Kite Realty Group Trust

Good day and welcome to the second quarter 2025 Kite Realty Group Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Brian McCarthy, Senior Vice President of Corporate Communications. Please go ahead.

Thank you, and good morning, 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, 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. Now, I'll turn the call over to John.

Thanks, Brian, and thanks, everyone, for joining today. The KRG team delivered another strong quarter, highlighted by our sound operational performance and excellent execution on the transactional front. Demand for space in our high-quality centers remains healthy, evidenced by our consistently solid leasing results. Lended cash leasing spreads in the second quarter were 17%. which is our highest quarterly blended spread in the past five years. Our ability to grow rents organically demonstrates the mark-to-market potential embedded within our portfolio. Leasing spreads for non-option renewals were almost 20% in the second quarter and 16% over the last 12 months. New leasing volume more than doubled sequentially, largely driven by 11 new anchor leases executed in the second quarter. Our anchor leasing activity included two new grocery leases with Whole Foods and Trader Joe's, alongside new leases with apparel, home furnishing, and fitness tenants. While our lease rate declined sequentially due to the impact from recent bankruptcies, based on the depth of demand in our leasing pipeline, we will gladly trade the short-term earnings disruption for the opportunity to upgrade our tenancy and bolster the durability of our cash flows. We continue to make great progress in backfilling space with well-capitalized retailers. And to date, over 80% of the boxes that we recaptured as a result of the recent bankruptcies are leased or in active negotiations. Our small shop lease rate increased 30 basis points sequentially and 80 basis points year over year. In addition to pushing occupancy, we continue to have success elevating our long-term growth profiles. Embedded escalators on our new and non-option renewal small shop leases were 3.4% for the first half of 2025. Activity this quarter included leases with Aloe Yoga, Lilly Pulitzer, Buck Mason, Sweetgreen, and Shake Shack. The consistent gains in our small shop lease rate are a result of our team's disciplined approach that prioritizes credit quality, strong starting rents, and higher embedded escalators, and most importantly, a compelling merchandising mix. At the midpoint, we are increasing our NAREIT and core FFO per share guidance by a penny and our same-store NOI assumption by 25 basis points. Our core FFO per share guidance now implies a 2.5% year-over-year growth despite the temporary disruption from anchor bankruptcy. At the midpoint of our 2025 guidance, our post-merger core FFO CAGR since 2022 stands at 4.1%. Our business is strong and will continue to improve as we lease space at attractive returns and enhance our long-term embedded growth profile. In recent quarters, we've alluded to an uptick in our capital recycling efforts to reshape the composition of our portfolio and reduce exposure to at-risk tenants. Through the first half of 2025, we've taken significant steps in executing our long-term portfolio vision. In a joint venture with GIC, we acquired Legacy West, an iconic asset that further solidifies our position as a prominent owner of lifestyle and mixed use assets and expands our relationship with high caliber retail brands. Subsequently, we expanded our strategic partnership with GIC by contributing three assets to a second joint venture, which includes three larger format community and power centers in Port St. Lucie, Florida, and the Dallas MSA. Our strategic partnerships with GIC now comprise over a billion dollars of gross asset value, with the potential to grow the relationship as additional opportunities arise. In addition to the JVs, we've sold three non-core assets year to date, Stony Creek Commons in the Indianapolis MSA and LA Fitness Anchored Center. Fullerton Metro Center in the Los Angeles MSA, an asset that presented an opportunity to monetize our limited exposure to California at attractive pricing and relocate the proceeds into target markets. And Humblewood Shopping Center in the Houston MSA, where the adjacent owner made an unsolicited offer and the sale reduced our exposure to at-risk tenants. These transactions immediately improve the quality of our portfolio, are accretive to earnings, and have a modest impact on our net debt to EBITDA. As we move forward, we will remain active in refining our portfolio by reducing exposure to at-risk tenants while increasing our focus on smaller format grocery anchored centers and select lifestyle and mixed-use assets. Our second quarter results inclusive of the highest blended spreads in five years, growing our strategic partnership with GIC to over a billion. Three non-core asset sales and an opportunistic bond issuance are the product of a dedicated team focused on executing our strategic initiatives. As always, we strive to produce strong results and deliver long-term value for all our stakeholders. Before turning the call to Heath, I wanted to thank our tenants and team members at Eastgate Crossing in Chapel Hill, North Carolina for their continued partnership as we work toward quickly reopening the shopping center. Eastgate suffered flooding as a result of historic amount of rainfall caused by Tropical Storm Chantal. Fortunately, the company has comprehensive flood insurance with coverage as well in excess of estimated damages. So now I'll turn the call over to Heath to discuss Q2 results.

