The following discussion should be read in connection with the accompanying historical financial statements and related notes thereto. In this discussion, unless the context suggests otherwise, references to "our Company," "we," "us," and "our" meanKite Realty Group Trust and its direct and indirect subsidiaries, includingKite Realty Group, L.P. Cautionary Note About Forward-Looking Statements This Quarterly Report on Form 10-Q, 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. Currently, one of the most significant factors that could cause actual outcomes to differ significantly from our forward-looking statements is the potential adverse effect of the current pandemic of the novel coronavirus ("COVID-19"), including possible resurgences, variants and mutations, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The effects of COVID-19 have caused and may continue to cause many of our tenants to close stores, reduce hours or significantly limit service, making it difficult for them to meet their rent obligations, and therefore has and will continue to impact us significantly for the foreseeable future. COVID-19 has impacted us significantly, and the extent to which it will continue to impact us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the continued speed of the vaccine distribution, the efficacy of vaccines, including against variants of COVID-19, acceptance and availability of vaccines, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.
Additional risks, uncertainties and other factors that could cause such differences, some of which could be material, include, but are not limited to:
•risks associated with the Company's merger withRetail Properties of America ("RPAI"), including the integration of the businesses of the combined company, the ability to achieve expected synergies or cost savings and potential disruptions to the Company's plans and operations; •national and local economic, business, real estate and other market conditions, particularly in connection with low or negative growth in theU.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 or request rent concessions and the risk of tenant insolvency and bankruptcies; •the competitive environment in which we operate, including potential oversupplies and reduction in demand for rental space; •acquisition, disposition, development and joint venture risks; •property ownership and management risks, including the relative illiquidity of real estate investments, periodic costs to repair, renovate and re-lease space, operating costs and expenses, vacancies or the inability to rent space on favorable terms or at all; •our ability to maintain our status as a real estate investment trust forU.S. federal income tax purposes; •potential environmental and other liabilities; 27 -------------------------------------------------------------------------------- •impairment in the value of real estate property we own; •the attractiveness of our properties to tenants, the actual and perceived impact of e-commerce on the value of shopping center assets and changing demographic and customer traffic patterns; •risks related to our current geographical concentration of our properties inTexas ,Florida, New York , Maryland,Virginia , andNorth Carolina ; •civil unrest, acts of terrorism or war, acts of God, climate change, epidemics, pandemics (including COVID-19), natural disasters and severe weather conditions such as hurricanes, tropical storms, tornadoes, earthquakes, droughts, floods and fires, including such events or conditions that may result in underinsured or uninsured losses or other increases in costs and expenses; •changes in laws and government regulations including governmental orders affecting the use of our properties or the ability of our tenants to operate, and the costs of complying with such changed laws and government regulations; •possible short-term or long-term changes in consumer behavior due to COVID-19 and the fear of future pandemics; •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 this Quarterly Report on Form 10-Q and, from time to time, in other reports we file with theSecurities and Exchange Commission (the "SEC") or in other documents that we publicly disseminate, including, in particular, the section titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
We assume no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
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Our company and our properties
Kite Realty Group Trust is a publicly-held real estate investment trust which, through its majority-owned subsidiary,Kite Realty Group, L.P. , owns interests in various operating subsidiaries and joint ventures engaged in the ownership, operation, acquisition, development, and redevelopment of high-quality neighborhood and community shopping centers and other real estate assets in select markets inthe United States . We derive revenues primarily from activities associated with the collection of contractual rents and reimbursement payments from tenants at our properties. Our operating results therefore depend materially on, among other things, the ability of our tenants to make required lease payments, the health and resilience ofthe United States retail sector, interest rate volatility, job growth and real estate market and overall economic conditions. The retail portfolio we acquired through the merger with RPAI was comprised of 102 operating properties along with multiple parcels of entitled land for future value creation.
TO
TO
OnOctober 22, 2021 , we completed a merger withRetail Properties of America, Inc. ("RPAI"), in which RPAI merged with and into a wholly-owned subsidiary of ours in a stock-for-stock exchange with a transaction value of approximately$4.7 billion , including the assumption of approximately$1.9 billion of debt. See Note 11 for additional details.
