Good day and thank you for standing by. Welcome to the Kite Realty Group's Third Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bryan McCarthy, Senior Vice President of Corporate Marketing and Communications. Please go ahead.

Thank you, and good afternoon, 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 yesterday'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 are Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; Executive Vice President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Dave Buell; and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. I will now turn the call over to John.

Thanks, Bryan. Good morning everyone. So, before we dive into our strong quarterly results, I wanted to take a moment to mark the one-year anniversary of our highly successful merger. While we knew from the outset this was going to be an incredible transaction, we significantly outperformed both internal and external expectations. Due to our best-in-class operating platform and the strength of our high-quality portfolio, over the past year, KRG generated a quantum leap forward across every meaningful metric. Of the top 10 open-air peers by total enterprise value, we rank first in year-over-year FFO growth, first in year-to-date blended cash spreads, first in NOI margin, first in recovery ratio, and first in year-over-year decrease in G&A as a percentage of total revenue. We ranked second in net debt plus preferred to EBITDA; second in year-to-date leasing production as a percentage of our total GLA; second in percentage of ABR coming from the Sunbelt; and second in signed-not-open NOI as a percentage of same-store NOI. We also ranked fourth in liquidity as a percentage of total enterprise value. The numbers I've listed are remarkable and we've demonstrated our ability to operate with the best in the industry. When you compare metrics across our sector, we stack up much higher than we're given credit for and I specifically wanted to call attention to that before diving into our results. Turning to our fantastic results, KRG generated FFO as adjusted per share of $0.48, beating consensus estimates by $0.03, and representing a 45% increase per share over the comparable period last year. Our same-property NOI growth for the quarter was 4.4% and 4.7% year-to-date. Heath will discuss guidance and provide more details around the components of these metrics, but suffice to say, we're continuing our streak of outperformance. The primary driver of KRG's results has been our outstanding leasing performance. We signed 221 leases representing nearly 1.6 million square feet this quarter, which is an all-time high for the company. To put that in context, that is 5% of our total portfolio GLA in this quarter alone. The strong leasing volume was bolstered by blended cash spreads for comparable new and renewal leases of 10.8%. Excluding option renewals, blended cash spreads for comparable new and non-option renewals were 15.8%. For the first three quarters of 2022, we've leased over 3.8 million square feet at blended cash spreads for comparable new and renewal leases of 12.9%. To provide some additional color on our spectacular leasing efforts year-to-date, I'd like to highlight three important metrics. We achieve return on capital for comparable new leases of 37%. Comparable non-option renewal spreads have been 11% and our retention ratio has been just under 90%. Leasing vacancy continues to offer us the best risk-adjusted returns available and retailer demand remains strong. The KRG portfolio and team are firing on all cylinders. In addition to the robust leasing environment, we're making excellent progress on delivering our $38 million signed-not-open pipeline. Our pipeline decreased by $3 million sequentially as rent commenced, moderately outpacing new leases signed. Tenants continue to commence rent ahead of our internal budget and the timing for the NOI to come online can be found on page 10 of our investor presentation. Our team's ability to deliver spaces on-time and on-budget in a supply chain-constrained world is a testament to the intensity that we have within our organization. The signed-not-open pipeline continues to bode well for our NOI growth trajectory, as tenants commence rent, and we continue to lease additional space. As a reminder, the $38 million of signed-not-open NOI is only a portion of the near-term growth opportunity, as shown on page nine of our investor presentation. Leasing our active developments and the balance of the portfolio to pre-pandemic levels would equate to an additional $23 million of NOI coming online over the next few years. On the development front, we have four active projects remaining, with limited future capital commitments of just under $60 million. As we've mentioned, our near-term capital outlay is primarily dedicated to leasing. In addition to our leasing efforts, our development team continues to further enhance the value of our entitled land bank. In fact, we recently took a significant step in establishing our vision for our adjacent land at One Loudoun. We received rezoning approval to convert 2.9 million square feet of commercial GLA to 1,745 multifamily units and 1.9 million square feet of commercial GLA. Adding entitled multifamily units at One Loudoun is a huge win for the project, considering the first phase of multifamily materially outperformed the pro forma absorption rates and rents per square foot. As a reminder, we'll prudently evaluate each parcel in our land bank to determine the highest and best use of the real estate and the best risk-adjusted returns for KRG. The culmination of all the great things I've just discussed is allowing us to raise our 2022 FFO as adjusted guidance to a range of $1.86 to $1.90, a $0.05 increase per share at the midpoint. We're also raising our 2022 same-property NOI into a range of 4% to 5%, an increase of 50 basis points at the midpoint. I'm extremely proud of the KRG team's dedication and relentless efforts to produce our strong results. We've definitely come a long way in the past year and we will continue to showcase our operational excellence. I'll now turn the call to Heath.

