Kite Realty Q3 2025 Earnings Call Transcript

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DATE

Thursday, October 30, 2025 at 11 a.m. ET

CALL PARTICIPANTS

Chairman and Chief Executive Officer — John A. Kite

President and Chief Operating Officer — Thomas K. McGowan

Executive Vice President and Chief Financial Officer — Heath R. Fear

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RISKS

The company recognized $39 million in impairments in Q3 2025, including $17 million at City Center and $22 million at Carillon Land and Carillon MOB, directly tied to estimated sale prices below carrying values.

Management stated, "there can be no assurances that all sales will close," regarding the approximately $500 million disposition pipeline expected to be completed by the end of 2025, noting that failure to complete these sales as expected could impact earnings and capital allocation plans.

Full-year 2025 guidance assumes completion of approximately $500 million of non-core asset sales in the fourth quarter, while any deployment of proceeds is excluded; management noted any earnings impact from the sales or redeployment of proceeds "would be negligible in 2025," suggesting deferred benefit and potential dilution timing.

TAKEAWAYS

Lease Rate -- Lease rate increased 60 basis points sequentially. reflecting higher demand across the portfolio.

Embedded Rent Bumps -- Currently at 178 basis points for the portfolio, a 20 basis point increase over the last eighteen months.

Same Property NOI -- Same property NOI increased 2.1% year-over-year. driven primarily by a 2.6% year-over-year increase in minimum rent for Q3 2025.

NAREIT FFO Per Share -- Reported NAREIT FFO per share of $0.53 for Q3 2025 including a $0.03 benefit from an outlot sale to an apartment developer.

Core FFO Per Share -- Reported core FFO per share of $0.52 for Q3 2025 with both NAREIT and core FFO midpoints of full-year 2025 guidance each increased by $0.02.

Share Repurchases -- Repurchased 3.4 million shares at an average price of $22.35 since the last earnings release totaling approximately $75 million.

Disposition Pipeline -- Approximately $500 million in asset sales at various execution stages, expected to close in Q4 2025 primarily targeting larger format centers and power centers, with the goal to close the majority by year-end.

Dividend Increase -- Board authorized a regular dividend of $0.29 per share, representing a 7.4% year-over-year increase.

Special Dividend Outlook -- Management anticipates a special dividend of up to $45 million in 2025 contingent on taxable income and the outcome of dispositions in Q4 2025.

Bad Debt Assumption -- Remains unchanged at 95 basis points of total revenues for full-year 2025.

Anchor Leasing -- Seven new anchor leases executed in the quarter, inclusive of names like Whole Foods, Crate and Barrel, and Nordstrom Rack.

Small Shop Occupancy -- Now within 70 basis points of the historical peak of 92.5% small shop occupancy as of Q3 2025, with management expressing confidence in surpassing it.

Impairments -- $39 million recognized in the quarter, reflecting market value adjustments on City Center, Carillon Land, and Carillon MOB in Q3 2025 ahead of anticipated sales.

Capital Allocation Strategy -- Proceeds from asset sales intended for a combination of 1031 exchanges, debt reduction, share repurchases, and/or special dividends, all aimed at minimizing earnings dilution and maintaining leverage goals.

Leverage Target -- Maintained at a long-term range of low to mid-five times net debt to EBITDA.

Non-Recurring Items -- $17 million in what Heath Fear described as "recurring but unpredictable items," such as term fees and land sale gains.

Non-Option Renewal Spreads -- Noted by management to be approximately 12%-13%, noting, "So just to follow up on John, of the seven boxes that we executed this quarter, our spreads were 37% and return on cost was 23%." and return on cost was 23% for anchor boxes executed in Q3 2025.

SUMMARY

Management raised the midpoints of both NAREIT and core FFO per share guidance by $0.02 for 2025, emphasizing the benefit of proactive share repurchases and enhanced same property NOI. The $500 million disposition pipeline represents a significant strategic pivot toward higher-growth and lower-risk assets, with intended redeployment options including share buybacks and special dividends but with specific impacts deferred into future periods. The company’s strategy also entails increasing diversified anchor and small shop leasing, elevating embedded rent growth, and maintaining disciplined leverage, while anticipated asset impairments and disposition execution risks remain top of mind for investors evaluating forward earnings quality and capital allocation flexibility.

Management highlighted that recent repurchase activity during Q3 2025 implied a "23% discount to our current consensus NAV." framing share buybacks as a source of capital redeployment arbitrage.

John Kite clarified that "roughly half the funds for these buybacks were sourced from completed asset sales," explicitly linking capital recycling to the share repurchase program, with the activity occurring since the last earnings release.

Disposition proceeds are guided to favor accretive or "very, very minimally dilutive" opportunities, according to John Kite, with a stated preference for minimizing special dividends, dependent on asset sales’ taxability.

Tom McGowan stated, "We're at about 83% that are leased, assumed, and in negotiations, etcetera," leaving five more challenging properties for completion as of Q3 2025.

