Q1 2025 Kite Realty Group Trust Earnings Call
Okay.
Operator: Good day and thank you for standing by.
Speaker Change: Good day and thank you for standing by welcome to the Kite Realty Group Trust first quarter 2025 earnings Conference call.
Operator: Welcome to the Kite Realty Group Trust First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
At this time all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star one one on your telephone.
Speaker Change: Then here an automated message advising your hand is raised.
Speaker Change: To withdraw your question. Please press star one again.
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Bryan McCarthy: I would now like to hand the conference over to your host for today's conference, Bryan McCarthy, Senior Vice President of Corporate Marketing and Communications. Please go ahead.
Speaker Change: I would now like to hand, the conference over to your host for today's conference Bryan Mccarthy Senior Vice President of corporate marketing and Communications. Please go ahead.
Bryan McCarthy: Thank you, and good afternoon, everyone. Welcome to Kite Realty Group's first quarter earnings call. Some of today's comments contain forward looking statements that are based on assumptions of future events, and are subject to inherent risks and uncertainties. Actual results may differ materially from the state.
Speaker Change: Thank you and good afternoon, everyone welcome to Kite Realty group's first quarter earnings call.
Speaker Change: Some of today's comments contain forward looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties actual results may differ materially from these statements.
Bryan McCarthy: For more information about the factors that can adversely affect a 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.
Speaker Change: 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 measure.
John Kite: As to our GAAP financial results on the call with me today from Kite Realty Group are chairman and Chief Executive Officer, John Kite President.
Bryan McCarthy: On the call with me today, from Kite Realty Group, our Chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom McGowan, Executive Vice President and Chief Financial Officer, Heath Fear, Senior Vice President and Chief Accounting Officer, Dave Buell, and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. Given the number of participants on the call, we ask that you limit yourself to one question and one follow-up. If you have additional questions, we ask that you please rejoin the queue.
Speaker Change: President and Chief operating Officer, Tom Mcgowan, Executive Vice President and Chief Financial Officer Heath Fear Senior Vice President and Chief Accounting Officer, Dave fuel and senior Vice President capital markets and Investor Relations Tyler Henshaw, given the number of.
Speaker Change: Participants on the call we kindly ask that you limit yourself to one question and one follow up if you have additional questions. We ask you. Please rejoin the queue.
John Kite: I will now turn the call over to John. Thanks, Bryan. TRG had an excellent start to 2025, highlighted by our strong first quarter operating results. guidance raise, and a landmark acquisition in a joint venture with GIC. I'm proud of our team's ability to navigate the recent macroeconomic environment and focus on sound execution. This is in no small part due to our incredibly strong balance sheet that allows us to respond opportunistically to any potential economic disruption. Demand for space in our high-quality centers continues to remain healthy. Allowing our team to produce solid spreads, generate strong returns on capital, improve our embedded growth, and enhance our merchandising mission.
Speaker Change: I'll now turn the call over to John.
John Kite: Thanks, Brian.
John Kite: <unk> had an excellent start to 2025 highlighted by our strong first quarter operating results our guidance raise and the landmark acquisition and a joint venture with GIC.
John Kite: I'm proud of our team's ability to navigate the recent macroeconomic environment and focus on sound execution.
John Kite: This is in no small part due to our incredibly strong balance sheet that allows us to respond opportunistically to any potential economic disruption.
John Kite: Demand for space in our high quality seniors high quality centers continues to remain healthy.
John Kite: Allowing our team to produce solid spreads generate strong returns on capital improve our embedded growth and enhance our merchandising mix.
John Kite: Blended cash leasing spreads in the first quarter were just under 14%, highlighted by 20% non-option renewal spread. We continue to emphasize our non-option renewal spreads as we believe they are the best barometer for mark-to-market potential in our portfolio. Our new leasing volume was more heavily weighted to the small shop side of our business this quarter. We are encouraged to grow the shop lease rates sequentially, giving the seasonality that generally occurs in the first quarter. To accompany the leasing volume, starting rents for comparable new shop leases in the first quarter were nearly $41 per square foot, approximately 20% higher than our current portfolio average.
John Kite: Blended cash leasing spreads in the first quarter were just under 14% highlighted by 20% non option renewal spreads.
John Kite: We continue to emphasize our non option renewal spreads as we believe they are the best barometer for mark to market potential in our portfolio.
John Kite: Our new leasing volume was more heavily weighted to the small shop side of our business this quarter.
John Kite: We are encouraged to grow the shop lease rate sequentially, given the seasonality that generally occurs in the first quarter.
John Kite: To accompany the leasing volume starting rents for our comparable new shop leases in the first quarter were nearly $41 per square foot approximately 20% higher than our current portfolio average.
John Kite: In addition to strong starting rents, new and non option renewal shop leases signed in the first quarter of 2025 have weighted average rent bumps of 360 basis. which is nearly 100 basis points higher than the shop lease that was executed just three years ago. Pushing our portfolio to a higher cruising speed remains the primary focus for our team as we continue improving on our long-term growth profile. Demand for our anchor spaces remains strong as larger format tenants focus beyond short term headlines, making decisions designed to benefit their businesses for decades across multiple economic cycles. We're making great progress on backfills evidenced by the depth of demand in our pipeline, including grocery, off-price retailers, full-line apparel, fitness, sporting goods, and home furnishings.
John Kite: In addition to strong starting rents new and non option renewals shop leases signed in the first quarter of 2025.
John Kite: Weighted average rent bumps of 360 basis points, which is nearly 100 basis points higher than the shop leases executed just three years ago.
John Kite: Pushing our portfolio to a higher cruising speed remains the primary focus for our team as we continue improving on our long term growth profile.
John Kite: Demand for our anchor spaces remains strong as larger format tenants focus beyond short term headlines, making decisions designed to benefit their businesses for decades across multiple economic cycles.
John Kite: We're making great progress on backfill as evidenced by the depth of demand in our pipeline, including grocery off price retailers full line apparel fitness sporting goods and home furnishings.
John Kite: Our Strong First Quarter Results culminated in a two cent increase to NARIC and CORE FFO per share guidance.
John Kite: Our strong first quarter results.
John Kite: Culminated in a <unk> <unk> increase to NAREIT and core <unk> per share guidance.
John Kite: Heath will provide more details on the components of the raise, but first I'd like to discuss our recent acquisition of Legacy West in a joint venture with GIC. Opportunities to acquire iconic mixed-use assets are rare. Given our strong presence in the Dallas MSA and strategic objective to increase exposure to high-caliber assets, we viewed Legacy West as a property that aligns with our investment criteria and long-term portfolio vision. Recognizing the magnitude of the opportunity, we proactively approached GIC to explore forming a joint venture. We could not be more enthusiastic about our partnership.
John Kite: Keith will provide more details on the components of the race.
John Kite: I'd like to discuss our recent acquisition of legacy West in a joint venture with GIC.
John Kite: Opportunities to acquire iconic mixed use assets are rare given our strong presence in the Dallas MSA and strategic objective to increase exposure to high caliber assets. We viewed legacy west is a property that aligns with our investment criteria and long term portfolio vision.
John Kite: Recognizing the magnitude of the opportunity, we proactively approached GIC to explore forming a joint venture with <unk>.
John Kite: Could not be more enthusiastic about our partnership.
John Kite: Additional transaction details are outlined in our earnings release and investor presentation. But Legacy West unequivocally represents a pivotal step forward for KRG. Legacy West instantly enhances our portfolio quality and solidifies KRG's position as one of the prominent owners and operators of significant lifestyle and mixed-use assets. The leasing synergies within the balance of our portfolio are powerful, enabling us to deepen relationships with leading brands like Aritzia, Fox Restaurant Group, Lululemon, Sephora, Fiore, and West Elm, just to name a few, and the acquisition also fosters new relationships with luxury tech. including LVMH and Caring. As we implement our proven operating platform on this asset, we expect to capitalize on significant mark-to-market opportunities and further elevate the merchandising mix.
John Kite: Additional transaction details are outlined in our earnings release and Investor presentation.
John Kite: But legacy West unequivocally represents a pivotal step forward for Trc.
John Kite: Legacy West instantly enhances our portfolio quality and solidifies <unk> position as one of the prominent owners and operators of significant lifestyle and mixed use assets.
John Kite: The leasing synergies within the balance of our portfolio, our powerful enabling enabling us to deepen relationships with leading brands like <unk> Fox restaurant group.
John Kite: Lulu Lemon Sephora vre and West Elm just to name a few and the acquisition also fosters new relationships with luxury tenants.
Speaker Change: <unk> <unk> and Karen.
Speaker Change: As we implement our proven operating platform on this asset we expect to capitalize on significant mark to market opportunities and further elevate the merchandising mix.
