Good day, and thank you for standing by. Welcome to the Third Quarter 2024 Kite Realty Group Trust Earnings Conference Call. At this time, all participants are in a 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, Corporate Marketing and Communications. Please go ahead.

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 upon assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent Form 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group, our Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; Executive Vice President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Dave Buell; and Senior Vice President, Capital Markets and Investor Relations, Tyler Henshaw. Given the number of participants on the call, we kindly ask that you 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 over to John.

Thanks, Bryan, and welcome, everyone, to our quarterly conference call. KRG delivered another very strong quarter, leasing approximately 1.7 million square feet of space, which is the highest quarterly volume in the company's history. Heath will walk you through the details of our quarterly results and our updated 2024 guidance, and I'll focus on the progress we continue to make on the leasing front and our longer-term growth levers, including the recently announced development project at One Loudoun. Over the last three years, the primary focus of our capital allocation efforts has been leasing. Our portfolio now sits at 95% leased, which represents a 160 basis point year-over-year increase. We're optimistic that in this environment, we can continue to drive both the anchor and small shop occupancy to historical heights. Year-to-date, we've executed 17 anchor leases at 38% comparable cash spreads and 33% returns on capital. Demand continues to be strong in both our anchor and small shops. Year-over-year, our small shop lease rate is up by 100 basis points as a result of signing over 180 new leases with tenants spanning a wide spectrum of complementary uses. The credit profiles of our new small shop tenants are also strong, and these leases are expected to generate a 57% return on capital. Our signed-not-open pipeline remains elevated at $33 million. It's important to note that the average ABR in our signed-not-open pipeline is over $26, which is nearly 25% above our current ABR in the portfolio. Based on the current leasing velocity, we expect our signed-not-open pipeline to stay elevated through the first half of 2025 and start to drift down to our historical average as we head into 2026. As KRG enters the latter part of our lease-up phase, we remain acutely focused on levers of growth beyond occupancy gains. The organic mark-to-market opportunity embedded in the portfolio continues to be strong as highlighted by the year-to-date blended non-option renewal spreads of nearly 13%. We consistently promote this statistic as the most reliable indicator for movement of market rents as it's not influenced by landlord capital. We're successfully driving higher embedded growth, especially on the small shop front. For new and non-option renewal leases signed in the first 3 quarters of 2024, the average annual growth was 3.5%, which is 50 basis points higher than the small shop new and non-option renewal leases executed in 2023. The progress we've made over the past three quarters represents a significant step towards our long-term goals of generating a more sustainable stream of cash flows and driving an outsized cruising speed for NOI growth. On the development front, we recently announced our expansion plans for One Loudoun in the Washington, D.C. MSA. As we detailed in our third installment of Four in '24, development will include 86,000 square feet of retail and 33,000 square feet of office. We're also in late-stage negotiations with two developers to incorporate a 170-room hotel and a 400-unit multifamily complex into this next phase. Our philosophy on non-retail uses for mixed-use projects is to manage our capital contribution while maintaining a stake in the project. We'll share our plans for both the hotel and multifamily phases once the agreements are finalized. One of the takeaways we communicated at our Four in '24 event was our significant amount of developable land adjacent to One Loudoun. Excluding the proposed next phase, we have entitlements for an additional 1,300 multifamily units and 1.7 million square feet of commercial GLA on over 30 acres of entitled land. While we're focused on executing this next phase, we have plenty of optionality for additional phases to continue creating value. One Loudoun is on track to becoming one of the premier open-air mixed-use projects in the country. While on the topic of premier open-air mixed-use projects, we hosted our second installment of our Four in '24 series at Southlake Town Square in the Dallas MSA, which is currently our largest asset. When we took control of this property in 2021, it was generating just over $20 million of NOI. Three years later, and Southlake is producing over $30 million of NOI, which speaks to the intensity of our leasing platform and the underlying quality of the real estate. The combined impact of One Loudoun and Southlake on KRG as a whole is extremely compelling. While generational assets like these trade infrequently, there's one currently in the market and another that will be in the market by the end of the year. We're confident that these assets will trade at levels that will underscore the importance of One Loudoun and Southlake to our portfolio. This past quarter, we acquired Parkside West Cobb, a Sprouts-anchored shopping center in the Atlanta suburbs for $40 million. We locked up this property in advance of the recent compression in cap rates, which allowed us to acquire this asset at a positive arbitrage to the asset we sold in Chicago earlier in the year. For the past several years, we've been disciplined in our desire to remain relatively net neutral on our buying and selling activity. It's important to note that the number of high-quality assets in the market continues to increase as does the liquidity for all open-air product types. With our current leverage meaningfully below our long-term targets, KRG is well positioned to take advantage of any compelling opportunities that may arise. Our Board of Trustees has authorized an increase in our dividend to $0.27 per share, which represents a 3.8% sequential increase and an 8% increase year-over-year. As occupancy and NOI ramp over the next few years, we anticipate our dividend to follow suit. For many of our long-term investors, the dividend is a critical aspect of REIT investing. And with the strength of our balance sheet, KRG's dividend is an extremely attractive risk-adjusted yield. In closing, thank you, as always, to our incredible team for their hard work and dedication. But before turning the call to Heath, I wanted to specifically recognize the dedication and grit of our Southeast team for their efforts related to the recent hurricanes. As a result of their vigilance and preparation, our assets suffered minimal damage and downtime. We proudly serve our Southeast customers and our communities, and are grateful for their support and patronage. I'll now turn the call to Heath to walk you through results in 2024 guidance.

