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Kite Realty Group Trust is a new public company that
is growing rapidly, but yet is an established company with roots going back forty years
Services
Real Estate Operations
(KRG - NYSE)
Kite Realty Group Trust
30 S. Meridian Street, Suite 1100
Indianapolis, IN 46204
Phone: 317-577-5600
John Kite
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
February 10, 2004
BIO:
John A. Kite
Chief Executive Officer & President
John A. Kite is Chief Executive Officer and President and a Trustee and has been President
and CEO of Kite Companies since 1997. Mr. Kite has been responsible for the strategic
direction and operating results for all four operating divisions of Kite Companies. In
1990, Mr. Kite joined Kite Development Corporation as Chief Financial Officer. In this
role, he was responsible for project financing, negotiating with banks and private
investors, and restructuring investments in Kite projects. In this capacity, Mr. Kite
oversaw in excess of $250 million in financing. In 1994, he became President of KMI Realty
Advisors, Inc., an SEC registered full-service real estate advisory firm that oversees in
excess of $400 million of diverse real estate holdings for pension fund clients. Mr. Kite
holds a B.A. in Economics from DePauw University and began his career in 1987 at Harris
Trust and Savings Bank in Chicago.
Company Profile:
Kite Realty Group Trust is a full-service, vertically integrated real estate investment
trust focused 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, operating commercial properties, a
related parking garage, commercial property under development and parcels of land that may
be used for future development of retail or commercial properties. Kite Realty Group owns
interests in 32 operating properties totaling 4.6 million square feet and in 11 properties
under development representing more than 1.5 million square feet.
CEOCFOinterviews: Mr. Kite, will you tell us about the
background on Kite Realty Group Trust and why you recently decided to become a public
company?
Mr. Kite: "Kite was founded in 1960 by my father Al
Kite. It was founded as an interior construction company and the company evolved through
the next twenty years on the contracting side of the business; being an interior
contractor, then ultimately a general contractor construction manager as well as an
interior finish contractor. In the late 80’s and early 90’s we began to become
involved in the real estate development business; also at that time my brother Paul was
involved in helping start the real estate operation. I got involved in the business in
about 1990, after working at a bank in Chicago for 3 years after college. We’ve grown
substantially in the last five years in the real estate business and we began to look at
additional options in terms of the company going forward. We looked at the capital
structure of the company and what was best for making sure that the company was around for
another forty years. That was also the time that we began to look at becoming a public
company as an option. Of course a lot of things have to happen in order for a company to
go public; things you control and things you don’t control. It really aligned well
for us and we were able to successfully go public this past summer in August of
2004."
CEOCFOinterviews: What is the common thread for your
properties?
Mr. Kite: "Our portfolio currently consists of 44
properties representing approximately 6 million square feet. The majority of those
properties are described as community/neighborhood shopping centers. We do have a small
component of commercial,, more office related, but the majority are the community/
neighborhood shopping centers. I think the common thread is that the centers themselves
are made up of ‘big box’ centers for tenants like Dick’s Sporting Goods,
Bed Bath and Beyond, Michael’s and Circuit City. Our neighborhood centers would be
defined as our grocery anchored centers, with grocers like Publix, Marsh Supermarkets and
A&P. In terms of geography and demographics, we are in higher demographic areas with
an average household income based on a 3-mile radius in the mid $70 thousand range for our
operating portfolio. In the development pipeline, representing $105 million , the average
household income is approximately $83 thousand. That puts us near the top of our peer
group in terms of demographics and that would be the common thread, from a products type
and from a demographics standpoint."
CEOCFOinterviews: What is it that you like about this type of
properties?
Mr. Kite: "We are a little unique in the publicly traded
strip shopping center sector, in that we are both an active developer and an active
acquirer. We look at a good place to put our capital to work, one that is not only good
going in, but good long term. The property must have the ability to generate significant
cash flow and be located in an area that we think will continue to improve in terms of the
strength of the trade area. Then the property becomes a good investment and that
ultimately will build shareholder value, visa vie, having strong real estate."
CEOCFOinterviews: What is it that you know on the development
side that helps you on the acquisition side?
Mr. Kite: "That’s a great question. I think on the
development side of the business, it’s all about creating value from ground up.
It’s also about seeing an opportunity that maybe not everybody else sees quite yet. I
think in our ability to do that and acquire land, entitle land, ultimately build and lease
property on that land, gives us a very good approach when we’re coming into
acquisitions that maybe has a component that we think can create additional value. So as
an acquirer you are basically underwriting risk adjusted returns on cash flow of existing
tenancy. As a developer you are looking to create value from scratch, so when we are
acquiring we are obviously looking at what else is out there and what else we can do with
a center, which gives us the ability to leverage on that. I think that’s the real
difference, as opposed to us just being an acquirer. We try to combine both skill sets and
it has worked really well for us."
CEOCFOinterviews: Do you have a specific strategy for how
much for the acquisition side and how much is the development side?
Mr. Kite: "Well it’s both. We’ve traditionally
liked to balance our development pipeline with good acquisitions, so we’ve tried to
be somewhere in that 50/50 range. However, it’s also driven by opportunities, so
there are going to be times where there are more development opportunities and there will
be times where there are more acquisition opportunities. So far we’ve looked to try
to balance those and we want to continue to do that."
CEOCFOinterviews: How do you continue to grow the value of
your properties?
Mr. Kite: "Ultimately, it comes back to the other
question that you asked, which was ‘what differentiates you’. I think having
strong real estate, and the old adage is ‘location, location, location. People have
been saying that for years and to some degree it’s still true. You have to have a
really strong location in order to drive rents. Tenants who are doing real well from a
sales standpoint are much more likely to pay an increasing rent, where as if you are in a
weaker location that is less likely. So that’s one big area and the next is just
providing really good customer service."
