Good day ladies and gentlemen, and welcome to the Kite Realty Group Trust Third Quarter 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to Maggie Kofkoff, Head of Investor Relations. Ma'am you may begin.

Thank you and good morning everyone. Welcome to Kite Realty Group's third quarter 2015 earnings call. Some of today's comments may contain forward-looking statements that are based on assumptions and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the company's results, please see our SEC filings, including our most recent 10-K. Today's remarks may also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for a reconciliation of these non-GAAP performance measures to our GAAP financial measures. On the call with me today from the company are Chief Executive Officer, John Kite; Chief Operating Officer, Tom McGowan and our Chief Financial Officer, Dan Sink. And now, I would like to turn the call over to John.

Thanks Maggie. Good morning, everyone. Welcome to our third quarter earnings call and thanks for taking the time to join us today. I am very excited to share the successful efforts we made this quarter as the team's outstanding momentum allowed us to post robust results across our business platform and beat even our own expectations. Thanks to the hard work of the entire Kite team, we've elevated our operating performance, completed our acquisition guidance with portfolio enhancing properties, increase same-store NOI by over 3% with over 90% of our assets in the pool and continued our redevelopment efforts and further strengthened our investment grade balance sheet. Before we turn over to questions today, I would like to highlight some of the key accomplishments from the quarter. First, we fully redeployed the proceeds from the 15 properties we sold by acquiring Chapel Hill Shopping Center in an off market transaction. Chapel Hill is a 200,000 square feet grocery anchored power center located in the Dallas-Fort Worth area and well positioned and well positioned among a population of 275,000 within a five mile radius. The center is anchored by ATBs premier central market, which is one of the highest sales volumes in our portfolio. In addition to the upscale grocer, the shopping center is also anchored by the container store and cost plus world market. With this final acquisition we've substantially upgraded our portfolio with another five extremely high quality assets while remaining a net seller of approximately $100 million in this low cap rate environment. The recently acquired properties have an aggregate average base rent of nearly $20 per square foot and are located in our core that exhibit strong demographics with high growth potential. In comparison to the assets we sold, the acquisitions are surrounded by three times the…

Thank you. [Operator Instructions] Our first question is from Todd Thomas with KeyBanc Capital Market. You may begin.

Hi thanks, good morning. Hey John, the stocks rebounded a bit from the summer months, but as you think about your business whether leasing, redevelopment, new investments how is the stocks volatility impacted your decision making if at all? Are there certain projects in the pipeline maybe that you would consider moving forward into the active pipelines either development or into the 3R pipeline if your equity cost or capital were lower?

Hey Todd, look I think we are so much -- we're so focused on execution right now and operating results that obviously when we look where the stock is, the cost of equity is a factor in everything we do. We're fortunate as we mentioned that we're generated significant free cash flow and that’s why -- that’s so important to us. When you look at our redevelopment pipeline when 50% of that is funded with free cash flow and it gives us a lot of other flexibility -- it gives us more flexibility and also you've seen that we were a net seller this year of $100 million. So, we think we’ve got adequate sources to fund internally what we're doing without materially changing our leverage metrics. Of course we wish that the stock price was reflected a result a little more, but we think that’ll happen and we think that clearly this was a big quarter because we were bringing online the Inland assets that many people weren’t sure what would happen with that and we display pretty clearly that we drive NOI, that’s what we do and we drive cash flow. We were able to take those assets and grow them. As I pointed out, in fact we grew the renewal spread higher in that portfolio then the balance. So Todd we feel good about. We feel good about the cash flow it’s growing every day and these redevelopment projects will get done. So, understand your thought and question, but fortunately, we have the ability to self fund the majority of that.

Okay. And then looking at the development and active redevelopment, so about $10.4 million of remaining NOI that’s expected to come online from those five projects, you can just walk through the timing of when that will come online. All of the projects are expected to stabilize it looks like by the third and fourth quarters of '16, but some of the NOI like at Parkside in particulars already coming online, I’m just curious if you could kind help us understand the timing a little bit.

