Thank you for standing by, and welcome to the First Quarter 2024 Kite Realty Group Trust Earnings Conference Call. As a reminder, today's program is being recorded.

Thank you, and good afternoon, everyone. Welcome to Kite Realty Group's first quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for 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; 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'll now turn the call over to John.

Thank you, Bryan, and thank you all for joining today. KRG has sustained our momentum into the first quarter of 2024, achieving exceptional execution across our platform and further enhancing our already strong balance sheet. Heath will detail our quarterly results and raised guidance, while I will discuss recent sector trends, our operating priorities, and a series of strategic initiatives that have enabled KRG to achieve the highest total return in open-air retail over the past five years. Open-air retail has shown strong fundamentals and rapidly increasing recognition of its essential role in the communities we serve. The renewed appreciation for open-air as the most convenient and profitable distribution channel has resulted in steady demand from both our tenants and shoppers. This renaissance is particularly evident in the Sun Belt, where our portfolio benefits from migration trends from higher-cost living areas to warmer, lower-tax states. The top ten metropolitan areas for population growth in 2023 account for over 30% of our revenue and include cities like Dallas, Houston, Atlanta, Orlando, Tampa, and Phoenix. Operationally, we remain committed to delivering the best possible experience at our centers by selectively adding high-quality tenants. Since early 2022, we have signed 53 anchor leases with 36 different brands, over 90% of which are national tenants, and we have increased our grocery exposure by 400 basis points to nearly 80%. We achieved 46% comparable cash spreads and 26% returns on capital, and we are confident in our ability to maintain strong leasing efforts. Our deliberate approach, focusing on quality and value creation, will further improve the merchandise mix in our centers and enhance the credit profile of our tenants. In the small shop segment, we continue to achieve success, driving higher embedded growth. For new and non-option renewal shop leases signed in the first quarter of 2024, the average annual growth was 3.4%, with 70% of these leases having fixed rent increases of 4% or more. In comparison, in 2022, the average annual growth was 2.7%, with only 3% of leases having fixed rent bumps of 4% or more. While the benefits of negotiating higher fixed rent increases will take time to realize, we believe we are on track to significantly enhance our long-term growth profile. By maintaining a disciplined leasing strategy that emphasizes quality and growth, we will further strengthen our cash flow while delivering strong risk-adjusted and absolute returns. Our signed-not-open pipeline has risen to $32 million, and we anticipate that 76% of the net operating income will begin in 2024. In our latest investor presentation, we included details on the timing for the signed-not-open pipeline and the attractive opportunity for investors based on the current share price at various capitalization rates. These pages do not reflect our anticipated future allocation of free cash flow, which we expect to increase as our elevated leasing expenses normalize. Together with our increased free cash flow, we foresee significant growth in adjusted funds from operations and dividends. While there are compelling opportunities for investors right now, we believe the future holds an even more favorable outlook for KRG with improved growth and more capital for allocation. Over the last five years, KRG has achieved the highest total return in our sector. We accomplished this by enhancing the quality and location of our portfolio, strengthening our balance sheet, executing a transformative merger, improving our credit ratings, and lowering our cost of debt. These timely successes have aligned perfectly with the supply and demand imbalance in open-air retail, the acceleration of consumer trends driven by the pandemic, and the increasing commitment to physical retail. Our ongoing execution has enabled us to raise the midpoint of our 2024 funds from operations guidance by $0.02 and our same-property net operating income growth estimate by 50 basis points. Our team has delivered solid results, and we have positioned the company for continued outperformance. We have a skilled team across all departments, and I hope you will have the opportunity to connect with our team members at our remaining Four in '24 events in Dallas, Washington, D.C., and Las Vegas. Thank you, as always, to our outstanding team. Now, I'll hand the call over to Heath.

