Kite Realty Group Trust · NYSE:KRG

Kite Realty Group Trust — Q4 2019 Earnings Presentation

42 slides from Kite Realty Group Trust's earnings presentation, Feb 19, 2020

  1. Slide 1: Fourth Quarter 2019 Investor Update

    P RECREATIONAL Mai EQUIPMENT, ING: FOURTH QUARTER 2019 INVESTOR UPDATE 888 577 S600 kiterealty.com

  2. Slide 2: Company overview and key portfolio statistics

    Number of Retail • High-quality portfolio with diverse tenant base 82 Properties • Over 72% of retail ABR from assets with a Total Retail GLA (SF) 11.6mm grocery component Operating Portfolio • Southern US (aka “Warmer & Cheaper”) 96.1% Percent Leased focus to take advantage of current and projected

  3. Slide 3: Q4 2019 highlights

    Q4 2019 FFO as adjusted, per share was $0.40, in line with KRG’s guidance. SPNOI for Q4 2019 was 3.2% higher year-over-year, driven by an increase in minimum rent and net recoveries. Completely undrawn $600M line of credit, which is enough capacity to retire all of KRG’s debt maturities through 2025

  4. Slide 4: South & West focused retail REIT with Strategic Assets & Markets

    KRG is a South & West focused retail REIT with certain Strategic Assets & Markets (“SAM”) that are the “cherry on top” 2004 – IPO 2015 – Merger Today # of Retail Properties 30 110 82 # of States 9 20 16 # of Markets 16 52 35 Top Region (% of ABR) South 52% South 63% South 62% Top State (% of ABR) FL

  5. Slide 5: KRG trades at a discount to consensus NAV

    • At $17.92 per share, KRG trades at a 21% discount to consensus NAV of $22.71 per share1 • The entire retail sector has been under pressure for several years and the retail peer group2 trades at an average NAV discount of 13% to consensus as compared to KRG’s 21% to consensus discount1 • Sentiment

  6. Slide 6: The KRG Difference: Strong Real Estate

    KITE KRG DIFFERENCE: Strong Real Estate 888 577 5600 kiterealty.co

  7. Slide 7: Grocery-anchored portfolio and strong demographics

    • 72% of retail ABR is from centers with a grocer component • Strong 3 mile demographics: • 77% of ABR is from South and West United States - Population 76,200 • Average asset size is 141k square feet - Average Household Income: $97,500 - Est. 5-year Population Growth: 1.7% Larger center with genera

  8. Slide 8: Implied cap rate and portfolio quality

    • Project Focus pruned lower-growth, non-core assets at a cap rate of ~8.0% Population (3 Mile) 61,700 76,200 • KRG’s strong portfolio currently trades at an implied cap rate of ~8.0% Population Growth (3 Mile) 1.0% 1.7% • Consensus estimated NAV is $22.71, Average HHI (3 Mile) $71,800 $97,500 which

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    © 2020 Kite Realty Group Fourth Quarter 2019 Investor Presentation | 9

  10. Slide 10: Occupancy, leased rate and ABR per square foot

    Same-Property Occupancy Rate ABR PSF 96% $19.00 Record Level 95% $18.00 $17.83 94% 93.7% $17.00 $16.00 93% $15.00 92% $14.00 91% $13.00 90% $12.00 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019 Narrowing spread (230 bps) as anchor rent commences across the Same-Property Leased

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    © 2020 Kite Realty Group Fourth Quarter 2019 Investor Presentation | 11

  12. Slide 12: Top 10 tenants

    1 Publix Supermarkets, Inc. NR 11 2.5% 2 The TJX Companies, Inc. A+ 16 2.2% 3 Bed Bath & Beyond, Inc. BB 16 1.9% 4 PetSmart, Inc. B- 14 1.8% 5 Ross Stores, Inc. A- 13 1.8% 6 Dick’s Sporting Goods, Inc. NR 7 1.7% 7 Nordstrom Rack BBB+ 6 1.6% 8 Michaels Stores, Inc. B+ 12 1.5% 9 National Amusements B+

  13. Slide 13: Leverage and FFO multiple versus peers

    10.5x Avg Peer FFO Multiple = 13.1x 70.0% 9.5x 60.0% KRG FFO Multiple = 11.6x NetCap Total / Market Debt 8.5x 50.0% 40.0% 7.5x 30.0% Net Debt / Debt EBITDA Pref + Net 6.5x Avg Peer FFO Multiple = 16.1x 20.0% 5.5x 10.0% 4.5x 0.0% 2 2 2 2 2 2 WRI UE REG RPAI AAT FRT KRG AKR BRX SITC UBA KIM ROIC RPT B

