Thank you for standing by. Welcome to Kite Realty Group Trust fourth quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone. To remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Bryan McCarthy, Senior Vice President, Corporate Marketing and Communications. Please go ahead, sir. Bryan McCarthy, you may begin. Thank you, good afternoon, everyone. Welcome to Kite Realty Group's fourth quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom McGowan, Executive Vice President and Chief Financial Officer, Heath Fehr, Senior Vice President and Chief Accounting Officer, Dave Buell, and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. I will now turn the call over to John. All right, thanks, Bryan, and good morning or good afternoon, everybody. Look, to say that we're proud of what we accomplished here at KRG during the course of 2022 would just be a massive understatement. We are currently at the lowest leverage levels and highest fixed charge coverage ratios in KRG's history. Our ABR per square foot, leasing volumes, and blended cash leasing spreads are at a high watermark for KRG. For those reasons, amongst many others, we achieved the highest total shareholder return among our peer group, which is a testament to our team's ability to operate our platform at the highest level. I wanna thank the entire team for all of its hard work, focus, and dedication. Our best days are clearly ahead of us, and we are committed to extending our current streak of outperformance across every metric. Before I provide further commentary on 2023, I'd like to highlight some key metrics from a spectacular 2022. KRG generated FFO as adjusted per share of $1.93, which represents a 29% increase per share over 2021 and a $0.21 increase over the midpoint of our original 2022 guidance. Our same-property NOI growth for the year was 5.1%, beating the original midpoint of our guidance by 310 basis points. Heath will lay out the components of our outperformance to provide additional context later on. Our ABR per square foot has now eclipsed $20 and has still plenty of room to grow, as demonstrated by the $27 rents per square foot achieved on all comparable new leases in 2022. Our net debt to EBITDA continued to trend down to 5.2x, and we have over $1 billion of liquidity. We leased nearly 4.9 million sq ft at 12.6% blended comparable cash leasing spreads, which represents approximately 17% of our total GLA. Excluding option renewals, blended cash spreads for comparable new and non-option renewals were 18.1%. Our leasing volume and rent spreads clearly showcase the demand for our high-quality shopping destinations and our team's ability to capitalize on a strong retail environment. More importantly, returns on capital for our new leasing activity in 2022 were nearly 36%. Leasing our existing space continues to represent the best risk-adjusted return of our capital. Not only did we execute on the leasing side, our development, construction, and tenant coordination teams delivered spaces on budget and ahead of schedule in a very, very turbulent year for construction. We opened 245 new tenants representing approximately $40 million of annualized NOI throughout 2022, which is another reason we believe our construction and development routes remain a competitive advantage for our platform. Our strategy for the next 18 months is straightforward. We still have a 150 basis point spread between our current and pre-COVID lease rate, which represents the most near-term upside amongst our peers. As we navigate an uncertain macro environment, we have the luxury of producing internal growth by doing what we do best, leasing space. Additionally, we have a healthy $33 million Signed Not Open pipeline to help buffer any potential tenant disruption in 2023. The issues around Bed Bath & Beyond and Party City are well documented. Heath will detail how we plan to address those tenants in terms of our guidance. Any disruption from those tenants could impact our lease rate in the near term. They are not a read-through to the broader retail environment. We continue to see strong demand from a variety of anchor tenants with whom we have recently signed leases, including Aldi, Lidl, Trader Joe's, Total Wine, DICK'S Sporting Goods, HomeGoods, pOpshelf, Ulta, and Five Below, amongst many others. Successful retailers continue to implement an omni-channel strategy across their fleets, where the physical store is an integral distribution point to deliver products and services to consumers. Supply of high-quality open-air retail space remains low, and demand continues to be strong, as demonstrated by our ability to grow rents at compelling returns. Our focus plan for 2023 is supported by one of the strongest balance sheets in the sector and limited future capital commitments. We have the flexibility to primarily focus our capital allocation efforts on leasing, as we only have $44 million remaining to spend on our active developments. Our measured approach to future development opportunities mandates that we take our time to establish the best risk-adjusted returns for KRG. Each development has its own nuances, and during the course of 2022, we made significant progress in preparing our entitled land bank as a lever for future growth. In various instances, we've demonstrated our willingness to monetize parcels, joint venture with the best-in-class partners, serve as a master developer and earn fee income, or take on projects solely ourselves. At KRG, we prefer the optionality to evaluate each scenario with the duty of achieving the best risk-adjusted return for our stakeholders. On the transactional front, we remain opportunistic. Like last year, we intend to transact in pods of activity that are either neutral or accretive by match funding acquisitions in our target markets with dispositions of non-core assets. For the time being, we feel this is the most logical approach, provided the strength of our balance sheet will allow us to immediately pivot should a compelling opportunity arise. KRG is in a very strong position. We will continue to operate the company with our signature focus and vigor to showcase the quality and upside embedded in our portfolio. I'll now turn the call over to Heath for further color. Good afternoon, thank you for joining us today. It's impossible not to feel an overwhelming sense of accomplishment when looking back at what the KRG team achieved during this past year. There is a lot to unpack for 2022 and 2023, let's get right to it. KRG generated $0.50 of FFO per share as adjusted for the fourth quarter and $1.93 of FFO per share as adjusted for the full year. For the fourth quarter, same-property NOI grew by 6.2%, with the main contributors being a 420 basis point increase in minimum rent and recoveries and a 230 basis point increase in overage rent, slightly offset by higher bad debt. The increase in overage rent is seasonal in nature, but a strong sign that retailers are thriving in our centers. For the full year, same-property NOI growth was 5.1%. Minimum rents and recoveries contributed 460 