Kite Realty (KRG) Q3 2026 Earnings Call Transcript

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DATE

Oct. 30, 2026

CALL PARTICIPANTS

• Senior Vice President, Corporate Communications - Bryan McCarthy
• Chairman and Chief Executive Officer - John Kite
• President and Chief Operating Officer - Tom McGowan
• President and Chief Financial Officer - Heath Fear
• Senior Vice President and Chief Accounting Officer - Adam Jaworski
• Senior Vice President, Capital Markets and Investor Relations - Tyler Henshaw
• Vice President, Capital Markets and Investor Relations - Cooper Clark

TAKEAWAYS

• Core FFO -- $0.52 per diluted share, representing the company's reported operational performance for the third quarter.
• Same-Property NOI Growth -- 3.6% in the third quarter, driven by 183 basis points from embedded rent bumps and 115 basis points from rent spreads and occupancy gains.
• Total Leasing Volume -- 1.2 million square feet executed across 160 leases, reflecting strong tenant demand for the company's core portfolio.
• Blended Cash Leasing Spreads -- 14.6% on comparable leases, demonstrating the landlord's pricing power in a supply-constrained retail environment.
• New Lease Spreads -- 33.7%, representing the strongest result for this leasing category during the 2026 fiscal year.
• Non-Option Renewal Spreads -- 18.3%, highlighting sustained rent growth from existing tenants within the portfolio.
• Retail Lease Rate -- 95.3% as of Sept. 30, 2026, which represents a 140-basis point improvement compared to the prior year.
• Anchor Lease Rate -- 96.9%, an increase of 190 basis points year over year due to successful remerchandising efforts at recaptured spaces.
• Small Shop Lease Rate -- 92.7%, a record high for the company that increased 90 basis points compared to the third quarter of 2025.
• Leased-to-Occupied Spread -- 360 basis points, equating to $38.8 million of signed-not-open net operating income.
• Project Elevate Dispositions -- 22 non-core assets sold for over $1 billion since the beginning of 2025, facilitating a strategic shift toward higher-quality retail assets.
• Full-Year Share Repurchases -- 22 million shares bought back for $539 million since early 2025 at an average price of $24.46 per share.
• Quarterly Share Repurchases -- 2.4 million common shares repurchased in the third quarter for $63.4 million at an average price of $26.61 per share.
• Net Debt-to-Adjusted EBITDA -- 5.2x, which remains within management's long-term target range of low to mid-5x.
• Core FFO Guidance -- $2.08 to $2.12 per share for 2026, representing a $0.01 increase at the midpoint compared to previous guidance.
• Same-Property NOI Guidance -- 3.4% to 3.9%, raised from the prior range of 3.0% to 4.0% based on strong year-to-date performance.
• Asset Sales -- $33.2 million from the sale of the Carillon medical office building, which management used to avoid the requirement for a special dividend.
• Land Fee Acquisition -- $52 million for the fee interest at Pelham Manor Shopping Plaza, a transaction expected to compress the property's exit cap rate by 75 to 100 basis points.
• Total Liquidity -- $1.1 billion as of Sept. 30, 2026, supporting the company's focus on balance sheet strength and flexibility.
• Planned Dispositions -- $119 million in gross proceeds from assets under contract expected to close by year-end 2026, followed by $70 million slated for the first quarter of 2027.
• Exchangeable Senior Notes -- $345 million issued at a 3.25% coupon, which management reported was approximately 200 basis points inside conventional unsecured debt rates.

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RISKS

• Fear stated, "we still have about a $0.03 noncash drag happening into 2027," referring to the expiration of certain non-cash items that will impact year-over-year earnings comparisons.
• Fear warned that the company earned significant interest income in 2026 due to 1031 exchange activity that is "not going to repeat into next year," creating a headwind for 2027 interest income.

SUMMARY

Kite Realty Group Trust (NYSE:KRG) reported that the execution of its strategic initiative, Project Elevate, is nearing completion, resulting in a portfolio with higher credit quality and reduced exposure to at-risk anchors. Management indicated that the company is transitioning toward a focus on driving organic growth through its core shopping center and mixed-use assets. During the third quarter, the company received a credit rating upgrade to BBB+ from Fitch and maintained a net debt-to-EBITDA ratio of 5.2x while continuing share repurchases. Guidance for 2026 Core FFO and same-property net operating income was raised, reflecting sustained tenant demand and record-high shop occupancy.

