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Kite Realty Group Trust Reports Second Quarter 2018 Operating Results

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INDIANAPOLIS, Aug. 01, 2018 (GLOBE NEWSWIRE) -- Kite Realty Group Trust (NYSE:KRG) ("KRG") announced today its operating results for the second quarter ended June 30, 2018. Financial statements, exhibits, and reconciliations of non-GAAP measures attached to this release include the details of KRG's results.

"We continued through the second quarter with strong operational performance and execution on our objectives," said John A. Kite, Chairman and Chief Executive Officer. "We reached several key milestones during the quarter – improving our operating portfolio's ABR, lowering our Net Debt to EBITDA ratio, and raising our liquidity level to an all-time high. We contributed three operating properties into a strategic partnership at cap rates that demonstrate the private market value of our well-positioned, open-air shopping centers while also reducing our leverage. We continue progress on our Big Box Surge, and we expect to complete four additional 3-R projects by year end with solid projected returns."

Second Quarter Highlights
Financial Results

  • Realized net loss attributable to common shareholders of $1.4 million, or $0.02 per common share, including a $14.8 million impairment charge.
  • Generated Funds from Operations of the Operating Partnership (FFO), as defined by NAREIT, of $45.7 million, or $0.53 per diluted common share.

Balance Sheet

  • Generated $89.0 million in net proceeds from the contribution of three shopping centers to a joint venture involving TH Real Estate, a Nuveen company, and used the proceeds to pay down debt.
  • Reduced ratio of Net Debt to EBITDA to 6.5x from 6.8x at the end of the prior quarter.
  • Recast unsecured revolving credit facility, increasing the borrowing capacity to $600 million, reducing the interest rate, and extending the maturity date.
  • Realized an all-time high liquidity level of close to $500 million.

Portfolio Operations

  • Increased Same-Property Net Operating Income (NOI) 1.5% compared to the same period in the prior year.
  • Generated blended cash rent spreads of 10.3% on 66 comparable new and renewal leases – blended leasing spread on a GAAP basis was 16.3%.
  • Improved annualized base rent (ABR) for the operating retail portfolio to $16.66 per square foot.
  • Executed a 56,000 square foot lease at our Thirty South Meridian office building in Indianapolis, stabilizing our office portfolio leased percentage at 96.2%.

Redevelopment

  • Completed Redevelopment, Repurpose and Reposition (3-R) projects at City Center (New York/Northern New Jersey MSA) and Portofino Shopping Center (Houston MSA). 

Financial & Portfolio Results

Financial Results

Net loss attributable to common shareholders for the three months ended June 30, 2018, was $1.4 million, compared to net income of $10.2 million for the same period in 2017. Second quarter 2018 results included a $14.8 million impairment charge relating to certain properties.

For the three months ended June 30, 2018, FFO, as defined by NAREIT, was $45.7 million, or $0.53 per diluted common share, compared to $46.2 million, or $0.54 per diluted common share, for the second quarter of 2017.

Portfolio Operations

As of June 30, 2018, KRG owned interests in 115 operating and redevelopment properties totaling approximately 22.5 million square feet and two development projects currently under construction totaling 0.7 million square feet. The owned gross leasable area in KRG's retail operating portfolio was 93.6% leased as of June 30, 2018, and the total portfolio was 93.7% leased. Small shop leased percentage maintained a strong level at 90.4%

Same-property NOI, which includes 102 operating properties, increased 1.5% in the second quarter compared to the same period in the prior year. The properties included in the same-property pool were 93.7% and 94.7% leased as of June 30, 2018 and 2017, respectively, while economic occupancy was at 93.0% and 93.9%, respectively, for the same periods.

KRG executed leases on 81 individual spaces totaling 356,896 square feet during the second quarter of 2018, including 66 comparable new and renewal leases for 263,997 square feet. Cash rent spreads on comparable new and renewal leases executed in the quarter were 23.1% and 8.2%, respectively, for a blended cash rent spread of 10.3%. The blended leasing spread on a GAAP basis, which includes periodic contractual rent increases over the term of the lease, was 16.3%.

