Q2 2026 Kite Realty Group Trust Earnings Call

July 30, 2026

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press *11 on your telephone.

Speaker #1: If your question has been answered and you'd like to remove yourself from the queue, simply press *11 again. As a reminder, today's program is being recorded.

Speaker #1: And now I'd like to introduce your host for today's program, Bryan McCarthy, Senior Vice President, Corporate Marketing and Communications. Please go ahead, sir.

Speaker #2: Thank you, and good afternoon, everyone. Welcome to Kite Realty Group's second quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties.

Bryan McCarthy: Thank you, good afternoon, everyone. Welcome to Kite Realty Group's Q2 earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to today's earnings press release, available on our website, for reconciliation of these non-GAAP performance measures to our GAAP financial results.

Speaker #2: Actual results may differ materially from these statements. 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.

Speaker #2: Today's remarks also include certain non-GAAP financial measures. Please refer to today's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.

Speaker #2: On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer John Kite; President and Chief Operating Officer Tom McGowan; President and Chief Financial Officer Heath Fear; Senior Vice President and Chief Accounting Officer Adam Jaworski; and Senior Vice President, Capital Markets and Investor Relations Tyler Henshaw.

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

Speaker #2: 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 #2: I'll now turn the call over to John.

Speaker #3: All right. Thanks, Bryan. And hello, everyone, and thanks for joining us today. Halfway through 2026, KRG's tenant demand remains healthy. Our sign-not-open pipeline remains elevated, and the fundamentals underpinning our portfolio have never been more durable.

John Kite: All right. Thanks, Bryan, and hello, everyone, and thanks for joining us today. Halfway through 2026, KRG's tenant demand remains healthy. Our sign-not-open pipeline remains elevated, and the fundamentals underpinning our portfolio have never been more durable. The financial strength and flexibility we created has become one of our most valuable strategic assets. Over the past 18 months, our capital allocation initiatives, collectively referred to internally as Project Elevate, have focused on pruning lower growth, non-core assets to enhance the quality, growth profile, and resilience of our portfolio and cash flows. We have redeployed the resulting capital into higher conviction opportunities that offer the most attractive risk-adjusted returns, while also investing meaningfully in our organization through strategic additions across the platform, all aimed at improving our long-term growth. Since the start of 2025, we've sold 22 non-core assets for nearly $1 billion.

Speaker #3: The financial strength and flexibility we have created has become one of our most valuable strategic assets. Over the past 18 months, our capital allocation initiatives, collectively referred to internally as Project Elevate, have focused on pruning lower-growth, non-core assets to enhance the quality, growth profile, and resilience of our portfolio and cash flows.

Speaker #3: We have redeployed the resulting capital into higher-conviction opportunities that offer the most attractive risk-adjusted returns, while also investing meaningfully in our organization through strategic additions across the platform, all aimed at improving our long-term growth.

Speaker #3: Since the start of 2025, we've sold 22 non-core assets for nearly $1 billion. With each disposition, we reduced our exposure to lower-growth formats and at-risk anchors.

John Kite: With each disposition, we reduced our exposure to lower growth formats and at-risk anchors while concentrating the portfolio in grocery-anchored lifestyle and mixed-use assets. As detailed on page six of our investor presentation, we've grown our weighted ABR in lifestyle, mixed use, and neighborhood centers by 900 basis points since the start of 2023, matched by a 900 basis point reduction in power and large format community centers during the same period. Our portfolio enhancement is reflected in our tenant base, which we have strengthened from both ends. Our top tenant roster is increasingly concentrated in durable, high-credit operators. Grocers now represent a third of our top 15 tenant list. Just as telling, four watchlist tenants have rolled off our top 25 list entirely.

Speaker #3: While concentrating the portfolio in grocery-anchored lifestyle and mixed-use assets, as detailed on page 6 of our investor presentation, we've grown our weighted ABR in lifestyle, mixed-use, and neighborhood centers by 900 basis points since the start of 2023, matched by a 900 basis point reduction in power and large-format community centers during the same period.

Speaker #3: Our portfolio enhancement is reflected in our tenant base, which we have strengthened from both ends. Our top tenant roster is increasingly concentrated in durable, high-credit operators.

Speaker #3: Grocers now represent a third of our top 15 tenant list. Just as telling, four watchlist tenants have rolled off our top 25 list entirely.

Speaker #3: By virtue of the dispositions related to Project Elevate, we eliminated 58 at-risk tenant locations, representing over 1 million square feet and more than 200 basis points of ABR.

John Kite: By virtue of the dispositions related to Project Elevate, we eliminated 58 at-risk tenants locations representing over one million square feet and more than 200 basis points of ABR. Tenants like these carry a cost on both sides of the ledger. They put the consistency of our earnings at risk, and each one is a potential claim on our capital. We've been equally disciplined about where we put our capital to use. During the quarter, we acquired two high-quality neighborhood centers, Founders Square in Naples and Chastain Market, a Trader Joe's anchor center in Atlanta, for $136 million through 1031 exchanges. That brings our acquisitions since the start of 2025 to approximately $612 million, all of it recycled into faster-growing assets. When our stock trades at a discount to net asset value, buying it back is among the most accretive uses of capital available to us.

Speaker #3: Tenants like these carry a cost on both sides of the ledger. They put the consistency of our earnings at risk, and each one is a potential claim on our capital.

Speaker #3: We've been equally disciplined about where we put our capital to use. During the quarter, we acquired two high-quality neighborhood centers: Founders Square in Naples and Chastain Market, a Trader Joe's-anchored center in Atlanta, for $136 million through 1031 exchanges.

Speaker #3: That brings our acquisitions since the start of 2025 to approximately $612 million, all of it recycled into faster-growing assets. When our stock trades at a discounted net asset value, buying it back is among the most accretive uses of capital available to us.

Speaker #3: And we acted decisively during the quarter, purchasing approximately 2.8 million common shares at an average price of $27.48 per share, for approximately $75 million.

John Kite: We acted decisively during the quarter, purchasing approximately 2.8 million common shares at an average price of $27.48 per share for approximately $75 million. Across 2025 and 2026, we have now repurchased 19.6 million shares for approximately $475 million at an average price of $24.20, well inside consensus NAV. Our reshaped portfolio is performing. Same property NOI grew 3.7% in Q2. We executed 128 new and renewal leases totaling approximately one million square feet with blended cash spreads of 15.9%, including 28.4% on comparable new leases. Our lease rate reached 94.8%, up 150 basis points year over year, led by a 210 basis point improvement in our anchor lease rate. ABR per square foot climbed to $23.41, up 2.3% sequentially, and 6.3% year over year. Our embedded rent growth climbed to 185 basis points, up nearly 30 basis points since the start of 2024.

Speaker #3: Across 2025 and 2026, we have now repurchased 19.6 million shares for approximately $475 million, at an average price of $24.20—well inside consensus NAV.

Speaker #3: Our reshaped portfolio is performing, same property NOI grew 3.7% in the second quarter, we executed 128 new and renewal leases totaling approximately $1 million square feet, with blended cash spreads of 15.9%, including 28.4% on comparable new leases.

Speaker #3: Our lease rate reached 94.8%, up 150 basis points year over year, led by a 210 basis point improvement in our anchor lease rate. ABR per square foot climbed to $23.41, up 2.3% sequentially and 6.3% year over year.

Speaker #3: Our embedded rent growth climbed to 185 basis points, up nearly 30 basis points since the start of 2024. And our sign-not-open pipeline increased to approximately $37 million of NOI, representing a 350 basis point spread between our leased and occupied rates.

