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Kite Realty Group Trust Reports 2018 Operating Results and Announces Plan to Fortify Its Balance Sheet, Improve Asset Quality, and Focus on Preferred Markets
Globe Newswire 19-Feb-2019 4:48 PM
INDIANAPOLIS, Feb. 19, 2019 (GLOBE NEWSWIRE) -- Kite Realty Group Trust (NYSE:KRG) ("KRG") reported today its 2018 operating results. KRG also announced plans to sell $350 to $500 million of non-core assets as part of a program to improve asset quality, reduce leverage, and focus operations on preferred geographic markets.
"2018 was a strong year for KRG in terms of operational performance and strategic execution," said Chairman and Chief Executive Officer, John A. Kite. "Our ABR is at an all-time high; our small shop leased percentage is at an all-time high; and our net-debt-to-EBITDA ratio is at a near-low. As we head into 2019, we are focused on taking KRG to the next level. We have conducted a bottoms-up analysis of our entire portfolio and all major U.S. markets, and we have identified a strategy to fortify our balance sheet even further by selling $350 to $500 million in assets to pay down debt, improve our portfolio metrics, and focus our operations in markets where we can gain scale and generate attractive returns."
Fourth Quarter Highlights
Realized net loss attributable to common shareholders of $31 million, or $0.37 per common share
Generated Funds from Operations of the Operating Partnership (FFO) of $40.9 million, or $0.48 per diluted common share
Increased Same-Property Net Operating Income (NOI) by 1.2%
Improved small shop leased percentage by 30 basis points to 91.2%
Executed 76 new and renewal leases representing 470,867 square feet, of which 33 were new leases representing over 200,000 square feet, including 5 new anchor leases totaling 140,000 square feet
15.7% leasing spreads on all new leases (25.3% GAAP leasing spreads)
12.7% leasing spreads on new anchor leases (21.3% GAAP leasing spreads)
7.5% leasing spreads on all renewal leases (12.4% GAAP leasing spreads)
10.5% blended releasing spreads on all new and renewal leases (17.2% GAAP leasing spreads)
Sold four non-core assets for a combined $59 million and used the proceeds to pay down an unsecured term loan
Completed a $250 million ten-year unsecured term loan
Full Year Highlights
Realized net loss attributable to common shareholders of $46.6 million, or $0.56 per common share
Generated FFO of $171.2 million, or $2.00 per diluted common share
Increased Same-Property NOI by 1.4%
Executed 315 new and renewal leases representing 1,691,201 square feet, of which 118 were new leases representing over 518,000 square feet, including 12 anchor leases for 297,000 square feet
12.3% leasing spreads on all new leases (22.6% GAAP leasing spreads)
8.4% leasing spreads on new anchor leases (15.4% GAAP leasing spreads)
5.4% leasing spreads on all renewal leases (9.9% GAAP leasing spreads)
6.8% blended releasing spreads on all new and renewal leases (12.6% GAAP leasing spreads)
Opened 135 new tenant spaces totaling 602,000 square feet
Achieved a 94.6% leased rate and a 92.4% occupied rate for the retail operating portfolio as of December 31, 2018
Improved annualized base rent (ABR) for the operating retail portfolio by 5% to $16.84 per square foot while maintaining a recovery ratio of nearly 90%
Increased small shop leased percentage by 70 basis points to 91.2%
Exceeded annual disposition target by selling approximately $200 million in assets, using the proceeds to pay down debt
Reduced net-debt-to-EBITDA ratio from 6.9x to 6.65x
Increased weighted average debt maturity from 5.5 years to 5.8 years
Financial Results Net loss attributable to common shareholders for the three months ended December 31, 2018, was $31.2 million, compared to net income of $2.3 million for the same period in 2017. Fourth quarter 2018 results included a $31.5 million impairment charge relating to certain properties.
Net loss attributable to common shareholders for the year ended December 31, 2018, was $46.6 million, compared to net income of $11.9 million for 2017. 2018 results included a $70.4 million impairment charge related to certain properties.
Dividends On February 13, KRG's Board of Directors declared a dividend of $0.3175 per common share. The dividend will be payable on or about March 29, 2019, to shareholders of record as of March 22, 2019.