INDUSTRY GLOSSARY

NAREIT FFO: Net income adjusted for real estate depreciation and amortization, as defined by the National Association of Real Estate Investment Trusts, commonly used to assess REIT operating performance.

Embedded Rent Bumps: Pre-negotiated, contractual annual rent increases embedded within current leases, contributing to organic portfolio growth.

Same Property NOI: Net operating income from properties owned and operated throughout both the current and prior comparable reporting periods, excluding acquisitions and dispositions.

1031 Exchange: A tax-deferral strategy allowing reinvestment of proceeds from real estate sales into qualifying replacement properties, commonly employed by REITs to maintain tax efficiency.

Option Renewal Spread: The percentage change in rent for tenants that renew leases via contractually pre-established options versus through open-market renegotiations.

Cap Rate: The expected yield on a real estate investment, calculated as net operating income divided by the purchase price or value of the property.

Full Conference Call Transcript

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

As we've discussed in the past, we viewed the recent wave of bankruptcy-driven vacancy as a value creation opportunity to embed better growth, upgrade the tenant mix, and derisk our cash flow. Through the re-leasing process, we've maintained our focus on establishing the groundwork for higher organic growth that will continue to pay dividends long after the occupancy stabilizes. Over the last two years, we've moved our embedded rent bumps to 178 basis points for the portfolio, which is a 20 basis point increase from only eighteen months ago. In the third quarter, we executed seven new anchor leases with tenants including Whole Foods, Crate and Barrel, Nordstrom Rack, and HomeSense.

We've been proactive in diversifying our merchandising mix as 19 of the anchor leases signed year-to-date have included 12 different retail concepts. On the small shop side, we are now within 70 basis points of our previous high watermark of 92.5% and have full confidence in surpassing prior levels. Activity this quarter included leases with Cava, Kitchen Social, Diptyque, Rothys, and Free People. Our team's focus on curating a dynamic merchandising mix and driving traffic to our centers continues to elevate the portfolio. We're making meaningful progress on the transactional front, highlighted by the recent sale of Humblewood, a center anchored by Michaels and DS.

This transaction reflects our ongoing commitment to driving organic growth and derisking the portfolio by recycling capital out of noncore large format assets. Our disposition pipeline totals approximately $500 million across various stages of execution. We aim to complete the majority of these transactions by the end of the year. While there can be no assurances that all sales will close, our capital allocation discipline remains unchanged. Depending on the timing and mix of the assets ultimately sold, we intend to deploy the proceeds into some combination of 1031 acquisitions, debt reduction, share repurchases, and/or special dividends.

In all instances, our objective will be to minimize any earnings dilution and maintain our leverage within our long-term range of low to mid-five times net debt to EBITDA. Since our last earnings release, we have repurchased 3.4 million shares at an average price of $22.35 for approximately $75 million. The midpoint of our updated core FFO per share guidance implies a 9.9% FFO yield and a 23% discount to our current consensus NAV on this activity, representing compelling arbitrage to recycle capital out of our lower growth assets into our own shares.

Roughly half the funds for these buybacks were sourced from completed asset sales, including Humblewood and an outparcel disposition, with the remainder to be funded from future asset sales. Our third quarter performance reinforces the growing strength of our and the powerful tenant demand fueling our business. We're energized by the opportunities ahead to generate durable long-term growth. As we finish the year, we will remain disciplined, leasing space that delivers strong returns, redeploying capital out of lower growth assets, and elevating the overall quality of the portfolio. With a focused strategy and a deeply committed team, we are well-positioned to deliver sustained value for all of our stakeholders. I'll now turn the call to Heath.

Heath Fear: Thank you, and good morning. Our third quarter results reflect the collective strength and focus of the entire KRG organization. We've built meaningful momentum driven by compelling tenant demand, disciplined execution, and a team that continues to deliver across every metric. As we turn toward year-end, our goal was simple: finish 2025 strong and carry that same drive and conviction into 2026, where we see tremendous opportunity to further elevate our platform. Turning to our results, KRG earned 53¢ of NAREIT FFO per share and 52¢ of core FFO per share. Both metrics benefited from a 3¢ contribution associated with the sale of an outlot to an apartment developer.

As mentioned on a prior earnings call, this transaction was embedded in our original 2025 guidance and represents a strong example of unlocking value from an underutilized portion of one of our centers. Same property NOI increased 2.1% year-over-year, driven primarily by a 2.6% increase in minimum rent. We recognized $39 million of impairments this quarter, $17 million at City Center and $22 million across the Carillon Land and Carillon MOB. City Centre is being remarketed, and we're close to awarding the deal. The Carillon assets are under contract with different buyers, which shortened our hold period. Collectively, these charges reflect the gap between our carrying values and the respective estimated sale prices.

