We're with Kite Realty. I'm joined today by John Kite, CEO; Heath Fear, CFO; and Tyler Henshaw, Senior Vice President of Capital Markets. I'm Lizzy Doykan. I work with Jeff Spector in covering the retail REITs at Bank of America. So I will kick it off by turning over to the team for any opening remarks, and the latest state of the business. And then we'll head into Q&A, and we can open it up. We like to make this interactive, so please feel free to jump in at any point with questions. Great. Thank you, Lizzy. I'm John Kite. I'll, I'll just give a very brief overview of the company. Hopefully, most of you know, but it's Kite Realty Group. We're a shopping center based open-air shopping center REIT. We're the fifth largest publicly traded shopping center open-air REIT. We have about 181 operating properties. Over two-thirds of those properties are in the Sun Belt. About 40% of our revenue actually comes from Texas and Florida alone, just those two states. Majority of our shopping centers, about 75%-76% of them have a grocery store component to them. Heavily, you know, skewed towards the neighborhood and community shopping centers. Our balance sheet is currently one of the strongest in the sector, with 5x net debt to EBITDA, over $1 billion in liquidity. We have one of the most efficient operating platforms in the sector. You know, our NOI margin is about 74%. G&A to revenue is less than 7%. So we believe that we're a very efficient open-air shopping center operator, and that is the quick summary. Great. Why don't we start with talking a little bit about retailer demand? Has that held up the way that it has through the summer? Are we seeing any signs of softness, any changes to store opening plans or lease negotiations as, you know, there are ongoing concerns about consumer spending? Yeah, no. I mean, the answer, the quick answer is no. We have seen no real change in the environment in terms of demand generators in our space. So we're seeing robust small shop demand, robust anchor demand, and in the current environment, that seems to be continuing. Obviously, you know, we'll have to wait and see where the economy goes as a whole, but right now, I would say that the demand is quite favorable and we're able to drive rents. I mean, if you look at a couple of the factors that we look at, for example, if you... That we talk about a lot is our non-option renewal spreads, which what that means is these are tenants that are expiring, leases that are expiring, and the tenant doesn't have an option, so we have the ability to negotiate a new deal with them, and the TTM on that is 12%, rent spreads, and that requires no capital. So that's a really strong indicator that if we're able to raise rents by 12% and not have to put money into the space, we're in a good environment. So that's one of the most important metrics we look at. There's been a lot of questions on the quality of the lease and if that's remained intact. And again, I guess just, you know, asking about how lease negotiations have been going, just discussions for 2024, 2025, and beyond. Has that changed at all? I mean, currently, no. I mean, currently, the retailers that we're working with feel you know still feel strong enough about their business that they're committing to spaces. And one thing to remember is that certainly when you're talking about a larger national retailer, that's signing an anchor lease, you know, this is a 10-year minimum commitment, so they're kind of looking through maybe a one or two -year period of time. They're looking through that. So with that in mind, we really haven't seen any change. We haven't seen any you know there's the changes that we've seen have been more you know landlord favorable environment, where we can kind of dictate the terms a little bit better. So this is why we're pushing on annual rent growth. It's why we're pushing on elements of the lease that we're trying to tighten up and make more favorable. So, from my perspective, I think, I think- I don't think that's changed. Heath, do you have anything you want to add? No, I think to your point, John, it's we're using the momentum as an opportunity to actually improve the lease terms for the landlord. And I think a lot of us in this sector are used to the leverage being in the tenant's camp, and so this is an opportunity for us to not only drive rents, and we're having a lot of success with driving rents in our small shops, but even on the anchor deals, where they're a little bit more resistant to revisit traditional rent bumps. You know, can we do better with co-tenancy language? Can we do better with exclusives, et cetera? So we are pushing as much as we can, and as we should. It's you know, the supply-demand dynamic is in our favor, so I think it's a comment upon not only Kite, but our peers, to really take advantage of this opportunity. The open-air shopping centers have showed, they've demonstrated a lot of pricing power, and Kite has been sort of, you know, at the top of reporting the leasing spreads. So what is really driving that outperformance on a lot of those core metrics, and where do you see that going? How can that be sustained? Well, obviously, we can only speak for ourselves on how we approach the process, but a lot of it has to do with the fact that we approach the process from the perspective of strength, and we believe the