Transactional Activity In 2018, KRG completed the following property transactions:
Sold seven non-core assets for a combined $125 million
Entered into a strategic joint venture with Nuveen (formerly TH Real Estate) by selling an 80% interest in three core assets that resulted in gross proceeds of approximately $89 million
Redeemed a minority preferred equity interest (4% yield) in six retail properties for $22 million
Capital Markets Activity In 2018, KRG conducted the following capital markets transactions:
Amended and restated the unsecured revolving credit facility, increasing borrowing capacity by $100 million to $600 million, reducing the credit spread by 30-45 basis points, and extending the term to April 2023
Obtained a ten-year, $250 million unsecured term loan and executed a hedge that resulted in a blended fixed rate of 4.75% for 7 years
Balance Sheet Overview KRG currently has only a single $20.7 million mortgage maturing in 2020, and as of December 31, 2018, the debt portfolio had a weighted average maturity of 5.8 years.
As of December 31, 2018, KRG has $485 million of available liquidity, including unrestricted cash on hand and available revolver capacity.
Development Update During 2018, KRG delivered six redevelopments on schedule and under budget. The projects have a collective incremental return on cost of 8.6%. Notable projects included City Center in White Plains, NY; Portofino Shopping Center in Houston, TX; and Rampart Commons, in Las Vegas, NV.
Disposition and Deleveraging Program KRG plans to generate between $350 and $500 million of gross proceeds from asset sales. The sale proceeds will be used primarily to pay down debt. Upon completion of the asset sales, KRG expects its net-debt-to-EBITDA ratio to be between 5.9x and 6.2x.
2019 Earnings Guidance KRG is introducing its guidance for 2019 FFO, as defined by NAREIT, in a range of $1.66 to $1.76 per diluted common share. The 2019 earnings guidance is based on the following key assumptions:
Low
High
2018 FFO
$
2.00
$
2.00
Previously Disclosed FFO Impacts
Q1 - Q3 2018 Dispositions
(0.03)
(0.03)
Lease Accounting Rules 1
(0.06)
(0.06)
Interest Expense
(0.03)
(0.03)
One-Time Income Items 2
(0.05)
(0.05)
Subtotal - Previously Disclosed
(0.17)
(0.17)
Q4 2018 and Other Items:
Q4 2018 Dispositions
(0.02)
(0.02)
Other Items 3
(0.06)
(0.04)
Subtotal - Q4 2018 & Other Items
(0.08)
(0.06)
2019 Items:
Same Store NOI 4 (1.25% - 2.25%)
0.03
0.05
G&A
(0.02)
(0.01)
Subtotal - 2019 Items
0.01
0.04
2019 FFO - Pre-2019 Planned Dispositions
1.76
1.82
2019 Disposition Net Impact 5, 6
(0.10)
(0.06)
2019 FFO - Guidance
$
1.66
$
1.76
2019 Disposition Net Impact Annualized 6, 7
(0.29)
(0.20)
Previously disclosed ($0.05) versus currently disclosed ($0.06).
Relates to Eddy Street Commons development fee and cash and non-cash impact of Toys 'R Us bankruptcy.
Includes non-recurring business interruption income collected in 2018 and reduced lease termination income.
Includes $0.025 from executed anchor leases commencing in 2019.
Disposition NOI less anticipated interest savings based on a weighted-average sale date of August 31, 2019.
Low end of the range assumes $500 million in proceeds while high end of range assumes $350 million in proceeds
Annualized 2019 disposition NOI less annualized anticipated interest savings.
Earnings Conference Call Kite Realty Group Trust will conduct a conference call to discuss its financial results on Wednesday, February 20, 2019, at 10:00 a.m. Eastern Time. A live webcast of the conference call will be available on KRG's corporate website at www.kiterealty.com. The dial-in numbers are (844) 309-0605 for domestic callers and (574) 990-9933 for international callers (passcode 4793227). In addition, a webcast replay link will be available on the corporate website.
Additional Materials Financial statements, exhibits, and reconciliations of non-GAAP measures attached to this release include the details of KRG's results.
About Kite Realty Group Trust Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust (REIT) that provides communities with convenient and beneficial shopping experiences. We connect consumers to tenants in desirable markets through our portfolio of neighborhood, community, and lifestyle centers. Using operational, development, and redevelopment expertise, we continuously optimize our portfolio to maximize value and return to our shareholders. For more information, please visit our website at kiterealty.com.