Good morning and thank you for joining us today. As we marked the one-year anniversary of the merger, I am in awe of what our team has been able to accomplish. Looking a little further into the past, it is evident that the sheer velocity of positive change I've witnessed at KRG over the past four years is unparalleled in my career. All this change would not be possible, but for the boldness of our initiatives and the tenacity of our people. We are in the business of fulfilling our promises to our stakeholders and that's exactly what we've done. Project focus in 2019, our sector-leading COVID response in 2020, the execution of the transformational merger in 2021, and the intense integration efforts over the course of 2022, all of these are promises kept. Here's one more: we promised to work tirelessly until we get the appropriate credit for all the progress John noted in his remarks. Turning to our results, for the third quarter KRG generated $0.48 per share on an as adjusted basis. Same-property NOI grew by 4.4% this quarter, with 260 basis points of this growth being driven by contractual rent bumps and increased occupancy and 100 basis points attributable to an increase in net recoveries. Due to our continued leasing outperformance and higher levels of overage versus our initial expectations, our stance to our results this quarter beat our internal budget. Given our same-store guidance was increased by 50 basis points to 4.5% at the midpoint, it is safe to assume that our same-store growth for the balance of the year is expected to be largely in line with this quarter. As John noted earlier, we are raising FFO as adjusted guidance to a range of $1.86 to $1.90, which is a $0.05 increase at the midpoint. From this point forward, we don't anticipate any further variance between FFO as adjusted and NAREIT FFO as we've lowered our estimated merger costs to $2.5 million from $4 million, which is offset by prior periods collections of approximately $2.7 million through the third quarter. $0.04 of the guidance increase is attributable to same-property NOI in the form of leasing outperformance, higher overage rent, and a higher retention rate. The other $0.01 is attributable to the change in our assumption regarding the impact of our full-year transaction activity from neutral to $0.01 accretive. Furthermore, at the midpoint of our FFO as-adjusted guidance, we kept our bad debt assumptions flat at 1% of revenues. As you look toward 2023, please refer to page five of our investor presentation. While we're not in a position to discuss our internal outlook, we have highlighted some of the components of our 2022 FFO guidance that will assist you in modeling into 2023. On the balance sheet front, we had a very active quarter. Our net debt to EBITDA stands at 5.4 times, which is in line with our long-term target. As previously announced this past quarter, we upsized our line of credit by $250 million, and we issued a seven-year $300 million unsecured term loan and fixed the interest rate at 3.9%. It's important to note that our line of credit is currently undrawn and with $1.1 billion in capacity, we have enough dry powder to satisfy all of our maturities through 2025. As mentioned on prior calls, our goal is to retire maturing debt with proceeds from unsecured issuances once the fixed-income market stabilizes. As previously disclosed, last December, we entered into two forward starting swaps for an aggregate notional amount of $150 million. We were fortunate enough to lock in the 10-year swap rate at 1.36%, which at the time was equivalent to 1.52% 10-year treasury. Subsequent to quarter end, we cash-settled both instruments within a 10-year hit at approximately 4.2%, generating total proceeds of $31 million. For accounting purposes and based on our intent to issue fixed-rate unsecured debt in the future, we will be realizing the proceeds as an offset to interest expense amortized over the next 10 years starting in 2023. With our leverage and liquidity profile, we feel extremely confident headed into next year. We like to say that our balance sheet is built for all weather conditions. The news and our conversations of late have been dominated by anxiety associated with the economic gloom. However, negative speculation regarding 2023 is useful to the extent it helps us prepare. At this point, we are fully prepared. Our time is better spent planning for the potential opportunities that lie ahead. Thank you to everyone for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions.

