Kite Realty Group Trust Price & Performance (KRG)

Thank you, and good afternoon, everyone. Welcome to Kite Realty Group's fourth quarter earnings call. Some of today's comments contain forward looking statements. That are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially [indiscernible] 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 ks. Please refer to yesterday's earnings press release available on our website For reconciliation of these non GAAP performance measures to our GAAP financial results, On the call with me today from Kite Realty Group our Chairman and Chief Executive Officer, John Kite 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. Given the number of participants on the call, we kindly ask that you limit yourself to 1 question and 1 follow-up. If you have additional questions, we ask that you please join [indiscernible] I'll now turn the call over to John.

Kite right. Thanks, Brian, and good morning, everyone. The concluded an exceptionally strong 2024. Highlighting a year of outstanding performance by the KRG team. In 2024, we leased 5000000 square feet of space our highest volume in history and the demand for space in our high quality centers remains strong.

Allowing our team to improve our embedded growth establish higher starting rents and enhance our merchandising mix. New and non option renewal leases signed in 2024 have weighted average rent bumps of two ninety basis points which is well above the portfolio average of approximately 170 basis points.

This is in large part due to our success in implementing embedded S 71% of our new and non option renewal small shop lease is in 2024. Pushing our portfolio to higher cruising speed has been a primary focus of our leasing team our long term growth profile. For all comparable new leasing activity in 2024, we generated 31.9% blended spreads and a 46.4% gross return on capital. While spreads are an important factor in our decision making, our fundamental objective is to earn a favorable risk adjusted return on the capital that we invest in retailers. In 2024, our non option renewal spreads were which illustrates our current pricing power and the significant mark to market opportunity in our portfolio. For comparative context, in 2018 and 2019, non option renewal spreads averaged 2.6%. We leased space to a diverse mix of well capitalized and highly productive tenants in 2024, including Trader Joe's LL Bean Sierra, HomeSense Ulta, Aloe Yoga, Cava Flower Child, and Sephora just to name a few. Has well positioned us for continued improvement of our merchandising mix and our tenant credit profile. Our net debt to EBITDA at 4.7 times underscores the incredible condition of our balance sheet.

And we are poised to evaluate and act on a variety of internal and external growth initiatives. We worked diligently and strategically to place ourselves in this advantageous position. With approximately $120,000,000,0.0 in available liquidity, we can deploy significant capital while comfortably remaining within our long term average target of 5 times to 5.5 times net debt to EBITDA. Subsequent to quarter end, we acquired Publix anchored Village Commons in West Palm Beach, Florida for $6,840,000,0.0 Coupled with our earlier acquisition of Sprouts anchored Parkside West Cobb in Atlanta. Our reallocation of proceeds from non core dispositions to the Sunbelt has been accretive. Turning to our outlook for 2025. In broad strokes, our significant occupancy gains, strong spreads and enhanced escalators are being tempered by certain non cash headwinds and recent bankruptcies. Despite the short term disruption, we are heading into '25 with strong momentum and are energized by the multitude of internal and external opportunities in front of us. We're swiftly addressing the fallout from tenant bankruptcies by securing higher quality tenants and maximizing returns. While the downtime in rent and capital invested in the backfills will delay our anticipated ramp up of AFFO and cash flow growth In the short term, our long term value proposition will be significant.

We are experiencing strong demand for by growing their footprint in high quality well positioned real estate. We'll continue to improve the cruising vast majority of our small shop tenants to 4% or higher bumps and we'll push for improved terms with our anchor tenants such as shorter option periods, more flexible co tenancy provisions All phases of the 1 Loudoun expansion project retail, office, multifamily and hotel are progressing as planned. The retail front, we recently signed leases with Williams Sonoma, and Pottery Barn. They will be joining names like Our House, Bar Taco, for the 400 unit multifamily project and the 170 key full service hotel. We are finalizing terms with our joint venture partners and anticipate adding these phases to our active development pipeline over the next several quarters. The current state of the transactional markets and the significant institutional capital formation for OpenAir assets gives us confidence that we can continue our capital recycling efforts. We will look to sell out of lower growth and single asset markets and redeploy capital into our target markets investing in assets with with a greater percentage of small shop space, higher embedded growth rates, and generally consistent with the centers that we toured during our four and twenty four series.

