Q4 2023 Kite Realty Group Trust Earnings Call

Okay.

Operator: Good day, and welcome to the Q4 2023 Kite Realty Group Trust Earnings Conference. At this time, all participants are in listen-only mode.

Good day and welcome to the Q4 2023 Kite Realty Group Trust earnings Conference call. At this time, all participants are in listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. I would like to turn the call over to John Kite, Chairman and CEO. You may begin. And this is Bryan McCarthy to kick it off.

After the Speakers' presentation, there'll be a question and answer session and instructions will be given at that time.

As a reminder, this conference is being recorded I would like to turn the call over to John Kite, Chairman and CEO you may begin.

And this is Brian Mccarthy to kick it off thank you and good afternoon, everyone. Welcome to Kite Realty group's fourth 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.

Bryan McCarthy: Thank you and good afternoon, everyone. Welcome to Kite Realty Group's fourth 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 uncertainty. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom McGowan, Executive Vice President and Chief Financial Officer, Heath Thier, Senior Vice President and Chief Accounting Officer, Dave Buell, and Senior Vice President, Capital Markets and Investor Relations, I'll now turn the call over to John. Thanks, Bryan, and thank you, everyone, for joining us today.

Actual results may differ materially from these statements.

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.

Ray's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.

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

And senior Vice President capital markets, and Investor Relations, Tyler Henshaw, I'll now turn the call over to Jeff.

Thanks, Brian and thank you everyone for joining today.

John A. Kite: We're understandably proud of what we accomplished in 2023, and over the course of 2024, we will continue to operate from a position of strength. Keith will walk you through the details of our results and our 2024 guidance, and I'll spend my time looking back at some key 2023 accomplishments and our action plan for 2024. At the beginning of 2023, we guided to NARIT FFO of $1.93 per share at the midpoint, with same store growth of 2.5%. We delivered Nareed FFO of $2.03 per share and grew same store by 4.8%.

We are understandably proud of what we've accomplished in 2023 and over the course of 2024, we will continue to operate from a position of strength.

Keith will walk you through the details of our results and our 2020 for guidance and I'll spend my time looking back at some key 2023 accomplishments in our action plan for 2024.

At the beginning of 2023, we guided to NAREIT <unk> of $1 93 per share at the midpoint with.

With same store growth of two 5%, we delivered NAREIT <unk> of $2 <unk> per share and grew same store by four 8%.

John A. Kite: Our primary focus in 23 was to lease space at attractive risk-adjusted returns, and in fact, we leased 4.9 million square feet at blended cash rent spreads of 14.3%. New leasing volume represented 1.1 million square feet with a blended cash spread of 41.3% and a return on invested capital of approximately 30%. 380,000 square feet of new leasing was in the fourth quarter, representing an all-time high for KRG. We leased 26 boxes in 2023 to high quality and well-capitalized tenants, including Whole Foods, Trader Joe's, Total Wine, PGA Superstore, GolfGalaxy.com, Sierra.

Our primary focus in 2003 was to lease space at attractive risk adjusted returns and in fact, we leased $4 9 million square feet at blended cash rent spreads of 14, 3%.

New leasing volume represented $1 1 million square feet with a blended cash spread of 41, 3% and return on invested capital of approximately 30%.

380000 square feet of new leasing was in the fourth quarter, representing an all time high for <unk>.

We leased 26 boxes in 2023 to high quality and well capitalized tenants, including whole foods trader Joe's total wine PGA superstore.

Golf Galaxy.

Sierra Homer.

John A. Kite: HomeSense, PopShelf, Five Below, Foot Locker, Restoration Hardware, and West Elm, to name a few. Our leverage improved to 5.1 times net debt to EBITDA, one of the lowest in the sector, and our liquidity remains at $1.1 billion. Our development and construction teams delivered and opened 235 tenants representing $36 million of annualized NOI in 2023. We continue to have success pushing higher embedded rent bumps, primarily in the small shop. In 2023, fixed rent bumps for new and non-option renewal shop leases were 300 basis points, which was 60 basis points higher than the in-place shop average.

Pop shelf five below foot locker restoration hardware and west Elm to name a few.

Our leverage improved to five one times net debt to EBITDA.

One of the lowest in the sector and our liquidity remains at $1 1 billion.

Our development and construction teams delivered an ode open.

Opened 235 tenants representing $36 million of annualized NOI in 2023.

We continue to have success pushing higher embedded rent bumps primarily in the small shops.

In 2023 fixed rent bumps for new and non option renewals shop leases were 300 basis points, which was 60 basis points higher than the in place shop average.

John A. Kite: Improving our long-term growth trajectory will take time, but we remain focused on elevating the growth profile for the entire portfolio. We absolutely recaptured space from poorly capitalized or lower growth tenants and replaced them with tenants that have superior balance sheets, better offerings, and higher growth. As we've mentioned time and time again, we measure our leasing success in terms of tenant quality, merchandising, rent growth, and return on capital. We kept our development spend in check while at the same time preparing our pipeline for activation once we complete the elevated leasing activity. We relentlessly advocated for a ratings change resulting in an Outlook upgrade from S&P, which we expect will materialize into a full upgrade to BBB in the next 12 months. During 2023, we sold four non-core assets for a mid five cap, generating 142 million in proceeds. We purchased Prestowood Place in the Dallas MSA for a high six cap rate of approximately $81 million. Over the past two years, the blended cap rates on dispositions have been approximately 125 basis points tighter than the cap rate on acquisitions.

Improving our long term growth trajectory will take time, but we remain focused on elevating the growth profile for the entire portfolio.

We actually recaptured space from poorly capitalized or lower growth tenants and replace them with tenants that have superior balance sheets, better offerings and higher growth.

As we've mentioned time and time again, we measure our leasing SaaS success in terms of tenant quality merchandising rent growth and return on capital.

We kept our development spend in check while at the same time preparing our pipeline for activation once we've completed the elevating leasing activity.

We relentlessly advocated for a ratings change, resulting in an outlook upgrade from S&P, which we expect will materialize into a full upgrade to triple B in the next 12 months.

During 2023, we sold four noncore assets for a mid five cap generating $142 million in proceeds.

We purchased prestwood place in the Dallas MSA for a high six cap for approximately $81 million.

Over the past two years, the blended cap rates on dispositions have been approximately 125 basis points tighter than the cap rate on acquisitions.

Just on our success in 2023 it follows that our action plan for 2024 would be very similar.

We will aggressively leaf lease up our vacancy, while achieving higher embedded growth and enhancing the merchandising mix.

Our signed not open pipeline increased to $31 million and we expect 87% of the NOI to commence in 2024.

Over the first half of 2024, we expect the <unk> pipeline to remain elevated reflecting the velocity of new lease execution against the rapid pace of tenant openings.

On page seven of our Investor update we detailed a compelling opportunity for investors based on the current share price and the potential prices at various capitalization rates taking into account the $31 million of signed not open NOI. It.

John A. Kite: Based on our success in 2023, it follows that our action plan for 2024 would be very similar. We will aggressively lease up our vacancy while achieving higher embedded growth and enhancing the merchandising mix. Our signed, but not open, pipeline increased to $31 million, and we expect 87% of the NOI to commence in 2024. Over the first half of 2024, we expect the S&O pipeline to remain elevated, reflecting the velocity of new lease execution against the rapid pace of tenant openings. On page seven of our investor update, we detail the compelling opportunity for investors based on the current share price and the potential prices at various capitalization rates, taking into account the 31 million of signed but not open NOI. It's important to note that this page does not account for any additional lease up or the significant value of our entitled land bank.

It is important to note that this page does not account for any additional lease up or the significant value of our entitled Land Bank.

We expect to spend over $200 million on leasing capital in the next two years, while still generating free cash flow.

As we've emphasized on numerous occasions leasing space in this environment is hands down the best use of capital.

As it relates to the absolute and risk adjusted returns.

It's worth recognizing the longer term <unk> cash flow and leverage implications due to our elevated leasing activity and associated capital spend.

Looking at our model our leasing spend begins to normalize towards the back half of 2025.

At the same time, the incremental rent from all new leasing activity begins to peak, resulting in a meaningful earnings and dividend growth.

Plus a dramatic increase in <unk> per share.

Our leverage levels dipped significantly and the cash available for investing activities ramps up to a level well in excess of $100 billion a year.

During 2024, we will keep our development spend and check and provide more detail on each of our opportunities when appropriate.

