Kite Realty Trust(KRG) - 2024 Q3 - Quarterly Results

Earnings Press Release Third Quarter 2024 Financial and Operational Highlights Kite Realty Group reported strong Q3 2024 results, highlighted by increased net income, record leasing volume, and raised full-year financial guidance | Financial Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Income (attributable to common shareholders) | $16.7 million | $2.1 million | | Diluted EPS | $0.08 | $0.01 | | NAREIT FFO of the Operating Partnership | $113.9 million | $114.7 million | | NAREIT FFO per diluted share | $0.51 | $0.51 | | Same Property NOI Increase | 3.0% | 4.7% | - Achieved a record leasing volume of approximately 1.7 million square feet through 205 new and renewal leases[5] - Blended cash leasing spreads were 11.1% on 155 comparable leases, driven by a 24.9% spread on new leases[5] - The retail portfolio's leased percentage increased by 20 basis points sequentially to 95.0%, with a leased-to-occupied spread of 270 basis points, representing $32.6 million of signed-not-open NOI[5] Third Quarter 2024 Capital Allocation and Balance Sheet During Q3 2024, the company strategically managed capital through property acquisitions and development activations, while strengthening its balance sheet by refinancing debt and extending credit facility maturities - Acquired Parkside West Cobb, a 141,627 sq. ft. grocery-anchored center in the Atlanta MSA, for $40.1 million[6] - Activated the One Loudoun Expansion (Washington, D.C. MSA) with estimated net project costs of $65.0 million to $75.0 million, targeting a 7.25% to 8.25% yield[6] - Issued $350 million of senior unsecured notes at 4.95% due 2031, with proceeds intended to satisfy notes maturing in March 2025[7] - Net debt to Adjusted EBITDA was 4.9x as of September 30, 2024[7] Dividend and 2024 Earnings Guidance The Board of Trustees declared an increased Q4 2024 dividend and the company updated its 2024 guidance, raising both NAREIT FFO and Same Property NOI growth forecasts - Declared a Q4 2024 dividend of $0.27 per common share, representing a 3.8% sequential and 8.0% year-over-year increase[8] | 2024 Guidance | Previous Range (as of 7/30/24) | Updated Range (as of 10/30/24) | | :--- | :--- | :--- | | NAREIT FFO per diluted share | $2.04 - $2.08 | $2.06 - $2.08 | | Net Income per diluted share | N/A | $0.02 - $0.04 | | Same Property NOI Growth | N/A | 2.5% - 3.0% | Financial and Operating Results Results Overview This section provides a snapshot of KRG's Q3 2024 financial and operational performance, highlighting stable revenue, significant net income growth, strong portfolio leasing, and updated full-year guidance | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Total Revenue | $207.3M | $207.2M | | Net Income (attributable to common shareholders) | $16.7M | $2.1M | | NAREIT FFO per diluted share | $0.51 | $0.51 | | Same property NOI performance | 3.0% | 4.7% | - The retail portfolio leased percentage stood at 95.0% as of September 30, 2024, up from 93.4% a year prior[18] - Net debt to Adjusted EBITDA was 4.9x for the current quarter, down from 5.1x in the prior year quarter[18] Consolidated Balance Sheets As of September 30, 2024, KRG's consolidated balance sheet shows an increase in total assets and liabilities, primarily driven by cash and indebtedness, while total shareholders' equity decreased | Balance Sheet Item | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $7,129,734 | $6,944,078 | | Net Investment Properties | $6,091,009 | $6,358,291 | | Cash and cash equivalents | $117,530 | $36,413 | | Mortgage and other indebtedness, net | $3,239,928 | $2,829,202 | | Total Liabilities | $3,681,465 | $3,300,223 | | Total Shareholders' Equity | $3,349,369 | $3,568,138 | Consolidated Statements of Operations For Q3 2024, KRG reported stable total revenue but a substantial increase in net income attributable to common shareholders, primarily driven by lower expenses and the absence of prior-year property sale losses | Income Statement Item (Three Months Ended) | September 30, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Total Revenue | $207,253 | $207,219 | | Total Expenses | $162,891 | $174,421 | | Operating Income | $44,964 | $26,826 | | Interest Expense | ($31,640) | ($25,484) | | Net Income (attributable to common shareholders) | $16,729 | $2,070 | | Net Income per diluted share | $0.08 | $0.01 | Same Property Net Operating Income KRG's Same Property Net Operating Income (NOI) for Q3 2024 increased by 3.0%, driven by higher minimum rent and tenant recoveries outpacing operating expense increases | Same Property Performance | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $192,916 | $189,694 | 2.2% | | Total Expenses | ($47,635) | ($48,577) | -1.9% | | Same Property NOI | $145,281 | $141,117 | 3.0% | - The leased percentage for the same property pool increased to 95.0% at period end, up from 93.4% in the prior year[21] Net Operating Income and Adjusted EBITDA by Quarter In Q3 2024, KRG reported stable Net Operating Income (NOI) and a slight decrease in Adjusted EBITDA, with a strong NOI margin for retail properties | Metric (Quarterly) | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | NOI | $153,822 | $153,925 | $152,065 | | Adjusted EBITDA | $141,018 | $144,411 | $139,205 | | NOI/Revenue – Retail properties | 75.2% | 74.3% | 74.4% | Funds From Operations For Q3 2024, KRG's NAREIT Funds From Operations (FFO) remained consistent with the prior year, while Total Recurring Adjusted Funds From Operations (AFFO) saw a slight decrease | FFO Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | FFO of the Operating Partnership | $113,926 | $114,730 | | FFO per diluted share/unit | $0.51 | $0.51 | - The reconciliation from Net Income to FFO includes adding back $97.5 million in depreciation and amortization for Q3 2024[23] - Total Recurring AFFO of the Operating Partnership was $73.0 million for Q3 2024, down from $75.5 million in Q3 2023, primarily due to higher tenant-related capital expenditures[23] Portfolio and Debt Overview Joint Venture Summary As of September 30, 2024, KRG holds interests in various consolidated and unconsolidated joint ventures, with its share of debt and investment carrying value detailed for these partnerships - KRG's total investment in unconsolidated joint ventures is $18.8 million[24] - The company's share of debt from unconsolidated JVs is $45.4 million, with the largest portion ($35.0 million) related to The Corner development project[24] Debt Profile KRG maintains a strong debt profile characterized by investment-grade credit ratings, substantial liquidity, and a predominantly fixed-rate debt structure with manageable maturity schedules - The ratio of Net Debt to Annualized Adjusted EBITDA stands at 4.9x[26] - The company has strong liquidity of $1.57 billion, consisting of $467.5 million in cash/deposits and $1.1 billion available under its unsecured credit facility[25] | Debt Composition | Amount Outstanding | Ratio | Weighted Avg. Interest Rate | Weighted Avg. Years to Maturity | | :--- | :--- | :--- | :--- | :--- | | Fixed rate debt | $3,059,277 | 94% | 4.18% | 4.6 | | Variable rate debt | $170,200 | 5% | 7.94% | 2.0 | | Total | $3,285,281 | 100% | 4.42% | 4.5 | Acquisitions and Dispositions During 2024, KRG actively managed its portfolio through strategic acquisitions and dispositions, enhancing its asset base and optimizing its geographic footprint - Acquisition: Acquired Parkside West Cobb (Atlanta MSA) for $40.125 million on August 30, 2024[31] - Disposition: Sold Ashland & Roosevelt (Chicago MSA) for $30.6 million on May 31, 2024[31] Development and Redevelopment Projects KRG is actively pursuing several development and redevelopment projects with significant estimated costs and projected stabilized NOI, alongside a pipeline of future expansion opportunities | Active Project | MSA | Projected Completion | Total KRG Costs | Estimated Stabilized NOI to KRG | | :--- | :--- | :--- | :--- | :--- | | Carillon MOB | Washington, D.C. | Q4 2024 | $59.7M | $3.5M - $4.0M | | The Corner – IN | Indianapolis, IN | Q1 2025 | $31.9M | $1.7M - $1.9M | | One Loudoun Expansion | Washington, D.C. | Q4 2026 | $81.0M - $91.0M | $4.7M - $6.2M | - The total remaining spend for KRG on these active projects is estimated to be between $89.5 million and $99.5 million[32] Portfolio Diversification KRG's retail portfolio demonstrates geographic concentration in the South and a well-diversified tenant base, with no single tenant representing a significant portion of Annualized Base Rent - The portfolio is heavily weighted towards the South region, which contributes 64.1% of the total retail ABR[34] | Top 5 States by ABR | % of Weighted Retail ABR | | :--- | :--- | | Texas | 26.7% | | Florida | 11.7% | | Maryland | 5.9% | | North Carolina | 5.7% | | Virginia | 5.5% | | Rank | Tenant | % of Weighted ABR | | :--- | :--- | :--- | | 1 | The TJX Companies, Inc. | 2.8% | | 2 | Best Buy Co., Inc. | 1.9% | | 3 | Ross Stores, Inc. | 1.9% | | 4 | PetSmart, Inc. | 1.9% | | 5 | Michaels Stores, Inc. | 1.4% | Leasing Activity In Q3 2024, KRG demonstrated strong leasing activity with positive cash rent spreads, particularly for new leases, and maintains a staggered lease expiration schedule for manageable rollover | Q3 2024 Leasing Spreads | Leases | Sq. Ft. | Cash Rent Spread | | :--- | :--- | :--- | :--- | | New Leases | 35 | 136,874 | 24.9% | | Non-Option Renewals | 59 | 236,747 | 11.9% | | Option Renewals | 61 | 889,891 | 7.7% | | Total Comparable | 155 | 1,263,512 | 11.1% | - The company has 8.8% of its total ABR expiring in 2025 and 12.0% in 2026[39] Components of Net Asset Value This section outlines the components used to estimate Net Asset Value (NAV), detailing annualized portfolio cash NOI and significant liabilities such as mortgage indebtedness - Total Annualized Portfolio Cash NOI is calculated at $613.7 million, which includes $570.6 million from normalized portfolio cash NOI and $43.0 million from ground leases[40] - Major liabilities for the NAV calculation include net mortgage and other indebtedness of approximately $3.24 million[40] Non-GAAP Financial Measures Definitions of Non-GAAP Measures This section defines key non-GAAP financial measures such as FFO, AFFO, NOI, and EBITDA, which are provided to offer supplemental insights into the company's core operational performance - Funds from Operations (FFO): Calculated per NAREIT guidelines, FFO starts with GAAP net income and excludes real estate-related depreciation and amortization, gains/losses from property sales, and impairment write-downs[41] - Net Operating Income (NOI) and Same Property NOI: NOI is defined as income from real estate less property operating expenses. Same Property NOI further refines this by only including properties owned for the full periods presented to provide a more consistent comparison[47][49] - EBITDA and Adjusted EBITDA: EBITDA is net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA further removes items like gains on sales, merger costs, and other non-recurring items to provide a clearer view of core operational earnings[52]