Thank you, and good morning. For those of you that have attended one or more of our Four in '24 events, we are grateful for your time and travel efforts. We will be hosting our final event in Las Vegas on November 18, which is the Monday prior to the NAREIT conference. We hope to see many of you and look forward to sharing our views on capital allocation and providing a glimpse into our long-term vision for KRG's future. While the response to the Four in '24 series has been overwhelmingly positive, you can rest assured that the intellectual property rights to Five in '25 are currently available. Turning to our results. For the third quarter of 2024, KRG earned $0.51 of NAREIT FFO per share and generated same-property NOI growth of 3%. Same-property NOI was bolstered by a 280 basis point increase in minimum rent and a 120 basis point increase in net recoveries, offset by 80 basis points of bad debt relative to the comparable period. Based on our third-quarter results and revised outlook for the balance of the year, we are increasing our 2024 FFO guidance by $0.01 at the midpoint to a range of $2.06 to $2.08, primarily driven by improvement in our same-property NOI growth assumption. At the midpoint, we assume a full-year same-property NOI growth assumption of 2.75% and a full-year bad debt assumption of 70 basis points of total revenues. The full-year bad debt component is a function of combining the actual bad debt we experienced year-to-date, which was approximately 60 basis points of total revenues, with the continuing assumption of 100 basis points of bad debt for the fourth quarter. As our updated guidance implies, we are anticipating an acceleration in same-property growth for the fourth quarter due to the commencement schedule of our signed-not-open pipeline and the favorable comparable period. In August, we returned to the public debt market by issuing a seven-year $350 million bond at a coupon of 4.95%. We felt it prudent to minimize the capital markets risk heading into 2025 and we are pleased with the execution. On our July earnings call, we mentioned that we anticipated a significant improvement in credit spread compared to the levels we achieved in January, and we were able to achieve a 38 basis point compression in a spread in less than a year. As for the proceeds, we are currently holding them in a short-term deposit account, generating interest income in excess of the yield on the debt maturing in 2025. In September, we amended and extended our $1.1 billion revolving credit facility, which now matures with extension options in October of 2029. With a very dynamic macro environment in front of us, it's important to note that our availability under the line of credit, together with our cash on hand, can satisfy all of our maturing debt through the third quarter of 2028. Looking through a more opportunistic lens with over $1.2 billion of available liquidity and a net debt to EBITDA of 4.9 times, we have the ability to deploy significant capital while still remaining within our long-term leverage target levels of 5 to 5.5 times. Thank you to the entire KRG team for another spectacular quarter and we're looking forward to seeing many of you in Las Vegas. Operator, this concludes our prepared remarks. Please open the line for questions.

Thank you. Our first question is going to come from the line of Todd Thomas with KeyBanc Capital Markets. Your line is open. Please go ahead.

Hi, guys. Good morning. Heath, it seemed like a little bit of a better outcome in the third quarter than you previously talked about. I think you talked about the third quarter being a little more muted and followed by a sharper increase in the fourth quarter. It sounds like that's still the case, but where did you outperform versus expectations in the quarter? And was any growth this quarter pulled forward from the fourth quarter? And then as we think about ending this year and into '25, any sort of goalposts that you can put up around the next few quarters around the trajectory for NOI growth?

