VISION DRIVES US. PASSION DEFINES US. TM
2013 ANNUAL REPORT
VISION DRIVES US. PASSION DEFINES US. TM
2013 ANNUAL REPORT
CORPORATE PROFILE
Kite Realty Group Trust is a full-service, vertically integrated real estate investment trust engaged in the ownership, operation, management,
leasing, acquisition, redevelopment and development of neighborhood and community shopping centers in selected markets in the United States.
As of December 31, 2013, the Company owned interests in 72 operating and redevelopment properties totaling approximately 12.4 million square
feet and two properties under development totaling 0.8 million square feet.
The Company is headquartered in Indianapolis, Indiana. Its common and preferred shares are traded on the New York Stock Exchange under
the symbols KRG and KRGPrA, respectively.
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.
YEAR–ENDED DECEMBER 31
2013
2012
2011
FINANCIAL DATA ($ in millions, except per share data)
Total Revenue (1)
Funds From Operations (FFO) of the
Operating Partnership, as adjusted*
FFO per Weighted Average Diluted
Common Share, as adjusted
Net Loss Attributable to Common Shareholders
Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
Net Debt to Adjusted EBITDA
Diluted Weighted Average Common Shares
and Units Outstanding (in millions)
PROPERTY DATA
$129.5
$48.5
$0.48
$(11.3)
$96.5
$32.0
$0.43
$(12.3)
$89.1
$31.8
$0.44
$(0.8)
$82.1
7.4
$62.5
8.6
$62.9
9.7
101.1
74.6
71.7
Operating and Redevelopment Properties
Total Square Feet (GLA, in millions)
Percent of Owned Portion Under Lease:
Total Portfolio
Retail Only
Projects in In-Process Development
72
12.4
60
9.3
63
9.5
95.3%
95.3%
2
94.2%
94.2%
3 3
93.3%
93.3%
DIVIDEND DATA
Cash Dividend Paid per Common Share
$0.24
$ 0.24
$ 0.24
* FFO is a non-GAAP financial measure commonly used in the real estate industry that we believe provides useful information to investors. Please refer to Management’s
Discussion & Analysis of Financial Condition and Results of Operations in the accompanying Form 10-K for a definition of FFO, and to pages 72-73 for a reconciliation of net
income to FFO, and FFO as adjusted.
(1) Restated for effects of discontinued operations. See note 12 to the consolidated financial statements in the accompanying Form 10-K for further discussion.
| Kite Realty Group 2013 Annual Report | 1
BEECHWOOD PROMENADE ATHENS, GA
MSA ATLANTA GLA 342,322
ANCHORS FRESH MARKET :: TJ MAXX :: STEINMART :: GEORGIA THEATER SHOPS :: LOFT :: CHICOS :: COLD WATER CREEK :: JOS.A.BANK
MARCH 2014
DEAR FELLOW SHAREHOLDERS:
I am pleased to report to you the results of a course-changing year for Kite Realty Group. The year 2013 was one
of the most exciting and successful in our almost 10 years as a public company. This year, especially when coupled
with a recent groundbreaking announcement, has been transformational for your company. We have been particularly
active in the last six months, during which time we acquired a $304 million, nine-property portfolio and entered into
a $2.1 billion definitive merger agreement with Inland Diversified. I will discuss each of these major events, as well as
several others, in the following pages.
12/31/2013
12/31/2008
Total Assets
STATISTICS
Equity Capitalization
Kite Realty Group has come a very long way in
the nearly 10 years we have operated as a public
company. We went public in 2004 after much
success as an entrepreneurial development
and construction company. We enjoyed solid
success and growth for our first few years as
a public company and then, along with the rest
of the country, weathered the severe economic
storms of 2008-2009. During this period, we
took a number of steps to position ourselves to
be a much stronger company as we emerged on
the other side of the recession, ready to take advantage of acquisition and development opportunities that fit our
strategic investment criteria. We have protected and strengthened our balance sheet, initiated and completed some
very important development and redevelopment projects, and set the stage to become an even more prominent
player in the marketplace in the years to come. Given this backdrop, I think it is appropriate to present a few statistics
to provide some perspective on how far we’ve come together in the last five years. Even though these statistics show
we have made great progress, we still have a number of objectives we want to achieve.
Number of Operating Properties
Portfolio Leased Percentage
Enterprise Value
$235 million
$874 million
$1.1 billion
$1.8 billion
$1.0 billion
$1.8 billion
95.3%
91.7%
61
72
2
| Kite Realty Group 2013 Annual Report |
RETAIL LANDSCAPE
AN OPPORTUNITY FOR GROWTH
I would like to address certain aspects of the retail landscape in the U.S. that influence how we do business in our
various markets. The U.S. retail real estate market absorbed 16 million square feet of net leasable space in the fourth
quarter of 2013. With location and occupancy factors taken into account, less than 22% of the 370 million square
feet listed as vacant at the end of 2013 can be described as fully competitive real estate. Of this 80 million square
feet of highly competitive space, the vacancy rate is just 3.5%. Therefore, landlords with premium space to offer are
regaining leasing leverage as low supply growth is expected to continue over the next several years.
We are quite confident that Kite Realty Group owns some of the best real estate in the markets in which we operate.
Put another way, we are where retailers want to be. One measure of the quality of our real estate is the strength
of our rental rates on new and renewal leases. In 2013, our aggregate cash spread leases executed was 14.6%
and our same property net operating income was up nearly 5%. Both measures demonstrate that, although there
is a shortage of competitive real estate, we have been successful in attracting tenants to our development and
redevelopment projects, as well as to our operating properties, and we have been able to command very attractive
rental rates. Upon completion of the merger with Inland Diversified Corporation, which is projected to occur midyear,
we will enjoy an expanded platform from which we can leverage our relationships with a number of national retailers.
2013 IN REVIEW
As I mentioned above, we continued to make great strides in the implementation of our strategic plan. The primary
pillars of our plan are:
•
•
•
to strengthen the balance sheet;
to grow the company through strategic capital deployment; and
to strategically recycle capital into more profitable opportunities.
STRENGTHENING THE BALANCE SHEET
During 2013, we undertook or continued several initiatives specifically designed to improve and strengthen our
balance sheet. These initiatives included organic deleveraging as we began to stabilize our largest development
assets, reducing the overall interest rate of our debt portfolio and expanding the pool of unencumbered assets. We
made significant progress in 2013 toward completing large portions of our development portfolio and transitioning
them to revenue-generating assets. The table below presents the status of the largest development and redevelopment
projects that were substantially completed during 2013.
This activity represents investments totaling
almost $200 million. These projects are set
to deliver more than $13 million of annualized
NOI. As we transitioned these projects to
productive, revenue-generating assets, we
were also able to reduce the percentage
of our construction in progress from 17%
of total assets at December 2012 to 7% at
the end of this year—the lowest percentage
since we’ve been a public company. This progress demonstrates that we are reducing risk on our balance sheet while
remaining flexible enough to take advantage of other opportunities that arise.
Holly Springs Towne Center
(Phase I) – NC
Four Corner Square – WA REDEV
ESTIMATED
INVESTMENT
Delray Marketplace – FL
Rangeline Crossing – IN
12/31/13
LEASED %
$99 million
$16 million
$27 million
$57 million
STATUS
REDEV
89.6%
86.8%
90.8%
91.4%
DEV
DEV
The combination of lowering the amount of non-earning assets, along with bringing a substantial portion of our
developments and redevelopments online and completing several financial and capital initiatives, has served to lower
our Net Debt to Adjusted EBITDA ratio by about 1.2 turns in the last year to 7.4x. All of these actions substantially
reduced the risk on our balance sheet. With the de-levering effect of our planned merger with Inland Diversified, we
anticipate reducing this ratio as much as another full turn upon consummation.
| Kite Realty Group 2013 Annual Report | 3
During 2013, we also took advantage of a favorable credit and interest rate environment to amend and enhance our
unsecured term loan and revolving credit facility. We amended our unsecured term loan to increase the borrowing
by $105 million and lower the interest rate by approximately 65 basis points across the leverage grid. We also
increased the total borrowing capacity under the term loan by another $70 million, which is available under certain
circumstances. By amending and extending our revolving line of credit, we reduced the interest rate by 25 to 40 basis
points, extended the maturity date by almost a year, and increased the overall borrowing capacity by $100 million.
The net result of these and other initiatives served to lower the debt portfolio’s weighted average interest rate from
4.51% to 3.74%.
STRATEGIC CAPITAL RECYCLING AND DEPLOYMENT
The year 2013 capped a two-year period during which we successfully identified and sold a total of 10 operating
properties, generating net proceeds of almost $100 million—the vast majority of which was reinvested into new,
higher-growth, and more strategically positioned assets. Toward the end of the year, we executed a common equity
raise to fund the purchase of a nine-
property portfolio that expanded
our asset base by 2.0 million square
feet, or about 25%. Seven of these
properties are located in states in
which we already have a presence
(Texas, Georgia, and Florida), while
two of the properties are in the
state of Alabama. Approximately
40% of the net operating income
from these properties is in the fast-
growing Houston, Texas market.
The purchase price of this portfolio
was $304 million, or an attractive
$153 per square foot, which is well
below its replacement value. On an
aggregate basis, these properties
were 93.3% leased and include an
impressive lineup of anchor tenants
such as Publix Super Markets,
WalMart, TJ Maxx, Fresh Market
and PetSmart. In addition to this high-profile acquisition, we added several other properties and disposed of a few to
better focus on strategically important markets and increase the overall profitability of the portfolio. Following are the
highlights of our 2013 operating property acquisitions.
RIVERS EDGE INDIANAPOLIS, IN
MSA INDIANAPOLIS GLA 149,209
ANCHORS NORDSTROM RACK :: THE CONTAINER STORE :: ARHAUS FURNITURE :: BUY BUY BABY
Castleton Crossing
Indianapolis, IN
A 278,000 square foot shopping center in Indianapolis, Indiana. This center was 100% leased
and is anchored by TJ Maxx, HomeGoods, Burlington Coat and Shoe Carnival.
Cool Springs Market
Nashville, TN
A 224,000 square foot shopping center in Nashville, Tennessee. The acquisition of this center
marked our entry into the state of Tennessee. Cool Springs Market was 91.3% leased and is
anchored by Kroger, Dick’s Sporting Goods, Staples, Marshalls and Jo-Ann Fabric.
Shoppes of Eastwood
Orlando, FL
A 69,000 square foot shopping center in Orlando, Florida. This center was 98.1% leased and
is anchored by Publix Super Markets.
Toringdon Market
Charlotte, NC
A 60,000 square foot shopping center in Charlotte, North Carolina. This center was 97.3%
leased and is anchored by Earth Fare.
These acquisitions expanded our footprint into the new growth markets of Nashville, Tennessee, and Charlotte, North
Carolina. All of these properties were acquired at prices below replacement cost and at attractive cap rates, and will
contribute significant shareholder value for years to come.
4
| Kite Realty Group 2013 Annual Report |
PENDING MERGER WITH INLAND DIVERSIFIED CORPORATION
We are especially excited about the definitive agreement we entered into last month to merge with Inland Diversified,
a non-traded REIT based in Chicago. This merger is expected to close in the second or third quarter of this year
and will add 57 operating properties and 10.2 million square feet in 22 states, approximately doubling the size of the
company. Upon consummation of the merger, Kite Realty Group will manage and operate the combined company.
We will retain the trade name Kite Realty Group and stock ticker symbol KRG, and our corporate headquarters will
remain in Indianapolis.
The combination of shoring up our capital base via capital market activities and the enlargement of our geographic
footprint through selective reinvestment in higher quality shopping centers has also expanded our unencumbered
pool by $370 million to more than $850 million at year-end 2013. Upon consummation of the merger with Inland
Diversified, we expect the pool to further increase to about $1.2 billion, which will provide a number of strategic and
expansion opportunities as we continue to grow the company.
STRONG CORE OPERATING METRICS
During 2013 we also continued to expand and improve the quality of our earnings. With the properties we acquired,
net of the property disposals, we have increased our annualized NOI by about $26.5 million. We have enhanced
our tenant lineup by adding or expanding our relationships with prominent retailers such as Publix Super Markets,
Bed Bath & Beyond, Harris Teeter, LA Fitness and Fresh Market. Total revenue from property operations increased
34% over the prior year. The majority of this growth was realized through the substantial completion of several of
our major development projects, including Delray Marketplace in Delray Beach, Florida and Phase I of Holly Springs
Towne Center near Raleigh, North Carolina, as well as key redevelopment projects such as Rangeline Crossing in
Indianapolis, Indiana and Four Corner Square in a suburb of Seattle, Washington.
More than 95% of our total NOI is derived from “core” or recurring property operations. We concentrate particularly
on the level of our NOI derived from “same properties”, that is, those operating properties we have owned for at
least one year. In 2013, our same property NOI increased 4.9% over a very strong 2012 and it has averaged 3.8%
over the last four years. Both of these metrics are indicative of the quality of our real estate in general and our tenant
base in particular, as well as our ability to identify and take advantage of unique opportunities in the marketplace. The
quality and stability of our core operations allows us to build a more predictable earnings stream while also providing
a foundation for future growth.
PORTOFINO SHOPPING CENTER HOUSTON, TX
MSA HOUSTON GLA 491,792
ANCHORS STEINMART :: MICHAELS :: SPORTS AUTHORITY :: OLD NAVY
| Kite Realty Group 2013 Annual Report | 5
DEVELOPMENT
Capitalizing on Our Expertise
DELRAY MARKETPLACE DELRAY BEACH, FL
MSA DELRAY BEACH GLA 255,554
ANCHORS FRANK THEATRE CINEBOWL & GRILLE :: PUBLIX SUPER MARKETS
Another measure of a real estate company’s earnings stability is reflected in the diversity of its tenant base. At year-
end 2013, only Publix Super Markets comprised more than four percent of our total annualized base rent. After our
merger with Inland Diversified, no tenant will comprise more than four percent of our ABR. Our diverse tenant mix
helps to protect future revenue streams from economic downturns that might affect certain markets or industries.
Our small shop spaces (less than 10,000 square feet) continue to represent a promising opportunity for future
growth. While we increased the year-end leased percentage of this portion of our portfolio by 300 basis points over
last year to 85.5%, we believe substantial upside remains in this part of our portfolio. In addition, approximately 3% of
our small shop square footage expires in 2014, with the average base rent on these expiring leases below our small
shop portfolio average.
DEVELOPMENT AND REDEVELOPMENT—ORGANIC SOURCES OF GROWTH
DEVELOPMENT PROGRESS
The year 2013 was one of the most active in our history as we completed two of our larger development projects and
approached completion of several others. On the development side, we accomplished the following in 2013:
We completed the opening of Delray Marketplace, one of the largest and most exciting development projects in
our company’s history. Delray Marketplace, a 260,000 square foot center in Delray Beach, Florida, is 86.8% leased
or committed with a strong tenant lineup including anchors Publix Super Markets and Frank Theatres along with
Charming Charlie, White House I Black Market, Ann Taylor Loft, Chicos and Jos. A. Bank. Tenant sales have exceeded
our expectations at this property.
6
| Kite Realty Group 2013 Annual Report |
We also completed and opened the first phase of the 534,000 square foot Holly Springs Towne Center, in Holly
Springs, North Carolina. Phase I of Holly Springs Towne Center is anchored by Target and Dick’s Sporting Goods and
is 91% leased. We anticipate commencing site construction of Phase II to in the second quarter of 2014.
BALANCE SHEET MANAGEMENT
Building for the Long Term
During 2013, we commenced construction of the first phase of the 570,000 square foot Parkside Town Commons,
in Cary, North Carolina. Phase I of Parkside Town Commons is 246,000 square feet, is 83.4% leased and boasts an
impressive anchor tenant lineup including Target, Harris Teeter and Petco. Construction on the 324,000 square foot
Phase II is well underway with expected occupancy to begin in the fourth quarter of 2014.
REDEVELOPMENT ACTIVITY
One of the more important aspects we search for when evaluating acquisition opportunities is the prospect for
enhancing profitability through selective redevelopment. In 2012, we completed one of the most successful
redevelopments in our history—Rivers Edge Shopping Center in Indianapolis. Last year we leveraged this success
and completed two more projects; the 75,000 square foot Rangeline Crossing in Indianapolis, Indiana and the
108,000 square foot Four Corner Square in Maple Valley, Washington. Rangeline Crossing is 91% leased and is
anchored by Earth Fare and Walgreens. Four Corner Square is 90% leased and is anchored by Walgreens, Grocery
Outlet, and The Hardware Store.
The company also commenced redevelopment activity on several additional projects, which will enhance the
profitability and attractiveness of the properties:
Bolton Plaza, in Jacksonville, Florida is a 156,000 square foot center, formerly anchored by WalMart. We have suc-
cessfully re-tenanted the property with LA Fitness, Academy Sports and Outdoors, and Panera Bread, and have
increased the average rental rate by about 30%.
Kings Lake Square, in Naples, Florida is an 88,000 square foot center, anchored by Publix Super Markets. We signed
a new lease with Publix and are completely renovating its store, which is scheduled to open in the second half of this
year, increasing the average rental rate for the property by about 33%.
We will continue to evaluate our existing properties for additional redevelopment opportunities to enhance the NOI
of the portfolio.
EDDY STREET COMMONS AT NOTRE DAME SOUTH BEND, IN
MSA MISHAWAKA GLA 88,143
ANCHORS HAMMES BOOKSTORE :: URBAN OUTFITTERS :: BROTHERS BAR & GRILLE
| Kite Realty Group 2013 Annual Report | 7
CLOSING
I would like to close this letter to you by publicly thanking one of our board members who served us with distinction
since we went public in 2004. Mike Smith, who retired from our board earlier this year, provided us with exceptionally
wise counsel during his tenure and was instrumental in the success we have enjoyed to date and helping set the
stage for the exciting opportunities that lay ahead.
We have recently added two new members to our board. David O’Reilly is Executive Vice President, Chief Financial
Officer and Chief Investment Officer of Parkway Properties and brings to us extremely valuable experience in commercial
real estate, investment banking and finance. Bart Peterson is Senior Vice President of Corporate Affairs for Eli Lilly
and Company and provides significant background and expertise in corporate governance and communications. We
welcome both of these gentlemen to our board.
On behalf of our board of trustees, our executive management team, and the employees of Kite Realty Group, I want
to thank my fellow shareholders for placing your confidence in our strategy and in the company we are building. I
also want to express my appreciation to our team of hardworking professionals for its unwavering commitment and
dedication to our vision. I am extremely proud of what we have accomplished together over our nearly ten years as a
public company, and I look forward to many more years of even greater success.
Sincerely,
John A. Kite
Chairman and Chief Executive Officer
8
| Kite Realty Group 2013 Annual Report |
2013 Form 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2013
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 and non-voting common shares held by non-affiliates of the Registrant as the last business day of the
Registrant’s most recently completed second quarter was $558 million based upon the closing price of $6.03 per share on the New York Stock Exchange
on such date.
The number of Common Shares outstanding as of February 21, 2014 was 130,886,126 ($.01 par value).
Portions of the Proxy Statement relating to the Registrant’s Annual Meeting of Shareholders, scheduled to be held on May 7, 2014, 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, 2013
TABLE OF CONTENTS
Page
Item No.
Part I
1. Business ...........................................................................................................................................................................
1A. Risk Factors .....................................................................................................................................................................
1B. Unresolved Staff Comments ............................................................................................................................................
2. Properties .........................................................................................................................................................................
3. Legal Proceedings............................................................................................................................................................
4. Mine Safety Disclosures ..................................................................................................................................................
3
10
28
29
42
42
Part II
5. Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities .........................................................................................................................................................................
6. Selected Financial Data ...................................................................................................................................................
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ..........................................
7A. Quantitative and Qualitative Disclosures about Market Risk ..........................................................................................
8. Financial Statements and Supplementary Data ................................................................................................................
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........................................
9A. Controls and Procedures ..................................................................................................................................................
9B. Other Information ............................................................................................................................................................
43
46
47
73
74
75
75
77
Part III
10. Trustees, Executive Officers and Corporate Governance ................................................................................................
11. Executive Compensation .................................................................................................................................................
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ........................
13. Certain Relationships and Related Transactions and Director Independence .................................................................
14. Principal Accountant Fees and Services ..........................................................................................................................
77
77
77
77
77
Part IV
15. Exhibits, Financial Statement Schedule ...........................................................................................................................
78
Signatures ........................................................................................................................................................................... 79
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, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). 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, financial or
otherwise, 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 low growth
in the U.S. economy;
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, including the pending merger transaction with
Inland Diversified Real Estate Trust, Inc.;
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.
2
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”).
Overview
Kite Realty Group Trust is a full-service, vertically integrated real estate company engaged in the ownership,
operation, management, leasing, acquisition, redevelopment, and development of high-quality neighborhood and
community shopping centers in selected markets in the United States.
The Company was formed in Maryland in 2004 as a REIT. We conduct all of our business through our Operating
Partnership, of which we are the sole general partner. As of December 31, 2013, we held a 95% interest in our Operating
Partnership with limited partners owning the remaining 5%.
As of December 31, 2013, we owned interests in a portfolio of 66 retail operating properties totaling approximately
11.5 million square feet of gross leasable area (including approximately 3.1 million square feet of non-owned anchor space)
located in thirteen states. Our retail operating portfolio was 95.3% leased to a diversified retail tenant base, with no single
retail tenant accounting for more than 4.7% of our total annualized base rent. In the aggregate, our largest 25 tenants
accounted for 33.5% 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 two commercial operating properties (including the office component of Eddy Street
Commons mixed-use property) totaling approximately 0.4 million square feet of net rentable area, both located in the state
of Indiana. The leased percentage of our commercial operating portfolio was 95.2% as of December 31, 2013.
As of December 31, 2013, we also had an interest in two development projects under construction. Upon completion,
these projects are anticipated to have approximately 0.8 million square feet of gross leasable area (including approximately
0.2 million square feet of non-owned anchor space). In addition, we have one development project pending
commencement of construction, which is undergoing preparation for construction to commence, including pre-development
and pre-leasing activities. As of December 31, 2013, this project is expected to contain 0.2 million square feet of total
gross leasable area (including non-owned anchor space) upon completion.
In addition to our development projects, as of December 31, 2013, we had interests in two redevelopment projects
under construction, which are expected to contain 0.2 million square feet of gross leasable area (including non-owned
anchor space) upon completion. Also, we have two redevelopment projects pending commencement of construction, which
are expected to contain 0.3 million square feet of total gross leasable area (including non-owned anchor space) upon
completion.
In addition, as of December 31, 2013, we owned interests in various land parcels totaling approximately 131 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.
Significant 2013 Activities
Acquisitions
During 2013, we successfully completed and integrated the acquisition of the following operating properties:
Nine Property Portfolio – In November, we acquired a portfolio of nine retail operating properties located in
Florida, Georgia, Texas, and Alabama for a purchase price of $304 million. The portfolio has an aggregate
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owned gross leasable area of 2.0 million square feet and was 93.3% leased as of December 31, 2013. The
majority of the centers contain a grocery anchor and are well located within their markets.
Toringdon Market – In August, we acquired a 60,000 square foot shopping center in Charlotte, North
Carolina for a purchase price of $15.9 million. This center is anchored by Earth Fare.
Castleton Crossing - In May, we acquired a 278,000 square foot shopping center in Indianapolis, Indiana for
a purchase price of $39.0 million. This center is anchored by a number of tenants including TJ Maxx, Home
Goods, Burlington Coat Factory, and Shoe Carnival.
Cool Springs Market - In April, we acquired a 285,000 square foot shopping center located in Nashville,
Tennessee for a purchase price of $37.6 million. This center is anchored by multiple tenants including
Dick’s Sporting Goods, Marshall’s, JoAnn Fabrics, and Staples.
Shoppes of Eastwood - In January, we acquired a 69,000 square foot shopping center located in Orlando,
Florida for a purchase price of $11.6 million. This center is anchored by Publix.
Development and Redevelopment Activities
Delray Marketplace in Delray Beach, Florida – Construction on this 260,000 square foot development was
substantially completed. This center is anchored by Publix and Frank Theatres along with a number of
restaurants and retailers including Burt and Max’s Grille, Charming Charlie, Chico’s, White House | Black
Market, Ann Taylor Loft, and Jos. A Bank. The Company anticipates that total project costs of the
development will be approximately $99.5 million, of which $95.9 million had been incurred as of December
31, 2013. It is expected that this property will be transitioned into the operating portfolio in the first quarter
of 2014;
Holly Springs Towne Center – Phase I near Raleigh, North Carolina – Construction on this development was
substantially completed and transitioned to the operating portfolio in the fourth quarter of 2013. This 91%
leased center is anchored by Target, Dick’s Sporting Goods, Marshall’s, Michael’s, and Petco;
Parkside Town Commons near Raleigh, North Carolina – Construction commenced on both phases of this
570,000 square foot development. Phase I of this project is 83% leased and will be anchored by Target,
Harris Teeter, and Petco. Phase II of this project is 62% leased and will be anchored by Frank Theatres, Golf
Galaxy, Field & Stream, and Toby Keith’s Bar & Grill. The Company anticipates its total investment in the
development will be $109.0 million, of which $57.7 million had been incurred as of December 31, 2013. It
is expected that Phase I of the property will be transitioned into the operating portfolio in the second half of
2014 and Phase II of the property will be transitioned into the operating portfolio in the first half of 2015;
Four Corner Square near Seattle, Washington – This retail redevelopment project was substantially
completed and the property was transitioned to the operating portfolio in the fourth quarter of 2013. This
90% leased center is anchored by Walgreens, Grocery Outlet, and Johnson’s Do-It-Center;
Rangeline Crossing near Indianapolis, Indiana – This redevelopment project was substantially completed and
the property was transitioned to the operating portfolio in the second quarter of 2013. This 91% leased center
is anchored by Earth Fare and Walgreens;
Bolton Plaza in Jacksonville, Florida – Construction continues on this redevelopment project. LA Fitness is
expected to open in the first quarter of 2014 and will anchor the center along with Academy Sports and
Outdoors. The Company anticipates its total investment in the development will be $10.3 million, of which
$6.6 million had been incurred as of December 31, 2013; and
King’s Lake Square in Naples, Florida – This operating property was transitioned to an in-process
redevelopment in August upon commencement of construction on a new and upgraded Publix grocery store.
The Company expects to complete construction in the second quarter of 2014. The Company anticipates its
total investment in the development will be $6.9 million, of which $4.7 million had been incurred as of
December 31, 2013.
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. In 2013, we were able to strengthen our balance sheet and improve our financial flexibility
and liquidity to fund future growth. We will endeavor in 2014 to continue improving our key financial ratios, including our
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debt to EBITDA ratio. We ended the year 2013 with approximately $69 million of combined cash and borrowing capacity
on our unsecured revolving credit facility. In addition, we own five unencumbered assets that would provide
approximately $135 million of additional borrowing capacity under the unsecured revolving credit if they were contributed
to the unencumbered property pool and the accordion feature was exercised. We will remain focused on 2014 financing
activity and will continue to aggressively manage our operating portfolio and development pipeline.
During 2013, we successfully completed various financing, refinancing and capital-raising activities including the
following significant activities:
Common Equity Offerings
In November, the Company completed an equity offering of 36,800,000 common shares at an offering price
of $6.16 per share for net offering proceeds of $217 million. The Company initially used the proceeds to
repay borrowings under its unsecured revolving credit facility and subsequently redeployed the proceeds to
fund a portion of the purchase price of the portfolio of nine unencumbered retail properties.
In April and May, the Company completed an equity offering of 15,525,000 common shares at an offering
price of $6.55 per share for net offering proceeds of $97 million. The Company initially used the proceeds
to repay borrowings under its unsecured revolving credit facility and subsequently redeployed the proceeds
to acquire the Cool Springs Market, Castleton Crossing, and Toringdon Market operating properties.
Unsecured Term Loan and Unsecured Revolving Credit Facility
In August, we amended and increased the borrowing on our existing unsecured term loan (the “Term Loan”)
from $125 million to $230 million. The Term Loan is scheduled to mature on August 21, 2018 with an
interest rate of LIBOR plus 145 to 245 basis points, depending on the Company’s leverage, which was a
decrease from the rate of LIBOR plus 210 to 310 basis points under the existing unsecured term loan. The
$105 million of additional proceeds were used to initially pay down amounts outstanding under our
unsecured revolving credit facility. The Company has the option to further extend the maturity date to
February 21, 2019.
In February, we amended the terms of our existing $200 million unsecured revolving credit facility. The
maturity date was extended to February 26, 2017 and the interest rate was reduced to LIBOR plus 165 to 250
basis points, depending on the Company’s leverage. The Company has the option to further extend the
maturity date to February 26, 2018.
Construction Financing Activity
Draws totaling $60.9 million were made on the variable rate construction loans related to the Delray
Marketplace, Holly Springs Towne Center, Rangeline Crossing, and Four Corner Square development and
redevelopment projects.
In November, we closed on an $87.2 million loan to fund the construction of both phases of Parkside Town
Commons near Raleigh, North Carolina. The loan has a maturity date of November 22, 2016 and a variable
interest rate of LIBOR plus 210 basis points. During the year, we made draws on this construction loan of
$16.5 million.
2013 Cash Distributions
In 2013, we declared total cash distributions of $0.24 per common share and cash distributions of $2.0625 per
share of our 8.250% Series A Cumulative Redeemable Perpetual Preferred Share (“Series A Preferred Shares”).
Significant 2014 Activities
On February 9, 2014, the Company signed a definitive merger agreement with Inland Diversified Real Estate
Trust, Inc. (“Inland Diversified”), pursuant to which Inland Diversified will merge with and into a wholly-owned subsidiary
of the Company in a stock-for-stock exchange with a transaction value of approximately $2.1 billion, which includes the
assumption of approximately $0.9 billion of debt.
Inland Diversified’s retail portfolio that we plan to acquire is comprised of 57 properties that were 95.3% leased as
of December 31, 2013. The properties are located in existing markets of the Company and new markets including
Westchester, New York, Bayonne, New Jersey, Las Vegas, Nevada, Virginia Beach, Virginia, and Salt Lake City, Utah.
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We also plan to acquire from Inland Diversified certain multifamily assets that we expect to sell following the close of the
merger.
Under the terms of the merger agreement, each outstanding share of Inland Diversified’s common stock will be
converted into the right to receive newly issued common shares of beneficial interest of the Company in exchange for each
share of Inland Diversified common stock based on the following:
1.707 shares of the Company for each share of Inland Diversified common stock, so long as the reference price for
the Company’s shares (defined below) is equal to or less than $6.36;
A floating ratio if the Company’s reference price is more than $6.36 or less than $6.58 with such ratio determined
by dividing $10.85 by the Company’s reference price;
1.650 shares of the Company for each share of Inland Diversified common stock if the Company’s reference price
is $6.58 or greater;
The reference price is the volume-weighted average trading price of the Company’s common shares for the ten
consecutive trading days ending on the third trading day preceding Inland Diversified’s stockholder meeting to
approve the merger.
The merger is expected to close late in the second quarter or in the third quarter of 2014, subject to the approval of
shareholders of both companies and the satisfaction of other customary closing conditions.
Business Objectives and Strategies
Our primary business objectives are to increase the cash flow and build or realize capital appreciation 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 with well-located real estate with strong demographics, combined with effective leasing and
management strategies, 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 or renovating certain properties to make them more attractive to existing and prospective
tenants and consumers;
Growth Strategy: Using debt and equity capital prudently to selectively acquire additional retail properties,
redevelop or renovate our existing 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: Maintaining a strong balance sheet with sufficient flexibility
to fund our operating and investment activities. Funding sources include opportunistically accessing the
public securities markets, borrowings under our existing revolving credit facility, new secured debt,
internally generated funds and proceeds from selling land and properties that no longer fit our strategy, and
potential investment in strategic joint ventures. We continuously 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 located 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 operating portfolio;
minimizing tenant turnover;
maintaining leasing and property management strategies that maximize rent growth and monitor costs;
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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;
maintaining 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.
We employed our operating strategy in 2013 in a number of ways, including increasing our total leased percentage
from 94.2% at December 31, 2012 to 95.3% at December 31, 2013. In addition, we generated positive leasing spreads (i.e.,
the difference between the rent paid under the prior lease and the rent being paid under the current lease) of 14.6% in 2013
on space vacant less than one year. We have also been successful in maintaining a diverse retail tenant mix with no tenant
accounting for more than 4.7% 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. 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:
selectively pursuing the acquisition of retail operating properties and portfolios in markets with strong
demographics and attract successful retail tenants;
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 vertical
construction; and
disposing of selected assets that no longer meet our long-term investment criteria and recycling the net
proceeds into assets that provide maximum returns and upside potential in desirable markets.
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 the investments 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, and
the tax consequences of the sale as well as 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.
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In 2013, we were successful in completing and integrating the acquisition of thirteen high-quality retail properties that
enabled us to expand our presence in our core markets. In addition, we delivered three very strong development and
redevelopment projects to the operating portfolio and expect to deliver four additional projects in 2014.
In 2013, we were successful in executing new leases for anchor tenants at multiple properties in our development,
redevelopment, and operating portfolios. We signed anchor leases totaling 135,000 square feet, including Gander
Mountain at our Bayport Commons operating property, Sprouts Farmer’s Market at our Sunland Towne Center operating
property, and Total Wine and More at our International Speedway Square operating property.
Financing and Capital Preservation Strategy. We finance our acquisition, development, and redevelopment 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 reinvestment of proceeds from the
disposition of assets, the incurrence of additional indebtedness through secured or unsecured borrowings, and entering into
real estate joint ventures.
Our primary financing and capital preservation strategy is to maintain a strong balance sheet with sufficient flexibility
to fund our operating and investment activities in the most cost-effective way. We consider a number of factors when
evaluating our level of indebtedness and when making decisions regarding additional borrowings, including the purchase
price of properties to be developed or acquired with debt financing, the estimated market value of our properties and 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. 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;
raising additional capital through the issuance of common shares, preferred shares or other securities;
extending the maturity dates of and/or refinancing of our near-term mortgage, construction and other
indebtedness;
staggering our maturities with long-term debt on recently completed projects;
entering into construction loans prior to commencement of vertical construction to fund our larger in-process
developments, redevelopments, and future developments;
managing our exposure to interest rate increases on our variable-rate debt through the use of fixed rate
hedging transactions and securing property specific long-term nonrecourse financing; and
entering into joint venture arrangements in order to access less expensive capital and to mitigate risk.
Competition
The United States commercial real estate market continues to be highly competitive. We face competition from other
REITs and other owner-operators engaged in the ownership, leasing, acquisition, and development 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 based on the characteristics of
each local market in which we own properties. We believe that the principal competitive factors in attracting tenants in our
market areas are location, demographics, rental rates, the presence of anchor stores, competitor shopping centers in the
same geographic area and the maintenance, 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.
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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.
