Thank you for standing by and welcome to the Kite Realty Group Trust First Quarter 2022 Earnings Conference Call. At this time all participants are in listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions]. As a reminder, today's program may be recorded.

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

Thank you, and good morning, everyone. Welcome to Kite Realty Group's first quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements.

For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent form 10-K.

Today's remarks also include certain non-GAAP financial measures, please refer to yesterday's earnings press release available on our website for reconciliation, these non-GAAP performance measures to our GAAP financial results.

On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer John Kite, President and Chief Operating Officer, Tom McGowan; Executive Vice President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Dave Buell and Senior Vice President Capital Markets and Investor Relations, Jason Colton.

I will now turn the call over to John..

All right. Thanks a lot, Bryan, and good morning, everyone. As you can imagine, our team has been counting down the days to yesterday's release and this morning's earnings call. We're eager to share details regarding our exceptional first quarter results and outperformance across the board. 2022 shaping up to be a monumental year for KRG.

It goes without saying that we have high quality real estate and high-quality places. But that really doesn't mean anything without a high performing team that communicates well and works in lockstep towards our operational goals. For those of you that we're concerned about how our ability to swiftly integrate post-merger, you can rest at ease.

As reported yesterday, KRG had FFO per share of $0.46 cents, beating consensus estimates by $0.05 per share and representing a 35% increase per share over the comparable period last year. Our same property NOI growth for the quarter was 5.9% as compared to the same period in 2021.

Heath will give more details around the components of each metric but suffice to say we blew past expectations due to a combination of operational outperformance and lower bad debt. As invigorating as this past quarter feels, I'm even more energized about the future based on our tremendous leasing results.

KRG signed 182 leases representing over a million square feet this quarter, including nine anchor leases. The strong leasing volume was bolstered by 16% blended cash spreads on comparable new and renewal leases. These spreads were 3% higher than the blended spreads we achieved in the fourth quarter of 2021.

I'm going to speculate that once again these blended spreads will be amongst the highest if not the highest in the sector. I'd also like to call out the cash spread on our first quarter comparable non-option renewals was approximately 12% against the backdrop of a 90% retention ratio.

Again, this is an important indicator of where market rents are headed for the KRG portfolio. KRG is experiencing strong demand from a deep and diverse set of retailers. across all of our open air products, in fact, our national retailers becoming increasingly agnostic to format type and more keenly focused on best in class real estate.

This dovetails nicely with our diverse set of high quality and well-located properties. Retailers are not only flexible with respect to format, for also willing to modify typical sizings of their space.

The current environment has led to some very long and productive lease approval meetings where we're seeing multiple tenants vying for the same space, or tenants that are willing to occupy spaces that have been persistently vacant. We intend to ride these tailwinds into historically high occupancy levels.

The portfolio has signed not open NOI of approximately $37 million, which will primarily come online during the back half of 2022, and the first half of 2023. This is an increase of $4 million as compared to last quarter, which is result of $11 million of new sign not open NOI partially offset by $7 million of new NOI that came online this quarter.

The spread between leased and occupied for our retail operating portfolio has also grown to 320 basis points. This bodes extremely well for our growth trajectory going into 2023 as the rents from those leases will be fully realized.

As a reminder, the 37 million of sign not open pipeline represents 7% of our projected future NOI growth, as shown on page seven of our investor deck and is only a portion of the near-term growth opportunity.

Leasing our active developments and the balance of the portfolio to pre-pandemic levels, which is very achievable in the current environment would equate to an additional $31 million of NOI coming online over the next several years.

We've also been busy on the capital allocation front, we acquired two attractive Sunbelt assets for a total of $66 million. The first of which was pebble marketplace a Smith anchored center in the desirable Green Valley area of Las Vegas.

We also acquired a sprouts in Total Wine that are literally attached to our MacArthur crossing center, and the Las Colinas area of the Dallas MSA. We love adjacency acquisitions, especially when they can create a halo value by compressing the cap rate on the balance of the center.

Collectively, these two assets feature a three-mile population of over 116,000 people and an average household income of $115,000. We've also made progress on the development front all of our active developments are coming along on time and or under budget.

That's for the entitled land bank, we've unearthed additional value propositions as promised, and we're taking a bespoke approach to every single parcel. Over the course of 2022, we look forward to sharing our creative vision for maximizing value and minimizing risk.

The best thing about the entitled land bank is the investor community historically attributed very little value to the land. And we certainly didn't put a price tag on it when we were underwriting the merger but we see excellent opportunities ahead.

The culmination of all the great things I've discussed, is allowing us to raise our 2022 FFO as adjusted guidance to $1.77 per share at the midpoint. We're also raising our 2022 same property NOI growth assumption to a range of 2.25% to 3.25%. Before turning the call over to Heath, I want to address some of the macro elements that are on the horizon.

REITs have historically outperformed broader markets during the inflationary periods. As prices rise and sales increase, it follows that the tenants occupancy costs should decline allowing us to continue to drive rents As an open air shopping center owner we have a healthy balance between the duration of our assets and liabilities.

Based on our embedded escalators and our ability to turn over 10% to 15% of our leases every year, we feel well positioned to keep pace with inflation. Likewise, our longer lease durations temper the impact of any potential recessionary environment.

