Kite Realty Group Trust (NYSE:KRG) Q1 2025 Earnings Call Transcript

Kite Realty Group Trust (NYSE:KRG) Q1 2025 Earnings Call Transcript April 30, 2025

Operator: Good day, and thank you for standing by. Welcome to the Kite Realty Group Trust First Quarter 2025 Earnings Conference Call [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host for today’s conference, Bryan McCarthy, Senior Vice President of Corporate Marketing and Communications. Please go ahead.

Bryan McCarthy: 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 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 Web site 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, Heath Fear; 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.

John Kite: Thanks, Brian. KRG had an excellent start to 2025, highlighted by our strong first quarter operating results, a guidance raise and a landmark acquisition in a joint venture with GIC. I’m proud of our team’s ability to navigate the recent macroeconomic environment and focus on sound execution. This is in no small part due to our incredibly strong balance sheet that allows us to respond opportunistically to any potential economic disruption. Demand for space in our high quality centers continues to remain healthy, allowing our team to produce solid spreads, generate strong returns on capital, improve our embedded growth and enhance our merchandising mix. Blended cash leasing spreads in the first quarter were just under 14%, highlighted by 20% nonoption renewal spreads.

We continue to emphasize our non-option renewal spreads as we believe they are the best barometer for mark-to-market potential in our portfolio. Our new leasing volume was more heavily weighted to the small shop side of our business this quarter. We are encouraged to grow the shop lease rate sequentially given the seasonality that generally occurs in the first quarter. To accompany the leasing volume, starting rents for comparable new shop leases in the first quarter were nearly $41 per square foot, approximately 20% higher than our current portfolio average. In addition to strong starting rents, new and nonoption renewal shop leases signed in the first quarter of 2025 have weighted average rent bumps of 360 basis points, which is nearly 100 basis points higher than the shop leases executed just three years ago.

Pushing our portfolio to a higher cruising speed remains the primary focus for our team as we continue improving on our long term growth profile. Demand for our anchor spaces remain strong as larger format tenants focused beyond short term headlines making decisions designed to benefit their businesses for decades across multiple economic cycles. We’re making great progress on back fills evidenced by the depth of demand in our pipeline, including grocery, off-price retailers, full line apparel, fitness, sporting goods and home furnishings. Our strong first quarter results culminated in a $0.02 increase to NAREIT and core FFO per share guidance. Keith will provide more details on the components of the raise. But first, I’d like to discuss our recent acquisition of Legacy West in a joint venture with GIC.

Opportunities to acquire iconic mixed use assets are rare. Given our strong presence in the Dallas MSA a strategic objective to increase exposure to high caliber assets, we viewed Legacy West as a property that aligns with our investment criteria and long term portfolio vision. Recognizing the magnitude of the opportunity, we proactively approached GIC to explore forming a joint venture and we could not be more enthusiastic about our partnership. Additional transaction details are outlined in our earnings release and investor presentation, but legacy West unequivocally represents a pivotal step forward for KRG. Legacy West instantly enhances our portfolio quality and solidifies KRG’s position as one of the prominent owners and operators of significant lifestyle and mixed use assets.

The leasing synergies within the balance of our portfolio are powerful, enabling us to deepen relationships with leading brands like Aritzia, Fox Restaurant Group, lululemon, Sephora, Vuori and West Elm just to name a few, and the acquisition also fosters new relationships with luxury tenants, including LVMH and Kering. As we implement our proven operating platform on this asset, we expect to capitalize on significant mark-to-market opportunities and further elevate the merchandising mix. The transaction is immediately accretive to FFO per share while modestly increasing pro forma leverage by 0.2 times, keeping us comfortably at or below our long term net debt-to-EBITDA target of 5 to 5.5 times. Our first quarter results capped off by this game changing acquisition and joint venture are the product of disciplined capital allocation, a best-in-class operating platform and prudent balance sheet management.

