Kite Realty Group Trust Q1 2025 Earnings Report

Kite Realty Group Trust EPS Results

• Actual EPS: $0.53
• Consensus EPS: $0.51
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Kite Realty Group Trust Revenue Results

• Actual Revenue: $221.76 million
• Expected Revenue: $211.07 million
• Beat/Miss: Beat by +$10.69 million
• YoY Revenue Growth: N/A

Kite Realty Group Trust Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 1:00PM ET

Kite Realty Group Trust (NYSE:KRG) (NYSE: KRG) is a real estate investment trust that owns, develops, redevelops, acquires and operates open-air shopping centers in the United States. Its portfolio is primarily focused on grocery-anchored and other necessity-based retail properties, along with select mixed-use assets.

The company leases space to a variety of retailers, restaurants, service providers and other tenants. Its properties are generally located in established, high-growth communities and are designed to serve everyday consumer needs. Kite Realty Group also provides property management and related services and pursues redevelopment projects intended to enhance the performance and appeal of its centers.

Headquartered in Indianapolis, Indiana, Kite Realty Group has a history dating to 1968. The company expanded its portfolio and geographic presence through its 2021 merger with Retail Properties of America, Inc. Its properties are located across a range of U.S. markets, particularly in the Midwest, Southeast and other high-growth regions.

Kite Realty Group Trust Q1 2025 Earnings Call Transcript

Key Takeaways

• Kite delivered strong Q1 results with blended cash leasing spreads near 14%, non-option renewal spreads at 20%, same-store NOI up 3.1%, and raised 2025 NAREIT and core FFO guidance by $0.02.
• Formed a joint venture with GIC to acquire Legacy West, an immediately FFO-accretive, top-tier mixed-use asset offering 2.6% embedded rent bumps versus a 1.7% portfolio average and modestly increasing leverage by 0.2× while staying within 5–5.5× net debt/EBITDA.
• Leasing momentum remains healthy, with new shop leases starting at $41 per square foot (20% above the portfolio average) and weighted average rent bumps up 360 basis points, plus a robust anchor backfill pipeline across grocery, off-price, apparel, fitness, and home furnishings.
• Maintains a strong balance sheet, plans to fund Legacy West via asset dispositions (e.g., Fullerton Metro) and revolver borrowings, and has adjusted its bad debt reserve for modest economic uncertainty without changing its same-store NOI outlook.

Presentation

[Operator]

Today, and thank you for standing by. Welcome to the Kite Realty Group Trust First Quarter 2025 earnings conference call. At this time, all participants are in a 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 one-one on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one-one again. 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, SVP, Corporate Marketing and Communications at Kite Realty Group Trust]

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.

[Bryan McCarthy, SVP, Corporate Marketing and Communications at Kite Realty Group Trust]

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.

[Bryan McCarthy, SVP, Corporate Marketing and Communications at Kite Realty Group Trust]

On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer John Kite, President and Chief Operating Officer Thomas 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thanks, Bryan. 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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% non-option 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Our new leasing volume was more heavily weighted to the small shop side of our business this quarter. We were 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 sq ft, approximately 20% higher than our current portfolio average.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

In addition to strong starting rents, new and non-option 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Demand for our anchor spaces remains strong as larger format tenants focus beyond short-term headlines, making decisions designed to benefit their businesses for decades across multiple economic cycles. We're making great progress on backfills, 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Heath 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 and 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Recognizing the magnitude of the opportunity, we proactively approached GIC to explore forming a joint venture. 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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 5-5.5 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

While we have more work to do for the balance of 2025, we are a 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 R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

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.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

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 releasing costs.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Same property NOI grew 3.1%, driven by a 350 basis point increase from minimum rent, a 90 basis point increase in net recoveries, as 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.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

The components of our guidance raise included one penny related to net transaction activity, and the other penny 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.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

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 the change in the anchor bankruptcy reserve is driven by better-than-expected outcomes.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Last quarter, we estimated that the total of five of the 29 bankrupt 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.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

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 disposition 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 non-refundable earnest money deposit.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

