Kite Realty Group Trust — Q1 2021 Form 10-Q Summary
Business context and reporting period
Kite Realty Group Trust, through Kite Realty Group, L.P., owns, operates, acquires, develops and redevelops neighborhood and community shopping centers in select U.S. markets. As of March 31, 2021, the portfolio included 87 operating properties totaling approximately 16.8 million square feet and five development or redevelopment projects. The filing covers the three months ended March 31, 2021, and compares results with the three months ended March 31, 2020.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $69.4 million | $69.9 million | Down $0.5 million |
| Rental income | $67.9 million | $65.5 million | Up $2.4 million, or 3.6% |
| Operating income | $38.0 million | $12.8 million | Up $25.2 million |
| Net income | $25.4 million | $0.1 million | Up $25.2 million |
| Net income attributable to common shareholders | $24.6 million | $(0.1) million | Improved $24.7 million |
| Basic and diluted EPS | $0.29 | $0.00 | Improved |
| FFO attributable to common shareholders | $29.1 million | $30.0 million | Down 2.9% |
| Adjusted FFO of the Operating Partnership | $29.8 million | $30.7 million | Down 3.1% |
| Cash flow from operations | $31.3 million | $21.9 million | Up $9.4 million |
| Cash, cash equivalents and restricted cash | $232.5 million | $365.6 million | Down $133.1 million |
Operating income and net income benefited substantially from a $26.2 million gain on the sale of properties, compared with a $1.0 million gain in the prior-year quarter. Approximate operating and net margins were 54.8% and 36.6%, respectively, versus 18.3% and 0.2% in Q1 2020; these comparisons are materially distorted by property-sale gains.
Same Property NOI was $46.9 million, down 2.9% from $48.3 million. Same-property leased percentage was 90.6%, versus 95.0%, and economic occupancy was 88.8%, versus 94.1%. Property operating expense as a percentage of revenue improved to 14.8% from 15.4%.
Balance sheet, debt and liquidity
- Total assets were $2.76 billion and total equity was $1.23 billion at March 31, 2021.
- Mortgage and other indebtedness was $1.315 billion, compared with $1.171 billion at December 31, 2020. Debt had a weighted-average interest rate of 3.62% and weighted-average maturity of 4.9 years.
- Approximately 92% of debt was fixed-rate, including debt hedged through derivatives. The company had $54.9 million of variable-rate debt and $250 million of interest-rate hedges.
- The company issued $175 million of 0.75% exchangeable senior notes due April 2027, receiving approximately $169.7 million of net proceeds. It also spent $9.8 million on capped-call transactions intended to reduce potential dilution.
- There was no borrowing outstanding under the $600 million revolving credit facility. Remaining availability was approximately $385.4 million, subject to borrowing-base and covenant requirements.
- Management reported more than $600 million of combined cash and revolving-credit liquidity and no debt maturities until 2022, although the maturity schedule shows $54.9 million of secured debt maturing before March 31, 2022, excluding scheduled principal payments.
- The company was in compliance with applicable debt covenants and had investment-grade ratings from two nationally recognized rating agencies.
Cash flow and capital allocation
- Operating cash flow increased to $31.3 million, primarily reflecting improved collection of previously deferred COVID-19 rent.
- Investing cash flow was $33.9 million, including $39.9 million of net proceeds from selling 16 ground leases and $7.9 million of capital expenditures.
- Financing cash flow was $120.8 million, driven primarily by the exchangeable-notes issuance, partly offset by $25.6 million of debt repayments, $14.7 million for capped calls and debt issuance costs, and $13.5 million of distributions.
- The Board declared a $0.17 per-share and per-unit distribution for Q1 2021, paid April 15, 2021. The reported Q1 financial statements show $0.15 per common share of dividends for the quarter.
- Expected additional tenant-improvement costs for releasing vacant space were approximately $18 million to $22 million. The company’s share of remaining costs for three development projects under construction was approximately $9.6 million.
Material changes versus the prior comparable period
- Rental income rose 3.6%, but total revenue declined because other property-related revenue fell $3.2 million, primarily due to lower land-sale gains and parking revenue.
- Net income improved principally because the company sold 16 ground leases in Q1 2021, generating a $26.2 million gain; no operating properties were sold in Q1 2020.
- Underlying operating performance weakened: Same Property NOI declined 2.9%, and occupancy fell as COVID-19 affected tenants.
- FFO attributable to common shareholders declined 2.9%, indicating that the significant GAAP earnings increase did not represent comparable recurring operating growth.
- The company executed 76 new and renewal leases covering approximately 426,937 square feet. Comparable leases generated a 6.4% blended cash rent spread and a 12.2% blended GAAP rent spread.
- Cash increased from $43.6 million at December 31, 2020 to $228.8 million at March 31, 2021, primarily due to financing proceeds and property dispositions.
Outlook, management commentary, risks and unusual items
Management provided no specific quantitative earnings or FFO guidance in the filing. It emphasized liquidity preservation, funding 2022 maturities, selective growth and limited redevelopment spending for the foreseeable future.
- Substantially all tenants had reopened by March 31, 2021, but many were operating below normal capacity.
- As of May 6, 2021, approximately 97% of rent billings for the three months ended March 31, 2021 had been collected. Deferred-rent balances of approximately $3.3 million remained outstanding with approximately 180 tenants.
- COVID-19 remains a significant risk, including tenant failures, lease defaults, rent concessions, reduced occupancy, changes in consumer behavior and continued pressure on retail tenants.
- The company guarantees debt of certain consolidated variable-interest entities totaling $54.9 million and had a limited repayment guaranty relating to an Embassy Suites construction loan. Outstanding letters of credit totaled $1.2 million.
- Interest-rate, refinancing, capital-market access, covenant-compliance, property-value, geographic-concentration and REIT-qualification risks remain material.
- The filing reports no material litigation and no material off-balance-sheet arrangements. Internal controls were deemed effective.
Important facts for investors to verify
- Whether rent collections, deferred rents and tenant credit quality continue to improve after the May 6, 2021 disclosure date.
- Same Property NOI, leased occupancy and economic occupancy trends, which declined despite higher reported rental income.
- The sustainability of recurring FFO after excluding property-sale gains and COVID-19-related collection adjustments.
- Actual refinancing or repayment plans for the $179.9 million of 2022 scheduled and term maturities shown in the debt schedule.
- Remaining tenant-improvement, anchor-releasing and development commitments and their effect on future cash flows.
- Potential dilution and settlement terms associated with the $175 million exchangeable notes, notwithstanding the capped-call transactions.
- Whether future COVID-19 developments, tenant bankruptcies or rent concessions could adversely affect liquidity, covenants or distributions.