• John Kite noted that the portfolio's retail lease rate is still 80 basis points below its high watermark of 96.1%, suggesting further runway for occupancy gains in both small shop and anchor categories.
• The company has shifted its annualized base rent composition since 2022, reducing power center exposure from 19% to 13% while increasing lifestyle and mixed-use assets to 28%.
• Management reported that the portfolio's cruising speed reached 188 basis points in the third quarter, noting that the vast majority of this internal growth improvement stemmed from leasing activity.
• The acquisition of the Pelham Manor land fee interest was completed via a 1031 exchange, utilizing proceeds from non-core asset sales to consolidate ownership of the high-performing retail site.
• Management reported that $24 million of the signed-not-open net operating income pipeline is expected to commence over the course of 2027.
• The One Loudoun expansion project is currently 80% leased on the retail front, according to management commentary during the call.

INDUSTRY GLOSSARY

• ABR: Annualized Base Rent, representing the yearly rental income expected from a tenant lease.
• Core FFO: Core Funds From Operations, a non-GAAP metric that adjusts NAREIT FFO for certain non-cash or non-recurring items to reflect core operating performance.
• NOI: Net Operating Income, a measure of property-level profit calculated as rental income minus property operating expenses.
• Same-Property NOI: Net operating income from a consistent set of properties owned for the entirety of both comparison periods.
• 1031 Exchange: A transaction under Section 1031 of the Internal Revenue Code allowing an investor to defer capital gains taxes by reinvesting proceeds from an asset sale into a similar property.
• Project Elevate: The company's multiyear strategic program focused on capital recycling, share repurchases, and balance sheet optimization.
• Cruising Speed: A management term for the embedded organic growth rate of the portfolio driven by contractual rent escalators.

Full Conference Call Transcript

Operator: Thank you for standing by, and welcome to the Kite Realty Group Trust Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Bryan McCarthy, Senior Vice President, Corporate Communications. Please go ahead, sir.

Bryan McCarthy: Thank you, and good morning, everyone. Welcome to Kite Realty Group's third 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 today's earnings press release available on our website for a reconciliation of these non-GAAP performance measures to our GAAP financial results.

On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Adam Jaworski; Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw; and Vice President, Capital Markets and Investor Relations, Cooper Clark. Given the number of participants on the call, we ask you that limit yourself to one question and one follow-up. If you have additional questions, we ask that you please rejoin the queue. I'll now turn the call to John.

John Kite: All right. Thank you, Bryan. Good morning, everyone. Strong leasing this quarter underscored the earnings power of our core portfolio as Project Elevate nears completion. We signed more than 1.2 million square feet of leases, further strengthened the credit quality of our tenant base, improved our rent escalators, maintained the strength of our balance sheet and upgraded our credit rating. During the quarter, we executed 160 new and renewal leases with blended comparable cash spreads of 14.6%. New lease spreads were 33.7% and non-option renewal spreads were 18.3%, our strongest result of the year on both measures.

Our retail lease rate increased 50 basis points sequentially to 95.3%, up 140-basis points year-over-year, led by a 190-basis point improvement in our anchor lease rate. Our leased occupied spread widened 10 basis points in the third quarter and now stands at a record 360 basis points, which equates to $38.8 million of NOI. Roughly a quarter of that NOI is expected to commence in the fourth quarter with approximately $24 million more coming online over the course of 2027. The quality of that leasing matters just as much as the volume. Over the past few years, our team has been highly selective in remerchandising the space that we've recaptured.

Since the start of 2024, we've executed 67 anchor leases with 38 different brands, 91% of them national tenants. For a total of approximately 1.6 million square feet at comparable cash spreads of 31% and a 29% return on capital. Two recent Container Store backfills tell the story, L.L. Bean at One Loudoun and Our house at South Lake Town Square, together at a combined cash spread of more than 50%. In each case, we added a best-in-class operator that drives traffic to the entire center, higher credit, stronger annual bumps, and concepts that bring shoppers back repeatedly. While anchors have been a key focus in our remerchandising efforts, small shops continue to see strong demand and leasing momentum.

And that's where we see the most upside from here. Shop lease rate in the third quarter increased 40 basis points sequentially and 90 basis points year-over-year to 92.7%. Our exposure to shop space has increased 700 basis points as a percentage of ABR since the fourth quarter of 2022, accelerating our internal growth and de-risking our tenant credit profile. Additionally, our shop exposure commands average rents of nearly $38 a square foot, more than twice our average anchor, while requiring less capital spend. Continuing to increase our exposure to shop tenants through selective capital recycling and pushing our existing shop occupancy higher is a top priority for our team and a meaningful lever for growth.