On the supply chain front, we're acutely focused on ensuring all tenant build outs are on time and on budget. Internally we've been referring to 2022 as the year of the RCD, which stands for rent commencement date. Times like these are when KRG's hands on management style shines.

We have very experienced tenant coordination and construction teams that not only ensure we deliver on time but help tenants with any challenges they may experience. Due to our tenacious and dogged approach, we're currently outperforming on deliveries. Finally, I want to address the change to our share buyback program.

The primary purpose is to properly size this critical capital allocation tool in light of our post-merger market capitalization. With that said, we are keenly aware of the disconnect between our stock price and our underlying fundamentals.

We have great real estate a best-in-class platform, and we will continue to outperform until that disconnect resolves itself. Whether you're a value investor or growth investor, I can't think of a name in our space that screens more attractively. As always thanks again to the entire KRG team for their hard work and dedication.

KRG is nothing without these amazing people. I can't emphasize enough how proud I am of what we've accomplished as a team. But more importantly, what we will accomplish together in the future. Now I'll turn the call over to Heath to provide more details..

Thanks to all of you for joining us today. What a great quarter and what a great sense of pride to see what our collective team has accomplished and will accomplish over the course of 2020, one team, one focus.

As always, our goal is to provide our investors with transparent and best-in-class disclosure, which will be much easier on a go forward basis. Now that we've had our first full quarter of combined results, let's dive in. But the first quarter KRG generated $0.46 of FFO per share, both on a NAREIT and on an as adjusted basis.

As compared to NAREIT, our as adjusted FFO results exclude the positive impact of $1.1 million of prior period collections offset by a $900,000 add back of merger related costs. Our same property NOI growth for the first quarter is 5.9%, when excluding the impact of prior period collections.

Please note that unlike last quarter, the same property pool for the first quarter includes both the KRG and the RPAI legacy assets. 500 basis points of this growth was driven by higher minimum rent in overdrafts, with the balance being attributed to lower bad debt.

Please note that the first quarter same property NOI is elevated due to heightened reserves taken in the first quarter of 2021. As you may recall, there was a lot of uncertainty in the first quarter of last year with COVID.

As the macro environment stabilized and collections returned to historical norms, many of those reserves were reversed in the second quarter. So what does this all mean? We expect our same-store results to be muted in the second quarter and then accelerate to the second half of 2022 as we begin to receive some of the $37 million of side not open NOI.

Page eight of our investor deck will help you understand the cadence of the rent commencement dates. Hopefully, this will help contextualize of our full year same property NOI outlook. As detailed on page 26 of our investor deck, our balance sheet and liquidity profile not only remains solid, but continue to improve.

Our net debt to EBITDA was 5.7x down from 6x last quarter. We had to end the 37 million of sign not-open NOI. Our net debt to EBITDA would be 5.4x, we are in a great position to not only weather any storm, but to also take advantage of any opportunities that present themselves.

As John alluded to earlier, we are raising FFO as adjusted guidance to $1.74 to $1.80 per share. The variance from FFO is approximately $0.02, which represents our estimate of $4 million of non-recurring merger related costs.

The $0.05 increase at the midpoint is attributable to cash items with leasing outperformance [indiscernible] termination fees and accelerated development fees. At the midpoint of our FFO adjusted, we lowered our bad debt assumption to 1.25% of revenues.

While the current reserve is significantly higher than our historical bad debt run rate, it by no means represents any specific credit concerns. Rather, it reflects our continuing conservatism with respect to macro uncertainty that is not within our control.

It's important to note that despite our recent acquisition activity, our guidance still assumes the net transactional impact will be neutral to earnings. Before turning the call over to Q&A. I love to address one additional macro item, which is the recent rise in interest rates. We are in the business of owning and operating best-in-class real estate.

And we are by no means in the business of interest rates speculation. The primary tool we use to manage interest rate exposure is to maintain a well ladder maturity schedule that allows us to average our cost of debt over time. In terms of our planned capital markets activity, we intend to be optimistic this year.

And when the time is right, we will start to retire our 2023 maturities. Thank you to everyone for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions..

Certainly, ladies and gentlemen, [Operator Instructions] Our first question comes from the line of Michael Billman from Citi..

Hey, John. I apologize. I joined on a little bit late. But I really enjoyed if you can sort of outline capital recycling and I guess sort of your plans to both acquire but try to dispose assets following the merger, I'm sure a relook at the portfolio could lead to incremental disposition.

It means talk a little bit about what your plans are?.

Sure. Well, as we said in the prepared remarks, we've acquired two properties recently for $66 million. And we mentioned in the remarks that we still intend on all of our kind of acquisition, disposition activity to be neutral to earnings this year. So that's the intention.

As a matter of fact, in terms of the two that we acquired, we were assuming that we would be matched funding those with a couple of dispositions, candidly, one of which is under contract and other which has been negotiated.

So I think what I would say macro, Michael, is that, look, when you look at our results, we obviously have a very good portfolio and produced very good results and we're very happy with that portfolio.

That said, you're always looking to do things on the margins, we're not looking to do massive acquisition sales, we don't -- our balance sheet is in great position.

So I would say what we do is going to be pretty strategic, much like, acquired these two properties that we like a lot, probably take advantage of the market as it is today and match fund those down the road. But we love the portfolio, we love the results we're getting,.