  14. Slide 14: A Return to Growth: Operational Excellence

    KITE A RETURN TO GROWTH: Operational Excellence

  15. Slide 15: Operational excellence drivers

    • $1.3M of additional cash NOI from in-process development projects • Continue to identify redevelopment opportunities to enhance portfolio quality • ABR of tenants opened during 2019 is 10% higher than the ABR for the operating retail portfolio • Embedded average contractual rent bumps of ~1.5% • F

  16. Slide 16: Big box anchor leasing surge

    # of Leases Signed 22 Anchors as % of GLA 68% # of Different Tenants Signed 17 Anchors as % of ABR 48% Square Feet of New Leases 561k Anchor Leased % 98% Total Expected Cost $43M Number of Anchors Spaces Vacant 5 Return on Capital ~16% Comparable Cash Lease Spread1 ~21% $2.5 $2.1 $2.0 $1.6 $1.5 $1.0

  17. Slide 17: Redevelopment case study

    Key actions taken: • Replaced a 17k SF GAP with a diverse lineup of lifestyle retailers • Filled 4.5k SF of vacant space with an expansion of restaurant and signing of service retailer • Relocated soft goods retailer to more appropriate location and backfilled with two new tenants Redevelopment not

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    © 2020 Kite Realty Group Fourth Quarter 2019 Investor Presentation | 18

  19. Slide 19: Eddy Street Commons mixed-use development

    • Developed mixed-use lifestyle center directly across the street from the University of Notre Dame • Eddy Street Phase I contains 88,000 square feet of retail and 266 apartment units • Eddy Street Phase II spans two city blocks and contains 452 apartment units and 8,500 square feet of retail • Addi

  20. Slide 20: Bricks & Mortar Retail: Online retail is augmenting, not replacing, physical stores

    KITE BRICKS & MORTAR RETAIL: Online retail is augmenting, NOT replacing, physical stores 888 577 5600 kiterealty.co

  21. Slide 21: Total retail sales and e-commerce share

    • Total retail sales continues to grow: 3.7% annual CAGR since the GFC • Even after a decade of strong online sales growth, it remains only ~11% of total retail sales Retail Sales & E-Commerce as a % of Total Retail Sales ($, billions) $6,000 100.0% 90.0% 80.0% $5,000 70.0% 60.0% $4,000 Total U.S. 5

  22. Slide 22: Successful retailers and their share of KRG ABR

    “Publix has remained one of the most successful Publix accounts for 2.7% of KRG’s ABR and is growth stories in the retail industry” the #1 tenant in our portfolio – Drug Store News “Target is the Yahoo Finance 2019 Company of the Target shadow-anchored centers account for Year” – Yahoo Finance 18% o

  23. Slide 23: Value of physical stores to retailers

    Point of Sale: • Physical stores represent the most cost-effective point of sale and the best opportunity to leverage Point of Sale impulse buying. • Brick-and-mortar total spending increased 4.2% on Black Friday compared to 20181 Brand Awareness: Brand • 83% increase in brand awareness when a retai

  24. Slide 24: Digitally native brands opening stores

    Digitally native brands are set to open 850 stores in the next five years • “Clicks to bricks” retailers’ expansion demonstrate the value that new brands place on having physical locations • Shoppers make around 60% of purchases at the stores of digitally native retailers today, despite these compan

  25. Slide 25: Stores as distribution points (BOPIS)

    • Retail real estate is seeing a shift in retailer usage – Physical locations are becoming distribution points for not only online orders, but also buy online: pick up in store (“BOPIS”) ~ return to store (“BORIS”) ~ fulfill from store (“BOFIS”) – Amazon has ~100 distribution centers in the US vs. ~

  26. Slide 26: Shipping costs and eroding online margins

    • Free shipping isn’t “free”, as it impacts retailer margins – The last mile accounts for over 50% of delivery costs • Amazon’s push to shorten delivery times has increased its own shipping costs faster than sales, thereby eroding already tight margins1 • The king of online retail sales, Amazon, is

  27. Slide 27: Omnichannel spending and the halo effect

    Discount Store Spending Online, In-Store, 4.0% 96.0% Initial Purchase: $100 Spent Online Spent In-Store Digitally Native Retailer Spending In-Store, 60.0% Online, 40.0% Additional in-store spend to Additional online spend to follow: $167 follow: $131 1 1 Source: ICSC: Halo Effect II Total Omnichanne