Notwithstanding a potential uptick in activity, our guidance at the midpoint does not assume any impact from transactions we intend to maintain our approach of match funding acquisitions with proceeds from dispositions, a way that is accretive or neutral to earnings. Based on our current leverage levels, we have the capacity to significantly front load our match funding exercises with strategic acquisitions. As always throughout the year, we will continue our best in class disclosure efforts and proactive investor outreach. Our four and twenty four series solidified KRG's to distinct advantage in operations, leasing, development and investment within a highly competitive sector. In 2025, our objective is to define define a portfolio vision that further separates and elevates our investment proposition and long term growth you as always to our incredible team for their commitment to constantly improving KRG. Together, we delivered another very good year. While we clearly have work to do in 2025, I look forward to our collective success in achieving our goals. I'll turn the call to Heath now. Thank you and good afternoon. I'm pleased to report twenty twenty four fourth quarter and full year results have outperformed the guidance we gave nearly a year ago.

KRG earned $0.53 of NAREIT FFO per share and $2.07 per share for the full year. The quarter, same property NOI grew by 4.8%, driven by four forty basis point increase from minimum rent a 30 basis point increase in net recoveries and 10 basis points of lower bad debt. For the full year, same property NOI growth was 3%, with primary contributors being higher minimum rent and net recoveries, offset by slightly higher bad debt compared to the historically low levels we experienced in 2023. It's important to note that our twenty twenty four year end same property result is 150 basis points higher than our original guidance, over the past three years, our same property growth has averaged 4.3%. Before discussing our 2525 guidance, I wanted to highlight an incremental addition in our disclosure. On a go forward basis, KRG will be reporting guidance to both NAREIT and core FFO. Core FFO serves to eliminate some of the non cash noise and focus the attention on our fundamental operating results. By way of example, as compared to full year 2023, core FFO grew 4.7% in 2024, which reflects the strength of our underlying business. For 2025, we are establishing NAREIT FFO guidance of $2.00 $2 to $2.00 $8 per share and core FFO guidance of $1.98 to $2.04 per share.

Included at the midpoint of our guidance are the following assumptions. Same property NOI growth of 1.75%, a full year bad debt assumption of 85 basis points of total revenues and additional disruption of 110 basis points of total revenues related to anchor bankruptcies, interest expense net of interest income of $122,000,000 and no impact from transactional activity. It's equally important to highlight the more qualitative components of our guidance which is the enduring commitment to responsibly set expectations based on things we can control while maintaining a visible pathway to outperformance. Assist in evaluating our 2025 guidance, I encourage all of you to review Page five of our investor deck, which bridges our 2024 NAREIT core FFO results to the midpoint of our 2025 guidance. As John alluded to, the midpoint of our guidance assumes our strong operational gains are being partially offset by recent bankruptcies which were acting as 160 basis point drag on same property NOI growth and a $0.04 drag on NAREIT and core FFO. These proceedings are unfolding real time, so we felt it prudent to conservatively estimate that only five of the 29 impacted anchor boxes will be assumed by replacement tenants. This affords our team the flexibility to make long term decisions around the best replacement tenants and recapture the space if necessary.

Looking further down the income statement, certain year over year non cash items are resulting in an additional $0.05 drag on NAREIT FFO per share. As we have previously disclosed, approximately $0.025 of this non cash impact is due to merger related debt marks the impact of which significantly abate as we move into 2026. Despite all these challenges at the midpoint of our guidance, core FFO per share is projected to grow in 2025. The spread between our leased and occupied freight remains elevated to two forty basis representing $27,000,000 of NOI The case of this NOI coming online is set forth on Page six of our investor deck. Expect that over the course of this year, spread between leased and occupied will widen as we aggressively re leased the approximately 200 basis points of occupancy being vacated as a result of the recent tenant bankruptcies. We are fortunate to have the opportunity to address these vacancies in an environment where the inventory for hard quality anchor space is dwindling. As John mentioned, we have wood to chop in 2025. But rest assured that the team is energized and fueled by a culture of outperformance. Thank you to the entire KRG team for another incredible year and we look forward to seeing many of you in the coming weeks.

Operator, this concludes our prepared remarks. Please open the line for questions. Thank you. First question will come from the line of Todd Thomas from KeyBanc Capital Markets Kite.