environment is such that, you know, we're in a position where we should be pushing the envelope as it relates to driving rent growth and the things that we've talked about improving. In terms of the lease structures, et cetera. I think we've led the way in a lot of these metrics for the last, you know, couple of years. Obviously, the transaction that we did in with 2021 with RPAI is a part of that, and the ability for us to consolidate that into our operating platform and really drive that from an operational perspective, maybe a little more than before, so. But all in all, it's the fact of the matter is we're in a good environment with low supply, and we're able to push, and we run the business in a very granular, bottoms-up, kind of grinding way, where that's what we do every day, and that's our job. How long do you think the level of leasing spreads can be sustained for? How should we expect that to moderate over time, or? Yeah, I don't know. I mean, I think, as I said a second ago, if you look at the non-option renewal spread, which is the one that I would pay attention to, I think the new leasing spread is—it's a big headline number, but it's very much driven by capital. And, you know, everybody's putting different levels of capital into these transactions. And so, if you look at the non-option renewal spread, and again, that, as I said, has been 12% on a TTM basis, that's quite a bit higher than the historical norm. So how long does that go? Assuming that the environment stays reasonably similar to today, I think it continues. If we get into a much more difficult overall economic environment, it's going to be more difficult. But we're also in a very unique situation in our sector where there's very little supply. So a lot of the other sectors that have had maybe better growth have much more new supply that's come online in the last, you know, two years, three years, like some significant amount of new supply. We are the exact opposite. Supply has fallen off the face of the Earth since 2007. So it's gonna help, I think, sustain our sector probably longer than others based on that dynamic. And then turning to costs, I know Kite has had a pretty early and heightened focus on transitioning retailers to fixed CAM. So how is occupancy costs trending for your tenants today, and how do we think about that going forward? Yeah, it's an occupancy cost. Obviously, it's one of the propositions of open air when you look at other retail formats. And then we're still much lower than it is to be in an open air format than it is to be, for example, in an enclosed mall. But, you know, we are not seeing, you know, any tremendous pressure on occupancy costs. I'd say in our sector, things run somewhere between 7%-9% on average. So, again, no wholesale changes to which, you know, you would anticipate there to be much more pressure on occupancy costs if our tenants weren't able to achieve their sales objectives. So again, it feels pretty good, which is really allowing us to drive these rents. If we were pushing up against very high occupancy costs in our small shops, for example, I don't think we'd be able to achieve, you know, you know, 80% of our leases having a 3% bump or higher, right? So again, the dynamic is there, and we're not seeing any pressure on health ratios. With the higher level of tenant reimbursements that you're realizing, what is maybe a more normalized level to think about going forward for tenant reimbursements as a% of revenues? Is the level you're reporting now kind of a function of the, you know, what kind of the initiatives you've been working so hard on to put in place? What's a sustained level? Yeah, I mean, we've obviously been very vocal about having sector-leading NOI margins and recovery ratios. And, you know, even after our merger in 2021 with RPAI, we thought it would take two or three years for us to bring back the combined portfolio to the same sort of ratios we were experiencing as Kite standalone. Good news is that, you know, 18 months later, and we are back to historical Kite margins, and we're not as highly occupied as we were before as well. So I think by virtue of there being, you know, number one, higher conversion into fixed CAM, we're converting about 90% of our leases on a go-forward basis, which means about 50% of our leases are now a fixed CAM. That number will only grow. So I think there's opportunity for us to even push that NOI margin and the recovery ratios higher. Where does it end? I haven't thought that all the way through or done the math, but yeah, I think we can even get more efficient on a go-forward basis. Right. I also want to touch on your watch list. So how would you characterize that list today? And afterwards, I'll turn it over to talking about the latest on your Bed Bath & Beyond boxes. Heath, you got it. I would say the watchlist is smaller. You know, listen, we, we continue to benefit from COVID being a very large purging event. It actually kind of bifurcated our watchlist, right? Those that were really struggling were wiped out, and some of them, actually, you know, it was one of the best things that happened to them because they had, you know, fresh, new liquidity. Good example is some of the specialty grocers weren't doing very well during COVID, and now with the big rotation from, you know, dining out to dining in, they, they had brand-new