2010 Annual Report
Corporate Profile
Kite Realty Group Trust, a real estate investment trust (REIT), engages in the
ownership, operation, management, leasing, construction management, acquisition,
redevelopment and development of neighborhood and community shopping centers
and commercial real estate properties in the United States. The Company also
provides real estate facility management, construction management, development,
and other advisory services to third parties.
As of December 31, 2010, the Company owned interests in 63 properties totaling
approximately 6.4 million owned square feet. These consist of 53 retail properties,
four commercial properties, and six 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 common share dividend is $0.06 per share.
The Company qualifies as a REIT under the Internal Revenue Code. As a REIT, the
Company is not subject to federal tax to the extent that it distributes at least 90%
of its taxable income to its shareholders.
Pine Ridge Crossing, Naples, Florida
Glendale Town Center, Indianapolis, Indiana
Year Ended December 31,
($ in millions, except per share data)
FINANCIAL DATA :
Total Revenue
Funds From Operations (FFO*) of the
Operating Partnership
FFO per Weighted Average Diluted
Common Share
Net (Loss) Income Attributable to
Common Shareholders
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 (GLA, in millions)
Percent of Owned Portion Under Lease
Projects in In-Process Development Pipeline
Estimated Company-owned GLA
(in thousand square feet)
Estimated Total Project Cost
DIVIDEND DATA :
Cash Dividend Paid per Common Share
2010
2009
2008
$ 101.4
$ 115.3
$ 142.1
$ 30.3
$ 28.7
$ 45.1
$ 0.42
$ 0.48
$ 1.17
$ (8.6)
$
(1.8)
$ 6.1
$ 60.1
$ 62.1
$ 74.1
71.4
60.3
38.6
57
8.6
92.5%
2
55
8.4
90.7%
2
56
8.9
91.7%
3
260.7
$ 68.2
297.7
$ 87.0
368.0
$ 91.2
$ 0.240
$ 0.4775
$ 0.820
* 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 accompa-
nying Form 10-K for a definition of FFO, and to pages 65-66 for a reconciliation of net income to FFO.
1
“Total return for Kite Realty Group shareholders was 40 percent in 2010.”
Dear Fellow Shareholders:
As our industry shifted and settled during 2010,
We have selected strong real estate and delivered
Kite Realty Group focused on the execution of a
first-class product over the years. National retailers
few fundamental improvements to our company.
as well as regional and local users are validating our
Our accelerated leasing efforts produced strong
choices. Since the middle of 2009, we have executed
results. We made important progress on select
12 new anchor leases for existing vacancies, totaling
development projects, executed on redevelopments
360,000 square feet and $3.9 million of annualized
at above-average returns, and reduced our overall
base rent. Today we have only three existing junior
company leverage. We began 2010 with plans to
anchor vacancies. During the coming months, we will
accomplish these initiatives and we ended the year
continue to focus with the same degree of intensity
with noteworthy results. The market responded,
on filling available space throughout our portfolio.
and the total return to our shareholders
for the year was 40 percent.
Leasing
Including new and renewal leases, we
achieved the highest level of annual
leasing production in our history. In
one year, we increased the operating
retail portfolio leased percentage by
Development
Throughout 2010 we remained
focused on our commitment to using
conservative standards for expending
development capital. We continually
evaluate market and submarket con-
ditions and constantly assess retailer
trends and demand. Consequently,
more than 200 basis points from 90.1 percent to
during the past year we executed this strategy on
92.2 percent. Positive cash rent spreads of five per-
two in-process developments. Eddy Street Commons
cent for the year reflect retailer demand for our
at Notre Dame was transitioned to the operating
quality real estate. These results are even more
portfolio at the end of the year. Our focused leasing
impressive considering the small shop segment of
effort was rewarded with leases from retailer Urban
our business has been the hardest hit and the slow-
Outfitters and leading campus bookstore, Follett
est to rebound. Despite this reality, we achieved
Books. The combined retail and office components
positive results in our small shop leased percentage
of this property are nearly 90 percent leased. These
for three consecutive quarters to end the year 270
accomplishments are worth noting given that con-
basis points higher than our low point at the end
struction and leasing efforts spanned the most
of the first quarter.
challenging months of the economic downturn.
2
Cobblestone Plaza, Pembroke Pines, Florida—Whole Foods Under Construction
Eddy Street Commons at Notre Dame, South Bend, Indiana
Also in 2010, construction commenced on a Whole
Since 2008, new development supply has been
Foods store at Cobblestone Plaza in southeast
essentially non-existent. As new development again
Florida. Throughout the market downturn, we took
becomes a more relevant component of our industry,
a long term approach to this in-process develop-
we are confident that our future projects will be
ment because of the quality of the real estate and
positively received by the retailer community. Our
the high market barriers to entry. We were patient
future developments are entitled, which significantly
and elected not to lease to sub-standard tenants for
enhances our pre-leasing efforts that are well
the sake of enhancing our leasing percentage. As a
underway. Therefore, our advantage is the ability
top-tier grocery anchor, Whole Foods allows us to
to move quickly in a rapidly changing real estate
“We leased or renewed 1.1 million square feet of space, increased
our retail leased percentage by 200 basis points, and posted three
consecutive quarters of small shop leasing percentage increases.”
pursue shop leasing with a tenant mix at rent levels
cycle. We will, however, be cautious participants
that create long term value.
as demand for new development increases.
South Elgin Commons Phase II, in Chicago, Illinois,
Redevelopment
is our first ground-up development start since early
In 2010 we successfully completed one redevelop-
2008. Including the first phase, this project is 100
ment, made significant progress on another, and
percent leased to three quality national anchor
pre-leased to stabilization a third redevelopment
retailers who selected our site based on a number
prior to commencing construction.
of factors, including the demographic profile, the
position within a major retail corridor, and the pres-
ence of Target as a non-owned anchor store. Our
decision to develop this property in phases was con-
sistent with tenant demand and is representative
of the measured approach we will continue to take
with future developments.
Coral Springs Plaza, a center previously anchored
by Circuit City in Coral Springs, Florida, was transi-
tioned to the operating portfolio as a combination
Toys “R” Us/Babies “R” Us store that opened for
business prior to the end of the year. Also in the
fourth quarter, Academy Sports & Outdoors took
3
Plaza at Cedar Hill, Cedar Hill, Texas
Renovation
Rivers Edge, Indianapolis, Indiana—Acquisition and Redevelopment
Coral Springs Plaza, Coral Springs, Florida
Redevelopment of former Circuit City
“Our future developments are entitled. Our advantage is the ability
to move quickly as demand for new development returns.”
occupancy at our Bolton Plaza property in Jacksonville,
development projects and completes current rede-
Florida, as the first replacement tenant at this center
velopments. Revenue growth will follow a return to
previously anchored by Wal-Mart. Nordstrom Rack,
a more normalized leasing percentage. For example,
buy buy Baby, The Container Store, and Arhaus
an incremental 75,000 square feet of small shop
Furniture all executed leases in conjunction with the
net absorption would increase our small shop leas-
redevelopment and expansion of our Rivers Edge
ing percentage by 500 basis points to 83 percent
shopping center in Indianapolis, Indiana. This asset
and our overall operating retail percentage to nearly
is undergoing a complete transformation from an
94 percent—both of which are measures still below
Office Depot-anchored strip center to a premier
our peak levels. Based on current port folio averages,
open-air shopping center in Indianapolis.
Whether developed or acquired as a redevelopment
opportunity, all of these projects are examples of
our real estate being adaptable to an ever-changing
retailer landscape.
Revenue Growth
“Every successful redevelopment is an example of
our real estate being adaptable to an ever-changing
retailer landscape.”
this production would generate approximately $2
million in additional base rent and recoveries which
equates to approximately $0.03 per share.
The revenue growth generated by our leasing, devel-
opment and redevelopment efforts will result in
Acquisitions
approximately $4.5 million of additional annualized
base rent and reimbursements, which will commence
primarily in the third and fourth quarters of 2011.
Our objective is to consistently drive revenue with
new leases as our leasing department continues
to execute its goals, our construction group transi-
tions tenants to rent commencement, and the
development staff diligently pursues our future
We have adopted a balanced approach to growing
our company. In addition to a successful history of
solid development returns, we have a proven track
record of accretive acquisitions. We intend to deploy
acquisition capital in a similar fashion to development
—carefully and with an eye toward future upside.
The acquisition environment for quality assets is
extremely competitive. Core shopping centers have
5
Traders Point, Indianapolis, Indiana
Cool Creek Commons, Indianapolis, Indiana
made a rapid return to historic low cap rate levels.
household incomes in excess of $100,000, this
Good real estate wins. Our preference is to buy
property was originally developed by us over 20
underutilized real estate and lease, manage, and
years ago. The economics of this opportunistic
redevelop it into properties we can add to our core
transaction clear the way for us to formulate a rede-
shopping center portfolio.
velopment plan that solidifies this asset’s place in
For example, in February 2011, we acquired a
52,000 square foot Lowe’s Foods-anchored center
Reducing Leverage
the market for the long term.
in Wilmington, North Carolina. In March 2011,
Deleveraging is a lengthy process, but we are making
we executed a lease termination agreement with
steady improvement. In December, we successfully
“We anticipate $4.5 million of additional annualized base rent and
reimbursements to commence in the third and fourth quarters of 2011.”
Lowe’s Foods and a long term lease with a new
raised net proceeds of approximately $67.5 million
high-end grocer. Upon completion of the redevelop-
through a preferred share offering. The proceeds
ment, we anticipate Oleander Point will transition to
were used to pay off our $55 million unsecured
the operating portfolio in mid-2012 at an expected
term loan and other borrowings. The combination
return well in excess of the market cap rate for
of this debt reduction and leasing-driven EBITDA
the redeveloped center. The combination of a first-
growth has improved our net debt to EBITDA from
class retailer, new market expansion, and accretive
more than 10.0 times to 9.1 times at year end, and
redevelopment-level returns is our preferred method
we will continue to focus on reducing this important
to add value and grow our core shopping center
metric. The debt markets were more vibrant in late
portfolio.
2010 compared to recent years. We are aggressively
Also in early 2011, we acquired our partner’s interest
in The Centre at a significant discount to replacement
cost. Located in an area of Indianapolis with average
looking to extend our upcoming maturities with
long-term, non-recourse financing. For example,
in March 2011, we secured a $21 million, 10-year,
6
Shops at Eagle Creek, Naples, Florida
Lowe’s Home Improvement (Newly Constructed Anchor)
Delray Marketplace, Delray Beach, Florida—Future Development
non-recourse loan at a 5.77 percent interest rate
The past year was an important one for our com-
on a Florida power center. Our relationship lenders
pany. We accomplished a great deal and we intend
have provided strong support throughout recent
to capitalize on that momentum as we move for-
turbulence in the market, and we are confident
ward in 2011. I am optimistic for our company and
these long-standing relationships will be equally
our industry, and I am eager to take advantage of
important in the years ahead.
the value creation opportunities before us.
Closing Thoughts
In the midst of a changing real estate cycle, our
company is headed in the right direction. We have a
“I am optimistic for our company and our industry.”
team of people with critical skill sets that executes
Finally, and most importantly, I thank my fellow
at a high level every day on our leasing, manage-
shareholders for their support and confidence in our
ment, development, redevelopment, and acquisition
company. We started our company with a passion
value creation objectives. I want to thank each and
for creating value in real estate. It is the same today
every employee and let them know that I am proud
as we work to create value for every shareholder.
of their accomplishments.
Our Board of Directors is also owed a great deal
of gratitude. Its ability to critically assess and wisely
advise reflects the decades of experience and
success that make them such a valuable resource.
I thank them personally for their contributions to
our success.
John A. Kite
Chairman and Chief Executive Officer
8
Kite Realty Group 2010 Form 10-K
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, 2010
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
8.25% Series A Cumulative Redeemable Perpetual Preferred Shares
Name of each exchange on which registered
New York Stock Exchange
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 $241 million based upon the closing price of $4.18 per share on the New York Stock Exchange on such date.
The number of Common Shares outstanding as of February 28, 2011 was 63,501,621 ($.01 par value).
Portions of the Proxy Statement relating to the Registrant’s Annual Meeting of Shareholders, scheduled to be held on May 3, 2011, 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, 2010
TABLE OF CONTENTS
Page
Item No.
Part I
1. Business.............................................................................................................................................................
2
1A. Risk Factors .......................................................................................................................................................
9
1B. Unresolved Staff Comments.............................................................................................................................. 24
2. Properties........................................................................................................................................................... 25
3. Legal Proceedings.............................................................................................................................................. 37
4. Reserved ............................................................................................................................................................ 37
Part II
5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities ........................................................................................................................................................... 38
6. Selected Financial Data ..................................................................................................................................... 41
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................ 42
7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................................ 68
8. Financial Statements and Supplementary Data.................................................................................................. 68
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................ 69
9A. Controls and Procedures .................................................................................................................................... 69
9B. Other Information .............................................................................................................................................. 71
Part III
10. Trustees, Executive Officers and Corporate Governance .................................................................................. 71
11. Executive Compensation ................................................................................................................................... 71
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .......... 71
13. Certain Relationships and Related Transactions, and Director Independence .................................................. 71
14. Principal Accountant Fees and Services ............................................................................................................ 71
Part IV
15. Exhibits, Financial Statement Schedule............................................................................................................. 72
Signatures ........................................................................................................................................................................... 73
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
Kite Realty Group Trust is a full-service, vertically integrated real estate company engaged in the ownership,
operation, management, leasing, acquisition, construction management, redevelopment and development of neighborhood
and community shopping centers and certain commercial real estate properties in selected markets in the United States. We
also provide real estate facility management, construction management, 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, 2010, we held an approximate 89% interest and limited partners owned the remaining 11% of the interests in
our Operating Partnership.
As of December 31, 2010, we owned interests in a portfolio of 53 retail operating properties totaling approximately
8.0 million square feet of gross leasable area (including approximately 2.9 million square feet of non-owned anchor space)
located in 9 states. Our retail operating portfolio was 92.2% leased to a diversified retail tenant base, with no single retail
tenant accounting for more than 3.2% of our total annualized base rent. In the aggregate, our largest 25 tenants accounted
for 39.4% of our annualized base rent. See Item 2, “Properties” for a list of our top 25 tenants by annualized base rent.
We also own interests in four commercial (office/industrial) operating properties totaling approximately 0.6 million
square feet of net rentable area, all located in the state of Indiana. The occupancy of our commercial operating portfolio was
94.8% as of December 31, 2010.
As of December 31, 2010, we also had an interest in six retail properties in our in-process development and
redevelopment pipelines. Upon completion, our in-process development and redevelopment properties are anticipated to
have approximately 0.9 million square feet of gross leasable area (including approximately 0.2 million square feet of non-
owned anchor space). In addition to our current in-process development and redevelopment pipelines, we have a future
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.
This pipeline consisted of five projects that are expected to contain 2.5 million square feet of total gross leasable area
(including non-owned anchor space) upon completion.
In addition, as of December 31, 2010, we owned interests in various land parcels totaling 93 acres. These parcels are
classified as “Land held for development” in the accompanying consolidated balance sheets and are expected to be used for
future expansion of existing properties, development of new retail or commercial properties or sold to third parties.
Difficult economic conditions during the last three years have had a negative impact on consumer confidence and
spending which caused segments of the retail industry to be negatively impacted as retailers struggled 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. While we are still experiencing a challenging operating environment, we began to see evidence of a modest
recovery in 2010. The retail environment has shown improvement and retailers are becoming more optimistic with their
expansion plans and capital allocation decisions. 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 2010 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, acquisition, development and redevelopment 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 current primary objective is the cost effective and opportunistic strengthening of our balance sheet to allow
access to various sources of capital to fund our future commitments. We endeavor to continue improving our key financial
ratios including our debt to EBITDA ratio. We ended the year 2010 with $62 million of combined cash and borrowing
capacity on our unsecured revolving credit facility. We will remain focused on 2011 refinancing activity and will continue
to aggressively manage our operating portfolio.
During 2010, we successfully completed various financing, refinancing and capital-raising activities. As a result of
these actions, we reduced our total borrowings to $611 million at December 31, 2010 from $658 million at December 31,
2009. The significant financing, refinancing and capital raising activities completed during 2010 included the following:
Preferred Equity Offering
•
In December 2010, we completed an offering of 2,800,000 shares of Series A Cumulative Redeemable
Perpetual Preferred Shares at an offering price of $25.00 per share for net proceeds of $67.5 million. A
portion of the net proceeds were used to retire our $55 million unsecured term loan. The remaining net
proceeds, along with borrowings on our revolving line of credit, were used to retire the $18.3 million loan
encumbering our International Speedway Square property in Daytona, Florida.
Refinancings & Maturity Date Extensions in 2010
• During the third quarter, we exercised the one-year extension option on our unsecured revolving credit
facility and extended the maturity date for the facility to February 2012;
• We extended the maturity date on the variable rate construction loan on our South Elgin Commons
development property in a suburb of Chicago, Illinois to September 2013 at an interest rate of LIBOR + 325
basis points;
• We extended the maturity date on the variable rate construction loan on our Cobblestone Plaza development
property in Fort Lauderdale, Florida to February 2013 at an interest rate of LIBOR + 350 basis points; and
• We converted the $14.3 million variable rate loan on our Rivers Edge redevelopment property in
Indianapolis, Indiana to a construction loan at an interest rate of LIBOR + 325 basis points, and extended the
maturity date to January 2016;
Refinancings & Maturity Date Extensions in 2011
•
•
In January 2011, we extended the maturity date of the $3.5 million variable rate loan on the Indiana State
Motor pool commercial property (originally due February 2011) to February 2014 at an interest rate of
LIBOR + 325 basis points.
In February 2011, we extended the maturity date of the $33.9 million variable rate construction loan on the
unconsolidated Parkside Town Commons property (originally due February 2011) to August 2013 at an
interest rate of LIBOR + 300 basis points and funded $5.5 million, which was our share of the paydown,
with cash. We currently own a 40% interest in this property which declines to 20% upon the
commencement of project construction.
Construction Financing
• Draws totaling $6.1 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 $36.6
million for other development and redevelopment activities.
3
Repayments of Outstanding Indebtedness
• We used a portion of the proceeds from our December 2010 preferred share offering to retire our $55 million
unsecured term loan, which was due in July 2011;
• We repaid the $18.3 million fixed rate loan on our International Speedway Square operating property in
Daytona, Florida and temporarily contributed the related asset to the unsecured revolving credit facility
collateral pool. We intend to secure long term financing for this asset in the first half of 2011; and
•
In connection with the 2010 extensions of the maturity dates of various permanent and construction loans,
we paid down the balances of these loans by $19.8 million.
2010 Development and Redevelopment Activities
•
In the fourth quarter of 2010, we completed the redevelopment of our Coral Springs Plaza, and transitioned
the former Circuit City-anchored center to the operating portfolio. The property is 100% leased to Toys “R”
Us/Babies “R” Us and located in a suburb of Boca Raton, Florida;
• We substantially completed the construction of the retail and office components of Eddy Street Commons,
Phase I, a 465,000 square foot multi-use center located in South Bend, Indiana that includes a 300,000 square
foot non-owned multi-family component. This project was 89% leased as of December 31, 2010 and is
anchored by Follett Bookstore, Urban Outfitters and the University of Notre Dame;
• We partially completed the construction of Cobblestone Plaza, a 138,000 square foot neighborhood shopping
center located in Ft. Lauderdale, Florida. We commenced construction of a Whole Foods store during the
fourth quarter and anticipate delivery to the tenant in the second quarter of 2011. This property was 84.4%
leased or committed as of December 31, 2010; and
•
In the fourth quarter of 2010, we commenced construction at South Elgin Commons, Phase II, a 135,500
square foot center located in a suburb of Chicago, Illinois. This project was 100.0% leased and is anchored
by Toys “R” Us/Babies “R” Us and Ross Stores and “shadow” anchored by Super Target.
As of December 31, 2010, we had four retail 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 executed a 66,500 square foot lease with Academy Sports & Outdoors to anchor
this center and this tenant opened during the second half of 2010. We currently estimate the cost of this
redevelopment to be $5.7 million;
• Courthouse Shadows, Naples, Florida. We intend to modify the existing facade and pylon signage of this
135,000 square foot neighborhood shopping center and upgrade its landscaping and lighting. In 2009, Publix
purchased the lease of the former anchor tenant and made certain improvements to the space. We currently
anticipate our total investment in the redevelopment at Courthouse Shadows will be $2.5 million;
• Four Corner Square, Seattle, Washington. In addition to the existing 29,000 square foot neighborhood
shopping center, we also own an adjacent ten acres of land in our future development pipeline that may be
used as part of the redevelopment. We currently estimate the cost of this redevelopment to be $0.5 million;
and
• Rivers Edge, Indianapolis, Indiana. We have secured Nordstrom Rack, the Container Store, Arhaus Furniture,
Buy Buy Baby and BGI Fitness as new anchors for this neighborhood shopping center and have expanded it
from 111,000 square feet to 152,000 square feet. The renovations to accommodate these new tenants began
in the third quarter of 2010 with expected delivery occurring in the first half of 2011. We currently estimate
the cost of this redevelopment to be $21.5 million.
2010 Cash Distributions
In 2010, we declared quarterly per common share cash distributions of $0.06 per common share with respect to each
of the quarters.
2011 Acquisitions
•
In February 2011, we acquired a 52,000 square foot, 91.4% leased retail shopping center in Wilmington,
North Carolina. This center was acquired in an off-market transaction for a purchase price of $3.5 million.
This center is anchored by a 46,000 square foot Lowe’s Foods.
4
•
In February 2011, we completed the acquisition of the remaining 40% interest in The Centre from our joint
venture partners and assumed leasing and management responsibilities. The Centre is an 81,000 square foot
shopping center located in Carmel, Indiana, a suburb of Indianapolis. The purchase price was approximately
$2.3 million, including the repayment of a $700,000 loan made by the Company.
