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Section 1: 8-K (FORM 8-K Q4 2017)

Document


 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): February 1, 2018
 
KITE REALTY GROUP TRUST
(Exact name of registrant as specified in its charter)
 
Maryland
1-32268
11-3715772
(State or other jurisdiction
(Commission
(IRS Employer
of incorporation)
File Number)
Identification Number)
 
 
 
30 S. Meridian Street
Suite 1100
Indianapolis, IN 46204
(Address of principal executive offices) (Zip Code)
 
 
(317) 577-5600
(Registrant’s telephone number, including area code)
 
 
Not applicable
(Former name or former address, if changed since last report)
      
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o






Item 2.02. Results of Operations and Financial Condition.
 
On February 1, 2018, Kite Realty Group Trust (the “Company”) announced its consolidated financial results for the quarter ended December 31, 2017. A copy of the Company’s press release is furnished as Exhibit 99.1 to this current report on Form 8-K. A copy of the Company’s Fourth Quarter 2017 Supplemental Disclosure is furnished as Exhibit 99.2 to this current report on Form 8-K. The information contained in Item 2.02 of this current report on Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed “filed” with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the Company under the Securities Act of 1933, as amended.
 
Item 9.01. Financial Statements and Exhibits.
 
(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Exhibits.
 
Exhibit No.
 
Description
99.1
 
Kite Realty Group Trust Press Release dated February 1, 2018
99.2
 
Kite Realty Group Trust Fourth Quarter 2017 Supplemental Disclosure























SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
KITE REALTY GROUP TRUST
 
 
Date: February 1, 2018
By:
/s/ Daniel R. Sink
 
 
Daniel R. Sink
 
 
Executive Vice President and
 
 
Chief Financial Officer































EXHIBIT INDEX
Exhibit
 
Document
99.1
 
99.2
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 EARNINGS RELEASE)

Exhibit


 
Exhibit 99.1

392012499_pressrellogo11.jpg


PRESS RELEASE

Contact Information: 
Dan Sink
EVP & CFO
(317) 577-5609 
dsink@kiterealty.com


Kite Realty Group Trust Reports Fourth Quarter and Full Year 2017 Operating Results and
Releases 2018 Guidance


Indianapolis, Ind., February 1, 2018 - Kite Realty Group Trust (NYSE: KRG) (the “Company”) announced today its operating results for the fourth quarter and full year ended December 31, 2017, and its 2018 guidance. Financial statements, exhibits, and reconciliations of non-GAAP measures attached to this release include the details of the Company’s results.
Fourth Quarter Highlights
Generated net income attributable to common shareholders of $2.3 million, or $0.03 per diluted common share.
Realized Funds From Operations of the Operating Partnership (“FFO”), as defined by NAREIT, of $42.8 million, or $0.50 per diluted common share.
Increased Same-Property Net Operating Income (“NOI”) 1.5% compared to the same period in the prior year.
Realized small shop leased percentage of 90.5% at the end of the year, an increase of 160 basis points over the prior year.
Executed 745,137 square feet of new and renewal leases on 131 individual spaces.
Generated aggregate rent spreads on 102 comparable new and renewal leases of 7.2% on a cash basis and 11.2% on a GAAP basis.
Completed two of the Company’s Redevelopment, Repurpose and Reposition (“3-R”) projects with cumulative costs totaling $8.9 million and a projected annualized return of 10.1%.
Increased quarterly common dividend by 5.0% to $0.3175 per share.

Full Year Highlights
Generated net income attributable to common shareholders of $11.9 million, or $0.14 per diluted common share.
Realized FFO, as defined by NAREIT, of $174.7 million, or $2.04 per diluted common share.
Increased Same-Property NOI 2.9% for the comparable operating portfolio, or 3.2% excluding the impact of the 3-R initiative.
Achieved comparable and non-comparable new lease ABR of $23.46 compared to the portfolio average of $16.32, or a 44% premium.
Executed over 2.3 million square feet of new and renewal leases on 393 individual spaces.
Generated aggregate rent spreads on 298 comparable new and renewal leases of 9.0% on a cash basis and 13.3% on a GAAP basis.
Completed the sale of four assets generating $78 million of gross proceeds: Cove Center in Stuart, Florida; The Shops at Village Walk in Fort Myers, Florida; Clay Marketplace in Birmingham, Alabama; and Wheatland Towne Crossing in Dallas, Texas.
Maintained a well-laddered debt maturity schedule, with only $82.4 million of debt maturing through 2020 and a weighted average maturity of 5.5 years across the Company’s debt portfolio.
Completed development project at Parkside Town Commons, Phase II, and the expansion of Holly Springs, Phase II, transitioning both to our operating portfolio at 95.4% and 100% leased, respectively.

1



“Our 2017 results demonstrate the successful execution of our strategic plan,” said John Kite, Chairman and Chief Executive Officer. “Operationally, we continue to see strong demand for our well-positioned real estate, as evidenced by our small shops leased at 90.5% and our signing 298 comparable leases at a 13.3% spread on a GAAP basis. From a capital allocation perspective, we continued to execute by completing seven 3-R projects at a 12.3% yield and selling four assets for $78 million in gross proceeds. In 2018, we look forward to furthering our strategic objectives as we remain focused on operating fundamentals, expanding our relationships with strong, competitive retailers, and selling non-core assets to reach our target leverage.”
Financial & Portfolio Results
Financial Results
Net income attributable to common shareholders for the three months ended December 31, 2017, was $2.3 million, compared to $3.4 million for the same period in 2016. For the twelve months ended December 31, 2017, net income attributable to common shareholders was $11.9 million, compared to $1.2 million for the twelve months ended December 31, 2016. Full year 2017 results included a $7.4 million operating property impairment, while full year 2016 results included $2.8 million in transaction costs.
For the three months ended December 31, 2017, FFO, as defined by NAREIT, was $42.8 million, or $0.50 per diluted common share, compared to $42.1 million, or $0.49 per diluted common share, for the same period in the prior year. For the three months ended December 31, 2017, FFO, as adjusted, was $42.8 million, or $0.50 per diluted common share, compared to $42.9 million, or $0.50 per diluted common share, for the same period in the prior year.
For the twelve months ended December 31, 2017, FFO, as defined by NAREIT, was $174.7 million, or $2.04 per diluted common share, compared to $170.6 million, or $2.00 per diluted common share, for the prior year. For the twelve months ended December 31, 2017, FFO, as adjusted, was $174.7 million, or $2.04 per diluted common share, compared to $175.8 million, or $2.06 per diluted common share, for the prior year. Full year 2017 results included the effects of $78 million of asset dispositions during the year.
Portfolio Operations
As of December 31, 2017, the Company owned interests in 117 operating and redevelopment properties totaling approximately 23.3 million square feet and two development projects currently under construction totaling 0.7 million square feet. The owned gross leasable area in the Company’s retail operating portfolio was 94.8% leased as of December 31, 2017, and the Company’s total portfolio was 94.4% leased. We exceeded our small-shop goal of 90% leased, reaching 90.5% at year-end, representing an increase of 160 basis points over last year-end and 80 basis points over the prior quarter.
Same-property NOI, which includes 104 operating properties, increased 1.5% in the fourth quarter compared to the same period in the prior year. The leased percentage of properties included in the same-property pool was 94.6% at December 31, 2017, compared to 95.3% in the same period in the prior year. For the full year, same-property NOI increased 2.9% compared to the same period in the prior year, or 3.2% excluding the impact of the Company’s 3-R initiative.
The Company executed leases on 131 individual spaces totaling 745,137 square feet during the fourth quarter of 2017, including 102 comparable new and renewal leases for 672,970 square feet. Cash rent spreads on comparable new and renewal leases executed in the quarter were 20.0% and 5.3%, respectively, for a blended cash rent spread of 7.2%. The blended leasing spread on a straight-line basis, which includes periodic contractual rent increases over the term of the lease, was 11.2%.
Several noteworthy tenants recently opened, including O2 Fitness at Holly Springs Towne Center (Raleigh, NC), Hobby Lobby at Parkside Town Commons (Raleigh, NC), Aldi at Bolton Plaza (Jacksonville, FL), Ross at Trussville Promenade (Birmingham, AL), and North Italia, Talbots, and Athleta, all at Rampart Commons (Las Vegas, NV).
Development and Redevelopment
As of December 31, 2017, we had two development projects under construction across the street from the University of Notre Dame campus. In the fourth quarter, the Company entered into a joint venture in which we own a 35% non-controlling interest to develop a full-service Embassy Suites hotel at Eddy Street Commons. In addition to the hotel, the development will include new upscale apartments, residential townhomes, condos, retail space, and a community center.
We completed construction on two 3-R projects during the fourth quarter: Bolton Plaza, Phase II (Jacksonville, FL) and Trussville Promenade (Birmingham, AL). The Company invested $8.9 million into these properties for a projected annualized return of 10.1%.