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 have upgraded the quality of our portfolio, de-risked our underlying cash flows, created immediate earnings accretion, and improved our long-term growth profile.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

We still have some work to do on the transactional front, but it's important to mention that if 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 5-5.5 times net debt-to-EBITDA. Please note that our new joint venture is to be treated as an unconsolidated entity for accounting purposes.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

We have yet to finalize our purchase price accounting, and our NAREIT FFO guidance assumes no impact from non-cash items. As the conference circuit heats up, we look forward to seeing many of you in the coming weeks to talk about our progress and this amazing acquisition. Again, thank you to the KRG team for a great quarter, and we will push for continued success. Operator, this concludes our prepared remarks. Please open the line for questions.

[Operator]

As a reminder, if you'd like to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Todd Thomas with KeyBanc Capital Markets.

[Todd Thomas, Managing Director and Senior Equity Research Analyst at KeyBanc Capital Markets]

Hi, thanks. Good afternoon. 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. Can you share what the current occupancy rate is at the office and retail components?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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%. Obviously, that's well above the average of the rest of the portfolio, which is at 1.8% or 1.7%. That's obviously a good start to that. The other thing that we mentioned, I think, in the remarks is that we believe that there is significant mark-to-market opportunity here.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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. I mean, at this point, it's early, but there's no question that that was a big part of our underwriting process, both ours and GIC's, in the sense that we thought there was excellent upside here.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Heath, you want to hit the second one?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Yeah. The office is 98.7% leased, and the retail is 95% leased, as is the residency.

[Todd Thomas, Managing Director and Senior Equity Research Analyst at KeyBanc Capital Markets]

Okay. 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? What does the remaining lease duration for the office segment look like?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

I'll start with that, and maybe Thomas 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. 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's like 95% leased. We feel great about it. Thomas, you want to add to that?

[Thomas K. McGowan, President & COO at Kite Realty Group Trust]

Yeah. Todd, I would add that there are 72 companies in the Forbes Global 2000 in the small submarket. It is kind of amazing, the actual number. There are three Fortune 1000 headquarters as well. You just have this extremely unique submarket.

[Thomas K. McGowan, President & COO at Kite Realty Group Trust]

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 for them just in terms of their ability to want to stay there and working with the mayor and the economic development groups. There is a lot on the horizon. We feel very good about this submarket, and I think it is reflected by the tremendous amount of strong companies that have located here.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Todd, the average duration left on the office lease is around six years. I will tell you, obviously, we were very conservative in how we underwrote it. 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. Again, very conservative in our underwriting. Love the balance sheets of the underlying tenants. Yeah, we're very happy about the office piece.

[Todd Thomas, Managing Director and Senior Equity Research Analyst at KeyBanc Capital Markets]

Okay. Great. That's helpful. If I could just sneak one more in quickly about the relationship here with GIC, is there 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

Sure. I mean, the answer is yes. I mean, 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. 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. It's early, but I would suggest that we have other opportunities.

[Todd Thomas, Managing Director and Senior Equity Research Analyst at KeyBanc Capital Markets]

Okay. Great. Thank you.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thank you.

[Operator]

Our next question comes from Craig Mailman with Citi.

[Craig Mailman, Director, Equity Research Analyst at Citi]

Hey, guys. Just want to follow up on the shift in sort of the bad debt reserve. I know you guys feel 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 watchlist, or is it just kind of the general uncertainty in the market right now that's leading to some conservatism on that front?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Yeah. The anchor reserve went down because some of the tenants stayed open longer than we had assumed. Also, we signed four new leases for those spaces, and a couple of them are opening up in 2025. Better result on the anchor, which is giving us that 15 basis points back. There is nothing specific. There is no increase in aged AR. Craig, it is just a matter of saying, "Hey, you know what? The world's a little crazy, so why do we not take that 15 basis points and put it in our general bad debt bucket?" Really just shifting it over with nothing specific.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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. As he 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. We have a really good pulse on where AR is and where the small shop health is. That pulse is still very strong, but I think it's prudent at this point in the year.

