Kite Realty Group Trust Q1 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Kite Realty Group Trust First Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today's conference, 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 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 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. 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 will now turn the call over to John.

Thanks, Bryan. KRG had an excellent start to 2025, highlighted by our strong first quarter operating results, a guidance raise, and a landmark acquisition in a joint venture with GIC. I'm proud of our team's ability to navigate the recent macroeconomic environment and focus on sound execution. This is in no small part due to our incredibly strong balance sheet that allows us to respond opportunistically to any potential economic disruption. Demand for space in our high-quality centers continues to remain healthy, allowing our team to produce solid spreads, generate strong returns on capital, improve our embedded growth, and enhance our merchandising mix. Blended cash leasing spreads in the first quarter were just under 14%, highlighted by 20% non-option renewal spreads. We continue to emphasize our non-option renewal spreads as we believe they are the best barometer for mark-to-market potential in our portfolio. Our new leasing volume was more heavily weighted to the small shop side of our business this quarter. We are encouraged to grow the shop lease rate sequentially given the seasonality that generally occurs in the first quarter. Starting rents for comparable new shop leases in the first quarter were nearly $41 per square foot, approximately 20% higher than our current portfolio average. In addition to strong starting rents, new and non-option renewal shop leases signed in the first quarter of 2025 have weighted average rent bumps of 360 basis points, which is nearly 100 basis points higher than the shop leases executed just three years ago. Pushing our portfolio to a higher cruising speed remains the primary focus for our team as we continue improving on our long-term growth profile. Demand for our anchor spaces remains strong, as larger format tenants focused beyond short-term headlines make decisions designed to benefit their businesses for decades across multiple economic cycles. We're making great progress on backfills, evidenced by the depth of demand in our pipeline, including grocery, off-price retailers, full-line apparel, fitness, sporting goods, and home furnishings. Our strong first quarter results culminated in a $0.02 increase to NAREIT and core FFO per share guidance. Heath will provide more details on the components of the raise. But first, I'd like to discuss our recent acquisition of Legacy West in a joint venture with GIC. Opportunities to acquire iconic mixed-use assets are rare. Given our strong presence in the Dallas MSA and our strategic objective to increase exposure to high-caliber assets, we viewed Legacy West as a property that aligns with our investment criteria and long-term portfolio vision. Recognizing the magnitude of the opportunity, we proactively approached GIC to explore forming a joint venture, and we could not be more enthusiastic about our partnership. Additional transaction details are outlined in our earnings release and investor presentation, but Legacy West unequivocally represents a pivotal step forward for KRG. Legacy West instantly enhances our portfolio quality and solidifies KRG's position as one of the prominent owners and operators of significant lifestyle and mixed-use assets. The leasing synergies within the balance of our portfolio are powerful, enabling us to deepen relationships with leading brands like Aritzia, Fox Restaurant Group, Lululemon, Sephora, Vuori, and West Elm, just to name a few, and the acquisition also fosters new relationships with luxury tenants, including LVMH and Kering. As we implement our proven operating platform on this asset, we expect to capitalize on significant mark-to-market opportunities and further elevate the merchandising mix. The transaction is immediately accretive to FFO per share while modestly increasing pro forma leverage by 0.2 times, keeping us comfortably at or below our long-term net debt-to-EBITDA target of 5 to 5.5 times. Our first quarter results, capped off by this game-changing acquisition and joint venture, are the product of disciplined capital allocation, a best-in-class operating platform, and prudent balance sheet management. While we have more work to do for the balance of 2025, we are a battle-tested and energized team that will always strive to outperform expectations. I'm confident in our ability to produce strong results in 2025 and deliver long-term value for all our stakeholders. Thanks to the team. And now I'll turn it to Heath to discuss details of Q1.