While we have more work to do for the balance of 2025, we are battle tested and energized team that will always strive to outperform expectations. I’m confident in our ability to produce strong results in 2025 and deliver long term value for all our stakeholders. Thanks to the team. And now I’ll turn it to Heath to discuss details of Q1.

Heath Fear: Thank you, and good afternoon. Before diving into our quarterly results and increased guidance, I want to take a moment to thank the KRG and GIC teams that worked on the acquisition of Legacy West. We have been focusing on this transaction since November and we could not be more excited about putting our stamp on one of the nation’s top open air mixed use destinations. Turning to our results. For the first quarter of 2025, KRG earned $0.55 of NAREIT FFO per share and $0.53 of core FFO per share. Both NAREIT and core FFO benefited from a $0.03 contribution from a large termination fee we received from a single tenant. As we previously discussed, termination fees are a recurring but unpredictable part of our business and this particular fee will compensate us for downtime and re-leasing costs.

Same property NOI grew 3.1% driven by a 350 basis point increase from minimum rent, a 90 basis point increase in net recoveries that’s partially offset by higher bad debt as compared to the unusually low levels in Q1 of 2024. Based on the first quarter outperformance and our revised outlook for the balance of the year, we are increasing our 2025 NAREIT and core FFO per share guidance by $0.02 each at the midpoints. The components of our guidance raise included $0.01 related to net transaction activity and the other $0.01 was driven by the aforementioned termination fee being higher than we originally anticipated. Our same property NOI range remained unchanged from original guidance as did our full year credit disruption assumption of 195 basis points of total revenues.

It’s important to note that we increased the midpoint of our general bad debt reserve by 15 basis points to 100 basis points of total revenues while decreasing the anchor bankruptcy impact by 15 basis points to 95 basis points of total revenues. The change in the general bad debt bucket is reflective of the increased economic uncertainty while a change in the anchor bankruptcy reserve is driven by better than expected outcomes. Last quarter, we estimated that the total of five of the 29 anchor boxes would be assumed and that is exactly where we will end up. Subsequent to quarter end, we executed an additional four new leases, some of which have rent commencement dates in the later part of 2025. For another 12 boxes, we have selected the tenant and we are in active negotiations.

In total, over 70% of the 29 boxes are being addressed. Finally, the sequential increase in our net interest expense assumption is driven by the acquisition of Legacy West, which we will partially fund on a revolving credit facility with the goal of paying down the balance from planned dispositions set forth on Page 19 of our Investor Deck. Please note that as of last night, our Fullerton Metro asset is under contract with a nonrefundable earnest money deposit. As John mentioned, our disciplined capital allocation strategy and tremendous balance sheet afford us the opportunity to acquire Legacy West together with GIC. Holding aside the exceptional quality and potential of this asset upon completion of the associated transactions, we will upgrade the quality of our portfolio, de-risked our underlying cash flows, created an immediate earnings accretion and improved our long term growth profile.

We still have some work to do on the transactional front. But it’s important to mention that have we had to finance the Legacy West transaction with unsecured debt, the annualized core FFO accretion would be approximately $0.025 and our leverage would remain within our long term range of 5 to 5.5 times net debt to EBITDA. Please note that our new joint venture is to be treated as unconsolidated entity for accounting purposes. We’ve yet to finalize our purchase price accounting, and our NAREIT FFO guidance assumes no impact from noncash items. As the conference circuit keeps up, we look forward to seeing many of you in the coming weeks to talk about our progress in this amazing acquisition. Again, thank you to the KRG team for a great quarter and we’ll push for continued success.

Operator, this concludes our prepared remarks. Please open the line for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Todd Thomas with KeyBanc Capital Markets.

Todd Thomas: On Legacy West, a couple of questions. I was wondering if you can comment on the expected NOI growth rate in the near term and how that compares to the Kite portfolio in general? And can you share what the current occupancy rate is at the office and retail components?

