Earnings call transcript: Kite Realty’s Q2 2025 sees strong leasing momentum

Kite Realty Group Trust reported robust performance in its Q2 2025 earnings call, highlighting a significant increase in leasing activity and strategic asset management. The company achieved $0.51 in NAREIT FFO per share and $0.50 in Core FFO per share. Currently trading at $21.81, InvestingPro analysis suggests the stock is fairly valued. With a market capitalization of $4.9 billion and a healthy dividend yield of 4.95%, the company’s strategic initiatives and positive leasing trends suggest a promising outlook.

Key Takeaways

• Executed 11 new anchor leases in Q2, including major brands like Whole Foods and Trader Joe’s.
• Increased 2025 NAREIT and Core FFO per share guidance by 1 cent.
• Established joint ventures with GIC, totaling over $1 billion in gross asset value.
• Same property NOI grew by 3.3%, reflecting strong operational performance.
• Blended cash leasing spreads reached 17%, a five-year high.

Company Performance

Kite Realty demonstrated strong operational performance in Q2 2025, with a focus on expanding its leasing portfolio and optimizing asset management. The company capitalized on demand for open-air retail spaces, securing significant new leases with major retailers. Strategic partnerships and asset sales further bolstered its market position, as the company navigates a shifting retail landscape with agility.

Financial Highlights

• Revenue: Not specified in the summary.
• Earnings per share: $0.51 NAREIT FFO, $0.50 Core FFO.
• Same property NOI: Increased by 3.3%.
• Net debt to EBITDA: 5.1x, among the lowest in its peer set.

Outlook & Guidance

Kite Realty raised its 2025 NAREIT and Core FFO per share guidance by 1 cent, reflecting confidence in its strategic initiatives and market conditions. The company anticipates continued leasing momentum, particularly in anchor and small shop spaces, with potential for significant lease percentage gains in the coming quarters. InvestingPro analysis highlights that KRG has maintained dividend payments for 22 consecutive years and raised dividends for 5 consecutive years, demonstrating consistent shareholder returns. The company’s gross profit margin stands at a robust 74.22%.

Executive Commentary

CEO John Kite emphasized the company’s strategic focus, stating, "We are positioned extremely well. I think it’s not reflected in the stock." He highlighted the long-term value creation approach, noting, "This is not a race to fill space. This is more about creating value for our stakeholders over the long term." CFO Heath Fear added, "We’re seeing raw demand across the entire spectrum of the asset class."

Risks and Challenges

• Potential macroeconomic pressures could impact consumer spending and retail leasing.
• Competition in the retail real estate market remains intense.
• Tariffs, while currently minimal in impact, could pose future challenges.
• Continued transformation of the retail landscape may require ongoing strategic adjustments.
• Credit disruptions, though lowered, could still affect financial performance.

Kite Realty’s Q2 2025 earnings call underscores its strategic prowess and robust leasing activity, setting a positive tone for the remainder of the year. The company’s proactive approach to asset management and market adaptation positions it well for future growth. With an EV/EBITDA ratio of 14.73 and a P/E ratio of 27.79, InvestingPro subscribers can access comprehensive valuation metrics, detailed financial analysis, and expert insights through the exclusive Pro Research Report, available for over 1,400 US stocks.

Full transcript - Kite Realty Group Trust (KRG) Q2 2025:

Conference Operator: Good day and welcome to the second quarter 2025 Kite Realty Group Trust Earnings Conference Call. At this time all participants are in a listen only mode. After the speaker presentation there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Bryan McCarthy, Senior Vice President of Corporate Communications. Please go ahead.

Bryan McCarthy, Senior Vice President of Corporate Communications, Kite Realty Group Trust: Thank you and good morning everyone. Welcome to Kite Realty Group Trust’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 a reconciliation of these non-GAAP performance measures to our GAAP financial results.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: On the call with me today from Kite Realty Group Trust.

Bryan McCarthy, Senior Vice President of Corporate Communications, Kite Realty Group Trust: Kite Realty Group Trust are Chairman and Chief Executive Officer John Kite, President and Chief Operating Officer Tom McGowan, Executive Vice President and Chief Financial Officer Heath Fear, and Senior Vice President Capital Markets and Investor Relations Tyler Henshaw. Given the number of participants on the.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Call, we kindly ask that you limit.

