital.

When we see the disconnection and the NAV versus the stock price and we can look at that in various forms.

Unknown Executive: And that's it.

John Kite: Do you get the address of the timeline for opening locations for retailers and how are those conversations going? Well, as far as the approval process, I mean there hasn't been a lot of change in that really over the last several years. It's never easy really in any particular market to get the approvals on the kind of timeline that we'd like to, but that's our job. That's what we do and we push that very hard and I think we're quite successful at it.

Speaker 11: And one of the other things he said is with our balance sheet, you know, we have this very, very strong balance sheet with very low leverage, lots of optionality. So, if things present themselves.

And one of the other things Heath said is with our balance sheet.

We have this very very strong balance sheet with very low leverage lots of optionality. So if things present themselves.

Speaker 11: that we believe have, you know, great opportunity associated with it. We can act because that's what we've worked, we've worked for over the past five years to be in that position of being offensive if the time comes or to continue to kind of wait for that opportunity.

That we believe have great opportunity associated with it we can we can act because that's what we've worked we have worked for over the past five years to be in that position of being offensive. If the time comes or to continue to kind of wait for that opportunity.

John Kite: In terms of timing with tenants, I mean, if anything, they're trying to get as open as fast as possible in this environment. And so we try to do everything we can to create a situation where we can get tenants open. And you have to realize that it's not just getting open as fast as possible. You also have to deal with tenants who have certain restrictions on the time of year that they'll open, which I think people always underestimate the impact that that has.

Speaker 13: Okay and then just last question I guess a quick follow-up on on overage red.

Okay and then just last question I guess, a quick follow up on on overage rent.

Speaker 13: commentary there, you know, 3Q was above 3Q last year by about $500,000. Should we assume that 4Q is likely to be higher than 4Q last year? And then maybe assuming a relatively flattish sales environment, you know, you mentioned retail sales have been, you know, better than that, but should we assume a similar amount of over-drent, perhaps trending into 24?

And the commentary there <unk> was above <unk> last year by about $500000 should we assume that <unk> is likely to be higher than <unk> last year end and then maybe assuming a relatively flattish sales environment.

John Kite: But overall, I mean, we're in an environment where the retailer recognizes that opening a store a quarter early is a tremendous benefit to them, perhaps even more so than it is to us. So I think we're in, you know, we're going to keep trying to push that as much as we possibly can. Yeah, one other thing that we do to help expedite is, you know, we get to the tenant last week where TJ max tomorrow, we're taking off to get with five below. And that's another key point of being able to push deals along is getting front of the customer, which we're doing a lot of right now.

You mentioned retail sales have been.

Better than that but should we assume a similar amount of overdraft, perhaps trending into 'twenty four.

Speaker 4: Yeah, Todd, we're modeling the fourth quarter's flatish to last quarter. But like John said, the over-drent has been an incredible boom for us this year. It's the highest over-drets we ever experienced. So, and it's also incredibly broad-based. So when you're looking to say, what are the themes around the over-drent? It's just diversity is the main theme. So, really, really pleased with those results. And hopefully that's a area for us to help before I'm in the fourth quarter.

Yes, Tom we're modeling the fourth quarter is flattish to last fourth quarter, although as John said, the overage rent has been an incredible boon for us this year, it's the highest overstretch we've ever experienced.

Unknown Executive: Okay, appreciate the color.

And it's also incredibly broad based so when youre looking to say what are the themes around the overage rents versus it's just diversity is the main theme so really really pleased with those results and.

Hopefully that's an area for us to outperform in the fourth quarter.

Okay.

Alright, thank you.

Speaker 1: Thanks. Thank you. And this concludes our Q&A session. I would like to turn the call back to Mr. John Kite with his closing comments.

Thanks, Thank you.

And this concludes our Q&A session I would now.

John Kite: And then think about the competition for available space and then the growing demand. In terms of that, the thinking about the ability for you guys to kind of backtrack backtrack some tenants, friendly terms, and maybe put that around the landlord from the terms. You talked a little bit about the small shop piece of that and then overall, is there a way to maybe accelerate the market or just recapture some more upside with all the competition for space.

