Kite Realty Group Trust — Q1 2020 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2020. Kite Realty Group Trust is a REIT whose operating partnership owns and operates neighborhood and community shopping centers in selected U.S. markets. At quarter-end, the Company owned interests in 90 operating and redevelopment properties totaling approximately 17.4 million square feet, plus one development project under construction. The Parent Company owned approximately 97.4% of the Operating Partnership.
Financial performance and key metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $69.9 million | $83.5 million | Down $13.6 million |
| Rental income | $65.5 million | $82.4 million | Down 20.4% |
| Operating income | $12.8 million | $23.0 million | Down $10.2 million |
| Net income | $0.1 million | $6.0 million | Down $5.9 million |
| Net income attributable to common shareholders | $(0.1) million | $5.7 million | Down $5.8 million |
| Basic and diluted earnings per share | $0.00 | $0.07 | Down $0.07 |
| Cash provided by operating activities | $21.9 million | $32.3 million | Down $10.4 million |
| FFO attributable to common shareholders | $30.0 million | $37.3 million | Down $7.4 million |
| Same-property NOI | $47.8 million | $47.4 million | Up 0.9% |
Operating margin was approximately 18.3% in Q1 2020 versus 27.5% in Q1 2019. The filing does not provide a comparable company-defined net profit margin, but net income attributable to common shareholders was approximately negative 0.1% of revenue. The quarterly dividend was maintained at $0.3175 per common share.
Rental income declined primarily because of properties sold during 2019 and a reserve of approximately $2.9 million for potentially uncollectible straight-line rent receivables associated with financially distressed industries affected by COVID-19. Other property-related revenue increased $3.2 million, primarily from gains on sales of two parcels of land.
Liquidity, debt and capital resources
- Cash and cash equivalents were $343.9 million at March 31, 2020, compared with $31.3 million at December 31, 2019. Cash, cash equivalents and restricted cash totaled $365.6 million.
- Total mortgage and other indebtedness was $1.446 billion, up from $1.147 billion at year-end 2019, principally because the Company drew $300 million on its unsecured revolving credit facility as a precautionary COVID-19 liquidity measure.
- Debt was 75% fixed-rate and 25% variable-rate, with a weighted average interest rate of 3.49% and weighted average maturity of approximately five years. Interest-rate derivatives with $250 million of notional value hedged certain variable-rate debt.
- Approximately $281.5 million remained available under the revolving credit facility at March 31, 2020. The Company reported compliance with applicable debt covenants and no debt maturities until 2022, excluding scheduled principal payments.
- Net debt to annualized adjusted EBITDA was 6.4x; management stated that the ratio would have been 6.0x excluding the COVID-19-related straight-line rent reserve.
- Net cash used in investing activities was $7.1 million, including $13.2 million of capital expenditures and $5.5 million of net land-sale proceeds. Net cash provided by financing activities was $298.0 million, largely reflecting the revolving-credit draw.
Material changes versus the prior comparable period
- The portfolio declined from 111 properties totaling approximately 21.8 million square feet at March 31, 2019 to 90 properties totaling approximately 17.4 million square feet at March 31, 2020, reflecting the Company’s disposition program and other portfolio changes.
- Revenue, operating income, net income, operating cash flow and FFO all decreased year over year. Interest expense declined 25.3% to $12.3 million, partly offsetting the lower operating income.
- No impairment charge was recorded in Q1 2020, compared with a $4.1 million impairment charge in Q1 2019. The prior-year period also included a $6.6 million gain on the sale of an operating property, compared with a $1.0 million gain in Q1 2020 related to resolving a contingency on a previously sold asset.
- Same-property NOI increased 0.9%, although period-end leased percentage decreased to 94.4% from 95.6%. Economic occupancy increased to 93.9% from 92.1%.
- The Company executed 42 new and renewal leases totaling 256,113 square feet. Comparable leases generated a 10.2% blended cash rent spread and a 25.5% blended GAAP rent spread.
Outlook, COVID-19 impact, risks and unusual items
The filing states that COVID-19 had limited effects during the quarter but caused significant disruption in April 2020. Almost half of the retailers in the portfolio, measured by annualized base rent, were closed for at least part of April, and many remaining tenants operated with limited capacity. As of May 7, 2020, the Company had collected approximately 67% of April rent billings, excluding security deposits.
The Company received rent-relief requests from a significant proportion of tenants and agreed to defer rent for many tenants, primarily small-shop tenants, subject to conditions. Management expects tenant defaults, rent deferrals, reduced consumer spending, unemployment and potential tenant bankruptcies to adversely affect revenue, cash flow, occupancy and future results. The filing does not provide formal earnings or FFO guidance and states that the ultimate impact of COVID-19 cannot be estimated reliably.
- The Company deferred certain planned 2020 capital expenditures and limited foreseeable redevelopment activity.
- In April 2020, the Company launched a program offering up to $5 million of expedited, low-interest loans to select small-business tenants.
- One development project was under construction; the Company’s estimated remaining share of project costs was approximately $4.0 million, expected primarily over the following 12 months.
- The Company guaranteed debt of certain joint ventures, including its $11.8 million share of an Embassy Suites construction loan and debt of consolidated variable-interest entities totaling $55.7 million.
- Interest-rate derivative liabilities increased to $33.4 million from $16.8 million at year-end, contributing to a $16.6 million change in fair value recognized in comprehensive loss.
- Management reported no material litigation and effective disclosure controls. The filing identifies heightened risks involving tenant credit, liquidity, covenant compliance, refinancing, property values, dividends and access to capital markets.
Most important facts for investors to verify
- April and subsequent rent collections, rent deferrals, abatements, bad-debt reserves and tenant bankruptcies.
- Whether available cash and the $281.5 million of reported revolver availability remain sufficient if operating cash flow deteriorates.
- Compliance with debt covenants and the ability to refinance or repay approximately $479.9 million of scheduled and term maturities in 2022.
- Changes in occupancy, leasing spreads, same-property NOI and property valuations after the COVID-19 disruption.
- The sustainability of the $0.3175 quarterly dividend in light of REIT distribution requirements and reduced cash flow.
- The effect of deferred capital expenditures, redevelopment delays and the tenant-loan program on future returns and liquidity.