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 and
consumers 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,
selectively acquire additional retail properties and develop shopping centers on land parcels that we
currently own where we believe that investment returns would meet or exceed internal benchmarks; and
• Financing and Capital Preservation Strategy: Maintain a strong balance sheet with sufficient flexibility to
fund our operating and investment activities in a cost-effective manner including borrowings under our
existing revolving credit facility, new secured debt, accessing the public securities markets when conditions
are acceptable to us, internally generated funds and proceeds from selling land and properties that no longer
fit our strategy, and investment in strategic joint ventures. We continue to monitor the capital markets and
may consider raising additional capital through the issuance of our common shares, preferred shares or other
securities.
Operating Strategy. Our primary operating strategy is to maximize revenue 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:
•
increasing rental rates upon the renewal of expiring leases or re-leasing space to new tenants while
minimizing vacancy to the extent possible;
• maximizing the occupancy of our existing operating portfolio;
• maximizing tenant absorption and minimizing tenant turnover;
• 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 or any category of tenants;
• monitoring the physical appearance, condition, and design of our properties and other improvements located
on our properties to maximize our ability to attract customers;
actively managing costs to minimize overhead and operating costs;
•
• 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; and
•
taking advantage of under-utilized land or existing square footage, reconfiguring properties for better use, or
adding ancillary income areas to existing facilities.
5
We employed our operating strategy in 2010 in a number of ways, including increasing our total leased percentage
from 90.7% at December 31, 2009 to 92.5% at December 31, 2010, through the signing of over 1.1 million square feet of
new and renewal leases in 2010. We have also been successful in maintaining a diverse retail tenant mix with no tenant
accounting for more than 3.2% of our annualized base rent. See Item 2, “Properties” for a list of our top tenants by gross
leasable area and annualized base rent.
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 internal benchmarks. We intend to implement our growth strategy in a number of ways, including:
•
•
•
•
continually evaluating our operating properties for redevelopment and renovation opportunities that we
believe will make them more attractive for leasing to new tenants or re-leasing to existing tenants at
increased rental rates;
capitalizing on future development opportunities on currently owned land parcels through the achievement
of anchor and small shop pre-leasing targets and obtaining financing prior to commencing construction;
disposing of selected assets that no longer meet our long-term investment criteria and recycling the resulting
capital into assets that provide maximum returns and upside potential in desirable markets; and
selectively pursuing the acquisition of retail operating 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 acquisition, development, redevelopment 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 re-leased or 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 existing properties in the same or nearby markets.
In 2010, we were successful in executing new leases for anchor tenants at three properties in our development and
redevelopment portfolio. We signed leases totaling 118,000 square feet with Nordstrom Rack, Buy Buy Baby, the
Container Store, Arhaus Furniture and BGI Fitness to anchor our Rivers Edge redevelopment in Indianapolis, Indiana. We
also signed a 58,000 square foot lease with Toys “R” Us/Babies “R” Us at our South Elgin Commons property in a suburb
of Chicago, Illinois and an anchor lease with Urban Outfitters at our Eddy Street Commons property in South Bend,
Indiana. We expect these tenants to open for business during the latter half of 2011.
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 shares 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 financing and capital preservation strategy is to maintain a strong balance sheet with sufficient flexibility
to fund our operating and development activities in the most cost-effective way possible. We consider a number of factors
when evaluating our level of indebtedness and when making decisions regarding additional borrowings, including the
6
purchase price of properties to be developed or acquired with debt financing, the estimated market value of our properties
and the 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 recent market conditions have heightened the need for most REITs,
including us, to continue to place a significant emphasis on financing and capital preservation strategies. Our efforts to
strengthen our balance sheet are essential to the success of our business. We intend to continue implementing 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 replace our unsecured revolving credit facility, which had a balance of $122.3 million at December
31, 2010. The Company has entered into a non-binding term sheet for an amended and restated unsecured
revolving credit facility with a three year term;
extending the maturity dates of and/or refinancing of our near-term mortgage, construction and other
indebtedness. Through March 1, 2011, we refinanced $17 million of our 2011 maturities leaving $75 million
to be addressed over the balance of the year. Based upon our experience with property level debt over the last
couple of years, we expect to address all of these maturities;
entering into construction loans to fund our in-process developments, redevelopments, and future
developments;
raising additional capital through the issuance of common shares, preferred shares or other securities. In
December 2010 we issued 2.8 million shares of our Series A Cumulative Redeemable Perpetual Preferred
Shares at an offering price of $25.00 per share for net proceeds of $67.5 million. A portion of the net
proceeds from this offering were used to retire our $55 million unsecured term loan, which had a maturity
date of July 2011. The remainder of the net proceeds, along with borrowings on our unsecured revolving line
of credit were used to retire the $18.3 million loan encumbering our International Speedway Square property
in Daytona, Florida;
• managing our exposure to interest rate increases on our variable-rate debt through the use of fixed rate
hedging transactions and securing long-term nonrecourse financing; and
•
investing in joint venture arrangements in order to access less expensive capital and to mitigate risk.
Business Segments
Our principal business is the ownership, operation, acquisition and development 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 management and advisory services. See Note 13
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, 2010, 2009 and 2008.
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 these competitors may have greater capital resources than we do, although we do not believe that any
single competitor or group of competitors in any of the primary markets where our properties are located are dominant in
that market.
We face significant competition in our efforts to lease available space to prospective tenants at our operating,
development and redevelopment properties. 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,
7
competitor shopping centers in the same geographic area and the maintenance, appearance, access and traffic patterns 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
We and our properties are subject to a variety of federal, state, and local environmental, health, safety and similar
laws including:
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. 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.
Neither existing environmental, health, safety and similar laws nor the costs of our compliance with these laws has
had a material adverse effect on our financial condition or results operations, and management does not believe they will in
the future. In addition, we have not incurred, and do not expect to incur, any material costs or liabilities due to
environmental contamination at properties we currently own or have owned in the past. However, we cannot predict the
impact of new or changed laws or regulations on properties we currently own or may acquire in the future.
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.
8
Employees
As of December 31, 2010, we had 74 full-time employees. The majority of these employees were “home office”
personnel.
Available Information
Our Internet website address is www.kiterealty.com. You can obtain on our website, free of charge, a copy of our
Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments
to those reports, as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish
them to, the SEC. Our Internet website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K.
Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Code of
Ethics for Principal Executive Officer and Senior Financial Officers, our Corporate Governance Guidelines, and the
charters for each of the committees of our Board of Trustees—the Audit Committee, the Corporate Governance and
Nominating Committee, and the Compensation Committee. Copies of our Code of Business Conduct and Ethics, our Code
of Ethics for Principal Executive Officer and Senior Financial Officers, our Corporate Governance Guidelines, and our
committee charters are also available from us in print and free of charge to any shareholder upon request. Any person
wishing to obtain such copies in print should contact our Investor Relations department by mail at our principal executive
office.
ITEM 1A. RISK FACTORS
The following factors, among others, could cause actual results to differ materially from those contained in forward-
looking statements made in this Annual Report on Form 10-K and presented elsewhere by our management from time to
time. These factors, among others, may have a material adverse effect on our business, financial condition, operating results
and cash flows, and you should carefully consider them. It is not possible to predict or identify all such factors. You should
not consider this list to be a complete statement of all potential risks or uncertainties. Past performance should not be
considered an indication of future performance.
We have separated the risks into three categories:
•
•
•
risks related to our operations;
risks related to our organization and structure; and
risks related to tax matters.
RISKS RELATED TO OUR OPERATIONS
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 for a portion of 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, 2010, 41% of our owned square footage and 41% of our total annualized base rent is located
in Indiana, 21% of our owned square footage and 21% of our total annualized base rent is located in Florida, and 19% of
our owned square footage and 18% 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
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.
9
Severe 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.
Disruptions in the credit markets generally, or relating to the real estate industry specifically, may adversely affect
our ability to obtain debt financing at favorable rates or at all. In 2008 and 2009, 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. Those circumstances 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. Although the credit markets
have recovered from this severe dislocation, there are a number of continuing effects, including a weakening of many
traditional sources of debt financing, a reduction in the overall amount of debt financing available, lower loan to value
ratios, a tightening of lender underwriting standards and terms and higher interest rate spreads. As a result, we may be
unable to refinance or extend our existing indebtedness or the terms of any refinancing may not be as favorable as the terms
of our existing indebtedness. For example, as of February 15, 2011, we had approximately $78 million and $253 million of
debt maturing in 2011 and 2012, respectively, including our $200 million unsecured revolving credit facility in February
2012. 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.
If a dislocation similar to that which occurred in 2008 and 2009 occurs in the future, we may be forced 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. 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 have had and may continue to have a material adverse effect on the
market value of our common shares and 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, there
are a number of continuing effects of the severe disruptions experienced in the United States financial and credit markets in
2008 and 2009. 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.
Ongoing challenging conditions in the United States and global economy, and the challenges facing our retail tenants
and non-owned anchor tenants 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 United States economy is still
experiencing weakness from the severe recession that it recently experienced, which resulted in increased unemployment,
the bankruptcy or weakened financial condition of a number of retailers, decreased consumer spending, low consumer
confidence, a decline in residential and commercial property values and reduced demand and rental rates for retail space.
Although the United States economy appears to have emerged from the recent recession, market conditions remain
challenging as high levels of unemployment and low consumer confidence have persisted. There can be no assurance that
the recovery will continue. 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
10
economy, could have a material adverse effect on our business. These developments include relocations of businesses,
changing demographics, increased Internet shopping, infrastructure quality, federal, state, and local 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.
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.
Our business is significantly influenced by demand for retail space generally, and a decrease in such demand may
have a greater adverse effect on our business than if we owned a more diversified real estate portfolio.
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.
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 has recently occurred. 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, 2010, the five largest tenants in our operating portfolio in terms of annualized base rent were Publix,
PetSmart, Bed Bath & Beyond/Buy Buy Baby, Lowe’s Home Improvement, and Ross Stores, representing 3.2%, 2.8%,
2.4%, 2.4%, and 2.3%, respectively, of our total annualized base rent.
We face potential material adverse effects from tenant bankruptcies, and we may be unable to collect balances due
from any tenant in bankruptcy or replace the tenant at current rates, or at all.
Bankruptcy filings by our retail tenants occur from time to time. Such bankruptcies may increase in times of
economic uncertainty such as what has recently occurred. For example, A&P, which leases 59,000 square feet and accounts
for 1.0% of our annualized base rent, filed for bankruptcy in December 2010. The number of bankruptcies among United
States companies continue to be 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
11
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, which would result in a reduction in
our cash flow and in the amount of cash available for distribution to our shareholders.
Moreover, we are continually re-leasing vacant spaces resulting from tenant lease terminations. The bankruptcy of a
tenant, particularly an anchor tenant such as A&P, 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.
We had $611 million of consolidated indebtedness outstanding as of December 31, 2010, 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
$611 million of consolidated outstanding indebtedness as of December 31, 2010, of which $78 million is scheduled to
mature in 2011 along with our share of mortgage debt of unconsolidated joint ventures of $14 million, and $253 million is
scheduled to mature in 2012. At December 31, 2010, $333 million of our debt bore interest at variable rates ($114 million
when reduced by our $219 million of interest rate swaps for fixed interest rates) along with our share of mortgage debt of
unconsolidated joint ventures of $18 million. 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, net of cash flow hedges, as of
December 31, 2010 increased by 1%, the increase in interest expense on our variable rate debt would decrease future cash
flows by $1.3 million annually.
We also intend to incur additional debt in connection with various development and redevelopment projects, and may
incur additional debt 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 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 development and
acquisitions in the future.
•
Agreements with lenders supporting our unsecured revolving credit facility 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 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
12
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.
A significant amount of our indebtedness is 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. For tax purposes, a foreclosure of any of our
properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt
secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the
property, we would recognize taxable income on foreclosure, but we would not receive any cash proceeds, which could
hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code. If any of our
properties are foreclosed on due to a default, our ability to pay cash distributions to our shareholders will be limited.
We are subject to risks associated with hedging agreements.
We use a combination of interest rate protection agreements, including interest rate swaps, to manage risk associated
with interest rate volatility. This may expose us to additional risks, including a risk that 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.
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, 2010, we had outstanding 63,342,219 common shares. Of these shares, 63,165,142 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, 7,858,498 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.
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, rising interest rates or declining demand for real estate, or
the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence
of defaults under existing leases. Such events would materially and adversely affect our financial condition, results of
operations, cash flow, per share trading price of our common shares and ability to satisfy our debt service obligations and to
make distributions to our shareholders.
In addition, other events and conditions generally applicable to owners and operators of real property that are beyond
our control may decrease cash available for distribution and the value of our properties. These events include but are not
limited to:
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adverse changes in the national, regional and local economic climate, particularly in: Indiana, where 41% of
our owned square footage and 41% of our total annualized base rent is located; Florida, where 21% of our
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owned square footage and 21% of our total annualized base rent is located; and Texas, where 19% of our
owned square footage and 18% of our total annualized base rent is located;
tenant bankruptcies;
local oversupply of rental space, increased competition or reduction in demand for rentable space;
inability to collect rent from tenants, or having to provide significant rent concessions to tenants;
vacancies or our inability to rent space on favorable terms;
changes in market rental rates;
inability to finance property development, tenant improvements and acquisitions on favorable terms;
increased operating costs, including costs incurred for maintenance, insurance premiums, utilities and real
estate taxes;
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the need to periodically fund the costs to repair, renovate and re-lease space;
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• 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.
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Our financial covenants may restrict our operating and acquisition activities.
Our unsecured revolving credit facility contains 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, certain of our
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. 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.
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, 2010, we owned nine of our operating properties through joint ventures. As of December 31,
2010, the nine properties represented 10.7% of our annualized base rent. In addition, one of the properties in our in-process
development pipeline and two properties in our future development pipeline are currently owned through joint ventures,
one of which is accounted for under the equity method as of December 31, 2010 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.
Our 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;
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our joint venture partners might become bankrupt or fail to fund their share of required capital contributions,
which may delay construction or development of a property or increase our financial commitment to the joint
venture;
our joint venture partners may have business interests or goals with respect to the property that conflict with
our business interests and goals, which could increase the likelihood of disputes regarding the ownership,
management or disposition of the property;
disputes may develop with our joint venture partners over decisions affecting the property or the joint
venture, which may result in litigation or arbitration that would increase our expenses and distract our
officers and/or trustees from focusing their time and effort on our business, and possibly disrupt the day-to-
day operations of the property such as by delaying the implementation of important decisions until the
conflict or dispute is resolved; and
• 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 may seek 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-lease space as leases expire or
require us to undertake unbudgeted capital improvements.
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 markets in which our
properties are located, but which have greater capital resources. As of December 31, 2010, leases were scheduled to expire
on a total of 7.1% of the space at our properties in 2011. If our competitors offer space at rental rates below current market
rates, or below the rental rates we currently charge our tenants, we may be unable to lease on satisfactory terms to potential
tenants and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when
our leases with them expire. We also may be required to offer more substantial rent abatements, tenant improvements and
early termination rights or accommodate requests for renovations, build-to-suit remodeling and other improvements than
we have historically. 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. 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 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 dilution in
shareholder value.
We have two properties in our in-process development pipeline and five properties in our future development pipeline.
New development projects and property 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;
as a result of competition for attractive development and acquisition opportunities, we may be unable to
acquire assets as we desire or the purchase price may be significantly elevated, which may impede our
growth;
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
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the consent of third parties such as tenants, mortgage lenders and joint venture partners may be required, and
those consents may be difficult to obtain or be withheld.
In addition, if a project is delayed or if we are unable to lease designated space to anchor tenants, certain tenants may
have the right to terminate their leases. If any of these situations occur, development costs for a project will increase, which
will result in reduced returns, or even losses, from such investments. In deciding whether to acquire or develop a particular
property, we make certain assumptions regarding the expected future performance of that property. If these new properties
do not perform as expected, our financial performance may be materially and adversely affected. In addition, the issuance
of equity securities as consideration for any acquisitions could be substantially dilutive to our shareholders.
We may not be successful in identifying suitable 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 four 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. Our ability to dispose of properties on
advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of
attractive financing for potential buyers of our properties, and we cannot predict the various market conditions affecting
real estate investments that will exist at any particular time in the future. In addition, in connection with our formation at
the time of our initial public offering (“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 17.6% of our
annualized base rent in the aggregate as of December 31, 2010. 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
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creates a greater risk that we may be required to make an indemnity payment. The complicated nature of this agreement
also might adversely impact our ability to pursue other transactions, including certain kinds of strategic transactions and
reorganizations.
Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for
sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in
our best interest. Therefore, we may be unable to adjust our portfolio mix promptly in response to market conditions, which
may adversely affect our financial position. In addition, we will be subject to income taxes on gains from the sale of any
properties owned by any taxable REIT subsidiary.
Potential losses may not be covered by insurance.
We do not carry insurance for generally uninsurable losses such as loss from riots, war or acts of God, and, in some
cases, flooding. Some of our policies, such as those covering losses due to terrorism and floods, are insured subject to
limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover all losses. If we
experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged
properties as well as the anticipated future cash flows from those properties. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance
proceeds to replace a property after it has been damaged or destroyed. In addition, if the damaged properties are subject to
recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably
damaged.
Insurance coverage on our properties may be expensive or difficult to obtain, exposing us to potential risk of loss.
In the future, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at
reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as
losses due to terrorist acts, environmental liabilities, or other catastrophic events including hurricanes and floods, or, if
offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance
coverage against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured
loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a
property, as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or
other financial obligations related to the property. We cannot guarantee that material losses in excess of insurance proceeds
will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our
operations, delay revenue and result in large expenses to repair or rebuild the property. Events such as these could adversely
affect our results of operations and our ability to meet our obligations.
Rising operating expenses could reduce our cash flow and funds available for future distributions, particularly if
such expenses are not 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 generally do not decrease, and may increase, 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. 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
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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.
Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs
to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may
impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.
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
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 and the
incurrence of additional costs associated with bringing the properties into compliance, any of which could adversely affect
our financial condition.
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, to the extent we are able to recover such costs from our tenants.
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, and limit our ability to recover all of our operating
expenses. 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. In addition, renewals of leases or future
leases may not be negotiated on current terms, in which event we may have to pay a greater percentage or all of our
operating expenses.
Our share price could be volatile and could decline, resulting in a substantial or complete loss on our shareholders’
investment.
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The stock markets (including The New York Stock Exchange, or the “NYSE,” on which we list our common and
preferred 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;
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.
Moreover, an active trading market on the NYSE for our Series A Preferred Shares that were issued in December
2010 may not develop or, if it does develop, may not last, in which case the trading price of our Series A Preferred Shares
could be adversely affected. 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.
Holders of our Series A Preferred Shares have extremely limited voting rights.
Holders of our Series A Preferred Shares have extremely limited voting rights. Our common shares are the only class
of our equity securities carrying full voting rights. Voting rights for holders of Series A Preferred Shares exist primarily
with respect to the ability to appoint additional trustees to our Board of Trustees in the event that six quarterly dividends
(whether or not consecutive) payable on our Series A Preferred Shares are in arrears, and with respect to voting on
amendments to our declaration of trust or our Series A Preferred Shares Articles Supplementary that materially and
adversely affect the rights of Series A Preferred Shares holders or create additional classes or series of preferred shares that
are senior to our Series A Preferred Shares. Other than very limited circumstances, holders of our Series A Preferred Shares
will not have voting rights.
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.
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Our organizational documents contain provisions that may have an anti-takeover effect and inhibit a change in our
management.
(1) There are ownership limits and restrictions on transferability in our declaration of trust. In order for us to qualify
as a REIT, no more than 50% of the value of our outstanding shares may be owned, actually or constructively, by five or
fewer individuals at any time during the last half of each taxable year. To make sure that we will not fail to satisfy this
requirement and for anti-takeover reasons, our declaration of trust generally prohibits any shareholder (other than an
excepted holder or certain designated investment entities, as defined in our declaration of trust) from owning (actually,
constructively or by attribution), more than 7% of the value or number of our outstanding common shares. Our declaration
of trust provides an excepted holder limit that allows members of the Kite family (Al Kite, John Kite and Paul Kite, their
family members and certain entities controlled by one or more of the Kites), as a group, to own more than 7% of our
outstanding common shares, so long as, under the applicable tax attribution rules, no one excepted holder treated as an
individual would hold more than 21.5% of our common shares, no two excepted holders treated as individuals would own
more than 28.5% of our common shares, no three excepted holders treated as individuals would own more than 35.5% of
our common shares, no four excepted holders treated as individuals would own more than 42.5% of our common shares,
and no five excepted holders treated as individuals would own more than 49.5% of our common shares. Currently, one of
the excepted holders would be attributed all of the common shares owned by each other excepted holder and, accordingly,
the excepted holders as a group would not be allowed to own in excess of 21.5% of our common shares. If at a later time,
there were not one excepted holder that would be attributed all of the shares owned by the excepted holders as a group, the
excepted holder limit would not permit each excepted holder to own 21.5% of our common shares. Rather, the excepted
holder limit would prevent two or more excepted holders who are treated as individuals under the applicable tax attribution
rules from owning a higher percentage of our common shares than the maximum amount of common shares that could be
owned by any one excepted holder (21.5%), plus the maximum amount of common shares that could be owned by any one
or more other individual common shareholders who are not excepted holders (7%). Certain entities that are defined as
designated investment entities in our declaration of trust, which generally includes pension funds, mutual funds, and certain
investment management companies, are permitted to own up to 9.8% of our outstanding common shares, so long as each
beneficial owner of the shares owned by such designated investment entity would satisfy the 7% ownership limit if those
beneficial owners owned directly their proportionate share of the common shares owned by the designated investment
entity. Our Board of Trustees may waive the 7% ownership limit or the 9.8% designated investment entity limit for a
shareholder that is not an individual if such shareholder provides information and makes representations to the board that
are satisfactory to the board, in its reasonable discretion, to establish that such person’s ownership in excess of the 7% limit
or the 9.8% limit, as applicable, would not jeopardize our qualification as a REIT. In addition, our declaration of trust
contains certain other ownership restrictions intended to prevent us from earning income from related parties if such income
would cause us to fail to comply with the REIT gross income requirements. The various ownership restrictions may:
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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 additional 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
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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
recent date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair
price and super-majority shareholder voting requirements on these combinations; and
“control share” provisions that provide that “control shares” of our company (defined as shares which, when
aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three
increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as
the direct or indirect acquisition of ownership or control of “control shares” from a party other than the
issuer) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at
least two thirds of all the votes entitled to be cast on the matter, excluding all interested shares, and are
subject to redemption in certain circumstances.