Thank you. Our first question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hi, thanks. Good morning. I have a couple of questions regarding the revised guidance. Heath, could you explain the decrease from $0.48 in the third quarter to $0.45 at the midpoint of the revised guidance for the fourth quarter? There didn't appear to be anything significantly non-recurring in the third quarter, and lease term fee income was quite minimal. I'm curious if you could provide some detail on that decline as we move forward.

Yes, that's absolutely so. First of all, there was a land sale gain, which is nearly a $0.01 in the quarter. So, that's sort of a one-time item. Again, these things recur, but they're unpredictable. We also said in our investor deck, I'm on page five, our development fees are decelerating. And we had some nice outperformance this quarter of overage and specialty rent and while we hope to be able to repeat that into the fourth quarter, it's something that we can't bank on. So, again, it's a slight deceleration based on some things that were, like I said, recurring but unpredictable that happened in the third quarter.

I think I'd just add that it's a range, Todd. So, we're giving you a range. And so far this year, we've outperformed. So we would hope to be in the top end of that range, not the midpoint, but we'll see. As Heath said, there's a couple unpredictable things, but it's a range.

Regarding the income, I appreciate the considerations for 2023 that you shared in the slide deck. With the $6.6 million of fee income, what should we anticipate in terms of how that moderates going forward? What would be a reasonable range to consider in relation to that $6.6 million?

That's a great question, Todd. It provides us with more clarity. In February, we are facing a situation with a third-party project that might or might not extend into next year. We are entering the development phase of the current project, which is expected to taper off into 2023. There is a possibility that we will engage in additional projects, leading to some extra fees in the latter half of the year. However, I can share that the total will likely be lower. Even with another project starting, it would be prudent to consider only half or slightly less than half going into next year. We'll gain more clarity in February regarding the exact fees and any new projects we may begin.

Yes. And we're working on it right now in the first phase. So, we are hoping to take that to continuous point. But like Heath said, we'll wait for the final information.

Okay, got it. And then regarding the $0.01 increase in accretion from investments that were completed during the year, and that change to the guidance, what was the driver of that?

At this point in the year, Todd, we don't believe we will close anything else for the remainder of the year, and currently, we're $25 million net acquirer. Given that the acquisitions occurred early in the year and that the dispositions slightly netted us an acquisition, the calculations result in $0.01.

Okay. All right. Great. Thank you.

Thanks.

Thank you. And our next question comes from Craig Mailman with Citi. Your line is now open.

Thanks guys. Just kind of curious here. Was RPI kind of in the books for a year? Could you just maybe walk through your experience on maybe the performance relative to underwriting or any disconnects between the performance of that portfolio, the benchmark to market versus the legacy portfolio? I guess I'm just trying to get at how much of a kind of, a topper on growth that could continue to be if you guys continue to kind of wring the value out of it?

Hey, Craig, I'm trying to understand your question fully. In terms of performance, we definitely exceeded expectations by year-end. If you look at where we started the year with our midpoint guidance, we are now 10% above that. Each quarter, our leasing has been balanced across our entire portfolio, and our top-line rents have also increased each quarter, if that's what you were asking. At this point in the year, we don’t evaluate properties individually; we assess the overall company, and we're in a strong position right now with our signed-but-not-open pipeline and balance sheet. Additionally, we have potential to improve our occupancy rates. Overall, there's no specific change in our underwriting process; we simply outperformed our rent estimates and the timing of lease-ups. We significantly excelled in those areas, which we've discussed each quarter. This success comes from the various types of properties we manage, and it's crucial that we maintain a mix of neighborhood centers, community centers, lifestyle, and mixed-use properties, as this allows us to achieve returns on capital over 20%, while also driving FFO and cash flow. This may not exactly address your question, but that's our current perspective.

I may have expressed it a bit awkwardly, but I wanted to point out that you increased guidance by about 10% this year. How much of that can be attributed to outperformance from RPIA compared to the legacy portfolio? As we move into 2023, is there potentially more growth from RPAI than what you’re currently prepared to support? Essentially, I'm trying to understand if there's an upside that might not be fully recognized by the market.