Thank you, and good afternoon. Following John's remarks about our Four in '24 series, our initial event last February was very well received and showcased the strength of the Naples market, the underlying quality of our bread-and-butter assets, and the intensity of our operating platform. We are anticipating a great turnout for our next event in Dallas, which is our largest market in terms of ABR and GLA. In Dallas, we will tour over 5% of KRG's total NOI while demonstrating the prowess of our leasing team using South Lake Town Square as our case study. South Lake is one of the nation's premier mixed-use lifestyle centers, and we can't wait to show you the tremendous progress we have made. Turning to our results. For the first quarter of 2024, KRG earned $0.50 of NAREIT FFO per share, which was slightly higher than anticipated due to outperformance in same-property NOI and a non-budgeted termination fee. Same-property NOI grew by 1.8%, bolstered by increases in minimum rents and lower bad debt as offset by a decrease in net recoveries, primarily due to the timing of recoverable operating expenses. Based on the first quarter outperformance and our revised outlook for the balance of the year, we are increasing our 2024 FFO guidance by $0.02 at the midpoint to a range of $2.02 to $2.08. At the midpoint, we assume a full-year bad debt assumption of 80 basis points of total revenues and a full-year same-property NOI growth assumption of 2%. This represents a 20-basis point bad debt improvement and a 50 basis point improvement in same-property NOI growth as compared to our original guidance. The improvement in the full-year bad debt component is a function of combining the actual bad debt we experienced in the first quarter, which was approximately 30 basis points of first-quarter revenues, with the continued assumption of 100 basis points of bad debt of total revenues for the remaining 3 quarters. As we detailed last quarter, our same-property growth for 2024 was adversely impacted by our disproportionate exposure to Bed Bath, the unexpected departure of a large theater tenant, and the extremely low bad debt we experienced in 2023. Absent these 3 items, our same-store growth assumption for 2024 would be 3.5%. In terms of the trajectory for 2024, we expect same-property NOI growth to accelerate in the back half of this year, providing a solid foundation for growth into 2025 and 2026. As always, our goal of giving guidance is to prudently set expectations while leaving room to outperform. With that in mind, our guidance does not include certain recurring but unpredictable items, including lease termination fees, land sale gains, or prior period collections, unless and until the same are committed. Following our well-timed bond issuance, Moody's upgraded KRG to Baa2, and Fitch revised our outlook to positive. Furthermore, we are optimistic that S&P's positive outlook will mature into a full upgrade to BBB in the next few quarters. On Page 14 of our Investor Presentation, we show the complete overhaul in our cost of debt relative to the BBB REIT index as we continue to demonstrate our commitment to maintaining a strong balance sheet, and show the same commitment to the unsecured debt market. We expect our debt pricing will continue to compress. As a reminder, we continue to hold the proceeds from our $350 million January bond offering in an investment account earning interest in excess of the yield on our 2024 maturities, which we intend to retire in late June and mid-July. At 5.1x net debt to EBITDA, approximately $1.2 billion in available liquidity, our debt service coverage ratio over 5x and healthy operating fundamentals, our credit profile is one of the best in the sector. As highlighted on Page 7 of our investor deck, the current stock price of KRG represents an extremely compelling entry point. The recent private market transactions serve to solidify our current value proposition. We believe that the catalyst for a change in our equity multiple are clear in the form of outsized occupancy gains over the next 2 years, strong pricing power, higher embedded growth, low leverage, improved cost of debt, and significant free cash flow in the outer years. Thank you all for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions.

And our first question comes from the line of Todd Thomas from KeyBanc Capital Markets.

First question is about the guidance. Last quarter, you mentioned a $0.02 impact from the theater that vacated City Center in White Plains. It seems a lease might have been signed with a new tenant. Can you provide details about that, particularly regarding the rent and the timeline for when it will start? It appears that this was not included in the updated guidance.

You can assume that the guidance takes that into account, and we won't provide specifics about an individual tenant's rent. However, we can share that it's an 80,000 square foot deal, presenting a tremendous opportunity for us to quickly backfill a challenging situation. We are focused on getting that done. The payback period for this deal is under 2 years, with nearly a 50% return on cost, making it an excellent deal. The in-place rent is lower than what the previous tenant was paying, but there's a slight increase for the year, likely around $0.005. The key takeaway is that we managed to secure a great operator swiftly, particularly for a difficult vertical retail establishment. I'm very pleased with it. Tom, would you like to add anything?

