KRG

Business Context and Reporting Period

Kite Realty Group Trust (KRG) is a full-service, vertically integrated real estate company focused on the ownership, operation, and development of neighborhood and community shopping centers. The filing covers the fiscal year ended December 31, 2008. As of year-end, the Company owned interests in 52 retail operating properties (approximately 8.4 million square feet) and three commercial properties. The portfolio was 91.2% leased, a decrease from 95% in 2007, reflecting the impact of the national recession and tenant bankruptcies.

Key Financial Metrics

Liquidity: The Company ended 2008 with approximately $87 million in cash and borrowing capacity, including $77 million available under its unsecured revolving credit facility.

Material Changes vs. Prior Period

• Net Income Decline: Net income decreased 55% to $6.1 million, primarily driven by a $2.1 million loss on the sale of the Silver Glen Crossing property (classified as discontinued operations) and a $4.1 million write-off related to the bankruptcy and liquidation of Circuit City.
• Revenue Growth: Total revenue increased 3% to $142.7 million, aided by a $3.0 million increase in other property-related revenue (gains on land sales) and construction fees, which offset a slight decline in rental income.
• Debt Management: Total indebtedness increased by $30.9 million. However, the Company successfully reduced its unsecured revolving credit facility balance from $153 million to $105 million by utilizing proceeds from a new $55 million term loan and a $47.8 million equity offering.
• Occupancy: Retail operating portfolio occupancy dropped from 95% to 91.2% due to tenant terminations and bankruptcies.

Guidance, Outlook, and Risks

Management Commentary: Management emphasized a shift in strategy from growth to capital preservation and balance sheet strengthening due to the severe recession and credit market turmoil. The primary objective for 2009 is managing debt maturities and conserving cash.

Outlook:

• Debt Maturities: Approximately $84 million of consolidated debt is scheduled to mature in 2009. Management believes it can refinance or extend these obligations but acknowledges the difficulty in accessing capital markets.
• Distributions: In February 2009, the Board reduced the quarterly cash distribution to $0.1525 per share (from $0.2050) to conserve liquidity.
• Development: The Company has a "visible shadow" pipeline of six projects (2.9 million sq. ft.) but will not commence construction until pre-leasing thresholds are met and financing is secured.

Risks and Contingencies:

• Economic Conditions: Continued recession, rising unemployment, and decreased consumer confidence threaten tenant ability to pay rent.
• Tenant Bankruptcies: The liquidation of Circuit City (2.2% of annualized base rent) resulted in significant asset write-offs. Further bankruptcies pose a material risk.
• Financing: Disruptions in financial markets may prevent refinancing of maturing debt on favorable terms or at all.
• Geographic Concentration: Approximately 40% of owned square footage and 39% of base rent is concentrated in Indiana, with significant exposure also in Florida and Texas.

Investor Verification Checklist

• Debt Refinancing Status: Verify the Company's ability to refinance the $84 million in debt maturing in 2009 given current credit market conditions.
• Tenant Solvency: Monitor the financial health of major tenants, particularly those in the retail sector, to assess future rent collection risks.
• Occupancy Trends: Track the recovery of the 91.2% occupancy rate and the impact of vacant anchor spaces on overall property performance.
• Liquidity Position: Confirm the utilization of the $77 million available credit facility and the sustainability of the reduced dividend policy.
• Development Pipeline Funding: Assess the feasibility of funding the $45 million in unfunded costs for current development projects without further equity dilution or debt increases.