Kite Realty Group Trust

Good day, ladies and gentlemen, and welcome to the third quarter 2021 Kite Realty Group Trust earnings conference call. At this time, all participant lines are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will be given at that time. To ask a question, you will need to press star then one on your telephone. As a reminder, today's call is being recorded. If anyone should require operator assistance, please press star then zero. I would now like to turn the call over to your speaker today, Brian McCarthy, Senior Vice President of Marketing and Communications. Please go ahead.

Thank you, and good morning, everyone. Welcome to Kite Realty Group's third 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 a 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 Kite Realty Group are Chairman and Chief Executive Officer John Kite, President and Chief Operating Officer Tom McGowan, Executive Vice President and Chief Financial Officer Heath Feer, 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. I wanted to thank you for joining us on our call today. Before I begin, I want to thank the multitude of people on both sides of the merger that worked tirelessly to ensure the successful combination of these two high-quality and complementary real estate platforms. For those of you that were with us before the transaction, Please know that if it wasn't for all of the remarkable things that we've accomplished together over the past several years, none of this would have been possible. For those of our new team members, welcome aboard. I've enjoyed getting to know many of you over the past several months, and I've consistently been impressed with your positive attitude and exceptional professionalism. We're so excited to have you join us as we embark on this new era of excellence. This merger has been transformative for all of us, yet our motto remains unchanged. We are one team with one focus. As we began to come out of the depths of the pandemic, we talked about how KRG was positioned to seize upon any opportunities that may present themselves. It was that very same posture that made the merger with RPAI possible, resulting in one of the largest open-air owners in the country. Yet, despite the unprecedented stress and dislocation caused by COVID, and despite the immense undertaking of completing the merger that impacted every single person at KRG, we were still able to produce a phenomenal quarter of results. It all goes back to our three Ps, properties, processes, and people. And we absolutely excel on all three fronts. The quality of our results also speaks volumes about the health of the retail environment, the long-term viability of open-air retail real estate, and the durability of our cash flows. Our properties serve not only as a last-mile fulfillment hub for retailers, but as an access point for consumers and communities. The demand for our great real estate is evident not only in traffic, which is up versus 2019, but also in the accelerated leasing volumes and resulting spreads. We signed approximately 585,000 square feet in the third quarter, including seven anchor leases, three of which were grocers. In the past two quarters, we've leased over 1.2 million square feet, which are unprecedented levels for our legacy portfolio. Blended lease spreads were 20% 0.7% and 13.4% on a gap in cash basis respectively. Our lease rate continues to rebound and is now at 92.8% for the portfolio. This 130 basis point increase from last quarter is another indication of the continuing recovery in our operational and financial performance. The outsized leasing volume continues to widen our total retail portfolio lease to occupied spread to 400 basis points, with current signed not open NOI of approximately $14 million. Together with the legacy RPI portfolio, we have signed not open NOI of approximately $33 million. If you turn to page three of our investor presentation, which highlights the potential growth from re-leasing and active development, You'll notice that the $33 million represents almost half of that total amount. Said another way, our stock is significantly undervalued. One of the drivers behind the widening lease to occupied spread is the success we are experiencing in our anchor acceleration program. We signed another five anchor leases this quarter for a cumulative total of 12 anchor leases since the program's inception. These 12 leases are expected to generate average cash yields of over 26%, with comparable spreads of 14% on a cash basis. While the program is far from over, I am very pleased with the progress we've made. The specific details of our executed and potential anchor leases are laid out on page 21 of our investor presentation. Let's turn to a topic I'm sure you're all focused on. The merger of RPAI and KRG is a great strategic match that lines up perfectly with many of the macro trends we're seeing impacting our industry. First, as is with everything at KRG, it's about the real estate. As you can see from our operating results, our top quality assets are benefiting from being in high growth, warmer, and cheaper markets. These low tax and business-friendly geographies continue to benefit from the highest population growths and corporate relocations. This merger more than doubled the GLA and ABR that KRG owns in those markets. We now have nearly 60 percent of our ABR in warmer and cheaper markets, 40 percent of which belongs in Texas and Florida alone. An added benefit of the merger is that establishing a significant presence in select strategic gateway markets The combined portfolio now has 26 percent of value in super zip neighborhoods, the second highest percentage in the sector. Additionally, our portfolio mix of predominantly grocery-anchored neighborhood and community centers are now complemented by vibrant mixed-use assets, thereby providing greater optionality to help serve both retailers and consumers. Many of these mixed-use and lifestyle assets have experiential components that were disproportionately impacted by COVID and now are seeing a significant resurgence in demand while customers re-embrace the live, work, and play environment. A final benefit I'd like to point out is that KRG is now a top five open-air shopping center REIT. The increased scale provides numerous operational and capital market benefits. On the operational side, we'll be better able to serve retailers by having a balanced variety of additional high-quality assets. We also believe the combined operations platform will lead to increased NOI margins across the portfolio. On the capital market side, KRG will become a serial issuer of public bonds that will lower our debt costs and improve our risk profile. Likewise, the larger equity market cap will make our stock more liquid and expand the universe of potential equity investors. In addition to the accretion from the merger, synergies will create a significant economic impact from the merger, and Heath will address those momentarily. That being said, we are just as excited about the value of our new entitled land. Our development philosophy has never been, nor will it ever be, a mandate. We evaluate each project based on the needs of the underlying real estate, the timing of the development cycle, and the resulting risk-adjusted returns. Given this mantra, there are times when we may decide it's better to wait or take on a partner to pursue alternatives. One example is The Corner. We entered into a 50-50 joint venture to develop 285 apartment units and 24,000 square feet of ground floor retail. In doing so, KRGs sold the land to the venture, will earn development fees, and is expected to contribute no additional capital. We will use this discipline to examine all of our real estate, including the newly acquired entitled land, and determine the best course of action for each opportunity to maximize shareholder value. No matter what the course of action we will take, we will always keep in mind our best-in-class balance sheet. As part of our due diligence, we had a third-party value each of the entitled land parcels. We believe the approximate value of this entitled land, as is, with no additional spend, is between $125 and $180 million. That represents a tremendous opportunity for KRG to showcase our capital allocation prowess. Regarding the integration of the merger, we are making excellent progress. We were able to hit the ground running on day one due to our pre-closed planning. We not only determined what the combined team would look like, but each business unit had multiple meetings and established both how to integrate the team, their systems, and how to operate going forward. No integration of two companies is flawless, but we are very pleased where we are today. This is a testament to our people. We are a premier open-air shopping center REIT, and I am proud of the progress our team has made. KRG remains committed to its primary focus of continuing to grow operating cash flows. The completed merger paired with a strong corridor of operational results is another step in the right direction. Thank you again to the KRG team for their hard work and dedication. I can't emphasize enough how excited I am about the processes, properties, and especially the people of KRG. I'll now turn the call over to Heath and provide more color on our quarterly results and balance sheets.