With environmental sustainability becoming a national priority, we have continued to demonstrate our strong
commitment to be a responsible corporate citizen through resource reduction and employee training that have resulted in
reductions of energy consumption, waste and improved maintenance cycles.
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. Certain risks such as loss from riots, war or acts of God, and, in some
cases, flooding are not insurable; and therefore, we do not carry insurance for these losses. 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.
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Employees
As of December 31, 2013, we had 95 full-time employees. The majority of these employees were based at our
Indianapolis, Indiana headquarters.
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 four categories:
risks related to our operations;
risks related to our organization and structure;
risks related to our pending merger transaction with Inland Diversified Real Estate Trust, Inc.; 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 is recovering from the recent recession in an uneven fashion. Similarly, the specific
markets in which we operate may face challenging economic conditions that could persist into the future. In particular, as
of December 31, 2013, 30% of our owned square footage and 31% of our total annualized base rent was located in Indiana,
24% of our owned square footage and 23% of our total annualized base rent was located in Florida, and 18% of our owned
square footage and 19% of our total annualized base rent was 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 and high unemployment rates. Adverse economic or real estate trends in Indiana, Florida,
Texas, or the surrounding regions, or any 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.
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Disruptions in the financial markets could affect our ability to obtain financing 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. These disruptions could impact the overall amount of debt
financing available, lower loan to value ratios, cause 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 December 31, 2013, we
had approximately $86 million and $96 million of debt maturing in 2014 and 2015, respectively. 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 economic conditions deteriorate in any of our markets, we may be forced to seek alternative sources of potentially
less attractive financing, and have to adjust our business plan accordingly. In addition, we may be unable to obtain
permanent financing on development projects we temporarily financed with construction loans. 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 and grow 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 and grow their businesses. Disruptions in credit
markets, as discussed above, may adversely affect our tenants’ ability to obtain debt financing at favorable rates or at all. 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 effect on our financial condition and results of
operations.
Certain sectors of the United States economy are still experiencing weakness. This structural weakness has resulted in
continuing high levels of unemployment, the bankruptcy or weakened financial condition of a number of retailers,
decreased consumer spending, increased home foreclosures, low consumer confidence, and reduced demand and rental
rates for certain retail space. Market conditions remain challenging as higher than historical levels of unemployment and
lower 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, economic recessions, decreases in consumer confidence,
reductions in consumer credit availability, increasing consumer debt levels, rising energy costs, higher 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 their rent obligations 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 request rental concessions on such leases, or (iv) be forced to curtail operations or declare
bankruptcy. We are also susceptible to other developments that, while not directly tied to the economy, could have a
material adverse effect on our business. These developments include relocations of businesses, changing demographics,
increased Internet shopping, infrastructure quality, 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, or a loss on disposition of one or more of our properties.
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Our real estate assets may be subject to impairment charges.
Our long-lived assets, primarily real estate held for investment, are carried at cost unless circumstances indicate
that the carrying value of the assets may not be recoverable. We evaluate whether there are any indicators, including
property operating performance and general market conditions, that the value of the real estate properties (including any
related amortizable intangible assets or liabilities) may not be recoverable. Through the evaluation, we compare the current
carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate
disposition of the asset. Our estimated cash flows are based on several key assumptions, including rental rates, costs of
tenant improvements, leasing commissions, anticipated hold periods, and assumptions regarding the residual value upon
disposition, including the exit capitalization rate. These key assumptions are subjective in nature and could differ materially
from actual results. Changes in our disposition strategy or changes in the marketplace may alter the hold period of an asset
or asset group, which may result in an impairment loss and such loss could be material to the Company's financial condition
or operating performance. To the extent that the carrying value of the asset exceeds the estimated undiscounted cash flows,
an impairment loss is recognized equal to the excess of carrying value over fair value. If such indicators, as described
above, are not identified, management will not assess the recoverability of a property's carrying value.
The fair value of real estate assets is highly subjective and is determined through comparable sales information and
other market data if available, or through use of an income approach such as the direct capitalization method or the
traditional discounted cash flow approach. Such cash flow projections consider factors, including expected future operating
income, trends and prospects, as well as the effects of demand, competition and other factors, and therefore are subject to a
significant degree of management judgment. Changes in those factors could impact the determination of fair value. In
estimating the fair value of undeveloped land, we generally use market data and comparable sales information.
These subjective assessments have a direct impact on our net income because recording an impairment charge
results in an immediate negative adjustment to net income. There can be no assurance that we will not take additional
charges in the future related to the impairment of our assets. Any future impairment could have a material adverse effect on
our results of operations in the period in which the charge is taken.
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 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 non-owned anchor tenant or major tenant with leases in multiple locations, 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. In the event of a prolonged or severe economic downturn, 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. Lease terminations or failure of a 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
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have a material adverse effect on our results of operations. As of December 31, 2013, the five largest tenants in our
operating portfolio in terms of annualized base rent were Publix, TJX Companies, Bed Bath & Beyond, Dick’s Sporting
Goods, and PetSmart, representing 4.7%, 2.5%, 2.3%, 2.1%, and 1.9%, 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.
Tenant bankruptcies may increase during periods of difficult economic conditions. We cannot make any assurance
that a tenant that files for bankruptcy protection will continue to pay its rent obligations. A bankruptcy filing by or relating
to one of our tenants or a lease guarantor would legally bar our efforts to collect pre-bankruptcy debts from that tenant or
the lease guarantor, 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 including pre-bankruptcy balances. Any unsecured claim we hold may be paid only to the extent that
funds are available and only in the same percentage as is paid to all other holders of unsecured claims, and there are
restrictions under bankruptcy laws that limit the amount of the claim we can make if a lease is rejected. As a result, it is
likely that we will recover substantially less than the full value of any unsecured claims we hold from a tenant in
bankruptcy, 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, 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 $857 million of consolidated indebtedness outstanding as of December 31, 2013, 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
$857 million of consolidated outstanding indebtedness as of December 31, 2013, of which $86 million is scheduled to
mature in 2014, and $96 million is scheduled to mature in 2015. At December 31, 2013, $581 million of our debt bore
interest at variable rates ($254 million when reduced by our $327 million of fixed interest rate swaps). 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, 2013 increased by 1%, the increase in interest
expense on our variable rate debt would decrease future cash flows by $2.5 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” (determined before the deduction of dividends paid and excluding net capital gains), 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
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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 in the agreement, 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.
However, certain of our fixed-rate and variable-rate loans contain cross-default provisions which provide that a
violation by the Company of any financial covenant set forth in our unsecured revolving credit facility agreement will
constitute an event of default under the loans. Our unsecured revolving credit facility agreement contains a similar
provision providing that an “Event of Default” under our Term Loan will constitute an “Event of Default” under our
unsecured revolving credit facility agreement. These provisions could allow the lending institutions to accelerate the
amount due under the loans. The Company was in compliance with all applicable covenants under the unsecured revolving
credit facility and Term Loan as of December 31, 2013.
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 and our earnings 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 the counterparty to a hedging
arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy
can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging
activities will have the desired beneficial impact on our results of operations or financial condition. Further, should we
choose to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our
initial obligation under the hedging agreement.
Our performance and value are subject to risks associated with real estate assets and with the real estate industry.
Our ability to make expected distributions to our shareholders depends on our being able 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 our ability to satisfy debt service
obligations and to make distributions to shareholders.
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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:
adverse changes in the national, regional and local economic climate, particularly in: Indiana, where 30% of
our owned square footage and 31% of our total annualized base rent is located; Florida, where 24% of our
owned square footage and 23% of our total annualized base rent is located; and Texas, where 18% of our
owned square footage and 19% 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;
the need to periodically fund the costs to repair, renovate and re-lease space;
decreased attractiveness of our properties to tenants;
weather conditions that may increase or decrease energy costs and other weather-related expenses (such as
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.
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, 2013, we owned four of our operating properties through joint ventures. As of December 31,
2013, the four properties represented 3.2% of our annualized base rent. One of our under construction development projects
is currently owned through a joint venture. In addition, we currently own land held for development through two joint
ventures. Our joint ventures may 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 certain major decisions
affecting the ownership or operation of the joint venture and the joint venture property, such as the sale of the
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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;
prior consent of our joint venture partners may be required for a sale or transfer to a third party of our
interests in the joint venture, which restricts our ability to dispose of our interest in the joint venture;
our joint venture partners might become bankrupt or fail to fund their share of required capital contributions,
which may delay construction or development of a property or increase our financial commitment to the joint
venture;
our joint venture partners may have business interests or goals with respect to the property that conflict with
our business interests and goals, which could increase the likelihood of disputes regarding the ownership,
management or disposition of the property;
disputes may develop with our joint venture partners over decisions affecting the property or the joint
venture, which may result in litigation or arbitration that would increase our expenses and distract our
officers and/or trustees from focusing their time and effort on our business, and possibly disrupt the day-to-
day operations of the property such as by delaying the implementation of important decisions until the
conflict or dispute is resolved; and
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, 2013, leases representing 5.8% of our
owned gross leasable area (GLA) were scheduled to expire in 2014. 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 four development and redevelopment projects under construction and three development and redevelopment
projects pending commencement of construction. New development projects and property acquisitions are subject to a
number of risks, including, but not limited to:
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;
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financing risks;
the failure to meet anticipated occupancy or rent levels;
failure to receive required zoning, occupancy, land use and other governmental permits and authorizations
and changes in applicable zoning and land use laws; and
the consent of third parties such as tenants, mortgage lenders and joint venture partners may be required, and
those consents may be difficult to obtain or could 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 or an impairment charge
could occur. In addition, the issuance of equity securities as consideration for any acquisitions could be 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 two redevelopment projects under construction and two redevelopment projects pending
commencement of construction. 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 or an impairment
charge could occur.
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 11.5% of our
annualized base rent in the aggregate as of December 31, 2013. These six properties are International Speedway Square,
Shops at Eagle Creek, Whitehall Pike, Ridge Plaza, Thirty South and Market Street Village. We also agreed to limit the
17
aggregate gain certain limited partners of our Operating Partnership would recognize, with respect to certain other
contributed properties through December 31, 2016, to not more than $48 million in total, with certain annual limits, unless
we reimburse them for the taxes attributable to the excess gain (and any taxes imposed on the reimbursement payments),
and take certain other steps to help them avoid incurring taxes that were deferred in connection with the formation
transactions.
The agreement described above is extremely complicated and imposes a number of procedural requirements on us,
which makes it more difficult for us to ensure that we comply with all of the various terms of the agreement and therefore
creates a greater risk that we may be required to make an indemnity payment. The complicated nature of this agreement
also might adversely impact our ability to pursue other transactions, including certain kinds of strategic transactions and
reorganizations.
Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for
sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in
our best interest. Therefore, we may be unable to adjust our portfolio mix promptly in response to market conditions, which
may adversely affect our financial position. In addition, we will be subject to income taxes on gains from the sale of any
properties owned by any taxable REIT subsidiary.
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 at adequate levels 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 after a covered period of time, 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.
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We could incur significant costs related to government regulation and environmental matters.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum product releases at a property and may be
held liable to a governmental entity or to third parties for property damage and for investigation and clean up costs incurred
by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may
be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely
affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. In connection with the
ownership, operation and management of real properties, we are potentially liable for removal or remediation costs, as well
as certain other related costs, including governmental fines and injuries to persons and property. We may also be liable to
third parties for damage and injuries resulting from environmental contamination emanating from the real estate.
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:
existing environmental studies with respect to our properties reveal all potential environmental liabilities;
any previous owner, occupant or tenant of one of our properties did not create any material environmental
condition not known to us;
the current environmental condition of our properties will not be affected by tenants and occupants, by the
condition of nearby properties, or by other unrelated third parties; or
future uses or conditions (including, without limitation, changes in applicable environmental laws and
regulations or the interpretation thereof) will not result in environmental liabilities.
Inflation may adversely affect our financial condition and results of operations.
Most of our leases contain provisions requiring the tenant to pay its share of operating expenses, including common
area maintenance, real estate taxes and insurance. However, increased inflation could have a more pronounced negative
impact on our mortgage and debt interest and general and administrative expenses, as these costs could increase at a rate
higher than our rents. Also, inflation may adversely affect tenant leases with stated rent increases or limits on such tenant’s
obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time. It
may also limit our ability to recover all of our operating expenses. Inflation could also have an adverse effect on consumer
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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 recover a smaller percentage of our operating expenses.
RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE
Our organizational documents contain provisions that generally would prohibit any person (other than members of
the Kite family who, as a group, are currently allowed to own up to 21.5% of our outstanding common shares) from
beneficially owning more than 7% of our outstanding common shares (or up to 9.8% in the case of certain
designated investment entities, as defined in our declaration of trust), which may discourage third parties from
conducting a tender offer or seeking other change of control transactions that could involve a premium price for our
shares or otherwise benefit our shareholders.
Our organizational documents contain provisions that may have an anti-takeover effect and inhibit a change in our
management.
(1) There are ownership limits and restrictions on transferability in our declaration of trust. In order for us to qualify
as a REIT, no more than 50% of the value of our outstanding shares may be owned, actually or constructively, by five or
fewer individuals at any time during the last half of each taxable year. To make sure that we will not fail to satisfy this
requirement and for anti-takeover reasons, our declaration of trust generally prohibits any shareholder (other than an
excepted holder or certain designated investment entities, as defined in our declaration of trust) from owning (actually,
constructively or by attribution), more than 7% of the value or number of our outstanding common shares. Our declaration
of trust provides an excepted holder limit that allows members of the Kite family (Al Kite, John Kite and Paul Kite, their
family members and certain entities controlled by one or more of the Kites), as a group, to own more than 7% of our
outstanding common shares, so long as, under the applicable tax attribution rules, no one excepted holder treated as an
individual would hold more than 21.5% of our common shares, no two excepted holders treated as individuals would own
more than 28.5% of our common shares, no three excepted holders treated as individuals would own more than 35.5% of
our common shares, no four excepted holders treated as individuals would own more than 42.5% of our common shares,
and no five excepted holders treated as individuals would own more than 49.5% of our common shares. Currently, one of
the excepted holders would be attributed all of the common shares owned by each other excepted holder and, accordingly,
the excepted holders as a group would not be allowed to own in excess of 21.5% of our common shares. If at a later time,
there were not one excepted holder that would be attributed all of the shares owned by the excepted holders as a group, the
excepted holder limit would not permit each excepted holder to own 21.5% of our common shares. Rather, the excepted
holder limit would prevent two or more excepted holders who are treated as individuals under the applicable tax attribution
rules from owning a higher percentage of our common shares than the maximum amount of common shares that could be
owned by any one excepted holder (21.5%), plus the maximum amount of common shares that could be owned by any one
or more other individual common shareholders who are not excepted holders (7%). Certain entities that are defined as
designated investment entities in our declaration of trust, which generally includes pension funds, mutual funds, and certain
investment management companies, are permitted to own up to 9.8% of our outstanding common shares, so long as each
beneficial owner of the shares owned by such designated investment entity would satisfy the 7% ownership limit if those
beneficial owners owned directly their proportionate share of the common shares owned by the designated investment
entity. Our Board of Trustees may waive, and has waived in the past, 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:
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.
20
(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 additional preferred shares that we issue likely would, like our
Series A Preferred Shares, rank senior to our common shares with respect to payment of distributions, in which case we
could not pay any distributions on our common shares until full distributions were paid with respect to such preferred
shares.
(3) Our declaration of trust and bylaws contain other possible anti-takeover provisions. Our declaration of trust and
bylaws contain other provisions that may have the effect of delaying, deferring or preventing a change in control of our
company or the removal of existing management and, as a result, could prevent our shareholders from being paid a
premium for their common shares over the then-prevailing market prices. These provisions include advance notice
requirements for shareholder proposals and our Board of Trustees’ power to reclassify shares and issue additional common
shares or preferred shares and the absence of cumulative voting rights.
Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire
us or of impeding a change of control under circumstances that otherwise could provide the holders of our common shares
with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
“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.
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, 2013, we had outstanding 130,826,217 common shares, and substantially all of these
shares are freely tradable. In addition, 6,645,784 units of our Operating Partnership are owned by 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 to register
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.
21
Certain officers and trustees may have interests that conflict with the interests of shareholders.
Certain of our officers 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 them. These agreements have been
automatically renewed for our three executive officers through December 31, 2014. 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 “REIT taxable
income” (determined before the deduction for dividends paid and 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 may 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:
general market conditions;
the market’s perception of our growth potential;
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 limited 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.
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.
22
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.
Our share price could be volatile and could decline, resulting in a substantial or complete loss of our shareholders’
investment.
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 and
preferred shares could be similarly volatile, and investors in our 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:
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 including
tax reform;
speculation in the press or investment community;
actions by institutional shareholders or hedge funds;
increase or decrease in dividends;
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 may not exist or, if it does exist,
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 in very limited circumstances, holders of our Series A Preferred
Shares will not have voting rights.
23
RISKS RELATED TO THE PROPOSED MERGER
As discussed elsewhere in this Annual Report on Form 10-K, we have entered into a Merger Agreement with Inland
Diversified pursuant to which Inland Diversified would merge with and into a wholly owned subsidiary of ours. There are
a number of risks to our shareholders related the proposed Merger, which are set forth below.
The voting power of our shareholders will be diluted by the merger.
The merger will dilute the ownership position of our shareholders in our company. Upon completion of the
merger, we estimate that our continuing shareholders will own between 40.6% and 41.4% of the issued and outstanding
common shares of the combined company, and former Inland Diversified stockholders will own between 58.6% and 59.4%
of the issued and outstanding common shares of the combined company, in both cases depending on the actual exchange
ratio. Consequently, our shareholders, as a general matter, will have less influence over the management and policies of the
combined company after the effective time of the merger than they currently exercise over our management and policies.
We expect to incur substantial expenses related to the merger.
We expect to incur substantial expenses in connection with completing the merger and integrating the business,
operations, networks, systems, technologies, policies and procedures of the two companies. In addition, there are a large
number of systems of the two companies that will need to be integrated, including property management, revenue
management, tenant payment, lease administration, website content management, purchasing, accounting, payroll, fixed
assets and financial reporting, which will require significant expense and diversion of management’s attention from
operating the business.
Although we have assumed that a certain level of transaction and integration expenses would be incurred, there are
a number of factors beyond our control that could affect the total amount or the timing of the integration expenses. Many of
the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the
transaction and integration expenses associated with the merger could, particularly in the near term, exceed the savings that
we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost
savings related to the integration of the companies following the completion of the merger.
Following the merger, we may be unable to integrate our business with Inland Diversified successfully and realize
the anticipated synergies and other benefits of the merger or do so within the anticipated timeframe.
The merger involves the combination of two companies that currently operate as independent public companies.
Although we expect to benefit from certain synergies, including cost savings, we may encounter potential difficulties in the
integration process including:
the inability to successfully combine our business with Inland Diversified in a manner that permits us to
achieve the cost savings anticipated to result from the merger, which would result in the anticipated benefits
of the merger not being realized in the timeframe currently anticipated or at all;
the complexities of combining two companies with different histories, cultures, regulatory restrictions,
markets and tenant bases;
the risk of not realizing all of the anticipated operating efficiencies or other anticipated strategic and financial
benefits of the merger within the expected timeframe or at all;
complexities associated with applying our standards, controls, procedures and policies over a significantly
larger base of assets;
potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated
with the merger; and
performance shortfalls as a result of the diversion of our management’s attention caused by completing the
merger and integrating the companies’ operations.
For all these reasons, it is possible that the integration process could result in the distraction of our management
team, the disruption of our ongoing business or inconsistencies in our operations, services, standards, controls, procedures
and policies, any of which could adversely affect our ability to maintain relationships with tenants, vendors and employees
or to achieve the anticipated benefits of the merger, or could otherwise adversely affect our business and financial results.
24
Our plan to sell certain of Inland Diversified’s assets subsequent to closing may not close on its expected terms or at
all, which could adversely impact our leverage and business strategy.
Following the closing of the merger, we plan to dispose of Inland Diversified’s multifamily assets and Inland
Diversified’s securities portfolio and utilize the proceeds to reduce our indebtedness. In the event that the merger is
consummated but our plan to sell certain of Inland Diversified’s assets is not consummated on its expected terms or at all,
then our leverage will be higher than anticipated. Such an increase in leverage could adversely affect our financial
condition, results of operations and ability to raise additional capital and its credit ratings. Furthermore, in such event, we
would own a controlling interest in three multifamily assets and a securities portfolio, which are assets that are not a core
part of our strategy. Our resulting portfolio of mixed-use assets may not be perceived favorably by analysts and investors,
which could adversely affect the trading price of our common shares. Additionally, the Combined Company would be
subject to various risks associated with owning these assets.
Our future results will suffer if we do not effectively manage our expanded operations following the merger.
Following the merger, we expect to continue to expand our operations through additional acquisitions of
properties, some of which may involve complex challenges. Our future success will depend, in part, upon our ability to
manage our expansion opportunities, which may pose substantial challenges for us to integrate new operations into our
existing business in an efficient and timely manner, and upon our ability to successfully monitor our operations, costs,
regulatory compliance and service quality, and to maintain other necessary internal controls. There is no assurance that our
expansion or acquisition opportunities will be successful, or that we will realize its expected operating efficiencies, cost
savings, revenue enhancements, synergies or other benefits.
The market price of shares of our common shares may be affected by factors different from those affecting our
common share price before the merger.
Upon completion of the merger, we estimate that our continuing shareholders will own between 40.6% and 41.4%
of our issued and outstanding common shares, and former Inland Diversified stockholders will own between 58.6% and
59.4% of our issued and outstanding common shares.
Our results of operations, as well as the market price of our common shares after the merger, may be affected by
factors in addition to those currently affecting our results of operations and the market prices of our common shares. These
factors include:
the possibility that Inland Diversified stockholders, who prior to the merger have held for years Inland
Diversified common stock which is not traded on a stock exchange and thus is difficult to sell, will quickly
sell our common shares they receive in the merger and thereby increase the likelihood of a decline in the
market price of our common shares;
a greater number of common shares of the combined company outstanding as compared to the number of our
currently outstanding common shares;
different shareholders;
different markets; and
different assets and capitalizations.
Accordingly, our historical financial results and the historical market price of our common shares may not be
indicative of these matters for us after the merger.
We will have a significant amount of indebtedness following the merger and may need to incur more in the future.
We will have substantial indebtedness following completion of the Merger, as we expect to assume a substantial
amount of Inland Diversified’s outstanding indebtedness. The increased amount of such indebtedness could have material
adverse consequences for the combined company, including:
hindering our ability to adjust to changing market, industry or economic conditions;
limiting our ability to access the capital markets to raise additional equity or refinance maturing debt on
favorable terms or to fund acquisitions or emerging businesses;
limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock
repurchases or other uses;
making us more vulnerable to economic or industry downturns, including interest rate increases; and
placing us at a competitive disadvantage compared to less leveraged competitors.
25
We may incur adverse tax consequences if Inland Diversified has failed to qualify as a REIT for U.S. federal income
tax purposes.
Inland Diversified has operated in a manner that we believe will allow us to continue to qualify as a REIT for U.S.
federal income tax purposes under the Internal Revenue Code, and we intend to operate in a manner that we believe allows
us to qualify as a REIT after the merger. Inland Diversified has not requested and does not plan to request a ruling from the
IRS that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Internal
Revenue Code provisions for which there are only limited judicial and administrative interpretations. The determination of
various factual matters and circumstances not entirely within the control of Inland Diversified may affect its ability to
qualify as a REIT. In order to qualify as a REIT, Inland Diversified must satisfy a number of requirements, including
requirements regarding the ownership of its stock and the composition of its gross income and assets. Also, Inland
Diversified must make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding
any net capital gains. Even if we retain our REIT status, if Inland Diversified loses its REIT status for a taxable year before
the merger, we will face serious tax consequences that would substantially reduce our cash available for distribution,
including cash available to pay dividends to our shareholders, because:
we, as the successor by merger to Inland Diversified, would be subject to any corporate income tax liabilities
of Inland Diversified, including penalties and interest;
assuming that we otherwise maintained our REIT qualification, we would be subject to tax on the built-in gain
on each asset of Inland Diversified existing at the time of the merger if we were to dispose of the Inland
Diversified asset within ten years following the merger;
assuming that we otherwise maintained our REIT qualification, we would succeed to any earnings and profits
accumulated by Inland Diversified for taxable periods that it did not qualify as a REIT, and we would have to
pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments
to the IRS) to eliminate such earnings and profits;
unless we were entitled to relief under applicable statutory provisions, we, as the “successor” trust to Inland
Diversified, could not elect to be taxed as a REIT until the fifth taxable year following the taxable year during
which Inland Diversified lost its REIT status;
depending on the reason for Inland Diversified losing its REIT status, we may elect to use the deficiency
dividend procedure in order to maintain our REIT status, which may require us to make significant
distributions (and pay significant interest to the IRS);
under the “investment company” rules under Section 368 of the Code, if we are an “investment company” and
“Inland Diversified” is an “investment company,” our failure or the failure of Inland Diversified to qualify as
a REIT could cause the merger to be taxable to us or Inland Diversified, respectively, and the relevant
shareholders; and
if there is an adjustment to Inland Diversified’s taxable income or dividends paid deductions, we could elect
to use the deficiency dividend procedure in order to maintain Inland Diversified’s REIT status which
deficiency dividend procedure could require us to make significant distributions to our shareholders and to
pay significant interest to the IRS.
As a result of these factors, Inland Diversified’s failure before the merger to qualify as a REIT could impair our
ability after the merger to expand our business and raise capital, and would materially adversely affect the value of our
common shares.
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
26
each year at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding
net capital gains). The fact that we hold substantially all of our assets through our Operating Partnership and its subsidiaries
and joint ventures further complicates the application of the REIT requirements for us. Even a technical or inadvertent
mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs and the
ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT.
Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new
rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT.
If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings
provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates. As a
taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable
income or pass through long term capital gains to individual shareholders at favorable rates. We also could be subject to the
federal alternative minimum tax and possibly increased state and local taxes. We would not be able to elect to be taxed as a
REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain
statutory provisions. If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce
our net earnings available for investment or distribution to our shareholders. If we fail to qualify as a REIT, such failure
would cause an event of default under our unsecured revolving credit facility and may adversely affect our ability to raise
capital and to service our debt. This likely would have a significant adverse effect on our earnings and the value of our
securities. In addition, we would no longer be required to pay any distributions to shareholders. If we fail to qualify as a
REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in
order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such
failure.
We will pay some taxes even if we qualify as a REIT.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and
local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than
100% of our REIT taxable income (including capital gains). Additionally, we will be subject to a 4% nondeductible excise
tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary
income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have
net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are
sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The
determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to
that sale. While we will undertake sales of assets if those assets become inconsistent with our long-term strategic or return
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 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
27
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.
Dividends paid by REITs generally do not qualify for reduced tax rates.
The American Taxpayer Relief Act of 2012 (“ATRA”) was enacted on January 3, 2013. Under ATRA, for taxable
years beginning in 2013, for noncorporate taxpayers, the maximum rate applicable to “qualified dividend income” paid by
regular “C” corporations to U.S. shareholders generally is 20%, and there is no certainty as to how long this rate will be
applicable. Dividends payable by REITs, however, generally are not eligible for the current reduced rate. Although ATRA
does not adversely affect the taxation of REITs or dividends payable by REITs, it could cause non-corporate taxpayers to
perceive investments in REITs to be relatively less attractive than investments in the stocks of regular “C” corporations that
pay dividends, which could adversely affect the value of the shares of REITs, including our common shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
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ITEM 2. PROPERTIES
Retail Operating Properties
As of December 31, 2013, we owned interests in a portfolio of 66 retail operating properties totaling 11.5 million
square feet of total 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, 2013:
OPERATING RETAIL PROPERTIES - TABLE I
Property1
Clay Marketplace
Trussville Promenade
12th Street Plaza
Bayport Commons7
Burnt Store Promenade
Cobblestone Plaza
Cove Center
Estero Town Commons
Hunter's Creek Promenade
Indian River Square
International Speedway Square
Lakewood Promenade
Lithia Crossing
Northdale Promenade
Pine Ridge Crossing
Riverchase Plaza
Shoppes of Eastwood
Shops at Eagle Creek
Tarpon Springs Plaza
Waterford Lakes Village
Beechwood Promenade
Publix at Acworth
The Centre at Panola
Fox Lake Crossing
Naperville Marketplace
54th & College
Beacon Hill7
Boulevard Crossing
Bridgewater Marketplace
Castleton Crossing
Cool Creek Commons
Depauw University Bookstore and
Café
Eddy Street Commons
Fishers Station4
Geist Pavilion
Glendale Town Center
Greyhound Commons
Hamilton Crossing Centre
Rangeline Crossing
Red Bank Commons
Rivers Edge
Stoney Creek Commons
The Corner
Traders Point
Traders Point II
Whitehall Pike
Zionsville Walgreens
MSA
Birmingham
Birmingham
Vero Beach
Oldsmar
Punta Gorda
Ft Lauderdale
Stuart
Naples
Orlando
Vero Beach
Daytona
Jacksonville
Tampa
Tampa
Naples
Naples
Orlando
Naples
Naples
Orlando
Athens
Atlanta
Atlanta
Chicago
Chicago
Indianapolis
State
AL
AL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
GA
GA
GA
IL
IL
IN
IN Crown Point, IN
IN
IN
IN
IN
Kokomo
Indianapolis
Indianapolis
Indianapolis
Year
Built/Renovated
1966/2003
1999
1978/2003
2008
1989
2011
1984/2008
2006
1994
1997/2004
1999
1948/1998
2003
1985/2002
1993
1991/2001
1997
1983
2007
1997
1961
1996
2001
2002
2008
2008
2006
2004
2008
1975
2005
Year Added to
Operating
Portfolio
2013
2013
2012
2008
2013
2011
2012
2007
2013
2005
1999
2013
2011
2013
2006
2006
2013
2003
2007
2004
2013
2004
2004
2005
2008
2008
2007
2004
2008
2013
2005
Acquired, Redeveloped,
or Developed
Acquired
Acquired
Acquired
Developed
Acquired
Developed
Acquired
Developed
Acquired
Acquired
Developed
Acquired
Acquired
Acquired
Acquired
Acquired
Acquired
Redeveloped
Developed
Acquired
Acquired
Acquired
Acquired
Acquired
Developed
Developed
Developed
Developed
Developed
Acquired
Developed
Total GLA2 Owned GLA2
66,165
446,484
138,268
97,112
94,223
133,214
155,063
25,631
119,729
142,706
230,971
196,870
91,043
175,925
105,867
78,330
69,037
70,755
82,547
77,948
342,322
69,628
73,079
99,072
83,763
—
57,191
124,631
25,975
277,812
124,646
66,165
566,484
141,323
268,556
214,223
143,493
155,063
206,600
229,729
379,246
242,943
196,870
91,043
225,925
258,874
78,380
69,037
70,755
276,346
77,948
342,322
69,628
73,079
99,072
169,600
20,100
127,821
213,696
50,820
277,812
137,107
Percentage of Owned
GLA Leased3
94.7%
95.2%
96.6%
92.6%
74.4%
99.2%
96.2%
46.8%
96.2%
95.9%
99.5%
85.4%
86.9%
94.1%
97.4%
98.4%
98.1%
88.0%
96.6%
96.1%
95.0%
96.6%
100.0%
90.0%
98.1%
*
84.0%
96.7%
68.2%
100.0%
96.4%
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
Greencastle
South Bend
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Evansville
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Bloomington
Indianapolis
2012
2009
1989
2006
1958/2008
2005
1999
1986/2013
2005
2011
2000
1984/2003
2005
2005
1999
2012
2012
2010
2004
2006
2008
2005
2004
2013
2006
2011
2000
1984
2005
2005
1999
2012
Developed
Developed
Acquired/Redeveloped
Developed
Redeveloped
Developed
Acquired
Redeveloped
Developed
Redeveloped
Developed
Developed
Developed
Developed
Developed
Developed
11,974
88,143
116,943
64,114
685,827
153,187
87,353
74,583
324,308
149,209
189,527
42,494
348,835
46,191
128,997
14,550
11,974
88,143
116,943
64,114
393,002
—
82,353
74,583
34,258
149,209
84,330
42,494
279,684
46,191
128,997
14,550
100.0%
92.8%
96.6%
82.3%
99.1%
*
98.3%
91.4%
91.7%
100.0%
100.0%
93.8%
99.2%
70.0%
100.0%
100.0%
29
OPERATING RETAIL PROPERTIES - TABLE I (continued)
Property1
Holly Springs Towne Center
Oleander Place
Toringdon Market
Ridge Plaza
Eastgate Pavilion
Cornelius Gateway7
Shops at Otty5
Plaza Green
Publix at Woodruff
Cool Springs Market
Burlington Coat Factory6
Kingwood Commons
Market Street Village
Plaza at Cedar Hill
Plaza Volente
Portofino Shopping Center
Sunland Towne Centre
50th & 12th
Four Corner Square
MSA
State
NC Holly Springs
NC Wilmington
NC
NJ
OH
OR
OR
SC
SC
TN
TX
TX
TX
TX
TX
TX
TX
WA
WA Maple Valley
Charlotte
Oak Ridge
Cincinnati
Portland, OR
Portland
Greenville
Greenville
Nashville
San Antonio
Houston
Hurst
Dallas
Austin
Houston
El Paso
Seattle
Year
Built/Renovated
2013
2012
2004
2002
1995
2006
2004
2000
1997
1995
1992/2000
1999
1970/2004
2000
2004
1999
1996
2004
1985
Year Added to
Operating
Portfolio
2013
2012
2013
2003
2004
2007
2004
2012
2012
2013
2000
2013
2005
2004
2005
2013
2004
2004
2013
Acquired, Redeveloped,
or Developed
Developed
Redeveloped
Acquired
Acquired
Acquired
Developed
Developed
Acquired
Acquired
Acquired
Redeveloped
Acquired
Acquired
Acquired
Acquired
Acquired
Acquired
Developed
Redeveloped
TOTAL
Total GLA2 Owned GLA2
207,589
45,530
60,464
115,088
236,230
21,324
9,845
194,807
68,055
223,912
107,400
164,356
156,625
303,458
156,333
371,792
306,437
14,500
108,269
8,358,846
374,334
47,610
60,464
115,088
236,230
35,800
154,845
194,807
68,055
285,156
107,400
164,356
163,625
303,458
160,333
491,792
311,413
14,500
108,269
11,463,830
Percentage of Owned
GLA Leased3
90.8%
100.0%
97.3%
89.1%
100.0%
62.3%
100.0%
94.7%
95.6%
91.3%
100.0%
98.1%
100.0%
98.2%
99.1%
94.6%
98.9%
100.0%
89.6%
95.3%
____________________
*
Property consists of ground leases only and, therefore, no Owned GLA. As of December 31, 2013, the following were leased: 54th & College - single ground
lease property; Greyhound Commons - two of four outlots leased.
1
2
3
4
5
6
7
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/net rentable area (“NRA”) leased as of December 31, 2013, 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 $106,000. All remaining cash flow is distributed
to the Company.