Safe Harbor Certain statements in this document that are not historical fact may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results, performance, transactions or achievements, financial or otherwise, expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to: national and local economic, business, real estate and other market conditions, particularly in light of low growth in the U.S. economy as well as economic uncertainty caused by fluctuations in the prices of oil and other energy sources and inflationary trends or outlook; the risk that KRG may not be able to successfully complete the planned dispositions on favorable terms – or at all; financing risks, including the availability of, and costs associated with, sources of liquidity; KRG's ability to refinance, or extend the maturity dates of, its indebtedness; the level and volatility of interest rates; the financial stability of tenants, including their ability to pay rent and the risk of tenant bankruptcies; the competitive environment in which KRG operates; acquisition, disposition, development and joint venture risks; property ownership and management risks; KRG's ability to maintain its status as a real estate investment trust for federal income tax purposes; potential environmental and other liabilities; impairment in the value of real estate property KRG owns; the impact of online retail competition and the perception that such competition has on the value of shopping center assets; risks related to the geographical concentration of KRG's properties in Florida, Indiana and Texas; insurance costs and coverage; risks associated with cybersecurity attacks and the loss of confidential information and other business interruptions; and other factors affecting the real estate industry generally. KRG refers you to the documents filed by KRG from time to time with the SEC, specifically the section titled "Risk Factors" in KRG's and the Operating Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which discuss these and other factors that could adversely affect KRG's results. KRG undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Kite Realty Group Trust Consolidated Balance Sheets (Unaudited)
($ in thousands)
December 31, 2018
December 31, 2017
Assets:
Investment properties, at cost
$
3,641,120
$
3,957,884
Less: accumulated depreciation
(699,927
)
(664,614
)
2,941,193
3,293,270
Cash and cash equivalents
35,376
24,082
Tenant and other receivables, including accrued straight-line rent of $31,347 and $31,747 respectively, net of allowance for uncollectible accounts
58,059
58,328
Restricted cash and escrow deposits
10,130
8,094
Deferred costs and intangibles, net
95,264
112,359
Prepaid and other assets
12,764
12,465
Investments in unconsolidated subsidiaries
13,496
3,900
Asset held for sale
5,731
—
Total Assets
$
3,172,013
$
3,512,498
Liabilities and Shareholders' Equity:
Mortgage and other indebtedness, net
$
1,543,301
$
1,699,239
Accounts payable and accrued expenses
85,934
78,482
Deferred revenue and other liabilities
83,632
96,564
Total Liabilities
1,712,867
1,874,285
Commitments and contingencies
Limited Partners' interests in the Operating Partnership and other redeemable noncontrolling interests
45,743
72,104
Shareholders' Equity:
Kite Realty Group Trust Shareholders' Equity:
Common Shares, $.01 par value, 225,000,000 shares authorized, 83,800,886 and 83,606,068 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively
838
836
Additional paid in capital
2,078,099
2,071,418
Accumulated other comprehensive loss
(3,497
)
2,990
Accumulated deficit
(662,735
)
(509,833
)
Total Kite Realty Group Trust Shareholders' Equity
1,412,705
1,565,411
Noncontrolling Interests
698
698
Total Equity
1,413,403
1,566,109
Total Liabilities and Shareholders' Equity
$
3,172,013
$
3,512,498
Kite Realty Group Trust Consolidated Statements of Operations For the Three and Twelve Months Ended December 31, 2018 and 2017 (Unaudited)
($ in thousands, except per share data)
Three Months Ended December 31,
Twelve Months Ended December 31,
2018
2017
2018
2017
Revenue:
Minimum rent
$
63,902
$
68,518
$
266,377
$
273,444
Tenant reimbursements
17,924
18,252
72,146
73,000
Other property related revenue
5,018
1,772
13,138
11,998
Fee income
93
377
2,523
377
Total revenue
86,937
88,919
354,184
358,819
Expenses:
Property operating
13,172
12,693
50,356
49,643
Real estate taxes
10,028
10,796
42,378
43,180
General, administrative, and other
4,957
5,360
21,320
21,749
Depreciation and amortization
36,299
40,758
152,163
172,091
Impairment charges
31,513
—
70,360
7,411
Total expenses
95,969
69,607
336,577
294,074
(Loss) gain on sale of operating properties, net
(4,725
)
—
3,424