John Kite: Let me start with that, Todd. In terms of the growth rate, what we can tell you is that the embedded rent bumps on the deal, which I think is in our presentation, are 2.6%. So obviously, that’s well above the average of the rest of the portfolio, which is at 1.8 — 1.7%, so that’s obviously a good start to that. And then the other thing that we mentioned and I think in the remarks is that we believe that there is significant mark-to-market opportunity here. So over the next three years, I think about 30% of the deals roll over either with fair market value options or no options at all. So I mean, with — at this point, it’s early. But there’s no question that, that was a big part of our underwriting process, both ours and GICs in the sense that we thought there was excellent upside here. Heath, do you want to hit the second part…

Heath Fear: The office is 98.7% leased and the retail is 95% leased as is the resi.

Todd Thomas: And then in terms of the office, I realize you just sort of onboarded the property here recently. But in general, is there a way to characterize the office demand and discuss how it’s performed, is there any recent leasing or tenant turnover that you can discuss? And what’s the remaining lease duration for the office segment look like?

John Kite: I’ll start with that and maybe Tom can give some commentary. I mean, this is extremely strong office product, obviously, highlighted by 98% lease percentage, which literally, I think there’s one space and there’s action on that one space. And again, even here the overall rents are below market. This is the kind of office product you want to own, highly amenitized, the tenants are very happy to be there. The submarket, by the way, is very strong in Plano. I think the submarket is like 95% leased. So look, we feel great about it. Tom, you want to add to that?

Tom McGowan: Todd, I would add that there are 72 companies in the Forbes Global 2000 in the small submarket. So it’s kind of amazing the actual number, and then there are three Fortune 1000 headquarters as well. So you just have this extremely unique submarket. And the great thing that we learned as we went through all the tenants and we had the discussions is, just from a recruiting standpoint, the environment inside Legacy West was a huge marker form, just in terms of their ability to want to stay there and working with the mayor and economic development groups, there’s a lot on the horizon. So we feel very good about the submarket and I think it’s reflected by the tremendous amount of strong companies that are located here.

Heath Fear: And Todd, the average duration lots on the office lease is around six years. I will tell you, obviously, we were very conservative in how we underwrote it. And while the big mark-to-market opportunity is really in the retail portion, we’re looking at the recent rents and deals that we’re signing in the office. There’s also opportunity for us to push rents there as well. So again, very conservative in our underwriting, love the balance sheet to the underlying tenants. But yes, we’re very happy about the office piece.

Todd Thomas: If I could just sneak one more in quickly about the relationship here with GIC. Is an interest to expand the relationship with additional investments, either third party acquisitions or by seeding additional assets above and beyond what’s sort of currently contemplated?

John Kite: I mean the answer is yes. I mean, we have — we’re very happy about our partnership with GIC and we’ve worked very well together over the last several months. As you saw in the investor presentation and as part of our sources and uses, we are actively working on a second joint venture contributing seed assets into that, which we highlighted in the presentation. So obviously, that’s a lot in a short period of time with a new partnership. But the long term vision is quite aligned between both Kite and GIC. So it’s early but I would suggest that we have other opportunities.

Operator: Our next question comes from Craig Mailman with Citi.

Craig Mailman: Just want to follow up on the shift in sort of the bad debt reserve. I know you guys — feels like the outcome feels a little bit better on the bankruptcies, but you shifted the same amount of reserve to just general. Are you guys seeing anything on the AR side or having conversations with tenants or putting additional tenants on the watch list that — or is it just kind of the general uncertainty in the market right now that’s leading to some conservatism on that front?

Heath Fear: Well, the anchor reserve went down, because some of the tenants stayed open longer than we had assumed and also, we signed four new leases for those spaces and a couple of them are opening up in ’25. So better result on the anchor, which is giving us that 15 basis points back. And then there’s nothing specific. There’s no increase in aged AR credit. It’s just a matter of saying, you know what, the world is a little crazy. So why don’t we take that 15 basis points and put it in that general bad debt bucket. So really just shifting it over with nothing specific.