Bryan McCarthy, Senior Vice President of Corporate Communications, Kite Realty Group Trust: Yourself to one question and one follow-up. If you have additional questions, we ask that you please rejoin the queue. I’ll now turn the call over to John.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Thanks Bryan and thanks everyone for joining. Today, the KRG team delivered another strong quarter highlighted by our sound operational performance and excellent execution. On the transactional front, demand for space in our high quality centers remains healthy, evidenced by our consistently solid leasing results. Blended cash leasing spreads in the second quarter were 17%, which is our highest quarterly blended spread in the past five years. Our ability to grow rents organically demonstrates the mark to market potential embedded within our portfolio. Leasing spreads for non-option renewals were almost 20% in the second quarter and 16% over the last 12 months. New leasing volume more than doubled sequentially, largely driven by 11 new anchor leases executed in the second quarter. Our anchor leasing activity included 2 new grocery leases with Whole Foods and Trader Joe’s, alongside new leases with apparel, home furnishing and fitness tenants.

While our lease rate declined sequentially due to the impact from recent bankruptcies, based on the depth of demand in our leasing pipeline, we will gladly trade the short term earnings disruption for the opportunity to upgrade our tenancy and bolster the durability of our cash flows. We continue to make great progress in backfilling space with well capitalized retailers and to date over 80% of the boxes that we recaptured as a result of the recent bankruptcies are leased or in active negotiations. Our small shop lease rate increased 30 basis points sequentially and 80 basis points year over year. In addition to pushing occupancy, we continue to have success elevating our long term growth profile. Embedded escalators on our new and non-option renewal small shop leases were 3.4% for the first half of 2025.

Activity this quarter included leases with Alo Yoga, Lilly Pulitzer, Buck Mason, Sweetgreen and Shake Shack. The consistent gains in our small shop lease rate are a result of our team’s disciplined approach that prioritizes credit quality, strong starting rents and higher embedded escalators and most importantly, a compelling merchandising mix. At the midpoint, we are increasing our NAREIT and core FFO per share guidance by a penny and our same-store NOI assumption by 25 basis points. Our core FFO per share guidance now implies a 2.5% year over year growth. Despite the temporary disruption from anchor bankruptcies, at the midpoint of our 2025 guidance, our post-merger core FFO CAGR since 2022 stands at 4.1%. Our business is strong and will continue to improve as we lease space at attractive returns and enhance our long-term embedded growth profile.

In recent quarters, we’ve alluded to an uptick in our capital recycling efforts to reshape the composition of our portfolio and reduce exposure to at-risk tenants. Through the first half of 2025, we’ve taken significant steps in executing our long-term portfolio vision. In a joint venture with GIC, we acquired Legacy West, an iconic asset that further solidifies our position as a prominent owner of lifestyle and mixed-use assets and expands our relationship with high-caliber retail brands. Subsequently, we expanded our strategic partnership with GIC by contributing three assets to a second joint venture, which includes three larger format community and power centers in Port St. Lucie, Florida and the Dallas MSA. Our strategic partnerships with GIC now comprise over $1 billion of gross asset value with the potential to grow the relationship as additional opportunities arise.

In addition to the JVs, we’ve sold three non-core assets year to date: Stony Creek Commons in the Indianapolis MSA, an LA Fitness anchored center, Fullerton Metro Center in the Los Angeles MSA, an asset that presented an opportunity to monetize our limited exposure to California at attractive pricing and relocate the proceeds into target markets, and Humblewood Shopping Center in the Houston MSA, where the adjacent owner made an unsolicited offer and the sale reduced our exposure to at-risk tenants. These transactions immediately improve the quality of our portfolio, are accretive to earnings, and have a modest impact on our net debt to EBITDA. As we move forward, we will remain active in refining our portfolio by reducing exposure to at-risk tenants while increasing our focus on smaller format grocery-anchored centers and select lifestyle and mixed-use assets.

Our second quarter results, inclusive of the highest blended spreads in five years, growing our strategic partnership with GIC to over $1 billion, three non-core asset sales, and an opportunistic bond issuance, are the product of a dedicated team focused on executing our strategic initiatives. As always, we strive to produce strong results and deliver long-term value for all our stakeholders. Before turning the call to Heath, I wanted to thank our tenants and team members at Eastgate Crossing in Chapel Hill, North Carolina, for their continued partnership as we work toward quickly reopening the shopping center. Eastgate suffered flooding as a result of a historic amount of rainfall caused by Tropical Storm Chantal. Fortunately, the company has comprehensive flood insurance with coverages well in excess of estimated damages. Now I’ll turn the call over to Heath to discuss Q2 results. Thank you and good morning.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: I want to commend the KRG team on an incredibly productive quarter. I’m encouraged by the significant leasing momentum against the backdrop of a portfolio that has tremendous occupancy upside. I’m equally encouraged by the sheer velocity of transactional activity that showcases our allocation acumen and ability to seamlessly execute across our capital stack. Turning to our results, KRG earned $0.51 of NAREIT FFO per share and $0.50 of Core FFO per share. Same property NOI grew 3.3% driven by a 250 basis point contribution from higher minimum rents, a 50 basis point improvement in net recoveries, and a 30 basis point improvement in overage. We are increasing the midpoints of our 2025 NAREIT and Core FFO per share guidance by one penny each. This $0.01 increase is primarily attributable to lower than anticipated bad debt and higher than anticipated overage rent.

