Kite Plans $500M Joint Venture

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INDIANAPOLIS-Before the ink has dried, locally based Kite Realty Group Trust tells Wall Street analysts it is in negotiations with “a major financial institution” to form a $500-million joint venture. John Kite, president and CEO, disclosed the pending deal during a second-quarter conference call and said it would fund up to $1.25 billion in development and acquisitions.

Pressed for details, he said, though “not fully completed, we’re very close to executing documentation.” He said there was a chance Kite would “seed the JV with a few assets, but we’re not required to.” He also said his company was likely to retain a 20% interest in the joint venture.

“The deal allows us to decide which projects will go into the JV,” he added, saying that Kite would have a “100% decision” on what to do with projects of below $50 million. On projects above that amount, “the JV gets first rights.”

During second quarter, Kite said the company “benefited from off-market acquisitions.” As of June 30, it owned interests in 11 retail properties under development, which are expected to aggregate about 1.5 million sf. Approximately 850,000 sf will be owned by Kite or located on land it owns and has ground-leased to tenants. About 67% of the space is preleased.

In July, following second quarter, the company acquired three centers in Naples, FL. They are the 134,667-sf Courthouse Shadows, 258,890-sf Pine Ridge, and 78,340-sf Riverchase. All are 100% leased.

Kite now has five operating centers in Naples and two under construction. The company is currently focusing on the Southeast, and Florida assets now account for 22% of total annualized base rents, Kite said.

Other acquisitions during the quarter included Kedron Village, a community shopping center in an Atlanta suburb that is under construction and 82% preleased, and a 60% interest in a JV that acquired 14 acres in suburban Tampa, FL. This property is expected to include 74,500 sf of space, plus three outparcels. Construction will begin in third quarter.

In July the retail REIT also acquired 100 acres in Cary, NC for $35.6 million. The land is adjacent to Research Triangle Park and zoned as part of the Alston Regional Activity Center to support up to 705,000 sf of retail along with office and residential or hotel development. Prior to construction, Kite plans to contribute this asset into a joint venture in which it will retain a minority interest.

Funds from operations for second quarter reached $10.3 million, up 27.8% from the same quarter a year ago. Total revenues rose to $30.9 million, up 38.8% compared with $22.3 million for the same quarter of 2005. Net income, however, dropped to $1.54 million, down 12% from $1.75 million in the parallel 2005 quarter.

As of June 30 this year, Kite owned interests in 43 retail properties with an aggregate of approximately 7.3 million sf. At that time the retail portfolio was 93% leased, down from 93.8% on June 30, 2005.

The decline is attributed primarily to the lease termination with Winn-Dixie at Shops at Eagle Creek in Naples. Kite paid nearly $1.6 million to acquire the lease in a bankruptcy auction. Discussions are underway “with several potential replacement tenants” for the 51,703-sf space, Kite said.

At the close of trading on Aug. 8, shares of KRG were $15.09 a share on the NYSE, down 1.2% for the day. The 52-week high of $16.52 a share occurred on Sept 16, 2005, and the 52-week low of $14.04 a share occurred on Nov 16, 2005.