Good day. Thank you for standing by. Welcome to the Q2 2023 Kite Realty Group Trust Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that this conference is being recorded. I would now like to hand the conference over to your speaker today, Bryan McCarthy. Please go ahead. Thank you. Good afternoon, everyone. Welcome to Kite Realty Group's second quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release, available on our website, for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; Executive Vice President and Chief Financial Officer, Heath R. Fear; 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. Good morning, everybody. Thanks a lot, Bryan. During the second quarter, KRG delivered outstanding operational results while continuing to fortify our best-in-class balance sheet. The demand for our high-quality space remains strong. We are in a prime position to continue to drive pricing, improve our overall long-term growth profile, enhance tenancy, and further grow our revenue and cash flow. Turning to our results, we generated FFO per share of $0.51, beating consensus estimates by $0.03 per share. Our same property NOI growth for the quarter was 5.7% as compared to the same period in 2022. Our outperformance in the first half of the year is allowing us to increase our NAREIT FFO guidance by $0.03 at the midpoint. We're also increasing our same property NOI growth assumption by 75 basis points, moving from 2.75% - 3.5%. Keith will provide more details around our quarterly results and updated guidance. We signed 190 leases, representing over 1.3 million sq ft, producing a sector-leading 14.8% blended cash spread on comparable new and renewal leases. Excluding the impact of option renewals, our blended cash spreads were 24%. More importantly, KRG earned a 32% return on capital for new leases. As I've emphasized previously, leasing existing space provides the best risk-adjusted return for our invested capital. While our ability to drive pricing on initial rents remains strong, we're taking this opportunity to redefine our long-term growth trajectory. Recognizing the favorable supply and demand dynamic in open-air retail, at the outset of the year, we focused our leasing efforts on implementing higher fixed rent bumps and CPI adjustments. I'm pleased to report that through the first half of 2023, we have been extremely successful with this initiative. 80% of our new and non-option renewal leases signed have fixed rent bumps that are greater than or equal to 3%, and 40% of those leases have CPI adjustments. The average annual fixed rent increases for new and non-option renewals in the first half of 2023 was 2.4%, including both our small shop and anchor tenants, which is 90 basis points higher than our portfolio average. We are laying a solid foundation to improve our long-term embedded growth profile. Based on the current tenant demand, I can't think of a better time for KRG to upgrade the merchandising mix at our centers. In a in a different leasing environment, the liquidation of Bed Bath could have been a real jolt to the sector. Instead, it's providing to be one of the best opportunities we've been afforded. I was adamant about maximizing this opportunity by prioritizing the best solution over the fastest solution. That said, I'm pleased to report that we are making great progress backfilling those boxes at higher rents with better tenants. The pool of tenants to backfill the attractively sized and well-located boxes is deep and diverse. Thus far, we're negotiating with 15 different brands across the retail spectrum, including grocery, sporting goods, big, big box wine and spirits, home furnishings, and off-price apparel. Keith will provide more detail on the current status. We look forward to providing updates as we progress. Our success in enhancing the merchandising mix is not limited to the Bed Bath spaces. Year to date, we have opened two grocery stores in the portfolio and have an additional four grocery stores in the signed, not open pipeline. In addition to adding grocers to the portfolio, we've also have several opportunities to add multifamily units to our mixed use and lifestyle portfolio. We currently have an ownership interest in nearly 1,700 apartment units and have entitlements for an additional 5,000 units. We look forward to further densifying our properties at healthy risk-adjusted returns and partnering with best-in-class operators when appropriate. The KRG team continues to capitalize upon the demand for open-air retail and the resiliency of our cash flows. Our efforts to enhance our merchandising mix, drive pricing power, and increase our long-term embedded growth profile will undoubtedly increase the value of our open-air centers. We have often talked about the optionality afforded to owners of high-quality real estate. That same optionality is exponentially increased when supported by unparalleled operational acumen and a best-in-class balance sheet with substantial liquidity. We're extremely well-positioned to seize the opportunities that lie ahead. I want to take a minute to really thank our team for their continued dedication, outperformance, and commitment. I'll now turn over the call to Heath. Good afternoon. I want to start by thanking our operational team for once again allowing me to share the good news. Quarter after quarter, it's been a privilege to report on your considerable accomplishments. KRG exceeded expectations by generating NAREIt FFO per share of $0.51 during the second quarter and $1.02 year-to-date. The quarterly outperformance was primarily driven by higher than anticipated same property NOI, which grew by 5.7% during the second quarter and 6.1% year-to-date. During the second quarter, increased occupancy and rent escalators were the primary driver of our same property NOI growth, with a 360 basis point increase in minimum rent and net recoveries, a 140 basis point increase due to lower bad debt, and a 70 basis point increase in overage rent and other revenue. As John alluded to earlier, we are raising our NAREIT FFO per share guidance range to $1.96-$2.00, representing a 3 cent increase at the midpoint. 