Kite Realty Group Trust — Q1 2012 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2012, compared with the three months ended March 31, 2011. Kite Realty owns, operates, leases, redevelops and develops neighborhood and community shopping centers and selected commercial properties. At quarter-end, it owned interests in 62 properties, including 53 retail operating properties, five retail properties under redevelopment and four commercial properties, plus three in-process retail development properties.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $26.4 million | $23.8 million |
| Operating income | $5.0 million | $4.8 million |
| Loss from continuing operations | $1.6 million | $0.8 million |
| Consolidated net income (loss) | $3.6 million | $(0.8) million |
| Net loss attributable to common shareholders | $0.03 million | $2.2 million |
| Net loss per common share | $(0.00) | $(0.03) |
| Cash flow from operations | $5.3 million | $6.0 million |
| Funds from operations allocable to the Company | $5.9 million | $6.1 million |
| Adjusted FFO of the Kite Portfolio | $7.9 million | $6.9 million |
- Same-property NOI increased 5.4% to $14.0 million; comparable-property leased percentage increased to 93.1% from 92.5%.
- Retail operating portfolio leased percentage was 93.4% at March 31, 2012, compared with 92.3% a year earlier.
- Total assets were $1.18 billion, including $1.08 billion of net real estate investments. Cash and cash equivalents were $15.6 million.
- Total debt was $646.4 million, with a weighted average interest rate of 4.76% and weighted average maturity of approximately four years. Including hedges, 59% of debt was fixed-rate and 41% was variable-rate.
- The unsecured revolving facility had $129.7 million outstanding, approximately $54 million of additional borrowing capacity and $4.4 million of outstanding letters of credit. The Company reported compliance with its debt covenants.
Material changes versus the prior comparable period
- Revenue increased $2.6 million, or approximately 11%, primarily from development properties becoming operational, 2011 acquisitions, redevelopment activity, improved occupancy and rental rates, and higher reimbursements.
- Operating income increased $0.2 million despite higher real estate taxes, depreciation and amortization, and a $1.3 million litigation charge.
- Interest expense increased $1.0 million, or 17%, reflecting transitioned development properties and a higher average debt balance.
- Consolidated net income benefited from a $5.2 million gain on the sale of Gateway Shopping Center. The property was sold in February 2012 for $29.4 million, and its results were reported as discontinued operations.
- Operating cash flow declined $0.7 million, primarily because of higher real estate tax payments and the absence of a termination-fee collection recorded in the prior-year quarter.
- Investing activities generated $18.4 million versus $21.3 million of cash used in Q1 2011, mainly due to Gateway and land-sale proceeds and the absence of comparable acquisitions and joint-venture contributions.
- The Company issued 1.3 million Series A preferred shares for net proceeds of $31.3 million and issued 98,200 common shares for net proceeds of $0.4 million.
Guidance, outlook, commentary and risks
- Delray Marketplace was 73.4% leased or committed at quarter-end, with estimated total project costs of $93 million and an expected opening in the fourth quarter of 2012.
- New Hill Place was 76.2% leased or committed, and Oleander Place was 80.5% leased or committed.
- Management reported executing 88,000 square feet of new and renewal leases during the quarter and expects additional leasing opportunities in 2012 and 2013, while noting uneven economic growth and retailer-specific volatility.
- On April 30, 2012, after quarter-end, the Company closed a $115 million unsecured term loan maturing in 2019. Proceeds were used to retire or refinance several upcoming property-level maturities and reduce the revolving facility. The revolving facility maturity was also extended to April 2016, with a possible one-year extension.
- At March 31, 2012, $71.5 million of property-level debt was scheduled to mature within 12 months. After the post-quarter-end refinancing, management identified approximately $4.1 million remaining for repayment, refinancing or extension within that period.
- Five in-process development or redevelopment projects had estimated total costs of approximately $184 million, of which $89 million had been incurred. Additional tenant improvements and renovation costs of approximately $7 million to $8 million were expected over the following 12 months.
- Material contingencies include completion obligations for Eddy Street Commons, a joint guarantee on a $30.3 million apartment construction loan, an expected completion obligation of approximately $64 million for portions of the project, and guarantees of certain joint-venture debt.
- The Company accrued a $1.3 million litigation charge following an interim arbitration award to a former tenant. Management expected any final-order adjustment to be immaterial.
- Key risks include tenant financial distress and bankruptcies, economic and retail-market weakness, refinancing and liquidity risk, interest-rate volatility, development and redevelopment execution, property impairment, geographic concentration, joint-venture obligations and maintaining REIT status.
Important facts for investors to verify
- Reconcile reported net income and common-shareholder loss with the $5.2 million Gateway sale gain, preferred dividends and noncontrolling interests.
- Assess recurring operating performance using same-property NOI, leasing trends and FFO, while recognizing that FFO and adjusted FFO are non-GAAP measures.
- Review the post-quarter-end $115 million term loan and amended revolving facility, including interest-rate spreads, covenants and the effect on upcoming maturities.
- Evaluate liquidity against $646.4 million of consolidated debt, variable-rate exposure, development commitments and the remaining near-term maturity obligations.
- Monitor Delray Marketplace, New Hill Place and other development projects for leasing progress, funding needs and cost overruns.
- Review the Eddy Street Commons completion guarantee, apartment-loan guarantee, joint-venture debt guarantees and the $4.4 million of outstanding letters of credit.