John Kite: Our sign-not-open pipeline increased to approximately $37 million of NOI, representing a 350 basis points spread between our leased and occupied rates. We also continue to unlock embedded value across our mixed-use platform. This quarter, we commenced the second phase of luxury multifamily at One Loudoun, a 429-unit development within our existing residential joint venture that will begin delivering in 2029. The latest example of the self-funding growth built into our portfolio. Given the strength of the H1, we are raising our full year same property NOI guidance by 50 basis points at the midpoint to a range of 3% to 4%. We are maintaining our FFO guidance as we prioritize flexibility and optionality over the immediate redeployment of proceeds generated through Project Elevate.

Speaker #3: We also continue to unlock embedded value across our mixed-use platform. This quarter, we commenced the second phase of luxury multifamily at One Loudon—a 429-unit development within our existing residential joint venture that will begin delivering in 2029.

Speaker #3: This is the latest example of the self-funding growth built into our portfolio. Given the strength of the first half, we're raising our full-year Same Property NOI guidance by 50 basis points at the midpoint, to a range of 3% to 4%.

Speaker #3: We are maintaining our FFO guidance as we prioritize flexibility and optionality over the immediate redeployment of proceeds generated through Project Elevate. In the near term, our focus is on further strengthening and fortifying our balance sheet, reducing leverage, enhancing liquidity, and maintaining dry powder for attractive investment opportunities.

John Kite: In the near term, our focus is on further strengthening and fortifying our balance sheet, reducing leverage, enhancing liquidity, and maintaining dry powder for attractive investment opportunities. While the heavy lifting on Project Elevate is behind us, we still have some work to do. Our guidance continues to assume a meaningful amount of gross transactional activity remaining in 2026, split between the sale of non-core assets associated with tax losses and 1031 acquisitions, which Heath will detail in a moment. Simply put, KRG has never been in a stronger position. We have a higher quality portfolio, a more durable growth profile, and one of the best balance sheets in the business, and a team that executes with discipline and urgency. I want to thank the entire KRG team for getting us here and having the energy and conviction it takes to keep raising the bar. Turn it over to Heath.

Speaker #3: While the heavy lifting on Project Elevate is behind us, we still have some work to do. Our guidance continues to assume a meaningful amount of gross transactional activity remaining in 2026, split between the sale of non-core assets associated with tax losses and 1031 acquisitions, which Heath will detail in a moment.

Speaker #3: Simply put, KRG has never been in a stronger position. We have a higher quality portfolio, a more durable growth profile, and one of the best balance sheets in the business.

Speaker #3: And a team that executes with discipline and urgency. I want to thank the entire KRG team for getting us here and having the energy and conviction it takes to keep raising the bar.

Speaker #3: Turn it over to Heath.

Speaker #2: Thank you, and good afternoon. Coming off an extraordinarily active quarter, KRG is on plan and operating from a position of strength. We generated 52 cents of core FFO per share and 53 cents of NARE FFO per share in the second quarter.

Heath Fear: Thank you and good afternoon. Coming off an extraordinarily active quarter, KRG is on plan and operating from a position of strength. We generated $0.52 of Core FFO per share and $0.53 of Nareit FFO per share in the Q2. Our same property NOI meaningfully outperformed our internal estimates in the H1 of 2026, growing 3.7% in the Q2 and year-to-date. The outperformance was broad-based across better tenant retention, lower bad debt, higher overage rent, and stronger net recoveries. At the same time, we are maintaining our full year Core FFO and Nareit FFO guidance of $2.06 to $2.12 per share. This guidance assumes a 2026 same property NOI growth range of 3% to 4%, which is a 50 basis points increase at the midpoint and reflects our year-to-date outperformance.

Speaker #2: Our same property NOI meaningfully outperformed our internal estimates in the first half of 2026, growing 3.7% in the second quarter and year to date.

Speaker #2: The outperformance was broad-based across better tenant retention, lower bad debt, higher overage rent, and stronger net recoveries. At the same time, we are maintaining our full-year core FFO and NARE FFO guidance of $2.06 to $2.12 per share.

Speaker #2: This guidance assumes a 2026 same property NOI growth range of 3 to 4 percent, which is a 50 basis point increase at the midpoint and reflects our year-to-date outperformance.

Speaker #2: We are assuming a bad debt reserve of 90 basis points of total revenues at the midpoint. As a reminder, our 90 basis point bad debt assumption applies to the full year, and reflects a blend of actual bad debt incurred during the first half of the year and an assumed bad debt rate of 100 basis points of revenue for the second half of the year.

Heath Fear: We are assuming a bad debt reserve of 90 basis points of total revenues at the midpoint. As a reminder, our 90 basis points bad debt assumption applies to the full year and reflects a blend of actual bad debt incurred during the H1 of the year and an assumed bad debt rate of 100 basis points of revenue for the H2 of the year. We are further assuming interest expense net of interest income, excluding unconsolidated joint ventures of $114.7 million at the midpoint. The nearly $7 million sequential decline is largely attributable to two factors, higher interest income generated from Project Elevate proceeds being held in 1031 accounts, and the deconsolidation of our One Loudoun residential joint venture, which I will address in a moment.

Speaker #2: We are further assuming interest expense net of interest income excluding unconsolidated joint ventures of 114.7 million dollars at the midpoint, for nearly $7 million sequential decline is largely attributable to two factors: higher interest income generated from Project Elevate proceeds being held in 1031 accounts and the deconsolidation of our One Loudon residential joint venture, which I'll address in a moment.

Speaker #2: As for the remaining transactional activity in 2026, we are assuming approximately $225 million of non-core tax loss sales assets and $110 million of 1031 acquisitions.

Heath Fear: As for the remaining transactional activity in 2026, we are assuming approximately $225 million of non-core tax loss sale assets and $110 million of 1031 acquisitions. When considering Core FFO guidance in the context of our accelerating same property assumptions, it's important to refer to page five of our investor deck. On the quarter-over-quarter FFO bridge, you'll see a 2 penny drag in the line labeled Change in Our Transaction Activity and Assumptions. That line item reflects our decision to capitalize on a constructive transaction environment by expanding Project Elevate to the second portfolio sale that occurred in Q2, while also pursuing the sale of additional tax loss assets. It's worth taking a step back to consider the context.

Speaker #2: When considering core FFO guidance in the context of our accelerating same-property assumptions, it's important to refer to page 5 of our investor deck.

Speaker #2: On the quarter-over-quarter FFO bridge, you'll see a $0.02 drag in the line labeled "change in our transaction activity and assumptions." That line item reflects our decision to capitalize on a constructive transaction environment by expanding Project Elevate to the second portfolio sale that occurred in the second quarter, while also pursuing the sale of additional tax loss assets.

Speaker #2: It's worth taking a step back to consider the context. Project Elevate contemplates recycling roughly 14% of our enterprise value, resulting in a platform transformation into an upgraded portfolio quality and improved durability of our cash flow, while maintaining our fortress balance sheet and having remarkably little impact on our earnings.

Heath Fear: Project Elevate contemplates recycling roughly 14% of our enterprise value, resulting in a platform transformation into upgraded portfolio quality and improve the durability of our cash flow while maintaining our fortress balance sheet and having remarkably little impact to our earnings. This was only made possible by our disciplined sources and uses capital allocation strategy. More specifically, since the start of 2025, we have generated approximately $1.1 billion of proceeds, including approximately $973 million from non-core dispositions and approximately $112 million from the sale of a 48% interest in three of our operating assets. We currently expect an additional $225 million of non-core tax loss sales, which will bring total proceeds to approximately $1.3 billion. Against those sources, we have been disciplined and opportunistic with uses of capital.