So Todd, basically, I think just doing better on bad debt was the primary driver of what gave us a little bit better outlook into the same-store for this particular quarter. And I wouldn't say that we pulled forward anything from the following quarters. In terms of the trajectory of the same-store for '25 and beyond, we're not going to give guidance this time. But we said before in our remarks that we're pretty bullish and optimistic with respect to the accuracy contributions we're going to see in our signed-not-open pipeline, so I'll leave that to our '25 outlook.

Okay. And then my second question for John, curious to just get a little more color on the acquisition environment, and also the assets that you mentioned that are being marketed or on the market that you're comparing to One Loudoun a bit in that sort of ilk. Is Kite interested? What's the company's appetite like for being on the buy side of a transaction like that and adding another asset like that to the portfolio today?

Sure, Todd. I mean in terms of your macro question, I think the environment is strong. There continues to be more and more capital flowing into open-air retail from, as we've talked about before, all sources that you can imagine, pension funds, sovereigns, insurance companies, REITs, 1031 buyers, advisers. I mean, I really think that the volume of capital that's flowing into our space in the past six to nine months has dramatically increased over the previous year. So that obviously leads to compression in yields that people are willing to accept, as well as the growth rates in these assets are clearly better than they were historically. So all in all, I'd say it's a very competitive market. As we mentioned in the prepared remarks, yes, there are assets that are now coming into the market that are similar to centers like Southlake and One Loudoun and Crown and Union Hill, and I can go on and on. I mean we have a lot of assets. We mentioned two of them, but we have a lot of these high-quality assets that I think people maybe don't quite think of when they think of our company. So that's our goal, is to make sure people do understand that. As it relates to would we participate in something in assets of that nature, would we look to buy those. That's why we specifically mentioned our balance sheet. We believe that we have, if not the best and one of the very few best in the space. And again, don't feel like we're quite recognized for that. Debt-to-EBITDA at 4.9 is dropping. We have a lot of firepower, a lot of optionality. We have gone to absolutely be looking at what's available as we always do. And if we feel like that we can add value and appropriate returns, then we are certainly in a position to execute it if we so chose. I think what we're trying to say is that the value as it sits today, but the good thing is we have so much capital and our balance sheet is strong and our cash flow is growing, that we can still participate in the market if we choose to.

Okay. Great. Thank you.

Thank you. One moment for our next question. Our next question is going to come from the line of Alexander Goldfarb with Piper Sandler. Your line is open. Please go ahead.

Sure. Good morning, out there. John, maybe just keeping with that theme of going on looking at more centers to buy some of these potential larger centers. One of the things that you've spent many years, almost a decade doing, is improving the balance sheet, getting really low leverage and putting the company in a really good spot. At the same time, unfortunately, the stock continues to trade at a discount versus peers. So how do you balance increasing leverage to buy assets if that risk sort of goes against what you guys have tried to do, which is say, hey, we've got a great company, great cash flow, we're leveraged and, therefore, deserve a higher equity multiple?

That's a great question. The key point we're making is that we have substantial value, and a strong balance sheet gives us flexibility. We need to evaluate each opportunity based on the potential growth of the asset, its contribution to the overall portfolio, and the security it provides on the balance sheet. Given our targets of low to mid-5s, there's a lot of room for growth. It's not a one-size-fits-all situation; we need to assess each component for its potential value to the business. Currently, we have ample capacity, and we are observing potential opportunities. If those opportunities do not materialize, we will continue generating free cash flow from our existing assets, which would enable us to reduce debt further and create even more flexibility.

Okay. Second question is, you mentioned residential, which you showed us at One Loudoun. As you guys have been assessing the portfolio and more investment opportunities, is there a sense of how much multifamily potential there is in your existing portfolio? And also, is that something that is actively on your investment plan? Is to say, hey, let's add more multifamily? Just trying to get a sense of if One Loudoun is more the case, or if there's a lot more across the entire Kite portfolio?

We typically don't set specific targets to chase. Currently, we have an equity interest in about 1,400 units. You mentioned the next phase of Loudoun will have an additional 400 units, plus another 1,400 units that are already entitled. Regarding the rest of the portfolio, we've indicated that we will stay at the top level of sales, so we're not aiming for a specific number like 5,000 titled units. In reality, we expect to have several more thousand units to pursue over the coming years if we decide to. However, it's important that any real estate investment makes financial sense. We prefer to partner with others to share risks and manage our capital contributions, even though not everyone does this. Densification is clearly a part of our business strategy. We have many high-end assets suitable for such initiatives, but we're not forcing opportunities; we prefer to let them come to us.