Accordingly, we are increasing the midpoint of our same property NOI assumption by 25 basis points and lowering our full year credit disruption to 185 basis points of total revenues, with 95 basis points reserved for the general bad debt bucket and 90 basis points earmarked for the credit disruption associated with recent tenant bankruptcies. The 95 basis point general reserve is a function of combining the 84 basis points of actual bad debt we experienced for the first half of the year with a continuing bad debt assumption of 100 basis points for the balance of this year. As for the 90 basis point bankrupt anchor reserve, it’s important to note that we realized 30 basis points in the first half of the year and expect to experience the remaining 60 basis points in the back half of 2025.

This back half weighted disruption, together with the extremely strong same store results in the third and fourth quarters of 2024, are responsible for the same store deceleration in the back half of 2025. Finally, the sequential increase in our net interest expense assumption is driven by transactional timing causing the balances on our revolver to remain longer than anticipated. Our investments in capital markets teams have been tireless. We sold three non-core assets and completed two joint ventures involving four assets with a world-class institutional partner that represents over $1 billion of gross transactional activity. With investment grade credit spreads at historic lows, we opportunistically returned to the public debt market by issuing a seven-year $300 million bond at a coupon of 5.2%. We also reduced the credit spread on our $1.1 billion revolver and two term loans representing $550 million.

When all the dust settles, our net debt to EBITDA stands at 5.1 times, which is among the lowest in our peer set. As John mentioned, we have consistently telegraphed our desire to accelerate the transformation of the portfolio within the confines of prudent balance sheet management. This past quarter is an excellent blueprint for what lies ahead. We are laser focused on delivering strong results, exceeding expectations, and creating long term value. Again, thank you to our team and we look forward to seeing many of you over the next couple of weeks. Operator, this concludes our prepared remarks. Please open the line for questions.

Conference Operator: Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow up question. Please stand by while we compile the Q and A roster and our first question will come from the line of Craig Mailman with Citi. Your line is open.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Thanks. It’s Nick Joseph here with Craig. I guess just on the leasing side, have you seen any meaningful changes in lease gestation periods? Has there been an increase in willingness from tenants to sign leases just as we get more clarity around tariffs?

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: No, I don’t think we have. In fact, if you see the activity we had in the second quarter, you would say it’s picked up substantially. Perhaps in the beginning of the year, maybe there was a little more indecisiveness, but at this point in time, it feels as though there’s significant demand, and it’s really all across the board. We mentioned how much we did in the anchor business, but we also improved our shop occupancy with a very diverse, high quality group of tenants. From my personal perspective, it’s quite strong right now. Tom, you want to add anything?

Tom McGowan, President and Chief Operating Officer, Kite Realty Group Trust: I think both sides are really trying to work together to find ways to improve scheduling, how to get drawings done earlier, how to sort out permits collectively to make sure they’re done properly. I’m actually seeing more cooperation between the two sides to open stores as quickly as possible.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: That’s very helpful. Just on the actual negotiations, what’s the take for higher embedded escalators? What are you hearing from prospective tenants as you look to do that?

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: I think, you know, the proof’s in the pudding. When you look at our results, it’s clearly been successful in our ability to generate higher growth. Certainly it’s, you know, it’s still a challenge at times with the anchor tenants, but we’re quite a bit better than we were a few years ago. When you look at our anchor tenants, I think the average is like 1.5%, and it used to be like right around 1% a couple years ago. We’ve made strong strides there. With 3.4% embedded growth in the overall portfolio in the first half of the year, I’d say we’re leading the pack in that regard.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Thank you.

Conference Operator: One moment for our next question. That will come from the line of Todd Thomas with KeyBanc Capital Markets. Your line is open.

I just wanted to stick with leasing and new lease volume in particular, which John, you highlighted.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Heath, too.

I wanted to ask about the forward leasing pipeline. If you can comment on July activity and your visibility to get additional anchor lease deals signed in the near term with some of the inventory that you recaptured. Also, if you have any insight on retenanting spreads as you move ahead.

