Kite Realty Group Trust

Ladies and gentlemen, thank you for standing by, and welcome to the second quarter 2020 Kite Realty Group Trust earnings conference call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star, then 1 on your telephone keypad. Please be advised that today's conference may be recorded. If you require operator assistance, please press star, then 0. I'd now like to hand the conference over to your host today, Mr. Brian McCarthy, Senior Vice President, Marketing and Communications. Please go ahead.

Thank you, and good morning, everyone. Welcome to Kite Realty Group's second 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 10Q. 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 Cutt. President and Chief Operating Officer, Tom McGough. 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, Jason Colton. I will now turn the call over to John.

Thanks, Brian, and good morning, everyone. Thank you for joining us today. KRG family appreciates this continues to be a challenging time for everyone, including our investors, tenants, customers, and vendors. I hope this call finds you all doing well. With the global scientific community racing towards a variety of solutions to the COVID-19 pandemic, we're feeling incrementally more optimistic as compared to our last earnings call. As always, our goal is to provide as much transparency and color as possible within the context of the information we have to date. With that in mind, we'll spend some of the time today discussing the short-term dislocation and our rent collection activities during the second quarter and for July. As for the long-term impacts of this pandemic, the unknowns, especially as it relates to the timing of a solution, still outweigh the knowns. But we are starting to see some encouraging green shoots and emerging trends that present potential long-term opportunities for our business. Prior to the past March, we could have never imagined an environment where monthly rent collection rates would serve as a proxy for portfolio quality and management team determination. As of today, we've collected 80% of our second quarter gross rent which grows to 82% when applying security deposits. An additional 9% of our second quarter gross rent have been contractually deferred. Therefore, we have 91% second quarter gross rent addressed, which speaks volumes on how retailers view the necessity of staying in our real estate. As for July, we've collected 87% of gross rent to date, along with another 2% in deferral agreements. We're pleased with our sector-leading collection performance as a look-through to the portfolio transformation that took place last year, the tenacity of the KRG team, and the depth of our tenant relationships. With that in mind, I can assure you we will continue to maximize collections. As of today, 94% of our ABR is open and operating in some capacity, up from approximately 51% in April. With respect to the remaining 6% that are closed, 3% have not been able to reopen due to local restrictions, including some of our gym and theater tenants. Approximately 3% of our tenants have chosen not to reopen, and in some instances, the tenant is unable to hire back the staff, or the tenant has made the determination that it's unprofitable to operate until such time as further regulations are lifted. So what's this all mean for the longer-term prospects of our business. As I mentioned earlier, it's too early to answer that question with any level of conviction. We are, however, beginning to see some silver linings that we think bode well for KRG and for the open-air retail sector. As the pandemic began to take hold in March, predictably, leasing came to a screeching halt. As the quarter progressed and the world was able to grasp the weight of the pandemic, leasing discussions restarted. and successful retailers continued their quest for additional and or better locations. In the second quarter, despite the disruption, we signed 35 leases for 302,000 square feet, with comparable leases resulting in a blended cash and gap rent spreads of 19.9% and 29.3% respectively. One key metric to consider is the spread on non-option renewals, which is what tenants are willing to pay to stay in their current space. In the second quarter, we signed 15 non-option renewals for an average 12% cash rent spread. These tenants in the middle of a pandemic decided to pay 12% more in rent to remain in their space, another testament to owning properties where retailers want to be located. I'd like to now shift to what I believe will be four long-term trends in retail real estate. These changes had already been happening, but the pandemic has accelerated their realization. Each of these will be positive for high-quality retail real estate, particularly in our open air portfolio. First, the demise of struggling retailers has accelerated. As we've seen, the pandemic has pushed some struggling retailers to close their doors. While disruptive in the short term, this is a positive in the long term. It will allow for the replacement of zombie retailers with new, active, growing concepts. Good real estate will benefit as new retailers flock to fill vacancies left from failed retailers. This is not new to retail real estate, as new concepts have replaced old, outdated retailers for decades. Second, retailers have ramped up their omnichannel abilities. Many retailers had already realized that omnichannel was the best way to accelerate sales, but the pandemic has made the majority of those not quite convinced realize they need to fully invest in their omnichannel capabilities. There are many reasons why retailers need both physical stores and an online presence to maximize their sales. Our investor presentation outlines these reasons in more detail. Third, buy online, pick up in store has spiked during the pandemic and expanded to curbside pickup. Larger retailers had already started to implement BOMPUS as a more profitable way to sell goods. There are no shipping costs, reduced checkout costs, and the opportunity for the customer to buy additional items during the visit. One byproduct of our socially distanced world is that many consumers have experienced focus and the ease at which open air centers enable customers to quickly fulfill their purchases. We believe the ability for customers to purchase items online, drive up to the store, and quickly get their goods is here to stay. To that end, KRG has created designated order pickup areas at most of our centers to assist retailers in their ability to fulfill buy online and pick up in store and curbside orders. Our tenants in turn have gotten increasingly creative by pushing electronic advertisements and coupons to create additional sales while the customer is in the center. It's also important to note that this type of fulfillment is particularly suited for our open-air real estate. This brings me to the final observation. Going forward, we anticipate that the rosters of retailers looking for space in our centers will grow. Based on conversations we've had with multiple large national retailers, there's a renewed focus on speed and convenience as essential ingredients to a successful omnichannel strategy. These retailers are also focused on the additional foot traffic that would result in being in a conveniently located open-air center, particularly one with a grocery component. In addition to convenience, we're able to offer these retailers attractive rents and common area charges, thereby improving their margins. This pandemic has been the most disruptive global event that I've witnessed. Its ability to slowly grind away our collective patience and generate unprecedented levels of personal and professional stress is second to none. At KRG, we keep reminding ourselves that disruption breeds opportunity, and amidst the chaos, we've made a conscious effort to channel our short-term frustrations towards unlocking those long-term opportunities. I'll now call, turn the call over to Heath to discuss the balance sheet in our current capital situation.