John Kite: Craig, it’s still early, right? It’s first quarter. So we’re into the second quarter now. I think it was a smart thing to do in light of the world that we’re living in. But as Heath said, I mean, that’s one of the good things about our system internally is we do a bottoms up every month of every tenant. And so we have a really good pulse on where AR is and where the small shop health is and that pulse is still very strong, but I think it’s prudent at this point in the year.

Craig Mailman: And then just on the transaction environment, you guys are kind of selling some things into the third party market. What’s been the reception for some of those power center type deals, the bidding pool sizes kind of sensitivity on pricing that you’re seeing?

John Kite: I mean right now, it remains healthy. As Heath mentioned in the prepared remarks, the deal we have, which is kind of a larger format deal in LA that was on the market went hard last night at the pricing that we thought it would. So I think there’s still some very active acquisition buyers out there. There’s liquidity. Look, I think there’s uncertainty geopolitically. But on the ground operationally it’s a lot better. So I think we continue to see good demand. And cap rates continue to be very competitive. I mean, obviously, the 10 year is in the low 4% range. So you can make things work, especially with NOI growth. So I think it’s a pretty good market and we’ll see how the rest of the year kind of evolves.

Operator: Our next question comes from Floris Van Dijkum with Compass Point.

Floris Van Dijkum: A couple of more questions on Legacy West, if I — if you don’t mind indulging me. The — you mentioned that the average tenant sales are north of $1,000 a square foot, I believe the in-place rents are somewhere in the $60 a foot range. What are the new leases being signed at, what kind of mark-to-market are you expecting? And then I guess the follow-on question, and you indicated that this is not in your results yet, because you haven’t had the purchase accounting yet. But what would that do if you were to have to recognize that in terms of purchase accounting for returns — for your income that you have to recognize, how much of an impact would that be further upside to this acquisition in terms of earnings?

John Kite: Well, let me start with — just overall in terms of where we think the rents are what the potential market is. Without getting into specifics, I think it’s easy to kind of look at the fact that the health ratios certainly in the retail component are low. I mean we’re talking mid to low single digits or mid to high single digits in health ratios luxury lower than the overall. So I think we’re very comfortable that there is upside there. And whether that’s 20%, 25%, 30% upside, we’ll see over the next three years. But there’s no question that, that was part of both GICs and Kite’s real excitement about the asset was there was mark-to-market opportunity. In terms of the purchase accounting, I mean, it’s obviously, as we mentioned, too early to say.

It’s why we will continue to give you both NAREIT FFO and core FFO to highlight the differences. But suffice to say, there will be purchase accounting and there’s also a mark-to-market on the debt. So we’ll see the net result of that. But we’ll be a little more focused on the core and we’ll be more focused on the actual cash flow and NOI growth floors.

Floris Van Dijkum: And then maybe the follow-on question, additional asset sales. I know you talked about your GIC venture. And obviously, you’ve got three assets that, I guess, two are now hard, one is still sort of in the works, but should hopefully join them as well. How many more asset sales do you expect to be able to complete and how many of those potentially could be used for share repurchase opportunities?

John Kite: Well, again, high level, Floris, we mentioned on the last call that we have a strategy around the repositioning of the portfolio and the repatriation of cash, and so it’s hard to say right now based on the fluidity of the market and where people feel transactions will occur. So we don’t have a specific number that we are out there seeing is going to happen in the next ex number of months. But we were pretty clear that there are assets that we think are tradable that we could, again, repatriate that into whatever we think the highest and best use of that capital is. So I think it’s too early to say but there’s no question that we think the market is somewhat supportive right now and probably gets even more supportive as we move through the year. And so I think it’s — we’re just going to have to see how that evolves. Heath, anything to add to that.

Operator: Next question comes from R.J. Milligan with Raymond James.