Thank you. One moment for our next question. Our next question is going to come from the line of Floris Van Dijkum with Compass Point. Please go ahead.

Thanks. Good morning, everyone. John, I think your voice sounds a bit muffled. Maybe you're too close to the mic or there's a connection issue. But I have a question about your SNO pipeline. As you project it forward, it's nearly 5% of NOI, with most of that affecting next year and in 2026. This indicates significant underlying growth. If everything goes as planned, we should see an acceleration in that growth. Could you discuss the composition of that growth and how it's evolving, especially as you approach the final stages of your anchor box repositioning? How much more potential do you see for your shop space, and where do you identify the greatest untapped leasing opportunities for KRG?

Sure. Does that sound better? Can you hear me? Does that suit you? The bottom line is, I think the question is when I look out at the growth rates and where we're same store has been and I think when we looked at where the occupancy gains are coming from, if you're looking at it like that, we clearly have more room to run in the small shops. The anchors are becoming close to where we were pre-COVID. So I think that when you combine the lease-up efforts that you've seen us do over the last couple of years and you look at the growth that we're able to build the shops and it's 50% of our revenue, I think I would think that there's real upside there. I also think if you look at the point that we made at our same-store and you look at the signed-not-open rents versus our existing rents and the spread there, that's really incurring. And then also just the implied cash flow growth that we're able to generate as we have a better cruising speed, as you said. So overall, I think it's a combination of those two, but I hope that helps what you're looking for.

Yeah. We also add the nice thing is that it will split between others and shops. So we're not seeing pockets of demand; we're seeing broad-based demand. And as John mentioned, at $26 in a bonded ABR, that's over $37 in the shops and that's $18 in the anchors. Those are really, really strong lines. Again, that's just indicative of the continued strong demand on the leasing front.

Yeah. And the only thing that I'd add is we have the remaining boxes right now and we are actively leasing more than half of them. So I just said, that momentum continues and we're able to continue to drive the strong spreads in the times.

Thank you. My follow-up question is more about capital allocation. Your larger assets have shown significant growth, particularly with Southlake increasing its net operating income by 50% over the past three years. Larger assets tend to experience faster growth. When you're considering capital deployment in other real estate investments, is this a key factor in your decision-making process?

Floris, I mentioned that it varies greatly with each asset. Clearly, if you're investing more capital proportionately and there are growth opportunities that can significantly impact results compared to a smaller deal, that matters. However, the core factor remains the individual asset's quality. For instance, Southlake was perfectly timed with the merger and our recent strategies, yielding great results, and we're experiencing similar success at One Loudoun. So, larger assets are progressing in this manner. At the same time, we emphasize the quality of the real estate. We have assessed several large assets recently, but we chose not to proceed because we believed their long-term real estate quality wouldn’t sustain growth. While we can achieve short-term growth, our aim is to secure long-term growth.

Thanks a lot.

Thank you. One moment for our next question. Our next question is going to come from the line of Craig Mailman with Citi. Your line is open. Please go ahead.

Hey, guys. Heath, you mentioned that bad debt was slightly better than you anticipated. As you look ahead over the next few months, I know the Container Store is making headlines, and they represent less than 1% of your ABR. How are you considering tenant credit more generally, and perhaps for them specifically, in the coming months?

As we look ahead to 2025 and 2026, nothing currently concerns us about the need to set aside reserves for any specific tenant. We anticipate we’ll manage general debt effectively as we move into next year. While we have concerns regarding container building assets, I’m not overly worried. Recently, there was a drop in their stock, but they have confirmed their disclosures and secured a $40 million investment from a significant source. This indicates positive developments; their debt situation is manageable, with $125 million scheduled to mature in 2026. We believe the Container Store is a resilient business, operating in prime locations. If necessary, we can always find new tenants. Overall, we have confidence that this is an undervalued business, and we will continue to monitor their performance closely.