[Craig Mailman, Director, Equity Research Analyst at Citi]

Okay. That's fair. 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

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 Los Angeles that was on the market, went hard last night at the pricing that we thought it would. I think there's still some very active acquisition buyers out there. There's liquidity.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Look, I think there's uncertainty geopolitically, but on the ground, operationally, it's a lot better. 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 four range. You can make things work, especially with NOI growth. I think it's a pretty good market, and we'll see how the rest of the year kind of evolves.

[Craig Mailman, Director, Equity Research Analyst at Citi]

Perfect. Thank you.

[Operator]

Our next question comes from Floris van Dijkum with Compass Point.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Hey, guys. A couple more questions on Legacy West, if you do not mind indulging me. You mentioned that the average tenant sales are north of $1,000 a sq ft. I believe the in-place rents are somewhere in the $60 a sq ft range. What are the new leases being signed at? What kind of mark-to-market are you expecting?

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

I guess the follow-on question, you indicated that this is not in your results yet because you have not 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

Let me start with just overall in terms of where we think the rents are and 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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. There is no question that that was part of both GIC's 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

It's why we will continue to give you both NAREIT FFO and Core FFO to highlight the differences. Suffice to say, there will be purchase accounting, and there's also a mark-to-market on the debt. 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 for us.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Great. 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? How many of those potentially could be used for share repurchase opportunities?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Again, high-level, Flores, we mentioned on the last call that we have a strategy around the repositioning of the portfolio and the repatriation of cash. It is hard to say right now, based on the fluidity of the market and where people feel transactions will occur. We do not have a specific number that we are out there saying is going to happen in the next X number of months.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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. I think it is too early to say, but there is no question that we think the market is somewhat supportive right now and probably gets even more supportive as we move through the year. I think we're just going to have to see how that evolves. Heath, anything to add to that?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Nothing.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Yeah.

[Floris van Dijkum, Managing Director at Compass Point Research & Trading]

Thanks, Thomas. That's it for me.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thanks.

[Operator]

Our next question comes from RJ Milligan with Raymond James.

[RJ. Milligan, Analyst at Raymond James]

Hey, good afternoon, guys. First, Heath, I wanted to touch on the guidance on the lease term fees. 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 one Q, the guide would have moved higher than that penny.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

We had visibility into that termination when we gave guidance. We thought it was going to be about two pennies, and then we ended up negotiating it. We did better, so it turned out being three pennies. That's why you're only seeing a 1 cent increase in the guidance from termination fees.

[RJ. Milligan, Analyst at Raymond James]

What's included in guidance for the remainder of the year?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

In terms of termination fees? Yes. In general, if you saw year over year, we said there was going to be one more penny in 2025 versus 2024 in sort of that recurring but unpredictable bucket. Now that's going to be two pennies. If you do the math and go back, we do have some additional term fees, not nearly this magnitude, in guidance for the balance of the year. We do have a land sale gain as well, which we have visibility into as well. Net net, two cents more of those type of items in guidance as opposed to 2024.

[RJ. Milligan, Analyst at Raymond James]

Okay. That's helpful. 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

Sure. I think RJ, 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. If you go back to the beginning of when we heavily engaged in this deal, our stock was at a much higher price.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Most importantly, assets like this that we truly believe is an iconic open-air, one of the best in the country, they just don't come around very often. There was actually quite a bit of product on the market over the last several months. This is by far the best opportunity because of the mark-to-market, because of the asset, the quality. We heavily debate what's the best place for capital to go.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

When we looked 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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 be through things such as that or buying back stock or whatever the highest and best use would be. We do take it seriously and try to do the best we can to underwrite it at the point in time. The fact of the matter is these play out over multiple quarters, as you know.

[RJ. Milligan, Analyst at Raymond James]

John, I'm going to push you a little bit, if that's okay. 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 buying back stock?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

I mean, it's hard to be hypothetical, but yeah. I mean, if the deal was happening today, it obviously would underwrite differently. That being said, in the end, this was really about the long-term value creation opportunity that we saw here. We thought that was the and still think that is the best pace to be. There's long-term value to be created. I think in the end, it will be very significant.