basis points to the full year growth. As a reminder, we reported FFO as adjusted and same-property NOI, excluding the impact of prior period collections, to provide the best view into our core results. Looking back, we significantly exceeded internal and external expectations and beat our original 2022 FFO guidance by $0.21 per share. Given the magnitude, I'd like to bridge our original guidance to the full year actuals to provide additional context. $0.08 of the beat is strictly related to operational outperformance by way of higher leasing spreads, an 89% retention ratio versus our initial budget of approximately 80%, lower bad debt, and an increase in overage rent. $0.05 is related to development fees and recurring but unpredictable items, which is in line with the numbers we laid out in our third quarter investor presentation. An additional $0.05 were merger-related items, namely outperformance on initial non-cash rent expectations and lower G&A. The remaining $0.03 is primarily due to transacting accretively and beating our development performers, specifically on the One Loudoun residential project. The past year was simply remarkable. As John alluded to earlier, we are providing NAREIT FFO guidance of $1.89-$1.95 per share. While many of you thanked us for the transparency and simplicity of our as-adjusted disclosure, for 2023, we plan to guide and report NAREIT FFO as the prior period collection bucket is de minimis at this point. Included in our guidance are a few key assumptions at the midpoint: same property NOI growth of 2.5%, a full-year bad debt assumption of 125 basis points, and an additional 75 basis points of assumed disruption for Bed Bath & Beyond and Party City. As you may recall, Regal Cinemas rejected the only lease we had with them effective January 1st, 2023, so no additional reserves are necessary. The 75 basis points of revenue disruption is solely attributable to Bed Bath & Beyond and Party City. On page four of our fourth quarter investor presentation, we set forth a bridge to quantify the impact of year-over-year trends on our 2023 NAREIT FFO guidance. Our net debt to EBITDA stands at 5.2 times, which is on the lower end of our long-term target. Additionally, our debt service coverage ratio now stands at over five times. Our balance sheet is one of the best in our sector, and KRG has never been in a more opportunistic posture. Subsequent to quarter end, we retired three secured mortgages for approximately $129 million, using our $1.1 billion revolving line of credit as a temporary solution until the fixed income market stabilizes and our credit spread more accurately reflects the strength of our balance sheet. In the meantime, we are actively pursuing alternative solutions to satisfy our remaining 2023 maturities. Thank you for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions. Certainly. Ladies and gentlemen, if you have a question at this time, please press star one one on your telephone. One moment for our first question. Our first question comes from the line of Todd Thomas from KeyBanc. Your question please. Yeah. Hi. Thanks. Good afternoon. Hey John, Heath, you know, you both talked about the company's low leverage, being at 5.2 times. You know, can you remind us, you know, of your long-term target leverage level and whether you're still looking to take that lower in the near term, or is now the right time to begin putting some of that dry powder to work either in the form of stock buybacks or acquisitions? Todd, this is Heath. Thanks for your question. We communicated before that our target's low to mid-fives. I don't think now is an appropriate time to change that target. We also said that on occasion you may see it float above that. Based on transactional activity, you may see it float below that. Again, I think our long-term target still is at the low to mid-fives, and at 5.2, we're actually toward the lower end of our target. Yeah. In terms of deploying capital, Todd, as we pointed out in the, in the prepared remarks, you know, we still have lease up to do. We're getting very high returns there. That's really our focus in capital allocation right now. Who knows, you know, what happens down the road with a few of the tenants that we may or may not get back. I think we're gonna remain really flexible. We have, you know, we've got dry powder, we've got free cash flow. The balance sheet is the best it's been in the history of the business. I think what we were trying to point out is, you know, business as usual right now, get this stuff leased, generate more free cash, grow internally. To the extent that something really unique is out there, you know, we're in a position to take advantage of it. That's just a great place to be. Right. Okay. I guess, you know, are you starting to see, you know, more attractive acquisition opportunities, you know, begin to surface? I think, you know, John, it sounded like, you know, the plan is to, you know, at least in the near term, look to match fund acquisitions with dispositions. You know, I'm curious, is there, you know, sort of a segment of the portfolio that, you know, has, you know, maybe steadier or lower growth characteristics that you're looking to offload? Or are you just aiming to upgrade the quality of the portfolio and maybe you expect to see those opportunities in 2023? Yeah. I mean, we're just getting started in the year, Todd, so it's just beginning to evolve. You know, we're still in a little bit of a volatile world. Everybody waits with bated breath for every Fed meeting. Until we get to this point when things are a little more stable, then I think you'll see opportunities maybe come to the surface more. We do see some things out there that are interesting in terms of one-off transactions. That's our job, is to try to, you know, figure out where we can be unique and find things that aren't, you know, heavily shopped. We'll continue to look for that, Todd. I think it's a little early right now, but things are starting to evolve and you are seeing, I think, people start to figure out how to transact. And we're just, we'll wait for the right one or right ones, I should say, and see what happens. Okay, great. Just one last one, Heath, in terms of the guidance. Can you give us, you know, a sense? I think in the bridge it looks like interest expense is just a, you know, about a one penny per share headwind relative to 2022. You know, can you give us a sense? I know you had settled, you know, some of the forward starting swaps, which I think you were expecting about a $3 million annual benefit. Can you just provide a little bit more color there? I guess, you know, whether there's any additional balance sheet activity or financing activity that's embedded in the guidance to get to that sort of one, you know, one penny. Sure ... increase. Sure. As you, as you mentioned, the $3 million interest expense savings from the hedge is embedded in that number. What we're currently modeling, Todd, is basically riding out each one of our existing maturities until the very end. You know, this is