Bringing life and convenience together in one place™
2008 ANNUAL REPORT
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BRINGING LIFE AND
CONVENIENCE TOGETHER IN
ONE PLACE.
Financial Highlights
($ in millions, except per share amounts)
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Financial Data:
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Property Data:
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Dividend Data:
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2 0 0 8 A N N U A L R E P O R T
1
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(cid:73)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:79)(cid:82)(cid:83)(cid:14)(cid:244)(cid:48)(cid:76)(cid:69)(cid:65)(cid:83)(cid:69)(cid:244)(cid:82)(cid:69)(cid:70)(cid:69)(cid:82)(cid:244)(cid:84)(cid:79)(cid:244)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:7)(cid:83)(cid:244)(cid:36)(cid:73)(cid:83)(cid:67)(cid:85)(cid:83)(cid:83)(cid:73)(cid:79)(cid:78)(cid:244)(cid:6)(cid:244)(cid:33)(cid:78)(cid:65)(cid:76)(cid:89)(cid:83)(cid:73)(cid:83)(cid:244)(cid:79)(cid:70)(cid:244)(cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:244)(cid:35)(cid:79)(cid:78)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:244)(cid:65)(cid:78)(cid:68)(cid:244)(cid:50)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:83)(cid:244)(cid:79)(cid:70)(cid:244)(cid:47)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:244)(cid:73)(cid:78)(cid:244)(cid:84)(cid:72)(cid:69)(cid:244)(cid:65)(cid:67)(cid:67)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:73)(cid:78)(cid:71)(cid:244)
(cid:38)(cid:79)(cid:82)(cid:77)(cid:244)(cid:17)(cid:16)(cid:13)(cid:43)(cid:244)(cid:70)(cid:79)(cid:82)(cid:244)(cid:65)(cid:244)(cid:68)(cid:69)(cid:107)(cid:78)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:244)(cid:79)(cid:70)(cid:244)(cid:38)(cid:38)(cid:47)(cid:12)(cid:244)(cid:65)(cid:78)(cid:68)(cid:244)(cid:84)(cid:79)(cid:244)(cid:80)(cid:65)(cid:71)(cid:69)(cid:244)(cid:22)(cid:21)(cid:13)(cid:22)(cid:22)(cid:244)(cid:70)(cid:79)(cid:82)(cid:244)(cid:65)(cid:244)(cid:82)(cid:69)(cid:67)(cid:79)(cid:78)(cid:67)(cid:73)(cid:76)(cid:73)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:244)(cid:79)(cid:70)(cid:244)(cid:78)(cid:69)(cid:84)(cid:244)(cid:73)(cid:78)(cid:67)(cid:79)(cid:77)(cid:69)(cid:244)(cid:84)(cid:79)(cid:244)(cid:38)(cid:38)(cid:47)(cid:14)
On the Cover
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5
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6
3
7
4
8
1. Shops at Eagle Creek
Naples, Florida
2. Traders Point
Indianapolis, Indiana
3. Glendale Town Center
Indianapolis, Indiana
4. Traders Point
Indianapolis, Indiana
5. Courthouse Shadows
Naples, Florida
6. Naperville Marketplace
Naperville, Illinois
7. Fresh Market
Indianapolis, Indiana
8. Eastgate Pavilion
Cincinnati, Ohio
2
Dear Fellow Shareholders:
2008 was a challenging year.
We encountered a recession
brought about by a national
credit crisis and followed by re-
cord unemployment. Neither our
core operations nor our stock
price were immune to these
events. While total revenue in-
creased three percent year over
year, funds from operations de-
creased four percent — a com-
mon theme among our peers.
However, we accomplished
several key initiatives in the
property sales and capital mar-
kets. It is important to remember
that our predecessor company
was founded in 1960 and suc-
cessfully navigated through
numerous economic cycles. Kite
and its current senior manage-
ment also survived the real es-
tate downturn in the late 1980s
and early 1990s while operating
a private real estate company.
In 2008, we put to use those
The Company ended the year
with approximately $90 million
of combined cash and available
credit — a 44% increase over
2007. We closed a $55 million
unsecured term loan in the sec-
ond quarter with an interest rate
of LIBOR plus 265 basis points.
In addition, we raised nearly
$48 million of equity with a 4.75
million share common stock
offering in October at a price of
$10.55 per share.
We also completed two
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fourth quarter. Spring Mill Medi-
cal I & II, in Indianapolis, Indiana,
was comprised of a previously
completed commercial redevel-
opment and a merchant build
opportunity that our develop-
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(cid:87)(cid:72)(cid:68)(cid:80)(cid:86)(cid:3)(cid:87)(cid:82)(cid:82)(cid:78)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:86)(cid:87)(cid:68)(cid:85)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:222)(cid:81)(cid:76)(cid:86)(cid:75)(cid:3)
in just over 12 months. Silver
Glen Crossing, a retail shop-
ping center unencumbered
by debt, is located outside of
John A. Kite, Chairman and CEO
valuable lessons learned 20
years ago by tailoring them to
today’s economic climate.
The Balance Sheet
We understand that those
with strong balance sheets will
survive. We took opportunistic
steps to ensure that our balance
sheet was strong even in this
capital-constrained environment.
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2 0 0 8 A N N U A L R E P O R T
3
2008 was a challenging year. At a time when
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increased our liquidity and improved our
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of the most challenging years positioned for
future success.
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(cid:54)(cid:56)(cid:49)(cid:47)(cid:36)(cid:49)(cid:39)(cid:3)(cid:55)(cid:50)(cid:58)(cid:49)(cid:40)(cid:3)(cid:38)(cid:40)(cid:49)(cid:55)(cid:53)(cid:40)(cid:3)(cid:115)(cid:3)(cid:40)(cid:47)(cid:3)(cid:51)(cid:36)(cid:54)(cid:50)(cid:15)(cid:3)(cid:55)(cid:59)
CO M IN G
SO O N
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Lenders are returning to more prudent
underwriting standards that emphasize
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the borrower. We are comfortable with
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that we will continue to be a successful
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this point forward.
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(cid:43)(cid:36)(cid:48)(cid:44)(cid:47)(cid:55)(cid:50)(cid:49)(cid:3)(cid:38)(cid:53)(cid:50)(cid:54)(cid:54)(cid:44)(cid:49)(cid:42)(cid:3)(cid:38)(cid:40)(cid:49)(cid:55)(cid:53)(cid:40)(cid:3)(cid:115)(cid:3)(cid:44)(cid:49)(cid:39)(cid:44)(cid:36)(cid:49)(cid:36)(cid:51)(cid:50)(cid:47)(cid:44)(cid:54)(cid:15)(cid:3)(cid:44)(cid:49)
Chicago, Illinois and is anchored
by a regional grocer. These
two sales created proceeds of
approximately $24 million for the
Company, and we accomplished
both dispositions at favorable
cap rates and while investment
sales volume around the country
was nearly nonexistent.
Combined, these transactions
generated approximately $127
million of capital availability at a
time when these options were
not readily available to everyone
in our industry.
Debt Maturities
(cid:44)(cid:81)(cid:3)(cid:79)(cid:68)(cid:87)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:222)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:3)
(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:222)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)
reducing our near term debt
maturities. While we understand
there is still work to do, it is
important to note the magnitude
of our successes on this front.
The Company currently has
approximately $108 million of
property debt maturing through
December 31, 2009, which is
down from $230 million as late
as September 30, 2008. We
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nine properties totaling $122
million amidst the worst na-
tional credit crisis in decades.
We have a cautiously optimistic
outlook for the remaining 2009
maturities, each of which are rel-
atively small in size — eight loans
comprising approximately $108
million. Only two 2009 maturi-
ties represent securitized loans,
and we have only $48 million
of securitized debt maturing by
the end of 2011. This means the
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and extension negotiations will
be done through lender relation-
ships that we have cultivated
deal by deal over the last 20
years, not with loan servicers.
2 0 0 8 A N N U A L R E P O R T
5
Today, property-level debt is
being underwritten the way it
was 10 years ago. Lenders are
reverting to core underwriting
principles that emphasize pre-
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of the borrower. Ultimately, these
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our industry. Commercial real
estate is a capital intensive
business, but that does not
necessarily mean capital should
be as easily accessible as it
was from 2003 to 2007. We are
comfortable with these revised
(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:222)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)
will continue to be a successful
(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:222)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)
markets from this point forward.
The Dividend
After extensive analysis and
dialogue, our Board of Trustees
decided that a 26% reduction
(cid:37)(cid:36)(cid:60)(cid:51)(cid:50)(cid:53)(cid:55)(cid:3)(cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49)(cid:54)(cid:3)(cid:115)(cid:3)(cid:55)(cid:36)(cid:48)(cid:51)(cid:36)(cid:15)(cid:3)(cid:41)(cid:47)
Grocery
Component
Centers
(cid:271)(cid:271)(cid:17)(cid:271)(cid:8)(cid:3)
6
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During the year 2008, we reduced
the size of our Current Development
Pipeline by nearly 40% to $91
million. These three projects were
70% leased at year end and we
closed a $29 million construction
loan on Eddy Street Commons at
Notre Dame in the fourth quarter.
(cid:54)(cid:43)(cid:50)(cid:51)(cid:54)(cid:3)(cid:36)(cid:55)(cid:3)(cid:40)(cid:36)(cid:42)(cid:47)(cid:40)(cid:3)(cid:38)(cid:53)(cid:40)(cid:40)(cid:46)(cid:3)(cid:115)(cid:3)(cid:49)(cid:36)(cid:51)(cid:47)(cid:40)(cid:54)(cid:15)(cid:3)(cid:41)(cid:47)
in our dividend to an annual rate
of $.61 per share was a pru-
dent course of action. The list
of considerations was extensive
and the decision was not made
easily. We understand that the
dividend is an important com-
ponent of investing in REITs.
However, during this economic
environment, the dividend
reduction is an important com-
ponent of our overall capital
preservation strategy. In the long
run, we believe it will prove to
be the right course of action.
Development
(cid:58)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:222)(cid:70)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
size of our Current Develop-
ment Pipeline during 2008 by
transitioning seven projects
into the Operating Portfolio. As
another major part of our capital
preservation plan, we limited
our construction starts during
the year and concluded 2008
with only three projects under
construction totaling $91 million
– Cobblestone Plaza in Pem-
broke Pines, Florida; South Elgin
Commons near Chicago, Illinois;
and Eddy Street Commons at
the University of Notre Dame
in South Bend, Indiana. More
than half of the projected cost
has already been expended but,
more importantly, we have third
(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:222)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)
place to fund the remaining cost
to complete each project. Each
of these developments is fully
entitled and only Eddy Street
(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:86)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:222)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:74)(cid:82)-
ing construction activity. Collec-
tively, these projects were 70%
leased at the end of 2008.
2 0 0 8 A N N U A L R E P O R T
7
The most notable addition to
the Current Development Pipe-
line for the year was Eddy Street
Commons at the University
of Notre Dame. We delayed
(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:222)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:82)(cid:88)(cid:87)(cid:79)(cid:68)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)
project until we achieved spe-
(cid:70)(cid:76)(cid:222)(cid:70)(cid:3)(cid:80)(cid:76)(cid:79)(cid:72)(cid:86)(cid:87)(cid:82)(cid:81)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:80)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)-
tion. First, the land was fully
entitled. Second, tax increment
(cid:222)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)
incentives were secured. Third,
(cid:87)(cid:75)(cid:72)(cid:3)(cid:222)(cid:81)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
University was completed. Late
in the fourth quarter of 2008,
we closed a $29 million con-
struction loan that will fund the
balance of our construction
(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:222)(cid:85)(cid:86)(cid:87)(cid:3)(cid:83)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)
development. We believe this
loan closing was a clear signal
of strength for the development,
its sponsorship, and the strong
tenant demand.
(cid:42)(cid:47)(cid:40)(cid:49)(cid:39)(cid:36)(cid:47)(cid:40)(cid:3)(cid:55)(cid:50)(cid:58)(cid:49)(cid:3)(cid:38)(cid:40)(cid:49)(cid:55)(cid:40)(cid:53)(cid:3)(cid:115)(cid:3)(cid:44)(cid:49)(cid:39)(cid:44)(cid:36)(cid:49)(cid:36)(cid:51)(cid:50)(cid:47)(cid:44)(cid:54)(cid:15)(cid:3)(cid:44)(cid:49)
(cid:40)(cid:39)(cid:39)(cid:60)(cid:3)(cid:54)(cid:55)(cid:53)(cid:40)(cid:40)(cid:55)(cid:3)(cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49)(cid:54)(cid:3)(cid:115)(cid:3)(cid:54)(cid:50)(cid:56)(cid:55)(cid:43)(cid:3)(cid:37)(cid:40)(cid:49)(cid:39)(cid:15)(cid:3)(cid:44)(cid:49)
8
We also have a pipeline of
projects on which we have
not yet begun construction.
However, our leasing team has
already executed a number
of anchor and junior anchor
leases and has received strong
interest from grocers and big
box retailers for the remaining
anchor positions. Despite these
early successes, our approach
to these opportunities is simple:
we will not begin vertical con-
struction until pre-leasing levels
meet our increased standards
and we have secured third party
(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:222)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)
projects will play an important
role in our future growth, but we
(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:86)(cid:83)(cid:72)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:222)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:86)(cid:3)
(cid:88)(cid:81)(cid:87)(cid:76)(cid:79)(cid:3)(cid:222)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)
and retailers exhibit a greater
appetite for expansion.
estate relative to our tenants’
other market options. Retailer
concepts naturally come and go
as consumer tastes and desires
(cid:223)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
real estate remains constant.
There is a micro environment
within every submarket. For
example, southwest Florida
has been reported in most
news outlets as a place of
economic downturn, yet sales
at our three Publix Supermarket
locations in Naples, Florida,
actually increased from 2007
to 2008. All six of our operating
properties in this market ended
the year at a combined 96%
leased. Generalizations about
our industry are often inaccurate
and headlines do not tell a
(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:85)(cid:92)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:77)(cid:82)(cid:69)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:222)(cid:81)(cid:71)(cid:3)
markets and submarkets that
will outperform the headlines
and generalizations and, most
Leasing
In a year when we are unlikely to
(cid:86)(cid:83)(cid:72)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:222)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:87)(cid:68)(cid:85)(cid:87)(cid:3)
new developments or engage in
any material acquisition activ-
ity, leasing our existing portfolio
will remain a top priority. There
are two important fundamen-
tals working in our favor during
this weak economy. First, less
(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:222)(cid:89)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)
in our portfolio expire in 2009.
Second, there are still active
tenants seeking to improve
their market positions. In 2008,
we were successful in signing
leases with Bed Bath & Beyond
and Sprouts Farmers Market to
(cid:222)(cid:79)(cid:79)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:89)(cid:68)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:77)(cid:88)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)
boxes. We also signed eight
anchor leases at projects in our
development pipelines includ-
ing Publix, Frank Theaters, and
LA Fitness. We believe this
(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:222)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)
(cid:49)(cid:36)(cid:51)(cid:40)(cid:53)(cid:57)(cid:44)(cid:47)(cid:47)(cid:40)(cid:3)(cid:48)(cid:36)(cid:53)(cid:46)(cid:40)(cid:55)(cid:51)(cid:47)(cid:36)(cid:38)(cid:40)(cid:3)(cid:115)(cid:3)(cid:49)(cid:36)(cid:51)(cid:40)(cid:53)(cid:57)(cid:44)(cid:47)(cid:47)(cid:40)(cid:15)(cid:3)(cid:44)(cid:47)
2 0 0 8 A N N U A L R E P O R T
2 0 0 8 A N N U A L R E P O R T
9
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(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:222)(cid:89)(cid:72)(cid:3)
percent of the square footage in our
portfolio expires in 2009. Accordingly,
a large percentage of renewal
negotiations are naturally deferred to
a healthier environment.
(cid:42)(cid:47)(cid:40)(cid:49)(cid:39)(cid:36)(cid:47)(cid:40)(cid:3)(cid:55)(cid:50)(cid:58)(cid:49)(cid:3)(cid:38)(cid:40)(cid:49)(cid:55)(cid:40)(cid:53)(cid:3)(cid:115)(cid:3)(cid:44)(cid:49)(cid:39)(cid:44)(cid:36)(cid:49)(cid:36)(cid:51)(cid:50)(cid:47)(cid:44)(cid:54)(cid:15)(cid:3)(cid:44)(cid:49)
(cid:40)(cid:54)(cid:55)(cid:40)(cid:53)(cid:50)(cid:3)(cid:55)(cid:50)(cid:58)(cid:49)(cid:3)(cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49)(cid:54)(cid:3)(cid:115)(cid:3)(cid:49)(cid:36)(cid:51)(cid:47)(cid:40)(cid:54)(cid:15)(cid:3)(cid:41)(cid:47)
10
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First, we must preserve the
Company’s capital. Second, we
must lease and manage our portfolio
(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:71)(cid:76)(cid:73)(cid:222)(cid:70)(cid:88)(cid:79)(cid:87)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)
Third, we must stay ready for the
opportunities that lie ahead.
(cid:40)(cid:36)(cid:54)(cid:55)(cid:42)(cid:36)(cid:55)(cid:40)(cid:3)(cid:51)(cid:36)(cid:57)(cid:44)(cid:47)(cid:44)(cid:50)(cid:49)(cid:3)(cid:115)(cid:3)(cid:38)(cid:44)(cid:49)(cid:38)(cid:44)(cid:49)(cid:49)(cid:36)(cid:55)(cid:44)(cid:15)(cid:3)(cid:50)(cid:43)
(cid:55)(cid:36)(cid:53)(cid:51)(cid:50)(cid:49)(cid:3)(cid:54)(cid:51)(cid:53)(cid:44)(cid:49)(cid:42)(cid:54)(cid:3)(cid:51)(cid:47)(cid:36)(cid:61)(cid:36)(cid:3)(cid:115)(cid:3)(cid:49)(cid:36)(cid:51)(cid:47)(cid:40)(cid:54)(cid:15)(cid:3)(cid:41)(cid:47)
2 0 0 8 A N N U A L R E P O R T 11
through the downswing of an
economic cycle.
In 2008 we welcomed Gene
Zink to our Board of Trustees.
As current CEO of Strategic
Capital Partners, LLC, and
former CFO, Executive Vice
President and Vice Chairman
of Duke Realty, Gene is a great
addition to our leadership team.
I would like to thank all members
of our Board for their contin-
ued support. They represent a
constant source of valued ideas,
guidance and strategy. The
Company and its shareholders
are fortunate to have them as
advisors.
Once again, our employees
showed they have the commit-
ment and dedication to move
the Company forward amidst
these challenging times. I am
fortunate to work with such a
talented group of people.
importantly, own the best real
estate in those markets. Today,
every landlord has more vacancy
(cid:87)(cid:82)(cid:3)(cid:222)(cid:79)(cid:79)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:92)(cid:72)(cid:86)(cid:87)(cid:72)(cid:85)(cid:71)(cid:68)(cid:92)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)
junior boxes that have been
left vacant by tenants such
as Circuit City and Linens ‘N
Things due to bankruptcy or
liquidation. We believe that we
have been successful over the
last several years in acquiring
and constructing shopping
centers on the right real estate
in the right markets. Therefore,
(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:222)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:3)
of our real estate and our ability
to lease our portfolio.
Looking Forward
There are three jobs we must
do well throughout 2009 and
beyond in order to best serve
the long-term interests of the
Company and our shareholders.
First, we must preserve the
Company’s capital. As we move
through uncertain times, we will
continue to be conservative with
our resources. This approach
helped us end 2008 with
approximately $90 million of
liquidity, which will serve us well
as we negotiate our remaining
obligations throughout 2009.
Second, we must lease
and manage our portfolio
more effectively than does our
competition. Tenant attraction
and retention is more critical
than ever this year, and in order
to execute in this area we are
adding key personnel to our
leasing team.
Third, we must remain ready
for and knowledgeable about
the opportunities that lie ahead.
Tomorrow’s opportunities will
shape the way our Company
looks the next time we move
(cid:38)(cid:50)(cid:56)(cid:53)(cid:55)(cid:43)(cid:50)(cid:56)(cid:54)(cid:40)(cid:3)(cid:54)(cid:43)(cid:36)(cid:39)(cid:50)(cid:58)(cid:54)(cid:3)(cid:115)(cid:3)(cid:49)(cid:36)(cid:51)(cid:47)(cid:40)(cid:54)(cid:15)(cid:3)(cid:41)(cid:47)
12
Retirement
Alvin E. Kite, Jr., founder and former Chairman of
the Board of Trustees, announced his retirement as
Chairman of the Board on December 4, 2008.
Mr. Kite served as Chairman of the Board since the
Company’s initial public offering in 2004. He was
instrumental in the growth of a company that began as
an interior construction company in 1960 and today is
a full-service real estate company with over $1 billion
of assets. Mr. Kite will continue to counsel the Board
as Chairman Emeritus.
Mr. Kite is a recognized leader in the Indianapolis
business community, and has been active in numerous
Indianapolis-based charitable organizations.
The Kite team would like to take this opportunity
to thank Mr. Kite for his leadership, dedication and
friendship over the past 40+ years and wish him much
happiness during his retirement years.
“Having had the opportunity to work with and learn
from Al has been a tremendous experience. Our
management team and entire organization are
indebted to Al for passing on his values, principles and
passion that guide our organization.”
John A. Kite
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I would also like to thank our
shareholders for their patience
throughout this recession. I,
along with members of senior
management including Tom
McGowan, Dan Sink, and our
founder, Al Kite, stand shoulder
to shoulder with you through
(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:71)(cid:76)(cid:73)(cid:222)(cid:70)(cid:88)(cid:79)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)
owns 20% of the Company,
much of it purchased since our
initial public offering in 2004.
We weathered a tough year, and
the decisive action we took has
made our organization stronger.
2009 is likely to be even more
challenging, so we will continue
to focus on capital preserva-
tion, aggressive leasing, and a
healthy balance sheet. I remain
optimistic about the long-term
future of the economy and our
industry and look forward to
creating value for us all.
Sincerely,
John A. Kite
Chairman and
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March 20, 2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:95) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(cid:134) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008
For the transition period from ___________to___________
Commission File Number: 001-32268
Kite Realty Group Trust
(Exact name of registrant as specified in its charter)
State of Organization:
Maryland
IRS Employer Identification Number:
11-3715772
30 S. Meridian Street, Suite 1100
Indianapolis, Indiana 46204
Telephone: (317) 577-5600
(Address, including zip code and telephone number, including area code, of principal executive offices)
Title of each class
Common Shares, $0.01 par value
Name of each Exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes (cid:134)(cid:3)No (cid:95)(cid:3)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes (cid:134)(cid:3)No (cid:95)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (cid:95)(cid:3)No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant’s knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:134)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:134) Accelerated filer (cid:95)
(cid:3)
Non-accelerated filer
(do not check if a smaller reporting company)
(cid:134)
Smaller reporting company (cid:134)
(cid:3)
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes (cid:134)(cid:3)No (cid:95)
The aggregate market value of the voting shares held by non-affiliates of the Registrant as the last business day of the Registrant’s most recently
completed second quarter was $345.6 million based upon the closing price of $12.50 per share on the New York Stock Exchange on such date.
The number of Common Shares outstanding as of March 6, 2009 was 34,187,241 ($.01 par value).
Portions of the Proxy Statement relating to the Registrant’s Annual Meeting of Shareholders, scheduled to be held on May 5, 2009, to be filed with
the Securities and Exchange Commission, are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.
Documents Incorporated by Reference
KITE REALTY GROUP TRUST
Annual Report on Form 10-K
For the Fiscal Year Ended
December 31, 2008
TABLE OF CONTENTS
Page
Item No.
Part I
1.
Business.............................................................................................................................................................
1
9
1A. Risk Factors .......................................................................................................................................................
1B. Unresolved Staff Comments.............................................................................................................................. 22
Properties........................................................................................................................................................... 23
2.
Legal Proceedings.............................................................................................................................................. 36
3.
Submission of Matters to a Vote of Security Holders ....................................................................................... 36
4.
Part II
5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities ........................................................................................................................................................... 36
6.
Selected Financial Data ..................................................................................................................................... 39
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................ 40
7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................................ 66
Financial Statements and Supplementary Data.................................................................................................. 66
8.
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................ 67
9A. Controls and Procedures .................................................................................................................................... 67
9B. Other Information .............................................................................................................................................. 69
Part III
10. Directors, Executive Officers and Corporate Governance................................................................................. 69
11. Executive Compensation ................................................................................................................................... 69
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .......... 69
13. Certain Relationships and Related Transactions, and Director Independence .................................................. 69
14. Principal Accountant Fees and Services ............................................................................................................ 69
Part IV
15. Exhibits, Financial Statement Schedule............................................................................................................. 70
Signatures ........................................................................................................................................................................... 71
PART I
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information publicly disseminated by Kite
Realty Group Trust (the “Company”), 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 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:
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national and local economic, business, real estate and other market conditions, particularly in light of the current
recession and governmental action and policies;
financing risks, including accessing capital on acceptable terms;
the level and volatility of interest rates;
the financial stability of tenants, including their ability to pay rent;
the competitive environment in which the Company operates;
acquisition, disposition, development and joint venture risks;
property ownership and management risks;
the Company’s ability to maintain its status as a real estate investment trust (“REIT”) for federal income tax
purposes;
potential environmental and other liabilities;
other factors affecting the real estate industry generally; and
other risks identified in this Annual Report on Form 10-K and, from time to time, in other reports we file with the
Securities and Exchange Commission (the “SEC”) or in other documents that we publicly disseminate.
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.
ITEM 1. BUSINESS
Unless the context suggests otherwise, references to “we,” “us,” “our” or the “Company” refer to Kite Realty Group
Trust and our business and operations conducted through our directly or indirectly owned subsidiaries, including Kite
Realty Group, L.P., our operating partnership (the “Operating Partnership”). References to “Kite Property Group” or the
“Predecessor” mean our predecessor businesses.
Overview
We are a full-service, vertically integrated real estate company engaged in the ownership, operation, management,
leasing, acquisition, construction, expansion and development of neighborhood and community shopping centers and
certain commercial real estate properties in selected markets in the United States. We also provide real estate facility
management, construction, development and other advisory services to third parties.
We conduct all of our business through our Operating Partnership, of which we are the sole general partner. As of
December 31, 2008, we held an approximate 81% interest in our Operating Partnership. Limited partners owned the
remaining 19% of the interests in our Operating Partnership at December 31, 2008.
As of December 31, 2008, we owned interests in a portfolio of 52 retail operating properties totaling approximately
8.4 million square feet of gross leasable area (including approximately 3.4 million square feet of non-owned anchor space).
Our retail operating portfolio was 91.2% leased as of December 31, 2008 to a diversified retail tenant base, with no single
75retail tenant accounting for more than 3.6% of our total annualized base rent. See “Item 2. Properties” for a list of our top
25 tenants by annualized base rent.
As of December 31, 2008, we also had an interest in eight retail properties in our development and redevelopment
pipelines. Upon completion, our development and redevelopment properties are anticipated to have approximately 1.2
million square feet of gross leasable area (including approximately 0.3 million square feet of non-owned anchor space). In
addition to our current development and redevelopment pipelines, we have a “visible shadow” development pipeline which
includes land parcels that are undergoing pre-development activities and are in various stages of preparation for
construction to commence, including pre-leasing activity and negotiations for third party financings. As of December 31,
2008, this visible shadow pipeline consisted of six projects that are expected to contain approximately 2.9 million square
feet of total gross leasable area (including non-owned anchor space) upon completion.
We also own interests in three commercial operating properties totaling approximately 0.5 million square feet of net
rentable area and an associated parking garage, all located in Indiana. Occupancy of our commercial operating portfolio
was 96.5% as of December 31, 2008.
In addition, as of December 31, 2008, we owned interests in other land parcels comprising approximately 105 acres.
These land parcels are classified as “Land held for development” in the accompanying consolidated balance sheet and may
be used for future expansion of existing properties, development of new retail or commercial properties or sold to third
parties.
Our operating portfolio, current development and redevelopment pipelines and land parcels are located in the states of
Indiana, Florida, Texas, Illinois, New Jersey, Georgia, Washington, North Carolina, Ohio, and Oregon.
Current economic conditions are having a negative impact on consumer confidence and spending. This, in turn, is
causing the retail industry to be negatively impacted as retailers struggle to sell goods and services. As an owner and
developer of community and neighborhood shopping centers, our performance is directly linked to economic conditions in
the retail industry in those markets where our operating centers and development properties are located. See Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” within this Form 10-K for
further discussion of the current economic conditions and the impact on us.
Significant 2008 Activities
2008 Finance and Capital Raising Activities. As discussed in more detail below in “Business Objectives and
Strategies”, our primary business objectives are to generate increasing cash flow, achieve long-term growth and maximize
shareholder value primarily through the operation, development, redevelopment and acquisition of well-located community
and neighborhood shopping centers. However, as discussed in Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” current economic and financial market conditions have created a need for most
REITs, including us, to place a significant amount of emphasis on our financing and capital preservation strategy. As such,
our primary objective recently has been, and in the future will continue to be, the strengthening of our balance sheet,
managing our debt maturities and conserving cash. We ended 2008 with approximately $87 million of cash and borrowing
capacity. We will remain focused on 2009 and 2010 refinancing activity and will continue to aggressively manage our
operating portfolio.
During 2008, we successfully completed various finance and capital-raising activities. As a result of the actions listed
below, we reduced the amount outstanding under our unsecured revolving credit facility to $105 million (net of additional
borrowings) at December 31, 2008 from $153 million at December 31, 2007. The significant financing and capital raising
activities completed during 2008 included the following:
New Financings
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In December 2008, we placed variable rate debt, secured by our Glendale Town Center property, with an
interest rate of LIBOR + 2.75% and a maturity date of December 2011. This variable rate loan has a total
commitment of $24.0 million and at December 31, 2008, approximately $21.8 million was outstanding. The
proceeds from this loan were primarily used to repay the variable rate construction loans at three of our
properties, as discussed below;
2
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In December 2008, we closed on our Eddy Street Commons variable rate construction loan. This loan has a
total commitment of $29.5 million, an interest rate of LIBOR + 2.30% and a maturity date of December
2011. As of December 31, 2008, there were no amounts outstanding under this loan; and
In July 2008, we entered into a $30 million unsecured term loan agreement (the “Term Loan”) and in August
2008, amended the original agreement and increased the amount of our borrowings under the Term Loan to
$55 million. The Term Loan matures in July 2011 and bears interest at LIBOR + 2.65%. A significant
portion of the $55 million proceeds from the Term Loan were used to pay down borrowings under our
unsecured revolving credit facility.
Refinancings & Maturity Date Extensions
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In December 2008, we extended the maturity date of our variable rate loan at our Bayport Commons property
from December 2009 to December 2011. As of December 31, 2008, $20.5 million was outstanding under this
loan. As discussed in the last bullet below, we had previously extended the maturity date of this debt in early
2008;
In December 2008, we extended the maturity date from January 2009 to July 2009 on our $9.4 million
variable rate land loan at our Delray Marketplace property;
In October 2008, we extended the maturity dates from 2009 to 2010 on approximately $60.9 million of our
variable rate debt at four properties (Estero Town Center, Tarpon Springs Plaza, Rivers Edge Shopping
Center, and Bridgewater Marketplace);
In October 2008, we refinanced variable rate debt at our Gateway Shopping Center and extended the maturity
date from August 2009 to October 2011. At the time of the loan’s original maturity, approximately $19.2
million was outstanding. As refinanced, at December 31, 2008, approximately $20.1 million was outstanding
under the new loan, which has a $22.5 million total loan commitment. As discussed in the last bullet below,
we had previously extended the maturity date of this debt in early 2008;
In February 2008, we refinanced approximately $4.0 million of fixed rate debt at our Indiana State Motor
Pool commercial property, replacing the fixed rate with a variable rate at LIBOR + 1.35%. We also extended
the maturity date from March 2008 to February 2011; and
In January and February 2008, we refinanced or extended the maturity date of approximately $56.7 million
of variable rate debt at six of our consolidated properties (Fishers Station, Bayport Commons, Bridgewater
Marketplace, Gateway Shopping Center, Red Bank Commons, and South Elgin Commons) and extended the
maturity dates from 2008 to 2009. As discussed below, we repaid the outstanding indebtedness at Red Bank
Commons in December 2008.
Repayment of Outstanding Indebtedness
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In December 2008, we repaid the entire combined outstanding balance of $22.4 million on the variable rate
construction loans at three of our operating properties (Naperville Marketplace, Trader’s Point II and Red
Bank Commons) primarily using the proceeds from the debt placed on our Glendale Town Center property.
Equity Offering
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In October 2008, we completed an equity offering of 4,750,000 common shares at an offering price of $10.55
per share for net offering proceeds of approximately $47.8 million, all of which was used to repay
borrowings under our unsecured revolving credit facility.
2008 Development and Redevelopment Activities
During 2008, we completed the following development and redevelopment projects and transitioned them to our
operating portfolio:
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Bridgewater Marketplace, a 50,820 square foot neighborhood shopping center (including 24,800 square feet
of non-owned anchor space) located in a suburb of Indianapolis, Indiana, was transitioned into our operating
portfolio in the first quarter of 2008 and is anchored by a non-owned Walgreens;
Naperville Marketplace, a 169,600 square foot neighborhood shopping center (including 86,310 square feet
of non-owned anchor space) located in Chicago, Illinois, was transitioned into our operating portfolio in the
first quarter of 2008 and is anchored by T.J. Maxx and PetSmart, both of which are Company-owned;
3
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54th & College, a 20,100 square foot shopping center located in Indianapolis, Indiana, consists entirely of
non-owned space. We ground lease the land underlying the shopping center to Fresh Market. This property
was transitioned into our operating portfolio in the second quarter of 2008;
(cid:120) Glendale Town Center is a 685,827 square foot power center (including 282,500 square feet of non-owned
anchor space) located in Indianapolis, Indiana that we recently redeveloped. This center’s primary non-
owned anchor, a newly constructed 129,000 square foot Target, opened in July 2008. This center also
includes Macy’s, Lowe’s Home Improvement (non-owned), Staples, Kerasotes Theatre, Panera Bread,
Walgreens (non-owned), the Indianapolis-Marion County Public Library, a number of new small shops and
professional office spaces and one additional outlot. The redevelopment of this center was substantially
completed in the third quarter of 2008;
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Bayport Commons, a 268,556 square foot neighborhood shopping center (including 173,800 square feet of
non-owned anchor space, consisting of a non-owned Target) located in a suburb of Tampa, Florida, was
transitioned into our operating portfolio in the third quarter of 2008 and is anchored by PetSmart, Best Buy,
and Michaels;
(cid:120) Gateway Shopping Center, a 285,200 square foot neighborhood shopping center (including 184,251 square
feet of non-owned anchor space, including non-owned Kohls and Winco Foods) located in Seattle,
Washington, was transitioned into our operating portfolio in the third quarter of 2008 and is anchored by
PetSmart, Ross Dress for Less, and Rite Aid, all of which are Company-owned; and
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Sandifur Plaza, a 12,552 square foot shopping center located in Pasco, Washington which is comprised of
three small shop buildings and a non-owned Walgreens, was transitioned into our operating portfolio in the
fourth quarter of 2008.
Also during 2008, we added two projects to our development pipeline and reclassified four operating properties to our
redevelopment pipeline:
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Eddy Street Commons, Phase I, South Bend, Indiana.
In March 2008, we added this property to our
development pipeline. Once completed, we expect this phase of the development property to be an estimated
465,000 square feet of retail, office space, and multi-family components (including a 300,000 square foot
non-owned multi-family component). Our share of the current estimated cost of this project is approximately
$35 million;
South Elgin Commons, Phase I, Chicago, Illinois. In June 2008, we added this property to our development
pipeline as a merchant building asset. Once completed, this phase of the development will consist of a 45,000
square foot single tenant building. Our estimated cost of this project is approximately $9.2 million. Upon
completion, we will evaluate a potential sale of this asset;
Bolton Plaza, Jacksonville, Florida. In June 2008, we transferred this 172,938 square foot shopping center
from our operating portfolio to our redevelopment pipeline. Upon the expiration of the former anchor
tenant’s lease with us, it relocated to a supercenter in the same trade area. We are currently marketing this
space to several potential anchor tenants. Our estimated cost of this redevelopment is approximately $2.0
million;
Rivers Edge Shopping Center, Indianapolis, Indiana. In February 2008, we purchased this 110,875 square
foot neighborhood shopping center for approximately $18.3 million with the intent to redevelop it, and
transferred the property into our redevelopment pipeline shortly thereafter. To fund our purchase of the
property, we utilized approximately $2.7 million of proceeds we received from the November 2007 sale of
our 176th & Meridian property. The remaining purchase price was financed initially through a draw on our
unsecured revolving credit facility and subsequently financed with a variable rate borrowing. The current
anchor tenant’s lease at this property will expire in March 2010 and we are currently marketing the space to
several potential anchor tenants for the center in the event the current anchor tenant does not renew its lease.
Our estimated cost of this redevelopment is approximately $2.5 million;
Courthouse Shadows, Naples, Florida. In September 2008, we transferred this 134,867 square foot
neighborhood shopping center from our operating portfolio to our redevelopment pipeline. We intend to
modify the existing façade, pylon signage, and upgrade the landscaping and lighting. Publix recently
purchased the lease of the former anchor tenant, performed certain improvements and intends to occupy the
space in the first half of 2009. In addition to the existing center, we may construct an additional building to
support approximately 6,000 square feet of small shop space. We currently anticipate our total investment in
the redevelopment at Courthouse Shadows will be approximately $2.5 million; and
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Four Corner Square, Seattle, Washington. In September 2008, we transferred this 29,177 square foot
neighborhood shopping center from our operating portfolio to our redevelopment pipeline. In addition to the
existing center, we also own approximately ten acres of land that is in our visible shadow pipeline that is
adjacent to the center that may be used as part of the redevelopment. Our estimated cost of this
redevelopment is approximately $0.5 million.
2008 Property Dispositions
During 2008, we sold the following properties:
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Spring Mill Medical, Phase I. In December 2008, our 50% owned unconsolidated joint venture sold Spring
Mill Medical, Phase I, a commercial operating property located in Indianapolis, Indiana. This property was
sold for approximately $17.5 million, resulting in a gain on sale of approximately $3.5 million, our share of
which was approximately $1.2 million, net of the write-off of our excess investment. Net proceeds of
approximately $14.4 million from the sale of this property were utilized to defease the related mortgage loan.
Our share of the remaining proceeds were primarily used to pay down borrowings under our unsecured
revolving credit facility;
Spring Mill Medical, Phase II. Also in December 2008, our 50% owned consolidated joint venture sold
Spring Mill Medical, Phase II, a build-to-suit commercial asset located in Indianapolis, Indiana that was
owned in our taxable REIT subsidiary. The proceeds of this sale were approximately $10.6 million, and the
associated construction costs were approximately $9.4 million, including a $0.9 million payment to our joint
venture partner to acquire their partnership interest prior to the sale to a third party. Our share of net proceeds
of approximately $1.2 million from this sale were primarily used to pay down borrowings under our
unsecured revolving credit facility; and
Silver Glen Crossing. In December 2008, we sold our Silver Glen Crossing property located in a suburb of
Chicago, Illinois for net proceeds of approximately $17.2 million and a recognized loss on sale, net of
Limited Partners’ interests, of $2.1 million. The majority of the net proceeds from the sale of this property
were used to pay down borrowings under our unsecured revolving credit facility.
2008 Property Acquisitions
In addition to the purchase of our Rivers Edge Shopping Center, as discussed above, we also made the following
property acquisitions:
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In July 2008, we purchased approximately 123 acres of development land in Holly Springs, North Carolina
for $21.6 million, which was financed with borrowings from our unsecured revolving credit facility. In
addition, on October 1, 2008, we purchased an additional 18 acres of land adjacent to this location for
approximately $5.0 million, which was also financed with borrowings from our unsecured revolving credit
facility. These land parcels may be used for future development purposes; and
In April 2008, one of our consolidated joint ventures, in which we own an 85% interest, purchased
approximately four acres of land in Indianapolis, Indiana, commonly known as Pan Am Plaza. We funded the
joint venture’s purchase with borrowings from our unsecured revolving credit facility. This land is situated
across the street from the Indiana Convention Center and adjacent to the recently constructed Indianapolis
Colts football stadium. The joint venture intends to develop restaurants and retail space on this property.
2008 Cash Distributions
In 2008, we declared four quarterly cash distributions of $0.205 per common share, or $0.82 per common share on an
annual basis.
Business Objectives and Strategies
Our primary business objectives are to generate increasing cash flow, achieve sustainable long-term growth and
maximize shareholder value primarily through the operation, development and acquisition of well-located community and
neighborhood shopping centers. We seek to implement our business objectives by focusing on the following strategies,
each of which are described in more detail below:
5
(cid:120) Operating Strategy: Maximizing the internal growth in revenue from our operating properties by leasing and
re-leasing those properties to a diverse group of tenants at increasing rental rates, when possible, and
redeveloping certain properties to make them more attractive to existing and prospective tenants or to permit
additional or more productive uses of the properties;
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Investment Strategy: Using debt and equity capital prudently to redevelop or renovate our existing properties
and to selectively acquire and develop additional shopping centers on land parcels that we currently own
where we project that investment returns would meet or exceed expectations; and
Finance and Capital Strategy: Financing our capital requirements with borrowings under our existing credit
facility and newly issued secured debt, internally generated funds and proceeds from selling properties that
no longer fit our strategy, and by accessing the public securities markets when market conditions permit.