That's helpful. And then I don't want to belabor the point on acquisitions here. But just maybe how you guys are thinking, you clearly have more runway in the near term with the snow pipeline and the premium returns you're getting on that capital that's invested. But as you get through that, right, assuming your equity continues to trade where it is today, you will have the benefit of the higher cash flow as the leases commence. But you guys are at a lower leverage point, you talked about potentially ramping that a bit. How do you think about if, say, the stock is still trading around this area in a year or two, right, you have a huge spread relative to debt. How comfortable are you or how high from a leverage perspective would you be willing to go to kind of grow the portfolio accretively even if cap rates are still inside of where the equity is trading? Or is that just a scenario where you guys are less interested in growing overall?

Let me begin with that. The key point is that we are very aware of our overall cost of capital, and we believe our equity is positioned correctly. We have been very cautious and have successfully navigated the bond market. Therefore, I think we are well-positioned to see how this unfolds. We are still focusing on leasing, and while we have achieved significant milestones, there is even more leasing ahead that can deliver high returns on capital, which remains our top priority. As we approach late next year and into 2026, as these factors start to take shape, I believe we will generate even more free cash flow in '26 and '27, allowing us to make important treasury decisions regarding our investments. In response to your specific question about increasing leverage, we can definitely raise it. In fact, even if we allowed it to reach 5.5, we would still be below our peers, as we are currently at 4.9. There is definitely potential for movement in this area. Our intention is to increase leverage in a manner that is beneficial for us. As the market continues to improve and leasing activities pick up, along with favorable supply and demand dynamics, which appear to persist into next year, we will be selective and make prudent capital allocation decisions. Our main responsibility is to ensure smart capital allocation, and we will do that effectively.

I'll just add, Craig, that kind of putting in perspective, we could acquire somewhere between $500 million and $600 million of assets, pick a cap rate and remain at 5.5 times, which is within our long-term target. And we think of that as we're doing that with debt. So when we think about the cap rates, we're very sort of sales and driven; and I mean it's this context of a better than cost of capital and maybe that makes sense. A lot based on our debt, just issued a bond of bill at 95% that allows us to lipid assets and use that to be something accretive and still maintain the quality that we want to make.

All right. Thank you. And we’ll move onto our next question. And our next question is going to come from the line of Andrew Reale with Bank of America. Your line is open. Please go ahead.

Hi, good morning everyone. Thanks for taking our questions. Just on the Parkside acquisition, could you speak to the cap rate on that deal and the degree of compression after you lock that up? And your messaging continues to be that internal deployment is your best use of capital, but just curious if this latest transaction might signal a shift into more external opportunities?

Yeah, sure. In terms of the cap rate, we didn't give a specific cap rate. I mean what we did say is that it was accretive to the assets that we sold in Chicago. And I would tell you that the cap rate that we were able to acquire it at is probably 50 to 75 basis points higher than it would be today based on the timing and the weight of time it took for the seller to be in a position to close the deal. So it's a great deal for us. And in terms of cap rates overall, my commentary there would be that they are compressed versus where they were three, four, five months ago in a significant way. And the type of assets that we own and the quality of assets that we own generally trades in the kind of mid-5s to low 6s. I mean that continues to be the market. But you gladly point that out as it relates to the imputed value of our stock price today. What was the second part of your question, I'm sorry?

Just more broadly, I mean, your messaging it's still that internal deployment is your best use of capital. But just curious if that transaction is signaling a shift into a wider array of external opportunities?

We continue to prioritize internal growth due to the high returns on capital. The current market environment is quite aggressive, which allows us to find valuable opportunities. However, the key message we want to convey today is that our strong balance sheet enables us to pursue these opportunities when we decide it's beneficial. If market conditions evolve as we anticipate over the next few quarters, it could present us with a chance to expand.

Just to add to what John mentioned, we are starting to see progress. We're really beginning to consider our exit strategy with the lease phase coming to an end. John discussed our plans for activating One Loudoun and the potential for acquiring capacity. Our focus is absolutely on what comes next after the lease phase. I will be discussing this further in Vegas, and I hope to provide more details then.

Okay. And just a second question for me. Just curious what percentage of your 2025 leasing needs have been addressed at this point? And how does that compare to this time last year? And also, how far into the future are leases being signed for commencement beyond 2025?

I would say about 50% of our leasing for 2025 have been addressed, which compares very breadth of last year. So I think we're on a very good track again; demand continues to be elevated. And the timing now how leases are signed for delivery. So I think the answer to that is we are working on leases right now that could deliver in '26. So these periods can go out as much as one year just from a negotiation standpoint.

