2009 A N N UA L R E P O R T
Kite Realty Group . 30 S. Meridian Street, Suite 1100 . Indianapolis, IN 46204
317.577.5600
www.kiterealty.com
Corporate Profile
Kite Realty Group Trust, a real estate investment trust (“REIT”), engages in the ownership, operation, leas-
ing, management, acquisition, development, expansion, and construction of neighborhood and community
shopping centers and commercial real estate properties in the United States. It also provides real
estate facility management, construction, development, and other advisory services to third parties.
As of December 31, 2009, the Company owned interests in 55 operating properties consisting of 51 retail
properties and 4 commercial properties, as well as 7 properties under development or redevelopment.
The Company was founded in 1960 and is headquartered in Indianapolis, Indiana. Its common stock is
traded on the New York Stock Exchange under the symbol KRG. The Company’s current quarterly divi-
dend is $0.06 per share.
The Company qualifies as a REIT under the Internal Revenue Code. As a REIT, the Company is not
subject to federal tax to the extent that it distributes at least 90 percent of its taxable income to
its shareholders and certain other requirements.
Financial Highlights
($ in millions except per share amounts)
Year ended December 31,
2009
2008
2007
FINANCIAL DATA
Revenue
Funds from Operations (FFO*) of the Kite Portfolio
FFO per diluted share
Net (Loss) Income Attributable to Kite Realty Group Trust
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA)
Diluted Weighted Average Common Shares and
Units Outstanding (in millions)
PROPERTY DATA
Properties in operating portfolio
Total square feet (in millions)
Percent of owned portion under lease
Projects in Current Development Pipeline
Estimated Company owned gross leasable
area (GLA, in thousand square feet)
Estimated total cost
DIVIDEND DATA
Cash dividend paid per share
$ 115.3
$ 28.7
$ 0.48
(1.8)
$
$142.1
$ 45.1
$ 1.17
$ 6.1
$132.9
$ 47.2
$ 1.26
$ 13.5
$ 62.1
$ 74.1
$ 69.3
60.3
38.6
37.6
55
8.4
90.7
2
56
8.9
91.7
3
55
8.0
94.6
9
297.7
$ 87.0
368.0
$ 91.2
514.1
$145.8
$0.4775
$0.820
$0.800
*FFO is a non-GAAP financial measure commonly used in the real estate industry that we believe provides useful information
to investors. Please refer to Management’s Discussion & Analysis of Financial Condition and Results of Operations in the
accompanying Form 10-K for a definition of FFO, and to pages 67-68 for a reconciliation of net income to FFO.
Naperville Marketplace
Naperville, Illinois
Dear Fellow Shareholders
At this time last year, our industry was bracing for the possibility that 2009 could be more
challenging than 2008. No one was sure what kind of market transformation to expect or
the timing of these unknown changes. During this uncertainty, we wisely chose to con-
centrate on a few fundamentals. In my letter last year, I promised to keep our company
focused on capital preservation, aggressive leasing, and improving the balance sheet. We
posted solid results in these areas which I will address in the coming pages.
2009 was a year defined by uncertainty in most respects, but the lessons learned and
the perspectives gained were anything but uncertain. We will combine these lessons
with those from the previous 50 years of our business as we shape Kite Realty Group
during 2010. I am not satisfied with the performance of our stock last year, and my
colleagues and I have much work to do. With 2009 behind us, we have refocused our
efforts on maintaining a strong balance sheet and growing the company. As a result of a
long history in all facets of the business, strong real estate, and the potential to take
advantage of economies of scale, we have the advantage of multiple avenues for growth.
Kite Realty Group 2009 Annual Report
1
Delray Marketplace, future development
Delray Beach, Florida
Managing Debt and Preserving Capital
Our May 2009 equity offering provided liquidity for maturing debt and capital for our
re-tenanting efforts. This important step allows us to prepare for growth today. The sup-
port shown by our existing shareholder base and new investors was a critical component
of this offering. Our top priority from that point was to manage our debt maturities and
strengthen our balance sheet. We made solid progress on both fronts, and I am proud of
our team’s performance. From January 2009 through February 2010, we refinanced,
retired, or extended over $170 million in maturing debt without a significant negative
impact to our liquidity. By mid-February of this year, we had no remaining 2010 maturi-
ties. Deleveraging is a process, but we are making steady improvement. For 2009, we
recorded a healthy fixed charge coverage ratio (1) of 2.3 to 1, and at the end of 2009, our
ratio of debt to undepreciated real estate assets was 54 percent compared to nearly 60
percent a year earlier.
(1) Fixed charge coverage ratio defined as earnings before interest, taxes, depreciation, and amortization
(EBITDA) divided by interest expense.
2
Kite Realty Group 2009 Annual Report
“From January 2009 through February 2010, we refinanced,
retired, or extended over $170 million in maturing debt.
By mid-February, we had no remaining 2010 maturities.”
Tarpon Springs Plaza
Naples, Florida
We transitioned one development property, South Elgin Commons in Chicago, from the
development pipeline to the operating portfolio, and nearly finalized our development
efforts on the only two other active developments in our portfolio—Eddy Street Commons
at Notre Dame and Cobblestone Plaza near Ft. Lauderdale, Florida. These projects were
73 percent leased at year-end and nearly all the capital outlay during 2009 was funded
through existing construction loans. As anticipated, we did not commence any new vertical
construction and incurred only pre-development costs on future development projects.
The combination of our successful property-level debt management and conservative
approach to development spending allowed us to end 2009 with approximately $90 million
of combined cash and line of credit availability.
Leasing Is Key
We are a real estate company which means we are a leasing company. In 2009, we
refocused our resources in this area by creating a new executive vice president position,
hiring new leasing representatives, revamping compensation structures, and boosting the
overall intensity of our efforts. We implemented a more efficient approval process and
made every department aware of the heightened importance on leasing space. It paid off
with significant leasing activity and positive rent spreads. 2009 was one of the highest
levels of annual leasing production in our history and it occurred during one of the worst
Kite Realty Group 2009 Annual Report
3
real estate markets in memory. This is a testament to the strength of our Class A portfo-
lio and our leasing team.
Leasing is the cornerstone of our growth prospects. Existing vacant space represents the
most accretive and cost effective form of earnings growth. We cannot and will not let off
the gas, and as you will see, the first three growth opportunities are distinct sources of
leasing upside.
Seven Growth Sources
In light of the lessons learned over the last
eighteen months, we now have our eyes on
the future. In fact, there are seven near term
sources of growth for our company.
The first and most immediate source is the
additional rental revenue generated by anchor
tenants that have recently executed leases.
Dick’s Sporting Goods, Toys R Us, Academy
Sports, Sprouts Farmer’s Market, and LA
Fitness are all tenants with executed leases
“Leasing is the cornerstone of our
growth prospects. Throughout 2009
we took considerable steps to improve
the entire leasing process. It paid off
with one of the highest levels of annual
leasing production in our history during
one of the most challenging markets.”
who paid little, if any, rent in 2009. These leases will provide rental growth throughout
2010 and 2011.
Second, we are in active negotiations with multiple anchor retailers which we expect to
announce as signed leases throughout the year. Currently, we have seven vacant junior
anchor boxes and five are either in late stage letter of intent or lease negotiations.
Third, our small shop leased percentage has been impacted by the recession. Our small
shops ended the year at 77 percent leased, approximately 800 basis points below historic
levels. While we remain cautious of the ongoing market pressures on small shop space,
we are confident that the quality of our real estate and the strength of our leasing team
will facilitate a return to normal levels of small shop occupancy.
4
Kite Realty Group 2009 Annual Report
Eddy Street Commons at Notre Dame
South Bend, Indiana
“Our size affords us multiple sources of growth including joint
venture capital, but we will keep these arrangements simple
and easy to understand.”
Traders Point
Indianapolis, Indiana
Fourth, our two current development projects are leasing steadily. We have been deliber-
ate with tenant selection at Eddy Street Commons which ended the year at 72.4 percent
leased. Also, we are very pleased to have secured Whole Foods as the anchor to
Cobblestone Plaza. This was an important milestone for the project and a solid endorse-
ment of the real estate from a highly sought after anchor tenant. A limited amount of
capital remains to be spent on these two projects, and tenants will continue to com-
mence paying rent throughout the near term. We have been selective and patient on the
leasing front in light of temporary market challenges, and we believe this approach will be
rewarded with long term economic performance. As we transition these assets into the
operating portfolio throughout 2010, we believe we will recognize the benefits of our
development, construction, and leasing efforts.
Fifth, we anticipate double digit returns on the additional capital we will invest in the
redevelopment pipeline. Nearly all of these assets were acquired for their redevelopment
potential, and the inherent quality of the real estate is evident in the recently announced
leases and strong tenant interest. In select situations, we have seen tenant interest and
potential rent levels significantly increase in the last few months. Landlord-retailer
discussions are still challenging, but they are occurring in an environment where the
balance of negotiating strength is no longer exaggerated to our disadvantage.
6
Kite Realty Group 2009 Annual Report
Coming Soon to Cobblestone Plaza
Pembroke Pines, Florida
Sixth, although we are cautious about starting new development, we are encouraged by
the preleasing activity at our future developments. For example, anchor leasing at Delray
Marketplace is complete, shop leasing is well underway, and construction could start late
this year or early next. We have a high degree of confidence in our future development
markets. We chose Raleigh, Delray Beach, Chicago, and Seattle because they are strong
markets by almost every metric. Nonetheless, throughout 2009 we exhibited a more pru-
dent approach to development, and we will continue to utilize more conservative stan-
dards for spending capital on all future development projects.
Finally, our seventh potential source of growth is joint venture capital. Although the
magnitude and timing for the next wave of investment opportunities in real estate is
being widely debated, I am confident there will be opportunity for those who are ready
for it. We have limited our joint venture activity up to this point—a strategy which
positions us today with more, rather than fewer, options. A discussion of specific wants
and needs will be appropriate at a later time, but I will share one thought on this piece of
our business. We will keep our joint venture arrangements simple. Our belief is that we
can create more shareholder value if our business is easy to understand. Joint venture
capital is a natural progression for us a public company and we will remain true to the
principle of simplicity in our negotiations.
Kite Realty Group 2009 Annual Report
7
Closing Thoughts
In keeping with a theme of simplicity, we have an opportunity to improve the quality and
predictability of our FFO going forward. In 2008, 59 percent of FFO came from real
estate rental operations. In 2009, that percentage increased to 82 percent. The midpoint
of our FFO guidance for 2010 assumes 90 percent comes from real estate rental opera-
tions. I have laid out a roadmap for growth which supports this progression to a higher
percentage of FFO from recurring rent. My efforts as well as those of the entire Kite
team will be dedicated to delivering this improved FFO stream.
We have always received tremendous guidance and counsel from our Board of Trustees.
2009 was no different, and I know we can expect the same in 2010. I thank them for
their time and efforts.
2009 was a very difficult year for our country and American business. Our company felt
the pressures and our employees were no different. I want to thank all our employees for
their dedication and passion. Those two principles allowed Kite Realty Group to weather
the storm and will propel us forward.
Last year I wrote this letter with a small sense of optimism in the face of uncertainty.
Today, the optimism has grown, the uncertainty is waning, and we are armed with a
much clearer path for growth. I thank our fellow shareholders for their continued support,
and I look forward to a better 2010.
John A. Kite
Chairman and Chief Executive Officer
8
Kite Realty Group 2009 Annual Report
Form 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
⌧ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
�
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2009
For the transition period from ___________to___________
Commission File Number: 001-32268
Kite Realty Group Trust
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
11-3715772
(IRS Employer Identification No.)
30 S. Meridian Street, Suite 1100
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip code)
(317) 577-5600
(Registrant’s telephone number, including area code)
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 � No ⌧
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 � No ⌧
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 ⌧ No �
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes � No �
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 definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. �
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 �
Accelerated filer ⌧
Non-accelerated filer
�
Smaller reporting company �
(do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes � No ⌧
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 $181.6 million based upon the closing price of $2.92 per share on the New York Stock Exchange on such date.
The number of Common Shares outstanding as of March 5, 2010 was 63,186,339 ($.01 par value).
Portions of the Proxy Statement relating to the Registrant’s Annual Meeting of Shareholders, scheduled to be held on May 4, 2010, 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, 2009
TABLE OF CONTENTS
Page
Item No.
Part I
1. Business.............................................................................................................................................................
2
1A. Risk Factors .......................................................................................................................................................
9
1B. Unresolved Staff Comments.............................................................................................................................. 23
2. Properties........................................................................................................................................................... 24
3. Legal Proceedings.............................................................................................................................................. 36
4. Submission of Matters to a Vote of Security Holders ....................................................................................... 36
Part II
5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities ........................................................................................................................................................... 37
6. Selected Financial Data ..................................................................................................................................... 40
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................ 41
7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................................ 69
8. Financial Statements and Supplementary Data.................................................................................................. 69
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................ 70
9A. Controls and Procedures .................................................................................................................................... 70
9B. Other Information .............................................................................................................................................. 72
Part III
10. Directors, Executive Officers and Corporate Governance................................................................................. 72
11. Executive Compensation ................................................................................................................................... 72
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .......... 72
13. Certain Relationships and Related Transactions, and Director Independence .................................................. 72
14. Principal Accountant Fees and Services ............................................................................................................ 72
Part IV
15. Exhibits, Financial Statement Schedule............................................................................................................. 73
Signatures ........................................................................................................................................................................... 74
ITEM 1. BUSINESS
PART I
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 and redevelopment 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, 2009, we held an approximate 89% interest in our Operating Partnership. Limited partners owned the
remaining 11% of the interests in our Operating Partnership at December 31, 2009.
As of December 31, 2009, we owned interests in a portfolio of 51 retail operating properties totaling approximately
7.9 million square feet of gross leasable area (including approximately 2.9 million square feet of non-owned anchor space).
Our retail operating portfolio was 90.1% leased as of December 31, 2009 to a diversified retail tenant base, with no single
retail tenant accounting for more than 3.3% of our total annualized base rent. In the aggregate, our largest 25 tenants
account for approximately 41% of our annualized base rent as of December 31, 2009. See Item 2, “Properties” for a list of
our top 25 tenants by annualized base rent.
We also own interests in three commercial (office/industrial) operating properties totaling approximately 0.5 million
square feet of net rentable area and an associated parking garage, all located in the state of Indiana. The occupancy of our
commercial operating portfolio was 96.2% as of December 31, 2009.
As of December 31, 2009, we also had an interest in seven retail properties in our development and redevelopment
pipelines. Upon completion, our development and redevelopment properties are anticipated to have approximately 1.1
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 “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,
2009, this shadow pipeline consisted of six projects that are expected to contain approximately 2.8 million square feet of
total gross leasable area (including non-owned anchor space) upon completion.
In addition, as of December 31, 2009, we owned interests in various land parcels totaling approximately 95 acres.
These parcels are classified as “Land held for development” in the accompanying consolidated balance sheets 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
Florida, Georgia, Illinois, Indiana, New Jersey, North Carolina, Ohio, Oregon, Texas and Washington.
Difficult economic conditions during the last two years have had a negative impact on consumer confidence and
spending. This, in turn, is causing segments of 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,” for further discussion of the current economic conditions and their impact on us.
2
Significant 2009 Activities
Financing 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.
Therefore, our primary objective recently has been, and in the future will continue to be, the strengthening of our balance
sheet, managing of our debt maturities and conservation of cash. We ended the year 2009 with approximately $87 million
of combined cash and borrowing capacity on the unsecured revolving credit facility and, as of February 17, 2010, have
extended all of our 2010 debt maturities. We will remain focused on 2011 refinancing activity and will continue to
aggressively manage our operating portfolio.
During 2009, we successfully completed various financing, refinancing and capital-raising activities. As a result of
these actions, we reduced the amount outstanding under our unsecured revolving credit facility to $78 million at December
31, 2009 from $105 million at December 31, 2008 and paid down the balances of various other loans. The significant
financing, refinancing and capital raising activities completed during 2009 included the following:
New Financings in 2009
• Permanent financing of $15.4 million was placed on the Eastgate Pavilion operating property in Cincinnati,
Ohio, a previously unencumbered property. This variable rate loan bears interest at LIBOR + 295 basis
points and matures in April 2012. We simultaneously hedged this loan to fix the interest rate at 4.84% for
the full term; and
• A construction loan in the amount of $10.9 million was placed on the Eddy Street Commons development
property in South Bend, Indiana to finance the construction of a limited service hotel in which we have a
50% interest. This joint venture entity is unconsolidated in the accompanying consolidated financial
statements. The construction loan bears interest at a rate of LIBOR + 315 basis points and matures in
August 2014.
Refinancings & Maturity Date Extensions in 2009
• The $8.2 million fixed rate loan on the Bridgewater Crossing operating property in Indianapolis, Indiana was
refinanced with a variable rate loan bearing interest at LIBOR + 185 basis points and maturing in June 2013;
• The maturity date of the $31.4 million variable rate construction loan on the Cobblestone Plaza development
property in Ft. Lauderdale, Florida was extended to March 2010 at an interest rate of LIBOR + 250 basis
points;
• The $4.1 million variable rate loan on the Fishers Station operating property in Indianapolis, Indiana was
refinanced at an interest rate of LIBOR + 350 basis points and maturing in June 2011;
• The maturity date of the $9.4 million construction loan on our Delray Marketplace development property in
Delray Beach, Florida was extended to June 2011 at an interest rate of LIBOR + 300 basis points;
• The maturity date of the variable rate loan on the $11.9 million Beacon Hill operating property in Crown
Point, Indiana was extended to March 2014 at an interest rate of LIBOR + 125 basis points;
• The $15.8 million fixed rate loan on our Ridge Plaza operating property in Oak Ridge, New Jersey was
refinanced with a permanent loan in the same amount. This loan has a maturity date of January 2017 and
bears interest at a rate of LIBOR + 325 basis points. We simultaneously hedged this loan to fix the interest
rate at 6.56% for the full term;
• The maturity date of the $17.8 million variable rate loan on our Tarpon Springs Plaza operating property in
Naples, Florida was extended to January 2013 at an interest rate of LIBOR + 325 basis points; and
• The maturity date of the $14.0 million variable rate loan on our Estero Town Commons operating property
in Naples, Florida was extended to January 2013 at an interest rate of LIBOR + 325 basis points.
3
In addition, in the first quarter of 2010, we completed the following financing activities:
• The maturity date of the $14.9 million variable rate loan on the Shops at Rivers Edge operating property in
Indianapolis, Indiana was extended to February 2013 at an interest rate of LIBOR + 400 basis points;
• The maturity date of the $30.9 million variable rate construction loan on the Cobblestone Plaza development
property was extended to February 2013 at an interest rate of LIBOR + 350 basis points; and
• The maturity date of the $11.0 million construction loan on the South Elgin Commons property in a suburb
of Chicago was extended to September 2013 at an interest rate of LIBOR + 325 basis points.
Construction Financing
• Draws totaling approximately $18.8 million were made on the variable rate construction loan at the Eddy
Street Commons development project; and
• We used proceeds from our unsecured revolving credit facility, other borrowings and cash totaling
approximately $30.0 million for other development and redevelopment activities.
Repayments of Outstanding Indebtedness
• We used approximately $57 million of proceeds from our May 2009 common share offering to pay down the
outstanding balance on our unsecured revolving credit facility;
• We repaid the $11.8 million fixed rate loan on our Boulevard Crossing operating property in Kokomo,
Indiana and contributed the related asset to the unsecured revolving credit facility collateral pool; and
•
In addition, we partially paid down the balances of various permanent and construction loans in 2009 in
connection with the extensions of their respective maturity dates. The aggregate amount of such paydowns
was $32.4 million in 2009.
Other Financing-Related Activities
• We utilized our unsecured revolving credit facility to contribute approximately $8.8 million of equity to our
Parkside Town Commons unconsolidated joint venture property in Raleigh, North Carolina. Our joint
venture partner also made a contribution as a means to reduce the joint venture’s outstanding variable rate
debt;
• We placed an interest rate hedge on the $20.0 million variable rate loan maturing in December 2011 on our
Glendale Town Center operating property in Indianapolis, Indiana. This hedge fixed the interest rate at
4.40% for the full term; and
• We placed an interest rate hedge on the $19.7 million variable rate loan maturing in December 2011on our
Bayport Commons operating property in Oldsmar, Florida. This hedge fixed the interest rate at 4.48% for
the full term;
Common Equity Offering
•
In May 2009, we completed an offering of 28,750,000 common shares at an offering price of $3.20 per share
for net proceeds of approximately $87.5 million. Approximately $57 million of the net proceeds were used
to reduce the outstanding balance on our unsecured revolving credit facility. The remaining proceeds were
initially retained and a portion subsequently used to retire outstanding indebtedness as described above.
2009 Development and Redevelopment Activities
•
In the second quarter of 2009, we completed South Elgin Commons, Phase I, a 45,000 square foot LA Fitness
facility located in a suburb of Chicago, Illinois, and transitioned it into our operating portfolio;
• We partially completed the construction of Cobblestone Plaza, a 138,000 square foot neighborhood shopping
center located in Ft. Lauderdale, Florida. This property was 73.9% leased or committed as of December 31,
2009 and is anchored by Whole Foods, Staples, and Party City; and
4
• We substantially completed the construction of the retail and office components of Eddy Street Commons,
Phase I, a 465,000 square foot center located in South Bend, Indiana that includes a 300,000 square foot non-
owned multi-family component. This project was 72.4% leased or committed as of December 31, 2009 and
is anchored by Follett Bookstore and the University of Notre Dame.
• No new development projects were commenced in 2009.
As of December 31, 2009, we had a redevelopment pipeline that included five properties undergoing various stages of
redevelopment:
• Bolton Plaza, Jacksonville, Florida. This 173,000 square foot neighborhood shopping center was previously
anchored by Wal-Mart. We recently executed a 66,500 square foot lease with Academy Sports & Outdoors
to anchor this center and expect this tenant to open during the second half of 2010. We currently estimate the
cost of this redevelopment to be approximately $5.7 million;
• Coral Springs Plaza, Boca Raton, Florida. In early 2009, Circuit City declared bankruptcy and vacated this
center. We recently executed a 47,000 square foot lease with Toys “R” Us/Babies “R” Us to occupy 100%
of this center. We expect this tenant to open during the second half of 2010. We currently estimate the cost
of this redevelopment to be approximately $4.5 million;
• Courthouse Shadows, Naples, Florida. In 2008, we transferred this 135,000 square foot neighborhood
shopping center from our operating portfolio to our redevelopment pipeline. We intend to modify the existing
facade and pylon signage and upgrade the landscaping and lighting. In 2009, Publix purchased the lease of
the former anchor tenant and made certain improvements on the space. We currently anticipate our total
investment in the redevelopment at Courthouse Shadows will be approximately $2.5 million;
• Four Corner Square, Seattle, Washington. In 2008, we transferred this 29,000 square foot neighborhood
shopping center from our operating portfolio to our redevelopment pipeline. In addition to the existing center,
we also own an adjacent ten acres of land in our shadow pipeline that may be used as part of the
redevelopment. We currently estimate the cost of this redevelopment to be approximately $0.5 million; and
•
Shops at Rivers Edge, Indianapolis, Indiana. In 2008, we purchased this 111,000 square foot neighborhood
shopping center with the intent to redevelop it. The current anchor tenant’s lease at this property expires on
March 31, 2010. The tenant may continue to occupy the space for a period of time while the Company
markets the space to several potential anchor tenants. We currently estimate the cost of this redevelopment
to be approximately $2.5 million which may increase depending on the outcome of current negotiations with
potential anchor tenants.
• No new redevelopment projects were commenced in 2009.
2009 Property Dispositions
In 2009, as part of our regular quarterly review, we determined that it was appropriate to write off the net book value
on the Galleria Plaza operating property in Dallas, Texas and recognize a non-cash impairment charge of $5.4 million. Our
estimated future cash flows, which considered recent negative property-specific events, were anticipated to be insufficient
to recover the carrying value due to significant ground lease obligations and expected future required capital expenditures.
We conveyed the title to the property to the ground lessor in the fourth quarter of 2009.
2009 Cash Distributions
In 2009, we declared quarterly per share cash distributions for the following periods:
First Quarter............................................... $ 0.1525
Second Quarter .......................................... $ 0.0600
Third Quarter ............................................. $ 0.0600
Fourth Quarter (paid in January 2010)....... $ 0.0600
Full Year .............................................. $ 0.3325
5
Business Objectives and Strategies
Our primary business objectives are to increase the cash flow and consequently the value of our properties, achieve
sustainable long-term growth and maximize shareholder value primarily through the operation, development,
redevelopment and select acquisition of well-located community and neighborhood shopping centers. We invest in
properties where cost effective renovation and expansion programs, combined with effective leasing and management
strategies, can combine to improve the long-term values and economic returns of our properties. The Company believes
that certain of its properties represent opportunities for future renovation and expansion.
We seek to implement our business objectives through the following strategies, each of which is more completely
described in the sections that follow:
• Operating Strategy: Maximizing the internal growth in revenue from our operating properties by leasing and
re-leasing those properties to a diverse group of retail 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;
• Growth 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 internal benchmarks for above average
returns; and
• Financing and Capital Preservation 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, investment in strategic joint ventures and by accessing the public
securities markets when market conditions permit.
Operating Strategy. Our primary operating strategy is to maximize rents and maintain or increase occupancy levels
by attracting and retaining a strong and diverse tenant base. Most of our properties are in regional and neighborhood trade
areas with attractive demographics, which has allowed us to maintain and, in some cases, increase occupancy and rental
rates. We seek to implement our operating strategy by, among other things:
• maintaining efficient leasing and property management strategies to emphasize and maximize rent growth
and cost-effective facilities;
• maintaining a diverse tenant mix in an effort to limit our exposure to the financial condition of any one
tenant;
• 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;
• maximizing the occupancy of our existing operating portfolio;
•
increasing rental rates upon the renewal of expiring leases or re-leasing space to new tenants while
minimizing vacancy to the extent possible; and
•
taking advantage of under-utilized land or existing square footage, or reconfiguring properties for better use.
We employed our operating strategy in 2009 in a number of ways, including maintaining a diverse retail tenant mix
with no tenant accounting for more than 3.3% of our annualized base rent. See Item 2, “Properties” for a list of our top
tenants by gross leasable area and annualized base rent. We also had a renewed focus on tenant leasing in 2009 and, as a
part of that focus, we hired a new executive in April 2009 who has substantial industry experience and is dedicated to
developing and managing our leasing strategy. This new leasing executive implemented a number of key initiatives to
strengthen our overall leasing program, resulting in the execution of 735,000 square feet of new and renewal leases during
2009, which is the most square feet leased in a single year since we became a public company in 2004.
Growth Strategy. While we are focused on conserving capital in the current difficult economic environment, our
growth strategy includes the selective deployment of resources to projects that are expected to generate investment returns
that meet or exceed our expectations. We intend to implement our investment strategy in a number of ways, including:
•
evaluating redevelopment and renovation opportunities that we believe will make our properties more
attractive for leasing or re-leasing to tenants at increased rental rates where possible;
6
•
•
disposing of selected assets that no longer meet our long-term investment criteria and recycling the capital
into assets that provide maximum returns and upside potential in desirable markets; and
selectively pursuing the acquisition of retail properties and portfolios in markets with attractive
demographics which we believe can support retail development and therefore attract strong retail tenants.
In evaluating opportunities for potential development, redevelopment, acquisition and disposition, we consider a
number of factors, including:
•
•
•
•
•
•
the expected returns and related risks associated with investments in these potential opportunities relative to
our combined cost of capital to make such investments;
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;
the price being offered for the property, the current and projected operating performance of the property, the
tax consequences of the sale and other related factors;
the current tenant mix at the property and 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, or 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 configuration of the property, including ease of access, abundance of parking, maximum visibility, and
the demographics of the surrounding area; and
the level of success of our existing properties, if any, in the same or nearby markets.
In 2009, we were successful in executing leases for anchor tenants at two properties in our redevelopment portfolio.
We signed a lease for a 47,000 square foot combined Toys “R” Us/Babies “R” Us to occupy 100% of our Coral Springs
property in Boca Raton, Florida. We also signed a lease for 66,500 square feet with Academy Sports & Outdoors to anchor
our Bolton Plaza property in Jacksonville, Florida. We expect both of these tenants to open for business during the last half
of 2010.
