Kite Realty Group Trust Annual Report 2019

Plain-text annual report

2019 Kite Realty Group Annual Report COMPANY HIGHLIGHTS kiterealty.com 888 577 5600 YEAR ENDED DECEMBER 31 2019 2018 FINANCIAL DATA ($ in millions, except per share data) Total Revenue FFO of the Operating Partnership, as adjusted FFO per Weighted Average Diluted Common Share, as adjusted Net Debt to adjusted EBITDA Diluted Weighted Average Common Shares and Units Outstanding (in millions) Cash Dividend per Common Share1 Same Property NOI Increase PROPERTY DATA Operating and Redevelopment Properties Total Square Feet (GLA, in millions) Operating Properties Leased Percentage $315.2 $143.0 $1.66 5.9x 86.3 $1.27 2.2% $354.2 $171.2 $2.00 6.7x 85.8 $1.27 1.4% 90 17.4 111 22.5 96.1% 94.6% PORTFOLIO Operating Properties Redevelopment Properties Development Projects Total All Properties # Properties Total Square Feet Owned Square Feet 86 4 1 91 16,533,038 12,052,471 900,221 530,000 635,518 8,500 17,963,259 12,696,489 SUBSTANTIAL PERCENTAGE OF ANNUALIZED BASE RENT (ABR) IN KEY MSA MARKETS TO OUR FELLOW SHAREHOLDERS: In light of the currently unfolding events related to COVID-19, we have elected to refrain from our traditional letter. The following pages detail the transformational progress we achieved in 2019, which substantially improved our portfolio and balance sheet. We would like to sincerely thank our Board of Trustees, our KRG team, our customers, and our shareholders for your continued support and trust. Be well, John A. Kite Chairman and Chief Executive Ofﬁcer 1 Note: GAAP net loss attributable to common stockholders was $0.5 million in 2019. This annual report references certain non-GAAP ﬁnancial measures, including same property NOI, FFO, as adjusted, and EBITDA. For deﬁnitions of non-GAAP ﬁnancial measures and reconciliation of each to net (loss) income, please refer to pages 51-54 of the Form 10-K that is included as part of this annual report. (1) The Company paid ﬁve dividends in 2019 because of a shift in the timing of payment. The above number has been adjusted to include only four quarterly dividends. 2 2019 Kite Realty Group Annual Report TAMIAMI CROSSING MSA: NAPLES, FL | 121,705 GLA Built from the ground up by Kite Realty Group and opened in 2016, Tamiami Crossing is located along a major commercial thoroughfare in Naples, Florida. The region’s rapid population growth and afﬂuent customer base result in a fully-leased, consistent top performer in our portfolio. 2019 saw the addition of a newly-constructed Aldi grocery store, rounding out a diverse and resourceful offering for our local shoppers. KEY TENANTS 3 Project Snapshot kiterealty.com 888 577 5600 4 2019 Kite Realty Group Annual Report CITY CENTER WHITE PLAINS, NY | 363,103 GLA Located in White Plains, New York, one of the wealthiest cities in America, City Center boasts over 300,000 square feet of retail, restaurant, and theater space. In 2018, Kite Realty Group completely renovated the center, delivering a state- of-the-art experience to our bustling daily visitors. In 2019, Burlington joined the tenant mix, bringing over 50,000 square feet of additional retail offerings to the center. KEY TENANTS 5 Project Snapshot kiterealty.com 888 577 5600 6 KEY METRICS A RECORD YEAR IN PERFORMANCE KRG’S EVOLUTION SINCE IPO A BALANCED APPROACH TO CONSISTENT GROWTH & PERFORMANCE 2019 Kite Realty Group Annual Report 92.5% Small Shop Leased % $17.83 Annualized Base Rent 5.9x Net Debt/ EBITDA ratio Leads Sector KRG All-Time High Down .8 from 2018 81% Percentage of properties that are Community/ Neighborhood/ Lifestyle centers 2019 LEASING ACTIVITY HIGHLIGHTS ® KEY METRICS IPO (2004) TODAY # of Retail Properties # of States # of Markets 30 9 16 82 16 35 Top MSA (% of ABR) Indianapolis - 23% Las Vegas - 11% South and West ABR ABR 57% $10.57 77% $17.83 Top Tenant (% of ABR) Marsh - 3.2% Publix - 2.5% Net Debt to EBITDA 13.2x 5.9x PROJECT FOCUS IMPACT SIGNIFICANT IMPROVEMENT ACROSS KEY METRICS KEY METRICS Population (3 Mile) Population Growth (3 Mile) Average HHI (3 Mile) ABR/SF % of ABR in Top 50 MSAs PROJECT FOCUS DISPOSITION POOL Q4 2019 PORTFOLIO 61,700 1.0% $71,800 $14.64 41% 76,200 1.7% $97,500 $17.83 73% 7 kiterealty.com 888 577 5600 8 2019 Kite Realty Group Annual Report RAMPART COMMONS LAS VEGAS, NV | 79,314 GLA Rampart Commons is a distinct lifestyle center that serves Summerlin, one of the most afﬂuent neighborhoods in Las Vegas. Already at over 100,000 residents, the neighborhood is still growing, as Summerlin continues to rank highly in Top Master-Planned Community rankings. Kite Realty Group completely overhauled the center in 2018, creating a one- of-a-kind shopping and dining experience. KEY TENANTS 9 kiterealty.com 888 577 5600 Project Snapshot 10 2019 Kite Realty Group Annual Report EDDY STREET COMMONS AT NOTRE DAME SOUTH BEND, IN | 87,987 GLA One of the most unique mixed- use centers in the country, Eddy Street Commons is located adjacent to the historic University of Notre Dame. The center serves local and on-site residents, along with hundreds of thousands of University visitors each year. Phase II of the development made signiﬁcant progress in 2019, including the addition of 211 housing units by our ground lessee and the groundbreaking of the Robinson Community Center, a project that truly demonstrates our community commitment. KEY TENANTS 11 Project Snapshot kiterealty.com 888 577 5600 12 2019 Kite Realty Group Annual Report kiterealty.com 888 577 5600 CORPORATE HEADQUARTERS Kite Realty Group Trust 30 South Meridian Street, Suite 1100 Indianapolis, Indiana 46204 Phone: (317) 577-5600 Fax: (317) 577-5605 WEBSITE www.kiterealty.com STOCK EXCHANGE LISTING New York Stock Exchange NYSE: KRG INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG 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, 2019 are available to shareholders without charge upon written request to Investor Relations, 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 14, 2020, at 30 South Meridian Street, Indianapolis, Indiana 46204. EXECUTIVE MANAGEMENT TEAM John A. Kite Chairman and Chief Executive Ofﬁcer Thomas K. McGowan President and Chief Operating Ofﬁcer Heath Fear Executive Vice President and Chief Financial Ofﬁcer Scott E. Murray Executive Vice President, General Counsel and Corporate Secretary Wade Achenbach Executive Vice President, Portfolio Management Mellissa Boggs Executive Vice President, Employee Experience 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 Managing Principle Lee Daniels & Associates Christie B. Kelly Former Global Chief Financial Ofﬁcer Jones Lang LaSalle, Inc. David R. O’Reilly Chief Financial Ofﬁcer The Howard Hughes Corporation Barton R. Peterson President and Chief Executive Ofﬁcer Christel House International 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 public disclosure by the Company and the Operating Partnership 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, 31.2, 31.3 and 31.4, respectively, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company has submitted to the New York Stock Exchange the certiﬁcation of the Chief Executive Ofﬁcer certifying that he is not aware of any violation by the Company of the New York Stock Exchange corporate governance listing standards. FORWARD-LOOKING STATEMENT This annual report contains certain statements in this document that are not historical fact may constitute 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 or negative growth in the U.S. economy, 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 insolvency and bankruptcy, 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 for federal income tax purposes, potential environmental and other liabilities, impairment in the value of real estate property we own, the actual and perceived impact of e-commerce on the value of shopping center assets, risks related to the geographical concentration of our properties in Florida, Indiana, Texas, Nevada, and North Carolina insurance costs and coverage, risks associated with cybersecurity attacks and the loss of conﬁdential information and other business disruptions 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 SEC, speciﬁcally the section titled “Risk Factors” in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the ﬁscal year ended December 31, 2019, 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 This annual report references certain non-GAAP ﬁnancial measures, including same property NOI, FFO, as adjusted, and EBITDA, as adjusted. For deﬁnitions of these non-GAAP ﬁnancial measures and reconciliations of each to net income, please refer to pages 51-54 of the Form 10-K that is included as part of this Annual Report. 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, 2019 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: Commission File Number: 001-33268 333-202666-01 Kite Realty Group Trust Kite Realty Group, L.P. Kite Realty Group Trust Kite Realty Group, L.P. (Exact name of registrant as specified in its charter) Kite Realty Group Trust Kite Realty Group, L.P. 11-3715772 20-1453863 (IRS Employer Identification No.) Maryland Delaware (State or other jurisdiction of incorporation or organization) 30 S. Meridian Street Suite 1100 (Address of principal executive offices) Indianapolis Indiana 46204 (Zip code) Telephone 317 577-5600 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $0.01 par value per common share Trading Symbol KRG 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 x No o Kite Realty Group, L.P. Yes x No o 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 o No x Kite Realty Group, L.P. Yes o No x 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 x No o Kite Realty Group, L.P. Yes x No o Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) 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 x No o Kite Realty Group, L.P. Yes x No o Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Kite Realty Group Trust: Large accelerated filer x Accelerated filer o Non-accelerated filer Kite Realty Group, L.P.: Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company Emerging growth company x Smaller reporting company Emerging growth company ☐ ☐ ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) o Kite Realty Group Trust Yes ☐ No x Kite Realty Group, L.P. Yes ☐ No x 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 $1.3 billion based upon the closing price on the New York Stock Exchange on such date. The number of Common Shares outstanding as of February 14, 2020 was 83,984,719 ($.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 14, 2020, 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, 2019 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, 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, 2019 owned approximately 97.5% of the common partnership interests in the Operating Partnership (“General Partner Units”). The remaining 2.5% 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, 2019 TABLE OF CONTENTS Page Item No. Part I Business 1 1A. Risk Factors 1B. Unresolved Staff Comments 2 Properties 3 4 Legal Proceedings Mine Safety Disclosures Part II 5 Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 6 Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations 7 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 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 11 12 13 14 Part IV 15 16 Exhibits, Financial Statement Schedule Form 10-K Summary Signatures 3 8 27 28 39 40 41 43 45 63 63 63 63 67 68 68 68 68 68 69 69 76 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 connection with low or negative growth in the U.S. economy as well as economic uncertainty; • 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 insolvency or 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 for U.S. federal income tax purposes; • potential environmental and other liabilities; • • • • • impairment in the value of real estate property we own; the actual and perceived impact of e-commerce on the value of shopping center assets; risks related to the geographical concentration of our properties in Florida, Indiana, Texas, Nevada, and North Carolina; insurance costs and coverage; risks associated with 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, in other reports we file from time to time 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 is a publicly-held real estate investment trust which, through its majority-owned subsidiary, Kite Realty Group, L.P., 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 select markets in the United States. We derive revenues primarily from activities associated with the collection of contractual rents and reimbursement payments from tenants at our properties. Our operating results therefore depend materially on, among other things, the ability of our tenants to make required lease payments, the health and resilience of the United States retail sector, interest rate volatility, job growth and real estate market and overall economic conditions. As of December 31, 2019, we owned interests in 90 operating and redevelopment properties totaling approximately 17.4 million square feet. We also owned one development project under construction as of this date. Our retail operating portfolio was 96.1% leased to a diversified retail tenant base, with no single retail tenant accounting for more than 2.5% of our total annualized base rent. In the aggregate, our largest 25 tenants accounted for 32.1% of our annualized base rent. See Item 2, “Properties” for a list of our top 25 tenants by annualized base rent. Significant 2019 Activities Operating Activities We continued to drive strong operating results from our portfolio as follows: • Realized net loss attributable to common shareholders of $0.5 million, which included $37.7 million of impairment charges; • Generated Funds From Operations, as defined by NAREIT, of $131.4 million and Funds From Operations, as adjusted for a loss on debt extinguishment, of $143.0 million. • Same Property Net Operating Income ("Same Property NOI") increased by 2.2% in 2019 compared to 2018 primarily due to increases in rental rates and an improved tenant mix driven by strong anchor and shop leasing activity; • We executed new and renewal leases on 302 individual spaces for approximately 2.0 million square feet of retail space, achieving a blended cash rent spread of 9.2% and blended GAAP rent spread of 14.5% for comparable leases; • We opened 107 new tenant spaces totaling 657,000 square feet; • Our operating portfolio annual base rent ("ABR") per square foot as of December 31, 2019 was $17.83, an increase of $0.99 or 5.9% from the end of the prior year; • Total retail leased percentage and was 96.1% as of December 31, 2019; and • Small shop leased percentage was 92.5% as of December 31, 2019, which was an all-time Company high. Disposition Activities Strengthening our balance sheet continues to be one of our top priorities. In February 2019, we announced a plan, Project Focus, to market and sell up to $500 million in non-core assets as part of a program designed to improve the Company’s portfolio quality, reduce its leverage, and focus operations on markets where we believe the Company can gain scale and generate attractive risk-adjusted returns ("Project Focus"). This program was completed in October 2019. Transaction highlights of Project