Operating Strategy. Our primary operating strategy is to maximize rents and maintain occupancy levels by attracting
and retaining a strong and diverse tenant base. Most of our properties are in neighborhood trade areas with attractive
demographics, which has allowed us to maintain occupancy rates and, in some cases, increase rental rates. We seek to
implement our operating strategy by, among other things:
(cid:120) maintaining an efficient property management and leasing strategy by emphasizing and maximizing rent
growth and cost-effective facilities;
(cid:120) maintaining a diverse tenant mix in an effort to limit our exposure to the financial condition of any one
tenant;
(cid:120) maintaining strong tenant and retailer relationships in order to avoid rent interruptions and reduce
marketing, leasing and tenant improvement costs that result from re-tenanting space;
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increasing rental rates upon the renewal of expiring leases or re-leasing of space to new tenants while
minimizing vacancy to the extent possible;
evaluating redevelopment and renovation opportunities that we believe will make our properties more
attractive for leasing or re-leasing to tenants; and
taking advantage of under-utilized land or existing square footage, or reconfiguring properties for better use.
We implemented our operating strategy in 2008 in a number of ways, including maintaining a diverse tenant mix with
no tenant accounting for more than 3.6% of our annualized base rent. See Item 2 “Properties” for a list of our top 25 tenants
by gross leasable area and annualized base rent.
As another example of our implementation of our operating strategy, in the third quarter of 2008, we successfully
transitioned our Glendale Town Center property from our redevelopment portfolio to our operating portfolio, as the
redevelopment work was substantially completed. As of December 31, 2008, this property was approximately 92% leased.
Also, throughout 2008, we transferred four additional properties (Rivers Edge, Courthouse Shadows, Four Corner Square,
and Bolton Plaza) into our redevelopment pipeline, as these properties are undergoing major redevelopment in an attempt to
better meet our current and future tenants’ needs.
Investment Strategy. While we currently focus on conserving capital, our investment strategy also includes the
selective deployment of resources to projects that are expected to generate investment returns that meet or exceed our
expectations. We seek to implement our investment strategy in a number of ways, including:
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successfully completing the construction and lease-up of our development portfolio;
(cid:120) maximizing the occupancy of our existing operating portfolio;
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redeveloping, renovating, expanding and/or reconfiguring our existing operating properties;
disposing of certain assets that no longer meet our long-term investment criteria and recycling the capital;
and
continuing to selectively pursue the purchase of retail properties or portfolios and/or land parcels in markets
with attractive demographics that we believe can support retail development and therefore attract strong
retail tenants.
In evaluating potential development, redevelopment, acquisition and disposition opportunities, we consider a number
of factors, including:
6
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the expected returns on investments relative to our combined cost of capital in making such investment, as
well as the anticipated risks in achieving the expected return;
the configuration of the property, including ease of access, abundance of parking, maximum visibility, and
the demographics of the surrounding area;
the current tenant mix at the property or the potential future tenant mix that the demographics of the property
could support, including the presence of one or more additional anchors, for example, value retailers, grocers,
soft goods stores, office supply stores, sporting goods retailers, as well as an overall diverse tenant mix that
includes restaurants, shoe and clothing retailers, specialty shops and service retailers such as banks, dry
cleaners and hair salons, some of which provide staple goods to the community and offer a high level of
convenience;
the level of success of our existing investments, if any, in the same or nearby markets;
the current and projected cash flow and market value of the property, and the potential to increase cash flow
and market value if the property were to be successfully redeveloped; and
the price being offered for the property, the current and projected operating performance of the property, the
tax consequences of the sale and other factors.
We implemented our investing strategy in 2008 in a number of ways, including our recycling of capital during 2008 as
evidenced by the December 2008 sale of two operating properties, Silver Glen Crossing, a wholly-owned community
shopping center, and Spring Mill Medical, Phase I, an unconsolidated commercial property that was owned 50% through a
joint venture with a third party. In addition, our 50% owned consolidated joint venture sold Spring Mill Medical, Phase II, a
build-to-suit commercial asset located in Indianapolis, Indiana that was owned in our taxable REIT subsidiary. Utilizing the
net proceeds of these sales, we were able to generate net cash of approximately $23.6 million, which was primarily used to
pay down borrowings under our unsecured revolving credit facility.
In addition, in February 2008, we utilized the $2.7 million of net proceeds from the November 2007 sale of our 176th
& Meridian property to complete a like-kind transaction under Section 1031 of the Internal Revenue Code and purchased
Rivers Edge Shopping Center, a neighborhood shopping center located in Indianapolis, Indiana, for $18.3 million. The
remaining $15.6 million of the purchase price was financed initially through a draw on our unsecured credit facility and
subsequently with a variable rate loan.
Finance and Capital Strategy. Our primary finance and capital strategy is to maintain a strong balance sheet with
sufficient flexibility to fund our operating and investment activities in a cost-effective way. We consider a number of
factors when evaluating our level of indebtedness and when making decisions regarding additional borrowings, including
the purchase price of properties to be developed or acquired with debt financing, the estimated market value of our
properties and our Company as a whole upon consummation of the refinancing and the ability of particular properties to
generate cash flow to cover expected debt service. As discussed in more detail in Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” the current market conditions has created a need for most
REITs, including us, to place a significant emphasis on financing strategies and capital preservation. While these
conditions continue, including the turmoil in the credit markets, our continuing efforts to strengthen our balance sheet are
imperative to our business. We seek to implement our financing and capital strategies in a number of ways, including:
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prudently managing our balance sheet, including reducing the aggregate amount of indebtedness outstanding
under our unsecured credit facility so that we have additional capacity available to fund our development and
redevelopment projects and pay down maturing debt if refinancing that debt is not feasible;
extending or refinancing our borrowings maturing in 2009 and 2010;
(cid:120) managing our exposure to variable-rate debt through interest rate hedging transactions;
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entering into new project-specific construction loans, property loans, and other borrowings;
using joint venture arrangements to access less expensive capital and to mitigate risk; and
considering the raising of additional capital through the issuance of common shares, preferred shares or other
securities.
We implemented our financing and capital strategy in 2008 in a number of ways, including completing an equity
offering of 4,750,000 common shares at an offering price of $10.55 per common share for net offering proceeds of
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approximately $47.8 million, the majority of which were used to repay the borrowings under our unsecured revolving credit
facility. In addition, as discussed above in “2008 Significant Activities”, we have engaged in a number of financing and
refinancing activities in 2008. As a result of these activities, we were able to reduce the amount outstanding under our
unsecured revolving credit facility to $105 million, net of additional borrowings, at December 31, 2008 from $153 million
at December 31, 2007. In addition, we reduced our 2009 maturities to $87 million at December 31, 2008.
Business Segments
Our principal business is the development, construction, acquisition, ownership and operation of high-quality
neighborhood and community shopping centers in selected markets in the United States. We have aligned our operations
into two business segments: (1) real estate operation and development, and (2) construction and advisory services. See Note
15 “Segment Information” in our Notes to Consolidated Financial Statements, contained in this Form 10-K, for information
on our two business segments and the reconciliation of total segment revenues to total revenues, total segment operating
income to operating income, total segment net income to net income and total segment assets to total assets for the years
ended December 31, 2008, 2007 and 2006.
Competition
We believe that competition for the development, acquisition and operation of neighborhood and community shopping
centers is highly fragmented. We face competition from institutional investors, other REITs and owner-operators engaged
in the development, acquisition, ownership and leasing of shopping centers as well as from numerous local, regional and
national real estate developers and owners in each of our markets. We also face significant competition in leasing available
space to prospective tenants at our development and operating properties. Recent economic conditions have caused a
greater than normal amount of space to be available for lease generally and in the markets in which our properties are
located. The actual competition for tenants varies depending upon the characteristics of each local market (including
current economic conditions) in which we own and manage property. We believe that the principal competitive factors in
attracting tenants in our market areas are location, demographics, price, the presence of anchor stores, and maintenance
appearance of properties.
Government Regulation
Americans with Disabilities Act. Our properties must comply with Title III of the Americans with Disabilities Act, or
ADA, to the extent that such properties are public accommodations as defined by the ADA. The ADA may require removal
of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is
readily achievable. We believe our properties are in substantial compliance with the ADA and that we will not be required
to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA
could result in imposition of fines or an award of damages to private litigants. The obligation to make readily accessible
accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this
respect.
Environmental Regulations. Some properties in our portfolio contain, may have contained or are adjacent to or near
other properties that have contained or currently contain underground storage tanks for the storage of petroleum products or
other hazardous or toxic substances. These operations may have released, or have the potential to release, such substances
into the environment. In addition, some of our properties have tenants which may use hazardous or toxic substances in the
routine course of their businesses.
In general, these tenants have covenanted in their leases with us to use these substances, if any, in compliance with all
environmental laws and have agreed to indemnify us for any damages we may suffer as a result of their use of such
substances. However, these lease provisions may not fully protect us in the event that a tenant becomes insolvent. Finally,
one of our properties has contained asbestos-containing building materials, or ACBM, and another property may have
contained such materials based on the date of its construction. Environmental laws require that ACBM be properly
managed and maintained, and fines and penalties may be imposed on building owners or operators for failure to comply
with these requirements. The laws also may allow third parties to seek recovery from owners or operators for personal
injury associated with exposure to asbestos fibers. We are not currently aware of any environmental issues that may
materially affect the operation of any of our properties.
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Insurance
We carry comprehensive liability, fire, extended coverage, and rental loss insurance that covers all properties in our
portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of
loss, the cost of the coverage, and industry practice. We do not carry insurance for generally uninsurable losses such as loss
from riots, war or acts of God, and, in some cases, flooding. Some of our policies, such as those covering losses due to
terrorism and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits that
may not be sufficient to cover losses.
Offices
Our principal executive office is located at 30 S. Meridian Street, Suite 1100, Indianapolis, IN 46204. Our telephone
number is (317) 577-5600.
Employees
As of December 31, 2008, we had 107 full-time employees. Of these employees, 77 were “home office” executive and
administrative personnel and 30 were on-site construction and maintenance personnel.
Available Information
Our Internet website address is www.kiterealty.com. You can obtain on our website, free of charge, a copy of our
Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments
to those reports, as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish
them to, the SEC. Our Internet website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K.
Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Code of
Ethics for Principal Executive Officer and Senior Financial Officers, our Corporate Governance Guidelines, and the
charters for each of the committees of our Board of Trustees—the Audit Committee, the Corporate Governance and
Nominating Committee, and the Compensation Committee. Copies of our Code of Business Conduct and Ethics, our Code
of Ethics for Principal Executive Officer and Senior Financial Officers, our Corporate Governance Guidelines, and our
committee charters are also available from us in print and free of charge to any shareholder upon request. Any person
wishing to obtain such copies in print should contact our Investor Relations department by mail at our principal executive
office.
ITEM 1A. RISK FACTORS
The following factors, among others, could cause actual results to differ materially from those contained in forward-
looking statements made in this Annual Report on Form 10-K and presented elsewhere by our management from time to
time. These factors, among others, may have a material adverse effect on our business, financial condition, operating results
and cash flows, and you should carefully consider them. It is not possible to predict or identify all such factors. You should
not consider this list to be a complete statement of all potential risks or uncertainties. Past performance should not be
considered an indication of future performance.
We have separated the risks into three categories:
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risks related to our operations;
risks related to our organization and structure; and
risks related to tax matters.
RISKS RELATED TO OUR OPERATIONS
Current challenging conditions in the United States and global economy, the challenges being faced by our retail
tenants and non-owned anchor tenants and the decrease in demand for retail space may have a material adverse
affect on our financial condition and results of operations.
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We are susceptible to adverse economic developments in the United States. The United States is currently in a
recession and this challenging economic environment may continue into the future. There can be no assurance that
government responses to disruptions in the economy and in the financial markets will restore consumer confidence. General
economic factors that are beyond our control, including, but not limited to, the current recession, decreases in consumer
confidence, reductions in consumer credit availability, increasing consumer debt levels, rising energy costs, tax rates,
increasing business layoffs, downsizing and industry slowdowns, and/or rising inflation, could have a negative impact on
the business of our retail tenants. In turn, this could have a material adverse affect on our business because current or
prospective tenants may, among other things (i) have difficulty paying us rent as they struggle to sell goods and services to
consumers, (ii) be unwilling to enter into or renew leases with us on favorable terms or at all, (iii) seek to terminate their
existing leases with us or seek downward rental adjustment to such leases, or (iv) be forced to curtail operations or declare
bankruptcy. We are also susceptible to other developments that, while not directly tied to the economy, could have a
material adverse effect on our business. These developments include relocations of businesses, changing demographics,
increased Internet shopping, infrastructure quality, state budgetary constraints and priorities, increases in real estate and
other taxes, costs of complying with government regulations or increased regulation, decreasing valuations of real estate,
and other factors.
In addition, because our portfolio of properties consists primarily of community and neighborhood shopping centers, a
decrease in the demand for retail space, due to the economic factors discussed above or otherwise, may have a greater
adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. The market
for retail space has been, and could continue to be, adversely affected by weakness in the national, regional and local
economies, the adverse financial condition of some large retailing companies, the ongoing consolidation in the retail sector,
the excess amount of retail space in a number of markets, and increasing consumer purchases through catalogues or the
Internet. To the extent that any of these conditions occur, they are likely to negatively affect market rents for retail space
and could materially and adversely affect our financial condition, results of operations, cash flow, the trading price of our
common shares and our ability to satisfy our debt service obligations and to pay distributions to our shareholders.
Because of our geographical concentration in Indiana, Florida and Texas, a prolonged economic downturn in these
states could materially and adversely affect our financial condition and results of operations.
The United States economy is in a recession. Similarly, the specific markets in which we operate are currently facing
very challenging economic conditions that will likely continue into the future. In particular, as of December 31, 2008,
approximately 40% of our owned square footage and approximately 39% of our total annualized base rent is located in the
State of Indiana, approximately 21% of our owned square footage and approximately 22% of our total annualized base rent
is located in the State of Florida and approximately 21% of our owned square footage and approximately 19% of our total
annualized base rent is located in the State of Texas. This level of concentration exposes us to greater economic risks than
if we owned properties in numerous geographic regions. These states are currently dealing with state fiscal budget
shortfalls, rising unemployment rates, and home foreclosure rates that, in some cases, are above the national average.
Continued adverse economic or real estate developments in Indiana, Florida, Texas, or the surrounding regions, or any
continued decrease in demand for retail space resulting from the local regulatory environment, business climate or fiscal
problems in these states, could materially and adversely affect our financial condition, results of operations, cash flow, the
trading price of our common shares and our ability to satisfy our debt service obligations and to pay distributions to our
shareholders.
Recent disruptions in the financial markets could affect our ability to obtain financing for development of our
properties and other purposes on reasonable terms, or at all, and have other material adverse effects on our
business.
The United States financial and credit markets have recently experienced significant price volatility, dislocations and
liquidity disruptions, which have caused market prices of many financial instruments to fluctuate substantially and the
spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in
the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the
unavailability of financing.
Continued uncertainty in the stock and credit markets may negatively impact our ability to access additional
financing for development of our properties and other purposes at reasonable terms, or at all, which may materially
adversely affect our business. A prolonged downturn in the financial markets may cause us to seek alternative sources of
potentially less attractive financing, and may require us to adjust our business plan accordingly. If we are not successful in
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refinancing our outstanding debt when it becomes due, we may be forced to dispose of properties on disadvantageous
terms, which might adversely affect our ability to service other debt and to meet our other obligations. In addition, we may
be unable to obtain permanent financing on development projects we financed with construction loans or mezzanine debt.
Our inability to obtain such permanent financing on favorable terms, if at all, could delay the completion of our
development projects and/or cause us to incur additional capital costs in connection with completing such projects, either of
which could have a material adverse affect on our business and our ability to execute our business strategy. These events
also may make it more difficult or costly for us to raise capital through the issuance of our common stock or preferred
stock. The disruptions in the financial markets may have a material adverse effect on the market value of our common stock
and have other adverse effects on our business.
We had approximately $678 million of consolidated indebtedness outstanding as of December 31, 2008, which may
have a material adverse effect on our results of operations and reduce our ability to incur additional indebtedness to
fund our growth.
Required repayments of debt and related interest may materially adversely affect our operating performance. We had
approximately $678 million of consolidated outstanding indebtedness as of December 31, 2008. At December 31, 2008,
approximately $345 million of this debt bore interest at variable rates (approximately $147 million when reduced by our
$198 million of interest rate swaps for fixed interest rates). Interest rates are currently low relative to historical levels and
may increase significantly in the future. If our interest expense increased significantly, it could materially adversely affect
our results of operations.
We use a combination of interest rate protection agreements, including interest rate swaps and locks, to manage risk
associated with interest rate volatility. This may expose us to additional risks, including a risk that a counterparty to a
hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no
strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our
hedging activities will have the desired beneficial impact on our results of operations or financial condition.
We also intend to incur additional debt in connection with future developments and acquisitions of properties. Our
organizational documents do not limit the amount of indebtedness that we may incur. We may borrow new funds to
develop or acquire properties. In addition, we may incur or increase our mortgage debt by obtaining loans secured by some
or all of the real estate properties we develop or acquire. We also may borrow funds if necessary to satisfy the requirement
that we distribute to shareholders at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable
to ensure that we maintain our qualification as a REIT for federal income tax purposes or otherwise avoid paying taxes that
can be eliminated through distributions to our shareholders.
Our substantial debt could materially and adversely affect our business and results of operations by, among other
things:
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requiring us to use a substantial portion of our funds from operations to pay interest, which reduces the
amount available for distributions;
placing us at a competitive disadvantage compared to our competitors that have less debt;
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(cid:120) making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to
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changing business and economic conditions; and
limiting our ability to borrow more money for operating or capital needs or to finance acquisitions in the
future.
Agreements with lenders supporting our revolving credit facility, unsecured term loan and various other loan
agreements contain default provisions which, among other things, could result in the acceleration of principal and
interest payments or the termination of the facilities.
Our revolving credit facility, unsecured term loan and various other debt agreements contain certain Events of Default
which include, but are not limited to, failure to make principal or interest payments when due, failure to perform or observe
any term, covenant or condition contained in the agreements, failure to maintain certain financial and operating ratios and
other criteria, misrepresentations and bankruptcy proceedings. In the event of a default under any of these agreements, the
lender would have various rights including, but not limited to, the ability to require the acceleration of the payment of all
principal and interest due and/or to terminate the agreements, and foreclosure on the properties. The declaration of a
default and/or the acceleration of the amount due under any such Company credit agreement could have a material adverse
effect on the Company.
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Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment
in a property or group of properties subject to mortgage debt.
As of December 31, 2008, a significant amount of our indebtedness was secured by our real estate assets. If a property
or group of properties is mortgaged to secure payment of debt and we are unable to meet mortgage payments, the holder of
the mortgage or lender could foreclose on the property, resulting in loss of our investment. Also, certain of these mortgages
contain customary covenants which, among other things, limit our ability, without the prior consent of the lender, to further
mortgage the property, to enter into new leases or materially modify existing leases, and to discontinue insurance coverage.
Our performance and value are subject to risks associated with real estate assets and with the real estate industry.
Our ability to make expected distributions to our shareholders depends on our ability to generate substantial revenues
from our properties. In periods of economic slowdown or recession, such as the current period, rising interest rates or
declining demand for real estate, or the public perception that any of these events may occur, could result in a general
decline in rents or an increased incidence of defaults under existing leases. Such events would materially and adversely
affect our financial condition, results of operations, cash flow, per share trading price of our common shares and ability to
satisfy our debt service obligations and to make distributions to our shareholders.
In addition, other events and conditions generally applicable to owners and operators of real property that are beyond
our control may decrease cash available for distribution and the value of our properties. These events include:
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adverse changes in the national, regional and local economic climate, particularly in: Indiana, where
approximately 40% of our owned square footage and 39% of our total annualized base rent is located;
Florida, where approximately 21% of our owned square footage and 22% of our total annualized base rent is
located; and Texas, where approximately 21% of our owned square footage and 19% of our total annualized
base rent is located;
local oversupply, increased competition or reduction in demand for space;
inability to collect rent from tenants;
vacancies or our inability to rent space on favorable terms;
changes in market rental rates;
inability to finance property development, tenant improvements and acquisitions on favorable terms;
increased operating costs, including costs incurred for maintenance, insurance premiums, utilities and real
estate taxes;
the need to periodically fund the costs to repair, renovate and re-let space;
decreased attractiveness of our properties to tenants;
(cid:120) weather conditions that may increase or decrease energy costs and other weather-related expenses;
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costs of complying with changes in governmental regulations, including those governing usage, zoning, the
environment and taxes;
civil unrest, acts of terrorism, earthquakes, hurricanes and other national disasters or acts of God that may
result in underinsured or uninsured losses;
the relative illiquidity of real estate investments;
changing demographics; and
changing traffic patterns.
Failure by any major tenant with leases in multiple locations to make rental payments to us, because of a
deterioration of its financial condition or otherwise, could have a material adverse effect on our results of
operations.
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. Our
leases generally do not contain provisions designed to ensure the creditworthiness of our tenants. At any time, our tenants
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may experience a downturn in their business that may significantly weaken their financial condition, particularly during
periods of economic uncertainty such as what we are currently experiencing. As a result, our tenants may delay lease
commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close a number
of stores or declare bankruptcy. Any of these actions could result in the termination of the tenant’s leases and the loss of
rental income attributable to the terminated leases. In addition, lease terminations by a major tenant or non-owned anchor or
a failure by that major tenant or non-owned anchor to occupy the premises could result in lease terminations or reductions
in rent by other tenants in the same shopping centers under the terms of some leases. In that event, we may be unable to re-
lease the vacated space at attractive rents or at all. The occurrence of any of the situations described above, particularly if it
involves a substantial tenant or a non-owned anchor with ground leases in multiple locations, could have a material adverse
effect on our results of operations. As of December 31, 2008, the five largest tenants in our operating portfolio in terms of
annualized base rent were Lowe’s Home Improvement, Publix, PetSmart, the State of Indiana, and Marsh Supermarkets,
with annualized base rents for each representing 3.6%, 3.3%, 2.8%, 2.3%, and 2.3%, respectively, of our total annualized
base rent.
We face potential material adverse effects from increasing numbers of tenant bankruptcies and we may be unable to
collect balances due from any tenant bankruptcy.
Bankruptcy filings by our retail tenants occur from time to time. Such bankruptcies may increase in times of
economic uncertainty such as what we are currently experiencing. The number of bankruptcies among U.S. companies has
increased significantly in 2008 and current economic conditions suggest this trend could continue or worsen. Similar to
U.S. businesses as a whole, bankruptcies of tenants renting space at properties in our portfolio increased sharply in 2008.
We cannot make any assurance that any tenant that files for bankruptcy protection will continue to pay us rent. A
bankruptcy filing by or relating to one of our tenants or a lease guarantor would bar all efforts by us to collect pre-
bankruptcy debts from that tenant or the lease guarantor, or their property, unless we receive an order permitting us to do so
from the bankruptcy court. A tenant or lease guarantor bankruptcy could delay our efforts to collect past due balances under
the relevant leases, and could ultimately preclude collection of these sums. If a lease is assumed by the tenant in
bankruptcy, all pre-bankruptcy balances due under the lease must be paid to us in full. However, if a lease is rejected by a
tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold may be
paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured
claims, and there are restrictions under bankruptcy laws that limit the amount of the claim we can make if a lease is
rejected. As a result, it is likely that we will recover substantially less than the full value of any unsecured claims we hold
from a tenant in bankruptcy.
As an example of a recent bankruptcy by one of our significant tenants, in November 2008, Circuit City Stores, Inc.
filed a petition for bankruptcy protection under Chapter 11 of the federal bankruptcy laws and, in January 2009, declared
that it would be liquidating and closing all of its stores. As of December 31, 2008, Circuit City leased space at three of our
properties and represented a total of approximately 2.2% of our total operating portfolio annualized base rent and
approximately 1.7% of our total operating portfolio owned gross leasable area. At December 31, 2008, as a result of the
liquidation, we wrote off all depreciable fixed assets and uncollected accounts and straight-line rent receivables from
Circuit City, which reduced our net income by approximately $4.1 million on a quarter and year to date basis.
We are continually re-leasing vacant spaces resulting from tenant lease terminations. The bankruptcy of a tenant,
particularly an anchor tenant, may make it more difficult to lease the remainder of the affected properties. Future tenant
bankruptcies could materially adversely affect our properties or impact our ability to successfully execute our re-leasing
strategy.
Our financial covenants may restrict our operating and acquisition activities.
Our unsecured revolving credit facility and unsecured term loan contain certain financial and operating covenants,
including, among other things, certain coverage ratios, as well as limitations on our ability to incur debt, make dividend
payments, sell all or substantially all of our assets and engage in mergers and consolidations and certain acquisitions. These
covenants may restrict our ability to pursue certain business initiatives or certain acquisition transactions. In addition,
failure to meet any of the financial covenants could cause an event of default under and/or accelerate some or all of our
indebtedness, which could have a material adverse effect on us.
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Our current and future joint venture investments could be adversely affected by our lack of sole decision-making
authority, our reliance on joint venture partners’ financial condition, any disputes that may arise between us and
our joint venture partners and our exposure to potential losses from the actions of our joint venture partners.
As of December 31, 2008, we owned eight of our operating properties through joint ventures, one of which was
accounted for using the equity method as we do not exercise requisite control for consolidation treatment. For the twelve
months ended December 31, 2008, the eight properties represented approximately 9.9% of our annualized base rent. In
addition, one of the properties in our current development pipeline and two properties in our visible shadow pipeline are
currently owned through joint ventures, one of which was accounted for under the equity method as of December 31, 2008
as we do not exercise requisite control for consolidation treatment. We have also entered into an agreement with Prudential
Real Estate Investors to pursue joint venture opportunities for the development and selected acquisition of community
shopping centers in the United States. These joint ventures involve risks not present with respect to our wholly owned
properties, including the following:
(cid:120) we may share decision-making authority with our joint venture partners regarding major decisions affecting
the ownership or operation of the joint venture and the joint venture property, such as the sale of the property
or the making of additional capital contributions for the benefit of the property, which may prevent us from
taking actions that are opposed by our joint venture partners;
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prior consent of our joint venture partners may be required for a sale or transfer to a third party of our
interests in the joint venture, which restricts our ability to dispose of our interest in the joint venture;
our joint venture partners might become bankrupt or fail to fund their share of required capital contributions,
which may delay construction or development of a property or increase our financial commitment to the joint
venture;
our joint venture partners may have business interests or goals with respect to the property that conflict with
our business interests and goals, which could increase the likelihood of disputes regarding the ownership,
management or disposition of the property;
disputes may develop with our joint venture partners over decisions affecting the property or the joint
venture, which may result in litigation or arbitration that would increase our expenses and distract our
officers and/or trustees from focusing their time and effort on our business, and possibly disrupt the day-to-
day operations of the property such as by delaying the implementation of important decisions until the
conflict or dispute is resolved; and
(cid:120) we may suffer losses as a result of the actions of our joint venture partners with respect to our joint venture
investments and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even
though we may not control the joint venture.
In the future, we intend to co-invest with third parties through joint ventures that may involve similar or additional
risks.
We face significant competition, which may impede our ability to renew leases or re-let space as leases expire,
require us to undertake unbudgeted capital improvements, or impede our ability to make future developments or
acquisitions or increase the cost of these developments or acquisitions.
We compete with numerous developers, owners and operators of retail shopping centers for tenants. These
competitors include institutional investors, other REITs and other owner-operators of community and neighborhood
shopping centers, some of which own or may in the future own properties similar to ours in the same submarkets in which
our properties are located, but which have greater capital resources. If our competitors offer space at rental rates below
current market rates, or below the rental rates we currently charge our tenants, we may lose potential tenants and we may be
pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases
expire. As a result, our financial condition, results of operations, cash flow, trading price of our common shares and ability
to satisfy our debt service obligations and to pay distributions to our shareholders may be materially adversely affected. As
of December 31, 2008, leases were scheduled to expire on a total of approximately 4.8% of the space at our properties in
2009. In addition, increased competition for tenants may require us to make capital improvements to properties that we
would not have otherwise planned to make. Any unbudgeted capital improvements we undertake may reduce cash available
for distributions to shareholders.
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Our future developments and acquisitions may not yield the returns we expect or may result in shareholder dilution.
We currently have three properties in our current development pipeline and six properties in our visible shadow
pipeline. New developments and acquisitions are subject to a number of risks, including, but not limited to:
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abandonment of development activities after expending resources to determine feasibility;
construction delays or cost overruns that may increase project costs;
our investigation of a property or building prior to our acquisition, and any representations we may receive
from the seller, may fail to reveal various liabilities or defects or identify necessary repairs until after the
property is acquired, which could reduce the cash flow from the property or increase our acquisition costs;
financing risks;
the failure to meet anticipated occupancy or rent levels;
failure to receive required zoning, occupancy, land use and other governmental permits and authorizations
and changes in applicable zoning and land use laws; and
the consent of third parties such as tenants, mortgage lenders and joint venture partners may be required, and
those consents may be difficult to obtain or be withheld.
In addition, if a project is delayed or if we are unable to lease designated space to anchor tenants, certain tenants may
have the right to terminate their leases. If any of these situations occur, development costs for a project will increase, which
will result in reduced returns, or even losses, from such investments. In deciding whether to acquire or develop a particular
property, we make certain assumptions regarding the expected future performance of that property. If these new properties
do not perform as expected, our financial performance may be materially and adversely affected. In addition, the issuance
of equity securities as consideration for any acquisitions could be substantially dilutive to our shareholders.
We may not be successful in identifying suitable development projects or acquisitions that meet our investment
criteria, which may impede our growth.
Part of our business strategy is expansion through development projects and acquisitions, which requires us to identify
suitable development or acquisition candidates or investment opportunities that meet our criteria and are compatible with
our growth strategy. We may not be successful in identifying suitable real estate properties or other assets that meet our
development or acquisition criteria or in completing developments, acquisitions or investments on satisfactory terms.
Failure to identify or complete developments or acquisitions could slow our growth, which could in turn materially
adversely affect our operations.
Redevelopment activities may be delayed or otherwise may not perform as expected and, in the case of an
unsuccessful redevelopment project, our entire investment could be at risk for loss.
We currently have five properties in our redevelopment pipeline. We expect to redevelop certain of our other
properties in the future. In connection with any redevelopment of our properties, we will bear certain risks, including the
risk of construction delays or cost overruns that may increase project costs and make a project uneconomical, the risk that
occupancy or rental rates at a completed project will not be sufficient to enable us to pay operating expenses or earn the
targeted rate of return on investment, and the risk of incurrence of predevelopment costs in connection with projects that are
not pursued to completion. In addition, various tenants may have the right to withdraw from a property if a development
and/or redevelopment project is not completed on time. In the case of a redevelopment project, consents may be required
from various tenants in order to redevelop a center. In the case of an unsuccessful redevelopment project, our entire
investment could be at risk for loss.
We may not be able to sell properties when appropriate and could, under certain circumstances, be required to pay
certain tax indemnities related to the properties we sell.
Real estate property investments generally cannot be sold quickly. In connection with our formation at the time of our
IPO, we entered into an agreement that restricts our ability, prior to December 31, 2016, to dispose of six of our properties
in taxable transactions and limits the amount of gain we can trigger with respect to certain other properties without
incurring reimbursement obligations owed to certain limited partners of our Operating Partnership. We have agreed that if
15
we dispose of any interest in six specified properties in a taxable transaction before December 31, 2016, we will indemnify
the contributors of those properties for their tax liabilities attributable to the built-in gain that exists with respect to such
property interest as of the time of our IPO (and tax liabilities incurred as a result of the reimbursement payment). The six
properties to which our tax indemnity obligations relate represented approximately 19% of our annualized base rent in the
aggregate as of December 31, 2008. These six properties are International Speedway Square, Shops at Eagle Creek,
Whitehall Pike, Ridge Plaza Shopping Center, Thirty South and Market Street Village. We also agreed to limit the
aggregate gain certain limited partners of our Operating Partnership would recognize, with respect to certain other
contributed properties through December 31, 2016, to not more than $48 million in total, with certain annual limits, unless
we reimburse them for the taxes attributable to the excess gain (and any taxes imposed on the reimbursement payments),
and to take certain other steps to help them avoid incurring taxes that were deferred in connection with the formation
transactions.
The agreement described above is extremely complicated and imposes a number of procedural requirements on us,
which makes it more difficult for us to ensure that we comply with all of the various terms of the agreement and therefore
creates a greater risk that we may be required to make an indemnity payment. The complicated nature of this agreement
also might adversely impact our ability to pursue other transactions, including certain kinds of strategic transactions and
reorganizations.
Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for
sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in
our best interest. Therefore, we may be unable to adjust our portfolio mix promptly in response to market conditions, which
may adversely affect our financial position. In addition, we will be subject to income taxes on gains from the sale of any
properties owned by any taxable REIT subsidiary.
Potential losses may not be covered by insurance.
We do not carry insurance for generally uninsurable losses such as loss from riots, war or acts of God, and, in some
cases, flooding. Some of our policies, such as those covering losses due to terrorism and floods, are insured subject to
limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover all losses. If we
experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged
properties as well as the anticipated future cash flows from those properties. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance
proceeds to replace a property after it has been damaged or destroyed. In addition, if the damaged properties are subject to
recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably
damaged.
Insurance coverage on our properties may be expensive or difficult to obtain, exposing us to potential risk of loss.
In the future, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at
reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as
losses due to terrorist acts, environmental liabilities, or other catastrophic events including hurricanes and floods, or, if
offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance
coverage against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured
loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a
property, as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or
other financial obligations related to the property. We cannot guarantee that material losses in excess of insurance proceeds
will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our
operations, delay revenue and result in large expenses to repair or rebuild the property. Events such as these could adversely
affect our results of operations and our ability to meet our obligations.
Rising operating expenses could reduce our cash flow and funds available for future distributions, particularly if
such expenses are not off-set by corresponding revenues.
Our existing properties and any properties we develop or acquire in the future are and will be subject to operating
risks common to real estate in general, any or all of which may negatively affect us. The expenses of owning and operating
properties are not necessarily reduced when circumstances such as market factors and competition cause a reduction in
income from the properties. As a result, if any property is not fully occupied or if rents are being paid in an amount that is
16
insufficient to cover operating expenses, we could be required to expend funds for that property’s operating expenses. As of
December 31, 2008, our retail operating portfolio was approximately 91% leased compared to approximately 95% as of
December 31, 2007. Our properties continue to be subject to increases in real estate and other tax rates, utility costs,
operating expenses, insurance costs, repairs and maintenance and administrative expenses, regardless of such properties’
occupancy rates. Therefore, rising operating expenses could reduce our cash flow and funds available for future
distributions, particularly if such expenses are not off-set by corresponding revenues.
We could incur significant costs related to government regulation and environmental matters.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum product releases at a property and may be
held liable to a governmental entity or to third parties for property damage and for investigation and clean up costs incurred
by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may
be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely
affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. In connection with the
ownership, operation and management of real properties, we are potentially liable for removal or remediation costs, as well
as certain other related costs, including governmental fines and injuries to persons and property. We may also be liable to
third parties for damage and injuries resulting from environmental contamination emanating from the real estate.
Some of the properties in our portfolio contain, may have contained or are adjacent to or near other properties that
have contained or currently contain underground storage tanks for the storage of petroleum products or other hazardous or
toxic substances. These operations may have released, or have the potential to release, such substances into the
environment. In addition, some of our properties have tenants that may use hazardous or toxic substances in the routine
course of their businesses. In general, these tenants have covenanted in their leases with us to use these substances, if any,
in compliance with all environmental laws and have agreed to indemnify us for any damages that we may suffer as a result
of their use of such substances. However, these lease provisions may not fully protect us in the event that a tenant becomes
insolvent. Finally, one of our properties has contained asbestos-containing building materials, or ACBM, and another
property may have contained such materials based on the date of its construction. Environmental laws require that ACBM
be properly managed and maintained, and may impose fines and penalties on building owners or operators for failure to
comply with these requirements. The laws also may allow third parties to seek recovery from owners or operators for
personal injury associated with exposure to asbestos fibers.
Our properties must also comply with Title III of the Americans with Disabilities Act, or ADA, to the extent that such
properties are public accommodations as defined by the ADA. The ADA may require removal of structural barriers to
access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.
Noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants.
Our efforts to identify environmental liabilities may not be successful.
We test our properties for compliance with applicable environmental laws on a limited basis. We cannot assure you
that:
(cid:120)
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(cid:120)
existing environmental studies with respect to our properties reveal all potential environmental liabilities;
any previous owner, occupant or tenant of one of our properties did not create any material environmental
condition not known to us;
the current environmental condition of our properties will not be affected by tenants and occupants, by the
condition of nearby properties, or by other unrelated third parties; or
future uses or conditions (including, without limitation, changes in applicable environmental laws and
regulations or the interpretation thereof) will not result in environmental liabilities.
Inflation may adversely affect our financial condition and results of operations.
Most of our leases contain provisions requiring the tenant to pay its share of operating expenses, including common
area maintenance, real estate taxes and insurance. However, increased inflation could have a more pronounced negative
impact on our mortgage and debt interest and general and administrative expenses, as these costs could increase at a rate
higher than our rents. Also, inflation may adversely affect tenant leases with stated rent increases or limits on such tenant’s
17
obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time.
Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our
average rents, and in some cases, our percentage rents, where applicable.
Our share price could be volatile and could decline, resulting in a substantial or complete loss on our shareholders’
investment.
The stock markets (including The New York Stock Exchange, or the “NYSE,” on which we list our common shares)
have experienced significant price and volume fluctuations. The market price of our common shares could be similarly
volatile, and investors in our common shares may experience a decrease in the value of their shares, including decreases
unrelated to our operating performance or prospects. Among the market conditions that may affect the market price of our
publicly traded securities are the following:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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(cid:120)
our financial condition and operating performance and the performance of other similar companies;
actual or anticipated differences in our quarterly operating results;
changes in our revenues or earnings estimates or recommendations by securities analysts;
publication by securities analysts of research reports about us or our industry;
additions and departures of key personnel;
strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures,
strategic investments or changes in business strategy;
the reputation of REITs generally and the reputation of REITs with portfolios similar to ours;
the attractiveness of the securities of REITs in comparison to securities issued by other entities (including
securities issued by other real estate companies);
an increase in market interest rates, which may lead prospective investors to demand a higher distribution
rate in relation to the price paid for our shares;
the passage of legislation or other regulatory developments that adversely affect us or our industry;
speculation in the press or investment community;
actions by institutional shareholders or hedge funds;
changes in accounting principles;
terrorist acts; and
general market conditions, including factors unrelated to our performance.
In the past, securities class action litigation has often been instituted against companies following periods of volatility
in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and
resources.
A substantial number of common shares eligible for future sale could cause our common share price to decline
significantly.
If our shareholders sell, or the market perceives that our shareholders intend to sell, substantial amounts of our
common shares in the public market, the market price of our common shares could decline significantly. These sales also
might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem
appropriate. As of December 31, 2008, we had outstanding 34,181,179 common shares. Of these shares, approximately
32,436,000 are freely tradable, and the remainder of which are mostly held by our “affiliates,” as that term is defined by
Rule 144 under the Securities Act. In addition, approximately 8.1 million units of our Operating Partnership are owned by
certain of our executive officers and other individuals, and are redeemable by the holder for cash or, at our election,
common shares. Pursuant to registration rights of certain of our executive officers and other individuals, we filed a
registration statement with the SEC in August 2005 to register 9,115,149 common shares issued (or issuable upon
redemption of units in our Operating Partnership) in our formation transactions. As units are redeemed for common shares,
the market price of our common shares could drop significantly if the holders of such shares sell them or are perceived by
the market as intending to sell them.
18
RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE
Our organizational documents contain provisions that generally would prohibit any person (other than members of
the Kite family who, as a group, are currently allowed to own up to 21.5% of our outstanding common shares) from
beneficially owning more than 7% of our outstanding common shares (or up to 9.8% in the case of certain
designated investment entities, as defined in our declaration of trust), which may discourage third parties from
conducting a tender offer or seeking other change of control transactions that could involve a premium price for our
shares or otherwise benefit our shareholders.
Our organizational documents contain provisions that may have an anti-takeover effect and inhibit a change in our
management.