Speaker #2: This was only made possible by our disciplined sources and uses capital allocation strategy. More specifically, since the start of 2025, we have generated approximately $1.1 billion of proceeds, including approximately $973 million from non-core dispositions and approximately $112 million from the sale of a 40% interest in three of our operating assets.

Speaker #2: We currently expect an additional $225 million of non-core tax loss sales, which will bring total proceeds to approximately $1.3 billion. Against those sources, we have been disciplined and opportunistic with uses of capital.

Speaker #2: Since the start of 2025, we have repurchased approximately $476 million of common shares and funded $250 million for our share of equity for Legacy West.

Heath Fear: Since the start of 2025, we have repurchased approximately 476 million of common shares, funded $250 million for our share of equity for Legacy West, completed approximately $204 million of acquisitions, and paid a $31 million special dividend. We also expect to complete approximately $110 million of additional 1031 acquisitions, which would bring total capital deployment to approximately $1.1 billion. When you roll all of that together, our expected sources exceed our uses by $240 million. We intend to be patient and flexible with that remaining capacity. We will continue to evaluate acquisitions, repurchases, and other uses through the same return focused lens we always have, but in the current environment, our preference is toward balance sheet strength. I want to spend a moment on the structure behind our new 429-unit luxury multifamily development in One Loudoun, as it's a great example of capital efficiency we strive for.

Speaker #2: Completed approximately 204 million dollars of acquisitions and paid a 31 million dollar special dividend. We also expect to complete approximately 110 million of additional 1031 acquisitions, which would bring total capital deployment to approximately 1.1 billion.

Speaker #2: When you roll all of that together, our expected sources exceed our uses by 240 million dollars. We intend to be patient and flexible with that remaining capacity.

Speaker #2: We will continue to evaluate acquisitions, repurchases, and other uses through the same return-focused lens we always have, but in the current environment our preference is toward balance sheet strength.

Speaker #2: I want to spend a moment on the structure behind our new 429-unit luxury multifamily development in One Loudoun, as it's a great example of the capital efficiency we strive for.

Speaker #2: Through a tax-free recapitalization, the venture that owns the existing 378-unit multifamily development, we are reducing our ownership from 90% to 55%. The proceeds from that recapitalization, together with the contribution of land we already own, will fund the majority of our 55% equity interest in the new 429-unit development.

Heath Fear: Through a tax-free recapitalization of the venture that owns the existing 378 multifamily unit development, we are reducing our ownership from 90% to 55%. The proceeds of that recapitalization, together with a contribution of land we already own, will fund the majority of our 55% equity interest in the new 429-unit development. Importantly, that step down in our ownership of the existing stabilized project occurs over time as the new building is constructed. At quarter end, our ownership stood at 77%. The $60 million gain you'll see in our financials relate to the recapitalization and deconsolidation of the existing joint venture, and is entirely non-cash. It is a modest transaction in the context of our enterprise but reflects the creativity and discipline we bring to every dollar of capital we deploy. Our balance sheet remains one of the strongest in the sector.

Speaker #2: Importantly, that step down in our ownership of the existing stabilized project occurs over time as the new building is constructed. At quarter end, our ownership stood at 77%.

Speaker #2: The $60 million gain you'll see in our financials relates to the recapitalization and deconsolidation of the existing joint venture and is entirely non-cash. It is a modest transaction in the context of our enterprise, but reflects the creativity and discipline we bring to every dollar of capital we deploy.

Speaker #2: Our balance sheet remains one of the strongest in the sector. As of June 30th, our net debt to EBITDA was 5.1 times, near the low end of our long-term targeted range.

Heath Fear: As of 30 June, our net debt to EBITDA was 5.1 times, near the low end of our long-term targeted range. During the quarter, we priced $345 million of 3.25% exchangeable senior notes due 2032, with proceeds funded on 2 July. In connection with the notes, we entered into a capped call transaction that raised the effective conversion price to $41.91. We intend to use a majority of those proceeds to retire our $300 million of unsecured notes due October 2026. The remaining $100 million maturity coming due in September 2026 will be retired with cash on hand. We have access to over $1.2 billion in total liquidity, providing us with significant flexibility to continue pursuing value-enhancing opportunities. Thank you to the entire KRGT team for their relentless effort in driving our results. Operator, this concludes our prepared remarks. Please open the lines for questions.

Speaker #2: During the quarter, we priced $345 million of 3.25% exchangeable senior notes due 2032, with proceeds funded on July 2nd. In connection with the notes, we entered into a cap call transaction that raised the effective conversion price to $41.91.

Speaker #2: We intend to use a majority of those proceeds to retire our 300 million dollars of unsecured notes due October 2026. The remaining 100 million dollar maturity coming due in September 2026 will be retired with cash on hand.

Speaker #2: We have access to over $1.2 billion in total liquidity, providing us with significant flexibility to continue pursuing value-enhancing opportunities. Thank you to the entire KRG team for their relentless effort in driving our results.

Speaker #2: Operator, this concludes our prepared remarks. Please open the line for questions.

Speaker #1: Certainly. And as a reminder, we ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Todd Thompson from KeyBank.

Operator: Certainly, as a reminder, we ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Todd Thomas from KeyBanc. Your question please.

Speaker #1: Your question, please.

Speaker #3: This is Sean Glass on for Todd. Can you speak to the impact or improvement on the same store in a while outlook that can be attributed to the dispositions completed so far year to date?

Sean Glass: This is Sean Glass on for Todd. Can you speak to the impact or improvement on the same-store NOI outlook that can be attributed to the dispositions completed so far year-to-date? How much of the same-store NOI growth improvement is from dispositions versus operational upside?

Speaker #3: How much of the same-store NOI growth improvement is from dispositions versus operational upside?

Speaker #2: Yeah, the contribution from the elimination of those assets was pretty modest. It was only three basis points. So, if you think about it, that pool was 98% leased, but it had several spaces that had some rent coming online.

Heath Fear: Yeah. The contribution from the elimination of those assets was pretty modest. It was only three basis points. If you think about it, that pool was 98% leased, but it had several spaces that had some rent coming online. For this particular period of time, they were not dilutive of same store, but in general, reminder, these assets have $18 of ABR. They grow slower, they have higher watch list concentration. In the long run, they'd be detractors for same store, but for this current year, they were only a small contribution. Again, just three basis points.

Speaker #2: So for this particular period of time, they were not dilutive of same store. But in general, reminder, these assets had $18 of ABR, they grow slower, they have higher watchless concentration.

Speaker #2: So in the long run, they'd be detractors. For same store, but for this current year, they were only a small contribution. Again, just three basis points.

Speaker #3: Okay, that's helpful. And then you may have touched on this, but is there any expected capitalized interest related to the One Loudon residential product?

Sean Glass: Okay. That's helpful. You may have touched on this, but is there any expected capitalized interest related to the One Loudoun residential product? Any notable impact that may have on interest expense as we think about 2027?

Speaker #3: Any notable impact that may have on interest expense as we think about 2027?

Speaker #2: Yeah, as we're heading into 2027, you will see the capitalized interest related to that project step up. So, yes, you'll see some capitalized interest.

Heath Fear: Yeah, as we're heading into 2027, you will see the capitalized interest related to that project step up. Yes, you'll see some capitalized interest.

Speaker #3: Thank you.

Sean Glass: Thank you.

Speaker #1: Thank you. And our next question comes to the line of Andrew Rialli from Bank of America. Your question, please.

Operator: Thank you. Our next question comes to the line of Andrew Reale from Bank of America. Your question please.

Andrew Reale: Good afternoon. Thanks for taking my questions. Heath, you had some helpful color in your prepared remarks. I guess just going back to the guidance to confirm. Could you maybe just walk through exactly what is driving the $0.02 of dilution this quarter in the guidance bridge? It sounds like a lot of that is just from the timing of the recycling. Just wondering if there might be any other moving pieces.