John Kite: The transaction is immediately accretive to FFO per share, while modestly increasing pro forma leverage by 0.2 times, keeping us comfortably at or below our long-term net debt to even a target of five to five and a half.
Speaker Change: The transaction is immediately accretive to <unk> per share, while modestly increasing pro forma leverage by two times, keeping us comfortably at or below our long term net debt to EBITDA target of five to five five times.
John Kite: Our first quarter results, capped off by this game-changing acquisition and joint venture, are the product of disciplined capital allocation, a best-in-class operating platform, and prudent balance sheet management. While we have more work to do for the balance of 2025. We are a battle-tested and energized team that will always strive to outperform expectations. I'm confident in our ability to produce strong results in 2025 and deliver long-term value for all our stakeholders.
Speaker Change: Our first quarter results capped off by this game changing acquisition and joint venture are the product of our disciplined capital allocation are best in class operating platform and prudent balance sheet management.
Speaker Change: While we have more work to do for the balance of 2025, we.
Speaker Change: We are battle tested and energized team that will always strive to outperform expectations.
Speaker Change: I am confident in our ability to produce strong results in 2025 and deliver long term value for all our stakeholders.
Heath Fear: Thanks to the team, and now I'll turn it to Heath to discuss details of Q1. Thank you and good afternoon. Before diving into our quarterly results and increased guidance, I want to take a moment to thank the KRG and GIC teams that worked on the acquisition of Legacy West. We've been focusing on this transaction since November, and we could not be more excited about putting our stamp on one of the nation's top open-air mixed-use destination. Turning to our results, for the first quarter of 2025, KRG earned $0.55 of NAIREED FFO per share and $0.53 of CORE FFO per share.
Speaker Change: Thanks to the team and now I'll turn it to Heath to discuss details of Q1. Thank.
Speaker Change: Thank you and good afternoon before diving into our quarterly results and increased guidance I wanted to take a moment to thank the arg and GIC teams that work on the acquisition of legacy West we.
Heath: We've been focusing on this transaction since November and we cannot be more excited about putting our stamp on one of the nation's top open air mixed use destinations.
Heath: Turning to our results for the first quarter of 2025, <unk> earned 55 cents of NAREIT <unk> per share and 53 sets of core <unk> per share.
Heath Fear: Both NARIT and CORE FFO benefited from a $0.03 contribution from a large termination fee we received from a single tenant. As we previously discussed, termination fees are a recurring but unpredictable part of our business. And this particular fee will compensate us for downtime and releasing. Same property NOI grew 3.1%, driven by a 350 basis point increase from minimum rent, a 90 basis point increase in net recoveries as partially offset by higher bad debt as compared to the unusually low levels in Q1 of 2024. Based on the first quarter outperformance and our revised outlet for the balance of the year, we were increasing our 2025 NAE REIT and quarter fulfill per share guidance by two cents each at the midpoint.
Heath: NAREIT and core <unk> benefited from a <unk> <unk> contribution from a large termination fee we received from a single tenant.
Heath: As we previously discussed termination fees are recurring but unpredictable part of our business. In this particular fee will compensate us for downtime and re leasing costs.
Heath: Same property NOI grew three 1% driven by a 350 basis point increase for minimum rent.
Heath: 90 basis point increase in net recoveries as partially offset by higher bad debt as compared to the unusually low levels in Q1 of 2024.
Heath: Based on the first quarter outperformance and our revised outlook for the balance of the year, we are increasing our 2025, NAREIT and core <unk> per share guidance by <unk> <unk> each at the mid points.
Heath Fear: Components of our guidance race included one penny related to net transaction activity and the other penny was driven by the aforementioned termination fee being higher than we originally anticipated. Our same property NOI range remained unchanged from original guidance, as did our full-year credit disruption assumption of 195 basis points of total revenue. It's important to note that we increased the midpoint of our general debt reserve by 15 basis points to 100 basis points of total revenues, while decreasing the anchor bankruptcy impact by 15 basis points to 95 basis points of total revenues. The change in the general bad debt bucket is reflected by the increased economic uncertainty, while the change in the anchor bankruptcy reserve is driven by better-than-expected outcomes.
Heath: The components of our guidance range of 101 Penny related to net transaction activity.
Heath: And the other penny was driven by the aforementioned termination fees being higher than we originally anticipated.
Heath: Our same property NOI range remained unchanged from our original guidance.
Heath: Our full year credit disruption assumption to 195 basis points of total revenues.
Heath: It's important to note that we increased the midpoint of our general bad debt reserve by 50 basis points to 100 basis points of total revenues, while decreasing the anchor bankruptcy impact by 15 basis points to 95 basis points of total revenues the change in the general bad debt bucket is reflected by the increased economic uncertainty.
Heath: While the change in the anchor bankruptcy reserve is driven by better than expected outcomes.
Heath Fear: Last quarter, we estimated that a total of five of the 29 bankrupt anchor boxes would be assumed, and that is exactly where we will end up. Subsequent to quarter end, we executed an additional four new leases, some of which have commencement dates in the later part of 2025. For another 12 boxes, we have selected a tenant and we are in active negotiations. In total, over 70% of the 29 boxes are being addressed. Finally, the sequential increase in our net interest expense assumption is driven by the acquisition of Legacy West, which we will partially fund on a revolving credit facility with the goal of paying down the balance from planned dispositions set forth on page 19 of our Investor Deck.
Heath: Last quarter, we estimated that the total of five of the 29 bankrupt anchor boxes would be assumed and that is exactly where we will end up subsequent to quarter end, we executed additional four new leases some of which have rent commencement dates in the later part of 2025.
Heath: Other 12 boxes, we have selected the tenant and we are in active negotiations in total over 70% of the 29 boxes are being addressed.
Heath: Finally, the sequential increase in our net interest expense assumption is driven by the acquisition of legacy U S, which will partially fund on a revolving credit facility with the goal of paying down the balance from planned disposition set forth on page 19 of our investor deck.
Heath Fear: Please note that as of last night, our Fullerton Metro asset is under contract with a non-refundable earnest money deposit. As John mentioned, our disciplined capital allocation strategy and tremendous balance sheet afforded us the opportunity to acquire Legacy West together with GIC. Holding aside the exceptional quality and potential of this asset, upon completion of the associated transactions, we have upgraded the quality of our portfolio, de-risked our underlying cash flow. created immediate earnings accretion and improved our long-term growth profile. We still have some work to do on the transactional front, but it's important to mention that if we had to finance the legacy bus transaction with unsecured debt, the annualized core FFO accretion would be approximately two and a half cents, and our leverage would remain within our long term range of five to five and a half times net debt to EBITDA.
Heath: Please note that as of last night, our full to Metro asset is under contract with non refundable earnest money deposit.
Heath: As John mentioned, our disciplined capital allocation strategy and tremendous balance sheet affords us the opportunity to acquire legacy west together with GIC.
Heath: Holding aside the exceptional quality and potential of this asset upon completion of the associated transactions will upgraded the quality of our portfolio de risk our underlying cash flows created a meeting immediate earnings accretion and improved our long term growth profile.
Heath: We still have some work to do on the transactional front, but it's important to mention that we had to finance the legacy west transaction with unsecured debt to annualized core <unk> accretion would be approximately two and a half sets and our leverage would remain within our long term range of five to five five times net debt to EBITDA.
Heath Fear: Please note that our new joint venture is to be treated as unconsolidated entity for accounting purposes.
Heath: Please note that our new joint venture.
Heath: To be treated as unconsolidated entity for accounting purposes.
Heath Fear: We've yet to finalize our purchase price accounting and our NAVID FFO guidance assumes no impact from non-cash items. As the conference circuit heats up, we look forward to seeing many of you in the coming weeks to talk about our progress and this amazing acquisition.
Heath: We have yet to finalize our purchase price accounting and our NAREIT <unk> guidance assumes no impact from noncash items.
Heath: As the conference circuit heats up we look forward to seeing many of you in the coming weeks to talk about our progress and this amazing acquisition again, Thank you to the <unk> team for a great quarter.
Heath Fear: Again, thank you to the KRG team for a great quarter, and we will push for continued success.
Heath: <unk> for continued success operator. This concludes our prepared remarks. Please open the line for questions.
Operator: Operator, this concludes our prepared remarks.
Operator: Please open the line for questions. As a reminder, if you'd like 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 1 1 again. Please stand by while we compile the Q&A roster.
Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Heath: Please standby, while we compile the Q&A roster.
Heath: Okay.
Todd Thomas: Our first question comes from Todd Thomas with KeyBank Capital. Hi, thanks. Good afternoon.
Todd Thomas: Our first question comes from Todd Thomas with Keybanc capital markets.
Todd Thomas: Hi, Thanks, good afternoon.
