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Section 1: 8-K (FORM 8-K Q4 2018)

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 19, 2019
 
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 19, 2019, Kite Realty Group Trust (the “Company”) announced its consolidated financial results for the quarter ended December 31, 2018. 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 2018 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 19, 2019
99.2
 
Kite Realty Group Trust Fourth Quarter 2018 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 19, 2019
By:
/s/ Heath R. Fear
 
 
Heath R. Fear
 
 
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

396797270_pressrellogo16.jpg
PRESS RELEASE

Kite Realty Group Trust Reports 2018 Operating Results and Announces Plan to Fortify Its Balance Sheet, Improve Asset Quality, and Focus on Preferred Markets

Indianapolis, Indiana, February 19, 2019 - Kite Realty Group Trust (NYSE:KRG) (“KRG”) reported today its 2018 operating results. KRG also announced plans to sell $350 to $500 million of non-core assets as part of a program to improve asset quality, reduce leverage, and focus operations on preferred geographic markets.
“2018 was a strong year for KRG in terms of operational performance and strategic execution,” said Chairman and Chief Executive Officer, John A. Kite. “Our ABR is at an all-time high; our small shop leased percentage is at an all-time high; and our net-debt-to-EBITDA ratio is at a near-low. As we head into 2019, we are focused on taking KRG to the next level. We have conducted a bottoms-up analysis of our entire portfolio and all major U.S. markets, and we have identified a strategy to fortify our balance sheet even further by selling $350 to $500 million in assets to pay down debt, improve our portfolio metrics, and focus our operations in markets where we can gain scale and generate attractive returns.”
Fourth Quarter Highlights
Realized net loss attributable to common shareholders of $31 million, or $0.37 per common share
Generated Funds from Operations of the Operating Partnership (FFO) of $40.9 million, or $0.48 per diluted common share
Increased Same-Property Net Operating Income (NOI) by 1.2%
Improved small shop leased percentage by 30 basis points to 91.2%
Executed 76 new and renewal leases representing 470,867 square feet, of which 33 were new leases representing over 200,000 square feet, including 5 new anchor leases totaling 140,000 square feet
15.7% leasing spreads on all new leases (25.3% GAAP leasing spreads)
12.7% leasing spreads on new anchor leases (21.3% GAAP leasing spreads)
7.5% leasing spreads on all renewal leases (12.4% GAAP leasing spreads)
10.5% blended releasing spreads on all new and renewal leases (17.2% GAAP leasing spreads)
Sold four non-core assets for a combined $59 million and used the proceeds to pay down an unsecured term loan
Completed a $250 million ten-year unsecured term loan.    

Full Year Highlights
Realized net loss attributable to common shareholders of $46.6 million, or $0.56 per common share
Generated FFO of $171.2 million, or $2.00 per diluted common share
Increased Same-Property NOI by 1.4%
Executed 315 new and renewal leases representing 1,691,201 square feet, of which 118 were new leases representing over 518,000 square feet, including 12 anchor leases for 297,000 square feet
12.3% leasing spreads on all new leases (22.6% GAAP leasing spreads)
8.4% leasing spreads on new anchor leases (15.4% GAAP leasing spreads)
5.4% leasing spreads on all renewal leases (9.9% GAAP leasing spreads)
6.8% blended releasing spreads on all new and renewal leases (12.6% GAAP leasing spreads)
Opened 135 new tenant spaces totaling 602,000 square feet
Achieved a 94.6% leased rate and a 92.4% occupied rate for the retail operating portfolio as of December 31, 2018
Improved annualized base rent (ABR) for the operating retail portfolio by 5% to $16.84 per square foot while maintaining a recovery ratio of nearly 90%
Increased small shop leased percentage by 70 basis points to 91.2%

1


Exceeded annual disposition target by selling approximately $200 million in assets, using the proceeds to pay down debt
Reduced net-debt-to-EBITDA ratio from 6.9x to 6.65x
Increased weighted average debt maturity from 5.5 years to 5.8 years

Financial Results
Net loss attributable to common shareholders for the three months ended December 31, 2018, was $31.2 million, compared to net income of $2.3 million for the same period in 2017. Fourth quarter 2018 results included a $31.5 million impairment charge relating to certain properties.

Net loss attributable to common shareholders for the year ended December 31, 2018, was $46.6 million, compared to net income of $11.9 million for 2017. 2018 results included a $70.4 million impairment charge related to certain properties.

Dividends
On February 13, KRG’s Board of Directors declared a dividend of $0.3175 per common share. The dividend will be payable on or about March 29, 2019, to shareholders of record as of March 22, 2019.
Transactional Activity
In 2018, KRG completed the following property transactions:
Sold seven non-core assets for a combined $125 million
Entered into a strategic joint venture with Nuveen (formerly TH Real Estate) by selling an 80% interest in three core assets that resulted in gross proceeds of approximately $89 million
Redeemed a minority preferred equity interest (4% yield) in six retail properties for $22 million
Capital Markets Activity
In 2018, KRG conducted the following capital markets transactions:
Amended and restated the unsecured revolving credit facility, increasing borrowing capacity by $100 million to $600 million, reducing the credit spread by 30-45 basis points, and extending the term to April 2023
Obtained a ten-year, $250 million unsecured term loan and executed a hedge that resulted in a blended fixed rate of 4.75% for 7 years

Balance Sheet Overview
KRG currently has only a single $20.7 million mortgage maturing in 2020, and as of December 31, 2018, the debt portfolio had a weighted average maturity of 5.8 years.
As of December 31, 2018, KRG has $485 million of available liquidity, including unrestricted cash on hand and available revolver capacity.
Development Update
During 2018, KRG delivered six redevelopments on schedule and under budget. The projects have a collective incremental return on cost of 8.6%. Notable projects included City Center in White Plains, NY; Portofino Shopping Center in Houston, TX; and Rampart Commons, in Las Vegas, NV.

Disposition and Deleveraging Program
KRG plans to generate between $350 and $500 million of gross proceeds from asset sales. The sale proceeds will be used primarily to pay down debt. Upon completion of the asset sales, KRG expects to reduce its net-debt-to-EBITDA ratio to between 5.9x and 6.2x.




