Q3 2024 Kite Realty Group Trust Earnings Call
Good day and thank you for standing by. Welcome to the third quarter, 2024 Kite, Reality Group Trust, or an Inns Conference call. At this time on participants are an Elessanoli mode.
After the Speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need a press star 1-1 on your telephone. You will then hear an automated message, advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised to the days conferences being recorded.
and I would now like to have conference over to your speaker's day. Bryan McCarthy, senior vice president, corporate marketing and communications. Please go ahead.
Bryan McCarthy: Thank you, and good morning everyone. Welcome to Kite Realty Groups third quarter earnings call. Some of today's comments contain forward-looking statements that are based upon assumptions of future events. And are subject to an air risk and uncertainties.
Exhaust results may differ materially from these statements.
For more information about the factors that can adversely affect the company's results.
We see our SEC violence, including our most recent long 10K.
Today's remarks also include certain non-gap financial measures. It's a refer to yesterday's Irrings Press release, Kail on our website for reconciliation, these non-gap performance measures to our gap financial results.
I'm Nicole with me today from Kite Realty Group, our chairman and chief executive officer, John Kite.
Bryan McCarthy: President and Chief Operating Officer, Tom McAllen, Executive Vice President and Chief Financial Officer, Keith Feer, Senior Vice President and Chief Accounting Officer, Dave Feeall, and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshow.
Given the number of participants on the call, we kind of ask that you limit yourself to one question and one follow-up. If you have additional questions, we ask that you please rejoin the queue. Now I'm turning the call over to John.
and welcome everyone to our quarterly conference call. KRG delivered another very strong quarter, leasing approximately 1.7 million square feet of space, which is the highest quarterly volume in the company's history.
Heaple walk you through the details of our quarterly results and our updated 2024 guidance. And I'll focus on the progress we continue to make on the leasing front and our longer-term growth levers, including the recently announced development project at One Loudon.
Over the last three years, the primary focus of our capital allocation efforts has been leasing. Our portfolio now sits at 95% least, which represents a 160 basis point year over year increase.
Bryan McCarthy: We're optimistic that this environment we can continue to drive both the anchor and small shop occupancy to the storeful heights.
You're today, we've executed 17 acre leases at 38% comparable cash spreads, and 33% returns on capital.
Demand continues to be strong in both our anchor and small shafts. Your rear our small shaft, at least, right, is up by a hundred basis point, as a result of signing over a hundred and eighty new leases with tenets spanning a wide spectrum of complementary uses.
The credit profiles of our new small shop tends are also strong and these leases are expected to generate a 57% return on capital.
Our sign-not-open pipeline remains elevated at $33 million. It's important to note that the average ABR in our sign-not-open pipeline is over $26, which is nearly 25% above our current ABR in the portfolio.
Based on the current leasing velocity, we expect our sign-out open pipeline to stay elevated through the first half of 2025. It starts to drift down to our historical average as we head into 2026.
As K-R-G enters the latter part of our lease up phase, we remain acutely focused on levers of growth beyond occupancy games.
The organic mark to market opportunity embedded in the portfolio continues to be strong as highlighted by the year-to-date blended non-optional renewal spreads of nearly 13%.
We consistently promote this statistic as the most reliable indicator for movement of market rents as it's not influenced by landlord capital.
were successfully driving higher and better growth, especially on the small shop front.
For new and non-option renewlies is signed in the first three quarters of 2024. The average annual growth was 3.5% which is 50 basis points higher than the small shop new and non-option new leases executed in 2023.
Bryan McCarthy: The progress we've made over the past three quarters represents significant step towards our long-term goals of generating a more sustainable stream of cash flows and driving an outside cruising speed for out of eye growth.
On the development front, we recently announced our expansion plans for one loud in the Washington DC MSA. As we detailed in our third installment of 424, the development will include 86,000 square feet of retail and 33,000 square feet of office.
We're also in the late stage negotiations with two developers to incorporate 170 room hotel and a 400 unit multifamily complex into this next phase.
Our philosophy on non-retail uses for mixed use projects is to manage our capital contribution while maintaining a stake in the project.
Bryan McCarthy: will share our plans for both the hotel and multifamily phases once the agreements are finalized.
One of the takeaways we communicated at our 4 and 24 event was our significant amount of a developer-land adjacent to one loudened.
Excluding the proposed next phase, we have entitlements for an additional 1,300 multifamily units and 1.7 million square feet of commercial GLA on over 30 acres of entitled land.