[RJ. Milligan, Analyst at Raymond James]

Appreciate that. Thanks, guys.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thank you.

[Operator]

Our next question comes from Daniel Purpura with Green Street.

[Daniel Purpura, Senior Associate, Equity Research at Green Street]

Hello. 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 a traditional grocery-anchored center? Do you see your portfolio or this portfolio shift continuing?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

I mean, 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 assets like Legacy West. Clearly, the growth rate and just the value creation when you can get into these deals at below market rents is really powerful.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

That being said, I mean, we still have our portfolio is still pivoted across the spectrum of various retail genres. In the quarter, we acquired a grocery-anchored center in West Palm Beach, Florida. We continue 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.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

It does not mean that we will be out of that. It just means it is going to be a smaller part of the portfolio over time. What we should get as a result of this is better cash flow growth and better NAV over time. That is the objective.

[Daniel Purpura, Senior Associate, Equity Research at Green Street]

Got it. Thank you.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thanks.

[Operator]

Our next question comes from Andrew Wheel with Bank of America.

[Andrew W, VP, Enterprise Payments Strategy at Bank of America]

Hey, good afternoon. Thanks for taking my questions. Just on leasing, have there been any changes in how you're approaching conversations with tenants and your leasing strategy overall in recent weeks? I know you've had success pushing pretty favorable monetary and non-monetary 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

No. I mean, at this point, it's pretty much business as usual in the way that we operate with our customers, the retailers. 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. They have to operate throughout the cycles.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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. Thomas, you want to add?

[Thomas K. McGowan, President & COO at Kite Realty Group Trust]

Yeah. 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. 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. 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 W, VP, Enterprise Payments Strategy at Bank of America]

Okay. Thank you. Just on your active and future developments, how do you feel about yields holding up just given the broader macro uncertainty and potential cost headwinds associated with tariffs?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Again, I mean, at this point in time, the yields have not been impacted by that, but we're very early into this process. There may be some impact down the road. Generally, when there's impact from that, we are able to get better returns vis-à-vis the rents or other value engineering. Today, it's too early to see any impact from that.

[Andrew W, VP, Enterprise Payments Strategy at Bank of America]

Okay. Thank you.

[Operator]

Our next question comes from Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler]

Hey, good afternoon out there. John, just following up on the previous question on leasing, do you think that leasing is a good indicator over time of what's going on in the economy? 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, the retailers see great things in their business and they're continuing to expand.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

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. 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. 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 R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Alex, I'd also add this is Heath that during COVID, you saw a lot of these tenants shut down their real estate machine, and they fired the real estate teams. It was really hard to get it going again. I think they're remembering, 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.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Yes, it does feel a little turbulent, but I think the continued growth is them realizing that, as John said before, they're looking to make real estate decisions for 10, 15, 20 years. By definition, they're assuming there's going to be some point of a downside. 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, Managing Director and Senior Research Analyst at Piper Sandler]

Okay. Then the second question is, in your slide 19, which I give you guys credit for, is a great slide. Yeah, glad you guys put it out there. You talk about the potential for a special dividend based on the dispositions. I'm just wondering, obviously, REITs have been pretty good at sheltering taxable gains. Apart from doing a 1031, I'm assuming you guys explored all other options to shelter. Any capital would 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. Just curious on your thoughts on that.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Alex, we absolutely investigated ways to shelter any potential special dividend. We say in that it's likely required, so that's why we're not giving a range on it. As you know, when you're purchasing an asset in a partnership, you can't use it to 1031 fee sales. With that said, there's other things like dividend throwbacks, etc., that we can use.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

We are actively looking, and we have tremendously good tax advisors on ways to avoid it. At the end of the day, when you step back, we don't think it's the worst use of capital. If it's returning cash to our shareholders and we're doing this incredible transaction, and even after we return that cash, this is still accretive, it feels like that's a great result all around.

[Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler]

Thank you.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thanks.

[Operator]

Our next question comes from Hongliang Zhang with JP Morgan. You're on mute.

[Hongliang Zhang, Vice President at JP Morgan]

Hello. Can you hear me?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Yes.

