Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2020 Kite Realty Group Trust Earnings Conference Call. Please be advised that today’s conference may be recorded. I’d now like to hand the conference over to your host today, Mr. Bryan McCarthy, Senior Vice President, Marketing and Communications. Please go ahead.

Thank you, and good morning, everyone. Welcome to Kite Realty Group’s second quarter earnings call. Some of today’s comments contain forward-looking statements that are based on assumptions of future events 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-Q. Today’s remarks also include certain non-GAAP financial measures. Please refer to yesterday’s earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; Executive Vice President and Chief Financial Officer, Heath Fear; Senior Vice President and Chief Accounting Officer, Dave Buell; and Senior Vice President, Capital Markets and Investor Relations, Jason Colton. I will now turn the call over to John.

Thanks, Bryan, and good morning everyone. Thank you for joining us today. The KRG family appreciates that this continues to be a challenging time for everyone, including our investors, tenants, customers, and vendors. I hope this call finds you all doing well. With the global scientific community racing towards a variety of solutions to the COVID-19 pandemic, we’re feeling incrementally more optimistic as compared to our last earnings call. As always, our goal is to provide as much transparency and color as possible within the context of the information we have today. With that in mind, we’ll spend some time today discussing the short-term dislocation and our rent collection activities during the second quarter and for July. As for the long-term impacts of this pandemic, the unknowns, especially as they relate to the timing of a solution, still outweigh the knowns. But we are starting to see some encouraging green shoots and emerging trends that present potential long-term opportunities for our business. Prior to March, we could never imagine an environment where monthly rent collection rates would serve as a proxy for portfolio quality and management team determination. As of today, we’ve collected 80% of our second quarter gross rent, which grows to 82% when applying security deposits. An additional 9% of our second quarter gross rent has been contractually deferred. Therefore, we have 91% of second quarter gross rent addressed, which speaks volumes about how retailers view the necessity of staying in our real estate. As for July, we’ve collected 87% of gross rent today, along with another 2% in deferral agreements. We’re pleased with our sector-leading collection performance as a reflection of the portfolio transformation that took place last year, the tenacity of the KRG team, and the depth of our tenant relationships. With that in mind, I assure you, we will continue to maximize collections. As of today, 94% of our ABR is open and operating in some capacity, up from approximately 51% in April. With respect to the remaining 6% that are closed, 3% have not been able to reopen due to local restrictions, including some of our gym and theater tenants. Approximately 3% of our tenants have chosen not to reopen, and in some instances, the tenant is unable to hire back the staff or has determined it's unprofitable to operate until further regulations are lifted. So what does this mean for the longer-term prospects of our business? As I mentioned earlier, it’s too early to answer that question with any level of conviction. We are, however, beginning to see some silver linings that bode well for KRG and the open-air retail sector. As the pandemic began to take hold in March, predictably, leasing came to a screeching halt. As the quarter progressed and the world was able to grasp the weight of the pandemic, leasing discussions restarted and successful retailers continued their quest for additional and/or better locations. In the second quarter, despite the disruption, we signed 35 leases for 302,000 square feet with comparable leases resulting in a blended cash and GAAP rent spreads of 19.9% and 29.3%, respectively. One key metric to consider is the spread on non-option renewals, which indicates what tenants are willing to pay to stay in their current space. In the second quarter, we signed 15 non-option renewals for an average 12% cash rent spread. These tenants, in the middle of a pandemic, decided to pay 12% more in rent to remain in their space, which is another testament to owning properties where retailers want to be located. I’d like to now shift to what I believe will be four long-term trends in retail real estate. These changes had already been happening, but the pandemic has accelerated their realization. Each of these will be positive for high-quality retail real estate, particularly in our open-air portfolio. First, the demise of struggling retailers has accelerated. As we’ve seen, the pandemic has pushed some struggling retailers to close their doors. While disruptive in the short term, this is positive in the long term. It will allow for the replacement of underperforming retailers with new active, growing concepts. Good real estate will benefit as new retailers flock to fill vacancies left from failed retailers. This is not new to retail real estate, as new concepts have replaced outdated retailers for decades. Second, retailers have ramped up their omni-channel capabilities. Many retailers had already realized that omni-channel was the best way to accelerate sales. But the pandemic has made those not quite convinced realize they need to fully invest in their omni-channel capabilities. There are many reasons why retailers need both physical stores and an online presence to maximize their sales. Our investor presentation outlines these reasons in more detail. Third, buy online and pick up in-store has spiked during the pandemic and expanded to curbside pickup. Larger retailers had already started to implement this as a more profitable way to sell goods. There are no shipping costs, reduced checkout costs, and the opportunity for the customer to buy additional items during the visit. One byproduct of our socially distanced world is that many consumers have experienced this process and the ease at which open-air centers enable them to quickly fulfill their purchases. We believe the ability for customers to purchase items online, drive up to the store, and quickly get their goods is here to stay. To that end, KRG has created designated order pickup areas at most of our centers to assist retailers in fulfilling buy online and pickup in-store and curbside orders. Our tenants have, in turn, gotten increasingly creative by pushing electronic advertisements and coupons to create additional sales while customers are in the center. It’s also important to note that this type of fulfillment is particularly suited for our open-air real estate. This leads me to my final observation. Going forward, we anticipate that the roster of retailers looking for space in our centers will grow. Based on conversations we’ve had with multiple large national retailers, there’s a renewed focus on speed and convenience as essential ingredients to a successful omni-channel strategy. These retailers are also focused on the additional foot traffic that would result from being in a conveniently located open-air center, particularly alongside the grocery component. In addition to convenience, we’re able to offer these retailers attractive rents and common area charges, thereby improving their margins. This pandemic has been the most disruptive global event that I’ve witnessed. Its ability to slowly grind away our collective patience and generate unprecedented levels of personal and professional stress is second to none. At KRG, we keep reminding ourselves that disruption breeds opportunity, and amidst the chaos, we’ve made a conscious effort to channel our short-term frustrations towards unlocking those long-term opportunities. I’ll now turn the call over to Heath to discuss the balance sheet and our current capital situation.

