Kite Realty Group Trust

Brian McCarthy, Senior Vice President, Corporate Marketing and Communications. Please go ahead.

Thank you, and good morning, everyone. Welcome to TITE 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 these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer, John Kite. President and Chief Operating Officer, Tom McGowan. Executive Vice President and Chief Financial Officer, Heath Feeder. Senior Vice President and Chief Accounting Officer, Dave Buell. And Senior Vice President, Capital Markets and Investor Relations, Jason Colton. I will now turn the call over to John.

All right. Thanks a lot, Brian. And good morning, everyone. As you can imagine, our team has been counting down the days to yesterday's release and this morning's earnings call. We're eager to share details regarding our exceptional first quarter results and outperformance across the board. 2022 is shaping up to be a monumental year for KRG. It goes without saying that we have high quality real estate in high quality places, but that really doesn't mean anything without a high performing team It communicates well and works in lockstep towards our operational goals. For those of you that were concerned about how our ability to swiftly integrate post-merger, you can rest at ease. As reported yesterday, KRG had FFO per share of 46 cents, beating consensus estimates by 5 cents per share and representing a 35% increase per share over the comparable period last year. Our same property NOI growth for the quarter was 5.9 percent as compared to the same period in 2021. HEIF will give more details around the components of each metric, but suffice to say we blew past expectations due to a combination of operational outperformance and lower bad debt. As invigorating as this past quarter feels, I'm even more energized about the future based on our tremendous leasing results. KRG signed 182 leases representing over a million square feet this quarter, including nine anchor leases. This strong leasing volume was bolstered by 16 percent blended cash spreads on comparable new and renewal leases. These spreads were three percent higher than the blended spreads we achieved in the fourth quarter of 2021. I'm going to speculate that, once again, These blended spreads will be amongst the highest, if not the highest, in the sector. I'd also like to call out the cash spread on our first quarter. Comparable non-option renewals was approximately 12 percent against the backdrop of a 90 percent retention ratio. Again, this is an important indicator of where market rents are headed for the KRG portfolio. KRG is experiencing strong demand from a deep and diverse set of retailers, across all of our open-air products. In fact, our national retailers are becoming increasingly agnostic to format type and more keenly focused on best-in-class real estate. This dovetails nicely with our diverse set of high-quality and well-located properties. Retailers are not only flexible with respect to format, but are also willing to modify typical sizings of their space. The current environment has led to some very long and productive lease approval meetings where we're seeing multiple tenants vying for the same space or tenants that are willing to occupy spaces that have been persistently vacant. We intend to ride these tailwinds into historically high occupancy levels. The portfolio has signed not open NOI of approximately $37 million, which will primarily come online during the back half of 2022 and the first half of 2023. This is an increase of $4 million as compared to last quarter, which is a result of $11 million of new signed not open NOI, partially offset by $7 million of new NOI that came online this quarter. The spread between leased and occupied for our retail operating portfolio has also grown to 320 basis points. This bodes extremely well for our growth trajectory going into 2023, as the rents from those leases will be fully realized. As a reminder, the $37 million of signed not open pipeline represents 7% of our projected future NOI growth, as shown on page 7 of our investor deck, and is only a portion of the near-term growth opportunity. Leasing our active developments and the balance of the portfolio to pre-pandemic levels, which is very achievable in the current environment, would equate to an additional $31 million of NOI coming online over the next several years. We've also been busy on the capital allocation front. We acquired two attractive Sunbelt assets for a total of $66 million, the first of which was Pebble Marketplace, a Smiths-anchored center in the desirable Green Valley area of Las Vegas. We also acquired a Sprouts and Total Wine that are literally attached to our MacArthur Crossing Center in the Las Colinas area of the Dallas MSA. We love adjacency acquisitions, especially when they can create a halo value by compressing the cap rate on the balance of the center. Collectively, these two assets feature a three-mile population of over 116,000 people and an average household income of $115,000. We've also made progress on the development front. All of our active developments are coming along on time and or under budget. As for the entitled land bank, we've unearthed additional value propositions as promised, and we are taking a bespoke approach to every single parcel. Over the course of 2022, we look forward to sharing our creative vision for maximizing value and minimizing risk. The best thing about the entitled land bank is the investor community historically attributed very little value to the land. and we certainly didn't put a price tag on it when we were underwriting the merger, but we see excellent opportunities ahead. The culmination of all the great things I've discussed is allowing us to raise our 2022 FFO as adjusted guidance to $1.77 per share at the midpoint. We're also raising our 2022 same property NOI growth assumption to a range of 2.25% to 3.25%. Before turning the call over to Heath, I want to address some of the macro elements that are on the horizon. REITs have historically outperformed broader markets during the inflationary periods. As prices rise and sales increase, it follows that the tenant's occupancy costs should decline, allowing us to continue to drive rents. As an open-air shopping center owner, we have a healthy balance between the duration of our assets and liabilities. Based on our embedded escalators and our ability to turn over 10% to 15% of our leases every year, we feel well-positioned to keep pace with inflation. Likewise, our longer lease durations temper the impact of any potential recessionary environment. On the supply chain front, we're acutely focused on ensuring all tenant build-outs are on time and on budget. Internally, we've been referring to 2022 as the year of the RCD, which stands for rent commencement date. Times like these are when KRG's hands-on management style shines. We have very experienced tenant coordination and construction teams that not only ensure we deliver on time, but help tenants with any challenges they may experience. Due to our tenacious and dogged approach, we're currently outperforming on deliveries. Finally, I want to address the change to our share buyback program. The primary purpose is to properly size this critical capital allocation tool in light of our post-merger market capitalization. With that said, we are keenly aware of the disconnect between our stock price and our underlying fundamentals. We have great real estate, a best-in-class platform, and we will continue to outperform until that disconnect resolves itself. Whether you're a value investor or growth investor, I can't think of a name in our space that screens more attractively. As always, thanks again to the entire KRG team for their hard work and dedication. KRG is nothing without these amazing people. I can't emphasize enough how proud I am of what we've accomplished as a team, but more importantly, what we will accomplish together in the future. Now I'll turn the call over to Heath to provide more details.

