Increases Kite Realty’s portfolio to 131 properties totaling more
than 20 million owned square feet in 26 states with a combined
enterprise value of approximately $3.9 billion
Meaningfully increases Kite Realty’s equity market capitalization to
$2.1 billion and improves the company’s leverage and credit profile
Kite Realty management to continue to run the combined platform from
its Indianapolis headquarters
INDIANAPOLIS--(BUSINESS WIRE)--
Kite Realty Group Trust (NYSE:KRG) (“Kite Realty”) announced today that
it has signed a definitive merger agreement with Inland Diversified Real
Estate Trust, Inc. (“Inland Diversified”), pursuant to which Inland
Diversified will merge with and into a wholly owned subsidiary of Kite
Realty in a stock-for-stock merger with a transaction value of
approximately $2.1 billion and an equity value of approximately $1.2
billion (the “Merger”). The Merger is currently expected to close late
in the second quarter or in the third quarter of 2014, subject to the
approval of shareholders of both companies and the satisfaction of other
customary closing conditions.
The Merger brings together two highly complementary shopping center
retail portfolios with a combined asset base consisting of 131
properties totaling 20.3 million owned square feet across 26 states. The
combined company will have a total equity market capitalization of
approximately $2.1 billion and an enterprise value of approximately
$3.9 billion, based on the closing trading price of Kite Realty’s common
shares on February 7, 2014.
John A. Kite, Kite Realty’s Chairman and Chief Executive Officer said,
“We are extremely pleased to announce what is a transformational
transaction for our company. Inland Diversified has assembled a very
well located, high quality portfolio. The asset and tenant quality and
strong demographic profile will be a great complement to our portfolio.
With this transaction, we will be able to substantially increase the
size and scale of our portfolio in our core markets and enter into
attractive new markets. This transaction will further strengthen our
balance sheet and enhance our cash flow, positioning us favorably for
future growth and shareholder value creation.”
Strategic and Financial Benefits
Kite Realty expects the Merger to result in a number of strategic and
financial benefits for Kite Realty shareholders:
- High Quality Portfolio with Attractive Valuation. Inland
Diversified’s portfolio is comprised of 57 retail properties that are
95.3% leased as of December 31, 2013. The portfolio, which has high
quality assets and a strong tenant base, is located in very desirable
markets with higher annualized base rent and enhanced demographics
compared to the existing Kite Realty portfolio. The valuation of the
transaction is compelling, with a projected 6.6% 2014 estimated cash
capitalization rate and an implied purchase price of approximately
$195 per square foot, which Kite Realty believes to be significantly
below replacement cost.
- Increased Size, Scale and Diversity. The transaction
will enable Kite Realty to significantly increase the size and scale
of its business in its existing core markets and provides entry into
attractive new markets, including Westchester (NY), Bayonne (NJ), Las
Vegas (NV), Virginia Beach (VA) and Salt Lake City (UT). The number of
Kite Realty properties will increase from 74 to 131, and the total
portfolio size will increase from 10.1 million owned square feet to
20.3 million owned square feet. Kite Realty also intends to improve
operations and create value through its extensive redevelopment and
repositioning capabilities.
- Enhanced Balance Sheet and Liquidity. The
transaction will materially improve Kite Realty’s leverage, debt
service coverage and other credit metrics. The company’s pro forma net
debt to 2014 estimated adjusted EBITDA is expected to improve from
7.3x to 6.5x. Kite Realty shareholders also will enjoy a substantial
increase in public float and shareholder liquidity.
- Cost Savings and De-Risking. Kite Realty’s scalable
platform will enable the company to acquire the portfolio and achieve
substantial administrative and operating synergies, as the company
estimates it will be able to achieve $17-19 million in savings from
Inland Diversified’s operating expense as a result of the termination
of external manager contracts and other cost savings. The transaction
is expected to result in incremental Kite Realty operating expenses of
$6-8 million.Kite Realty expects that its post-combination general
and administrative expense as a percentage of its asset base and
revenues will decline as a result of the Merger, and that the
transaction will reduce its development/redevelopment pipeline as a
percentage of total assets.
- Cash Flow Benefits. Kite Realty’s reduced leverage
coupled with its increased operating cash flow and low dividend payout
ratio will support future potential dividend growth. In addition,
management expects the transaction to be neutral to 2014 estimated FFO
per share after taking into account the significant deleveraging.