Sure, Todd I think one thing we try to add to the supplemental was kind of more of a stabilization first tenant and I think that’s important when you look at like Holly two and Tamiami Crossing, Tamiami we’re going to have almost all the tenants open, pretty close at the same time as we’re completing their large development and our Holly Springs, we have DSW bed bath and the movie theater. The movie theater I think opens up in the second quarter of 2016 those other two tenants will be obviously as the movie theater opens, there are some initial co-tenants each relative to when the movie tied -- opening at the movie theater. So that’s why we put the stabilization dates within. So I think Parkside II were about 57% occupied, again that’s the movie theater field and strain gulf galaxy and then the shops were opening with some restaurants. That’s going to continue throughout and that’s why as well we’re going to put the stabilization in that asset. So hopefully the supplemental will help guide more folks to win 85% to 95% leased.

Right so, basically what’s you are saying is that it won’t be a lot of add in the first quarter and most of that will come from the second to the fourth.

Okay, got it.

Todd the one other thing I would add is all these projects all five that you mentioned early through any form of risk in terms of delivery, they're all far enough along through the entitlement through the vertical construction phase that we feel very good in terms of completion and the timing is tied to what Dan said.

Okay. So essentially the $10 million of NOI should be recognized by the end of '16 on an annualized basis?

Yeah, if you were to run rate the fourth quarter, yes.

Got it. okay that’s helpful and then, just looking at your anchor expirations in '16, there is also a few that remaining in '15, any opportunities to get some of those back or have an opportunity to renew those at fair market value or did they have all of options.

Most of them have options Todd and we're already actually timing as a couple of those have already been renewed this quarter and the fourth quarter. So we don’t have any real issues there and the majority of them will just be hitting options. As is typical with the anchors we generally have more flexibility on the shop side but when you look at our retention rate this quarter was extremely high I think it was around 90% so, feel pretty good and but, look if you look at the roll over on anchors on terms of rent that’s remaining in 2015 you can see its well below our average so you should assume that we’re getting some increases there just from the option and the same thing when you look at our shop roll over is also below our average.

Okay, great. Thank you.

Thank you.

Thank you. Our next question is from Vineet Khanna with Capital One. You may begin.

Yeah, hi good morning.

Good morning.

So, just on the leasing activity during the quarter, can you breakout how much of that was sort of from tight legacy versus Inland and then, what for the vacant space what the average time was at that space with the vacant?

So, first question in terms of we did a 107 deals so that was pretty balanced across the portfolios. I don't have in front of me the exact number per property, but you can just assume it's balance because it was 107 deals. In terms of time vacant, the spreads that we report are properties that have been vacant less than a year. Our spaces had been vacant less than a year which is what majority of people do in terms of reporting. We obviously did some other deals that were outside of that. So generally in terms of the spreads you are talking about the spaces that have been vacant less of the year.

Okay and then I guess shifting gears a little bit can you just talk about sort of cap rates and IRRs and where they sit today and then versus six months ago as well as any changes in the bio pool.

Well, I think in terms of cap rates they’ve maintained more they have been for the last six months I would say, I don’t think we’ve seen much movement either down or up I think cap rates have been fairly stable obviously depends on the asset, depends on location and whether this particular assets being fully marketed or not but clearly cap rates for the quality assets that we owned are generally in kind of the high five range, some below six, but not much -- most of it would be in the mid to high five range. And mainly that’s driven off of the fact that there isn’t a lot of available supply of high quality real estate and there is not a lot being replaced. So there is very little construction and that’s also a big factor in cap rates by the way which is if you are selling high-quality assets there are not very many high-quality assets that are being built and that’s just going to drive the values even more. From an IRR perspective obviously if you're buying something in the mid five range your unleavened IRR is going to be kind of low six. So, that’s still the case today on an unlevered basis.

Sure and then Dan, how is the pricing looking for the swap to six and the recently announced term loan?

Yeah, I think, we're looking that that as far as these swapping a portion all of that term loan and I think again one of the things that we want to point out is that we are able to get delayed draw features, so we will be taking that down a portion of before the end of the year, portion of the end of the first quarter '16, and portion at the end of the second quarter of 16. So, as we look at that swapping [indiscernible] right now you can swap at for the full seven year, it’s been full seven year period for all in cost of lower threes. So, I think that’s one of the reasons, we want to execute on that’s really good piece of paper we appreciate the banks that participated and deal with us.

Sure, and that’s it from me, thanks for the time.

Thanks.

Thanks.

Thank you, our next question is from Ryan Peterson with Sandler O'Neill. Your may began.

Yeah, thank you. Just a follow up on term loan question, can you just talked about your thoughts and on how and decide whether you want to swap all just a portion on that what the pros and cons are given the current environment where people really aren’t sure how much or for how long rates will stay low.

