Kite Realty Group Trust Stock

We get started. This is the Kite Realty Roundtable. Happy to have Kite, CEO of the company; Heath Fear, CFO; Cooper Clark new addition, right? So with that let me turn it over to John with his opening remarks.

Okay. Thank you, Buddy. Good morning, everybody. Good afternoon. I'll be quick on the remarks. We've been very busy at Kite for the last 2 years. Most of you are familiar with our Project Elevate, which is the disposition of what we'd considered lower growth, larger format shopping centers. We've sold about $1 billion in the last few years, 22 properties. One of the main goals was to eliminate potential future credit risk. We eliminated 61 anchor tenants that we deemed at risk. 5 watch list tenants have come off our top 25. Through all this process, we bought back about $0.5 billion of stock during this period.

Meanwhile, our operating platform is performing better than we expected. Same-store NOI is just under 4%, 3.7% in the first half of this year. Our sign-not-open pipeline is still very elevated at, I think, $37 million currently. The leasing environment is still strong. If you look at our last quarter, our leasing spreads still remain very good, particularly the one that we look at the most, which is our non-option renewals, which was at about 18% spread in the past quarter.

All the while, we've maintained a very healthy balance sheet, which is always part of our strategy. Relative to this is that we did not want to be levering up to buy back stock. So our balance sheet is still very strong. In fact, we just recently were upgraded to BBB+ by Fitch, working on the others actually this week. So when you look at everything that's happening, I think we're very happy with the progress. The heavy lifting, I would say, of most of the asset sales, we believe, is near the end, not complete, but near the end. And we just have a much better portfolio in every respect than we did when we started Project Elevate. So with that, I'll turn it over to you guys.

The Project Elevate, you talked about the $1 billion, 22 assets -- is there another pricing, considering where pricing is today for that product?

Yes. We've been pretty consistent in saying that we're not going to enter into 2027 and say, Hey, guess what, Kite's got another $0.5 billion to sell. Right now, the portfolio is where we want it to be. Of course, on a go-forward basis, we'll be cycling out of 2 to 3 assets a year, which is just prudent portfolio management. But for now, we've deemphasized sort of the box here, larger format assets, lower growth. As John said, the tremendous amount of progress on getting our watch list to be sort of low to mid-pack in terms of total watchlist exposure. We've done a lot of work on getting our escalators up from 156 basis points to 185 basis points. So we feel like we're at a very, very good starting point. And again, no plans right now to further -- there's no Project Elevate 2, so to speak.

Yes. We have signaled though that we still have some tax loss sales that we need to harvest. So -- and then we have some 1031s still yet to execute. So there's another, I think, $225 million of tax loss potential sales that we have and another $110 million of 1031 acquisition. That's an important variable that is still yet to execute, but is in process. And frankly, that depending on the outcome of that would potentially maneuver a special dividend would be a potential if we weren't able to execute on the harvesting of the tax losses and the 1031s, but the goal is to not be in a position to have to do that.

So after those 2 variables, the tax loss sales, the 1031, I think around -- you expect around $240 million of excess funds to work. I guess what is your latest thinking on highest and best use? What are your options? How should we think about where that $240 million might go?

Yes. I mean I think there's -- it's all about the timing of where we are at that point in time. But assuming that we're at that $240 million-ish at the end of the year, we obviously have a couple of different avenues we could go down if we wanted to look at it from a pretty conservative stance as we indicated kind of where we were on our last earnings call, then you would think about potentially just retiring debt. That would be a very conservative stance. There's potential -- if the market changes and better acquisitions, make themselves available, so to speak, that's out there. Stock buyback is always out there. So why don't you jump in?

Yes, I think -- so on our call, we said that the stock price was over $29, and we said that our current bias was towards balance sheet conservatism. Fast forward, obviously, the stock is at a place where the math works better in terms of there being a positive arbitrage to redeploying those assets. But the world feels incrementally a little less better. So I'd probably say at this point in time, you've asked us if we had to spend it today, probably balance sheet conservatism would be the bias. But again, we -- let's get through midterms, let's get these extra $225 million sold. Let's get towards the end of the year. And the greatest thing is that we've got a great balance sheet, and we'll have the flexibility to make the best decision at that time.

I mean it's 3 to 4 months out, right? So a lot can happen, obviously.

Correct.

And with these asset sales, remind us kind of how to think about the core growth of the company, right? As we sit here today, think about the next 12 to 18 months, '27, even into '28 same-store NOI growth like -- I'm not asking for guidance, but just trying to understand how much better growth can be.

Yes. So we started out this year saying that we are -- I think our midpoint of our same-store guidance was 2.75%. We said we were going to sort of moderate to the first half, accelerate into the back half and then accelerate again into 2027 based on this snow pipeline and increasing occupancy. Good news is we actually outperformed in the first half. So while there's a small suggestion of a deceleration, still strong same-store growth into the back half of 2026 and continuing strong into 2027. So on the same-store line, feeling very, very good about next year.

And then on the flip side of that is CapEx as well, right?

Correct. Yes, CapEx will remain elevated. We said somewhere between $100 million and $125 million a year. That will happen this year. That will happen in 2027 and doesn't start to tail off until the end of 2028. But that's just lease-up capital currently, just to be clear.

So it's actually producing a really strong return.

Yes. And similarly, we said that our signed not open pipeline and the spread between our leased and occupied will remain elevated this year and probably into next year as well before it starts to skinny down.

Maybe back to the tenants. I mean, obviously, you mentioned Project Elevate, one of the key results of that has been the improved watchlist. So maybe talk about your watchlist as it stands today. Are there any categories you're still watching? Any category you still call a problem? How are you thinking about that, I guess, through the end of this year and into next?

Well, it's a watch list, so you're always watching, right?

No, I think the watch list, if you will, that was obviously a big part of the exercise. And the fact that we've been able to take off 5 names out of this top 25 that were a concern. It was really more about potential future capital spend, right? I mean you're talking about based on the fact that we eliminated 60 boxes in that category, you could be spending $100 million in capital in the future that we don't think we'll have to spend. In terms of how it sits today, it's just much stronger. If you look at the top 25 today versus the top 25 2 years ago, it's tremendously different. 5 of our top 15 are grocery stores. That's an improvement.

In terms of the ones that you're worried about, that continues to be something that I think is -- we're cautious with giving people's names, of course, but we all know who the people are out there. They're stronger than they were. And so we feel much better. But we obviously wouldn't have gone through this exercise if we didn't think there was risk out there down the road. And we think there is risk out there, and so we try to get in front of it. That being said, today, we're in a much better place. Even with names like -- I will mention one name, even like a Container Store that was an outsized risk for us. I think we're down to, what, 4 or 3 of them, and we had 7 of them, right? So now it's very -- it's not de minimis, but it's very manageable. So yes, we're just in a lot better place and feel much more confident than we did before we began the exercise.

I just want to make sure -- has any questions. And what are you hearing from retailers? I mean, clearly, you have the macro, you have the noise out there. I mean anything on store opening plans for next year? I mean are they -- it seems like there's been no pullback. Is that kind of what you're seeing, too?

I mean it's obviously early in this whole process of elevated interest rates and continuing sticky inflation. But the most important metric from my personal perspective is the unemployment rate is still very low. And so there are spendable dollars in the economy. Most of these retailers have rightsized their operations and have become much more profitable than they were pre-COVID. So there continues to be that backdrop against no new supply. So there's good pricing pressure from that perspective. And I think tenants continue to want to expand and you also see relocations coming into play now. Maybe more so than a little bit in the past.

So yes, still very healthy. We study our AR very closely on a monthly basis. That is still healthy. Small shops, which is where you would think it would kind of come up first, is still very good. I mean we still have very strong demand. And this is why when you look at our rent growth, if you look at our 185 basis points that we've talked about that is our embedded rent growth, it's 156 basis points, what, 2 years ago, 90% of that gain is actually through leasing, not through these sales. So it's really coming from the fact that we can get 3%, 3.5%, 4% growth on our Shop portfolio. When we do new leases, plus the fixed CAM is also a big component of that, which we're a leader in, in terms of the open-air sector. So it's been pretty good.

When you say 90% of that gain from leasing, that is going from the $156 million or whatever it was previously to $185 million...

Correct.

Okay. And then now, I guess that the bulk of that disposition activity is over, I think you said your long-term goal is 200. How long through leasing alone does it take to get to that?

I think we've said 2 years -- 2 to 3 years.

Yes. I mean if you -- it's hard to say, it depends on fallout too, right? But I would say a couple of years, 2 to 3 years is a good answer.

And what's the ceiling on small shop at this point? And how much more room is there? I mean you've clearly done the asset sales there too.

Well, I would tell the people in the leasing department that that's 100%. But look, we're at 92.3% I don't see any reason why we can't push Shops to like 94%-ish. I really don't. I think we should be able to do that. Whether we will or not, we'll see, but that should be a goal. And then the anchors are at 96.3%, 98% is a goal, right? So I think we still have room to run. And I think if you look at where we -- that's the benefit that we had that we -- in the sense we took a bigger hit 2 years ago, but the growth rate still exists just a straight up lease-up story. And that's why, obviously, why our capital has been elevated. So it's kind of part and parcel.

That's still -- we have 200 basis points. But as you kind of think about that, though, given again, the environment and maybe the pressure that the consumer is facing, do you sort of kind of still continue to push that, push rents? Or do you kind of...

Very good question in the sense that is it more important to get -- especially on the anchor side, I think that comes into play more so on the anchor side where you're signing a 10-year lease with a reasonably creditworthy tenant. So do you do that at a lower rent than you maybe would hold out for if you think that the consumer is going to turn? I mean I think that's part of our business that we have to manage and be thoughtful around. We also have to think about the rents in the small shop portfolio have grown substantially. And when you're growing those at 3%, 3.5%, 4% a year, you also have to think about what the end game is there. Is the retailer going to be healthy enough to pay that rent. So those are the nuances of the business that don't have a simple answer, but it's definitely something we consider.

But as you're going through negotiations today, it doesn't sound like you're...

No. Today, I feel like we're -- we continue to be in the position of strength. It's always harder to get over that final line on the anchor side of the business than it is on the Shop side of the business in terms of really deploying your strength. But I mean, if you just look at the numbers from where we are today in our growth -- in our embedded rent growth in Shops and even in anchors today versus 4 years ago, I mean we're in a much better place. We have much better leverage. And again, there's very little new supply, and I don't see a scenario where the supply dynamic changes in a material way.

Anything in terms of sort of geography mix like performance-wise? I mean are you seeing coastal Sunbelt, any differences in performance?

I think it's pretty balanced. Look, we're -- our biggest market is Texas and Dallas is our biggest city. It continues to be super strong. And you just have so much job growth and movement into those markets. Florida is the same. I'd say Texas maybe is a little more accelerated than Florida. But look, even the deals that we have in the Midwest, they're very strong. So each -- again, it comes down to where you are. And by the way, each of these states has different unemployment rates, right? Like so that's a factor. But I haven't seen a tremendous difference geographically. I don't know if you want to...

No, I agree. I think probably product type, I'd tell you, our lifestyle stuff has been particularly constructive, our stuff in Texas, our acquisition of Legacy West, some of the rents that we've been able to achieve over the last several months are way in excess of what we underwrote just 1.5 years ago. South Lake is getting tremendous traction as well. So not so necessarily geography, but product type-wise, we're really seeing the lifestyle part of our business really, really putting up numbers that are beyond what we anticipated.

What about on the retailer side? Do they have a preference of where they want to go? Is it coastal, Sunbelt or not?

I mean, look, I don't think -- I think that's on the margin. If you look at the -- if you talk to a national retailer right now, they're not excluding any part of the country right now. There doesn't seem to be that at all. It's really where can they get opportunities. I mean the opportunities are limited. So when we sit down, especially in a national meeting and we have conversations with these guys, it's very -- okay, we're -- let's talk about each region that we're operating in. It's not like, hey, let's only talk about Texas. It's pretty well spread right now.

So even those retailers today who may have looked at just primary markets are going into secondary and even sort of the tertiary markets at this point, do you think?

Yes, we don't have a lot that I would consider tertiary, but certainly, if you go back in time when people said they were only looking at coastal, that's absolutely not the case. And if anything, retailers are thinking hard about markets that they view as very business unfriendly. That would be the only area that I think retailers are thoughtful around. But even there, a good opportunity comes up in California, they're going to do that deal. So it's -- again, it's really more about the lack of supply in my opinion, [indiscernible] , than it is anything else. There's just not a lot. So when they have opportunities, they got to take action.

Maybe switching gears to the development side of things. Last quarter, you started the second phase of some multifamily development at One Loudoun. Maybe you could talk a bit about that project and expected returns. And then maybe just broadly within the development side of things, what the opportunity set is and kind of how that contributes to the growth algorithm?

Sure. So the multifamily development at Loudoun, a really great project. And as a reminder, and you saw this when we had a deconsolidation of one of our JVs last quarter, we currently own 90% of a project at One Loudoun called Line 1. That's about 346 multifamily units. We're selling that down to 55%. And we're taking those proceeds in addition to contributing land, and we're using that as our equity to fund the next phase of the multifamily. Again, we'll own 55% of that. The great thing about that deal is, number one, we did that in a tax-efficient manner, so we didn't generate any gains by keeping it sort of in a closed system. And as you can imagine, the cap rate at which we sold the stabilized deal at is much tighter than the cap rate at which -- or the yield at which we're building the apartments, which is call it, 6% on a range.

In terms of the other development there, we're making unbelievable progress on the office and the retail. I think the retail now is it, John, is it 77% leased? 77% leased, great tenants. Alo, Tate, Arhaus, I mean, the lineup has just been incredible. We are very close to finishing up our joint venture agreement for 146 hotel rooms there as well. We'll own only 25% of that. So what we did there was we contributed -- it's going to be on an air parcel. So the value of that air parcel equals our equity. And the great thing about that is that we're not hotel operators. But when you have a multi-use project like that, it's important to us what's happening there, right? So we want to have a seat at the table and they want to change the flag on the rates, et cetera.

So we feel like it's a good thing for us to own a piece of that hotel to keep control and to make sure that the tenancy of that hotel is complementary to the project in general. And then beyond that, we've got another 35 acres of land at Loudoun. So listen, we're never a shop that's going to solve to a particular required development yield. We're never going to tell you we want to have at any particular point in time, I'll make a number of $300 million of development in play. We develop when the need is there. And the good news is that we've got plenty of opportunities in the future, not only at Loudoun, but other parts of our portfolio.

Maybe sticking to the development side, how should we think about development going forward? Is that become sort of a bigger share of the capital plan going forward?

Yes. I think when our leasing capital normalizes and we start kicking off free cash flow and that inflects, call it, late '28 to '29, I think we have a propensity to want to use free cash flow for development dollars, right? So I think you will see us get more active. But again, we don't want to force it, especially when you're doing mixed use, it's really easy to get mixed use wrong. So it's always going to be what does the real estate want to do first and then we'll back into it. So -- but yes, I think development, ultimately, once we get this heavy leasing spend, we'll obviously move up the priority list on the capital allocation menu.

Yes. It's also opportunity driven, right? If an excellent opportunity comes up in a market that we like a lot, then we're willing to engage. And I think as Heath was saying, we're not just going to go out there and just, oh my God, we have to find something. We'd rather it found us and that it was a great opportunity and then it's worth working on. And it needs to complement what we're doing, complement the portfolio, increase our exposure to different tenants that we want to grow our relationships with. So all of those things. But bottom line is when you're spending $100 million, $120 million a year on TILC and that's normally $50 million to $60 million, that has to play out and get back to normal before we would really heavily engage in that.

I would say one of the benefits of buying an asset like Legacy West as people are realizing that we've got things like Salt Lake and Loudoun, we're seeing more reverse inquiry for development opportunities where people are saying, Hey, we've got this multifamily site. We think it's great. Will you help us with the retail to John's point. So we're seeing a lot more of those opportunities. And again, once the free cash flow inflects, you'll see us likely start to look at some of those.

On your leverage, you're at the low end of kind of your range, right? Would you lean into sort of that balance sheet capacity and all the kind of...

Yes. I mean, listen, we always said run between 5% and 5.5%. And again, I wouldn't run to 5.5% just to run at 5.5%, but if we had an opportunity and it would bring us to 5.5%, we would certainly do it. We would do an opportunity that would bring us above 5.5% so long we articulate clearly a pathway to get back below it, just like sometimes we run under 5%, right? We're sitting at -- we were at 4.9% a couple of quarters ago. So -- but generally speaking, yes, we'll run in that range.

What about in terms of maybe the topic of balance sheet, looking into next year, what's coming due, you think about higher rates here?

Yes. So we have $280 million coming due next year. $175 million of it is at 75 basis point convert. So looking at, unfortunately, a negative interest rate arbitrage. Part of what we're thinking about next year in terms of refinancing is what are we doing with that $240 million that we were asked earlier on. Are we going to -- obviously, if the world doesn't feel great for wanting to invest otherwise, we would then just use those proceeds to pay down that debt and wait and then relever when the time was right. Or if not, like currently, we're just modeling doing a regular rate bond. So -- and if we're going to do a bond, we probably would end up doing either a long 5 or 10.

Anything else you think that we haven't covered here as you kind of meetings with different investors, doing one-on-ones today?

No, I just think the general theme is we're sort of stepping back, and I think this Fitch upgrade sort of puts a little bit of a cherry on top. This idea that we've sold $1 billion of assets. We bought back $0.5 billion of stock. We did it in a way that had very minimal impact on our earnings, very minimal impact on our rating agencies, and we're still able to get an upgrade. For us, it feels like that's a pretty successful project. By contrast, in 2018 -- I'm sorry, '19, we sold $0.5 billion worth of assets. We lost like $0.20 to $0.25 in earnings. Now it was a really great project. We delevered and obviously put us in a tremendous position going into COVID with a balance sheet that allowed us to pay attention to things like collections. And as you all know, we out collected everybody during COVID.

So just looking at this whole project Elevate from soup to nuts in the past 2 years, we feel really, really good about what we have accomplished. And just to think about the durability of the cash flow now versus where it was -- we talk about it in terms of 61 different watchlist tenants being gone. That's all just another way of saying durability has improved. So what -- from this point forward, our pivot is, okay, we've got the portfolio set. We've talked a lot about what we've gotten rid of. In NAREIT, we're going to invite everyone to come visit with us. We're going to talk about what we've kept. So we talk about how great the portfolio is now.

And then really this intense focus from a go forward is we need to grow earnings, right? So that's -- this is all a prelude to putting ourselves in a position to reliably produce an 8% to 10% total return given your FFO growth somewhere on either side of the 5 together with your dividend growth, and that's the ultimate goal. So I think really now the message is we're almost done, got some more work to do, and then it's just pivot and earnings growth is the premier focus of the organization.

There's a couple of rapid-fire questions. All right. We'll go through this. Number one, if long-term rates stay higher for longer, which has the biggest impact on your sector, higher refinancing costs, lower transaction activity for less new supply?

Probably financing costs, I would guess.

I think that's an easy one. Number two, over the next 3 years, will third-party capital become a more important source of growth for public REITs and balance sheet capital, yes or no.

Yes.

Number three, same-store NOI growth for the sector next year, higher, the same or lower.

Than this year?

Than this year.

Higher.

Great. Thank you.

Thanks, everybody.

Thank you for standing by. Welcome to the Kite Realty Group's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Bryan McCarthy, Senior Vice President, Corporate Marketing and Communications. Please go ahead, sir.

Thank you, and 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 today'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 are Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Adam Jaworski; and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw.

[Operator Instructions] I'll now turn the call to John.

All right. Thanks, Bryan, and hello, everyone, and thanks for joining us today. Halfway through 2026, KRG's tenant demand remains healthy. Our signed-not-open pipeline remains elevated and the fundamentals underpinning our portfolio have never been more durable. The financial strength and flexibility we created has become one of our most valuable strategic assets.

Over the past 18 months, our capital allocation initiatives, collectively referred to internally as Project Elevate, have focused on pruning lower growth noncore assets to enhance the quality, growth profile and resilience of our portfolio and cash flows.

We have redeployed the resulting capital into higher conviction opportunities that offer the most attractive risk-adjusted returns, while also investing meaningfully in our organization through strategic additions across the platform, all aimed at improving our long-term growth.

Since the start of 2025, we've sold 22 noncore assets for nearly $1 billion. With each disposition, we reduced our exposure to lower growth formats and at-risk anchors, while concentrating the portfolio in grocery-anchored lifestyle and mixed-use assets.

As detailed on Page 6 of our investor presentation, we've grown our weighted ABR in lifestyle, mixed-use and neighborhood centers by 900 basis points since the start of 2023, matched by a 900-basis point reduction in power and large-format community centers during the same period.

Our portfolio enhancement is reflected in our tenant base, which we have strengthened from both ends. Our top tenant roster is increasingly concentrated in durable high credit operators.

Grocers now represent 1/3 of our top 15 tenant list. Just as telling, 4 watch list tenants have rolled off our top 25 list entirely. By virtue of the dispositions related to Project Elevate, we eliminated 58 at-risk tenant locations, representing over 1 million square feet and more than 200 basis points of ABR.

Tenants like these carry a cost on both sides of the ledger. They put the consistency of our earnings at risk and each one is a potential claim on our capital.

We've been equally disciplined about where we put our capital to use. During the quarter, we acquired 2 high-quality neighborhood centers, Founders Square in Naples and Chastain Market, a Trader Joe's-anchored center in Atlanta, for $136 million through 1031 exchanges. That brings our acquisition since the start of 2025 to approximately $612 million, all of it recycled into faster-growing assets.

When our stock trades at a discount to net asset value, buying it back is among the most accretive uses of capital available to us. And we acted decisively during the quarter, purchasing approximately 2.8 million common shares at an average price of $27.48 per share for approximately $75 million.

Across 2025 and 2026, we have now repurchased 19.6 million shares for approximately $475 million at an average price of $24.20, well inside consensus NAV.

Our reshaped portfolio is performing. Same property NOI grew 3.7% in the second quarter. We executed 128 new and renewal leases totaling approximately 1 million square feet with blended cash spreads of 15.9%, including 28.4% on comparable new leases.

Our lease rate reached 94.8%, up 150 basis points year-over-year, led by a 210 basis point improvement in our anchor lease rate. ABR per square foot climbed to $23.41, up 2.3% sequentially and 6.3% year-over-year.

Our embedded rent growth climbed to 185 basis points, up nearly 30 basis points since the start of 2024. And our signed-not-open pipeline increased to approximately $37 million of NOI, representing a 350 basis point spread between our leased and occupied rates.

We also continue to unlock embedded value across our mixed-use platform. This quarter, we commenced the second phase of luxury multifamily at One Loudoun, a 429-unit development within our existing residential joint venture that will begin delivering in 2029, the latest example of the self-funding growth built into our portfolio.

Given the strength of the first half, we're raising our full year same property NOI guidance by 50 basis points at the midpoint to a range of 3% to 4%. We are maintaining our FFO guidance as we prioritize flexibility and optionality over the immediate redeployment of proceeds generated through Project Elevate.

In the near term, our focus is on further strengthening and fortifying our balance sheet, reducing leverage, enhancing liquidity and maintaining dry powder for attractive investment opportunities. While the heavy lifting on Project Elevate is behind us, we still have some work to do.

Our guidance continues to assume a meaningful amount of gross transactional activity remaining in 2026, split between the sale of noncore assets associated with tax losses and 1031 acquisitions, which Heath will detail in a moment.

Simply put, KRG has never been in a stronger position. We have a higher quality portfolio, a more durable growth profile and one of the best balance sheets in the business and a team that executes with discipline and urgency. I want to thank the entire KRG team for getting us here and having the energy and conviction it takes to keep raising the bar.

Turn it over to Heath.

Thank you, and good afternoon. Coming off an extraordinarily active quarter, KRG is on plan and operating from a position of strength. We generated $0.52 of core FFO per share and $0.53 of NAREIT FFO per share in the second quarter.

Our same property NOI meaningfully outperformed our internal estimates in the first half of 2026, growing 3.7% in the second quarter and year-to-date. The outperformance was broad-based across better tenant retention, lower bad debt, higher overage rent and stronger net recoveries.

