Kite Realty Group Trust

Thank you for standing by and welcome to Kite Realty Group Trust's second quarter 2024 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 this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 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, Corporate Development and Investor Relations. Please go ahead, sir.

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. 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 are Chairman and Chief Executive Officer John Kite. President and Chief Operating Officer, Tom McGowan. Executive Vice President and Chief Financial Officer, Keith Feer. Senior Vice President and Chief Accounting Officer, Dave Buell. And Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. Given the number of participants on the call, we kindly 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 will now turn the call over to John.

Thanks, Brian. KRG delivered another quarter of operational outperformance while achieving the lowest leverage levels in our history. Heath will walk you through the details of our quarterly results and increased 2024 guidance. I'll focus on our formidable balance sheet and the continued demand for space in our high-quality portfolio. In the second quarter, S&P upgraded KRG's credit rating to BBB, marking the third positive revision from the rating agencies in 2024. While we're pleased with the improvements in our ratings, we are confident that our balance sheet warrants an even higher rating and a more attractive cost of debt. With net debt to EBITDA of 4.8 times nearly $1.3 billion of available liquidity and 4.9 times debt service coverage ratio, we have one of the best credit profiles in our sector. Our leverage is currently below our long-term target of low to mid five times net debt to EBITDA. which is remarkable considering the current level of our leasing spend. We are poised for growth with a significant amount of dry powder that will increase as rent commences on our large signed not open pipeline and as our elevated leasing spend subsides over the next 18 to 24 months. We've consistently communicated our clear path to outsized AFFO growth and significant free cash flow, and that time is rapidly approaching. Operationally, our lease rate increased by 80 basis points sequentially, while generating 15.6% comparable blended cash spreads, highlighted by 14.3% non-option renewal spreads. As a reminder, we report non-optional renewal spreads as we believe they are the best barometer for the mark-to-market opportunity in our portfolio. To put this in context, over the past two and a half years, The spread on non-option renewals has averaged 12.1% as compared to an average of 2.6% in 2018 and 2019. The stark increase in non-option renewal spreads demonstrates the demand for space and the pricing power in our portfolio. The sequential increase in our lease rate was primarily driven by eight anchor leases executed in the second quarter at 47% comparable cash spreads and 46% returns on capital. On the small-sop side, we continue to successfully drive higher embedded growth. For new and non-option renewal leases signed in the first two quarters of 2024, the average annual growth was 3.4%, and 70% of these leases had fixed rent bumps greater than or equal to 4%. As a reminder, two years ago, only 3% of small shop leases had fixed rent bumps greater than or equal to 4%. We remain committed to improving the credit quality, merchandising mix, and our long-term embedded growth profile to generate a more sustainable stream of cash flows to drive outside long-term returns. Our sign-not-open pipeline grew by $3 million this quarter to $35.3 million, driven by $9.7 million of NOI from new leases, offset by $6.7 million of commenced NOI. This past quarter, the spread between leased and occupied grew to 320 basis points, and we expect this spread to remain elevated for the foreseeable future. as compared to our historical average of 150 to 200 basis points. As we mentioned on our last call, we expect occupancy to be a significant contributor to NOI growth over the next two years. On the transactional front, we sold Ashland and Roosevelt in the Chicago MSA for approximately $31 million. Consistent with our desire to transact in pods, we are under contract to acquire a grocery anchored center in the southeast that is expected to close in the third quarter. Over the past several months, we've seen a sharp increase in the number of high-quality shopping centers on the market and a corresponding increase in the number of qualified buyers. As the competition for quality assets heats up, we are seeing cap rates compress real-time, which further highlights the disconnect between private market pricing and public market valuations, ours in particular. While the strength of our balance sheet affords a very opportunistic posture, we will remain disciplined with respect to allocating our capital in a way that earns the best risk-adjusted return. Our Board of Trustees has authorized an 8.3% year-over-year increase in our dividend to accommodate our increasing levels of taxable income. As occupancy and NOI ramp up over the next few years, we anticipate our dividend to follow suit. For many of our long-term investors, the dividend is a critical aspect of reinvesting. And with the strength of our balance sheet, KRG's dividend is an extremely attractive risk-adjusted yield. KRG has once again produced outstanding results and positioned the balance sheet and the operating platform for consistent outperformance. Thank you, as always, to our incredible team for their hard work and dedication. I'll now turn the call to Heath who will walk you through the details of the results and our 2024 guidance.