(1) There are ownership limits and restrictions on transferability in our declaration of trust. In order for us to qualify
as a REIT, no more than 50% of the value of our outstanding shares may be owned, actually or constructively, by five or
fewer individuals at any time during the last half of each taxable year. To make sure that we will not fail to satisfy this
requirement and for anti-takeover reasons, our declaration of trust generally prohibits any shareholder (other than an
excepted holder or certain designated investment entities, as defined in our declaration of trust) from owning (actually,
constructively or by attribution), more than 7% of the value or number of our outstanding common shares. Our declaration
of trust provides an excepted holder limit that allows members of the Kite family (Al Kite, John Kite and Paul Kite, their
family members and certain entities controlled by one or more of the Kites), as a group, to own more than 7% of our
outstanding common shares, so long as, under the applicable tax attribution rules, no one excepted holder treated as an
individual would hold more than 21.5% of our common shares, no two excepted holders treated as individuals would own
more than 28.5% of our common shares, no three excepted holders treated as individuals would own more than 35.5% of
our common shares, no four excepted holders treated as individuals would own more than 42.5% of our common shares,
and no five excepted holders treated as individuals would own more than 49.5% of our common shares. Currently, one of
the excepted holders would be attributed all of the common shares owned by each other excepted holder and, accordingly,
the excepted holders as a group would not be allowed to own in excess of 21.5% of our common shares. If at a later time,
there were not one excepted holder that would be attributed all of the shares owned by the excepted holders as a group, the
excepted holder limit would not permit each excepted holder to own 21.5% of our common shares. Rather, the excepted
holder limit would prevent two or more excepted holders who are treated as individuals under the applicable tax attribution
rules from owning a higher percentage of our common shares than the maximum amount of common shares that could be
owned by any one excepted holder (21.5%), plus the maximum amount of common shares that could be owned by any one
or more other individual common shareholders who are not excepted holders (7%). Certain entities that are defined as
designated investment entities in our declaration of trust, which generally includes pension funds, mutual funds, and certain
investment management companies, are permitted to own up to 9.8% of our outstanding common shares, so long as each
beneficial owner of the shares owned by such designated investment entity would satisfy the 7% ownership limit if those
beneficial owners owned directly their proportionate share of the common shares owned by the designated investment
entity. Our Board of Trustees may waive the 7% ownership limit or the 9.8% designated investment entity limit for a
shareholder that is not an individual if such shareholder provides information and makes representations to the board that
are satisfactory to the board, in its reasonable discretion, to establish that such person’s ownership in excess of the 7% limit
or the 9.8% limit, as applicable, would not jeopardize our qualification as a REIT. In addition, our declaration of trust
contains certain other ownership restrictions intended to prevent us from earning income from related parties if such income
would cause us to fail to comply with the REIT gross income requirements. The various ownership restrictions may:
(cid:120)
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discourage a tender offer or other transactions or a change in management or control that might involve a
premium price for our shares or otherwise be in the best interests of our shareholders; or
compel a shareholder who has acquired our shares in excess of these ownership limitations to dispose of the
additional shares and, as a result, to forfeit the benefits of owning the additional shares. Any acquisition of
our common shares in violation of these ownership restrictions will be void ab initio and will result in
automatic transfers of our common shares to a charitable trust, which will be responsible for selling the
common shares to permitted transferees and distributing at least a portion of the proceeds to the prohibited
transferees.
(2) Our declaration of trust permits our Board of Trustees to issue preferred shares with terms that may discourage
a third party from acquiring us. Our declaration of trust permits our Board of Trustees to issue up to 40,000,000 preferred
shares, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions,
qualifications, or terms or conditions of redemption as determined by our Board. Thus, our Board could authorize the
19
issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other
transaction in which holders of some or a majority of our shares might receive a premium for their shares over the then-
prevailing market price of our shares. In addition, any preferred shares that we issue likely would rank senior to our
common shares with respect to payment of distributions, in which case we could not pay any distributions on our common
shares until full distributions were paid with respect to such preferred shares.
(3) Our declaration of trust and bylaws contain other possible anti-takeover provisions. Our declaration of trust and
bylaws contain other provisions that may have the effect of delaying, deferring or preventing a change in control of our
company or the removal of existing management and, as a result, could prevent our shareholders from being paid a
premium for their common shares over the then-prevailing market prices. These provisions include advance notice
requirements for shareholder proposals and our Board of Trustees’ power to reclassify shares and issue additional common
shares or preferred shares and the absence of cumulative voting rights.
Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire
us or of impeding a change of control under circumstances that otherwise could provide the holders of our common shares
with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
(cid:120)
(cid:120)
“business combination moratorium/fair price” provisions that, subject to limitations, prohibit certain business
combinations between us and an “interested shareholder” (defined generally as any person who beneficially
owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most
recent date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair
price and super-majority shareholder voting requirements on these combinations; and
“control share” provisions that provide that “control shares” of our company (defined as shares which, when
aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three
increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as
the direct or indirect acquisition of ownership or control of “control shares” from a party other than the
issuer) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at
least two thirds of all the votes entitled to be cast on the matter, excluding all interested shares, and are
subject to redemption in certain circumstances.
We have opted out of these provisions of Maryland law. However, our Board of Trustees may opt to make these
provisions applicable to us at any time.
Certain officers and trustees may have interests that conflict with the interests of shareholders.
Certain of our officers and members of our Board of Trustees own limited partner units in our Operating Partnership.
These individuals may have personal interests that conflict with the interests of our shareholders with respect to business
decisions affecting us and our Operating Partnership, such as interests in the timing and pricing of property sales or
refinancings in order to obtain favorable tax treatment. As a result, the effect of certain transactions on these unit holders
may influence our decisions affecting these properties.
Certain members of our executive management team have outside business interests that could require time and
attention.
Certain members of our executive management team own interests in properties that are not part of our Company.
These properties include a 243-room Indianapolis hotel and condominium development that opened in 2006 and various
outlots and land parcels that are held for sale. In some cases, one or more of these individuals or their affiliates will have
certain management and fiduciary obligations that may conflict with such person’s responsibilities as an officer or trustee of
our company and may adversely affect our operations.
Departure or loss of our key officers could have an adverse effect on us.
Our future success depends, to a significant extent, upon the continued services of our existing executive officers. Our
executive officers’ experience in real estate acquisition, development and finance are critical elements of our future success.
20
We have employment agreements with each of our executive officers that provided for a term that ended in December
2008, with automatic one-year renewals unless either we or the officer elects not to renew the agreement. These
agreements were automatically renewed for our three remaining executive officers through December 31, 2009. If one or
more of our key executives were to die, become disabled or otherwise leave the company's employ, we may not be able to
replace this person with an executive officer of equal skill, ability, and industry expertise. Until suitable replacements
personnel could be identified and hired, if at all, our operations and financial condition could be impaired.
We depend on external capital to fund our capital needs.
To qualify as a REIT, we will be required to distribute to our shareholders each year at least 90% of our net taxable
income excluding net capital gains. In order to eliminate federal income tax, we will be required to distribute annually
100% of our net taxable income, including capital gains. Partly because of these distribution requirements, we will not be
able to fund all future capital needs, including capital for property development and acquisitions, with income from
operations. We therefore will have to rely on third-party sources of capital, which may or may not be available on favorable
terms, if at all. Our access to third-party sources of capital depends on a number of things, including the market’s
perception of our growth potential and our current and potential future earnings and our ability to qualify as a REIT for
federal income tax purposes.
Our rights and the rights of our shareholders to take action against our trustees and officers are limited.
Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties
in good faith, in a manner he or she reasonably believes to be in our best interests that an ordinarily prudent person in a like
position would use under similar circumstances. Our declaration of trust and bylaws require us to indemnify our trustees
and officers for actions taken by them in those capacities to the extent permitted by Maryland law. As a result, we and our
shareholders may have more limited rights against our trustees and officers than might otherwise exist under common law.
Accordingly, in the event that actions taken in good faith by any of our trustees or officers impede the performance of our
company, our shareholders’ ability to recover damages from such trustee or officer will be limited.
Our shareholders have limited ability to prevent us from making any changes to our policies that they believe could
harm our business, prospects, operating results or share price.
Our Board of Trustees has adopted policies with respect to certain activities. These policies may be amended or
revised from time to time at the discretion of our Board of Trustees without a vote of our shareholders. This means that our
shareholders will have limited control over changes in our policies. Such changes in our policies intended to improve,
expand or diversify our business may not have the anticipated effects and consequently may adversely affect our business
and prospects, results of operations and share price.
TAX RISKS
Failure of our company to qualify as a REIT would have serious adverse consequences to us and our shareholders.
We believe that we have qualified for taxation as a REIT for federal income tax purposes commencing with our
taxable year ended December 31, 2004. We intend to continue to meet the requirements for qualification and taxation as a
REIT, but we cannot assure shareholders that we will qualify as a REIT. We have not requested and do not plan to request a
ruling from the IRS that we qualify as a REIT, and the statements in this Annual Report on Form 10-K are not binding on
the IRS or any court. As a REIT, we generally will not be subject to federal income tax on our income that we distribute
currently to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The
determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally
within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive
sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified
amounts of debt and equity securities of some issuers. We also are required to distribute to our shareholders with respect to
each year at least 90% of our REIT taxable income (excluding capital gains). The fact that we hold substantially all of our
assets through our Operating Partnership and its subsidiaries and joint ventures further complicates the application of the
REIT requirements for us. Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly
complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any
assurance that we will continue to qualify as a REIT. Furthermore, Congress and the IRS might make changes to the tax
21
laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain
qualified as a REIT.
If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings
provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates. As a
taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable
income or pass through long term capital gains to individual shareholders at favorable rates. We also could be subject to the
federal alternative minimum tax and possibly increased state and local taxes. We would not be able to elect to be taxed as a
REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain
statutory provisions. If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce
our net earnings available for investment or distribution to our shareholders. If we fail to qualify as a REIT, such failure
would cause an event of default under our credit facility and may adversely affect our ability to raise capital and to service
our debt. This likely would have a significant adverse effect on our earnings and the value of our securities. In addition, we
would no longer be required to pay any distributions to shareholders. If we fail to qualify as a REIT for federal income tax
purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT
status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.
We will pay some taxes even if we qualify as a REIT.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and
local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than
100% of our REIT taxable income (including capital gains). Additionally, we will be subject to a 4% nondeductible excise
tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary
income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have
net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are
sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The
determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to
that sale. While we will undertake sales of assets if those assets become inconsistent with our long-term strategic or return
objectives, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance
that the IRS would not contend otherwise. The need to avoid prohibited transactions could cause us to forego or defer sales
of properties that our predecessors otherwise would have sold or that it might otherwise be in our best interest to sell.
In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are
disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to
federal and possibly state corporate income tax. We have elected to treat Kite Realty Holdings, LLC as a taxable REIT
subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several
provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an
appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct
interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it
receives or on some deductions taken by the taxable REIT subsidiaries if the economic arrangements between the REIT, the
REIT’s tenants, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties.
Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal
income tax on that income because not all states and localities treat REITs the same as they are treated for federal income
tax purposes. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less
cash available for distributions to our shareholders.
ITEM 1.B. UNRESOLVED STAFF COMMENTS
None
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ITEM 2. PROPERTIES
Retail Operating Properties
As of December 31, 2008, we owned interests in a portfolio of 52 retail operating properties totaling approximately
8.4 million square feet of gross leasable area (“GLA”) (including non-owned anchor space). The following tables set forth
more specific information with respect to the Company’s retail operating properties as of December 31, 2008:
OPERATING RETAIL PROPERTIES - TABLE I
Property1,2
State
FL
Bayport Commons............................
Circuit City Plaza4 ...........................
FL
FL
Eagle Creek Lowe's ..........................
Estero Town Commons5...................
FL
FL
Indian River Square..........................
International Speedway Square4.......
FL
Kings Lake Square ...........................
FL
Pine Ridge Crossing .........................
FL
FL
Riverchase Plaza...............................
FL
Tarpon Springs Plaza........................
FL
Wal-Mart Plaza.................................
Waterford Lakes Village ..................
FL
GA
Kedron Village .................................
GA
Publix at Acworth.............................
Publix Centre at Panola ....................
GA
IL
Fox Lake Crossing............................
IL
Naperville Marketplace ....................
IN
50 South Morton...............................
54th & College ..................................
IN
Beacon Hill5......................................
IN
IN
Boulevard Crossing ..........................
IN
Bridgewater Marketplace ................
Cool Creek Commons ......................
IN
Fishers Station6.................................
IN
Geist Pavilion ...................................
IN
IN
Glendale Town Center......................
Greyhound Commons.......................
IN
IN
Hamilton Crossing Centre................
IN
Martinsville Shops............................
Red Bank Commons.........................
IN
IN
Stoney Creek Commons...................
The Centre7 .......................................
IN
The Corner Shops.............................
IN
IN
Traders Point ....................................
IN
Traders Point II.................................
Whitehall Pike ..................................
IN
IN
Zionsville Place ................................
Ridge Plaza.......................................
NJ
OH
Eastgate Pavilion ..............................
Cornelius Gateway Build-to-Suit5....
OR
Shops at Otty8 ...................................
OR
Burlington Coat Factory9 .................
TX
TX
Cedar Hill Village ............................
Galleria Plaza10.................................
TX
Market Street Village4 ......................
TX
TX
Plaza at Cedar Hill............................
Plaza Volente....................................
TX
TX
Preston Commons.............................
TX
Sunland Towne Centre .....................
50th & 12th ........................................ WA
Gateway Shopping Center5 .............. WA
Sandifur Plaza5 ................................. WA
TOTAL ............................................
MSA
Tampa
Ft. Lauderdale
Naples
Naples
Vero Beach
Daytona
Naples
Naples
Naples
Naples
Gainesville
Orlando
Atlanta
Atlanta
Atlanta
Chicago
Chicago
Indianapolis
Indianapolis
Crown Point
Kokomo
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Martinsville
Evansville
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Bloomington
Indianapolis
Oak Ridge
Cincinnati
Portland
Portland
San Antonio
Dallas
Dallas
Ft. Worth
Dallas
Austin
Dallas
El Paso
Seattle
Seattle
Pasco
Year Built/
Renovated
2008
2004
2006
2006
1997/2004
1999
1986
1993
1991/2001
2007
1970
1997
2006
1996
2001
2002
2008
1999
2008
2006
2004
2008
2005
1989
2006
1958/2008
2005
1999
2005
2005
2000
1986
1984/2003
2005
2005
1999
2006
2002
1995
2006
2004
1992/2000
2002
2002
1970/2004
2000
2004
2002
1996
2004
2008
2008
Year Added to
Operating
Portfolio
2008
2004
2006
2007
2005
1999
2003
2006
2006
2007
2004
2004
2006
2004
2004
2005
2008
1999
2008
2007
2004
2008
2005
2004
2006
2008
2005
2004
2005
2006
2000
1986
1984
2005
2005
1999
2006
2003
2004
2007
2004
2000
2004
2004
2005
2004
2005
2002
2004
2004
2008
2008
Acquired,
Redeveloped, or
Developed
Developed
Developed
Developed
Developed
Acquired
Developed
Acquired
Acquired
Acquired
Developed
Acquired
Acquired
Developed
Acquired
Acquired
Acquired
Developed
Developed
Developed
Developed
Developed
Developed
Developed
Acquired
Developed
Redeveloped
Developed
Acquired
Developed
Developed
Developed
Developed
Developed
Developed
Developed
Developed
Developed
Acquired
Acquired
Developed
Developed
Redeveloped
Acquired
Acquired
Acquired
Acquired
Acquired
Developed
Acquired
Developed
Developed
Developed
Total
GLA2
268,556
405,906
165,000
206,600
379,246
233,901
85,497
258,874
78,340
276,346
177,826
77,948
282,125
69,628
73,079
99,072
169,600
2,000
20,100
127,821
213,696
50,820
137,107
114,457
64,114
685,827
153,187
87,424
10,986
324,308
189,527
80,689
42,545
348,835
46,600
128,997
12,400
115,088
236,230
35,800
154,845
107,400
139,092
44,306
163,625
299,847
160,333
142,539
312,450
14,500
285,200
12,552
8,372,791
Owned
GLA2
94,756
45,906
—
25,600
144,246
220,901
85,497
105,515
78,340
82,546
177,826
77,948
157,408
69,628
73,079
99,072
83,290
2,000
—
57,321
123,696
26,000
124,578
114,457
64,114
403,327
—
82,424
10,986
34,308
49,330
80,689
42,545
279,558
46,600
128,997
12,400
115,088
236,230
21,000
9,845
107,400
44,262
44,306
156,625
299,847
156,333
27,539
307,474
14,500
100,949
12,552
4,958,838
Percentage of
Owned
GLA Leased3
90.8%
81.9%
*
75.8%
97.6%
96.6%
96.2%
96.4%
98.0%
98.5%
98.0%
92.6%
88.6%
98.0%
100.0%
84.7%
87.3%
100.0%
*
60.4%
96.3%
17.3%
95.6%
79.5%
83.6%
92.4%
*
98.4%
100.0%
69.8%
100.0%
96.5%
96.4%
98.2%
61.4%
100.0%
90.3%
89.7%
100.0%
53.7%
89.6%
100.0%
94.2%
14.9%
99.2%
86.5%
93.4%
92.5%
89.0%
100.0%
76.2%
82.5%
91.2%
23
OPERATING RETAIL PROPERTIES - TABLE I (continued)
____________________
*
Property consists of ground leases only and, therefore, no Owned GLA. As of December 31, 2008, the following were leased: Eagle Creek Lowe’s and 54th &
College – single ground lease property; Greyhound Commons – two of four outlots leased.
1
2
3
4
5
6
7
8
9
All properties are wholly owned, except as indicated. Unless otherwise noted, each property is owned in fee simple by the Company.
Owned GLA represents gross leasable area that we own. Total GLA includes Owned GLA, square footage attributable to non-owned anchor space, and non-owned
structures on ground leases.
Percentage of Owned GLA Leased reflects Owned GLA/NRA leased as of December 31, 2008, except for Greyhound Commons, 54th & College, and Eagle
Creek Lowe’s (see * ).
In November 2008, Circuit City, a tenant at this property, filed a petition for Chapter 11 bankruptcy protection. In January 2009, it announced that it was
liquidating operations. The tenant continues to occupy the space at three of our retail centers until it rejects our leases.
We own and manage the following properties through joint ventures with third parties: Estero Town Commons (40%); Beacon Hill (50%); Cornelius Gateway
(80%); Gateway Shopping Center (50%); and Sandifur Plaza (95%).
This property is divided into two parcels: a grocery store and small shops. We own a 25% interest in the small shops parcel through a joint venture and a 100%
interest in the grocery store. The joint venture partner is entitled to an annual preferred payment of $96,000. All remaining cash flow is distributed to us.
We own a 60% interest in this property through a joint venture with a third party that manages the property.
We do not own the land at this property. We have leased the land pursuant to two ground leases that expire in 2017. We have six five-year options to renew this
lease.
We do not own the land at this property. We have leased the land pursuant to a ground lease that expires in 2012. We have six five-year renewal options and a
right of first refusal to purchase the land.
10
We do not own the land at this property. We have leased the land pursuant to a ground lease that expires in 2027. We have five five-year renewal options.
24
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3
Land Held for Future Development
As of December 31, 2008, we owned interests in land parcels comprising approximately 105 acres that may be used
for future expansion of existing properties, development of new retail or commercial properties or sold to third parties.
Tenant Diversification
No individual retail or commercial tenant accounted for more than 3.6% of the portfolio’s annualized base rent for the
year ended December 31, 2008. The following table sets forth certain information for the largest 10 tenants and non-owned
anchor tenants (based on total GLA) open for business or for which ground lease payments are being made at the
Company’s retail properties based on minimum rents in place as of December 31, 2008:
TOP 10 RETAIL TENANTS BY GROSS LEASABLE AREA
Tenant
Lowe's Home Improvement3.................
Target....................................................
Wal-Mart ..............................................
Federated Department Stores ................
Publix....................................................
PetSmart................................................
Home Depot..........................................
Bed Bath & Beyond..............................
Office Depot .........................................
Dick's Sporting Goods ..........................
Number of
Locations
9
6
4
1
6
6
1
5
5
2
45
Total GLA
1,247,630
665,732
618,161
237,455
289,779
147,069
140,000
134,298
129,099
126,672
3,735,895
Number of
Leases
3
0
1
1
6
6
0
5
5
2
29
Company
Owned
GLA1
128,997
0
103,161
237,455
289,779
147,069
0
134,298
129,099
126,672
1,296,530
Number of
Anchor
Owned
Locations
6
6
3
0
0
0
1
0
0
0
16
Anchor
Owned
GLA2
1,118,633
665,732
515,000
0
0
0
140,000
0
0
0
2,439,365
____________________
1
Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants.
2
3
Includes the estimated size of the structures located on land owned by the Company and ground leased to tenants.
The Company has entered into two ground leases with Lowe’s Home Improvement for a total of 328,000 square feet, which is included in Anchor
Owned GLA.
31
The following table sets forth certain information for the largest 25 tenants open for business at the Company’s retail
and commercial properties based on minimum rents in place as of December 31, 2008:
TOP 25 TENANTS BY ANNUALIZED BASE RENT
Type of
Property
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Tenant
Lowe's Home Improvement4.......................
Publix..........................................................
PetSmart .....................................................
State of Indiana ........................................... Commercial
Marsh Supermarkets ...................................
Bed Bath & Beyond ....................................
Circuit City5 ................................................
Office Depot ...............................................
Indiana Supreme Court ............................... Commercial
Staples.........................................................
Dick's Sporting Goods ................................
Ross Stores..................................................
HEB Grocery Company ..............................
Best Buy......................................................
Kmart ..........................................................
Michaels......................................................
TJX Companies...........................................
Kerasotes Theaters4.....................................
Dominick's ..................................................
City Securities Corporation......................... Commercial
The Great Atlantic & Pacific Tea Co. .........
Old Navy.....................................................
Petco ...........................................................
Beall's..........................................................
Burlington Coat Factory..............................
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Number of
Locations
3
6
6
3
2
5
3
5
1
4
2
4
1
2
1
3
3
2
1
1
1
3
3
2
1
Leased
GLA/NRA1
128,997
289,779
147,069
210,393
124,902
134,298
99,352
129,099
75,488
89,797
126,672
117,761
105,000
75,045
110,875
68,989
88,550
43,050
65,977
38,810
58,732
64,868
40,778
79,611
107,400
% of Owned
GLA/NRA
of the
Portfolio
2.2%
5.0%
2.6%
3.7%
2.2%
2.3%
1.7%
2.2%
1.3%
1.6%
2.2%
2.0%
1.8%
1.3%
1.9%
1.2%
1.5%
0.7%
1.1%
0.8%
1.1%
1.2%
0.8%
1.5%
1.7%
Annualized
Base Rent2,3
Annualized
Base Rent
per Sq. Ft.
$ 2,564,000 $
2,366,871
2,045,138
1,635,911
1,633,958
1,581,884
1,566,365
1,353,866
1,339,164
1,220,849
1,220,004
1,210,784
1,155,000
934,493
850,379
823,544
805,312
776,496
775,230
771,155
763,516
748,693
595,945
576,000
510,151
5.61
8.17
13.91
7.78
13.08
11.78
15.77
10.49
17.74
13.60
9.63
10.28
11.00
12.45
7.67
11.94
9.09
8.92
11.75
19.87
13.00
11.54
14.61
7.24
4.75
% of Total
Portfolio
Annualized
Base Rent
3.6%
3.3%
2.8%
2.3%
2.3%
2.2%
2.2%
1.9%
1.9%
1.7%
1.7%
1.7%
1.6%
1.3%
1.2%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.0%
0.8%
0.8%
0.5%
TOTAL ......................................................
2,621,292
45.6%
$ 29,824,708 $
9.96 41.4%
____________________
1
Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants.
2
3
4
5
Annualized base rent represents the monthly contractual rent for December 2008 for each applicable tenant multiplied by 12.
Excludes tenants at development properties that are designated as build-to-suits for sale.
Annualized Base Rent per Sq. Ft. is adjusted to account for the estimated square footage attributed to structures on land owned by the Company and ground
leased to tenants.
In November 2008, Circuit City filed a petition for Chapter 11 bankruptcy protection. In January 2009, it announced that it was liquidating its operations. The
tenant continues to occupy the space at three of our retail centers until it rejects our leases.
32
Geographic Information
The Company owns 52 operating retail properties, totaling approximately 5.0 million of owned square feet in nine
states. As of December 31, 2008, the Company owned interests in three operating commercial properties, totaling
approximately 0.5 million square feet of net rentable area, and an associated parking garage. All of these commercial
properties are located in the state of Indiana. The following table summarizes the Company’s operating properties by state
as of December 31, 2008:
Indiana .......................
(cid:120) Retail.................
(cid:120) Commercial.......
Florida .......................
Texas .........................
Georgia ......................
Washington................
Ohio...........................
Illinois........................
New Jersey ................
Oregon .......................
Number of
Operating
Properties1
24
20
4
12
8
3
3
1
2
1
2
56
Owned
GLA/NRA2
2,182,551
1,683,330
499,221
1,139,081
1,143,786
300,115
128,001
236,230
182,362
115,088
30,845
5,458,059
Percent of
Owned
GLA/NRA
40.0%
30.8%
9.2%
20.9%
21.0%
5.5%
2.4%
4.3%
3.3%
2.1%
0.5%
100.0%
Total
Number of
Leases
Annualized
Base Rent3
228
214
14
151
82
59
17
7
17
15
11
587
$
$
24,993,435
18,556,240
6,437,195
14,056,424
12,182,024
4,151,786
2,400,288
2,366,522
2,096,309
1,665,073
466,215
64,378,076
Percent of
Annualized
Base Rent
38.8%
28.8%
10.0%
21.8%
18.9%
6.5%
3.7%
3.7%
3.3%
2.6%
0.7%
100.0%
Annualized
Base Rent per
Leased Sq. Ft.
$
$
12.43
12.14
13.36
12.95
11.89
14.79
22.92
10.02
13.39
16.12
23.19
12.82
____________________
1
This table includes operating retail properties, operating commercial properties, and ground lease tenants who commenced paying rent as of
December 31, 2008. This table excludes properties in our current development and redevelopment pipelines.
2
3
Owned GLA/NRA represents gross leasable area or net leasable area owned by the Company. It does not include 23 parcels or outlots
owned by the Company and ground leased to tenants, which contain 23 non-owned structures totaling approximately 484,441 square feet. It
also excludes the square footage of Union Station Parking Garage.
Annualized Base Rent excludes $4,047,025 in annualized ground lease revenue attributable to parcels and outlots owned by the Company
and ground leased to tenants.
Lease Expirations
Approximately 5.9% of total annualized base rent and approximately 4.8% of total GLA/NRA expire in 2009. The
following tables show scheduled lease expirations for retail and commercial tenants and development and redevelopment
property tenants open for business as of December 31, 2008, assuming none of the tenants exercise renewal options. The
tables include tenants open for business at operating retail and commercial properties as of December 31, 2008.
1
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO
2009 ...............
2010 ...............
2011 ...............
2012 ...............
2013 ...............
2014 ...............
2015 ...............
2016 ...............
2017 ...............
2018 ...............
Beyond ...........
Number of
Expiring
Leases1,2
82
89
98
104
70
51
38
26
26
24
29
637
Expiring
GLA/NRA3
258,003
515,253
657,932
445,984
498,339
515,773
503,637
234,371
396,288
371,968
933,305
5,330,853
% of Total
GLA/NRA
Expiring
4.8%
9.7%
12.3%
8.4%
9.3%
9.7%
9.4%
4.4%
7.4%
7.0%
17.6%
100.0%
% of Total
Annualized
Base Rent
5.9%
9.6%
9.6%
10.6%
8.7%
9.0%
8.9%
4.3%
8.3%
7.0%
18.1%
100.0%
$
Expiring
Annualized Base
Rent4
4,061,397
6,621,828
6,606,147
7,269,398
5,993,659
6,225,323
6,164,687
2,992,020
5,725,960
4,850,662
12,425,003
68,936,084
$
33
Expiring
Annualized Base
Rent per Sq. Ft.
$
Expiring Ground
Lease Revenue
$
$
800,000
0
0
0
0
0
427,900
181,504
0
435,296
2,202,325
4,047,025
15.74
12.85
10.04
16.30
12.03
12.07
12.24
12.77
14.45
13.04
13.31
12.93
$
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO (continued)
____________________
1
Excludes tenants at development properties that are designated as build-to-suits for sale.
2
3
4
Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods; 2008 expirations include 17 month-to-
month tenants. This column also excludes ground leases.
Expiring GLA excludes estimated square footage attributable to non-owned structures on land owned by the Company and ground leased to
tenants.
Annualized base rent represents the monthly contractual rent for December 2008 for each applicable tenant multiplied by 12. Excludes ground
lease revenue.
LEASE EXPIRATION TABLE – RETAIL ANCHOR TENANTS
2009 ................
2010 ................
2011 ................
2012 ................
2013 ................
2014 ................
2015 ................
2016 ................
2017 ................
2018 ................
Beyond ............
Number of
Expiring
Leases1,2
3
14
7
8
3
10
11
5
11
10
22
104
Expiring
GLA/NRA3
67,022
332,886
433,404
179,471
222,521
247,834
377,371
153,782
277,102
335,578
900,031
3,527,002
% of Total
GLA/NRA
Expiring
1.3%
6.2%
8.1%
3.4%
4.2%
4.7%
7.1%
2.9%
5.2%
6.3%
16.8%
66.2%
Expiring
Annualized Base
Rent4
$
567,270
3,185,500
2,182,015
1,678,862
993,053
2,440,651
3,585,414
1,318,562
3,383,722
3,925,642
11,629,852
$ 34,890,543
% of Total
Annualized Base
Rent
0.8%
4.6%
3.2%
2.4%
1.4%
3.5%
5.2%
1.9%
4.9%
5.7%
17.0%
50.6%
$
Expiring
Annualized Base
Rent per Sq. Ft.
$
Expiring Ground
Lease Revenue
$
800,000
0
0
0
0
0
0
0
0
0
990,000
$ 1,790,000
8.46
9.57
5.03
9.35
4.46
9.85
9.50
8.57
12.21
11.70
12.92
9.89
____________________
1
Retail anchor tenants are defined as tenants that occupy 10,000 square feet or more. Excludes tenants at development properties that are
designated as build-to-suits for sale.
2
3
4
Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods; 2008 expirations include one month-
to-month tenant. This column also excludes ground leases.
Expiring GLA excludes square footage for non-owned ground lease structures on land we own and ground leased to tenants.
Annualized base rent represents the monthly contractual rent for December 2008 for each applicable property multiplied by 12. Excludes ground
lease revenue.
LEASE EXPIRATION TABLE – RETAIL SHOPS
2009 ............
2010 ............
2011 ............
2012 ............
2013 ............
2014 ............
2015 ............
2016 ............
2017 ............
2018 ............
Beyond ........
Number of
Expiring
Leases1
78
73
90
94
63
39
26
21
14
14
7
519
Expiring
GLA/NRA1,2
180,949
173,269
207,490
229,461
147,464
114,129
75,300
80,589
43,698
36,390
33,274
1,322,013
% of Total
GLA/NRA
Expiring
3.4%
3.3%
3.9%
4.3%
2.8%
2.1%
1.4%
1.5%
0.8%
0.7%
0.6%
24.8%
$
Expiring
Annualized Base
Rent3
3,384,134
3,254,448
4,134,475
4,995,069
3,381,067
2,374,117
1,688,332
1,673,458
1,003,074
925,020
795,151
$ 27,608,345
% of Total
Annualized Base
Rent
4.9%
4.7%
6.0%
7.3%
4.9%
3.4%
2.5%
2.4%
1.5%
1.3%
1.2%
40.1%
Expiring
Annualized Base
Rent per Sq. Ft.
$
$
18.70
18.78
19.93
21.77
22.93
20.80
22.42
20.77
22.95
25.42
23.90
20.88
34
Expiring Ground
Lease Revenue
$
0
0
0
0
0
427,900
181,504
0
435,296
128,820
1,083,505
2,257,025
$
LEASE EXPIRATION TABLE – RETAIL SHOPS (continued)
____________________
1
Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods; 2008 expirations include 16 month-to-
month tenants. This column also excludes ground leases.
2
3
Expiring GLA excludes estimated square footage to non-owned structures on land we own and ground leased to tenants.
Annualized base rent represents the monthly contractual rent for December 2008 for each applicable property multiplied by 12. Excludes ground
lease revenue.
LEASE EXPIRATION TABLE – COMMERCIAL TENANTS
2009 ..........................
2010 ..........................
2011 ..........................
2012 ..........................
2013 ..........................
2014 ..........................
2015 ..........................
2016 ..........................
2017 ..........................
2018 ..........................
Beyond ......................
Number of
Expiring Leases1
1
2
1
2
4
2
1
0
1
0
0
14
Expiring
NLA1
10,032
9,098
17,038
37,052
128,354
153,810
50,966
0
75,488
0
0
481,838
% of Total
NRA Expiring
0.2%
0.2%
0.3%
0.7%
2.4%
2.9%
1.0%
0.0%
1.3%
0.0%
0.0%
9.0%
Expiring Annualized
Base Rent2
$
$
109,992
181,880
289,656
595,467
1,619,540
1,410,555
890,942
0
1,339,164
0
0
6,437,196
% of Total
Annualized Base
Rent
0.2%
0.3%
0.4%
0.9%
2.4%
2.1%
1.3%
0.0%
1.7%
0.0%
0.0%
9.3%
$
Expiring Annualized
Base Rent per Sq. Ft.
10.96
19.99
17.00
16.07
12.62
9.17
17.48
0.00
17.74
0.00
0.00
13.36
$
____________________
1
Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods. This column also excludes ground
leases.
2
Annualized base rent represents the monthly contractual rent for December 2008 for each applicable property multiplied by 12.
35
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings, which arise in the ordinary course of business. We are not currently
involved in any litigation nor, to our knowledge, is any litigation threatened against us the outcome of which would, in our
judgment based on information currently available to us, have a material adverse effect on our consolidated financial
position or consolidated results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth
quarter of 2008.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common shares are currently listed and traded on the New York Stock Exchange (“NYSE”) under the symbol
“KRG”. On March 6, 2009, the last reported sales price of our common shares on the NYSE was $2.93.
The following table sets forth, for the periods indicated, the high and low sales prices and the closing prices for the
Company’s common shares:
Quarter Ended March 31, 2007................... $
Quarter Ended June 30, 2007...................... $
Quarter Ended September 30, 2007 ............ $
Quarter Ended December 31, 2007............. $
Quarter Ended March 31, 2008................... $
Quarter Ended June 30, 2008...................... $
Quarter Ended September 30, 2008 ............ $
Quarter Ended December 31, 2008............. $
High
21.14 $
21.80 $
19.49 $
20.60 $
15.65 $
15.52 $
13.44 $
11.67 $
Low
18.24 $
18.05 $
15.02 $
13.95 $
11.50 $
12.49 $
9.78 $
1.94 $
Closing
19.95
19.02
18.80
15.27
14.00
12.50
11.00
5.56
Holders
The number of registered holders of record of our common shares was 133 as of March 6, 2009. This total excludes
beneficial or non-registered holders that held their shares through various brokerage firms.
Distributions
Our Board of Trustees declared the following cash distributions per share to our common shareholders for the periods
indicated:
Quarter
Record Date
1st 2007 .......... April 5, 2007
2nd 2007..........
July 6, 2007
3rd 2007 .......... October 4, 2007
4th 2007 ..........
January 7, 2008
1st 2008 .......... April 4, 2008
2nd 2008..........
July 7, 2008
3rd 2008 .......... October 7, 2008
4th 2008 ..........
January 7, 2009
Payment Date
April 17, 2007
July 18, 2007
October 16, 2007
January 15, 2008
April 17, 2008
July 17, 2008
October 17, 1008
January 16, 2009
Distribution
Per Share
0.1950
0.1950
0.2050
0.2050
0.2050
0.2050
0.2050
0.2050
$
$
$
$
$
$
$
$
36
In February 2009, our Board of Trustees declared a quarterly cash distribution of $0.1525 per common share for the
quarter ending March 31, 2009 to shareholders of record as of April 7, 2009. This distribution will be paid on or about
April 17, 2009.
Our executive management and Board of Trustees will continue to evaluate the Company’s distribution policy on a
quarterly basis as they monitor the capital markets and the impact of the economy on the Company’s operations. In
February 2009, our Board of Trustees declared a quarterly cash distribution of $0.1525 per common share for the quarter
ending March 31, 2009. This distribution represents a reduction from the amount paid in the prior quarter thereby allowing
the Company to conserve additional liquidity. Future distributions will be declared and paid at the discretion of our Board
of Trustees, and will depend upon a number of factors, including cash generated by operating activities, our financial
condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code
of 1986, as amended, and such other factors as our Board of Trustees deem relevant.
Distributions by us to the extent of our current and accumulated earnings and profits for federal income tax purposes
will be taxable to shareholders as either ordinary dividend income or capital gain income if so declared by us. Distributions
in excess of earnings and profits generally will be treated as a non-taxable return of capital. These distributions have the
effect of deferring taxation until the sale of a shareholder’s common shares. In order to maintain our qualification as a
REIT, we must make annual distributions to shareholders of at least 90% of our taxable income. Under certain
circumstances, we could be required to make distributions in excess of cash available for distributions in order to meet such
requirements. For the taxable year ended December 31, 2008, approximately 76% of our distributions to shareholders
constituted a return of capital, approximately 13% constituted taxable ordinary income dividends and approximately 11%
constituted taxable capital gains.
Under our revolving credit facility, we are permitted to make distributions to our shareholders that do not exceed 95%
of our Funds From Operations (“FFO”) provided that no event of default exists. See pages 65-66 for a discussion of FFO. If
an event of default exists, we may only make distributions sufficient to maintain our REIT status. However, we may not
make any distributions if any event of default resulting from nonpayment or bankruptcy exists, or if our obligations under
the credit facility are accelerated.
The Company did not repurchase any of its common shares or sell any unregistered securities during the period
covered by this report.
Performance Graph
Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, that might incorporate Securities and Exchange Commission filings,
in whole or in part, the following performance graph will not be incorporated by reference into any such filings.
The following graph compares the cumulative total shareholder return of our common shares for the period from
August 11, 2004, the date that our common shares began trading on NYSE, to December 31, 2008, to the S&P 500 Index
and to the published NAREIT All Equity REIT Index over the same period. The graph assumes that the value of the
investment in our common shares and each index was $100 at August 11, 2004 and that all cash distributions were
reinvested. The shareholder return shown on the graph below is not indicative of future performance.
37
8
3
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, on a historical basis, selected financial and operating information. The financial
information has been derived from the consolidated balance sheets and statements of operations of the Company and the
combined statements of operations of our Predecessor. This information should be read in conjunction with the audited
consolidated financial statements of the Company and Management’s Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere in this Annual Report on Form 10-K.
The Company
The Predecessor
Year Ended
December 31,
20081
Year Ended
December 31,
2007
Year Ended
December 31,
2006
Year Ended
December 31,
2005
Period
August 16,
2004
through
December 31,
2004
Period
January 1, 2004
through
August 15, 2004
Operating Data:
Revenues:
Rental related revenue.............................................. $
Construction and service fee revenue ......................
Total revenue ...............................................................
Expenses:
Property operating....................................................
Real estate taxes .......................................................
Cost of construction and services ............................
General, administrative, and other...........................
Depreciation and amortization.................................
Total expenses.......................................................................
Operating income
Interest expense........................................................
Loss on sale of asset.................................................
Loan prepayment penalties and expenses................
Income tax expense of taxable REIT subsidiary .....
Other income, net .....................................................
Minority interest income of consolidated
subsidiaries ........................................................
Income from unconsolidated entities .......................
Gain on sale of unconsolidated property .................
Limited Partners’ interests in the continuing
operations of the Operating Partnership............
Income (loss) from continuing operations............................
Discontinued operations: ......................................................
Operating income from discontinued operations,
($ in thousands, except share and per share data)
$
103,597
39,103
142,700
$
101,494
37,260
138,754
89,703 $
41,447
131,150
72,296 $
26,420
98,716
19,618 $
9,334
28,952
17,108
11,977
33,788
5,884
35,447
104,204
38,496
(29,372)
—
—
(1,928 )
158
(62 )
843
1,233
(2,014 )
7,354
15,121
11,917
32,077
6,299
31,851
97,265
41,489
(25,965)
—
—
(762 )
779
(587 )
291
—
(3,400 )
11,845
13,580
11,260
35,901
5,323
29,579
95,643
35,507
(21,222 )
(764 )
—
(966 )
345
(117 )
286
—
(2,966 )
10,103
12,337
7,456
21,823
5,328
21,696
68,640
30,076
(17,836 )
—
—
(1,041 )
215
(1,267 )
253
—
(3,309 )
7,091
3,667
1,927
8,787
1,781
7,629
23,791
5,161
(4,377 )
—
(1,671)
—
30
(126 )
134
—
258
(591)
net of Limited Partners’ interests ......................
851
96
77
820
259
(Loss) gain on sale of operating property, net of
Limited Partners’ interests.................................
(Loss) income from discontinued operations .......................
Net income (loss) .................................................................. $
Income (loss) per common share – basic:
Continuing operations.............................................. $
Discontinued operations...........................................
$
Income (loss) per common share – diluted:
Continuing operations.............................................. $
Discontinued operations...........................................
