Kite Realty Group Trust — Fiscal 2021 Form 10-K Summary
Business context and reporting period
Kite Realty Group Trust is a U.S. REIT that owns, operates, acquires, develops and redevelops open-air shopping centers and mixed-use assets through Kite Realty Group, L.P. The filing covers the fiscal year ended December 31, 2021. The results include the former Retail Properties of America, Inc. portfolio only from the October 22, 2021 merger closing date, so year-over-year comparisons are not fully comparable.
- At year-end, the Company owned interests in 180 operating retail properties totaling approximately 29.0 million square feet, one office property totaling 0.3 million square feet, and eight development projects under construction.
- The retail operating portfolio was 93.4% leased. No individual tenant represented more than 2.5% of annualized base rent; the largest 25 tenants represented 29.6%.
- The RPAI merger had an approximate transaction value of $4.7 billion, including approximately $1.8 billion of assumed debt. Kite issued approximately 134.9 million common shares in the transaction.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change or comment |
|---|---|---|---|
| Total revenue | $373.3 million | $266.6 million | Up $106.7 million, primarily from the merger |
| Rental income | $367.4 million | $257.7 million | Up 42.6% |
| Net loss attributable to common shareholders | $80.8 million | $16.2 million | Net loss per share was $0.73 versus $0.19 |
| FFO of Operating Partnership | $88.4 million | $108.7 million | Lower year over year |
| FFO, as adjusted | $171.2 million | $112.0 million | Includes adjustment for $86.5 million of merger and acquisition costs |
| Same Property NOI | $190.2 million | $179.3 million | Up 6.1% |
| Cash provided by operating activities | $100.4 million | $95.5 million | Up $4.8 million |
| Cash used in investing activities | $91.0 million | $80.8 million | Higher capital spending and short-term deposit investment |
| Cash provided by financing activities | $44.5 million | $(20.9) million | Supported by debt issuance and borrowings |
| Dividends declared per share | $0.68 | $0.4495 | Fourth-quarter dividend was $0.19 per share |
- Property operating expenses were 14.9% of total revenue, compared with 15.4% in 2020.
- Retail portfolio annualized base rent increased to $19.36 per square foot from $18.42 per square foot at the end of 2020.
- The Company executed 363 new and renewal leases covering approximately 2.6 million square feet, achieving a 10.7% blended cash leasing spread on comparable leases.
- Economic occupancy for the same-property pool declined to 89.1% from 92.0%, although period-end leased occupancy improved to 93.1% from 91.4%.
- Management reported approximately $33.0 million of future NOI represented by the leased-to-occupied spread, including $15.0 million from 27 leases covering approximately 767,000 square feet of vacant anchor space.
Liquidity, debt and capital resources
- Net investment properties were $6.7 billion at December 31, 2021, compared with $2.4 billion in 2020.
- Consolidated debt, net of discounts, premiums and issuance costs, was $3.15 billion, compared with $1.17 billion in 2020. Approximately 92% was fixed-rate or hedged debt, with a weighted-average interest rate of 3.92% and weighted-average maturity of 4.6 years.
- The Company had $93.2 million of cash, $7.1 million of restricted cash and escrow deposits, and $125.0 million of short-term deposits. Revolving Facility availability was $793.5 million, with $55.0 million drawn.
- Debt principal maturities through December 31, 2022 totaled $153.5 million, excluding scheduled monthly principal amortization. Management expected to fund these maturities with cash on hand and short-term deposits.
- The Company reported a 3.9x debt service coverage ratio and remained in compliance with applicable debt covenants at year-end.
- In March 2021, the Operating Partnership issued $175.0 million of 0.75% exchangeable senior notes due 2027 and used the proceeds to support upcoming maturities.
- 2021 capital expenditures totaled $57.3 million. The Company expected approximately $100 million of additional major tenant-improvement costs over the following 12 to 18 months and estimated total project costs of $185.6 million for its eight active development projects, of which the Company’s share was $121.7 million.