Thank you and good morning. I want to commend the KRG team on an incredibly productive quarter. I'm encouraged by the significant leasing momentum against the backdrop of a portfolio that has tremendous occupancy upside. I'm equally encouraged by the sheer velocity of transaction activity that showcases our allocation acumen and ability to seamlessly execute across our capital stack. Turning to our results, KRG earned 51 cents of NAE REIT FFO per share and 50 cents of core FFO per share. Same property NOI grew 3.3%, driven by a 250 basis point contribution from higher minimum rents, a 50 basis point improvement in net recoveries, and a 30 basis improvement in overdraft. We are increasing the midpoints of our 2025 NAE REIT and core FFO per share guidance by one penny each. This one cent increase is primarily attributable to lower than anticipated bad debt and higher than anticipated overage rent. Accordingly, we are increasing the midpoint of our same property NOI assumption by 25 basis points and lowering our full year credit disruption to 185 basis points of total revenues with 95 basis points reserved for the general bad debt bucket and 90 basis points earmarked for the credit disruption associated with recent tenant bankruptcy. The 95 basis point general reserve is a function of combining the 84 basis points of actual bad debt we experienced for the first half of the year with a continuing bad debt assumption of 100 basis points for the balance of this year. As for the 90 basis point bankrupt anchor reserve, it's important to note that we realized 30 basis points in the first half of the year and expect to experience the remaining 60 basis points in the back half of 2025. This back half weighted disruption together with the extremely strong same-store results in the third and fourth quarters of 2024, are responsible for the same-store deceleration in the back half of 2025. Finally, the sequential increase in our net interest expense assumption is driven by transactional timing, causing the balances on our revolver to remain longer than anticipated. Our investments in capital markets teams have been tireless. We sold three non-core assets and completed two joint ventures involving four assets with a world-class institutional partner. That represents over $1 billion of gross transactional activity. With investment-grade credit spreads at historic lows, we opportunistically returned to the public debt market by issuing a seven-year, $300 million bond at a coupon of 5.2%. We also reduced the credit spread on our $1.1 billion revolver and two term loans representing $550 million. When all the dust settles, our net debt to EBITDA stands at 5.1 times, which is among the lowest in our peer set. As John mentioned, we have consistently telegraphed our desire to accelerate the transformation of the portfolio within confines of prudent balance sheet management. This past quarter is an excellent blueprint for what lies ahead. We are laser-focused on delivering strong results, exceeding expectations, and creating long-term value. Again, thank you to our team, and we look forward to seeing many of you over the next couple of weeks. Operator, this concludes our prepared remarks. Please open the line for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. And our first question will come from the line of Craig Mailman with Citi. Your line is open.

Thanks. It's Nick Joseph here with Craig. Um, I guess just on the leasing side, have you seen any changes in lease gestation periods, increase in willingness from tenants to sign leases just as you get more clarity around tariffs?

Uh, no, I don't think we have. In fact, if you see the activity we had in the second quarter, you would say it's picked up substantially. So perhaps in the beginning of the year, maybe there was a little more indecisiveness, but at this point in time, it feels as though there's significant demand and it's really all across the board. You know, we mentioned how much we did in the anchor business, but we also improved our shop occupancy with a very diverse, high quality group of tenants. You know, from my personal perspective, it's quite strong right now. Tom, you want to add anything?