You don't feel a need to go deeper, putting aside potential dilution, but just looking at this combined portfolio and taking a deeper cut about sort of where you want to be.

Obviously, you have a big Sunbelt portfolio but you went more coastal and northeast with the merger, I just didn't know whether there's an opportunity to recycle more, to bring your portfolio more where you'd wanted it to be..

Yes/ I mean, I think as we move through the year, we will when we're looking to do things, it will probably be with those geographies in mind. But that said, I mean, I've talked about this before, when you look at some of the assets that we picked up, vis-à-vis the merger, in Seattle and DC and in Long Island. I mean, we've had some great property.

So I don't know that it's so much about, the portfolio composition of what came in the merger and what we had before, it's really going to be more what it's always been, which is to say, if we feel a piece of real estate has maximized its value and or has a declining value, then we would look to dispose of that.

But it's really -- it's not going to be some massive thing that is a result of the merger..

And just second question, John, with ICSC coming up, obviously, since the big first, in personal event with the combined company, kind of like December, you have that much going yet.

Just talk a little bit about what the goals are going to be for the combined organization at the conference, what sort of roster meetings you had and really what you're going to try to accomplish at the convention a couple of weeks.

Sure, I'll start but let's kind of Tom dig into that. But from a macro perspective, I mean, we have great momentum, great tailwind, right now our portfolio is performing at one of the highest levels in the business. So we're just going to look to lean into that and continue to push relationships that we have and that we've grown into.

And when you look at our results from the past quarter and the size and the depth and breadth of the leasing that we did and the spreads that we generated from that. That's what we'll continue to do, Michael.

So it's really more and as I tried to say in my prepared remarks, this is an integrated one team, one focus company, and the idea that we have any issues regarding that that's gone. So now it's leaning into that and really expanding our relationships.

But Tom, you want to talk about some specifics, maybe?.

Sure. I mean, I think it's critical that we hit all of our property types.

And we have a more diverse base that we'll be coming to Vegas with and it's going to be critical that we nurture our existing tenants, but really focus on a lot of these new relationships that we're seeing and particularly in the lifestyle centers, we're doing deals with some great tenants that haven't traditionally looked at coming out people like the Buckle, Nike, Airy, I mean, there's a whole host of those tenants that we want to continue and expand those relationships.

So we have as diverse outline of a tenant base as possible. So we have a lot on our plate. We have a group coming. And the rule is if you're out there you got a full book. So we're looking forward to –.

Great, guys. Thanks for the time..

Thank you. Our next question comes from the line of Floris Van Dijkum from Compass Point..

Thanks for taking my question, guys. So, obviously results. Look, we're well ahead of expectations looks, you took up your guide, but your guide sort of implies, a lower cadence of FFO that you had in the first quarter.

Is that -- are you guys being overly conservative? I know you took your bad debt down a little bit, but it still seems pretty elevated 125 basis points.

I mean, how much more room? Is there, in your view in terms of earnings for this year?.

Yes, I mean, Flores, you're correct, and how you outlined that, but clearly the -- as we tried to say in our prepared remarks, look, it's -- we're four months into the year basically.

So when you look at -- you look out at a projection, you're going to be still be prudent with some conservatism, the one and a quarter bad debt is the primary driver of that cadence that you referred to. Obviously, in the first quarter, our bad debt was less than 1%.

So if things were to continue, on the path that we're on right now, we would expect to do quite well. But it's early in the year. And so that's why we've adjusted to the extent we've adjusted. That said, I mean, we're extremely optimistic about what's out there right now.

And based on the leasing performance, and based on the rent spread, that we're able to generate on a cash basis, we feel very good about it.

Heath, you want to add anything?.

Yes. More specific items, floors that are having a cadence sort of slow, is, we have term fees, as this quarter, our budget doesn't have any term fees in it whatsoever. So that's sort of an item that's not budgeted for the balance of the year. We’ve outperformed an overdraft, which is great. And G&A timing, so the G&A was late in the first quarter.

And as we go through the balance of the back half of the year, you're going to see the G&A pick up permanently due to some IT projects that we're undertaking in the back half of the year. So that's why the cadence isn't exactly the same..

Got it. And just I know, the S&L pipeline is appears pretty impressive at the levels that you guys have it, particularly it's almost the same size as one of your peers who has portfolio that's twice the size. But maybe talk about some of the additional stuff that you guys have here.

In terms of your additional potential lease up, I think you'd said about 21 million of additional potential rental income or 4% of your NOI, what is your x? What do you think is possible you said, you can get back to pre-COVID occupancy? Can you remind us, again, what that was, particularly in this small shop space versus where we are today? And do you see a scenario where you could actually exceed pre-COVID levels?.

Well, pre-COVID on the small shops, Floris, we're at 92.5% which was sector leading. So, we think we can get back there. That's what we do. We execute, we have to go out and lease that space. And then, the anchors are pre-COVID, where 98%? So do we think we can get back there? We absolutely do.

Does it happen just by saying it no, you have to go out and execute. And we feel confident in that ability. But yes, that's why we pointed out and if you look at our investor deck, there's a great page seven, which kind of highlights that and makes it pretty easy to do the math.

And it makes it pretty easy to do the disconnect between current stock price and real values. So, yes, we think we can get there. We got to do the work. And that's what we're going to do..