Yes. The only thing I'd add, Todd, is one of the things that we really want to accomplish to protect that zone from an exhibitor standpoint was get them open as quickly as possible. They're going to start doing some soft openings next week. And then I think the week after, we should be ready to go. So that was one of our big goals that we have achieved.

Okay. Is there a free rent period or any concessions? Or is rent scheduled to commence relatively soon?

Yes, rent will commence when they open. So no free rent.

Okay. Got it. And then can you provide a little bit of additional detail on the lease termination fee in the quarter? It sounds like that was not previously anticipated. Can you just discuss that a little bit more and provide some additional color?

Yes, Todd, very simple. It was just a bank branch that decided to close, and we did a healthy NPV in the remaining rent payments, and they paid us the termination fee. So not something we were expecting, but I'm happy to take that rent termination fee and go ahead and release that space. So it was a win-win for us.

Okay. And then just lastly. Heath, you talked about the company's leverage profile and credit metrics. And I wanted to ask about acquisitions again this quarter. It sounds like there's a little bit more deal flow across the industry, just given where the balance sheet sits today and sort of the position that you're in. Just wanted to get a sense of your appetite for investments and if you could discuss kind of price trends that you're seeing in the market.

Sure, Todd. I believe we are currently very focused on executing our operating platform and slightly less on external opportunities. We've clearly stated that in the next two years, we plan to invest over $200 million in tenant improvements and leasing commissions. Some may refer to that as redevelopment, but it's essentially leasing, and it's beneficial because the return on capital is extremely high and the associated risks are quantifiable. This focus will lead to significant free cash flow for us once we finalize our lease-up plan. That said, we are actively looking at outside opportunities. We will continue to engage in paired trades, as mentioned previously, where we sell some assets to reinvest capital into higher growth, better-positioned properties. Regarding the market, we are observing increased activity and liquidity. Open-air retail is currently a highly sought-after asset class, contrary to the perception from our stock's trading value. In the private market, demand for such assets is strong, and our properties are very desirable. Consequently, it's becoming harder to find opportunities that meet our yield expectations relative to what we are achieving in our leasing platform. We will pursue some transactions; high-quality assets continue to trade in the high 5 to low 7 percent range, depending on various factors. This is markedly different from our stock price.

And our next question comes from the line of Floris Van Dijkum from Compass Point.

So John, I hear you talk about the discounted multiple and the lack of recognition in the market potentially for some of the significant improvements you've done. And I'm curious what your thoughts are to share buybacks because you are generating a fair amount of free cash flow after dividends, you are trading at a discount, and your balance sheet, thanks to the work that Heath has done on the balance sheet, is the best or tied for the best or lowest leverage in the shopping center space. Why would you not at least show the markets that you're undervalued by buying back even if it's a small amount of stock?

Sure, thank you for your question. As a focused operating platform, we have priorities, and one of those is value creation, which we constantly consider. Over the next year and a half, as we execute our leasing plan rapidly, we will keep evaluating our situation. The more free cash flow we have available for distribution, the more compelling it becomes. However, our primary responsibility is not to buy back small amounts of stock just to make a statement. Our focus is on executing, leasing space, creating internal value, and making sound allocation decisions as we have done in recent years. Ultimately, the value of the business will be recognized, whether in public or private markets. I want to assure you that we do evaluate buybacks; if we pursue this action, we want it to be significant. We hope that investors who understand this sector will acknowledge our approach quickly.

John, maybe a follow-up question. I mean, obviously, you put out in your deck, I love the information you guys always provide in your supplemental deck or your investor decks with calls. Significant amount of your leasing over the last 3 years has had higher rent bumps than 3%, and also fixed CAM. And maybe if you could talk about what do you see as the result of that? What percentage of your existing in-place rents now have those kinds of escalators and CAM recovery? And what's the upside? What does that do to KRG's cruising speeds in 2 to 3 years' time?