KRG continued progress on its anchor space repositioning efforts (Big Box Surge) with the execution of two new retail anchor leases. HomeGoods leased a 23,364 square-foot space at Centennial Center (Las Vegas MSA), and Ollie's Bargain Outlet leased a 42,250 square-foot space at Colonial Square (Fort Myers MSA). 

Balance Sheet

In the second quarter, KRG contributed three properties (Livingston Shopping Center in Livingston, New Jersey; Plaza Volente in Austin, Texas; and Tamiami Crossing in Naples, Florida) to a new joint venture with a fund managed by TH Real Estate, a Nuveen company, in exchange for a 20% ownership interest and $89.0 million in net proceeds. KRG will manage the day-to-day operations of the properties, for which it will receive property management and leasing fees. The net proceeds received from the joint venture transaction were used to pay down debt. As part of the formation of the joint venture, a 10-year $51.9 million fixed-rate loan (KRG share: $10.4 million) was placed on the contributed properties, bearing an interest rate of 4.09%.

KRG continues to strengthen its balance sheet, as it reduced its ratio of Net Debt to EBITDA to 6.5x from 6.8x at the end of last quarter. KRG currently has only $37.7 million of term maturities through 2020, and the debt portfolio has a weighted average maturity of 5.2 years.

During the second quarter, KRG successfully recast its unsecured revolving credit facility, increasing the borrowing capacity to $600 million and extending the maturity date to April 22, 2023 (which assumes KRG's exercise of two six-month extensions that are subject to certain conditions). It also lowered the leverage pricing across the grid and lowered the capitalization rate from 6.75% to 6.50%. Additional details are available in the Form 8-K filed by KRG on April 25, 2018.

Redevelopment

During the quarter, KRG completed construction on 3-R projects at City Center (New York/Northern New Jersey MSA) and Portofino Shopping Center (Houston MSA). KRG invested $24.8 million in the redevelopment of these assets for a projected combined annualized return of 6.9%. Since inception, projects from KRG's 3-R initiative have an approximate annualized return of 9.4%.

2018 Earnings Guidance

KRG has updated its guidance for 2018 FFO, as defined by NAREIT, to a range of $1.98 to $2.01 per diluted common share. This update reflects reduced ownership of the three properties contributed to the new joint venture as described in the Capital Recycling section of this release. Please refer to the full list of guidance assumptions on page 43 of the second quarter supplemental.

Guidance Range for Full Year 2018 Low High
Consolidated net loss per diluted common share $ (0.23 )   $ (0.20 )  
Add: Depreciation, amortization and other 1.76     1.76    
Add: Impairment Charge   0.45       0.45    
FFO, as defined by NAREIT, per diluted common share $ 1.98     $ 2.01    

Earnings Conference Call

Kite Realty Group Trust will conduct a conference call to discuss its financial results on Thursday, August 2, 2018, at 1:00 p.m. Eastern Time.  A live webcast of the conference call will be available on KRG's corporate website at www.kiterealty.com.  The dial-in numbers are (844) 309-0605 for domestic callers and (574) 990-9933 for international callers (passcode 8090669).  In addition, a webcast replay link will be available on the corporate website.

About Kite Realty Group Trust

Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust (REIT) that provides communities with convenient and beneficial shopping experiences. We connect consumers to tenants in desirable markets through our portfolio of open-air shopping centers. Using operational, development, and redevelopment expertise, we continuously optimize our portfolio to maximize value and return to our shareholders. For more information, please visit our website at kiterealty.com.

Safe Harbor

Certain statements in this document that are not historical fact may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results, performance, transactions or achievements, financial or otherwise, expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to: national and local economic, business, real estate and other market conditions, particularly in light of low growth in the U.S. economy as well as economic uncertainty caused by fluctuations in the prices of oil and other energy sources and inflationary trends or outlook; financing risks, including the availability of, and costs associated with, sources of liquidity; KRG's ability to refinance, or extend the maturity dates of, its indebtedness; the level and volatility of interest rates; the financial stability of tenants, including their ability to pay rent and the risk of tenant bankruptcies; the competitive environment in which KRG operates; acquisition, disposition, development and joint venture risks; property ownership and management risks; KRG's ability to maintain its status as a real estate investment trust for federal income tax purposes; potential environmental and other liabilities; impairment in the value of real estate property KRG owns; the impact of online retail competition and the perception that such competition has on the value of shopping center assets; risks related to the geographical concentration of KRG's properties in Florida, Indiana and Texas; insurance costs and coverage; risks associated with cybersecurity attacks and the loss of confidential information and other business interruptions; and other factors affecting the real estate industry generally. KRG refers you to the documents filed by KRG from time to time with the SEC, specifically the section titled "Risk Factors" in KRG's and the Operating Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which discuss these and other factors that could adversely affect KRG's results. KRG undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Kite Realty Group Trust
Consolidated Balance Sheets
(Unaudited)
 