  28. Slide 28: Market Thesis

    KITE MARKET THESIS: “I skate to where the puck is going be, not where it has been.” - Wayne Gretzky 888 577 5600 kiterealty.com

  29. Slide 29: Migration shift to the Southern and Western US

    • US is currently experiencing a migration shift to the Southern / Western US for a variety of reasons (cost of living, lifestyle, taxes, etc.) • No state income taxes in Florida, Texas, Nevada, and Tennessee is influencing migration from high income tax states like New York, California, Illinois, C

  30. Slide 30: Discretionary income in warmer and cheaper cities

    • Residents in historically expensive states in the northeast and on the west coast are feeling an outsized the impact of the SALT deduction limitation • Significant discretionary income delta in “warmer and cheaper” cities New York, NY Miami, FL Las Vegas, NV Dallas, TX Income $250,000 $250,000 $25

  31. Slide 31: Corporate relocations to the South

    “JPMorgan Weighs “Charles Schwab to “70 financial firms flee Shifting Thousands of move 1,000 jobs out of NYC for Palm Beach Jobs Out of New York San Francisco” County Florida in 3 years” Area” Associated Press Palm Beach BDB Bloomberg “Honeywell HQ is “1,800 companies left “Amazon plans Austin movi

  32. Slide 32: Source: US Census Bureau

    Source: US Census Bureau © 2020 Kite Realty Group Fourth Quarter 2019 Investor Presentation | 32

  33. Slide 33: Source: Synergos Technologies

    Source: Synergos Technologies © 2020 Kite Realty Group Fourth Quarter 2019 Investor Presentation | 33

  34. Slide 34: Wealthy moving to Florida

    Source: Bloomberg News: “Florida is the Big Winner as the Wealthy Move out of Northern States” 5/24/2019 © 2020 Kite Realty Group Fourth Quarter 2019 Investor Presentation | 34

  35. Slide 35: 2020 Guidance: A Return to Growth

    KITE 2020 GUIDANCE: A Return To Growth 888 577 5600 kiterealty.com

  36. Slide 36: 2020 Guidance

    2020 Guidance Net Income $0.13 - $0.17 NAREIT FFO $1.48 - $1.52 Same-Property NOI Growth (excluding redevelopments) 1.00% - 2.00% Bad Debt Assumption 90bps of Same-Property (in addition to known vacancies and any declared or imminent bankruptcies) Revenues Net Income to NAREIT FFO Reconciliation Low

  37. Slide 37: Forward-Looking Statements

    Forward-Looking Statements This supplemental information package, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of

  38. Slide 38: Net Operating Income and Same Property NOI

    NET OPERATING INCOME AND SAME PROPERTY NET OPERATING INCOME The Company uses property net operating income (“NOI”), a non-GAAP financial measure, to evaluate the performance of our properties. The Company defines NOI as income from our real estate, including lease termination fees received from tena

  39. Slide 39: EBITDA

    EBITDA The Company defines EBITDA, a non-GAAP financial measure, as net income before depreciation and amortization, interest expense and income tax expense of taxable REIT subsidiary. For informational purposes, the Company has also provided Adjusted EBITDA, which the Company defines as EBITDA less

  40. Slide 40: Same Property NOI reconciliation

    ($ in thousands) Three Months Ended December 31, Twelve Months Ended December 31, % % 2019 2018 Change 2019 2018 Change Number of properties for the quarter1 81 81 Leased percentage at period end 96.0 % 95.0 % 96.0 % 95.0 % Economic Occupancy percentage2 93.7 % 92.1 % 92.6 % 92.6 % Minimum rent $ 50

  41. Slide 41: Funds From Operations reconciliation

    ($ in thousands, except per share data) Three Months Ended Twelve Months Ended December 31, December 31, 2019 2018 2019 2018 Funds From Operations Consolidated net income (loss) $ 15,855 $ (31,709 ) $ (2 ) $ (46,451 ) Less: net income attributable to noncontrolling interests in properties (132 ) (17

  42. Slide 42: EBITDA and net debt reconciliation

    ($ in thousands) Three Months Ended December 31, 2019 Consolidated net loss $ 15,855 Adjustments to net income Depreciation and amortization 30,765 Interest expense 12,383 Income tax benefit of taxable REIT subsidiary (94 ) Earnings Before Interest, Taxes, Depreciation andAmortization (EBITDA) 58,90

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