2


The Company’s 3-R program currently includes seven projects under various stages of construction, with estimated combined costs ranging from $71.0 to $77.0 million and an estimated combined annualized return ranging from 8.0% to 9.0%. During the quarter, the Company commenced construction on one new 3-R project at Beechwood Promenade (Athens, GA), which will include a new 21,668 square foot lease with Michaels and a new outlot for Starbucks.
2018 Earnings Guidance
The Company is introducing guidance for 2018 FFO, as defined by NAREIT, in a range of $1.98 to $2.04 per diluted common share. The 2018 earnings guidance is based on the following key assumptions:
Operations
Increase in same-property NOI of 1.0% to 1.5% (including bad debt expense);
Year-end retail portfolio leased rate of 94.5% to 95.5%;

Investments
Dispositions of operating properties of +/- $60 million in the first quarter;
No acquisition or capital markets activity;
The effects of prior-year operating property dispositions of $78 million;

Other
General and administrative expense of $21.5 million to $22.5 million;
GAAP interest expense of $66 million to $67 million;
Non-cash below market lease amortization and straight line rent of $9.0 to $9.5 million;
Gain on sale of non-depreciable assets included in Other Property Related Revenue of $2 million to $3 million; and
Fee Revenue of $2.0 million to $2.5 million.

The 2018 earnings guidance is based on a number of factors, many of which are outside the Company’s control and all of which are subject to change. The Company may change its guidance during the year if actual or anticipated results vary from these or other assumptions, although the Company undertakes no obligation to do so.
Guidance Range For Full Year 2018
Low
High
Consolidated net income per diluted common share 
$
0.27

$
0.33

Add: Depreciation, amortization and other
1.71

1.71

FFO, as defined by NAREIT, per diluted common share
$
1.98

$
2.04

Earnings Conference Call

The Company will conduct a conference call to discuss its financial results on Friday, February 2, 2018, at 11:00 a.m. Eastern Time. A live webcast of the conference call will be available online on the Company’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 7059307). 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) engaged primarily in the ownership and operation, acquisition, development and redevelopment of high-quality neighborhood and community shopping centers in select markets in the United States. As of December 31, 2017, we owned interests in 117 operating and redevelopment properties totaling approximately 23.3 million square feet and two development projects currently under construction.
Our strategy is to maximize the cash flow of our operating properties, successfully complete the construction and lease-up of our redevelopment and development portfolio, and identify additional opportunities to acquire or dispose of properties to further strengthen the Company. New investments are focused in the shopping center sector primarily in markets where we believe we can leverage our existing infrastructure and relationships to generate attractive risk-adjusted returns or otherwise in desirable trade areas. Dispositions are generally designed to increase the quality of our portfolio and to strengthen the Company’s balance sheet.



3


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; financing risks, including the availability of, and costs associated with, sources of liquidity; the Company’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 the Company operates; acquisition, disposition, development and joint venture risks; property ownership and management risks; the Company’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 the Company owns; the impact of online retail and the perception that such retail has on the value of shopping center assets; risks related to the geographical concentration of the Company’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. The Company refers you to the documents filed by the Company from time to time with the SEC, specifically the section titled “Risk Factors” in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which discuss these and other factors that could adversely affect the Company’s results. The Company undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.


4


Kite Realty Group Trust
Consolidated Balance Sheets
(Unaudited)

($ in thousands)
 
 
 
 
 
 
December 31,
2017
 
December 31,
2016
Assets:
 
 
 
 
Investment properties, at cost
 
$
3,957,884

 
$
3,996,065

Less: accumulated depreciation
 
(664,614
)
 
(560,683
)
 
 
3,293,270

 
3,435,382

 
 
 
 
 
Cash and cash equivalents
 
24,082

 
19,874

Tenant and other receivables, including accrued straight-line rent of $31,747 and $28,703 respectively, net of allowance for uncollectible accounts
 
58,328

 
53,087

Restricted cash and escrow deposits
 
8,094

 
9,037

Deferred costs and intangibles, net
 
112,359

 
129,264

Prepaid and other assets
 
16,365

 
9,727

Total Assets
 
$
3,512,498

 
$
3,656,371

Liabilities and Shareholders’ Equity:
 
 
 
 

Mortgage and other indebtedness, net
 
$
1,699,239

 
$
1,731,074

Accounts payable and accrued expenses
 
78,482

 
80,664

Deferred revenue and other liabilities
 
96,564

 
112,202

Total Liabilities
 
1,874,285

 
1,923,940

Commitments and contingencies
 
 
 
 

Limited Partners’ interests in the Operating Partnership and other redeemable noncontrolling interests
 
72,104

 
88,165

Shareholders’ Equity:
 
 
 
 

Kite Realty Group Trust Shareholders’ Equity:
 
 
 
 

Common Shares, $.01 par value, 225,000,000 shares authorized, 83,606,068 and 83,545,398 shares issued and outstanding at December 31, 2017 and
December 31, 2016, respectively
 
836

 
835

Additional paid in capital
 
2,071,418

 
2,062,360

Accumulated other comprehensive loss
 
2,990

 
(316
)
Accumulated deficit
 
(509,833
)
 
(419,305
)
Total Kite Realty Group Trust Shareholders’ Equity
 
1,565,411

 
1,643,574

Noncontrolling Interests
 
698

 
692

Total Equity
 
1,566,109

 
1,644,266

Total Liabilities and Shareholders' Equity
 
$
3,512,498

 
$
3,656,371



5


Kite Realty Group Trust
Consolidated Statements of Operations
For the Three and Twelve Months Ended December 31, 2017 and 2016
(Unaudited)

($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
 
  Minimum rent
 
$
68,518

 
$
68,622

 
$
273,444

 
$
274,059

  Tenant reimbursements
 
18,252

 
17,791

 
73,000

 
70,482

  Other property related revenue
 
1,772

 
2,461

 
11,998

 
9,581

  Fee income
 
377

 

