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Kite Realty Group Trust Announces The Acquisition Of $307 Million Portfolio Of Shopping Centers

Kite Realty Group Trust (NYSE: KRG) (the “Company”) announced that it has entered into a purchase and sale agreement to acquire a portfolio of nine retail operating properties with an aggregate owned gross leasable area (“GLA”) of approximately 2.0 million square feet for a gross aggregate purchase price of approximately $307 million in cash.

Seven of the properties to be acquired are located in the Company’s existing markets of Florida, Georgia, and Texas, while two are in a new market, Birmingham, Alabama. Expansion in these markets enables the Company to build on its strong presence and significant operating experience. As of September 30, 2013, the portfolio to be acquired was 93.2% leased.

John A. Kite, the Company’s Chairman and Chief Executive Officer, said, “This off-market portfolio acquisition enables us to add approximately two million square feet of high quality shopping centers to our portfolio. These properties will complement those in our existing portfolio and provide us with an opportunity to strategically increase our footprint in our targeted markets. We believe there are significant value creation opportunities through the lease-up of vacant space, roll-over of below market rents, and the pursuit of redevelopment opportunities.”

“This transaction and the method by which we intend to fund it continue the Company’s strategic plan to reduce our leverage through the acquisition of high-quality retail properties at below replacement cost. The transaction and related financing will increase our unencumbered property pool and provide increased financial flexibility and liquidity to fund future growth,” said Daniel R. Sink, the Company’s Chief Financial Officer.

Strategic and Financial Benefits

The Company expects the acquisition to have the following strategic benefits:

  • The Company is obtaining a high quality portfolio at an attractive price in an off-market transaction. The portfolio consists of nine high quality centers, a majority of which contain a grocery anchor and are well located within their markets. The Company is acquiring the portfolio in an off-market transaction that it believes is at a significant discount to replacement cost. The Company believes this represents a compelling opportunity for it to acquire high quality real estate consistent with its long term strategy of owning centers in high-growth markets.
  • The portfolio will complement the Company’s existing portfolio in terms of asset quality, tenant base and geographic distribution. The portfolio’s nine retail properties are located in four states in the southern United States. Approximately 1.5 million square feet, or approximately 74%, of the portfolio’s owned GLA is located in MSAs (as defined below) in Florida, Georgia and Texas, states in which the Company already has a strong presence and significant operating experience. Expansion in these regions enables the Company to leverage its scalable platform to operate the portfolio assets with minimal increase in general and administrative costs.
  • The portfolio presents the Company with a significant value creation opportunity. The portfolio provides the Company with an opportunity to create value and grow its net operating income through lease-up of vacant space, roll-over of below-market rents where applicable and pursuit of redevelopment opportunities where appropriate.
  • The portfolio acquisition, and the method by which the Company intends to fund it, will improve the Company’s balance sheet. The portfolio acquisition, and the method by which the Company intends to fund it, are expected to increase the Company’s equity float and reduce its leverage. Furthermore, the addition of the nine portfolio properties to the Company’s existing portfolio will significantly increase the value of the Company’s unencumbered property pool and create additional liquidity and borrowing capacity for the Company.

Portfolio Overview

Below is a listing of the properties being acquired:

           

Annualized

 
Percentage Base Rent
Metropolitan of Leased Annualized Per Leased
Statistical Owned Owned Base Rent Owned
Property   State   Area (MSA)  

GLA (1)

 

GLA (2)

 

Revenue (3)

 

GLA (3)(4)

  Major Tenants
Lakewood   FL   Jacksonville   196,870   83.5%   $1,886,056   $11.48   Winn Dixie, Stein Mart, Chase Bank
Northdale   FL   Tampa   176,917   94.3%   $1,901,444   $11.39  

TJ Maxx, Beall’s, Sweetbay Supermarket (non-owned)

Hunter’s Creek   FL   Orlando  

119,729 (5)

  96.2%   $1,438,953   $12.49   Publix
Burnt Store   FL   Punta Gorda   95,023   75.5%   $644,844   $8.99   Publix, Home Depot (non-owned)
Portofino   TX   Houston   372,506   94.6%   $5,969,762   $16.94   Sports Authority, Stein Mart, Michael’s, DSW, Old Navy, Conn’s Appliances, PetSmart
Kingwood Commons   TX   Houston   164,366   98.1%   $2,933,179   $18.20   Randall’s, Petco, Chico’s, Talbot’s, The Children’s Place, Jos. A. Bank, Ann Taylor
Trussville I & II   AL   Birmingham   446,484   95.4%   $3,998,119   $9.38   Wal-Mart, Regal Cinema, Marshall’s, Petsmart, Sam’s Club (non-owned), Kohl’s (non-owned)

Colonial Shoppes

at Clay (6)

  AL   Birmingham   66,165   94.7%   $786,187   $12.55   Publix
Beechwood   GA   Athens   342,217   95.0%   $3,655,434   $11.25  

Fresh Market, TJ Maxx, Stein Mart, Georgia Theatre, Body Plex Fitness, Chico’s, Jos. A. Bank, Ann Taylor Loft, Coldwater Creek, Talbot’s

TOTAL/WEIGHTED AVERAGE           1,980,277   93.2%   $23,213,978   $12.50    
(1) Owned GLA represents gross leasable area that is owned by the Company.
(2) Percentage of Leased Owned GLA reflects Owned GLA leased as of September 30, 2013.
(3) Annualized Base Rent Revenue represents the monthly contractual rent as of January 1, 2014 for each applicable property, multiplied by 12.
(4) Annualized Base Rent Revenue and Annualized Base Rent Per Leased Owned GLA assumes Percentage of Owned GLA Leased as of September 30, 2013. Annualized Base Rent Revenue and Annualized Base Rent per Leased Owned GLA do not include tenant reimbursements.
(5) Excludes 107,806 square feet of currently Owned GLA that is under contract to be sold to a tenant at the property for approximately $3.25 million, which contract will be assumed by the Company.
(6) Publix has a right of first offer to purchase this property that has been triggered as a result of the proposed portfolio acquisition. There can be no assurance that Publix will not exercise this right, in which case the Company would not acquire this property.

The acquisition is subject to customary closing conditions and is expected to close in late 2013 or early 2014. The Company plans to fund the purchase price through the net proceeds from a common share offering, cash on hand including from the dispositions of two retail properties the Company is currently marketing for sale, and borrowings under its unsecured revolving credit facility.

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