Thanks to all of you for joining us today. What a great quarter and what a great sense of pride to see what our collective team has accomplished and will accomplish over the course of 2022. One team, one focus. As always, our goal is to provide our investors with transparent and best-in-class disclosure, which will be much easier on a go-forward basis now that we've had our first full quarter of combined results. Let's dive in. For the first quarter, KRG generated 46 cents of FFO per share, both on an A rate and on an as-adjusted basis. As compared to NAREIT, our as-adjusted FFO results exclude the positive impact of $1.1 million of prior-period collections, offset by a $900,000 add-back of merger-related costs. Our same-property NOI growth for the first quarter is 5.9 percent, when excluding the impact of prior-period collections. Please note that unlike last quarter, the same-property pool for the first quarter includes both the KRG and the RPAI legacy assets. 500 basis points of this growth was driven by higher minimum rent and overdrafts with the balance being attributed to lower bad debt. Please note that the first quarter same property NOI is elevated due to heightened reserves taken in the first quarter of 2021. As you may recall, there was a lot of uncertainty in the first quarter of last year with COVID. As the macro environment stabilized and collections returned to historical norms, many of those reserves were reversed in the second quarter. So what does this all mean? we expect our same-store results to be muted in the second quarter and then accelerate to the second half of 2022 as we begin to receive some of the $37 million of signed not open NOI. Page 8 of our investor deck will help you understand the cadence of the rent commencement dates. Hopefully, this will help contextualize our full-year same-property NOI outlook. As detailed on page 26 of our investor deck, Our balance sheet and liquidity profile not only remained solid, but continued to improve. Our net debt to EBITDA was 5.7 times, down from six times last quarter. Adding in the $37 million of signed not open NOI, our net debt to EBITDA would be 5.4 times. We are in a great position to not only weather any storm, but to also take advantage of any opportunities that present themselves. As John alluded to earlier, we are raising FFO as adjusted guidance to $1.74 to $1.80 per share. The variance from NAREIT FFO is approximately 2 cents, which represents our estimate of $4 million of non-recurring merger-related costs. The 5-cent increase at the midpoint is attributable to cash items with leasing outperformance, overdraft termination fees, and accelerated development fees. At the midpoint of our FFOs adjusted, we lowered our bad debt assumption to 1.25% of revenues. While the curve reserve is significantly higher than our historical bad debt run rate, it by no means represents any specific credit concerns. Rather, it reflects our continuing conservatism with respect to macro uncertainty that is not within our control. It's important to note that despite our recent acquisition activity, our guidance still assumes the net transactional impact will be neutral to earnings. Before turning the call over to Q&A, I want to address one additional macro item, which is the recent rise in interest rates. We are in the business of owning and operating best-in-class real estate, and we are by no means in the business of interest rate speculation. The primary tool we use to manage interest rate exposure is to maintain a well-ladder maturity schedule that allows us to average our cost of debt over time. In terms of our planned capital markets activity, we intend to be optimistic this year, and when the time is right, we will start to retire our 2023 maturities. Thank you to everyone for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star then one. Our first question comes from the line of Michael Billman from Citi. Your question, please.

Hey, John. It's Michael. I apologize. I joined on a little bit late. But I was wondering, John, if you can sort of outline capital recycling and, I guess, sort of your plans to both acquire but try to dispose assets, you know, following the merger, I'm sure, a relook process. at the portfolio could lead to incremental dispositions. Can you just talk a little bit about what your plans are?

Sure. Well, as we said in the prepared remarks, we've acquired two properties recently for $66 million, and we had mentioned in the remarks that we still intend on all of our kind of acquisition disposition activity to be neutral to earnings this year. So that's the intention. You know, as a matter of fact, in terms of the two that we acquired, we're assuming that we would be match funding those with a couple dispositions, candidly one of which is under contract, another which is being negotiated. So I think what I would say macro, Michael, is that, When you look at our results, we obviously have a very good portfolio and produced very good results, and we're very happy with that portfolio. That said, you're always looking to do things on the margins. We're not looking to do massive acquisition sales. Our balance sheet is in great position. So I would say what we do is going to be pretty strategic, much like acquired these two properties that we like a lot probably take advantage of the market as it is today and match fund those down the road. But we love the portfolio. We love the results we're getting.

You don't feel a need to go deeper, putting aside potential dilution, but just looking at this combined portfolio and taking a deeper cut about sort of where you want to be. Obviously, you have a big Sunbelt portfolio, but you went more coastal and northeast with the merger. I just didn't know whether there's an opportunity to, you know, recycle more to bring your portfolio more where you'd want it to be.