Focus were the following: 3 • Sold 23 non-core assets for a combined $544 million at a blended capitalization rate of approximately 8%. • Lowered leverage such that our ratio of net debt to EBITDA is 5.9x as of December 31, 2019. • Strengthened our liquidity profile as we have no debt maturing through 2021 and no balance on our unsecured revolving credit facility. The Company's existing unsecured revolving credit facility can pay all debt maturities through 2025. • Increased ABR to $17.83 as the retail assets sold had an ABR of $14.66, which was significantly lower than our current operating portfolio. Financing and Capital Raising Activities. In 2019, we were able to further improve our strong balance sheet, financial flexibility and liquidity to fund future growth. We ended the year with approximately $614.8 million of combined cash and borrowing capacity on our unsecured revolving credit facility. We have no debt scheduled to mature through December 31, 2021, and a debt service coverage ratio of 3.6x as of December 31, 2019. We have been assigned investment grade corporate credit ratings from two nationally recognized credit rating agencies. These ratings were unchanged during 2019. Business Objectives and Strategies Our primary business objectives are to increase the cash flow and value of our properties, achieve sustainable long-term growth and maximize shareholder value primarily through the ownership and operation, acquisition, development and redevelopment of high-quality neighborhood and community shopping centers. We invest in properties with well-located real estate and strong demographics, and we use our leasing and management strategies to improve the long-term values and economic returns of our properties. We believe that certain of our properties represent attractive opportunities for profitable 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 to a strong and 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; • Financing and Capital Preservation Strategy: Maintaining a strong balance sheet with flexibility to fund our operating and investment activities. Funding sources include the public equity and debt markets, an existing revolving credit facility with zero outstanding, new secured debt, internally generated funds, proceeds from selling land and properties that no longer fit our strategy, and potential strategic joint ventures; and • Growth Strategy: Prudently using available cash flow, targeted asset recycling, equity, and debt capital to selectively acquire additional retail properties and redevelop or renovate our existing properties where we believe that investment returns would meet or exceed internal benchmarks. 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 maximize 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 that limits our exposure to the financial condition of any one tenant or category of retail tenants; 4 • maintaining and improving the physical appearance, condition, layout and design of our properties and other improvements located on our properties to enhance our ability to attract customers; • • implementing offensive and defensive strategies against e-commerce competition; actively managing properties 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-leasing space to new tenants; and • taking advantage of under-utilized land or existing square footage, reconfiguring properties for more profitable use, and adding ancillary income sources to existing facilities. We successfully executed our operating strategy in 2019 in a number of ways, including Same Property NOI growth of 2.2%, a blended new and renewal cash leasing spread of 9.2%, an increase in our anchor leased percentage to 97.8% as of year-end, and an increase in our small shop leased percentage to 92.5% as of year-end. We have placed significant emphasis on maintaining a strong and diverse retail tenant mix, which has resulted in no tenant accounting for more than 2.5% of our annualized base rent. See Item 2, “Properties” for a list of our top tenants by gross leasable area ("GLA") and annualized base rent. 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 reinvestment of cash flows generated by operations, the sale of common or preferred shares through public offerings or private placements, the reinvestment of net 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 the amount and type of additional indebtedness we may elect to incur. 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 to generate durable cash flow to cover expected debt service. Strengthening our balance sheet continues to be one of our top priorities. In February 2019, the Company announced a plan to market and sell up to $500 million in non-core assets as part of a program designed to improve the Company’s portfolio quality, reduce its leverage, and focus operations on markets where the Company believes it can gain scale and generate attractive risk- adjusted returns. The majority of the net proceeds were used to further strengthen our balance sheet. We maintain an investment grade credit rating that we expect will continue to enable us to opportunistically access the public unsecured bond market and 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. We intend to continue implementing our financing and capital strategies in a number of ways, which may include one or more of the following actions: • prudently managing our balance sheet, including maintaining sufficient availability under our unsecured revolving credit facility so that we have additional capacity to fund our development and redevelopment projects and pay down maturing debt if refinancing that debt is not desired or practical; • • • extending the scheduled 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; • managing our exposure to interest rate increases on our variable-rate debt through the selective 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 mitigate risk. 5 Growth Strategy. Our growth strategy includes the selective deployment of financial resources to projects that are expected to generate investment returns that meet or exceed our internal benchmarks. We implement our growth strategy in a number of ways, including: • continually evaluating our operating properties for redevelopment and renovation opportunities that we believe will make them more attractive for leasing to new tenants, right-sizing of anchor spaces while increasing rental rates, and re-leasing spaces to existing tenants at increased rental rates; • disposing of selected assets that no longer meet our long-term investment criteria and recycling the net proceeds into properties that provide attractive returns and rent growth potential in targeted markets or using the proceeds to repay debt, thereby reducing our leverage; and • selectively pursuing the acquisition of retail operating properties, portfolios and companies in markets with strong demographics. 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 weighted 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 transaction, and other related factors; • opportunities for strengthening the tenant mix at our properties through the placement of anchor tenants such as value retailers, grocers, soft goods stores, theaters, or sporting goods retailers, as well as further enhancing a diverse tenant mix that includes restaurants, specialty shops, service retailers such as banks, dry cleaners and hair salons, and shoe and clothing retailers, 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. Competition The United States commercial real estate market continues to be highly competitive. We face competition from other REITs, including other retail 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 is dominant in any of the markets in which we own properties. 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 (the "ADA"), to the extent that such properties are public accommodations as defined by the ADA. The ADA may require removal of 6 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 orders requiring us to spend substantial sums to cure violations, pay attorneys' fees, or pay other amounts. 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. 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 had 133 full-time employees as of December 31, 2019. 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, certain of our properties have contained asbestos-containing building materials, or ACBM, and other properties 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, geographic locations of our assets and industry practice. Certain risks such as loss from riots, war or acts of God, and, in some cases, flooding are not insurable or the cost to insure over these events is costs prohibitive; 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, 2019, we had 133 full-time employees. The majority of these employees were based at our Indianapolis, Indiana headquarters. Segment Reporting 7 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 accounting principles generally accepted in the United States ("GAAP"). 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. The Securities and Exchange Commission maintains a website (http://www.sec.gov) that contains reports, proxy statements, information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission. 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 Ongoing challenging conditions in the United States and global economies 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 have experienced and could continue to experience sustained weakness. Over the past several years, this weakness has resulted in the bankruptcy or weakened financial condition of a number of retailers, increased store closures, and reduced demand and rental rates for certain retail space. For example, Earth Fare and Pier 1 have filed for bankruptcy since the end of 2019, and several other retailers, including Bed Bath & Beyond, The Gap, and Walgreens, recently announced multiple store closings. These events, or other similar events with other retailers, could affect the overall economy as well as specific leases at our properties, which could have a material adverse effect on our financial condition and results of operations. General economic factors that are beyond our control, including, but not limited to, economic recessions, decreases in consumer confidence and spending, decreases in business confidence and business spending, reductions in consumer credit availability, increasing consumer debt levels, rising energy costs, higher tax rates or other changes in taxation, rising interest rates, business layoffs, downsizing and industry slowdowns, unemployment and/or rising or falling 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 8 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 rent concessions on such leases, or (iv) be forced to curtail operations or declare bankruptcy. We are also susceptible to other developments and conditions that could have a material adverse effect on our business. These developments and conditions include relocations of businesses, changing demographics (including the number of households and average household income surrounding our properties), increasing consumer shopping via e-commerce, other changes in retailers' and consumers' preferences and behaviors, infrastructure quality, federal, state, and local budgetary constraints and priorities, increases in real estate and other taxes, increased government regulation and the related compliance cost, decreasing valuations of real estate, and other factors. Further, we continually monitor events and changes in circumstances that could indicate that the carrying value of our real estate assets may not be recoverable, and in the past, we have recorded impairment charges related to some properties. Challenging market conditions could require us to recognize impairment charges with respect to one or more of our properties, or a loss on the disposition of one or more of our properties. The expansion of e-commerce may impact our tenants and our business. The prominence of e-commerce continues to increase and its growth is likely to continue or accelerate in the future. Continued expansion of e-commerce could result in an adverse impact on some of our tenants and affect decisions made by current and prospective tenants in leasing space or operating their businesses, including reduction of the size or number of their retail locations in the future. We cannot predict with certainty how the growth in e-commerce will impact the demand for space at our properties or the revenue generated at our properties in the future. Although we continue to aggressively respond to these trends, including by entering into or renewing leases with tenants whose businesses are either more resistant to or are synergistic with, e- commerce (such as services, restaurant, grocery, specialty, experiential retailers and value retailers that have benefitted from omni- channel consumer trends), the risks associated with e-commerce could have a material adverse effect on the business outlook and financial results of our present and future tenants, which in turn could have a material adverse effect on our cash flow and results of operations. 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. Future economic downturns and disruptions in credit markets 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 operate or expand 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 with them, which could materially and adversely affect our cash flow and results of operations. Our business is significantly influenced by demand for retail space generally, a decrease in which 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 property portfolio. The market for retail space has been, and could be in the future, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of certain large retailing companies, the ongoing consolidation and contraction in the retail sector, the excess amount of retail space in a number of markets and increasing e-commerce and the perception such retail competition has on the value of shopping center assets. To the extent that any of these conditions occur, they could negatively affect market rents for retail space, which in turn could materially and adversely affect our financial condition, results of operations, cash flow, common share trading price, and ability to satisfy our debt service obligations and to pay distributions to our shareholders. The closure of any stores by any non-owned anchor tenant or the bankruptcy of a major tenant with leases in multiple locations, because of a deterioration of its financial condition or otherwise, could have a material adverse effect on our results of operations. We derive the majority of our revenue from tenants who lease space from us at our properties. Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our tenants. Our leases generally do not contain provisions designed to ensure the creditworthiness of our tenants. At any time, our tenants may experience a downturn in their business that may significantly weaken their financial condition, particularly in the face of online competition and during periods of economic or political uncertainty. Economic and political uncertainty, including uncertainty related to taxation, may affect our tenants, joint venture partners, lenders, financial institutions and general economic conditions, such as consumer 9 confidence and spending, business confidence and spending and the volatility of the stock market. In the event of prolonged severe economic conditions, our tenants may delay or cancel lease commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close stores or declare bankruptcy. Any of these actions could result in the termination of the tenant’s leases with us and the related loss of rental income. 