$
(2,112 )
(1,261)
6,093
0.24
(0.04 )
0.20
0.24
(0.04 )
0.20
Weighted average Common Shares outstanding – basic......
Weighted average Common Shares outstanding – diluted...
Distributions declared per Common Share........................... $
30,328,408
30,340,449
0.820
$
$
$
$
$
$
1,582
1,678
13,523
0.41
0.06
0.47
0.40
0.06
0.46
$
$
$
$
$
—
77
10,180 $
5,525
6,345
13,436 $
0.35 $
—
0.35 $
0.35 $
—
0.35 $
0.33 $
0.30
0.63 $
0.33 $
0.29
0.62 $
—
259
(332 ) $
(0.03 )
0.01
(0.02)
(0.03 )
0.01
(0.02)
28,908,274
29,180,987
0.800
28,733,228
28,903,114
$
0.765 $
21,406,980
21,520,061
0.750 $
18,727,977
18,727,977
0.281
12,824
5,257
18,081
4,033
1,409
4,405
1,477
3,270
14,594
3,487
(4,557 )
—
—
—
111
215
164
—
—
(580)
388
—
388
(192)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
_________________
1
In December 2008, we sold our Silver Glen Crossing property located in Chicago, Illinois for net proceeds of approximately $17.2 million and
recognized a loss on the sale of $2.1 million, net of Limited Partners’ interests. The loss on sale and operating results for this property have been
reflected as discontinued operations for fiscal year ended December 31, 2008. Amounts were not reclassified for fiscal years 2007 or prior as they
were not considered material to the financial statements.
39
Balance Sheet Data:
Investment properties, net ......................................................... $
Cash and cash equivalents......................................................... $
Total assets ................................................................................ $
Mortgage and other indebtedness.............................................. $
Total liabilities........................................................................... $
Limited partners’ interests in the operating partnership ........... $
Shareholders’ equity.................................................................. $
Total liabilities and shareholders’ equity .................................. $
The Company
Year Ended December 31
2008
2007
2006
2005
2004
($ in thousands)
1,035,454 $
9,918 $
1,112,052 $
677,661 $
759,817 $
67,277 $
284,958 $
1,112,052 $
965,583 $
19,002 $
1,048,235 $
646,834 $
714,100 $
74,512 $
259,623 $
1,048,235 $
892,625 $
23,953 $
983,161 $
566,976 $
634,435 $
78,812 $
269,914 $
983,161 $
738,734 $
15,209 $
799,230 $
375,246 $
436,106 $
84,245 $
278,879 $
799,230 $
521,078
10,103
563,544
283,479
336,922
68,423
158,199
563,544
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the accompanying historical financial statements and
related notes thereto and the “Risk Factors” appearing elsewhere in this Annual Report on Form 10-K. In this discussion,
unless the context suggests otherwise, references to the “Company,” “we,” “us” and “our” mean Kite Realty Group Trust
and its subsidiaries.
Overview
In the following overview, we discuss the status of our business and properties, the effect that current U.S. economic
conditions is having on our retail tenants and us, and the current state of the financial markets as pertaining to our debt
maturities and our ability to secure financing.
Our Business and Properties
Kite Realty Group Trust, through its majority-owned subsidiary, Kite Realty Group, L.P., is engaged in the
ownership, operation, management, leasing, acquisition, construction, expansion and development of neighborhood and
community shopping centers and certain commercial real estate properties in selected markets in the United States. We
derive revenues primarily from rents and reimbursement payments received from tenants under existing leases at each of
our properties. We also derive revenues from providing management, leasing, real estate development, construction and
real estate advisory services through our taxable REIT subsidiary. Our operating results therefore depend materially on the
ability of our tenants to make required rental payments, our ability to provide such services to third parties, conditions in
the U.S. retail sector and overall real estate market conditions.
As of December 31, 2008, we owned interests in a portfolio of 52 operating retail properties totaling approximately
8.4 million square feet of gross leasable area (including non-owned anchor space) and also owned interests in three
operating commercial properties totaling approximately 0.5 million square feet of net rentable area and an associated
parking garage. Also, as of December 31, 2008, we had an interest in eight properties in our development and
redevelopment pipelines. Upon completion, we anticipate our development and redevelopment properties to have
approximately 1.2 million square of total gross leasable area.
In addition to our current development and redevelopment pipelines, we have a “visible shadow” development
pipeline which includes land parcels that are undergoing pre-development activity and are in various stages of preparation
for construction to commence, including pre-leasing activity and negotiations for third party financings. As of December
31, 2008, this visible shadow pipeline consisted of six projects that are expected to contain approximately 2.9 million
square feet of total gross leasable area upon completion.
Finally, as of December 31, 2008, we also owned interests in other land parcels comprising approximately 105 acres
that may be used for future expansion of existing properties, development of new retail or commercial properties or sold to
40
third parties. These land parcels are classified as “Land held for development” in the accompanying consolidated balance
sheet.
Current Economic Conditions and Impact on Our Retail Tenants
2008 was a very difficult year for the U.S. economy, businesses and consumers. Initial weakness in the housing
market in 2007 escalated into a credit crisis whereby businesses and consumers had difficulty obtaining financing on
favorable terms, if at all. These conditions accelerated the deterioration of the U.S. economy, and in late 2008 the National
Bureau of Economic Research, a group of economists that characterize American business cycles, declared that a recession
began in the U.S. in December 2007. Throughout 2008 and into the first quarter of 2009, the U.S. economy continued to
struggle with difficult market conditions, including a shortage of financing, decreased home values and increased home
foreclosures, rising unemployment rates, personal and business bankruptcies, and sharp declines in consumer confidence.
The U.S. Congress, the new Presidential Administration, which took office in January 2009, and the Federal Reserve Bank
have taken various steps in an effort to curtail the recession and promote stability in the U.S. economy as a whole. It is not
yet known what effect, if any, these stimulus packages and other governmental and monetary packages will have on
financial institutions and markets or the economy.
These difficult economic conditions had a negative impact on consumer spending during 2008, and we expect these
conditions to continue into 2009 and possibly beyond. Factors contributing to consumers spending less at stores owned
and/or operated by our retail tenants include, among others:
(cid:120)
Shortage or Unavailability of Financing: Lending institutions have substantially tightened credit standards,
making it significantly more difficult for individuals and companies to obtain financing. The shortage of
financing has caused, among other things, consumers to have less disposable income available for retail
spending.
(cid:120) Decreased Home Values and Increased Home Foreclosures: U.S. home values have decreased sharply, and
difficult economic conditions have also contributed to a record number of home foreclosures. The historically
high level of delinquencies and foreclosures, particularly among sub-prime mortgage borrowers, is expected
to continue into the foreseeable future.
(cid:120)
Rising Unemployment Rates: The U.S. unemployment rate continues to rise dramatically. According to the
Bureau of Labor Statistics, in 2008, approximately 2.6 million Americans became unemployed, the highest
level in more than six decades. A total of approximately 1.9 million of these jobs were lost in the last four
months of 2008, with over half a million lost in December 2008 alone. This trend continued through January
and February 2009, with unemployment rising to approximately 4.4 million Americans, or 8.1%, the highest
level in 25 years. Rising unemployment rates could cause further decreases in consumer spending, thereby
negatively affecting the businesses of our retail tenants.
(cid:120) Deceasing Consumer Confidence: Consumer confidence is at its lowest level in decades, leading to
consumers spending less money on discretionary purchases. The significant increase during 2008 in both
personal and business bankruptcies reflects an economy in distress, with financially over-extended
consumers less likely to purchase goods and/or services from our retail tenants.
During 2008, decreasing consumer spending had a negative impact on the businesses of our retail tenants. For
example, same-store sales for many retailers declined in late 2008, particularly in November and December. As discussed
below, these conditions in turn had a negative impact on our business. To the extent these conditions persist or deteriorate
further, our tenants may be required to curtail or cease their operations, which could materially and negatively affect our
business in general and our cash flow in particular.
Impact of Economy on REITs, Including Us
As an owner and developer of community and neighborhood shopping centers, our operating and financial
performance is directly affected by economic conditions in the retail sector of those markets in which our operating centers
and development properties are located. This is particularly true in the states of Indiana, Florida and Texas, where the
majority of our properties are located, and in North Carolina, where a significant portion of our development projects and
41
land parcels held for development are located. As discussed above, due to the challenges facing U.S. consumers, the
operations of many of our retail tenants are being negatively affected. In turn, this is having a negative impact on our
business, including in the following ways:
(cid:120) Difficulty In Collecting Rent; Rent Adjustments. When consumers spend less, our tenants typically
experience decreased revenues and cash flows. This makes it more difficult for some of our tenants to pay
their rent obligations, which is the primary source of our revenues. The number of tenants requesting
decreases or deferrals in their rent obligations increased in 2008. If granted, such decreases or deferrals
negatively affect our cash flows.
(cid:120)
(cid:120)
Termination of Leases. If our tenants continue to struggle to meet their rental obligations, they may be
forced to terminate their leases with us. During 2008, several tenants terminated their leases with us and in
some cases we were able to negotiate lease termination fees from these tenants but in other cases we were
not.
Tenant Bankruptcies. The number of bankruptcies by U.S. businesses surged in the third and fourth quarter
of 2008. This trend continued through January and February 2009 and may continue into the foreseeable
future. Likewise, bankruptcies of our retail tenants also increased sharply in 2008 and into 2009. For
example, in November 2008, Circuit City Stores, Inc. filed a petition for bankruptcy protection under Chapter
11 of the federal bankruptcy laws and, in January 2009, declared that it would be liquidating and closing all
of its stores. As of December 31, 2008, Circuit City leased space at three of our properties and represented a
total of approximately 2.2% of our total operating portfolio annualized base rent and approximately 1.7% of
our total operating portfolio owned gross leasable area. As a result of the liquidation, we wrote off all assets
and uncollected amounts from Circuit City in December 2008, which reduced our net income by
approximately $4.1 million.
(cid:120) Decrease in Demand for Retail Space. Reflecting the extremely difficult current market conditions, demand
for retail space at our shopping centers has decreased while availability has increased due to tenant
terminations and bankruptcies. As a result, the overall tenancy at our shopping centers declined over the last
12 months and may continue to decline in the future until financial markets, consumer confidence, and the
economy stabilize. As of December 31, 2008, our retail operating portfolio was approximately 91% leased
compared to approximately 95% leased as of December 31, 2007. In addition, these conditions have made it
significantly more difficult for us to lease space in our development projects, which may adversely affect the
expected returns from these projects or delay their completion.
The factors discussed above, among others, had a negative impact on our business during 2008. We expect that these
conditions may continue well into the foreseeable future.
Financing Strategy and 2009 Maturities
Our ability to obtain financing on satisfactory terms and to refinance borrowings as they mature has also been
affected by the condition of the economy in general and by the current instability of the financial markets in particular. As
of December 31, 2008, approximately $84 million of our consolidated indebtedness was scheduled to mature in 2009
(approximately $108 million including our share of unconsolidated debt), excluding scheduled monthly principal payments
for 2009. We believe we have good relationships with a number of banks and other financial institutions that will allow us
to refinance these borrowings with the existing lenders or replacement lender. However, in this current challenging
environment, it is imperative that we identify alternative sources of financing and other capital in the event we are not able
to refinance these loans on satisfactory terms, or at all. It is also important for us to obtain financing in order to complete
our development and redevelopment projects.
To strengthen our balance sheet, we engaged in certain financing transactions in 2008. Specifically, we have raised a
combined $102.8 million in proceeds from a new term loan that matures in July 2011 and from an offering of 4,750,000 of
our common shares. These funds were primarily used to pay down borrowings under our unsecured revolving credit
facility, which created additional availability under this facility to pay down borrowings as they mature, if necessary. As of
December 31, 2008, approximately $77 million was available to be drawn under this facility and we had an additional
approximately $10 million of cash and cash equivalents on hand.
42
In addition to raising new capital, we have also been successful in obtaining extensions for loans originally maturing
in 2008. As part of our financing strategy, we will continue to seek to refinance and/or extend our debt that is maturing in
2009 and 2010. For example, in October, we negotiated the extension of the maturity dates from 2009 to 2010 on our debt
at four of our consolidated properties (Estero Town Center, Tarpon Springs Plaza, Rivers Edge Shopping Center, and
Bridgewater Marketplace). In addition, in October and December 2008, we refinanced debt at our Gateway Shopping
Center and Bayport Commons properties, respectively, and extended the maturity dates from 2009 to 2011. As a result of
these actions, we extended the maturity dates to 2010 or later on approximately $100.6 million of indebtedness originally
due in 2009. While we can give no assurance, due to these efforts and the current status of negotiations with existing and
alternative lenders for our near-term maturing indebtedness, we currently believe we will have the ability to extend,
refinance, or repay all of our debt that is maturing through at least 2009, including, to the extent necessary, utilizing the
availability on our unsecured credit facility.
Obtaining new financing also is important to our business due to the capital needs of our existing development and
redevelopment projects. The properties in our development and redevelopment pipelines, which are primary drivers for our
near-term growth, will require a substantial amount of capital to complete. As of December 31, 2008, our unfunded share of
the total estimated cost of the properties in our current development and redevelopment pipelines was approximately $45
million. While we believe we will have access to sufficient funding to be able to fund our investments in these projects
through a combination of new and existing construction loans and draws on our unsecured credit facility (which, as noted
above, has $77 million of availability as of December 31, 2008), a prolonged credit crisis will make it more costly and
difficult to raise additional capital, if necessary.
Summary of Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in Note 2 of the accompanying consolidated financial
statements. As disclosed in Note 2, the preparation of financial statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and assumptions about future events that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We believe
that the following discussion addresses our most critical accounting policies, which are those that are most important to the
compilation of our financial condition and results of operations and require management’s most difficult, subjective, and
complex judgments.
Purchase Accounting
The purchase price of operating properties is allocated to tangible assets and identified intangibles acquired based on
their fair values in accordance with the provisions of Statement of Financial Accounting Standards No. 141, “Business
Combinations” (“SFAS No. 141”). In making estimates of fair values for the purpose of allocating purchase price, a
number of sources are utilized. We also consider information about each property obtained as a result of its pre-acquisition
due diligence, marketing and leasing activities in estimating the fair value of tangible assets and intangibles acquired.
A portion of the purchase price is allocated to tangible assets and intangibles, including:
(cid:120)
(cid:120)
(cid:120)
the fair value of the building on an as-if-vacant basis and to land determined by real estate tax assessments,
independent appraisals, or other relevant data;
above-market and below-market in-place lease values for acquired properties are based on the present value
(using an interest rate which reflects the risks associated with the leases acquired) of the difference between
(i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair
market lease rates for the corresponding in-place leases, measured over the remaining non-cancelable term of
the leases. The capitalized above-market and below-market lease values are amortized as a reduction of or
addition to rental income over the remaining non-cancelable terms of the respective leases. Should a tenant
terminate its lease, the unamortized portion of the lease intangibles would be charged or credited to income;
and
the value of leases acquired. We utilize independent sources for our estimates to determine the respective in-
place lease values. Our estimates of value are made using methods similar to those used by independent
appraisers. Factors we consider in our analysis include an estimate of costs to execute similar leases
including tenant improvements, leasing commissions and foregone costs and rent received during the
43
estimated lease-up period as if the space was vacant. The value of in-place leases is amortized to expense
over the remaining initial terms of the respective leases.
We also consider whether a portion of the purchase price should be allocated to in-place leases that have a related
customer relationship intangible value. Characteristics we consider in allocating these values include the nature and extent
of existing business relationships with the tenant, growth prospects for developing new business with the tenant, the
tenant’s credit quality, and expectations of lease renewals, among other factors. To date, a tenant relationship has not been
developed that is considered to have a current intangible value.
Beginning fiscal year 2009, we will apply the provisions of Statement of Financial Accounting Standards (“SFAS”)
No. 141(R) “Business Combinations – Revised” to all assets acquired and liabilities assumed in a business combination.
SFAS No. 141(R) will require us to measure the identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree at their fair values on the acquisition date, measured at their fair values as of that date, with goodwill
being the excess value over the net identifiable assets acquired. SFAS No. 141(R) will modify SFAS No. 141’s cost-
allocation process, which currently requires the cost of an acquisition to be allocated to the individual assets acquired and
liabilities assumed based on their estimated fair values. SFAS No. 141(R) requires the costs of an acquisition to be
recognized in the period incurred. We do not believe the adoption of SFAS No. 141(R) will have a material impact on our
financial position or results of operations.
Capitalization of Certain Pre-Development and Development Costs
We incur costs prior to land acquisition and for certain land held for development, including acquisition contract
deposits as well as legal, engineering and other external professional fees related to evaluating the feasibility of developing
a shopping center. These pre-development costs are capitalized and included in construction in progress in the
accompanying consolidated balance sheets. If we determine that the completion of a development project is no longer
probable, all previously incurred pre-development costs are immediately expensed.
We also capitalize costs such as construction, interest, real estate taxes, and salaries and related costs of personnel
directly involved with the development of our properties. As a portion of the development property becomes operational,
we expense appropriate costs on a pro rata basis.
Impairment of Investment Properties
In accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of” (“SFAS No. 144”), management reviews investment properties for impairment on a property-by-
property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may
not be recoverable. Impairment analysis requires management to make certain assumptions and requires significant
judgment. Management does not believe any investment properties were impaired at December 31, 2008.
Impairment losses for investment properties are recorded when the undiscounted cash flows estimated to be generated
by the investment properties during the expected holding period are less than the carrying amounts of those assets.
Impairment losses are measured as the difference between the carrying value and the fair value of the asset.
In accordance with SFAS No. 144, operating properties held for sale include only those properties available for
immediate sale in their present condition and for which management believes it is probable that a sale of the property will
be completed within one year. Operating properties are carried at the lower of cost or fair value less costs to sell.
Depreciation and amortization are suspended during the held-for-sale period.
Our properties have operations and cash flows that can be clearly distinguished from the rest of our activities. In
accordance with SFAS No. 144, the operations reported in discontinued operations include those operating properties that
were sold or were considered held-for-sale and for which operations and cash flows can be clearly distinguished. The
operations from these properties are eliminated from ongoing operations, and we will not have a continuing involvement
after disposition. When material, prior periods are reclassified to reflect the operations of these properties as discontinued
operations.
44
Revenue Recognition
As lessor, we retain substantially all of the risks and benefits of ownership of the investment properties and account
for our leases as operating leases.
Contractual minimum rents are recognized on a straight-line basis over the terms of the related leases. A small number
of our lease agreements contain provisions that grant additional rents based on a tenant’s sales volume (contingent
percentage rent). Percentage rent is recognized when tenants achieve the specified sales targets as defined in their lease
agreements. Percentage rent is included in other property related revenue in the accompanying statements of operations.
Reimbursements from tenants for real estate taxes and other operating expenses are recognized as revenue in the
period the applicable expense is incurred.
Gains and losses on sales of real estate are recognized in accordance with SFAS No. 66, “Accounting for Sale of Real
Estate.” In summary, gains and losses from sales are not recognized unless a sale has been consummated, the buyer’s initial
and continuing investment is adequate to demonstrate a commitment to pay for the property, we have transferred to the
buyer the usual risks and rewards of ownership, we do not have a substantial continuing financial involvement in the
property and the collectability of any receivable from the sale is reasonably assured.
Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the
percentage of cost incurred to date to the estimated total cost for each contract. Project costs include all direct labor,
subcontract, and material costs and those indirect costs related to contract performance costs incurred to date. Project costs
do not include uninstalled materials. Provisions for estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the revisions are determined.
Development fees and fees from advisory services are recognized as revenue in the period in which the services are
rendered. Performance-based incentive fees are recorded when the fees are earned.
Fair Value Measurements
On January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157
applies to reported balances that are required or permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. SFAS
No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair
value measurement should be determined based on the assumptions that market participants would use in pricing the asset
or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157
establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained
from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the
hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified
within Level 3 of the hierarchy).
As further discussed in Note 12 of the accompanying consolidated financial statements, the only assets or liabilities
that we record at fair value on a recurring basis are interest rate hedge agreements. To comply with the provisions of SFAS
No. 157, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the
respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative
contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value its derivatives fall within Level 2 of the
fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates
of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. However, as of
December 31, 2008, we have assessed the significance of the impact of the credit valuation adjustments on the overall
valuation of its derivative positions and have determined that the credit valuation adjustments are not significant to the
45
overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are
classified in Level 2 of the fair value hierarchy.
Income Taxes and REIT Compliance
We are considered a corporation for federal income tax purposes and qualify as a REIT. As such, we generally will
not be subject to federal income tax to the extent we distribute our REIT taxable income to our shareholders. REITs are
subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we
will be subject to federal income tax on our taxable income at regular corporate rates. We may also be subject to certain
federal, state and local taxes on its income and property and to federal income and excise taxes on our undistributed income
even if we do qualify as a REIT. For example, we will be subject to income tax to the extent we distribute less than 90% of
our REIT taxable income (including capital gains).
Results of Operations
At December 31, 2008, we owned interests in 56 operating properties (consisting of 52 retail properties, three
operating commercial properties and an associated parking garage) and eight entities that held development or
redevelopment properties in which we have an interest. These redevelopment properties include Shops at Eagle Creek,
Bolton Plaza, Courthouse Shadows, and Four Corner Square properties, all of which are undergoing major redevelopment,
and Rivers Edge, a shopping center purchased in February 2008 that we intend to redevelop. Of the 64 total properties held
at December 31, 2008, one operating property and one parcel of pre-development land were owned through joint ventures
and accounted for under the equity method.
At December 31, 2007, we owned interests in 55 operating properties (consisting of 50 retail properties, four
commercial operating properties and an associated parking garage) and had interests in 11 entities that held development or
redevelopment properties. These redevelopment properties included our Glendale Town Center and Shops at Eagle Creek
properties, which were both undergoing major redevelopment. Of the 66 total properties held at December 31, 2007, two
operating properties were owned through joint ventures that were accounted for under the equity method.
At December 31, 2006, we owned interests in 54 operating properties (consisting of 49 retail properties, four
commercial operating properties and an associated parking garage) and had 11 properties under development. Of the 65
total properties held at December 31, 2006, two operating properties were owned through joint ventures that were
accounted for under the equity method.
The comparability of results of operations is significantly affected by our development, redevelopment, and operating
property acquisition and disposition activities in 2006, 2007 and 2008. Therefore, we believe it is most useful to review the
comparisons of our 2006, 2007 and 2008 results of operations (as set forth below under “Comparison of Operating Results
for the Years Ended December 31, 2008 and 2007” and “Comparison of Operating Results for the Years Ended
December 31, 2007 and 2006”) in conjunction with the discussion of our significant development, redevelopment, and
operating property acquisition and disposition activities during those periods, which such discussion is set forth directly
below.
Development Activities
During the years ended December 31, 2008, 2007 and 2006, the following development properties became operational
or partially operational:
Property Name
MSA
54th & College .................................................. Indianapolis, IN
Beacon Hill Phase II......................................... Crown Point, IN
Bayport Commons............................................ Tampa, FL
Cornelius Gateway ........................................... Portland, OR
Tarpon Springs Plaza........................................ Naples, FL
Gateway Shopping Center................................ Marysville, WA
Bridgewater Marketplace ................................. Indianapolis, IN
Economic
1
Occupancy Date
June 2008
December 2007
September 2007
September 2007
July 2007
April 2007
January 2007
Owned GLA
N/A 2
19,160
94,756
21,000
82,546
100,949
26,000
46
Sandifur Plaza ................................................. Tri-Cities, WA
Naperville Marketplace .................................... Chicago, IL
Zionsville Place ................................................ Zionsville, IN
Stoney Creek Commons Phase II ..................... Indianapolis, IN
Beacon Hill Phase I .......................................... Crown Point, IN
Estero Town Commons .................................... Naples, FL
Eagle Creek Lowe’s ......................................... Naples, FL
January 2007
August 2006
August 2006
July 2006
June 2006
April 2006
February 2006
12,552
83,290
12,400
49,330
38,161
25,600
N/A 2
____________________
1
Represents the date in which we started receiving rental payments under tenant leases or ground
leases at the property or the tenant took possession of the property, whichever was sooner.
Property is ground leased to a single tenant.
2
Property Acquisition Activities
During the years ended December 31, 2008 and 2006, we acquired the following properties:
Property Name
MSA
Acquisition Date
Acquisition Cost
(Millions)
Rivers Edge Shopping Center1 ...... Indianapolis, Indiana February 2008
Courthouse Shadows ..................... Naples, Florida
Pine Ridge Crossing ...................... Naples, Florida
Riverchase ..................................... Naples, Florida
Kedron Village .............................. Peachtree, Georgia
July 2006
July 2006
July 2006
April 2006 3
$
18.3
19.8
22.6
15.5
34.9 4
Financing
Method
Primarily
Debt2
Debt
Debt
Debt
Debt
Owned GLA
110,875
134,8667
105,515
78,340
157,408
____________________
1
This property was purchased with the intent to redevelop; therefore, it is included in our redevelopment
pipeline, as discussed below. However, for purposes of the comparison of operating results, this property is
classified as property acquired during 2008 in the comparison of operating results tables below.
To fund the purchase price, we utilized approximately $2.7 million of proceeds from the November 2007
sale of our 176th & Meridian property, as discussed below. The remaining purchase price of $15.6 million
was funded initially through a draw on our unsecured revolving credit facility and subsequently refinanced
with a variable rate loan bearing interest at LIBOR + 125 basis points and originally maturing on February
3, 2009. In October 2008, we extended the maturity date on this loan one additional year.
When purchased, Kedron Village was under construction and not an operating property. The property
became partially operational in the third quarter of 2006 and became fully operational during the fourth
quarter of 2006.
Total purchase price of approximately $34.9 million is net of purchase price adjustments, including tenant
improvement and leasing commission credits, of $2.0 million.
2
3
4
No operating properties were acquired by us in fiscal year 2007.
Operating Property Disposition Activities
During the years ended December 31, 2008 and 2007, we sold the following operating properties:
Property Name
Spring Mill Medical, Phase I1....................
Silver Glen Crossing2................................. Chicago, Illinois
176th & Meridian3 ......................................
Seattle, Washington
Indianapolis, Indiana
MSA
Disposition Date
Owned GLA
December 2008
December 2008
November 2007
63,431
132,716
14,560
____________________
1
We hold a 50% interest in this joint venture. In December 2008, the joint venture sold this property for
$17.5 million, resulting in a total gain on sale of approximately $3.5 million. Net proceeds of
47
approximately $14.4 million from the sale of this property were utilized to defease the related mortgage
loan. Our share of the gain on sale, was approximately $1.2 million, net of our excess investment. We
used the majority of our share of the net proceeds to pay down borrowings under our unsecured revolving
credit facility. Prior to the sale of this property, the joint venture sold a parcel of land for net proceeds of
approximately $1.1 million, of which our share was $0.6 million.
We realized net proceeds of approximately $17.2 million from the sale of this property and recognized a
loss on the sale of $2.1 million, net of Limited Partners’ interests. The majority of the net proceeds from
the sale of this property were used to pay down borrowings under our unsecured revolving credit facility.
The sale of this property and its operating results have been reflected as discontinued operations for fiscal
year ended December 31, 2008. Amounts were not reclassified for fiscal years 2007 and 2006 as they
were not considered material to the financial statements.
This property was sold for net proceeds of $7.0 million and a gain, net of Limited Partners’ interests, of
$1.6 million. We utilized the proceeds from the sale with the intention to execute a like-kind exchange
under Section 1031 of the Internal Revenue Code and, in February 2008 we did so by purchasing Rivers
Edge Shopping Center, as discussed above. The sale of this property and its operating results have been
reflected as discontinued operations for fiscal years ended December 31, 2007 and 2006.
2
3
No operating properties were sold by us in fiscal year 2006.
Redevelopment Activities
During the years ended December 31, 2008, 2007 and 2006, we transitioned the following properties from our
operating portfolio to our redevelopment pipeline:
Property Name
Courthouse Shadows2...............................
Four Corner Square3................................. Maple Valley, Washington
Bolton Plaza4............................................
Rivers Edge5.............................................
Glendale Town Center6 ............................
Shops at Eagle Creek7 ..............................
Jacksonville, Florida
Indianapolis, Indiana
Indianapolis, Indiana
Naples, Florida
MSA
Naples, Florida
Transition Date1
September 2008
September 2008
June 2008
June 2008
March 2007
December 2006
Owned GLA
134,867
73,099
172,938
110,875
685,000
75,944
____________________
1
2
3
4
5
6
7
Transition date represents the date the property was transitioned from our operating portfolio to our
redevelopment pipeline.
In addition to the existing center, we may construct an additional building to support approximately 6,000
square feet of small shop space. We anticipate our total investment in the redevelopment at this property
will be approximately $2.5 million.
In addition to the existing center, we also own approximately ten acres of land adjacent to the center which
may be utilized in the redevelopment. We anticipate the majority of the existing center will remain open
during the redevelopment. We anticipate our total investment in the redevelopment at this property will be
approximately $0.5 million.
The former anchor tenant’s lease at the shopping center expired in May 2008 and was not renewed. We
anticipate our total investment in the redevelopment at this property will be approximately $2.0 million.
We purchased this property in February 2008 with the intent to redevelop. The existing anchor tenant’s
lease at this property will expire in March 2010 and we are currently marketing the space in the event the
current anchor tenant does not renew its lease. We anticipate our total investment in the redevelopment at
this property will be approximately $2.5 million.
Property was transitioned to the operating portfolio in the third quarter of 2008 as redevelopment was
substantially completed. However, because the property was under redevelopment during 2007 and the
majority of 2008, it is classified as such in the comparison of operating results tables below.
We are currently redeveloping the space formerly occupied by Winn-Dixie at this property into two smaller
spaces. Staples signed a lease for approximately 25,800 square feet of the space and opened for business in
August 2008. We are continuing to market the remaining space for lease and have also completed a number
of additional renovations at the property during 2008. We anticipate our total investment in the
redevelopment at Shops at Eagle Creek will be approximately $3.5 million.
48
Comparison of Operating Results for the Years Ended December 31, 2008 and 2007
The following table reflects income statement line items from our consolidated statements of operations for the years
ended December 31, 2008 and 2007:
Year Ended December 31
2008
2007
Increase (Decrease)
2008 to 2007
Revenue:
Rental income (including tenant
reimbursements) ............................................ $89,598,507
Other property related revenue............................ 13,998,650
Construction and service fee revenue.................. 39,103,151
$
90,484,289
11,010,553
37,259,934
$
(885,782 )
2,988,097
1,843,217
Expenses:
Property operating expense ................................. 17,108,464
Real estate taxes .................................................. 11,977,099
Cost of construction and services........................ 33,788,008
General, administrative, and other ......................
5,884,152
Depreciation and amortization ............................ 35,446,575
Operating income ................................................ 38,496,010
Add:
Income from unconsolidated entities ..................
Gain on sale of unconsolidated property.............
Other income, net................................................
842,425
1,233,338
158,024
Deduct:
Interest expense................................................... 29,372,181
Income tax expense of taxable REIT subsidiary .
1,927,830
Minority interest in income of consolidated
15,121,325
11,917,299
32,077,014
6,298,901
31,850,770
41,489,467
290,710
—
778,552
25,965,141
761,628
1,987,139
59,800
1,710,994
(414,749 )
3,595,805
(2,993,457 )
551,715
1,233,338
(620,528 )
3,407,040
1,166,202
subsidiaries ....................................................
61,707
587,413
(525,706 )
Limited Partners’ interests in the continuing
operations of the Operating Partnership ........
Income from continuing operations .........................
2,014,136
7,353,943
3,399,534
11,845,013
(1,385,398 )
(4,491,070 )
Operating income from discontinued
operations, net of Limited Partners’
interests..........................................................
(Loss) gain on sale of operating property, net of
Limited Partners’ interests.............................
(2,111,562 )
Net income .............................................................. $ 6,093,126
1,582,119
13,522,683
$
(3,693,681 )
(7,429,557 )
$
850,745
95,551
755,194
Rental income (including tenant reimbursements) decreased approximately $0.9 million, or 1%, due to the following:
Increase (Decrease)
2008 to 2007
Development properties that became operational or partially
operational in 2007 or 2008..................................................... $
Property acquired during 2008 .....................................................
Properties under redevelopment during 2007 and 2008 ...............
Property sold in 2008 ...................................................................
Properties fully operational during 2007 and 2008 & other .........
Total ............................................................................................ $
5,863,617
1,780,008
322,346
(3,389,804 )
(5,461,949 )
(885,782 )
Excluding the changes due to the acquisition of properties, transitioned development properties, properties under
redevelopment, and the property that was sold, the net $5.5 million decrease in rental income was primarily related to the
following:
(cid:120) $2.5 million net decrease at a number of our properties primarily due to the termination of leases with tenants in
2007 and 2008, which includes the loss of rent as well as the write-off to income of intangible lease related
amounts;
49
(cid:120) $1.5 million net decrease in real estate tax recoveries from tenants primarily due to real estate tax refunds at a
number of our operating properties in 2008 due to decreased assessments, most of which was reimbursed to our
tenants;
(cid:120) $0.9 million net write-off of rental income amounts in connection with the bankruptcy and liquidation of Circuit
City stores at three of our properties;
(cid:120) $0.3 million decrease at our Union Station parking garage related to the change in structure of our agreement from
a lease to a management agreement with a third party; and
(cid:120) $0.3 million decrease in common area maintenance and property insurance recoveries at a number of our operating
properties due to a decrease in the related costs.
Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and
gains from land sales. This revenue increased approximately $3.0 million, or 27%, primarily as a result of the following:
(cid:120) $3.2 million increased gains on land sales in 2008 compared to 2007; and
(cid:120) $1.1 million net increase in parking revenue at our Union Station parking garage related to the change in structure
of our agreement from a lease to a management agreement with a third party.
These increases were partially offset by the following:
(cid:120) $0.9 million decrease in lease settlement income we received from tenants in connection with the termination of
leases in 2008 compared to 2007; and
(cid:120) $0.3 million decrease in percentage rent from our retail operating tenants in 2008 compared to 2007.
Construction revenue and service fees increased approximately $1.8 million, or 5%. This increase is primarily due to
the net increase in proceeds from build-to-suit assets, partially offset by the level and timing of third party construction
contracts during 2008 compared to 2007. In 2008, we realized proceeds of $10.6 million from the sale of our Spring Mill
Medical, Phase II build-to-suit commercial development asset and in 2007, we realized proceeds of $6.1 million from the
sale of a build-to-suit asset at Sandifur Plaza.
Property operating expenses increased approximately $2.0 million, or 13%, due to the following:
Increase (Decrease)
2008 to 2007
Development properties that became operational or partially
operational in 2007 or 2008..................................................... $
Property acquired during 2008 .....................................................
Properties under redevelopment during 2007 and 2008 ...............
Property sold in 2008 ...................................................................
Properties fully operational during 2007 and 2008 & other .........
Total ............................................................................................ $
1,257,519
314,322
227,433
(331,760 )
519,625
1,987,139
Excluding the changes due to the acquisition of properties, transitioned development properties, properties under
redevelopment, and the property sold, the net $0.5 million increase in property operating expenses was primarily due the
following:
(cid:120)
(cid:120)
$0.6 million net increase in bad debt expense at a number of our operating properties; and
$0.5 million increase in expenses at our Union Station parking garage property related to a change in the
structure of our agreement from a lease to a management agreement with a third party.
This increase in operating expenses was partially offset by a net decrease of $0.5 million in insurance and landscaping
expenses at a number of our properties.
50
Real estate taxes increased approximately $0.1 million, or 1%, due to the following:
Increase (Decrease)
2008 to 2007
Development properties that became operational or partially
operational in 2007 or 2008..................................................... $
Property acquired during 2008 .....................................................
Properties under redevelopment during 2007 and 2008 ...............
Property sold in 2008 ...................................................................
Properties fully operational during 2007 and 2008 & other .........
Total ............................................................................................ $
702,283
197,623
140,173
(502,642 )
(477,637 )
59,800
Excluding the changes due to the acquisition of properties, transitioned development properties, properties under
redevelopment, and the property sold, the net $0.5 million decrease in real estate taxes was primarily due to a decrease of
approximately $0.7 million due to real estate tax refunds received in 2008, net of related professional fees, at our Market
Street Village, Galleria Plaza, and Cedar Hill Plaza properties, most of which was reimbursed to tenants. This decrease was
partially offset by a $0.2 million net increase in real estate tax assessments at a number of our operating properties.
Cost of construction and services increased approximately $1.7 million, or 5%. This increase was primarily due to the
increased costs associated with the sale of build-to-suit assets, partially offset by the level and timing of third party
construction contracts during 2008 compared to 2007. In 2008, we had costs associated with the sale of our Spring Mill
Medical, Phase II, build-to-suit commercial development asset of $9.4 million, while in 2007, we had costs associated with
the sale of a build-to-suit asset at Sandifur Plaza of $4.1 million.
General, administrative and other expenses decreased approximately $0.4 million, or 7%. In 2008, general,
administrative and other expenses were 4.1% of total revenue and in 2007, general, administrative and other expenses were
4.5% of total revenue. This decrease in general, administrative and other expenses was primarily due to decreased salary,
benefits and incentive compensation expense as a result of a decrease in overall headcount.
Depreciation and amortization expense increased approximately $3.6 million, or 11%, due to the following:
Increase (Decrease)
2008 to 2007
Development properties that became operational or partially
operational in 2007 or 2008..................................................... $
Property acquired during 2008 .....................................................
Properties under redevelopment during 2007 and 2008 ...............
Property sold in 2008 ...................................................................
Properties fully operational during 2007 and 2008 & other .........
Total ............................................................................................ $
3,137,576
910,235
(1,894,435 )
(1,558,814 )
3,001,243
3,595,805
Excluding the changes due to the acquisition of properties, transitioned development properties, properties under
redevelopment, and the property sold, the net $3.0 million increase in depreciation and amortization expense was primarily
attributable to the acceleration of depreciable assets, including intangible lease assets, related to the termination of tenants,
including the termination of leases with Circuit City stores at three of our properties that was recognized in 2008 in
connection with Circuit City’s bankruptcy and liquidation.
Income from unconsolidated entities increased $0.6 million, or 190%. During 2008, one of our unconsolidated joint
ventures (Spring Mill Medical, Phase I) sold a parcel of land for a net gain of approximately $1.1 million, of which our
share was $0.6 million.
Gain on sale of unconsolidated property was $1.2 million in 2008. In December 2008, we sold our interest in Spring
Mill Medical, Phase I, one of our unconsolidated commercial operating properties. This property is located in Indianapolis,
Indiana and was owned 50% through a joint venture. The joint venture sold the property for approximately $17.5 million,
resulting in a gain on the sale of approximately $3.5 million. Net proceeds of approximately $14.4 million from the sale of
this property were utilized to defease the related mortgage loan. Our share of the gain on the sale of Spring Mill Medical,
Phase I, was approximately $1.2 million, net of our excess investment. We used the majority of our share of the net
proceeds to pay down borrowings under our unsecured revolving credit facility.
51
Other income, net decreased approximately $0.6 million, or 80%, primarily as a result of a $0.5 million payment
received from a lender in consideration for our agreement to terminate a loan commitment in 2007.
Interest expense increased approximately $3.4 million, or 13%, due to the following:
Increase (Decrease)
2008 to 2007
Development properties that became operational or partially
operational in 2007 or 2008..................................................... $
Property acquired during 2008 .....................................................
Properties under redevelopment during 2007 and 2008 ...............
Properties fully operational during 2007 and 2008 & other .........
Total ............................................................................................ $
2,609,255
593,808
(112,367 )
316,344
3,407,040
Excluding the changes due to the acquisition of properties and transitioned development properties, the net $0.3
million increase in interest expense was primarily due to increased interest expense related to the $55 million outstanding
on our term loan, which was entered into in July 2008. This was partially offset by lower LIBOR rates on our variable rate
debt, including the line of credit, during fiscal year 2008 compared to 2007.
Income tax expense of our taxable REIT subsidiary increased $1.2 million, or 153%, primarily due to the income
taxes incurred by our taxable REIT subsidiary associated with the gain on the sale of land in the first quarter of 2008 as
well as the sale of Spring Mill Medical, Phase II, a consolidated joint venture property. This build-to-suit commercial asset
that we sold was adjacent to Spring Mill Medical I and was owned in our taxable REIT subsidiary through a 50% owned
joint venture with a third party. Our proceeds of this sale were approximately $10.6 million, and our associated construction
costs were approximately $9.4 million, including a $0.9 million payment to our joint venture partner to acquire their
partnership interest prior to the sale to a third party. Our share of net proceeds of approximately $1.2 million from this sale
were primarily used to pay down borrowings under our unsecured revolving credit facility.
Minority interest in income of consolidated subsidiaries decreased approximately $0.5 million, or 89%. This decrease
was primarily due to the following:
(cid:120)
(cid:120)
$0.3 million decrease as a result of the minority partners’ share of income related to the sale of a merchant
building at our Sandifur Plaza property in 2007; and
$0.2 million decrease as a result of the minority partners’ share of income related to the sale of an outlot at our
Beacon Hill property in 2007.