Todd Thomas: On Legacy West, a couple questions. I was wondering if you can comment on the expected NOI growth rate in the near term and how that compares. Kite portfolio in general. And can you share what the current occupancy rate is at the office and retail component?
Todd Thomas: On legacy West couple of questions. I was wondering if you can comment on the expected NOI growth rate in the near term and how that compares to the portfolio in general.
Todd Thomas: Can you share what the current occupancy rate is that the office and retail components.
John Kite: Let me start with that, Todd. In terms of the growth rate, what we can tell you is that the embedded RINPOMP on the deal, which I think is in our presentation, are 2.6%. So obviously, that's well above the average of the rest of the portfolio, which is at 1.8 or 1.7%. So that's obviously a good start to that. And then the other thing that we mentioned, and I think in the remarks is that we believe that there is significant mark to market opportunity here. So over the next three years, I think about 30% of the deals roll over either with fair market value options or no options at all.
Todd Thomas: Let me start with that.
Todd Thomas: In terms of the growth rate, what we can tell you that the embedded rent bumps on the deal, which I think is in our presentation. Our 226%. So obviously, that's well above the average of the rest of the portfolio, which is at one eight or one 7%. So that's obviously.
Todd Thomas: So a good start to that and then the other thing that we mentioned I think in the remarks is that we believe that there is significant mark to market opportunity here. So over the next three years I think about 30% of the deals rollover either at Mark with fair market value options or no options at all.
John Kite: So I mean, at this point, it's early, but there's no question that that was a big part of our underwriting process, both ours and GICs, in the sense that we thought there was excellent upside here. The Office is 98.7% leased and the Retail is 95% leased as is the Residence. Okay, and then in terms of the office, you know, I realize you just sort of onboarded the property here recently. But in general, is there a way to characterize the office demand and discuss how it's performed? Is there any recent leasing or tenant turnover that you can discuss?
Todd Thomas: So at.
Todd Thomas: At this point, it's early but there's no question that that was a big part of our underwriting process, both ours and gic's in a sense that we thought there was excellent upside here.
Todd Thomas: Keith do you want to hit the second one yes, the offices 98, 7% leased and the retail is 95% leased as is the recipe.
Todd Thomas: Okay, and then in terms of the office.
Speaker Change: I realize you just sort of onboarding the property here recently, but in general is there a way to characterize.
Speaker Change: The office demand and discuss how it's performed is there any recent leasing or our tenant turnover that you can discuss and whats the remaining lease duration for the office segment look like.
John Kite: And what's the remaining lease duration for the office?
John Kite: I'll start with that. And maybe Tom can give some commentary. I mean, this is this is extremely strong office product, obviously highlighted by 98% lease percentage, which literally, I think there's one space and there's action on that one space. And again, even here, the overall rents are below market. It's, you know, this is the kind of office products you want to own, highly amenitized. The tenants are very happy to be there. The sub market, by the way, is very strong in Plano. I think the sub market's like 95% leased. So, look, we feel great about it.
Speaker Change: I'll start with that and maybe Tom can give some commentary I mean this is this is extremely strong office product.
Speaker Change: Obviously highlighted by 98%.
Speaker Change: Lease percentage, which literally I think theres, one space and there is action on that one space.
Speaker Change: And again even here.
Speaker Change: Overall rents are below market.
Speaker Change: This is the kind of office products, you want to own higher.
Speaker Change: Highly of monetized the tenants are very happy to be there.
Speaker Change: The submarket by the way is very strong and Plano I think the submarkets like 95% leased so look we feel great about it Tom do you want to add to that Todd.
Tom McGowan: Tom, you want to add to that? Yeah, Todd, I would add that there are 72 companies in the Forbes Global 2000 in this small sub market. So, it's kind of amazing the actual number. And then there are three Fortune 1000 headquarters as well. So, you just have this extremely unique sub market. And the great thing that we learned as we went through all the tenants and we had the discussions is just from a recruiting standpoint, the environment inside Legacy West was a huge marker for them, just in terms of their ability to want to stay there and working with the mayor and economic development groups.
Speaker Change: Todd I would I would add that.
There are 72 companies on the Forbes Global 2000, and the small sub market. So it's kind of amazing the actual number and then there are three fortune 1000 headquarters as well.
Speaker Change: So.
Speaker Change: You just have this extremely unique submarket and the great thing that we learned as we went through all of the tenants and we had the discussions is just from a recruiting standpoint, the environment inside legacy West was a huge marker form just in terms of their ability to want to stay there.
Speaker Change: And working with the mayor and economic development groups. There is a lot on the horizon. So we feel very good about this sub market and I think it's reflected by the tremendous amount of strong companies that are located here and Todd the average duration lots on the office leases around six years I will tell you. Obviously, we were very conservative on highway.
Tom McGowan: There's a lot on the horizon. So, we feel very good about this sub market. And I think it's reflected by the tremendous amount of strong companies that have located here. And Todd, the average duration on the office lease is around six years. I will tell you, obviously, we were very conservative in how we underwrote it. And while the big market opportunities really in the retail portion, we're looking at the recent rents and deals that we're signing in the office, there's also opportunity for us to push rents there as well. So, again, very conservative in our underwriting.
Speaker Change: Underwrote it.
Speaker Change: While the big Mark to market opportunity is really in the retail portion. We're looking at the recent ransom deals that we're signing the office. There is also opportunity for us to push rents there as well so again very conservative in our underwriting.
John Kite: Love the balance sheets of the underlying tenants. But yeah, we're very happy about the office.
Speaker Change: The balance sheets of the underlying tenants.
Speaker Change: But yes, we're very happy about the office piece.
Todd Thomas: Okay, great. That's helpful.
Speaker Change: Okay, Great. That's helpful. If I if I could just sneak one more in quickly about the relationship here with GIC as their interest to expand the relationship with <unk>.
Todd Thomas: If I could just sneak one more in quickly about the relationship here with GIC. Is there interest to expand the relationship with additional investments, either, you know, third party acquisitions or by seeding additional assets above and beyond what's sort of currently contemplated? Sure. I mean, the answer is yes. I mean, we have, we're very happy about our partnership with GIC, and we've worked very well together over the last several months, as you saw in the investor presentation, and as part of our sources and uses, we are actively working on a second joint venture contributing seed assets into that, which we highlighted in the presentation.
Speaker Change: Additional investments either third party acquisitions or by seeding additional assets above and beyond what.
Speaker Change: Currently contemplated.
Speaker Change: Sure I mean the <unk>.
Speaker Change: Answer is yes, I mean, we have we're very happy about our partnership with GIC.
Speaker Change: We've worked very well together over the last several months as you saw in the Investor presentation and as part of our sources and uses we are we are actively working on a second joint venture contributing seed assets into that which.
Speaker Change: Which we highlighted in the presentation.
John Kite: So, you know, obviously, that's a lot in a short period of time with a new partnership, but, you know, the long-term vision is quite aligned between both Kite and GIC, so it's early, but I would suggest that we have other opportunities.
Speaker Change: No.
Speaker Change: Obviously, that's a lot in a short period of time with our new partnership but.
Speaker Change: The long term vision is quite aligned between both.
Speaker Change: Tight and GIC. So it's early but I would suggest that we have other opportunities.
Todd Thomas: Great, thank you. Thank you.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Craig Mailman: Our next question comes from Craig Mailman with Citi. Hey guys, I just want to follow up on the the shift in sort of the bad debt reserve. I know you guys feel like the outcome feels a little bit better on the bankruptcies, but you shifted the same amount of reserve to just general.
Speaker Change: Our next question comes from Craig Mailman with Citi.
Craig Mailman: Hey, guys.
Craig Mailman: Just wanted to follow up on the shift in sort of a bad debt reserve I know you guys.
Craig Mailman: It feels like the outcome feels a little bit better on the bankruptcies that you shifted the <unk>.
Craig Mailman: Same amount of reserve to just general are you guys seeing anything on the HR side are having conversations with tenants are putting additional tenants on the watch list that.
John Kite: Are you guys seeing anything on the AR side or having conversations with tenants or putting additional tenants on the watch list that or is it just kind of the general uncertainty in the market right now that's leading to some conservatism. Yeah, well, the anchor reserve went down because some of the tenants stayed open longer than we had assumed. And also, we signed four new leases for those spaces, and a couple of them are opening up in 2025. So, better result on the anchor, which is giving us that 15 basis points back. And then there's nothing specific.
Craig Mailman: Or is it just kind of the.
Craig Mailman: The general uncertainty in the market right now that's leading to some conservatism on that front.
Craig Mailman: Yes.
Craig Mailman: The anchor of reserve went down because.
Craig Mailman: Some of the tenants staying open longer than we had assumed and also and we signed four new leases for those spaces at a couple of them are opening up and 25%. So better result on the act, which is giving us that 15 basis points back and then there is nothing specific there is no increase in age they are.
