ANNUAL REPORT | 2015
KITE 2015 ANNUAL REPORT
DEAR SHAREHOLDERS:
I’m pleased to report that 2015 marked another year of successful milestones for your company.
The team’s outstanding efforts, attention and skill enabled us to execute on our strategic initiatives
and deliver industry-leading results. Each area of our business contributed to the outperformance:
• We generated $170.2 million of Funds From Operations (“FFO”), as adjusted,
or $1.99 per diluted common share.
• We maintained strong same-property net operating income (“NOI”) growth,
which met the high end of our expectations at a 3.5% increase versus last year.
• We continued to upgrade our high-quality portfolio by disposing of seven assets
in March and selling two non-core assets in the Pacific Northwest in December.
• We successfully invested in four premier operating properties located in
Dallas-Fort Worth, Texas; Livingston, New Jersey; and Oklahoma City, Oklahoma.
• We maintained our unique Kite culture by further developing and encouraging
our team, as evidenced by our industry-leading efficiency ratios.
• We substantially completed two redevelopment projects and transitioned these
assets back into our operating portfolio.
• We launched our 3-R program, which represents our redevelopment, reposition
and repurpose initiatives, and outlined ~$140 million in near-term opportunities.
• We grew our annual free cash flow to approximately $50 million after dividend payments.
• We positioned the Company to enable our recent announcement of a 5.5% increase in
our cash dividend while still maintaining a conservative payout ratio. This most recent
payout increase results in approximately 20% cumulative dividend growth
for our shareholders since 2013.
• We introduced our ‘CORE’ strategic initiative plan, which will enable us to achieve the
goals outlined in our three-year roadmap.
At Kite, ‘CORE’ represents the four pillars that will support our long-term strategic objectives, which we
provided in our three-year roadmap. We have been laser-focused on our CORE in 2015, and our financial
results and operating performance are a testament to this.
CORE stands for our unique company Culture and passion, our expectation and delivery of Operational
excellence, our diligent path to achieve and maintain a Resilient and flexible balance sheet and Executing
on these objectives and strategic initiatives to grow shareholder value over the long-term.
1
KITE REALTY GROUP
kiterealty.com
CULTURE AND PASSION
We operate the business with an efficient corporate structure and an intense passion to achieve
best-in-class results. Our 2014 merger provided a catalyst to upgrade our software platforms across
our business, resulting in numerous synergies, faster processes and smoother execution.
We continue to produce industry-leading operating efficiency metrics, in terms of NOI margin and
comparing our overhead expenses to revenues. We were one of the only strip center REITs to
consistently be in the top of both categories for 2015.
While financial metrics are extremely important, we do not focus on short-term or immediate metrics
and results. We also strive for top-tier internal controls and procedures. The Kite culture emphasizes the
importance of maintaining the utmost integrity and dedication to an ethically-sound organization.
We focus intently on our tenants—or more accurately, our “customers.” We closely monitor our
interactions, which we call ‘tenant touches,’ because we know our business is all about relationships.
In 2015, we completed nearly 7,000 tenant touches on an average tenant base of approximately 2,000
tenants. Building our platform to scale in a personal way supports our operating efficiency, as we
maintained our tenant retention ratio above our internal goals throughout the year, finishing strong
in the fourth quarter by retaining over 90%. Customer retention is the most cost-effective way to
grow revenue and shareholder value.
2
OPERATIONAL EXCELLENCE
We continue to execute and demonstrate to the market our operating and managing skills, as evidenced
by our same-property NOI growth, which was at the high end of our expectations at 3.5%, excluding
redevelopments. Over the course of the year, we also maintained a healthy NOI margin of approximately
74%. Lastly, we made significant strides on our small shop leasing initiative, which improved 190 basis
points to 87.6% leased at the end of 2015.
Each of the CORE pillars contributed to our earnings power during 2015, and we met or exceeded our
expectations during 2015. Despite selling properties, intentionally de-leasing future redevelopment assets
and incurring one-time financial charges, like those related to redeeming our preferred shares, we grew
FFO, as defined by NAREIT, by 4.5% compared to last year, to $2.11 per diluted share and produced FFO,
as adjusted, of $1.99 per diluted share.
1). Peers include BRX, CDR, DDR, EQY, FRT, KIM, REG, ROIC, RPAI, RPT, WRI. Same-property numbers for KRG exclude redevelopment.
RESILIENT AND FLEXIBLE BALANCE SHEET
Our balance sheet and capital position finished the year on a strong note. This year welcomed Kite’s
inaugural bond offering. This bond offering and our other major unsecured transactions brought our
unencumbered value to well above 50% of gross assets.
We also improved our balance sheet by redeeming our preferred shares in December. By doing so, we
reduced overall funding costs and continued to improve our fixed charge ratio, which remains in excess
of three times. Also, we continued to stagger our debt maturities and maintain sufficient liquidity to fund
our near-term debt obligations up to the year 2020.
After funding our additional $100 million relating to the seven-year term loan this coming June, and
excluding the line of credit, we will have only about $110 million of CMBS debt and two project-specific
loans to refinance up to the year 2020. The unsecured financing transactions we executed this year helped
reduce our floating interest rate exposure from 23% at the end of 2014 to only 12% at the end of 2015.
Growing our free cash flow is a primary objective for Kite and imperative to being competitive in our
industry. Capitalizing on opportunities of scale and focusing on operational efficiencies have enabled us
to grow our cash flow from $3 million in 2010 to $50 million in 2015. The team’s significant focus on cash
flow has allowed us to achieve this growth while returning more capital to our shareholders, as evidenced
by our nearly 20% cumulative dividend increase since 2013. Our enhanced liquidity position will be used
to fund redevelopments and further improve our balance sheet, both of which generate meaningful
returns for our shareholders.
3
KITE REALTY GROUP
kiterealty.com
MSA: New York/Newark - GLA: 139,700
Anchors: Nordstrom Rack, DSW, World Market, TJ Maxx, ULTA, BuyBuyBaby
LIVINGSTON SHOPPING CENTER
Livingston, NJ
CHAPEL HILL SHOPPING CENTER
Chapel Hill, TX
MSA: Dallas-Fort Worth - GLA: 191,200
Anchors: Central Market, The Container Store, Cost Plus World Market
EXECUTION
PORTFOLIO TRANSFORMATION
Maintaining reliable and organic earnings growth and a strong balance sheet are the foundations
of our business. High-quality real estate is not state or market-specific, but rather sub-market and even
corner-specific. Our Kite standard of being a leader in efficiencies, operating performance and financial
flexibility helps drive our results, which is then compounded as we further elevate our portfolio’s quality.
Over the last year, we substantially upgraded our already high-quality portfolio by tightening our
geographic footprint around our six regional hubs and repositioning a number of our key assets via
remerchandising and other enhancements.
Source: STI: Popstats; information based on a 3-mile radius for the KRG portfolio.
kiterealty.com
6
TRANSACTIONS
Since December of 2014, we successfully exited six states that were not integral to our future strategy.
We realized approximately $365 million in proceeds from these dispositions. The portfolio pruning included the
second tranche of our 15-asset disposition announced in 2014 as well as two non-core assets in the Pacific
Northwest. With our final asset in the area marketed to sell, we will complete our exit from the region.
We prudently reinvested in attractive opportunities in our primary markets, resulting in meaningful value
creation for our shareholders. Including Rampart Commons in Las Vegas, which we acquired in December
of 2014, we purchased five properties for a total of approximately $220 million. Most of these properties
were acquired in off-market transactions, and they included assets with NOI growth opportunities, such
as Colleyville Downs in the Dallas-Fort Worth area.
Note: Dispositions include the 15-asset disposition, which closed in Q4 2014 and Q1 2015. Acquisition assets include Livingston Shopping Center, Rampart Commons,
Belle Isle, Colleyville Downs and Chapel Hill. Demographic data from AGS; population based on a 5-mile radius, and household income based on a 3-mile radius.
DEVELOPMENT AND REDEVELOPMENT/LONG-TERM VALUE CREATION
Three of our development projects continue to move toward stabilization in the latter half of 2016.
In aggregate, these projects are approximately 89% pre-leased or committed, with roughly 85% of
costs already funded. We substantially completed and transitioned our two redevelopment projects into
our operating portfolio in 2015. Across these five development and redevelopment assets, we anticipate
the majority of the annualized, incremental $9.2 million of cash NOI to come online by the end of 2016.
We have identified a pipeline of $130 to $145 million in redevelopment, repurpose and repositioning
opportunities, which we plan to commence over the next 18 months. These opportunities are projected
to average an incremental return of approximately 9% to 11% and will be meaningfully accretive to our
portfolio’s value.
7
KITE REALTY GROUP
kiterealty.com
MSA: Dallas-Fort Worth - GLA: 200,900
Anchors: Whole Foods, Petco
COLLEYVILLE DOWNS
Colleyville, TX
BELLE ISLE STATION
Oklahoma City, OK
MSA: Oklahoma City - GLA: 396,400
Anchors: Nordstrom Rack, Babies R Us, Ross Dress for Less,
Old Navy, Shoe Carnival, Walmart
CONCLUSION
I would like to thank the team for their effort, our Board of Trustees for their guidance and our
shareholders for your continued support.
We will be providing our shareholders periodic updates regarding the progress on our three-year roadmap
as we work to achieve these strategic objectives and further strengthen the future of Kite Realty Group.
We are excited about the future, and I’m personally privileged to lead your Company.
Sincerely,
John A. Kite
Chief Executive Officer
and Chairman of the Board
9
KITE REALTY GROUP
kiterealty.com
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
For the fiscal year ended December 31, 2015
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________to___________
Commission File Number: 001-32268 (Kite Realty Group Trust)
Commission File Number: 333-202666-01 (Kite Realty Group, L.P.)
Kite Realty Group Trust
Kite Realty Group, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Kite Realty Group Trust)
Delaware (Kite Realty Group, L.P.)
(State or other jurisdiction of incorporation or
organization)
11-3715772
20-1453863
(IRS Employer Identification No.)
30 S. Meridian Street, Suite 1100
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip code)
(317) 577-5600
(Registrant’s telephone number, including area code)
Title of each class
Common Shares, $0.01 par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Kite Realty Group Trust Yes
No
Kite Realty Group, L.P.
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.
Kite Realty Group Trust Yes
No
Kite Realty Group, L.P.
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.
Kite Realty Group Trust Yes
No
Kite Realty Group, L.P.
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).
Kite Realty Group Trust Yes
No
Kite Realty Group, L.P.
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.
Kite Realty Group Trust:
Large accelerated filer
Accelerated filer
Kite Realty Group, L.P.:
Large accelerated filer
Accelerated filer
Non-accelerated filer
(do not check if a smaller reporting
company)
Smaller reporting company
Non-accelerated filer
(do not check if a smaller reporting
company)
Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act)
Kite Realty Group Trust Yes
No
Kite Realty Group, L.P.
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 $2.0 billion based upon the closing price on
the New York Stock Exchange on such date.
The number of Common Shares outstanding as of February 22, 2016 was 83,408,604 ($.01 par value).
Documents Incorporated by Reference
Portions of the definitive Proxy Statement relating to the Registrant’s Annual Meeting of Shareholders, scheduled to be
held on May 11, 2016, 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.
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2015 of Kite Realty Group Trust,
Kite Realty Group, L.P. and its subsidiaries. Unless stated otherwise or the context otherwise requires, references to "Kite Realty
Group Trust" or the "Parent Company" mean Kite Realty Group Trust, and references to the "Operating Partnership" mean Kite
Realty Group, L.P. and its consolidated subsidiaries. The terms "Company," "we," "us," and "our" refer to the Parent Company
and the Operating Partnership collectively, and those entities owned or controlled by the Parent Company and/or the Operating
Partnership.
The Operating Partnership is engaged in the ownership and operation, acquisition, development and redevelopment of high-
quality neighborhood and community shopping centers in select markets in the United States. The Parent Company is the sole
general partner of the Operating Partnership and as of December 31, 2015 owned approximately 97.8% of the common partnership
interests in the Operating Partnership (“General Partner Units”). The remaining 2.2% of the common partnership interests (“Limited
Partner Units” and, together with the General Partner Units, the “Common Units”) are owned by the limited partners.
We believe combining the annual reports on Form 10-K of the Parent Company and the Operating Partnership into this
single report benefits investors by:
•
•
enhancing investors' understanding of the Parent Company and the Operating Partnership by enabling investors to
view the business as a whole in the same manner as management views and operates the business;
eliminating duplicative disclosure and providing a more streamlined and readable presentation of information because
a substantial portion of the Company's disclosure applies to both the Parent Company and the Operating Partnership;
and
•
creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.
We believe it is important to understand the few differences between the Parent Company and the Operating Partnership
in the context of how we operate as an interrelated consolidated company. The Parent Company has no material assets or liabilities
other than its investment in the Operating Partnership. The Parent Company issues public equity from time to time but does not
have any indebtedness as all debt is incurred by the Operating Partnership. In addition, the Parent Company currently does not
nor does it intend to guarantee any debt of the Operating Partnership. The Operating Partnership has numerous wholly-owned
subsidiaries, and it also owns interests in certain joint ventures. These subsidiaries and joint ventures own and operate retail
shopping centers and other real estate assets. The Operating Partnership is structured as a partnership with no publicly-traded
equity. Except for net proceeds from equity issuances by the Parent Company, which are contributed to the Operating Partnership
in exchange for General Partner Units, the Operating Partnership generates the capital required by the business through its
operations, its incurrence of indebtedness and the issuance of Limited Partner Units to third parties.
Shareholders' equity and partners' capital are the main areas of difference between the consolidated financial statements of
the Parent Company and those of the Operating Partnership. In order to highlight this and other differences between the Parent
Company and the Operating Partnership, there are separate sections in this report, as applicable, that separately discuss the Parent
Company and the Operating Partnership, including separate financial statements and separate Exhibit 31 and 32 certifications. In
the sections that combine disclosure of the Parent Company and the Operating Partnership, this report refers to actions or holdings
as being actions or holdings of the collective Company.
KITE REALTY GROUP TRUST AND KITE REALTY GROUP, L.P. AND SUBSIDIARIES
Annual Report on Form 10-K
For the Fiscal Year Ended
December 31, 2015
TABLE OF CONTENTS
Item No.
Part I
1
Business
1A. Risk Factors
1B. Unresolved Staff Comments
2
3
4
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
5
6
7
Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk
8
9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
Part III
10
11
12
13
14
Part IV
Trustees, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
15
Exhibits, Financial Statement Schedule
Signatures
Page
3
10
30
30
45
45
46
49
51
82
82
82
82
87
88
88
88
88
88
89
90
[This page intentionally left blank]
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information publicly disseminated by us, 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 as well as uncertainty added to the economic forecast due to oil and energy prices remaining relatively
low in 2015 and early 2016;
financing risks, including the availability of and costs associated with sources of liquidity;
our ability to refinance, or extend the maturity dates of, our 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 we operate;
acquisition, disposition, development and joint venture risks;
property ownership and management risks;
our ability to maintain our 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 we own;
risks related to the geographical concentration of our properties in Florida, Texas, and Indiana;
insurance costs and coverage;
risks related to cybersecurity attacks and the loss of confidential information and other business disruptions;
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.
We undertake 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, a publicly-held real estate investment trust, through its majority-owned subsidiary, Kite Realty
Group, L.P., owns interests in various operating subsidiaries and joint ventures engaged in the ownership, operation, acquisition,
development, and redevelopment of high-quality neighborhood and community shopping centers in selected markets in the United
States. We derive revenues primarily from rents and reimbursement payments received from tenants under leases at 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 economic and real estate market conditions.
As of December 31, 2015, we owned interests in 110 retail operating properties totaling approximately 22.0 million square
feet of gross leasable area (including approximately 6.7 million square feet of non-owned anchor space) located in 20 states. Our
retail operating portfolio was 95.4% leased to a diversified retail tenant base, with no single retail tenant accounting for more than
3.4% of our total annualized base rent. In the aggregate, our largest 25 tenants accounted for 36.4% of our annualized base rent. See
Item 2, “Properties” for a list of our top 25 tenants by annualized base rent.
As of December 31, 2015, we had an interest in three development projects under construction. Upon completion, these
projects are anticipated to have approximately 0.6 million square feet of gross leasable area. In addition to our development
projects, as of December 31, 2015, we had six redevelopment projects, which are expected to contain 1.2 million square feet of
gross leasable area upon completion.
Significant 2015 Activities
Operating Activities
We continued to drive strong operating results from our portfolio as follows:
•
Same Property Net Operating Income ("Same Property NOI") increased 3.5% in 2015 compared to 2014
primarily due to increases in rental rates, and improved expense control and expense recoveries;
• We executed leases on 188 new and 181 renewal individual spaces for approximately 2.1 million square feet
of retail space in 2015, which are both records for the Company; and
• Continued to maintain our operational excellence. We believe our efficiency metrics, which we define as a
combination of operating margin and general and administrative expenses to revenue, are in the top third of our
peer group.
3
Portfolio Recycling and Acquisition Activities
In March 2015, we sold seven retail operating properties for aggregate gross proceeds of $167.4 million and a net gain of
$3.4 million. In addition, in December 2015, we sold two properties for gross proceeds of $44.9 million and a net gain of $0.6
million.
During 2015, we acquired four operating properties with total gross leasable area ("GLA") of approximately 928,000 square
feet (617,000 square feet of owned GLA) for an aggregate purchase price of $185.8 million, including the following:
• Colleyville Downs – In April 2015, we acquired this shopping center with total GLA of 200,900 square feet
(185,800 square feet of owned GLA) in Dallas, Texas. Primary anchor tenants for this center include Whole
Foods Market, Ace Hardware, and Petco.
• Belle Isle Station – In May 2015, we acquired this shopping center with total GLA of 396,400 square feet
(164,300 square feet of owned GLA) in Oklahoma City, Oklahoma. Anchor tenants for this center include
Nordstrom Rack, Old Navy, Ross Dress for Less, Shoe Carnival, Babies ‘R Us, Party City, Kirkland’s and a
non-owned Wal-Mart Supercenter.
•
Livingston Shopping Center – In July 2015, we acquired this shopping center with total and owned GLA of
139,700 square feet in Livingston, New Jersey. Anchor tenants for this center include Nordstrom Rack, TJ
Maxx, Cost Plus World Market, Buy Buy Baby, DSW and Ulta.
• Chapel Hill Shopping Center – In August 2015, we acquired this shopping center with total GLA of 191,200
square feet (126,800 square feet of owned GLA) in Fort Worth, Texas. In connection with the acquisition,
we assumed an $18.3 million fixed rate mortgage. Anchor tenants for this center include HEB Grocery, The
Container Store and Cost Plus World Market.
Development and Redevelopment Activities
During 2015, we initiated, advanced, and completed a number of development and redevelopment activities, including the
following:
• Parkside Town Commons – Phase II near Raleigh, North Carolina – We commenced construction on Phase II
of this development with total GLA of 347,800 square feet (297,400 square feet of owned GLA) in the
second quarter of 2014. Field & Stream and Golf Galaxy both opened in 2014 and Frank Theatres opened in
July of 2015. The property is expected to be stabilized in the second half of 2016.
• Holly Springs Towne Center – Phase II near Raleigh, North Carolina – We commenced construction on
Phase II of this development with total GLA of 154,000 square feet (122,000 square feet of owned GLA) in
the third quarter of 2014. Phase II of the development is anchored by Bed Bath & Beyond, which opened in
December 2015, and DSW, which is expected to open in the first half of 2016. The remaining anchor,
Carmike Theatres, is expected to open in the summer of 2016.
•
Tamiami Crossing in Naples, Florida – We commenced site work on this development with total GLA of
141,600 square feet (121,600 square feet of owned GLA) in the fourth quarter of 2014. The development is
expected to be stabilized by the second half of 2016. This center will be anchored by Stein Mart, Ulta,
Michaels, Marshalls, Ross Dress for Less and Petsmart.
• Gainesville Plaza in Gainesville, Florida – We substantially completed construction on this redevelopment
and transitioned this project to the operating portfolio in the fourth quarter of 2015. This center is anchored
by Burlington Coat Factory and Ross Dress for Less.
• Cool Spring Market in Nashville, Tennessee – We completed the relocation of an existing Staples to a new,
smaller space and executed new leases with Buy Buy Baby and DSW on this redevelopment. We
transitioned this project to the operating portfolio in the fourth quarter of 2015.
4
Financing and Capital Raising Activities.
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 2015, we were able to strengthen our balance sheet and improve our financial flexibility and liquidity to fund
future growth. We ended the year with approximately $373 million of combined cash and borrowing capacity on our unsecured
revolving credit facility. Significant financing and capital raising activities included:
•
•
•
•
In June 2015, we increased the existing unsecured term loan with a maturity date of July 1, 2019 from $230
million to $400 million.
In September 2015, the Operating Partnership issued $250 million of senior unsecured notes at a blended rate
of 4.41% and an average maturity of 9.8 years.
In October 2015, we entered into a new seven-year unsecured term loan ("7-Year Term Loan") for up to $200
million. In December 2015, we retired the $90 million loan that was secured by City Center utilizing a draw
on our unsecured revolving credit facility. Later in December 2015, we drew $100 million on the term loan
and used the proceeds to pay down the unsecured revolving credit facility.
In December 2015, we redeemed all 4,100,000 outstanding shares of our 8.250% Series A Cumulative
Redeemable Perpetual Preferred Share (“Series A Preferred Shares”).
• During 2015, we retired $233.1 million of property level secured debt.
2015 Cash Distributions
In 2015, we declared total cash distributions of $1.09 per common share and $2.0912 per share of our Series A Preferred
Shares. The cash distribution per share of our Series A Preferred Shares includes the amount equal to all accrued and unpaid
dividends up to, but not including, the redemption date of December 2, 2015. On February 4, 2016, our Board of Trustees approved
a quarterly common share distribution of $0.2875 per common share for the first quarter of 2016, which represents a 5.5% increase
over our previous quarterly distribution.
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, acquisition, development,
and redevelopment of well-located community and neighborhood shopping centers. We invest in properties with well-located
real estate and strong demographics and we use our effective leasing and management strategies to improve the long-term values
and economic returns of our properties. We believe that many of our 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
5
own or newly acquired land 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 the public equity and debt market, our
existing revolving credit facility, new secured debt, internally generated funds, proceeds from selling land
and properties that no longer fit our strategy, and potential strategic joint ventures. We continuously monitor
the capital markets and may consider raising additional capital when appropriate.
Operating Strategy. Our primary operating strategy is to maximize rental rates and 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 allows us to maintain and, in many 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 cost recovery;
• 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 successfully executed our operating strategy in 2015 in a number of ways, including improving our Same Property NOI
by 3.5% and generating blended new and renewal positive cash leasing spreads of 11.4% in 2015. We have also been successful
in maintaining a diverse retail tenant mix with no tenant accounting for more than 3.4% 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 continue to implement our growth strategy in a number of
ways, including:
•
•
•
selectively pursuing the acquisition of retail operating properties, portfolios and companies in markets with
strong demographics;
continually evaluating our operating properties for redevelopment and renovation opportunities that we believe
will make them more attractive for leasing to new tenants, right sizing anchor space while increasing rental
rates, or re-leasing to existing tenants at increased rental rates; 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 rent growth potential in targeted markets or using the proceeds
to improve our financial position.
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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, the tax
consequences of the sale, and other related factors;
the current tenant mix at the property and the potential future tenant mix that the demographics of the property
could support, including the presence of one or more additional anchors (for example, value retailers, grocers,
soft goods stores, office supply stores, or sporting goods retailers), as well as an overall diverse tenant mix that
includes restaurants, shoe and clothing retailers, specialty shops and service retailers such as banks, dry cleaners
and hair salons, some of which provide staple goods to the community and offer a high level of convenience;
•
the configuration of the property, including ease of access, availability of parking, visibility, and the demographics
of the surrounding area; and
•
the level of success of existing properties in the same or nearby markets.
In 2015, we were successful in completing and integrating the acquisition of four high-quality retail properties that enabled
us to expand our presence in our core markets. We also delivered three very strong development and redevelopment projects to
the operating portfolio, and we expect to deliver several more projects in 2016. In addition, we are currently evaluating additional
redevelopment, repositioning, and repurposing opportunities at a number of operating properties. Total estimated costs for these
projects are expected to be in the range of $130 million to $145 million.
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 and enhance our flexibility to
fund operating and investment activities in the most cost-effective way. We consider a number of factors when evaluating our
level and type of indebtedness and when making decisions regarding additional borrowings. Among these factors are the
construction costs or purchase prices of properties to be developed or acquired, the estimated market value of our properties and
the Company as a whole upon consummation of the financing, and the ability of particular properties to generate cash flow to
cover expected debt service.
Our efforts to strengthen our balance sheet are important. We achieved an investment grade credit rating in 2014. We
expect that will enable us to opportunistically access the public unsecured bond market at some point and otherwise will allow us
to lower our cost of capital and provide greater flexibility in managing the acquisition and disposition of assets in our operating
portfolio. In addition, through the retirement of property level secured debt in 2015, we were able to unencumber approximately
$440 million of gross assets associated with our operating properties.
We intend to continue implementing our financing and capital strategies in a number of ways, including:
•
prudently managing our balance sheet, including maintaining sufficient capacity 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;
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•
•
•
•
extending the maturity dates of and/or refinancing our near-term mortgage, construction and other indebtedness;
expanding our unencumbered asset pool;
raising additional capital through the issuance of common shares, preferred shares or other securities;
evaluating whether to enter into construction loans prior to commencement of vertical construction to fund our
larger developments and redevelopments;
• managing our exposure to interest rate increases on our variable-rate debt through the use of fixed rate hedging
transactions;
•
issuing unsecured bonds in the public markets, and securing property specific long-term non-recourse 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.
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.
Affordable Care Act. Effective January 2015, we may be subject to excise taxes under the employer mandate provisions of
the Affordable Care Act ("ACA"), if we (i) do not offer health care coverage to substantially all of our full-time employees and
their dependents; or (ii) do not offer health care coverage that meets the ACA's affordability and minimum value standards. The
excise tax is based on the number of full-time employees. We do not anticipate being subject to a penalty under the ACA; however,
even in the event that we are, any such penalty would be less than $0.3 million, as we have 145 full-time employees as of
December 31, 2015.
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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 storage tanks 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.
Employees
As of December 31, 2015, we had 145 full-time employees. The majority of these employees were based at our Indianapolis,
Indiana headquarters.
Segment Reporting
Our primary business is the ownership and operation of neighborhood and community shopping centers. We do not
distinguish or group our operations on a geographical basis, or any other basis, when measuring performance. Accordingly, we
have one operating segment, which also serves as our reportable segment for disclosure purposes in accordance with GAAP.
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Available Information
Our Internet website address is www.kiterealty.com. You can obtain on our website, free of charge, a copy of our Annual
Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports,
as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish them to, the SEC. Our
Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual
Report on Form 10-K.
Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Code of Ethics
for Principal Executive Officer and Senior Financial Officers, our Corporate Governance Guidelines, and the charters for each of
the committees of our Board of Trustees—the Audit Committee, the Corporate Governance and Nominating Committee, and the
Compensation Committee. Copies of our Code of Business Conduct and Ethics, our Code of Ethics for Principal Executive Officer
and Senior Financial Officers, our Corporate Governance Guidelines, and our committee charters are also available from us in
print and free of charge to any shareholder upon request. Any person wishing to obtain such copies in print should contact our
Investor Relations department by mail at our principal executive office.
ITEM 1A. RISK FACTORS
The following factors, among others, could cause actual results to differ materially from those contained in forward-looking
statements made in this Annual Report on Form 10-K and presented elsewhere by our management from time to time. These
factors, among others, may have a material adverse effect on our business, financial condition, operating results and cash flows,
and you should carefully consider them. It is not possible to predict or identify all such factors. You should not consider this list
to be a complete statement of all potential risks or uncertainties. Past performance should not be considered an indication of future
performance.
We have separated the risks into three categories:
•
•
•
risks related to our operations;
risks related to our organization and structure; and
risks related to tax matters.
RISKS RELATED TO OUR OPERATIONS
Because of our geographical concentration in Florida, Indiana and Texas, a prolonged economic downturn in these states
could materially and adversely affect our financial condition and results of operations.
The specific markets in which we operate may face challenging economic conditions that could persist into the future. In
particular, as of December 31, 2015, 26% of our owned square footage and 25% of our total annualized base rent was located in
Florida, 17% of our owned square footage and 15% of our total annualized base rent was located in Indiana and 13% of our owned
square footage and 13% 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 Florida, Indiana, 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, 2015, we had approximately $263 million
and $17 million of debt maturing in 2016 and 2017, respectively. We intend to retire $100 million of the 2016 maturities utilizing
the remaining capacity on the 7-Year Term Loan. If we are not successful in refinancing our remaining 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. We currently have sufficient capacity under the unsecured revolving credit
facility to retire outstanding debt in the event we are not able to refinance such debt when it becomes due, but we cannot provide
any assurances that we will be able to maintain that capacity in order to retire any or all of these loans at maturity.
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 shares or preferred shares. 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. Over the past several years, this structural
weakness has resulted in periods of high 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.
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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.
Our real estate assets may be subject to impairment charges, which may negatively affect our net income.
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 our 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.
The termination of any leases 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
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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. Additionally, in the event our tenants are involved in mergers with or acquisitions by third parties, such tenants may choose
to terminate their leases, vacate the leased premises or not renew their leases if they consolidate, downsize or relocate their
operations as a result of the transaction. For example, our tenant Office Depot announced its agreement to merge with Staples,
which merger is currently subject to regulatory approvals. These two tenants contribute on a combined basis approximately 2%
of our total annualized base rent. In connection with the proposed merger, Office Depot and Staples may choose to close or relocate
a number of their stores, which may be stores at premises they lease from us. In that event, we may experience periods where
multiple locations are not leased as we seek new tenants, which would negatively affect our net rental revenues in the near term. The
occurrence of any of the situations described above, particularly if it involves a substantial tenant or a non-owned anchor with
ground leases in multiple locations, could have a material adverse effect on our results of operations. As of December 31, 2015,
the five largest tenants in our operating portfolio in terms of annualized base rent were Publix, TJX Companies, Petsmart, Bed
Bath & Beyond, and Ross Stores, representing 3.4%, 2.6%, 2.2%, 2.2%, and 2.1%, 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 $1.7 billion of consolidated indebtedness outstanding as of December 31, 2015, 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 $1.7
billion of consolidated outstanding indebtedness as of December 31, 2015. At December 31, 2015, $711.0 million of our debt
bore interest at variable rates ($215.3 million when reduced by our $495.7 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, 2015 increased by 1%, the increase in interest expense on our unhedged
variable rate debt would decrease future cash flows by $2.2 million annually.
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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
•
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, acceleration of other material indebtedness 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 the extent such debt is
secured, 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, limit our ability to make distributions to our shareholders,
prevent us from obtaining additional funds needed to address cash shortfalls or pursue growth opportunities.
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. The agreements relating to our unsecured revolving credit facility, Term Loan and 7-Year Term Loan contain
provisions providing that any “Event of Default” under one of these facilities or loans will constitute an “Event of Default” under
the other facility or loan. In addition, these agreements relating to our unsecured revolving credit facility, Term Loan and 7-Year
Term Loan, as well as the agreement relating to our senior unsecured notes, include a provision providing that any payment default
under an agreement relating to any material indebtedness will constitute an “Event of Default” thereunder. These provisions could
allow the lending institutions to accelerate the amount due under the loans. If payment is accelerated, our assets may not be
sufficient to repay such debt in full, and, as a result, such an event may have a material adverse effect on our cash flow, financial
condition and results of operations. We were in compliance with all applicable covenants under the agreements relating to our
unsecured revolving credit facility, Term Loan, 7-Year Term Loan and senior unsecured notes as of December 31, 2015, although
there can be no assurance that we will continue to remain in compliance.
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Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a
property or group of properties subject to mortgage debt.
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. In addition, as a result of cross-collateralization or cross-default provisions
contained in certain of our mortgage loans, a default under one mortgage loan could result in a default on other indebtedness and
cause us to lose other better performing properties, which could materially and adversely affect our financial condition and results
of operations.
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.
In addition, other events and conditions generally applicable to owners and operators of real property that are beyond our
control may decrease cash available for distribution and the value of our properties. These events include but are not limited to:
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adverse changes in the national, regional and local economic climate, particularly in: Florida, where 26% of
our owned square footage and 25% of our total annualized base rent is located; Indiana, where 17% of our
owned square footage and 15% of our total annualized base rent is located; and Texas, where 13% of our owned
square footage and 13% 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;
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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);
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costs of complying with changes in governmental regulations, including those governing health, safety, 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 customer 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, 2015, we owned 10 of our operating properties through consolidated joint ventures and one through
an unconsolidated joint venture. As of December 31, 2015, the 10 properties represented 13.4% of the annualized base rent of the
portfolio. In addition, we currently own land held for development through one joint venture. 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
property or the making of additional capital contributions for the benefit of the property, which may prevent us
from taking actions that are opposed by our joint venture partners;
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prior consent of our joint venture partners may be required for a sale or transfer to a third party of our interests
in the joint venture, which restricts our ability to dispose of our interest in the joint venture;
our joint venture partners might become bankrupt or fail to fund their share of required capital contributions,
which may delay construction or development of a property or increase our financial commitment to the joint
venture;
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our joint venture partners may have business interests or goals with respect to the property that conflict with
our business interests and goals, which could increase the likelihood of disputes regarding the ownership,
management or disposition of the property;
disputes may develop with our joint venture partners over decisions affecting the property or the joint venture,
which may result in litigation or arbitration that would increase our expenses and distract our officers and/or
trustees from focusing their time and effort on our business and possibly disrupt the day-to-day operations of
the property such as by delaying the implementation of important decisions until the conflict or dispute is
resolved; and
• we may suffer losses as a result of the actions of our joint venture partners with respect to our joint venture
investments, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even
though we may not control the joint venture.
In the future, we 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, 2015, leases representing 6.5% of our owned gross leasable area (GLA) were
scheduled to expire in 2016. 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.
As of December 31, 2015, we have nine development and redevelopment projects. New development projects and property
acquisitions are subject to a number of risks, including, but not limited to:
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abandonment of development activities after expending resources to determine feasibility;
construction delays or cost overruns that may increase project costs;
our investigation of a property or building prior to our acquisition, and any representations we may receive from
the seller, may fail to reveal various liabilities or defects or identify necessary repairs until after the property is
acquired, which could reduce the cash flow from the property or increase our acquisition costs;
as a result of competition for attractive development and acquisition opportunities, we may be unable to acquire
assets as we desire or the purchase price may be significantly elevated, which may impede our growth;
difficulty obtaining financing on acceptable terms or paying operating expenses and debt service costs associated
with redevelopment properties prior to sufficient occupancy;
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the failure to meet anticipated occupancy or rent levels within the projected time frame, if at all;
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inability to operate successfully in new markets where new properties are located;
inability to successfully integrate new properties into existing operations;
exposure to fluctuations in the general economy due to the significant time lag between commencement and
completion of redevelopment projects;
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 may increase, which may 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 pursuing suitable acquisitions, for which we face significant competition, or identifying
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 continue to evaluate the market for available properties and may acquire properties when we believe
strategic opportunities exist. However, we may be unable to acquire a desired property because of competition from other real
estate investors with substantial capital, including from other REITs and institutional investment funds. Even if we are able to
acquire a desired property, competition from other potential acquirers may significantly increase the purchase price. Additionally,
we may not be successful in identifying suitable real estate properties or other assets that meet our development or redevelopment
criteria, or we may fail to complete developments, redevelopments, acquisitions or investments on satisfactory terms. Failure to
identify or complete developments, redevelopments or acquisitions could slow our growth, which could in turn materially adversely
affect our operations.