Yeah, I think both sides are really trying to work together to find ways to improve scheduling, you know, how to get drawings done earlier, how to sort out permits collectively to make sure they're done properly. So I'm actually seeing more cooperation between the two sides to open stores as quickly as possible.

That's very helpful. And then just on the actual negotiations, what's the take for higher embedded escalators? What are you hearing from prospective tenants as you look to do that?

Well, I think the proof's in the pudding. When you look at our results, it's clearly been successful in our ability to generate higher growth. Certainly, it's still a challenge at times with the anchor tenants, but we're We're quite a bit better than we were a few years ago. When you look at our anchor tenants, I think the average is like one and a half percent. And it used to be like right around one a couple of years ago. So we've made strong strides there. And with 3.4% embedded growth in the overall portfolio in the first half of the year, I'd say we're leading the pack in that regard.

Thank you.

One moment for our next question. And that will come from the line of Todd Thomas with KeyBank Capital Markets. Your line is open.

Hi. I just wanted to stick with leasing and new lease volume in particular, which, John, you highlighted, Heath, too. You know, I wanted to ask about the forward leasing pipeline, if you can comment on July activity and your visibility to get additional anchor lease deals signed in the near term with some of the inventory that you recaptured, and also if you have any insight on re-tenanting spreads as you move ahead relative to this quarter.

Yeah, Todd, I think we feel very good about the way it's picked up in the last couple months. And I would say that where we sit here today, that if anything is continuing to accelerate. We have a very good portfolio of opportunities for retailers and there's a limited number of those spaces in good locations. So generally speaking, when we're looking at one of these deals, we have a couple different opportunities per available space. And that was part of the point we wanted to make is that we're very focused on not how fast it happens, but rather how good the outcome is. And it's probably why the first quarter we only did a couple deals and the second quarter we did 11, right, in the anchor side. So I think the demand is strong. It's really more about us making smart decisions about what's the right merchandising mix, who has the best credit in terms of the tenants that we're looking at. And then also, you know, the growth that we talked about, we're very focused on that. Overall, it's strong. Tom, you want to add some color? Yeah, I would.

Todd, I just look at the 11 boxes that we've executed in the quarter. Cash spreads were 36.6%. You have returns close to 25%. So when you include the first and second quarter, say you're at 13, we're going to see that volume of new box inventory getting signed increase significantly. And we're in the process of making sure that happens. But we know we have the inventory out there to transact on. Now we just got to hit our key points that John talked about, you know, making sure that, you know, the credit's there, the quality, the merchandising. And I think we're going to be successful with that.

That's helpful. You mentioned, John, that you would gladly trade the short-term disruption for the mark-to-market and all the tenant merchandising decisions that you're making. And, you know, Tom, it sounded like in response to an earlier question, you know, the permitting and planning processes are getting a little bit more efficient, but does the anchor demand give you negotiating power over shortening that rank commencement timeframe? And that disruption, you know, seems to be a little bit of a challenge, you know, in how the cash flow and NOI growth trends, you know, is there anything that is under consideration or anything that you can do to sort of shorten that rank commencement period in general?

Yeah, I mean, I think, Todd, the biggest thing we can do is work with the tenant and get their layouts done, and then get drawings start. And we're not afraid to get drawings started early. We'll work out a reasonable arrangement in terms of a reimbursement if the deal doesn't move forward. But if we can get those drawings started, we can get the permitting started early, you start putting yourself in a positive 90-day position in terms of a normal delivery, And then we're also putting tremendous pressure on the tenant saying, look, if you want this deal, here are the terms and the parameters you need to work with us in to get open as quickly as possible. And that then gives you a leg up on other tenants that we're talking to. So we're trying to pull as many levers as possible, Todd.

All right. Thank you. Thanks.

One moment for our next question. And that will come from the line of Andrew real with bank of America. Your line is open.