Yes, no, I appreciate that. And I think you're right, it is misunderstood. And the fact that our operating platform really has shined across this combined portfolio. And yes, there's no doubt that in the acquired portfolio that there was opportunity for us to step in and squeeze more out of the orange, so to speak. So, yes, I mean, I think we think that continues. It's why we've kind of set it up the way we have in terms of looking into the year end. And again, when you have one of the very highest percentages of signed-not-open NOI in the space as a percentage of your total same NOI, you've got more room to run.

That's helpful. And then just in the quarter, you guys had a pretty good step up in renewal leasing versus new, I assume, maybe some of that is higher retention? And could you just talk about the experience you guys had over the last couple of quarters, on tenants really looking to stay in space despite rent increases? And you know, how that those were kind of a 2023?

Sure, Tom, you want to hit that?

Yes, I would say there's no question about the fact that the overall demand generators have really helped us in terms of our ability to both maintain and secure new tenancy. We're in a position right now that we have a limited amount of space. And as part of that, the demand is truly outpacing what we have. So, we're hoping that that situation continues. And that has been the basis for us for being able to generate strong returns and be able to generate the numbers that we're reporting here today. But we like where we are at this point. We'll proceed forward in a cautious manner. But all indications, if you look at our pipelines to the fourth and first quarter, are not showing slowdowns.

Okay. Can I ask one more question for Heath regarding the amortization of derivative gains? How many years will that be amortized over? I assume it will be amortized in a ratable manner. Is that correct?

It was a 10-year swap. So, it's over a 10-year term and that amortization will start in 2023.

Great. Thanks so much.

Thanks.

Thank you. Our next question comes from Jeff Spector with Bank of America. Your line is now open.

Hi, good morning. I guess my first question just, again, greatly appreciate all the comments and the great presentation comparing your metrics versus the peers. So, just trying to pinpoint what you think the disconnect is, is it too much of a focus, let's say on average size center demographics? Is it maybe just a few quarters where you're consistently delivering these type of numbers to close that multiple gap? What are your thoughts?

Hey Jeff. I wish we had a clear answer to that. Our responsibility is to identify the disconnect and then address it. In looking at the overall situation, instinctively, I believe that when a company undertakes a significant merger, especially one that more than doubles its size during a complex global climate, there are many stakeholders seeking reassurance. We have clearly demonstrated our capabilities. Now, we need to help others recognize that we are among the top companies in the open-air shopping center sector, yet our valuation doesn't reflect that. I can’t provide a definitive answer, but our demographics are robust. The average household income and population within a three-mile radius both exceed 100,000. We are located in the Sunbelt and have a solid mix of grocery-anchored properties, so we meet the criteria. More importantly, we have consistently outperformed, as I mentioned in my opening remarks. Given our combination of high-quality real estate, a top-notch team, and strong performance, we do not understand why this is not evident in our valuation.

Thanks, John. Those are valid points. My second question is regarding the signed but not yet opened leases. What are the associated risks? Specifically, when considering the next 12 months and the openings tied to these leases, are there any risks compared to your chart that outlines the expected income over the coming years?

I want to emphasize that our extensive experience in construction drives us to overcome any challenges we face. We are currently sourcing parts from China and exploring different components for switchgear, in addition to figuring out pre-sourced mechanical units. A lot of effort goes into ensuring we meet our deadlines. You can be confident that our team has the expertise to handle any issues. For instance, we have a building that currently has 800-amp service, but we won't have permanent power for some time, so we are working on getting underground power to it. We are determined to solve this problem, which reflects our team's mentality. It’s challenging, but it’s what we do best, and we have confidence in our ability to deliver results.

I mean, Jeff, bottom-line, though, if you look at what we've done this year, we've delivered on-time this year, in fact, we've been ahead of schedule. So, I think what Tom's referring to is, this is another reason to own this company, because we have the background, we have the strength in a particularly complicated world, in construction that a lot of our other peers don't have, because that's how this company started. It was a construction company when it started. And we don't anticipate that we'll have any problems continuing to do that next year in 2023. And frankly, it's when you do have a problem, it's 30 days, 60 days, whatever, the rents coming. So, this idea that maybe people don't understand what signed-not-open means, that rent's coming. It's a matter of which month it's coming in, and we lay it out in our investor presentation as good as we can, and we believe that that's pretty accurate.

