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Kite Realty Group Trust Reports Substantial Progress on Deleveraging and Disposition Program Along with Strong Second Quarter 2019 Operating Results

Company Release - 8/5/2019 4:15 PM ET

INDIANAPOLIS, Aug. 05, 2019 (GLOBE NEWSWIRE) -- Kite Realty Group Trust (NYSE:KRG) (“KRG”) reported today its operating results for the second quarter ended June 30, 2019.

“We are extremely pleased with the progress of Project Focus, our deleveraging and portfolio transformation program,” said John A. Kite, Chairman and CEO. “As of today, we have closed on $415 million in asset sales, using the proceeds to pay down debt and lower our leverage to a net-debt-to-EBITDA ratio of 6.0x. This is a major milestone for our Company, and we reached this point well ahead of schedule.”

“Our transactions team has done a great job getting us to this point, while our operations team is simultaneously firing on all cylinders. Our leasing volume is up 40% year-over-year, and our big box program continues to deliver results. We look forward to continuing our outperformance in the second half of the year.”

Financial Highlights

  • Realized net loss attributable to common shareholders of $1.8 million, or $0.02 per common share, for the second quarter and realized net income attributable to common shareholders of $3.9 million, or $0.05 per common share, for the six months ending June 30, 2019.
  • Generated Funds from Operations of the Operating Partnership as adjusted (FFO) of $36.7 million, or $0.43 per diluted common share, for the second quarter and generated FFO of $75.0 million, or $0.87 per diluted common share, for the six months ending June 30, 2019.
  • Increased Same-Property Net Operating Income (NOI) by 1.7%.  Combined with our first quarter results, Same-Property NOI grew by 1.8% through June 30, 2019.

Portfolio Operations

  • Retail leased percentage was 95.1%, an increase of 10 basis points sequentially.
  • Small shop leased percentage was 92.0%, an increase of 40 basis points sequentially.
  • Annualized base rent (ABR) for the operating retail portfolio was $17.35, an increase of $0.19 sequentially.
  • Executed 81 new and renewal leases during the second quarter, representing a total of 500,992 square feet, which includes 2 big box leases representing approximately 43,000 square feet.
    • GAAP leasing spreads of 25.4% (18.2% cash basis) on 21 comparable new leases, 10.5% (5.9% cash basis) on 48 comparable renewals and 14.0% (8.7% cash basis) on a blended basis.  
  • Executed 176 new and renewal leases, representing over 1.1 million square feet, through June 30, 2019.

Transactions

  • Sold 8 non-core assets for a total of $244 million in second quarter.
  • Subsequent to quarter end, sold an additional 5 non-core assets for $157 million.
  • Total non-core asset sales year to date of $415 million.

Balance Sheet
KRG currently has zero debt maturing through 2020.  As of June 30, the debt portfolio had a weighted average maturity of 5.7 years and a weighted average interest rate of 4.16%.

As of June 30, 2019, KRG’s net-debt-to-EBITDA ratio was 6.4x.  Factoring in the asset sales and corresponding debt paydown subsequent to quarter end, KRG’s proforma net-debt-to-EBITDA is 6.0x, and there is zero outstanding on our corporate line of credit.

Guidance

KRG is updating previously provided guidance of 2019 FFO from $1.66 - $1.76 per share to $1.61 - $1.69 per share.  The decrease of $0.06 cents of FFO per share at the midpoint is solely related to the company’s outperformance with respect to the accelerated timing of the deleveraging and disposition program.
The key assumption changes are:

 PreviousCurrentChange at Midpoint
SP NOI Growth1.25% - 2.25%1.50% - 2.50%0.25%
Pre-disposition 2019 FFO Guidance1.76 - 1.821.76 - 1.820.00
2019 Dispositions$350M - $500M$415M - $500M$32M
Disposition Wtd Avg Sales DateLate AugustEarly July 
Net Impact of 2019 Dispositions in 2019(0.10) - (0.06)(0.15) - (0.13)1,2(0.06)
2019 FFO Guidance1.66 - 1.761.61 - 1.69(0.06)
    
2019 Dispositions Net Impact Annualized(0.29) - (0.20)(0.29) - (0.25)1,2 
    
(1) Disposition NOI less anticipated interest savings based on weighted-average sale date of July 2019.
(2) Low end of range assumes $500 million in proceeds while high end of range assumes $415 million in proceeds.

Earnings Conference Call

Kite Realty Group Trust will conduct a conference call to discuss its financial results on Tuesday, August 6, 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 6769276).  In addition, a webcast replay link will be available on the corporate website.