R.J. Milligan: First, Heath, I wanted to touch on the guidance, curious on the lease term piece. How much was in original guidance and how much is there now embedded in guidance? I just would have thought after the term fee or the $7.5 million of term fees in Q1, the guide would have moved higher than that $0.01.

Heath Fear: So we had visibility into that termination when we gave guidance. So we thought it was going to be about $0.02 and then we ended up negotiating it, we did better. So it turned up being $0.03. So that’s why you’re only seeing a $0.01 increase in the guidance from termination fees.

R.J. Milligan: And so then what’s included in guidance for the remainder of the year?

Heath Fear: In terms of termination fees or…

R.J. Milligan: Yes.

Heath Fear: So in general, as you saw year-over-year, we said there was going to be one more $0.01 in 2025 versus ’24 and sort of that recurring but unpredictable bucket. So now that’s going to be $0.02. So if you do the math and go back, we do have some additional term fees, not nearly of this magnitude in guidance for the balance of the year and we do have a land sale gain as well, which we have visibility into as well. So again, net-net $0.02 more of those type of items in guidance as opposed to 2024.

R.J. Milligan: And then on the Legacy West transaction, I’m just curious how you guys deliberated between asset sales and using the proceeds for Legacy West versus buying back stock?

John Kite: I think, R.J. — I mean, great question. Obviously, we’re at a point in time today where the stock is at a level that doesn’t make sense. As you know, deals like this take a long time and gestation. And if you go back to the beginning of when we heavily engaged in this deal, our stock was at a much higher price. But most importantly, assets like this that we truly believe is an iconic open air are one of the best in the country. They just don’t come around very often. And there was actually quite a bit of product on the market over the last several months. And this is — by far, was the best opportunity because of the mark-to-market, because of the asset, the quality. So we did — we heavily debate what’s the best place for capital to go.

And when we look at the potential growth and we looked at the underlying asset and quality and we looked at the strength of our joint venture and long term strength of that with GIC, it was clearly the right place to be. But obviously, we’ll see how the rest of the year plays out and we’ll see what other opportunities we have throughout the year, whether that’d be through things such as that or buying back stock or whatever the highest and best use would be. But we do take it seriously and under — and try to do the best we can to underwrite it at the point in time. But the fact of the matter is these play out over multiple quarters, as you know.

R.J. Milligan: And John, I’m going to push you a little bit, if that’s okay. But based on your comments from the time that these transactions take, would it be fair to say that if your stock was currently trading where it is today that you would have considered instead of buying back stock?

John Kite: I mean it’s hard to be hypothetical. But yes, I mean, if the deal is happening today, it obviously would underwrite differently. But that being said, in the end, this was really about the long term value creation opportunity that we saw here. And we thought that was the — I still think that is the best pace to be. There’s long term value to be created and I think in the end, it will be very significant.

Operator: Our next question comes from Daniel Purpura with Green Street.

Daniel Purpura: The composition of your portfolio has shifted more to mixed use properties now with the acquisition of RPAI and now Legacy West. Can you talk about the benefits of these properties over like a traditional grocery anchored center and then do you see your portfolio or this portfolio shift continuing?

John Kite: I think, first of all, in terms of the benefits, we tried to highlight that earlier. I mean the embedded rent growth, the quality of the asset, the scarcity of the asset, these are all things that are very specific to things — to assets like Legacy West. So clearly, the growth rate and just the value creation when you can get into these deals at below market rents is really powerful. But that being said, I mean, we still have our portfolio still pivoted across the spectrum of various retail genres. And we — in the quarter, we acquired a grocery anchored center in West Palm Beach, Florida. So we continue to very — to be very focused on that as well. I think what we’re trying to do over time is pivot a little away from the centers that have more percentage risk associated with the boxes.

It doesn’t mean that we’ll be out of that. It just means it’s going to be a smaller part of the portfolio over time. So what we should get as a result of this is better cash flow growth and better NAV over time, that’s the objective.