At the same time, we are maintaining our full year core FFO and NAREIT FFO guidance of $2.06 to $2.12 per share. This guidance assumes a 2026 same property NOI growth range of 3% to 4%, which is a 50 basis point increase at the midpoint and reflects our year-to-date outperformance.

We are assuming a bad debt reserve of 90 basis points of total revenues at the midpoint. As a reminder, our 90 basis point bad debt assumption applies to the full year and reflects a blend of actual bad debt incurred during the first half of the year and an assumed bad debt rate of 100 basis points of revenue for the second half of the year.

We are further assuming interest expense, net of interest income, excluding unconsolidated joint ventures of $114.7 million at the midpoint. A nearly $7 million sequential decline is largely attributable to 2 factors: higher interest income generated from Project Elevate proceeds being held in 1031 accounts; and the deconsolidation of our One Loudoun Residential joint venture, which I'll address in a moment.

As for the remaining transactional activity in 2026, we are assuming approximately $225 million of noncore tax loss sales assets and $110 million of 1031 acquisitions. When considering core FFO guidance in the context of our accelerating same property assumptions, it's important to refer to Page 5 of our investor deck.

On the quarter-over-quarter FFO bridge, you'll see a $0.02 drag in the line labeled Change in Our Transaction Activity and Assumptions. That line item reflects our decision to capitalize on a constructive transaction environment by expanding Project Elevate to the second portfolio sale that occurred in the second quarter, while also pursuing the sale of additional tax loss assets.

It's worth taking a step back to consider the context. Project Elevate contemplates recycling roughly 14% of our enterprise value, resulting in a platform transformation that an upgraded portfolio quality and improved the durability of our cash flow, while maintaining our fortress balance sheet and having remarkably little impact to our earnings. This was only made possible by our disciplined sources and uses capital allocation strategy.

More specifically, since the start of 2025, we have generated approximately $1.1 billion of proceeds, including approximately $973 million from noncore dispositions and approximately $112 million from the sale of 48% interest in 3 of our operating assets. We currently expect an additional $225 million of noncore tax loss sales, which will bring total proceeds to approximately $1.3 billion. Against those sources, we have been disciplined and opportunistic with uses of capital.

Since the start of 2025, we have repurchased approximately 476 million of common shares, funded $250 million for our share of equity for Legacy West, completed approximately $204 million of acquisitions and paid a $31 million special dividend. We also expect to complete approximately $110 million of additional 1031 acquisitions, which would bring total capital deployment to approximately $1.1 billion.

When you roll all of that together, our expected sources exceed our uses by $240 million. We intend to be patient and flexible with that remaining capacity. We will continue to evaluate acquisitions, repurchases and other uses through the same return-focused lens we always have. But in the current environment, our preference is towards balance sheet strength.

I want to spend a moment on the structure behind our new 429-unit luxury multifamily development in One Loudoun as it's a great example of capital efficiency we strive for. Through a tax-free recapitalization of the venture that owns the existing 378 multifamily unit development, we are reducing our ownership from 90% to 55%.

The proceeds of that recapitalization, together with the contribution of land we already own, will fund the majority of our 55% equity interest in the new 429-unit development.

Importantly, that step down in our ownership of the existing stabilized project occurs over time as the new building is constructed. At quarter end, our ownership stood at 77%.

The $60 million gain you'll see in our financials relate to the recapitalization and deconsolidation of the existing joint venture and is entirely noncash. It is a modest transaction in the context of our enterprise, but reflects the creativity and discipline we bring to every dollar of capital we deploy.

Our balance sheet remains one of the strongest in the sector. As of June 30, our net debt-to-EBITDA was 5.1x, near the low end of our long-term targeted range.

During the quarter, we priced $345 million of 3.25% exchangeable senior notes due 2032, with proceeds funded on July 2. In connection with the notes, we entered into a capped call transaction that raised the effective conversion price to $41.91.

We intend to use the majority of those proceeds to retire our $300 million of unsecured notes due October 2026. The remaining $100 million maturity coming due in September 2026 will be retired with cash on hand. We have access to over $1.2 billion in total liquidity, providing us with significant flexibility to continue pursuing value-enhancing opportunities.

Thank you to the entire KRG team for their relentless effort in driving our results.

Operator, this concludes our prepared remarks. Please open the line for questions.

[Operator Instructions] Our first question comes from the line of Todd Thompson from KeyBanc.

This is Sean Glass on for Todd. Can you speak to the impact or improvement on the same-store NOI outlook that can be attributed to the dispositions completed so far year-to-date? Like how much of the same-store NOI growth improvement is from dispositions versus operational upside?

Yes. The contribution from the elimination of those assets is pretty modest. It's only 3 basis points. So if you think about it, that pool was 98% leased, but it had several spaces that were -- it had some rent coming online.

So for this particular period of time, they were not dilutive of same-store. But in general, a reminder, these assets have $18 of ABR. They grow slower. They have higher watch list concentration. So in the long run, they'd be detractors for same-store. But for this current year, they were only a small contribution, again, just 3 basis points.

Okay. That's helpful. And then you may have touched on this, but is there any expected capitalized interest related to the One Loudoun Residential project? Any notable impact that may have on interest expense as we think about 2027?

Yes, as we're heading into 2027, you will see the capitalized interest related to that project step up. So yes, you'll see some capitalized interest.

And our next question comes from the line of Andrew Reale from Bank of America.

Heath, you had some helpful color in your prepared remarks. But I guess, just going back to the guidance to confirm. Could you just maybe just walk through exactly what is driving the $0.02 of dilution this quarter in the guidance bridge? I mean, it sounds like a lot of that is just from the timing of the recycling. Just wondering if there might be any other moving pieces?

Andrew, you're exactly right. Listen, we led with the disposition. We had the largest disposition in the second quarter, and it takes time to put those proceeds to use.

So over the course of the next 6 months, we'll do our best. And we've got another $110 million of assets to buy. We've got to sell another $225 million, and all of that, when you put into the mixture, the timing ends up being $0.02 dilutive into 2026.

Okay. And then maybe just for the 1031 recycling in the most recent quarter, what was the cap rate spread on those transactions?

Cap rate spread? You just mean what -- go ahead. I'm sorry, say that again.

Just cap rates on what you're buying versus what you're selling, just to give us a sense.

Yes. Yes. I think -- I mean, as we've said, obviously, we've been without specifics to each individual deal, the Project Elevate, in terms of selling the lower growth and larger format deals, have been kind of in the kind of low to mid-7% cap range and then the acquisitions have been closer in the lower 6% range.

But it's really more about unlevered IRR that we're looking at because there's a lot of moving pieces in these deals. So we're still continuing to get between 8% and 9%. That's our goal in terms of unlevered IRRs.

And our next question comes from the line of Jamie Feldman from Wells Fargo.

So thinking about your economic occupancy at the end of 2Q, it is about 91.2%, which is about 250 basis points below your historic highs and many of your peers are at their historic highs. Can you talk about the opportunity set there longer term and how much the SNO pipeline may contribute to higher absolute occupancy levels in the second half of '26 and into '27 as we think about more regular wage churn going forward?

Sure. Jamie, I think, obviously, we're -- we've been very diligent in how we've gone about re-leasing the portfolio. We've kind of talked in the past about what led us to those lower lease rates versus the peer group going back to the COVID era.

And now we're obviously getting very close to where we were. In fact, the small shops are basically right there, and we're a couple of hundred basis points under our high watermark on the anchor lease percentage.

I think more importantly, it's kind of the composition of those tenants that we're focused on. And I think that's the whole point of this Elevate exercise. And I hope you take a minute to kind of study our top 25 tenant list and particularly our top 15 and compare that to where it was in the past. It's changed significantly for the good.

And so I feel very good that we've done what we needed to do there, and now we're very focused on just executing the leasing platform. Demand remains strong. Supply is low, and our portfolio is better. So it's a real opportunity to push that.

Okay. And then given the progress on Elevate year-to-date and into the back half, what are your thoughts on how much longer it continues into '27? And if you've got the $0.02 drag on '26, do you think drags continue into next year?

No, I think as kind of Heath mentioned, I think, in his prepared remarks, and I did as well, I think we're -- the heavy lifting there is done. There's more transactional activity in the back half of '26, which is really more about harvesting some tax losses and doing some 1031s.

But the composition of the portfolio that we have today, we feel very good about it. So as we move into '27, I think we're back to the historical kind of pairing a handful of sales and buys per year. The largescale stuff has pretty much worked its way through. And again, that's why we talk about the composition of our top tenant list and how it's changed so much.

So I think the real issue on that kind of dilution, if you will, is the fact that we are sitting on $240 million of cash that we haven't deployed. We don't know how that will be deployed. We're going to be opportunistic in terms of what is the most highest return for us there.

As Heath said in his remarks, that could be acquisitions, it could be buybacks. There's multiple things we could do or it could be a reduction of leverage depending on how we feel about the environment. Even as we sit here today, as we get to the end of the year, we'll likely be sub 5.

So we're in a really good position, but we're not looking to continue any kind of dilution throughout remaining years from selling. That said, we've sold over $1 billion, and we've basically kind of remained flat, which is kind of unbelievable. So we'll build it from there.

And our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

I love your cruising speed continues to inch higher. You mentioned something about your -- the $225 million of additional noncore sales. Maybe if you could touch upon, are they more of the power center assets?

You also still have, I believe, 2 big parcels of land that currently yield 0 that potentially could get sold. Maybe you can give us an update and potentially touch on some of your ground rent income as well as being a potential candidate for disposal going forward.

Sure. Well, in terms of the remaining sales, you should expect it, Floris, to be similar to what we've been selling. It's essentially just noncore. Obviously, we mentioned that there's some tax loss harvesting opportunities, which would indicate that the property is going to create -- it's going to generate a loss. So I think it's similar. Each deal is a little bit different in size, but similar to what we've been selling.

In terms of land, that's not contemplated in that number. But as we've talked about before, we're always looking to maximize value on any kind of land parcel, and we're working on a couple of opportunities there.

So in terms of -- you mentioned ground leases, I mean, again, nothing is really reflected in that number that would represent ground leases. We're always looking at that.

We -- it's about -- I believe it's about 10% of our revenue. So it's a pretty substantial number. So it's always a possibility to utilize that in terms of cost effective capital. But right now, that is not contemplated in that $200-plus million of future sales. Heath, do you want to add anything to that?

No. I think you hit it perfectly, John.

And maybe my follow-up, if I may, on the acquisitions front. I know in the -- over the past quarter, there were a number of larger mixed-use type -- Legacy One type assets in the market. What is your appetite for doing additional transactions? And what is the appetite of your partner potentially if you were to use that in your JV structure?

Sure. Our appetite is it remains healthy and -- but that's paired against a very rigorous underwriting process. And the market is aggressive.

But when you have an opportunity for a generational type asset, that's what happens. We're certainly aware of the properties that are in the market. We're always engaged. We would love to add other very, very high-quality assets like Legacy West and Southlake and Legacy East and One Loudoun, Downtown Crown, just a few, for example.

We're always looking to add to that. As far as our partner that you referred to, we have a great relationship. They are also very interested in expanding that portfolio, but are like-minded in the way that we diligently underwrite.

And our next question comes from the line of Michael Mueller from JPMorgan.

You have [indiscernible] on for Mike this afternoon. Just a quick one from us. It looks like your blended cash leasing spreads have been in the low teens, it seems, for the last 12 months. I guess, what's that roughly translating to on a GAAP basis?

On a GAAP basis, I mean, we don't really give the GAAP number. But generally speaking, it's probably an additional 10% on a GAAP basis, generally speaking. I mean, if you look at what we've been doing on our small shop portfolio, right, it's 3% and 4% growth. So I would say 10% is a pretty reasonable GAAP spread addition.

And our next question comes from the line of Paulina Rojas-Schmidt from Green Street.

My question is about retailer health. Most REITs are describing their tenant rosters as healthier than historically. So do you think we're entering a period of structurally lower tenant failures? Or do you view this year's experience, generally bad debt below expectations, more as a good year, more as an anomaly?

Paulina, from my perspective, I think we're definitely in a healthier environment for retailers. And I think this has just been a long build since COVID, which we've talked about a lot in terms of how retailers rebuilt their enterprises and became much healthier from a balance sheet perspective.

But obviously, in this business, there's always -- in my personal opinion, there will always be periods of time where outside forces would create a situation that would put more strain on a retailer. And there's also periods of time where retailers themselves put strain on their own business models, whether that be operational or balance sheet pressure.

So it's a great question because it's really a part of why we're doing what we're doing in Project Elevate, which is as we know, slightly different than maybe what some others are doing. And I think our objective internally is that we don't think that hoping is a good strategy. We want to take intense action around creating a portfolio that is independent and withstands any of those outcomes.

So I think, yes, we're in a much better environment. Yes, there's very low supply and the majority of our retailers have rebuilt their businesses and have good platforms and balance sheets. But we don't -- we want to be kind of independent of that, and that's a real big part of what we've been doing.

And Paulina, I'd add one thing that John talked about the evolution of the retailer and how they've been far more efficient and working on margins, profitability, et cetera. But we have been doing a much better job spending time with these retailers and understanding what their next store evolution looks like and how we can help them and then understanding that that's different than what we have in the portfolio, how then we can basically potentially get rid of some of those stores. So knowledge based on our side of the business has been equally important.

Paulina, I'll add one more thing. So it's not only about us trying to concentrate our ABR and strong retailers during a good part of the cycle. But the other side of that coin is making sure that we're just not filling up those spaces with tenants that have equally suspect credit later on.

So it's one is can we shed some assets and get our exposure to the right place. Number two, let's be super disciplined on underwriting in the way in and making sure that we're taking our time and putting the best balance sheet and the best use in our spaces.

Another question that I have is when I think of the 2 buckets that you like the most, neighborhood centers and lifestyle mixed-use centers, for the specific level of quality and type of location you're pursuing in each, how does the return profile compare between the 2 buckets? And to the extent that you see that they differ, where do you think the difference typically stems from? Is it just the entry pricing? Is the growth profile, CapEx?

Heath, do you want to start with that?

Yes. So Paulina, I think the return profile of both is fairly similar. Obviously, you're looking at super high-quality grocery. In a good MSA, you're looking at super high-quality lifestyle and good MSA.

Those cap rates have -- we've seen those converge recently, particularly you've seen a tremendous amount of compression in lifestyle over the past probably, I don't know, a year as that product type has become very popular.

Not surprising enough, I think we were part of the reason why it became so popular with Legacy West, which kind of gave people pricing discovery. So again, I think their initial yields are fairly similar.

And of course, our return hurdles are the same. We're looking for somewhere between 8% to 9% unlevered return based on the quality of the asset, the location, et cetera. So yes, they're behaving fairly similarly in the transactional markets right now.

I think, Paulina, the thing I would add is you're right, those are right now our kind of favorite places to invest capital in. And as Heath said, the return characteristics are similar. There's a lot of differences, obviously, in the operational side of the business for both of those.

And I think it's important that you have the capacity to be able to operate assets of the magnitude of, as I said, of a Legacy West and the Southlake. It's quite different operating those assets than it is a neighborhood grocery-anchored shopping center.

Also, the embedded rent growth profiles are different. You have an opportunity to stretch that out in the lifestyle mixed-use. And in the smaller neighborhood centers, we're doing our best we can to get those above 165 basis point cruising speed.

So it's interesting. They're similar, but they're different. And then again, I think just the operational fortitude it takes to run a very high-quality lifestyle center is different. So I think it's important that the market understands that.

And our next question comes from the line of Alexander Goldfarb from Piper Sandler.

John, you guys have been repositioning the portfolio for a while. And in the current environment, especially since COVID in the past few years, the strength of the landlords' hand has really improved tremendously.

Has that changed at all? Like I know you're talking about selling centers that have weaker tenants in them. But aren't those weaker tenants, doesn't that provide you future GLA to be able to lease to stronger ones?

Like how do you balance selling a center that could have upcoming vacancy that could go to a better retailer versus exiting it and then not having to deal with, I guess, the year or 2 when the tenant does go out that you have to deal with getting it leased again?

Yes. That's a great question, Alex. And again, you're right that we have been underway on this for the last 2 years. But as we said on the call, we are nearing the end of that.

So I think we have been making -- you have to look at this from a macro perspective and a micro perspective, right? I think you're kind of referring to the micro, which is each individual asset having a potential vacancy and what is the upside and what potential does that have to give us better returns over time.

But it's also, as we mentioned, as we focused on this and we looked at what we viewed as the future at-risk tenancy, it wasn't really just about rent. It was also about capital, right?

And to the extent -- and that's why we said in the prepared remarks that this was kind of a dual-headed exercise in the sense that this is a potential future interruption to earnings and a latent kind of claim on our capital, right?

So I agree with you that the market is better. The retail environment is better, but we wanted to position ourselves with a portfolio over the next 5-plus years, not over the next 5-plus quarters.

So I think that's the decision we made and have made. And I think it's reflective when you look at, for example, if you just look at the last 5 quarters as this activity has been occurring, our -- I think this is off the top of my head, but if you look at our renewal rents, I think they averaged like $28, our non-option renewal rents.

And then you look at our new rents, they averaged $30, and that's against the backdrop of a $23 average portfolio. So everything we're doing is improving and our growth is going to improve. So I'll give you that it's a somewhat short-term shuffle for a long-term gain, but we feel very strong in that long-term gain.

And then, John, as you look at the assets that you're selling, and I assume that you've owned these for quite some time, is it the market that has changed, the submarket has changed? Or what's changed in the underwriting from when you originally bought or developed these assets to now that you're selling them? Just trying to understand if it's market, tenant, submarket or just where your future money has been put, you just realize there's faster growth elsewhere?

Yes, I think it's more of the latter. I think it's more about that we think we can place that capital into a better growing environment with lower risk on a risk-adjusted basis. But it's also that there are individual situations where the market has changed.

And that's something that we've got to stay ahead of. I think, again, I mentioned hope is not a great strategy. I think people -- when things get going well, people are like they like to ride that and say, 'Oh, it's all great.' But you've got to think way ahead. And we've been doing this for a very long time. We've been through a lot of different cycles, and we've been through the worst cycles.

So I think what we're saying is our portfolio will be able to withstand those and grow throughout them. So I think that's it, Alex. It's just like really trying to think ahead. And I know the market has intense pressure to be short-term, and I get it, we all live in it. But we're trying to make decisions that will pay dividends for everybody literally for a very long time.

And our next question comes from the line of Connor Mitchell from UBS.

Just kind of following up on that line of thinking actually. I was curious about the prior and the future dispositions in Project Elevate, kind of looking at it from a different angle.

Where do you kind of start with the thought of the asset disposition, whether it's the growth outlook, which you've touched upon or more of the format type or even a reduction in the watch list tenant exposure?

I mean, I hate to say it's all of them. And I think we do start with the idea that our goal is to have the highest quality portfolio that has an embedded growth rate that is exceeding our competition. That is our goal.

And as you know, having raised our embedded growth rate 50 basis points in 2 years -- I think that's right. Or is it 30? 30. Too many basis points in my head. 30 basis points in 2 years. I think that's hard to do on a portfolio of our magnitude.

And so we start there. But then it does become an exercise around the quality of the tenancy, the durability of that cash flow and the capital associated with owning those. I mean, everybody likes to talk about rent spreads, but capital is a very big part of that when you're looking at new rent spreads.

So we're trying to say we want to have the portfolio that's going to generate the most strongest risk-adjusted cash flow. So it's all of those. I hate to be cute with that. I wouldn't rank any one of them. But in the end, we're trying to get that growth rate up to 2%, our embedded growth rate. That's our goal.

This is Heath. I'd just say, listen, when we're at our disposition pool, it's very much a scoring exercise. And some of the things that we're looking at are the things you're mentioning, what's the growth like? How many watch list tenants we have? Is it a market that we like or not like?

So all these things kind of go into a blender and then we rank them and say, "Okay, this seems to be the part of the portfolio that makes the most sense for us to transact on." Is it ready to sell, right? Is it a salable asset right now?

So those are the things that go into it. But to John's point, the main goal here was to ensure that we are going to loft our growth to keep having that embedded growth pile improve over time and to make sure that we're not having earnings hiccups by having problems with watch list tenants.

Yes. I'll also point back to what Tom said earlier, what feedback are we getting from our customers, our tenants, right? And where are they positioned to grow.

And we're talking to them, as Tom said, well in advance of these decisions, and we might learn some things from 2 or 3 tenants over a few meetings that would say, you know what, maybe the long-term prospect for that property is not as good as we thought it was.

Okay. Really appreciate all the color there. And then just kind of switching gears a little bit. The same-property NOI has been pretty strong in the past couple of quarters, 3.7% and 3.6%, and you raised guidance.

But just looking at kind of the implications for the back half, the midpoint, it would seem that we would expect a deceleration. And Heath, I know you gave a lot of color in your opening remarks.

Can you just kind of dive back into some of those assumptions, whether that's the 100 bps of bad debt into the back half or something else that I may have missed?

Yes. I mean, the slight deceleration, let's call it, flat into the back half of the year is simply this idea that we outperformed in the first part of the year. So nothing happening in the back half that we weren't expecting.

But again -- and the great thing about the first half outperformance is that it was really organic. It was core items. It was our -- it was better retention, it was better net recoveries, better overage.

So we were just firing on all cylinders across the portfolio, which allowed us to print that 3.7% number. I did say at the beginning of the year, I thought we'd be moderating into the first half and accelerating into the back half. However, we did really well in the first half and going to continue that momentum into the back half.

Yes. Slight deceleration.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Kite, CEO, for any further remarks.

Yes, I just want to thank everybody for taking the time today, and we really appreciate your interest in the company. Look forward to seeing you soon.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good day, and welcome to the Kite Realty Group Q1 2026 Earnings Call. [Operator Instructions] 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 Marketing and Communications. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Kite Realty Group's First Quarter Earnings Call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. 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 today'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; President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer; Adam Jaworski and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. [Operator Instructions]

I'll now turn the call over to John.

Thanks, Bryan, and good morning, everyone. We entered 2026 with an ambitious set of operational and strategic goals. And through the first quarter, we are firmly on target. Tenant demand remains healthy, our signed-not-open pipeline remains elevated and the underlying fundamentals of our portfolio have never been stronger. This is a result of deliberate work over the past 2 years to reshape KRG into a higher caliber, faster-growing and more resilient company. We have sold over $600 million of noncore assets, entered into strategic and transformational joint ventures, repurchased shares at pricing well below consensus NAV and repositioned the portfolio squarely toward higher growth and higher quality grocery-anchored, lifestyle and mixed-use assets. These actions are proactive, decisive and disciplined designed to capitalize on the disconnect between public and private market values while fundamentally elevating the company. The KRG you see today is significantly improved from where it was 24 months ago.

The first quarter was another clear example of that discipline in action. We repurchased 6 million common shares for approximately $152 million and sold Coram Plaza on noncore lower growth asset. Together with the activity completed in 2025, we have now repurchased 16.9 million shares for $400 million at an average price of $23.67, representing a compelling arbitrage buying our own stock at an FFO yield meaningfully wider than the yields at which we have sold lower growth assets.

As we advance through 2026, we will continue to evaluate capital recycling opportunities that further optimize the portfolio and support our long-term strategic objectives. None of this is possible without the strength and versatility of our balance sheet. Our ability to sell assets, repurchase stock, enter into strategic joint ventures, fund growth and continue investing in the portfolio is a direct result of the disciplined financial posture we have maintained over multiple years. We remain committed to operating with conservative leverage, ample liquidity and meaningful financial flexibility, which allows us to stay opportunistic while continuing to protect the long-term durability of the platform. That discipline is translating directly into operating performance.

Demand for space in our high-quality centers remains exceptionally healthy, and our first quarter results reflect both the strength of the portfolio and the quality of our execution. Same-property NOI increased 3.6% in the first quarter, a strong start to the year. During the quarter, we executed 151 new and renewal leases, representing over 700,000 square feet. Blended cash leasing spreads were 13.5%, including 31.3% on new leases. Our non-option renewal spreads were 12.3%, demonstrating the continued mark-to-market potential embedded within our portfolio.