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 contained in some leases. In such an event, we may be unable to re-lease the vacated space at attractive rents or at all. In some cases, it may take extended periods of time to re-lease a space, particularly one previously occupied by a major tenant or non-owned anchor. Additionally, in the event our tenants are involved in mergers or acquisitions with or by third parties or undertake other restructurings, such tenants may choose to consolidate, downsize or relocate their operations, resulting in terminating or not renewing their leases with us or vacating the leased premises. 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. We face potential material adverse effects from tenant bankruptcies, and we may be unable to collect balances due from such tenants, replace the tenant at current rates, or at all. Tenant bankruptcies may increase during periods of difficult economic conditions. We cannot make any assurances that a tenant filing for bankruptcy protection will continue to pay its rent obligations. A bankruptcy filing by one of our tenants or a lease guarantor would legally prohibit us from collecting pre-bankruptcy debts from that tenant or the lease guarantor, unless we receive an order from the bankruptcy court permitting us to do so. Such bankruptcies could delay, reduce, or ultimately preclude collection of amounts owed to us. A tenant in bankruptcy may attempt to renegotiate the lease or request significant rent concessions. 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. There are restrictions under bankruptcy laws that limit the amount of the claim we can make for future rent under a lease if the lease is rejected. As a result, it is likely that we would 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 and could have a material adverse effect on our results of operations. 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. Our performance and value are subject to risks associated with real estate assets and the real estate industry. Our ability to make distributions to our shareholders depends on our ability to generate substantial revenues from our properties. Periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. Such events would materially and adversely affect our financial condition, results of operations, cash flow, per share trading price of our common shares, ability to satisfy debt service obligations, and ability 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: • • • • adverse changes in the national, regional and local economic climate, particularly in Florida, Indiana, Texas, Nevada, and North Carolina where 26%, 16%, 15%, 10%, and 10%, respectively, of our total base rent is earned; tenant bankruptcies or insolvencies; 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 or at all; • downward trends in market rental rates; • inability to finance property development, tenant improvements and acquisitions on favorable terms; 10 • increased operating costs, including maintenance, insurance, utilities and real estate taxes and a decrease in our ability to recover such increased costs from our tenants; • the need to periodically fund the costs to repair, renovate and re-lease spaces in our operating properties; • decreased attractiveness of our properties to tenants; • weather and climate conditions that may increase energy costs and other weather-related expenses, such as snow removal costs and storm or flood damage repairs; • • • • changes in laws and governmental regulations and costs of complying with such changed laws and governmental regulations, including those involving 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 (including the number of households and average household income surrounding our properties); and • changing customer traffic patterns. We face significant competition, which may impede our ability to renew leases or re-lease space as leases expire or require us to undertake unexpected capital improvements. We compete with numerous developers, owners and operators of retail shopping centers, regional malls, and outlet malls for tenants. These competitors include institutional investors, other REITs, including other retail 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 but which have greater capital resources. As of December 31, 2019, leases representing 7.2% of our total annualized base rent were scheduled to expire in 2020. 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 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 reductions or abatements, tenant improvements and early termination rights or accommodate requests for renovations, build-to-suit remodeling and other improvements than we have done 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, which would reduce cash available for distributions to shareholders. If retailers or consumers perceive that shopping at other venues, online or by phone is more convenient, cost-effective or otherwise more attractive, our revenues and results of operations also may suffer. Because of our geographic concentrations, a prolonged economic downturn in certain states and regions 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, 2019, rents from our owned square footage in the states of Florida, Indiana, Texas, Nevada, and North Carolina comprised 26%, 16%, 15%, 10%, and 10% of our base rent, respectively. This level of concentration could expose us to greater economic risks than if we owned properties in more geographic regions. Adverse economic or real estate trends in Florida, Indiana, Texas, Nevada, North Carolina, 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. 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 financial markets generally, or relating to the real estate industry specifically, may adversely affect our ability to obtain debt financing on favorable terms or at all. These disruptions could impact the overall amount of equity and debt financing available, lower loan to value ratios, cause a tightening of lender underwriting standards and terms and cause higher interest rate spreads. As a result, we may be unable to refinance or extend our existing indebtedness on favorable terms or at all. We do not have any debt scheduled to mature through December 31, 2021. If we are not successful in refinancing our outstanding debt 11 when it becomes due, we may have to dispose of properties on disadvantageous terms, which could adversely affect our ability to service other debt and to meet our other obligations. While we currently have sufficient capacity under our unsecured revolving credit facility and operating cash flows to retire outstanding debt maturing through 2025 in the event we are not able to refinance such debt when it becomes due, but our credit facility has a maturity date in April 2022 (which may be extended for two additional periods of six months subject to certain conditions), and there can be no assurance that the credit facility will remain outstanding or be renewed through 2025 or that our operating cash flows will continue to provide sufficient liquidity to retire any or all of our outstanding debt during this period or beyond. If economic conditions deteriorate in any of our markets, we may have to seek less attractive, alternative sources of financing and adjust our business plan accordingly. These factors may make it more difficult for us to sell properties or may adversely affect the selling price, as prospective buyers may experience increased costs of financing or difficulties in obtaining financing. These events also may make it difficult or costly 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 aspects of our business, as well as the economy in general. Furthermore, there can be no assurances that government responses to disruptions in the financial markets will restore consumer confidence, stabilize the markets or increase liquidity and the availability of equity or debt financing. Some of our real estate assets have been subject to impairment charges and others may be subject to impairment charges in the future, 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 through future operations. In 2019, we recorded impairment charges totaling $37.7 million related to a reduction in the expected holding period of certain operating properties, which impairment charges negatively affected our net income for the applicable periods. Management reviews operational and development projects, land parcels and intangible assets on a property-by-property basis on at least a quarterly basis or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We evaluate whether there are any indicators, including poor operating performance or deteriorating general market conditions, that the carrying value of our real estate properties (including any related amortizable intangible assets or liabilities) may not be recoverable. As part of this 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. This review for possible impairment requires certain assumptions, estimates, and significant judgment. Our estimated cash flows are based on several key assumptions, including projected net operating income, anticipated hold period, expected capital expenditures, and the capitalization rate used to estimate the property's residual value. These key assumptions are subjective in nature and could differ materially from actual results if the property was disposed. 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 estimated fair value. If the above-described negative indicators are not identified during our period property evaluations, management will not assess the recoverability of a property's carrying value. The estimation of the fair value of real estate assets is highly subjective and is typically 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. We had $1.15 billion of consolidated indebtedness outstanding as of December 31, 2019, 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 charges, along with any applicable prepayment premium, may materially adversely affect our operating performance. We had $1.15 billion of consolidated outstanding indebtedness as of December 31, 2019. At December 31, 2019, $305.8 million of our debt bore interest at variable rates ($39.6 million when reduced by $266.2 million of fixed interest rate swaps). Interest rates are currently low relative to historical levels and may increase significantly in the 12 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, 2019 increased by 1%, the increase in interest expense on our unhedged variable rate debt would decrease future cash flows by approximately $0.4 million annually. We may incur additional debt in connection with various development and redevelopment projects and may incur additional debt upon the future acquisition of operating 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 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 U.S. federal income tax purposes or otherwise avoid paying taxes that can be eliminated through distributions to our shareholders. Our substantial debt could materially and adversely affect our business in other ways, including by, among other things: • requiring us to use a substantial portion of our funds from operations to pay principal and interest, which reduces the amount available for distributions; • placing us at a competitive disadvantage compared to our competitors that have less debt; • making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions; and • limiting our ability to borrow more money for operating or capital needs or to finance development and acquisitions in the future. Agreements with lenders supporting our unsecured revolving credit facility and various other loan agreements contain default provisions which, among other things, could result in the acceleration of principal and interest payments or the termination of the facilities. Our unsecured revolving credit facility and various other debt agreements contain certain Events of Default which include, but are not limited to, failure to make principal or interest payments when due, failure to perform or observe any term, covenant or condition contained in the agreements, failure to maintain certain financial and operating ratios and other criteria, misrepresentations, 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, and prevent us from obtaining additional funds needed to address cash shortfalls or pursue growth opportunities. Certain of our loan agreements 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 such loans. The agreements relating to our unsecured revolving credit facility, unsecured term loan and seven-year unsecured 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, unsecured term loan and seven-year unsecured 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, seven-year unsecured term loan, and senior unsecured notes as of December 31, 2019, although there can be no assurance that we will continue to remain in compliance in the future. 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 make the required periodic mortgage payments, the lender or the holder of the 13 mortgage 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 of 1986, as amended (the "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 effect 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 such agreement. We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or the use of alternative reference rates. As of December 31, 2019, we had approximately $305.8 million of debt outstanding that was indexed to the London Interbank Offered Rate (“LIBOR”). In July 2017, the United Kingdom regulator that regulates LIBOR announced its intention to phase out LIBOR rates by the end of 2021. It is not possible to predict the further effect of this announcement, any changes in the methods by which LIBOR is determined or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere. In April 2018, the New York Federal Reserve commenced publishing an alternative reference rate, the Secured Overnight Financing Rate (“SOFR”), proposed by a group of major market participants convened by the U.S. Federal Reserve with participation by SEC Staff and other regulators, the Alternative Reference Rates Committee ("ARRC"). SOFR is based on transactions in the more robust U.S. Treasury repurchase market and has been proposed as the alternative to LIBOR for use in derivatives and other financial contracts that currently rely on LIBOR as a reference rate. ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Such developments and any other legal or regulatory changes in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. dollar LIBOR rate is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the unavailability of U.S. dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows. 