We have opted out of these provisions of Maryland law. However, our Board of Trustees may opt to make these
provisions applicable to us at any time.
Certain officers and trustees may have interests that conflict with the interests of shareholders.
Certain of our officers and members of our Board of Trustees own limited partner units in our Operating Partnership.
These individuals may have personal interests that conflict with the interests of our shareholders with respect to business
decisions affecting us and our Operating Partnership, such as interests in the timing and pricing of property sales or
refinancings in order to obtain favorable tax treatment. As a result, the effect of certain transactions on these unit holders
may influence our decisions affecting these properties.
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 for one-year terms with each of our executive officers. These agreements automatically
renew for a one-year term 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, 2011. 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 are 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 are 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.
Any additional debt we incur will increase our leverage, expose us to the risk of default and may impose operating
restrictions on us, and any additional equity we raise could be dilutive to existing shareholders. Our access to third-party
sources of capital depends on a number of things, including:
21
the market’s perception of our growth potential;
• general market conditions;
•
• our current debt levels;
• our current and potential future earnings;
• our cash flow and cash distributions;
• our ability to qualify as a REIT for federal income tax purposes; and
•
the market price of our common shares.
If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when
strategic opportunities exist, satisfy our principal and interest obligations or make distributions to our shareholders.
Our rights and the rights of our shareholders to take action against our trustees and officers are limited.
Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties
in good faith, in a manner he or she reasonably believes to be in our best interests that an ordinarily prudent person in a like
position would use under similar circumstances. Our declaration of trust and bylaws require us to indemnify our trustees
and officers for actions taken by them in those capacities to the extent permitted by Maryland law. As a result, we and our
shareholders may have more limited rights against our trustees and officers than might otherwise exist under common law.
Accordingly, in the event that actions taken in good faith by any of our trustees or officers impede the performance of our
company, our shareholders’ ability to recover damages from such trustee or officer will be limited.
Our shareholders have limited ability to prevent us from making any changes to our policies that they believe could
harm our business, prospects, operating results or share price.
Our Board of Trustees has adopted policies with respect to certain activities. These policies may be amended or
revised from time to time at the discretion of our Board of Trustees without a vote of our shareholders. This means that our
shareholders will have limited control over changes in our policies. Such changes in our policies intended to improve,
expand or diversify our business may not have the anticipated effects and consequently may adversely affect our business
and prospects, results of operations and share price.
TAX RISKS
Failure of our company to qualify as a REIT would have serious adverse consequences to us and our shareholders.
We believe that we have qualified for taxation as a REIT for federal income tax purposes commencing with our
taxable year ended December 31, 2004. We intend to continue to meet the requirements for qualification and taxation as a
REIT, but we cannot assure shareholders that we will qualify as a REIT. We have not requested and do not plan to request a
ruling from the IRS that we qualify as a REIT, and the statements in this Annual Report on Form 10-K are not binding on
the IRS or any court. As a REIT, we generally will not be subject to federal income tax on our income that we distribute
currently to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The
determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally
within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive
sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified
amounts of debt and equity securities of some issuers. We also are required to distribute to our shareholders with respect to
each year at least 90% of our REIT taxable income (excluding capital gains). The fact that we hold substantially all of our
assets through our Operating Partnership and its subsidiaries and joint ventures further complicates the application of the
REIT requirements for us. Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly
complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any
assurance that we will continue to qualify as a REIT. Furthermore, Congress and the IRS might make changes to the tax
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.
22
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
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
23
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
24
ITEM 2. PROPERTIES
Retail Operating Properties
As of December 31, 2010, we owned interests in a portfolio of 53 retail operating properties totaling 8.0 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, 2010:
OPERATING RETAIL PROPERTIES - TABLE I
Property1
MSA
Oldsmar
State
Bayport Commons6
FL
FL Ft. Lauderdale
Coral Springs
Estero Town Commons6
Naples
FL
Vero Beach
FL
Indian River Square
Daytona
FL
International Speedway Square
Naples
FL
King's Lake Square
Naples
FL
Pine Ridge Crossing
Naples
FL
Riverchase Plaza
Naples
FL
Shops at Eagle Creek
Naples
FL
Tarpon Springs Plaza
Gainesville
FL
Wal-Mart Plaza
Orlando
FL
Waterford Lakes Village
Atlanta
GA
Kedron Village
Atlanta
GA
Publix at Acworth
Atlanta
GA
The Centre at Panola
Chicago
IL
Fox Lake Crossing
Chicago
IL
Naperville Marketplace
Chicago
IL
South Elgin Commons
Indianapolis
IN
50 South Morton
54th & College
Indianapolis
IN
Beacon Hill6
Crown Point
IN
Kokomo
IN
Boulevard Crossing
Indianapolis
IN
Bridgewater Marketplace
Indianapolis
Cool Creek Commons
IN
South Bend
Eddy Street Commons (Retail only) IN
Fishers Station4
Indianapolis
IN
Indianapolis
IN
Geist Pavilion
Indianapolis
IN
Glendale Town Center
Indianapolis
IN
Greyhound Commons
IN
Hamilton Crossing Centre
Indianapolis
IN Martinsville
Martinsville Shops
Evansville
IN
Red Bank Commons
Indianapolis
IN
Stoney Creek Commons
The Centre5
Indianapolis
IN
Indianapolis
IN
The Corner
Indianapolis
IN
Traders Point
Indianapolis
IN
Traders Point II
Bloomington
IN
Whitehall Pike
Indianapolis
IN
Zionsville Place
Oak Ridge
Ridge Plaza
NJ
Cincinnati
OH
Eastgate Pavilion
Cornelius Gateway6
Portland
OR
Shops at Otty7
Portland
OR
Burlington Coat Factory8
San Antonio
TX
Dallas
TX
Cedar Hill Village
Hurst
TX
Market Street Village
Dallas
TX
Plaza at Cedar Hill
Austin
TX
Plaza Volente
Dallas
TX
Preston Commons
El Paso
TX
Sunland Towne Centre
Seattle
WA
50th & 12th
Gateway Shopping Center9
Seattle
WA
Sandifur Plaza6
Pasco
WA
Year
Built/Renovated
2008
2004/2010
2006
1997/2004
1999
1986
1993
1991/2001
1983
2007
1970
1997
2006
1996
2001
2002
2008
2009
1999
2008
2006
2004
2008
2005
2009
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
2004
2007
2005
1999
2003
2006
2006
2003
2007
2004
2004
2006
2004
2004
2005
2008
2009
1999
2008
2007
2004
2008
2005
2010
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
Redeveloped
Developed
Acquired
Developed
Acquired
Acquired
Acquired
Redeveloped
Developed
Acquired
Acquired
Developed
Acquired
Acquired
Acquired
Developed
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
46,079
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
87,762
116,885
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
5,132,850
268,556
46,079
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
87,762
116,885
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
8,020,295
Percentage of Owned
GLA Leased3
91.5%
100.0%
57.0%
97.6%
94.1%
90.5%
96.4%
100.0%
52.0%
95.1%
94.6%
95.0%
89.3%
96.6%
100.0%
79.9%
96.1%
100.0%
100.0%
*
54.0%
93.0%
61.6%
96.9%
85.3%
87.7%
83.7%
97.4%
*
92.1%
16.4%
66.0%
100.0%
96.5%
100.0%
99.0%
61.8%
100.0%
100.0%
81.3%
100.0%
62.3%
100.0%
100.0%
94.1%
100.0%
89.5%
86.0%
77.4%
96.7%
100.0%
92.8%
82.5%
92.2%
25
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 leased as of December 31, 2010, 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.
As of December 31, 2010, the Company owns a 60% interest in this property through a joint venture with a third party that manages the property. Subsequent to
year-end, the Company acquired the remaining 40% interest and assumed all leasing and management responsibilities.
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 performs on-site
management of the property.
26
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2
3
Land Held for Future Development
As of December 31, 2010, we owned interests in land parcels comprising 93 acres that are expected to 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 3.2% of the portfolio’s annualized base rent for the
year ended December 31, 2010. 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, 2010:
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 & Beyound
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
147,079
140,000
134,298
3,634,519
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
147,079
0
134,298
1,360,154
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.
33
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, 2010:
TOP 25 TENANTS BY ANNUALIZED BASE RENT
1, 2
Tenant
Publix
Petsmart
Bed Bath & Beyond/Buy Buy Baby
Lowe's Home Improvement
Ross Stores
State of Indiana
Marsh Supermarkets
Dick's Sporting Goods
Indiana Supreme Court
Staples
HEB Grocery Company
Toys “R” Us
Office Depot
Best Buy
Kmart
LA Fitness
TJX Companies
Michaels
Dominick's
City Securities Corporation
A & P
Mattress Firm
Petco
Beall's
Landmark Theatres
TOTAL
Type of
Property
Retail
Retail
Retail
Retail
Retail
Commercial
Retail
Retail
Commercial
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Commercial
Retail
Retail
Retail
Retail
Retail
Number of
Locations
6
6
6
2
5
3
2
3
1
4
1
2
4
2
1
1
3
3
1
1
1
1
3
2
1
Leased
GLA/NRA2
289,779
147,079
168,165
128,997
147,648
210,393
124,902
171,737
75,488
89,797
105,000
80,600
103,402
75,045
110,875
45,000
88,550
68,989
65,977
38,810
58,732
29,255
40,778
79,611
43,050
% of Owned
GLA/NRA
of the
Portfolio
5.1%
2.6%
3.0%
2.3%
2.6%
3.7%
2.2%
3.0%
1.3%
1.6%
1.9%
1.4%
1.8%
1.3%
2.0%
0.8%
1.6%
1.2%
1.2%
0.7%
1.0%
0.5%
0.7%
1.4%
0.8%
Annualized
Base Rent1,3
Annualized
Base Rent
per Sq. Ft.
$
2,366,871 $
2,057,838
1,787,698
1,764,000
1,681,504
1,635,911
1,605,139
1,404,508
1,339,164
1,226,835
1,155,000
1,095,050
1,069,504
934,493
850,379
843,750
818,313
792,515
775,230
771,155
763,516
719,094
595,945
588,000
573,504
8.17
13.99
10.63
6.04
11.39
7.78
12.85
8.18
17.74
13.66
11.00
13.59
10.34
12.45
7.67
18.75
9.24
11.49
11.75
19.87
13.00
24.58
14.61
7.39
13.32
% of Total
Portfolio
Annualized
Base Rent
3.2%
2.8%
2.4%
2.4%
2.3%
2.2%
2.2%
1.9%
1.8%
1.7%
1.6%
1.5%
1.4%
1.3%
1.1%
1.1%
1.1%
1.1%
1.0%
1.0%
1.0%
1.0%
0.8%
0.8%
0.8%
2,587,659
45.7%
$ 29,214,916 $
10.61
39.5%
____________________
1
Annualized base rent represents the monthly contractual rent for December 2010 for each applicable tenant multiplied by 12.
2
3
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.
34
Geographic Information
The Company owns 53 operating retail properties, totaling approximately 5.1 million of owned square feet in nine
states. As of December 31, 2010, the Company owned interests in four operating commercial properties, totaling
approximately 0.6 million square feet of net rentable area,. 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, 2010:
Indiana
• Retail
• Commercial
Florida
Texas
Georgia
Washington
Ohio
Illinois
New Jersey
Oregon
Number of
Operating
Properties1
25
21
4
12
7
3
3
1
3
1
2
57
Owned
GLA/NRA2
2,354,799
1,773,419
581,380
1,223,047
1,099,480
300,116
126,496
236,230
227,830
115,063
31,169
5,714,230
Percent of
Owned
GLA/NRA
41.2%
31.0%
10.2%
21.4%
19.2%
5.3%
2.2%
4.1%
4.0%
2.0%
0.6%
100.0%
Total
Number of
Leases
243
225
18
152
80
58
19
7
17
13
13
602
Annualized
Base Rent3
$
$
27,905,136
20,557,254
7,347,882
14,068,927
11,956,978
4,119,884
2,730,418
2,130,416
2,918,677
1,549,071
538,539
67,918,046
Percent of
Annualized
Base Rent
41.1%
30.3%
10.8%
20.7%
17.6%
6.1%
4.0%
3.1%
4.3%
2.3%
0.8%
100.0%
$
Annualized
Base Rent per
Leased Sq. Ft.
12.82
12.65
13.33
12.53
11.64
14.66
23.31
9.02
14.26
16.56
23.28
12.86
$
____________________
1
This table includes operating retail properties, operating commercial properties, and ground lease tenants who commenced paying rent as of
December 31, 2010.
2
3
Owned GLA/NRA represents gross leasable area or net leasable area owned by the Company. It does not include 29 parcels or outlots
owned by the Company and ground leased to tenants, which contain 18 non-owned structures totaling approximately 357,104 square feet. It
also excludes the square footage of Union Station Parking Garage.
Annualized Base Rent excludes $2,962,906 in annualized ground lease revenue attributable to parcels and outlots owned by the Company
and ground leased to tenants.
Lease Expirations
In 2011, leases representing 7.5% of total annualized base rent and 7.1% of total GLA/NRA expire. The following
tables show scheduled lease expirations for retail and commercial tenants and in-process and redevelopment property
tenants open for business as of December 31, 2010, 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, 2010.
1
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Beyond
Number of
Expiring
Leases1
100
101
77
79
93
53
28
25
17
25
42
640
Expiring
GLA/NRA2
397,456
395,298
541,444
565,321
739,573
592,918
414,614
354,984
191,139
456,350
967,983
5,617,080
% of Total
GLA/NRA
Expiring
7.1%
7.0%
9.6%
10.1%
13.2%
10.6%
7.4%
6.3%
3.4%
8.1%
17.2%
100.0%
$
Expiring
Annualized Base
Rent3
5,431,745
6,334,586
6,480,454
7,571,118
9,908,321
4,824,389
5,953,424
4,847,673
2,916,397
4,939,110
12,829,232
72,036,449
% of Total
Annualized
Base Rent
7.5%
8.8%
9.0%
10.5%
13.8%
6.7%
8.3%
6.7%
4.1%
6.9%
17.7%
100.0%
$
Expiring
Annualized Base
Rent per Sq. Ft.
13.67
16.02
11.97
13.39
13.40
8.14
14.36
13.66
15.26
10.82
13.25
12.82
$
Expiring Ground
Lease Revenue
0
$
0
0
340,475
198,650
0
266,300
128,820
33,000
156,852
1,838,809
$ 2,962,906
$
35
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO (continued)
____________________
1
Lease expiration table reflects rents in place as of December 31, 2010, and does not include option periods; 2011 expirations include 17 month-to-
month tenants. This column also excludes ground leases.
2
3
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 2010 for each applicable tenant multiplied by 12. Excludes ground
lease revenue.
LEASE EXPIRATION TABLE – RETAIL ANCHOR TENANTS
1
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Beyond
Number of
Expiring
Leases2
6
8
4
9
18
8
11
8
6
11
20
109
Expiring
GLA/NRA3
179,074
155,256
254,062
236,834
500,359
448,624
277,112
300,576
150,989
406,300
804,179
3,713,365
% of Total
GLA/NRA
Expiring5
3.2%
2.8%
4.5%
4.2%
8.9%
8.0%
4.9%
5.4%
2.7%
7.2%
14.3%
66.1%
$
Expiring
Annualized Base
Rent4
1,400,772
1,403,082
1,229,611
2,355,657
5,003,195
2,156,822
3,387,644
3,580,504
2,070,625
3,671,329
9,937,584
$ 36,196,825
% of Total
Annualized Base
Rent5
1.9%
2.0%
1.7%
3.3%
7.0%
3.0%
4.7%
5.0%
2.9%
5.1%
13.7%
50.3%
Expiring
Annualized Base
Rent per Sq. Ft.
$
$
7.82
9.04
4.84
9.95
10.00
4.81
12.22
11.91
13.71
9.04
12.36
9.75
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.
2
3
4
5
Lease expiration table reflects rents in place as of December 31, 2010, and does not include option periods; 2011 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 2010 for each applicable property multiplied by 12. Excludes ground
lease revenue.
Percentage is percentage of base rent from all retail and commercial tenants
LEASE EXPIRATION TABLE – RETAIL SHOPS
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Beyond
Number of
Expiring
Leases1
93
92
68
67
74
45
15
16
11
14
18
513
Expiring
GLA/NRA1,2
201,344
230,524
152,943
165,799
194,113
144,294
58,264
47,369
40,150
50,050
67,509
1,352,359
% of Total
GLA/NRA
Expiring4
3.6%
4.1%
2.7%
3.0%
3.5%
2.6%
1.0%
0.8%
0.7%
0.9%
1.2%
24.1%
$
Expiring
Annualized Base
Rent3
3,732,798
4,769,698
3,525,834
3,634,004
4,125,619
2,667,568
1,159,297
1,140,462
845,772
1,267,780
1,622,909
$ 28,491,741
% of Total
Annualized Base
Rent4
5.2%
6.6%
4.9%
5.0%
5.7%
3.7%
1.6%
1.6%
1.2%
1.8%
2.2%
39.5%
36
$
Expiring
Annualized Base
Rent per Sq. Ft.
18.54
20.69
23.05
21.92
21.25
18.49
19.90
24.08
21.07
25.33
24.04
21.07
$
Expiring Ground
Lease Revenue
$
0
0
0
340,475
198,650
0
266,300
128,820
33,000
156,852
848,809
1,972,906
$
LEASE EXPIRATION TABLE – RETAIL SHOPS (continued)
____________________
1
Lease expiration table reflects rents in place as of December 31, 2010, and does not include option periods; 2010 expirations include 16 month-to-
month tenants. This column also excludes ground leases.
2
3
4
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 2010 for each applicable property multiplied by 12. Excludes ground
lease revenue.
Percentage is percentage of base rent from all retail and commercial tenants.
LEASE EXPIRATION TABLE – COMMERCIAL TENANTS
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Beyond
Number of
Expiring Leases1
1
1
5
3
1
0
2
1
0
0
4
18
Expiring
GLA/NLA1
17,038
9,518
134,439
162,688
45,101
0
79,238
7,039
0
0
96,295
551,356
% of Total
GLA/NRA
Expiring3
0.3%
0.2%
2.4%
2.9%
0.8%
0.0%
1.4%
0.1%
0.0%
0.0%
1.7%
9.8%
Expiring Annualized
Base Rent2
$
298,176
161,806
1,725,009
1,581,457
779,507
0
1,406,484
126,708
0
0
1,268,736
7,347,883
$
% of Total
Annualized Base
Rent3
0.4%
0.2%
2.4%
2.2%
1.1%
0.0%
2.0%
0.2%
0.0%
0.0%
1.7%
10.2%
$
Expiring Annualized
Base Rent per Sq. Ft.
17.50
17.00
12.83
9.72
17.28
0.00
17.75
18.00
0.00
0.00
13.18
13.33
$
____________________
1
Lease expiration table reflects rents in place as of December 31, 2010, and does not include option periods. This column also excludes ground
leases.
2
3
Annualized base rent represents the monthly contractual rent for December 2010 for each applicable property multiplied by 12.
Percentage is percentage of base rent from all retail and commercial tenants.
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. RESERVED
37
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 February 28, 2011, the last reported sales price of our common shares on the NYSE was $5.61.
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, 2010............. $
Quarter Ended September 30, 2010 ............ $
Quarter Ended June 30, 2010...................... $
Quarter Ended March 31, 2010................... $
Quarter Ended December 31, 2009............. $
Quarter Ended September 30, 2009 ............ $
Quarter Ended June 30, 2009...................... $
Quarter Ended March 31, 2009................... $
High
Low
Closing
5.65 $
5.04 $
5.97 $
5.23 $
4.40 $
4.28 $
4.77 $
6.46 $
4.32 $
3.75 $
4.01 $
3.24 $
2.95 $
2.60 $
2.25 $
2.03 $
5.41
4.44
4.18
4.73
4.07
4.17
2.92
2.45
Holders
The number of registered holders of record of our common shares was 88 as of February 28, 2011. 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 2010 ..........
3rd 2010 ..........
2nd 2010..........
1st 2010 ..........
4th 2009 ..........
3rd 2009 ..........
2nd 2009..........
1st 2009 ..........
Record Date
January 6, 2011 $
October 6, 2010 $
$
July 7, 2010
April 7, 2010
$
January 7, 2010 $
October 7, 2009 $
$
July 7, 2009
$
April 7, 2009
Payment Date
January 13, 2011
October 13, 2010
July 14, 2010
April 16, 2010
January 18, 2010
October 16, 2009
July 17, 2009
April 17, 2009
0.0600
0.0600
0.0600
0.0600
0.0600
0.0600
0.0600
0.1525
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
38
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, 2010, approximately 98% of our distributions to shareholders constituted a return of capital, and 2%
constituted capital gains.
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. 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, 2005 to December 31, 2010, 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, 2005 and that all cash distributions were reinvested. The shareholder return shown on the graph below is
not indicative of future performance.
39
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
12/05
3/06
6/06
9/06
12/06
3/07
6/07
9/07
12/07
3/08
6/08
9/08
12/08
3/09
6/09
9/09
12/09
3/10
6/10
9/10
12/10
Kite Realty Group Trust
S&P 500
FTSE NAREIT Equity REITs
*$100 invested on 12/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
12/05
6/06
12/06
6/07
12/07
6/08
12/08
6/09
12/09
6/10
12/10
Kite Realty Group Trust
S&P 500
FTSE NAREIT Equity REITs
100.00
100.00
100.00
103.26
102.71
112.92
126.27
115.80
135.06
131.58
123.85
127.11
107.86
122.16
113.87
90.75
107.60
109.77
41.86
76.96
70.91
24.19
79.40
62.25
34.99
97.33
90.76
36.90
90.85
95.80
49.13
111.99
116.12
40
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, on a historical basis, selected financial and operating information. The financial
information has been derived from our consolidated balance sheets and statements of operations. This information should
be read in conjunction with our audited consolidated financial statements and Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.
Year Ended December 31
2010
20091
($ in thousands, except share and per share data)
20071,2,3
20081,2
20061,2,3
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 (expense) benefit of taxable REIT subsidiary
(Loss) 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......................................................