liquidity and were able to reinvent their businesses. So again, just in general, the watchlist feels much more in accordance with historical norms, maybe even a little lighter than historical norms. Because, again, we're still benefiting from this fact that a lot of folks just didn't make it through COVID. You know, with that said, you know, watchlists are a part of our business. A lot of people like to talk about the watchlist, but part about having a watchlist is there's the opposite end of that spectrum, that what's unique about our business is, you know, we can go to someplace like ICSC, and we can do seven, eight, nine, 10 transactions with a single tenant. The cost of that is that if that tenant were to go away in the future, then you're going to lose multiple locations. So it's just something that's part of our business. It's Darwinian. If everyone thinks back to what the retail landscape looked like 15 years ago or 20 years ago, it looked a lot different than it does today. There are some survivors and some people that have thrived through any environment, but it's just, it's part of our business. And honestly, what keeps it interesting and keeps our centers fresh, if our tenants never failed and there was never a new concept coming in, I think it would be a much more boring place for people to visit. So yeah, it's smaller than it was and feels, you know, very manageable, especially in historical terms. Can you remind us again about how we should think about the impact from the lost rents of the box, Bed Bath & Beyond boxes that are ready to be released? Kind of talk about the impact in Q3 versus Q2. And then, we are expecting a mark-to-market spread on that that's up above 20%. But there's a lot of questions about factoring and the CapEx associated with that. So if we can discuss the economics around that, how you're thinking about that. I think there are several- a couple of questions in there, but first is, what's the impact? Sort of, do you want to know year-over-year basis from, from Bed Bath & Beyond, or, or this is more of a CapEx? Well, I mean, Bed Bath & Beyond was responsible for about $10 million of NOI on an annual basis, which obviously we won't be realizing in, in 2024. In 2023, we collected about a little over $5 million. So, you know, Bed Bath & Beyond paid through July. So in terms of NOI headwind, Bed Bath & Beyond will be much more of a headwind in the back half of this year and into 2024. In terms of occupancy, you'll see a larger hit in our, in our occupancy from Bed Bath. You'll see the full impact of that occupancy hit, a lot of it in the third quarter, but you'll see the full impact in the fourth quarter. And then in terms of the CapEx, you know, there's been some discussion as of late and some notes, etc., about the cost to retenant the Bed Bath & Beyonds. And we've been very lucky, you know, in the past, we've done recently 63 boxes, and only one of those boxes was a split. So, based on what we're looking at now and looking at the progress we're making and the discussions we're having, it looks like most of those 19 boxes that we're dealing with will probably be single-tenant backfills. and we're estimating the cost to backfill those boxes was somewhere around $80 a foot, so it's going to be about a $40 million-$50 million proposition to get those boxes all back online. There's also been questions around the implications of the Kroger, Albertsons announcement to potentially sell over 400 stores to C&S. Can you talk about what kind of exposure Kite has and your thoughts about a potential deal going through? So we have nine locations and only two locations that we actually have overlap, which is within three miles. We have two stores in the Chicago area, which are actually currently under the same brand, so they're not cannibalizing each other now, and two in Dallas. So the overall, you know, Albertsons-Kroger merger isn't a huge proposition for KRG. But what I'll tell you is that, you know, we're seeing this as some consolidation. And what's good about the current version, I think, versus the old version, is that it's not, you know, being spun off as some new independent grocery store chain in order to satisfy the FTC. You know, these stores are being sold to, you know, the Piggly Wiggly parent, and, you know, they've got a good balance sheet and a good operating history. So, you know, however this turns out, it feels like, you know, when all the dust settles, that people should be fairly, fairly, you know, stable in terms of that, that consolidation. And the other grocery consolidation that we saw also was what I thought also healthy for the business, which was Aldi and Winn-Dixie. You know, it's good to see that people are joining. It's not being done in a completely highly levered way, that- where you end up with a tenant base that is less secure than it was before. That being said, you know, are there going to be instances where folks have a, you know, tremendous, exposure to, to Albertsons and Kroger? Are they going to ultimately review their portfolios and say, "Okay, do we need to close some of them again?" We don't have a lot of overlapping stores, so it's not something that we're thinking or worrying about, but perhaps a question that some other folks may want to think about. Then turning to the transactions market, can you provide any update for us on