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 14 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 any 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, 2019, we owned interests in two of our operating properties through consolidated joint ventures and interests in four properties through unconsolidated joint ventures. In addition, we currently own land held for development through one consolidated 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; • prior consent of our joint venture partners may be required for a sale or transfer to a third party of our interests in the joint venture, which restricts our ability to dispose of our interest in the joint venture; • our joint venture partners might become bankrupt or fail to fund their share of required capital contributions, which may delay construction or development of a property or increase our financial commitment to the joint venture; • our joint venture partners may have business interests or goals with respect to the property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property; • disputes may develop with our joint venture partners over decisions affecting the property or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers and/or trustees from focusing their time and effort on our business and possibly disrupt the day-to-day operations of the property, such as by delaying the implementation of important decisions until the conflict or dispute is resolved; and • we may suffer losses as a result of the actions of our joint venture partners with respect to our joint venture investments, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we may not control the joint venture. In the future, we may seek to co-invest with third parties through joint ventures that may involve similar or additional risks. Our future developments, redevelopments and acquisitions may not yield the returns we expect or may result in dilution in shareholder value. As of December 31, 2019, we have one development project under construction and three redevelopment opportunities currently in the planning stage, including de-leasing space and evaluating development plans and costs with potential tenants and partners. Some of these plans include non-retail uses, such as multifamily housing. New development and redevelopment projects and property acquisitions are subject to a number of risks, including, but not limited to: • • • • abandonment of development and redevelopment activities after expending resources to determine feasibility; construction delays or cost overruns that may increase project costs; the failure of our pre-acquisition investigation of a property or building, and any related representations we may receive from the seller, 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; • the failure to meet anticipated occupancy or rent levels within the projected time frame, if at all; 15 • • • • 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 development and 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 • difficulty or inability to obtain any required consents of third parties, such as tenants, mortgage lenders and joint venture partners. In addition, if a project is delayed or if we are unable to lease designated space to anchor tenants, certain other tenants may have the right to terminate their leases or modify the terms in a manner that is disadvantageous to us. 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, develop, or redevelop a particular property, we make certain assumptions regarding the expected future performance of that property. If these 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 significant acquisitions could be dilutive to our shareholders. To the extent that we pursue acquisitions in the future, we may not be successful in acquiring desirable operating properties, for which we face significant competition, or identifying development and redevelopment projects that meet our investment criteria, both of which may impede our growth. From time to time, consistent with our business strategy, we evaluate the market and may acquire properties when we believe strategic opportunities exist. When we pursue acquisitions, we may be unable to acquire a desired property because of competition from other real estate investors with substantial capital, including 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, reducing the return to our shareholders. 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. Furthermore, when we pursue acquisitions, we may agree to provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as limitations on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could adversely affect our financial condition and results of operations. Development and redevelopment activities may be delayed or may not perform as expected and, in the case of an unsuccessful project, our entire investment could be at risk for loss. We currently have one development project under construction. We have also identified three additional redevelopment opportunities 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 or redevelopment project is not completed on schedule and required third-party consents may be withheld. 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 or on terms favorable to us and could, under certain circumstances, be required to pay a 100% "prohibited transaction" penalty tax related to the properties we sell. Real estate property investments generally cannot be sold quickly. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties, and we cannot predict the various market conditions affecting real estate investments that will exist at any particular time in the future. Before a property can be sold, we may need to make expenditures to correct defects or to make improvements. We may not have funds available to correct such defects or to make such improvements, and if we cannot do so, we might not be able to sell the property or might be required to sell the property on unfavorable terms. We may not be able to 16 dispose of any of the properties on terms favorable to us or at all, and each individual sale will depend on, among other things, economic and market conditions, individual asset characteristics and the availability of potential buyers and favorable financing terms at the time. Further, we will incur marketing expenses and other transaction costs in connection with dispositions, and the process of marketing and selling a large pool of properties may distract the attention of our personnel from the operation of our business. Also, the tax laws applicable to REITs impose a 100% penalty tax on any net income from “prohibited transactions.” 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. 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. 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 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 financial obligations. Rising operating expenses could reduce our cash flow and funds available for future distributions, particularly if such expenses are not offset by an increase in corresponding revenues. Our existing properties and any properties we develop or acquire in the future are and will continue to 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. 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 occupancy rates. 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. 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. Our business faces potential risks associated with natural disasters, severe weather conditions and climate change, which could have an adverse effect on our cash flow and operating results. 17 Global climate change continues to attract considerable public and scientific attention with widespread concern about the impact of human activity on the environment, including effects on the frequency and scale of natural disasters. Changing weather patterns and climatic conditions may affect the predictability and frequency of natural disasters in some parts of the world and create additional uncertainty as to future trends and exposures, including certain areas in which our portfolio is concentrated such as Texas, Indiana, Florida, Nevada, and North Carolina. Our properties are located in many areas that are subject to or have been affected by natural disasters and severe weather conditions such as hurricanes, tropical storms, tornadoes, earthquakes, droughts, floods and fires. Over time, the occurrence of natural disasters, severe weather conditions and changing climatic conditions can delay new development and redevelopment projects, increase repair costs and future insurance costs and negatively impact the demand for lease space in the affected areas, or in extreme cases, affect our ability to operate the properties at all. These risks could have an adverse effect on our cash flow and operating results. Regulation regarding climate change may adversely affect our financial condition and results of operations. Changes in federal and state legislation and regulations on climate change could result in utility expenses and/or capital expenditures to improve the energy efficiency of our existing properties or other related aspects of our properties in order to comply with such regulations or otherwise adapt to climate change. These regulations may require unplanned capital improvements, and increased engagement to manage occupant energy use, which is a large driver of building performance. If our properties cannot meet performance standards, we could be exposed to fines for non-compliance, as well as a decrease in demand and a decline in value. As a result, our financial condition and results of operations could be adversely affected. 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, certain of our properties have contained asbestos-containing building materials, or ACBM, and other properties 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: • • 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; 18 • • 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 and results of operations. Our properties must comply with Title III of the 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 orders requiring us to spend substantial sums to cure violations, pay attorneys' fees, or pay other amounts. 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, as well as our cash flows and results of operations. 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. In many of our leases, the tenant's obligation for common area maintenance or other operating expenses may be based on a fixed amount of fixed percentage, not subject to adjustment for inflation. 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. Rising interest rates could increase our borrowing costs, thereby adversely affecting our cash flows and the amounts available for distributions to our shareholders, as well as decrease our share price, if investors seek higher yields through other investments. An environment of rising interest rates could lead investors to seek higher yields through other investments, which could adversely affect the market price of our common shares. One of the factors that may influence the price of our common shares in public markets is the rate of annual cash distributions we pay as compared with the yields on alternative investments. Several other factors, such as governmental regulatory action and tax laws, could have a significant impact on the future market price of our common shares. In addition, increases in market interest rates could result in increased borrowing costs for us, which may adversely affect our cash flow and the amounts available for distributions to our shareholders. We and our tenants 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 although we utilize various measures to prevent, detect and mitigate threats, we have been targeted by e-mail phishing attempts and scams in the past, 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 19 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 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 include 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 that are satisfactory to the Board of Trustees, in its reasonable discretion, to establish that such person’s ownership in excess of the 7% limit or the 9.8% limit, as applicable, would not jeopardize our qualification as a REIT. In addition, our declaration of trust contains certain other ownership restrictions intended to prevent us from earning income from related parties if such income would cause us to fail to comply with the REIT gross income requirements. The various ownership restrictions may: • discourage a tender offer or other transactions or a change in management or control that might involve a premium price for our shares or otherwise be in the best interests of our shareholders; or • compel a shareholder who has acquired our shares in excess of these ownership limitations to dispose of the additional shares and, as a result, to forfeit the benefits of owning the additional shares. Any acquisition of 20 our common shares in violation of these ownership restrictions will be void ab initio and will result in automatic transfers of our common shares to a charitable trust, which will be responsible for selling the common shares to permitted transferees and distributing at least a portion of the proceeds to the prohibited transferees. (2) Our declaration of trust permits our Board of Trustees to issue preferred shares with terms that may discourage a third party from acquiring us. Our declaration of trust permits our Board of Trustees to issue up to 40,000,000 preferred shares, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms or conditions of redemption as determined by our Board of Trustees. Thus, our Board of Trustees 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: • • “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 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, 2019, we had outstanding 83,963,369 common shares, substantially all of which are freely tradable. In addition, 2,110,037 units of our Operating Partnership were owned by our executive 21 officers and other individuals as of December 31, 2019, 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 refinancing transactions 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. The experience of our executive officers in the areas of real estate acquisition, development, finance and management is a critical element of our future success. We have entered into employment agreements with certain members of executive management. Each agreement will continue to renew after expiration of its initial term or applicable renew periods unless we or the individual elects not to renew the agreement. If one or more of our key executive officers were to die, become disabled or otherwise leave our employ, we may not be able to replace this person with an executive 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 negatively affected. 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 U.S. 