2



2019 Earnings Guidance
KRG is introducing its guidance for 2019 FFO, as defined by NAREIT, in a range of $1.66 to $1.76 per diluted common share. The 2019 earnings guidance is based on the following key assumptions:
 
Low
High
2018 FFO
$
2.00

$
2.00

Previously Disclosed FFO Impacts
 
 
Q1 - Q3 2018 Dispositions
(0.03)

(0.03)

Lease Accounting Rules 1
(0.06)

(0.06)

Interest Expense
(0.03)

(0.03)

One-Time Income Items 2
(0.05)

(0.05)

Subtotal - Previously Disclosed
(0.17)

(0.17)

 
 
 
Q4 2018 and Other Items:
 
 
Q4 2018 Dispositions
(0.02)

(0.02)

Other Items 3
(0.06)

(0.04)

Subtotal - Q4 2018 & Other Items
(0.08)

(0.06)

 
 
 
2019 Items:
 
 
Same Store NOI 4 (1.25% - 2.25%)
0.03

0.05

G&A
(0.02)

(0.01)

Subtotal - 2019 Items
0.01

0.04

 
 
 
2019 FFO - Pre-2019 Planned Dispositions
1.76

1.82

 
 
 
2019 Disposition Net Impact 5, 6
(0.10)

(0.06)

 
 
 
FFO - Guidance
$ 1.66

$ 1.76

 
 
 
2019 Disposition Net Impact Annualized 6, 7
(0.29)

(0.20)


1.
Previously disclosed ($0.05) versus currently disclosed ($0.06).
2.
Relates to Eddy Street Commons development fee and cash and non-cash impact of Toys 'R Us bankruptcy.
3.
Includes non-recurring business interruption income collected in 2018 and reduced lease termination income.
4.
Includes $0.025 from executed anchor leases commencing in 2019.
5.
Disposition NOI less anticipated interest savings based on a weighted-average sale date of August 31, 2019.
6.
Low end of the range assumes $500 million in proceeds while high end of range assumes $350 million in proceeds
7.
Annualized 2019 disposition NOI less annualized anticipated interest savings.













3



Earnings Conference Call
Kite Realty Group Trust will conduct a conference call to discuss its financial results on Wednesday, February 20, 2019, at 10:00 a.m. Eastern Time. A live webcast of the conference call will be available on KRG’s corporate website at www.kiterealty.com. The dial-in numbers are (844) 309-0605 for domestic callers and (574) 990-9933 for international callers (passcode 4793227). In addition, a webcast replay link will be available on the corporate website.
Additional Materials
Financial statements, exhibits, and reconciliations of non-GAAP measures attached to this release include the details of KRG’s results.
About Kite Realty Group Trust
Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust (REIT) that provides communities with convenient and beneficial shopping experiences. We connect consumers to tenants in desirable markets through our portfolio of neighborhood, community, and lifestyle centers. Using operational, development, and redevelopment expertise, we continuously optimize our portfolio to maximize value and return to our shareholders. For more information, please visit our website at kiterealty.com.
Safe Harbor
Certain statements in this document that are not historical fact may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results, performance, transactions or achievements, financial or otherwise, expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to: national and local economic, business, real estate and other market conditions, particularly in light of low growth in the U.S. economy as well as economic uncertainty caused by fluctuations in the prices of oil and other energy sources and inflationary trends or outlook; the risk that KRG may not be able to successfully complete the planned dispositions on favorable terms - or at all; financing risks, including the availability of, and costs associated with, sources of liquidity; KRG’s ability to refinance, or extend the maturity dates of, its indebtedness; the level and volatility of interest rates; the financial stability of tenants, including their ability to pay rent and the risk of tenant bankruptcies; the competitive environment in which KRG operates; acquisition, disposition, development and joint venture risks; property ownership and management risks; KRG’s ability to maintain its status as a real estate investment trust for federal income tax purposes; potential environmental and other liabilities; impairment in the value of real estate property KRG owns; the impact of online retail competition and the perception that such competition has on the value of shopping center assets; risks related to the geographical concentration of KRG’s properties in Florida, Indiana and Texas; insurance costs and coverage; risks associated with cybersecurity attacks and the loss of confidential information and other business interruptions; and other factors affecting the real estate industry generally. KRG refers you to the documents filed by KRG from time to time with the SEC, specifically the section titled “Risk Factors” in KRG’s and the Operating Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which discuss these and other factors that could adversely affect KRG’s results. KRG undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.


4


Kite Realty Group Trust
Consolidated Balance Sheets
(Unaudited)

($ in thousands)
 
 
 
 
 
 
December 31,
2018
 
December 31,
2017
Assets:
 
 
 
 
Investment properties, at cost
 
$
3,641,120

 
$
3,957,884

Less: accumulated depreciation
 
(699,927
)
 
(664,614
)
 
 
2,941,193

 
3,293,270

 
 
 
 
 
Cash and cash equivalents
 
35,376

 
24,082

Tenant and other receivables, including accrued straight-line rent of $31,347 and $31,747 respectively, net of allowance for uncollectible accounts
 
58,059

 
58,328

Restricted cash and escrow deposits
 
10,130

 
8,094

Deferred costs and intangibles, net
 
95,264

 
112,359

Prepaid and other assets
 
12,764

 
12,465

Investments in unconsolidated subsidiaries
 
13,496

 
3,900

Asset held for sale
 
5,731

 

Total Assets
 
$
3,172,013

 
$
3,512,498

Liabilities and Shareholders’ Equity:
 
 
 
 

Mortgage and other indebtedness, net
 
$
1,543,301

 
$
1,699,239

Accounts payable and accrued expenses
 
85,934

 
78,482

Deferred revenue and other liabilities
 
83,632

 
96,564

Total Liabilities
 
1,712,867

 
1,874,285

Commitments and contingencies
 
 
 
 

Limited Partners’ interests in the Operating Partnership and other redeemable noncontrolling interests
 
45,743

 
72,104

Shareholders’ Equity:
 
 
 
 

Kite Realty Group Trust Shareholders’ Equity:
 
 
 
 

Common Shares, $.01 par value, 225,000,000 shares authorized, 83,800,886 and 83,606,068 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively
 
838

 
836

Additional paid in capital
 
2,078,099

 
2,071,418

Accumulated other comprehensive loss
 
(3,497
)
 
2,990

Accumulated deficit
 
(662,735
)
 
(509,833
)
Total Kite Realty Group Trust Shareholders’ Equity
 
1,412,705

 
1,565,411

Noncontrolling Interests
 
698

 
698

Total Equity
 
1,413,403

 
1,566,109

Total Liabilities and Shareholders' Equity
 
$
3,172,013

 
$
3,512,498



5


Kite Realty Group Trust
Consolidated Statements of Operations
For the Three and Twelve Months Ended December 31, 2018 and 2017
(Unaudited)