We continue to make incredible progress on Project Elevate. Since the start of 2025, we've sold 22 non-core assets for over $1 billion and repurchased roughly 22 million shares for approximately $539 million at an average price of $24.46, well below consensus NAV. Through Project Elevate, we've exited more than 60 at-risk anchor locations, and 5 watch list tenants have rolled off of our top 25 list, leaving us with a higher-quality portfolio and a more durable and derisked cash flow stream. That brings me to what matters the most, the core portfolio and why we believe it positions KRG to deliver stronger organic growth with less risk over the long term.

Compared with year-end 2022, power centers have gone from 19% of our ABR to 13%, while lifestyle and mixed-use has grown from 21% to 28%. The centers we sold through Project Elevate averaged roughly $18.60 of base rent per square foot. That's about 20% below our portfolio today and carried embedded rent bumps more than 30 basis points below the retained portfolio. Our portfolio's cruising speed has reached 188 basis points, up 32 basis points since the start of 2024. And the vast majority of that improvement has come through leasing, not dispositions. We continue to see upside to current occupancy levels and expect our sign not open pipeline to remain elevated throughout 2026 and 2027.

Our retail lease rate is still 80 basis points below our high watermark of 96.1%. And we see a clear path to push small shops towards the 94% and anchors towards 98%. With 18 anchor spaces, roughly 485,000 square feet left to lease and virtually no new supply, we believe there's plenty of runway left for occupancy gains. Finally, a word on the capital markets. We believe private real estate capital remains under allocated to open-air retail, and that's beginning to change. But capital alone does not create value in this business. Leasing, merchandising, and operating execution do. Platforms with experienced leasing teams and deep tenant relationships are uniquely positioned to benefit.

Our partnership with GIC is a clear evidence that sophisticated capital partners value what the KRG platform delivers. And that dynamic is creating real opportunities for operators who can execute. Simply put, the work of reshaping KRG is nearly complete. We have a higher quality portfolio, a stronger tenant base, a fortress balance sheet and a platform built to grow. I want to thank the entire KRG team for their relentless effort in getting us here and continuing to push forward. I'd like to turn it to Heath.

Heath Fear: Thank you, and good morning. Our third quarter results once again reflect the durability of our core portfolio and the discipline behind our capital allocation. We generated $0.52 of core FFO per share in the third quarter. Same-property NOI grew 3.6% in the third quarter and 3.7% year-to-date. Same-property NOI growth year-over-year was primarily driven by 183 basis points from embedded rent bumps, 115 basis points from rent spreads and occupancy gains, 25 basis points from lower bad debt and 22 basis points from higher overage rent. Reflecting our strong year-to-date results, we are raising our 2026 core FFO and NAREIT FFO guidance by $0.01 at the midpoint to a range of $2.08 to $2.12 per share.

We are also raising our same-property NOI growth outlook by 15 basis points at the midpoint to a range of 3.4% to 3.9%. When considering our updated core FFO guidance in the context of our accelerating same-property assumptions and other items, it's important to refer to Page 5 of our investor deck. On the transactional front, last quarter, we anticipated $225 million of asset sales for the remainder of 2026. Yesterday, we closed on the $33 million sale of Carillon medical office building in Largo, Maryland. In the very near-term, we are expected to close on the sale of an additional asset for $19 million in gross proceeds.

For the balance of the year, we anticipate closing on another 2 assets that will generate approximately $100 million in gross proceeds and an additional $70 million expected to close in the first quarter of 2027. The tax losses generated by the 2026 sales will be sufficient to cover the gains we generated early this year and if completed, will thereby avoid the need for a special dividend. Last quarter, we anticipated $110 million of 1031 acquisitions. In September, we acquired the fee interest in the land beneath our Pelham Manor Shopping Plaza in the New York MSA for $52 million through a 1031 exchange.

Pelham Manor is a high-quality center in a supply-constrained market anchored by legal and one of the top-performing BJ's wholesale clubs in the country. Acquiring the ground lessor's fee interest gives the full ownership of the real estate, and we estimate it compresses the property's exit cap by 75 to 100 basis points. Based on our ability to avoid a special dividend through tax loss sales, we elected not to pursue any additional 1031 acquisitions and rather use those dollars to acquire $63 million of our stock in the third quarter and approximate 8% FFO yield. When Project Elevate is complete, we expect sources to exceed uses by approximately $230 million, which gives us real optionality.