Development and 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 three development projects under construction. We have also identified multiple redevelopment
opportunities at our operating properties and expect to commence redevelopment in the future. In connection with any development
or 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
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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 7.4% of our annualized base rent in the aggregate as of December 31, 2015. These six properties
are International Speedway Square, Shops at Eagle Creek, Whitehall Pike, Portofino Shopping Center, Thirty South and Market
Street Village. We also agreed to limit the aggregate gain certain limited partners of our Operating Partnership would recognize
with respect to certain other contributed properties through December 31, 2016, to not more than $48 million in total, with certain
annual limits, unless we reimburse them for the taxes attributable to the excess gain (and any taxes imposed on the reimbursement
payments) and take certain other steps to help them avoid incurring taxes that were deferred in connection with the formation
transactions.
The agreement described above is extremely complicated and imposes a number of procedural requirements on us, which
makes it more difficult for us to ensure that we comply with all of the various terms of the agreement and therefore creates a greater
risk that we may be required to make an indemnity payment. The complicated nature of this agreement also might adversely impact
our ability to pursue other transactions, including certain kinds of strategic transactions and reorganizations.
Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in
the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best
interest. Therefore, we may be unable to adjust our portfolio mix promptly in response to market conditions, which may adversely
affect our financial position. In addition, we will be subject to income taxes on gains from the sale of any properties owned by
any taxable REIT subsidiary.
Uninsured losses or losses in excess of insurance coverage could materially and adversely affect our cash flow, financial
condition and results of operations.
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. In addition, tenants generally are
required to indemnify and hold us harmless from liabilities resulting from injury to persons or damage to personal or real property,
on the premises, due to activities conducted by tenants or their agents on the properties (including without limitation any
environmental contamination) and, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability
and property damage insurance policies. However, tenants may not properly maintain their insurance policies or have the ability
to pay the deductibles associated with such policies. 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
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properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses
to repair or rebuild the property. Events such as these could adversely affect our results of operations and our ability to meet our
obligations.
Rising operating expenses could reduce our cash flow and funds available for future distributions, particularly if such
expenses are not offset by corresponding revenues.
Our existing properties and any properties we develop or acquire in the future are and will be subject to operating risks
common to real estate in general, any or all of which may negatively affect us. The expenses of owning and operating properties
generally do not decrease, and may increase, when circumstances such as market factors and competition cause a reduction in
income from the properties. As a result, if any property is not fully occupied or if rents are being paid in an amount that is insufficient
to cover operating expenses, we could be required to expend funds for that property’s operating expenses. Our properties continue
to be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance
and administrative expenses, regardless of such properties’ occupancy rates. Therefore, rising operating expenses could reduce
our cash flow and funds available for future distributions, particularly if such expenses are not offset by corresponding revenues.
We could incur significant costs related to 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
tanks 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 efforts to identify environmental liabilities may not be successful.
We test our properties for compliance with applicable environmental laws on a limited basis. We cannot give assurance
that:
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existing environmental studies with respect to our properties reveal all potential environmental liabilities;
any previous owner, occupant or tenant of one of our properties did not create any material environmental
condition not known to us;
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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.
Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make
expenditures that adversely affect our cash flows.
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. 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. Although we believe the properties in our portfolio substantially comply with present
requirements of the ADA, we have not conducted an audit or investigation of all of our properties to determine our compliance.
While the tenants to whom our properties are leased are obligated by law to comply with the ADA provisions, and typically under
tenant leases are obligated to cover costs associated with compliance, if required changes involve greater expenditures than
anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs
could be adversely affected. As a result, we could be required to expend funds to comply with the provisions of the ADA, which
could adversely affect our results of operations and financial condition. In addition, we are required to operate the properties in
compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental
agencies and bodies and become applicable to the properties. We may be required to make substantial capital expenditures to
comply with, and we may be restricted in our ability to renovate the properties subject to, those requirements. The resulting
expenditures and restrictions could have a material adverse effect on our ability to meet our financial obligations.
Inflation may adversely affect our financial condition and results of operations.
Most of our leases contain provisions requiring the tenant to pay a 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 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.
We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business
disruptions.
We rely extensively on computer systems to process transactions and manage our business, and our business is at risk from
and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer
systems. Attacks can be both individual and/or highly organized attempts by very sophisticated hacking organizations. A
cybersecurity attack could compromise the confidential information of our employees, tenants, and vendors. Additionally, we rely
on a number of service providers and vendors, and cybersecurity risks at these service providers and vendors create additional
risks for our information and business. A successful attack could lead to identity theft, fraud or other disruptions to our business
operations, any of which may negatively affect our results of operations.
We employ a number of measures to prevent, detect and mitigate these threats. These prevention measures include password
protection, frequent password change events, firewall detection systems, frequent backups, a redundant data system for core
applications and penetration testing. We conduct periodic assessments of (i) the nature, sensitivity and location of information
that we collect, process and store and the technology systems we use; (ii) internal and external cybersecurity threats to and
vulnerabilities of our information and technology systems; (iii) security controls and processes currently in place; (iv) the impact
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should our technology systems become compromised; and (v) the effectiveness of our management of cybersecurity risk. The
results of these assessments are used to create and implement a strategy designed to prevent, detect and respond to cybersecurity
threats. However, there is no guarantee such efforts will be successful in preventing a cyber-attack.
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:
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discourage a tender offer or other transactions or a change in management or control that might involve a
premium price for our shares or otherwise be in the best interests of our shareholders; or
compel a shareholder who has acquired our shares in excess of these ownership limitations to dispose of the
additional shares and, as a result, to forfeit the benefits of owning the additional shares. Any acquisition of
our common shares in violation of these ownership restrictions will be void ab initio and will result in
automatic transfers of our common shares to a charitable trust, which will be responsible for selling the
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common shares to permitted transferees and distributing at least a portion of the proceeds to the prohibited
transferees.
(2) Our declaration of trust permits our Board of Trustees to issue preferred shares with terms that may discourage a third
party from acquiring us. Our declaration of trust permits our Board of Trustees to issue up to 40,000,000 preferred shares, having
those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms
or conditions of redemption as determined by our Board. Thus, our Board could authorize the issuance of additional preferred
shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of
some or a majority of our shares might receive a premium for their shares over the then-prevailing market price of our shares. In
addition, any preferred shares that we issue likely would rank senior to our common shares with respect to payment of distributions,
in which case we could not pay any distributions on our common shares until full distributions were paid with respect to such
preferred shares.
(3) Our declaration of trust and bylaws contain other possible anti-takeover provisions. Our declaration of trust and bylaws
contain other provisions that may have the effect of delaying, deferring or preventing a change in control of our company or the
removal of existing management and, as a result, could prevent our shareholders from being paid a 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. Furthermore, our Board of Trustees has the sole power to amend our bylaws and may amend our bylaws
in a way that may have the effect of delaying, deferring or preventing a change in control of our company or the removal of existing
management or may otherwise be detrimental to your interests.
Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or
of impeding a change of control under circumstances that otherwise could provide the holders of our common shares with the
opportunity to realize a premium over the then-prevailing market price of such shares, including:
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“business combination moratorium/fair price” provisions that, subject to limitations, prohibit certain business
combinations between us and an “interested shareholder” (defined generally as any person who beneficially
owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent
date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price
and super-majority shareholder voting requirements on these combinations; and
“control share” provisions that provide that “control shares” of our company (defined as shares which, when
aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three
increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the
direct or indirect acquisition of ownership or control of “control shares” from a party other than the issuer) have
no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two thirds
of all the votes entitled to be cast on the matter, excluding all interested shares, and are subject to redemption
in certain circumstances.
We have opted out of these provisions of Maryland law. However, our Board of Trustees may opt to make these provisions
applicable to us at any time.
A substantial number of common shares eligible for future issuance or sale could cause our common share price to decline
significantly and may be dilutive to current shareholders.
Our declaration of trust authorizes our Board of Trustees to, among other things, issue additional common shares without
shareholder approval. The issuance of substantial numbers of our common shares in the public market or the perception that such
issuances might occur could adversely affect the per share trading price of our common shares. In addition, any such issuance
could dilute our existing shareholders' interests in our company. Furthermore, if our shareholders sell, or the market perceives that
23
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, 2015, we had outstanding 83,334,865 common
shares, and substantially all of these shares are freely tradable. In addition, 1,901,278 units of our Operating Partnership were
owned by our executive officers and other individuals as of December 31, 2015, 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.
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 with each of our executive officers. The term of each employment agreement runs through June
30, 2017, with automatic one-year renewals each July 1st thereafter unless either we or the officer elects not to renew them. 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 within a reasonable timeframe. Until
suitable replacements could be identified and hired, 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.
24
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 and in a manner that he or she reasonably believes to be in our best interests and 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.
Our investment, financing, borrowing and dividend policies and our policies with respect to all other activities, including
growth, debt, capitalization and operations, will be determined by our management and, in certain cases, approved by our Board
of Trustees. 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 shares) have
experienced significant price and volume fluctuations. The market price of our common 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;
25
•
•
•
•
•
actions by institutional shareholders or hedge funds;
increases or decreases in dividends;
changes in accounting principles;
terrorist acts; and
general market conditions, including factors unrelated to our performance.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in
their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.
The cash available for distribution to shareholders may not be sufficient to pay distributions at expected levels, nor can
we assure you of our ability to make distributions in the future. We may use borrowed funds to make distributions.
If cash available for distribution generated by our assets decreases in future periods from expected levels, our inability
to make expected distributions could result in a decrease in the market price of our common shares. All distributions will be
made at the discretion of our Board of Trustees and will depend on our earnings, our financial condition, maintenance of our
REIT qualification and other factors as our Board of Trustees may deem relevant from time to time. We may not be able to
make distributions in the future. In addition, some of our distributions may include a return of capital. To the extent that we
decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally
be considered a return of capital for federal income tax purposes to the extent of the holder’s adjusted tax basis in their shares.
A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. To the extent
that distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of
such shares. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash
available for distribution from what they otherwise would have been.
Future offerings of debt securities, which would be senior to our equity securities, may adversely affect the market prices
of our common shares.
In the future, we may attempt to increase our capital resources by making offerings of debt securities, including
unsecured notes, medium term notes, senior or subordinated notes. Debt securities will generally be entitled to receive interest
payments, both current and in connection with any liquidation or sale, prior to the holders of our common shares are entitled to
receive distributions. Future offerings of debt securities, or the perception that such offerings may occur, may reduce the market
prices of our common shares and/or the distributions that we pay with respect to our common shares. Because we may
generally issue any such debt securities in the future without obtaining the consent of our shareholders, our shareholders will
bear the risk of our future offerings reducing the market prices of our equity securities.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade their
recommendations regarding our common shares, our share price and trading volume could decline.
The trading market for our shares is influenced by the research and reports that industry or securities analysts publish
about us or our business. If any of the analysts who cover us downgrades our common shares or publishes inaccurate or
unfavorable research about our business, our share price may decline. If analysts cease coverage of us or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common share price or
trading volume to decline and our shares to be less liquid. An inactive market may also impair our ability to raise capital by
selling shares and may impair our ability to acquire additional properties or other businesses by using our shares as
consideration, which in turn could materially adversely affect our business. In addition, the stock market in general, and the
NYSE and REITs in particular, have recently experienced extreme price and volume fluctuations. These broad market and
industry factors may decrease the market price of our shares, regardless of our actual operating performance. For these reasons,
among others, the market price of our shares may decline substantially and quickly.
26
TAX RISKS
Failure of our company to qualify as a REIT would have serious adverse consequences to us and our shareholders.
We believe that we have qualified for taxation as a REIT for federal income tax purposes commencing with our taxable
year ended December 31, 2004. We intend to continue to meet the requirements for qualification and taxation as a REIT, but we
cannot assure shareholders that we will qualify as a REIT. We have not requested and do not plan to request a ruling from the IRS
that we qualify as a REIT, and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court. As a
REIT, we generally will not be subject to federal income tax on our income that we distribute currently to our shareholders. Many
of the REIT requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis
of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least
95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition,
to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers. We also are required to
distribute to our shareholders with respect to each year at least 90% of our “REIT taxable income” (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. Since we were the successor
to Inland Diversified Real Estate Trust, Inc. ("Inland Diversified") for federal income tax purposes as a result of our merger, the
rule against re-electing REIT status following a loss of such status also would apply to us if Inland Diversified failed to qualify
as a REIT in any of its 2011 through 2014 tax years. Although Inland Diversified believed that it was organized and operated in
conformity with the requirements for qualification and taxation as a REIT for each of its taxable years prior to the Merger with
us, Inland Diversified did not request a ruling from the IRS that it qualified as a REIT and thus no assurance can be given that it
qualified as a REIT.
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 unsecured term loans 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. If Inland Diversified failed to
qualify as a REIT for a taxable year before the Merger or that includes the Merger and no relief is available, in connection with
the Merger 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
significant interest payments to the IRS) to eliminate such earnings and profits.
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
27
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.
If Inland Diversified failed to qualify as a REIT for a taxable year before the Merger or that includes the Merger and no
relief is available, as a result of the Merger (a) we would inherit any corporate income tax liabilities of Inland Diversified for
Inland Diversified’s open tax years (generally three years or Inland Diversified’s 2011 through 2014 tax years but possibly extending
back six years or Inland Diversified’s initial 2009 tax year through its 2014 tax year), including penalties and interest, and (b) 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 five years following the Merger (i.e. before July 1, 2019).
REIT distribution requirements may increase our indebtedness.
We may be required from time to time, under certain circumstances, to accrue income for tax purposes that has not yet been
received. In such event, or upon our repayment of principal on debt, we could have taxable income without sufficient cash to
enable us to meet the distribution requirements of a REIT. Accordingly, we could be required to borrow funds or liquidate
investments on adverse terms in order to meet these distribution requirements.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any
income that we generate from transactions intended to hedge our interest rate risk will be excluded from gross income for
purposes of the REIT 75% and 95% gross income tests if the instrument hedges interest rate risk on liabilities used to carry or
acquire real estate assets (each such hedge, a "Borrowing Hedge") or manages the risk of certain currency fluctuations (each
such hedge, a "Currency Hedge"), and such instrument is properly identified under applicable Treasury Regulations. Effective
for taxable years beginning after December 31, 2015 the exclusion from 95% and 75% gross income tests also will apply if we
previously entered into a Borrowings Hedge or a Currency Hedge, a portion of the hedged indebtedness or property is disposed
of, and in connection with such extinguishment or disposition we enter into a new properly identified hedging transaction to
offset the prior hedging position. Income from hedging transactions that do not meet these requirements will generally
constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests. As a result of these rules, we
may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a
taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiary would be
subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to
bear. In addition, losses in our taxable REIT subsidiary will generally not provide any tax benefit, except for being carried back
or forward against past or future taxable income in the taxable REIT subsidiary.
28
Complying with the REIT requirements may cause us to forgo and/or liquidate otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the
nature and diversification of our assets, the amounts that we distribute to our shareholders and the ownership of our shares. To
meet these tests, we may be required to take actions we would otherwise prefer not to take or forgo taking actions that we
would otherwise consider advantageous. For instance, in order to satisfy the gross income or asset tests applicable to REITs
under the Code, we may be required to forgo investments that we otherwise would make. Furthermore, we may be required to
liquidate from our portfolio otherwise attractive investments. In addition, we may be required to make distributions to
shareholders at disadvantageous times or when we do not have funds readily available for distribution. These actions could
reduce our income and amounts available for distribution to our shareholders. Thus, compliance with the REIT requirements
may hinder our investment performance.
Dividends paid by REITs generally do not qualify for reduced tax rates.
The maximum rate applicable to “qualified dividend income” paid by regular “C” corporations to U.S. shareholders that
are individuals, trusts and estates generally is 20%. Dividends payable by REITs, however, generally are not eligible for the current
reduced rate, except to the extent that certain holding requirements have been met and a REIT’s dividends are attributable to
dividends received by a REIT from taxable corporations (such as a REIT’s taxable REIT subsidiaries), to income that was subject
to tax at the REIT/corporate level, or to dividends properly designated by the REIT as “capital gains dividends.” Although the
reduced rates applicable to dividend income from regular “C” corporations do not adversely affect the taxation of REITs or
dividends payable by REITs, it could cause investors who are non-corporate taxpayers to perceive investments in REITs to be
relatively less attractive than investments in the shares of regular “C” corporations that pay dividends, which could adversely
affect the value of our common shares.
If the Operating Partnership fails to qualify as a partnership for U.S. federal income tax purposes, we could fail to
qualify as a REIT and suffer other adverse consequences.
We believe that our Operating Partnership is organized and operated in a manner so as to be treated as a partnership and
not an association or a publicly traded partnership taxable as a corporation, for U.S. federal income tax purposes. As a partnership,
our Operating Partnership is not subject to U.S. federal income tax on its income. Instead, each of the partners is allocated its share
of our Operating Partnership’s income. No assurance can be provided, however, that the IRS will not challenge our Operating
Partnership’s status as a partnership for U.S. federal income tax purposes or that a court would not sustain such a challenge. If the
IRS were successful in treating our Operating Partnership as an association or publicly traded partnership taxable as a corporation
for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs
and, accordingly, would cease to qualify as a REIT. Also, the failure of the Operating Partnership to qualify as a partnership would
cause it to become subject to U.S. federal corporate income tax, which would reduce significantly the amount of its cash available
for distribution to its partners, including us.
New partnership tax audit rules could have a material adverse effect on us.
The recently enacted Bipartisan Budget Act of 2015 changes the rules applicable to federal income tax audits of
partnerships. Under the new rules (which are generally effective for taxable years beginning after December 31, 2017), among
other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a
partnership (and any partner's distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are
assessed and collected, at the partnership level. Although it is uncertain how these new rules will be implemented, it is possible
that they could result in partnerships in which we directly or indirectly invest being required to pay additional taxes, interest and
penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear
the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to
pay additional corporate-level taxes had we owned the assets of the partnership directly. The new partnership tax audit rules will
apply to the Operating Partnership and its subsidiaries that are classified as partnerships for federal income tax purposes. The
changes created by these new rules are sweeping and in many respects dependent on the promulgation of future regulations and
29
other guidance by the U.S. Department of the Treasury, or the Treasury, and, accordingly, there can be no assurance that these
rules will not have a material adverse effect on us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Retail Operating Properties
As of December 31, 2015, we owned interests in a portfolio of 110 retail operating properties totaling approximately 22.0
million square feet of total Gross Leasable Area (“GLA”) (including approximately 6.7 million square feet of non-owned anchor
space). The following tables set forth more specific information with respect to our retail operating properties as of December 31,
2015:
30
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7
3
Redevelopment, Reposition, Repurpose Projects
In addition to our development projects, as displayed in the table above, we are also currently evaluating potential redevelopment, repositioning, and
repurposing of several operating properties.
($ in thousands)
REDEVELOPMENT
Location
Bolton Plaza
Jacksonville
Bridgewater
Indianapolis
Burnt Store Promenade
Punta Gorda
City Center*
White Plains
Courthouse Shadows*
Naples
Fishers Station*
Indianapolis
Hamilton Crossing Centre*
Indianapolis
Portofino Shopping Center
Houston
Rampart Commons
Las Vegas
Targeted Return **
Expected Cost
REPOSITION1
Castleton Crossing
Centennial Center
Location
Indianapolis
Las Vegas
Centennial Gateway
Las Vegas
Hitchcock Plaza
Aiken
Landstown Commons
Virginia Beach
Northdale Promenade
Tampa
Shops at Moore
Oklahoma City
Tarpon Bay
Naples
Description
Second phase; replace existing vacant shop space with 22,000 square foot junior anchor and
center upgrades.
Second phase; creation of new outparcel building to relocate existing shop space. Replacing
vacant shop space with 15,000 square foot junior anchor.
New building construction of current grocer into 45,000 square foot space. New 20 year lease
and center upgrades.
Pending construction start to reactivate street level retail components and enhance overall
shopping experience within multilevel project.
Recapture of natural lease expiration; demolition of the site to add a large format single tenant
ground lease as well as an additional outparcel development.
Demolition, expansion, and replacement of previous anchor.
Recapture of lease expiration; substantially enhancing merchandising mix and replacing
available space with new movie theatre for entertainment.
Multiple phase project. Addition of two small shop buildings and a 33,000 square foot junior
anchor. Also rightsizing of a 25,000 square foot junior anchor.
Addition of new tenants replacing expiring leases. Upgrades to building façades and hardscape
through the center.
9.5% - 10.5%
$75,000 - $80,000
Description
Creation of new outparcel small shop building.
General building enhancements including improved access of main entry point. Addition of
two restaurants to anchor the small shop building.
Recapture of a 13,950 square foot anchor location to provide retenanting opportunity to
enhance overall quality of the center; also includes additional structural improvements and
building upgrades.
Replacing vacant space with building conversion for two junior anchors and incremental shop
space.
Relocation of Starbucks to create drive through. General improvement of the main street area,
including façade improvements and addition of pedestrian elements.
Multi-phase project involving rightsizing of an existing shop tenant to accommodate
construction of new junior anchor, and the demolition of shop space to add another junior
anchor, enhance space visibility, and improve overall small shop mix.
Expansion of existing vacant space to be reconstructed and occupied with the addition of a new
junior anchor.
Recapture of a junior anchor space to enhance merchandising mix and cross shopping
experience; also, upgrading exterior of the center and other building improvements.
Trussville Promenade2
Birmingham
Replacing existing small shops with 22,000 square foot junior anchor.
Targeted Return **
Expected Cost
REPURPOSE
Location
Beechwood Promenade*
Athens
The Corner*
Indianapolis
Targeted Return **
Expected Cost
Total Targeted Return
Total Expected Cost
9.5% - 10.5%
$35,000 - $40,000
Description
Contemplating a mixed use opportunity for recaptured space given dynamic college town
environment.
Creation of a mixed use (retail and multi-family) development replacing an unanchored small
shop center.
9.0% - 10.0%
$20,000 - $25,000
9.0% - 11.0%
$130,000 - $145,000
____________________
1
Reposition refers to less substantial asset enhancements based on internal costs.
2
*
**
Repositioning refers to Trussville I.
Asterisk represents assets removed from the operating portfolio and in final planning stage. Projected cost and projected ROI will be added upon commencement of
construction.
These opportunities are merely potential at this time and are subject to various contingencies, many of which are beyond the Company's control. Targeted return is based
upon our current expectations of capital expenditures, budgets, anticipated leases and certain other factors relating to such opportunities. The actual return on these
investments may not meet our expectations.
38
Tenant Diversification
No individual retail or office tenant accounted for more than 3.4% of the portfolio’s annualized base rent for the year ended
December 31, 2015. 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, 2015:
TOP 10 RETAIL TENANTS BY GROSS LEASABLE AREA
Number
of
Leases
Company
Owned
GLA
Ground
Lease
GLA
Number
of
Anchor
Owned
Locations
Number
of
Locations
14
16
14
18
9
21
17
18
9
Total GLA
2,376,540
2,301,943
2,072,666
868,222
783,599
634,317
485,673
469,772
440,502
6
—
5
18
5
21
17
18
9
203,742
811,956
—
128,997
868,222
184,516
634,317
485,673
469,772
440,502
—
650,161
—
245,223
—
—
—
—
18
154
374,127
10,807,361
18
117
374,127
3,789,868
—
1,707,340
Anchor
Owned GLA
1,360,842
2,301,943
1,293,508
—
353,860
—
—
—
—
—
5,310,153
8
16
9
—
4
—
—
—
—
—
37
Tenant
Wal-Mart
Target
Lowe's Home Improvement
Publix
Kohls
TJX Companies1
Ross Stores
Bed Bath & Beyond2
Dick's Sporting Goods
Petsmart
Total
____________________
1
2
Includes TJ Maxx, Home Goods and Marshalls, all of which are owned by the same parent company.
Includes Buy Buy Baby, Christmas Tree Shops and Cost Plus, all of which are owned by the same parent company.
39
The following table sets forth certain information for the largest 25 tenants open for business at the Company’s retail
properties based on minimum rents in place as of December 31, 2015:
TOP 25 TENANTS BY ANNUALIZED BASE RENT
($ in thousands)
Tenant
Publix
TJX Companies3
Petsmart
Bed Bath & Beyond4
Ross Stores
Lowe's Home Improvement
Office Depot / Office Max
Dick's Sporting Goods
Michaels
Wal-Mart
LA Fitness
Nordstrom
Best Buy
Kohls
National Amusements
Toys R Us / Babies R Us5
Petco
Walgreens
Frank Theaters
DSW
New York Sports Club
Burlington Coat Factory
Randall's Food & Drugs
Mattress Firm
Old Navy
TOTAL
____________________
Number
of
Stores
18
21
18
18
17
5
18
9
13
6
5
5
6
5
1
6
12
4
2
7
2
3
3
17
8
229
Leased GLA/NRA2
% of Owned
GLA/NRA
of the
Portfolio
Annualized
Base Rent1
Annualized
Base Rent
per Sq. Ft.
% of Total
Portfolio
Annualized
Base Rent
868,222
634,317
374,127
446,372
485,673
128,997
368,482
440,502
278,111
203,742
208,209
170,545
213,604
184,516
80,000
179,316
167,455
67,212
122,224
134,681
86,717
247,400
133,990
69,258
5.5 % $
8,439
$
4.0 %
2.4 %
2.8 %
3.1 %
0.8 %
2.3 %
2.8 %
1.7 %
1.3 %
1.3 %
1.1 %
1.3 %
1.2 %
0.5 %
1.1 %
1.1 %
0.4 %
0.8 %
0.8 %
0.5 %
1.6 %
0.8 %
0.4 %
6,431
5,513
5,399
5,214
5,039
5,018
4,658
3,697
3,655
3,447
3,122
3,024
2,927
2,898
2,896
2,747
2,099
2,081
1,938
1,936
1,792
1,774
1,773
130,404
6,424,076
0.8 %
40.4% $
1,762
89,277
$
9.72
10.14
14.74
12.09
10.74
6.47
13.62
10.57
13.29
3.60
16.56
18.30
14.16
6.81
36.22
13.79
16.41
31.23
17.02
14.39
22.32
7.24
13.24
25.60
13.51
11.13
3.4 %
2.6 %
2.2 %
2.2 %
2.1 %
2.1 %
2.0 %
1.9 %
1.5 %
1.5 %
1.4 %
1.3 %
1.2 %
1.2 %
1.2 %
1.2 %
1.1 %
0.9 %
0.8 %
0.8 %
0.8 %
0.7 %
0.7 %
0.7 %
0.7 %
36.4%
1
2
3
4
5
Annualized base rent represents the monthly contractual rent for December 31, 2015 for each applicable tenant multiplied by 12. Annualized base
rent does not include tenant reimbursements.
Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants.
Includes TJ Maxx, Marshalls and HomeGoods, all of which are owned by the same parent company.
Includes Buy Buy Baby, Christmas Tree Shops and Cost Plus, all of which are owned by the same parent company.
Annualized base rent and percent of total portfolio includes ground lease rent.
40
Geographic Diversification
The Company owns interests in 118 operating and redevelopment properties consisting of 110 retail properties, six retail
redevelopment properties, one office operating property and an associated parking garage. We also own interests in three
development properties under construction. The total operating portfolio consists of approximately 17.2 million of owned square
feet in 20 states. The following table summarizes the Company’s operating properties by state as of December 31, 2015:
($ in thousands)
Florida
Texas
Indiana
Nevada
North Carolina
Oklahoma
New York
Georgia
New Jersey
Virginia
Utah
Indiana - Office
Tennessee
South Carolina
Alabama
Connecticut
Illinois
Arizona
Ohio
Wisconsin
New Hampshire
Total Operating Portfolio
Excluding Developments
and Redevelopments
Developments and
Redevelopments
Total Operating Portfolio Including Developments and
Redevelopments
Owned
GLA/
NRA1
4,512,435
2,272,090
2,186,679
928,982
740,157
821,520
—
394,419
246,040
399,047
384,692
369,556
406,412
515,232
512,649
208,929
310,865
79,902
236,230
82,254
78,892
Annualized
Base Rent
Owned
GLA/
NRA1
Annualized
Base Rent
Number
of
Properties
$
62,699
32,566
28,854
20,245
13,014
11,399
—
4,762
5,677
7,011
6,206
6,077
5,959
5,398
4,524
3,275
4,143
2,241
2,109
997
986
5,960
$
—
294,056
—
541,962
—
365,905
353,970
—
—
—
—
—
—
—
—
—
—
—
—
—
364
—
2,453
—
1,699
—
9,195
3,433
—
—
—
—
—
—
—
—
—
—
—
—
—
39
12
22
7
9
5
1
4
2
1
2
2
2
3
2
1
3
1
1
1
1
Owned
GLA/
NRA1
4,518,395
2,272,090
2,480,735
928,982
1,282,119
821,520
365,905
748,389
246,040
399,047
384,692
369,556
406,412
515,232
512,649
208,929
310,865
79,902
236,230
82,254
78,892
Annualized
Base Rent -
Ground
Leases
Total
Annualized
Base Rent
Percent of
Annualized
Base Rent
$
$
3,423
1,071
1,053
3,737
3,029
1,175
—
473
2,233
294
162
—
—
—
201
939
—
—
—
381
85
66,486
33,637
32,361
23,982
17,743
12,574
9,195
8,668
7,910
7,306
6,367
6,077
5,959
5,398
4,725
4,214
4,143
2,241
2,109
1,377
1,071
25.2%
12.8%
12.3%
9.1%
6.7%
4.8%
3.5%
3.3%
3.0%
2.8%
2.4%
2.3%
2.3%
2.0%
1.8%
1.6%
1.6%
0.9%
0.8%
0.5%
0.4%
15,686,982
$
228,142
1,561,853
$
17,144
121
17,248,835
$
18,256
$
263,543
100.0%
____________________
1
Owned GLA/NRA represents gross leasable area or net leasable area owned by the Company.
It also excludes the square footage of Union Station Parking Garage.
41
Lease Expirations
In 2016, leases representing 6.7% of total annualized base rent and 6.5% of total GLA/NRA expire. The following tables
show scheduled lease expirations for retail and office tenants and in-process development property tenants open for business as
of December 31, 2015, assuming none of the tenants exercise renewal options.
LEASE EXPIRATION TABLE – OPERATING PORTFOLIO
($ in thousands)
Number of
Expiring
Leases1
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Beyond
247
273
345
254
245
180
99
107
92
75
104
2,021
Expiring
GLA/NRA2
1,035,946
1,716,666
2,165,695
1,668,015
2,185,112
1,399,263
937,164
976,817
1,028,054
706,087
2,074,143
15,892,962
% of
Total
GLA/
NRA
Expiring
Expiring
Annualized
Base Rent3
% of Total
Annualized
Base Rent
Expiring
Annualized
Base Rent per
Sq. Ft.
Expiring
Ground Lease
Revenue
6.7 % $
15.92
$
6.5 % $
10.8 %
13.7 %
10.5 %
13.8 %
8.8 %
5.9 %
6.0 %
6.5 %
4.5 %
16,490
27,805
35,350
24,673
29,339
20,677
15,330
15,100
19,793
11,838
11.4 %
14.5 %
10.1 %
12.0 %
8.5 %
6.3 %
6.0 %
8.1 %
4.9 %
—
226
1,588
819
1,559
757
1,048
360
381
768
16.20
16.32
14.79
13.43
14.78
16.36
15.46
19.25
16.77
13.93
15.43
13.0 %
100.0% $
28,892
245,287
11.8 %
100.0% $
10,750
18,256
$
____________________
1
2
3
Lease expiration table reflects rents in place as of December 31, 2015 and does not include option periods; 2016 expirations include 48 month-to-
month tenants. This column also excludes ground leases.
Expiring GLA excludes estimated square footage attributable to non-owned structures on land owned by the Company and ground leased to tenants.
Annualized base rent represents the monthly contractual rent for December 2015 for each applicable tenant multiplied by 12. Excludes tenant
reimbursements and ground lease revenue.
42
LEASE EXPIRATION TABLE – RETAIL ANCHOR TENANTS1
($ in thousands)
Number of
Expiring
Leases2
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Beyond
21
42
50
34
42
36
27
25
22
19
45
363
Expiring
GLA/NRA3
488,781
1,058,414
1,388,073
1,100,242
1,674,340
949,042
647,329
664,649
760,926
464,436
1,849,490
11,045,722
% of Total
GLA/NRA
Expiring
Expiring
Annualized
Base Rent4
% of Total
Annualized
Base Rent
Expiring
Annualized
Base Rent per
Sq. Ft.
Expiring
Ground Lease
Revenue
3.1 % $
6.7 %
8.8 %
6.9 %
10.6 %
6.0 %
4.1 %
4.1 %
4.8 %
2.9 %
11.6 %
69.6% $
5,252
12,633
16,248
10,834
17,209
10,124
8,625
7,808
13,449
6,221
23,308
131,711
2.2 % $
5.2 %
6.7 %
4.4 %
7.1 %
4.2 %
3.5 %
3.1 %
5.5 %
2.6 %
9.5 %
53.8% $
10.75
11.94
11.71
9.85
10.28
10.67
13.32
11.75
17.67
13.40
12.60
11.92
$
$
—
—
1,194
—
1,111
289
745
260
260
381
6,384
10,623
____________________
1
2
3
4
Retail anchor tenants are defined as tenants that occupy 10,000 square feet or more.
Lease expiration table reflects rents in place as of December 31, 2015 and does not include option periods.
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 2015 for each applicable tenant multiplied by 12. Excludes tenant
reimbursements and ground lease revenue.
LEASE EXPIRATION TABLE – RETAIL SHOPS
($ in thousands)
Number of
Expiring
Leases1
224
229
293
219
200
143
69
80
68
53
59
1,637
Expiring
GLA/NRA2
539,251
575,142
759,785
562,520
496,261
444,059
238,789
279,180
201,780
162,011
224,653
4,483,431
% of Total
GLA/NRA
Expiring
3.3%
3.6%
4.8%
3.6%
3.1%
2.8%
1.5%
1.7%
1.3%
1.0%
1.5%
28.1%
Expiring
Annualized
Base Rent3
$
$
11,155
13,672
18,714
13,738
11,841
10,412
5,831
6,667
5,313
4,451
5,584
107,379
% of Total
Annualized
Base Rent
4.5%
5.6%
7.7%
5.6%
4.8%
4.3%
2.4%
2.6%
2.2%
1.8%
2.5%
43.7%
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Beyond
Expiring
Annualized
Base Rent per
Sq. Ft.
Expiring
Ground Lease
Revenue
$
$
20.69
23.77
24.63
24.42
23.86
23.45
24.42
23.88
26.33
27.48
24.86
23.95
$
$
—
226
394
819
448
469
304
100
121
388
4,365
7,633
43
____________________
1
2
3
Lease expiration table reflects rents in place as of December 31, 2015, and does not include option periods; 2016 expirations include 47 month-to-
month tenants. This column also excludes ground leases.