John A. Kite: We expect to spend over $200 million on leasing capital in the next two years while still generating free cash flow. As we've emphasized on numerous occasions, leasing space in this environment is hands down the best use of capital, as it relates to the absolute and risk-adjusted return. It's worth recognizing the longer-term AFFO cash flow and leverage implications due to our elevated leasing activity and associated capital spend. Looking at our model, our leasing spend begins to normalize towards the back half of 2025. At the same time, the incremental rent from all new leasing activity begins to peak, resulting in meaningful earnings and dividend growth, plus a dramatic increase in AFFO per share. Our leverage levels dip significantly, and the cash available for investing activities ramps up to a level well in excess of $100 million a year.

We expect acquisitions will be match funded with proceeds from dispositions.

The goal of exiting lower growth properties, or one one asset markets and relocating that NOI into our target markets.

We will also keep the pressure on the rating agencies in pursuit of ratings that more accurately reflect our credit metrics.

Lastly, we are embarking on an investor outreach plan called for 24, our goal is for investors to better understand the high quality of our portfolio and the depth of talent across the entire organization.

We look forward to seeing many of you at our first event in Naples next week and at the subsequent events in Dallas, Washington D C in Las Vegas.

In closing <unk> produced another year of operational outperformance in 2023.

And we intend to exceed expectations again in 2024.

Thanks for your time and continued dedication and commitment and turn the call over to Heath.

Thank you John for the fourth quarter of 2023 cares. He earned 50 of NAREIT <unk> per share and $2 <unk> per share for the full year. During the quarter same property NOI grew by two 8% primarily driven by 170 basis point increase in minimum rent.

John A. Kite: During 2024, we'll keep our development spend in check and provide more detail on each of our opportunities when appropriate. We expect acquisitions will be matched with proceeds from dispositions, with the goal of exiting lower growth properties or one-asset markets and relocating that NOI into our target market. We'll also keep the pressure on the rating agencies in pursuit of ratings that more accurately reflect our credit metrics.

And 120 basis point increase in net recoveries.

For the full year same property NOI growth was four 8% with primary contributors being higher minimum rent all time high overage rent and lower bad debt.

As John mentioned, we exceeded our original 2023 <unk> guidance by <unk> 11 per share.

<unk> sense of the increase is related to operational outperformance in our same property pool <unk> is attributable to property's outside the same property pool with the remaining <unk> related to the net impact of noncash items termination fees and net transactional activity.

We are establishing 2020 for NAREIT <unk> guidance of $2 to $2 <unk> per share included in our guidance are the following assumptions our same property NOI growth range of 1% to 2%.

John A. Kite: Lastly, we're embarking on an investor outreach plan called 4 in 24. Our goal is for investors to better understand the high quality of our portfolio and the depth of talent across the entire organization. We look forward to seeing many of you at our first event in Naples next week and at the subsequent events in Dallas, Washington, D.C., and Las Vegas.

And our full year bad debt assumption range of 75 to 125 basis points of total revenues.

On page five of our fourth quarter Investor presentation.

We set forth a bridge to quantify the impact of year over year trends in our 2020 for NAREIT <unk> guidance and same property NOI growth assumption.

It is important to note that but for the following three items. Our 2020 for same property growth assumption would have been 200 basis points higher at three 5%.

John A. Kite: In closing, KRG produced another year of operational outperformance in 2023, and we intend to exceed expectations again in 2024. Thanks for your time and continued dedication and commitment. We turn the call over to Heath.

Net impact of the bankruptcy of bed Bath <unk> beyond that.

The failure of a large state or tenant to renew its lease in November of last year.

And during 2023, the company experienced a historically low level of bad debt at 42 basis points of revenue, while the midpoint of our bad debt assumption for our 2024 guidance is set at 100 basis points of total revenues.

Taking a longer term view on growth from 2021 to the midpoint of our 2024 guidance. Our <unk> CAGR is anticipated to be 10, 6% and our average annualized same property NOI growth is anticipated to be four 4% also it's worth noting that from 2021 through 2023, our dividend CAGR was <unk>.

Heath Thier: Thank you, John. In the fourth quarter of 2023, KRZ earned 50 cents of NARIT FFO per share and $2.03 per share for the full year. During the quarter, same property NOI grew by 2.8%, primarily driven by a 170 basis point increase in minimum rent and a 120 basis point increase in net recovery. For the full year, same property NOI growth was 4.8%, with the primary contributors being higher minimum rent, an all-time high overage rent, and lower bad debt. As John mentioned, we exceeded our original 2023 FFO guidance by 11 cents per share. $0.07 of the increase is related to operational outperformance in our same property pool. $0.02 is attributable to properties outside the same property pool, with the remaining $0.02 related to the net impact of non-cash items, termination fees, and net transactional activity.

18, 8%.

Our net debt to EBITDA stands at five one times, which remains at the lower end of our long term target. Additionally, our debt service coverage ratio remains above five times and we have over $1 1 billion of liquidity.

Subsequent to quarter end <unk> returned to the public debt market by issuing a 10 year $350 million bond at five 5%.

The fact that we were more than 10 times oversubscribed was not by accident. We spent a year reintroducing <unk> to the fixed income community and successfully navigated a very tight issuance window.

While we are very pleased with the execution of demand, we see an opportunity for further spread compression.

Compression as our bonds become more liquid and our ratings improve.

Proceeds from the bond will be used to satisfy all of our 2024 debt maturities when they come due at the end of June in the meantime, we have the proceeds invested in an account, earning interest in excess of the yield on the maturing debt. Thank you to the fixed income community for effectively re rating our cost of debt to levels that are more reflective of the state of our credit metrics.

As John mentioned, we look forward to showcasing our Naples portfolio at our first 424 event next week.

A day to the next three installments and Dallas DC in Las Vegas are available on our website.

Thank you for joining the call today operator. This concludes our prepared remarks. Please open the line for questions.

Thank you if you'd like to ask a question. Please press star one one.

To your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

First question comes from Todd Thomas with Keybanc capital markets. Your line is open.

Hi, Thanks.

Good afternoon.

Questions first in the guidance you included <unk> <unk> related to the theater at City Center, which closed late last year can you just speak about plans to backfill that space, which I think it's a third floor space and just talk about.

Heath Thier: We are establishing 2024 NAREIT FFO guidance of $2 to $2.06 per share. Included in our guidance are the following assumptions: same property in a wide growth range of 1% to 2%, and a full year of bad debt assumption range of 75 to 125 basis points of total revenues. On page five of our fourth quarter investor presentation, we set forth a bridge to quantify the impact of year-over-year trends in our 2024 NAREIT FFO guidance and the same property NMI growth assumption. It's important to note that without the following three items, our 2024 same property growth assumption would have been 200 basis points higher at 3.5%. The Net Impact of the Bankruptcy of Bed Bath & Beyond, the failure of a large theater tenant to renew its lease in November of last year.

If you could just give us an update on that and sort of the opportunity to backfill that.

Sure Todd.

This is Tom so we embarked on a process of trying to bring in four to five potential users.

We have now broken that down into one that we're focusing on very aggressively at calls with him yesterday. So our hope is to try to bring them in with an executed lease by the end of the first quarter.

And based upon the condition of the space, we should be in a position to commence around very aggressively. So we have moved through that process.

In a expeditious manner. So we should be ready to go by the end of March.

Okay.

Heath the two cent impact does that assume any commencement during the year or is that.

Basically assume the spaces vacant throughout the year in its entirety.

And that assumes that the space is vacant type.

Any rep that Tom can turn on this year is going to be incremental to our guidance.

Heath Thier: And during 2023, the company experienced a historically low level of bad debt at 42 basis points of revenue, while the midpoint of our bad debt assumption for our 2024 guidance is set at 100 basis points of total revenue. Taking a longer-term view on growth, from 2021 through the midpoint of our 2024 guidance, our FFO CAGR is anticipated to be 10.6%, and our average annualized same property NOI growth is anticipated to be 4.4%. Also, it's worth noting that from 2021 through 2023, our dividend CAGR was 18.8%. Our net debt to EBITDA stands at 5.1 times, which remains at the lower end of our long-term target. Additionally, our debt service coverage ratio remains above five times, and we have over $1.1 billion of liquidity. Subsequent to quarter end, KRG returned to the public debt market by issuing a 10-year $350 million bond at 5.5%.

Okay.

And then the expense recovery rate increased in the quarter. It was above 92% I know you've focused on efforts to transition tenants and signed new leases with fixed cam.