what you're currently seeing out there in terms of grocery anchor trades? Any update on cap rate trends and, you know, particularly in your own markets? Yeah, I mean, in terms of the transaction market, I think it's still pretty quiet. You know, in terms of the, you know, one-off market, I'm not seeing... There's definitely more product in the market. In general, you know, cap rates have moved, but not probably tremendously. And frankly, most of the things that are happening are really more about, you know, underwritten expected IRRs than they are about a going-in cap rate. Because a lot of transactions are probably happening where people believe there's below-market rent, and there's the ability to mark that. There may be situations where there's some vacancy. So I don't know that going in cap rates is really the best barometer right now. But, certainly, you know, the kind of stuff that we own, you know, generally trades, you know, somewhere in the mid-fives to mid-six range. I would say that's where most of the stuff trades. And so there's still a big disintermediation between, you know, a stock price and a cap rate. You know, it's still a pretty big gap.... But I do think as the market stabilizes and hopefully as the kind of capital markets stabilize, particularly the debt markets, if that happens, then I think you're gonna see more activity maybe in the second half. Although we are obviously well into the second half, so probably it's a 2024 thing really, when I think about it. Any thoughts on the recent announcement by Kimco and RPT? And just general thoughts on seeing more public to public consolidation in the strip space. Did you say people were listening to this? Is this, like, public information? No, I'm kidding. Yeah, congratulations to both of them. I think, you know, good transaction for the market, made sense. You know, obviously, a lot of open-air shopping center companies, too many of them, too many of them are really too small to kind of justify the public market process. So I think there was a lot of logic. As it relates to what goes forward, it's hard to say. I think it makes sense to see more consolidation when you look at numbers and you look at operating efficiency, and you look at how these platforms are all quite different in that level. And then you kind of look at the G&A loads, it's just, there's some logic to it. Where it goes, it's hard to say. With more public to public combinations in the space, does Kite feel more pressure to acquire or be acquired? No, I don't know that you ever feel... I mean, we don't, we're operating the business day by day and trying to grow our cash flow. And I think ultimately the market's the market, and certainly just a deal or two doesn't really change the fact patterns. But that being said, I do think, you know, companies like ours are, you know, obviously, are valuable franchises. So where that shakes out, I don't know, but I don't think it puts pressure per se, on, you know, on us in particular. When it comes to the portfolio, you know, it's a pretty spread out balance between community, neighborhood, mixed use, lifestyle, and power. Do you see any material changes to that mix in the short to medium term? And what about geographically? Yeah, I mean, we like our kind of the composition of our portfolio, and we think that our—more importantly, we think that our customers, which is how we run the business, what does our customer want us, you know, to do? How do we execute for our customer? How do we deliver for our customer? That's a big part of how we think. And so that has led us to have a portfolio like this, because it's been attractive to the customers. So, you know, look, the majority of our assets are essentially neighborhood and community shopping centers, and that's... You know, that's where we want to be. We want to have the majority of our assets be those type. That, but we also have exposure to mixed-use lifestyle and power, and it kind of complements that. So I think we like that structure, and I don't think we would ever say, "Oh, we want to be 100% into a particular product," because then you're basically taking some significant risk into that one product. So we like current, you know, structure. That being said, you know, as we move down the road, I'm sure we will tweak this over time. Like, heavy dropping, I tell you. And, as far as the geography, we—I would say the same thing about the geography. It's that, you know, as I said, majority of our assets are in the Sun Belt. We have the largest exposure that I know of to Texas and Florida on a percentage basis. But yet we are complemented by some of these gateway markets, like Seattle and Chicago and New York, and that's what our customer wants us to be, offering them, and we're seeing good growth in all these geographies. So over time, I'm sure we will hone that over time, but at our size, I think we can operate and do some acquisitions and dispositions in pods that won't be a material move in any one direction. But again, that's always subject to us analyzing it. We do a bottoms-up analysis, you know, a couple of times a year on every deal. And we always are looking to understand why are we in that deal. When it comes to the mixed-use portion of your portfolio, you know, you've been ramping up some efforts there. When do you think you all would be more comfortable