Kite Realty Group Trust Announces Second Quarter 2008 Financial Results

Kite Realty Group Trust (NYSE: KRG) (the "Company”) today announced results for its second quarter ended June 30, 2008. Financial statements and exhibits attached to this release include results for the three and six months ended June 30, 2008 and 2007. Financial and Operating Results For the three months ended June 30, 2008, funds from operations (FFO), a widely accepted supplemental measure of REIT performance established by the National Association of Real Estate Investment Trusts, was $11.6 million, or $0.31 per diluted share, for the Kite Portfolio compared to $11.7 million, or $0.31 per diluted share, for the same period in the prior year. The Company’s allocable share of FFO was $9.0 million for the three months ended June 30, 2008 compared to $9.1 million for the same period in 2007. For the first six months of 2008, FFO for the Kite Portfolio was $23.1 million, or $0.62 per diluted share, compared to $22.5 million, or $0.60 per diluted share for the same period in the prior year. Given the nature of the Company’s business as a real estate owner and operator, the Company believes that FFO is helpful to investors when measuring operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as gains (or losses) from sales of operating properties and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. A reconciliation of net income to FFO is included in the attached table. Total revenue for the second quarter of 2008 was $34.8 million compared to $35.6 million for the same period in 2007. The prior year’s revenue reflects the effects of terminating our lease with Dominick’s at Silver Glen which resulted in an increase to revenues in 2007 of approximately $1.6 million. Excluding this lease termination, revenues increased by $0.8 million or 2.3% in the second quarter of 2008 compared to the same period in 2007. The Company’s net income for the second quarter of 2008 was $2.5 million, compared to $2.8 million for the second quarter of 2007. Total revenue for the first six months of 2008 was $67.9 million compared to $65.9 million for the same period in 2007, an increase of 3.0%. Excluding the effects of the Dominick’s lease termination, the increase was $3.6 million or 5.6%. The Company’s net income for the first half of 2008 was $5.2 million, compared to $4.4 million for the same period in 2007. "We made progress on a number of significant financing and leasing initiatives during the second quarter,” said John A. Kite, Kite Realty Group’s President and Chief Executive Officer. "A new unsecured term loan at favorable rates has strengthened our liquidity position and in turn, provided additional capital to execute our plan. The leases signed with Publix at Delray Marketplace, Bed Bath & Beyond at Sunland Towne Centre, and LA Fitness at South Elgin Commons demonstrate the high quality of our assets.” Operating Portfolio As of June 30, 2008, the Company owned interests in 51 retail operating properties totaling approximately 7.4 million square feet. The owned gross leasable area ("GLA”) in the Company’s retail operating portfolio was 93.0% leased as of June 30, 2008, compared to 92.8% leased as of the end of the prior quarter. In addition, the Company owned five commercial operating properties totaling 562,652 square feet. As of June 30, 2008, the owned net rentable area of the commercial operating portfolio was 97.8% leased, compared to 98.4% as of the end of the first quarter of 2008. On a same property basis, the leased percentage of 52 total operating properties was 94.2% at June 30, 2008 and 94.3% at June 30, 2007. Same property net operating income for these properties increased 0.1% and 0.3% in the second quarter and first half of 2008, respectively, compared to the same periods of the prior year. The Company executed a lease in June 2008 with Bed Bath & Beyond for the former Circuit City space at Sunland Towne Centre in El Paso, Texas and is in negotiations with a national retailer to replace the other vacant junior box space at this center. Excluding the effects of these vacancies, same property net operating income would have increased to 0.9% and 1.3%, for the second quarter and first half, respectively compared to the same periods of the prior year. Capital Markets Activities In July 2008, the Company entered into a $30 million unsecured loan agreement arranged by KeyBanc Capital Markets which has an accordion feature that enables the Company to increase the loan amount up to a total of $60 million, subject to certain conditions, including