Your line is open. Hi, thanks. First question, John, you spent some time discussing acquisitions. A little bit. You mentioned the balance sheet capacity with leverage at 4.7 times, the target being five to 5.5. The market's been volatile, particularly with regard to equity cap costs over the last several months. And I understand there's no impact in guidance related to any transaction activity, but can you just provide an update and speak to your current thinking on new investments today and characterize the appetite capital deployment today? Sure. Sure, Todd. Thank you. Think as we were trying to allude to, I mean, we certainly the markets ebb and flow, but we look at acquisitions and we look at real estate in general in terms of what's our ability to make a difference with the asset, what's the long term growth profile, and most importantly, how good is the real estate. So So those are the things that we're focused on The volatility does Kite comes and goes. So I think bottom Kite, you saw that we just acquired a deal in South Florida. Publix anchored center in West Palm Beach. And it ticked all those boxes. Fabulous real estate, a better growth profile than the overall portfolio that we currently have.

Upside opportunity in the rents So that's a situation where because of our balance sheet, we can act on it. And we think that that's going to be a great asset for us. So beyond that, I think strategically what we were laying out in the prepared remarks is we want to continue to pivot towards real estate that insulates us from what's happening right now. So to the extent that we can, and we can do it in an accretive manner or neutral manner, we can sell an asset that we think is over weighted into kind of tenants that we view as long term risk then we would look to sell that and try to acquire something that isn't So that's really the big picture, Todd. And again, you're correct in saying that the equity cost of that equation is volatile. And so we have to think through how we would capitalize these things. But we're looking to do it in an accretive way. Okay. And then, you talked about capital recycling and and match funding acquisitions with dispositions. Should we expect to see acquisitions drive dispositions or would you consider selling assets if first ahead of anything you might look to acquire?

And then secondly, just wondering if you could just provide an update [indiscernible] the sale of City Center and White Plains, and if there's any impact at all from that that is sort of embedded in the guidance that you can discuss? Let me think through the questions. But In terms of the last question, Kite Center, I mean, let's start with that. It is on the market. We have been receiving offers that would validate what marked the asset So I think we are anticipating that that would close this year. And so the answer is yes, it is embedded in what we're thinking. And then what was the the first two of those three questions?

Just in terms of the recycling. So that's Yes, Kite would be buying the front end. Yes. I mean, that's market driven, Todd. That's much more market I think we're trying to make the point that if we find something attractive that we think has the right growth profile and the right real estate, we could act on that and buy the asset first and then dispose later. So the answer is yes, we would do that. And I think it's very just it's just kind of market timing And as you know, sometimes we receive offers on assets that are off market that also is a possibility that we might move on some things like that. But again, I don't want to give the impression there's the bottom line is we're looking to control that as much as we possibly can and try to whatever we're doing, try to do it in an accretive manner. Thank you.

Sure.

Thank you. One moment for next question. Our next question comes from the line of Craig Mailman from Citi. Your line is open. Hey, everyone. Maybe just a follow-up on Todd's question. John, kind of alluded towards front loading some of the acquisitions potentially. I mean, beyond the deal you just closed down in Florida, do you guys have anything that is close to coming across the finish line or visibility or was that just a we could do this if we wanted to because of the balance sheet? No, I mean, I think look, we're obviously indicating that we're very active in the market like we always are. So we're engaged on underwriting assets. We don't have anything that we're announcing in terms of something that we're doing after the last acquisition. And so the the point is that's with this kind of balance sheet, affords us that opportunity to do that and then come in later look to pair that trade. So So that's our objective, but we also want to do it in an accretive way with high quality real estate. So there's a lot of box to tick. But yes, we're always actively looking and we'll update as we move along.

I think the point, Craig, is that you're at the higher end of our leverage target range. We'd be reluctant to stress ourselves out on acquisitions too far. So by being at 4.7, you can get ahead of Kite. You could do an acquisition before you do dispositions. And if you get caught in a market where all of a sudden it changes and can't get your dispositions done, You're using debt capital that is accretive to the transaction and you can wait until the markets reopen and then match a little bit later. So it just gives us so much more flexibility. Again, another one of the amazing things by having this balance sheet down to 4.7x net debt to EBITDA. So I think the other thing to add to that Craig is Heath mentioned the institutional investor interest in the OpenAir class. That's the other thing that's going on. I mean, there's a lot of private institutional capital that is very interested in being in our business And I know there's been let's say, less positive outcomes on this from others who have tried Kite, but with where the stock is trading today, and I know there's volatility around where the public markets trade, but to the extent you can sell assets inside of the implied cap rate you guys are trading at, I get that You want to focus on the future, but at what point does share buybacks ever the math there kind of become compelling?

