Kite Realty Group Trust — FY 2022 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2022, for Kite Realty Group Trust and its operating partnership, Kite Realty Group, L.P. The Company is a REIT focused on owning, operating, acquiring, developing and redeveloping primarily grocery-anchored, open-air shopping centers and mixed-use assets in U.S. Sun Belt and select gateway markets.
At year-end, the Company owned interests in 183 operating retail properties totaling approximately 28.8 million square feet, one office property totaling approximately 0.3 million square feet, and three development projects under construction. The retail portfolio was 94.6% leased, compared with 93.4% at December 31, 2021. No individual retail tenant represented more than 2.5% of annualized base rent, while the top 25 tenants represented 28.9%.
Financial and operating metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $802.0 million | $373.3 million | +$428.7 million |
| Rental income | $782.3 million | $367.4 million | +112.9% |
| Operating income | $91.7 million | $(21.5) million | +$113.2 million |
| Net loss attributable to common shareholders | $(12.6) million | $(80.8) million | Improved by $68.2 million |
| Net loss per common share | $(0.06) | $(0.73) | Improved |
| Same Property NOI | $531.4 million | $505.7 million | +5.1% |
| FFO attributable to common shareholders | $425.8 million | $86.4 million | Higher primarily due to the RPAI merger |
| Adjusted FFO of the Operating Partnership | $429.6 million | $171.2 million | Higher primarily due to the RPAI merger |
| Net cash provided by operating activities | $379.3 million | $100.4 million | +$278.9 million |
Operating income represented approximately 11.4% of revenue, while the net loss attributable to common shareholders represented approximately 1.6% of revenue. Property operating expenses were 13.4% of revenue, down from 14.9% in 2021. The filing emphasizes that FFO and Same Property NOI are non-GAAP measures and should not be viewed as substitutes for GAAP net income or operating cash flow.
The Company executed 782 new and renewal leases covering approximately 4.9 million square feet. The blended cash leasing spread was 12.6%, or 18.1% excluding option renewals. New comparable leases generated a 37.8% spread, while comparable renewals generated an 8.6% spread. Retail annualized base rent increased to $20.02 per square foot from $19.36.
Liquidity, debt and capital allocation
| Metric | December 31, 2022 |
|---|---|
| Consolidated indebtedness, net | $3.01 billion |
| Fixed-rate debt after hedging | 94% of consolidated debt |
| Variable-rate debt after hedging | $183.3 million, or 6% |
| Weighted average interest rate | 4.21% |
| Weighted average years to maturity | 4.2 years |
| Cash and cash equivalents | $115.8 million |
| Restricted cash and escrow deposits | $6.2 million |
| Undrawn revolving facility capacity | $1.1 billion |
| Net debt to annualized adjusted EBITDA | 5.2x |
| Debt service coverage ratio | 5.1x |
In July 2022, the Company increased its unsecured revolving credit facility from $850.0 million to $1.1 billion and entered into a seven-year, $300.0 million unsecured term loan. The revolving facility was undrawn at year-end. Debt principal maturities and scheduled principal payments totaled approximately $287.4 million in 2023, including $189.4 million of secured debt maturities and $95.0 million of unsecured debt maturities. Management stated that it expected to use cash on hand and revolving capacity to address these obligations.
2022 capital uses included $158.5 million of capital expenditures, $100.1 million for acquisitions, $182.2 million of distributions to common shareholders and Common Unit holders, and $45.3 million for active development and redevelopment projects. The Company declared $0.87 per share of cash dividends for 2022. It expected approximately $100 million of additional major tenant improvement costs over the following 12 to 18 months and estimated $70.9 million of remaining funding requirements for its three active development projects.
Material changes versus the prior comparable period
- 2022 results benefited from a full year of operations from the October 2021 merger with Retail Properties of America, which added 100 operating retail properties, five development projects and approximately $1.8 billion of assumed debt. The 2021 comparison includes only approximately two and a half months of RPAI operations.
- Revenue, operating income, operating cash flow and FFO increased substantially due primarily to the enlarged post-merger portfolio.
- Merger and acquisition costs declined to $0.9 million from $86.5 million in 2021.
- Interest expense increased to $104.3 million from $60.4 million, primarily because of debt assumed in the merger.
- Consolidated debt declined to $3.01 billion from $3.15 billion, while cash and undrawn revolving capacity remained significant.
- Same Property NOI increased 5.1%, economic occupancy increased to 91.2% from 90.1%, and leased occupancy improved through strong leasing activity.
- The Company acquired three properties for approximately $100.1 million and received approximately $75.7 million of net proceeds from property and land dispositions.
Guidance, outlook, commentary, risks and unusual items
Management stated that it expected to have adequate liquidity over the next 12 months and beyond, supported by operating cash flow, cash on hand and revolving capacity. It also stated that the majority of the approximately $33.0 million of NOI represented by the leased-to-occupied spread was expected to commence in 2023.
Management’s strategy remains focused on lease-up, rent growth, selective acquisitions, asset recycling, redevelopment and maintaining investment-grade credit ratings. Three developments were under construction at year-end: The Landing at Tradition, Carillon MOB and The Corner. The filing does not provide formal same-store NOI, FFO or revenue guidance for 2023.
- Tenant credit risk remains material. Party City, Bed Bath & Beyond and Regal Cinemas represented 42 locations and had strategic restructuring or bankruptcy-related uncertainty at year-end; the Company established reserves for these tenants.
- Leases representing 9.3% of retail annualized base rent were scheduled to expire in 2023.
- Inflation, higher insurance and utility costs, labor and supply-chain constraints, weaker consumer spending, e-commerce and tenant bankruptcies could pressure rent collections, occupancy and margins.
- Geographic concentration is significant, particularly in Texas, which represented 25.7% of retail base rent, followed by Florida at 10.9%.
- Higher interest rates could increase costs on variable-rate debt. A 100-basis-point increase in rates on unhedged variable-rate debt was estimated to reduce annual cash flow by approximately $1.8 million.
- The Company had approximately $155.0 million of debt and derivatives indexed to LIBOR and expected to complete the transition of remaining contracts to SOFR by March 2023.
- Development and redevelopment projects, joint ventures, environmental matters, severe weather, insurance limitations, cybersecurity incidents and the ability to maintain REIT status remain significant risks.
- The Company recorded no impairment charges in 2022, but impairment evaluation was identified as a critical audit matter because it depends on subjective assumptions about property holding periods, cash flows and market values.
- Subsequent to year-end, the Company repaid three mortgages totaling $128.5 million at a weighted average fixed interest rate of 3.83%.
Most important facts for investors to verify
- Confirm the actual 2023 leasing, occupancy and rent commencement performance, including conversion of the approximately $33.0 million leased-to-occupied NOI pipeline.
- Monitor tenant exposure and rent collections for Party City, Bed Bath & Beyond, Regal Cinemas and other financially stressed retailers.
- Verify refinancing or repayment plans for 2023 maturities and the effect of SOFR-based borrowing costs on interest expense.
- Assess whether the $70.9 million of remaining development funding and approximately $100 million of planned tenant improvement costs remain within budget.
- Reconcile FFO, adjusted FFO, Same Property NOI and adjusted EBITDA to GAAP results and review the Company’s definitions against peer disclosures.
- Evaluate the effect of Texas and other geographic concentrations, insurance cost increases, severe weather exposure and uninsured losses.
- Review REIT compliance, dividend coverage and the final tax characterization of 2022 distributions, which management identified as estimated at the filing date.
- Confirm that the Company remains compliant with debt covenants and maintains its investment-grade credit ratings.