Yes, the most significant effect on cruising speed would come from the rent side. While fixed CAM is essential, when you consider our total revenue, the CAM and reimbursement elements likely account for 20% to 30% of it. We are concentrating on this because it's crucial strategically and operationally, enhancing our efficiency and helping us stand out from our competitors. Fixed CAM is important, and it represents about 50% of our active leases, growing each quarter. Partners that work with Kite expect this and recognize its benefits. We are committed to expanding this aspect, especially since base rent improvements will have even greater time-related benefits. We are leading the market in this regard, as evident from our small shop business statistics, where 70% of our deals in one quarter had rent increases of 4% or more. This demonstrates our strong organizational focus beyond just the individuals on this call. We’re achieving great success in this area, and we aim to apply the same strategy to the anchor sector. I’ve been clear that the industry should not settle for minimal annual increases, and we plan to tackle that challenge collectively. If the current supply-demand dynamics persist, the industry will likely adapt. It's also noteworthy that these increases come alongside robust credit profiles and reliable cash flow. Considering our resilience during recent challenges like the GFC and COVID, this business remains strong, and I want investors to be aware of that.

Floris, this is Heath. If you look at our Naples presentation, we provided a slide discussing our cruising speed. Currently, we define it as 2.5% to 3.5%. However, if we can successfully convert the small shops, as John mentioned, within five years, that could increase to 2.75% to 3.75%. This assumption does not factor in any changes with the anchors. We are optimistic that we can encourage the anchors to achieve similar growth rates. This is just the beginning of establishing a better long-term cruising altitude. I'm really happy with this progress. Additionally, John mentioned that 70% of our leases on the small shop side have escalators at 4% or higher, which represents a significant improvement compared to two years ago. We are definitely heading in the right direction.

And our next question comes from the line of Craig Mailman from Citi.

Heath, just on the penny coming from same store. How much of that is coming from bad debt versus just better other operational kind of metrics?

I think John alluded to it, Craig. About half of it is really related to the same property outperformance we had in the first quarter. Some of that was bad debt related. And the rest of it is getting this lease signed up. So that penny is basically split half between what already happened and the improved outlook for the balance of the year.

One thing I want to highlight is the sequential base rent growth, which is around 4.6%. If you exclude the term fee, it drops to 3.5%. Over the past four quarters, this growth was a bit slow, but now it's picking up speed. This is part of the ongoing leasing efforts, especially with the anchor tenants, which take time to show results. That's why it’s important to assess the business over a longer period, like two to three years, rather than just a few quarters. Overall, we are very optimistic about the sequential base rent growth.

As you consider comparable metrics, I understand you are focusing on fixed CAM and while inflation is still present, it is not as pronounced as it was in the last two years. Where are you anticipating the growth in fixed CAM? Is that becoming less advantageous as you evaluate comparisons throughout the year? I'm trying to explore potential strategies for enhancing same-store guidance this year, aside from the continued leasing efforts, which, as you mentioned, take time to establish the new stores.

Yes. I think if you're only focusing on that one metric of same-store performance, Heath has already addressed the three main factors that affected us the most. In the latter part of this year, particularly towards the end, same-store net operating income will start to resemble last year's figures. It's mainly a timing issue related to lease-up. We were significantly affected by Bed Bath, but we've managed to address about 80% of our exposure there. The rental rates are excellent, and the tenants are much better. Occupancy is crucial in this context. As we discussed in Naples, recovering that occupancy could positively impact us by 500 to 600 basis points. Ultimately, if you're focusing solely on same-store net operating income, our profile remains unchanged; it's just a matter of timing.

Craig, it’s about the usual factors we can influence. After the first quarter, we are considering what we can control going forward. Can we maintain lower bad debt? Can we expedite the rental commencement dates for tenants? Can we improve tenant retention? Can we secure some speculative leases and activate tenants later this year? Can we enhance our overage rents? There are many strategies we can implement to improve our performance throughout the year. As John mentioned, looking ahead to 2025 and 2026, we anticipate significant occupancy gains, independent of any other organic growth. As stated in Naples, we expect a contribution of 500 to 600 basis points from returning to pre-COVID levels over the next two to three years. We will be focused on initiatives throughout the year to exceed our current guidance. We're confident in our position right now.