(Loss) 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 (loss) income attributable to noncontrolling interests
Net (loss) income attributable to Kite Realty Group Trust
Dividends on preferred shares
Net (loss) income attributable to common shareholders.......
(Loss) income per common share – basic:
(Loss) 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:
(Loss) 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:
(Loss) income from continuing operations
Discontinued operations
Net (loss) income attributable to Kite Realty Group Trust
common shareholders
$
$
94,568
6,848
101,416
$
95,841
19,451
115,292
102,960
39,103
142,063
$
$
95,604
37,260
132,864
85,651
41,447
127,098
17,692
12,045
6,142
5,372
40,732
81,983
19,433
(28,532)
(266)
(52)
—
—
—
231
(9,186)
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
—
(732)
331
2,079
1,685
—
—
—
(9,186)
915
(8,271)
(377)
(8,648)
$
(5,385)
—
(6,117)
(1,178)
(604)
(1,782)
—
(1,782)
(0.14)
$
0.07
$
$
—
(2,690)
(2,359)
7,824
(1,731)
6,093
—
6,093
$
—
2,036
4,115
17,991
(4,468 )
13,523
—
13,523
0.26
$
0.36
—
(0.10)
(0.06)
0.11
(0.14)
$
(0.03)
$
0.20
$
0.47
(0.14)
$
0.07
$
0.26
$
0.35
—
—
1,685
13,287
(3,107 )
10,180
—
10,180
0.31
0.04
0.35
0.31
$
$
$
$
—
(0.10)
(0.06)
0.11
0.04
(0.14)
$
(0.03)
$
0.20
$
0.46
$
0.35
52,146,454
52,146,454
0.3325
30,328,408
30,340,449
0.8200
$
28,908,274
29,180,987
0.8000
$
28,733,228
28,903,114
0.7650
$
3,516
(5,298)
(1,782)
$
$
7,945
(1,852)
$
10,325
3,198
$
8,878
1,302
6,093
$
13,523
$
10,180
$
$
$
63,240,474
63,240,474
0.2400
(8,648)
—
(8,648)
41
$
$
$
$
$
$
$
$
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 $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 $2.0 million. 176th & Meridian was a development
property that was added to the operating portfolio in the third quarter of 2004. The gain and the operating results related to this property have been reflected
as discontinued operations for fiscal years ended December 31, 2007 and 2006.
Year Ended December 31
2010
2009
2008
($ in thousands)
2007
2006
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......................................................... $
1,047,849 $
15,395 $
1,132,783 $
610,927 $
658,689 $
1,044,799 $
19,958 $
1,140,685 $
658,295 $
710,929 $
1,035,454 $
9,918 $
965,583 $
19,002 $
1,112,052 $ 1,048,235 $
646,834 $
709,369 $
677,661 $
755,400 $
892,625
23,953
983,161
566,976
630,139
44,115
$
423,065 $
6,914 $
1,132,783 $
47,307
$
375,078 $
7,371 $
1,140,685 $
67,277 $
284,958 $
4,417 $
127,325 $
206,810 $
4,731 $
1,112,052 $ 1,048,235 $
156,457
192,269
4,296
983,161
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, redevelopment, 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 management 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, 2010, we owned interests in a portfolio of 53 operating retail properties totaling 8.0 million
square feet of gross leasable area (including non-owned anchor space) and also owned interests in four operating
commercial properties totaling 0.6 million square feet of net rentable area. Also, as of December 31, 2010, we had an
interest in six properties in our development and redevelopment pipelines. Upon completion, we anticipate our
42
development and redevelopment properties will have 0.9 million square feet of total gross leasable area (including non-
owned anchor space).
Finally, as of December 31, 2010, we also owned interests in other land parcels comprising 93 acres that we expect to
be used for future expansion of existing properties, development of new retail or commercial properties or we may elect to
sell such parcels under certain circumstances. 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 2010. These difficult conditions had a negative impact on consumer spending during 2010. Factors
contributing to a decline in consumer spending at stores owned and/or operated by our retail tenants include, among others:
•
Shortage or Unavailability of Financing: In the U.S., economic and market conditions have begun to
stabilize. Credit conditions have continued to improve from the prior year with increased access and
availability to secured mortgage debt and the unsecured bond and equity markets. Lending institutions
continue to maintain tight credit standards for individual and small business lending, making it difficult for
individuals and local retailers (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.
• Continued High Unemployment Rates: The U.S. unemployment rate was 9.4% in December 2010 and
continues to be higher than historical levels. Continued high unemployment rates could cause further
decreases in consumer spending, thereby negatively affecting the businesses of our retail tenants. We
continue to focus on markets where household income within a 5 mile radius of our properties is higher than
statewide levels. As an example, the average household income within a 5 mile radius of our Indiana
properties is approximately $92,000 compared to a statewide average of approximately $63,000.
• Lower Consumer Confidence: Since 2008, consumer confidence continues to be at low levels, leading to
consumers spending less money on discretionary purchases. The continued high level in both personal and
business bankruptcies during 2009 and 2010 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 most of 2010, job growth and consumer spending continued to remain at low levels. Consumer spending and
job growth improved during the fourth quarter of 2010; however, it is unclear if these improvements will continue, level off
or reverse themselves. Lower consumer spending has a negative impact on the businesses of our retail tenants. 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 2010 as compared to 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, including the states of Indiana, Florida and Texas, where the majority of our
operating properties are located, and in North Carolina, where a significant portion of our development projects are located.
As discussed above, due to the challenges facing U.S. consumers, the operations of many of our retail tenants were
negatively affected in 2010. In turn, this has a negative impact on our business, including the following:
43
• 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
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 declined in
2010 in comparison to 2009; however, there can be no assurance that this trend will continue. 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 2010, tenants at some of our properties terminated their
leases with us. In some cases, we were able to secure replacement tenants at rental rates comparable to the
rates of the terminated tenants. Also, in some cases we were able to negotiate lease termination fees from
these tenants, but in most cases our negotiations were unsuccessful.
• Tenant Bankruptcies. The number of bankruptcies by U.S. businesses has decreased from the historically
high levels experienced during 2009. While, we have seen a decrease over the past year in tenant
bankruptcies, we have continued to experience bankruptcy levels higher than our historically normal levels, a
trend which may continue into the foreseeable future. A&P, which leases 59,000 square feet at Ridge Plaza
in New Jersey and accounts for 1.0% of annualized base rent, has filed for bankruptcy. As of February 28,
2011, the tenant was current on its rent payments and is currently not on the list of stores slated for closure.
• Decrease in Demand for Retail Space. Demand for retail space at our shopping centers improved somewhat
in 2010, most notably from national and regional retailers. Demand from local, small shop merchants has
remained soft, reflecting the difficulty such potential tenants have securing financing for working capital and
expansion plans. While our leasing activity and overall leased percentage of our retail shopping centers
increased in 2010, overall demand for retail space may not continue and may decline in the future until
financial markets, consumer confidence, and the economy stabilize for an extended period of time.
The factors discussed above, among others, had a negative impact on our business during 2010. We believe it is
possible that some of these conditions may continue into the foreseeable future.
Financing Strategy; 2011 and 2012 Debt 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 ongoing instability of the financial markets in particular. As
of March 1, 2011, we had refinanced or extended the maturity dates for $17 million of the $92 million of debt maturing in
2011. The remaining $75 million of our 2011 debt maturities consists of property-level debt, of which $46 million has
maturity date extensions of one year, subject to certain customary conditions. With respect to the remaining $30 million,
we are pursuing financing alternatives to enable us to repay, refinance, or extend the maturity dates of these loans.
Based on our experience with property level debt over the last couple of years, we believe we will be able to
satisfactorily address all of our 2011 debt maturities; however, we cannot provide assurances about our ability to do so.
Failure to comply with our obligations under these various property-level loan agreements could cause an event of default,
which, among other things, could result in the loss of title to assets securing such loans, the acceleration of principal and
interest payments, termination of the debt facilities, or exposure to the risk of foreclosure.
Currently, $191 million of our consolidated indebtedness is scheduled to mature in 2012. In particular, our unsecured
revolving credit facility, which had a balance of $122 million as of December 31, 2010, will mature on February 20, 2012.
We have entered into a non-binding term sheet for an amended and restated unsecured revolving credit facility with a three
year term and anticipate closing on this transaction in the first half of 2011.
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 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 revolving credit facility, 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.
44
In 2010, we strengthened our balance sheet by completing an offering of 2,800,000 shares of Series A Cumulative
Redeemable Perpetual Preferred Shares at an offering price of $25.00 per share for aggregate gross and net proceeds of
$70.0 million and $67.5 million, respectively. A portion of the net proceeds was used to retire our $55 million unsecured
term loan, which had a maturity date of July 2011. The remaining net proceeds and borrowings on our unsecured revolving
line of credit were used to retire the $18.3 million loan encumbering International Speedway Square in Daytona, Florida,
which had a maturity date of March 11, 2011. In addition, we have available 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, 2010, we had a combined $62 million of available liquidity in the form of
cash and cash equivalents ($15 million) and availability under our unsecured revolving credit facility ($46 million).
In addition to raising new capital, we were also successful in extending the maturity dates or refinancing all of our
loans originally maturing in 2010 and some of our loans maturing in 2011. For example in 2010, we extended the maturity
date or refinanced the debt at three of our properties (South Elgin Commons, to September 2013; Cobblestone Plaza, to
February 2013; and Rivers Edge, to January 2016). Further, in the first quarter of 2011, we extended the maturity dates on
the debt at two other properties (Indiana State Motor Pool, to January 2014; and Parkside Town Commons, to February
2013). A schedule of our consolidated maturities (excluding regular principal payments) as of December 31, 2010 is set
forth below:
Year
2011
2012
2013
2014
2015
Thereafter
Unamortized Premiums
Total
$
$
$
Amount
81,565,647
191,470,222
75,308,320
35,188,821
41,841,534
185,005,157
610,379,701
546,912
610,926,613
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, 2010, our unfunded share of the total estimated cost of the properties in our in-
process development and redevelopment pipelines was approximately $36 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 $46 million of
availability as of December 31, 2010), adverse market conditions may 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.
Capitalization of Certain Pre-Development and Development Costs
45
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 and Joint Ventures
Management reviews both operational and development projects, land parcels and intangible assets 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. Management does not believe any investment properties or
development assets were impaired as of December 31, 2010.
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, amongst
other factors. Operating properties are carried at the lower of cost or fair value less costs to sell. Depreciation and
amortization are suspended during the held-for-sale period. The Company had no investment properties or development
assets held for sale as of December 31, 2010.
Our operating 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.
We also review our investments in unconsolidated entities. When circumstances indicate there may have been a loss
in value of an equity method investment, we evaluate the investment for impairment by estimating our ability to recover our
investments from future expected cash flows. If we determine the loss in value is other than temporary, we will recognize
an impairment charge to reflect the investment at fair value. The use of projected future cash flows and other estimates of
fair value and the determination of when a loss is other than temporary are complex and subjective. Use of other estimates
and assumptions may results in different conclusions. Changes in economic and operating conditions that occur subsequent
to our review could impact these assumptions and result in future impairment charges of our equity investments.
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.
46
Gains from 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, 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. 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.
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 10 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.
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, 2010, we owned interests in 57 operating properties (consisting of 53 retail properties and four
operating commercial (office/industrial) properties) and six entities that held development or redevelopment properties in
which we have an interest. These redevelopment properties included Bolton Plaza, Courthouse Shadows, Rivers Edge and
Four Corner Square, all of which are undergoing redevelopment. Of the 63 total properties held at December 31, 2010, only
a limited service hotel component of an operating property was owned through an unconsolidated joint venture and was
accounted for under the equity method.
At December 31, 2009, we owned interests in 55 operating properties (consisting of 51 retail properties and four
operating commercial properties) and seven entities that held development or redevelopment properties in which we have
an interest. These redevelopment properties included Bolton Plaza, Coral Springs Plaza, Courthouse Shadows, Rivers Edge
and Four Corner Square, all of which are undergoing redevelopment. Of the 62 total properties held at December 31, 2009,
47
only a limited service hotel component of a development parcel was owned through an unconsolidated joint venture and
was accounted for under the equity method.
At December 31, 2008, we owned interests in 56 operating properties (consisting of 52 retail properties and four
operating commercial properties) and had 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 was accounted for under the equity method.
The comparability of results of operations is affected by our development, redevelopment, and operating property
acquisition and disposition activities in 2008 through 2010. Therefore, we believe it is most useful to review the
comparisons of our results of operations for these years (as set forth below under “Comparison of Operating Results for the
Years Ended December 31, 2010 and 2009” and “Comparison of Operating Results for the Years Ended December 31,
2009 and 2008”) 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, 2010, 2009 and 2008, the following development properties became operational
or partially operational:
Property Name
MSA
Eddy Street Commons, Phase I2....................... South Bend, IN
South Elgin Commons, Phase I2....................... Chicago, IL
Cobblestone Plaza2 ........................................... Ft. Lauderdale, FL
54th & College .................................................. Indianapolis, IN
Economic
1
Occupancy Date
September 2009
June 2009
March 2009
June 2008
Owned GLA
169,921
45,000
132,743
N/A 3
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
during the years ending December 31, 2010 and 2009.
Property Name
MSA
Acquisition Date
Acquisition Cost
(Millions)
Rivers Edge1, 2................................
Indianapolis, IN
February 2008
$
18.3
Financing
Method
Primarily
Debt
Owned GLA
110,875
1
2
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.
Upon completion of redevelopment activities, the owned GLA is expected to be 152,285 square feet.
Operating Property Disposition Activities
During the year ended December 31, 2008, we sold the operating properties listed in the table below. We did not
sell any operating properties in the years ended December 31, 2010 and 2009. However, in 2009, 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-
48
cash impairment charge of $5.4 million. 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
MSA
Indianapolis, IN
Disposition Date
December 2008
December 2008
Owned GLA
63,431
132,716
____________________
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 $3.5 million. Net proceeds of $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 $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 $1.1 million, of which our share was $0.6
million.
2
We realized net proceeds of $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.
Redevelopment Activities
During the years ended December 31, 2010, 2009 and 2008, 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............................................
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
44,000
172,938
152,285
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. This tenant opened in the second half of 2010 and the property was
transitioned back to the operating portfolio in November 2010.
In 2009, Publix purchased the lease of the former anchor tenant and made certain improvements on the
space and we anticipate updating the existing façade, signage, landscaping and lighting.
In addition to the existing center, we also own approximately ten acres of adjacent land which may be
utilized in the redevelopment. We anticipate a portion of the existing center will remain open during the
redevelopment.
We executed a 66,500 square foot lease with Academy Sports & Outdoors to anchor this center and this
tenant opened 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 expired in March 2010. We executed leases with Nordstrom Rack, Buy Buy Baby,
The Container Store, Arhaus Furniture and BGI Fitness to anchor this center and we expect these tenants to
open during the second half of 2011 and first half of 2012.
49
Comparison of Operating Results for the Years Ended December 31, 2010 and 2009
The following table reflects income statement line items from our consolidated statements of operations for the years
ended December 31, 2010 and 2009:
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 (expense) benefit of taxable REIT
subsidiary
(Loss) income from unconsolidated entities
Non-cash gain from consolidation of subsidiary
Other income, net
(Loss) income from continuing operations
Discontinued operations:
Discontinued operations
Year Ended December 31,
2010
2009
Increase
(Decrease) 2010
to 2009
$
$
89,502,860
5,065,169
6,848,073
101,416,102
89,775,606 $
6,065,708
19,450,789
115,292,103
(272,746)
(1,000,539)
(12,602,716)
(13,876,001)
17,691,738
12,044,966
6,142,042
5,372,056
40,732,228
81,983,030
19,433,072
18,188,710
12,068,903
17,192,267
5,711,623
32,148,318
85,309,821
29,982,282
(496,972)
(23,937)
(11,050,225)
(339,567)
8,583,910
(3,326,791)
(10,549,210)
(28,532,440)
(27,151,054)
(1,381,386)
(265,986)
(51,964)
-
231,178
(9,186,140)
22,293
226,041
1,634,876
224,927
4,939,365
(288,279)
(278,005)
(1,634,876)
6,251
(14,125,505)
-
(732,621)
732,621
Non-cash loss on impairment of discontinued operations
Loss from discontinued operations
Consolidated net loss
-
-
(9,186,140)
(5,384,747)
(6,117,368)
(1,178,003)
Net loss (income) attributable to noncontrolling interests
Net loss attributable to Kite Realty Group Trust
Dividends on preferred shares
Net loss attributable to common shareholders
915,310
(8,270,830)
(376,979)
(8,647,809)
$
(603,763)
(1,781,766)
-
(1,781,766)
$
$
5,384,747
6,117,368
(8,008,137)
1,519,073
(6,489,064)
(376,979)
(6,866,043)
Rental income (including tenant reimbursements) decreased between years by $0.3 million, or 0.3%, due to the
following:
50
Development properties that became operational or were partially
operational in 2009 and/or 2010
Consolidation of The Centre
Properties under redevelopment during 2009 and/or 2010
Properties fully operational during 2009 and 2010 & other
Total
Increase
(Decrease) 2010
to 2009
$
$
2,736,718
916,490
(610,082)
(3,315,872)
(272,746)
Excluding the changes due to the consolidation of The Centre, transitioned development properties, and properties
under redevelopment, the net $3.3 million decrease in rental income was primarily related to the following:
• $1.6 million net decrease in real estate tax recoveries from tenants primarily due to decreased assessments at a
number of our operating properties;
• $0.8 million related to the net decrease in tenancy at these properties between periods.
• $0.5 million decrease at two of our properties due to the bankruptcy of Circuit City; and
• $0.4 million decrease from the 2009 sale of our Eagle Creek II asset.
For the overall portfolio, gross recovery ratio improved from 69.8% in 2009 to 71.8% in 2010, primarily because a
portion of refunds received pursuant to real estate tax appeals were not refundable to tenants. Gross recovery ratio is
computed by dividing tenant reimbursements by the sum of recoverable property operating expense and real estate tax
expense.
Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and
gains from land sales. This revenue decreased $1.0 million, or 16%, primarily as a result of the following:
• $0.8 million decrease in gains on land sales in 2010 compared to 2009; and
• 2009 reversal of a $0.4 million liability for which we are no longer obligated.
Offsetting these decreases was a $0.1 million increase in parking revenue primarily from our Eddy Street Commons
property.
Construction and service fee revenue decreased between years by $12.6 million, or 65%, primarily as a result of a
decline in third party construction contracts and construction management fees due to the economic downturn and our
strategic decision to reduce third party construction activity.
Property operating expenses decreased between years by $0.5 million, or 2.7%, due to the following:
Development properties that became operational or were partially
operational in 2009 and/or 2010
Consolidation of The Centre
Properties under redevelopment during 2009 and/or 2010
Properties fully operational during 2009 and 2010 & other
Total
Increase
(Decrease) 2010
to 2009
$
$
1,177,328
210,036
(254,992)
(1,629,345)
(496,973)
Excluding the changes due to the consolidation of The Centre, transitioned development properties, and properties
under redevelopment, the net $1.6 million decrease in property operating expenses was primarily due to the following:
51
•
$0.5 million net decrease in bad debt expense at a number of our operating properties reflecting a general
recovery in the economic condition of our tenants; and
• Cost containment efforts producing a $1.3 million decrease in landscaping, repairs, maintenance, and insurance
expenses, a portion of which is refundable to tenants and reflected as a reduction to tenant reimbursement
revenue; offset by a $0.2 million net increase in various other operating expenses.
Real estate taxes decreased $24,000, or 0.2%, due to the following:
Development properties that became operational or were partially
operational in 2009 and/or 2010
Consolidation of The Centre
Properties under redevelopment during 2009 and/or 2010
Properties fully operational during 2009 and 2010 & other
Total
Increase
(Decrease) 2010
to 2009
$
$
1,103,785
113,694
(154,433)
(1,086,983)
(23,937)
Excluding the changes due to the consolidation of the Centre, transitioned development properties, and properties
under redevelopment, the net $1.1 million decrease in real estate taxes was primarily due to the timing of the reassessments
of the taxable value of certain of our operating properties and the effects of successful appeals of these assessments. The
majority of the increases and decreases in our real estate tax expense from increased assessments and subsequent appeals is
recoverable from (or reimbursable to) tenants and, therefore, reflected in tenant reimbursement revenue.
Cost of construction and services decreased $11.1 million, or 64%, primarily as a result of a decline in third party
construction contracts and construction management fees due to the economic downturn and our strategic decision to
reduce third party construction activity, as discussed above.
General, administrative and other expenses decreased $0.3 million, or 6%, due to declines in personnel-related
expenses and various costs of operating as a public company, consistent with our strategy to reduce overhead.
Depreciation and amortization expense increased $8.6 million, or 27%, due to the following:
Development properties that became operational or were partially
operational in 2009 and/or 2010
Consolidation of The Centre
Properties under redevelopment during 2009 and/or 2010
Properties fully operational during 2009 and 2010 & other
Total
Increase
(Decrease) 2010
to 2009
$
$
1,114,109
432,964
5,664,991
1,371,847
8,583,911
Of the $8.6 million total increase in depreciation and amortization expense, $5.7 million was due to additional
depreciation on the Coral Springs Plaza and Rivers Edge redevelopment properties. Redevelopment plans for these
properties were finalized during the second quarter of 2010, resulting in a reduction to the useful lives of certain assets that
were subsequently demolished to prepare for the properties’ renovation. Excluding the changes due to the consolidation of
The Centre, transitioned development properties, and properties under redevelopment, the net $1.4 million increase in
depreciation and amortization expense was primarily due to the higher amounts of accelerated depreciation and
amortization of vacated tenant costs related to tenants, which terminated at our operating properties in 2010 as compared to
the prior year.
52
Interest expense increased $1.4 million, or 5%, with $1.1 million of the increase primarily due to the cessation of
interest capitalization as we delayed our plans at one of our development properties in 2010 and also transitioned other
properties to operating status. The remainder of the increase was due to higher borrowing costs for new borrowings and
debt refinanced since 2009 partially offset by debt repayments during the same period.