obviously attractively priced debt, so no rush to prepay it. We're putting it on our line. In the fourth quarter we end up issuing a bond issuance again in our model for $300 million. When you put all that together, it's a $0.01 diluted into 2023. I will say, however, and I mentioned in my remarks, we are looking at other ways of retiring our maturities. You know, looking at our indicative credit spread and contrasting that to our net debt to EBITDA and our coverage ratios and every other metric that you see. It really doesn't feel very good for us to wanna be into the fixed income market. We'll wait for that to settle down until our spreads are more, you know, price indicative to our actual credit profile. Some of the things we're looking at is, you know, we may put a mortgage on, one of our residential joint venture assets using agency debt, which is still pretty attractively priced. We may sell some non-income producing properties and use that to pay down debt. Also, if you think about it, Todd, we're sort of in this interesting spot right now where if you look at, you know, at where you might dispose of an asset and the yield on an asset versus what I could avoid in issuing new debt, call it at 6.5% or 7%, we could actually dispose of assets in a way that de-levers you and is also neutral to your earnings. It's another method of flexibility. To the extent where we're successful in disposing of something and we don't have an immediate use in terms of an acquisition, why not just pay down debt at this point, a risk-free return, and avoid having to issue that debt later on. Again, it's just great having such a wonderfully flexible balance sheet, that we can, you know, we can do a little bit of choose your adventure and figure out what's the best way for us to address these maturities in 2023. Okay, great. What are you earning on the $115 million of cash on the balance sheet right now? Gosh, I haven't looked at our depository rate recently. What it is it. Not enough. about 3.5%. Okay. All right. Great. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Craig Mailman from Citi. Your question, please. Hey, good afternoon, guys. Just a follow-up kind of on your thoughts. Heath, I hear you on not wanting to hit the bond market until kind of spreads reflect where you guys think you are from a credit perspective. At the same time, you know, John, you talked a little bit about taking advantage of the acquisition market. I mean, from your kind of vantage point, I mean, how do you get comfortable with market cap rates if, you know, the debt market, and maybe this is different with unsecured and secured market, but if the debt market hasn't, you know, materially normalized to where your credit profile is being, you know, recognized. Can you kind of just bridge that view on the debt market versus acquisition cap rates? You know, Craig, I think the debt market and our indicative spreads is really a function of just the uncertainty in the fixed income space and where rates are headed. You know, I think it's particularly exasperated for KRG because a lot of times, not a lot of times, but your existing issuances, you know, act as a marker, and you can only go so far away from those existing debt coupons and where they're trading right now. We just don't have a lot of bonds in the market right now, so they're fairly illiquid. I think that the answer to that is, it's, you know, if we do have proceeds from a disposition, we'll look to see where we are at the time. If I can issue debt at the right particular rate that time, we'll go ahead and do an acquisition. If I don't have use for it, I'll pay debt down and I'll relever later. I think that, you know, that relationship that you're discussing, it's working itself out now. I think it's a matter for us just to be patient and wait and see. The good news is we have the ability to be patient. Yeah. I guess the only thing I'd add to that, Craig, is that, you know, when we're looking at opportunities, it's not exactly linear between what, you know, long-term rates are and what a, you know, what an IRR is in a particular acquisition. There might be opportunities for us to get into something that on a going in yield is, you know, lower than what it would normally need to be, where the cost of capital was, but that the IRR had, you know, enough juice in it that it all works out, right? That's why we're pretty calm on that front right now. That's why there's not a lot going on on that front, and that's it really needs to stabilize a little bit before you would see more of it. I think the point we were trying to make is that the balance sheet is so strong that we're able to kind of wait and see how that works its way through. At the same time, we are looking at opportunities, and we are, you know, always underwriting things and trying to figure out where do those, you know, where will that come together, where it makes sense for us. It's not, it's not only about where, you know, medium-term and long-term rates are at any one point in time. No, that's helpful. Kite, just the magnitude of what you could put on from a mortgage debt perspective out in the JVs from the agencies, kind of dollar volume potential? One that we're looking at right now, Craig, is it would result in about $90 million of proceeds to KRG. You know, we've got other projects. Some of them are in various stages of construction, so, you know, it's a little less clear what we could produce out of those particular assets. That's the large one we're looking at. You know, that's $90 million against $285 million. That's taking out a very big chunk of our maturities for 2023. Okay. John, you had mentioned, you know, you're still 150 basis points below kind of where you were pre-COVID on lease occupancy. Is that the Legacy Kite portfolio, or is that kind of marrying RPAI and Kite and coming up with that number? Yeah. I mean, it's the combined company in terms of where we are right now, Craig, and we don't, as you know, we're well past the time of breaking out different portfolios. We're operating obviously as one company, one team. It really is just the combined business. You know, we obviously, as far as the Kite side of the equation, you know, we did have a bigger hit during COVID from one particular tenant, which was Stein Mart. That kind of overly impacted that side of our business, but now our anchor lease percentage is almost right there versus where we were in 2019. It's really about the shops. The opportunities in the shops, which is great because, you know, that revenue materializes quicker than box revenue in terms of the timelines it takes to turn over spaces. I think there's real opportunity there, and there's real rent growth opportunity there as well. Right. Then, Heath, on the $0.03 related to Bed Bath and Party City, could you talk about kind of what assumption is embedded in that in terms of either timing or ultimate store closures? Kind of what goes into that drag? Sure. Again, this represents our best estimate right now. you know, for better or for worse, this is not the