Given the guaranteed return?

Yes. I mean, very fair, very fair comment. Question. It's always something that we're analyzing because whenever we're looking at deploying external capital, we have to judge it against that [indiscernible] it's always there in the backdrop. I think what we said in the past is we were so focused on backfilling the vacancies that we had and getting the substantial returns on capital that we were getting in leasing And the frustrating part of this is that as you saw over the last two quarters, that was really taking heed with our same store NOI picking up rapidly core FFO growing, And then lo and behold, we get hit with this new round of bankruptcies, which we hope is near the end of those potential things that can happen, So it's It's another thing that we have to deal with that we are now looking at applying that capital that we could have otherwise deployed to a share repurchase to leasing up space and by the way getting 30%, 40% returns on capital. So it's [indiscernible] Yes, I mean, long answer, but it's always something that we're going to underwrite when we think about deploying external capital.

Great. Thank you. Thank you. Thanks, Craig. One moment for our next question. Our next question will come from the line of Jeffrey Spector from Bank of America Securities. Your line is open.

Great. Thank you. John, I'd like to follow-up on a couple of the points you you mentioned. You talked about You just said a comment around nearly the end of these BKs happening, I think that's what you're alluding to. You talked about owning real estate that insulates you from what's happening right now And I think the concern, right, is that this is just part of the business. It sounds like you're saying, I don't know if you feel like by 2026, like do you feel that there's a certain percent of the portfolio that will be more insulated based on the credit quality of the tenants today Kite, because there again, there's just this concern that we walk into next year and there'll be another slate of retails that Kite. Right. [indiscernible] Great question, Jeff, and appreciate it. I think yes, our view is that when you look at what's happened over the last couple of years, These bankruptcies have been occurring in a very strong environment for us to backfill them. So that's a real positive. [indiscernible] voiced, frustration on in the past is the fact that the struggling retailers, they tend to hang on and hang on and we're put in positions where we can't get access to the space when when we want to.

And then lo and behold three or four of them like has happened in the last six months four or five of them, I guess, kind of file all at the same time And we were a little over weighted in that category and that's something we're very focused on eliminating. So you'll never fully eliminate credit [indiscernible] Credit issues in any business but if you can insulate yourself against it and weight yourself down and what we mean by that is obviously, if you look at the distribution of our type of properties we're in the neighborhood grocery anchored center business. We're in the community grocery anchored center business. We're in the lifestyle business and we're in somewhat of the power center business. And it's that last leg that we're looking to have less of Now that being said, it generates consistent free cash flow that we can redeploy. So you have to do that within reason.

I think what we're saying is we are looking to improve our portfolio such that it insulates us against it. It will never completely eliminate Kite. That being said, I do feel like when you look at what's happened in the last couple of years, the lift is getting smaller as it relates to those at risk tenants because the ones that continue survive or actually thriving. It's these old kind of businesses that haven't reinvested in their own platforms they go away. Most of that is it's not all gone, Jeff, but it feels like we're in a better Okay. Thanks. That's really helpful, John.

And then I have a follow-up for Heath and I apologize, I couldn't hear it. Heath, at one point you were talking about in the guidance, right, the conservatism. And so and I think you said something around like maybe out of the 29 replacements you're only reflecting five. Can you [indiscernible] Maybe discuss that a little bit more, some of the conservatism, let's say, in the guidance, some of the reach Kite where you can be towards the top end? And maybe that even includes shrinking the time it takes to backfill.

So Jeff, as you know, these bankruptcies are unfolding real Kite. And so we're giving our best data we can and UCaaS to make assumptions And the assumptions we're making is that basically as you said, of the 29 boxes being impacted by these series of bankruptcies, we only have five of them being acquired. One of them is a big large, which we think is going be a going concern and then four of them are our Party City locations. Will tell you for Party City, we had bids on a total of eight of them.

Two of them were straight up assumptions, so those ones are going to be assumed.