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 2018. The Company has four remaining
five-year renewal options and a right of first refusal to purchase the land.
The Company owns and manages the following properties through joint ventures with third parties: Beacon Hill (50%); Cornelius Gateway (80%); and Bayport
Commons (60%). These properties are consolidated in the consolidated financial statements.
30
OPERATING RETAIL PROPERTIES – TABLE II
Property
Clay Marketplace
Trussville Promenade
12th Street Plaza
Bayport Commons
Burnt Store Promenade
Cobblestone Plaza
Cove Center
Estero Town Commons
Hunter's Creek Promenade
Indian River Square
International Speedway Square
Lakewood Promenade
Lithia Crossing
Northdale Promenade
Pine Ridge Crossing
Riverchase Plaza
Shops at Eastwood
Shops at Eagle Creek
Tarpon Springs Plaza
Waterford Lakes Village
Beechwood Promenade
Publix at Acworth
The Centre at Panola
Fox Lake Crossing
Naperville Marketplace
54th & College
Beacon Hill
Boulevard Crossing
Bridgewater Marketplace
Castleton Crossing
Cool Creek Commons
Depauw University Bookstore and
Café
Eddy Street Commons
Fishers Station
Geist Pavilion
Glendale Town Commons
Greyhound Commons
Hamilton Crossing Centre
Rangeline Crossing
Red Bank Commons
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
GA
GA
GA
IL
IL
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
Daytona
Jacksonville
Tampa
Tampa
Naples
Naples
Orlando
Naples
Naples
Orlando
Athens
Atlanta
Atlanta
Chicago
Chicago
Indianapolis
Crown Point
Kokomo
Indianapolis
Indianapolis
Indianapolis
Greencastle
South Bend
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Evansville
State
AL
AL
MSA
Birmingham
Birmingham
Encumbrances
$
—
Annualized
Base Rent
Revenue1
Annualized
Ground Lease
Revenue
Annualized
Total Retail
Revenue
Percentage of
Annualized
Total Retail
Revenue
Base Rent
Per Leased
Owned
GLA2
$786,185
$ —
$786,185
0.72%
$12.55 Publix
Major Tenants and
Non-Owned Anchors3
— 3,903,599
141,000 4,044,599
3.72% 9.18
Vero Beach
Oldsmar
Punta Gorda
Ft. Lauderdale
Stuart
Naples
Orlando
— 1,274,199
12,733,766 1,410,530
— 619,655
— 3,384,881
— 1,350,692
— 220,207
— 1,435,531
- 1,274,199
- 1,410,530
- 619,655
200,000 3,584,881
260,000 1,610,692
750,000 970,207
- 1,435,531
Vero Beach
12,451,226 1,484,127
125,000 1,609,127
1.48% 10.84
Wal-Mart, Regal Cinemas, Marshalls, Big Lots, Petsmart, Dollar
Tree, Kohl’s (non-owned), Sam’s Club (non-owned)
Publix, Stein Mart, Tuesday Morning, Sunshine Furniture,
Planet Fitness
1.17% 9.54
1.30% 15.69 Gander Mountain, PetSmart, Michaels, Target (non-owned)
0.57% 8.84 Publix, Home Depot (non-owned)
3.29% 25.62 Whole Foods, Party City, All Pets Emporium
1.48% 9.06 Publix, Beall's
0.89% 18.35 Lowe's Home Improvement
1.32% 12.46 Publix
Beall's, Office Depot, Target (non-owned), Lowe's Home
Improvement (non-owned)
Bed, Bath & Beyond, Stein Mart, Old Navy, Staples, Michaels,
Dick’s Sporting Goods, Total Wine & More
2.68% 10.87
1.71% 11.07 SteinMart, Winn Dixie
1.06% 13.48 Stein Mart, Fresh Market
1.72% 11.29 TJ Maxx, Bealls, Crunch Fitness, Sweetbay (non-owned)
1.53% 16.12 Publix, Target (non-owned), Beall's (non-owned)
1.07% 15.10 Publix
0.78% 12.61 Publix
0.89% 14.64 Fresh Market, Staples, Lowe's Home Improvement (non-owned)
1.68% 21.63 Cost Plus, AC Moore, Staples, Target (non-owned)
0.84% 12.25 Winn-Dixie
TJ Maxx, Georgia Theatre, CVS, BodyPlex, SteinMart, Tuesday
Morning, Fresh Market, Jos. A. Bank, Ann Taylor, Coldwater
Creek, Talbots
3.36% 11.24
0.73% 11.88 Publix
0.81% 12.07 Publix
1.10% 13.42 Dominick's Finer Foods, Dollar Tree
1.00% 13.21 TJ Maxx, PetSmart, Caputo’s (non-owned)
0.24%
The Fresh Market (Ground Lease)
0.65% 14.79 Strack & VanTill (non-owned), Walgreens (non-owned)
1.56% 14.11 PETCO, TJ Maxx, Ulta Salon, Kohl's (non-owned)
0.29% 17.65 Walgreens (non-owned)
-
2.75% 10.75
1.82% 16.53 The Fresh Market, Stein Mart, Bang Fitness
K&G Menswear, Value City, TJ Maxx, Shoe Carnival, Dollar
Tree, Burlington Coat Factory
20,300,144 2,497,170
— 1,861,390
— 1,066,410
— 1,868,465
17,086,058 1,662,723
10,251,634 1,164,347
— 854,037
— 911,532
— 1,724,610
— 918,027
418,475 2,915,645
- 1,861,390
82,800 1,149,210
- 1,868,465
- 1,662,723
- 1,164,347
- 854,037
55,104 966,636
100,000 1,824,610
- 918,027
— 3,654,820
6,888,354 798,982
2,798,071 882,212
— 1,196,169
9,313,838 1,085,094
-
6,859,650 710,498
13,243,138 1,700,747
1,935,200 312,593
—
- 3,654,820
- 798,982
- 882,212
- 1,196,169
- 1,085,094
260,000 260,000
- 710,498
- 1,700,747
- 312,593
— 2,987,802
16,903,926 1,985,866
- 2,987,802
- 1,985,866
— 100,119
24,739,889 1,815,486
7,733,720 1,317,274
10,863,420 872,126
- 100,119
- 1,815,486
- 1,317,274
- 872,126
0.09% 8.36 Folletts, Starbucks
1.67% 22.20 Hammes Bookstore, Urban Outfitters
1.21% 11.66 Marsh Supermarkets, Goodwill, Dollar Tree
0.80% 16.53 Goodwill, Ace Hardware
— 2,687,020
-
—
12,660,991 1,514,477
16,459,032 1,423,840
— 442,845
- 2,687,020
221,748 221,748
78,650 1,593,127
- 1,423,840
- 442,845
31
Macy’s, Landmark Theaters, Staples, Indianapolis Library,
Lowe's Home Improvement Center (non-owned), Target (non-
owned), Walgreens (non-owned)
Lowe's Home Improvement Center (non-owned)
2.47% 6.90
0.20%
1.46% 18.71 Office Depot
1.31% 20.88 Earth Fare, Walgreens
0.41% 14.10 Wal-Mart (non-owned), Home Depot (non-owned)
-
OPERATING RETAIL PROPERTIES – TABLE II (continued)
Property
State
MSA
Encumbrances
Annualized
Base Rent
Revenue1
Annualized
Ground Lease
Revenue
Annualized
Total Retail
Revenue
Percentage of
Annualized
Total Retail
Revenue
Base Rent
Per Leased
Owned
GLA2
Major Tenants and
Non-Owned Anchors
Rivers Edge
Stoney Creek Commons
The Corner
Traders Point
Traders Point II
Whitehall Pike
Zionsville Walgreens
Holly Springs Towne Center
Oleander Place
Toringdon Market
Ridge Plaza
Eastgate Pavilion
Cornelius Gateway
Shops at Otty
Plaza Green
Publix at Woodruff
Cool Springs Market
Burlington Coat Factory
Kingwood Commons
Market Street Village
Plaza at Cedar Hill
Plaza Volente
Portofino Shopping Center
Sunland Towne Centre
50th & 12th
Four Corner Square
IN
IN
IN
IN
IN
IN
IN
NC
NC
NC
NJ
OH
OR
OR
SC
SC
TN
TX
TX
TX
TX
TX
TX
TX
WA
WA
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Indianapolis
Bloomington
Indianapolis
Holly Springs
Wilmington
Charlotte
Oak Ridge
Cincinnati
Portland
Portland
Greenville
Greenville
Nashville
San Antonio
Houston
Hurst
Houston
El Paso
Seattle
Maple Valley
TOTAL
— 2,852,257
- 2,852,257
2.62% 19.12
— 998,823
— 603,649
- 998,823
- 603,649
44,348,363 4,066,020
— 838,811
6,748,326 1,014,000
4,594,000 426,000
435,000 4,501,020
- 838,811
- 1,014,000
- 426,000
33,537,912 2,936,179
— 729,414
— 1,116,735
— 1,604,184
188,004 3,124,183
80,000 809,414
- 1,116,735
- 1,604,184
16,164,000 2,062,668
— 221,280
— 281,752
- 2,062,668
- 221,280
151,756 433,508
— 2,240,559
— 656,741
- 2,240,559
- 656,741
— 3,026,996
— 537,000
- 3,026,996
- 537,000
— 2,926,314
— 1,802,597
- 2,926,314
33,000 1,835,597
Buy Buy Baby, Nordstrom Rack, The Container Store,
Arhaus Furniture
HH Gregg, LA Fitness, Office Depot, Lowe's Home
Improvement (non-owned)
0.92% 11.84
0.55% 15.14 Hancock Fabrics
Dick's Sporting Goods, AMC Theatre, Marsh
Supermarkets, Bed, Bath & Beyond, Michaels, Old
Navy, PetSmart
4.14% 14.66
0.77% 25.94
0.93% 7.86 Lowe's Home Improvement
0.39% 29.28 Walgreens
Dick's Sporting Goods, Marshalls, Petco, Ulta, Target
2.87% 15.58
(non-owned)
0.74% 16.02 Whole Foods
1.03% 18.98 Earth Fare
1.47% 15.64 A&P Grocery, CVS
Best Buy, Dick's Sporting Goods, Value City
Furniture, PetSmart, DSW
1.90% 8.73
0.20% 16.65 Fedex/Kinkos
0.40% 28.62 Wal-Mart (non-owned)
2.06% 12.14
0.60% 10.10 Publix
Bed Bath & Beyond, Christmas Tree Shops, Sears,
Party City, Shoe Carnival, AC Moore, Old Navy
2.78% 14.81
0.49% 5.00 Burlington Coat Factory
Jo-Ann Fabric, Dicks Sporting Goods, Staples,
Marshalls, Kroger (non-owned)
2.69% 18.16
1.69% 11.51 Jo-Ann Fabric, Ross, Office Depot, Buy Buy Baby
Randall's Food and Drug, Petco, Chico’s, Talbots, Ann
Taylor, Jos. A. Bank
Hobby Lobby, Office Max, Ross, Marshalls, Sprouts
Farmers Market, Toys “R” Us/Babies “R” Us,
HomeGoods, DSW
3.36% 12.28
2.35% 15.83 H-E-B Grocery
DSW, Michaels, Sports Authority, Lifeway Christian
Store, SteinMart, Petsmart, Conn's Appliances, Old
Navy
PetSmart, Ross, Kmart, Bed Bath & Beyond, Specs
Fine Wines, Sprouts Farmers Market
Dallas
Austin
— 3,658,728
26,849,712 2,452,483
- 3,658,728
110,000 2,562,483
— 5,968,190
- 5,968,190
5.48% 16.97
24,289,082 3,441,236
4,034,174 475,000
18,885,990 2,128,487
$104,952,390
382,673,616
115,290 3,556,526
- 475,000
71,004 2,199,491
$108,829,221
$3,876,831
$
3.27% 11.36
0.44% 32.76 Walgreens
2.03% 21.95 Walgreens, Grocery Outlet, The Hardware Store
100%
$13.18
____________________
1
Annualized Base Rent Revenue represents the contractual rent for December 2013 for each applicable property, multiplied by 12. This table does not include Annualized Base Rent from development property tenants open for
business as of December 31, 2013, as discussed on page 34. Excludes tenant reimbursements.
2
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.
32
Commercial Properties
As of December 31, 2013, we owned interests in two operating commercial properties totaling 0.4 million square feet of NRA and an associated parking garage.
The following sets forth more specific information with respect to the Company’s commercial properties as of December 31, 2013:
OPERATING COMMERCIAL PROPERTIES
Property
Indiana
30 South Meridian2
Union Station Parking Garage3
Eddy Street Office (part of
Eddy Street Commons) 4
MSA
Year Built/
Renovated
Acquired,
Redeveloped
or Developed Encumbrances
Owned
NRA
Percentage
of Owned
NRA
Leased
Annualized
Base Rent1
Percentage
of
Annualized
Commercial
Base Rent
Base Rent
Per Leased
Sq. Ft.
Major Tenants
Indianapolis
Indianapolis
1905/2002
1986
Redeveloped
Acquired
$ 18,900,000
—
305,224
N/A
93.9% $
N/A
4,816,724
N/A
81.1%
N/A
$
17.82
Indiana Supreme Court, City Securities, Kite
Realty Group, Lumina Foundation
N/A Denison Parking
South Bend
2009
Developed
TOTAL
—
$ 18,900,000
81,628
386,852
100.0%
95.2% $
1,125,064
5,941,788
18.9%
100.0%
$
13.78 University of Notre Dame Offices
16.88
____________________
1
Annualized Base Rent represents the monthly contractual rent for December 2013 for each applicable property, multiplied by 12. Excludes tenant reimbursements.
2
3
4
Annualized Base Rent includes $723,216 from the Company and subsidiaries as of December 31, 2013.
The garage is managed by a third party.
The Company also owns Eddy Street Commons in South Bend, Indiana along with a parking garage that serves a hotel and the office and retail components of the property.
33
Development Projects
In addition to our operating retail properties and commercial properties, as of December 31, 2013, we owned interests in two under construction development
projects and one development project pending commencement of construction. The following sets forth more specific information with respect to the Company’s retail
development properties as of December 31, 2013:
Under Construction:
Project
Delray Marketplace, FL7
Company
Ownership %
50%
MSA
Delray Beach
Encumbrances
Actual/
Projected
Opening
Date1
Projected
Owned
GLA2
Projected
Total
GLA3
Percent
of Owned
GLA
Pre-Leased/
Committed4
Total
Estimated
Project
Cost5
Cost
Incurred
as of
December 31,
20135,6
$
59,044,576 Q4 2012
255,554
260,267
86.8%
$
99,500 $
95,926
100%
Parkside Town Commons, NC –
Phase I8, 9
Parkside Town Commons, NC –
Phase II9
Total
Cost incurred as of December 31, 2013 included in Construction in Progress on balance sheet
Raleigh
Raleigh
100%
$
3,181,997 Q2 2014
104,978
245,573
83.4%
39,000
33,163
13,279,198 Q4 2014
75,505,771
275,432
635,964
324,260
830,100
61.9%
75.5%
$
70,000
208,500 $
$
Stream
24,576
153,665
78,099
Major Tenants and Non-owned
Anchors
Publix, Frank Theatres, Burt and Max's
Grille, Charming Charlie, Chico's, White
House/Black Market, Jos. A Bank
Target (non-owned), Harris Teeter
(ground lease), Jr. Box, Petco
Frank Theatres, Golf Galaxy, Field &
Pending Commencement of Construction:
Project
Holly Springs Towne Center,
NC – Phase II
Total
Cost incurred as of December 31, 2013 included in Construction in Progress on balance sheet
MSA
Raleigh
$
Company
Ownership %
100%
Encumbrances
Actual/
Projected
Opening
Date1
Projected
Owned
GLA2
Projected
Total
GLA3
Percent
of Owned
GLA
Pre-Leased/
Committed4
Total
Estimated
Project
Cost5
Cost
Incurred
as of
December 31,
20135,6
—
—
127,743
127,743
159,743
159,743
80.9%
80.9%
$
44,300
44,300 $
$
16,849
16,849
16,849
Major Tenants and Non-owned
Anchors
Target (non-owned), Frank Theatres, and
Three Junior Anchors
____________________
1
Opening Date is defined as the first date a tenant is open for business or a ground lease payment is made. Stabilization (i.e., 85% occupied) typically occurs within six to twelve months after the opening
date.
2
3
4
Projected Owned GLA represents gross leasable area we project we will own. It excludes square footage that we project will be attributable to non-owned outlot structures on land owned by us and
expected to be ground leased to tenants. It also excludes non-owned anchor space.
Projected Total GLA includes Projected Owned GLA, projected square footage attributable to non-owned outlot structures on land that we own, and non-owned anchor space that currently exists or is
under construction.
Excludes outlot land parcels owned by the Company and ground leased to tenants. Includes leases under negotiation for approximately 58,916 square feet for which the Company has signed non-binding
letters of intent.
34
5
6
7
8
9
Dollars in thousands. Reflects both the Company’s and partners’ share of costs (if applicable).
Cost incurred is reclassified to fixed assets on the consolidated balance sheet on a pro-rata basis as portions of the asset are placed in service.
The Company owns Delray Marketplace through a joint venture through which it earns a preferred return (which is expected to deliver over 95% of cash flow to the Company), and 50% thereafter.
The owned GLA for Parkside Town Commons Phase I includes a 53,000 square foot ground lease with Harris Teeter Supermarket.
The construction loan for Phases I and II of Parkside Town Commons has a borrowing capacity of $87.2 million, of which $70.7 million is remaining for future construction draws.
Redevelopment Projects
In addition to our development projects, as displayed in the table above, we have interests in four redevelopment projects. As of December 31, 2013, these four
projects are expected to contain 0.6 million square feet.
Under Construction:
Project
Bolton Plaza, FL
Company
Ownership %
100%
MSA
Jacksonville
King’s Lake Square, FL
100%
Naples
Actual/
Projected
Opening
Date1
Projected
Owned
GLA2
Projected
Total
GLA3
Percent
of Owned
GLA
Pre-Leased/
Committed4
Total
Estimated
Project
Cost5
Cost
Incurred
as of
December 31,
20135,6
Q1 2014
155,637
155,637
86.4%
$
10,300 $
6,569
Major Tenants and Non-owned
Anchors
Academy Sports & Outdoors, LA
Fitness/Shops
Total
Costs incurred as of December 31, 2013 included in Construction in Progress on balance sheet
Q2 2014
88,153
243,790
88,153
243,790
88.4%
87.1%
$
6,900
17,200 $
$
Publix
4,656
11,225
8,489
Pending Commencement of Construction:
Project
Gainesville Plaza, FL
Courthouse Shadows, FL
Company
Ownership %
100%
100%
MSA
Gainesville
Naples
Actual/
Projected
Opening
Date1
TBD
TBD
Total
Costs incurred as of December 31, 2013 included in Construction in Progress on balance sheet
Projected
Owned
GLA2
177,826
Projected
Total
GLA3
177,826
Percent
of Owned
GLA
Pre-Leased/
Committed4
—
Total
Estimated
Project
Cost5
Cost
Incurred
as of
December 31,
20135,6
TBD $
286
Major Tenants and Non-owned
Anchors
134,867
312,693
134,867
312,693
—
—
Publix, Office Max
TBD
— $
$
481
767
676
____________________
1
Opening Date is defined as the first date a tenant is open for business or a ground lease payment is made. Stabilization (i.e., 85% occupied) typically occurs within six to twelve months after the
opening date.
2
Projected Owned GLA represents gross leasable area we project we will own. It excludes square footage that we project will be attributable to non-owned outlot structures on land owned by us and
expected to be ground leased to tenants. It also excludes non-owned anchor space.
3
Projected Total GLA includes Projected Owned GLA, projected square footage attributable to non-owned outlot structures on land that we own, and non-owned anchor space that currently exists or
35
is under construction.
Excludes outlot land parcels owned by the Company and ground leased to tenants. Includes leases under negotiation for approximately 115,652 square feet for which the Company has signed non-
binding letters of intent.
Dollars in thousands.
Cost incurred is reclassified to fixed assets on the consolidated balance sheet on a pro-rata basis as portions of the asset are placed in service.
4
5
6
36
Land Held for Future Development
As of December 31, 2013, we owned interests in land parcels comprising 131 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 4.7% of the portfolio’s annualized base rent for the
year ended December 31, 2013. 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, 2013:
TOP 10 RETAIL TENANTS BY GROSS LEASABLE AREA
Tenant
Lowe's Home Improvement3
Wal-Mart
Target
Publix6
TJX Companies5
Dick's Sporting Goods
Home Depot
Bed Bath & Beyond4
Beall's
SteinMart
Number of
Stores
6
5
6
13
10
5
2
9
5
7
68
Total GLA
832,630
733,742
676,315
632,636
339,974
260,502
260,000
258,668
250,607
243,222
4,488,296
Number of
Leases
2
1
—
13
10
5
—
9
4
7
51
Company
Owned
GLA1
128,997
203,742
—
632,636
339,974
260,502
—
258,668
214,163
243,222
2,281,904
Number
of Anchor
Owned Stores
4
4
6
—
—
—
2
—
1
—
17
Anchor
Owned
GLA2
703,633
530,000
676,315
—
—
—
260,000
—
36,444
—
2,206,392
____________________
1
Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants.
2
3
4
5
6
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.
Includes Buy Buy Baby, Christmas Tree Shops and Cost Plus which are owned by the same parent company.
Includes TJ Maxx, Home Goods and Marshalls, which are owned by the same parent company.
Publix has notified the Company it will vacate its space at Courthouse Shadows upon the expiration of its lease in May 2014.
37
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, 2013:
TOP 25 TENANTS BY ANNUALIZED BASE RENT
1, 2
Tenant
Publix
TJX Companies 5
Bed Bath & Beyond 4
Dick's Sporting Goods
Petsmart
Lowe's Home Improvement
Beall's
Stein Mart
Marsh Supermarkets
Staples
Indiana Supreme Court
Michaels
Walgreens
Burlington Coat Factory
HEB Grocery Company
Wal-Mart
Whole Foods
Office Depot
Mattress Firm
Regal Cinemas
DSW
Ross Stores
City Financial Corp
Franks Theater Cinebowl & Grille
Kmart
TOTAL
Type of
Property
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Commercial
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Commercial
Retail
Retail
Number of
Stores
13
10
9
5
7
2
4
7
2
5
1
5
3
2
1
1
2
4
9
1
3
3
1
1
1
Leased
GLA/NRA2
632,636
339,974
258,668
260,502
171,205
128,997
214,163
243,222
124,902
101,762
78,313
114,103
43,870
182,400
105,000
203,742
66,144
96,060
37,523
63,260
63,380
87,574
52,151
62,280
110,875
% of Owned
GLA/NRA
of the
Portfolio
7.0%
3.8%
2.9%
2.9%
1.9%
1.4%
2.4%
2.7%
1.4%
1.1%
0.9%
1.3%
0.5%
2.0%
1.2%
2.3%
0.7%
1.1%
0.4%
0.7%
0.7%
1.0%
0.6%
0.7%
1.2%
Annualized
Base Rent1
Annualized
Base Rent
per Sq. Ft.3
$
5,636,343 $
2,984,897
2,833,480
2,508,174
2,354,649
1,764,000
1,695,407
1,665,646
1,633,958
1,499,621
1,404,941
1,380,070
1,376,000
1,212,000
1,155,000
1,100,207
1,043,976
1,027,338
956,415
930,555
922,372
856,087
855,000
850,752
850,379
8.91
8.78
10.95
9.63
13.75
6.04
7.92
6.85
13.08
14.74
17.94
12.09
31.37
6.64
11.00
5.40
15.78
10.69
25.49
14.71
14.55
9.78
16.39
13.66
7.67
% of Total
Portfolio
Annualized
Base Rent
4.7%
2.5%
2.3%
2.1%
1.9%
1.5%
1.4%
1.4%
1.4%
1.2%
1.2%
1.1%
1.1%
1.0%
1.0%
0.9%
0.9%
0.8%
0.8%
0.8%
0.8%
0.7%
0.7%
0.7%
0.7%
3,842,706
42.8%
$ 40,497,267 $
12.11
33.6%
____________________
1
Annualized Base Rent represents the monthly contractual rent for December 2013 for each applicable tenant multiplied by 12. Annualized Base Rent does not
include tenant reimbursements.
2
3
4
5
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.
Includes Buy Buy Baby, Christmas Tree Shops and Cost Plus, which are owned by the same parent company.
Includes TJ Maxx, Home Goods and Marshalls, which are owned by the same parent company.
38
Geographic Information
The Company owns 66 operating retail properties, totaling approximately 8.4 million of owned square feet in thirteen
states. As of December 31, 2013, the Company owned interests in two operating commercial properties, totaling
approximately 0.4 million square feet of net rentable area. Both 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, 2013:
Number of
Operating
Properties1
Owned
GLA/NRA2
Percent of
Owned
GLA/NRA
Total
Number of
Leases
Annualized
Base Rent3
Percent of
Annualized
Base Rent
Indiana
Retail
Commercial
Florida
Texas
Alabama
Georgia
North Carolina
South Carolina
Ohio
Tennessee
Illinois
Washington
New Jersey
Oregon
24
22
2
18
7
2
3
3
2
1
1
2
2
1
2
68
2,590,636
2,221,080
369,556
2,085,239
1,566,401
512,649
485,029
313,583
262,862
236,230
223,912
182,835
122,769
115,088
31,169
8,728,402
29.7%
25.5%
4.2%
23.9%
18.0%
5.9%
5.5%
3.6%
3.0%
2.7%
2.6%
2.1%
1.4%
1.3%
0.3%
100.0%
277 $
260
17
306
157
47
59
52
20
7
19
19
24
15
13
34,612,041
28,670,254
5,941,787
25,708,533
20,786,549
4,689,783
5,336,014
4,782,328
2,897,300
2,062,668
3,026,996
2,281,262
2,603,486
1,604,184
503,032
1,015 $ 110,894,176
Annualized
Base Rent per
Leased Sq. Ft.
13.89
13.39
16.88
13.21
13.56
9.61
11.47
16.33
11.61
8.73
14.81
13.32
23.35
15.64
21.74
13.33
31.2% $
25.9%
5.3%
23.2%
18.7%
4.2%
4.8%
4.3%
2.6%
1.9%
2.7%
2.1%
2.3%
1.5%
0.5%
100.0% $
____________________
1
This table includes operating retail properties, operating commercial properties, and ground lease tenants who commenced paying rent as of
December 31, 2013 and excludes four retail properties under redevelopment.
2
3
Owned GLA/NRA represent 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 $3,876,831 in annualized ground lease revenue attributable to parcels and outlots owned by the Company
and ground leased to tenants.
Lease Expirations
In 2014, leases representing 6.1% of total annualized base rent and 5.8% of total GLA/NRA expire. The following
tables show scheduled lease expirations for retail and commercial tenants and in-process development property tenants
open for business as of December 31, 2013, assuming none of the tenants exercise renewal options.
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO
1
Number of
Expiring
Leases1
117
136
154
139
143
75
55
44
51
82
70
1,066
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Beyond
Total
Expiring
GLA/NRA2
% of Total
GLA/NRA
Expiring
5.8%
11.9%
12.9%
10.3%
10.3%
5.4%
10.2%
6.6%
6.2%
7.2%
1,155,329 13.2%
100.0%
8,794,170
513,662
1,045,726
1,136,861
901,494
907,189
478,764
897,134
583,373
545,573
629,065
$
Expiring
Annualized Base
Rent3
7,211,787
12,792,951
13,072,810
13,060,462
12,547,667
6,676,069
9,589,568
7,138,023
8,130,133
10,126,479
17,534,331
$ 117,880,280
% of Total
Annualized
Base Rent
6.1%
10.9%
11.1%
11.1%
10.6%
5.7%
8.1%
6.1%
6.9%
8.6%
14.8%
100.0%
Expiring
Annualized Base
Rent per Sq. Ft.
14.04
$
12.23
11.50
14.49
13.83
13.94
10.69
12.24
14.90
16.10
15.18
13.40
$
Expiring Ground
Lease Revenue
$
340,475
339,650
—
377,556
—
33,000
156,852
—
—
260,000
2,369,298
$ 3,876,831
39
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO (continued)
____________________
1
Lease expiration table reflects rents in place as of December 31, 2013 and does not include option periods; 2014 expirations include 14 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 2013 for each applicable tenant multiplied by 12. Excludes tenant
reimbursements and ground lease revenue.
1
LEASE EXPIRATION TABLE – RETAIL ANCHOR TENANTS
Number of
Expiring
Leases2
12
24
21
19
14
10
15
16
14
15
25
185
20145
2015
2016
2017
2018
2019
2020
2021
2022
2023
Beyond
Total
Expiring
GLA/NRA3
% of Total
GLA/NRA
Expiring
3.2%
8.6%
8.8%
6.3%
6.5%
3.5%
8.8%
5.5%
4.4%
4.2%
9.9%
69.7%
283,893
760,066
769,449
551,998
575,076
304,843
770,565
485,360
382,733
369,127
872,388
6,125,498
$
Expiring
Annualized Base
Rent4
2,451,077
6,941,796
5,948,636
5,930,071
5,002,685
3,059,882
6,812,527
4,911,717
4,766,489
4,282,982
11,935,168
$ 62,043,030
% of Total
Annualized Base
Rent
2.1%
5.9%
5.1%
4.9%
4.2%
2.6%
5.8%
4.2%
4.0%
3.6%
10.0%
52.4%
Expiring
Annualized Base
Rent per Sq. Ft.
$
$
8.63
9.13
7.73
10.74
8.70
10.04
8.84
10.12
12.45
11.60
13.68
10.13
Expiring Ground
Lease Revenue
$
—
—
—
—
—
—
—
—
—
—
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, 2013 and does not include option periods; 2014 expirations include zero 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 2013 for each applicable property multiplied by 12. Excludes tenant
reimbursements and ground lease revenue.
Publix has notified the Company it will vacate its space at Courthouse Shadows upon the expiration of its lease in May 2014.
40
LEASE EXPIRATION TABLE – RETAIL SHOPS
Number of
Expiring
Leases1
105
111
133
118
127
64
39
27
34
65
41
864
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Beyond
Total
Expiring
GLA/NRA1,2
% of Total
GLA/NRA
Expiring
2.6%
3.2%
4.2%
3.0%
3.6%
1.9%
1.3%
1.0%
1.3%
2.6%
1.6%
26.3%
229,769
285,140
367,412
266,386
314,276
168,668
116,500
91,851
111,794
226,950
137,953
2,316,699
$
Expiring
Annualized Base
Rent3
4,760,709
5,844,915
7,124,174
5,634,538
7,164,926
3,563,496
2,593,273
2,084,574
2,490,025
5,175,308
3,459,523
$ 49,895,461
% of Total
Annualized Base
Rent
4.1%
5.0%
6.0%
4.8%
6.1%
3.0%
2.2%
1.8%
2.1%
4.4%
3.0%
42.5%
Expiring
Annualized Base
Rent per Sq. Ft.
Expiring Ground
Lease Revenue
$
$
20.72 $
20.50
19.39
21.15
22.80
21.13
22.26
22.70
22.27
22.80
25.08
21.54
$
340,475
339,650
—
377,556
—
33,000
156,852
—
—
260,000
1,379,298
2,886,831
LEASE EXPIRATION TABLE – RETAIL SHOPS (continued)
____________________
1
Lease expiration table reflects rents in place as of December 31, 2013, and does not include option periods; 2013 expirations include 17 month-to-
month tenants. This column also excludes ground leases.
2
3
Expiring GLA excludes estimated square footage to non-owned structures on land we own and ground leased to tenants.
Annualized Base Rent represents the monthly contractual rent for December 2013 for each applicable property multiplied by 12. Excludes tenant
reimbursements and ground lease revenue.
LEASE EXPIRATION TABLE – COMMERCIAL TENANTS
Number of
Expiring Leases1
—
1
—
2
2
1
1
1
3
2
4
17
Expiring
GLA/NLA1
—
520
—
83,110
17,837
5,253
10,069
6,162
51,046
32,988
144,988
351,973
% of Total
GLA/NRA
Expiring
0.0%
0.0%
0.0%
1.0%
0.2%
0.1%
0.1%
0.1%
0.6%
0.4%
1.7%
4.2%
Expiring Annualized
Base Rent2
$
—
6,240
—
1,495,853
380,056
52,692
183,768
141,732
873,619
668,189
2,139,639
5,941,788
$
% of Total
Annualized Base
Rent
0.0%
0.0%
0.0%
1.3%
0.3%
0.0%
0.2%
0.1%
0.7%
0.6%
1.8%
5.0%
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Beyond
Total
$
Expiring Annualized
Base Rent per Sq. Ft.
—
12.00
—
18.00
21.31
10.03
18.25
23.00
17.11
20.26
14.76
16.88
$
____________________
1
Lease expiration table reflects rents in place as of December 31, 2013 and does not include option periods. This column also excludes ground
leases.
2
Annualized base rent represents the monthly contractual rent for December 31, 2013 for each applicable property multiplied by 12. Excludes
tenant reimbursements.
41
Lease Activity – New and Renewal
In 2013, the Company executed 118 new and renewal leases totaling 468,700 square feet on space vacant less than
one year. New leases were signed with 63 tenants for 304,800 square feet of GLA while renewal leases were signed with
55 tenants for 163,900 square feet of GLA. The following table contains additional information about 2013 leasing
activity.
New
Renewal
Total
Number of
Leases Signed
63
55
118
ITEM 3. LEGAL PROCEEDINGS
Square
Footage
Signed
304,800 $
163,900
468,700 $
Average Rental Rent
per square foot
19.60
18.34
19.16
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 where the outcome 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. MINE SAFETY DISCLOSURES
Not applicable.
42
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 January 31, 2014, the last reported sales price of our common shares on the NYSE was $6.45.
The following table sets forth, for the periods indicated, the high and low prices for our common shares:
Quarter Ended December 31, 2013 ............ $
Quarter Ended September 30, 2013 ............ $
Quarter Ended June 30, 2013 ..................... $
Quarter Ended March 31, 2013 .................. $
Quarter Ended December 31, 2012 ............ $
Quarter Ended September 30, 2012 ............ $
Quarter Ended June 30, 2012 ..................... $
Quarter Ended March 31, 2012 .................. $
High
Low
6.87 $
6.19 $
6.87 $
6.91 $
5.69 $
5.40 $
5.54 $
5.62 $
5.88
5.52
5.27
5.47
4.48
4.84
3.81
4.49
Holders
The number of registered holders of record of our common shares was 168 as of January 31, 2014. 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 2013 ..........
3rd 2013 ..........
2nd 2013 ..........
1st 2013 ..........
4th 2012 ..........
3rd 2012 ..........
2nd 2012 ..........
1st 2012 ..........