with taking on higher risk to return with redevelopment and mixed-use, you know, given that your future capital commitments is a bit light? Yeah, I think... Well, right now, our, you know, our, our primary focus in terms of capital allocation is, is the leasing. Because we're getting the highest returns on capital there, it's the lowest risk-adjusted-- the highest risk-adjusted returns. And due to the Bed Bath situation, you know, there's significant amount of spend in the next two years to backfill those spaces and also get us back to where we were pre-COVID in our occupancy, levels. All that being said, there's no question that the densification that we're doing in some of our assets has, has been very productive. You know, we're- we now have a kind of like an equity interest, so to speak, in under, just under 2,000 multifamily units. That is something that we will continue to do on the margin. That being said, you know, but we're also not looking to put 100% of our own capital at risk on these things. We're generally doing this in partnerships. We're generally bringing in other people to help execute and to help bring capital. So I think our process right now is pretty good, and we are leaning into it in certain places. But overall, the focus is let's get our leasing percentage back to where it was pre-COVID. Let's get all these Bed Bath leases signed and open and operating, and then you're gonna be sitting on significant free cash flow that we can look at how, you know, we can look at how we wanna deploy that. Do you see more opportunities to partner with, say, you know, some of the multifamily REITs on more of these resi projects, or is it kind of limited in what's out there? No, I think for us it's very, it's just project by project. We're not looking at one big, you know, joint venture with a particular apartment REIT. We're really like, who is the expert in this particular location? And so we'd much rather do that than a wholesale deal with someone just for convenience. I think especially in that business, it's very local, and so we wanna make sure we have the right local partner. Right. What are your plans for the balance sheet over the next, 6-18 months? So as you know, the balance sheet, it's in really great shape. Net debt 5x net debt to EBITDA, which is the lowest in the company history. So the fact that the balance sheet is in such great shape, we really have a lot of optionality over the next six to 18 months. We have $95 million of maturities occurring this year. That'll probably just be being put on our line, with, you know, with our line and then free cash flow. And then looking to next year, we have $270 million coming due. And we've been very open and been spending a lot of time with the fixed income community. You know, we are committed to being an unsecured borrower, so when the time is right, and we have the ability to be patient, we'll look to tap the unsecured bond markets. The good news is, as compared to the beginning of the year, our indicative rates have come in a lot. Probably have lost some of that to benchmark, but, you know, our all-in rates are probably a little bit better than they were at the beginning of the year. We've been spending a lot of time with our rating agencies. I think if you look at our credit metrics and our ratings, I think we can all come and agree that there's a bit of a disconnect, so, been spending a lot of time with them and keeping our fingers crossed and hoping to convince them that it's time to relook at our credit. So again, our balance sheet is in such great shape that we'll tackle 2024 as it comes. The average weighted maturity date for our debt coming due in 2024 is June thirtieth, so it's not like we have a bunch of January 1 maturities. So you'll see us, though. You'll see us eventually tap the market somewhere in the fourth quarter or the early part of 2024. Where can you issue new senior debt at today? So, indicative spreads are somewhere between 225 and 250 over. Okay. And just where the costs of capital are today, and they've just become... You know, it's been increasingly higher. How have capital allocation priorities shifted for you all over, call it the last year or two, and your overall investment thresholds? Yeah, I think what the good news for us is that the main item or items one through five, and, you know, our list of six for capital allocation is really leasing, right? And the best part about leasing for us over the next two years, you know, we'll be spending $200 million, is it's the best risk-adjusted return for the company, right? We're looking at 30% returns on leasing. So we're sort of relieved right now of having to look at what's our return hurdle, whether if our lever to grow is acquisitions or re- or redevelopments. Sure, we're working on those things, and as John mentioned, we're transacting in pods, so we're sort of buying and selling, trading in a way. I will tell you, when we're looking at acquisition, is our, you know, is our unlevered IRR expectations higher than they were, previous environment where rates were rising? Yeah, they are. But, you know, so again, it's the great news for Kite is that we have a really low-hanging fruit in terms of our ability to grow, which is, it's all internal. It's leasing. But yes, we are looking at, you know, underwriting and taking into account our higher cost of