Financing and Capital Preservation Strategy. We finance our development, redevelopment and acquisition activities
seeking to use the most advantageous sources of capital available to us at the time. These sources may include the sale of
common or preferred equity through public offerings or private placements, the incurrence of additional indebtedness
through secured or unsecured borrowings, investment in real estate joint ventures and the reinvestment of proceeds from the
disposition of assets.
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 have created a necessity for most REITs, including us, to place a significant
emphasis on financing and capital preservation strategies. While these conditions continue, along with the current turmoil
in the credit markets, our efforts to strengthen our balance sheet are essential to our business. We intend to implement our
financing and capital strategies in a number of ways, including:
•
•
prudently managing our balance sheet, including reducing the aggregate amount of indebtedness outstanding
under our unsecured revolving 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;
seeking to extend the maturity dates of and/or refinancing our unsecured revolving credit facility and term
loan borrowings, which had a combined aggregate balance of $132.8 million at December 31, 2009 and which
both mature in 2011. Our unsecured revolving credit facility has a one-year extension option to February
2012 if we are in compliance with the covenants under the related agreement;
7
• managing our exposure to variable-rate debt through the use of interest rate hedging transactions;
•
•
•
entering into new project-specific construction loans, property loans, and other borrowings;
investing in joint venture arrangements in order to access less expensive capital and to mitigate risk; and
raising additional capital through the issuance of common shares, preferred shares or other securities.
In 2009, we implemented our financing and capital strategy in a number of ways, including issuing 28,750,000
common shares at an offering price of $3.20 per common share for net proceeds of $87.5 million. The majority of the net
proceeds from this offering were used to repay the borrowings under our unsecured revolving credit facility and pay down
other forms of indebtedness. In addition, as discussed above in “Significant 2009 Activities”, we have extended or
refinanced all of our 2009 and 2010 debt maturities. We were also able to reduce the amount outstanding under our
unsecured revolving credit facility to $78 million, net of additional borrowings, at December 31, 2009 from $105 million at
December 31, 2008.
Business Segments
Our principal business is the ownership, operation, acquisition, development and construction 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
14 to the accompanying consolidated financial statements 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 consolidated net income, and total segment assets to total assets for the years ended December 31,
2009, 2008 and 2007.
Competition
The United States commercial real estate market continues to be highly competitive. 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. Some of our competitors may have more resources than we do.
We face significant competition in our efforts to lease available space to prospective tenants at our operating,
development and redevelopment properties. Generally, the challenging economic conditions have caused a greater than
normal amount of space to be available for lease. The nature of the competition for tenants varies depending upon the
characteristics of each local market in which we own and manage properties. We believe that the principal competitive
factors in attracting tenants in our market areas are location, demographics, rental rates, the presence of anchor stores,
competitor shopping centers in the same geographic area and the maintenance and appearance of our properties. There can
be no assurance in the future that we will be able to compete successfully with our competitors in our development,
acquisition and leasing activities.
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 the 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 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.
8
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.
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, 2009, we had 90 full-time employees. Of these employees, 69 were “home office” executive and
administrative personnel and 21 were on-site construction, facilities management 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.
9
We have separated the risks into three categories:
•
•
•
risks related to our operations;
risks related to our organization and structure; and
risks related to tax matters.
RISKS RELATED TO OUR OPERATIONS
Ongoing 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.
We are susceptible to adverse economic developments in the United States. The economy of the United States
continued to be very challenged during 2009 and early 2010, and these conditions may persist 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, recessions, decreases in
consumer confidence, reductions in consumer credit availability, increasing consumer debt levels, rising energy costs, tax
rates, continued 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 effect 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.
Further, we continually monitor events and changes in circumstances that could indicate that the carrying value of our
real estate assets may not be recoverable. The ongoing challenging market conditions could require us to recognize an
impairment charge with respect to one or more of our properties. For example, in the third quarter of 2009, we determined
to write off the net book value on the Galleria Plaza operating property in Dallas, Texas, and recognized a non-cash
impairment charge of $5.4 million.
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 was in a recession during 2009, and challenging economic conditions have continued into
2010. Similarly, the specific markets in which we operate continue to face very challenging economic conditions that will
likely persist into the future. In particular, as of December 31, 2009, approximately 40% of our owned square footage and
approximately 39% of our total annualized base rent is located in Indiana, approximately 21% of our owned square footage
and approximately 22% of our total annualized base rent is located in Florida, and approximately 20% of our owned square
footage and approximately 17% of our total annualized base rent is located in Texas. This level of concentration could
expose us to greater economic risks than if we owned properties in numerous geographic regions. Many states continue to
deal with state fiscal budget shortfalls, rising unemployment rates and home foreclosure rates. Continued adverse economic
or real estate trends in Indiana, Florida, Texas, or the surrounding regions, or any continued decrease in demand for retail
10
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.
Ongoing 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.
Over the last few years, the United States financial and credit markets have 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. 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 effect on our business and our ability to execute our business strategy. In addition, if we are not
successful in 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.
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.
If our tenants are unable to secure financing necessary to continue to operate their businesses and pay us rent, we
could be materially and adversely affected.
Many of our tenants rely on external sources of financing to operate their businesses. As discussed above, the
United States financial and credit markets continue to experience significant liquidity disruptions, resulting in the
unavailability of financing for many businesses. If our tenants are unable to secure financing necessary to continue to
operate their businesses, they may be unable to meet their rent obligations to us or enter into new leases with us or be
forced to declare bankruptcy and reject our leases, which could materially and adversely affect us.
We had approximately $658 million of consolidated indebtedness outstanding as of December 31, 2009, which may
have a material adverse effect on our financial condition and 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 $658 million of consolidated outstanding indebtedness as of December 31, 2009. Approximately $250
million of this debt is scheduled to mature in 2011. At December 31, 2009, approximately $356 million of our debt bore
interest at variable rates (approximately $136 million when reduced by our $220 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. For example, if
market rates of interest on our variable rate debt outstanding as of December 31, 2009 increased by 1%, the increase in
interest expense on our variable rate debt would decrease future cash flows by approximately $1.4 million annually.
We also intend to incur additional debt in connection with projects in our current development, redevelopment and
shadow development pipelines, as well as with 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
11
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 in other ways, including by, among other
things:
•
requiring us to use a substantial portion of our funds from operations to pay principal and interest, which
reduces the amount available for distributions;
• placing us at a competitive disadvantage compared to our competitors that have less debt;
• making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to
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 unsecured 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 unsecured 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 to foreclose on the properties. The
declaration of a default and/or the acceleration of the amount due under any such credit agreement could have a material
adverse effect on our business. In addition, certain of our permanent and construction loans contain cross-default
provisions which provide that a violation by the Company of any financial covenant set forth in our unsecured revolving
credit facility agreement will constitute an event of default under the loans, which could allow the lending institutions to
accelerate the amount due under the loans.
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, 2009, 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 the 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.
We are subject to risks associated with hedging agreements.
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. Further, should
we choose to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our
initial obligation under the hedging agreement.
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. Periods of economic slowdown or recession (including the current challenging economic conditions),
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
12
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:
•
•
•
•
•
•
•
•
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 20% of our owned square footage and 17% of our total annualized
base rent is located;
tenant bankruptcies;
local oversupply, increased competition or reduction in demand for space;
inability to collect rent from tenants, or having to provide significant tenant concessions;
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;
•
•
• weather conditions that may increase or decrease energy costs and other weather-related expenses (such as
decreased attractiveness of our properties to tenants;
snow removal costs);
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
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 because of contractual co-tenancy termination or rent reduction rights
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, 2009, the five largest tenants in our operating portfolio in terms of annualized base rent were Publix,
PetSmart, Lowe’s Home Improvement, Ross Stores and Dick’s Sporting Goods, representing 3.3%, 2.9%, 2.5%, 2.4%, and
2.3%, respectively, of our total annualized base rent.
13
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 United States
companies increased in 2009 and current economic conditions suggest this trend could continue. Similarly, bankruptcies of
tenants renting space at properties in our portfolio continue to be well above historical levels. We cannot make any
assurance that any tenant who 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.
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. We are closely monitoring all of our debt covenants.
Maintaining our covenant compliance is an integral aspect of our capital decision making.
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, 2009, we owned eight of our operating properties through joint ventures. For the twelve months
ended December 31, 2009, the eight properties represented approximately 10.5% of our annualized base rent. In addition,
one of the properties and a component of another property in our current development pipeline and two properties in our
shadow pipeline are currently owned through joint ventures, two of which are accounted for under the equity method as of
December 31, 2009 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:
• 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;
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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
• 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, 2009, leases were scheduled to expire on a total of approximately 5.9% of the space at our properties in
2010. 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.
Our future developments and acquisitions may not yield the returns we expect or may result in shareholder dilution.
We have two properties in our current development pipeline and six properties in our 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
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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 acquisitions or development and redevelopment projects that meet
our investment criteria, which may impede our growth.
Part of our business strategy is expansion through acquisitions and development and redevelopment projects, 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 we may fail to complete 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
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 18% of our annualized base rent in the
aggregate as of December 31, 2009. 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 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.
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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 offset 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
insufficient to cover operating expenses, we could be required to expend funds for that property’s operating expenses. As of
December 31, 2009, our retail operating portfolio was approximately 90% leased compared to approximately 91% as of
December 31, 2008. 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 offset 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 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
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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 give
assurance that:
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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
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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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;
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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, 2009, we had outstanding 63,062,083 common shares. Of these shares, approximately
62,416,712 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, 7,978,498 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.
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
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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:
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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
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:
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“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
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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
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“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.
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.
We have employment agreements with each of our executive officers that provided for a term that ended in December
2009, 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 executive officers through December 31, 2010. 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 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.
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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
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 unsecured revolving 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
22
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 way 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.
REIT distribution requirements may increase our indebtedness.
We may be required from time to time, under certain circumstances, to accrue income for tax purposes that has not yet
been received. In such event, or upon our repayment of principal on debt, we could have taxable income without sufficient
cash to enable us to meet the distribution requirements of a REIT. Accordingly, we could be required to borrow funds or
liquidate investments on adverse terms in order to meet these distribution requirements.
We may in the future choose to pay dividends in our own common shares, in which case shareholders may be
required to pay income taxes in excess of the cash dividends they receive.
We may in the future distribute taxable dividends that are payable partly in cash and partly in our common shares.
Under existing IRS guidance with respect to taxable years ending on or before December 31, 2011, up to 90% of such a
dividend could be payable in our common shares. Taxable shareholders receiving such dividends will be required to include
the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for
U.S. federal income tax purposes, regardless of whether such shareholder receives cash, REIT shares or a combination of
cash and REIT shares. As a result, a shareholder may be required to pay income tax with respect to such dividends in
excess of the cash dividend. If a shareholder sells the REIT shares it receives in order to pay this tax, the sales proceeds
may be less than the amount included in income with respect to the dividend, if the market value of our shares decreases
following the distribution. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S.
federal income tax with respect to dividends paid in our common shares. In addition, if a significant number of our
shareholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward
pressure on the trading price of our common shares.
Dividends paid by REITs generally do not qualify for reduced tax rates.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable to U.S.
shareholders that are individuals, trusts and estates has been reduced by legislation to 15% (through 2010). Unlike
dividends received from a corporation that is not a REIT, the Company’s distributions to individual shareholders generally
are not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends
payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who
are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the
shares of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs,
including our common shares.
ITEM 1.B. UNRESOLVED STAFF COMMENTS
None
23
ITEM 2. PROPERTIES
Retail Operating Properties
As of December 31, 2009, we owned interests in a portfolio of 51 retail operating properties totaling approximately
7.9 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, 2009:
OPERATING RETAIL PROPERTIES - TABLE I
Property1
Bayport Commons6
Estero Town Commons6
Indian River Square
International Speedway Square
King's Lake Square
Pine Ridge Crossing
Riverchase Plaza
Shops at Eagle Creek
Tarpon Springs Plaza
Wal-Mart Plaza
Waterford Lakes Village
Kedron Village
Publix at Acworth
The Centre at Panola
Fox Lake Crossing
Naperville Marketplace
South Elgin Commons
50 South Morton
54th & College
Beacon Hill6
Boulevard Crossing
Bridgewater Marketplace
Cool Creek Commons
Fishers Station4
Geist Pavilion
Glendale Town Center
Greyhound Commons
Hamilton Crossing Centre
Martinsville Shops
Red Bank Commons
Stoney Creek Commons
The Centre5
The Corner
Traders Point
Traders Point II
Whitehall Pike
Zionsville Place
Ridge Plaza
Eastgate Pavilion
Cornelius Gateway6
Shops at Otty7
Burlington Coat Factory8
Cedar Hill Village
Market Street Village
Plaza at Cedar Hill
Plaza Volente
Preston Commons
Sunland Towne Centre
50th & 12th
Gateway Shopping Center9
Sandifur Plaza6
MSA
State
Oldsmar
FL
Naples
FL
Vero Beach
FL
Daytona
FL
Naples
FL
Naples
FL
Naples
FL
Naples
FL
Naples
FL
Gainesville
FL
Orlando
FL
Atlanta
GA
Atlanta
GA
Atlanta
GA
Chicago
IL
Chicago
IL
Chicago
IL
Indianapolis
IN
Indianapolis
IN
Crown Point
IN
Kokomo
IN
Indianapolis
IN
Indianapolis
IN
Indianapolis
IN
Indianapolis
IN
Indianapolis
IN
Indianapolis
IN
IN
Indianapolis
IN Martinsville
Evansville
IN
Indianapolis
IN
Indianapolis
IN
Indianapolis
IN
Indianapolis
IN
Indianapolis
IN
Bloomington
IN
Indianapolis
IN
Oak Ridge
NJ
Cincinnati
OH
Portland
OR
Portland
OR
San Antonio
TX
Dallas
TX
Hurst
TX
Dallas
TX
Austin
TX
Dallas
TX
El Paso
TX
Seattle
WA
Seattle
WA
Pasco
WA
Year
Built/Renovated
2008
2006
1997/2004
1999
1986
1993
1991/2001
1983
2007
1970
1997
2006
1996
2001
2002
2008
2009
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
1970/2004
2000
2004
2002
1996
2004
2008
2008
Year Added to
Operating
Portfolio
2008
2007
2005
1999
2003
2006
2006
2003
2007
2004
2004
2006
2004
2004
2005
2008
2009
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
2005
2004
2005
2002
2004
2004
2008
2008
Acquired, Redeveloped,
or Developed
Developed
Developed
Acquired
Developed
Acquired
Acquired
Acquired
Redeveloped
Developed
Acquired
Acquired
Developed
Acquired
Acquired
Acquired
Developed
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
Developed
Acquired
Developed
Developed
Developed
TOTAL
Total GLA2 Owned GLA2
97,112
25,631
144,246
229,995
85,497
105,515
78,380
72,271
82,547
177,826
77,948
157,409
69,628
73,079
99,072
83,758
45,000
2,000
—
57,191
123,696
25,975
124,578
114,457
64,114
403,198
—
82,424
10,986
34,308
49,330
80,689
42,612
279,674
46,600
128,997
12,400
115,063
236,230
21,324
9,845
107,400
44,262
156,625
299,847
156,333
27,539
307,474
14,500
99,444
12,552
4,996,581
268,556
206,600
379,246
242,995
85,497
258,874
78,380
72,271
276,346
177,826
77,948
282,125
69,628
73,079
99,072
169,600
45,000
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
42,612
348,835
46,600
128,997
12,400
115,063
236,230
35,800
154,845
107,400
139,092
163,625
299,847
160,333
142,539
312,450
14,500
285,200
12,552
7,884,026
Percentage of Owned
GLA Leased3
90.2%
69.5%
97.6%
98.3%
92.0%
95.4%
100.0%
55.2%
93.3%
98.0%
92.6%
89.4%
98.3%
100.0%
81.4%
89.6%
100.0%
100.0%
*
50.4%
87.0%
53.1%
98.6%
75.2%
83.6%
94.1%
*
92.3%
58.2%
74.2%
100.0%
96.5%
88.4%
98.2%
54.5%
100.0%
100.0%
82.6%
100.0%
62.3%
100.0%
100.0%
87.7%
77.6%
79.2%
85.1%
92.5%
91.2%
100.0%
91.9%
82.5%
90.1%
24
OPERATING RETAIL PROPERTIES - TABLE I (continued)
____________________
*
Property consists of ground leases only and, therefore, no Owned GLA. 54th & College is a single ground lease property; Greyhound Commons has 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 is owned by the Company. 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, 2009, except for Greyhound Commons and 54th & College (see * ).
This property is divided into two parcels: a grocery store and small shops. The Company owns 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
the Company.
The Company owns a 60% interest in this property through a joint venture with a third party that manages the property.
The Company owns and manages the following properties through joint ventures with third parties: Bayport Commons (60%); Beacon Hill (50%); Cornelius
Gateway (80%); Estero Town Commons (40%); and Sandifur Plaza (95%).
The Company does not own the land at this property. It has leased the land pursuant to two ground leases that expire in 2017. The Company has six five-year
options to renew this lease.
The Company does not own the land at this property. It has leased the land pursuant to a ground lease that expires in 2012. The Company has six five-year
renewal options and a right of first refusal to purchase the land.
The Company owns a 50% interest in Gateway Shopping Center through a joint venture with a third party. The joint venture partner and manages the property.
25
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1
3
Land Held for Future Development
As of December 31, 2009, we owned interests in land parcels comprising approximately 95 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 3.3% of the portfolio’s annualized base rent for the
year ended December 31, 2009. 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, 2009:
TOP 10 RETAIL TENANTS BY GROSS LEASABLE AREA
Tenant
Lowe's Home Improvement3
Target
Wal-Mart
Publix
Federated Department Stores
Dick's Sporting Goods
Ross Stores
Petsmart
Home Depot
Bed Bath & Beyond
Number of
Locations
8
6
4
6
1
3
5
6
1
5
45
Total GLA
1,082,630
665,732
618,161
289,779
237,455
171,737
147,648
147,069
140,000
134,298
3,634,509
Number of
Leases
2
0
1
6
1
3
5
6
0
5
29
Company
Owned
GLA1
128,997
0
103,161
289,779
237,455
171,737
147,648
147,069
0
134,298
1,360,144
Number of
Anchor
Owned
Locations
6
6
3
0
0
0
0
0
1
0
16
Anchor
Owned
GLA2
953,633
665,732
515,000
0
0
0
0
0
140,000
0
2,274,365
____________________
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 one ground lease with Lowe’s Home Improvement for a total of 163,000 square feet, which is included in Anchor
Owned GLA.
32
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, 2009:
TOP 25 TENANTS BY ANNUALIZED BASE RENT
1, 2
Tenant
Publix
Petsmart
Lowe's Home Improvement
Ross Stores
Dick's Sporting Goods
State of Indiana
Marsh Supermarkets
Bed Bath & Beyond
Office Depot
Indiana Supreme Court
Staples
HEB Grocery Company
Best Buy
Kmart
LA Fitness
Michaels
TJX Companies
Kerasotes Theaters4
Dominick's
City Securities Corporation
The Great Atlantic & Pacific Tea Co.
Petco
Beall's
Old Navy
Burlington Coat Factory
TOTAL
Type of
Property
Retail
Retail
Retail
Retail
Retail
Commercial
Retail
Retail
Retail
Commercial
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Commercial
Retail
Retail
Retail
Retail
Retail
Number of
Locations
6
6
2
5
3
3
2
5
5
1
4
1
2
1
1
3
3
2
1
1
1
3
2
2
1
Leased
GLA/NRA3
289,779
147,069
128,997
147,648
171,737
210,393
124,902
134,298
129,099
75,488
89,797
105,000
75,045
110,875
45,000
68,989
88,550
43,050
65,977
38,810
58,732
40,778
79,611
39,800
107,400
% of Owned
GLA/NRA
of the
Portfolio
5.2%
2.6%
2.3%
2.6%
3.1%
3.8%
2.2%
2.4%
2.3%
1.3%
1.6%
1.9%
1.3%
2.0%
0.8%
1.2%
1.6%
0.8%
1.2%
0.7%
1.0%
0.7%
1.4%
0.7%
1.9%
Annualized
Base Rent1,2
Annualized
Base Rent
per Sq. Ft.
$
2,366,871 $
2,045,138
1,764,000
1,681,504
1,666,152
1,635,911
1,633,958
1,581,884
1,353,866
1,339,164
1,220,849
1,155,000
934,493
850,379
843,750
823,544
818,313
776,496
775,230
771,155
763,516
595,945
588,000
511,800
510,150
8.17
13.91
6.04
11.39
9.70
7.78
13.08
11.78
10.49
17.74
13.60
11.00
12.45
7.67
18.75
11.94
9.24
18.04
8.91
19.87
13.00
14.61
7.39
12.86
4.75
% of Total
Portfolio
Annualized
Base Rent
3.3%
2.9%
2.5%
2.4%
2.3%
2.3%
2.3%
2.2%
1.9%
1.9%
1.7%
1.6%
1.3%
1.2%
1.2%
1.2%
1.2%
1.1%
1.1%
1.1%
1.1%
0.8%
0.8%
0.7%
0.7%
2,616,824
46.8%
$ 29,007,066 $
10.27
40.8%
____________________
1
Annualized base rent represents the monthly contractual rent for December 2009 for each applicable tenant multiplied by 12.
2
3
4
Excludes tenants at development properties that are designated as Build-to-Suits for sale.
Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants.
Annualized Base Rent per square foot is adjusted to account for the estimated square footage attributed to structures on land owned by the Company and
ground leased to tenants.
33
Geographic Information
The Company owns 51 operating retail properties, totaling approximately 5.0 million of owned square feet in nine
states. As of December 31, 2009, 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, 2009:
Indiana
• Retail
• Commercial
Florida
Texas
Georgia
Washington
Ohio
Illinois
New Jersey
Oregon
Number of
Operating
Properties1
24
20
4
11
7
3
3
1
3
1
2
55
Owned
GLA/NRA2
2,182,450
1,683,229
499,221
1,180,641
1,099,480
300,116
126,496
236,230
227,830
115,063
31,169
5,499,475
Percent of
Owned
GLA/NRA
39.7%
30.6%
9.1%
21.4%
20.0%
5.5%
2.3%
4.3%
4.1%
2.1%
0.6%
100.0%
Total
Number of
Leases
222
208
14
153
76
58
18
7
18
13
13
578
Annualized
Base Rent3
$
$
24,725,455
18,278,841
6,446,614
13,748,950
10,958,292
4,030,147
2,685,228
2,392,056
2,934,643
1,563,530
531,327
63,569,628
Percent of
Annualized
Base Rent
38.9%
28.8%
10.1%
21.6%
17.2%
6.4%
4.2%
3.8%
4.6%
2.5%
0.8%
100.0%
$
Annualized
Base Rent per
Leased Sq. Ft.
12.43
12.12
13.43
12.58
11.60
14.28
23.10
10.13
14.62
16.45
22.97
12.77
$
____________________
1
This table includes operating retail properties, operating commercial properties, and ground lease tenants who commenced paying rent as of
December 31, 2009.
2
3
Owned GLA/NRA represents gross leasable area or net leasable area owned by the Company. It does not include 30 parcels or outlots
owned by the Company and ground leased to tenants, which contain 20 non-owned structures totaling approximately 466,604 square feet. It
also excludes the square footage of Union Station Parking Garage.
Annualized Base Rent excludes $2,957,572 in annualized ground lease revenue attributable to parcels and outlots owned by the Company
and ground leased to tenants.
Lease Expirations
Approximately 6.4% of total annualized base rent and approximately 5.9% of total GLA/NRA expire in 2010. 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, 2009, 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, 2009.
1
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Beyond
Number of
Expiring
Leases1,2
84
106
106
73
76
62
25
27
22
19
32
632
Expiring
GLA/NRA3
314,153
722,828
423,350
509,346
553,125
678,791
231,304
400,300
336,523
202,657
946,141
5,318,518
% of Total
GLA/NRA
Expiring
5.9%
13.6%
8.0%
9.6%
10.4%
12.8%
4.3%
7.5%
6.3%
3.8%
17.8%
100.0%
% of Total
Annualized
Base Rent
6.4%
10.4%
10.1%
8.9%
10.8%
12.2%
4.3%
8.4%
6.6%
4.3%
17.7%
100.0%
$
Expiring
Annualized Base
Rent per Sq. Ft.
14.05
9.88
16.42
12.00
13.34
12.28
12.68
14.40
13.43
14.41
12.83
12.90
$
Expiring Ground
Lease Revenue
0
$
0
0
0
459,643
181,504
0
266,300
128,820
273,000
1,888,305
$ 3,197,572
$
Expiring
Annualized Base
Rent4
4,412,681
7,140,454
6,949,465
6,112,357
7,377,971
8,336,360
2,933,242
5,763,091
4,518,666
2,920,014
12,136,831
68,601,130
$
34
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, 2009, and does not include option periods; 2010 expirations include 21 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 2009 for each applicable tenant multiplied by 12. Excludes ground
lease revenue.
LEASE EXPIRATION TABLE – RETAIL ANCHOR TENANTS
1
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Beyond
Number of
Expiring
Leases1,2
5
9
8
3
9
18
5
11
8
7
21
104
Expiring
GLA/NRA3
131,269
480,134
179,471
222,521
236,834
508,219
153,782
277,102
300,576
160,999
880,778
3,531,685
% of Total
GLA/NRA
Expiring
2.5%
9.0%
3.4%
4.2%
4.5%
9.6%
2.9%
5.2%
5.7%
3.0%
16.6%
66.4%
$
Expiring
Annualized Base
Rent4
1,214,584
2,487,357
1,678,862
993,053
2,355,657
4,863,562
1,318,562
3,381,502
3,580,504
2,048,256
10,819,453
$ 34,741,351
% of Total
Annualized Base
Rent
1.8%
3.6%
2.5%
1.5%
3.4%
7.1%
1.9%
4.9%
5.2%
3.0%
15.8%
50.7%
Expiring
Annualized Base
Rent per Sq. Ft.
$
$
9.25
5.18
9.35
4.46
9.95
9.57
8.57
12.20
11.91
12.72
12.28
9.84
Expiring Ground
Lease Revenue
0
$
0
0
0
0
0
0
0
0
0
990,000
990,000
$
____________________
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, 2009, and does not include option periods; 2010 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 2009 for each applicable property multiplied by 12. Excludes ground
lease revenue.
LEASE EXPIRATION TABLE – RETAIL SHOPS
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Beyond
Number of
Expiring
Leases1
76
96
97
66
65
43
20
15
14
12
10
514
Expiring
GLA/NRA1,2
170,544
225,656
234,361
152,606
162,481
125,471
77,522
47,710
35,947
41,658
32,692
1,306,648
% of Total
GLA/NRA
Expiring
3.2%
4.2%
4.4%
2.9%
3.1%
2.4%
1.5%
0.9%
0.7%
0.8%
0.6%
24.6%
$
Expiring
Annualized Base
Rent3
2,970,822
4,359,181
5,108,797
3,399,481
3,611,759
2,693,291
1,614,680
1,042,425
938,162
871,758
802,809
$ 27,413,165
% of Total
Annualized Base
Rent
4.3%
6.4%
7.5%
5.0%
5.3%
3.9%
2.4%
1.5%
1.4%
1.3%
1.2%
40.0%
35
$
Expiring
Annualized Base
Rent per Sq. Ft.
17.42
19.32
21.80
22.28
22.23
21.47
20.83
21.85
26.10
20.93
24.56
20.98
$
Expiring Ground
Lease Revenue
$
0
0
0
0
459,643
181,504
0
266,300
128,820
273,000
898,305
2,207,572
$
LEASE EXPIRATION TABLE – RETAIL SHOPS (continued)
____________________
1
Lease expiration table reflects rents in place as of December 31, 2009, and does not include option periods; 2010 expirations include 20 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 2009 for each applicable property multiplied by 12. Excludes ground
lease revenue.