Operating income from discontinued operations, net of Limited Partners’ interests, increased $0.8 million and loss
(gain) on sale of operating property, net of Limited Partners’ interests, decreased $3.7 million, for a net decrease of $2.9
million, or 175%. In December 2008, we sold our Silver Glen Crossings property, located in Chicago, Illinois, for net
proceeds of $17.2 million and a loss on sale of $2.1 million, net of Limited Partners’ interests. In November 2007, we sold
our 176th & Meridian property, located in Seattle, Washington, for net proceeds of $7.0 million and a gain of $1.6 million,
net of Limited Partners’ interests.
52
Comparison of Operating Results for the Years Ended December 31, 2007 and 2006
The following table reflects income statement line items from our consolidated statements of operations for the years
ended December 31, 2007 and 2006:
Year Ended December 31
2007
2006
Increase (Decrease)
2007 to 2006
Revenue:
Rental income (including tenant
reimbursements)............................................. $90,484,289 $
Other property related revenue ............................
Construction and service fee revenue ..................
11,010,553
37,259,934
83,344,870 $
6,358,086
41,447,364
Expenses:
Property operating expense..................................
Real estate taxes...................................................
Cost of construction and services ........................
General, administrative, and other.......................
Depreciation and amortization.............................
Operating income ................................................
15,121,325
11,917,299
32,077,014
6,298,901
31,850,770
41,489,467
Add:
Income from unconsolidated entities ...................
Other income, net ................................................
290,710
778,552
Deduct:
Interest expense ...................................................
Loss on sale of asset ............................................
Income tax expense of taxable REIT subsidiary..
Minority interest in income of consolidated
25,965,141
—
761,628
13,580,369
11,259,794
35,901,364
5,322,594
29,579,123
35,507,076
286,452
344,537
21,221,758
764,008
965,532
7,139,419
4,652,467
(4,187,430 )
1,540,956
657,505
(3,824,350 )
976,307
2,271,647
5,982,391
4,258
434,015
4,743,383
(764,008 )
(203,904 )
subsidiaries.....................................................
587,413
117,469
469,944
Limited Partners’ interests in the continuing
operations of the Operating Partnership.........
3,399,534
Income from continuing operations.......................... 11,845,013
2,966,730
10,102,568
432,804
1,742,445
Operating income from discontinued operations,
net of Limited Partners’ interests ...................
95,551
77,082
18,469
Gain on sale of operating property, net of
Limited Partners’ interests ............................. 1,582,119
—
Net income .............................................................. $13,522,683 $
10,179,650 $
1,582,119
3,343,033
Rental income (including tenant reimbursements) increased approximately $7.1 million, or 9%, due to the following:
Increase (Decrease)
2007 to 2006
Properties acquired during 2006.................................................. $
Development properties that became operational or partially
operational in 2006 or 2007....................................................
Properties under redevelopment during 2007..............................
Properties fully operational during 2006 and 2007 & other ........
Total ............................................................................................ $
5,168,027
3,151,994
(1,839,652 )
659,050
7,139,419
Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties
under redevelopment, the net $0.7 million increase in rental income was primarily related to the following:
(cid:120) $0.8 million increase due to the write off of intangible lease obligations in connection with the termination of a
lease at our Silver Glen Crossings property;
(cid:120) $0.5 million net increase in real estate tax recoveries from tenants due to increased assessments at a number of our
properties;
(cid:120) $0.3 million of increased rental income at one of our properties due to two new tenants that began paying rent in
the second half of 2006;
53
(cid:120) $0.3 million of increased common area maintenance and property insurance recoveries from tenants at a number of
our properties due to higher related expenses; and
(cid:120) $0.2 million of increased rental income at one of our properties due to a new anchor tenants that began paying rent
in the second half 2007.
These increases in rental income were partially offset by the following:
(cid:120) $0.8 million decrease reflecting the termination of our lease with Marsh Supermarkets at Naperville Marketplace
and the subsequent sale of the facility in the second quarter of 2006; and
(cid:120) $0.7 million decrease due to the termination of a lease at our Thirty South property in the fourth quarter of 2006.
Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and
gains on land sales. This revenue increased approximately $4.7 million, or 73%, primarily as a result of $4.0 million
increased gains on land sales and an increase of $0.9 million in lease settlement income. This revenue increase was partially
offset by a decrease of approximately $0.3 million in specialty leasing income as a result of the redevelopment of Glendale
Town Center.
Construction revenue and service fees decreased approximately $4.2 million, or 10%. This decrease is primarily due
to the level and timing of third party construction contracts during 2007 compared to 2006, partially offset by the net
increase in proceeds from build-to-suit assets. In 2007, we had proceeds from the sale of a build-to-suit asset at Sandifur
Plaza of $6.1 million while, in 2006, we had proceeds from the sale of a build-to-suit asset at Bridgewater Marketplace of
$5.3 million.
Property operating expenses increased approximately $1.5 million, or 11%, due to the following:
Increase (Decrease)
2007 to 2006
Properties acquired during 2006................................................ $
Development properties that became operational or partially
operational in 2006 or 2007..................................................
Properties under redevelopment during 2007............................
Properties fully operational during 2006 and 2007 & other ......
Total .......................................................................................... $
958,716
681,211
(714,967 )
615,996
1,540,956
Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties
under redevelopment, the net $0.6 million increase in property operating expenses was primarily due to the following:
(cid:120) $0.4 million increase in snow removal expense primarily at our Indiana and Illinois properties, the majority of
which is recoverable from tenants;
(cid:120) $0.2 million increase in landscaping and parking expense at a number of our operating properties, the majority of
which is recoverable from tenants; and
(cid:120) $0.2 million net increase in repair and maintenance expense at a number of our operating properties, some of
which is recoverable from tenants.
These increases in property operating expenses were partially offset by the following:
(cid:120) $0.1 million net decrease in bad debt expense at a number of our operating properties; and
(cid:120) $0.1 million net decrease in non-recoverable legal expenses at one of our operating properties.
Real estate taxes increased approximately $0.7 million, or 6%, due to the following:
Increase (Decrease)
2007 to 2006
Properties acquired during 2006 ............................................... $
Development properties that became operational or partially
operational in 2006 or 2007 .................................................
Properties under redevelopment during 2007 ...........................
Properties fully operational during 2006 and 2007 & other......
Total.......................................................................................... $
537,220
364,184
(282,416 )
38,517
657,505
54
Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties
under redevelopment, the net $38,517 increase in real estate taxes represented a net increase of approximately $0.5 million
in real estate tax assessments at a number of our properties, the most significant increases at properties located in Texas and
Illinois. This increase in real estate taxes was partially offset by a real estate tax refund, net of related professional fees, of
approximately $0.5 million for fiscal years 2002 through 2004 at our Thirty South property, which was received in 2007.
Cost of construction and services decreased approximately $3.8 million, or 11%. This decrease is primarily due to the
level and timing of third party construction contracts during 2007 compared to 2006, partially offset by the net increase in
costs associated with the sale of build-to-suit assets. In 2007, we had costs associated with the sale of a build-to-suit asset
at Sandifur Plaza of $4.1 million and in 2006 we had $3.5 million of costs associated with the sale of a build-to-suit asset at
Bridgewater Marketplace.
General, administrative and other expenses increased approximately $1.0 million, or 18%. In 2007, general,
administrative and other expenses were 4.5% of total revenue and in 2006, general, administrative and other expenses were
4.1% of total revenue. This increase in general, administrative and other expenses was primarily due to higher share-based
incentive compensation costs and increased staffing attributable to our growth. The costs of operating as a public company
remained relatively flat between years.
Depreciation and amortization expense increased approximately $2.3 million, or 8%, due to the following:
Properties acquired during 2006.............................................. $
Development properties that became operational or partially
operational in 2006 or 2007 ................................................
Properties under redevelopment during 2007 ..........................
Properties fully operational during 2006 and 2007 & other ....
Total......................................................................................... $
Increase (Decrease)
2007 to 2006
1,998,616
802,052
(713,325 )
184,304
2,271,647
Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties
under redevelopment, the net $0.2 million increase in depreciation and amortization expense was primarily due to the
following:
(cid:120) $0.9 million net increase in the acceleration of depreciation of vacated tenant costs at our fully operational
properties during 2007 compared to 2006; and
(cid:120) $0.8 million increase due to the write off of intangible lease assets in connection with the termination of a lease at
our Silver Glen Crossings property in 2007.
These increases in depreciation and amortization expenses were partially offset by the following:
(cid:120) $0.9 million decrease reflecting the termination of our lease with Marsh Supermarkets at Naperville Marketplace
and the subsequent sale of the facility in the second quarter of 2006; and
(cid:120) $0.6 million of intangible lease obligations written down related to our lease with Winn-Dixie at our Shops at
Eagle Creek property, which was terminated in 2006.
Other income, net increased approximately $0.4 million, or 126%, primarily as a result of a $0.5 million payment
received from a lender in consideration for our agreement to terminate a loan commitment in 2007.
Interest expense increased approximately $4.7 million, or 22%, due to the following:
Properties acquired during 2006 .............................................. $
Development properties that became operational or partially
operational in 2006 or 2007 ................................................
Properties fully operational during 2006 and 2007 & other.....
Total......................................................................................... $
Increase
2007 to 2006
1,201,928
1,690,255
1,851,200
4,743,383
55
Excluding the changes due to the acquisition of properties and transitioned development properties, the net $1.9
million increase in interest expense was primarily due to the following:
(cid:120)
(cid:120)
(cid:120)
$2.1 million increase attributable to the addition of a fixed rate debt instrument on our Traders Point property in
July of 2006;
$0.1 million increase due to higher average balance on our line of credit; and
$0.1 million increase due to fixed rate financing placed on one of our properties in December 2006.
These increases in interest expense were partially offset by a $0.4 million decrease due to interest expense incurred in
the first quarter of 2006 at the Naperville Marsh Supermarkets, which was sold during the second quarter of 2006.
Loss on sale of asset was $0.8 million in 2006. In June 2006, we terminated our lease with Marsh Supermarkets and
subsequently sold the store at our Naperville Marketplace property to Caputo’s Fresh Markets and recorded a loss on the
sale of approximately $0.8 million (approximately $0.5 million after tax). The total proceeds from these transactions of $14
million included a $2.5 million note from Marsh with monthly installments payable through June 30, 2008, and $2.5
million of cash received from the termination of our lease with Marsh. As of December 31, 2008, all amounts had been
collected under the note. Marsh Supermarkets at Naperville Marketplace was owned by our taxable REIT subsidiary. The
net proceeds from this sale were used to pay off related indebtedness of approximately $11.6 million. We continue to
develop the remainder of the Naperville Marketplace development property.
Minority interest in income of consolidated subsidiaries increased approximately $0.5 million, or 400%. This increase
was primarily due to the following:
(cid:120)
(cid:120)
$0.3 million increase as a result of the minority partners’ share of income related to the sale of a merchant building
at our Sandifur Plaza property in 2007; and
$0.2 million increase as a result of the minority partners’ share of income related to the sale of an outlot at our
Beacon Hill property in 2007.
Gain on sale of operating property, net of Limited Partners’ interests, was $1.6 million in 2007. In November 2007,
we sold our 176th & Meridian property, located in Seattle, Washington, for net proceeds of $7.0 million and a gain, net of
Limited Partners’ interests, of $1.6 million.
Liquidity and Capital Resources
Current State of Capital Markets and Our Financing Strategy
Our primary finance and capital strategy is to maintain a strong balance sheet with sufficient flexibility to fund our
operating and investment activities in a cost-effective way. We consider a number of factors when evaluating our level of
indebtedness and when making decisions regarding additional borrowings, including the purchase price of properties to be
developed or acquired with debt financing, the estimated market value of our properties and our Company as a whole upon
consummation of the refinancing and the ability of particular properties to generate cash flow to cover expected debt
service. As discussed in more detail above in “Overview”, the challenging market conditions that currently exist have
created a need for most REITs, including us, to place a significant amount of emphasis on financing and capital strategies.
In 2008, we reduced the aggregate amount of indebtedness outstanding under our unsecured credit facility in an effort
to have that source of financing available to fund our development and redevelopment projects and pay down maturing
debt. In July and August 2008, we obtained $55 million of proceeds from a term loan that matures in July 2011, as
described in more detail below, majority of the proceeds of which were used to pay down borrowings under our unsecured
revolving credit facility. In addition, in October 2008, we completed an offering of our common shares that raised
approximately $47.8 million of net proceeds, the majority of which was used to pay down outstanding borrowings under
our unsecured credit facility. As a result, approximately $77 million was available under that facility as of December 31,
2008.
In addition to raising new capital, we have also been successful in refinancing or extending the maturities of a
significant portion of our debt that is scheduled to mature in 2009. For example, in October 2008, we extended the maturity
dates from 2009 to 2010 on our debt at four of our consolidated properties (Estero Town Center, Tarpon Springs Plaza,
56
Rivers Edge Shopping Center, and Bridgewater Marketplace). In addition, in October and December 2008, we refinanced
debt at our Gateway Shopping Center and Bayport Commons properties, respectively, and extended the maturity dates from
2009 to 2011. As a result of these actions, we extended the maturity dates to 2010 or later on approximately $100.6 million
of indebtedness previously due in 2009. We continue to conduct negotiations with our existing and potential replacement
lenders to refinance or obtain extensions on our remaining 2009 maturities, which total approximately $83.9 million
(approximately $108.0 million when including our share of unconsolidated debt) at December 31, 2008, excluding
scheduled monthly principal payments for 2009. While we can give no assurance, due to these efforts and the current status
of negotiations with existing and alternative lenders for our near-term maturing indebtedness, we currently believe we will
have the ability to extend, refinance, or repay all of our debt that is maturing through at least 2009.
We were also able to effectively recycle capital by selling two of our operating properties, which is another aspect of
our financing strategy. In December 2008 we sold our Silver Glen Crossing property, a wholly-owned property in our retail
portfolio, and Spring Mill Medical, Phase I, an unconsolidated commercial property that was owned 50% through a joint
venture with a third party. In addition, our 50% owned consolidated joint venture sold Spring Mill Medical, Phase II, a
build-to-suit commercial asset located in Indianapolis, Indiana that was owned in our taxable REIT subsidiary. Utilizing the
net proceeds of these sales, we were able to generate net cash of approximately $23.6 million, which was primarily used to
pay down borrowings under our unsecured revolving credit facility.
In the future, we may raise additional capital by pursuing joint venture capital partners and/or disposing of additional
properties that are no longer a core component of our growth strategy. 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.
As of December 31, 2008, we had cash and cash equivalents on hand of $10 million. We may be subject to
concentrations of credit risk with regards to our cash and cash equivalents. We place our cash and temporary cash
investments with high-credit-quality financial institutions. From time to time, such investments may temporarily be in
excess of FDIC and SIPC insurance limits, however we attempt to limit our exposure at any one time.
Our Principal Capital Resources
Our Unsecured Revolving Credit Facility
Our Operating Partnership has entered into an amended and restated four-year $200 million unsecured revolving
credit facility with a group of lenders and Key Bank National Association, as agent (the “unsecured facility”). As of
December 31, 2008, our outstanding indebtedness under the unsecured facility was approximately $105 million, bearing
interest at a rate of LIBOR plus 125 basis points. Factoring in our hedge agreements, at December 31, 2008, our weighted
average interest rate on our unsecured revolving credit facility was approximately 5.06%.
The amount that we may borrow under the unsecured facility is based on the value of assets in the unencumbered
property pool. We currently have 53 unencumbered properties and other assets, 51 of which are wholly owned and used to
calculate the amount available for borrowing under the unsecured credit facility and two of which are owned through joint
ventures. The major unencumbered assets include: Broadstone Station, Courthouse Shadows, Eagle Creek Lowes, Eastgate
Pavilion, Four Corner Square, Hamilton Crossing, King’s Lake, Market Street Village, Naperville Marketplace, PEN
Products, Publix at Acworth, Red Bank Commons, Shops at Eagle Creek, Traders Point II, Union Station Parking Garage,
Wal-Mart Plaza, and Waterford Lakes. As of December 31, 2008 the amounts available to us for future draws was
approximately $77 million.
We and several of the Operating Partnership’s subsidiaries are guarantors of the Operating Partnership’s obligations
under the unsecured facility. The unsecured facility has a maturity date of February 20, 2011, with an option for a one-year
extension. Borrowings under the unsecured facility bear interest at a variable interest rate of LIBOR plus 115 to 135 basis
points, depending on our leverage ratio. The unsecured facility has a 0.125% to 0.20% commitment fee applicable to the
average daily unused amount. Subject to certain conditions, including the prior consent of the lenders, we have the option
to increase our borrowings under the unsecured facility to a maximum of $400 million if there are sufficient unencumbered
assets to support the additional borrowings. As discussed in more detail below under “2009 Debt Maturities”, we may seek
to increase the unencumbered asset pool related to the facility in order to increase our borrowing capacity. The unsecured
facility also includes a short-term borrowing line of $25 million with a variable interest rate. Borrowings under the short-
term line may not be outstanding for more than five days.
57
Our ability to borrow under the unsecured facility is subject to ongoing compliance with various restrictive
covenants, including with respect to liens, indebtedness, investments, dividends, mergers and asset sales. In addition, the
unsecured facility requires us to satisfy certain financial covenants, including:
(cid:120)
a maximum leverage ratio of 65% (or up to 70% in certain circumstances);
(cid:120) Adjusted EBITDA (as defined in the unsecured facility) to fixed charges coverage ratio of at least 1.50 to 1;
(cid:120) minimum tangible net worth (defined as Total Asset Value less Total Indebtedness) of $300 million (plus
75% of the net proceeds of any future equity issuances);
(cid:120)
ratio of net operating income of unencumbered property to debt service under the unsecured facility of at
least 1.50 to 1;
(cid:120) minimum unencumbered property pool occupancy rate of 80%;
(cid:120)
(cid:120)
ratio of variable rate indebtedness to total asset value of no more than 0.35 to 1; and
ratio of recourse indebtedness to total asset value of no more than 0.30 to 1.
We were in compliance with all applicable covenants under the unsecured facility as of December 31, 2008.
Under the terms of the unsecured facility, we are permitted to make distributions to our shareholders of up to 95% of
our funds from operations provided that no event of default exists. If an event of default exists, we may only make
distributions sufficient to maintain our REIT status. However, we may not make any distributions if an event of default
resulting from nonpayment or bankruptcy exists, or if our obligations under the credit facility are accelerated.
Term Loan
On August 18, 2008, we entered into an amendment to a $30 million unsecured term loan (the “Term Loan
Amendment”) with KeyBank National Association, as Original Lender and Agent, Raymond James Bank and Royal Bank
of Canada that was originally entered into on July 15, 2008. The Term Loan Amendment, among other things, increased the
amount of borrowings under the original Term Loan agreement by an additional $25 million, which amount was
subsequently drawn, resulting in an aggregate amount outstanding under the Term Loan of $55 million. The Operating
Partnership is the borrower under the Term Loan and we and several of the Operating Partnership’s subsidiaries are
guarantors of the Operating Partnership’s obligations there under. The majority of the proceeds of borrowings under the
Term Loan were used to pay down borrowings under our unsecured revolving credit facility. In connection with the Term
Loan, in September 2008, we entered into a cash flow hedge for $55 million at a fixed interest rate of 5.92%.
The Term Loan has a scheduled maturity date of July 15, 2011. Borrowings under the Term Loan will bear interest
at a variable interest rate of LIBOR plus 265 basis points. Our ability to borrow under the Term Loan will be subject to
ongoing compliance by us, the Operating Partnership and our subsidiaries with various restrictive covenants, including with
respect to liens, indebtedness, investments, dividends, mergers and asset sales. In addition, the Term Loan requires that we
satisfy certain financial covenants that are substantially the same as those under the unsecured credit facility, as described
above. We were in compliance with all applicable covenants under the Term Loan as of December 31, 2008.
Capital Markets
We have filed a registration statement, and subsequent prospectus supplements related thereto, with the Securities
and Exchange Commission allowing us to offer, from time to time, common shares or preferred shares for an aggregate
initial public offering price of up to $500 million. In October 2008, we issued 4,750,000 common shares for offering
proceeds, net of offering costs, of approximately $47.8 million. 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.
58
Short and Long-Term Liquidity Needs
Overview
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 in uncertain economic times, the current general economic downturn is
adversely affecting the ability of some of our tenants to meet their lease obligations, as discussed in more detail above in
“Overview” on page 40. These conditions, in turn, are having a negative impact on our business. If the downturn in the
financial markets and economy is prolonged, our cash flow from operations could be significantly affected.
Short-Term Liquidity Needs
The nature of our business, coupled with the requirements for qualifying for REIT status (which includes the
stipulation that we distribute to shareholders at least 90% of our annual REIT taxable income) and to avoid paying tax on
our income, necessitate that we distribute a substantial majority of our income on an annual basis, which will 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 (including distributions to persons who hold units in our
Operating Partnership) and recurring capital expenditures. Each quarter we discuss with our Board of Trustees (the
“Board”) our liquidity requirements along with other relevant factors before the Board decides whether and in what amount
to declare a distribution. In February 2009, our Board of Trustees declared a quarterly cash distribution of $0.1525 per
common share for the quarter ending March 31, 2009. This distribution represents a reduction from the amount paid in the
prior quarter thereby allowing us to conserve additional liquidity. We, along with our Board, will continue to evaluate our
distribution policy on a quarterly basis as we monitor the capital markets and the impact of the economy on our operations.
When we lease space to new tenants, or renew leases for existing tenants, we also incur expenditures for tenant
improvements and external leasing commissions. This amount, as well as the amount of recurring capital expenditures that
we incur, will vary from year to year. During the year ended December 31, 2008, we incurred approximately $0.5 million
of costs for recurring capital expenditures on operating properties and also incurred approximately $1.0 million of costs for
tenant improvements and external leasing commissions. In addition, we currently anticipate incurring approximately $2.2
million in additional tenant improvements and renovation costs within the next twelve months at our Cedar Hill Plaza
property to replace the former anchor tenant’s space with the property’s new anchor.
We expect to meet our short-term liquidity needs through borrowings under the unsecured facility, new construction
loans, cash generated from operations and, to the extent necessary, accessing the public equity and debt markets to the
extent that we are able.
2009 Debt Maturities
As of December 31, 2008, approximately $83.9 million of our consolidated outstanding indebtedness was scheduled
to mature in 2009 (approximately $108.0 million when including our share of unconsolidated debt), excluding scheduled
monthly principal payments for 2009. Our current plans with respect to each of these loans are as follows:
(cid:120)
(cid:120)
(cid:120)
The construction loan on our Beacon Hill property ($11.9 million) matures in March 2009. This loan has a
five year extension option with a debt service coverage ratio of 1.2x. We currently anticipate paying down
the loan with land sale proceeds and/or utilizing our unsecured revolving credit facility prior to original
maturity;
The variable rate mortgage loan on our Fishers Station property ($4.2 million) matures in June 2009. We are
currently in discussions with lenders on a three to five year loan and anticipate closing on the loan in the
second quarter of 2009;
The construction loan on our Cobblestone Plaza property ($30.5 million) matures in June 2009. We are
currently in discussions with the lender to extend the maturity date of that loan and anticipate closing on the
loan in the first quarter of 2009;
59
(cid:120)
(cid:120)
(cid:120)
(cid:120)
The variable rate land loan on our Delray Marketplace property ($9.4 million) matures in July 2009. We are
currently in discussions with the lender on an extension of the current loan or a new construction loan at the
property;
The fixed rate mortgage loan at our Ridge Plaza property ($16.0 million) matures in October 2009. We
currently plan to negotiate a three to five year loan in mid-2009 or utilize our unsecured revolving credit
facility to pay it off prior to original maturity, while increasing total availability on the unsecured facility by
increasing the unencumbered asset pool;
The fixed rate mortgage loan at our Boulevard Crossing property ($11.9 million) matures in December
2009. We currently plan to negotiate a three to five year loan in mid-2009 or utilize our unsecured revolving
credit facility to pay it off prior to original maturity, while increasing total availability on the unsecured
facility by increasing the unencumbered asset pool; and
The variable rate land loan at our unconsolidated joint venture property Parkside Town Commons ($55.0
million, our share of which is $22.0 million) matures in August 2009. We are currently in discussions with
the lender for an 18-month extension on the loan.
Long-Term Liquidity Needs
Our long-term liquidity needs consist primarily of funds necessary to pay for the development of new properties,
redevelopment of existing properties, non-recurring capital expenditures, acquisitions of properties, and payment of
indebtedness at maturity.
Redevelopment Properties. As of December 31, 2008, five of our properties (Shops at Eagle Creek, Bolton Plaza,
Rivers Edge, Courthouse Shadows and Four Corner Square) were undergoing major redevelopment activities. We
anticipate our investment in these redevelopment projects will be a total of approximately $11 million, which we currently
have sufficient financing in place to fund through borrowings through our unsecured credit facility.
Development Properties. As of December 31, 2008, we had three development projects in our current development
pipeline. The total estimated cost, including our share and our joint venture partners’ share, for these projects is
approximately $91 million, of which approximately $48 million had been incurred as of December 31, 2008. Our share of
the total estimated cost of these projects is approximately $68 million, of which we have incurred approximately $30
million as of December 31, 2008. We believe we currently have sufficient financing in place to fund these projects and
expect to do so primarily through existing construction loans, including the construction loan on Eddy Street Commons that
closed in December 2008, with a total loan commitment of approximately $29.5 million, of which no amounts were
outstanding at December 31, 2008. In addition, if necessary, we may make draws on our unsecured credit facility. See
below for a more complete discussion of this development project.
The most significant project in our current development pipeline is Eddy Street Commons at the University of Notre
Dame located adjacent to the university in South Bend, Indiana, that is expected to include retail, office, hotels, a parking
garage, apartments and residential units. The Eddy Street Commons project is discussed in detail below under “Contractual
Obligations – Obligations in Connection with Our Development, Redevelopment and Visible Shadow Pipeline”.
“Visible Shadow” Development Pipeline. In addition to our current development pipeline, we have a “visible
shadow” development pipeline which includes land parcels that are in various stages of preparation for construction to
commence, including pre-leasing activity and negotiations for third party financing. As of December 31, 2008, this visible
shadow pipeline consisted of six projects that are expected to contain approximately 2.9 million square feet of total leasable
area. We currently anticipate the total estimated cost of these six projects will be approximately $383 million, of which our
share is currently expected to be approximately $244 million. However, we are generally not contractually obligated to
complete any developments in our visible shadow pipeline, as these projects consist of land parcels on which we have not
yet commenced construction. With respect to each asset in the visible shadow pipeline, our policy is to not commence
vertical construction until pre-established leasing thresholds are achieved and the requisite third-party financing is in place.
Once these projects are transferred to the current development pipeline, we intend to fund our investment in these
developments primarily through new construction loans and joint ventures, as well as borrowings on our unsecured facility,
if necessary.
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 we would have sufficient funds on
hand to meet these long-term capital requirements. We would have to satisfy these needs through participation in joint
60
venture arrangements, additional borrowings, sales of common or preferred shares and/or cash generated through property
dispositions. 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. Our ability to access the capital markets will be dependent on a number of
factors, including general capital market conditions, which is discussed in more detail above in “Overview”.
We have entered into an agreement (the “Venture”) with Prudential Real Estate Investors (“PREI”) to pursue joint
venture opportunities for the development and selected acquisition of community shopping centers in the United States.
The agreement allows for the Venture to develop or acquire up to $1.25 billion of well-positioned community shopping
centers in strategic markets in the United States. Under the terms of the agreement, we have agreed to present to PREI
opportunities to develop or acquire community shopping centers, each with estimated project costs in excess of $50
million. We have the option to present to PREI additional opportunities with estimated project costs under $50 million.
The agreement allows for equity capital contributions of up to $500 million to be made to the Venture for qualifying
projects. We expect contributions would be made on a project-by-project basis with PREI contributing 80% and us
contributing 20% of the equity required. Our first project with PREI is Parkside Town Commons, which is currently in our
visible shadow development pipeline.
Cash Flows
Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007
Cash provided by operating activities was $40.6 million for the year ended December 31, 2008, an increase of
$2.9 million from 2007. The increase was primarily due to a change in accounts payable, accrued expenses, deferred
revenue and other liabilities of $6.9 million between years, which was primarily due to construction related expenses as
well as the conservation of cash. This increase was partially offset by a change in deferred costs and other assets of $4.3
million between years.
Cash used in our investing activities totaled $95.7 million in 2008, a decrease of $1.0 million from 2007. The decrease
in cash used in investing activities was primarily a result of an increase of $17.0 million in net proceeds from the sale of an
operating property, which was the result of the net proceeds from the 2008 sale of Silver Glen Crossings compared to the
2007 sale of 176th & Meridian. This was partially offset by an increase of $12.4 million in acquisitions of interests in
properties and capital expenditures.
Cash provided by financing activities totaled $46.0 million during 2008, a decrease of $8.0 million from 2007. The net
of loan proceeds, transaction costs and payments decreased $53.7 million between years primarily due to the $118.1 million
draw from the new unsecured credit facility in 2007 compared to the $55 million proceeds received under the Term Loan in
2008, both of which were used to repay previously outstanding indebtedness. This was partially offset by the $48.3 million
of offering proceeds, the majority of which was received in October 2008 when we completed an equity offering of
4,750,000 common shares at an offering price of $10.55 per share.
Comparison of the Year Ended December 31, 2007 to the Year Ended December 31, 2006
Cash provided by operating activities was $37.7 million for the year ended December 31, 2007, an increase of
$7.2 million from 2006. The increase resulted largely from the addition of four operating properties purchased in 2006, the
opening of several properties that were under development during 2006, and the change in tenant receivables and deferred
costs and other assets between years of $13.1 million. These increases were partially offset by a change in accounts
payable, accrued expenses, deferred revenues, and other liabilities between years of approximately $8.3 million.
Cash used in our investing activities totaled $96.7 million in 2007, a decrease of $123.4 million from 2006. The
decrease in cash used in investing activities was primarily a result of a decrease of $123.6 million in property acquisition
and capital expenditures in 2007 compared to 2006. In addition, during 2006, we realized net proceeds of $11.1 million
from the termination of our lease with Marsh Supermarkets at Naperville Marketplace and the related sale of this asset.
Cash provided by financing activities totaled $54.1 million during 2007, a decrease of $144.3 million from 2006.
Proceeds from loan transactions, net of loan transaction costs, decreased approximately $206.5 million between periods.
This decrease was largely due to new debt obtained during 2006 for the purchase of four operating properties, an outside
partners’ interest in a consolidated property, the financing of the acquisition of development land parcels, and the funding
61
of development activity. In 2007, a significant portion of proceeds from loan transactions was related to the draw of $118.1
million from the new unsecured credit facility to repay the principal amount outstanding under our then-existing secured
revolving credit facility and retire the secured revolving credit facility. Loan payments also decreased $63.5 million
between years, which was primarily the result of the repayment of short-term borrowings related to the acquisition of
properties in 2006.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a material
current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources. We do, however, have certain obligations to some of the
projects in our current development pipeline, including our obligations in connection with our Eddy Street Commons
development, as discussed below in “Contractual Obligations”, as well as our joint venture with PREI with respect to our
Parkside Town Commons development, as discussed above. As of December 31, 2008, we owned a 40% interest in this
joint venture which, under the terms of this joint venture, will be reduced to 20% upon project specific construction
financing.
As of December 31, 2008, our share of unconsolidated joint venture indebtedness was $24.1 million. Unconsolidated
joint venture debt is the liability of the joint venture and is typically secured by the assets of the joint venture. As of
December 31, 2008, the Operating Partnership had guaranteed unconsolidated joint venture debt of $22.0 million in the
event the joint venture partnership defaults under the terms of the underlying arrangement, all of which was related to the
Parkside Town Commons development. Mortgages which are guaranteed by the Operating Partnership are secured by the
property of the joint venture and that property could be sold in order to satisfy the outstanding obligation. See Note 6
“Investments in Unconsolidated Joint Ventures” in our Notes to Consolidated Financial Statements, contained in this Form
10-K, for information on our unconsolidated joint ventures for the years ended December 31, 2008, 2007 and 2006.
Contractual Obligations
The following table summarizes our contractual obligations to third parties, excluding interest.
Consolidated
Long-term
Debt
Tenant
Allowances
Construction
Contracts
Operating
Leases
1,060,383 $ 86,508,702 $
2009................................ $ 56,471,349 $ 302,210 $
—
983,300
66,131,832
2010................................
—
2011................................
920,800 248,443,896
—
38,904,933
972,775
2012................................
—
2013................................
7,584,352
865,900
— 10,523,645 228,679,123
Thereafter .......................
Unamortized Debt
8,405,048
—
—
—
—
Pro rata Share
of Joint Venture
Debt
24,132,729 $
—
—
—
—
—
Employment
Contracts 1
1,516,000 $
—
—
—
—
—
Total2
169,991,373
75,520,180
249,364,696
39,877,708
8,450,252
239,202,768
Premiums ..................
Total ............................... $
—
1,408,628
64,876,397 $ 302,210 $ 15,326,803 $ 677,661,466 $
—
—
—
24,132,729 $
—
1,516,000 $
1,408,628
783,815,605
____________________
1
In connection with the Company’s IPO and related formation transactions, we entered into employment agreements
with certain members of senior management. Under the agreements, each person received a stipulated annual salary
through December 31, 2008. Each agreement has an automatic one-year renewal unless we or the employee elects not
to renew the agreement. The contracts were extended through December 31, 2009.
The table above includes contracts executed as of December 31, 2008.
2
In 2008, we incurred $29.4 million of interest expense, net of amounts capitalized of $10.1 million.
Although we cannot provide assurance of our ability to execute on our financing strategy, we intend to satisfy the
approximately $170 million of contractual obligations that are due in 2009 primarily by refinancing and/or extending the
maturity dates of maturing indebtedness, draws on our revolving credit facility, and obtaining new financing, as well as
cash generated from operations. See “2009 Maturities” on page 59 for additional information with respect to our current
plan to address our indebtedness maturing in fiscal year 2009.
62
In connection with our formation at the time of our IPO, we entered into an agreement that restricts our ability, prior
to December 31, 2016, to dispose of six of our properties in taxable transactions and limits the amount of gain we can
trigger with respect to certain other properties without incurring reimbursement obligations owed to certain limited
partners. We have agreed that if we dispose of any interest in six specified properties in a taxable transaction before
December 31, 2016, then we will indemnify the contributors of those properties for their tax liabilities attributable to their
built-in gain that exists with respect to such property interest as of the time of our IPO (and tax liabilities incurred as a
result of the reimbursement payment).
The six properties to which our tax indemnity obligations relate represented approximately 19% of our annualized
base rent in the aggregate as of December 31, 2008. These six properties are International Speedway Square, Shops at
Eagle Creek, Whitehall Pike, Ridge Plaza Shopping Center, Thirty South, and Market Street Village.
Construction Contracts
Construction contracts in the table above represent commitments for contracts executed as of December 31, 2008
related to new developments, redevelopments and third-party construction.
Obligations in Connection with Our Current Development, Redevelopment and Visible Shadow Pipeline
We are obligated under various contractual arrangements to complete the projects in our current development
pipeline. We currently anticipate our share of the cost of the three projects in our current development pipeline will be
approximately $68 million (including $35 million of costs associated with Phase I of our Eddy Street Commons
development discussed below), of which approximately $38 million of our share was unfunded as of December 31, 2008.
We believe we currently have sufficient financing in place to fund these projects and expect to do so primarily through
existing construction loans, including the construction loan on Eddy Street Commons that closed in December 2008, with a
total loan commitment of approximately $29.5 million, of which no amounts were outstanding at December 31, 2008. In
addition, if necessary, we may make draws on our unsecured credit facility.
In addition to our current development pipeline, we also have a redevelopment pipeline and a “visible shadow”
development pipeline, which includes land parcels that are undergoing pre-development activity and are in various stages of
preparation for construction to commence, including pre-leasing activity and negotiations for third party financings.
Generally, we are not contractually obligated to complete any projects in our redevelopment or visible shadow pipelines, as
these consist of land parcels on which we have not yet commenced construction. With respect to each asset in the visible
shadow pipeline, our policy is to not commence vertical construction until appropriate pre-leasing thresholds are met and
the requisite third-party financing is in place.
Eddy Street Commons at the University of Notre Dame
The most significant project in our current development pipeline is Eddy Street Commons at the University of Notre
Dame located adjacent to the university in South Bend, Indiana, that is expected to include retail, office, hotels, a parking
garage, apartments and residential units. A portion of the office space will be leased to the University of Notre Dame. The
City of South Bend has contributed $35 million to the development, funded by tax increment financing (TIF) bonds issued
by the City and a cash commitment from the City both of which are being used for the construction of a parking garage and
infrastructure improvements in this project.
This development will be completed in several phases. The initial phase of the project is currently under construction
and will consist of the retail, office and apartment and residential units with an estimated total cost of $70 million, of which
our share is estimated to be $35 million. The ground beneath the initial phase of the development is leased from the
University of Notre Dame over a 75 year term at a fixed rate for first two years and based on a percentage of certain
revenues thereafter. The total estimated project costs for all phases of this development are currently estimated to be
approximately $200 million, our share of which is currently expected to be approximately $64 million. Our exposure to this
amount may be limited under certain circumstances.
We will own the retail and office components while the apartments will be owned by a third party. Portions of this
initial phase are scheduled to open in late 2009. The hotel components of the project will be owned through a joint venture
while the apartments and residential units are planned to be sold or operated through relationships with developers, owners
63
and operators that specialize in residential real estate. We do not expect to own either the residential or the apartment
complex components of the project, although we have jointly guaranteed the apartment developer’s construction loan. At
December 31, 2008, vertical construction had not yet commenced; therefore, the balance outstanding under the construction
loan was not significant. We expect to receive development, construction management, loan guaranty and other fees from
various aspects of this project.
We have a contractual obligation in the form of a completion guarantee to the University of Notre Dame and to the
City of South Bend to complete all phases of the project, with the exception of certain of the residential units, consistent
with commitments we typically make in connection with other bank-funded development projects. To the extent the hotel
joint venture partner, the apartment developer/owner or the residential developer/owner fail to complete those aspects of the
project, we will be required to complete the construction, at which time we expect that we would seek title to the assets and
assume any construction borrowings related to the assets. We will have certain remedies against the developers if they
were to fail to complete the construction. If we fail to fulfill our contractual obligations in connection with the project, but
are using our best efforts, we may be held liable but we have limited our liability to both the University of Notre Dame and
the City of South Bend.
Outstanding Indebtedness
The following table presents details of outstanding indebtedness as of December 31, 2008:
$
Property
Fixed Rate Debt - Mortgage:
50th & 12th ................................................................
Boulevard Crossing ..................................................
Centre at Panola, Phase I ..........................................
Cool Creek Commons ..............................................
Corner Shops, The ....................................................
Fox Lake Crossing....................................................
Geist Pavilion ...........................................................
Indian River Square..................................................
International Speedway Square ................................
Kedron Village .........................................................
Pine Ridge Crossing .................................................
Plaza at Cedar Hill....................................................
Plaza Volente............................................................
Preston Commons.....................................................
Ridge Plaza ...............................................................
Riverchase ................................................................
Sunland Towne Centre .............................................
Thirty South..............................................................
Traders Point.............................................................
Whitehall Pike ..........................................................
Floating Rate Debt - Hedged:
Unencumbered Property Pool .................................
Unencumbered Property Pool ..................................
Unsecured Term Loan ..............................................
Beacon Hill Shopping Center...................................
Delray Marketplace ..................................................
Estero Town Commons ............................................
Gateway Shopping Center........................................
Tarpon Springs Plaza................................................
Net unamortized premium on assumed debt of
acquired properties .............................................
Total Fixed Rate Indebtedness .....................
$
Maturity
11/11/2014
12/11/2009
1/1/2022
4/11/2016
7/1/2011
7/1/2012
1/1/2017
6/11/2015
3/11/2011
1/11/2017
10/11/2016
2/1/2012
6/11/2015
3/11/2013
10/11/2009
10/11/2016
7/1/2016
1/11/2014
10/11/2016
7/5/2018
5.67%
5.11%
6.78%
5.88%
7.65%
5.16%
5.78%
5.42%
7.17%
5.70%
6.34%
7.38%
5.42%
5.90%
5.15%
6.34%
6.01%
6.09%
5.86%
6.71%
6.32%
6.17%
5.92%
5.13%
6.75%
5.55%
4.88%
5.55%
2/20/2011
2/18/2011
7/15/2011
3/30/2009
1/3/2009
1/3/2009
10/31/2011
1/3/2009
Balance
Outstanding
Interest
Rate
4,442,876
11,908,446
3,838,820
18,000,000
1,655,882
11,514,970
11,125,000
13,300,000
18,902,633
29,700,000
17,500,000
25,987,249
28,680,000
4,383,934
15,952,261
10,500,000
25,000,000
22,039,196
48,000,000
8,767,254
331,198,521
50,000,000
25,000,000
55,000,000
11,000,000
4,020,647
15,438,740
19,500,000
17,937,448
197,896,835
1,408,628
530,503,984
64
Property
Variable Rate Debt - Mortgage:
Bayport Common1 .................................................... $
Estero Town Center1, 3 ..............................................