<unk>.

How should we think about that expense recovery rate moving forward I guess, what's assumed.

Year over year in terms of the impact from net recoveries and in the same store forecast.

Yeah, So todd, but both of those numbers of the NOI margin in the recovery ratio were a little higher this quarter part of it is timing part of it was we did better on real estate tax assessment challenges, we've got a real estate tax refund that wasn't related to a prior prior period. So I would tell you that right now we're sort of normalizing in the NOI margins in the mid seventies and the recovery Ray.

<unk> in the high eighties, and sometimes approaching 90, but again as we start signing up more and more of this fixed cam and our leases. So this is going to be the gift that keeps on giving over time. Those those numbers are going to continue to crawl up again.

Again, as we get more people on fixed Cam.

Okay, Great alright, thank you.

Thank you. Our next question comes from Floris Van <unk> with Compass point Your line is open.

Hey, guys. Thanks for taking my question.

I gather there is a bit of conservatism.

Both John and <unk> sort of alluded to that in your.

In your initial guidance.

As always.

<unk>, but it can scare people a little bit sometimes.

Heath Thier: The fact that we were more than 10 times oversubscribed was not by accident. We spent a year reintroducing KRG to the fixed income community and successfully navigated a very tight issuance window. While we are very pleased with the execution and demand, we see an opportunity for further spread compression as our bonds become more liquid and our ratings improve. Proceeds from the bond will be used to satisfy all of our 2024 debt maturities when they come due at the end of June. In the meantime, we have the proceeds invested in an account earning interest in excess of the yield on the maturing debt. Thank you to the fixed income community for effectively rerating our cost of debt to levels that are more reflective of the state of our credit metric. As John mentioned, we look forward to showcasing our Naples portfolio at our first 4-in-24 event next week. The dates of the next three installments in Dallas, D.C., and Las Vegas are available on our website.

Maybe.

John I would love to hear your thoughts on the.

Significant transformation.

It has occurred at at <unk> over the last.

Call it six to seven years.

Maybe in terms of portfolio quality and I think he sort of alluded to it in terms of the balance sheet as well.

Where what do you think in your view what are the biggest.

Transformational.

<unk> changes that you have seen and.

And what does that mean for for growth going forward.

Paul.

For Us I think if you will.

Look at our Investor presentation.

There is a handful of pages in there that are really important and one of them is page eight which kind of shows you the metrics.

The growth that's occurred and the improvement in the quality of the portfolio.

Occurred since 2019.

And it's pretty easy to look at that when you look at our.

Our growth Youll look at our blended cash rent spreads and you look at our <unk> CAGR since 2019 over that period of time against a few select peers of the bigger peers.

We've outperformed we've been number one in each category.

So the transformation has been.

Massive.

And it's happened very quickly and maybe people I understand that the intro to your question in terms of guidance.

Operator: Thank you for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions. Thank you. If you'd like to ask a question, please press star 11. If your question hasn't been answered and you'd like to remove yourself from the queue, please press star 11 again.

It's what is that February so it's very early in the year. This is this is how we approach it we look at every variable.

And Theres a lot of them and again this is a portfolio and transition.

But as we laid out in the prepared remarks, the upside here is various various substantial and thats just mathematics, that's just the metric upside the upside in getting people to understand the quality is the other thing that we have to focus on maybe even more so.

Todd Michael Thomas: Our first question comes from Todd Thomas with KeyBank Capital Markets. Your line is open. Hi, thanks. Good afternoon.

Because it's happened so quickly and people maybe haven't been able to really get out there and see the assets and I know you've spent some time together on the ground. So I think you understand what I'm talking about it's not just the assets, but it's the relative quality of these assets as compared to peers with much higher multiples and lower cap rates.

Operator: A couple of questions. First, in the guidance, you included two cents related to the theater at City Center, which closed late last year. Can you just speak about plans to backfill that space, which I think is a third floor space, and just talk about if you could just give us an update on that and sort of the opportunity to backfill that? This is Tom.

So yes.

The question that I could probably talk to you for an hour about but the reality is.

Tom McGowan: So we embarked on a process of trying to bring in four to five potential users. We have now broken that down into one that we're focusing on very aggressively. I had calls with them yesterday.

The portfolio has changed.

Dramatically, it's improved dramatically and our people have improved dramatically who are executing this plan. So long story short.

Tom McGowan: So our hope is to try to bring them in with an executed lease by the end of the first quarter. And based upon the condition of the space, we should be in a position to commence rent very aggressively. We have moved through that process in an expeditious manner, and we should be ready to go by the end of March. Okay, and Heath, the two cent impact, does that... any commencement during the year, or is that, you know, basically assumed? vacant throughout the year in its entirety?

It's just way better and I think that I think the metrics make it clear.

Thanks, John.

Heath, maybe if you can touch on.

A couple of things, presumably that you have in your back pocket I know that you have.

Big portfolio of non income producing land maybe.

<unk>.

Are you seeing some demands from investors on some of those.

Land sites and then maybe if you could also update us on what's happening in California, and the other theater that you had there that I think youre looking to re.

Heath Thier: That assumes that the space is vacant, Todd. So any rent that Tom can turn on this year is going to be incremental to our guidance. Okay. And then the expense recovery rate increased in the quarter. It was above 92%.

Entitled for two different use.

Hey.

Floris, It's John Let me, let me start that real quick though on the land.

I want to be clear, what we're doing there because it's very important that the market understand we have an entitled land Bank that has significant value that when you again go back to our investor presentation and look at the page that goes through.

Heath Thier: I know you've focused on efforts to transition tenants and sign new leases with fixed CAM provisions. How should we think about that expense recovery rate moving forward? I guess what's assumed?

I think which is page <unk>.

Turning now to page seven.

Heath Thier: year over year in terms of the impact from net recoveries in the same store forecast. Yeah, so, Todd, both of those numbers, the NOI margin, and the recovery ratio, were a little higher this quarter. Part of it was timing, part of it was we did better on real estate tax assessment challenges. We got a real estate tax refund that was related to a prior period.

Youll see that we are not including that in how we are kind of handicapping.

Stock prices that being said it doesn't mean that we're not working on it. It doesn't mean that we're not actively engaged and having that be the next level of upside.

And we've been pretty clear about that that we are going to be capex light and the development program, while we are spending $200 million.

At very very high returns and the leasing program. So I wanted to give you that basis before we dug into anything particularly specific.

Todd Michael Thomas: So, I would tell you that right now we're sort of normalizing NOI margins, you know, in the mid-70s, and the recovery ratio is in the high 80s and sometimes approaching 90. But again, as we start signing up more and more of this fixed CAM in our leases, this is going to be the gift that keeps on giving over time. Those numbers are going to continue to climb again as we get more people on fixed CAM. Okay, great. All right.

And again I think it's just another area that is very misunderstood in the sense of what we're doing to prepare to create that value, but you want to yes. So if you take a look at our supplement there is southern seven properties that are identified and then.

In addition to that we have legacy in Lakewood.

That are also on our list. So if you take a look at those nine properties. We have about 76 acres that are able to be developed and they would be developed in a form of different styles and different approaches with JV is maybe a potential sale of ground leases. So we're being very thoughtful.

Flores Van Dyke: Thank you. Thank you. Our next question comes from Flores Van Dyke. Compass Point.

Flores Van Dyke: Your line is open. Hey guys, thanks for taking my question. I gather there is a bit of conservatism. Both John and he sort of alluded to that in your initial guidance, which is always good, but it can scare people a little bit sometimes. And maybe, you know, John, I would love to hear your thoughts on, you know, the significant transformation that has occurred at KRG over the last, you know, call it six, seven years. Maybe in terms of portfolio quality, and I think Heath sort of alluded to it in terms of the balance sheet as well. What do you think, in your view, are the biggest transformational changes that you have seen and what does that mean for growth going forward?

All of the best way to do that but if you take a look at apartment apartment counts that can be done there retail office et cetera. It offers that offers a lot of opportunities moving forward and thats going to be a big goal as we move into 'twenty four is moving those to the next level to be in.

Come generation to erosion.

And the movie theater in California.

Yes, so on the movie theater in California.

Ontario, a little bit east of L. A we are in the process of moving forward with a rezoning process and that rezoning objective is to ultimately put the property in a position to sell to.

To various multifamily developers, so we're making great progress there but.

It's a situation that could at some point generate 800 multifamily units and an area that is very much star for for that type of housing.