Thank you. We’ll move on to our next question. Our next question comes from Daniel with Green Street. Your line is open. Please go ahead.

Good morning. Thanks for taking my question. You mentioned that you were focused on long-term growth instead of short-term growth in your portfolio. In your experience, what would you say are the key variables that you look for as predictors of high long-term growth in a property, whether it be demographics or anything specific to the property?

Absolutely. It primarily starts with the quality of the real estate itself, followed by the mix of merchandise in the shopping center. We consider whether it’s a lifestyle center, a grocery-anchored center, or a community center, and how much access we have to rent increases that will take place in the next three to five years. We also assess whether these increases come with options attached and if those options are at a set number or at fair market value. There are many factors we evaluate that relate to our capacity to generate superior embedded growth. This ties into how we conduct our business. For instance, compared to last year, we've seen a rise of 50 basis points in our embedded rents within our small shop portfolio. Over the past few years, there has been a significant increase in the embedded growth we have achieved. We believe our operating platform is among the best in the industry, and when you consider our margins, recovery ratios, and general administrative expenses relative to revenue, alongside actual operating metrics, it's clear that we are one of the leading performers, if not the top performer. Ultimately, it comes down to the real estate and whether we can enhance its value. This aspect of the business is quite enjoyable for us, and we are committed to seeking out opportunities that will allow us to drive growth.

Got it. Thank you.

Thank you. And one moment for our next question. Our next question is going to be from the line of Dori Kesten with Wells Fargo Securities. Your line is open. Please go ahead.

Thanks, good morning. Is there any update you can provide on the process around the assets that you have held for sale? I guess are you finding that it's also rather competitive? And would you expect to close within the year?

Absolutely expect to close within the year. And the asset is supposed to hit the market, I think, today or early next week. So it's imminent. And again, we're very confident we'll be able to transact within the one-year time period.

Yes, not within this year, but within a year.

Within 12 months.

Got it. The percentage of new leases and renewals for small shops is over 4% with rent increases continuing to rise each quarter, which is quite impressive. I believe you're around 7% for the year. Are you finding that you need to make concessions in other areas of the contract to achieve that, or is the leasing environment fully supporting that growth in your markets?

No, not at all, Dori. We believe that we've improved our leases through negotiations with our customers and partners. The environment has actually become more favorable in this regard. We are not sacrificing anything in terms of lease terms that would affect our embedded rent growth. As you know, we've consistently emphasized the significance of this to our platform, and we certainly consider ourselves leaders in generating internal embedded rent growth in the small shop sector. Now, we're also focusing on the anchor side of the business, which is more challenging, but we are making progress. As supply and demand continue to shift in our favor, it’s logical that the situation will improve. With the overall retail environment remaining strong, we expect this trend to continue. Tom, would you like to add anything?

Yeah. The only thing I would say is be assured that our real estate team is not focused just on growth. It's one of their most important components as they come into real estate committee. But we care just as much about exclusives, about fixed-cam language, about making sure we have long-term flexibility in terms of surrounding areas around the entire parcel. So we focus a lot of attention on that because those are the ones that, from a long-term perspective, can create problems for the company. So our team does a great job of hitting growth in all the ancillary components within the document.

Thank you.

Thanks.

Thank you. One moment for our next question. Our next question is going to be from the line of Michael Mueller with JPMorgan. Your line is open. Please go ahead.

I guess going back to the release when you talked about allocating more capital, retained cash flow to select developments. With that comment just focused on the future Loudon opportunities or mixed-use in general? And are there any projects that you're considering that are really retail-driven and not mixed-use?

Well, in terms of the comment, it was not just specific to One Loudoun. And I think what we were trying to say, Michael, is that as we're getting into the later stages of our lease-up of our existing platform, that cash flow can obviously increase over that period of time and we can deploy free cash flow into development and redevelopment at very good yields on a risk-adjusted basis. That's always the goal. And redevelopment, obviously, we believe that the risk-adjusted yields are probably going to be better. But ground up, as it relates to adding on to existing centers or even adjacent land to an existing center, can make a lot of sense. So I think we do believe that we can pivot into that direction and do it without doing any harm at all to the balance sheet. So as we move forward, I think that that's important. As it relates to retail specifically versus mixed-use, again, that comes down to the product itself. I mean we recently delivered a retail-only development in Florida that was on a parcel of ground adjacent to a large center that we own in Port St. Lucie, as an example. That was a small grocery acreage center anchored by Fresh Market. And they're doing extremely well. It's a good sign that we can find those opportunities. And as we generate more and more free cash flow, this is just going to be a really nice opportunity for us to drive value.