Income tax (expense) benefit of our taxable REIT subsidiary changed from a benefit of $22,000 in 2009 to an expense
of $266,000 in 2010. The 2009 benefit resulted from low construction volume in our taxable REIT subsidiary, and the
2010 expense is due to income to our taxable REIT subsidiary related to the sale of residential assets at the Eddy Street
Commons development in 2010.
(Loss) income from unconsolidated entities changed from income of $226,000 in 2009 to a loss of $52,000 in 2010.
The $226,000 of income in 2009 relates to The Centre operating property, which was consolidated in September 2009. The
loss of $52,000 in 2010 includes our share of pre-operating expenses related to the limited service hotel at our Eddy Street
Commons property, which opened in June 2010. Our other equity method joint venture is under development and is not yet
generating operating results.
The $1.6 million non-cash gain from consolidation of subsidiary in 2009 was recognized upon the consolidation of
The Centre joint venture as of September 30, 2009. Our share of the gain was $1.0 million.
The $6.1 million loss from discontinued operations in 2009 relates to the impairment and subsequent transfer of our
Galleria Plaza property to the ground lessor.
Net loss (income) attributable to noncontrolling interests changed from income of $0.6 million in 2009 to a loss of
$0.9 million in 2010. Net loss (income) attributable to noncontrolling interests generally reflects the percentage of the
Operating Partnership owned by the limited partners. Due to the May 2009 common share offering, the limited partners
weighted average diluted ownership percentage declined from 13.4% in 2009 to 11.1% in 2010. In 2009, noncontrolling
interests includes the noncontrolling interest in the non-cash gain from the consolidation of The Centre of $0.7 million and
the noncontrolling interest from the sale of an outlot parcel of $0.2 million.
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:
53
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
Years 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 $0.7 million, or 1%, 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
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;
54
• $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 $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 and service fee revenue decreased $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 $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 was 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.
These increases in property operating expenses were partially offset by a $0.3 million decrease in repairs and
maintenance expense.
Real estate taxes increased $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
55
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 $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 $0.2 million, or 3% due to small declines in personnel-related
expenses and various costs of operating as a public company.
Depreciation and amortization expense decreased $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.
Interest expense decreased $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 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
56
previously unconsolidated entity and contributed $2.1 million of capital to the entity. In accordance with the provisions of
Topic 810 – “Consolidation” of the Accounting Standards Codification (“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 $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 noncontrolling interest in the non-cash gain from consolidation of
The Centre of $0.7 million and the noncontrolling 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.
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 or equity offerings, including the purchase
price of properties to be developed or acquired, the estimated market value of our properties and the Company as a whole
upon consummation of the borrowing or offering, and the ability of particular properties to generate cash flow to cover debt
service. As discussed in more detail above in “Overview,” the recent market conditions have heightened the need for most
REITs, including us, to continue to place a significant amount of emphasis on financing and capital strategies. 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.
In 2008 and 2009, we received aggregate net proceeds of $135.3 million from offerings of our common shares. In
December 2010, we received net proceeds of $67.5 million from an offering of our Series A Cumulative Redeemable
Perpetual Preferred Shares. We used a portion of the proceeds from this offering to retire our $55 million unsecured term
loan. The remaining net proceeds and borrowings on the line of credit were used to retire the $18.3 million loan
encumbering International Speedway Square in Daytona, Florida. As a result of these transactions, our consolidated debt
was $611 million as of December 31, 2010 as compared to $658 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 were originally scheduled to mature in 2010 and 2011. As of March 1, 2011, we had refinanced or extended the
maturity dates for $17 million of the $92 million of debt maturing in 2011. The remaining $75 million of our 2011 debt
maturities consists of property-level debt, of which $46 million has maturity extensions of one year, subject to certain
customary conditions. With respect to the remaining $30 million, we are pursuing financing alternatives to enable us to
repay, refinance, or extend the maturity date of these loans. Our unsecured revolving credit facility is scheduled to mature
in 2012. The aggregate amount of outstanding indebtedness on our facility is $122.3 million as of December 31, 2010. We
have entered into a non-binding term sheet for an amended and restated unsecured revolving credit facility with a three-year
term and expect to close on this transaction during the first half of 2011.
57
We were also able to effectively recycle capital by selling outlots and unoccupied land parcels. During 2010, we
generated gross proceeds of $6.3 million from such sales, the majority 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, 2010, we had cash and cash equivalents on hand of $15.4 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, 2010, 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 is a party to 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 amended unsecured facility has a maturity date of February 20, 2012 after considering the one year extension
that was exercised in the fourth quarter of 2010. We have entered into a non-binding term sheet for an amended and
restated unsecured revolving credit facility with a three-year term and expect to close on this transaction during the first half
of 2011.
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, 2010, our outstanding indebtedness under the unsecured facility was $122.3 million, bearing
interest at a rate of LIBOR + 125 basis points. In addition, we have outstanding letters of credit totaling $7.2 million. As of
December 31, 2010, the amount available to us for future draws was $46 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, 47 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, International Speedway Square, 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;
58
• minimum tangible net worth (defined as Total Asset Value less Total Indebtedness, as defined in the
unsecured facility) 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, 2010.
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 net proceeds of $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.
In December 2010, the Company completed an equity offering of 2,800,000 shares of 8.25% Series A Cumulative
Redeemable Perpetual Preferred Shares at an offering price of $25.00 per share for aggregate gross and net proceeds of
$70.0 million and $67.5 million, respectively. A portion of the net proceeds were used to retire our $55 million unsecured
term loan, which had a maturity date of July 2011. The remaining net proceeds and borrowings on the line of credit were
used to retire the $18.3 million loan encumbering International Speedway Square. Our Series A cumulative redeemable
preferred shares have no stated maturity date although they may be redeemed, at our option, beginning in December 2015.
Sale of Real Estate Asset
We may pursue opportunities to sell non-strategic real estate assets in order to generate additional liquidity. Our
ability to dispose of such properties is dependent on the availability of credit to potential buyers to purchase properties at
prices that we consider acceptable. The sales price may be less than our carrying value.
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 recent economic downturn adversely
affected 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, had a negative impact on our business.
59
Short-Term Liquidity Needs
The nature of our business, coupled with the requirements to qualify for REIT status and in order to receive a tax
deduction for some or all of the dividends paid to shareholders, 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”) reduced our quarterly cash distribution to $0.06 per common share. The reduced
distribution of $0.06 has been maintained in each subsequent quarter including the quarter ended December 31, 2010. The
lowering of our distribution has allowed us to conserve cash to fund working capital and for other general corporate
purposes. 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 cash 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, 2010, we incurred $0.8 million of costs for
recurring capital expenditures on operating properties and also incurred $1.9 million of costs for tenant improvements and
external leasing commissions (excluding first generation space and development and redevelopment properties). We
currently anticipate incurring approximately $1.0 million in recurring capital expenditures at our operating properties and
approximately $15.4 million of additional major tenant improvements and renovation costs within the next twelve months
at several properties in our operating portfolio and redevelopment pipeline. We believe we currently have sufficient
financing in place to fund our investment in these projects through borrowings on our unsecured credit facility and
construction loans. In certain circumstances, we may seek to place specific construction financing on these redevelopment
projects.
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.
2011 Debt Maturities
As of December 31, 2010, $92 million of our outstanding indebtedness was scheduled to mature in 2011, excluding
scheduled monthly principal payments. As of March 1, 2011, we had refinanced or extended the maturity dates for $17
million of these maturities. The remaining $75 million of our 2011 debt maturities consists of property-level debt, of which
$46 million has maturity extensions of one year, subject to certain customary conditions. With respect to the remaining $30
million, we are pursuing financing alternatives to enable us to repay, refinance, or extend the maturity date of these loans.
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. As discussed above, our unsecured facility, which had a balance of $122 million as of December
31, 2010, will mature on February 20, 2012 after considering the one year extension that was exercised in the fourth quarter
of 2010. Subsequent to December 31, 2010, we entered into a non-binding term sheet for an amended and restated
unsecured revolving credit facility with a three year term and expect to close on this transaction in the first half of 2011.
Redevelopment Properties. As of December 31, 2010, four of our properties (Bolton Plaza, Rivers Edge, Courthouse
Shadows and Four Corner Square) were undergoing redevelopment activities. We currently anticipate our total investment
in these redevelopment projects will be approximately $30.2 million, of which $4.9 million has already been incurred. The
Company has entered into a five-year construction loan to fund the redevelopment of the Rivers Edge property. We believe
we currently have sufficient financing in place to fund our investment in the remaining projects through borrowings on our
unsecured revolving credit facility. In certain circumstances, we may seek to place specific construction financing on these
redevelopment projects.
60
Development Properties. As of December 31, 2010, we had two projects in our in-process development pipeline.
The total estimated cost, including our share and our joint venture partners’ share, for these projects is approximately $68
million, of which $56 million had been incurred as of December 31, 2010. Our share of the total estimated cost of these
projects is approximately $42 million, of which we have incurred $31 million as of December 31, 2010. We believe we
currently have sufficient financing in place to fund these projects and expect to do so primarily through existing
construction loans.
Future Development Pipeline. In addition to our in-process development pipeline, we have a future 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, 2010, this future development pipeline
consisted of five projects that are expected to contain approximately 2.5 million square feet of total leasable area. We
currently anticipate the total estimated cost of these projects will be approximately $298 million, of which our share is
currently expected to be approximately $180 million. Although we intend to develop these properties, we are not
contractually obligated to complete any developments in our future development pipeline. With respect to each asset in the
future development 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 in-process
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 revolving credit 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. We evaluate all future opportunities against pre-established criteria including,
but not limited to, location, demographics, tenant relationships, and amount of existing retail space. 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
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 only active project with PREI is Parkside Town Commons, which is currently
in our future development pipeline. As of December 31, 2010, we owned a 40% interest in this joint venture which, under
the terms of this joint venture, will be reduced to 20% upon the placement of construction financing.
Cash Flows
Comparison of the Year Ended December 31, 2010 to the Year Ended December 31, 2009
Cash provided by operating activities was $30.3 million for the year ended December 31, 2010, an increase of
$9.3 million from 2009. The increase was primarily due to higher cash outflows for accounts payable and accrued expenses
in 2009, the majority of which reflects third-party construction activity completed in the first half of 2009.
Cash used in our investing activities totaled $36.4 million in 2010, a decrease of $18.4 million from 2009. The
decrease in cash used in investing activities was primarily a result of a decline of $11.6 million in contributions to joint
ventures. In 2009, we contributed $12.0 million to our Parkside Town Commons development property and The Centre
operating property; while, in 2010, we contributed $450,000 to our Eddy Street Commons limited service hotel property.
Additionally, in 2009, we advanced $1.4 million to our joint venture partner in The Centre, and in 2010, $0.7 million of this
note was repaid. The remainder is a decrease of $5.2 million in cash outflows for capital expenditures as part of our cash
conservation strategy, we significantly reduced our acquisition, development and construction activities.
61
Cash provided by financing activities totaled $1.6 million during 2010, a decrease of $42.3 million from 2009. In
2010, we had a net reduction in debt of $46.9 million due to ongoing efforts to continue to strengthen our balance sheet.
The following items highlight additional significant capital transactions:
• In December 2010, we issued 2.8 million shares of Series A Cumulative Redeemable Perpetual Preferred Shares
for net proceeds of $67.5 million. A portion of the net proceeds were utilized to retire our $55 million unsecured
term loan.
• In order to retain additional cash to meet our capital needs, we reduced our quarterly dividend beginning in the
second quarter of 2009. We paid cash dividends of $0.24 per share in 2010, compared to cash dividends of
$0.3325 per share in 2009.
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 Rivers Edge redevelopment 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 lowering our
quarterly distribution to equity holders.
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 in-process development pipeline, 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,
2010, we owned a 40% interest in this joint venture which, under the terms of this joint venture, will be reduced to 20%
upon the placement of construction financing.
As of December 31, 2010, our share of unconsolidated joint venture indebtedness was $18.3 million. Unconsolidated
joint venture debt is the liability of the joint venture and is typically secured by the assets of the joint venture. 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, 2010, 2009 and 2008.
As of December 31, 2010, we have outstanding letters of credit totaling $7.2 million and no amounts were advanced
against these instruments.
With respect to our Eddy Street Commons development, we have jointly guaranteed the apartment developer’s
construction loan, which had an outstanding balance of $30.3 million as of December 31, 2010. The apartments are
substantially complete and the owner intends to secure nonrecourse financing in 2011. We have not been required to
satisfy any portion of this guarantee.
Contractual Obligations
The following table summarizes our contractual obligations to third parties based on contracts executed as of
December 31, 2010.
Development
and
Construction
Contracts
Tenant
Allowances1
Operating
Leases
Consolidated
Long-term
Debt and
Interest2
Pro Rata Share
of Joint Venture
Debt
Employment
Contracts3
Total
416,800 $ 127,950,601 $ 13,783,328 $ 1,127,000 $ 159,475,466
2011 ...................................... $ 8,346,376 $ 7,851,361 $
— 225,647,916
416,800
—
2012 ......................................
2013 ......................................
— 90,333,864
302,500
—
— 53,041,696
310,000
—
2014 ......................................
2015 ......................................
—
310,000
53,254,440
—
Thereafter .............................
— 198,240,000
1,747,500
—
Total...................................... $ 8,346,376 $ 7,851,361 $ 3,503,600 $ 740,246,617 $ 18,918,428 $ 1,127,000 $ 779,993,382
47,917,618
52,944,440
196,492,500
160,511
160,511
4,814,078
—
—
—
—
—
89,870,853
225,070,605
—
—
____________________
1
Tenant allowances include commitments made to tenants at our operating, development and redevelopment
properties.
2
Our consolidated long-term debt consists of both variable and fixed-rate debt and includes both principal and interest.
Interest expense for variable-rate debt was calculated using the interest rates as of December 31, 2010.
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, 2010. 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, 2011.
In 2010, we incurred $28.5 million of interest expense, net of amounts capitalized of $8.8 million.
63
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.
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 17.6% of our annualized base rent in the
aggregate as of December 31, 2010. 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, 2010
related to new developments, redevelopments and third-party construction.
Obligations in Connection with Our In-Process Development, Redevelopment and Future Development Pipeline
We are obligated under various completion guarantees with lenders and lease agreements with tenants to complete
two projects in our in-process development pipeline. We currently anticipate our share of the total cost of these projects will
be approximately $42 million, of which approximately $10.7 million of our share was unfunded as of December 31, 2010.
We believe we currently have sufficient financing in place to fund these projects and expect to do so primarily through
existing construction loans. In addition, if necessary, we may make draws on our unsecured facility.
In addition to our in-process development pipeline, we also have a redevelopment pipeline and a future development
pipeline, the latter of 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 future development pipeline, we are not contractually obligated to complete
any projects in our redevelopment or future development pipelines, as these consist of land parcels on which we have not
yet commenced construction. With respect to each asset in the future development 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.
Once these projects are transferred to the in-process 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
revolving credit facility, if necessary.
64
Outstanding Indebtedness
The following table presents details of outstanding indebtedness as of December 31, 2010:
$
Property
Fixed Rate Debt - Mortgage:
50th & 12th................................................................
The Centre at Panola, Phase I ..................................
Cool Creek Commons ..............................................
The Corner................................................................
Fox Lake Crossing ...................................................
Geist Pavilion ...........................................................
Indian River 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:
KeyBank (Admin. Agent) .......................................
KeyBank (Admin Agent) .........................................
KeyBank (Admin Agent) .........................................
Bank of America ......................................................
PNC Bank.................................................................
Charter One Bank.....................................................
M&I Bank.................................................................
TD Bank ...................................................................
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 %
5.70 %
6.34 %
7.38 %
5.42 %
5.90 %
6.34 %
6.01 %
6.09 %
5.86 %
6.71 %
5.07 %
4.92 %
3.27 %
1.73 %
1.89 %
2.98 %
1.65 %
3.31 %
11/11/2014
1/1/2022
4/11/2016
7/1/2011
7/1/2012
1/1/2017
6/11/2015
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
4,293,034
3,464,489
17,643,234
1,486,488
11,050,412
11,125,000
13,040,043
29,700,000
17,500,000
25,175,721
28,119,431
4,223,200
10,500,000
25,000,000
21,303,984
45,895,436
8,039,656
277,560,128
50,000,000
25,000,000
55,000,000
19,700,000
14,856,200
20,000,000
20,000,000
14,754,726
219,310,926
546,912
497,417,966
65
Property
Variable Rate Debt - Mortgage:
Bayport Commons3................................................... $
Beacon Hill ...............................................................
Eastgate Pavilion3 .....................................................
Estero Town Commons ............................................
Fishers Station...........................................................
Gateway Shopping Center3.......................................
Glendale Town Center3.............................................
Indiana State Motor Pool ..........................................
Ridge Plaza3 ..............................................................
Tarpon Springs Plaza ................................................
Subtotal Mortgage Notes ..............................
Variable Rate Debt - Secured by Properties
under Construction:
Bridgewater Marketplace1 ........................................
Cobblestone Plaza.....................................................
Delray Marketplace...................................................
Eddy Street Commons ..............................................
Rivers Edge...............................................................
South Elgin Commons2.............................................
Subtotal Construction Notes.........................
Balance
Outstanding
Interest
Rate
Maturity
Interest Rate
at 12/31/10
14,923,016
7,401,750
14,883,390
10,500,000
3,656,493
20,712,866
19,615,000
3,467,910
14,746,436
12,187,942
122,094,803
7,000,000
28,347,102
4,725,000
24,871,142
14,311,526
9,170,000
88,424,770
LIBOR + 3.50%
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 + 3.25%
LIBOR + 1.85%
LIBOR + 3.50%
LIBOR + 3.00%
LIBOR + 2.30%
LIBOR + 3.25%
LIBOR + 3.25%
1/6/2012
3/30/2014
4/30/2012
1/15/2013
6/6/2011
10/31/2011
12/19/2011
2/4/2011
1/3/2017
1/15/2013
6/29/2013
2/12/2013
6/30/2011
12/30/2011
1/15/2016
9/30/2013
3.76%
1.51%
3.21%
3.51%
3.76%
2.16%
3.01%
1.61%
3.51%
3.51%
5.00%
3.76%
3.26%
2.56%
3.51%
5.25%
Unsecured Credit Facility3.....................................
122,300,000
LIBOR + 1.25%4
2/20/2012
1.51%
Floating Rate Debt - Hedged:
(219,310,926)
LIBOR
Various
Total Variable Rate Indebtedness.................
Total Indebtedness.......................... $
113,508,647
610,926,613
____________________
1
This loan has a LIBOR floor of 3.15%.
2
3
4
This loan has a LIBOR floor of 2.00%
We entered into a cash flow hedge agreement on this debt instrument to fix the interest rate. See fixed rate within
the fixed rate hedged details in the table above.
The rate on the Company’s unsecured credit facility varied at certain parts of the year due to provisions in the
agreement.
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. We have further adjusted FFO for certain additional items
that are not in NAREIT’s definition of FFO, such as impairment losses.
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. We believe that our presentation of adjusted FFO provides investors with another financial
measure that may facilitate comparison of operating performance between periods and compared to our peers. FFO and
adjusted FFO should not be considered as alternatives to consolidated net income (determined in accordance with GAAP)
as an indicator of our financial performance, are not alternatives to cash flow from operating activities (determined in
accordance with GAAP) as a measure of our liquidity, and are not indicative of funds available to satisfy our cash needs,
66
including our ability to make distributions. Our computations of FFO and adjusted FFO may not be comparable to FFO and
adjusted FFO reported by other REITs.
Our calculation of FFO (and reconciliation to consolidated net (loss) income) and adjusted FFO is as follows:
Funds From Operations:
Consolidated net (loss) income
Less preferred stock dividend
Add loss (deduct gain) on sale of operating property
Less non-cash gain from consolidation of subsidiary, net of noncontrolling
interests
Less gain on sale of unconsolidated property
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
Funds From Operations of the Kite Portfolio
Less redeemable noncontrolling interests in Funds From Operations
Funds From Operations allocable to the Company
Funds From Operations of the Kite Portfolio
Add back: Non-cash loss on impairment of real estate asset
Adjusted Funds From Operations of the Kite Portfolio
Year Ended
December 31,
2010
(9,186,140)
(376,979)
—
$
Year Ended
December 31,
2009
$ (1,178,003)
—
—
Year Ended
December 31, 2008
$
7,823,650
—
2,689,888
—
—
(980,926)
—
—
(1,233,338)
(117,155)
(879,463)
(61,707)
39,756,493
194,131
30,270,350
(3,359,076)
26,911,274
30,270,350
—
30,270,350
31,601,550
157,623
28,720,781
(3,848,585)
24,872,196
28,720,781
5,384,747
34,105,528
$
$
$
$
$
$
$
$
$
35,438,229
406,623
45,063,345
(9,688,619)
35,374,726
45,063,345
—
45,063,345
____________________
1
“Funds From Operations of the Kite Portfolio” measures 100% of the operating performance of the Operating
Partnership’s real estate properties and construction and service subsidiaries in which the Company owns an interest.
“Funds From Operations allocable to the Company” reflects a reduction for the noncontrolling weighted average
diluted interest in the Operating Partnership.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information publicly disseminated by Kite
Realty Group Trust (the “Company”), contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on
assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors,
many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and
actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results,
performance, transactions or achievements expressed or implied by the forward-looking statements. Risks, uncertainties
and other factors that might cause such differences, some of which could be material, include, but are not limited to:
•
•
•
•
•
•
•
national and local economic, business, real estate and other market conditions, particularly in light of the recent
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 venture risks;
67
•
•
•
•
•
•
•
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 $610.9 million of outstanding consolidated indebtedness as of December 31, 2010 (inclusive of net
premiums on acquired debt of $0.6 million). As of December 31, 2010, we were party to various consolidated interest rate
hedge agreements for a total of $219.3 million, with maturities over various terms ranging from 2011 through 2017.
Including the effects of these hedge agreements, our fixed and variable rate debt would have been $496.9 million (81%) and
$113.5 million (19%), respectively, of our total consolidated indebtedness at December 31, 2010. Including our $18.3
million share of unconsolidated variable rate debt and the effect of related hedge agreements, our fixed and variable rate
debt is 79% and 21%, respectively, of the total of consolidated and our share of unconsolidated indebtedness at December
31, 2010.