Flores Van Dyke: Um, well, actually, Flores, I think, you know, if you look at our investor presentation, And it's pretty easy to look at that when you look at, you know, our ABR growth, you look at our blended cash rent spreads, and you look at our, you know, FFO CAGR, since 2019, over that period of time against a few select peers of the bigger peers. I mean, we've outperformed; we've been number one in each category. So, you know, the transformation has been massive. And it happened very quickly. And maybe people you know, I understand that the intro to your question in terms of guidance, Uh, you know, it's, it's, uh, what is it? February So it's very early in the year. This is how we approach it. We will look at every variable.

Okay.

Thinking about that.

Floris we are.

Today have.

An economic interest in just under 2700 units that are open and operating.

And the one Loudoun project alone is another 700 units of potential growth, but I want to be clear and so the reason, we don't bring up Ontario's it's a long process. It's.

Got to get rezone, but the value creation is enormous as you might imagine so I think it all kind of comes back to the thematic that.

We're we have an incredible next couple of years ahead of us in terms of value creation.

But the great part about that is the great majority of it is just straight up leasing.

And we've been getting.

30% returns on capital and 30%.

Rent spreads. So we will do that all day long eventually will run out of it because we're going to lease it up so we have this other.

John A. Kite: And there are a lot of them. And again, this is a portfolio in transition. But as we laid out in the prepared remarks, the upside here is very substantial. And that's just mathematics.

Opportunity down the road. So again I think it's important that people understand that this will continue.

Thanks, Sean.

Thanks, Thanks Lars.

Thank you. Our next question comes from Craig Mailman with Citi. Your line is open.

John A. Kite: That's just the metric upside. The upside of getting people to understand quality is the other thing that we have to focus on, maybe even more so. Because it happened so quickly, and people maybe haven't been able to really get out there and see the assets, and I know we've spent some time together on the ground. So I think you understand what I'm talking about. It's not just the assets, but it's the relative quality of these assets as compared to peers with much higher multiples and lower cap rates. So, you know, it's a question that I could probably talk to you for an hour about, but the reality is that the portfolio has changed, dramatically, it's improved dramatically, and our people have improved dramatically who are executing this plan. So, long story short, it's just way better, and I think that the metrics make it clear.

Hey, guys quickly Citycenter I'm going back to the presentation you guys did at the end of October then a NAREIT was that included.

The headwinds that you had kind of pointed out for 'twenty four.

Hey, Craig Hi, This is heath that was not quoted again they are they did they fail to renew at the end of November.

So we are in discussions with them and our hope was that we were to get them to renew and it just didn't turn out that way. So they left at the end of November which is why it didnt appear on our page and.

In early November and that was just the basic decision, where they decided to close multiple New York area units and now is the cost.

Craig It's John the only reason rule.

We're talking about this and calling it out we wouldn't normally talk about one tenant obviously, but you've got a situation here, where you have one tenant.

A very large tenants like 80000 square feet in the <unk>.

<unk> is obviously significant if it's a <unk> <unk> impact. So I think this is an aberration I don't think I know, it's an aberration.

Good thing is as Tom said earlier. This is good real estate, it's hard to find a slot like this in a major metro market and by the way. These guys were doing significant revenue I mean, the rent structure didn't work for them, but.

John A. Kite: Thanks, John. Maybe, Heath, maybe if you could touch on a couple of things that you probably have in your back pocket. I know that you have a big portfolio of non-income producing lands. Are you seeing some demands from investors on some of those land sites? And then maybe you can also update us on what's happening in California with the other theater that you had there that I think you're looking to re-entitle to a different user. Hey, Flores, it's John.

The good news is we have a choice to make not.

Who is it going to be we actually have a choice. So we feel good about it. It is what it is it's very unique and as I said, it's an aberration.

So the tenants that you are talking to you as that Didnt stayed movie theater and that sort of maybe there's a potential that it could commence sometime in 'twenty four.

Tom McGowan: Let me start that real quick, though, on the land. I want to be clear about what we're doing there because, you know, it's very important that the market understands that we have an entitlement land bank that has significant value. If you again go back to our investor presentation and look at the page that goes through NAV, I think, which is page, I'm turning it right now, page seven, you'll see that we're not including that in our kind of handicapping, you know, stock prices That being said, it doesn't mean that we're not working on it. It doesn't mean that we're not actively engaged in having that be the next level of upside. And, you know, we've been pretty clear about that, that we are going to be capex light in the development program while we're spending $200 million on very, very high returns in the leasing program. So I wanted to give you that basis before we dug into anything particularly specific. But, again, I think it's just another area that is very misunderstood in the sense of what we're doing to prepare to create that value. But Tom, do you want to?

Or is it being alternative views.

It is a it is a east coast theater, operator and this.

Went through a recent renovation so in terms of conversion to be able to open a store here download projectors and some various <unk> items. So we are going to be able to turn this ryan on very quickly.

Okay, great. Thank you.

Thank you. Our next question comes from Alex Goldfarb with Piper Sandler Your line is open.

Hey.

Good afternoon out there.

So two questions first.

The rating agencies.

Looking at your metrics on page nine in the.

In the disclosures you are well.

Within well under all the different thresholds so yes.

Clearly bricks finally got the rating agencies to upgrade them.

So is your view that rating agencies are still thinking like that the retail Amazon going to kill everyone or is this just this.

Slow pace, the glacial pace, they move out or what's the feedback they're giving you for why.

Otherwise your balance sheet improvements I mean, John you've been focused on cash flow growth for <unk>.

Tom McGowan: Yeah, so if you take a look at our supplement, there are seven properties that are identified. And then, in addition to that, we have Legacy and Lakewood that are also on our list. So if you take a look at those nine properties, we have about 76 acres that are able to be developed, and they would be developed in the form of different styles and different approaches with JVs, maybe potential sale ground leases. So we're being very thoughtful about the best way to do that. But if you take a look at the apartment counts that can be done there, retail, office, etc.

Since before Covid like what's their what's the holdup thats keeping them, where they are right now.

I don't think its one size fits all Alex will go into each one S&P for example, it was.

Just about all of them being slow.

We finally convinced them to give us.

Improvement in our outlook.

Rare for them to just go ahead and skip an entire grade so they told us so long as we are.

Stick to our to our business plan over the next 12 months to 18 months.

That should mature into a full upgrade that's around the same time it took for a bricks more to mature from there.

They are upgrading their outlook to a full upgrade and the and the rating. So again, we expected about 12 months from now that that should be that should change.

Tom McGowan: It offers a lot of opportunities as we're moving forward. And that's going to be a big goal as we move into 24, moving those to the next level to be in an income generation position, and the movie theater in California. Yeah, so the movie theater in California is in Ontario, a little bit east of LA.

<unk> had some staff changes so they had someone there zama <unk>, who worked there for a very long time. He left we had sort of a temporary person in between and now we've got a new person.

And we're very optimistic based on recent discussions.

And that will ultimately move them as well again, something we can't promise, but to your point when you look at.

Our ratings outlook and you compare it to some of our peers.

And you look at their ratings grid, it really doesn't make any sense right.

Tom McGowan: We're in the process of moving forward with a rezoning process, and that rezoning objective is to ultimately put the property in a position to sell to various multifamily developers. So we're making great progress there, but it's a situation that could, at some point, generate 800 multifamily units in an area that is very much starved for that type of housing. I mean, you know, the thing about that, Florence, we already today have an economic interest in just under 1700 units that are open and operating. And, you know, the one Loudoun project alone is another 1,700 units of potential growth. But I want to be clear, and so the reason we don't bring up Ontario is that it's a long process.

Yes, there are probably a little slow.

That dropped the narrative against against retail, but I think we've gotten in there. So again this is.

This whole thing is it's not a it's not a destination. It's a consistent journey. So we're constantly going to be talked to them and once we get everyone.

Triple These last.

II range, we're going to start pushing them for the next rating grades up because honestly if you look at our metrics I think we're solidly in the triple B plus area.

Yes, the only thing I'd add to that the only thing I'd add Alex's.

I mean, clearly the fixed income community knew that saw that.

In some ways, we're the beneficiary of that in the sense that.

The spread that we printed was a good spread but not all the way where it should have been but thats. Why we are 10 times oversubscribed and so it's a process, but I think the most important thing that happened. When we did the deal was that there are a lot of people talking about the market talking about opportunities.

But our capital markets activities over the last three years have been spot on each deal. We've done each time, we've made the decision have been absolutely 100%, great and that is that is not by accident. This is something we talk about all the time, we do a ton of research.