That's helpful. Regarding your last question, as you mentioned the decrease in cost of capital and the positive impact of better free cash flow, there still remains a pipeline with some anchor leases that could require more capital expenditure. The remaining occupancy primarily consists of small shops. Considering the next 12 to 18 months, do you see that as a timeframe for capital expenditure to normalize since most of the work will involve smaller shops? Also, how do you perceive the effects of recent credit upgrades? Now that you're a more experienced issuer and have seen narrower spreads, with an increased amount of free cash flow at a lower cost, how do you anticipate this capital cost advantage will influence your decisions on developments, redevelopments, or acquisitions in the next few years?

In terms of capital expenditures, it's clear that when you're investing over $100 million annually for two consecutive years on tenant improvements and leasing commissions, significantly more cash is being absorbed in that area compared to a typical year of around $60 million. However, as I mentioned in my prepared remarks, this investment is yielding about 30% returns on capital. The free cash flow generated from this investment in late 2025, 2026, and 2027 will allow us to effectively manage our cost of capital while maintaining substantial free cash flow that can be deployed in a beneficial way. To address Floris' question, if we don't see external opportunities as the best option, we can focus on internal strategies, such as using free cash flow for stock buybacks instead of leveraging debt. This approach helps us sustain our strong balance sheet. The options available to us are quite substantial. Overall, our organic spending is yielding excellent returns, and I believe stakeholders should feel confident and positive about our straightforward business plan; our focus now is on execution.

And our next question comes from the line of Linda Tsai from Jefferies.

Yes. I know at the beginning of the call, you mentioned since 2022, you've executed 53 anchor leases to 36 different brands. Can you give us an update on your box inventory? How much is left? And are any of those getting leased to grocers?

Sure. At this point, we have 26 boxes in our inventory today. And we have done a great job, not only leasing these boxes, but putting in much better-quality tenants with strong spreads and great return on investments on the capital. So we feel like that's a manageable number. We're looking very closely at how we continue to make progress on that anchor lease percentage. Right now, we're running at 95.9% on the anchor side. So if you look at our run rates and how we've been able to chip away at the inventory, I mean, sometimes it's between 5, 10, 11 boxes as we're moving through the year. So we have a good run on it. We have quite a few properties that are in lease negotiation right now. Just on 1 segment, we have 5 or 7 that are ongoing. So I think the sentiment is very positive and now that's being buoyed by the fact that we have a low demand scenario.

Regarding the grocery segment, Linda, if you refer to our investor presentation, we highlighted this on Page 19. We've recently secured new partnerships with Whole Foods, Trader Joe's, Lidl, and Total Wine, along with several deals with Fresh Market and Grocery Outlet on the West Coast. There is significant demand in the grocery sector and this demand persists across various segments. Recent data shows that consumers are frequently shopping at multiple grocery stores each week rather than relying on just one. For instance, someone might shop at Kroger but also visit Whole Foods, Sprouts, or Fresh Market for specialty items, and possibly Trader Joe's as well. This is driving the expansion of these retailers. Our exposure to the grocery market is approaching 80%, making it a substantial part of our business. Ultimately, it’s essential to tailor our merchandising mix to suit each specific center. The market remains strong in this area, and as I mentioned earlier, we are pleased to reinvest capital into it.

And then on the shop side, it seems like you have a little bit more leeway than some of your peers. Just as you head into ICSC, what are some of the things that you're looking for or expect to hear?

I’ll start and then let Tom elaborate further. As usual, we take our preparations for ICSC very seriously. Our leasing team understands that we have a specific agenda and we’re focused on execution rather than leisure. Over the past 18 to 24 months, there has been a significant shift in the types of users we see. Currently, we’re benefiting from tenants transitioning between different property types. Our goal is to continue signing leases that not only align with our strategic profile but also include embedded growth. This approach might be causing us to take a bit longer to fill spaces, but we’ve secured 70% of our deals with rent increases of 4% or more, which will benefit us in the long run. Tom, would you like to discuss the specifics?