Operator: Our next question comes from Andrew Reale with Bank of America.

Andrew Reale: Just on leasing, have there been any changes in how you’re approaching conversations with tenants and your leasing strategy overall in recent weeks? And I know you’ve had success pushing pretty favorable monetary and nonmonetary provisions within your leases in recent years. But curious if there have been any areas in the lease negotiation lately where you’re getting more pushback from tenants?

John Kite: No, I mean, at this point, it’s pretty much business as usual in the way that we operate with our customers, the retailers. And as we tell you all the time, we engage with them every single day. We mentioned in the prepared remarks that retailers, particularly the national retailers, when they’re making decisions, they’re thinking about decades of being in that particular property. And so they have to operate throughout the cycles. All that being said is the market is the market and there is concern today but it hasn’t come to fruition at this point in terms of our negotiations. If anything, the scarcity of the product continues to put us in a very good place as it relates to negotiating. Tom, do you want to add…

Tom McGowan: I mean the only other thing I would add is I think we see our primary customers wanting to do more portfolio reviews. We actually have one tomorrow where a grocery company is going to assess some of their new target markets and we’re going to really dig into that. So I think if anything, we’re seeing more interaction, more engagement with these customers to make sure they’re able to jump on opportunities as well as us as we move down the road. So we are definitely not seeing a lot of changes at this point other than people really wanting to forecast out opportunities within our portfolio.

Andrew Reale: And then just on your active and future developments, how do you feel about yield building up just given the broader macro uncertainty and potential cost headwinds associated with tariffs?

John Kite: Again, I mean, at this point in time, the yields have not been impacted by that, but we’re very early into this process. So there maybe some impact down the road. But generally, when there’s impact from that, we are able to get better returns vis-a-vis the rents or other value engineering. But today, it’s too early to see any impact from that.

Operator: Our next question comes from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb: John, just following up on the previous question on leasing. Do you think that leasing is a good indicator over time of like what’s going on in the economy? And what I’m asking for is do you think that the continued strength we’re seeing in retail is more driven by the dwindling availability versus strength of the underlying economy. Just trying to get a sense of how we should interpret the still strong leasing environment. If it’s more lack of space or it’s more, hey, retailers see great things in their business and they’re continuing to expand.

John Kite: Alex, I mean, I think it’s a combination of lack of space and strength of the retail physical footprint for these retailers to make money. But right now, I would say that it still remains a pretty healthy environment because the product is scarce and the retailers, over the last several years, have really kind of morphed their businesses and are able to figure out how the whole multifaceted online, in-store, all that works. So right now, I think it’s a combination. We’ll see how this plays out over the next several quarters but we’re still in a pretty good place as of today.

Heath Fear: I’d also add that during COVID, you saw a lot of these tenants shut down their real estate machine and they fired the real estate teams, and it was really hard to get it going again. So I think to remember and hey, listen, let’s not overreact. This is likely a temporary situation. It’s business as usual. Part of their growth depends on them opening up new units. So yes, it does feel a little turbulent. But I think the continued growth has been realizing that, as John said before, they’re looking to make real estate decisions for 10, 15, 20 years. And by definition, they are assuming there’s going to be some point of a downside. So again, I think it’s the tenants looking back and saying, you know what, let’s hold the course and let’s stick to our business plan.

Alexander Goldfarb: And then the second question is, in your Slide 19, which I give you guys credit for is a great slide. So glad you guys put it out there. You talk about the potential for a special dividend based on the dispositions. And I’m just wondering, obviously, REITs have been pretty good at sheltering taxable gains. And apart from doing a 1031, I’m assuming you guys explored all other options to shelter any capital we just seem in the current environment, retained cash is probably the most valuable asset you have versus a special dividend that I’m not sure you’d get much credit for. So just curious on your thoughts on that.