Like to turn the call back to Mr. John Kite with his closing comments.

Speaker 3: Again, thank you for everyone for joining us today and look forward to hopefully seeing many of you at Nairi. Thanks.

Well again, thank you for everyone for joining us today and look forward to hopefully seeing many of you at.

Thanks.

Speaker 1: Thank you all for participating. You may now disconnect.

Thank you all for participating you may now disconnect.

Okay.

[music].

John Kite: I mean, look, I mean, the competition is for space is robust. So, you know, I think all you really have to do right now and look at, look at our results and, you know, some of the other players results in the sense of what we're able to drive. And, you know, certainly you can see the economics of what we're doing, but beyond the economics, certainly we're very engaged in. And that's what takes time in this process to try to get, you know, the best possible, best possible least that we can, but recognizing that we're partners with our customers, the retailers, and, you know, both parties have to be successful.

Okay.

Okay.

[music].

Okay.

Okay.

Yes.

[music].

Okay.

John Kite: So, it's a process, but there's no question that supply and demand is quite favorable for us right now, and it continues to look that that's going to be the trend for certainly at least the medium term. So, we will continue, you know, continue to lean into that and do what we do.

Unknown Executive: Appreciate it.

Unknown Executive: Thank you.

Unknown Executive: One moment for our next question.

Dori Kesten: And he comes from the line of Dori Kesten with Wells Fargo Securities. Please proceed. Thanks.

Dori Kesten: Good afternoon. It's a little bit of a follow-up. You've had a good success in getting your six rent bombs over 3% for new leases this year versus last. Are you seeing any any resistance in any markets in that push? I'm sorry, Dori. Did you say resistance from a market, you know, from a particular marketer just in general? Well, in general, and if there is any, it's just kind of in a certain market.

Dori Kesten: Oh, no, I don't think it's necessarily market driven. It's again, this is a certainly comes down to each individual shopping center has its own merits. And so each individual deals different, you know, we don't really look at that in a broad way. But in terms of pushback, look, I think the retailers are aware that there's limited amount of high quality space. They want that space. They want to partner with, you know, an owner like us that, you know, puts a lot back into these properties.

Dori Kesten: And is, you know, we try to be the best possible partner. We can be to the customer. So I think that's helpful in terms of market segments. I mean, really, again, if you just look at the math in terms of what we've been able to do this year and the amount of in particular on the small shop side of the business. You know, the great majority of the deals that we're seeing right now are frankly an excess of 3% bumps.

Dori Kesten: So I think it's more and more becoming the market. Obviously you have to own good property, but I would say more and more that's becoming the market. And over time, this will begin to pay dividends. But when you only roll, you know, 10 to 13% of your space per year, this is going to take time to really feed back through. But over the next five years, I think that for sure the, you know, the game has changed.

John Kite: Okay, thanks. And then are there any updates that you can provide on some of your future development opportunities? Carol on 11 is around their potential monetization or likelihood of you developing parts of that on balance sheet? Sure. First of all, we have a very limited active development pipeline, which is moving along very well on time and on budget. On the future opportunities, there's, there's several here that will start with the first one Hamilton crossing and Carmel.

John Kite: A very, a very strong suburb of any napless. We're working on a plan with 400 apartments and that is an ongoing process of underwriting and trying to understand the particulars of that. Another one is Caroline, which is a 50 acre parcel, just east of the city in Washington. And that's something that we're taking a very measured approach to in terms of trying to determine the best utilization of land and the best timing in which to do that.

John Kite: The one that we have the most momentum on is one loud and and one loudens, you know, one of the great, great growth counties in the DC area. So we are working on a more particular plan of growth for that project, and that's something that we could probably offer more color as we move into 24. But all of these were being extremely conservative and measured in terms of how we approach them.

John Kite: Tori, just let me add that to be specific to your, I think, to the question in terms of the medical office building it, Caroline, we're in the process of finishing that. And as we said in the past, our objective is to get it leased up and sold. And that's the, that's the path that we're on. So, you know, we don't intend on owning that long term, but we do want to maximize the values.