($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
 
  Minimum rent
 
$
63,902

 
$
68,518

 
$
266,377

 
$
273,444

  Tenant reimbursements
 
17,924

 
18,252

 
72,146

 
73,000

  Other property related revenue
 
5,018

 
1,772

 
13,138

 
11,998

  Fee income
 
93

 
377

 
2,523

 
377

Total revenue
 
86,937

 
88,919

 
354,184

 
358,819

Expenses:
 
 
 
 
 
 

 
 

  Property operating
 
13,172

 
12,693

 
50,356

 
49,643

  Real estate taxes
 
10,028

 
10,796

 
42,378

 
43,180

  General, administrative, and other
 
4,957

 
5,360

 
21,320

 
21,749

  Depreciation and amortization
 
36,299

 
40,758

 
152,163

 
172,091

  Impairment charges
 
31,513

 

 
70,360

 
7,411

Total expenses
 
95,969

 
69,607

 
336,577

 
294,074

(Loss) gain on sale of operating properties, net
 
(4,725
)
 

 
3,424

 
15,160

Operating (loss) income
 
(13,757
)
 
19,312

 
21,031

 
79,905

  Interest expense
 
(17,643
)
 
(16,452
)
 
(66,785
)
 
(65,702
)
  Income tax benefit of taxable REIT subsidiary
 
150

 
36

 
227

 
100

  Equity in loss of unconsolidated subsidiary
 
(303
)
 

 
(278
)
 

  Other expense, net
 
(156
)
 
(101
)
 
(646
)
 
(415
)
Net (loss) income
 
(31,709
)
 
2,795

 
(46,451
)
 
13,888

  Net loss (income) attributable to noncontrolling interests
 
488

 
(486
)
 
(116
)
 
(2,014
)
Net (loss) income attributable to Kite Realty Group Trust common shareholders
 
$
(31,221
)
 
$
2,309

 
$
(46,567
)
 
$
11,874

 
 
 
 
 
 
 
 
 
(Loss) income per common share - basic and diluted
 
$
(0.37
)
 
$
0.03

 
(0.56
)
 
0.14

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,762,664

 
83,595,677

 
83,693,385

 
83,585,333

Weighted average common shares outstanding - diluted
 
83,762,664

 
83,705,764

 
83,693,385

 
83,690,418

Cash dividends declared per common share
 
$
0.3175

 
$
0.3175

 
$
1.2700

 
$
1.2250

 
 
 
 
 
 
 
 
 

6


Kite Realty Group Trust
Funds From Operations
For the Three and Twelve Months Ended December 31, 2018 and 2017
(Unaudited)
($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2018
 
2017
 
2018
 
2017
Funds From Operations
 
 
 
 
 
 
 
 
Consolidated net (loss) income
 
$
(31,709
)
 
$
2,795

 
$
(46,451
)
 
$
13,888

Less: net income attributable to noncontrolling interests in properties
 
(172
)
 
(428
)
 
(1,151
)
 
(1,731
)
Add/Less: loss (gain) on sales of operating properties
 
4,725

 

 
(3,424
)
 
(15,160
)
Add: impairment charges
 
31,513

 

 
70,360

 
7,411

Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests
 
36,534

 
40,425

 
151,856

 
170,315

   FFO of the Operating Partnership1
 
40,891

 
42,792

 
171,190

 
174,723

Less: Limited Partners' interests in FFO
 
(982
)
 
(971
)
 
(4,109
)
 
(3,966
)
   FFO attributable to Kite Realty Group Trust common shareholders1
 
$
39,909

 
$
41,821

 
$
167,081

 
$
170,757

FFO, as defined by NAREIT, per share of the Operating Partnership - basic
 
$
0.48

 
$
0.50

 
$
2.00

 
$
2.04

FFO, as defined by NAREIT, per share of the Operating Partnership - diluted
 
$
0.48

 
$
0.50

 
$
2.00

 
$
2.04

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,762,664

 
83,595,677

 
83,693,385

 
83,585,333

Weighted average common shares outstanding - diluted
 
83,822,752

 
83,705,764

 
83,744,896

 
83,690,418

Weighted average common shares and units outstanding - basic
 
85,808,725

 
85,580,898

 
85,740,449

 
85,566,272

Weighted average common shares and units outstanding - diluted
 
85,868,813

 
85,690,986

 
85,791,961

 
85,671,358

 
 
 
 
 
 
 
 
 
FFO, as defined by NAREIT, per diluted share/unit
 
 
 
 
 
 
 
 
Consolidated net (loss) income
 
$
(0.37
)
 
$
0.03

 
$
(0.54
)
 
$
0.16

Less: net income attributable to noncontrolling interests in properties
 

 
(0.01
)
 
(0.01
)
 
(0.03
)
Add/Less: loss (gain) on sales of operating properties
 
0.05

 

 
(0.04
)
 
(0.18
)
Add: impairment charges
 
0.37

 

 
0.82

 
0.09

Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests
 
0.43

 
0.48

 
1.77

 
2.00

FFO, as defined by NAREIT, of the Operating Partnership per diluted share/unit1
 
$
0.48

 
$
0.50

 
$
2.00

 
$
2.04

 
 
 
 
 
 
 
 
 
____________________
1
“FFO of the Operating Partnership" measures 100% of the operating performance of the Operating Partnership’s real estate properties. “FFO attributable to Kite Realty Group Trust common shareholders” reflects a reduction for the redeemable noncontrolling weighted average diluted interest in the Operating Partnership.
Funds from Operations (FFO) is a widely used performance measure for real estate companies and is provided here as a supplemental measure of operating performance. 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.