Heath Fear: Well, we absolutely investigated ways to shelter any potential special dividend And we say and that it’s likely required so that’s why we’re not giving a range on it. But as you know, when you’re purchasing an asset in a partnership, you can’t use at the 1031 fee sales. But with that said, there’s other things like dividend throwbacks et cetera, that we can use. So we are actively looking and we have tremendously good tax advisers of ways to avoid it. But at the end of the day when you step back, we don’t think it’s the worst use of capital. And if it’s returning capital to our shareholders and we’re doing this incredible transaction and even after when we return that cash this is still accretive. It feels like that that’s a great result all around.

Todd Thomas: I guess two questions. I guess the first one, it seems like between the asset sales and the JV seed funding, all those transactions are coming into, call it, like a mid-7s cap rate? Is that indicative of I guess what you’d be selling properties at today?

John Kite: I mean it’s hard to say across the entire portfolio of what we’d be selling, but I think it’s a reasonable kind of cap rate based on the type of products that we’re selling. And we felt pretty good about that in terms of how we were growing the remaining cash. So yes, I think it’s a reasonable assumption.

Todd Thomas: And I guess on occupancy, I think your economic/build occupancy was, call it, like in the low in the 91s in the first quarter. Where do you think that will trend by the end of the year?

Heath Fear: We generally don’t — we don’t — it’s occupancy, but you’re going to see, obviously, it dipped as we lose more of the leases out of the bankruptcy. We still have all of our JOANNs. But obviously, you’re going to see it start building up as returning on the ramp. So again, we don’t guide to economic old lease occupancy at the end of the year but generally, those are the two factors that are going to be impacting it.

Tom McGowan: But we’re on a very nice pace of backfilling these boxes. And so we’re very hopeful that, that will continue to increase through the balance of the year.

Operator: Our next question comes from Dori Kesten with Wells Fargo.

Dori Kesten: Are you able to quantify the fees that you’ll receive through the, I guess, potential to GIC JV?

Heath Fear: Dori, we’re not at ready to share those. But we set in our materials at their market so you can do a survey of various joint ventures and they’re going to be in the ballpark.

Dori Kesten: And as you walk through your ’25 small shop lease expirations, is it your your expectation that your fixed rent bumps of 3% plus should continue to grow from the 92% that you achieved this past year?

John Kite: I mean, I think if you look at the the quarter-over-quarter results, we continue to make great progress there. Obviously, as the portfolio gets leased up, you end up — it ends up getting harder and harder to get the growth out of a tougher space to lease. But certainly, 3% north is a very comfortable place for us to assume that we’re going to continue to do small shop leases.

Operator: Our next question comes from Wesley Golladay with Baird.

Wesley Golladay: The JV helped you mitigate the risk of taking that down a very large asset. And just kind of curious at what size of an asset would you want to bring in a JV partner?

John Kite: I think it’s probably deal by deal specific, Wes. But when you look at this particular asset, it felt like the appropriate size that we should be thinking about that. That being said, our share of the total deal is less than 10% of our undepreciated assets. So again, I think it’s a large asset but it’s not crazy large. But I think in this range, you would see us consider that. I mean there’s more to it than just the size, but in this range we would consider it.

Heath Fear: And Wes, I’d add that one piece of it is a risk diversification. It’s a large asset, so you bring a partner along. But also when you’re looking at these large assets, your counterparty is thinking about the ability and the other side to perform. And I’ll tell you that based on our joint venture with GIC, we weren’t the highest bidder on this asset and we were able to get the deal awarded to us because of the strength of the partnership. They looked at Kite’s ability to execute along with GIC’s ability to execute. And that’s why we won the bid. So it’s more than just risk allocation. It’s also partner with someone that’s going to give you a better advantage on your underwriting and when you’re submitting your bid.

Wesley Golladay: And then I guess, maybe your other assets in the market. How much of that play into it as well where you can get the immediate synergies?