Yeah, I mean, I think as we move through the year, when we're looking to do things, it will probably be with those geographies in mind. But that said, I mean, you know, I've talked about this before. When you look at some of the assets that we picked up, you know, vis-a-vis the merger, you know, in Seattle and D.C. and Long Island, I mean, we've got some great property. So I don't know that it's so much about, you know, the portfolio composition of what came in the merger and what we had before. It's really going to be more what it's always been, which is to say, you know, if we feel a piece of real estate has maximized its value, and or has a declining value, then we would look to dispose of that. But it's really not going to be some massive thing that, you know, is a result of the merger.

And then just a second question, John, with ICSE coming up, obviously this is the big first big in-person event with the combined company. I don't think December you had that much going yet. Just talk a little bit about what the goals are going to be for the combined organization at the conference, what sort of roster of meetings you have, and really what you're going to try to accomplish at the convention in a couple weeks.

Sure, I'll start, but let kind of Tom dig into that. But from a macro perspective, I mean, we have great momentum, great tailwind right now. Our portfolio is performing at one of the highest levels in the business. So we're just going to look to lean into that and continue to push relationships that we have and that we've grown into. And when you look at our results from the past quarter and the size and the depth and breadth of the leasing that we did and the spread that we generated from that, that's what we'll continue to do, Michael. So it's really more, and as I tried to say in my prepared remarks, this is an integrated one team, one focus company. And The idea that we have any issues regarding that, that's gone. So now it's leaning into that and really expanding our relationships. But, Tom, you want to talk about some specifics maybe? Sure.

I mean, I think it's critical that we hit all of our property types and we have a more diverse base that we'll be coming to Vegas with and It's going to be critical that we nurture our existing tenants, but really focus on a lot of these new relationships that we're seeing, particularly in the lifestyle centers. We're doing deals with some great tenants that haven't traditionally looked at coming out, people like the Buckle, Nike, Aerie. I mean, there's a whole host of those tenants that we want to continue and expand those relationships so we have a as diverse outline of a tenant base as possible. So we have a lot on our plate. We have a group coming, and the rule is if you're out there, you've got a full book. So we're looking forward to it.

Great, guys. Thanks for the time. Thanks, Michael.

Thank you. Our next question comes from the line of Floris Van Dyken from Compass Point. Your question, please.

Thanks for taking my question, guys. So, obviously, results were well ahead of expectations. You took up your guide, but your guide sort of implies a lower cadence of FFO than you had in the first quarter. Are you guys being overly conservative? I know you took your bad debt down a little bit, but it still seems pretty elevated, 125 basis points. I mean, how much more room is there in your view in terms of, you know, earnings for this year?

Yeah, I mean, Floris, you're correct in how you outlined that, but clearly, as we tried to say in our prepared remarks, you know, look, it's – We're four months into the year, basically. So when you look out at a projection, you're going to still be prudent with some conservatism. The one and a quarter bad debt is the primary driver of that cadence that you referred to. Obviously, in the first quarter, our bad debt was less than 1%. So if things were to continue on the path that we're on right now, we would expect to do quite well. But, you know, it's early in the year, and so that's why we've adjusted to the extent we've adjusted. That said, I mean, we're extremely optimistic about what's out there right now, and based on the leasing performance and based on the rent spreads that we're able to generate on a cash basis, we feel very good about it. Keith, do you want to add anything?

Yeah, probably two more specific items for us that are having a cadence sort of slow. is we had term fees this quarter. Our budget doesn't have any term fees in it whatsoever, so that's sort of an item that's not budgeted for the balance of the year. We outperformed on overage rent, which is great, and G&A timing. So the G&A was light in the first quarter, and as we go through the balance of the back half of the year, you're going to see the G&A pick up, primarily due to some IT projects that we're undertaking in the back half of the year. So that's why the cadence isn't exactly the same.

Got it. I know the S&O pipeline appears pretty impressive at the levels that you guys have it. Particularly, it's almost the same size as one of your peers who has a portfolio that's twice the size. Maybe talk about some of the additional stuff that you guys have here. in terms of your additional potential lease up, I think you said about 21 million of additional potential rental income or 4% of, uh, of your, uh, of your, uh, um, and a lie. Um, what is your, uh, X, what, what do you think is possible? You said you can get back to pre COVID occupancy. Can you remind us again, again, what that was, particularly in the small shop space versus where we are today. And, uh, do you see a scenario where you could actually exceed pre-COVID levels?

Well, you know, pre-COVID in the small shops, Floris, we were at 92.5%, which was sector leading. So, you know, we think we can get back there. You know, that's what we do. We execute. We have to go out and lease that space. And then the anchors at pre-COVID were 98%. So, Do we think we can get back there? We absolutely do. Does it happen just by saying it? No. You have to go out and execute. And we feel confident in that ability. But yeah, that's why we pointed out, and if you look at our investor deck, there's a great page, page seven, which kind of highlights that and makes it pretty easy to do the math and makes it pretty easy to do the disconnect between current stock price and real values. So Yeah, we think we can get there. We've got to do the work, and that's what we're going to do.

Thanks. Maybe the last question for me is maybe talk about, you know, you talk about the match funding. I mean, would it be right to assume that some of your land holdings, which you estimate could, you know, have a value of $125 to $180 million, you know, Are those likely candidates for monetization?