John Kite: So we're still going through some leased up there. And as Tom said, the residual land there is a different situation than it is at one loud. And so over time, we would look to either monetize it outright or potentially partner with other developers, vis-a-vis land contributions, but not looking to, you know, put significant capital into that. Whereas the returns and the quality of one loud and meridus continuing to invest new capital into that.

John Kite: Thank you.

Wesley Golladay: In our next question is from Wesley Golladay with the Mayor. Please proceed. Hey, everyone. You had a nice spike in the over drence. Was this, you know, taking advantage of some vacant space you had for some seasonal tenants, or is it just strong sales throughout the portfolio? Now, Wes has really just continued strong sales as we talked about in the past. In the last year over drent has been materially higher than it has been in previous years.

Wesley Golladay: So we just continue to see that growth. I'm sure and, you know, in the current quarter will probably see a little additional rent from short term tenants like Halloween stores, et cetera, but it's not material. Okay.

Heath Sear: And then a follow up question on the balance sheet. Was that to send the non cash impact? Is that an annual number? Should we do that through next year? And then can you talk about what a potential rating upgrade can do for you on the debt for spreads? Yeah, I'll answer in reverse. So, you know, on the debt, I think just the outlook change is probably a five to 10 basis point proposition.

Heath Sear: You know, again, we said we're hopeful in 12 to 18 months of debt gets upgraded to a full triple B. Obviously trying to make progress with Moody's as well and have had some good discussions with them. So we're again optimistic that we'll see a change from them. And then we get a full ratings upgrade. That's maybe a 25 to 30 basis point. You know, deduction and spread as well. And then in terms of that non cash that that's happening in June of of 2024.

Heath Sear: And so I wouldn't roll that forward to the following years. So it's just a two cent hit into next year. Okay. Thanks a lot. I believe it's twice a year. Right. Guys. And that's in two quarters. No, that's the different one. Yeah, I got the wrong. So thinking with that though, the swap the way I think you talk about the swap, John. And so you do get a bit of a swap next year, right?

Heath Sear: Yeah. That was your question. Now that that'll keep running through for another nine years. So what's what's not about that and we talked about it before is that that benefit until we actually do a transaction to attach that swap to it happens twice a year. So you see that benefit in the second. I'm sorry in the first quarter and you see that going to sit in the third quarter. Got it. Okay.

Unknown Executive: That's all for me. Thanks, John, forget my follow up. Thank you. Thanks, Wes. Thank you.

Michael Mueller: One moment for our next question.

Michael Mueller: Any comes from the line of Michael Mueller. Please proceed. Michael, we'll we'll ask you. Can you press star one one again? One moment. Mr. Mueller from JP Morgan, please proceed. Yeah. Oh, hi. Two quick ones. One, I know leasing is going very well and sounds like the demand picture is good. But what do you think the macro item would be that would cause retailers to slow down the decision making? That's that's the first question and then just a second quick numbers one.

Michael Mueller: Any any color on the income trends over the next few quarter? Let me start with, I'll take the first one first, but what did you mean by any color on the income trend? Oh, see income, see income. I'll see. I missed the first part of that. I'll hit. I'll do. Let's go backwards. Look, I think in terms of what was the first part of that question now and lost. Yeah, it was basically, I know the environment, the demand picture has been pretty good, but what do you think the macro trigger is the retailers?

Michael Mueller: Oh, sorry, sorry. Look at this slow, slow decision making. Yeah. You know, look, I think I think it's, we're certainly in a good environment right now. I think the supply and demand, you know, kind of a picture that we have today because there has been such a lack of supply over so many years. You know, puts us in a position where the run rate on this is probably a little longer than normal cycles.

Michael Mueller: And as we've talked about in the past, Michael, you know that the retailers when they're making these decisions, these are longer decisions than, you know, an 18 month out, you know, look out forward in terms of the economy. So I think it would have to be a pretty material turn negatively to get people to slow down significantly, especially in the backdrop of a three and a half percent unemployment rate because as you, as we've all seen, the consumer continues to be pretty buoyant.

Michael Mueller: So I believe that, you know, we're in a pretty good spot and it would have to be a very negative kind of economic backdrop or something else geopolitically, whatever, it would be a surprise. But when you look at the amount of supply that's out there of high quality retail and the amount of retailers that are investing in their platforms, I think it puts us in a good spot and should continue for a bit.