syndication of the facility. The loan matures on July 15, 2011 and bears interest at LIBOR plus 265 basis points. A portion of the initial $30 million of proceeds from this loan was used to pay down the Company’s revolving line of credit. The Company is seeking to utilize the accordion feature and draw down the additional $30 million by August 31, 2008. The Company has received a commitment for $25 million of the additional $30 million and is in discussions with other lenders to fund the remaining $5 million. The Company expects to use the remaining proceeds to pay down its revolving line of credit and other variable rate debt. Development Activities As of June 30, 2008, the Company owned interests in seven retail properties in the current development pipeline that are expected to total approximately 1.3 million square feet. Approximately 618,000 square feet are anticipated to be owned directly by the Company or through joint ventures upon completion of the projects. The remaining square footage will be owned by anchor tenants upon completion of the developments. The total estimated cost of these projects is $160 million, of which approximately $102 million had been incurred as of June 30, 2008. Approximately 78% of the owned GLA at properties in the development pipeline is currently leased or in various stages of lease negotiations with tenants. During the quarter, construction commenced on the first phase at South Elgin Commons, located in a western suburb of Chicago, Illinois. The property is shadow anchored by a SuperTarget, and LA Fitness has executed a lease for 45,000 square feet, representing the entire first phase of the project. During the second quarter, The Fresh Market at 54th & College in Indianapolis, Indiana opened for business. The Company has a long term ground lease with the single tenant at this location. In addition, the Company transferred Bolton Plaza in Jacksonville, Florida from the operating portfolio to the redevelopment pipeline as of the end of the quarter. The Company’s lease with Wal-Mart expired during the second quarter and, as planned, the Company is actively pursuing a redevelopment plan for this property. In July 2008, the Company signed a lease for 45,600 square feet with Publix at Delray Marketplace, located in Delray Beach, Florida. Publix will join a 55,400 square foot Frank Theater as the anchors for this center. The anticipated total GLA of the mixed-use development is 318,000 square feet. Leasing Activities In the quarter, the Company executed 21 leases and renewals for a total of 118,000 square feet. A total of 11 leases for 79,000 square feet of previously unoccupied space were executed with initial rental rates approximately 79% above the operating portfolio averages. The Company executed nine new leases and renewals in previously occupied space. These leases represent a 22.1% increase over the previous rent. The Company also executed a lease with Bed Bath & Beyond for 25,000 square feet of the former Circuit City space at Sunland Towne Centre. Acquisition Activities In April 2008, an entity in which the Company owns an 85% interest, purchased approximately 4 acres of land in downtown Indianapolis, commonly known as Pan Am Plaza. This land is situated across the street from the Indiana Convention Center and adjacent to the recently constructed Lucas Oil Stadium, home of the Indianapolis Colts. In July 2008, the Company purchased approximately 123 acres of land for $21.6 million near Raleigh, North Carolina. The Company intends to develop a multi-phase community shopping center in a joint venture. Distributions On August 5, 2008, the Board of Trustees declared a regular quarterly cash distribution of $0.205 per common share for the quarter ended September 30, 2008 to shareholders and unit holders of record as of October 7, 2008. This distribution will be paid on or about October 17, 2008. On May 6, 2008, the Board of Trustees declared a regular quarterly cash distribution of $0.205 per common share for the quarter ended June 30, 2008 to shareholders and unit holders of record as of July 7, 2008. This distribution was paid on July 17, 2008. Earnings Guidance The Company is revising its earnings and FFO guidance for the year ending December 31, 2008 to a range of $1.25 to $1.30 per diluted common share. This change reflects a higher interest rate on the new unsecured term loan discussed above and potential disruption in the timing of transaction-related income due to current market conditions. Following is a reconciliation of the calculation of net income