Hi, good morning. Thanks for taking my questions. Um, first what's the latest on the sale of city center.

Um, city center, you know, we, we still are marketing the property for sale in the last quarter. Um, while in the, in recently we were, we had a buyer that was identified that is no longer capable of moving forward. So we're, you know, continuing to market the property. Meanwhile, you know, the good news is that the property, we have some good new leasing activity. So probably just helps us quite frankly, but we continue to market for sale.

Okay. Does the Humblewood sale satisfy the asset sale proceeds to fund Legacy West or is there still more dispositions if city center is delayed?

Yeah, let me listen. All cash is fungible, right? So to the extent that Humblewood is a replacement for City Center, I'll tell you that Humblewood traded at a better cap rate than we anticipate City Center will trade. So to the extent we're using Humblewood and potential other sale to sort of complete that circle we had last quarter, it's only going to make the accretion more.

Okay, thanks. And I guess just one more. If I can just think long-term, what's a realistic ceiling for small shop occupancy?

Well, I mean, hard to say. We don't put a cap on it, right? I mean, I think our occupancy in 2019 was 92.5%. And so we're obviously getting closer to that. I would think we could exceed that. And I mean, I know we can exceed it. I wouldn't think we can. I know we can exceed that. So the goal is to continue to push it. But again, no different than any of our strategies. We're always looking for the best outcome, not the fastest outcome. So but it happens to have a lot of momentum right now. So we feel very good about continuing to grow it.

OK, thank you.

One moment for our next question. And that will come from the line of Paulina Rojas with Green Street. Your line is open.

Good morning. You mentioned the efforts to reduce exposure to at-risk tenants. But more broadly, how are you seeing investor interest in these larger, I assume, community centers or more power center-like type of assets? And are there any... particular retailers that the market is showing more hesitation to absorb sharing your concerns?

So the first part of the question in terms of I think the demand is quite strong in that category, Paulina, in the larger format. Obviously, when you look at the yield dispersion between the different property types, it can be very attractive to an investor and there's leverage available as well. So and in fact, You know, when we transacted in our second joint venture with GIC, that was a good indication of, you know, very sophisticated investor with an interest in the product type. And I think that carries through to a lot of other assets that we would consider. You know, in terms of, I think the second part of that about investors, I believe, having issues with certain retailers. I mean, generally speaking, you know, when you're buying a center, especially when we're talking about the larger format centers, they're large enough that not one or two tenants is really going to change the view of the value. It's really more important to us on the backside of that just to, you know, over time change the makeup of our cash flow. So it's really more about us and less about what some other investor would think about a particular property.

And then my other question is, so you're starting from a lower occupancy than your peers impacted by these recent bankruptcies. And to what degree do you believe that sets the stage for above peer group growth in 26 and 27? And is this dynamic something we should expect with our performance? And to what degree do you feel comfortable being held accountable for an expectation like that?

Well, that's a multi-part question you got there. But I'll say this, that when you look at where we are from a lease percentage and an occupancy percentage and where we've been, and you look at the activity that is brewing and that we just delivered in the second quarter, I would say we feel very optimistic that the lease percentage will gain you know, significantly in the next three, four quarters. Um, obviously as Tom pointed out, you know, when a big part of this disruption is obviously in the anchor space and the anchor space turning on rent takes time. So, and we've always said that if you look at, um, the deliveries that we've had and the rent commencement dates that we've had over the last few years, that generally is somewhere between 12 and 18 months to turn on rent after lease execution. So, you know, pick the middle, say it's 14, 15 months. Obviously, leases that we sign in Q3, you know, would be lucky to begin, you know, we'd probably begin turning on rent in late 26. And then leases we sign in Q4 would obviously be turning on in 27 based on those timelines. Now, the flip side of that is we're doing everything possible to accelerate that. In fact, if you look at some of the leases that we signed this year we are having we have three or four tenants that are opening within the calendar year anchor tenants so it can be done and that's what Tom and his team are very focused on this can be done so that's I would say that when you look at the next couple years of growth you know you look at over the next two three years we are positioned extremely well and I think you know it's not reflected in the stock and I think whether you own the stock today or you're thinking about investing in it, I guarantee you, you won't be able to buy it for this price over the next couple of years. So I think we have a tremendous upside in front of us and we're totally comfortable with pressure. That was the third part of your question. That's what we're here for is to deliver. Obviously, we took a hit on these bankruptcies. We were more exposed When you look at the last major bankruptcies, we were more exposed, and that's part of our strategy to move away from some of that and boost our cash growth. So I actually think this is a great time for us and a great time to get into the stock.