Expiring GLA excludes estimated square footage attributable to non-owned structures on land we own and ground leased to tenants.
Annualized base rent represents the monthly contractual rent for December 2015 for each applicable tenant multiplied by 12. Excludes tenant
reimbursements and ground lease revenue.
LEASE EXPIRATION TABLE – OFFICE TENANTS
($ in thousands)
2016
2017
2018
2019
2020
2021
2022
2023
20244
2025
Beyond
Number of
Expiring
Leases1
2
2
2
1
3
1
3
2
2
3
—
21
Expiring
GLA/NRA2
7,914
83110
17,837
5,253
14,511
6,162
51,046
32,988
65,348
79,640
—
363,809
% of Total
GLA/NRA
Expiring
0.1%
0.6%
0.1%
—
0.1%
—
0.3%
0.2%
0.4%
0.5%
—
2.3%
$
$
Expiring
Annualized
Base Rent3
84
1,501
387
101
288
142
874
625
1,031
1,165
—
6,197
% of Total
Annualized
Base Rent
—
0.7%
0.2%
—
0.1%
0.1%
0.4%
0.3%
0.5%
0.5%
—
2.8%
Expiring
Annualized
Base Rent per
Sq. Ft.
$
$
10.59
18.06
21.70
19.25
19.85
23.00
17.11
18.96
15.77
14.63
—
17.03
____________________
1
2
3
4
Lease expiration table reflects rents in place as of December 31, 2015 and does not include option periods; 2016 expirations include one month-to-
month tenant. This column also excludes ground leases.
Lease expiration table reflects rents in place as of December 31, 2015 and does not include option periods. This column also excludes ground leases.
Annualized base rent represents the monthly contractual rent for December 2015 for each applicable tenant multiplied by 12. Excludes tenant
reimbursements.
Expiring annualized base rent includes $0.7 million from Kite Realty Group and subsidiaries.
Lease Activity – New and Renewal
In 2015, the Company executed new and renewal leases on 369 individual spaces totaling 2,098,133 square feet. New
leases were signed on 188 individual spaces for 720,192 square feet of GLA, while renewal leases were signed on 181 individual
spaces for 1,377,941 square feet of GLA.
For comparable signed leases, which are defined as leases signed for which there was a former tenant within the last 12
months, we achieved a blended rent spread of 11.4% while incurring $8.78 per square foot of incremental capital improvement
costs. The average rents for the 68 new comparable leases signed on individual spaces in 2015 were $20.23 per square foot
compared to average expiring rents of $16.59 per square foot. The average rents for the 181 renewals signed on individual spaces
in 2015 were $12.58 per square foot compared to average expiring rents of $11.53 per square foot. Further, average leasing costs
for new comparable leases signed in 2015 were $43.94 per square foot, while there were minimal leasing costs incurred for renewal
leases.
44
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings, which arise in the ordinary course of business. We are not currently involved
in any litigation nor, to our knowledge, is any litigation threatened against us 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.
45
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common shares are currently listed and traded on the New York Stock Exchange (“NYSE”) under the symbol
“KRG”. On February 22, 2016, the last reported sales price of our common shares on the NYSE was $26.98.
The following table sets forth, for the periods indicated, the high and low prices for our common shares:
Quarter Ended December 31, 2015
Quarter Ended September 30, 2015
Quarter Ended June 30, 2015
Quarter Ended March 31, 2015
Quarter Ended December 31, 2014
Quarter Ended September 30, 2014
Quarter Ended June 30, 2014
Quarter Ended March 31, 2014
____________________
High1
Low1
$
$
$
$
$
$
$
$
27.17
26.64
28.33
31.44
29.68
26.70
25.72
26.28
$
$
$
$
$
$
$
$
23.85
22.93
24.47
26.39
23.71
22.92
22.92
23.20
1
Per share information has been restated for the effects of the Company’s one-for-four reverse common share split in
August 2014.
Holders
The number of registered holders of record of our common shares was 1,516 as of February 22, 2016. This total excludes
beneficial or non-registered holders that held their shares through various brokerage firms. This figure does not represent the
actual number of beneficial owners of our common shares because our common shares are frequently held in “street name” by
securities dealers and others for the benefit of beneficial owners who may vote the shares.
Distributions
Our Board of Trustees declared the following cash distributions per share to our common shareholders for the periods
indicated:
46
Quarter
Record Date
Distribution
Per Share1
Payment Date
January 6, 2016
October 6, 2015
July 7, 2015
April 6, 2015
January 6, 2015
October 6, 2014
June 24, 2014
April 7, 2014
$
$
$
$
$
$
$
$
0.2725
January 13, 2016
0.2725 October 13, 2015
0.2725
July 14, 2015
0.2725 April 13, 2015
0.2600
January 13, 2015
0.2600 October 13, 2014
0.2600
0.2600 April 14, 2014
July 1, 2014
4th 2015
3rd 2015
2nd 2015
1st 2015
4th 2014
3rd 2014
2nd 2014
1st 2014
____________________
1
Per share information has been restated for the effects of the Company’s one-for-four reverse common share split in
August 2014.
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. On February 4, 2016, our Board of Trustees approved an
increase to our common dividend to $0.2875 per share that will be paid on or about April 13, 2016 to shareholders of record as
of April 6, 2016. This quarterly dividend represents a 5.5% increase over our previous quarterly distribution and an approximate
19.8% increase since 2013.
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 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, 2015, approximately 14% of our distributions to shareholders constituted
a return of capital, approximately 74% constituted taxable ordinary income dividends and approximately 12% 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.
47
Issuer Repurchases; Unregistered Sales of Securities
During the year ended December 31, 2015, certain of our employees surrendered common shares owned by them to
satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common shares of
beneficial interest issued under our 2013 Equity Incentive Plan.
The following table summarizes all of these repurchases during the year ended December 31, 2015:
Total number
of shares
purchased1
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced plans
or programs
Maximum number
of shares that may
yet be purchased
under the plans or
programs
$
$
$
$
$
$
—
20,123
7,638
—
77
—
7,202
715
—
—
26
—
35,781
—
29.22
28.96
—
26.90
—
25.77
25.68
—
—
27.07
—
N/A
—
N/A
N/A
—
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Period
January 1 - January 31
February 1 - February 31
March 1 - March 31
April 1 - April 30
May 1 - May 31
June 1 - June 30
July 1 - July 31
August 1 - August 31
September 1 - September 30
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
____________________
1
The number of shares purchased represents common shares surrendered by certain of our employees to satisfy their
statutory minimum federal and state tax obligations associated with the vesting of restricted common shares of
beneficial interest issued under our 2013 Plan. With respect to these shares, the price paid per share is based on the
closing price of our common shares as of the date of the determination of the statutory minimum federal and state tax
obligations.
Issuances Under Equity Compensation Plans
For information regarding the securities authorized for issuance under our equity compensation plans, see Item 12 of this
Annual Report on Form 10-K.
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.
48
The following graph compares the cumulative total shareholder return of our common shares for the period from December
31, 2010 to December 31, 2015, 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 $100 at December 31, 2010
and that all cash distributions were reinvested. The shareholder return shown on the graph below is not indicative of future
performance.
Kite Realty
Group Trust
S&P 500
FTSE
NAREIT
Equity REITs
12/10
6/11
12/11
6/12
12/12
6/13
12/13
6/14
12/14
6/15
12/15
100.00
100.00
94.10
106.03
87.61
102.11
99.32
111.80
113.92
118.45
125.35
134.83
139.32
156.82
134.26
168.01
158.82
178.29
137.77
180.48
149.30
180.75
100.00
110.20
108.29
124.44
127.85
136.15
131.01
154.14
170.49
160.82
175.94
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, on a historical basis, selected unaudited financial and operating information. The financial
information has been derived from our consolidated balance sheets and statements of operations. The share and per share
information has been restated for the effects of our one-for-four reverse share split that occurred in August 2014. This information
49
should be read in conjunction with our audited consolidated financial statements and Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.
($ in thousands)
Operating Data:
Total rental related revenue
Expenses:
Property operating
Real estate taxes
General, administrative, and other
Merger and acquisition costs
Litigation charge, net
Non-cash gain from release of assumed earnout liability
Impairment charge
Depreciation and amortization
Total expenses
Operating income
Interest expense
Income tax (expense) benefit of taxable REIT subsidiary
Non-cash gain on debt extinguishment
Gain on settlement
Gain on sale of unconsolidated property
Remeasurement loss on consolidation of Parkside Town Commons,
net
Other (expense) income, net
Income (loss) from continuing operations
Discontinued operations:
Income from operations, excluding impairment charge
Impairment charge
Non-cash gain on debt extinguishment
Gain (loss) on sale of operating properties
Income (loss) from discontinued operations
Income (loss) before gain on sale of operating properties
Gain on sale of operating properties, net
Consolidated net income (loss)
Net (income) loss attributable to noncontrolling interests:
Net income (loss) attributable to Kite Realty Group Trust:
Dividends on preferred shares
Adjustment for redemption of preferred shares
Net income (loss) attributable to common shareholders
Income (loss) per common share – basic:
Income (loss) from continuing operations attributable to Kite Realty
Group Trust common shareholders
Income (loss) from discontinued operations attributable to Kite
Realty Group Trust common shareholders
Net income (loss) attributable to Kite Realty Group Trust common
shareholders
Income (loss) per common share – diluted:
Income (loss) from continuing operations attributable to Kite Realty
Group Trust common shareholders
Income (loss) from discontinued operations attributable to Kite
Realty Group Trust common shareholders
Net income (loss) attributable to Kite Realty Group Trust common
shareholders
Weighted average Common Shares outstanding – basic
Weighted average Common Shares outstanding – diluted
Distributions declared per Common Share
$
$
$
$
$
$
Year Ended December 31 (Unaudited)
20151
20142
20133
20124
20115
$
347,005
$
259,528
$
129,488
$
96,539
$
89,116
49,973
40,904
18,709
1,550
—
(4,832)
1,592
167,312
275,208
71,797
(56,432)
(186)
5,645
4,520
—
—
(95)
25,249
—
—
—
—
—
25,249
4,066
29,315
(2,198)
27,117
(7,877)
(3,797)
38,703
29,947
13,043
27,508
—
—
—
120,998
230,199
29,329
(45,513)
(24)
—
—
—
—
(244)
(16,452)
—
—
—
3,198
3,198
(13,254)
8,578
(4,676)
(1,025)
(5,701)
(8,456)
—
21,729
15,263
8,211
2,214
—
—
—
54,479
101,896
27,592
(27,994)
(262)
—
—
—
—
(62)
(726)
834
(5,372)
1,242
487
(2,809)
(3,535)
—
(3,535)
685
(2,850)
(8,456)
—
16,756
12,858
7,117
364
1,007
—
—
38,835
76,937
19,602
16,830
12,448
6,274
—
—
—
—
33,114
68,666
20,450
(23,392)
(21,625)
106
—
—
—
(7,980)
209
(11,455)
656
—
—
7,094
7,750
(3,705)
—
(3,705)
(629)
(4,334)
(7,920)
—
1
—
—
4,320
—
607
3,753
1,630
—
—
(398)
1,232
4,985
—
4,985
(4)
4,981
(5,775)
—
(794)
15,443
$
(14,157)
$
(11,306)
$
(12,254)
$
0.19
$
(0.29)
$
(0.37)
$
(1.04)
$
(0.12)
—
0.05
(0.11)
0.32
0.08
0.19
$
(0.24)
$
(0.48)
$
(0.72)
$
(0.04)
0.18
$
(0.29)
$
(0.37)
$
(1.04)
$
(0.12)
—
0.05
(0.11)
0.32
0.08
0.18
$
(0.24)
$
(0.48)
$
(0.72)
$
(0.04)
83,421,904
83,534,381
58,353,448
58,353,448
23,535,434
23,535,434
16,721,315
16,721,315
15,889,331
15,889,331
1.09
$
1.02
$
0.96
$
0.96
$
0.96
50
Net income (loss) attributable to Kite Realty Group Trust common
shareholders:
Income (loss) from continuing operations6
Income (loss) from discontinued operations
Net income (loss) attributable to Kite Realty Group Trust common
shareholders
$
$
15,443
$
(17,268)
$
(8,686)
$
(17,571)
$
—
3,111
(2,620)
5,317
(1,891)
1,097
15,443
$
(14,157)
$
(11,306)
$
(12,254)
$
(794)
____________________
1
In 2015, we disposed of nine operating properties. The operations of these properties are not reflected as discontinued operations as none of the
disposals individually, nor in the aggregate, represent a strategic shift that has or will have a major effect on our operations and financial results.
2
3
4
5
6
In 2014, we disposed of a number of operating properties. Of our 2014 disposals, the only property’s operations reflected as discontinued operations
for each of the years presented is 50th and 12th, as the other disposals individually or in the aggregate did not represent a strategic shift that has or
will have a major effect on our operations and financial results. Further, the 50th and 12th operating property is included in discontinued operations,
as the property was classified as held for sale as of December 31, 2013.
In 2013, we disposed of the following properties: Cedar Hill Village and Kedron Village. 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.
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.
Includes gain on sale of operating properties and preferred dividends.
($ in thousands)
As of December 31
2015
2014
2013
2012
2011
Balance Sheet Data (Unaudited):
Investment properties, net
Cash and cash equivalents
Assets held for sale
Total assets
$ 3,500,845
$ 3,417,655
$ 1,644,478
$ 1,200,336
$ 1,095,721
33,880
—
43,826
179,642
18,134
—
12,483
—
10,042
—
3,766,038
3,874,216
1,763,927
1,288,657
1,193,266
Mortgage and other indebtedness
1,734,059
1,554,263
857,144
699,909
689,123
Liabilities held for sale
Total liabilities
—
81,164
—
—
—
1,946,974
1,846,986
962,894
774,365
737,807
Limited Partners' interests in Operating Partnership
and other
92,315
125,082
Kite Realty Group Trust shareholders’ equity
1,725,976
1,898,784
773
3,364
43,928
753,557
3,548
37,670
473,086
3,536
41,836
409,372
4,251
3,766,038
3,874,216
1,763,927
1,288,657
1,193,266
Noncontrolling interests
Total liabilities and equity
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 “our Company,” “we,” “us,” and “our” mean Kite Realty Group Trust and its
direct and indirect subsidiaries, including Kite Realty Group, L.P.
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.
51
Our Business and Properties
Kite Realty Group Trust, a publicly-held real estate investment trust, through its majority-owned subsidiary, Kite Realty
Group, L.P., owns interests in various operating subsidiaries and joint ventures engaged in the ownership, operation, acquisition,
development, and redevelopment of high-quality neighborhood and community shopping centers in selected markets in the United
States. We derive revenues primarily from rents and reimbursement payments received from tenants under leases at 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 economic and real estate market conditions.
As of December 31, 2015, we owned interests in 118 operating and redevelopment properties consisting of 110 retail
properties, six retail redevelopment properties, one office operating property and an associated parking garage. We also owned
three development properties under construction as of this date.
Portfolio Update
In evaluating acquisition, development, and redevelopment opportunities, we focus on strong sub-markets where average
household income is above the average for the market. We also focus on locations with population density, high traffic counts,
and strong daytime work force populations. Household incomes in our largest markets are significantly higher than the median
for the market.
2015 was a strong year for the shopping center industry as landlords continued to take advantage of historically low new
shopping center supply. This provided landlords the opportunity to optimize the tenant mix at properties and upgrade shop space. In
addition, the continued investment by retailers in omni-channel operations to merge their brick and mortar and online operations
is an opportunity for landlords with quality assets in strong locations to drive rent and occupancy growth.
In 2015, we disposed of nine non-core operating properties. These sales provided us with an additional source of capital
which we used to reduce debt and acquire operating properties in core markets including Colleyville Downs in Dallas, Texas,
Belle Isle Station in Oklahoma City, Oklahoma, Livingston Shopping Center in Newark, New Jersey, and Chapel Hill Shopping
Center in Fort Worth, Texas. We are also currently evaluating potential redevelopment, repositioning, and repurposing of several
operating properties. Total estimated costs are expected to be in the range of $130 million to $145 million.
In addition to targeting sub-markets with strong consumer demographics, we focus on having the appropriate tenant mix
at each center. The majority of our tenants are service oriented or have a notable online platform that has reduced the impact of
the expansion of e-commerce on their operations. We have aggressively targeted and executed leases with notable soft goods
retailers such as TJX Companies, Ross Dress for Less, Ulta and Bed Bath and Beyond. Additionally, we have identified cost-
efficient ways to optimize space for junior anchors such as right-sizing office supply stores and backfilling the existing space with
a tenant more suitable to the larger space. In addition, many of our redevelopment projects include right-sizing small shop space
to accommodate construction of new junior anchor space.
Capital and Financing Activities
Our ability to obtain capital on satisfactory terms and to refinance borrowings as they mature is affected by the condition
of the economy in general and by the financial strength of properties securing borrowings.
Throughout 2015, we strengthened our balance sheet by retiring multiple property level secured loans using our unsecured
loans. In addition, we redeemed all 4,100,000 outstanding shares of our Series A Preferred Shares.
52
We increased our liquidity through amending our existing unsecured term loan to increase the total borrowing capacity
from $230 million to $400 million. We also issued $250 million of senior unsecured notes and entered into a new seven-year
unsecured term loan for up to $200 million.
The amount that we may borrow under our unsecured revolving credit facility is based on the value of assets in our
unencumbered property pool. The senior unsecured notes and the seven-year unsecured term loan are included in the total
borrowings outstanding for the purpose of determining the amount we may borrow under our unsecured revolving credit facility.
Taking into account outstanding draws and letters of credit, as of December 31, 2015, we had $339.5 million available for future
borrowings under our unsecured revolving credit facility. In addition, we had $33.9 million in cash and cash equivalents as of
December 31, 2015.
The unencumbering of a number of operating properties, amending our existing unsecured term loan, issuing unsecured
notes and entering into a seven-year unsecured term loan provides us with more flexibility for future capital activity. In addition,
the investment grade credit ratings we received in 2014 also provide us with access to the unsecured public bond market, which
we may use in the future to finance acquisition activity, repay debt maturing in the near term and fix interest rates that are currently
at historically low levels.
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.
Valuation of Investment Properties
Management reviews 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.
Depreciation may be accelerated for a redevelopment project, including partial demolition of existing structures 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.
Our operating properties have operations and cash flows that can be clearly distinguished from the rest of our activities.
Historically, 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. In the first quarter of 2014,
53
we adopted the provisions of ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment
(Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which will result in
fewer real estate sales being classified within discontinued operations, as only disposals representing a strategic shift in operations
will be presented as discontinued operations. All operating properties included in discontinued operations in 2014 were classified
as such prior to the adoption of ASU 2014-08, and no properties that have been sold, or designated as held-for-sale, since the
adoption of ASU 2014-08, have met the revised criteria for classification within discontinued operations.
Acquisition of Real Estate Investments
Upon acquisition of real estate operating properties, we estimate the fair value of acquired identifiable tangible assets and
identified intangible assets and liabilities, assumed debt, and any noncontrolling interest in the acquiree at the date of acquisition,
based on evaluation of information and estimates available at that date. In making estimates of fair values, a number of sources
are utilized, including information obtained as a result of pre-acquisition due diligence, marketing and leasing activities. The
estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs.
Fair value is determined for tangible assets and intangibles, including:
•
•
•
•
the fair value of the building on an as-if-vacant basis and the fair value of 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, which 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 term of the lease. 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;
the value of leases acquired. We utilize independent and internal sources for our estimates to determine the
respective in-place lease values. Our estimates of value are made using methods similar to those used by
independent appraisers. Factors we consider in our analysis include an estimate of costs to execute similar
leases including tenant improvements, leasing commissions and foregone costs and rent received during the
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; and
the fair value of any assumed financing that is determined to be above or below market terms. We utilize third
party and independent sources for our estimates to determine the respective fair value of each mortgage
payable. The fair market value of each mortgage payable is amortized to interest expense over the remaining
initial terms of the respective loan.
We also consider whether there is any value to in-place leases that have a related customer relationship intangible
value. Characteristics the Company considers in determining 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.
Certain properties we acquired from the Merger included earnout components to the purchase price, meaning Inland
Diversified did not pay a portion of the purchase price of the property at closing. We are not obligated to pay the contingent
portion of the purchase prices unless space which was vacant at the time of acquisition is later leased by the seller within the
time limits and parameters set forth in the acquisition agreements. If at the end of the time limits certain space has not been
leased, occupied and rent producing, we will have no further obligation to pay the additional purchase price consideration and
we will retain ownership of that entire property. The liability for potential future earnout payments was determined using
54
estimated fair value measurements at the end of the period, which included the lease-up periods, market rents and probability of
occupancy. As these earnouts were the original obligation of the previous owner, our assumption of these earnouts is similar to
the assumption of a contingent obligation. The earnout payments are based on a predetermined formula applied to rental
income received. The earnouts are recorded as an addition to the purchase price of the related properties and as a liability
included in deferred revenue and, intangibles, net and other liabilities on the accompanying consolidated balance sheets.
Subsequent to the measurement period, any adjustment to the assumed earnout liability is reflected in the consolidated
statements of operations.
Revenue Recognition
As lessor, we retain substantially all of the risks and benefits of ownership of the investment properties and account for our
leases as operating leases.
Minimum rent, percentage rent, and expense recoveries from tenants for common area maintenance costs, insurance and
real estate taxes are our principal source of revenue. 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. As a result
of generating this revenue, we will routinely have accounts receivable due from tenants. We are subject to tenant defaults and
bankruptcies that may affect the collection of outstanding receivables. To address the collectability of these receivables, we analyze
historical write-off experience, tenant credit-worthiness and current economic trends when evaluating the adequacy of our
allowance for doubtful accounts and straight line rent reserve. Although we estimate uncollectible receivables and provide for
them through charges against income, actual experience may differ from those estimates.
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
We follow the framework established under accounting standard FASB ASC 820 for measuring fair value of non-financial
assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis but only in certain
circumstances, such as a business combination or upon determination of impairment.
Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the
valuation techniques as follows:
• Level 1 fair value inputs are quoted prices in active markets for identical instruments to which we have access.
• Level 2 fair value inputs are inputs other than quoted prices included in Level 1 that are observable for similar instruments,
either directly or indirectly, and appropriately considers counterparty creditworthiness in the valuations.
• Level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an
instrument at the measurement date. The inputs are unobservable in the market and significant to the valuation estimate.
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. Our assessment of the significance of a particular input to
55
the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. As discussed
in Note 11, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
Note 4 to the accompanying consolidated financial statements includes a discussion of fair values recorded when we
recognized an impairment charge on our Kedron Village operating property in 2013. Level 3 inputs to this transaction include
our estimations of market leasing rates, discount rates, holding period, and disposal values.
Note 8 to the accompanying consolidated financial statements includes a discussion of the fair values recorded in determining
the fair value of acquired assets and assumed liabilities in business combinations. Level 3 inputs to these acquisitions include our
estimations of market leasing rates, tenant-related costs, discount rates, and disposal values.
Note 9 to the accompanying consolidated financial statements includes a discussion of the fair values recorded when we
recognized an impairment charge on our Shops at Otty operating property. Level 3 inputs to this transaction include our estimations
of market leasing rates, discount rates, holding period, and disposal values.
Income Taxes and REIT Compliance
Parent Company
The Parent 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 it to maintain its qualification as a REIT for federal income tax purposes. As
a result, it 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 of the Parent
Company and meets certain other requirements on a recurring basis. To the extent that it satisfies this distribution requirement,
but distributes less than 100% of its taxable income, it 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 Parent 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 for
a period of four years following the year in which qualification is lost. 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 taxable income even if the Parent
Company does qualify as a REIT. The Operating Partnership intends to continue to make distributions to the Parent Company in
amounts sufficient to assist the Parent Company in adhering to REIT requirements and maintaining its REIT status.
We have elected to treat Kite Realty Holdings, LLC as a taxable REIT subsidiary of the Operating Partnership, and we may
elect to treat other subsidiaries as taxable REIT subsidiaries in the future. This election enables us to receive income and provide
services that would otherwise be impermissible for a REIT. 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 tax 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.
Operating Partnership
The allocated share of income and loss, other than the operations of our taxable REIT subsidiary, is included in the income
tax returns of the Operating Partnership's partners. Accordingly, the only federal income taxes included in the accompanying
consolidated financial statements are in connection with its taxable REIT subsidiary.
56
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, or include a
fixed amount for these costs that escalates over time, thereby reducing our exposure to increases in operating expenses resulting
from inflation. Furthermore, most of our leases are for terms of less than ten years, which enables us to seek to increase rents
upon re-rental at market rates if current rents are below the then existing market rates.
Results of Operations
At December 31, 2015, we owned interests in 118 properties (consisting of 110 retail operating properties, six retail
redevelopment properties, and one office operating property and an associated parking garage). Also, as of December 31, 2015,
we had an interest in three retail development projects that were under construction.
At December 31, 2014, we owned interests in 123 properties (consisting of 118 retail operating properties, three retail
redevelopment properties, and one office operating property and an associated parking garage). Also, as of December 31, 2014,
we had an interest in four retail development projects that were under construction.
At December 31, 2013, we owned interests in 72 properties (consisting of 66 retail operating properties, 4 retail
redevelopment properties, and one office operating property and an associated parking garage). Also, as of December 31, 2013,
we had an interest in two development projects that were under construction and one development project that had not yet
commenced construction.
The comparability of results of operations is significantly affected by our merger with Inland Diversified on July 1, 2014
and by our development, redevelopment, and operating property acquisition and disposition activities in 2013 through 2015.
Therefore, we believe it is most useful to review the comparisons of our results of operations for these years (as set forth below
under “Comparison of Operating Results for the Years Ended December 31, 2015 and 2014” and “Comparison of Operating
Results for the Years Ended December 31, 2014 and 2013”) in conjunction with the discussion of these activities during those
periods, which is set forth below.
Property Acquisition Activities
During 2015, 2014 and 2013, we acquired the properties below.
57
Acquisition Date
Owned GLA
Property Name
Shoppes of Eastwood
Cool Springs Market
Castleton Crossing
Toringdon Market
Nine Property Portfolio
Merger with Inland Diversified (60
operating properties)
Rampart Commons
Colleyville Downs
Belle Isle Station
Livingston Shopping Center
MSA
Orlando, FL
Nashville, TN
Indianapolis, IN
Charlotte, NC
Various
Various
January 2013
April 2013
May 2013
August 2013
November 2013
July 2014
Las Vegas, NV
December 2014
Dallas, TX
Oklahoma City, OK
New York - Newark
April 2015
May 2015
July 2015
Chapel Hill Shopping Center
Fort Worth / Dallas, TX August 2015
Operating Property Disposition Activities
During 2015, 2014 and 2013, we sold or disposed of the operating properties listed in the table below.
69,037
230,948
291,172
60,539
1,977,711
10,719,471
81,292
185,848
164,372
139,657
126,755
Property Name
MSA
Disposition Date
Owned GLA
Kedron Village1
Cedar Hill Village1
50th and 12th (Walgreens)2
Red Bank Commons
Ridge Plaza
Zionsville Walgreens
Sale of eight operating properties
Sale of seven operating properties
Cornelius Gateway
Four Corner Square
____________________
Atlanta, GA
Dallas, TX
Seattle, WA
Evansville, IN
Oak Ridge, NJ
Zionsville, IN
Various3
Various3
Portland, OR
Seattle, WA
July 2013
September 2013
January 2014
March 2014
March 2014
September 2014
November & December 2014
March 2015
December 2015
December 2015
157,345
44,214
14,500
34,258
115,088
14,550
805,644
740,034
21,326
107,998
1
2
3
Operating properties were classified in discontinued operations in the consolidated statements of operations for the year
ended December 31, 2013.
Operating property was classified in discontinued operations in the consolidated statements of operations for the years
ended December 31, 2014 and 2013.
Shortly after the merger we identified and sold certain properties located in multiple MSA's that were not consistent
with the Company's strategic plan.
Development Activities
During the years ended December 31, 2015, 2014 and 2013, the following significant development properties became
operational or partially operational:
58
Property Name
Delray Marketplace
MSA
Delray Beach, FL
Economic Occupancy Date1
January 2013
Holly Springs Towne Center – Phase I
Raleigh, NC
Parkside Town Commons – Phase I
Parkside Town Commons – Phase II
Raleigh, NC
Raleigh, NC
Holly Springs Towne Center – Phase II
Raleigh, NC
March 2013
March 2014
September 2014
December 2015
Owned GLA
260,092
207,527
55,463
347,801
154,001
____________________
1
Represents the earlier of 1) the date on which we started receiving rental payments under tenant leases or ground leases
at the property or 2) the date the first tenant took possession of its space at the property.
Redevelopment Activities
During portions of the years ended December 31, 2015, 2014 and 2013, the following redevelopment properties were under
construction or in the final stages of the development process:
Property Name
MSA
Rangeline Crossing
Four Corner Square2
King’s Lake Square
Bolton Plaza
Gainesville Plaza
Cool Springs Market
Courthouse Shadows34
Hamilton Crossing Centre3
City Center3
Fishers Station3
Beechwood Promenade3
The Corner3
____________________
Carmel, IN
Seattle, WA
Naples, FL
Jacksonville, FL
Gainesville, FL
Nashville, TN
Naples, FL
Indianapolis, IN
White Plains, NY
Indianapolis, IN
Athens, GA
Indianapolis, IN
Transition to
Redevelopment1 Transition to Operations Owned GLA
99,282
June 2012
June 2013
September 2008
December 2013
July 2013
June 2008
June 2013
July 2015
June 2013
June 2014
December 2015
December 2015
December 2015
December 2015
April 2014
September 2014
December 2015
December 2015
Pending
Pending
Pending
Pending
Pending
Pending
107,998
87,073
165,555
162,659
230,948
5,960
93,839
365,905
173,717
353,970
26,500
1
2
3
4
Transition date represents the date the property was transferred from our operating portfolio into redevelopment status.
This operating property was sold in December 2015.
These operating properties have been identified as redevelopment properties as they have been excluded from the same
property pool.
Our redevelopment plan is to demolish the site to add a large format single tenant ground lease with projected total
GLA at the site of 140,710 square feet.
Anchor Tenant Openings
Included below is a list of anchor tenants that opened in 2015.
59
Tenant Name
Property Name
MSA
Owned GLA
Goodwill
Ross Dress For Less
Carl's Patio
Stoney Creek Commons
Gainesville Plaza
Delray Marketplace
Noblesville, IN
Gainesville, FL
Delray Beach, FL
Frank Theatres & CineBowl Grill
Parkside Town Commons – Phase II
Raleigh, NC
Staples
TJ Maxx
Kirklands
Cool Springs Market
Portofino Shopping Center
Landstown Commons
Franklin, TN
Shenandoah, TX
Virginia Beach, VA
Bed Bath & Beyond
Holly Springs Towne Center – Phase II Holly Springs, NC
19,030
25,000
10,256
59,944
12,000
22,500
10,150
23,400
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, 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 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.
When evaluating the properties that are included in the same property pool, we have established specific criteria in
determining the inclusion of properties acquired or those recently under development. An acquired property is included in the
same property pool twelve months after the acquisition date. A development property is included in the same property pool
twelve months after construction is substantially complete, which is typically between six and twelve months after the first date
a tenant is open for business. A redevelopment property is included in the same property pool twelve months after the
construction of the redevelopment property is substantially complete. A redevelopment property is first excluded from the
same property pool when the execution of a redevelopment plan is likely and we begin recapturing space from tenants. For the
year ended December 31, 2015, we excluded eight redevelopment properties from the same property pool that met these
criteria and were owned in all periods compared.
The following table reflects Same Property NOI (and reconciliation to net income (loss) attributable to common shareholders)
for the years ended December 31, 2015 and 2014 (unaudited):
60
($ in thousands)
Leased percentage
Economic Occupancy percentage1
Years Ended December 31,
2015
2014
% Change
95.4%
93.9%
95.1%
93.7%
Net operating income - same properties2
$
164,607
$
159,040
3.5%
Reconciliation of Same Property NOI to Most Directly Comparable GAAP
Measure:
Net operating income - same properties
Net operating income - non-same activity3
General, administrative and other
Merger and acquisition costs
Depreciation expense
Non-cash gain from release of assumed earnout liability
Impairment charge
Interest expense
Gain on settlement
Other expense, net
Discontinued operations
Non-cash gain on debt extinguishment
Gains on sales of operating properties
Net income attributable to noncontrolling interests
Dividends on preferred shares
Non-cash adjustment for redemption of preferred shares
$
164,607
$
159,040
91,521
(18,709)
(1,550)
(167,312)
4,832
(1,592)
(56,432)
4,520
(281)
—
5,645
4,066
(2,198)
(7,877)
(3,797)
15,443
31,838
(13,043)
(27,508)
(120,998)
—
—
(45,513)
—
(268)
3,198
—
8,578
(1,025)
(8,456)
—
(14,157)
$
Net income (loss) attributable to common shareholders
$
____________________
1
2
3
Excludes leases that are signed but for which tenants have not commenced payment of cash rent. Calculated as a
weighted average based on the timing of cash rent commencement during the period.
Same property NOI excludes net gains from outlot sales, straight-line rent revenue, bad debt expense and recoveries,
lease termination fees, amortization of lease intangibles and significant prior year expense recoveries and adjustments,
if any.
Includes non-cash accounting items across the portfolio as well as net operating income from properties not included
in the same property pool.
The increase in Same Property NOI of 3.5% in 2015 compared to 2014 is primarily due to increases in rental rates, and
improved expense control and real estate tax recovery resulting in an improvement in net recoveries of $1.4 million.
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) and related revisions,
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.
61
Given the nature of our business as a real estate owner and operator, we believe that FFO is helpful to investors as a starting
point in measuring our operational performance because it excludes various items included in consolidated net income that do not
relate to or are not indicative of our operating performance, such as gains (or losses) from sales and impairment of depreciated
property and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult.
For informational purposes, we have also provided FFO adjusted for a gain on settlement, merger and acquisition costs, non-cash
adjustment for redemption of preferred shares, non-cash gain from release of assumed earnout liability, non-cash gains on debt
extinguishment in 2013 and 2015 and accelerated amortization of deferred financing fees in 2013. We believe this supplemental
information provides a meaningful measure of our operating performance. We believe that our presentation of FFO, as adjusted
provides investors with another financial measure that may facilitate comparison of operating performance between periods and
compared to our peers. FFO and FFO, as adjusted, should not be considered as alternatives to consolidated net income (loss)
(determined in accordance with GAAP) as indicators of our financial performance, are not alternatives to cash flow from operating
activities (determined in accordance with GAAP) as a measure of our liquidity, and are not indicative of funds available to satisfy
our cash needs, including our ability to make distributions. Our computations of FFO and FFO, as adjusted, may not be comparable
to FFO or FFO, as adjusted, reported by other REITs.
