Hongliang Zhang

Hongliang Zhang sought clarification on whether the $115 million of non-core asset sales expected later in the year includes City Center and the rough dollar amount anticipated from the City Center disposition. He also asked for color on the potential magnitude of a second bucket of dispositions compared to last year's sales.

Answer

Chairman and CEO John Kite confirmed that the $115 million includes City Center, with an expected disposition amount in the mid-fifties. He stated that the company is studying the potential for another transaction similar in *type* of product to last year's dispositions, rather than necessarily in total magnitude. EVP and CFO Heath Fear added that with the current FFO yield at 8%, which is wider than asset sale yields, it is strategically important to consider further portfolio upgrades.

Hongliang Zhang sought clarification on whether the $115 million of non-core assets expected to be sold later in the year includes City Center, and if so, the rough dollar amount expected from its disposition. He also asked for color on the potential magnitude of a 'second bucket' of dispositions compared to the sales completed last year.

Answer

Chairman and CEO John Kite confirmed that City Center is included in the $115 million of non-core dispositions, with an expected rough dollar amount in the mid-fifties. Regarding a potential second bucket of dispositions, John Kite clarified that the company is studying something similar in the *type* of product to what was sold last year, rather than necessarily the total *magnitude*. He emphasized that any such move would depend on tax harvesting and opportunities to ultimately be accretive to the business's value. EVP and CFO Heath Fear added that the current FFO yield (8%) compared to asset sale yields makes considering further dispositions a strategic imperative.

Hongliang Zhang of JPMorgan Chase & Co. requested guidance on how the joint venture accounting would affect the income statement for the rest of the year and asked about volatility in non-cash rent.

Answer

CFO Heath Fear directed the analyst to the supplemental package, which provides a consolidated breakdown of the JV components, although they are netted on the income statement's unconsolidated line. He explained that while non-cash rent can have natural lumpiness, a one-time acceleration related to a Big Lots bankruptcy was a specific factor in the current quarter.

Hongliang Zhang of JPMorgan Chase & Co. asked for guidance on how the equity and JV line items on the income statement should trend following the two GIC JVs. He also questioned if there were any one-time items affecting the non-cash rent figures in the quarter.

Answer

CFO Heath Fear directed him to the new presentation in the supplemental, which provides a consolidated view of all unconsolidated JVs with individual line items. He also confirmed that while there is natural lumpiness in non-cash rents, there was a one-time acceleration related to a Big Lots bankruptcy in the quarter.

Hongliang Zhang of JPMorgan Chase & Co. asked for guidance on how the joint venture line item in the income statement would trend for the rest of the year. He also questioned if recent volatility in non-cash rents was due to one-time bankruptcy-related items.

Answer

CFO Heath Fear advised that the supplemental package provides a detailed, consolidated breakdown of the JV contributions. He also confirmed that the lumpiness in non-cash rent was partly due to a one-time acceleration from the Big Lots bankruptcy but stated it should not be overly volatile going forward.

Hong Zhang asked if the mid-7s cap rate on recent dispositions is indicative of the current market and inquired about the expected trend for economic occupancy by year-end.

Answer

CEO John Kite confirmed that a mid-7s cap rate is a 'reasonable assumption' for the type of assets KRG is currently selling. CFO Heath Fear did not provide specific year-end occupancy guidance but noted it would likely dip due to tenant bankruptcies before recovering as backfills commence. COO Tom McGowan added that the pace of backfilling these spaces is strong.

Hongliang Zhang asked for the outlook on pricing power and demand for next year and inquired about quantifiable cost savings from the LSI rebranding.

Answer

CEO Joseph Margolis stated that the 2025 outlook depends on macro factors but expressed confidence in the company's ability to optimize performance. He quantified one key saving from the rebranding: a $10 million annual reduction in paid search marketing spend for LSI stores once they achieve brand parity with EXR.