We could fund the majority of our 2027 maturities, including our $175 million of 75 basis point exchangeable notes due in April, repurchase shares when the math is compelling or pursue acquisitions that beat our return thresholds. We also continue to evaluate opportunities to put our platform to work using alternative forms of capital at attractive returns. In the current environment, our bias remains toward balance sheet strength, and we will make those calls with the same return-focused discipline that has guided Project Elevate from the start. Our recent capital markets activity underscores the strength of our credit. Late in the second quarter, we priced $345 million of 3.25% exchangeable senior notes due in 2032, which closed on July 2.

The coupon is 75 basis points inside the 4% notes that help retire and approximately 200 basis points inside where we could have issued conventional unsecured debt. The initial exchange price represented a 22.5% premium and with a capped call, our effective exchange price is $41.91, a 45% premium to our share price at the time of the offering. In September, Fitch upgraded KRG to BBB+ with a stable outlook, citing our sustained operational outperformance, our execution of Project Elevate and the further optimization of our capital structure.

Earning an upgrade in the middle of a transformation to this scale, recycling roughly $1.1 billion of assets or about 14% of our enterprise value, speaks to the quality of the portfolio we retain and the discipline with which we did it. As of September 30, our net debt-to-adjusted EBITDA was 5.2x, within our long-term range of low to mid-5x. With no remaining 2026 debt maturities, nearly 90% of our NOI is unencumbered, and we have approximately $1.1 billion of total liquidity. Finally, we look forward to seeing many of you next month at the NAREIT Conference in Atlanta, where we will outline the quality and earnings power of our core portfolio. Consider today a preview.

We look forward to digging in further in Atlanta. Operator, this concludes our prepared remarks. Please open the line for questions.

Operator: [Operator Instructions] Our first question comes from the line of Jamie Feldman from Wells Fargo.

James Feldman: Nice to hear that Cooper Clark name up in Lights. Congratulations, Coop. I guess just going back to the -- sorry, go ahead.

John Kite: It is good to hear that name in lights.

James Feldman: So I guess just we've heard from a lot of your peers about what's going on in the transaction market, certainly, whether it's opportunities to make capital infusions in certain parts of the capital stack, delay -- some delays in deals getting done. Can you just talk generally about the stuff you're looking at and the stuff you're trying to sell? What is changing, if anything, in terms of how you're willing to underwrite and how maybe buyers are willing to underwrite, and what's changing in their plans or their excel model?

John Kite: I think the transactional markets in general are still very robust. And I think on the quality spectrum, for lower quality deals, you're probably seeing -- it's harder to get it across the line. For high-quality deals, you're still seeing pricing fairly maintained. On the 3 assets that we have left to sell this year, for example, one of them is hard that's going to close very soon. Two of them, thankfully, we priced those and got those under contract after the rise in interest rates. So the market is still moving. We're still seeing product hit. So we haven't seen any wholesale changes happening right now in the transactional markets.

However, I will say if these rates persist at where they are, perhaps there's some opportunity down the road. With a partner like GIC, we can get things and we're unlevered, we can get assets at a better price, there certainly could be some opportunity for us. So it's certainly starting to make its way into the markets, Jamie, but we're not seeing any vast changes right away.

Heath Fear: Jamie, the only thing I would add to that is that, as you know, the vast majority of the assets that we and most of our peers own are quite high-quality. And the majority of that doesn't trade with debt as a primary metric to value the asset. I mean, obviously, at some point in time, it's probably part of the analysis if you're going to finance something later. But the majority of these deals are done with cash, certainly on the higher end of the quality spectrum. And as Heath said, at the lower end, certainly, it gets moved around a little bit.

But I would say it's actually remarkably stable considering the environment that we're in, not only from a rate perspective, but geopolitically, et cetera. So I'm quite impressed with how firm the market has been, frankly.

James Feldman: Thank you for that. And then I guess just to frame if you're able to, like to the extent there ends up being a special dividend, how do we think about how large that might be or what needs to get done to not have one?

Heath Fear: So if we get all these sales done again, we won't have to do a special dividend. And the one sale, which is imminent, which is hard after that closes, the total remaining exposure is around $60 million. So it's not a terribly large number. And it's worth saying that a special dividend is not the worst use of your capital. But again, we feel very confident we've got these other 2 assets under contract and hope to close those before the end of the year.