While we're focused on executing this next phase, we have plenty of optionality for additional phases to continue creating value. One loud is on track to becoming one of the premier open air mixed use projects in the country.
While on the topic of premier opening or mixed use projects, we hosted our second installment of our 4 and 24 series of South Lake Count Square in the Dallas MSA, which is currently our largest asset.
When we saw control of this property in 2021, it was generating just over $20 million of N.O.I. Three years later in South Lake is producing over $30 million of N.O.I. which speaks to the intensity of our leasing platform and the underlying quality of the real estate.
The combined impact of one loud and south-lake, our CARE G as a whole is extremely compelling.
While generational assets like these trade infrequently, there's one currently in the market at another that will be in the market by the end of the year. We're confident that these assets will trade at levels which will underscore the importance of one loud and south-lake to our portfolio.
Bryan McCarthy: This past quarter we acquired Parkside West Cobb, a Sprout to Anchor Chopping Center in the Atlanta suburbs for $40 million.
We locked up this property in advance of the recent compression and cap rates, which allowed us to acquire this asset at a positive arbitrage to the asset we sold in Chicago earlier in the year.
For the past several years we've been disciplined in our desire to remain relatively net neutral on our buying and selling activity. It's important to note that the number of high quality assets in the market continues to increase as the liquidity for all open-air product types.
Bryan McCarthy: With our current leverage, meaningfully, below our long-term targets, CARE G is well positioned to take advantage of any compelling opportunities that may arise.
A board of trustees is authorized and increase in our dividend to 27 cents per share, which represents a 3.8% sequential increase and an 8% increase year over year.
As occupancy in NRI ramps over the next few years, we anticipate our dividend to follow suit.
For many of our long-term investors, the dividend is a critical aspect of redistribution. And with a strength of our balance sheet, K-R-G's dividend is an extremely attractive risk adjusted yield.
Question.
Bryan McCarthy: In closing, thank you as always to our incredible team for the hard work and dedication. But before turning the call to Heath, I wanted to specifically recognize the dedication and grit of our southeast team. For their efforts related to the recent hurricanes.
As a result of their vigilance and preparation, our assets suffered minimal damage and downtime.
We proudly serve our South East customers and our communities and our grateful for their support and patronage. I'm now called to call the Heat to turn the call of heat to walk you through results in 2024, guys.
Thank you and good morning for those of you that have attended one or more of our 4 and 24 events we are grateful for your time and travel efforts.
We will be hosting our final event in Las Vegas on November 18th, which is the Monday prior to the May be Conference.
We hope to see many of you and look forward to sharing our views on cap-law location and providing a glimpse into our long-term vision for care to use future. While the response to 424 series has been overwhelmingly positive, you can rest assured that the intellectual property rights to 525 are currently available.
Turning to our results for the third quarter of 2024, Kiergy earned 51 cents of Navy's FFO for share and generated the same property and a wide growth of 3%.
Sam property on a Y was bolstered by a 280 basis point increase in minimum rent and a 120 basis point increase in that recovery.
Offset by 80 basis points of band debt relative to the comparable period. Based in our third quarter results and revised outlook for the balance of the year, we are increasing our 2024 FFO guidance by one cent at the midpoint to a range of $2.6 to $2.8.
Bryan McCarthy: primarily driven by improvement in our same property and a wide growth assumption.
At the midpoint, we assume a full year, same property in a wide growth assumption of 2.75% and a full year bed, that assumption of 70 basis points of total revenues.
The full year of bad debt component is a function of combining the actual bad debt we experienced year to date, which was approximately 60 basis points of total revenues with the continuing assumption of 100 basis points of bad debt for the fourth quarter.
As are updated guidance implies, we are anticipating an acceleration in same property growth to the fourth quarter due to the commensurate schedule of our sign-out-up in pipeline and the favorable comparable period.
In August, we returned to the public debt market by ocean of seven years, $350,000, but a coupon of 4.95%.
We felt it prudent to minimize the capital market risk heading at the 2025 and we are pleased with the execution.
On our July earnings call, we mentioned that we anticipate a significant improvement in Creds Red compared to the levels we achieved in January. And we were able to achieve a 38-based point compression in a spread in less than a year.
As for the proceeds, we are currently holding them in a short term deposit account, generating interest income and excess of the yield in the debt maturing in 2025.