 
377

 

Total revenue
 
88,919

 
88,874

 
358,819

 
354,122

Expenses:
 
 
 
 
 
 

 
 

  Property operating
 
12,693

 
12,469

 
49,643

 
47,923

  Real estate taxes
 
10,796

 
10,511

 
43,180

 
42,838

  General, administrative, and other
 
5,360

 
5,375

 
21,749

 
20,603

  Transaction costs
 

 

 

 
2,771

  Impairment charge
 

 

 
7,411

 

  Depreciation and amortization
 
40,758

 
42,939

 
172,091

 
174,564

Total expenses
 
69,607

 
71,294

 
294,074

 
288,699

Operating income
 
19,312

 
17,580

 
64,745

 
65,423

  Interest expense
 
(16,452
)
 
(17,613
)
 
(65,702
)
 
(65,577
)
  Income tax benefit (expense) of taxable REIT subsidiary
 
36

 
(51
)
 
100

 
(814
)
  Other expense, net
 
(101
)
 
(75
)
 
(415
)
 
(169
)
Income (loss) from continuing operations
 
2,795

 
(159
)
 
(1,272
)
 
(1,137
)
  Gains on sales of operating properties
 

 
4,059

 
15,160

 
4,253

Net income
 
2,795

 
3,900

 
13,888

 
3,116

  Net income attributable to noncontrolling interests
 
(486
)
 
(541
)
 
(2,014
)
 
(1,933
)
Net income attributable to Kite Realty Group Trust common shareholders
 
$
2,309

 
$
3,359

 
$
11,874

 
$
1,183

 
 
 
 
 
 
 
 
 
Income per common share - basic
 
$
0.03

 
0.04

 
0.14

 
0.01

Income per common share - diluted
 
$
0.03

 
$
0.04

 
$
0.14

 
$
0.01

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,595,677

 
83,545,807

 
83,585,333

 
83,436,511

Weighted average common shares outstanding - diluted
 
83,705,764

 
83,571,663

 
83,690,418

 
83,465,500

Cash dividends declared per common share
 
$
0.3175

 
$
0.3025

 
$
1.2250

 
$
1.1650

 
 
 
 
 
 
 
 
 

6


Kite Realty Group Trust
Funds From Operations
For the Three and Twelve Months Ended December 31, 2017 and 2016
(Unaudited)
($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2017
 
2016
 
2017
 
2016
Funds From Operations
 
 
 
 
 
 
 
 
Consolidated net income
 
$
2,795

 
$
3,900

 
$
13,888

 
$
3,116

Less: net income attributable to noncontrolling interests in properties
 
(428
)
 
(461
)
 
(1,731
)
 
(1,844
)
Less: gains on sales of operating properties
 

 
(4,059
)
 
(15,160
)
 
(4,253
)
Add: impairment charge
 

 

 
7,411

 

Add: depreciation and amortization of consolidated entities, net of noncontrolling interests
 
40,425

 
42,670

 
170,315

 
173,578

   FFO of the Operating Partnership1
 
42,792

 
42,050

 
174,723

 
170,597

Less: Limited Partners' interests in FFO
 
(971
)
 
(1,164
)
 
(3,966
)
 
(3,872
)
   FFO attributable to Kite Realty Group Trust common shareholders1
 
$
41,821

 
$
40,886

 
$
170,757

 
$
166,725

FFO, as defined by NAREIT, per share of the Operating Partnership - basic
 
$
0.50

 
$
0.49

 
$
2.04

 
$
2.00

FFO, as defined by NAREIT, per share of the Operating Partnership - diluted
 
$
0.50

 
$
0.49

 
$
2.04

 
$
2.00

 
 
 
 
 
 
 
 
 
FFO of the Operating Partnership1
 
$
42,792

 
$
42,050

 
$
174,723

 
$
170,597

Add: accelerated amortization of debt issuance costs (non-cash)
 

 

 

 
1,121

Add: transaction costs
 

 

 

 
2,771

Add: severance charge
 

 

 

 
500

Add: loss on debt extinguishment
 

 
819

 

 
819

FFO, as adjusted, of the Operating Partnership
 
$
42,792

 
$
42,869

 
$
174,723

 
$
175,808

FFO, as adjusted, per share of the Operating Partnership - basic
 
$
0.50

 
$
0.50

 
$
2.04

 
$
2.06

FFO, as adjusted, per share of the Operating Partnership - diluted
 
$
0.50

 
$
0.50

 
$
2.04

 
$
2.06

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,595,677

 
83,545,807

 
83,585,333

 
83,436,511

Weighted average common shares outstanding - diluted
 
83,705,764

 
83,571,663

 
83,690,418

 
83,465,500

Weighted average common shares and units outstanding - basic
 
85,580,898

 
85,488,234

 
85,566,272

 
85,374,910

Weighted average common shares and units outstanding - diluted
 
85,690,986

 
85,514,090

 
85,671,358

 
85,403,899

 
 
 
 
 
 
 
 
 
FFO, as defined by NAREIT, per diluted share
 
 
 
 
 
 
 
 
Consolidated net income
 
$
0.03

 
$
0.05

 
$
0.16

 
$
0.04

Less: net income attributable to noncontrolling interests in properties
 
(0.01
)
 
(0.01
)
 
(0.03
)
 
(0.02
)
Less: gains on sales of operating properties
 

 
(0.05
)
 
(0.18
)
 
(0.05
)
Add: impairment charge
 

 

 
0.09

 

Add: depreciation and amortization of consolidated entities, net of noncontrolling interests
 
0.48

 
0.50

 
2.00

 
2.03

FFO, as defined by NAREIT, of the Operating Partnership per diluted share1
 
$
0.50

 
$
0.49

 
$
2.04

 
$
2.00

 
 
 
 
 
 
 
 
 
Add: accelerated amortization of debt issuance costs
 

 

 

 
0.01

Add: transaction costs
 

 

 

 
0.03

Add: severance charge
 

 

 

 
0.01

Add: loss on debt extinguishment
 

 
0.01

 

 
0.01

FFO, as adjusted, of the Operating Partnership per diluted share
 
$
0.50

 
$
0.50

 
$
2.04

 
$
2.06

____________________
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"). The NAREIT white paper defines FFO as net income (determined in accordance with GAAP), excluding gains (or losses) from sales and impairments of depreciated property, plus depreciation and amortization, 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. For informational purposes, the Company has also provided FFO adjusted for accelerated amortization of debt issuance costs, transaction costs, a severance charge and a debt extinguishment loss in 2016. The Company believes this supplemental information provides a meaningful measure of our operating performance. The Company believes our presentation of FFO, as adjusted, provides investors with another financial measure that may facilitate comparison of operating performance between periods and among our peer companies. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our financial performance, is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, and 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.