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, redevelopment and acquisitions, with income from operations. We therefore may 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 U.S. federal income tax purposes; and • the market price of our common shares. If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our principal and interest obligations or make distributions to our shareholders. Our rights and the rights of our shareholders to take action against our trustees and officers are limited. Maryland law provides that a director or officer has limited liability in that capacity if he or she performs his or her duties in good faith 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. 22 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 common 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 (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; • perceived or actual effects of e-commerce competition; • bankruptcy or negative publicity about one or more of our larger tenants; • our credit or analyst ratings; • publication by securities analysts of research reports about us, our industry, or the retail industry; • • • • • • • • • • • additions and departures of key personnel; strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy; the reputation of REITs generally and the reputation of REITs with portfolios similar to ours; the attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other real estate companies); an increase in market interest rates, which may lead prospective investors to demand a higher distribution rate in relation to the price paid for our shares; the passage of legislation or other regulatory developments that adversely affect us or our industry including tax reform; speculation in the press or investment community; actions by institutional shareholders, hedge funds or other investors; 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. 23 Changes in accounting standards may adversely impact our financial results. The Financial Accounting Standards Board (the “FASB”), in conjunction with the SEC, has issued and may issue key pronouncements that impact how we account for our material transactions, including, but not limited to, lease accounting, business combinations and the recognition of other revenues. We are unable to predict which, if any, proposals may be issued in the future or what level of impact any such proposal could have on the presentation of our consolidated financial statements, our results of operations and the financial ratio required by our debt covenants. 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 cash distributions and/or may choose to make distributions in party payable in our common shares. 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 U.S. federal income tax purposes to the extent of the holder’s adjusted tax basis in his or her 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. Finally, although we do not currently intend to do so, in order to maintain our REIT qualification, we may make distributions that are in part payable in our common shares. Taxable shareholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits and may be required to sell shares received in such distribution or may be required to sell other shares or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a significant number of our shareholders determine to sell common shares in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common shares. 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, and senior or subordinated notes. Holders of our 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 being 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 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 be negatively affected. 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 downgrade our common shares or publish 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 within the last year experienced significant 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. TAX RISKS 24 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 U.S. 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 U.S. 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 ruling, that make it more difficult, or impossible, for us to remain qualified as a REIT. If we fail to qualify as a REIT for U.S. federal income tax purposes and are unable to avail ourselves of certain savings provisions set forth in the Code: • We would be taxed as a non-REIT "C" corporation, which under current laws, among other things, means not being able 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 and being subject to the federal alternative minimum tax (for taxable years beginning before December 31, 2017) 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. Since we are the successor to Inland Diversified Real Estate Trust, Inc. ("Inland Diversified") for U.S. federal income tax purposes as a result of its merger with us (the "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 2012 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, 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; • We would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders. Moreover, 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; and • We would 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 for the taxable year 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 the 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 U.S. federal income tax purposes, we will be required to pay certain U.S. federal, state and local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including capital gains). Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of 25 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 U.S. federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to U.S. 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 U.S. 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 U.S. federal income tax on that income because not all states and localities treat REITs the same way they are treated for U.S. federal income tax purposes. To the extent that we and our affiliates are required to pay U.S. 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 the taxable year that includes the Merger and no relief is available, as a result of the Merger (a) we would inherit any corporate tax liabilities of Inland Diversified for Inland Diversified’s open tax years possibly extending back six years or Inland Diversified’s 2013 and 2014 tax years 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. Additionally, the sale of properties resulting in significant tax gains could require higher distributions to our shareholders or payment of additional income taxes in order to maintain our REIT status. 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 or manages the risk of certain currency fluctuations, and such instrument is properly identified under applicable Treasury Regulations. 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, provided, however, losses in our taxable REIT subsidiary arising in taxable years beginning after December 31, 2017 may only be carried forward and may only be deducted against 80% of future taxable income in the taxable REIT subsidiary. 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 26 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 effective tax rates as low as dividends paid by non-REIT "C" corporations. The maximum rate applicable to “qualified dividend income” paid by non-REIT “C” corporations to certain non-corporate U.S. shareholders has been reduced by legislation to 23.8% (taking into account the 3.8% Medicare tax applicable to net investment income). Dividends payable by REITs, however, generally are not eligible for the reduced rates. Effective for taxable years beginning after December 31, 2017 and before January 1, 2026, non-corporate shareholders may deduct 20% of their dividends from REITs (excluding qualified dividend income and capital gains dividends). For non-corporate shareholders in the top marginal tax bracket of 37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% on REIT dividends, which is higher than the 20% tax rate on qualified dividend income paid by non-REIT “C” corporations. This does not adversely affect the taxation of REITs, however, it could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT “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 was 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. There is a risk that the tax laws applicable to REITs may change. The IRS, the United States Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance. The Company cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be adopted. Any legislative action may prospectively or retroactively modify the Company's tax treatment and, therefore, may adversely affect our taxation or taxation of our shareholders. We urge you to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our stock. Although REITs generally receive certain tax advantages compared to entities taxed as non-REIT “C” corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a non-REIT “C” corporation. ITEM 1B. UNRESOLVED STAFF COMMENTS None 27 ITEM 2. PROPERTIES Retail Operating Properties As of December 31, 2019, we owned interests in a portfolio of 82 retail operating properties totaling approximately 16.0 million square feet of total GLA (including approximately 4.5 million square feet of non-owned anchor space). The following table sets forth more specific information with respect to our retail operating properties as of December 31, 2019: 28 Arizona The Corner Connecticut Crossing at Killingly Commons Florida 12th Street Plaza Bayport Commons Property1 Location (MSA) Year Built/ Renovated Owned GLA2 Leased % Total Anchors Shops Total Anchors Shops ABR per SqFt Grocery Anchors4 Other Retailers4 Tucson 2008 79,902 55,883 24,019 100.0 % 100.0 % 100.0 % 30.87 Total Wine & More Nordstrom Rack, Panera Bread, (Home Depot) Willimantic, CT 2010 205,683 148,250 57,433 86.0 % 86.2 % 85.5 % 14.50 Stop & Shop Supermarket, (Target) TJ Maxx, Michaels, Petco, Staples, Lowe's Home Improvement Center Vero Beach 1978/2003 Tampa 2008 135,016 97,163 121,376 71,540 13,640 25,623 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 10.32 Publix 15.38 (Target) Centre Point Commons Cobblestone Plaza Colonial Square Sarasota Miami Fort Myers Delray Marketplace 3 Miami Estero Town Commons Fort Meyers Hunter's Creek Promenade Orlando 2007 2011 2010 2013 2006 1994 119,320 133,259 186,517 93,574 68,219 150,505 25,746 65,040 36,012 98.7 % 100.0 % 93.8 % 96.7 % 100.0 % 93.2 % 92.4 % 100.0 % 60.7 % 17.74 28.16 Whole Foods 11.94 260,298 118,136 142,162 91.6 % 100.0 % 84.6 % 26.42 Publix 25,696 119,759 — 55,999 25,696 63,760 94.7 % — % 94.7 % 100.0 % 100.0 % 100.0 % 15.23 15.60 Publix Indian River Square Vero Beach 1997/2004 142,592 109,000 33,592 95.9 % 100.0 % 82.7 % 12.17 (Target) International Speedway Square Daytona Beach 1999/2013 Kings Lake Square Naples 1986/2014 Lake City Commons Lake City Lake City Commons - Phase II Lake City Lake Mary Plaza Lithia Crossing Miramar Square Northdale Promenade Pine Ridge Crossing Pleasant Hill Commons Riverchase Plaza Orlando Tampa Miami Tampa Naples Orlando Naples Saxon Crossing Daytona Beach Shoppes of Eastwood Orlando 2008 2011 2009 2003/2013 2008 1985/2017 1993 2008 1991/2001 2009 1997 233,424 88,611 65,746 16,291 21,385 90,515 225,205 179,602 105,962 70,645 78,291 119,907 69,076 203,405 45,600 45,600 12,131 14,880 53,547 147,505 130,269 66,435 45,600 48,890 95,304 51,512 30,019 43,011 20,146 4,160 6,505 36,968 77,700 49,333 39,527 25,045 29,401 24,603 17,564 94.6 % 100.0 % 57.9 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 99.5 % 100.0 % 98.5 % Total Wine & More 11.23 19.30 Publix 15.58 Publix 15.80 Publix 38.00 16.06 The Fresh Market 17.53 Sprouts Farmers Market 96.6 % 100.0 % 87.5 % 96.3 % 100.0 % 90.0 % 100.0 % 100.0 % 100.0 % 96.3 % 100.0 % 90.3 % (Winn Dixie) 13.00 18.06 Publix, (Target) 15.86 Publix 16.77 Publix 97.2 % 100.0 % 86.2 % 98.1 % 100.0 % 92.5 % 15.39 (Target) 13.87 Publix Shops at Eagle Creek Naples 1983/2013 70,731 50,187 20,544 100.0 % 100.0 % 100.0 % 16.53 The Fresh Market Tamiami Crossing 3 Naples 2016 121,705 121,705 — 100.0 % 100.0 % — % 12.55 Aldi, (Walmart) 29 Stein Mart, Tuesday Morning PetSmart, Michaels Best Buy, Dick's Sporting Goods, Office Depot, Panera Bread, (Lowe's Home Improvement Center) Party City, Planet Fitness Kohl's, Hobby Lobby, PetSmart, Frank Theatres, Burt & Max's, Ann Taylor Loft, Chico's, White House Black Market Lowe's Home Improvement Center, Dollar Tree Beall's, Office Depot, Dollar Tree, Panera Bed Bath & Beyond, Stein Mart, Old Navy, Staples, Michaels, Dick’s Sporting Goods, Shoe Carnival PetSmart Walgreens Stein Mart, Chili's, Panera Bread Kohl's, Miami Children's Hospital TJ Maxx, Ulta Beauty, Beall's, Crunch Fitness, Tuesday Morning Ulta Beauty, (Beall's) Hobby Lobby, LA Fitness, (Lowe's Home Improvement Center) Staples, Panera Bread, (Lowe's Home Improvement Center) Marshalls, Michaels, PetSmart, Ross Stores, Stein Mart, Ulta Beauty Property1 Location (MSA) Year Built/ Renovated Owned GLA2 Leased % Total Anchors Shops Total Anchors Shops ABR per SqFt Grocery Anchors4 Other Retailers4 Tarpon Bay Plaza Naples 2007 81,864 59,442 22,422 97.4 % 100.0 % 90.6 % 17.43 (Target) The Landing at Tradition Port St. Lucie The Shops at Julington Creek Jacksonville Tradition Village Center Port St. Lucie Waterford Lakes Village Orlando 2007 2011 2006 1997 359,474 40,254 84,086 77,975 283,064 21,038 45,600 51,703 76,410 19,216 38,486 26,272 78.7 % 79.4 % 76.2 % 100.0 % 100.0 % 100.0 % 98.6 % 100.0 % 97.0 % 96.7 % 100.0 % 90.2 % 16.33 (Target) 20.48 The Fresh Market Publix 18.55 13.20 Winn Dixie Georgia (Target) Mullins Crossing Augusta 2005 276,318 228,224 48,094 99.3 % 100.0 % 96.1 % 13.35 PetSmart, Cost Plus World Market, Ross Stores, Panera Bread TJ Maxx, Ulta Beauty, Bed Bath & Beyond, LA Fitness, Michaels, Old Navy, PetSmart, Pier 1, DSW, Five Below, Ross Stores Ross Stores, Old Navy, Five Below, Kohls, La-Z-Boy, Marshalls, Office Max, Petco, Ulta Beauty, Panera Bread Illinois Naperville Marketplace Chicago 2008 83,759 61,683 22,076 97.7 % 100.0 % 91.1 % 13.91 (Caputo's Fresh Market) TJ Maxx, PetSmart Indiana 54th & College Indianapolis Bridgewater Marketplace Westfield 2008 2008 — — — — % — % — % — The Fresh Market 25,975 — 25,975 100.0 % — % 100.0 % 21.49 Castleton Crossing Indianapolis 1975/2012 286,377 247,710 38,667 100.0 % 100.0 % 100.0 % 12.30 (Walgreens), The Local Eatery, Original Pancake House TJ Maxx/HomeGoods, Burlington, Shoe Carnival, Value City Furniture, K&G Menswear, Chipotle, Verizon, Five Below Stein Mart, McAlister's Deli, Buffalo Wild Wings, Pet People Cool Creek Commons Westfield Depauw University Bookstore and Café Indianapolis 2005 2012 124,303 53,600 70,703 96.4 % 100.0 % 93.7 % 19.30 The Fresh Market 11,974 — 11,974 100.0 % — % 100.0 % 9.17 Follett's, Starbucks Eddy Street Commons at Notre Dame South Bend 2009 Fishers Station Fishers 1989/2018 87,987 52,400 20,154 15,441 67,833 36,959 98.8 % 100.0 % 98.4 % 97.8 % 100.0 % 96.9 % 26.66 17.72 Geist Pavilion Fishers 2006 63,910 29,700 34,210 100.0 % 100.0 % 100.0 % 17.43 Greyhound Commons Carmel Nora Plaza Indianapolis 2005 2004 9,152 139,743 — 73,589 9,152 66,154 100.0 % — % 100.0 % 100.0 % 100.0 % 100.0 % 14.74 15.17 Whole Foods, (Target) Rangeline Crossing Carmel 1986/2013 99,226 47,962 51,264 97.2 % 100.0 % 94.5 % 22.94 Rivers Edge Indianapolis 2011 150,428 117,890 32,538 100.0 % 100.0 % 100.0 % 22.20 Stoney Creek Commons Noblesville 2000/2013 84,226 84,226 — 64.1 % 64.1 % — % 14.38 Traders Point I Traders