LEASE EXPIRATION TABLE – COMMERCIAL TENANTS
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Beyond
Number of
Expiring Leases1
3
1
1
4
2
1
0
1
0
0
1
14
Expiring
NLA1
12,340
17,038
9,518
134,219
153,810
45,101
0
75,488
0
0
32,671
480,185
% of Total
NRA Expiring
0.2%
0.3%
0.2%
2.5%
2.9%
0.9%
0.0%
1.4%
0.0%
0.0%
0.6%
9.0%
Expiring Annualized
Base Rent2
$
227,276
293,916
161,806
1,719,822
1,410,555
779,507
0
1,339,164
0
0
514,568
6,446,614
$
% of Total
Annualized Base
Rent
0.3%
0.4%
0.2%
2.5%
2.1%
1.1%
0.0%
2.0%
0.0%
0.0%
0.8%
9.4%
$
Expiring Annualized
Base Rent per Sq. Ft.
18.42
17.25
17.00
12.81
9.17
17.28
0.00
17.74
0.00
0.00
15.75
13.43
$
____________________
1
Lease expiration table reflects rents in place as of December 31, 2009, and does not include option periods. This column also excludes ground
leases.
2
Annualized base rent represents the monthly contractual rent for December 2009 for each applicable property multiplied by 12.
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
Reserved
36
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 5, 2010, the last reported sales price of our common shares on the NYSE was $4.92.
The following table sets forth, for the periods indicated, the high and low sales prices and the closing prices for our
common shares:
Quarter Ended December 31, 2009............. $
Quarter Ended September 30, 2009 ............ $
Quarter Ended June 30, 2009...................... $
Quarter Ended March 31, 2009................... $
Quarter Ended December 31, 2008............. $
Quarter Ended September 30, 2008 ............ $
Quarter Ended June 30, 2008...................... $
Quarter Ended March 31, 2008................... $
High
Low
Closing
4.40 $
4.28 $
4.77 $
6.46 $
11.67 $
13.44 $
15.52 $
15.65 $
2.95 $
2.60 $
2.25 $
2.03 $
1.94 $
9.78 $
12.49 $
11.50 $
4.07
4.17
2.92
2.45
5.56
11.00
12.50
14.00
Holders
The number of registered holders of record of our common shares was 142 as of March 5, 2010. 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:
Distribution
Per Share
Quarter
4th 2009 ..........
3rd 2009 ..........
2nd 2009..........
1st 2009 ..........
4th 2008 ..........
3rd 2008 ..........
2nd 2008..........
1st 2008 ..........
Record Date
January 7, 2010 $
October 7, 2009 $
$
July 7, 2009
April 7, 2009
$
January 7, 2009 $
October 7, 2008 $
$
July 7, 2008
$
April 4, 2008
Payment Date
January 18, 2010
October 16, 2009
July 17, 2009
April 17, 2009
January 16, 2009
October 17, 2008
July 17, 2008
April 17, 2008
0.0600
0.0600
0.0600
0.1525
0.2050
0.2050
0.2050
0.2050
Our management and Board of Trustees will continue to evaluate our distribution policy on a quarterly basis as they
monitor the capital markets and the impact of the economy on our operations. 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, to the
extent that they do not exceed the shareholder’s adjusted tax basis in its common shares, have the effect of deferring
taxation until the sale of a shareholder’s common shares. To the extent that distributions are both in excess of earnings and
profits and in excess of the shareholder’s adjusted tax basis in its common shares, the distribution will be treated as gain
from the sale of common shares. In order to maintain our qualification as a REIT, we must make annual distributions to
37
shareholders of at least 90% of our REIT taxable income and we must make distributions to shareholders equal to 100% of
our net taxable income to eliminate federal income tax liability. 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, 2009, approximately 93% of our distributions to shareholders constituted a return of capital, and
approximately 7% constituted taxable ordinary income dividends.
Under our unsecured 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 67-68 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 unsecured revolving credit facility are accelerated.
Issuer Repurchases; Unregistered Sales of Securities
We did not repurchase any of our 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
December 31, 2004 to December 31, 2009, 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 December 31, 2004 and that all cash distributions were reinvested. The shareholder return shown on the graph below is
not indicative of future performance.
38
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Kite Realty Group Trust, The S&P 500 Index
And The FTSE NAREIT Equity REITs Index
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/04
6/05
12/05
6/06
12/06
6/07
12/07
6/08
12/08
6/09
12/09
Kite Realty Group Trust
S&P 500
FTSE NAREIT Equity REITs
*$100 invested on 12/31/04 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
12/04
6/05
12/05
6/06
12/06
6/07
12/07
6/08
12/08
6/09
12/09
Kite Realty Group Trust
S&P 500
FTSE NAREIT Equity REITs
100.00
100.00
100.00
100.72
99.19
106.38
105.18
104.91
112.16
108.61
107.75
126.65
132.81
121.48
151.49
138.40
129.94
142.57
113.44
128.16
127.72
95.45
112.89
123.13
44.03
80.74
79.53
25.45
83.30
69.82
36.80
102.11
101.79
39
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, on a historical basis, selected financial and operating information. The financial
information has been derived from our consolidated balance sheets and statements of operations. Periods prior to 2009
have been reclassified pursuant to the provisions of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements,” which was primarily codified into Topic 810—“Consolidation” in the ASC. This information should be read
in conjunction with our audited consolidated financial statements and Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.
Year Ended December 31
20091
20081,2
($ in thousands, except share and per share data)
20071,2,3
20061,2,3
20051,2,3
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.........................................................
Income tax benefit (expense) of taxable REIT subsidiary
............................................................................
Income from unconsolidated entities........................
Non-cash gain from consolidation of subsidiary......
Gain on sale of unconsolidated property ..................
Loss on sale of asset..................................................
Other income, net......................................................
Income from continuing operations.......................................
Discontinued operations: .......................................................
Discontinued operations............................................
Non-cash loss on impairment of discontinued operation
............................................................................
(Loss) gain on sale of operating property .................
(Loss) income from discontinued operations ........................
Consolidated net (loss) income..............................................
Net income attributable to noncontrolling interests
Net (loss) income attributable to Kite Realty Group Trust ...
(Loss) income per common share – basic:
Income from continuing operations attributable to Kite
Realty Group Trust common shareholders ........
(Loss) income from discontinued operations attributable
to Kite Realty Group Trust common shareholders
............................................................................
Net (loss) income attributable to Kite Realty Group Trust
common shareholders..................................................
(Loss) income per common share – diluted:
Income from continuing operations attributable to Kite
Realty Group Trust common shareholders ........
(Loss) income from discontinued operations attributable
to Kite Realty Group Trust common shareholders
............................................................................
Net (loss) income attributable to Kite Realty Group Trust
common shareholders..................................................
Weighted average Common Shares outstanding – basic ......
Weighted average Common Shares outstanding – diluted...
Distributions declared per Common Share ...........................
Net income attributable to Kite Realty Group Trust common
shareholders:
Income from continuing operations
Discontinued operations
Net (loss) income attributable to Kite Realty Group Trust
common shareholders
$
$
95,841
19,451
115,292
$
102,960
39,103
142,063
95,604
37,260
132,864
$
$
85,651
41,447
127,098
68,759
26,420
95,179
18,189
12,069
17,192
5,712
32,148
85,310
29,982
(27,151)
22
226
1,635
—
—
225
4,939
16,388
11,865
33,788
5,880
34,893
102,814
39,249
(29,372)
(1,928)
843
—
1,233
—
158
10,183
14,171
11,066
32,077
6,285
29,731
93,330
39,534
(25,965 )
(762 )
291
—
—
—
778
13,876
12,687
10,687
35,901
5,323
28,578
93,176
33,922
(21,222 )
(965 )
286
—
—
(764 )
345
11,602
11,082
6,950
21,823
5,328
20,788
65,971
29,208
(17,836)
(1,041)
252
—
—
—
215
10,798
(732)
331
2,079
1,685
2,022
(5,385)
—
(6,117)
(1,178)
(604)
(1,782)
0.07
$
$
—
(2,690)
(2,359)
7,824
(1,731)
6,093
0.26
(0.10)
(0.06 )
(0.03)
$
0.20
0.07
$
0.26
$
$
$
$
—
2,036
4,115
17,991
(4,468 )
13,523
$
—
—
1,685
13,287
(3,107 )
10,180
0.36
$
0.31
0.11
0.04
0.47
$
0.35
0.35
$
0.31
$
$
$
$
—
7,212
9,234
20,032
(6,596 )
13,436
0.32
0.31
0.63
0.31
(0.10)
(0.06)
0.11
0.04
0.31
(0.03)
$
0.20
$
0.46
$
0.35
$
0.62
30,328,408
30,340,449
0.8200
28,908,274
29,180,987
0.8000
$
28,733,228
28,903,114
0.7650
$
21,406,980
21,520,061
0.7500
$
7,945
(1,852)
6,093
$
$
10,325
3,198
$
8,878
1,302
13,523
$
10,180
$
$
6,815
6,621
13,436
$
$
$
52,146,454
52,146,454
0.3325
3,516
(5,298)
(1,782)
40
$
$
$
$
$
$
$
$
1
2
In December 2009, we conveyed the title to our Galleria Plaza operating property to the ground lessor. We had determined during the third quarter of 2009
that there was no value to the improvements and intangibles related to Galleria Plaza and recognized a non-cash impairment charge of $5.4 million to write
off the net book value of the property. Since we ceased operating this property during the fourth quarter of 2009, it was appropriate to reclassify the non-cash
impairment loss and the operating results related to this property to discontinued operations for each of the fiscal years presented above.
In December 2008, we sold our Silver Glen Crossing operating property for net proceeds of approximately $17.2 million and recognized a loss on the sale of
$2.7 million. The loss on sale and operating results for this property have been reflected as discontinued operations for each of the fiscal years presented
above. Amounts related to this particular property had not previously been reclassified for fiscal years 2007 or prior as they were not considered material to
the financial statements. However, when considered together with the results of the Galleria Plaza property, it was determined that collectively the results of
the properties which qualify as discontinued operations are material. Thus, all fiscal years reflect the presentation of discontinued operations.
3
In November 2007, we sold our 176th & Meridian property for net proceeds of $7.0 million and a gain of $2.0 million. 176th & Meridian was a development
property that was added to the operating portfolio in the third quarter of 2004. The gain and the operating results related to this property have been reflected
as discontinued operations for fiscal years ended December 31, 2007, 2006, and 2005.
Balance Sheet Data:
Investment properties, net ......................................................... $
Cash and cash equivalents......................................................... $
Total assets ................................................................................ $
Mortgage and other indebtedness.............................................. $
Total liabilities........................................................................... $
Redeemable noncontrolling interests in the Operating
Partnership ........................................................................... $
Kite Realty Group Trust shareholders’ equity .......................... $
Noncontrolling interests ............................................................ $
Total liabilities and equity......................................................... $
Year Ended December 31
2009
2008
2007
($ in thousands)
2006
2005
1,044,799 $
19,958 $
1,140,685 $
658,295 $
710,929 $
1,035,454 $
9,918 $
1,112,052 $
677,661 $
755,400 $
965,583 $
19,002 $
1,048,235 $
646,834 $
709,369 $
892,625 $
23,953 $
983,161 $
566,976 $
630,139 $
738,734
15,209
799,230
375,246
431,258
$
47,307
375,078 $
7,371 $
1,140,685 $
67,277 $
284,958 $
4,417 $
1,112,052 $
127,325 $
206,810 $
4,731 $
1,048,235 $
156,457 $
192,269 $
4,296 $
983,161 $
133,331
229,793
4,848
799,230
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 audited consolidated financial
statements and related notes thereto and Item 1A, “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, among other things, the status of our business and properties, the effect that
current United States 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 United States retail sector and overall real estate market conditions.
As of December 31, 2009, we owned interests in a portfolio of 51 operating retail properties totaling approximately
7.9 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
41
parking garage. Also, as of December 31, 2009, we had an interest in seven properties in our development and
redevelopment pipelines. Upon completion, we anticipate our development and redevelopment properties will have
approximately 1.1 million square of total gross leasable area.
Finally, as of December 31, 2009, we also owned interests in other land parcels comprising approximately 95 acres
that we expect to be used for future expansion of existing properties, development of new retail or commercial properties or
sold to third parties. These land parcels are classified as “Land held for development” in the accompanying consolidated
balance sheets.
Current Economic Conditions and Impact on Our Retail Tenants
The difficult economic conditions for the United States economy, businesses, consumers, housing and credit markets
continued throughout 2009. These difficult conditions had a negative impact on consumer spending during 2009, and we
expect these conditions to continue into 2010, and possibly longer. Factors contributing to consumers spending less at
stores owned and/or operated by our retail tenants include, among others:
•
Shortage or Unavailability of Financing: Lending institutions continue to maintain very tight credit
standards, making it difficult for individuals and companies (including our tenants) to obtain financing. The
shortage of financing has caused, among other things, consumers to have less disposable income available for
retail spending. The shortage of financing has also made it difficult for some of our tenants to obtain capital
to operate their businesses.
• Decreased Home Values and Increased Home Foreclosures: U.S. home values have decreased sharply over
the last few years, and difficult economic conditions have also contributed to a record number of home
foreclosures. The U.S. continues to experience historically high levels of delinquencies and foreclosures,
particularly among sub-prime mortgage borrowers.
• Rising Unemployment Rates: The U.S. unemployment rate continues to be much higher than historical
norms. Unemployment reached 10.2% in November 2009, the highest level in 26 years. High
unemployment rates could cause further decreases in consumer spending, thereby negatively affecting the
businesses of our retail tenants.
• Deceasing Consumer Confidence: Consumer confidence continues to be at low levels, leading to consumers
spending less money on discretionary purchases. The significant increases in both personal and business
bankruptcies during 2009 reflect an economy that continues to be challenged, with financially over-extended
consumers less likely to purchase goods and/or services from our retail tenants.
During 2009, decreasing consumer spending had a negative impact on the businesses of our retail tenants, as reflected
in weak retail sales for much of the year 2009. As discussed below, these conditions in turn had a negative impact on our
business. While we did experience an increase in leasing activity in the fourth quarter of 2009, 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
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 has a negative impact on our business,
including in the following ways:
• 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. Our tenants’ decreased cash flows may
42
be even more pronounced if, given the tight credit markets, they are unable to obtain financing to operate
their businesses. The number of tenants requesting decreases or deferrals in their rent obligations continued
to be above historical norms in 2009, although such requests leveled off in the second half of the year. If
granted, such decreases or deferrals negatively affect our cash flows.
• 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 2009, tenants at some of our properties terminated their
leases with us. In some cases we were able to negotiate lease termination fees from these tenants but in other
cases our negotiations were unsuccessful.
• Tenant Bankruptcies. The number of bankruptcies by U.S. businesses continued to be at elevated levels
during 2009. This trend has continued into 2010 and may continue into the foreseeable future. Likewise,
bankruptcies of our retail tenants were also higher than historical norms during 2009.
• Decrease in Demand for Retail Space. Reflecting the extremely difficult current market conditions, demand
for retail space at our shopping centers continued to be low while availability has increased due to tenant
terminations and bankruptcies. While our leasing activity did see an increase in the fourth quarter of 2009,
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. 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 2009. We expect that these
conditions may continue well into the foreseeable future.
Financing Strategy; 2010 and 2011 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 February 17, 2010, we had refinanced or extended the maturity dates for all of our 2010 debt maturities, as discussed
below. Currently, approximately $250 million of our consolidated indebtedness is scheduled to mature in 2011. In
particular, (i) our unsecured term loan, which had a balance of $55 million as of December 31, 2009, will mature on July
15, 2011 and (ii) our unsecured revolving credit facility, which had a balance of approximately $78 million as of December
31, 2009, will mature on February 20, 2011 (with a one-year extension option to February 20, 2012 available if we are in
compliance with all applicable covenants under the related agreement). We are conducting negotiations with our existing
and potential replacement lenders to refinance or obtain extensions on our term loan and unsecured revolving credit facility.
We believe we have good relationships with a number of banks and other financial institutions that will allow us to
continue our strategy of refinancing our borrowings with the existing lenders or replacement lenders. 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. If we are not able to refinance or extend these
loans, particularly our unsecured term loan, our financial condition and liquidity could be adversely impacted. It is also
important for us to obtain additional financing in order to complete our development and redevelopment projects.
To strengthen our balance sheet, we continued to consider appropriate financing transactions in 2009. For example,
in May 2009, we completed an equity offering of 28,750,000 common shares at an offering price of $3.20 per share for
aggregate gross and net proceeds of $92.0 million and $87.5 million, respectively. Approximately $57 million of the net
proceeds were used to repay borrowings under our unsecured revolving credit facility and the remainder was retained as
cash, which we used to address future debt maturities and capital needs. In addition, in December 2009 we entered into an
Equity Distribution Agreement pursuant to which we may sell, from time to time, up to an aggregate amount of $25 million
of our common shares. To date, we have not utilized this program. As of December 31, 2009, we had combined
approximately $87 million of available liquidity in the form of cash and cash equivalents ($20 million) and availability
under our unsecured revolving credit facility ($67 million).
In addition to raising new capital, we have also been successful in extending the maturity dates or refinancing loans
originally maturing in 2010. For example, during the fourth quarter of 2009, we extended the maturity date or refinanced
the debt at three of our properties (Ridge Plaza, to January 2017; Tarpon Springs Plaza, to January 2013; and Estero Town
Commons, to January 2013). Further, in the first quarter of 2010, we negotiated the extension of the maturity dates on the
43
debt at three other properties (South Elgin Commons, to September 2013; Cobblestone Plaza, to February 2013; and Shops
at Rivers Edge, to February 2013). As a result of these actions and others, we refinanced or extended the maturity dates to
2013 on approximately $57 million of indebtedness originally due in 2010. A schedule of our maturities (excluding regular
principal payments) after consideration of these early 2010 refinancing actions follows:
$
Balances
As of
December 31,
2009
60,001,404
252,871,911
54,114,603
39,084,352
34,802,465
216,442,008
657,316,743
977,770
658,294,513
$
$
2010
2011
2012
2013
2014
Thereafter
Unamortized Premiums
Total
Amounts Due
At Maturity
After 2010
Maturity Date
Extensions
$
-
249,747,214
50,565,066
92,384,162
31,539,567
208,676,228
632,912,237
$
Subsequent
Activity
(56,856,671)
$
-
-
56,856,671
-
-
$
-
$
Annual
Maturities
(3,144,733)
(3,124,697)
(3,549,537)
(3,556,861)
(3,262,898)
(7,765,780)
(24,404,506)
$
We will continue to assess and engage in negotiations with existing and alternative lenders for our near-term
maturing indebtedness, with a view toward extending, refinancing or repaying debt to strengthen our balance sheet.
Obtaining new financing is also important to our business due to the capital needs of our existing development and
redevelopment projects. As of December 31, 2009, our unfunded share of the total estimated cost of the properties in our
current development and redevelopment pipelines was approximately $26 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 revolving credit facility (which, as noted above, has $67 million of
availability as of December 31, 2009), 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 to 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
In accordance with Topic 805—“Business Combinations” in the ASC, we measure identifiable assets acquired,
liabilities assumed, and any non-controlling interests in an acquiree at fair value on the acquisition date, with goodwill
being the excess value over the net identifiable assets acquired. In making estimates of fair values for the purpose of
allocating purchase price, a number of sources are utilized, including information obtained as a result of pre-acquisition due
diligence, marketing and leasing activities.
A portion of the purchase price is allocated to tangible assets and intangibles, including:
•
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;
44
•
•
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
vacate, terminate its lease, or otherwise notify us of its intent to do so, 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 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 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.
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.
Due to the January 1, 2009 adoption of new accounting guidance regarding business combinations, the costs of an
acquisition are expensed in the period incurred.
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 or other project. 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
Management reviews investment properties, land parcels and intangible assets within the real estate operation and
development segment for impairment on at least a quarterly basis or whenever events or changes in circumstances indicate
that the carrying value of investment properties may not be recoverable. The review for possible impairment requires
management to make certain assumptions and estimates and requires significant judgment. Impairment losses for
investment properties are measured 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
recorded as the excess of the carrying value over the estimated fair value of the asset. Our impairment review for land and
development properties assumes we have the intent and the ability to complete the developments or projected uses for the
land parcels. If we determine those plans will not be completed, an impairment loss may be appropriate.
In the third quarter of 2009, as part of our regular quarterly review, we determined that it was appropriate to write off
the net book value on the Galleria Plaza operating property in Dallas, Texas and recognize a non-cash impairment charge of
$5.4 million. Our estimated future cash flows, which considered recent negative property-specific events, were anticipated
to be insufficient to recover the carrying value due to significant ground lease obligations and expected future required
capital expenditures. We conveyed the title to the center to the ground lessor in the fourth quarter of 2009. Management
does not believe any other investment properties or development assets are impaired as of December 31, 2009.
45
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. 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.
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.
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 a tenant’s sales volume (contingent percentage rent).
Percentage rent is recognized when tenants achieve the specified 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 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, and we do not have a substantial continuing financial involvement in the property.
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 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
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. The fair
value hierarchy distinguishes between market participant assumptions based on market data obtained from sources
independent of the reporting entity (observable inputs for identical instruments that are classified within Level 1 and
observable inputs for similar instruments that are classified within Level 2) and the reporting entity’s own assumptions
about market participant assumptions (unobservable inputs classified within Level 3).
As further discussed in Note 11 to 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. The valuation is determined using
widely accepted techniques including discounted cash flow analysis, which considers the contractual terms of the
derivatives (including the period to maturity) and uses observable market-based inputs such as interest rate curves and
implied volatilities. We also incorporate credit valuation adjustments to appropriately reflect both our own nonperformance
risk and the respective counterparty’s nonperformance risk in the fair value measurements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the
fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as
46
estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. However, as of
December 31, 2009, we have assessed the significance of the impact of the credit valuation adjustments on the overall
valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the
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 and meet
certain other requirements on a recurring basis. 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 our 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, 2009, we owned interests in 55 operating properties (consisting of 51 retail properties, three
operating commercial (office/industrial) properties and an associated parking garage) and seven entities that
held development or redevelopment properties in which we have an interest. These redevelopment properties include
Bolton Plaza, Coral Springs Plaza, Courthouse Shadows, Shops at Rivers Edge and Four Corner Square, all of which are
undergoing major redevelopment. Of the 62 total properties held at December 31, 2009, a component of a development
parcel was owned through an unconsolidated joint venture and accounted for under the equity method.
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. Of the 64 total properties held at December 31, 2008, one operating
property was owned through an unconsolidated joint venture 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.
The comparability of results of operations is significantly affected by our development, redevelopment, and operating
property acquisition and disposition activities in 2007, 2008 and 2009. Therefore, we believe it is most useful to review the
comparisons of our 2007, 2008 and 2009 results of operations (as set forth below under “Comparison of Operating Results
for the Years Ended December 31, 2009 and 2008” and “Comparison of Operating Results for the Years Ended
December 31, 2008 and 2007”) in conjunction with the discussion of our development, redevelopment, and operating
property acquisition and disposition activities during those periods, which is set forth directly below.
Development Activities
During the years ended December 31, 2009, 2008 and 2007, the following development properties became operational
or partially operational:
47
Property Name
MSA
Chicago, IL
Eddy Street Commons, Phase I2....................... South Bend, IN
South Elgin Commons, Phase I2
Cobblestone Plaza2 ........................................... Ft. Lauderdale, FL
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................................ Seattle, WA
Bridgewater Marketplace ................................. Indianapolis, IN
Sandifur Plaza ................................................. Pasco, WA
Economic
1
Occupancy Date
September 2009
June 2009
March 2009
June 2008
December 2007
September 2007
September 2007
July 2007
April 2007
January 2007
January 2007
Owned GLA
165,000
45,000
157,957
N/A 3
19,160
94,756
21,000
82,546
100,949
26,000
12,552
1
2
3
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.
Construction of these properties was completed in phases. The Economic Occupancy Dates indicated
for these properties refers to its initial phase,
Property is ground leased to a single tenant.
Property Acquisition Activities
During the year ended December 31, 2008, we acquired the property below. We did not acquire any properties for
the years ending December 31, 2009 and 2007.
Property Name
MSA
Acquisition Date
Acquisition Cost
(Millions)
Shops at Rivers Edge1....................
Indianapolis, IN
February 2008
$
18.3
Financing
Method
Primarily
Debt
Owned GLA
110,875
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.
Operating Property Disposition Activities
During the years ended December 31, 2008 and 2007, we sold the operating properties listed in the table below.
We did not sell any operating properties in the year ended December 31, 2009. However, as part of our regular quarterly
review for possible asset impairments, we determined that it was appropriate to write off the net book value on the Galleria
Plaza operating property in Dallas, Texas and recognize a non-cash impairment charge of $5.4 million. Our estimated
future cash flows, which considered recent negative property-specific events, were anticipated to be insufficient to recover
the carrying value due to significant ground lease obligations and expected future required capital expenditures. We
conveyed the title to the property to the ground lessor in the fourth quarter of 2009. The operating results of Galleria Plaza
are reflected as discontinued operations in the accompanying consolidated statements of operations.
.
Property Name
Spring Mill Medical, Phase I1....................
Silver Glen Crossing2................................. Chicago, IL
176th & Meridian3 ...................................... Seattle, WA
MSA
Indianapolis, IN
Disposition Date
December 2008
December 2008
November 2007
Owned GLA
63,431
132,716
14,560
48
____________________
1
We held a 50% interest in this unconsolidated 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
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.
2
3
We realized net proceeds of approximately $17.2 million from the sale of this property and recognized a
loss on the sale of $2.7 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. The sale of this property and the
property’s operating results are reflected as discontinued operations in the accompanying consolidated
statements of operations.
This property was sold for net proceeds of $7.0 million and a gain of $2.0 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 Shops at Rivers Edge, as discussed
above. The sale of this property and the property’s operating results are reflected as discontinued
operations in the accompanying consolidated statements of operations.
Redevelopment Activities
During the years ended December 31, 2009, 2008 and 2007, we transitioned the following properties from our
operating portfolio to our redevelopment pipeline:
Property Name
Coral Springs Plaza2 ...............................
Courthouse Shadows3...............................
Four Corner Square4.................................
Bolton Plaza5............................................
Shops at Rivers Edge6 ..............................
MSA
Boca Raton, FL
Naples, FL
Seattle, WA
Jacksonville, FL
Indianapolis, IN
Transition Date1
March 2009
September 2008
September 2008
June 2008
June 2008
Owned GLA
45,906
134,867
29,177
172,938
110,875
1
2
3
4
5
6
Transition date represents the date the property was transitioned from our operating portfolio to our
redevelopment pipeline.
In December 2009, we executed a lease with a combined Toys “R” Us/Babies “R” Us for 100% of the
available square feet of this center. We expect this tenant to open in the second half of 2010.
In 2009, Publix purchased the lease of the former anchor tenant and made certain improvements on the
space.
In addition to the existing center, we also own approximately ten acres of adjacent land which may be
utilized in the redevelopment. We anticipate the majority of the existing center will remain open during the
redevelopment.
The former anchor tenant’s lease at the shopping center expired in May 2008 and was not renewed. We
recently executed a 66,500 square foot lease with Academy Sports & Outdoors to anchor this center and
expect this tenant to open during the second half of 2010.
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 in discussion with several prospective
anchor tenants.