That's part of that five. And then another six of them the purchaser bought lease designation rights, which basically gives them the right to a assume the lease, but it really is an entree for them to call us and to negotiate [indiscernible] a term change. So we're assuming maybe of those six, another two of those end up into real deals.

That gives us the five So as you can tell, again, we still have the year what's happening with Joanne and their auction So there is a version, Jeff, that there'll be more than five, which I think is an opportunity for us to outperform. But as John said, we want to make sure that the replacement tenant is someone that we're happy with that's going to be accretive to the merchandising mix that has a good balance sheet So there may be a version where on some of these if someone is bidding even though we could take the short term gain of of no income disruption, and just go ahead and let them assume and not put any capital into Kite. We don't want to kick the can on the problem. But just like the discussion, you just have a job. John, we are actively looking for ways to reduce exposure to some of the names that cause us concern. And we can do that by, A, by trying to not renew them, recapturing space in these kinds of instances or perhaps selling assets an exposure to these tenants that have long duration on their term. So it's a multifaceted approach.

To try to reduce it. But again, you're Kite, is that a conservative assumption? It is. But as I said in our remarks, when we give guidance try to set expectations reasonably In the top end of our range are things that we have vision of and there are sources of outperformance and the bottom end of our range is really insurance against things that we can't see. So that's kind of how we approach it.

And I think we'll have a little better clarity on Joanne's probably in April. [indiscernible] between Party City coming through and being able to negotiate with Riley who will be assigned to us and then coming up with Joanne's, we'll have pretty good clarity, I think, in the next couple of months. Hey, Jeff, [indiscernible] You had a second part to your question about how long it takes to open tenants. And that's absolutely a major focus. And when we're when we look at that and we review opportunities with new tenants And we have this ability to push opening dates we do that.

And I think we're going to have to do a much better job of that going forward that a lot of the things that take time to and would for example, if you're doing an anchor lease and the tenant is not going to open for eighteen months, We just can't let that happen. We have to push it and we have to make it happen faster. So that is something that we're focused on and will be focused on. And in regards I just want to say in regards to the to the guidance and more particularly the bad debt, I mean, obviously, when you look at the amount of bad debt reserve that we have, it's the start of the year.

And we're going to be conservative in the start of the year. If you look at what's happened with the company in the last several years, expectations. But put yourself in a position to absorb the unknown. And until it becomes more known, then that's when we would update everybody. But we feel very good that we're in a position to move quicker. But we want to make smart decisions around the merchandising mix. I think that's we've given ourselves that ability to do that.

Thank you. Thank you. Thanks, Jeff.

Thank you. One moment for Kite question. Our next question will come from the line of Florez von Dick from Compass Point Your line is open. Hey, guys. Good afternoon.

I had a follow-up question on capital recycling. You have Two big land parcels that are currently as far as I'm aware, not yielding anything. Could you talk about the entitlements on those, one in Ontario, one in I think Largo, Maryland. And what the appetite would be for those two pieces of land longer term?

Yes, Forrest. I think as we said before, both of those are examples of parcels that we look to enhance the value vis a vis the entitlement process and then highly likely that we would dispose of those to a third party to develop. So in both of those cases, we are in that process and we are we have added significant value by vis a vis the entitlement process can't give you timing but absolutely there is real opportunity there and you are correct. They are creating no yield for us at the current time. So it's all upside. [indiscernible] process of getting site plan approvals and all the various regulatory regulatory items are well underway. On both And is it correct that something close to like 1,600 units could be built in Ontario?

I don't think we have disclosed exactly what that is yet because we're in the process of of that entitlement, that specific entitlement. But it's a large piece of ground and there is real desire in that community for residential. And unfortunately, it became even more desirous with the events in the tragic events in LA in terms of Housing So yes, I mean, we're that's ongoing and that's why we think we're going to create a lot of value there. Floris. Yes.

So the request for proposals really lay out what can be done on the property In terms of capacity And then we're asking each of these potential buyers to come up with their plans. And then from there, we'll we'll review each and everyone and make decisions. Great. And then maybe my follow-up, if I may, just talk about, again, The momentum that you have right now for particularly on your shop occupancy as well, I think a 91.2 Where could you see that going later this year? I know you've talked about seeing maybe a potential drop in physical occupancy as you deal with some of this this disruption impact how does that impact your ability to lease and continue to grow your shop occupancy.