Thank you, John, and good morning, everyone. As was the case last quarter, KRG continues to maintain a strong balance sheet and our posture remains cautious with a focus on capital preservation. That being said, we are feeling incrementally more confident about the business, as evidenced by our decision to reduce our outstanding line of credit balance to $100 million. As of June 30, our net debt to EBITDA was 7.1 times, elevated due to the impact of the COVID pandemic. Please note that we calculate NDE by annualizing our most recent quarter of EBITDA. Therefore, the disruption caused by COVID will immediately appear in our NDE metric. More importantly, our liquidity position remains strong with no debt maturing until 2022, only $9.4 million committed to development projects and the Big Box Surge, with approximately $584 million of liquidity available to KRG. Our capital allocation discipline is evident in our latest redevelopment disclosure. As further detailed in the supplement, this past quarter, we entered into a joint venture to pursue a multifamily opportunity at Glendale Town Center. We are partnering with a local developer to build 267 apartment units on an unused parcel of land adjacent to the center. In exchange for the contribution of land, KRG secured a 12% interest in the venture. The best part about this redevelopment is that our future capital contribution is limited to site preparation costs. Given the recent dislocation, we think it’s important to provide clarity on the bad debt. After examining all of our outstanding balances, tenant by tenant, we are reserving $6.6 million of accounts receivable for the second quarter. Of that total, $4.9 million is related to second quarter billings that we are estimating are unlikely to be collected. $870,000 is related to balances that were outstanding at the end of the first quarter that we now deem uncollectible. The remaining $880,000 is related to non-cash straight-line rent reserves that have already been recognized in income but most likely will not be collected through contractual rent bumps going forward. This is all detailed on Page 17 of our supplemental. As a reminder, primarily due to COVID, we took a $3.6 million bad debt charge in the first quarter. We are far from out of this crisis, and we remain very guarded with our capital. While we are actively looking for opportunities that may arise from this distress, we would be hard-pressed to pursue anything that would be detrimental to our strong capital and liquidity positions. Thank you to everyone for joining the call today. Operator, this concludes our prepared remarks. Please open the line for questions.