Speaker #4: Good afternoon. Thanks for taking my questions. Heath, you had some helpful color in your prepared remarks, but I guess just going back to the guidance to confirm, could you maybe just walk through exactly what is driving the $0.02 of dilution this quarter in the guidance bridge?

Speaker #4: I mean, it sounds like a lot of that is just from the timing of the recycling. Just wondering if there might be any other moving pieces?

Heath Fear: No, Andrew, you're exactly right. Listen, we led with the disposition. We had the largest disposition in Q2, and it takes time to put those proceeds to use. Over the course of the next six months, we'll do our best. We've got another $110 million of assets to buy. We've got to sell another $225 million. All of that, when you put into the mix with the timing, ends up being $0.02 dilutive into 2026.

Speaker #2: Andrew, you're exactly right. Listen, we led with the disposition. We had the largest position in the second quarter. And it takes time to put those proceeds to use.

Speaker #2: So, over the course of the next six months, we'll do our best. We've got another $110 million of assets to buy, and we've got to sell another $225 million. All of that, when you put it into the mixture of the timing, has that being two cents dilutive.

Speaker #2: Into 2026.

Speaker #4: Okay, thanks. And then maybe just for the 1031 recycling in the most recent quarter, what was the cap rate spread on those transactions?

Andrew Reale: Okay, thanks. Then maybe just for the 1031 recycling in the most recent quarter, what was the cap rate spread on those transactions?

Heath Fear: Cap rate spread? You just mean. Go ahead, I'm sorry. Say that again.

Speaker #2: Cap rate spread? You just mean—go ahead. I'm sorry, say that again.

Speaker #4: Just cap rates on what you're buying versus what you're selling, just to give us a sense.

Andrew Reale: Just cap rates on what you're buying versus what you're selling, just to give us a sense.

Speaker #2: Yeah, yeah. I think, I mean, as we've said, obviously, we've been—without specifics to each individual deal—the Project Elevate, in terms of selling the lower-growth, larger format deals, have been in the kind of low- to mid-7% cap rate range.

Heath Fear: Yeah. I think, as we've said, obviously, we've been without specifics to each individual deal. Project Elevate, in terms of selling the lower growth, larger format deals have been kind of in the low to mid seven cap range, the acquisitions have been closer in the lower six range. It's really more about unlevered IRR that we're looking at, because there's a lot of moving pieces in these deals. We're still continuing to get between 8% and 9%. That's our goal in terms of unlevered IRRs.

Speaker #2: And then the acquisitions have been closer in the lower 6% range. But it's really more about unlevered IRR that we're looking at, because there are a lot of moving pieces in these deals.

Speaker #2: So we're still continuing to get between 8% and 9%. That's our goal in terms of unlevered IRRs.

Speaker #4: Okay, helpful. Thank you.

Andrew Reale: Okay, helpful. Thank you.

Speaker #2: Thank you.

Heath Fear: Thank you.

Speaker #1: Thank you. And our next question comes from the line of Jamie Feldman from Wells Fargo. Your question, please.

Operator: Thank you. Our next question comes from the line of Jamie Feldman from Wells Fargo. Your question please.

Speaker #3: Great. Thanks for taking the question. So, thinking about your economic occupancy at the end of Q2, it was about 91.2%, which is about 250 basis points below your historic highs, and many of your peers are at their historic highs.

Jamie Feldman: Great. Thanks for taking the question. Thinking about your economic occupancy at the end of Q2 is about 91.2%, which is about 250 basis points below your historic highs and many of your peers are at their historic highs. Can you talk about the opportunity set there longer term, and how much the snow pipeline may contribute to higher absolute occupancy levels in H2 2026 and into 2027, as we think about more regular wage earn going forward?

Speaker #3: Can you talk about the opportunity set there longer term, and how much the SNOW pipeline may contribute to higher absolute occupancy levels in the second half of ’26 and into ’27, as we think about more regular wage churn going forward?

Speaker #2: Sure. Jamie, I think obviously we've been very diligent in how we've gone about releasing the portfolio. We've talked in the past about what led us to those lower lease rates versus the peer group, going back to the COVID era.

John Kite: Sure. Jamie, I think, obviously we've been very diligent in how we've gone about re-leasing the portfolio. We've kind of talked in the past about what led us to those lower lease rates versus the peer group, going back to the COVID era. Now we're obviously getting very close to where we were, and in fact, those small shops are basically right there, and we're 200 basis points under our high water mark on the anchor lease percentage. I think more importantly, it's kind of the composition of those tenants that we're focused on, and I think that's the whole point of this Project Elevate exercise. I hope you take a minute to kind of study our top 25 tenant list, and particularly our top 15, and compare that to where it was in the past. It's changed significantly for the good.

Speaker #2: And now we're obviously getting very close to where we were, and in fact, the small shops are basically right there. We're a couple hundred basis points under our high watermark on the anchor lease percentage.

Speaker #2: I think, more importantly, it's kind of the composition of those tenants that we're focused on, and I think that's the whole point of this Elevate exercise.

Speaker #2: And I hope you take a minute to kind of study our top 25 tenant list, and particularly our top 15, and compare that to where it was in the past.

Speaker #2: It's changed significantly for the good, and so I feel very good that we've done what we needed to do there. Now we're very focused on just executing the leasing platform.

John Kite: I feel very good that we've done what we needed to do there, and now we're very focused on just executing the leasing platform. Demand remains strong, supply is low, and our portfolio is better. It's a real opportunity to push that.

Speaker #2: Demand remains strong, supply is low, and our portfolio is better. So it's a real opportunity to push that.

Speaker #3: Okay. And then, given the progress on Elevate year to date and into the back half, what are your thoughts on how much longer it continues into '27? And if you’ve got the two cents drag on '26, do you think drags continue into next year?

Jamie Feldman: Okay. Given the progress on Project Elevate year to date and into the back half, what are your thoughts on how much longer it continues into 2027? If you've got the $0.02 drag on 2026, do you think drags continue into next year?

Speaker #2: No, I think as kind of Heath mentioned, I think in his prepared remarks, and I did as well, I think we're the heavy lifting there is done.

John Kite: No, as kind of Heath Fear mentioned, in his prepared remarks, and I did as well, the heavy lifting there is done. There's more transactional activity in the back half of 2026, which is really more about harvesting some tax losses and doing some 1031 exchanges. The composition of the portfolio that we have today, we feel very good about it. As we move into 2027, I think we're back to the historical kind of pairing a handful of sales and buys per year. The large-scale stuff has pretty much worked its way through. Again, that's why we talk about the composition of our top tenant list and how it's changed so much. I think the real issue on that kind of dilution, if you will, is the fact that we are sitting on $240 million of cash that we haven't deployed.

Speaker #2: There's more transactional activity in the back half of '26, which is really more about harvesting some tax losses and doing some 1031s. But the composition of the portfolio that we have today—we feel very good about it.

Speaker #2: So, as we move into '27, I think we're back to the historical kind of pairing—a handful of sales and buys per year. The large-scale stuff has pretty much worked its way through.

Speaker #2: And again, that's why we talk about the composition of our top tenant list and how it's changed so much. So I think the real issue, on that kind of dilution if you will, is the fact that we are sitting on $240 million of cash that we haven't deployed.

Speaker #2: We don't know how that will be deployed. We're going to be opportunistic in terms of what is the most highest return for us there.

