Kite Realty Group Trust — FY 2020 Form 10-K Summary
Business Context and Reporting Period
Kite Realty Group Trust, through Kite Realty Group, L.P., is a U.S. real estate investment trust focused on owning, operating, acquiring, developing and redeveloping neighborhood and community shopping centers. This combined filing covers the fiscal year ended December 31, 2020, for both the Parent Company and Operating Partnership.
- Owned interests in 90 operating and redevelopment properties totaling approximately 17.3 million square feet, plus two development projects under construction.
- The retail operating portfolio was 91.2% leased at year-end, with no individual tenant accounting for more than 2.5% of annualized base rent.
- The Parent Company owned approximately 97.1% of the Operating Partnership at December 31, 2020.
Financial and Operating Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $266.6 million | $315.2 million | Down $48.5 million |
| Rental income | $257.7 million | $308.4 million | Down 16.4% |
| Operating income | $35.0 million | $71.8 million | Down $36.7 million |
| Net loss attributable to common shareholders | $16.2 million | $0.5 million | Loss increased |
| Basic and diluted loss per share | $0.19 | $0.01 | Loss increased |
| Same Property NOI | $179.3 million | $192.0 million | Down 6.6% |
| FFO of Operating Partnership | $108.7 million | $131.4 million | Down 17.3% |
| Adjusted FFO of Operating Partnership | $112.0 million | $143.0 million | Down 21.7% |
| Cash provided by operating activities | $95.5 million | $138.0 million | Down $42.4 million |
| Dividends declared per common share | $0.4495 | $1.2700 | Reduced materially |
Property operating expenses were $41.0 million, real estate taxes were $35.9 million, depreciation and amortization was $128.6 million, and interest expense was $50.4 million. The filing does not present a traditional gross margin; operating income represented approximately 13.1% of revenue based on reported figures.
- Bad debt expense and reserves related to COVID-19 reduced rental income by approximately $17.4 million for comparable properties; total revenue deemed uncollectible represented 6.0% of revenue versus 1.1% in 2019.
- Annualized base rent per square foot increased to $18.42 from $17.83 at December 31, 2019.
- The Company executed 215 new and renewal leases covering approximately 1.5 million square feet, with a 7.0% blended cash leasing spread and a 14.5% blended GAAP leasing spread.
Debt, Liquidity and Capital Allocation
- Consolidated mortgage and other indebtedness was $1.17 billion at December 31, 2020, compared with $1.15 billion at year-end 2019.
- Debt consisted primarily of $550.0 million of senior unsecured notes, $250.0 million of unsecured term loans, $25.0 million outstanding on the revolving credit facility and mortgage debt.
- After hedging, approximately 94% of debt was fixed-rate, with a weighted-average interest rate of 4.00% and weighted-average maturity of 4.7 years.
- Cash and cash equivalents were $43.6 million, and remaining availability under the revolving credit facility was approximately $523.2 million, for combined cash and borrowing capacity of approximately $566.9 million.
- The Company had no debt maturities through December 31, 2021, excluding scheduled monthly principal payments. The revolving facility matures in April 2022, subject to extension options.
- The debt service coverage ratio was 2.9x, and the Company reported compliance with applicable debt covenants and unchanged investment-grade ratings.
- In March 2020, the Company temporarily borrowed $300 million under the revolving facility as a COVID-19 precaution and subsequently repaid that borrowing. It borrowed $25 million in December to fund part of the Eastgate Crossing acquisition.
Material Changes Versus the Prior Comparable Period
- COVID-19 caused tenant closures, reduced operating capacity, rent deferrals, bankruptcies and lower collections, resulting in lower revenue, NOI, FFO and operating cash flow.
- More than 98% of tenants had reopened by December 31, 2020, but approximately 5% of fourth-quarter billed rent and recoveries remained uncollected as of February 11, 2021.
- Approximately 375 tenants received rent deferrals, with $6.1 million of deferred rental income still outstanding at year-end.
- Leased percentage declined to 91.2% for the retail operating portfolio from 96.1% at year-end 2019; same-property economic occupancy was 92.1% versus 92.8%.
- General and administrative expense increased 9.3%, primarily due to $3.3 million of fourth-quarter severance charges.
- Interest expense declined 15.0% following debt reduction from the 2019 asset-disposition program. Conversely, gains on property sales fell to $4.7 million from $39.0 million, and 2020 had no impairment charge versus $37.7 million in 2019.
- The Company acquired Eastgate Crossing in North Carolina for approximately $65.3 million and commenced two development projects with an estimated Company share of remaining costs of $12.6 million.
- Capital expenditures totaled $38.3 million, including $18.0 million of anchor-space re-leasing activity and $12.8 million of recurring operating capital expenditures.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal quantitative earnings or FFO guidance for 2021. Management states that the duration and severity of COVID-19, tenant solvency, consumer behavior, vaccination and government responses make 2021 operating results difficult to predict.
- Retailer bankruptcies during 2020 affected tenants representing 5.9% of annualized base rent; additional vacancies and rental-revenue declines were expected in 2021.
- Approximately 8.0% of annualized base rent was scheduled to expire in 2021, creating renewal and re-leasing risk.
- The Company expects approximately $16 million to $20 million of additional major tenant-improvement costs to release vacant space.
- Two development projects had estimated total costs of $56.9 million, including an estimated $12.6 million Company share, with most remaining spending expected over the following 18 months.
- Interest-rate exposure remains, including approximately $330.1 million of LIBOR-indexed debt before considering hedges. A 100-basis-point increase in rates on unhedged variable-rate debt would reduce annual cash flow by approximately $0.8 million.
- Major risks include prolonged economic weakness, tenant defaults and bankruptcies, e-commerce pressure, geographic concentration in Florida, Indiana, Texas, North Carolina and Nevada, refinancing risk, property impairment, natural disasters, environmental liabilities, cybersecurity events and the potential loss of REIT status.
- The Company provided a repayment guaranty related to a $33.8 million Embassy Suites construction loan; its share of the outstanding balance was approximately $11.8 million at year-end.
- Management reported no material litigation and the auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether rent collections, occupancy and tenant credit quality continued to improve after the February 2021 collection disclosures.
- The magnitude and timing of vacancies associated with bankrupt tenants and the cost and duration of re-leasing affected spaces.
- Liquidity and refinancing plans for the April 2022 revolving facility maturity and other debt maturities beginning in 2022.
- Actual 2021 same-property NOI, FFO, operating cash flow and dividend coverage relative to 2020 levels.
- Whether development and redevelopment projects remain within budget and achieve projected returns.
- Potential impairment indicators, particularly changes in property hold periods, capitalization rates, occupancy or tenant cash flows.
- The effect of LIBOR transition, interest-rate movements and hedge valuations on financing costs and comprehensive income.