Thank you for answering my multi-question.

Always, always. We appreciate it. Thank you.

One moment for our next question. And that will come from the line of Alexander Goldfarb with Piper Sandler. Your line is open.

Hey, good morning out there. And John, I like that money back guarantee on where the stock will be in a few years. So it gives Tom and the team a bunch to work on. So two questions here. The first one is on tariffs. Based on what you guys have reported in your peers, it doesn't seem like there was any impact in leasing activity, demand, anything from the retailers. So in your view, were the tariffs sort of a non-issue from a retailer perspective, either because, one, all the weaker tenants were sorted out a few years ago, or two, lack of supply? Or why do you think that there was just no consequence despite the stock market turmoil, the top-of-the-head turmoil? But it doesn't sound like from a retailer perspective there was any slowdown at all.

Well, I think obviously there's a big difference between the stock market, which is trading all day long consistently. Headlines are moving around. The retailers are looking out over much longer periods of time, Alex, obviously, especially the national retailers who sign 10-year leases. A lot of the, as we've all said, a lot of the retailers pivoted during COVID to diversify their distribution channels and their supply channels. Now, to say it's irrelevant, it's not irrelevant. You know, it's still a factor in the sense of stability. And we've just gotten a lot more stable as these deals have been announced over the last few weeks. There's obviously still a few major trading partners that need to be buttoned up, but I would think that it's pretty clear that we're moving to a place of stability. And that's been a big part of it. But bottom line is that it kind of goes back to the supply demand equation that we always talk about. There is very limited supply in our space. And so when you have an opportunity to get a new space and you're a retailer looking to grow, you want to move on that. We've obviously taken a disruption in the last few months in this kind of really strange set of events with bankruptcies and then how people felt about all this. But now it seems to be very, and we're in a much better place today.

Yeah, it's interesting. I mean, it just shows the resilience of their supply chain that they can pivot, adjust, you know, to price accordingly. Second question, Heath, can you just remind us on RPAI, I know you're not 26 guidance, but still on RPAI specifically, what is the non-cash burn off that we should be thinking about as we're Updating our 26?

Going in from 24 to 25, you will recall it was about 5 cents. The good news is it's about half of that going in from 25 to 26. And that will be split between marks on the debt and marks on the leases.

Okay, so about 2.5 cents.

About 2.5 cents, correct.

Okay, thank you. Thank you.

One moment for our next question. And that will come from the line of Michael Goldsmith with UBS. Your line is open.

Good morning. Thanks a lot for taking my questions. Given your strategic transformation in capital recycling, you probably have some of the most unique insight into the raised buyer interest in the retail real estate space. So what have you learned about the buyers? What are they looking for specifically in the centers and how are they thinking about cap rates? And then just, uh, I know this is a lot, but given that you had a buyer back out of city center, do you think that is going to be more frequent just given the raised interest in the buyer pool going forward? Thanks.