John A. Kite: It's got to get rezoned, but the value creation is enormous, as you might imagine. So I think it all kind of comes back to the theme that we have an incredible next couple of years ahead of us in terms of value creation. But the great part about that is the great majority of it is just straight up leasing, you know, and we've been getting, you know, 30% returns on capital and 30%, you know, rent spread. So we'll do that all day long.

We are well versed in the capital markets and.

And we took advantage at that point in time, and others didn't right and here we are in a volatile world again, so I think the team deserves a lot of credit for its forward thinking when it comes to the capital markets and when it comes.

Now to capital deployment.

Very important as well.

And I'm sure that they will use that at comp committee this coming year John.

John A. Kite: Eventually, we will run out of it because we're going to lease it out. So we have this other opportunity down the road. So again, I think it's important that people understand that this will continue. Thanks, y'all. Thanks.

Second question is I hope thank you Alex.

I suspect that your comp committee is not a pushover second question just goes to the same store guidance.

<unk> you guys came in and hit the Street.

<unk> was spot and despite normalization of bad debt despite.

Craig Schmidt: Thank you. Our next question comes from Craig Mailman with Citi. Your line is open.

Yes.

Operator: Hey guys, quickly on City Center, as I'm going back to the presentation you guys did at the end of October, then in Mayree, was that included in the headwinds that you had kind of pointed out? 24. Craig, hi, this is Steve.

The White Plains movie Theater etcetera.

But the same store.

On the light side, so there definitely seems to be a disconnect and it seems like the same store is not representative of what your portfolio is growing and in fact.

Heath Thier: That was not quoted. Again, they failed to renew at the end of November. Craig, we were in discussions with them, and our hope was that we were going to get them to renew, and it just didn't turn out that way, so they left at the end of November, which is why it didn't appear on our page in early November. Yeah, and that was just a basic decision where they decided to close multiple New York area units, and that was the cause. Hey, Craig, John, the only reason we're talking about this and calling it out is that we wouldn't normally talk about one tenant, obviously. But you have a situation here where you have one tenant, a very large tenant, like 80,000 square feet, and the rent is obviously significant if it's a two-cent impact. So I think this is an aberration. I don't think so.

Given the normalization of credit and the movie Theater, your <unk> guidance looks better than that where it is so what's going on with same store and why the disconnect between same store and what your portfolio is actually delivering.

Yeah, Alex I can tell you there's not a disconnect in where we set our same store hangs together, where we set our <unk> range.

As I explained in my opening remarks, or certain discrete things that happened, that's putting undue pressure on our same store.

Probably the biggest one is bad debt, let me, we only had 40 basis points of bad debt last year of total revenues. That's an all time low for the company and now with our guidance were setting it at a 100 basis points at the midpoint. That's a 90 basis point drag on same store, we would've been at two 4% at the midpoint.

We had a normalized bad debt last year, so again and plus we had pressure from the theater and we have pressure from bed Bath and beyond so I think there should have been some expectation, especially in those numbers that we set forth past November a lot of those those line items, where same store pressures as well. So again <unk> is established and where our same stores.

John A. Kite: I know it's an aberration, and the good thing is, as Tom said earlier, this is good real estate. It's hard to find a slot like this in a major metro market, and by the way, these guys were making significant revenue. I mean, the rent structure didn't work for them, but the good news is we have a choice to make, not who it's going to be. We actually have a choice, so we feel good about it. It is what it is. It's very unique, and as I said, it's an aberration. So the tenant that you're talking to, does it stay a movie theater, and that's why maybe there's a potential that it could come in some time in the future, some time in the 24th, or is it an alternative?

Establish those of those.

Those track.

And our goal is this year like we did last year last year.

<unk> <unk> by 11, our goal this year is it.

Everything we can in our power its early its February.

Going to do whatever we can to exceed both on the same store aligned and on the <unk> line. So yes. It is.

It's early.

This is where our guidance is set that's where our same store set but we're optimistic.

But to your point Heath Youre not seeing a change in the credit environment like the bad debt is just going back to sort of.

Our normalized level, it's not like you see it going there, it's just sort of a placeholder for based on historic rate.

I mean, historically, Alex we run between 75 to 100 basis points of bad debt or total revenues, we set it at a 100. So we set it at the high end of our historical range nothing is leading us to believe that that we're going to be significantly higher than the historical range, but we thought that's the right place to Senate.

Tom McGowan: It is an East Coast theater operator, and this unit went through a recent renovation. So in terms of conversion, to be able to open the store, you're down to projectors and some various FF and E items, so we are going to be able to turn this rent on very quickly. Okay, great, thank you. Thank you. Our next question comes from Alex Goldfarb with Piper Sandler. Your line is, Hey, good afternoon out there.

And we'll see where things end up yes, Alex if you look at obviously fourth quarter I mean, it's well over 70 basis points in the fourth quarter.

Some of that is just going to be.

All of that post COVID-19 stuff has worn off and we.

Should we shouldnt be collecting as much as we were in the past from <unk>.

Alexander Goldfarb: So two questions. First, the rating agencies, you know, looking at your metrics on page nine in the, you know, in the disclosures, you're well within or well under all the different thresholds. So, you know, clearly BRICS finally got the rating agencies to upgrade them. So, you know, is your view that the rating agencies are still thinking like the death of retail and Amazon's going to kill everyone? Or is this just, you know, the slow pace, the glacial pace they move at?

Previous receivables, but 70 basis points in the fourth quarter, that's a very reasonable number but again beginning of the year lots of things happening in the world.

100 basis points at the midpoint was the prudent thing to do this feels like Groundhog day I remember this call a year ago talking about the prudence of guidance and the way you go about it in the way you underwrite it.

And maybe it's just how we operate here at this company, but we are very granular, but in the end.

It's very early in the year and it's a dynamic world of dynamic market.

Our job is to outperform Alex you know that that's what we're built on so.

So we look forward to the challenge.

Thanks, John Thanks, David.

Thank you.

Heath Thier: Or what's the feedback they're giving you for why, you know, otherwise your balance sheet improvements? I mean, John, you've been focused on cash flow growth for, you know, since before COVID. Like what's their holdup that's keeping them where they are right now? I don't think it's one size fits all, Alex.

Thank you. Our next question comes from Jeff Spector with Bank of America. Your line is open.

Great. Thank you can you hear me.

We can Jeff great great. Good afternoon, I wanted to discuss.

The leasing spend John you had mentioned the spend I think it's through the maybe the second half of 'twenty five and the returns on that spend I guess.

Heath Thier: So going through each one, S&P, for example, it was just about them being slow. We finally convinced them to give us an, you know, improvement in our outlook. It's very rare for them to just go ahead and skip an entire grade.

Can we put that into context like how are those returns today.

Historical and.

With the backdrop right the strengthened demand again, how have you changed your mindset on when to spend we're not to spend.

Yes, I mean, I think I think great question Jeff.

The returns are absolutely higher than they have been historically, but I would say that in the last.

Heath Thier: So they told us, you know, so long as we stick to our business plan over the next 12 to 18 months, that should mature into a full upgrade. That's around the same time it took for BRICS more to mature from their upgrade in their outlook to a full upgrade in the rating. So, again, we expected about 12 months from now that that should be, that should change. Moody's had some staff changes. So they had someone there. His name was Phil Kibble.

<unk> Covid there was some disruption, but then as we got footing returns really accelerated.

And I'm speaking for US right now I don't really know what other people are doing in terms of returns.

But we've always tried to be conservative when we lay out what we've accomplished and then what's what's out there is still yet to do so when you look at our Investor presentation Theres that contrast between what.

Heath Thier: He worked there for a very long time. Then, he left. We had sort of a temporary person in between, and now we've got a new person, and we're very optimistic based on recent discussions that will ultimately move them as well. Again, something we can't promise. But to your point, when you look at our ratings outlook and you compare it to some of our peers, and you look at their ratings grid, it really doesn't make any sense, right? And, you know, yes, they're probably a little slow, you know, to drop the narrative against retail, but I think we've gotten them there. So, again, this is, you know, this whole thing isn't a destination.

What we've already accomplished the 26 boxes that we leased.

And then what's left to do but when I sit there and say, we're getting 30% returns on capital and 30%.

Spreads.

That's the world that we're actively engaged in right now there's no reason to think that they would be a significant decline, but I'll be the first submit those are very high numbers theyre higher numbers than most of the peers.