Thank you, and good afternoon. Before diving into our quarterly results and increased guidance, I want to take a moment to thank the KRG and GIC teams that worked on the acquisition of Legacy West. We have been focusing on this transaction since November and we could not be more excited about putting our stamp on one of the nation's top open-air mixed-use destinations. Turning to our results. For the first quarter of 2025, KRG earned $0.55 of NAREIT FFO per share and $0.53 of core FFO per share. Both NAREIT and core FFO benefited from a $0.03 contribution from a large termination fee we received from a single tenant. As we previously discussed, termination fees are a recurring but unpredictable part of our business, and this particular fee will compensate us for downtime and re-leasing costs. Same property NOI grew 3.1% driven by a 350 basis point increase from minimum rent, a 90 basis point increase in net recoveries that's partially offset by higher bad debt as compared to the unusually low levels in Q1 of 2024. Based on the first quarter outperformance and our revised outlook for the balance of the year, we are increasing our 2025 NAREIT and core FFO per share guidance by $0.02 each at the midpoints. The components of our guidance raise included $0.01 related to net transaction activity, and the other $0.01 was driven by the aforementioned termination fee being higher than we originally anticipated. Our same property NOI range remained unchanged from original guidance, as did our full-year credit disruption assumption of 195 basis points of total revenues. It's important to note that we increased the midpoint of our general bad debt reserve by 15 basis points to 100 basis points of total revenues while decreasing the anchor bankruptcy impact by 15 basis points to 95 basis points of total revenues. The change in the general bad debt bucket is reflective of the increased economic uncertainty while a change in the anchor bankruptcy reserve is driven by better-than-expected outcomes. Last quarter, we estimated that the total of five of the 29 anchor boxes would be assumed, and that is exactly where we will end up. Subsequent to quarter end, we executed an additional four new leases, some of which have rent commencement dates in the later part of 2025. For another 12 boxes, we have selected the tenant and we are in active negotiations. In total, over 70% of the 29 boxes are being addressed. Finally, the sequential increase in our net interest expense assumption is driven by the acquisition of Legacy West, which we will partially fund on a revolving credit facility with the goal of paying down the balance from planned dispositions set forth on Page 19 of our Investor Deck. Please note that as of last night, our Fullerton Metro asset is under contract with a nonrefundable earnest money deposit. As John mentioned, our disciplined capital allocation strategy and tremendous balance sheet afford us the opportunity to acquire Legacy West together with GIC. Holding aside the exceptional quality and potential of this asset upon completion of the associated transactions, we will upgrade the quality of our portfolio, de-risk our underlying cash flows, create immediate earnings accretion, and improve our long-term growth profile. We still have some work to do on the transactional front. But it's important to mention that if we had to finance the Legacy West transaction with unsecured debt, the annualized core FFO accretion would be approximately $0.025, and our leverage would remain within our long-term range of 5 to 5.5 times net debt to EBITDA. Please note that our new joint venture is to be treated as an unconsolidated entity for accounting purposes. We've yet to finalize our purchase price accounting, and our NAREIT FFO guidance assumes no impact from non-cash items. As the conference circuit keeps up, we look forward to seeing many of you in the coming weeks to talk about our progress in this amazing acquisition. Again, thank you to the KRG team for a great quarter, and we'll push for continued success. Operator, this concludes our prepared remarks. Please open the line for questions.

Our first question comes from Todd Thomas with KeyBanc Capital Markets.

On Legacy West, a couple of questions. I was wondering if you can comment on the expected NOI growth rate in the near term and how that compares to the Kite portfolio in general? And can you share what the current occupancy rate is at the office and retail components?

Let me start with that, Todd. In terms of the growth rate, we can tell you that the embedded rent increases on the deal are 2.6%. This is significantly higher than the average of the rest of the portfolio, which is around 1.8% to 1.7%. This is clearly a positive start. Additionally, we believe there is considerable mark-to-market potential here. Over the next three years, approximately 30% of the deals will roll over, either with fair market value options or without any options at all. While it’s still early, it’s clear that this was a major aspect of our underwriting process, as well as GIC's, since we identified considerable upside potential. Heath, would you like to address the second part?