2 pennies are attributable to a corresponding increase in the same property NOI growth assumption as a result of lower bad debt, payment of post-petition rent from Bed, Bath & Beyond, and higher overage rent. The 1 penny is related to an unbudgeted termination fee. Our updated guidance incorporates the following assumptions regarding the back half of 2023. We are assuming no additional rent from Bed, Bath & Beyond. Specifically, we expect the gross rent from Bed, Bath locations to be 2 cents less than what we collected during the first half of the year. We are prudently assuming bad debt to be 125 basis points of revenues for the balance of 2023, which, when combined with the actual bad debt experienced in the first half of 2023, equates to 85 basis points of revenues for the full year. We are anticipating a deceleration of fee income as the first phase of Hamilton Crossing project nears completion. We are not modeling any additional termination fees, and while we sold 2 assets in the quarter, we anticipate the impact of transactional activity will be essentially neutral to earnings, as the blended cap rate on the transactions is well below the interest income offset. Our balance sheet continues to be in an enviable position, with net debt to EBITDA of 5 times, debt service coverage ratio at 5.3 times, 97% of our NOI is unencumbered, over $1.2 billion in liquidity, an undrawn revolver, minimal floating rate debt, a well-staggered maturity schedule, and multiple capital sources. These metrics allow our team to remain intently focused on operational excellence and provide us with the flexibility to immediately pivot and capitalize should a compelling opportunity arise. We have only $95 million of debt maturities remaining in 2023, which we'll satisfy with cash on hand and proceeds from our line. As for the $270 million coming due in 2024, we continue to remain opportunistic as it relates to the unsecured debt markets. The good news is that our indicative spreads have materially tightened recently, which further verifies our patient approach. Before turning the call over to Q&A, I want to take a moment to further elaborate on the progress we're making related to backfilling the Bed, Bath & Beyond spaces. We ended the first quarter with 22 units, representing 1.4% of ABR and 522,000 sq ft of GLA. Thus far, 3 units were acquired in the bankruptcy auction, 6 units are either leased or under a signed LOI, and 11 units are in LOI negotiation. As John mentioned, enhancing our merchandising mix with 15 different brands, generating strong spreads and returns on capital, and further bolstering the durability of our cash flows is a tremendous opportunity for KRG. Thank you for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, or you wish to remove yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Todd Thomas with KeyBanc Capital Markets. Your line is open. Yeah. Hi, good afternoon. John, first question. you know, you opened up by commenting that you're working to drive an increase in the long-term growth of the portfolio and talked about some of the success that you've realized this year. I'm just curious what you think the impact of some of those initiatives, you know, are having on the stabilized growth of the portfolio today, you know, maybe at full occupancy, if you think about it that way, and how that compares to maybe five or 10 years ago. Then is there a target that you're working to achieve in terms of that long-term growth rate for the portfolio, either, you know, in terms of the escalators or otherwise? When do you think you might achieve that? Well, I think, I mean, as you know, Todd, this stuff, it takes time for that to work through the portfolio. I mean, there's, there's no question that the embedded rent growth that we're achieving in 2023, as I mentioned very specifically, is, you know, significantly above where the portfolio average was, almost 100 basis points. I, and I hope you caught when I was talking about it in terms of what we've achieved this year, you know, we were including both the anchor and small shop space. The reality of that is that, you know, the ability to really drive that growth and have it come to fruition more quickly is going to be in the shop space because of the quicker turns and the better ability to get, you know, those 3% and 4% annual bumps. Then, candidly, the CPI adjustment is an insurance policy that we've also added to that. That used to be fairly... When I say used to be, a long time ago, that was a very typical part of the business. Over the last, say, God, 10 years, there wasn't a lot of talk about that. You know, we set it out in the beginning of the year. I mean, we, we set goals in the beginning of the year, and that was absolutely one of the goals, and, and our team delivered it. You know, without getting extremely specific and, and giving modeling, you know, information, I mean, it's going to help, there's no question. More importantly, it, it, it's a, it's a function of the interest in open air retail, all right? You, you can break down a lot of different things, but when you look at our non-option renewal spreads, okay, and you look at this part of our business that we're able to now function, you know, now pull in these annual bumps of 4% or 3% with a CPI adjustment, that, that tells you the business is extremely healthy. I know there's a lot of talk out there about, you know, how is, how is the health of the business? The health of business is very strong. For us, in particular, it's very strong. Okay. Are, are you having success driving, annual escalators with tenants, you know, with anchors, maybe in certain categories and with, with certain credits that have historically pushed back on escalators? You know, are you seeing those changes or, or, or, you know, realizing success there? Yeah. I'll, I'll comment, and I'll have Tom jump in. I mean, from my perspective, absolutely, we're having success having those conversations. That being said, I mean, the anchor side of the business is, is, is more difficult to, you know, to get that done. Historically, would we be happy with, you know, a 10% increase after five years in an anchor deal? That would be pretty typical. Now, we're trying to push that a little further. It's, it's, you know, not as readily available, because of the way the turnover happens. We just have less turnover there. Tom, you want to comment, too? Yeah, I think we have to take a look at this in steps, we're in the early stages of trying to educate and work with larger box tenants. Instead of no bumps in 5, maybe we take a look at a shorter term of 3, and then we start the bumps. We're using different tools to get to the same place, but it will take us longer. We're very much focused on not only the small shops, but the anchors as well. As long