Our first question comes from Alexander Goldfarb with Piper Sandler. Your line is now open.

Good morning. So first, the PowerPoint that you guys put out has a lot of good stuff. So thank you to whoever spent time on that or weekends. I appreciate it.

Absolutely. You can thank Jason mostly for that.

Okay. Jason, thank you. And then the other thing that continues to be impressive is the fact that your movie theaters last quarter and this quarter, even though they’re all closed, are still – a good amount are paying rent, which is just really impressive. But let me get to my questions. First, just a big picture. You guys had great rent collections. You have a great balance sheet, limited CapEx needs. You felt comfortable reducing your line of credit balance. Where do you stand on the dividend? And where do you think your taxable income will be this year relative to your need to restore the dividend?

Sure. Well, I think kind of like last quarter in our conversation, Alex, we’re going to continue to see how the quarter plays out. So we will continue to see how the next two months evolve before we make a decision on the third quarter. That said, we have been incrementally more positive this quarter, and we’ve been doing quite well with our initiatives. So we feel good about that. But we still can’t really predict where this goes for the balance of this year. So we will continue to maintain a conservative stance. That said, we are reviewing our taxable income projections. And that remains a key element of what we will ultimately do. So too early to obviously say what it will be at this moment. But when we discuss with the Board in an upcoming meeting, we’ll be discussing all the elements that we just laid out, including our view of the health of our retailers, the cash flow, and so forth. I think we feel good about the decision we made last quarter regarding paying a small amount relative to our projected taxable income, and that’s going to adjust somewhat when we look at this quarter and the next quarter.

Okay. And then as far as the second wave, the COVID outbreaks that especially impacted a number of your Sun Belt markets during the quarter and subsequently, did you see any impact? Did tenants slow down leasing discussions? Were sales impacted? Were your centers impacted? Or as these waves swept through some of your markets in Florida, Texas, etc., did your portfolio really not notice a difference?

Well, I can’t comment on waves because I’m not quite certain that I would suggest that it’s a wave versus just an extension of what was already there. Initially, there was a lot of focus, particularly media focus on Texas and Florida, maybe three weeks ago. But quite frankly, the massive strain on the hospital systems that was projected didn’t materialize really from our view in a way that significantly changed people’s daily lives. So I think as it relates to Florida and Texas, where we were potentially most impacted, we really did not see that. And as people have become more accustomed to their daily routines, I think, in our particular locations, people have taken to wearing masks and feeling a little more comfortable going out and going about their daily lives. So we benefited from that. Therefore, we did not see significant pullback in any way. Discussions about, boy, could that happen, but look, it’s early yet on that. That’s why I don’t want to suggest that there was a wave that has now gone down. The reality is this will continue to be with us for quite a while. We think the strength of our real estate has really come to fruition here. The actions we took last year with Project Focus are helping us do well. The strength of our real estate has been significantly misunderstood, and it’s why we’re currently performing well along with the fact that we have a great team and strong relationships that are intensely pursuing collections.

Thank you, John.

Our next question comes from Christy McElroy with Citi. Your line is now open.

Hey guys. I’ll echo Alex’s comment. Thanks for the status breakout of the Q2 billed rents and collections in the presentation. It’s helpful. I’m wondering if you could provide that same info for July. I think, John, you said in your comments that, on top of the 87%, you’ve deferred another 2%. Is that right? And then, obviously, collections have improved. But can you provide more color on the status of the unresolved buckets in terms of what’s still in pursuit versus what’s unlikely to be collected? And some color on your strategy for dealing with that unresolved bucket as it stands today.

Sure. I think we can all chip in on that. Strategy-wise, it’s the same, Christy, as it has been since early March when we started to focus heavily on this and created our SWAT team that meets every day. It’s a bottom-up strategy that continues to be bucketed, where we have different approaches with the small mom-and-pop tenants versus the large nationals. As it relates to that, the majority of the large nationals have been very good partners, and we haven’t really encountered very difficult situations there except maybe a couple of cases. We can’t get that granular on July yet per category, but suffice to say, we think we’re tracking to do better than we did in the quarter. Heath, do you want to provide detail around those other buckets?