Our calculations of FFO1 (and reconciliation to consolidated net income, as applicable) and FFO, as adjusted. for the
years ended December 31, 2015, 2014 and 2013 (unaudited) are as follows:
($ in thousands)
Consolidated net income (loss)
Less: cash dividends on preferred shares
Less: non-cash adjustment for redemption of preferred shares
Less: net income attributable to noncontrolling interests in properties
Less: gains on sales of operating properties
Add: impairment charge
Add: depreciation and amortization of consolidated entities, net of noncontrolling
interests
Funds From Operations of the Kite Portfolio 1
Less: Limited Partners' interests in Funds From Operations
Funds From Operations attributable to Kite Realty Group Trust common
shareholders1
Funds From Operations of the Kite Portfolio 1
Less: gain on settlement
Add: write-off of loan fees on early repayment of debt
Add: merger and acquisition costs
Add: adjustment for redemption of preferred shares (non-cash)
Less: gain from release of assumed earnout liability (non-cash)
Less: gain on debt extinguishment (non-cash)
Funds From Operations of the Kite Portfolio, as adjusted
Years Ended December 31,
2015
2014
2013
$
$
$
$
29,315
(7,877)
(3,797)
(1,854)
(4,066)
1,592
166,509
179,822
(3,789)
176,033
179,822
(4,520)
—
1,550
3,797
(4,832)
(5,645)
170,172
$
(4,676) $
(8,456)
—
(1,435)
(11,776)
—
120,452
94,109
(2,541)
$
$
91,568
94,109
$
$
—
—
27,508
—
—
—
$
121,617
$
(3,535)
(8,456)
—
(121)
(487)
5,372
54,850
47,623
(3,195)
44,428
47,623
—
488
1,648
—
—
(1,242)
48,517
____________________
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 attributable to Kite Realty Group Trust common shareholders” reflects a reduction for the
redeemable noncontrolling weighted average diluted interest in the Operating Partnership.
62
Earnings before Interest, Tax, Depreciation, and Amortization
We define EBITDA, a non-GAAP financial measure, as net income before depreciation and amortization, interest expense
and income tax expense of taxable REIT subsidiary. For informational purposes, we have also provided Adjusted EBITDA, which
we define as EBITDA less (i) EBITDA from unconsolidated entities, (ii) non-cash gain on debt extinguishment, (iii) gain on
resolution of assumed contingency, (iv) impairment charge, (v) gain on sales of operating properties, (vi) other income and expense
and (vii) noncontrolling interest EBITDA. Annualized Adjusted EBITDA is Adjusted EBITDA for the most recent quarter
multiplied by four. EBITDA, Adjusted EBITDA and Annualized Adjusted EBITDA, as calculated by us, are not comparable to
EBITDA reported by other REITs that do not define EBITDA exactly as we do. EBITDA, Adjusted EBITDA and Annualized
Adjusted EBITDA do not represent cash generated from operating activities in accordance with GAAP, and should not be considered
alternatives to net income as an indicator of performance or as alternatives to cash flows from operating activities as an indicator
of liquidity.
Given the nature of our business as a real estate owner and operator, we believe that EBITDA and Adjusted EBITDA are
helpful to investors when measuring operating performance because they exclude various items included in net income or loss
that do not relate to or are not indicative of operating performance, such as impairments 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 Annualized Adjusted EBITDA, adjusted as described above. We believe this supplemental information
provides a meaningful measure of our operating performance. We believe presenting EBITDA in this manner allows investors
and other interested parties to form a more meaningful assessment of our operating results.
The following table presents a reconciliation of our EBITDA, Adjusted EBITDA and Annualized Adjusted EBITDA to
consolidated net income (the most directly comparable GAAP measure) and a calculation of Net Debt to EBITDA.
63
($ in thousands)
Consolidated net income
Adjustments to net income:
Depreciation and amortization
Interest expense
Income tax expense of taxable REIT subsidiary
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Adjustments to EBITDA:
Unconsolidated EBITDA
Non-cash gain on debt extinguishment
Gain on resolution of assumed contingency
Impairment charge
Gain on sales of operating properties
Other expense, net
Noncontrolling interest
Adjusted EBITDA
Annualized Adjusted EBITDA1
Company share of net debt:
Mortgage and other indebtedness
Less: Partner share of consolidated joint venture debt
Less: Cash
Less: Debt Premium
Company Share of Net Debt
Net Debt to EBITDA
Net Debt plus Preferred Shares to Annualized Adjusted EBITDA
Three Months Ended
December 31,
$
11,256
43,116
15,437
52
69,861
33
(5,645)
(4,832)
1,592
(854)
61
(445)
59,771
$
239,084
1,734,059
(13,753)
(33,880)
(16,521)
1,669,905
6.98x
6.98x
____________________
1
Represents Adjusted EBITDA for the three months ended December 31, 2015 (as shown in the table above) multiplied
by four.
Comparison of Operating Results for the Years Ended December 31, 2015 and 2014
The following table reflects income statement line items from our consolidated statements of operations for the years ended
December 31, 2015 and 2014:
64
($ in thousands)
Revenue:
Rental income (including tenant reimbursements)
Other property related revenue
Total revenue
Expenses:
Property operating
Real estate taxes
General, administrative, and other
Merger and acquisition costs
Non-cash gain from release of assumed earnout liability
Impairment charge
Depreciation and amortization
Total expenses
Operating income
Interest expense
Income tax expense of taxable REIT subsidiary
Non-cash gain on debt extinguishment
Gain on settlement
Other expense, net
Income (loss) from continuing operations
Discontinued operations:
Gain on sales of operating properties, net
Income (loss) from discontinued operations
Income (loss) before gain on sale of operating properties
Gain on sale of operating properties, net
Consolidated net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to Kite Realty Group Trust
Dividends on preferred shares
Non-cash adjustment for redemption of preferred shares
2015
2014
Net change
2014 to 2015
$
334,029
12,976
347,005
$
252,228
7,300
259,528
$
81,801
5,676
87,477
49,973
40,904
18,709
1,550
(4,832)
1,592
167,312
275,208
71,797
(56,432)
(186)
5,645
4,520
(95)
25,249
—
—
25,249
4,066
29,315
(2,198)
27,117
(7,877)
(3,797)
15,443
38,703
29,947
13,043
27,508
—
—
120,998
230,199
29,329
(45,513)
(24)
—
—
(244)
(16,452)
3,198
3,198
(13,254)
8,578
(4,676)
(1,025)
(5,701)
(8,456)
—
(14,157)
11,270
10,957
5,666
(25,958)
(4,832)
1,592
46,314
45,009
42,468
(10,919)
(162)
5,645
4,520
149
41,701
(3,198)
(3,198)
38,503
(4,512)
33,991
(1,173)
32,818
579
(3,797)
29,600
$
$
Net income (loss) attributable to common shareholders
$
Property operating expense to total revenue ratio
14.4%
14.9%
(0.5)%
Rental income (including tenant reimbursements) increased $81.8 million, or 32.4%, due to the following:
($ in thousands)
Properties acquired during 2014 or 2015 and retained
Development properties that became operational or were partially operational in 2014 and/or 2015
Properties sold during 2014 or 2015 including properties acquired in the Merger
Properties under redevelopment during 2014 and/or 2015 including properties acquired in the Merger
Properties fully operational during 2014 and 2015 and other
Total
Net change
2014 to
2015
$
$
82,672
3,468
(11,420)
6,090
991
81,801
65
The net increase of $82.7 million in rental income at properties acquired and retained during 2014 or 2015 is attributable
to the Merger with Inland Diversified and the acquisition of Rampart Commons in 2014 and the acquisitions of Colleyville Downs,
Belle Isle Station, Livingston Shopping Center, and Chapel Hill Shopping Center in 2015. The properties acquired and retained
in connection with the Merger with Inland Diversified contributed an additional $71.3 million to rental income in 2015, while the
remaining 2014 and 2015 acquisitions contributed $11.4 million. The net decrease of $11.4 million in rental income from properties
sold during 2014 or 2015 is primarily due to the sale of 15 properties sold in late 2014 and early 2015. The net increase of $1.0
million in rental income for properties fully operational in both years is primarily attributable to an increase in rental rates, and
an improvement in economic occupancy.
The average rents for new comparable leases signed in 2015 were $20.23 per square foot compared to average expiring
rents of $16.59 per square foot in that period. The average rents for renewals signed in 2015 were $12.58 per square foot compared
to average expiring rents of $11.53 per square foot in that period. Our same property economic occupancy improved to 93.9% as
of December 31, 2015 from 93.7% as of December 31, 2014. For our retail operating portfolio, annualized base rent per square
foot improved to $15.22 per square foot as of December 31, 2015, up from $15.15 per square foot as of December 31, 2014.
Other property related revenue primarily consists of parking revenues, overage rent, specialty leasing income, lease
termination income and gains related to sales of land parcels peripheral to our properties. This revenue increased by $5.7 million,
primarily as a result of higher gains on land sales of $4.1 million, an increase of $0.5 million in specialty leasing income, an
increase of $0.5 million in lease termination income and an increase in overage rent of $0.3 million.
Property operating expenses increased $11.3 million, or 29.1%, due to the following:
($ in thousands)
Properties acquired during 2014 or 2015 and retained
Development properties that became operational or were partially operational in 2014 and/or 2015
Properties sold during 2014 or 2015 including properties acquired in the Merger
Properties under redevelopment during 2014 and/or 2015 including properties acquired in the Merger
Properties fully operational during 2014 and 2015 and other
Total
Net change
2014 to
2015
$
$
9,876
767
(1,616)
1,811
432
11,270
The net increase of $9.9 million in property operating expenses at properties acquired and retained during 2014 or 2015 is
attributable to the Merger with Inland Diversified and the acquisition of Rampart Commons in 2014 and the acquisitions of
Colleyville Downs, Belle Isle Station, Livingston Shopping Center, and Chapel Hill Shopping Center in 2015. The properties
acquired and retained in connection with the Merger with Inland Diversified contributed an additional $7.9 million to property
operating expenses in 2015, while the remaining 2014 and 2015 acquisitions contributed $2.0 million. The net decrease of $1.6
million in property operating expenses at properties sold during 2014 or 2015 is primarily due to the sale of 15 properties sold in
late 2014 and early 2015. The net $0.4 million increase for properties fully operational is due to an increase of $1.5 million in
on-site personnel and regional office costs, $0.7 million in bad debt expense, and $0.2 million in marketing costs, offset by a
decrease of $0.5 million in insurance costs as we leveraged our larger operating platform, $1.1 million in repair and maintenance
costs, and $0.4 million in snow removal costs.
Property operating expenses as a percentage of total revenue for the year ended December 31, 2015 were 14.4% compared
to 14.9% over the same period in the prior year. The decrease was mostly due to higher other property related revenue and an
improvement in expense recoveries from tenants as a result of higher economic occupancy rates. The overall recovery ratio for
reimbursable expenses improved to 87.1% for the twelve months ended December 31, 2015 compared to 85.3% for the twelve
months ended December 31, 2014.
66
Real estate taxes increased $11.0 million, or 36.6%, due to the following:
($ in thousands)
Properties acquired during 2014 or 2015 and retained
Development properties that became operational or were partially operational in 2014 and/or 2015
Properties sold during 2014 or 2015 including properties acquired in the Merger
Properties under redevelopment during 2014 and/or 2015 including properties acquired in the Merger
Properties fully operational during 2014 and 2015 and other
Total
Net change
2014 to
2015
$
$
10,297
215
(1,213)
1,012
646
10,957
The $10.3 million increase in real estate taxes at properties acquired and retained during 2014 or 2015 is attributable to the
Merger with Inland Diversified and the acquisition of Rampart Commons in 2014 and the acquisitions of Colleyville Downs, Belle
Isle Station, Livingston Shopping Center, and Chapel Hill Shopping Center in 2015. The properties acquired and retained in
connection with the Merger with Inland Diversified contributed an additional $8.5 million to real estate taxes in 2015, while the
remaining 2014 and 2015 acquisitions contributed $1.8 million. The net decrease of $1.2 million in real estate taxes at properties
sold during 2014 or 2015 is primarily due to the sale of 15 properties sold in late 2014 and early 2015. The net $0.6 million
increase in real estate taxes for properties fully operational during 2014 and 2015 is due to higher tax assessments at certain
operating properties. The majority of changes in our real estate tax expense is recoverable from tenants and, therefore, reflected
in tenant reimbursement revenue.
General, administrative and other expenses increased $5.7 million, or 43.4%. The increase is due primarily to higher public
company costs and personnel costs associated with the July 2014 merger with Inland Diversified. Our employee base increased
from 95 full-time employees as of December 31, 2013 to 145 full-time employees as of December 31, 2015.
Merger and acquisition costs in 2014 related almost entirely to our Merger with Inland Diversified and totaled $27.5 million
for the year ended December 31, 2014 compared to $1.6 million of costs for various property acquisitions for the year ended
December 31, 2015.
We recorded a non-cash gain from the release of an assumed earnout liability of $4.8 million for the year ended December
31, 2015. See additional discussion in Note 15 to the consolidated financial statements.
We recorded an impairment charge of $1.6 million related to our Shops at Otty operating property for the year ended
December 31, 2015. See additional discussion in Note 9 to the consolidated financial statements.
Depreciation and amortization expense increased $46.3 million, or 38.3%, due to the following:
($ in thousands)
Properties acquired during 2014 or 2015 and retained
Development properties that became operational or were partially operational in 2014 and/or 2015
Properties sold during 2014 or 2015 including properties acquired in the Merger
Properties under redevelopment during 2014 and/or 2015 including properties acquired in the Merger
Properties fully operational during 2014 and 2015 and other
Total
Net change
2014 to
2015
$
$
45,414
2,514
(3,456)
3,870
(2,028)
46,314
67
The net increase of $45.4 million in depreciation and amortization expense at properties acquired and retained during 2014
or 2015 is attributable to the Merger with Inland Diversified and the acquisition of Rampart Commons in 2014 and the acquisitions
of Colleyville Downs, Belle Isle Station, Livingston Shopping Center, and Chapel Hill Shopping Center in 2015. The net decrease
of $3.5 million in depreciation and amortization expense at properties sold during 2014 or 2015 is primarily due to the sale of 15
properties sold in late 2014 and early 2015. The net $2.0 million decrease in depreciation at properties fully operational during
2014 and 2015 is mainly due to a tenant vacating at an operating property in 2014, which resulted in the acceleration of depreciation
and amortization on certain assets.
Interest expense increased $10.9 million or 24.0%. The increase mainly resulted from our assumption of $859.6 million
of debt as part of the Merger with Inland Diversified, in addition to draws on the unsecured revolving credit facility to fund a
portion of our 2015 acquisitions. In addition, we secured longer-term fixed rate debt that carried higher interest rates than the
variable rate on our unsecured revolving credit facility. The increase was also due to certain development projects, including
Delray Marketplace and Parkside Town Commons - Phase I becoming operational. As a portion of the project becomes operational,
we expense a pro-rata amount of related interest expense.
We recorded a non-cash gain on debt extinguishment of $5.6 million for the year ended December 31, 2015, related to the
retirement of the $90 million loan secured by our City Center operating property. See additional discussion in Note 10 to the
consolidated financial statements.
We recorded a gain on settlement of $4.5 million for the year ended December 31, 2015, related to the settlement of a
dispute related to eminent domain and related damages at one of our operating properties. See additional discussion in Note 3 to
the consolidated financial statements.
The allocation of net income attributable to noncontrolling interests increased due to allocations to joint venture partners
in certain consolidated properties acquired as part of the Merger with Inland Diversified. These partners are allocated income
generally equal to the distribution received from the operations of the properties in which they hold an interest.
Comparison of Operating Results for the Years Ended December 31, 2014 and 2013
The following table reflects income statement line items from our consolidated statements of operations for the years ended
December 31, 2014 and 2013:
68
($ in thousands)
Revenue:
2014
2013
Net change
2013 to 2014
Rental income (including tenant reimbursements)
$
252,228
$
118,059
$ 134,169
Other property related revenue
Total revenue
Expenses:
Property operating
Real estate taxes
General, administrative, and other
Merger and acquisition costs
Depreciation and amortization
Total expenses
Operating income
Interest expense
Income tax expense of taxable REIT subsidiary
Other expense, net
Loss from continuing operations
Discontinued operations:
Discontinued operations
Impairment charge
Non-cash gain on debt extinguishment
Gain on sale of operating properties
Income (loss) from discontinued operations
Loss before gain on sale of operating properties
Gain on sale of operating properties
Consolidated net loss
Net (income) loss attributable to noncontrolling interests
Net loss attributable to Kite Realty Group Trust
Dividends on preferred shares
Net loss attributable to Kite Realty Group Trust common shareholders
$
7,300
259,528
11,429
129,488
(4,129)
130,040
38,703
29,947
13,043
27,508
120,998
230,199
29,329
(45,513)
(24)
(244)
(16,452)
—
—
—
3,198
3,198
(13,254)
8,578
(4,676)
(1,025)
(5,701)
(8,456)
(14,157)
21,729
15,263
8,211
2,214
54,479
101,896
27,592
(27,994)
(262)
(62)
(726)
834
(5,372)
1,242
487
(2,809)
(3,535)
—
(3,535)
685
(2,850)
(8,456)
(11,306)
16,974
14,684
4,832
25,294
66,519
128,303
1,737
(17,519)
238
(182)
(15,726)
(834)
5,372
(1,242)
2,711
6,007
(9,719)
8,578
(1,141)
(1,710)
(2,851)
—
$
(2,851)
$
Property operating expense to total revenue ratio
14.9%
16.8%
(1.9)%
Rental income (including tenant reimbursements) increased $134.2 million, or 113.6%, due to the following:
69
($ in thousands)
Properties acquired through merger with Inland Diversified
Properties acquired during 2013 and 2014
Development properties that became operational or were partially
operational in 2013 and/or 2014
Properties sold during 2014
Properties sold to Inland Real Estate during 2014
Properties under redevelopment during 2013 and/or 2014
Properties fully operational during 2013 and 2014 and other
Total
Net change
2013 to
2014
$
85,310
32,816
4,775
(2,486)
6,662
2,025
5,067
$
134,169
The net increase of $32.8 million in rental income at properties acquired during 2013 and 2014 is attributable to the
acquisitions of Cool Springs Market, Castleton Crossing, Toringdon Market, and the nine property portfolio in November 2013.
The net increase of $5.1 million in rental income for fully operational properties is primarily attributable to anchor tenant openings
at certain operating properties, improvement in small shop occupancy, and an improvement in expense recoveries from tenants.
The average rents for new comparable leases signed in 2014 were $17.24 per square foot compared to average expiring
rents of $12.15 per square foot in that period. The average rents for renewals signed in 2014 were $14.48 per square foot compared
to average expiring rents of $13.68 per square foot in that period. For our retail operating portfolio, annualized base rent per
square foot improved to $15.15 (excluding ground leases) per square foot as of December 31, 2014, up from $13.18 (excluding
ground leases) as of December 31, 2013 due to recent acquisition activity.
Other property related revenue primarily consists of parking revenues, overage rent, lease settlement income and gains
related to land sales. This revenue decreased by $4.1 million, primarily as a result of lower gains on land sales of $4.7 million
partially offset by increases in overage rent income of $0.5 million.
Property operating expenses increased $17.0 million, or 78.1%, due to the following:
($ in thousands)
Properties acquired through merger with Inland Diversified
Properties acquired during 2013 and 2014
Development properties that became operational or were partially
operational in 2013 and/or 2014
Properties sold during 2014
Properties sold to Inland Real Estate during 2014
Properties under redevelopment during 2013 and/or 2014
Properties fully operational during 2013 and 2014 and other
Total
Net change
2013 to
2014
$
8,022
5,714
1,063
(274)
943
497
1,009
$
16,974
The net $5.7 million increase in property operating expenses at properties acquired during 2013 and 2014 is attributable to
the acquisitions of Cool Springs Market, Castleton Crossing, Toringdon Market, and the nine property portfolio in November
2013. The net $1.0 million increase in property operating expenses at properties fully operational during 2013 and 2014 was due
to higher maintenance, landscaping and insurance costs.
70
Property operating expenses as a percentage of total revenue for the year 2014 was 14.9% compared to 16.8% in 2013. The
decrease in the percentage was mostly due to an improvement in expense recoveries from tenants. For the total portfolio, the
overall recovery ratio for reimbursable expenses improved to 85.3% for 2014 compared to 76.1% for 2013. The improved ratio
is mostly due to higher occupancy.
Real estate taxes increased $14.7 million, or 96.2%, due to the following:
($ in thousands)
Properties acquired through merger with Inland Diversified
Properties acquired during 2013 and 2014
Development properties that became operational or were partially
operational in 2013 and/or 2014
Properties sold during 2014
Properties sold to Inland Real Estate during 2014
Properties under redevelopment during 2013 and/or 2014
Properties fully operational during 2013 and 2014 and other
Total
Net change
2013 to
2014
$
10,317
3,513
701
(258)
682
57
(328)
14,684
$
The net increase of $3.5 million in real estate taxes at properties acquired during 2013 and 2014 is attributable to the
acquisitions of Cool Springs Market, Castleton Crossing, Toringdon Market, and the nine property portfolio in November 2013.
The net $0.3 million decrease in real estate taxes at properties fully operational during 2013 and 2014 was due to successful appeals
at certain properties. The majority of changes in our real estate tax expense is recoverable from tenants and, therefore, reflected
in tenant reimbursement revenue.
General, administrative and other expenses increased $4.8 million, or 58.8%, due primarily to higher public company and
personnel costs largely associated with the Merger. Specifically, our year-end employee base increased 48.4% from 95 employees
in 2013 to 141 employees in 2014.
Merger and acquisition costs for the year ended December 31, 2014 related almost entirely to our Merger with Inland
Diversified and totaled $27.5 million compared to $2.2 million of costs for property acquisitions for the year ended December 31,
2013. The majority of the $27.5 million related to investment banking, lender, due diligence, legal, and professional expenses.
Depreciation and amortization expense increased $66.5 million, or 122.1%, due to the following:
71
($ in thousands)
Properties acquired through merger with Inland Diversified
Properties acquired during 2013 and 2014
Development properties that became operational or were partially
operational in 2013 and/or 2014
Properties sold during 2014
Properties sold to Inland Real Estate during 2014
Properties under redevelopment during 2013 and/or 2014
Properties fully operational during 2013 and 2014 and other
Total
Net change
2013 to
2014
$
41,851
20,794
4,424
(764)
2,357
(3,407)
1,264
$
66,519
The net increase of $20.8 million for depreciation and amortization expense at properties acquired during 2013 and 2014
is attributable to the acquisitions of Cool Springs Market, Castleton Crossing, Toringdon Market, and the nine property portfolio
in November 2013. The net increase of $1.3 million in depreciation and amortization expense at properties fully operational during
2013 and 2014 was primarily due to an increase in anchor tenants openings.
Interest expense increased $17.5 million, or 62.6%. The increase partially resulted from our assumption of $859.6 million
of debt from the Merger. The increase was also due to certain development and redevelopment projects, including Delray
Marketplace, Holly Springs Towne Centre – Phase I, Rangeline Crossing, Four Corner Square, and Parkside Town Commons –
Phase I becoming operational. As a portion of the project becomes operational, we expense pro-rata amount of related interest
expense.
We recorded an impairment charge of $5.4 million related to our Kedron Village operating property for the year ended
December 31, 2013. We also recognized a non-cash gain of $1.2 million resulting from the transfer of the Kedron Village assets
to the lender in satisfaction of the debt. See additional discussion in Note 4 to the consolidated financial statements.
We had a gain from discontinued operations of $3.2 million for the year ended December 31, 2014 compared to a loss of
$0.5 million in the same period of 2013. The current year gain from discontinued operations relates to the sale of the 50th and 12th
operating property, which was classified as held for sale as of December 31, 2013 and 2012. In the first quarter of 2014, we
adopted the provisions of ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment
(Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The Red Bank
Commons, Ridge Plaza, Zionsville Walgreens and Tranche I operating properties are not included in discontinued operations in
the accompanying Statements of Operations for the year ended December 31, 2014 and 2013, as the disposals individually and
in the aggregate did not represent a strategic shift that has or will have major effect on our operations and financial results.
We also recorded gains totaling $8.6 million for the year ended December 31, 2014 on the sales of our Red Bank
Commons, Ridge Plaza, Zionsville Walgreens, and eight operating properties we sold in late 2014. Disposal gains and losses in
prior years were generally classified in discontinued operations prior to our adoption of ASU 2014-08.
The allocation to net income of noncontrolling interests increased due to allocations to joint venture partners in certain
consolidated properties acquired as part of the Merger. These partners are allocated income generally equal to the distribution
received from the operations of the properties in which they hold an interest.
72
Liquidity and Capital Resources
Overview
Our primary finance and capital strategy is to maintain a strong balance sheet with sufficient flexibility to fund our operating
and investment activities in a cost-effective manner. We consider a number of factors when evaluating our level of indebtedness
and when making decisions regarding additional borrowings or equity offerings, including the estimated value 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. We will continue to monitor the
capital markets and may consider raising additional capital through the issuance of our common or preferred shares, unsecured
debt securities, or other securities.
Our Principal Capital Resources
For a discussion of cash generated from operations, see “Cash Flows,” beginning on page 76. In addition to cash generated
from operations, we discuss below our other principal capital resources.
The increased asset base and operating cash flows of the Company have substantially enhanced our liquidity position and
reduced our borrowing costs. We continue to focus on a balanced approach to growth and staggering debt maturities in order to
retain our financial flexibility.
In 2015, we issued $520 million of unsecured debt in order to retire $233.1 million of property level secured debt, acquire
$185.8 million of operating properties and to partially fund the $102.6 million redemption of our outstanding Series A Preferred
Shares.
As of December 31, 2015, we had approximately $339.5 million available under our unsecured revolving credit facility for
future borrowings based on the unencumbered property pool allocated to the unsecured revolving credit facility. We also had
$33.9 million in cash and cash equivalents as of December 31, 2015.
We were in compliance with all applicable financial covenants under our unsecured revolving credit facility, our unsecured
term loans, and our senior unsecured notes as of December 31, 2015.
In the future, we may raise capital by disposing of properties, land parcels or other assets that are no longer core components
of our growth strategy. The sale price may differ from our carrying value at the time of sale. We will also continue to monitor
the capital markets and may consider raising additional capital through the issuance of our common shares, preferred shares or
other securities.
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.
73
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.
We sold eight retail operating properties in November and December 2014 for aggregate net proceeds of $150.8 million
and a net gain of $1.4 million and seven retail operating properties in March 2015 for aggregate net proceeds of $103.0 million
and a net gain of $3.4 million. Proceeds from these sales were used to pay down the unsecured revolving credit facility, acquire
properties in our core markets, and to retire property level secured debt.
During the fourth quarter of 2015, we sold our Four Corner operating property in Seattle, Washington, and our Cornelius
Gateway operating property in Portland, Oregon, for aggregate proceeds of $44.9 million and a net gain of $0.6 million.
Proceeds from these sales were used to pay down the unsecured revolving credit facility.
Our Principal Liquidity Needs
Short-Term Liquidity Needs
Near-Term Debt Maturities. As of December 31, 2015, we have $262.5 million of debt scheduled to mature in 2016,
excluding scheduled monthly principal payments. The recently executed seven-year unsecured term loan for up to $200 million,
of which $100 million is undrawn, provides the majority of the funding for these securitized debt maturities. In addition, the
maturity date of the $75.9 million Parkside Town Commons construction loan may be extended for an additional 48 months to
November 21, 2020 at the Company’s option subject to certain conditions.
Other Short-Term Liquidity Needs. The requirements for qualifying as a REIT and for a tax deduction for some or all of
the dividends paid to shareholders, necessitate that we distribute at least 90% of our taxable income on an annual basis. Such
requirements 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 to our common shareholders and to Common Unit holders,
and recurring capital expenditures.
In December 2015, our Board of Trustees declared a cash distribution of $0.2725 per common share and Common Unit for
the fourth quarter of 2015. This distribution was paid on January 13, 2016 to common shareholders and Common Unit holders
of record as of January 6, 2016. On February 4, 2016, the Board of Trustees declared a cash distribution of $0.2875 per common
share and Common Unit for the first quarter of 2016, which represents a 5.5% increase over our previous quarterly distribution.
Future dividends are at the discretion of the Board of Trustees.
Other short-term liquidity needs include expenditures for tenant improvements, external leasing commissions and recurring
capital expenditures. During the year ended December 31, 2015, we incurred $3.2 million of costs for recurring capital
expenditures on operating properties and also incurred $6.6 million of costs for tenant improvements and external leasing
commissions (excluding first generation space and development and redevelopment properties). We currently anticipate incurring
approximately $13 million to $15 million of additional major tenant improvements and renovation costs within the next twelve
months at a number of our operating properties.
As of December 31, 2015, we had three development projects under construction. The total estimated cost of the
development projects is approximately $172.7 million, of which $145.4 million had been incurred as of December 31, 2015. We
currently anticipate incurring the remaining $27.3 million of costs over the next twelve to eighteen months. We believe we currently
74
have sufficient financing in place to fund the projects and expect to do so primarily through existing or new construction loans or
borrowings on our unsecured revolving credit facility.
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, ongoing tenant improvements, non-recurring capital expenditures, acquisitions of properties,
and payment of indebtedness at maturity.
Potential Redevelopment, Reposition, Repurpose Opportunities. We are currently evaluating potential redevelopment,
repositioning, and repurposing of several operating properties. Total estimated costs are expected to be in the range of $130 million
to $145 million. We believe we currently have sufficient financing in place to fund our investment in any existing or future projects
through cash from operations and borrowings on our unsecured revolving credit facility.
Selective Acquisitions, Developments and Joint Ventures. We may selectively pursue the acquisition and development of
other properties, which would require additional capital. It is unlikely that we would have sufficient funds on hand to meet these
long-term capital requirements. We would have to satisfy these needs through additional borrowings, sales of common or preferred
shares, issuance of Operating Partnership units, cash generated through property dispositions or future property acquisitions and/
or participation in potential joint venture arrangements. We cannot be certain that we would have access to these sources of capital
on satisfactory terms, if at all, to fund our long-term liquidity requirements. We evaluate all future opportunities against pre-
established criteria including, but not limited to, location, demographics, expected return, tenant credit quality, tenant relationships,
and amount of existing retail space. Our ability to access the capital markets will be dependent on a number of factors, including
general capital market conditions.
Capitalized Expenditures on All Properties
The following table summarizes cash basis capital expenditures for our development and redevelopment properties and
capital expenditures for the year ended December 31, 2015 and on a cumulative basis since the project’s inception:
($ in thousands)
Developments
Redevelopments
Recently completed developments1
Miscellaneous other activity, net
Recurring operating capital expenditures (primarily tenant
improvement payments)
Total
Year to Date
Cumulative
December 31, 2015
December 31, 2015
52,858
$
145,408
2,649
12,138
15,033
9,886
92,564
$
N/A
N/A
N/A
N/A
145,408
$
$
____________________
1
This classification includes Parkside Town Commons - Phase I, Delray Marketplace, Holly Springs Towne Center – Phase
I, Bolton Plaza, Gainesville Plaza, and Cool Springs.
We capitalize certain indirect costs such as interest, salaries and benefits, and other general and administrative costs related
to these development activities. If we were to experience a 10% reduction in development activities, without a corresponding
decrease in indirect project costs, we would have recorded additional expense for the year ended December 31, 2015 of $0.5
million.
75
Impact of Changes in Credit Ratings on Our Liquidity
In 2014, we were assigned investment grade corporate credit ratings from two nationally recognized credit rating agencies.
These ratings remain unchanged at December 31, 2015.
The ratings could change based upon, among other things, the impact that prevailing economic conditions may have on
our results of operations and financial condition. Credit rating reductions by one or more rating agencies could also adversely
affect our access to funding sources, the cost and other terms of obtaining funding, as well as our overall financial condition,
operating results and cash flow.
Cash Flows
As of December 31, 2015, we had cash and cash equivalents on hand of $33.9 million. We may be subject to concentrations
of credit risk with regard to our cash and cash equivalents. We place our cash and short-term cash investments with high-credit-
quality financial institutions. While we attempt to limit our exposure at any point in time, occasionally, such cash and investments
may temporarily be in excess of FDIC and SIPC insurance limits. 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.
Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014
Cash provided by operating activities was $169.3 million for the year ended December 31, 2015, an increase of $126.8
million from the same period of 2014. The increase was primarily due to the increased cash flows generated by the properties
acquired in 2014.
Cash used in investing activities was $84.4 million for the year ended December 31, 2015, as compared to cash provided
by investing activities of $186.9 million in the same period of 2014. Highlights of significant cash sources and uses are as follows:
• Net proceeds of $170.0 million related to the sale of seven operating properties in early 2015 and the sale of
Four Corner and Cornelius Gateway operating properties in December 2015 compared to net proceeds of
$191.1 million related to the sale of eight operating properties in late 2014 and the sale of Red Bank
Commons, Ridge Plaza, and 50th and 12th operating properties in early 2014;
• Net cash outflow of $166.4 million related to 2015 acquisitions compared to a net cash outflow of $22.5
million related to the 2014 acquisition of Rampart Commons;
• Decrease in capital expenditures of $2.0 million, in addition to a decrease in the change in construction
payables of $19.5 million. In 2015, there was significant construction activity at Parkside Town Commons -
Phase II, Tamiami Crossing, and Holly Springs Towne Center - Phase II.
Cash used in financing activities was $94.9 million for the year ended December 31, 2015, compared to cash provided by
financing activities of $203.8 million in the same period of 2014. Highlights of significant cash sources and uses in 2015 are as
follows:
• We drew $102.6 million on the unsecured revolving credit facility to redeem all the outstanding shares of our
Series A Preferred Shares; $59 million to fund a portion of the acquisitions of Colleyville Downs, Belle Isle
Station, Livingston Shopping Center and Chapel Hill Shopping Center; $30 million to fund the acquisition of
76
our partner's interest in our City Center operating property; and $14.7 million on construction loans related to
development projects;
• We retired the $12.2 million loan secured by our Indian River operating property, the $26.2 million loan secured
by our Plaza Volente operating property and the $50.1 million loan secured by our Landstown Commons
operating property;
• We exercised the accordion option feature on the existing unsecured term loan to increase our total borrowings
from $230 million to $400 million. The $170 million of proceeds were utilized to pay down our unsecured
revolving credit facility by $140 million and to retire loans totaling $30.5 million that were secured by our
Draper Peaks and Beacon Hill operating properties;
• We issued $250 million of senior unsecured notes;
•
•
In September 2015, we paid off the remaining balance of $199.6 million on our unsecured revolving credit
facility and the $33 million loan secured by our Crossing at Killingly operating property, using proceeds from
the issuance of the senior unsecured notes, and then in December 2015, we entered into a new $33 million loan
secured by our Crossing at Killingly operating property;
In connection with the sale of seven properties in March 2015, we retired the $24 million loan secured by the
Regal Court property. We paid down our unsecured revolving credit facility by $27 million utilizing a
portion of proceeds from these property sales. In addition in December 2015, we paid down our unsecured
revolving credit facility utilizing gross proceeds of $44.9 million from the sales of Four Corner Square and
Cornelius Gateway;
• We entered into a seven-year unsecured term loan for up to $200 million, and in December 2015 drew $100
million on the seven-year unsecured term loan and used the proceeds to pay down the unsecured revolving
credit facility that was initially utilized to retire the $90 million loan secured by our City Center operating
property.
• Distributions to common shareholders and Common Unit holders of $93.1 million; and
• Distributions to preferred shareholders of $8.6 million.