Yeah, I mean, I think we mentioned in our remarks, Floris, that, you know, that we are not only do we have the lease up to pre-COVID, the SNO, the active developments, which are in lease up right now and under construction and on pace, we have the land holdings. And one of the beautiful things about that is that we certainly attributed no value to that in our analysis of the merger and knew that it was upside. And so it gives us the opportunity and the luxury of taking our time on a case-by-case basis, which is what we mean by bespoke, right, that we're going to take our time on each individual landholding. And they vary dramatically in terms of stages. For example, since you know the D.C. market well, You know, one Loudon is a spectacular property. So, you know, we have a lot of optionality is the word I would use. So that's a long way of saying, sure, there's a possibility that, you know, we would look to utilize sales proceeds there in some form or another. But there's also the possibility that, you know, we have a few assets that, you we could maximize the value and put that, you know, recycle that capital into higher IRRs. So that's what we do. We're always analyzing where's the highest IRR we can get with the least amount of risk. That's our primary job. So we're going to look at all those things.

Thanks, Sean. Thank you.

Thank you. Our next question comes from the line of R.J. Milligan from Raymond James. Your question, please.

Yeah. Hey, guys. Good morning. I was just looking for a little bit more color on the leasing spreads. And I know one specific quarter doesn't necessarily, you know, make a trend because there could be one or two large leases that move in either direction. But I'm just curious. I mean, the trend has been positive or increasing over the past couple quarters. I'm just curious, you know, is there a specific bucket type that's driving those higher rents or a specific category that's driving those higher rents?

Well, in this quarter, you know, you pointed out you're right to say each quarter is different. But, you know, this particular quarter, it was really interesting because of the number of deals and the breadth of them. And, you know, Tom can talk about this a little too. But bottom line is in terms of the new leasing, you know, we did a lot of leasing in some of the lifestyle deals that generated very, very strong results. And then, you know, but that's a microcosm because we did, I don't know, 24 new leases. And then on the options and the renewals, that was really interesting, too, because the non-option renewal, you know, at 12% is spectacular. And that was, I think, like 45 deals. So it was across the board, but, Tom, you want to talk about it a little more?

Yeah, so when I mentioned about making sure we're expanding our tenant base and looking for new opportunities as we try to grow this portfolio. One of the big drivers was a simple fact in our lifestyle centers. We picked up new names to the company, people like the Buckle, Nike, Harry, Hay Day. I mean, they go on and on, but we also had strong strong furniture store comps in different areas. We had a tactical. So it was definitely spread out, but these higher-end tenants that may not typically come to open air clearly drove us. And the box side held up very strong, even though there was only two comps in terms of that percentage as well.

Okay, great. And then my second question is just, you know, how you were thinking about, and I think, John, you made some comments earlier on, you know, the increase of the buyback program, which is, you know, reflective of the increased size of the overall company. But, you know, thinking about the balancing between leverage and buying back shares, you know, given the discount that they're trading at. So just how do you think about utilizing that program over the course of the year?

Yeah, I mean, I think it's exactly what we laid out, RJ, which is that we wanted to make sure it was sized appropriately. So that's the first step. You're right that whenever you look at this and you're trying to determine capital allocation, that you have to look at your balance sheet in conjunction with what you might be doing on the capital front. As Heath mentioned, right now, you know, our balance sheet is extremely strong and trending even stronger. And we produced fabulous results this quarter. We've got a lot going on. We have a lot of upside. So it needs to be there in the case that that disconnect isn't resolved naturally. We think it will be. I think in a couple weeks when we see the first quarter results of shareholder buying and I think there's some really, really great names that have come into our name and some pretty smart investors, pretty astute. So hopefully that helps as well. But bottom line, we're going to keep driving, keep operating, keep producing, and we hope that that takes care of it. But if not, that's an option that we need to have available to us.

So I guess in summary, not buying anything. probably wouldn't be aggressively buying shares at this price today. But if the discount persists, that's a potential for maybe the back half of the year.

Yeah, I don't want to speculate on timing of it, RJ. It's what I said. I mean, we need to have this available to us. We believe, like many others, that the current value doesn't reflect the value of the business. There's a lot of different ways to squeeze that value out. That's just one of them. But I think there's a lot of people who recognize this is a pretty damn good platform and has a lot of upside. Great.

Thanks, Jess.

Thank you.

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

Hey. Good morning out there. Two questions. First, On the signed but not yet open, we've seen this in peers where there are these great pipelines of signed but not yet open. But when we look at it actually coming into earnings, it takes a long time, and the gap between occupied versus that signed but not yet open sort of persists. Just so we don't get carried away on the modeling side, are you, are there offsets to this? So like, are you more aggressively shaking out, you know, tenants so that even though you're getting this 37 million of annualized in that's offset to some degree as you, you know, weed out weaker performing tenants and replace those. So I'm just trying to get a sense for how much of it truly comes into earnings versus as you guys more actively pursue the portfolio because of the demand, uh, you know, that sort of gap persists longer than what we might, you know, think just by looking at the presentation.

Yeah, so I think there's really probably two things that will offset that growth. One is just bad debt, right? So what's your bad debt NOI? And say it's 75 basis points of revenues, which is a typical run rate year. That's 1% of NOIs being just bad debt. And then that's your natural expirations. But as John mentioned in his opening remarks, You know, we're sitting at 90% retention right now. So that feels really good. So I think at the end of the day, in order for us to realize in that 37 million, we have to grow that occupancy, right? We have to shrink the spread between leased and occupied. I think you're going to see it be fairly elevated even through the course of next quarter because the leasing velocity to date has just been so great that I don't see it closing anytime soon. But in the meantime, we're opening up NOI now. Like John said in his remarks, we signed 11 million of new NOI in the first quarter and and $7 million of it came on. So that's why our sign button only went up by $4 million. So, again, yes, there are some natural offsets to it, and the underlying assumption here is you have to grow your economic occupancy, which we intend to do.

