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Text: Actual results may differ materially from these statements.
For more information about the factors that can adversely affect Company's results, please see our SEC filings, including our most recent 10-K.
Today's remarks also include certain non-GAAP financial measures.
They worked tirelessly to ensure the successful combination of these 2 high-quality and complementary real estate platforms.
For those of you that were with us before the transaction, please know that if it wasn't for all of the remarkable things that we've accomplished together over the past several years, none of this would have been possible.
I've enjoyed getting to know many of you over the past several months and I have consistently been impressed with your positive attitude and exceptional professionalism.
We're so excited to have you join us as we embark on this new era of excellence.
This merger has been transformative for all of us yet our model remains unchanged.
We are one team with one focus.
As we began to come out of the depths of the pandemic, we talked about how KRG was positioned to seize upon any opportunities that may present themselves.
It was that very same posture that made the merger with RPAI possible resulting in one of the largest open-air owners in the country.
Yet despite the unprecedented stress and dislocation caused by COVID and despite the immense undertaking of completing the merger that impacted every single person at KRG, we were still able to produce a phenomenal quarter of results.
It all goes back to our 3 Ps, Properties, Processes and People and we absolutely excel on all 3 fronts.
The quality of our results also speaks volumes about the health of the retail environment.
The long-term viability of open-air retail real estate and the durability of our cash flows.
Our property serve not only as a last-minute last mile fulfillment hub for retailers but as an access point for consumers and communities.
The demand for our great real estate is evident, not only in traffic which is up versus 2019, but also in the accelerated leasing volumes and resulting spreads.
We signed approximately 5,000 square feet in the third quarter including 7 anchor leases, 3 lease for grocers.
In the past 2 quarters, we leased over 1.2 million square feet which are unprecedented levels for our legacy portfolio.
Blended lease spreads were 20.7% and 13.4% on a GAAP and cash basis respectively.
Our lease rate continues to rebound.
It is now at 92.8% for the portfolio.
This 130 basis point increase from last quarter is another indication of the continuing recovery in our operation and -- operational and financial performance.
The outsize leasing volume continues to widen our total retail portfolio leased to occupied spread to 400 basis points with current sign not-open NOI of approximately $14 million.
Together with the legacy RPAI portfolio, we have signed not-open NOI of approximately $33 million.
Said another way, our stock is significantly undervalued.
One of the drivers behind the widening lease to occupied spread is the success, we are experiencing in our Anchor Acceleration program.
We signed another 5 anchor leases this quarter for a cumulative total of 12 anchor leases since the program's inception.
These 12 leases are expected to generate average cash yields of over 26% with comparable spreads of 14% on a cash basis.
While the program as far from over, I'm very pleased with the progress we've made.
Let's turn to a topic I'm sure you're all focused on.
The merger of RPAI and KRG is a great strategic match that lines up perfectly with many of the macro trends we're seeing impacting our industry.
First, as is with everything in KRG, it's about the real estate.
As you can see from our operating results, our top quality assets are benefiting from being in high-growth, warmer and cheaper markets.
These low tax and business-friendly geographies continue to benefit from the highest population growth and corporate relocations.
This merger more than doubled the GLA and ABR that KRG owns in those markets.
We now have nearly 60% of our ABR in warmer and cheaper markets, 40% of which belongs in Texas and Florida alone.
An added benefit of the merger is that establishing a significant presence in select strategic gateway markets.
The combined portfolio now has 26% of value in superzip [Phonetic] neighborhoods, the second highest percentage in the sector.
Additionally, our portfolio of mix of predominantly grocery-anchored neighborhood and community centers are now complemented by a vibrant mixed use assets, thereby providing greater optionality to help serve both retailers and consumers.
Many of these mixed-use and lifestyle assets have experiential components that were disproportionately impacted by COVID and now are seeing a significant resurgence in demand, while customers reembrace the live, work and play environment.
A final benefit, I'd like to point out is that KRG is now a top 5 open-air shopping center REIT.
The increased scale provide numerous operational and capital market benefits.
On the operational side, we'll be better able to serve retailers by having a balanced variety of additional high-quality assets.
We also believe the combined operations platform will lead to increased NOI margins across the portfolio.
On the capital market side, KRG will become a serial issuer of public bonds that will lower our debt cost and improve our risk profile.
Likewise, the larger equity market cap will make our stock more liquid and expand the universe of potential equity investors.
In addition to the accretion from the merger, synergies will create a significant economic impact from the merger and Heath will address those momentarily.
That being said, we are just as excited about the value of our new entitled land.
Our development philosophy has never been nor will it ever be a mandate.
We evaluate each project based on the needs of the underlying real estate, the timing of the development cycle and the resulting risk-adjusted returns.
Given this mantra, there are times where we may decide it's better to wait or take on a partner to pursue alternatives.
One example is The Corner.
We entered into a 50-50 joint venture to develop 285 apartment units and 24,000 square feet of ground floor retail.
In doing so KRG sold the land to the venture, will earn development fees and is expected to contribute no additional capital.