7


Kite Realty Group Trust
Same Property Net Operating Income
For the Three and Twelve Months Ended December 31, 2017 and 2016
(Unaudited)
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Number of properties for the quarter
104

 
104

 
 
 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased percentage at period end
94.6
%
 
95.3
%
 
 
 
94.6
%
 
95.3
%
 
 
Economic Occupancy percentage2
93.2
%
 
93.3
%
 
 
 
93.6
%
 
93.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum rent
$
59,124

 
$
57,940

 
 
 
$
234,739

 
$
228,652

 
 
Tenant recoveries 
16,172

 
15,905

 
 
 
65,245

 
62,866

 
 
Other income
1,159

 
1,412

 
 
 
1,998

 
2,133

 
 
 
76,455

 
75,257

 
 
 
301,982

 
293,651

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses 
(10,490
)
 
(10,474
)
 
 
 
(40,373
)
 
(39,430
)
 
 
Real estate taxes 
(9,534
)
 
(9,202
)
 
 
 
(39,342
)
 
(38,124
)
 
 
 
(20,024
)
 
(19,676
)
 
 
 
(79,715
)
 
(77,554
)
 
 
Same Property NOI3
$
56,431

 
$
55,581

 
1.5%
 
$
222,267

 
$
216,097

 
2.9%
Same Property NOI - excluding the impact of the 3-R initiative4
 
 
 
 
1.5%
 
 
 
 
 
3.2%
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure: 
 
 
 
 
 
 
 
 
 
 
 
Net operating income - same properties
$
56,431

 
$
55,581

 
 
 
$
222,267

 
$
216,097

 
 
Net operating income - non-same activity5
9,546

 
10,886

 
 
 
46,156

 
49,078

 
 
Provision for bad debts - same properties
(547
)
 
(573
)
 
 
 
(2,427
)
 
(1,814
)
 
 
Other expense, net
(65
)
 
(126
)
 
 
 
(315
)
 
(983
)
 
 
General, administrative and other
(5,360
)
 
(5,375
)
 
 
 
(21,749
)
 
(20,603
)
 
 
Transaction costs

 

 
 
 

 
(2,771
)
 
 
Impairment charge

 

 
 
 
(7,411
)
 

 
 
Depreciation and amortization expense
(40,758
)
 
(42,939
)
 
 
 
(172,091
)
 
(174,564
)
 
 
Interest expense
(16,452
)
 
(17,613
)
 
 
 
(65,702
)
 
(65,577
)
 
 
Gains on sales of operating properties

 
4,059

 
 
 
15,160

 
4,253

 
 
Net income attributable to noncontrolling interests
(486
)
 
(541
)
 
 
 
(2,014
)
 
(1,933
)
 
 
Net income attributable to common shareholders
$
2,309

 
$
3,359

 
 
 
$
11,874

 
$
1,183

 
 
____________________
1
Same Property NOI excludes eight properties in redevelopment, the recently completed Northdale Promenade redevelopment as well as office properties (Thirty South Meridian and Eddy Street Commons).
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, bad debt expense and recoveries, lease termination fees, amortization of lease intangibles and significant prior period expense recoveries and adjustments, if any.
4
See pages 31 and 32 of Q4 2017 supplemental for further detail of the properties included in the 3-R initiative.
5
Includes non-cash activity across the portfolio as well as net operating income from properties not included in the same property pool.
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, bad debt expense and recoveries, 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 for the full period presented, which eliminates disparities in net income due to the acquisition or disposition of properties during the particular period presented and thus provides a more consistent metric for the 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 December 31, 2017, the Company excluded eight redevelopment properties and the recently completed Northdale Promenade redevelopment from the same property pool that met these criteria and were owned in both comparable periods.

8
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2 Q4 2017 SUPPLEMENTAL)

Exhibit
 
 
Exhibit 99.2

392012499_q42017quarterlysupplemental.jpg



QUARTERLY FINANCIAL SUPPLEMENTAL – DECEMBER 31, 2017
392012499_image45.jpg


 
PAGE NO.
 
TABLE OF CONTENTS
 
 
 
3
 
Earnings Press Release 
7
 
Corporate Profile 
8
 
Contact Information 
9
 
Important Notes Including Non-GAAP Disclosures
11
 
Consolidated Balance Sheets 
12
 
Consolidated Statements of Operations for the Three and Twelve Months Ended December 31, 2017
13
 
Funds from Operations for the Three and Twelve Months Ended December 31, 2017
14
 
Adjusted Funds From Operations and Other Financial Information for the Three and Twelve Months Ended December 31, 2017
15
 
Market Capitalization as of December 31, 2017
15
 
Ratio of Debt to Total Undepreciated Assets as of December 31, 2017
15
 
Ratio of Company Share of Net Debt to EBITDA as of December 31, 2017
16
 
Same Property Net Operating Income for the Three and Twelve Months Ended December 31, 2017
17
 
Net Operating Income by Quarter 
18
 
Consolidated Joint Venture Summary as of December 31, 2017
19
 
Summary of Outstanding Debt as of December 31, 2017
20
 
Maturity Schedule of Outstanding Debt as of December 31, 2017
22
 
Unsecured Public Debt Covenants
23
 
Top 10 Retail Tenants by Total Gross Leasable Area 
24
 
Top 25 Tenants by Annualized Base Rent 
25
 
Retail Leasing Spreads
26
 
Lease Expirations – Operating Portfolio 
27
 
Lease Expirations – Retail Anchor Tenants 
28
 
Lease Expirations – Retail Shops 
29
 
Lease Expirations – Office Tenants and Other
30
 
Development Projects Under Construction
31
 
Under Construction Redevelopment, Reposition, and Repurpose Projects
32
 
Redevelopment, Reposition, and Repurpose Opportunities
33
 
2017 Property Dispositions
34
 
Geographic Diversification – Annualized Base Rent by Region and State
35
 
Operating Retail Portfolio Summary Report
40
 
Operating Office Properties and Other
41
 
Components of Net Asset Value
42
 
Earnings Guidance – 2018


p. 2
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

 
 
 


392012499_pressrellogo11.jpg

PRESS RELEASE

Contact Information: 
Dan Sink
EVP & CFO
(317) 577-5609 
dsink@kiterealty.com


Kite Realty Group Trust Reports Fourth Quarter and Full Year 2017 Operating Results and
Releases 2018 Guidance


Indianapolis, Ind., February 1, 2018 - Kite Realty Group Trust (NYSE: KRG) (the “Company”) announced today its operating results for the fourth quarter and full year ended December 31, 2017, and its 2018 guidance. Financial statements, exhibits, and reconciliations of non-GAAP measures attached to this release include the details of the Company’s results.
Fourth Quarter Highlights
Generated net income attributable to common shareholders of $2.3 million, or $0.03 per diluted common share.
Realized Funds From Operations of the Operating Partnership (“FFO”), as defined by NAREIT, of $42.8 million, or $0.50 per diluted common share.
Increased Same-Property Net Operating Income (“NOI”) 1.5% compared to the same period in the prior year.
Realized small shop leased percentage of 90.5% at the end of the year, an increase of 160 basis points over the prior year.
Executed 745,137 square feet of new and renewal leases on 131 individual spaces.
Generated aggregate rent spreads on 102 comparable new and renewal leases of 7.2% on a cash basis and 11.2% on a GAAP basis.
Completed two of the Company’s Redevelopment, Repurpose and Reposition (“3-R”) projects with cumulative costs totaling $8.9 million and a projected annualized return of 10.1%.
Increased quarterly common dividend by 5.0% to $0.3175 per share.