Impacts on businesses of COVID-19
The current pandemic of the novel coronavirus, or COVID-19, and the public health measures that have been undertaken in response, have had a significant adverse impact on many of our tenants and on our business. The effects of COVID-19, including related government restrictions, mandatory quarantines, "shelter in place" orders, border closures, "social distancing" practices and other travel and gathering restrictions and practices, have caused many of our tenants to close stores, reduce hours or significantly limit service that may create headwinds for our tenants even after the current restrictions are lifted. Because we cannot estimate when the COVID-19 pandemic and the containment measures will end, if there will be a slowing or potential rollback of "reopenings" in certain states or what short-term or long-term impact the pandemic may have on consumer behavior, we cannot estimate the ultimate operational and financial impact of COVID-19 on our business. However, the following operating trends, combined with macroeconomic uncertainty, lead us to believe that our operating results could continue to be significantly affected by COVID-19: •As ofSeptember 30, 2021 , substantially all of our tenants have reopened. •As ofNovember 6, 2021 , we have collected approximately 98% of rent billings for three months endedSeptember 30, 2021 . •Many of our tenants have taken on additional debt as a result of COVID-19, including loans administered by theSmall Business Administration . To the extent this debt is not forgiven, the increased debt load may hamper their ability to continue to operate and to pay rent, which could cause the Company to realize decreased cash flow and increased vacancies at its properties. In 2020, the effects of COVID-19 triggered a global and domestic economic recession, and if the recession continues well beyond the lifting of government restrictions related to COVID-19, many of our tenants could face financial distress. Historically, economic indicators such as GDP growth, consumer confidence and employment are correlated with demand for certain of our tenants' products and services. These conditions could increase the number of our tenants that are unable to meet their lease obligations to us and could limit the demand for our space from new tenants. We expect the significance of the COVID-19 pandemic, including the extent of its effects on our business, financial performance and condition, operating results and cash flows and the economic slowdown, to be dictated by, among other things, the duration of the COVID-19 pandemic, including possible resurgences, variants and mutations, the success of efforts to contain it, the continued speed of the vaccine distribution, the efficacy of vaccines, including against variants of COVID-19, acceptance and availability of vaccines and the impact of actions taken in response to the pandemic. These uncertainties make it difficult to predict operating results for our business. Therefore, there can be no assurances that we will not experience further declines in revenues, net income, FFO, or other operating metrics, which could be material. 29 -------------------------------------------------------------------------------- We have sought to take advantage of opportunities caused by the COVID-19 pandemic. During this quarter, we executed 82 new and renewal leases representing over 584,800 square feet. In addition, we are actively negotiating with multiple tenants to lease the vacant anchor boxes that were caused by the disruption from the COVID-19 pandemic. Building upon our previous results, we have leased 12 of the vacant anchor boxes since COVID-19 began and are in active lease negotiations for multiple other spaces. In addition, we continue to focus also on maintaining a strong balance sheet with significant liquidity. InMarch 2021 , we issued$175.0 million of Exchangeable Notes with a 0.75% coupon to proactively fund our 2022 debt maturities. In addition, we have closed on the sale of 17 ground leases during the nine months endedSeptember 30, 2021 for gross proceeds of$42.0 million . As ofSeptember 30, 2021 , we have over$600.0 million of liquidity, limited capital commitments, and manageable debt maturities. Recent Activities
Acquisition and Merger Project with RPAI
OnOctober 22, 2021 , we completed the previously announced merger withRetail Properties of America, Inc. ("RPAI"), in accordance with the Agreement and Plan of Merger datedJuly 18, 2021 (the "Merger Agreement"), by and among the Company, its wholly owned subsidiaryKRG Oak, LLC ("Merger Sub") and RPAI, pursuant to which RPAI merged with and into Merger Sub (the "Merger"). The transaction value was approximately$4.7 billion , including approximately$2.8 billion market value of common shares issued in the Merger and the assumption of approximately$1.9 billion of debt. See Note 11 for additional details. The retail portfolio we acquired through the merger with RPAI was comprised of 102 operating properties along with multiple parcels of entitled land for future value creation. Under the terms of the Merger Agreement, each outstanding share of RPAI's common stock was converted into the right to receive 0.623 common shares of the Company plus cash in lieu of fractional Company shares with an aggregate market value of approximately$2.8 billion . Operating Activity During the third quarter of 2021, we executed 82 new and renewal leases totaling 584,820 square feet. New leases were signed for 38 individual spaces for 239,157 square feet of gross leasable area ("GLA"), while renewal leases were signed on 44 individual spaces for 345,663 square feet of GLA. For comparable new and renewal leases signed in the third quarter of 2021, which are defined as those for which the space was occupied by a tenant within the last 12 months, we achieved a blended cash rent spread of 13.4% and a blended GAAP rent spread of 20.7%.