In September, we amended an extended $1.1 billion revolving credit facility, which now matures with extension options in October of 2020.
with a very dynamic macroenvironment in front of us. It's important to note that our availability under the line of credit together with our cash on hand can satisfy all of our maturing depth to the third quarter of 2028.
Looking through a more opportunistic lens, with over 1.2 billion dollars of available liquidity and a net debt to ebode of 4.9 times. We have the ability to deploy significant capital while still remaining within our long-term memory starter levels of 5 to 5.5 times.
Speaker Change: Thank you to the entire KRG team for another spectacular quarter and we're looking forward to seeing many of you in Las Vegas.
Speaker Change: Operator, this concludes our prepared remarks. Please open the line for questions. Thank you as a reminder to ask a question at this time. Please press star 1-1 on your telephone and wait for your name to be announced.
To withdraw your question, please press star one again. We ask that you please limit yourself to one question and one follow-up. One moment for our first question.
Hi, first question is going to come from the line of Todd Thomas with Keybank Capital Market. Your line is open, please go ahead.
Todd Thomas: Hi, thanks for coming.
He seemed like a little bit of a better outcome in the third quarter than you previously talked about. I think he talked about the third quarter being a little more muted.
and followed by a sharper increase in the fourth quarter. Sounds like that's still the case, but where did you outperform verse expectations in the quarter and was any growth?
This quarter pulled forward from the fourth quarter and then, you know, as we think about ending this year and in the 25 any sort of goal post that you can put up around the next few quarters around the trajectory for an oligroth.
So, I'm basically thinking of just doing better on bad debt was the primary driver of what gave us a little bit better outlook into the same store for this particular quarter. And I wouldn't say that we pulled forward anything from the filing quarters in terms of the trajectory of the same store for 25 and beyond. We're not going to give guidance to this time, but we said before in our remarks that we're...
We're pretty bullish and optimistic with respect to the Actency contributions we're going to see in our signed-out open pipeline. So I'll leave that to our 2025 outlook.
Okay, and then my second question for John, you know, curious to just get a little more color on the acquisition environment.
Todd Thomas: and also the assets that you mentioned that are being marketed or on the market that you're comparing to.
One loud in a bit in that sort of elk is Kite interested. What's the company's appetite like for being on the biceite of a transaction like that, and adding another asset like that to the portfolio today?
Chair Todd, I mean in terms of your macro question, I think the environment is strong, they're continues to be more and more capital flowing into open air retail from, as we've talked about before, all sources that you can imagine.
You know, pension funds, sovereigns, insurance companies.
reads 1031 buyers, advisors. I mean, I really think that the volume of capital that's flowing into our space in the past six to nine months is dramatically increased over the previous year.
So that obviously leads to compression and yields that people are willing to accept as well as the growth rates.
and these assets are clearly better than they were historically. So, all in all, I say it's a very competitive market. As we mentioned in the pre-prepared remarks, yes, there are assets that are now coming into the market that are similar to...
You know, centers like South Lake and one loud and crown and Union Hill and I can go on it on it. I mean, we have a lot of assets where we mentioned two of them but we have a lot of these high quality assets that I think.
People maybe don't quite think of when they think of our company. So that's our goal, is to make sure people do understand that.
Todd Thomas: As it relates to, you know, would we participate in something in assets of that nature? Would we look to buy those? You know, that's why we specifically mentioned our balance sheet. You know, we believe that we have, it's not the best and the very best.
and the states and again, they don't feel like they're quite lucky out to that. You know, that's what the government is trying to drop in.
Todd Thomas: We have a lot that's five-hour, a lot of optionality. We have been going to the absolute, we look at it, that's available as we always do. If we feel like we think that we can add value to the terms and the position to execute the blue set chose.
Speaker Change: I think what we're trying to say is that we're under value as it sits today. But the good thing is we have so much capital and our balance sheet is strongly like afterwards growing and we can still participate in the market if we choose to.
Okay, great, thank you. Thanks, thanks, love.
Speaker Change: Thank you in one moment for our next question.
Our next question is going to come from the line of Alexander Gold Farb with Piper Sam or your line of open-please go ahead.
Speaker Change: Sure, morning out there. John, maybe just keeping with that theme of going on.
You know, looking at more centers to buy some of these potential larger centers, one of the things that you've spent, you know, many years almost a decade doing is improving the balance sheet, getting really low leverage and putting the company in a really good spot at the same time. Unfortunately, the stock continues to trade at the discount versus peers.