John Kite: We don't know how that will be deployed. We're going to be opportunistic in terms of what is the most highest return for us there. As Heath Fear said in his remarks, that could be acquisitions, it could be buybacks. There's multiple things we could do. It could be reduction of leverage, depending on how we feel about the environment. Even as we sit here today, as we get to the end of the year, we'll likely be sub 5. We're in a really good position, but we're not looking to continue any kind of dilution throughout remaining years from selling. That said, we've sold over $1 billion, and we've basically kind of remained flat, which is kind of unbelievable. We'll build it from there.

Speaker #2: As he said in his remarks, that could be acquisitions; it could be buybacks—there are multiple things we could do. Or it could be reduction of leverage, depending on how we feel about the environment.

Speaker #2: Even as we sit here today, as we get to the end of the year, we'll likely be sub-five. So, we're in a really good position, but we're not looking to continue any kind of dilution throughout the remaining years from selling.

Speaker #2: That said, we've sold over $1 billion, and we've basically kind of remained flat, which is kind of unbelievable. So we'll build it from there.

Speaker #3: Okay. Thank you.

Jamie Feldman: Okay. Thank you.

Speaker #2: Thank you.

John Kite: Thank you.

Speaker #1: Thank you. And our next question comes from the line of Flores Bend. I come from Lattenberg Feldman. Your question, please.

Operator: Thank you. Our next question comes from the line of Floris van Dijkum from Ladenburg Thalmann. Your question please.

Floris van Dijkum: Hey, thanks, guys. I love your cruising speed continues to inch higher. You mentioned something about the $225 million of additional non-core sales. Maybe if you could touch upon, are they more of the power center assets? You also still have, I believe, two big parcels of land that currently yield zero, that potentially could get sold. Maybe you can give us an update and potentially touch on some of your ground rent income as well as being a potential candidate for disposal going forward.

Speaker #5: Hey, thanks, guys. I love that your cruising speed continues to inch higher. You mentioned something about the $225 million of additional non-core sales—maybe if you could touch upon whether they are more of the power center assets?

Speaker #5: You also still have, I believe, two big parcels of land that currently yield zero. That potentially could get sold. Maybe you can give us an update?

Speaker #5: And potentially touch on some of your ground rent income, as well as being a potential candidate for disposal going forward.

Speaker #2: Sure. Well, in terms of the remaining sales, you should expect it, Flores, to be similar to what we've been selling. It's essentially just non-core.

John Kite: Sure. Well, in terms of the remaining sales, you should expect it, Floris, to be similar to what we've been selling. It's essentially just non-core. Obviously, we've mentioned that there's some tax loss harvesting opportunities, which would indicate that the property is going to generate a loss. I think it's similar. Each deal is a little bit different in size, but similar to what we've been selling. In terms of land, that's not contemplated in that number. As we've talked about before, we're always looking to maximize value on any kind of land parcel, and we're working on a couple opportunities there. You mentioned ground leases. Again, nothing is really reflected in that number that would represent ground leases. We're always looking at that. I believe it's about 10% of our revenue, so it's a pretty substantial number.

Speaker #2: Obviously, we mentioned that there's some tax loss harvesting opportunities, which would indicate that the property is going to create is going to generate a loss.

Speaker #2: So, I think it's similar. Each deal is a little bit different in size, but similar to what we've been selling. In terms of land, that's not contemplated in that number.

Speaker #2: But as we've talked about before, we're always looking to maximize value on any kind of land parcel, and we're working on a couple of opportunities there.

Speaker #2: So, in terms of—you mentioned ground leases. I mean, again, nothing is really reflected in that number that would represent ground leases. We're always looking at that.

Speaker #2: It's about, I believe it's about 10% of our revenue. So it's a pretty substantial number. So it's always a possibility to utilize that as in terms of cost-effective capital.

John Kite: It's always a possibility to utilize that in terms of cost-effective capital. Right now that is not contemplated in that $200 plus million of future sales. Heath, do you want to add anything to that?

Speaker #2: But right now, that is not contemplated in that $200-plus million of future sales. Heath, do you want to add anything to that?

Speaker #6: I think you hit it perfectly.

Heath Fear: I think you hit it perfectly.

John Kite: Okay.

Speaker #2: Okay.

Floris van Dijkum: Maybe my follow-up, if I may. On the acquisitions front. I know over the past quarter, there were a number of larger mixed use type, legacy one type assets in the market. What is your appetite for doing additional transactions and what is the appetite of your partner, potentially, if you were to use that in your JV structure?

Speaker #5: And maybe my follow-up, if I may, on the acquisitions front. I know that, over the past quarter, there were a number of larger, mixed-use, legacy-type assets in the market.

Speaker #5: What is your appetite for doing additional transactions, and what is the appetite of your partner, potentially, if you were to use that in your JV structure?

Speaker #2: Sure. Our appetite remains healthy, and that's paired with a very rigorous underwriting process. The market is aggressive, but when you have the opportunity for a generational-type asset, that's what happens.

John Kite: Sure. Our appetite, it remains healthy, but that's paired against a very rigorous underwriting process. The market is aggressive. When you have an opportunity for a generational type asset, that's what happens. We're certainly aware of the properties that are in the market. We're always engaged. We would love to add other very, very high-quality assets like Legacy West and Southlake and Legacy East and One Loudoun and Downtown Crown, just a few for an example. We're always looking to add to that. As far as our partner that you referred to, we have a great relationship. They are also very interested in expanding that portfolio, but are like-minded in the way that we diligently underwrite.

Speaker #2: We're certainly aware of the properties that are in the market. We're always engaged. We would love to add other very, very high-quality assets like Legacy West and Southlake and Legacy East and One Loudoun.

Speaker #2: Downtown Crown—just a few, for example. We're always looking to add to that. As far as our partner that you referred to, we have a great relationship.

Speaker #2: They are also very interested in expanding that portfolio, but are like-minded in the way that we diligently underwrite.

Speaker #5: Thanks, John.

Floris van Dijkum: Thanks, John.

Speaker #2: Thank you.

John Kite: Thank you.

Speaker #1: And our next question comes from the line of Michael Mueller from JP Morgan. Your question, please.

Operator: Our next question comes from the line of Michael Mueller from JPMorgan. Your question, please.

Speaker #4: Hey, guys. Thanks for taking the question. You have Malcolm on for Mike this afternoon. Just a quick one from us: it looks like your blended cash leasing spreads have been in the low teens.

[Analyst] (J.P. Morgan): Hey, guys. Thanks for taking the question. You have Malcolm on for Mike this afternoon. Just a quick one from us. It looks like your blended cash leasing spreads have been in the low teens, it seems, for the last 12 months. I guess, what's that roughly translating to on a GAAP basis? Thank you.

Malcolm Smith: Hey, guys. Thanks for taking the question. You have Malcolm on for Mike this afternoon. Just a quick one from us. It looks like your blended cash leasing spreads have been in the low teens, it seems, for the last 12 months. I guess, what's that roughly translating to on a GAAP basis? Thank you.

Speaker #4: It seems for the last 12 months. I guess, what's that roughly translating to on a gap basis? Thank you.

John Kite: On a GAAP basis, we don't really give the GAAP number, but generally speaking, it's probably an additional 10% on a GAAP basis, generally speaking. If you look at what we've been doing on our small shop portfolio, it's 3% and 4% growth. I would say 10% is a pretty reasonable GAAP spread addition.

Speaker #2: On a GAAP basis? I mean, we don't really give the GAAP number, but generally speaking, it's probably an additional 10% on a GAAP basis.

Speaker #2: Generally speaking, I mean, if you look at what we've been doing on our small shop portfolio, right, it's 3% to 4% growth.

Speaker #2: So, I would say 10% is a pretty reasonable gap spread addition.