Our lease rate stands at 94.7%, a 90 basis point increase year-over-year, reflecting the continued absorption of our inventory by high-quality, well-capitalized retailers. During the quarter, we signed new leases with a variety of sought-after concepts, including on running reformation, Warby Parker, Total Wine and Barnes & Noble. ABR per square foot reached $22.89 at quarter end, a 6.5% increase year-over-year. Our signed-not-open pipeline remains elevated at approximately $36 million of NOI, representing a 350 basis point spread between our leased and occupied rates. The average ABR for leases in our signed-not-open pipeline is $28 a square foot.

Embedded rent escalators are the first stone in the foundation of long-term total return, contractual growth that compounds over time. 2 years ago, our embedded rent escalators were just 156 basis points. Today, they stand at 182 basis points. As we advance towards our 200 basis point target, that trajectory is driven by factors within our control: strong lease structures, disciplined merchandising and the deliberate reshaping of our portfolio. Simply, but KRG is an inceptional position. We have a better portfolio, a rock-solid balance sheet, a more durable growth profile and a team that continues to execute with urgency, discipline and focus. I want to thank the entire KRG team for the hard work that got us here and for the continued energy commitment and conviction required to keep raising the bar.

I'll now turn it over to Heath.

Thank you, and good afternoon. After the first quarter, KRG is exactly where we want to be, on offense on plan and operating proposition of strength. We are elevating the portfolio, sharpening the platform and building momentum for another highly productive year.

Turning to our results. KRG generated $0.52 of NAREIT FFO per share and $0.52 of core FFO per share in the first quarter. Same property NOI increased 3.6% in the first quarter driven primarily by a 250 basis point contribution from higher minimum rents, a 55 basis point improved in net recoveries and a 45 basis point improvement in overage rent.

On our last call, I indicated our expectation for same property NOI growth in 2026 to be lower in the first half of the year and accelerate the second half. It's important to note that the 3.6% result in Q1 exceeded our expectations as a result of higher-than-anticipated average rent, lower-than-anticipated bad debt and the reversal of a large real estate tax reserve. As for the trajectory of same-property NOI for the balance of the year, we anticipate a moderation into the second quarter, followed by a reacceleration to the back half of the year as the rents from our large signed-not-open pipeline begin to commence.

Due to our performance in Q1, we are increasing our 2026 same-property NOI range by 25 basis points at the midpoint. As illustrated on Page 5 of our investor deck, the uptick in our same-store guidance is being offset by a corresponding reduction in our recurring but unpredictable items. As a result, we are affirming our NAREIT FFO and core FFO guidance of $2.06 to $2.12 per share based on a same-property NOI growth range of 2.5% to 3.5%. Our bad debt reserve of 95 basis points of total revenue at the midpoint, reflecting our actual first quarter results blended with a continuing assumption of 100 basis points for the balance of the year. And interest expense net of interest income, excluding unconsolidated joint ventures of $121.2 million at the midpoint, up from $121 million.

This guidance fully incorporates the incremental $100 million stock we have repurchased since our last earnings call and further contemplates $170 million of 1031 acquisitions scheduled to close in the second quarter. This represents a $60 million increase as compared to original guidance and $145 million of noncore and/or tax loss driven dispositions with $12.5 million closed in the first quarter and the balance closing in the back half of the year. This represents a $30 million increase in the disposition pool as compared to original guidance.

As a reminder, the aforementioned 1031 acquisitions or noncore sales are not completed, it could result in a special dividend for 2026. The changes in our transaction assumptions are opportunistic and a continuation of our disciplined focus on matching sources and uses in an earnings-friendly manner.

John alluded to, moving to the back half of the year, we will continue to evaluate opportunities to further refine our portfolio, provided that we're able to prudently deploy the proceeds. Our balance sheet remains one of the strongest in the sector. As of March 31, our net debt to EBITDA was 5.2x, consistent with our long-term range of low to mid-5s. It is worth thing to step back to appreciate the level of transactional activity we've executed over the past 18 months while still maintaining one of the lowest leverage profiles in the sector. We have access to over $1 billion of total liquidity, providing us with significant flexibility to pursue value-enhancing opportunities. Thank you to the KRG team with a relentless efforts in driving our results and creating long-term value for our stakeholders.

Operator, this concludes our prepared remarks. Please open the line for questions.

[Operator Instructions] Our first question will come from the line of Cooper Clark with Wells Fargo.

As we think about the share buyback program moving from $300 million to $600 million, just curious about the willingness to potentially upsize disposition volumes even higher in the back half of the year as we think about the $145 million of noncore assets contemplated in the back half given the demand for product in the market today and the ability to improve portfolio quality with potentially minimum dilution as we think about buybacks, coupled with 1031 acquisitions?

Sure. Cooper, I think as we said in the prepared remarks, we're going to continue to evaluate the market and evaluate the opportunities. We want to execute what we have in front of us in terms of the 1031 opportunities to try to close on in the next quarter. And it's always going to be a function of where cost of capital is, what the opportunities are to reposition the capital. So I think we're trying to make it clear that we're reviewing that. That's a potential opportunity.

If you go and look at what we've done in the last year and you include and what Heath has said is in the guidance, I mean, you're talking about if we execute on that, that's like $750 million approximately of sales. So this is significant. We continue to try to do that in a very meaningful way in the sense of how we manage the total portfolio, manage the balance sheet and manage protecting earnings as good as we can. So that's a long-winded answer of saying, yes, that's a possibility, but a lot of factors involved in that. Heath, do you want to add to that?

No, those are okay.

Great. And then moving towards the economic occupancy side, I believe current economic occupancy is about 260 basis points below your historical highs as many of your peers are near or above historical high economic occupancy. So curious if you could just talk about the opportunity set there longer term, and how much the SNO pipeline may contribute to higher absolute economic occupancy levels in the back half of '26 and '27 as we also contemplate some more regular weight churn?

Sure. I mean we think we're bullish on our ability to continue to push occupancy higher, both economic and lease rate. We are -- year-over-year, we're up obviously sequentially, slightly down, which is not unusual in the first quarter. If you look back over the past 4, 5 years. I think 5 years, probably 3 of those first quarters are slightly down sequentially, but what we're focused on is the year-over-year growth. We do think there's real opportunity based on lack of supply and continued strong demand. But as we tried to point out, we're very focused in on proper merchandising, and we're very focused in on getting the right retailers in the right spaces and trying to pursue this embedded rent growth that is going to pay dividends in the future. So we're not in a super hurry to hit any particular number, but we do feel like there is really strong demand. And that's part of what we're doing in terms of repositioning the portfolio is in the sense that this stronger portfolio will be able to maintain higher occupancy over longer periods of time. So again, yes, we believe we have plenty of room to run.

I would add a lot of attention, questions and comments have been around the transactional activity and refining the portfolio. But at the end of the day, one of the biggest opportunities in front of us is that core opportunity in leasing. If you look across the, you said in your question, Cooper, we've got the most room to run in terms of just growing organically. So all this other stuff is certainly moving us along, but let's not lose focus that, that we've got the most occupancy run left.

One moment for our next question and that will come from the line of Samir Khanal with Bank of America Securities.

I guess, John or Heath, maybe expand on your comments on capital recycling, maybe broadly, kind of what you're seeing in the transaction market, the interest level that you've gotten for your assets that you could potentially sell down the road?

Sure. I'll start with that, Samir. I mean it's -- there is a strong demand for open-air retail, and it's coming from really many, many avenues. And I would say in the last 6 months, 9 months, but even 6 weeks, you see a lot more institutional capital positioning to want to be in the space a rotation, if you will. So that obviously puts -- that puts pressure on cap rates to move down over time, and we really still haven't seen a movement in interest rates. So if that happens in addition, that would be additional fuel. But really, even without that, the demand is strong. I think when people look at their portfolio and they look at how they balance it and they look at risk-adjusted returns, our product screens well. So you have seen that. I mean -- but we still have this ability. We hope to continue to do what we're doing, which is to -- if we're going to recycle capital, we want to recycle it into higher-growth assets and honestly, if you look at Page 6 of our investor deck, it kind of shows you what we're doing. And then I think a couple of pages later, which is the Page 6 shows the increase and decrease that we've had in various product types. And then a couple of pages later, you see the embedded rent growth, and it's just you can chart that, that's going up.

And as long as we're able to sell these lower growth assets at yields well inside the stock yield, that's attractive. Now how we deploy that capital comes down to a complex set of -- complex set of items based on taxable income and 1031 opportunities and stock price, et cetera. But it's really a real estate exercise, I want to remind everybody of that. We are very focused on the real estate exercise. But obviously, the equation relates in the sum of what do we do with the capital. So it's complex, but right now, we think there's opportunities. Heath, do you want to?

I would just say, Samir, there isn't a pocket of historical retail capital that hasn't been reignited. So the breadth of the demand is just incredible. And frankly, it's better to be a seller right now than it is to be a buyer. With that said, we do have some traction on some of these 1031 acquisitions that we've been talking about. So yes, but the market is very, very constructive right now.

Got it. And then I guess my second question, Heath, is on the guidance, right, side, you raised same-store low end, high end, but we didn't see a follow-through on FFO. Maybe EPC can unpack that. I think that would be helpful.

On Page 5, you'll see that the same store did boost us up $0.5 on a full year basis, but then that was offset by a corresponding reduction in recurring but unpredictable item. Basically, that item is still there. It's just being pushed into 2027. So timing-wise, we thought it was '26 and it's being pushed into early '27. So nothing happening there. So that's why the same-store bump didn't flow through the FFO.

The other thing I would add to that, Samir, is obviously, we held Q2, Q3, Q4 bad debt at 100 basis points. I think the first quarter was closer to 75%, but I think we view it as very early in the year. I think we're always reticent in the first quarter to really jump on to too much. You still got 75% of the year to unfold. So I think you can look at it as prudent in my opinion, to not jump on a lot of these things that may or may not happen. I think bad debt and then just recurring but unpredictable are 2 big categories. I mean, especially on recurring unpredictable, I think if you look at last year, we were like $21 million. I think our guidance is closer to $10 million. So we'll see how the year plays out. A lot of things left to happen, but the core business is very strong. .

One moment for our next question. And that will come from the line of Todd Thomas with KeyBanc Capital Markets.

Beyond the capital recycling that you have lined up right now and with what's under contract, would you move forward with the dispositions without new investment opportunities lined up? Or is the plan really only to activate incremental dispositions if you have something on the buy side?

Todd, I mean, as you know, our goal is always to kind of pair these things. We've got the same where we like to do stuff in pods, buying and selling. But of course, we're also opportunistic. And if we think that there's a really excellent opportunity to recycle out of a lower growth asset at an attractive yield versus other yields than that is possible that we would do that in front of knowing exactly where that capital would go. Again, this is what a really strong balance sheet before you that opportunity to be forward thinking. But the goal is to always try to couple these things. So we'll see how that plays out, Todd.

Okay. And then does the current disposition pool the, I guess, $145 million, although I think you mentioned the $12.5 million was included in that in the first quarter. Does that pull include City Center. Can you provide an update on progress for that asset disposition?

It does include City Center, Todd and listen, we hope to have transacted on City Center by now. But as we said in the past, it's a complicated vertical asset and the plan is still to transact before the end of the year.

One moment for our next question. That will come from the line of Michael Goldsmith with UBS.

First question is just on the same-store NOI growth for the quarter. It sounds like it was pleasantly -- you were pleasantly surprised with the upside to that number due driven in part by maybe upsides to the overread the net recovery. Is there anything in the backdrop that is driving those numbers maybe higher than you were expected? And maybe what would you kind of see as kind of the run rate number for the second quarter before it reaccelerates as the sale starts to kick in?

Yes. It was basically -- the outperformance was ratable between 3 things. It was bad debt, overage and also that real estate tax reversal. And again, as I said in my opening remarks, you'll see it moderate into the second quarter and then reaccelerate to the back half of the year. So to your earlier point, it was higher than we had anticipated.

And moving into the back 3 quarters, we still have opportunity to outperform on bad debt. We had 80 basis points -- I'm sorry, 75 basis points of bad debt in the quarter, we're still assuming 100. So there's still some things that we hope to be able to outperform in the same-store line as we move throughout the year.

For the record, I'm not complaining that the number is higher -- communicate...

You were not complaining. We were happy.

And then you highlighted a significant arbitrage between asset sale yields and your equity buyback yield. Stock has been doing well. Shares are up 8% this year, up 10% in the last month. So at what point would you think to slow or pause your repurchases and have to look into -- start to look at some other ways to reallocate from here?

Yes. I mean, obviously, as we alluded to, that is one of the variables as we move through the year. As we sit here today, we're still in a pretty good position as it relates to discount to NAV and core FFO yield relative to where we think we can sell assets that we would want to sell, but that's a moving target, and we'll see how that goes. It's just kind of one of those things it is what it is. I'll address it as it comes.

But I think right now, our strategy is, again, it's really real estate based and future growth based. So we will figure out how to best do that. If this isn't part of the plan, there are other things we can do. Obviously, last year, we did pay a special dividend, and we'll see how that goes in the future. But we'll just -- it's just too many variables to really say, Michael, where that's going to be tomorrow or a month from now. Heath, do you want to add to that?

That's great.

One moment for our next question. And that will come from the line of Floris Van Dijkum with Ladenburg Thalmann.

Just curious, the $36 million SNO pipeline, not all of it is same-store. I think only 84% of it is in the same-store pool. Could you maybe -- is that Legacy West that's not part of the same-store pool and maybe talk about the upside there and when that becomes -- when that will get recognized in same store?

It's really 2 elements there, Floris. One of it is Legacy West and we have an annual same-store concept. So Legacy West won't be in the same-store bucket that we've owned it for a full calendar year. So you will see it in 2027 as part of the same-store pool. The other piece that's not included in same store are the leases that we're executing aloud. So those are the 2 major components outside of same-store that comprise the same the signed-not-open pipeline.

Got it. And maybe as my follow-up question, I know you put a little thing out there about -- obviously, you've done a lot of anchor repositioning. You've added a number of new grocery concepts to your portfolio, a number of trader goes and a couple of Whole Foods you talk about the returns on capital there, presumably, that's the return on -- direct return on invested capital. Maybe talk about -- I'm curious to Centennial, we were out in Vegas with you guys on your 4 x 4, I can't remember what it was, or maybe it was NAREIT or maybe ICSC. But obviously, you repositioned one of those boxes into a Whole Foods. What is that done? What do you typically see in terms of the [indiscernible] effect to shop leasing and rents in your portfolio when you add one of those grocers to your property. And what would you say would be your fully adjusted return on capital if you were to include those things in there?

So Four's, there's no doubt that if we bring a Trader Joe's, we bring in Whole Foods, there's tremendous impact, and it's just that continual shop that occurs through the day. And -- both of those are tremendous drivers for us. So without question, when you have a new retailer or a new grocery like that, when new deals are going into committee, it helps tremendously plus that consistent shop helps drive additional sales throughout. So you have the cap rate compression component. And in addition, you have the lease up through new committee deals and you're driving sales inside your existing tenant base. So we always find a way to generate strong returns on these boxes. But if you carry that in, that factor grows incrementally to a number probably 2 to 3x more than what that would start off with in terms of like 200, 300 basis points. So it's wildly attractive for us to reposition like that.

Floris, the returns we're generating on capital are like in the 30% range. It depends on the deal. It could be 20%, it could be 40%. So -- but generally speaking, that's just return on capital spend for that retailer. We don't look at it relative to the -- how that might impact the adjacent space other than the ability, as Tom said, to drive a cap rate down by adding a grocer. And again, it's not all about that. It's about merchandising, too. When you look at adding how much we've done in terms of adding Trader Joe's and adding Whole Foods. Then the next thing you know the quality of the surrounding shop grows. And maybe that's why our ABR and our signed-not-open is $28, right, versus the portfolio average of $23.50, I guess, somewhere close to that. So I think it's definitely moving us in the right direction.

But by the way, your ABR growth even year-over-year is 6.5%, which is, I think, pretty juicy. I mean is that one of the highest growth that you've experienced?

Yes. I mean, it's been a pretty good growth rate over the last 5 years, actually. I don't have it in front of me, but 6.5% is pretty strong. And when you look at our ABR and you add into that our embedded rent growth and compare that to the peer group, it doesn't reflect where we trade. .

One moment for our next question. And that will come from the line of Michael Mueller with JPMorgan.

Maybe somewhat of a follow-up. But aside from general portfolio leasing capital, is there any visibility as to how much your annual development or major redevelopment investment could grow to over the next say, 3 to 5 years?

Michael, that's -- we don't generally, as you know, we don't throw out a number at the beginning of the year and say we're going to spend x million on development, redevelopment because we don't like people to chase the target versus chasing great opportunities. We've been pretty moderated on that in the last couple of years because of the significant spend that we've had in just the lease-up portfolio, which is obviously on a risk-adjusted basis, a much higher return. But as we look out over the next 3 years, that begins to slow down in terms of the internal lease-up capital because we're spending about a little over $100 million a year right now over the next 2.5 years.

And so when that moderates through this lease-up, as Heath said earlier, then all of a sudden, you have a lot more choices to deploy free cash flow. And we have a very long history in development and redevelopment, and we know how to do it, and we know how to judge risk. So I would say we will pivot more to that over the next couple of years, and you're going to see us do some smaller projects over the next couple of years. And I think our view is we'd rather have more projects of smaller size than a couple of huge ones. Right now, we have we have a large one in our development at One Loudoun. But frankly, it's very manageable against a $7 billion balance sheet. So long-winded way of saying, I think we can lean into that as we -- as the lease-up firms up over the next 2 years.

I would add, we shouldn't construe the lower development spend now with the development opportunity in the portfolio and lowest hanging fruits Loudoun. We still have 35 acres of land after we're done with this expansion. I think it includes another 1,100 multifamily units, another 1.7 million square feet of commercial. So we've got lots of opportunities in the portfolio, but as John said, the current priority right now is leasing. And when that spend starts to climb, we will -- that pipeline will pick up.

Loudoun is moving along very nicely in terms of the lease-up as well.

Got it. Okay. And second, I apologize if I missed this some place, but what's the range of cap rates for the 1031 in noncore sales?

We didn't have an exact cap rate range, Michael. But I think in terms of the 1031s, we continue to see opportunities for stuff that we want to own a very high-quality assets kind of like in the 8% to 9% unlevered IRR range. That's kind of what we're pursuing. And as we've said before, the type of stuff that we're selling is kind of in the 7% range depending on what it is. So that's where the trade is currently.

One moment for our next question. And that will come from the line of Alexander Goldfarb with Piper Sandler.

John, as we look at the SNO pipeline, pretty good ramp from now through '28. But just sort of curious, is there -- is there a way to accelerate this? Or is a lot of this just dependent on their people already in that space and you have to wait for those leases to expire? And then just the time it takes to move for the tenants to build out the space move in, just trying to understand any way to accelerate this timing versus it's structural, and there's really not much you can do because of all the moving pieces and perhaps existing leases that are already there.

Yes, Alex, it's -- obviously, we're always trying to accelerate the build-out of these spaces in the SNO pipeline. The majority of or a lot of this, I should say, a lot of this space was former anchor space, right? So that's going to have a longer gestation period. And as you know, those generally on average between lease signing and rent commencement could be 15 to 18 months, depends on what it is, depends on the level of construction. Also, don't forget that we have to deal with municipalities in multiple markets that slow you down despite the narrative that, that's changed. I don't think it's changed that much.

So yes, we like to accelerate that. We absolutely would. I mean, in one regard, you're just pulling forward something you know you're going to get, but NPV-wise, it makes sense. So we're pushing hard to accelerate, but I think it is what it is. And the good news is the demand is there, the snow is strong. And as I said earlier, if you look at the rents, it really reflects where we're going as a company. So that's a very positive thing to take out of that.

Alex, we're doing everything we can, whether it's permit expeditors starting drawing right out of a real estate committee. We try to pull every lever, and it's a huge objective around here to move those up.

Between you and John, Tom, I never have to worry about not moving quickly. The second question is on the heels of a quorum sale and you talked about more dispositions. Have you sort of outlined how much more of your portfolio you think -- I don't want to say it's a quorum like, but how much more doesn't fit as you think about where you want to take the portfolio? Is it still 10% more, 20% more? Or do you think that most of the lower-performing assets are gone, and now it's really sort of fine tuning based on opportunity? I'm just trying to figure out how much of sort of definitely, we got to sell versus, okay, these are potentials if we have opportunity for something accretive on the other side?

Yes. I mean I think, obviously, we do a robust analysis of the portfolio all the time. There definitely are assets that we believe don't fit the future KRG, as we talked about in the prepared remarks, we still have a goal of pushing our embedded rent growth to 2 versus where we are today. So there's work to do there. And these are -- some of these assets that we're selling, Alex, are high quality but lower growth, and there are a few like you mentioned quorum that just didn't fit at all.

And so there are a handful of properties like that probably the bigger number would be the properties that just don't have the growth profile that we're looking for. And that we also think are potentially a little more tethered to at-risk future tenant issues, right? So there is a portion there, but it's not a huge portion, and this is more methodical around the underlying future growth and real estate quality.

And I'll just add. I'm sorry, Alex, go ahead.

You go, and then I'll follow up.

I was going to say, when we started this disposition program is the best we could to ensure folks, this is not a multiyear program that's going to result in FFO dilution over 3, 4, 5 years. This was trying to get this done in '25 and '26. And as John said, there's a handful of left and we can get it done and we deploy the proceeds in a prudent manner, we will. But if we don't, that's okay, too. We're always sort of cycling out of 1, 2, 3 assets a year, and that's sort of the expectation, but I can get it done this year, we will.

One moment for our next question. And that will come from the line of Alec Feygin with Baird.

So one for me is about Legacy West. Curious how it's performed versus initial expectations? And if there's been any incremental opportunities with new tenants expanding from Legacy West to other assets in the portfolio?

Yes. Thank you for that. Legacy West has performed marvelously. It's been a great asset for us and our partner. We've made really significant progress in a short period of time on increasing rents, particularly on the retail front. As you followed, I'm sure we've announced lots of new leases that we've signed out since we bought it. And the mark-to-market on the rents has been exactly what we thought it would be when we acquired the center, the ABR and the retail component was like $65 a foot, and we're doing deals north of $100 a foot routinely. So that's spectacular. The multifamily side has picked up a lot in the last quarter quite well. The office is really strong. This is really high-quality office and a very sought after a little slice of a fabulous submarket in Plano. Obviously, AT&T has recently announced their global headquarters there, which is just one of a few major announcements that they've had in Plano.

So we feel really good about that. And in terms of transferring of opportunities to other parts of the portfolio, that was another reason that we wanted to add it to our portfolio. And when you now look at, for example, our top 3 lifestyle assets, South Lake, Legacy West and One Loudoun, you look at the NOI it's generating versus the -- I think it's about 15% of our ABR now just those 3 assets, but it's like 5% or 10% of our total GLA. It shows you the strength of that, and now we're doing deals across the portfolio with these high-quality tenants that now are very aware of KRG. So it's been a massive win for us, a massive win for our partner, and we're looking forward to trying to find more of those opportunities.

One moment for our next question. And that will come from the line of Craig Mailman with Citi.

Maybe I'll go back to your comment about the strength of the operating portfolio to maybe step away from cap rate cycle for a minute. Just as -- just looking at [ kind of the ] percent leased here over the last several quarters, Anchor obviously, has been doing well, but small shop, you briefly got over 92% and space down slightly below it. I mean, what's the time frame or the outlook internally to get this maybe the 93% plus? And what's been kind of the obstacle to ramp it as quickly as you ramped Anchor?

We don't guide to occupancy, Craig, but we have said publicly before that we think by the end of this year, we should be at occupancy levels that are approximating our historical highs right before COVID. But the good news is that we don't think that that's at all, and we've seen a lot of our peers sort of bus through their historical high watermarks, and we intend to as well. At the end of last quarter, we were at 92%, I think, in the small shop space, which was 40 basis points away from where we were at a historical high, took a seasonal step back but we can think we can lease way through 92.5% to maybe 93% or 94% of the small shop space.