So how do you balance increasing leverage to buy assets if that risk? You know, sort of goes again, what you guys have tried to do, which is say, hey, we've got a great company, great cash flow, we're leverage, therefore deserve a higher equity multiple.
and I'm really back there. I'll explain that to you.
I think that's the point we're trying to make is that we do have a great balance sheet and having a great balance sheet affords you that optionality. So we have to look at each individual opportunity under that lens of what is it.
Contention, Groverate of the asset, what value does it bring to the total portfolio? And what comfort levels do we have? In fact, the balance needs to the asset and the more assets involved.
So, but when they're sub-fiving, we've been a little bit on.
The long-term goal is to detectives are loaded in the drive, that's a lot of run by them. So I did that like I said, I don't think you can say it's one thing, I think we have to work at each individual component of the world.
were still using the savings of that value to the old black business. But again, when we are today, we have plenty of room. So I think that we're studying and looking at this new one happens, but again, if it doesn't happen, we can think we can generate free cash to a lot of the existing portfolio.
I'm frightfully fed that when we continued to be lever popping the tan and that's just crazy to know our optionality
Okay, second question is, you mentioned residential which you showed us at one loud and you know, as you guys have been assessed in the portfolio and more investment opportunities.
Speaker Change: is a representative of how much multifamily
Speaker Change: Attentional there is in your existing portfolio.
and also, is that something that...
You know, is actively, you know, on your investment plans to say, hey, let's add more, you know, multi-family, just trying to get a sense of this one loudness more spec case, or if there's a lot more across the entire Kite portfolio.
Well, I mean, I said, as you know, I speak in general, we've been set these numbers out there and say we've got to go chase them.
I would tell you that we currently have an equity interest and I think about Fortune-funded minutes.
I'm thinking that the next phase of loudness will be another 400 minutes.
Speaker Change: and I think we mentioned on Papa Dappers another Fortune 100 minutes there alone in the fight-up, as it relates to the balance of the portfolio. We generally let the remote state do the property and so.
and I can't wait to say we have to have 5,000 title units that the reality is we will have 7,000 million of them to the next.
and we can pursue, if interested. But again, the real estate is the talk that has returned to the extent that we can generally like that partners and share the list and manage our capital contributions. Still within.
I know some others don't do that, but that's what makes sense for us. So it's a part of the business that's only justification is clearly a part of the business and as we pointed out, it has a lot of recycling and assets that we can do this. But why not trying to finish it and let it come to us?
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Hi, next question is going to come from the line of Flores Van Ditchcomb with Campus Point. Your line is open, please go ahead.
Thanks and more to God.
Morning. By the way, John, I think you're maybe it's just me, but your voice sounds a little muffled. Maybe you're too close. I'm not sure what it is. It seems to be a bad connection. It's probably just me.
Question on your SNL pipeline and obviously is you project this forward? I mean, almost 5% of ROI.
Speaker Change: Most of that can start to impact next year.
and then in 26, I mean, it's pretty, pretty, a heavy underlying growth. So I mean, if things work out, we should see an acceleration in, in underlying growth. Maybe if you can talk about the composition of that growth, and how that's changing particularly as you start to get into the later innings of your anchor box, repositioning, how much more upside do you see on your, on your shop space and, and where, where do you think the greatest?
Growth Opportunity on the leasing side lies for that's that's done tap to for care G.
Uh, sure. If that sounds better, can I get me?
Speaker Change: and the second.
Speaker Change: It's still not as great as I told you.
I apologize to you, don't know what to say. But now I'm moving my phone with a play for us, so that's what you can hear this.
The bottom line is I think this question is, and I look out at the growth rate.
and we're a thanks to our spin and I'm...
Speaker Change: I think we're looking at what we're looking at, we clearly have no room to run in the small shops.
The A-Cars, the coming close to where we were fully COVID. So I think that we can buy at a lease up efforts that you've seen at the deal over the last couple of years and you'll do what that.
The growth has been limited to getting the shops at 50% of our revenue. I think I would think that there's real upside down.
I also say that you look at the point that we made that our same story
and what the sign had opened.
But the lens first is all existing in lens
and the spread there that's really encouraging.
and then also just be applied to actual glyphid where it is generally.
Speaker Change: As we have a better cruise in speed as you said. So, that's what I think it's a combination of two, but I hope that helps you a little bit more. Yeah, but also I have a nice thing that is that will split the three-damper and drop. So we're not seeing them.
Part of the demand was seen by these demand and, you know, John mentioned.