as we have this focus, as long as the team is ready to go, we expect to make nice advances. Okay. Then, Heath, you know, a question for you. The portfolio's lease rate, decreased 70 basis points versus last quarter, but build occupancy was unchanged at 92.3%. Can you speak to that in light of the Bed Bath boxes that you recaptured during the quarter, and also maybe provide a little bit of detail around the expected trends for the portfolio's lease and economic occupancy rates moving into the second half of the year? Sure. Todd, as you know, the lease rate is basically a point of time at the end of the quarter. You're looking at that day, and you're saying, "This is how much is leased." Whereas your economic occupancy represents your average occupancy during the quarter. The full impact of the Bed Bath is running through your lease rate, but it's not running through your, through your economic occupancy. That's why you also saw a compression on your spread between your lease and occupancy. As we move into the back half of the year, you'll see the occupancy start to track the least in terms of its fallout from the Bed Bath. That explains why that delta happened. That explains why we're flat in the occupancy, but we're, we're having a more decline in, in the lease rate. In terms of the trajectory, you know, Todd, as of the, as of the, the first half, we only had 8 of the Bed Bath were out of our occupancy and lease numbers. We're going to add an additional 14 to that, going into the third quarter. You're going to see our, our lease and occupancy rates sort of trough into the third quarter. Putting some numbers around it, it's about 120 basis points, just Bed Bath alone. Again, you'll, you'll see that drop, and then over the course of time, as we start to sign up those Bed, Bath & Beyond leases, you're going to see, number one, our SNO grow, and you'll also see that spread between lease and occupied grow as well. That's kind of how to think about the balance of the year. Okay, that's helpful. All right. Thank you. Thanks. One moment before our next question. Our next question comes from Craig Mailman with Citi. Your line is open. Hey, guys. Heath, maybe just to follow up on, on Todd's last question on, on occupancy, as we think about kind of isolating the Bed Bath, which you did 120 basis points, but then factoring in the commencement of the SNO pipeline, I mean, how much of that would offset kind of this drag from Bed Bath kind of hitting the numbers in the second half? Yeah. Craig, we don't, we don't guide to occupancy at the year-end, that's kind of where you're going with this. I would tell you that I don't think the, the, you know, the lease rate's not gonna move because obviously, those are already signed. In terms of the economic occupancy, I don't think it's gonna catch up to the full 120 from the Bed Bath. I think we'll be ending the year probably at a, at a spot that's lower than where we started the year. But that's really as much direction as I can give you, because, again, you know, 120 basis points obviously is a, is a lot of movement to be happening in a single quarter. Yep. Okay, that, that's helpful. John, I know you said over, over the past 2 quarters here, it's more about maximizing rate rather than speed to lease up on, on the Bed Bath, but it sounds like you guys have really good traction. I mean, from a, you know, commencement perspective, maybe relative to where you thought 2 quarters ago, kind of what do you think updated timing is, given, you know, how much you have under LOI than the other 11 that are kind of in negotiations? What do you think the time frame is to get that revenue back up and running? Maybe also just run through how much of those are single-tenant backfills versus maybe splitting the boxes. I mean, I, I don't think that the overall trajectory has changed much, Craig, in the sense that, you know, what we've experienced over the last several years, I mean, we've, we've done, what? 60 something boxes over the last few years. You know, generally speaking, when you sign a lease, it's gonna take 12-18 months for rent commencement, and it's gonna depend on how much work you're doing in that space. So it-- I know some people say it happens faster than that, but it, it-- those are rare. You know, it has to be an as is deal and not a lot going on in terms of work. So I, I, I think we're still on that trajectory of as the leases get signed, it's approximately in that 12-month period. Then I would say, you know, in terms of splits, right now, the majority of the conversations, as they have been for the last 2, you know, say 4 quarters, are, you know, tenants wanting to take the entire space or us requiring them to take the entire space, more importantly. Now, a couple instances where, you know, we may want to subdivide and, and, for, for merchandising mix, and that's kind of what I meant by this is not a speed game. You know, and so, but the splits are pretty rare. I mean, of the 63 deals we've done in the last, you know, whatever, couple years, we split 1, which is kind of unbelievable, and it goes back to the theme, open-air is strong. Okay. Then you guys got leverage down to 5 times. I mean, from a long-term perspective, kind of what's the goal here? How much capital do you kind of keep dry here for potential opportunities? Kind of thoughts on, on balance sheet management. Sure. Yeah, I mean, if Heath wants to talk about this, too, it's good. You know, from my personal perspective, you know, we're at 5 times, you know, that's gonna ebb and flow, you know, quarter to quarter a little bit, but not materially. So we're at the low end of our, you know, range that we've set out as a goal, which is pretty fabulous. You know, we've, we've delevered on basically 1.5 turns since the merger. You know, that's another beautiful benefit of the fabulous deal that was done. You know, we wanted to make the point that our balance sheet is, is, you know, one of the top 2 in the entire sector, and that affords us this ability to continue to operate at a very high level. Also, you know, if an opportunity arises, then we're one of the few that probably can act upon that without any material, you know, issues with our balance sheet. We, we love where the balance sheet is. It's a very strong position, and, you know, we wanna continue to be, you know, in the low to mid 5s, like we've been saying. And again, that affords us, you know, lots of optionality. Heath, you wanna- There's nothing