Results of operations
The comparability of results of operations for the three and nine months endedSeptember 30, 2021 and 2020 is affected by our redevelopment activities, acquisition activities and operating property dispositions during these periods. Therefore, we believe it is useful to review the comparisons of our results of operations for these periods in conjunction with the discussion of our activities during those periods, which is set forth below.
Redevelopment activities
The following properties have undergone active redevelopment at various times during the period from
Transition to
Property Name MSA Redevelopment1 Transition to Operations Owned GLA
Hamilton Crossing Centre2 Indianapolis, IN June 2014 Pending 92,283
The Corner2 Indianapolis, IN December 2015 Pending 26,500
Glendale Town Center 2 Indianapolis, IN March 2019 Pending 393,002
Courthouse Shadows 3 Naples, FL June 2013 Sold 124,802
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1 Transition date represents the date the property was
transferred from our operation
portfolio into redevelopment status. 2 This property has been identified as a redevelopment
property and is not included
in the operating portfolio or the same property pool. 3 This property was sold inJuly 2020 .
Development activities
The following properties have been actively developed at various times during the period from
Property Name MSA Start Date Anticipated Completion Date Owned GLAGlendale Town Center Apartments Indianapolis, IN Q2 2020 Q2 2022 207,000 Eddy Street Commons - Phase II South Bend, IN Q3 2017 Q4 2020 8,500Eddy Street Commons - Phase III South Bend, IN Q3 2020 Q1 2022 18,600 The Landing at Tradition - Phase II Port St. Lucie, FL Q2 2022 Q2 2023 39,900 Acquisition Activities
The following properties were acquired at various times during the period from
Property Name MSA Acquisition Quarter Owned GLA
Eastgate Crossing Raleigh, NC Q4 2020 158,724
Comparison of operating results for the three months ended
The following table reflects the income statement items of our consolidated income statements for the three months ended.
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Three months ended
Net change ($ in thousands) 2021 2020 2020 to 2021 Revenue: Rental income$ 70,216 $ 64,293 $ 5,923 Other property related revenue 1,054 670 384 Fee income 195 104 91 Total revenue 71,465 65,067 6,398 Expenses: Property operating 10,482 10,330 152 Real estate taxes 8,624 9,362 (738) General, administrative, and other 8,241 6,482 1,759 Merger and acquisition costs 9,198 - 9,198 Depreciation and amortization 30,193 33,953 (3,760) Total expenses 66,738 60,127 6,611 Gains on sale of operating properties, net 1,260 3,226 (1,966) Operating income 5,987 8,166 (2,179) Interest expense (12,878) (12,550) (328) Income tax benefit of taxable REIT subsidiary 91 190 (99) Equity in loss of unconsolidated subsidiaries (196) (417) 221 Other expense, net 168 (16) 184 Net loss (6,828) (4,627) (2,201) Net income attributable to noncontrolling interests (132) 40 (172) Net loss attributable to Kite Realty Group Trust$ (6,960)
Property operating expense to total revenue ratio 14.7 % 15.9 % Rental income (including tenant reimbursements) increased$5.9 million , or 9.2%, due to the following: Net change 2020 to 2021 Properties or components of properties sold during 2020 or 2021$ (573) Properties under redevelopment or acquired during 2020 and/or 2021 1,317 Properties fully operational during 2020 and 2021 and other 5,179 Total$ 5,923 The net increase of$5.2 million in rental income for properties fully operational during 2020 and 2021 is primarily due to improved collection activity leading to a decrease in bad debt expense, which contributed a positive variance of$5.4 million . These positive variances were partially offset by lower base minimum rent of$0.6 million due to an increase in vacancy driven by the COVID-19 pandemic. Other property related revenue primarily consists of parking revenues, gains on the sale of land and other miscellaneous activity. This revenue increased by$0.4 million , due to improved parking revenue during 2021.
The Company generated fee income of
Building operating expenses increased
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Net change 2020 to
2021
Buildings under redevelopment or acquired in 2020 and / or 2021
106 Properties fully operational during 2020 and 2021 and other 46 Total $ 152 The lack of significant change in property operating expenses for properties fully operational during the third quarter of 2020 and the third quarter of 2021 is primarily due to a continued focus on cost controls over certain operating expense spend. As a percentage of revenue, property operating expenses decreased from 15.9% to 14.7% due to the decrease in bad debt expense driven by improved collection efforts.
