Kite Realty Group Trust: Q3 2013 Form 10-Q Summary
Business Context and Reporting Period
Kite Realty Group Trust, through Kite Realty Group, L.P., owns, operates, leases, acquires, redevelops, and develops neighborhood and community shopping centers and selected commercial properties in the United States. The filing covers the three and nine months ended September 30, 2013, compared with the same periods in 2012. At quarter-end, the company owned interests in 62 properties, including 55 retail operating properties, five retail properties under redevelopment, two commercial operating properties, and three development properties under construction. Common shares outstanding at November 1, 2013 were 93.9 million.
Financial Performance and Key Metrics
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Total revenue | $32.7 million | $24.3 million | $93.9 million | $71.4 million |
| Operating income | $5.8 million | $4.6 million | $20.3 million | $13.5 million |
| Operating margin | 17.9% | 18.8% | 21.7% | 18.9% |
| Net income attributable to Kite | $1.3 million | $(0.9) million | $(3.3) million | $0.02 million |
| Net loss attributable to common shareholders | $(0.9) million | $(3.0) million | $(9.6) million | $(5.8) million |
| Net loss per common share | $(0.01) | $(0.05) | $(0.11) | $(0.09) |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $37.0 million | $20.7 million |
| FFO allocable to the company | $13.0 million | $7.1 million | $33.0 million | $19.7 million |
- Same-property NOI increased 4.9% in both the quarter and nine-month period. Same-property leased occupancy was 95.8%, versus 93.6% a year earlier; occupied occupancy was 92.1%, versus 90.6%.
- Cash and cash equivalents were $12.1 million at September 30, 2013, compared with $12.5 million at December 31, 2012.
- Total assets were $1.404 billion, including net real estate investments of $1.307 billion. Total liabilities were $812.8 million and total equity was $551.3 million.
- Total debt was $744.0 million at quarter-end, compared with $699.9 million at December 31, 2012. Considering hedges, 74% of debt was effectively fixed-rate and 26% remained variable-rate. The weighted-average interest rate was 4.06% and weighted-average maturity was four years.
- Cash flow from operations funded only part of $183.4 million of investing outflows, principally $102.7 million of acquisitions and $75.1 million of capital expenditures. Financing activities provided $146.1 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased 34.3% in the third quarter and 31.5% for the first nine months, primarily from acquisitions, development properties becoming operational, improved occupancy and recoveries, lease termination income, and land-sale gains.
- Operating income increased 27.9% in Q3 and 50.9% year to date, although depreciation and amortization increased substantially because of acquisitions, completed developments, and redevelopment activity.
- Q3 consolidated net income improved to $1.2 million from a $1.2 million loss, supported by $3.1 million of discontinued-operations income, including a $1.2 million gain on debt extinguishment and a $1.1 million reversal of accrued Kedron Village interest. Year-to-date consolidated results declined to a $4.0 million loss from $1.5 million of income because of a $5.4 million Kedron Village impairment charge and lower gains on property sales.
- The company issued 15.525 million common shares in the second quarter for approximately $97.2 million of net proceeds. Common shares outstanding increased from 77.7 million at year-end 2012 to 93.9 million at September 30, 2013.
- The company acquired four properties during the first nine months for approximately $104.1 million: Shoppes of Eastwood, Cool Springs Market, Castleton Crossing, and Toringdon Market.
- The company expanded its unsecured term loan from $125 million to $230 million and amended its revolving credit facility. Revolver borrowings were $35.7 million at quarter-end, with approximately $95 million of additional availability based on the unencumbered property pool.
Guidance, Outlook, Risks, and Unusual Items
- No formal earnings or revenue guidance is provided in the filing. Management expects additional leasing opportunities during the remainder of 2013 and in 2014 and intends to pursue acquisitions, development, redevelopment, and leasing opportunities selectively.
- Management reported executing 107,000 square feet of new and renewal leases during the quarter. King’s Lake Square redevelopment was 88.4% leased, while Toringdon Market was 97% leased.
- Six development or redevelopment projects were under construction at quarter-end. Estimated total project costs were approximately $308 million, with $227 million incurred and approximately $81 million expected to be incurred over the following 18 months. Management anticipated $16 million to $18 million of additional major tenant improvements and renovation costs during the next 12 months.
- The company had $40.7 million of property-level debt maturing during the following 12 months, excluding scheduled principal payments. Management was pursuing repayment, refinancing, extensions, property sales, or use of the revolving facility for certain maturities.
- Kedron Village was transferred to its lender in July 2013 following foreclosure proceedings. The company recorded a $5.4 million impairment charge and a $1.2 million gain on debt extinguishment.
- Subsequent to quarter-end, the company retired the $20.1 million mortgage on 30 South Meridian using the revolving credit facility. It also entered into an agreement to potentially acquire nine retail properties for approximately $307 million in cash; closing was expected in late 2013 or early 2014 but was not assured.
- Key risks include tenant financial weakness and bankruptcies, rent collection, economic and retail-market conditions, property valuation and impairment, interest-rate volatility, refinancing and liquidity, development and redevelopment execution, geographic concentration, REIT qualification, and access to capital markets.
- A 100-basis-point increase in market rates would reduce the fair value of fixed-rate debt by approximately $9.9 million and increase annual cash flow costs on variable-rate debt by approximately $1.9 million.
- The Eddy Street Commons project includes completion guarantees with remaining expected obligations of up to approximately $35 million, although the company may bring in a joint venture partner. Outstanding letters of credit totaled $4.2 million.
Most Important Facts for Investors to Verify
- Whether the company can refinance or otherwise address the $40.7 million of near-term property-level maturities without materially increasing borrowing costs or leverage.
- Actual availability and covenant headroom under the revolving credit facility and term loan, particularly after the planned nine-property acquisition and other capital commitments.
- Leasing, occupancy, tenant credit quality, and rent collections across the acquired, redeveloped, and development properties.
- Completion timing, remaining costs, financing, and expected returns for the six projects under construction and the proposed $307 million portfolio acquisition.
- The sustainability of operating cash flow and FFO relative to common and preferred distributions, recurring capital expenditures, tenant improvements, and debt service.
- The effect of unusual items, including the Kedron Village impairment and debt extinguishment, property-sale gains, lease termination income, and accelerated redevelopment depreciation, on reported earnings and comparability.