[Analyst] (J.P. Morgan): Got it. Thank you.

Malcolm Smith: Got it. Thank you.

Speaker #4: Got it. Thank you.

Speaker #1: Thank you. And our next question comes from the line of Paulina Rojas Schmidt from Green Street. Your question, please.

Operator: Thank you. Our next question comes from the line of Paulina Rojas-Schmidt from Green Street. Your question, please.

Speaker #7: And good afternoon. And my question is about retailer health. And most suites are describing their tenant rosters as healthier than historically. So do you think we're entering a period of structurally lower tenant failures, or do you view this year's experience generally bad debt below expectations more as a good year, more as an anomaly?

Paulina Rojas-Schmidt: Good afternoon. My question is about retailer health. Most REITs are describing their tenant rosters as healthier than historically. Do you think we're entering a period of structurally lower tenant failures, or do you view this year's experience generally, but that below expectations more as a good year, more so than a anomaly?

John Kite: Hey, Paulina. From my perspective, I think we're definitely in a healthier environment for retailers. I think this has just been a long build since COVID, which we've talked about a lot in terms of how retailers rebuilt their enterprises and became much healthier from a balance sheet perspective. Obviously, in this business, in my personal opinion, there will always be periods of time where outside forces would create a situation that would put more strain on a retailer, and there's also periods of time where retailers themselves put strain on their own business models, whether that be operational or balance sheet pressure. It's a great question because it's really a part of why we're doing what we're doing in Project Elevate, which is, as we know, slightly different than maybe what some others are doing.

Speaker #2: Hey, Paulina. From my perspective, I think we're definitely in a healthier environment for retailers, and I think this has just been a long build since COVID.

Speaker #2: Which we talked about a lot in terms of how retailers rebuilt their enterprises and became much healthier from a balance sheet perspective. But obviously, in this business, there's always—in my personal opinion—there will always be periods of time where outside forces create a situation that puts more strain on a retailer.

Speaker #2: And there's also periods of time where retailers themselves put strain on their own business models, whether that be operational or balance sheet pressure. So it's a great question, because it's really a part of why we're doing what we're doing in Project Elevate, which is, as we know, slightly different than maybe what some others are doing.

Speaker #2: And I think our objective internally is that we don't think hoping is a good strategy. We want to take intense action around creating a portfolio that is independent and can withstand any of those outcomes.

John Kite: I think our objective internally is that we don't think that hoping is a good strategy. We want to take intense action around creating a portfolio that is independent and withstands any of those outcomes. I think, yes, we're in a much better environment. Yes, there's very low supply and the majority of our retailers have rebuilt their businesses and have good platforms and balance sheets, we want to be kind of independent of that, and that's a real big part of what we've been doing.

Speaker #2: So I think, yes, we're in a much better environment. Yes, there's very low supply, and the majority of our retailers have rebuilt their businesses and have good platforms and balance sheets.

Speaker #2: But we want to be kind of independent of that, and that's a really big part of what we've been doing.

Thomas McGowan: Paulina, I'd add one thing that John talked about the evolution of the retailer and how they've been far more efficient in working on margins, profitability, et cetera. We have been doing a much better job spending time with these retailers and understanding what their next store evolution looks like and how we can help them, and then understanding if that's different than what we have in the portfolio, how we can then basically potentially get rid of some of those stores. Knowledge base on our side of the business has been equally important.

Speaker #3: And Paulina, I'd add one thing that John talked about—the evolution of the retailer and how they've become far more efficient, working on margins, profitability, etc.

Speaker #3: But we have been doing a much better job spending time with these retailers and understanding what their next store evolution looks like, and how we can help them.

Speaker #3: And then understanding, if that's different than what we have in the portfolio, how can we then basically potentially get rid of some of those stores.

Speaker #3: So knowledge base on our side of the business has been equally important.

John Kite: Paulina, I'll add one more thing. It's not only about us trying to concentrate our ABR in strong retailers during a good part of the cycle, the other side of that coin is making sure that we're just not filling up those spaces with tenants that have equally suspect credit later on. It's one is can we shed some assets and get our exposure to the right place? Number two, let's be super disciplined on underwriting in the way in and making sure that we're taking our time and putting the best balance sheet and the best use in our spaces.

Speaker #2: Paulina, I’ll add one more thing. It’s not only about us trying to concentrate our ABR in strong retailers during a good part of the cycle.

Speaker #2: But the other side of that coin is making sure that we're not just filling up those spaces with tenants that have equally suspect credit later on.

Speaker #2: So it's, one is, can we shed some assets and get our exposure to the right place? Number two, let's be super disciplined on underwriting on the way in and make sure that we're taking our time and putting the best balance sheet and the best use in our spaces.

Speaker #7: Thank you. Another question that I have is when I think of the two buckets that you like the most, neighborhood centers and lifestyle mixed-use centers.

Paulina Rojas-Schmidt: Thank you. Another question that I have is when I think of the two buckets that you like the most, neighborhood centers and lifestyle mixed-use centers. For the specific level of quality and type of location you're pursuing in each, how does the return profile compare between the two buckets? To the extent that you see that they differ, where do you think the difference typically stems from? Is it just the entry pricing? Is it the growth profile, CapEx?

Speaker #7: For the specific level of quality and type of location you're pursuing in each, how does the return profile compare between the two buckets? And to the extent that you see that they differ, where do you think the difference typically stems from?

Speaker #7: Is it just the entry pricing? Is it the growth profile, capex?

John Kite: Heath, you want to start with that?

Speaker #2: Heath, do you want to start with that?

Heath Fear: Yeah. Pauline, I think the return profile on both is fairly similar. Honestly, you're looking at super high quality grocery in a good MSA. You're looking at super high quality lifestyle in a good MSA. We've seen those converge recently. Particularly, you've seen a tremendous amount of compression in lifestyle over the past probably, I don't know, year, as that product type has become very popular. Not surprising enough, I think we were part of the reason why it became so popular with Legacy West, which kind of gave people pricing discovery. Again, I think their initial yields are fairly similar, and of course, our return hurdles are the same. We're looking for somewhere between the 8% to 9% unlevered return based on the quality asset, the location, et cetera. Yeah, they're behaving fairly similarly in the transactional markets right now.

Speaker #6: Yeah. So, Paulina, I think the return profile on both is fairly similar. Honestly, we're looking at super high-quality grocery in a good MSA. You're looking at super high-quality lifestyle in a good MSA.

Speaker #6: Those cap rates of we've seen those converge recently. Particularly, you've seen a tremendous amount of compression in lifestyle over the past probably, I don't know, year.

Speaker #6: That product type has become very popular, not surprisingly. I think we were part of the reason why it became so popular with Legacy West, which kind of gave people a pricing discovery.

Speaker #6: So again, I think their initial yields are fairly similar. And, of course, our return hurdles are the same. We're looking for somewhere between an 8% and 9% unlevered return, based on the quality of the asset, the location, etc.

Speaker #6: So yeah, they're behaving fairly similarly in the transactional markets right now.

Speaker #2: I think, Paulina, the thing I would add is you're right. Those are the right invested capital and, as he said, the return characteristics are similar.

John Kite: I think Pauline, the thing I would add is you're right. Those are right now our kind of favorite places to invest capital, and as Heath said, the return characteristics are similar. There's a lot of differences, obviously, in the operational side of the business for both of those. I think it's important that you have the capacity to be able to operate assets at the magnitude of, as I said, of a Legacy West or Southlake. It's quite different operating those assets than it is a neighborhood grocery anchor shopping center. Also, the embedded rent growth profiles are different. You have an opportunity to stretch that out in the lifestyle and mixed use, and in the smaller neighborhood centers, we're doing our best we can to get those above 165 basis point cruising speed. It's interesting. They're similar, but they're different.