Yes, we want to concentrate on what we consider our core tenants, such as restaurants, services, health, and beauty. At the same time, we are also focused on new concepts and have recently signed agreements with some excellent restaurants in the Scottsdale area, including Culinary Dropout and Flower Child. Additionally, we are working with some higher-end retail and mixed-use tenants like Aritzia, Indigo, Nike, Vuori, and Warby Parker. Our company has really broadened our scope and reach to different types of tenants within our portfolio. As the lines between retail categories blur and more people find the appeal of retail spaces, we expect to see continued improvement for our company. We have a clear strategy that addresses many different aspects without neglecting any as we progress.

And our next question comes from the line of Connor Mitchell from Piper Sandler.

So you guys have talked a lot about like the strength you've had on lease negotiations for the industry and focus on rent bumps and fixed CAM. Just wondering if maybe you could discuss any other levers that you guys haven't touched on that you're seeing to take advantage of the current environment and maybe increase the cash margin on leases that we haven't talked about yet?

Sure, Connor. We're always focused on how to increase margins, which is likely why we have the highest NOI margin in the business along with one of the highest recovery ratios consistently over time. Ultimately, controlling costs and achieving better growth is our priority, and that’s how we generate free cash flow. We already excel in this area and are the market leader in fixed CAM and the open-air space, so we're continuing to build on that. We're not going to go into specifics about the exact margins between fixed CAM and triple net, but suffice it to say we are a leader, or at least very close to the top. Additionally, we are taking advantage of the current environment by focusing on various aspects of the leases. For instance, our overage rent from sales is higher than ever, providing an additional benefit because our tenants are performing well when they pay that percentage rent, which naturally boosts margins. We also carefully consider exclusives and co-tenancy requirements in our leases. While we aim to support our customers, we must also prioritize business interests. Over time, our lease agreements have continued to improve. It's also worth noting that retailers prefer working with a company like ours that consistently delivers. Having sought-after space is one thing, but how we reinvest in our properties to make them appealing to consumers is crucial. Retailers recognize this value and are willing to pay for it under the right circumstances.

Yes. I mean the only other one I would add is one of the key goals for our company is, of course, to start rent as quickly as possible. And we have this machine at Kite that's got predevelopment tenant coordination project managers. And it's our job to work with all these tenants where they may struggle with permits, etc., and run into problems on code issues and really work to get these tenants open as quickly as possible. We don't look at it as just a tenant issue. We look at it as our issue as well. So another big point of trying to generate that revenue earlier.

I appreciate the insights shared. The guidance for bad debt has been reduced. Reflecting on previous trends, Bed Bath and Joann have appeared to perform relatively well within the industry. Is there a possibility that we might be encountering a misperception regarding credit challenges? Or perhaps the sector's capacity to manage struggling tenants effectively?

I don't know about that. As we mentioned in our prepared remarks, when you look at the first quarter for us, excluding prior periods, we were around 90 basis points. The main point is that while you can exclude prior periods, it’s part of our business. We're always collecting, but we prefer not to project that because it can be volatile. If you assume that bad debt is around 1%, and we're always collecting something, it should be quite stable. I don’t believe we’re being lulled into a false sense of security. The reality is that the dynamics of supply and demand are causing tenants to want to be in these spaces, and they will do everything they can to stay, which means paying rent. So, I don't think the situation is particularly different, but it is better. The truth is that it is better. However, for now, we are taking a conservative approach as we look at the rest of the year, and we'll see how it turns out.

And our next question comes from the line of Lizzy Doykan from Bank of America.

I was hoping to get more color on the leasing spread on option renewals in the quarter, which looks like that compressed for the third straight quarter. And when I'm looking at the past 4 quarters, it looks like option renewals made up over 60% of the comparable space that's been executed. So just wanted to see what's going on there? What's sort of been happening in the renewal discussions you're having with tenants? And maybe why is this proportion not coming down? Maybe are you signing renewals with fewer options?

No, we’re not having many discussions about option renewals because the tenant is currently exercising an option. If there are multiple anchors reaching their options in a particular quarter, those situations generally result in lower outcomes. A lot of this is about timing. Over the past couple of quarters, we likely had more anchors. While I don’t have the exact data in front of me, it really boils down to the mix each quarter. This highlights why we discuss non-option renewals, which have been at 12% over the past two and a half years. Our goal is to reduce the number of options as part of our strategy for new leasing and managing options. When options do exist, we need to ensure that we achieve appropriate rental increases in those options, primarily focusing on the anchor side.

