Kite Realty Group Trust — Q2 2021 Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2021, filed August 6, 2021. Kite Realty Group Trust operates through Kite Realty Group, L.P. as a REIT focused on owning, operating, acquiring, developing, and redeveloping neighborhood and community shopping centers in selected U.S. markets.
At June 30, 2021, the Company owned interests in 87 operating properties totaling approximately 16.8 million square feet and five development or redevelopment projects. The Parent Company owned approximately 97.2% of the Operating Partnership.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Total revenue | $69.5 million | $63.3 million | $138.9 million | $133.2 million |
| Rental income | $68.0 million | $61.5 million | $135.9 million | $127.1 million |
| Operating income | $12.1 million | $8.4 million | $50.1 million | $21.2 million |
| Net income attributable to common shareholders | $(0.2) million | $(4.8) million | $24.3 million | $(4.8) million |
| EPS, basic and diluted | $0.00 | $(0.06) | $0.29 | $(0.06) |
| FFO attributable to common shareholders | $29.0 million | $25.4 million | $58.1 million | $55.4 million |
| Adjusted FFO of Operating Partnership | $29.6 million | $26.2 million | $59.3 million | $56.9 million |
| Cash flow from operations | Not separately provided | Not separately provided | $67.4 million | $49.8 million |
Revenue increased 9.8% in the quarter and 4.3% year to date. Operating margins were approximately 17.4% in Q2 and 36.1% for the first six months, compared with approximately 13.2% and 15.9%, respectively, in the comparable periods. The six-month improvement was materially affected by a $26.3 million gain on property sales.
- Same-property NOI increased 10.1% in Q2 and 3.2% for the first six months.
- Leased percentage was 91.6% at quarter end versus 94.6% a year earlier; economic occupancy was 89.2% versus 92.4%.
- The Company executed 73 new and renewal leases covering approximately 638,000 square feet. Comparable cash rent spread was 9.2% and GAAP rent spread was 14.7%.
- Dividends were $0.17 per common share during the first half; the Board declared a $0.18 quarterly distribution payable July 16, 2021.
Balance Sheet, Debt, and Liquidity
| Metric | June 30, 2021 | December 31, 2020 |
|---|---|---|
| Total assets | $2.72 billion | $2.61 billion |
| Mortgage and other indebtedness, net | $1.29 billion | $1.17 billion |
| Cash and cash equivalents | $89.9 million | $43.6 million |
| Short-term deposits | $125.0 million | — |
| Total equity | $1.21 billion | $1.23 billion |
- Cash, cash equivalents, restricted cash, and short-term deposits totaled approximately $219.1 million; management reported approximately $214.9 million of cash, cash equivalents, and short-term deposits excluding restricted cash.
- Remaining availability under the $600 million unsecured revolving credit facility was approximately $422.1 million. No revolving credit balance was outstanding at June 30, 2021.
- Total debt had a weighted-average interest rate of approximately 3.58% and weighted-average maturity of 4.6 years. Approximately 86% was classified as fixed-rate after considering hedges.
- The Company issued $175 million of 0.75% exchangeable senior notes due April 2027 and used $125 million of the proceeds for a short-term deposit intended to fund 2022 maturities.
- Debt maturities included $154.5 million in 2022, $257.3 million in 2023, and $330.9 million in 2025, including scheduled principal payments and term maturities.
- Net debt to annualized adjusted EBITDA was 6.4x under the Company’s definition. The Company reported compliance with applicable debt covenants.
Material Changes Versus the Prior Comparable Period
- Rental income benefited from improved collections and lower bad-debt expense, partially offset by lower base rent and reimbursements associated with higher COVID-19-related vacancy.
- Six-month net income improved by $29.9 million, primarily due to the $26.3 million gain from selling 16 ground leases and improved rent collections.
- General and administrative expense increased 14.3% for the first six months, reflecting project-related consulting costs, higher share-based compensation, and employee-related costs.
- Interest expense decreased 4.1% year to date, primarily because the Company no longer incurred the precautionary 2020 borrowing costs associated with a $300 million revolving credit draw.
- Cash flow from operations increased $17.6 million year to date. Investing cash use increased to $99.5 million, largely because of the $125 million short-term deposit investment, while financing cash provided declined to $79.6 million from $169.8 million.
- Occupancy declined year over year despite improved collections and leasing spreads.
Guidance, Outlook, Risks, and Unusual Items
- Management did not provide a clear full-year earnings or FFO guidance figure in the filing.
- COVID-19 remained a significant risk. Substantially all tenants had reopened by June 30, but many operated below normal capacity. As of August 6, 2021, approximately 98% of rent billings for the three months ended June 30 had been collected.
- Approximately 90 tenants had deferred-rent balances totaling $2.1 million as of August 6, 2021. Further rent deferrals, tenant defaults, bankruptcies, or reduced occupancy could reduce cash flow and distributions.
- On July 18, 2021, the Company agreed to acquire Retail Properties of America, Inc. in a stock-for-stock merger. RPAI shareholders would receive 0.623 Kite common shares per RPAI share. Closing was expected in the fourth quarter of 2021, subject to shareholder approvals and other conditions.
- The Operating Partnership obtained commitments for a $1.1 billion senior unsecured interim loan intended to refinance RPAI debt that cannot be assumed at closing.
- Management estimated $18 million to $24 million of additional major tenant-improvement costs over the next 12 months and approximately $8.5 million of remaining costs for three development projects over the next 24 months.
- The merger could materially increase leverage and dilute existing shareholders. If not completed, the Company could incur substantial transaction costs and, under specified circumstances, a termination fee of up to $70 million plus expense reimbursement of up to $15 million.
- The Company reported no material litigation and no material changes to internal control effectiveness.
Most Important Facts for Investors to Verify
- Whether the RPAI merger received required shareholder and regulatory approvals and closed on the expected timeline.
- Post-merger leverage, refinancing requirements, liquidity, covenant compliance, and the terms of the $1.1 billion interim financing.
- Changes in leased percentage, economic occupancy, rent collections, deferred-rent balances, tenant defaults, and bad-debt expense.
- Whether same-property NOI and leasing spreads remain favorable after normalization of COVID-19-related collection benefits.
- The effect of merger-related costs, share issuance, exchangeable-note dilution, and integration expenses on FFO and adjusted FFO.
- Funding sources for debt maturities, tenant improvements, redevelopment, development commitments, and future dividends.