Full Year Highlights
Generated net income attributable to common shareholders of $11.9 million, or $0.14 per diluted common share.
Realized FFO, as defined by NAREIT, of $174.7 million, or $2.04 per diluted common share.
Increased Same-Property NOI 2.9% for the comparable operating portfolio, or 3.2% excluding the impact of the 3-R initiative.
Achieved comparable and non-comparable new lease ABR of $23.46 compared to the portfolio average of $16.32, or a 44% premium.
Executed over 2.3 million square feet of new and renewal leases on 393 individual spaces.
Generated aggregate rent spreads on 298 comparable new and renewal leases of 9.0% on a cash basis and 13.3% on a GAAP basis.
Completed the sale of four assets generating $78 million of gross proceeds: Cove Center in Stuart, Florida; The Shops at Village Walk in Fort Myers, Florida; Clay Marketplace in Birmingham, Alabama; and Wheatland Towne Crossing in Dallas, Texas.
Maintained a well-laddered debt maturity schedule, with only $82.4 million of debt maturing through 2020 and a weighted average maturity of 5.5 years across the Company’s debt portfolio.
Completed development project at Parkside Town Commons, Phase II, and the expansion of Holly Springs, Phase II, transitioning both to our operating portfolio at 95.4% and 100% leased, respectively.


p. 3
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17


“Our 2017 results demonstrate the successful execution of our strategic plan,” said John Kite, Chairman and Chief Executive Officer. “Operationally, we continue to see strong demand for our well-positioned real estate, as evidenced by our small shops leased at 90.5% and our signing 298 comparable leases at a 13.3% spread on a GAAP basis. From a capital allocation perspective, we continued to execute by completing seven 3-R projects at a 12.3% yield and selling four assets for $78 million in gross proceeds. In 2018, we look forward to furthering our strategic objectives as we remain focused on operating fundamentals, expanding our relationships with strong, competitive retailers, and selling non-core assets to reach our target leverage.”
Financial & Portfolio Results
Financial Results
Net income attributable to common shareholders for the three months ended December 31, 2017, was $2.3 million, compared to $3.4 million for the same period in 2016. For the twelve months ended December 31, 2017, net income attributable to common shareholders was $11.9 million, compared to $1.2 million for the twelve months ended December 31, 2016. Full year 2017 results included a $7.4 million operating property impairment, while full year 2016 results included $2.8 million in transaction costs.
For the three months ended December 31, 2017, FFO, as defined by NAREIT, was $42.8 million, or $0.50 per diluted common share, compared to $42.1 million, or $0.49 per diluted common share, for the same period in the prior year. For the three months ended December 31, 2017, FFO, as adjusted, was $42.8 million, or $0.50 per diluted common share, compared to $42.9 million, or $0.50 per diluted common share, for the same period in the prior year.
For the twelve months ended December 31, 2017, FFO, as defined by NAREIT, was $174.7 million, or $2.04 per diluted common share, compared to $170.6 million, or $2.00 per diluted common share, for the prior year. For the twelve months ended December 31, 2017, FFO, as adjusted, was $174.7 million, or $2.04 per diluted common share, compared to $175.8 million, or $2.06 per diluted common share, for the prior year. Full year 2017 results included the effects of $78 million of asset dispositions during the year.
Portfolio Operations
As of December 31, 2017, the Company owned interests in 117 operating and redevelopment properties totaling approximately 23.3 million square feet and two development projects currently under construction totaling 0.7 million square feet. The owned gross leasable area in the Company’s retail operating portfolio was 94.8% leased as of December 31, 2017, and the Company’s total portfolio was 94.4% leased. We exceeded our small-shop goal of 90% leased, reaching 90.5% at year-end, representing an increase of 160 basis points over last year-end and 80 basis points over the prior quarter.
Same-property NOI, which includes 104 operating properties, increased 1.5% in the fourth quarter compared to the same period in the prior year. The leased percentage of properties included in the same-property pool was 94.6% at December 31, 2017, compared to 95.3% in the same period in the prior year. For the full year, same-property NOI increased 2.9% compared to the same period in the prior year, or 3.2% excluding the impact of the Company’s 3-R initiative.
The Company executed leases on 131 individual spaces totaling 745,137 square feet during the fourth quarter of 2017, including 102 comparable new and renewal leases for 672,970 square feet. Cash rent spreads on comparable new and renewal leases executed in the quarter were 20.0% and 5.3%, respectively, for a blended cash rent spread of 7.2%. The blended leasing spread on a straight-line basis, which includes periodic contractual rent increases over the term of the lease, was 11.2%.
Several noteworthy tenants recently opened, including O2 Fitness at Holly Springs Towne Center (Raleigh, NC), Hobby Lobby at Parkside Town Commons (Raleigh, NC), Aldi at Bolton Plaza (Jacksonville, FL), Ross at Trussville Promenade (Birmingham, AL), and North Italia, Talbots, and Athleta, all at Rampart Commons (Las Vegas, NV).
Development and Redevelopment
As of December 31, 2017, we had two development projects under construction across the street from the University of Notre Dame campus. In the fourth quarter, the Company entered into a joint venture in which we own a 35% non-controlling interest to develop a full-service Embassy Suites hotel at Eddy Street Commons. In addition to the hotel, the development will include new upscale apartments, residential townhomes, condos, retail space, and a community center.
We completed construction on two 3-R projects during the fourth quarter: Bolton Plaza, Phase II (Jacksonville, FL) and Trussville Promenade (Birmingham, AL). The Company invested $8.9 million into these properties for a projected annualized return of 10.1%.


p. 4
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17


The Company’s 3-R program currently includes seven projects under various stages of construction, with estimated combined costs ranging from $71.0 to $77.0 million and an estimated combined annualized return ranging from 8.0% to 9.0%. During the quarter, the Company commenced construction on one new 3-R project at Beechwood Promenade (Athens, GA), which will include a new 21,668 square foot lease with Michaels and a new outlot for Starbucks.
2018 Earnings Guidance
The Company is introducing guidance for 2018 FFO, as defined by NAREIT, in a range of $1.98 to $2.04 per diluted common share. The 2018 earnings guidance is based on the following key assumptions:
Operations
Increase in same-property NOI of 1.0% to 1.5% (including bad debt expense);
Year-end retail portfolio leased rate of 94.5% to 95.5%;

Investments
Dispositions of operating properties of +/- $60 million in the first quarter;
No acquisition or capital markets activity;
The effects of prior-year operating property dispositions of $78 million;

Other
General and administrative expense of $21.5 million to $22.5 million;
GAAP interest expense of $66 million to $67 million;
Non-cash below market lease amortization and straight line rent of $9.0 to $9.5 million;
Gain on sale of non-depreciable assets included in Other Property Related Revenue of $2 million to $3 million; and
Fee Revenue of $2.0 million to $2.5 million.