Record Date
January 6, 2014 $
October 4, 2013 $
$
July 5, 2013
April 5, 2013
$
January 4, 2013 $
October 5, 2012 $
$
July 6, 2012
$
April 5, 2012
Payment Date
January 13, 2014
October 11, 2013
July 12, 2013
April 12, 2013
January 11, 2013
October 12, 2012
July 13, 2012
April 13, 2012
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
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 taxable 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 taxable
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 shareholders of at least 90% of our “REIT taxable income” (determined before the deduction for dividends
43
paid and excluding net capital gains) 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,
2013, approximately 81% of our distributions to shareholders constituted a return of capital, approximately 19% constituted
taxable ordinary income dividends and approximately 0% constituted taxable 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 in 2013.
Performance Graph
Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act or the Exchange Act
that might incorporate SEC 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, 2008 to December 31, 2013, 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 $100
at December 31, 2008 and that all cash distributions were reinvested. The shareholder return shown on the graph below is
not indicative of future performance.
44
12/08
6/09
12/09
6/10
12/10
6/11
12/11
6/12
12/12
6/13
12/13
Kite Realty Group
Trust
S&P 500
FTSE NAREIT
Equity REITs
100.00
100.00
57.79
103.16
83.58
126.46
88.14
118.05
117.37
145.51
110.44
154.28
102.82
148.59
116.57
162.68
133.70
172.37
147.12
196.19
163.51
228.19
100.00
87.79
127.99
135.10
163.78
180.48
177.36
203.8
209.39
222.99
214.56
45
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, on a historical basis, selected financial and operating information. The financial
information has been derived from our consolidated balance sheets and statements of operations and includes
reclassifications of properties sold or disposed of or presented as discontinued operations for all years presented. This
information should be read in conjunction with our audited consolidated financial statements and Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on
Form 10-K.
Year Ended December 31
20131
20122
($ in thousands, except share and per share data)
20113
2010
20094
Operating Data:
Total rental related revenue ........................................
Expenses:
Property operating ...................................................
Real estate taxes ......................................................
General, administrative, and other ...........................
Acquisition costs .....................................................
Litigation charge, net...............................................
Depreciation and amortization.................................
Total expenses .....................................................................
Operating income
Interest expense .......................................................
Income tax (expense) benefit of taxable REIT subsidiary
Non-cash gain from consolidation of subsidiary......
Gain on sale of unconsolidated property..................
Remeasurement loss on consolidation of Parkside Town
Commons, net ...................................................
Other (expense) income, net ....................................
(Loss) income from continuing operations...........................
Discontinued operations: .....................................................
Income from operations, excluding impairment charge
Impairment charge...................................................
Gain on debt extinguishment ...................................
Gain (loss) 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 attributable to common shareholders ......................
Loss per common share – basic and 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 attributable to Kite Realty Group Trust common
shareholders...............................................................
Weighted average Common Shares outstanding – basic and
diluted ...........................................................................
Distributions declared per Common Share...........................
Net loss attributable to Kite Realty Group Trust common
shareholders:
(Loss) income from continuing operations
Discontinued operations
Net loss attributable to Kite Realty Group Trust common
129,489
96,539
89,116
83,243
84,621
21,729
15,263
8,211
2,215
—
54,479
101,897
27,592
(27,994 )
(262 )
—
—
—
(63 )
(727 )
835
(5,371 )
1,242
486
(2,808 )
(3,535 )
685
(2,850 )
(8,456 )
(11,306 )
$
16,756
12,858
7,117
364
1,007
38,835
76,937
19,602
(23,392 )
106
—
—
(7,980 )
209
(11,455 )
656
—
—
7,094
7,750
(3,705 )
(629 )
(4,334 )
(7,920 )
(12,254 )
$
16,830
12,448
6,274
—
—
33,114
68,666
20,450
(21,625 )
1
—
4,320
—
607
3,753
1,630
—
—
(398 )
1,232
4,985
(4 )
4,981
(5,775 )
(794 )
$
16,181
10,681
5,361
—
—
36,063
68,286
14,957
(24,831 )
(266 )
—
—
—
884
(9,256 )
70
—
—
—
70
(9,186 )
915
(8,271 )
(377 )
(8,648 )
$
16,319
10,906
5,700
—
—
28,608
61,533
23,088
(23,645 )
22
1,635
—
—
2,709
3,809
398
(5,385 )
—
—
(4,987 )
(1,178 )
(603 )
(1,781 )
—
(1,781 )
(0.09 )
$
(0.26 )
$
(0.03 )
$
(0.14 )
$
0.05
(0.03 )
0.08
0.02
0.00
(0.08 )
(0.12 )
$
(0.18 )
$
(0.01 )
$
(0.14 )
$
(0.03 )
$
$
$
94,141,738
0.2400
$
66,885,259
0.2400
$
63,557,322
0.2400
$
63,240,474
0.2400
$
52,146,454
0.3325
$
$
(8,686 )
(2,620 )
$
(17,571 )
5,317
$
(1,891 )
1,097
$
(8,706 )
58
$
2,681
(4,462 )
shareholders
$
...
(11,306 )
$
(12,254 )
$
(794 )
$
(8,648 )
$
(1,781 )
1
2
In 2013, we disposed of the following properties: Cedar Hill Village and Kedron Village. In addition, the 50th & 12th operating property was classified as
held for sale as of December 31, 2013. The operations of these properties are reflected as discontinued operations for each of the years presented above.
In 2012, we sold the following operating properties: Pen Products, Indiana State Motor Pool, Sandifur Plaza, Preston Commons, Zionsville Place, Coral
Springs Plaza, 50 South Morton, South Elgin Commons, and Gateway Shopping Center. The operations of these properties are reflected as discontinued
operations for each of the years presented above.
46
3
4
In December 2011, we sold our Martinsville Shops operating property. The operations of this property are reflected as discontinued operations for each of the
years presented above.
In December 2009, we conveyed the title to 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 $5.4 million to write off the
net book value of the property. Since we ceased operating this property during the fourth quarter of 2009 we reclassified the non-cash impairment loss and
the operating results related to this property to discontinued operations.
As of December 31
2013
2012
2011
2010
2009
($ in thousands)
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 ................................................................
1,644,478 $ 1,200,336 $ 1,095,721 $ 1,047,849 $ 1,044,799
19,958
1,140,685
658,295
710,929
10,042
1,193,266
689,123
737,807
12,483
1,288,657
699,909
774,365
15,395
1,132,783
610,927
658,689
18,134
1,763,927
857,144
962,895
43,928
753,557
3,548
1,763,927
37,670
473,086
3,536
1,288,657
41,836
409,372
4,251
1,193,266
44,115
423,065
6,914
1,132,783
47,307
375,078
7,371
1,140,685
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 and how it impacts our financing strategy.
Our Business and Properties
Kite Realty Group Trust, through its majority-owned subsidiary, Kite Realty Group, L.P., is engaged in the
ownership, operation, management, leasing, acquisition, construction, 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. Our operating results therefore depend materially on the ability of our tenants to make required rental
payments, conditions in the United States retail sector and overall real estate market conditions.
As of December 31, 2013, we owned interests in a portfolio of 70 operating and redevelopment retail properties
totaling 12.0 million square feet of gross leasable area (including non-owned anchor space) and also owned interests in two
operating commercial properties totaling 0.4 million square feet of net rentable area and an associated parking garage.
Also, as of December 31, 2013, we had an interest in two development projects under construction, which, upon
completion, are anticipated to have 0.8 million square feet of gross leasable area (including non-owned anchor space).
In addition, we have one future development project pending commencement of construction that is undergoing pre-
development activity and is in preparation for construction to commence, including pre-leasing activity and negotiations for
third-party financing. As of December 31, 2013, this future development project is expected to contain 0.2 million square
feet of gross leasable area upon completion.
47
Finally, as of December 31, 2013, we also owned interests in other land parcels comprising 131 acres that may be
used for future expansion of existing properties, development of new retail or commercial properties or sold to third parties.
These land parcels are classified as “Land held for development” in the accompanying consolidated balance sheets.
Current Economic Conditions and Impact on Our Retail Tenants
Economic conditions continued to improve in the United States for businesses, consumers, housing and credit markets
throughout 2013. Uncertainties about a sustained economic recovery remain due to continued challenges including mixed
employment data, health care reform, U.S. Federal Reserve policy, and concerns over the U.S. federal government’s ability
to respond to these challenges. Despite these uncertain conditions, consumer and retailer sentiment continued to improve.
In addition, certain retailers continue to announce plans to increase their store openings over the next 24 months. However,
there is no certainty that these trends will continue and a number of factors could impact consumer spending at stores
owned and/or operated by our retail tenants, including, among others:
Macroeconomic Conditions: Global economic and market concerns receded during 2013. Capital market
conditions have continued to improve with increased access to and availability of equity markets and
unsecured and secured debt. Business and consumer confidence continues to improve as evidenced by a
growth in gross domestic product over the second half of 2013. Reports of consumer spending were
generally positive as job growth continues to increase.
Increasing Home Values and Improving Residential Construction: U.S. home values improved as residential
real estate market conditions benefited from increased home sales and increased new residential construction
though the improvement started to slow towards the end of 2013.
Continued Lower Labor Participation Rates: The U.S. unemployment rate declined in 2013 but continues to
be higher than historical levels. Continued high unemployment rates and low employee participation rates
could cause decreases in consumer spending, thereby negatively affecting the businesses of our retail tenants.
We continue to focus on markets where household income within a five-mile radius of our properties is
higher than statewide levels.
During 2013, job growth and consumer spending continued to slightly improve, but there is no certainty that this
improvement will continue. In addition, some retailers reported lower margins resulting from the holiday season.
Additionally, it is uncertain whether these conditions will continue to improve, level off, or reverse themselves. Lower
consumer spending has a negative impact on the businesses of our retail tenants. While we did experience strong leasing
activity in 2013, to the extent the above-described 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. As discussed above, due to the continued instability and uncertainty facing U.S.
consumers, the operations of many of our retail tenants could be negatively affected. This could in turn have a negative
impact on our business based on, but not limited to, the following:
Difficulty in Collecting Rent; Rent Adjustments. When consumers decrease their spending, our tenants
typically experience decreased revenues and cash flows. This makes it more difficult for some of our local
and regional 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 they are unable to obtain financing to operate their
businesses. Such decreases or, if granted, deferrals in tenants’ rent obligations could negatively affect our
cash flows.
Termination of Leases. If our tenants find it difficult to meet their rental obligations, they may be forced to
terminate their leases with us. During 2013, tenants at some of our properties terminated their leases with us.
48
In some cases, we were able to secure replacement tenants at rental rates comparable to or greater than the
rates of the terminated tenants. In other cases, we were not able to do so.
Tenant Bankruptcies. The number of bankruptcies by U.S. businesses has decreased from the historically
high levels experienced during recent years. While we have seen a decrease over the past year in tenant
bankruptcies, there is no assurance that this decrease will continue.
Decrease in Demand for Retail Space. Demand for retail space at our shopping centers and at our
development and redevelopment projects continued to improve in 2013, most notably from national and
regional retailers. Demand from local, small shop merchants has increased at a slower pace, reflecting the
difficulty such potential tenants have securing financing for working capital and expansion plans. While our
leasing activity remained high and the overall leased percentage of our retail shopping centers increased in
2013, overall demand for retail space may not continue and may decline in the future until job growth,
consumer confidence, and the general economy stabilize for an extended period of time.
Financing Strategy; 2014 Debt Maturities
Our ability to obtain financing on satisfactory terms and to refinance borrowings as they mature is affected by the
condition of the economy in general and by instability of the financial markets in particular. Our 2014 debt maturities,
excluding annual principal payments, total $86 million and consist of property-level debt or construction loans. We are
pursuing financing alternatives to enable us to repay, refinance, or extend the maturity date of these loans.
Based on our favorable experience with refinancing of property-level debt and the improvements in the lending
environment over the last couple of years, we believe we will be able to satisfactorily address our 2014 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,
exposure to the risk of foreclosure, or charges to our earnings.
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, 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, our financial condition and
liquidity could be adversely impacted. It is also important for us to obtain additional financing in order to complete our in-
process development and redevelopment projects.
Throughout the year, we strengthened our balance sheet through the acquisition of thirteen unencumbered retail
properties. These acquisitions significantly increased the value of the Company’s unencumbered property pool and created
additional liquidity. In addition, we increased our flexibility by expanding the borrowing capacity on our Term Loan from
$125 million to $230 million. This enabled us to free up availability on our unsecured revolving credit facility along with
reducing our borrowing costs and further staggering our debt maturities.
In February, we amended our $200 million unsecured revolving credit agreement by, among other things, extending
its maturity date to February 26, 2018, which maturity date may be extended for an additional year at our option, subject to
certain conditions, and reducing the borrowing rate.
As of December 31, 2013, we had a combined $69 million of available liquidity in the form of availability under our
unsecured revolving credit facility ($51 million) and on-hand cash and cash equivalents ($18 million). In addition, there
are five unencumbered assets that would provide approximately $135 million of additional borrowing capacity under the
unsecured revolving credit if they were contributed to the unencumbered property pool and the accordion feature was
exercised.
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, 2013, the unfunded amount of the total estimated projects costs of our
development and redevelopment projects under construction was approximately $61 million. While we believe we will
have access to sufficient funding to be able to complete these projects through a combination of existing construction loans
49
and uses of our available liquidity (which, as noted above, was $69 million as of December 31, 2013), 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
We incur costs prior to vertical construction and for certain land held for development, including acquisition contract
deposits as well as legal, engineering, cost of internal resources 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 the costs of personnel directly involved
with the development of our properties. As a portion of a development property becomes operational, we expense a pro
rata amount of related costs.
Impairment of Investment Properties
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 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 and intangible assets 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 or our assumptions with respect to operating assets are not realized, an impairment loss may be appropriate.
Management does not believe any investment properties, development assets, or land parcels were impaired as of
December 31, 2013.
Depreciation may be accelerated for a redevelopment project including partial demolition of existing structure after
the asset is assessed for impairment.
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 estimated costs to sell. Depreciation and
amortization are suspended during the held-for-sale period. The Company has classified the 50th & 12th investment
property as held for sale as of December 31, 2013.
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, current and prior period operating results are reclassified to reflect the operations of these properties as
discontinued operations.
50
Purchase Accounting
We measure identifiable assets acquired, liabilities assumed, and any non-controlling interests in an acquiree at fair
value on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. In making
estimates of fair values for the purpose of allocating purchase price, a number of sources are utilized, including information
obtained as a result of pre-acquisition due diligence, marketing and leasing activities.
A portion of the purchase price is allocated to tangible assets and intangibles, including:
the fair value of the building on an as-if-vacant basis and to land determined either by comparable market
data, 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. Any below-market renewal options are also considered in the in-place lease values. The
capitalized above-market and below-market lease values are amortized as a reduction of or addition to rental
income over the remaining non-cancelable terms of the respective leases. Should a tenant vacate, terminate
its lease, or otherwise notify us of its intent to do so, the unamortized portion of the lease intangibles would
be charged or credited to income; and
the value of leases acquired. We utilize independent sources for its estimates to determine the respective in-
place lease values. Our estimates of value are made using methods similar to those used by independent
appraisers. Factors we consider in our analysis include an estimate of costs to execute similar leases
including tenant improvements, leasing commissions and foregone costs and rent received during the
estimated lease-up period as if the space was vacant. The value of in-place leases is amortized to expense
over the remaining initial terms of the respective leases.
We also consider whether a portion of the purchase price should be allocated to in-place leases that have a related
customer relationship intangible value. Characteristics we consider in allocating these values include the nature and extent
of existing business relationships with the tenant, growth prospects for developing new business with the tenant, the
tenant’s credit quality, and expectations of lease renewals, among other factors. To date, a tenant relationship has not been
developed that is considered to have a current intangible value.
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).
Overage rent is recognized when tenants achieve the specified targets as defined in their lease agreements. Overage rent is
included in other property related revenue in the accompanying statements of operations. 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.
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 our ongoing business strategy, we will, from time to time, sell land parcels and outlots, some of which
are ground leased to tenants, on a case by case basis.
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
51
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 12 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.
Note 3 to the accompanying consolidated financial statements includes a discussion of fair values recorded when the
Company acquired a controlling interest in Parkside Town Commons development project. Level 3 inputs to this
transaction include our estimations of the fair value of the real estate and related assets acquired.
Note 5 to the accompanying consolidated financial statements includes a discussion of fair values recorded when the
Company recorded an impairment charge on its Kedron Village property. Level 3 inputs to this transaction include our
estimations of market leasing rates, discount rates, holding period, and disposal values.
Note 11 to the accompanying consolidated financial statements includes a discussion of the fair values recorded in
purchase accounting. Level 3 inputs to these acquisitions include our estimations of market leasing rates, tenant-related
costs, discount rates, and disposal values.
Income Taxes and REIT Compliance
We are considered a corporation for federal income tax purposes and we have been organized and we intend to
continue to operate in a manner that will enable us to maintain our qualification as a REIT for federal income tax purposes.
As a result, we generally will not be subject to federal income tax on the earnings that we distribute to the extent we
distribute our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains)
to our shareholders and meet certain other requirements on a recurring basis. To the extent that we satisfy this distribution
requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our
undistributed REIT taxable income. 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.
Results of Operations
At December 31, 2013, we owned interests in 72 properties (consisting of 66 retail operating properties, 4 retail
redevelopment properties, and two commercial operating properties). Also, as of December 31, 2013, we had an interest in
two development projects that were under construction and one development project that has not yet commenced
construction.
At December 31, 2012, we owned interests in 60 properties (consisting of 54 retail operating properties, 4 retail
redevelopment properties, and two commercial operating properties). Also, as of December 31, 2012, we had an interest in
three development projects that were under construction and three development projects that had not yet commenced
construction.
At December 31, 2011, we owned interests in 63 properties (consisting of 54 retail operating properties, five retail
redevelopment properties, and four commercial operating properties). Also, as of December 31, 2011, we had an interest in
three development projects that were under construction and three development projects that had not yet commenced
construction.
The comparability of results of operations is affected by our development, redevelopment, and operating property
acquisition and disposition activities in 2011 through 2013. Therefore, we believe it is most useful to review the
52
comparisons of our results of operations for these years (as set forth below under “Comparison of Operating Results for the
Years Ended December 31, 2013 and 2012” and “Comparison of Operating Results for the Years Ended December 31,
2012 and 2011”) 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, 2013, 2012 and 2011, the following significant development properties became
operational or partially operational:
Property Name
MSA
Economic
Occupancy Date
1
Delray Marketplace .....................................................
Holly Springs Towne Center .......................................
Delray Beach, FL
Raleigh, NC
March 2013
March 2013
Owned GLA
255,554
207,589
1
Represents the date in which we started receiving rental payments under tenant leases or ground
leases at the property or the tenant took possession of the property, whichever was sooner.
Property Acquisition Activities
During 2013, 2012 and 2011, we acquired the properties below.
Property Name
MSA
Acquisition Date
Acquisition Cost
(Millions)
Oleander Place ................................
Wilmington, NC
February 2011
$
3.5
Lithia Crossing ...............................
Tampa, FL
June 2011
Cove Center ....................................
Stuart, FL
June 2012
12th Street Plaza ..............................
Vero Beach, FL
July 2012
13.3
22.1
15.2
Publix at Woodruff .........................
Greenville, SC
December 2012
9.1
Shoppes at Plaza Green ..................
Greenville, SC
December 2012
28.8
Shoppes of Eastwood ......................
Orlando, FL
January 2013
Cool Springs Market .......................
Nashville, TN
April 2013
Castleton Crossing ..........................
Indianapolis, IN
May 2013
Toringdon Market ...........................
Charlotte, NC
August 2013
11.6
37.6
39.0
15.9
Financing
Method
Primarily
Debt
Primarily
Debt
Primarily
Debt
Primarily
Debt
Primarily
Equity
Primarily
Equity
Primarily
Equity
Primarily
Equity
Primarily
Equity
Primarily
Equity
Owned GLA
45,530
91,043
155,063
138,268
68,055
194,807
69,037
223,912
277,812
60,464
Nine Property Portfolio1 .................
Various
November 2013
304.0
Equity/Debt
1,977,866
1
The properties acquired were:
Beechwood Promenade in Athens, Georgia;
Burt Store Promenade in Punta Gorda, Florida;
Hunter’s Creek Promenade in Orlando, Florida;
Lakewood Promenade in Jacksonville, Florida;
Northdale Promenade in Tampa, Florida;
Kingwood Commons in Houston, Texas;
53
Portofino Shopping Center in Houston, Texas;
Clay Marketplace in Birmingham, Alabama; and
Trussville Promenade in Birmingham, Alabama
Operating Property Disposition Activities
During 2013, 2012 and 2011, we sold or disposed of the operating properties listed in the table below. In addition,
our 50th and 12th operating property was sold on January 7, 2014 and was classified as held for sale as of December 31,
2013. The operating results of the consolidated properties are reflected as discontinued operations in the accompanying
consolidated statements of operations.
Property Name
MSA
Disposition Date
Owned GLA
Consolidated
Martinsville Shops.............................................
Gateway Shopping Center .................................
South Elgin Commons ......................................
50 South Morton ...............................................
Coral Springs Plaza ...........................................
Pen Products ......................................................
Indiana State Motor Pool ...................................
Sandifur Plaza ...................................................
Zionsville Place .................................................
Preston Commons .............................................
Kedron Village ..................................................
Cedar Hill Village .............................................
Unconsolidated
Indianapolis, IN
Seattle, WA
Chicago, IL
Indianapolis, IN
Ft. Lauderdale, FL
Indianapolis, IN
Indianapolis, IN
Pasco, WA
Indianapolis, IN
Dallas, TX
Atlanta, GA
Dallas, TX
December 2011
February 2012
June 2012
July 2012
September 2012
October 2012
October 2012
November 2012
November 2012
December 2012
July 2013
September 2013
10,886
99,444
128,000
2,000
46,079
85,875
115,000
12,552
12,400
27,539
157,345
44,214
Eddy Street Commons Limited Service Hotel1
South Bend, IN
November 2011
N/A
____________________
1
We held a 50% interest in this unconsolidated joint venture. In November 2011, the joint venture sold this
property for $17.5 million, resulting in a total gain on sale of $8.3 million. We used our share of the net
proceeds to pay down borrowings under our unsecured revolving credit facility. Our share of the gain on
sale was $4.3 million, including related tax effects.
Redevelopment Activities
During 2013, 2012 and 2011, the following properties were in various stages of redevelopment:
Property Name
MSA
Bolton Plaza2 .................................................
Rivers Edge3 ..................................................
Courthouse Shadows4 ....................................
Four Corner Square5 ......................................
Oleander Place6 .............................................
Rangeline Crossing7 ......................................
King’s Lake Square8 ......................................
Gainesville Plaza9 ..........................................
Jacksonville, FL
Indianapolis, IN
Naples, FL
Seattle, WA
Wilmington, NC
Indianapolis, IN
Naples, FL
Gainesville, FL
Transition from
Redevelopment
Pipeline1
Pending
December 2011
Pending
December 2013
December 2012
June 2013
Pending
Pending
Owned GLA
155,637
149,209
134,867
108,269
45,530
74,583
88,153
177,826
1
Transition date represents the date the property was transitioned to our operating portfolio upon the
54
2
3
4
5
6
7
8
9
substantial completion of redevelopment activities.
LA Fitness is expected to open in the 1st quarter of 2014 and will anchor the center along with Academy
Sports and Outdoors.
We purchased this property in February 2008 with the intent to redevelop. The property was substantially
completed and transitioned to the operating portfolio in December 2011. The center is anchored by
Nordstrom Rack, The Container Store, Buy Buy Baby, Arhaus Furniture, and BGI Fitness.
Publix has notified the Company it will vacate upon the expiration of its lease in May 2014.
The property was substantially completed and transitioned to the operating portfolio in December 2013.
The center is anchored by Walgreens, Grocery Outlet, and Johnson’s Do-It-Center.
We purchased this property in February 2011. Subsequent to the acquisition, we executed a lease
termination agreement with the existing tenant and executed a lease with new anchor Whole Foods. This
tenant opened in the second quarter of 2012, and the property was transitioned back to the operating
portfolio in December 2012.
In February 2011, we completed the acquisition of the remaining 40% interest in this property. In May
2012, we executed a lease with Earth Fare, a specialty grocer, and transitioned this center to an in-process
redevelopment. The property was substantially completed and transitioned to the operating portfolio in June
2013.
In August 2013, we commenced the redevelopment of a new and upgraded Publix grocery store. The new
store is expected to open in the 2nd quarter of 2014.
In May 2013, we transitioned this property to redevelopment upon the expiration of Wal-Mart’s lease. The
Company is currently evaluating leasing and site plans for the redevelopment and anticipate signing leases
with two national anchor tenants.
Same Property Net Operating Income
The Company believes that Net Operating Income (“NOI”) is helpful to investors as a measure of its operating
performance because it excludes various items included in net income that do not relate to or are not indicative of its
operating performance, such as depreciation and amortization, interest expense, asset sale gains/losses, and impairment, if
any. The Company believes that Same Property NOI is helpful to investors as a measure of its operating performance
because it includes only the NOI of properties that have been owned and operating for the full period presented, which
eliminates disparities in net income due to the redevelopment, acquisition or disposition of properties during the particular
period presented, and thus provides a more consistent metric for the comparison of the Company's properties. NOI and
Same Property NOI should not, however, be considered as alternatives to net income (calculated in accordance with
GAAP) as indicators of the Company's financial performance.
The following table reflects same property net operating income (and reconciliation to net loss attributable to common
shareholders) for the years ended December 31, 2013 and 2012:
55
$
$
Number of comparable properties at period end1
Leased percentage at period end
Occupied percentage at period end
Net operating income – same properties (49 properties)2
Reconciliation to Most Directly Comparable GAAP Measure:
Net operating income – same properties
Net operating income – non-same activity
Other income (expense), net
General and administrative expense
Acquisition expense
Litigation charge, net
Depreciation expense
Interest expense
Remeasurement loss on consolidation of Parkside Town
Commons, net
Discontinued operations
Impairment charge
Gain on debt extinguishment
Gain on sales of operating properties
Years Ended December 31,
2013
49
96.1 %
92.4 %
2012
49
94.4 %
90.6 %
%
Change
60,790,342
$ 57,963,325
4.9 %
60,790,342
31,705,805
(324,785 )
(8,210,792 )
(2,214,567 )
—
(54,479,023 )
(27,993,577 )
—
834,505
(5,371,427 )
1,241,724
486,540
$ 57,963,325
8,962,109
315,029
(7,117,195 )
(364,364 )
(1,007,451 )
(38,834,559 )
(23,391,937 )
(7,979,626 )
655,647
—
—
7,094,238
Net loss (income) attributable to noncontrolling interests
Dividends on preferred shares
Net loss attributable to common shareholders
685,520
(8,456,251 )
(11,305,986 )
(629,063 )
(7,920,002 )
$ (12,253,849 )
$
1
2
Same Property analysis excludes properties in redevelopment.
Excludes net gain from outlot sales, straight-line rent revenue, bad debt expense, lease termination fees,
amortization of lease intangibles and significant prior period expense recoveries and adjustments, if any.
56
Comparison of Operating Results for the Years Ended December 31, 2013 and 2012
The following table reflects income statement line items from our consolidated statements of operations for the years
ended December 31, 2013 and 2012:
Rental income (including tenant reimbursements) increased between years by $25.6 million, or 27.6%, due to the
following:
57
20132012Net change 2012 to 2013Revenue: Rental income (including tenant reimbursements)118,059,625 92,495,427 25,564,198 Other property related revenue11,428,702 4,044,016 7,384,686 Total revenue129,488,327 96,539,443 32,948,884 Expenses: Property operating21,729,251 16,756,287 4,972,964 Real estate taxes15,262,928 12,857,722 2,405,206 General, administrative, and other8,210,793 7,117,195 1,093,598 Acquisition costs2,214,567 364,364 1,850,203 Litigation charge, net- 1,007,451 (1,007,451) Depreciation and amortization54,479,023 38,834,559 15,644,464 Total expenses101,896,562 76,937,578 24,958,984 Operating income27,591,765 19,601,865 7,989,900 Interest expense(27,993,577) (23,391,937) (4,601,640) Income tax (expense) benefit of taxable REIT subsidiary (262,404) 105,984 (368,388) Remeasurement loss on consolidation of Parkside Town Commons, net- (7,979,626) 7,979,626 Other (expense) income, net(62,381) 209,045 (271,426) Loss from continuing operations(726,597) (11,454,669) 10,728,072 Discontinued operations: Income from operations834,505 655,647 178,858 Impairment charge(5,371,427) - (5,371,427) Gain on debt extinguishment1,241,724 - 1,241,724 Gain on sale of operating properties486,540 7,094,238 (6,607,698) (Loss) income from discontinued operations(2,808,658) 7,749,885 (10,558,543) Consolidated net loss(3,535,255) (3,704,784) 169,529 Less: Net (loss) income attributable to noncontrolling interests685,520 (629,064) 1,314,584 Net loss attributable to Kite Realty Group Trust(2,849,735) (4,333,848) 1,484,113 Dividends on preferred shares(8,456,251) (7,920,002) (536,249) Net loss attributable to Kite Realty Group Trust common shareholders(11,305,986) (12,253,850) 947,864 Years Ended December 31,
Excluding the changes due to transitioned development properties, acquired properties, and the properties under
redevelopment, the net $2.3 million increase in rental income for our properties was primarily related to the following:
Improvement in base rental revenue due to improved occupancy levels at operating properties including anchor
leases at our Cedar Hill Plaza, Rivers Edge, and Cobblestone Plaza operating properties along with improved rent
spreads on new and renewal leases; and
Increased recovery income due to increase in recoverable property operating expenses and real estate taxes of $1.5
million along with higher recovery rates due to improved occupancy levels.
For the overall portfolio, the recovery ratio improved from 77.1% in 2012 to 78.3% in 2013, due to the improved
occupancy level of the operating portfolio. The 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 gains from land sales, lease settlement income, parking revenues,
and percentage rent. This revenue increased $7.4 million, or 183%, primarily as a result of higher gains from land sales of
$5.5 million (including a pre-tax increase of $0.9 million related to sales of residential units at Eddy Street Commons) and
higher lease termination fees of $1.8 million. The Company recorded a gain on an outlot sale at Cobblestone Plaza of $3.9
million in 2013. The majority of the termination fee relates to a former anchor tenant at Bayport Commons where a
replacement anchor commenced in November 2013.
Property operating expenses increased between years by $5.0 million, or 29.7%, due to the following:
Excluding the changes due to transitioned development properties, acquired properties, and the properties under
redevelopment, the net $1.2 million increase in property operating expenses for our properties was primarily due to the
following:
$0.5 million net increase in repairs and maintenance at a number of our operating properties in 2013;
$0.3 million increase in insurance due to higher costs at our Florida properties. The majority of this increase is
recoverable from tenants;
$0.2 million increase in snow removal costs. The majority of this increase is recoverable from tenants; and
The changes in other categories of expense were not individually significant.
Real estate taxes increased $2.4 million, or 18.7%, due to the following:
58
Net Change 2012 to 2013Development properties that became operational or were partially operational in 2012 and/or 2013$6,760,254 Properties acquired during 2012 and 201315,508,597 Properties under redevelopment during 2012 and/or 2013965,924 Properties fully operational during 2012 and 2013 & other 2,329,423 Total $25,564,198 Net change 2012 to 2013Development properties that became operational or were partially operational in 2012 and/or 2013$1,789,256 Properties acquired during 2012 and 20131,949,848 Properties under redevelopment during 2012 and/or 201331,148 Properties fully operational during 2012 and 2013 & other 1,202,712 Total $4,972,964
Excluding the changes due to transitioned development properties, acquired properties, and the properties under
redevelopment, the net $0.3 million increased in real estate taxes for our properties was primarily due to increases in
assessments at certain operating properties. 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.
General, administrative and other expenses increased $1.1 million, or 15.4%, due primarily to an increase in
personnel-related expenses related to increase in the size of the portfolio along with an increase in other public company-
related costs.
Acquisition costs increased $1.9 million due to the higher acquisition volume in 2013 compared to 2012. The
Company acquired thirteen properties in 2013 compared to 4 properties in 2012.
In 2012, the Company recorded a litigation charge, net of $1.0 million. This relates to the damages and attorney’s
fees related to a claim by a former tenant net of certain recoveries. See additional discussion in Note 4 to the accompanying
consolidated financial statements.
Depreciation and amortization expense increased $15.6 million, or 40.3%, due to the following:
The overall increase of $15.6 million was due to the following significant items:
An increase of $9.5 million related to the properties acquired during 2012 and 2013;
An increase of $4.7 million related to the redevelopment of our Bolton Plaza and King’s Lake Square
properties due to accelerated depreciation recorded in 2013. Redevelopment plans for these properties were
finalized during 2013, resulting in a reduction of the useful life of certain assets that were demolished;
A decrease of $3.8 million related to the redevelopment of our Four Corner Square and Rangeline Crossing
operating properties due to accelerated depreciation recorded in 2012. Redevelopment plans for these
properties were finalized during the first half of 2012, resulting in a reduction of the useful life of certain
assets that were demolished; and
The remaining increase is due to additional assets placed in-service related to anchor retenanting at certain
of our operating properties.
Interest expense increased $4.6 million, or 19.7%. This increase was due to the transfer of substantial portions of
assets at Delray Marketplace, Holly Springs Towne Center, Rangeline Crossing, and Four Corner Square from construction
59
Net change 2012 to 2013Development properties that became operational or were partially operational in 2012 and/or 2013$244,166 Properties acquired during 2012 and 20131,926,894 Properties under redevelopment during 2012 and/or 2013(83,512)Properties fully operational during 2012 and 2013 & other 317,658 Total $2,405,206 Net change 2012 to 2013Development properties that became operational or were partially operational in 2012 and/or 2013$2,719,639 Properties acquired during 2012 and 20139,541,719 Properties under redevelopment during 2012 and/or 20131,617,038 Properties fully operational during 2012 and 2013 & other 1,766,068 Total $15,644,464
in progress to depreciable fixed assets based on the proportion of tenants opening for business, which resulted in a
reduction in capitalized interest.
Income tax expense of our taxable REIT subsidiary was $0.3 million in 2013 compared to an income tax benefit of
$0.1 million in 2012. The expense in 2013 was due to higher taxable sales of residential units at Eddy Street Commons.
The 2012 $8.0 million remeasurement loss on consolidation of Parkside Town Commons, net relates to the
acquisition of our partner’s interest in the Parkside Town Commons joint venture. See additional discussion in Note 3 to
the accompanying consolidated financial statements.
Within discontinued operations, the Company recorded an impairment charge of $5.4 million and a gain on debt
extinguishment of $1.2 million related to the disposal of our Kedron Village property in 2013. Excluding this activity, the
Company had a loss related to discontinued operations of $0.8 million for the year ended December 31, 2013 compared to
income of $0.7 million for the year ended December 31, 2012. The Company sold multiple properties in 2012 for a net
gain of $7.1 million compared to one property in 2013for a net gain of $0.5 million. See additional discussion in Note 5 to
the consolidated financial statements.