As John mentioned, we are raising the midpoints of our 2025 NAREIT and core FFO per share guidance by $0.02 each. $0.01 of the increase reflects outperformance in same property NOI, while the other penny is driven by capital allocation activity, namely our recent stock repurchases. We're also increasing the midpoint of our same property NOI growth assumption by 50 basis points. The outperformance in same property NOI is primarily attributable to earlier than expected rent commencements and stronger specialty leasing income in 2025. Our general bad debt assumption remains unchanged at 95 basis points of total revenues, representing the blend of actual bad debt experienced year-to-date and a continuing 100 basis point reserve of total fourth quarter revenues.

It's important to note that our full-year 2025 guidance contemplates the completion of approximately $500 million of non-core asset sales in the latter part of the fourth quarter. Conversely, our guidance does not assume any deployment of the related proceeds. Given the anticipated timing of these transactions, any earnings impact from either the potential sales or potential redeployment of proceeds would be negligible in 2025. We've consistently emphasized that the strength of our balance sheet provides us tremendous flexibility in how we allocate capital. The recent share repurchase activity and the potential sale transactions that John mentioned are clear examples of that flexibility.

Our balance sheet remains one of the strongest in the sector, giving us the ability to pursue opportunities that enhance shareholder value while maintaining our financial discipline. We remain firmly committed to our long-term leverage target of low to mid-five times net debt to EBITDA, which continues to position us well for both stability and growth. Lastly, our Board of Trustees has authorized an increase in our dividend to 29¢ per share, which represents a 7.4% increase year-over-year. For many of our long-term investors, the dividend is a critical aspect of REIT investing, and we believe KRG's dividend is an extremely attractive risk-adjusted yield. Earlier in the year, we mentioned the possibility of a special dividend to occur in 2025.

We still anticipate distributing a special dividend of up to $45 million, but the size will ultimately be determined by our fourth quarter taxable income and the outcome and timing of our current disposition pipeline. Thank you to our team for their relentless efforts to deliver strong results and create long-term value for all stakeholders. We look forward to seeing many of you over the next several weeks on the conference circuit. Operator, this concludes our prepared remarks. Please open the line for questions.

Operator: Ladies and gentlemen, if you have a question or comment at this time, please press 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press 11 again. In order to facilitate as many questions as possible, we ask that you please limit your questions to one question and one follow-up. If you have additional questions, you may reenter the queue. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Cooper R. Clark from Wells Fargo. Your line is open.

Cooper R. Clark: Great. Thanks for taking the question. Hoping you could expand more on your earlier comments on the dispositions. Is it fair to assume that most of the volume is power centers given your comments on previous calls? Also curious on cap rates and then benefits to the same store growth profile and underlying tenant credit moving forward.

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

Heath Fear: Cooper, this is Heath. I would also say that on the same store, listen, on a net-net basis, the entire pool would be accretive to same store. It all depends on which mix of assets we end up closing. So TBD and what it does to the 2025 same store.

Cooper R. Clark: Great. Thank you.

Operator: Thank you. Our next question or comment comes from the line of Andre Riale from Bank of America. Your line is open.

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

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

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

John Kite: Yeah. Right now, I think we're very focused on just getting this closed. We said, we anticipate a lot of this will happen by year-end. So we're quite busy on getting that done. And then we're gonna go from there. We continue to want to the portfolio and continue to want to do a lot of work around this embedded rent growth. I mean, the fact that we've been able to increase our embedded rents by 20 basis points in eighteen months is pretty fabulous. And we're already taking up towards the higher end of the peer group on embedded growth.

So that's really the focus is to reposition the portfolio to deliver a better growth profile in the years ahead. And that's a lot of that is because a lot of the growth that you've seen in this space since COVID is really just catch up of occupancy. And what we're looking to do is build growth without having to do that. So we'll see how that plays out, but we're very optimistic about that.

Andre Riale: Okay. That's helpful. Thanks. And then if I could just ask a follow-up. As we start to really model out '26 could you just go back and remind us of what the one-time items are that have impacted this year and kind of what those are worth on a per share basis?

Heath Fear: Yeah. It's around today, it's around $17 million of what we call recurring but unpredictable items, and that's a combination of term fees and land sale gains.

Operator: Thank you. Our next question or comment comes from the line of Todd Thomas from KeyBanc Capital Markets. Mr. Thomas, your line is open.

Todd Thomas: Yeah. Hi. Thanks. I just wanted to ask about the guidance revision and maybe sort of an early look around '26. The revision this quarter, there was a 1¢ positive contribution from capital allocation activity. Heath, you said that's almost entirely due to stock buybacks. Just given the timing of the transactions that you're you're But any considerations around 2026, I guess, vis a vis your comments around transacting in a manner that minimizes dilution, how we should maybe think about how all of this, you know, sort of plays out.

Heath Fear: Yeah. So I think it's too early. In February, we're gonna have a lot more visibility into what we're actually doing with proceeds. As John said in his remarks, we've a menu of items. Obviously, one of the attractive ones now is the redeployment of capital into our share price based on where the implied yield is versus the implied yield of these assets that we're selling. Again, it's really gonna be depending on, you know, are we gonna close these things, what do we do with the proceeds. So we'll have much more visibility in February. So you for your patience, and we'll talk to you then about twenty-six.