49
Comparison of Operating Results for the Years Ended December 31, 2009 and 2008
The following table reflects income statement line items from our consolidated statements of operations for the years
ended December 31, 2009 and 2008:
Revenue:
Rental income (including 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
Income tax benefit (expense) of taxable REIT
subsidiary
Income from unconsolidated entities
Gain on sale of unconsolidated property
Non-cash gain from consolidation of subsidiary
Other income, net
Income from continuing operations
Discontinued operations:
Discontinued operations
Non-cash loss on impairment of discontinued operation
Loss on sale of operating property
(Loss) income from discontinued operations
Consolidated net (loss) income
Less: Net (loss) income attributable to noncontrolling
interests
Net (loss) income attributable to Kite Realty
Group Trust
Year Ended December 31,
2009
2008
Increase
(Decrease) 2009
to 2008
$
89,775,606
6,065,708
19,450,789
115,292,103
$
89,043,270
13,916,680
39,103,151
142,063,101
18,188,710
12,068,903
17,192,267
5,711,623
32,148,318
85,309,821
16,388,515
11,864,552
33,788,008
5,879,702
34,892,975
102,813,752
29,982,282
(27,151,054)
39,249,349
(29,372,181)
22,293
226,041
-
1,634,876
224,927
4,939,365
(1,927,830)
842,425
1,233,338
-
157,955
10,183,056
732,336
(7,850,972)
(19,652,362)
(26,770,998)
1,800,195
204,351
(16,595,741)
(168,079)
(2,744,657)
(17,503,931)
(9,267,067)
(2,221,127)
(1,950,123)
(616,384)
(1,233,338)
1,634,876
66,972
(5,243,691)
(732,621)
330,482
(1,063,103)
(5,384,747)
-
-
(6,117,368)
(1,178,003)
(2,689,888)
(2,359,406)
7,823,650
5,384,747
(2,689,888)
3,757,962
(9,001,653)
(603,763)
(1,730,524)
(1,126,761)
$
(1,781,766)
$
6,093,126
$
(7,874,892)
Rental income (including tenant reimbursements) increased approximately $0.7 million, or 1%, due to the following:
50
Property acquired during 2008
Development properties that became operational or were partially
operational in 2008 and/or 2009
Properties under redevelopment during 2008 and/or 2009
Properties fully operational during 2008 and 2009 & other
Total
Increase
(Decrease) 2009
to 2008
90,910
4,086,790
(1,209,450)
(2,235,914)
732,336
$
$
The $2.2 million decrease in rental income for properties fully operational in 2009 and 2008 was primarily related to
the following:
• $0.8 million reduction in base rent from the 2008 bankruptcy of Circuit City, offset by increases of $1.2 million
from the 2008 write off to rental income of straight-line rent receivables and in-place lease liabilities;
• $2.3 million net reduction in minimum rent at a number of our properties due to the termination of other leases
with tenants in 2009 and 2008, which includes the write off to rental income of straight-line rent receivables and
in-place lease liabilities;
• $0.4 million reduction as a result of the 2009 sale of a parcel of land adjacent to our Shops at Eagle Creek
operating property; and
• $0.2 million net decrease in reimbursements due to a decline in recoverable operating expenses.
Offsetting these decreases is $0.3 million of rental income from the consolidation of The Centre operating property as
of September 30, 2009.
Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and
gains on land sales. This revenue decreased approximately $7.9 million, or 57%, primarily as a result of lower gains on land
sales of $7.0 million and lease settlement income of $1.3 million. This revenue decrease was partially offset by a $0.4
million reversal of an estimated liability for which we are no longer obligated.
Construction service fee revenue decreased approximately $19.7 million, or 50%. This decrease reflects 2008
proceeds of $10.6 million from the sale of our Spring Mill Medical, Phase II build-to-suit commercial development asset
and net declines in the level of third-party construction and services activity of $9.1 million.
Property operating expenses increased approximately $1.8 million, or 11%, due to the following:
Property acquired during 2008
Development properties that became operational or were partially
operational in 2008 and/or 2009
Properties under redevelopment during 2008 and/or 2009
Properties fully operational during 2008 and 2009 & other
Total
Increase
(Decrease) 2009
to 2008
148,210
688,617
(232,616)
1,195,984
1,800,195
$
$
The $1.2 million increase in property operating expense for properties fully operational in 2009 and 2008 was
primarily related to the following:
• $1.0 million net increase in bad debt expense at a number of our operating properties which is reflective of
financial difficulties (including bankruptcies) experienced by a number of our tenants; and
• $0.5 million net increase in landscaping and parking lot expense, the majority of which is recoverable from
tenants.
51
These increases in property operating expenses were partially offset by a $0.3 million decrease in repairs and
maintenance expense.
Real estate taxes increased approximately $0.2 million, or 0.2%, due to the following:
Property acquired during 2008
Development properties that became operational or were partially
operational in 2008 and/or 2009
Properties under redevelopment during 2008 and/or 2009
Properties fully operational during 2008 and 2009 & other
Total
Increase
(Decrease) 2009
to 2008
(22,689)
608,602
(172,830)
(208,732)
204,351
$
$
The $0.2 million decrease in real estate tax expense for properties fully operational in 2009 and 2008 was primarily
related to the timing of property reassessments by the taxing authorities and our related appeals of these assessments. The
appeals process can last many months, resulting in the assessments and appeals settlements occurring in different periods.
Typically, the majority of any increase (decrease) in our real estate tax expense is recoverable from (refundable to) our
tenants.
Cost of construction and services decreased approximately $16.6 million, or 49%. This decrease is due to 2008 cost of
$9.4 million associated with the sale of our Spring Mill Medical, Phase II build-to-suit commercial development asset and
net declines in the level of third-party construction and services activity of $7.2 million.
General, administrative and other expenses decreased approximately $0.2 million, or 3% due to small declines in
personnel-related expenses and various costs of operating as a public company. General, administrative and other expenses
were 5.0% and 4.1% of total revenue in 2009 and 2008, respectively.
Depreciation and amortization expense decreased approximately $2.7 million, or 8%, due to the following:
Property acquired during 2008
Development properties that became operational or were partially
operational in 2008 and/or 2009
Properties under redevelopment during 2008 and/or 2009
Properties fully operational during 2008 and 2009 & other
Total
Increase
(Decrease) 2009
to 2008
(107,604)
1,078,122
(2,593,484)
(1,121,691)
(2,744,657)
$
$
The $1.1 million decrease in depreciation and amortization expense for properties fully operational in 2009 and 2008
was primarily related to the following:
•
•
$1.5 million decline from accelerated depreciation and amortization on tangible and intangible assets associated
with the 2008 bankruptcy of Circuit City involving three of our properties; and
$0.4 million decrease in accelerated depreciation and amortization on tangible and intangible assets at a number of
our other properties resulting from the termination of other tenant leases with us.
These decreases in depreciation and amortization expenses were partially offset by the following increases:
•
•
$0.4 million from the consolidation of The Centre operating property as of September 30, 2009; and
$0.3 million as a result of the 2009 sale of a parcel of land adjacent to our Shops at Eagle Creek operating
property.
52
Interest expense decreased approximately $2.2 million, or 8%, primarily as a result of lower average borrowings
(proceeds from our October 2008 and May 2009 common equity offerings were used to pay down borrowings), and an
average decrease in the LIBOR interest rate of approximately 230 basis points.
Income taxes on our taxable REIT subsidiary changed from an expense of $1.9 million in 2008 to a minor benefit
(credit) in 2009. This change is primarily caused by taxable gains on the sales of a land parcel and our Spring Mill
Medical, Phase II build-to-suit commercial development asset in 2008 and lower taxable third-party construction and
services activity in 2009.
Income from unconsolidated entities decreased $0.6 million due to the 2008 sale of a land parcel, our share of which
was $0.6 million.
Gain on sale of unconsolidated property in 2008 of $1.2 million represents the gain from the sale of our interest in
Spring Mill Medical, Phase I, one of our unconsolidated commercial operating properties.
The $1.6 million non-cash gain from consolidation of subsidiary in 2009 represents a gain that was recognized upon
the consolidation of The Centre operating property which is owned in a joint venture. We paid off a third-party loan on this
previously unconsolidated entity and contributed approximately $2.1 million of capital to the entity. In accordance with the
provisions of Topic 810 – “Consolidation” of the ASC, the financial statements of The Centre were consolidated as of
September 30, 2009, and its assets and liabilities were recorded at fair value, resulting in a non-cash gain of $1.6 million, of
which our share was approximately $1.0 million.
Discontinued operations changed from income of $0.3 million in 2008 to a loss of $0.7 million in 2009. Discontinued
operations result from the 2008 sale of our Silver Glen Crossings operating property and the 2009 transfer of our Galleria
Plaza property to the ground lessor. Galleria Plaza had a net loss in both 2009 and 2008 while Silver Glen Crossings had
net income in 2008.
The $5.4 million non-cash loss on impairment of a real estate asset in 2009 relates to the write-off of the net book
value of our Galleria Plaza property in Dallas, Texas, which was transferred to the ground lessor.
The 2008 loss on sale of operating property of $2.7 million results from the sale of our Silver Glen Crossings
property, located in Chicago, Illinois.
Net income attributable to noncontrolling interests decreased $1.1 million from $1.7 million in 2008 to $0.6 million
in 2009. In 2009, noncontrolling interests includes the minority interest in the non-cash gain from consolidation of The
Centre of $0.7 million and the minority interest from the sale of an outlot parcel of $0.2 million, offset by our operating
partnership limited partners’ share of the consolidated net loss of $0.3 million.
53
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:
Revenue:
Rental income (including 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
Income tax benefit (expense) of taxable REIT
subsidiary
Income from unconsolidated entities
Gain on sale of unconsolidated property
Other income, net
Income from continuing operations
Discontinued operations:
Discontinued operations
(Loss) gain on sale of operating properties
(Loss) income from discontinued operations
Consolidated net (loss) income
Net income attributable to noncontrolling interests
Net income attributable to Kite Realty
Group Trust
Year Ended December 31,
2008
2007
Increase
(Decrease) 2008
to 2007
$
$
89,043,270
13,916,680
39,103,151
142,063,101
85,590,681 $
10,012,934
37,259,934
132,863,549
16,388,515
11,864,552
33,788,008
5,879,702
34,892,975
102,813,752
39,249,349
(29,372,181)
(1,927,830)
842,425
1,233,338
157,955
10,183,056
330,482
(2,689,888)
(2,359,406)
7,823,650
(1,730,524)
14,171,192
11,065,723
32,077,014
6,285,267
29,730,654
93,329,850
39,533,699
(25,965,141)
(761,628)
290,710
-
778,434
13,876,074
2,078,860
2,036,189
4,115,049
17,991,123
(4,468,440)
3,452,589
3,903,746
1,843,217
9,199,552
2,217,323
798,829
1,710,994
(405,565)
5,162,321
9,483,902
(284,350)
3,407,040
1,166,202
551,715
1,233,338
(620,479)
(3,693,018)
(1,748,378)
(4,726,077)
(6,474,455)
(10,167,473)
(2,737,916)
$
6,093,126
$
13,522,683 $
(7,429,557)
Rental income (including tenant reimbursements) increased approximately $3.5 million, or 4%, due to the following:
Increase
(Decrease) 2008
to 2007
$
1,780,008
5,863,617
322,686
(4,513,722)
3,452,589
$
Property acquired during 2008
Development properties that became operational or were partially
operational in 2007 and/or 2008
Properties under redevelopment during 2007 and/or 2008
Properties fully operational during 2007 and 2008 & other
Total
54
Excluding the changes due to the acquisition of properties, transitioned development properties, and properties under
redevelopment, the net $4.5 million decrease in rental income was primarily related to the following:
• $1.9 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;
• $1.2 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 related to decreased assessments; most of the refunds were reimbursed
to our tenants;
• $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;
• $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
• $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 recoverable expenses.
Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and
gains from land sales. This revenue increased approximately $3.9 million, or 39%, primarily as a result of the following:
• $3.2 million increased gains on land sales in 2008 compared to 2007; and
• $1.5 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 a $0.7 million decrease in percentage rent from our retail operating tenants in
2008 compared to 2007.
Construction and service fee revenue increased approximately $1.8 million, or 5%. This increase is primarily due to
the net increase in proceeds from 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 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 $2.2 million, or 16%, due to the following:
Property acquired during 2008
Development properties that became operational or were partially
operational in 2007 and/or 2008
Properties under redevelopment during 2007 and/or 2008
Properties fully operational during 2007 and 2008 & other
Total
Increase
(Decrease) 2008
to 2007
314,322
1,257,519
227,433
418,049
2,217,323
$
$
Excluding the changes due to the acquisition of properties, transitioned development properties, properties under
redevelopment, and the property sold, the net $0.4 million increase in property operating expenses was primarily due the
following:
•
•
$0.5 million net increase in bad debt expense at a number of our operating properties which is reflective of
financial difficulties (including bankruptcies) experienced by a number of our tenants; 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.
55
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.
Real estate taxes increased approximately $0.8 million, or 7%, due to the following:
Property acquired during 2008
Development properties that became operational or were partially
operational in 2007 and/or 2008
Properties under redevelopment during 2007 and/or 2008
Properties fully operational during 2007 and 2008 & other
Total
Increase
(Decrease) 2008
to 2007
197,623
702,284
140,173
(241,251)
798,829
$
$
Excluding the changes due to the acquisition of properties, transitioned development properties, properties under
redevelopment, the net $0.2 million decrease in real estate taxes was primarily due to approximately $0.7 million of 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 $0.5 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 6%. General, administrative and
other expenses were 4.1% and 4.5% of total revenue in 2008 and 2007, respectively. 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 $5.2 million, or 17%, due to the following:
Property acquired during 2008
Development properties that became operational or were partially
operational in 2007 and/or 2008
Properties under redevelopment during 2007 and/or 2008
Properties fully operational during 2007 and 2008 & other
Total
Increase
(Decrease) 2008
to 2007
910,235
3,137,576
(1,894,435)
3,008,945
5,162,321
$
$
Excluding the changes due to the acquisition of properties, transitioned development properties, properties under
redevelopment, 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.
56
Interest expense increased approximately $3.4 million, or 13%, due to the following:
Property acquired during 2008
Development properties that became operational or were partially
operational in 2007 and/or 2008
Properties under redevelopment during 2007 and/or 2008
Properties fully operational during 2007 and 2008 & other
Total
Increase
(Decrease) 2008
to 2007
593,808
2,609,255
(112,367)
316,344
3,407,040
$
$
Excluding the changes due to the acquisition of properties, transitioned development properties and properties under
redevelopment, the net $0.3 million increase in interest expense was primarily due to higher interest 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 from 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 was primarily used to pay down borrowings under our unsecured revolving credit facility.
Income from unconsolidated entities increased approximately $0.6 million, or 100%. This increase is due to a gain
from the sale of a land parcel, our share of which was $0.6 million.
Gain on sale of unconsolidated property was $1.2 million in 2008 and resulted from the sale of 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.
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.
Discontinued operations decreased approximately $1.8 million to $0.3 million, largely due to the operations of our
Galleria Plaza property which had net income of $0.3 million in 2007 and a net loss of $0.8 million is 2008 due to the loss
of its anchor tenant. The remaining decrease reflects the write off to income of a market rent adjustment of $0.9 million
upon the loss of the anchor tenant at our Silver Glen operating property in 2008.
(Loss) gain on sale of operating properties reflects the 2008 sale of our Silver Glen Crossings property at a loss of
$2.7 million and the 2007 sale of our 176th & Meridian property for a gain of $2.0 million.
Net income attributable to noncontrolling interests decreased $2.8 million from $4.5 million in 2007 to $1.7 million
in 2008. This decrease reflects the decrease on our consolidated net income from $18.0 million in 2007 to $7.8 million in
2008. The weighted average limited partners’ interest in our operating partnership remained relatively unchanged between
years.
57
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 manner. 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 October 2008 and May 2009, we received aggregate net proceeds of $135.3 million from offerings of our common
shares. We used a portion of the proceeds from these offerings to reduce the amounts of indebtedness outstanding under
our unsecured revolving credit facility and other borrowings. As a result, approximately $78 million was outstanding under
our unsecured revolving credit facility as of December 31, 2009 as compared to $105 million as of the end of the prior year.
In addition to raising new capital, we have also been successful in refinancing or extending the maturities of our debt
that was originally scheduled to mature in 2009 and 2010. As of February 17, 2010, all of our maturities for 2010 were
successfully extended or refinanced into future years. Our unsecured revolving credit facility and $55 million unsecured
term loan are both scheduled to mature in 2011, although the unsecured revolving credit facility has a one-year extension to
February 20, 2012 available if we are in compliance with all applicable covenants under the related agreement. The
aggregate amount of outstanding indebtedness under both of these agreements is $132.8 million as of December 31, 2009.
We discuss both of these borrowings in more detail below. We are conducting negotiations with our existing and potential
replacement lenders to refinance or obtain extensions on both of these borrowings.
We were also able to effectively recycle capital by selling outlot and unoccupied land parcels. During 2009, we
generated gross proceeds from such sales of $17.0 million, a portion of which was used to pay down outstanding
indebtedness.
In the future, we may raise additional capital by pursuing joint venture capital partners and/or disposing of additional
properties, land parcels or other assets that are no longer core components 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, 2009, we had cash and cash equivalents on hand of approximately $20 million. We may be
subject to concentrations of credit risk with regards to our cash and cash equivalents. We place our cash and short-term
cash investments with high-credit-quality financial institutions. As of December 31, 2009, the majority of our cash and
cash equivalents were held in deposit accounts that are 100% insured by the federal government’s Temporary Liquidity
Guarantee Program. From time to time, such investments may temporarily be held in accounts that are not insured under
this program and which are in excess of FDIC and SIPC insurance limits; however we attempt to limit our exposure at any
one time. We also maintain certain compensating balances in several financial institutions in support of borrowings from
those institutions. Such compensating balances were not material to the consolidated balance sheets.
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”). 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 a one-year extension option to
February 2012 available if we are in compliance with all applicable covenants under the related agreement. We were in
compliance with all applicable covenants under the unsecured facility as of December 31, 2009.
58
Borrowings under the unsecured facility bear interest at a variable interest rate of LIBOR + 115 to 135 basis points,
depending on our leverage ratio. The unsecured facility has a 0.125% to 0.200% 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. 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.
As of December 31, 2009, our outstanding indebtedness under the unsecured facility was approximately $78 million,
bearing interest at a rate of LIBOR + 125 basis points. Factoring in our hedge agreements, at December 31, 2009, our
weighted average interest rate on our unsecured revolving credit facility was approximately 6.10%. As of December 31,
2009, the amount available to us for future draws was approximately $67 million.
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 51 unencumbered properties and other assets, 48 of which are wholly owned and used to
calculate the amount available for borrowing under the unsecured credit facility and three of which are owned through joint
ventures. The major unencumbered assets include: Boulevard Crossing, Broadstone Station, Coral Springs Plaza,
Courthouse Shadows, 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.
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:
•
a maximum leverage ratio of 65% (or up to 70% in certain circumstances);
• Adjusted EBITDA (as defined in the unsecured facility) to fixed charges coverage ratio of at least 1.50 to 1;
• 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);
•
ratio of net operating income of unencumbered property to debt service under the unsecured facility of at
least 1.50 to 1;
• minimum unencumbered property pool occupancy rate of 80%;
•
•
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, 2009.
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.
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 May 2009, we issued 28,750,000 common shares for offering
proceeds, net of offering costs, of approximately $87.5 million. In addition, in December 2009, we entered into an Equity
Distribution Agreement pursuant to which we may sell, from time to time, up to an aggregate amount of $25 million of our
common shares. 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.
59
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 41. 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 to qualify for REIT status and avoid paying tax on our
income, necessitate that we distribute 90% of our taxable 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. In May 2009, our Board of Trustees (the “Board”) declared a
quarterly cash distribution of $0.06 per common share for the quarter ended June 30, 2009. This per share distribution was
continued for the quarters ended September 30, 2009 and December 31, 2009. These distributions were lower than in prior
periods which allowed us to conserve cash. Each quarter we discuss with our Board our liquidity requirements along with
other relevant factors before the Board decides whether and in what amount to declare a distribution.
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, 2009, we incurred approximately $0.8 million
of costs for recurring capital expenditures on operating properties and also incurred approximately $1.6 million of costs for
tenant improvements and external leasing commissions. We currently anticipate incurring approximately $1.0 million in
capital expenditures at our operating properties and approximately $15.7 million of additional major tenant improvements
and renovation costs within the next twelve months at several properties in our redevelopment pipeline.
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 to do so.
2010 Debt Maturities
As of December 31, 2009, approximately $56.9 million of our outstanding indebtedness was scheduled to mature in
2010, excluding scheduled monthly principal payments. Subsequent to year-end, we refinanced or extended the maturity
dates of 100% of this indebtedness as follows:
• The maturity date of the $14.9 million variable rate loan on the Shops at Rivers Edge property was
extended to February 2013 at an interest rate of LIBOR + 400 basis points. We funded a $0.6 million
paydown on this loan with cash;
• The maturity date of the $30.9 million variable rate construction loan on the Cobblestone Plaza property
was extended to February 2013 at an interest rate of LIBOR + 350 basis points. We funded a $2.9
million paydown on this loan with cash and draws from our unsecured facility; and
• The maturity date of the $11.0 million South Elgin Commons construction loan was extended to
September 2013 at an interest rate of LIBOR + 325 basis points. We funded a $1.6 million paydown on
this loan with cash and draws from our unsecured facility.
60
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.
Unsecured Facility and Term Loan. As discussed above, our unsecured term loan, which had a balance of $55
million as of December 31, 2009, will mature on July 15, 2011 and our unsecured facility, which had a balance of
approximately $78 million as of December 31, 2009, will mature on February 20, 2011 (with a one-year extension option to
February 20, 2012 available if we are in compliance with all applicable covenants under the related agreement). We are
conducting negotiations with our existing and potential replacement lenders to refinance or obtain extensions on our term
loan and credit facility.
Redevelopment Properties. As of December 31, 2009, five of our properties (Coral Springs Plaza, Bolton Plaza,
Shops at Rivers Edge, Courthouse Shadows and Four Corner Square) were undergoing major redevelopment activities. We
currently anticipate our investment in these redevelopment projects will be a total of approximately $16 million. We
currently have sufficient financing in place to fund our investment in these projects through borrowings on our unsecured
credit facility. In certain circumstances, we may seek to place specific construction financing on these redevelopment
projects.
Development Properties. As of December 31, 2009, we had two projects in our development pipeline. The total
estimated cost, including our share and our joint venture partners’ share, for these projects is approximately $87 million, of
which approximately $73 million had been incurred as of December 31, 2009. Our share of the total estimated cost of these
projects is approximately $61 million, of which we have incurred approximately $50 million as of December 31, 2009. 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 the Eddy Street Commons development project. This loan has a total
commitment of approximately $29.5 million, of which $18.8 million was outstanding at December 31, 2009. In addition, if
necessary, we may make draws on our unsecured facility. The Eddy Street Commons project is expected to include retail,
office, hotels, a parking garage, apartments and residential units and is discussed in more detail below under “Contractual
Obligations – Obligations in Connection with Our Development, Redevelopment and Shadow Pipeline”.
Shadow Development Pipeline. In addition to our current development pipeline, we have a “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, 2009, this 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 projects will be approximately $305 million, of which our share is currently expected to be
approximately $187 million. Although we intend to develop these properties, which is a key assumption in our impairment
review, we are generally not contractually obligated to complete any developments in our shadow pipeline, as these projects
consist of land parcels on which we have not yet commenced construction. With respect to each asset in the 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
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” on page 41.
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
61
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
shadow development pipeline. As of December 31, 2009, we owned a 40% interest in this joint venture which, under the
terms of this joint venture, will be reduced to 20% upon construction financing.
Cash Flows
Comparison of the Year Ended December 31, 2009 to the Year Ended December 31, 2008
Cash provided by operating activities was $21.0 million for the year ended December 31, 2009, a decrease of
$20.0 million from 2008. The decrease was primarily due to higher cash outflows for accounts payable and accrued
expenses in 2009, the majority of which reflects declining third-party construction activity.
Cash used in our investing activities totaled $54.8 million in 2009, a decrease of $40.9 million from 2008. The
decrease in cash used in investing activities was primarily a result of a decline of $81.0 million in acquisitions of interests
in properties and capital expenditures. As part of our cash conservation strategy, we significantly reduced our acquisition,
development and construction activities. Offsetting this decrease were $17.2 million of 2008 net proceeds from the sale of
our Silver Glen Crossings operating property, $12.0 million of 2009 contributions to our Parkside Town Commons
development property and The Centre operating property and a $5.0 million change in construction payables.
Cash provided by financing activities totaled $43.9 million during 2009, a decrease of $1.6 million from 2008. In
2009, we had lower borrowings of $26.2 million due to a decline in our construction activity. Among the more significant
changes in financing activities between years are the following: In 2008, we had borrowings totaling $41.8 million in
connection with the 2008 acquisition of our Shops at Rivers Edge operating property and New Hill Place development
property, offset by proceeds totaling $32.3 million from the sales of our Silver Glen Crossings and Spring Mill operating
properties and outlot and land parcels. Net loan paydowns were $20.5 million higher in 2009 compared to 2008 as a result
of the use of common share offering proceeds to reduce our levels of indebtedness. These net changes were partially offset
by $39.2 million higher proceeds from our 2009 common share offering compared to our 2008 offerings and $8.1 million
lower cash distribution payments to common shareholders and operating partnership unitholders as a result of a lowering of
our per share rate of distribution.
Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007
Cash provided by operating activities was $41.1 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 $45.5 million during 2008, a decrease of $8.1 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 unsecured facility in 2007 compared to the $55 million proceeds received under the unsecured 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.
62
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, 2009, we owned a 40% interest in this
joint venture which, under the terms of this joint venture, will be reduced to 20% upon construction financing.
As of December 31, 2009, our share of unconsolidated joint venture indebtedness was $14.5 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, 2009, the Operating Partnership had guaranteed its $13.5 million share of the unconsolidated joint venture
debt related to the Parkside Town Commons development 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 joint venture could sell the property in order to satisfy the outstanding obligation. See Note 6 to
the accompanying consolidated financial statements for information on our unconsolidated joint ventures for the years
ended December 31, 2009, 2008 and 2007.
Contractual Obligations
The following table summarizes our contractual obligations to third parties, excluding interest, based on contracts
executed as of December 31, 2009.
Construction
Contracts
Tenant
Allowances1
2010 ...................................... $ 1,481,316 $ 10,613,381 $
735,075
—
2011 ......................................
— 3,585,980
2012 ......................................
—
—
2013 ......................................
—
—
2014 ......................................
Thereafter .............................
—
—
Unamortized Debt
Operating
Leases
389,300 $
326,800
326,800
212,500
220,000
715,000
Pro rata Share
of Joint Venture
Debt
Consolidated
Long-term
Debt2
60,001,404 $
252,871,911 13,549,200
—
—
981,593
—
39,084,352
34,802,465
216,442,008
54,114,603
— $
Premiums........................
—
Total...................................... $ 1,481,316 $ 14,934,436 $ 2,190,400 $ 658,294,513 $ 14,530,793 $
977,770
—
—
—
Employment
Contracts3
Other
Total
1,417,000
—
—
—
—
—
$ 2,397,171 $ 76,299,572
4,471,394 271,954,380
58,027,383
39,296,852
36,004,058
217,157,008
—
—
—
—
—
1,417,000
977,770
$ 6,868,565 $ 699,717,023
—
____________________
1
Tenant allowances include commitments made to tenants at our operating, development and redevelopment
properties.
2
In February 2010, we extended the maturity dates of all of our 2010 maturities to 2013. See table reflecting these
refinancing activities on page 44.
3 We have entered into employment agreements with certain members of senior management. Under these agreements,
each individual received a stipulated annual base salary through December 31, 2009. Each agreement has an
automatic one-year renewal unless we or the individual elects not to renew the agreement. The contracts have been
extended through December 31, 2010.
In 2009, we incurred $27.2 million of interest expense, net of amounts capitalized of $8.9 million.
In connection with the construction of the Eddy Street Commons parking garage and certain infrastructure
improvements, we are obligated to fund payments under Tax Increment Financing (TIF) Bonds issued by the City of South
Bend, Indiana. The majority of the bonds will be funded by real estate tax payments made by us and subject to
reimbursement from the tenants of the property. If there are delays in the development, we are obligated to pay certain
delay fees. However, we have an agreement with the City of South Bend to limit our exposure to a maximum of $1 million
as to such fees. In addition, we will not be in default concerning other obligations under the agreement with the City of
South Bend so long as we commence and diligently pursue the completion of our obligations under that agreement.
63
See “2010 Maturities” on page 60 for additional information with respect to our current plan to address our
indebtedness maturing in fiscal year 2010 and beyond.
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 18% of our annualized
base rent in the aggregate as of December 31, 2009. 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, 2009
related to new developments, redevelopments and third-party construction.
Obligations in Connection with Our Current Development, Redevelopment and 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 total cost of the two projects in our current development pipeline will be
approximately $61 million (including $35 million of costs associated with Phase I of our Eddy Street Commons
development discussed below), of which approximately $11 million of our share was unfunded as of December 31, 2009.
In addition, we have commenced with the construction of a limited service hotel component of this project of which we will
own 50% in a joint venture. We currently estimate that our share of the total cost of this hotel will be approximately $5.5
million. 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
2009, with a total loan commitment of approximately $29.5 million, of which $18.8 million was outstanding at December
31, 2009. In addition, if necessary, we may make draws on our unsecured facility.