Speaker Change: That's going to be six dollars when it runs a baby now I just know. There's a baby seven dollars in the shops and there's eight dollars in the actors.
was a better ruling of the stronghold, so they could have continued strong demand. But I know that.
So, this is the moment I'm continuing and I will continue to die, the sounds present at times
Speaker Change: Thanks, guys. Maybe my follow up and this is related more to Capitol allocation, but obviously your bigger assets.
Speaker Change: have grown, you know, putting it for look at South Lake having grown at all high 50% of the past, you know, three years.
and the bigger asset to grow it at higher rates.
As you think about deploying capital and other real estate, is that one of the key things that you consider when you're making investment decisions?
You know, before I say it, it's so specific to each individual asset.
Speaker Change: Welcome.
I think it's way to end the playing watch out for that.
I want to throw out a basis and you have to grow the opportunity it's going to move the needle more than a smaller view. That being said, it really comes down to the individual authority it be asset.
South Lake at the New Zealand pain was an asset that was kind of, it was perfect timing in the sense of the merger and kind of applying our leasing machine and being able to get some results and we're seeing the same thing that we're allowed to send best.
Speaker Change: I would say that the bigger assets are intriguing outweighed, but by the same token, we're really focused on the quality of the real estate and there's several large assets that we've looked at recently that we passed on based on the fact that we felt like the quality of the real estate.
and the longer it was in doing to support that. You can get short-spitting throw that we really want them to get long-term throw.
Speaker Change: Thanks for watching!
Speaker Change: I guess you're in.
Speaker Change: And our next question is going to come from the line of Craig Melman with City. Your line of open, please go ahead.
Hey guys, um...
Craig Melman: mentioned bad deck came in a little bit better and you expected. As you guys look out though, over the next couple months, I know the container store is...
being mentioned in the news now. They're less than 1% of AVR for you guys. But how are you thinking about 10-acredits, probably, maybe for them, specifically, over the next couple months?
Yes, as we're looking out, the course of 2020-26, nothing right now that is giving us all those, you know, wanting us to separate, have a separate, and several, for particular tuning.
He said, come from the now, as we go into next year, there's a little marriage, and you know, turn it off with a general dad's dad's dad, not for it. Now, as the police, you can stay in the state of the United States, it's seven locations that's in this, you're positive they know.
and he was a father and he had a daughter that had been fit in her stock. Yesterday, the Buston Academy announced that it was a pleasure that he was also having a fairly million dollar investment from the folks with me on. So there's good things happening there, and we did the data expanded.
The better this concert, the better the LV actually is in a huge amount of it. It's a bit 100, I know him, something to do with the LV 26.
Speaker Change: So, I think that on business in the brand is something that's gonna survive so we need to better understand the content of the business
and the president has said that he starts in a lot better in the estate and we have to. We've said that in a lot of business but we must be much more interested in the business.
Speaker Change: That's helpful then.
I don't want to play with a point on acquisition here, but
Speaker Change: Um...
Just maybe how you guys are thinking, you clearly have more runway in the near-term with
The Snow Pipeline and the Premier League turns your getting on that caple that's bested.
But as you get through that, Bryan, assuming your equity continues to trade, where it is today, you will have the benefit of the higher cash flow is.
Speaker Change: the Leafs' comments, but...
Speaker Change: You know, you guys are at a lower leverage when you've talked about potentially ramping that a bit. How do you think about this?
Speaker Change: and say the stock is still trading around this area.
A year to, right, you have a huge spread relative to that.
How comfortable are you or how high from a lever's perspective?
Would you be willing to go to kind of grow the portfolio?
Accredibly, even if, you know, cap rates are still inside of where the equity is trading orders, that just the scenario where you guys are less interested in growing overall.
Well, I think the bottom line is that we're sending where the ultimate cost of capital is and we are aware that the equity is, but it shouldn't be that the set has been extremely, extremely.
and it was my friend, they have found a great job in the terms of what we've done in the bond market.
So I think it's worth a good position Craig to kind of see when this player's out.
Speaker Change: is still in the recent months, and we talked a lot about the accomplishments.
That's great. We still have more recent and front of the list that generates high returns on capital. And so that continues to be the highest return on capital. As we move into late next year, into 2026, and in that starts to kind of...
Speaker Change: and so on.
Speaker Change: Then I think to end the position and with generating even more free cash flow in 26.7, that the all this will come together and we'll make some decisions and we'll have more treasury of decisions.