capital. Just on the back to the embedded rent bumps that you mentioned earlier, and it's been really a focus just even from the last earnings call. You know, where again does this stand on average? What is this for small shop retailers? And really, if you could kind of explain to the audience how Kite is differentiated from its peers on that standpoint, that would be great. So our current embedded rent bumps are 150 basis points. And as we disclosed in our last call, you know, for the first half of this year, holding aside pure renewals, 'cause we can't control that, but for our non-option renewals and for our new leasing, those rent bumps average 230 basis points. So that's an 80 basis point improvement. So for us, again, it's taking advantage, especially in the shop side of the current environment and charging our leasing team with getting better internal bumps. And, you know, 80% of our leases, as I mentioned before, had a, you know, 3% or better, 3.5% or better bump in those leases. So, you know, what, what's the end game? Can we take our total blended rent bumps at 150 basis points, and over time, as we're turning over leases, turn that to 200 basis points? Yeah. Once we hit 200 basis points, can we push that to 250? So I think we've really taken this as an opportunity to reevaluate. You know, everyone always says, "Oh, we're, we're, you know, we're a 2.5%-3.5% business. Can we change that to be a 3%-4% business, but just by dealing with internal bumps?" So, it, listen, we're in the early innings, a part of this is afforded by the environment, right? And if the environment changes, it will probably have less success. In terms of anchors, it's harder, you know, it's a grind. They are very stuck on this typical, you know, 10% bump after every five years. But we are doing our best to ultimately try to see if we can't change that. You know, can we get 12%? Can we get 15%? And, you know, we're picking our spots, and it's gonna take more time, but we're optimistic that eventually, ultimately, we can even get better growth out of the anchors as well. But, you know, as I mentioned before, this is something that's really incumbent upon our entire industry. It's, you know, we have the leverage. Our tenants aren't shy when things are hard about pushing on us about rent concessions or different structures of leases, et cetera. So now that the pendulum has swung into our court, I think it's incumbent upon us and our peers to really, you know, revisit growth and try to change the growth profile of our business. So that's kinda how we're looking at it. Times are great, and we're gonna take advantage of it. On a separate topic, I think it's interesting that you all have really increased the cash rent spreads, especially on lifestyle centers and especially for new leases. So the return on capital is similar to community neighborhood power centers for the new leases and a bit lower compared to the center types on the renewals. How should we think about the returns on each of those center types going forward? I mean, I think in our disclosure materials, they're really incredibly different, right? But, you know, listen, one of the things and one of the theses behind the merger was the exposure to lifestyle. And, you know, during the pandemic, the lifestyle portion of the business was disproportionately impacted because a lot of it was discretionary spending, so a lot of these places were just closed. They just couldn't be open, right? So when we were looking at the merger, and we saw that RPAI had assets like One Loudoun and Southlake Town Square, we thought to ourselves, "What a better way... There's not a better way for us to play the reopening trade than for us to get exposure to these kind of assets." And that thesis has absolutely panned out. So we are seeing just incredible rent growth. For an asset like Southlake, when we first took over the asset, well, the private company was printing $45 rents, you know, and now we're printing something much north of that. So it's been great to see that happen. So yeah. Again, as we disclose, that the returns are terribly different. But we'll tell you that we've been pleasantly surprised with our conviction around the ability to continue to drive rents at lifestyle and look forward to what some of our assets hold. Okay. I think we're just about out of time, but, I'd like to end with three rapid-fire questions for the team. So, first question on the Fed: Do you believe the Fed is done hiking, yes or no? Do you expect the Fed to cut rates in 2024, yes or no? No, on the first one. On the second one, can I say maybe? It's either... No, it's yes or no. Is this a deposition? Probably not. Okay. Number two: Do you believe real estate transactions will meaningfully pick up by the fourth quarter of 2023, the first half of 2024, or the second half of 2024? I think you already said. I think I said first half of 2024. First half. And third: Are you using AI today to help you run your business, yes or no? Do you plan to ramp, ramp up spending on AI over the next year, yes or no? You know, we're AI for us, really, right now, is more like, what are our enterprise software platforms, you know, offering us? So we are looking and researching, but it's in very early stages, but it will eventually be a part of the business. Great. Thank you very much. Thank you, everyone. Thank you.