The office is 98.7% leased and the retail is 95% leased as is the residential.

And then in terms of the office, I realize you just sort of onboarded the property here recently. But in general, is there a way to characterize the office demand and discuss how it's performed, is there any recent leasing or tenant turnover that you can discuss? And what's the remaining lease duration for the office segment look like?

I'll start with that, and maybe Tom can give some commentary. I mean, this is extremely strong office product, obviously, highlighted by 98% lease percentage, which literally, I think there's one space and there's action on that one space. And again, even here the overall rents are below market. This is the kind of office product you want to own, highly amenitized, the tenants are very happy to be there. The submarket, by the way, is very strong in Plano. I think the submarket is like 95% leased. So look, we feel great about it. Tom, you want to add to that?

Todd, I would add that there are 72 companies in the Forbes Global 2000 in the small submarket. So it's kind of amazing the actual number, and then there are three Fortune 1000 headquarters as well. So you just have this extremely unique submarket. And the great thing that we learned as we went through all the tenants and we had the discussions is just from a recruiting standpoint, the environment inside Legacy West was a huge marker for them, just in terms of their ability to want to stay there and working with the mayor and economic development groups, there's a lot on the horizon. So we feel very good about the submarket and I think it's reflected by the tremendous amount of strong companies that are located here.

And Todd, the average duration on the office lease is around six years. I will tell you, obviously, we were very conservative in how we underwrote it. And while the big mark-to-market opportunity is really in the retail portion, we're looking at the recent rents and deals that we're signing in the office. There's also opportunity for us to push rents there as well. So again, very conservative in our underwriting, love the balance sheet to the underlying tenants. But yes, we're very happy about the office piece.

If I could just sneak one more in quickly about the relationship here with GIC. Is there interest to expand the relationship with additional investments, either third-party acquisitions or by seeding additional assets above and beyond what's sort of currently contemplated?

I mean the answer is yes. I mean, we're very happy about our partnership with GIC and we've worked very well together over the last several months. As you saw in the investor presentation and as part of our sources and uses, we are actively working on a second joint venture contributing seed assets into that, which we highlighted in the presentation. So obviously, that's a lot in a short period of time with a new partnership. But the long-term vision is quite aligned between both Kite and GIC. So it's early, but I would suggest that we have other opportunities.

Our next question comes from Craig Mailman with Citi.

I would like to follow up on the change in the bad debt reserve. It seems that the situation regarding bankruptcies has improved slightly, but you have allocated the same amount of reserve to general provisions. Are you observing anything on the accounts receivable side, having discussions with tenants, or adding more tenants to the watch list? Or is this mainly due to the general market uncertainty that's prompting some caution in that area?

Well, the anchor reserve went down because some of the tenants stayed open longer than we had assumed, and also, we signed four new leases for those spaces and a couple of them are opening up in '25. So better result on the anchor, which is giving us that 15 basis points back. And then there's nothing specific. There's no increase in aged AR credit. It's just a matter of saying, you know what, the world is a little crazy. So why don't we take that 15 basis points and put it in that general bad debt bucket? So really just shifting it over with nothing specific.

Craig, it's still early, right? It's first quarter. So we're into the second quarter now. I think it was a smart thing to do in light of the world that we're living in. But as Heath said, I mean, that's one of the good things about our system internally is we do a bottoms-up every month of every tenant. And so we have a really good pulse on where AR is and where the small shop health is, and that pulse is still very strong, but I think it's prudent at this point in the year.

And then just on the transaction environment, you guys are kind of selling some things into the third-party market. What's been the reception for some of those power center type deals, the bidding pool sizes, kind of sensitivity on pricing that you're seeing?