Speaker Change: and Fear process specifically.
and the police in the leverage.
We can absolutely increase the average in safety if we've let the five and a half, we'd still be low relative to the peers in what's for nine.
So I didn't have to real admit it there and what it did is we've been watching the police out of the job, we wanted to be very creative obviously
Speaker Change: and I think that will sum to us.
Speaker Change: So I had worked great position in actually as the Martin Lutheran Lutheran movement as we set up to the spinners to happen and to supply the late-to-the-lastings of the working in our spinners, which I think at this point is like the Lutheran Lutheran Exit.
We'll just be really selective and that's a very good capitalisation decision. That's our primary job, is making smart capitalisation decision. And we'll do that and do it at pre-debut.
and the other side, Bryan that's kind of putting him precise with.
and we did a quiet, some other things, I didn't sit on the blind edit assets. You know, figure cap rate and you know, we made a 5-in-a-half time to figure out if it didn't right on to that target. And we figured that out, we built it in that with death, so we figured out the cap rates.
Speaker Change: You know, we're very sort of sources and uses to rid him, and we're made in the context of a thread, and I would of course, if that were the name of the night said, they might make sense. Although, based on the price of that, it's just issued a bond of 4.95 percent, it allows us to flip it assets.
Speaker Change: [inaudible]
Speaker Change: The World's World
Speaker Change: At our next question is going to come from the line of Andrew Rally with a think of America. Your line is open, please go ahead.
Speaker Change: Hi, good morning everyone. Thanks for taking our questions. Just on the Parkside Acquisition, could you speak to the cap rate on that deal and the degree of compression after you locked that up? And you know, you're messaging continues to be that internal deployment is your best use of capital, but just curious if this latest transaction might signal a shift into more external opportunities.
Speaker Change: Yeah, sure. In terms of the cap rate we didn't think of the specific cap rate, I mean what we've been saying is that it was a cleanest thing.
to the asset that we sold in Chicago. And I would tell you that the cap rate that we were able to acquire it at is probably
50 to 75 basis points higher than it would be today, based on the timing and the length of time it took for the seller to be in a position to close the deal, so it's a great deal for us.
and, you know, in terms of scat breaks and all of that.
that my commentary there would be that they are compressed versus where they were, you know, three, four, five months ago.
in a significant way and the type of assets that we own and the quality of assets that we own generally trades in the kind of mid-size to low-sixes. I mean, that continues to be the market.
which is why we point that out as it relates to the acute value of our stock price today.
What was the second part of your question? I'm sorry.
Just more broadly, I mean, your messaging, you know, it's still that internal deployment is your best use of capital, but, you know, just curious if that transaction is signaling a shift into a wider array of external opportunities.
Right now, I think we do continue to maintain that desire to grow internally because it's very high returns on capital and also the overall environment is aggressive right now in terms of us trying to be able to find creative opportunities. That being said,
The point we're really trying to make today is that we have such a strong balance sheet that we can move into that at a time that we choose to.
And I think as things continue, if they move the way we think they're going to move, certainly, you know, in the next couple of quarters, that'll be an opportunity for us to look to grow.
Speaker Change: I'll just add a few comments that Mark said.
at this point, we've seen the lead in the tunnel, and we're really starting to think about what's our standard levels that we're going to put it. John talked about activating and unloading, and I talked with him about having capacity to do acquisition. So we're absolutely focused on that.
What's happening after the sluice update is over, and that's going to be the main theme of what we're going to be discussing in Las Vegas. So hopefully you can miss it, and we'll have lots more details on it.
I would say about 50% of our leasing needs for 2025 have been addressed, which compares very directly to last year, so I think we're on a very good track, again, the demand continues to be elevated, and there's a second part of your question? I think it was the timing of how leases are signed for delivery, so I think the answer to that is
We are working on leases right now that could deliver in 26. So, you know these these Periods can go out as much as one year just from a negotiation standpoint
Thank you and we'll move on to our next question.
Speaker Change: And our next question comes from the line of Danielle Perpero with Green Street. Your line is open, please go ahead.
Good morning. Thanks for taking my question.
Speaker Change: Yeah, I think for sure, first of all, it's the underlying quality of the real estate.
Speaker Change: Then it comes down to the merchandising mix, the type of shopping center that it is, whether it's a lifestyle center or a grocery anchored center or a community center, how much access we have to rents rolling over.
in the next three to five years.