On the anchor side, the step back at this quarter on a sequential basis was related to Value City. But again, we are busy backfilling those boxes and making great progress. So we're very, very bullish on our occupancy opportunity. And again, it is the largest and most meaningful opportunity in the peer set, right? So we've got -- as I said before in the past, everyone's on a peak on their occupancy gains in terms of their same-store. Ours is coming at a different time, and we're going to start seeing that in the back half of this year at '27.

And one other thing that we've been doing, Craig, is we've been very proactive in terms of trying to improve the mix. So if somebody is coming off of a nonoption scenario, I mean, what we'll do right away is we'll just say, "Hey, if we can do better, we're going to move them out and end up with a better quality tenant". So we've been doing a lot of that inside these numbers, and we'll continue to do it. But we're absolutely in and up with great decisions and great tenants.

Craig, I think you remember me talking a couple of years ago about the fact that we're never going to lease space quickly. We're going to lease space in a very, very diligent way, and that's part of what Tom means is that can we take deals maybe faster by accepting a tenant that we don't love or a rent structure that we don't love, particularly rent growth, yes, we could.

But if you look at our statistics relative to the peers, I mean, there's no doubt we were, in my opinion, a market leader in rent growth in the small shop space, right? And if you look at where we were in 2019 versus where we are today in 4% a year small shop growth, it's incredible in terms of the number of tenants we've been able to convert, it's to 4% or north of 3%, right?

So if you do a bunch of deals at 2% rent growth, you're going to do them faster. But if you're diligent about this and you end up with the right tenants that are growing at 3.5% to 4% in the shops, you're going to thank me for that in a couple of years.

No, that makes sense. I appreciate the detail there. And then maybe actually shifting back to the capital recycling. John, I think you said $750 million of kind of sales is what you guys have left. Is that right?

No. What I said was if you look at what we sold last year and then you combine what Heath pointed out that we are targeting to sell this year combined, that's like, I think, close to $750 million. That's what I said there. So we'll see if we hit that, that we still have to do another $130 million, I think, this year to get to that number. And that's just what we have identified, Craig.

Got you. I guess the gist of my question was going to be if you could snap your fingers today, kind of where would the mix of kind of neighborhood, regional power lifestyle ultimately be to where you feel like the risk-adjusted returns are maximized. And maybe as you look at what you would have to sell to get there, kind of how much of it is the more difficult bucket versus there's definitely pockets of capital that would want to -- would be sort of easy to mediate difficulty?

Yes. I mean, obviously, everybody kind of classifies what's power versus what's a community center, maybe a little differently. But if we -- if you look at how we have identified it in our investor presentation, our power is down 500 basis points and we're at about 19% of our portfolio relative to ABR is in power, we've said we'd like to get that down to I don't know, 12%, 13%, 14%. But there's some really high-quality assets in there.

And then if you look at our regional community versus our neighborhood community and shop and grocery, we'd like to pivot that more to the neighborhood side as well. So maybe the same amount, maybe another 5% to 10%. But really, in the end, it's not going to be about, oh, we've got this perfect composition on a percentage basis, it's going to be more about the embedded rent growth and the quality of the real estate, Craig. And again, I would challenge you to look at where our -- where we trade, where our ABR is, what our embedded rent growth is and what the higher multiple guys are at. And it is what it is. And as long as it's there, we'll continue to try to take advantage of that in the way that we can. Certainly, the private institutional investors are well aware of that and well aware of what's going on in our space.

And it's odd to me, but it is where it is, which I keep saying it's odd to me, but that we wouldn't actually, as a group, trade at a premium for liquidity, but it's actually vice versa. You're trading at a discount for the liquidity, which is quite odd. But at any rate, I do think there's a real opportunity there to improve that, Craig. But we're going to have to take it one step at a time. We've identified what we have and we'll see. We still got 3 quarters of the year left. And as Heath said, if those opportunities avail themselves, we'll try to take advantage of that. And then after the end of this year, then we would think, man, we have the portfolio composition is really good. And then again, as he said, we're just back to the normal paired trades, a couple of deals here, a couple of deals there.

I'm showing no further questions in the queue at this time. I would like to turn the call back over to Mr. John Kite for any closing remarks.

Well, I just again want to thank everyone for joining us today, and have a great day. .

This concludes today's program. Thank you all for participating. You may now disconnect.

Welcome to Citi's 2026 Global Property CEO Conference. I'm Craig Mailman with Citi Research. I'm pleased to have with us today, Kite Realty and CEO, John Kite. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions.

So John, I'm going to turn it over to you to introduce your company and team provide any opening remarks. Tell the audience the top reasons that investors should buy your stock today, and then we can jump into Q&A.

Thanks, Craig. Good morning, everybody. Yes, we're Kite Realty Group. We own about 170 open-air shopping centers throughout the country in 24 states, predominantly in the Sunbelt, about 2/3 of our income comes from the Sunbelt, our 2 biggest states are Florida and Texas. So we clearly have a strategy regarding the Sunbelt. Also, about 80% of our ABR comes from properties with a grocery component. So we're focused on that. We're currently just finishing the year at 95% leased, which is a strong increase from the last couple of quarters and our average base rent right now has grown to $23, which is a significant increase over the last couple of years.

So -- but basically, turning to the, I guess, the top 3 reasons from our perspective, it's pretty simple. It's really more categories. One is strategy; two is execution; and three, is value. And I would add balance sheet, so I'm going to go for ,so sorry. But let's talk about strategy. If you rewind the clock a year ago to this conference, Craig, when we were sitting here, you remember people talking about concern around us acquiring a really large asset, and it was weighing down. Why would we do that when we were trading where we're trading. And we were trying to explain that we were going to be prudent about how we would capitalize any large acquisition, and we ended up doing that with one of the best investors in the world and GIC as a partner. The deal was accretive. It made a lot of sense.

And at that same time, we made it clear that, that was going to be part of a strategy of us pivoting away from a portion of the portfolio that we viewed as quality but lower growth, larger power centers. And in the year that's gone by we've done exactly that. And we've reduced our exposure to power centers by almost, I think, 500 basis points, if I'm right, guys? 400, 500 basis points. Our growth rate has gone up in 2 years from 135 or 1.35% bumps to 1.8%, I believe, today. So the reason I'm talking about this is we have a very clear strategy, and we're executing on that strategy. If you look at the reduction in watch list tenants that's come about, that's been significant.

And as a product of all this activity, we bought back $300 million of stock in an accretive manner. So I think a lot of people talk about their frustrations and don't do anything about it. And I think that's part of the execution part that I brought up is, we are executing very clearly on that strategy. And I think we're going to continue to do that. And as we do that, the value proposition becomes more evident. And again, we didn't buy back the stock for some point in time spot exercise, we did it because of the strategy, right? It created that opportunity. So I think you'll see us continue to try to execute on that.

And then from a value perspective, that kind of is what it is. I mean, right now, we're at a period of time where the -- when you look at the implied cap rate, you look at the NOI yield, you look at a lot of different metrics, it screens quite attractively. And again, I think that will take care of itself if we continue to stick to the strategy and execute. And of course, the balance sheet is sacrosanct in protecting it. So as you see us execute on that strategy, you should not expect us to pressure the balance sheet in a material way. We ran this business in '08 and '09. We remember what that was like, you always have to be prepared, and that's why we have the balance sheet that we have. So that's all. It's a lot of rambling, but it's pretty simple. We're going to execute on that strategy.

No. And that was a good intro and a lot to unpack there. I guess maybe starting on the balance sheet because you guys are the lowest levered in the peer group. And I've talked with Heath about this more recently. At some point, the optimal leverage level, it feels like you guys are running too efficiently or I guess, less efficient, if you want to look at it that way. And I understand the hesitancy post GFC to run at a higher leverage level, but you're competing against private folks, you can run with more leverage. So I'm just kind of curious the thoughts internally the back and forth on would you ever bring it up to 6x for a short period of time to get a deal done with a pathway to bring it back down? Or is it you guys are just dogmatic, never going above 5x, 5.5x debt to EBITDA because you don't want to go down that road again?

It's a great question, Craig. And listen, we've been very consistent on saying that we want to run between 5x and 5.5x. As of late, we've been actually been running under that. And as John said, part of the ability to execute on this strategy is because of the strength of the balance sheet because we have that conviction that allows us to take some risk. And it's a risky proposition to do. I don't think it's so simple to sell assets and buy back stock, but there's a whole timing perspective there, and you can get caught either way. But if you had a good balance sheet, it's okay.

So I'm never going to see we're never going to run at above 5.5x. And if there was an instance where there was some compelling transaction that was going to temporarily drive us above it. We would do that, but I would also be able to articulate in a very clear manner exactly how it's going to get back down into the range. So the answer is yes. For a great opportunity, would we run it up a little bit? Sure. Would it stay there? Absolutely not.

I think there's a big difference between 6x and 5.5x, as an example. And I think 5.5x is you're at the top end of your -- of starting to lose flexibility. At 6x, I think you've lost flexibility because if you just -- things happen very fast. And everybody sits there and thinks they can unwind this back down. But when there's no liquidity, there's no liquidity. And so we're not going to put ourselves in that position. But I do think it's right that being where we are right now, even, again, executing on the strategy, maybe it goes up a little bit, maybe it goes up 20, 30 basis points over the next couple of quarters. You're still very low in the big scheme of things, and you still have flexibility. And that's why we -- if you go back to 2021, I mean, that's why we were able to be in a position to do the RPI merger, right? We're in the right place at the right time.

So again, I think we're very comfortable with it. The other thing to think about, Craig, is that when you look at the yield curve and you look at how you price acquisitions, it's not -- there's not enough juice in there right now. And it's a very awkward, it's an interesting thing when you look out in the future, where the yield curve is right now. So you have to assume that I'm going to -- you're going to be acquiring assets if you're just out buying you're going to be acquiring assets and you're going to have pressure on it right away just because of the curve. So I think we'll be smart and deploy where we get the highest return.

We saw one of your peers price at like the tightest spread that they've ever done. I mean where do you think, given your leverage profile and credit profile from the rating agencies, where do you think you can raise 10-year debt today or 7-year debt? Like what's the spectrum of all-in costs?

I mean I think it's somewhere between 95 and 105 over, right? That's going to be the we saw PECO printed at 97 basis points, that's what you're referring to. So I think we can price at or inside of them. So that's the current marker.

You guys have been active on the disposition side. You've been buying back some stock here. You talked about maybe another $500 million that could be put out in the market and sold longer term. Where -- how is the market -- the receptivity of that -- those assets to the market? Is it similar pricing to what you got on the last slug? And does that continue to embolden you to do that to buy back more stock? And then I'll leave it there. I'll follow up after.

Well, look, I think the market is very liquid. There is a real bid for retail across the spectrum of different product types. So yes, I think we think that the market in terms of those particular type of assets is the same as it was a couple of months ago, if not better, just because there's more capital and less product, which is really what drives value. And so yes, I think that's out there. I'm not -- we're not so certain in terms of what will happen and what the sizes would be, and it's more opportunistic than that. So we'll see where that goes. But I think from a strategy perspective, as I keep saying, that is part of the strategy to position ourselves to have a portfolio that's generating a higher growth rate and you do that by sometimes selling the ones that are pulling down the portfolio because of the growth rate. So yes, that's a possibility. I don't know about that number, but that's a possibility.

I would add, Craig, we said when we started this whole thing that there's -- for us to do another pool, there would have to be market demand for the assets we want to sell, and we'd have to be able to put the proceeds to use logically in a way that was sort of flat or minimally dilutive or accretive to earnings. So we're still not through deploying the proceeds from the first round of sales, right? So before we can start considering the second round, we've got to get this finished and deployed.

And then when we -- if we approach a second round, again, we've got to be able to have a clear path on how to deploy. So that's how we think about it. So it's kind of a -- you stair-step your way through this, which is why we did it in phases. So we don't want to get too stretched out as being a net seller. We don't want to get too stretched out and buying stock back that we haven't generated proceeds for yet. So it's a very methodical. We call it internally, it's threading a needle, so to speak, to get all this stuff done. So again, stay tuned on the second half of this.

Yes. It's a lot easier to be a seller than a buyer. I can tell you that.

And that's the thing, too, right? Like if you sell another pool, you have to kind of thread the needle, I guess, to use your phrase on maintaining as much proceeds as you can, right? You got -- you don't want to have to special it all out because that defeats the purpose versus being able to have the proceeds to buy back or kind of redeploy. So I mean, at this point, would you have enough uses to even outside of buybacks to make sense to do the next slug? Or as you said, I mean, could this be a '27 event as you guys work through the proceeds of the last round. I'm just trying to get a sense of expectations to management around everyone. We had talked about maybe doing the next pool, but could it be a longer period between this last one and maybe the next one?

Do you want to start?

Yes, listen, again, it's -- the period of time is all going to be driven by our ability to finish this first circuit out before we commence the next one. So again, it's a stair-step process. If we were to do a second pool, it would be a very similar exercise. It may not be the exact percentages in terms of buying back stock or doing 1031 acquisitions. But to your point, there would be gains associated with it. So we would have to be acquiring some assets. Listen, we're not completely opposed to a special dividend. It's a perfectly good use of capital, that would obviously be a dilutive event. But from an IRR perspective, it's better for investors if we're on a special dividend out earlier rather than later. So again, it's also market dependent, and we want to get through this first cycle first. And then we'll start thinking about the second piece.

One last one on this topic, then we'll move on my promise. But you guys talk about the impacts of the higher leverage. As you guys think about buybacks and the capacity or ultimate size of that, right, how do you think about the impacts on liquidity, the impact on where you are from an index weighting and what kind of pressure that could put on from the passes, like how -- what do you think the right number for buybacks is that's accretive. It shows that you guys have confidence in the company, but also doesn't trigger some technical issues that ultimately increase your cost of equity, which is counterproductive to what you guys are trying to do?

Well, I mean, I think at this point, we're not terribly concerned about that part of it in terms of the size. I mean we're not talking about half the business. So it's been relatively minor in terms of impact to liquidity and any availability to the indexes. So -- but of course, you have to think about that and certain investors frankly are very opposed to any shrinking of the company and certain investors are very engaged by the idea of you shrinking the company. So it's really, you can't please everybody all the time. And I think we just have to try to do the best we can to manage that.

But it's really -- it's -- again, I don't want to keep coming back to it. We have a clear understanding of where we want to end up. And so this isn't random. This is a very clear understanding of where we want to end up, and we're well on the way to that. And if we do another -- something of that nature, it would be with that strategy in mind. If we don't, it means that we feel like we can do other things to get growth. So the whole agenda here is to get the company -- to get the portfolio positioned to generate the kind of annual return vis-a-vis earnings growth and dividends that an investor will say that's worth owning, that's it. I mean we've got to position ourselves to be that person to be one of those companies that this company gets it. They know -- they take the cues from the capital markets. They know when to do the kind of things that we just did and when not to. That really is what comes -- it's our most important job of us sitting up here is how we allocate capital by far.

So Craig, I'll just notice that we have not seen any decline in our average trading volume. So it's not impacting the liquidity of the stock. And actually, our enterprise value today is higher than it was by virtue of the expansion of our multiple. So we haven't shrunk from an enterprise value perspective as well.

And I misled you. The was a question coming in on buybacks, so I'll ask that, and then there's other questions that are not buyback really, I promise. It's just do stock buybacks still make sense after the rise in the stock price?

Sorry, what was the last part?

Do stock buybacks still make sense after the rise in the stock price?

Yes. I mean, as we said, we're still analyzing that and the needle moves all the time, but we can certainly -- we think if we transact where we think we would transact on something that it would still make sense.

Yes. I mean, FFO yield right now is 8% still at $26, and we would be trading at cap rates well inside of that.

And then a couple of other questions here. Do you see a market that is shrinking or expanding? For some years, we have seen B or C assets struggle. So is there only space for new A class assets or B and C improving?

Well, I don't know about these ratings B and C. I mean our business is a little -- it sounds like a mall thing. In terms of open air, there's a place for each product type in my mind. And there's a place for all kinds of different types of real estate in open air. You can see it vis-a-vis the occupancy growth that's happened, the rent growth. I mean if you just look at our -- the one metric that we think about the most in terms of leasing spreads is our non-option renewals, and those have been double digit for a long time now. And that's a real change in our business, which indicates strength. A B asset may not be desired by a publicly traded company, but it will absolutely be desired by the right capital stack. That's all about how are you -- what kind of discounted cash flow analysis are you doing against that risk-adjusted return?

And that's why people want to own that stuff. It's pretty stable. It generates a nice yield and you've got positive arbitrage and leverage right now and a lot of liquidity. So I think it's a little different than like there's a cutoff somewhere.

And then to what, if any extent, will a desire to show accelerating earnings growth in 2027 factor into your capital allocation decisions in 2026?

We generally don't think that way. We generally don't short term think. We're trying to create a portfolio that has growth over the next 5 years, and I understand that we have a constituency of investors that do have to think that way. So we have to understand and respect and appreciate that. So we -- when we talk about the things that we're going to do, we always talk about it in terms of our goal in any sale and any distribution of those proceeds of that sale is always to do limited or no damage to that short-term growth rate.

But if we think that it's increasing the value of the business in the long term, sometimes you do have to do that. And we have done that in the past. Fortunately, what we just did the actual transactions were accretive. It's the deployment of the capital that takes time that money -- time hurts you. So I think we continue to look to do whatever we do in an accretive manner. But if it's not, it would be very minimal in terms of dilution. That would be the goal.

Do you want to add to that?

And then one more. Other than CPI built lease structure, are there any material opportunities to increase same-store NOI going forward, i.e., CapEx to improve quality, et cetera?

Second part of the question was what, Craig? Is there any meaningful opportunities to -- repeat the whole thing, sorry.

Other than CPI built lease structure, are there any material opportunities to increase same-store NOI going forward, i.e., CapEx to improve quality, et cetera.

Well, for us, it's been pushing on 4% bumps in our small shops and continuing to try to push on anchors. One opportunity for us is the continued conversion of our tenants to fixed CAM. Fixed CAM typically grows in excess of the base rent. So the more that we convert right now, we're at 60% or 65% leases, Tyler, at fixed CAM. So that's another opportunity for us to grow. There's another other income bucket, which we think is a real opportunity across Kite, especially as we're getting more scale in some of these higher touch assets like Legacy West and Southlake and having our Loudoun asset, having expansion come online. There's some real specialty leasing opportunities and sponsorship opportunities that we intend on taking advantage of.

So there's a variety of levers other than just escalators to pull to help us grow our same-store NOI. But part of it is the escalator, right? What's the bump? And as John mentioned, we can all be hyper focused on our near-term growth, but for us, it's all about the long-term growth. And the fact that we moved our escalators by 25 basis points in 2 years and we're sitting at 180. We've been very public about trying to move that to 200. Once we're at 200, even now, we're one of the highest in the peer group in terms of those bumps. And that's your starting point. So your growth -- that's the fundamental base net of our growth in any particular year, especially on same store is where you're starting point is, which is your escalator.

So that's one of the main drivers of this recycling activity that we spent so much time talking about earlier is to get that growth higher. And that's an exercise in addition by substraction. The assets we sold in the late fourth quarter of last year, those grew at 1.4%, right? And you saw that our same-store print in 2025 was assisted 30 basis points by getting rid of those assets, right? So again, this is simply a growth exercise for us.

What's the conversation with tenants? Listen, they've been able to push through some of the inflation to end consumers, but there's cost pressures on them as well. Like as you're putting forth these 3% to 4% escalators? Has there been any change more recently in the pushback on these? Or is it pretty similar to where it's been the last couple of years?

Well, I mean you've got 2 categories of tenants, right? You have anchor tenants and small shop tenants. I think Heath is referring to the small shop tenants when we're talking about that kind of growth. And the conversation is it's a supply and demand conversation. There's a lot of demand for the space. We want to make sure that the tenants that we're putting in are also accretive to the property, not just in rent, but in merchandising. We've got to merchandise these things. And that ultimately pays off long term versus making short-term decisions on who's going to pay the most rent.

On the anchor side, the conversation is much more difficult. We need to do a better job, frankly, across the Board. And we are pushing on that, and we are very focused on that at our organization. I think, unfortunately, sometimes people just want to fill space and they want to eliminate downtime. Frankly, it takes a long time to backfill these anchor spaces. So this is why some people negotiate a renewal that is a negative renewal versus trying to say, look, my space is more valuable than that. So I think it's -- there's an art to this as well, and it takes the industry understanding that what we own is very valuable, and it has to be priced that way. And I think we got very conditioned as an industry just to fill space, fill space, don't have a vacancy.

And we, on the other hand, felt very strongly that when these opportunities arise, when you do get back spaces vis-a-vis one of these bankruptcies, be very, very thoughtful about what you're doing, what the rents are going to be, who the merchandising is. So I think we, as an industry, just need to do better. I don't know how else to say that.

We had another question come in. Is it possible to charge additional CAM to tenants if actual CAM expense exceeds fixed CAM charges in a given year?

This doesn't sound like something that we should be answering.

It's called fixed CAM for a reason, so it's fixed. So listen, the good news on fixed CAM is, again, it's got a healthy growth rate typically associated with it, and it's only on things that we can control. So to the extent it's something an uncontrollable expense snow removal, for example, that's still on a pro rata basis. But things like power washing, striping, painting, those things that we control. So to the extent that we found ourselves at a particular property where actual expenses were looking like they may exceed the fixed CAM, we would just pull back. I mean COVID was a great example. And we actually learned some important lessons. In COVID, we were able to pull back some of these expenses. So rather than doing flowers 4 times a year, maybe you did them twice a year, right? So there's not a version, I think we're going to get stuck with fixed CAM and a fixed CAM -- from this point on, it's been a moneymaker for us.

I think said another way, fixed CAM obviously has a margin associated with it. But it is very productive for both sides. The retailers like to be able to know what the budget is. They like to be able to set the budget. The problem with doing triple-net deals that you come to the end of the year and then you spend the next 3 months figuring out what your actual expenses were, who owes who, that's just destructive to efficiency. So fixed CAM is quite efficient, and I think it's why it works, and we're way ahead of the game on that.

On tenant credit, any update on Container Store or any other tenants on the watch list, we should be -- or that are already embedded in guidance that is...

Yes. So on Container Store, and we stay very close with them. We're their largest landlords. So we have access to their management team and they've received some additional funding, and so we don't see them as any immediate risks. I will say that we have one of the container stores is rolling off the natural expiration this year, another one is rolling off the following year in 2027. So we see this currently as hopefully a natural wind down of the business. For better or for worse, there -- I think their business model is very dependent on the housing market, especially the existing housing product.

We're seeing some improvements there. Predictions are sort of mid-single-digit growth in existing sales. So hopefully, that helps their business. But again, we've got 7 locations on a path to reduce that hopefully over time, and it's 70 basis points total of exposure on an ABR basis.

And then shifting, we're asking some AI questions that go around, get a better sense of kind of who the REITs are partnering with and the level of investments so far. So I'm just kind of curious, what is the mix of build by or partnering in AI within Kite?

So what's the mix of building it internally versus partnering? I mean, right now, this is obviously fluid. And we have been utilizing existing product, but we've also been doing a fairly deep dive around our own ideas about what we can create internally. What we want to be cautious of is overspending, particularly overspending on something that has become -- what's the right word, has been leapfrogged the month later, but we are definitely engaged in this heavily. We actually have someone internally who is solely focused on figuring out where we're going to land here.

So I think it's a combination. I think for us, it's going to be a combination of things. But there's no question in our mind that there are lots of efficiencies that we can utilize, and there are also lots of opportunities for us to create revenue generators. So I think it's going to change our business. And frankly, in one sense, being in the fact that we're in the shopping center business, it might be good that we're a little bit analog as it relates to that, right? And so there's very -- it would be very difficult for AI to replicate what we do, but we want to utilize it, obviously, to make ourselves more efficient. Do you want to add to that?

No, I think -- it's a great question, Craig, because the current debate is, internally, do you wait for your existing providers to have solutions and rely on that [ SAS ] or do you build it yourself? I can tell you that if you dive in, it's very, very easy, as John mentioned, to have a spend -- create a product and what it's done, it's already obsolete. So the trick is just trying to make sure you're navigating it properly that you're looking at your spend, you have clear expectations on your return on your spend. So early innings, but obviously a huge conversation internally.

Is there one provider that you focus on more than others? Or?