So it's not like we're just out there trying to get those numbers were out there trying to get the best possible tenant for the shopping center and I think I made mention of that.

In the prepared remarks, and kind of as a somatic around this is not a foot race.

Heath Thier: It's a consistent journey. So once we get everyone at that triple D slash, you know, BA2 range, we're going to start pushing them for the next rating grade up. Because honestly, if you look at our metrics, I think we're solidly in the triple D plus area.

We're in the long term value creation business and if we can keep doing those deals and we spent 200, probably a little over 200 in the next two years to do that well you can you can imagine while we're so excited about <unk> and cash flow growth when we get to the end of 'twenty five and into 'twenty six and then we're going to have tons.

Choices to deploy that capital, Jeff and by the way the balance sheet at that point. If we just continue if we don't deploy it and we just continue to plow it into the company in terms of bringing down debt.

John A. Kite: The only thing I'd add to that, the only thing I'd add, Alex, is, I mean, clearly, the fixed income community knew that, saw that. In some ways, you know, we're the beneficiaries of that in the sense that, you know, the spread that we printed was a good spread, but not all the way where it should have been, but that's why we were 10 times oversubscribed. And so it's a process, but I think the most important thing that happened when we did the deal was that there were a lot of people talking about the market, talking about opportunities, but our capital markets activities over the last three years have been spot on. Each deal we've done, each time we've made the decision, have been absolutely 100% great, and that is not by accident.

Youre going to get your leverage down to the four times range. So.

A lot of Optionality there, but at this point in time the market continues to avail itself to us in that regard.

Okay. Thank you and to confirm it sounds like again.

Focus on the lease up not acquisitions, right and development of course, not acquisitions through 'twenty five.

I think I think as I was saying when I laid out the plan for 'twenty four clearly we're always in the market. We're always we're always valuing what we own and valuing what's out there. So we will transact.

But it will be on the margin most likely.

And we like to do it in a neutral way or accretive way so that.

That takes effort it takes a lot of time, but that's what we've been able to do as we.

In terms of deploying capital into acquisitions.

John A. Kite: You know, this is something we talk about all the time, we do a ton of research, we're well versed in the capital markets, and we took advantage of that point in time, and others didn't, right?, and here we are in a volatile world again. So I think the team deserves a lot of credit for its forward thinking when it comes to the capital markets and when it comes, you know, to capital deployment, which is very important as well. And I'm sure that they will use that at the comp committee this coming year, John. The second question is... I hope they will do so, Alex.

That would go away that would take away from our lease up program, absolutely we will not be doing that.

Great. Thank you.

Thanks.

Thank you. Our next question comes from Michael Mueller with Jpmorgan. Your line is open.

Yes, I was wondering can you talk a little bit about how you see build occupancy trending through 2024 and 225.

Hi, Mike We don't guide to occupancy, but as you can imagine youre going to see our leased and occupied rates rise. We did describe it in our opening remarks that youre going to continue to see an elevated snow pipeline and an elevated gap between our leased and occupied because we do have.

But a way to go until we're back at our sort of pre COVID-19 occupancy levels, but yes, youre going to see us start to climb towards.

In 'twenty, four and 325 climb back towards pre Covid plus.

In terms of both our leased and occupied rates.

Okay.

Alexander Goldfarb: I suspect that your comp committee is not a pushover. The second question just goes to the same stored guidance. You know, for FFO, you guys came in, hit the street. You know, the FFO was spot on despite normalization of bad debt, despite, you know, the White Plains movie theater, etc. But the same store, you know, is on the light side.

And then I guess separately.

I know you have a couple of redevelopment or expansion developments that you are wrapping up.

What do you think this as soon as it could be that we would see potentially activate something new on that front.

I think.

As I, just kind of sit on that.

Answering jeffs question.

Which was.

Mike do we want to be.

Heath Thier: So there definitely seems to be a disconnect, and it seems like the same store is not representative of what your portfolio is growing. And in fact, you know, given the normalization of credit and the movie theater, your FFO guidance looks better than where it is. So what's going on with Same Store and why the disconnect between Same Store and what your portfolio is actually delivering? Alex, I can tell you that there's not a disconnect in where we set our same store prices together, where we set our FFO range, but as I explained in my opening remarks or certain, you know, discreet things that happened that are putting undue pressure on our same stores, probably the biggest one is its bad debt. I mean, we only had 40 basis points of bad debt last year in total revenues. That's an all-time low for the company, and now, with our guidance, we're setting it at 100 basis points at the midpoint. That's a 90 basis point drag on same store.

Very focused on the lease up platform and we've got a good enough sense of what's already in the hopper that whats already been signed and what's already being negotiated that gives us. That's why we are basically saying, we think we're going to spend $200 million ish over the next two years. So.

That kind of a wanes then we lean into the next phase of growth, which is this embedded land value and we've talked a lot about of all of the projects that we have available to us.

One loud in Virginia is the one that we're probably the furthest along in terms of the design process and working on implementation and understanding what tenancy is available to us and there's great opportunities there and it's an incredible piece of real estate, which is of course, why we will also highlighted on our $4.

For tour.

But.

I just want to emphasize that.

The returns on capital that we're getting in the lease up and if you look at our occupancy versus the peer group. Fortunately, we have more upside there. So that's why you're going to hear us talking about leasing and the returns versus hey, I got to go buy something or I got to develop something that's the point, we're trying to get it.

Yes.

Yes.

Heath Thier: We would have been at 2.4% at the midpoint had we had a normalized bad debt last year. So, again, and plus we had pressure from the theaters, and we had pressure from Bed Bath & Beyond, so I think there should have been some expectation, especially in those numbers that we set forth last November. A lot of those line items were same store pressures as well.

Yep Yep, sorry, if I didn't say that I would also add listen.

Maybe sounds less exciting not to describe to you. This massive development pipeline that we have over the next five years, but honestly.

Given $200 million over the next year I can't think of a better way to want to spend your money right now than to lease up your existing space. It's such an advantage, especially in this volatile environment that we have a home at 25% to 30% returns to put our money to work. So again it doesn't sound like it's.

The same thing we're doing last year, and we'll be doing it into 24% to 25, but its a great place right now to be investing in some of your own space got it yes, I don't know that we touched on this part yet either but Mike the other issue there is.

Heath Thier: So, again, you know where our FFO is established and where our same store is established, those track, and, you know, our goal this year is, like we did last year, you know, last year we beat FFO by 11 cents. Our goal this year is to do everything we can in our power. It's early. It's February.

While we're doing this while we are spending this $200 million, we're still cash flowing and the cash flow is growing and our leverage is one of the lowest in the space and we will go lower during this period of time. So if we wanted to.

Heath Thier: We're going to do whatever we can to exceed both on the same store line and on the FFO line. So, you know, it's early, and, you know, this is where our guidance is set. That's where our same store is set, but we're optimistic. But to your point, Heath, you're not seeing a change in the credit environment. Like the bad debt is just going back to sort of a normalized level. But it's not like you see it going there. It's just sort of a placeholder for based on historic, right?

Could we go out and do three or $400 million of projects and go from five to five and a half we could but we don't think thats prudent right now in this environment, especially based on the returns if things change and opportunities come to us we have a lot of firepower and it's only growing.

So that's kind of the other thing that you should think about.

Heath Thier: I mean, historically, Alex, we run between 75 and 100 basis points of bad debt on total revenues. We set it at 100. So we set it at the high end of our historical range. Nothing is leading us to believe that, you know, we're going to be, you know, significantly higher in the historical range, but we thought that was the right place to set it. And, you know, we'll see where things end up. Yeah, I mean, Alex, if you look at, obviously, the fourth quarter, we're a little over 70 basis points in the fourth quarter. Some of that's just going to be, you know, all that post-COVID stuff is worn off, and we shouldn't be collecting as much as we were in the past from, you know, previous receivables, but, you know, 70 basis points in the fourth quarter is This feels like Groundhog Day.

Macro for us.

Got it Okay makes sense. Thank you.

Thank you.

Thank you. Our next question comes from Wes Golladay with Baird. Your line is open.

Hey, everyone.

Quick question on the non same store pool, you did have some redevelopment and some recent developments in there should we expect that to grow much this year.

I don't think Youll see much changes at our non same store non same store pool Wes.

I mean from an NOI perspective, and any I guess outsized growth there.

Some of our developments are starting to lease up so you'll see some NOI contribution from some non same store property pool, but nothing major.