Speaker #2: There are a lot of differences, obviously, in the operational side of the business for both of those. And I think it's important that you have the capacity to be able to operate assets of the magnitude of, as I said, a Legacy West and a Southlake.

Speaker #2: It's quite different operating those assets than it is a neighborhood grocery-anchored shopping center. Also, the embedded rent growth profiles are different. You have an opportunity to stretch that out in the lifestyle mixed-use.

Speaker #2: And in the smaller neighborhood centers, we're doing the best we can to get those above a 165-basis-point cruising speed. So it's interesting—they're similar, but they're different.

Speaker #2: And then again, I think just the operational fortitude it takes to run a very high-quality lifestyle center is different. So I think it's important that the market understands that.

John Kite: Again, I think just the operational fortitude it takes to run a very high-quality lifestyle center is different. I think it's important that the market understands that.

Speaker #7: Thank you.

Paulina Rojas-Schmidt: Thank you.

Speaker #2: Thank you.

John Kite: Thank you.

Speaker #1: Thank you. And our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your question, please.

Operator: Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your question, please.

Alexander Goldfarb: Hey, morning. Morning out there. John, you guys have been repositioning the portfolio for a while. In the current environment, especially since COVID in the past few years, the strength of the landlord's hand has really improved tremendously. Has that changed at all? I know you're talking about selling centers that have weaker tenants in them, but aren't those weaker tenants, doesn't that provide you future GLA to be able to lease to stronger ones? How do you balance selling a center that could have upcoming vacancy that could go to a better retailer versus exiting it and then not having to deal with I guess the year or two, when the tenant does go out that you have to together.

Speaker #4: Hey, good morning out there. John, you guys have been repositioning the portfolio for a while, and in the current environment, especially since COVID over the past few years, the strength of the landlord's hand has really improved tremendously.

Speaker #4: Has that changed at all? I know you're talking about selling centers that have weaker tenants in them, but aren't those weaker tenants, doesn't that provide you future GLA to be able to lease to stronger ones?

Speaker #4: How do you balance selling a center that could have upcoming vacancy—which could go to a better retailer—versus exiting it and then not having to deal with, I guess, the year or two when the tenant does go out, and you have to deal with that?

John Kite: Yeah. That's a great question, Alex, again, you're right that we have been underway on this for the last two years. As we said on the call, we are nearing the end of that. You have to look at this from a macro perspective and a micro perspective, right? I think you're kind of referring to the micro, which is each individual asset having a potential vacancy and what is the upside and what potential does that have to give us better returns over time. It's also, as we mentioned, as we focused on this and we looked at what we viewed as the future at-risk tenancy, it wasn't really just about rent. It was also about capital, right?

Speaker #2: Yeah, that's a great question, Alex. And again, you're right on this for the last two years, but as we said on the call, we are nearing the end of that.

Speaker #2: So, I think we have been making you look at this from both a macro perspective and a micro perspective, right? I think you're kind of referring to the micro, which is each individual asset having a potential vacancy, and what is the upside and what potential does that have to give us better returns over time.

Speaker #2: But it's also, as we mentioned, as we focused on this and looked at what we viewed as the future at-risk tenancy, it wasn't really just about rent.

Speaker #2: It was also about capital, right? And to that extent—and that's why we said in the prepared remarks—this was kind of a dual-headed exercise in the sense that this is a potential future interruption to earnings and a latent kind of claim on our capital, right?

John Kite: To the extent, and that's why we said in the prepared remarks, that this was kind of a dual-headed exercise in the sense that this is a potential future interruption to earnings and a latent kind of claim on our capital, right? I agree with you that the market is better, the retail environment is better, but we wanted to position ourselves with a portfolio over the next five-plus years, not over the next five-plus quarters. I think that's the decision we made and have made, and I think it's reflective when you look at, for example, if you just look at the last five quarters as this activity has been occurring. I think this is off the top of my head, but if you look at our renewal rents, I think they average like $28, our non-option renewal rents.

Speaker #2: So I agree with you that the market is better, the retail environment is better, but we wanted to position ourselves with a portfolio over the next five-plus years, not over the next five-plus quarters.

Speaker #2: So, I think that's the decision we made and have made. And I think it's reflective when you look at, for example, if you just look at the last five quarters, as this activity has been occurring, our—I think this is off the top of my head—but if you look at our renewal rents, I think they average like $28, our non-option renewal rents.

Speaker #2: And then you look at our new rents, they average $30. And that's against the backdrop of a $23 average portfolio. So everything we're doing is improving, and our growth is going to improve.

John Kite: Then you look at our new rents, they average $30, and that's against the backdrop of a $23 average portfolio. Everything we're doing is improving, and our growth is going to improve. I'll give you that it's a somewhat short-term shuffle for a long-term gain, but we feel very strong in that long-term gain.

Speaker #2: So, I'll give you that it's a somewhat short-term shuffle for a long-term gain, but we feel very strongly in that long-term gain.

Speaker #4: And then, John, as you look at the assets that you're selling—and I assume that you've owned these for quite some time—is it the market that has changed, the submarket that has changed, or what's changed in the underwriting from when you originally bought or developed these assets to now that you're selling them?

Alexander Goldfarb: John, as you look at the assets that you're selling, and I assume that you've owned these for quite some time, is it the market that has changed, the sub-market has changed, or what's changed in the underwriting from when you originally bought or developed these assets to now that you're selling them? Just trying to understand if it's market, tenant, sub-market, or just where your future money's been put, you just realize there's faster growth elsewhere.

Speaker #4: I'm just trying to understand if it's market, tenant, submarket, or just where your future money's been put. You just realize there's faster growth elsewhere.

Speaker #2: Yeah, I think it's more the latter. I think it's more about that—we think we can place that capital into a better growing environment with lower risk, on a risk-adjusted basis.

John Kite: I think it's more the latter. I think it's more about that we think we can place that capital into a better growing environment with lower risk, on a risk-adjusted basis. It's also, there are individual situations where the market has changed, and that's something that we got to stay ahead of. I think, again, I mentioned hope's not a great strategy. I think people, when things get going well, people they like to ride that and say, Oh, it's all great. You got to think way ahead. We've been doing this for a very long time. We've been through a lot of different cycles. We've been through the worst cycles. I think what we're saying is our portfolio will be able to withstand those and grow throughout them. I think that's it, Alex. It's just really trying to think ahead.

Speaker #2: But it's also that there are individual situations where the market has changed, and that's something that we've got to stay ahead of. I think, again, as I mentioned, hope's not a great strategy.

Speaker #2: I think people, when things are going well, like to ride that and say, "Oh, it's all great." But you've got to think way ahead.

Speaker #2: And we've been doing this for a very long time. We've been through a lot of different cycles, and we've been through the worst cycles.

Speaker #2: So, I think what we're saying is our portfolio will be able to withstand those and grow throughout them. So, I think that's it, Alex.

Speaker #2: It's just really trying to think ahead. I know the market has intense pressure to be short-term, and I get it—we all live in it.

John Kite: I know the market has intense pressure to be short term, and I get it. We all live in it. We're trying to make decisions that'll pay dividends for everybody, literally for a very long time.

Speaker #2: But we're trying to make decisions that'll pay dividends for everybody—literally—for a very long time.

Speaker #4: Thank you.

Alexander Goldfarb: Thank you.

Speaker #2: Thanks.

John Kite: Thanks.

Operator: Thank you. Our next question comes from the line of Connor Mitchell from UBS. Your question please.

Speaker #1: Thank you. And our next question comes from the line of Connor Mitchell from UBS. Your question, please.