Listen, we're a Salesforce shop, [ MRI Argus ] these are your typical providers that we rely heavily on to run our business, and they are all in various stages right now of improving their AI capabilities. So we'll see. We're a Microsoft shop as well. And so we've heavily leaned into Copilot, which obviously, there's wonderful things that can help with people's productivity there as well. So again, we're in the early innings, but it's an active live conversation. As John said, we appointed somebody internally to sort of shepherd this entire process. And so hopefully, we'll have some exciting things to talk about as the next few years unfold.

Do you -- as you guys anticipate, I mean, is this a head count reducer or just a productivity enhancer internally that, John, I know you mentioned it could be a revenue driver. I mean I assume you mean just by freeing up people's time to do more leasing or...

I mean, look, I think it's -- we don't know exactly where that's going to land. And I think ultimately, no one knows where that's going to land. And even some of the recent headlines in terms of staff reductions from some tech companies. I mean, when you go from 1,500 employees to 9,000 employees in 3 years, do you really know what you're doing, a separate topic. But I think as it relates to us, we're not afraid to say that if it's going to be able to enable us to do what we do better, that's -- and that's with less people, that's one thing. But I do think at this point, you probably have an opportunity to redistribute into more productive kind of endeavors. And I think that would be our goal.

And just in general, like how lean do you think you guys run over the last couple of years versus are there inefficiencies internally? We don't hear you guys talk about G&A a lot in terms of like need to cut it back. I'm just kind of curious from a headcount perspective?

Yes. I mean I think we talked about it a lot internally. I think we think we're very efficient. When you look at our G&A to revenue as a percentage compared to the peer group, we're at the lower end of that spectrum. When you look at our margins, more importantly, our NOI margin, our recovery ratios were at the highest levels. So operating efficiency doesn't get talked about enough, but it produces cash flow, so we should talk about it more. We're very focused on that. I think we can do better. I mean, I think there's no question that we can have a slightly sharper edge of the sword, but I think we're -- we've been very focused on that, and it seems like others don't talk about it much.

Any last questions before I move to rapid fires? All right. Same-store NOI for the retail group in 2027?

I don't know, 3.5.

And then more fewer the same amount of companies this time next year in the retail space?

Hopefully fewer.

Hopefully fewer. Perfect. Well, thank you guys so much.

Thank you.

Thanks, Craig. Have a great conference everybody.

Good day, and thank you for standing by. Welcome to the Kite Realty Group Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Bryan McCarthy, Senior Vice President, Corporate Marketing and Communications. Please go ahead.

Thank you, and good morning, everyone. Welcome to Kite Realty Group's Fourth Quarter Earnings Call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to today'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 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. [Operator Instructions]

I'll now turn the call over to John.

Okay. Thanks, Bryan, and thanks, everyone, for joining us today. The fourth quarter concluded a year of outstanding execution by the KRG team. The following highlights underscore the depth and impact of our operational and transactional accomplishments. We leased nearly 5 million square feet of space and our new leasing volume marked the highest annual volume in the company's history. We leveraged the strong demand for space in our high-quality portfolio to improve our lease structures, embed higher rent escalators and optimize our merchandising mix. We entered into two joint ventures with GIC totaling approximately $1 billion of gross asset value.

We sold approximately $622 million of noncore assets, which reduced our percentage of ABR coming from power centers by 400 basis points compared to last year and increased our exposure to neighborhood grocery, lifestyle and mixed-use assets. We allocated a portion of the proceeds of these sales to $300 million of stock buybacks at a significant discount to our consensus NAV. Most importantly, our total activity in the year was accretive on an annualized basis, and our net debt-to-EBITDA remains below our long-term target range of 5 to 5.5x. We have a relentless team that will capitalize on this momentum and accomplish even more in 2026 and beyond.

Turning to our results. Our leased rate increased by 120 basis points sequentially, driven by continued demand for space across our portfolio, particularly with anchor tenants. We signed leases with 9 anchor tenants in the fourth quarter and a total of 28 during 2025, representing approximately 645,000 square feet. The anchor leasing in 2025 was done at a 24% blended comparable cash spreads, 26% gross returns on capital and included names like Whole Foods, Trader Joe's, Crate & Barrel, Nordstrom Rack, Sierra, HomeSense, Ulta and Barnes & Noble. While our box inventory is being absorbed, the anchor demand remains unabated, which allows us to drive better lease terms such as reducing the number of fixed options, limiting use restrictions and incorporating more favorable co-tenancy clauses.

Our small shop lease rate increased 50 basis points sequentially and 110 basis points year-over-year. We've been on a steady upward trajectory over the last 5 years. And over the course of 2026, we intend to drive our shop lease rate to new heights. Our focus continues to be on higher long-term organic growth, an effort that will pay dividends long after our sizable signed-not-open pipeline normalizes. The embedded rent bumps for the portfolio are 180 basis points, a nearly 25 basis point increase from the first quarter of 2024. By shedding lower growth assets and negotiating better annual bumps, we're well on our way to hitting our goal of 200 basis points of embedded escalators in the portfolio.

Turning to development. Our activities at One Loudoun. It's important to appreciate that this is not a run-of-the-mill expansion project. We're adding 86,000 square feet of retail space, 33,000 square feet of highly amenitized office space, 169 full-service hotel rooms and 429 additional luxury multifamily units to a premier mixed-use asset located in the wealthiest county in the country. The retail portion of the expansion is currently 65% leased to names like Arhaus, Williams-Sonoma, Pottery Barn, Tatte and Alo Yoga. In 2025, we took a series of critical steps to transform our portfolio and refine our investment thesis. Together with a world-class partner, we acquired a landmark property in Legacy West and contributed three larger format well-located assets to a second joint venture.

Legacy West has been outperforming our original underwriting. And since our acquisition last April, we've signed or opened names like Watches of Switzerland, Ralph Lauren, the Henry Buck Mason, Seventh Avenue and Adidas. As one of the elite open-air assets in the country, Legacy West has opened the door to a new tier of luxury tenant relationships, and we see a clear opportunity to replicate that success across the select -- across select assets in our portfolio. We sold 13 properties and 2 land parcels in 2025 for approximately $622 million. The disposition pool was primarily composed of larger format assets with embedded rent escalators significantly below our portfolio average. The sales also allowed us to shed a total of 21 watch list anchor boxes, representing approximately 578,000 square feet of space.

At the beginning of 2025, we indicated there would be an acceleration in our capital recycling activities, and that's exactly what happened. In totality, we were a significant net seller in 2025. Based on where our stock has traded, we leaned into the capital allocation queues by selling larger format, lower growth assets into the private market at yields well inside of our implied cap rate. We redeployed the majority of the proceeds into $300 million of share repurchases at a 9% Core FFO yield. In summary, we took advantage of a clear yield arbitrage opportunity, while at the same time, derisking our cash flows and enhancing the growth rate of our portfolio.

Looking into 2026, the midpoint of our guidance has limited transaction activity that Heath will address in a moment. As for any transactional activity beyond that, we have previously discussed a possible second round of larger format noncore dispositions to further elevate the quality of our portfolio. Any such recycling would be pursued opportunistically so long as it's minimally disruptive to earnings and otherwise consistent with the objective of last year's dispositions. As always, I want to thank the KRG team for their continued dedication and considerable efforts to deliver strong results and execute on our strategy.

I'll now turn the call over to Heath to discuss the details of Q4 and 2026 guidance.

Thank you, and good morning. 2025 was an extremely productive year, and we're taking that same drive and conviction straight into 2026. As a team, we are focused on converting momentum into results by further optimizing and derisking the portfolio, upgrading our operating platform, embracing technological change and staying ahead of emerging trends.

Turning to our results. KRG earned $0.52 of NAREIT FFO per share and $0.51 of Core FFO per share in the fourth quarter. For the full year, KRG earned $2.10 of NAREIT FFO per share and $2.06 of Core FFO per share. Our core FFO per share grew 3.5% year-over-year. And as a reminder, Core FFO focuses on the fundamental operating results and serves to eliminate the noncash noise. For the full year, same-property NOI growth was 2.9%. Take note that our full year 2025 same-property NOI result is 115 basis points above our original guidance. And over the past 4 years, our same-property NOI growth has averaged 4%. When accounting for our disposition activity in the fourth quarter, our signed-not-open pipeline grew $4 million sequentially to $37 million of NOI, and the gap between leased and occupied space widened to 340 basis points.

During the quarter, we executed 61 new leases that added approximately $14 million of NOI, which more than offset the 61 tenant openings represented approximately $10 million of NOI. Importantly, about 70% of that signed-not-open NOI is expected to come online in 2026. For 2026, we are establishing our NAREIT and Core FFO per share guidance ranges between $2.06 and $2.12. Included at the midpoint of our guidance are the following assumptions: Same Property NOI growth of 2.75%, a bad debt reserve of 100 basis points of total revenues and interest expense net of interest income of $121 million. The midpoint of our guidance also assumes approximately $110 million of 1031 acquisitions in the first half of the year, offset by approximately $115 million of noncore asset sales later in 2026.

I encourage all of you to review Page 5 of our investor presentation, which bridges 2025 NAREIT and Core FFO results to the midpoint of our 2026 guidance. Our Same Property NOI cadence for 2026 will be the opposite of 2025, and we anticipate lower growth in the first half, followed by acceleration in the back half of the year and into 2027. The cadence is primarily due to bankruptcy rents we collected in the first 2 quarters of 2025 and the impact of our signed-not-open pipeline in the second half of 2026. Interest expense will be roughly $0.03 tailwind into 2026, driven by lower line of credit balances following last year's transactional activity and higher capitalized interest as we accelerate development activities at One Loudoun.

Our recurring but unpredictable items are serving as a $0.04 headwind into 2026 guidance. Termination fees were a historical outlier in the first 2 quarters of 2025. Our philosophy with establishing guidance is always to set expectations based on things we have clear visibility to while maintaining a pathway to outperformance. While our 2025 allocation activity is expected to be accretive on a full year basis, the timing of dispositions and associated deployment of proceeds are acting as a $0.02 headwind into 2026. You will note that our NAREIT and Core FFO per share guidance is the same for 2026. This reflects the continued wind down of noncash items stemming from our 2021 merger, including straight-line rent, lease intangibles and debt marks, resulting in a more balanced noncash profile for the year.

We've consistently emphasized that the strength of our balance sheet provides us with tremendous flexibility in how we allocate capital. The recent dispositions and share repurchase activity are clear examples of that flexibility in action. Our balance sheet remains one of the strongest in the sectors with over $1 billion in liquidity and a net debt-to-EBITDA of 4.9x, giving us the capacity to pursue opportunities that enhance shareholder value while maintaining our financial discipline. We remain firmly committed to our long-term leverage target of low to mid-5x net debt-to-EBITDA, which continues to position us well for both stability and growth.

Thank you to our team for their relentless effort to deliver strong results and create long-term value for all our stakeholders. We look forward to seeing many of you over the next several weeks in much warmer weather.

Operator, this concludes our prepared remarks. Please open the line for questions.

[Operator Instructions] Our first question comes from the line of Cooper Clark with Wells Fargo.

I just wanted to touch on some of the noncore dispositions assumed in guidance. Just curious if you could provide expectations on pricing there and whether or not it's fair to assume that's mostly comprised of power centers.

Yes. I mean I think you can assume that it's similar to what we've done in 2025. And it's obviously, it hasn't happened yet. So we're not going to give too much color on where we assume the cap rates to be. But I think overall, the market continues to be very healthy, and there's a strong demand for that type of product.

Great. And then on the 1031 acquisitions, just curious what type of product you're looking at today and how we should be thinking about the buybacks on different types of assets you're looking in the market?

Yes. I think, again, in general, in terms of what we're looking to execute on, we continue to want to execute on this idea of moving away from the larger format centers and into more of the neighborhood grocery and lifestyle mixed-use, again with a focus on embedded rent growth. But also some of this activity is based on activity that we had at the end of '25 relative to gains and losses, right? So we have to be focused on this idea of trying to harvest some losses to offset some gains. So it's not simply just about product type. There's a little bit of that going on as well. But in general, the theme is that we want to continue to move the portfolio in a direction that will grow our embedded rent growth. And as you know, getting up to -- growing it by 25 basis points in a year up to almost 1.8%, we're closing in on this goal of 2% embedded rent growth. That's just a significant driver for us in the future. So it's kind of a combination of all those things. Heath, you got anything?

Yes. I would just add, Cooper, that the acquisitions and the dispositions are really -- they're accomplishing the same thing. So the 1031 acquisitions are really just shielding gains from last year and the $115 million of assets, they have embedded losses. Again, achieving the same thing, which is managing through our taxes and also at the same time, derisking the portfolio and improving the overall quality. So different sides of the same coin, so to speak.

Our next question comes from the line of Andrew Reale with Bank of America.

First, I was just hoping maybe you could speak to some of the key swing factors that would drive you towards the higher or lower end of the guidance range. And then specifically for the SNO pipeline, how much of that timing is...

Go ahead. I'm sorry. That's your question?

Sure. Just with the SNO pipeline, how much of that timing is within your control? And what levers could you pull to potentially accelerate some of that commencement?

So I'll answer the first question, which is what's going to put you at the high end and the low end of your range. So listen, on the same-store side, it's the typical suspects. It's lower bad debt, RCDs, rent commencement dates, retention, higher overage, those are your typical same-store things that put you in the higher or low end of your range. And then below same-store, as we talked about, there's recurring and unpredictable items, term fees, land sales, fee income, et cetera. As we mentioned, that's a $0.04 drag this year, but we only put into guidance things that we have visibility on, so that number could grow over the course of the year.

Timing of the transactional activity that we just mentioned could also impact the higher or lower end of the range. That's again, that's deployment of the sale proceeds, when we're going to get those 1031 acquisitions done, when do we sell the other $115 million. And finally, as John mentioned on the call, are we doing the second pot of dispositions? Again, that's TBD. But those are all sort of the main broad factors that really sort of bring us high or low on the range.

And then, Tom, do you want to discuss what we can control on the RCDs?

Yes. From an RCD standpoint, I think one of the most important factors are is once we're at a comfortable state of moving forward, getting drawing started, doing everything we can from a permitting standpoint or situations require multiple permits, we consolidate those to avoid delays. So we have 4 or 5 tools that we can take off on to improve those, and we're in the midst of really tackling those right now.

Okay. That's helpful. And then if I could just follow up on the recurring but unpredictable items. I know you mentioned the $0.04 headwind this year. But could you just quantify what's currently baked into the assumption as it relates to term fees or any land sale gains or anything else?

Yes. Just to put context, we had around $21.5 million of recurring but unpredictables last year, and we're just under $13 million this year, and it's spread across typical suspects, term fees, land sale gains and development fees. So again, that's what we have purview into right now. And we only put things in that we have really, really great visibility to. And to the extent we're able to get more of that over the course of the year, that will be a source of outperformance. I will observe, however, though, what we have in the model right now is pretty much a run rate. So if you look at between '23, '24 and '25, it's running around $13 million a year. So that's kind of a midpoint, I think. So we'll see. Again, it's a lot of time in front of us.

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I just wanted to follow up on capital recycling and some of the transaction commentary. Heath, in terms of the $115 million of dispositions assumed in guidance and the 1031 investments you plan to make, is there any update on progress to dispose of City Center that you can discuss? And how should we think about deploying the balance of the cash and restrict the cash on the balance sheet?

Yes. So great question, Todd. So on the $115 million we're selling, all of it's in process. As you know, we were forced to remarket City Center as we were cleaning up some tenant issues. So that one is still actively in the process. On the weighted average transactional date for that group of assets is August, so it's going to be later in the year. Then in terms of how we're applying the proceeds, if you looked at our balance sheet, Todd, you'll see that we had $440 million sort of in restricted cash. That was all sitting in 1031 escrows, but that's obviously not all earmarked for 1031s.

So going through it, we paid about $30 million for that special dividend at the beginning of the year. We got another $50 million of stock back in January. We paid down $85 million on the line of credit. So now the line of credit is sitting at 0. It was $85 million at the end of the year. And then there's 1031 acquisitions. And then the balance of it is going to be a combination of debt reduction and share repurchases. So that's how we intend on deploying the full proceeds.

Okay. That's helpful. And then maybe, John, can you just maybe speak to the broader acquisition environment today in terms of the product that you're seeing. We've seen a lot of activity pick up. And I'm curious how that sort of fits into the company's strategy for acquisitions just moving forward here and what your appetite is like for new investments as we think about '26, '27?

Yes. Todd, as you know, I mean, I think the market is definitely active. There's a strong bid for kind of retail across the board. Each component of retail has a strong bid actually. So it makes the job a little harder in terms of finding the things that we think match. That being said, we're actively underwriting deals right now. As Heath said, we do intend on executing on at least $110 million of acquisitions. We have 2 or 3, 4 opportunities that we are well on the way of underwriting and analyzing. So I think that we feel good about that execution. I think we continue to want to find things that we think we can add value to and things that have a better embedded rent growth profile and also, again, derisking exposure to certain large anchor tenants that we just want to derisk our exposure to.

So this isn't a 1-year thing. It's a multiyear process that we're moving towards. And I think we're off to a fabulous start. And I think we can continue to do that. But we have to be smart, we have to be agile, we have to be looking all over the place, and we're doing that. We're in great markets, so we can add to the markets that we're already in, which is generally what we're looking at. So I feel very good about it. But again, I mean, the more and more people that want to be in the space, the more difficult it is to try to make numbers work. But that's our job, and that's what we'll do.

Our next question comes from the line of Craig Mailman with Citi.

Just Heath, on the 100 basis points of bad debt expectations, I know, John, I think you said with the dispos, you got really 21 watch list spaces. I'm just kind of curious, as you guys kind of sold off the noncore, how much of that 100 basis points is kind of earmarked versus just a cushion and kind of walk through maybe some of the watch list tenants that may be on there?

Thanks for the question, Craig. So as you know, our typical run rate is somewhere between 75 and 100 basis points of revenue. And also this year, we don't have a separate anchor reserve. So we decided that 100 basis points was an appropriate level, mostly probably due to The Container Store. So we'll see how that shakes out. But we're having that one. So we're starting at a little bit of a higher level. Last year, our general reserve was 85 basis points. So rather than separating it out, we just said 100 basis points, general reserve for 2026.

Yes, Craig, I mean, it's like every time at this time of year, I think we get this question every year at this call. It's just so early. There's so many variables. We feel like 100 at the midpoint is a nice place to start. Let's see how we go through the year. There's multiple retailers that have lots of things going on. So this is the right way to go about it. I do think overall, we are trending in a good direction as it relates to our portfolio in particular, but also just the overall landscape where, I've seen people write about retailers that were previously on watch lists that are not on watch list and things like that. So I think we feel good about it, but this is a good place to start, and I think it's prudent.

That's helpful. And then just second, just on the asset recycling capital deployment side of things, you guys were very active. It seems like selling stuff is much easier than buying things these days given the transaction environment out there. But I'm just kind of curious, it just feels like there's diminishing returns on buybacks and you guys are in probably better shape than other REITs that have tried it given your leverage levels. But I'm just kind of curious, you guys have traded at a persistent discount to peers. And it feels like maybe the route is figure out a way to drive earnings growth that exceeds peers versus setting up the portfolio for longer-term NAV.

So I'm just kind of curious the appetite here, 5x, you guys are below the low end of your debt-to-EBITDA range. But just pushing that leverage, and I'm not saying to go to 7x, but maybe something a little bit more efficient from putting capital out the door and driving earnings rather than continue to run at low leverage and kind of putting yourself at a disadvantage relative to private peers who run at higher leverage. I don't know, could that make it easier to buy things and drive earnings growth and differentiate yourselves that way versus kind of the shrink to grow down the road strategy you guys are doing now?

Yes. I mean I think there's a lot to unpack there, Craig. But bottom line, when we started the year in 2025, we were very clear about the strategy, right? And the strategy has a lot to do with not thinking about the next 4 or 5 quarters, but thinking about the next 4 or 5 years. Sometimes people don't like to hear that. We're in a great business that is going to get stronger, and we're positioning the portfolio to take advantage of that and actually in the future, be in a better growth profile. So that's kind of the work that we did, and we were able to do that. I mean we -- if you look at what we did in the year, a lot of people talk about things that they might do or want to do, and they complain about where their stock price is and where assets trade, but yet they don't really act on it.

And I think the reality is we acted on something that was a very clear arbitrage, buying back 6% of our stock at numbers that the source was provided at yields that were very attractive relative to the yields that, as we said, the Core FFO yield of the stock was at 9% at those -- at that time. So bottom line, I think we feel very good about how we executed that. Obviously, as we continue to move down the road, our goal is to grow. Our goal to grow the portfolio, grow cash flow. And remember, we're growing cash flow per share. We're not -- we're very focused on that. So I think over time, these things will come together, and there's still more work to be done. There's a lot of wood to be chopped, and we continue to do that.

We're extremely happy that we were able to do a massive amount of transactional activity and yet do have a situation where all of it ultimately was accretive without the time associated with the redeployment. So I think we -- I understand what you're saying and the idea of taking leverage up, we've been around a long time. We've seen a lot of different cycles and running a business lower leverage is a smart thing to do. Obviously, we're now at, as you said, below where we intend on running. And it also has a lot to do with where things can trade, where interest rates are. So over time, I think that will also come to us. I think it will -- I think there'll be a better situation for us to deploy capital more accretively just in straight-up acquisitions. But right now, that's more challenging. So I think we'll continue -- that's a long way of saying, we love running a company with low leverage that gives us opportunities to take advantage of that down the road like we've done in the past. And so I think you'll see us take advantage of that great balance sheet. But right now, we're positioning ourselves to do that.

I'd also add, if you think about it on a relative basis, why did we underperform in terms of growth? Well, a lot of it was because of the credit watch list and the credit losses. And so the exercise we're doing, we're addressing the fundamental building blocks of growth, which is derisking the cash flow, which means making sure that we don't have fallout in a disproportionate way and also improving our embedded bumps by shedding assets that have lower bumps. So while, yes, we could lever up and we could create growth that way, I think it's addressing the fundamental issue first and getting the portfolio in a position where we can outperform growth.

And as John said, it's not about this year or next year or it's about the next 5 years. We're trying to make changes that are going to be sticky because at the end of the day, all the occupancy growth at some point, everyone is going to stabilize and we'd like to be in a position, as John said, that we have 200 basis points of embedded escalators. We're starting at a place ahead of many of our peers. So that's the whole point of the exercise. It is growth.

Our next question comes from the line of Michael Goldsmith with UBS.

Heath, quick question just about the flow-through from Same Property NOI to the FFO growth. It seems like you're not getting that good flow-through here, and you're also getting a benefit of interest expense of $0.03. So can you just walk through the factors that are limiting the flow-through? And then does that get better in the out years?

Yes. I think the two big items that are limiting the flow-through are really the recurring but unpredictables. Again, that's a $0.04 headwind into this year. And as I mentioned before, we're starting with a number, that number could grow over the course of the year. And then the second thing, -- and good news about this one is really going to diminish is the $0.035 of noncash still that's that merger burn-off of noncash items. And illustrative is the fact that our Core and our NAREIT FFO are on top of each other this year. It just shows you that, that's now normalizing. So that's been a consistent theme over the last 3 years. In fact, a total of $0.135 cumulatively over the past 3 years has really impacted our earnings growth. So those are the two drivers of why it's not flowing through on to the FFO line.

And then just a follow-up. You've been buying back stock at $23 in the fourth quarter and towards the end of the quarter, closer to $24, stocks now moving a bit higher. Like how are you thinking about share repurchases? What's the right level? At what point do you move away from that into some other areas where there are other capital allocation options where they may be more accretive?

Yes. I mean there's obviously a lot that goes into the analysis of the stock buybacks. We still believe even wherever we are right this second, we're clearly well below consensus NAV. A lot has to do with what is the source of that buyback in terms of the core yield on that, if there's more asset sales that would be funding that. As Heath said that we still have some deployment of the $400-plus million that we had at the end of the year that needs to be deployed, so I mean, we analyze it in multiple ways. And again, we're trying to do all this and maintain a really healthy balance sheet and not have any material issues relative to earnings.