In addition to the cash activity above, in August 2015, in connection with the acquisition of Chapel Hill Shopping Center,
we assumed a $18.3 million loan secured by the operating property. As part of the estimated fair value determination, a debt
premium of $0.2 million was recorded;
Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013
Cash provided by operating activities was $42.6 million for the year ended December 31, 2014, a decrease of $9.8 million
from the same period of 2013. The decrease was primarily due to outflows for our merger costs and costs incurred by Inland
Diversified prior to the Merger that were paid by us subsequent to June 30, 2014.
Cash provided by investing activities was $186.9 million for the year ended December 31, 2014, as compared to cash used
in investing activities of $514.9 million in the same period of 2013. Highlights of significant cash sources and uses are as follows:
• Net proceeds of $191.1 million related to the sales of the Red Bank Commons, Ridge Plaza, 50th and 12th,
Zionsville Walgreens and eight operating properties in 2014 compared to net proceeds of $7.3 million in
2013;
• Net proceeds of $18.6 million related to the sale of marketable securities in 2014. These securities were
acquired as part of the Merger;
77
• Net cash acquired of $108.7 million upon completion of the Merger. A portion of this cash was utilized to
retire construction loans and other indebtedness while the remainder was retained for working capital
including payment of Merger related costs;
• Net cash outflow of $407.2 million related to 2013 acquisitions compared to net cash outflows of $19.7
million in 2014;
• Decrease in capital expenditures of $18.0 million, offset by an increase in construction payables of $12.6
million as significant construction was ongoing at Gainesville Plaza, Parkside Town Commons – Phase I &
II, Holly Springs Towne Center – Phase II and Tamiami Crossing in 2014.
Cash used in financing activities was $203.8 million for the year ended December 31, 2014, compared to cash provided by
financing activities of $468.2 million in the same period of 2013. Highlights of significant cash sources and uses in 2014 are as
follows:
•
•
•
•
In 2014, we drew $66.7 million on the unsecured revolving credit facility to fund the acquisition of Rampart
Commons, redevelopment and tenant improvement costs;
In 2014, we drew $50.8 million on construction loans related to development projects;
In 2014, we paid down $51.7 million on the unsecured revolving credit facility utilizing a portion of proceeds
from property sales and cash on hand;
In July, we retired loans totaling $41.6 million that were secured by land at 951 and 41 in Naples, Florida, Four
Corner Square, and Rangeline Crossing utilizing cash on hand obtained as part of the Merger;
• We retired loans totaling $8.6 million that were secured by the 50th and 12th and Zionsville Walgreens operating
properties upon the sale of these properties;
•
In December 2014, we retired the $15.8 million loan secured by our Eastgate Pavilion operating property, the
$1.9 million loan secured by our Bridgewater Marketplace operating property, the $34.0 million loan secured
by our Holly Springs – Phase I development property and the $15.2 million loan secured by Wheatland Town
Crossing utilizing a portion of proceeds from property sales;
•
In December 2014, we paid down $4.0 million on the loan secured by Delray Marketplace operating property;
• Distributions to common shareholders and operating partnership unit holders of $49.6 million; and
• Distributions to preferred shareholders of $8.5 million.
In addition to the cash activity above, in July 2014, as a result of the Merger, we assumed $859.6 million in debt secured
by 41 properties. As part of the fair value determination, a debt premium of $33.3 million was recorded.
In December 2014, in connection with the acquisition of Rampart Commons, we assumed a $12.4 million fixed rate
mortgage. As part of the fair value determination, a debt premium of $2.2 million was recorded.
In December 2014, in connection with the sale of eight operating properties, Inland Real Estate assumed $75.8 million of
our secured loans associated with Shoppes at Prairie Ridge, Fox Point, Harvest Square, Heritage Square, The Shoppes at Branson
Hills and Copp’s Grocery.
78
Other Matters
Financial Instruments
We are exposed to capital market risk, such as changes in interest rates. In order to reduce the volatility relating to interest
rate risk, we may enter into interest rate hedging arrangements from time to time. We do not utilize derivative financial instruments
for trading or speculative purposes.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that in our opinion have, or are reasonably likely to have, a
material current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital
resources. We do, however, have certain obligations related to some of the projects in our operating and development properties.
As of December 31, 2015, we have outstanding letters of credit totaling $14.7 million and no amounts were advanced
against these instruments.
Contractual Obligations
The following table summarizes our contractual obligations to third parties based on contracts executed as of December 31,
2015.
($ in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Consolidated
Long-term
Debt and Interest2
327,443
$
Development
Activity and Tenant
Allowances1
Operating
Ground
Leases
Employment
Contracts3
Total
$
9,769
$
1,494
$
1,870
$
340,576
72,598
135,825
447,405
89,383
983,789
—
—
—
—
—
1,494
1,132
1,103
1,088
44,583
935
—
—
—
—
75,027
136,957
448,508
90,471
1,028,372
$
2,056,443
$
9,769
$
50,894
$
2,805
$
2,119,911
____________________
1
2
3
Tenant allowances include commitments made to tenants at our operating and under construction development and
redevelopment properties.
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, 2015.
We have entered into employment agreements with certain members of senior management. The term of each
employment agreement expires on June 30, 2017, with automatic one-year renewals each July 1st thereafter unless we
or the individual elects not to renew the agreement.
In connection with our formation at the time of our 2004 initial public offering, we entered into an agreement that restricts
our ability, prior to December 31, 2016, to dispose of six of our operating properties in taxable transactions and limits the amount
of gain we can trigger with respect to certain other operating properties without incurring reimbursement obligations to certain
79
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.
The six properties to which our potential tax indemnity obligations relate represented 7.4% of our annualized base rent in
the aggregate as of December 31, 2015. These six properties are International Speedway Square, Shops at Eagle Creek, Whitehall
Pike, Portofino Shopping Center, 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 74 in the "Short and Long-Term Liquidity Needs" section.
Outstanding Indebtedness
The following table presents details of outstanding consolidated indebtedness as of December 31, 2015 and 2014 adjusted
for hedges:
($ in thousands)
Senior unsecured notes
Unsecured revolving credit facility
Unsecured term loans
Notes payable secured by properties under construction - variable rate
Mortgage notes payable - fixed rate
Mortgage notes payable - variable rate
Net premiums on acquired debt
Total mortgage and other indebtedness
Mortgage notes - properties held for sale
Total
December 31,
2015
December 31,
2014
$
250,000
$
20,000
500,000
132,776
756,494
58,268
16,521
1,734,059
—
—
160,000
230,000
119,347
810,959
205,798
28,159
1,554,263
67,452
$
1,734,059
$
1,621,715
Consolidated indebtedness, including weighted average maturities and weighted average interest rates at December 31,
2015, is summarized below:
80
($ in thousands)
Fixed rate debt1
Variable Rate Debt
Net Premiums on Acquired Debt
Total
Amount
1,502,190
215,348
16,521
1,734,059
$
$
Weighted
Average
Maturity (Years)
Weighted
Average
Interest Rate
Percentage
of Total
5.4
4.0
N/A
5.2
4.17%
1.97%
N/A
3.90%
88%
12%
N/A
100%
____________________
1
Calculations on fixed rate debt include the portion of variable rate debt that has been hedged; therefore, calculations
on variable rate debt exclude the portion of variable rate debt that has been hedged. $495.7 million in variable rate
debt is hedged for a weighted average 2.0 years.
Mortgage and construction loans are collateralized by certain real estate properties and leases. Mortgage loans are generally
due in monthly installments of interest and principal and mature over various terms through 2030.
Variable interest rates on mortgage and construction loans are based on LIBOR plus spreads ranging from 135 to 225 basis
points. At December 31, 2015, the one-month LIBOR interest rate was 0.43%. Fixed interest rates on mortgage loans range from
3.78% to 6.78%.
81
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 unsecured term loans, (2)
property-specific variable-rate construction loans, and (3) other property-specific variable-rate mortgages. Our 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, we 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 $1.7 billion of outstanding consolidated indebtedness as of December 31, 2015 (inclusive of net premiums on
acquired debt of $16.5 million). As of December 31, 2015, we were party to various consolidated interest rate hedge agreements
for a total of $495.7 million, with maturities over various terms ranging from 2016 through 2020. Including the effects of these
hedge agreements, our fixed and variable rate debt would have been $1.5 billion (88%) and $0.2 billion (12%), respectively, of
our total consolidated indebtedness at December 31, 2015.
We have $129.8 million of fixed rate debt maturing within the next twelve months. A 100 basis point increase in market
interest rates would not materially impact the annual cash flows associated with these loans. A 100 basis point change in interest
rates on our unhedged variable rate debt as of December 31, 2015 would change our annual cash flow by $2.2 million. Based
upon the terms of our variable rate debt, we are most vulnerable to change in short-term LIBOR interest rates. The sensitivity
analysis was estimated using cash flows discounted at current borrowing rates adjusted by 100 basis points.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Kite Realty Group Trust
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Parent Company’s management,
including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the
period covered by this report. Based on that evaluation, the Parent Company's Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures were effective.
82
Changes in Internal Control Over Financial Reporting
There has been no change in the Parent Company’s internal control over financial reporting (as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(b) under the
Securities Exchange Act of 1934 of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934) as of December 31, 2015 that has materially affected, or is reasonably likely to materially
affect, its internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
The Parent Company is responsible for establishing and maintaining adequate internal control over financial reporting, as
that term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of and with the participation of the Parent
Company's management, including its Chief Executive Officer and Chief Financial Officer, the Parent Company conducted an
evaluation of the effectiveness of its internal control over financial reporting based on the 2013 framework in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its
evaluation under the framework in Internal Control – Integrated Framework, the Parent Company's management has concluded
that its internal control over financial reporting was effective as of December 31, 2015.
The Parent Company's independent auditors, Ernst & Young LLP, an independent registered public accounting firm, have
issued a report on its internal control over financial reporting as stated in their report which is included herein.
The Parent Company's internal control system was designed to provide reasonable assurance to our 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.
Kite Realty Group, L.P.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Operating Partnership’s management,
including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the
period covered by this report. Based on that evaluation, the Operating Partnership's Chief Executive Officer and Chief Financial
Officer concluded that these disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There has been no change in the Operating Partnership’s internal control over financial reporting (as defined in Rule 13a-15
(f) under the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(b) under the
Securities Exchange Act of 1934 of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934) as of December 31, 2015 that has materially affected, or is reasonably likely to materially
affect, its internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
The Operating Partnership is responsible for establishing and maintaining adequate internal control over financial reporting,
as that term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of and with the participation of the Operating
Partnership's management, including its Chief Executive Officer and Chief Financial Officer, the Operating Partnership conducted
an evaluation of the effectiveness of its internal control over financial reporting based on the 2013 framework in Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its
evaluation under the framework in Internal Control – Integrated Framework, the Operating Partnership's management has
concluded that its internal control over financial reporting was effective as of December 31, 2015.
The Operating Partnership's independent auditors, Ernst & Young LLP, an independent registered public accounting firm,
have issued a report on its internal control over financial reporting as stated in their report which is included herein.
The Operating Partnership's internal control system was designed to provide reasonable assurance to our 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.
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’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria). Kite Realty Group Trust’s 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 maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2015, 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 as of December 31, 2015 and 2014, and the related consolidated
statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2015 and the related financial statement schedule listed in the index at Item 15(a) as of December 31,
2015 of Kite Realty Group Trust and our report dated February 26, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 26, 2016
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of Kite Realty Group, L.P. and subsidiaries:
We have audited Kite Realty Group, L.P. and subsidiaries’ internal control over financial reporting as of December 31, 2015,
based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 Framework) (the COSO criteria). Kite Realty Group, L.P. 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, L.P. and subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2015, 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, L.P. and subsidiaries as of December 31, 2015 and 2014, and the related
consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2015 and the related financial statement schedule listed in the index at Item 15(a) as of
December 31, 2015 of Kite Realty Group, L.P. and subsidiaries and our report dated February 26, 2016 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 26, 2016
ITEM 9B. OTHER INFORMATION
None
87
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item is hereby incorporated by reference to the material appearing in our 2016 Annual
Meeting Proxy Statement (the “Proxy Statement”), which we intend to file within 120 days after our fiscal year-end in accordance
with Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated by reference to the material appearing in our Proxy Statement.
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.
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.
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.
88
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.
89
SIGNATURES
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.
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
Chief Financial Officer
(Principal Financial Officer)
KITE REALTY GROUP L.P. AND SUBSIDIARIES
(Registrant)
/s/ John A. Kite
John A. Kite
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Daniel R. Sink
Daniel R. Sink
Chief Financial Officer
(Principal Financial Officer)
February 26, 2016
(Date)
February 26, 2016
(Date)
February 26, 2016
(Date)
February 26, 2016
(Date)
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.
90
Signature
Title
Date
/s/ John A. Kite
(John A. Kite)
/s/ William E. Bindley
(William E. Bindley)
/s/ Victor J. Coleman
(Victor J. Coleman)
/s/ Christie B. Kelly
(Christie B. Kelly)
/s/ David R. O’Reilly
(David R. O’Reilly)
/s/ Barton R. Peterson
(Barton R. Peterson)
/s/ Lee A. Daniels
(Lee A. Daniels)
/s/ Gerald W. Grupe
(Gerald W. Grupe)
Chairman, Chief Executive Officer, and Trustee
(Principal Executive Officer)
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
/s/ Charles H. Wurtzebach
Trustee
(Charles H. Wurtzebach)
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
/s/ Daniel R. Sink
(Daniel R. Sink)
/s/ Thomas R. Olinger
(Thomas R. Olinger)
Chief Financial Officer (Principal Financial Officer)
February 26, 2016
Senior Vice President, Chief Accounting Officer
February 26, 2016
91
Kite Realty Group Trust and Kite Realty Group, L.P. and subsidiaries
Index to Financial Statements
Consolidated Financial Statements:
Kite Realty Group Trust:
Report of Independent Registered Public Accounting Firm
Kite Realty Group, L.P. and subsidiaries
Report of Independent Registered Public Accounting Firm
Kite Realty Group Trust:
Balance Sheets as of December 31, 2015 and 2014
Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014, and 2013
Statements of Shareholders’ Equity for the Years Ended December 31, 2015, 2014, and 2013
Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013
Kite Realty Group, L.P. and subsidiaries
Balance Sheets as of December 31, 2015 and 2014
Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014, and 2013
Statements of Partners’ Equity for the Years Ended December 31, 2015, 2014, and 2013
Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013
Kite Realty Group Trust and Kite Realty Group, L.P. and subsidiaries:
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Kite Realty Group Trust and Kite Realty Group, L.P. and subsidiaries:
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-7
F-8
F-9
F-10
F-11
F-48
F-53
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 as of December 31, 2015 and
2014, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2015. 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 at December 31, 2015 and 2014, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for reporting discontinued
operations as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting
Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic
360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective January 1, 2014.
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’s internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 Framework) and our report dated February 26, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 26, 2016
F-1
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of Kite Realty Group, L.P. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Kite Realty Group, L.P. and subsidiaries as of December
31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2015. 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, L.P. and subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for reporting discontinued
operations as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting
Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic
360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective January 1, 2014.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the effectiveness of Kite Realty Group, L.P. and subsidiaries’ internal control over financial reporting as of December 31, 2015,
based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 Framework) and our report dated February 26, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 26, 2016
F-2
Kite Realty Group Trust
Consolidated Balance Sheets
($ in thousands, except share data)
Assets:
Investment properties, at cost
Less: accumulated depreciation
Cash and cash equivalents
Tenant and other receivables, including accrued straight-line rent of $23,809 and $18,630
respectively, net of allowance for uncollectible accounts
Restricted cash and escrow deposits
Deferred costs and intangibles, net
Prepaid and other assets
Assets held for sale (see Note 9)
Total Assets
Liabilities and Equity:
Mortgage and other indebtedness
Accounts payable and accrued expenses
Deferred revenue and intangibles, net and other liabilities
Liabilities held for sale (see Note 9)
Total Liabilities
Commitments and contingencies
Limited partners' interests in Operating Partnership and other redeemable noncontrolling
interests
Equity:
Kite Realty Group Trust Shareholders’ Equity
Preferred Shares, $.01 par value, 40,000,000 shares authorized, 0 and 4,100,000 shares
issued and outstanding at December 31, 2015 and December 31, 2014, respectively
Common Shares, $.01 par value, 225,000,000 shares authorized, 83,334,865 and
83,490,663 shares issued and outstanding at December 31, 2015 and December 31, 2014,
respectively
Additional paid in capital and other
Accumulated other comprehensive loss
Accumulated deficit
Total Kite Realty Group Trust Shareholders' Equity
Noncontrolling Interests
Total Equity
Total Liabilities and Equity
December 31,
2015
December 31,
2014
$
$
3,933,140
(432,295)
3,500,845
3,732,748
(315,093)
3,417,655
33,880
43,826
51,101
13,476
157,884
8,852
—
48,097
16,171
159,978
8,847
179,642
$
3,766,038
$
3,874,216
$
1,734,059
$
1,554,263
81,356
131,559
—
75,150
136,409
81,164
1,946,974
1,846,986
—
—
92,315
125,082
—
102,500
833
2,050,545
(2,145)
(323,257)
1,725,976
773
835
2,044,425
(1,175)
(247,801)
1,898,784
3,364
1,726,749
1,902,148
$
3,766,038
$
3,874,216
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Kite Realty Group Trust
Consolidated Statements of Operations and Comprehensive Income (Loss)
($ in thousands, except share and per share data)
Revenue:
Minimum rent
Tenant reimbursements
Other property related revenue
Total revenue
Expenses:
Property operating
Real estate taxes
General, administrative, and other
Merger and acquisition costs
Non-cash gain from release of assumed earnout liability
Impairment charge
Depreciation and amortization
Total expenses
Operating income
Interest expense
Income tax expense of taxable REIT subsidiary
Non-cash gain on debt extinguishment
Gain on settlement
Other expense, net
Income (loss) from continuing operations
Discontinued operations:
Operating income from discontinued operations
Impairment charge
Non-cash gain on debt extinguishment
Gain on sales of operating properties, net
Income (loss) from discontinued operations
Income (loss) before gain on sale of operating properties
Gain on sale of operating properties, net
Consolidated net income (loss)
Net (income) loss attributable to noncontrolling interests
Net income (loss) attributable to Kite Realty Group Trust
Dividends on preferred shares
Non-cash adjustment for redemption of preferred shares
Net income (loss) attributable to common shareholders
Net income (loss) per common share – basic:
Income (loss) from continuing operations attributable to Kite Realty Group Trust common shareholders
Income (loss) from discontinued operations attributable to Kite Realty Group Trust common shareholders
Net income (loss) attributable to Kite Realty Group Trust common shareholders
Net income (loss) per common share – diluted:
Income (loss) from continuing operations attributable to Kite Realty Group Trust common shareholders
Income (loss) from discontinued operations attributable to Kite Realty Group Trust common shareholders
Net income (loss) attributable to Kite Realty Group Trust common shareholders
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
Dividends declared per common share
Net income (loss) attributable to Kite Realty Group Trust common shareholders:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to Kite Realty Group Trust common shareholders
Consolidated net income (loss)
Change in fair value of derivatives
Total comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to Kite Realty Group Trust
Year Ended December 31,
2015
2014
2013
$
263,794
$
199,455
$
70,235
12,976
347,005
49,973
40,904
18,709
1,550
(4,832)
1,592
167,312
275,208
71,797
(56,432)
(186)
5,645
4,520
(95)
25,249
—
—
—
—
—
25,249
4,066
29,315
(2,198)
27,117
(7,877)
(3,797)
52,773
7,300
259,528
38,703
29,947
13,043
27,508
—
—
120,998
230,199
29,329
(45,513)
(24)
—
—
(244)
(16,452)
—
—
—
3,198
3,198
(13,254)
8,578
(4,676)
(1,025)
(5,701)
(8,456)
—
93,637
24,422
11,429
129,488
21,729
15,263
8,211
2,214
—
—
54,479
101,896
27,592
(27,994)
(262)
—
—
(62)
(726)
834
(5,372)
1,242
487
(2,809)
(3,535)
—
(3,535)
685
(2,850)
(8,456)
—
$
$
$
$
$
$
$
$
$
$
15,443
$
(14,157)
$
(11,306)
0.19
—
0.19
0.18
—
0.18
$
$
$
$
(0.29)
$
0.05
(0.24)
$
(0.29)
$
0.05
(0.24)
$
(0.37)
(0.11)
(0.48)
(0.37)
(0.11)
(0.48)
83,421,904
83,534,381
58,353,448
58,353,448
23,535,434
23,535,434
1.09
$
1.02
$
0.96
$
$
$
15,443
—
15,443
29,315
(995)
28,320
(2,173)
(17,268)
$
$
$
3,111
(14,157)
(4,676)
(2,621)
(7,297)
(932)
26,147
$
(8,229)
$
(8,686)
(2,620)
(11,306)
(3,535)
7,136
3,601
161
3,762
The accompanying notes are an integral part of these consolidated financial statements.
F-4
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F
Kite Realty Group Trust
Consolidated Statements of Cash Flows
($ in thousands)
Cash flow from operating activities:
Consolidated net income (loss)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Gain on sale of operating properties, 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
Non-cash gain from release of assumed earnout liability
Changes in assets and liabilities:
Tenant receivables
Deferred costs and other assets
Accounts payable, accrued expenses, deferred revenue, and other liabilities
Payments on assumed earnout liability
Net cash provided by operating activities
Cash flow from investing activities:
Acquisitions of interests in properties
Capital expenditures, net
Net proceeds from sales of operating properties
Net proceeds from sales of marketable securities acquired from Merger
Net cash received from Merger
Change in construction payables
Collection of note receivable
Net cash (used in) provided by investing activities
Cash flow from financing activities:
Common share issuance proceeds, net of costs
Payments for redemption of preferred shares
Repurchases of common shares upon the vesting of restricted shares
Offering costs
Purchase of redeemable noncontrolling interests
Loan proceeds
Loan transaction costs
Loan payments
Distributions paid – common shareholders
Distributions paid – preferred shareholders
Distributions paid – redeemable noncontrolling interests
Distributions to noncontrolling interests
Net cash (used in) provided by financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures
Cash paid for interest, net of capitalized interest
Cash paid for taxes
Year Ended December 31,
2015
2014
2013
$
29,315
$
(4,676) $
(3,535)
(4,066)
1,592
(5,645)
(5,638)
170,521
4,331
4,580
(5,834)
(3,347)
(4,832)
(1,510)
(6,646)
(903)
(2,581)
169,337
(166,411)
(92,564)
170,016
—
—
4,562
—
(11,776)
—
—
(4,744)
123,862
1,740
2,914
(3,468)
(4,521)
—
(10,044)
(5,355)
(41,375)
—
42,557
(22,506)
(94,553)
191,126
18,601
108,666
(14,950)
542
(487)
5,372
(1,242)
(3,496)
57,757
922
1,932
(127)
(2,674)
—
(1,690)
(9,062)
8,688
—
52,358
(407,215)
(112,581)
7,293
—
—
(2,396)
—
(84,397)
186,926
(514,899)
—
(102,500)
(1,002)
—
(33,998)
984,303
(4,913)
(835,019)
(89,379)
(8,582)
(3,681)
(115)
(94,886)
(9,946)
43,826
33,880
61,306
281
—
—
(378)
(1,966)
—
146,495
(4,270)
(285,244)
(46,656)
(8,456)
(2,992)
(324)
314,771
—
(261)
—
—
528,590
(2,138)
(342,033)
(20,594)
(8,456)
(1,579)
(108)
(203,791)
468,192
25,692
18,134
43,826
48,526
87
$
$
$
5,651
12,483
18,134
31,577
45
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Kite Realty Group, L.P. and subsidiaries
Consolidated Balance Sheets
($ in thousands, except unit data)
Assets:
Investment properties, at cost
Less: accumulated depreciation
Cash and cash equivalents
Tenant and other receivables, including accrued straight-line rent of $23,809 and $18,630
respectively, net of allowance for uncollectible accounts
Restricted cash and escrow deposits
Deferred costs and intangibles, net
Prepaid and other assets
Assets held for sale (see Note 9)
Total Assets
Liabilities and Equity:
Mortgage and other indebtedness
Accounts payable and accrued expenses
Deferred revenue and intangibles, net and other liabilities
Liabilities held for sale (see Note 9)
Total Liabilities
Commitments and contingencies
Limited partners' interests in Operating Partnership and other redeemable noncontrolling
interests
Partners Equity:
Parent Company:
December 31,
2015
December 31,
2014
$
$
3,933,140
(432,295)
3,500,845
3,732,748
(315,093)
3,417,655
33,880
43,826
51,101
13,476
157,884
8,852
—
48,097
16,171
159,978
8,847
179,642
$
3,766,038
$
3,874,216
$
1,734,059
$
1,554,263
81,356
131,559
—
75,150
136,409
81,164
1,946,974
1,846,986
—
—
92,315
125,082
Preferred equity, 0 and 4,100,000 units issued and outstanding at December 31, 2015 and
December 31, 2014, respectively
—
102,500
Common equity, 83,334,865 and 83,490,663 units issued and outstanding at December
31, 2015 and December 31, 2014, respectively
Accumulated other comprehensive loss
Total Partners Equity
Noncontrolling Interests
Total Equity
Total Liabilities and Equity
1,728,121
(2,145)
1,725,976
773
1,797,459
(1,175)
1,898,784
3,364
1,726,749
1,902,148
$
3,766,038
$
3,874,216
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Kite Realty Group, L.P. and subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
($ in thousands, except unit and per unit data)
Revenue:
Minimum rent
Tenant reimbursements
Other property related revenue
Total revenue
Expenses:
Property operating
Real estate taxes
General, administrative, and other
Merger and acquisition costs
Non-cash gain from release of assumed earnout liability
Impairment charge
Depreciation and amortization
Total expenses
Operating income
Interest expense
Income tax expense of taxable REIT subsidiary
Non-cash gain on debt extinguishment
Gain on settlement
Other expense, net
Loss from continuing operations
Discontinued operations:
Operating income from discontinued operations
Impairment charge
Non-cash gain on debt extinguishment
Gain on sales of operating properties, net
Income (loss) from discontinued operations
Income (loss) before gain on sale of operating properties
Gain on sale of operating properties, net
Consolidated net income (loss)
Net (income) loss attributable to noncontrolling interests
Dividends on preferred units
Non-cash adjustment for redemption of preferred shares
Net income (loss) attributable to common unitholders
Allocation of net income (loss):
Limited Partners
Parent Company
Net income (loss) per unit - basic:
Income (loss) from continuing operations attributable to common unitholders
Income (loss) from discontinued operations attributable to common unitholders
Net income (loss) attributable to common unitholders
Net income (loss) per unit - diluted:
Income (loss) from continuing operations attributable to common unitholders
Income (loss) from discontinued operations attributable to common unitholders
Net income (loss) attributable to common unitholders
Weighted average common units outstanding - basic
Weighted average common units outstanding - diluted
Distributions declared per common unit
Net income (loss) attributable to common unitholders:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss) attributable to common unitholders
Consolidated net income (loss)
Change in fair value of derivatives
Total comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to common unitholders
Year Ended December 31,
2015
2014
2013
$
263,794
$
199,455
$
70,235
12,976
347,005
49,973
40,904
18,709
1,550
(4,832)
1,592
167,312
275,208
71,797
(56,432)
(186)
5,645
4,520
(95)
25,249
—
—
—
—
—
25,249
4,066
29,315
(1,854)
(7,877)
(3,797)
52,773
7,300
259,528
38,703
29,947
13,043
27,508
—
—
120,998
230,199
29,329
(45,513)
(24)
—
—
(244)
(16,452)
—
—
—
3,198
3,198
(13,254)
8,578
(4,676)
(1,435)
(8,456)
—
93,637
24,422
11,429
129,488
21,729
15,263
8,211
2,214
—
—
54,479
101,896
27,592
(27,994)
(262)
—
—
(62)
(726)
834
(5,372)
1,242
487
(2,809)
(3,535)
—
(3,535)
(121)
(8,456)
—
$
$
$
$
$
$
$
$
$
$
$
$
15,787
$
(14,567)
$
(12,112)
344
15,443
15,787
0.19
—
0.19
0.19
—
0.19
$
$
$
$
$
$
(410)
$
(14,157)
(14,567)
$
(0.29)
$
0.05
(0.24)
$
(0.29)
$
0.05
(0.24)
$
(806)
(11,306)
(12,112)
(0.37)
(0.11)
(0.48)
(0.37)
(0.11)
(0.48)
85,219,827
85,332,303
60,010,480
60,250,900
25,217,287
25,278,273
1.09
$
1.02
$
0.96
$
$
$
15,787
—
15,787
29,315
(995)
28,320
(1,854)
(17,765)
$
$
$
3,198
(14,567)
(4,676)
(2,621)
(7,297)
(1,435)
26,466
$
(8,732)
$
(9,303)
(2,809)
(12,112)
(3,535)
7,136
3,601
(121)
3,480
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Kite Realty Group, L.P. and subsidiaries
Consolidated Statements of Partners’ Equity
($ in thousands)
General Partner
Common
Equity
Preferred
Equity
Accumulated
Other
Comprehensive
(Loss) Income
Total
473,484
2,510
313,920
6,612
(23,780)
(8,456)
(2,850)
582
(8,465)
753,557
1,233,233
(60)
3,299
(2,528)
(60,514)
(8,456)
(5,701)
567
(14,613)
Balances, December 31, 2012
Stock compensation activity
Capital contribution from Parent Company
Other comprehensive income attributable to Parent Company
Distributions declared to Parent Company
Distributions to preferred unitholders
Net loss
Conversion of Limited Partner Units to shares of the Parent Company
Adjustments to redeemable noncontrolling interests – Operating Partnership
$
376,243
$
102,500
$
(5,259) $
2,510
313,920
—
(23,780)
—
(11,306)
582
(8,465)
—
—
—
—
(8,456)
8,456
—
—
—
—
6,612
—
—
—
—
—
Balances, December 31, 2013
$
649,704
$
102,500
$
1,353
$
Capital contribution as part of Merger, net of offering costs
1,233,233
Common units retired in connection with reverse share split
Stock compensation activity
Other comprehensive loss attributable to Parent Company
Distributions declared to Parent Company
Distributions to preferred unitholders
Net loss
Conversion of Limited Partner Units to shares of the Parent Company
Adjustment to redeemable noncontrolling interests
Balances, December 31, 2014
Stock compensation activity
Other comprehensive loss attributable to Parent Company
Distributions declared to Parent Company
Distributions to preferred unitholders
Redemption of preferred units
Net income
Acquisition of partners' interests in consolidated joint ventures
Conversion of Limited Partner Units to shares of the Parent Company
Adjustment to redeemable noncontrolling interests
(60)
3,299
—
(60,514)
—
(14,157)
567
(14,613)
—
—
—
—
—
(8,456)
8,456
—
—
—
—
—
(2,528)
—
—
—
—
—
$
1,797,459
$
102,500
$
(1,175) $
1,898,784
3,742
—
(90,899)
—
3,797
15,443
1,445
487
(3,353)
—
—
—
(7,877)
(102,500)
7,877
—
—
—
—
(970)
—
—
—
—
—
—
—
3,742
(970)
(90,899)
(7,877)
(98,703)
23,320
1,445
487
(3,353)
Balances, December 31, 2015
$
1,728,121
$
— $
(2,145) $
1,725,976
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Kite Realty Group, L.P. and subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
Cash flow from operating activities:
Consolidated net income (loss)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Gain on sale of operating properties, 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
Non-cash gain from release of assumed earnout liability
Changes in assets and liabilities:
Tenant receivables
Deferred costs and other assets
Accounts payable, accrued expenses, deferred revenue, and other liabilities
Payments on assumed earnout liability
Net cash provided by operating activities
Cash flow from investing activities:
Acquisitions of interests in properties
Capital expenditures, net
Net proceeds from sales of operating properties
Net proceeds from sales of marketable securities acquired from Merger
Net cash received from Merger
Change in construction payables
Collection of note receivable
Net cash provided by (used in) investing activities
Cash flow from financing activities:
Contributions from the Parent Company
Payments for redemption of preferred units
Repurchases of common shares upon the vesting of restricted shares
Offering costs
Purchase of redeemable noncontrolling interests
Loan proceeds
Loan transaction costs
Loan payments
Distributions paid – common unitholders
Distributions paid – preferred unitholders
Distributions paid – redeemable noncontrolling interests
Distributions to noncontrolling interests
Net cash (used in) provided by financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures
Cash paid for interest, net of capitalized interest
Cash paid for taxes
Year Ended December 31,
2015
2014
2013
$
29,315
$
(4,676) $
(3,535)
(4,066)
1,592
(5,645)
(5,638)
170,521
4,331
4,580
(5,834)
(3,347)
(4,832)
(1,510)
(6,646)
(903)
(2,581)
169,337
(166,411)
(92,564)
170,016
—
—
4,562
—
(11,776)
—
—
(4,744)
123,862
1,740
2,914
(3,468)
(4,521)
—
(10,044)
(5,355)
(41,375)
—
42,557
(22,506)
(94,553)
191,126
18,601
108,666
(14,950)
542
(487)
5,372
(1,242)
(3,496)
57,757
922
1,932
(127)
(2,674)
—
(1,690)
(9,062)
8,688
—
52,358
(407,215)
(112,581)
7,293
—
—
(2,396)
—
(84,397)
186,926
(514,899)
—
(102,500)
(1,002)
—
(33,998)
984,303
(4,913)
(835,019)
(89,379)
(8,582)
(3,681)
(115)
(94,886)
(9,946)
43,826
33,880
61,306
281
—
—
(378)
(1,966)
—
146,495
(4,270)
(285,244)
(46,656)
(8,456)
(2,992)
(324)
314,771
—
(261)
—
—
528,590
(2,138)
(342,033)
(20,594)
(8,456)
(1,579)
(108)
(203,791)
468,192
25,692
18,134
43,826
48,526
87
$
$
$
5,651
12,483
18,134
31,577
45
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Kite Realty Group Trust and Kite Realty Group, L.P. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
($ in thousands, except share and per share data)
Note 1. Organization
Kite Realty Group Trust (the "Parent Company"), through its majority-owned subsidiary, Kite Realty Group, L.P. (the
“Operating Partnership”), owns interests in various operating subsidiaries and joint ventures engaged in the ownership and
operation, acquisition, development and redevelopment of high-quality neighborhood and community shopping centers in selected
markets in the United States. The terms "Company," "we," "us," and "our" refer to the Parent Company and the Operating
Partnership, collectively, and those entities owned or controlled by the Parent Company and/or the Operating Partnership.
The Operating Partnership was formed on August 16, 2004, when the Parent Company contributed properties and the net
proceeds from an initial public offering of shares of its common stock to the Operating Partnership. The Parent Company was
organized in Maryland in 2004 to succeed in the development, acquisition, construction and real estate businesses of its predecessor.
We believe the Company qualifies as a real estate investment trust (a “REIT”) under provisions of the Internal Revenue Code of
1986, as amended.