John Kite: Yeah. Only thing I would add to that, Todd, is you just gotta remember that there's complexity in terms of the taxability associated with the sale, the gain or the loss. So I think we have to let that develop and focus on getting this current batch closed. And then as he said, we'll be in a much better position. But the real positive here is that there's a lot of opportunity for us to improve the portfolio, improve the growth and there's a real demand for the type of product that we're looking to sell.

And, again, with the discount to NAV and the implied cap rate where we're at, this has been quite a good time to be doing this.

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

John Kite: Well, so the first part of the question, these would this particular pool that we're talking about of approximately $500 million is all 100% sales. These are not any joint venture contributions in this. In terms of force ranking those multiple options, again, it all comes down to the timing, which assets, the taxability of those, and then so that will drive that first decision making. But, again, the entire objective is to do what we've already done, which is to place the money in something that is either accretive or very, very minimally dilutive as it represents the entire balance sheet. So think gonna have to see where that goes.

But with the yields that we're able to sell at and redeploy at, that's kind of our focus is the demand for the centers that we're selling is strong. And, you know, as we've said a couple different times, in terms of redeploying into the stock, it was an easy decision. As we move down the road, that becomes more complex around you know, taxes, etcetera.

Todd Thomas: Okay. Thank you.

Operator: Thank you. Our next question or comment comes from the line of Craig Mailman from Citi. Your line is open.

Craig Mailman: Hey, guys. Just wanna go to the city center. You know, that one was impaired, and as we think about it, you had mentioned that is one of the assets you were recycling as part of the Legacy West transaction. I mean, does that does it the further write down of that change any of the accretion math that you guys put out in that Legacy West deal? And maybe where should we think about the cap rate, you know, for that deal? Is that north of a 10 cap and kinda the Carolina MLB and development land as well. I mean, are these prices are coming in below your expectations, it seems like.

Can you just talk about where yields are?

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

Heath Fear: Oh, sorry. Can you get the second part of the question again?

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

Heath Fear: Oh, the cap rate on the asset itself. I mean, terms of Yep. Of them is one of them is a piece of land one of them's our MLB, which is lightly occupied. And the other is city center. I'd rather not keep an exact cap rate on city center, but needless to say, listen. The good news is on these Carillon sales, you know, this is one of the ways that we're gonna help minimize dilution. We're selling one asset potentially that has no NOI attributable at all to it and one of which is NOI light. So again, we think these are all good developments, and we'll keep you updated.

John Kite: Yeah. And just to be clear on city center, it's really not like a going in cap rate exercise. It's an IRR exercise for the buyer. Because there's a lot to do there, so it's not really relevant.

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

John Kite: Yeah. I mean, obviously, everything we're doing here we would anticipate that in the end, the multiple would be well above where it is today. And I'm extremely confident that, you know, two years from now, the stock is gonna trade at a much higher both multiple and price than what we're buying the stock at today, Craig. So, yeah, I mean, there is complexity in the analysis, and it's not all math. I mean, the math gives you gives you the direction but you have to look at the market cap, the size of the business, but we're you know, these are even these are relatively small numbers.

Even if were to deploy all of that into a buyback, which we're, you know, we're not going to, but I think the reality is this is a point in time where we're taking advantage of an arbitrage that's very clear that in the future will be you know, we'll look back and say it was very smart, in my opinion. But it's also about the thematic around what the composition of our assets are gonna be and what the what the embedded growth rate of our business will be. Because, again, a lot of companies have benefited in terms of short term growth in the past four years.

That's great, but you gotta think what's this business gonna be in the next ten years. And we're gonna be positioned to be one of the best companies. For sure. We're gonna have one of the best growth profiles, and we already have one of the best balance sheets, which will continue. So we will look at all of that, and we will be very thoughtful around the impacts of these things. But against the backdrop of the business and the backdrop of the opportunity, you know, we're this is the perfect time to be doing what we're doing.

Craig Mailman: I know it's a two question limit, but maybe slip a third one in here. I mean, do you guys are really trying to arb this. Other REITs have tried this in the past. You know, selling assets, buying back stock. I mean, at what point do you look to other ways to maximize value if the public markets don't wanna recognize kind of the private market value of Kite and, you know, maybe even some of your peers.

John Kite: Let me start with we're not we're not doing this to it's a result of how we're changing the composition of the portfolio. So it's not as though we said, hey. Let's go put a stake in the ground that we wanna buy back stock at a certain price to prove a point. That has absolutely nothing to do with it. What's happening here is we're changing the composition of the portfolio into a better longer term growth profile asset composition. As part of that, we have proceeds that we have to distribute. This was the obvious thing to do at this point in time with those proceeds, because of what we've talked about.

