Kite Realty Group Trust — 2020 Q3 Form 10-Q Summary
Business context and reporting period
This combined Form 10-Q covers Kite Realty Group Trust and Kite Realty Group, L.P. for the three and nine months ended September 30, 2020. The company owns, operates, acquires, develops and redevelops neighborhood and community shopping centers in the United States. At quarter-end, it owned interests in 89 operating and redevelopment properties totaling approximately 17.4 million square feet, plus three development projects under construction. The Parent Company owned approximately 97.4% of the Operating Partnership.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 |
|---|---|---|---|---|
| Total revenue | $65.1 million | $74.9 million | $198.3 million | $239.9 million |
| Net loss attributable to common shareholders | $4.6 million | $19.7 million | $9.4 million | $15.8 million |
| Loss per common share | $0.05 | $0.24 | $0.11 | $0.19 |
| Same-property NOI | $44.6 million | $48.0 million | $135.4 million | $142.9 million |
| FFO attributable to common shareholders | $25.7 million | $25.6 million | $81.1 million | $96.3 million |
| Operating cash flow | Not separately provided | Not separately provided | $85.8 million | $106.2 million |
Q3 operating income was $8.2 million, compared with $1.3 million in the prior-year quarter. The reported operating margin was approximately 12.5%, versus 1.8% in Q3 2019, primarily because the prior-year period included an $8.5 million impairment charge and a loss on property sales. Net loss margin was approximately 7.1% in Q3 2020, versus 26.3% in Q3 2019. Property operating expense was 15.9% of revenue in Q3 and 15.4% for the first nine months, compared with 14.7% and 14.1%, respectively.
- Cash, cash equivalents and restricted cash totaled $137.3 million at September 30, 2020; cash and cash equivalents alone were $129.3 million.
- Mortgage and other indebtedness was $1.196 billion, compared with $1.147 billion at December 31, 2019. Total principal debt was $1.202 billion.
- Debt had a weighted-average interest rate of 3.94% and weighted-average maturity of 4.9 years; 92% was fixed-rate or hedged debt.
- The company had $448.6 million of remaining availability under its revolving credit facility and was in compliance with applicable debt covenants.
- Net debt to annualized adjusted EBITDA was 6.9x, based on the company’s non-GAAP calculation.
- Cash distributions declared were $0.0520 per share for the first nine months, including $0.08 per share for Q3 declared after quarter-end and paid October 9, 2020.
Material changes versus the prior comparable period
- Q3 revenue declined $9.9 million, or 13.2%, and nine-month revenue declined $41.7 million, or 17.4%. Rental income declined 11.4% in Q3 and 18.5% year to date.
- COVID-19-related reserves for billed and straight-line rent receivables reduced rental income by approximately $3.6 million in Q3 and $14.0 million year to date.
- Same-property NOI decreased 6.9% in Q3 and 5.3% year to date, primarily due to COVID-19-related bad debt expense of $3.1 million and $9.2 million, respectively.
- Operating cash flow declined $20.4 million year to date, while capital expenditures declined to $30.6 million from $37.6 million.
- Unlike 2019, the company had no operating-property acquisitions and substantially less disposition activity in 2020. It sold one redevelopment property in Q3 for gross proceeds of $14.0 million and a $3.1 million net gain.
- Debt activity shifted from substantial 2019 paydowns to precautionary borrowing in 2020. The company borrowed $300 million on its revolver in March and repaid $250 million, leaving $50 million outstanding at quarter-end.
- FFO attributable to common shareholders was stable in Q3 but declined 15.8% year to date, reflecting lower operating performance and property dispositions.
Outlook, commentary, risks and unusual items
Management provided no specific full-year earnings or FFO guidance in the filing. It stated that the ultimate effect of COVID-19 remains highly uncertain and that operating results could continue to be materially affected during the remainder of 2020 and beyond.
- More than 95% of tenants had reopened by September 30, but many were operating below normal capacity. Approximately 92% of rent billings for Q3 and October had been collected as of November 6.
- Approximately 300 tenants received rent deferrals, with $5.6 million of contractually due rental income still outstanding at September 30. The company reported no material amount of COVID-19-related rent abatements in Q3.
- The company deferred certain planned capital expenditures and expects to fund remaining development costs primarily through operating cash flow or revolver borrowings. Its share of remaining estimated development costs was approximately $11.1 million.
- No debt was scheduled to mature before 2022, excluding scheduled monthly principal payments. Debt maturities totaled $229.9 million in 2022 and $257.3 million in 2023.
- The company provided a limited repayment guaranty related to a $33.8 million construction loan for the Embassy Suites at Notre Dame; its guaranty exposure was capped at $5.9 million.
- Interest-rate derivatives with $250 million of notional value had a net liability fair value of $34.3 million. A 100-basis-point change in rates on unhedged variable-rate debt was estimated to change annual cash flow by approximately $1.1 million.
- Key risks include tenant defaults or bankruptcies, reduced collections and occupancy, additional pandemic-related restrictions, e-commerce pressure, liquidity and covenant risk, refinancing risk, interest-rate volatility, property-value impairment and the ability to maintain REIT qualification.
- Management reported no material litigation, no material off-balance-sheet arrangements, effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Actual rent collections, rent deferrals, abatements, tenant bankruptcies and bad-debt reserves after September 30, 2020.
- Whether same-property NOI, occupancy and leasing spreads recover or deteriorate as pandemic restrictions and consumer behavior evolve.
- Revolver availability, debt covenant compliance, interest-rate hedge values and refinancing plans for 2022–2023 maturities.
- The sustainability of the $0.08 quarterly distribution given lower operating cash flow and the REIT distribution requirement.
- Progress, remaining costs and financing for the three development projects and any further redevelopment spending reductions.
- The comparability of FFO, adjusted EBITDA and net debt ratios with other REITs, because these are non-GAAP measures defined by the company.