Transaction Overview
Under the terms of the merger agreement, Inland Diversified’s
stockholders will receive newly issued common shares of beneficial
interest of Kite Realty in exchange for each share of Inland Diversified
common stock based on the following:
-
1.707 shares of Kite Realty for each share of Inland Diversified
common stock, so long as the reference price for Kite Realty’s shares
(defined below) is equal to or less than $6.36;
-
A floating ratio if Kite Realty’s reference price is more than $6.36
or less than $6.58; such ratio determined by dividing $10.85 by the
Kite Realty reference price;
-
1.650 shares of Kite Realty for each share of Inland Diversified
common stock if Kite Realty’s reference price is $6.58 or greater;
-
The reference price is the volume-weighted average trading price of
Kite Realty common shares for the ten consecutive trading days ending
on the third trading day preceding Inland Diversified’s stockholder
meeting.
Based on Kite Realty’s closing share price of $6.15 on February 7, 2014,
this represents an implied price per share of $10.50 for each share of
Inland Diversified common stock. Based on the maximum and minimum
exchange ratios of 1.707 and 1.650, Kite Realty’s shareholders are
expected to own between 40.6% and 41.4% of the combined company’s
diluted common equity.
As previously disclosed, Inland Diversified has entered into a contract
to sell its single tenant net lease portfolio to Realty Income
Corporation for $503 million and this transaction is expected to close
prior to the closing of the Merger. Additionally, after the closing of
the proposed Merger, Kite Realty expects to dispose of three
multi-family assets owned by Inland Diversified as well as Inland
Diversified’s securities portfolio. The proceeds from these sales will
be used to further repay debt and delever the balance sheet.
Leadership and Organization
Following the closing, Kite Realty’s Board of Trustees will consist of
nine members, six of whom will be current trustees of Kite Realty and
three of whom will be designated by Inland Diversified. John A. Kite,
Kite Realty’s current CEO and Chairman of the Board of Trustees, will
serve as CEO and Chairman of the Board of Trustees of the combined
company, Thomas K. McGowan, Kite Realty’s current President and COO,
will serve as President and COO of the combined company, and Daniel R.
Sink, Kite Realty’s current Executive Vice President and CFO, will serve
as Executive Vice President and CFO of the combined company.
Upon completion of the Merger, the combined company will retain the Kite
Realty name and will continue to trade under the NYSE ticker symbol KRG.
The combined company’s corporate headquarters will remain in
Indianapolis, Indiana.
Timing of Consummation
The transaction is contingent upon the approval by the shareholders of
both companies. A joint proxy statement/prospectus will be filed with
the Securities and Exchange Commission and, following its effectiveness,
will be mailed to the shareholders of both companies. The transaction is
expected to close late in the second quarter or in the third quarter of
2014.
Transaction Advisors
Bank of America Merrill Lynch and Barclays are acting as financial
advisors to Kite Realty and Hogan Lovells US LLP is acting as its legal
counsel in connection with the transaction. Wells Fargo Securities is
acting as financial advisor to the special committee of the board of
trustees of Inland Diversified and Alston & Bird LLP is acting as the
special committee’s legal counsel in connection with the transaction.
Conference Call and Investor Presentation
Kite Realty will host a conference call to discuss this transaction on
Monday, February 10, 2014 at 10:00 a.m. Eastern Time. The conference
call can be accessed by dialing 1-800-798-2864 or 1-617-614-6206 for
international participants (passcode 13279054). An investor presentation
discussing the transaction will be available in the investor relations
section of Kite Realty’s website prior to the conference call. A live
audio webcast will also be available on the investor relations section
of Kite Realty’s website.
About Kite Realty
Kite Realty Group Trust is a full-service, vertically integrated real
estate investment trust engaged in the ownership, operation, management,
leasing, acquisition, construction, redevelopment and development of
neighborhood and community shopping centers in selected markets in the
United States. At December 31, 2013, the company owned interests in a
portfolio of 72 operating and redevelopment properties totaling
approximately 12.4 million square feet and two properties currently
under development totaling 0.8 million square feet. For more
information, please visit the company’s website at www.kiterealty.com.