Net loss attributable to noncontrolling interests was $0.7 million in 2013 compared to net income attributable to
noncontrolling interests was $0.6 million in 2012. The fluctuation was due to the allocation of our partner’s share of the
gain on the sale of our Gateway Shopping Center operating property near Seattle, Washington.
Dividends on preferred shares increased $0.5 million. The increase was due to our completion of a public offering of
1,300,000 shares of 8.25% Series A Cumulative Redeemable Perpetual Preferred Shares in March 2012.
Comparison of Operating Results for the Years Ended December 31, 2012 and 2011
The following table reflects income statement line items from our consolidated statements of operations for the years
ended December 31, 2012 and 2011:
60
Rental income (including tenant reimbursements) increased $7.6 million, or 9.0%, due to the following:
Excluding the changes due to transitioned development properties, acquired properties, and properties under
redevelopment, the net $1.2 million increase in rental income for our properties was primarily related to the following:
Improvement in base rental revenue due to improved occupancy levels at operating properties including anchor
leases at Cedar Hill Plaza, Market Street Village, and Sunland Towne Center along with improved rent spreads on
new and renewal leases. In addition to the increased rent payments from these new and existing tenants, these
61
20122011Net change 2011 to 2012Revenue: Rental income (including tenant reimbursements)$92,495,427 $84,867,644 $7,627,783 Other property related revenue4,044,016 4,247,909 (203,893) Total revenue96,539,443 89,115,553 7,423,890 Expenses: Propert operating16,756,287 16,829,934 (73,647) Real estate taxes12,857,722 12,447,517 410,205 General, administrative, and other7,117,195 6,273,641 843,554 Acquisition costs364,364 - 364,364 Litigation charge, net1,007,451 - 1,007,451 Depreciation and amortization38,834,559 33,114,557 5,720,002 Total expenses76,937,578 68,665,649 8,271,929 Operating income19,601,865 20,449,904 (848,039) Interest expense(23,391,937) (21,624,992) (1,766,945) Income tax benefit of taxable REIT subsidiary105,984 1,294 104,690 Gain on sale of unconsolidated properyt, net- 4,320,155 (4,320,155) Remeasurement loss on consolidation of Parkside Town Commons, net(7,979,626) - (7,979,626) Other income, net209,045 606,368 (397,323) (Loss) income from continuing operations(11,454,669) 3,752,729 (15,207,398) Discontinued operations: Discontinued operations655,647 1,629,920 (974,273) Gain (loss) on sale of operating properties7,094,238 (397,909) 7,492,147 Loss from discontinued operations7,749,885 1,232,011 6,517,874 Consolidated net (loss) income)(3,704,784) 4,984,740 (8,689,524) Less: Net income attributable to noncontrolling interests(629,063) (3,466) (625,597) Net (loss) income attributable to Kite Realty Group Trust(4,333,847) 4,981,274 (9,315,121) Dividends on preferred shares(7,920,002) (5,775,000) (2,145,002) Net loss attributable to Kite Realty Group Trust common shareholders(12,253,849) (793,726) (11,460,123) Years Ended December 31,Net change 2011 to 2012Development properties that became operational or were partially operational in 2011 and/or 20122,326,284 Properties acquired during 2011 and 20122,770,997 Properties under redevelopment during 2011 and/or 20121,316,147 Properties fully operational during 2011 and 2012 & other1,214,355 7,627,783
commencements met co-tenancy requirements at two operating properties, favorably impacting billable rents to
other tenants; and
Decreased recovery income due to decrease in recoverable property operating expenses and real estate taxes of
$1.0 million offset by improvement in recovery rates due to improved occupancy levels.
For the overall portfolio, the gross recovery ratio improved from 74.3% in 2011 to 77.1% in 2012, primarily due to the
improved occupancy level of the operating portfolio. The gross recovery ratio is computed by dividing tenant
reimbursements by the sum of recoverable property operating expenses and real estate tax expense.
Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and
gains on land sales. This revenue decreased $0.2 million, or 4.8%, primarily as a result of lower lease termination fees of
$0.6 million and lower insurance recovery income of $0.7 million. These decreases were partially offset by higher parking
income of $0.1 million, higher gains on land sales of $0.6 million, and an increase in other revenue related to sporting
events of $0.3 million. The majority of the termination fee relates to the previous tenant at Oleander Place.
Property operating expenses decreased $0.1 million, or 0.4%, due to the following:
Excluding the changes due to transitioned development properties, acquired properties, and properties under
redevelopment, the net $0.7 million decrease in property operating expenses for our properties was primarily due to the
following:
$0.6 million net decrease in snow removal costs due to decreased snow at a number of our operating properties in
2012 partially offset by an increase in general repairs and maintenance of $0.2 million;
$0.4 million decrease in bad debt expense at a number of our operating properties reflecting a general recovery in
economic conditions of our tenants and strength of recent leasing activity; and
The changes in other categories of expense were not individually significant.
Real estate taxes increased $0.4 million, or 3.3%, due to the following:
Excluding the changes due to transitioned development properties, acquired properties, and properties under
redevelopment, the net $0.2 million decrease in real estate tax expense for our properties was primarily due to successful
appeals at a number of our operating properties. 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.
62
Net change 2011 to 2012Development properties that became operational or were partially operational in 2011 and/or 2012$79,942 Properties acquired during 2011 and 2012313,761 Properties under redevelopment during 2011 and/or 2012248,557 Properties fully operational during 2011 and 2012 & other (715,907)Total $(73,647)Net change 2011 to 2012Development properties that became operational or were partially operational in 2011 and/or 2012$40,058 Properties acquired during 2011 and 2012313,761 Properties under redevelopment during 2011 and/or 2012292,703 Properties fully operational during 2011 and 2012 & other (236,317)Total $410,205
General, administrative and other expenses increased $0.8 million, or 13.4% due primarily to an increase in personnel-
related expenses along with an increase in other public company related costs.
Acquisition costs of $0.4 million in 2012 relate to due diligence and closing costs associated with the properties
acquired in Florida and South Carolina.
In 2012, the Company recorded a litigation charge, net of $1.0 million. This relates to the damages and attorney’s
fees related to a claim by a former tenant. See additional discussion in Note 4 to our financial statements.
Depreciation and amortization expense increased $5.7 million, or 17.3%, due to the following:
The overall increase of $5.7 million was due to the following significant items:
An increase of $2.2 million related to the Four Corner Square redevelopment. A redevelopment plan for
this property was finalized during the first quarter of 2012, resulting in a reduction of the useful life of
certain assets that were demolished;
An increase of $2.0 million related to the Rangeline Crossing redevelopment. A redevelopment plan for this
property was finalized during the second quarter of 2012, resulting in a reduction of the useful life of certain
assets that were demolished;
A decrease of $1.5 million related to the Oleander Place redevelopment. In 2011, the Company reduced the
useful life of certain assets that were demolished; and
An increase of $1.9 million related to properties acquired in 2012.
Interest expense increased $1.8 million, or 8.2%. This increase was primarily due to Cobblestone Plaza and Rivers
Edge being transitioned to the operating portfolio. These properties were under various stages of construction during 2011.
The increase was also due to higher average interest rate on the Company’s outstanding borrowings and increased by
accelerated amortization of deferred loan fees of $0.5 million.
Income tax benefit of our taxable REIT subsidiary was nominal. The slight benefit in both periods was due to lower
residential units at Eddy Street Commons.
The $4.3 million gain on sale of unconsolidated property, including tax benefit represents our share of the gain on the
sale of the limited service hotel at Eddy Street Commons property.
The 2012 $8.0 million remeasurement loss on consolidation of Parkside Town Commons, net relates to the
acquisition of our partner’s interest in the Parkside Town Commons joint venture. See additional discussion in Note 3 to
our financial statements.
The Company had income related to discontinued operations of $7.7 million for the year ended December 31, 2012
compared to income of $1.2 million for the year ended December 31, 2011. The Company sold multiple properties in 2012
compared to one property in 2011 and the 2012 sales resulted in larger net gains.
Net income attributable to noncontrolling interests was $3,000 in 2011 compared to $0.6 million in 2012. The
fluctuation was due to the allocation of our partner’s share of the gain on the sale of our Gateway Shopping Center
operating property near Seattle, Washington.
63
Net change 2011 to 2012Development properties that became operational or were partially operational in 2011 and/or 2012$634,538 Properties acquired during 2011 and 20121,891,114 Properties under redevelopment during 2011 and/or 20122,618,617 Properties fully operational during 2011 and 2012 & other575,733 Total $5,720,002
Dividends on preferred shares increased $2.1 million. The increase was due to our completion of a public offering of
1,300,000 shares of 8.25% Series A Cumulative Redeemable Perpetual Preferred Shares in March 2012.
Inflation
Inflation has not had a significant impact on our results of operations because of relatively low inflation rates in recent
years. Additionally, 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,
thereby reducing our exposure to increases in operating expenses resulting from inflation. Furthermore, many of our leases
are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents
are below the then existing market rates.
Liquidity and Capital Resources
Current State of Capital Markets and Our Financing Strategy
Our primary financing and capital strategy is to continue to strengthen our balance sheet while maintaining sufficient
flexibility to fund our operating and investment activities. 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
placement of the borrowing or offering, and the ability of particular properties to generate cash flow to cover debt service.
In November 2013, we issued 36,800,000 common shares for net proceeds of $217 million, which were used to fund
a portion of the purchase price of the portfolio of nine unencumbered retail properties. We also issued 15,525,000 common
shares in April and May of 2013 for net proceeds of $97 million, which were used to acquire Cool Springs Market,
Castleton Crossing, and Toringdon Market operating properties.
The Company has entered into Equity Distribution Agreements with certain sales agents pursuant to which it may
sell, from time to time, up to an aggregate amount of $50 million of its common shares. During the year ended December
31, 2013, no common shares were issued under these Equity Distribution Agreements.
In addition to raising new equity capital, we have also been successful in obtaining new construction loans to fund
the development costs of our development projects under construction. We entered into a construction loan with capacity of
$87.2 million to fund the development of Phases I and II of Parkside Town Commons. In addition, we amended and
increased the borrowing on our existing unsecured term loan from $125 million to $230 million.
In the future, we may raise additional capital by pursuing joint venture capital partnerships 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, 2013, we had cash and cash equivalents on hand of $18.1 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. From time to time, such investments may temporarily be held
in accounts 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
The Operating Partnership is a party to an amended and restated $200 million unsecured revolving credit facility (the
“unsecured facility”) along with a group of financial institutions led by Key Bank National Association, as Administrative
64
Agent, and the other lenders party thereto. 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 26, 2017, which maturity date may be extended for an additional year at the Operating Partnership’s
option subject to certain conditions. Borrowings under the unsecured facility bear interest at a floating interest rate of
LIBOR plus 165 to 250 basis points, depending on the Company’s leverage. The unsecured facility has a commitment fee
of 25 to 35 basis points on unused borrowings. 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 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, 2013, the Company had 66 unencumbered properties and other assets
used to calculate the value of the unencumbered property pool, of which 55 were wholly owned and five of which were
owned through joint ventures. The major unencumbered assets include: 12th Street Plaza, Beechwood Promenade,
Broadstone Station, Burnt Store Promenade, Castleton Crossing, Clay Marketplace, Cobblestone Plaza, Cool Springs
Market, The Corner, Courthouse Shadows, Cove Center, Estero Town Commons, Fox Lake Crossing, Glendale Town
Center, Hunter’s Creek Promenade, King's Lake Square, Kingwood Commons, Lakewood Promenade, Lithia Crossing,
Market Street Village, Northdale Promenade, Oleander Place, Portofino Shopping Center, Shoppes at Plaza Green, Publix
at Woodruff, Ridge Plaza, Rivers Edge, Red Bank Commons, Shops at Eagle Creek, Shoppes of Eastwood, Tarpon Bay
Plaza, Traders Point II, Trussville Promenade I, Trussville Promenade II, Toringdon Market, Union Station Parking
Garage, Gainesville Plaza, and Waterford Lakes Village. As of December 31, 2013, the total maximum amount available
for borrowing under the unsecured credit facility was $200 million, with $50.8 million available for future draws. In
addition, there are five unencumbered assets that would provide approximately $135 million of additional borrowing
capacity under the unsecured revolving credit if they were contributed to the unencumbered property pool and the
accordion feature was exercised.
As of December 31, 2013, our outstanding indebtedness under the unsecured facility was $145.0 million, bearing
interest at a rate of LIBOR plus 195 basis points. In addition, we had outstanding letters of credit totaling $4.2 million as of
December 31, 2013.
The Company’s ability to borrow under the unsecured facility is subject to ongoing compliance with various
restrictive covenants, including with respect to liens, indebtedness, investments, dividends, mergers and asset sales. In
addition, the unsecured facility requires that the Company satisfy certain financial covenants, including:
a maximum leverage ratio of 60%, with a surge provision permitting the maximum leverage ratio to increase
to 62.5% for one period of up to two consecutive quarters;
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 $350 million (plus
75% of the net proceeds of any future equity issuances);
the aggregate amount of unsecured debt of Company, Operating Partnership and their respective subsidiaries
not exceeding the lesser of (a) 62.5% of the value of all properties then included in an unencumbered pool of
properties that satisfy certain requirements and (b) the maximum principal amount of debt which would not
cause the ratio of certain net operating income less capital reserves to debt service under the Credit
Agreement to be less than 1.40 to 1;
ratio of secured indebtedness to total asset value of no more than .55 to 1;
minimum unencumbered property pool occupancy rate of 80%;
ratio of floating rate debt to total asset value of no more than 0.35 to 1; and
ratio of recourse debt to total asset value of no more than 0.30 to 1.
Under the terms of the unsecured facility and Term Loan, 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.
65
The Company was in compliance with all applicable covenants under the unsecured facility and the Term Loan as of
December 31, 2013.
Capital Markets
We have filed a registration statement with the SEC 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, of which approximately $89 million is
remaining.
In November 2013, we issued 36,800,000 common shares for net proceeds of $217 million.
In April and May of 2013, we issued 15,525,000 common shares for net proceeds of $97 million.
The Company has entered into Equity Distribution Agreements with certain sales agents pursuant to which it may
sell, from time to time, up to an aggregate amount of $50 million of its common shares. During the year ended December
31, 2013, no common shares were issued under these Equity Distribution Agreements.
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.
Sale of Real Estate Assets
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. Sales prices on such transactions may be less than our carrying value.
In 2013, we generated capital by selling Cedar Hill Village in Dallas, Texas. Proceeds of $8.0 million from this sale
were redeployed into development and redevelopment activity and tenant improvement costs.
In 2012, we sold a total of nine non-core operating properties. These sales generated proceeds of $87.4 million
(inclusive of our partners’ share), of which $42.9 million was used to pay down loans secured by the properties. The
remaining proceeds were redeployed into acquisition, development and redevelopment activity, and tenant improvement
costs.
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 47.
Short-Term Liquidity Needs
The nature of our business, coupled with the requirements to qualify for REIT status (including, for example, the
requirement that we distribute at least 90% of our “REIT taxable income” on an annual basis) may 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. Our Board of Trustees (the “Board”) declared cash distributions
totaling $0.24 per common share and common operating partnership unit in 2013. Our Board also declared cash
distributions totaling $2.0625 per Series A Preferred Share in 2013. Each quarter we discuss with our Board our liquidity
66
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, 2013, we incurred $1.0 million of costs for
recurring capital expenditures on operating properties and also incurred $8.9 million of costs for tenant improvements and
external leasing commissions (excluding first generation space and development and redevelopment properties). We
currently anticipate incurring approximately $1.3 million in recurring capital expenditures at our operating properties and
approximately $11 million to $13 million of additional major tenant improvements and renovation costs within the next
twelve months at several operating properties. We believe we currently have sufficient financing in place to fund our
investment in these projects through borrowings on our unsecured credit facility. In certain circumstances, we may seek to
place specific construction financing on the in-process 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.
Development Projects under Construction. As of December 31, 2013, we had two development projects under
construction. The total estimated cost for these projects is approximately $209 million, of which $154 million had been
incurred as of December 31, 2013. We believe we currently have sufficient financing in place to fund these projects and
expect to do so primarily through existing construction loans.
Redevelopment Projects under Construction. As of December 31, 2013, we had two redevelopment projects under
construction. The total estimated cost for these projects is approximately $17 million, of which $11 million had been
incurred as of December 31, 2013. We believe we currently have sufficient financing in place to fund these projects and
expect to do so primarily through our unsecured revolving credit facility.
2014 Debt Maturities
As of December 31, 2013, $86 million of our outstanding indebtedness was scheduled to mature in 2014, excluding
scheduled monthly principal payments. 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, tenant improvement costs, acquisitions of
properties, and payment of indebtedness at maturity.
Development Property Pending Commencement of Construction. In addition to our developments under construction,
we are preparing Holly Springs Towne Center – Phase II for construction to commence, including pre-leasing activity and
negotiations for third-party financing. As of December 31, 2013, this development is expected to contain approximately
0.2 million square feet of total leasable area. We currently anticipate the total estimated cost of this project will be
approximately $44 million, of which $17 million has been incurred as of December 31, 2013. Although we intend to
develop this property, we are not contractually obligated to complete it. With respect to each future development project,
our policy is to not commence vertical construction until pre-established leasing thresholds are achieved and the requisite
third-party financing is in place. We intend to fund our investment in this development primarily through new construction
loans, as well as borrowings on our unsecured revolving credit facility, if necessary.
Redevelopment Properties Pending Commencement of Construction. As of December 31, 2013, two of our properties
(Courthouse Shadows and Gainesville Plaza) were undergoing preparation for redevelopment including leasing activity.
We are currently evaluating our total investment in these redevelopment projects, of which $0.8 million has been incurred
as of December 31, 2013. Our anticipated total investment could change based upon negotiations with prospective tenants.
We believe we currently have sufficient financing in place to fund our investment in these projects through borrowings on
67
our unsecured revolving credit facility. In certain circumstances, we may seek to place specific construction financing on
these redevelopment projects.
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 additional borrowings,
sales of common or preferred shares, cash generated through property dispositions and/or participation in potential joint
venture arrangements. 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 47.
Capitalized Expenditures on Consolidated Properties
The following table summarizes cash basis capital expenditures for the Company’s under construction and pending
construction development and redevelopment projects and capital expenditures for the year ended December 31, 2013 and
on a cumulative basis since the project’s inception:
Under Construction Developments1
Pending Construction - Development
Under Construction – Redevelopments
Pending Construction - Redevelopments
Total for Development Activity
Recently Completed Developments, net2
Miscellaneous Other Activity, net
Recurring Operating Capital Expenditures
(Primarily Tenant Improvement Payments)
Total
Year Ended –
December 31, 2013
(in thousands)
Cumulative –
Through December
31, 2013
(in thousands)
$
$
40,117
706
8,127
601
49,551
41,121
13,074
$
8,834
112,580
$
151,038
16,849
11,225
767
179,879
N/A
N/A
N/A
179,879
____________________
1
Cumulative capital expenditures exclude $2.6 million of leasing costs included in deferred costs, net on
the accompanying consolidated balance sheet.
This classification includes Holly Springs Towne Centre – Phase I, Four Corner Square, and Rangeline
Crossing.
2
The Company capitalizes certain indirect costs such as interest, payroll, and other general and administrative costs
related to these development activities. If the Company were to experience a 10% reduction in development activities,
without a corresponding decrease in indirect project costs, the Company would have recorded additional expense for the
year ended December 31, 2013 of $0.5 million.
Cash Flows
Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012
Cash provided by operating activities was $52.1 million for the year ended December 31, 2013, an increase of
$28.8 million from 2012. The increase was primarily due to increased gains on land sales of $5.5 million, increased lease
termination fee income of $1.8 million, and increased net operating income from recent acquisitions and development
properties of $22.7 million. The increase was partially offset by higher acquisition costs of $1.9 million.
Cash used in our investing activities totaled $514.9 million in 2013, an increase of $443.3 million from 2012.
Highlights of significant cash sources and uses are as follows:
68
2013 acquisitions for net cash outflows of $407.2 million compared to 2012 net cash outflows of $65.9
million. The significant increase was due to higher acquisition volume in 2013;
Net proceeds of $87.4 million related to 2012 sales compared to net proceeds of $7.3 million related to the
sale of Cedar Hill Village in September 2013; and
Increase in capital expenditures, net plus the decrease in construction payables of $21.7 million as
construction was ongoing at Delray Marketplace, Holly Springs Towne Center, Parkside Town Commons,
Four Corner Square, and Rangeline Crossing compared to lower expenditures at these properties in 2012.
Cash provided by financing activities totaled $468.5 million during 2013, an increase of $417.7 million from 2012.
Highlights of significant cash sources and uses in 2013 are as follows:
In November 2013, 36,800,000 common shares were issued for net proceeds of $217 million. A portion of
these proceeds were used to fund a portion of the purchase price of the portfolio of nine unencumbered retail
properties;
In April and May of 2013, 15,525,000 common shares were issued for net proceeds of $97 million. These
proceeds were used to fund the purchase price of Cool Springs Market, Castleton Crossing, and Toringdon
Market;
In August 2013, proceeds of $105 million from the expansion of the amended unsecured term loan were
received. The Company utilized $102 million of the proceeds to pay down the unsecured revolving credit
facility;
Draws of $77.4 million were made on construction loans related to Delray Marketplace, Holly Springs
Towne Center, Parkside Town Commons, Rangeline Crossing, and Four Corner Square;
Distributions to common shareholders and operating partnership unitholders of $22.2 million; and
Distributions to preferred shareholders of $8.5 million.
Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011
Cash provided by operating activities was $23.3 million for the year ended December 31, 2012, a
decrease of $9.0 million from 2011. The decrease was due to higher cash outflows for accounts payable, accrued expenses,
and other liabilities of $10.6 million. The decrease was also due to distributions from unconsolidated entities of $4.4
million in 2011 as a result of the sale of the Eddy Street Limited Service hotel asset compared to distributions of $100,000
in 2012.
Cash used in our investing activities totaled $71.6 million in 2012, a decrease of $14.9 million from 2011. The
decrease in cash used in investing activities was primarily a result of an increase in net proceeds from sale of operating
properties of $85.9 million as multiple properties were sold in 2012 compared to the sale of one property in 2011. In
addition, the amount of construction payables increased $20.5 million due to the timing of construction activity at our in-
process development properties. These decreases were offset by an increase in cash outflows for acquisitions of $49.5
million and capital expenditures, net of $50.6 million. In addition, the Company contributed $8.5 million to our Parkside
Town Commons development property in 2011; while, in 2012, the Company contributed $150,000 to Parkside Town
Commons.
Cash provided by financing activities totaled $50.8 million during 2012, an increase of $1.8 million from 2011.
Highlights of significant cash sources and uses in 2012 are as follows:
In March 2012, we issued 1.3 million shares of Series A Cumulative Redeemable Perpetual Preferred Shares
for net proceeds of $31.3 million. A repayment of $30.0 million was made on the unsecured revolving credit
facility from the net proceeds of the offering;
In October 2012, we issued 12.1 million common shares for net proceeds of $59.7 million;
Net debt paydowns of $13.7 million;
Distributions of $2.7 million to our partners in consolidated joint ventures. The majority of this relates to our
partner’s share of net proceeds from the sale of Gateway Shopping Center;
Distributions to common shareholders and operating partnership unitholders of $17.3 million; and
Distributions to preferred shareholders of $7.7 million.
69
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 of December 31, 2013, we have outstanding letters of credit totaling $4.2 million and no amounts were advanced
against these instruments.
Contractual Obligations
The following table summarizes our contractual obligations to third parties based on contracts executed as of
December 31, 2013.
Development
Activity and
Tenant
Allowances1
Operating
Leases
Consolidated
Long-term
Debt and Interest2
Employment
Contracts3
Total
2014 ............................................
$
2015 ............................................
2016 ............................................
2017 ............................................
2018 ............................................
Thereafter ...................................
$
Total............................................
14,813,075 $
461,040 $
443,083
406,881
407,187
44,499
66,839
14,813,075 $ 1,829,529 $
—
—
—
—
—
119,951,605 $
125,065,836
187,590,536
169,581,831
245,804,849
135,903,343
983,898,000 $
1,362,000 $
—
—
—
—
—
1,362,000 $
136,587,720
125,508,919
187,997,417
169,989,018
245,849,348
135,970,182
1,001,902,604
____________________
1
Tenant allowances include commitments made to tenants at our operating and under construction development and
redevelopment properties.
2
Our 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, 2013.
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, 2013. 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, 2014.
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 $0.4
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). We do not intend to dispose of these properties prior to December 31, 2016 in a
manner that would result in a taxable transaction.
70
The six properties to which our tax indemnity obligations relate represented 11.5% of our annualized base rent in the
aggregate as of December 31, 2013. These six properties are International Speedway Square, Shops at Eagle Creek,
Whitehall Pike, Ridge Plaza, Thirty South, and Market Street Village.
Obligations in Connection with Development and Redevelopment Projects Under Construction
We are obligated under various completion guarantees with lenders and lease agreements with tenants to complete all
or portions of our in-process development and redevelopment projects. We believe we currently have sufficient financing in
place to fund these projects and expect to do so primarily through existing construction loans or draws on our unsecured
facility.
Our share of estimated future costs for our in-process and future developments and redevelopments is further
discussed on page 67 in the "Short and Long-Term Liquidity Needs" section.
Outstanding Indebtedness
The following table presents details of outstanding consolidated indebtedness as of December 31, 2013 adjusted for
hedges:
$
Property
Fixed Rate Debt - Mortgage:
50th & 12th 2
Indian River Square
Plaza Volente
Cool Creek Commons
Sunland Towne Centre
Pine Ridge Crossing
Riverchase Plaza
Traders Point
Geist Pavilion
Whitehall Pike
International Speedway Square
Bayport Commons
Eddy Street Commons
Four Property Pool Loan
Centre at Panola, Phase I
Floating Rate Debt - Hedged:
US Bank
Associated Bank
KeyBank
Various Banks
JP Morgan
Various Banks
Old National
Associated Bank
Net unamortized premium on assumed debt of
acquired properties
Total Fixed Rate Indebtedness
$
Balance
Outstanding
Interest
Rate
Maturity
5.67 %
5.42 %
5.42 %
5.88 %
6.01 %
6.34 %
6.34 %
5.86 %
5.78 %
6.71 %
5.77 %
5.44 %
5.44 %
5.44 %
6.78 %
0.26 %
1.35 %
3.31 %
0.91 %
1.49 %
1.52 %
1.33 %
2.12 %
11/11/2014
6/11/2015
6/11/2015
4/11/2016
7/1/2016
10/11/2016
10/11/2016
10/11/2016
1/1/2017
7/5/2018
4/1/2021
9/1/2021
9/1/2021
9/1/2021
1/1/2022
11/18/2014
12/31/2016
1/3/2017
2/26/2018
8/21/2018
4/30/2019
1/4/2020
1/15/2020
4,034,174
12,451,226
26,849,712
16,903,926
24,289,082
17.086,058
10,251,634
44,348,363
10,863,420
6,748,326
20,300,144
12,733,766
24,739,889
42,106,320
2,798,071
276,504,111
56,000,000
15,100,000
13,923,146
50,000,000
40,950,000
125,000,000
9,668,920
16,200,000
326,842,066
64,688
603,410,865
71
Property
Variable Rate Debt - Mortgage:
Beacon Hill
Zionsville Walgreens
951 & 41
Eastgate Pavilion
Fishers Station
Bridgewater Marketplace
Thirty South
Subtotal Mortgage Notes
Variable Rate Debt - Secured by Properties
under Construction:
Rangeline Crossing
Delray Marketplace
Four Corner Square
Holly Springs Towne Center – Phase I
Parkside Town Commons
Subtotal Construction Notes
Unsecured Credit Facility
Unsecured Term Loan
Balance
Outstanding
Interest
Rate1
Maturity
Interest Rate
at 12/31/13
6,859,650
4,594,000
5,000,000
16,164,000
7,733,720
1,935,200
18,900,000
61,186,570
16,459,032
59,044,576
18,885,990
33,537,912
16,461,195
144,388,705
LIBOR + 125
LIBOR + 225
LIBOR + 225
LIBOR + 225
LIBOR + 269
LIBOR + 294
LIBOR + 205
LIBOR + 225
LIBOR + 200
LIBOR + 225
LIBOR + 250
LIBOR + 210
3/30/2014
6/30/2015
1/3/2016
12/31/2016
1/4/2010
1/4/2010
12/31/2020
10/31/2014
11/18/2014
7/10/2015
7/31/2015
11/22/2016
145,000,000
LIBOR + 195
2/26/2017
230,000,000
LIBOR + 180
8/21/2018
1.42 %
2.42 %
2.42 %
2.42 %
2.86 %
3.11 %
2.22 %
2.42 %
2.17 %
2.42 %
2.67 %
2.27 %
2.12 %
1.97 %
Floating Rate Debt - Hedged:
(326,842,066 )
Various
Various
Total Variable Rate Indebtedness
Total Consolidated Indebtedness .. $
253,733,209
857,144,074
____________________
1
At December 31, 2013, one-month LIBOR was 0.17%.
2
Subsequent to December 31, 2013, the Company sold the property securing this loan and retired the debt.
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 (loss)
(computed in accordance with GAAP), excluding gains (or losses) from sales and impairments of depreciated property, less
preferred dividends, plus depreciation and amortization, and after adjustments for third-party shares of appropriate items.
Given the nature of our business as a real estate owner and operator, we believe that FFO and FFO, as adjusted, are
helpful to investors when measuring our operational performance because they exclude various items included in
consolidated net income or loss that do not relate to or are not indicative of our operating performance, such as gains (or
losses) from sales and impairment of operating properties and depreciation and amortization, which can make periodic and
peer analyses of operating performance more difficult. For informational purposes, we have also provided FFO adjusted for
the litigation charge and related recovery in 2012, a gain on debt extinguishment, in 2013 the write-off of deferred loan
costs in 2012 and 2013, and costs incurred to acquire a nine property portfolio in 2013. We believe this supplemental
information provides a meaningful measure of our operating performance. 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 should not be considered as an alternative to consolidated net income (loss)
(determined in accordance with GAAP) as an indicator of our financial performance, is not an alternative to cash flow from
operating activities (determined in accordance with GAAP) as a measure of our liquidity, and is not indicative of funds
available to satisfy our cash needs, including our ability to make distributions. Our computations of FFO and FFO, as
adjusted, may not be comparable to FFO reported by other REITs.
Our calculation of FFO and FFO, as adjusted, and reconciliation to consolidated net (loss) income is as follows:
72
____________________
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.
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.
We are exposed to interest rate changes primarily through (1) our variable-rate unsecured credit facility and Term Loan, (2)
property-specific variable-rate construction financing, and (3) other property-specific variable-rate mortgages. The
Company’s objectives with respect to interest rate risk are to limit the impact of interest rate changes on operations and
cash flows, and to lower its overall borrowing costs. To achieve these objectives, the Company may borrow at fixed rates
and may enter into derivative financial instruments such as interest rate swaps, hedges, etc., in order to mitigate its interest
rate risk on a related variable-rate financial instrument. As a matter of policy, we do not utilize financial instruments for
trading or speculative transactions.
We had $857.1 million of outstanding consolidated indebtedness as of December 31, 2013 (inclusive of net
premiums on acquired debt of $0.1 million). As of December 31, 2013, we were party to various consolidated interest rate
hedge agreements for a total of $326.8 million, with maturities over various terms ranging from 2014 through 2020.
Including the effects of these hedge agreements, our fixed and variable rate debt would have been $603.4 million (70%) and
$253.7 million (30%), respectively, of our total consolidated indebtedness at December 31, 2013.
Our variable-rate financial instruments are dependent upon prevalent market rates of interest, primarily LIBOR.
LIBOR remained at historically low levels during 2013. Based on the amount of our fixed rate debt at December 31, 2013,
73
Funds From OperationsConsolidated net (loss) income$(3,535,255) $(3,704,784) $4,984,740 Less dividends on preferred shares(8,456,251) (7,920,002) (5,775,000) Less net income attributable to noncontrolling interests in properties(120,771) (137,552) (101,069) Less gain (loss) on sale of operating properties, net of tax expense(486,540) (7,094,238) 397,909 Less gain on sale of unconsolidated property, including tax benefit- - (4,320,155) Add remeasurement loss on consolidation of Parkside Town Commons, net- 7,979,626 - Add impairment charge5,371,427 - - Add depreciation and amortization net of noncontrolling interests54,850,148 41,357,472 36,577,580 Funds from Operations of the Kite Portfolio147,622,758 30,480,522 31,764,005 Less redeemable noncontrolling interest in Funds From Operations(3,194,745) (3,020,454) (3,494,040) Funds from Operations allocable to the Company1$44,428,013 $27,460,068 $28,269,965 Funds from Operations of the Kite Portfolio1$47,622,758 $30,480,522 $31,764,005 Add back: acceleration amortization of deferred financing fees488,629 500,028 - Add back: portfolio acquisition costs1,647,740 - - Less: gain on debt extinguishment(1,241,724) - - Add back: ligitation charge, net- 1,007,451 - Funds from Operations of the Kite Portfolio, as adjusted1$48,517,403 $31,988,001 $31,764,005 Years Ended December 31,201320122011
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 $9.4 million. A 100 basis point increase in interest rates on our variable rate debt as of December 31, 2013
would decrease our annual cash flow by approximately $2.5 million. Based upon the terms of our variable rate debt, we are
most vulnerable to change in short-term LIBOR interest rates. The above sensitivity analysis was estimated using cash
flows discounted at current borrowing rates adjusted by 100 basis points.
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.
74
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 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 Exchange Act) identified in connection with the evaluation required by Rule 13a-15(b) under the Exchange Act
of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of
December 31, 2013 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 1992
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, 2013.
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.
75
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, 2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 Framework) (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, 2013, 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, 2013 and 2012, and
the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each
of the three years in the period ended December 31, 2013 and the related financial statement schedule listed in the index at
Item 15(a) as of December 31, 2013 of Kite Realty Group Trust and subsidiaries and our report dated March 7, 2014
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 7, 2014
76
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
2014 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
2015 Annual Meeting,” “Executive Officers,” “Information Regarding Corporate Governance and Board and Committee
Meetings – Committee Charters and Corporate Governance Documents,” “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 and 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 Public Accounting Firm -
Relationship with Independent Registered Public Accounting Firm.”
77
PART IV
ITEM 15. EXHIBITS, AND 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.