[Hongliang Zhang, Vice President at JP Morgan]

Cool. Sorry about that. I guess two questions. I guess the first one, it seems like between the asset sales and the JVC funding, all those transactions are coming into a, call it like a mid-sevens cap rate. Is that indicative of, I guess, what you'd be selling properties at today?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

I mean, it's hard to say across the entire portfolio 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. We felt pretty good about that in terms of how we were growing the remaining cash. I think it's a reasonable assumption.

[Hongliang Zhang, Vice President at JP Morgan]

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

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

We generally don't guide to occupancy, but you're going to see, obviously, it dip as we lose more of the leases out of the back of the seat. We still have all of our JOANN. Obviously, you're going to see it start building up as we're turning on the rent. Again, we don't guide to economic or lease occupancy at the end of the year, but generally, those are the two factors that are going to be impacting it.

[Thomas K. McGowan, President & COO at Kite Realty Group Trust]

We're on a very nice pace of backfilling these boxes. And we're very hopeful that that will continue to increase through the balance of the year.

[Hongliang Zhang, Vice President at JP Morgan]

Oh, thank you.

[Operator]

Our next question comes from Dory Kesten with Wells Fargo.

[Dory Kesten, Senior Equity Research Analyst at Wells Fargo]

Thanks. Good afternoon. Are you able to quantify the fees that you'll receive through the, I guess, potential two GIC JVs?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Dory, no, we're not at liberty to share those. We set on our materials that they're market, so you can do a survey of various joint ventures, and they're going to be in the ballpark.

[Dory Kesten, Senior Equity Research Analyst at Wells Fargo]

Got it. As you walk through your 25 small-shop lease expirations, is it your expectation that your fixed rent bumps of 3% plus should continue to grow from the 92% that you achieved this past year?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Yeah. I mean, I think if you look at 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. Certainly, 3% north is a very comfortable place for us to assume that we're going to continue to do small-shop leases.

[Dory Kesten, Senior Equity Research Analyst at Wells Fargo]

Okay. Thank you.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thank you.

[Operator]

Our next question comes from Wesley Golladay with Baird.

[Wes Golladay, Senior Research Analyst at Baird]

Hi everyone. The JV helped you mitigate the risk of taking that down a very large asset. Just kind of curious, at what size of an asset would you want to bring in a JV partner?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

I think it's probably deal-by-deal specific, Wes. 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. Again, I think it's a large asset, but it's not crazy large. 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 R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Wes, I'd add that one piece of it is risk diversification. It's a large asset, so you bring a partner along. Also, when you're looking at these large assets, your counterparty is thinking about the ability of the other side to perform. I will tell you that based on our joint venture with GIC, we were the highest bidder on this asset.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

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. That is why we won the bid. It is more than just risk allocation. It is also partnering with someone that is going to give you a better advantage when you're underwriting and when you're submitting your bid.

[Wes Golladay, Senior Research Analyst at Baird]

That's a fair point. I guess maybe your other assets in the market, how much does that play into it as well where you can get the immediate synergies?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Which other asset? You mean the seed assets or the?

[Wes Golladay, Senior Research Analyst at Baird]

The other assets in the market. Yeah.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Oh, yeah. Sorry.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

100%.

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Misunderstood the question.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Yeah, 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. Also the fact that we own Southlake, which is a similar asset, very dominant. Now, all of a sudden, we own two of probably the top five open-air retail assets in Dallas. That is a pretty major thing. I think we can kind of cross-pollinate tenants across the board and hopefully just lift rents across the board.

[Thomas K. McGowan, President & COO at Kite Realty Group Trust]

Yeah. Inbound calls from the Dallas market have been substantial today just in terms of opportunities, what's out there. We will definitely build on our momentum in this market.

[Wes Golladay, Senior Research Analyst at Baird]

Okay. Nice. One last one on the term income. The second is running through the non-same store. Is there any base rent in one Q not to flow it through? Also, when should we assume that tenant is backfilled?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Wes, we kind of broke up. In terms of when that tenant gets backfilled, it's an anchor spot, so call it 12-18 months is our average to backfill it. I missed the first part of your question. You kind of cut out.