We’re still making progress in terms of negotiations with a variety of tenants. I will say the encouraging fact is that right now, between tenants complying with their lease and those we have affirmed deferral deals with, it’s over 90%. So we’re really chipping away at the last holdouts that have not come to the table yet with a reasonable landlord and tenant-friendly scenario. It’s dynamic, and we’ll keep pushing. Our July number is likely to keep increasing because, as we all know, we can keep collecting rents even after the month is over, and we’ll keep doing it.

Yes. I think we’re confident that what’s billed and unpaid, Christy, we will still pursue, and the majority of that will be paid. That’s our macro view.

Okay. Thank you. And then as you think about your liquidity and your capital position today, how do you think about taking advantage of any private market dislocation to buy assets, given that you don’t really have anything committed in the value creation pipeline? Debt maturities look okay. What gets you comfortable with putting capital to work in acquisitions potentially?

Yes. I think it’s a great question. It’s what we were trying to express with our comments regarding how, usually in times of great chaos, opportunities arise. We believe we are in a strong position to try to take advantage of that. However, it’s still a little early, and I know people keep asking that. The opportunities haven’t really presented themselves that would be real estate we would want to own at a dislocated price. The couple of transactions we’ve seen have gone off at very low cap rates. My personal opinion is that cap rates will, if anything, come down due to the reduced NOI and more upside potential. With the 10-year at 50 basis points, who knows? We’re not predicting interest rates, but we are actively positioning ourselves to take advantage, although we haven’t seen the right opportunities yet, Christy. That’s why we’re hanging around the rim.

Thank you.

Our next question comes from Todd Thomas with KeyBanc. Your line is now open.

Hi, guys. This is Ravi Vaidya on the line for Todd Thomas. Hope you guys are doing well. I wanted to ask a few questions about the rent collection data. Can you comment on how they trended between national versus local tenants for the second quarter?

Sure. Our local tenants, the mom-and-pop shops, were 76% collections for the second quarter and 79% for July. The nationals were probably 3% to 4% higher for each period, so call it 82% and 84% for the nationals.

Great. And just about the restaurants. I noticed that the rent collections for the quick-service and full-service restaurants are very similar. We’ve seen a larger delta between these two sub-sectors. Can you offer any additional color?

I think the reason you’re seeing these numbers similar is that in the full-service restaurants, we don’t have a lot of fine dining establishments, which have been the hardest hit. Our full-service tenants have been quite creative in terms of takeout and curbside pickup. So the full-service restaurants we do have are not primarily those high-end fine dining experiences facing the same decline.

Okay. And just one more question on the soft goods collection. I noticed that they’re 99% open in August. Q2 collections are somewhat significantly less than that. Can you offer any color for that? Is that because they opened up later within the quarter?

I mean each tenant has its own individual set of circumstances. I wouldn’t generalize there. In the initial stages of the pandemic, those stores were disproportionately impacted. As we began to open up, they are doing better. So we expect that they will catch up over time generally with our overall collections.

Okay. So you expect that to grow in July and in the future?

Yes. We expect growth. I don’t know exactly when, but we expect improvement. The point I was making earlier is that if we’ve already addressed 90% of our rent in July, we are doing very well, and we’re bound to improve things on the margins.

Our next question comes from Craig Schmidt with Bank of America. Your line is now open.

Thank you. I was wondering what your expectation is for occupancy by year-end versus the end of 2Q 2020? And that would be for small shops as well as total.

At this point, Craig, we’re not going to give a projection like that because we just don’t know. Our message is that our real estate is superior to what some may perceive. Therefore, we’ll see what that means for occupancy. One thing we will never do is try to preserve occupancy in a panicked way. We won’t make deals that damage long-term value, which is why we’re proud of our leasing spreads and volume last quarter.

Okay. And then just wondering about the consumer traffic at your Las Vegas properties. How are they doing?