Our future earnings, cash flows and fair values related to financial instruments are dependent upon prevalent market
market rates of interest, primarily LIBOR. LIBOR was at historically low levels during 2010. Based on the amount of our
fixed rate debt at December 31, 2010, a 100 basis point increase in market interest rates would result in a decrease in the
fair value of our fixed rate debt of approximately $10.4 million. A 100 basis point increase in interest rates on our variable
rate debt as of December 31, 2010 would decrease our annual cash flow by approximately $1.3 million. Based upon the
terms of our variable rate debt, we are most vulnerable to change in short-term LIBOR interest rates. The sensitivity
analysis was estimated using cash flows discounted at current borrowing rates adjusted by 100 basis points.
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 to the extent we
are able to recover such costs from our tenants. 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, and
limit our ability to recover all of our operating expenses.
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.
68
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, 2010 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, 2010.
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.
69
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, 2010, 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, 2010, 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, 2010 and 2009, and
the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2010 and the related financial statement schedule listed in the index at Item 15(a) as of
December 31, 2010 of Kite Realty Group Trust and subsidiaries and our report dated March 15, 2011 expressed an
unqualified opinion thereon.
Ernst & Young LLP
Indianapolis, Indiana
March 15, 2011
70
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
2011 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”.
71
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.
72
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 15, 2011
(Date)
March 15, 2011
(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 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
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)
73
Kite Realty Group Trust
Index to Financial Statements
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm...........................................................................
Balance Sheets as of December 31, 2010 and 2009 .......................................................................................
Statements of Operations for the Years Ended December 31, 2010, 2009, and 2008 ....................................
Statements of Shareholders’ Equity for the Years Ended December 31, 2010, 2009, and 2008 ....................
Statements of Cash Flows for the Years Ended December 31, 2010, 2009, and 2008 ...................................
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-34
F-37
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, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2010. 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 auditing 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, 2010 and 2009, and the consolidated results
of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Kite Realty Group Trust and subsidiaries’ internal control over financial reporting as of
December 31, 2010, 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 15, 2011 expressed an unqualified
opinion thereon.
Ernst & Young LLP
Indianapolis, Indiana
March 15, 2011
F-1
Kite Realty Group Trust
Consolidated Balance Sheets
December 31,
2010
December 31,
2009
Assets:
Investment properties, at cost:
Land ........................................................................................................................................... $
Land held for development.........................................................................................................
Buildings and improvements......................................................................................................
Furniture, equipment and other ..................................................................................................
Construction in progress.............................................................................................................
Less: accumulated depreciation .......................................................................................
(152,083,936 )
228,707,073 $
27,384,631
780,038,034
5,166,303
158,636,747
1,199,932,788
1,047,848,852
226,506,781
27,546,315
736,027,845
5,060,233
176,689,227
1,171,830,401
(127,031,144)
1,044,799,257
Cash and cash equivalents ..........................................................................................................
Tenant receivables, including accrued straight-line rent of $9,113,712 and $8,570,069,
15,394,528
19,958,376
18,537,031
respectively, net of allowance for uncollectible accounts .....................................................
9,326,475
Other receivables........................................................................................................................
10,799,782
Investments in unconsolidated entities, at equity .......................................................................
11,377,408
Escrow deposits..........................................................................................................................
23,703,901
Deferred costs, net......................................................................................................................
Prepaid and other assets .............................................................................................................
2,183,214
Total Assets ............................................................................................................................... $ 1,132,782,745 $ 1,140,685,444
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, 2,800,000 and no shares
18,204,215
5,484,277
11,193,113
8,793,968
24,207,046
1,656,746
610,926,613 $
32,362,917
15,399,002
658,688,532
658,294,513
32,799,351
19,835,438
710,929,302
44,115,028
47,307,115
issued and outstanding at December 31, 2010 and 2009, respectively..................................
70,000,000
—
Common Shares, $.01 par value, 200,000,000 shares authorized, 63,342,219 shares and
630,621
63,062,083 shares issued and outstanding at December 31, 2010 and 2009, respectively ....
449,863,390
Additional paid in capital .......................................................................................................
(5,802,406)
Accumulated other comprehensive loss .................................................................................
(69,613,763)
Accumulated deficit ...............................................................................................................
375,077,842
Total Kite Realty Group Trust Shareholders’ Equity.........................................................
7,371,185
Noncontrolling Interests ........................................................................................................
Total Equity ..............................................................................................................................
382,449,027
Total Liabilities and Equity ..................................................................................................... $ 1,132,782,745 $ 1,140,685,444
(93,447,581 )
423,064,921
6,914,264
429,979,185
633,422
448,779,180
(2,900,100 )
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Kite Realty Group Trust
Consolidated Statements of Operations
Revenue:
Minimum rent .........................................................................................
Tenant reimbursements...........................................................................
Other property related revenue ...............................................................
Construction and service fee revenue .....................................................
Total revenue.......................................................................................................
Expenses:
$
Property operating...................................................................................
Real estate taxes......................................................................................
Cost of construction and services ...........................................................
General, administrative, and other..........................................................
Depreciation and amortization................................................................
Total expenses
Operating income
Interest expense.......................................................................................
Income tax (expense) benefit of taxable REIT subsidiary .....................
(Loss) income from unconsolidated entities...........................................
Gain on sale of unconsolidated property ................................................
Non-cash gain from consolidation of subsidiary ....................................
Other income, net
(Loss) 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 loss (income) attributable to noncontrolling interests
Net (loss)/income attributable to Kite Realty Group Trust
Dividends on preferred shares
Net (loss) income attributable to common shareholders
(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.............................
Dividends declared per Common Share
Net (loss) income attributable to Kite Realty Group Trust common
shareholders:
(Loss) 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 (loss) income
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive (loss) income attributable to Kite Realty Group Trust
$
$
$
$
$
$
$
$
$
$
2010
Year Ended December 31,
2009
2008
71,836,417
17,666,443
5,065,169
6,848,073
101,416,102
17,691,738
12,044,966
6,142,042
5,372,056
40,732,228
81,983,030
19,433,072
(28,532,440 )
(265,986 )
(51,964 )
—
—
231,178
(9,186,140 )
—
—
—
—
(9,186,140 )
915,310
(8,270,830 )
(376,979 )
(8,647,809 )
(0.14 )
—
(0.14 )
(0.14 )
—
$
$
$
$
$
71,612,415
18,163,191
6,065,708
19,450,789
115,292,103
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 )
—
(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
—
6,093,126
0.26
(0.06 )
0.20
0.26
(0.06 )
(0.14 )
$
(0.03 )
$
0.20
63,240,474
52,146,454
30,328,408
63,240,474
52,146,454
30,340,449
0.2400
(8,647,809 )
—
(8,647,809 )
(9,186,140 )
3,274,373
(5,911,767 )
543,243
(5,368,524 )
$
$
$
$
$
0.3325
$
0.8200
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
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Kite Realty Group Trust
Consolidated Statements of Shareholders’ Equity
Preferred Shares
Common Shares
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
— 28,981,594 $ 289,816 $ 241,084,719 $
—
1,134,747
98,619
986
— 4,810,000
48,100
48,257,025
—
—
—
—
5,197
—
—
—
52
—
—
—
29,956
—
—
—
—
285,769
2,858
632,140
—
—
— 34,181,179 $ 341,812 $ 343,631,595 $
—
52,493,008
865,597
40,984
410
—
— 28,750,000
287,500
87,199,059
—
—
—
—
—
15,939
—
—
—
73,981
159
—
—
—
740
51,012
—
—
—
1,124,247
—
—
— 63,062,083 $ 630,621 $ 449,863,390 $
—
70,000,000
763,369
(2,517,500 )
16,991,880
150,825
1,508
—
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 .....................
Stock compensation activity
Proceeds of preferred share offering, net
Proceeds from employee share purchase
plan
Other comprehensive income attributable
to Kite Realty Group Trust
Distributions declared to common
shareholders
Distributions to preferred shareholders
Net loss attributable to Kite Realty Group
Trust
Exchange of redeemable noncontrolling
interest for common stock
Adjustments to redeemable noncontrolling
interests – Operating Partnership
Balances, December 31, 2010 .....................
— $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
— $
—
2,800,000
—
—
—
—
—
—
—
2,800,000 $
(3,122,482 )$
(31,442,156 )$
—
—
—
(4,616,672 )
—
—
—
—
(25,927,029 )
(4,616,672 )
(25,927,029 )
6,093,126
6,093,126
—
—
—
—
—
—
—
206,809,897
1,135,733
48,305,125
30,008
634,998
52,493,008
284,958,194
866,007
87,486,559
51,171
1,124,987
16,991,880
375,077,842
764,877
67,482,500
39,394
2,902,306
(7,739,154 )$
(51,276,059 )$
—
—
—
—
—
—
1,936,748
—
—
(16,555,938 )
1,936,748
(16,555,938 )
(1,781,766 )
(1,781,766 )
—
—
—
(5,802,406 )$
(69,613,763 )$
(15,186,009 )
(376,979 )
(15,186,009 )
(376,979 )
(8,270,830 )
(8,270,830 )
1,560,000
(928,180 )
423,064,921
—
—
—
—
—
9,311
93
39,301
2,902,306
120,000
1,200
1,558,800
(928,180 )
70,000,000 63,342,219 $ 633,422 $ 448,779,180 $
(2,900,100 )$
(93,447,581 )$
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 (loss) 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....................................................
Loss (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:
Common share issuance proceeds, net of costs .........................................
Preferred share issuance proceeds, net of costs .........................................
Loan proceeds.............................................................................................
Loan transaction costs ................................................................................
Loan payments............................................................................................
Distributions paid – common shareholders................................................
Distributions paid – redeemable noncontrolling interests .........................
Distributions to noncontrolling interests....................................................
Net cash provided by financing activities...........................................................
(Decrease) increase in cash and cash equivalents..............................................
Cash and cash equivalents, beginning of year ...................................................
Cash and cash equivalents, end of year..............................................................$
Year Ended December 31,
2010
2009
2008
(9,186,140) $
(1,178,003 ) $
7,823,650
—
—
—
—
51,964
(547,063)
42,564,646
1,443,675
488,557
(430,858)
(2,822,305)
—
(539,800)
421,494
(1,178,564)
30,265,606
(39,032,155)
—
2,392,632
—
687,648
(445,295)
—
—
(36,397,170)
39,394
67,482,500
58,726,952
(989,943)
(105,663,994)
(15,546,044)
(1,907,073)
(574,076)
1,567,716
(4,563,848)
19,958,376
15,394,528 $
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
—
—
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
(566,121 )
(2,309,437 )
(1,217,894)
(6,095,991)
(10,116,910 )
20,991,287
4,477,867
41,062,398
(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 $
(117,851,086)
19,659,695
579,721
729,167
—
(818,472)
—
2,012,430
(95,688,545)
48,335,133
—
249,453,785
(1,882,360)
(218,194,446)
(24,859,003)
(6,817,069)
(494,286)
45,541,754
(9,084,393)
19,002,268
9,917,875
Supplemental disclosures
Cash paid for interest, net of capitalized interest .......................................$
Cash paid for taxes .....................................................................................$
26,661,839 $
298,493 $
25,830,213 $
110,225 $
28,439,879
2,601,000
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, 2010
Note 1. Organization
Kite Realty Group Trust (the “Company” or “REIT”) was organized in Maryland in 2004 to succeed 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, construction management, redevelopment and development of neighborhood and
community shopping centers and certain commercial real estate properties in selected markets in the United States. The
Company also provides real estate facilities management, construction management, development and other advisory
services to third parties through its taxable REIT subsidiaries.
At December 31, 2010, the Company owned interests in 57 operating properties (consisting of 53 retail properties and
four commercial operating properties) and six properties under development or redevelopment. The Company also owned
parcels in a future 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, 2010, this future development pipeline consisted of five projects that are expected to
contain approximately 2.5 million square feet of total gross leasable area (including non-owned anchor space) upon
completion. Finally, as of December 31, 2010, the Company also owned interests in other land parcels comprising 93 acres
that are expected to be used for future expansion of existing properties, development of new retail or commercial
properties. We may elect to sell such land to third parties under certain circumstances. These land parcels are classified as
“Land held for development” in the accompanying consolidated balance sheets.
At December 31, 2009, the Company owned interests in 55 operating properties (consisting of 51 retail properties,
four commercial operating properties), seven properties under development or redevelopment and 95 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.
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) has equity investors that do not provide sufficient financial resources for the entity to
support its activities, (b) does not have equity investors with voting rights or (c) has equity investors whose votes are
disproportionate from their economics and substantially all of the activities are conducted on behalf of the investor with
disproportionately fewer voting rights. The Company consolidates properties that are 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, among other factors:
•
•
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
F-6
•
being the primary beneficiary of a VIE. The primary beneficiary is defined 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.
As of December 31, 2010, 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 $86.6 million which is secured by assets of the
VIEs totaling $177.4 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.
The Company considers all relationships between itself and the VIE, including development agreements, management
agreements and other contractual arrangements, in determining whether it has the power to direct the activities of the VIE
that most significantly affect the VIE’s performance. 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,
2010, 2009 or 2008 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 Company reviews its investments in unconsolidated entities for impairment. When circumstances indicate there
may have been a loss in value of an equity method investment, the Company evaluates the investment for impairment by
estimating its ability to recover its investments from future expected cash flows. If it determines the loss in value is other
than temporary, the Company will recognize an impairment charge to reflect the investment at fair value. The use of
projected future cash flows and other estimates of fair value and the determination of when a loss is other than temporary
are complex and subjective. Use of other estimates and assumptions may results in different conclusions. Changes in
economic and operating conditions that occur subsequent to the Company’s review could impact these assumptions and
result in future impairment charges of the equity investments.
The Centre
The Centre is a retail operating property located in Carmel, Indiana. In 2009, the third-party loan secured by the
assets of The Centre, a previously unconsolidated operating property in which the Company owned a 60% interest,
matured. 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. 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 qualified as a VIE and the Company was 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 $1.0 million. The fair
values recognized from the real estate and related assets acquired were primarily determined using the income approach.
The most significant assumptions in the fair value estimates were the discount rates, market leasing rates, and exit
capitalization rates using Level 2 and Level 3 inputs.
In February 2011, the Company acquired the remaining 40% interest in The Centre from its joint venture partners for
$2.3 million and assumed all leasing and management responsibilities.
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:
F-7
•
•
•
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
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 the Company considers 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.
F-8
Impairment
Management reviews both operational and development 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.
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.
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 among other
factors. 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, 2010 or 2009.
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 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, 2010, 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.
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
F-9
about market participant assumptions (unobservable inputs classified within Level 3). As further discussed in Note 10, 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 estimated and
recognized as revenues in the period the applicable expense is incurred.
Gains from 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 $2.6 million, $2.9
million, and $10.0 million for the years ended December 31, 2010, 2009, and 2008, 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.
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 years ended December
31, 2010 and 2009. Revenue from such sales was $10.6 million for the year ended December 31, 2008, and the associated
construction costs were $9.4 million.
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.
F-10
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.
2009
808,024 $
Balance, beginning of year......................................... $ 1,913,584 $
2,104,841
Provision for credit losses, net of recoveries..............
(999,281 )
Accounts written off...................................................
Balance, end of year................................................... $ 1,629,883 $ 1,913,584 $
1,443,675
(1,727,376)
2010
2008
745,479
1,212,604
(1,150,059)
808,024
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 cash and investments may temporarily be in excess of FDIC and SIPC insurance limits. In addition, the Company’s
accounts receivable from and leases with tenants potentially subjects it to a concentration of credit risk related to its
accounts receivable and revenue. At December 31, 2010, 44%, 16% and 11% of total billed receivable were due from
tenants leasing space in the states of Indiana, Florida, and Texas, respectively. For the year ended December 31, 2010,
39%, 24% and 15% of the Company’s revenue recognized was from tenants leasing space in the states of Indiana, Florida,
and Texas, respectively.
Earnings Per Share
Basic earnings per share is calculated based on the weighted average number of shares outstanding during the period.
Diluted earnings per share is determined based on the weighted average number of shares outstanding combined with the
incremental average shares that would have been outstanding assuming all potentially dilutive shares were converted into
common shares as of the earliest date possible.
Potentially dilutive securities include outstanding share options, units in the Operating Partnership, which may be
exchanged for either cash or common shares, at our option, 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 years ended December 31, 2010 and 2009, the
potentially dilutive securities were not dilutive for these periods. For the year ended December 31, 2008, 12,041
outstanding deferred share units had a potentially dilutive effect.
For each of the years ended December 31, 2010, 2009 and 2008, 1.7 million, 1.4 million, and 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.
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.
F-11
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 state and local taxes on its
income and property and to federal income and excise taxes on its undistributed taxable 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 as permitted by 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.
Income tax provision for the years ended December 31, 2010 and 2008 was $266,000 and $1.9 million, respectively.
Income tax provision for the year ended December 31, 2008 included $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. For the year ended December 31, 2009, there was an insignificant income tax benefit
recorded.
Franchise and other taxes were not significant in any of the periods presented.
Noncontrolling Interests
The Company reports its noncontrolling interest in a subsidiary as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest is identified in the consolidated financial statements.
The noncontrolling interests in the properties for the years ended December 31, 2010, 2009, and 2008 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
2010
7,371,185 $
2009
4,416,533 $
2008
4,731,211
$
117,155
(574,076)
879,463
(100,165)
61,707
(398,899)
—
$
6,914,264 $
2,175,354
7,371,185 $
22,514
4,416,533
The Company classifies redeemable noncontrolling interests in the Operating Partnership in the accompanying
consolidated balance sheets outside of permanent equity because the Company may be required to pay cash to unitholders
upon redemption of their interests in the limited partnership under certain circumstances.
The redeemable noncontrolling interests in the Operating Partnership for the years ended December 31, 2010, 2009,
and 2008 were as follows:
F-12
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
2010
2009
2008
$
47,307,115 $
67,276,904 $
127,325,047
(1,032,465)
(275,700)
1,668,817
(1,899,839)
(2,672,554)
(6,761,787)
372,037
1,095,332
(1,827,167)
(1,560,000)
(1,124,987)
(634,998)
928,180
(16,991,880)
(52,493,008)
Redeemable noncontrolling interests balance at December 31
$
44,115,028 $
47,307,115 $
67,276,904
____________________
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.
The following sets forth accumulated other comprehensive loss allocable to noncontrolling interests for the years
ended December 31, 2010, 2009, and 2008:
Accumulated comprehensive loss balance at
January 1
Other comprehensive income (loss) allocable to
noncontrolling interests 1
Accumulated comprehensive loss balance at
December 31
2010
2009
2008
$
(731,835)
$ (1,827,167) $
—
372,037
1,095,332
(1,827,167)
$
(359,798)
$
(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. As of December 31, 2010, 2009 and 2008, the historic book value of the redeemable noncontrolling interests
exceeded the redemption value, so no adjustment was necessary.
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, 2010, 2009, and 2008 were as follows:
Company’s weighted average diluted interest in Operating Partnership .
Redeemable noncontrolling weighted average diluted interests in
Year Ended December 31,
2009
86.6 %
2010
88.9%
2008
78.5%
Operating Partnership .........................................................................
11.1%
13.4 %
21.5%
F-13
The Company’s and the redeemable noncontrolling ownership interests in the Operating Partnership at December 31,
2010 and 2009 were as follows:
Company’s interest in Operating Partnership .............................
Redeemable noncontrolling interests in Operating Partnership..
Reclassifications
Balance at December 31,
2009
2010
89.0%
11.0%
88.8 %
11.2 %
Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications
had no effect on net income previously reported.
Note 3. Share-Based Compensation
Overview
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.
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, 2010, 2009, and 2008 was $0.7 million, $0.5 million, and $0.8 million,
respectively. Total share-based compensation cost capitalized for the years ended December 31, 2010, 2009, and 2008 was
$0.3 million, $0.3 million, and $0.3 million, respectively, related to development and leasing activities.
As of December 31, 2010, there were 730,669 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 2010, 2009, and 2008:
Expected dividend yield..............
Expected term of option ..............
Risk-free interest rate ..................
Expected share price volatility ....
2010
10.00%
8 years
3.00%
52.71%
2009
10.00%
6 years
1.96%
55.51%
2008
5.00%
8 years
3.40%
21.74%
A summary of option activity under the Plan as of December 31, 2010, and changes during the year then ended, is
presented below:
F-14
Outstanding at January 1, 2010...............
Granted ...................................................
Exercised ................................................
Forfeited .................................................
Outstanding at December 31, 2010.........
Exercisable at December 31, 2010 .........
Exercisable at December 31, 2009
Options
1,676,260
161,500
(6,000)
(89,900)
1,741,860
1,072,799
863,684
Weighted-Average
Exercise Price
$
$
$
10.06
4.21
2.64
11.34
9.49
11.45
13.08
The fair value on the respective grant dates of the 161,500, 526,730, and 523,173 options granted during the periods
ended December 31, 2010, 2009, and 2008 was $0.65, $0.55, and $1.43 per option, respectively.
The aggregate intrinsic value of the 6,000 options exercised during the year ended December 31, 2010 was $6,180.
No options were exercised during the years ended December 31, 2009 and 2008.
The aggregate intrinsic value and weighted average remaining contractual term of the outstanding and exercisable
options at December 31, 2010 were as follows:
Outstanding at December 31, 2010 .........
Exercisable at December 31, 2010 ..........
Options
1,741,860
1,072,799
Aggregative Intrinsic Value
1,268,171
394,738
$
Weighted-Average Remaining
Contractual Term (in years)
6.36
5.33
As of December 31, 2010, there was $0.6 million of total unrecognized compensation cost related to outstanding
unvested share option awards, which is expected to be recognized over a weighted-average period of 1.45 years. We expect
to incur $0.2 million of this expense in fiscal year 2011, $0.2 million in fiscal year 2012, $0.1 million in fiscal year 2013,
and the remainder in 2014.
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, 2010 and changes during the year then ended:
Restricted shares outstanding at January 1, 2010..........
Shares granted ...............................................................
Shares forfeited .............................................................
Shares vested.................................................................
Restricted shares outstanding at December 31, 2010 ....