Operator: Our next question comes from the line of Andrew Reale from Bank of America.

Andrew Reale: Maybe just first on the guidance. Just curious, what were the recurring but unpredictable items within the raise this quarter? And then I know the new midpoint sort of implies a bit of an FFO step-up in 4Q. Just curious what's driving that? And if it's anything that would sort of carry over into '27 as a run rate?

Heath Fear: So the land sale that you see in the unpredictable item on Page 5, that was actually anticipated. That was sales in two over twos at our Loudoun project. But we also have in the guide an additional land sale that was not in the guide before, which is happening in the fourth quarter.

Andrew Reale: Maybe just to follow-up on that. I'd just be curious, maybe, Heath, if you could talk through some of the main puts and takes for '27. I guess that would sort of include full year impact from Elevate, some interest impact from your recent and some upcoming refis. And then I guess, just help us think through anything else that's sort of a swing factor into next year.

Heath Fear: I think, listen, the biggest tailwind, obviously, going into next year is the organic growth associated with the nearly $39 million of signed on the pipeline. Add that to the better embedded bumps that we keep building, the watchlist exposure, which for the sector is down, but in particularly down for Kite. So those are the great things that are happening for us going into 2027. And then we've mentioned a couple of times some of the headwinds -- we still have about a $0.03 noncash drag happening into 2027.

One thing to be mindful of, which we told people is that we earned a lot of interest income this year because of our 1031 activity that's not going to repeat into next year. Those are really the big pieces that are moving around into 2027.

John Kite: I mean, the only thing I would add to that is you always got the line item of unpredictable items that reoccur. So that's something that most likely is a little less next year as well, but hard to predict.

Heath Fear: I mean, in 2025, that number was $21 million. This year, it's around $14 million. If you go to the past 4 years, it's averaging around $14 million. So we'll see.

John Kite: We'll see.

Heath Fear: We'll see.

Operator: Our next question comes from the line of Craig Mailman from Citi.

Craig Mailman: Heath, maybe just going back to your comment on the $230 million of excess proceeds and the optionality you have there. I'm just kind of curious -- I get the maybe interest in paying down that, that really low-interest rate debt versus the buybacks. But from a kind of financial standpoint, I mean, what's the cost of those disposition proceeds? And what ultimately is less dilutive kind of putting it to work into the stock today or paying down that debt? You guys are already at 5.2x debt-to-EBITDA. So leverage is not really too big of a consideration, I wouldn't think.

John Kite: Craig, I'll start, but let me just start and then Heath will take over. But I think as Heath said in his prepared remarks, I mean, what we're all about right now is having the most optionality as we go into the end of the year, and there's still some things that haven't occurred such as these remaining sales. So I think it's important that we continue to kind of lean towards a little more conservatism in the near-term. Obviously, if we pay down the debt with those proceeds, that's more dilutive than doing -- depending on where the stock is than doing a buyback.

But frankly, as we've been doing this a long time, and we're in a very volatile world, so we want to be as strong as possible to take advantage of some opportunities that would likely occur if we did take a turn down economically. That being said, we haven't made that decision, which is what we're saying is we're waiting to see how this plays out throughout the balance of the year. So I think I would say that we certainly lean to being a little more conservative right now. That's paid off for us in the past with having dry powder and then taking advantage of opportunities. But that could change, right?

So I think we're just going to be monitoring where things go over the next few months. Heath, do you want to add to that?

Heath Fear: I think that's a great answer. Also realize we're not getting those proceeds over time, right? We got $30 million yesterday. We have another $20 million soon, another $100 million in December, another $75 million in the first quarter of '27. So as John said, we've got time to figure out what to do. I will tell you, if you look at our capital allocation menu, acquisitions have become a little harder as debt costs and the yield on an asset that would actually be complementary to our portfolio have sort of converged. That makes it a little more difficult. That 75 basis point convert, that could be either a temporary or permanent delevering.

So again, we could pay that off and decide to lever back up later. So it's just good to be in the driver side position here and look at our options as we go forward.

Craig Mailman: I appreciate the commentary. And then just, John, you mentioned the path kind of forward to 94% small shop, 90% occupancy or anchor occupancy. Kind of what's the time frame, particularly on that small shop you think it would take to get there?

