Kite Realty (KRG) Q1 2026 Earnings Transcript

DATE

April 29, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — John A. Kite
• Executive Vice President and Chief Financial Officer — Heath R. Fear
• President and Chief Operating Officer — Thomas G. McGowan

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TAKEAWAYS

• Share Repurchases -- Completed 6 million shares repurchased for approximately $152 million in the quarter; cumulative buyback now totals 16.9 million shares for $400 million at an average price of $23.67.
• Dispositions -- Sold Coram Plaza and raised full-year disposition target to $145 million, with $12.5 million closed in the first quarter and the remaining balance expected later in the year; this is a $30 million increase over original guidance.
• Same-Property NOI Growth -- Delivered 3.6% growth in same-property net operating income, exceeding expectations due to higher average rent, lower bad debt, and reversal of a tax reserve.
• Leasing Activity -- Executed 151 new and renewal leases covering more than 700,000 square feet with blended cash leasing spreads at 13.5% and new lease spreads reaching 31.3%.
• Lease Rate -- Overall lease rate now 94.7%, rising 90 basis points year over year, driven by absorption from well-capitalized retailers.
• Average Base Rent (ABR) -- ABR per square foot reached $22.89, up 6.5%; ABR for signed-not-open pipeline leases is $28 per square foot.
• Signed-Not-Open (SNO) Pipeline -- SNO pipeline is approximately $36 million in NOI, representing a 350 basis point spread between leased and occupied rates; 84% is included in the same-store pool, with remaining exposure primarily from Legacy West and recently executed leases.
• Embedded Rent Escalators -- Embedded contractual rent escalators rose to 182 basis points, up from 156 basis points two years ago, with a long-term target of 200 basis points.
• Guidance Update -- Increased same-property NOI growth range guidance by 25 basis points at the midpoint to 2.5%-3.5% and affirmed both NAREIT FFO and core FFO guidance at $2.06-$2.12 per share.
• Balance Sheet & Liquidity -- Net debt to EBITDA is 5.2x, in-line with long-term target; total liquidity exceeds $1 billion.
• Capital Deployment -- Guidance incorporates $100 million in incremental buybacks and $170 million in 1031 acquisitions set to close in the second quarter, offset by forecasted asset sales.
• Transaction Market Conditions -- Management stated, “it's better to be a seller right now than it is to be a buyer," citing broad-based institutional demand and constructive capital markets for retail real estate.
• Expected Investment Returns -- Targeting 8%-9% unlevered IRR on 1031 acquisitions, while most asset dispositions are executed near a 7% yield.
• Development & Redevelopment -- Annualized internal lease-up capital spend is currently over $100 million and expected to moderate over the next 2.5 years, enabling future focus on smaller-scale redevelopment projects.
• Legacy West Performance -- Achieved retail rent increases from $65 to over $100 per square foot after acquisition, with new tenant relationships driving broader leasing gains across the portfolio.

SUMMARY

Kite Realty Group Trust (NYSE:KRG) continues active capital recycling, advancing its strategic reweighting toward higher-growth, grocery-anchored and lifestyle assets while executing substantial share repurchases at FFO yields above asset sale levels. Management increased NOI growth guidance but left FFO forecasts unchanged, offsetting stronger operating performance with lower estimates for recurring but unpredictable income. The company maintains significant balance sheet strength and ample liquidity, supporting opportunistic acquisitions, disciplined redevelopment, and additional share repurchases or special dividends if warranted by transaction timing or tax requirements.

• Management signaled ongoing review of further asset sales and acquisitions as transaction markets remain favorable and high institutional demand compresses cap rates for retail properties.
• “breadth of the demand is just incredible," according to leadership, attributing capital markets tailwinds to both traditional and new institutional sources.
• Portfolio repositioning efforts have materially reduced exposure to lower-growth, noncore assets, with only a “handful” of such properties left in the pipeline for potential disposition.
• Opportunities remain for occupancy and organic lease growth, particularly within small shop space, where management expects to surpass historical peak levels as new leases commence and occupancy gains accelerate into 2027.
• Embedded contractual rent growth, deliberate tenant merchandising, and targeted anchor repositioning—such as introducing Trader Joe’s or Whole Foods—support incremental increases in shop leasing rates and property-level returns.

INDUSTRY GLOSSARY

• ABR (Average Base Rent): The weighted average contractual rent per square foot for the company’s occupied and leased space.
• Signed-Not-Open (SNO) Pipeline: Leases that have been executed but where the tenant has not yet taken occupancy or commenced paying rent, reflecting contracted but unrealized NOI increases.
• 1031 Acquisition: Real estate assets acquired using proceeds from tax-deferred like-kind exchanges under Section 1031 of the Internal Revenue Code.

Full Conference Call Transcript

John Kite: 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.

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

Cooper Clark: 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?

John Kite: 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?

Heath Fear: No, those are okay.

Cooper Clark: 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?

John Kite: 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.

Heath Fear: 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.

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

Samir Khanal: 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?

John Kite: 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?

Heath Fear: 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.

Samir Khanal: 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.

Heath Fear: 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.

John Kite: 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. .

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

Todd Thomas: 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?

John Kite: 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.

Todd Thomas: 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?

Heath Fear: 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.

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

Michael Goldsmith: 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?

Heath Fear: 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.

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

Heath Fear: You were not complaining. We were happy.

Michael Goldsmith: 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?

John Kite: 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?

Heath Fear: That's great.

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

Floris Gerbrand Van Dijkum: 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?

Heath Fear: 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.

Floris Gerbrand Van Dijkum: 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?

Thomas McGowan: 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.

John Kite: 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.

Floris Gerbrand Van Dijkum: 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?

John Kite: 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. .

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

Michael Mueller: 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?

John Kite: 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.

Heath Fear: 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.

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

Michael Mueller: 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?

John Kite: 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.

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

Alexander Goldfarb: 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.

John Kite: 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.

Thomas McGowan: 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.

Alexander Goldfarb: 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?

John Kite: 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.

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

Alexander Goldfarb: You go, and then I'll follow up.

Heath Fear: 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.

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

Alec Feygin: 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?

John Kite: 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.

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

Craig Mailman: 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?

Heath Fear: 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'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.

Thomas McGowan: 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.

John Kite: 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.

Craig Mailman: 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?

John Kite: 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.

Craig Mailman: 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?

John Kite: 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.

Operator: 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.

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

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

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