So yes, it's not a simple exercise, but I think we can execute on it. And again, we still trade at a significant discount even as we sit here today. So I think, as we said, we want to take advantage of any arbitrage opportunities that we can to position the company to grow further in the future. So that's really what this is all about. It's not -- so not a one-dimensional exercise. There's a lot going on here and we have a really strong belief and a real conviction that our portfolio will perform in the future.

Our next question comes from the line of Floris Van Dijkum with Ladenburg.

I'm glad the capital allocation topic is being discussed widely. I'm just curious, I note that your -- you sold a bunch of assets in the fourth quarter, yet your SNO pipeline hasn't really moved. Maybe if you can talk a little bit about where that SNO is located? And how does that impact potential sales? Because presumably, you wouldn't want to sell assets until the rents are in place.

Floris, so, a good question. For the assets we sold, there was about $1.6 million of signed-not-open NOI that we sold. And if you heard my remarks, I said that we actually increased it by $4 million once you take those dispositions into account. So it was a really healthy growth. And as we mentioned, we expect the SNO pipeline to remain elevated. We expect the gap between our leased and occupied rates to remain elevated throughout the course of the year as we continue to lease up.

Yes. I think, Floris, in terms of this idea that would you not sell things that still had upside. I mean you got to analyze each individual deal, the quality of the asset. Do we want to spend the capital on a particular box deal and how do we -- what are the returns on that deal versus the returns that we generate by selling. So those are the things you look at as it relates to that.

Maybe I note that you haven't sold your two big land parcels yet, Carillon and Ontario. I know that Ontario was going through an entitlement process. Could you maybe update us on where that entitlement process stands today?

Sure. Tom, do you want to hit that?

Yes. So the entitlement process is well underway. It is lengthy for us. It's a process that will take us into '27. But all things are moving in the right direction. We seem to have a great backup from the county and the need for housing. So we're moving in the right direction, but it is a very timely process.

And then in terms of -- that's the California asset. Same thing in Carillon. We're pursuing the sale of that land. It is what it is. I mean we -- these things take time. Obviously, there's no NOI associated with that. So we want to maximize the value as opposed to rush through it. But both of these things over time will happen, and they are large parcels of land that can generate some -- a good source for us.

Lots of work to do within the counties for sure.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

John, when you were talking about the dispositions this year and presumably stock buybacks, and you mentioned you want to focus on minimizing earnings disruption. Were those comments specifically on the actual earnings this year? Or you were talking more on an annualized effect?

But, I think I'm referring to both. I mean it's what we did in 2025, and it's what we're thinking about in 2026 as we look at what we might do in 2026, Alex. So we're always analyzing that. And our goal is to, as I said, is we want to have minimal disruption and then we want to have maximum future growth.

Okay. And then the same goes for...

One last thing. As John mentioned, on an annualized basis, all this stuff is accretive. If you look at our bridge, you'll see that based on the timing of when we sold it and when we're deploying the proceeds, it was a $0.02 drag into 2026, but that drag obviously will disappear in 2027 as the results are annualized.

Okay. No, that's helpful. The second question is, I understand your rationale for selling the larger format centers. You said you want to reduce some of the certain anchor exposure. On the other hand, a number of your peers have been commenting that they've seen better acquisition opportunities in the larger format. So would you just say it's sort of the randomness like the particular centers that you own that are on the larger side, those particular ones have issues that you want to sell, but you're still amenable to buying larger format? Or are you saying that, hey, we've owned a variety of different size centers and ultimately, we believe that the neighborhood and the lifestyle are the best. And even though others may be going for larger format for the Kite portfolio, you don't see the larger format -- I'm trying to understand if it's the format or just the particular exposure of your tenancy that's driving the larger dispositions.

I mean, I think it's more complicated than that. I think each individual company has their own goals and expectations. I think what we've said is we clearly want to reduce the total exposure to that larger power center portfolio. We didn't say we wanted to eliminate it. So we're just -- we're reducing that percentage and growing the percentage in grocery, lifestyle mixed-use, and it is paying dividends in terms of our cash flow growth for doing that. It doesn't mean that a large-format center can't be a great center. It all comes down to what your cost of capital is and what your yield is and what your credit risk is because we discount the cash flow when we look at these things.

So again, each company has their own independent goals and objectives. In our particular case, we're very focused in on this idea that if we get to 2% plus embedded rent growth in the portfolio, that is going to pay dividends for us in the future versus the assets that we sold, which were closer to 1.4% embedded growth and are exposed to a portfolio of tenants that have a higher degree of credit risk. That's it, Alex. It's really -- it isn't -- and as you know, you've been around us long enough, we're real estate people. Great real estate will overcome, right? Great real estate will overcome whatever potential mistake you made on top of it. So it's really about us owning great real estate and pivoted a bit in that other direction of where we think we can get higher growth.

Our next question comes from the line of R.J. Milligan with Raymond James.

One specific question, Heath, I was wondering if you could just sort of walk through the components of the timing of the net capital allocation activity of negative $0.02. I guess my question is, if you bought back stock early this year, you're going to be buying more assets earlier in the year, selling assets later in the year, I would think that, that would have a positive impact?

Well, so yes, we bought back $300 million, $250 million in 2025 and then $50 million in 2026. We also utilized the line in 2025, which added some interest expense. And also, there's more proceeds to deploy. As we discussed, there's another $110 million of 1031 acquisitions, which is not going to happen until the middle of the year. So when you put all that into the blender, R.J., timing-wise, it's just dilutive going into 2026. And if you think about it, we had the disposition NOI for almost all of 2025, but that's immediately being taken out. So it's not there at all for 2026. And so backfilling that is the accretion from the share buybacks, but we also have to get these 1031s done.

Okay. And then just bigger picture, I wanted to follow up on -- and I think within guidance, it's just over $100 million of disposition activity and it looks like just from where we stand today that the 2027 is shaping up to be a pretty good year for actual earnings growth. You're going to remove the noncash headwinds. You probably have a more reasonable year-over-year comp for lease termination fee income. I'm just curious if -- is there a possibility like, one, what is the appetite to sell additional assets? Is there a possibility we get to the second half of the year and we see a larger transaction of dispositions that then would negatively impact earnings growth in '27?

Sure, R.J. I mean, obviously, it's too early for us to indicate what we think '27 is. That being said, I get your question. And we are going to have to see how the year plays out relative to the acquisition disposition kind of plans. There is -- as we -- as I mentioned in my prepared remarks, we have been clear that there's a possibility that we would look at another larger kind of transaction in terms of selling larger format centers at what we think are very attractive yields and redeploying that capital in an accretive or very minimally dilutive way as we did this year. It would need to fall in those kind of -- in that bucket.

And again, if we were to do something like that, it would be because we think that it is going to significantly increase our kind of cruising speed as people like to say, relative to our embedded rent growth. Our desire is obviously to grow earnings and grow earnings with a better portfolio and not necessarily just better, but one that is positioned to take advantage of the retail environment is a better way of saying that. So I think it's too early to say what '27 looks like, but those are the components of what we're looking at.

Our next question comes from the line of Hongliang Zhang with JPMorgan.

I guess, I just want to clarify in the $115 million of noncore assets you expect to sell later this year, does that include City Center? And if so, what's the -- could you remind us what the rough dollar amount you expect to get from the disposition?

It does include City Center, and it's mid-50s.

Mid-50s, got it. And then I guess you talked about the potential of selling a second bucket of dispositions. Is there any color you can provide about just the magnitude compared to the dispositions you've already sold last year?

No, I don't -- I think that what we're saying is we're studying the potential of something similar to we did last year, not necessarily in magnitude of total size, more so in the type of product that we would be looking to sell. And again, as Heath said, we're still going through some of the tax kind of harvesting of losses that we want to get for against what we've already done. So I think it's going to depend on how this plays out. But obviously, if the opportunity arises for us to do something similar in a similar fashion that can ultimately be accretive to the value of the business, then we'll look at that.

I'll also add, if you think about it, our current FFO yield, even at the price where it is now is still 8%, which is going to be wide of where we can sell assets. So if you're looking at the capital allocation queues, and John mentioned this in his comments, we're viewing this as an opportunity to upgrade the quality of the portfolio while doing minimal -- either accretive or minimally dilutive to earnings. So it's almost incumbent upon us to consider this again this year. So again, we'll see how it pans out, but we'll let you know more as the year progresses.

Our next question comes from the line of Wesley Golladay with Baird.

I want to go back to the comment you had, John, about getting better terms on the anchor leasing, but you're also -- with that rate, but also you're getting no co-tenancy and I'm just wondering if that's going to kick off any redevelopments for you on the retail side?

Yes. Hey, Wes, I think what we're saying is, overall, we're in a position of strength, and we're doing everything we can to improve a myriad of different deal terms. You don't eliminate all these things overnight. For example, we didn't say we're eliminating co-tenancy. We're saying we're improving it. We're improving our rent growth. We're improving the terms in terms of obviously looking to limit future fixed options, which we've been doing. But if you just look at what we did in 1 year relative to the peer group to grow our embedded rent growth, to close to 1.8%, I think that tells the story for the future. And that's really what this is all about. The fact that we were able to do that and buy back 6% of our shares at a significant discount to value, we had a hell of a productive year. And we laid out a business plan in the beginning of last year, which we were very clear with the Street, and we executed on that plan. And that's what we intend to keep doing.

So I think -- and again, the backdrop of the business is strong. So we -- you have to take advantage of these things because things move around, things change, and when you have -- then that's why you've got a balance sheet like ours so that you can ebb and flow with those changes. So we feel very good about that.

And then one other thing to add on better terms, this isn't occurring by sending a redraft of a lease to a company saying, "Hey, we would want this or this." What we're trying to do is take it directly to the companies and having open conversations about, hey, here's the direction that we have to move in. And that has been helping us because it needs to be a very blunt and candid conversation about here is what Kite needs and here is the best way for us to get it and make it also work for you.

And then going back to the comment about improving the cruising speed, it looks like you added 24 basis points over the last 2 years. I imagine you touched about maybe half the leases. So would that be a good extrapolation for maybe increasing another almost 25 bps in the next 2 years?

I mean I think we said we feel like we're very close to this in the near term, getting to 2%. If you just look -- if you look at our investor presentation, you'll see that on the small -- for example, on the small shop side, 62% of our deals in 2025, 62% were at 4% or better. I have not heard that stat from anybody else anywhere near that. So I think, yes, we continue to push that. It reflects the growing quality of the portfolio as well and the mixture of the portfolio that we're working towards. So I think, Wes that, that is absolutely in our sights and we'll continue to get there. And then if you look at the others that are at 2% or better, I would tell you they trade at a significant multiple premium than we do. So that's part of this as well is that eventually, as we pivot this portfolio into this direction, people will recognize that.

And I'm currently showing no further questions at this time. I'd now like to hand the call back over to John Kite for closing remarks.

Well, great. Really appreciate the time spent today and the great questions. And we will probably be seeing a lot of you in the next couple of weeks. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third Quarter 2025 Kite Realty Group Trust Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Bryan McCarthy. Sir, please begin.

Thank you, and good morning, everyone. Welcome to Kite Realty Group's third 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.

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 Fear; Senior Vice President and Chief Accounting Officer, Dave Buell; and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. [Operator Instructions]

I'll now turn the call over to John.

Thanks, Bryan. Good morning, everyone. The KRG team is executing on all fronts, driving occupancy higher, leasing space at strong spreads embedding higher rent bumps and optimizing the portfolio. Our outperformance underscores the strength of our operating platform and is allowing us to increase the midpoint of our NAREIT and core FFO per share guidance by $0.02 in our same-property NOI assumption by 50 basis points. Our efforts are positioning us for sustained value creation as we close out 2025. Our lease rate increased 60 basis points sequentially, driven by the continued demand for space across the portfolio. We believe the second quarter represented the low watermark in our lease rate. .

As we've discussed in the past, we view the recent wave of bankruptcy-driven vacancy as a value creation opportunity to embed better growth, upgrade the tenant mix and derisk our cash flow. Through the re-leasing process, we've maintained our focus on establishing the groundwork for higher organic growth and will continue to pay dividends long after the occupancy stabilizes. Over the last 2 years, we've moved our embedded rent bumps to 178 basis points for the portfolio, which is a 20 basis point increase from only 18 months ago. In the third quarter, we executed 7 new anchor leases with tenants, including Whole Foods, Crate & Barrel, Nordstrom Rack and HomeSense. We've been proactive in diversifying our merchandising mix as 19 of the anchor leases signed year-to-date have included 12 different retail concepts. On the small shop side, we are now within 70 basis points of our previous high watermark of 92.5%, and have full confidence in surpassing prior levels.

Activity this quarter included leases with Cabo, Kitchen Social, Diptee, Rotie's and Free People. Our team's focus on curating a dynamic merchandising mix and driving traffic to our centers continues to elevate the portfolio. We're making meaningful progress on the transactional front, highlighted by the recent sale of Humble wood, a center anchored by Michaels and DSW. This transaction reflects our ongoing commitment to driving organic growth and derisking the portfolio by recycling capital out of noncore large-format assets. Our disposition pipeline totals approximately $500 million across various stages of execution. We aim to complete the majority of these transactions by the end of the year. While there can be no assurances that all sales will close, our capital allocation discipline remains unchanged.

Depending on the timing and mix of the assets ultimately sold, we intend to deploy the proceeds into some combination of 1031 acquisitions, debt reduction, share repurchases and/or special dividends. In all instances, our objective will be to minimize any earnings dilution and maintain our leverage within our long-term range of low to mid-5x net debt to EBITDA. Since our last earnings release, we have repurchased 3.4 million shares at an average price of $22.35 and for approximately $75 million. The midpoint of our updated core FFO per share guidance implies a 9.2% FFO yield and a 23% discount to our current consensus NAV on this activity, representing compelling arbitrage to recycle capital out of our lower growth assets into our own shares. Roughly half the funds for these buybacks were sourced from completed asset sales, including humble wood and an outparcel disposition with the remainder to be funded from future asset sales.

Our third quarter performance reinforces the growing strength of our platform and the powerful tenant demand fueling our business. We're energized by the opportunities ahead to generate durable long-term growth. As we finish the year, we will remain disciplined leasing space that delivers strong returns, redeploying capital out of lower growth assets and elevating the overall quality of the portfolio. With a focused strategy and a deeply committed team, we are well positioned to deliver sustained value for all of our stakeholders.

I'll now turn the call to Heath.

Thank you, and good morning. Our third quarter results reflect the collective strength and focus of the entire KRG organization. We've built meaningful momentum driven by compelling tenant demand. disciplined execution and a team that continues to deliver across every metric. As we turn toward year-end, our goal is simple. Finish 2025 strong and carry that same drive and conviction into 2026 and where we see tremendous opportunity to further elevate our platform.

Turning to our results. KRG earned $0.53 of NAREIT FFO per share and $0.52 of core FFO per share. Both metrics benefited from a $0.03 contribution associated with the sale of an outlot to a apartment developer. As mentioned on our prior earnings call, this transaction was embedded in our original 2025 guidance and represents a strong example of unlocking value from an underutilized portion of one of our centers. Same-property NOI increased 2.1% year-over-year driven primarily by a 2.6% increase in minimum rent. We recognized $39 million of impairments this quarter, $17 million at City Center and $22 million across the Carillon land in Carillon MLB. City Center is being remarketed and we're close to awarding the deal. The Carillon assets are under contract with different buyers, which shorten our hold period. Collectively, these charges reflect the gap between our carrying values and their respective estimated sales prices. As John mentioned, we are raising the midpoints of our 2025 NAREIT and core FFO per share guidance by $0.02 each. $0.01 of the increase reflects outperformance in same-property NOI and while the other $0.01 is driven by capital allocation activity, namely our recent stock repurchases. We are also increasing the midpoint of our same-property NOI growth assumption by 50 basis points.

The outperformance in same-property NOI is primarily attributable to earlier-than-expected rent commencements and stronger specialty leasing income in the back half of 2025. Our general bad debt assumption remains unchanged at 95 basis points of total revenues, representing the blend of actual bad debt experienced year-to-date and a continuing 100 basis point reserve of total fourth quarter revenues. It's important to note that for our full year 2025 guidance contemplates the completion of approximately $500 million of noncore asset sales in the latter part of the fourth quarter. Conversely, our guidance does not assume any deployment of the related proceeds. Given the anticipated timing of these transactions, any earnings impact from either the potential sales or potentially redeploying our proceeds would be negligible in 2025.

We have consistently emphasized that the strength of our balance sheet provides us with tremendous flexibility in how we allocate capital. The recent share repurchase activity and the potential sale transactions that John mentioned are clear examples of that flexibility in action. Our balance sheet remains one of the strongest in the sector, giving us the capacity to pursue opportunities that enhance shareholder value while maintaining our financial discipline. We remain firmly committed to our long-term leverage target of low to mid-5x net debt-to EBITDA, which continues to position us well for both stability and growth. Lastly, our Board of Trustees authorized an increase in our dividend to $0.29 per share, which represents a 7.4% increase year-over-year. For many of our long-term investors, the dividend is a critical aspect to reinvesting, and we believe KRG's dividend is an extremely attractive risk-adjusted yield.

Earlier in the year, we mentioned the possibility of a special dividend to occur in 2025. We still anticipate distributing a special dividend of up to $45 million, but the size will ultimately be determined by our fourth quarter taxable income and the outcome and timing of our current disposition pipeline. Thank you to our team for their relentless efforts to deliver strong results and create long-term value for all stakeholders. We look forward to seeing many of you over the next several weeks on the conference circuit.

Operator, this concludes our prepared remarks. Please open the line for questions.

[Operator Instructions] Our first question or comment comes from the line of Cooper Clark from Wells Fargo.

Hoping you could expand more on your earlier comments on the dispositions. Is it fair to assume that most of the volume is power centers, given your comments on previous calls, also curious on cap rates and then benefits to the same-store growth profile and underlying tenant credit moving forward?

Sure. Cooper. Yes, I think it's fair to say that this is in line with the messaging that we've had in the past, which is that we're looking to kind of shrink that middle part of our portfolio, which would be those larger format centers. and power centers. So yes, I think that's kind of the direction that we're heading and that is what this particular group of assets is. In terms of pricing, we haven't released that in the past, and we've got to get to the closing. But suffice to say, the activity should be well inside of what our implied cap rate is right now, which is what's happened historically.

Does it work for you, Cooper? Cooper, this is Heath. I would also say that on the same store, listen, on a net-net basis, the entire pool would be accretive to same-store, but it all depends on which mix of assets we end up closing. So immediate what it does to the 2025 same-store.

Our next question comment comes from the line of Andrew Reale from Bank of America.

I guess just sticking with the disposition I guess just curious if you could -- if we could dig a little deeper and you could give us an idea of just where occupancy is and what the exposure watch list retailers is like within the assets that are in the pipeline? And then how much more volume beyond the $500 million right now could you potentially look to sell?

Well, let me just start with again. We're not -- it's -- the occupancy is probably going to reflect the occupancy in the portfolio, and these are stabilized properties. And then you should assume that because we're telling you that it's that kind of middle part of the larger format centers that there is exposure, obviously, to watch list tenants. But that's going to be the case in any of those assets if they're larger format power centers. So I think -- what was the second part of that question, I'm sorry? .

Just how much more volume beyond $500 million could you potentially look to sell?

Yes. Right now, I think we're very focused on just getting this closed. As we said, we anticipate a lot of this will happen by year-end. So quite busy on getting that done. And then we're going to go from there. We continue to want to improve the portfolio and continue to want to do a lot of work around this embedded rent growth. I mean the fact that we've been able to increase our embedded rents by 20 basis points in 18 months is pretty fabulous, and we're already picking up towards the higher end of the peer group on embedded growth. So that's really the focus is to reposition the portfolio to deliver a better growth profile in the years ahead. And that's -- a lot of that is because a lot of the growth that you've seen in the space since COVID is really just catch up of occupancy. And what we're looking to do is build growth without having to do that. So we'll see how that plays out, but we're very up whatever. We're optimistic about that.

Okay. That's helpful. And then if I could just ask a follow-up. As we start to really model out, could you just go back and remind us of what the onetime items are that have impacted this year and kind of what those are worth on a per share basis?

Yes. It's around -- today, it's around $17 million of what we call recurring but unpredictable items and as a combination of term fees and land sale gains.

Our next question or comment comes from the line of Todd Thomas from KeyBanc Capital Markets.

I just wanted to ask about guidance revision and maybe sort of an early look around 26%. The revision this quarter, there was a $0.01 positive contribution from capital allocation activity. Heath. You said that's almost entirely due to stock buybacks. And just given the timing of the transactions that you're talking about in the redeployment -- but any considerations around 2026, I guess, vis-a-vis your comments around transacting in a manner that minimizes dilution, how we should maybe think about how all of this sort of plays out?

Yes, Todd, I think it's too early. In February, we'll have a lot more visibility to what we're actually doing with the proceeds. As John said in his remarks, we have a menu of items. Obviously, onr of the attractive ones now is the redeployment of capital into our share price based on where the implied yield is versus the implied deal of these assets that we're selling. So again, it's really going to be depending on are we going to close these things, what do we do with the proceeds? So what much more visibility in February. So thank you for your patience, and we'll talk to you then about '26.

Yes. The only thing I would add to that, Todd, is you just got to remember that there's complexity in terms of the taxability associated with the sale, the gain or the loss. So I think we have to let that develop and focus on getting this current batch closed -- and then as Heath said, we'll be in a much better position. But the real positive here is that there's a lot of opportunity for us to improve the portfolio, improve the growth and there's a real demand for the type of product that we're looking to sell. And again, with the discount to NAV and the implied cap rate where we're at, this has been quite a good time to be doing this.

Okay. And then is this -- the $500 million number that you mentioned, is this intended to be a gross sales number? Are you entertaining sort of contribution to a joint venture vehicle where you might retain an interest in these assets at all? And can you sort of rank order today sort of the redeployment opportunities that you discussed, whether acquisitions, more share buybacks, how do you think about that today?

Well, to the first part of the question, these would -- this particular pool that we're talking about approximately $500 million is all 100% sales. These are not any joint venture contributions in this -- in terms of force ranking those multiple options, again, it all comes down to the timing, which assets the taxability of those and then so that will drive that first decision making. But the entire objective is to do what we've already done, which is to place the money in something that is either accretive or very, very minimally dilutive as it represents the entire balance sheet. So I think we're going to have to see where that goes. But with the yields that we're able to sell at and redeploy at, that's kind of our focus is the demand for the centers that we're selling is strong. And as we've said a couple of different times, in terms of redeploying into the stock, it was an easy decision. As we move down the road, that becomes more complex around the taxes, et cetera.

Our next question or comment comes from the line of Craig Mailman from Citi.

Just want to go to the city center. That one was impaired. And as we think about it, you had mentioned that is one of the assets that you are recycling as part of the legacy West transaction. I mean, does that -- does the further write-down of that change any of the accretion math that you guys put out in that legacy West deal? And maybe where should we think about the cap rate for that deal. Is that north of a 10% cap and kind of the Carlin and development land as well? I mean, are these prices are coming in below your expectations. It seems like -- can you just talk about where yields are?

Sure. First part of your question, no, it is not going to impact the yields. I mean, this is a fairly de minimis impact to yields as it regards to legacy West. And if you remember, we kind of gave a range of what that sale might be. So this would be de minimis, and it's really a result of kind of pulling the asset off the market, stabilizing some tenants that needed to be stabilized and putting it back out there. And so in that regard, not an issue. Heath, do you want to hit the second part of that? Can you get the second part of the question again?

Just what the yields are now on the impaired values for those sales?

The cap rate on the asset itself.

I mean one of them is a piece of land. One of them are MLB, which is lightly occupied and the other city center and rather not go in exact cap rate on city center. But needless to say, listen, the good news is on these Caroline sales. This is one of the ways that we're going to help minimize dilution. We're selling 1 asset potentially that has NOI [indiscernible] which is NOI light. So again, we think these are all good developments and we'll keep you updated.

Yes. And just to be clear on City Center, it's really not like a going-in cap rate exercise. It's an IRR exercise for the buyer because there's a lot to do there. So it's not really relevant.