Thanks. Maybe the last question, for me.

Maybe talk about, you talk about the match funding? I mean, would it be right to assume that some of your land holdings, which you estimate could have a value of 125 million to 180 million? Are those likely candidates for monetization?.

Yes. I mean, I think we mentioned in our remarks, Floris that we are not only do we have the lease up to pre-COVID, the S&O. The active developments, which are in lease up right now. And under construction and on pace. We have the land holdings.

And one of the beautiful things about that is that, we certainly attributed no value to that in our analysis of the merger and knew that it was upside. And so it gives us the opportunity and the luxury of taking our time on a case-by-case basis, which is what we mean by bespoke, right that we're going to take our time on each individual landholding.

And then, they vary dramatically in terms of stages. And, for example, since the DC market, well, One Loudoun is spectacular property. So we have a lot of optionality is the word I would use. So that's a long way of saying, sure, there's a possibility that, we would look to utilize sales proceeds there in some form or another.

But there's also the possibility that, we have a few assets that are, we could maximize the value and put that -- recycle that capital into higher IRRs. So that's what we do. We're always analyzing where's the highest IRR we can get with the least amount of risk. That's our primary job. So we're going to look at all those things..

Thanks. John..

Thank you..

Thank you. Our next question comes to the line of RJ Milligan from Raymond James. Your question, please..

Yes. Hey, guys. Good morning. I was just looking for a little bit more color on the leasing spreads. And I know one specific quarter doesn't necessarily make a trend, because there could be one or two large leases that that move it either direction. But I'm just curious. I mean, the trend has been positive or increasing over the past couple of quarters.

I'm just curious, is there a specific box type that's driving those higher rents or specific category that's driving those higher rents?.

Well, in this quarter, you pointed out, you're right to say each quarter is different. But this particular quarter, it was really interesting, because of the number of deals and the breadth of them. And Tom can talk about this a little too, but bottom line is, in terms of the new leasing.

We did a lot of leasing in some of the lifestyle deals that generated very, very strong results. And then -- but that's a microcosm because we did, I don't know 24 new leases. And then on the options in the renewals, that was really interesting, too, because the non-option renewal, at 12% is spectacular.

And that was I think, like 45 deals, so it was across the board. But Tom, you want to talk about it a little more..

So when I mentioned about making sure we're expanding our tenant base and looking for new opportunities, as we try to grow this portfolio, one of the big drivers was a simple fact that in our lifestyle centers. We picked up new names to the company, people like the Buckle, Nike, Harry, Hay Day, I mean, they go on and on.

But we also had strong furniture store comps, in different areas where we had a tactical. So it was definitely spread out. But these higher end tenants that may not typically come to open air clearly drove us and the box side held up very strong, even though there was only two comps, in terms of that percentage as well..

Okay, great. And then, my second question is just how are you are thinking about? And I think, John, you made some comments earlier on the increase of the buyback program, which is reflective of the increased size of the overall company.

But thinking about the balancing between leverage and buying back shares given the discount that they're trading at.

So just how do you think about utilizing that program over the course of the year?.

Yes. I mean, I think it's exactly what we laid out, RJ, which is that we wanted to make sure it was sized appropriately. So that's the first step.

You're right, that whenever you look at this and you're trying to determine capital allocation, that you have to look at that your balance sheet in conjunction with what you might be doing on the capital front. As Heath mentioned, right now, our balance sheet is extremely strong and trending even stronger.

And we produced fabulous results this quarter. We've got a lot going on. We have a lot of upside. So it needs to be there in the case that that disconnect isn't resolved naturally. We think it will be. I think in a couple of weeks when we see the first quarter results of shareholder buying.

And I think there's some really, really great names that have come into our name and some pretty smart investors, pretty astute. So hopefully that helps as well. But bottom-line, we're going to keep driving, keep operating, keep producing. And we hope that takes care of it. But if not, that's an option that we need to have available to us..

So I guess, in summary, not buying, probably wouldn't be aggressively buying shares at this price today. But if the discount persists, that's a potential for maybe the back half of the year..

Yes, I don't want to speculate on timing of it RJ. It just it's what I said. I mean, we need to have this available to us. We believe, like many others that the current value doesn't reflect the value of the business. There's a lot of different ways to squeeze that value out. That's just one of them.

But I think there's a lot of people who recognize this as a pretty damn good platform and has a lot of upside..

Great. Thanks guys..

Thank you..

Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Your question please..

Hey, good morning out there. Two questions. First, on the side, but not yet open. We've seen that, in peers where there are these great pipelines of times, but not yet open. So when we look at, it actually coming into earnings, it takes a long time and the gap between occupied versus that side, but not yet open, sort of persist.

Just so we don't get carried away on the modeling side. Are you -- are there offsets to this? Or like, are you more aggressively shaking out tenant so that, even though you're getting this 37 million of annualized in, that's offset to some degree as you, weed out weaker performing tenants and replace those.

So I'm just trying to get a sense for how much of it truly comes in to earnings, versus as you guys were actively pursue the portfolio because of the demand that sort of gap persists longer than what we might think just by looking at the presentation..

Yes. So I think there's really two things that will offset that growth. One is just that debt, right? So what's your bad debt NOI? And it says 75 basis points of revenues, which is a typical run rate here that's 1% of NOIs being just that. And then, that's your natural explorations.