Speaker Change: and whether or not those rollovers have options associated with them and are those options at a specific number, are they fair market value? There's a lot of things that we look at as it relates to the ability to generate above average embedded growth.
And part of that is just how we go about doing the business.
Speaker Change: And that's why we made the comments about where we are this year versus last year. You know, up 50 basis points in our embedded rents in the small shop portfolio as an example. And if you look out over the last couple years, it's a huge increase what we've been able to get in embedded growth.
Speaker Change: So I think, you know, there's a good balance between our operating platform, which we think is...
one of the very best in the space and I think if you look at our margins and you look at our recovery ratio and you look at our G&A to revenue you look at real operating metrics you'll see that we're one of the best.
if not the, and then it just comes down to the real estate. Can we impact the real estate? So I think it's the fun part of the business. We're very good at it and we'll continue to look for those opportunities to find deals that we can push the growth.
Thank you.
Thank you and one moment for our next question.
Our next question is going to come from the line of Dorie Keston with Wells Fargo Securities. Your line is open, please go ahead.
Thanks, good morning. Is there any update you can provide on the process around the asset that you have held for sale? I guess are you finding that it's also rather competitive and would you expect to close within the year?
Absolutely expect to close within the year and the asset is supposed to hit the market I think today or early next week so it's a it's imminent and again be very confident we'll be able to transact within the one-year time period yeah not not within this year within a year and within a year right within 12 months
Got it. And then the percentage of small shop new leases renewals at over about 4% with the rent bond.
They continue to rise quarterly and it's pretty impressive, I think you're over about 70% in a year. Are you finding that you have to give in other areas of the contract to achieve that? Or is the leasing environment purely supportive of that growth in your markets?
No, not at all, Dory. We are, in fact, we believe that we've improved our leases in terms of things that we've, you know, that always
what's the right word, negotiate with our customers, our partners. And I think that the environment's even gotten better as it relates to that. So we're not actually foregoing anything in terms of the lease terms.
Speaker Change: as it relates to what we're able to do in our embedded rent growth.
And as you know, we've been very vocal around how important that is to our platform. And certainly we believe that we've been the leader in our ability to generate internal embedded rent growth in the small shop business.
And now we're obviously focused as well on the anchor side of the business, which, as you know, is harder, but we're making progress. And as supply and demand continue to move in our favor, it's only logical that that would get better.
and I think that with the overall environment for retailers still being very strong, we should think that this can get better and continue.
Tom, you want to add to that? Yeah, only thing I would say is be assured that our real estate team is not focused just on growth. It's one of their...
most important components as they come into real estate committee, but we care just as much about
exclusives about FixCam language, about making sure we have long-term flexibility.
in terms of surrounding areas around the entire parcel. So we focus a lot of attention on that because those are the ones that from a long-term perspective can create problems for the company. So.
Our team does a great job of hitting growth and all the ancillary components inside the document.
Great, thank you. Thanks. Thank you and one moment for our next question.
Our next question is going to be from the line of Michael Mueller with JP Morgan. Your line is open. Please go ahead
Michael Mueller: Thanks. I guess going back to the release when you talked about allocating more capital between cash flow to select developments,
Was that comment just focused on the future Loudon opportunities or mixed-use in general? And are there any projects that you're considering that are kind of really retail-driven and not mixed-use?
Well, in terms of the comment, it was not just specific to One Loud, and I think what we were trying to say, Michael, is that as we're getting into the later stages of our lease-up of our
existing platform, that cash flow can obviously increase over that period of time and we can deploy free cash flow into development and redevelopment at very good yields on a risk-adjusted basis. That's always the goal. And redevelopment, obviously we believe that the risk-adjusted yields are probably going to be better, but ground-up, you know, as it relates to adding on to existing centers or even adjacent land to an existing center can make a lot of sense.
So, I think we do believe that we can pivot into that direction and do it without doing any harm at all to the balance sheet.
So as we move forward, I think that that's important as it relates to retail specifically versus mixed-use
Michael Mueller: Again, that comes down to, you know, the product itself. I mean, we recently delivered a retail-only development in Florida that was on a parcel of ground adjacent to a large center that we own in Port St. Lucie, as an example. That was a small grocery acreage center.
anchored by Fresh Market and they're doing extremely well. It's a good sign that you know we can find those opportunities and as we generate more and more free cash flow this is just going to be a really nice opportunity for us to drive value.
Got it. Okay. Thank you. Thank you.
Thank you and one moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Alex Feeney with Baird. Your line is open. Please go ahead.