first time that we're doing this sort of exercise. This won't be the last time that we're doing this sort of exercise. Really it was a ground-up space-by-space analysis. We looked at sales, we looked at health ratios, quality of the real estate, based on some direct discussions with the tenant and closure lists. We kind of triangulated, again, our best estimate. At this point, don't really wanna get into the sausage making in terms of what the particular assumptions are around each tenant or each space. Again, it's space by space, and we are in ongoing discussions. I think just, letting you know that we were very, very thoughtful in how we came up with this 75 basis point number. We'll see how it shakes out. Apologies if I missed this, but could you go through kind of the number of store closures that have been on the Bed Bath list that are Kite and maybe what the, you know, demand has been so far, if there's any LOIs outstanding or executed leases, if these come back to you? Sure. So far on Bed Bath, we've been identified with three potential closures. These lists are out there, we're working under the assumption that we will get those three back. We have quite a few tenants that are interested in these spaces. One thing to remember, every retail in the country has been reviewing these lists for quite some time, both from Bed Bath and Party City. We have a lot of active negotiations and discussions with people on those potential closures. On Party City, through recent expirations, we took two stores back. They have both been leased already. Those occurred in January. We're already off to a good, you know, a great start, but the interaction amongst every national retailer on these lists is very vibrant. We feel very good about where we're headed at this point. What were the mark-to-market on Party City and maybe the Bed Bath, just last one? We don't have that right in front of us, I don't think. I'm looking around. I don't think we have that right in front of us. We can get back to you on that. Perfect. Thank you. Thanks. Thank you. One moment for our next question. Our next question comes to the line of Floris van Dijkum from Compass Point. Your question please. Hey, guys. Thanks, thanks for taking my question. Obviously, you know, good set of results. There's, you know, starting to become some partial recognition of the transformation, I believe, that you guys have undergone in terms of your balance sheet and obviously portfolio with the RPAI transaction. There appears to be some left. I'm just curious. Last year you beached, you know, your guidance by, call it 10%. Where do you think, if you were to, you know, beat this year, where would that be? Where could you beat? Have you, in your numbers, assumed term fees for space that you get back from troubled tenants? How much more scope do you think there is in the small shop occupancy? Is that part of your SNO pipeline? Is there more scope there? Presumably, those take, you know, they're quicker to take a occupancy of that space as well. Then maybe are there any other merger benefits that, you know, you've clearly hit your two year plan in almost a year? What other merger benefits could we expect potentially to come down the road? Floris, I guess that's another way of you asking, would you like to see our corporate model through 2027? No, I'm kidding. I'm kidding. Let me back it up a little bit. Look, I mean, we're just like last year in terms of guidance. You know, it's, we're early, obviously very early in the year. There's a lot of moving parts. We tried to be as thoughtful as possible around, you know, potential impacts from the known tenant challenges that are out there and really kind of going above and beyond and actually breaking out the impact that we thought was out there from Bed Bath and Party City. In addition to that, you know, having a basically an extra 25 basis points above where we were last year in terms of bad debt. How that parlays into potential outperformance down the road, it's really too early to say. If, clearly if things go better than, you know, the forecast, I mean, you're looking at the opportunity to outperform, and you're looking at the opportunity to certainly be in the higher end of your range versus the lower end of your range. I just think it's too early for us to point to these individual things. I mean, even when we were sitting down going over the budget at the end of the year and then the model creation, you know, Bed Bath in particular has ebbed and flowed and, you know, now currently has a new capital source. That's a, that's a new thing. We'll see how that goes. I just think it's too early to say, "Hey, we think we could outperform to a very specific number." In terms of the leasing side of the equation... Let me back up. You said something in the beginning that we appreciate, which was the beginning of people seeing the, you know, the spectacular results of the combination of the companies. I want to make sure that everybody looks closely at the investor presentation. You know, in particular, when you go through pages six, seven, eight, nine, 10, you know, not that the rest of it isn't outstanding, but those are really, really important pages, because it covers what you're talking about. There is a page in there in terms of the merger and what we laid out at the time that we did the merger and that we communicated with the street, and then the actual results that occurred, which literally no one can deny that we did a very complicated, tough transaction, and we did it extremely well. It's only because of the team that we have, the way everybody came together. Frankly, you know, that's why one of the pages says, "one plus one equals three," because the results, you know, were at least three fold better, you know, in terms of total, you know, output. I would also say that. In terms of your question about small shop leasing, again, we're not gonna sit here today and give what we think we're gonna end the year at in terms of our small shop lease percentage. Suffice to say, since the anchor lease percentage is within, like, I don't know, 75, 80 basis points of where we were, the upside is clearly in the shops and, you know, the portfolio is very strong. You look at all the deals we've done. You look at our spreads, by the way, and you look at the spreads versus the top five, you know, we're clearly outperforming, particularly when you look at our ABR versus everybody else's ABR. I could go on and on, but that was a multifaceted question. I think the last piece of your question, Floris, was about the merger and whether there are any additional benefits. Oh. into the later years. On the G&A front, we're looking at fairly modest benefits into 2023. We still have some lease payments that are burning off some software subscriptions. I think the one merger benefit that's gonna keep giving for the time being is really the application of our operating platform onto the combined portfolio. As we're getting to know these assets better and better over time and really understanding the strengths of