I mean right now, it remains healthy. As Heath mentioned in the prepared remarks, the deal we have, which is kind of a larger format deal in LA that was on the market, went hard last night at the pricing that we thought it would. So I think there's still some very active acquisition buyers out there. There's liquidity. Look, I think there's uncertainty geopolitically. But on the ground operationally, it's a lot better. So I think we continue to see good demand. And cap rates continue to be very competitive. I mean, obviously, the 10-year is in the low 4% range. So you can make things work, especially with NOI growth. So I think it's a pretty good market, and we'll see how the rest of the year kind of evolves.

Our next question comes from Floris Van Dijkum with Compass Point.

I have a couple more questions about Legacy West, if you don't mind. You mentioned that the average tenant sales are above $1,000 per square foot, and the current rents are around $60 per square foot. Can you tell me what the new leases are being signed at and what kind of mark-to-market you anticipate? Additionally, you noted that this hasn’t impacted your results yet due to the pending purchase accounting. What would the recognition of that mean for your income, and how significantly could it influence the earnings from this acquisition?

Let me start by discussing our views on the current rental market and its potential. While I won't go into details, it's clear that the health ratios in the retail segment are low, typically in the mid to low single digits or mid to high single digits, with luxury segments performing even lower. We are quite optimistic about the potential for improvement in these areas. Whether that translates to a 20%, 25%, or 30% increase will become clearer over the next three years. It's important to note that both GIC and Kite are excited about this asset precisely because of the mark-to-market opportunities available. Regarding purchase accounting, it's still too early to provide a clear picture. We plan to continue sharing both NAREIT FFO and core FFO to illustrate the differences. It's safe to say there will be purchase accounting implications, as well as impacts from mark-to-market adjustments on the debt. We'll be focusing more on the core aspects and on actual cash flow and NOI growth.

And then maybe the follow-on question, additional asset sales. I know you talked about your GIC venture. And obviously, you've got three assets that, I guess, two are now hard, one is still sort of in the works, but should hopefully join them as well. How many more asset sales do you expect to be able to complete and how many of those potentially could be used for share repurchase opportunities?

We previously discussed our strategy regarding the repositioning of our portfolio and repatriating cash. Given the current market dynamics, it’s challenging to predict specific transactions in the coming months. However, we do believe there are tradable assets that we can repatriate into areas we consider the best use of that capital. While it’s too early to provide exact figures, we feel the market is somewhat supportive now and may become even more favorable as the year progresses. We'll need to monitor how this situation develops. Heath, do you have anything to add?

Next question comes from R.J. Milligan with Raymond James.

First, Heath, I wanted to touch on the guidance, curious about the lease term piece. How much was in original guidance, and how much is there now embedded in guidance? I just would have thought after the term fee or the $7.5 million of term fees in Q1, the guide would have moved higher than that $0.01.

So we had visibility into that termination when we gave guidance. So we thought it was going to be about $0.02, and then we ended up negotiating it; we did better. So it turned out being $0.03. So that's why you're only seeing a $0.01 increase in the guidance from termination fees.

And so then what's included in guidance for the remainder of the year?

In terms of termination fees or…

Yes.

So in general, as you saw year-over-year, we said there was going to be one more $0.01 in 2025 versus '24 and sort of that recurring but unpredictable bucket. So now that's going to be $0.02. So if you do the math and go back, we do have some additional term fees, not nearly of this magnitude in guidance for the balance of the year, and we do have a land sale gain as well, which we have visibility into as well. So again, net-net $0.02 more of those type of items in guidance as opposed to 2024.

And then on the Legacy West transaction, I'm just curious how you guys deliberated between asset sales and using the proceeds for Legacy West versus buying back stock?

I think that's a great question. We find ourselves at a time when the stock price seems illogical. As you know, transactions like this require significant time to develop. If you look back to when we initially focused on this deal, our stock was priced much higher. More importantly, we genuinely believe that this iconic open-air asset is one of the finest in the country and rarely becomes available. There has been a significant amount of product on the market in recent months, but this opportunity stood out as the best due to its market value, the asset itself, and its quality. We thoroughly considered where to allocate our capital, and when assessing the potential for growth along with the asset's quality and the strength of our joint venture with GIC, it was clear that this was the right choice. We'll monitor how the remainder of the year unfolds and explore other opportunities, whether through similar initiatives or stock buybacks, depending on what proves to be the most effective use of capital. We are committed to making thoughtful decisions to the best of our ability at any given time. However, these situations can extend over multiple quarters, as you know.