7


Kite Realty Group Trust
Same Property Net Operating Income
For the Three and Twelve Months Ended December 31, 2018 and 2017
(Unaudited)

($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Number of properties for the quarter
103

 
103

 
 
 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased percentage at period end
94.5
%
 
94.8
%
 
 
 
94.5
%
 
94.8
%
 
 
Economic Occupancy percentage2
92.7
%
 
92.7
%
 
 
 
92.8
%
 
93.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum rent
$
59,544

 
$
58,185

 
 
 
$
235,278

 
$
231,633

 
 
Tenant recoveries 
16,724

 
16,052

 
 
 
67,156

 
64,774

 
 
Other income
1,115

 
1,178

 
 
 
2,056

 
2,027

 
 
 
77,383

 
75,415

 
 
 
304,490

 
298,434

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating expenses 
(10,954
)
 
(10,295
)
 
 
 
(43,565
)
 
(41,168
)
 
 
Bad debt expense
(1,053
)
 
(537
)
 
 
 
(2,405
)
 
(2,508
)
 
 
Real estate taxes 
(9,538
)
 
(9,414
)
 
 
 
(39,829
)
 
(39,107
)
 
 
 
(21,545
)
 
(20,246
)
 
 
 
(85,799
)
 
(82,783
)
 
 
Same Property NOI3
$
55,838

 
$
55,169

 
1.2%
 
$
218,691

 
$
215,651

 
1.4%
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure: 
 
 
 
 
 
 
 
 
 
 
 
Net operating income - same properties
$
55,838

 
$
55,169

 
 
 
$
218,691

 
$
215,651

 
 
Net operating income - non-same activity4
7,806

 
9,884

 
 
 
40,236

 
49,968

 
 
Other (expense) income, net
(216
)
 
312

 
 
 
1,826

 
62

 
 
General, administrative and other
(4,957
)
 
(5,360
)
 
 
 
(21,320
)
 
(21,749
)
 
 
Impairment charges
(31,513
)
 

 
 
 
(70,360
)
 
(7,411
)
 
 
Depreciation and amortization expense
(36,299
)
 
(40,758
)
 
 
 
(152,163
)
 
(172,091
)
 
 
Interest expense
(17,643
)
 
(16,452
)
 
 
 
(66,785
)
 
(65,702
)
 
 
(Loss) gains on sales of operating properties
(4,725
)
 

 
 
 
3,424

 
15,160

 
 
Net loss (income) attributable to noncontrolling interests
488

 
(486
)
 
 
 
(116
)
 
(2,014
)
 
 
Net (loss) income attributable to common shareholders
$
(31,221
)
 
$
2,309

 
 
 
$
(46,567
)
 
$
11,874

 
 
____________________
1
Same Property NOI excludes three properties in redevelopment, the recently completed Beechwood Promenade, Burnt Store Marketplace, City Center, Fishers Station, and Rampart Commons redevelopments as well as office properties.
2
Excludes leases that are signed but for which tenants have not yet commenced the payment of cash rent. Calculated as a weighted average based on the timing of cash rent commencement and expiration during the period.
3
Same Property NOI excludes net gains from outlot sales, straight-line rent revenue, lease termination fees, amortization of lease intangibles, fee income and significant prior period expense recoveries and adjustments, if any.
4
Includes non-cash activity across the portfolio as well as net operating income from properties not included in the same property pool including properties sold during both periods.
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 December 31, 2018, the Company excluded three redevelopment properties and the recently completed Beechwood Promenade, Burnt Store Marketplace, City Center, Fishers Station, and Rampart Commons redevelopments from the same property pool that met these criteria and were owned in both comparable periods.

8
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2 Q4 2018 SUPPLEMENTAL)

Exhibit
 
 
Exhibit 99.2

396797270_supplementalcoverdecember201.jpg


QUARTERLY FINANCIAL SUPPLEMENTAL – DECEMBER 31, 2018
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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, 2018
13
 
Funds from Operations for the Three and Twelve Months Ended December 31, 2018
14
 
Adjusted Funds From Operations and Other Financial Information for the Three and Twelve Months Ended December 31, 2018
15
 
Market Capitalization as of December 31, 2018
15
 
Ratio of Debt to Total Undepreciated Assets as of December 31, 2018
15
 
Ratio of Company Share of Net Debt to EBITDA as of December 31, 2018
16
 
Same Property Net Operating Income for the Three and Twelve Months Ended December 31, 2018
17
 
Net Operating Income and EBITDA by Quarter 
18
 
Consolidated Joint Venture Summary as of December 31, 2018
19
 
Unconsolidated Joint Venture Summary as of December 31, 2018
20
 
Summary of Outstanding Debt as of December 31, 2018
21
 
Maturity Schedule of Outstanding Debt as of December 31, 2018
23
 
Unsecured Public Debt Covenants
24
 
Top 10 Retail Tenants by Total Gross Leasable Area 
25
 
Top 25 Tenants by Annualized Base Rent 
26
 
Retail Leasing Spreads
27
 
Lease Expirations – Operating Portfolio 
28
 
Lease Expirations – Retail Anchor Tenants 
29
 
Lease Expirations – Retail Shops 
30
 
Lease Expirations – Office Tenants and Other
31
 
Development Projects Under Construction
32
 
Under Construction Redevelopment, Reposition, and Repurpose Projects
32
 
Redevelopment, Reposition, and Repurpose Opportunities
33
 
2018 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 – 2019


p. 2
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

 
 
 


396797270_pressrellogo16.jpg

PRESS RELEASE

Kite Realty Group Trust Reports 2018 Operating Results and Announces Plan to Fortify Its Balance Sheet, Improve Asset Quality, and Focus on Preferred Markets

Indianapolis, Indiana, February 19, 2019 - Kite Realty Group Trust (NYSE:KRG) (“KRG”) reported today its 2018 operating results. KRG also announced plans to sell $350 to $500 million of non-core assets as part of a program to improve asset quality, reduce leverage, and focus operations on preferred geographic markets.
“2018 was a strong year for KRG in terms of operational performance and strategic execution,” said Chairman and Chief Executive Officer, John A. Kite. “Our ABR is at an all-time high; our small shop leased percentage is at an all-time high; and our net-debt-to-EBITDA ratio is at a near-low. As we head into 2019, we are focused on taking KRG to the next level. We have conducted a bottoms-up analysis of our entire portfolio and all major U.S. markets, and we have identified a strategy to fortify our balance sheet even further by selling $350 to $500 million in assets to pay down debt, improve our portfolio metrics, and focus our operations in markets where we can gain scale and generate attractive returns.”
Fourth Quarter Highlights
Realized net loss attributable to common shareholders of $31 million, or $0.37 per common share
Generated Funds from Operations of the Operating Partnership (FFO) of $40.9 million, or $0.48 per diluted common share
Increased Same-Property Net Operating Income (NOI) by 1.2%
Improved small shop leased percentage by 30 basis points to 91.2%
Executed 76 new and renewal leases representing 470,867 square feet, of which 33 were new leases representing over 200,000 square feet, including 5 new anchor leases totaling 140,000 square feet
15.7% leasing spreads on all new leases (25.3% GAAP leasing spreads)
12.7% leasing spreads on new anchor leases (21.3% GAAP leasing spreads)
7.5% leasing spreads on all renewal leases (12.4% GAAP leasing spreads)
10.5% blended releasing spreads on all new and renewal leases (17.2% GAAP leasing spreads)
Sold four non-core assets for a combined $59 million and used the proceeds to pay down an unsecured term loan
Completed a $250 million ten-year unsecured term loan     