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 retailers 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, 2018, 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)    
  June 30,
2019
 December 31,
2018
Assets:    
Investment properties, at cost $3,386,780  $3,641,120 
Less: accumulated depreciation (697,005) (699,927)
  2,689,775  2,941,193 
     
Cash and cash equivalents 35,842  35,376 
Tenant and other receivables, including accrued straight-line rent of $30,823 and $31,347, respectively 51,965  58,059 
Restricted cash and escrow deposits 23,692  10,130 
Deferred costs and intangibles, net 85,056  95,264 
Prepaid and other assets 37,296  12,764 
Investments in unconsolidated subsidiaries 12,692  13,496 
Assets held for sale   5,731 
Total Assets $2,936,318  $3,172,013 
Liabilities and Shareholders’ Equity:    
Mortgage and other indebtedness, net $1,376,612  $1,543,301 
Accounts payable and accrued expenses 66,600  85,934 
Deferred revenue and other liabilities 94,439  83,632 
Total Liabilities 1,537,651  1,712,867 
Commitments and contingencies    
Limited Partners’ interests in the Operating Partnership and other redeemable noncontrolling interests 45,306  45,743 
Shareholders’ Equity:    
Kite Realty Group Trust Shareholders’ Equity:    
Common Shares, $.01 par value, 225,000,000 shares authorized, 83,960,346 and 83,800,886 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively 840  838 
Additional paid in capital 2,079,868  2,078,099 
Accumulated other comprehensive loss (15,892) (3,497)
Accumulated deficit (712,153) (662,735)
Total Kite Realty Group Trust Shareholders’ Equity 1,352,663  1,412,705 
Noncontrolling Interests 698  698 
Total Equity 1,353,361  1,413,403 
Total Liabilities and Shareholders' Equity $2,936,318  $3,172,013 


Kite Realty Group Trust

Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)

($ in thousands, except per share data)        
  Three Months Ended
June 30,
 Six Months Ended
June 30,
  2019 2018 2019 2018
Revenue:        
Rental income $79,795  $85,846  $162,152  $174,667 
Other property related revenue 1,594  4,927  2,649  4,507 
Fee income 91  963  194  2,325 
Total revenue 81,480  91,736  164,995  181,499 
Expenses:        
Property operating 11,468  12,621  22,898  25,091 
Real estate taxes 9,929  10,392  20,135  21,146 
General, administrative, and other 7,037  5,553  13,814  11,499 
Depreciation and amortization 34,713  40,451  69,348  79,006 
Impairment charges 25,107  14,777  29,184  38,847 
Total expenses 88,254  83,794  155,379  175,589 
Gain on sale of operating properties, net 24,092  7,829  30,679  8,329 
Operating income 17,318  15,771  40,295  14,239 
Interest expense (16,124) (16,746) (32,582) (33,084)
Income tax benefit of taxable REIT subsidiary 66  28  148  51 
Loss on debt extinguishment (2,577)   (2,577)  
Equity in loss of unconsolidated subsidiary (238)   (665)  
Other expense, net (142) (115) (328) (265)
Net (loss) income (1,697) (1,062) 4,291  (19,059)
Net income attributable to noncontrolling interests (99) (304) (372) (225)
Net (loss) income attributable to Kite Realty Group Trust common shareholders $(1,796) $(1,366) $3,919  $(19,284)
         
(Loss) income per common share - basic and diluted $(0.02) $(0.02) 0.05  (0.23)
         
Weighted average common shares outstanding - basic 83,938,961  83,672,896  83,891,584  83,651,402 
Weighted average common shares outstanding - diluted 83,938,961  83,672,896  84,017,762  83,651,402 
Cash dividends declared per common share $0.3175  $0.3175  $0.6350  $0.6350 


Kite Realty Group Trust

Funds From Operations
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)

($ in thousands, except per share data)         
  Three Months Ended
June 30,
 Six Months Ended
June 30,
 
  2019 2018 2019 2018 
Funds From Operations         
Consolidated net (loss) income $(1,697) $(1,062) $4,291  $(19,059) 
Less: net income attributable to noncontrolling interests in properties (132) (343) (264) (694) 
Less: gain on sales of operating properties (24,092) (7,829) (30,679) (8,329) 
Add: impairment charges 25,107  14,777  29,184  38,847  
Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests 34,954  40,178  69,853  78,457  
FFO of the Operating Partnership1 34,140  45,721  72,385  89,222  
Less: Limited Partners' interests in FFO (819) (1,119) (1,737) (2,141) 
FFO attributable to Kite Realty Group Trust common shareholders1 $33,321  $44,602  $70,648  $87,081  
FFO, as defined by NAREIT, per share of the Operating Partnership - basic and diluted $0.40  $0.53  $0.84  $1.04  
          