Point II Indianapolis Indianapolis 2005 2005 279,786 45,977 238,721 — 41,065 45,977 73.9 % 92.2 % 71.6 % — % 87.5 % 92.2 % 14.69 27.59 30 Hammes Bookstore & Cafe, Chipotle, Urban Outfitters, Five Guys, Kilwins, Blaze Pizza Dollar Tree, Goodwill Ace Hardware, Goodwill, Ale Emporium, Pure Barre (Lowe's Home Improvement Center), Abuelo's Mexican, Koto Japenese Steakhouse Marshalls Walgreens, Panera Bread, Pet Valu, City BBQ Nordstrom Rack, The Container Store, Arhaus Furniture, Bicycle Garage of Indy, Buy Buy Baby, J Crew Mercantile LA Fitness, Goodwill, (Lowe's Home Improvement Center) Dick's Sporting Goods, AMC Theatres, Bed Bath & Beyond, Michaels, Old Navy, PetSmart, Books-A-Million Starbucks, Noodles & Company, Qdoba Property1 Location (MSA) Nevada Year Built/ Renovated Owned GLA2 Leased % Total Anchors Shops Total Anchors Shops ABR per SqFt Grocery Anchors4 Other Retailers4 Centennial Center Las Vegas 2002 334,042 147,824 186,218 96.5 % 100.0 % 93.7 % 25.45 Sam's Club, Walmart Centennial Gateway Las Vegas 2005 193,072 139,913 53,159 99.4 % 100.0 % 97.8 % 25.55 Trader Joe's Eastern Beltway Center Las Vegas 1998/2006 162,317 77,436 84,881 90.9 % 100.0 % 82.5 % 27.36 Sam's Club, Walmart Rampart Commons Las Vegas 2002/2018 79,314 11,965 67,349 100.0 % 100.0 % 100.0 % 33.45 New Jersey Bayonne Crossing Livingston Shopping Center 3 New York City Center North Carolina Holly Springs Towne Center - Phase I Holly Springs Towne Center - Phase II Northcrest Shopping Center Oleander Place Parkside Town Commons - Phase I Parkside Town Commons - Phase II New York / Northern New Jersey New York / Northern New Jersey New York / Northern New Jersey Raleigh Raleigh Charlotte Wilmington Raleigh Raleigh 2013 2016 2008 2012 2015 2017 2011 1997 106,146 52,219 53,927 100.0 % 100.0 % 100.0 % 29.46 Walmart 139,022 133,125 5,897 100.0 % 100.0 % 100.0 % 20.26 2004/2018 363,103 325,139 37,964 96.9 % 100.0 % 70.7 % 26.43 ShopRite 209,852 144,995 121,761 111,843 88,091 33,152 95.9 % 100.0 % 100.0 % 100.0 % 90.2 % 18.04 (Target) 100.0 % 17.83 (Target) 133,627 65,576 68,051 97.0 % 100.0 % 94.1 % 23.77 (Target) 45,524 55,368 30,144 22,500 15,380 32,868 100.0 % 100.0 % 100.0 % 17.91 Whole Foods 100.0 % 100.0 % 100.0 % 25.61 Harris Teeter/Kroger, Petco, Guitar Center (Target) 296,715 187,406 109,309 99.5 % 100.0 % 98.6 % 17.33 (Target) Perimeter Woods Charlotte 2008 125,646 105,262 20,384 100.0 % 100.0 % 100.0 % 20.71 Toringdon Market Charlotte 2004 60,627 26,072 34,555 97.9 % 100.0 % 96.3 % 22.71 Earth Fare Ohio Eastgate Pavilion Cincinnati 1995 236,230 231,730 4,500 100.0 % 100.0 % 100.0 % 9.12 Oklahoma Belle Isle Station Oklahoma City 2000 196,298 115,783 80,515 96.9 % 100.0 % 92.4 % 17.92 (Walmart) Shops at Moore Oklahoma City 2010 260,482 187,916 72,566 97.2 % 100.0 % 90.0 % 12.25 31 Ross Stores, Big Lots, Famous Footwear, Michaels, Petco, Home Depot, HomeGoods, Skechers, Five Below, Sephora 24 Hour Fitness, Party City, Sportsman's Warehouse, Walgreens Petco, Ross Stores, Skechers, Old Navy, (Home Depot) Athleta, North Italia, Pottery Barn, Williams Sonoma, Flower Child, Crunch Fitness Michaels, New York Sports Club, Lowe's Home Improvement Center Cost Plus World Market, Buy Buy Baby, Nordstrom Rack, DSW, TJ Maxx, Ulta Beauty Nordstrom Rack, New York Sports Club, Burlington, Club Champion Golf, National Amusements Dick's Sporting Goods, Marshalls, Petco, Ulta Beauty, Michaels, Old Navy, Five Below Bed Bath & Beyond, DSW, AMC Theatres, 02 Fitness REI Co-Op, David's Bridal, Old Navy, Five Below Frank Theatres, Golf Galaxy, Hobby Lobby, Stein Mart, Chuy's, Starbucks, Panera Bread, Levity Live Best Buy, Off Broadway Shoes, PetSmart, Michaels, (Lowe's Home Improvement Center) Best Buy, Dick's Sporting Goods, Value City Furniture, Petsmart, DSW, Bed Bath & Beyond REI, Shoe Carnival, Old Navy, Ross Stores, Nordstrom Rack, Ulta Beauty, Five Below Bed Bath & Beyond, Best Buy, Hobby Lobby, Office Depot, PetSmart, Ross Stores, (J.C. Penney) Property1 Location (MSA) Year Built/ Renovated Owned GLA2 Leased % Total Anchors Shops Total Anchors Shops ABR per SqFt Silver Springs Pointe South Carolina Oklahoma City 2001 48,440 20,515 27,925 83.0 % 100.0 % 70.4 % 13.28 Grocery Anchors4 Other Retailers4 (Sam's Club), (Walmart) Kohls, Office Depot, (Home Depot) Publix at Woodruff Greenville 1997 68,119 47,955 20,164 96.8 % 100.0 % 89.3 % 11.06 Publix Shoppes at Plaza Green Tennessee Greenville 2000 189,564 161,900 27,664 98.2 % 100.0 % 87.6 % 13.51 Cool Springs Market Nashville 1995 230,980 172,712 58,268 100.0 % 100.0 % 100.0 % 16.48 Texas Chapel Hill Shopping Center Dallas/Ft. Worth 2001 126,986 43,450 83,536 97.2 % 100.0 % 95.8 % 26.28 Colleyville Downs Dallas/Ft. Worth 2014 194,666 139,219 55,447 97.3 % 100.0 % 90.4 % 15.45 Whole Foods H-E-B Grocery (Kroger) Bed Bath & Beyond, Christmas Tree Shops, Sears, Party City, Shoe Carnival, AC Moore, Old Navy Dick's Sporting Goods, Marshalls, Buy Buy Baby, DSW, Staples, Jo-Ann Fabric, Panera Bread The Container Store, Cost Plus World Market Westlake Hardware, Goody Goody Liquor, Petco, Fit Factory Kingwood Commons Houston 1999 158,109 74,836 83,273 94.3 % 100.0 % 89.2 % 21.24 Market Street Village/ Pipeline Point Plaza at Cedar Hill Plaza Volente 3 Dallas/Ft. Worth 1970/2011 156,621 136,742 19,879 100.0 % 100.0 % 100.0 % 13.20 Jo-Ann Fabric, Ross Stores, Office Depot, Buy Buy Baby, Party City Sprouts Farmers Market, Total Wine DSW, Ross Stores, Hobby Lobby, Office Max, Marshalls, Home Goods Dallas/Ft. Worth 2000/2010 295,758 234,358 61,400 98.5 % 100.0 % 92.6 % 13.75 H-E-B Grocery Randall's Food and Drug Petco, Chico's, Talbots, Ann Taylor Portofino Shopping Center Austin Houston 2004 1999/2010 156,150 369,846 105,000 218,861 51,150 150,985 100.0 % 94.0 % 100.0 % 100.0 % 100.0 % $ 17.94 85.2 % 19.72 (Sam's Club) Sunland Towne Centre El Paso 1996/2014 306,454 265,037 41,417 98.9 % 100.0 % 91.7 % 11.26 Sprouts Farmers Market Waxahachie Crossing Dallas/Ft. Worth 2010 97,127 72,191 24,936 100.0 % 100.0 % 100.0 % 15.07 Westside Market Dallas/Ft. Worth 2013 93,377 70,000 23,377 100.0 % 100.0 % 100.0 % 16.61 Randalls Tom Thumb Utah Draper Crossing Salt Lake City 2012 164,657 115,916 48,741 100.0 % 100.0 % 100.0 % 16.97 Kroger/Smith's Draper Peaks Total Salt Lake City 2012 227,500 101,464 126,036 95.2 % 100.0 % 91.3 % 20.64 11,554,229 7,878,569 3,675,660 96.1 % 97.8 % 92.5 % 17.83 DSW, Michaels, PGA Superstore, SteinMart, PetSmart, Old Navy, TJ Maxx, Nordstrom Rack, Five Below PetSmart, Ross Stores, Bed Bath & Beyond, Spec's Fine Wines, At Home Best Buy, PetSmart, Ross Stores, (Home Depot), (J.C. Penney) TJ Maxx, Dollar Tree, Downeast Home Michaels, Office Depot, Petco, Quilted Bear, Ross Stores, (Kohl's) Total at Pro-Rata Share 11,220,882 7,590,705 3,630,177 96.0 % 97.7 % 92.4 % 17.85 32 ____________________ 1 All properties are wholly owned, except as indicated through reference to Note 3 below. Unless otherwise noted, each property is owned in fee simple by the Company. 2 Percentage of Owned GLA Leased reflects Owned GLA/NRA leased as of December 31, 2019, except for Greyhound Commons and 54th & College. 3 Asset is owned in a joint venture. 4 Tenants within parentheses are non-owned. 33 Office Operating Properties and Other As of December 31, 2019, we owned interests in one office operating property and two parking garages. In addition, two of our retail properties contain stand-alone office components. Together, these properties have a total of 0.5 million square feet of net rentable area (“NRA”) office space. The following table sets forth more specific information with respect to our office, parking and other properties as of December 31, 2019: ($ in thousands, except per square foot data) Property MSA Year Built/ Renovated Acquired, Redeveloped or Developed Owned NRA Percentage Of Owned NRA Leased Annualized Base Rent1 Percentage of Annualized Office and Other Base Rent Base Rent Per Leased Sq. Ft. Major Tenants Commercial Properties Thirty South Meridian2 Indianapolis 1905/2002 Redeveloped 284,874 95.9 % $ 5,392 67.5 % $ Union Station Parking Garage3 Pan Am Plaza Parking Garage3 Indianapolis Indianapolis 1986 Acquired Acquired N/A N/A N/A N/A N/A N/A N/A N/A 19.74 Carrier, Kite Realty Group, Lumina Foundation N/A Denison Parking (manager) N/A Denison Parking (manager) Stand-alone Office Components of Retail Properties Eddy Street Office (part of Eddy Street Commons)4 South Bend 2009 Developed 81,628 100.0 % 1,292 16.2 % 15.82 University of Notre Dame Offices Tradition Village Office (part of Tradition Village Square) Total Commercial Properties Other Properties Burlington Port St. Lucie 2006 Acquired 24,340 100.0 % 713 8.9 % 29.30 390,842 96.2 % $ 7,397 92.6 % $ 19.51 1992/2000 Acquired 107,400 107,400 100.0 % $ 100.0 % $ 591 591 7.4 % $ 7.4 % $ 5.50 Burlington 5.50 Total Commercial and Other 498,242 97.7 % $ 7,988 100.0 % $ 16.42 Multi-Family/Lodging Embassy Suites South Bend at Notre Dame5 The Foundry Lofts and Apartments at Eddy Street South Bend South Bend Summit at City Center Apartments New York / Northern New Jersey 2018 2009 2004 Developed Developed Acquired — — — N/A $ 100.0 % 100.0 % — — — — % $ — — $ $ — Full service hotel with 164 rooms — Air rights lease for apartment complex with 266 units — Apartment complex with 26 units. 34 ____________ 1 Annualized Base Rent represents the monthly contractual rent as of December 31, 2019 for each applicable property, multiplied by 12. 2 Annualized Base Rent includes $929,157 from the Company and subsidiaries as of December 31, 2019, which is eliminated for purposes of our consolidated financial statement presentation. 3 The garage is managed by a third party. 4 The Company also owns the Eddy Street Commons retail shopping center in South Bend, Indiana, along with a parking garage that serves a hotel and the office and retail components of the property. 5 Property owned in an unconsolidated joint venture. Development Project Under Construction In addition to our retail and office operating properties, as of December 31, 2019, we owned an interest in one development project currently under construction. The following table sets forth more specific information with respect to the Company’s development property as of December 31, 2019: ($ in thousands) Project Eddy Street Commons at Notre Dame, IN - Phase II 2 MSA South Bend, IN Anticipated Start Date Projected Stabilization Date1 N/A Q4 2020 Projected New Total GLA 530,000 Projected New Owned GLA KRG Share of Estimated Project Cost KRG Share of Cost Incurred Estimated Return on Investment3 8,500 $ 10,000 $ 6,286 11.0% - 13.0% ____________________ 1 2 3 Stabilization date represents near completion of project construction and substantial occupancy of the property. Total estimated cost of all components of Eddy Street Phase II equals $90.8 million, consisting of KRG estimated project cost ($10.0 million), TIF ($16.1 million), and residential apartments and townhomes to be ground subleased to unrelated third party ($64.7 million). Projected ROI for redevelopments is an estimate of the expected incremental stabilized annual operating cash flows to be generated divided by the estimated project costs, including construction, development, financing, and other soft costs, when applicable to the project. 35 Tenant Diversification No individual retail or office tenant accounted for more than 2.5% of the portfolio’s annualized base rent for the year ended December 31, 2019. The following table sets forth certain information for the largest 25 tenants open for business at the Company’s retail properties based on minimum rents in place as of December 31, 2019: TOP 25 TENANTS BY ANNUALIZED BASE RENT ($ in thousands, except per square foot data) Number of Stores Tenant Publix Super Markets, Inc. The TJX Companies, Inc.5 Bed Bath & Beyond, Inc.6 PetSmart, Inc. Ross Stores, Inc. Dick's Sporting Goods, Inc.7 Nordstrom Rack Michaels Stores, Inc. National Amusements Kohl's Corporation Walmart Stores, Inc.8 Best Buy Co., Inc. The Gap9 Lowe's Companies, Inc. LA Fitness Burlington Stores, Inc. Hobby Lobby Stores, Inc. Petco Animal Supplies, Inc. Whole Foods Market, Inc. The Kroger Co.10 Mattress Firm Holdings Corp (12) / Sleepy's (4) Office Depot (6) / Office Max (2) New York Sports Club Randall's Food and Drugs Walgreens TOTAL Total Leased GLA/NRA 2 535,466 $ 471,798 422,348 291,389 364,476 340,502 197,797 253,936 80,000 184,516 — 183,604 162,773 — 125,209 238,400 271,254 125,897 139,781 60,268 JV1 — 2 2 1 1 — 1 1 — — — — — — — — — — — — Wholly Owned 11 14 14 13 12 7 5 11 1 4 5 5 11 3 3 3 5 9 4 3 16 — 76,408 8 2 2 3 174 — — — — 8 167,606 86,717 133,990 52,662 4,966,797 $ Annualized Base Rent 3 Annualized Base Rent per Sq. Ft. % of Total Portfolio Annualized Base Rent4 5,454 $ 4,749 4,281 4,077 3,986 3,647 3,571 3,222 2,953 2,832 2,652 2,612 2,588 2,375 2,292 2,226 2,190 2,188 2,130 2,099 2,069 1,957 1,921 1,754 1,726 71,553 $ 10.19 11.00 11.04 14.59 11.57 10.71 20.75 13.41 36.92 7.87 3.27 14.22 15.90 4.91 18.31 9.34 8.07 17.38 15.24 9.19 27.08 11.67 22.16 13.09 32.78 11.18 2.5 % 2.2 % 1.9 % 1.8 % 1.8 % 1.7 % 1.6 % 1.5 % 1.3 % 1.3 % 1.2 % 1.2 % 1.2 % 1.1 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 0.9 % 0.9 % 0.9 % 0.8 % 0.8 % 32.1 % 36 ___ JV Stores represent stores at unconsolidated properties. 1 2 Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants. 3 Annualized base rent represents the monthly contractual rent for December 31, 2019, for each applicable tenant multiplied by 12. Annualized base rent does not include tenant reimbursements. Annualized base rent represents 100% of the annualized base rent at consolidated properties and our share of the annualized base rent at unconsolidated properties. 4 Annualized base rent and percent of total portfolio includes ground lease rent. 5 Includes TJ Maxx (9), Marshalls (5) and HomeGoods (2). 6 7 8 Includes Bed Bath and Beyond (8), Buy Buy Baby (4) Christmas Tree Shops,(1), and Cost Plus World Market (3). Includes Dick's Sporting Goods (6) and Golf Galaxy (1). Includes Sam's Club. Includes Old Navy (10) and Athleta (1). 