them, you know, the challenges, et cetera, I just think you're gonna see us produce outsized results because again, one plus one, as John said, equals three. Thanks, guys. Oh, maybe just a follow-up on the small shop. Your SNO pipeline presumably includes some small shop as well. What is the gap between your leased and occupied in your shop space today? Because that's where, you know, again, a lot of the, you know, the future growth is gonna come from. It's, 400 basis points, Floris. It's pretty significant. Okay, thanks. Yeah. We're 90% leased, and we're 86% occupied. That's it for me, guys. Thanks. Thanks, Floris. Thank you. One moment for our next question. Our next question comes from the line of RJ Milligan from Raymond James. Your question, please. Hey, guys. Good afternoon. I was looking for a little bit more color on the, sort of the general 125 basis points of bad debt that's built into guidance. I'm curious, how much visibility do you have on that currently in terms of, you know, basis points, maybe tenants that have already fallen out? Can you describe sort of the mix of expectation, whether it be small shops or, is the bulk of that assumption from small shops? Are there any big box tenants, that you're concerned about that you're building into that 125 basis points? Sure. RJ, both Heath and I can talk about it. I mean, big picture, let me just say big picture, I mean, we're, whatever, it's February, mid-February. There hasn't been much impact yet. This is really a go-forward reserve. You know, I think, I think as we looked at the year and we started to see, you know, some of the tenants that we had talked about in the past beginning to struggle, it seemed to be prudent to elevate it a little bit, but there isn't any specifics around it. You know, when you look particularly the fact that we carved out Bed Bath and Party City separately, it certainly gives us more room in the small shops since, you know, obviously those are both anchor tenants. From a square footage perspective, it gives us more room to absorb small shop potential disruption. It really is, it really was just at the point in time we were putting everything together, it seemed to be the prudent thing. Not very specific, other than the Party City and Bed Bath that we called out separately. Heath, you got to add anything? No, I think you did a great job answering that. Thanks. My second question is just what are the expectations for paying occupancy, and how does that trend, quarter to quarter throughout the year? In terms of how the leases turn on, RJ, is that what you're asking? Right. In combination with, you know, the potential fallout. I think a proxy for that question based on so much SNO that we have is what's the trajectory of our same store NOI. I'll tell you that it's gonna look a lot like it did last year. You know, it'll be strong in the first quarter, and then it'll decelerate a little bit into the second quarter and then ramp up to the back half of the year as we're opening up more tenants. Again, last year was a big year of opening up tenants. This year is the same thing. It's gonna look a lot alike as it did last year. Yeah. Some of that is going to be subject. Obviously, that's what we're modeling, RJ, we also in that, we've modeled that bad debt reserve to be higher than it was last year with the idea that if there was some, you know, if the economy did have less of a soft landing, we'd be able to absorb that handily. Look, if the economy continues on its current path, that feels like a, you know, very safe number. Thanks for that, guys. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your question, please. Good afternoon out there. two questions. First, Tom, you know, a lot of the shopping center companies, including you guys, have spoken about, you know, a lot of this preemptive demand for space that, you know, could be given back from, you know, potential troubled retailers. Just curious, over your, you know, decades of retail leasing, how common is this? Is this just something that normally, you know, we've never really asked about, but it's always been there? Is this truly a different point in the retail cycle to see so much proactive demand from the retailers themselves saying, "Hey, whatever space you have, we want, we want"? Yeah, I would say this is a fairly unique period of time, Alex, and I think it's simply driven by the lack of supply. You have these major retail formats that are growing, and they're wanting to, you know, locate in the best shopping centers possible. I think when we're dealing with both Bed Bath & Beyond, Party City, you know, there'll likely be some discussions that go the other way, where, "Hey, where can we work with you to get spaces back?" They're gonna be very aggressive with us in terms of trying to stay in the location. I think this will be as interesting a process as any one we've gone through. You know, we've been through quite a few of these, you know, whether it's Toys "R" Us, which are oversized boxes, or others that are more difficult. We're in the perfect wheelhouse right now, you know, where we have, we have a situation from a sizing standpoint that Bed Bath is at around 27,000 sq ft, Party City at 15, and we just have a great stable of tenants to deal with that. It is, to your point, a very unique situation because of those factors that we have a lot of people taking a look at these opportunities. Just following up on that. You know, Heath, as you think about the risks to this year and next, is it more from unforeseen, you know, future retail closings, or is it more just getting the backfill tenants open? I'm trying to get at, are you more concerned about, you know, tenants closing, or are you more concerned about the downtime that's needed between, you know, replacing the previous tenant with a new, better tenant? You know, Alex, honestly, it... Not sure. I mean, in terms of the downtime, I will say that we have an amazing construction team, and getting tenants open is what they do best. We were ahead of schedule, ahead of budget last year. To the extent there we sign a lease up, I'm very confident in our abilities to hit our budget at time in order to get that open. In terms of additional fallout, listen, I think we're in a, in what I'd say a more normal cycle. We've got a few players. It's, you know, it's Bed Bath & Beyond and Party City. I'm not looking at 2023 or 2024 and saying to myself, "Wow, we're in for this incredible deluge of additional bankruptcies." It doesn't. It's not how it feels at all. It's more back into the normal pace. I don't think that I'm biased either way in being worried more about downtime or worried about fallout. Yeah, I mean, Alex, from my perspective, you know, again, it's just too early to handicap how the year's gonna play out. I think the most important thing is that we built in a very flexible plan. We assumed that we would have more fallout than we did last year. Everything in our model, our balance sheet, everything is very capable of handling whatever might occur. It certainly doesn't feel