Sure. I think Dan and I have both talked about this a little bit. First of all, right now we've got our floating rate debt to slightly below 10%. So we have flexibility, that deal is priced very aggressively and we have to take advantage of that. So, I think there is -- we're looking at it more from a corporate standpoint in terms of how much floating rate debt we have which is greatly improved up at the past, but with the same token we realize there is an eventuality to raise although everyone been wrong on that for five year so, I think we were likely to swap it, we haven’t made that final determination on whether would be the total amount or percentage up. But we look at it really in a macro way trying to understand what we're doing looking at our maturities schedule. One thing that people probably don’t talk about enough is the maturity schedule itself is as important as what you're doing in terms of rates. So we are combining those and looking at that, but generally speaking we're certainly aware that we're in a very favorable rate environment and we were likely to take advantage of that, Dan you want to

Yeah, I think John is exactly right, looking at it in totality with the rest of the debt pool and I think one of the factors of getting to late draw feature which I kind of talked about would be that we can real time decide if we take down a portion of it at the end of the year a portion of it in the first quarter we swap those out maybe we're in the final drawl as floating. So it gives us a lot of flexibility and in addition to that term loan typically in term loan you have a pre payment penalty and 2% year one, 1% year two and then you have no payment -- pre payment penalty from year three, four. So, it really continues to give us a lot of flexibility if opportunistically we want to hit the public bio market. So not only the real flexibility relative to this swapping environment but also relative to continuing to push out our maturity schedule.

Great, thanks and then just one more question on different topic, you guys talked in the past about wanting to grow in the New York market, could you just talked about your approach here given it’s natures kind of establish market it’s often driven by long standing relationships and how you break into that.

Sure, we have already broken into it so if you look at what have we done, we've got obviously City Center and they came from the Inland acquisition but Livingston which is in one of the best suburbs in the city, in terms of the area was done in a off market transaction essentially being the property was going to be marketed we were able to get them to negotiate with us without going to the full marketing process. So we -- the relationships that we have are national, that’s part of being a national landlord. We have national relationship. So we like, we recognize that it’s a difficult market to break into on a one-off basis and we recognize it generally is priced at such, when you look at the asset -- the Livingston asset and you look at the quality of it and the fact that we were able to get that, you build these things one on a time until you have a bigger opportunity. So we now have three large assets in the New York metro that’s done like a lot but its hard to do so we’re pleased with it and when you look at the ability to redevelop City Center, there is a property that’s been sitting there quite sometime in the same condition and we have an extensive plan that’s going to really drive results that’s exciting to us.

Great, thank you.

Thank you.

Thank you. Our next question is from Craig Schmidt with Bank of America. You may begin.

Thank you. On the increase for more sub space by 130 Bps I wonder if you could characterize that as small businesses, national players or franchisees?

Craig, it’s a combination of the 107 deals we did. I think the majority was national deals although when I say national remember we’re talking about many of these small step deals are franchise operators that are national franchises but are located either locally or operated either locally or regionally. So it just balance clearly there is more activity in the smaller shop space and there is more definitely more interest in those spaces below 10,000 feet then there were a year ago but its balanced and we focus on credit quality too so some of them is driven by us focusing on credit quality and not just leasing to anybody that to shows up so but its good we’re in a good space right now.

Craig the other thing I would add is that we may a concerted effort to increase the quality of our team. We had a lot of space in particular in the State of Florida but we’ve really gotten after that and great coverage in that space and as you would attack and you reach towards your goals and you’re going to see results so we’re starting to see that come and so we tried great opportunities with tenancy like John said but either more importantly the team has a attacked and we’ve gotten the right resources to make it happen.

And you think the space is sustainable.

Yeah, I think as we said and we're still very focused on getting into 90% leased in the small shops. If we could do a 130 basis points over the next couple quarters we would be there, but in this business you also lose small shop tenants and you got to replace two for one. So we did a great job this quarter our team is very focused as Tom said. There is a major emphasis on it because we’re essentially full in the box side so that the emphasis is here and I do think we can continue it but we’re not going to sacrifice either quality or revenue growth just to get occupancies so it’s a balance to all three of those things.

Great and then Livingston Shopping Center in Chapel Hill, both have pretty healthy occupancies I wonder where the that you see may be on near term growth potential with those assets.