Forward Looking Statements
Certain statements in this press release that are not in the present or
past tense or that discuss Kite Realty’s and/or Inland Diversified’s
expectations (including any use of the words “anticipate,” “assume,”
“believe,” “estimate,” “expect,” “forecast,” “guidance,” “intend,”
“may,” “might,” “outlook,” “project”, “should” or similar expressions)
are forward-looking statements within the meaning of the federal
securities laws and as such are based upon current beliefs as to the
outcome and timing of future events. These forward-looking statements,
which are based on current expectations, estimates and projections about
the industry and markets in which Kite Realty and Inland Diversified
operate and beliefs of and assumptions made by their respective
management, involve uncertainties that could significantly affect the
financial results of Kite Realty, Inland Diversified or the combined
company. There can be no assurance that actual future developments
affecting Kite Realty, Inland Diversified or the combined company will
be those anticipated by Kite Realty or Inland Diversified. Examples of
forward-looking statements include projected 2014 fully diluted FFO,
share of depreciation and amortization, reported FFO per share,
projected net operating income, cap rates, internal rates of return,
future dividend payment rates, forecasts of FFO accretion, projected
capital improvements, expected sources of financing, expectations as to
the timing of closing of acquisitions, dispositions and other potential
transactions and descriptions relating to these expectations. These
forward-looking statements involve risks and uncertainties (some of
which are beyond the control of Kite Realty or Inland Diversified) and
are subject to change based upon various factors including, but not
limited to, the following risks and uncertainties: changes in the real
estate industry and in performance of the financial markets and interest
rates; the demand for and market acceptance of either company’s
properties for rental purposes; the ability of either company to enter
into new leases or renewal leases on favorable terms; the amount and
growth of either company’s expenses; tenant financial difficulties and
general economic conditions, including interest rates, as well as
economic conditions and competition in those areas where either company
owns properties; risks associated with joint venture partners; risks
associated with the ownership and development of real property; the
outcome of claims and litigation involving or affecting either company;
the ability to satisfy conditions necessary to close pending
transactions and the ability to successfully integrate pending
transactions; applicable regulatory changes; risks associated with
acquisitions, including the integration of the combined companies’
businesses; risks associated with achieving expected revenue synergies
or cost savings; risks associated with the companies’ ability to
consummate the Merger and the timing of the closing of the Merger; and
other risks and uncertainties detailed from time to time in Kite
Realty’s or Inland Diversified’s SEC filings. Should one or more of
these risks or uncertainties occur, or should underlying assumptions
prove incorrect, the business, financial condition, liquidity, cash
flows and financial results of either company could differ materially
from those expressed in the forward-looking statements. Any
forward-looking statement speaks only as of the date on which it is
made. New risks and uncertainties arise over time, and it is not
possible for us to predict the occurrence of those matters or the manner
in which they may affect us. Kite Realty does not undertake to update
forward-looking statements except as may be required by law.
Additional Information about the Proposed Transaction and Where to
Find It
This communication relates to the proposed Merger transaction pursuant
to the terms of the Agreement and Plan of Merger, dated as February 9,
2014, among Kite Realty Group Trust, KRG Magellan, LLC and Inland
Diversified Real Estate Trust.
In connection with the proposed transaction, Kite Realty expects to file
with the SEC a registration statement on Form S-4 that will include a
joint proxy statement of Kite Realty and Inland Diversified that also
constitutes a prospectus of Kite Realty, which joint proxy statement
will be mailed or otherwise disseminated to Kite Realty and Inland
Diversified shareholders when it becomes available. Kite Realty and
Inland Diversified also plan to file other relevant documents with the
SEC regarding the proposed transaction. INVESTORS ARE URGED TO READ THE
JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH
THE SEC IF AND WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. You may obtain a free copy of the joint proxy
statement/prospectus (if and when it becomes available) and other
relevant documents filed by Kite Realty and Inland Diversified with the
SEC at the SEC’s website at www.sec.gov.
Copies of the documents filed by the companies will be available free of
charge on their websites at www.kiterealty.com
and www.inlanddiversified.com.
Certain Information Regarding Participants
Kite Realty and Inland Diversified and their respective trustees,
directors and executive officers may be deemed to be participants in the
solicitation of proxies in respect of the proposed transaction. You can
find information about Kite Realty’s executive officers and trustees in
Kite Realty’s definitive proxy statement filed with the SEC on April 8,
2013 in connection with its 2013 annual meeting of shareholders. You can
find information about Inland Diversified’s executive officers and
directors in Inland Diversified’s definitive proxy statement filed with
the SEC on April 16, 2013 in connection with its 2013 annual meeting of
shareholders. Additional information regarding the interests of such
potential participants will be included in the joint proxy
statement/prospectus and other relevant documents filed with the SEC if
and when they become available. You may obtain free copies of these
documents from Kite Realty or Inland Diversified using the sources
indicated above.
No Offer or Solicitation
This document shall not constitute an offer to sell or the solicitation
of an offer to buy any securities, nor shall there be any sale of
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the requirements
of Section 10 of the Securities Act of 1933, as amended.
Kite Realty Group Trust
Daniel R. Sink, 317-577-5600
Executive
Vice President and CFO
dsink@kiterealty.com
Source: Kite Realty Group Trust