as though, at this point in time, there's going to be, as Heath said, some additional deluge of tenants. It's just hard to underwrite early on. I think, look, let's get through this first. You know, we need to be through into the first half of the year to have a better feel for all that, but we're clearly, you know, we're clearly positioned to handle it very, very thoroughly. I think, look, downtime is always your biggest issue on the anchor side. You know, downtime on the shop side is much more manageable. It's really, hopefully, we've identified the anchors that are at risk. There's a couple others out there, I'm sure. Right now, it feels, doesn't feel tremendously different other than these isolated cases. Thanks, John. Thank you. Thank you. One moment for our next question. Our next question comes to the line of Anthony Powell from Barclays. Your question, please. Hi, good afternoon. It's a question on your base rent assumption for 2023. If I look at your NOI growth of 2% to 3% and some of the headwinds from bad debt, it seems like you're at 3% to 4% growth for 2023. Is that fair? Yeah, I'll give you the components, Anthony, for the same store. At 2.5% at the midpoint, you're looking at contributions from minimum rent growth of 300 basis points, recoveries of 100 basis points, partially offset by the Bed Bath & Beyond and Party City reserve of 100 basis points, overage rent of 30 basis points and bad debt of 20 basis points. Add that all together, and that's your components of your 2.5%. Got it. Thanks. That 300 basis point seems conservative. You're at 3.4% in the fourth quarter, you have a big SNO pipeline and things, leasing spreads are strong. I'm guessing, asking why that wouldn't accelerate from the fourth quarter growth that you achieved? Anthony, as John said before, it's the beginning of the year. You know, we are obviously very focused on outperforming these numbers, but we thought that was a, that was a number that we were comfortable starting at. It's like the bad debt assumption. You know, again, it's the beginning of the year, so we'll see how that pans out. Remember, there's another 25 basis points of bad debt on top of what we experienced outside of Bed Bath &, and Party City that's hitting that a little bit too. I think, again, as we sit here today, we feel like we're positioned well, Anthony, and we absolutely wanna outperform these numbers, and we absolutely wanna stay on the same trajectory we had last year, which is to, you know, outperform quarter by quarter. Got it. Thanks. One more on share buybacks. Could you maybe update us on what your philosophy or approach is to share buybacks? I know you mentioned that you wanna spend more on spend capital on leasing and we're still on a certain economy here, but there are some great opportunities to buy back stock last year. You still have the $400 million in place. I'm just curious what your view is on stock buybacks and under what conditions would you actually use the authorization. Yeah. I think that buyback's about $300 actually, not $400. $300. Sorry. Sorry. Yep. Yeah, yeah. That's okay. Not that we're counting the extra $100. I think it's the same philosophy right now that, you know, it's always discussed. We have it there for a reason. We have not acted on it at this point. We are definitely laser-focused on closing the gap, you know, in our lease percentage and our lease occupancy back to pre-COVID, you know, back to pre-COVID levels. That takes capital. The returns on this capital are substantial. We also are holding buffer capital for the potential fallout of some of these tenants that we mentioned. With all that being said, it's definitely, you know, on the list. I think we're prioritizing capital in those other places right now, and we'll see where we go. I've said this before, so it sounds like a continued dialogue, but the dialogue is accurate in the sense that we're always going to be nimble around that. If the opportunity presents itself in a very material way, that would be great. Right now, we're just gonna focus up, leasing up that stuff, Anthony, spending the money, getting those significant double-digit returns there, and then finishing out the development pipeline. Even though it's small, it's still $44 million. Those are our primary uses of capital right now. Great. Thank you. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Lizzy Doykan from Bank of America. Your question, please. Hi. Thanks for taking my question. I was curious if you could just underline the assumptions behind the $0.02 of impact included from G&A, and whatever else might be included within guidance. Thanks. We mentioned in our third quarter call that, you know, obviously with wage inflation, et cetera, that there could be some pressure on G&A into this year, again, because you're giving people raises, et cetera. That's one component of what's in there in the G&A. The other is really just some non-cash elements, which happy to discuss with you offline the particulars of those, but those are the two components that are in that particular line item. Great. Is there any additional synergies that's being assumed from the merger within that assumption? Listen, we did talk about the additional G&A synergies in the merger over the course of 2023. It's not gonna be very meaningful, but there are some rents, et cetera, some software licenses that'll be burning off. There will be some additional merger synergies. I would say that this $0.02 difference is more on a cash basis. Again, very little in terms of additional merger impacts. Okay. Thanks. I was also curious to get your latest thoughts on Kroger and Albertsons, just given the latest update they put out. It really just narrowed the range for expected store closings. You know, can you confirm how many stores you do have exposure to, that could have potential impact, with it just given the overlapping exposure, and just any latest thoughts on that? We have a total of 17 units of them combined. We did sort of an overlap study, a three mile radius, which by the way, for grocery store is probably pretty generous, and we really only have two that overlap. I don't feel very threatened by the idea that they may spin off 200-300 stores. By the way, if they spin off 200-300 stores, you know, they're gonna have to make sure that they capitalize that entity properly. It's not as if they're gonna spin off 200-300, and that's gonna be some entity that's gonna limp out into the world and immediately shut stores down. Again, very minimal overlap for us for those two grocers. We're not really. You know, the merger is not gonna have a, you know, a material impact, for Kite. Got it. Thank you. Thanks. Thank you. One moment for our next question. Our next question comes from the line of Paulina Rojas from Green Street. Your question please. Good afternoon. We talked about the financing market. I'm curious, where is today property level financing for shopping centers? If there is any difference between the rate you can get for grocery anchored and then on the other side, a larger