To take the last part, no. I think that's kind of an aberration with one particular group and those things happen. And it's why you have a pool and you go back to the pool. As released overall, I just think that there is very strong institutional demand for, you know, open-air retail. It was a kind of a product type that, you know, some investors did not invest in for the last five plus years. And as the ground has got a lot firmer and returns have improved, you've seen a lot of people move into the space. I just think it's a great kind of risk-adjusted return for investors when you compare it to other product types, certainly from a going-in cap rate perspective, but more importantly from an IRR perspective. So I think that you're just seeing a catch-up. There's people that weren't in the space that now are very actively trying to rebalance their portfolios. Obviously, if you look at the typical institutional investor, they were probably overweighted to office and now they're you know probably pivoting to other things including retail and when you look at the IRRs that can be generated this is if you ask me it's still still undervalued I mean I would say that's going to change and so you can't put one specific cap rate on it because of the different product types within the retail genre so speak but Its demand is strong, and I think we continue to transact on both sides.

I would say we're seeing some themes in product type, Michael. Obviously, core grocery, that demand has remained steady. You're seeing a pickup in demand for larger format. That's a lot due to just the capital formation that's happening and the return hurdles that these guys need to make. So you're seeing, again, a better bid for larger format because of the ongoing yield. And you're also seeing sort of lifestyle mixed use also increase in the buyer pools, also the sellers as well. Legacy West, for example, Scottsdale Quarter, Birkdale Village, you're starting to see more of these sort of generational lifestyle assets trading and pricing accordingly. So it's been really interesting. We're seeing broad demand across the entire spectrum of the asset class.

Thanks for that. Super helpful. And as a follow-up, you noted earlier over 80% of the boxes that you recaptured as a result of the recent bankruptcies are leased or in active negotiations. For the remaining 20% or so, are those in lesser locations and maybe more difficult to lease or is that just kind of the result of timing and competition and whatnot? Just trying to get a sense of You know, the first 80% came pretty quickly. You know, does the next 20% take a little bit longer to get done just due to, like, they're just, they're not as in-demand things?

Yeah, no, I don't think it's necessarily about that. I don't think you can paint a broad brush when you're talking about 20% of these vacant boxes. I mean, if you go back in time, I think we peaked at, like, 98% occupancy in our box inventory. So, I mean, you're always gonna have some that are more difficult than others and for various reasons, but also I think it goes to the way that we negotiate and the objectives that we have. I can't overemphasize the fact that this is not a race to fill space. This is more about creating value for our stakeholders over the long term, not the short term. And frankly, if we wanted to fill space and a race, we would have done some deals that we don't want to do that just aren't good for the long-term value of the shopping center. So I think it's all going to come together over time, and we're just not counting quarters. We're thinking about the next two, three, four, five years.

Thank you very much. Good luck in the back half.

Thank you.

One moment for our next question. And that will come from the line of Cooper Clark with Wells Fargo. Your line is open.

Hey, thank you for taking the question. I wanted to ask about the JVs with GIC and comments earlier on continuing to grow the relationship. Could you provide any color on the current pipeline of deals you're underwriting with them on the acquisition side and how we should think about the JV portfolio at GIC growing longer term as you execute on some of the strategicals?

Yeah, I mean, look, in terms of our relationship with GSC, of course, we couldn't be more happy to partner with one of the world's most active and sophisticated investors. You know, I don't think we want to comment on specifics on underwriting with them, but bottom line is, as Heath mentioned, there are more and more opportunities for larger scale deals that we could look to JV Um, you know, we, we both have an understanding of what each other is interested in. So, you know, we will go about that one at a time. Um, but yeah, we're, we're super happy with the relationship and, you know, we, we want to go do a great job for them, uh, as a partner. Heath, do you want to comment?

I would just mention that neither party has a specific mandate. We don't have to, or exclusive with each other, you know, to the extent that we're looking at something that they find interesting. That's where the opportunities will arise. So we don't have to partner with them on the future, neither did it with us. So, again, it's been a great partnership, over a billion dollars in value, and certainly it's repeatable.

Let's just say it went from zero to a billion pretty quickly.

Great. Thank you. Thank you.

One moment for our next question. And that will come from the line of Floris Van Dicken with Lattenberg. Your line is open.

Hey, guys. Thanks for taking my question. So going back on legacy and returns, I think you talked about a 6.5% return that you're getting from that investment. How does that compare to the latest power center deal that you just disposed? And then maybe also talk about The purchase accounting, because I think that your prior 6.5% cap was a cash yield. The gap yield, how does that differ? And what does that mark the retail rents to market at? If you can give some more details, please.