Full Year Highlights
Realized net loss attributable to common shareholders of $46.6 million, or $0.56 per common share
Generated FFO of $171.2 million, or $2.00 per diluted common share
Increased Same-Property NOI by 1.4%
Executed 315 new and renewal leases representing 1,691,201 square feet, of which 118 were new leases representing over 518,000 square feet, including 12 anchor leases for 297,000 square feet
12.3% leasing spreads on all new leases (22.6% GAAP leasing spreads)
8.4% leasing spreads on new anchor leases (15.4% GAAP leasing spreads)
5.4% leasing spreads on all renewal leases (9.9% GAAP leasing spreads)
6.8% blended releasing spreads on all new and renewal leases (12.6% GAAP leasing spreads)
Opened 135 new tenant spaces totaling 602,000 square feet
Achieved a 94.6% leased rate and a 92.4% occupied rate for the retail operating portfolio as of December 31, 2018

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Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18


Improved annualized base rent (ABR) for the operating retail portfolio by 5% to $16.84 per square foot while maintaining a recovery ratio of nearly 90%
Increased small shop leased percentage by 70 basis points to 91.2%
Exceeded annual disposition target by selling approximately $200 million in assets, using the proceeds to pay down debt
Reduced net-debt-to-EBITDA ratio from 6.9x to 6.65x
Increased weighted average debt maturity from 5.5 years to 5.8 years

Financial Results
Net loss attributable to common shareholders for the three months ended December 31, 2018, was $31.2 million, compared to net income of $2.3 million for the same period in 2017. Fourth quarter 2018 results included a $31.5 million impairment charge relating to certain properties.

Net loss attributable to common shareholders for the year ended December 31, 2018, was $46.6 million, compared to net income of $11.9 million for 2017. 2018 results included a $70.4 million impairment charge related to certain properties.

Dividends
On February 13, KRG’s Board of Directors declared a dividend of $0.3175 per common share. The dividend will be payable on or about March 29, 2019, to shareholders of record as of March 22, 2019.
Transactional Activity
In 2018, KRG completed the following property transactions:
Sold seven non-core assets for a combined $125 million
Entered into a strategic joint venture with Nuveen (formerly TH Real Estate) by selling an 80% interest in three core assets that resulted in gross proceeds of approximately $89 million
Redeemed a minority preferred equity interest (4% yield) in six retail properties for $22 million

Capital Markets Activity
In 2018, KRG conducted the following capital markets transactions:
Amended and restated the unsecured revolving credit facility, increasing borrowing capacity by $100 million to $600 million, reducing the credit spread by 30-45 basis points, and extending the term to April 2023
Obtained a ten-year, $250 million unsecured term loan and executed a hedge that resulted in a blended fixed rate of 4.75% for 7 years
Balance Sheet Overview
KRG currently has only a single $20.7 million mortgage maturing in 2020, and as of December 31, 2018, the debt portfolio had a weighted average maturity of 5.8 years.
As of December 31, 2018, KRG has $485 million of available liquidity, including unrestricted cash on hand and available revolver capacity.
Development Update
During 2018, KRG delivered six redevelopments on schedule and under budget. The projects have a collective incremental return on cost of 8.6%. Notable projects included City Center in White Plains, NY; Portofino Shopping Center in Houston, TX; and Rampart Commons, in Las Vegas, NV.
Disposition and Deleveraging Program
KRG plans to generate between $350 and $500 million of gross proceeds from asset sales. The sale proceeds will be used primarily to pay down debt. Upon completion of the asset sales, KRG expects to reduce its net-debt-to-EBITDA ratio to between 5.9x and 6.2x.

p. 4
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18


2019 Earnings Guidance
KRG is introducing its guidance for 2019 FFO, as defined by NAREIT, in a range of $1.66 to $1.76 per diluted common share. The 2019 earnings guidance is based on the following key assumptions:
 
Low
High
2018 FFO
$ 2.00
$ 2.00
Previously Disclosed FFO Impacts
 
 
Q1 - Q3 2018 Dispositions
(0.03)
(0.03)
Lease Accounting Rules 1
(0.06)
(0.06)
Interest Expense
(0.03)
(0.03)
One-Time Income Items 2
(0.05)
(0.05)
Subtotal - Previously Disclosed
(0.17)
(0.17)
 
 
 
Q4 2018 and Other Items:
 
 
Q4 2018 Dispositions
(0.02)
(0.02)
Other Items 3
(0.06)
(0.04)
Subtotal - Q4 2018 & Other Items
(0.08)
(0.06)
 
 
 
2019 Items:
 
 
Same Store NOI 4 (1.25% - 2.25%)
0.03
0.05
G&A
(0.02)
(0.01)
Subtotal - 2019 Items
0.01
0.04
 
 
 
2019 FFO - Pre-2019 Planned Dispositions
1.76
1.82
 
 
 
2019 Disposition Net Impact 5, 6
(0.10)
(0.06)
 
 
 
FFO - Guidance
$ 1.66
$ 1.76
 
 
 
2019 Disposition Net Impact Annualized 6, 7
(0.29)
(0.20)

1.
Previously disclosed ($0.05) versus currently disclosed ($0.06).
2.
Relates to Eddy Street Commons development fee and cash and non-cash impact of Toys 'R Us bankruptcy.
3.
Includes non-recurring business interruption income collected in 2018 and reduced lease termination income.
4.
Includes $0.025 from executed anchor leases commencing in 2019.
5.
Disposition NOI less anticipated interest savings based on a weighted-average sale date of August 31, 2019.
6.
Low end of the range assumes $500 million in proceeds while high end of range assumes $350 million in proceeds
7.
Annualized 2019 disposition NOI less annualized anticipated interest savings.