In addition to our current development pipeline, we also have a redevelopment pipeline and a “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. Although we
currently intend to develop the shadow pipeline, we are not contractually obligated to complete any projects in our
redevelopment or shadow pipelines, as these consist of land parcels on which we have not yet commenced construction.
With respect to each asset in the 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 majority of the office space will be leased to the University of Notre Dame.
The City of South Bend has contributed approximately $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. The majority of the bonds will be funded by real estate tax
payments made by us and subject to reimbursement from the tenants of the property. If there are delays in the
development, we are obligated to pay certain delay fees. However, we have an agreement with the City of South Bend to
limit our exposure to a maximum of $1 million as to such fees. In addition, we will not be in default concerning other
obligations under the agreement with the City of South Bend so long as we commence and diligently pursue the completion
of our obligations under that agreement.
64
This development will be completed in several phases. The initial phase of the project opened in October 2009 and
consists of the retail, office and apartment and residential units with an estimated total cost of $70 million (net of amounts
funded by the TIF bonds) of which our share is estimated to be $35 million. This phase is 72.4% leased as of December 31,
2009. 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 own the retail and office components while the apartments are owned by a third party. The hotel components of
the project will be owned through joint ventures while the apartments and residential units are planned to be sold or
operated through relationships with developers, owners 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.
The first phase of the apartments opened during the second half of 2009 with the second phase expected to open in the
second half of 2010. Construction on the residential units will commence as demand warrants. Vertical construction
commenced on a limited service hotel in September and the opening of this project is expected to occur in the second half
of 2010. In 2009 we received, and we expect to receive in the future, development, construction management, 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 a similar
contractual agreement in favor of 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 have the right to 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 timely commencing and pursuing a cure, we will not be in
default to either the University of Notre Dame or the City of South Bend.
65
Outstanding Indebtedness
The following table presents details of outstanding indebtedness as of December 31, 2009:
$
Property
Fixed Rate Debt - Mortgage:
50th & 12th................................................................
The Centre at Panola ................................................
Cool Creek Commons ..............................................
The Corner................................................................
Fox Lake Crossing ...................................................
Geist Pavilion ...........................................................
Indian River Square..................................................
International Speedway Square................................
Kedron Village .........................................................
Pine Ridge Crossing .................................................
Plaza at Cedar Hill....................................................
Plaza Volente............................................................
Preston Commons ....................................................
Riverchase Plaza ......................................................
Sunland Towne Centre .............................................
30 South....................................................................
Traders Point ............................................................
Whitehall Pike ..........................................................
Floating Rate Debt - Hedged:
Unsecured Credit Facility .......................................
Unsecured Credit Facility ........................................
Unsecured Term Loan..............................................
Bayport Commons....................................................
Eastgate Pavilion ......................................................
Gateway Shopping Center........................................
Glendale Town Center .............................................
Ridge Plaza...............................................................
Net unamortized premium on assumed debt of
acquired properties .............................................
Total Fixed Rate Indebtedness.....................
$
Balance
Outstanding
Interest
Rate
Maturity
5.67 %
6.78 %
5.88 %
7.65 %
5.16 %
5.78 %
5.42 %
7.17 %
5.70 %
6.34 %
7.38 %
5.42 %
5.90 %
6.34 %
6.01 %
6.09 %
5.86 %
6.71 %
6.32 %
6.17 %
5.92 %
4.48 %
4.84 %
4.88 %
4.40 %
6.56 %
11/11/2014
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
10/11/2016
7/1/2016
1/11/2014
10/11/2016
7/5/2018
2/20/2011
2/18/2011
7/15/2011
12/27/2011
4/30/2012
10/31/2011
12/19/2011
1/3/2017
4,370,103
3,658,067
17,862,709
1,574,412
11,288,753
11,125,000
13,216,389
18,596,954
29,700,000
17,500,000
25,596,611
28,499,703
4,305,964
10,500,000
25,000,000
21,682,906
48,000,000
8,415,622
300,893,193
50,000,000
25,000,000
55,000,000
19,700,000
15,182,480
20,000,000
20,000,000
15,000,000
219,882,480
977,770
521,753,443
66
Balance
Outstanding
Interest
Rate
Maturity
Interest Rate
at 12/31/09
Property
Variable Rate Debt - Mortgage:
Bayport Commons2................................................... $
Beacon Hill ...............................................................
Eastgate Pavilion2 .....................................................
Estero Town Commons ............................................
Fishers Station...........................................................
Gateway Shopping Center2.......................................
Glendale Town Center2.............................................
Indiana State Motor Pool ..........................................
Ridge Plaza2 ..............................................................
Shops at Rivers Edge3...............................................
Tarpon Springs Plaza ................................................
Subtotal Mortgage Notes ..............................
Variable Rate Debt - Secured by Properties
under Construction:
Bridgewater Marketplace1 ........................................
Cobblestone Plaza3 ...................................................
Delray Marketplace...................................................
Eddy Street Commons ..............................................
South Elgin Commons3.............................................
Subtotal Construction Notes.........................
20,078,916
7,565,349
15,209,670
10,500,000
3,937,444
21,042,866
20,553,000
3,652,440
15,000,000
14,940,000
14,000,000
146,479,685
7,000,000
30,853,252
9,425,000
18,802,194
11,063,419
77,143,865
LIBOR + 2.75%
LIBOR + 1.25%
LIBOR + 2.95%
LIBOR + 3.25%
LIBOR + 3.50%
LIBOR + 1.90%
LIBOR + 2.75%
LIBOR + 1.35%
LIBOR + 3.25%
LIBOR + 1.25%
LIBOR + 3.25%
LIBOR + 1.85%
LIBOR + 2.50%
LIBOR + 3.00%
LIBOR + 2.30%
LIBOR + 1.90%
12/27/2011
3/30/2014
4/30/2012
1/15/2013
6/6/2011
10/31/2011
12/19/2011
2/4/2011
1/3/2017
2/3/2010
1/15/2013
6/29/2013
3/31/2010
6/30/2011
12/30/2011
9/30/2010
Unsecured Credit Facility2.....................................
77,800,000
LIBOR + 1.25%
2/20/2011
Unsecured Term Loan2 ..........................................
55,000,000
LIBOR + 2.65%
7/15/2011
Floating Rate Debt - Hedged:
Unsecured Credit Facility .........................................
Unsecured Credit Facility .........................................
Unsecured Term Loan ..............................................
Bayport Commons ....................................................
Eastgate Pavilion.......................................................
Gateway Shopping Center ........................................
Glendale Town Center..............................................
Ridge Plaza ...............................................................
(50,000,000)
(25,000,000)
(55,000,000)
(19,700,000)
(15,182,480)
(20,000,000)
(20,000,000)
(15,000,000)
(219,882,480)
LIBOR + 1.25%
LIBOR + 1.25%
LIBOR + 2.65%
LIBOR + 2.75%
LIBOR + 2.95%
LIBOR + 1.90%
LIBOR + 2.75%
LIBOR + 3.25%
2/20/2011
2/18/2011
7/15/2011
12/27/2011
4/30/2012
10/31/2011
12/19/2011
1/3/2017
Total Variable Rate Indebtedness.................
Total Indebtedness.......................... $
136,541,070
658,294,513
2.98%
1.48%
3.18%
3.48%
3.73%
2.13%
2.98%
1.58%
3.48%
1.48%
3.48%
5.00%
2.73%
3.23%
2.53%
2.13%
1.48%
2.88%
1.48%
1.48%
2.88%
2.98%
3.18%
2.13%
2.98%
3.48%
____________________
1
This loan has a LIBOR floor of 3.15%.
2
3
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.
Subsequent to December 31, 2009, the maturity date on this loan was extended to the year 2013.
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 consolidated net income (computed in
accordance with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization,
and after adjustments for third-party shares of appropriate items.
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 consolidated 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. For informational purposes, we have also provided FFO adjusted for a non-cash impairment
67
charge recorded in 2009. We believe this supplemental information provides a meaningful measure of our operating
performance. FFO should not be considered as an alternative to consolidated 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 consolidated net (loss) income) is as follows:
Balance
Outstanding
Interest
Rate
Maturity
Interest Rate
at 12/31/09
Interest Rate
at 12/31/09
2.98%
1.48%
3.18%
3.48%
3.73%
2.13%
2.98%
1.58%
3.48%
1.48%
3.48%
2.98%
1.48%
3.18%
3.48%
3.73%
2.13%
2.98%
1.58%
3.48%
1.48%
3.48%
5.00%
2.73%
3.23%
2.53%
2.13%
1.48%
5.00%
2.73%
3.23%
2.53%
2.13%
2.88%
1.48%
1.48%
1.48%
2.88%
2.98%
3.18%
2.13%
2.98%
3.48%
2.88%
1.48%
1.48%
2.88%
2.98%
3.18%
2.13%
2.98%
3.48%
2.98%
1.48%
3.18%
3.48%
3.73%
2.13%
2.98%
1.58%
3.48%
1.48%
3.48%
5.00%
2.73%
3.23%
2.53%
2.13%
1.48%
2.88%
1.48%
1.48%
2.88%
2.98%
3.18%
2.13%
2.98%
3.48%
Funds From Operations:
Variable Rate Debt - Secured by Properties
Less redeemable noncontrolling interests in Funds From Operations
under Construction:
Funds From Operations of the Kite Portfolio
Property
Variable Rate Debt - Mortgage:
Bayport Commons2................................................... $
Beacon Hill ...............................................................
Eastgate Pavilion2 .....................................................
Estero Town Commons ............................................
Fishers Station...........................................................
Gateway Shopping Center2.......................................
Glendale Town Center2.............................................
Indiana State Motor Pool ..........................................
Ridge Plaza2 ..............................................................
Shops at Rivers Edge3...............................................
Tarpon Springs Plaza ................................................
Subtotal Mortgage Notes ..............................
Property
Variable Rate Debt - Mortgage:
Bayport Commons2................................................... $
Beacon Hill ...............................................................
Eastgate Pavilion2 .....................................................
Estero Town Commons ............................................
Fishers Station...........................................................
Gateway Shopping Center2.......................................
Glendale Town Center2.............................................
Indiana State Motor Pool ..........................................
Ridge Plaza2 ..............................................................
Shops at Rivers Edge3...............................................
Tarpon Springs Plaza ................................................
Subtotal Mortgage Notes ..............................
Consolidated net (loss) income
Property
Add loss (deduct gain) on sale of operating property
Variable Rate Debt - Mortgage:
Less non-cash gain from consolidation of subsidiary, net of noncontrolling
Bayport Commons2................................................... $
interests
Beacon Hill ...............................................................
Eastgate Pavilion2 .....................................................
Less gain on sale of unconsolidated property
Estero Town Commons ............................................
Fishers Station...........................................................
Gateway Shopping Center2.......................................
Glendale Town Center2.............................................
Variable Rate Debt - Secured by Properties
Indiana State Motor Pool ..........................................
Ridge Plaza2 ..............................................................
Bridgewater Marketplace1 ........................................
Shops at Rivers Edge3...............................................
Cobblestone Plaza3 ...................................................
Tarpon Springs Plaza ................................................
under Construction:
Delray Marketplace...................................................
Subtotal Mortgage Notes ..............................
Funds From Operations allocable to the Company
Eddy Street Commons ..............................................
South Elgin Commons3.............................................
Subtotal Construction Notes.........................
$
Less net income attributable to noncontrolling interests in properties
Add depreciation and amortization of consolidated entities, net of
noncontrolling interests
Add depreciation and amortization of unconsolidated entities
Bridgewater Marketplace1 ........................................
Cobblestone Plaza3 ...................................................
Delray Marketplace...................................................
Eddy Street Commons ..............................................
South Elgin Commons3.............................................
Subtotal Construction Notes.........................
under Construction:
Bridgewater Marketplace1 ........................................
Funds From Operations of the Kite Portfolio
Cobblestone Plaza3 ...................................................
Add back: Non-cash loss on impairment of real estate asset
Delray Marketplace...................................................
Funds From Operations of the Kite Portfolio excluding non-cash loss on
Eddy Street Commons ..............................................
impairment of real estate asset
South Elgin Commons3.............................................
Subtotal Construction Notes.........................
Floating Rate Debt - Hedged:
Unsecured Credit Facility .........................................
Unsecured Credit Facility .........................................
Unsecured Term Loan ..............................................
Bayport Commons ....................................................
Eastgate Pavilion.......................................................
Gateway Shopping Center ........................................
Glendale Town Center..............................................
Ridge Plaza ...............................................................
Unsecured Credit Facility2.....................................
Floating Rate Debt - Hedged:
Unsecured Credit Facility .........................................
Unsecured Credit Facility .........................................
Unsecured Term Loan ..............................................
Bayport Commons ....................................................
Eastgate Pavilion.......................................................
Gateway Shopping Center ........................................
Glendale Town Center..............................................
Ridge Plaza ...............................................................
____________________
1
Unsecured Credit Facility2.....................................
Unsecured Credit Facility2.....................................
Unsecured Term Loan2 ..........................................
Unsecured Term Loan2 ..........................................
Unsecured Term Loan2 ..........................................
Variable Rate Debt - Secured by Properties
$
$
Interest Rate
at 12/31/09
12/27/2011
Maturity
3/30/2014
4/30/2012
12/27/2011
1/15/2013
3/30/2014
6/6/2011
4/30/2012
10/31/2011
1/15/2013
12/19/2011
6/6/2011
—
2/4/2011
10/31/2011
—
1/3/2017
12/19/2011
2/3/2010
2/4/2011
1/15/2013
1/3/2017
2/3/2010
1/15/2013
$
Year Ended
Balance
20,078,916
December 31,
Outstanding
7,565,349
2009
15,209,670
Balance
$
(1,178,003)
10,500,000
Outstanding
3,937,444
—
21,042,866
20,078,916
20,553,000
(980,926)
7,565,349
3,652,440
15,209,670
—
15,000,000
10,500,000
14,940,000
(879,463)
3,937,444
14,000,000
21,042,866
146,479,685
20,553,000
31,601,550
3,652,440
157,623
15,000,000
28,720,781
14,940,000
(3,848,585)
14,000,000
146,479,685
24,872,196
20,078,916
7,565,349
15,209,670
10,500,000
3,937,444
21,042,866
20,553,000
3,652,440
15,000,000
14,940,000
14,000,000
146,479,685
Year Ended
Interest
LIBOR + 2.75%
December 31,
Year Ended
Rate
LIBOR + 1.25%
2008
December 31, 2007
LIBOR + 2.95%
LIBOR + 2.75%
Interest
$
7,823,650
17,991,123
LIBOR + 3.25%
Maturity
Rate
LIBOR + 1.25%
LIBOR + 3.50%
(2,036,189)
2,689,888
LIBOR + 2.95%
LIBOR + 1.90%
LIBOR + 2.75%
LIBOR + 3.25%
LIBOR + 2.75%
—
LIBOR + 1.25%
LIBOR + 3.50%
LIBOR + 1.35%
LIBOR + 2.95%
LIBOR + 1.90%
(1,233,338)
LIBOR + 3.25%
LIBOR + 3.25%
LIBOR + 2.75%
LIBOR + 1.25%
(61,707)
LIBOR + 3.50%
LIBOR + 1.35%
LIBOR + 3.25%
LIBOR + 1.90%
LIBOR + 3.25%
LIBOR + 2.75%
35,438,229
LIBOR + 1.25%
LIBOR + 1.35%
LIBOR + 3.25%
406,623
LIBOR + 3.25%
45,063,345
LIBOR + 1.85%
LIBOR + 1.25%
LIBOR + 2.50%
(9,688,619)
LIBOR + 3.25%
LIBOR + 3.00%
7,000,000
$
35,374,726
$
LIBOR + 1.85%
LIBOR + 2.30%
30,853,252
LIBOR + 2.50%
LIBOR + 1.90%
9,425,000
LIBOR + 3.00%
18,802,194
$
$
45,063,345
LIBOR + 1.85%
LIBOR + 2.30%
11,063,419
LIBOR + 2.50%
LIBOR + 1.90%
—
LIBOR + 1.25%
LIBOR + 3.00%
77,143,865
LIBOR + 2.30%
$
45,063,345
LIBOR + 1.90%
12/27/2011
3/30/2014
4/30/2012
1/15/2013
(614,836)
6/6/2011
10/31/2011
12/19/2011
31,475,146
2/4/2011
403,799
1/3/2017
47,219,043
2/3/2010
(10,529,847)
1/15/2013
36,689,196
6/29/2013
3/31/2010
6/30/2011
12/30/2011
9/30/2010
7,000,000
30,853,252
9,425,000
18,802,194
11,063,419
77,143,865
$
LIBOR + 2.65%
LIBOR + 1.25%
7,000,000
28,720,781
30,853,252
5,384,747
9,425,000
18,802,194
34,105,528
11,063,419
77,143,865
77,800,000
77,800,000
55,000,000
47,219,043
6/29/2013
3/31/2010
6/30/2011
12/30/2011
9/30/2010
6/29/2013
3/31/2010
6/30/2011
12/30/2011
47,219,043
9/30/2010
—
2/20/2011
7/15/2011
2/20/2011
55,000,000
LIBOR + 2.65%
77,800,000
LIBOR + 1.25%
2/20/2011
55,000,000
“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 noncontrolling weighted average
2/20/2011
diluted interest in the Operating Partnership.
2/18/2011
7/15/2011
12/27/2011
4/30/2012
10/31/2011
12/19/2011
1/3/2017
Floating Rate Debt - Hedged:
Unsecured Credit Facility .........................................
Unsecured Credit Facility .........................................
Unsecured Term Loan ..............................................
Bayport Commons ....................................................
Eastgate Pavilion.......................................................
Gateway Shopping Center ........................................
Glendale Town Center..............................................
Ridge Plaza ...............................................................
LIBOR + 1.25%
LIBOR + 1.25%
LIBOR + 2.65%
LIBOR + 2.75%
LIBOR + 2.95%
LIBOR + 1.90%
LIBOR + 2.75%
LIBOR + 3.25%
LIBOR + 1.25%
LIBOR + 1.25%
LIBOR + 2.65%
LIBOR + 2.75%
LIBOR + 2.95%
LIBOR + 1.90%
LIBOR + 2.75%
LIBOR + 3.25%
(50,000,000)
(25,000,000)
(55,000,000)
(19,700,000)
(15,182,480)
(20,000,000)
(20,000,000)
(15,000,000)
(219,882,480)
Total Variable Rate Indebtedness.................
Total Indebtedness.......................... $
136,541,070
658,294,513
Total Variable Rate Indebtedness.................
LIBOR + 2.65%
7/15/2011
(50,000,000)
(25,000,000)
(55,000,000)
(19,700,000)
(15,182,480)
(20,000,000)
(20,000,000)
(15,000,000)
(219,882,480)
136,541,070
658,294,513
Forward-Looking Statements
(50,000,000)
(25,000,000)
(55,000,000)
(19,700,000)
(15,182,480)
(20,000,000)
(20,000,000)
(15,000,000)
(219,882,480)
LIBOR + 1.25%
LIBOR + 1.25%
LIBOR + 2.65%
LIBOR + 2.75%
LIBOR + 2.95%
LIBOR + 1.90%
LIBOR + 2.75%
LIBOR + 3.25%
7/15/2011
2/20/2011
2/18/2011
7/15/2011
12/27/2011
4/30/2012
10/31/2011
12/19/2011
1/3/2017
2/20/2011
2/18/2011
7/15/2011
12/27/2011
4/30/2012
10/31/2011
12/19/2011
1/3/2017
Total Indebtedness.......................... $
Total Variable Rate Indebtedness.................
____________________
1
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:
This loan has a LIBOR floor of 3.15%.
Total Indebtedness.......................... $
____________________
1
____________________
1
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.
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.
Subsequent to December 31, 2009, the maturity date on this loan was extended to the year 2013.
This loan has a LIBOR floor of 3.15%.
136,541,070
658,294,513
2
2
3
•
•
•
•
•
2
national and local economic, business, real estate and other market conditions, particularly in light of the current
recession;
We entered into a cash flow hedge agreement on this debt instrument to fix the interest rate. See fixed rate within
Subsequent to December 31, 2009, the maturity date on this loan was extended to the year 2013.
the fixed rate hedged details in the table above.
Funds From Operations
3
3
financing risks, including the availability of and costs associated with sources of liquidity;
Funds From Operations
Funds From Operations
the level and volatility of interest rates;
the Company’s ability to refinance, or extend the maturity dates of, its indebtedness;
the financial stability of tenants, including their ability to pay rent and the risk of tenant bankruptcies;
Subsequent to December 31, 2009, the maturity date on this loan was extended to the year 2013.
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 consolidated net income (computed in
accordance with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization,
Funds From Operations (“FFO”), is a widely used performance measure for real estate companies and is provided
and after adjustments for third-party shares of appropriate items.
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 consolidated net income (computed in
accordance with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization,
and after adjustments for third-party shares of appropriate items.
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 consolidated net income (computed in
68
accordance with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization,
and after adjustments for third-party shares of appropriate items.
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 consolidated 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
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 consolidated net
performance more difficult. For informational purposes, we have also provided FFO adjusted for a non-cash impairment
income that do not relate to or are not indicative of our operating performance, such as gains (or losses) from sales of
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 consolidated net
depreciated property and depreciation and amortization, which can make periodic and peer analyses of operating
income that do not relate to or are not indicative of our operating performance, such as gains (or losses) from sales of
performance more difficult. For informational purposes, we have also provided FFO adjusted for a non-cash impairment
67
depreciated property and depreciation and amortization, which can make periodic and peer analyses of operating
performance more difficult. For informational purposes, we have also provided FFO adjusted for a non-cash impairment
67
67
•
•
•
•
•
•
•
•
•
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;
impairment in the value of real estate property the Company owns;
risks related to the geographical concentration of our properties in Indiana, Florida and Texas;
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 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 and Variable Rate Debt
We had approximately $658.3 million of outstanding consolidated indebtedness as of December 31, 2009 (inclusive
of net premiums on acquired debt of $1.0 million). As of December 31, 2009, we were party to eight consolidated interest
rate hedge agreements for a total of $219.9 million, with interest rates ranging from 4.40% to 6.56% and maturities over
various terms from 2011 through 2017. Including the effects of these hedge agreements, our fixed and variable rate debt
would have been approximately $520.8 million (79%) and $136.5 million (21%), respectively, of our total consolidated
indebtedness at December 31, 2009. Including our $14.5 million share of unconsolidated variable debt and the effect of
related hedge agreements, our fixed and variable rate debt is 78% and 22%, respectively, of the total of consolidated and
our share of unconsolidated indebtedness at December 31, 2009.
Based on the amount of our fixed rate debt at December 31, 2009, a 100 basis point increase in market interest rates
would result in a decrease in its fair value of approximately $12.2 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 $13.0 million. A 100 basis point
increase or decrease in interest rates on our consolidated variable rate debt as of December 31, 2009 would increase or
decrease our annual cash flow by approximately $1.4 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.
69
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
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, 2009 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, 2009.
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.
70
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, 2009, 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, 2009, 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, 2009 and 2008, and
the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2009 and the related financial statement schedule listed in the index at Item 15(a) as of
December 31, 2009 of Kite Realty Group Trust and subsidiaries and our report dated March 16, 2010 expressed an
unqualified opinion thereon.
Ernst & Young LLP
Indianapolis, Indiana
March 16, 2010
71
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
2010 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
2011 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”.
72
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
(a) Documents filed as part of this report:
(1) Financial Statements:
Consolidated financial statements for the Company listed on the index immediately preceding the financial
statements at the end of this report.
(2) Financial Statement Schedule:
Financial statement schedule for the Company listed on the index immediately preceding the financial
statements at the end of this report.
(3) Exhibits:
The Company files as part of this report the exhibits listed on the Exhibit Index.
(b) Exhibits:
The Company files as part of this report the exhibits listed on the Exhibit Index.
(c) 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.
73
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, 2010
(Date)
March 16, 2010
(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.
Date
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
Signature
Title
/s/ JOHN A. KITE
(John A. Kite)
/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)
Chairman, Chief Executive Officer, and Trustee
(Principal Executive Officer)
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
74
Kite Realty Group Trust
Index to Financial Statements
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm...........................................................................
Balance Sheets as of December 31, 2009 and 2008 .......................................................................................
Statements of Operations for the Years Ended December 31, 2009, 2008, and 2007 ....................................
Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008, and 2007 ....................
Statements of Cash Flows for the Years Ended December 31, 2009, 2008, and 2007 ...................................
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, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 2009. 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, 2009 and 2008, and the consolidated results
of their operations and their cash flows for each of the three years in the period ended December 31, 2009, 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.
As discussed in Note 2 to the consolidated financial statements, Kite Realty Group Trust and subsidiaries have
retrospectively applied certain reclassification adjustments upon adoption of a new accounting pronouncement for
noncontrolling interests.
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, 2009, 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 16, 2010 expressed an unqualified opinion thereon.
Ernst & Young LLP
Indianapolis, Indiana
March 16, 2010
F-1
Kite Realty Group Trust
Consolidated Balance Sheets
December 31,
2009
December 31,
2008
Assets:
Investment properties, at cost:
Land ........................................................................................................................................... $
Land held for development.........................................................................................................
Buildings and improvements......................................................................................................
Furniture, equipment and other ..................................................................................................
Construction in progress.............................................................................................................
Less: accumulated depreciation .......................................................................................
(127,031,144 )
226,506,781 $
27,546,315
736,027,845
5,060,233
176,689,227
1,171,830,401
1,044,799,257
227,781,452
25,431,845
690,161,336
5,024,696
191,106,309
1,139,505,638
(104,051,695)
1,035,453,943
Cash and cash equivalents ..........................................................................................................
Tenant receivables, including accrued straight-line rent of $8,570,069 and $7,221,882,
19,958,376
9,917,875
17,776,282
respectively, net of allowance for uncollectible accounts .....................................................
10,357,679
Other receivables........................................................................................................................
1,902,473
Investments in unconsolidated entities, at equity .......................................................................
11,316,728
Escrow deposits..........................................................................................................................
21,167,288
Deferred costs, net......................................................................................................................
Prepaid and other assets .............................................................................................................
4,159,638
Total Assets ............................................................................................................................... $ 1,140,685,444 $ 1,112,051,906
Liabilities and Equity:
Mortgage and other indebtedness ............................................................................................... $
Accounts payable and accrued expenses ....................................................................................
Deferred revenue and other liabilities.........................................................................................
Total Liabilities.........................................................................................................................
Commitments and contingencies
Redeemable noncontrolling interests in Operating Partnership..................................................
Equity:
Kite Realty Group Trust Shareholders’ Equity
Preferred Shares, $.01 par value, 40,000,000 shares authorized, no shares issued and
18,537,031
9,326,475
10,799,782
11,377,408
21,509,070
4,378,045
658,294,513 $
32,799,351
19,835,438
710,929,302
677,661,466
53,144,015
24,594,794
755,400,275
47,307,115
67,276,904
outstanding............................................................................................................................
—
—
Common Shares, $.01 par value, 200,000,000 shares authorized, 63,062,083 shares and
341,812
34,181,179 shares issued and outstanding at December 31, 2009 and 2008, respectively ....
343,631,595
Additional paid in capital .......................................................................................................
(7,739,154)
Accumulated other comprehensive loss .................................................................................
(51,276,059)
Accumulated deficit ...............................................................................................................
284,958,194
Total Kite Realty Group Trust Shareholders’ Equity.........................................................
4,416,533
Noncontrolling Interests ........................................................................................................
Total Equity ..............................................................................................................................
289,374,727
Total Liabilities and Equity ..................................................................................................... $ 1,140,685,444 $ 1,112,051,906
(69,613,763 )
375,077,842
7,371,185
382,449,027
630,621
449,863,390
(5,802,406 )
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Kite Realty Group Trust
Consolidated Statements of Operations
2009
Year Ended December 31,
2008
2007
Revenue:
Minimum rent ............................................................................ $
Tenant reimbursements ............................................................
Other property related revenue .................................................
Construction and service fee revenue .......................................
Total revenue .......................................................................................
Expenses:
$
71,612,415
18,163,191
6,065,708
19,450,789
115,292,103
Property operating .....................................................................