And therefore.

Okay, and then I believe your base case has about 80% retention in your slide in your Investor presentation. What was the retention last year I believe it was running a little higher than that.

In mid eighties.

Higher any slight $55 86, so that's.

So I mean, it's been running at 85, plus now for a bit.

So it's another reason we called it out as it is conservative.

And so again when youre looking at an NAV page and we take a conservative 80% retention ratio. We don't include land and we don't include future lease up that should show you there.

Those numbers are very conservative.

Got it thank you.

Thanks.

Thank you as a reminder, if you'd like to ask a question. Please press star one one.

John A. Kite: I remember this call a year ago, talking about the prudence of guidance and the way you go about it and the way you underwrite it. And maybe it's just how we operate here at this company, but we are very granular. But in the end, it's very early in the year, and it's a dynamic world, a dynamic market. But our job is to outperform, Alex. You know that. That's what we're built on.

Our next question comes from Linda Tsai with Jefferies. Your line is open.

Hi.

The $200 million and leasing and Ti spending through 25, how does this number compare for <unk> 24 versus 23.

Much higher.

I mean, when you look back in 2003, we spent a little over $90 million, which was high but the year before we spent 60. These are round numbers I would tell you a typical year is going to be between 40 and 60, depending on our our lease percentage. So these numbers are well above.

Jeff Spector: So we look forward to the challenge. Thanks, John. Thanks, Heath.

John A. Kite: Thank you. Thank you. Our next question comes from Jeff Spector with Bank of America. Your line is open.

<unk>, which is why were pointing it out Linda.

And again I mean, if we can get into the details of how we got to that lease percentage, which was really driven by.

Jeff Spector: Great. Thank you. Can you hear me?

A couple of anchor tenants.

And then and we're already quickly making progress because when you look at Q4 over Q3 sequentially you see that we're growing in each category, so anchors and shops. So definitely it's elevated that's why we're pointing it out and then as we get into 2006, it gets back to normal levels and even better.

Operator: We can. Jeff. Great. Great. Good afternoon.

Jeff Spector: I wanted to discuss, you know, the leasing spend. John, you mentioned the spend. I think it's through maybe the second half of 25 and the returns on that spend. I guess, you know, can we put that into context? Like, how are those returns today versus historical and with the backdrop, right, the strength in demand? Again, how have you changed your mindset on when to spend and when not to spend?

After that and again this is assuming we maintain our traditional occupancy levels.

And then it seems like you had a lot of momentum in leasing and occupancy gains. This quarter was there any pull forward demand away from <unk> or does that leasing volume that's elevated continue.

John A. Kite: Yeah, I mean, I think it's a great question, Jeff. The returns are absolutely higher than they have been historically. But I would say that in the last, you know, post COVID, there was some disruption. But then as we got footing, returns really accelerated. And I'm speaking for us right now.

No I mean, it's.

We had a lot of box deals in the quarter and we've always talked about I think we did turn rate in the quarter the quarter before was all shops.

Not all shops, but if you look at that's why the numbers when you look at our Ti spend move around a little bit because each quarter is a little different but I don't feel like we're pulling forward I think the demand is strong Tom do you want to yes, we see no change in demand and I think it's pretty incredible that we signed 26 spot.

John A. Kite: I don't I don't really know what other people are doing in terms of returns. But, you know, we've always tried to be conservative when we lay out what we've accomplished and then what's out there still yet to do. So when you look at our investor presentation, there's that contrast between, you know, what we've already accomplished with the 26 boxes that we leased, and then what's left to do. But when I sit there and say we're getting 30% returns on capital, and 30%, you know, spreads, I think that that's the world that we're actively engaged in right now. There's no reason to think that this would be a significant decline.

And the year.

That is a significant number that we were able to pull off and that's over half a million square feet. So.

You look at our pipeline moving forward is as healthy as it was last year at this time so.

The engines are still still raw and to make sure we get back to some of our historical high levels and I think even beyond just the sheer number of it.

Deals that were doing Linda.

And again I keep talking about are the way we look at this and we get we get one opportunity to re lease these bed bath spaces, you get one opportunity.

And we are very selective about what we're doing there we're not just looking to slap someone in the box. So we can say we've done <unk>.

John A. Kite: But I'll be the first to admit those are very high numbers; they're higher numbers than most of the peers. So it's not like we're just out there trying to get those numbers; we're out there trying to get the best possible tenant for the shopping center. And I think I made mention of that, you know, in the prepared remarks. And it kind of is a theme around this is not a foot race, you know; we're in a long-term value creation business. And if we can keep doing those deals, and we spend 200, probably a little over 200 in the next two years to do that, well, you can imagine why we're so excited about AFFO and cash flow growth when we get to the end of 25 and into 26.

15 of the 20 or whatever the heck the number is.

That's why I called out the kind of tenants that we've done business with that are going into these boxes right. The whole foods the trader Joes the home sense, Sierra as guys like that and other people that we're negotiating with right now that are more grocers and more high quality people. So the value creation. There is really excellent and that's why we.

We're we're plotting away, but we're very excited about what we're getting done.

One last one what's the mark to market on the 80 $48 million and expiring ABR of 24.

Well I mean, I think if you look at the mark to market.

Actually I would look even beyond that and if you look at over the next five years.

This year his role is pretty low it's like less than 10% I think in terms of explorations, but then it ramps up and if you look at that five year period, and you take an average over that five year period, and you compare it not to our current ABR, but the ABR over the trailing 12 months there is real.

John A. Kite: And then, you know, we're going to have tons of choices to deploy that capital, Jeff. And by the way, the balance sheet at that point, if we just continue, if we don't deploy it, and we just continue to, you know, plow it into the company in terms of bringing down debt, I mean, you're going to get your leverage down to the four times range. So a lot of optionality there.

Opportunity to Mark to market. There. So I would really kind of focus on that I think the near term as kind of a.

We'll be fine and there is some mark to market, but as you go out over the next five years, there was real opportunity there with elevated explorations.

Thank you.

Thank you.

Thank you there are no further questions at this time I'd like to turn the call back over to John Kite for any closing remarks.

Okay, well, thanks, everybody for joining us and for those of you who.

Jeff Spector: But at this point in time, the market continues to avail itself to us in that regard. Okay, thank you. And to confirm, it sounds like, again, focus on the lease up, not acquisitions, right? And development, of course, not acquisitions through 25? Yeah, I mean, I think, as I was saying when I laid out the plan for 24, clearly, you know, we're always in the market, we're always, we're always valuing what we own and valuing what's out there. So, you know, we will transact, you know, but it will be on the margin, most likely. And we like to do it in a, you know, neutral way, or in a creative way. So that takes effort; it takes, you know, a lot of time.

We're going to be with us in Naples, and next week, we look forward to it the weather looks good.

Sure.

Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

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Michael Mueller: But that's what we've been able to do as we go, but in terms of deploying capital into acquisitions, that would go away, that would take away from our lease up program. Absolutely, we will not be doing that. Great, thank you. Thank you. Our next question comes from Michael Mueller with J.P. Morgan. Your line is open.

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Heath Thier: Yeah, I was wondering, can you talk a little bit about how you see the build. Listen, hi, Mike. We don't guide the occupancy, but as you can imagine, you're going to see our leased and our occupied rates rise. We did describe in our opening remarks that you're going to continue to see an elevated snow pipeline and an elevated gap between our leased and our occupied units because we do have quite a way to go until we're back at our sort of pre-COVID occupancy levels. But yeah, you're going to see us start to climb toward, you know, in 24 and through 25, climb back toward pre-COVID plus, in terms of both our leased Okay, and then separately, I know you have a couple of redevelopments or expansion developments that you're wrapping up. I mean, what do you think the soonest could be that we would see you potentially activate something new on that front?

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John A. Kite: I think I think, as I just kind of said when I was answering Jeff's question, which was, you know, Mike, do we want to be very focused on the lease-up platform, and we've got a good enough sense of what's already in the hopper, what's already been signed, and what's already being negotiated. That's why we're basically saying we think we're going to spend $200 million-ish over the next two years. So as that kind of wanes, then we lean into the next phase of growth, which is this embedded land value. And we've talked a lot about, of all of the projects that we have available to us, One Loud in Virginia is the one that we're probably the furthest along in terms of the design process and working on implementation and understanding what tenancy is available to us, and there are great opportunities there, and it's an incredible piece of real estate, which is, of course, why we will also highlight it on our 4 in 24 tour.