And John, I'm going to push you a little bit, if that's okay. But based on your comments from the time that these transactions take, would it be fair to say that if your stock was currently trading where it is today that you would have considered instead of buying back stock?

It's difficult to speculate. However, if the deal were occurring today, the underwriting approach would likely be different. Ultimately, this situation is about the long-term value creation opportunity we see, which I still believe is the right focus. There is significant long-term value to be generated, and I think it will turn out to be very substantial.

Our next question comes from Daniel Purpura with Green Street.

The composition of your portfolio has shifted more to mixed-use properties now with the acquisition of RPAI and now Legacy West. Can you talk about the benefits of these properties over a traditional grocery-anchored center, and then do you see your portfolio or this portfolio shift continuing?

I want to emphasize the benefits we've discussed earlier, such as embedded rent growth, asset quality, and asset scarcity, which are particularly relevant to properties like Legacy West. The potential for value creation when entering these deals at below-market rents is significant. However, our portfolio remains diversified across various retail genres. Recently, we acquired a grocery-anchored center in West Palm Beach, Florida, and we continue to prioritize this strategy. Over time, we are looking to gradually shift away from centers that carry a higher percentage risk associated with the tenant boxes. This doesn't mean we'll exit that space entirely; rather, it will represent a smaller portion of our portfolio going forward. The goal of this strategy is to achieve improved cash flow growth and enhanced net asset value over time.

Our next question comes from Andrew Reale with Bank of America.

Just on leasing, have there been any changes in how you're approaching conversations with tenants and your leasing strategy overall in recent weeks? And I know you've had success pushing pretty favorable monetary and non-monetary provisions within your leases in recent years. But curious if there have been any areas in the lease negotiation lately where you're getting more pushback from tenants?

No, I mean, at this point, it's pretty much business as usual in the way that we operate with our customers, the retailers. And as we tell you all the time, we engage with them every single day. We mentioned in the prepared remarks that retailers, particularly the national retailers, when they're making decisions, they're thinking about decades of being in that particular property. And so they have to operate throughout the cycles. All that being said is the market is the market, and there is concern today, but it hasn't come to fruition at this point in terms of our negotiations. If anything, the scarcity of the product continues to put us in a very good place as it relates to negotiating. Tom, do you want to add?

I mean the only other thing I would add is I think we see our primary customers wanting to do more portfolio reviews. We actually have one tomorrow where a grocery company is going to assess some of their new target markets, and we're going to really dig into that. So I think if anything, we're seeing more interaction, more engagement with these customers to make sure they're able to jump on opportunities as well as us as we move down the road. So we are definitely not seeing a lot of changes at this point other than people really wanting to forecast out opportunities within our portfolio.

And then just on your active and future developments, how do you feel about yield building up just given the broader macro uncertainty and potential cost headwinds associated with tariffs?

Again, I mean, at this point in time, the yields have not been impacted by that, but we're very early into this process. So there may be some impact down the road. But generally, when there's impact from that, we are able to get better returns vis-a-vis the rents or other value engineering. But today, it's too early to see any impact from that.

Our next question comes from Alexander Goldfarb with Piper Sandler.

John, just following up on the previous question on leasing. Do you think that leasing is a good indicator over time of what's going on in the economy? And what I'm asking for is do you think that the continued strength we're seeing in retail is more driven by the dwindling availability versus strength of the underlying economy? Just trying to get a sense of how we should interpret the still strong leasing environment. If it's more lack of space or it's more, hey, retailers see great things in their business and they're continuing to expand?