78
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 7, 2014
(Date)
March 7, 2014
(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, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ John A. Kite
(John A. Kite)
/s/ William E. Bindley
(William E. Bindley)
/s/ Victor J. Coleman
(Victor J. Coleman)
/s/ Richard A. Cosier
(Richard A. Cosier)
/s/ Christie B. Kelly
(Christie B. Kelly)
/s/ Gerald L. Moss
(Gerald L. Moss)
/s/ David R. O’Reilly
(David R. O’Reilly)
/s/ Barton R. Peterson
(Barton R. Peterson)
/s/ Daniel R. Sink
(Daniel R. Sink)
Date
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
Title
Chairman, Chief Executive Officer, and Trustee
(Principal Executive Officer)
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Executive Vice President, Chief Financial
Officer and Treasurer (Principal Financial and
Accounting Officer)
79
Kite Realty Group Trust
Index to Financial Statements
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm ..............................................................................
Balance Sheets as of December 31, 2013 and 2012 ..........................................................................................
Statements of Operations and Comprehensive Income for the Years Ended December 31, 2013, 2012,
and 2011
Statements of Shareholders’ Equity for the Years Ended December 31, 2013, 2012, and 2011 .......................
Statements of Cash Flows for the Years Ended December 31, 2013, 2012, and 2011 ......................................
Notes to Consolidated Financial Statements .....................................................................................................
Financial Statement Schedule:
Schedule III – Real Estate and Accumulated Depreciation ...............................................................................
Notes to Schedule III .........................................................................................................................................
All other schedules for which provision is made in the applicable accounting regulation of the Securities
and Exchange Commission are not required under the related instructions or are inapplicable and
therefore have been omitted.
Page
F-1
F-2
F-3
F-4
F-5
F-6
F-33
F-36
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, 2013 and 2012, and the related consolidated statements of operations and comprehensive income,
shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audit also
included the financial statement schedule listed in the index at item 15(a). These financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Kite Realty Group Trust and subsidiaries at December 31, 2013 and 2012, and the consolidated results
of their operations and their cash flows for each of the three years in the period ended December 31, 2013, 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, 2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated March 7, 2014 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 7, 2014
F-1
Kite Realty Group Trust
Consolidated Balance Sheets
Assets:
December 31,
2013
December 31,
2012
Investment properties, at cost:
Land ........................................................................................................................................... $
Land held for development .........................................................................................................
Buildings and improvements ......................................................................................................
Furniture, equipment and other ..................................................................................................
Construction in progress .............................................................................................................
Less: accumulated depreciation .......................................................................................
(232,580,267 )
333,458,070 $
56,078,488
1,351,641,925
4,970,310
130,909,478
1,877,058,271
1,644,478,004
239,690,837
34,878,300
892,508,729
4,419,918
223,135,354
1,394,633,138
(194,297,531 )
1,200,335,607
Cash and cash equivalents ..........................................................................................................
Tenant receivables, including accrued straight-line rent of $14,490,070 and $12,189,449,
18,134,320
12,482,701
24,767,556
4,566,679
11,046,133
56,387,586
4,546,752
21,210,754
respectively, net of allowance for uncollectible accounts .....................................................
4,946,219
Other receivables ........................................................................................................................
12,960,488
Escrow deposits ..........................................................................................................................
35,322,792
Deferred costs, net ......................................................................................................................
Prepaid and other assets .............................................................................................................
1,398,344
Total Assets ............................................................................................................................... $ 1,763,927,030 $ 1,288,656,905
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, 4,100,000 shares issued and
outstanding at December 31, 2013 and 2012, respectively, with a liquidation value of
$102,500,000.........................................................................................................................
857,144,074 $
61,437,187
44,313,402
962,894,663
699,908,768
54,187,172
20,269,501
774,365,441
102,500,000
102,500,000
37,669,803
43,927,540
Common Shares, $.01 par value, 200,000,000 shares authorized, 130,826,217 shares and
777,287
77,728,697 shares issued and outstanding at December 31, 2013 and 2012, respectively ....
513,111,877
Additional paid in capital .......................................................................................................
(5,258,543 )
Accumulated other comprehensive income (loss) ..................................................................
(138,044,264 )
Accumulated deficit ...............................................................................................................
473,086,357
Total Kite Realty Group Trust Shareholders’ Equity .........................................................
3,535,304
Noncontrolling Interests ........................................................................................................
Total Equity ..............................................................................................................................
476,621,661
Total Liabilities and Equity ..................................................................................................... $ 1,763,927,030 $ 1,288,656,905
1,308,262
821,526,172
1,352,850
(173,130,113 )
753,557,171
3,547,656
757,104,827
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Kite Realty Group Trust
Consolidated Statements of Operations and Comprehensive Income
2013
Year Ended December 31,
2012
2011
Revenue:
Minimum rent .......................................................................................
Tenant reimbursements .........................................................................
Other property related revenue ..............................................................
Total revenue ....................................................................................................
Expenses:
Property operating .................................................................................
Real estate taxes ....................................................................................
General, administrative, and other .........................................................
Acquisition costs ...................................................................................
Litigation charge, net ............................................................................
Depreciation and amortization...............................................................
Total expenses ...................................................................................................
Operating income .............................................................................................
Interest expense .....................................................................................
Income tax (expense) benefit of taxable REIT subsidiary ......................
Gain on sale of unconsolidated property, including tax benefit .............
Remeasurement loss on consolidation of Parkside Town Commons,
net ..................................................................................................
Other (expense) income, net ..................................................................
(Loss) income from continuing operations ......................................................
Discontinued operations:
Income from operations, excluding impairment charge .........................
Impairment charge
..........................................................................
Gain on debt extinguishment .................................................................
Gain (loss) on sale of operating properties, net of tax ............................
(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 attributable to common shareholders ................................................
Net loss per common share – basic & diluted:
Loss from continuing operations attributable to Kite Realty Group
$
$
93,637,268
24,422,357
11,428,702
129,488,327
21,729,251
15,262,928
8,210,793
2,214,567
—
54,479,023
101,896,562
27,591,765
(27,993,577 )
(262,404 )
—
—
(62,381 )
(726,597 )
834,505
(5,371,427 )
1,241,724
486,540
(2,808,658 )
(3,535,255 )
685,520
(2,849,735 )
(8,456,251 )
(11,305,986 )
$
$
Trust common shareholders ............................................................ $
(0.09 )
$
(Loss) income from discontinued operations attributable to Kite
Realty Group Trust common shareholders ......................................
Net loss attributable to Kite Realty Group Trust common shareholders .............. $
(0.03 )
(0.12 )
Weighted average Common Shares outstanding – basic and diluted ............
94,141,738
Dividends declared per Common Share ..........................................................
$
0.24
Net loss attributable to Kite Realty Group Trust common shareholders:
Loss from continuing operations ........................................................................
(Loss) income from discontinued operations ......................................................
Net loss attributable to Kite Realty Group Trust common shareholders .............. $
$
Consolidated net (loss) income ......................................................................... $
Change in fair value of derivatives .....................................................................
Total comprehensive income (loss) ...................................................................
Comprehensive loss (income) attributable to noncontrolling interests ................
Comprehensive income (loss) attributable to Kite Realty Group Trust........ $
(8,685,508 )
(2,620,478 )
(11,305,986 )
(3,535,255 )
7,136,043
3,600,788
160,870
3,761,658
$
$
$
$
$
$
72,999,892
19,495,535
4,044,016
96,539,443
16,756,287
12,857,722
7,117,195
364,364
1,007,451
38,834,559
76,937,578
19,601,865
(23,391,937 )
105,984
—
(7,979,626 )
209,045
(11,454,669 )
655,647
—
—
7,094,238
7,749,885
(3,704,784 )
(629,063 )
(4,333,847 )
(7,920,002 )
(12,253,849 )
(0.26 )
0.08
(0.18 )
66,885,259
0.24
(17,570,593 )
5,316,744
(12,253,849 )
(3,704,784 )
(4,002,459 )
(7,707,243 )
(361,052 )
(8,068,295 )
$
$
$
$
$
$
$
$
$
66,701,781
18,165,863
4,247,909
89,115,553
16,829,934
12,447,517
6,273,641
—
—
33,114,557
68,665,649
20,449,904
(21,624,992 )
1,294
4,320,155
—
606,368
3,752,729
1,629,920
—
—
(397,909 )
1,232,011
4,984,740
(3,466 )
4,981,274
(5,775,000 )
(793,726 )
(0.03 )
0.02
(0.01 )
63,557,322
0.24
(1,890,824 )
1,097,098
(793,726 )
4,984,740
1,547,918
6,532,658
(175,379 )
6,357,279
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
Balances, December 31, 2010 .................................
Stock compensation activity ................................... —
2,800,000 $ 70,000,000 63,342,219 $ 633,422 $ 448,779,180 $
798,462
253,442
2,534
—
(2,900,100 ) $
—
(93,447,581 ) $
—
423,064,921
800,996
Proceeds from employee share purchase
plan .................................................................. —
—
5,358
54
23,978
—
Other comprehensive income attributable
to Kite Realty Group Trust............................... —
—
—
—
—
1,376,005
Acquisition of noncontrolling interest in
Rangeline Crossing .......................................... —
Offering costs ......................................................... —
Distributions declared to common
shareholders ..................................................... —
Distributions to preferred shareholders ................... —
Net income attributable to Kite Realty
—
—
—
—
—
—
(31,005 )
—
—
(276,253 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24,032
1,376,005
(31,005 )
(276,253 )
(15,262,761 )
(5,775,000 )
(15,262,761 )
(5,775,000 )
Group Trust ..................................................... —
—
—
—
—
—
4,981,274
4,981,274
Exchange of redeemable noncontrolling
interest for common stock ................................ —
—
16,000
160
207,840
—
—
208,000
Adjustment to redeemable noncontrolling
261,326
409,371,535
984,785
31,320,296
59,669,482
3,188,887
22,755
(3,734,448 )
(16,286,347 )
(7,920,002 )
(5,030,455 )
473,086,357
2,514,937
314,290,007
22,070
6,611,393
—
—
—
—
—
interests - Operating Partnership ...................... —
261,326
Balances, December 31, 2011 ................................. 2,800,000 $ 70,000,000 63,617,019 $ 636,170 $ 449,763,528 $
982,119
Stock compensation activity ................................... —
Proceeds of preferred share offering, net ................ 1,300,000
(1,179,704 )
Issuance of common shares, net.............................. —
— 12,075,000 120,750 59,548,732
Issuance of common shares under at-the-
—
32,500,000
266,588
—
2,666
—
—
—
—
—
(1,524,095 ) $
—
—
—
—
(109,504,068 ) $
—
—
—
market plan, net ............................................... —
—
661,589
6,616
3,182,271
Proceeds from employee share purchase
plan .................................................................. —
—
4,787
48
22,707
—
—
Other comprehensive loss attributable to
Kite Realty Group Trust................................... —
Distributions declared to common
shareholders ..................................................... —
Distributions to preferred shareholders ................... —
Net loss attributable to Kite Realty Group
—
—
—
—
—
—
(3,734,448 )
—
—
—
—
—
—
—
—
(16,286,347 )
(7,920,002 )
Trust ................................................................ —
—
—
—
—
—
(4,333,847 )
(4,333,847 )
Exchange of redeemable noncontrolling
interest for common stock ................................ —
— 1,103,714
11,037
5,822,679
—
—
5,833,716
Adjustment to redeemable noncontrolling
interests - Operating Partnership ...................... —
(5,030,455 )
Balances, December 31, 2012 ................................. 4,100,000 $ 102,500,000 77,728,697 $ 777,287 $ 513,111,877 $
Stock compensation activity ............................... —
—
2,508,149
Issuance of common shares, net .......................... —
— 52,325,000 523,250 313,766,757
Proceeds from employee share purchase
678,785
6,788
—
—
—
—
(5,258,543 ) $
—
—
—
(138,044,264 ) $
—
—
plan .......................................................... —
—
3,735
37
22,033
—
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
—
—
—
—
—
—
—
6,611,393
—
—
—
—
—
—
—
—
—
—
—
(23,779,864 )
(8,456,250 )
(23,779,864 )
(8,456,250 )
—
(2,849,735 )
(2,849,735 )
—
90,000
900
582,150
—
—
583,050
interests – Operating Partnership ................... —
(8,464,794 )
Balances, December 31, 2013 ................................. 4,100,000 $ 102,500,000 130,826,217 $ 1,308,262 $ 821,526,172 $
—
—
—
—
1,352,850 $
—
(173,130,113 ) $
(8,464,794 )
753,557,171
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:
Year Ended December 31,
2013
2012
2011
(3,535,255 ) $
(3,704,784 ) $
4,984,740
—
7,979,626
(7,094,238 )
—
—
(2,362,360 )
43,768,649
858,771
602,384
(117,625 )
(1,986,196 )
91,452
(4,320,155 )
—
397,909
—
—
(2,690,710 )
38,655,771
1,364,820
519,929
(430,858 )
(2,460,002 )
4,432,456
(507,368 )
(7,065,797 )
524,137
(11,930,493 )
(7,190,161 )
23,272,353
3,179,411
32,226,955
(65,909,266 )
(114,153,351 )
87,385,567
20,829,889
—
(150,000 )
372,548
(71,624,613 )
63,038,208
31,320,296
—
308,954,787
(2,234,504 )
(322,646,717 )
(15,439,904 )
(7,696,563 )
(1,810,993 )
(2,692,099 )
50,792,511
2,440,251
10,042,450
12,482,701 $
(16,368,190 )
(63,559,852 )
1,483,941
297,918
125,780
(8,518,604 )
—
(86,539,007 )
(252,221 )
—
(1,697,137 )
211,528,578
(4,370,749 )
(132,901,400 )
(15,246,825 )
(5,694,792 )
(1,884,965 )
(520,515 )
48,959,974
(5,352,078 )
15,394,528
10,042,450
24,789,487 $
150,000 $
24,286,585
77,000
Gain on sale of unconsolidated properties ................................................................
Remeasurement loss on consolidation of Parkside Town Commons, net
(Gain) loss on sale of operating property, net of tax .................................................
Impairment charge ...................................................................................................
Gain on debt extinguishment....................................................................................
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
—
—
(486,540 )
5,371,427
(1,241,724 )
(3,495,760 )
57,757,063
922,495
1,670,445
(127,031 )
(2,673,885 )
—
(1,690,492 )
(9,061,591 )
liabilities ............................................................................................................
Net cash provided by operating activities ........................................................................
Cash flow from investing activities:
8,687,682
52,096,834
Acquisitions of interests in properties ......................................................................
Capital expenditures, net ..........................................................................................
Net proceeds from sales of operating properties ......................................................
Change in construction payables ..............................................................................
Note receivable from joint venture partner ...............................................................
Contributions to unconsolidated entities ..................................................................
Distributions of capital from unconsolidated entities ...............................................
Net cash used in investing activities ..................................................................................
Cash flow from financing activities:
(407,215,174 )
(112,580,651 )
7,292,460
(2,395,625 )
—
—
—
(514,898,990 )
Common share issuance proceeds, net of costs ........................................................
Preferred share issuance proceeds, net of costs ........................................................
Acquisition of noncontrolling interests in Rangeline Crossing ................................
Loan proceeds ..........................................................................................................
Loan transaction costs ..............................................................................................
Loan payments and related financing escrow ...........................................................
Distributions paid – common shareholders ..............................................................
Distributions paid – preferred shareholders ..............................................................
Distributions paid – redeemable noncontrolling interests .........................................
Distributions to noncontrolling interests ..................................................................
Net cash provided by financing activities .........................................................................
Increase (decrease) in cash and cash equivalents ............................................................
Cash and cash equivalents, beginning of year .................................................................
Cash and cash equivalents, end of year ............................................................................
314,771,835
—
—
528,590,339
(2,137,602 )
(342,033,168 )
(20,593,816 )
(8,456,251 )
(1,579,143 )
(108,419 )
468,453,775
5,651,619
12,482,701
18,134,320 $
$
Supplemental disclosures
Cash paid for interest, net of capitalized interest ......................................................
Cash paid for taxes ...................................................................................................
31,576,099 $
45,000 $
$
$
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, 2013
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 our predecessor. 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, redevelopment and development of neighborhood and community shopping
centers in selected markets in the United States.
At December 31, 2013, the Company owned interests in 72 operating and redevelopment properties (consisting of 70
retail properties and two commercial operating properties) and two under-construction development projects. In addition,
the Company has one development project pending construction commencement, which is undergoing pre-leasing activity
and negotiations for third-party financings. Finally, as of December 31, 2013, the Company also owned interests in other
land parcels comprising 131 acres that are expected to be used for future expansion of existing properties or development of
new retail or commercial properties. The Company may also 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, 2012, the Company owned interests in 60 operating and redevelopment properties, three under-
construction development projects, and 91 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
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, 2013, the Company had investments in three joint ventures that are VIEs in which the Company
is the primary beneficiary. As of this date, these VIEs had total debt of $65.9 million which is secured by assets of the
VIEs totaling $116.0 million. The Operating Partnership guarantees the debt of these VIEs.
F-6
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 Rangeline Crossing and Parkside Town Commons, there were no changes during the years ended
December 31, 2013, 2012 or 2011 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.
Rangeline Crossing
In February 2011, the Company completed the acquisition of the remaining 40% interest in Rangeline Crossing, a
consolidated operating property, from its joint venture partners. The purchase price of the 40% interest was $2.2 million,
including the settlement of a $0.6 million loan previously made by the Company. The transaction was accounted for as an
equity transaction as the Company retained its controlling financial interest. The carrying amount of the non-controlling
interest was eliminated, and the difference between the consideration paid and the non-controlling interest balance was
recognized in additional paid-in capital.
Purchase Accounting
In accordance with Topic 805—“Business Combinations” in the Accounting Standards Codification (“ASC”), the
Company measures identifiable assets acquired, liabilities assumed, and any non-controlling interests in an acquiree at fair
value on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. In making
estimates of fair values for the purpose of allocating purchase price, a number of sources are utilized, including information
obtained as a result of pre-acquisition due diligence, marketing and leasing activities.
A portion of the purchase price is allocated to tangible assets and intangibles, including:
the fair value of the building on an as-if-vacant basis and to land determined either by comparable market
data, 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. Any below-market renewal options are also considered in the in-place lease values. 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 and internal 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 its 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.
F-7
Investment Properties
Capitalization and Depreciation
Investment properties are recorded at cost and include costs of land acquisition, 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 expensed over the
shortened lease period. 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, cost of internal resources 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, tenant inducements, and tenant improvements
are 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. Depreciation may be accelerated for a redevelopment project
including partial demolition of existing structure after the asset is assessed for impairment.
Impairment
Management reviews both operational and development properties, 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 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 and intangible assets 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. If the Company decides to sell or otherwise dispose of an asset, its carrying value may
differ from its sales price.
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 held for sale 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. As of December 31, 2013, the
Company classified 50th & 12th operating property as held for sale. There were no assets classified as held for sale as of
December 31, 2012.
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.
F-8
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. From time to time, such investments may temporarily be held in accounts that 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.
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 12, the
Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
Note 3 includes a discussion of fair values recorded when the Company acquired a controlling interest in Parkside
Town Commons development project. Note 5 includes a discussion of fair values recorded when the Company transferred
the Kedron Village property to the loan servicer. Level 3 inputs to these transactions include our estimations of the fair
value of the real estate and related assets acquired.
Note 11 includes a discussion of the fair values recorded in purchase accounting. Level 3 inputs to these acquisitions
include our estimations of market leasing rates, tenant-related costs, discount rates, and disposal values.
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. 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 hedged 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.
F-9
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 recognized when 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 $6.2 million, $0.8 million, and $0.2 million for
the years ended December 31, 2013, 2012, and 2011, respectively, and are classified as other property related revenue in
the accompanying consolidated statements of operations.
Tenant Receivables and Allowance for Doubtful Accounts
Tenant receivables consist primarily of billed minimum rent, accrued and billed tenant reimbursements, and accrued
straight-line rent. The Company generally does not require specific collateral other than corporate or personal guarantees
from its tenants.
An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of certain tenants or
others to meet contractual obligations under their lease or other agreements. Accounts are written off when, in the opinion
of management, the balance is uncollectible.
Balance, beginning of year .......................................... $
Provision for credit losses, net of recoveries ...............
Accounts written off ....................................................
Balance, end of year .................................................... $ 1,328,033 $
2011
2012
2013
754,845 $ 1,334,515 $ 1,629,883
1,364,820
922,495
858,771
(1,660,188 )
(349,307 ) (1,438,441 )
754,845 $ 1,334,515
Other Receivables
Other receivables consist primarily of receivables due from municipalities and from tenants for non-rental revenue
related activities.
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 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, 2013, 40%, 25% and 13% of total billed receivable were due from tenants
leasing space in the states of Florida, Indiana, and Texas, respectively. For the year ended December 31, 2013, 36%, 30%
and 14% of the Company’s revenue recognized was from tenants leasing space in the states of Indiana, Florida, and Texas,
respectively. There were no significant changes in the concentration percentages for the years ended December 31, 2012
and 2011.
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.
F-10
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 from continuing operations attributable to common
shareholders for the years ended December 31, 2013, 2012 and 2011, the potentially dilutive securities were not dilutive for
these periods.
For the year ended December 31, 2013, 1.5 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. For each of the years
ended December 31, 2012 and 2011, 1.7 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.
Income Taxes and REIT Compliance
The Company, which is considered a corporation for federal income tax purposes, has been organized and intends to
continue to operate in a manner that will enable the Company to maintain its qualification as a REIT for federal income tax
purposes. As a result, the Company generally will not be subject to federal income tax on the earnings that it distributes to
the extent it distributes its “REIT taxable income” (determined before the deduction for dividends paid and excluding net
capital gains) to shareholders and meets certain other requirements on a recurring basis. To the extent that the Company
satisfies this distribution requirement, but distributes less than 100% of its taxable income, the Company will be subject to
federal corporate income tax on its undistributed REIT taxable income. REITs are subject to a number of organizational
and operational requirements. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal
income tax on its taxable income at regular corporate rates. The Company may also be subject to certain federal, state and
local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income even if it
does qualify as a REIT.
The Company has 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. 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 year ended December 31, 2013 was $262,000. For the years ended December 31, 2012
and 2011, there were insignificant amounts of income tax benefits recorded.
Other state and local income 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 consolidated properties for the years ended December 31, 2013, 2012, and 2011 were
as follows:
F-11
201320122011Noncontrolling interests balance January 1$3,535,304 $4,250,485 $6,914,264 Net income allocable to noncontrolling interests, excluding redeemable noncontrolling interests120,771 1,976,918 101,069 Acquisition of noncontrolling interest in Rangeline Crossing - - (2,244,333)Distributions to noncontrolling interests(108,419)(2,692,099)(520,515)Noncontrolling interests balance at December 31$3,547,656 $3,535,304 $4,250,485
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, 2013, 2012,
and 2011 were as follows:
____________________
1 Represents the noncontrolling interests’ share of the changes in the fair value of
derivative instruments accounted for as cash flow hedges (see Note 10).
2
Includes adjustments to reflect amounts at the greater of historical book value or
redemption value.
The following sets forth accumulated other comprehensive income (loss) allocable to noncontrolling interests for the
years ended December 31, 2013, 2012, and 2011:
____________________
1 Represents the noncontrolling interests’ share of the changes in the fair value of
derivative instruments accounted for as cash flow hedges (see Note 10).
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, 2011, the historical book value of the redeemable noncontrolling interests exceeded the
redemption value, so no adjustment was necessary. As of December 31, 2013 and 2012, the redemption value of the
redeemable noncontrolling interests did exceed the historical book value, and the balance was adjusted to redemption value
based upon Level 2 inputs.
The Company allocates net operating results of the Operating Partnership after preferred dividends and noncontrolling
interest in the consolidated properties 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
F-12
201320122011Redeemable noncontrolling interests balance January 1$37,669,803 $41,836,613 $44,115,028 Net loss allocable to redeemable noncontrolling interests(806,292)(1,347,855)(97,603)Accrued distributions to redeemable noncontrolling interests(1,587,424)(1,747,683)(1,883,399)Other comprehensive (loss) income allocable to redeemable noncontrolling interests 1524,648 (268,011)171,913 Exchange of redeemable noncontrolling interest for common stock(583,050)(5,833,716)(208,000)Adjustment to redeemable noncontrolling interests - Operating Partnership28,709,855 5,030,455 (261,326)Redeemable noncontrolling interests balance at December 31$43,927,540 $37,669,803 $41,836,613 201320122011Accumulated comprehensive loss balance at January 1 $(455,896) $(187,885) $(359,798)Other comprehensive income (loss) allocable to noncontrolling interests 1524,648 (268,011)171,913 Accumulated comprehensive income (loss) balance at December 31 $68,752 $(455,896) $(187,885)
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, 2013, 2012, and 2011 were as follows:
Company’s weighted average diluted interest in Operating Partnership . 93.3 %
Redeemable noncontrolling weighted average diluted interests in
Operating Partnership .........................................................................
6.7 %
9.9 %
11.0 %
Year Ended December 31,
2012
2013
90.1 %
2011
89.0 %
The Company’s and the redeemable noncontrolling ownership interests in the Operating Partnership at December 31,
2013 and 2012 were as follows:
Company’s interest in Operating Partnership ...............................
Redeemable noncontrolling interests in Operating Partnership ....
Reclassifications
December 31,
2013
95.2 %
4.8 %
2012
92.0 %
8.0 %
Certain amounts in the accompanying consolidated financial statements for 2012 and 2011 have been reclassified to
conform to the 2013 consolidated financial statement presentation. The reclassifications had no impact on net (loss)
income previously reported.
Note 3. Parkside Town Commons
On December 31, 2012, the Company acquired a controlling interest in a development project called Parkside
Town Commons (“Parkside”), which was historically accounted for under the equity method. Parkside was owned in a
joint venture with Prudential Real Estate Investors (“PREI”).
The Company acquired PREI’s 60% interest in the project for $13.3 million, including assumption of PREI’s $8.7
million share of indebtedness on the project. The Company recorded a non-cash remeasurement loss upon consolidation of
Parkside of $8.0 million, net, consisting of a $14.9 million loss on remeasurement of the Company’s equity investment and
a $6.9 million gain on the acquisition of PREI’s interest at a discount.
Upon consolidation, the Company measured the acquired assets and assumed liabilities at fair value. The fair
value of the real estate and related assets acquired were estimated primarily using the market approach with the assistance
of a third party appraisal. The most significant assumption in the fair value estimated was the comparable sales value. The
estimate of fair value was determined to have primarily relied upon Level 3 inputs, as previously defined.
In November 2013, the Company sold 12.8 acres of land for a sales price of approximately $5.3 million for no
gain or loss.
Note 4. Litigation Charge
In 2012, the Company paid $1.3 million to settle a claim by a former tenant. In the fourth quarter of 2012, the
Company partially recovered costs associated with the claim. The net amount is reflected in the statement of operations for
the year ended December 31, 2012 and has been paid, releasing the Company from the claim.
Note 5. Kedron Village
Beginning in October 2012, a wholly-owned subsidiary of the Company was in payment default on a $29.5 million
non-recourse loan secured by the Company’s Kedron Village property due to insufficient cash flow being generated by the
property to fully support the debt service on the loan. The Company had been in negotiations with representatives of the
F-13
lender with the objective of restructuring the loan and retaining ownership of the Kedron Village property. In June 2013,
the Company received notice that the representatives of the lender intended to initiate foreclosure proceedings.
The Company evaluated the Kedron Village property for impairment as of June 30, 2013 and determined that, based
on recent developments including the reduced holding period that considers the foreclosure proceedings and current market
rental rates, the carrying value of the property was no longer fully recoverable. Accordingly, the Company recorded a non-
cash impairment charge of $5.4 million based upon the estimated fair value of the asset as of that date of $25.5 million.
On July 2, 2013, the foreclosure proceedings were completed and the mortgage lender took title to the property in
satisfaction of principal and interest due on the mortgage. A related $2.2 million escrow balance was also retained by the
mortgage lender. The Company recognized a non-cash gain of $1.2 million upon the transfer of the asset to the lender in
satisfaction of the debt. Also, the Company reversed an accrual of unpaid interest (primarily default interest) of
approximately $1.1 million. The Company reclassified the operations of Kedron Village to discontinued operations for all
periods presented.
Note 6. Share-Based Compensation
Overview
The Company's 2013 Equity Incentive Plan (the "Plan") amended and restated the Company’s 2004 Equity Incentive
Plan and authorized options and other share-based compensation awards to be granted to employees and trustees for up to
an additional 6,000,000 common shares of the Company. The Company accounts for its share-based compensation in
accordance with the fair value recognition provisions provided under 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, 2013, 2012, and 2011 was $1.1 million, $0.9 million, and $0.7 million,
respectively. Total share-based compensation cost capitalized for the years ended December 31, 2013, 2012, and 2011 was
$0.5 million, $0.4 million, and $0.3 million, respectively, related to development and leasing activities.
As of December 31, 2013, there were 5,749,890 shares available for grant under the 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.
A summary of option activity under the Plan as of December 31, 2013, and changes during the year then ended, is
presented below:
Outstanding at January 1, 2013................
Granted ....................................................
Exercised .................................................
Forfeited...................................................
Outstanding at December 31, 2013 ..........
Exercisable at December 31, 2013...........
Exercisable at December 31, 2012
F-14
Options
1,711,953 $
—
(162,559 )
(2,183 )
1,547,211 $
1,478,469 $
1,491,267 $
Weighted-Average
Exercise Price
9.38
—
3.61
3.50
10.00
10.25
10.10
The fair value on the respective grant dates of the 5,000 and 76,271 options granted during the periods ended
December 31, 2012 and 2011 was $1.30 and $1.18 per option, respectively. There were no options granted in 2013.
The aggregate intrinsic value of the 162,559, 18,525, and 14,033 options exercised during the years ended December
31, 2013, 2012 and 2011 was $445,346, $16,112, and $27,824, respectively.
The aggregate intrinsic value and weighted average remaining contractual term of the outstanding and exercisable
options at December 31, 2013 were as follows:
Outstanding at December 31, 2013 .........
Exercisable at December 31, 2013 ..........
1,547,211 $
1,478,469 $
Options
Aggregate Intrinsic Value
Weighted-Average Remaining
Contractual Term (in years)
3.29
3.16
1,382,560
1,246,656
As of December 31, 2013 there was $0.1 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 1.03 years. We expect
to incur this amount over fiscal years 2014 through 2017.
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, 2013 and changes during the year then ended:
Restricted shares outstanding at January 1, 2013 .................
Shares granted ......................................................................
Shares forfeited ....................................................................
Shares vested ........................................................................
Restricted shares outstanding at December 31, 2013 ...........
Restricted
Shares
489,607
414,743
(5,265 )
(173,496 )
725,589
Weighted Average
Grant Date Fair
Value per share
5.25
$
6.45
5.34
5.18
5.95
$
During the years ended December 31, 2013, 2012 and 2011, the Company granted 414,743, 270,671, and 244,134
restricted shares to employees and non-employee members of the Board of Trustees with weighted average grant date fair
values of $6.45, $5.36, and $5.12, respectively. The total fair value of shares vested during the years ended December 31,
2013, 2012, and 2011 was $1.1 million, $0.6 million, and $0.4 million, respectively.
As of December 31, 2013, there was $3.4 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 1.7 years. We expect to
incur $1.3 million of this expense in fiscal year 2014, $1.0 million in fiscal year 2015, $0.6 million in fiscal year 2016, $0.3
million in fiscal year 2017, and the remainder in fiscal year 2018.
Deferred Share Units Granted to Trustees
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. Except as described below, these fees are paid in cash or common shares of the Company.
Under the Plan, at the Trustee’s election, deferred share units may be credited to non-employee trustees in lieu of the
payment of compensation in the form of cash or 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
F-15
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 to the Trustee.
During the years ended December 31, 2013, 2012, and 2011, three trustees elected to receive at least a portion of their
compensation in deferred share units and an aggregate of 11,817, 39,914, and 44,379 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 $6.22, $4.96, and $4.24, respectively. During the years ended December 31,
2013, 2012, and 2011, the Company incurred expense of $0.1 million, $0.2 million, and $0.1 million, respectively, related
to deferred share units credited to non-employee trustees in lieu of payment of trustee fees in cash.
Other Equity Grants
During the years ended 2013, 2012, and 2011 the Company issued 4,088, 7,566, and 7,935 unrestricted common
shares, respectively, with weighted average grant date fair values of $6.11, $4.95, and $4.72 per share, respectively, to non-
employee members of the Board of Trustees for 50% of their annual retainer compensation.
Note 7. 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, 2013 and 2012, deferred costs consisted of the following:
Deferred financing costs ........................................
$
Acquired lease intangible assets ............................
Deferred leasing costs and other ............................
Less—accumulated amortization ...........................
$
Total .............................................................
2013
11,293,287
24,930,140
41,625,621
77,849,048
(21,461,462 )
56,387,586
$
$
2012
9,019,126
6,292,202
36,815,438
52,126,766
(16,803,974 )
35,322,792
The estimated aggregate amortization amounts from net unamortized acquired lease intangible assets for each of the
next five years and thereafter are as follows:
2014 .......................................................................................................................
2015 .......................................................................................................................
2016 .......................................................................................................................
2017 .......................................................................................................................
2018 .......................................................................................................................
Thereafter ...............................................................................................................
Total .............................................................................................................
$ 4,818,337
3,822,822
2,670,451
2,033,654
1,575,574
3,919,488
$ 18,840,326
The accompanying consolidated statements of operations include amortization expense as follows:
Amortization of deferred financing costs ......... $ 2,433,795
Amortization of deferred leasing costs, lease
intangibles and other .................................... $ 5,604,716
2013
For the year ended December 31,
2012
$ 1,970,973
2011
$ 1,586,941
$ 3,927,200
$ 3,965,814
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.
F-16
Note 8. 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, retainages payable for development and redevelopment projects, and tenant rents
received in advance. The amortization of in-place lease liabilities is recognized as revenue over the remaining life of the
leases (including option periods for leases with below market renewal options) through 2036. 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, 2013 and 2012, deferred revenue and other liabilities consisted of the following:
Unamortized in-place lease liabilities ...........................................
Retainages payable and other .......................................................
Tenant rents received in advance ..................................................
Deferred income taxes ..................................................................
Total ....................................................................................
$
$
2013
36,172,867
2,925,282
5,158,390
56,863
44,313,402
2012
10,766,097
5,776,170
3,671,668
55,566
20,269,501
$
$
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:
2014 .......................................................................................................................
2015 .......................................................................................................................
2016 .......................................................................................................................
2017 .......................................................................................................................
2018 .......................................................................................................................
Thereafter ...............................................................................................................
Total .............................................................................................................
$ 3,857,571
3,106,572
2,762,265
2,785,566
2,500,600
21,160,293
$ 36,172,867
Note 9. Investments in Unconsolidated Joint Ventures
The Company had a 50% noncontrolling interest in an investment that owned a limited service hotel at the Eddy
Street Commons property. On November 1, 2011, the hotel was sold by the joint venture resulting in a gain of $8.3
million. A portion of the net proceeds from the sale of this property were utilized to retire the $9.5 million construction
loan, and the remaining proceeds were distributed to the partners. The Company’s share of the gain was $4.3 million,
including related tax effects.
