Kite Realty Group Trust KRG recently announced the disposition of two unencumbered properties, generating $45 million in gross proceeds. Specifically, these assets include Four Corner Square, an 119,579-square foot shopping center in Maple Valley, WA; and Cornelius Gateway in Cornelius, OR, covering 21,326 square feet.
Proceeds from the sale were used to partially fund the redemption of the company’s 8.25% preferred shares on Dec 7. Additionally, the company utilized its 7-year term loan facility to repay a $90-million property-level debt encumbering its White Plains, NJ-based City Center property. The term loan facility was closed in Oct 2015.
Importantly, the company is expected to record a $5.4-million gain from early extinguishment of the above-mentioned debt. Further, the company’s funds from operations (“FFO”) per diluted share for 2015 is projected to increase by 6 cents. However, such accretion will be partly offset by an estimated non-cash charge of 4 cents driven by the above-mentioned redemption of company’s preferred shares.
Nonetheless, adjusted FFO for 2015 is anticipated to remain unaffected from the recent disposal and debt activity. For 2015, management projects adjusted FFO within $1.98???$2.00. The Zacks Consensus Estimate of $2.00 falls in this range.
More importantly, the company has been redeploying proceeds from asset disposition in an accretive manner. In Aug 2015, the company had fully deployed proceeds from 15 previous asset disposals to fund its acquisition of Chapel Hill Shopping Center, a 200,000-square foot power center located in the MSA of Dallas, TX. In 2016, the company plans to opportunistically sell non-core assets worth approximately $100 million.
Apart from accretive acquisitions, we believe sale of assets in non-core markets will generate requisite funds to improve the company’s debt position, which in turn, will help Kite Realty Group further enhance its investment grade balance sheet.
As of Sep 30, 2015, this company held interest in a portfolio of 124 properties, covering 25 million square feet and spread across 22 states.
Kite Realty Group currently has a Zacks Rank #3 (Hold).
Investors interested in the retail real estate investment trust space can consider EPR Properties EPR, Regency Centers Corporation REG and Retail Properties of America, Inc. RPAI. All three stocks hold a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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