KITE REALTY GROUP TRUST Q1 FY2025 earnings call

• KRG had an excellent start to 2025 with strong first quarter operating results, a guidance raise, and a landmark acquisition of Legacy West in a joint venture with GIC.
• Blended cash leasing spreads in the first quarter were just under 14%, with 20% nonoption renewal spreads. Starting rents for comparable new shop leases in Q1 were nearly $41 per square foot, ~20% higher than the current portfolio average.
• New and nonoption renewal shop leases signed in Q1 2025 had weighted average rent bumps of 360 basis points, nearly 100 basis points higher than shop leases executed three years ago.
• Same property NOI grew 3.1%. NAREIT and core FFO benefited from a $0.03 contribution from a large termination fee. The company increased 2025 NAREIT and core FFO per share guidance by $0.02 each.
• Legacy West acquisition enhances portfolio quality, solidifies KRG's position as a prominent owner/operator of lifestyle and mixed use assets, with office at 98.7% leased, retail at 95% leased, and resi at 95% leased.

For the first quarter of 2025, KRG earned $0.55 of NAREIT FFO per share and $0.53 of core FFO per share. Same property NOI grew 3.1% driven by a 350 basis point increase from minimum rent, a 90 basis point increase in net recoveries partially offset by higher bad debt.

• Increased 2025 NAREIT and core FFO per share guidance by $0.02 each at the midpoints. The components of the guidance raise included $0.01 related to net transaction activity and $0.01 driven by a higher-than-anticipated termination fee.
• Same property NOI range remained unchanged from original guidance, with a full year credit disruption assumption of 195 basis points of total revenues.

• Economic uncertainty led to shifting $0.01 from anchor bankruptcy reserve to general bad debt reserve. Geopolitical uncertainty could potentially impact yields down the road, but no immediate impact seen yet.

Q: On Legacy West, comment on expected NOI growth rate and current occupancy rates.

A: John Kite said embedded rent bumps on Legacy West are 2.6% (well above portfolio average of 1.7%), and there's significant mark-to-market opportunity with ~30% of deals rolling over in next three years. Heath Fear stated office is 98.7% leased, retail is 95% leased, and resi is 95% leased.

Q: On bad debt reserve shift, explanation.

A: Heath Fear said anchor reserve went down due to better tenant outcomes (tenants stayed open longer and new leases signed), and $0.01 was shifted to general bad debt bucket due to general market uncertainty.

Q: On transaction environment and power center deals reception.

A: John Kite said transaction environment remains healthy, with a large format deal in LA closing at expected pricing, and active acquisition buyers with good liquidity despite geopolitical uncertainty.

Q: On Legacy West new leases and purchase accounting impact.

A: John Kite said there's mark-to-market upside in retail component, and it's too early to determine purchase accounting impact but there will be purchase accounting and mark-to-market on debt.

Q: On asset sales and share repurchase opportunities.

A: John Kite said it's too early to specify number of asset sales, but they have a strategy for repatriating cash and using capital for highest and best use.

Q: On leasing strategy and tenant pushback.

A: John Kite said leasing strategy is business as usual, with retailers making long-term decisions, and scarcity of product keeps them in a good negotiating position. Tom McGowan added more interaction with customers for portfolio reviews.

Q: On leasing as economy indicator and retail strength drivers.

A: John Kite said it's a combination of lack of space and strength of retail physical footprint. Heath Fear added tenants had real estate teams fired during COVID, but business is returning to usual with long-term planning.

Q: On JV with GIC and asset size for JV partners.

A: John Kite said it's deal-by-deal specific, but for Legacy West, it was appropriate size as their share of the deal is less than 10% of undepreciated assets. Heath Fear added risk diversification and partnership strength were factors in winning the bid.