15,160
Operating (loss) income
(13,757
)
19,312
21,031
79,905
Interest expense
(17,643
)
(16,452
)
(66,785
)
(65,702
)
Income tax benefit of taxable REIT subsidiary
150
36
227
100
Equity in loss of unconsolidated subsidiary
(303
)
—
(278
)
—
Other expense, net
(156
)
(101
)
(646
)
(415
)
Net (loss) income
(31,709
)
2,795
(46,451
)
13,888
Net loss (income) attributable to noncontrolling interests
488
(486
)
(116
)
(2,014
)
Net (loss) income attributable to Kite Realty Group Trust common shareholders
$
(31,221
)
$
2,309
$
(46,567
)
$
11,874
(Loss) income per common share - basic and diluted
$
(0.37
)
$
0.03
(0.56
)
0.14
Weighted average common shares outstanding - basic
83,762,664
83,595,677
83,693,385
83,585,333
Weighted average common shares outstanding - diluted
83,762,664
83,705,764
83,693,385
83,690,418
Cash dividends declared per common share
$
0.3175
$
0.3175
$
1.2700
$
1.2250
Kite Realty Group Trust Funds From Operations For the Three and Twelve Months Ended December 31, 2018 and 2017 (Unaudited)
($ in thousands, except per share data)
Three Months Ended December 31,
Twelve Months Ended December 31,
2018
2017
2018
2017
Funds From Operations
Consolidated net (loss) income
$
(31,709
)
$
2,795
$
(46,451
)
$
13,888
Less: net income attributable to noncontrolling interests in properties
(172
)
(428
)
(1,151
)
(1,731
)
Add/Less: loss (gain) on sales of operating properties
4,725
—
(3,424
)
(15,160
)
Add: impairment charges
31,513
—
70,360
7,411
Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests
36,534
40,425
151,856
170,315
FFO of the Operating Partnership1
40,891
42,792
171,190
174,723
Less: Limited Partners' interests in FFO
(982
)
(971
)
(4,109
)
(3,966
)
FFO attributable to Kite Realty Group Trust common shareholders1
$
39,909
$
41,821
$
167,081
$
170,757
FFO, as defined by NAREIT, per share of the Operating Partnership - basic
$
0.48
$
0.50
$
2.00
$
2.04
FFO, as defined by NAREIT, per share of the Operating Partnership - diluted
$
0.48
$
0.50
$
2.00
$
2.04
Weighted average common shares outstanding - basic
83,762,664
83,595,677
83,693,385
83,585,333
Weighted average common shares outstanding - diluted
83,822,752
83,705,764
83,744,896
83,690,418
Weighted average common shares and units outstanding - basic
85,808,725
85,580,898
85,740,449
85,566,272
Weighted average common shares and units outstanding - diluted
85,868,813
85,690,986
85,791,961
85,671,358
FFO, as defined by NAREIT, per diluted share/unit
Consolidated net (loss) income
$
(0.37
)
$
0.03
$
(0.54
)
$
0.16
Less: net income attributable to noncontrolling interests in properties
—
(0.01
)
(0.01
)
(0.03
)
Add/Less: loss (gain) on sales of operating properties
0.05
—
(0.04
)
(0.18
)
Add: impairment charges
0.37
—
0.82
0.09
Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests
0.43
0.48
1.77
2.00
FFO, as defined by NAREIT, of the Operating Partnership per diluted share/unit1
$
0.48
$
0.50
$
2.00
$
2.04
____________________
1
"FFO of the Operating Partnership" measures 100% of the operating performance of the Operating Partnership's real estate properties. "FFO attributable to Kite Realty Group Trust common shareholders" reflects a reduction for the redeemable noncontrolling weighted average diluted interest in the Operating Partnership.
Funds from Operations (FFO) is a widely used performance measure for real estate companies and is provided here as a supplemental measure of operating performance. KRG calculates FFO, a non-GAAP financial measure, in accordance with the best practices described in the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts ("NAREIT"), as restated in 2018. The NAREIT white paper defines FFO as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments, and after adjustments for unconsolidated partnerships and joint ventures.
Considering the nature of our business as a real estate owner and operator, KRG believes that FFO is helpful to investors in measuring our operational performance because it excludes various items included in net income that do not relate to or are not indicative of our operating performance, such as gains or losses from sales of depreciated property and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. FFO (a) should not be considered as an alternative to net income (calculated in accordance with GAAP) for the purpose of measuring our financial performance, (b) is not an alternative to cash flow from operating activities (calculated in accordance with GAAP) as a measure of our liquidity, and (c) is not indicative of funds available to satisfy our cash needs, including our ability to make distributions. Our computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.