Yeah, I mean, personally, Alex, I look at it, it's an extreme positive. The only offsets would be just whatever is happening naturally in the business. And being at a 90% retention rate when we historically were in the 80s, you know, mid-80s, I guess, that's a big deal. And, again, that's why I keep mentioning the non-option renewal spread at 12%. So assuming that things stay as they are, I see it as a significant upside.

Oh, John, don't get me wrong. I agree. It's awesome. It's just, you know, us getting in reality checks so we don't, you know, overcook things. Sure.

Yeah, and, Alex, that's why we wanted to be clear about the timing, right, that this is very back half, 22 weighted and then 23. So I think it's never easy from your chair to figure that part out, but it's clearly a driver into 2023.

Yeah, okay. And the second question is, you know, a lot of headlines recently decline in online sales. while physical store sales are rising. Obviously, I think collectively we all like that. But a lot of Amazon shareholders on the line. But when you think about that, is it reality that online sales truly are declining and physical stores are rising or are the tenants themselves starting to reallocate and say, hey, it's not the point of purchase where we're going to flag it. It's the point of where the fulfillment point. So if it's being curbside pick up or delivered from a store to someone's house, we're gonna start crediting those as the store sale. So I'm trying to figure out how much is actual true changes in online sales versus in-store sales versus the tenants reallocating where they're giving credit for those sales.

I can't really speak to the reallocation part of your question much. I don't get the sense that that's what's driving this macro trend. I get the sense that candidly, you know, as we talked about quite a bit, during COVID, you know, physical retail became very important to people as COVID moved along. And there's a bond, I think, that was built during that period where a lot of physical retailers were able to really take care of their customers in a much more rapid way than even online. And at some point, you know, I can remember you writing notes about this, you know, several quarters back that it was pretty clear that, you know, the online penetration was slowing down. So, look, at the end of the day, it's all interconnected. There's really only one material online only, and they're not even really online only anymore, which would be Amazon. And everything else kind of runs through our tenants and our customers. And when you look at foot traffic also, I mean, which we have a slide in our investor deck, in the quarter, we're over 100 million visits. This is only one company in the open air space, and we did 100 million visits in a quarter. So it just shows clear, clear traction, right? And it's why we have the results that we have. So I feel very, very good about that, Alex, and I think it's a positive trend in our direction, and it's just one more indicator of the strength of physical retail and the importance of physical retail in the distribution channel. Okay. Thank you, John. Thanks.

Thank you. Our next question comes from the line of Todd Thomas from KeyBank Capital. Your question, please.

Hi, thanks. Good morning. John, you mentioned in your discussion about the leasing spreads during the quarter that the lifestyle segment was particularly strong, and you picked up a number of lifestyle assets and assets with greater lifestyle tenant mix, I guess, with the RPAI portfolio. I'm curious if you could talk a little bit more about that, how that product's performing and recovering at this point in the cycle. Sure.

Yeah, I mean, as both Tom and I mentioned, we had some very strong results from multiple properties that would kind of be in that segment. And candidly, for us, there's kind of a merger of lifestyle and mixed use. I mean, we basically see those products as very similar, and it just comes down to a nuance of a definition. But really, I mean, when you look at the amount of deals we did in the quarter, Todd, it was very well balanced against all of our property segments. You know, essentially kind of the grocery segment, the power segment, the lifestyle segment, the mixed-use segment, and, you know, the community center segment. And to our point, and what Tom was mentioning, I believe, was this just interplay amongst all of these products with the same retailers. And these retailers are finding that they can do significant sales in our properties at lower cost occupancies, which is producing more EBITDA for them. So I don't want to get too caught up in any particular genre of our products. because they're all super strong right now. But, yeah, we were, you know, one of the things we said when we, why we loved the deal that we did is it did expose us to this other element of mixed use and lifestyle more so than we were before. And we knew at that point in time there was massive growth trajectory there. And now we're seeing it. And you continue to just see this idea that open air, you know, it's just a very, very productive asset for most of the retailers we deal with. So I'm super positive about it right now.

Yeah, and there's no doubt that trends nationally are that people want to be together to live, work, play. I just heard a ULI speech on it yesterday of 1,000 people within a one block is how you activate. all these lifestyle centers are providing that to the properties, which just allows us to kind of ride this wave of positive momentum.

I agree. I think the pent-up demand for experience is another reason why we really like the lifestyle center sector. And I think it's also part of the reason of why you're seeing Amazon sales tempers because you can't sell an experience online, right? So, again, all good stuff, and we really, really appreciate the exposure to this new sector for us.

Are the occupancy gains and is the rent growth that you're experiencing in that segment, is it outsized today as you kind of look out over the next several quarters? Is it outsized relative to the community and neighborhood centers?