p. 5
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18


Earnings Conference Call
Kite Realty Group Trust will conduct a conference call to discuss its financial results on Wednesday, February 20, 2019, at 10:00 a.m. Eastern Time. A live webcast of the conference call will be available on KRG’s corporate website at www.kiterealty.com. The dial-in numbers are (844) 309-0605 for domestic callers and (574) 990-9933 for international callers (passcode 4793227). In addition, a webcast replay link will be available on the corporate website.
Additional Materials
Financial statements, exhibits, and reconciliations of non-GAAP measures attached to this release include the details of KRG’s results.
About Kite Realty Group Trust
Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust (REIT) that provides communities with convenient and beneficial shopping experiences. We connect consumers to tenants in desirable markets through our portfolio of neighborhood, community, and lifestyle centers. Using operational, development, and redevelopment expertise, we continuously optimize our portfolio to maximize value and return to our shareholders. For more information, please visit our website at kiterealty.com.
Safe Harbor
Certain statements in this document that are not historical fact may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results, performance, transactions or achievements, financial or otherwise, expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to: national and local economic, business, real estate and other market conditions, particularly in light of low growth in the U.S. economy as well as economic uncertainty caused by fluctuations in the prices of oil and other energy sources and inflationary trends or outlook; the risk that KRG may not be able to successfully complete the planned dispositions on favorable terms - or at all; financing risks, including the availability of, and costs associated with, sources of liquidity; KRG’s ability to refinance, or extend the maturity dates of, its indebtedness; the level and volatility of interest rates; the financial stability of tenants, including their ability to pay rent and the risk of tenant bankruptcies; the competitive environment in which KRG operates; acquisition, disposition, development and joint venture risks; property ownership and management risks; KRG’s ability to maintain its status as a real estate investment trust for federal income tax purposes; potential environmental and other liabilities; impairment in the value of real estate property KRG owns; the impact of online retail competition and the perception that such competition has on the value of shopping center assets; risks related to the geographical concentration of KRG’s properties in Florida, Indiana and Texas; insurance costs and coverage; risks associated with cybersecurity attacks and the loss of confidential information and other business interruptions; and other factors affecting the real estate industry generally. KRG refers you to the documents filed by KRG from time to time with the SEC, specifically the section titled “Risk Factors” in KRG’s and the Operating Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which discuss these and other factors that could adversely affect KRG’s results. KRG undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.


p. 6
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

CORPORATE PROFILE
 
396797270_image50.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, 2018, we owned interests in 111 operating and redevelopment properties totaling approximately 21.9 million square feet and one development project 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. 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, 2018  
 
 
# of Properties
Total
GLA /NRA
Owned
 GLA /NRA2
Operating Retail Properties 1
 
105

21,195,672

15,069,025

Operating Office Properties and Other
 
3

498,098

498,098

Redevelopment Properties
 
3

242,516

242,516

Total Operating and Redevelopment Properties
 
111

21,936,286

15,809,639

Development Projects
 
1

530,000

8,500

Total All Properties
 
112

22,466,286

15,818,139

 
 
Retail
Non-Retail
Total
Operating Properties –  Leased Percentage2
 
94.6%
97.4%
94.7%
States
 
 
 
19


Stock Listing: New York Stock Exchange symbol: KRG
  
____________________
1
Includes the Whitehall Pike operating property, which is held for sale as of December 31, 2018.
2
Excludes square footage of structures located on land owned by the company and ground leased to tenants and adjacent non-owned anchors.

p. 7
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

CONTACT INFORMATION    
 
396797270_image50.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:
 
 
 
 
 
Heath R. Fear
 
Robert W. Baird & Co.
 
DA Davidson
Executive Vice President, Chief Financial Officer
 
Mr. RJ Milligan
 
Mr. James O. Lykins
Kite Realty Group Trust 
(813) 273-8252
(503) 603-3041
30 South Meridian Street, Suite 1100 
 
 
Indianapolis, IN 46204 
 
 
 
 
(317) 577-5660
 
Bank of America/Merrill Lynch
 
KeyBanc Capital Markets
 
Mr. Jeffrey Spector/Mr. Craig Schmidt
 
Mr. Jordan Sadler/Mr. Todd Thomas
 
 
(646) 855-1363/(646) 855-3640
 
(917) 368-2280/(917) 368-2286
Transfer Agent:
 
 
 
 
 
Broadridge Financial Solutions
 
 
 
 
Ms. Kristen Tartaglione
 
Barclays
 
Raymond James 
2 Journal Square, 7th Floor
 
Mr. Ross Smotrich/Ms. Linda Tsai
 
Mr. Paul Puryear/Mr. Collin Mings
Jersey City, NJ  07306
 
(212) 526-2306/(212) 526-9937
 
(727) 567-2253/(727) 567-2585
(201) 714-8094
 
 
 
 
 
Stock Specialist:
 
 
 
 
 
 
BTIG
 
Sandler O’Neill
GTS
 
Mr. Michael Gorman
 
Mr. Alexander Goldfarb
545 Madison Avenue
 
(212) 738-6138
 
(212) 466-7937
15th Floor 
 
 
New York, NY 10022 
 
 
 
 
(212) 715-2830
 
Capital One Securities, Inc.
 
Wells Fargo Securities, LLC
 
 
Mr. Christopher Lucas
 
Mr. Jeffrey J. Donnelly, CFA /Ms. Tamara Fique
 
 
(571) 633-8151
 
(617) 603-4262/(443) 263-6568
 
 
 
 
 
 
 
 
 
Citigroup Global Markets 
 
 
 
 
Mr. Michael Bilerman/Ms. Christy McElroy
 
 
 
 
(212) 816-1383/(212) 816-6981
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

p. 8
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

IMPORTANT NOTES INCLUDING NON-GAAP DISCLOSURES    
396797270_image50.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, 2018 to be filed on or about February 27, 2019, 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 connection with low or negative growth in the U.S. economy as well as economic uncertainty;
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 actual and perceived impact of online retail 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, 2017, 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"), 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. A reconciliation of net income (calculated in accordance with GAAP) to FFO is included elsewhere in this Financial Supplement.
 








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Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

IMPORTANT NOTES INCLUDING NON-GAAP DISCLOSURES (CONTINUED)
396797270_image50.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. 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 (calculcated 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, 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 December 31, 2018, the Company excluded three redevelopment properties and the recently completed Beechwood Promenade, Burnt Store Marketplace, City Center, Fishers Station, and Rampart Commons redevelopments from the same property pool that met these criteria and were owned in both comparable periods.