Heath Fear: Which other — you mean the seed assets or the…

Wesley Golladay: Well, yes, other assets in the market…

John Kite: Yes, absolutely. I mean, as we mentioned, it was a big part of our underwriting of the asset was that we are a major player in the market. In fact, own an asset across the street, essentially across the tollway. And then also the fact that we own South Lake, which is a similar asset, very dominant. Now all of a sudden that we are — we own two of probably the top five open air retail assets in Dallas. So that’s a pretty major thing. And I think we can kind of cross pollinate tenants across the board and hopefully just lift rents across the board.

Heath Fear: And then from the Dallas market — have been substantial today just in terms of opportunities, what’s out there. So we will definitely build on our momentum in this market.

Wesley Golladay: And then one last one on the term income, the [Technical Difficulty] running through the non-same store. Is there [Technical Difficulty] base rent in 1Q, not to flow it through and then also, when should we assume that tenant is backfilled?

Heath Fear: So Wes you kind of broke up. In terms of when that tenant gets backfill, it’s an accurate response, I’ll call it, 12 to 18 months as our average to backfill it. But I missed the first part of your question, you kind of cut out.

Wesley Golladay: Is there anything in the runway run rate of the non-same store that we need to take out in 2Q and what amount should we put in call that late next year?

Heath Fear: On our termination fee policy, when we get a termination fee, we count the rent for the 12 months. So there’s nothing to remove out of the run rate.

Wesley Golladay: And I guess, would it be safe to assume that maybe it’s a few years of rent?

John Kite: Yes. How much it was?

Wesley Golladay: I guess for the base rent, I’m trying to figure out how much credit I need to give you for the, call it, mid next — mid to late 2026. What type of rent we should put in the run rate, because it’s not same store, so we don’t have an idea what’s going on there.

John Kite: I think it’s too early to say what the backfill rents are going to be, if that’s the question.

Wesley Golladay: Yes.

John Kite: I think we lost a little bit and it’s breaking up a little less. But I think it’s a little early to tell what the backfill. I think the point is that we have a lot of capital from the lease termination to reinvest in whatever we do there.

Operator: Our next question comes from Linda Tsai with Jefferies.

Linda Tsai: In terms of sales productivity, how does Legacy West compare to Legacy East and South Lake? And is Legacy West the one with the most amount of luxury retail, because I know you highlighted those tenants as having higher mark-to-market rent upside?

John Kite: I think Legacy West would be similar to South Lake in sales productivity slightly better but very similar, better than Legacy East as Legacy East is — we’re transitioning the property, recently did a small redevelopment there. So I think Legacy East has a long way to — has a lot of upside, which is great and we’re obviously going to be running these properties in conjunction. So — but yes, I think between the three of them, we have a lot of opportunity and the sales are strong.

Linda Tsai: And is there a sense of how much luxury you have across the Kite portfolio.

John Kite: I mean, I think this would be the highest concentration in this particular asset, which is what we were excited about that — one of the things we’re excited about is it’s a whole new channel of tenants for us. So yes, this would be the concentration at Legacy West.

Linda Tsai: And then how are you feeling about acquiring more for the rest of the year? Are you actually seeing opportunities now or is it more like pencils down for a bit with the purchase of Legacy West?

John Kite: I think we’re always reviewing the market. Today, we’re not seeing anything today that would be anything close to what we were able to do here. But I think the market is in a little bit of flux and we expect that to change over the next probably couple of quarters, but we’re always in the market. And I think as we go down the road and if there’s — if we have more asset sales, we’ll obviously have to look at what we’re doing with that. But as of right now, there’s not something that we’re engaged on that is of the quality and growth profile of Legacy West.

Operator: That concludes today’s question-and-answer session. I’d like to turn the call back to John Kite for closing remarks.

John Kite: Well, again, thank you, everyone, for joining us today. And we hopefully look forward to seeing most of you in the next month or so. Thank you.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.