But as John mentioned in his opening remarks, we're sitting at 90% retention right now. So that feels really good. So I think at the end of the day, in order for us to realize that 37 million, we have to grow that occupancy, right. We have to shrink the spread between leased and occupied.

I think you're going to see it be fairly elevated even through of course of next quarter, because the leasing velocity today has, it's been so great. I don't see it closing anytime soon. But in the meantime, we're opening up NOI now. When John said in his remarks, we signed 11 million of new NOI in the first quarter and seven line of [indiscernible].

So that's why -- opened only went up by 4 million. So again, yes, there are some natural offsets to it. And the underlying assumption here is you have to grow your economic occupancy, which we intend to do. So –.

Yes, I mean, personally, Alex, I look at it, it's an extreme positive, the only offsets would be just whatever's happening naturally in the business and being at a 90% retention rate when we historically were in the 80s -- mid-80s, I guess, that's a big deal. And again, that's why I keep mentioning the non-option renewals spread at 12%.

So assuming that things stay as they are, I see it as significant upside..

John, don't get me wrong. I agree. I just, it's awesome. It's just us getting in reality checks. So we don't overdo things..

Alex that's why we wanted to be clear about the timing right, that it's very back half 22 weighted and then 23. So, I think it's never easy from your chair to figure that part out. But it's clearly a driver into 2023..

Yes. Okay. And the second question is, a lot of headlines recently declining online sales, while physical store sales are rising. Obviously, I think collectively we all like that. But wide enough Amazon shareholders on the line.

But when you think about that, is it reality that online sales truly are declining in physical stores arriving or are the tenants themselves starting to reallocate and say, hey, it's not the point of purchase, where we're going to flag it. It's the point of where the fulfillment point.

So if it's been curbside pickup or delivered from a store to someone's house, we're going to start crediting those at the store sales. So I'm trying to figure out how much is actual true changes in online sales versus in store sales, versus the tenants, reallocating where they're giving credit for those sales..

I can't really speak to the reallocation part of your question much, I don't get the sense that that's what's driving this macro trend. I get the sense that candidly as we talked about quite a bit during COVID, physical retail became very important to people at certain -- as COVID moved along.

And there's a bond, I think that was built during that period, where a lot of physical retailers, were able to really take care of their customer in a much more rapid way, then even online. And at some point, I can remember you writing notes about this several quarters back that it was pretty clear that the online penetration was slowing down.

So, look, at the end of the day, it's all interconnected. There's really only one material online only, and they're not even really online only anymore, which would be Amazon, and everything else kind of run through our tenants and our customers. And when you look at foot traffic, also, I mean, which we have a slide in our investor deck.

In the quarter we are over 100 million visits. This is only one company that in the open air space and we did 100 million visits in a quarter. So it just shows clear, clear traction, right? And it's why we have the results that we have. So I feel very, very good about that, Alex. And I think it is a positive trend in our direction.

And it's just one more indicator of the strength of physical retail and the importance of physical retail in the distribution channel..

Okay. Thank you, John..

Thanks..

Thank you. Our next question comes from the line of Todd Thomas from KeyBanc Capital. Your question, please..

Hi, thanks. Good morning. John, you mentioned in your discussion about the leasing spreads during the quarter that the lifestyle segment was particularly strong. And you picked up a number of lifestyle assets and assets with greater lifestyle tenant mix, I guess, with the RPAI portfolio.

Curious if you could, talk a little bit more about that, how that products performing and recovering at this point in the cycle..

I mean, as both Tom and I mentioned, we had some very strong results from multiple properties that would kind of be in that segment. And candidly, for us, there's kind of a merger of lifestyle and mixed use. I mean, we basically see those products as very similar. And it just comes down to a nuance of a definition.

But really, I mean, when you look at the amount of deals we did in the quarter, Todd, it was very well-balanced against all of our property segments, essentially kind of the grocery segment, the power segment, the lifestyle segment, the mixed use segment, and the community center segment.

And to our point and what Tom was mentioning, I believe, was this just interplay amongst all of these products with the same retailers. And these retailers are finding that they can do significant sales in our properties at lower cost occupancies which is producing more EBITDA for them.

So I don't want to get too caught up into in any particular genre of our products, because they're all super strong right now. But yes, we we're -- one of the things we said when we -- why we love the deal that we did, is it did expose us to this other element of mixed use and lifestyle more so than we were before.

And we knew at that point in time, there was massive growth trajectory there. And now we're seeing it and you continue to just see this idea that open air, it's just a very, very productive asset for most of the retailers we deal with. So I'm super positive about it right now..

Yes. And there's no doubt that trends nationally are the people want to be together to live, work, play. I just heard a ULI speech on it yesterday of 1000 people within a one block is how you activate. So all these lifestyle centers are providing that to the properties, which just allows us to kind of ride this wave of positive momentum..

I agree, Tom. I think the pent-up demand for experiences is another reason why we really liked the lifestyle center sector. And I think is also part of the reason of why you're seeing Amazon sales, campers because you can't sell an experience online, right? So again, all good stuff.

And we really, really appreciate the exposure to this new sector for us..

Are the occupancy gains and is the rent growth that you're experiencing in that segment? Is it outsized today, as you kind of look out over the next several quarters, is it outsize relative to the community and neighborhood centers?.

