Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kite Realty Group Trust (KRG, Financial) achieved the lowest leverage levels in its history, with net debt to EBITDA at 4.8 times.
- S&P upgraded KRG's credit rating to BBB, marking the third positive revision from rating agencies in 2024.
- KRG reported an 8.3% year-over-year increase in its dividend, reflecting increasing levels of taxable income.
- The company's lease rate increased by 80 basis points sequentially, with 15.6% comparable blended cash spreads.
- KRG's signed not opened pipeline grew by $3 million this quarter to $35.3 million, indicating strong future growth potential.
Negative Points
- Despite the positive outlook, KRG's leasing costs are expected to remain elevated for the next 18 to 24 months.
- The spread between leased and occupied space grew to 320 basis points, which is higher than the historical average.
- KRG sold Ashland and Roosevelt in Chicago for approximately $31 million, indicating a potential shift in asset strategy.
- The company anticipates a moderation in same-property NOI growth in the third quarter before accelerating in the fourth quarter.
- KRG's balance sheet improvements and low leverage levels may limit its ability to leverage up for growth opportunities in the near term.
Q & A Highlights
Q: Can you talk a bit more about if your appetite to lever up to fund growth has changed at all now that your credit profile is a bit stronger? And where do you think you could price a 10-year bond today?
A: (John Kite, CEO) With our current leverage at 4.8 times net debt to EBITDA, we have significant flexibility for future opportunities. We could increase leverage to mid or low fives if the right opportunity arises, generating significant growth in the right interest rate environment. (Heath Fear, CFO) Current indicative pricing for a 10-year bond would be around 145 basis points plus or minus 10 basis points.
Q: Can you provide more color on the rationale and cap rate for the Ashland and Roosevelt disposition?
A: (John Kite, CEO) The asset was no longer core to our portfolio, and we found a buyer at an attractive price. We plan to redeploy the capital into a grocery-anchored center in the Southeast. Cap rates have moved down rapidly, and most transactions are in the mid-high fives to low sixes.
Q: What are the drivers behind the 50 basis points upward revision in same-store growth?
A: (Heath Fear, CFO) The increase is due to lower bad debt, higher retention, and the removal of an asset held for sale.
Q: Can you provide an update on the status of the Stop & Shop locations and potential backfill opportunities?
A: (John Kite, CEO) We have activity on both locations with interested parties, but it's too early to provide specific details.
Q: When should we expect the spread between leased and occupied space to start closing?
A: (John Kite, CEO) The spread will remain elevated for the next three quarters but will start declining, potentially reaching around 250 basis points by the end of next year.
Q: Can you explain the guidance for slowing same-store NOI growth in the third quarter and accelerating in the fourth quarter?
A: (Heath Fear, CFO) The third quarter has a strong comp from last year and includes prior period collections. The fourth quarter will benefit from easier comps, no Bed Bath & Beyond rent, and the activation of our signed not opened pipeline.
Q: Are there more non-core assets you can sell into the current market?
A: (John Kite, CEO) We maintain a balanced approach to acquisitions and dispositions. Given the current market conditions, we could lean more into selling non-core assets if it makes sense for the portfolio's long-term quality and growth profile.
Q: Are you seeing any cracks in consumer spending affecting your centers?
A: (John Kite, CEO) We are not seeing any significant impact. Our tenants, particularly large national retailers, have strong balance sheets and are looking at long-term growth. Smaller tenants also show strong demand for space.
Q: What's the expectation for when the released Bed Bath & Beyond boxes will start paying rent?
A: (Heath Fear, CFO) Some will come online this year, with the majority coming online in 2025. We expect to have all but four locations addressed by the end of this year.
Q: Is there any consistent theme among small shop leases that aren't achieving rent bumps over 3%?
A: (John Kite, CEO) There is no consistent theme; it varies case by case. Factors could include individual deal dynamics, credit profiles, or dealing with large national players.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