Our job is try to hit the bottom line.

No, thank you for the comments. I guess to clarify that, we still get that question, in particular, again, on the anchors, are there any clauses where the anchor could still back out?

In general, you cannot over categorize something like that. Each deal is different, and every lease has its own nuances. However, when you're discussing this generally, the risk of anchors backing out is not significant. Once construction begins, it's primarily the landlord's responsibility, and there is typically time allocated for any necessary adjustments. While it's possible for issues to arise, it is quite rare. We can't recall the last instance of this happening.

It has not happened within the last decade, I guess.

So, very rare. But I'm glad you bring that up, Jeff. If that is a question, I think people are missing a lot of potential upside there for us.

Hey, good morning, everyone. And congratulations on getting the new zoning at Loudon. I'm just curious if you're going to do more of the residential yourself or you're going to lift the joint venture of the platform?

I think, as we discussed, we're going to evaluate this like we do with every land parcel we own. We've mentioned before that we generally assess these situations based on the highest return on capital we can achieve. We haven't decided on the exact structure yet since we just received the rezoning a few weeks ago. The point we're emphasizing is that the land value has seen a significant increase compared to the current multi-family market. We'll proceed cautiously, but whatever we choose to do, our goal will be to maximize the value for KRG.

Got it. And then as we look to next year, I'm not looking for guidance, but is there any other moving parts that we should be aware of? We discussed the fees. We discussed the swap. One of the questions we're getting is, is there anything on the non-cash fair value adjustments as we go into next year, anything along those lines? Or any other things you want to call out that may be one-time in nature?

No. We set them all forth on Page 5 of the investor presentation. There's nothing occult happening in the non-cash. So again, we're not prepared to give our outlook for 2023, but we don't expect any non-cash surprises.

Got it. Thanks, everyone.

Thank you.

One moment for our next question. Our next question comes from Connor Mitchell with Piper Sandler. Your line is now open.

Hey, good morning. Thanks for taking my question. I guess just looking at a big picture view. So we see the headlines of inflation and impact on people's abilities to shop retailers with tougher range of sales. But what you guys are talking to your tenants and the retailers. Does it seem like there's any correlation to their demand and maybe if they're changing their real estate positioning?

No. I mean not at this point, as we pointed out, I think, in our remarks and our results, at this point, we continue to see strong demand for an ever shrinking supply base in Class A open-air retail, which is what we own. Sometimes people like to draw these correlations that are second derivatives that don't necessarily happen right away. I would say that our conversations now continue to be long-term conversations and we've mentioned this before that when you're dealing with a quality retailer, they're thinking about their physical real estate in the sense of decades, not months, right? So these are decisions that are generally decade-long decisions, investments in that platform. And I think it's been pointed out on other earnings calls, it's pretty darn clear that the profitability in retail is generated in the physical space. There's a lot of reasons why you do other types of retail, but if you're looking to make money, you need physical space. So I think that kind of combination of things is really great for us. And we take it one month at a time in terms of the overall economy. But right now, it continues to be pretty strong.

That's insightful. I would like to shift the discussion to the broader picture and focus on the various markets and regions you are involved in. You've mentioned your presence in the Sunbelt, but I want to know if your main focus will remain there or if you are also considering the high-growth markets highlighted in your investor relations materials. It appears that most of your recent acquisitions are within the Sunbelt or the seven regions, while the recent sales are occurring further north. Could you provide an update on the market situation?

We are definitely focused on the Sunbelt markets, but we also feel fortunate to own high-quality real estate in major metropolitan areas like New York, Seattle, and Chicago, which are not considered part of the Sunbelt. With 200 properties to manage, our decision-making revolves around growth rates and opportunities to enhance cash flow. We have a strong interest in our current markets, and as I mentioned before, we are the only major open-air player with 40% of our revenue coming from Texas and Florida, highlighting their significance. However, there are other important markets we are involved in as well. Overall, I believe our approach is well-balanced, and we will continue to expand where it makes sense.

Okay. Appreciate the color. Thank you.