The Parent Company is the sole general partner of the Operating Partnership, and as of December 31, 2015 owned
approximately 97.8% of the common partnership interests in the Operating Partnership (“General Partner Units”). The remaining
2.2% of the common partnership interests (“Limited Partner Units” and, together with the General Partner Units, the “Common
Units”) are owned by the limited partners. As the sole general partner of the Operating Partnership, the Parent Company has full,
exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership. The
Parent Company and the Operating Partnership are operated as one enterprise. The management of the Parent Company consists
of the same members as the management of the Operating Partnership. As the sole general partner with control of the Operating
Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company
does not have any significant assets other than its investment in the Operating Partnership.
On July 1, 2014, we completed a merger (the "Merger") with Inland Diversified Real Estate Trust, Inc. (“Inland
Diversified”), in which Inland Diversified merged with and into a wholly-owned subsidiary of ours. Upon completion of the
Merger with Inland Diversified, we acquired 60 operating properties. Subsequent to the Merger, we sold 15 of these properties
in November and December 2014 and March 2015.
At December 31, 2015, we owned interests in 118 operating and redevelopment properties consisting of 110 retail properties,
six retail redevelopment properties, one office operating property and an associated parking garage. We also owned three
development properties under construction as of this date.
At December 31, 2014, we owned interests in 123 operating and redevelopment properties consisting of 118 retail properties,
of which seven were classified as held for sale, three retail redevelopment properties, one office operating property and an associated
parking garage. We also owned four development properties under construction as of this date.
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.
F-11
Components of Investment Properties
The Company’s investment properties, excluding properties held for sale, as of December 31, 2015 and December 31, 2014
were as follows:
($ in thousands)
Investment properties, at cost:
Land
Buildings and improvements
Furniture, equipment and other
Land held for development
Construction in progress
Balance at
December 31,
2015
December 31,
2014
$
805,646
$
778,780
2,946,976
2,785,780
6,960
34,975
138,583
6,398
35,907
125,883
$
3,933,140
$
3,732,748
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:
•
•
•
our ability to refinance debt and sell the property without the consent of any other partner or owner;
the inability of any other partner or owner to replace 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, 2015, we had an investment in one joint venture that is a VIE in which we are the primary beneficiary.
As of this date, the VIE had total debt of $56.8 million which is secured by assets of the VIE totaling $107.2 million. The Operating
Partnership guarantees the debt of the VIE.
We consider all relationships between the Company and the VIE, including development agreements, management
agreements and other contractual arrangements, in determining whether we have the power to direct the activities of the VIE that
most significantly affect the VIE’s performance. We also continuously reassess primary beneficiary status. During the twelve
months ended December 31, 2015, 2014 and 2013 there were no changes to our conclusions regarding whether an entity qualifies
as a VIE or whether we are the primary beneficiary of any previously identified VIE.
F-12
Beacon Hill
In June 2015, we acquired our partner's interest in our Beacon Hill operating property. The transaction was accounted for
as an equity transaction as we retained our controlling financial interest.
Cornelius Gateway
In December 2015, we sold our Cornelius Gateway operating property that was owned in a consolidated joint venture. The
loss, which was not material and is included in "gain on sale of operating properties, net" in the accompanying consolidated
statement of operations, was allocated 80% and 20% between us and our partner in accordance with the joint venture's operating
agreement.
Acquisition of Real Estate Properties
Upon acquisition of real estate operating properties, we estimate the fair value of acquired identifiable tangible assets and
identified intangible assets and liabilities, assumed debt, and any noncontrolling interest in the acquiree at the date of acquisition,
based on evaluation of information and estimates available at that date. Based on these estimates, we record the estimated fair
value to the applicable assets and liabilities. In making estimates of fair values, a number of sources are utilized, including
information obtained as a result of pre-acquisition due diligence, marketing and leasing activities. The estimates of fair value
were determined to have primarily relied upon Level 2 and Level 3 inputs.
Fair value is determined for tangible assets and intangibles, including:
•
•
•
•
the fair value of the building on an as-if-vacant basis and the fair value of 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, which 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 term of the lease. 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;
the value of leases acquired. We utilize independent and internal sources for our estimates to determine the
respective in-place lease values. Our estimates of value are made using methods similar to those used by
independent appraisers. Factors we consider in our analysis include an estimate of costs to execute similar
leases including tenant improvements, leasing commissions and foregone costs and rent received during the
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; and
the fair value of any assumed financing that is determined to be above or below market terms. We utilize third
party and independent sources for our estimates to determine the respective fair value of each mortgage
payable. The fair market value of each mortgage payable is amortized to interest expense over the remaining
initial terms of the respective loan.
We also consider whether there is any value to in-place leases that have a related customer relationship intangible
value. Characteristics the Company considers in determining 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-13
We finalize the measurement period of our business combinations when all facts and circumstances are understood, but in
no circumstances to exceed one year.
Certain properties we acquired from the Merger included earnout components to the purchase price, meaning Inland
Diversified did not pay a portion of the purchase price of the property at closing, although they owned the entire property. We
are not obligated to pay the contingent portion of the purchase prices unless space which was vacant at the time of acquisition
is later leased by the seller within the time limits and parameters set forth in the acquisition agreements. If at the end of the
time limits certain space has not been leased, occupied and rent producing, we will have no further obligation to pay the
additional purchase price consideration and we will retain ownership of that entire property. The liability for potential future
earnout payments was determined using estimated fair value measurements at the end of the period which included the lease-up
periods, market rents and probability of occupancy. As these earnouts were the original obligation of the previous owner, our
assumption of these earnouts is similar to the assumption of a contingent obligation. The earnout payments are based on a
predetermined formula applied to rental income received. The earnouts are recorded as an addition to the purchase price of the
related properties and as a liability included in deferred revenue and intangibles, net and other liabilities on the accompanying
consolidated balance sheets. Subsequent to the measurement period, any adjustment to the assumed earnout liability is
reflected in the consolidated statements of operations.
The Company determined that it was the acquirer for accounting purposes in the merger with Inland Diversified. We
considered the continuation of the Company’s existing management and a majority of the existing board members as the most
significant considerations in our analysis. Additionally, Inland Diversified had previously announced the transaction as a
liquidation event and we believe this transaction was an acquisition of Inland Diversified by the Company. See Note 8 for additional
discussion.
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.
Pre-development costs are incurred prior to vertical construction and for certain land held for development acquisitions
during the due diligence phase and include contract deposits, legal, engineering, cost of internal resources and other professional
fees related to evaluating the feasibility of developing or redeveloping 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. Once construction commences on the land, it is transferred to construction in progress.
We also capitalize costs such as acquisition of land, construction of buildings, 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.
Depreciation on buildings and improvements is provided utilizing the straight-line method over estimated original useful
lives ranging from 10 to 35 years. Depreciation on tenant allowances and 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
F-14
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 operational properties, 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 classified as "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.
In the first quarter of 2014, we adopted the provisions of ASU 2014-8, Presentation of Financial Statements (Topic 205)
and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components
of an Entity, which will result in fewer real estate sales being classified within discontinued operations as only disposals representing
a strategic shift in operations will be presented as discontinued operations. All operating properties included in discontinued
operations in 2014 were classified as such prior to the adoption of ASU 2014-08, and no properties that have been sold, or designated
as held-for-sale, since the adoption of ASU 2014-08 have met the revised criteria for classification within discontinued operations.
Escrow Deposits
Escrow deposits consist of cash held for real estate taxes, property maintenance, insurance and other requirements at specific
properties as required by lending institutions and certain municipalities.
Cash and Cash Equivalents
We consider 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. As of December 31, 2014, cash and cash
equivalents included $16.1 million of funds set aside by the Company to affect a tax deferred purchase of real estate. Such funds
were not considered available for general corporate purposes.
Fair Value Measurements
We follow the framework established under accounting standard FASB ASC 820 for measuring fair value of non-financial
assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis but only in certain
circumstances, such as a business combination or upon determination of an impairment.
Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the
valuation techniques as follows:
F-15
• Level 1 fair value inputs are quoted prices in active markets for identical instruments to which we have access.
• Level 2 fair value inputs are inputs other than quoted prices included in Level 1 that are observable for similar instruments,
either directly or indirectly, and appropriately considers counterparty creditworthiness in the valuations.
• Level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an
instrument at the measurement date. The inputs are unobservable in the market and significant to the valuation estimate.
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. Our 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. As discussed
in Note 11, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.
Cash and cash equivalents, accounts receivable, escrows and deposits, and other working capital balances approximate fair
value.
Note 4 includes a discussion of fair values recorded in 2013 when we transferred the Kedron Village operating property to
the loan servicer. Note 8 includes a discussion of the fair values recorded in purchase accounting. Note 9 includes a discussion
of the fair values recorded when we recognized an impairment charge on our Shops at Otty operating property. Level 3 inputs to
these transactions 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. We use 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. As of December 31, 2015 and 2014, all of our derivative instruments qualify for hedge accounting.
Revenue Recognition
As a lessor of real estate assets, the Company retains substantially all of the risks and benefits of ownership and accounts
for its leases as operating leases.
Contractual rent, percentage rent, and expense reimbursements from tenants for common area maintenance costs, insurance
and real estate taxes are our principal source of revenue. 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 overage rent). Overage rent is recognized when tenants achieve the specified sales targets as defined in their
lease agreements. Overage rent is included in other property related revenue in the accompanying statements of operations. As
a result of generating this revenue, we will routinely have accounts receivable due from tenants. We are subject to tenant defaults
and bankruptcies that may affect the collection of outstanding receivables. To address the collectability of these receivables, we
analyze historical write-off experience, tenant credit-worthiness and current economic trends when evaluating the adequacy of
F-16
our allowance for doubtful accounts and straight line rent reserve. Although we estimate uncollectible receivables and provide for
them through charges against income, actual experience may differ from those estimates.
Gains or losses 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 asset, 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 $5.6 million, $1.5 million, and $6.2 million for the years ended December 31,
2015, 2014, and 2013, respectively, and are classified as other property related revenue in the accompanying consolidated statements
of operations.
Tenant Receivables and Allowance for Doubtful Accounts
Tenant receivables consist primarily of billed minimum rent, accrued and billed tenant reimbursements, and accrued straight-
line rent. The Company generally does not require specific collateral other than corporate or personal guarantees from its tenants.
An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of certain tenants or
others to meet contractual obligations under their lease or other agreements. Accounts are written off when, in the opinion of
management, the balance is uncollectible.
($ in thousands)
Balance, beginning of year
Provision for credit losses, net of recoveries
Accounts written off
Balance, end of year
2015
2014
2013
$
$
2,433
$
1,328
$
4,331
(2,439)
4,325
$
1,740
(635)
2,433
$
755
922
(349)
1,328
For the years ended December 31, 2015, 2014 and 2013, allowance for doubtful accounts represented 1.2%, 0.9% and
1.0% of total revenues, respectively.
Other Receivables
Other receivables consist primarily of receivables due from municipalities and from tenants for non-rental revenue related
activities.
Concentration of Credit Risk
We may be subject to concentrations of credit risk with regards to our cash and cash equivalents. We place 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, our accounts receivable from and leases with tenants potentially subjects
us to a concentration of credit risk related to our accounts receivable and revenue. At December 31, 2015, 50%, 11% and 6% of
total billed receivables were due from tenants leasing space in the states of Florida, Indiana, and Texas, respectively, compared to
40%, 11%, and 4% in 2014. For the year ended December 31, 2015, 25%, 14% and 12% of the Company’s revenue recognized
was from tenants leasing space in the states of Florida, Indiana, and Texas, respectively, compared to 26%, 18%, and 13% in 2014
and 30%, 36%, and 14% in 2013.
F-17
Earnings Per Share
Basic earnings per share or unit is calculated based on the weighted average number of common shares or units outstanding
during the period. Diluted earnings per share or unit is determined based on the weighted average common number of shares or
units outstanding during the period combined with the incremental average common shares or units that would have been
outstanding assuming the conversion of all potentially dilutive common shares or units into common shares or units as of the
earliest date possible.
Potentially dilutive securities include outstanding options to acquire common shares; Limited Partner Units, which may be
exchanged for either cash or common shares, at the Parent Company’s option and under certain circumstances; units under our
Outperformance Plan; potential settlement of redeemable noncontrolling interests in certain joint ventures; and deferred common
share units, which may be credited to the personal accounts of non-employee trustees in lieu of the payment of cash compensation
or the issuance of common shares to such trustees. Limited Partner Units have been omitted from the Parent Company’s
denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the denominator
would have no dilutive impact. Weighted average Limited Partner Units outstanding for the years ended December 31, 2015,
2014 and 2013 were 1.8 million, 1.7 million and 1.7 million, respectively.
Due to our net loss attributable to common shareholders and Common Unit holders for the years ended December 31, 2014
and 2013, there are no potentially dilutive securities for those periods. Approximately 0.1 million, 0.3 million and 0.4 million
outstanding options to acquire common shares were excluded from the computations of diluted earnings per share or unit because
their impact was not dilutive for the twelve months ended December 31, 2015, 2014 and 2013 respectively.
On August 11, 2014, we completed a one-for-four reverse share split of our common shares. As a result of the reverse share
split, the number of outstanding common shares of the Company was reduced from approximately 332.7 million to approximately
83.2 million at that date. Unless otherwise noted, all common share and per share information contained herein has been restated
to reflect the reverse share split as if it had occurred as of the beginning of the first period presented.
Segment Reporting
Our primary business is the ownership and operation of neighborhood and community shopping centers. We do not
distinguish or group our operations on a geographical basis, or any other basis, when measuring performance. Accordingly, we
have one operating segment, which also serves as our reportable segment for disclosure purposes in accordance with GAAP.
Income Taxes and REIT Compliance
Parent Company
The Parent 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 it to maintain its qualification as a REIT for federal income tax purposes. As
a result, it 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 of the Parent
Company and meets certain other requirements on a recurring basis. To the extent that it satisfies this distribution requirement,
but distributes less than 100% of its taxable income, it 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 Parent 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 for
a period of four years following the year in which qualification is lost. 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 taxable income even if the Parent
Company does qualify as a REIT. The Operating Partnership intends to continue to make distributions to the Parent Company in
amounts sufficient to assist the Parent Company in adhering to REIT requirements and maintaining its REIT status.
F-18
We have elected to treat Kite Realty Holdings, LLC as a taxable REIT subsidiary of the Operating Partnership, and we may
elect to treat other subsidiaries as taxable REIT subsidiaries in the future. This election enables us to receive income and provide
services that would otherwise be impermissible for a REIT. 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 tax 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.
Operating Partnership
The allocated share of income and loss, other than the operations of our taxable REIT subsidiary, is included in the income
tax returns of the Operating Partnership's partners. Accordingly, the only federal income taxes included in the accompanying
consolidated financial statements are in connection with its taxable REIT subsidiary.
Other state and local income taxes were not significant in any of the periods presented.
Noncontrolling Interests
We report the non-redeemable noncontrolling interests in subsidiaries as equity and the amount of consolidated net income
attributable to these noncontrolling interests is set forth separately in the consolidated financial statements. The noncontrolling
interests in consolidated properties for the years ended December 31, 2015, 2014, and 2013 were as follows:
($ in thousands)
Noncontrolling interests balance January 1
Net income allocable to noncontrolling interests,
excluding redeemable noncontrolling interests
Distributions to noncontrolling interests
Acquisition of partner's interest in Beacon Hill operating property
Partner's share of loss on sale of Cornelius Gateway operating property
Noncontrolling interests balance at December 31
$
Redeemable Noncontrolling Interests – Operating Partnership
2015
2014
2013
$
3,364
$
3,548
$
3,535
111
(115)
(2,353)
(234)
773
140
(324)
—
—
121
(108)
—
—
$
3,364
$
3,548
Limited Partner Units are redeemable noncontrolling interests in the Operating Partnership. We classify redeemable
noncontrolling interests in the Operating Partnership in the accompanying consolidated balance sheets outside of permanent equity
because we may be required to pay cash to holders of Limited Partner Units upon redemption of their interests in the Operating
Partnership or deliver registered shares upon their conversion. The carrying amount of the redeemable noncontrolling interests
in the Operating Partnership is reflected at the greater of historical book value or redemption value with a corresponding adjustment
to additional paid-in capital. At December 31, 2015 and 2014, the redemption value of the redeemable noncontrolling interests
exceeded the historical book value, and the balance was accordingly adjusted to redemption value.
We allocate net operating results of the Operating Partnership after preferred dividends and noncontrolling interests in the
consolidated properties based on the partners’ respective weighted average ownership interest. We adjust the redeemable
noncontrolling interests in the Operating Partnership at the end of each reporting period to reflect their interests in the Operating
Partnership or redemption value. This adjustment is reflected in our shareholders’ and Parent Company's equity. For the years
ended December 31, 2015, 2014, and 2013, the weighted average interests of the Parent Company and the limited partners in the
Operating Partnership were as follows:
F-19
Parent Company’s weighted average interest in
Operating Partnership
Limited partners' weighted average interests in
Operating Partnership
Year Ended December 31,
2015
2014
2013
97.9%
97.2%
93.3%
2.1%
2.8%
6.7%
At December 31, 2015 and December 31, 2014, the Parent Company's interest and the limited partners' redeemable
noncontrolling ownership interests in the Operating Partnership were 97.8% and 2.2% and 98.1% and 1.9%, respectively.
Concurrent with the Parent Company’s initial public offering and related formation transactions, certain individuals received
Limited Partner Units of the Operating Partnership in exchange for their interests in certain properties. The limited partners were
granted the right to redeem Limited Partner Units on or after August 16, 2005 for cash or, at the Parent Company's election,
common shares of the Parent Company in an amount equal to the market value of an equivalent number of common shares of the
Parent Company at the time of redemption. Such common shares must be registered, which is not fully in the Parent Company’s
control. Therefore, the limited partners’ interest is not reflected in permanent equity. The Parent Company also has the right to
redeem the Limited Partner Units directly from the limited partner in exchange for either cash in the amount specified above or
a number of its common shares equal to the number of Limited Partner Units being redeemed. For the years ended December 31,
2015, 2014 and 2013, respectively, 18,000, 22,000, and 23,250 Limited Partner Units were exchanged for the same number of
common shares of the Parent Company.
There were 1,901,278 and 1,639,443 Limited Partner Units outstanding as of December 31, 2015 and 2014, respectively.
The increase in Limited Partner Units outstanding from December 31, 2014 is due primarily to non-cash compensation awards
previously made to our executive officers in the form of Limited Partner Units.
Redeemable Noncontrolling Interests - Subsidiaries
Prior to the Merger, Inland Diversified formed joint ventures with the previous owners of certain properties and issued
Class B units in three joint ventures that indirectly own those properties. The Class B units related to two of these three joint
ventures remain outstanding subsequent to the Merger with Inland Diversified and are accounted for as noncontrolling interests
in these properties. The Class B units will become redeemable at our applicable partner’s election at future dates generally
beginning in March 2017 or October 2022 based on the applicable joint venture and the fulfillment of certain redemption
criteria. Beginning in June 2018 and November 2022, with respect to the applicable joint venture, the Class B units can be redeemed
at the election of either our partner or us for cash or Limited Partner Units in the Operating Partnership. None of the issued Class
B units have a maturity date and none are mandatorily redeemable.
On February 13, 2015, we acquired our partner’s redeemable interest in the City Center operating property for $34.0 million
and other non-redeemable rights and interests held by our partner for $0.4 million. We funded this acquisition with a $30 million
draw on our unsecured revolving credit facility and the remainder in Limited Partner Units in the Operating Partnership. As a
result of this transaction, our guarantee of a $26.6 million loan on behalf of LC White Plains Retail, LLC and LC White Plains
Recreation, LLC was terminated.
We classify redeemable noncontrolling interests in certain subsidiaries in the accompanying consolidated balance sheets
outside of permanent equity because, under certain circumstances, we may be required to pay cash to Class B unitholders in
specific subsidiaries upon redemption of their interests. The carrying amount of these redeemable noncontrolling interests is
required to be reflected at the greater of initial book value or redemption value with a corresponding adjustment to additional paid-
in capital. As of December 31, 2015 and 2014, the redemption amounts of these interests did not exceed the fair value of each
interest. As of December 31, 2015, the redemption value of the redeemable noncontrolling interests exceeded the initial book
value.
F-20
The redeemable noncontrolling interests in the Operating Partnership and subsidiaries for the years ended December 31,
2015, 2014, and 2013 were as follows:
($ in thousands)
Redeemable noncontrolling interests balance January 1
Acquired redeemable noncontrolling interests from merger
Acquisition of partner's interest in City Center operating property
Net income (loss) allocable to redeemable noncontrolling interests
Distributions declared to redeemable noncontrolling interests
Other, net
Total limited partners' interests in Operating Partnership and other redeemable
noncontrolling interests balance at December 31
Limited partners' interests in Operating Partnership
Other redeemable noncontrolling interests in certain subsidiaries
Total limited partners' interests in Operating Partnership and other redeemable
noncontrolling interests balance at December 31
$
2015
125,082
—
(33,998)
2,087
(3,773)
2,917
2014
2013
$
43,928
69,356
—
891
(3,021)
13,928
37,670
—
—
(806)
(1,587)
8,651
92,315
$
125,082
$
43,928
$
50,085
42,230
$
47,320
77,762
43,928
—
92,315
$
125,082
$
43,928
$
$
$
$
Reclassifications
Certain amounts in the accompanying consolidated financial statements for 2014 and 2013 have been reclassified to conform
to the 2015 consolidated financial statement presentation. The reclassifications had no impact on net loss previously reported.
Recently Issued Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08,
Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity (the “Update”). The Update changes the definition of
discontinued operations by limiting discontinued operations reporting to disposals of components of an entity or assets that meet
the criteria to be classified as held for sale and that represent strategic shifts that have (or will have) a major effect on an entity’s
operations and financial results. The Update also requires expanded disclosures for discontinued operations and requires an entity
to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued
operations reporting in the period in which it is disposed of or is classified as held for sale and for all prior periods that are presented
in the statement where net income is reported. The Update is effective for annual periods beginning on or after December 15,
2014, with early adoption permitted for disposals of assets that were not held for sale as of December 31, 2013. We adopted the
Update in the first quarter of 2014. In March 2014, the Company disposed of its 50th and 12th operating property which had been
classified as held for sale at December 31, 2013. Accordingly, the revenues and expenses of this property and the associated gain
on sale have been classified in discontinued operations in the 2014 consolidated statements of operations
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2014-9, Revenue from Contracts with Customers (“ASU 2014-9”). ASU 2014-9 is a comprehensive revenue recognition standard
that will supersede nearly all existing GAAP revenue recognition guidance. It will also affect the existing GAAP guidance
governing the sale of nonfinancial assets. The new standard’s core principle is that a company will recognize revenue when it
satisfies performance obligations, by transferring promised goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in exchange for fulfilling those performance obligations. In doing so,
companies will need to exercise more judgment and make more estimates than under existing GAAP guidance.
F-21
Under the new standard, entities will now generally recognize the sale, and any associated gain or loss, of a real estate
property when control of the property transfers, as long as collectability of the consideration is probable. The new standard also
amends ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers. Under ASC 340-40, incremental costs of
obtaining a contract are recognized as an asset if the entity expects to recover them. Other costs related to originating a revenue
transaction, such as salary expense, that is based on other qualitative or quantitative metrics, likely do not meet the criteria for
capitalization because they are not directly related to obtaining a contract. We expect this new guidance will increase total General,
administrative, and other expense on our consolidated statement of operations and decrease amortization expense.
ASU 2014-9 was to be effective for public entities for annual and interim reporting periods beginning after December 15,
2016 and early adoption is not permitted, but in August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with
Customers: Deferral of the Effective Date, which delays the effective date of ASU 2014-9 for one year. ASU 2014-9 allows for
either recognizing the cumulative effect of application (i) at the start of the earliest comparative period presented (with the option
to use any or all of three practical expedients) or (ii) as a cumulative effect adjustment as of the date of initial application, with
no restatement of comparative periods presented.
We are currently evaluating the impact adopting the new accounting standard, and the transition method of such adoption,
will have on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. ASU 2015-02 makes changes
to both the variable interest model and the voting model. This guidance becomes effective for annual and interim periods beginning
on or after December 15, 2015. All reporting entities involved with limited partnerships will have to re-evaluate whether these
entities qualify for consolidation and revise documentation accordingly. We are currently evaluating the impact adopting the new
accounting standard will have on our consolidated financial statements, but we do not currently believe it will result in material
changes to our previous consolidation conclusions.
In April 2015, the FASB issued ASU 2015-03, Interest- Imputation of Interest ("ASU 2015-03"). ASU 2015-03 will require
that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the
carrying amount of that debt liability. ASU 2015-03 is effective for annual and interim reporting periods beginning on or after
December 15, 2015, with early adoption permitted. We expect this new guidance will reduce total assets and total debt on our
consolidated balance sheet by amounts currently classified as deferred issuance costs, but we do not expect this update to have
any other material effect on our consolidated financial statements.
In August 2015, the FASB issued ASU 2015-15, Interest- Imputation of Interest: Presentation and Subsequent Measurement
of Debt Issuance Costs Associated with Line-of-Credit Arrangements- Amendments to SEC Paragraphs Pursuant to Staff
Announcement at June 18, 2015 EITF Meeting ("ASU 2015-15"). ASU 2015-15 was issued as a result of ASU 2015-03 not
addressing presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15
provides the option to present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably
over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit
arrangement. As this is already the current practice of the Parent Company and the Operating Partnership, we do not expect this
update to have any effect on our consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments. ASU 2015-16 will eliminate the requirement for an acquirer in a business combination to
account for measurement-period adjustments retrospectively. ASU 2015-16 requires that an acquirer must recognize measurement-
period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would
have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for
annual and interim reporting periods beginning on or after December 15, 2016, with early adoption permitted. We are currently
evaluating the effect, if any, on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for
lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to
lessor accounting. ASU 2016-02 will be effective for annual and interim reporting periods beginning on or after December 15,
F-22
2018, with early adoption permitted. The new leases standard requires a modified retrospective transition approach for all leases
existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently
evaluating the impact adopting the new accounting standard will have on our consolidated financial statements.
Note 3. Gain on Settlement
In June 2015, we received $4.75 million to settle a dispute related to eminent domain and related damages at one of our
operating properties. The settlement agreement did not restrict our use of the proceeds from this settlement. These proceeds, net
of certain costs, are included in gain on settlement in the accompanying statement of operations. In July 2015, we used the proceeds
to pay down a portion of the loan secured by the operating property.
Note 4. Kedron Village
In July 2013, foreclosure proceedings were completed by the mortgage lender on the indebtedness secured by the Company’s
Kedron Village operating property and the mortgage lender took title to the property in satisfaction of principal and interest due
on the loan.
We reevaluated the Kedron Village property for impairment as of June 30, 2013 and determined that, based on the
developments, the carrying value of the property was no longer fully recoverable considering the reduced holding period that
considered the foreclosure proceedings. Accordingly, we recorded a non-cash impairment charge of $5.4 million for the three
months ended June 30, 2013 based upon the estimated fair value of the asset of $25.5 million using level 3 inputs.
During the year ended December 31, 2013, we recognized a non-cash gain of $1.2 million resulting from the transfer of
the Kedron Village assets to the lender in satisfaction of the debt. Also, in the third quarter, we reversed an accrual of unpaid
interest (primarily default interest) of approximately $1.1 million.
The operations of Kedron Village were classified as discontinued operations in the consolidated statement of operations
for the year ended December 31, 2013.
Note 5. Share-Based Compensation
Overview
The Company's 2013 Equity Incentive Plan (the "Plan") authorizes options and other share-based compensation awards to
be granted to employees and trustees for up to an additional 1,500,000 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, 2015, 2014, and 2013 was $4.4 million, $2.9 million, and $1.1 million, respectively. For the
years ended December 31, 2015, 2014, and 2013, total share-based compensation cost capitalized for development and leasing
activities was $1.0 million, $0.8 million, and $0.5 million, respectively.
As of December 31, 2015, there were 1,239,022 shares available for grant under the Plan.
F-23
Share Options
Pursuant to the Plan, the Company may periodically grant options to purchase common shares at an exercise price equal
to the grant date 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.
A summary of option activity under the Plan as of December 31, 2015, and changes during the year then ended, is presented
below:
Aggregate
Intrinsic
Value
Weighted-Average
Remaining
Contractual Term
(in years)
Options
Weighted-Average
Exercise Price
Outstanding at January 1, 2015
Granted
Exercised
Expired
Forfeited
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Exercisable at December 31, 2014
$
$
1,282,272
1,272,738
2.95
2.94
There were no options granted in 2015, 2014 and 2013.
248,991
$
—
(1,250)
(14,375)
—
233,366
231,875
243,686
$
$
$
33.88
—
10.56
60.68
—
32.36
32.44
34.16
The aggregate intrinsic value of the 1,250 and 3,313 options exercised during the years ended December 31, 2015 and 2014
was less than $0.1 million. The aggregate intrinsic value of the 40,639 options exercised during the year ended December 31,
2013 was $0.4 million.
As of December 31, 2015 there was less than $0.1 million of total unrecognized compensation cost related to outstanding
unvested share option awards.
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. The Company pays dividends on restricted
shares and such dividends 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, 2015 and changes during the year then ended:
F-24
Restricted shares outstanding at January 1, 2015
Shares granted
Shares forfeited
Shares canceled
Shares vested
Restricted shares outstanding at December 31, 2015
Number of
Restricted
Shares
Weighted Average
Grant Date Fair
Value per share
615,453
$
121,075
(358)
(274,835)
(105,001)
356,334
$
22.87
28.10
21.49
21.25
23.86
25.61
During the years ended December 31, 2015, 2014, and 2013, the Company granted 121,075, 499,436, and 103,685 restricted
shares, respectively, to employees and non-employee members of the Board of Trustees with weighted average grant date fair
values of $28.10, $22.62, and $25.80, respectively. In June 2015, the Company canceled 274,835 shares of unvested restricted
shares that would have vested in equal amounts on July 2, 2015, July 2, 2016, July 2, 2017, and July 2, 2018 in exchange for
converting these awards into an equal number of Limited Partner Units, which had the same fair value. The total fair value of
shares vested during the years ended December 31, 2015, 2014, and 2013 was $2.9 million, $1.6 million, and $1.1 million,
respectively.
As of December 31, 2015, there was $6.9 million of total unrecognized compensation cost related to restricted shares and
units granted under the Plan, which amount is expected to be recognized in the consolidated statements of operations over a
weighted-average period of 1.76 years. We expect to incur $2.5 million of this expense in fiscal year 2016, $1.9 million in fiscal
year 2017, $1.6 million in fiscal year 2018, $0.8 million in fiscal year 2019, and the remainder in fiscal year 2020.
Outperformance Plan
The Compensation Committee of the Board of Trustees has adopted the Kite Realty Group Trust 2014 Outperformance
Plan in July 2014 for members of executive management and certain other employees, pursuant to which participants are eligible
to earn units in the Operating Partnership based on the achievement of certain performance criteria related to the Company’s
common shares. Participants in the 2014 Outperformance Plan were awarded the right to earn, in the aggregate, up to $7.5 million of
share-settled awards (the “bonus pool”) if, and only to the extent of which, based on our total shareholder return (“TSR”)
performance measures are achieved for the three-year period beginning July 1, 2014 and ending June 30, 2017. Awarded interests
not earned based on the TSR measures are forfeited.
At the end of the three-year performance period, participants will receive their percentage interest in the bonus pool as units
in the Operating Partnership that vest over an additional two-year service period. The compensation cost of the 2014
Outperformance Plan is fixed as of the grant date and is recognized regardless of whether the units are ultimately earned if the
required service is determined.
The 2014 Outperformance Plan was valued at an aggregate value of $2.4 million utilizing a Monte Carlo simulation. The
value of the awards will be amortized to expense through the final vesting date of June 30, 2019 based upon a graded vesting
schedule. We expect to incur $0.7 million of this expense in fiscal year 2016, $0.6 million in fiscal year 2017, $0.3 million in
fiscal year 2018 and $0.1 million in fiscal year 2019.
Performance Awards
The Compensation Committee of the Board of Trustees revised the structure for its annual incentive awards in 2015. The
Compensation Committee established an overall target value of incentive compensation for each executive officer, with 50% of
the target value being granted in the form of a time-based restricted shares award to be made on a discretionary basis in the spring
of 2016, based on review of the prior year's performance, and the remaining 50% being granted in the form of a three-year
performance share award.
F-25
In March 2015, in connection with the setting of these overall target values, the Compensation Committee awarded each
executive officer a three-year performance award of restricted shares units ("PSUs"). These PSUs may be earned over a three-
year performance period from January 1, 2015 to December 31, 2017. The performance criteria will be based on the relative total
shareholder return ("TSR") achieved by the Company measured against the SNL US REIT Retail Shopping Center index over the
three-year measurement period. Any PSUs earned at the end of the three-year period will be fully vested. The PSUs were valued
at an aggregate value of $1.1 million utilizing a Monte Carlo simulation. The value of the awards will be amortized to expense
through the final vesting date of February 28, 2018 based upon a graded vesting schedule. We expect to incur $0.4 million of this
expense in fiscal year 2016, $0.4 million in fiscal year 2017 and $0.1 million in fiscal year 2018.
Note 6. Deferred Costs and Intangibles, net
Deferred costs consist primarily of financing fees incurred to obtain long-term financing, acquired lease intangible assets,
and broker fees and capitalized salaries and related benefits incurred in connection with lease originations. Deferred financing
costs are amortized on a straight-line basis over the terms of the respective loan agreements. Deferred leasing costs, lease intangibles
and similar costs are amortized on a straight-line basis over the terms of the related leases. At December 31, 2015 and 2014,
deferred costs consisted of the following:
($ in thousands)
Deferred financing costs
Acquired lease intangible assets
Deferred leasing costs and other
Less—accumulated amortization
Total
Deferred costs and intangibles, net – properties held for sale
Total
2015
2014
$
19,052
$
14,575
138,796
54,902
212,750
(54,866)
157,884
—
$
157,884
$
142,823
48,149
205,547
(36,583)
168,964
(8,986)
159,978
The estimated net amounts of amortization from acquired lease intangible assets for each of the next five years and thereafter
are as follows:
($ in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Amortization of
above market
leases
Amortization of
deferred leasing
costs
$
$
5,252
$
16,737
$
4,293
2,724
1,475
1,279
5,307
13,866
10,045
7,507
6,560
35,279
20,330
$
89,994
$
Total
21,989
18,159
12,769
8,982
7,839
40,586
110,324
The accompanying consolidated statements of operations include amortization expense as follows:
F-26
($ in thousands)
Amortization of deferred financing costs
Amortization of deferred leasing costs, lease intangibles and other
Amortization of above market lease intangibles
For the year ended December 31,
2015
2014
2013
$
3,209
$
2,864
$
25,187
6,860
17,291
4,787
2,434
5,605
534
Amortization of deferred leasing costs, leasing intangibles and other is included in depreciation and amortization expense,
except for the amortization of above market leases, while the amortization of deferred financing costs is included in interest
expense. The amortization of above market lease intangibles is included as a reduction to revenue.
Note 7. Deferred Revenue, Intangibles, Net and Other Liabilities
Deferred revenue and other liabilities primarily consist of unamortized fair value of in-place lease liabilities recorded in
connection with purchase accounting, an assumed obligation related to a pre-existing potential earnout payment related to the
Merger, retainage payables for development and redevelopment projects, and tenant rent payments received in advance of their
due date. 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). Tenant rent payments received in advance are recognized as revenue
in the period to which they apply, which is typically the month following their receipt.