The 2018 earnings guidance is based on a number of factors, many of which are outside the Company’s control and all of which are subject to change. The Company may change its guidance during the year if actual or anticipated results vary from these or other assumptions, although the Company undertakes no obligation to do so.
Guidance Range For Full Year 2018
Low
High
Consolidated net income per diluted common share 
$
0.27

$
0.33

Add: Depreciation, amortization and other
1.71

1.71

FFO, as defined by NAREIT, per diluted common share
$
1.98

$
2.04

Earnings Conference Call

The Company will conduct a conference call to discuss its financial results on Friday, February 2, 2018, at 11:00 a.m. Eastern Time. A live webcast of the conference call will be available online on the Company’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 7059307). 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) engaged primarily in the ownership and operation, acquisition, development and redevelopment of high-quality neighborhood and community shopping centers in select markets in the United States. As of December 31, 2017, we owned interests in 117 operating and redevelopment properties totaling approximately 23.3 million square feet and two development projects currently under construction.
Our strategy is to maximize the cash flow of our operating properties, successfully complete the construction and lease-up of our redevelopment and development portfolio, and identify additional opportunities to acquire or dispose of properties to further strengthen the Company. New investments are focused in the shopping center sector primarily in markets where we believe we can leverage our existing infrastructure and relationships to generate attractive risk-adjusted returns or otherwise in desirable trade areas. Dispositions are generally designed to increase the quality of our portfolio and to strengthen the Company’s balance sheet.

p. 5
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17


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; financing risks, including the availability of, and costs associated with, sources of liquidity; the Company’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 the Company operates; acquisition, disposition, development and joint venture risks; property ownership and management risks; the Company’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 the Company owns; the impact of online retail and the perception that such retail has on the value of shopping center assets; risks related to the geographical concentration of the Company’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. The Company refers you to the documents filed by the Company from time to time with the SEC, specifically the section titled “Risk Factors” in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which discuss these and other factors that could adversely affect the Company’s results. The Company undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

p. 6
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

CORPORATE PROFILE
 
392012499_image45.jpg


 
General Description
 
Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust (REIT) engaged primarily in the ownership and operation, acquisition, development and redevelopment of high-quality neighborhood and community shopping centers in select markets in the United States. As of December 31, 2017, we owned interests in 117 operating and redevelopment properties totaling approximately 23.3 million square feet and two development projects currently under construction.
 
Our strategy is to maximize the cash flow of our operating properties, successfully complete the construction and lease-up of our redevelopment and development portfolio, and identify additional opportunities to acquire or dispose of properties to further strengthen the Company. New investments are focused in the shopping center sector primarily in markets where we believe we can leverage our existing infrastructure and relationships to generate attractive risk-adjusted returns or otherwise in desirable trade areas. Dispositions are generally designed to increase the quality of our portfolio and to strengthen the Company’s balance sheet.  

Company Highlights as of December 31, 2017  
 
 
# of Properties
Total
GLA /NRA1
Owned
 GLA /NRA1
Operating Retail Properties
 
105

21,210,664

14,990,433

Operating Office Properties and Other
 
4

501,162

501,162

Redevelopment Properties
 
8

1,555,268

1,163,126

Total Operating and Redevelopment Properties
 
117

23,267,094

16,654,721

Development Projects
 
2

682,460

160,960

Total All Properties
 
119

23,949,554

16,815,681

 
 
Retail
Office & Other
Total
Operating Properties –  Leased Percentage1
 
94.8%
82.6%
94.4%
States
 
 
 
20


Stock Listing: New York Stock Exchange symbol: KRG
  
____________________
1
Excludes square footage of structures located on land owned by the company and ground leased to tenants.

p. 7
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

CONTACT INFORMATION    
 
392012499_image45.jpg
                                



 
Corporate Office
30 South Meridian Street, Suite 1100
Indianapolis, IN 46204
(888) 577-5600
(317) 577-5600
www.kiterealty.com
 
Investor Relations Contact:
 
Analyst Coverage:
 
Analyst Coverage:
 
 
 
 
 
Daniel R. Sink
 
Robert W. Baird & Co.
 
DA Davidson
EVP & CFO
 
Mr. RJ Milligan
 
Mr. James O. Lykins
Kite Realty Group Trust 
(813) 273-8252
(503) 603-3041
30 South Meridian Street, Suite 1100 
 
rjmilligan@rwbaird.com
 
jlykins@dadco.com
Indianapolis, IN 46204 
 
 
 
 
(317) 577-5609
 
Bank of America/Merrill Lynch
 
Hilliard Lyons
dsink@kiterealty.com
 
Mr. Jeffrey Spector/Mr. Craig Schmidt
 
Ms. Carol L. Kemple
 
 
(646) 855-1363/(646) 855-3640
 
(502) 588-1839
Transfer Agent:
 
jeff.spector@baml.com
 
ckemple@hilliard.com
 
 
craig.schmidt@baml.com
 
 
Broadridge Financial Solutions
 
 
 
KeyBanc Capital Markets
Ms. Kristen Tartaglione
 
Barclays
 
Mr. Jordan Sadler/Mr. Todd Thomas
2 Journal Square, 7th Floor
 
Mr. Ross Smotrich/Ms. Linda Tsai
 
(917) 368-2280/(917) 368-2286
Jersey City, NJ  07306
 
(212) 526-2306/(212) 526-9937
 
tthomas@keybanccm.com
(201) 714-8094
 
ross.smotrich@barclays.com
 
jsadler@keybanccm.com
 
 
linda.tsai@barclays.com
 
 
Stock Specialist:
 
 
 
Raymond James 
 
 
BTIG
 
Mr. Paul Puryear/Mr. Collin Mings
GTS
 
Mr. Michael Gorman
 
(727) 567-2253/(727) 567-2585
545 Madison Avenue
 
(212) 738-6138
 
paul.puryear@raymondjames.com 
15th Floor 
 
mgorman@btig.com
 
collin.mings@raymondjames.com
New York, NY 10022 
 
 
 
 
(212) 715-2830
 
Capital One Securities, Inc.
 
Sandler O’Neill
 
 
Mr. Christopher Lucas
 
Mr. Alexander Goldfarb
 
 
(571) 633-8151
 
(212) 466-7937
 
 
christopher.lucas@capitalone.com
 
agoldfarb@sandleroneill.com
 
 
 
 
 
 
 
Citigroup Global Markets 
 
Wells Fargo Securities, LLC
 
 
Mr. Michael Bilerman/Ms. Christy McElroy
 
Mr. Jeffrey J. Donnelly, CFA /Ms. Tamara Fique
 
 
(212) 816-1383/(212) 816-6981
 
(617) 603-4262/(443) 263-6568
 
 
michael.bilerman@citigroup.com 
 
jeff.donnelly@wellsfargo.com 
 
 
christy.mcelroy@citigroup.com
 
tamara.fique@wellsfargo.com
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

p. 8
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

IMPORTANT NOTES INCLUDING NON-GAAP DISCLOSURES    
392012499_image45.jpg
                                


Interim Information 
This Quarterly Financial Supplemental contains historical information of Kite Realty Group Trust (“the Company” or “KRG”) and is intended to supplement the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 to be filed on or about February 23, 2018, which should be read in conjunction with this supplement. The supplemental information is unaudited, although it reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of operating results for the interim periods.
 
Forward-Looking Statements 
This supplemental information package, together with other statements and information publicly disseminated by us, contains certain 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;
financing risks, including the availability of, and costs associated with, sources of liquidity;
our ability to refinance, or extend the maturity dates of, our 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 the Company operates;
acquisition, disposition, development and joint venture risks;
property ownership and management risks;
our ability to maintain our 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 the Company owns;
the impact of online retail and the perception that such retail has on the value of shopping center assets;
risks related to the geographical concentration of our properties in Florida, Indiana and Texas;
insurance costs and coverage;
risks associated with cybersecurity attacks and the loss of confidential information and other business disruptions;
other factors affecting the real estate industry generally; and
other risks identified in reports the Company files with the Securities and Exchange Commission (“the SEC”) or in other documents that it publicly disseminates, including, in particular, the section titled “Risk Factors” in our Annual Report on Form
10-K for the fiscal year ended December 31, 2016, and in our quarterly reports on Form 10-Q.
 