Real estate taxes ........................................................................
Cost of construction and services .............................................
General, administrative, and other ............................................
Depreciation and amortization ..................................................
Total expenses
Operating income
Interest expense .........................................................................
Income tax benefit (expense) of taxable REIT subsidiary .......
Income from unconsolidated entities ........................................
Gain on sale of unconsolidated property ..................................
Non-cash gain from consolidation of subsidiary ......................
Other income, net ......................................................................
Income from continuing operations
Discontinued operations:
Discontinued operations............................................................
Non-cash loss on impairment of discontinued operation .........
(Loss) gain on sale of operating properties...............................
(Loss) income from discontinued operations
Consolidated net (loss) income
Net income attributable to noncontrolling interests
Net (loss) income attributable to Kite Realty Group Trust
(Loss) income per common share – basic:
Income from continuing operations attributable to Kite
$
Realty Group Trust common shareholders ......................... $
(Loss) income from discontinued operations attributable to
Kite Realty Group Trust common shareholders .................
Net (loss) income attributable to Kite Realty Group Trust common
shareholders
(Loss) income per common share - diluted:
$
Income from continuing operations attributable to Kite
Realty Group Trust common shareholders ......................... $
(Loss) income from discontinued operations attributable to
Kite Realty Group Trust common shareholders .................
Net (loss) income attributable to Kite Realty Group Trust common
18,188,710
12,068,903
17,192,267
5,711,623
32,148,318
85,309,821
29,982,282
(27,151,054)
22,293
226,041
—
1,634,876
224,927
4.939,365
(732,621)
(5,384,747)
—
(6,117,368)
(1,178,003)
(603,763)
(1,781,766)
0.07
(0.10)
(0.03)
0.07
(0.10)
$
$
$
$
71,313,482
17,729,788
13,916,680
39,103,151
142,063,101
16,388,515
11,864,552
33,788,008
5,879,702
34,892,975
102,813,752
39,249,349
(29,372,181 )
(1,927,830 )
842,425
1,233,338
—
157,955
10,183,056
330,482
—
(2,689,888 )
(2,359,406 )
7,823,650
(1,730,524 )
6,093,126
$
68,068,285
17,522,396
10,012,934
37,259,934
132,863,549
14,171,192
11,065,723
32,077,014
6,285,267
29,730,654
93,329,850
39,533,699
(25,965,141)
(761,628)
290,710
—
—
778,434
13,876,074
2,078,860
—
2,036,189
4,115,049
17,991,123
(4,468,440)
13,522,683
$
0.26
$
(0.06 )
0.20
$
0.26
$
(0.06 )
0.36
0.11
0.47
0.35
0.11
0.46
shareholders
$
(0.03)
$
0.20
$
Weighted average Common Shares outstanding – basic ................
52,146,454
30,328,408
28,908,274
Weighted average Common Shares outstanding – diluted .............
52,146,454
30,340,449
29,180,987
Dividends declared per Common Share ........................................... $
0.3325
$
0.8200
$
0.8000
Net (loss) income attributable to Kite Realty Group Trust
common shareholders:
Income from continuing operations
Discontinued operations
Net (loss) income attributable to Kite Realty Group Trust common
shareholders
Consolidated net (loss) income
Other comprehensive income (loss)
Comprehensive income
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income attributable to Kite Realty Group Trust
$
$
$
$
3,515,875
(5,297,641)
(1,781,766)
(1,178,003)
3,032,080
1,854,077
(1,699,095)
154,982
$
$
$
$
7,945,260
(1,852,134 )
6,093,126
7,823,650
(6,443,839 )
1,379,811
96,643
1,476,454
$
$
$
$
10,325,290
3,197,393
13,522,683
17,991,123
(3,420,022)
14,571,101
(4,468,440)
10,102,661
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
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
28,981,594 $
98,619
289,816 $ 241,084,719 $
(3,122,482) $
986
1,134,747
Balances, December 31, 2006..................
Stock compensation activity ....................
Controlled equity offering, net of costs ...
Other comprehensive loss attributable to
Kite Realty Group Trust.....................
Distributions declared ..............................
Net income attributable to Kite Realty
Group Trust ........................................
Exchange of redeemable noncontrolling
interest for common stock..................
Adjustment to redeemable
noncontrolling interests - Operating
Partnership..........................................
Balances, December 31, 2007..................
Stock compensation activity ....................
Proceeds of common share offering, net
of costs ...............................................
Proceeds from employee share purchase
plan .....................................................
Other comprehensive loss attributable to
Kite Realty Group Trust.....................
Distributions declared ..............................
Net income attributable to Kite Realty
Group Trust ........................................
Exchange of redeemable noncontrolling
interest for common stock..................
Adjustment to redeemable
noncontrolling interests - Operating
Partnership..........................................
Balances, December 31, 2008..................
Stock compensation activity ....................
Proceeds of common share offering, net
of costs ...............................................
Proceeds from employee share purchase
plan .....................................................
Other comprehensive income
attributable to Kite Realty Group
Trust ...................................................
Distributions declared ..............................
Net loss attributable to Kite Realty
Group Trust ........................................
Exchange of redeemable noncontrolling
interest for common stock..................
Adjustment to redeemable
noncontrolling interests - Operating
Partnership..........................................
Balances, December 31, 2009..................
28,842,831 $
47,396
30,000
—
—
—
61,367
288,428 $ 213,515,076 $
474
300
—
—
—
614
799,564
465,746
—
—
—
960,393
—
—
25,343,940
4,810,000
48,100
48,257,025
5,197
—
—
—
52
—
—
—
29,956
—
—
—
285,769
2,858
632,140
—
—
52,493,008
28,750,000
287,500
87,199,059
15,939
—
—
—
159
—
—
—
51,012
—
—
—
73,981
740
1,124,247
—
—
16,991,880
297,540 $
—
—
(21,831,543 ) $ 192,269,501
800,038
466,046
—
—
(3,420,022)
—
—
(23,133,296 )
(3,420,022)
(23,133,296)
—
—
—
—
—
—
(4,616,672)
—
—
—
—
—
—
—
—
—
—
13,522,683
13,522,683
—
961,007
—
25,343,940
(31,442,156 ) $ 206,809,897
1,135,733
—
—
—
48,305,125
30,008
(25,927,029 )
(4,616,672)
(25,927,029)
6,093,126
6,093,126
—
634,998
—
52,493,008
(51,276,059 ) $ 284,958,194
866,007
—
—
—
87,486,559
51,171
(1,781,766 )
(1,781,766)
—
1,124,987
—
16,991,880
(69,613,763 ) $ 375,077,842
1,936,748
—
—
(16,555,938 )
1,936,748
(16,555,938)
34,181,179 $
40,984
341,812 $ 343,631,595 $
(7,739,154) $
410
865,597
63,062,083 $
630,621 $ 449,863,390 $
(5,802,406) $
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:
Consolidated net (loss) income ............................................................................ $
Adjustments to reconcile consolidated net income to net cash provided by
operating activities:
Non-cash loss on impairment of real estate asset
Non-cash gain from consolidation of subsidiary
Net loss (gain) on sale of operating property .............................................
Gain on sale of unconsolidated property....................................................
Income from unconsolidated entities .........................................................
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 ...............................
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...............................................................
Note receivable from joint venture partner
Contributions to unconsolidated entities....................................................
Cash from consolidation of subsidiary
Distributions of capital from unconsolidated entities ................................
Net cash used in investing activities....................................................................
Cash flow from financing activities:
Equity issuance proceeds, net of costs .......................................................
Loan proceeds.............................................................................................
Loan transaction costs ................................................................................
Loan payments............................................................................................
Purchase of noncontrolling interest............................................................
Distributions paid – common shareholders................................................
Distributions paid – redeemable noncontrolling interests .........................
Distributions to noncontrolling interests....................................................
Proceeds from exercise of stock options....................................................
Net cash provided by financing activities...........................................................
Increase (decrease) in cash and cash equivalents..............................................
Cash and cash equivalents, beginning of year ...................................................
Cash and cash equivalents, end of year..............................................................$
Year Ended December 31,
2009
2008
2007
(1,178,003) $
7,823,650 $
17,991,123
5,384,747
(1,634,876)
—
—
(226,041)
(1,591,209)
34,003,017
2,104,841
526,795
(430,858)
(3,120,359)
145,701
(566,121)
(2,309,437)
(10,116,910)
20,991,287
(36,806,704)
—
(5,036,410)
—
(1,375,298)
(12,044,052)
247,969
167,361
(54,847,134)
87,537,730
93,536,599
(981,163)
(112,472,694)
—
(19,746,716)
(3,877,243)
(100,165)
—
43,896,348
10,040,501
9,917,875
19,958,376 $
—
—
2,689,888
(1,233,338 )
(842,425 )
(1,040,456 )
37,256,010
1,212,604
803,687
(430,858 )
(2,769,256 )
428,910
—
—
(2,036,189)
—
(290,710)
(1,943,137)
32,886,267
319,360
569,022
(430,858)
(4,736,840)
331,732
(1,217,894 )
(6,095,991 )
(360,823)
(1,772,879)
4,477,867
41,062,398
(2,403,868)
38,122,200
(117,851,086 )
19,659,695
579,721
729,167
—
(818,472 )
—
2,012,430
(95,688,545 )
(105,417,442)
2,609,777
2,274,195
3,739,320
—
—
—
106,728
(96,687,422)
48,335,133
249,453,785
(1,882,360 )
(218,194,446 )
—
(24,859,003 )
(6,817,069 )
(494,286 )
—
45,541,754
(9,084,393 )
19,002,268
9,917,875 $
465,746
238,899,989
(1,278,917)
(154,507,969)
(55,803)
(22,822,984)
(6,635,296)
(470,479)
20,609
53,614,896
(4,950,326)
23,952,594
19,002,268
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, 2009
Note 1. 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. The Company began operations in 2004 when it completed its initial public offering of common shares and
concurrently consummated certain other formation transactions.
The Company, through Kite Realty Group, L.P. (“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, 2009, the Company owned interests in 55 operating properties (consisting of 51 retail properties,
three commercial operating properties and an associated parking garage) and seven properties under development or
redevelopment. The Company also owned parcels in a “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, 2009, this shadow pipeline consisted
of six projects that are expected to contain approximately 2.8 million square feet of total gross leasable area (including non-
owned anchor space) upon completion. Finally, as of December 31, 2009, the Company also owned interests in other land
parcels comprising approximately 95 acres that we expect to be used for future expansion of existing properties,
development of new retail or commercial properties or sold to third parties. These land parcels are classified as “Land held
for development” in the accompanying consolidated balance sheets.
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), eight properties under development or
redevelopment and 105 acres of land held for development.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
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.
On July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“Codification” or “ASC”). The Codification is now the single source of authoritative nongovernmental
GAAP. It does not change current GAAP, but is intended to simplify user access to all authoritative GAAP by providing
all the authoritative literature related to a particular topic in one place. All existing accounting standard documents were
superseded and all other accounting literature not included in the Codification is now considered non-authoritative. The
Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009.
Accordingly, the Company has updated all references to authoritative GAAP to coincide with the appropriate section of the
Codification.
Consolidation and Investments in Joint Ventures
The accompanying financial statements of the Company are presented on a consolidated basis and include all
accounts of the Company, the Operating Partnership, the taxable REIT subsidiary of the Operating Partnership, subsidiaries
of the Company or the Operating Partnership that are controlled and any variable interest entities (“VIEs”) in which the
Company is the primary beneficiary. In general, a 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. The Company consolidates properties that are
F-6
wholly owned as well as properties it controls but in which it owns less than a 100% interest. Control of a property is
demonstrated by:
•
•
•
•
the Company’s ability to manage day-to-day operations of the property;
the Company’s 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 the Company as manager of the property; or
being the primary beneficiary of a VIE, as defined in Topic 810 – “Consolidation” in the ASC.
The Company considers all relationships between itself and the VIE, including management agreements and other
contractual arrangements, in determining the party obligated to absorb the majority of expected losses. The Company also
continuously reassesses primary beneficiary status. Other than with regard to The Centre, as described below, there were
no changes during the years ended December 31, 2009, 2008 or 2007 to the Company’s conclusions regarding whether an
entity qualifies as a VIE or whether the Company is the primary beneficiary of any previously identified VIE.
The Centre
The third-party loan secured by The Centre, a previously unconsolidated operating property in which we own a 60%
interest, matured on August 1, 2009. In July 2009, in order to pay off this loan, the Company made a capital contribution of
$2.1 million and simultaneously extended a loan of $1.4 million to the partnership bearing interest at 12% for 30 days and
15% thereafter, which is due within 30 days upon demand, but in no event before January 31, 2010. The Company’s
extension of a loan to the partnership caused the Company to reevaluate whether The Centre qualifies as a VIE and whether
the Company is its primary beneficiary. The analysis concluded that The Centre now qualifies as a VIE and the Company
is its primary beneficiary. As a result, the financial statements of The Centre were consolidated as of September 30, 2009,
the assets and liabilities were recorded at fair value, and a non-cash gain of $1.6 million was recorded, of which the
Company’s share was approximately $1.0 million. A market participant income approach was utilized to estimate the fair
value of the investment property, related intangibles, and noncontrolling interest. The income approach required the
Company to make assumptions about market leasing rates, discount rates, noncontrolling interest and disposal values using
Level 2 and Level 3 inputs. The consolidation of the Centre is reflected as a non-cash item in the 2009 statement of cash
flows.
As of December 31, 2009, the Company had investments in seven joint ventures that are VIEs in which the Company
is the primary beneficiary. As of this date, these VIEs had total debt of approximately $99.5 million which is secured by
assets of the VIEs totaling approximately $183.0 million. The Operating Partnership guarantees the debt of these VIEs.
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.
Purchase Accounting
In accordance with Topic 805—“Business Combinations” in the ASC, the Company measures identifiable assets
acquired, liabilities assumed, and any non-controlling interests in an acquiree at fair value on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. In making estimates of fair values for the purpose
of allocating purchase price, a number of sources are utilized, including information obtained as a result of pre-acquisition
due diligence, marketing and leasing activities.
A portion of the purchase price is allocated to tangible assets and intangibles, including:
•
•
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
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
F-7
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
•
the value of leases acquired. The Company utilizes independent sources for its 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.
Due to the January 1, 2009 adoption of new accounting guidance regarding business combinations, the costs of an
acquisition are expensed in the period incurred.
Investment Properties
Capitalization and Depreciation
Investment properties are recorded at cost and include costs of acquisitions, development, pre-development,
construction, 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 or other project. These pre-development costs are included in construction in progress 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, it is transferred to construction in progress.
The Company also capitalizes costs such as construction, interest, real estate taxes, and salaries and related costs of
personnel directly involved with the development of our properties. As portions of the development property become
operational, the Company expenses appropriate costs on a pro rata basis.
Depreciation on buildings and improvements is provided utilizing the straight-line method over 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.
Impairment
Management reviews investment properties, land parcels and intangible assets within the real estate operation and
development segment for impairment on at least a quarterly basis or whenever events or changes in circumstances indicate
that the carrying value of investment properties may not be recoverable. The review for possible impairment requires
management to make certain assumptions and estimates and requires significant judgment. Impairment losses for
investment properties are measured 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
recorded as the excess of the carrying value over the estimated fair value of the asset.
F-8
In the third quarter of 2009, as part of its regular quarterly review, the Company determined that it was appropriate to
write off the net book value on the Galleria Plaza operating property in Dallas, Texas and recognize a non-cash impairment
charge of $5.4 million. The Company’s estimated future cash flows were anticipated to be insufficient to recover the
carrying value of the building and improvements due to significant ground lease obligations and expected future required
capital expenditures. A market participant income approach was utilized to estimate the fair value of the investment
property improvements and related intangibles. The income approach required us to make assumptions about market
leasing rates, discount rates, and disposal values using Level 2 and Level 3 inputs. The Company determined that there was
no value to the improvements and related intangibles. The Company leased the ground on which the property is situated
and in December 2009, the Company conveyed the title to Galleria Plaza to the ground lessor. Since the Company
conveyed title to the property during the fourth quarter, the non-cash impairment loss and the operating results related to
this property were reclassified to discontinued operations for each of the fiscal years presented herein. There was no
mortgage on the property. Management does not believe any other investment properties are impaired as of December 31,
2009.
In connection with the Company’s standard practice of regular evaluation of development-related assets for potential
abandonment, approximately $0.1 million and $0.5 million was written off in 2008 and 2007, respectively ($0.1 million and
$0.3 million after tax). There were no amounts written off in 2009.
Held for Sale and Discontinued Operations
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 period during which the asset is held-for-sale. There were no assets classified as held for sale as of December
31, 2009 or 2008.
The Company’s properties generally have operations and cash flows that can be clearly distinguished from the rest of
the Company. The operations reported in discontinued operations include those operating properties that were sold,
disposed of 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.
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.
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. As of December 31, 2009, the majority of the Company’s cash and cash equivalents were held in
deposit accounts that are 100% insured by the federal government’s Temporary Liquidity Guarantee Program. From time
to time, such investments may temporarily be held in accounts that are not insured under this program and which are in
excess of FDIC and SIPC insurance limits; however the Company attempts to limit its exposure at any one time.
The Company maintains certain compensating balances in several financial institutions in support of borrowings from
those institutions. Such compensating balances were not material to the consolidated balance sheets.
Cash paid for interest, net of capitalized interest, and cash paid for taxes for the years ended December 31, 2009,
2008, and 2007 was as follows:
For the year ended December 31,
2008
2009
Cash Paid for Interest, net ........ $ 25,830,213 $ 28,439,879 $
Capitalized Interest................... $ 8,892,218 $ 10,061,770 $
2,601,000 $
Cash Paid for Taxes.................. $
110,225 $
2007
25,870,012
12,824,398
974,459
F-9
Accrued but unpaid distributions were $4.3 million and $8.7 million as of December 31, 2009 and 2008, 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, and other working capital balances approximate
fair value.
As discussed below under “Derivative Financial Instruments,” the Company accounts for its derivative financial
instruments at fair value calculated in accordance with Topic 820—“Fair Value Measurements and Disclosures” in the
ASC. 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. The fair
value hierarchy distinguishes between market participant assumptions based on market data obtained from sources
independent of the reporting entity (observable inputs for identical instruments that are classified within Level 1 and
observable inputs for similar instruments that are classified within Level 2) and the reporting entity’s own assumptions
about market participant assumptions (unobservable inputs classified within Level 3). As further discussed in Note 11, the
Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Derivative Financial Instruments
All derivative instruments are recorded on the consolidated balance sheets at fair value. Gains or losses resulting from
changes in the fair 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 instruments such as interest rate swaps or rate locks to
mitigate interest rate risk on related financial instruments.
Changes in the fair values of derivatives that qualify as cash flow hedges are recognized in other comprehensive
income (“OCI”) while any ineffective portion of a derivative’s change in fair value is 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.
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 consolidated 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 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. Net gains realized on such sales were $2.9 million, $10.0
million, and $6.9 million for the years ended December 31, 2009, 2008, and 2007, respectively, and are classified as other
property related revenue in the accompanying consolidated statements of operations.
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 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
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.
There were no proceeds from the sale of build-to-suit assets or associated construction costs for the year ended December
31, 2009. Proceeds from such sales were $10.6 million and $6.1 million for the years ended December 31, 2008 and 2007,
respectively, and the associated construction costs were $9.4 million and $4.1 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.
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................................................... $ 1,913,584 $
2009
808,024 $
2008
745,479 $
2,104,841
1,212,604
(999,281) (1,150,059 )
808,024 $
2007
561,282
319,360
(135,163)
745,479
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, 2009, approximately 46%, 16% and 14% 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, at our option, for either cash or common 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. Due to the Company’s net loss for the year ended December 31, 2009, the potentially
dilutive securities were not dilutive for this period. 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 year ended December 31, 2007,
outstanding share options also had a potentially dilutive effect. The dilutive effect of these securities was as follows:
F-11
Dilutive effect of outstanding share options to outstanding
common shares .................................................................
Dilutive effect of deferred share units to outstanding
common shares .................................................................
Total dilutive effect .....................................................
2009
Year Ended
December 31
2008
2007
—
—
—
—
267,183
12,041
12,041
5,530
272,713
For each of the years ended December 31, 2009 and 2008, 1.4 million of the Company’s outstanding common share
options were excluded from the computation of diluted earnings per share because their impact was not dilutive. An
immaterial number of shares were excluded for the year ended December 31, 2007.
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 redeemable noncontrolling 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.
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 and meets
certain other requirements on a recurring basis. 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. 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. Deferred tax assets are 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.
For the year ended December 31, 2009, there was an insignificant income tax benefit. Income tax provisions for the
years ended December 31, 2008 and 2007 were approximately $1.9 million and $0.8 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’s sale of land in the first quarter of 2008 as well as $0.5 million incurred in connection
with the taxable REIT subsidiary’s 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.
Noncontrolling Interests
Effective January 1, 2009, the Company adopted the provisions of Statement of Financial Accounting Standard
(“SFAS”) No. 160 “Non-controlling Interests in Consolidated Financial Statements,” which was primarily codified into
Topic 810—“Consolidation” in the ASC. The provision requires a noncontrolling interest in a subsidiary to be reported as
equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be identified in
the consolidated financial statements. As a result of the retrospective application of this provision, the Company
reclassified noncontrolling interest from the liability section to the equity section in its accompanying consolidated balance
sheets and as an allocation of net income rather than an expense in the accompanying consolidated statements of operations.
As a result of the reclassification, total equity at December 31, 2006 increased $4.3 million.
F-12
The noncontrolling interests in the properties for the years ended December 31, 2009, 2008, and 2007 were as
follows:
Noncontrolling interests balance January 1
Net income allocable to noncontrolling interests,
excluding redeemable noncontrolling interests
Distributions to noncontrolling interests
Recognition of noncontrolling interests upon
consolidation of subsidiary and other
Noncontrolling interests balance at December 31
2009
4,416,533 $
2008
4,731,211 $
2007
4,295,723
879,463
(100,165)
61,707
(398,899)
587,413
(151,925)
2,175,354
7,371,185 $
22,514
4,416,533 $
—
4,731,211
$
$
In addition, as part of the adoption of this provision, the Company applied the measurement provisions of EITF Topic
D-98 “Classification and Measurement of Redeemable Securities,” which was primarily codified into Topic 480 –
“Distinguishing Liabilities from Equity” in the ASC. In applying the measurement provisions, the Company did not
change the classification of redeemable noncontrolling interests in the Operating Partnership in the accompanying
consolidated balance sheets because the Company may be required to pay cash to unitholders upon redemption of their
interests in the limited partnership under certain circumstances. However, as noted above, noncontrolling interests,
including redeemable interests, are now classified as an allocation of net income rather than an expense in the
accompanying consolidated statements of operations.
The redeemable noncontrolling interests in the Operating Partnership for the years ended December 31, 2009, 2008,
and 2007 were as follows:
Redeemable noncontrolling interests balance January 1
Net (loss) income allocable to redeemable noncontrolling
interests
Accrued distributions to redeemable noncontrolling interests
Other comprehensive loss allocable to redeemable
noncontrolling interests 1
Exchange of redeemable noncontrolling interest for
common stock
Adjustment to redeemable noncontrolling interests -
Operating Partnership2
2009
2008
2007
$
67,276,904 $
127,325,047 $
156,456,691
(275,700)
1,668,817
3,881,027
(2,672,554)
(6,761,787)
(6,707,724)
1,095,332
(1,827,167)
—
(1,124,987)
(634,998)
(961,007)
(16,991,880)
(52,493,008)
(25,343,940)
Redeemable noncontrolling interests balance at December 31
$
47,307,115 $
67,276,904 $
127,325,047
____________________
1 Represents the noncontrolling interests’ share of the changes in the fair value of
derivative instruments accounted for as cash flow hedges (see Note 11).
2
Includes adjustments to reflect amounts at the greater of historical book value or
redemption value.
F-13
The following sets forth accumulated other comprehensive loss allocable to noncontrolling interests for the years
ended December 31, 2009, 2008, and 2007:
Accumulated comprehensive loss balance at
January 1
Other comprehensive income (loss) allocable to
noncontrolling interests 1
Accumulated comprehensive loss balance at
December 31
2009
2008
2007
$
(1,827,167) $
—
$
1,095,332
(1,827,167)
$
(731,835)
$ (1,827,167) $
—
—
—
____________________
1 Represents the noncontrolling interests’ share of the changes in the fair value of
derivative instruments accounted for as cash flow hedges (see Note 11).
The carrying amount of the redeemable noncontrolling interests in the Operating Partnership is required to be
reflected at the greater of historical book value or redemption value with a corresponding adjustment to additional paid in
capital. The application of this provision increased the carrying value of the redeemable noncontrolling interests by $52.8
million and $77.6 million as of December 31, 2007 and 2006, respectively, with corresponding decreases to additional paid
in capital in the accompanying consolidated balance sheets. As of December 31, 2009 and 2008, the historic book value of
the redeemable noncontrolling interests exceeded the redemption value, so no adjustment was necessary.
Although the presentation of certain of the Company’s noncontrolling interests in subsidiaries did change as a result
of the adoption of the provision, it did not have a material impact on the Company’s financial condition or results of
operations.
The Company allocates net operating results of the Operating Partnership based on the partners’ respective weighted
average ownership interest. The Company adjusts the redeemable noncontrolling 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 redeemable noncontrolling weighted average interests in the Operating
Partnership for the years ended December 31, 2009, 2008, and 2007 were as follows:
Company’s weighted average diluted interest in Operating Partnership .
Redeemable noncontrolling weighted average diluted interests in
Year Ended December 31,
2008
78.5 %
2009
86.6%
2007
77.7%
Operating Partnership .........................................................................
13.4%
21.5 %
22.3%
The Company’s and the redeemable noncontrolling ownership interests in the Operating Partnership at December 31,
2009 and 2008 were as follows:
Company’s interest in Operating Partnership .............................
Redeemable noncontrolling interests in Operating Partnership..
Note 3. Share-Based Compensation
Overview
Balance at December 31,
2008
2009
88.8%
11.2%
80.9 %
19.1 %
The Company's 2004 Equity Incentive Plan (the "Plan") authorized 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 Plan was
amended in May 2009 to authorize an additional 1,000,000 shares of the Company’s common stock for future issuance.
F-14
The Company accounts for its share-based compensation in accordance with the fair value recognition provisions provided
under Topic 718—“Stock Compensation” in the ASC.
The total share-based compensation expense, net of amounts capitalized, included in general and administrative
expenses for the years ended December 31, 2009, 2008, and 2007 was $0.5 million, $0.8 million, and $0.6 million,
respectively. Total share-based compensation cost capitalized for the years ended December 31, 2009, 2008, and 2007 was
$0.3 million, $0.3 million, and $0.3 million, respectively, related to development and leasing personnel.
As of December 31, 2009, there were 978,932 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 2009, 2008, and 2007:
Expected dividend yield..............
Expected term of option ..............
Risk-free interest rate ..................
Expected share price volatility ....
2009
10.00%
6 years
1.96%
55.51%
2008
5.00%
8 years
3.40%
21.74%
2007
4.00%
8 years
5.08%
15.56%
A summary of option activity under the Plan as of December 31, 2009, and changes during the year then ended, is
presented below:
Outstanding at January 1, 2009...............
Granted ...................................................
Forfeited .................................................
Outstanding at December 31, 2009.........
Exercisable at December 31, 2009 .........
Options
1,373,431
526,730
(223,901)
1,676,260
863,684
Weighted-Average
Exercise Price
$
$
$
13.05
3.06
11.96
10.06
13.08
The fair value on the respective grant dates of the 526,730, 523,173, and 43,750 options granted during the periods
ended December 31, 2009, 2008, and 2007 was $0.55, $1.43, and $2.74 per option, respectively.
The aggregate intrinsic value of the 4,958 options exercised during the year ended December 31, 2007 was $17,460.
No options were exercised during the years ended December 31, 2009 and 2008.
The weighted average remaining contractual term of the outstanding and exercisable options at December 31, 2009
were as follows:
Options
Outstanding at December 31, 2009.......... 1,676,260
Exercisable at December 31, 2009........... 863,684
Weighted-Average Remaining
Contractual Term (in years)
6.94
5.23
F-15
These options had no aggregate intrinsic value as of December 31, 2009 as the exercise price was greater than the
Company’s closing share price on December 31, 2009.