power center. Paulina, we haven't been in the market for mortgage financing on any retail assets. We mentioned, the only one we're currently looking at is some agency debt for our residential markets. We do keep close, and I have friends, you know, in my prior life, I did a lot of CMBS and life company loans, you still can get a decent bid on a grocery anchored center. I would say there was a bid on power even last year, which sort of waned with the movement in interest rates. My guess is, for really core stuff, you still can get good financing rates. But for weaker assets, it'll be a little tougher, but that's how things generally work, right? Paulina, I... You know, I've got a... Like Heath, you know, I definitely keep connected to this and got a lot of friends in the private market. There's definitely financing available on every retail product, power included. For us, it's just, you know, that's not a market we're in, as you know, we're an unsecured borrower, we're focused on that. But it's definitely active. There's always gonna be spread between different product types, but I think it's not... You know, it was extremely wide a couple years ago. That narrowed and, you know, you're seeing transactions happen. It's, I think it's healthy. I think the retail market has become much healthier from a availability of credit and capital. It's just that we're at this point in time with the inverted yield curve that makes things challenging. Thank you for the color. Regarding the announced Bed Bath closures, I'm curious, are these mostly leases that were scheduled to expire in 23, or we're talking about early terminations here? If it were the latter, are you pursuing to obtain any termination fees? From a Party City standpoint, we did have two natural expirations that were really occurring at the beginning of the year. Those are the two that we have already listed. From a Bed Bath & Beyond standpoint, our current list has us with closures of three stores. We're already actively working on that. I think just as a point of context, in 2022, we leased 23 boxes at north of 465,000 sq ft, you know, with a ABR of $16.90. We have shown, particularly this last year, of our ability to execute on these. As these come in, these are not numbers that are of great concern, and you can tell we're already chipping away at each and every one of these. In terms of the question around expirations, these are early. In terms of our guidance, we don't have any term fees in our guidance, to be clear. Paulina, it's worth noting that the two Party City, as Tom mentioned, that closed, these are the natural expirations, both of them have been backfilled, and they're leased to pOpshelf. Great credit tenant, replacing Party City. Example of the demand in place. Great. Very, short and last one. If you were asked, where are you seeing the more strength, in the anchor or in the small shop side today? What would be your answer there? Sure, Paulina. It's very well balanced. I mean, as you can see, just from the numbers, our anchor lease percentage is almost back to where it was pre-COVID, that's been very strong. Now if you look at this quarter, the last quarter, and you look at our sequential growth, the sequential growth in the small shops was strong, stronger than anchors because we've closed that gap. Now, obviously, because we're getting so leased up in the anchors, you know, you're gonna see more activity in the small shops. The demand is strong. It's broad-based. If you look at our investor presentation, I think we have a page in there about all the small shop leasing and the different types of tenants. This truly is the strength of open air retail. I think I wanna make sure people understand the depth of the pool that we draw from in leasing small shops and anchors from so many different product types, so many different types of retailers, but it's really highlighted in the small shop category. It's just amazing. You know, Tom, you may wanna add some color to that. Yeah. Particularly on small shops, you have what we call our go-to tenants, you know, which are fast casual beauty, cellular groups. All these are of strong credit. In terms of new and evolving tenants, you know, we're starting to see with the expanded platform, you know, names that you may have originally seen in malls, et cetera, Aritzia, Nike, Lovesac, YETI, and the list goes on and on. We've really, as a company over the last year, expanded that pool to not only be the bread and butter of the key tenants that we operate with on an annual basis, but really bringing in new and exciting names. We feel very good about as we begin to push our 90% small shop lease rate as we start moving to our high water mark at 92.5%. Thank you. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Linda Tsai from Jefferies. Your question please. Hi. What kind of rent upside do you expect for the Bed Bath & Beyond boxes? What was the rent upside on Party City being released to pOpshelf? On the Bed Bath & Beyond's, we have 22 right now, and it's a nice square footage. It's about 27,000 sq ft on average. If you start taking down on what that average ABR is, you know, we feel like we have strong double-digit potential spread opportunities through there. On Party City, those numbers are at 15,000, which also gives us quite a bit of flexibility. Those numbers are a little bit below $16 on an ABR basis. Tuesday Morning at 12,000 sq ft, same situation, a lower number at $13.58 with plenty of room to grow. On the Party City deals that you talked about, one was very positive. I don't recall specifically the second one, but it was a bit of a mixed bag. Linda, specifically regarding Bed Bath, you know, Tom was talking about the total exposure to Bed Bath & Beyond, which includes buybuy BABY. I just wanna make sure you remember that on the Bed Bath side, we only have 13, and we view the buybuy BABY and Bed Bath as two very different situations. In terms of Bed Bath, you know, we've got one large store in Westbury and in Long Island that's, you know, a large store, big rent, as everything else is around there. If you exclude that store, the rest of the Bed Baths are actually below $12 a foot. As you know, our anchor average is 15 plus. There's real upside there. I mean, we obviously take it one deal at a time. It's more than just rent, it's also the user. There's true upside there if that were to come to fruition. Thanks for the color. Then can you just remind us what a historical lease to build spread looks like and how many quarters it would take to normalize? I mean, you know, normally that's closer to 150, you know, max of 175 basis points. We're well above that obviously. It just depends on, you know, historically, if you're, if you're more tilted towards the anchor side of that, you know, that's usually 12 to 18 months of, you know, to get a tenant back and get rent commencing. The small shops is less, so I don't have the actual spreadsheet in front of me that refers to that. That's kind of a macro big picture that we're definitely well above, but shrinking, right? I