At December 31, 2015 and 2014, deferred revenue and other liabilities consisted of the following:
($ in thousands)
Unamortized in-place lease liabilities
Retainages payable and other
Assumed earnout liability (Note 15)
Tenant rents received in advance
Total
Deferred revenue, intangibles, net and other liabilities – liabilities held for sale
Total
2015
2014
$
112,405
$
125,336
5,636
1,380
12,138
131,559
—
$
131,559
$
2,852
9,664
10,841
148,693
(12,284)
136,409
The estimated net amounts of amortization of in-place lease liabilities and the increasing effect on minimum rent for
each of the next five years and thereafter is as follows:
($ in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
$
8,198
7,143
6,414
5,855
5,442
79,353
$
112,405
F-27
Note 8. Merger and Acquisitions
The results of operations for all acquired properties during the years ended December 31, 2015, 2014, and 2013,
respectively, have been included in continuing operations within our consolidated financial statements since their respective
dates of acquisition.
The fair value of the real estate and related assets acquired were primarily determined using the income approach. The
income approach required us 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 2 and Level 3 inputs, as previously
defined.
Merger and acquisition costs are expensed as incurred and include transaction costs for completed and prospective
acquisitions. As part of the Merger with Inland Diversified, we incurred significant costs in 2014 related to investment
banking, lender, due diligence, legal, and professional fees. Merger and acquisition costs for the years ended December 31,
2015, 2014, and 2013 were $1.6 million, $27.5 million and $2.2 million, respectively.
A preliminary estimation of the fair value of acquired tangible and intangible assets and liabilities was made at the dates
of each acquisition.
2015 Acquisitions
In 2015, we acquired four operating properties for total consideration of $185.8 million, including the assumption of an
$18.3 million loan, which are summarized below:
Property Name
MSA
Acquisition Date
Colleyville Downs
Belle Isle Station
Livingston Shopping Center
Chapel Hill Shopping Center
Dallas, TX
Oklahoma City, OK
New York - Newark
Fort Worth, TX
April 2015
May 2015
July 2015
August 2015
The following table summarizes the estimation of the fair value of assets acquired and liabilities assumed for the properties
acquired in 2015:
F-28
($ in thousands)
Investment properties, net
Lease-related intangible assets, net
Other assets
Total acquired assets
Mortgage and other indebtedness
Accounts payable and accrued expenses
Deferred revenue and other liabilities
Total assumed liabilities
$
176,223
17,436
435
194,094
18,473
2,125
8,269
28,867
Fair value of acquired net assets
$
165,227
The leases at the acquired properties had a weighted average remaining life at acquisition of approximately 9.4 years.
The operating properties acquired in 2015 generated revenues of $8.8 million and a loss from continuing operations of $1.3
million (inclusive of depreciation and amortization expense of $5.8 million) since their respective dates of acquisition.
As of December 31, 2015, we finalized the fair values of the assets and liabilities acquired in 2015. There were no material
adjustments to the fair values of acquired assets and assumed liabilities of our 2015 acquisitions during the year ended December
31, 2015.
2014 Merger and Acquisitions
In 2014, we acquired a total of 61 operating properties. Upon completion of the Merger with Inland Diversified in July,
we acquired 60 operating properties and in December we acquired an operating property in Las Vegas, Nevada. The total purchase
price of the assets acquired in the Merger was $2.1 billion. As part of the Merger, we assumed $860 million of debt, maturing in
various years through March 2023. In addition, we assumed a $12.4 million mortgage with a fixed interest rate of 5.73%, maturing
in June 2030, as part of the Las Vegas acquisition.
The following is a summary of our 2014 operating property acquisitions.
Property Name
MSA
Acquisition Date
Purchase Price
($ in millions)
Merger with Inland Diversified
Various
July 2014
$
Rampart Commons
Las Vegas, NV
December 2014
2,128.6
32.3
The ranges of the most significant Level 3 assumptions utilized in determining the value of the real estate and related assets
of each building acquired during the Merger are as follows:
F-29
Lease-up period (months)
Net rental rate per square foot – Anchors (greater than 10,000 square feet)
Net rental rate per square foot – Small Shops
Discount rate
Low
High
6
18
$
$
5.00
11.00
$
$
30.00
53.00
5.75%
9.25%
The following table summarizes the aggregate estimated fair values of the properties acquired in connection with the
Merger with Inland Diversified on July 1, 2014:
($ in thousands)
Assets:
Investment properties, net
Deferred costs, net
Investments in marketable securities
Cash and cash equivalents
Accounts receivable, prepaid expenses, and other
Total assets
Liabilities:
Mortgage and other indebtedness, including debt premium of $33,298
Deferred revenue and other liabilities
Accounts payable and accrued expenses
Total Liabilities
Noncontrolling interests
Common stock issued
Total estimated fair value of acquired net assets
$ 2,095,567
143,210
18,602
108,666
20,157
$ 2,386,202
$
892,909
129,935
59,314
1,082,158
69,356
1,234,688
$ 2,386,202
The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 5.8 years.
The following table summarizes the revenues and expenses of the properties acquired in 2014 subsequent to the respective
acquisition dates. These revenues and expenses are included in the consolidated statement of operations for the year ended
December 31, 2014:
F-30
($ in thousands)
Revenue
Expenses:
Property operating
Real estate taxes and other
Depreciation and amortization
Interest expense
Total expenses
Gain on sale and other (1)
Net income impact from 2014 acquisitions prior to income allocable to noncontrolling interests
Income allocable to noncontrolling interests
Impact from 2014 acquisitions on income attributable to Kite Realty Trust
Year ended December 31,
2014
$
$
92,212
14,262
11,254
43,257
14,845
83,618
2,153
10,747
(1,284)
9,463
____________________
1
We sold eight properties that were acquired through the Merger in November and December 2014.
The following table presents unaudited pro forma financial information for the years ended December 31, 2014 and 2013
as if the Merger and the 2013 and 2014 property acquisitions had been consummated on January 1, 2013. The pro forma results
have been accounted for pursuant to our accounting policies and adjusted to reflect the results of Inland Diversified’s additional
depreciation and amortization that would have been recorded assuming the allocation of the purchase price to investment properties,
intangible assets and indebtedness had been applied on January 1, 2013. The pro forma results exclude Merger and acquisition
costs and reflect the termination of management agreements with affiliates of Inland Diversified as neither are expected to have
a continuing impact on the results of the operations following the Merger and the results also reflect the pay down of certain
indebtedness.
($ in thousands)
Total revenue
Consolidated net income
Twelve Months Ended
December 31,
(unaudited)
2014
2013
$
355,716
$
26,911
357,506
2,219
As of June 30, 2015, we finalized the fair values of the assets and liabilities acquired in the Merger. There were no material
adjustments made to the fair values of acquired assets and assumed liabilities during 2015, except as described in Note 15.
2013 Acquisition Activities
In 2013, we acquired thirteen operating properties, which are summarized below:
F-31
Property Name
MSA
Acquisition Date
Purchase Price
($ in millions)
Shoppes of Eastwood
Cool Springs Market
Castleton Crossing
Toringdon Market
Orlando, FL
Nashville, TN
Indianapolis, IN
Charlotte, NC
January 2013
$
April 2013
May 2013
August 2013
Nine Property Portfolio
Various
November 2013
11.6
37.6
39.0
15.9
304.0
The following table summarizes our final aggregated estimated fair value of amounts recognized for each major class of
asset and liability for these acquisitions:
($ in thousands)
Investment properties, net
Lease-related intangible assets
Other assets
Total acquired assets
Accounts payable and accrued expenses
Deferred revenue and other liabilities
Total assumed liabilities
Allocation to opening
balance sheet
$
419,080
19,537
293
438,910
2,204
29,291
31,495
Fair value of acquired net assets
$
407,415
The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 4.6 years.
There were no material adjustments to the fair value determination of acquired assets and assumed liabilities for our 2013
acquisitions during the year ended December 31, 2014.
Note 9. Disposals, Discontinued Operations, Investment Properties Held for Sale and Impairment Charge
2015 Activities
During the fourth quarter of 2015, we sold our Four Corner operating property in Seattle, Washington, and our Cornelius
Gateway operating property in Portland, Oregon, for aggregate proceeds of $44.9 million and a net gain of $0.6 million.
In connection with the sale of these two properties, we evaluated the prospects of our remaining operating property in the
Pacific Northwest, Shops at Otty. As part of this review and our limited presence in the Pacific Northwest market led to our intent
to sell the property in the near term, which shortened the intended holding period. Based on this re-evaluation, the estimated
undiscounted cash flows over the remaining holding period do not exceed the carrying value of the asset. Accordingly, we
determined it was appropriate to write off the net book value of this property and record a non-cash impairment charge of $1.6
million for the year ended December 31, 2015, because our estimation is that the fair value of this property is nominal.
F-32
As discussed below, in March 2015, we sold seven properties for aggregate net proceeds of $103.0 million and a net gain
of $3.4 million.
The results of these operating properties are not included in discontinued operations in the accompanying statements of
operations as none of the operating properties individually, nor in the aggregate, represent a strategic shift that has had or will
have a material effect on our operations or financial results (see Note 2).
2014 Activities
During 2014, we sold our Red Bank Commons operating property in Evansville, Indiana, our Ridge Plaza operating
property in Oak Ridge, New Jersey, Zionsville Walgreens operating property in Zionsville, Indiana, and our 50th and 12th
operating property in Seattle, Washington, for aggregate proceeds of $42.5 million and a net gain of $9.6 million.
The Red Bank Commons, Ridge Plaza and Zionsville Walgreens operating properties are not included in discontinued
operations in the accompanying Statements of Operations for the years ended December 31, 2014 and 2013, as the disposals
individually, nor in the aggregate, represent a strategic shift that has or will have a major effect on our operations and financial
results (see Note 2).
The 50th and 12th operating property is included in discontinued operations in the accompanying consolidated statements
of operations for the years ended December 31, 2014 and 2013, as the property was classified as held for sale as of December
31, 2013, prior to our adoption of ASU 2014-8.
In September 2014, we agreed to sell 15 of our operating properties. In late 2014, we completed the sale of eight of these
operating properties for aggregate net proceeds of $150.8 million and a net gain of $1.4 million. In March 2015, we sold the
remaining seven operating properties for aggregate net proceeds of $103.0 million and a net gain of $3.4 million.
The operating properties sold in late 2014 and early 2015 are as follows:
F-33
Property Name
MSA
Owned GLA
Sold in late 2014
Copps Grocery
Fox Point
Harvest Square
Landing at Ocean Isle Beach
Branson Hills Plaza1
Shoppes at Branson Hills
Shoppes at Prairie Ridge
Heritage Square
Sold in early 2015
Eastside Junction
Fairgrounds Crossing
Hawk Ridge
Prattville Town Center
Regal Court
Whispering Ridge
Walgreens Plaza
Stevens Point, WI
Neenah, WI
Harvest, AL
Ocean Isle Beach, NC
Branson, MO
Branson, MO
Pleasant Prairie, WI
Conyers, GA
Athens, AL
Hot Springs, AR
Saint Louis, MO
Prattville, AL
Shreveport, LA
Omaha, NE
Jacksonville, NC
69,911
171,121
70,590
53,220
289,986
128,431
22,385
79,700
151,927
75,951
168,842
151,719
69,676
42,219
____________________
1
Owned GLA includes Branson Hills Plaza and Shoppes at Branson Hills.
The results of the 15 operating properties sold are not included in discontinued operations in the accompanying
Statements of Operations as the disposals neither individually, nor in the aggregate, represent a strategic shift that has had or
will have a material effect on our operations or financial results. The seven properties sold in March 2015, met the
requirements for presentation as held for sale as of December 31, 2014. Upon meeting the held-for-sale criteria, depreciation
and amortization ceased for these operating properties. The assets and liabilities associated with the operating properties that
were classified as held sale in 2014 are separately classified as held for sale in the consolidated balance sheets as of December
31, 2014.
The following table presents the assets and liabilities associated with the held for sale properties:
F-34
($ in thousands)
Assets:
Investment properties, at cost
Less: accumulated depreciation
Accounts receivable, prepaids and other assets
Deferred costs and intangibles, net
Total assets held for sale
Liabilities:
Mortgage and other indebtedness, including net premium
Accounts payable and accrued expenses
Deferred revenue, intangibles and other liabilities
Total liabilities held for sale
2013 Activities
December 31,
2014
$
$
$
$
170,782
(1,313)
169,469
1,187
8,986
179,642
67,452
1,428
12,284
81,164
In September 2013, we sold our Cedar Hill Village operating property in Dallas, Texas. In July 2013, foreclosure proceedings
were completed on the Kedron Village operating property and the mortgage lender took title to the property in satisfaction of
principal and interest due on the mortgage (see Note 4). The activities of these properties sold in 2013 are reflected as discontinued
operations in the accompanying consolidated statements of operations.
Discontinued Operations
The results of the discontinued operations related to the properties that were classified as such prior to the adoption of ASU
2014-08 were comprised of the following for the years ended December 31, 2014 and 2013:
F-35
($ in thousands)
Revenue
Expenses:
Property operating
Real estate taxes and other
Depreciation and amortization
Impairment charge
Total expenses
Operating loss
Interest expense
Loss from discontinued operations
Gain on debt extinguishment
Gain on sale of operating properties, net
Total income (loss) from discontinued operations
Income (loss) from discontinued operations attributable to Kite Realty Group Trust
common shareholders
Income (loss) from discontinued operations attributable to noncontrolling interests
Total income (loss) from discontinued operations
Note 10. Mortgage Loans and Other Indebtedness
Year ended December 31,
2014
2013
$
— $
2,565
—
—
—
—
—
—
—
—
—
3,198
3,198
$
3,111
87
3,198
$
$
$
$
$
117
199
844
5,372
6,532
(3,967)
(571)
(4,538)
1,242
487
(2,809)
(2,620)
(189)
(2,809)
Mortgage and other indebtedness, excluding mortgages related to assets held for sale (see Note 9), consist of the following
at December 31, 2015 and 2014:
F-36
($ in thousands)
Description
Senior Unsecured Notes
Maturing at various dates through September 2027; interest rates ranging from 4.23% to 4.57%
at December 31, 2015
Unsecured Revolving Credit Facility
Matures July 20181; borrowing level up to $339.5 million available at December 31, 2015 and
$500 million at December 31, 2014; interest at LIBOR + 1.40%2 or 1.83% at December 31,
2015 and interest at LIBOR + 1.40%2 or 1.57% at December 31, 2014
Unsecured Term Loans
$400 million matures July 20193; interest at LIBOR + 1.35%2 or 1.78% at December 31, 2015
and interest at LIBOR + 1.35%2 or 1.52% at December 31, 2014; $100 million matures October
2022; interest at LIBOR + 1.60%2 or 2.03% at December 31, 2015
Construction Loans—Variable Rate
Generally interest only; maturing at various dates through 2016; interest at LIBOR +
1.75%-2.10%, ranging from 2.18% to 2.53% at December 31, 2015 and interest at LIBOR
+1.75%-2.10%, ranging from 1.92% to 2.27% at December 31, 2014
Mortgage Notes Payable—Fixed Rate
Generally due in monthly installments of principal and interest; maturing at various dates
through 2030; interest rates ranging from 3.78% to 6.78% at December 31, 2015 and interest
rates ranging from 3.81% to 6.78% at December 31, 2014
Mortgage Notes Payable—Variable Rate
Due in monthly installments of principal and interest; maturing at various dates through 2023;
interest at LIBOR + 1.70%-2.25%, ranging from 2.13% to 2.68% at December 31, 2015 and
interest at LIBOR + 1.75%-2.75%, ranging from 1.92% to 2.92% at December 31, 2014
Net premium on acquired indebtedness
Total mortgage and other indebtedness
Balance at December 31,
2015
2014
$
250,000
$
—
20,000
160,000
500,000
230,000
132,776
119,347
756,494
810,959
58,268
16,521
205,798
28,159
$ 1,734,059
$ 1,554,263
____________________
1
The maturity date may be extended at the Company’s option for up to two additional periods of six months each,
subject to certain conditions.
2
3
The interest rates on our unsecured revolving credit facility and unsecured term loans 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 0.43% and 0.17% as of December 31, 2015 and 2014, respectively.
Non-cash Gain on Extinguishment of Debt
On December 10, 2015, we retired the $90 million loan secured by our City Center operating property, and we recognized
a non-cash debt extinguishment gain of $5.6 million, primarily due to the premium related to this mortgage.
F-37
Senior Unsecured Notes
In August 2015, the Operating Partnership entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with
various parties in connection with a private placement of senior unsecured notes. On September 10, 2015, the Operating Partnership
issued $250 million of senior unsecured notes at a blended rate of 4.41% and an average maturity of 9.8 years. The net proceeds
from the issuance of the notes were utilized to pay off the balance of $199.6 million on our unsecured revolving credit facility and
the $33 million loan secured by our Crossing at Killingly operating property. The Note Purchase Agreement contains a number
of customary financial and restrictive covenants. As of December 31, 2015, we were in compliance with all such covenants.
Seven-Year Unsecured Term Loan
On October 26, 2015, we entered into a seven-year unsecured term loan ("7-Year Term Loan") for up to $200 million. On
December 31, 2015, we drew $100 million on the 7-Year Term Loan and used the proceeds to pay down the unsecured revolving
credit facility. The 7-Year Term Loan may be funded on a delayed draw basis at our discretion and has a scheduled maturity date
of October 2022. The Operating Partnership has the ability to make a total of two additional draws each of which must be at least
$25 million. The remaining $100 million may be drawn through June 30, 2016.
Unsecured Revolving Credit Facility and Unsecured Term Loan
On March 12, 2015, we amended the terms of the Fourth Amended and Restated Credit Agreement (the “Amended Facility”).
The amendment provided for the release of the subsidiary guarantees relating to the Amended Facility upon the satisfaction of
specified conditions (the “Release Conditions”). The amendment also changed the calculation of unsecured debt interest expense,
which is used for purposes of calculating the unsecured debt interest coverage ratio, to be the actual interest expense incurred.
Previously, unsecured debt interest expense was the greater of the actual interest expense incurred and an implied expense based
on an assumed 6.0% interest rate.
On March 17, 2015, upon satisfaction of the Release Conditions all of the subsidiary guarantees relating to the Amended
Facility were released. As provided in the Amended Facility, if any subsidiary of the Operating Partnership becomes liable with
respect to any unsecured indebtedness, that subsidiary is required to become a subsidiary guarantor under the Amended Facility.
On June 29, 2015, we entered into an amendment to our Fourth Amended and Restated Credit Agreement (the “Credit
Agreement”). The amendment increased the total unsecured term loan from $230 million to $400 million, and modified two
financial covenants to permit, in each case only one time during the term of the Credit Agreement for up to four consecutive fiscal
quarters following a material acquisition, an increase in the maximum leverage ratio from 60% to 65%, and an increase in the
ratio of unsecured indebtedness to unencumbered asset pool value from .60 to 1.00 to .65 to 1.00. The amendment also removed
two financial covenants and eliminated certain reporting requirements triggered by the addition of new properties to the
unencumbered asset pool. We used the proceeds from this transaction to pay down $140 million on the unsecured revolving credit
facility and retire the $23.9 million loan secured by our Draper Peaks operating property and the $6.6 million loan secured by our
Beacon Hill operating property.
The amount that we may borrow under our unsecured revolving credit facility is based on the value of the assets in our
unencumbered asset pool. The senior unsecured notes and the new unsecured term loan are included in the total borrowings
outstanding for the purpose of determining the amount we may borrow under our unsecured revolving credit facility. Taking into
account outstanding borrowings and letters of credit, we had $339.5 million available under our unsecured revolving credit facility
for future borrowings as of December 31, 2015.
As of December 31, 2015, $20 million was outstanding under the Credit Agreement and $500 million was outstanding
under our unsecured term loans. Additionally, we had letters of credit outstanding which totaled $14.7 million, against which no
amounts were advanced as of December 31, 2015.
F-38
Our ability to borrow under the Credit Agreement is subject to our compliance with various restrictive and financial
covenants, including with respect to liens, indebtedness, investments, dividends, mergers and asset sales. As of December 31,
2015, we were in compliance with all such covenants.
Mortgage and Construction Loans
Mortgage and construction loans are secured by certain real estate and in some cases by guarantees from the Operating
Partnership, and are generally due in monthly installments of interest and principal and mature over various terms through 2030.
The following table presents maturities of mortgage debt, corporate debt, and construction loans as of December 31, 2015:
($ in thousands)
2016
2017
2018
2019
2020
Thereafter
Unamortized Premiums
Total
Annual Principal Payments
Term Maturity1
Total
$
$
5,666
$
261,041
$
5,103
5,335
5,255
5,200
12,196
17,026
62,584
20,000
442,339
875,793
38,755
$
1,678,783
$
$
266,707
22,129
67,919
25,255
447,539
887,989
1,717,538
16,521
1,734,059
____________________
1
This presentation reflects the Company's exercise of its options to extend the maturity dates by one year to July 1,
2019 for the Company's unsecured credit facility and its option to extend the maturity date by six months to January 1,
2020 for the Company's unsecured term loan.
Other Debt Activity
For the year ended December 31, 2015, we had total new loan borrowings of $984.3 million and total loan repayments of
$835.0 million. In addition to the $250 million senior unsecured notes and the $270 million from new and expanded term loans,
the major components of this activity are as follows:
•
•
•
In 2015, we drew $102.6 million on the unsecured revolving credit facility to redeem all the outstanding shares of
our Series A Cumulative Redeemable Perpetual Preferred Shares; $59 million to fund a portion of the acquisitions
of Colleyville Downs, Belle Isle Station, Livingston Shopping Center and Chapel Hill Shopping Center; $30 million
to fund the acquisition of our partner's interest in our City Center operating property; and $14.7 million on
construction loans related to development projects;
In 2015, we retired the $12.2 million loan secured by our Indian River operating property, the $26.2 million loan
secured by our Plaza Volente operating property and the $50.1 million loan secured by our Landstown Commons
operating property;
In December 2015, we entered into a new $33 million loan secured by our Crossing at Killingly operating property
and paid down $44.9 million on the unsecured revolving credit facility utilizing proceeds from our property sales;
F-39
•
•
In August 2015, in connection with the acquisition of Chapel Hill Shopping Center, we assumed a $18.3 million
loan secured by the operating property. As part of the estimated fair value determination, a debt premium of $0.2
million was recorded;
In March 2015, we used a portion of the proceeds from the sale of seven operating properties to retire the $24
million loan secured by the Regal Court property and to pay down $27 million on the unsecured revolving credit
facility; and
• We made scheduled principal payments on indebtedness totaling $6.5 million.
In connection with the sale of seven operating properties in March 2015, the buyer assumed $40.3 million of loans secured
by our Prattville Town Center, Walgreens Plaza, Fairgrounds Crossing and Eastside Junction operating properties.
The amount of interest capitalized in 2015, 2014, and 2013 was $4.6 million, $4.8 million, and $5.1 million, respectively.
Fair Value of Fixed and Variable Rate Debt
As of December 31, 2015, the estimated fair value of our fixed rate debt, was $1.1 billion compared to the book value of
$1.0 billion. The fair value was estimated using Level 2 and 3 inputs with cash flows discounted at current borrowing rates for
similar instruments which ranged from 3.78% to 6.78%. As of December 31, 2015, the fair value of variable rate debt was $734.5
million compared to the book value of $711.0 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 1.78% to 2.68%.
Note 11. Derivative Instruments, Hedging Activities and Other Comprehensive Income
In order to manage potential future volatility relating to variable interest rate risk, we enter into interest rate hedging
agreements from time to time. We do not use derivatives for trading or speculative purposes nor do we have any derivatives that
are not designated as cash flow hedges. The agreements with each of our derivative counterparties provide that, in the event of
default on any of our indebtedness, we could also be declared in default on our derivative obligations.
As of December 31, 2015, we were party to various cash flow hedge agreements with notional amounts totaling $498.3
million. These hedge agreements effectively fix the interest rate underlying certain variable rate debt instruments over terms
ranging from 2016 through 2020. Utilizing a weighted average interest rate spread over LIBOR on all variable rate debt resulted
in fixing the weighted average interest rate at 2.75%.
These interest rate hedge agreements are the only assets or liabilities that we record at fair value on a recurring basis. The
valuation of these assets and liabilities is determined using widely accepted techniques including discounted cash flow
analysis. These techniques consider the contractual terms of the derivatives (including the period to maturity) and use observable
market-based inputs such as interest rate curves and implied volatilities. We also incorporate credit valuation adjustments into
the fair value measurements to reflect nonperformance risk on both our part and that of the respective counterparties.
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. Our
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.
F-40
Although we have determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair
value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current
credit spreads to evaluate the likelihood of default by itself and our counterparties. However, as of December 31, 2015 and 2014,
we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative
positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.
As a result, we have determined that our derivative valuations are classified in Level 2 of the fair value hierarchy.
As of December 31, 2015, the estimated fair value of our interest rate hedges was a net liability of $4.8 million, including
accrued interest of $0.4 million. As of December 31, 2015, $0.2 million is reflected in prepaid and other assets and $5.0 million
is reflected in accounts payable and accrued expenses on the accompanying consolidated balance sheet. At December 31, 2014
the estimated fair value of our interest rate hedges was a net liability of $4.4 million, including accrued interest of $0.5 million. As
of December 31, 2014, $0.7 million is reflected in prepaid and other assets and $5.1 million is reflected in accounts payable and
accrued expenses on the accompanying consolidated balance sheet.
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 the years ended December 31, 2015, 2014 and 2013, $5.6 million,
$5.1 million and $2.8 million, respectively, were reclassified as a reduction to earnings. As the interest payments on our hedges
are made over the next 12 months, we estimate the impact to increased interest expense to be $2.6 million.
Our share of net unrealized gains and losses on our interest rate hedge agreements are the only components of the change
in accumulated other comprehensive loss.
Note 12. Lease Information
Tenant Leases
The Company receives rental income from the leasing of retail and office 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 5.1 years. During the periods ended December 31, 2015, 2014, and 2013, the Company earned overage rent of
$1.4 million, $1.1 million, and $0.6 million, respectively.
As of December 31, 2015, future minimum rentals to be received under non-cancelable operating leases for each of the
next five years and thereafter, excluding tenant reimbursements of operating expenses and percentage rent based on sales volume,
are as follows:
($ in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
$
255,764
238,169
203,888
174,547
150,735
743,848
$ 1,766,951
F-41
Lease Commitments
As of December 31, 2015, we are obligated under nine ground leases for approximately 43 acres of land with eight
landowners. Most of these ground leases require fixed annual rent payments. The expiration dates of the remaining initial terms
of these ground leases range from 2017 to 2083. These leases have five- to ten-year extension options ranging in total from 30
to 60 years. Ground lease expense incurred by the Company on these operating leases for the years ended December 31, 2015,
2014, and 2013 was $1.1 million, $0.7 million, and $0.7 million, respectively.
We are obligated under a ground lease for one of our operating properties, Eddy Street Commons at the University of Notre
Dame. The Company makes ground lease payments to the University of Notre Dame for the land beneath the initial phase of the
development. This lease agreement is for a 75-year term at a fixed payment for the first two years (June 2008-June 2010), after
which payments are based on a percentage of certain gross revenues. Contingent amounts are not readily estimable and are not
reflected in the table below for fiscal years 2016 and beyond.
Future minimum lease payments due under ground leases for the next five years ending December 31 and thereafter are as
follows:
($ in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Note 13. Shareholders’ Equity
Reverse Share Split
$
$
1,494
1,494
1,132
1,103
1,088
44,583
50,894
On August 11, 2014, we completed a reverse share split of our common shares at a ratio of one new share for each four
shares then outstanding. As a result of the reverse share split, the number of outstanding common shares was reduced from
approximately 332.7 million shares to approximately 83.2 million shares. The reverse share split had the same impact on the
number of outstanding operating partnership units.
Authorized Common Shares
In 2014, in preparation for our merger with Inland Diversified and upon approval from shareholders, we filed an amendment
to our Articles of Amendment and Restatement of Declaration of Trust, as amended, with the State of Maryland State Department
of Assessments and Taxation to increase the total number of authorized common shares of beneficial interest from 200,000,000
to 450,000,000.
In May 2015, upon approval from shareholders we filed an amendment to our Articles of Amendment and Restatement of
Declaration of Trust, as amended, with the State of Maryland State Department of Assessments and Taxation to decrease the total
number of authorized common shares of beneficial interest from 450,000,000 to 225,000,000 to reflect the decrease in the number
of our common shares outstanding as a result of the one-for-four reverse share split in August 2014.
F-42
Common Equity
In November 2013, we completed an equity offering of 9.2 million common shares at an offering price of $24.64 per share
for net offering proceeds of $217 million. We initially used the proceeds to repay borrowings under our 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 8).
In April and May of 2013, we completed an equity offering of 3.9 million common shares at an offering price of $26.20
per share for net offering proceeds of $97 million. We initially used the proceeds to repay borrowings under our unsecured
revolving credit facility and subsequently redeployed the proceeds to acquire Cool Springs Market, Castleton Crossing, and
Toringdon Market (see Note 8).
Accrued but unpaid distributions on common shares and units were $23.7 million and $22.1 million as of December 31,
2015 and 2014, 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.
Preferred Equity
On December 7, 2015, we redeemed all 4,100,000 outstanding shares of our 8.25% Series A Cumulative Redeemable
Perpetual Preferred Shares (the “Series A Preferred Shares”). The Series A Preferred Shares were redeemed at a redemption price
of $25.00 per share, plus $0.0287 per share, the amount equal to accrued and unpaid dividends since the previous payment date.
The Series A Preferred Shares had a total redemption value of approximately $102.6 million. The carrying value of these preferred
shares in equity, prior to the redemption, was net of the original issuance costs. Therefore, in conjunction with the redemption,
approximately $3.8 million of initial issuance costs were written off as a non-cash charge against income attributable to common
shareholders.
Dividend Reinvestment and Share Purchase Plan
We maintain a Dividend Reinvestment and Share Purchase Plan (the “Plan”) which offers investors the option to invest all
or a portion of their common share dividends in additional common shares. In addition, a direct share purchase option permits
Plan participants and new investors to purchase common shares by making optional cash investments with certain restrictions.
Distribution Payments
Our Board of Trustees declared a cash distribution of $0.2725 per common share and Common Unit for the fourth quarter
of 2015. This distribution was paid on January 13, 2016 to common shareholders and Common Unit holders of record as of
January 6, 2016.
Note 14. Quarterly Financial Data (Unaudited)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2015 and 2014.
F-43
($ in thousands)
Total revenue
Operating income
Income from continuing operations
Gain on sale of operating properties, net
Consolidated net income
Net income from continuing operations
attributable to Kite Realty Group Trust
common shareholders
Net income attributable to Kite Realty Group
Trust common shareholders
Net income per common share – basic and
diluted:
Net income from continuing operations
attributable to Kite Realty Group Trust
common shareholders
Net income attributable to Kite Realty
Group Trust common shareholders
Weighted average Common Shares
outstanding - basic
Weighted average Common Shares
outstanding - diluted
($ in thousands)
Total revenue
Operating income
(Loss) income from continuing operations
Income (loss) from discontinued operations
Gain on sale of operating properties, net
Consolidated net income (loss)
Net income (loss) from continuing operations
attributable to Kite Realty Group Trust
common shareholders
Net income (loss) attributable to Kite Realty
Group Trust common shareholders
Net (loss) income per common share – basic
and diluted:
Net (loss) income from continuing
operations attributable to Kite Realty Group
Trust common shareholders
Net income (loss) attributable to Kite Realty
Group Trust common shareholders
Weighted average Common Shares
outstanding - basic
Weighted average Common Shares
outstanding - diluted
Quarter Ended
March 31,
2015
Quarter Ended
June 30,
2015
Quarter Ended
September 30,
2015
Quarter Ended
December 31,
2015
$
86,828
$
83,735
$
18,483
4,499
3,363
7,862
7,179
5,065
0.06
0.06
16,099
7,235
—
7,235
6,727
4,613
0.06
0.06
87,147
16,911
2,961
—
2,961
89,295
20,307
10,402
854
11,256
2,526
10,685
412
$
5,353
0.00
0.00
0.06
0.06
83,532,092
83,506,078
83,325,074
83,327,664
83,625,352
83,803,879
83,433,379
83,438,844
Quarter Ended
March 31,
2014
Quarter Ended
June 30,
2014
Quarter Ended
September 30,
2014
Quarter Ended
December 31,
2014
$
42,660
$
40,843
$
5,206
(2,217)
3,198
3,490
4,471
4,332
2,218
0.00
0.08
4,319
(3,196)
—
—
(3,196)
(2,976)
(5,090)
(0.16)
(0.16)
$
88,576
(1,316)
(16,729)
—
2,749
(13,980)
(14,284)
(16,398)
(0.20)
(0.20)
87,448
21,120
5,786
—
2,243
8,029
7,227
5,113
0.06
0.06
32,755,898
32,884,467
83,455,900
83,478,680
32,755,898
32,884,467
83,455,900
83,727,400
F-44
Note 15. Commitments and Contingencies
Other Commitments and Contingencies
We are not subject to any material litigation nor, to management’s knowledge, is any material litigation currently threatened
against us. We are parties to 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 our consolidated financial statements.
We are obligated under various completion guarantees with certain lenders and lease agreements with tenants to complete
all or portions of the 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. In addition, if necessary, we may make draws
on our unsecured revolving credit facility.
As of December 31, 2015, we had outstanding letters of credit totaling $14.7 million. At that date, there were no amounts
advanced against these instruments.
Previously Assumed Earnout Liability
Six of our properties, which were acquired from Inland Diversified, had earnout components as of the Merger date, whereby
we are required to pay the original seller of those properties (not Inland Diversified) additional consideration based on whether
those sellers were able to identify tenants and lease certain vacant space. The potential earnout liability was $1.4 million and $9.7
million at December 31, 2015 and 2014, respectively. While the remaining accrued amount at December 31, 2015 represents our
best estimate of the ultimate settlement, any difference between the accrual and settlement would impact earnings and be reflected
in the consolidated statements of operations. The table below presents the change in our earnout liability for the twelve months
ended December 31, 2015.
($ in thousands)
Earnout liability – beginning of period
Decreases:
Settlement of earnout obligations
Adjustments to estimated fair value determination during the Merger measurement period
Non-cash gain from release of assumed earnout liability
Earnout liability – end of period
Twelve Months Ended
December 31, 2015
$
$
9,664
(2,581)
(871)
(4,832)
1,380
We recorded a non-cash gain from the release of assumed earnout liability of $4.8 million for the year ended December 31,
2015. The expiration date of the associated earnout liability was December 28, 2015 and the original sellers were unable to perform
the necessary leasing activity that would have resulted in payment of the previously estimated obligation. As such, because the
Merger measurement period had closed, the reduction of this assumed contingent obligation impacted earnings.