The Company undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Disclosures
 
Funds from Operations 
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"). The NAREIT white paper defines FFO as net income (determined in accordance with GAAP), excluding gains (or losses) from sales and impairments of depreciated property, plus depreciation and amortization, 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. For informational purposes, the Company has also provided FFO adjusted for accelerated amortization of debt issuance costs, transaction costs, a severance charge and a debt extinguishment loss in 2016. The Company believes this supplemental information provides a meaningful measure of our operating performance. The Company believes our presentation of FFO, as adjusted, provides investors with another financial measure that may facilitate comparison of operating performance between periods and among our peer companies. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our financial performance, is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, and 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. A reconciliation of net income (computed in accordance with GAAP) to FFO is included elsewhere in this Financial Supplement.
 





p. 9
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

IMPORTANT NOTES INCLUDING NON-GAAP DISCLOSURES (CONTINUED)
392012499_image45.jpg





Adjusted Funds from Operations
Adjusted Funds From Operations (“AFFO”) is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. AFFO modifies FFO, as adjusted for certain cash and non-cash transactions not included in FFO, as adjusted. AFFO should not be considered an alternative to net income as an indication of the company's performance or as an alternative to cash flow as a measure of liquidity or ability to make distributions. Management considers AFFO a useful supplemental measure of the company’s performance. The Company’s computation of AFFO may differ from the methodology for calculating AFFO used by other REITs, and therefore, may not be comparable to such other REITs. A reconciliation of net income (computed in accordance with GAAP) to AFFO is included elsewhere in this Financial Supplement.

Net Operating Income and Same Property Net Operating Income
The Company uses property net operating income (“NOI”), a non-GAAP financial measure, to evaluate the performance of our properties. The Company defines NOI as income from our real estate, including lease termination fees received from tenants, less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions and certain corporate level expenses. The Company believes that NOI is helpful to investors as a measure of our operating 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 depreciation and amortization, interest expense, and impairment, if any.

The Company also 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, bad debt expense and recoveries, 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 for the full period presented, which eliminates disparities in net income due to the acquisition or disposition of properties during the particular period presented and thus provides a more consistent metric for the 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 December 31, 2017, the Company excluded eight redevelopment properties and the recently completed Northdale Promenade redevelopment from the same property pool that met these criteria and were owned in both comparable periods.

Earnings Before Interest Expense, Income Tax Expense, Depreciation and Amortization (EBITDA)
The Company defines EBITDA, a non-GAAP financial measure, as net income before depreciation and amortization, interest expense and income tax expense of taxable REIT subsidiary. For informational purposes, the Company has also provided Adjusted EBITDA, which the Company defines as EBITDA less (i) EBITDA from unconsolidated entities, (ii) gains on sales of operating properties or impairment charges, (iii) other income and expense, (iv) noncontrolling interest EBITDA and (v) other non-recurring activity or items impacting comparability from period to period. Annualized Adjusted EBITDA is Adjusted EBITDA for the most recent quarter multiplied by four. Net Debt to Adjusted EBITDA is the Company's share of net debt divided by Annualized Adjusted EBITDA. EBITDA, Adjusted EBITDA, Annualized Adjusted EBITDA and Net Debt to Adjusted EBITDA, as calculated by us, are not comparable to EBITDA and EBITDA-related measures reported by other REITs that do not define EBITDA and EBITDA-related measures exactly as we do. EBITDA, Adjusted EBITDA and Annualized Adjusted EBITDA do not represent cash generated from operating activities in accordance with GAAP, and should not be considered alternatives to net income as an indicator of performance or as alternatives to cash flows from operating activities as an indicator of liquidity.

Considering the nature of our business as a real estate owner and operator, the Company believes that EBITDA, Adjusted EBITDA and the ratio of Net Debt to Adjusted EBITDA are helpful to investors in measuring our operational performance because they exclude 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. For informational purposes, the Company has also provided Annualized Adjusted EBITDA, adjusted as described above. The Company believes this supplemental information provides a meaningful measure of our operating performance. The Company believes presenting EBITDA and the related measures in this manner allows investors and other interested parties to form a more meaningful assessment of our operating results.


p. 10
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
392012499_image45.jpg


($ in thousands)
 
 
 
 
 
 
December 31,
2017
 
December 31,
2016
Assets:
 
 
 
 
Investment properties, at cost
 
$
3,957,884

 
$
3,996,065

Less: accumulated depreciation
 
(664,614
)
 
(560,683
)
 
 
3,293,270

 
3,435,382

Cash and cash equivalents
 
24,082

 
19,874

Tenant and other receivables, including accrued straight-line rent of $31,747 and $28,703 respectively, net of allowance for uncollectible accounts
 
58,328

 
53,087

Restricted cash and escrow deposits
 
8,094

 
9,037

Deferred costs and intangibles, net
 
112,359

 
129,264

Prepaid and other assets
 
16,365

 
9,727

Total Assets
 
$
3,512,498

 
$
3,656,371

Liabilities and Shareholders’ Equity:
 
 
 
 

Mortgage and other indebtedness, net
 
$
1,699,239

 
$
1,731,074

Accounts payable and accrued expenses
 
78,482

 
80,664

Deferred revenue and other liabilities
 
96,564

 
112,202

Total Liabilities
 
1,874,285

 
1,923,940

Commitments and contingencies
 
 
 
 

Limited Partners’ interests in the Operating Partnership and other redeemable noncontrolling interests
 
72,104

 
88,165

Shareholders’ Equity:
 
 
 
 

Kite Realty Group Trust Shareholders’ Equity:
 
 
 
 

Common Shares, $.01 par value, 225,000,000 shares authorized, 83,606,068 and 83,545,398 shares issued and outstanding at December 31, 2017 and
December 31, 2016, respectively
 
836

 
835

Additional paid in capital
 
2,071,418

 
2,062,360

Accumulated other comprehensive income (loss)
 
2,990

 
(316
)
Accumulated deficit
 
(509,833
)
 
(419,305
)
Total Kite Realty Group Trust Shareholders’ Equity
 
1,565,411

 
1,643,574

Noncontrolling Interests
 
698

 
692

Total Equity
 
1,566,109

 
1,644,266

Total Liabilities and Equity
 
$
3,512,498

 
$
3,656,371















p. 11
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
392012499_image45.jpg
     


($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
 
  Minimum rent
 
$
68,518

 
$
68,622

 
$
273,444

 
$
274,059

  Tenant reimbursements
 
18,252

 
17,791

 
73,000

 
70,482

  Other property related revenue
 
1,772

 
2,461

 
11,998

 
9,581

  Fee income
 
377

 

 
377

 

Total revenue
 
88,919

 
88,874

 
358,819

 
354,122

Expenses:
 
 

 
 

 
 
 
 
  Property operating
 
12,693

 
12,469

 
49,643

 
47,923

  Real estate taxes
 
10,796

 
10,511

 
43,180

 
42,838

  General, administrative, and other
 
5,360

 
5,375

 
21,749

 
20,603

  Transaction costs
 

 

 

 
2,771

  Impairment charge
 

 

 
7,411

 

  Depreciation and amortization
 
40,758

 
42,939

 
172,091

 
174,564

Total expenses
 
69,607

 
71,294

 
294,074

 
288,699

Operating income
 
19,312

 
17,580

 
64,745

 
65,423

  Interest expense
 
(16,452
)
 
(17,613
)
 
(65,702
)
 
(65,577
)
  Income tax benefit (expense) of taxable REIT subsidiary
 
36

 
(51
)
 
100

 
(814
)
  Other expense, net
 
(101
)
 
(75
)
 
