Kite Realty Group Trust Posts Solid Earnings; Trims Guidance

Kite Realty Group Trust KRG continued to make solid progress in leasing, with the leased rate increasing a substantial 120bps over the quarter. In addition, the Eddy Street Commons development is nearly fully leased at (~96%). Leasing KRG's portfolio is not only important for earnings, but also improving net debt / EBITDA given KRG's higher than peer leverage. KRG continues to trade at a substantial valuation discount to peers which Citi thinks is unjustified. KRG is at an 8.4% implied cap rate versus shopping centres averaging 6.8%. With increasingly firm valuations across the REIT sector, we believe interest will increase in ‘value' and/or ‘small cap' REITs of which KRG fits both bills. Citi maintains its Buy rating and model portfolio overweight. Guidance was lowered by 2c at the high end to $0.42-$0.45. However, the decline was largely factored in, with Citi's estimate already at 42c, and the Street at 43c. The 3Q FFO result of 11c was in line with expectations and the Street. Citi has a Buy rating and a $6 PT on KRG KRG closed Wednesday at $4.78