We’ve done well in Las Vegas. They took a significant early hit, but they are doing their best to bring people back. Bottom line is, it performs in line with our properties across the country. I think people need to consider the individual real estate within the market more than the macro situation. Our community shopping centers, many of which have grocery components, average 140,000 square feet. In this BOPIS environment we discussed, we own the right real estate. We’re outperforming right now. Long run, Vegas is a great market for us. But most importantly, I think the focus needs to be on the individual micro situations instead of the macro trends.

Okay. Thank you.

Thanks.

Our next question comes from Floris van Dijkum with Compass Point. Your line is now open.

Thanks. Good morning, guys or afternoon, I guess, depending on where you are. Can you perhaps comment on August trends? And how much more improvement can you get from here?

Floris, in terms of August, we can’t share a lot of detail since it’s the first week. But so far, we’re on track. We have set goals for every month, and these goals continue to rise. Those are our objectives to push higher. Therefore, we feel good about the path we’re on, but it’s too early for greater detail.

Thanks, John. Some of your peers have mentioned the benefits of being well capitalized during this pandemic, stating that they are starting to see that play a bigger part in discussions with tenants. Can you comment on KRG's position in your markets relative to some of your competitors, and also on how the perception of KRG in the overall REIT market may change moving forward?

Three things to address. First, the retailer knowing they’re dealing with a strong company that will survive and thrive is a factor in their decision-making as it relates to real estate. As I noted, the real estate itself is crucial, but having a REIT with approximately $600 million of liquidity and the capacity to help and invest with them is vital. Tom, could you discuss the individual retailer perspective?

Yes. From a retailer perspective, one of the things we’ve focused on is taking a long view. This isn’t a sprint; it’s a marathon. Thus, we’re engaged with our customers on a long-term basis, understanding what’s best for the real estate. We believe we have enhanced relationships during this period by working together. We’ve increased communication, which is crucial, and we trust that we are positioning ourselves better with tenants moving forward. Relationships and trust matter greatly going forward.

Relative to your question about our position versus peers, ultimately, our message is that our real estate is strong. We believe public markets have failed to appreciate the robustness of our real estate and the improvements we made last year. When looking at stock prices and discounts, the impact on our collections and strength further underscores the point we’re making. Collectively, we’re collecting rent at a pace similar to that of companies trading at higher multiples. Therefore, we intend to keep grinding and making progress with our partners, the retailers. We are confident in our company and want the investment community to recognize the opportunity in KRG.

Thanks. I appreciate that.

Thank you, Floris.

Our next question comes from Chris Lucas with Capital One Securities. Your line is now open.

Good afternoon, everybody. John, just kind of following up on that. I appreciate the comments and certainly trying to figure out what may lead to your relative outperformance on rent collection. Is there anything obvious that relates to tenant line of business exposure or anything along those lines? Additionally, do you feel like your relatively modest portfolio size compared to public peers allows for more direct conversations with tenants at the C-level rather than at a more regional level? Do you think that has an impact on your collections?

That’s a good question. Our size allows us to be essential to the right retailers while still being small enough that we can maintain a personal touch. Our portfolio may not be huge, but it’s substantial enough that we remain personally involved in discussions. Ultimately, the real estate and the 30-plus years of relationships we've built matter more than size. Regardless of whether we own 500 centers or 100, what counts is their location. As Tom said, we approach this proactively, keeping discussions active and in front of partners at all levels. The C-suite of these retailers has significant responsibilities, and we’re empathetic to that. But, we also have our own challenges, which drives our commitment to remain engaged every step of the way.

Okay. Thanks for that. Heath, could you give us a sense of the ABR exposure of tenants that filed for bankruptcy in Q2?

Yes, sure. For the tenants that filed bankruptcy in Q2, our total ABR exposure is 2.5%.

Okay. That’s great. Thank you. That’s all I had today.

All right, Chris. Take care.

I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Kite for closing remarks.

Okay. Well, thanks everyone for joining us today. We appreciate it. We hope everyone stays safe and healthy, and we will talk to you soon. Goodbye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.