Kite Realty Group Trust

Good day and thank you for standing by. Welcome to the Q1 2021 KITE Realty Group Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchstone telephone. I would now like to turn the conference over to your host, Mr. Brian McCarty. Please go ahead, sir.

Thank you, and good morning, 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 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 Tite Realty Group Our 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, Jason Colton. I'll now turn the call over to John.

Thanks, Brian, and good morning, everybody. Thanks for joining us today. Spring's here, and we're feeling particularly optimistic, and it really doesn't have anything to do with the improving weather. For the first time in over a year, the news regarding COVID is predominantly positive. As we sit here today, over 50% of adults in the U.S. have at least one vaccine shot, and at the current pace, there's potential for 90% of adults in the U.S. to be vaccinated by summer. We realize that the global progress against the pandemic is uneven, but I am very encouraged on what we're experiencing here on the home front, especially in our target markets. Our tenants are open and operating. Our collections continue to be sector leading up to 97% this quarter, and the velocity of demand for our well-located centers is accelerating. We had another very strong quarter of leasing, signing over 426,000 square feet of space, at blended lease spreads of 12.2% and 6.4% on a gap basis and cash basis, respectively. Excluding a single strategic anchor renewal, we realized blended leasing spreads of 16.7% and 10.5% on a gap and cash basis, respectively. As we mentioned in our last call, the strong leasing will cause the spread between our lease and occupied rates to widen. Our current sign not open NOI is approximately $10 million, which will come online in late 21 and early 22. Another impressive aspect of the new leases is the quality of tenants we are signing. This quarter, our portfolio gained another total wine and more at Cool Creek Commons in Indianapolis and another Aldi at our newly acquired Eastgate Crossing Community Center in Chapel Hill. The latter addition makes Eastgate Crossing a very unique dual grocery anchored center, with Aldi joining the existing Trader Joe's. As we told you last quarter, we've got great expectations for Eastgate Crossing and all of our assets in Raleigh. Speaking of Raleigh, as I'm sure you've all heard earlier in the week, Apple announced the creation of a $1 billion East Coast campus in the Research Triangle Park located in the Raleigh-Durham MSA. KRG will be a direct beneficiary of this announcement as we own Parkside Town Commons, a 350,000 square foot Target and Harris Teeter Anchored Center that is adjacent to the future campus. Assuming an average salary of $187,000, the 3,000 new employees will generate over 550 million of annual spending power. Not only is this great news for Parkside Town Commons, it reinforces the migration to warmer and cheaper markets such as Texas, Florida, and North Carolina. We're even seeing this play out in the reallocation of congressional representatives with those same three states adding seats. With the announcement of the Weingarten-KIMCO merger, KRG is now the most compelling way to directly invest in Sunbelt Open Air Retail Real Estate. 78% of our ABR is located in the south and west. Our next closest peer has less than 50% of their ABR in those same markets. We're proud that our strategy is paying dividends, and we continue to prudently look to expand our exposure to these markets. As we discussed on our fourth quarter call, we partially match-funded our Eastgate acquisition by selling 17 ground leases for a combined $41.8 million. One out parcel is awaiting final subdivision approval and should close next quarter. This trade demonstrates our commitment to maintaining our low leverage while at the same time acquiring accretive opportunities. In terms of our portfolio lease rates, we believe we're at or near the low watermark. On the anchor front, we've already executed four leases and are negotiating multiple leases on the remaining 23 vacant boxes. Anchor acceleration is off to a very strong start. You can see the economic opportunity on page 21 of our investor presentation. As we discussed last quarter, assuming the current ABR for our in-place anchors, there's a potential mark-to-market of nearly 20%. To increase transparency, we've added page 22 in the sub so you can track our progress as we lease up boxes. The four leases signed to date have achieved a 12% lease spread and over a 40% return on capital. These metrics also provide confirmation. that KRG remains focused on return on capital, not buying up lease spreads. As we've said before and I'll say again, we're very focused on maximizing total return to our stakeholders. We believe the market does not fully appreciate the potential upside in our NOI, given the robust current leasing environment. Please keep in mind that while KRG had some of the highest occupancy dislocation in our sector, our revenue decline was one of the lowest. This means that low-paying, often dying tenants have finally left our centers. Not only should this enable us to outperform when it comes to NOI growth, but it allows us to create value by upgrading tenancy, which often results in cap rate compression for the property. In order to demonstrate the potential magnitude of this releasing opportunity and what it can mean to KRGs forward NOI, we've provided new detail in our investor presentation. As shown on page four, We have the potential to increase our NOI by roughly 14% simply by leasing up vacant space to pre-COVID levels at current portfolio ABR. Please note we aren't saying that's a guaranteed outcome or providing any sort of forward guidance. We're simply doing the math using information from our supplement to show investors what's possible. Before I turn the call over to Heath, I want to again thank the entire KRG team and I really can't express enough gratitude to the men and women of KRG. The strength of our operations is impossible without them. There are very good times ahead for KRG, and I cannot wait to see what the future holds for us. Now I'll turn the call to Heath.