($ in thousands)        
    June 30,
2018
  December 31,
2017
Assets:        
Investment properties, at cost   $ 3,753,966     $ 3,957,884  
Less: accumulated depreciation   (677,124 )   (664,614 )
    3,076,842     3,293,270  
         
Cash and cash equivalents   32,384     24,082  
Tenant and other receivables, including accrued straight-line rent of $31,164 and $31,747 respectively, net of allowance for uncollectible accounts   53,109     58,328  
Restricted cash and escrow deposits   10,948     8,094  
Deferred costs and intangibles, net   100,809     112,359  
Prepaid and other assets   14,232     12,465  
Investments in unconsolidated subsidiaries   13,873     3,900  
Total Assets   $ 3,302,197     $ 3,512,498  
Liabilities and Shareholders' Equity:        
Mortgage and other indebtedness, net   $ 1,565,429     $ 1,699,239  
Accounts payable and accrued expenses   101,180     78,482  
Deferred revenue and other liabilities   87,338     96,564  
Total Liabilities   1,753,947     1,874,285  
Commitments and contingencies        
Limited Partners' interests in the Operating Partnership and other redeemable noncontrolling interests   48,120     72,104  
Shareholders' Equity:        
Kite Realty Group Trust Shareholders' Equity:        
Common Shares, $.01 par value, 225,000,000 shares authorized, 83,672,700 and 83,606,068 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively   837     836  
Additional paid in capital   2,075,191     2,071,418  
Accumulated other comprehensive loss   5,649     2,990  
Accumulated deficit   (582,245 )   (509,833 )
Total Kite Realty Group Trust Shareholders' Equity   1,499,432     1,565,411  
Noncontrolling Interests   698     698  
Total Equity   1,500,130     1,566,109  
Total Liabilities and Shareholders' Equity   $ 3,302,197     $ 3,512,498  

 

Kite Realty Group Trust
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
($ in thousands, except per share data)                
    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018   2017
Revenue:                
Minimum rent   $ 68,182     $ 68,395     $ 137,147     $ 137,341  
Tenant reimbursements   17,664     18,521     36,036     37,091  
Other property related revenue   4,927     5,733     5,991     8,330  
Fee income   963         2,325      
Total revenue   91,736     92,649     181,499     182,762  
Expenses:                
Property operating   12,621     12,139     25,091     25,091  
Real estate taxes   10,392     11,228     21,146     21,559  
General, administrative, and other   5,553     5,488     11,499     10,958  
Depreciation and amortization   40,451     42,710     79,006     88,540  
Impairment charges   14,777         38,847     7,411  
Total expenses   83,794     71,565     175,589     153,559  
Operating income   7,942     21,084     5,910     29,203  
Interest expense   (16,746 )   (16,433 )   (33,084 )   (32,878 )
Income tax benefit (expense) of taxable REIT subsidiary   28     (3 )   51     30  
Other expense, net   (115 )   (80 )   (265 )   (219 )
(Loss) income from continuing operations   (8,891 )   4,568     (27,388 )   (3,864 )
Gains on sales of operating properties   7,829     6,290     8,329     15,160  
Net (loss) income   (1,062 )   10,858     (19,059 )   11,296  
Net income attributable to noncontrolling interests   (304 )   (678 )   (225 )   (1,110 )
Net (loss) income attributable to Kite Realty Group Trust common shareholders   $ (1,366 )   $ 10,180     $ (19,284 )   $ 10,186  
                 