Well, in terms of the Chapel Hill asset and actually they are both similar, but in Chapel Hill that asset was -- is first of all large enough and well enough positioned that, there is a hand, there is a healthy amount of the small shop space there that was leased in a local way and the landlord is the local landlord, good landlord but only a owns a few assets looks at very differently than we would. So I do think there with rollover we do have an opportunity to grow NOI and increase the merchandising mix. I said it in the prepared remarks but that HEB central market is a machine in terms of -- you're talking about sales well over thousand a foot. So yeah we think we can do that it takes time and its more of a remerchandising, growing their rent story in terms of Livingston, we think overtime we may be able to add some GLA there it's going to complicated. We think that’s possible. We also if you remember, there are several of those tenants that have percentage rents opportunities for us and since they all just opened recently we had some good visibility on growth. So, we think we can get some percentage rent there and then over time we hope we can add some GLA. So of the two that was a little different but again, building our core asset base in that region is very important to us.

Great. Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question is from Christy McElroy with Citi. You may begin.

Hi, good morning.

Good morning.

I just wanted to follow up on Craig’s question on small shop if I think about the 130 basis point pick up in leasing during Q3, what -- can you tell us what the small shop commence -- is today relative to the 87.5% leased rate and may be if you can give us a sense for sort of the trajectory of when you expect that leasing that leasing start to commence and impact same-store cash growth.

Yeah, Christy this is Dan. I think as you look at same store pool which includes over 90% we have about a 180 basis point spread between economic occupancy and leased percentage I think as you look at that 180 basis point something its like a majority of those as you know would be small shop tenants because we have very little anchor leasing to do. I would say there is probably 70 tenants on that and the of those 70 probably its combined our small shops so I would say that gap is going to close, there is also side basis that will become over the next three to six months so I think when you look at that gap been closed up from a same store perspective which is where we primarily track economic versus least that should be come in online over that period of time.

Yeah it should be fairly tight.

Okay and John you mentioned in your opening remarks that any remaining liquidity after considering the reason that offering would go to redeeming the preferred can you sort of expand on that do you have any remaining capital needs to fund that redemption just trying to line up the sources and uses and whether not you’re looking to sell assets essentially?

Sure, yeah I think Christy our objective there is to get as much of that $100 million vis-à-vis the remaining liquidity and potential asset sales. We’re trying to do as much in other words as much as with cash as we can. We do have about a $100 million of assets on the kind of on the market right now from a gross perspective and we think there is a potential of a may be closing on, close to half of that by year end which we would use the proceeds from that to go against the preferred and then probably into the next quarter Q1 for the balance of that of those sales proceeds and then approximately $30 million of a left over liquidity from a term loan and so you put all that together and that’s probably somewhere between $70 million and $100 million that we have here mark for that.

Okay and then given all of the moving part may be you can also comment on leverage, if you think about the trajectory what should that look like over the next year?

Well, over the next quarter and over the next year are probably different things I think over the next year our anticipation is that our debt to EBITDA plus preferred because we below the eliminated before we’ll get back down into that mid six range and now picked up little bit going into the end of the year via the acquisitions and the couple of the development projects. So I think our goal and our intention is still to operate in that lower six time six to mid six debt EBITDA , debt plus preferred to EBITDA so that is very achievable with the $10 million coming online over the next year and remember that we’ve already spent majority of that to get the $10 million and then we’ve got obviously as we pay out the preferred we're in a better position from a cash flow perspective. So definitely we think its not hard for us to get back to the lower to mid six debt to EBITDA range.

Great, thank you.

Thank you.

Thank you. Our next question is from [indiscernible]. You may begin.

Good morning.

Good morning.

Can you all talk about your watch list or any tenants that you have concern what’s closing in the first quarter?

I think Carol it remains, we're looking at what's going on with the in the office supply space with the merger pending. That's the biggest focus for us and that seems to ebb and flow. But we would anticipate it happening and we're deep into that. So beyond that, I am not seeing any other concerns. We have no -- if you're thinking about the pharmaceutical side, we've no dates in our portfolio. So if the Walgreens deal happens, that doesn’t impact us. There is really beyond that. It's just kind of the normal maybe some we focus on the small shop side, but in the national tenants there is really nothing else that concerns us.

Thanks.

Thank you.

Thank you. I am showing no further questions. At this time, I would like to turn the call back over to John Kite for closing remarks.

Okay. Well thank you very much. We appreciate everyone's time and look forward to seeing you soon.

Ladies and gentlemen that concludes today's conference. Thank you for your participation and have a wonderful day.