Kite Realty Group Trust

Thank you for standing by and welcome to Kite Realty Group Trust fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star zero. I would now like to hand the conference over to your host, Senior Vice President, Corporate Marketing and Communication, Brian McCarthy. Please go ahead.

Thank you and good morning everyone. Welcome to Kike Realty Group's fourth 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 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 thank you, everyone, for joining us today. While we've certainly been looking forward to this call today for quite some time, Today is our first opportunity to truly quantify and articulate the benefits of our highly accretive merger. We closed on the transaction in late October, and since then have been working tirelessly to complete the integration and implement KRG's culture and operating philosophy across the combined organization. The timing of the merger was impeccable, and KRG was positioned perfectly to take advantage of the opportunity. it's now become clear that the merger is even better than we anticipated. Today I'm going to speak about three horizons of opportunity for KRG. Those opportunities that are immediately in front of us, those that will cultivate over the next 18 to 24 months, and those that will materialize over the long term. The most immediate benefit of the merger, of course, is the significant earnings accretion. As set forth in our press release, We're providing 2022 full-year FFO as-adjusted guidance of $1.69 to $1.75. Heath will give additional color as to the underlying assumptions. As mentioned in our press release, the midpoint of our guidance represents a 33 percent increase over KRG's full-year 2020 FFO per share. While we've only owned the legacy RPA assets since October 22nd, we quickly jumped headfirst into attacking operational efficiencies with an intense focus, as always, on our leasing efforts. Against the backdrop of strong demand from a deep and diverse set of retailers, KRG is experiencing significant leasing momentum across all of our open-air product types. In fact, we're noticing that national retailers are now looking more intently for space across the open air spectrum, which dovetails nicely with our high quality and well-located properties. These positive trends are readily evidenced in our fourth quarter and full year leasing results. During the fourth quarter, KRG leased over 900,000 square feet, at a very strong 12.9% blended cash spread on comparable new and renewal leases. The blended spread on our fourth quarter comparable non-option renewals was 10.2%. This is a strong indicator of where market rents are headed for the KRG portfolio. For the full year, KRG leased over 2.6 million square feet at blended cash spreads on a comparable deals of 10.7%. As a reminder, those leasing statistics, including the leasing activity from the legacy RPAI portfolio, are since October 22nd. If we include the activity from the legacy RPAI assets for all of 2021, we leased over 5.1 million square feet for the combined portfolio. Based on this progress, our retail lease percentage stands at 93.4 percent, up 220 basis points over last year, and yet we still have significant upside. The portfolio has signed not open NOI of approximately $33 million. which will primarily come online during the back half of 2022 and the first half of 2023. This bodes extremely well for our growth trajectory going into 2023, as the rents from all these leases will be fully annualized. The good news is that the $33 million of signed not open NOI represents about half of the near-term leasing related NOI opportunity. As detailed in our investor presentation, leasing our active developments and the balance of the portfolio to pre-pandemic levels, which is very achievable in the current environment, would equate to an additional $34 million of NOI coming online over the next few years, over and above the $33 million of signed not open NOI. Our increased scale and improved balance sheet represent a host of immediate opportunities, including the potential for lower debt costs, increased liquidity in our stock, and enhanced relevance with our tenants and vendors. We are marching toward completing the active development projects detailed in our supplemental. It's important to note that we re-evaluated every in-process legacy RPAI project solely on a forward-looking basis. Based on KRG's underwritten incremental NOI related to the active developments, we are anticipating very solid returns. We're meticulously reviewing the land bank, also disclosed in our investor deck, in addition to a multitude of other opportunities embedded within the KRG portfolio. We have learned over the years that each project is unique and requires a customized approach in order to achieve the best risk-adjusted returns. Sometimes that means bringing in an experienced JV partner or monetizing the land. For example, during the quarter, we entered into an agreement with Republic Airways to develop a new $200 million corporate campus on an outdated retail location owned by KRG in Carmel, Indiana. We knew the highest and best use of the land was no longer retail. Therefore, we sold a portion of the land to Republic for approximately $7 million and will serve as the master developer of their campus. KRG will not only receive a sizable development fee, but also a profit component, all the while putting zero KRG capital at risk. The cash from this development will be recycled into an income-producing investment, a big win for KRG on a site that was not generating any NOI. This is one of several examples detailed in our investor presentation where KRG creatively generated high-risk adjusted returns for our shareholders. I'm very optimistic about the long-term outlook. It should come as no surprise that in the near term, we will be spending a significant amount of capital on leasing. Looking beyond the next few years, we begin to generate substantial additional free cash flow while also naturally deleveraging. We're setting up to be in a very liquid and favorable position with a net debt to EPIDA in the low to mid five times. While I can't predict the macro environment, I'm confident we will be ready to respond aggressively regardless. Before I turn the call to Heath, it's important that I note all the great opportunities that I just outlined are ancillary benefits of the merger. We did this deal because we loved the real estate and saw significant upside potential, period. Having been in this business for over 30 years, having visited nearly every legacy RPAI asset, I can unequivocally tell you that the quality of our portfolio improved by virtue of the merger. When I see what's happened in the private market valuations over the past six months, I couldn't be happier with respect to the timing of our transactions. We doubled down on the amount of GLA that we have in our warmer, cheaper markets. These markets continue to benefit from household and employer migration, which is a trend we don't see changing anytime soon. We have a sector-leading presence with over 60 percent of our ABR in these markets, 40 percent alone being in Texas and Florida. The merger also provided KRG with a new or enhanced scale in key gateway markets such as Washington, DC, New York, and Seattle. These world-class cultural, educational, health, and lifestyle hubs have endured the test of time and are home to many of the opportunities that we discussed. In summary, there's nothing better than owning high-quality assets in high-quality places. As the world opens back up, I encourage each one of you to join us on a property tour and see the quality firsthand. And as always, I want to thank the entire KRG team for their hard work and dedication. KRG is nothing without our tremendous people. I can't emphasize enough how excited I am about what we've accomplished as a team, but more importantly, what we'll accomplish together in the future. I'll now turn the call to Heath to provide more color on the quarterly results.