Yes, we don't think this is going to impact our ability to do that at all.

I mean, generally speaking, these retailers that are going away were not additive quite frankly, to the centers themselves. So anything, it's a lot of upside there. And our shop occupancy is growing. As you know, pre COVID, it was 92.5%, now it's 91%, meaning that we have a lot of opportunity. Now we've also been very, very diligent around doing the right deals, getting better growth, and that's why we pointed out the 70% of the deals that we did That's a big number, 70%. In the shop space. We're at 4% bumps or better Over time, that generates more cash flow that is very meaningful. So I don't think at all that the bankruptcies will impair our ability to do that. And if anything, the replacement tenants that we bring in will actually add to our ability to lease the shop space. [indiscernible] Thank you. Kite question comes from the line of Paulina Rojas Schmidt.

From Green Street, Your line is open. Hello, everyone. Retailers often have expansion options, Kite? [indiscernible] Do you think it's possible for landlords given how good the leasing environment is, to start thinking about Negotiating lease clauses where they can have recapture rights if a tenant's health falls behind a certain predetermined level.

It seems to me that The tenants that we are that are currently in bankruptcy have been struggling for such a long time and that you would have benefited from gradually capturing the space. Yes, Paulina, it's a good question. And quite candidly, we already have situations in our best properties where in the option periods, if the tenant isn't [indiscernible] the predetermined amount of sales that we determine as successful in that particular lease then that option goes away. In the best centers, we do have that. During the primary term, it would obviously be very difficult to do that based on the amount of capital that our partners put into their own spaces or the retailers. So I mean, I think that the bigger picture is the strength of the business fundamentally better than it was despite these setbacks that you have for periods of time. The strength is still there. So we are very focused on what we said in the the remarks, which is to make these more flexible.

Particularly like around exclusive uses things of that nature, Kite tenancy provisions. We need these leases to be more flexible to that would iner our ability to make moves quicker. So I think it's all part of the same bucket. And look, this is unique relationship between the landlord and the retailer. It is a customer partner relationship.

We value these relationships. They're very important to us. And as we grow and own better assets, those relationships become stronger. So I do think we will get there and we will make those improvements. And to some degree, they already exist.

Okay. And then I'm thinking about your assumption of five of the 29 leases being assumed. I get it that you have to be prudent and conservative. But I'm thinking, given that these leases are so materially below market, why Why wouldn't a large share of them be assumed [indiscernible] deterring a more successful pull off leaders for this I don't think anything is deterring that. And I think we are clear that five is a conservative estimate and he pointed out that we actually had another four that a particular retailer essentially bid on the rights to the lease even though there were no options there. And so what we're saying is we want the opportunity to make the [indiscernible] before we just put that tenant in a space because Kite it looks good on a quarterly run rate basis versus a long term value basis.

So I think what we're trying to make sure our investors understand is we want to create long term value, not short term value. And we understand that it creates difficulties sometimes [indiscernible] I would be quite surprised if the number wasn't higher than five but we want to do it in a diligent way, make the decisions and make sure we're putting the best retailers in there.

And Paulina, from a overall interest level and who we're talking to and who we're [indiscernible] that doesn't include that list. It's just list of of the four that John talked about. But another example would be on a deal that someone has a designation [indiscernible] On a Party City deal, we have a a location next to it that we could combine spaces, do a grocery. So we want to be really thoughtful on each and every one of these to make sure we get the right one Kite.

And I think we've laid this out properly to give us maximum flexibility.

That makes sense. One last one. When you think about the anchor boxes on the different size ranges, let's say 10 to twenty, twenty to 30 and then over 30,000 square feet. What What bucket is the most challenging to backfill today?

Well, generally speaking, the larger you go, the more challenging it gets. But not in the sizes that you described. It's really once you get north of 40,000 square feet, it becomes more complicated. And if you think all the way back to the old Sports Authority bankruptcy years ago, that's an example of boxes that were larger that took longer to backfill.

Now in this particular round, it's actually much more attractive particularly 6,000 foot tenant and some small shops, which would have better growth. So, but it also makes it attractive as you pointed out to tenants that want to just assume the leases. So I think again, I think we're being Prudently conservative, but we're looking to try to outperform.

And Joe, and the big losses size wise is you're looking in those strong categories of the 20s to the 30s, just gives you a lot of a lot of flexibility with the value players grocery and all the other people that are looking at it. So we're very fortunate that we have the range of the 10s, the 20s and some 30s that gives us max flexibility.

