Kite Realty Group Trust (NYSE:KRG) Q4 2022 Earnings Call Transcript

Linda Tsai: Thanks for the color. And then can you just remind us what a historical lease to build spread looks like and how many quarters it would take to normalize?

John Kite: I mean normally, that’s closer to 150 €“ max of 175 basis points. So, we are well above that, obviously. And it just depends on, historically, if you are more tilted towards the anchor side of that, that’s usually 12 months to 18 months to get a tenant back and get rent commencing. The small shops is less. So, I don’t have the actual spreadsheet in front of me that refers to that. But that’s kind of a macro big picture that we are definitely well above but shrinking, right. I mean it’s compressing. So €“ and that’s why we are very focused on leasing the small shops back to our high watermark of 92.5. There was a time where our high watermark was 90, where we sit today. It’s just that we push that to significant heights pre-COVID, and now we want to push it back. So, good thing as it’s all €“ it’s very opportunistic.

Heath Fear: The only thing I will add, Linda, John mentioned in his opening remarks that we still have the most remaining leasing upside of 150 basis points as compared to sort of pre-COVID levels. So, it’s really an exercise in how fast are you turning on leases versus how fast are you signing them. So, if we are successful this year in leasing anything close to the velocities we were leasing last year, I would expect that leased-to-occupied spread to remain elevated until that exercise is done and then see it more normalize towards the end of €˜24/’25. When we get back to that level, as John told you, 125 basis points to 150 basis points. So, that’s how we think about it.

Linda Tsai: Thanks.

John Kite: Thank you.

Operator: Thank you. And our final question for today is a follow-up from the line of Todd Thomas from KeyBanc. Your question please.

Todd Thomas: Yes. Hi. Thanks. I appreciate the time here. I just had two follow-ups. One, Heath, you mentioned that recoveries are expected to contribute about 100 basis points. And Kite has a higher percent of leases on Fixed CAM than peers. Is that what’s contributing to the higher recovery forecast in €˜23, or is it more a function of the higher occupancy?

Heath Fear: It’s higher occupancy. That’s the largest driver, Todd. Fixed CAM is certainly something that’s going to obviously improve our margins over time. But that takes a long time. And before the merger, we were around 50% of our leases have Fixed CAM in it, now we are around 35%.

John Kite: 41%.

Heath Fear: I am sorry, 41%. So, that’s going to be the gift that keeps on giving. And then the third thing is just operating more efficiently against that Fixed CAM initiative. So €“ but again, most of this is occupancy-driven for now. And the longer term benefits you will see as we get more Fixed CAM leases in place.