Alex Feeney: Hi, thanks for taking my question. First one for me is which retail categories are being the most aggressive for new space in your centers?
One of the categories we've had tremendous success with as of late, and we just took a trip out west to work on this further, is on the grocery side we are finding many opportunities with
some of the best names in our space, and
that spans about three or four different category users. So we've been extremely happy with that. We have continued.
We've continued to do very strong in your basic core box components. You know, the Total Wines, the Dick's, the Ross.
recent deal with L.L. Bean, Home Goods, Trader Joe's. So, we feel like we've had an extremely successful approach in terms of
diversifying the base while increasing the credit quality. And that's been one of the top priorities as we've moved to lease up this portfolio. But I think the word all-in-all is just tremendous diversity of use with strong credit.
Speaker Change: Yeah, the only thing I would add to that is one of the benefits of the strength of our portfolio and the diversity of our asset base in our portfolio is that we're
We have strong relationships with customers that span all types of retail.
and I would tell you that the pool is deeper than I've ever seen it, really, in the history of this business.
and our ability to do transactions with everything from luxury retailers to service retailers. So, OpenAIR is definitely positioned very well over the next several years to take more and more market share, and, you know, we're going to be a part of that.
Helpful, and for a second one, it looks like the total portfolio composition is about 47 to 53% anchored or shop.
Speaker Change: As the portfolio gets fully leased, what do you expect that breakdown to be moving forward?
Well, assuming the portfolio doesn't change a lot, it won't change much. I mean, we're generally going to be, you know, kind of in that 50-50 range, plus or minus. Remember, we also have...
You know, almost 10% a little less than 10% actually of our revenue is ground leases. So that skews that number out a little bit. But bottom line, I think this composition is a really good composition because it's
It balances both ends of the spectrum in terms of growth and stability. Right now, everybody's focused on growth. There are certain times where stability is more important.
And that's why we own Lifestyle, we own Mixed Use, we own Grocery, we own Neighborhood, we own Community Centers and a little bit of Power. You put that all together, it's a pretty good portfolio.
Got it. Thank you. That's it for me.
Thanks. Thanks. Thank you. One moment for our next question.
Our next question is going to come from the line of Brendan Cutler with Jeffries. Your line is open, please go ahead.
Linda: Hi, it's Linda.
Regarding container store, I know two are in your highest quality locations, one Loudoun and Southlake. Do you think these will lease up faster than the other five? And then what do mark-to-market rents look like overall?
Linda: Hey, Linda, it's John, you know.
John: First of all, I think I think as he pointed out, it's not just those couple that you mentioned. I mean, they're generally speaking container store historically was a tenant that was was pursued
quite aggressively in high quality properties. They generally are not in a property that wouldn't be viewed as very high quality, so I think all seven of them are positioned very well.
You know, we're not at the stage where we're looking at mark-to-market based on the fact that, you know, what Heath walked you through, that we think that...
At this point in time, there's nothing that would indicate that things are...
Linda: radically going to change in the near term. That being said, you know, there's lots of optionality on these particular boxes based on the real estate they're in and also the size.
Linda: You know, we could split these boxes, we could lease them to one particular user. The market still remains really strong. We hope we're not doing that. We hope that we just continue as is. But we're very confident that it would be very productive to get the space back.
Linda: Thanks.
Thank you.
Speaker Change: Mark to market cash spreads and higher contractual rent bumps, would you consider providing gap spreads in your disclosures going forward?
It's kind of funny you asked that, Linda. We used to provide gap spreads and have it, but it's something that's under consideration, so stay tuned. But needless to say, the gap numbers, especially when we're embedding 4% bumps on the shop side, would be much higher than our cash spreads.
Yeah, I mean my personal thought there is, you know, it's just
Speaker Change: Now we have another metric out there that, you know, everybody doesn't report in the exact same way, but bottom line is, you know, our cash spreads lender are very strong, and that represents the business gap. Obviously, you know, we certainly can talk about what our gap spreads are, but they're, you know, they're a lot higher. Now, whether that matters, I don't know.
Speaker Change: probably does. Thanks. Thank you. I would now like to hand the conference back over to John Kite, Chairman and CEO, for any further or closing remarks.
Well again, I just want to thank everybody for joining us. Really appreciate your interest in the company and we look hopefully look forward to seeing a lot of you in Las Vegas at our final installment of 4 in 24. Thank you.
This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone have a great day.
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