Thank you. And our final question comes from Linda Tsai with Jefferies. Your line is now open.

Hi. Seems like the 2019 side the not occupied coming online in 2023 is a nice cushion. Could you remind us the expectation for bad debt this year and what you're thinking about for 2023?

Yes, this year, in my remarks, the assumption is 1% of revenues. And then I'd like to sort of pass on the next question, in February, we'll have a better view of where we think that will be for 2023. And we took a very conservative approach this year, starting out with 150 basis points into 2022. I wouldn't be surprised if we're looking in 2023, we take a conservative approach, probably not as conservative as 150 basis points, but maybe a little bit higher than what our historical average is based on just some of the headwinds we're seeing. So again, it's something that we'll have a lot more clarity on in February, when we give our full year guidance. But again, I think it's going to be prudent for us to remain conservative on our assumption.

Helpful. And then nice same-store NOI growth momentum and raising guidance by 50 basis points. How are you thinking about it preliminarily same-store NOI growth for 2023?

It's going to be good. We have a strong SNO pipeline and leases that started last quarter will be fully annualized in 2023. At this point, we'll have more information in February, and we are currently reviewing our assumptions as part of our budget season in November. The initial outlook suggests a very strong same-store NOI for the upcoming year.

Got it. And then why did merge our integration cost estimate, why did that go down so much?

There were some technology items that we had conservatively budgeted to be higher than they were, and some of those items were, again, just was less costly, some of those items were going to trickle into next year. So again, it's just basically technology costs.

Got it. Just one last one for John. When you look across the different formats like community, neighborhood, and mixed-use power, where are you seeing the most leasing competition from retailers?

Well, I mean, I think it's competitive across the board, Linda. I mean, I think probably the segment that has picked up a ton this year, as we pointed out in the past, is the Lifestyle segment. So we've seen real strength there, but we've also seen real strength really across the board. So I just think, again, I'm going to pound the table as one person put it, we're in a shrinking supply world. So the macro is maybe a little less sensitive in the sense of this idea that we have headwinds. I mean, I hear that, I understand that. But the reality is, as I said, these tenants are making really long-term decisions, they have limited quality space, and they're moving around. I mean, as we said before, I mean, we did an Adidas deal, for example, in a power center, and it's performing extremely well. You look at Total Wine and what they're doing and the different types of properties that they're going in. I mean, I can give you a long list, Tom can give you an even longer list. I think that it's actually pretty strong across the board is what I'm trying to say.

Got it. Thank you.

Thanks, Linda.

Thank you. And we do have an additional question from Christopher Lucas with Capital One.

I just wanted to check on the significant increase in maintenance CapEx for the quarter. Was that related to Ian?

No, it was not Ian. Sorry, to everybody that was definitely not Ian. But go ahead, Tom.

Yes. So please continue, Chris.

I was just going to say what drove that big spike?

Yes. So, the spike related to a couple of items. One is we're coming out of COVID which delayed some of the processes. The other one was we were really trying to contemplate what is the best way to spend this capital during this inflationary supply chain situation that we had. So we moved some things out of the roof because of pricing being so high, brought them down in the parking lots. So we were really maneuvering trying to get the best bang for our buck. And that really pushed us to create this higher spend towards the end of the year. And then I think the final thing, Chris, is we spent a lot of time going through the portfolio through the merger. And we wanted to make sure that everything in the portfolio met the standards. And there were some things that we wanted to address to make sure we have consistency throughout the platform. So that's an overview, but it was really just the timing and a lot of hard work going in to make sure we got the best pricing possible.

I mean, say it another way, Chris, I mean, we have strong free cash flow. So we're investing in the properties, as Tom said. So I don't think there's a particular 1 reason and some of it's seasonal, by the way. But going into next year, we will continue to spend and invest in these properties, and that's one of the beauties of having good free cash flow.

Okay. Thank you. And then Tom, while I have you, so you got a good strong SNO for next year, what is the likelihood at this point that sort of your pipeline of deals will contribute to next year's ABR?

I can't be too specific, but we have a very nice pipeline of boxes coming up, and so I think we're going to continue to see nice growth in that area. I was just looking at that list as we came in. But we feel like our run is going to continue into 2023. And then obviously, we're going to try to open as many of these projects as possible based upon my previous comments and get them done in the most efficient way. But we still have a lot of gas in the tank in terms of pushing those that signed in a lot.

