SECTOR: Real EstateSECTOR: Real EstateCOMPANY: Kite Realty Group (KRG)COMPANY: Kite Realty Group (KRG)
SR. ANALYSTS: KESHAV AGNIHOTRI AND STEFAN BELL
SECTOR HEAD: ASHWIN TELEKUNTLAJR. ANALYSTS: Mariam Avila, Spencer Morris, Anand Pariikh, Austen Rabbie, Dejvi Shehu Inna Shulman, Alex Staikos
Investment Recommendation
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Company KRG
Recommendation
Buy
Current Price $4.97
1yr Target Price
$6.40
% Upside 28.7%
Key investment drivers 1. Strategic Land Holdings 2. Advantageous Regional Spread 3. Rebounding Consumer Spending
Industry Definition• Retail Real Estate Investment Trusts that engage in the
acquisition, development and operation of shopping centers. These REITS have their primary operations in the continental United States and manage investment funds that own and operate numerous retail properties such as regional shopping centers, megaplex theaters, and restaurants. Revenue generation stems from leasing properties and earning management fees.
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Industry Breakdown
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By Market Capitalization
Revenue Generation
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Long Term
Contracts
Long Term
Contracts
Kite Realty Group (KRG) Trends and Opportunities
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Company Snapshot
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EV $921.39M
Market Cap $319.41M
EBITDA $63.14M
Beta 1.80
Trends: Consumer Spending
• Purchases up 4.1% in the last 12 months • 1% increase through Jan. and Feb. 2011 alone
• Consumer Debt has fallen for 7 straight quarters
• Down 7% from peak in 2008
• Holiday Season Sales up 5% in 2010
• U.S. Unemployment at lowest since April 2009
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Trends: Diversified Big Box Anchors
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•Top performers in recessionary periods
•Big box stores (e.g. Wal-Mart, Target) provide long-term stability
•Brand recognition lures customers to smaller adjacent stores
U.S. Census BureauIbisworld.com
Opportunities: Land Holdings
Portfolio Expansion of 17.4%• Depressed property values have lowered development costs
• 2007: $126/sq. ft.• 2010: $71/sq. ft.
• Occupancy rate consistent at 92.5%• Retail Stability rate: 90%• Industry average: 87%
• Majority of ongoing developments are preleased• 2010: 92.1% Preleased• 2009: 73.1% Preleased
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Total Portfolio GLA
December, 2007 7.0 million sq. ft.
March, 2011 8.2 million sq. ft.
Opportunities: Regional Breakdown (1)
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Opportunities: Regional Breakdown (2)
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Potential Risk: Leverage • Total Debt: $670mm
• KRG EV/EBITDA at 13.9x• CBL: 11.2x, AKR: 16.2x, RPT: 16.9x
• Q4 2010: Issuance of 28M common shares• Proceeds of $67.5M used to pay off unsecured loans of
$55M and $11M
• $75M of debt maturity in 2011• $37M has already been refinanced
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Total Debt/EBITDA
Q4 2010 9.1x
Q3 2010 10.3x
Valuation
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Year 2011(e) 2012(e) 2013(e) 2014(e) 2015(e)
FCF $109,529
$124,863
$141,095
$155,205 $167,621
DCF
WACC 6.93%
Growth Rate
4.00%
DCF Value $974M
1yr Price $5.96
Comparables
Multiple I (50%)
P/FFO
1yr Price $7.46
Multiple II (50%)
TEV/EBITDA
1yr Price $5.9340% Weight
60% Weight
1yr Target Price 6.40% Upside +28.7%
Risks & Sensitivities
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Recommendation
Key investment drivers 1. Land Holdings 2. Regional Spread 3. Consumer Spending
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Company KRG
Recommendation
Buy
Current Price $4.97
1yr Target Price
$6.40
% Upside +28.7%
Questions?
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Competitive Environment
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