John Kite: There's no, you know, increase in age they are. Craig, it's just a matter of saying, hey, you know what, the world's a little crazy, so why don't we take that 15 basis points and put it in our general bad debt bucket? So, really just shifting it over with nothing specific. Craig, it's still early, right? It's first quarter. So, we're into the second quarter now. I think it was a smart thing to do in light of the world that we're living in.
Craig Mailman: Craig It's just a matter of saying Hey, you know what the world's a little crazy. So why don't we take that 15 basis points and put in that general bad debt buckets. So it really just shifting it over with.
Craig Mailman: Craig it's.
Craig Mailman: It's still early right at the first quarter so.
Craig Mailman: <unk> ended.
Craig Mailman: Into the second quarter now.
Craig Mailman: It was a smart thing to do in light of the world that we're living in.
John Kite: But as Heath said, I mean, that's one of the good things about our system internally is we do a bottoms up every month of every tenant. And so, we have a really good pulse on where AR is and where the small shop health is. And that pulse is still very strong, but I think it's prudent at this point in the year. That's fair.
Craig Mailman: But as he said I mean, that's one of the good things about our system internally as we do a bottoms up every month of every tenant.
Craig Mailman: And so we have a really good pulse on where they are is that where the small shop health is a pulse is still very strong, but I think it's prudent at this point of the year.
John Kite: And then just on the transaction environment, you know, you guys are kind of selling some things into the third party market. What what's been the reception for some of those power center type deals, the bidding pool sizes, kind of sensitivity on pricing that you're seeing? I mean, right now, it remains healthy, as Heath mentioned, in the prepared remarks, the deal we have, which is kind of a larger format deal in LA that was on the market, went hard last night at the pricing that we thought it would. So I think there's still some very active acquisition buyers out there.
Craig Mailman: Okay. That's fair and then just on the transaction environment, you guys are kind of selling some things into the third party market, what what's been the reception for some of those power center type deals the bidding pool sizes kind of sensitivity on pricing that you're seeing.
Craig Mailman: I mean right now it remains healthy as Ive mentioned in the prepared remarks. The deal we have which is kind of a larger format deal in la.
Craig Mailman: On the market went hard last night at.
Craig Mailman: At the pricing that we thought it would so I think I think there is still some very.
Craig Mailman: Active acquisition buyers out there.
John Kite: There's liquidity. You know, look, I think there's uncertainty geopolitically, but on the ground, operationally, it's a lot better. So I think we continue to see good demand and cap rates continue to be very competitive. I mean, obviously, the 10-year is in the low four range. So you can make things work, especially with NOI growth. So I think it's a pretty good market, and we'll see how the rest of the year, you know, kind of evolves.
Craig Mailman: Liquidity.
Craig Mailman: Look I think there is uncertainty geopolitical Lee, but on the ground operationally, it's a lot better. So I think we continue to see good demand and cap rates continue to be very competitive.
Craig Mailman: And obviously the 10 year is in the low four range.
Craig Mailman: So you can make things work.
Craig Mailman: Actually with NOI growth. So I think it's a pretty good market and we will see how the rest of the year.
Craig Mailman: Evolves.
Craig Mailman: Perfect.
Speaker Change: Perfect. Thank you.
Floris Dijkum: Our next question comes from Floris von Dijkum with Cumberland.
Speaker Change: Our next question comes from Floris Van <unk> with Compass point.
Floris Dijkum: A couple more questions on Legacy West, if you don't mind indulging me. You mentioned that the average tenant sales are north of $1,000 a square foot. I believe the in-place rents are somewhere in the $60 a foot range. What are the new leases being signed at? What mark-to-market are you expecting? The follow-on question, you indicated that this is not in your results yet because you haven't had the purchase accounting yet.
Speaker Change: Hey, guys.
Speaker Change: A couple more questions on legacy West if I. If you if you don't mind Indulging me.
Speaker Change: The.
Speaker Change: You mentioned that the average tenant sales are.
Speaker Change: North of a $1000 a square foot I believe the in place rents are somewhere in the $60 a foot range.
Speaker Change: Hmm.
Speaker Change: What are the new leases being signed at what kind of mark to market.
Speaker Change: You expecting and then I guess the follow on question and you indicated that this is not in your results yet because you haven't had the purchase accounting yet but.
John Kite: What would that do if you were to have to recognize that in terms of purchase accounting for your income that you have to upside to this acquisition in terms of earning? Well, let me start with just overall, in terms of where we think the rents are and what the potential market is. You know, without getting into specifics, I think it's easy to kind of look at the fact that the health ratios, you know, in the in certainly in the retail component are low. I mean, we're talking mid to low single digits or mid to mid to high single digits and health ratios, luxury lower than the overall.
Speaker Change: What would that do if you were to have to recognize that in terms of.
Speaker Change: Purchase accounting for.
Speaker Change: Returns.
Speaker Change: For your for your income that you have to recognize how much of an impact would that be further upside upside to this.
Speaker Change: Acquisition in terms of earnings.
Speaker Change: Well, let me start with just overall in terms of where we think the rents are and what the potential market is without getting into specifics I think it's easy to kind of look at the fact that the health ratios.
Speaker Change: And certainly in the retail component are low I mean, we're talking mid to low single digits or mid <unk> mid to high single digits and health ratios luxury lower than the overall. So I think we're very comfortable that there is upside there and whether thats 20 to $25, 30% upside we will see over the.
John Kite: So I think we're very comfortable that there's is upside there.
Heath Fear: And you know, whether that's 2025 30% upside, we'll see over the next three years, but there's no question that that was part of both GICs and Kite's real excitement about the asset was there was mark to market opportunity. In terms of the purchase accounting, I mean, it's obviously, as we mentioned too early to say, it's why we will continue to give you both nary FFO and core FFO to, to highlight the differences. But suffice to say, there will be purchase accounting and there's also a mark to market on the debt. So we'll see the net result of that.
Speaker Change: Next three years, but Theres no question that that was part of both GIC and types.
Speaker Change: Real.
Speaker Change: Excitement about the asset was there was mark to market opportunity.
Speaker Change: In terms of the purchase accounting I mean, its obviously as we mentioned too early to say.
Speaker Change: It's why we will continue to give you both NAREIT <unk> and core <unk>.
Speaker Change: Two to highlight the differences.
Speaker Change: But suffice to say there will be purchase accounting and Theres also a mark to market on the debt. So we'll see.
Heath Fear: But we'll be a little more focused, focused on the core and we'll be more focused on the actual cash flow and NOI growth floor. Great.
Speaker Change: Net result of that will be a little more focused focused on the core and we'll be more focused on the actual cash flow and NOI growth for us.
John Kite: And then maybe the the follow on question. Additional asset sales. I know you talked about your GIC venture, and obviously you've got three assets that I guess two are now hard. One is still sort of in the works, but should hopefully join them as well. How many more asset sales do you expect to be able to complete? How many of those potentially could be used for share repurchase opportunities? Well, you know, again, high level for us. We mentioned on the last call We have a strategy around the repositioning of the portfolio and the repatriation of cash.
Great and then maybe the.
Speaker Change: Follow on question.
Speaker Change: Additional asset sales I know you talked about your GIC venture and obviously, you've got three assets.
Speaker Change: I guess two are now.
Speaker Change: Part one is still.
Speaker Change: Sort of in the works, but should should hopefully joined them as well how many more asset sales.
Speaker Change: You expect to be able to complete.
And.
Speaker Change: How many of those potentially.
Speaker Change:
Speaker Change: Could be used.
Speaker Change: For share repurchase opportunities.
Speaker Change: Well again.
Speaker Change: Again high level Flores.
Speaker Change: Yes, we mentioned on the last call that.
Speaker Change: We have a strategy around that.
Speaker Change: The repositioning of the portfolio and the repatriation of cash.
John Kite: And so it's hard to say right now, based on the fluidity of the market and where people feel transactions will occur. So we don't have a specific number that we are out there saying is going to happen in the next X number of months. But we were pretty clear that there are assets that we think are tradable, that we could, again, repatriate that into whatever we think the highest and best use of that capital. So, I think it's too early to say, but there's no question that we think the market is somewhat supportive right now and probably gets even more supportive as we move through the year.
Speaker Change: And so it's hard to say right now based on the fluidity of the market and where people feel transactions will occur. So we don't have a specific number that we are out there, saying theres going to happen in the next X number of months, we were pretty clear that there are assets that we think are tradable that.
Speaker Change: We could.
Speaker Change: Again repatriate that into.
Speaker Change: Whatever we think the highest and best use of that capital is.
So I think it's too early to say.
Speaker Change: But theres no question that we think the market is somewhat supportive right now and probably gets even more supportive as we move through the year.