Are you guys running into any permitting delays? Or is it mostly supply chain that impacting it, if at all, your ability to get commenced?

Chris, last week I was in Florida and we toured the properties that encountered issues. We were quite fortunate to only have around $1.5 million in damages. We feel positive about this outcome, and the team is already addressing these issues and working on repairs as quickly as possible. Overall, we feel optimistic about our situation regarding this matter.

And then last one for you guys for me is the operating margin, recovery rates all bounced up nicely, at least on my numbers one of them is at a record level. I guess, I'm just trying to understand, is all of the opportunity that you saw in the RPAI portfolio fully rented out now in terms of those kinds of metrics? Or is there more opportunity to come?

No, we don't believe we've reached our target yet, Chris, and there's still potential for improvement. As we've mentioned before, there are various ways to achieve this, one of which has been our historical success with fixed CAM, and the RPI portfolio had virtually no fixed CAM. We've reduced that from about 50% to around 35%. That's off the top of my head, but it's close. So there's still room for growth, along with improving our operational efficiency and pricing strategies. We hope to continue pushing in that direction, just as we will with our lease percentages, as we still have good opportunities ahead. I'm really optimistic about getting back to pre-COVID levels.

Thank you, guys. Appreciate it.

Thanks, Chris.

Thank you. And our next question comes from Paulina Rojas Schmidt with Green Street. Your line is now open.

Good morning.

Good morning.

The Allisonville program merger was a reminder of the risk of seeing further consolidation in that industry. So I mean tried about how you think about this risk, broadly speaking, not just related to this merger. And if you incorporate that in any way in your listing decisions when you evaluate grocer deals?

Look, I think in any industry that has potential consolidation, you're always looking in trying to think through how your portfolio is affected by that. In this particular situation, we don't see this as a big risk to our portfolio. Our largest grocer is Publix, which is an extremely strong independent private grocer. So in particular, in the grocery sector, I don't see this as a massive risk to us. And I think, quite honestly, it's why we continue to talk about how important it is to have a balanced portfolio when it comes down to the property types. And I think people misunderstand that and misprice that. So, we love the fact that we have the diversity in the different property types. We still have 75% of our centers or so have some sort of grocery component associated with them. But that's a good thing, and we don't see a massive risk of future consolidation, and then when you get into the other retailer types, the value players, et cetera, it's probably less of an issue than it is in the grocery space. But so far, not a huge issue to us in particular.

Regarding the Kroger Albertson merger, we currently have 17 units, with 10 being Kroger and 7 being Albertsons, which accounts for about 1.9% of our ABR, indicating minimal exposure. We conducted a three-mile overlap study, which is a broader radius than typically necessary in the grocery sector, and we found only two overlaps: one in Chicago and another in Dallas. The Chicago location is already operating under the same brand, meaning they are competitors. We are confident that this merger will have little impact on us. However, as reported this morning, some state attorneys general are now contesting the merger, so there are still hurdles to overcome before it can be finalized.

Yes, it seems it will be a long process. And then the other question, I have is do you know of any beyond store closing in your portfolio?

We have some Bed Bath retail locations with lease expirations, and a couple will expire in 2023, so they could potentially close, but that’s not unusual. We are not aware of any closures happening prematurely. Overall, we have strong real estate in those locations. Compared to Buy Buy Baby, the Bed Bath stores generally have lower rent, which presents a good opportunity for us.

We have studied all of our stores other than the ones that go through the natural expirations. And if you take a look at our sales, the way our stores are positioned, we feel pretty confident in terms of where they are. We, of course, talk to Bed Bath & Beyond and their advisers consistently. So we're keeping a close eye, but we like our position in terms of the specific stores themselves.

Great. Thank you.

Thank you.

Thank you. This concludes our Q&A session. I would now like to turn the conference back over to Mr. John Kite, Chairman and CEO, for closing remarks.

Well, I just want to thank everybody for joining us see on you soon at NAREIT. Look forward to it.

This concludes today's conference call. Thank you for participating. You may now disconnect.