Relative to this quarter. Yeah, Todd, I think we feel very good about the way it’s picked up in the last couple months. I would say that where we sit here today, if anything, is continuing to accelerate. We have a very good portfolio of opportunities for retailers, and there’s a limited number of those spaces in good locations. Generally speaking, when we’re looking at one of these deals, we have a couple different opportunities per available space. That was part of the point we wanted to make, is that we’re very focused on not how fast it happens, but rather how good the outcome is. It’s probably why the first quarter we only did a couple deals and the second quarter we did 11 right in the anchor side. I think the demand is strong.

It’s really more about us making smart decisions about what’s the right merchandising mix, who has the best credit in terms of the tenants that we’re looking at. The growth that we talked about, we’re very focused on that, but overall it’s strong. Tom, you want to add some color? Yeah, I would, Todd. I just look at the.

Tom McGowan, President and Chief Operating Officer, Kite Realty Group Trust: Look at 11 boxes that we’ve executed in the quarter. Cash spreads were 36.6%. You have returns close to 25%.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: When you include the first and.

Tom McGowan, President and Chief Operating Officer, Kite Realty Group Trust: Second quarter, say you’re at 13, we’re going to see that volume of new box inventory getting signed increase significantly. We are in the process of making sure that happens. We know we have the inventory out there to transact on now. We just have to hit our key points that John talked about, making sure that the credit’s there, the quality, the merchandising. I think we’re going to be successful with that.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: That’s helpful.

You mentioned, John, that you would gladly trade the short-term disruption for the mark to market and all the tenant merchandising decisions that you’re making. Tom, it sounded like in response to an earlier question, the permitting and planning processes are getting a little bit more efficient. Does the anchor demand give you negotiating power over shortening that rent commencement time frame? That disruption seems to be a little bit of a challenge in how the cash flow and NOI growth trend. Is there anything that is under consideration or anything that you can do to sort of shorten that rent commencement period in general?

Yeah, I mean, I think, Todd, the

Tom McGowan, President and Chief Operating Officer, Kite Realty Group Trust: biggest thing we can do is work with the tenant, get their layouts done, and then get drawings to start. We’re not afraid to get drawings started early. We’ll work out a reasonable arrangement in terms of a reimbursement if the deal doesn’t move forward. If we can get those drawings started, we can get the permitting started early. You start putting yourself in a positive 90-day position in terms of a normal delivery. We’re also putting tremendous pressure on the tenant, saying, look, if you want this deal, here are the terms and the parameters you need to work with us in to get open as quickly as possible. That gives you a leg up on other tenants that we’re talking to. We’re trying to pull as many levers as possible. Todd.

All right, thank you.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Thanks.

Conference Operator: One moment for our next question. That will come from the line of Andrew Riel with Bank of America. Your line is open.

Hi, good morning. Thanks for taking my questions. First, what’s the latest on the sale of City Center?

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: City Center, we still are marketing the property for sale in the last quarter. Recently, we had a buyer that was identified that is no longer capable of moving forward. We are continuing to market the property. Meanwhile, the good news is at the property, we have some good new leasing activity. That probably just helps us, quite frankly, but we continue to market for sale.

Okay. Does the Humblewood sale satisfy the asset sale proceeds to fund Legacy West, or is there still more dispositions if City Center is delayed?

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Let me listen. All cash is fungible, right? To the extent that Humblewood is a replacement for City Center, I tell you that Humblewood traded at a better cap rate than we anticipate City Center will trade. To the extent we’re using Humblewood and a potential other sale to sort of complete that circle we had last quarter, it’s only going to make the accretion warm.

Okay, thanks. I guess just one more, if I can just think long term, what’s a realistic ceiling for small shop occupancy?

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: I mean, hard to say. We don’t put a cap on it, right? I mean, our occupancy in 2019 was 92.5%, and we’re obviously getting closer to that. I would think we could exceed that. I mean, I know we can exceed it. I wouldn’t think we can. I know we can exceed that. The goal is to continue to push it. Again, no different than any of our strategies. We’re always looking for the best outcome, not the fastest outcome. It happens to have a lot of momentum right now. We feel very good about continuing to grow it.

Okay, thank you.

Conference Operator: One moment for our next question. That will come from the line of Paulina Rojas Schmidt with Green Street. Your line is open. Good morning.

You mentioned efforts to reduce exposure to at-risk tenants on that front already. More broadly, how are you seeing investor interest in these larger, I assume, community centers or more power center-type of assets? Are there any particular retailers that the market is showing more hesitation to absorb, sharing your concerns?