9 10 Includes Kroger (1), Harris Teeter (1), and Smith's (1). Ascena Retail Group announced plans to commence a wind down of Dressbarn's operations. Excluding Dressbarn stores, Ascena Retail Group accounts for 0.6% of total portfolio annualized base rent. 37 Geographic Diversification – Annualized Base Rent by Region and State The Company owns interests in 90 operating and redevelopment properties. We also own interests in one development project under construction. The total operating portfolio consists of approximately 12.7 million of owned square feet in 16 states. The following table summarizes the Company’s operating properties by region and state as of December 31, 2019: ($ in thousands) Total Operating Portfolio Excluding Developments and Redevelopments Developments and Redevelopments2 Joint Ventures 3 Total Operating Portfolio Including Developments and Redevelopments Region/State Owned GLA/NRA1 Annualized Base Rent Owned GLA/NR A1 Annualized Base Rent Owned GLA/N RA1 Annualized Base Rent Number of Propertie s Owned GLA/NRA 1 Annualized Base Rent - Ground Leases Total Annualized Base Rent Percent of Annualized Base Rent 3,323,004 $ 53,003 124,802 $ 251 121,705 $ 1,528 3,569,511 $ 3,845 $ 58,627 South Florida Texas North Carolina Oklahoma Georgia Tennessee South Carolina Texas - Other Total South Midwest Indiana - Retail Indiana - Other Illinois Ohio Total Midwest West Nevada Utah Arizona Total West Northeast New York New Jersey 1,798,944 1,072,354 505,220 276,318 230,980 257,683 107,400 7,571,903 1,461,464 366,502 83,759 236,230 2,147,955 768,745 392,157 79,902 1,240,804 363,103 106,146 28,690 20,596 7,044 3,664 3,808 3,245 591 120,641 23,634 6,684 1,138 2,155 33,611 19,791 7,263 2,467 29,521 9,302 3,127 — — — — — — — 124,802 519,216 — — — 519,216 — — — — — — — — — — — — — — — 251 156,150 — — — — — — 277,855 — — — — — — — — — 3,071 — — — 3,071 — — — — — — — — 139,022 — 2,817 — — — 139,022 2,817 2,801 — — — — — — 4,329 — — — — — — — — — 30 10 8 3 1 1 2 1 56 19 3 1 1 24 4 2 1 7 1 2 1 4 1,955,094 1,072,354 505,220 276,318 230,980 257,683 107,400 7,974,560 1,980,680 366,502 83,759 236,230 2,667,171 768,745 392,157 79,902 1,240,804 363,103 245,168 1,351 2,004 850 336 — — — 8,386 1,626 — — — 1,626 3,592 — — 3,592 — 2,263 25.9% 14.5% 10.0% 3.5% 1.8% 1.7% 1.4% 0.3% 59.1% 12.5% 3.0% 0.5% 1.0% 17.0% 10.3% 3.2% 1.1% 14.6% 32,842 22,600 7,894 4,000 3,808 3,245 591 133,607 28,331 6,684 1,138 2,155 38,308 23,383 7,263 2,467 33,113 9,302 8,207 4.1% 3.6% Connecticut 205,683 2,566 Total Northeast 674,932 14,995 205,683 1,061 3,627 1.6% 813,954 3,324 21,136 9.3% 11,635,594 $ 198,768 644,018 $ 3,322 416,877 $ 7,146 91 12,696,489 $ 16,928 $ 226,164 100.0% ____________________ 1 2 3 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 and Pan Am Plaza Parking Garage. Represents the four redevelopment and one development project not in the retail operating portfolio. Represents the three operating properties owned in unconsolidated joint ventures. 38 Lease Expirations In 2020, leases representing 7.2% of total annualized base rent are scheduled to 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, 2019, assuming none of the tenants exercise renewal options. LEASE EXPIRATION TABLE – OPERATING PORTFOLIO ($ in thousands, except per square foot data) Expiring GLA2 Expiring Annualized Base Rent per Sq. Ft.3 Office and Other Tenants Number of Expiring Leases1 Expiring Annualized Base Rent Anchor Shop (Pro-rata) Tenants Tenants 3,242 $ 14,567 534,529 332,585 22,455 17,868 451,708 865,234 29,813 65,020 535,220 1,078,093 33,020 536,662 1,125,475 129,935 24,609 458,244 33,827 868,181 21,270 310,145 1,015,606 116,988 10,007 — 496,033 212,668 9,875 9,154 365,093 192,682 11,524 61,747 371,802 163,274 7,186 2,200 243,700 128,882 19,192 54,721 820,149 159,699 1,572 3,481,769 7,783,895 494,702 $ 203,520 154 212 256 252 210 149 78 70 70 54 67 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Beyond ____ % of Total Annualized Base Rent (Pro-rata) Shop Tenants Anchor Tenants Office and Other Tenants 7.2 % $ 25.24 $ 11.83 $ 19.25 $ 11.0 % 14.6 % 27.19 26.94 28.29 29.30 29.05 26.49 28.23 30.71 29.90 28.73 11.65 13.17 14.86 15.08 10.77 9.85 12.99 14.02 13.11 16.70 21.97 19.67 9.15 13.96 16.20 — 31.29 21.75 62.73 21.59 16.2 % 12.1 % 10.5 % 4.9 % 4.9 % 5.7 % 3.5 % 9.4 % 100.0 % $ 27.93 $ 13.25 $ 16.66 $ Total 16.90 16.96 17.80 18.45 20.38 15.24 15.23 18.94 19.36 19.17 18.72 17.81 1 Lease expiration table reflects rents in place as of December 31, 2019 and does not include option periods; 2020 expirations include 8 month-to-month tenants. This column also excludes ground leases. 2 Expiring GLA excludes estimated square footage attributable to non-owned structures on land owned by the Company and ground leased to tenants. 3 Annualized base rent represents the monthly contractual rent as of December 31, 2019 for each applicable tenant multiplied by 12. Excludes tenant reimbursements and ground lease revenue. Lease Activity – New and Renewal In 2019, the Company executed new and renewal leases on 302 individual spaces totaling 2.0 million square feet (9.2% cash leasing spread and 14.5% GAAP leasing spread on 242 comparable leases). New leases were signed on 114 individual spaces for 0.5 million square feet of GLA (35.5% cash leasing spread and 44.8% GAAP leasing spread on 64 comparable leases), while renewal leases were signed on 188 individual spaces for 1.5 million square feet of GLA (3.3% cash leasing spread and 7.5% GAAP leasing spread on 178 comparable leases). ITEM 3. LEGAL PROCEEDINGS 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 39 business. Management believes that such matters will not have a material adverse impact on our consolidated financial condition, results of operations or cash flows taken as a whole. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 40 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 NYSE under the symbol “KRG.” On February 14, 2020, the closing price of our common shares on the NYSE was $17.92. Holders The number of registered holders of record of our common shares was 1,143 as of February 14, 2020. 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, if any, 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 Code, 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 U.S. 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 U.S. 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, 2019, approximately 35% of our distributions to shareholders constituted a return of capital, approximately 35% constituted taxable capital gains dividends, and approximately 30% constituted taxable ordinary income dividends. Under our unsecured revolving credit facility, we are permitted to make distributions to our shareholders provided that no event of default exists. If an event of default exists, we may only make distributions sufficient to maintain our REIT status. However, we may not make any distributions if any event of default resulting from nonpayment or bankruptcy exists, or if our obligations under the unsecured revolving credit facility are accelerated. Issuer Repurchases; Unregistered Sales of Securities During the three months ended December 31, 2019, certain of our employees surrendered common shares owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of restricted common shares of beneficial interest issued under our Plan. These shares were repurchased by the Company. The following table summarizes all of these repurchases during the three months ended December 31, 2019: 41 Period October 1 - October 31 November 1 - November 30 December 1 - December 31 Total Total number of shares purchased — Average price paid per share — Total number of shares purchased as part of publicly announced plans or programs N/A Maximum number of shares that may yet be purchased under the plans or programs N/A 5,505 — 5,505 $18.03 — N/A N/A N/A N/A We did not sell any unregistered securities during 2019. 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. The following graph compares the cumulative total shareholder return of our common shares for the period from December 31, 2014 to December 31, 2019, 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 $100 at December 31, 2014 and that all cash distributions were reinvested. The shareholder return shown on the graph below is not indicative of future performance 42 Kite Realty Group Trust S&P 500 FTSE NAREIT Equity REITs 12/14 6/15 12/15 6/16 12/16 6/17 12/17 6/18 12/18 6/19 12/19 100.00 93.16 73.53 100.00 101.23 101.38 105.27 113.51 124.11 138.29 141.95 132.23 156.74 173.86 103.79 86.75 94.00 88.78 60.85 70.96 69.56 78.47 100.00 94.33 103.20 117.00 111.99 115.01 117.84 119.04 112.39 132.38 141.61 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth, on a historical basis, selected unaudited financial and operating information. The financial information has been derived from our consolidated balance sheets and statements of operations. This information should be read in conjunction with our audited consolidated financial statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. 43 ($ in thousands, except per share data) Year Ended December 31 (Unaudited) 2019 2018 2017 2016 2015 Operating Data: Revenues: Rental income and other property related revenue $ Fee income Total revenues Expenses: Property operating Real estate taxes General, administrative, and other Transaction costs Non-cash gain from release of assumed earnout liability Depreciation and amortization Impairment charge Total expenses Gains on sales of operating properties, net Operating income Interest expense Income tax benefit (expense) of taxable REIT subsidiary (Loss) gain on debt extinguishment Gain on settlement Equity in loss of unconsolidated subsidiaries Other expense, net Consolidated net (loss) income Net income attributable to noncontrolling interests: Net (loss) income attributable to Kite Realty Group Trust: Dividends on preferred shares Non-cash adjustment for redemption of preferred shares Net (loss) income attributable to common shareholders $ (Loss) income per common share – basic: 314,725 $ 448 315,173 45,575 38,777 28,214 — — 132,098 37,723 282,387 38,971 71,757 (59,268 ) 282 (11,572 ) — (628 ) (573 ) (2 ) (532 ) (534 ) — — (534 ) $ 351,661 $ 2,523 354,184 50,356 42,378 21,320 — — 152,163 70,360 336,577 3,424 21,031 (66,785 ) 227 — — (278 ) (646 ) (46,451 ) (116 ) (46,567 ) — — (46,567 ) $ (Loss) income from continuing operations attributable to Kite Realty Group Trust common shareholders $ (0.01 ) $ (0.56 ) $ Income from discontinued operations attributable to Kite Realty Group Trust common shareholders — — Net (loss) income attributable to Kite Realty Group Trust common shareholders $ (0.01 ) $ (0.56 ) $ (Loss) income per common share – diluted: (Loss) income from continuing operations attributable to Kite Realty Group Trust common shareholders $ (0.01 ) $ (0.56 ) $ Income from discontinued operations attributable to Kite Realty Group Trust common shareholders Net (loss) income attributable to Kite Realty Group Trust common shareholders Weighted average Common Shares outstanding – basic Weighted average Common Shares outstanding – diluted Distributions declared per Common Share $ $ — — (0.01 ) $ (0.56 ) $ 358,442 $ 377 358,819 49,643 43,180 21,749 — — 172,091 7,411 294,074 15,160 79,905 (65,702 ) 100 — — — (415 ) 13,888 (2,014 ) 11,874 — — 11,874 $ 0.14 $ — 0.14 $ 0.14 $ — 0.14 $ 354,122 $ — 354,122 47,923 42,838 20,603 2,771 — 174,564 — 288,699 4,253 69,676 (65,577 ) (814 ) — — — (169 ) 3,116 (1,933 ) 1,183 — — 1,183 $ 0.01 $ — 0.01 $ 0.01 $ — 0.01 $ 347,005 — 347,005 49,973 40,904 18,709 1,550 (4,832 ) 167,312 1,592 275,208 4,066 75,863 (56,432 ) (186 ) 5,645 4,520 — (95 ) 29,315 (2,198 ) 27,117 (7,877 ) (3,797 ) 15,443 0.19 — 0.19 0.18 — 0.18 83,926,296 83,926,296 1.2700 $ 83,693,385 83,693,385 1.2700 $ 83,585,333 83,690,418 1.2250 $ 83,436,511 83,465,500 1.1700 $ 83,421,904 83,534,831 1.0900 44 ($ in thousands) As of December 31 2019 2018 2017 2016 2015 Balance Sheet Data (Unaudited): Investment properties, net Cash and cash equivalents Assets held for sale Total assets Mortgage and other indebtedness Total liabilities $ 2,420,439 $ 2,941,193 $ 3,293,270 $ 3,435,382 $ 3,500,845 33,880 — 3,756,428 1,724,449 1,937,364 31,336 — 2,648,887 1,146,580 1,306,577 35,376 5,731 3,172,013 1,543,301 1,712,867 24,082 — 3,512,498 1,699,239 1,874,285 19,874 — 3,656,371 1,731,074 1,923,940 Limited partners' interests in Operating Partnership and other redeemable noncontrolling interests Kite Realty Group Trust shareholders’ equity Noncontrolling interests Total liabilities and equity 52,574 1,289,038 698 2,648,887 45,743 1,412,705 698 3,172,013 72,104 1,565,411 698 3,512,498 88,165 1,643,574 692 3,656,371 92,315 1,725,976 773 3,756,428 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. Our Business and Properties Kite Realty Group Trust is a publicly-held real estate investment trust which, through its majority-owned subsidiary, Kite Realty Group, L.P., 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 select markets in the United States. We derive revenues primarily from activities associated with the collection of contractual rents and reimbursement payments from tenants at our properties. Our operating results therefore depend materially on, among other things, the ability of our tenants to make required lease payments, the health and resilience of the United States retail sector, interest rate volatility, job growth and real estate market and overall economic conditions. As of December 31, 2019, we owned interests in 90 operating and redevelopment properties totaling approximately 17.4 million square feet. We also owned one development project under construction as of this date. Portfolio Update In evaluating acquisition, development, and redevelopment opportunities, we look for strong sub-markets where average household income, population density, traffic counts and daytime workforce populations are above the broader market average. We also focus on locations that are benefitting from current population migratory patterns, namely major cities in states with no or relatively low income taxes, and mild or temperate climates. In our largest sub-markets, household incomes are significantly higher and state income taxes are relatively lower than the medians for those broader markets. In February 2019, we announced a plan to market and sell up to $500 million in non-core assets as part of a program designed to improve the Company’s portfolio quality, reduce its leverage, and focus operations on markets where we believe the Company can gain scale and generate attractive risk-adjusted returns. This program ("Project Focus 2019") was completed in October 2019. The majority of the net proceeds were used to repay debt, further strengthening our balance sheet. 45 In addition to the delevering, we improved the quality of our portfolio. We increased the ABR of our portfolio to $17.83 as the retail assets sold had a weighted average ABR of $14.66, which is significantly lower than our current portfolio. In addition to targeting sub-markets with strong consumer demographics, we focus on having the most desirable tenant mix at each center. We have aggressively targeted and executed leases with prominent grocers including Publix, Aldi, and Trader Joe's, expanding retailers such as TJ Maxx, Ross Dress for Less, Burlington, and Old Navy, service and restaurant retailers such as and other retailers such as Ulta, REI, Party City and Total Wine. Additionally, we have identified cost-efficient ways to relocate, re- tenant and renegotiate leases at several of our properties allowing us to attract more suitable tenants. 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. With the successful completion of Project Focus in 2019, we were able to enhance our already-strong balance sheet, increase our financial flexibility, and improve our liquidity to fund future growth. We ended the year with approximately $614.8 million of combined cash and borrowing capacity on our unsecured revolving credit facility. In addition, as of December 31, 2019, we did not have any debt principal scheduled to mature through December 31, 2021. The amount that we may borrow under our unsecured revolving credit facility is limited by the value of the assets in our unencumbered asset pool. As of December 31, 2019, the value of the assets in our unencumbered asset pool was $1.4 billion. The investment grade credit ratings we have received provide us with access to the unsecured public bond market, which we may continue to use in the future to finance acquisition activity, repay maturing debt and fix interest rates. 