The chief executive officer of Indianapolis-based Kite Realty Group Trust (NYSE:KRG) says a $2.1 billion merger agreement with Illinois-based Inland Diversified Real Estate Trust Inc. will lead to growth in “attractive” new markets. John Kite also says the deal “substantially” boosts the company's portfolio. The deal is expected to close later this year and the combined operation will be headquartered in Indianapolis. February 10, 2014

News Release

INDIANAPOLIS, Ind. – Kite Realty Group Trust (NYSE:KRG) (“Kite Realty”) announced today that it has signed a definitive merger agreement with Inland Diversified Real Estate Trust, Inc. (“Inland Diversified”), pursuant to which Inland Diversified will merge with and into a wholly owned subsidiary of Kite Realty in a stock-for-stock merger with a transaction value of approximately $2.1 billion and an equity value of approximately $1.2 billion (the “Merger”). The Merger is currently expected to close late in the second quarter or in the third quarter of 2014, subject to the approval of shareholders of both companies and the satisfaction of other customary closing conditions.

The Merger brings together two highly complementary shopping center retail portfolios with a combined asset base consisting of 131 properties totaling 20.3 million owned square feet across 26 states. The combined company will have a total equity market capitalization of approximately $2.1 billion and an enterprise value of approximately $3.9 billion, based on the closing trading price of Kite Realty’s common shares on February 7, 2014.

John A. Kite, Kite Realty's Chairman and Chief Executive Officer said, “We are extremely pleased to announce what is a transformational transaction for our company. Inland Diversified has assembled a very well located, high quality portfolio. The asset and tenant quality and strong demographic profile will be a great complement to our portfolio. With this transaction, we will be able to substantially increase the size and scale of our portfolio in our core markets and enter into attractive new markets. This transaction will further strengthen our balance sheet and enhance our cash flow, positioning us favorably for future growth and shareholder value creation.”

Strategic and Financial Benefits

Kite Realty expects the Merger to result in a number of strategic and financial benefits for Kite Realty shareholders:

High Quality Portfolio with Attractive Valuation. Inland Diversified’s portfolio is comprised of 57 retail properties that are 95.3 percent leased as of December 31, 2013. The portfolio, which has high quality assets and a strong tenant base, is located in very desirable markets with higher annualized base rent and enhanced demographics compared to the existing Kite Realty portfolio. The valuation of the transaction is compelling, with a projected 6.6 percent 2014 estimated cash capitalization rate and an implied purchase price of approximately $195 per square foot, which Kite Realty believes to be significantly below replacement cost.

Increased Size, Scale and Diversity. The transaction will enable Kite Realty to significantly increase the size and scale of its business in its existing core markets and provides entry into attractive new markets, including Westchester (NY), Bayonne (NJ), Las Vegas (NV), Virginia Beach (VA) and Salt Lake City (UT). The number of Kite Realty properties will increase from 74 to 131, and the total portfolio size will increase from 10.1 million owned square feet to 20.3 million owned square feet. Kite Realty also intends to improve operations and create value through its extensive redevelopment and repositioning capabilities.

Enhanced Balance Sheet and Liquidity. The transaction will materially improve Kite Realty’s leverage, debt service coverage and other credit metrics. The company’s pro forma net debt to 2014 estimated adjusted EBITDA is expected to improve from 7.3x to 6.5x. Kite Realty shareholders also will enjoy a substantial increase in public float and shareholder liquidity.

Cost Savings and De-Risking. Kite Realty’s scalable platform will enable the company to acquire the portfolio and achieve substantial administrative and operating synergies, as the company estimates it will be able to achieve $17-19 million in savings from Inland Diversified’s operating expense as a result of the termination of external manager contracts and other cost savings. The transaction is expected to result in incremental Kite Realty operating expenses of $6-8 million. Kite Realty expects that its post-combination general and administrative expense as a percentage of its asset base and revenues will decline as a result of the Merger, and that the transaction will reduce its development/redevelopment pipeline as a percentage of total assets.

Cash Flow Benefits. Kite Realty’s reduced leverage coupled with its increased operating cash flow and low dividend payout ratio will support future potential dividend growth. In addition, management expects the transaction to be neutral to 2014 estimated FFO per share after taking into account the significant deleveraging.

Transaction Overview

Under the terms of the merger agreement, Inland Diversified’s stockholders will receive newly issued common shares of beneficial interest of Kite Realty in exchange for each share of Inland Diversified common stock based on the following:

1.707 shares of Kite Realty for each share of Inland Diversified common stock, so long as the reference price for Kite Realty’s shares (defined below) is equal to or less than $6.36;

A floating ratio if Kite Realty’s reference price is more than $6.36 or less than $6.58; such ratio determined by dividing $10.85 by the Kite Realty reference price;

1.650 shares of Kite Realty for each share of Inland Diversified common stock if Kite Realty’s reference price is $6.58 or greater;

The reference price is the volume-weighted average trading price of Kite Realty common shares for the ten consecutive trading days ending on the third trading day preceding Inland Diversified’s stockholder meeting.

Based on Kite Realty’s closing share price of $6.15 on February 7, 2014, this represents an implied price per share of $10.50 for each share of Inland Diversified common stock. Based on the maximum and minimum exchange ratios of 1.707 and 1.650, Kite Realty’s shareholders are expected to own between 40.6% and 41.4% of the combined company’s diluted common equity.

As previously disclosed, Inland Diversified has entered into a contract to sell its single tenant net lease portfolio to Realty Income Corporation for $503 million and this transaction is expected to close prior to the closing of the Merger. Additionally, after the closing of the proposed Merger, Kite Realty expects to dispose of three multi-family assets owned by Inland Diversified as well as Inland Diversified’s securities portfolio. The proceeds from these sales will be used to further repay debt and delever the balance sheet.

Leadership and Organization

Following the closing, Kite Realty’s Board of Trustees will consist of nine members, six of whom will be current trustees of Kite Realty and three of whom will be designated by Inland Diversified. John A. Kite, Kite Realty’s current CEO and Chairman of the Board of Trustees, will serve as CEO and Chairman of the Board of Trustees of the combined company, Thomas K. McGowan, Kite Realty’s current President and COO, will serve as President and COO of the combined company, and Daniel R. Sink, Kite Realty’s current Executive Vice President and CFO, will serve as Executive Vice President and CFO of the combined company.

Upon completion of the Merger, the combined company will retain the Kite Realty name and will continue to trade under the NYSE ticker symbol KRG. The combined company’s corporate headquarters will remain in Indianapolis, Indiana.

Timing of Consummation

The transaction is contingent

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