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: To the first part of the question in terms of I think the demand is quite strong in that category, Paulina. In the larger format, obviously when you look at the yield dispersion between the different property types, it can be very attractive to an investor and there’s leverage available as well. In fact, when we transacted in our second joint venture with GIC, that’s a good indication of a very sophisticated investor with an interest in the product type. I think that carries through to a lot of other assets that we would consider. In terms of, I think the second part of that about investors, I believe having issues with certain retailers. Generally speaking, when you’re buying a center, especially when we’re talking about the larger format centers, they’re large enough that not one or two tenants is really going to change the view of the value.

It’s really more important to us on the backside of that just to over time change the makeup of our cash flow. It’s really more about us and less about what some other investor would think about a particular property.

You are starting from a lower occupancy than your peers impacted by these recent bankruptcies. To what degree do you believe that sets the stage for above peer group growth in 2026 and 2027? Is this dynamic something we should expect detailed performance? To what degree do you feel comfortable being held accountable for an expectation like that?

That is a multi part question you got there. I will say this, that when you look at where we are from a lease % and an occupancy % and where we’ve been and you look at the activity that is brewing and that we just delivered in the second quarter, I would say we feel very optimistic that the lease % will gain significantly in the next 3, 4 quarters. Obviously, as Tom pointed out, a big part of this disruption is in the anchor space and the anchor space turning on rent takes time. We’ve always said that if you look at the deliveries that we’ve had and the rent commencement dates that we’ve had over the last few years, that generally is somewhere between 12 and 18 months to turn on rent after lease execution. Pick the middle. Say it’s 14, 15 months.

Leases that we sign in Q3 would be lucky to begin, we’d probably begin turning on rent in late 2026. Leases we sign in Q4 would be turning on in 2027 based on those timelines. The flip side of that is we’re doing everything possible to accelerate that. In fact, if you look at some of the leases that we signed this year, we have three or four tenants that are opening within the calendar year, anchor tenants. It can be done. That is what Tom and his team are very focused on. This can be done. I would say that when you look at the next couple years of growth, you look at it over the next two, three years, we are positioned extremely well. I think it’s not reflected in the stock.

I think whether you own the stock today or you’re thinking about investing in it, I guarantee you you won’t be able to buy it for this price over the next couple of years. I think we have a tremendous upside in front of us and we’re totally comfortable with pressure. That was the third part of your question. That is what we’re here for is to deliver. Obviously we took a hit on these bankruptcies. We were more exposed. When you look at the last major bankruptcies, we were more exposed. That is part of our strategy to move away from some of that and boost our cash growth. I actually think this is a great time for us and a great time to get into the stock.

Thank you for answering my multi question.

Always, always, we appreciate it. Thank you.

Conference Operator: One moment for our next question. That will come from the line of Alexander Goldfarb with Piper Sandler. Your line is open.

Hey, good morning out there. John, I like that money back guarantee on where the stock will be.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: In a few years.

That gives Tom McGowan and the team a bunch to work on. Two questions here. The first one is on tariffs. Based on what you guys have reported and your peers, it doesn’t seem like there was any impact in leasing activity, demand, anything from the retailers. In your view, were the tariffs sort of a non-issue from a retailer perspective either because, one, all the weaker tenants were sorted out a few years ago, or two, lack of supply, or why do you think that there was just no consequence despite the stock market turmoil, the talking head turmoil? It doesn’t sound like from a retailer perspective there was any slowdown at all.

I think obviously there’s a big difference between the stock market, which is trading all day long consistently. Headlines are moving around. The retailers are looking out over much longer periods of time. Alex, obviously, when especially the national retailers who sign 10-year leases, a lot of the, as we’ve all said, a lot of the retailers pivoted during COVID to diversify their distribution channels and their supply channels. Now to say it’s irrelevant, it’s not irrelevant. It’s still a factor in the sense of stability, and we’ve just gotten a lot more stable as these deals have been announced over the last few weeks. There are obviously still a few major trading partners that need to be buttoned up. I would think that it’s pretty clear that we’re moving to a place of stability, and that’s been a big part of it.

Bottom line is it kind of goes back to the supply-demand equation that we always talk about. There is very limited supply in our space. When you have an opportunity to get a new space and you’re a retailer looking to grow, you want to move on that. We’ve obviously taken a disruption in the last few months in this kind of really strange set of events with bankruptcies and then how people felt about all this. Now it seems to be very stable, and we’re in a much better place today.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Yeah, it’s interesting.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: I mean, it just shows the resilience.