Combined summary financial information of entities accounted for using the equity method of accounting and a
summary of the Company’s share of income from these entities follows. The operating results for the years ended
December 31, 2013 and 2012 were not material.
F-17
Year Ended
December 31, 2011
Revenue:
Hotel rental revenue .............................................. $
Expenses:
Property operating .................................................
Real estate taxes ....................................................
Depreciation and amortization ..............................
Total expenses ................................................................
Operating income ...........................................................
Interest expense .....................................................
Income (loss) from continuing operations ......................
Gain on sale of operating property ........................
Net income (loss) ............................................................ $
Third-party investors’ share of net income (loss) ..........
$
Company share of net income (loss) ..............................
4,443,374
2,755,467
337,701
194,133
3,287,301
1,156,073
(340,099 )
815,974
8,286,246
9,102,220
(4,551,110 )
4,551,110
Amounts classified as:
Company’s share of income (loss) from
unconsolidated entities .............................................. $ 333,628
Company’s share of gain on sale of unconsolidated
property .....................................................................
4,217,482
Tax effects from sale of unconsolidated property and
other parent-level costs ..............................................
102,673
Income (loss) from unconsolidated entities and gain
on sale of unconsolidated property
$ 4,653,783
Note 10. Development and Redevelopment Activities
2013 Development Activities
Delray Marketplace
In 2013, the Company substantially completed construction on Delray Marketplace in Delray Beach, Florida. The
center is anchored by Publix and Frank Theatres along with a number of restaurants and retailers including Burt and Max’s
Grille, Charming Charlie’s, Chico’s, White House | Black Market, Ann Taylor Loft, and Jos. A Bank.
Holly Springs Towne Center – Phase I
In 2013, the Company substantially completed construction on Holly Springs Towne Center – Phase I near
Raleigh, North Carolina and transitioned the project to the operating portfolio. The center is anchored by Target (non-
owned), Dick’s Sporting Goods, Marshalls, and Petco.
Parkside Town Commons – Phases I and II
In 2013, the Company commenced construction on both phases of Parkside Town Commons near Raleigh, North
Carolina and transitioned the projects to an under-construction development project. Phase I will be anchored by Harris
Teeter (ground lease), Petco, and a non-owned Target. Phase II will be anchored by Frank Theatres, Golf Galaxy, Field &
Stream, and Toby Keith’s Bar & Grill. In November 2013, the Company closed on a construction loan with a capacity of
$87.2 million.
F-18
2013 Redevelopment Activities
Four Corner Square
In 2013, the Company substantially completed construction on the redevelopment and expansion of Four Corner
Square near Seattle, Washington and transitioned the project to the operating portfolio. The center is anchored by Grocery
Outlet, Walgreens, and Do It Best Hardware. As part of finalizing its redevelopment plans, the Company reduced the
estimated useful lives of certain assets that were demolished and recognized $2.2 million of accelerated depreciation and
amortization in 2012.
Rangeline Crossing
In 2013, the Company substantially completed construction on the redevelopment of Rangeline Crossing near
Indianapolis, Indiana and transitioned the project to the operating portfolio. The center is anchored by Earth Fare and
Walgreens. As part of finalizing its redevelopment plans, the Company reduced the estimated useful lives of certain assets
that were demolished and recognized $2.0 million of accelerated depreciation and amortization in 2012.
Bolton Plaza
In 2012, the Company executed a lease with LA Fitness to occupy the remaining vacant anchor space at this
property and transitioned the property to an in-process redevelopment. Construction continues as of December 31, 2013,
and LA Fitness is expected to open in the first quarter of 2014. As part of finalizing its redevelopment plans, the Company
reduced the estimated useful lives of certain assets that were demolished and recognized $2.3 million of accelerated
depreciation and amortization in 2013.
King’s Lake Square
In 2013, the Company transitioned King’s Lake Square to an under construction redevelopment project upon
commencement of construction of a new and upgraded Publix grocery store. The Company expects to complete
construction in the second quarter of 2014. As part of finalizing its plans, the Company reduced the estimated useful lives
of certain assets that were demolished and recognized $2.5 million of accelerated depreciation and amortization in 2013.
Note 11. Property Acquisition Activities
The results of operations for all acquired properties during the years ended December 31, 2013, 2012, and 2011,
respectively, have been included in continuing operations within our consolidated financial statements since their respective
dates of acquisition.
Acquisition costs include transactions costs for completed and prospective acquisitions, which are expensed as incurred.
Acquisition costs for the years ended December 31, 2013 and 2012 were $2.2 million and $0.4 million, respectively.
Acquisitions costs for the year ended December 31, 2011 were not material.
2013 Acquisition Activities
In 2013, the Company acquired thirteen properties. In connection with these acquisitions, the Company made preliminary
allocations of the purchase price of the properties primarily to the fair value of tangible assets (land, building, and
improvements) as well as to intangibles. All of the properties were acquired with cash. Estimated purchase price
allocations are subject to revision within the measurement period, not to exceed one year.
In January, the Company acquired Shoppes of Eastwood in Orlando, Florida for a purchase price of $11.6 million.
In April, the Company acquired Cool Springs Market in Franklin, Tennessee (Nashville MSA) for a purchase price
of $37.6 million.
In May, the Company acquired Castleton Crossing in Indianapolis, Indiana for a purchase price of $39.0 million.
F-19
In August, the Company acquired Toringdon Market in Charlotte, North Carolina for a purchase price of $15.9
million.
In November, the Company acquired a portfolio of nine retail properties located in Texas, Florida, Georgia, and
Alabama for a purchase price of $304.0 million.
The fair value of the real estate and related assets acquired were primarily determined using the income approach.
The income approach required the Company to make assumptions about market leasing rates, tenant-related costs, discount
rates, and disposal values. The estimates of fair value were determined to have primarily relied upon Level 3 inputs, as
previously defined. The ranges of the most significant assumptions utilized in determining the value of the real estate and
related assets of each building acquired during 2013 are as follows:
Lease-up period (months) .........................................................................
Net rental rate per square foot – Anchor (greater than 10,000 square
feet) ...................................................................................................... $5.40
Net rental rate per square foot – Small Shops .......................................... $12.00
Discount rate ............................................................................................ 8.25 %
$18.40
$28.00
9.75 %
Low
9
High
15
The following table summarizes our preliminary allocation of the fair value of amounts recognized for each major
class of asset and liability for these acquisitions:
Investment properties .............................................................................................
Lease-related intangible assets ...............................................................................
Other assets ............................................................................................................
Total acquired assets ............................................................................................
419,079,535
19,537,495
292,846
438,909,876
$
Accounts payable and accrued expenses ................................................................
Deferred revenue and other liabilities, including lease intangible
2,203,916
liabilities ............................................................................................................
Total assumed liabilities .........................................................................................
29,290,785
31,494,701
Fair value of acquired net assets ............................................................................
407,415,175
$
The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 4.6 years.
The following table summarizes the revenue and earnings of the acquired properties since the respective
acquisition dates, which are included in the consolidated statements of operations for the year ended December 31, 2013:
Rental income ................................................................ $
Expenses:
Year ended
December
31, 2013
9,821,419
Property operating ................................................
Real estate taxes and other ...................................
Depreciation and amortization .............................
Total expenses ................................................................
Net income impact from 2013 acquisitions.................... $
1,285,201
1,151,190
5,556,313
7,992,704
1,828,715
The following table summarizes the pro-forma information of the Company for the year ended December 31, 2013
as though all of the properties acquired in 2013 were acquired on January 1, 2013:
F-20
Rental income .................................................................
Expenses:
$
Trust
129,488,327
Kite Realty Group
Property operating .................................................
Real estate taxes and other ....................................
Depreciation and amortization ..............................
Total expenses ................................................................
Operating income ............................................................
$
21,729,251
15,262,928
54,479,023
91,471,202
38,017,125
Acquired
Properties
(unaudited)
$
29,503,235
Combined
(unaudited)
$ 158,991,562
3,992,839
3,264,739
20,999,760
28,257,338
1,245,897
25,722,090
18,527,667
75,478,783
119,728,540
39,263,022
$
$
Consolidated net loss ......................................................
$
(3,535,255 )
$
1,245,897 $
(2,289,358 )
Net loss per common share attributable to
Kite Realty Group Trust common
shareholders – basic and diluted ................................
$
(0.08 )
The following table summarizes the pro-forma information of the Company for the year ended December 31, 2012
as though all of the properties acquired in 2013 were acquired on January 1, 2012:
Kite Realty Group
Rental income .................................................................
Expenses:
$
Trust
96,539,443
Property operating .................................................
Real estate taxes and other ....................................
Depreciation and amortization ..............................
Total expenses ................................................................
Operating income ...........................................................
16,756,287
12,857,722
38,834,559
68,448,568
28,090,875
$
Acquired
Properties
(unaudited)
$
38,346,517
Combined
(unaudited)
$ 134,885,960
5,026,038
4,135,571
27,006,667
36,168,276
2,178,241
21,782,325
16,993,293
65,841,226
104,616,844
30,269,116
$
$
Consolidated net loss ......................................................
$
(3,704,784 )
$
2,178,241
$
(1,526,543 )
Net loss per common share attributable to
Kite Realty Group Trust common
shareholders – basic and diluted ................................
$
(0.08 )
2012 Acquisition Activities
In 2012, the Company acquired four properties. In connection with these acquisitions, the Company allocated the
purchase price to the fair value of tangible assets (land, building, and improvements) as well as to intangibles.
In June, the Company acquired Cove Center in Stuart, Florida for a purchase price of $22.1 million.
In July, the Company acquired 12th Street Plaza in Vero Beach, Florida for a purchase price of $15.2 million. The
Company assumed a $7.9 million mortgage with a fixed interest rate of 5.67%, maturing in August 2013, as part of the
acquisition.
In December, the Company acquired Plaza Green and Publix at Woodruff for $28.8 million and $9.1 million,
respectively. Both of these properties are located in Greenville, South Carolina.
F-21
The fair value of the real estate and related assets acquired were primarily determined using the income approach.
The income approach required the Company to make assumptions about market leasing rates, tenant-related costs, discount
rates, and disposal values. The estimates of fair value were determined to have primarily relied upon Level 3 inputs, as
previously defined.
The following table summarizes our final allocation of the fair value of amounts recognized for each major class
of asset and liability for these acquisitions. This allocation does not differ materially from the initial allocation.
Real Estate assets ................................................................................................... $ 76,530,776
Lease-related intangible assets ...............................................................................
2,209,098
Other assets ............................................................................................................
8,072
Total acquired assets ............................................................................................
78,747,946
Secured debt ...........................................................................................................
Deferred revenue and other liabilities ....................................................................
Total assumed liabilities .........................................................................................
8,086,135
4,952,545
13,038,680
Fair value of acquired net assets ............................................................................ $ 65,709,266
2011 Acquisition Activities
In February, the Company acquired Oleander Pointe, an unencumbered shopping center in Wilmington, North
Carolina, for a purchase price of $3.5 million. In June, the Company acquired Lithia Crossing, an unencumbered shopping
center in Tampa, Florida for a purchase price of $13.3 million. The Company allocated the purchase price for both
acquisitions to the fair value of tangible assets and intangibles.
Note 12. Discontinued Operations
In September 2013, the Company sold its Cedar Hill Village property in Dallas, Texas. In July 2013, foreclosure
proceedings were completed on the Kedron Village property and the mortgage lender took title to the property in
satisfaction of principal and interest due on the mortgage (see Note 5). As of December 31, 2013, the Company has
classified its 50th & 12th operating property as held for sale. This property was sold on January 7, 2014 for a gain.
In 2012, the Company sold the following properties for net proceeds of $87.4 million (inclusive of our partners’ share)
and a net gain of $7.1 million:
Gateway Shopping Center in Marysville, Washington in February 2012;
South Elgin Commons in South Elgin, Illinois in June 2012;
50 S. Morton near Indianapolis, Indiana in July 2012;
Coral Springs Plaza in Fort Lauderdale, Florida in September 2012;
Pen Products in Indianapolis, Indiana in October 2012;
Sandifur Plaza in Pasco, Washington in November 2012;
Zionsville Shops near Indianapolis, Indiana in November 2012; and
Preston Commons in Dallas, Texas in December 2012.
Indiana State Motor Pool in Indianapolis, Indiana in October 2012;
In 2011, the Company sold its Martinsville Shops property for a loss of $0.4 million.
The activities of these properties are reflected as discontinued operations in the accompanying consolidated statements
of operations.
The results of the discontinued operations related to these properties were comprised of the following for the years
ended December 31, 2013, 2012, and 2011:
F-22
Rental income ................................................................ $
Expenses:
Property operating ................................................
Real estate taxes and other ...................................
Depreciation and amortization .............................
Impairment charge
Total expenses................................................................
Operating (loss) income .................................................
Interest expense ....................................................
(Loss) income from discontinued operations ................
Gain on debt extinguishment .........................................
Gain (loss) on sale of operating property .......................
Total (loss) income from discontinued operations ......... $
Year ended December 31,
2013
2012
2011
2,565,392 $ 8,839,352 $ 12,420,718
117,036
198,416
844,245
5,371,427
6,531,124
(3,965,732 )
(571,190 )
(4,536,922 )
1,241,724
486,540
1,081,100
1,230,200
2,963,318
—
5,274,618
3,564,734
(2,909,087 )
655,647
—
7,094,238
(2,808,658 ) $ 7,749,885 $
1,777,931
1,392,234
3,954,273
—
7,124,438
5,296,280
(3,666,360 )
1,629,920
—
(397,909 )
1,232,011
(Loss) income from discontinued operations
attributable to Kite Realty Group Trust
common shareholders ........................................................
$
(2,620,478 ) $ 5,316,744 $
(Loss) income from discontinued operations
attributable to noncontrolling interests ..............................
Total (loss) income from discontinued operations .....................
$
(188,180 )
2,433,141
(2,808,658 ) $ 7,749,885 $
1,097,098
134,913
1,232,011
Note 13. Mortgage Loans and Other Indebtedness
Mortgage and other indebtedness consist of the following at December 31, 2013 and 2012:
Balance at December 31,
2012
2013
Description
Unsecured Revolving Credit Facility
Matures February 20171; maximum borrowing level of $200.0 million and $163.5 million
available at December 31, 2013 and 2012, respectively; interest at LIBOR + 1.95%2 or
2.12% at December 31, 2013 and interest at LIBOR + 2.40%2 or 2.61% at December
31, 2012 ........................................................................................................................... $ 145,000,000
Unsecured Term Loan
Matures August 20183; interest at LIBOR + 1.80%2 or 1.97% at December 31, 2013 and
interest at LIBOR + 2.60%2 or 2.81% at December 31, 2012 ........................................
Notes Payable Secured by Properties under Construction—Variable Rate
Generally interest only; maturing at various dates through 2016; interest at
LIBOR+2.00%-2.50%, ranging from 2.17% to 2.67% at December 31, 2013 and
interest at LIBOR+2.00%-2.50%, ranging from 2.21% to 2.71% at December 31, 2012
Mortgage Notes Payable—Fixed Rate
Generally due in monthly installments of principal and interest; maturing at various dates
through 2022; interest rates ranging from 5.42% to 6.78% at December 31, 2013 and
interest rates ranging from 5.42% to 6.78% at December 31, 2012 ................................
$ 94,624,200
230,000,000
125,000,000
144,388,705
72,156,149
276,504,111
338,765,294
Mortgage Notes Payable—Variable Rate
Due in monthly installments of principal and interest; maturing at various dates through
2020; interest at LIBOR + 1.25%-2.94%, ranging from 1.42% to 3.11% at December
31, 2013 and interest at LIBOR + 1.25%-3.25%, ranging from 1.46% to 3.46% at
December 31, 2012 ..........................................................................................................
Net premium on acquired indebtedness................................................................................
61,186,570
64,688
Total mortgage and other indebtedness ...................................................................... $ 857,144,074
69,171,405
191,720
$ 699,908,768
F-23
____________________
1
The maturity date may be extended for an additional year at the Company’s option subject to certain conditions.
2
3
The rate on the Company’s unsecured revolving credit facility and Term Loan varied at certain parts of the year due
to provisions in the agreement and the amendment and restatement of the agreement.
The maturity date may be extended for an additional six months at the Company’s option subject to certain
conditions.
The one month LIBOR interest rate was 0.17% and 0.21% as of December 31, 2013 and 2012, respectively.
For the year ended December 31, 2013, the Company had loan borrowing proceeds of $528.6 million and loan
repayments of $342.0 million. The major components of this activity are as follows:
In January, a draw of $11.6 million was made on the unsecured revolving credit facility to fund the acquisition of
Shoppes of Eastwood in Orlando, Florida (see Note 11);
Pay downs totaling $74.2 million were made on the unsecured revolving credit facility using a portion of the
proceeds of the common share offering during the second quarter;
In the second quarter, draws of $21.0 million and $39.0 million were made on the unsecured revolving credit
facility to fund the acquisition of Cool Springs Market and Castleton Crossing (see Note 11);
In June, a draw of $7.6 million was made on the unsecured revolving credit facility to fund the payoff of the loan
secured by 12th Street Plaza;
In August, a draw of $17.0 million was made on the unsecured revolving credit facility to fund the acquisition of
Toringdon Market (see Note 11);
In August, a draw of $14.0 million was made on the unsecured revolving credit facility to fund the payoff of the
loan secured by Ridge Plaza;
In August, proceeds of $105 million from the expansion of the amended Term Loan were received. The Company
utilized $101.9 million to pay down the Company’s unsecured revolving credit facility. The remaining proceeds of
$3.1 million were utilized to fund loan costs of the amended Term Loan and redevelopment and development costs;
In September, a pay down of $7.5 million was made on the unsecured revolving credit facility using the proceeds of
the sale of Cedar Hill Village operating property (see Note 12);
In December, the Company closed on a seven-year variable rate loan for its 30 South Meridian commercial property
totaling $18.9 million. This loan replaced a fixed rate loan, which was retired;
A net draw of $86.9 million on the unsecured revolving credit facility was used to fund a portion of the purchase
price of the portfolio of nine unencumbered retail properties;
Draws totaling $21.0 million were made on the unsecured revolving credit facility to fund redevelopment and tenant
improvement costs at various properties throughout the period;
Draws were made on construction loans related to the Delray Marketplace, Holly Springs Towne Center – Phase I,
Parkside Town Commons, Four Corner Square, Rangeline Crossing, and Zionsville Walgreens developments
totaling $77.4 million throughout the period; and
The Company made scheduled principal payments totaling $6.3 million.
Unsecured Revolving Credit Facility and Unsecured Term Loan
On February 26, 2013, the Company amended the terms of its $200 million unsecured revolving credit facility. The
amended terms included an extension of the maturity date to February 26, 2017, which may be extended for an additional
year at the Company’s option subject to certain conditions, and a reduction in the interest rate to LIBOR plus 165 to 250
basis points, depending on the Company’s leverage, from LIBOR plus 190 to 290 basis points. The amended unsecured
facility has a fee of 25 to 35 basis points on unused borrowings. The amount the Company may borrow under the amended
unsecured facility may be increased up to $400 million, subject to certain conditions, including obtaining commitments
from any one or more lenders, whether or not currently party to the credit facility, to provide such increased amounts.
F-24
On August 21, 2013, the Company amended its existing Unsecured Term Loan (as amended, the “amended Term
Loan”) and increased the borrowing thereunder from $125 million to $230 million. The amended Term Loan has a
maturity date of August 21, 2018, which may be extended for an additional six months at the Company’s option subject to
certain conditions. The interest rate applicable to the amended Term Loan was reduced to LIBOR plus 145 to 245 basis
points, depending on the Company’s leverage, a decrease of between 45 and 65 basis points across the leverage grid. The
amended Term Loan also provides for an additional increase in total borrowing of up to $300 million, subject to certain
conditions, including obtaining commitments from any one or more lender.
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, 2013, the Company had 66 unencumbered properties and other assets
used to calculate the value of the unencumbered property pool, of which 55 were wholly owned and five of which were
owned through joint ventures. The major unencumbered assets include: 12th Street Plaza, Beechwood Promenade,
Broadstone Station, Burnt Store Promenade, Castleton Crossing, Clay Marketplace, Cobblestone Plaza, Cool Springs
Market, The Corner, Courthouse Shadows, Cove Center, Estero Town Commons, Fox Lake Crossing, Glendale Town
Center, Hunter’s Creek Promenade, King's Lake Square, Kingwood Commons, Lakewood Promenade, Lithia Crossing,
Market Street Village, Northdale Promenade, Oleander Place, Portofino Shopping Center, Shoppes at Plaza Green, Publix
at Woodruff, Ridge Plaza, Rivers Edge, Red Bank Commons, Shops at Eagle Creek, Shoppes of Eastwood, Tarpon Bay
Plaza, Traders Point II, Trussville Promenade I, Trussville Promenade II, Toringdon Market, Union Station Parking
Garage, Gainesville Plaza, and Waterford Lakes Village.
In addition, the Company had letters of credit outstanding which totaled $4.2 million. As of December 31, 2013,
there were no amounts advanced against these instruments.
The amount that the Company may borrow under the unsecured revolving credit facility is based on the value of
assets in its unencumbered property pool. As of December 31, 2013, the maximum amount that may be borrowed under
the unsecured revolving credit facility was $200 million. The amount available for future borrowings was approximately
$51 million. In addition, there are five unencumbered assets that would provide approximately $135 million (unaudited) of
additional borrowing capacity under the unsecured revolving credit if they were contributed to the unencumbered property
pool and the accordion feature was exercised.
The Company’s ability to borrow under the unsecured facility is subject to ongoing compliance with various
restrictive covenants, including with respect to liens, indebtedness, investments, dividends, mergers and asset sales. In
addition, the unsecured facility requires that the Company satisfy certain financial covenants, including:
a maximum leverage ratio of 60%, with a surge provision permitting the maximum leverage ratio to increase
to 62.5% for one period of up to two consecutive quarters;
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 $350 million (plus
75% of the net proceeds of any future equity issuances);
the aggregate amount of unsecured debt of Company, Operating Partnership and their respective subsidiaries
not exceeding the lesser of (a) 62.5% of the value of all properties then included in an unencumbered pool of
properties that satisfy certain requirements and (b) the maximum principal amount of debt which would not
cause the ratio of certain net operating income less capital reserves to debt service under the Credit
Agreement to be less than 1.40 to 1;
ratio of secured indebtedness to total asset value of no more than .55 to 1;
minimum unencumbered property pool occupancy rate of 80%;
ratio of floating rate debt to total asset value of no more than 0.35 to 1; and
ratio of recourse debt 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 and the Term Loan as of
December 31, 2013.
F-25
Under the terms of the unsecured facility and Term Loan, 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.
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,
2013:
2014
2015
2016
20171
20182
Thereafter
Unamortized Premiums
Total
Annual
Principal
Payments
6,044,747
5,849,432
4,997,512
3,510,299
3,387,165
7,815,649
31,604,804
$
$
Term Maturity
86,301,666
95,199,144
144,709,305
155,390,814
234,253,649
109,620,004
825,474,582
$
$
$
Total
92,346,413
101,048,576
149,706,817
158,901,113
237,640,814
117,435,653
$ 857,079,386
64,688
$ 857,144,074
____________________
1
Includes the Company’s unsecured revolving credit facility. The Company has the option to extend the
maturity date by one year to February 26, 2018, subject to certain conditions.
Includes the Company’s unsecured Term Loan. The Company has the option to extend the maturity date
by six months to February 21, 2019, subject to certain conditions.
2
The amount of interest capitalized in 2013, 2012, and 2011 was $5.1 million, $7.4 million, and $8.5 million,
respectively.
Fair Value of Fixed and Variable Rate Debt
As of December 31, 2013, the fair value of fixed rate debt was approximately $289.9 million compared to the book
value of $276.5 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 2.79% to 5.45%. As of December 31, 2013, the fair value of
variable rate debt was approximately $565 million compared to the book value of approximately $581 million. The fair
value was estimated using cash flows discounted at current borrowing rates for similar instruments which ranged from
1.80% to 3.58%.
As of December 31, 2012, the fair value of fixed rate debt was approximately $369.4 million compared to the book
value of $338.6 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 2.83% to 4.25%. As of December 31, 2012, the fair value of
variable rate debt was approximately $369 million compared to the book value of approximately $361 million. The fair
value was estimated using cash flows discounted at current borrowing rates for similar instruments which ranged from
2.16% to 3.92%.
Note 14. 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
F-26
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, 2013, the Company was party to various consolidated cash flow hedge agreements
totaling $326.8 million, which effectively fix certain variable rate debt over various terms through 2020. Utilizing a
weighted average spread over LIBOR on all variable rate debt resulted in a weighted average interest rate of 3.27%.
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, accounting 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, 2013 and 2012, the Company has assessed the significance of the impact of the credit valuation adjustments
on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not
significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations
are classified in Level 2 of the fair value hierarchy.
The fair value of the Company’s interest rate hedge assets, net as of December 31, 2013 was $1.1 million including
accrued interest of $0.3 million. As of December 31, 2013, $2.8 million is recorded in prepaid and other assets and $1.7
million is recorded in accounts payable and accrued expenses. The fair values of the Company’s interest rate hedge
liabilities as of December 31, 2012 were $5.9 million, including accrued interest of $0.2 million as of December 31, 2012,
and are recorded in accounts payable and accrued expenses.
The Company currently expects an increase to interest expense of approximately $3.5 million as the hedged
forecasted interest payments occur over the next twelve months. 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 2013. During the years ended December 31, 2013, 2012 and 2011, $2.8 million, $1.5 million and $3.1 million,
respectively, were reclassified as a reduction to earnings.
The Company’s share of net unrealized (losses) gains on its interest rate hedge agreements are the only components
of its accumulated comprehensive (loss) income. The following sets forth comprehensive income allocable to the
Company for the years ended December 31, 2013, 2012, and 2011:
Year ended December 31,
2013
2012
2011
Net (loss) income attributable to Kite Realty
Group Trust ............................................................. $ (2,849,735 ) $ (4,333,847 ) $ 4,981,274
Other comprehensive income (loss) allocable to
Kite Realty Group Trust1 ........................................ 6,611,393
(3,734,448 )
1,376,005
Comprehensive income (loss) attributable to Kite
Realty Group Trust ................................................. $ 3,761,658 $ (8,068,295 ) $ 6,357,279
F-27
____________________
1
Reflects the Company’s share of the net change in the fair value of derivative instruments
accounted for as cash flow hedges.
Note 15. 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 remaining term
of the lease agreements is approximately 6.6 years. During the periods ended December 31, 2013, 2012, and 2011, the
Company earned percentage rent of $0.6 million, $0.5 million, and $0.4 million, respectively.
As of December 31, 2013, 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:
2014 ...........................................................................................................................
2015 ...........................................................................................................................
2016 ...........................................................................................................................
2017 ...........................................................................................................................
2018 ...........................................................................................................................
Thereafter ..................................................................................................................
Total .................................................................................................................
$ 115,724,152
107,531,418
93,740,887
82,430,618
68,756,231
342,448,581
$ 810,631,887
Lease Commitments
As of December 31, 2013, the Company was obligated under five ground leases for approximately 19 acres of land
with four landowners, all of which require fixed annual rent payments. The expiration dates of the initial terms of these
ground leases range from 2015 to 2083. These leases have five to ten year extension options ranging in total from 20 to 30
years. Ground lease expense incurred by the Company on these operating leases for the years ended December 31, 2013,
2012, and 2011 was $0.7 million, $0.6 million, and $0.7 million, respectively.
As further discussed in Note 17, the Company is obligated under a ground lease for one of its operating properties,
Eddy Street Commons at the University of Notre Dame. The Company makes 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
payment for the first two years, after which payments are based on a percentage of certain gross revenues. Contingent
amounts are not readily estimable and are not reflected in the table below for fiscal years 2014 and beyond.
Future minimum lease payments due under such leases for the next five years ending December 31 and thereafter are
as follows:
2014 ........................................................................................................................ $
2015 ........................................................................................................................
2016 ........................................................................................................................
2017 ........................................................................................................................
2018 ........................................................................................................................
Thereafter ...............................................................................................................
461,040
443,083
406,881
407,187
44,499
66,839
Total .............................................................................................................. $ 1,829,529
F-28
Note 16. Shareholders’ Equity and Redeemable Noncontrolling Interests
Common Equity
In November 2013, the Company completed an equity offering of 36,800,000 common shares at an offering price of
$6.16 per share for net offering proceeds of $217 million. The Company initially used the proceeds to repay borrowings
under its unsecured revolving credit facility and subsequently redeployed the proceeds to fund a portion of the purchase
price of the portfolio of nine unencumbered retail properties (see Note 11).
In April and May of 2013, the Company completed an equity offering of 15,525,000 common shares at an offering
price of $6.55 per share for net offering proceeds of $97 million. The Company initially used the proceeds to repay
borrowings under its unsecured revolving credit facility and subsequently redeployed the proceeds to acquire Cool Springs
Market, Castleton Crossing, and Toringdon Market (see Note 11).
In October 2012, the Company completed an equity offering of 12,075,000 common shares at an offering price of
$5.20 per share for net offering proceeds of $59.7 million. These net proceeds initially were used to reduce the outstanding
balance on the Company’s unsecured revolving credit facility, and subsequently were redeployed to acquire Publix at
Woodruff and Shoppes at Plaza Green in Greenville, South Carolina and Shoppes at Eastwood in Orlando, Florida (see
Note 11) and to fund redevelopment activities.
Accrued but unpaid distributions on common shares and units were $8.2 million and $5.1 million as of December 31,
2013 and 2012, respectively, and are included in accounts payable and accrued expenses in the accompanying consolidated
balance sheets. These distributions were paid in January of the following year.
The Company has entered into Equity Distribution Agreements with certain sales agents pursuant to which it may
sell, from time to time, up to an aggregate amount of $50 million of its common shares. During the year ended December
31, 2013, no common shares were issued under these Equity Distribution Agreements.
Preferred Equity
In March 2012, the Company completed an offering of 1,300,000 shares of 8.25% Series A Cumulative Redeemable
Perpetual Preferred Shares at an offering price of $25.12 per share for net offering proceeds of $31.3 million. These net
proceeds were utilized to reduce the outstanding balance on the Company’s unsecured revolving credit facility.
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 $0.7 million as of December 31, 2013 and
2012, respectively and are included in accounts payable and accrued expenses in the accompanying consolidated balance
sheets. These distributions were paid in March of the following year.
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.
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. These limited partners were granted the right to
redeem Operating Partnership units on or after August 16, 2005 for cash or, at our election, common shares in an amount
equal to the market value of an equivalent number of common shares at the time of redemption. Such common shares must
be registered, which is not fully in the Company’s control. Therefore, the redeemable noncontrolling interest is not
F-29
reflected in shareholder’s equity. 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, 2013, 2012, and 2011, respectively, 90,000,
1,103,714, and 16,000 Operating Partnership units were exchanged for the same number of common shares.
Note 17. Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2013 and
2012. This presentation includes reclassifications of properties disposed of in 2012 and 2013 as discontinued operations for
all periods presented.
Total revenue ....................................................
Operating income .............................................
Income (loss) from continuing
$
Quarter Ended
March 31,
2013
31,035,859 $
8,727,382
Quarter Ended
June 30,
2013
29,921,115
5,575,107
$
Quarter Ended
September 30,
2013
Quarter Ended
December 31,
2013
35,978,480
7,550,938
32,552,873 $
5,738,338
2,475,132
(1,511,589 )
(1,880,804 )
190,664
(418,363 )
2,056,769
(5,742,224 )
(7,253,813 )
3,121,881
1,241,077
230,048
420,712
operations
(Loss) income from discontinued
operations
Consolidated net income (loss)
Net income (loss) from continuing
operations attributable to Kite
Realty Group Trust common
shareholders .................................................
Net loss attributable to Kite Realty
Group Trust common shareholders .............
Net loss per common share – basic and
diluted:
Net income (loss) from continuing
operations attributable to Kite
Realty Group Trust common
shareholders ............................................
Net loss attributable to Kite Realty
Group Trust common
shareholders ............................................
319,970
(3,358,627 )
(3,770,528 )
(1,876,323 )
(82,148 )
(8,706,867 )
(857,813 )
(1,659,158 )
0.00
(0.04 )
(0.04 )
(0.02 )
(0.00 )
(0.10 )
(0.01 )
(0.01 )
Weighted average Common Shares
outstanding - basic and diliuted ...................
77,834,032
91,066,817
93,803,896
113,474,270
F-30
Quarter Ended
March 31,
2012
Quarter Ended
June 30,
2012
Total revenue ...................................................
Operating income ............................................
Loss from continuing operations
Income from discontinued operations
Consolidated net income (loss)
Net loss from continuing operations
$ 23,669,498 $ 23,137,244 $
4,572,623
(1,190,492 )
315,634
(874,858 )
4,140,769
(1,807,342 )
5,451,101
3,643,758
Quarter Ended
September 30,
2012
24,208,298 $
4,466,140
(1,409,186 )
172,881
(1,236,305 )
Quarter Ended
December 31,
2012
25,524,403
6,422,333
(7,047,649 )
1,810,269
(5,237,380 )
attributable to Kite Realty Group Trust
common shareholders .................................
(3,032,685 )
(2,999,086 )
(3,193,882 )
(8,344,940 )
Net loss attributable to Kite Realty Group
Trust common shareholders ........................
Net loss per common share – basic and
diluted:
Net loss from continuing operations
attributable to Kite Realty Group
Trust common shareholders ...................
Net loss attributable to Kite Realty
Group Trust common shareholders........
(31,074 )
(2,717,700 )
(3,038,160 )
(6,466,915 )
(0.05 )
(0.05 )
(0.00 )
(0.04 )
(0.05 )
(0.05 )
(0.12 )
(0.09 )
Weighted average Common Shares
outstanding - basic and diluted....................
63,713,893 64,014,187
64,780,540
74,966,736
Note 18. Commitments and Contingencies
Eddy Street Commons at Notre Dame
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 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 $0.4 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 and its completion guarantee with the University of Notre Dame so long as it commences and diligently
pursues the completion of its obligations under that agreement.
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 all or portions of its development and redevelopment projects. The Company believes it currently has sufficient
financing in place to fund these projects and expect to do so primarily through existing or new construction loans. In
addition, if necessary, it may make draws on its unsecured facility.
As of December 31, 2013, the Company had outstanding letters of credit totaling $4.2 million. At that date, there
were no amounts advanced against these instruments.
F-31
Note 19. 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 $17,500, except in certain limited circumstances. The Company contributed $0.2
million to this plan for each of the years ended December 31, 2013, 2012, and 2011.