Sure. So I'll first start with the yields, Floris. And you're correct, and you're remembering correctly, which I think is a really elegant part of this joint venture transaction. is our effective yield, taking into account the management fees on Legacy West, is right around 6.5%. Conversely, the 48% that we contributed into the partnership, the sell yield on that is also 6.5%. So in essence, what we're doing is we took portions from our power centers and we used it to buy a portion of Legacy West at the same exact yield, which we think, again, is extremely elegant. In terms of the purchase price accounting floors, it is going to be on a non-cash basis minimally accretive. So basically what we're saying is that the mark-to-market on the below-market leases is greater than the mark-to-market on the below-market debt. So again, slightly accretive, nothing material, but net-net positive.

Great. And then I guess my follow-up, more I guess maybe for Tom or John, but Your recovery ratio, I believe, is the highest in the sector, around 92%. And it went up even though your occupancy went down this past quarter. I'm curious, what are the initiatives that you are doing to keep improving that recovery ratio, and how much higher can that go? Is there a ceiling there?

Well, I don't know. I mean, first of all, as you said, we are, if not the highest, one of the highest recovery ratios. I think the first thing to look at is that we have probably the most fixed CAM in our portfolio as compared to peers. And, you know, that's taken years to develop. So you can't just start it and think that it's going to make a big impact in a year. We've been working on this probably for seven years, converting to fixed CAM. 94% of the deals I think, or maybe 95% of the deals we've done so far this year have been fixed camp. Um, you know, so we know what we're doing in that space. And it's, and again, it's not just a simple transition. You have to kind of understand how do you run these portfolios when you set a budget and, you know, you need to hit that budget. I think we're very, very aggressive about how we operate. You know how we do that. You've seen how we do that for us on the ground. And that flows through the whole organization that everyone is very laser focused on efficiency, but yet presenting a class A product, which obviously we have, and you've seen that too. So I think I would turn to that and then just overall expense control, how we control expenses at the property, how we control expenses in terms of pass-through. So it's not just one silver bullet. It's a way of living. It's a way of operating.

Tom, you want to? Yeah, I mean, this is really where the team earns their keep, and this is where the grinding occurs in terms of making sure we're bidding out these contracts every year, getting efficiencies, doing the things that we need to do while keeping the balance, as John said, of delivering a first-class center. I think we're even more proud of not just the components of fixed cam, but that below the belt, just really digging into the numbers, and we'll continue to do that.

Thanks, guys.

Thank you, Floris. And, Floris, congratulations on your new shop. Great news.

Thank you.

One moment for our next question. And that will come from the line of Hong Liang Zhang. With JP Morgan, your line is open.

Yeah, hey guys, two questions. I guess the first question, with the fact that you have two JVs with GIC, could you provide some guideposts to how we should think about how the equity and JV line should trend for the rest of the year?

You mean from an accounting perspective?

Yeah, within the income statement.

Okay, so geography-wise, on the balance sheet, you're going to see it all netted out in unconsolidated subsidiaries. And then you'll see the NOI, the depreciation, and the interest expense all netted out again in the income statement under the unconsolidated line. However, what we've done is in the new presentation in the supplemental, you'll see we've consolidated it all. So we've given you all those pieces individually, and that's for all of our unconsolidated JVs. So take a look in the supplemental, and you'll see the information in there.

Got it. And I guess my second question, your non-cash rents bounced around a little bit so far this year. I was just wondering if there's anything one-time in the current quarter's numbers tied to the bankruptcies.

I don't think there's anything. There's just natural lumpiness in that sometimes, so there's nothing in there that's – with the big lots bankruptcy, we did have a one-time acceleration. So other than that, it shouldn't be too bouncy.

Okay, thank you.

Thank you.

One moment for our next question. And that will come from the line of Alex Fagan with Baird. Your line is open.

