Kite Realty Group Trust

Thank you for standing by and welcome to the first quarter 2024 Kite Realty Group Trust Earnings Conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Brian McCarthy, Senior Vice President at Corporate Development and Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Kite Realty Group's first quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risk and uncertainty. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer, John Kite. President and Chief Operating Officer Tom McGowan, Executive Vice President and Chief Financial Officer Heath Fear, Senior Vice President and Chief Accounting Officer Dave Buell, and Senior Vice President Capital Markets and Investor Relations Tyler Henshaw. I'll now turn the call over to Tom.

Thanks, Brian, and thanks everybody for joining today. Care G has maintained our momentum into the first quarter of 2024, delivering exceptional execution across our platform and further strengthening our already best-in-class balance sheet. Heath will walk you through the details of our quarterly results and increased guidance, and I'll focus on recent sector trends, our operating priorities, and the series of strategic, well-timed initiatives that have allowed KRG to earn the highest total return in the open air retail space over the past five years. Open air retail has demonstrated strong fundamentals and rapidly accelerated recognition of its central role in each community we serve. The re-appreciation of open air's critical role as the most convenient and profitable distribution channel has resulted in consistent demand across our portfolio from both our tenants and shoppers. The renaissance of open-air retail is amplified in the Sun Belt, where our portfolio benefits from migration trends out of higher cost of living metros into warmer, lower tax states. The top 10 MSAs for population growth in 2023 account for over 30% of our revenue and includes cities like Dallas, Houston, Atlanta, Orlando, Tampa, and Phoenix. On the operational front, we remain laser focused on creating the best experience possible at our centers by selectively adding high quality tenants to our portfolio. Since the beginning of 2022, we've executed 53 anchor leases to 36 different brands, over 90% of which were national tenants, and we increased our grocery exposure by 400 basis points to nearly 80%. We've generated 46% comparable cash spreads and 26% returns on capital and we're very confident in our ability to continue the robust leasing efforts. Our thoughtful approach prioritizing quality and value creation will continue to enhance the merchandising mix at our centers and improve the credit profile of our tenant base. On the small shop side, we continue to have success pushing higher embedded growth. For new and non-option renewal shop leases signed in the first quarter of 2024, the average annual growth was 3.4%, and 70% of these leases had fixed rent bumps greater than or equal to 4%. To illustrate the tremendous progress we've made, in 2022, the average annual growth was 2.7%, and only 3% of the leases had fixed rent bumps greater than or equal to 4%. The benefit of negotiating higher fixed rent bumps will take time to materialize, but our efforts are on track to provide tangible improvements to our long-term embedded growth profile. Maintaining a disciplined leasing approach by keeping quality and growth at the forefront will further strengthen our durable cash flow stream while generating strong risk adjusted and absolute returns. Our sign not open pipeline increased to $32 million and we expect 76% of the NOI to commence in 2024. On pages six and seven of our latest investor deck, we detail the commencement timing of the sign not open pipeline and the compelling opportunity for investors based on current share price at various capitalization rates. These pages do not account for the future opportunity to allocate free cash flow, which we expect will significantly ramp up as our elevated leasing spend normalizes. Along with our increased free cash flow, we expect meaningful AFFO and dividend growth. While the opportunity for investors is very compelling right now, we believe the future holds an even more convincing case for KRG with better growth and more capital to allocate. Over the last five years, KRG has earned the highest total return in our sector. We were able to accomplish this by improving the quality and location of our portfolio, fortifying our balance sheet, executing on a transformational merger, improving our credit ratings, and re-rating our cost of debt. These very well-timed successes could not have dovetailed better with the open-air retail supply and demand imbalance. the acceleration of consumer trends spurred by the pandemic, and the increased commitment to physical retail. Our continued execution has allowed us to raise the midpoint of our 2024 FFO guidance by two cents and our same property NOI growth assumption by 50 basis points. Our team has produced solid results, and collectively, we've positioned the company to continue outperforming. We have an experienced group across all departments of the organization, and I hope each of you will get to spend time with our various team members at our remaining 4 in 24 events in Dallas, Washington, DC, and Las Vegas. Thank you, as always, to our incredible team, and now I'll turn the call to Heath.