I mean, not particularly because when you look at the totals and you look at the averages, they kind of blend out, Todd. I mean, sure. Is there a Is there a handful of deals in a particular, you know, for example, like at Southlake in Dallas, which is just, you know, spectacular property? Yeah, there's a, you know, there's going to be some really large opportunities for us there to drive rents, but there's also large opportunities for us to drive rents, you know, at a public center in Naples. So it's really just, this is so demand-driven right now, and supply is really, hasn't moved much in the last 10 plus years. So the dynamics of very simple economics are working in our favor, and it looks like it'll continue for a while. And as he just said, when you get this blend of necessity, entertainment, experience, you're just positioned smack dab in the middle of what's going on in the economy. And don't forget, I mean, I know there's a lot of For whatever reason, there's negativity in the air, you know, with the world that we live in. But the reality is there's a lot of pent-up capital to be spent yet in a lot of ways. So I think we're just positioned really well for that. And as far as the mixed use goes, I mean, you know, lifestyle and mixed use, Todd, we're also getting a bigger exposure to, you know, the multifamily side, right? So we've got some opportunities there as well.

Okay, and then in terms of tenant retention, you mentioned it was about 90% in the quarter. How long do you think these elevated levels of tenant retention could persist?

You know, tough to call that. Tough to call that. Certainly as we sit here today and we look at the upcoming, you know, the quarter that we're actually in, it feels very good. And, you know, again, that's why we wanted to be clear that, you know, with our guidance, we felt very comfortable raising it, but yet we still maintain some conservatism because of the macro world. But in terms of the micro that we live in every day, you know, we're in a great place, and our portfolio is outstanding. I think it stacks up against anybody, and I think people are beginning to figure that out. So we feel very good about continuing to push that, but it's unpredictable, and You know, one quarter could be different than another quarter. So we'll look at the trends over, you know, years, not quarters.

Supply is definitely tightening, which is going to work to our advantage.

Okay. That's helpful. And just a last one, if I could, real quick on the investments completed in the quarter and after the quarter. Can you provide a cap rate, I guess, on Pebble Marketplace and the two boxes at MacArthur Center? Sure.

Well, we didn't put that in any – we didn't really release these, Todd, but I would just say that they were market cap rates in the fives, and we would be looking, as I said, to recycle and, frankly, probably at tighter, lower cap rates than what we bought at.

Okay. All right. Thank you. Thank you. Thank you. Our next question comes from the line of Chris Lucas from Capital One. Your question, please.

Hey, good morning, everybody. Just a couple of quick follow-ups, more definitional than anything. Just as it relates to the retention rate for the quarter, I guess, John, just thinking historically, is that as good as you've seen? Have there been periods when it's been higher?

That's pretty dang good, Chris. I think 90 is pretty, pretty good, and I can't remember seeing it much higher than that. And candidly, you know, it's one of these things that it's not your primary focus when you're in a major kind of thinking about new leasing, but as our new leasing contracts, because we have less spaces, it becomes a bigger focus, and it's in a really good place right now, and it's super profitable.

Okay, so as we think about retention, should we assume that, like in the current environment, you're thinking that retention and tenant fallout is sort of the same thing, but that at some point down the road that those could diverge as you actually try to push rents higher and potentially lose tenants as a result?

Sure. When you get to, you know, when you get back to where we were, occupancy levels pre-COVID, and you're at 98% in the anchors and 92.5% in the shops, you start to really price dynamically, right? And you might let things roll over. You might, you know, but again, that's why, I wanted to come back to that non-option renewal spread because it wasn't like we were renewing people at low spreads, right? We were renewing them. In fact, the non-option renewal was almost, you know, I think the option renewal spreads were probably 6.5%. So that shows you right there. When we had a free shot, you know, we were able to price it very dynamically. So, no, I think as we lease up more and more, we probably aren't as focused on that number because you're more focused on the marginal dollar at that point, right, Chris, just trying to drive that. And the merchandising mix. You can't lose sight of that, too. So that's why it's never good to just focus in on any one particular metric, you know, other than, you know, we're driving, we continue to drive, you know, more EBITDA, more free cash flow, more earnings.

Okay, great. Thank you for that. And then just on the SNO schedule, I guess just definitionally, how do you arrive at sort of when that rent is expected? Is that based on construction and permitting expectations, or is that based on a sort of contractual, lease contractual date set up?

Well, Chris, there's typically a formula in the lease, and there's also a drop-dead date. So they have to start paying rent after a certain period of time after they've been opened. And if they're delayed being open, whether it's their fault or our fault or it just doesn't happen, they end up paying rent anyway. So, again, it's a mixture of what you asked.

But, you know, again, I mean, look, our – yeah, Chris, our primary goal there is really, you know, taking care of our customers as much as we possibly can. So, you know, we obviously want to get the right commencement date as soon as possible, but we want a successful, you know, customer and a happy customer. So it's a balance and we drive it, but – Clearly right now it's working pretty well.

And as John mentioned, and this one marks it, Chris, we are actually ahead of schedule in terms of our average waited opening date, so the team has been doing a fantastic job in getting people open.

Yeah, so just on that, let me just understand. So when you say ahead of the average expected opening date, is that based, again, on sort of like your expectations based on, you know, construction and permitting and all that, or is it based on that drop-dead date? Because I I'm just trying to see how much or sort of think about how much excess performance is sort of built into sort of the SNO schedule.

It's generally on the opening date, Chris. It's generally on the opening date, Chris.

I think what he was saying when we're – go ahead.

Go ahead. Sorry. Sorry, Chris.

No, no, go ahead. If you've got more to add.

Yeah, I was just saying that, you know, all this really comes down to is what we're internally modeling. and he's basically saying we're beating the expectation of the opening dates in our model. So that's a positive thing.