Thank you. That makes sense.

Our next question will come from the line of Alexander Godfarb from [indiscernible] So two questions. First, John, you're a straight shooter, you like to call it as it is. And like to focus on cash flow and the dividend. And not make excuses. So I'm just curious, the decision to go with a core FFO, I mean, FFO has warts, we know that, but it is what it is. It's a level playing field. Just sort of curious, why introduce Core? You guys have spent a lot of focus talking about dividend, talking about bottom line cash flow growth, So I'm just curious why the core Sure.

Appreciate the preamble of being straight shooter. So quite honestly, we aren't replacing NAREIT with core. We're adding core. So we'll be guiding to NAREIT and core And I think Alex, you mentioned about our focus on cash flow. Core is cash flow.

Kite? Core is much more cash driven So Kite isn't it's just something that by the way others do it as well, but For us, we just want to make sure that the investors can see as much as possible with in terms of and it's why it's called core in terms of the core operation of the business. And it's up to investors to judge whether they want to be looking more to NAREIT or looking more to core. We're just putting it out there as another metric to follow And And to give you an example, I mean, if you just look at where we were headed in the year and you look at what happened in the last couple of years, core has been growing nicely and you obviously have had to deal with a lot of non cash accounting associated with the previous merger. So it isn't we're not trying to replace it Alex. It's just an addition. Right. But to be fair, John, when you guys did the merger, like you know the accounting, so that's And I get it that the accounting is wonky. I'm not debating that, but [indiscernible] Guess we've been thinking about it and we're starting in now, but we're certainly not moving away from NAREIT FFO.

Okay. Second question is, just sort of a lot of the questions around the the bankruptcies and the impact [indiscernible] I guess the question is, Do you you yes, there's an outsized hit versus the other companies from these four or five group of tenants But is your sense that there's a bigger watch list Kite there were comments about other tenants to work through to improve the credit quality of the portfolio. So I'm just curious, are there other tenants that you guys are focused on to sort of eradicate from the portfolio Or is it really just bad luck of cards? You got a bunch of these tenants back this is all you're dealing with and that's where those credit comments were focused on.

Yes, I think it's more of the former. And I don't know we necessarily got a bunch more back. I think we were just more conservative in what we assumed in terms of the leases that would be assumed.

I think that's the just if you just look at the bad debt that we laid out there versus some others, I think that's the difference. Yes. And it's more what we're trying to say Alex is we continue to improve the portfolio improve the quality of the real estate and improve the distribution of the types of shopping centers we own amongst the the different genres yes, we're looking to have less box exposure not looking to have zero box exposure.

So that's all we're trying to say.

Thank you, John. Thank you very much.

Our next question will come from the line of Michael Mueller from JPMorgan.

Your line is open.

Yes. Hi. First, I guess, what is the pool size for the potential dispositions that you flagged when you're talking about the single tenant assets and the lower growth markets? If you roll them all up about how big is that pool?

We haven't laid that out in terms of the total size of it. I mean, we've always said that when you look at the total portfolio, there's probably and this is just a a SWAG number. There's generally 10% of that portfolio that you think jeez, I'd like to reposition these assets. But we also think about that in terms of we want to do it in a thoughtful way that is, as we said, accretive or at least neutral. So that makes that a challenge. But I don't think not going to look at it like that right at this very moment. Mike, we're thinking more along the lines of one at a time. Now in terms of the single state markets, I think there's probably three or four of those six of those, sorry, where we have one asset in a state. So that's probably where you start. And then we have a couple of these lower growth profile assets that we would add to that.

Got it. Okay. And then I think you said in the comments about 70% of those shop leases that you signed I think this was in the fourth quarter, had bumps that were 4% or higher. And I'm just curious, [indiscernible] what tenants what types of tenants are signing leases that have bumps greater than 4%?

First of all, it was the 70% was for the full year.

Okay.

And generally speaking, first of all, obviously, we're talking about small shop tenants And there's it depends really on the property, but there are definitely tenants that we've signed that are at like 4.5% growth There's obviously not a lot of 5s. And we're cautious around the growth obviously adds up over Kite. So we're cautious around what these tenants' health ratios would be. But high volume restaurants service players, guys like that, Sometimes the larger franchise operators again, it's really property specific. A lot of these properties don't have a lot of vacancies. So when there's a shop that comes up in a in a really strong property. We have two, three, four people looking to get the space.