to add. Okay, great answer. Heath, did you wanna add anything or? No, nothing to add. Thanks. I took the words out of his mouth. Words right out of my mouth, Craig. Um- The balance sheet's in great shape, lots of liquidity. One, one quick one, Heath. Is there anything legacy RPAI related on, on swaps amortization that's running through the numbers? If there is, kind of what's the tail on that until that burns off? Yeah, I'd, I'd, I'd have to look at our maturity schedule and figure out which one of the RPI debt instruments are swapped and how long they run through. I'd say it's nothing material running through it. I, I will tell you, the one thing that's continuing to run through the P&L, that, that's a swap, as you recall, in 2021, we took out that forward, that was $150 million, and that's resulting in about a $3 million benefit every year to our interest expense. One thing about it, it's a little lumpy. You may have noticed there's a sequential sort of, you know, increase in interest expense from the first quarter to the second quarter, just because when we realize that $3 million, we realize half of it in the first quarter and half of it in the third quarter. It gets a little lumpy, but nothing occult with those swaps that you're thinking about, Craig. And again, we can offline and take a look at when those things exactly mature, if you want me to quantify that for you further. No, no, that's helpful. Is there anything to call out sequentially on interest expense from 2Q to 3Q? Again, other than in 3Q, you're gonna see the benefit of that $1.5 million again. Then, you know, obviously, there's a slight increase in SOFR based on recent moves by the Fed. To the extent that we have a, you know, floating rate debt, you'll see a small uptick, but nothing material quarter-over-quarter. Great. Thanks, everyone. One moment before our next question. Our next question comes from Floris van Dijkum with Compass Point. Your line is open. Hey, guys, thanks for taking my question. I guess, let me start with, as you, John, I mean, you sort of mentioned this in some of your comments as well, you know, raising the long-term growth rate of the portfolio. Part of that, obviously, is through higher fixed rent bumps, particularly on the shop space, and also how you change the anchor bumps going forward. I think one of the other things that is, you know, oftentimes overlooked is, your move to fixed CAM was probably one of the earliest in the shopping center space. You know, we've seen this play out 20 years ago, or 25 years ago in the mall space, where Simon and GGP were the sort of. In fact, I think GGP was the, the first one to do it, but Simon followed shortly thereafter in terms of going to fixed CAM and, you know, Simon has stopped disclosing because the profit margins are so, so large on that part of the business. Maybe could you give us a little bit of an update on how fixed CAM is going? What percentage of your, your portfolio is that, and what kind of bumps are you getting in terms of escalators, and how you see that enhancing your growth going forward? Sure. I guess he brought the fixed CAM initiative from GGP, so we're, we're, we're thankful. The reality is, we're doing very well there. We've gotten back much quicker than we thought. You know, when we, when we did the merger, we were around 50% of the portfolio was fixed CAM, and we're already back at 50 for the total portfolio. As you know, RPA, RPAI had almost no fixed CAM at all. It's quite amazing how quickly we've gotten back, which shows you that our conversion ratio, you know, is in the 90% range. Look, the initiative is great. I guess it's not for everybody, but for us, it's been a really, you know, smart thing for us to do. You know, when you look at our, when you look at our ratios, you look at our NOI margin, things like that, I think that's where it shows up. Obviously, it has escalators. You know, we don't disclose those escalators because that's a competitive thing, but the reality is, you know, they're, they're probably higher than those base rent escalators. I think Look, Floris, in this business, with the way rollover works and the time associated with, you know, that coming online, this is all adding. When you, you know, in, in all the deals we've done this year, right? As I said on my, on my prepared remarks, we're almost 100 basis points better than, you know, historical portfolio, right? That just shows you that this is an, a movement in the right direction. I do think that it's, you know, a lot of it is how we run the business, but it's also a function of the strength of, of, of the platform in terms of open-air retail, and you've just got so many more retailers, that are coming into the space, it drives that friction. Suffice to say, I do think it is, is a big part of what we're doing. You know, obviously, reimbursements is, is a smaller% of our revenue, but it's a material%. Then as a-- maybe as a follow-up, you sold one of your potential mixed-use development sites at Pan Am Plaza, I think, at a, you know, almost a 0 or very low cap rate, obviously. Could you maybe update us on your thinking on some of these other mixed-use sites in particular, and maybe give us an update on what's happening in Ontario, California, with the former cinema box there? Then, I, I think you, you extended the, the, the cinema short term, but, but how is the, you know, the entitlement process going, and, and what are you thinking there? Then maybe, has your thought process changed on what's gonna happen at Carillon going forward, the fact that there's very little new developments and, you know, are there elements of that, that for, in particular, in, in terms of retail, that you might be interested in? Let me just give you a second, then I'm gonna have Tom give you the details. In terms of Carillon specifically, you know, we've been pretty clear that when we laid out our strategy on the developments, the future developments, that, you know, we, we kind of looked at that quite differently than we did One Loudoun, for example, and that hasn't changed. You know, I think Carillon's great, and it's a great piece of real estate, but for us, in terms of investing a lot of new capital, we're not looking to do that. We're looking to minimize the investment there and maximize the investment in One Loudoun. Thematically, that theme hasn't changed, but I'll let Tom give you more details. Yes. On Pan Am, specifically, that was a deal that we ended up selling