Connor Mitchell: Hey, thanks for taking my question. Just kind of following up on that line of thinking, actually. I was curious about the prior and the future dispositions in Project Elevate, kind of looking at it from different angle. Where do you kind of start with the thought of the asset disposition, whether it's the growth outlook, which you've touched upon, or more of the format type, or even a reduction in the watch list tenant exposure?

Speaker #6: Hey, thanks for taking my question. Just kind of following up on that line of thinking, actually. I was curious about the prior and the future dispositions in Project Elevate.

Speaker #6: Kind of looking at it from different angles, where do you start with the thought of asset disposition? Whether it's the growth outlook, which you touched upon, or more of the format type, or even a reduction in the watchlist tenant exposure?

Speaker #2: I mean, I hate to say it—it's all of them. And I think we do start with the idea that our goal is to have the highest-quality portfolio with an embedded growth rate that is exceeding our competition.

John Kite: I hate to say it's all of them. I think we do start with the idea that our goal is to have the highest quality portfolio that has an embedded growth rate that is exceeding our competition. That is our goal. As you know, having raised our embedded growth rate 50 basis points in two years. I think that's right. Or is it 30? Too many basis points in my head. 30 basis points in two years. I think that's hard to do on a portfolio of our magnitude. We start there. It does become an exercise around the quality of the tenancy, the durability of that cash flow, and the capital associated with owning those. Everybody likes to talk about rent spreads, but capital is a very big part of that when you're looking at new rent spreads.

Speaker #2: That is our goal. And as you know, having raised our embedded growth rate 50 basis points in two years—I think that's right—or did I say 30?

Speaker #2: Too many basis points in my head. Thirty basis points in two years—I think that's hard to do on a portfolio of our magnitude.

Speaker #2: And so, we start there. But then it becomes an exercise around the quality of the tenancy, the durability of that cash flow, and the capital associated with owning those.

Speaker #2: I mean, everybody likes to talk about rent spreads, but capital is a very big part of that when you're looking at new rent spreads.

Speaker #2: So we're trying to say we want to have the portfolio that's going to generate the strongest risk-adjusted cash flow. So it's all of those.

John Kite: We're trying to say we want to have the portfolio that's going to generate the most strongest risk-adjusted cash flow. It's all of those. I hate to be cute with that. I wouldn't rank any one of them. In the end, we're trying to get that growth rate up to 2%, our embedded growth rate. That's our goal.

Speaker #2: I hate to be cute with that. I wouldn't rank any one of them, but in the end, we're trying to get that growth rate up to 2%, our embedded growth rate.

Speaker #2: That's our goal.

Speaker #4: Just to see, I was just saying, listen, when we're figuring out our disposition pool, it's very much a scoring exercise. And some of the things that we're looking at are the things you're mentioning.

Heath Fear: This is Heath. I'll just say, listen, when we're clearing our disposition pool, it's very much a scoring exercise. Some of the things that we're looking at are the things you're mentioning. What's the growth like? How many watch list tenants do we have? Is it a market that we like or not like? All of these things go into a blender, then we rank them and say, Okay, this seems to be the part of the portfolio that makes the most sense for us to transact on. Is it ready to sell, right? Is it a saleable asset right now? Those are the things that go into it. To John's point, the main goal here was to ensure that we are going to loft our growth to keep having that embedded growth pile improve over time.

Speaker #4: What's the growth like? How many watchlist tenants do we have? Is it a market that we like or not like? So all of these things kind of go into a blender.

Speaker #4: And then we rank them and say, "Okay, this seems to be the part of the portfolio that makes the most sense for us to transact on."

Speaker #4: Is it ready to sell? Is it a saleable asset right now? So, those are the things that go into it. But to John's point, the main goal here was to ensure that we were going to loft our growth, to keep having that embedded growth pile improve over time, and to make sure that we're not having earnings hiccups by having problems with watchlist tenants.

Heath Fear: To make sure that we're not having earnings hiccups by having problems with watch list tenants.

Speaker #3: Yeah, I'll also point back to what—

John Kite: Yeah. I'll also point back to what Tom said earlier, that what feedback are we getting from our customers, our tenants, right? Where are they positioned to grow? We're talking to them, as Tom said, well in advance of these decisions. We might learn some things from two or three tenants over a few meetings that would say, You know what? Maybe the long-term prospect for that property is not as good as we thought it was.

Speaker #2: Tom said earlier. What feedback are we getting from our customers, our tenants, right? And where are they positioned to grow? And we're talking to them as Tom said, well in advance of these decisions.

Speaker #2: And we might learn some things from two or three tenants over a few meetings that would say, you know what? Maybe the long-term prospect for that property is not as good as we thought it was.

Speaker #4: Okay, really appreciate all the color there. And then just kind of switching gears a little bit—the same property NOI has been pretty strong the past couple of quarters: 3.7% and 3.6%.

Connor Mitchell: Okay. Really appreciate all the color there. Then just kind of switching gears a little bit. The same property NOI has been pretty strong over the past couple of quarters, 3.7 and 3.6. You raised guidance. Just looking at kind of the implications for the back half, the midpoint, it would seem that we would expect a deceleration. Heath, I know you gave a lot of color in your opening remarks. Can you just kind of dive back into some of those assumptions, whether that's the 100 basis points of bad debt assumed in the back half or something else that I may have missed?

Speaker #4: And you raised guidance, but just looking at the implications for the back half, at the midpoint, it would seem that we would expect a deceleration.

Speaker #4: And Heath, I know you gave a lot of color in your opening remarks. Could you just kind of dive back into some of those assumptions—whether that's the 100 bps of bad debt assumed in the back half, or something else that I may have missed?

Speaker #3: Yeah, I mean, the slight deceleration—let's call it flat—into the back half of the year is simply this idea that we outperformed in the first part of the year.

Heath Fear: Yeah. The slight deceleration, let's call it flat into the H2 of the year is simply this idea that we outperformed in the first part of the year. Nothing happening in the H2 that we weren't expecting. The great thing about the H1 outperformance is that it was really organic. It was core items. It was better retention. It was better net recoveries, better overage. We were just firing on all cylinders across the portfolio, which allowed us to print that 3.7%. I did say at the beginning of the year, I thought we'd be moderating it to the H1 and accelerating to the H2. However, we did really well in the H1, and are going to continue that momentum into the H2.

Speaker #3: So, nothing happening in the back half that we weren't expecting. But again, the great thing about the first half outperformance is that it was really organic.

Speaker #3: It was core items. It was our it was better retention. It was better net recoveries, better overage. So we were just firing on all cylinders across the portfolio, which allowed us to print that 3.7% number.

Speaker #3: I did say at the beginning of the year I thought we’d be moderating in the first half and accelerating in the back half.

Speaker #3: However, we did really well in the first half. And I'm going to continue that momentum into the back half.

Speaker #4: Yeah, slight deceleration. Thank you, appreciate it.

Connor Mitchell: Yeah. Slight deceleration. Thank you. Appreciate it.

John Kite: Thanks.

Speaker #3: Thanks.

Speaker #2: Thank you.

Heath Fear: Thank you.

Speaker #1: Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to John Kite, CEO, for any further remarks.

Operator: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to John Kite, CEO, for any further remarks.

John Kite: I just want to thank everybody for taking the time today. We really appreciate your interest in the company. Look forward to seeing you soon.

Speaker #2: Again, I just want to thank everybody for taking the time today. We really appreciate your interest in the company and look forward to seeing you soon.

John Kite: I just want to thank everybody for taking the time today. We really appreciate your interest in the company. Look forward to seeing you soon.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Q2 2026 Kite Realty Group Trust Earnings Call

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