Heath Fear: And so, I think we're just going to have to see how that evolves.
Speaker Change: And so I think we're just going to have to see how that evolves heath anything to add yes.
Heath Fear: Heath, anything to add to that? Thanks, Tom.
Speaker Change: Okay.
Heath Fear: That's it for me.
Speaker Change: Thanks, Tom that's it for me.
Speaker Change: Thanks.
R.J. Milligan: Our next question comes from R.J. Milligan with Raymond James. Hey, good afternoon, guys. First, Heath, I wanted to touch on the guidance. Curious, on the lease term fees, how much was in original guidance? And how much is there now embedded in guidance?
Speaker Change: Our next question comes from RJ Milligan with Raymond James.
RJ Milligan: Hey, good afternoon guys.
Speaker Change: Heath I wanted to touch on the guidance.
Speaker Change: Curious on the lease term fees, how much was in our original guidance and how much is there now embedded in guidance.
Heath Fear: I just would have thought after the term fee or the seven and a half million of term fees in one queue, the guy would have moved higher than that penny. So we had visibility into that termination when we gave guidance. So we thought it was going to be about two pennies, and then we ended up negotiating it and we did better. So it turned out being three pennies. That's why you're only seeing a one cent increase.
Speaker Change: Just would have thought after the term fee or the seven 5 million of term fees in <unk>, the guy who would've moved higher than that penny.
Speaker Change: So we have visibility into that termination when we gave guidance. So we need about two pennies and then we ended up negotiating it we did better so ill turn it up being treatment. That's why you're only seeing a 1% increase in the guidance from termination fees.
Heath Fear: and the guidance from Termination. And so then what's included in guidance for the remainder of the year? In terms of termination fees, well, so in general, if you saw year over year, we said there was going to be one more penny in 2025 versus 24, and sort of that recurring but unpredictable bucket. So now that's going to be two pennies. So if you do the math and go back, we do have some additional term fees, not nearly this magnitude in guidance for the balance of the year. And we do have a land sale gain as well, which we have visibility into as well.
Speaker Change: And so then what's included in guidance for the remainder of the year.
Speaker Change: In terms of termination fees.
Speaker Change: Yes.
Speaker Change: So in general we saw year over year, we said there's going to be.
Speaker Change: One more penny in 2025 versus 24 and sort of that's.
Speaker Change: Recurring but unpredictable bucket.
Speaker Change: So now that's going to be two pennies. So if you do the math and go back we do have some additional therapies not.
Speaker Change: Not nearly of this magnitude.
Speaker Change: And guidance for the balance of the year and we do have a land sale gain as well, which we have visibility to as well. So again net net <unk> more.
Heath Fear: So again, net net two cents more of those type of items in guidance as opposed to 2024.
Speaker Change: Those type of items and guidance as opposed to 2024.
R.J. Milligan: Okay, that's helpful.
Speaker Change: Okay. That's helpful and then.
John Kite: And then on the Legacy West transaction, I'm just curious how you guys deliberated between asset sales and using the proceeds for Legacy West versus buying back stock? Sure. I think RJ, I mean, great question. Obviously, we're at a point in time today where the stock is at a level that doesn't make sense. As you know, deals like this take a long time and gestation. And if you go back to the beginning of when we heavily engaged in this deal, our stock was at a much higher price. But most importantly, you know, assets like this that we truly believe is an iconic open air one of the best in the country.
Speaker Change: On the legacy West transaction I'm, just curious how you guys deliberated between.
Speaker Change: Asset sales and using the proceeds for legacy west versus buying back stock.
Speaker Change: Sure I think RJ I mean, great question obviously.
Speaker Change: We're at a point in time today.
Speaker Change: The stock is at a level that.
Speaker Change: Does it make sense.
Speaker Change: As you know deals like this take a long time and gestation and if you go back to the beginning of when we heavily engaged in this deal our stock was at a much higher price.
Speaker Change: But most importantly.
Speaker Change: Assets like this that we truly believe is an iconic open are one of the best in the country.
John Kite: They just don't come around very often. And there was actually quite a bit of product on the market over the last several months. And this is by far was the best opportunity because of the mark to market because of the asset, the quality. So we did, you know, we heavily debate, you know, what's the best place for capital to go? And when we looked at the potential growth and we looked at the underlying asset and quality and we looked at the strength of our joint venture and long term strength of that with GIC, it was clearly, you know, the right place to be.
Speaker Change: Just don't come around very often and there was actually quite a bit of product on the market over the last several months.
Speaker Change: This is by far was the best opportunity because of the mark to market because of the asset quality. So we did we heavily debate what's the best place for capital to go and when we looked at the potential growth that we looked at the underlying asset quality and we looked at that.
Speaker Change: The strength of our joint venture and long term strength of that with GIC. It was clearly the right place to be.
John Kite: But obviously, you know, we'll see how the rest of the year plays out and we'll see what other opportunities we have throughout the year, whether that be through things such as that or buying back stock or whatever the highest and best use would be. But we do take it seriously and try to do the best we can to underwrite it at the point in time. But the fact of the matter is these, you know, these play out over multiple quarters, as you know.
Speaker Change: But obviously, we will see how the rest of the year plays out and we'll see what other opportunities we have.
Speaker Change: Throughout the year whether that be.
Speaker Change: Through things, such as that or buying back stock or whatever the highest and best use would be but we do take it seriously and under in trying to do the best we can to underwrite it at the point in time, but the fact of the matter is these these play out over multiple quarters.
Speaker Change: As you know.
R.J. Milligan: And John, I'm going to push you a little bit if that's okay. But based on your comments from, you know, the time that these transactions take, would it be fair to say that if your stock was currently trading where it is today, that you would consider instead buying back stock? Appreciate that. Thanks. Thank you.
Speaker Change: Okay, and John I'm going to push you a little bit if that's okay.
Speaker Change: Based on your comments from.
Speaker Change: The time that these transactions take.
Speaker Change: Would it be fair to say that if your stock was currently trading where it is today that you would consider instead of buying back stock.
Speaker Change: I mean, it's hard it's hard to be hypothetical, but yes, I mean, if the deal is happening today, obviously would underwrite differently.
Speaker Change: But that being said in the end this was really about.
Speaker Change: The long term value creation opportunity that we saw here and we thought that was the.
Speaker Change: I think that is the best place to be there as long term value to be created and I think in the end it will it will be very significant.
Speaker Change: I appreciate that thanks, guys.
Speaker Change: Thank you.
Daniel Pervera: Our next question comes from Daniel Pervera with Green Street. Hello, the composition of your portfolio has shifted more to mixed use properties now with the acquisition of RPAI and now Legacy West. Can you talk about the benefits of these properties over a like a traditional grocery anchorage center? And then do you see your portfolio or this portfolio shift continuing? I think first of all, in terms of the benefits, we tried to highlight that earlier. I mean, the embedded rent growth, the quality of the asset, the scarcity of the asset, these are all things that are very specific to things, to assets like Legacy West.
Speaker Change: Our next question comes from Tom Daniel Cabrera with Green Street.
Speaker Change: Hello <unk>.
Speaker Change: Position of your portfolio has shifted more to mixed use properties now with the acquisition of RPI and now legacy West can you talk about the benefits of these properties over.
Speaker Change: Like a traditional grocery anchored center and then do you see your portfolio or this portfolio shift continuing.
Speaker Change: I think I think first of all in terms of the benefits.
Speaker Change: Tried to highlight that earlier I mean, the embedded rent growth the quality of the asset.
Speaker Change: The scarcity of the asset. These are all things that are very specific to things to assets like legacy west.
John Kite: So clearly the growth rate and just the value creation when you can get into these deals at below market rents. is really powerful. But that being said, I mean, we still have, our portfolio is still pivoted across the spectrum of various. You know, retail genres. And we in the same, you know, in the quarter, we acquired a grocery anchor center in West Palm Beach, Florida. So we continue to very, you know, to be very focused on that as well. I think what we're trying to do Over time, it's pivoted a little away from the centers that have, you know, more percentage risk associated with the box.
Speaker Change: So clearly the growth rate in just the value creation. When you can get into these deals at below market rents.
Speaker Change: It was really powerful.
Speaker Change: But that being said I mean, we still have our portfolio is still pivoted across the spectrum of various.
Speaker Change: Retail genres, and we in the say in the quarter we acquired.
Speaker Change: A grocery anchored center in West Palm Beach, Florida. So we continue to vary and it would be very focused on that as well I think what we're trying to do.
Speaker Change: Over time as pivot a little away from the the centers that have.
Speaker Change: More percentage risk associated with the boxes.
John Kite: It doesn't mean that we'll be out of that, it just means it's going to be a smaller part of the portfolio over time. So what we should get as a result of this is better cash flow growth and better NAV over time. That's the objective. Got it.