John Kite: Well, as you know, Craig, we don't kind of lay out leasing guidance. But if you just look at the path that we've had in the last year, it's picked up substantially. So -- and we've eclipsed our kind of all-time high in shops this quarter. So I think in the next year, as we continue to push forward, we -- that's what our goals are and the shop environment maintains strength. And one thing I would say about the shops, it's not just shops, its shops contained in very, very strong anchored great shopping centers, right? So I think there's a difference to saying people just throw the word shop around. They're not all created equal.

And I think we're very -- we're feeling very good about our portfolio and about the demand that we see. And if you just look at the -- I mean, we always point to the one metric that we think is the most important when it comes to leasing, which is our non-option renewal spreads. 18% is really tremendous. And I've kind of lost count of how long we've been in the double-digit range, I don't know, 5 years, 4-plus years. So again, that -- we're not going to set timelines, Craig, but we feel very good about the trajectory.

Heath Fear: Craig, I mean, we obviously have some view into the fourth quarter, and we expect nice progress moving forward. So it feels pretty good.

Operator: Our next question comes from the line of Connor Mitchell from UBS.

Connor Mitchell: I guess I'd just like to maybe stick on that leasing spread thought. So I mean, first, I just want to point out that you guys had some really good results this quarter, pretty much every type of lease outperformed the prior quarter. But just curious, was there really anything within that deal mix that boosted it or gave us some outperformance? Or is this really just representative of the current environment and the demand for Kite's portfolio and space?

John Kite: Yes. I mean, I think it's broad-based. And we always want to -- we always try to make it clear that one quarter in leasing can be moved in any particular direction. But if you look at it over the past year and you look at the increase in the overall portfolio, that really shows you the strength and our focus has been not only on rent bumps, but also the merchandising. And we pointed that out in our transcript, which was that we maybe have been a little more methodical than others about that. So perhaps it's why we're maybe catching up at this point in time.

But that has really -- is going to pay significant dividends over time because the whole point of Project Elevate really isn't -- it's not shortsighted. It's long sided in the sense that our portfolio is now going to grow at a much better embedded clip, and we have significantly reduced our risk. Over the past, say, year-and-a-half, we've been very active in how we wanted to prune the portfolio and position the portfolio. And so, the point is that -- that's nearing the end. And so, we should be able to take advantage of that over the next 3, 4 years. So again, that's just a segue from your question, which is it is broad-based. The strength is broad-based.

We mentioned how many retailers we've done deals with into different brands. And look, the supply continues to be extremely muted. So it's a very favorable leasing environment.

Heath Fear: And only thing I would add to that is, if you look at the new spreads, which obviously came in very well at north of 33%, that, as the quality of the portfolio continues to enhance, we're able to get great spreads with people like Flower Child, Vuori, Sephora. And as the quality improves, we're going to continue and expect to see that spread improve with it.

Connor Mitchell: And then that kind of improvement of the landscape and the supply-demand dynamic kind of tilting in your favor. I guess I'm just curious, you mentioned the strength of the non-option renewals. Kind of what areas of the lease negotiation have you really seen some success, whether that's trimming the options, the terms, maybe lower TIs or higher escalators? Just kind of where have you seen the most success? And then where are you kind of pointing towards the future of like what else to take advantage of in this environment?

John Kite: I mean, I think all of the above. Our particular focus is organic growth. I think we've been a leader in that respect when you look at what we've done in the last 4 years and the rent bumps that we've been able to generate internally. And I mentioned that, that when you look at our cruising speed of 188 basis points, the great majority of that came through leasing, not through dispositions. So to be up that much in 2 years shows you that, that is -- we've been successful in that focus.

As it relates to the lease itself, that's always a moving target, and we've made a lot of improvement as has the space in the last couple of years. I don't think there's any one particular subparagraph that is more important than another. But certainly, the landlord is in a much better position than it was pre-COVID.

Heath Fear: I would also mention this idea that the pendulum swung toward the landlord, it really starts before the lease. And we've seen that just in the flexibility of formats. You had tenants in the past where they were so strict about how wide, how long, and how many square feet. And now the amount of flexibility that they're willing to adapt to the spaces that are left really shows you that the demand is really outstripping the supply. And to John's point, in the lease, we're improving things like the co-tenancy clause, restricted uses. We're focusing heavily on limiting options. We're giving options, we're trying to do fair market value.

So you're seeing every piece of the lease really go under a wholesale improvement.