the property to the city of Indianapolis. There was no question that the highest and best use for that property was a convention center expansion and a large hotel. That part was very straightforward and easy for us. On Ontario, east of L.A., we have a great 1,900 or 19-acre parcel. We are in the process of working with the city and working on various concepts of repurposing that property from a zoning standpoint, so that is moving along nicely. On all these, including Carillon, we're just taking a very measured approach, doing the right thing, not forcing projects or developments that don't make sense based upon the time periods of which we're in. Did you want me to go ahead and move on to the next question? Yeah. Sorry. Yes, please. Sure. Thanks, Floris. One moment. Our next question comes from Alexander Goldfarb with Piper Sandler. Your line is open. Hey, good afternoon out there. Two questions. Heath, you, you know, your bad debt assumptions, I think you guys were pretty low in the first half. I think it was 45 bips or something like that. It was pretty low. Back half, you're budgeting 125. You already know about, you know, Bed Bath and Party City, AMC, all the known ones. My question is really, you know, and you're not alone. A number of the peers are being cautious on bad debt. Are there truly concerning tenants out there, or is this just sort of you and other teams just trying to be conservative based on historics? Like, just trying to get a sense, 'cause it doesn't seem like from the headlines that, you know, there are big tenants that are pending out there, but maybe there's stuff that's burbling below the surface that we don't know about. Just looking for a bit more perspective. No, Alex, I think the 125 basis point assumption is really rooted in, in history. Looking back, you know, typically, we run between 75 and 100 basis points of revenues as a typical year of bad debt. Then laying on top of it, that we're in a strange environment, and there's no question that the economy and the macro environment is, is full of uncertainties. There isn't this, this occult list I have in my pocket, Alex, where I'm saying, "Well, I better make sure I have enough bad debt to cover, you know, in case X, Y, and Z falls out." There's nothing specific. It's just us saying, "Okay, it's, you know, let's assume it's gonna be, you know, close to what we see historical, plus let's add a little extra because the environment is strange." That's really it. There's no magic to it. Okay. Then the second question is: on the apartment front, you know, just maybe a bit more color, especially as the environment, you know, steadily improves and, you know, maybe we can get back to some sort of transaction normalcy. Are you guys... The apartment initiative, is this like converting parking fields? Is this like behind shopping centers? Is this adding second or third floors, or are you guys buying adjacent land to existing centers to put apartments? Just a bit more perspective. I think, John, you said you would bring JV partners to, you know, sort of run these deals and help do everything. Just a bit more color. Sure. Yeah. I, I mean, I think it was everything except the, the last, the last bullet. We're not, we're not, like, actively out looking for land adjacent to acquire. Generally speaking, we already own the land. Yes, I mean, we've done a little bit of everything that you mentioned there, Alex. And it's been interesting because, you know, sometimes we have contributed a parking lot and taken a, you know, a, say, a 15% equity interest vis-à-vis the value of the land, and then sometimes we've contributed capital. It's a, it's a little bit of everything, but we have generally not looked to do it solely ourselves. Obviously, we have been learning the business over the last several years pretty significantly. That said, I think at this point, we believe having some sort of operating partner, whether depending on what percentage they might own, is really gonna be dependent on the deal. The point we're making is that this, this potential stream of revenue is growing, and we own the kind of quality real estate where people, you know, want to add multifamily, right? It's a nice complement to the primary business. It, it generally has a higher growth profile, but again, it's we're gonna be very measured in how we go about it, as we have been to date. The reason I mentioned it is probably a lot of people don't really think of that, that we've already amassed an equity interest or ownership interest in almost 2,000 units, and we have 5,000 units that are entitled. I mean, we have a substantial, kind of ability to continue to grow that part of the business, but we'll do it in a measured way. By the way, that's why our leverage is five times, right? We're measured, we're thoughtful. John, to that point, the 1,700 units, are those all operating right now, or those are what you have under control that you could build? Yeah. No, no, no. Yeah, I'm sorry. Those are operating, and then we have, how many of those are under construction? Yeah. We basically have four or five opportunities that are out there, and one number that you may have gotten confused with is just at One Loudoun, we have 1,745 units through the zoning process that we would be able to develop. If you look at what we have under construction right now, it is The Corner project that is 285 multifamily units, and the first occupancy of that will begin just towards the end of this year. There's an inventory of opportunities for us. We'll be very measured. We'll make determination when the right times are, but it's good to have that entitled land inside our future opportunity list. Thank you. One moment before our next question. Our next question comes from Anthony Powell, Barclays. Your line is open. Hi, good afternoon. You put a new slide in your deck with delivery to the flag growth versus the total lease rate, which is very positive for you. That said, it suggests to me that at some point, people will want to put more money into the space and actually construct new retail centers. How far are we away from that? Is there a risk that in the next new easier money time, time, that we have, that people start to build more retail centers, given the strong economics and results we see? Anthony, hi, this is Heath. I'll start and let John add on later. you know, I, I still think the environment is such that we're, we're gonna be in a continued low supply environment or low