The gap the difference in the core FFO yield versus the assets that we sold we think will continue in the short term. And then also just the extreme discount that happened to be there. But, you know, going forward, you know, this is we'll see how that plays out. This is about real estate and the know, the results of those sales have to be deployed. It's not vice versa. Is the message I'm trying to get to you. So the idea that other people have tried to do this, that has nothing to do with it. This is individual exercise for a company improving its portfolio that happens to have an extremely good balance sheet that allows flexibility.

I've seen this done in the past with leveraged balance sheets. That does not work. So this is absolutely nothing like that. And, again, we'll see where it goes. And because of the structure of a REIT, you know, sometimes you do have pay out a special dividend. We haven't talked much about that. But we are anticipating doing that, and that's just part of being a REIT. You know, that would be, you know, on the lower end of what you're really trying to prioritize because of the use capital. But by the same token, you're looking at a total return to the shareholder on an annual basis.

In the end, we want that to be a model going forward where our total return is a high number, that entices shareholders. Right now, there's you know, there's a lot of money being invested in other areas of the world. But when you look back at what we're doing right now, I think people will come back to the steady cash flow growth of REITs. So I think, again, the timing of this is very good.

Craig Mailman: Great. Appreciate the thoughts. Thank you.

Operator: Thank you. Our next question or comment comes from the line of Michael Goldsmith from UBS. Your line is open.

Michael Goldsmith: Good morning. Thanks a lot for taking my question. Probably a good sign that we've made it this far and we haven't touched on the watch list for the full portfolio. So it feels like things have gotten a little bit better out there. Just wanted to get your assessment, what you're seeing, what your watch list is, what you're paying attention, and how that impacts the kind of the setup for 2026. Thanks.

John Kite: Yeah. Sure. We think that the watch list is in good shape, and I think most of what's happening now is becoming much more isolated into individual tenant names. More so than in the past when you had multiple tenants in trouble. And, obviously, the crescendo of that was last year when you have multiple bankruptcies within sixty days. So now we're down to a much more manageable probably situation where there are individual tenants that we're not gonna name that, you know, we're focused on, and we're focused on reducing exposure. And look. Part of this entire conversation this morning has been about improving the quality of the portfolio and reducing exposure.

And even if you're getting short term lease up right now, but you're remaining overly exposed, that will eventually come back to be a problem most likely. So this is all one big, you know, exercise around improvement, self-improvement. And better growth. So I think that's coming. But as it relates to the specifics around tenant credit, watch list, we always have them. The industry always has them. It's a natural evolution. And we said, look. When we got all these bankruptcies, there was a lot of people putting out lists, and I've leased this many spaces in this period of time. Know, that's not the exercise.

Exercise that we engage in is how do we get the best tenant, the best merchandising mix with the best growth? If that takes eighteen months instead of nine months, fine. This business could be around a long time, and it's going to be a very strong business for a long time.

Michael Goldsmith: Got it. Thanks for that. And so I'll follow that up with probably what you know what? Hear those. You know, last quarter, you talked about 80% of the boxes recaptured were either leased or in active negotiations. Is there an update on that? And can you just talk about the opportunities of those where you cut your head on holding back as you think about merchandising or finding better economics with a tenant? Thanks.

John Kite: Well, let me just give Tom will give you an update on where we are on the progress even though we just said that's not our focus. But he'll give you the update and can take the second part out.

Tom McGowan: Yeah. No problem. So we always marked up 29 bankruptcy tenants in terms of that original list that we talked about. At this point, we're at about 83% that are leased, assumed and ally negotiations, etcetera. So we have five other properties that are out there. We're meeting on them constantly. They're probably the more challenging of the original list, but we have confidence that we'll resolve those in due time. And it gets a lot of attention. So no concern there.

John Kite: Now only thing I would add is if you pay attention to the names that we're putting out there in terms of the anchor leases that we did just even just in this quarter, shows you that our focus is on quality and growth as opposed to just filling the space. And I think the fact that we've done this year 12 different retailers across or 12 different brands across 19 leases that we signed. Again, our focus is that diversity, quality, and then look at the spreads and the returns on capital. That's why this takes a little more time. Right?

I mean, if you're gonna be getting north of 20% returns on capital, and, you know, same thing on spreads, And speaking of spreads, in case nobody asked, I mean, look at our non-option renewal spreads. I mean, I know we're one of the few guys that gives the detail around that, but I think it was 13% or 12% 12, 13% That is a fabulous number. And which reflects the strength of our portfolio first, and then secondarily, the business that we're in. So those things are important to that too.

Tom McGowan: So just to follow-up on John of the seven boxes that we executed this quarter, our spreads were 37% and return on costs 23. So as we look at the remainder of this portfolio, know, we're setting a high bar and being very, very careful.

Michael Goldsmith: Thank you very much. Good luck in the fourth quarter.

Operator: Thank you. Our next question or comment comes from the line of Floris Van Dijkum from Ladenburg Thalmann. Your line is open.