Of their supply chains that they can pivot, adjust to price accordingly. Second question, Heath, can you just remind us on RPI, I know you’re not 2026 guidance, but still on RPI specifically what is the non-cash burn off that we should be thinking about as we’re updating our 2026?

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Sure. Going in from 2024 into 2025, you will recall it was about $0.05. Good news is it’s about half of that going in from 2025 into 2026, and that’ll be split between marks on the debt and marks on the leases.

Okay, about $0.025.

About $0.025, correct.

Okay, thank you.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Thank you.

Conference Operator: One moment for our next question. That will come from the line of Michael Goldsmith with UBS. Your line is open.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Good morning. Thanks a lot for taking my questions. Given your strategic transformation and capital recycling, you probably have some of the most unique insight into the raised buyer interest in the retail real estate space. What have you learned about the buyers? What are they looking for specifically in the centers, and how are they thinking about cap rates? I know this is a lot, but given that you had a buyer back out at City Center, do you think that is going to be more frequent just given the raised interest in the buyer pool going forward?

Tom McGowan, President and Chief Operating Officer, Kite Realty Group Trust: Thanks.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: To take the last part, no, I think that’s kind of an aberration with one particular group and those things happen and it’s why you have a pool and you go back to the pool. As it relates to overall, I just think that there is very strong institutional demand for open-air retail. It was kind of a product type that some investors did not invest in for the last five plus years. As the ground has got a lot firmer and returns have improved, you’ve seen a lot of people move into the space. I just think it’s a great kind of risk-adjusted return for investors when you compare it to other product types, certainly from a going-in cap rate perspective, but more importantly from an IRR perspective.

I think that you’re just seeing a catch up. There are people that weren’t in the space that now are very actively trying to rebalance their portfolios. Obviously, if you look at the typical institutional investor, they were probably overweighted to office and now they’re probably pivoting to other things including retail. When you look at the IRRs that can be generated, if you ask me, it’s still undervalued. I mean, I would say that’s going to change. You can’t put one specific cap rate on it because of the different product types within the retail genre, so to speak. Demand is strong and I think we continue to transact on both sides.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: I would say we’re seeing some themes in product type, Michael. Obviously, core grocery, that demand has remained steady. You’re seeing a pickup in demand for larger format. That’s a lot due to just the capital formation that’s happening and the return hurdles that these guys need to make. You’re seeing again a better bid for larger format because of the ingoing yield. You’re also seeing sort of lifestyle mixed-use also increase in the buyer pools, also the sellers as well. Legacy West, for example, Scottsdale Quarter, Birkdale Village. You’re starting to see more of these sort of generational lifestyle assets trading and pricing accordingly. It’s been really interesting. We’re seeing raw demand across the entire spectrum of the asset class. Thanks for that, super helpful.

As a follow-up, you noted earlier over 80% of the boxes that you recaptured as a result of the recent bankruptcies are leased or in active negotiations for the remaining 20% or so. Are those in lesser locations and maybe more difficult to lease, or is that just kind of the result of timing and competition and whatnot? Just trying to get a sense of, you know, the first 80% came pretty quickly. Does the next 20% take a little bit longer to get done just due to, like, they’re just, they’re not as in demand? Thanks.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Yeah, no, I don’t think it’s necessarily about that. I don’t think you can paint a broad brush when you’re talking about 20% of these vacant boxes. I mean, if you go back in time, I think we peaked at like 98% occupancy in our box inventory. You’re always going to have some that are more difficult than others for various reasons. I think it goes to the way that we negotiate and the objectives that we have. I can’t overemphasize the fact that this is not a race to fill space. This is more about creating value for our stakeholders over the long term, not the short term. Frankly, if we wanted to fill space in a race, we would have done some deals that we don’t want to do that just aren’t good for the long term value of the shopping center.

I think it’s all going to come together over time. We’re just not counting quarters. We’re thinking about the next 2, 3, 4, 5 years.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Thank you very much. Good luck in the back half.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Thank you.

Conference Operator: One moment for our next question. That will come from the line of Cooper Clark with Wells Fargo. Your line is open.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Hey, thank you for taking the question. I wanted to ask about the JVs with GIC and comments earlier on continuing to grow the relationship. Could you provide any color on the current pipeline of deals you’re underwriting with them on the acquisition side and how we should think about the JV portfolio at GIC growing longer term as you execute on some of the strategic goals? Yeah, I mean, look, in terms of our relationship with GIC, of course we couldn’t be more happy to partner with one of the world’s most active and sophisticated investors. I don’t think we want to comment on specifics on underwriting with them, but bottom line is, as Heath mentioned, there are more and more opportunities for larger scale deals that we could look to JV.