new supply environment. I mean, really, if you, if you look at what construction costs are versus, you know, what you can buy existing center for, especially in the existing center, where you may have some redevelopment plan, where you can maybe even get it below replacement cost value. I think structurally, things are still looking good for us in terms of what new supply is gonna look like on a go-forward basis. We're certainly not looking for raw parcels to do any greenfield construction ourselves. Obviously, we've got a lot of wood to chop on our existing projects for, for densification and multi-use, or redevelopment of some of our projects as well. Again, us, personally, we're not, it's not one of our sort of capital allocation levers we, we plan on pulling, and I think everyone else is looking at the same way. I think, I think economically, it's probably better to acquire at this point than it is to, to build new supply. I'll let John. No, I mean, I Heath said it perfectly, Anthony. I just don't think that there, there is enough yield in these, in a ground-up deal. You also, and you also have to remember, a ground-up deal generally would take you 3 years minimum to get to revenue. I mean, probably five, you know, if you're really getting into finding the land and going through the entitlement process on, you know, stuff where you'd want to own it. I mean, it's one of many reasons, but I just, at this point, it just does not feel like there's a push towards new development. Candidly, we're still working through an overbuild from, you know, the previous decade, right? As you work through that overbuild, it becomes. This is why it's a better business today. I mean, there's 100 reasons why, but this is one of the very, very strong primary reasons, is a better business, and I don't see that changing at any time. When you look at the, the deals that we do occasionally, we generally already own the land, and our returns are well above what we would be otherwise getting. That's why we do the deals. You know, The Landing at Tradition is an example of that. Got it. Thanks. Going on to other capital allocation, you know, some of your peers have either announced deals or rumors to announce deals, or as well, talking about seeing new deals come back to them this morning. What are you seeing out there? I mean, I, I know that your priority is tenant leasing, but any, any potential you start to ramp up the, the acquisition pipeline, given, given the environment? No, I mean, I, I, I think that the acquisition environment is still tepid. That being said, there's no question that there appears to be, you know, maybe even in the last 6 weeks, more product coming to market. It continues to come to market as individual centers. I haven't... You know, there are, there's a couple larger portfolios that would have been no interest to us. We're, we're actively involved in reviewing, you know, opportunities. As I mentioned, we have, you know, one of the top 2 balance sheets in the entire sector. You know, if we want to do something, we can. We're very, very selective right now. We have plenty to do. I think, you know, I, I don't know about in terms of things coming back to market. I mean, I guess if deals were pulled at some point in time, they're probably coming back around. It's just new packaging. It's the same deal, right? For us, we're, we're, we're really more focused on, you know, if we're doing acquisitions, we're generally pairing that trade with a disposition. You know, right now, that's kind of where we are, which is why Heath said we're looking at that impact to be neutral. Again, we're early. I mean, it's, you know, we have a whole another half a year. A lot can happen. All right. Thank you. Thank you. Thanks, Anthony. One moment before our next question. Our next question comes from Lizzie Dorr with Bank of America. Your line is open. Hi, everyone. Apologies if I missed it. I just wanted to see if you could give more color on the decline in small shop occupancy. It seems to drop a bit more than the dip we saw even last quarter. Sure. I mean, it's pretty simple. It's really, the majority of it, I mean, there's a small part of it, I think it was Jenny Craig, but really, the majority of it, is actually us accelerating, recapturing space, probably 75% of the drop, where, you know, we had an opportunities to, you know, move tenants out if they're in default. In this kind of environment, where we're getting the annual rent bumps that we're getting and the quality of tenants we're getting, I think we're moving very quickly to enact that pricing power. There's really, that's really it. I mean, it's, it's, it's really more something that we want, and we will continue to want to get our hands on. Yeah, I'll just add, if you recall, you know, our small shop lease rate was the highest in the sector at 92.5%. Really, where we're sitting now, we're, we're just viewing this as a tremendous opportunity. As John said, before, you know, we've got leases, and it takes a long time to effectuate change. If we can recapture faster and get a better tenant with better rent in, we're gonna do it. That's what's happening. Yeah, that 92.5 was, you know, pre-COVID. There's no reason to believe we won't march back to that, but that it obviously takes time. I think the more important thing here is the theme is, if we can get space, we want space. That's the theme. Okay, thanks. That's helpful. Then I, I noticed, you, you have a good outlay on page 15 of the deck on, just your anchor inventory opportunity. I just, was curious on the 17% spread that's expected on what's left. Just compared with the 26% spread, that's been executed, is the lower percentage there, just a function of what's been executed, last quarter? Is there anything to comment on there in terms of, you know, the expectations around rent growth? No, this is certainly not a, not a, a sign that we're decelerating. A simple math. It's just basically taking our average in-place rents, and calculating the spread that way. As you can see, you know, we're, we're trying to be conservative and saying, well, if we at least got our average rents in place, we'd have a 17% spread. Obviously, with the column to the left, you can see that we're doing much better than that. We anticipate being able to outperform that, for this, this presentation here, we're trying to be conservative, and you'll see footnote 4 will give you an explanation of that number. Our, our leasing team