Okay. And then, John, I know you kind of -- to Todd's point, you kind of rank the capital uses for the $500 million. I'm just kind of curious just on buybacks specifically, I know you said it's complicated, but like how do you weigh that FFO yield or AFFO yield versus the potential kind of impact of reducing liquidity for the stock and those other kind of nonfinancial issues that can also impact multiple going forward?

Yes. I mean, obviously, everything we're doing here, we would anticipate that in the end, the multiple would be well above where it is today. And I'm extremely confident that 2 years from now, the stock is going to trade at a much higher both multiple and price and what we're buying the stock at today, Craig. So yes, I mean, there is complexity in the analysis, and it's not all math. I mean the math gives you the direction. But yes, you have to look at the market cap, the size of the business. But we're -- these are relatively small numbers even if we were to deploy all of that into a buyback, which we're not going to. I think the reality is this is a point in time we're taking advantage of an arbitrage that's very clear. that in the future will be -- we'll look back and say it was very smart, in my opinion.

But it's also about the thematic around what the composition of our assets are going to be and what the embedded growth rate of our business will be because, again, a lot of companies have benefited in terms of short-term growth in the past 4 years. that's great, but you got to think what's this business going to be in the next 10 years, and we're going to be positioned to be one of the best companies for sure. and we're going to have one of the best growth profiles and we already have one of the best balance sheets, which will continue. So we will look at all of that, and we will be very thoughtful around the impacts of these things. But against the backdrop of the business and the backdrop of the opportunity, this is the perfect time to be doing what we're doing.

And I know it's a 2 question limit. But maybe slip the third one in here. I mean you guys are really trying to arise other REITs have tried this in the past, selling assets, buying back stock. I mean at what point do you look to other ways to maximize value if the public markets don't want to recognize kind of the private market value of Kite and MB and some of your peers?

Let me start with -- we're not doing this to -- it's a result of how we're changing the composition of the portfolio. So it's not though we said, "Hey, let's go put a stake in the ground that we want to buy back stock at a certain price to prove a point. That has absolutely nothing to do with it. What's happening here is we're changing the composition of the portfolio into a better longer-term growth profile asset composition. As part of that, we have proceeds that we have to distribute. This was the obvious thing to do at this point in time with those proceeds because of what we've talked about. The gap -- the difference in the core FFO yield versus the assets that we sold, which we think will continue in the short term and then also just the extreme discount that happened to be there. But going forward, this is -- we'll see how that plays out. This is about real estate and the results of those sales have to be deployed. It's not vice versa. The message I'm trying to get to you.

So the idea that other people have tried to do this. It has nothing to do with it. This is individual exercise for a company, improving its portfolio that happens to have an extremely good balance sheet that allows flexibility. I've seen this done in the past with leveraged balance sheets. That does not work. So this is absolutely nothing like that. And again, we'll see where it goes. And because of the structure of a REIT, sometimes you do have to pay out a special dividend. We haven't talked much about that. But we are anticipating doing that, and that's just part of being a REIT. That would be on the lower end of what you're really trying to prioritize because of the use of capital. But by the same token, you're looking at a total return to the shareholder on an annual basis. And in the end, we want that to be a model going forward where our total return is a high number that entices shareholders. Right now, there's a lot of money being invested in other areas of the world. But when you look back at what we're doing right now, I think people will come back to the steady cash flow growth of REITs. So I think, again, the timing of this is very good.

Our next question or comment comes from the line of Michael Goldsmith from UBS.

Probably a good sign that we've made it this far, and we haven't touched on the watch list for the full portfolio. So it feels like things have gotten a little bit better out there. I just wanted to get your assessment what you're seeing what your watch list is what you're paying attention and how that impacts the kind of the set up for 2026.

Yes, sure. We think that the watchlist is in good shape. And I think most of what's happening now is becoming much more isolated into individual tenant names more so than in the past when you had multiple tenants in trouble. And obviously, the crescendo of that was last year when you had multiple bankruptcies within 60 days. So now we're down to a much more manageable probably situation where there are individual tenants that we're not going to name that we're focused on, and we're focused on reducing exposure and look, part of this entire conversation this morning has been about improving the quality of the portfolio and reducing exposure. And even if you're getting short-term lease-up right now, but you're remaining overly exposed that will eventually come back to be a problem most likely. So this is all one big exercise around improvement, self-improvement and better growth.

So I think that's coming. But as it relates to the specifics around tenant credit watch list, we always have them. The industry always has them. It's a natural evolution. And we said, look, when we got all these bankruptcies, there was a lot of people putting out lists, and I've leased this many spaces in this period of time, that's not the exercise, the exercise that we engage in is how do we get the best tenants, the best merchandising mix with the best growth? If that takes 18 months instead of 9 months, fine, this business is going to be around a long time, and it's going to be a very strong business for a long time.

Got it. And I'll follow that up with probably what you don't want to hear though -- last quarter, you talked about 80% of the boxes recaptured were either leased or in active negotiations. Is there an update on that? And can you just talk about the opportunities of those where you're kind of like holding back as you think about merchandising or finding better economics with the tenant.

Well, let me just give -- Tom will give you an update on where we are on the progress even though you just said that that's not our focus, but we'll give you the update, and we can take the second part after.

Yes, no problem. So we always marked a 29 bankruptcy tenants in terms of that original list that we talked about at this point, we're at about 83% that are leased assumed anolinegotiations, et cetera. So we have 5 other properties that are out there. we are meeting on them constantly. They're probably the more challenging of the original list, but we have confidence that we'll resolve those in due time. And it gets a lot of attention. So no concern there.

Now the only thing I would add is if you pay attention to the names that we're putting out there in terms of the anchor leases that we did just -- even just in this quarter, shows you that our focus is on quality and growth as opposed to just fill in the space. And I think the fact that we've done this year, 12 different retailers across our 12 different brands across 19 leases that we signed. Again, our focus is that diversity quality and then look at the spreads and the returns on capital. That's why this takes a little more time, right? I mean if you're going to be getting north of 20% returns on capital and same thing on spreads, And speaking of spreads in case nobody asked, I mean, look at our non-option renewal spreads I mean I know we're one of the few guys that give the detail around that. But I think it was 13% or 12%, 13%. That is a fabulous number which reflects the strength of our portfolio first and then secondarily, the business that we're in. So those things are important to that, too.

So just to follow up on John. Of the 7 boxes that we executed this quarter, our spreads were 37% and return on cost 23%. So as we look at the remainder of this portfolio, we're setting a high bar and being very, very careful.

Our next question or comment comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

By the way, congrats on the share buybacks that was, I think astute. Just curious on the contemplated $500 million of sales later on this year. The $45 million special dividend, is that partly as a result of that $0.20 special dividend. Is that a result of those sales? Or is that -- could that number increase based on the closing of those dispositions later on this year?

Yes, Floris, that's related to the prior transactional activity, mostly of the GIC transaction. And actually, the number I said up to $4 million to $5 million, that's the maximum it could be if anything, some of the assets that may sell this year may have embedded losses, which would reduce that. So just think about that $45 million being the top side and then potentially going lower, depending on the mix of assets that we end up selling.

Yes. And those in terms of when he says embedded losses, that's on a tax basis, not a book basis, just to be clear.

Right. Yes. So that gives you potential significant more powder to -- for share buybacks, which is encouraging. One other thing, which I -- we haven't really talked about legacy West and I don't want to steal your thunder for the upcoming NAREIT. But -- as I look, the ABR in place seems to have increased by quite a bit since you first acquired it. Can you talk a little bit about what's happening at that asset in terms of rents and renewals and spreads?

Yes. It's kind of -- it's magical. It's a fabulous asset that had under market rents, particularly in the retail component. And it was the perfect timing to bring in a platform like ours that can drive those rents, drive value. We have a lot of great things going on here. But obviously, we said it when we bought it, the -- I think the average base rent was like $65, I believe, in the retail and we are well above that and all the new deals that we're doing -- and we had -- as we mentioned for us, we had the ability to access about 30% of that over the next 3 years since the acquisition to get to probably about a 20% mark-to-market. So it is playing out exactly as we anticipated. It was the perfect combination of us and a fabulous partner that has the same kind of mentality we do and has been extremely supportive.

And we, of course, look to do more with them. And the other thing to remember that we are a major player in the market, right? So we have things going on that are multi-tiered when we're talking to these tenants in the sense that we have other assets that we can cross lease against. And we have other properties there that tenants want to get into. And so there's this ability to have this virtuous cycle of repositioning and moving people around and different rent levels -- so look, we're extremely bullish on the micro, which is the property itself and the macro, which is the market, one of the best in the country.

John, Just if I -- if you indulge me, one other little thing maybe, Heath, if you could touch on the impact of those $500 million of sales, what's that going to do to your cruising speed of 178 basis points? How much should -- could that increase by as a result of selling some of these lower-growth assets?

Well, first, I'm glad to hear you say cruising speed versus cruising altitude because that's been a debate in the company. So you just answered it. Go ahead, Heath.

So Floris, the embedded bumps in that pool of assets is around 140 basis points. So it's going to -- it's obviously going to improve our cruising speed. But the denominator is so large, so it will be fairly modest. But again, it's all heading in the right direction. And as John said in his comments, I mean, to move our cruising speed by 20 basis points in 18 months is just incredible. That's basically just being -- that's basically getting better bumps into small shops to the extent we can get better escalators and the anchors, which we're starting to get a little bit more modest improvement on. We see 2% around the corner. When we hit 2% and embedded bumps, we're going to ask for 2.25%. So we're just going to keep pushing on this. And again, this occupancy fuel growth that people are experiencing, it will come to an end. And at the end of the day, we'd rather be in a position where our cruising speed to use your term is higher than others. And that is part of this entire real estate exercise that we described on this call.

Yes. I mean ,that's the real message for us today is that this is a first step in a process really focusing in on organic growth. And when you have a balance sheet like ours and you have organic growth that's near the top of the space and the balance sheet that we have then we're able to do other things outside of the organic growth that can even add to that. So that's really the goal. And I think we have, frankly, we have absolutely been, I think, the market leader in folks in the end on this embedded growth and fighting the fight that has to be fought in the trenches to get that. And perhaps that's why the occupancy trailed a little bit, but then all of a sudden, you see us gain like 60 points or 60 basis points sequentially. And I think it shows you that the market is coming more to where we want to be. And if you look at the percentage of leases that we're signing in the small shop space at 3.5% and 4% annually. I mean it's in the 60s percentage, like 60% of the deals we're doing. And then 3% is table stakes, right? So this is an indicator that this is a very good business to be in. There's not a lot of product and there's certainly not a lot of owners that have the ability to deploy all those different goals into what they're doing.

Our next question or comment comes from the line of Alexander Goldfarb from Piper Sandler.

Two questions. First is on the $500 million of sales. Just so I'm clear. I understand that there are different options that you're going to use the proceeds for buybacks reinvestment, et cetera. But overall, in over shopping centers history, whenever we see large asset sales, it usually means that earnings inevitably takes a step back until all of the proceeds are processed and whatever it's reinvested into can start to grow again. So it does sound like this is an impact to '26. Is that a fair way to look at it? Or your view is that this should be flat to '26 and we shouldn't be thinking about the $500 million having an earnings impact.

I mean, Alex, there's so many moving pieces, and it depends on where is our share price going to be to the extent we're buying back stock. We were able to actually shield gains or does it have to go out as a special dividend because we're not going to do irresponsible acquisitions if we haven't gained the shield. So there are so many pieces, Alex, I'll just go back to what John said in his prepared remarks, as we're going to do our best to minimize earnings disruption. So again, we'll have much more information on that in February of next year.

And I think, Alex, I'd just add, in the past, when we've done things like this, we've been very, very thoughtful around that particular issue. And it really depends on -- everyone has different numbers. We have different numbers, you have different numbers. But in the end, whatever happens in '26 happens in '26, but from that point forward, there is no question that whatever we're doing is going to create much better growth. But in the meantime, we'll do everything we can to minimize that. And unfortunately, some of that is driven by the taxability, right? When you're paying out a special, that's just money going out the door. So -- the primary goal is to minimize that. But again, look, we're doing one right. We think we're going to do something towards the end of the year here because we just -- that was just the optionality of it. But from an NAV and from a future growth perspective, it's absolutely going to be better.

Okay. And then just as another question along the portfolio lines, as it sounds like you've reviewed your portfolio heavily. And obviously, we're seeing what's happening in the market in terms of supply and demand and improvement across the industry. Is your view that this is it and that going forward, dispositions will be more targeted and normal course? Or do you think there's a potential for another $0.5 billion plus type portfolio transaction that could occur next year? Meaning, is there more calling on a large scale that you guys think that you need to do? Or you think that this really addresses the assets that you no longer want to have in the Kite portfolio?

I mean, I think it's early right now to give any kind of finality answer to that. We're always reviewing, as you know, we're always deep diving and reviewing the portfolio we're going through budgets right now. So there's a lot going on in terms of the idea of what assets we want to hold long term. But we have been clear that the idea is to de-risk our exposure to certain areas of retail and -- but then take that whatever proceeds that might create and have a better growth profile and have a better future growth profile. So too early to say that, Alex, but it's always possible that we would do other dispositions of size. But again, right now, we're just focused on getting this done and figuring out the deployment.

Okay. And then if I could sneak in a third, that seems to be a trend. Heath, on the bad debt, you guys have been, I think, around 90 -- 85, 90 bps year-to-date. -- but you still have that $185 million, I think, full year, I'm assuming that's just a plug like you don't intend to suddenly have 100 bps of bad debt in the fourth quarter, right?

Yes, that's what's in your numbers that we assume $100 million in the fourth quarter. But no, it's not -- there's no special item there. It's just continuing the same whatever you want to call that.

It's consistent with the same assumption we have at the beginning of the year and throughout the course of the year. So it's 100 basis points.

Right. But you're not expecting like a bunch of tenants to suddenly go.

That is just us being conservative and basing it on historical norms of 75 to 100 basis points of revenues.

Our next question comment comes from the line of Polina Rojas from Green Street.

It's great to see you're pursuing that arbitrage opportunity and trying to relate the growth profile of the company. Looking at your same-property NOI over the last 10 years, it's been around 2% or low 2%. So I know this is a difficult question, but painting with broad brushes, if you layer in the initiatives that you have shared in this call plus the strong backdrop, how material do you think the upside to that same property and go could be relative to that 2%, below 2% range that the company has experienced.

Yes. So Paulina, I'm not sure if you attended our Four in '24 event in Naples, in February in Naples. And we had a slide in there where we thought what our sort of organic growth was. And holding occupancy aside, we said it was 2.5% to 3.5% based on bumps and spreads certainly, the bumps of the company obviously have improved as we suggested. So looking out over a 10-year period, we had much lower embedded growth back then. So based on the current progress, we're seeing maybe again closer to [ 275 to 375 ] on a forward basis. So again, this is all about trying to improve that cruising speed this real estate exercise, that's probably the #1 priority is getting better growth. And the 2 parts of the portfolio that we're really migrating towards, which is the lifestyle and mixed-use the embedded escalators in that part of the business is anywhere between 2.25% and 2.5%. And then in the smaller format grocery side of the business, which we also really like, that growth is anywhere between [ 1.75 and 2 ] based on your composition of shops and anchors. So we're really pushing to sort of divest ourselves of the middle part of the portfolio. I just described to you that, that pool that we're looking at is 1.4%. So it's a great question, and we appreciate you looking backward. I will tell you over the last 3 years, it's been 2.9%. But as we mentioned, that was -- some of that was occupancy fueled. So again, the whole part of this exercise is to improve that long-term cruising speed.

Yes. I mean I would just add, I think that it is important that we look at where we were, and that's a real big part of why we want to kind of change the composition as to where we're going to go, which is more important than where we were. And obviously, over the last 4 years, I think it's 4 years where we averaged that kind of close to 4%. And we've had some up and downs in the occupancy over that period of time as well. And I think that was the point I was trying to make, Paulina is that if you look at the entire sector and you look at this kind of short-term focus on same-store NOI growth. And by the way, everybody that it is not a ubiquitous equation in the sense that everyone defines it a little bit differently. So it makes it very difficult for you guys, which is why we're more focused on something that you can't massage. What is your embedded rent growth? And what is your core and NAREIT FFO growth going to stabilize that in the future? And what is your total return to your shareholder on an annual basis, which, by the way, part of that is the dividend yield. And -- but we've continued to raise the dividend pretty healthy. And we've spent a lot of capital in the last 2 years in just TI and LC and continue to produce significant cash even after that fact. So I think we are basically saying that we feel very good about the future. But obviously, there's a few steps in between as we are positioning ourselves for that.

My second question is you have in your presentation, you highlight very active -- a very active quarter in terms of leasing activity with grocers. I mean based on your numbers you're at 79% of ABR coming from grocery-anchored centers. Do you have a target in mind for this figure? Or you don't even think about a target at all?

No. I mean, I don't think there's a target that's driving the decision-making around the leasing side of that when we add a grocer to a shopping center that previously didn't have one like many of those examples, it changes the composition of the shopper, right? And it creates more day-to-day activity at the property. One of the key things that we look at in the neighborhood grocery-anchored shopping center is what is the growth rate in that shopping center. And if you're too pivoted towards the grocer in terms of your NOI, it's tough to grow your it's tough to get embedded growth better than like less than 2%. It's tough. It's tough to get better than 1.5%. So the composition of the shops and the grocer are a factor. But I think the meaning of that slide is just to show the demand that's out there.

And of course, there is a certain segment of the investment community that just only want grocery. We're not that's not our goal because you don't ever want in my personal opinion, overexpose yourself to 1 thing because there was a time where people only wanted Kmarts. Well, that didn't work out too good. So I think we're much more focused on this diversity of our portfolio that creates this embedded rent that is going to exceed the space. Like that's our goal. So it's more meaningful than just trading to a grocer. But obviously, when you can put a Trader Joe's into what was a Bed Bath & Beyond or Whole Foods into what was a big lot, that's a pretty good day.

Our next question comment comes from the line of Hongliang Zhang from JPMorgan.

I think your non -- your -- sorry, your tenant-related capital expenditure spend trended down pretty significantly this quarter. Was that just related to timing? And how should we think about the spend going forward? .

You're talking sequentially?

Yes, sequentially.

Yes, yes. Yes. It's just timing. It's a timing thing of signing a lease before we spend the money. .

Okay. How should we think about it? So it sounds like the spend will basically revert back to what it's been earlier this year.

Yes, I mean, I think you should think about it on an annual basis. I would not look at it on a quarterly basis. That's -- there's too much timing factored into that. But if you look at it annually, we spent around $110 million or so on TI and LC in the last couple of years, and that's going to probably be slightly higher next year and then go into 2027. And that point I was making is that Total CapEx in 2025, we probably spent $165 million when you include maintenance CapEx and some development spend. And we're still producing -- we're still paying a dividend with a nice yield on producing free cash flow. And our balance sheet remains fabulous, right? So the combination of being able to produce this cash self-fund the regrowth of the assets and then self-fund future growth from development is really, really strong.

And we're seeing more opportunities on that development side, by the way. And I don't think there's anybody in the publicly traded space that has longer experience of the business. So we know when to lean into that and when to lean out of that. And so we're feeling very good about the free cash flow that we're able to generate out of the business to then redeploy into that growth.

Our next question or comment comes from the line of Alec Feygin from Baird.

So the anchor opening was a big driver in the third quarter. Just kind of curious, what percentage looking into next year and even 2027 of the total anchor leases coming due have renewal options? And what are the expectations for those anchor retentions in 2026?

Sure. I don't have that percentage in front of me right now. I mean, suffice to say, the great majority of our anchors have options it comes down to the timing of are they out of options, right? That's generally what happens. There's almost no anchor that doesn't have options. I will say when you compare the nonoption renewal spread to the option renewal spread, it would indicate it'd be better if we gave less options. That's part of the push pull of our industry and another area that we lean into probably harder than others and are getting very good success with limiting that. But bottom line is the great -- almost no anchor does a flat term without an option. It just comes down to the percentage of anchors expiring in that particular year and whether or not you're at the end. And in the case of the grocers, frankly, often what happens is don't wait for that to happen. You're negotiating something with them prior to that. And a lot of times, you might be rebuilding the store as well, which we're doing in a couple of instances.

But we are finding many retailers inquiring with us about when do you have expirations with various boxes. So we're seeing a lot of activity on that front as well.

Do you expect any change in the retention rate looking into next year?

Yes. I mean, as I said earlier, we're entering our budget process right now, which is an intense bottoms-up every single property every single space. And we'll talk to you about that after that. But I think we tend to have a successful season with budgeting.

Our next question or comment comes from the line of Kenneth Billingsley from Compass Point Research and Trading.

I wanted to follow up when you talked about the anchors that you signed year-to-date that had new formats. And specifically, just looking at small shop occupancy, it seems like you have more upside opportunity than peers. Is the -- are the 12 new formats that you're looking at? Is this a trend across the whole portfolio to help improve and drive better small shop occupancy? And is this a shift to upgrade retailers? Or are you modifying a retail mix at the properties due to shifting consumer demand?

I just want to be clear. You mentioned anchors, but you're talking about small shops. Is there -- I just want to understand the question a little better.

Essentially, you talked about that 12 of the 19 you signed had new formats. I believe that's what you said at the beginning of the call.

From different brands, yes.

So okay. I was just curious is -- I mean, obviously, you're always trying to upgrade the retailers that are coming in. But is this -- is some of this a reflection of shifting consumer demand of what they expect to see at the properties? And so essentially, are you doing that to help drive a movement in small shop occupancy.

No. I think what we're trying to say is that I think this business went through a period of time and then certain people made their lives easier by saying, "I'm going to go do I've got 15 empty spaces. I'm going to do 7 deals with 1 guy and another 8 deals with another guy just to make your life easier. What we're saying is we're trying to diversify the anchor tenant mix to do what you said, which is to drive more interest in our shopping centers, but also to be couple from any 1 anchor too much exposure. So -- and then the result of that is it makes a better shopping center, which, of course, does make -- puts you in a better position to generate higher growth in the small shops because these things are symbiotic. They work together. There is a symmetry there. So it isn't really -- it's really not part and parcel. It's -- you want to have the strongest possible lineup you can have, but you also want to have diversity so that the consumer who we don't talk about enough because that's the ultimate customer wants to go to our property over somebody elses.

The only thing I'd add is some of this relates to the quality of our assets. And when you think about South Lake, if you think about legacy West, Loudon and others. This diversity is really coming from a higher quality of tenancy, someone like a crazy barrel, a new deal with adidas. So these are some of the names that we weren't necessarily doing in the past. But this diversity is getting buoyed by the strength as well.

And just to carry on that, that's a great point. And not only does it happen at those individual properties that Tom mentioned, but now we're able to spread this deeper pool of retailers across our whole portfolio. And frankly, these retailers want to work with strong landlords that have the ability to work with them in multiple locations, right? So it is a -- it's kind of a virtuous cycle of tenant demand, if you will.

And when you say the new format, are these new to you or just new into the locations that...

No, no. These are -- it depends on how you classifying new form. But just to be clear, what we're talking about are brands, not size of store or anything of that nature. These are just multiple different brands like the difference between a Crate & Barrel and a T.J. Maxx, for example those are different brands. And the formats aren't changing, the sizes aren't changing. The space is the space. And our objective is to diversify those brands.

Okay. So these are 12 new brands to your mix?

Correct.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. John Kite for any closing remarks.

Well, I just want to take the time to thank everybody for joining. And as he said, we're really looking forward to seeing everybody quite soon, talking more about all the good things happening at KRG. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

Welcome to the Kite Realty Group roundtable here. Happy to have Heath on with us today. Heath Fear is the CFO of the company. Heath we've got a big group here. So I'll turn it over to you for some opening remarks.

First, I want to thank everyone for joining us today. After yesterday, the majority of people told us they weren't going to be here today. So I'm actually surprised we have a full room. So thanks all of you for joining us here. I'm Heath Fear. I've been the CFO of Kite Realty now for just about 7 years. We are an open-air shopping center, have about 180 properties in 24 states, predominantly concentrated in the Sunbelt, and 80% of our properties have a grocery component.