We both have an understanding of what each other is interested in, so we will go about that one at a time. Yeah, we’re super happy with the relationship and we want to go do a great job for them as a partner. Heath, do you want to come?

Conference Operator: Yeah.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: I would just mention that neither party has a specific mandate. We don’t have to or are exclusive with each other. To the extent that we’re looking at something that they find interesting, that’s where the opportunities will arise. We don’t have to partner with them in the future. Neither do they with us. It’s been a great partnership. Over $1 billion in value and certainly it’s repeatable.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Yeah. Let’s just say it went from zero to $1 billion pretty quickly. Great, thank you. Thank you.

Conference Operator: One moment for our next question. That will come from the line of Floris van Dijkum with Ladenburg. Your line is open.

Hey guys, thanks for taking my question.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: So.

Going back on Legacy West and returns, I think you talked about a 6.5% return that you’re getting from that investment. How does that compare to the latest power center deal that you just disposed? Maybe also talk about the purchase accounting, because I think that your prior 6.5% cap was a cash yield. The GAAP yield, how does that differ? What does that mark the retail rents to market at? If you can give some more details, please.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Sure. I’ll first start with the yields, Floris. You’re correct in your remembering.

Conference Operator: Correct.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Which I think is a really elegant part of this joint venture transaction is our effective yield. Taking into account the management fees on Legacy West is right around 6.5%. Conversely, the 48% that we contributed into the partnership, the sell yield on that is also 6.5%. In essence, what we’re doing is we took portions from our power centers and we used it to buy a portion of Legacy West at the same exact yield, which we think again is extremely elegant in terms of the purchase price accounting floors. It is going to be on a non-cash basis, minimally accretive. Basically, what we’re saying is that the mark to market on the below market leases is greater than the mark to.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Market on the below market debt.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Again, slightly accretive, nothing material, but net net positive.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Great.

I guess my follow up, maybe for Tom or John. Your recovery ratio I believe is the highest in the sector, around 92%, and it went up even though your occupancy went down this past quarter. I’m curious, what are the initiatives that you are doing to keep improving that recovery ratio?

How much higher can that go? Is there a ceiling there? I mean, first of all, as you said, we are, if not the highest, one of the highest recovery ratios. I think the first thing to look at is that we have probably the most fixed CAM in our portfolio as compared to peers. That has taken years to develop. You cannot just start it and think that it is going to make a big impact in a year. We have been working on this probably for seven years, converting to fixed CAM. 94% of the deals, I think, or maybe 95% of the deals we have done so far this year have been fixed CAM. We know what we are doing in that space. It is not just a simple transition.

You have to understand how you run these portfolios when you set a budget and you need to hit that budget. I think we are very, very aggressive about how we operate, how we do that. You have seen how we do that for us on the ground and that flows through the whole organization. Everyone is very laser focused on efficiency, but yet presenting a class A product, which obviously we have. You have seen that too. I think I would turn to that. Then just overall expense control, how we control expenses at the property, how we control expenses in terms of pass through. It is not just one silver bullet, it is a way of living, it is a way of operating. Tom, you want to.

Tom McGowan, President and Chief Operating Officer, Kite Realty Group Trust: Yeah, I mean this is really where the team earns their keep, and this is where the grinding occurs in terms of making sure we’re bidding out these contracts every year, getting efficiencies, doing the things that we need to do while keeping the balance that John said of delivering a first-class center. I think we’re even more proud of not just the components of fixed CAM, but that below the belt, just really digging into the numbers, and we’ll continue to do that.

Thanks guys.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Thank you.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Floris, congratulations on your new shop. Great news.

Thank you.

Conference Operator: One moment for our next question. That will come from the line of Hong Liang Zheng with JPMorgan. Your line is open.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Yeah.

Hey guys, two questions.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: I guess the first question, with the fact that you have two joint ventures with.

GIC, could you provide some guideposts to how we should think about how the equity and joint venture line should trend for.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: The rest of the year? You mean from an accounting perspective?

Yeah, within the income statement.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Okay. Geography wise, on the balance sheet, you’re going to see it all netted out in unconsolidated subsidiaries. You also see the NOI, the depreciation, and the interest expense all netted out again in the income statement under the unconsolidated line. However, what we’ve done is in the new presentation in the supplemental, you’ll see we’ve consolidated it all. We’ve given you all those pieces individually, and that’s for all of our unconsolidated joint ventures. Take a look in the supplemental and you’ll see the information in there.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Got it.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: I guess my second question, your.

Non-cash rents bounced around a little.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Bit so far this year.