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 –12/31/18

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
396797270_image50.jpg


($ in thousands)
 
 
 
 
 
 
December 31,
2018
 
December 31,
2017
Assets:
 
 
 
 
Investment properties, at cost
 
$
3,641,120

 
$
3,957,884

Less: accumulated depreciation
 
(699,927
)
 
(664,614
)
 
 
2,941,193

 
3,293,270

Cash and cash equivalents
 
35,376

 
24,082

Tenant and other receivables, including accrued straight-line rent of $31,347 and $31,747 respectively, net of allowance for uncollectible accounts
 
58,059

 
58,328

Restricted cash and escrow deposits
 
10,130

 
8,094

Deferred costs and intangibles, net
 
95,264

 
112,359

Prepaid and other assets
 
12,764

 
12,465

Investments in unconsolidated subsidiaries
 
13,496

 
3,900

Asset held for sale
 
5,731

 

Total Assets
 
$
3,172,013

 
$
3,512,498

Liabilities and Shareholders’ Equity:
 
 
 
 

Mortgage and other indebtedness, net
 
$
1,543,301

 
$
1,699,239

Accounts payable and accrued expenses
 
85,934

 
78,482

Deferred revenue and other liabilities
 
83,632

 
96,564

Total Liabilities
 
1,712,867

 
1,874,285

Commitments and contingencies
 
 
 
 

Limited Partners’ interests in the Operating Partnership and other redeemable noncontrolling interests
 
45,743

 
72,104

Shareholders’ Equity:
 
 
 
 

Kite Realty Group Trust Shareholders’ Equity:
 
 
 
 

Common Shares, $.01 par value, 225,000,000 shares authorized, 83,800,886 and 83,606,068 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively
 
838

 
836

Additional paid in capital
 
2,078,099

 
2,071,418

Accumulated other comprehensive (loss) income
 
(3,497
)
 
2,990

Accumulated deficit
 
(662,735
)
 
(509,833
)
Total Kite Realty Group Trust Shareholders’ Equity
 
1,412,705

 
1,565,411

Noncontrolling Interests
 
698

 
698

Total Equity
 
1,413,403

 
1,566,109

Total Liabilities and Equity
 
$
3,172,013

 
$
3,512,498












p. 11
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
396797270_image50.jpg
     


($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
 
  Minimum rent
 
$
63,902

 
$
68,518

 
$
266,377

 
$
273,444

  Tenant reimbursements
 
17,924

 
18,252

 
72,146

 
73,000

  Other property related revenue
 
5,018

 
1,772

 
13,138

 
11,998

  Fee income
 
93

 
377

 
2,523

 
377

Total revenue
 
86,937

 
88,919

 
354,184

 
358,819

Expenses:
 
 

 
 

 
 
 
 
  Property operating
 
13,172

 
12,693

 
50,356

 
49,643

  Real estate taxes
 
10,028

 
10,796

 
42,378

 
43,180

  General, administrative, and other
 
4,957

 
5,360

 
21,320

 
21,749

  Depreciation and amortization
 
36,299

 
40,758

 
152,163

 
172,091

  Impairment charges
 
31,513

 

 
70,360

 
7,411

Total expenses
 
95,969

 
69,607

 
336,577

 
294,074

(Loss) gain on sale of operating properties, net
 
(4,725
)
 

 
3,424

 
15,160

Operating (loss) income
 
(13,757
)
 
19,312

 
21,031

 
79,905

  Interest expense
 
(17,643
)
 
(16,452
)
 
(66,785
)
 
(65,702
)
  Income tax benefit of taxable REIT subsidiary
 
150

 
36

 
227

 
100

  Equity in loss of unconsolidated subsidiary
 
(303
)
 

 
(278
)
 

  Other expense, net
 
(156
)
 
(101
)
 
(646
)
 
(415
)
Net (loss) income
 
(31,709
)
 
2,795

 
(46,451
)
 
13,888

  Net loss (income) attributable to noncontrolling interests
 
488

 
(486
)
 
(116
)
 
(2,014
)
Net (loss) income attributable to Kite Realty Group Trust common shareholders
 
$
(31,221
)
 
$
2,309

 
$
(46,567
)
 
$
11,874

 
 
 
 
 
 
 
 
 
(Loss) income per common share - basic and diluted
 
$
(0.37
)
 
$
0.03

 
$
(0.56
)
 
$
0.14

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,762,664

 
83,595,677

 
83,693,385

 
83,585,333

Weighted average common shares outstanding - diluted
 
83,762,664

 
83,705,764

 
83,693,385

 
83,690,418

Cash dividends declared per common share
 
$
0.3175

 
$
0.3175

 
$
1.2700

 
$
1.2250

  


p. 12
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

FUNDS FROM OPERATIONS1
396797270_image50.jpg



($ in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2018
 
2017
 
2018
 
2017
Funds From Operations ("FFO")
 
 
 
 
 
 
 
 
Consolidated net (loss) income
 
$
(31,709
)
 
$
2,795

 
$
(46,451
)
 
$
13,888

Less: net income attributable to noncontrolling interests in properties
 
(172
)
 
(428
)
 
(1,151
)
 
(1,731
)
Add/Less: loss (gain) on sales of operating properties
 
4,725

 

 
(3,424
)
 
(15,160
)
Add: impairment charges
 
31,513

 

 
70,360

 
7,411

Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests
 
36,534

 
40,425

 
151,856

 
170,315

   FFO of the Operating Partnership1
 
40,891

 
42,792

 
171,190

 
174,723

Less: Limited Partners' interests in FFO
 
(982
)
 
(971
)
 
(4,109
)
 
(3,966
)
   FFO attributable to Kite Realty Group Trust common shareholders1
 
$
39,909

 
$
41,821

 
$
167,081

 
$
170,757

FFO, as defined by NAREIT, per share of the Operating Partnership - basic
 
$
0.48

 
$
0.50

 
$
2.00

 
$
2.04

FFO, as defined by NAREIT, per share of the Operating Partnership - diluted
 
$
0.48

 
$
0.50

 
$
2.00

 
$
2.04

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
83,762,664

 
83,595,677

 
83,693,385

 
83,585,333

Weighted average common shares outstanding - diluted
 
83,822,752

 
83,705,764

 
83,744,896

 
83,690,418

Weighted average common shares and units outstanding - basic
 
85,808,725

 
85,580,898

 
85,740,449

 
85,566,272

Weighted average common shares and units outstanding - diluted
 
85,868,813

 
85,690,986

 
85,791,961

 
85,671,358

 
 
