Kite Realty Group Trust — FY 2011 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2011, filed March 2, 2012. Kite Realty Group Trust is a REIT focused on owning, developing, redeveloping, acquiring and operating neighborhood and community shopping centers, primarily in the United States. At year-end, the portfolio included 54 retail properties totaling approximately 8.4 million square feet, four commercial properties totaling approximately 0.6 million square feet, five in-process development or redevelopment projects, and 101 acres of land held for development. The Company owned an 89% interest in its operating partnership.
Key financial metrics
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Total revenue | $101.9 million | $101.4 million | +$0.5 million |
| Rental income, including reimbursements | $97.3 million | $89.5 million | +8.7% |
| Operating income | $25.8 million | $19.4 million | +32.8% |
| Operating margin | 25.3% | 19.2% | Improved |
| Income from continuing operations | $5.4 million | $(9.2) million | +$14.6 million |
| Net income attributable to common shareholders | $(0.8) million | $(8.6) million | Loss narrowed |
| Basic and diluted loss per common share | $(0.01) | $(0.14) | Improved |
| Funds from operations allocable to the Company | $28.3 million | $26.9 million | +5.0% |
| Cash flow from operating activities | $32.2 million | $30.3 million | +$2.0 million |
Reported results included a $4.3 million gain on the sale of the Company’s share of the Eddy Street Commons hotel joint venture and a $0.4 million loss on the sale of Martinsville Shops. Construction and service fee revenue fell 95% to $0.4 million as the Company reduced third-party construction activity. The Company declared common distributions of $0.06 per share each quarter, or $0.24 for the year, and preferred distributions of $0.515625 per Series A preferred share each quarter.
Balance sheet, debt and liquidity
- Total assets were $1.19 billion, including $1.10 billion of net investment properties.
- Consolidated debt was $689.1 million, up from $610.9 million at December 31, 2010.
- Approximately 59% of debt was fixed-rate or hedged and 41% was variable-rate after hedging.
- Cash and cash equivalents were $10.0 million; including pro rata joint-venture cash, reported liquidity was approximately $38 million at year-end.
- The amended unsecured revolving credit facility has $200 million of stated capacity, matures June 6, 2014, and had $22.7 million of availability at year-end. Outstanding borrowings were $134.7 million at LIBOR plus 325 basis points.
- Debt maturities shown at year-end were approximately $55.7 million in 2012, $88.4 million in 2013, $180.6 million in 2014, $39.4 million in 2015 and $144.6 million in 2016.
- Subsequent to year-end, the Company retired $45 million of its $56 million of 2012 maturities, leaving approximately $11 million related to Fox Lake Crossing to refinance, repay or extend.
Operating performance and material changes
- Retail leased occupancy increased from 92.5% at December 31, 2010 to 93.3% at December 31, 2011. Same-property NOI increased 3.7% to $57.5 million, with same-property leased occupancy of 93.0%.
- The Company executed 156 new and renewal leases covering 842,200 square feet, including 491,600 square feet of new leases and 350,600 square feet of renewals.
- Rivers Edge, Cobblestone Plaza and South Elgin Commons Phase II were substantially completed or transitioned into the operating portfolio.
- 2011 acquisitions included Oleander Pointe for $3.5 million, The Centre’s remaining 40% interest for approximately $2.2 million, and Lithia Crossing for $13.3 million.
- Capital expenditures were $63.6 million, compared with $39.0 million in 2010. Investing cash outflows increased to $86.5 million, while financing activities provided $49.0 million.
- The Company’s strategic reduction of third-party construction activity materially reduced both construction revenue and related costs.
Guidance, outlook, risks and unusual items
Management intends to continue improving balance-sheet metrics, including debt to EBITDA, while funding development and redevelopment through construction loans, the revolving facility, asset sales, joint ventures and potentially additional equity or debt offerings. In-process projects had estimated total costs of approximately $184 million, with approximately $84 million incurred at year-end and approximately $99.6 million remaining to fund. The future development pipeline consisted of six projects with estimated total costs of $221.6 million and an expected Company share of approximately $103.2 million; vertical construction is generally not expected to begin until leasing and financing thresholds are met.
- Liquidity and refinancing are central risks, particularly the remaining 2012 maturity and substantial 2013–2016 maturities.
- A 100-basis-point increase in interest rates on variable-rate debt was estimated to reduce annual cash flow by approximately $2.9 million.
- The portfolio is geographically concentrated: approximately 40% of owned square footage and annualized base rent was in Indiana, 24% in Florida and 18% of square footage in Texas.
- Retail tenant bankruptcies, weak consumer spending, competition, Internet shopping, vacancies and rent concessions could reduce cash flow.
- Development and redevelopment projects carry leasing, construction-cost, timing, financing and impairment risks.
- The Company had an apartment construction-loan guarantee related to Eddy Street Commons with an outstanding balance of $30.3 million; management did not expect the guarantee to be drawn. It also guaranteed its $5.8 million share of Parkside Town Commons joint-venture debt.
- The Company reported no material litigation and no material impairment of investment properties or development assets as of December 31, 2011.
- Management and Ernst & Young reported effective disclosure controls and internal control over financial reporting; the financial statement audit opinion was unqualified.
Most important facts for investors to verify
- Progress on refinancing or repaying the remaining Fox Lake Crossing maturity and the larger 2013–2016 maturity schedule.
- Actual liquidity after subsequent asset sales, debt repayments and construction-loan draws.
- Whether development projects achieve projected opening dates, leasing levels and total costs.
- Trends in same-property NOI, occupancy, rent spreads, tenant receivables and bad-debt expense.
- Exposure to variable interest rates, hedge maturities and compliance with unsecured-facility covenants.
- Cash available for common distributions after preferred dividends, debt service, recurring capital expenditures and development commitments.
- Tenant concentration and geographic concentration, particularly exposure to Indiana, Florida and Texas retail markets.