Okay. And then back to Heath's comments on the 500 to 600 basis points of occupancy build that's expected over the next 2 to 3 years. Just curious on how much you think that would be weighted towards anchors versus small shops? And then maybe is there thoughts around the cadence over which that would happen, whether that's the most weighted in the back half of '24 versus 2025, 2026?

I'm sorry. In terms of our revenue, it will likely be split evenly, with 50% coming from shops and 50% from anchors. Timing-wise, Heath, do you want to...

No, listen, we're looking out to our model. I think I'll stick with the 2 to 3 years as the timing. Again, it's getting us to pre-COVID levels. However, based on the pace of the leasing activity happening now and what we're seeing in this quarter, I feel better about that being closer to the 2-year mark than the 3-year mark, but I'll leave it at that in terms of the timing.

And our next question comes from the line of Paulina Rojas from Green Street.

My question is about the transaction market. So treasury yields have rebounded. Have you seen any change in cap rates given the higher base? Any change in investors' appetite to transact, especially in the last months, really?

No, I don't think so, Paulina. The reality is that we are currently in a phase where the market is finding stability. While the curve has shifted slightly in the past 30 days and the 10-year yield is at 4.60% to 4.70% compared to 4%, I believe that most investors think it will stabilize lower over time. When considering rent growth and NOI growth, especially for properties with upside potential, the IRRs are quite appealing. Personally, as we approach next year, I expect the 10-year yield to settle in the lower 4% range. If you can purchase something with a 6% yield that includes 2% to 3% growth and has some upside, that’s a strong return. I believe that in the latter part of this year, we will likely see even more acceleration. This is just my personal view, but we have not noticed any slowdown due to the recent volatility. It’s unfortunate that we’re tied to that situation, and I wish more people could look beyond it. I particularly hope the Fed considers a range of inflation rather than fixating on a single number that seems disconnected from a 3.5% unemployment rate. Maybe one day they will take my advice, but I’m not placing bets on it, to be clear.

Okay. And then you mentioned a drag on expenses net of recoveries that had to do with the timing of some of the recovery. So overall, what's your expectation for this line item for the year? And I think the easiest way for me to see it is if you expect this to be a contributor to same-property NOI growth or not?

In the first quarter, there were higher expenses due to timing. You'll notice a slight dip in our recovery ratios because of the fixed CAM. However, as we progress through the year, we expect those expenses to normalize. It’s simply a matter of timing with the first-quarter expenses being front-loaded.

Yes. Regarding real estate taxes, previous years' experiences might contribute to this, but we will have to wait and see as we approach the end of the year.

And our next question comes from the line of Dori Kesten from Wells Fargo.

Heath, can you talk about how the Moody's upgrade may benefit your interest costs going forward? And just when you may look to address your 25s?

Yes. I can't provide an exact spread differential, but it certainly had a positive impact. Two significant things occurred: Moody's upgraded us and Fitch placed us on a positive watch, so we are hopeful they will move us to BBB+ soon. Additionally, S&P also assigned us a positive outlook, and we are optimistic about achieving a BBB rating in the coming quarters. All these factors combined will help compress the spread. We issued bonds back in January when the 10-year yield was around 3.90% and the spread was 170 basis points. Current indications show our spread is now between 140 and 150, indicating we're seeing compression. As we enter the market more frequently and our bonds become more liquid, we expect this to improve further. Regarding when we will address the 2025 maturities, we plan to be opportunistic. We have been effective at analyzing the macro environment and identifying the right moments. In hindsight, picking our trading date in January was a strong decision, as it was before the 10-year started to widen again. We will continue to monitor the macro indicators to choose a favorable time for another issuance. I would suggest late 2024 or early 2025 as our timeframe for addressing those maturities.

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.

Just want to say thank you to everybody for tuning in today, and thanks for the interest in the company. Really looking forward to hopefully seeing a lot of you in Dallas in a couple of weeks at our Four in '24, where we're going to see some really awesome properties. And I would also say, please take a look at the stock because it is incredible value. Thank you very much.

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