Operator: Our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

Floris Gerbrand Van Dijkum: In light of the fact that the Summit traded to one of your competitors and this morning, University Village was announced to be bought by Simon. Could you remind us of your legacy West acquisition and how that asset has performed since you've acquired it? How much have rent exceeded your underwriting if they have? And what has happened to your NOI growth at that asset?

John Kite: I mean, Floris, it's well exceeded expectations. I think we said when we acquired it, the average base retail rent was like $65-ish, and we could get -- we thought we could get to about 30% of the rent roll over 3 years, I believe. Let's just say we haven't done a lease in there below $100, a retail lease below $100 since we acquired it and outside of maybe a large restaurant deal. So I mean, I think it's been fabulous. And we obviously have a partner there, so I'm going to be cautious with what we give you on NOIs and et cetera. But suffice to say, it's been very successful.

And frankly, just kind of -- it's been on the same path that Southlake has been on, which is another asset in Dallas that we own, which is similar, which we have told you guys previously that the NOI has gone up tremendously in the 5 years that we've controlled it. So I think there are two good examples of high-quality real estate that we pivoted to utilizing capital that was growing at a much slower clip, and we're very happy with it. So I think we'll continue to try to find those opportunities.

Floris Gerbrand Van Dijkum: Great. And then my follow-on question is regarding the cruising speed -- by the way, kudos for using that term. It increased 3 basis points over the quarter. Is that sort of the organic rate that we can expect to see over the next couple of years as you roll your rents to market and improve the bumps that you're getting and all the terms that you're getting on your new leases? Or how should we think about that cruising speed as it evolves over the next, call it, 18 months?

Heath Fear: Floris, it's not really linear. I will tell you, though, that there may be some assumption that a lot of the cruising speed improvement was by virtue of Project Elevate, but 90% of that improvement is through leasing. So to the extent that we're going to be able to continue to drive better bumps, especially in the small shops, keep hammering the anchors to try to get better bumps from them as well. We do see that climbing towards 2%. Does that take 18 months? Does it take 2 years? Not sure, but we will eventually get there. And then when we get to 2%, Floris, we're going to set our sights on 2.25%.

So it's really been something that we've been focusing on.

John Kite: It's about creating long-term growth. Once these occupancy gains that we're all experiencing dry up, for us, we want to outperform. And that's the very first -- that's the bottom run of your total return is your bumps. Yes, Floris, I think, obviously, quarter-by-quarter, it really depends on the expiration schedule and whether you're anchor-heavy, shop-heavy, et cetera. But when you look at it over the long run, I mean, we're -- we're making progress on the anchor side of the business as well, which has been a little bit slower than to get to than the shop side of the business, but now we are seeing some improvement there.

And when we look at the statistics today versus 3 years ago, we're definitely improving. So I think it's moving in the right direction across the board.

Operator: Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

Todd Thomas: I wanted to ask on the $52 million acquisition of the fee interest to Pelham Manor. I appreciate the comments about the estimated 75 basis point cap rate compression on an exit by consolidating the fee interest there. But what was the yield achieved from eliminating the ground lease? And does consolidating the fee offer any strategic or future redevelopment flexibility? Or was it just an economic opportunity and really more valuable to own the fee and also satisfy the 1031?

Heath Fear: Todd, in terms of the yield on the acquisition, we don't want to discuss sort of individual properties. We'll discuss sort of the entire Project Elevate yield on a roll-up basis in Atlanta. But listen, it was a very easy decision. You're looking at an asset that it's got a ground lease. I think we had maybe 54 years left of term. So we had plenty of terms. But ultimately, when you get down to 30 or 25 years of term, the asset becomes harder to finance, it starts to lose value, harder to sell. So it's really a no-brainer. We had a ROFO. We like the price.

The yield in terms of the ground lease was attractive, especially on top of it, Lidl, one of the highest performing -- BJs. So once we got the notice, we exercised it and we used it as a 1031. So it's just -- it was a great deal all around.

Todd Thomas: Okay. Is Pelham a long-term hold for the company? Does that fit into the current core portfolio long term?

John Kite: Pelham is -- obviously, we believe in the asset, or we probably wouldn't have done that. But even so, Todd, it's like it gives you so much more optionality when you have the fee, right? So I would say, yes, it's an asset that we think is a great asset. It's in a very, very constricted environment in terms of you're not going to see new development around there. You're probably familiar with that area. That being said, I mean, we'll see. We'll see where the asset goes. As Heath said, we recently replaced an underperforming retailer with Lidl, and BJ's is -- does fabulous business.