Kite Realty Group Trust Same Property Net Operating Income For the Three and Twelve Months Ended December 31, 2018 and 2017 (Unaudited)
($ in thousands)
Three Months Ended December 31,
Twelve Months Ended December 31,
2018
2017
% Change
2018
2017
% Change
Number of properties for the quarter1
103
103
Leased percentage at period end
94.5
%
94.8
%
94.5
%
94.8
%
Economic Occupancy percentage2
92.7
%
92.7
%
92.8
%
93.4
%
Minimum rent
$
59,544
$
58,185
$
235,278
$
231,633
Tenant recoveries
16,724
16,052
67,156
64,774
Other income
1,115
1,178
2,056
2,027
77,383
75,415
304,490
298,434
Property operating expenses
(10,954
)
(10,295
)
(43,565
)
(41,168
)
Bad debt expense
(1,053
)
(537
)
(2,405
)
(2,508
)
Real estate taxes
(9,538
)
(9,414
)
(39,829
)
(39,107
)
(21,545
)
(20,246
)
(85,799
)
(82,783
)
Same Property NOI3
$
55,838
$
55,169
1.2%
$
218,691
$
215,651
1.4%
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure:
Net operating income - same properties
$
55,838
$
55,169
$
218,691
$
215,651
Net operating income - non-same activity4
7,806
9,884
40,236
49,968
Other (expense) income, net
(216
)
312
1,826
62
General, administrative and other
(4,957
)
(5,360
)
(21,320
)
(21,749
)
Impairment charges
(31,513
)
—
(70,360
)
(7,411
)
Depreciation and amortization expense
(36,299
)
(40,758
)
(152,163
)
(172,091
)
Interest expense
(17,643
)
(16,452
)
(66,785
)
(65,702
)
(Loss) gains on sales of operating properties
(4,725
)
—
3,424
15,160
Net loss (income) attributable to noncontrolling interests
488
(486
)
(116
)
(2,014
)
Net (loss) income attributable to common shareholders
$
(31,221
)
$
2,309
$
(46,567
)
$
11,874
____________________
1
Same Property NOI excludes three properties in redevelopment, the recently completed Beechwood Promenade, Burnt Store Marketplace, City Center, Fishers Station, and Rampart Commons redevelopments as well as office properties.
2
Excludes leases that are signed but for which tenants have not yet commenced the payment of cash rent. Calculated as a weighted average based on the timing of cash rent commencement and expiration during the period.
3
Same Property NOI excludes net gains from outlot sales, straight-line rent revenue, lease termination fees, amortization of lease intangibles, fee income and significant prior period expense recoveries and adjustments, if any.
4
Includes non-cash activity across the portfolio as well as net operating income from properties not included in the same property pool including properties sold during both periods.
KRG uses same property NOI ("Same Property NOI"), a non-GAAP financial measure, to evaluate the performance of our properties. Same Property NOI excludes properties that have not been owned for the full period presented. It also excludes net gains from outlot sales, straight-line rent revenue, lease termination fees, amortization of lease intangibles and significant prior period expense recoveries and adjustments, if any. KRG believes that Same Property NOI is helpful to investors as a measure of our operating performance because it includes only the NOI of properties that have been owned and fully operational for the full quarters presented. KRG believes such presentation eliminates disparities in net income due to the acquisition or disposition of properties during the particular quarters presented and thus provides a more consistent comparison of our properties. The year-to-date results represent the sum of the individual quarters, as reported.
NOI and Same Property NOI should not, however, be considered as alternatives to net income (calculated in accordance with GAAP) as indicators of our financial performance. Our computation of NOI and Same Property NOI may differ from the methodology used by other REITs, and therefore may not be comparable to such other REITs.
When evaluating the properties that are included in the same property pool, KRG has established specific criteria for determining the inclusion of properties acquired or those recently under development. An acquired property is included in the same property pool when there is a full quarter of operations in both years subsequent to the acquisition date. Development and redevelopment properties are included in the same property pool four full quarters after the properties have been transferred to the operating portfolio. A redevelopment property is first excluded from the same property pool when the execution of a redevelopment plan is likely and KRG begins recapturing space from tenants. For the quarter ended December 31, 2018, KRG excluded three redevelopment properties and the recently completed Beechwood Promenade, Burnt Store Marketplace, City Center, Fishers Station, and Rampart Commons redevelopments from the same property pool that met these criteria and were owned in both comparable periods.
Contact Information: Kite Realty Group Trust Heath Fear EVP, Chief Financial Officer 317.577.5609 hfear@kiterealty.com