per diluted common share to FFO per share: FFO Guidance Range for 2008   Low       High Diluted net income per common share $0.33 $0.38 Limited Partners’ interests in Operating Partnership 0.10 0.10 Depreciation and amortization of consolidated entities 0.81 0.81 Depreciation and amortization of unconsolidated entities 0.01       0.01 Diluted FFO per common share $1.25       $1.30 Earnings Conference Call Management will host a conference call on Friday, August 8, 2008 at 10:00 a.m. ET to discuss financial results for the quarter ended June 30, 2008. A live webcast of the conference call will be available online on the Company’s corporate website at www.kiterealty.com. The dial-in numbers are (888) 713-4211 for domestic callers and (617) 213-4864 for international callers (passcode 16910980). After the live webcast, the call will remain available on the Company’s website until November 8, 2008. In addition, a telephonic replay of the call will be available until September 8, 2008. The replay dial-in telephone numbers are (888) 286-8010 for domestic callers and (617) 801-6888 for international callers (passcode 13576194). About Kite Realty Group Trust Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust engaged primarily on the development, construction, acquisition, ownership and operation of high quality neighborhood and community shopping centers in selected growth markets in the United States. The Company owns interests in a portfolio of operating retail properties, retail properties under development and redevelopment, operating commercial properties, a related parking garage, and parcels of land that may be used for future development of retail or commercial properties. Safe Harbor Statements regarding the Company’s 2008 FFO and earnings guidance, including the underlying assumptions are, and certain statements in this document that are not historical fact may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements, including without limitation: national and local economic, business, real estate and other market conditions; the ability of tenants to pay rent; the competitive environment in which the Company operates; financing risks, including access to capital at desirable terms; property management risks; the level and volatility of interest rates; financial stability of tenants; the Company’s ability to maintain its status as a REIT for federal income tax purposes; acquisition, disposition, development and joint venture risks; potential environmental and other liabilities; and other factors affecting the real estate industry generally. The Company refers you to the documents filed by the Company from time to time with the Securities and Exchange Commission, which discusses these and other factors that could adversely affect the Company's results. The Company undertakes no obligation to publicly update or revise these forward-looking statements (including the FFO and net income estimates), whether as a result of new information, future events or otherwise. Kite Realty Group Trust Consolidated Balance Sheets (Unaudited)     June 30,2008 December 31,2007 Assets: Investment properties, at cost: Land $ 233,517,507 $ 210,486,125 Land held for development 23,622,458 23,622,458 Buildings and improvements 677,790,211 624,500,501 Furniture, equipment and other 4,904,452 4,571,354 Construction in progress 170,485,594 187,006,760 1,110,320,222 1,050,187,198 Less: accumulated depreciation (94,189,670 ) (84,603,939 ) 1,016,130,552 965,583,259 Cash and cash equivalents 12,004,345 19,002,268 Tenant receivables, including accrued straight-line rent of $7,116,165 and $6,653,244, respectively, net of allowance for uncollectible accounts 15,615,661 17,200,458 Other receivables 9,199,627 7,124,485 Investments in unconsolidated entities, at equity 1,060,400 1,079,937 Escrow deposits 13,304,137 14,036,877 Deferred costs, net 20,385,519 20,563,664 Prepaid and other assets 4,092,230 3,643,696 Total Assets $ 1,091,792,471 $ 1,048,234,644   Liabilities and Shareholders’ Equity: Mortgage and other indebtedness $ 690,560,307 $ 646,833,633 Accounts payable and accrued expenses 44,361,820 36,173,195 Deferred revenue and other liabilities 24,826,644 26,127,043 Cash distributions and losses in excess of net investment in unconsolidated entities, at equity 1,075,497 234,618 Minority interest 4,418,426 4,731,211 Total Liabilities 765,242,694 714,099,700 Commitments and contingencies Limited Partners’ interests in Operating Partnership 72,494,051 74,512,093 Shareholders’ Equity: Preferred Shares, $.01 par value, 40,000,000 shares