Yeah, and those are the numbers, dates that we focus on twice a month in our meetings. That is what we determine, the opening date, and that's why our team, we've got a great team. We'll do whatever it takes. We'll source whatever they need to make it happen, and that's our job, and that's why we've got so much focus on it.

Okay. Thank you, guys. Really appreciate it.

Thanks. Thank you. Our next question comes from the line of Anthony Powell from Barclays. Your question, please.

Hi. Good morning. Question on Kohl's was a top 20 tenant for you with seven stores. Looks like they may be acquired by two mall owners. I'm curious what you think about that. that as a potential issue if they seek to even move those stores out or otherwise be tough negotiators with rent increases over time?

Well, let's just start with saying we don't know anything that anybody else doesn't know. Kohl's is a great customer and we certainly wouldn't see any problems with that. It's not a huge tenant for us, but it's an important customer and I think if something happens there, that's great. You know, we always look to work with whoever's, you know, running the business, but we'll see what happens.

Got it. Thanks. And maybe just one more on transactions. It seems like this year you're thinking of match fund buys with dispositions, but, you know, I know after you close the deal, the hope was that the house capital would go down. down, it could be aggressive acquirers. I'm just curious what your view is on portfolio deals and maybe just, you know, being a bit more aggressive at some point and building up the portfolio over time.

Yeah, I mean, look, right now, as you know, Anthony, the market is competitive, and there's still a great deal of capital chasing high-quality open-air retail, and frankly, that's a limited group, limited product to find. So as I said, that's why we're very excited about the two acquisitions that we had, and we won't have much trouble match funding that at attractive spreads to capital. But in terms of portfolios versus individual assets, still at this point haven't seen any material difference there. Anytime there's a high-quality retail deal that is, you know, on the market or even if it's not on the market, there's just, you know, there's more capital than there is product. I guess that's putting it pretty simply. And that continues to drive the cap rates that we're seeing, which continue to be, you know, high fours to mid fives. I mean, that's generally the market, so... I know people think it's going to change and interest rates are volatile, but most of the stuff that we're doing and that we're interested in buying and or even product that we would sell would be all cash buyers. It's more of an unlevered IRR play right now.

Got it. Maybe one more. When do you think supply starts to become, I guess, not an issue, but a bit more of something to watch out for? I know most of the centers still have a bit more occupancy to build up, uh, so that can maybe prevent it. But I'm just curious with the strong fundamentals you have and others, it seems to me that at some point developers will start building. So I'm just curious what your long, long-term outlook for supply is.

Yeah. I mean, I think, um, first of all, it's not, it's quite difficult, uh, to build this product, um, because you're talking about multi-tenant retail that's much more complex than it is to say, put up an industrial box, for example. Um, So, you know, and generally in retail people don't build the stuff that we own speculatively. There's a lot of pre-leasing that goes into it. There's, you know, finding the right land. So I just think it's more difficult to do than people think. And from a return perspective, you know, you really got to underwrite the risk associated with ground up development. I think for the near term, it continues to be moderated with not a lot of new construction in the high-end arena that we own. And then when you look at the geography of the real estate and the fact that our real estate is so strong, you know, again, it's just hard to find properties that you could build on without just spending way too much money, right? So it feels like a pretty good balance right now for the next several years. tough cost environment.

That's true. Thank you. Thank you.

Thank you. Thank you. Our next question comes from the line of Wes Galloway from Baird. Your question, please.

Hi, guys. You know, with the comment that supply is tightening, and it sounds like demand is very good at the moment, when does this dynamic translate into a big acceleration in rent growth?

Well, I think we just had one this quarter. So, I mean, 16% blended cash rent spread, that's what – I meant what I said. I think that's pretty darn good. And then 12% spreads on non-option renewals, you know, is also very strong, Wes. So, boy, I mean, where does it go from here? Hard to say. And, again, we don't get caught up in any one quarter too much, but certainly – Certainly the environment still feels very good, and I think we can continue to move the needle. And, again, like I said, Wes, when you look at the total occupancy cost for these retailers, our open-air environment is quite cost-effective, so that helps us as well. So it feels like a pretty good place.

Yeah, I guess what I'm trying to get at, it seems like the market is still absorbing supply and you're still getting the leases off. They can maybe more like a hockey stick growth, like growth that we haven't seen since maybe the early 2000s. Do you think that dynamic is in play?

Yeah, I mean, if we continue with the volume of leasing that we're doing, then that dynamic will come into play. You know, when we leased a million square feet this quarter and Q2 is stacking up pretty nicely, you know, if we can continue to push those kind of lease, that kind of lease momentum, then yeah, you start to get to that point where we talked about you're highly, highly leased and the marginal lease is going to be at a very good attractive rate. But also, as we pointed out, you know, we're able now to lease in spaces that were kind of persistently vacant, you know, probably because of physical issues at a particular property, like an elbow space or something, that we're now able to lease those spaces. So that drives that incremental cash flow that we're so, you know, focused on. And so I think it's both of those things.

Yeah, it sounds like there's also going to be a new high watermark for occupancy then. I guess when we look at the individual markets that you're in, does anyone stand out as maybe being earlier to that hockey stick potential moment?

You know, when we look at the deals, you know, for example, in this quarter, when we look at the spread of deals that we did in the quarter, it was very well spread out throughout the country. You know, really each region that we're in produced, you know, good results. So fortunately, again, because we have this really strong portfolio, it feels like each segment's performing quite well. So don't particularly see one beating the other right now.