asked the exact same question: Why is that lower? We don't expect that to be the case. Okay, thanks, everyone. One moment before our next question. Our next question comes from Michael Mueller with JP Morgan. Your line is open. Yeah, hi. Just two quick ones. First of all, when you talked about the 2.4% bumps on Q2 activity, was that all in, or was that just excluding option renewals? The second question is, are you just seeing any demand differences, when it comes to the various product types, like lifestyle versus community neighborhood or, or geography? Yeah. First of all, it excludes options, so that's new leases. I'm sorry, Mike, what was the second part? Yeah, just any demand differences you're seeing, across the, the product types, basically. You, you know, really, I mean, that's, that's one of the benefits of our portfolio, and the different product types that we have. There's been such cross-pollinization of retailers wanting to be in, in these, you know, kind of three major food groups as we broke out in the investor deck, you know, community, neighborhood, mixed use, lifestyle, and power. And there has really been no real, you know, differential there. From a geography perspective, I mean, the geographies that we're in are very strong, so we're benefiting from that. I mean, as you know, 40% of our-- almost 40% of our revenue comes from Texas and Florida, which I think is the highest in the space of those two states. That has afforded us, you know, a lot of opportunities, you know, because those are two very important growing markets for retailers. By the same, by the same token, I mean, it's, it's, it's very broad-based, and I think we made the point in the remarks that, you know, when you get to this kind of friction point when, you know, supply has dropped so much over the last few years and demand has gone up a lot, I mean, that's what's driving that increase. Got it. Okay. Thank you. Thank you. Thanks, Mike. One moment before our next question. Our next question comes from Linda Tsai with Jefferies. Your line is open. Hi, it's Linda. In terms of success in achieving fixed rent bumps, it sounds like those tenants are comfortable with their occupancy cost ratios. You know, how do you think about the opportunity to increase occupancy cost ratios, and which tenant types have better capacity when you look at your portfolio composition? Sure, Linda, very good question. I think that's, again, kind of back to my theme on open air. I mean, one of the beauties of, of this platform is that the occupancy cost is low on a relative basis. You know, when you're comparing to other types of retail, and especially when you're comparing to online only, you know, the acquisition cost of the customers is crazy. I think the drive here is that, you know, when you look at the total portfolio, we've historically been, you know, high single digit occupancy cost, kind of, and you compare that to high teens, I mean, you can see that in other platforms, you can see that that is a real driver in their ability to continue to pay rent bumps. By the same token, we have to make great selections about who the retailers are, which is why we mentioned that it's never a foot race. You know, you're always looking to thread that needle between the merchandising mix, the retailer's ability to perform, and the cost to occupy. Right now, that is a very good kind of, we're in a very good sweet spot as it relates to all those. We'll see some fluctuations simply through geographics of different areas that have higher wage scales and, maybe a little more difficult supply chain concept. I, I think all in all, we're, we're doing a very good job watching that, watching that ratio, wanting our customer to be as healthy as possible. It's a, it's a big focus around here. Are there certain tenant types that have better capacity, or does it relate back to kind of just wage gains and sales of a particular region? Yeah, no, I don't think there's a you can really pick a particular type of retailer. It comes down to the individual store and how it performs, and they can be very different across, you know, even the same brand, right? This is why real estate is so important. I mean, and you've heard us talk so many times about, you know, we, we focus on the dirt. We focus on the quality of the real estate. What's on top of it is fungible. As long as we own very high-quality real estate, then we should be able to, we should be able to produce, you know, or I should say, our customers should be able to produce results that allow it to continue to prosper and for us to prosper. I mean, it's a partnership, and we're, we're pretty good at managing that, that partnership. Then in terms of payback periods on anchors and small shops, given the demand for space and some commodity costs coming down, do you expect payback periods to shorten? I mean, yes, we're seeing them shorten in general, and they generally are less than three years, you know, when you look at the total portfolio. It really depends on the individual deal, Linda, as you know, and that's why we focus on return on capital a lot more than spreads, even though, you know, we're getting great spreads, and we talk about it, especially when you look at our GAAP spreads, right? That's where our rent growth comes into play. Bottom line is, you know, our job is to be very good fiduciaries with our, you know, investor capital, so we're, we're much more focused on getting that, you know, those high returns, which we've been doing. Thanks. Thank you. One moment before our next question. Our next question comes from Dori Kesten with Wells Fargo. Your line is open. Thanks. Good morning. How, how do you expect CapEx spend to trend over the next 12 to 18 months, I guess, including and excluding the cost to get the old Bed Bath spaces back online? Excluding the cost to get Bed Bath spaces done, over the next 18 months, it's upwards of $200 million. We look at the, the total of, of Bed Bath inventory and what that might cost. It's probably somewhere in the neighborhood of between $40 million and $50 million additional to get those leased up as well. That you'll see that spend probably, you know, later part of 2024 into 2025. You know, again, we've got significant CapEx spend. We've got a significant signed not open pipeline, so it's gonna be elevated over the next, you know, call it two years. We do see construction costs in general stabilizing, and I think we'll be able to see some more movement in