Alex, I mean, I think it's a combination of lack of space and strength of the retail physical footprint for these retailers to make money. But right now, I would say that it still remains a pretty healthy environment because the product is scarce and the retailers, over the last several years, have really kind of morphed their businesses and are able to figure out how the whole multifaceted online, in-store, all that works. So right now, I think it's a combination. We'll see how this plays out over the next several quarters, but we're still in a pretty good place as of today.

I'd also add that during COVID, you saw a lot of these tenants shut down their real estate machine and they fired the real estate teams, and it was really hard to get it going again. So I think to remember and hey, listen, let's not overreact. This is likely a temporary situation. It's business as usual. Part of their growth depends on them opening up new units. So yes, it does feel a little turbulent. But I think the continued growth has been realizing that, as John said before, they're looking to make real estate decisions for 10, 15, or 20 years. And by definition, they are assuming there's going to be some point of a downside. So again, I think it's the tenants looking back and saying, you know what, let's hold the course and let's stick to our business plan.

And then the second question is, in your Slide 19, which I give you guys credit for is a great slide. So glad you guys put it out there. You talk about the potential for a special dividend based on the dispositions. And I'm just wondering, obviously, REITs have been pretty good at sheltering taxable gains. And apart from doing a 1031, I'm assuming you guys explored all other options to shelter any capital gains. In the current environment, retained cash is probably the most valuable asset you have versus a special dividend that I'm not sure you'd get much credit for. So just curious on your thoughts on that.

Well, we absolutely investigated ways to shelter any potential special dividend. And we say that it's likely required, so that's why we're not giving a range on it. But as you know, when you're purchasing an asset in a partnership, you can't use the 1031 fee sales. But with that said, there's other things like dividend throwbacks, et cetera, that we can use. So we are actively looking, and we have tremendously good tax advisers of ways to avoid it. But at the end of the day, when you step back, we don't think it's the worst use of capital. And if it's returning capital to our shareholders and we're doing this incredible transaction, and even after when we return that cash this is still accretive, it feels like that that's a great result all around.

I guess two questions. I guess the first one, it seems like between the asset sales and the JV seed funding, all those transactions are coming into a mid-7s cap rate. Is that indicative of I guess what you'd be selling properties at today?

I mean it's hard to say across the entire portfolio of what we'd be selling, but I think it's a reasonable kind of cap rate based on the type of products that we're selling. And we felt pretty good about that in terms of how we were growing the remaining cash. So yes, I think it's a reasonable assumption.

And I guess on occupancy, I think your economic/build occupancy was, call it, like in the low 91s in the first quarter. Where do you think that will trend by the end of the year?

We generally don't provide specific guidance on economic old lease occupancy at the end of the year. However, occupancy has dipped as we lose more leases due to bankruptcy, but we still have all of our JOANN locations. As we ramp back up, you can expect occupancy to start increasing again. In summary, those are the two main factors that will impact occupancy moving forward.

But we're on a very nice pace of backfilling these boxes. And so we're very hopeful that that will continue to increase through the balance of the year.

Our next question comes from Dori Kesten with Wells Fargo.

Are you able to quantify the fees that you'll receive through the, I guess, potential to GIC JV?

Dori, we're not ready to share those. But we set in our materials at their market so you can do a survey of various joint ventures and they're going to be in the ballpark.

And as you walk through your '25 small shop lease expirations, is it your expectation that your fixed rent bumps of 3% plus should continue to grow from the 92% that you achieved this past year?

I mean, I think if you look at the quarter-over-quarter results, we continue to make great progress there. Obviously, as the portfolio gets leased up, it ends up getting harder and harder to get the growth out of a tougher space to lease. But certainly, 3% north is a very comfortable place for us to assume that we're going to continue to do small shop leases.

Our next question comes from Wesley Golladay with Baird.

The JV helped you mitigate the risk of taking down a very large asset. And just kind of curious at what size of an asset would you want to bring in a JV partner?