Material changes versus the prior comparable period
- The RPAI merger more than doubled the Company’s property count and substantially increased revenue, assets and debt. The acquired portfolio contributed $94.9 million of rental income and a $22.8 million net loss from October 22 through December 31, 2021, including $74.7 million of depreciation and amortization.
- Merger and acquisition costs of $86.5 million materially reduced GAAP earnings and operating income. These costs primarily related to fairness opinions, severance, legal, professional and data-migration expenses.
- Revenue growth and same-property NOI improvement benefited from better rent collections and recovery of amounts previously affected by COVID-19. Provision for revenues deemed uncollectible represented 0.9% of total revenue in 2021 versus 6.0% in 2020.
- Interest expense increased to $60.4 million from $50.4 million because of debt assumed in the merger and the exchangeable notes issued in 2021.
- The Company recorded no impairment charges in 2021 or 2020; it recorded $37.7 million in impairment charges in 2019.
- Cash distributions paid to common shareholders and common unitholders increased to $60.0 million from $39.7 million.
Guidance, outlook, management commentary and risks
The filing does not provide a clear quantitative annual earnings or FFO guidance figure. Management stated that it expected adequate liquidity over the next 12 months and beyond 2022, supported by cash, short-term deposits, operating cash flow and revolving credit capacity.
- Management’s strategy emphasizes leasing vacant space, improving NOI margins, completing development and redevelopment projects, selectively acquiring assets, recycling capital through dispositions and maintaining investment-grade access to capital markets.
- Management identified approximately $33.0 million of potential NOI from leased but not yet occupied space and expected most of that NOI to come online in 2022.
- COVID-19 remained a significant uncertainty because tenant collections, consumer behavior, traffic, operating restrictions and access to debt and equity markets could deteriorate if the pandemic resurged or economic conditions weakened.
- Key risks include tenant bankruptcies and rent concessions, e-commerce pressure, lease expirations, geographic concentration, competition, rising interest rates, refinancing risk, construction costs and delays, impairment of real estate values, insurance limitations, environmental liabilities, cybersecurity and the integration of RPAI.
- Leases representing 9.1% of retail annualized base rent were scheduled to expire in 2022. Texas represented 24.0% of retail base rent, followed by Florida at 9.9%, New York at 5.8%, Maryland at 5.8% and North Carolina at 5.1%.
- A 100-basis-point increase in rates on unhedged variable-rate debt would reduce annual cash flow by approximately $2.4 million. Approximately $959.0 million of debt and $875.0 million of derivatives were indexed to LIBOR at year-end, creating transition risk as LIBOR is replaced.
- Merger-related shareholder lawsuits were voluntarily dismissed after year-end. Management believed the claims were without merit.
- The Company’s independent auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The internal-control assessment excluded the acquired RPAI operations during the first year of integration.
- Subsequent events included the acquisition of Pebble Marketplace for $44.1 million, repayment of the $41.2 million Bayonne Crossing mortgage, disposition of part of Hamilton Crossing Centre for $6.9 million and issuance of 363,883 performance-based LTIP units to executives.
Most important facts for investors to verify
- Reconcile reported 2021 results with pro forma results because the merger contributed only approximately two and a half months of operations to the reported year.
- Review the final purchase-price allocation for RPAI; the filing states that the allocation remained provisional and could be adjusted.
- Assess the ability to refinance or repay the $153.5 million of debt maturities through 2022 and monitor compliance with leverage and coverage covenants.
- Track occupancy, rent collections, anchor-space lease-up and realization of the approximately $33.0 million of identified future NOI.
- Evaluate funding requirements for approximately $100 million of anticipated tenant improvements and the $121.7 million Company share of remaining development costs.
- Monitor exposure to tenant concentration, 2022 lease expirations, geographic concentration and changes in consumer behavior or retail demand.
- Review interest-rate, LIBOR-transition and derivative-counterparty exposure, including the effect of higher rates on variable-rate debt.
- Confirm the tax characterization of 2021 distributions: management estimated 13.4% as return of capital and 86.6% as capital-gains dividends; the final tax characterization was subject to change.