As of December 31, 2009, there was $0.8 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 2.1 years. We
expect to incur approximately $0.2 million of this expense in each of fiscal years 2010, 2011, 2012, and 2013.
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, 2009 and changes during the year then ended:
Restricted shares outstanding at January 1, 2009..........
Shares granted ...............................................................
Shares forfeited .............................................................
Shares vested.................................................................
Restricted shares outstanding at December 31, 2009 ....
Restricted
Shares
104,340
31,692
(1,676)
(42,788)
91,568
Weighted Average
Grant Date Fair
Value per share
14.22
$
2.84
14.44
14.77
10.02
$
During the years ended December 31, 2008 and 2007, the Company granted 99,126 and 41,618 restricted shares to
employees and non-employee members of the Board of Trustees with weighted average grant date fair values of $12.74 and
$20.21, respectively. The total fair value of shares vested during the years ended December 31, 2009, 2008, and 2007 was
$0.2 million, $0.5 million, and $0.3 million.
As of December 31, 2009, there was $0.5 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 1.0 years. We expect to
incur approximately $0.3 million of this expense 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.
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, 2009, 2008, and 2007, three trustees elected to receive at least a portion of their
compensation in deferred share units and an aggregate of 42,739, 11,270, and 4,611, 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 $3.42, $9.28, and $17.21, respectively. During each of the years ended December
31, 2009, 2008, and 2007, the Company incurred $0.1 million of compensation expense related to deferred share units
credited to non-employee trustees.
F-16
Other Equity Grants
During the years ended 2009, 2008, and 2007, the Company issued 10,968, 3,006, and 2,091 unrestricted common
shares, respectively, with weighted average grant date fair values of $3.42, $12.47, and $17.91 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, acquired lease intangible
assets, 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, lease intangibles and other are amortized on a straight-line basis over the terms of the related leases. At December
31, 2009 and 2008, deferred costs consisted of the following:
Deferred financing costs ..................................... $
Acquired lease intangible assets .........................
Deferred leasing costs and other .........................
Less—accumulated amortization ........................
Total .......................................................... $
2009
7,705,679
5,830,089
21,448,325
34,984,093
(13,475,023)
21,509,070
$
$
2008
9,993,480
6,393,240
18,548,324
34,935,044
(13,767,756)
21,167,288
The estimated aggregate amortization amounts from net unamortized acquired lease intangible assets for each of the
next five years and thereafter are as follows:
2010 .......................................................................................................................
2011 .......................................................................................................................
2012 .......................................................................................................................
2013 .......................................................................................................................
2014 .......................................................................................................................
Thereafter...............................................................................................................
Total .............................................................................................................
$
603,812
480,981
381,605
329,756
280,210
783,844
$ 2,860,208
The accompanying consolidated statements of operations include amortization expense as follows:
Amortization of deferred financing costs ....... $ 1,602,161
Amortization of deferred leasing costs, lease
2009
For the year ended December 31,
2008
$ 1,272,333
2007
$ 1,035,497
intangibles and other.................................. $ 4,108,855
$ 4,293,540
$ 3,044,341
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 unamortized fair value of in-place lease liabilities recorded in
connection with purchase accounting, construction billings in excess of costs, construction retainages payable, and tenant
rents received in advance. 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.
F-17
At December 31, 2009 and 2008, 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.................................
Total...................................................................
$
$
2009
12,690,211
2,561,073
2,018,288
2,565,866
19,835,438
2008
15,667,652
1,906,783
4,636,725
2,383,634
24,594,794
$
$
The estimated aggregate amortization of acquired lease intangibles (unamortized fair value of in-place lease liabilities)
for each of the next five years and thereafter is as follows:
2010 .......................................................................................................................
2011 .......................................................................................................................
2012 .......................................................................................................................
2013 .......................................................................................................................
2014 .......................................................................................................................
Thereafter...............................................................................................................
Total .............................................................................................................
$ 2,791,582
2,275,052
1,743,637
1,640,625
1,282,223
2,957,092
$ 12,690,211
Note 6. Investments in Unconsolidated Joint Ventures
The Company owns a 60% equity interest in an entity that owns and operates The Centre rental property. During the
first nine months of 2009, this entity was unconsolidated. The third-party loan secured by The Centre matured on August
1, 2009. In July 2009, in order to pay off this loan, the Company made a capital contribution of $2.1 million and
simultaneously extended a loan of $1.4 million to the partnership bearing interest at 12% for 30 days and 15% thereafter,
which is due within 30 days upon demand, but in no event before January 31, 2010. The Company’s extension of a loan to
the partnership caused the Company to reevaluate whether The Centre qualifies as a VIE and whether the Company is its
primary beneficiary. The analysis concluded that The Centre now qualifies as a VIE and the Company is its primary
beneficiary. As a result, the financial statements of The Centre were consolidated as of September 30, 2009, the assets and
liabilities were recorded at fair value, and a non-cash gain of $1.6 million was recorded, of which the Company’s share was
approximately $1.0 million. In the summarized financial information below, the 2009 income reflects the first nine months
of activity from The Centre.
During the fourth quarter of 2009, construction commenced on a limited service hotel at the Eddy Street Commons
development. The hotel is owned by an unconsolidated joint venture in which the Company holds a 50% interest, 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, 2009, 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
financial policies. Parkside Town Commons is owned through an agreement (the “Venture”) with Prudential Real Estate
Investors (“PREI”). The Venture was established to pursue joint venture opportunities for the development and selected
acquisition of community shopping centers in the United States. In 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 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. The Venture is in the process of developing this
land, along with the adjacent 100 acres purchased in 2006, into an approximately 1.5 million total square foot mixed-use
shopping center. As of December 31, 2009, 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
F-18
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:
December 31, 2009
December 31, 2008
$
—
—
62,204,124
62,204,124
—
62,204,124
540,264
—
600,000
243,236
$ 63,587,624
$ 35,836,186
980,677
38,816,863
26,770,761
$ 63,587,624
$ 25,729,647
$ 10,799,782
—
$ 10,799,782
$ 14,530,793
$ 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
$
1,586,770
$ 1,902,473
$ 24,132,729
Assets:
Investment properties at cost:
Land...............................................................................
Building and improvements ..........................................
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 ..............................................................
Total liabilities and Owners’ equity ..............................
Company share of total assets .......................................
Company share of Owners’ equity ................................
Add: Excess investment ................................................
Company investment in joint ventures ..........................
Company share of mortgage and other indebtedness ....
F-19
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 ....................................................
Other income ........................................................
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 ................................
Interest on intercompany indebtedness
Excess investment in sale of discontinued operations ...
Income from unconsolidated entities and gain on sale
Year ended December 31,
2008
2009
2007
691,739 $
256,426
20,916
969,081
965,498 $ 975,996
297,653
348,927
—
20,359
1,263,151
1,345,282
195,656
142,198
102,626
440,480
528,601
(179,177)
32,090
381,514
147,402
—
147,402
528,916
(226,306)
302,610
(96,047)
19,478
—
237,892
143,438
130,162
511,492
751,659
(261,044 )
255,678
194,088
140,932
590,698
754,584
(276,065)
490,615
478,519
1,352,237
3,544,524
4,896,761
5,387,376
(2,644,627 )
2,742,749
(128,042 )
—
(538,944 )
263,322
—
263,322
741,841
(323,069)
418,772
(128,062)
—
—
of unconsolidated property........................................ $
226,041 $ 2,075,763 $ 290,710
“Excess investment” represented 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 amortized 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 excess investment related to The Centre and was eliminated upon the September 30, 2009 consolidation of
this property. 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 is not recoverable, the Company
would record an adjustment to write off the unrecoverable amounts.
As of December 31, 2009, the Company’s share of unconsolidated joint venture indebtedness was $14.5 million,
$13.5 million of which was related to the Parkside Town Commons development. The remaining $1.0 million represents
the Company’s share of the $2.0 million drawn on the Eddy Street Commons limited service hotel construction loan. The
loan, obtained in the third quarter of 2009, has a total commitment of $10.9 million, bears interest at the greater of LIBOR
+ 315 basis points or 4.00% and matures in August 2014. 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, 2009, the Operating Partnership had
guaranteed unconsolidated joint venture debt of $13.5 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 the joint venture
could sell the property in order to satisfy the outstanding obligation.
F-20
Note 7. Significant Acquisition Activity
2009 Acquisitions
The Company made no significant acquisitions in 2009.
2008 Acquisitions
The Company made the following significant acquisitions in 2008:
•
•
•
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 the Shops at Rivers Edge, an 110,875 square foot shopping center
located in Indianapolis, Indiana, for $18.3 million, with the intent to redevelop. 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. The Company is in the process of redeveloping this
property (See Note 8).
2007 Acquisitions
The Company made the following significant land acquisitions in 2007:
•
•
•
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 was
completed in 2009 and consists of a 45,000 square foot single tenant building. The second phase of this
development is in the Company’s shadow pipeline and once Phase II is completed, the property is expected to
consist of approximately 263,000 square feet, including non-owned anchor space.
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, $0.1 million and $0.8 million for the years ended December 31, 2009, 2008 and 2007,
respectively. All master lease agreements had expired as of December 31, 2009; therefore, no further amounts will be
collectible by the Company.
F-21
Note 8. Development and Redevelopment Activities
2009 Development Activities
South Elgin Commons, Phase I
In the second quarter of 2009, the Company completed the development of South Elgin Commons, Phase I, a 45,000
square foot LA Fitness facility located in a suburb of Chicago, Illinois, and transitioned it into the operating portfolio. This
project had been added to the development pipeline in 2008.
Cobblestone Plaza
The Company has partially completed the construction of Cobblestone Plaza, a 138,000 square foot neighborhood
shopping center located in Ft. Lauderdale, Florida. This project is owned through a consolidated joint venture in which we
hold a 50% interest and was added to the development pipeline in 2006. As of December 31, 2009, this property was
73.9% leased or committed. The Company currently anticipates the total cost of this project (including the joint venture
partner’s share) will be approximately $52.0 million, of which $45.3 million had been incurred as of December 31, 2009.
Eddy Street Commons, Phase I
The Company has substantially completed the construction of the retail and office components of Eddy Street
Commons, Phase I, a 465,000 square foot center located in South Bend, Indiana that includes a 300,000 square foot non-
owned multi-family component. This project was added to the development pipeline in 2008. As of December 31, 2009,
Eddy Street Commons, Phase I was 72.4% leased or committed. The Company currently anticipates its total investment in
this project will be approximately $35.0 million, of which $27.5 million had been incurred as of December 31, 2009.
2009 Redevelopment Activities
Shops at Rivers Edge
The Company is in the process of redeveloping its Shops at Rivers Edge property in Indianapolis, Indiana. The
current anchor tenant’s lease at this property will expire on March 31, 2010. The tenant may continue to occupy the space
for a period of time while the Company markets the space to several potential anchor tenants. This property was moved to
the redevelopment pipeline in 2008. The Company currently anticipates its total investment in the redevelopment at the
Shops at Rivers Edge will be approximately $2.5 million, which may increase depending on the outcome of current
negotiations with potential anchor tenants.
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. In December 2009, a new
anchor executed a lease for approximately half of the anchor tenant space and is expected to take occupancy in the second
half of 2010. This property was moved to the redevelopment pipeline in 2008. The Company currently anticipates its total
investment in the redevelopment at Bolton Plaza will be approximately $5.7 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 and pylon signage and upgrade the landscaping and lighting. In 2009, an
anchor tenant purchased the lease of the former anchor tenant and made certain improvements to the space. This property
was moved to the redevelopment pipeline in 2008. The Company currently anticipates its total investment in the
redevelopment at Courthouse Shadows will be approximately $2.5 million.
F-22
Four Corner Square
The Company is currently redeveloping its Four Corner Square Shopping Center in Seattle, Washington. In addition
to the existing center, the Company also owns approximately ten acres of adjacent land in the shadow pipeline which is
expected to 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 2008. The Company currently
anticipates its total investment in the redevelopment at Four Corner Square will be approximately $0.5 million.
Coral Springs Plaza
The Company is currently redeveloping its Coral Springs Plaza Shopping Center in Boca Raton, Florida. In
December 2009, a new anchor tenant executed a lease to occupy the entire center, which was formerly anchored by Circuit
City. This new tenant is expected to open during the second half of 2010. This property was moved to the redevelopment
pipeline in the first quarter of 2009 following the bankruptcy of Circuit City. The Company currently anticipates its total
investment in the redevelopment at Coral Springs Plaza will be approximately $4.5 million.
Note 9. Discontinued Operations
In December 2009, the Company conveyed the title to its Galleria Plaza operating property in Dallas, Texas to the
ground lessor. The Company had determined during the third quarter of 2009 that there was no value to the improvements
and intangibles related to Galleria Plaza and recognized a non-cash impairment charge of $5.4 million to write off the net
book value of the property. Since the Company ceased operating this property during the fourth quarter of 2009, it was
appropriate to reclassify the non-cash impairment loss and the operating results related to this property were reclassified to
discontinued operations for each of the fiscal years presented.
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 of $2.7 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 loss on sale and operating results for
this property have been reflected as discontinued operations for each of the fiscal years presented.
In November 2007, the Company sold its 176th & Meridian property, located in Seattle, Washington, for net proceeds
of $7.0 million and a gain of $2.0 million. The gain on sale and operating results related to this property have been
reflected as discontinued operations for fiscal year 2007. 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 February 2008, did so when
it purchased the Shops at Rivers Edge (see Note 7).
The results of the discontinued operations related to these properties were comprised of the following for the years
ended December 31, 2009, 2008, and 2007:
F-23
Rental income................................................................... $
Expenses:
Property operations ..........................................................
Real estate taxes and other
Depreciation and amortization..........................................
Non-cash loss on impairment of discontinued operation
Total expenses...........................................................
Operating (loss) income....................................................
Interest expense and other income, net.............................
(Loss) income from discontinued operations....................
(Loss) gain on sale of operating property .........................
Total (loss) income from discontinued operations............ $
(Loss) income from discontinued operations
attributable to Kite Realty Group Trust common
shareholders.......................................................... $
(Loss) income from discontinued operations
Year ended December 31,
2009
554,934 $ 3,202,193
2008
2007
$ 6,338,222
802,500
193,639
256,172
5,384,747
6,637,058
(6,082,124)
(35,244)
(6,117,368)
1,185,704
595,374
1,090,702
—
2,871,780
330,413
69
330,482
(2,689,888 )
(6,117,368) $ (2,359,406 )
—
954,289
865,210
2,207,969
—
4,027,468
2,310,754
(231,894)
2,078,860
2,036,189
$ 4,115,049
(5,297,641) $ (1,852,134 )
$ 3,197,393
attributable to noncontrolling interests .................
Total (loss) income from discontinued operations .... $
(819,727)
(507,272 )
(6,117,368) $ (2,359,406 )
917,656
$ 4,115,049
Note 10. Mortgage Loans and Other Indebtedness
Mortgage and other indebtedness consist of the following at December 31, 2009 and 2008:
Description
Unsecured Revolving Credit Facility1
Matures February 2011; maximum borrowing level of $150.2 million and $184.2 million
available at December 31, 2009 and 2008, respectively; interest at LIBOR + 1.25%
(1.48%) at December 31, 2009 and interest at LIBOR + 1.35% (1.79%) at December
31, 2008 ........................................................................................................................... $ 77,800,000
Unsecured Term Loan2
Matures July 2011 and bears interest at LIBOR+2.65% at both December 31, 2009 and
$105,000,000
Balance at December 31,
2008
2009
2008 (2.88% and 3.09%, respectively) ...........................................................................
55,000,000
55,000,000
Notes Payable Secured by Properties under Construction—Variable Rate
Generally due in monthly installments of interest; maturing at various dates through
2013; interest at LIBOR+1.85%-3.00%, ranging from 2.13% to 5.00%3 at December
31, 2009 and interest at LIBOR+1.25%-2.75%, ranging from 1.69% to 5.00%3 at
December 31, 2008..........................................................................................................
Mortgage Notes Payable—Fixed Rate
Generally due in monthly installments of principal and interest; maturing at various dates
through 2022; interest rates ranging from 5.16% to 7.65% at December 31, 2009 and
interest rates ranging from 5.11% to 7.65% at December 31, 2008 ................................
77,143,865
66,458,435
300,893,193
331,198,521
Mortgage Notes Payable—Variable Rate
Due in monthly installments of principal and interest; maturing at various dates through
2017; interest at LIBOR + 1.25%-3.50%, ranging from 1.48% to 3.73% at December
31, 2009 and interest at LIBOR + 1.25%-2.75%, ranging from 1.69% to 3.19% at
December 31, 2008..........................................................................................................
Net premium on acquired indebtedness................................................................................
146,479,685
977,770
Total mortgage and other indebtedness ...................................................................... $ 658,294,513
118,595,882
1,408,628
$677,661,466
F-24
____________________
1
The Company entered into two certain cash flow hedge agreements that fix interest on portions of its unsecured
revolving credit facility. The weighted average interest rate on the unsecured revolving credit facility, including the
effect of the hedge agreements, was 6.10% and 5.06% at December 31, 2009 and 2008, respectively. The unsecured
revolving credit facility has a one-year extension option to February 2012 if the Company is in compliance with the
covenants under the related agreement.
2
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%.
3
The Bridgewater Marketplace construction loan has a LIBOR floor of 3.15%.
One month LIBOR was 0.23 % and 0.44% as of December 31, 2009 and 2008, respectively.
For the year ended December 31, 2009, the Company had loan borrowing proceeds of $93.5 million and loan
repayments of $112.5 million. The major components of this activity are as follows:
• Draws of approximately $18.8 million were made on the variable rate construction loan at the Eddy Street
Commons development project;
• The $11.8 million fixed rate mortgage loan on the Boulevard Crossing operating property was retired prior to its
December 2009 maturity using available cash;
• The $15.8 million fixed rate mortgage loan on the Ridge Plaza operating property was refinanced with a permanent
loan in the same amount. The new variable rate loan matures in January 2017 and bears interest at LIBOR + 325
basis points, which the Company simultaneously hedged to fix the interest rate at 6.56% for the full term of the
loan;
• The maturity date of the variable rate loan on the Tarpon Springs operating property was extended to January 2013.
The loan now bears interest at LIBOR + 325 basis points, and the Company funded a $3.7 million paydown with
cash;
• The maturity date of the variable rate loan on the Estero Town Commons operating property was extended to
January 2013. The loan now bears interest at LIBOR + 325 basis points, and the Company funded a $3.4 million
paydown with cash;
• The $8.2 million loan on the Bridgewater Crossing operating property was refinanced with a variable rate loan
bearing interest at LIBOR + 185 basis points and maturing in June 2013. The Company funded a $1.2 million
paydown with cash.
• The maturity date of the construction loan on the Cobblestone Plaza development property was extended to March
2010. The Company funded a $7.0 million paydown with cash;
• The $4.1 million loan on the Fishers Station operating property was refinanced with a loan bearing interest at
LIBOR + 350 basis points and maturing in June 2011;
• Permanent financing of $15.4 million was placed on the Eastgate Pavilion operating property, a previously
unencumbered property. This variable rate loan bears interest at LIBOR + 295 basis points and matures in April
2012;
• The maturity date of the Delray Marketplace construction loan was extended to June 2011;
• The maturity date of the variable rate loan on the Beacon Hill operating property was extended to March 2014. The
Company funded the $3.5 million paydown made in conjunction with the extension utilizing its unsecured revolving
credit facility;
• Approximately $57 million was paid down on the unsecured revolving credit facility using proceeds from the
Company’s May 2009 common share offering;
• In addition to the preceding activity, during the year ended December 31, 2009, the Company used proceeds from
its unsecured revolving credit facility and other borrowings (exclusive of repayments) totaling approximately $30
million for development, redevelopment, and general working capital purposes; and
• The Company made scheduled principal payments totaling approximately $4.0 million.
F-25
Unsecured Revolving Credit Facility
In 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 to February 20, 2012 (subject to certain customary conditions). Borrowings under the unsecured facility
bear interest at a floating interest rate of LIBOR + 115 to 135 basis points, depending on the Company’s leverage ratio.
The unsecured facility has a commitment fee ranging from 0.125% to 0.20% 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 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. As of December 31, 2009, the Company has 51 unencumbered properties and other assets
used to calculate the value of the unencumbered property pool, of which 48 are wholly owned and three of which are
owned through joint ventures. The major unencumbered assets include: Boulevard Crossing, Broadstone Station, Coral
Springs Plaza, Courthouse Shadows, Four Corner Square, Hamilton Crossing Centre, 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 Village. As of December 31, 2009, the total
amount available for borrowing under the unsecured credit facility was approximately $67.3 million.
The Company’s 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 that the Company satisfy certain financial covenants, including:
•
a maximum leverage ratio of 65% (or up to 70% in certain circumstances);
• Adjusted EBITDA (as defined in the unsecured facility) to fixed charges coverage ratio of at least 1.50 to 1;
• minimum tangible net worth (defined as Total Asset Value less Total Indebtedness) of $300 million (plus
75% of the net proceeds of any equity issuances from the date of the agreement);
•
ratio of net operating income of unencumbered property to debt service under the unsecured facility of at
least 1.50 to 1;
• minimum unencumbered property pool occupancy rate of 80%;
•
•
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,
2009.
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.
Unsecured Term Loan
In 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 Term Loan matures on July 15,
2011 and bears interest at LIBOR + 265 basis points. A significant portion of the initial $30 million of proceeds from the
Term Loan was used to pay down the Company’s unsecured credit facility. In August 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
F-26
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 the Company’s unsecured facility. In connection with obtaining the Term
Loan, in September 2008, the Company entered into a cash flow hedge for the entire $55 million outstanding, which
effectively fixed the interest rate at 5.92%.
The Company’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 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,
2009.
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.
As of February 17, 2010, the Company had refinanced or extended the maturity dates of all of its 2010 debt
maturities. See Note 21. The following table presents maturities of mortgage debt, corporate debt, and construction loans
as of December 31, 2009 and also presents maturities (excluding regular principal payments) after consideration of early
2010 refinancing actions:
Annual
Maturities
$
(3,144,733)
Subsequent
Activity
(56,856,671)
$
(3,124,697)
(3,549,537)
(3,556,861)
(3,262,898)
(7,765,780)
(24,404,506)
$
56,856,671
$
-
Amounts Due
at Maturity
After 2010
Maturity Date
Extensions
$
-
249,747,214
50,565,066
92,384,162
31,539,567
208,676,228
632,912,237
$
Balances
As of
December 31,
2009
60,001,404
$
252,871,911
54,114,603
39,084,352
34,802,465
216,442,008
657,316,743
977,770
658,294,513
$
$
2010
2011 1
2012
2013
2014
Thereafter
Unamortized Premiums
Total
____________________
1
The Company’s unsecured revolving credit facility, of which $77.8 million was outstanding as of
December 31, 2009, matures in February 2011. A one-year extension option to February 2012 is
available if the Company remains in compliance with the facility’s restrictive covenants.
Fair Value of Fixed and Variable Rate Debt
As of December 31, 2009, the fair value of fixed rate debt was approximately $304.3 million compared to the book
value of $300.9 million. The fair value was estimated using cash flows discounted at current borrowing rates for similar
instruments which ranged from 3.96% to 6.51%. As of December 31, 2009, the $356.4 million book value of variable rate
debt approximates its fair value. The fair value was estimated using cash flows discounted at current borrowing rates for
similar instruments which ranged from 3.23% to 6.56%.
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%.
F-27
Note 11. Derivative Instruments, Hedging Activities and Other Comprehensive Income
The Company is exposed to capital market risk, including changes in interest rates. In order to manage volatility
relating to variable 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. The Company has agreements with each of its derivative counterparties that
contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the
indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative
obligations. As of December 31, 2009, the Company was party to various consolidated cash flow hedge agreements
totaling $220 million, which effectively fix certain variable rate debt at interest rates ranging from 4.40% to 6.56% and
mature over various terms through 2017.
These interest rate hedge agreements are the only assets or liabilities that the Company records at fair value on a
recurring basis. The valuation is determined using widely accepted techniques including discounted cash flow analysis,
which considers the contractual terms of the derivatives (including the period to maturity) and uses observable market-
based inputs such as interest rate curves and implied volatilities. The Company also incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance
risk in the fair value measurements.
As a basis for considering market participant assumptions in fair value measurements, FASB guidance 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 for identical instruments that are classified within Level 1 and
observable inputs for similar instruments that are classified within Level 2) and the reporting entity’s own assumptions
about market participant assumptions (unobservable inputs classified within Level 3). 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.
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, 2009 and 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 the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations
are classified in Level 2 of the fair value hierarchy.
The fair value of the Company’s interest rate hedge liabilities as of December 31, 2009 was approximately $7.0
million, including accrued interest of approximately $0.5 million, and is recorded in accounts payable and accrued expenses
on the accompanying consolidated balance sheet.
As of December 31, 2008, the Company had approximately $197.9 million of consolidated interest rate swaps
outstanding. In addition, as of December 31, 2008 the Parkside Town Commons unconsolidated joint venture was party to
a cash flow hedge agreement on $42.0 million of debt, of which the Company’s share was $16.8 million. In total, the fair
value of these interest rate hedge liabilities as of December 31, 2008 was approximately $10.0 million, including accrued
interest of approximately $0.4 million which is included in accounts payable and accrued expenses in the accompanying
consolidated balance sheets.
The Company currently expects an increase to interest expense of approximately $6.4 million as the hedged
forecasted interest payments occur. No hedge ineffectiveness on cash flow hedges was recognized by the Company 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 2010. During the years ended
December 31, 2009 and 2008, approximately $6.4 million and $2.3 million, respectively, was reclassified as a reduction to
earnings. During the year ended December 31, 2007, $0.5 million was reclassified as an increase to earnings.
The Company’s share of net unrealized gains (losses) on its interest rate hedge agreements are the only components
of its accumulated comprehensive income (loss). The following sets forth comprehensive income allocable to the
Company for the years ended December 31, 2009, 2008, and 2007:
F-28
Year ended December 31,
2009
2008
2007
Net (loss) income attributable to Kite Realty
Group Trust...................................................... $ (1,781,766) $ 6,093,126 $ 13,522,683
Other comprehensive income (loss) allocable to
Kite Realty Group Trust1 .................................
Comprehensive income attributable to Kite
1,936,748
(4,616,672 )
(3,420,022)
Realty Group Trust .......................................... $
154,982 $ 1,476,454 $ 10,102,661
____________________
1
Reflects the Company’s share of the net change in the fair value of derivative instruments
accounted for as cash flow hedges.
Note 12. 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, 2009, 2008, and 2007, the
Company earned percentage rent of $0.3 million, $0.4 million, and $1.1 million, respectively, including the Company’s
joint venture partners’ share of $20,580 for the year ended December 31, 2007. During the year ended December 31, 2007,
the Company earned percentage rent of $0.4 million related to the Union Station parking garage lease that was changed to a
management agreement in 2008.
As of December 31, 2009, future minimum rentals to be received under non-cancelable operating leases for each of
the next five years and thereafter, excluding tenant reimbursements of operating expenses and percentage rent based on
sales volume, are as follows:
2010 ...................................................................................................................$ 68,190,321
2011 ................................................................................................................... 64,485,480
2012 ................................................................................................................... 57,862,929
2013 ................................................................................................................... 51,295,251
2014 ................................................................................................................... 45,437,005
Thereafter........................................................................................................... 210,281,543
Total .........................................................................................................$ 497,552,529
Lease Commitments
As of December 31, 2009, the Company was obligated under six ground leases for approximately 35 acres of land
with three 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.
During 2009, the Company was also obligated under a ground lease for its Galleria Plaza operating property in Dallas,
Texas. The lease had been for 4.1 acres of land, required fixed annual rent of $594,000, and was scheduled to expire in
2027. As previously discussed, during the third quarter of 2009, the Company determined that the property’s estimated
future cash flows would be insufficient to recover the carrying value of the building and improvements due to the
significant ground lease obligations and expected future required capital expenditures. The Company thus recognized a
non-cash impairment charge of $5.4 million to write off the property’s net book value. In December 2009, the Company
conveyed the title to Galleria Plaza to the ground lessor. In connection with the transfer, the Company was released from
the original ground lease and holds no future obligations related to this property.