mean, it's compressing. And that's why, you know, we're very focused on leasing the small shops back to our high water mark of 92.5%. You know, there was a time where our high water mark was 90, where we sit today. It's just that, you know, we pushed that to significant heights pre-COVID, and now we wanna push it back. Good thing is it's very opportunistic. The only thing I'll add, Linda, John mentioned in his opening remarks that we still have the most remaining leasing upside at 150 basis points as compared to sort of pre-COVID levels. It's really an exercise in, you know, how fast are you turning on leases versus how fast are you signing them. If we're successful this year in leasing anything close to the velocities we were leasing last year, I'd expect that leased occupied spread to remain elevated until that exercise is done and then see it more normalized, you know, toward the end of 2024-2025, when we get back to that level John told you know, 125 to 150 basis points. That's how we think about it. Thanks. Thank you. Thank you. Our final question for today is a follow-up from the line of Todd Thomas from KeyBanc. Your question, please. Yeah. Hi, thanks. I appreciate the time here. I just had two follow-ups. You know, one, Heath, you mentioned that recoveries are expected to contribute about 100 basis points. You know, Kite has a higher% of leases on fixed CAM than peers. Is that what's contributing to the higher recovery forecast in 2023, or is it more a function of the higher occupancy? It's higher occupancy, that's the largest driver, Todd. Fixed CAM is certainly something that's going to obviously improve our margins over time, that takes a long time, you know. Before the merger, we were around 50% of our leases had fixed CAM in it. Now we're around 35- 40. Um, 40- 41. Oh, I'm sorry, 41. You know, that's gonna be the gift that keeps on gifting. The third thing is just operating more efficiently. You know, and, against that fixed CAM initiative. Again, most of this is occupancy driven for now, and the longer term benefits you'll see as we get more fixed CAM leases in place. I just add though, Todd, that we're outperforming our initial expectations on conversion. When you look at, I mean, this is, this is why when you look at our investor presentation, you look at, I mean, we talk about our NOI margin and our recovery ratio in a vacuum relative to what ours are the quarter before, the year before. When you look at the recovery ratio and the NOI margin compared to peers, I mean, we're blowing that away. You know, I do think fixed CAM is an important contributor over time, and it's not an easy thing to just start doing. You know, I think that, you know, we have a nice lead in that respect. If you look at the conversion ratio in Q1 versus Q4, I mean, Q1, we converted around 60%. Q4, you know, I think it was almost 90%. It was like 87%. It matters, and it's a gift that keeps on giving, frankly. Yeah. Is it easier or is it more difficult to convert tenants in this environment where there's been, you know, sorta, you know, more expense inflation perhaps or, you know, just higher costs in general? No. I mean, I think. Look, I think it's easy to explain the methodology. First of all, nothing's easy, but it's easy to explain the methodology. Remember, from our perspective, we are excluding non-controllable expenses. You know, I think that it's. It's important that, you know, you understand that we're not taking exposure there relative to inflation. I think tenants just want to be able to know what their budgets are, okay? I think that's been one thing. Again, this is a difficult thing to snap your fingers and just do, so we're pretty far out in front of that. Okay. My final question is just with regard to the bad debt assumptions, I know there's been a lot of, you know, dialogue around this, but I just wanna make sure I understand or get some clarity here. You have 125 basis points for, you know, potential disruption, just across the portfolio. The 75 basis points for Bed Bath, Party City and Regal, that's separate. Does the 2%-3% same-store NOI growth forecast, you know, your budget for the year itself, does that factor in the closures that you're aware of or that you anticipate capturing? Is there sort of anything in the budget itself? You know, I'm sort of just not sure whether the 75 basis points is incremental to what's already known or if that's, you know, accounting for those three tenants in totality. Again, Todd, that 75 basis points is our best estimate of the impact. For that 75 basis points, our guidance this quarter for the full year of 2023 would've been at 3.5% same-store NOI growth. It's, it's built in there. Again, don't wanna get into too much detail in terms of what the exact assumptions are around those, that potential disruption. And then like John mentioned, the 125 is more of a general reserve against, you know, typically, and we're somewhere in the 75-110 basis points of total revenues a year. Based on the world, we are a little more conservative going into 2023. Yeah. Okay. Hey, Todd, specific to your closure question, the closures that occurred with Party City are separate. Those closures are already out. Yeah. I just wanna be clear about that. Right. That, that's in the budget. That's, that's separate. What about the three Bed Bath closures? Well, there was one closed right now, right? That has already closed that's still paying rent. The others have been identified, and that would be covered in your separate 75 basis points. Okay. Understood. Is that All right. That's helpful. Thank you. Remember, when we say identified, Todd, it's a little bit of a moving target. Multiple lists as Tom has referred to. I think their view on the world is maybe different today than it was three months ago. We'll see where that all plays out. Yeah. No direct communication on those three whatsoever. Todd, just to make sure that we're abundantly clear, the 75 basis points is a combination of some ones that we think are gonna close for sure, and then handicapping on the balance of them. hopefully that answers your question more directly. Yeah. It does. John, you know, you just made me think of one more question, actually. you know, in light of-. Great ... you know, some of the capital raising activity, you know, from Bed Bath, it sounds like some of the closure lists might be a little bit more fluid once again. Is that sort of your understanding? I mean, I think our understanding is same as everybody else's, that they did raise some capital. You know, I think that, you know, they're gonna try to continue to operate the business. We're being conservative in what we assume is gonna happen, let's put it that way. Okay. All right. Thank you. All right. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to John Kite for any further remarks. Well, again, I just wanna thank everybody for taking their time, and I really, really wanna thank the entire KRG team for an incredible performance in 2022. Let's bring it on in 2023. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.