Michael Mueller: And then Mike on the fee income question, you know, the fee incomes from this year are basically from the Hamilton crossing project and that one's going to be winding down as we head into 2024. However, there are potential for some other projects to commence, so we don't have perfect visibility into what our fee income will be for 2024 and we'll talk more about that in our February call. Got it. Okay. Thank you. Thanks. Thank you. One moment for our next question, please.

Linda Tsai: All right, it comes from the line of lean that site with Jeffries. Please proceed. Hi, I'm just going back to bad dead on the 75 to 100 bits. Does that reflect higher than average conservatism or is it based on a bottoms up forecasting process? Just wondering if you had some specific, specific tenants in mind. I think the 75 to 100 basis points is just history. So when we look back and say where does bad debt typically land?

Linda Tsai: That's where it typically lands. In terms of forecasting for it, of course, we do a bottoms up analysis every year when going to our budgeting season. And then when we go into our earnings season in February and give guidance for the full year, you know, we'll give a number that we think based on both of our, you know, sort of our. Our specific assumptions and then some general assumptions will give you sort of a blended bad debt number that we think we're going to experience.

Linda Tsai: I will tell you that going into next year, you can be assured that we're not going to start a 45 basis points like we're experiencing this year and that will probably start with something more conservative than that. But yeah, that's how we basically do the. Do our bad debt assumptions. So again, we'll talk more if I will worry about, but assume that we're going to be a more normalized number on our.

Linda Tsai: We obviously, Linda, we do go through every month, we go through the receivables monthly and when we're doing our reserves we do do a bottoms up analysis of that. But when we're looking out in the future and we're trying to look at normalization, that's what this is really about. It's really just at some point you've got a normal or not have to but at some point it's likely that we would normalize and that's why we're saying that 75 to 100 and that's why the beginning of that would be the fourth quarter at 75 bits but you know that as we sit here at this very second that seems conservative.

Linda Tsai: Yes, because we surprised that bad debt kind of came in as low as it has year to date and just given the strength and the overall environment would you expect you know to that number, that historical number to be a bit conservative because you know the environment is stronger. Yeah, I don't know Linda, I think yes, were we surprised clearly we were surprised because we started out the year at 1.25 you know 125 bits so we were surprised and I think even if you look at this quarter I mean it was as we said it was essentially almost nothing in terms of bad debt and then we had prior period collections that continue to happen.

Linda Tsai: So when you add the prior period collections to the current environment I mean that's what's creating that bad debt line item and then you know certainly from the same sort perspective but looking out. It's really going to depend on you know how next year unfolds and what the economy brings and you know I think it who knows I think we're just assuming at this point in time that we're going to reach that normalization.

Linda Tsai: Or that you know return to the mean so to speak but who knows it's just hard to say right now could could continue the way it is which would be great but we're assuming that you know for purposes of numbers that it kind of normalizes. Thanks for that color and then just one follow up what do you think leasing capital will look like in 24 versus in 23. I think if you look at where we've been over the last couple quarters and you track you know as we put our trailing numbers in the sub you can see that numbers have gone up cost have gone up and that's really a threat more of a reflection of the type of leases that we're doing in a particular quarter i.e, you know if we have a handful of anchored tenants that you know there's a significant amount of work done in the space that's going to bring that number up.

Linda Tsai: And you know in a following quarter if we do a ton of renewals and not and less new deals that numbers coming down so. The number is a little volatile in that respect but certainly when you kind of think about it on a macro basis it's a little more expensive today than it was say six months ago. However the returns on capital are even higher because of the demand so as long as we're getting the return on capital that's the game it's not really whether whether our you know numbers 90 bucks a foot or 75 bucks a foot it's what's the returns that we're getting and we're extremely happy with those returns and we're really happy with the quality of the retailers as Tom pointed out you know the different type of people that we're dealing with that are backfilling these boxes are just great.