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

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

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

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

John Kite: Yeah. Kind of a it's magical. It's a fabulous asset that had under market rents, particularly in the retail component. And, you know, it was the perfect timing to bring in a platform like ours that can drive those rents, drive value, We have a lot of great things going on there. But, obviously, you know, we said it when we bought it. I think the average base rent was, $65, I believe, in the retail. And we are well above that in all the new deals that we're doing.

And we had the as we mentioned, Floris, we had the ability to access about 35 30% of that over the next three year over the next three years since the acquisition to get the probably about a 20% mark to market. Right? So it is playing out exactly as we anticipated. It was the perfect combination of us and a fabulous partner that has the same kind of mentality we do and has been extremely supportive and we, of course, look to do more with them. And the other thing, remember that we are a major player in the market. Right?

So you know, we have things going on that are multi-tiered when we're talking to these tenants in the sense that you know, we have other assets that we can cross lease against, and we have other properties there tenants wanna get into. And so there's this ability to have this virtuous cycle of repositioning and moving people around and different rent levels. So, look, we're extremely bullish on the micro, which is the property itself, and the macro, which is the market, one of the best in the country.

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

Heath Fear: Well, first, I'm glad to hear you say cruising speed. Versus cruising altitude because that's been a debate in the company, so you just answered. But go ahead, Heath.

Heath Fear: So, Floris, the embedded bumps in that pool of assets is around 140 basis points. So it's going to increase it's obviously going to improve our cruising speed. But the denominator is so large, so it'll be fairly modest. But again, all heading in the right direction. And as John said in his comments, I mean, to move our cruising speed by 20 basis points in eighteen months is just incredible. That's basically just being basically getting better bumps in the small shops to the extent we can get better escalators and the anchors, which we're starting to get a little bit more modest improvement on. You know, we see 2% around the corner.

When we hit 2% in embedded bumps, gonna ask for two and a quarter. So we're just gonna keep pushing on this. And again, this occupancy-fueled growth that people are experiencing, it will come to an end. And at the end of the day, we'd rather be in a position where our cruising speed, to use your term, is higher than others. And that is part of this entire real estate exercise that we described on this call.

John Kite: Yeah. I mean, that's the real message for us today is that this is a first step in a process of really focusing in on organic growth. And when you have a balance sheet like ours and you have organic growth that's near the top of the space, and the balance sheet that we have, then we're able to do other things outside of the organic growth that can even add to that. So that's really the goal. And, I think I think we have, you know, frankly, we have absolutely been, I think, the market leader in focusing in on this embedded growth and fighting the fight that has to be fought in the trenches to get that.

And perhaps that's why the occupancy trailed a little bit, but then all of a sudden you see us gain like, 60 points, I think, or 60 basis points sequentially. And I think it shows you that the market is coming more to where we want to be. If you look at the percentage of leases that we're signing in the small shop space, at three and a half and 4% annually. I mean, it's in the sixties percentage. Like, 60% of the deals we're doing, And then, you know, 3% is table stakes. Right? So this is an indicator that this is a very good business to be in. There's not a lot of product.

And there's certainly not a lot of owners that have the ability to deploy all those different goals into what they're doing.

Floris Van Dijkum: Thanks, John.

Operator: Thank you. Our next question or comment comes from the line Alexander Goldfarb from Piper Sandler. Your line is open.

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

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

John Kite: And I think Alex and Alex, I'd just add. In the past when we've done things like we've been very, very thoughtful around that particular issue. And it really depends on, you know, everyone has different numbers. We have different numbers. You have different numbers. But in the end, whatever happens in '26 happens in '26, but from that point forward, there is no question that whatever we're doing is gonna create much better growth. But in the meantime, we'll do everything we can to minimize that and unfortunately, some of that is driven by the taxability. Right? When you're paying out a special, it you know, that's just money going out the door.

So the primary goal is to minimize that. But, again, look. We're doing one right. We think we're gonna do something towards the end of the year here because we just that was the optionality of it. But from an NAV and from a future growth perspective, it's absolutely gonna be better.

Alexander Goldfarb: Okay. And then, just as another question along portfolio lines, As it sounds like you reviewed your portfolio heavily and obviously we're seeing what's happening in the market in terms of supply and demand and improvement across the industry. Is your view that this is it and that going forward dispositions will be more targeted in normal course? Or do you think there's a potential for another $500 million plus type portfolio transaction that could occur next year? Meaning, is there more culling on a large scale that you guys think that you need to do? You think that this really addresses the assets that you no longer want to have in the KITE portfolio?

John Kite: I mean, think it's early right now to give any kind of finality answer to that. We're always reviewing, as you know, we're always deep diving and reviewing the portfolio. You know, we're going through budgets right now. So there's a lot going on in terms of the idea of what assets do we wanna hold long term. But we have been clear that, you know, the idea is to derisk our exposure to certain areas of retail. And but then take that whatever proceeds that might create and have a better growth profile and have a better future growth profile.