I mean, not particularly because you're -- when you look at the totals, and you look at the averages, they kind of blend out, Todd. I mean, sure, is there a handful of deals in a particular, for example, like it's South Lake in Dallas, which is just spectacular property.

Yes, there's a -- there's going to be some really large opportunities for us there to drive rents, but there's also large opportunities for us to drive rents at a public center in Naples. So it's really just -- since it’s so demand driven right now and supply is, hasn't moved much in the last 10 plus years.

So the dynamics of very simple economics are working in our favor. And it looks like it'll continue for a while. And as Heath just said, when you get this blend of necessity, entertainment experience, you're just positioned to smack dab in the middle of what's going on in the economy.

And don't forget, I mean, I know there's a lot of -- there's, for whatever reason, there's negativity in the air, with the world that we live in. But the reality is, there's a lot of pent-up capital to be spent yet, in a lot of ways. So I think we're just positioned really well for that.

And as far as the mixed use goes, I mean lifestyle mix, use Todd, we're also getting a bigger exposure to the multifamily side, right? So we've got some opportunities there as well..

Okay.

And then, in terms of tenant retention, you mentioned there was about 90% in the quarter, how long do you think these elevated levels of tenant retention could persist?.

Tough to call that. Certainly, as we sit here today, and we look at the upcoming -- the quarter that we're actually in, feels very good. And, again, that's why we wanted to be clear that with our guidance, we felt very comfortable raising it, but yet, we still maintain some conservatism because of the macro world.

But in terms of the micro that we live in every day, we're in a great place, and our portfolio is outstanding, I think it stacks up against anybody. And I think people are beginning to figure that out. So we feel very good about continuing to push that. But it's unpredictable. And one quarter could be different than another quarter.

So I will look at the trends over years, not quarters..

Supply is definitely tightening, which is going to work to our advantage..

Okay, it's helpful. And just a last one, if I could real-quick on the investments completed in the quarter and after the quarter.

Can you can you provide a cap rate, I guess, on pebble marketplace in the two boxes at MacArthur center?.

Well, we did put that in -- we didn't really release these, Todd, but I would just say that they were market cap rates in fives. And we would be looking, as I said, to recycle, and frankly, probably a tighter, lower cap rates than what we bought out..

Okay, all right. Thank you..

Thank you..

Thank you. Your next question comes from the line of Chris Lucas from Capital One. Your question, please..

Hey, good morning, everybody. Just a couple of quick follow ups. More definitional than anything. Just as it relates to the retention rates for the quarter.

I guess, John, just thinking historically, is that as good as you've seen, have there been periods when it's been higher?.

That's pretty darn good. Chris, I think 90 is pretty, pretty good. And I can't remember seeing it much higher than that.

And candidly, it's one of these things that -- it's not your primary focus, when you're in a major kind of thinking about new leasing, but as our new leasing contracts because we have less spaces, it becomes a bigger focus and it's in a really good place right now and it's super profitable..

Okay.

So as we think about retention, should we assume that like in the current environment, you're thinking that retention and tenant fallout are sort of the same thing, but that at some point down the road that those could diverge as you actually try to push?.

Yes. I mean –.

-- potentially lose tenants as a result..

Sure. When you get to -- when you get back to where we were occupancy levels, pre-COVID.

And you're at 98%, and the anchors in 92.5 in the shops, you start to really price dynamically, right? And you might let things roll over, you might, but again, that's why I wanted to come back to that non-option renewal spread, because it wasn't like we were renewing people at low spreads, right? We were renewing them.

In fact, the non-option renewal was almost, I think the option renewal spreads were probably 6.5%. So that shows you right there. When we had a free shot. We were able to price it very dynamically.

So no, I think as we lease up more and more, we probably aren't as focused on that number, because you're more focused on the marginal dollar at that point, right, Chris, just trying to drive that. In the merchandising mix, we can't lose sight of that, too.

So that's why it's never good to just focus in on any one particular metric other than, we're driving, we continue to drive more EBITDA, more free cash flow, more earnings..

Okay, great. Thank you for that.

And then just on the S&O, schedule, I guess, just definitionally? How do you arrive at sort of when that rent is expected? Is that based on construction and permitting expectations? Or is that based on a sort of contractual -- lease contractual date setup?.

Well, Chris, there's typically a formula and the lease, there's also a drop dead date. So they have to start paying rent after a certain period of time after they've been open. And if they're delayed being open, whether it's their fault, or our fault, or it just doesn't happen, they end up paying rent anyway. So again, it's a mixture of what you ask..

Yes, Chris, our primary goal, there is really taking care of our customers as much as we possibly can. So we obviously want to get the right commencement date as soon as possible, but we want a successful customer and unhappy customer. So it's a balance, and we drive it, but clearly right now, it's working pretty well..

And as John mentioned in his remarks, Chris, we are actually ahead of schedule in terms of our average weighted opening date. So the team has been doing a fantastic job and getting people open..

So Heath just on that, let me just understand.

So when you say ahead of the average expected opening date, is that based, again, on sort of, like your expectations based on construction and permitting and all of that, or is it based on that drop dead date? Because just trying to see how much are sort of think about how much excess performance is sort of built into sort of the S&A schedule?.

It’s generally on the opening day Chris..

