Kite drops about 10 percent of its staff as retail market flounders

December 15, 2008
Kite Realty Group Trust has joined local peers Duke Realty Corp. and Lauth Group Inc. in laying off employees as it copes with dried-up credit and a soft retail market.

The publicly traded real estate investment trust this month let go of 15 people, about 10 percent of its work force, as part of an ongoing re-evaluation of its administrative expenses. Most of the departing employees worked locally in construction and project management, areas that have seen a drop in activity, said Tom McGowan, a veteran Kite executive who took over as the company's president Dec. 4.

"In challenging times, we'll be cautious and prudent," McGowan said. "There's no strategy shift; we're just assessing our personnel to be consistent with construction volume."

Kite, which went public in August 2004 at $13 a share, traded as low as $1.94 in recent weeks before bouncing back to near $5 in recent trading.

In November, the company reported its revenue rose more than 5 percent, to $35 million, for the third quarter, while profit slumped from $3.9 million to $2.9 million.

Kite, which just finished a $28 million redevelopment of Glendale Town Center, sold nearly 5 million new shares in October, raising $48 million. All told, the company says it has about $100 million in cash and credit available.

But for now, Kite plans to sit on most of the money.

"We're watching credit markets and confidence of customers to come back," McGowan said. "Until those forces come back in line, we'll be very careful with the deployment of capital."

The layoffs at Kite pale in comparison to the carnage at Lauth, a privately held local developer that quickly grew in recent years as the market boomed. Lauth has dropped more than half its staff this year and now employs about 220.

Duke Realty Corp., which had more than 1,300 employees a year ago, has laid off at least 50 employees this year and also has lowered its head count through attrition. It now has about 1,220 employees, 500 of them in Indianapolis. The office and industrial powerhouse jettisoned its entire retail unit in a bid to focus on its core business and to focus energy on the still-strong health care office sector. Duke's shares dropped as low as $3.85 before rebounding to near $10.

On the other hand, Simon Property Group Inc., the nation's largest mall owner, hasn't laid off any of its more than 3,200 employees, spokesman Les Morris said. Still, the company is moving to reel in expenses and has seen its shares drop as low as about $34 from a 52-week high of $106.

New York-based Fitch Ratings on Dec. 10 downgraded its outlook for real estate investment trusts that focus on retail and office properties from stable to negative. The company cited the recession, stagnate credit markets and average stock prices that are down 60 percent. The firm kept a positive outlook on health care- and apartment-focused real estate firms.

Real estate development is always a cyclical business, so people expect to move around a lot as demand ebbs and flows, said Cindy Schembre, a former senior vice president of retail at Duke who left in 2006 to start her own company, Via Retail Development.

"This downturn might be deeper than in the past, but good projects will always be out there," she said. "There's always going to be land and a need for buildings."

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