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 | $ | |||||||||