(415
)
 
(169
)
Income (loss) from continuing operations
 
2,795

 
(159
)
 
(1,272
)
 
(1,137
)
  Gains on sales of operating properties
 

 
4,059

 
15,160

 
4,253

Net income
 
2,795

 
3,900

 
13,888

 
3,116

  Net income attributable to noncontrolling interests
 
(486
)
 
(541
)
 
(2,014
)
 
(1,933
)
Net income attributable to Kite Realty Group Trust common shareholders
 
$
2,309

 
$
3,359

 
$
11,874

 
$
1,183

 
 
 
 
 
 
 
 
 
Income per common share - basic
 
$
0.03

 
$
0.04

 
$
0.14

 
$
0.01

Income per common share - diluted
 
$
0.03

 
$
0.04

 
$
0.14

 
$
0.01

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,595,677

 
83,545,807

 
83,585,333

 
83,436,511

Weighted average common shares outstanding - diluted
 
83,705,764

 
83,571,663

 
83,690,418

 
83,465,500

Cash dividends declared per common share
 
$
0.3175

 
$
0.3025

 
$
1.2250

 
$
1.1650

  


p. 12
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

FUNDS FROM OPERATIONS1
392012499_image45.jpg



($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2017
 
2016
 
2017
 
2016
Funds From Operations ("FFO")
 
 
 
 
 
 
 
 
Consolidated net income
 
$
2,795

 
$
3,900

 
$
13,888

 
$
3,116

Less: net income attributable to noncontrolling interests in properties
 
(428
)
 
(461
)
 
(1,731
)
 
(1,844
)
Less: gains on sales of operating properties
 

 
(4,059
)
 
(15,160
)
 
(4,253
)
Add: impairment charge
 

 

 
7,411

 

Add: depreciation and amortization of consolidated entities, net of noncontrolling interests
 
40,425

 
42,670

 
170,315

 
173,578

   FFO of the Operating Partnership1
 
42,792

 
42,050

 
174,723

 
170,597

Less: Limited Partners' interests in FFO
 
(971
)
 
(1,164
)
 
(3,966
)
 
(3,872
)
   FFO attributable to Kite Realty Group Trust common shareholders1
 
$
41,821

 
$
40,886

 
$
170,757

 
$
166,725

FFO, as defined by NAREIT, per share of the Operating Partnership - basic
 
$
0.50

 
$
0.49

 
$
2.04

 
$
2.00

FFO, as defined by NAREIT, per share of the Operating Partnership - diluted
 
$
0.50

 
$
0.49

 
$
2.04

 
$
2.00

 
 
 
 
 
 
 
 
 
FFO of the Operating Partnership1
 
$
42,792

 
$
42,050

 
$
174,723

 
$
170,597

Add: accelerated amortization of debt issuance costs (non-cash)
 

 

 

 
1,121

Add: transaction costs
 

 

 

 
2,771

Add: severance charge
 

 

 

 
500

Add: loss on debt extinguishment
 

 
819

 

 
819

FFO, as adjusted, of the Operating Partnership
 
$
42,792

 
$
42,869

 
$
174,723

 
$
175,808

FFO, as adjusted, per share of the Operating Partnership - basic
 
$
0.50

 
$
0.50

 
$
2.04

 
$
2.06

FFO, as adjusted, per share of the Operating Partnership - diluted
 
$
0.50

 
$
0.50

 
$
2.04

 
$
2.06

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,595,677

 
83,545,807

 
83,585,333

 
83,436,511

Weighted average common shares outstanding - diluted
 
83,705,764

 
83,571,663

 
83,690,418

 
83,465,500

Weighted average common shares and units outstanding - basic
 
85,580,898

 
85,488,234

 
85,566,272

 
85,374,910

Weighted average common shares and units outstanding - diluted
 
85,690,986

 
85,514,090

 
85,671,358

 
85,403,899

 
 
 
 
 
 
 
 
 
FFO, as defined by NAREIT, per diluted share
 
 
 
 
 
 
 
 
Consolidated net income
 
$
0.03

 
$
0.05

 
$
0.16

 
$
0.04

Less: net income attributable to noncontrolling interests in properties
 
(0.01
)
 
(0.01
)
 
(0.03
)
 
(0.02
)
Less: gains on sales of operating properties
 

 
(0.05
)
 
(0.18
)
 
(0.05
)
Add: impairment charge
 

 

 
0.09

 

Add: depreciation and amortization of consolidated entities, net of noncontrolling interests
 
0.48

 
0.50

 
2.00

 
2.03

FFO, as defined by NAREIT, of the Operating Partnership per diluted share1
 
$
0.50

 
$
0.49

 
$
2.04

 
$
2.00

 
 
 
 
 
 
 
 
 
Add: accelerated amortization of debt issuance costs
 

 

 

 
0.01

Add: transaction costs
 

 

 

 
0.03

Add: severance charge
 

 

 

 
0.01

Add: loss on debt extinguishment
 

 
0.01

 

 
0.01

FFO, as adjusted, of the Operating Partnership per diluted share
 
$
0.50

 
$
0.50

 
$
2.04

 
$
2.06

____________________
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.

p. 13
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/17

ADJUSTED FUNDS FROM OPERATIONS AND OTHER FINANCIAL INFORMATION
392012499_image45.jpg

 
($ in thousands)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2017
 
2016
 
2017
 
2016
Reconciliation of FFO, as adjusted, to Adjusted Funds from Operations (AFFO)
 
 

 
 

 
 

 
 

FFO, as adjusted, of the Operating Partnership
 
$
42,792

 
$
42,869

 
$
174,723

 
$
175,808

Add:
 
 

 
 

 
 

 
 

Depreciation of non-real estate assets
 
333

 
273

 
1,783

 
1,036

Amortization of deferred financing costs
 
662

 
776

 
2,676

 
3,400

Non-cash compensation expense
 
1,292

 
1,126

 
5,024

 
4,466

Less:
 
 

 
 

 
 

 
 

Straight-line rent
 
1,103

 
1,141

 
4,696

 
5,453

Market rent amortization income
 
1,162

 
1,042

 
3,677

 
6,863

Amortization of debt premium
 
713

 
793

 
2,913

 
3,801

Other cash and non-cash adjustments1
 

 
1,430

 
866

 
4,701

Capital expenditures2:
 
 
 
 
 
 
 
 
Maintenance capital expenditures3
 
639

 
586

 
2,863

 
1,588

Revenue enhancing tenant improvements – retail
 
1,135

 
1,106

 
12,689

 
7,238

Revenue enhancing tenant improvements – office
 

 

 
461

 

External lease commissions
 
467

 
628

 
1,893

 
2,083

Total AFFO of the Operating Partnership
 
$
39,860

 
$
38,318

 
$
154,148

 
$
152,983

 
 
 
 
 
 
 
 
 
Other Financial Information:
 
 
 
 
 
 
 
 
Scheduled debt principal payments 
 
$
1,240

 
$
1,065

 
$
4,949

 
$
5,352

Capitalized interest cost
 
761

 
800

 
3,081

 
4,061

Mark to market lease amount in Deferred revenue and other liabilities on consolidated balance sheet
 
83,117

 
95,360

 


 


Acreage of undeveloped, vacant land in the operating portfolio4
 
46.9

 
 
 
 
 
 


 
 
December 31,
2017
 
December 31,
2016
Investment properties, at cost:
 
 

 
 

Land, building and improvements4