authorized, no shares issued and outstanding — — Common Shares, $.01 par value, 200,000,000 shares authorized 29,168,350 shares and 28,981,594 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively 291,684 289,816 Additional paid in capital and other 294,664,427 293,897,673 Accumulated other comprehensive loss (2,678,655 ) (3,122,482 ) Accumulated deficit (38,221,730 ) (31,442,156 ) Total Shareholders’ Equity 254,055,726 259,622,851 Total Liabilities and Shareholders’ Equity $ 1,091,792,471 $ 1,048,234,644 Kite Realty Group Trust Consolidated Statements of Operations For the Three Months and Six Month Ended June 30, 2008 and 2007(Unaudited)   Three Months Ended June 30, Six Month Ended June 30, 2008   2007 2008   2007 Revenue: Minimum rent $ 18,798,894 $ 18,498,348 $ 37,178,508 $ 35,732,300 Tenant reimbursements 4,731,314 4,662,010 9,941,859 9,340,724 Other property related revenue 2,979,574 2,286,084 8,136,659 4,738,019 Construction and service fee revenue 8,311,318 10,176,315 12,599,840 16,046,868 Total revenue 34,821,100 35,622,757 67,856,866 65,857,911 Expenses: Property operating 4,026,890 3,519,107 8,506,638 7,609,022 Real estate taxes 3,382,051 3,077,480 6,549,500 5,715,545 Cost of construction and services 7,024,400 9,521,852 10,788,634 14,587,226 General, administrative, and other 1,259,407 1,628,848 2,969,356 3,055,924 Depreciation and amortization 8,466,474 8,111,904 16,620,331 16,839,293 Total expenses 24,159,222 25,859,191 45,434,459 47,807,010 Operating income 10,661,878 9,763,566 22,422,407 18,050,901 Interest expense (7,351,499 ) (6,175,084 ) (14,605,065 ) (12,297,428 ) Income tax expense of taxable REIT subsidiary (251,858 ) (7,991 ) (1,405,086 ) (262,606 ) Other income 31,676 90,052 96,908 199,595 Minority interest in income of consolidated subsidiaries (19,756 ) (247,465 ) (15,600 ) (249,221 ) Equity in earnings of unconsolidated entities 86,121 99,579 147,295 169,875 Limited Partners’ interests in the Operating Partnership (697,273 ) (781,376 ) (1,474,271 ) (1,251,279 ) Income from continuing operations 2,459,289 2,741,281 5,166,588 4,359,837 Operating income from discontinued operations, net of Limited Partners’ interests — 24,846 — 44,340 Net income $ 2,459,289 $ 2,766,127 $ 5,166,588 $ 4,404,177   Income per common share – basic Continuing operations $ 0.08 $ 0.10 $ 0.18 $ 0.15 Discontinued operations — — — — $ 0.08 $ 0.10 $ 0.18 $ 0.15   Income per common share – diluted Continuing operations $ 0.08 $ 0.09 $ 0.18 $ 0.15 Discontinued operations — — — — $ 0.08 $ 0.09 $ 0.18 $ 0.15   Weighted average common shares outstanding - basic 29,147,361 28,892,920 29,088,327 28,876,135 Weighted average common shares outstanding - diluted 29,269,062 29,219,227 29,161,590 29,197,925 Dividends declared per common share $ 0.205 $ 0.195 $ 0.410 $ 0.390 Kite Realty Group TrustFunds From OperationsFor the Three and Six Months Ended June 30, 2008 and 2007(Unaudited)     Three Months Ended June 30, Six Month Ended June 30, 2008   2007 2008   2007 Net income $ 2,459,289 $ 2,766,127 $ 5,166,588 $ 4,404,177 Add Limited Partners’ interests in income 697,273 788,442 1,474,271 1,264,005 Add depreciation and amortization of consolidated entities, net of minority interest 8,318,380 8,011,344 16,301,494 16,647,218 Add depreciation and amortization of unconsolidated entities 101,571 100,762 202,628 201,964 Funds From Operations of the Kite Portfolio1 11,576,513 11,666,675 23,144,981 22,517,364 Deduct Limited Partners’ interests in Funds From Operations (2,558,418 ) (2,590,819 ) (5,138,186 ) (5,021,372 ) Funds From Operations allocable to the Company1 $ 9,018,095 $ 9,075,856 $ 18,006,795 $ 17,495,992   Basic FFO per share of the Kite Portfolio $ 0.31 $ 0.31 $ 0.62 $ 0.60 Diluted FFO per share of the Kite Portfolio $ 0.31 $ 0.31 $ 0.62 $ 0.60   Basic weighted average Common Shares outstanding 29,147,361 28,892,920 29,088,327 28,876,135 Diluted weighted average Common Shares outstanding 29,269,062 29,219,227 29,161,590 29,197,925 Basic weighted average Common Shares and Units outstanding 37,475,060 37,292,535 37,421,301 37,275,866 Diluted weighted average Common Shares and Units outstanding 37,596,760 37,618,842 37,494,563 37,597,656   1   "Funds from Operations of the Kite Portfolio” measures 100% of the operating performance of the Operating Partnership’s real estate properties and construction and service subsidiaries in which the Company owns an interest. "Funds from Operations allocable to the Company” reflects a reduction for the Limited Partners’ weighted average diluted interests in the Operating Partnership.