Property taxes have fallen
Net change 2020 to
2021
Buildings under redevelopment or acquired in 2020 and / or 2021
50 Properties fully operational during 2020 and 2021 and other (788) Total $ (738)
The Internet
General, administrative and other expenses increased$1.8 million , or 27.1%. The increase is due to certain project-related consulting costs, higher share-based compensation expense, and an increase in certain employee-related costs. The Company incurred$9.2 million of merger and acquisition costs related to our merger with RPAI. These costs primarily consist of fairness opinion, legal, professional, and data migration costs. We anticipate the total merger related costs to be approximately$105 million . Depreciation and amortization expense decreased$3.8 million , or 11.1%, due to the following: Net change 2020 to 2021
Buildings under redevelopment or acquired in 2020 and / or 2021
770 Properties fully operational during 2020 and 2021 and other (4,530) Total$ (3,760) The net decrease of$4.5 million in depreciation and amortization at properties fully operational during 2020 and 2021 is primarily due to accelerated depreciation and amortization for certain former tenants that occurred in 2020. Interest expense increased$0.3 million or 2.6%. The increase is primarily due to interest costs related to the Exchangeable Notes that were issued inMarch 2021 .
Comparison of operating results for the nine months ended
The following table reflects the income statement items of our consolidated income statements for the nine months ended.
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Nine
Ended months
Net change ($ in thousands) 2021 2020 2020 to 2021 Revenue: Rental income$ 206,097 $ 191,359 $ 14,738 Other property related revenue 3,133 6,626 (3,493) Fee income 1,144 299 845 Total revenue 210,374 198,284 12,090 Expenses: Property operating 30,978 30,450 528 Real estate taxes 26,574 26,551 23 General, administrative, and other 23,676 19,986 3,690 Merger and acquisition costs 9,958 - 9,958 Depreciation and amortization 90,625 96,830 (6,205) Total expenses 181,811 173,817 7,994 Gains on sale of operating properties, net 27,517 4,893 22,624 Operating income 56,080 29,360 26,720 Interest expense (37,386) (38,115) 729 Income tax benefit of taxable REIT subsidiary 308 496 (188) Equity in loss of unconsolidated subsidiaries (758) (1,256) 498 Other expense, net 189 234 (45) Net income (loss) 18,433 (9,281) 27,714 Net income attributable to noncontrolling interests (1,058) (148) (910)
Net income (loss) attributable to
Property operating expense to total revenue ratio 14.7 %
15.4%
Rental income (including tenant reimbursements) increased$14.7 million , or 7.7%, due to the following: Net change 2020 to 2021 Properties or components of properties sold during 2020 or 2021$ (1,338) Properties under redevelopment or acquired during 2020 and/or 2021
3 438
Properties fully operational during 2020 and 2021 and other 12,638 Total$ 14,738
The net increase in
Other property related revenue primarily consists of parking revenues, gains on the sale of land and other miscellaneous activity. This revenue decreased by$3.5 million , primarily due to lower gains on sale of land of$3.8 million over the comparable period slightly offset by improved parking revenue during 2021.
The Company generated fee income of
Building operating expenses increased
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Net change 2020 to
2021
Buildings under redevelopment or acquired in 2020 and / or 2021
501 Properties fully operational during 2020 and 2021 and other 27 Total $ 528 The lack of change in property operating expenses for properties fully operational during the first three quarters of 2021 compared to the same period in 2020 is primarily due to a halt to any non-critical spending in the second quarter of 2020 during the early stages of the COVID-19 pandemic. The Company has continued to focus on cost controls over certain operating expense spend, but the activity has returned to a more normalized state. As a percentage of revenue, property operating expenses decreased between periods from 15.4% to 14.7% due to these cost containment efforts and improved operating results.
Property taxes have increased
Net change 2020 to
2021
Buildings under redevelopment or acquired in 2020 and / or 2021
359 Properties fully operational during 2020 and 2021 and other (336) Total $ 23 The net$0.3 million decrease in real estate taxes for properties fully operational during 2020 and 2021 is primarily due to successful real estate tax appeals at certain properties in the portfolio in 2020. The majority of real estate tax expense is recoverable from tenants and such recovery is reflected in rental income. General, administrative and other expenses increased$3.7 million , or 18.5%. The increase is due to certain project-related consulting costs, higher share-based compensation expense, and an increase in certain employee-related costs. The Company incurred$10.0 million of merger and acquisition costs related to our merger with RPAI. These costs primarily consist of fairness opinion, legal, professional, and data migration costs. We anticipate the total merger related costs to be approximately$105 million . Depreciation and amortization expense decreased$6.2 million , or 6.4%, due to the following: Net change 2020 to 2021
Buildings under redevelopment or acquired in 2020 and / or 2021
2,127 Properties fully operational during 2020 and 2021 and other (8,332) Total$ (6,205) The net decrease of$8.3 million in depreciation and amortization at properties fully operational during 2020 and 2021 is primarily due to accelerated depreciation and amortization for certain former tenants that occurred in 2020. Interest expense decreased$0.7 million or 1.9%. The decrease is primarily due to interest costs incurred in the second quarter of 2020 associated with a precautionary$300 million draw on the Credit Facility that was paid back during the remainder of 2020 partially offset by interest costs associated with the Exchangeable Notes issued inMarch 2021 .