Speaker Change: It doesn't mean that we will be out of that it just means it's going to be a smaller part of the portfolio.
Speaker Change: Over time, so what we should get as a result of this is better cash flow growth.
Speaker Change: And better NAV over time.
Speaker Change: That's the objective.
Daniel Pervera: Thank you.
Speaker Change: Got it thank you.
Speaker Change: Thanks.
Speaker Change: Okay.
Andrew Reale: Our next question comes from Andrew Reale with Bank of America. Hey, good afternoon. Thanks for taking my questions.
Speaker Change: Our next question comes from Andrew wheel with Bank of America.
Andrew wheel: Hey, good afternoon. Thanks for taking my questions just on leasing have there been any changes in how youre approaching conversations with tenants and your leasing strategy overall in recent weeks.
Andrew Reale: Just on leasing, have there been any changes in how you're approaching conversations with tenants and your leasing strategy overall in recent weeks? And I know, you know, you've had success pushing pretty favorable monetary and non-monetary provisions within your leases in recent years. But curious if there have been any areas in the lease negotiation, negotiation lately, where you're getting more pushback from tenants. No, I mean, at this point, it's pretty much business as usual in the way that we operate with our customers, the retailers. And, you know, as we tell you all the time, we engage with them every single day.
Speaker Change: And I know you've.
Speaker Change: <unk> had success pushing pretty favorable monetary and non monetary provisions within your leases in recent years, but curious if there had been any areas and Luis negotiating negotiation lately, where youre getting more pushback from tenants.
Speaker Change: No I mean at this point, it's pretty much business as usual in the way that we operate with our customers the retailers.
Speaker Change: As we tell you all the time, we engage with them every single day, we mentioned in the prepared remarks that retailers, particularly the national retailers when they are making decisions.
John Kite: We mentioned in the prepared remarks that, you know, retailers, particularly the national retailers, when they're making decisions, they're thinking about decades of being in that particular property. And so they have to operate throughout the cycles. All that being said is, you know, the market is the market and there is concern today, but it hasn't, you know, come to fruition at this point, in terms of our negotiations. If anything, the scarcity of the product continues to put us in a very good place as it relates to negotiating.
Speaker Change: Thinking about decades of being in that particular property and so they have to operate throughout the cycles all that being said as the market is the market and there is concern today, but it hasn't come to fruition at this point.
Speaker Change: In terms of our negotiations if anything the scarcity of the product continues to put us in a very good place as it relates to negotiating Tom do you want to say boy. The other thing I would add is I think we see our primary customers wanting to do more portfolio reviews, we actually have one.
Tom McGowan: Tom, you want to add? Yeah, I mean, the only other thing I would add is, I think we see our primary customers wanting to do more portfolio reviews. We actually have one tomorrow where a grocery company is going to assess some of their new target markets, and we're going to really dig into that. So I think, if anything, we're seeing more interaction, more engagement with these customers to make sure they're able to jump on opportunities as well as us as we move down the road. So we are definitely not seeing a lot of changes at this point, other than people really wanting to forecast out opportunities within our portfolio.
Speaker Change: Tomorrow.
Speaker Change: A grocery company is going to assess some of their new target market. So we're going to really dig into that so I think if anything we're seeing more interaction more engagement with these customers to make sure they're able to jump on opportunities as well as us as we move down the road. So we are definitely not.
Speaker Change: And a lot of changes at this point other than people really wanted to forecast out opportunities within our portfolio.
Andrew Reale: Okay, thank you.
Speaker Change: Okay. Thank you.
John Kite: And then just on your active and future developments, how do you feel about yield holding up just given the broader macro uncertainty and potential cost headwinds associated with terrorists? Again, I mean, at this point in time, the yields have not been impacted by that. But we're very early into this process. So there may be there may be some impact down the road. But generally, when there's impact from that we are able to get better returns vis-a-vis the rents or other value engineering. But today, it's too early to see any impact from that.
Speaker Change: And then just on your active in future developments, how do you feel about yields holding up just given the broader macro uncertainty and potential cost headwinds associated with tariffs.
Speaker Change: Again, I mean at this point in time, the yields have not been impacted by that but we're.
Speaker Change: We're very early into this process so.
Speaker Change: There may be there may be some impact down the road, but generally when there's impact from that we are able to get better returns vis vis the rents or other value engineering, but today, it's too early to see any impact from that.
Andrew Reale: Okay, thank you.
Speaker Change: Okay. Thank you.
Alexander Goldfarb: Our next question comes from Alexander Goldfarb with Piper Sandler. Hey, good afternoon out there. John, just following up on on the previous question on leasing. Do you think that leasing is a good indicator over time of like what's going on in the economy? And what I'm asking for is, do you think that the continued strength we're seeing in retail is more driven by the dwindling availability versus, you know, strength of the underlying economy, just trying to get a sense of how we should interpret the still strong leasing environment, if it's more lack of space, or it's more, hey, the retailers see great things in their business, and they're continuing to expand?
Speaker Change: Our next question comes from Alexander Goldfarb with Piper Sandler.
Alexander Goldfarb: Hey, good afternoon out there.
John just following up on on the previous question on leasing do.
Alexander Goldfarb: Do you think that leasing is a good indicator over time of like what's going on in the economy and what I'm asking for is do you think that the continued strength. We're seeing in retail is more driven by the dwindling availability versus strength of the underlying economy, just trying to get a sense of how we should interpret this still.
Alexander Goldfarb: Strong leasing environment, if it's more lack of space or it's more.
Alexander Goldfarb: Retailers see great things in their business and they are continuing to expand.
John Kite: Alex, I mean, I think it's a combination of lack of space and strength of, you know, the retail physical footprint for these retailers to make money. But right now, I would say that, you know, it still remains, you know, a pretty healthy environment because the product is scarce. And the retailers over the last several years have really, you know, kind of morphed their businesses and are able to figure out how the whole multifaceted, you know, online, in-store, all that works. So right now, I think it's a combination. We'll see how this plays out over the next several quarters, but we're still in a pretty good place as of today.
Speaker Change: Alex I mean, I think it's a combination of lack of space and strength of the retail physical footprint for these retailers to make money.
Speaker Change: But right now I would say that it still remains pretty healthy environment, because the product is scarce and the retailers over the last several years have really kind of morph their businesses and are able to figure out how all multi.
Speaker Change: Faceted online in store all of that works. So right now I think it's a combination.
We will see how this plays out over the next several quarters, but we're still in a pretty good place as of today.
Heath Fear: Alex, I'd also add, this is Heath, that, you know, during COVID, you saw a lot of these tenants shut down their real estate machine and they fired their real estate teams, and it was really hard to get it going again. So I think they're remembering, hey, listen, let's not overreact. This is likely a temporary situation. It's business as usual. You know, part of their growth depends on them opening up new units. So, yes, it does feel a little turbulent, but I think the continued growth is them realizing that, as John said before, you know, they're looking to make real estate decisions for 10, 15, 20 years.
Heath: I'd also add this is heath.
Speaker Change: During Covid you saw a lot of these tenants shutdown their real estate machine and the expiry of the real estate teams and it was really hard to get it going again, so I think they're remembering highlights let's not overreact.
Speaker Change: This is likely a temporary situation it's business as usual, even a part of their growth depends on them opening up new units. So yes. It does appear a little turbulent but I think the continued growth is in realizing that as John said before theyre looking to make real estate decisions for 10, 15, 20 years and by definition. They are assuming they are going to be some point of a downside.
Heath Fear: And by definition, they're assuming they're going to be some point of a downside. So yeah, I think it's the tennis looking back and saying, you know what, let's hold the course and let's stick to our business plan.
Speaker Change: So again I think it's the.
Speaker Change: The tenants looking back and saying you know what let's.
Speaker Change: Let's hold the course, and let's stick to our business plan.
John Kite: Okay, and then the second question is, in your slide 19, which I give you guys credit for is a great slide. So, you know, glad you guys put it out there. You talk about the potential for a special dividend based on the dispositions. And I'm just wondering, you know, obviously, REITs have been pretty good at sheltering taxable gains. And apart from doing a 1031, have you I'm assuming you guys explored all other options to shelter? Any, any capital would just seem in the current? environment, retain cash is probably the most valuable asset you have versus a special dividend that I'm not sure you'd get much credit for.
Speaker Change: Okay and then the second question is in your Slide 19, which I'll give you guys credit for is a great slide so.
Speaker Change: Yes, glad you guys put it out there.
Speaker Change: Can you talk about the potential for special dividend based on the dispositions and I'm just wondering.
Speaker Change: Obviously rates have been pretty good at sheltering taxable gains and apart from doing a 10 31.