Got it, okay. Thank you.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Alex with Baird. Your line is open. Please go ahead.

Hi, thanks for taking my questions. First one for me is, which retail categories are being the most aggressive for new space in your centers?

Tom, do you want to hit that?

One of the categories we've had tremendous success with as of late, and we just took a trip out West to work on this further, is on the grocery side, we are finding many opportunities with some of the best names in our space. And that spans about three or four different category users. So we've been extremely happy with that. We've continued to do very strong in your basic core box components, the Total Alliance, the Dick's, the Ross, recent deal with LLBeam, HomeGoods, Trader Joe's. So we feel like we've had an extremely successful approach in terms of diversifying the base while increasing the credit quality. And that's been one of the top priorities as we've moved to lease up this portfolio. But I think the word all in all, is just tremendous diversity of use with strong credit.

I would like to add that one of the advantages of our portfolio's strength and the variety of our assets is our solid relationships with customers across all retail types. I can confidently say that our network is deeper than I have ever seen in the history of this business, allowing us to engage in transactions with a wide range of retailers, from luxury to service. Open air is very well positioned to capture more market share in the coming years, and we will play a significant role in that growth.

Helpful. And for a second one, it looks like the total portfolio composition is about 47% to 53% anchor or shop. As the portfolio gets fully leased, what do you expect that breakdown to be moving forward?

Well, assuming the portfolio doesn't change a lot, it won't change much. I mean we're generally going to be kind of in that 50-50 range, plus or minus. Remember, we also have almost 10%, a little less than 10%, actually, of our revenue as ground leases. So that skews that number out a little bit. But bottom line, I think this composition is a really good composition because it balances both ends of the spectrum in terms of growth and stability. Right now, everybody is focused on growth. There are certain times where stability is more important. And that's why we own lifestyle, we own mixed-use, we own grocery, we own neighborhood, we own community centers and a little bit of power. You put that all together; it's a pretty good portfolio.

Got it. Thank you. That’s it for me.

Thanks.

Thank you. One moment for our next question. Our next question is going to be from the line of Brendan Cutler with Jefferies. Your line is open. Please go ahead.

Hi. It's Linda. Regarding Container Store, I know two are in your highest quality locations, One Loudoun and Southlake. Do you think these will lease up faster than the other five? And then what do mark-to-market rents look like overall?

Hey, Linda, it's John. First of all, I think as Heath pointed out, it's not just those couple that you mentioned. I mean generally speaking, Container Store historically was a tenant that was pursued quite aggressively in high-quality properties. They generally are not in a property that wouldn't be viewed as very high quality. So I think all seven of them are positioned very well. We're not at the stage where we're looking at mark-to-market based on the fact that, what Heath walked you through, that we think that, at this point in time, there's nothing that would indicate that things are radically going to change in the near term. That being said, there's lots of optionality on these particular boxes based on the real estate they're in. Also the size, we could split these boxes; we could lease them to one particular user, the market still remains really strong. We hope we're not doing that. We hope that we just continue as is. But we're very confident that it would be very productive to get the space back.

Thanks. And then mark-to-market cash spreads and higher contractual rent bumps, would you consider providing GAAP spreads in your disclosures going forward?

It's interesting you bring that up, Linda. We used to share GAAP spreads and we still have that information, but it's something we're considering. So stay tuned. However, it's important to note that the GAAP numbers, particularly with the 4% increases on the shop side, would be significantly higher than our cash spreads.

Yeah. I mean my personal thought there is now we have another metric out there that everybody doesn't report in the exact same way. But bottom line is our cash spreads, Linda, are very strong and that represents the business gap. Obviously, we certainly can talk about what our GAAP spreads are, but they're a lot higher. Now whether that matters, I don't know.

Hopefully, it does. Thanks.

Thanks, Linda.

Thank you. I would now like to hand the conference back over to John Kite, Chairman and CEO for any further or closing remarks.

I want to thank everyone for joining us. I really appreciate your interest in the company, and I hope to see many of you in Las Vegas at our final installment of Four in '24. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.