Yes, I was just saying that all this really comes down to what we're internally modeling. And he's basically saying we're meeting the expectation of the opening dates in our model. So that's a positive thing..

Yes. And those are the numbers, dates that we focus on twice a month in our meetings. That is what we determined the opening date. And that's why our team, we've got a great team, we'll do whatever it takes, we'll source whatever they need to make it happen. That's our job. And that's why we've got so much focused on it..

Okay. Thank you, guys. Really appreciate it..

Thanks..

Thank you. Our next question comes from the line of Anthony Powell from Barclays. Your question, please..

Hi, good morning. Question on Kohl’s was like a top 20 tenant for you. It was seven stores. Looks like they may be acquired by two mall owners.

I'm curious what you think about that as a potential issue if they even move the stores out or otherwise be tough negotiators with rent increases or overtime?.

Well, let's just start with saying no, we don't know anything that anybody else doesn't know. So Kohl is a great customer. And we certainly wouldn't see any problems with that. It's not a huge tenant for us, but it's an important customer. And I think if something happens there, that's great.

We always look to work with whoever's running the business, but we'll see what happens..

Got it. Thanks. Maybe just one more on transactions. And seems like this year you've received thinking to match fund buys with dispositions. But I know, after you close a deal, the hope was that you because capital would go down, it could be less requires.

It's curious what your view was on portfolio deals and maybe just being a bit more aggressive at some point and building up the portfolio over time..

Yes, I mean, look, right now, as you know, Anthony, the market is competitive. And there's still a great deal of capital chasing high quality open air retail, and frankly, that's a limited group --limited product to find. So as I said, that's why we were very excited about the two acquisitions that we had.

And we won't have much trouble match funding that at attractive spreads to capital. So, but in terms of portfolios versus individual assets, still, at this point, haven't seen any material difference there.

Anytime there's a high-quality retail deal that is -- on the market, or even if it's not on the market, there's just -- there's more capital than there is products, I guess that's putting it pretty simply. And that continues to drive the cap rates that we're seeing, which continue to be high fours to mid fives. I mean, that's generally the market.

So I know people think it's going to change and interest rates are volatile, but most of the stuff that we're doing and that we're interested in buying and/or even product that we would sell would be all cash buyers. So it's more of an unlevered IRR play right now..

Got it. Maybe one more, when you think supply starts to become, I guess, not an issue, but a bit more of something to watch out for. And I know most of the centers still have a bit more occupancy to build up. So that can be prevented, but I'm just curious with the Trump Elementals. you have and others.

[Indiscernible] at some point, developers will start building so I'm curious what your long-term outlook for suppliers?.

Yes, I mean, I think, first of all, it's not, it's quite difficult to build this product. Because you're talking about multi-tenant retail, that's much more complex than it is to say, put up an industrial box, for example. So and generally in retail people don't build the stuff that we own speculatively, there's a lot of pre-leasing that goes into it.

There's finding the right land. So I just think it's more difficult to do that people think. And from a return perspective, you really got to underwrite the risk associated with ground up development. So, I think for the near term, it continues to be moderated with not a lot of new construction in the high-end arena that we own.

And then when you look at the geography of the real estate, and the fact that our real estate is so strong. Again, it's just hard to find properties that you can build on without just spending way too much money, right? So feels like a pretty good balance right now for the next several years..

Tough cost environment..

That's true. Thank you..

Thank you..

Thank you. Your next question comes from the line of Wes Golladay from Baird. Your question, please..

Hey, guys. With the comment that supply is tightening and it sounds like the demand is very good at the moment.

When does this dynamic translate into a big acceleration of rent growth?.

I think we just had one this quarter. So, I mean, 16% blended cash rent spread, that's what I meant what I said, I think that's pretty darn good. And then 12% spreads on non-option renewals, is also very strong, Wes. So boy, I mean, where does it go from here? Hard to say and again, we don't get caught up in any one quarter too much.

But certainly, certainly the environment still feels very good. And I think we can continue to move the needle and again, like I said, Wes, when you look at the total occupancy cost for these retailers, our open cost effective. So that helps us as well. So feels like a pretty good place..

Yes.

I guess what I'm trying to get at it seems like the market is still absorbing supply and you're still getting the leases off, they can maybe more like a hockey stick growth like growth that we haven't seen since maybe the early 2000s, you think that dynamic is in play?.

Yes. I mean, if we continue with the volume of leasing that we're doing, then that dynamic will come into play. When we leased a million square feet this quarter, and Q2 is stacking up pretty nicely.

If we can continue to push those kind of lease, that kind of lease momentum, then yes, you start to get to that point where we talked about your highly leased, and the marginal lease is going to be at a very good, attractive rate.

But also, as we pointed out we're able now to lease in spaces that were kind of persistently vacant probably because of physical issues at a particular property, like an elbow space or something, that we're now able to lease those spaces. So that drives that incremental cash flow that we're so focused on. So I think it's both of those things..

Yes, sounds like -- there's also going to be new high watermark for occupancy, then, I guess, when we look at the individual markets that you're in, does anyone stand out as maybe being earlier to that hockey stick potential moment?.

When we look at the deals, for example, in this quarter, when we look at the spread of deals that we did in the quarter, it was very well spread out throughout the country, really each region that we're in produced good results. So, fortunately, again, because we have this really strong portfolio, it feels like each segment is performing quite well.