We have one of the best balance sheets in this space, 5.1x net debt to EBITDA, over $1 billion of liquidity and a very well-staggered maturity ladder. Our strategic focus at this time is really twofold. We're keenly focused on leveraging the strong tenant demand and leasing across the portfolio. We're looking at historical levels, Kite by far screens the best in terms of it's remaining [indiscernible] upside. Most of our peers have reached their pre-COVID levels and beyond.

We still have 280 basis points. So many of our peers are in sort of the later innings of their absorption tailwinds we were at the very beginning of our absorption tailwinds and expect to see the fruits of that labor bear in the late parts of '26 into '27. So again, I think leasing is our primary focus and taking advantage of this great supply-demand dynamic.

Our second focus is really improving our stabilized long-term cruising speed. We've been very vocal in the past about leveraging this current environment to really drive terms, to drive leasing terms, specifically to really improve our embedded escalators across the portfolio. Today, we've had a lot of luck with our small shop tenants, over 60% of our small shop new and new option renewal tenants in the last quarter were 4% or better bumps.

And based on this success in the shopping and then the small shop space and to a lesser extent, the anchor space, we've moved our embedded escalators from 160 basis points over the course of 18 months to now to 171 basis points. So it's 11 basis points in 18 months. However, I will tell you that our long-term plan is to be in excess of 200 basis points of embedded rent bumps. So we're not going to get there just by leasing. So the second part of our focus to improving our cruising speed is really to selectively cull the portfolio of our larger-format lower-growth assets. These assets also happen to have a disproportionate exposure to the credit tenant watch list.

So with these 2 things happening, it's our goal to get to 200 basis points, we are very, very disciplined sources and uses allocators. So as we dispose of these assets, our goal is to match fund them and to deploy the proceeds in a way that it's minimally or not at all dilutive to earnings.

So again, our goals here are to lease up our existing space and to improve our embedded long-term growth.

Thank you for that, Heath. Maybe take a step back, post 2Q earnings, talk about kind of what you're seeing on the ground, still a lot of question around -- there's a lot of the consumer, the uncertainty. Talk about kind of the leasing environment as you kind of see, let's call it the next -- last 30 days.

Yes. At risk of sounding like a broken record amongst us and our peers. On the ground feels really, really good. The depth of demand is still there. It's in the small shop space. It's in the anchor boxes with our -- the 29 boxes that we got back from the latest rash of bankruptcies in late '24 and '25 and 83% of those are basically taken care of. So again, on the ground, we are not seeing the narrative that's being played out. I think a lot of the narrative is born from consumer sentiment numbers that seem to be eroding. But you saw, for example, BofA's credit card numbers came in yesterday. And those are showing increased spending across all income classes.

So again, we see the headlines as well as you do, but it's not a beta tenant demand and actually been very, very pleased with the resilience of our tenants. We saw very little disruption in terms of people changing opening or store plans based on all the tariff chatter and they continue just to push through. And I think there's a recognition by the tenant community that the supply demand dynamic is really in the landlord favor at this point.

And if you wait, you will miss the space and these tenants have growth plans that they're trying to achieve. So again, we have not seen anything happening on the ground, will lead us believe that the demand is going to dry up anytime soon.

So just to be -- so just to make sure, I mean, on the anchor side, yes, everything seems to be fine. And even I would assume on the shop side as well...

The shop side is incredibly vibrant. I've been so surprised personally by just the willingness of small business formation. We have these real estate committees every Monday. And again, we're doing anything from a mom-and-pop store to a large anchor store. And every week, I'm like, wow, just it's just great to see this couple taking on this new franchise agreement, and they're going to open up a small shop space. So we have not seen any slowdown in the appetite for people to take a risk and open a new business. So again, it's been fun to watch. It's been to contrast it against the headlines.

The 83% you talked about kind of it seems like the activity on kind of the box space, right the bankruptcies. Talk about kind of the rents on those, what was the upside? I mean, let's talk rents sort of adjusted for CapEx, right? I mean yes, let's make sure to kind of talk about that.

And help us understand because there is a lot of questions around growth in the next year, and it's not really for you, it's for the sector. Help us think about when -- the timing of that rent coming back in.

So those particular boxes, the 29, spreads are averaging around 20%. So we're still seeing a good cash spread. But to your point, the returns on these boxes is a little lower than what we saw with Bed Bath & Beyond and in Bed Bath & Beyond we're seeing 30% returns. The good news is that our returns are a little lower, I think more like 20%, Matt, on those boxes?

Yes.

20% returns. So basically a 5-year payback. The reason why it's a little more expensive because we have a larger set of grocery stores in this particular set of refilling. So those deals are naturally a little bit more expensive. So while their -- while our return is a little lower, happy to take a grocery store, put it into a center where there wasn't one and compress the cap rate against the balance of the NOI. So really happy with that progress. Then in terms of when will we see the fruits of this labor of these 24 or 29 boxes that we're getting ready to sign or have signed already, that's really a late '26/'27 story.

So we get them signed soon or signed them recently you came to get them open in 12 months. Some of them you can. Some of them will then want to block you out during the holiday season, they won't open until the following spring. So again, as I mentioned in my opening remarks, KRG is poised to experience some accelerated growth based on sheer occupancy that we have left to fill up. And why are we still 280 basis points shy of where we were pre-COVID part of it is because we had a disproportionate amount of exposure to Bed Bath & Beyond.

It was the highest exposure in the space. We had a disproportionate amount of exposure to the last rather bankruptcies, which was American Freight, Conn's, Big Box, Party City, Joann. So that sort of set us back. And I think probably the second piece to all that is, and we've been saying this over and over again is that we're really hyper-focused on quality. And the part of the quality is I already talked about driving rent bumps, but it's also trying to improve other terms around the leases that are really going to help us on a long-term basis, make sure we don't find ourselves in this situation again where we've got this watch list of tenants and we're losing multiple units at once.

So one of the things you've seen us doing is we're super focused on limiting options. So in the past, you did a 10- to 15-year anchor deal, you'd grant them 25 years of options. And so basically the space is tied up for 40 years, as they're an owner of the space. We are very strict now, and we try to limit it to options which are no longer than the initial term. In addition, rather than fixing the option rent, we've been very focused on making it fair market value.

So that this way, at least I haven't seated the table to decide what the rent is going to be, and I can actually realize the mark-to-market and not wait for years to realize the mark-to-market on the rent. We've been more aggressive around cotenancy and making sure that we don't get caught if someone leaves it's going to impact other NOI at the center. We've been harder on exclusive uses. So we had been so quality focused and if that means that we are a little slower to fill up our space, that's fine. Again, we're trying to do what's right for the long term aspects of the portfolio and drive value in ways that are beyond just the headline rent.

And what about the balance of those boxes, right? You talked to 83% and talk about the balance, how they...

Yes. I mean so there's 5 left. And we're still prospecting and listen, when you have 29 and there's going to be 5 of them that are going to take longer than the rest. That's just how it works out. So nothing structural about those boxes, nothing that's going to keep them vacant for a very long time. It's just a matter of us cycling through and seeing who's available to want to take the space.

So listen, I'm not going to tell you we're going to have 100% box occupancy rate anytime in the future. You always have some frictional occupancy -- vacancy. So again, we're working on them. Will we get them all done? Hopefully.

It doesn't mean that there's no activity -- this means that we're not currently negotiating with -- haven't selected a negotiating with one specific tenant.

Yes.

Okay. And then again, while we're on that topic, talk about the watch list as well. I just want to make sure we understand kind of the positives and negatives in the next year. what does that watch list look like over the next 12 months?

So I think the one tenant that's probably garnering most of our attention over the next 12 months is The Container Store. We have 7 Container Stores at 70 basis points of exposure we were in recent discussions with The Container Store and their management team. They have hired a new CFO, they don't have a CEO at the time, maybe that's changed since I've talked to them 2 or 3 weeks ago. But this was a very much of a cost-cutting person that was really there to sort of stem the expense bleed and get them basically stabilized.

And so what we didn't really hear a whole lot during the conversation is what's going to change in the business since it's going to make this a viable sort of a viable go-forward plan with them. They're also out looking for some relief from their various landlords. They have not filed. It seems like their liquidity is going to be good enough to get them into '26 and they're also in discussions with potentially having some more recapitalization dollars come in to buy them some more time.

But I think the way that we're looking at it is if there's an opportunity for us to sit down with them. Typically, when we get tenants ask us for net relief outside of the process, bankruptcy process, we say no. There may be a little bit more willingness for us to sit with them and see if we can't cycle out of it in a more sort of measured way rather than waiting for the road to get pulled out can we take a handful of these back in a more measured way. There are stores -- there are some good stores in our portfolio, and there are some not-so-good stores on. So is there some win-to-win solution for us. and that's something that we're looking into right now.

So again, trying to mitigate The Container Store situation right now. And then looking further out to the watch list, a lot of them, I think it's more of a '28, '29 story when you really start to have some concerned, you've got some maturity walls happening with Petco and Michaels. Michaels we're -- we haven't got any new intel, but the setup seems to be pretty darn good. we know anecdotally that they have dedicated more of their floor area to fabrics to sort of act as the person that's going to absorb the void from Joann. They've dedicated more of their floor area and more SKUs to party supplies to be the beneficiary of the consolidation of the Party City.

So I think the setup for them is good. But TBD, we'll let you know. And we do hear rumors that they would ultimately like to go public, but that's a question for them.

Okay. So the setup in terms of watch list looks pretty good into next year. I mean, 70 basis points is sort of in that normal 75, 100 basis points -- it's just that you got to work through some of the bankruptcies drag from this year, the downtime.

Correct. Correct. I mean if you think about our growth this year, we did 3.2% same-store in the first half, and we're guiding to 2% that obviously suggests the deceleration in the back half that deceleration is just 2 things. One, it's obviously we don't have the rent from those tenants that we had in the first half of the year. And second is we have more difficult comps in '24, we accelerated into the year in terms of growth. And so when we're looking at '26, '26 is going to look the mirror opposite of '25.

You will see us have probably modest growth in the first half of the year with growth accelerating in the back half of the year, as we're not comping against this bankrupt income that we had in the first half of '25.

I just want to make sure if there's an opportunity for everyone to ask questions. Anything on internal growth?

Okay. Maybe some comments on Legacy West here. Help us think through kind of the opportunity there. Is it mark-to-market on new leases, densification, development, kind of walk us through that.

So it's one of, I think, 15 A++ ranked assets in the country. So the opportunity to own something like Legacy West is not something that comes along very often. Also, though, understanding where our cost of capital is and the size of that transaction, we brought in GIC as a partner, which we can talk about later. And really the attractive part about Legacy West was the mark-to-market opportunity. It's a fairly dense site, so there's not a whole lot of densification possibilities. There's some that may be something we can do with garages later, but that's far enough, we're not the major driver of the underwriting.

Yes, we're seeing 30% of the rents are turning over the next 3 years, which is going to give us an opportunity to really look at the merchandising and see what we can do in terms of the rents. I will tell you, the ABR now is averaging around $60 a foot on the retail side. Some of our leases were doing deals in excess of $150 a foot. And we recently had a tenant that we underwrote that was struggling when we closed on the transaction, we underwrote them leaving. Sure enough, they left -- they're leaving at what, a $43 rent, in that and we're replacing them with $140, right?

I'm happy to pay that TA for that kind of tripling of the rent all day, almost quadrupling the rent. So that was the opportunity there. And in addition to that, we own Legacy East, which is across the street. And if you look at the evolution of Legacy West, it's moving higher and toward more luxury tenants and so some of the tenants that were sort of the original tenants of Legacy West, and then we had the original developer added on this luxury wing.

Some of those tenants aren't really appropriate in that lineup. And so we feel like by owning Legacy West, we have the perfect outlet. So legacy West is sort of luxury and high aspirational luxury. Legacy West. Legacy East is really more of an aspirational luxury sort of outlet. So we'll have some good synergies between those 2 projects. So that was a second motivating factor for Kite to want to be a part of Legacy West.

Maybe expand on sort of GIC and that JV platform yes. So how big can that be? How active can it be?

It's -- first of all, they're a great partner. We don't have a mandate on size with them. We don't have an exclusivity clause that requires us to use them to the extent we're looking at acquisitions I will tell you that it took a lot of calories to set this arrangement up. Listen, we're already $1 billion in gross value. So I'd tell you that's a nice sizable stand-alone JV already justifying the time and effort we put into credit, but I think both parties are like-minded that we'd like to grow both parts of that portfolio. So to the extent there is attractive acquisition opportunities in that sort of higher-end mixed-use space. They are expressed willingness to want to chase things with us.

After Legacy West, we looked at a couple of things. We didn't get there on pricing. But they're also looking forward to growing the other part of the portfolio. As you recall, we contributed 3 larger format assets into a joint venture, they owned 48% of that. And the beauty of that transaction, especially Legacy West, and if we can repeat it, is that when we bought Legacy West, our effective yield on Legacy West due to the management fees is 6.5%. And you guys can back into what you think the cap rate is, but that's a 50 to 75 basis point improvement in our yield because of the management fees. The yield at which we sold the 48% interest in the 3 larger format power centers, was also 6.5%.

So we partially funded the acquisition of Legacy West with power center currency, which I think all of us can agree is a home run, if not a grand slam. So if we can repeat this with them. And listen, for them, it's for them. It's a very interesting trade. And it's actually the way we originally presented the joint venture. Why don't you chase this wonderful trophy with us. And in the meantime, because that has a certain risk-adjusted yield. It trades at a tighter yield, but it's got better growth.

And why don't you also take a look at some of these higher-yielding assets that have lower growth and won't that be a nice blend for you in terms of your investment objectives, and they agreed. So there's certainly a version where we will continue to put in some of our higher-quality box year assets. into that side of the portfolio or that side of the joint venture. So it's been great. They're great partners. Good news is that we -- and when you're a partner with someone like that, you want to make sure that you can deliver on what you've promised and thus far, Legacy West is exceeding.

Got it. The one factor that -- one segment I want to talk about was CapEx.

Sure.

And I know you talked about the backfilling of the boxes and it seems -- look, you'll have growth next year from an FFO perspective as well, but there's a lot of folks here that also focus on AFFO. As we think about sort of that the CapEx trend into '26 and even into '27 as a percentage of NOI. Talk about that CapEx trend given all the backfills. What is the internal view here?

Yes. So we've been pretty vocal that the sort of the lease-up spend has been around $100 million to $120 million a year while we're in this lease-up phase. That's against the backdrop of a stabilized CapEx leasing number around $40 million to $60 million, assuming the portfolio is fairly full. Prior to the last rash of bankruptcies in '24 -- late '24 and early '25 we were communicating that we thought that the leasing spend would diminish and the AFFO would ramp up sort of in -- as a late '25, '26 story, now with that -- with the bankruptcies happening in '25, with Joann and Party City, that AFFO ramp-up is now a late '27 to '28 story.

So you'll see elevated spend in that $100 million to $120 million range happening in 2025. You'll see it happening in 2026. And you'll probably see that run rate happening in the first half of 2027. And then in the back half of 2027 per our model and our absorption rates, you'll see that start to diminish. And then hopefully, 2028 will be much more of a normalized year going back to that $40 million to $60 million spend of leasing capital.

And then the other piece of capital is just maintenance CapEx, and that's pretty regularly $25 million, that's a point on the range. Sometimes it's a little less, sometimes a little bit above.

Okay. So still elevated in -- well, certainly in '25 and then '26 and then maybe first half of '27?

Correct. Correct.

Okay. Just these JV structures you see, [indiscernible].

100%. But it's interesting. If there was a -- I mentioned earlier in my remarks that we would look to probably cycle out of some of the larger assets that have lower growth and higher exposure to credit watch list. Those aren't the assets I want to put into this joint venture with GIC. This is a long-term partner. So we do have some box here, larger format assets, which are really great real estate. Yes, they yield lower, yes, they have lesser bumps.

Generally, these have less of an exposure to credit watch list tenants. And so those are the assets that we're willing to hold on a long-term basis. And isn't it great that I took a high-yielding asset and not even put an extra higher yield on it because I'm getting a management fee, right? So that's almost like a beautiful hold vehicle for us to continue to want to work with that. And I don't know what their ultimate appetite is, but we're willing to grow that along with them.

Again, it will be paired because if I'm putting assets in there, I need something to do with the proceeds, right? So I would love to be able to repeat that. But those things are hard to get. But I mean the good news is that in that -- we can talk about the transaction market, but that particular part of the market, sort of lifestyle mixed use, especially the high-end stuff, you've seen things hit the market that normally don't. And part of it is that there was so little price discovery on that product type for so long. I think we're sort of help sort of to thaw the market and that you saw price discovery on Legacy West. You saw price discovery at Scottsdale Quarter in Phoenix.

You saw price discovery on Birkdale Village in north of Charlotte, and you're starting to see even lifestyle in more tertiary markets and secondary markets starting to demarketed. Again, I think sellers are getting conviction. I think before there was this worry that it was lifestyle, it automatically inherited a mall cap rate, not an open air cap rate, but you're seeing the cap rates and that stuff compressed. It's been fun to watch all these things come out. I will also say that GIC and Kite alone, we are extremely disciplined IRR buyers.

And we're writing something and I'll make a number up to 8.5% unlevered if it's 8.51%, we're out. So that's kind of that's how we approach our acquisition mandates.

It's interesting you bring up the comment on the lifestyle because nobody wanted to touch them in the 2000s in those days. And now it feels like everybody, every asset that everybody is buying is a lifestyle and maybe -- is that just a function I mean, WPG has been pretty active. Right? You've seen a lot that product come through.

Correct. Yes.

Or let me shift from mall tenants going into lifestyle where maybe that's kind of what you're seeing?

Yes. I think it's a number of factors. Number one, you are seeing obviously a lot of the lifestyle or traditionally enclosed tenants are really wanting to be open air. That's simply a matter of the triple nets are so much less. You're not heating or cooling or et cetera, et cetera. But I think the other thing happening with lifestyle is -- and as a CFO, whenever I'm looking at a leasing plan, I'm thinking about balance sheets, right? What do the balance sheets look like? As I'm going through this, and I think the mall tenant base or the lifestyle tenant base is further along in its purging cycle, I think, than some of the larger boxier tenants.

And so when I go through some place like Legacy West or looking at the roster at South Lake or One Loudoun, I feel pretty good about most of the balance sheet. Now Container Store is the one lifestyle tenant. I'd tell you that still has a larger footprint, they're over 20,000 square feet, and they're obviously on the ropes. But for the most part, I feel pretty good. So I think some of the conviction around the space is saying, "I'm getting better growth. These are typically 3% or better bumps A lot of these tenants have been there for a while.

There's great merchandising opportunities. Can I cycle out some of the traditional White House, Black Market names or Chico's and put in someone more exciting, like Alo or Aritzia. So I think that's been the cache. And I think also just the pricing discovery. People like, you know what, now I understand what this is worth, and I know where the bid is, and we're going to go ahead and make an offer or we're going to go ahead and sell because now I have conviction that it's not going to sit out there and someone is going to come to me with a crappy 8% or 9% cap rate on it, right?

So let me ask you some of the heat. So every year, I feel like there is -- we have this conversation of a drag on NOI because of some of these tenants, right?

So my question to you is, is there a scenario here, you kind of alluded it to earlier where you just say, you know what, we've got these box, your tenants, let's rip the Band-Aid Here's a bucket of assets that we could potentially sell and you talk about the market out there for transaction to be pretty active. And let's go sell those, right? And then take the proceed, maybe buy back stock, I mean, help us think through kind of what happens, the conversations you're having at the Board level [indiscernible] at this point.

It's a great question. First, I'll set it up with this. There is definitely a bid right now for larger format boxier assets. And really, I'm really seeing 2 pockets of capital. I'm seeing private players that are happy to own yieldier, boxier stuff probably because their source of capital has a pretty high return hurdle, so this is how they're going to make their money. And they're also seeing private equity retail has become one of the better ideas in private equity in the real estate side. And when you're staring at having to produce your investors a 16% to 17% levered IRR, you're not going to do it with a 5.5% cap grocery, right?

So what you're going to do buy 7% to 8% cap larger format. So how does that relate to Kite? So opening remarks, I told you that we'd like to diminish this boxier part of our portfolio. However, we're also very mindful that, a, we need to do something accretive with the proceeds; and b, we would like -- while we'd like to do something more than just small, we want to make sure that we're doing it in a very tactical way so that we're doing very little damage, if any, to our earnings. So how do you do that? Well, number one, you mentioned it. Can you sell boxier assets? And can you put that into stock buybacks?

Well, the current FFO yield on our stock would tell you that those things trade inside of that. So that's certainly a use. Good news for us since our balance sheet is so strong, we're at 5.1x net debt to EBITDA, we can do it. And we don't have to do it on a leverage neutral rate. We're happy to go to 5.5x how some of these assets, however, have built-in gains. So do you send out the gain in the form of a special dividend? Or do you go ahead and just do a 1031 because you don't want that particular leakage. So for us, it's all of this idea of -- and I think that one page we had 2 quarters ago on Legacy West, it shows you how we think internally.

Here are some of the assets that we'd like to sell, they've got lower growth. They've got these watch list tenants. We can kill two birds with one stone. Well, let's make sure we're smart about how we deploy. And I think the hardest part about our job as capital allocators is you have these different time horizons on things you're trying to achieve. And so when you say swapping, selling assets, buying back stock, sounds very simple in theory. But you've got something that takes 6 months to transact versus something that is obviously trading in the market every day. So how do I ensure I don't get caught? How do I -- okay, I want to sell X, Y and Z asset. It's $100 million.

Do -- does that mean I immediately go run out and buy stock for $100 million saying that I'm going to sell this asset. Well, I don't know, there's a very real reason that maybe your buyer disappears, something happens in the market and all of a sudden, you can't transact. So maybe what you do is you say, okay, I'm going to get this thing under contract. -- and then maybe when it goes hard. Now I feel like I have a certain measure of conviction. Now I'll start activating the other side of the trade. By the way, let's hope I'm not in the blackout period, Right?

So there's -- it's a little bit more of a Tetris exercise than it is Pacman. And when you're trying to navigate through capital allocation. So to answer your question, we have no desire to do this multiyear dilutive, let's dribble out a little bit every year until 5 years from now, we're in some kind of -- we have some kind of portfolio that we really like. We would do something more meaningful and doing it in a way that's more tactical and trying to take advantage of two things right now. Number one, our stock is letting us do it. And number two, there's a market, right? So that's a long way of answering your question is sizing-wise, we're not talking billions and billions of dollars of assets, right?

Those are going to be my next question.

Exactly. So let's say we're 20% pure power right now, if we go to 10% or 15%, that's a win. That's going to take that credit watch list exposure down. And I think if everyone looks at Kite and you say, okay, why is this stock underperforming in the past 2 years? It's 2 things or 3 things. One, we had lower same-store FFO growth in '24 and '25. That's easy, right? Just let's look at the tape.

Three, I think, as people are concerned and even after we've had a disproportionate amount of exposure to bankruptcies that we continue to have one of the higher exposures to credit watch list tenants. We don't want to be that in that list anymore. We want to be more toward the middle. How do you accomplish that? You accomplish that by selling because, unfortunately, I can't reduce my exposure to some of these folks because they have options forever and every time they hit them, right? So we wanted to be -- have way less party cities than we have every single time.

An option came up they'd ask for rent reduction, we would say no, and they would hit the option, right? So that's kind of the struggle. So the answer is yes, we'd like to get some things done. But all of it is market dependent. And I think the big highlight we were seeing yesterday, this is about optimizing the portfolio. This is not about fixing a broken portfolio. This is about certain assets that are encumbered on a long-term basis. with things that they're going to get people concerned that we're not going to be able to grow proportionately or actually grow in excess of where our peers are going because we have that exposure.

So again, it's -- but we want to do it in a way that's not going to just have a throwaway year in terms of our earnings.

Okay. Any questions here? Then I've got some rapid fire. I know we're kind of at the end of time. I think it -- All right. ready for this Fear?

Sure.

All right. When the Fed starts to cut rates, do you expect long-term to decline, stay flat or potentially rise, choose one.

I think flat.

Okay. Last year, the majority of companies stated they are ramping up spending on AI initiatives. How would you characterize your plans over the next year, higher flat or lower?

Higher.

Number three, we believe same-store NOI growth for your sector will be higher or same next year.

Lower.

Okay. Thanks a lot.

Thank you.