I think it's probably deal by deal specific, Wes. But when you look at this particular asset, it felt like the appropriate size that we should be thinking about that. That being said, our share of the total deal is less than 10% of our undepreciated assets. So again, I think it's a large asset, but it's not crazy large. But I think in this range, you would see us consider that. I mean there's more to it than just the size, but in this range we would consider it.

And Wes, I'd add that one piece of it is a risk diversification. It's a large asset, so you bring a partner along. But also when you're looking at these large assets, your counterparty is thinking about the ability and the other side to perform. And I'll tell you that based on our joint venture with GIC, we weren't the highest bidder on this asset, and we were able to get the deal awarded to us because of the strength of the partnership. They looked at Kite's ability to execute along with GIC's ability to execute. And that's why we won the bid. So it's more than just risk allocation. It's also partnering with someone that's going to give you a better advantage on your underwriting and when you're submitting your bid.

And then I guess, maybe your other assets in the market. How much of that play into it as well where you can get the immediate synergies?

Yes, absolutely. I mean, as we mentioned, it was a big part of our underwriting of the asset was that we are a major player in the market. In fact, we own an asset across the street, essentially across the tollway. And then also the fact that we own South Lake, which is a similar asset, very dominant. Now all of a sudden, we own two of probably the top five open-air retail assets in Dallas. So that's a pretty major thing. And I think we can kind of cross-pollinate tenants across the board and hopefully just lift rents across the board.

And then from the Dallas market, there have been substantial opportunities today just in terms of what's out there. So we will definitely build on our momentum in this market.

And then one last one on the term income, the running through the non-same store. Is there base rent in Q1, not to flow it through and then also, when should we assume that tenant is backfilled?

So Wes, you kind of broke up. In terms of when that tenant gets backfill, it's an accurate response, I'll call it, 12 to 18 months as our average to backfill it. But I missed the first part of your question; you kind of cut out.

Is there anything in the runway run rate of the non-same store that we need to account for in the second quarter, and what should we estimate for mid to late 2026? What type of rent should we include in the run rate since it's not same store, and we don't have clarity on the situation there?

I think it's too early to say what the backfill rents are going to be, if that's the question.

Yes.

I think we lost a little bit and it's breaking up a little less. But I think it's a little early to tell what the backfill. I think the point is that we have a lot of capital from the lease termination to reinvest in whatever we do there.

Our next question comes from Linda Tsai with Jefferies.

In terms of sales productivity, how does Legacy West compare to Legacy East and South Lake? And is Legacy West the one with the most amount of luxury retail, because I know you highlighted those tenants as having higher mark-to-market rent upside?

I believe Legacy West would perform similarly to South Lake in terms of sales productivity, possibly slightly better, and is certainly stronger than Legacy East, which is currently undergoing a transition and has recently had a small redevelopment. Legacy East has significant potential for improvement, which is promising, and we will be managing these properties together. Overall, I see a lot of opportunity among the three properties, and our sales remain robust.

And is there a sense of how much luxury you have across the Kite portfolio?

I believe this will be the highest concentration in this specific asset, which is what we are excited about. One of the things we are looking forward to is that it introduces a completely new group of tenants for us. So yes, this will be the concentration at Legacy West.

And then how are you feeling about acquiring more for the rest of the year? Are you actually seeing opportunities now, or is it more like pencils down for a bit with the purchase of Legacy West?

I think we're always reviewing the market. Currently, we don't see anything that matches what we have accomplished here. However, the market is somewhat unsettled, and we anticipate changes over the next couple of quarters. We are always active in the market, and as we move forward, if there are more asset sales, we will need to evaluate our approach. But right now, there isn't anything we are pursuing that has the same quality and growth potential as Legacy West.

That concludes today's question-and-answer session. I'd like to turn the call back to John Kite for closing remarks.

Well, again, thank you, everyone, for joining us today. And we hopefully look forward to seeing most of you in the next month or so. Thank you.

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