[Wes Golladay, Senior Research Analyst at Baird]

Oh, yeah. Sorry about that. Is there anything in the run rate of the non-same store that we need to take out in 2Q? And what amount should we put in, call it late next year?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

No. On our termination fee policy, when we get a termination fee, we count the rent for the 12 months. There is nothing to remove out of the run rate.

[Wes Golladay, Senior Research Analyst at Baird]

Okay. I guess would it be safe to assume that maybe it's a few years of rent?

[Heath R. Fear, Executive Vice President and CFO at Kite Realty Group Trust]

Oh, how much was it?

[Wes Golladay, Senior Research Analyst at Baird]

Yeah. I guess the base rent. Yeah, I'm trying to figure out how much credit I need to give you for the, call it mid to late 2026, what type of rent we should put in the run rate because it's a non-same store, so we don't have an idea what's going on there.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

I think it's too early to say what the backfill rents are going to be if that's the question.

[Wes Golladay, Senior Research Analyst at Baird]

Yeah.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

I think we lost a little bit and it's breaking up a little, Wes. I think it's a little early to tell what the backfill is. I think the point is that we have a lot of capital from the lease termination to reinvest in whatever we do there.

[Wesley Golladay, Analyst at Baird]

Okay. Thanks, Wes.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thank you.

[Wes Golladay, Senior Research Analyst at Baird]

All right. Appreciate it.

[Operator]

Our next question comes from Linda Tsai with Jefferies.

[Linda Tsai, Senior Vice President at Jefferies]

Thanks for taking my question. In terms of sales productivity, how does Legacy West compare to Legacy East and Southlake? 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

Yeah. I think Legacy West would be similar to Southlake 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. I think Legacy East has a long way to, has a lot of upside, which is great. We're obviously going to be running these properties in conjunction. Yeah, I think between the three of them, we have a lot of opportunity and the sales are strong.

[Linda Tsai, Senior Vice President at Jefferies]

Is there a sense of how much luxury you have across the Kite portfolio?

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Yeah. I mean, I think this would be the highest concentration in this particular asset, which is what we were excited about. One of the things we were excited about is it's a whole new channel of tenants for us. Yeah, this would be the concentration at Legacy West.

[Linda Tsai, Senior Vice President at Jefferies]

Thanks. 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 A. Kite, Chairman and CEO at Kite Realty Group Trust]

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. I think the market is in a little bit of flux, and we expect that to change over the next probably couple of quarters. We're always in the market. I think as we go down the road, and if we have more asset sales, we'll obviously have to look at what we're doing with that. As of right now, there's not something that we're engaged on that is of the quality and growth profile of Legacy West.

[Linda Tsai, Senior Vice President at Jefferies]

Thank you.

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thanks.

[Operator]

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

[John A. Kite, Chairman and CEO at Kite Realty Group Trust]

Thank you, everyone, for joining us today. 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.

Participants

Executives

• Bryan McCarthy, SVP, Corporate Marketing and Communications
• John A. Kite, Chairman and CEO
• Heath R. Fear, Executive Vice President and CFO
• Thomas K. McGowan, President & COO

Analysts

• Todd Thomas, Managing Director and Senior Equity Research Analyst at KeyBanc Capital Markets
• Craig Mailman, Director, Equity Research Analyst at Citi
• Floris van Dijkum, Managing Director at Compass Point Research & Trading
• RJ. Milligan, Analyst at Raymond James
• Daniel Purpura, Senior Associate, Equity Research at Green Street
• Andrew W, VP, Enterprise Payments Strategy at Bank of America
• Alexander Goldfarb, Managing Director and Senior Research Analyst at Piper Sandler
• Hongliang Zhang, Vice President at JP Morgan
• Dory Kesten, Senior Equity Research Analyst at Wells Fargo
• Wes Golladay, Senior Research Analyst at Baird
• Wesley Golladay, Analyst at Baird
• Linda Tsai, Senior Vice President at Jefferies