So too early to say that, Alex, but you know, it's always possible that we would do other dispositions of size. But again, right now, we're just focused on just getting this done and figuring out the deployment.

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

Heath Fear: Yes, that's what's in your numbers. That we assume a 100 in the fourth quarter. But no, it's not there's no special item there. It's just continuing the same whatever you wanna call that. It's consistent with the same assumption we have. At the beginning of the year and throughout the course of the year. So it's a 100 basis points.

Alexander Goldfarb: Right. But you're not expecting, like, a bunch of tenants to suddenly go start.

Heath Fear: Oh, let's go. Is just us being conservative and basing it on historical norms of 75 to a 100 points of revenues.

Operator: Thank you. Our next question or comment comes from the line of Paulina Rojas from Green Street. Your line is open.

Paulina Rojas: Good morning. And it's great to see you pursuing that arbitrage opportunity and trying to reshape the growth profile of the company. And looking at your same property NOI over the last ten years, it's being around 2% or low 2%. So I know this is a difficult question, but painting with broad brushes. If you layer in the initiatives that you have shared in this call, plus the strong backdrop how material do you think the upside to that same property in LightGrowth could be relative to that 22% low 2% range that the company has experienced?

Heath Fear: Yes. So, Pauline, I'm not sure if you attended our four in twenty-four event in Naples. In February Of Naples. And we have a slide in there where we thought what our sort of organic growth was. And holding occupancy aside, we said it was two point five three point five percent based on bumps and spreads. Certainly, the bumps of the company obviously have improved to as we suggested. So looking out over a ten-year period, we had much lower embedded growth back then. So, you know, based on the current progress, you know, we're seeing maybe that getting closer to two seventy-five to $3.75. On a forward basis.

So, this is all about trying to improve that cruising speed of this real estate exercise. That's probably the number one priority is getting better growth. And the two parts of the portfolio that we're really migrating towards, we told you, which is the lifestyle and mixed use. You know, the embedded escalators in that part of the business is anywhere between two and a quarter and two and a half. And then on the smaller format grocery side of the business, which we also really like, that growth is anywhere between, you know, one seventy-five and two based on your composition of shops and anchors.

So really pushing to sort of divest ourselves of the middle part of the portfolio. I just described to you that pool that we're looking at is 1.4%. So it's a great question, and we appreciate you looking backward. I will tell you over the last three years, it's been 2.9%. But as we mentioned, that was, you know, that was some of that was occupancy fueled. So again, the whole point of this exercise is to improve that long-term cruising speed.

John Kite: Yeah. I mean, I would just add, I think that is important that we look at where we were and that's a real big part of why we wanna kinda change the composition as to where we're gonna go. Which is more important than where we were. And, obviously, over the last four years, think it's four years where we averaged that kinda close to 4%. You know? And we've had some up and downs in the occupancy over that period of time as well.

And I think that was the point I was trying to make Paulina, is that if you look at the entire sector and you look at this kind of kind short term focus on same store NOI growth, And by the way, everybody that is it is it is not a ubiquitous equation. In the sense that everyone defines it a little bit differently, so it makes it very difficult for you guys. Which is why we're more focused on something that you can't you know, massage. What is your embedded rent growth?

And, you know, what is, your core and NAREIT FFO growth going to stabilize at in the future And what is your total return to your shareholder on an annual basis, which by the way, part of that is the dividend yield. And, you know, we've continued to raise the dividend pretty healthy, and you know, we're we have spent a lot of capital in the last two years in just TI and LC and continue to produce significant cash. Even after that fact. So I think we are basically saying that we feel very good about the future but, obviously, there's a few steps in between as we are you know, positioning ourselves for that.

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

John Kite: No. I mean, I don't I don't I don't think there's a target that's driving the decision making around the leasing side of that. You know, when we add a grocer to a shopping center that previously didn't have one, like many of those examples, it changes the composition of the shopper. Right? And it creates more day-to-day activity at the property. One of the key things that we look at in the neighborhood grocery anchored shopping center is you know, what is the growth rate in that shopping center? And if you're too pivoted towards the grocer in terms of your NOI, it's tough to grow your it's tough to get embedded growth better than, like, less than 2%.

It's tough. It's tough to get better than one and a half percent. So the composition of the shops and the grocer are a factor. But I think the meaning of that slide is just to show the demand that's out there. And, of course, there is a certain segment of the investment community that you know, just only wants grocery. I we're not that's not our goal because, you know, you don't ever want, in my personal opinion, overexpose yourself to one thing. Because, you know, there was a time where people only wanted Kmart's. Well, that didn't work out too good.

So I think we're much more focused on this diversity of our portfolio that creates this embedded rent growth that is gonna exceed the space. Like, that's our goal. So it's more meaningful than just trading to a grocer. But, obviously, you know, when you can put a Trader Joe's into what was a Bed Bath and Beyond or a Whole Foods into what was a Big Lots that's a pretty good day.

