Kite Realty Reports Increased FFO

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Indianapolis-based Kite Realty Group Trust (NYSE: KRG) is reporting third quarter Funds From Operations of $24.7 million, compared to $14 million during the same quarter the previous year. Chief Executive Officer John Kite says the company now has "the strongest balance sheet in our history."

November 3, 2014

News Release

Indianapolis, Ind. -- Kite Realty Group Trust (NYSE:KRG) (the "Company") announced today its operating results for the third quarter ended September 30, 2014. All share and per share amounts in this release and in the exhibits have been restated for the effects of the Company's one-for-four reverse share split in August 2014.

Third Quarter Highlights

As adjusted for merger and acquisition costs, FFO was $43.8 million, or $0.51 per diluted common share, for the third quarter of 2014

Same property net operating income growth of 4.7%

Positive aggregate cash rent spread of 14.4%

Announced definitive agreement to sell a 15-asset portfolio for gross proceeds of approximately $318 million

In October, received investment grade credit ratings from Moody’s and Standard & Poor’s of Baa3 and BBB-, respectively

"The closing of the third quarter marks a marquee time for the Company and we are pleased to report our strong performance," said John A. Kite, Chairman and CEO. "We delivered on our stated objectives and previously announced financial targets, while remaining focused on our core strategic goals. This quarter, with the merger and full integration process behind us, we were able to deliver exceptional operating results."

"We now have the strongest balance sheet in our history. We have reduced our net debt to EBITDA to approximately 6.5x, and by executing on our balance sheet strategy, we were able to achieve investment grade credit ratings. We continue to enhance our portfolio, highlighted by our recently announced 15-asset disposition, which capitalizes on the current transaction environment. This quarter’s results underscore the significant steps the Company has taken, and we remain extremely optimistic about the future for the new Kite."

Third Quarter Financial Results

For the three months ended September 30, 2014, FFO was $24.7 million, or $0.29 per diluted common share, for real estate properties in which subsidiaries of the Company’s operating partnership owns an interest (the "Kite Portfolio"), compared to $14.0 million, or $0.56 per diluted common share, for the same period in the prior year. As adjusted for costs associated with our completed merger with Inland Diversified Real Estate Trust ("Inland Diversified"), FFO for the three months ended September 30, 2014, was $43.8 million or $0.51 per diluted common share for the Kite Portfolio, compared to $13.1 million, or $0.52 per diluted common share, for the same period in the prior year. The reduction in FFO was primarily driven by certain one-time items.

For the nine months ended September 30, 2014, FFO was $51.8 million or $1.00 per diluted common share for the Kite Portfolio, compared to $35.5 million, or $1.50 per diluted common share for the same period of the prior year. As adjusted for merger and acquisition costs of $26.8 million, FFO for the nine months ended September 30, 2014 was $78.7 million, or $1.52 per diluted common share for the Kite Portfolio, compared to $34.8 million, or $1.47 per diluted common share, in the same period of the prior year, which is adjusted for certain one-time items.

Net loss attributable to common shareholders for the three months ended September 30, 2014, was $16.4 million compared to a net loss of $0.9 million for the same period in 2013. Net losses attributable to common shareholders during the three months ended September 30, 2014, and September 30, 2013 includes merger and acquisition costs of $19.1 million and $0.2 million, respectively.

Net loss attributable to common shareholders was $19.3 million for the first nine months of 2014, compared to a $9.6 million net loss in the same period of the prior year. Net loss in the current year includes merger and acquisition costs of $26.8 million, offset by gains on sales of operating properties totaling $9.5 million. The prior year’s net loss included a $5.4 million impairment charge.

Portfolio Operations

As of September 30, 2014, the Company owned interests in 126 operating properties totaling approximately 25.6 million square feet. The owned GLA, excluding ground leases and non-owned anchors, in the Company’s retail operating portfolio was 94.9% leased as of September 30, 2014, compared to 95.2% as of June 30, 2014 and 95.9% leased as of September 30, 2013.

Same property net operating income, which includes 50 operating properties, increased 4.7% in the third quarter of 2014 compared to the same period in the prior year. The leased percentage of these properties increased to 96.4% at September 30, 2014, from 96.1% at September 30, 2013.

The Company executed 64 leases totaling 424,516 square feet during the third quarter of 2014. There were 51 comparable new and renewal leases executed during the quarter for 320,551 owned square feet. Cash spreads on new leases executed in the quarter were up 43.9%, while cash spreads on renewals were up 6.3% for a blended spread of 14.4%.

Real Estate Activity

Development

As of September 30, 2014, the Company owned interests in three development projects under construction, estimated to total over 720,000 square feet, including Phase II of Holly Springs Towne Center and Phases I and II of Parkside Town Commons, all near Raleigh, North Carolina. Phase II of Holly Springs Towne Center is anchored by Carmike Cinemas, Bed Bath & Beyond and DSW. Parkside Town Commons Phases I and II are anchored by Target, Frank Theatres, Harris Teeter, PETCO, Golf Galaxy and Field & Stream. Notable tenant openings in the quarter included Dress Barn at Holly Springs Towne Center and PETCO, Golf Galaxy and Field & Stream at Parkside Town Commons.

These projects were in the aggregate 74.3% pre-leased or committed as of September 30, 2014, with a total estimated cost of approximately $156.5 million, of which approximately $111 million had been incurred as of September 30, 2014.

Redevelopment

The Company substantially completed Bolton Plaza in Jacksonville, Florida, a 155,000 square foot shopping center. This redevelopment included a repositioning of existing space and was transitioned to the operating portfolio during the quarter. Academy Sports and LA Fitness occupy the former Wal-Mart building and Panera Bread is also a tenant at the center.

In addition, Gainesville Plaza in Gainesville, Florida consists of 165,000 square feet, of which 81.6% is pre-leased or committed as of September 30, 2014. The property is anchored by Burlington Coat Factory, which opened during the quarter, and Ross Dress for Less.

Dispositions

On September 16, 2014, the Company announced it had entered into a definitive agreement to sell 15 operating properties. The sale is expected to close in two tranches on or before December 15, 2014, and March 16, 2015, respectively, subject to the satisfaction of customary closing conditions. The disposition includes properties either located in non-core markets or deemed non-core by the Company from a qualitative perspective. The proceeds will initially be used to retire debt and will provide capital to later be deployed into acquisition opportunities in markets which can increase scale and asset quality, consistent with the Company’s operating strategy.

Also in the third quarter, the Company sold Zionsville Walgreens for $7.35 million. This sale continues to reduce the Company’s exposure to single tenant assets.

Distributions and Shareholders’ Equity

On September 19, 2014, the Board of Trustees declared a quarterly cash dividend of $0.26 per common share, which was paid on October 13, 2014 to shareholders of record on October 6, 2014.

On August 7, 2014, the Board