The healthy rent spreads, increasing occupancy and lease escalators have led to 4-5% same store NOI growth guidance for 2022. As we sit today, the overall portfolio is nearly 94% leased (up from 91-92% pre-pandemic) with small shop occupancy (small shops have the highest rent per square foot in shopping centers) occupancy now exceeding 89% (was mid 80s in 2017-2019). The strong leasing environment has shown up in increased occupancy numbers. Kite Leasing Trends (Investor Presentation) low 90s pre-COVID) and driving strong cash leasing spreads (shown below) which will positively impact NOI going forward. Higher tenant demand has driven increases in occupancy (all major shopping center operators are now mid 90s leased vs. The environment for retail leasing remains very strong - after several years where retailers closed more stores than they opened, 2021-22 has seen a reversal of this trend with a dramatic increase in openings. Importantly, this gives Kite an ability to increase overall occupancy (portfolio is 94% leased today, a multiyear high) and drive rents higher. Shopping centers are a collaborative ecosystem whereby tenants benefit from the success of other tenants who drive additional traffic to the center and create an uplift in sales for all tenants within the shopping center. In doing so, the company has not only earned attractive (8-12% incremental yields) returns on investment, but also increased the relevance of its shopping centers by bringing in more successful new tenants. Further, Kite has re-invested some of the proceeds from asset sales to re-develop many of its remaining properties. The culling of the bottom 30% of its portfolio, has left Kite with a portfolio of centers in high density areas serving more affluent customers with greater purchasing power - average household income within a 3 mile radius today stands at $117,000 which is up over 30% from 2015 as centers serving lower income communities have been divested. Portfolio Pruning (Investor Presentation) As shown below, in total, over 80 lower quality centers (30%) were divested and leverage was reduced significantly with Net Debt to EBITDA declining from 6.5x to just 5.4x today. Like shopping center peers Brixmor ( BRX) and SITE Centers ( SITC), both Retail Properties of America and Kite underwent significant portfolio pruning since 2015 whereby lower quality centers were divested with the proceeds being used to reduce debt. The company boasts a tenant roster which includes many proven winners in retail including TJX Companies, Kroger, Burlington, Publix and Ross among others. As shown below, 67% of Kite's annual rent comes from sunbelt markets which have faster population growth than the national average. Overviewįollowing its 2021 merger with Retail Properties of America, Kite owns 183 shopping centers which average 158k square feet, more than 70% of which are grocery anchored. The company has benefited from the pruning of its portfolio (discussed below) as well as a strong appetite amongst retailers to lease space in well located shopping centers.ĭespite the relatively strong share price performance, Kite shares remain inexpensive trading at an P/2023e FFO of 11x and an implied cap rate of 7.9%. Kite Realty ( NYSE: KRG) shares have performed well over the past year with a total return just over 9%, significantly better than the broader REIT index/ETF ( VNQ) which has had a -8% return.
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