Paulina Rojas: Thank you very much.

Operator: Thank you. Our next question or comment comes from the line of Hongliang Zhang from JPMorgan. Your line is open.

Hongliang Zhang: Yeah. Hey, guys. I think your non your sorry. Your tenant related capital expenditures spend trended down, pretty significantly this quarter. Was that just related to timing? And how should we think about the spend going forward?

John Kite: You're talking sequentially?

Hongliang Zhang: Yeah. Sequentially. Yeah. Yeah. Yeah. It's just timing. It's a timing thing of signing a lease before you spend the money.

Hongliang Zhang: Okay. How should we think about so it sounds like the spend will basically revert back to what it's been earlier this year. Going forward.

John Kite: I mean, I think you should think about it on an annual basis. I would not look at it on a quarterly basis. That's too there's too much timing back into that. But if you look at it annually, you know, we spent around a 110 million or so on TI and LC in the last couple years, and that's gonna probably be slightly higher next year. And then go into 2027. And that was the point I was making is that you know, on total CapEx in 2025, we probably spend a 165 million when you include maintenance CapEx and some development spend.

And we're still producing we're still paying a dividend with a nice yield and producing free cash flow. And our balance sheet remains fabulous. Right? So the combination of being able to produce this cash self-fund the regrowth of the assets, and then self-fund future growth from development is really, really strong. And, you know, we're seeing more opportunities on that development side, by the way, and I don't think there's anybody in the publicly traded space that has longer experience than us in the development business. So we know when to lean into that and when to lean out of that. And Of the total anchor leases coming due have renewal options?

And, what are the expectations for those anchor retentions in 2026?

Tom McGowan: Sure. I have that percentage in front of me right now. I mean, suffice to say, the great majority of our anchors have options. It comes down to the timing of are they out of options. Right? That's generally what There's almost no anchor that doesn't have options. I will say, when you compare the non-option renewal spread to the option renewal spread, it would indicate it'd be better if we gave less options. That's part of the push-pull of our industry and another area that we lean probably harder than others and are getting very good success with limiting that. But bottom line is the great you know, almost no anchor does a flat term without an option.

It just comes down to the percentage of anchors expiring in that particular year and whether or not you're at the end. And in the case of the grocers, frankly, often what happens is they don't wait for that to happen. You know, you're negotiating something with them prior to that, and a lot of times, you might be rent you might be rebuilding the store as well, which we're doing in a couple instances. But we are finding many retailers inquiring with us about when do you have expirations with various boxes. So we're seeing a lot of activity on that front as well.

Hongliang Zhang: Do you expect any change in the retention rate? Looking into next year?

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

Hongliang Zhang: Sounds good. Thank you.

Operator: Thank you. Our next question or comment comes from the line of Kenneth Billingsley from Compass Point Research and Trading. Your line is open.

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

John Kite: I just wanna be clear. You mentioned anchors, but you're talking about small shops. Is there I just wanna understand the question a little better.

Kenneth Billingsley: So, essentially, you talked about the 12 of the 19 anchors you signed had new formats. I believe that's what you said at the beginning of the call.

John Kite: Yeah. It's different. It was different brands. Yes.

Kenneth Billingsley: Okay. I was just curious is I mean, obviously, you're always trying to upgrade the retailers. That are coming in. But is this is some of this a reflection of shifting consumer demand of what they expect to see at the properties? And essentially, are you doing that to help drive an improvement in shop small shop occupancy?

John Kite: No. I think what we're trying to say is that I think this business went through a period of time and then certain people made their lives easier by saying, I'm gonna go do I've got 15 empty spaces. I'm gonna do seven deals one guy and another eight deals with another guy just to make your life easier. What we're saying is we're trying to diversify the anchor tenant mix to do what you said, which is to drive more interest in our shopping centers, but also to decouple from any one anchor too much exposure.

So and then the results of that is it makes a better shopping center, which, of course, does make put you in a better position to generate higher growth in the small shops. Because these things are symbiotic. They work together. There is a symmetry there. So it's really not part and parcel. It's you wanna have the strongest possible lineup you can have, but you also wanna have diversity so that the consumer who we don't talk about enough because that's the ultimate customer wants to go to our property over somebody else's.

Tom McGowan: Only thing I'd add is some of this relates to the quality of our assets. And when you think about you think about Southlake, you think about Legacy West, Loudoun, and others, this diversity is really coming from a higher quality of tenancy someone like a Crate and Barrel, a new deal with Adidas. So these are some of the names that we weren't necessarily doing in the past, but this diversity is getting buoyed by this strength as well.

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

Kenneth Billingsley: And when you say that new format, are they are these new to you or just new into the locations?

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

Kenneth Billingsley: Okay. Got it. So these are 12 new brands to your mix?

John Kite: Correct.

Kenneth Billingsley: Okay. Excellent. Thank you.

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

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

Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.

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