Net Operating Income and Building Operating Income
We use property net operating income ("NOI"), a non-GAAP financial measure, to
evaluate the performance of our properties. We define 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,
including merger and acquisition costs. We believe 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.
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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 income in excess of lost rent, amortization of lease intangibles and
significant prior period expense recoveries and adjustments, if any. When the
Company receives payments in excess of any accounts receivable for terminating a
lease, Same Property NOI will include such excess payments as monthly rent until
the earlier of the following: the expiration of 12 months or the start date of a
replacement tenant. 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 quarters presented. The
Company believes such presentation eliminates disparities in net income due to
the acquisition or disposition of properties during the particular periods
presented and thus provides a more consistent metric for the comparison of our
properties. Same Property NOI includes the results of properties that have been
owned for the entire current and prior year reporting periods.
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 a) begins recapturing space from
tenants or b) the contemplated plan significantly impacts the operations of the
property. For the quarter ended September 30, 2021 , the Company excluded three
redevelopment properties from the same property pool that met these criteria and
were owned in both comparable periods. In addition, the Company excluded one
recently acquired property from the same property pool.
The following table reflects the net operating income of identical properties and a reconciliation to the net income attributable to common shareholders for the three and nine months ended.
Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2021 2020 % Change 2021 2020 % Change Number of properties for the period1 83 83 Leased percentage at period end 92.8 % 93.3 % 92.8 % 93.3 % Economic Occupancy percentage2 89.3 % 92.0 % 89.1 % 92.5 % Same Property NOI$ 49,426 $ 44,596 10.8%$ 143,606 $ 135,812 5.7% Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure: Net operating income - same properties$ 49,426 $ 44,596 $ 143,606 $ 135,812 Net operating income - non-same activity3 2,738 675 8,072 5,172 Other income (expense), net 258 (139) 883 (227) General, administrative and other (8,241) (6,482) (23,676) (19,986) Merger and acquisition costs (9,198) - (9,958) - Depreciation and amortization expense (30,193) (33,953) (90,625) (96,830) Interest expense (12,878) (12,550) (37,386) (38,115) Gain on sales of properties 1,260 3,226 27,517 4,893 Net (income) loss attributable to noncontrolling interests (132) 40 (1,058) (148) Net (loss) income attributable to common shareholders$ (6,960) $ (4,587) $ 17,375 $ (9,429) 36
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1 Same NOI property excludes (i) The Corner,
recently acquired
Calculated as a weighted average based on when the cash rent started and expired during the period
period.
3 Includes non-cash activity in the portfolio as well as net operating income from buildings not included
in the same real estate pool comprising the properties sold during the two periods.
Our Same Property NOI increased 10.8% for the three months endedSeptember 30, 2021 , compared to the same period of the prior year. This increase was primarily due to improved collection activity resulting in a significant reduction in bad debt expense in 2021 compared to 2020, which was more heavily impacted by the COVID-19 pandemic.