Note 20. Supplemental Schedule of Non-Cash Investing/Financing Activities
The following schedule summarizes the non-cash investing and financing activities of the Company for the years
ended December 31, 2013, 2012 and 2011:
Settlement of loan in acquisition of
noncontrolling interest in Rangeline
Crossing
Accrued distribution to preferred shareholders
Payable due to PREI in connection with
consolidation of Parkside Town Commons
Assumption of debt in connection with
Year Ended
December 31,
2012
2013
2011
$
—
704,688
$
— $
704,688
578,200
481,250
—
4,924,994
consolidation of Parkside Town Commons
—
14,440,000
Assumption of debt in connection with
acquisition of 12th Street Plaza
Non-recourse debt related to Kedron Village
foreclosure
Net assets of Kedron Village transferred to
lender (excluding non-recourse debt)
—
8,086,135
29,194,834
27,953,110
—
—
—
—
—
—
—
Note 21. 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, 2013, 2012 and 2011, the Company earned $0, $20,000, and $30,000, respectively from unconsolidated
entities, and $40,000, $40,000 and $40,000, 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, 2013, 2012 and 2011, amounts paid by the Company to this related entity
were $0.3 million, $0.3 million, and $0.2 million, respectively.
Note 22. Subsequent Events
Agreement and Plan of Merger
On February 9, 2014, the Company signed a definitive merger agreement with Inland Diversified Real Estate
Trust, Inc. (“Inland Diversified”), pursuant to which Inland Diversified will merge with and into a wholly-owned subsidiary
of the Company in a stock-for-stock exchange with a transaction value of approximately $2.1 billion (unaudited), which
includes the assumption of approximately $0.9 billion (unaudited) of debt.
Inland Diversified’s retail portfolio that the Company plans to acquire is comprised of 57 properties that are 95.3%
(unaudited) leased as of December 31, 2013. The properties are located in existing markets of the Company and new
markets including Westchester, New York, Bayonne, New Jersey, Las Vegas, Nevada, Virginia Beach, Virginia, and Salt
Lake City, Utah. The Company also plans to acquire from Inland Diversified certain multifamily assets that the Company
expects to sell following the close of the merger.
F-32
Under the terms of the merger agreement, Inland Diversified’s stockholders will receive newly issued common
shares of beneficial interest of the Company in exchange for each share of Inland Diversified common stock based on the
following:
1.707 shares of the Company for each share of Inland Diversified common stock, so long as the reference price for
the Company’s shares (defined below) is equal to or less than $6.36;
A floating ratio if the Company’s reference price is more than $6.36 or less than $6.58; such ratio determined by
dividing $10.85 by the Company’s reference price;
1.650 shares of the Company for each share of Inland Diversified common stock if the Company’s reference price
is $6.58 or greater;
The reference price is the volume-weighted average trading price of the Company’s common shares for the ten
consecutive trading days ending on the third trading day preceding Inland Diversified’s stockholder meeting.
The merger is expected to close late in the second quarter or in the third quarter of 2014, subject to the approval of
shareholders of both companies and the satisfaction of other customary closing conditions.
Property Sale
On March 7, 2014, the Company closed on the sale of its Red Bank Commons operating property for a sales price
of $5.3 million. There was a minor loss on the sale.
Dividend Declaration
On February 7, 2014, the Board of Trustees declared a quarterly preferred share cash distribution of $0.515625 per
Series A Preferred Share covering the distribution period from December 2, 2013 to March 1, 2014 payable to shareholders
of record as of February 21, 2014. This distribution was paid on February 28, 2014.
F-33
Kite Realty Group Trust
Schedule III
Consolidated Real Estate and Accumulated Depreciation
F-34
Name, LocationEncumbrancesLandBuilding & ImprovementsLandBuilding & ImprovementsLandBuilding & ImprovementsTotalAccumulated DepreciationYear Built/ RenovatedYear Acquired Shopping Centers12th Street Plaza * $ - $2,624,000$13,792,742 - $144,224$2,624,000$13,936,966$16,560,966$1,041,0571978/2003201250th & 12th4,034,1742,995,9312,810,145 - - 2,995,9312,810,1455,806,076754,8622004NA54th & College * - 2,671,501 - - - 2,671,501 - 2,671,501 - 2008NABayport Commons12,733,7667,868,35421,980,423 - 79,3387,868,35422,059,76129,928,1153,539,8122008NABeacon Hill Shopping Center6,859,6503,293,39313,398,047 - 645,2613,293,39314,043,30817,336,7012,310,1222006NABeechwood Promenade - 2,733,79345,041,890 - - 2,733,79345,041,89047,775,683175,28419612013Boulevard Crossing 13,243,1384,385,52510,015,940 - 1,811,4664,385,52511,827,40616,212,9313,517,5722004NABridgewater Marketplace1,935,2003,406,6418,703,084 - - 3,406,6418,703,08412,109,7251,506,9542008NABurlington Coat * - 29,0002,772,992 - - 29,0002,772,9922,801,992864,3861992/20002000Burnt Store Promenade * - 5,112,2446,240,668 - - 5,112,2446,240,66811,352,91235,33519892013Castleton Crossing * - 9,750,00029,653,752 - - 9,750,00029,653,75239,403,7521,255,99419752013Centre at Panola *2,864,7801,985,9758,208,503 - 56,9961,985,9758,265,49910,251,4742,556,27920012004Clay Marketplace * - 1,398,1018,771,579 - - 1,398,1018,771,57910,169,68034,6351966/20032013Cobblestone Plaza * - 11,221,41446,455,859 - - 11,221,41446,455,85957,677,2734,190,6752011NACool Creek Commons *16,903,9266,062,35115,109,012 - 791,8086,062,35115,900,82021,963,1714,906,8422005NACool Springs Market * - 12,684,40023,866,531 - - 12,684,40023,866,53136,550,9311,317,49219952013Cornelius Gateway - 1,249,4473,530,854 - - 1,249,4473,530,8544,780,301660,1762006NACourthouse Shadows * - 4,998,97416,744,986 - 427,4264,998,97417,172,41222,171,3865,269,5411987/19992006Cove Center * - 2,035,77019,986,463 - 343,0552,035,77020,329,51822,365,2883,324,3131984/20082012DePauw University Bookstore & Café - 63,765667,460 - - 63,765667,460731,22584,4472012NAEastgate Pavilion16,164,0008,122,28319,806,779 - 509,9378,122,28320,316,71628,438,9996,247,75519952004Eddy Street Commons24,739,8891,900,00038,220,037 - 94,2451,900,00038,314,28240,214,2824,983,4682009NAEstero Town Commons * - 8,973,2909,968,125 - - 8,973,2909,968,12518,941,4151,770,1632006NAFishers Station7,733,7203,735,80711,831,378 - 439,6123,735,80712,270,99016,006,7975,043,67219892004Four Corner Square - 9,231,25921,750,854 - 901,6439,231,25922,652,49731,883,7564,034,69619852004Fox Lake Crossing * - 5,684,7249,324,308 - 244,3265,684,7249,568,63415,253,3582,586,50720022005Gainesville Plaza * - 5,437,3739,998,346 - 5,7785,437,37310,004,12415,441,4972,512,45119702004Geist Pavilion 10,863,4201,367,8169,788,966 - 1,700,9691,367,81611,489,93512,857,7513,274,7782006NAGlendale Town Center * - 1,494,46945,947,464 - 542,6311,494,46946,490,09547,984,56421,085,9471958/20081999Greyhound Commons * - 2,641,246866,993 - - 2,641,246866,9933,508,239377,3852005NAHamilton Crossing 12,660,9915,672,4779,918,492 - 734,4235,672,47710,652,91516,325,3923,506,81119992004Holly Springs Towne Center - Phase I 33,537,91212,035,31646,085,657 - - 12,035,31646,085,65758,120,973893,4622013NAHunters Creek Promenade - 8,335,00712,831,340 - - 8,335,00712,831,34021,166,34739,41819942013Indian River Square12,451,2265,180,0009,650,940 - 544,7115,180,00010,195,65115,375,6514,530,9561997/20042005International Speedway Square *20,300,1447,769,27719,493,923 - 7,709,0817,769,27727,203,00434,972,28110,925,5831999NAInitial CostCosts Capitalized Subsequent to Acquisition/DevelopmentGross Carrying Amount Close of Period
F-35
Name, LocationEncumbrancesLandBuilding & ImprovementsLandBuilding & ImprovementsLandBuilding & ImprovementsTotalAccumulated DepreciationYear Built/ RenovatedYear Acquired Shopping Centers (continued)Kingwood Commons - $5,715,450$31,057,937 - - $5,715,450$31,057,937$36,773,387$105,34919992013Lakewood Promenade - 1,783,24025,833,519 - - 1,783,24025,833,51927,616,75983,3041948/19982013Lithia Crossing * - 3,064,69810,106,252 - 3,604,5693,064,69813,710,82116,775,5191,632,3261993/20032011Market Street Village * - 9,764,38118,745,417 - 2,024,8699,764,38120,770,28630,534,6676,087,3521970/20042005Naperville Marketplace 9,313,8385,364,10112,187,580 - - 5,364,10112,187,58017,551,6812,293,1442008NANorthdale Promenade * - 1,718,25423,187,048 - - 1,718,25423,187,04824,905,30283,0791985/20022013Oleander Place * - 862,5006,178,838 - - 862,5006,178,8387,041,338477,33020122011Pine Ridge Crossing17,086,0585,639,67518,659,718 - 655,2635,639,67519,314,98124,954,6565,121,75919932006Plaza at Cedar Hill * - 5,782,30437,855,288 - 9,030,1575,782,30446,885,44552,667,74912,308,09920002004Plaza Volente26,849,7124,600,00029,387,611 - 745,4764,600,00030,133,08734,733,0878,001,71920042005Portofino Shopping Center - 4,754,34175,897,119 - - 4,754,34175,897,11980,651,460268,26419992013Publix at Acworth 6,888,3541,356,6018,273,95938,778775,5491,395,3799,049,50810,444,8872,482,01319962004Publix at Woodruff * - 1,783,1007,520,346 - 50,5001,783,1007,570,8469,353,946992,73619972012Rangeline Crossing16,459,0322,042,88516,221,509 - - 2,042,88516,221,50918,264,3943,247,6781986/2013NARed Bank Commons * - 1,408,3284,764,511 - 236,1951,408,3285,000,7066,409,0341,369,1652005NARidge Plaza * - 4,664,00017,484,274 - 743,3464,664,00018,227,62022,891,6206,147,57720022003Riverchase10,251,6353,888,94511,860,003 - 1,157,7703,888,94513,017,77316,906,7182,714,0601991/20012006Rivers Edge Shopping Center * - 5,646,52231,385,832 - - 5,646,52231,385,83237,032,3543,358,04520112008Shoppes at Plaza Green * - 3,748,80125,201,172 - 50,9533,748,80125,252,12529,000,9261,644,60420002012Shoppes of Eastwood * - 1,687,73410,821,385 - - 1,687,73410,821,38512,509,119803,47619972013Shops at Eagle Creek * - 2,877,7278,018,387200,0874,081,9833,077,81412,100,37015,178,1842,642,84919982003Stoney Creek Commons * - 627,9644,599,185 - 4,712,289627,9649,311,4749,939,4381,236,2092000NASunland Towne Centre *24,289,08214,773,53622,973,090 - 4,357,99914,773,53627,331,08942,104,6257,107,81219962004Tarpon Bay Plaza * - 5,370,39924,520,177 - 158,5025,370,39924,678,67930,049,0784,794,5902007NAThe Corner * - 303,9163,995,132 - 1,466,543303,9165,461,6755,765,5912,978,7311984/20031984The Shops at Otty * - 26,0002,150,737 - 200,09226,0002,350,8292,376,829757,9722004NAToringdon Market * - 5,448,4009,904,419 - - 5,448,4009,904,41915,352,819226,89520042013Traders Point 44,348,3639,443,44937,348,157 - 526,5029,443,44937,874,65947,318,10810,446,5662005NATraders Point II * - 2,375,7977,202,988 - 309,8372,375,7977,512,8259,888,6221,972,8162005NATrussville Promenade - 9,122,99245,615,194 - - 9,122,99245,615,19454,738,186196,58819992013Waterford Lakes Village * - 2,316,6747,435,244 - 206,1782,316,6747,641,4229,958,0962,556,40819972004Whitehall Pike6,748,3263,688,8576,109,115 - 120,7423,688,8576,229,8579,918,7143,877,7781999NAZionsville Walgreen's4,594,0002,055,0352,480,313 - - 2,055,0352,480,3134,535,34879,7412012NA Total Shopping Centers363,854,334307,857,5291,178,215,987238,86552,942,245308,096,3941,231,158,2321,539,254,626207,254,864 Commercial PropertiesThirty South18,900,0001,643,41510,017,768 - 17,339,0301,643,41527,356,79829,000,2138,944,8091905/20022001Union Station Parking Garage * - 903,6272,642,598 - 599,174903,6273,241,7724,145,3991,181,02619862001 Total Commercial Properties18,900,0002,547,04212,660,366 - 17,938,2042,547,04230,598,57033,145,61210,125,835Initial CostCosts Capitalized Subsequent to Acquisition/DevelopmentGross Carrying Amount Close of Period
____________________
*
This property or a portion of the property is included as an Unencumbered Pool Property used in calculating the Company’s line of credit borrowing base.
**
This category generally includes land held for development. The Company also has certain additional land parcels at its development and operating properties, which
amounts are included elsewhere in this table.
F-36
Name, LocationEncumbrancesLandBuilding & ImprovementsLandBuilding & ImprovementsLandBuilding & ImprovementsTotalAccumulated DepreciationYear Built/ RenovatedYear Acquired Under Construction Development and Redevelopment PropertiesBolton Plaza * - $3,733,426$15,690,410 - - $3,733,426$15,690,410$19,423,836$4,889,325Courthouse Shadows * - 471,006 - - - 471,006 - 471,006 - Delray Marketplace59,044,57722,202,49586,511,480 - - 22,202,49586,511,480108,713,9751,755,858Four Corner Square 18,885,990696,7226,997,298 - - 696,7226,997,2987,694,020 - Gainesville Plaza *210,344 - - - 210,344210,344 - King's Lake Square * - 4,519,00013,431,973 - - 4,519,00013,431,97317,950,9735,260,123KRG Development - - 7,003 - - - 7,0037,003 - Parkside Town Commons - Phase I3,181,9972,567,76431,552,685 - - 2,567,76431,552,68534,120,449 - Parkside Town Commons - Phase II13,279,1986,957,26618,049,798 - - 6,957,26618,049,79825,007,064 - Rangeline Crossing - - 2,092,112 - - - 2,092,1122,092,112 - Total Development Properties94,391,76141,147,679174,543,103 - - 41,147,679174,543,103215,690,78211,905,306 Other **951 & 41 5,000,00019,013,566 - - - 19,013,566 - 19,013,566 - Beacon Hill Shopping Center - 3,590,703 - - - 3,590,703 - 3,590,703 - Bridgewater Marketplace - 1,892,909 - - - 1,892,909 - 1,892,909 - Eagle Creek IV * - 1,905,999 - - - 1,905,999 - 1,905,999 - Eddy Street Commons * - 1,924,820 - - - 1,924,820 - 1,924,820 - Fox Lake Crossing II - 3,458,414 - - - 3,458,414 - 3,458,414 - Gateway Shopping Center - 408,000 - - - 408,000 - 408,000 - Holly Springs - Phase II * - 16,353,662 - - - 16,353,662 - 16,353,662 - KR New Hill * - 4,362,362 - - - 4,362,362 - 4,362,362 - KR Peakway - 6,032,105 - - - 6,032,105 - 6,032,105 - KRG Peakway - 16,215,375 - - - 16,215,375 - 16,215,375 - Pan Am Plaza - 8,797,837 - - - 8,797,837 - 8,797,837 - Parkside Town Commons - Phase III - 41,189 - - - 41,189 - 41,189 - Total Other 5,000,00083,996,941 - - - 83,996,941 - 83,996,941 - Line of credit/Term Loan - see *375,000,000 Grand Total$857,146,095$435,549,191$1,365,419,456$238,865$70,880,449$435,788,056$1,436,299,905$1,872,087,961$229,286,005Initial CostCosts Capitalized Subsequent to Acquisition/DevelopmentGross Carrying Amount Close of Period
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, 2013, 2012, and 2011 are as follows:
Balance, beginning of year .............. $
Acquisitions ....................................
Consolidation of subsidiary .............
Improvements ..................................
Disposals .........................................
Balance, end of year ........................ $
2013
1,390,213,220
419,079,535
—
111,968,165
(49,172,959 )
1,872,087,961
$
$
2012
1,268,253,652
76,530,776
33,701,408
106,307,456
(94,580,072 )
1,390,213,220
$
$
2011
1,194,766,485
17,383,640
—
67,626,743
(11,523,216 )
1,268,253,652
The unaudited aggregate cost of investment properties for federal tax purposes as of December 31, 2013 was $1.6 billion.
Note 2. Reconciliation of Accumulated Depreciation
The changes in accumulated depreciation of the Company for the years ended December 31, 2013, 2012, and 2011 are as
follows:
Balance, beginning of year ......................
Depreciation expense ..............................
Disposals .................................................
Balance, end of year ................................
$
$
2013
190,972,644
49,391,709
(11,078,348 )
229,286,005
2012
174,167,146
37,429,281
(20,623,783 )
190,972,644
$
$
$
$
2011
147,889,371
32,706,686
(6,428,911 )
174,167,146
Depreciation of investment properties reflected in the statements of operations is calculated over the estimated original lives of
the assets as follows:
Buildings .....................................................................
Building improvements ...............................................
Tenant improvements ..................................................
Furniture and Fixtures .................................................
20-35 years
10-35 years
Term of related lease
5-10 years
F-37
Exhibit No.
Description
Location
EXHIBIT INDEX
3.1
3.2
3.3
3.4
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
Articles Supplementary establishing additional
shares of 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
First 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 the
Current Report on Form 8-K of Kite Realty
Group Trust filed with the SEC on March 12,
2012
Incorporated by reference to Exhibit 3.1 to
Kite Realty Group Trust’s registration
statement of Form 8-A filed on December 7,
2010
Incorporated by reference to Exhibit 3.1 of
the Quarterly Report on Form 10-Q of Kite
Realty Group Trust for the period ended June
30, 2012
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
Amendment No. 2 to Amended and Restated
Agreement of Limited Partnership of Kite
Realty Group, L.P.
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*
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
March 12, 2012
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
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Company and John A. Kite*
Incorporated by reference to Exhibit 10.13 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Company and Thomas K. McGowan*
Noncompetition Agreement, dated as of
August 16, 2004, by and between the
Company and Daniel R. Sink*
Indemnification Agreement, dated as of
August 16, 2004, by and between Kite Realty
Group, L.P. and Alvin E. Kite*
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.*
Indemnification Agreement, dated as of March
8, 2013, by and between Kite Realty Group,
L.P. and Victor J. Coleman *
August 20, 2004
Incorporated by reference to Exhibit 10.14 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
Incorporated by reference to Exhibit 10.15 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
Incorporated by reference to Exhibit 10.16 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
Incorporated by reference to Exhibit 10.17 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
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 10.20 to
the Annual Report on Form 10-K of Kite
Realty Group Trust for the period ended
December 31, 2013
Indemnification Agreement, dated as of
March7, 2014, by and between Kite Realty
Group, L.P. and Christie B. Kelly *
Filed herewith
10.8
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
Indemnification Agreement, dated as of March
7, 2014, by and between Kite Realty Group,
L.P. and David R. O’Reilly *
Indemnification Agreement, dated as of March
7, 2014, by and between Kite Realty Group,
L.P. and Barton R. Peterson *
Filed herewith
Filed herewith
Kite Realty Group Trust Equity Incentive Plan,
as amended*
Kite Realty Group Trust Executive Bonus
Plan*
Kite Realty Group Trust 2008 Employee Share
Purchase Plan*
Registration Rights Agreement, dated as of
August 16, 2004, by and among the Company,
Alvin E. Kite, Jr., John A. Kite, Paul W. Kite,
Thomas K. McGowan, Daniel R. Sink, George
F. McMannis, Mark Jenkins, C. Kenneth Kite,
David Grieve and KMI Holdings, LLC
Incorporated by reference to the Kite Realty
Group Trust definitive Proxy Statement,
filed with the SEC on April 10, 2009
Incorporated by reference to Exhibit 10.27 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
Incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
May 12, 2008
Incorporated by reference to Exhibit 10.32 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
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 Nonqualified Share Option
Agreement under 2013 Equity Incentive Plan*
Form of Restricted Share Agreement under
2013 Equity Incentive Plan*
Schedule of Non-Employee Trustee Fees and
Other Compensation*
Kite Realty Group Trust Trustee Deferred
Compensation Plan*
Consulting Agreement, dated as of March 31,
2009, by and between the Company and Alvin
E. Kite, Jr.
Third Amended and Restated Credit
Agreement, dated as of February 26, 2013, by
and among the Operating Partnership, the
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 10.1 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
May 14, 2013
Incorporated by reference to Exhibit 10.2 of
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
May 14, 2013
Incorporated by reference to Exhibit 10.4 of
the Quarterly Report on Form 10-Q of Kite
Realty Group Trust for the period ended June
30, 2013
Incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q of Kite
Realty Group Trust for the period ended June
30, 2006
Incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
April 6, 2009
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
March 4, 2013
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
Company, KeyBank National Association, as
Administrative Agent, Bank of America, N.A.,
as Syndication Agent, Wells Fargo Bank,
National Association, as successor to
Wachovia Bank, National Association, as
Documentation Agent, KeyBanc Capital
Markets and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as Co-Lead Arrangers,
and the other lenders party thereto.
Second Amended and Restated Guaranty,
dated as of February 26, 2013, by the
Company and certain subsidiaries of the
Operating Partnership party thereto.
Incorporated by reference to Exhibit 10.2 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
March 4, 2013
Term Loan Agreement, dated as of April 30,
2012, by and among the Operating Partnership,
the Company, KeyBank National Association,
as Administrative Agent, Wells Fargo Bank,
National Association, as Syndication Agent,
the Huntington National Bank, as
Documentation Agent, Keybanc Capital
Markets and Wells Fargo Securities, LLC, as
Joint Bookrunners and Joint Lead Arrangers,
and the other lenders party thereto.
First Amendment to Term Loan Agreement,
dated as of February 26, 2013, by and among
the Operating Partnership, the Company,
certain subsidiaries of the Operating
Partnership party thereto, KeyBank National
Association, as a lender and as Administrative
Agent, and the other lenders party thereto.
Second Amendment to Term Loan Agreement,
dated as of August 21, 2013, by and among the
Operating Partnership, the Company, certain
subsidiaries of the Operating Partnership party
thereto, KeyBank National Association, as a
lender and as Administrative Agent, and the
other lenders party thereto.
Guaranty, dated as of April 30, 2012, by the
Company and certain subsidiaries of the
Operating Partnership party thereto
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 4, 2012
Incorporated by reference to Exhibit 10.3 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
March 4, 2013
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 27, 2013
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
May 4, 2012
Statement of Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred
Dividends
List of Subsidiaries
Consent of Ernst & Young LLP
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
Filed herewith
Filed herewith
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
Filed herewith
Certification of Chief Executive Officer and
Filed herewith
10.36
10.37
10.38
10.39
10.40
12.1
21.1
23.1
31.1
31.2
32.1
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation
Filed herewith
Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase
Filed herewith
Document
101.PRE
XBRL Taxonomy Extension Presentation
Filed herewith
Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition
Filed herewith
Linkbase Document
____________________
* Denotes a management contract or compensatory, plan contract or arrangement.
Kite Realty Group Trust
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:
Income (loss) 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
2013
2012
2011
2010
2009
Years ended December 31
$
(726,597)
$
(11,454,669)
$
3,752,729
$
(9,256,140)
$
3,809,414
262,404
(105,984)
(1,294)
265,986
(22,293)
28,026,382
23,422,793
21,659,785
24,858,996
23,844,114
$
$
—
—
—
—
—
4,320,155
—
—
381,514
—
27,562,189
11,862,140
21,091,065
15,868,842
28,012,749
27,993,577
5,081,418
32,805
—
33,107,800
8,456,251
$
$
23,391,937
7,444,472
30,856
—
30,867,265
7,920,002
$
$
21,624,992
8,486,590
34,793
—
30,146,375
5,775,000
$
$
24,831,144
8,807,062
27,852
—
33,666,058
376,979
$
$
23,644,881
8,892,218
20,056
179,177
32,736,332
—
$
41,564,051
$
38,787,267
$
35,921,375
$
34,043,037
$
32,736,332
(1)
(2)
(3)
(4)
(5)
(1) The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2013 was $14.0 million. The
calculation of earnings includes $54.5 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, 2012 was $26.9 million. The
calculation of earnings includes $38.8 million of non-cash depreciation expense and a $8.0 million non-cash remeasurement
loss on consolidation of Parkside Town Commons, net.
(3) The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2011 was $14.8 million. The
calculation of earnings includes $33.1 million of non-cash depreciation expense.
(4) The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2010 was $18.2 million. The
calculation of earnings includes $36.1 million of non-cash depreciation expense.
(5) The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2009 was $4.7 million. The
calculation of earnings includes $28.6 million of non-cash depreciation expense.
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.
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 Acworth Management, LLC
Kite Eagle Creek, LLC
Kite Greyhound, LLC
Kite Greyhound III, LLC
Kite King’s Lake, LLC
Kite Kokomo, LLC
Kite Kokomo Management, 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, L.P.
Kite Realty Holding, LLC
Kite Realty New Hill Place, LLC
Kite Realty Peakway at 55, LLC
Kite Realty Washington Parking, LLC
Kite Realty/White LS Hotel Operators, LLC
Kite San Antonio, LLC
Kite Washington, LLC
Kite Washington Parking, LLC
Kite West 86th Street, LLC
Jurisdiction of Incorporation or
Formation
Indiana
Indiana
Indiana
Delaware
Florida
Indiana
Indiana
Florida
Indiana
Indiana
Florida
Indiana
Indiana
Florida
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Kite West 86th Street II, LLC
KRG 951 & 41, LLC
KRG Beacon Hill, LLC
KRG Beechwood, LLC
KRG Bolton Plaza, LLC
KRG Bridgewater, LLC
KRG Burnt Store, LLC
KRG Capital, LLC
KRG Castleton Crossing, LLC
KRG Cedar Hill Plaza, LP
KRG Cedar Hill Village, LP
KRG Centre, LLC
KRG CHP Management, LLC
KRG Clay, LLC
KRG College, LLC
KRG College I, LLC
KRG Construction, LLC
KRG Cool Creek Management, LLC
KRG Cool Creek Outlots, LLC
KRG Cool Springs, LLC
KRG Corner Associates, LLC
KRG Courthouse Shadows, LLC
KRG Courthouse Shadows I, LLC
KRG Cove Center, LLC
KRG/CP Pan Am Plaza, LLC
KRG Daytona Management, LLC
KRG Daytona Management II, LLC
KRG Daytona Outlot 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 Eastwood, 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 Land Management, 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 Gainesville, LLC
KRG Geist Management, LLC
KRG Greencastle, LLC
KRG Hamilton Crossing, LLC
KRG Hamilton Crossing Management, LLC
KRG Hunter’s Creek, LLC
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Delaware
Indiana
Indiana
Indiana
Delaware
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
KRG Indian River, LLC
KRG ISS, LLC
KRG ISS LH Outlot, LLC
KRG Kedron Management, LLC
KRG Kingwood, LLC
KRG Kokomo Project Company, LLC
KRG Lakewood, LLC
KRG Lithia, LLC
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 Naperville Management, LLC
KRG New Hill Place, LLC
KRG New Hill Place I, LLC
KRG Northdale, LLC
KRG Oak and Ford Zionsville, LLC
KRG Oldsmar, LLC
KRG Oldsmar Management, LLC
KRG Oldsmar Project Company, LLC
KRG Oleander, LLC
KRG Pan Am Plaza, LLC
KRG Panola I, LLC
KRG Panola II, LLC
KRG Parkside I, LLC
KRG Parkside II, LLC
KRG Peakway at 55, LLC
KRG Pembroke Pines, LLC
KRG Pine Ridge, LLC
KRG Pipeline Pointe, LP
KRG Plaza Green, LLC
KRG Plaza Volente, LP
KRG Plaza Volente Management, LLC
KRG Portofino Project Company, 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 Toringdon Market, LLC
KRG Traders Management, LLC
KRG Trussville I, LLC
KRG Trussville II, LLC
KRG Vero, LLC
KRG Washington Management, LLC
KRG Waterford Lakes, LLC
KRG Whitehall Pike Management, LLC
KRG Woodruff Greenville, LLC
Delaware
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Delaware
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
KRG/Atlantic Delray Beach, LLC
KRG/I-65 Partners Beacon Hill, LLC
KRG/KP Northwest 20, LLC
KRG/PRISA II Parkside, LLC
KRG/PRP Oldsmar, LLC
KRG/WLM Marysville, LLC
Meridian South Insurance, LLC
Noblesville Partners, LLC
Preston Commons, LLP
Riverchase Owners’ Association, Inc.
Westfield One, LLC
Whitehall Pike, LLC
Florida
Indiana
Indiana
Delaware
Florida
Indiana
Tennessee
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, 333-163945 and 333-178792) in the
related Prospectuses of Kite Realty Group Trust and Subsidiaries of our reports dated March 7, 2014, with respect to the consolidated
financial statements and schedule of Kite Realty Group Trust and Subsidiaries 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,
2013.
EXHIBIT 23.1
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 7, 2014
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 7, 2014
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 7, 2014
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, 2013 (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 7, 2014
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 SEC or its staff upon request.
CORPORATE HEADQUARTERS
Kite Realty Group Trust
30 South Meridian Street, Suite 1100
Indianapolis, Indiana 46204
Phone: (317) 577-5600
Fax: (317) 713-2764
WEBSITE
www.kiterealty.com
EXCHANGE LISTING
New York Stock Exchange.
NYSE: KRG
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
TRANSFER AGENT AND REGISTRAR
Broadridge
Ms. Rosanna Garafalo
51 Mercedes Way
Edgewood, NY 11717
(631) 274-2627
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.
ANNUAL MEETING
The Annual Meeting of Shareholders
will be held at 9:00 a.m. local time
on May 7, 2014, at 30 South Meridian
Street, Eighth Floor Conference
Center, Indianapolis, Indiana 46204.
FORM 10-K
Copies of the Company’s Annual
Report on Form 10-K for the year
ended December 31, 2013 are available
to shareholders without charge
upon written request to Investor
Relations, 30 South Meridian Street,
Suite 1100, Indianapolis, Indiana 46204
BOARD OF TRUSTEES
John A. Kite
Chairman and Chief Executive Officer
Kite Realty Group Trust
William E. Bindley
Chairman
Bindley Capital Partners, LLC
OFFICERS
Tom McGowan, President and COO and
Dan Sink, Executive VP and CFO
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
Victor J. Coleman
Chairman and Chief Executive Officer
Hudson Pacific Properties, Inc.
Dr. Richard Cosier
Dean Emeritus and Leeds Professor of
Management at Purdue University
Christie B. Kelly
Executive Vice President, Chief
Financial Officer
Jones Lang LaSalle, Inc.
Gerald L. Moss
Honorary Of Counsel,
Bingham Greenebaum Doll, LLP
David R. O’Reilly
Executive Vice President, Chief Investment
Officer and Chief Financial Officer
Parkway Properties, Inc.
Barton R. Peterson
Senior Vice President, Corporate Affairs
and Communications
Eli Lilly and Company
CHAIRMAN EMERITUS
Alvin E. Kite
Kite Realty Group Trust
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, 2013. 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 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,
financial or otherwise, 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
low growth in the U.S. economy, 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 (including
the impact of the acquisition of the portfolio of nine retail operating properties and financing thereof, and the Company’s ability to successfully integrate the
operations of the acquired properties), property ownership and management risks, the Company’s ability to maintain its status as a real estate investment trust
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, the dilutive effects of future offerings of issuing additional securities, and other
factors affecting the real estate industry generally. The Company refers you to the documents filed by the Company from time to time with the Securities and
Exchange Commission, specifically the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013,
which discuss these and other factors that could adversely affect the Company’s results. The Company undertakes no obligation to publicly update or revise
these forward-looking statements, whether as a result of new information, future events or otherwise.
Kite Realty Group I 30 S. Meridian Street, Suite 1100 I Indianapolis, IN 46204 I 317.577.5600 I kiterealty.com
CORPORATE HEADQUARTERS
Kite Realty Group Trust
30 South Meridian Street, Suite 1100
Indianapolis, Indiana 46204
Phone: (317) 577-5600
Fax: (317) 713-2764
WEBSITE
www.kiterealty.com
EXCHANGE LISTING
New York Stock Exchange.
NYSE: KRG
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
TRANSFER AGENT AND REGISTRAR
Broadridge
Ms. Rosanna Garafalo
51 Mercedes Way
Edgewood, NY 11717
(631) 274-2627
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.
ANNUAL MEETING
The Annual Meeting of Shareholders
will be held at 9:00 a.m. local time
on May 7, 2014, at 30 South Meridian
Street, Eighth Floor Conference
Center, Indianapolis, Indiana 46204.
FORM 10-K
Copies of the Company’s Annual
Report on Form 10-K for the year
ended December 31, 2013 are available
to shareholders without charge
upon written request to Investor
Relations, 30 South Meridian Street,
Suite 1100, Indianapolis, Indiana 46204
BOARD OF TRUSTEES
John A. Kite
Chairman and Chief Executive Officer
Kite Realty Group Trust
William E. Bindley
Chairman
Bindley Capital Partners, LLC
OFFICERS
Tom McGowan, President and COO and
Dan Sink, Executive VP and CFO
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
Victor J. Coleman
Chairman and Chief Executive Officer
Hudson Pacific Properties, Inc.
Dr. Richard Cosier
Dean Emeritus and Leeds Professor of
Management at Purdue University
Christie B. Kelly
Executive Vice President, Chief
Financial Officer
Jones Lang LaSalle, Inc.
Gerald L. Moss
Honorary Of Counsel,
Bingham Greenebaum Doll, LLP
David R. O’Reilly
Executive Vice President, Chief Investment
Officer and Chief Financial Officer
Parkway Properties, Inc.
Barton R. Peterson
Senior Vice President, Corporate Affairs
and Communications
Eli Lilly and Company
CHAIRMAN EMERITUS
Alvin E. Kite
Kite Realty Group Trust
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, 2013. 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 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,
financial or otherwise, 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
low growth in the U.S. economy, 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 (including
the impact of the acquisition of the portfolio of nine retail operating properties and financing thereof, and the Company’s ability to successfully integrate the
operations of the acquired properties), property ownership and management risks, the Company’s ability to maintain its status as a real estate investment trust
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, the dilutive effects of future offerings of issuing additional securities, and other
factors affecting the real estate industry generally. The Company refers you to the documents filed by the Company from time to time with the Securities and
Exchange Commission, specifically the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013,
which discuss these and other factors that could adversely affect the Company’s results. The Company undertakes no obligation to publicly update or revise
these forward-looking statements, whether as a result of new information, future events or otherwise.
Kite Realty Group I 30 S. Meridian Street, Suite 1100 I Indianapolis, IN 46204 I 317.577.5600 I kiterealty.com