Speaker Change: I'm, assuming you guys explored all other options to shelter any any capital would just seem in the current environment retained cash is probably the most valuable asset you have versus a special dividend that im not sure you would get much credit for so just curious on your thoughts on that.
John Kite: So just curious on your thoughts on that. of ways to avoid it. But at the end of the day, when you step back, we don't think it's the worst use of capital. And if it's returning cash to our shareholders, and we're doing this incredible transaction, and even after we return that cash, this is still accretive, it feels like that's a, that's a, you know, great result all around. Thank you.
Speaker Change: Well, we absolutely investigating ways to shelter any potential special dividend and we say it in that it's likely required. So that's why we're not giving a range on it but as you know when you are purchasing an asset.
Partnership you can't use at the 10 31 fee sales.
Speaker Change: But with that said there is other things like dividend throwbacks et cetera that we can do so.
Speaker Change: We are actively looking and we are tremendously good tax advisors.
Speaker Change: Ways to avoid it but at the end of the day when you step back we don't think it's the worst use of capital and dividends returning cash to our shareholders.
Speaker Change: And we're doing this incredible transaction and even after we return that cash this is still accretive but it feels like that.
Speaker Change: The great results all around.
Speaker Change: Thank you.
Speaker Change: Thanks.
Hongliang Zhang: Our next question comes from Hongliang Zhang with J.P. Morgan. I may be on mute. Hello, can you hear me? Yes. Cool. Sorry about that.
Speaker Change: Our next question comes from Hong Liang Zhang with Jpmorgan.
Speaker Change: Your line maybe on mute.
Speaker Change: Hello can you hear me.
Speaker Change: Yes.
John Kite: I guess two questions. I guess the first one, it seems like between the asset sales and the JVC funding, all those all those transactions are coming in to call it like a mid sevens cap rate. Is that indicative of, I guess, what you'd be selling properties at today? I mean, it's hard to say across the entire portfolio of what we'd be selling. But I think it's a reasonable kind of cap rate based on the type of products that we're selling. And we felt pretty good about that, in terms of how we were growing the remaining cash.
Speaker Change: Sorry about that I guess two questions I guess, the first one it seems like between the asset sales and the JV heat funding all those all those transactions are coming until call. It like a mid sevens cap rate is that indicative of what you'd be selling properties that today.
Speaker Change: I mean, it's hard to say across the entire portfolio of what we'd be selling but I think it's a reasonable kind of cap rate based on the type of products that we're selling.
Speaker Change: And we felt pretty good about that.
Speaker Change: In terms of how we are growing the remaining cash so yeah, I think it's a reasonable assumption.
Heath Fear: So yeah, I think it's a reasonable assumption. Got it.
Heath Fear: And I guess on occupancy, I think your economic slash build occupancy was like in the low 91s in the first quarter. Where do you think that will trend by the end of the year? We don't we generally don't. We don't guide to occupancy, but you're going to see, obviously, it dip as we lose more of the leases out of the bankruptcy. We still have all of our JOANNs. Then, obviously, you're going to see it start building up as we're turning on the rent. So, again, we don't guide to economic or lease occupancy at the end of the year, but generally those are the two factors that are going to be impacting it.
Speaker Change: Got it and I guess on <unk> I.
Speaker Change: I guess on occupancy I think youre economic slash build occupancy was call it like in the low 91.
Speaker Change: In the first quarter.
Speaker Change: Do you think that will trend by the end of the year.
We generally don't.
Speaker Change: Without.
Speaker Change: Occupancy.
Speaker Change: See obviously at depth as we lose more of the leases out of.
Speaker Change: On the bankruptcy, we still have all of our <unk> that obviously, you're going to see it's our building up as we're turning on the rents. So again, we don't guidance.
Speaker Change: Two economics or at least occupancy at the end of the year, but generally those are the two factors that are going to be impacting it but we're on a very nice pace of back filling these boxes.
Heath Fear: We're on a very nice pace of backfilling these boxes, and so we're very hopeful that that will continue to increase through the balance of the year.
Speaker Change: So we're very hopeful that that will continue to increase through the balance of the year.
Heath Fear: Oh, well, thank you.
Speaker Change: Hello, Thank you.
Dori Kesten: Our next question comes from Dori Kesten with Wells Fargo. Thanks. Good afternoon.
Speaker Change: Our next question comes from Dori Kesten with Wells Fargo.
Dori Kesten: Are you able to quantify the fees that you'll receive through the, I guess, potential to GICJVs? Uh, Dori, no, we're not ready to share that. But we set in our materials at their market, so you can do a survey of various joint ventures and they're going to be in the ballpark. Got it.
Dori Kesten: Thanks, Good afternoon.
Dori Kesten: Are you able to quantify the fees received through any potential Q GIC JV.
Speaker Change: <unk> were not at Liberty to share with us.
Speaker Change: We said in our materials that their market. So you can do a survey of various joint ventures, and they are going to be in the ballpark.
Heath Fear: And as you walk through your 25 small shop lease expirations, is it your expectation that your fixed rent bumps of 3% plus should continue to grow from the 92% that you achieved this past year? Yeah, I mean, I think if you look at the quarter over quarter results, we continue to make great progress there. Obviously, as the portfolio gets leased up, you end up you know, it ends up getting harder and harder to get the growth out of a tougher space to lease. But certainly 3% north is a very comfortable place for us to assume that we're going to continue to do small shop leases.
Dori Kesten: Got it and as you walk through your 25 small shop lease explorations.
Dori Kesten: And your expectation that your thanks.
Dori Kesten: Bonds of 3% plus.
Speaker Change: Should continue to grow from the 92% that you achieved this past year.
Speaker Change: Yes, I mean, I think if you look at the quarter over quarter results. We continue to make great progress. There obviously as the portfolio gets leased up you end up it ends up getting harder and harder to get the growth out.
Speaker Change: The tougher space to lease.
Speaker Change: But certainly 3% north is a very comfortable place for us to assume that we're going to continue to do so.
Speaker Change: Mall shop leases.
Heath Fear: Okay, thank you. Thank you.
Speaker Change: Okay. Thank you.
Thank you.
Wesley Golladay: Our next question comes from Wesley Golladay with Baird.
Speaker Change: Our next question comes from Westlake holiday with Baird.
Wesley Golladay: Hi, everyone. The JV helped you mitigate the risk of taking that down a very large asset. And just kind of curious, you know, at what size of an asset would you want to bring in a JV partner? You know, I think it's probably deal by deal specific, Wes, but when you look at this particular asset, you know, it felt like the appropriate size that we should be thinking about that. That being said, you know, our share of the total deal is less than 10% of our undepreciated assets. So I, you know, again, I think it's a large asset, but it's not crazy large.
Speaker Change: Hi, everyone.
Speaker Change: Maybe help you mitigate the risk of taking that down to a very large asset and just kind of curious.
Speaker Change: What size of an asset would you want to bring in a JV partner.
Speaker Change: I think it's probably.
Speaker Change: Deal by deal specific west, but when you look at this particular asset.
Speaker Change:
Speaker Change: It felt like the appropriate size that we should be thinking about that that being said our share of the total deal is less than 10% of our underappreciated assets. So you know.
Speaker Change: Again I think it's.
Speaker Change: A large asset, but it's not crazy large.
Tom McGowan: But I think in this range, you would see us consider that. I mean, there's more to it than just the size, but in this range, we would consider it. And Wes, I'd add that one piece of it is a risk diversification, it's a large asset, so you bring a partner along. But also when you're looking at these large assets, you know, your counterparty is thinking about the ability of the other side to perform. And I'll tell you that based on our joint venture with GIC, we were at the highest bidder on this asset. And we were able to, you know, get the deal awarded to us because of the strength of the partnership.
Speaker Change: Sure.
Speaker Change: But I think in this range you would see us consider that I mean, theres more to just theres more to it than just the size, but in this range we would consider it.
Speaker Change: Yes.
Speaker Change: One piece of it as a risk diversification, it's a large assets you bring a partner along but also when you're looking at these large assets. Your counterparty is thinking about the ability of the other side of that perform and I will tell you that based on our joint venture with GIC.
Speaker Change: We were at the highest bidder on this asset.
Speaker Change: We were able to get to get the deal awarded to us because of the strength of the partnership they looked at capability to execute along with GIC as ability to execute and.
Tom McGowan: They looked at Kite's ability to execute along with GIC's ability to execute. And that's why we won the bid. So it's more than just risk allocation, it's also partnering with someone that's going to give you a better advantage. when you're underwriting and when you're submitting your bid. That's a fair point. And then I guess maybe your other assets in the market, you know, how much of that play into it as well, where you can get the immediate synergy. Which other, I mean, the seed assets, or the, or the- Well, you have other assets in the market, yeah.
Speaker Change: And Thats why we won the bid so it's more than just risk allocation. It's also partner with someone thats going to give you a better advantage.