 
 
 
 
 
 
 
FFO, as defined by NAREIT, per diluted share/unit
 
 
 
 
 
 
 
 
Consolidated net (loss) income
 
$
(0.37
)
 
$
0.03

 
$
(0.54
)
 
$
0.16

Less: net income attributable to noncontrolling interests in properties
 

 
(0.01
)
 
(0.01
)
 
(0.03
)
Add/Less: loss (gain) on sales of operating properties
 
0.05

 

 
(0.04
)
 
(0.18
)
Add: impairment charges
 
0.37

 

 
0.82

 
0.09

Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests
 
0.43

 
0.48

 
1.77

 
2.00

FFO, as defined by NAREIT, of the Operating Partnership per diluted share/unit1
 
$
0.48

 
$
0.50

 
$
2.00

 
$
2.04

 
 
 
 
 
 
 
 
 
____________________
1
“FFO of the Operating Partnership" measures 100% of the operating performance of the Operating Partnership’s real estate properties. “FFO attributable to Kite Realty Group Trust common shareholders” reflects a reduction for the redeemable noncontrolling weighted average diluted interest in the Operating Partnership.

p. 13
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

ADJUSTED FUNDS FROM OPERATIONS AND OTHER FINANCIAL INFORMATION
396797270_image50.jpg

 
($ in thousands)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
December 31,
 
Twelve Months Ended
December 31,
 
 
2018
 
2017
 
2018
 
2017
Reconciliation of FFO, as adjusted, to Adjusted Funds from Operations (AFFO)
 
 

 
 

 
 

 
 

FFO, as defined by NAREIT, as adjusted, of the Operating Partnership
 
$
40,891

 
$
42,792

 
$
171,190

 
$
174,723

Add:
 
 

 
 

 
 

 
 

Depreciation of non-real estate assets
 
195

 
333

 
1,035

 
1,783

Amortization of deferred financing costs
 
1,724

 
662

 
3,944

 
2,676

Non-cash compensation expense
 
931

 
1,292

 
4,087

 
5,024

Less:
 
 

 
 

 
 

 
 

Straight-line rent
 
739

 
1,103

 
3,061

 
4,696

Market rent amortization income
 
872

 
1,162

 
6,360

 
3,677

Amortization of debt premium
 
547

 
713

 
2,630

 
2,913

Other cash and non-cash adjustments1
 
(1,551
)
 

 
(287
)
 
866

Capital expenditures2:
 
 
 
 
 
 
 
 
     Maintenance capital expenditures3
 
1,156

 
639

 
4,469

 
2,863

     Revenue enhancing tenant improvements – retail
 
4,564

 
1,135

 
13,827

 
12,689

     Revenue enhancing tenant improvements – office
 
203

 

 
1,521

 
461

     External lease commissions
 
608

 
467

 
2,511

 
1,893

Total AFFO of the Operating Partnership
 
$
36,603

 
$
39,860

 
$
146,164

 
$
154,148

 
 
 
 
 
 
 
 
 
Other Financial Information:
 
 
 
 
 
 
 
 
Scheduled debt principal payments 
 
$
1,388

 
$
1,240

 
$
5,349

 
$
4,949

Capitalized interest cost
 
$
418

 
$
761

 
$
1,833

 
$
3,081

Mark to market lease amount in Deferred revenue and other liabilities on consolidated balance sheet
 
$
69,501

 
$
83,117

 


 




 
 
December 31,
2018
 
December 31,
2017
Investment Properties, at Cost:
 
 

 
 

Land, building and improvements4
 
$
3,598,017

 
$
3,904,291

Furniture, equipment and other
 
7,741

 
8,453

Construction in progress
 
35,362

 
45,140

Total
 
$
3,641,120

 
$
3,957,884

 
____________________
1
The year-to-date amount reflects a tenant inducement write-off and non-cash termination fees.
2
Excludes landlord work, tenant improvements and leasing commissions relating to development and 3-R projects.
3
A portion of these capital improvements are reimbursed by tenants and are revenue producing.
 


p. 14
Kite Realty Group Trust Supplemental Financial and Operating Statistics –12/31/18

MARKET CAPITALIZATION AS OF DECEMBER 31, 2018    
396797270_image50.jpg

($ in thousands)
 
 
 
 
 
 
Percent of
Total Equity
 
Total
Market
Capitalization
 
Percent of
Total Market
Capitalization
Equity Capitalization:
 
 
 
 
 
Total Common Shares Outstanding
97.6
%
 
83,800,886

 
 
Operating Partnership ("OP") Units Outstanding
2.4
%
 
2,035,349

 
 
Combined Common Shares and OP Units
100.0
%
 
85,836,235

 
 
Market Price of Common Shares
 
 
$
14.09

 
 
Total Equity Capitalization
 
 
1,209,433

 
44
%
Debt Capitalization:
 
 
 

 
 
Company Consolidated Outstanding Debt
 
 
1,543,301

 
 
Plus: Debt Premium and Issuance Costs, net
 
 
5,469

 
 
Plus: Company Share of Unconsolidated Joint Venture Debt
 
 
21,912

 
 
Less: Partner Share of Consolidated Joint Venture Debt1
 
 
(1,132
)
 
 
Company Share of Outstanding Debt
 
 
1,569,550

 
 
Less: Cash, Cash Equivalents, and Restricted Cash
 
 
(46,048
)
 
 
Total Net Debt Capitalization
 
 
1,523,502

 
56
%
Total Enterprise Value
 
 
$
2,732,935

 
100
%
 
 
 
 
 
 
RATIO OF DEBT TO TOTAL UNDEPRECIATED ASSETS AS OF DECEMBER 31, 2018
Consolidated Undepreciated Real Estate Assets
 
 
$
3,641,120

 
 
Company Share of Unconsolidated Real Estate Assets
 
 
37,743

 
 
 
 
 
3,678,863

 
 
Total Debt Capitalization
 
 
1,524,634

 
 
Ratio of Debt to Total Undepreciated Real Estate Assets
 
 
41.4
%
 
 
 
 
 
 
 
 
RATIO OF COMPANY SHARE OF NET DEBT TO EBITDA AS OF DECEMBER 31, 2018
Company's Consolidated Debt & Share of Unconsolidated Debt
 
 
$