We will use this discipline to examine all of our real estate included -- including the newly acquired entitled land and determine the best course of action for each opportunity to maximize shareholder value.
No matter what of course of action -- course of action we will take, we will always keep in mind our best-in-class balance sheet.
As part of our due diligence, we had a third party value each of the entitled land parcels.
We believe the approximate value of this entitled land as is with no additional spend is between $125 and $180 million.
That represents a tremendous opportunity for KRG to showcase our capital allocation part.
Regarding the integration of the merger, we are making excellent progress.
We were able to hit the ground running on day 1 due to our pre-close planning.
We not only determine what the combined team would look like, but each business unit had multiple meetings and established both how to integrate the team, their systems and how to operate going forward.
No integration of 2 companies is flawless but we are very pleased where we are to date.
This is a testament to our people.
We are a premier open-air shopping center REIT and I'm proud of the progress our team has made.
KRG remains committed to its primary focus of continuing to grow operating cash flows.
The completed merger paired with a strong quarter of operational results is another step in the right direction.
I can't emphasize enough how excited I am about the processes, properties and especially the people of KRG.
I want to echo John's gratitude for all the hard work that's gone into completing the transaction and the ongoing integration activities.
We are confident that when the dust settles, KRG will have a best-in-class platform across every single business unit.
We are looking forward to doing great things together.
To say this transaction has been full circle for me is an understatement, suffice to say that life works in mysterious ways.
Turning to KRG's stand-alone third quarter results, we generated $0.25 of NAREIT FFO and $0.33 of FFO as adjusted.
As a reminder, we were reporting 2021 FFO on an as adjusted basis so as to reduce the noise associated with 2020 receivables, 2020 bad debt and the cost associated with the merger.
As set forth on page 19 of our supplemental, the net 2022 collection impact in the third quarter was minimal with the collection of $2.4 million of prior bad debt, offset by $300,000 of accounts receivable we now deemed uncollectible.
Our same property NOI growth for the third quarter is 10.8% primarily driven by a reduction in bad debt as compared to the prior year period.
This includes the benefit of approximately $2.1 million of previously written-off bad debt that we collected in the third quarter.
Excluding those amounts, our same-store NOI growth would be 6%.
It is also important to note that when evaluating our same-store results for 2021, keep in mind that KRG consistently achieved the highest levels of rent collections in 2020, thereby trading more challenging comparable period.
With respect to outstanding accounts receivable items as of last Friday, the balance on our outstanding deferred rent stands at $1.7 million as compared to $6.1 million as of December 31, 2020.
Our small business loan program has been extremely successful and not a single borrower under the program is delinquent or has defaulted.
Our balance sheet and liquidity profile not only remain solid but continue to improve.
Our net debt to EBITDA was 6.1 times, down from 6.4 times last quarter.
Pro forma for the merger, third quarter net debt to EBITDA is 6 times along with roughly $1 billion of liquidity, adding in $33 million of signed not-open NOI for the combined portfolio, our net debt to EBITDA would be 6 times.
We are in a great position to not only weather any storm, but to also take advantage of any opportunities that present themselves.
We are also proud to announce our inaugural credit rating from Fitch Ratings of triple B with a stable outlook.
We believe, along with our investment grade ratings from Moody's and S&P, the KRG is well positioned to establish itself as a serial public bond issuer.
I know many of you are anxious to understand the full earnings accretion associated with the merger and we are equally anxious to share with you the details behind our growing enthusiasm.
However, in light of the fact that we just closed the merger last week and that we are in the middle of our budget season prudence dictates that we wait until we give our combined fourth quarter results and 2022 guidance early next year.
What I can share is that with each day our conviction regarding the merger grows exponentially.
In the meantime, to help with your modeling, we can provide some additional detail regarding synergy savings.
As a reminder, we estimated stabilized cash synergies of $27 million to $29 million and stabilized GAAP synergies of $34 million to $36 million.
As of today, we are still comfortable with that range.
In fact, as of the closing approximately $21 million of annualized GAAP savings have already been achieved.
It is important to note that we anticipate realizing on the additional annualized $13 million to $15 million of GAAP synergies over the next 12 to 18 months.
We will provide updated detail with respect to the timing of the remaining synergies when we report our combined fourth quarter results and 2022 guidance.
Finally, due to the timing of the closing of the merger and the challenge in -- challenge of determining correct guidance for a partial quarter we are suspending our 2021 guidance.
We are confident based on performance to date that KRG's stand-alone 2021 results are on track to outperform our last published guidance.
I will further share that based on our initial review of the preliminary operating results for RPAI in the third quarter, it would be safe to assume that they were also on track to outperform the last published guidance.
We look forward to reporting combined fourth quarter results and issuing 2022 guidance in February.

user
q3 ffo per share $0.25.
due to timing of merger, which closed in q4, krg is withdrawing 2021 guidance.
qtrly funds from operations, as adjusted, of operating partnership (ffo) $0.33 per share.

assistant