So yes, for now, I would say it is, but we'll see how that evolves. And if we were to decide to sell it, we think we would absolutely get back in more what we've just put into it.

Todd Thomas: And then if I could, just to clarify, Heath, I think you were -- you mentioned that the updated guidance includes an additional $0.01 land sale gain in the fourth quarter. Is that right? So the third quarter was anticipated and assumed in the guidance, but there will be about $0.01 of land sale gains in the fourth quarter?

John Kite: That's correct.

Operator: Our next question comes from the line of Alexander Goldfarb from Piper Sandler.

Alexander Goldfarb: Two questions. First, Heath, congrats on the credit upgrade. Obviously, your stock is very attractive from a buyback perspective. But you guys also work hard on the balance sheet and obviously, reflects in the rating upgrade. Are there limitations on the buybacks, like, as you look at the $200-plus million of cash that you have on hand, can you use all of that for buybacks? Or are there balance sheet issues where you may like to, but from a rating agencies or leverage, it may not be feasible?

Heath Fear: I mean, if you did the math, Alex, and we used all that to buy back stock, I think we'd be right around 5.5x net debt-to-EBITDA. So we'd still be within the range of low to mid-5s, which I think obviously speaks to just the power of the balance sheet. And our ability over the course of Project Elevate to sell $1.1 billion in assets and to buy back over $0.5 billion and not do damage to our leverage just shows you that when you've got leverage in the low 5s or high 4s, you can do a lot. So we could spend it all on buybacks to answer your question.

But again, I think right now, our bias is towards balance sheet conservatism.

Alexander Goldfarb: And then the second question is on small shops, you spoke a lot about wanting to boost it up and more ability, especially with dwindling competitive availability. As we think about small shops, are most of the tenants that you're talking to like national or super regional where the rising tenure really is a hindrance to their expansion? I'm just trying to understand if the changing credit markets have maybe caused some small shop tenants to pull back, but it seems like more small shops these days is national or super regional, and therefore, their balance sheets are strong even though they're focused on small shops.

John Kite: I mean, yes, I think you're directionally correct that the majority of our shop business is either a national tenant or a franchisee with multiple locations utilizing a national platform. But we still have a healthy business in what you would consider the mom-and-pop business, which potentially would be more impacted by what you're talking about. But frankly, the majority of the mom-and-pop don't talk about the 10-year treasury. Their business is much more granular, much more local. A lot of this is self-financed, which is why it's a strong business.

And if you go back to COVID, that part of our business was probably the strongest part of our business, which was this idea that the mom-and-pops were going to do everything in their power to survive, and they did. So we like the balance of the shop portfolio. But the point I was also trying to make is that I don't think all shops are created equal. And our shop portfolio is about 40% of our revenue, and it's located in fabulous shopping centers that are anchored and vibrant and could be grocery, could be community, could be lifestyle. -- which is why I think you've seen us really grow the rents in that portfolio.

So long story short, at this point in time, we haven't seen anything that would give us any indication that's a significant concern.

Operator: Our next question comes from the line of Michael Mueller from JPMorgan.

Michael Mueller: So you have the One Loudoun expansion and the Phase 2 resi expansions underway. Can you give us a sense if there's anything from the future opportunities list in the sub that's close to being activated?

John Kite: I mean, I think, Michael, obviously, our focus right now is on the One Loudoun opportunity, which is well underway and doing quite well. Beyond Loudoun, there's a couple of other opportunities that we're reviewing. There's some opportunities to maybe actually monetize some land parcels for multifamily. I think for us, we're always looking at what the best outcome is. Historically, over the last few years, we've been looking at joint ventures in the mixed-use components. But we also might look to monetize some of that as well. So I think right now, that's the primary focus. I think as we get into 2027, maybe later in '27, some of that may evolve.

We're working on a couple of really unique opportunities -- but we're doing that within the framework of managing the balance sheet. And as Heath just said, we're leaning towards great flexibility with the balance sheet, but that should lead to opportunities in '27 and '28. And beyond the future opportunity, since you brought up One Loudoun, One Loun has really progressed nicely. It's heading towards 80% leased on the retail front and has a great environment with a really, really strong list of tenants. So that will help us continue to drive that overall asset long term.

Operator: 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.

John Kite: I just want to say thank you to everyone for joining today and look forward to seeing everybody soon.

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

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