So, don't particularly see one beating the other right now..

Got it. Thanks for taking the questions..

Thank you..

Thank you. Our next question comes from the line of Linda Tashi from Jefferies. Your question, please..

Hi, good morning. In terms of purchasing adjacencies to your existing properties like you did with your Dallas center.

Do you track how many of these opportunities potentially exist in your portfolio? And then what's the best way to think about the scalar margin new chief when you find these adjacencies?.

Yes, I mean, we definitely have a kind of an inventory of deals that we're interested in. And we've done that a couple times in the last six months. I mean, we did this deal and which was very unique, because this was actually essentially attached to the balance of the center. We essentially didn't own the sprouts box or the total wine box.

And now we do and so what happened there is you took a center that was non-grocery anchored. And not only did you essentially bring in one vis-à-vis sprouts, but you brought in two because the total wine which total wine will do 25 million, 30 million.

So the halo effect we referred to Linda is a significant cap rate compression, I mean, it could be 100 basis points, could be 7500. So that's how we track that. And we look at that from a terminal value perspective as well, terminal IRR values.

But yes, and for example, we did another one where here in Indianapolis, we acquired two Shockpad buildings out front that we didn't own when we acquired the center, and now we own them and it gives us much more leasing leverage across the whole portfolio, right? You don't have a built-in competitor.

So any place that we think that we could do that, we would absolutely look to do it. And it's just a -- it's a better -- it's generally going to be a better risk adjusted return on capital, because we already know everything there is to know about the particular property, right? So love to do it.

And we'll continue to where the opportunity presents itself..

Thanks for that. And then back to the earlier exchange you had with Alex, when your open air peers discussed, occupancy costs changing since ecommerce has a halo effect to the physical store and it's helping retention rates.

How do you think landlords are trying to better understand the real sales productivity of a physical store the omni-channel environment so landlords can better capture the generated value?.

Well, there's two things there. One is in the case that if you can receive percentage rent, you're extremely focused on it. And two is just to understand the performance of the retailer as it relates to -- our ability to continue to price the space appropriately. So it is a big deal. It's hard to get to the bottom of right now.

I think over time, it'll become more and more natural. I think it's clearly a big part of a retailer success today is their ability to tap into the omni-channel that they all have tapped into. But they also need us for that.

They need us to be providing the right real estate where that works where it's attractive enough for people to utilize the store in that distribution format. And we're fortunate that we have that, right? So I think stay tuned, because I think it becomes more and more part of what we're doing.

But right now, we're just happy that the retailers are performing so well. And they're driving more and more traffic..

Great, thank you..

Thank you..

Thank you. [Operator Instructions] Our next question comes from line of Craig Schmidt from Bank of America. Your question, please..

Yes, thanks. I just know with April pretty much in the books and ICSC happening next month.

I just wonder if the above average leasing activity will continue into the second quarter mean, how will you do relative to that 1.1 million you just did?.

I mean, I'm not exactly sure how we're going to do yet since it hasn't happened. But I think we're off to a good start, Craig for sure. ICSC is a nice opportunity you can get in front of a lot of people in a concentrated period of time. But that's just the cherry on the top. I mean, we're always driving these relationships in these conversations.

And it feels like the -- we use the word tailwind for a reason. We're very busy. We're very active. And there's no reason to believe that we can't keep pushing that leasing momentum.

Tom, you want to add anything?.

Yes. I mean, Craig we track every day through our sales force format, exactly how many deals are through real estate committee, and more importantly in lease draft. So I will tell you, we feel very, very good about that number in comparison to where we are today. So we're expecting a very strong finish to the second quarter..

Great, and thanks. And then, I just -- I see recently, you leased a Top Shelf.

I'm wondering, is this more attractive alternative to Dollar General for your center's merchandise mix, it's more suburban focus?.

I mean, it really depends on the particular property, Craig, we think Top Shelf is a pretty cool concept. It's pretty modern, it's clean, it does a lot in a small space. We don't particularly have a lot of Dollar Generals just straight up Dollar Generals. I'm not -- I mean, I know we have some Dollar Trees.

But if we have, I think maybe no Dollar Generals as I think about it on the top of my head. So we would be -- our portfolio would be much more in tune to a Top Shelf deal. But yes, I mean, it's just another example, we set all these other names and there's Top Shelf doing deals all over the place and great credit.

So we feel like we have this really, really good balance right now. And we think that the merger put us in a position to be in the exact right space at the exact right time across the genre product that we own..

But it's a significant variance to Dollar Tree, Dollar General stores, they are impressive. And I encourage you to take a look at them..

Well, my understanding is the demographic is younger, wealthier, and more suburban, which would seem like I mean, I think the reason you don't have any Doubt Generals, it's a lower customer, it's more rural. I saw it’s curious if this was an opportunity for you.

I mean, I guess 9000 square feet, not quite an anchor space, but an opportunity for you to fill up some of that vacancy..

It is absolutely an opportunity and we will absolutely lean into it..

Okay, thanks a lot..

Thank you..

Endof Q&A:.

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

Well, I just want to take the opportunity to thank everybody for joining us today. And again, I want to thank our KRG team and family who produced fabulous results. And we will continue to push and we look forward to talking to everyone soon. Thank you..

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