Fishers Station ..........................................................
Gateway Shopping Center1, 3 ....................................
Indiana State Motor Pool..........................................
Rivers Edge Shopping Center ..................................
Tarpon Springs Plaza1, 3............................................
Glendale Town Center..............................................
Subtotal Mortgage Notes..............................
Variable Rate Debt - Secured by Properties
under Construction:
Beacon Hill Shopping Center3,4................................
Bridgewater Marketplace2 ........................................
Cobblestone Plaza ....................................................
Delray Marketplace3 .................................................
South Elgin Commons..............................................
Subtotal Construction Notes.........................
Line of Credit3.........................................................
Term Loan3..............................................................
Floating Rate Debt - Hedged:
Unencumbered Property Pool .................................
Unencumbered Property Pool ..................................
Unsecured Term Loan ..............................................
Beacon Hill Shopping Center...................................
Delray Marketplace ..................................................
Estero Town Commons ............................................
Gateway Shopping Center........................................
Tarpon Springs Plaza................................................
Total Variable Rate Indebtedness ................
Total Indebtedness .........................
$
Balance
Outstanding
Interest
Rate
LIBOR + 2.75%
LIBOR + 1.55%
LIBOR + 1.50%
LIBOR + 1.90%
LIBOR + 1.35%
LIBOR + 1.25%
LIBOR + 1.55%
LIBOR + 2.75%
LIBOR + 1.25%
LIBOR + 1.85%
LIBOR + 1.60%
LIBOR + 2.75%
LIBOR + 1.90%
LIBOR + 1.25%
LIBOR + 2.65%
LIBOR + 1.25%
LIBOR + 1.25%
LIBOR + 2.65%
LIBOR + 1.25%
LIBOR + 2.75%
LIBOR + 1.55%
LIBOR + 1.90%
LIBOR + 1.55%
20,329,896
15,438,740
4,239,798
20,131,508
3,828,492
14,940,000
17,937,448
21,750,000
118,595,882
11,895,707
8,520,137
30,466,817
9,425,000
6,150,774
66,458,435
105,000,000
55,000,000
(50,000,000)
(25,000,000)
(55,000,000)
(11,000,000)
(4,020,647)
(15,438,740)
(19,500,000)
(17,937,448)
(197,896,835)
147,157,482
677,661,466
Maturity
12/27/2011
1/3/2010
6/6/2009
10/31/2011
2/4/2011
2/3/2010
1/3/2010
12/19/2011
3/30/2009
6/29/2010
6/29/2009
7/3/2009
9/30/2010
2/20/2011
7/15/2011
2/20/2011
2/18/2011
7/15/2011
3/30/2009
1/3/2009
1/3/2009
10/31/2011
1/3/2009
Interest Rate
at 12/31/08
3.19%
1.99%
1.94%
2.34%
1.79%
1.69%
1.99%
3.19%
1.69%
2.29%
2.04%
2.74%
2.34%
1.69%
3.09%
1.79%
1.79%
3.09%
1.69%
3.19%
1.99%
2.34%
1.99%
____________________
1
In December 2008, we reclassified this loan from a variable rate debt loan - secured by properties under
construction to a variable rate mortgage loan, as construction activities were substantially completed at the property.
This loan has a LIBOR floor of 3.15%.
We entered into a cash flow hedge agreement on this debt instrument to fix the interest rate. See fixed rate within
the fixed rate hedged details in the table above.
The interest rate decreases from LIBOR+125 to LIBOR+115 on $11 million, which is the amount fixed through a
cash flow hedge agreement.
2
3
4
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 in accordance with the best practices
described in the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts
(NAREIT), which we refer to as the White Paper. The White Paper defines FFO as net income (computed in accordance
with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Given the nature of our business as a real estate owner and operator, we believe that FFO is helpful to investors as a
starting point 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 should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our
financial performance, is not an alternative to cash flow from operating activities (determined in accordance with GAAP) as
a measure of our liquidity, and 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 definitions differently than we do.
Our calculation of FFO (and reconciliation to net income) is as follows:
65
Funds From Operations:
Net income .............................................................................. $
Add loss (gain) on sale of consolidated operating property ....
Less gain on sale of unconsolidated property..........................
Add loss on sale of asset, net of tax.........................................
Add Limited Partners’ interests in income ..............................
Add depreciation and amortization of consolidated entities
Year Ended
December 31,
2008
Year Ended
December 31,
2007
Year Ended
December 31,
2006
6,093,126 $ 13,522,683
2,689,888
(2,036,189 )
(1,233,338)
—
1,668,817
—
—
3,853,604
$ 10,179,650
—
—
458,405
2,989,366
and discontinued operations, net of minority interest.........
35,438,229
31,475,146
29,313,102
Add joint venture partners’ interests in depreciation and
amortization of unconsolidated entities .............................
Funds From Operations of the Kite Portfolio1 ...............
Less Limited Partners’ interests in Funds From Operations....
403,799
47,219,043
(10,529,847 )
Funds From Operations allocable to the Company1....... $ 35,374,726 $ 36,689,196
406,623
45,063,345
(9,688,619)
401,549
43,342,072
(9,838,650)
$ 33,503,422
____________________
1
“Funds From Operations of the Kite Portfolio” measures 100% of the operating performance of the Operating
Partnership’s real estate properties and construction and service subsidiaries in which the Company owns an interest.
“Funds From Operations allocable to the Company” reflects a reduction for the Limited Partners’ weighted average
diluted interest in the Operating Partnership.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments depend upon prevailing interest rates.
Market risk refers to the risk of loss from adverse changes in interest rates of debt instruments of similar maturities and
terms.
Market Risk Related to Fixed Rate Debt
We had approximately $677.7 million of outstanding consolidated indebtedness as of December 31, 2008 (inclusive
of net premiums on acquired debt of $1.4 million). As of December 31, 2008, we were party to eight consolidated interest
rate hedge agreements for a total of $197.9 million, with interest rates ranging from 4.88% to 6.75% and maturities over
various terms through 2011. Including the effects of these hedge agreements, our fixed and variable rate debt would have
been approximately $529.1 million (78%) and $147.2 million (22%), respectively, of our total consolidated indebtedness at
December 31, 2008. Reflecting our share of unconsolidated debt and the effect of related hedge agreements, our fixed and
variable rate debt is also 78% and 22%, respectively, of total consolidated and our share of unconsolidated indebtedness at
December 31, 2008.
Based on the amount of our fixed rate debt at December 31, 2008, a 100 basis point increase in market interest rates
would result in a decrease in its fair value of approximately $15.8 million. A 100 basis point decrease in market interest
rates would result in an increase in the fair value of our fixed rate debt of approximately $16.9 million. A 100 basis point
increase or decrease in interest rates on our variable rate debt as of December 31, 2008 would increase or decrease our
annual cash flow by approximately $1.5 million.
As a matter of policy, we do not utilize financial instruments for trading or speculative transactions.
Inflation
Most of our leases contain provisions designed to mitigate the adverse impact of inflation by requiring the tenant to
pay its share of operating expenses, including common area maintenance, real estate taxes and insurance. This helps reduce
our exposure to increases in costs and operating expenses resulting from inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company included in this Report are listed in Part IV, Item 15(a) of this
report.
66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure
controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
Changes in Internal Control Over Financial Reporting
In the second quarter of 2008, the Company began a phased implementation of a new information technology system
to be used as our primary accounting system. The implementation was completed in multiple phases throughout 2008 and
early 2009. The transition to the new information technology system included significant testing of the system prior to
implementation, training of employees who use the system and updating of our internal control process and procedures that
were impacted by the implementation. During each phase of the implementation, an appropriate level of testing and
monitoring of the financial results recorded in the system was conducted and our management updated the system of
internal control over the impacted areas.
During the year ended December 31, 2008, a portion of our accounting and financial reporting was performed on the
new system. Accordingly, our system of internal control over accounting and financial reporting and related policies and
procedures have been updated.
Other than the foregoing, there has been no change in the Company’s internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) identified in connection with the evaluation required
by Rule 13a-15(b) under the Securities Exchange Act of 1934 of the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of December 31, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company, as that term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company
conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the
framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on the Company’s evaluation under the framework in Internal Control – Integrated
Framework, the Company’s management has concluded that the Company’s internal control over financial reporting was
effective as of December 31, 2008.
The Company’s independent auditors, Ernst & Young LLP, an independent registered public accounting firm, have
issued a report on the Company’s internal control over financial reporting as stated in their report which is included herein.
The Company’s internal control system was designed to provide reasonable assurance to the Company’s management
and Board of Trustees regarding the preparation and fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation.
67
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of Kite Realty Group Trust:
We have audited Kite Realty Group Trust and Subsidiaries’ internal control over financial reporting as of December
31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Kite Realty Group Trust and Subsidiaries’ management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Kite Realty Group Trust and Subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Kite Realty Group Trust and Subsidiaries as of December 31, 2008 and 2007,
and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2008 and the related financial statement schedule listed in the index at Item 15(a) as of
December 31, 2008 of Kite Realty Group Trust and Subsidiaries and our report dated March 13, 2009 expressed an
unqualified opinion thereon.
Indianapolis, Indiana
March 13, 2009
Ernst & Young LLP
68
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a code of ethics that applies to our principal executive officer and senior financial officers, which is
available on our Internet website at: www.kiterealty.com. Any amendment to, or waiver from, a provision of this code of
ethics will be posted on our Internet website.
The remaining information required by this Item is hereby incorporated by reference to the material appearing in our
2009 Annual Meeting Proxy Statement (the “Proxy Statement”), which we intend to file within 120 days after our fiscal
year-end, under the captions “Proposal 1: Election of Trustees Nominees for Election for a One-Year Term Expiring at the
2010 Annual Meeting”, “Executive Officers”, “Information Regarding Governance and Board and Committee Meetings –
Committee Charters and Corporate Governance”, “Information Regarding Corporate Governance and Board and
Committee Meetings – Board Committees” and “Other Matters – Section 16(a) Beneficial Ownership Reporting
Compliance”.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated by reference to the material appearing in our Proxy
Statement, under the captions “Compensation Discussion and Analysis”, “Compensation of Executive Officers and
Trustees”, “Compensation Committee Interlocks and Insider Participation”, and “Compensation Committee Report”.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The information required by this Item is hereby incorporated by reference to the material appearing in our Proxy
Statement, under the captions “Equity Compensation Plan Information” and “Principal Shareholders”.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is hereby incorporated by reference to the material appearing in our Proxy
Statement, under the captions “Certain Relationships and Related Transactions” and “Information Regarding Corporate
Governance and Board Committee Meetings – Independence of Trustees”.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is hereby incorporated by reference to the material appearing in our Proxy
Statement, under the caption “Proposal 2: Ratification of Appointment of Independent Registered Accounting Firm -
Relationship with Independent Registered Public Accounting Firm”.
69
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
(1)
(a) Documents filed as part of this report:
Financial Statements:
Consolidated financial statements for the Company listed on the index immediately preceding the financial
statements at the end of this report.
Financial Statement Schedule:
Financial statement schedule for the Company listed on the index immediately preceding the financial
statements at the end of this report.
Exhibits:
The Company files as part of this report the exhibits listed on the Exhibit Index.
(2)
(3)
(b)
(c)
Exhibits:
The Company files as part of this report the exhibits listed on the Exhibit Index.
Financial Statement Schedule:
The Company files as part of this report the financial statement schedule listed on the index immediately preceding
the financial statements at the end of this report.
70
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
March 16, 2009
(Date)
March 16, 2009
(Date)
KITE REALTY GROUP TRUST
(Registrant)
/s/ JOHN A. KITE
John A. Kite
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ DANIEL R. SINK
Daniel R. Sink
Executive Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ JOHN A. KITE
(John A. Kite)
Chairman, Chief Executive Officer, and Trustee
(Principal Executive Officer)
March 16, 2009
/s/ WILLIAM E. BINDLEY
(William E. Bindley)
/s/ RICHARD A. COSIER
(Richard A. Cosier)
/s/ EUGENE GOLUB
(Eugene Golub)
/s/ GERALD L. MOSS
(Gerald L. Moss)
/s/ MICHAEL L. SMITH
(Michael L. Smith)
/s/ DARELL E. ZINK, JR.
(Darell E. Zink, Jr.)
/s/ DANIEL R. SINK
(Daniel R. Sink)
March 16, 2009
March 16, 2009
March 16, 2009
March 16, 2009
March 16, 2009
March 16, 2009
March 16, 2009
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
71
Kite Realty Group Trust
Index to Financial Statements
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm...........................................................................
Balance Sheets as of December 31, 2008 and 2007 .......................................................................................
Statements of Operations for the Years Ended December 31, 2008, 2007, and 2006 ....................................
Statements of Shareholders’ Equity for the Years Ended December 31, 2008, 2007, and 2006 ....................
Statements of Cash Flows for the Years Ended December 31, 2008, 2007, and 2006 ...................................
Notes to Consolidated Financial Statements ..................................................................................................
Financial Statement Schedule:
Schedule III – Real Estate and Accumulated Depreciation ............................................................................
Notes to Schedule III ......................................................................................................................................
Page
F-1
F-2
F-3
F-4
F-5
F-6
F-37
F-40
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of Kite Realty Group Trust:
We have audited the accompanying consolidated balance sheets of Kite Realty Group Trust and Subsidiaries as of
December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2008. Our audit also included the financial statement schedule
listed in the index at item 15(a). These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Kite Realty Group Trust and Subsidiaries at December 31, 2008 and 2007, and the consolidated results
of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Kite Realty Group Trust and Subsidiaries’ internal control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 13, 2009, expressed an unqualified opinion thereon.
Ernst & Young LLP
Indianapolis, Indiana
March 13, 2009
Kite Realty Group Trust
Consolidated Balance Sheets
Assets:
Investment properties, at cost:
Land.............................................................................................................................
Land held for development..........................................................................................
Buildings and improvements .......................................................................................
Furniture, equipment and other....................................................................................
Construction in progress ..............................................................................................
Less: accumulated depreciation .........................................................................
Cash and cash equivalents ...........................................................................................
Tenant receivables, including accrued straight-line rent of $7,221,882 and
$6,653,244, respectively, net of allowance for uncollectible accounts ...................
Other receivables .........................................................................................................
Investments in unconsolidated entities, at equity.........................................................
Escrow deposits ...........................................................................................................
Deferred costs, net .......................................................................................................
Prepaid and other assets...............................................................................................
Total Assets ................................................................................................................
Liabilities and Shareholders’ Equity:
Mortgage and other indebtedness ................................................................................
Accounts payable and accrued expenses .....................................................................
Deferred revenue and other liabilities..........................................................................
Cash distributions and losses in excess of net investment in unconsolidated entities,
at equity ..................................................................................................................
Minority interest ..........................................................................................................
Total Liabilities ..........................................................................................................
Commitments and contingencies
Limited Partners’ interests in Operating Partnership...................................................
Shareholders’ Equity:
Preferred Shares, $.01 par value, 40,000,000 shares authorized, no shares issued and
outstanding..............................................................................................................
Common Shares, $.01 par value, 200,000,000 shares authorized, 34,181,179 shares
and 28,981,594 shares issued and outstanding at December 31, 2008 and 2007,
respectively .............................................................................................................
Additional paid in capital and other.............................................................................
Accumulated other comprehensive loss.......................................................................
Accumulated deficit.....................................................................................................
Total Shareholders’ Equity.......................................................................................
Total Liabilities and Shareholders’ Equity .............................................................
The accompanying notes are an integral part of these consolidated financial statements.
December 31,
2008
December 31,
2007
$ 227,781,452 $ 210,486,125
23,622,458
624,500,501
4,571,354
187,006,760
1,050,187,198
(84,603,939)
965,583,259
19,002,268
25,431,845
690,161,336
5,024,696
191,106,309
1,139,505,638
(104,051,695 )
1,035,453,943
9,917,875
17,776,282
10,357,679
1,902,473
11,316,728
21,167,288
4,159,638
17,200,458
7,124,485
1,079,937
14,036,877
20,563,664
3,643,696
$1,112,051,906 $ 1,048,234,644
$ 677,661,466 $ 646,833,633
36,173,195
26,127,043
53,144,015
24,594,794
—
4,416,533
759,816,808
234,618
4,731,211
714,099,700
67,276,904
74,512,093
—
—
341,812
343,631,595
(7,739,154 )
(51,276,059 )
284,958,194
289,816
293,897,673
(3,122,482)
(31,442,156)
259,622,851
$1,112,051,906 $ 1,048,234,644
F-2
Kite Realty Group Trust
Consolidated Statements of Operations
Revenue:
Minimum rent ............................................................................ $
Tenant reimbursements .............................................................
Other property related revenue..................................................
Construction and service fee revenue........................................
Total revenue........................................................................................
Expenses:
Property operating .....................................................................
Real estate taxes.........................................................................
Cost of construction and services..............................................
General, administrative, and other ............................................
Depreciation and amortization ..................................................
Total expenses
Operating income
Interest expense .........................................................................
Loss on sale of asset ..................................................................
Income tax expense of taxable REIT subsidiary.......................
Other income, net ......................................................................
Minority interest in income of consolidated subsidiaries .........
Income from unconsolidated entities ........................................
Gain on sale of unconsolidated property...................................
Limited Partners’ interests in the continuing operations of
the Operating Partnership ....................................................
Income from continuing operations
Discontinued operations:
Operating income from discontinued operations, net of
Year Ended December 31,
2008
2007
2006
71,862,956
17,735,551
13,998,650
39,103,151
142,700,308
17,108,464
11,977,099
33,788,008
5,884,152
35,446,575
104,204,298
38,496,010
(29,372,181)
—
(1,927,830)
158,024
(61,707)
842,425
1,233,338
(2,014,136)
7,353,943
$
72,083,108
18,401,181
11,010,553
37,259,934
138,754,776
$
66,713,135
16,631,735
6,358,086
41,447,364
131,150,320
15,121,325
11,917,299
32,077,014
6,298,901
31,850,770
97,265,309
41,489,467
(25,965,141 )
—
(761,628 )
778,552
(587,413 )
290,710
—
13,580,369
11,259,794
35,901,364
5,322,594
29,579,123
95,643,244
35,507,076
(21,221,758)
(764,008)
(965,532)
344,537
(117,469)
286,452
—
(3,399,534 )
11,845,013
(2,966,730)
10,102,568
Limited Partners’ interests...................................................
850,745
95,551
77,082
(Loss) gain on sale of operating property, net of Limited
Partners’ interests ................................................................
(Loss) income from discontinued operations
Net income
Income (loss) per common share - basic:
(2,111,562)
(1,260,817)
6,093,126
$
Continuing operations............................................................. $
Discontinued operations..........................................................
$
Income (loss) per common share - diluted:
Continuing operations............................................................. $
Discontinued operations..........................................................
$
0.24
(0.04)
0.20
0.24
(0.04)
0.20
Weighted average Common Shares outstanding – basic.................
30,328,408
Weighted average Common Shares outstanding – diluted .............
30,340,449
Dividends declared per Common Share............................................ $
0.820
1,582,119
1,677,670
13,522,683
0.41
0.06
0.47
0.40
0.06
0.46
$
$
$
$
$
—
77,082
10,179,650
0.35
—
0.35
0.35
—
0.35
28,908,274
28,733,228
29,180,987
28,903,114
0.800
$
0.765
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Kite Realty Group Trust
Consolidated Statements of Shareholders’ Equity
Common Shares
Shares
Amount
Additional
Paid-in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Unearned
Compensation
Total
Balances, December 31, 2005 .................. 28,555,187 $ 285,552 $ 288,976,563 $
Reclassify unearned
(10,001,777) $
427,057 $
(808,015) $278,879,380
compensation ....................................
Stock compensation activity.....................
Other comprehensive loss ........................
Distributions declared...............................
Net income................................................
Exchange of Limited Partners’ interest
—
73,595
—
—
—
—
736
—
—
—
(808,015)
1,040,450
—
—
—
—
—
—
(22,009,416)
10,179,650
—
—
(129,517 )
—
—
808,015
—
—
—
—
—
1,041,186
(129,517)
(22,009,416)
10,179,650
for common stock ...............................
214,049
2,140
3,130,677
—
—
—
3,132,817
Adjustment to Limited Partners’
interests from the Limited Partners’
decreased ownership in the
Operating Partnership.........................
—
Balances, December 31, 2006 .................. 28,842,831
47,396
Stock compensation activity.....................
30,000
Controlled equity offering, net of costs....
Other comprehensive loss ........................
—
Distributions declared...............................
—
Net income................................................
—
Exchange of Limited Partners’ interest
—
288,428
474
300
—
—
—
(1,180,028)
291,159,647
799,564
465,746
—
—
—
—
(21,831,543)
—
—
—
(23,133,296)
13,522,683
—
297,540
—
—
(3,420,022 )
—
—
for common stock ...............................
61,367
614
960,393
—
—
Adjustment to Limited Partners’
—
—
—
—
—
—
—
—
(1,180,028)
269,914,072
800,038
466,046
(3,420,022)
(23,133,296)
13,522,683
961,007
interests from the Limited Partners’
increased ownership in the Operating
Partnership ..........................................
—
Balances, December 31, 2007 .................. 28,981,594
98,619
Stock compensation activity.....................
Proceeds of common share offering, net
of costs................................................
Proceeds from employee share purchase
plan .....................................................
Other comprehensive loss ........................
Distributions declared...............................
Net income................................................
Exchange of Limited Partners’ interest
5,197
—
—
—
4,810,000
—
289,816
986
512,323
293,897,673
1,134,747
—
(31,442,156)
—
—
(3,122,482 )
—
—
—
—
512,323
259,622,851
1,135,733
48,100
48,257,025
—
—
—
48,305,125
52
—
—
—
29,956
—
—
—
—
—
(25,927,029)
6,093,126
—
(4,616,672 )
—
—
—
—
—
—
—
30,008
(4,616,672)
(25,927,029)
6,093,126
634,998
for common stock ...............................
285,769
2,858
632,140
—
—
Adjustment to Limited Partners’
interests from the Limited Partners’
decreased ownership in the
Operating Partnership.........................
—
—
(319,946)
—
Balances, December 31, 2008 .................. 34,181,179 $ 341,812 $ 343,631,595 $
(51,276,059) $
—
(7,739,154 ) $
—
(319,946)
— $284,958,194
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Kite Realty Group Trust
Consolidated Statements of Cash Flows
Cash flow from operating activities:
Net income............................................................................................................ $
Adjustments to reconcile net income to net cash provided by operating
activities:
Net loss (gain) on sale of operating property .............................................
Loss on sale of asset ...................................................................................
Income from unconsolidated entities .........................................................
Gain on sale of unconsolidated property....................................................
Limited Partners’ interest in Operating Partnership ..................................
Minority interest in income of consolidated subsidiaries ..........................
Straight-line rent .........................................................................................
Depreciation and amortization ...................................................................
Provision for credit losses, net of recoveries .............................................
Compensation expense for equity awards..................................................
Amortization of debt fair value adjustment ...............................................
Amortization of in-place lease liabilities ...................................................
Distributions of income from unconsolidated entities ...........................................
Distributions to minority interest holders...............................................................
Changes in assets and liabilities: ............................................................................
Tenant receivables ......................................................................................
Deferred costs and other assets ..................................................................
Accounts payable, accrued expenses, deferred revenue, and other
liabilities ...............................................................................................
Net cash provided by operating activities ..........................................................
Cash flow from investing activities:
Acquisitions of interests in properties and capital expenditures, net.........
Net proceeds from sales of operating properties........................................
Change in construction payables................................................................
Cash receipts on notes receivable...............................................................
Contributions to unconsolidated entities ....................................................
Distributions of capital from unconsolidated entities ................................
Net cash used in investing activities....................................................................
Cash flow from financing activities:
Offering proceeds, net of issuance costs ....................................................
Loan proceeds.............................................................................................
Loan transaction costs ................................................................................
Loan payments............................................................................................
Purchase of Limited Partners’ interest .......................................................
Distributions paid – shareholders...............................................................
Distributions paid – unitholders .................................................................
Proceeds from exercise of stock options....................................................
Net cash provided by financing activities...........................................................
(Decrease) increase in cash and cash equivalents..............................................
Cash and cash equivalents, beginning of year ...................................................
Cash and cash equivalents, end of year..............................................................$
Year Ended December 31,
2008
2007
2006
6,093,126 $
13,522,683 $
10,179,650
2,689,888
—
(842,425)
(1,233,338)
1,668,817
61,707
(1,040,456)
37,256,010
1,212,604
803,687
(430,858)
(2,769,256)
428,910
(494,286)
(1,217,894)
(6,095,991)
4,477,867
40,568,112
(117,851,086)
19,659,695
579,721
729,167
(818,472)
2,012,430
(95,688,545)
48,335,133
249,453,785
(1,882,360)
(218,194,446)
—
(24,859,003)
(6,817,069)
—
46,036,040
(9,084,393)
19,002,268
9,917,875 $
(2,036,189 )
—
(290,710 )
—
3,881,027
587,413
(1,943,137 )
32,886,267
319,360
569,022
(430,858 )
(4,736,840 )
331,732
(470,479 )
—
764,008
(286,452)
—
2,989,366
117,469
(1,578,442)
31,541,571
344,564
549,838
(430,858)
(4,192,550)
259,406
(577,700)
(360,823 )
(1,772,879 )
(2,679,057)
(12,515,990)
(2,403,868 )
37,651,721
5,925,298
30,410,121
(105,417,442 )
2,609,777
2,274,195
3,739,320
—
106,728
(96,687,422 )
(229,009,855)
11,068,559
(2,278,870)
—
—
156,594
(220,063,572)
465,746
238,899,989
(1,278,917 )
(154,507,969 )
(55,803 )
(22,822,984 )
(6,635,296 )
20,609
54,085,375
(4,950,326 )
23,952,594
19,002,268 $
—
445,802,450
(1,720,576)
(218,025,537)
—
(21,739,161)
(6,446,765)
526,799
198,397,210
8,743,759
15,208,835
23,952,594
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 1. Organization and Basis of Presentation
Organization
Kite Realty Group Trust (the “Company” or “REIT”) was organized in Maryland in 2004 to succeed to the
development, acquisition, construction and real estate businesses of Kite Property Group (the “Predecessor”). The
Predecessor was owned by Al Kite, John Kite and Paul Kite (the “Principals”) and certain executives and other family
members and consisted of the properties, entities and interests contributed to the Company or its subsidiaries by its
founders and is the predecessor of Kite Realty Group Trust. The Company began operations in 2004 when it completed its
initial public offering (“IPO”) of common shares and concurrently consummated certain other formation transactions.
The Company, through the Operating Partnership, is engaged in the ownership, operation, management, leasing,
acquisition, expansion and development of neighborhood and community shopping centers and certain commercial real
estate properties. The Company also provides real estate facilities management, construction, development and other
advisory services to third parties through its taxable REIT subsidiaries.
At December 31, 2008, the Company owned interests in 56 operating properties (consisting of 52 retail properties,
three commercial operating properties and an associated parking garage) and had interests in eight properties under
development or redevelopment. Of the 64 total properties held at December 31, 2008, the Company owned a controlling
interest in all but one operating property and one parcel of pre-development land (collectively the “unconsolidated joint
venture properties”), both of which are accounted for under the equity method.
At December 31, 2007, the Company owned interests in 55 operating properties (consisting of 50 retail properties,
four commercial operating properties and an associated parking garage) and had interests in 11 entities that held
development or redevelopment properties. Of the 66 total properties held at December 31, 2007, two operating properties
were owned through joint ventures that were accounted for under the equity method.
Basis of Presentation
The accompanying financial statements of Kite Realty Group Trust are presented on a consolidated basis and include
all of the accounts of the Company, the Operating Partnership, the taxable REIT subsidiaries of the Operating Partnership
and any variable interest entities (“VIEs”) in which the Company is the primary beneficiary.
The Company consolidates properties that are wholly-owned and properties in which it owns less than 100% but it
controls. Control of a property is demonstrated by:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
our ability to manage day-to-day operations;
our ability to refinance debt and sell the property without the consent of any other partner or owner;
the inability of any other partner or owner to replace us; or
being the primary beneficiary of a variable interest entity.
The Company’s determination of the primary beneficiary of a VIE considers all relationships between the Company
and the VIE, including management agreements and other contractual arrangements, when determining the party obligated
to absorb the majority of the expected losses, as defined in Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46R”). There have
been no changes during 2008 in conclusions about whether an entity qualifies as a VIE or whether the Company is the
primary beneficiary of any previously identified VIE. During 2008, the Company has not provided financial or other
support to a previously identified VIE that it was not previously contractually obligated to provide.
Of the 64 total properties held at December 31, 2008, the Company owned a controlling interest in all except one
operating property and one parcel of pre-development land, both of which are accounted for under the equity method. As
F-6
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 1. Organization and Basis of Presentation (continued)
of December 31, 2008 the Company had investments in six joint ventures that are VIEs in which the Company is the
primary beneficiary. As of December 31, 2008, these VIEs had total debt of approximately $105 million which is secured
by assets of the VIEs with a book value of approximately $175 million. The Operating Partnership guarantees the debt of
these VIEs.
The Company allocates net operating results of the Operating Partnership based on the partners’ respective weighted
average ownership interest. The Company adjusts the limited partners’ (“Limited Partner”) interests in the Operating
Partnership at the end of each period to reflect their interests in the Operating Partnership. This adjustment is reflected in
the Company’s shareholders’ equity. The Company’s and the Limited Partners’ weighted average interests in the Operating
Partnership for the years ended December 31, 2008, 2007 and 2006 were as follows:
Company’s weighted average interest in Operating Partnership .............
Limited Partners’ weighted average interest in Operating Partnership....
Year Ended December 31,
2008
78.5%
21.5%
2007
77.7 %
22.3 %
2006
77.3%
22.7%
The Company’s and the Limited Partners’ interests in the Operating Partnership at December 31, 2008 and 2007 were
as follows:
Company’s interest in Operating Partnership .............................
Limited Partners’ interests in Operating Partnership..................
80.9%
19.1%
77.7 %
22.3 %
Balance at December 31,
2008
2007
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The accompanying financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”). GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reported period. Actual results could differ from these estimates.
Purchase Accounting
The purchase price of properties is allocated to tangible assets and identified intangibles acquired based on their fair
values in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business
Combinations” (“SFAS No. 141”). In making estimates of fair values for the purpose of allocating purchase price, a
number of sources are utilized. We also consider information about each property obtained as a result of its pre-acquisition
due diligence, marketing and leasing activities in estimating the fair value of tangible assets and intangibles acquired.
A portion of the purchase price is allocated to tangible assets and intangibles, including:
(cid:120)
(cid:120)
the fair value of the building on an as-if-vacant basis and to land determined either by real estate tax
assessments, independent appraisals or other relevant data;
above-market and below-market in-place lease values for acquired properties are based on the present value
(using an interest rate which reflects the risks associated with the leases acquired) of the difference between
(i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair
F-7
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 2. Summary of Significant Accounting Policies (continued)
market lease rates for the corresponding in-place leases, measured over the remaining non-cancelable term of
the leases. The capitalized above-market and below-market lease values are amortized as a reduction of or
addition to rental income over the remaining non-cancelable terms of the respective leases. Should a tenant
vacate, terminate its lease, or otherwise notify the Company of its intent to do so, the unamortized portion of
the lease intangibles would be charged or credited to income; and
(cid:120)
the value of leases acquired. The Company utilizes independent sources for their estimates to determine the
respective in-place lease values. The Company’s estimates of value are made using methods similar to those
used by independent appraisers. Factors the Company considers in their analysis include an estimate of costs
to execute similar leases including tenant improvements, leasing commissions and foregone costs and rent
received during the estimated lease-up period as if the space was vacant. The value of in-place leases is
amortized to expense over the remaining initial terms of the respective leases.
The Company also considers whether a portion of the purchase price should be allocated to in-place leases that have a
related customer relationship intangible value. Characteristics we consider in allocating these values include the nature and
extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant, the
tenant’s credit quality and expectations of lease renewals, among other factors. To date, a tenant relationship has not been
developed that is considered to have a current intangible value.
Beginning fiscal year 2009, the Company will apply the provisions of SFAS No. 141(R) “Business Combinations –
Revised” to all assets acquired and liabilities assumed in a business combination. SFAS No. 141(R) will require the
Company to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree
at their fair values on the acquisition date, measured at their fair values as of that date, with goodwill being the excess value
over the net identifiable assets acquired. SFAS No. 141(R) will modify SFAS No. 141’s cost-allocation process, which
currently requires the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values. SFAS No. 141(R) requires the costs of an acquisition to be recognized in the period incurred.
Investment Properties
Investment properties are recorded at cost and include costs of acquisitions, development, predevelopment,
construction costs, certain allocated overhead, tenant allowances and improvements, and interest and real estate taxes
incurred during construction. Significant renovations and improvements are capitalized when they extend the useful life,
increase capacity, or improve the efficiency of the asset. If a tenant vacates a space prior to the lease expiration, terminates
its lease, or otherwise notifies the Company of its intent to do so, any related unamortized tenant allowances are
immediately expensed. Maintenance and repairs that do not extend the useful lives of the respective assets are reflected in
property operating expense.
The Company incurs costs prior to land acquisition and for certain land held for development including acquisition
contract deposits, as well as legal, engineering and other external professional fees related to evaluating the feasibility of
developing a shopping center. These pre-development costs are included in land held for development in the accompanying
consolidated balance sheets. If the Company determines that the development of a property is no longer probable, any pre-
development costs previously incurred are immediately expensed. Once construction commences on the land, the related
capitalized costs are transferred to construction in progress.
The Company also capitalizes costs such as construction, interest, real estate taxes, salaries and related costs of
personnel directly involved with the development of our properties. As a portion of the development property becomes
operational, the Company expenses appropriate costs on a pro rata basis.
In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS No. 144”), management reviews investment properties
and intangible assets within the real estate operation and development segment for impairment on a property-by-property
F-8
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 2. Summary of Significant Accounting Policies (continued)
basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be
recoverable. Impairment analysis requires management to make certain assumptions and requires significant judgment.
Management does not believe any investment properties were impaired at December 31, 2008.
Impairment losses for investment properties are recorded when the undiscounted cash flows estimated to be generated
by the investment properties during the expected holding period are less than the carrying amounts of those assets.
Impairment losses are measured as the excess carrying value over the fair value of the asset. In connection with the
Company’s standard practice of regular evaluation of development-related assets, approximately $0.1 million, $0.5 million
and $0.1 million was written off in 2008, 2007 and 2006, respectively ($0.1 million, $0.3 million and $0.1 million after
tax).
In accordance with SFAS No. 144, operating properties held for sale include only those properties available for
immediate sale in their present condition and for which management believes it is probable that a sale of the property will
be completed within one year. Operating properties are carried at the lower of cost or fair value less costs to sell.
Depreciation and amortization are suspended during the held-for-sale period.
The Company’s properties generally have operations and cash flows that can be clearly distinguished from the rest of
the Company. In accordance with SFAS No. 144, the operations reported in discontinued operations include those
operating properties that were sold or considered held-for-sale and for which operations and cash flows can be clearly
distinguished. The operations from these properties are eliminated from ongoing operations and the Company will not have
a continuing involvement after disposition. Prior periods have been reclassified to reflect the operations of these properties
as discontinued operations to the extent they are material to the results of operations.
Depreciation on buildings and improvements is provided utilizing the straight-line method over an estimated original
useful lives ranging from 10 to 35 years. Depreciation on tenant allowances and improvements is provided utilizing the
straight-line method over the term of the related lease. Depreciation on equipment and fixtures is provided utilizing the
straight-line method over 5 to 10 years.
Escrow Deposits
Escrow deposits typically consist of cash held for real estate taxes, property maintenance, insurance and other
requirements at specific properties as required by lending institutions. In addition, at December 31, 2007, proceeds from the
sale of the Company’s 176th & Meridian property that were held at an intermediary in anticipation of a future like-kind
exchange under Section 1031 of the Internal Revenue Code (see Note 9) and amounts received in connection with the
Company’s note with Marsh Supermarkets for the June 2006 termination of a lease and subsequent sale of the asset at
Naperville Marketplace (see Note 10) were also classified as escrow deposits.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash
and cash equivalents.
Cash paid for interest, net of capitalized interest, and cash paid for taxes for the years ended December 31, 2008, 2007
and 2006 was as follows:
Cash Paid for Interest, net ........ $ 28,439,879 $ 25,870,012 $
Capitalized Interest................... 10,061,770
2,601,000
Cash Paid for Taxes..................
12,824,398
974,459
2008
2007
2006
30,705,377
10,680,000
1,122,412
For the year ended December 31,
F-9
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 2. Summary of Significant Accounting Policies (continued)
Accrued but unpaid distributions were $8.7 million and $7.6 million as of December 31, 2008 and 2007, respectively,
and are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.
Fair Value Measurements
Cash and cash equivalents, accounts receivable, escrows and deposits approximate fair value.
As of January 1, 2008, the Company began accounting for its derivative financial instruments at their fair value,
calculated in accordance with SFAS No. 157, “Fair Value Measurements”, as discussed below under “Derivative Financial
Instruments”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at
fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that
market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in
fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant
assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are
classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant
assumptions (unobservable inputs classified within Level 3 of the hierarchy). As further discussed in Note 12, the Company
has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Revenue Recognition
As lessor, the Company retains substantially all of the risks and benefits of ownership of the investment properties and
accounts for its leases as operating leases.
Base minimum rents are recognized on a straight-line basis over the terms of the respective leases. Certain lease
agreements contain provisions that grant additional rents based on tenants’ sales volume (contingent percentage rent).
Percentage rents are recognized when tenants achieve the specified targets as defined in their lease agreements. Percentage
rents are included in other property related revenue in the accompanying statements of operations.
Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as
revenues in the period the applicable expense is incurred.
Gains and losses on sales of real estate are recognized in accordance with SFAS No. 66, “Accounting for Sales of
Real Estate”. In summary, gains and losses from sales are not recognized unless a sale has been consummated, the buyer’s
initial and continuing investment is adequate to demonstrate a commitment to pay for the property, the Company has
transferred to the buyer the usual risks and rewards of ownership, and the Company does not have a substantial continuing
financial involvement in the property. As part of the Company’s ongoing business strategy, it will, from time to time, sell
land parcels and outlots, some of which are ground leased to tenants. Gains realized on such sales were $10.4 million, $7.2
million, and $3.2 million for the years ended December 31, 2008, 2007 and 2006, respectively, and are classified as other
property related revenue in the accompanying consolidated financial statements.
Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the
percentage of cost incurred to date to the estimated total cost for each contract. Project costs include all direct labor,
subcontract, and material costs and those indirect costs related to contract performance costs incurred to date. Project costs
do not include uninstalled materials. Provisions for estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the revisions are determined.
F-10
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 2. Summary of Significant Accounting Policies (continued)
From time to time, the Company will construct and sell build-to-suit merchant assets to third parties. Proceeds from
the sale of build-to-suit merchant assets are included in construction and service fee revenue and the related costs of the sale
of these assets are included in cost of construction and services in the accompanying consolidated financial statements.
Proceeds from such sales were $10.6 million, $6.1 million and $5.3 million for the years ended December 31, 2008, 2007
and 2006, respectively, and the associated construction costs were $9.4 million, $4.1 million, and $3.5 million, respectively.
Development and other advisory services fees are recognized as revenues in the period in which the services are
rendered. Performance-based incentive fees are recorded when the fees are earned.
Accounting for Investments in Joint Ventures
In December 2003, the FASB issued FIN 46R, which replaces FASB Interpretation No. 46 which was issued in
January 2003. FIN 46R explains how to identify variable interest entities and how to assess whether to consolidate such
entities. In general, a variable interest entity (“VIE”) is a corporation, partnership, trust or any other legal structure used for
business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities. In addition, in June 2005, the FASB issued
EITF 04-05, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership
or Similar Entity When the Limited Partners Have Certain Rights". EITF 04-05 requires the Company to consolidate certain
entities in which it owns less than 100% of the equity interest if it is the general partner and the limited partners do not have
substantive rights. The adoption of EITF 04-05 did not have a material impact on the Company’s financial position or
results of operations. Prior to the issuance of FIN 46R and EITF 04-05, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through voting interests. FIN 46R and EITF 04-05 change
that by requiring a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss from the
VIE’s activities or entitled to receive a majority of the entity’s residual returns or both or if the company is the general
partner in an agreement that does not provide the limited partners with substantive rights.
The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting as
it exercises significant influence over, but does not control, operating and financial policies. These investments are recorded
initially at cost and subsequently adjusted for equity in earnings and cash contributions and distributions.
The Company guarantees approximately $99.5 million of consolidated joint venture indebtedness ($121.5 million
including the Company’s share of unconsolidated joint venture indebtedness).
Tenant Receivables and Allowance for Doubtful Accounts
Tenant receivables consist primarily of billed minimum rent, accrued and billed tenant reimbursements and accrued
straight-line rent. The Company generally does not require specific collateral other than corporate or personal guarantees
from its tenants.
An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of certain tenants or
others to meet contractual obligations under their lease or other agreements. Accounts are written off when, in the opinion
of management, the balance is uncollectible.
Balance, beginning of year.........................................