(Loss) income per common share - basic and diluted   $ (0.02 )   $ 0.12     (0.23 )   0.12  
                 
Weighted average common shares outstanding - basic   83,672,896     83,585,736     83,651,402     83,575,587  
Weighted average common shares outstanding - diluted   83,672,896     83,652,627     83,651,402     83,640,327  
Cash dividends declared per common share   $ 0.3175     $ 0.3025     $ 0.6350     $ 0.6050  
                 

 

Kite Realty Group Trust
Funds From Operations
For the Three and Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
($ in thousands, except per share data)                
    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018   2017
Funds From Operations                
Consolidated net (loss) income   $ (1,062 )   $ 10,858     $ (19,059 )   $ 11,296  
Less: net income attributable to noncontrolling interests in properties   (343 )   (438 )   (694 )   (870 )
Less: gains on sales of operating properties   (7,829 )   (6,290 )   (8,329 )   (15,160 )
Add: impairment charges   14,777         38,847     7,411  
Add: depreciation and amortization of consolidated entities, net of noncontrolling interests   40,178     42,050     78,457     87,416  
FFO of the Operating Partnership1   45,721     46,180     89,222     90,093  
Less: Limited Partners' interests in FFO   (1,119 )   (1,056 )   (2,141 )   (2,045 )
FFO attributable to Kite Realty Group Trust common shareholders1   $ 44,602     $ 45,124     $ 87,081     $ 88,048  
FFO, as defined by NAREIT, per share of the Operating Partnership - basic   $ 0.53     $ 0.54     $ 1.04     $ 1.05  
FFO, as defined by NAREIT, per share of the Operating Partnership - diluted   $ 0.53     $ 0.54     $ 1.04     $ 1.05  
                 
                 
Weighted average common shares outstanding - basic   83,672,896     83,585,736     83,651,402     83,575,587  
Weighted average common shares outstanding - diluted   83,722,444     83,652,627     83,694,898     83,640,327  
Weighted average common shares and units outstanding - basic   85,739,745     85,572,566     85,691,306     85,551,356  
Weighted average common shares and units outstanding - diluted   85,789,293     85,639,457     85,734,802     85,616,096  
                 
FFO, as defined by NAREIT, per diluted share/unit                
Consolidated net (loss) income   $ (0.01 )   $ 0.13     $ (0.22 )   $ 0.13  
Less: net income attributable to noncontrolling interests in properties       (0.01 )   (0.01 )   (0.01 )
Less: gains on sales of operating properties   (0.09 )   (0.07 )   (0.10 )   (0.17 )
Add: impairment charges   0.17         0.45     0.08  
Add: depreciation and amortization of consolidated entities, net of noncontrolling interests   0.46     0.49     0.92     1.02  
FFO, as defined by NAREIT, of the Operating Partnership per diluted share/unit1   $ 0.53     $ 0.54     $ 1.04     $ 1.05  
                 


____________________
1 "FFO of the Operating Partnership" measures 100% of the operating performance of the Operating Partnership's real estate properties. "FFO attributable to Kite Realty Group Trust common shareholders" reflects a reduction for the redeemable noncontrolling weighted average diluted interest in the Operating Partnership.

Funds from Operations (FFO) is a widely used performance measure for real estate companies and is provided here as a supplemental measure of operating performance. The Company calculates FFO, a non-GAAP financial measure, in accordance with the best practices described in the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts ("NAREIT"). The NAREIT white paper defines FFO as net income (determined in accordance with GAAP), excluding gains (or losses) from sales and impairments of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

Considering the nature of our business as a real estate owner and operator, the Company believes that FFO is helpful to investors in measuring our operational performance because it excludes various items included in net income that do not relate to or are not indicative of our operating performance, such as gains or losses from sales of depreciated property and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our financial performance, is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, and is not indicative of funds available to satisfy our cash needs, including our ability to make distributions. Our computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

 

Kite Realty Group Trust
Same Property Net Operating Income
For the Three and Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
($ in thousands)                      
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   %
Change
  2018     2017     %
Change
Number of properties for the quarter1 102   102                
                       
Leased percentage at period end 93.7 %   94.7 %       93.7 %   94.7 %    
Economic Occupancy percentage2 93.0 %   93.9 %       93.1 %   93.9 %    
                       