Liquidity and capital resources
Overview
As discussed above, the COVID-19 pandemic has had, and could continue to have, an adverse impact on our liquidity and capital resources. Future decreases in cash flow from operations resulting from tenant defaults, rent deferrals or decreases in our rents or occupancy, would decrease the cash available for the capital uses described below, including payment of dividends. There has been instability in the global or domestic financial markets, and we could face difficulty in accessing debt and equity capital on attractive terms, or at all. In addition, a significant decline in our operating performance in the future, including as a result of tenant delinquencies, could result in us not satisfying the financial covenants applicable to our debt, which could result in us not being able to incur additional debt, including the remaining capacity on our revolving credit facility, or result in a default. We have taken various steps to enhance our liquidity since the pandemic began, including the issuance of$175 million of Exchangeable Notes in the first quarter of 2021 to proactively fund our 2022 debt maturities. In addition, we have closed on the sale of 17 ground leases during the nine months endedSeptember 30, 2021 for gross proceeds of$42 million . As ofSeptember 30, 2021 , we have approximately$99.5 million in cash on hand,$4.3 million in restricted cash and escrow deposits,$416.1 million of remaining availability under our revolving credit facility (based on the unencumbered property pool allocated thereto),$125.0 million of short-term deposits, and no debt maturities until 2022. However, because we do not know the ultimate severity and length of the COVID-19 pandemic or the short-term or long-term impact it may have on consumer behavior, and thus cannot predict the impact it will have on our tenants and on the debt and equity capital markets, we cannot estimate the ultimate impact it will have on our liquidity and capital resources. Our Principal Capital Resources For a discussion of cash generated from operations, see "Cash Flows," beginning on page 40. In addition to cash generated from operations, we discuss below our other principal capital resources. We continue to focus on a balanced approach to growth, enhancing our liquidity positions, reducing our borrowing costs and staggering debt maturities in order to retain our financial flexibility. As ofSeptember 30, 2021 , we had approximately$416.1 million available under our unsecured revolving credit facility for future borrowings based on the unencumbered property pool allocated to the unsecured revolving credit facility. We also had$224.5 million in cash, cash equivalents, and short-term deposits as ofSeptember 30, 2021 .
We were in compliance with all applicable financial covenants under our unsecured revolving credit facility, unsecured term loans and senior unsecured notes in Canada.
We have on file with theSEC a shelf registration statement on Form S-3 relating to the offer and sale, from time to time, of an indeterminate amount of equity and debt securities. Equity securities may be offered and sold by the Parent Company, and the net proceeds of any such offerings would be contributed to theOperating Partnership in exchange for additional General Partner Units. Debt securities may be offered and sold by theOperating Partnership with theOperating Partnership receiving the proceeds. From time to time, we may issue securities under this shelf registration statement for general corporate purposes, which may include acquisitions of additional properties, the repayment of outstanding indebtedness, capital 37 --------------------------------------------------------------------------------
expenses, expansion, redevelopment and / or improvement of properties in our portfolio, working capital and other general purposes.
OnFebruary 23, 2021 , the Company and theOperating Partnership entered into an Equity Distribution Agreement (the "Equity Distribution Agreement") with each ofBofA Securities, Inc. ,Citigroup Global Markets Inc. ,KeyBanc Capital Markets Inc. andRaymond James & Associates, Inc. , pursuant to which the Company may sell, from time to time, up to an aggregate sales price of$150 million of its common shares of beneficial interest,$0.01 par value per share under an at-the-market offering program (the "ATM Program"). As ofSeptember 30, 2021 , the Company had not sold any common shares under the ATM Program.The Operating Partnership intends to use the net proceeds, if any, to repay borrowings under its unsecured revolving credit facility, to repay other indebtedness and for working capital and other general corporate purposes.The Operating Partnership may also use net proceeds for acquisitions of operating properties and the development or redevelopment of properties, although there are currently no understandings, commitments or agreements to do so. In the future, we will continue to monitor the capital markets and may consider raising additional capital through the issuance of our common shares, preferred shares or other securities. We may also raise capital by disposing of properties, land parcels or other assets that are no longer core components of our growth strategy. The sale price may differ from our carrying value at the time of sale. We derive the majority of our revenue from tenants who lease space from us at our properties. Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our tenants. While we believe that the nature of the properties in which we typically invest-primarily neighborhood and community shopping centers-provides a relatively stable revenue flow, an economic downturn has and could continue to adversely affect the ability of some of our tenants to meet their lease obligations.