Linda Tsai: So, you know, it's a pretty darn good situation right now. It led, I'll just put those numbers to that. So, this year, and next year, we said we're going to spend around $200 million and we're on track. So think about $100 million total in Leasing Capital for next year. Thank you. Yeah, so if you ran rate this quarter's TI and LC, it's pretty, pretty good run rate. Thank you. One moment for our next question.

Todd Thomas: And he comes from the line of Todd Thomas with key ban capital markets, please proceed. Hi, thanks. Good afternoon.

Todd Thomas: First, I heard, I heard your comment on the disposition pricing in general in the quarter, but can you share the cap rate or the initial yield on the acquisition of Preston Place and what the growth opportunity is for that asset? And then just stepping back, I mean, it seems like there's been a little bit of an uptick and activity more recently, you know, we've seen a bit of activity reported by a number of rates this quarter.

Todd Thomas: Are you seeing additional assets, you know, surface for investment purposes, where, you know, you could be able to maybe accelerate efforts to put some of the company's dry powder to work in the near term. Sure, I mean, in terms of cap rates, I mean, we did, as you said, we did talk about what the dispositions were in 23 terms of the acquisition of the Dallas deal. Well, I would think of it as, you know, kind of a higher six going in, but really we looked at that on an IRR basis, and we think the IRR is kind of more like eight and a half to maybe even nine, depending on the roll over in the rents that we can generate.

Todd Thomas: I don't think a lot of people are looking at this right now at going in cap rates. I really think they're looking at IRRs Todd. So now that being said, you know, it kind of segways into your conversation around, you know, other activity and, you know, certainly in terms haven't had a lot of time to study. For example, the spin transaction curbside or whatever that transaction, but I will tell you that what I did notice is, you know, look like there was 650 million of asset sales in the quarter.

Todd Thomas: You know, at cap rates kind of like a mid six or six and a half cap, I think that's a pretty good indication that the market is strong, and there's not a lot of product. And when product comes up, you know, that looks like a pretty good mark to me and based on where, you know, certainly we are trading, that just goes to show you the disconnection between kind of the stock and private market cap rates.

Todd Thomas: But I think that, yeah, I mean, there looks like things are starting to happen, which is probably not a surprise as we go into a new year and into the, you know, finishing out the last year, but I do think that was a nice mark. So I guess following up on that are there opportunities for you to take advantage of, you know, that private market bid or their additional disposition opportunities for you where you could, you know, maybe prove the portfolio a little bit further.

Todd Thomas: I mean, I think as we, you know, as we, as we said in the call, we're not anticipating any further activity in 2023. But as we look at 2024, certainly that is one of the things that we will be looking at in terms of capital like, you know, we can, should we be recycling capital when we see the disconnection in the NAV versus the stock price and we can look at that in various forms.

Todd Thomas: And one of the other things he said is with our balance sheet, you know, we have this very, very strong balance sheet with very low leverage lots of optionality. So if things present themselves that we believe have, you know, great opportunity associated with it, we can, we can act because that's what we've worked, we've worked for over the past five years to be in that position of being offensive. If the time comes or to continue to kind of wait for that opportunity.

Todd Thomas: Okay, and then just last question, I guess the quick follow up on, on overage rent and the commentary there, you know, 3Q was above 3Q last year by about 500,000 dollars. Should we assume that 4Qs likely to be higher than 4Q last year, and then maybe assuming a relatively flatish sales environment, you know, you mentioned retail sales have been, you know, better than that. But should we assume a similar amount of overage rent, perhaps trending in the 24th?

Todd Thomas: Yeah, Todd, well, we're modeling the fourth quarter's flatish to last quarter. But like John said, the overage rent has been an incredible boom for us this year. It's the highest overage rent we've ever experienced. And it's also incredibly broad based. So when you're looking to say, what are the themes around the overage rent? It's just diversity is the main theme. So really, really pleased with those results. And hopefully that's an area for us to help perform in the fourth quarter. All right, thank you. Thanks. Thank you.

John Kite: And this concludes our Q&A session.

John Kite: I would like to turn the call back to Mr. John type with his closing comments. Again, thank you for everyone for joining us today. And look forward to hopefully seeing many of you at Nairie. Thanks. Thank you all for participating.

Unknown Executive: You may now disconnect.