Provision for credit losses, net of recoveries..............
Accounts written off...................................................
Balance, end of year...................................................
2008
745,479
1,212,604
(1,150,059)
808,024
$
$
$
$
2007
561,282 $
319,360
(135,163 )
745,479 $
2006
1,030,020
344,564
(813,302)
561,282
F-11
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 2. Summary of Significant Accounting Policies (continued)
Other Receivables
Other receivables consist primarily of receivables due in the ordinary course of the Company’s construction and
advisory services business.
Concentration of Credit Risk
The Company may be subject to concentrations of credit risk with regards to its cash and cash equivalents. The
Company places its cash and temporary cash investments with high-credit-quality financial institutions. From time to time,
such investments may temporarily be in excess of FDIC and SIPC insurance limits. In addition, the Company’s accounts
receivable from tenants potentially subjects it to a concentration of credit risk related to its accounts receivable. At
December 31, 2008, approximately 44%, 21% and 12% of property accounts receivable were due from tenants leasing
space in the states of Indiana, Florida, and Texas, respectively.
Earnings Per Share
Basic earnings per share is calculated based on the weighted average number of shares outstanding during the period.
Diluted earnings per share is determined based on the weighted average number of shares outstanding combined with the
incremental average shares that would have been outstanding assuming all potentially dilutive shares were converted into
common shares as of the earliest date possible.
Potentially dilutive securities include outstanding share options, units in the Operating Partnership, which may be
exchanged for cash or shares under certain circumstances, and deferred share units, which may be credited to the accounts
of non-employee trustees in lieu of the payment of cash compensation or the issuance of common shares to such trustees.
For the years ended December 31, 2008 and 2007, all of the Company’s outstanding deferred share units had a potentially
dilutive effect. In addition, for the years ended December 31, 2007 and 2006, outstanding share options also had a
potentially dilutive effect. The dilutive effect of these securities was as follows:
Dilutive effect of outstanding share options to outstanding
common shares .................................................................
Dilutive effect of deferred share units to outstanding
Year Ended
December 31
2007
2006
2008
—
267,183
169,886
common shares .................................................................
Total dilutive effect .....................................................
12,041
12,041
5,530
272,713
—
169,886
For the year ended December 31, 2008, all of the Company’s outstanding common share options were excluded from
the computation of diluted earnings per share because their impact was anti-dilutive.
The effect of conversion of units of the Operating Partnership is not reflected in diluted common shares, as they are
exchangeable for common shares on a one-for-one basis. The income allocable to such units is allocated on the same basis
and reflected as Limited Partners’ interests in the Operating Partnership in the accompanying consolidated statements of
operations. Therefore, the assumed conversion of these units would have no effect on the determination of income per
common share.
Derivative Financial Instruments
The Company applies SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” which requires
that all derivative instruments be recorded on the balance sheet at their fair value, calculated in accordance with SFAS No.
F-12
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 2. Summary of Significant Accounting Policies (continued)
157. In accordance with SFAS No. 133, gains or losses resulting from changes in the values of those derivatives are
accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company uses
derivative financial instruments to mitigate its interest rate risk on a related financial instrument through the use of interest
rate swaps or rate locks.
SFAS No. 133 requires that changes in fair value of derivatives that qualify as cash flow hedges be recognized in
other comprehensive income (“OCI”) while any ineffective portion of the derivative’s change in fair value be recognized
immediately in earnings. Upon settlement of the hedge, gains and losses associated with the transaction are recorded in OCI
and amortized over the underlying term of the hedge transaction. All of the Company’s derivative instruments qualify for
hedge accounting.
Income Taxes and REIT Compliance
The Company, which is considered a corporation for federal income tax purposes, qualifies as a REIT and generally
will not be subject to federal income tax to the extent it distributes its REIT taxable income to its shareholders. REITs are
subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate rates. The
Company may also be subject to certain federal, state and local taxes on its income and property and to federal income and
excise taxes on its undistributed income even if it does qualify as a REIT. For example, the Company will be subject to
income tax to the extent it distributes less than 90% of its REIT taxable income (including capital gains).
The Company has elected taxable REIT subsidiary (“TRS”) status for some of its subsidiaries under Section 856(1) of
the Code. This enables the Company to receive income and provide services that would otherwise be impermissible for
REITs. In accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) and FASB Interpretation
No. 48 “Accounting for Uncertainty in Income Taxes” (FIN No. 48”), deferred tax assets and liabilities are established for
temporary differences between the financial reporting bases and the tax bases of assets and liabilities at the enacted rates
expected to be in effect when the temporary differences reverse. SFAS No. 109 and FIN No. 48 also require that deferred
tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset
will not be realized.
Income tax provisions for the years ended December 31, 2008, 2007, and 2006 were approximately $1.9 million, $0.8
million, $1.0 million, respectively. Income tax provision for the year ended December 31, 2008 included approximately
$1.2 million incurred in connection with the Company’s taxable REIT subsidiary sale of land in the first quarter of 2008 as
well as $0.5 million incurred in connection with the sale of Spring Mill Medical, Phase II, a consolidated joint venture
property that owned a build-to-suit commercial asset.
Franchise and other taxes were not significant in any of the periods presented.
Note 3. Share-Based Compensation
Overview
The Company's 2004 Equity Incentive Plan (the "Plan") authorizes options and other share-based compensation
awards to be granted to employees and trustees for up to 2,000,000 common shares of the Company. The Company
accounts for its share-based compensation in accordance with the fair value recognition provisions provided under SFAS
No. 123(R) “Share-Based Payment”.
The total share-based compensation expense, net of amounts capitalized, included in general and administrative
expenses for the years ended December 31, 2008, 2007, and 2006 was $0.8 million, $0.5 million, and $0.3 million,
F-13
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 3. Share-Based Compensation (continued)
respectively. Total share-based compensation cost capitalized for the years ended December 31, 2008, 2007, and 2006 was
$0.3 million, $0.3 million, and $0.2 million, respectively, related to development and leasing personnel.
As of December 31, 2008, there were 365,485 shares available for grant under the 2004 Equity Incentive Plan.
Share Options
Pursuant to the Plan, the Company periodically grants options to purchase common shares at an exercise price equal to
the grant date per-share fair value of the Company's common shares. Granted options typically vest over a five year period
and expire ten years from the grant date. The Company issues new common shares upon the exercise of options.
For the Company's share option plan, the grant date fair value of each grant was estimated using the Black-Scholes
option pricing model. The Black-Scholes model utilizes assumptions related to the dividend yield, expected life and
volatility of the Company’s common shares and the risk-free interest rate. The dividend yield is based on the Company's
historical dividend rate. The expected life of the grants is derived from expected employee duration, which is based on
Company history, industry information and other factors. The risk-free interest rate is derived from the U.S. Treasury yield
curve in effect at the time of grant. Expected volatilities utilized in the model are based on the historical volatility of the
Company's share price and other factors.
The following summarizes the weighted average assumptions used for grants in fiscal periods 2008, 2007, and 2006:
Expected dividend yield..............
Expected term of option ..............
Risk-free interest rate ..................
Expected share price volatility ....
2008
5.00%
8 years
3.40%
21.74%
2007
4.00%
8 years
5.08%
15.56%
2006
4.78%
8 years
4.55%
18.45%
A summary of option activity under the Plan as of December 31, 2008, and changes during the year then ended, is
presented below:
Outstanding at January 1, 2008...............
Granted ...................................................
Forfeited .................................................
Outstanding at December 31, 2008.........
Exercisable at December 31, 2008 .........
Options
961,993
523,173
(111,735)
1,373,431
758,555
Weighted-Average
Exercise Price
$
$
$
13.48
12.30
13.22
13.05
13.32
The fair value on the respective grant dates of the 523,173, 43,750, and 37,000 options granted during the periods
ended December 31, 2008, 2007, and 2006 was $1.43, $2.74, and $2.19 per option, respectively.
The aggregate intrinsic value of the 4,958 and 40,199 options exercised during the years ended December 31, 2007
and 2006 was $17,460 and $97,800, respectively. No options were exercised during the year ended December 31, 2008.
The weighted average remaining contractual term of the outstanding and exercisable options at December 31, 2008
were as follows:
F-14
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 3. Share-Based Compensation (continued)
Outstanding at December 31, 2008.......... 1,373,431
Exercisable at December 31, 2008........... 758,555
Options
Weighted-Average Remaining
Contractual Term (in years)
6.33
4.52
These options had no aggregate intrinsic value as of December 31, 2008 as the exercise price was greater than the
Company’s closing share price on December 31, 2008.
As of December 31, 2008, there was $0.7 million of total unrecognized compensation cost related to outstanding
unvested share option awards. This cost is expected to be recognized over a weighted-average period of 1.9 years. We
expect to incur approximately $0.3 million of this expense in fiscal year 2009, approximately $0.2 million in fiscal year
2010, approximately $0.2 million in fiscal year 2011 and the remainder in fiscal year 2012.
Restricted Shares
In addition to share option grants, the Plan also authorizes the grant of share-based compensation awards in the form
of restricted common shares. Under the terms of the Plan, these restricted shares, which are considered to be outstanding
shares from the date of grant, typically vest over a period ranging from one to five years. In addition, the Company pays
dividends on restricted shares that are charged directly to shareholders’ equity.
The following table summarizes all restricted share activity to employees and non-employee members of the Board of
Trustees as of December 31, 2008 and changes during the year then ended:
Restricted shares outstanding at January 1, 2008..........
Shares granted ...............................................................
Shares forfeited .............................................................
Shares vested.................................................................
Restricted shares outstanding at December 31, 2008 ....
Restricted
Shares
62,344
99,126
(3,512)
(53,618)
104,340
$
Weighted Average
Grant Date Fair
Value per share
$
18.59
12.74
14.91
16.52
14.22
During the years ended December 31, 2007 and 2006, the Company granted 41,618 and 30,206 restricted shares to
employees and non-employee members of the Board of Trustees with weighted average grant date fair values of $20.21 and
$15.89, respectively. The total fair value of shares vested during the years ended December 31, 2008, 2007 and 2006 was
$0.5 million, $0.3 million, and $0.1 million.
As of December 31, 2008, there was $1.0 million of total unrecognized compensation cost related to restricted shares
granted under the Plan, which is expected to be recognized over a weighted-average period of 1.2 years. We expect to incur
approximately $0.5 million of this expense in fiscal year 2009, approximately $0.3 million in fiscal year 2010,
approximately $0.1 million in fiscal year 2011 and the remainder in fiscal year 2012.
Deferred Share Units Granted to Trustees
In addition, the Plan allows for the deferral of certain equity grants into the Trustee Deferred Compensation Plan. The
Trustee Deferred Compensation Plan authorizes the issuance of “deferred share units” to the Company’s non-employee
trustees. Each deferred share unit is equivalent to one common share of the Company. Non-employee trustees receive an
annual retainer, fees for Board meetings attended, Board committee chair retainers and fees for Board committee meetings
attended. Except as described below, these fees are typically paid in cash or common shares of the Company.
F-15
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 3. Share-Based Compensation (continued)
Under the Plan, deferred share units may be credited to non-employee trustees in lieu of the payment of cash
compensation or the issuance of common shares. In addition, beginning on the date on which deferred share units are
credited to a non-employee trustee, the number of deferred share units credited is increased by additional deferred share
units in an amount equal to the relationship of dividends declared to the value of the Company’s common shares. The
deferred share units credited to a non-employee trustee are not settled until he or she ceases to be a member of the Board of
Trustees, at which time an equivalent number of common shares will be issued.
During the years ended December 31, 2008, 2007, and 2006, three trustees elected to receive a portion of their
compensation in deferred share units and an aggregate of 11,270, 4,611, and 3,610 deferred share units, respectively,
including dividends that were reinvested for additional share units, were credited to those non-employee trustees based on a
weighted-average grant date fair value of $9.28, $17.21, and $15.76, respectively. During each of the years ended
December 31, 2008, 2007, and 2006, the Company incurred $0.1 million of compensation expense related to deferred share
units credited to non-employee trustees.
Other Equity Grants
During the years ended 2008, 2007 and 2006, the Company issued 3,006, 2,091 and 3,190 unrestricted common
shares, respectively, with weighted average grant date fair values of $12.47, $17.91, and $15.76 per share, respectively, to
non-employee members of our Board of Trustees in lieu of 50% of their annual retainer compensation.
Note 4. Deferred Costs
Deferred costs consist primarily of financing fees incurred to obtain long-term financing and broker fees and
capitalized salaries and related benefits incurred in connection with lease originations. Deferred financing costs are
amortized on a straight-line basis over the terms of the respective loan agreements. Deferred leasing costs include lease
intangibles and other and are amortized on a straight-line basis over the terms of the related leases. At December 31, 2008
and 2007, deferred costs consisted of the following:
Deferred financing costs ..................................... $
Acquired lease intangible assets .........................
Deferred leasing costs and other .........................
Less—accumulated amortization ........................
Total .......................................................... $
2008
9,993,480
6,393,240
18,548,324
34,935,044
(13,767,756)
21,167,288
$
$
2007
8,257,925
7,847,180
16,220,079
32,325,184
(11,761,520)
20,563,664
The estimated aggregate amortization amounts from net unamortized acquired lease intangible assets for each of the
next five years and thereafter are as follows:
2009 .......................................................................................................................
2010 .......................................................................................................................
2011 .......................................................................................................................
2012 .......................................................................................................................
2013 .......................................................................................................................
Thereafter...............................................................................................................
Total .............................................................................................................
$
667,311
568,649
451,884
372,022
320,852
1,128,344
$ 3,509,062
F-16
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 4. Deferred Costs (continued)
The accompanying consolidated statements of operations include amortization expense as follows:
Amortization of deferred financing costs ....... $ 1,272,333
Amortization of deferred leasing costs,
2008
For the year ended December 31,
2007
$ 1,035,497
2006
$ 1,875,193
leasing intangibles and other......................
4,293,540
3,044,341
2,495,041
Amortization of deferred leasing costs, leasing intangibles and other is included in depreciation and amortization
expense, while the amortization of deferred financing costs is included in interest expense.
Note 5. Deferred Revenue and Other Liabilities
Deferred revenue and other liabilities consist of the unamortized in-place lease liabilities, construction billings in
excess of costs, construction retainages payable, tenant rents received in advance and deferred income taxes. The
amortization of in-place lease liabilities is recognized as revenue over the remaining life of the leases through 2027.
Construction contracts are recognized as revenue using the percentage of completion method. Tenant rents received in
advance are recognized as revenue in the period to which they apply, usually the month following their receipt.
At December 31, 2008 and 2007, deferred revenue and other liabilities consisted of the following:
Unamortized in-place lease liabilities..........................
Construction billings in excess of cost ........................
Construction retainages payable..................................
Tenant rents received in advance.................................
Deferred income taxes.................................................
Total...................................................................
$
2008
15,667,652
1,906,783
4,636,725
2,383,634
$
—
$
24,594,794
$
2007
18,181,597
254,959
4,449,289
3,156,364
84,834
26,127,043
The estimated aggregate amortization of acquired lease intangibles (unamortized in-place lease liabilities) for each of
the next five years and thereafter is as follows:
2009 .......................................................................................................................
2010 .......................................................................................................................
2011 .......................................................................................................................
2012 .......................................................................................................................
2013 .......................................................................................................................
Thereafter...............................................................................................................
Total .............................................................................................................
$ 3,097,578
2,727,399
2,223,139
1,729,614
1,625,465
4,264,457
$15,667,652
Note 6. Investments in Unconsolidated Joint Ventures
As of December 31, 2008, the Company had one equity interest in an unconsolidated entity that owns and operates a
rental property (The Centre). The Company owned a 60% interest in The Centre, which represents a sufficient interest in
the entity in order to exercise significant influence, but not control, over operating and financial policies. Accordingly, this
investment is accounted for using the equity method.
In addition, as of December 31, 2008, the Company owned a non-controlling interest in one pre-development land parcel
(Parkside Town Commons), which was also accounted for under the equity method as the Company’s ownership represents
a sufficient interest in the entity in order to exercise significant influence, but not control, over operating and
F-17
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 6. Investments in Unconsolidated Joint Ventures (continued)
financial policies. Parkside Town Commons is owned through an agreement (the “Venture”) with Prudential Real Estate
Investors (“PREI”). In September 2006, the Venture was established to pursue joint venture opportunities for the
development and selected acquisition of community shopping centers in the United States. In December 2006, the
Company contributed 100 acres of development land located in Cary, North Carolina, to the Venture at its cost of $38.5
million, including the Venture’s assumption of $35.6 million of variable rate debt. In August 2007, the Venture purchased
approximately 17 acres of additional land in Cary, North Carolina for a purchase price of approximately $3.4 million,
including assignment costs, which was funded through draws from the Venture's variable rate construction loan. This land
is adjacent to land previously purchased by the Company in 2006. The Venture is in the process of developing this land,
along with the 100 acres purchased in 2006, into an approximately 1.5 million total square foot mixed-use shopping center.
As of December 31, 2008, the Company owned a 40% interest in the Venture which, under the terms of the Venture, will
be reduced to 20% upon project specific construction financing.
In December 2008, the Company’s 50% owned unconsolidated joint venture sold Spring Mill Medical, Phase I. This
property is located in Indianapolis, Indiana and was sold for approximately $17.5 million, resulting in a gain on the sale of
approximately $3.5 million, of which the Company’s share was approximately $1.2 million, net of the Company’s excess
investment. Net proceeds of approximately $14.4 million from the sale of this property were utilized to purchase securities
which were used to defease the related mortgage loan. The Company established legal isolation with respect to the
mortgage and therefore the Company was released of its obligations under the mortgage. The joint venture was required by
the buyer to defease the mortgage loan prior to closing and in doing so, incurred approximately $2.7 million of expense,
which is reflected as a reduction to the gain on sale of the property. The Company used the majority of its share of the
remaining net proceeds to pay down borrowings under the Company’s unsecured revolving credit facility.
Prior to the Company’s sale of its interest in this property, the joint venture sold a parcel of land for net proceeds of
approximately $1.1 million, of which the Company’s share was $0.6 million.
Combined summary financial information of entities accounted for using the equity method of accounting and a
summary of the Company’s investment in and share of income from these entities follows:
Assets:
Investment properties at cost:
Land...............................................................................
Building and improvements ..........................................
Furniture and equipment ...............................................
Construction in progress................................................
Less: Accumulated depreciation....................................
Investment properties, at cost, net .................................
Cash and cash equivalents.............................................
Tenant receivables, net ..................................................
Escrow deposits.............................................................
Deferred costs and other assets......................................
Total assets ....................................................................
Liabilities and Owners’ Equity:
Mortgage and other indebtedness..................................
Accounts payable and accrued expenses .......................
Total liabilities...............................................................
Owners’ equity (deficit) ................................................
Total liabilities and Owners’ equity (deficit) ................
Company share of total assets .......................................
Company share of Owners’ equity (deficit) ..................
F-18
2008
2007
$ 1,310,561
3,379,153
—
57,373,714
62,063,428
(1,952,012)
60,111,416
852,270
792,359
29,447
107,021
$ 61,892,513
$ 58,554,548
1,639,977
60,194,525
1,697,988
$ 61,892,513
$ 25,472,938
315,703
$
$ 2,552,075
14,613,333
10,581
50,329,585
67,505,574
(3,719,540 )
63,786,034
817,417
260,242
324,542
614,209
$ 65,802,444
$ 65,388,351
1,744,214
67,132,565
(1,330,121 )
$ 65,802,444
$ 28,182,617
(869,493 )
$
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 6. Investments in Unconsolidated Joint Ventures (continued)
Add: Excess investment ................................................
Company investment in joint ventures ..........................
Company share of mortgage and other indebtedness ....
1,586,770
$ 1,902,473
$ 24,132,729
1,714,812
$
845,319
$ 28,093,670
Revenue:
Minimum rent....................................................... $
Tenant reimbursements ........................................
Other property related revenue.............................
Total revenue .................................................................
Expenses:
Property operating ................................................
Real estate taxes ...................................................
Depreciation and amortization .............................
Total expenses................................................................
Operating income...........................................................
Interest expense ....................................................
Income from continuing operations ...............................
Discontinued operations:
Operating income from discontinued operations..
Gain on sale of operating property .......................
Income from discontinued operations............................
Net income.....................................................................
Third-party investors’ share of net income ....................
Company share of net income........................................
Amortization of excess investment ................................
Excess investment in sale of discontinued operations ...
Income from unconsolidated entities and gain on sale
Year ended December 31,
2008
2007
2006
965,498 $
297,653
—
1,263,151
975,996
348,927
20,359
1,345,282
$
899,901
247,982
45,696
1,193,579
237,892
143,438
130,162
511,492
751,659
(261,044)
490,615
1,352,237
3,544,524
4,896,761
5,387,376
(2,644,627)
2,742,749
(128,042)
(538,944)
255,678
194,088
140,932
590,698
754,584
(276,065 )
478,519
263,322
—
263,322
741,841
(323,069 )
418,772
(128,062 )
—
226,547
109,357
123,782
459,686
733,893
(290,177)
443,716
296,569
—
296,569
740,285
(325,771)
414,514
(128,062)
—
of unconsolidated property........................................ $
2,075,763 $
290,710
$
286,452
“Excess investment” represents the unamortized difference of the Company’s investment over its share of the equity
in the underlying net assets of the joint ventures acquired. The Company amortizes excess investment over the life of the
related property of no more than 35 years and the amortization is included in equity in earnings from unconsolidated
entities. The Company periodically reviews its ability to recover the carrying values of its investments in joint venture
properties. If the Company were to determine that any portion of its investment, including excess investment, is not
recoverable, the Company would record an adjustment to write off the unrecoverable amounts.
Unconsolidated joint venture debt is the liability of the joint venture and is typically secured by the assets of the joint
venture. As of December 31, 2008, the Company’s share of unconsolidated joint venture indebtedness was $24.1 million,
all of which is due in fiscal year 2009, $22.0 million of which is guaranteed by the Operating Partnership. In the event the
joint venture partnership defaults under the terms of the underlying arrangement, secured property of the joint venture could
be sold in order to satisfy the outstanding obligation prior to the Operating Partnership’s requirement to satisfy the
guarantee.
The most significant component of this indebtedness is the $55.0 million variable rate construction loan at Parkside
Town Commons, of which the Company’s share is $22.0 million. This loan matures in August 2009 and the Company is
currently in discussions with the lender for an 18-month extension on the loan.
F-19
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 7. Significant Acquisition Activity
2008 Acquisitions
The Company made the following significant acquisitions in 2008:
(cid:120)
(cid:120)
(cid:120)
In July 2008, the Company purchased approximately 123 acres of land in Holly Springs, North Carolina for $21.6
million, which was funded with borrowings from the Company’s unsecured revolving credit facility. In addition,
on October 1, 2008, the Company purchased an additional 18 acres of land adjacent to this location for
approximately $5.0 million, which was also funded with borrowings from the Company’s unsecured revolving
credit facility. These land parcels may be used for future development purposes.
In April 2008, one of the Company’s consolidated joint ventures, in which the Company owns an 85% interest,
purchased approximately four acres of land in Indianapolis, Indiana, commonly known as Pan Am Plaza. The
Company funded the joint venture’s purchase with borrowings from the Company’s unsecured revolving credit
facility. This land is situated across the street from the Indiana Convention Center and adjacent to the recently
constructed Indianapolis Colts football stadium. The joint venture intends to develop restaurants and retail space
on this property.
In February 2008, the Company purchased Rivers Edge Shopping Center, a 110,875 square foot shopping center
located in Indianapolis, Indiana, for $18.3 million, with the intent to redevelop (See Note 8). The Company
utilized approximately $2.7 million of proceeds from the November 2007 sale of its 176th & Meridian property.
The remaining purchase price of $15.6 million was funded initially through a draw on the Company’s unsecured
credit facility and subsequently refinanced with a variable rate loan bearing interest at LIBOR + 125 basis points
and maturing on February 3, 2009. In October 2008, the Company extended the maturity date on this loan one
additional year. The Company is in the process of redeveloping this property. The results of operations of 176th &
Meridian have been reflected as discontinued operations for the years ended December 31, 2007 and 2006.
The Company allocates the purchase price of properties to tangible and identified intangibles acquired based on their
fair values in accordance with the provisions of SFAS No. 141, “Business Combinations” (“SFAS No. 141”). The fair value
of real estate acquired is allocated to land and buildings, while the fair value of in-place leases, consisting of above-market
and below-market rents and other intangibles, is allocated to intangible assets and liabilities.
2007 Acquisitions
The Company made the following significant land acquisitions in 2007:
(cid:120)
(cid:120)
(cid:120)
In January 2007, the Company purchased approximately ten acres of land in Naples, Florida for approximately
$6.3 million with borrowings from its then-existing secured revolving credit facility. This land is adjacent to 15.4
acres previously purchased by the Company in 2005.
In March 2007, the Company purchased approximately 105 acres of land in Apex, North Carolina for
approximately $14.5 million with borrowings from the unsecured revolving credit facility. The Company is in the
process of developing this land into an approximately 345,000 total square foot shopping center. Some portions of
land at this property may be sold to third parties in the future.
In August 2007, the Company purchased approximately 14 acres of land in South Elgin, Illinois for approximately
$5.9 million with borrowings from its unsecured revolving credit facility. The first phase of this development is in
the current development pipeline and once completed, this phase of the development will consist of a 45,000
square foot a single tenant building. The second phase of this development is in the Company’s visible shadow
pipeline and once completed, this phase of the development is expected to consist of approximately 263,000
square feet, including non-owned anchor space.
F-20
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 7. Significant Acquisition Activity (continued)
2006 Acquisitions
The Company acquired and placed into service the following retail operating properties in 2006:
(cid:120)
(cid:120)
In April 2006, the Company purchased Kedron Village, a shopping center located in Peachtree, Georgia for a total
purchase price of approximately $34.9 million, net of purchase price adjustments, including tenant improvement
and leasing commission credits, of $2.0 million. When purchased, Kedron Village was under construction and not
an operating property. The property became partially operational in the third quarter of 2006 and became fully
operational during the fourth quarter of 2006. To finance this purchase, the Company incurred new short-term
variable rate debt against the Traders Point property. In September 2006, permanent financing was obtained and a
portion of the proceeds was used to repay the short-term debt. The new fixed rate debt has an original principal
amount of $48.0 million, bears interest at a fixed rate of 5.86% and matures in October 2016.
In July 2006, the Company purchased three operating properties located in Naples Florida for a total combined
purchase price of approximately $57.9 million (Courthouse Shadows for $19.8 million, Pine Ridge Crossing for
$22.6 million, and Riverchase Shopping Center for $15.5 million). To finance the purchase price of these
properties, the Company incurred variable rate indebtedness of $57.9 million. In September, 2006, permanent
financing with a combined original principal amount of $28.0 million was obtained on Pine Ridge Crossing and
Riverchase at a fixed rate of 6.34% with a maturity of October 2016.
In addition, in July 2006, the Company acquired the remaining 15% economic interest from its joint venture partner in
Wal-Mart Plaza in Gainesville, Florida for $3.9 million and assumed management responsibilities for the property. This
acquisition was financed with borrowings from the Company’s revolving credit facility.
Amounts allocated to intangible assets in connection with the 2006 acquisitions totaled $7.5 million and are included
in buildings and improvements and deferred costs in the accompanying consolidated balance sheets. Amounts allocated to
intangible liabilities representing the adjustment of acquired leases to market value totaled $7.0 million and are included in
deferred revenue in the accompanying consolidated balance sheets. The intangible assets and liabilities are amortized over
each tenant’s remaining lease term which ranged from 0.2 to 9.4 years at the date of acquisition. In the accompanying
consolidated statements of operations, the operating results of the acquired properties are included in results of operations
from their respective dates of purchase.
Also during 2006, the Company acquired interests in various parcels of land for a total acquisition cost of
approximately $56.2 million. The Company acquired these parcels for future development.
The Company has entered into master lease agreements with the seller in connection with certain property
acquisitions. These payments are due to the Company when tenant occupancy is below the level specified in the purchase
agreement. The payments are accounted for as a reduction of the purchase price of the acquired property and totaled
approximately $0.1 million, $0.8 million and $0.1 million in 2008, 2007 and 2006, respectively. Future amounts receivable
through 2009 total approximately $43,000 unless the space is leased during the period in which case the payments cease.
Note 8. Redevelopment Activity
Shops at Eagle Creek
The Company is currently redeveloping the space formerly occupied by Winn-Dixie at the Shops at Eagle Creek in
Naples, Florida into two smaller spaces. Staples signed a lease for approximately 25,800 square feet of the space and
opened for business in August 2008. The Company is continuing to market the remaining space for lease. The Company
has also completed a number of additional renovations at the property throughout 2008, including a new roof on the Staples
and remaining junior anchor spaces, new store fronts, masonry additions to the façade and columns as well as new parking
F-21
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 8. Redevelopment Activity (continued)
lot pavement, parking bumpers and striping. The Company currently anticipates its total investment in the redevelopment
at Shops at Eagle Creek will be approximately $3.5 million.
Bolton Plaza
The Company is in the process of redeveloping its Bolton Plaza Shopping Center in Jacksonville, Florida. The former
anchor tenant’s lease at the shopping center expired in May 2008 and was not renewed. This property was moved to the
redevelopment pipeline in the second quarter of 2008. The Company currently anticipates its total investment in the
redevelopment at Bolton Plaza will be approximately $2.0 million.
Rivers Edge
The Company is in the process of redeveloping its Rivers Edge Shopping Center in Indianapolis, Indiana. The current
anchor tenant’s lease at this property will expire in March 2010 and the Company is marketing the space to potential anchor
tenants for the center if the current anchor tenant does not renew its lease. This property was moved to the redevelopment
pipeline in the second quarter of 2008. The Company currently anticipates its total investment in the redevelopment at
Rivers Edge will be approximately $2.5 million.
Courthouse Shadows
The Company is in the process of redeveloping its Courthouse Shadows Shopping Center in Naples, Florida. The
Company intends to modify the existing façade, pylon signage, and upgrade the landscaping and lighting. Publix recently
purchased the lease of the former anchor tenant, has performed certain improvements and intends to occupy the space in the
first half of 2009. In addition to the existing center, the Company may construct an additional building to support
approximately 6,000 square feet of small shop space. This property was moved to the redevelopment pipeline in the third
quarter of 2008. The Company currently anticipates its total investment in the redevelopment at Courthouse Shadows will
be approximately $2.5 million.
Four Corner Square
The Company is currently redeveloping its Four Corner Square Shopping Center in Maple Valley, Washington. In
addition to the existing center, the Company also owns approximately ten acres of land that is in our visible shadow
pipeline that is adjacent to the center which may be utilized in the redevelopment. The Company anticipates the majority of
the existing center will remain open during the redevelopment. This property was moved to the redevelopment pipeline in
the third quarter of 2008. The Company currently anticipates its total investment in the redevelopment at Four Corner
Square will be approximately $0.5 million.
Note 9. Discontinued Operations
In December 2008, the Company sold its Silver Glen Crossings property, located in Chicago, Illinois, for net proceeds
of $17.2 million and recognized a loss on sale, net of Limited Partners’ interests, of $2.1 million. The majority of the net
proceeds from this sale were used to pay down borrowings under the Company’s unsecured revolving credit facility. The
results related to this property have been reflected as discontinued operations for fiscal year ended December 31, 2008.
Amounts were not reclassified for fiscal years 2007 and 2006 as they were not considered material to the financial
statements.
In November 2007, the Company sold its 176th & Meridian property, located in Seattle, Washington, for net proceeds
of $7.0 million and a gain, net of Limited Partners’ interests, of $1.6 million. The results related to this property have been
reflected as discontinued operations for fiscal years ended December 31, 2007 and 2006. The Company anticipated utilizing
the proceeds from the sale to execute a like-kind exchange under Section 1031 of the Internal Revenue Code in 2008 and in
F-22
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 9. Discontinued Operations (continued)
February 2008, did so when it purchased Rivers Edge Shopping Center (see Note 7). At December 31, 2007, the net
proceeds from the sale were being held by an intermediary and were classified as escrow deposits in the accompanying
consolidated balance sheet.
The results of the discontinued operations related to the sale of these properties were comprised of the following for
the years ended December 31, 2008, 2007, and 2006:
Rental income................................................................... $
Property operations ..........................................................
Depreciation and amortization..........................................
Total expense ..........................................................
Operating income .............................................................
Interest expense ................................................................
Limited Partners’ interests in discontinued operations.....
Income from discontinued operations, net of Limited
Partners’ interests.........................................................
(Loss) gain on sale of property .........................................
Limited Partners’ interests in loss (gain) on sale of
property........................................................................
Total (loss) income from discontinued operations .. $
Year ended December 31,
$
2008
2,564,986 $
944,131
537,101
1,481,232
1,083,754
—
(233,009)
2007
446,996
4,156
87,855
92,011
354,985
(232,011 )
(27,423 )
850,745
(2,689,888)
95,551
2,036,189
578,326
(454,070 )
(1,260,817) $ 1,677,670
$
2006
433,000
(2,578)
87,255
84,677
348,323
(248,605)
(22,636)
77,082
—
—
77,082
Note 10. Sale of Asset
In June 2006, the Company terminated its lease with Marsh Supermarkets and subsequently sold the store at its
Naperville Marketplace property to Caputo’s Fresh Markets and recorded a loss on the sale of approximately $0.8 million
(approximately $0.5 million after tax). The total proceeds from these transactions of $14 million included a $2.5 million
note from Marsh Supermarkets with monthly installments payable through June 30, 2008, and $2.5 million of cash received
from the termination of the Company’s lease with Marsh Supermarkets. As of December 31, 2008, all amounts had been
collected under the note. Marsh Supermarkets at Naperville Marketplace was owned by the Company’s taxable REIT
subsidiary. A portion of the proceeds from this sale was used to pay off related indebtedness of approximately $11.6
million.
F-23
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 11. Mortgage Loans and Line of Credit
Mortgage and other indebtedness consist of the following at December 31, 2008 and 2007:
Description
Line of credit1
Maximum borrowing level of $184.2 million and $196.4 million available at December
31, 2008 and 2007, respectively; interest at LIBOR + 1.25% at both December 31,
2008 and 2007 (1.69% and 5.85%, respectively) ............................................................
Term loan2
Matures July 2011 and bears interest at LIBOR+2.65% (3.09%) at December 31, 2008 ....
Notes Payable Secured by Properties under Construction—Variable Rate
Generally due in monthly installments of interest; maturing at various dates through
2011; interest at LIBOR+1.25%-2.75%, ranging from 1.69% to 3.19% at December
31, 2008 and interest at LIBOR+1.15%-1.85%, ranging from 5.75% to 6.45% at
December 31, 2007..........................................................................................................
Mortgage Notes Payable—Fixed Rate
Generally due in monthly installments of principal and interest; maturing at various dates
through 2022; interest rates ranging from 5.11% to 7.65% at December 31, 2008 and
2007 .................................................................................................................................
Mortgage Notes Payable—Variable Rate
Due in monthly installments of principal and interest; maturing at various dates through
December 2011; interest at LIBOR + 1.25%-LIBOR + 2.75, ranging from 1.69% to
3.19% at December 31, 2008 and interest at LIBOR + 1.50% (6.10%) at December 31,
2007 .................................................................................................................................
Net premium on acquired indebtedness................................................................................
Total mortgage and other indebtedness ......................................................................
Balance at December 31,
2007
2008
$105,000,000 $152,774,024
55,000,000
—
66,458,435 3
150,128,993
331,198,521
337,544,839
118,595,882 3
1,408,628
4,546,291
1,839,486
$677,661,466 $646,833,633
____________________
1
The Company entered into two certain cash flow hedge agreements that fix interest on portions of its line of credit.
The weighted average interest rate on the line of credit, including the effect of the hedge agreements on the facility,
was 4.96% and 6.06% at December 31, 2008 and 2007, respectively.
In September 2008, the Company entered into a cash flow hedge for the entire $55 million outstanding under the
Term Loan at a fixed interest rate of 5.92%.
In the fourth quarter of 2008, the Company reclassified approximately $73.8 million of previously classified variable
rate construction notes at four properties to variable rate mortgage notes, as construction activities were substantially
completed at these properties.
2
3
LIBOR was 0.44% and 4.60% as of December 31, 2008 and 2007, respectively.
For the year ended December 31, 2008, the Company had loan borrowing proceeds of $249.5 million and loan
repayments of $218.2 million. The major components of this activity are as follows:
(cid:120) In December 2008, the Company placed variable rate debt at its Glendale Town Center property with an interest rate
of LIBOR + 2.75% and a maturity date of December 2011. This variable rate loan has a total commitment of $24.0
million and at December 31, 2008, approximately $21.8 million was outstanding. The proceeds from this loan were
primarily used to repay the variable rate construction loans at three of our properties, as discussed below;
(cid:120) In December 2008, the Company repaid the total combined outstanding indebtedness of approximately $22.4
million at three of its operating properties (Red Bank Commons, Traders Point II, and Naperville Marketplace);
F-24
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 11. Mortgage Loans and Line of Credit (continued)
(cid:120) In December 2008, in connection with sale of its Spring Mill Medical, Phase II non-operating build-to-suit
commercial development asset, the Company repaid the property’s outstanding indebtedness of approximately $6.7
million;
(cid:120) In December 2008, in connection with the sale of its Silver Glen Crossing, Spring Mill Medical, Phase I operating
properties and its Spring Mill Medical, Phase II non-operating build-to-suit commercial development asset, the
Company generated net proceeds of approximately $23.6 million to pay down borrowings on its unsecured
revolving credit facility;
(cid:120) In October 2008, as further discussed in Note 14, the Company completed an equity offering of 4,750,000 common
shares under a previously filed registration statement, for net offering proceeds of approximately $47.8 million, all
of which was used to repay borrowings under the Company’s unsecured revolving credit facility;
(cid:120) In October 2008, the Company refinanced variable rate debt at its Gateway Shopping Center and extended the
maturity date from August 2009 to October 2011. At the time of the loan’s original maturity, approximately $19.2
million was outstanding. As refinanced, at December 31, 2008, approximately $20.1 million was outstanding
under the new loan, which has a $22.5 million total loan commitment;
(cid:120) In July 2008, as further described below, the Company entered into a $30 million unsecured term loan agreement
which has an accordion feature that enables the Company to increase the loan amount up to a total of $60 million,
subject to certain conditions. In August 2008, the Company entered into an amendment to the unsecured term loan
agreement which, among other things, increased the amount available for borrowing under the original term loan
agreement by an additional $25 million. This amount was subsequently drawn, resulting in an aggregate amount
outstanding under the term loan of $55 million. The majority of the total proceeds were used to pay down
borrowings under the Company’s unsecured revolving credit facility;
(cid:120) In July 2008, the Company purchased approximately 123 acres of land in Holly Springs, North Carolina for $21.6
million (see Note 7), which was funded with borrowings from the Company’s unsecured revolving credit facility;
(cid:120) In February 2008, the Company purchased Rivers Edge Shopping Center (see Note 7) with a $15.6 million draw on
the Company’s unsecured revolving credit facility and $2.7 million of the proceeds from the November 2007 sale of
its 176th & Meridian property. Subsequently, the Company placed $16.6 million of variable rate debt on this
property with an interest rate of LIBOR + 1.25% and a maturity date of February 3, 2009, the proceeds of which
were used to pay down borrowings under the unsecured revolving credit facility. In October 2008, the Company
extended the maturity date on this loan one additional year;
(cid:120) In addition to the preceding activity, the Company used proceeds from its unsecured revolving credit facility and
other borrowings (exclusive of repayments) totaling approximately $74.1 million for development, redevelopment,
acquisitions and general working capital purposes; and
(cid:120) The Company made scheduled principal payments totaling approximately $3.1 million during the year ended
December 31, 2008.
Unsecured Revolving Credit Facility
In February 2007, the Operating Partnership entered into an amended and restated four-year $200 million unsecured
revolving credit facility (the “unsecured facility”) with a group of financial institutions led by Key Bank National
Association, as agent. The Company and several of the Operating Partnership’s subsidiaries are guarantors of the Operating
Partnership’s obligations under the unsecured facility. The unsecured facility has a maturity date of February 20, 2011, with
a one-year extension option. Initial proceeds of approximately $118 million were drawn from the unsecured facility to
repay the principal amount outstanding under the Company’s then-existing secured revolving credit facility and retire the
secured revolving credit facility. Borrowings under the unsecured facility bear interest at a variable interest rate of LIBOR
plus 115 to 135 basis points, depending on the Company’s leverage ratio. The unsecured facility has a 0.125% to 0.20%
commitment fee applicable to the average daily unused amount. Subject to certain conditions, including the prior consent
of the lenders, the Company has the option to increase its borrowings under the unsecured facility to a maximum of $400
million if there are sufficient unencumbered assets to support the additional borrowings. The unsecured facility also
F-25
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 11. Mortgage Loans and Line of Credit (continued)
includes a short-term borrowing line of $25 million with a variable interest rate. Borrowings under the short-term line may
not be outstanding for more than five days.