Our main liquidity needs
Short-term liquidity needs
Near-Term Debt Maturities. As ofSeptember 30, 2021 , we had$108.1 million of secured debt scheduled to mature prior toSeptember 30, 2022 , excluding scheduled monthly principal payments and no debt maturing for the rest of 2021. We believe we have sufficient liquidity to repay this obligation from cash on hand. Other Short-Term Liquidity Needs. The requirements for qualifying as a REIT and for a tax deduction for some or all of the dividends paid to shareholders necessitate that we distribute at least 90% of our taxable income on an annual basis. Such requirements cause us to have substantial liquidity needs over both the short term and the long term. Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our operating properties, interest expense and scheduled principal payments on our debt, expected dividend payments to our common shareholders and to Common Unit holders, and recurring capital expenditures. InAugust 2021 , ourBoard of Trustees declared a cash distribution of$0.18 per common share and Common Unit for the third quarter of 2021. This distribution was paid onOctober 8, 2021 to common shareholders and Common Unit holders of record as ofOctober 1, 2021 . Future distributions, if any, are at the discretion of theBoard of Trustees , which will continue to evaluate our sources and uses of capital, liquidity position, operating fundamentals, maintenance of our REIT qualification and other factors ourBoard of Trustees may deem relevant. Other short-term liquidity needs include expenditures for tenant improvements, external leasing commissions and recurring capital expenditures. During the nine months endedSeptember 30, 2021 , we incurred$0.8 million of costs for recurring capital expenditures on operating properties,$5.3 million of costs for tenant improvements and external leasing commissions, and$5.9 million to re-lease anchor space at our operating properties related to tenants open and operating as ofSeptember 30, 2021 (excluding development and redevelopment properties). We currently anticipate incurring approximately$18 million to$24 million of additional major tenant improvement costs related to executed leases for currently vacant space at a number of our operating properties over the next twelve months. As ofSeptember 30, 2021 , we had five development and redevelopment projects under construction. Our share of the total estimated costs of these projects is approximately$22.8 million , of which$8.4 million had been incurred as ofSeptember 30, 2021 . We anticipate incurring the majority of the remaining$14.4 million of costs over the next 24 months. We believe we have sufficient financing in place to fund these projects and expect to do so through cash flow from operations. 38
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Share buyback plan
InFebruary 2021 , the Company'sBoard of Trustees approved a share repurchase program, authorizing share repurchases up to an aggregate of$150 million (the "Share Repurchase Program"). The Share Repurchase Program will end inFebruary 2022 if not terminated earlier. As ofSeptember 30, 2021 , the Company has not repurchased any shares under its Share Repurchase Program. The Company intends to fund any future repurchases under the Share Purchase Program with cash on hand or availability under its unsecured credit facility subject to any applicable restrictions under the Company's unsecured credit facility. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements and other factors.
Long-term liquidity needs
Our long-term liquidity needs consist primarily of funds necessary to pay for any new development projects, redevelopment of existing properties, non-recurring capital expenditures, acquisitions of properties, and payment of indebtedness at maturity. Potential Redevelopment Opportunities. In light of the COVID-19 pandemic, we are currently evaluating, and are likely to limit for the foreseeable future, the amount of capital that would be utilized for the redevelopment of other operating properties. Selective Acquisitions,Developments and Joint Ventures . We may selectively pursue the acquisition and development of other properties, which would require additional capital. It is unlikely that we would have sufficient funds on hand to meet these long-term capital requirements. We would have to satisfy these needs through additional borrowings, sales of common or preferred shares, issuance ofOperating Partnership units, cash generated through property dispositions or future property acquisitions and/or participation in joint venture arrangements. We cannot be certain that we would have access to these sources of capital on satisfactory terms, if at all, to fund our long-term liquidity requirements. We evaluate all future opportunities against pre-established criteria including, but not limited to, location, demographics, expected return, tenant credit quality, tenant relationships, and amount of existing retail space. Our ability to access the capital markets will be dependent on a number of factors, including general capital market conditions. Potential Debt Repurchase. We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase our senior unsecured notes maturing at various dates throughSeptember 2027 in open market transactions, privately negotiated transactions, by tender offer or otherwise, as market conditions warrant.
Capital expenditure on
The following table summarizes cash capital expenditures for our development and redevelopment properties and other capital expenditures for the nine months endedSeptember 30, 2021 : Nine Months EndedSeptember 30 , ($ in thousands) 2021 Active developments and redevelopment $
13,440
Redevelopment opportunities 10 Recently completed projects and other
12,439
Anchor retenanting
5 933
Recurring operating capital expenditures (primarily tenant improvement payments) 5,113 Total $ 36,935 We capitalize certain indirect costs such as interest, payroll, and other general and administrative costs related to these development activities. If we were to experience a 10% reduction in development and redevelopment activities, without a corresponding decrease in indirect project costs, we would have recorded additional expense of less than$0.1 million for the three months endedSeptember 30, 2021 . 39
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Debt maturities
The following table shows the maturities of mortgage debt and corporate debt at
Scheduled
Principal
($ in thousands) Payments Term Maturity Total
2021 $ 583 $ - $ 583
2022 1,043 153,500 154,543
2023 806 256,517 257,323
2024 854 - 854
2025 904 330,000 330,904
Thereafter 4,673 550,100 554,773
$ 8,863 $ 1,290,117 $ 1,298,980
Unamortized net debt premiums and issuance costs, net (9,986)
Total $ 1,288,994
Failure to comply with our obligations under our indebtedness agreements
(including our payment obligations) could cause an event of default under such
debt, which, among other things, could result in the loss of title to assets
securing such debt, the acceleration of principal and interest payments or the
termination of the debt facilities, or exposure to the risk of foreclosure. In
addition, certain of our variable rate loans contain cross-default provisions
which provide that a violation by us of any financial covenant set forth in our
unsecured revolving credit facility agreement will constitute an event of
default under the loans, which could allow the lenders to accelerate the amounts
due under our indebtedness agreements if we fail to satisfy these financial
covenants. See "Item 1.A Risk Factors - Risks Related to Our Operations" in Kite
Realty Group Trust's Annual Report on Form 10-K for the year ended December 31,
2020 for more information related to the risks associated with our indebtedness.