Note 16. Supplemental Schedule of Non-Cash Investing/Financing Activities
The following schedule summarizes the non-cash investing and financing activities of the Company for the years ended
December 31, 2015, 2014 and 2013:
F-45
($ in thousands)
Assumption of mortgages upon completion of Merger including debt premium of
$33,298
$
Properties and other assets acquired upon completion of Merger
Marketable securities acquired upon completion of Merger
Assumption of debt in connection with acquisition of Rampart Commons
including debt premium of $2,221
Accrued distribution to preferred shareholders
Extinguishment of mortgages upon transfer of Tranche I operating properties
Assumption of mortgages by buyer upon sale of properties
Assumption of debt in connection with acquisition of Chapel Hill Shopping
Center including debt premium of $212
Extinguishment of mortgage upon transfer of Kedron Village operating property
Net assets of Kedron Village transferred to lender (excluding non-recourse debt)
Year Ended
December 31,
2015
2014
2013
— $
892,909
$
— 2,367,600
—
—
—
—
40,303
18,462
—
—
18,602
14,586
705
75,800
—
—
—
—
—
—
—
—
705
—
—
—
29,195
27,953
Note 17. Related Parties and Related Party Transactions
Subsidiaries of the Company provide certain management, construction management and other services to certain
unconsolidated entities and entities owned by certain members of the Company’s management. During the years ended
December 31, 2015, 2014 and 2013, we earned $0 from unconsolidated entities, and less than $0.1 million during each year
presented, from entities owned by certain members of management.
We reimburse an entity owned by certain members of our management for travel and related services. During the years
ended December 31, 2015, 2014 and 2013, amounts paid by the Company to this related entity were $0.4 million, $0.4 million,
and $0.3 million, respectively.
Note 18. Subsequent Events
Dividend Declaration
On February 4, 2016, the Board of Trustees declared a cash distribution of $0.2875 for the first quarter of 2016 to
common shareholders and Common Unit holders of record as of April 6, 2016, which represents a 5.5% increase over our
previous quarterly distribution. The distribution is expected to be paid on or about April 13, 2016.
Retirement of Secured Debt
On February 11, 2016, we retired the $16.3 million loan secured by our Cool Creek Commons operating property using a
draw on our unsecured revolving credit facility.
Forward-Starting Interest Rate Swap
On January 6, 2016, we entered into two forward-starting interest rate swaps that will effectively fix the interest rate on
$150 million of previously unhedged variable rate debt at 3.208%. The effective date of the swaps is June 30, 2016 and will expire
on July 1, 2021.
F-4(cid:25)
Outperformance Plan
On January 28, 2016, the Compensation Committee of the Board of Trustees of Kite Realty Group Trust adopted the 2016
Outperformance Program for members of executive management and certain other employees, pursuant to which participants are
eligible to earn units in the Operating Partnership based on the achievement of certain performance criteria related to the Company’s
common shares. Participants in the 2016 Outperformance Plan were awarded the right to earn, in the aggregate, up to $6 million of
share-settled awards (the “bonus pool”) if, and only to the extent of which, based on our total shareholder return (“TSR”)
performance measures are achieved for the three-year period beginning January 4, 2016 and ending December 31, 2018. Awarded
interests not earned based on the TSR measures are forfeited.
At the end of the three-year performance period, participants will receive their percentage interest in the bonus pool as units
in the Operating Partnership that vest over an additional two-year service period. The compensation cost of the 2016
Outperformance Plan is fixed as of the grant date and is recognized regardless of whether the units are ultimately earned if the
required service is determined.
Restricted Award Grants
In February 2016, a total of 103,685 restricted awards were granted to members of executive management and certain other
employees. The restricted awards will vest ratably over periods ranging from three to five years.
Performance Awards
In February 2016, the Compensation Committee awarded each executive officer a three-year performance award of restricted
shares units ("PSUs"). These PSUs may be earned over a three-year performance period from January 1, 2016 to December 31,
2018. The performance criteria are based on the relative total shareholder return ("TSR") achieved by the Company measured
against a peer group over the three-year measurement period. Any PSUs earned at the end of the three-year period will be fully
vested. The total number of PSUs issued to the executive officers was based on a target value of $1.0 million. The number of
PSUs that may be earned will range from 50% to 200% of the target value depending on our TSR of the measurement period in
relation to the peer group.
F-47
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F
Kite Realty Group Trust and Kite Realty Group, L.P. and subsidiaries
Notes to Schedule III
Consolidated Real Estate and Accumulated Depreciation
($ in thousands)
Note 1. Reconciliation of Investment Properties
The changes in investment properties of the Company for the years ended December 31, 2015, 2014, and 2013 are as
follows:
Balance, beginning of year
Merger and Acquisitions
Improvements
Impairment
Disposals
Balance, end of year
2015
2014
2013
$ 3,897,131
$ 1,872,088
$ 1,390,213
176,068
2,128,278
103,688
419,080
111,968
92,717
(2,293)
(237,443)
$ 3,926,180
—
(206,923)
$ 3,897,131
—
(49,173)
$ 1,872,088
The unaudited aggregate cost of investment properties for federal tax purposes as of December 31, 2015 was $3.1 billion.
Note 2. Reconciliation of Accumulated Depreciation
The changes in accumulated depreciation of the Company for the years ended December 31, 2015, 2014, and 2013 are as
follows:
Balance, beginning of year
Depreciation expense
Impairment
Disposals
Balance, end of year
2015
2014
2013
$
313,524
$
229,286
$
190,972
141,516
(833)
(25,277)
428,930
$
103,155
—
(18,917)
313,524
$
49,392
—
(11,078)
229,286
$
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
All other schedules have been omitted because they are inapplicable, not required or the information is included
elsewhere in the consolidated financial statements or notes thereto.
F-53
Exhibit No.
Description
EXHIBIT INDEX
2.1
3.1
3.2
3.3
3.4
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Agreement and Plan of Merger by and among Kite Realty
Group Trust, KRG Magellan, LLC and Inland Diversified Real
Estate Trust, Inc., dated February 9, 2014
Articles of Amendment and Restatement of Declaration of
Trust of the Company, as supplemented and amended
Articles of Amendment to the Articles of Amendment and
Restatement of Declaration of Trust of Kite Realty Group
Trust, as supplemented and amended
Second Amended and Restated Bylaws of the Company, as
amended
First Amendment to the Second Amended and Restated
Bylaws of Kite Realty Group Trust, as amended
Form of Common Share Certificate
Amended and Restated Agreement of Limited Partnership of
Kite Realty Group, L.P., dated as of August 16, 2004
Amendment No. 1 to Amended and Restated Agreement of
Limited Partnership of Kite Realty Group, L.P., dated as of
December 7, 2010
Amendment No. 2 to Amended and Restated Agreement of
Limited Partnership of Kite Realty Group, L.P.
Amendment No. 3 to Amended and Restated Agreement of
Limited Partnership of Kite Realty Group, L.P.
Executive Employment Agreement, dated as of July 28, 2014,
by and between the Company and John A. Kite*
Executive Employment Agreement, dated as of July 28, 2014,
by and between the Company and Thomas K. McGowan*
Executive Employment Agreement, dated as of July 28, 2014,
by and between the Company and Daniel R. Sink*
F-54
Location
Incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
February 11, 2014
Incorporated by reference to Exhibit 3.1 to
the Annual Report on Form 10-K of Kite
Realty Group Trust filed with the SEC on
February 27, 2015
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
May 28, 2015
Incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-K of Kite
Realty Group Trust filed with the SEC on
February 27, 2015
Incorporated by reference to Exhibit 3.2 to
the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
May 28, 2015
Incorporated by reference to Exhibit 4.1 to
Kite Realty Group Trust’s registration
statement on Form S-11 (File
No. 333-114224) declared effective by the
SEC on August 10, 2004
Incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
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
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 10.1
to the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
July 29, 2014
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
July 29, 2014
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
July 29, 2014
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
July 29, 2014
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
Executive Employment Agreement, dated as of August 6,
2014, by and between the Company and Scott E. Murray*
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 February 27, 2015, by
and between Kite Realty Group, L.P., and Scott E. Murray*
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*
Indemnification Agreement, dated as of March7, 2014, by and
between Kite Realty Group, L.P. and Christie B. Kelly*
F-55
Incorporated by reference to Exhibit 10.8
the Quarterly Report on Form 10-Q of
Kite Realty Group Trust for the period
ended September 30, 2014.
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 10.13
to the Annual Report on Form 10-K of
Kite Realty Group Trust filed with the
SEC on February 27, 2015
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
Incorporated by reference to Exhibit 10.21
to the Annual Report on Form 10-K of
Kite Realty Group Trust for the year ended
December 31, 2014
10.22
10.23
10.24
10.25
10.26
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*
Indemnification Agreement, dated as of February 27, 2015, by
and between Kite Realty Group, L.P., and Lee A. Daniels*
Indemnification Agreement, dated as of February 27, 2015, by
and between Kite Realty Group, L.P., and Gerald W. Grupe*
Indemnification Agreement, dated as of February 27, 2015, by
and between Kite Realty Group, L.P., and Charles H.
Wurtzebach*
10.27
Kite Realty Group Trust Equity Incentive Plan, as amended*
10.28
Kite Realty Group Trust Executive Bonus Plan*
10.29
Kite Realty Group Trust 2008 Employee Share Purchase Plan*
10.30
10.31
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
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
10.32
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
10.33
Form of 2014 Outperformance LTIP Unit Award Agreement
10.34
Form of Nonqualified Share Option Agreement under 2013
Equity Incentive Plan*
10.35
Form of Restricted Share Agreement under 2013 Equity
Incentive Plan*
F-56
Incorporated by reference to Exhibit 10.22
to the Annual Report on Form 10-K of
Kite Realty Group Trust for the year ended
December 31, 2014
Incorporated by reference to Exhibit 10.23
to the Annual Report on Form 10-K of
Kite Realty Group Trust for the year ended
December 31, 2014
Incorporated by reference to Exhibit 10.24
to the Annual Report on Form 10-K of
Kite Realty Group Trust filed with the
SEC on February 27, 2015
Incorporated by reference to Exhibit 10.24
to the Annual Report on Form 10-K of
Kite Realty Group Trust filed with the
SEC on February 27, 2015
Incorporated by reference to Exhibit 10.24
to the Annual Report on Form 10-K of
Kite Realty Group Trust filed with the
SEC on February 27, 2015
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
Incorporated by reference to Exhibit 10.2
to the Quarterly Report on Form 10-Q of
Kite Realty Group Trust for the period
ended September 30, 2005
Incorporated by reference to Exhibit 10.33
to the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
August 20, 2004
Incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K of Kite
Realty Group Trust filed with the SEC on
July 29, 2014
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
10.36
Schedule of Non-Employee Trustee Fees and Other
Compensation*
Filed herewith
10.37
Kite Realty Group Trust Trustee Deferred Compensation Plan*
10.38
10.39
10.40
10.41
Fourth Amended and Restated Credit Agreement, dated as of
July 1, 2014, by and among the Operating Partnership,
KeyBank National Association, as Administrative Agent, Bank
of America, N.A., as Syndication Agent with respect to the
Revolving Facility, Wells Fargo Bank, National Association, as
Syndication Agent with respect to the Term Loan, Wells Fargo
Bank, National Association and U.S. Bank National
Association, as Co-Documentation Agents with respect to the
Revolving Facility, JPMorgan Chase Bank, N.A., Bank of
America, N.A. and U.S. Bank National Association, as Co-
Documentation Agents with respect to the Term Loan,
KeyBanc Capital Markets Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Co-Lead Arrangers with
respect to the Revolving Facility, KeyBanc Capital Markets
Inc. and Wells Fargo Securities, LLC, as Co-Lead Arrangers
with respect to the Term Loan, and the other lenders party
thereto
First Amendment to Fourth Amended and Restated Credit
Agreement, dated as of March 12, 2015, by and among Kite
Realty Group Trust, Kite Realty Group, L.P., certain
subsidiaries of Kite Realty Group, L.P., KeyBank National
Association, as Administrative Agent, and the other lenders
party thereto
Second Amendment to Fourth Amended and Restated Credit
Agreement, dated as of June 29, 2015, by and among Kite
Realty Group Trust, Kite Realty Group, L.P., certain
subsidiaries of Kite Realty Group, L.P., KeyBank National
Association, as Administrative Agent, and the other lenders
party thereto
Third Amended and Restated Guaranty, dated as of July 1,
2014, by KRG Magellan, LLC and certain subsidiaries of the
Operating Partnership party thereto
10.42
Springing Guaranty, dated as of July 1, 2014, by the Company
10.43
10.44
10.45
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.
F-57
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
July 8, 2014
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 18, 2015
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
July 2, 2015
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
July 8, 2014
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
July 8, 2014
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
Guaranty, dated as of April 30, 2012, by the Company and
certain subsidiaries of the Operating Partnership party thereto
Purchase and Sale Agreement, dated September 16, 2014, by
and among Inland Real Estate Income Trust, Inc. and the
subsidiaries of Kite Realty Group Trust party thereto
Note Purchase Agreement, dated as of August 28, 2015, by
and among Kite Realty Group, L.P., and the other parties
named therein as Purchasers
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
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
September 22, 2014
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
September 3, 2015
Term Loan Agreement, dated as of October 26, 2015, by and
among Kite Realty Group, L.P., KeyBank National
Association, as Administrative Agent, and the other lenders
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
October 30, 2015
10.46
10.47
10.48
10.49
12.1
12.2
21.1
23.1
23.2
31.1
31.2
31.3
31.4
32.1
32.2
Statement of Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends of the Parent
Company
Statement of Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends of the Operating
Partnership
List of Subsidiaries
Consent of Ernst & Young LLP relating to the Parent
Company
Consent of Ernst & Young LLP relating to the Operating
Partnership
Certification of principal executive officer of the Parent
Company required by Rule 13a-14(a)/15d-14(a) under the
Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of principal financial officer of the Parent
Company required by Rule 13a-14(a)/15d-14(a) under the
Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of principal executive officer of the Operating
Partnership required by Rule 13a-14(a)/15d-14(a) under the
Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of principal financial officer of the Operating
Partnership required by Rule 13a-14(a)/15d-14(a) under the
Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial
Officer of the Parent Company pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial
Officer of the Operating Partnership pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith
F-58
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Filed herewith
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
____________________
* Denotes a management contract or compensatory, plan contract or arrangement.
F-59
EXHIBIT 10.36
Kite Realty Group Trust
Schedule of Non-Employee Trustee Fees and Other Compensation
Annual Retainer
$60,000
Committee Chair Annual Retainer
Committee Member Annual Retainer
Audit Committee: $20,000
Compensation Committee: $15,000
Nominating and Corporate Governance Committee: $10,000
Audit Committee: $10,000
Compensation Committee: $7,500
Nominating and Corporate Governance Committee: $5,000
Lead Trustee Annual Retainer
$20,000
Annual Restricted Share Awards
Effective April 1, 2016.
Each trustee will receive restricted common shares with a value of
$85,000 on an annual basis, which shares will vest on the one-year
anniversary of the grant date. In addition, upon initial election each
trustee will receive a one-time grant of 750 restricted common
shares, which shares will vest on the one-year anniversary of the
grant date.
Kite Realty Group Trust
Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
EXHIBIT 12.1
($ in thousands, except ratios)
Years ended December 31
2015
2014
2013
2012
2011
Earnings:
Net income (loss) from continuing operations
$
25,249
$
(16,452) $
(726) $
(11,455) $
3,753
Add:
Income taxes expense (benefit)
Fixed charges, net of capitalized interest
186
56,488
24
45,549
262
28,026
(106)
23,423
(1)
21,660
Less:
Income (loss) from unconsolidated entities
—
—
—
—
4,320
Earnings before fixed charges and preferred
dividends
Fixed charges:
Interest expense
Capitalized interest
Interest within rental expense
Total fixed charges
Preferred dividends
$
$
81,923
$
29,121
$
27,562
$
11,862
$
21,092
56,432
$
45,513
$
27,994
$
23,392
$
4,633
56
61,121
7,877
4,789
36
50,338
8,456
5,081
33
33,108
8,456
7,444
31
30,867
7,920
21,625
8,487
34
30,146
5,775
35,921
Total fixed charges and preferred dividends
$
68,998
$
58,794
$
41,564
$
38,787
$
Ratio of earnings to fixed charges and
preferred dividends
1.19
(1)
(2)
(3)
(4)
____________________
1
The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2014 was $29.7 million.
The calculation of earnings includes $121.0 million of non-cash depreciation expense
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.
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
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 $33.1 million of non-cash depreciation expense.
2
3
4
Kite Realty Group, L.P. and subsidiaries
Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
EXHIBIT 12.2
($ in thousands, except ratios)
Years ended December 31
2015
2014
2013
2012
2011
Earnings:
Net income (loss) from continuing operations
$
25,249
$
(16,452) $
(726) $
(11,455) $
3,753
Add:
Income taxes expense (benefit)
Fixed charges, net of capitalized interest
186
56,488
24
45,549
262
28,026
(106)
23,423
(1)
21,660
Less:
Income (loss) from unconsolidated entities
—
—
—
—
4,320
Earnings before fixed charges and preferred
dividends
Fixed charges:
Interest expense
Capitalized interest
Interest within rental expense
Total fixed charges
Preferred dividends
$
$
81,923
$
29,121
$
27,562
$
11,862
$
21,092
56,432
$
45,513
$
27,994
$
23,392
$
4,633
56
61,121
7,877
4,789
36
50,338
8,456
5,081
33
33,108
8,456
7,444
31
30,867
7,920
21,625
8,487
34
30,146
5,775
35,921
Total fixed charges and preferred dividends
$
68,998
$
58,794
$
41,564
$
38,787
$
Ratio of earnings to fixed charges and
preferred dividends
1.19
(1)
(2)
(3)
(4)
____________________
1
The ratio is less than 1.0; the amount of coverage deficiency for the year ended December 31, 2014 was $29.7 million.
The calculation of earnings includes $121.0 million of non-cash depreciation expense
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.
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
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.
2
3
4
Kite Realty Group List of Subsidiaries
Name of Subsidiary
116 & Olio, LLC
50th & 12th, LLC
82 & Otty, LLC
Brentwood Land Partners, LLC
Bulwark, LLC
Cornelius Adair, LLC
Corner Associates, LP
Dayville Property Development, LLC
Eagle Plaza II, LLC
Fishers Station Development Company
Glendale Centre, L.L.C.
International Speedway Square, Ltd.
Keller TX Retail DST
Kite Acworth Management, LLC
Kite Acworth, LLC
Kite Eagle Creek, LLC
Kite Greyhound III, LLC
Kite Greyhound, LLC
Kite King’s Lake, LLC
Kite Kokomo Management, LLC
Kite Kokomo, LLC
Kite McCarty State, LLC
Kite New Jersey, LLC
Kite Pen, LLC
Kite Realty Advisors, LLC
d/b/a KMI Realty Advisors
Kite Realty Construction, LLC
Kite Realty Development, LLC
Kite Realty Eddy Street Garage, LLC
Kite Realty Eddy Street Land, LLC
Kite Realty FS Hotel Operators, LLC
Kite Realty Group Trust
Kite Realty Group, L.P.
Kite Realty Holding, LLC
Kite Realty New Hill Place, LLC
Kite Realty Peakway at 55, LLC
Kite Realty Washington Parking, LLC
Kite Realty/White LS Hotel Operators, LLC
Kite San Antonio, LLC
Kite Washington Parking, LLC
Kite Washington, LLC
EXHIBIT 21.1
Jurisdiction of Incorporation or
Formation
Indiana
Indiana
Indiana
Delaware
Delaware
Indiana
Indiana
Connecticut
Indiana
Indiana
Indiana
Florida
Delaware
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Maryland
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Kite West 86th Street II, LLC
Kite West 86th Street, LLC
KRG 951 & 41, LLC
KRG Aiken Hitchcock, LLC
KRG Alcoa TN, LLC
KRG Alcoa Hamilton, LLC
KRG Ashwaubenon Bay Park, LLC
KRG Athens Eastside, LLC
KRG Bayonne Urban Renewal, LLC
KRG Beacon Hill, LLC
KRG Beechwood, LLC
KRG Belle Isle, LLC
KRG Bolton Plaza, LLC
KRG Bradenton Centre Point, LLC
KRG Branson Hills IV, LLC
KRG Branson Hills K-II, LLC
KRG Branson Hills, LLC
KRG Branson Hills T-III, 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 Chapel Hill Shopping Center, LLC
KRG Charlotte Northcrest, LLC
KRG Charlotte Perimeter Woods, LLC
KRG CHP Management, LLC
KRG Clay, LLC
KRG College I, LLC
KRG College, LLC
KRG Colleyville Downs, LLC
KRG Construction, LLC
KRG Conyers Heritage, LLC
KRG Cool Creek Management, LLC
KRG Cool Creek Outlots, LLC
KRG Cool Springs, LLC
KRG Corner Associates, LLC
KRG Courthouse Shadows I, LLC
KRG Courthouse Shadows, LLC
KRG Courthouse Shadows II, LLC
KRG Cove Center, LLC
KRG Dallas Wheatland, LLC
KRG Daytona Management II, LLC
KRG Daytona Management, LLC
Indiana
Indiana
Indiana
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Indiana
Indiana
Indiana
Indiana
Delaware
Delaware
Delaware
Delaware
Delaware
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Delaware
Delaware
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Delaware
Delaware
Delaware
Indiana
Delaware
Delaware
Indiana
KRG Daytona Outlot Management, LLC
KRG Dayville Killingly Member II, LLC
KRG Dayville Killingly Member, LLC
KRG Delray Beach, LLC
KRG Development, LLC
d/b/a Kite Development
KRG Draper Crossing, LLC
KRG Draper Peaks, LLC
KRG Draper Peaks Outlot, LLC
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 at Notre Dame Declarant, LLC
KRG Eddy Street Commons, LLC
KRG Eddy Street FS Hotel, LLC
KRG Eddy Street Land Management, LLC
KRG Eddy Street Land, LLC
KRG Eddy Street Office, LLC
KRG Estero, LLC
KRG Evans Mullins, LLC
KRG Evans Mullins Outlots, LLC
KRG Fishers Station II, LLC
KRG Fishers Station, LLC
KRG Four Corner Square, LLC
KRG Fort Myers Colonial Square, LLC
KRG Fort Myers Village Walk, LLC
KRG Fort Wayne Lima, LLC
KRG Fort Wayne Lima Outlot, LLC
KRG Fox Lake Crossing II, LLC
KRG Fox Lake Crossing, LLC
KRG Frisco Westside, LLC
KRG Gainesville, LLC
KRG Geist Management, LLC
KRG Goldsboro Memorial, LLC
KRG Greencastle, LLC
KRG Hamilton Crossing Management, LLC
KRG Hamilton Crossing, LLC
KRG Harvest Square, LLC
KRG Henderson Eastgate, LLC
KRG Hot Springs Fairgrounds, LLC
KRG Hunter’s Creek, LLC
KRG Jacksonville Deerwood Lake, LLC
KRG Jacksonville Julington Creek, LLC
KRG Jacksonville Julington Creek II, LLC
KRG Jacksonville Richlands, LLC
Delaware
Delaware
Delaware
Indiana
Indiana
Delaware
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Indiana
Delaware
Delaware
Indiana
Indiana
Indiana
Delaware
Delaware
Delaware
Delaware
Indiana
Delaware
Delaware
Indiana
Indiana
Delaware
Indiana
Delaware
Indiana
Delaware
Delaware
Delaware
Indiana
Delaware
Delaware
Delaware
Delaware
KRG Indian River, LLC
KRG Indian River Outlot, LLC
KRG ISS LH OUTLOT, LLC
KRG ISS, LLC
KRG Kingwood Commons, LLC
KRG Kissimmee Pleasant Hill, LLC
KRG Kokomo Project Company, LLC
KRG Lake City Commons, LLC
KRG Lake City Commons II, LLC
KRG Lake Mary, LLC
KRG Lake St. Louis Hawk Ridge, LLC
KRG Lakewood, LLC
KRG Las Vegas Centennial Center, LLC
KRG Las Vegas Centennial Gateway, LLC
KRG Las Vegas Craig, LLC
KRG Las Vegas Eastern Beltway, LLC
KRG Lithia, LLC
KRG Livingston Center, LLC
KRG Management, LLC
KRG Market Street Village I, LLC
KRG Market Street Village II, LLC
KRG Market Street Village, LP
KRG Marysville, LLC
KRG Merrimack Village, LLC
KRG Miramar Square, LLC
KRG Naperville Management, LLC
KRG Naperville, LLC
KRG Neenah Fox Point, LLC
KRG New Hill Place, LLC
KRG New Hill Place II, LLC
KRG Newburgh Bell Oaks, LLC
KRG Norman University, LLC
KRG Norman University II, LLC
KRG Norman University III, LLC
KRG Norman University IV, LLC
KRG Northdale, LLC
KRG North Las Vegas Losee, LLC
KRG Oak and Ford Zionsville, LLC
KRG Ocean Isle Beach Landing, LLC
KRG Oklahoma City Silver Springs, LLC
KRG Oldsmar Management, LLC
KRG Oldsmar Project Company, LLC
KRG Oldsmar, LLC
KRG Oleander, LLC
KRG Omaha Whispering Ridge, LLC
KRG Orange City Saxon, LLC
Delaware
Delaware
Indiana
Indiana
Indiana
Delaware
Indiana
Delaware
Delaware
Delaware
Delaware
Indiana
Delaware
Delaware
Delaware
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Delaware
Delaware
Indiana
Delaware
Indiana
Indiana
Delaware
Delaware
Delaware
Delaware
Delaware
Indiana
Delaware
Indiana
Delaware
Delaware
Delaware
Delaware
Indiana
Indiana
Delaware
Delaware
KRG Palm Coast Landing, 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 Management, LLC
KRG Plaza Volente, LP
KRG Pleasant Prairie Ridge, LLC
KRG Port St. Lucie Landing, LLC
KRG Port St. Lucie Square, LLC
KRG Portofino, LLC
KRG Portofino Project Company, LLC
KRG PR Ventures, LLC
KRG Prattville Legends, LLC
KRG Rampart, LLC
KRG Riverchase, LLC
KRG Rivers Edge II, LLC
KRG Rivers Edge, LLC
KRG San Antonio, LP
KRG Shops at Moore II, LLC
KRG Shops at Moore Member, LLC
KRG Shops at Moore, LLC
KRG Shreveport Regal Court, LLC
KRG South Elgin Commons, LLC
KRG St. Cloud 13th, LLC
KRG Stevens Point Pinecrest, LLC
KRG Sunland II, LP
KRG Sunland Management, LLC
KRG Sunland, LP
KRG Temple Terrace, LLC
KRG Temple Terrace Member, LLC
KRG Territory Member, LLC
KRG Territory, LLC
KRG Texas, LLC
KRG Toringdon Market, LLC
KRG Traders Management, LLC
KRG Trussville I, LLC
KRG Trussville II, LLC
KRG Tucson Corner, LLC
KRG Vero, LLC
Delaware
Indiana
Delaware
Indiana
Indiana
Indiana
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Indiana
Delaware
Delaware
Delaware
Indiana
Indiana
Indiana
Delaware
Delaware
Delaware
Indiana
Indiana
Indiana
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Indiana
Delaware
Indiana
Delaware
Delaware
Delaware
Delaware
Indiana
Indiana
Delaware
Indiana
Indiana
Delaware
Delaware
KRG Virginia Beach Landstown, LLC
KRG Washington Management, LLC
KRG Waterford Lakes, LLC
KRG Waxahachie Crossing GP, LLC
KRG Waxahachie Crossing LP, LLC
KRG Waxahachie Crossing Limited Partnership
KRG Whitehall Pike Management, LLC
KRG White Plains City Center Member II, LLC
KRG White Plains City Center Member, LLC
KRG White Plains City Center, LLC
KRG White Plains Garage, LLC
KRG Woodruff Greenville, LLC
KRG/Atlantic Delray Beach, LLC
KRG/CP Pan Am
Plaza, 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
Meridian South Tax Advisors, LLC
MS Insurance Protected Cell Series 2014-15
Noblesville Partners, LLC
Preston Commons, LLP
Splendido Real Estate, LLC
Westfield One, LLC
Whitehall Pike, LLC
Property Owner's Association
Brentwood Property Owners’ Association, Inc.
Delray Marketplace Master Association, Inc.
Eddy Street Commons at Notre Dame Master Association, Inc.
Estero Town Commons Property Owners Association, Inc.
Pleasant Hill Commons Property Owners’ Association, Inc.
Riverchase Owners’ Association, Inc.
Tradition Commercial Association, Inc.
White Plains City Center Condo Association, Inc.
Delaware
Delaware
Indiana
Delaware
Delaware
Illinois
Indiana
Delaware
Delaware
Delaware
Delaware
Indiana
Florida
Indiana
Indiana
Indiana
Delaware
Florida
Indiana
Tennessee
Indiana
Tennessee
Indiana
Indiana
Delaware
Indiana
Indiana
Florida
Florida
Indiana
Florida
Florida
Florida
Florida
New York
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-188436, 333-159219,
333-152943, and 333-120142) and the Registration Statements on Form S-3 (File Nos. 333-202666, 333-199677, 333-195857,
and 333-127585) in the related Prospectuses of Kite Realty Group Trust of our reports dated February 26, 2016, with respect to
the consolidated financial statements and schedule of Kite Realty Group Trust and the effectiveness of internal control over financial
reporting of Kite Realty Group Trust, included in this Annual Report (Form 10-K) for the year ended December 31, 2015.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 26, 2016
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.2
We consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 333-202666) in the related
Prospectuses of Kite Realty Group, L.P. and subsidiaries of our reports dated February 26, 2016, with respect to the consolidated
financial statements and schedule of Kite Realty Group, L.P. and subsidiaries and the effectiveness of internal control over financial
reporting of Kite Realty Group, L.P. and subsidiaries, included in this Annual Report (Form 10-K) for the year ended December
31, 2015.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 26, 2016
KITE REALTY GROUP TRUST
CERTIFICATION
EXHIBIT 31.1
I, John A. Kite, certify that:
1.
I have reviewed this annual report on Form 10-K of Kite Realty Group Trust;
2. 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;
3. 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;
4. The registrant’s other certifying officer(s) 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. 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;
b. 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;
c. 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
d. 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(s) 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 directors (or
persons performing the equivalent functions):
a. 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
b. 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: February 26, 2016
By:
/s/ John A. Kite
John A. Kite
Chairman and Chief Executive Officer
KITE REALTY GROUP TRUST
CERTIFICATION
EXHIBIT 31.2
I, Daniel R. Sink, certify that:
1.
I have reviewed this annual report on Form 10-K of Kite Realty Group Trust;
2. 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;
3. 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;
4. The registrant’s other certifying officer(s) 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. 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;
b. 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;
c. 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
d. 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(s) 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 directors (or
persons performing the equivalent functions):
a. 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
b. 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: February 26, 2016
By:
/s/ Daniel R. Sink
Daniel R. Sink
Chief Financial Officer
KITE REALTY GROUP, L.P.
CERTIFICATION
EXHIBIT 31.3
I, John A. Kite, certify that:
1.
I have reviewed this annual report on Form 10-K of Kite Realty Group, L.P.;
2. 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;
3. 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;
4. The registrant’s other certifying officer(s) 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. 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;
b. 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;
c. 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
d. 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(s) 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 directors (or
persons performing the equivalent functions):
a. 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
b. 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: February 26, 2016
By:
/s/ John A. Kite
John A. Kite
Chief Executive Officer
KITE REALTY GROUP, L.P.
CERTIFICATION
EXHIBIT 31.4
I, Daniel R. Sink, certify that:
1.
I have reviewed this annual report on Form 10-K of Kite Realty Group, L.P.;
2. 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;
3. 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;
4. The registrant’s other certifying officer(s) 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. 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;
b. 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;
c. 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
d. 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(s) 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 directors (or
persons performing the equivalent functions):
a. 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
b. 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: February 26, 2016
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 “Parent Company”), and
Daniel R. Sink, Chief Financial Officer of the Parent Company, each hereby certifies based on his knowledge, 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 Parent Company for the year ended December 31, 2015
(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 Parent Company.
Date: February 26, 2016
Date: February 26, 2016
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 Parent Company and will be
retained by the Parent Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
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, Chief Executive Officer of Kite Realty Group, L.P. (the “Operating Partnership”), and Daniel R.
Sink, Chief Financial Officer of the Operating Partnership, each hereby certifies based on his knowledge, 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 Operating Partnership for the year ended December 31,
2015 (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 Operating Partnership.
Date: February 26, 2016
Date: February 26, 2016
By:
By:
/s/ John A. Kite
John A. Kite
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 Operating Partnership and will be
retained by the Operating Partnership and furnished to the Securities and Exchange Commission 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
STOCK EXCHANGE LISTING
New York Stock Exchange.
NYSE: KRG
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
TRANSFER AGENT AND REGISTRAR
Broadridge Financial Solutions
Ms. Kristen Tartaglione
2 Journal Square, 7th Floor
Jersey City, NJ 07306
(201) 714-8094
SHAREHOLDER INFORMATION
Shareholders seeking financial and operating
information may contact Investor Relations,
Kite Realty Group Trust, 30 South Meridian
Street, Suite 1100, Indianapolis, Indiana 46204.
Current investor information, including press
releases and quarterly earning’s information,
can be obtained at www.kiterealty.com.
FORM 10-K
Copies of the Company’s Annual Report on
Form 10-K for the year ended December 31,
2015 are available to shareholders without
charge upon written request to Investor Rela-
tions, 30 South Meridian Street, Suite 1100,
Indianapolis, Indiana 46204.
ANNUAL MEETING
The Annual Meeting of Shareholders will be
held at 9:00 a.m. EDT on May 11, 2016, at 30
South Meridian Street, Eighth Floor Confer-
ence Center, 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
Victor J. Coleman
Chairman and Chief Executive Officer
Hudson Pacific Properties, Inc.
Lee A. Daniels
Founder
Lee Daniels & Associates
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
Scott E. Murray
Executive Vice President, General
Counsel and Corporate Secretary
Gerald W. Grupe
Retired President and Chief Executive Officer
Ideal Insurance Agency, Inc.
Christie B. Kelly
Chief Financial Officer
Jones Lang LaSalle, Inc.
David R. O’Reilly
Executive Vice President and
Chief Financial Officer
Parkway Properties, Inc.
Barton R. Peterson
Senior Vice President, Corporate
Affairs and Communications
Eli Lilly and Company
Charles H. Wurtzebach
Chairman, Department of Real Estate and Douglas
and Cynthia Crocker Endowed Director, The Real
Estate Center at DePaul University in Chicago, IL
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, 2015. 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, transac-
tions 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, 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,
2015, 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.
NON-GAAP FINANCIAL MEASURES
Given the nature of the Company’s business as a real estate owner and operator, the Company believes that FFO and FFO, as adjusted are helpful to investors when
measuring operating performance because they exclude various items included in net income or loss that do not relate to or are not indicative of operating performance,
such as gains or losses from sales and impairments of operating properties and depreciation and amortization, which can make periodic and peer analyses of operating
performance more difficult. The Company believes that 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, 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 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. We believe this supplemental information pro-
vides a more meaningful measure of our operating performance. The Company believes presenting FFO, FFO, as adjusted, NOI and same-property NOI in this manner
allows investors and other interested parties to form a more meaningful assessment of the Company’s operating results. Reconciliations of net income to FFO and FFO,
as adjusted, NOI and same-property NOI appear beginning on page 59 of our Annual Report on Form 10-K for the year ended December 31, 2015.