Restricted
Shares
91,568
136,324
(931)
(49,884)
177,077
Weighted Average
Grant Date Fair
Value per share
10.02
$
4.20
12.80
10.24
5.58
$
During the years ended December 31, 2010, 2009 and 2008, the Company granted 136,324, 31,692 and 99,126
restricted shares to employees and non-employee members of the Board of Trustees with weighted average grant date fair
values of $4.20, $2.84 and $12.74, respectively. The total fair value of shares vested during the years ended December 31,
2010, 2009, and 2008 was $0.2 million, $0.2 million, and $0.5 million.
As of December 31, 2010, there was $0.6 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 1.1 years. We expect to
incur $0.3 million of this expense in fiscal year 2011, $0.2 million in fiscal year 2012, and the remainder in fiscal year
2013.
F-15
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, 2010, 2009, and 2008, three trustees elected to receive at least a portion of their
compensation in deferred share units and an aggregate of 32,639, 42,739, and 11,270 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 $4.55, $3.42, and $9.28, respectively. During each of the years ended December
31, 2010, 2009, and 2008, the Company incurred $0.2 million of expense related to deferred share units credited to non-
employee trustees.
Other Equity Grants
During the years ended 2010, 2009, and 2008, the Company issued 8,631, 10,968, and 3,006 unrestricted common
shares, respectively, with weighted average grant date fair values of $4.34, $3.42, and $12.47 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 similar costs are amortized on a straight-line basis over the terms of the related leases. At
December 31, 2010 and 2009, deferred costs consisted of the following:
Deferred financing costs ..................................... $
Acquired lease intangible assets .........................
Deferred leasing costs and other .........................
Less—accumulated amortization ........................
Total .......................................................... $
2010
7,325,325
5,404,889
27,446,067
40,176,281
(15,969,235)
24,207,046
$
$
2009
7,705,679
5,830,089
23,643,156
37,178,924
(13,475,023)
23,703,901
The estimated aggregate amortization amounts from net unamortized acquired lease intangible assets for each of the
next five years and thereafter are as follows:
2011 .......................................................................................................................
2012 .......................................................................................................................
2013 .......................................................................................................................
2014 .......................................................................................................................
2015 .......................................................................................................................
Thereafter...............................................................................................................
Total .............................................................................................................
$
485,025
405,503
333,560
284,014
182,070
517,134
$ 2,207,306
F-16
The accompanying consolidated statements of operations include amortization expense as follows:
Amortization of deferred financing costs ....... $ 1,832,418
Amortization of deferred leasing costs, lease
2010
For the year ended December 31,
2009
$ 1,602,161
2008
$ 1,272,333
intangibles and other.................................. $ 4,473,346
$ 4,108,855
$ 4,293,540
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.
At December 31, 2010 and 2009, 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...................................................................
$
$
2010
9,867,906
1,504,757
1,378,808
2,647,531
15,399,002
2009
12,690,211
2,561,073
2,018,288
2,565,866
19,835,438
$
$
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:
2011 .......................................................................................................................
2012 .......................................................................................................................
2013 .......................................................................................................................
2014 .......................................................................................................................
2015 .......................................................................................................................
Thereafter...............................................................................................................
Total .............................................................................................................
$ 2,190,818
1,668,936
1,566,791
1,208,390
795,972
2,436,999
$ 9,867,906
Note 6. Investments in Unconsolidated Joint Ventures
The Centre is a retail operating property in which the Company owned a 60% equity interest through December 31,
2010. During the first nine months of 2009, this entity was unconsolidated. In 2009, the Company made a capital
contribution of $2.1 million and simultaneously extended a loan of $1.4 million to the partnership in order to pay off a third
party loan secured by the assets of The Centre. The Company’s extension of a loan to the partnership caused the Company
to conclude that The Centre qualified as a VIE and the Company was 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 $1.0 million. In the summarized
financial information below, the 2009 income reflects the first nine months of activity from The Centre. As discussed in
Note 20, subsequent to year-end, the Company acquired the remaining 40% interest and assumed all leasing and
management responsibilities.
During the second quarter of 2010, a limited service hotel at the Eddy Street Commons property, in which the
Company holds a 50% noncontrolling interest, commenced operations.
F-17
In addition, as of December 31, 2010, the Company owned a non-controlling interest in one development land parcel
(Parkside Town Commons), which was also accounted for under the equity method. The Company has determined that
Parkside Town Commons is a VIE and that the Company is not the primary beneficiary. The Company’s investment in
Parkside Town Commons was $10.9 million and $10.4 million as of December 31, 2010 and 2009, respectively. 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 17 acres of additional land in Cary, North Carolina for a purchase price of $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 contributed in 2006, into an
approximately 1.5 million total square foot mixed-use shopping center. As of December 31, 2010, 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 $17.5 million, resulting in a gain on the sale of $3.5 million, of
which the Company’s share was $1.2 million, net of the Company’s excess investment. Net proceeds of $14.4 million from
the sale of this property were utilized to purchase securities which were used to defease the related mortgage loan. In
connection with this defeasance the joint venture incurred $2.7 million of expense, which is reflected as a reduction to the
gain on sale of the property. Prior to the Company’s sale of its interest in this property, the joint venture sold a parcel of
land for net proceeds of $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, 2010
December 31, 2009
$
9,438,204
60,852,416
70,290,620
(388,260)
69,902,360
1,146,354
600,000
265,248
$ 71,913,962
$ 43,287,141
839,607
44,126,748
27,787,214
$ 71,913,962
$ 29,789,769
$ 11,193,113
$ 18,256,271
$
—
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
$ 14,530,793
Assets:
Investment properties at cost:
Building and improvements ..........................................
Construction in progress................................................
Less: Accumulated depreciation....................................
Investment properties, at cost, net .................................
Cash and cash equivalents.............................................
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 investment in joint ventures ..........................
Company share of mortgage and other indebtedness ....
F-18
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 ........................................................
(Loss) income from continuing operations ....................
Discontinued operations:
Operating income from discontinued operations..
Gain on sale of operating property .......................
Income from discontinued operations............................
Net (loss) income ...........................................................
Third-party investors’ share of net (loss) income ..........
Company share of net (loss) income..............................
Amortization of excess investment ................................
Interest on intercompany indebtedness
Excess investment in sale of discontinued operations ...
(Loss) income from unconsolidated entities and gain
Year ended December 31,
2009
2010
2008
— $
—
2,002,761
2,002,761
691,739 $ 965,498
297,653
256,426
—
20,916
1,263,151
969,081
1,459,059
70,000
388,262
1,917,321
85,440
(189,368)
—
(103,928)
—
—
—
(103,928)
51,964
51,964
—
—
—
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)
—
490,615
1,352,237
3,544,524
4,896,761
5,387,376
(2,644,627)
2,742,749
(128,042)
—
(538,944)
on sale of unconsolidated property............................ $
(51,964) $
226,041 $ 2,075,763
“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 the 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, 2010, the Company’s share of unconsolidated joint venture indebtedness was $18.3 million,
$13.5 million of which was related to the Parkside Town Commons development. The remaining $4.8 million represents
the Company’s share of the $9.4 million drawn on the Eddy Street Commons limited service hotel construction loan. The
loan, obtained in 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, 2010, the Operating Partnership had guaranteed its share of
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-19
Note 7. Development and Redevelopment Activities
During the second quarter of 2010, the Company completed plans for its redevelopment projects at Rivers Edge and Coral
Springs Plaza. As part of finalizing its plans, the Company reduced the estimated useful lives of certain assets that are
scheduled to be or have been demolished. As a result of this change in estimate, a total of $5.8 million of additional
depreciation was recognized in 2010.
2010 Development Activities
Cobblestone Plaza
The Company has partially completed the construction of Cobblestone Plaza, a 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. The Company has contributed all of the current equity capital
and is required to make all future equity contributions. 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 $48.1 million had been incurred
as of December 31, 2010.
Eddy Street Commons, Phase I
In 2010, the Company substantially completed the construction of the retail and office components of Eddy Street
Commons, Phase I, located in South Bend, Indiana that includes a non-owned multi-family component. The Company
currently anticipates its total investment in this project, which is owned 100%, will be approximately $35.0 million, of
which $34.6 million had been incurred as of December 31, 2010.
2010 Redevelopment Activities
Rivers Edge
The Company is in the process of redeveloping its wholly-owned Rivers Edge property in Indianapolis, Indiana. This
property was acquired in 2008 with the intent to redevelop the property. The Company secured Nordstrom Rack, the
Container Store, Buy Buy Baby, Arhaus Furniture and BGI Fitness as anchors for this property. The renovations to
accommodate these new tenants began in the third quarter of 2010 with expected delivery in the first half of 2011. The
Company currently estimates the cost of this redevelopment to be approximately $21.5 million, of which $2.9 million had
been incurred as of December 31, 2010. The Company recognized $4.8 million of additional depreciation related to this
property in the 2nd and 3rd quarters of 2010.
Bolton Plaza
The Company is in the process of redeveloping its wholly-owned Bolton Plaza Shopping Center in Jacksonville,
Florida. In 2009, a new anchor executed a lease for approximately half of the anchor tenant space and opened its store in
the second half of 2010. The Company currently anticipates its total investment in the redevelopment at Bolton Plaza will
be approximately $5.7 million, of which $1.5 million had been incurred as of December 31, 2010.
Courthouse Shadows
The Company is in the process of redeveloping its wholly-owned 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.
The Company currently anticipates its total investment in the redevelopment at Courthouse Shadows will be approximately
$2.5 million, of which $0.4 million had been incurred as of December 31, 2010.
F-20
Four Corner Square
The Company is currently redeveloping its wholly-owned 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
future development 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. The Company currently anticipates its total investment
in the redevelopment at Four Corner Square will be approximately $0.5 million, of which $0.1 million had been incurred as
of December 31, 2010.
Note 8. Discontinued Operations
In 2009, the Company conveyed the title to its Galleria Plaza operating property in Dallas, Texas to the ground lessor
upon determining there was no value to the improvements and intangibles related to the property and recognized a non-cash
impairment charge of $5.4 million to write off its net book value. 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.
The results of the discontinued operations related to these properties were comprised of the following for the years
ended December 31, 2009 and 2008:
Year ended December 31,
2009
554,934 $ 3,202,193
2008
802,500
193,639
256,172
1,185,704
595,374
1,090,702
Rental income ..................................................... $
Expenses:
Property operations ............................................
Real estate taxes and other
Depreciation and amortization ............................
Non-cash loss on impairment of discontinued
operation
—
2,871,780
Total expenses .............................................
330,413
Operating (loss) income ......................................
69
Interest expense and other income, net ...............
330,482
(Loss) income from discontinued operations ......
Loss on sale of operating property ......................
(2,689,888 )
Total loss from discontinued operations ............. $(6,117,368) $(2,359,406 )
5,384,747
6,637,058
(6,082,124)
(35,244)
(6,117,368)
—
Loss from discontinued operations
attributable to Kite Realty Group Trust
common shareholders ............................. $(5,297,641) $(1,852,134 )
Loss from discontinued operations
attributable to noncontrolling interests....
(507,272 )
Total loss from discontinued operations ...... $(6,117,368) $(2,359,406 )
(819,727)
F-21
Note 9. Mortgage Loans and Other Indebtedness
Mortgage and other indebtedness consist of the following at December 31, 2010 and 2009:
Description
Unsecured Revolving Credit Facility1
Matures February 2012; maximum borrowing level of $175.8 million and $150.2 million
available at December 31, 2010 and 2009, respectively; interest at LIBOR + 1.25%5
(1.51%) at December 31, 2010 and interest at LIBOR + 1.25% (1.48%) at December
31, 2009 ........................................................................................................................... $ 122,300,000
Unsecured Term Loan2
Retired December 2010 and bore interest at LIBOR + 2.65% (2.88%) at December 31,
$ 77,800,000
Balance at December 31,
2009
2010
2009 ................................................................................................................................
—
55,000,000
Notes Payable Secured by Properties under Construction—Variable Rate
Generally due in monthly installments of interest; maturing at various dates through
2016; interest at LIBOR+1.85%-3.50%, ranging from 2.56% to 5.25%3,4 at December
31, 2010 and interest at LIBOR+1.85%-3.00%, ranging from 2.13% to 5.00%3 at
December 31, 2009..........................................................................................................
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 both December 31, 2010
and 2009, respectively .....................................................................................................
88,424,770
77,143,865
277,560,128
300,893,193
Mortgage Notes Payable—Variable Rate2
Due in monthly installments of principal and interest; maturing at various dates through
2017; interest at LIBOR + 1.25%-3.50%, ranging from 1.51% to 3.76% at December
31, 2010 and interest at LIBOR + 1.25%-3.50%, ranging from 1.48% to 3.73% at
December 31, 2009..........................................................................................................
Net premium on acquired indebtedness................................................................................
122,094,803
546,912
Total mortgage and other indebtedness ...................................................................... $ 610,926,613
146,479,685
977,770
$658,294,513
____________________
1
The Company entered into two cash flow hedge agreements that fix interest on portions of its unsecured revolving
credit facility. These hedges expire in February 2011.
2
3
4
5
The Company entered into a cash flow hedge for $55 million of outstanding variable rate debt that fixed the LIBOR
rate at 3.27%, which the Company initially associated with the variable-rate term loan. After repayment of the term
loan, the hedge is associated with other variable-rate mortgage notes. This hedge expires in July 2011.
The Bridgewater Marketplace construction loan has a LIBOR floor of 3.15%.
The South Elgin Commons construction loan has a LIBOR floor of 2.00%.
The rate on the Company’s unsecured revolving credit facility varied at certain parts of the year due to provisions in
the agreement.
The one month LIBOR interest rate was 0.26% and 0.23% as of December 31, 2010 and 2009, respectively.
For the year ended December 31, 2010, the Company had loan borrowing proceeds of $58.7 million and loan
repayments of $105.7 million. The major components of this activity are as follows:
• Draws of $6.1 million were made on the variable rate construction loan at the Eddy Street Commons development
project;
• The Company made scheduled paydowns totaling $4.7 million on the Delray Marketplace construction loan. After
the paydowns, the total loan commitment as of December 31, 2010 was $4.7 million;
F-22
• Upon release of funds from escrow, the Company made a paydown of $2.1 million on the Traders Point fixed rate
loan;
• The Company made a paydown of $0.9 million on the Glendale Town Center variable rate loan;
• The Company made a paydown of $5.1 million on the Bayport Commons variable rate loan and received release of
outlot parcels;
• The Company made a paydown of $1.8 million on the Tarpon Springs Plaza variable rate loan utilizing proceeds
from the sale of an outlot;
• The maturity date of the construction loan on the South Elgin Commons property was extended 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 revolving credit facility;
• The variable rate loan on the Rivers Edge property was converted to a construction loan for the redevelopment of
the asset. The interest rate on the loan is LIBOR + 325 basis points until January 2013 when it converts to LIBOR
+ 300 basis points. The maturity date of the loan is January 2016. The Company funded a $0.6 million paydown
with cash;
• The maturity date of the construction loan on the Cobblestone Plaza property was extended 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 revolving credit facility;
• In December 2010, the $55 million Term Loan was repaid in full utilizing proceeds from the Company’s Series A
perpetual preferred share offering.
• The $18.3 million fixed rate mortgage loan on the International Speedway Square property was retired prior to its
March 2011 maturity utilizing proceeds from the Series A perpetual preferred share offering and a draw under the
Company’s revolving credit facility. The Company intends to secure long term financing for this asset in the first
half of 2011;
• In addition to the preceding activity, during the year ended December 31, 2010, the Company used proceeds from
its unsecured revolving credit facility and other borrowings (exclusive of repayments) totaling $36.6 million for
development, redevelopment, and general working capital purposes; and
• The Company made scheduled principal payments totaling $4.8 million.
Unsecured Revolving Credit Facility
The Operating Partnership is a party to an amended and restated four-year $200 million unsecured revolving credit
facility (the “unsecured facility”) along 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, 2012 after taking into
account a one year extension option that was exercised in the fourth quarter of 2010. 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, 2010, the Company had 51 unencumbered properties and other assets
used to calculate the value of the unencumbered property pool, of which 47 were wholly owned and four of which were
owned through joint ventures. The major unencumbered assets include: Boulevard Crossing, Broadstone Station, Coral
Springs Plaza, Courthouse Shadows, Four Corner Square, Hamilton Crossing Centre, International Speedway Square
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, 2010, the total amount available for borrowing under the unsecured credit facility was $46.3
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:
F-23
•
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,
2010.
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
The Operating Partnership had a $55 million unsecured term loan agreement (the “Term Loan”) that was originally
scheduled to mature on July 15, 2011 and bore interest at LIBOR + 265 basis points. In connection with obtaining the
Term Loan, the Company entered into a cash flow hedge for $55 million, which the Company initially associated with the
variable rate Term Loan and effectively fixed the interest rate at 5.92%. In December 2010, the Term Loan was retired
utilizing a portion of the proceeds from the Company’s Series A Cumulative Redeemable Perpetual Preferred Share
Offering.
Mortgage and Construction Loans
Mortgage and construction loans are secured by certain real estate, are generally due in monthly installments of
interest and principal and mature over various terms through 2022.
The following table presents maturities of mortgage debt, corporate debt, and construction loans as of December 31,
2010:
Year
2011
2012
2013
2014
2015
Thereafter
Unamortized Premiums
Total
$
$
$
Amount
81,565,647
191,470,222
75,308,320
35,188,821
41,841,534
185,005,157
610,379,701
546,912
610,926,613
See Note 20 for refinancing activity subsequent to December 31, 2010.
The amount of interest capitalized in 2010, 2009, and 2008 was $8.8 million, $8.9 million, and $10.1 million,
respectively.
F-24
Fair Value of Fixed and Variable Rate Debt
As of December 31, 2010, the fair value of fixed rate debt was approximately $287.0 million compared to the book
value of $277.6 million. The fair value was estimated using Level 2 and 3 inputs with cash flows discounted at current
borrowing rates for similar instruments which ranged from 3.76% to 5.91%. As of December 31, 2010, the fair value of
variable rate debt was approximately $320.8 million compared to the book value of $332.8 million. The fair value was
estimated using cash flows discounted at current borrowing rates for similar instruments which ranged from 3.42% to
5.25%.
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 Level 2 and 3 inputs with 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%.
Note 10. 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, 2010, the Company was party to various consolidated cash flow hedge agreements
totaling $220 million, which effectively fix certain variable rate debt over various terms through 2017. Utilizing a weighted
average spread over LIBOR on all variable rate debt resulted in a weighted average interest rate of 5.76%.
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, 2010 and 2009, 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.
As discussed in Note 9, in connection with obtaining the Term Loan, the Company entered into a cash flow hedge for
$55 million, which the Company initially associated with the variable rate Term Loan and effectively fixed the interest rate
at 5.92%. When the Term Loan was retired, the Company associated the cash flow hedge with other unhedged variable
rate notes. At that time, an immaterial amount was reclassified to interest expense, as a result of partial ineffectiveness.
F-25
The fair values of the Company’s interest rate hedge liabilities as of December 31, 2010 and 2009 were $3.8 million
and $7.0 million, respectively, including accrued interest of $0.5 million for both periods, and is recorded in accounts
payable and accrued expenses on the accompanying consolidated balance sheets.
The Company currently expects an increase to interest expense of approximately $3.0 million as the hedged
forecasted interest payments occur. 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 2011. During the years
ended December 31, 2010, 2009 and 2008 $7.1 million, $6.4 million and $2.3 million, respectively, was reclassified as a
reduction 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, 2010, 2009, and 2008:
Year ended December 31,
2010
2009
2008
Net (loss) income attributable to Kite Realty
Group Trust...................................................... $ (8,270,830) $ (1,781,766 ) $ 6,093,126
Other comprehensive income (loss) allocable to
Kite Realty Group Trust1 .................................
Comprehensive income attributable to Kite
2,902,306
1,936,748
(4,616,672)
Realty Group Trust .......................................... $ (5,368,524) $
154,982 $ 1,476,454
____________________
1
Reflects the Company’s share of the net change in the fair value of derivative instruments
accounted for as cash flow hedges.
Note 11. 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, 2010, 2009, and 2008, the
Company earned percentage rent of $0.3 million, $0.3 million, and $0.4 million, respectively.
As of December 31, 2010, future minimum rentals to be received under non-cancelable operating leases for each of
the next five years and thereafter, excluding tenant reimbursements of operating expenses and percentage rent based on
sales volume, are as follows:
2011 ...................................................................................................................$ 70,335,008
2012 ................................................................................................................... 66,003,882
2013 ................................................................................................................... 60,224,092
2014 ................................................................................................................... 54,067,741
2015 ................................................................................................................... 44,601,492
Thereafter........................................................................................................... 216,405,432
Total .........................................................................................................$ 511,637,647
Lease Commitments
As of December 31, 2010, the Company was obligated under seven ground leases for approximately 35 acres of land
with four landowners which require fixed annual rent. The expiration dates of the initial terms of these ground leases range
from 2012 to 2083. These leases have five to ten year extension options ranging in total from 20 to 30 years.
F-26
During 2009 and 2008, 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 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, 2010, 2009, and 2008 was $0.6 million, $1.1 million, and $1.0 million, respectively.
As further discussed in Note 15, the Company was obligated under a ground lease for one of its operating properties,
Eddy Street Commons at the University of Notre Dame. Beginning in June 2008, in accordance with the operating
agreement in place, the Company began making ground lease payments to the University of Notre Dame for the land
beneath the initial phase of the development. This lease agreement is for a 75-year term at a fixed rate for the first two
years, after which payments are based on a percentage of certain gross revenues. Contingent amounts are not reflected in
the table below for fiscal years 2011 and beyond.
Future minimum lease payments due under such leases for the next five years ending December 31 and thereafter are
as follows:
2011....................................................................................................................$
416,800
2012....................................................................................................................
416,800
2013....................................................................................................................
302,500
2014....................................................................................................................
310,000
2015....................................................................................................................
310,000
Thereafter ........................................................................................................... 1,747,500
Total..........................................................................................................$ 3,503,600
Note 12. 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 net offering proceeds of $87.5 million, of which $57 million was 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 for net offering proceeds of $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 $0.9 million.
Accrued but unpaid distributions on common equity were $4.3 million as of December 31, 2010 and 2009,
respectively, and are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.