Hey, thank you for taking our questions. I guess one for me is, what is the appetite for share buybacks today?

I mean, I think, like we always say, we have a We concurrently have a buyback plan in place and an ATM plan in place. We always want to be thinking about that from an opportunistic perspective. Also, what we've been clear about is that we're spending a lot of capital right now and getting really high returns on the backfilling of the space. We still are growing our dividend and we still generate free cash flow. Bottom line is I think we're always looking at that and always thinking about it. Certainly, as we move forward over the next several quarters and continue to backfill and continue to generate new cash flow, that probably becomes more of an opportunity to look at. But you never know. I mean, we're always analyzing the best place to invest.

Got it. That's it for me. Thank you. Thank you.

One moment for our next question. And that will come from the line of Ken Billingsley with Compass Point Research. Your line is open.

Hi, good morning. I wanted to follow up just on the anchors. You had discussed and it was in the press release about the on the new anchor cash leave spread of 36%. And just looking at the supplement, that looked like that was about 40% of anchor signing in the quarter. What were you getting on the other piece?

I'm not sure we understand.

Can you do comparable versus non-comparable? Ken, are you trying to ask what's the comparable versus the non-comparable anchors?

What's the new anchor leases look like? It was 207,000 feet, but it looks like you did 557. So I was just curious what you were getting on the other 350,000. What was the least spread on those anchors?

Yeah, I believe those are probably close to 25%.

And as we look into the remainder of the year, the expiring ABR, I think it's $20.11 that jumped up. It's a very small sample. It's less than 200,000 square feet. Is there any reason that that's significantly higher? Is there something unique about those tenants? Or are we likely to still see over 20% cash leave spreads through the remainder of this year, even on that group?

Yeah, I would say that that composition of that pool is more shop heavy, which is why you're seeing a higher number. So there's nothing really happening there other than just the mix of leases that are left to get done.

So nothing unique about those anchor tenants themselves that can be done? Okay. Thank you. Thank you.

One moment for our next question. And that will come from the line of Zachary White with BTIG. Your line is open.

Hi, yes, this is Zach Light on from Mike Gorman. Thanks for taking my question. Can you expand more on the strategic gateway market exposure, specifically Seattle and the other non-Sunbelt markets in the wake of the Fullerton sale? Mainly asking, are you seeing any differentiation in performance, and are there additional opportunities to maybe rotate out of some of those markets and back into the Sunbelt as the transaction market starts to loosen?

No, I think in terms of performance, I think when we look at our markets, it's pretty broad-based in terms of, you know, I think it's pretty tightly packed together in terms of how these markets are performing. We continue to be happy with the composition of our portfolio. I think we have made it pretty clear that in terms of California, that our representation there just was not big enough for us to continue to want to um be there quite frankly and and look the reality is there's some difficult difficult things about doing business there um and but we only had you know three properties in in uh california uh we've sold one one of them is going through a rezoning which we will then sell um and then the third one likely would be uh probably a candidate to sell as well but as it relates to the rest of the um you know those markets like seattle and new york and chicago which we would consider gateway markets. We feel very good about our positions in those markets. That being said, we're always thinking about it. We're always thinking about what's the best place for us to operate. Where do we generate the highest return? We compare margins. We look at demand in the pipeline. But right now, that demand is pretty strong across the board. And I think if you look at where we're doing deals, we're doing deals across the board in all those markets that you mentioned. We'll see how it evolves. We're very happy, but by the way, you know, we have 40% of our revenue comes from Texas and Florida. We still think that that's pretty smart. Um, and then the balance in the Southeast has become is, is strong too. So, uh, we'll continue to always monitor it, but we're happy where we are right now.

Got it. Okay, great. Thanks for the time. Thank you.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. John Kite for any closing remarks.

Well, I just want to say again, thank you all for taking the time to be on the call with us today. We look forward to seeing you soon.

This concludes today's program. Thank you all for participating. You may now disconnect.