that as general contractors, construction managers, begin to start pushing some of those savings down. We feel like we're in a much more stable area as we tackle some of these costs. Okay, thank you. One moment before our next question. Our next question comes from Wesley Golladay with Baird. Your line is open. Hey, everyone, just curious which market, you know, which markets have the best pricing power, and is there any region that is materially separating? Hey, hey, Wes. We were talking about that a bit earlier. I right now, it's, it's, it's pretty well balanced, and there is not 1 market that we see that is, you know, way outpacing another in terms of pricing power. I mean, obviously, some markets have higher embedded rent than others just because of the history of the market, you know, like, in the New York region, for example. In terms of growth, it's very. Our ability to drive annual growth is, is widespread. Look, there's been a significant suburbanization over the last 2 years, and we've, we've been a big beneficiary of that, and that appears to be pretty solid, like, not fading. But that said, also, you know, when you look at our, you know, gateway markets, like a Seattle or the New, as I said, New York, Chicago, et cetera, those are, those are growing as well. I mean, there, there's a pretty strong bid out there for this, you know, type of retail. It's just pretty basic. Okay. Then I think earlier in the prepared remarks, you mentioned the, the fees would step down for Hamilton Crossing or fees, because, like, you stopped the development at Hamilton Crossing. Can you quantify that? Then as we look to next year, is there anything noticeable when it comes to, like, a mark-to-market debt amortization for interest expense? Yeah. The first part, the, the, the deceleration of the fees, it's about $1 million back half of the year, less than it was in the first half of the year. Again, that, that project, the first phase of Hamilton Crossing, is winding down, so those fees are gonna be ending soon. However, there is a potential for future phases there, so you may see some more development fees turn on, maybe before the end of the year and into 2024. Hopefully, that'll be something that we can repeat going to 2024. In terms of the, the, what was the second part of your question? Was it the, the debt amortization next year- Yeah, the mark-to-market gain. Yeah, the, and the mark-to-market gains, we'll probably see a decline of, I don't know, call it $0.02, around $4 million into, into 2024 as those maturities hit. Okay, thanks for that. Mm-hmm. One moment for our next question. Our next question comes from Paulina Rojas with Green Street. Your line is open. Hello, everyone. We have long heard about mall tenants looking to migrate to the open-air space, some of them, and you also highlighted in your, in your presentation. Two questions: is this migration mainly taking place at your lifestyle centers, or you're also seeing it across other sub-property types? The second one is, have you seen this trend accelerate, or is it progressing at a steady pace? Hey, Paulina. Macro, and Tom should comment, obviously, but macro, this trend, I don't know if trend's the right word. I mean, it's really just the fact that there's less retail space. The open-air retail segment is very cost-effective, you're finding retailers, you know, really not delineate as much as they once did in these different product types. I do think thematically, it's important to understand, I think it's more than a trend. I just think it's the business. The business has changed, these retailers have realized, again, Tom can give detail, the retailers have realized their profitability in the open-air sector is significant, that's why they wanna grow the platform quickly. Tom can give you a little more detail. Yeah, Pauline, I, I think it really comes down to one major factor, and that is convenience. I think as people become more and more busy in their lives with the various things that pull on them, the convenience is critical, that you can pull up to an open-air shopping center, get out of your car, and immediately ingress into a store, and then cross-shop as well. You know, in addition to that, you are able to get shops maybe two or three times a week, where if you were in an enclosed situation, that may be just one event a week. With our expense structure, these, these numbers start to, to overwhelm some of these retailers, saying, "We have to diversify." This doesn't mean that they're leaving their primary A locations and, and shopping center. It just means they need to touch a different shopper in a more convenient atmosphere. We are seeing, we are seeing great strength, and like John said, this is just an evolution that is very consistent. You're-- we're even seeing, you know, some groups like maybe a Sephora that's even leaning out, maybe beyond a higher open-air shopping center into more of a, a, a power or more productive center like that. I think we'll see these tentacles continue to expand over the next couple of years, which has obviously been a big help to the open-air industry. Thank you. That's helpful. Another short one. Other income has been a positive for same-property and like growth. I believe this is capturing the, the overage rent you mentioned. Can you touch on what retailer categories are driving this growth, and if you expect the full year contribution to be in line with what we see year to date? We, we are seeing that overage rent over a broad array, array of, of tenants, so it's not really one particular tenant type. We have tenants that are paying us percentage rent that never paid us percentage rent at all. We have a, a furniture retailer, that is paying us just a, an amount of overage rent we never thought was, was possible. It's really been extremely broad. It's restaurants, it's the discounters, grocery stores. You name it, we're seeing it everywhere, we're experiencing the higher, the highest levels. We're even seeing it in theaters. We're experiencing the highest level of overage rent we've ever experienced in the company, so, you know, we, we expect that trend to continue. I'm not showing any further questions at this time. I'd like to turn the call back over to John Kite for any closing remarks. Well, I just wanted to say again, thank you all for, taking the time to join us today, and thank you for having an interest in KRG. Have a great day. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have.