The amount that the Company may borrow under the unsecured facility is based on the value of assets in its
unencumbered property pool. The Company has 53 unencumbered properties and other assets of which 51 are wholly
owned and used as collateral under the unsecured credit facility and two of which are owned through joint ventures. The
major unencumbered assets include: Broadstone Station, Courthouse Shadows, Eagle Creek Lowes, Eastgate Pavilion, Four
Corner Square, Hamilton Crossing, King's Lake Square, Market Street Village, Naperville Marketplace, PEN Products,
Publix at Acworth, Red Bank Commons, Shops at Eagle Creek, Traders Point II, Union Station Parking Garage, Wal-Mart
Plaza and Waterford Lakes. As of December 31, 2008, the total amount available for borrowing under the unsecured
facility was approximately $77 million.
The Company’s ability to borrow under the unsecured facility is subject to ongoing compliance with various
restrictive covenants similar to those in its previous secured credit facility, including with respect to liens, indebtedness,
investments, dividends, mergers and asset sales. In addition, the unsecured facility, like the previous secured credit facility,
requires that the Company satisfy certain financial covenants, including:
(cid:120)
a maximum leverage ratio of 65% (or 70% in certain circumstances);
(cid:120) Adjusted EBITDA (as defined in the unsecured facility) to fixed charges coverage ratio of at least 1.50 to 1;
(cid:120) minimum tangible net worth (defined as Total Asset Value less Total Indebtedness) of $300 million (plus
75% of the net proceeds of any future equity issuances);
(cid:120)
ratio of net operating income of unencumbered property to debt service under the unsecured facility of at
least 1.50 to 1;
(cid:120) minimum unencumbered property pool occupancy rate of 80%;
(cid:120)
(cid:120)
ratio of variable rate indebtedness to total asset value of no more than 0.35 to 1; and
ratio of recourse indebtedness to total asset value of no more than 0.30 to 1.
The Company was in compliance with all applicable covenants under the unsecured facility as of December 31,
2008.
Under the terms of the unsecured facility, the Company is permitted to make distributions to its shareholders of up to
95% of its funds from operations provided that no event of default exists. If an event of default exists, the Company may
only make distributions sufficient to maintain its REIT status. However, the Company may not make any distributions if an
event of default resulting from nonpayment or bankruptcy exists, or if its obligations under the credit facility are
accelerated.
Term Loan
On July 15, 2008, the Operating Partnership entered into a $30 million unsecured term loan agreement (the “Term
Loan”) arranged by KeyBanc Capital Markets Inc., which has an accordion feature that enables the Operating Partnership
to increase the loan amount up to a total of $60 million, subject to certain conditions. The Operating Partnership’s ability to
borrow under the Term Loan is subject to ongoing compliance by the Company, the Operating Partnership and their
subsidiaries with various restrictive covenants, including with respect to liens, indebtedness, investments, dividends,
mergers and asset sales. In addition, the Term Loan requires that the Company satisfy certain financial covenants. The
Term Loan matures on July 15, 2011 and bears interest at LIBOR plus 265 basis points. A significant portion of the initial
F-26
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 11. Mortgage Loans and Line of Credit (continued)
$30 million of proceeds from the Term Loan was used to pay down borrowings under the Company’s unsecured revolving
credit facility.
On August 18, 2008, the Operating Partnership entered into an amendment to the Term Loan, which, among other
things, increased the amount available for borrowing under the original term loan agreement by an additional $25 million.
This amount was subsequently drawn, resulting in an aggregate amount outstanding under the Term Loan of $55 million.
The additional $25 million of proceeds of borrowings under the Term Loan were used to pay down borrowings under our
unsecured revolving credit facility. In connection with the term loan, in September 2008, we entered into a cash flow hedge
for the entire $55 million outstanding at an interest rate of 5.92%.
The Company’s ability to borrow under the Term Loan will be subject to ongoing compliance by the Company, the
Operating Partnership and their subsidiaries with various restrictive covenants, including with respect to liens,
indebtedness, investments, dividends, mergers and asset sales. In addition, the Term Loan requires that the Company
satisfy certain financial covenants that are substantially similar to the covenants under the unsecured credit facility, as
described above. The Company was in compliance with all applicable covenants under the Term Loan as of December 31,
2008.
Mortgage and Construction Loans
Mortgage and construction loans are secured by certain real estate are generally due in monthly installments of interest
and principal and mature over various terms through 2022.
The following table presents scheduled principal repayments on mortgage and other indebtedness:
2009 .....................................................................................................................................
2010 .....................................................................................................................................
20111 ....................................................................................................................................
2012 .....................................................................................................................................
2013 .....................................................................................................................................
Thereafter.............................................................................................................................
Unamortized Premiums .......................................................................................................
Total ...........................................................................................................................
$
86,508,702
66,131,832
248,443,896
38,904,933
7,584,352
228,679,123
676,252,838
1,408,628
$ 677,661,466
____________________
1
The Company’s unsecured revolving credit facility, of which $105.0 million as outstanding as of
December 31, 2008, has an extension option to 2012 if no events of default exists.
As of December 31, 2008, the fair value of fixed rate debt was approximately $355.3 million compared to the book
value of $332.6 million. The fair value was estimated using cash flows discounted at current borrowing rates for similar
instruments which ranged from 3.33% to 5.01%. As of December 31, 2008, the fair value of variable rate debt was
approximately $342.6 million compared to the book value of $345.1 million. The fair value was estimated using cash flows
discounted at current borrowing rates for similar instruments which ranged from 2.94% to 4.50%.
The Company is currently in various stages of negotiations with lender regarding the indebtedness maturing in fiscal
year 2009. Excluding scheduled monthly principal payments, approximately $84 million of consolidated indebtedness is
due in fiscal year 2009, of which approximately $11.9 million is due in the first quarter of 2009, $34.7 million in the second
quarter, $9.4 million in the third quarter, and the remainder in the fourth quarter.
F-27
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 12. Derivative Financial Instruments
The Company is exposed to capital market risk, including changes in interest rates. In order to manage volatility
relating to interest rate risk, the Company enters into interest rate hedging transactions from time to time. The Company
does not use derivatives for trading or speculative purposes nor does the Company currently have any derivatives that are
not designated as cash flow hedges. As of December 31, 2008, the Company was party to eight consolidated cash flow
hedge agreements for a total of $197.9 million, which fix interest rates at 4.88% to 6.75% and mature over various terms
through 2011. In addition, one of the Company’s unconsolidated joint venture properties is party to a cash flow hedge
agreement on $42.0 million of debt, of which the Company’s share is $16.8 million, that fixes the interest rate at 5.60% and
matures in March 2009.
The valuation of these instruments is determined using widely accepted valuation techniques including discounted
cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves,
implied volatilities, and the creditworthiness of both the Company and the counterparty.
On January 1, 2008, the Company adopted SFAS No. 157, which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances
that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the
standard does not require any new fair value measurements of reported balances.
SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS
No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the
hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified
within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that a company has
the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active
markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and
yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or
liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest
level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of
a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset
or liability.
To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to
appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair
value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the
Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2
of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of
December 31, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the
overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to
F-28
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 12. Derivative Financial Instruments (continued)
the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their
entirety are classified in Level 2 of the fair value hierarchy.
The only assets or liabilities that the Company records at fair value on a recurring basis are interest rate hedge
agreements. The fair value of the Company’s share of the consolidated interest rate hedge agreements as of December 31,
2008 was approximately $8.0 million, net of Limited Partners’ interests, including accrued interest. In addition, at
December 31, 2007, the Company had approximately $133.7 million of consolidated interest rate swaps outstanding with a
fair value of $2.4 million, net of Limited Partners’ interests. The Company’s share of the change in net unrealized loss for
the years ended December 31, 2008, 2007 and 2006 was $4.6 million, $3.4 million and $0.1 million, respectively, and is
recorded in shareholders’ equity as other comprehensive loss. The Company expects approximately $4.9 million to be an
offset to interest expense as the hedged forecasted interest payments occur. No hedge ineffectiveness on cash flow hedges
was recognized during any period presented. Amounts reported in accumulated other comprehensive income related to
derivatives will be reclassified to earnings over time as the hedged items are recognized in earnings during 2009.
The Company’s share of net unrealized losses on its interest rate hedge agreements are the only components of its
accumulated comprehensive income calculation. The following sets forth comprehensive income for the years ended
December 31, 2008, 2007, and 2006:
Year ended December 31,
2008
2007
2006
Net income............................................................ $ 6,093,126 $ 13,522,683 $ 10,179,650
Other comprehensive loss1....................................
(129,517)
Comprehensive income ........................................ $ 1,476,454 $ 10,102,661 $ 10,050,133
(4,616,672)
(3,420,022 )
____________________
1
Reflects the Company’s share of the net change in the fair value of derivative instruments
accounted for as cash flow hedges.
Note 13. Lease Information
Tenant Leases
The Company receives rental income from the leasing of retail and commercial space under operating leases. The
leases generally provide for certain increases in base rent, reimbursement for certain operating expenses and may require
tenants to pay contingent rentals to the extent their sales exceed a defined threshold. The weighted average initial term of
the lease agreements is approximately 16 years. During the periods ended December 31, 2008, 2007, and 2006, the
Company earned percentage rent of $0.4 million, $1.1 million, and $1.2 million, respectively, including the Company’s
joint venture partners’ share of $0, $20,580, and $32,840, respectively. During both of the periods ended December 31,
2007 and 2006, $0.4 million percentage rent related to the Union Station parking garage lease that was changed to a
management agreement in 2008.
As of December 31, 2008, future minimum rentals to be received under non-cancelable operating leases for each of
the next five years and thereafter, excluding tenant reimbursements of operating expenses and percentage rent based on
sales volume, are as follows:
F-29
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 13. Lease Information (continued)
2009 ...................................................................................................................$ 68,708,207
64,825,504
2010 ...................................................................................................................
59,150,180
2011 ...................................................................................................................
2012 ...................................................................................................................
52,427,013
46,195,753
2013 ...................................................................................................................
Thereafter........................................................................................................... 235,609,653
Total .........................................................................................................$526,916,310
Lease Commitments
For the year ended December 31, 2008, the Company was obligated under seven ground leases for approximately 40
acres of land with four landowners which require fixed annual rent. The expiration dates of the initial terms of these ground
leases range from 2012 to 2083. These leases have five to ten year extension options ranging in total from 20 to 30 years.
Ground lease expense incurred by the Company on these operating leases for each of the years ended December 31, 2008,
2007, and 2006 was $1.0 million, of which approximately $0.1 million was capitalized as a project cost of the Company’s
Eddy Street Commons development, as discussed below.
As further discussed in Note 17, the Company is currently developing Eddy Street Commons at the University of
Notre Dame. Beginning in June 2008, in accordance with the operating agreement in place, the Company began making
ground lease payments to the University of Notre Dame for the land beneath the initial phase of the development. This
lease agreement is for a 75 year term at a fixed rate for the first two years, after which payments are based on a percentage
of certain revenues. The table below reflects the fixed term of this ground lease in fiscal years 2009 and 2010. Contingent
amounts are not reflected in the table below for fiscal years 2012 and beyond.
Future minimum lease payments due under such leases for the next five years ending December 31 and thereafter are
as follows:
2009....................................................................................................................$
2010....................................................................................................................
2011....................................................................................................................
2012....................................................................................................................
2013....................................................................................................................
Thereafter ...........................................................................................................
1,060,383
983,300
920,800
972,775
865,900
10,523,645
Total..........................................................................................................$ 15,326,803
Note 14. Shareholders’ Equity and Limited Partner Interests
Common Equity
In October 2008, the Company completed an equity offering of 4,750,000 common shares at an offering price of
$10.55 per share under a previously filed registration statement, for net offering proceeds of approximately $47.8 million,
all of which was used to repay borrowings under the Company’s unsecured revolving credit facility.
In April 2008, the Company issued 60,000 common shares at a weighted-average offering price of $15.19 under a
previously filed registration statement, for net offering proceeds of approximately $0.9 million.
In May 2007, the Company issued 30,000 common shares at an offering price of $21.15 under a previously filed
registration statement, for net offering proceeds of approximately $0.5 million.
F-30
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 14. Shareholders’ Equity and Limited Partner Interests (continued)
In 2006, the Company established a Dividend Reinvestment and Share Purchase Plan (the “Dividend Reinvestment
Plan”). The Dividend Reinvestment Plan offers investors a dividend reinvestment component to invest all or a portion of
the dividends on their common shares, or cash distributions on their units in the Operating Partnership, in additional
common shares as well as a direct share purchase component which permits Dividend Reinvestment Plan participants and
new investors to purchase common shares by making optional cash investments with certain restrictions.
Limited Partners’ Interests
Concurrent with the Company’s IPO and related formation transactions, certain individuals received units of the
Operating Partnership in exchange for their interests in certain properties. Limited Partners were granted the right to redeem
Operating Partnership units on or after August 16, 2005 for cash in an amount equal to the market value of an equivalent
number of common shares at the time of redemption. The Company also has the right to redeem the Operating Partnership
units directly from the limited partner in exchange for either cash in the amount specified above or a number of common
shares equal to the number of units being redeemed. For the years ended December 31, 2008, 2007, and 2006, 285,769,
64,367, and 216,049, respectively, Operating Partnership units were exchanged for the same number of common shares.
Note 15. Segment Information
The Company’s operations are aligned into two business segments: (i) real estate operation and development and (ii)
construction and advisory services. The Company’s segments operate only in the United States. Combined segment data of
the Company for the years ended December 31, 2008, 2007, and 2006 are as follows:
Year Ended
December 31, 2008
Revenues...................................... $
Operating expenses, cost of
construction and services,
general, administrative and
other .......................................
Depreciation and amortization ....
Operating income ........................
Interest expense ...........................
Income tax expense of taxable
REIT subsidiary.....................
Other income, net ........................
Minority interest in income of
consolidated subsidiaries.......
Income from unconsolidated
entities....................................
Gain on sale of unconsolidated
Real Estate
Operation and
Development
101,789,505
32,023,278
35,324,026
34,442,201
(29,721,587 )
—
862,897
(61,707 )
842,425
property..................................
1,233,338
Limited Partners’ interests in
Construction
and
Advisory Services
$
89,973,444 $
Subtotal
Intersegment
Eliminations
and Other
191,762,949 $
(49,062,641 ) $
Total
142,700,308
85,172,529
122,549
4,678,366
(355,467)
(1,927,830)
—
—
—
—
117,195,807
35,446,575
39,120,567
(30,077,054)
(1,927,830)
862,897
(61,707)
842,425
1,233,338
(48,438,084 )
—
(624,557 )
704,873
—
(704,873 )
—
—
—
68,757,723
35,446,575
38,496,010
(29,372,181)
(1,927,830)
158,024
(61,707)
842,425
1,233,338
Operating Partnership............
(1,737,510 )
(374,074)
(2,111,584)
97,448
(2,014,136)
Income from continuing
operations ..............................
5,860,057
2,020,995
7,881,052
(527,109 )
7,353,943
Operating income from
discontinued operations, net
of Limited Partners’
interests..................................
Loss on sale of operating
850,745
property, net of Limited
Partners’ interests ..................
Net income................................... $
$
Total assets .................................. $ 1,097,996,338 $
(2,111,562 )
4,599,240
850,745
—
850,745
(2,111,562)
6,620,235 $
1,149,340,672 $
—
(527,109 ) $
(37,288,766 ) $
(2,111,562)
6,093,126
1,112,051,906
—
—
2,020,995 $
$
51,344,334
F-31
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 15. Segment Information (continued)
Year Ended
December 31, 2007
Revenues...................................... $
Operating expenses, cost of
construction and services,
general, administrative and
other .......................................
Depreciation and amortization ....
Operating income ........................
Interest expense ...........................
Income tax income (expense) of
taxable REIT subsidiary ........
Other income, net ........................
Minority interest in income of
consolidated subsidiaries.......
Income from unconsolidated
Real Estate
Operation and
Development
102,204,678
32,343,206
31,742,104
38,119,368
(26,214,841 )
—
1,787,565
(587,413 )
entities....................................
290,710
Limited Partners’ interests in
Construction
and
Advisory Services
$
99,995,505
Subtotal
Intersegment
Eliminations
and Other
$
202,200,183 $
(63,445,407 ) $
Total
138,754,776
94,039,335
108,666
5,847,504
(759,313)
(761,628)
—
—
—
126,382,541
31,850,770
43,966,872
(26,974,154)
(761,628)
1,787,565
(587,413)
290,710
(60,968,002 )
—
(2,477,405 )
1,009,013
—
(1,009,013 )
—
—
65,414,539
31,850,770
41,489,467
(25,965,141)
(761,628)
778,552
(587,413)
290,710
Operating Partnership............
(3,028,053 )
(869,171)
(3,897,224)
497,690
(3,399,534)
Income from continuing
operations ..............................
10,367,336
3,457,392
13,824,728
(1,979,715 )
11,845,013
Operating income from
discontinued operations, net
of Limited Partners’
interests..................................
Gain on sale of operating
95,551
—
95,551
property, net of Limited
Partners’ interests ..................
Net income .................................. $
$
Total assets .................................. $ 1,041,981,652 $
1,582,119
12,045,006
—
3,457,392
41,321,857
1,582,119
15,502,398 $
1,083,303,509 $
$
$
—
—
(1,979,715 ) $
(35,068,865 ) $
95,551
1,582,119
13,522,683
1,048,234,644
Year Ended
December 31, 2006
Revenues...................................... $
Operating expenses, cost of
construction and services,
general, administrative and
other .......................................
Depreciation and amortization ....
Operating income ........................
Interest expense ...........................
Loss on sale of asset ....................
Income tax income (expense) of
taxable REIT subsidiary ........
Other income, net ........................
Minority interest in income of
consolidated subsidiaries.......
Income from unconsolidated
entities....................................
Limited Partners’ interests in
Real Estate
Operation and
Development
Construction
and
Advisory Services
$
89,039,441
Subtotal
Intersegment
Eliminations
and Other
$
179,462,568 $
(48,312,248 ) $
Total
131,150,320
81,227,441
68,407
7,743,593
(227,595)
—
(1,271,135)
10,750
—
—
112,001,984
29,579,123
37,881,461
(21,643,552)
(764,008)
(965,532)
766,331
(117,469)
286,452
(45,937,863 )
—
(2,374,385 )
421,794
—
—
(421,794 )
—
—
66,064,121
29,579,123
35,507,076
(21,221,758)
(764,008)
(965,532)
344,537
(117,469)
286,452
90,423,127
30,774,543
29,510,716
30,137,868
(21,415,957 )
(764,008 )
305,603
755,581
(117,469 )
286,452
Operating Partnership............
(2,085,439 )
(1,418,245)
(3,503,684)
536,954
(2,966,730)
Income from continuing
operations ..............................
7,102,631
4,837,368
11,939,999
(1,837,431 )
10,102,568
Operating income from
discontinued operations, net
of Limited Partners’
interests..................................
Net income .................................. $
Total assets .................................. $
77,082
7,179,713
972,822,359
$
$
—
4,837,368
32,884,192
77,082
12,017,081 $
1,005,706,551 $
$
$
—
(1,837,431 ) $
(22,545,238 ) $
77,082
10,179,650
983,161,313
F-32
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 16. Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2008 and
2007. Certain prior period amounts have been reclassified from previously disclosed amounts to conform to the current
presentation including revenues and expenses reflecting the sale of Silver Glen Crossing in December 2008 and 176th &
Meridian in November 2007. Such reclassifications had no effect on net income previously reported.
Total revenue ............................................... $
Operating income......................................... $
Income from continuing operations ............. $
Net income (loss) ......................................... $
Net income (loss) per common share –
basic and diluted:
Quarter Ended
March 31,
2008
32,348,673 $
11,429,706 $
2,450,250 $
2,707,299 $
Quarter Ended
September 30,
2008
Quarter Ended
June 30,
2008
34,159,944 $ 34,348,587 $ 41,843,104
$ 10,989,015 $ 5,720,026
10,357,263
2,671,286 $
2,221,967 $
10,440
2,920,896 $ (1,994,358 )
2,459,289 $
Quarter Ended
December 31,
2008
Income from continuing operations.... $
Net income (loss)................................ $
0.08 $
0.09 $
0.07 $
0.08 $
0.09 $
0.10 $
0.00
(0.06 )
Weighted average Common Shares
outstanding
- basic .......................................
- diluted .....................................
Total revenue ...............................................
Operating income.........................................
Income from continuing operations .............
Net income...................................................
Net income per common share - basic:
Income from continuing operations....
Net income .........................................
Net income per common share - diluted:
Income from continuing operations....
Net income .........................................
Weighted average Common Shares
outstanding
- basic .......................................
- diluted.....................................
$
$
$
$
$
$
$
$
29,028,953
29,059,809
29,147,361
29,269,062
29,189,424
29,201,838
33,920,594
33,937,604
Quarter Ended
March 31,
2007
30,235,154 $
8,287,334 $
1,618,556 $
1,638,050 $
Quarter Ended
September 30,
2007
Quarter Ended
June 30,
2007
35,622,757 $ 33,318,475
9,763,566
$ 11,095,912
2,741,281 $ 3,872,019
2,766,127 $ 3,891,395
Quarter Ended
December 31,
2007
$ 39,578,390
$ 12,342,655
3,613,157
$
$ 5,227,111
0.06 $
0.06 $
0.06 $
0.06 $
0.10 $
0.10 $
0.09
0.09
$
$
0.13
0.13
$
$
0.13
0.13
$
$
0.12
0.18
0.12
0.18
28,859,164
29,177,004
28,892,920
29,219,227
28,915,137
29,139,244
28,964,641
29,175,748
Note 17. Commitments and Contingencies
Eddy Street Commons at the University of Notre Dame
The most significant project in the Company’s current development pipeline is Eddy Street Commons at the
University of Notre Dame located adjacent to the university in South Bend, Indiana, that is expected to include retail,
office, hotels, a parking garage, apartments and residential units. A portion of the office space will be leased to the
University of Notre Dame. The City of South Bend has contributed $35 million to the development, funded by tax
increment financing (TIF) bonds issued by the City and a cash commitment from the City both of which are being used for
the construction of a parking garage and infrastructure improvements in this project.
F-33
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 17. Commitments and Contingencies (continued)
This development will be completed in several phases. The initial phase of the project is currently under construction
and will consist of the retail, office, apartments, and residential units with an estimated total cost of $70 million, of which
the Company’s share is estimated to be $35 million. The ground beneath the initial phase of the development is leased from
the University of Notre Dame over a 75 year term at a fixed rate for first two years and based on a percentage of certain
revenues thereafter. The total estimated project costs for all phases of this development are currently estimated to be
approximately $200 million, the Company’s share of which is currently expected to be approximately $64 million. The
Company’s exposure to this amount may be limited under certain circumstances.
The Company will own the retail and office components while the apartments will be owned by a third party. Portions
of this initial phase are scheduled to open in late 2009. The hotel components of the project will be owned through a joint
venture while the apartments and residential units are planned to be sold and operated through relationships with
developers, owners and operators that specialize in residential real estate. The Company does not expect to own either the
residential or the apartment complex components of the project, although it has jointly guaranteed the apartment
developer’s construction loan. At December 31, 2008, vertical construction had not yet commenced; therefore, the balance
outstanding under the construction loan was not significant. The Company expects to receive development, construction
management, loan guaranty and other fees from various aspects of this project.
The Company has a contractual obligation in the form of a completion guarantee to the University of Notre Dame and
to the City of South Bend to complete all phases of the project, with the exception of certain of the residential units,
consistent with commitments we typically make in connection with other bank-funded development projects. To the extent
the hotel joint venture partner, the apartment developer/owner or the residential developer/owner fail to complete those
aspects of the project, the Company will be required to complete the construction, at which time it expects that it would
seek title to the assets and assume any construction borrowings related to the assets. The Company will have certain
remedies against the developers if they were to fail to complete the construction. If the Company fails to fulfill its
contractual obligations in connection with the project, but are using its best efforts, the Company may be held liable but it
has limited its liability to both the University of Notre Dame and the City of South Bend.
Joint Venture Indebtedness
Joint venture debt is the liability of the joint venture under circumstances where the lender has limited recourse to the
Company. As of December 31, 2008, the Company’s share of unconsolidated joint venture indebtedness was approximately
$24.1 million. As of December 31, 2008, the Operating Partnership had guaranteed unconsolidated joint venture debt of
$22.0 million in the event the joint venture partnership defaults under the terms of the underlying arrangement. Mortgages
which are guaranteed by the Operating Partnership are secured by the property of the joint venture, and the Operating
Partnership has the right to attempt to sell the property in order to satisfy the outstanding obligation.
Other Commitments and Contingencies
The Company is not subject to any material litigation nor, to management’s knowledge, is any material litigation
currently threatened against the Company other than routine litigation, claims and administrative proceedings arising in the
ordinary course of business. Management believes that such routine litigation, claims and administrative proceedings will
not have a material adverse impact on the Company’s consolidated financial position or consolidated results of operations.
As of December 31, 2008, the Company had outstanding letters of credit totaling $7.6 million, approximately $4.1
million of which all requirements have been satisfied. At that date, there were no amounts advanced against these
instruments.
F-34
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 18. Employee 401(k) Plan
The Company maintains a 401(k) plan for employees under which it matches 100% of the employee’s contribution up
to 3% of the employee’s salary and 50% of the employee’s contribution up to 5% of the employee’s salary, not to exceed an
annual maximum of $15,000. The Company contributed to this plan $0.3 million, $0.3 million, and $0.2 million for the
years ended December 31, 2008, 2007, and 2006, respectively.
Note 19. Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities,
an amendment to SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 requires
enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial
reporting. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008.
The Company does not believe the adoption of SFAS No. 161 will have a material impact on the Company’s financial
position or results of operations.
In December 2007, the FASB issued SFAS No. 160 “Non-controlling Interests in Consolidated Financial Statements.”
SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated
financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the
parent. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. SFAS No. 160 requires a
reclassification of minority interest within the equity section of the balance sheet and presentation on the consolidated
statement of operations as an allocation of net income, rather than an expense recorded to arrive at net income. Although
the presentation of the Company’s noncontrolling interests in subsidiaries will change as a result of the adoption of SFAS
No. 160, the Company does not believe the adoption of SFAS No. 160 will have a material impact on the Company’s
financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial
Liabilities.” SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at
fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity
to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. SFAS No. 159 does not permit fair value measurement for certain assets and
liabilities, including consolidated subsidiaries, interests in VIEs, and assets and liabilities recognized as leases under SFAS
No. 13 “Accounting for Leases”. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The
adoption of this Statement as of January 1, 2008 did not have a material impact on the Company’s financial position or
results of operations.
Note 20. Supplemental Schedule of Non-Cash Investing/Financing Activities
The following schedule summarizes the non-cash investing and financing activities of the Company for the years
ended December 31, 2008, 2007 and 2006:
Year Ended
December 31,
Imputed value of common area development
land at Eddy Street Commons ................... $
1,900,000
$
—
$
—
2008
2007
2006
Third party assumption of fixed rate debt in
connection with the sale of 176th &
Meridian.....................................................
Contribution of variable rate debt to
—
4,103,508
—
unconsolidated joint venture......................
—
—
38,526,393
F-35
Kite Realty Group Trust
Notes to Consolidated Financial Statements
December 31, 2008
Note 21. Subsequent Events
On February 16, 2009, the Company’s Board of Trustees declared a cash distribution of $0.1525 per common share
for the first quarter of 2009. Simultaneously, the Company’s Board of Trustees declared a cash distribution of $0.1525 per
Operating Partnership unit for the same period. These distributions are payable on April 17, 2009 to shareholders and
unitholders of record as of April 7, 2009.
F-36
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Kite Realty Group Trust
Notes to Schedule III
Consolidated Real Estate and Accumulated Depreciation
Note 1. Reconciliation of Investment Properties
The changes in investment properties of the Company and its Predecessor for the years ended December 31, 2008,
2007, and 2006 are as follows:
Balance, beginning of year ........... $
Acquisitions..................................
Improvements...............................
Disposals ......................................
Balance, end of year ..................... $
2008
1,045,615,844
18,499,248
119,026,069
(48,660,219)
1,134,480,942
$
$
2007
950,858,709
—
124,043,706
(29,286,571)
1,045,615,844
$
$
2006
774,884,021
101,941,430
97,017,271
(22,984,013)
950,858,709
The unaudited aggregate cost of investment properties for federal tax purposes as of December 31, 2008 was $1,063
million.
Note 2. Reconciliation of Accumulated Depreciation
The changes in accumulated depreciation of the Company and its Predecessor for the years ended December 31, 2008,
2007, and 2006 are as follows:
Balance, beginning of year ...................... $
Acquisitions.............................................
Depreciation and amortization expense...
Disposals .................................................
Balance, end of year ................................ $
2008
2007
81,868,605
—
31,057,810
(12,163,674)
100,762,741
$
60,554,974
$
—
28,028,737
(6,715,106 )
81,868,605
$
$
2006
40,051,477
—
26,617,564
(6,114,067 )
60,554,974
Depreciation of investment properties reflected in the statements of operations is calculated over the estimated original
lives of the assets as follows:
Buildings.......................................................35 years
Building improvements.................................10-35 years
Tenant improvements....................................Term of related lease
Furniture and Fixtures...................................5-10 years
F-40
Exhibit No.
Description
Location
EXHIBIT INDEX
Articles of Amendment and Restatement of Declaration
of Trust of the Company
Amended and Restated Bylaws of the Company, as
amended
Form of Common Share Certificate
Incorporated by reference to Exhibit 3.1 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Incorporated by reference to Exhibit 3.2 of the
Annual Report on Form 10-K of Kite Realty Group
Trust for the period ended December 31, 2004
Incorporated by reference to Exhibit 4.1 to Kite
Realty Group Trust’s registration statement on
Form S-11 (File No. 333-114224) declared effective
by the SEC on August 10, 2004
Amended and Restated Agreement of Limited
Partnership of Kite Realty Group, L.P., dated as of
August 16, 2004
Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Employment Agreement, dated as of August 16, 2004,
by and between the Company and John A. Kite*
Incorporated by reference to Exhibit 10.9 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Employment Agreement, dated as of August 16, 2004,
by and between the Company and Thomas K.
McGowan*
Incorporated by reference to Exhibit 10.10 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Employment Agreement, dated as of August 16, 2004,
by and between the Company and Daniel R. Sink*
Incorporated by reference to Exhibit 10.11 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Noncompetition Agreement, dated as of August 16,
2004, by and between the Company and Alvin E. Kite,
Jr.*
Incorporated by reference to Exhibit 10.12 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Noncompetition Agreement, dated as of August 16,
2004, by and between the Company and John A. Kite*
Incorporated by reference to Exhibit 10.13 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Noncompetition Agreement, dated as of August 16,
2004, by and between the Company and Thomas K.
McGowan*
Incorporated by reference to Exhibit 10.14 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Noncompetition Agreement, dated as of August 16,
2004, by and between the Company and Daniel R.
Sink*
Incorporated by reference to Exhibit 10.15 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
Alvin E. Kite*
Incorporated by reference to Exhibit 10.16 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
John A. Kite*
Incorporated by reference to Exhibit 10.17 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
Thomas K. McGowan*
Incorporated by reference to Exhibit 10.18 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
Daniel R. Sink*
Incorporated by reference to Exhibit 10.19 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
William E. Bindley*
Incorporated by reference to Exhibit 10.20 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
Michael L. Smith*
Incorporated by reference to Exhibit 10.21 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
Eugene Golub*
Incorporated by reference to Exhibit 10.22 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
Richard A. Cosier*
Incorporated by reference to Exhibit 10.23 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of August 16,
2004, by and between Kite Realty Group, L.P. and
Gerald L. Moss*
Incorporated by reference to Exhibit 10.24 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Indemnification Agreement, dated as of November 3,
2008, by and between Kite Realty Group, L.P. and
Darell E. Zink, Jr.*
Incorporated by reference to Exhibit 10.4 to the
Quarterly Report on Form 10-Q of Kite Realty Group
Trust for the period ended September 30, 2008.
Contributor Indemnity Agreement, dated August 16,
2004, by and among Kite Realty Group, L.P., Alvin E.
Kite, Jr., John A. Kite, Paul W. Kite, Thomas K.
McGowan, Daniel R. Sink, George F. McMannis, IV,
and Mark Jenkins*
10.20
Kite Realty Group Trust 2004 Equity Incentive Plan*
10.21
Amendment No. 1 to Kite Realty Group Trust 2004
Equity Incentive Plan, dated March 7, 2008*
10.22
Kite Realty Group Trust Executive Bonus Plan*
Kite Realty Group Trust 2008 Employee Share
Purchase Plan*
Registration Rights Agreement, dated as of August 16,
2004, by and among the Company, Alvin E. Kite, Jr.,
John A. Kite, Paul W. Kite, Thomas K. McGowan,
Daniel R. Sink, George F. McMannis, Mark Jenkins,
Ken Kite, David Grieve and KMI Holdings, LLC
Amendment No. 1 to Registration Rights Agreement,
dated August 29, 2005, by and among the Company
and the other parties listed on the signature page
thereto
Tax Protection Agreement, dated August 16, 2004, by
and among the Company, Kite Realty Group, L.P.,
Alvin E. Kite, Jr., John A. Kite, Paul W. Kite, Thomas
K. McGowan and C. Kenneth Kite
Form of Share Option Agreement under 2004 Equity
Incentive Plan*
Form of Restricted Share Agreement under 2004
Equity Incentive Plan*
Schedule of Non-Employee Trustee Fees and Other
Compensation*
Kite Realty Group Trust Trustee Deferred
Compensation Plan*
Incorporated by reference to Exhibit 10.25 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Incorporated by reference to Exhibit 10.26 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Kite Realty Group
Trust for the period ended March 31, 2008.
Incorporated by reference to Exhibit 10.27 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on May 12, 2008
Incorporated by reference to Exhibit 10.32 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Kite Realty Group
Trust for the period ended September 30, 2005
Incorporated by reference to Exhibit 10.33 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 20, 2004
Incorporated by reference to Exhibit 10.39 to the
Annual Report on Form 10-K of Kite Realty Group
Trust for the period ended December 31, 2004
Incorporated by reference to Exhibit 10.40 of the
Annual Report on Form 10-K of Kite Realty Group
Trust for the period ended December 31, 2004
Incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Kite Realty Group
Trust for the period ended June 30, 2005
Incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Kite Realty Group
Trust for the period ended June 30, 2006
Credit Agreement, dated as of February 20, 2007, by
and among Kite Realty Group, L.P., the Company,
Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Kite Realty Group
10.15
10.16
10.17
10.18
10.19
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
KeyBank National Association, as Administrative
Agent, Wachovia Bank, National Association as
Syndication Agent, LaSalle Bank National Association
and Bank of America, N.A. as Co-Documentation
Agents and the other lenders party thereto
Trust filed with the SEC on February 23, 2007
Guaranty, dated as of February 20, 2007, by the
Company and certain subsidiaries of Kite Realty
Group, L.P. party thereto
Incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on February 23, 2007
Term Loan Agreement, dated July 15, 2008, by and
among Kite Realty Group, L.P., Kite Realty Group
Trust, KeyBank National Association, as
Administrative Agent and Lender, KeyBanc Capital
Markets, as Lead Arranger, and the other lenders party
thereto
First Amendment to Term Loan Agreement, dated
August 18, 2008, by and among Kite Realty Group,
L.P., Kite Realty Group Trust , KeyBank National
Association, as Original Lender and Agent, and
Raymond James Bank and Royal Bank of Canada,
collectively as “New Lenders”
Form of Guaranty, dated as of July 15, 2008, by Kite
Realty Group Trust
Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 22, 2008
Incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 22, 2008
Incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of Kite Realty Group
Trust filed with the SEC on August 22, 2008
List of Subsidiaries
Consent of Ernst & Young LLP
Filed herewith
Filed herewith
Certification of principal executive officer required by
Rule 13a-14(a)/15d-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of principal financial officer required by
Rule 13a-14(a)/15d-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Filed herewith
Filed herewith
Filed herewith
10.32
10.33
10.34
10.35
21.1
23.1
31.1
31.2
32.1
____________________
* Denotes a management contract or compensatory, plan contract or arrangement.
Exhibit 31.1
I, John A. Kite, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Kite Realty Group Trust;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 16, 2009
By:
/s/ John A. Kite
John A. Kite
Chairman and Chief Executive Officer
Exhibit 31.2
I, Daniel R. Sink, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Kite Realty Group Trust;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 16, 2009
By:
/s/ Daniel R. Sink
Daniel R. Sink
Chief Financial Officer
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned, John A. Kite, Chairman and Chief Executive Officer of Kite Realty Group Trust (the “Company”), and
Daniel R. Sink, Chief Financial Officer of the Company, each hereby certifies, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1.
2.
The Annual Report on Form 10-K of the Company for the year ended December 31, 2008 (the “Report”) fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m); and
The information in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 16, 2009
By:
By:
/s/ John A. Kite
John A. Kite
Chairman and Chief Executive Officer
/s/ Daniel R. Sink
Daniel R. Sink
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Shareholder Information
Form 10-K
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Report on Form 10-K for the year
(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
available to shareholders without
charge upon written request to:
Kite Realty Group Trust
Investor Relations
30 South Meridian, Suite 1100
Indianapolis, Indiana 46204
Annual Meeting
(cid:55)(cid:75)(cid:72)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
will be held at 9:00 a.m. local time on
May 5, 2009, at 30 South Meridian,
8th Floor Conference Center,
Indianapolis, Indiana 46204.
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:222)(cid:70)(cid:72)(cid:85)(cid:86)
Corporate Headquarters
Kite Realty Group Trust
30 South Meridian, Suite 1100
Indianapolis, Indiana 46204
Phone: (317) 577-5600
Fax: (317) 577-5605
Internet
www.kiterealty.com
Exchange Listing
New York Stock Exchange
NYSE: KRG
Independent Registered
Public Accounting Firm
Ernst & Young, LLP
Transfer Agent and Registrar
BNY Mellon Shareholder Services
Mr. James Balsan
480 Washington Blvd., 29th Floor
Jersey City, NJ 07310
(800) 820-8521
Shareholder Information
Current investor information, including
(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:79)(cid:92)(cid:3)(cid:222)(cid:79)(cid:72)(cid:71)(cid:3)(cid:71)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)
releases and quarterly earnings
information, can be obtained at
www.kiterealty.com.
(cid:55)(cid:82)(cid:80)(cid:3)(cid:48)(cid:70)(cid:42)(cid:82)(cid:90)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:68)(cid:81)(cid:3)(cid:54)(cid:76)(cid:81)(cid:78)
Board of Trustees
(cid:45)(cid:82)(cid:75)(cid:81)(cid:3)(cid:36)(cid:17)(cid:3)(cid:46)(cid:76)(cid:87)(cid:72)
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:222)(cid:70)(cid:72)(cid:85)(cid:3)
Kite Realty Group Trust
William E. Bindley
Chairman
Bindley Capital Partners, LLC
(cid:39)(cid:85)(cid:17)(cid:3)(cid:53)(cid:76)(cid:70)(cid:75)(cid:68)(cid:85)(cid:71)(cid:3)(cid:38)(cid:82)(cid:86)(cid:76)(cid:72)(cid:85)
(cid:39)(cid:72)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:47)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:82)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)
Management, Purdue University
Eugene Golub
Chairman, Golub & Company
Gerald L. Moss
(cid:43)(cid:82)(cid:81)(cid:82)(cid:85)(cid:68)(cid:85)(cid:92)(cid:3)(cid:50)(cid:73)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:86)(cid:72)(cid:79)(cid:15)(cid:3)(cid:37)(cid:76)(cid:81)(cid:74)(cid:75)(cid:68)(cid:80)
McHale, LLP
Michael L. Smith
Retired former Executive Vice
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:222)(cid:70)(cid:72)(cid:85)(cid:15)
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(cid:39)(cid:68)(cid:85)(cid:72)(cid:79)(cid:79)(cid:3)(cid:40)(cid:17)(cid:3)(cid:113)(cid:42)(cid:72)(cid:81)(cid:72)(cid:114)(cid:3)(cid:61)(cid:76)(cid:81)(cid:78)(cid:15)(cid:3)(cid:45)(cid:85)(cid:17)
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Strategic Capital Partners, LLC
Chairman Emeritus
(cid:36)(cid:79)(cid:89)(cid:76)(cid:81)(cid:3)(cid:40)(cid:17)(cid:3)(cid:46)(cid:76)(cid:87)(cid:72)
Kite Realty Group Trust
Executive Management Team
(cid:45)(cid:82)(cid:75)(cid:81)(cid:3)(cid:36)(cid:17)(cid:3)(cid:46)(cid:76)(cid:87)(cid:72)
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Thomas K. McGowan
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(cid:39)(cid:68)(cid:81)(cid:76)(cid:72)(cid:79)(cid:3)(cid:53)(cid:17)(cid:3)(cid:54)(cid:76)(cid:81)(cid:78)
Executive Vice President and
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Forward-looking Statements
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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 ac-
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materially from the results, performance, transactions or achievements 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
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publicly disseminate. The Company undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future
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30 South Meridian Street, Suite 1100 (cid:115) Indianapolis, IN 46204 (cid:115) P 317 577 5600 (cid:115) F 317 577 5605 (cid:115) www.kiterealty.com