Preferred Equity
In December 2010, the Company completed an equity offering of 2,800,000 shares of 8.25% Series A Cumulative
Redeemable Perpetual Preferred Shares at an offering price of $25.00 per share for net offering proceeds of $67.5 million.
A portion of the net proceeds were used to retire the Company’s $55 million Term Loan. The remaining net proceeds,
along with borrowings on the Company’s revolving line of credit, were used to retire the $18.3 million loan encumbering
the International Speedway Square property in Daytona, Florida. The Series A preferred shares have no stated maturity
date although they may be redeemed, at the Company’s option, beginning in December 2015.
Accrued but unpaid distributions on the Series A preferred shares were $376,979 as of December 31, 2010 and are
included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.
F-27
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 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 sold shares under this
program.
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, 2010, 2009, and 2008,
respectively, 120,000, 73,981, and 285,769 Operating Partnership units were exchanged for the same number of common
shares.
Note 13. Segment Information
The Company’s operations are aligned into two business segments: (i) real estate operations 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, 2010, 2009, and 2008 are presented below.
Year Ended December 31, 2010
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
Other income, net
Loss from continuing operations
Consolidated net loss
Less: Net loss attributable to noncontrolling
interests
Real Estate
Operations and
Development
Construction
and Advisory
Services
Subtotal
Intersegment
Eliminations
Total
$
95,619,569
$
11,980,263
$
107,599,832
$
(6,183,730)
$
101,416,102
35,553,324
40,549,406
19,516,839
(28,956,953)
-
897,050
(8,543,064)
(8,543,064)
11,819,328
182,822
(21,887)
(156,834)
(265,986)
(136,489)
(581,196)
(581,196)
47,372,652
40,732,228
19,494,952
(29,113,787)
(265,986)
760,561
(9,124,260)
(9,124,260)
(6,121,850)
-
(61,880)
581,347
-
(581,347)
(61,880)
(61,880)
41,250,802
40,732,228
19,433,072
(28,532,440)
(265,986)
179,214
(9,186,140)
(9,186,140)
851,131
57,312
908,443
6,867
915,310
Net loss attributable to Kite Realty Group Trust
Total assets at December 31, 2010
$
$
(7,691,933)
1,135,512,416
$
$
(523,884)
15,738,344
$
$
(8,215,817)
1,151,250,760
$
$
(55,013)
(18,468,015)
$
$
(8,270,830)
1,132,782,745
F-28
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) loss attributable to
noncontrolling interests
Net loss attributable to Kite Realty
Group Trust
Total assets at December 31, 2009
Real Estate
Operations and
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
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 (loss) from continuing operations
Discontinued operations:
Discontinued operations
Loss on sale of operating property
Loss from discontinued operations
Consolidated net income (loss)
Less: Net (income) loss attributable to
noncontrolling interests
Net income (loss) attributable to Kite Realty
Group Trust
Total assets at December 31, 2008
Real Estate
Operations and
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
85,172,529
122,549
4,678,366
(355,467)
(1,927,830)
-
-
-
116,358,861
34,892,975
39,873,906
(30,077,054)
(1,927,830)
842,425
1,233,338
862,828
(48,438,084)
-
(624,557)
704,873
-
-
-
(704,873)
67,920,777
34,892,975
39,249,349
(29,372,181)
(1,927,830)
842,425
1,233,338
157,955
8,412,544
2,395,069
10,807,613
(624,557)
10,183,056
330,482
(2,689,888)
(2,359,406)
6,053,138
-
-
-
2,395,069
330,482
(2,689,888)
(2,359,406)
8,448,207
-
-
-
(624,557)
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 $1.1 million.
F-29
Note 14. Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2010 and
2009.
Total revenue ............................................... $
Operating income......................................... $
$
Consolidated net loss
Net loss attributable to Kite Realty Group
Trust common shareholders .................... $
Loss per common share – basic and
diluted:
Net 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,
2010
25,555,634 $
5,925,825 $
(1,131,124) $
Quarter Ended
September 30,
2010
Quarter Ended
June 30,
2010
24,801,116 $ 25,155,856 $ 25,903,496
4,362,960 $ 6,297,674
2,846,614
$
(859,868 )
(2,644,975 ) $
(4,550,173) $
Quarter Ended
December 31,
2010
(1,074,680) $
(4,020,555) $
(2,389,954 ) $ (1,162,620 )
(0.02) $
(0.06) $
(0.04 ) $
(0.02 )
63,121,498
63,121,498
63,209,194
63,209,194
63,288,181
63,288,181
63,340,098
63,340,098
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
Group Trust common shareholders ........... $
701,242 $
257,085 $
(3,383,370 ) $
643,277
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 .......................................
Note 15. Commitments and Contingencies
Eddy Street Commons at Notre Dame
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
Phase I of Eddy Street Commons at the University of Notre Dame, located adjacent to the university in South Bend,
Indiana, was substantially completed and moved to the operating portfolio in the fourth quarter of 2010. This multi-phase
project includes retail, office, a limited service hotel, a parking garage, apartments, and residential units and is expected to
include a full service hotel. The Company wholly owns the retail and office components while other components are or are
expected to be owned by third parties or through joint ventures. The ground beneath the initial phase of the development is
F-30
leased from the University of Notre Dame over a 75 year lease term at a fixed rate for the first two years and based on a
percentage of certain gross revenues thereafter.
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 were 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; however, the Company has
no obligations to repay or guarantee the bonds. 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, 2010, had
an outstanding balance of $30.3 million. As of December 31, 2010, the construction of the apartments is substantially
complete. 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. 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, 2010, the Company’s share of
unconsolidated joint venture indebtedness was $18.3 million, $13.5 million of which was related to the Parkside Town
Commons development. The remaining $4.8 million represents the Company’s share of the $9.4 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, 2010, 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
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.
The Company is obligated under various completion guarantees with lenders and lease agreements with tenants to
complete two projects in its in-process development pipeline. The Company currently anticipates its share of the total cost
of these projects will be approximately $42 million, of which approximately $10.7 million was unfunded as of December
31, 2010. The Company believes it currently has sufficient financing in place to fund these projects and expect to do so
primarily through existing construction loans. In addition, if necessary, it may make draws on its unsecured facility.
As of December 31, 2010, the Company had outstanding letters of credit totaling $7.2 million. At that date, there
were no amounts advanced against these instruments.
F-31
Note 16. 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 over 3% and up to 5% of the employee’s salary,
not to exceed an annual maximum of $15,000, except in certain limited circumstances. The Company contributed $0.2
million, $0.3 million, and $0.3 million to this plan for the years ended December 31, 2010, 2009, and 2008, respectively.
Note 17. 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 adoption of this provision on January 1, 2010 had no impact on the Company’s determination
of the primary beneficiary of its VIEs. Thus, the adoption did not impact the Company’s consolidated financial statements.
Note 18. 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, 2010, 2009 and 2008:
Recognition of noncontrolling interests upon
consolidation of subsidiary
$
Imputed value of common area development
land at Eddy Street Commons ................... $
Accrued distribution to preferred
2010
—
—
shareholders
$
376,979
Year Ended
December 31,
2009
2008
$
$
$
2,175,354 $
—
— $ 1,900,000
— $
—
Note 19. Related Parties
Subsidiaries of the Company provide certain management, construction management 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, 2010, 2009 and 2008, the Company earned $0.1 million, $0.1 million and $0.1 million, respectively from
unconsolidated entities and $40,000, $0.1 million and $0.3 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, 2010, 2009 and 2008, amounts paid by the Company to this related entity
were $0.2 million, $0.3 million and $0.3 million, respectively.
F-32
Note 20. Subsequent Events
2011 Debt Refinancings
In January 2011, the Company extended the maturity date of the $3.5 million variable rate loan on the Indiana State
Motor Pool property to February 2014 at an interest rate of LIBOR + 325 basis points.
In February 2011, the Company extended the maturity date of the $33.9 million construction loan on the Parkside
Town Commons property to August 2013 at an interest rate of LIBOR + 300 basis points and funded a $5.5 million
paydown with cash. This property is owned by an unconsolidated joint venture.
Acquisitions
In February 2011, the Company completed the acquisition of the remaining 40% interest in The Centre from its joint
venture partners and assumed all leasing and management responsibilities. The purchase price of the 40% interest was
approximately $2.3 million, including the repayment of a $700,000 loan made by the Company.
In February 2011, the Company acquired a retail shopping center in Wilmington, North Carolina. This center was
acquired in an off-market transaction for a purchase price of $3.5 million. This center is anchored by Lowe’s Foods. This
asset was acquired as a redevelopment opportunity.
Dividend Declaration
On February 15, 2011, the Board of Trustees declared a quarterly preferred share cash distribution of $0.48697917
per preferred share covering the distribution period from December 7, 2010 to March 1, 2011 payable to shareholders of
record as of February 22, 2011. This distribution was paid on March 1, 2011.
F-33
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F
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, 2010, 2009, and 2008 are as follows:
Balance, beginning of year.............. $
Acquisitions ....................................
Consolidation of subsidiary.............
Improvements..................................
Disposals .........................................
Balance, end of year........................ $
2010
1,166,770,168
—
—
41,900,543
(13,904,226)
1,194,766,485
$
$
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
The unaudited aggregate cost of investment properties for federal tax purposes as of December 31, 2010 was $1.1 billion.
Note 2. Reconciliation of Accumulated Depreciation
The changes in accumulated depreciation of the Company for the years ended December 31, 2010, 2009, and 2008 are as
follows:
Balance, beginning of year......................
Depreciation and amortization expense ..
Disposals .................................................
Balance, end of year................................
$
$
2010
123,313,411
35,767,040
(11,191,080)
147,889,371
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
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-37
This Page Intentionally Left Blank
Exhibit No.
Description
Location
EXHIBIT INDEX
3.1
3.2
3.3
Articles of Amendment and Restatement of
Declaration of Trust of the Company
Articles Supplementary designating Kite
Realty Group Trust’s 8.250% Series A
Cumulative Redeemable Perpetual Preferred
Shares, liquidation preference $25.00 per
share, par value $0.01 per share
Amended and Restated Bylaws of the
Company, as amended
4.1
Form of Common Share Certificate
Form of share certificate evidencing the
8.250% Series A Cumulative Redeemable
Perpetual Preferred Shares, liquidation
preference $25.00 per share, per value $0.01
per share
Amended and Restated Agreement of Limited
Partnership of Kite Realty Group, L.P., dated
as of August 16, 2004
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
Incorporate by reference to Exhibit 3.2 to
Kite Realty Group Trust’s registration
statement of Form 8-A filed on December 7,
2010
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
Incorporate by reference to Exhibit 4.1 to
Kite Realty Group Trust’s registration
statement on Form 8-A filed on December 7,
2010
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
Amendment No. 1 to Amended and Restated
Agreement of Limited Partnership of Kite
Realty Group, L.P., dated as of December 7,
2010
Incorporate by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
December 13, 2010
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*
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
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Incorporated by reference to Exhibit 10.15 to
the Current Report on Form 8-K of Kite
F-1
4.2
10.1
10.2
10.3
10.4
10.5
10.5
10.6
10.7
10.8
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*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and John A. Kite*
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*
F-2
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
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
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
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 10.32 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
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*
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
Schedule of Non-Employee Trustee Fees and
Other Compensation*
Filed herewith
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
Consulting Agreement, dated as of March 31,
2009, by and between the Company and Alvin
E. Kite, Jr.
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 Quarterly Report on Form 10-Q of Kite
Realty Group Trust filed for the period ended
September 30, 2010
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
April 6, 2009
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
F-3
Statement of Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred
Dividends.
List of Subsidiaries
Consent of Ernst & Young LLP
Filed herewith
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
Filed herewith
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
12.1
21.1
23.1
31.1
31.2
32.1
____________________
* Denotes a management contract or compensatory, plan contract or arrangement.
F-4
KITE REALTY GROUP TRUST
Schedule of Non-Employee Trustee Fees and Other Compensation
Exhibit 10.2
Annual Retainer
$35,000 (1)
Board Meeting Fees (telephonic and in-person)
$1,000
Committee Meeting Fees (telephonic and in-person)
$1,000
Committee Chair Annual Retainer
Audit Committee: $10,000
Compensation Committee: $7,500
Nominating and Corporate Governance Committee: $5,000
Lead Trustee Retainer
$10,000
Annual Restricted Share Awards
Upon initial election, each trustee receives 3,000 restricted shares that vest
1 year from date of grant.
On an annual basis each year after their initial election, each trustee will
receive restricted shares with a value of $15,000 that vest 1 year from the
date of grant.
(1) The Board of Trustees receives approximately one-half of their $35,000 annual retainer in common shares of beneficial
interest, par value $0.01 per share, of the Company. Trustees receive approximately 50% of the quarterly payment in
common shares pursuant to unrestricted share grants under the Company’s 2004 Equity Incentive Plan and the remainder in
cash. The number of common shares to be issued each quarter will be based on the closing price of the common shares on the
second business day after public release of the Company’s financial data for the preceding calendar quarter (rounded down to
the nearest whole common share).
Effective: February 2011
Kite Realty Group
Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
EXHIBIT 12.1
Earnings:
Net (loss) income from continuing
operations
Add:
Income taxes expense (benefit)
Fixed charges, net of capitalized
interest
Distributions and income from
majority-owned unconsolidated
entity
Less:
(Loss) income from unconsolidated
entities
Earnings before fixed charges and
preferred dividends
Fixed charges:
Interest expense
Capitalized interest
Interest within rental expense
Fixed charges of unconsolidated
entities
Total fixed charges
Preferred dividends
Total fixed charges and preferred
dividends
Ratio of earnings to fixed charges and
preferred dividends
2010
2009
2008
2007
2006
Years ended December 31
$
(9,186,140)
$
4,939,365
$
10,183,056
$
13,876,074
$
11,601,854
265,986
(22,293)
1,927,830
761,628
965,532
28,560,292
27,350,287
29,649,915
26,257,879
21,528,608
—
381,514
825,747
621,793
504,713
$
$
51,964
(226,041)
(842,425)
(290,710)
(286,452)
19,692,102
32,422,832
41,744,123
41,226,664
34,314,255
28,532,440
8,807,062
27,852
—
37,367,354
376,979
$
$
27,151,054
8,892,218
20,056
179,177
36,242,505
—
$
$
29,372,181
10,061,770
16,690
261,044
39,711,685
—
$
$
25,965,141
12,824,398
16,673
276,065
39,082,277
—
$
$
21,221,758
10,680,000
16,673
290,177
32,208,608
—
$
37,744,333
$
36,242,505
$
39,711,685
$
39,082,277
$
32,208,608
(1)
(2)
1.05
1.05
1.07
(1) The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2010 was $18.1 million. The
calculation of earnings includes $40.7 million of non-cash depreciation expense.
(2) The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2009 was $3.8 million. The
calculation of earnings includes $32.1 million of non-cash depreciation expense.
F-2
Kite Realty Group List of Subsidiaries
EXHIBIT 21.1
Name of Subsidiary
50th & 12th, LLC
82 & Otty, LLC
116 & Olio, LLC
Brentwood Land Partners, LLC
Brentwood Property Owners’ Association, Inc.
Centre Associates, LP
Cornelius Adair, LLC
Corner Associates, LP
Delray Marketplace Master Association, Inc.
Eagle Plaza II, LLC
Eddy Street Commons at Notre Dame Master Association, Inc.
Estero Town Commons Property Owners Association, Inc.
Fishers Station Development Company
Glendale Centre, LLC
International Speedway Square, LTD
Jefferson Morton, LLC
Kite Acworth, LLC
Kite Coral Springs, LLC
Kite Daytona, LLC
Kite Eagle Creek, LLC
Kite Greyhound, LLC
Kite Greyhound III, LLC
Kite King’s Lake, LLC
Kite Kokomo, LLC
Kite McCarty State, LLC
Kite New Jersey, LLC
Kite Pen, LLC
Kite Realty Advisors, LLC d/b/a KMI Realty Advisors
Kite Realty Construction, LLC
Kite Realty Development, LLC
Kite Realty Eddy Street Garage, LLC
Kite Realty Eddy Street Land, LLC
Kite Realty Group Trust
Kite Realty Group, L.P.
Kite Realty Holding, LLC
Kite Realty New Hill Place, LLC
Kite Realty Peakway at 55, LLC
Kite Realty South Elgin, LLC
Kite Realty Washington Parking, LLC
Kite Realty/White Eddy Street Condos, LLC
Kite Realty/White LS Hotel Operators, LLC
F-3
Jurisdiction of Incorporation or
Formation
Indiana
Indiana
Indiana
Delaware
Florida
Indiana
Indiana
Indiana
Florida
Indiana
Indiana
Florida
Indiana
Indiana
Florida
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Maryland
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Kite Realty/WLDC Marysville Construction, LLC
Kite San Antonio, LLC
Kite Silver Glen, LLC
Kite Washington, LLC
Kite Washington Parking, LLC
Kite West 86th Street, LLC
Kite West 86th Street II, LLC
KRG 951 & 41, LLC
KRG Beacon Hill, LLC
KRG Bolton Plaza, LLC
KRG Bridgewater, LLC
KRG Capital, LLC
KRG Cedar Hill Plaza, LP
KRG Cedar Hill Village, LP
KRG CHP Management, LLC
KRG College, LLC
KRG College I, LLC
KRG Construction, LLC
KRG Cool Creek Management, LLC
KRG Cool Creek Outlots, LLC
KRG Corner Associates, LLC
KRG Courthouse Shadows, LLC
KRG Courthouse Shadows I, LLC
KRG/CP Pan Am Plaza, LLC
KRG CREC/KS Pembroke Pines, LLC
KRG Daytona Management, LLC
KRG Delray Beach, LLC
KRG Development, LLC d/b/a Kite Development
KRG Eagle Creek III, LLC
KRG Eagle Creek IV, LLC
KRG Eastgate Pavilion, LLC
KRG Eddy Street Apartments, LLC
KRG Eddy Street Commons, LLC
KRG Eddy Street Commons at Notre Dame Declarant, LLC
KRG Eddy Street FS Hotel, LLC
KRG Eddy Street Land, LLC
KRG Eddy Street LS Hotel, LLC
KRG Eddy Street Office, LLC
KRG Estero, LLC
KRG Fishers Station, LLC
KRG Fishers Station II, LLC
KRG Four Corner Square, LLC
KRG Fox Lake Crossing, LLC
KRG Fox Lake Crossing II, LLC
KRG Frisco Bridges, LP
KRG Gainesville, LLC
KRG Geist Management, LLC
KRG Hamilton Crossing, LLC
KRG Indian River, LLC
KRG ISS, LLC
KRG Kedron Management, LLC
KRG Kedron Village, LLC
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Delaware
Indiana
Florida
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Delaware
Indiana
KRG Management, LLC
KRG Market Street Village, LP
KRG Market Street Village I, LLC
KRG Market Street Village II, LLC
KRG Marysville, LLC
KRG Naperville, LLC
KRG New Hill Place, LLC
KRG Oldsmar, LLC
KRG Pan Am Plaza, LLC
KRG Panola I, LLC
KRG Panola II, LLC
KRG Peakway at 55, LLC
KRG Pembroke Pines, LLC
KRG Pine Ridge, LLC
KRG Pipeline Pointe, LP
KRG Plaza Volente, LP
KRG Plaza Volente Management, LLC
KRG PR Ventures, LLC
KRG Riverchase, LLC
KRG Rivers Edge, LLC
KRG Rivers Edge II, LLC
KRG San Antonio, LP
KRG Sunland, LP
KRG Sunland II, LP
KRG Sunland Management, LLC
KRG Texas, LLC
KRG Traders Management, LLC
KRG Washington Management, LLC
KRG Waterford Lakes, LLC
KRG Whitehall Pike Management, LLC
KRG Zionsville, LLC
KRG/Atlantic Delray Beach, LLC
KRG/CCA Estero, LLC
KRG/I-65 Partners Beacon Hill, LLC
KRG/KP Northwest 20, LLC
KRG/KP Northwest 5, LLC
KRG/PRISA II Parkside, LLC
KRG/PRP Oldsmar, LLC
KRG/White LS Hotel, LLC
KRG/WLM Marysville, LLC
Noblesville Partners, LLC
Ohio & 37, LLC
Pasco Sandifur II, LLC
Preston Commons, LLP
Riverchase Owners’ Association, Inc.
Westfield One, LLC
Whitehall Pike, LLC
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Delaware
Delaware
Indiana
Indiana
Indiana
Florida
Florida
Indiana
Indiana
Indiana
Delaware
Florida
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Florida
Indiana
Indiana
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-120142, 333-
152943, and 333-159219) and the Registration Statements on Form S-3 (File Nos. 333-127585, 333-155729 and 333-163945) in the
related Prospectuses of Kite Realty Group Trust and Subsidiaries of our reports dated March 15, 2011, with respect to the consolidated
financial statements and schedule of Kite Realty Group Trust and the effectiveness of internal control over financial reporting of Kite
Realty Group Trust and Subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2010.
EXHIBIT 23.1
/s/Ernst & Young LLP
Indianapolis, Indiana
March 15, 2011
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 15, 2011
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 15, 2011
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, 2010 (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 15, 2011
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 Street, 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
StockTrans, a Broadridge Company
44 West Lancaster Avenue
Ardmore, Pennsylvania 19003
(800) 733-1121
Shareholder Information
Shareholders seeking financial and
operating information may contact
Investor Relations, Kite Realty Group
Trust, 30 South Meridian Street,
Suite 1100, Indianapolis, Indiana
46204. Current investor information,
including press releases and quarterly
earning’s 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, 2010 are avail-
able to shareholders without charge
upon written request to Investor
Rela tions, 30 South Meridian Street,
Suite 1100, Indianapolis, Indiana
46204.
Annual Meeting
The Annual Meeting of Shareholders
will be held at 9:00 a.m. local time on
May 3, 2011, at 30 South Meridian
Street, 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
Avrum and Joyce Gray Director of
the Burton D. Morgan Center for
Entrepreneurship 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
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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, 2010. The Company has submitted 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 recent 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 venture risks; property ownership and manage-
ment 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 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, 2010, which discuss these and other factors that could adversely affect the Company’s results. The Company under-
takes 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