So it's competitive to drive some of that too. Got it. [indiscernible] Thanks a lot.

Thank you.

And our next question comes from the line of Linda Tsai from Jefferies. Your line is open.

Hi, thank you.

Of the five party cities where a retailer has lease designation rights, In terms of the range of outcomes, what would you consider a favorable out versus a less favorable one?

Well, Tom, why don't you hit that? Yes. Here's what I would One of them relates to a term that is is very minimal, say six months. So Riley, one of their advisors will come to us and try to negotiate that. So what we'll do in that situation most likely is say, if we can do better with a new tenant, and expand and get the quality up to where we want to we want to be, then we would not take that deal. We would not negotiate Another scenario where maybe a less attractive space in the center around an elbow that could be a situation where we say, hey, this is likely a good deal. We We keep the run stream on. We do not have to put in capital. So each decision will be done on its own accord. But we have a pretty good strategy in place for the designated stores. And then we plan to implement those, but it's pretty clear and dry in terms of our direction on each one.

Linda, I think if you heard Heath's comments the other factor that we're focused on is let's say a particular retailer designated for eight spaces, Do we really want to do a deal with any retailer and automatically grow that by eight spaces, and these are junior anchor or anchor spaces. So we wanted to be able to slow the process down to take them one at a Kite. And I think maybe others are taking a different approach, just fill the space as fast as possible. But so I think merchandising mix is just as important [indiscernible] than the speed at which you backfill that space. Absolutely.

Thanks for that context. And then in terms of being active on the transaction front, who are you competing with primarily on the assets you're looking to buy? Linda, it's it's a very deep pool And it's one of the things that we mentioned in the pre prepared remarks was that the the amount of capital that is queued up and is like for example dry powder looking to deploy into open air retail has really grown. I mean, I can't give you the exact metric, but it feels feels like two or three Kite in the last couple of years. So when you're looking at a high quality asset, you're competing against a pension funds, insurance companies, sovereign wealth funds, REITs, ten thirty one buyers, local sharpshooters that have maybe one of those as a capital partner So it's quite extensive. And that's good. I mean, it's good that I think we've crossed the Rubicon of do people want to be in retail? Hell, yes, they want to be in retail. I mean, this is a good business. Yes, it has its hiccups. Yes, we're frustrated that we got put in this position after turning the corner with really strong growth.

But that growth is coming back and it's going to come back even stronger as we redeploy the capital.

Thanks for that.

Thank you.

Thanks, Linda.

Thank you. Moment for our next question. Our next question comes from the line of Alek Fagan from Baird. Your line is open. Hi. Thank you for taking my question.

So kind of thinking through the overall vacancies, especially on the anchor Kite, have you been selecting and in contact with potential tenants that you would want to bring into the centers? Kite kind of improve overall traffic or merchandising mix? Yes. I mean, absolutely, we spend time targeting these customers. We get in front of them. And spend a lot of time on that as it relates ultimately back to our leasing strategy for each center. So that's a a big part of what we do each and every day.

And Would you be able to talk about the type of tenants that you're seeing demand that you would want to target Yes.

I mean, I think if if you take a look at our list, grocery has always been a primary driver for us. Due to the traffic generation and we have the ability to not just take one space, but potentially expand in the others. We have the North Rim Racks. We have the value players of of HomeSense, the TJs, have some great fitness and boutique fitness Furniture, both high end, mid range, but we really aren't [indiscernible] any tenants in terms of our ability to attract. But if you take a look at Page 19, in our investor package, you can just see extremely strong group of tenants that we've done as new offerings, Whole Foods, HomeSense, Trader Joe's, it goes on and on. So we have quite a stable to pick from.

I think most important metric though that we gave you was I think we did 22 anchor deals 19 different tenants.

So in 2024. That just sums up what Tom was saying in a nutshell, tons of depth.

Thank you, guys.

Thank you.

This concludes the Q and A for today. I will now turn it over to John Kite for closing remarks.

Great. And again, I want to thank everybody for taking the time to be with us this morning. And I want to thank our team, and we look forward to the challenges ahead. And look forward to continuing to do what we do. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.