Got it. Thanks for taking the questions. Thank you.

Thank you. Our next question comes from the line of Linda Tashi from Jefferies. Your question, please.

Hi. Good morning. In terms of purchasing adjacencies to your existing properties like you did with your Dallas Center, do you track how many of these opportunities potentially exist in your portfolio? And then what's the best way to think about the scale or margin you achieve when you buy these adjacencies?

Yeah. I mean, we definitely have kind of an inventory of deals that we're interested in, and we've done that a couple times in the last six months. I mean, we did this deal, which was very unique because this was actually essentially attached to the balance of the center. You know, we essentially didn't own the Sprouts box or the Total Wine box, and now we do. And so what happened there is you took a center that was non-grocery anchored, and not only did you essentially bring in one vis-a-vis sprouts, but you brought in two because of total wine, which, you know, total wine will do 25, 30 million. So the halo effect we referred to, Linda, is a significant cap rate compression. I mean, it could be 100 basis points. It could be 7,500. So that's how we track that, and we look at that from a terminal value perspective as well, terminal IRR values. But, yeah, and then, for example, we did another one where here in Indianapolis we acquired two shop pad buildings out front that we didn't own when we acquired the center, and now we own them, and it gives us much more leasing leverage across the whole portfolio, right? You don't have a built-in competitor. So any place that we think that we could do that, we would absolutely look to do it. And it's just a better – It's generally going to be a better risk-adjusted return on capital because we already know everything there is to know about the particular property, right? So love to do it, and we'll continue to where the opportunity presents itself.

Thanks for that. And then back to the earlier exchange you had with Alex. One of your open-air peers discussed occupancy costs changing since e-commerce has a halo effect to the physical store and it's helping retention rates. How do you think landlords are trying to better understand the real sales productivity of a physical store in an omnichannel environment so landlords can better capture the generated value?

Well, there's two things there. One is in the case that if you can receive percentage rent, you're extremely focused on it. And two is just to understand the performance of the retailer as it relates to our ability to continue to price the space appropriately. So it is a big deal. It's hard to get to the bottom of right now. I think over time it will become more and more natural. I think it's clearly a big part of a retailer's success today is their ability to tap into the omni-channel that they all have tapped into, but they also need us for that. They need us to be providing the right real estate where that works, where it's attractive enough for people to utilize the store in that distribution format And we're fortunate that we have that, right? So I think stay tuned because I think it becomes more and more part of what we're doing. But right now we're just happy that, you know, the retailers are performing so well and they're driving more and more traffic.

Great. Thank you.

Thank you.

Thank you. As a reminder, ladies and gentlemen, if you have a question at this time, please press star then 1. Our next question comes from the line of Craig Schmidt from Bank of America. Your question, please.

Yeah, thanks. I just, you know, with April pretty much in the books and I see it happening next month, I just wonder if the above average leasing activity will continue into the second quarter. I mean, how will you do relative to that 1.1 million you did in the past?

I mean, I'm not exactly sure how we're going to do yet since it hasn't happened, but I think we're off to a good start, Craig, for sure. ICSE is a nice opportunity to get in front of a lot of people in a concentrated period of time, but that's just a cherry on the top. I mean, we're always driving these relationships and these conversations, and It feels like we use the word tailwind for a reason. We're very busy. We're very active, and there's no reason to believe that we can't keep pushing that leasing momentum. Tom, you want to add anything?

Yeah, I mean, Craig, we track every day through our Salesforce format exactly how many deals are through real estate committee. and more importantly, in lease draft. So I will tell you, we feel very, very good about that number in comparison to where we are today. So we're expecting a very strong finish to the second quarter.

Great, and thanks. And then I see recently you leased to PopShelf. I'm wondering, is this more attractive alternative to Dollar General for your center's merchandise mix? It's more suburban focused?

I mean, it really depends on the particular property, Craig. We think top shelf is a pretty cool concept. It's pretty modern. It's clean. It does a lot in a small space. You know, we don't particularly have a lot of dollar generals, just straight-up dollar generals. I mean, I know we have some dollar trees, but if we have, I think, maybe no dollar generals, as I think about it on the top of my head, So we would be – our portfolio would be much more, you know, in tune to a top-shelf deal. But, yeah, I mean, it's just another example. We set all these other names, you know, and there's top-shelf doing deals all over the place and great credit. So, you know, we feel like we have this really, really good balance right now, and we think that, you know, the merger put us in a position to be in the exact right space at the exact right time across the genre of product that we own.

But it's a significant variance to Dollar Tree, Dollar General. The stores, they are impressive, and I encourage you to take a look at them.

Well, my understanding is the demographic is younger, wealthier, and more suburban, which would seem like, I mean, I think, you know, the reason you don't have any Dollar Generals is, you know, it's a lower customer. It's more rural. And so I was just curious if this was a, an opportunity for you, I mean, I guess 9,000 square feet, not quite an acre space, but an opportunity for you to fill up some of that vacancy.

It is absolutely an opportunity, and we will absolutely lean into it.

Okay. Thanks a lot.

Thank you.

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 for any further remarks.

Well, I just want to take the opportunity to thank everybody for joining us today. And, again, I want to thank our KRG team and family who produced fabulous results. And we will continue to push, and we look forward to talking to everyone soon. Thank you.

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