Minimum rent $ 58,168     $ 57,500         $ 115,820     $ 114,628      
Tenant recoveries 16,451     16,217         33,133     32,534      
Other income 240     173         510     457      
  74,859     73,890         149,463     147,619      
                       
Property operating expenses (10,795 )   (9,988 )       (21,467 )   (20,505 )    
Bad debt expense (452 )   (865 )       (816 )   (1,463 )    
Real estate taxes (9,743 )   (9,940 )       (19,690 )   (19,711 )    
  (20,990 )   (20,793 )       (41,973 )   (41,679 )    
Same Property NOI3 $ 53,869     $ 53,097     1.5 %   $ 107,490     $ 105,940     1.5 %
                       
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure:                      
Net operating income - same properties $ 53,869     $ 53,097         $ 107,490     $ 105,940      
Net operating income - non-same activity4 13,891     16,185         25,447     30,172      
Other income (expense), net 876     (83 )       2,111     (189 )    
General, administrative and other (5,553 )   (5,488 )       (11,499 )   (10,958 )    
Impairment charges (14,777 )           (38,847 )   (7,411 )    
Depreciation and amortization expense (40,451 )   (42,710 )       (79,006 )   (88,540 )    
Interest expense (16,746 )   (16,433 )       (33,084 )   (32,878 )    
Gains on sales of operating properties 7,829     6,290         8,329     15,160      
Net income attributable to noncontrolling interests (304 )   (678 )       (225 )   (1,110 )    
Net (loss) income attributable to common shareholders $ (1,366 )   $ 10,180         $ (19,284 )   $ 10,186      


____________________
1 Same Property NOI excludes six properties in redevelopment, the recently completed City Center, Northdale Promenade, Burnt Store Marketplace, and Parkside Town Commons - Phase II, as well as office properties (Thirty South Meridian and Eddy Street Commons).
2 Excludes leases that are signed but for which tenants have not yet commenced the payment of cash rent.  Calculated as a weighted average based on the timing of cash rent commencement and expiration during the period.
3 Same Property NOI excludes net gains from outlot sales, straight-line rent revenue, lease termination fees, amortization of lease intangibles and significant prior period expense recoveries and adjustments, if any.
4 Includes non-cash activity across the portfolio as well as net operating income from properties not included in the same property pool.

The Company uses same property NOI ("Same Property NOI"), a non-GAAP financial measure, to evaluate the performance of our properties. Same Property NOI excludes properties that have not been owned for the full period presented. It also excludes net gains from outlot sales, straight-line rent revenue, lease termination fees, amortization of lease intangibles and significant prior period expense recoveries and adjustments, if any. The Company believes that Same Property NOI is helpful to investors as a measure of our operating performance because it includes only the NOI of properties that have been owned and fully operational for the full quarters presented.  The Company believes such presentation eliminates disparities in net income due to the acquisition or disposition of properties during the particular quarters presented and thus provides a more consistent comparison of our properties. The year-to-date results represent the sum of the individual quarters, as reported.

NOI and Same Property NOI should not, however, be considered as alternatives to net income (calculated in accordance with GAAP) as indicators of our financial performance. Our computation of NOI and Same Property NOI may differ from the methodology used by other REITs, and therefore may not be comparable to such other REITs.

When evaluating the properties that are included in the same property pool, the Company has established specific criteria for determining the inclusion of properties acquired or those recently under development. An acquired property is included in the same property pool when there is a full quarter of operations in both years subsequent to the acquisition date. Development and redevelopment properties are included in the same property pool four full quarters after the properties have been transferred to the operating portfolio. A redevelopment property is first excluded from the same property pool when the execution of a redevelopment plan is likely and the Company begins recapturing space from tenants. For the quarter ended June 30, 2018, the Company excluded six redevelopment properties and the recently completed City Center, Northdale Promenade and Burnt Store Marketplace redevelopments from the same property pool that met these criteria and were owned in both comparable periods.

Contact Information:
Wade Achenbach
SVP, Capital Markets & Corporate Treasurer
317.713.5660
wachenbach@kiterealty.com

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