I was just wondering if there’s anything one time in the current quarter’s numbers tied to the bankruptcies.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: I don’t think there’s anything. There’s just natural lumpiness in that sometimes. There’s nothing in there that’s, you know, although we had a big lots bankruptcy, we did have a one-time acceleration. Other than that, it shouldn’t be too bouncy.

Okay, thank you.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Thank you.

Conference Operator: One moment for our next question. That will come from the line of Alec Feygin with Baird. Your line is open.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Hey, thank you for taking our questions. I guess one for me is what.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Is the appetite for share buybacks today? I mean, I think like we always say, we know we concurrently have a buyback plan in place and an ATM plan in place, and we always want to be thinking about that from an opportunistic perspective. Also, what we’ve been clear about is that we’re spending a lot of capital right now and getting really high returns on the backfilling of the space. We still are growing our dividend and we still generate free cash flow. Bottom line is I think we’re always looking at that and always thinking about it. Certainly, as we move forward over the next several quarters and continue to backfill and continue to generate new cash flow, that probably becomes more of an opportunity to look at. You never know. We’re always analyzing the best place to invest. Got it. That’s it for me. Thank you.

Thank you.

Conference Operator: One moment for our next question. That will come from the line of Ken Billingsley with Compass Point. Your line is open.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Hi, good morning. I wanted to follow up just on the anchors you had discussed, and it was in the press release about, on the new anchor cash lease spread of 36%. Just looking at the supplement, that looked like that was about 40% of anchor signing in the quarter. What were you getting on the other piece? Not sure we understand.

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Can you compare comparable versus non-comparable? Ken, is that, are you trying to ask what’s the comparable versus non-comparable anchors or what?

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Yeah, since she said the new anchor leases looks like it was 207,000 ft, but it looks like you did 557,000. I was just curious what you were getting on the other 350,000. What was the lease spread on those anchors?

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: Yeah, I believe those are probably close to 25%.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: As we look into the remainder of the year, the expiring ABR, I think it’s $20.11 that jumped up. It’s a very small table, so less than 200,000 square feet. Is there any reason that that’s significantly higher? Is there something unique about those tenants, or are we likely to still see over 20% cash leasing spreads through the remainder of this year even on that group?

Heath Fear, Executive Vice President and Chief Financial Officer, Kite Realty Group Trust: I would say that composition of that pool is more shop heavy, which is why you’re seeing a higher number. There’s nothing really happening there other than just the mix of leases that are left to get done.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: is nothing unique about those anchor tenants themselves. That can be done. Okay, thank you. Thank you.

Conference Operator: One moment for our next question. That will come from the line of Zachary Light with BTIG. Your line is open.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: Hi, yes, this is Zach Light on from Mike Gorman. Thanks for taking my question. Can you expand more on the strategic gateway market exposure, specifically Seattle and the other non-Sunbelt markets in the wake of the Fullerton sale? Mainly asking, are you seeing any differentiation in performance? Are there additional opportunities to maybe rotate out of some of those markets and back into the Sunbelt as the transaction market starts to loosen? No, I think in terms of performance, when we look at our markets, it’s pretty broad based in terms of, you know, it’s pretty tightly packed together in terms of how these markets are performing. We continue to be happy with the composition of our portfolio.

I think we had made it pretty clear that in terms of California, our representation there just was not big enough for us to continue to want to be there, quite frankly. The reality is there’s some difficult things about doing business there. We only had three properties in California. We sold one. One of them is going through a rezoning which we will then sell. The third one likely would be probably a candidate to sell as well. As it relates to the rest of those markets, like Seattle and New York and Chicago, which we would consider gateway markets, we feel very good about our positions in those markets. That being said, we’re always thinking about it. We’re always thinking about what’s the best place for us to operate, where do we generate the highest return. We compare margins. We look at demand in the pipeline.

Right now that demand is pretty strong across the board. If you look at where we’re doing deals, we’re doing deals across the board in all those markets that you mentioned. We’ll see how it evolves. We’re very happy, by the way, we have 40% of our revenue comes from Texas and Florida. We still think that that’s pretty smart. The balance in the Southeast has become strong, too. We’ll continue to always monitor it, but we’re happy where we are right now. Got it. Okay, great. Thanks for the time. Thank you.

Conference Operator: Thank you. I’m showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. John Kite for any closing remarks.

John Kite, Chairman and Chief Executive Officer, Kite Realty Group Trust: I just want to say again, thank you all for taking the time to be on the call with us today, and we look forward to seeing you soon.

Conference Operator: This concludes today’s program. Thank you all for participating. You may now disconnect.

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