Ground lease expense incurred by the Company on these operating leases (including Galleria Plaza) for the years
ended December 31, 2009, 2008, and 2007 was $1.1 million, $1.0 million, and $0.9 million, respectively. Of these
F-29
amounts, for each of the years ended December 31, 2009 and 2008, approximately $0.1 million was capitalized as a project
cost of the Company’s Eddy Street Commons development, as discussed below.
As further discussed in Note 16, the Company is currently developing Eddy Street Commons at the University of
Notre Dame. Beginning in June 2008, in accordance with the operating agreement in place, the Company began making
ground lease payments to the University of Notre Dame for the land beneath the initial phase of the development. This
lease agreement is for a 75-year term at a fixed rate for the first two years, after which payments are based on a percentage
of certain revenues. The table below reflects the fixed term of this ground lease in fiscal year 2010. Contingent amounts
are not reflected in the table below for fiscal years 2011 and beyond.
Future minimum lease payments due under such leases for the next five years ending December 31 and thereafter are
as follows:
2010....................................................................................................................$
2011....................................................................................................................
2012....................................................................................................................
2013....................................................................................................................
2014....................................................................................................................
Thereafter ...........................................................................................................
389,300
326,800
326,800
212,500
220,000
715,000
Total..........................................................................................................$ 2,190,400
Note 13. Shareholders’ Equity and Redeemable Noncontrolling Interests
Common Equity
In May 2009, the Company completed an equity offering of 28,750,000 common shares at an offering price of $3.20
per share for aggregate gross and net proceeds of $92.0 million and $87.5 million, respectively. Approximately $57 million
of the net proceeds were used to repay borrowings under the Company’s unsecured revolving credit facility and the
remainder was retained as cash.
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.
Dividend Reinvestment and Share Purchase Plan
The Company maintains a Dividend Reinvestment and Share Purchase Plan (the “Dividend Reinvestment Plan”)
which 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. In addition, the direct
share purchase component permits Dividend Reinvestment Plan participants and new investors to purchase common shares
by making optional cash investments with certain restrictions.
Equity Distribution Agreement
In December 2009 the Company entered into an Equity Distribution Agreement pursuant to which it may sell, from
time to time, up to an aggregate amount of $25 million of its common shares. To date, the Company has not utilized this
program.
F-30
Redeemable Noncontrolling 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, 2009, 2008, and 2007,
respectively, 73,981, 285,769, and 61,367 Operating Partnership units were exchanged for the same number of common
shares. For the year ended December 31, 2007, 3,000 Operating Partnership units were redeemed for cash.
Note 14. 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, 2009, 2008, and 2007 are presented below. The results for the years
ended December 31, 2008 and 2007 have been reclassified to reflect the presentation of discontinued operations as
described in Note 9.
Year Ended December 31, 2009
Revenues
Operating expenses, cost of construction and
services, general, administrative and other
Depreciation and amortization
Operating income (loss)
Interest expense
Income tax benefit of taxable REIT subsidiary
Income from unconsolidated entities
Non-cash gain from consolidation of subsidiary
Other income, net
Income (loss) from continuing operations
Discontinued operations:
Discontinued operations
Non-cash loss on impairment of discontinued
operation
Loss from discontinued operations
Consolidated net income (loss)
Less: Net income attributable to
noncontrolling interests
Net loss attributable to Kite Realty
Group Trust
Total assets at December 31, 2009
Real Estate
Operation
Development,
Construction and
Advisory Services
Subtotal
Intersegment
Eliminations
Total
$
97,061,070
$
42,759,584
$
139,820,654
$
(24,528,551)
$
115,292,103
33,787,084
31,971,118
31,302,868
(27,506,702)
-
206,564
1,634,876
750,098
43,683,182
177,200
(1,100,798)
(150,046)
22,293
-
-
-
77,470,266
32,148,318
30,202,070
(27,656,748)
22,293
206,564
1,634,876
750,098
(24,308,763)
-
(219,788)
505,694
-
19,477
-
(525,171)
53,161,503
32,148,318
29,982,282
(27,151,054)
22,293
226,041
1,634,876
224,927
6,387,704
(1,228,551)
5,159,153
(219,788)
4,939,365
(732,621)
-
(732,621)
-
(732,621)
(5,384,747)
(6,117,368)
270,336
-
-
(1,228,551)
(5,384,747)
(6,117,368)
(958,215)
-
-
(219,788)
(5,384,747)
(6,117,368)
(1,178,003)
(797,841)
(527,505)
1,138,963,146
$
$
164,626
(633,215)
29,452
(603,763)
$
$
(1,063,925)
23,925,090
$
$
(1,591,430)
1,162,888,236
$
$
(190,336)
(22,202,792)
$
$
(1,781,766)
1,140,685,444
F-31
Year Ended December 31, 2008
Revenues
Operating expenses, cost of construction and
services, general, administrative and other
Depreciation and amortization
Operating income (loss)
Interest expense
Income tax expense of taxable REIT subsidiary
Income from unconsolidated entities
Gain on sale of unconsolidated property
Other income, net
Income from continuing operations
Discontinued operations:
Discontinued operations
Loss on sale of operating property
Loss from discontinued operations
Consolidated net income
Less: Net income attributable to
noncontrolling interests
Net income attributable to Kite Realty
Group Trust
Total assets at December 31, 2008
Real Estate
Operation
Development,
Construction
and Advisory
Services1
Subtotal
Intersegment
Eliminations
Total
$
101,152,298
$
89,973,444
$
191,125,742
$
(49,062,641)
$
142,063,101
31,186,332
34,770,426
35,195,540
(29,721,587)
-
842,425
1,233,338
862,828
8,412,544
330,482
(2,689,888)
(2,359,406)
6,053,138
85,172,529
122,549
4,678,366
(355,467)
(1,927,830)
-
-
-
2,395,069
-
-
-
2,395,069
116,358,861
34,892,975
39,873,906
(30,077,054)
(1,927,830)
842,425
1,233,338
862,828
10,807,613
330,482
(2,689,888)
(2,359,406)
8,448,207
(48,438,084)
-
(624,557)
704,873
-
-
-
(704,873)
(624,557)
-
-
-
(624,557)
67,920,777
34,892,975
39,249,349
(29,372,181)
(1,927,830)
842,425
1,233,338
157,955
10,183,056
330,482
(2,689,888)
(2,359,406)
7,823,650
(1,453,898)
(374,074)
(1,827,972)
97,448
(1,730,524)
$
$
4,599,240
1,097,996,338
$
$
2,020,995
51,344,334
$
$
6,620,235
1,149,340,672
$
$
(527,109)
(37,288,766)
$
$
6,093,126
1,112,051,906
____________________
1
This segment includes revenue and expense resulting in a net pre-tax gain of $3.0 million from the sale of land within
the Company’s taxable REIT subsidiary. Income tax expense related to this sale was approximately $1.1 million.
Year Ended December 31, 2008
Year Ended December 31, 2007
Revenues
Revenues
Operating expenses, cost of construction and
Operating expenses, cost of construction and
services, general, administrative and other
services, general, administrative and other
Depreciation and amortization
Depreciation and amortization
Operating income (loss)
Operating income (loss)
Interest expense
Interest expense
Income tax expense of taxable REIT subsidiary
Income tax expense of taxable REIT subsidiary
Income from unconsolidated entities
Income from unconsolidated entities
Gain on sale of unconsolidated property
Other income, net
Other income, net
Income from continuing operations
Income from continuing operations
Discontinued operations:
Discontinued operations:
Discontinued operations
Discontinued operations
Gain on sale of operating property
Loss on sale of operating property
Income from discontinued operations
Loss from discontinued operations
Consolidated net income
Consolidated net income
Less: Net income attributable to
Less: Net income attributable to
noncontrolling interests
noncontrolling interests
Net income attributable to Kite Realty
Net income attributable to Kite Realty
Group Trust
Group Trust
Total assets at December 31, 2008
Total assets at December 31, 2007
Real Estate
Real Estate
Operation
Operation
Development,
Development,
Construction
Construction
and Advisory
and Advisory
Services1
Services
Subtotal
Subtotal
Intersegment
Intersegment
Eliminations
Eliminations
$
$
101,152,298
96,313,451
$
$
89,973,444
99,995,505
$
$
191,125,742
196,308,956
$
$
(49,062,641)
(63,445,407)
$
$
31,186,332
30,527,863
34,770,426
29,621,988
35,195,540
36,163,600
(29,721,587)
(26,214,841)
-
-
842,425
290,710
1,233,338
1,787,447
862,828
12,026,916
8,412,544
2,078,860
330,482
2,036,189
(2,689,888)
4,115,049
(2,359,406)
16,141,965
6,053,138
85,172,529
94,039,335
122,549
108,666
4,678,366
5,847,504
(355,467)
(759,313)
(1,927,830)
(761,628)
-
-
-
-
-
4,326,563
2,395,069
-
-
-
-
-
-
4,326,563
2,395,069
(1,453,898)
(4,096,959)
(374,074)
(869,171)
$
$
$
$
4,599,240
12,045,006
1,097,996,338
1,041,671,941
$
$
$
$
2,020,995
3,457,392
51,344,334
41,321,857
$
$
$
$
116,358,861
124,567,198
34,892,975
29,730,654
39,873,906
42,011,104
(30,077,054)
(26,974,154)
(1,927,830)
(761,628)
842,425
290,710
1,233,338
1,787,447
862,828
16,353,479
10,807,613
2,078,860
330,482
2,036,189
(2,689,888)
4,115,049
(2,359,406)
20,468,528
8,448,207
(1,827,972)
(4,966,130)
6,620,235
15,502,398
1,149,340,672
1,082,993,798
(48,438,084)
(60,968,002)
-
-
(624,557)
(2,477,405)
704,873
1,009,013
-
-
-
-
-
(1,009,013)
(704,873)
(2,477,405)
(624,557)
-
-
-
-
-
-
(2,477,405)
(624,557)
Total
Total
142,063,101
132,863,549
67,920,777
63,599,196
34,892,975
29,730,654
39,249,349
39,533,699
(29,372,181)
(25,965,141)
(1,927,830)
(761,628)
842,425
290,710
1,233,338
778,434
157,955
13,876,074
10,183,056
2,078,860
330,482
2,036,189
(2,689,888)
4,115,049
(2,359,406)
17,991,123
7,823,650
97,448
497,690
(1,730,524)
(4,468,440)
$
$
$
$
(527,109)
(1,979,715)
(37,288,766)
(35,068,865)
$
$
$
$
6,093,126
13,522,683
1,112,051,906
1,047,924,933
____________________
1
This segment includes revenue and expense resulting in a net pre-tax gain of $3.0 million from the sale of land within
the Company’s taxable REIT subsidiary. Income tax expense related to this sale was approximately $1.1 million.
Year Ended December 31, 2007
Revenues
Operating expenses, cost of construction and
services, general, administrative and other
Depreciation and amortization
Operating income (loss)
Interest expense
Income tax expense of taxable REIT subsidiary
Income from unconsolidated entities
Other income, net
Income from continuing operations
Discontinued operations:
Discontinued operations
Gain on sale of operating property
Income from discontinued operations
Consolidated net income
Less: Net income attributable to
noncontrolling interests
Net income attributable to Kite Realty
Group Trust
Real Estate
Operation
Development,
Construction
and Advisory
Services
Subtotal
Intersegment
Eliminations
Total
$
96,313,451
$
99,995,505
$
196,308,956
$
(63,445,407)
$
132,863,549
30,527,863
29,621,988
36,163,600
(26,214,841)
-
290,710
1,787,447
12,026,916
94,039,335
108,666
5,847,504
(759,313)
(761,628)
F-32
-
-
4,326,563
2,078,860
2,036,189
4,115,049
16,141,965
-
-
-
4,326,563
124,567,198
29,730,654
42,011,104
(26,974,154)
(761,628)
290,710
1,787,447
16,353,479
2,078,860
2,036,189
4,115,049
20,468,528
(60,968,002)
-
(2,477,405)
1,009,013
-
-
(1,009,013)
(2,477,405)
-
-
-
(2,477,405)
63,599,196
29,730,654
39,533,699
(25,965,141)
(761,628)
290,710
778,434
13,876,074
2,078,860
2,036,189
4,115,049
17,991,123
(4,096,959)
(869,171)
(4,966,130)
497,690
(4,468,440)
Total assets at December 31, 2007
1,041,671,941
41,321,857
1,082,993,798
(35,068,865)
1,047,924,933
12,045,006
3,457,392
15,502,398
(1,979,715)
13,522,683
$
$
$
$
$
$
$
$
$
$
F-32
Note 15. Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2009 and
2008. The results reflect the presentation of discontinued operations as described in Note 9. Such reclassifications had no
effect on consolidated net income (loss) previously reported.
Total revenue ............................................... $
Operating income......................................... $
$
Income from continuing operations
$
Loss from discontinued operations
$
Consolidated net income (loss)
Income from continuing operations
attributable to Kite Realty Group Trust
common shareholders.............................. $
Net income (loss) attributable to Kite
Realty Group Trust common
shareholders............................................. $
Income (loss) per common share – basic
and diluted:
Income from continuing operations
attributable to Kite Realty Group
Trust common shareholders ............... $
Net income (loss) attributable to Kite
Realty Group Trust common
shareholders ....................................... $
Weighted average Common Shares
outstanding
- basic .......................................
- diluted .....................................
Total revenue ................................................. $
Operating income........................................... $
Income from continuing operations
$
Income (loss) from discontinued operations $
$
Consolidated net income (loss)
Income from continuing operations
attributable to Kite Realty Group Trust
common shareholders................................ $
Net income (loss) attributable to Kite Realty
Quarter Ended
March 31,
2009
30,211,586 $
$
7,836,765
1,102,689
$
(216,711) $
$
885,978
Quarter Ended
December 31,
2009
Quarter Ended
September 30,
2009
Quarter Ended
June 30,
2009
30,087,083 $ 25,708,597 $ 29,284,837
$
7,324,825 $ 7,401,053
7,419,641
924,873
2,340,380 $
571,423
$
(18,614 )
(5,616,007 ) $
(266,036) $
906,259
(3,275,627 ) $
$
305,387
876,778 $
485,607 $
1,488,381 $
665,109
701,242 $
257,085 $
(3,383,370 ) $
643,277
0.03 $
0.01 $
0.03 $
0.01
0.02 $
0.01 $
(0.05 ) $
0.01
34,184,305
34,220,160
47,988,205
48,081,453
62,980,447
62,980,447
62,997,180
63,132,990
Quarter Ended
March 31,
2008
32,084,815 $
11,431,078 $
3,150,684 $
329,457 $
3,480,141 $
Quarter Ended
December 31,
2008
Quarter Ended
September 30,
2008
Quarter Ended
June 30,
2008
33,920,114 $ 34,328,105 $ 41,730,067
$ 11,197,108 $ 6,169,591
10,451,572
$
2,966,012
402,571
112,806 $ (3,011,974 )
$
210,306
3,776,595 $ (2,609,403 )
$
3,176,318
3,663,789 $
2,451,311 $
2,295,342 $
2,833,133 $
365,475
Group Trust common shareholders ........... $
2,707,299 $
2,459,289 $
2,920,896 $ (1,994,358 )
Income (loss) per common share – basic and
diluted:
Income from continuing operations
attributable to Kite Realty Group
Trust common shareholders ................. $
Net income (loss) attributable to Kite
Realty Group Trust common
shareholders ......................................... $
Weighted average Common Shares
outstanding
- basic .........................................
- diluted .......................................
0.08 $
0.08 $
0.10 $
0.01
0.09 $
0.08 $
0.10 $
(0.06 )
29,028,953
29,059,809
29,147,361
29,269,062
29,189,424
29,201,838
33,920,594
33,920,594
F-33
Note 16. Commitments and Contingencies
Eddy Street Commons at Notre Dame
Eddy Street Commons at the University of Notre Dame, located adjacent to the university in South Bend, Indiana, is
the Company’s most significant current development project. This multi-phase project is expected to include retail, office,
hotels, a parking garage, apartments, and residential units. The Company wholly owns the retail and office components
while other components will be owned by third parties or through joint ventures. The initial phase of the project opened in
October 2009 and consists of the retail, office and apartment and residential units. In late 2009 construction commenced on
a limited service hotel, which is owned by an unconsolidated joint venture in which the Company holds a 50% interest.
The Company’s share of the cost of this hotel is approximately $5.5 million, which will be funded by a third-party
construction loan.
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 the
parking garage and infrastructure improvements to this project. The majority of the bonds will be funded by real estate tax
payments made by the Company and subject to reimbursement from the tenants of the property. If there are delays in the
development, the Company is obligated to pay certain fees. However, it has an agreement with the City of South Bend to
limit its exposure to a maximum of $1 million as to such fees. In addition, the Company will not be in default concerning
other obligations under the agreement with the City of South Bend so long as it commences and diligently pursues the
completion of its obligations under that agreement.
Although the Company does not expect to own either the residential or the apartment complex components of the
project, the Company has jointly guaranteed the apartment developer’s construction loan, which at December 31, 2009, had
an outstanding balance of approximately $25.2 million. The Company also has a contractual obligation in the form of a
completion guarantee to the University of Notre Dame and a similar agreement in favor of the City of South Bend to
complete all phases of the $200 million project (the Company’s portion of which is approximately $64 million), with the
exception of certain of the residential units, consistent with commitments the Company typically makes 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 the Company would expect to have the right to 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 is timely commencing and pursuing a cure, it will not be in default to either the University of Notre Dame and the City
of South Bend.
Joint Venture Indebtedness
Joint venture debt is the liability of the joint venture and is typically secured by the assets of the joint venture under
circumstances where the lender has limited recourse to the Company. As of December 31, 2009, the Company’s share of
unconsolidated joint venture indebtedness was approximately $14.5 million, $13.5 million of which was related to the
Parkside Town Commons development. The remaining $1.0 million represents the Company’s share of the $2.0 million
drawn on the Eddy Street Commons limited service hotel construction loan. The loan, obtained in the third quarter of 2009,
has a total commitment of $10.9 million, bears interest at the greater of LIBOR + 315 basis points or 4.00%, and matures in
August 2014.
As of December 31, 2009, the Operating Partnership had guaranteed its $13.5 million share of the unconsolidated
joint venture debt related to the Parkside Town Commons development 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 joint venture could 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
F-34
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 statements.
As of December 31, 2009, the Company had outstanding letters of credit totaling $5.2 million. At that date, there
were no amounts advanced against these instruments.
Note 17. 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 for each of the years ended December 31,
2009, 2008, and 2007.
Note 18. Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” which is effective
for fiscal years beginning after November 15, 2009 and introduces a more qualitative approach to evaluating VIEs for
consolidation. This provision was primarily codified into Topic 810 – “Consolidation” in the ASC and requires a company
to perform an analysis to determine whether its variable interest gives it a controlling financial interest in a VIE. This
analysis identifies the primary beneficiary of a VIE as the entity that has (i) the power to direct the activities of the VIE that
most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses or the right to receive
benefits that could potentially be significant to the VIE. In determining whether it has the power to direct the activities of
the VIE that most significantly affect the VIE’s performance, the provision requires a company to assess whether it has an
implicit financial responsibility to ensure that a VIE operates as designed. It also requires continuous reassessment of
primary beneficiary status rather than periodic, event-driven assessments as previously required, and incorporates expanded
disclosure requirements. The Company has not yet determined the impact that adoption of this provision will have on its
consolidated financial statements.
Note 19. 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, 2009, 2008 and 2007:
Year Ended
December 31,
2008
2009
2007
Recognition of noncontrolling interests upon
consolidation of subsidiary
$
2,175,354
Imputed value of common area development
land at Eddy Street Commons ................... $
—
Third-party assumption of fixed rate debt in
connection with the sale of 176th &
Meridian..................................................... $
—
$
$
$
— $
1,900,000 $
—
—
— $ 4,103,508
Note 20. Related Parties
Subsidiaries of the Company provide certain management, construction and other services to certain unconsolidated
entities and to entities owned by certain members of the Company’s management. During the years ended December 31,
2009, 2008 and 2007, the Company earned $0.1 million, $0.1 million and $0.0 million, respectively from unconsolidated
entities and $0.1 million, $0.3 million and $0.5 million, respectively from entities owned by certain members of
management.
The Company reimburses an entity owned by certain members of the Company’s management for travel and related
services. During the years ended December 31, 2009, 2008 and 2007, amounts paid by the Company to this related entity
were $0.3 million, $0.3 million and $0.2 million, respectively.
F-35
Note 21. Subsequent Events
2010 Debt Refinancings
In January 2010, the Company extended the maturity date of its $11.0 million construction loan on the South Elgin
Commons property to September 2013 at an interest rate of LIBOR + 325 basis points. The Company funded a $1.6
million paydown with cash and borrowings on the unsecured facility.
In February 2010, the Company extended the maturity date of its $14.9 million variable rate loan on the Shops at
Rivers Edge property to February 2013 at an interest rate of LIBOR + 400 basis points. The Company funded a $0.6
million paydown with cash.
In February 2010, the Company extended the maturity date of its $30.9 million construction loan on the Cobblestone
Plaza property to February 2013 at an interest rate of LIBOR + 350 basis points. The Company funded a $2.9 million
paydown with cash and borrowings on the unsecured facility.
Other
In January 2010, $0.7 million of the $1.4 million loan the Company had extended to The Centre partnership was
repaid. This partial repayment did not affect the status of The Centre as a VIE with the Company as its primary
beneficiary.
On March 16, the Company’s Board of Trustees declared a cash distribution of $0.06 per common share for the first
quarter of 2010. Simultaneously, the Company’s Board of Trustees declared a cash distribution of $0.06 per Operating
Partnership unit for the same period. These distributions are payable on April 16, 2010 to shareholders and unitholders of
record as of April 7, 2010.
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 for the years ended December 31, 2009, 2008, and 2007 are as follows:
Balance, beginning of year.............. $
Acquisitions ....................................
Consolidation of subsidiary.............
Improvements..................................
Disposals .........................................
Balance, end of year........................ $
2009
1,134,480,942
—
6,925,022
49,375,257
(24,011,053)
1,166,770,168
$
$
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
The unaudited aggregate cost of investment properties for federal tax purposes as of December 31, 2009 was $1,109 million.
Note 2. Reconciliation of Accumulated Depreciation
The changes in accumulated depreciation of the Company for the years ended December 31, 2009, 2008, and 2007 are as
follows:
Balance, beginning of year......................
Acquisitions ............................................
Depreciation and amortization expense ..
Disposals .................................................
Balance, end of year................................
$
$
2009
100,762,741
—
27,714,495
(5,163,825)
123,313,411
2008
81,868,605
—
31,057,810
(12,163,674 )
100,762,741
$
$
$
$
2007
60,554,974
—
28,028,737
(6,715,106 )
81,868,605
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
3.1
3.2
Articles of Amendment and Restatement of
Declaration of Trust of the Company
Amended and Restated Bylaws of the
Company, as amended
4.1
Form of Common Share Certificate
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Amended and Restated Agreement of Limited
Partnership of Kite Realty Group, L.P., dated
as of August 16, 2004
Employment Agreement, dated as of August
16, 2004, by and between the Company and
John A. Kite*
Employment Agreement, dated as of August
16, 2004, by and between the Company and
Thomas K. McGowan*
Employment Agreement, dated as of August
16, 2004, by and between the Company and
Daniel R. Sink*
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Company and Alvin E. Kite, Jr.*
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Company and John A. Kite*
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Company and Thomas K. McGowan*
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Company and Daniel R. Sink*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and Alvin E. Kite*
10.10
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 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
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
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
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
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
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
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
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
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
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
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*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and Daniel R. Sink*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and William E. Bindley*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and Michael L. Smith*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and Eugene Golub*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and Richard A. Cosier*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and Gerald L. Moss*
Indemnification Agreement, dated as of
November 3, 2008, by and between Kite
Realty Group, L.P. and Darell E. Zink, Jr.*
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*
Kite Realty Group Trust Equity Incentive Plan,
as amended*
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
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
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
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
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
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
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
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
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
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 the Kite Realty
Group Trust definitive Proxy Statement,
filed with the SEC on April 10, 2009
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
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
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
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
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*
Credit Agreement, dated as of February 20,
2007, by and among Kite Realty Group, L.P.,
the Company, 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
Guaranty, dated as of February 20, 2007, by
the Company and certain subsidiaries of Kite
Realty Group, L.P. party thereto
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
Consulting Agreement, dated as of March 31,
2009, by and between the Company and Alvin
E. Kite, Jr.
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
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
February 23, 2007
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
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
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
April 6, 2009
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
21.1
23.1
31.1
31.2
32.1
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
____________________
* 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, 2010
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, 2010
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, 2009 (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, 2010
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.
Corporate Information
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. Christopher Coleman
480 Washington Blvd., 29th Floor
Jersey City, New Jersey 07310
(800) 820-8521
Shareholder Information
Shareholders seeking financial and
operating information may contact
Investor Relations, Kite Realty
Group Trust, 30 South Meridian,
Suite 1100, Indianapolis, Indiana
46204. Current investor information,
including press releases and quar-
terly earnings information, can be
obtained at www.kiterealty.com.
Form 10-K
Copies of the Company’s Annual
Report on Form 10-K for the year
ended December 31, 2009 are avail-
able to shareholders without charge
upon written request to:
Kite Realty Group Trust
Investor Relations
30 South Meridian, Suite 1100
Indianapolis, Indiana 46204
Annual Meeting
The Annual Meeting of Shareholders
will be held at 9:00 a.m. local time on
May 4, 2010, at 30 South Meridian,
Eighth Floor Conference Center,
Indianapolis, Indiana 46204.
Executive Officers
Tom McGowan and Dan Sink
Board of Trustees
John A. Kite
Chairman and Chief Executive Officer
Kite Realty Group Trust
William E. Bindley
Chairman
Bindley Capital Partners, LLC
Dr. Richard Cosier
Dean and Leeds Professor
of Management, Purdue University
Eugene Golub
Chairman, Golub & Company
Gerald L. Moss
Honorary of Counsel,
Bingham McHale, LLP
Michael L. Smith
Retired former Executive Vice
President and Chief Financial Officer
Wellpoint, Inc. (formerly Anthem, Inc.)
Darell E. Zink, Jr.
Chairman and Chief Executive Officer
Strategic Capital Partners, LLC
Chairman Emeritus
Alvin E. Kite
Kite Realty Group Trust
Executive Management Team
John A. Kite
Chairman and Chief Executive Officer
Thomas K. McGowan
President and Chief Operating Officer
Daniel R. Sink
Executive Vice President and
Chief Financial Officer
Securities and Exchange Commission and New York Stock Exchange Certifications
The certifications of the Chief Executive Officer and Chief Financial Officer of the Company certifying the quality of the Company’s public disclosure
and required to be filed with the Securities and Exchange Commission pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, have been filed as
Exhibits 31.1 and 31.2, respectively, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Company has submit-
ted to the New York Stock Exchange the certification of the Chief Executive Officer certifying that he is not aware of any violation by the Company of
the New York Stock Exchange corporate governance listing standards.
Forward Looking Statement
This annual report contains certain statements that are not historical fact and may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-
looking statements, including, without limitation: national and local economic, business, real estate and other market conditions, particularly in light of
the current recession; financing risks, including the availability of and costs associated with sources of liquidity; the Company’s ability to refinance, or
extend the maturity dates of, its indebtedness; the level and volatility of interest rates; the financial stability of tenants, including their ability to pay rent
and the risk of tenant bankruptcies; the competitive environment in which the Company operates; acquisition, disposition, development and joint ven-
ture 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; impairment in the value of real estate property the Company owns; risks related to
the geographical concentration of our properties in Indiana, Florida and Texas; and other factors affecting the real estate industry generally. The
Company refers you to the documents filed by the Company from time to time with the Securities and Exchange Commission, specifically the section
titled “Business Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which discuss these and other
factors that could adversely affect the Company’s results. The Company undertakes no obligation to publicly update or revise these forward-looking
statements (including the FFO and net income estimates), whether as a result of new information, future events or otherwise.
Kite Realty Group . 30 S. Meridian Street, Suite 1100 . Indianapolis, IN 46204
317.577.5600
www.kiterealty.com