Kite Realty Group Trust — Q2 2020 Form 10-Q Summary
Business context and reporting period
Kite Realty Group Trust is a REIT that, through Kite Realty Group, L.P., owns, operates, acquires, develops and redevelops neighborhood and community shopping centers in selected U.S. markets. At June 30, 2020, the portfolio included 90 operating and redevelopment properties totaling approximately 17.6 million square feet and two development projects under construction. The filing covers the three and six months ended June 30, 2020 and compares results with the corresponding 2019 periods. The Parent Company owned approximately 97.4% of the Operating Partnership.
Financial performance and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $63.3 million, versus $81.5 million | $133.2 million, versus $165.0 million |
| Rental income | $61.5 million, down 22.9% | $127.1 million, down 21.6% |
| Operating income | $8.4 million, versus $17.3 million | $21.2 million, versus $40.3 million |
| Net income attributable to common shareholders | $(4.8) million, or $(0.06) per share | $(4.8) million, or $(0.06) per share |
| Cash flow from operating activities | Not separately reported for the quarter | $49.8 million, versus $69.7 million |
| FFO attributable to common shareholders | $25.4 million, versus $33.3 million | $55.4 million, versus $70.6 million |
| Same-property NOI | $42.9 million, down 9.8% | $90.7 million, down 4.4% |
Second-quarter rental income included approximately $6.6 million of reserves for billed and straight-line rent receivables associated with financially distressed tenants. For the six-month period, the comparable reserve was approximately $10.4 million. Property operating expenses declined, but increased as a percentage of revenue to 14.7% in the quarter and 15.1% year to date, compared with 14.1% and 13.9%, respectively.
Cash, cash equivalents and restricted cash totaled $251.8 million at June 30, 2020. Cash provided by operating activities was $49.8 million; investing activities used $20.6 million; and financing activities provided $169.8 million. Capital expenditures were $22.4 million, while no operating properties were sold during the six months ended June 30, 2020.
Total assets were $2.81 billion and mortgage and other indebtedness was $1.35 billion at June 30, 2020. Debt consisted of 81% fixed-rate debt and 19% variable-rate debt, with a weighted-average interest rate of 3.65% and weighted-average maturity of 4.8 years. The company had $354.2 million of remaining borrowing capacity under its revolving credit facility, based on the unencumbered asset pool, and was in compliance with applicable debt covenants.
Material changes versus the prior comparable period
- Revenue decreased $18.2 million in the second quarter and $31.8 million for the first six months, primarily because of 2019 property dispositions and COVID-19-related rent collection and receivable reserves.
- Net loss attributable to common shareholders was $4.8 million in both the quarter and first six months, compared with losses of $1.8 million and income of $3.9 million, respectively, in the 2019 periods.
- Interest expense declined $2.9 million in the quarter and $7.0 million year to date, primarily due to lower borrowings following 2019 property sales, partially offset by the 2020 revolving-credit draw.
- Prior-year results included impairment charges of $25.1 million in the quarter and $29.2 million year to date, as well as property-sale gains of $24.1 million and $30.7 million, respectively. The 2020 periods included no impairment charges and only $0.6 million and $1.7 million of property-sale gains.
- Cash flow from operations declined $19.8 million year to date, while financing cash flow shifted from a $252.5 million use in 2019 to a $169.8 million source in 2020, largely due to net revolving-credit borrowings.
- Leased percentage for the same-property pool declined to 94.0% from 95.9%, while economic occupancy was 92.1% in the quarter versus 92.5% in the prior-year quarter.
Guidance, outlook, commentary, risks and unusual items
Management did not provide specific earnings or FFO guidance. It stated that COVID-19 was expected to continue materially affecting operating results for the remainder of 2020 and potentially beyond. More than 90% of tenants had reopened by June 30, but many were operating below normal capacity. As of August 5, 2020, the company had collected approximately 80% of rent billings for the three months ended June 30 and 87% of July rent billings.
The company agreed to rent deferrals for approximately 300 tenants. Through August 4, 2020, approximately $6.0 million of contractually due rent had been deferred, and additional deferral agreements were expected. The company reported limited COVID-related rent abatements during the second quarter, but continued tenant defaults, bankruptcies, store closures, lower consumer spending and reduced occupancy could materially reduce cash flow.
In March 2020, the company borrowed $300 million under its revolving credit facility as a precautionary measure and repaid $100 million in June. On August 4, 2020, it repaid another $100 million, leaving $100 million outstanding. The company also launched a program offering up to $5 million of low-interest loans to eligible small-business tenants and had funded approximately $2.1 million by the filing date.
The company declared a second-quarter distribution of $0.052 per common share and Common Unit, paid July 9, 2020. Future distributions remain subject to Board discretion and liquidity, operating performance, REIT qualification and other considerations. The company noted that it may defer capital expenditures and limit redevelopment spending in response to the pandemic.
Subsequent to quarter end, the company sold the Courthouse Shadows redevelopment property on July 30, 2020 for gross proceeds of approximately $14.0 million. The company also formed a Glendale multifamily joint venture in May 2020, contributing land valued at $1.6 million for a retained 12% interest.
Other risks include refinancing and covenant risk, interest-rate volatility, tenant insolvency, property impairments, e-commerce effects, geographic concentration, insurance and environmental liabilities, and the potential loss of REIT status. The company reported no material litigation and stated that its disclosure controls were effective.
Important facts for investors to verify
- Subsequent rent collections, deferrals, abatements, tenant bankruptcies and occupancy trends following the August 2020 filing date.
- Whether COVID-19-related reserves and lower same-property NOI continue or increase in subsequent periods.
- Revolving-credit borrowings, remaining availability, covenant compliance and the 2022 debt maturities.
- The sustainability of the reduced $0.052 quarterly distribution and compliance with REIT distribution requirements.
- Progress, remaining costs and financing for the two development projects and any further redevelopment deferrals.
- Interest-rate derivative values, variable-rate exposure and the effect of future LIBOR or reference-rate changes.
- Performance of the tenant loan program and collectibility of the approximately $6.0 million of deferred rent.