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John A. Kite: I just want to emphasize that the returns on capital that we're getting in the lease up, and if you look at our occupancy versus the peer group, fortunately, we have more upside there. So that's why you're going to hear us talking about leasing and the returns versus, hey, I got to go buy something or I got to develop something. That's the point we're trying to get across. Yeah, yeah.

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Heath Thier: Sorry, my business. I would also add, listen. It maybe sounds less exciting not to describe to you this massive development pipeline that we have over the next five years, but honestly, Given $200 million over the next year, I can't think of a better way to want to spend your money right now than to lease up your existing space. It's such an advantage, especially in this volatile environment, that we have a home with 25% to 30% returns to put our money to work. So again, it's the same thing we were doing last year, and we'll be doing it into 2024 and into 2025, but it's a great place right now to be investing in your own space. Yeah, I don't know that we touched on this part yet either, but Mike, the other issue there is, you know, while we're doing this, while we're spending this $200 million, you know, we're still cash flowing, and the cash flow is growing, and our leverage is one of the lowest in the space, and we'll go lower during this period of time. So if we wanted to, you know, could we go out and We could, but we don't think that's prudent right now in this environment, especially based on the returns.

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John A. Kite: If things change and opportunities come to us, we have a lot of firepower, and it's only growing. So that's kind of the other thing that you should think about macro for us. Okay, makes sense.

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Wes Galladay: Thank you. Thank you. Thank you. Our next question comes from Wes Galladay with Baird. Your line is, Hey, everyone, maybe just a quick, quick question on the non-same store pool. You did have some redevelopments and some recent developments in there. Should we expect that to grow much this year? I don't think you'll see much change in our non-same-store pool, Wes. I mean, from my inner life perspective and any, I guess, outsized growth there.

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Heath Thier: Some of our developments are starting to lease up, so you'll see some anti-wive contribution from some non-same-store property pools, but nothing major in that pool. Okay, and then I believe your base case has about 80% retention in your investor presentation. What was retention last year? I believe it was running a little higher than that, in the mid 80s, higher 80s, like 85, 86.

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Tom McGowan: So that's what I mean; it's been running at 85 plus for a bit now. So another reason we called it out is that it's conservative. And so again, when you're looking at an NAV page, and we take a conservative 80% retention ratio, we don't include land, and we don't include future lease-up that should show you there, you know, those numbers are very conservative. Got it. Thank you. Thanks. Thank you. As a reminder, if you'd like to ask a question, please press star 1.

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Operator: Our next question comes from Linda Sy with Jeffries. Your line is open. Hi, you mentioned the 200 million in leasing and TI spending through 25. How does this number compare for just 24? Craig Schmidt, John Kite, Anthony Powell, Bryan McCarthy, John Kite, Todd Thomas, Daniel, Much higher.

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Linda Sy: I mean, you know, when you look back on 23, we spent a little over $90 million, which was high, but the year before, we spent $60 million. These are round numbers. I would tell you a typical year is going to be between $40 million and $60 million, depending on our lease percentage.

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John A. Kite: So these numbers are well above the industry average, which is why we're pointing it out, Linda. And again, I mean, we can get into the details of how we got to that lease percentage, which was really driven by a couple of the anchor tenants. And we're already quickly making progress because, you know, when you look at Q4 over Q3, sequentially, you see that we're growing in each category, anchors and shops. So, definitely, it's elevated. That's why we're pointing it out.

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John A. Kite: And then, as we get into 26, it gets back to normal levels and even better after that. And again, this is assuming that we maintain our traditional occupancy levels. And then it seems like you had a lot of momentum in leasing and occupancy gains this quarter. Was there any pull-forward demand away from 1Q, or does that leasing volume that's elevated continue? No, I mean, it's, you know, we had a lot of box deals in the quarter. And we've always talked about, I think we did 10, right in the quarter. The quarter before was all shops. You know, not all shops.

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John A. Kite: But if you look at that's why the numbers when you look at our TI spend move around a little bit because each quarter is a little different, but I don't feel like we're pulling forward. I think that the demand is strong, Tom, do you want to? Yeah, we see no change in demand. And I think it's pretty incredible that we signed 26 boxes in the year. And you know that that is a significant number that we were able to pull off. And you know, that's over half a million square feet.

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John A. Kite: So, you know, if you look at our pipeline moving forward, it's as healthy as it was last year at this time. So, the engines are still roaring to make sure we get back to some of our historical high levels. I think even beyond just the sheer number of deals that we're doing, Linda. And again, I keep talking about the way we look at this, and we get we get one opportunity to release these bed bath spaces; you get one opportunity. And we are very selective about what we're doing there. We're not just looking to slap someone in the box.

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John A. Kite: So we can say we've done 15 of the 20 or whatever the heck the number is. That's why I called out the kind of tenants that we've done business with that are going into these boxes, right? Whole Foods, Trader Joe's, Home Sense, Sierras, guys like that, and other people that we're negotiating with right now that are more grocers and more high-quality people. So the value creation there is really excellent. And that's why we're, you know, we're plodding along, but we're very excited about what we're getting done. One last one. What's the mark to market on the $48 million in expiring ABR in 2020? Well, I mean, I think if you look at the mark to market, actually, I would look even beyond that. And if you look at the next five years, this year's roll is pretty low. It's like less than 10%, I think, in terms of expirations.

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Heath Thier: But then it ramps up. And if you look at that five-year period and you take an average over that five-year period and you compare it not to our current ABR but to the ABR over the trailing 12 months, there's real opportunity to mark to market there. So I would really kind of focus on that. I think the near term is kind of a, you know, we'll be fine, and there is some mark to market. But as you go out over the next five years, there was a real opportunity there with elevated expirations. Thank you. Thank you. There are no further questions at this time.

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Operator: I'd like to turn the call back over to John Kite for any closing remarks. Okay, well, thanks everybody for joining us. And for those of you who are going to be with us in Naples next week, we look forward to it. The weather looks good.

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John A. Kite: Thank you. Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day, www.kiterealty.com www.kite-reality.com www.kite-reality.com www.kite-reality.com www.kite-reality.com www.kite-reality.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.kiterealty.com www.kiterealty.com www.kiterealty.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day and welcome to the Q4 2023 Kite Realty Group Trust Earnings Conference. At this time, all participants are in a listen-only mode.

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Good day and welcome to the Q4 2023 Kite Realty Group Trust earnings Conference call at this time all participants.

Bryan McCarthy: After the speaker's presentation, there will be a question and answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. I would like to turn the call over to John Kite, Chairman and CEO. You may begin. And this is Bryan McCarthy to kick it off.

There are in a listen only mode. After the speaker's presentation, there will be a question and answer session and instructions will be given at that time.

As a reminder, this conference is being recorded I would now like to turn the call over to John Kite, Chairman and CEO you may begin.

Bryan McCarthy: Thank you and good afternoon everyone. Welcome to Kite Realty Group's fourth quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions about future events and are subject to inherent risks and uncertainties. The actual results may differ materially from these statements.

And this is Brian Mccarthy to kick it off thank you and good afternoon, everyone. Welcome to Kite Realty group's fourth 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.

Bryan McCarthy: 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 a reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom McGowan, Executive Vice President and Chief Financial Officer, Heath Thier, Senior Vice President and Chief Accounting Officer, Dave Buell, and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. I'll now turn the call over to John. Thanks, Bryan, and thank you, everyone, for joining us today.

Actual results may differ materially from these statements.

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 on the call with me today from take Realty Group are chairman and Chief Executive Officer, John Kite.

President and Chief operating Officer, Tom Mcgowan, Executive Vice President and Chief Financial Officer Heath Fear Senior Vice President and Chief Accounting Officer, Dave fuel and senior Vice President capital markets and Investor Relations Tyler Henshaw I'll now turn the call.

Over to Jeff.

John A. Kite: We are understandably proud of what we accomplished in 2023, and over the course of 2024, we will continue to operate from a position of strength. Keith will walk you through the details of our results and our 2024 guidance, and I'll spend my time looking back at some key 2023 accomplishments and our action plan for 2024.

Thanks, Brian and thank you everyone for joining today.

We are understandably proud of what we've accomplished in 2023 and over the course of 2024, we will continue to operate from a position of strength.

Keith will walk you through the details of our results and our 2020 for guidance and I'll spend my time looking back at some key 2023 accomplishments in our action plan for 2024.

At the beginning of 2023, we guided to NAREIT <unk> of $1.