In conjunction with the Merger, the holders of $250 million of Senior Unsecured
Notes have the ability to put their interests back to the Company at par. Such
offer must be made to the holders of the Private Placement Notes within 10
business days following the consummation of the Merger. None of the holders have
currently elected this option. If this were to occur, the Company would
initially fund the redemption utilizing a draw on its unsecured revolving credit
facility.
Impact of credit rating changes on our liquidity
We have obtained investment grade corporate credit ratings from two nationally recognized credit rating agencies. These dimensions remain unchanged at
After
In the future, the ratings could change based upon, among other things, the impact that prevailing economic conditions may have on our results of operations and financial condition, including as a result of the impact of the COVID-19 pandemic. Credit rating reductions by one or more rating agencies could also adversely affect our access to funding sources, the cost and other terms of obtaining funding, as well as our overall financial condition, operating results and cash flow. Cash Flows As ofSeptember 30, 2021 , we had cash, cash equivalents, and restricted cash on hand of$103.8 million . We may be subject to concentrations of credit risk with regard to our cash and cash equivalents. We place our cash and short-term cash investments with highly rated financial institutions. While we attempt to limit our exposure at any point in time, occasionally, such cash and investments may temporarily be in excess ofFDIC andSIPC insurance limits. 40 --------------------------------------------------------------------------------
Comparison of the completed nine months
Cash provided by operating activities was$103.8 million for the nine months endedSeptember 30, 2021 and$85.8 million for the nine months endedSeptember 30, 2020 . The cash flows were positively impacted due to improved collection activity including previously deferred rent from the COVID-19 pandemic. Cash used in investing activities was$109.1 million for the nine months endedSeptember 30, 2021 , and$15.9 million in the same period of 2020. Highlights of significant cash sources and uses in investing activities are as follows: •Net proceeds of$47.7 million related to the sale of seventeen ground leases in 2021 and other land parcels, compared to net proceeds over the same period in 2020 of$5.5 million related to the sales of land;
• Increase in capital expenditure by
• An investment in a short-term interest-bearing deposit
using the product of the
The cash flows generated by financing activities were
•In 2021, we issued$175.0 million of exchangeable senior notes in a private placement offering to proactively fund our 2022 debt maturities. In connection with this issuance we incurred transaction costs of$6.0 million and purchased capped calls for$9.8 million ; •InMarch 2020 , we borrowed$300.0 million , net, on the Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the uncertainty in the global markets resulting from the COVID-19 pandemic. ThroughSeptember 30, 2020 , we had repaid$250.0 million of these borrowings;
• In 2021, we repaid the debt of
•We made distributions to common shareholders and Common Unit holders of$44.2 million for the nine months endedSeptember 30, 2021 compared to distributions of$32.6 million for the nine months endedSeptember 30, 2020 .
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. We calculate 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 in entities when the impairment is directly attributable to
decreases in the value of depreciable real estate held by the entity.
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 excludes the gain on the sale of the ground lease portfolios
as these sales were part of our capital strategy distinct from our ongoing
operating strategy of selling individual land parcels, from time to time. 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.
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From time to time, the Company may report or provide guidance with respect to
"NAREIT FFO as adjusted" which removes the impact of certain non-recurring and
non-operating transactions or other items the Company does not consider to be
representative of its core operating results including without limitation, gains
or losses associated with the early extinguishment of debt, gains or losses
associated with litigation involving the Company that is not in the normal
course of business, merger and acquisition costs, the impact on earnings from
employee severance, the excess of redemption value over carrying value of
preferred stock redemption, and the impact of 2020 bad debt or 2020 accounts
receivable ("2020 Collection Impact") which are not otherwise adjusted in the
Company's calculation of FFO.
Our calculations of FFO1 and reconciliation to consolidated net income and FFO,
as adjusted, for the three and nine months ended September 30, 2021 and 2020
(unaudited) are as follows:
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