CEOCFOinterviews: What do you do there that might be
different from other companies?
Mr. Kite: "We try to stay involved, we try to have a
very active asset management team, and asset management program. For example, when we are
in the development stage and we are developing a property, many times once the property
starts construction there’s not good communication between the construction group and
the leasing group and the asset management group. We take a lot of pride in making sure
that there is good communication and we are constantly touching base with the tenants as
we are building out the space; getting them their schedules, meeting with them, dealing
with their concerns and not just saying that the lease is signed and we’re moving on.
That is a very important thing and then in an operating center it is very similar in a
sense that it’s customer service. We absolutely have to stay in touch with our
tenants; we have to be proactive to understand their needs. If they are doing well
that’s obviously easier, if they’re not doing well that’s also very
important. I think that it’s just like any other business; it requires TLC."
CEOCFOinterviews: Does selling properties fit into your
strategy?
Mr. Kite: "Yes, we have been an active recycler, which
is the term in our business. We have been very active in the past five years, in which we
have sold about $350 million worth of properties. Of course the goal when you do that is
to reinvest it so you are always selling them at a lower cap rate and investing at a
higher cap rate. We will continue to do that and we are always looking to make sure that
the portfolio is a more maximizing value. You have to have a program, visa vie, your asset
management department to justify being invested in these properties and to constantly feel
like that’s the best place for our capital to be."
CEOCFOinterviews: Are you looking to expand geographically
into any specific areas?
Mr. Kite: "We are actively looking to expand. For
example, near the markets that we are currently in, we are in nine states right now, which
make up most of the mid-west, parts of the southeast, part of the southwest and part of
the northwest. We are actively looking at all markets in the mid-west and we are looking
at opportunities in Florida, Texas, Washington and Oregon, all are markets that we are
currently in. I think that there are opportunities to expand within them. There is also
good opportunity to expand nearby them."
CEOCFOinterviews: Is this is a good time for REITs?
Mr. Kite: "It’s obviously been a good time for the
REIT (Real Estate Investment Trust) stock market, it’s a good time for REITs in
general. We believe that the REIT vehicle is kind of the future for real estate. Our
opinion is that the REIT market will continue to get larger over time. It will continue to
be able to consolidate properties into it from the private ownership business and I think
that will make it stronger ."
CEOCFOinterviews: Why should investors be interested in Kite
Realty Group Trust?
Mr. Kite: "We are a unique story, because we are new and
we are growing rapidly, but yet we are an established company. This is a company that has
its roots back forty years, so we have a lot of experience, yet a lot of youth and desire
to grow the business. Our portfolio is well balanced and in good markets. We are able to
create good value in a couple of different ways through development and acquisitions. I
think that we are the full picture and we are at this point a real good value relative to
our peer group."
CEOCFOinterviews: Is there much stock available for
investors?
Mr. Kite: "In terms of public float, there is
approximately 18.4 million shares traded and there are approximately 9 million shares of
units. So it’s good and will ultimately get better as we get larger."
CEOCFOinterviews: Is there a focus on reaching the investor?
Mr. Kite: "It is very important. We are very motivated
to be communicating with our shareholder base. Myself and our Senior VP and CFO, Daniel R.
Sink and our EVP of Development and Chief Operating Officer, Thomas K. McGowan and others in the organization are very motivated to make sure
that our investor base understands our strategy. So there is a focus to communicate to the
institutional shareholder and we try to communicate to the retail shareholders; keeping
them up to date with press releases, conference calls etc., portraying the company and
what our objectives are."
CEOCFOinterviews: Does a rising interest rate have an effect
on your strategy going forward?
Mr. Kite: "On a macro level, it’s a very important
metric within the real estate community. Obviously, rising interest rates are a factor
relative to real estate values. On a micro level it comes down to how you manage your
exposure to floating rate debt and what your objectives are and what does it ultimately do
to the value of real estate going forward. We believe that we are clearly in an interest
rate environment that is potentially rising and has been rising, but there is still a
large demand and there will continue to be this demand for quality real estate from
investors. So it’s probably not the only metric to judge a REIT by, but it is a
metric."
CEOCFOinterviews: You have land that you are not developing
yet, could you tell us about that side?
Mr. Kite: "We have 9 parcels of land that are adjacent
to our existing shopping centers, so they would most easily be defined as second phases of
existing developments. That is a very clear growth vehicle for us; beyond the new
developments that we will do. So there is kind of an inventory of raw material, which is
land and we need to act upon that. What it really comes down to is finding the right
tenants and executing a strategy to build new centers or expand existing centers. It is a
great thing to have, but it is only one arrow in the quiver."
CEOCFOinterviews: As a final question, what is the advantage
to your high quality real estate?
Mr. Kite: "It is so important to make good real estate
decisions. It is a fact of life that there are tenants that will come and go. However, the
nice thing is that the retail business is a business that continually recreates itself.
Whenever you are in a business model where two thirds of our economy is the consumer, that
is a good model to be able to deliver product to that large of a scale of an economic
driver. That being said, when you do make decisions on tenancy, it comes down to trying to
manage risk and underwrite such that you can absorb a tenant that would go out of business
or a tenant that would close stores. So that is another strength of being a developer,
because when you are faced with a tenant going out of business, it’s like starting
over and developing the property from scratch. You’ve got to go about it in the same
kind of disciplined way; we think that’s one of our strengths that we can deal with
something like that. It happens and it is unfortunate, but you have to be prepared to deal
with it."
CEOCFOinterviews: So the years of experience work really well
for Kite?
Mr. Kite: "I think so and that’s certainly our
opinion."
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