Speaker Change: Our underwriting and when Youre submitting your bed.
Speaker Change: That's fair point, and then I guess, maybe your other assets in the market how much of that play into it as well where you can get the immediate synergies.
Speaker Change: Whats the seed assets or the or the.
Speaker Change: Other assets in the market yes.
Tom McGowan: Oh, yeah, sorry. A hundred percent. Misunderstood the question. Yeah, absolutely. I mean, as we mentioned, it was a big part of our underwriting of the asset was that we are a major player in the market. In fact, own an asset across the street, essentially across the tollway. And then also the fact that we own Southlake, which is a similar asset, very dominant. Now, all of a sudden that, you know, we are, you know, we own two of probably the top five open air retail assets in Dallas. So that's a pretty major thing. And I think we can, you know, kind of cross-pollinate tenants across the board and hopefully just lift rents across the board.
Speaker Change: Yes.
Speaker Change: Alright, <unk> misunderstood the question, yes, absolutely.
Speaker Change: As we mentioned it was a big part of our underwriting of the asset was that we are a major player in the market in fact on an asset across the street essentially across the tollway.
Speaker Change: And then also the fact that we own South Lake, which is a similar asset.
Speaker Change: <unk> dominant now now all of a sudden that we are.
Speaker Change: We own two of probably the top five.
Speaker Change: Open air retail assets in Dallas, So that's a pretty major thing and I think we can kind of cross pollinate tenants across the board and hopefully just lift rents across the board.
Tom McGowan: Yeah, and from the Dallas market have been substantial today, just in terms of opportunities, what's out there. So we will definitely build on our momentum in this market.
Speaker Change: And.
Speaker Change: From the Dallas market of have been.
Speaker Change: Stanzel today, just in terms of opportunity is what's out there. So we will definitely build on our momentum in this market.
Wesley Golladay: Okay, nice.
Wesley Golladay: And then one last one on the term income. It looks like it's running through the non-same store. Is there... basement in one queue, not to flow it through. And then also, when should we assume that tenant is backfilled? So, Wesley, it kind of broke up. In terms of when that tenant gets backfilled, it's an accurate spot, so call it 12 to 18 months is our average to backfill it, but I missed the first part of your question. You kind of cut out. Oh, yeah, sorry about that. Is there anything in the run rate of the non-same-sure that we need to take out in 2Q, and what amount should we put in, call it late next year?
Speaker Change: Okay, and then one last one on the term income it looks like its running through the non same store is there any.
Speaker Change: Base rent and <unk> not to flow it through and then also when should we assume that tinnitus backfill.
Speaker Change: So as we kind of broke up in terms of when that tenant gets backfill.
Speaker Change: It's an anchor sponsor I'll call. It 12 months to 18 months as our average to backfill it but I missed the first part of your question you kind of cut out.
Sorry about that is there anything in the runway run rate of the non same store that we need to take out and <unk> and what not.
Speaker Change: Should we put in call it late next year.
Heath Fear: No, on our termination fee policy, you know, when we get a termination fee, we count the rent for the for the for the 12 months. So there's nothing to remove out of the out of the run rate. Okay, and I guess would it be safe to assume that maybe it's a few years of rent? Yes. Oh, and how much it was? Yeah, well, I guess the base rent, like, well, yeah, I'm trying to figure out how much credit I need to give you for the, you know, call it, you know, mid to next, mid to late 2026, what type of rent we should put in the run rate, because it's not a same source, we don't have an idea what's going on there.
Speaker Change: No our termination fee policy.
Speaker Change: When we get a termination fee, we count the rent for the.
Speaker Change: For the 12 months. So it was up enough to remove out of the out of the run rate.
Okay, and I guess would it be safe to assume that it may take a few years.
Speaker Change: Yes.
Speaker Change: How much it was.
Speaker Change: I guess have base rent.
Speaker Change: I'm trying to figure out how much credit I need to give you for the call. It mid <unk> mid to late 2026, what type of rent we should put in the run rate because it's not same store. If we don't have an idea of what's going on there.
Heath Fear: I think it's too early to say what what the backfill rents are going to be if that's the question. Yeah, I think we lost a little bit and it's breaking up a little less. But okay. I think it's a little early to tell what the backfill I think the point is that we have a lot of capital from the lease termination to reinvest in whatever we do there.
Speaker Change: I think it's too early to say, what what the backfill rents are going to be a fast question yeah.
Speaker Change: Okay, I think we lost a little bit.
<unk> up a little worse, but okay.
Speaker Change: I think it's a little early to tell what the backfill I think the point is is that we have a lot of capital from the lease termination to reinvest in whatever we do there.
Heath Fear: Okay, thanks a lot guys.
Speaker Change: Okay excellent.
Operator: Time. Thank you.
Operator: All right.
Speaker Change: Thank you.
Operator: Appreciate it.
Speaker Change: I appreciate it.
Linda Tsai: Our next question comes from Linda Tsai with Jeff. Thanks for taking my question. Um, in terms of sales productivity, how does Legacy West compare to Legacy East and Southlake? And is Legacy West the one with the most amount of luxury retail? Because I know you highlighted those tenants as having higher mark to market rent upside. Yeah, I think Legacy West would be similar to Southlake in sales productivity, slightly better, but very similar. Better than Legacy East as as Legacy East is, you know, we're transitioning the property recently did a small redevelopment there. So I think Legacy East has a long way to have a lot of upside, which is great.
Speaker Change: Our next question comes from Linda Tsai with Jefferies.
Speaker Change: Thanks for taking my question in terms of sales productivity, how does legacy west compared to legacy Eastern South Blake and his legacy west the one with the most amount of luxury retail because I know you highlighted those tenants is having higher mark to market rent upside.
Speaker Change: Yes, I think legacy west would be.
Speaker Change: Similar to South Lake and sales productivity slightly better but very similar.
Speaker Change: Better than legacy East <unk>.
Speaker Change: CES is we're transitioning the property recently did a small redevelopment there. So I think <unk> has a long way to add a lot of upside which is great and we're going to we're obviously going to be running these properties in conjunction.
John Kite: And we're gonna we're obviously gonna be running these properties in conjunction. So but yeah, I think I think between the three of them, we have a lot of opportunity and the sales are strong.
Speaker Change: So but.
Speaker Change: But yes, I think I think between the three of them, we have a lot of opportunity and the sales are strong.
John Kite: And is there a sense of how much luxury you have across the kite portfolio? Yeah, I mean, I think this would be the highest concentration in this particular asset, which is what we were excited about. One of the things we were excited about is it's a whole new channel of tenants for us. So yeah, this would be the concentration at Legacy West.
Speaker Change: And is there a sense of how much your luxury you have across the portfolio.
Speaker Change: Yes, I mean, I think this would be the highest concentration in this particular asset.
Speaker Change: Which is what we were excited about that one of the things. We're excited about is it's a whole new channel tenants for us.
Speaker Change: So yes, this would be the concentration at legacy West.
John Kite: Thanks. And then how are you feeling about acquiring more for the rest of the year? Are you actually seeing opportunities now or is it more like pencils down for a bit with the purchase of Legacy West? You know, I think we're always reviewing the market. Today, we're not seeing anything today that would be anything close to what we were able to do here. But I think the market is in a little bit of flux. And we expect that to change over the next, probably couple quarters. But we're always in the market. And I think as we go down the road, and if there's, if we The Unknown Speaker 0 The Unknown Speaker 0 If we have more asset sales, we'll obviously have to look at what we're doing with that.
Speaker Change: Thanks, and then how are you feeling about acquiring more for the rest of the year are you actually seeing opportunities now or is it more like pencils down for a bit with the purchase of legacy west.
Speaker Change: I think we're always reviewing the market.
Speaker Change: Today, we are not seeing anything today that would be anything close to what we were able to do here.
Speaker Change: But I think the market is.
Speaker Change: A little bit of flux, and we expect that to change over the next.
Speaker Change: Couple of quarters.
Speaker Change: But we're always in the market and I think as we go down the road and if there is if we if.
Speaker Change: If we have more asset sales will obviously have to look at what we're doing with that but as of right. Now there is not something that we are engaged on that as of the quality and growth profile of legacy west.
John Kite: But as of right now, there's not something that we're engaged on that is of the quality and growth profile of Legacy West.
Speaker Change: Thank you.
Speaker Change: Thanks.
Operator: That concludes today's question and answer session.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to John Kite for closing remarks.
John Kite: I'd like to turn the call back to John Kite for closing remarks. Well, again, thank you, everyone, for joining us today. And we look, hopefully look forward to seeing most of you in the next month or so. Thank you.
Speaker Change: Well again, thank you everyone for joining us today, and we look hopefully look forward to seeing most of you in the next month or so thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].