FFO of the Operating Partnership1 $34,140  $45,721  $72,385  $89,222  
Add: loss on debt extinguishment 2,577    2,577    
FFO, as adjusted, of the Operating Partnership $36,717  $45,721  $74,962  $89,222  
FFO, as adjusted, per share of the Operating Partnership - basic and diluted $0.43  $0.53  $0.87  $1.04  
          
Weighted average common shares outstanding - basic 83,938,961  83,672,896  83,891,584  83,651,402  
Weighted average common shares outstanding - diluted 84,064,507  83,722,444  84,017,762  83,694,898  
Weighted average common shares and units outstanding - basic 86,051,797  85,739,745  85,982,324  85,691,306  
Weighted average common shares and units outstanding - diluted 86,177,343  85,789,293  86,108,502  85,734,802  
          
FFO, as defined by NAREIT, per diluted share/unit         
Consolidated net (loss) income $(0.02) $(0.01) $0.05  $(0.22) 
Less: net income attributable to noncontrolling interests in properties       (0.01) 
Less: gain on sales of operating properties (0.28) (0.09) (0.36) (0.10) 
Add: impairment charges 0.29  0.17  0.34  0.45  
Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests 0.41  0.46  0.81  0.92  
FFO, as defined by NAREIT, of the Operating Partnership per diluted share/unit1 $0.40  $0.53  $0.84  $1.04  
          
Add: loss on debt extinguishment 0.03    0.03    
FFO, as adjusted, of the Operating Partnership per diluted share/unit $0.43  $0.53  $0.87  $1.04  
___________________
  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. The Company 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, the Company 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.  For informational purposes, we have also provided FFO adjusted for loss on debt extinguishment.


Kite Realty Group Trust

Same Property Net Operating Income
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)

($ in thousands)           
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 %
Change
 2019 2018 %
Change
Number of properties for the quarter193  93         
            
Leased percentage at period end95.1% 93.8%   95.1% 93.8%  
Economic Occupancy percentage292.4% 93.0%   92.3% 93.1%  
            
Minimum rent$53,549  $53,263    $110,694  $109,808   
Tenant recoveries15,231  14,966    31,808  31,174   
Bad debt(424) (513)   (988) (866)  
Other income364  260    747  552   
 68,720  67,976    142,261  140,668   
            
Property operating expenses(8,440) (8,772)   (17,328) (17,870)  
Real estate taxes(8,942) (8,743)   (18,483) (18,203)  
 (17,382) (17,515)   (35,811) (36,073)  
Same Property NOI3$51,338  $50,461  1.7% $106,450  $104,595  1.8%
            
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure:           
Net operating income - same properties$51,338  $50,461    $106,450  $104,595   
Net operating income - non-same activity48,654  17,299    15,318  28,342   
Other (expense) income, net(223) 876    (651) 2,111   
General, administrative and other(7,037) (5,553)   (13,814) (11,499)  
Loss on debt extinguishment(2,577)     (2,577)    
Impairment charges(25,107) (14,777)   (29,184) (38,847)  
Depreciation and amortization expense(34,713) (40,451)   (69,348) (79,006)  
Interest expense(16,124) (16,746)   (32,582) (33,084)  
Gains on sales of operating properties24,092  7,829    30,679  8,329   
Net income attributable to noncontrolling interests(99) (304)   (372) (225)  
Net (loss) income attributable to common shareholders$(1,796) $(1,366)   $3,919  $(19,284)  
__________________ 
  1. Same Property NOI excludes (i) The Corner, Courthouse Shadows, Glendale Town Center, and Hamilton Crossing redevelopments, (ii) the recently completed City Center, Fishers Station, and Rampart Commons redevelopments and (iii) 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.
 
 
 
 

The Company 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. The Company 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.  The Company 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, the Company 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 the Company begins recapturing space from tenants. For the quarter ended June 30, 2019, the Company excluded four redevelopment properties and three recently completed redevelopments from the same property pool that met these criteria and were owned in both comparable periods.

Contact Information: Kite Realty Group Trust
Jason Colton
SVP, Capital Markets & Investor Relations
317.713.2762
jcolton@kiterealty.com

 

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Source: Kite Realty Group Trust
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