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 GAAP 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, in some cases, 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 a property- by-property basis on at least a quarterly basis or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. This review for possible impairment requires certain assumptions, estimates, and 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. The evaluation of impairment is subject to certain management assumptions including projected net operating income, anticipated hold period, expected capital expenditures and the capitalization rate used to estimate the property's residual value. 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 will be classified as held for sale only when those properties are 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 classified as held for sale 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 46 eliminated from ongoing operations, and we will not have a continuing involvement after disposition. In 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, 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. 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. 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, as defined below. 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 having a lease in place at the acquisition date. 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 we consider 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. 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 minimum base rent, percentage rent, and expense reimbursements from tenants for common area maintenance costs, insurance and real estate taxes are our principal sources 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 rental income in the accompanying consolidated statements of operations for the year ended December 31, 2019. If we determine that collectibility is probable, we recognize income from rentals based on the methodology described above. We have accounts receivable due from tenants and are subject to the risk of tenant 47 defaults and bankruptcies that may affect the collection of outstanding receivables. These receivables are reduced for credit loss that is recognized as a reduction to rental income. We regularly evaluate the collectibility of these lease-related receivables by analyzing past due account balances and consider such facts as the credit quality of our customer, historical write-off experience, tenant credit- worthiness and current economic trends when evaluating the collectibility of rental income. Although we estimate uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates. We recognize the sale of real estate when control transfers to the buyer. 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. Fair Value Measurements We follow the framework established under accounting standard FASB ASC 820, Fair Value Measurements and Disclosures, 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 consider 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 8 to the Financial Statements, we have determined that 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 6 to the Financial Statements includes a discussion of the fair values recorded when we recognized impairment charges in 2019, 2018 and 2017. Level 3 inputs to these transactions include our estimations of disposal values. Income Taxes and REIT Compliance Parent Company The Parent Company, which is considered a corporation for U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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 48 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 U.S. federal income taxes included in the accompanying consolidated financial statements are in connection with the taxable REIT subsidiary. Inflation Inflation rates have been near historical lows in recent years and, therefore, have not had a significant impact on our results of operations. 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. Also, most of our leases have original terms of fewer than ten years, which enables us to adjust rental rates to market upon lease renewal. Results of Operations As of December 31, 2019, we owned interests in 90 operating and redevelopment properties and one development project currently under construction. The following table sets forth the total operating and redevelopment properties and development projects that we owned as of December 31, 2019, 2018 and 2017: Operating Retail Properties Operating Office Properties and Other Redevelopment Properties Total Operating and Redevelopment Properties Development Projects: Total All Properties # of Properties 2019 2018 2017 82 4 4 90 1 91 105 3 3 111 1 112 105 4 8 117 2 119 The comparability of results of operations is affected by our development, redevelopment, and operating property disposition activities in 2018 through 2019. 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, 2019 and 2018”) in conjunction with the discussion of these activities during those periods, which is set forth below. Property Acquisition Activities During the year ended December 31, 2019, we acquired the properties listed in the table below. We did not acquire any properties in 2018. Property Name MSA Acquisition Date Owned GLA Pan Am Plaza Garage Nora Plaza Indianapolis, IN Indianapolis, IN March 2019 August 2019 N/A 139,743 Operating Property Disposition Activities During the two years ended December 31, 2019, we sold the operating properties listed in the table below. 49 Property Name MSA Disposition Date Owned GLA Trussville Promenade Memorial Commons Tamiami Crossing 1 Plaza Volente 1 Livingston Shopping Center 1 Hamilton Crossing Fox Lake Crossing Lowe's Plaza Whitehall Pike Beechwood Promenade Village at Bay Park Lakewood Promenade Palm Coast Landing Lowe's - Perimeter Woods Cannery Corner Temple Terrace University Town Center Gainesville Plaza Bolton Plaza Eastgate Plaza Burnt Store Landstown Commons Lima Marketplace Hitchcock Plaza Merrimack Village Center Publix at Acworth The Centre at Panola Beacon Hill Bell Oaks Centre Boulevard Crossing South Elgin Commons ____________________ Birmingham, AL Goldsboro, NC Naples, FL Austin, TX Newark, NJ Alcoa, TN Chicago, IL Las Vegas, NV Bloomington, IN Athens, GA Green Bay, WI Jacksonville, FL Palm Coast, FL Charlotte, NC Las Vegas, NV Tampa, FL Oklahoma City, OK Gainesville, FL Jacksonville, FL Las Vegas, NV February 2018 March 2018 June 2018 June 2018 June 2018 November 2018 December 2018 December 2018 March 2019 April 2019 May 2019 May 2019 May 2019 May 2019 May 2019 June 2019 June 2019 July 2019 July 2019 July 2019 Punta Gorda, FL Virginia Beach, VA July 2019 August 2019 Fort Wayne, IN Aiken, SC Manchester, NH Atlanta, GA Atlanta, GA Crown Point, IN Evansville, IN Kokomo, IN Chicago, IL September 2019 September 2019 September 2019 October 2019 October 2019 October 2019 November 2019 December 2019 December 2019 463,836 111,022 121,705 156,296 139,559 175,464 99,136 30,210 128,997 297,369 82,254 196,655 168,352 166,085 30,738 90,328 348,877 162,189 154,155 96,594 95,625 398,139 100,461 252,211 78,892 69,628 73,075 56,820 94,958 124,634 128,000 1 The Company has retained a 20% ownership interest in this property. Redevelopment Activities During portions of the two years ended December 31, 2019, the following properties were under active redevelopment and removed from our operating portfolio: 50 Property Name MSA Courthouse Shadows2 Hamilton Crossing Centre2, 3 City Center 4 Fishers Station 4 Beechwood Promenade 4, 5 The Corner2, 3 Rampart Commons 4 Burnt Store Marketplace 4, 5 Glendale Town Center 2 Naples, FL Indianapolis, IN White Plains, NY Indianapolis, IN Athens, GA Indianapolis, IN Las Vegas, NV Punta Gorda, FL Indianapolis, IN Transition to Redevelopment1 Transition to Operating Portfolio June 2013 June 2014 December 2015 Pending Pending June 2018 December 2015 December 2015 September 2018 December 2018 December 2015 March 2016 Pending December 2018 June 2016 March 2019 March 2018 Pending Owned GLA 124,802 89,983 363,103 52,414 297,369 27,731 79,314 95,625 393,002 ____________________ 1 2 Transition date represents the date the property was transferred from our operating portfolio into redevelopment status. This property has been identified as a redevelopment property and is not included in the operating portfolio or the same property pool. This redevelopment would potentially include the creation of a mixed-use (office, retail, and multi-family) development. This property was transitioned to the operating portfolio; however, it remains excluded from the same property pool for at least a portion of 2019 because it has not been in the operating portfolio four full quarters after the property was transitioned to operations. This property was sold in 2019. 3 4 5 Net Operating Income and Same Property Net Operating Income We use property net operating income (“NOI”), a non-GAAP financial measure, to evaluate the performance of our properties. We define NOI as income from our real estate, including lease termination fees received from tenants, less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions and certain corporate level expenses. We believe that NOI is helpful to investors as a measure of our operating performance because it excludes various items included in net income that do not relate to or are not indicative of our operating performance, such as depreciation and amortization, interest expense, and impairment, if any. We also use same property NOI ("Same Property NOI"), a non-GAAP financial measure, to evaluate the performance of our retail properties. Same Property NOI excludes properties that have not been owned for the full period presented. It also excludes net gains from outlot sales, straight-line rent revenue, lease termination fees, amortization of lease intangibles and significant prior period expense recoveries and adjustments, if any. We believe that Same Property NOI is helpful to investors as a measure of our 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 acquisition or disposition of properties during the particular period presented and thus provides a more consistent metric for the comparison of our properties. Full year Same Property NOI represents the sum of the four quarters, as reported. NOI and Same Property NOI should not, however, be considered as alternatives to net income (calculated in accordance with GAAP) as indicators of our financial performance. Our computation of NOI and Same Property NOI may differ from the methodology used by other REITs, and therefore may not be comparable to such other REITs. When evaluating the properties that are included in the same property pool, we have established specific criteria for determining the inclusion of properties acquired or those recently under development. An acquired property is included in the same property pool when there is a full quarter of operations in both years subsequent to the acquisition date. Development and redevelopment properties are included in the same property pool four full quarters after the properties have been transferred to the operating portfolio. 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. At December 31, 2019, the same property pool excluded four properties in redevelopment, one recently completed redevelopment, one acquired property, and three commercial properties. 51 The following table reflects Same Property NOI1 and a reconciliation to net income attributable to common shareholders for the years ended December 31, 2019 and 2018 (unaudited): ($ in thousands) Leased percentage at period end Economic Occupancy percentage2 Years Ended December 31, 2019 2018 % Change 96.0 % 92.6 % 95.0 % 92.6 % Same Property NOI3 $ 204,586 $ 200,111 2.2 % Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure: Net operating income - same properties Net operating income - non-same activity4 Other (expense) income, net General, administrative and other Loss on debt extinguishment Impairment charges Depreciation and amortization expense Interest expense Gains on sales of operating properties Net income attributable to noncontrolling interests Net (loss) income attributable to common shareholders $ $ 204,586 25,787 (471 ) (28,214 ) (11,572 ) (37,723 ) (132,098 ) (59,268 ) 38,971 (532 ) (534 ) $ $ 200,111 58,816 1,826 (21,320 ) — (70,360 ) (152,163 ) (66,785 ) 3,424 (116 ) (46,567 ) ____ 1 Same Property NOI excludes (i) The Corner, Courthouse Shadows, Glendale Town Center, and Hamilton Crossing redevelopments, (ii) the recently completed Rampart Commons redevelopment, (iii) the recently acquired Nora Plaza, and (iv) office properties. 2 Excludes leases that are signed but for which tenants have not yet commenced the payment of cash rent. Calculated as a weighted average based on the timing of cash rent commencement and expiration during the period. 3 Same Property NOI excludes net gains from outlot sales, straight-line rent revenue, lease termination fees, amortization of lease intangibles, fee income and significant prior period expense recoveries and adjustments, if any. 4 Includes non-cash activity across the portfolio as well as net operating income from properties not included in the same property pool including properties sold during both periods. Our Same Property NOI increased 2.2% in 2019 compared to 2018. This increase was primarily due to growth in rental rates and contractual rent increases in existing leases. 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, a non-GAAP financial measure, in accordance with the best practices described in the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts ("NAREIT"), as restated in 2018. The NAREIT white paper defines FFO as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Considering the nature of our business as a real estate owner and operator, the Company believes that FFO is helpful to investors in measuring our operational performance because it excludes various items included in net income that do not 52 relate to or are not indicative of our operating performance, such as gains or losses from sales of depreciated property and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. FFO (a) should not be considered as an alternative to net income (calculated in accordance with GAAP) for the purpose of measuring our financial performance, (b) is not an alternative to cash flow from operating activities (calculated in accordance with GAAP) as a measure of our liquidity, and (c) is not indicative of funds available to satisfy our cash needs, including our ability to make distributions. Our computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. For informational purposes, we have also provided FFO adjusted for loss on debt extinguishment. From time to time, the Company may report or provide guidance with respect to “NAREIT FFO as adjusted” which removes the impact of certain non-recurring and non-operating transactions or other items the Company does not consider to be representative of its core operating results including without limitation, gains or losses associated with the early extinguishment of debt, gains or losses associated with litigation involving the Company that is not in the normal course of business, the impact on earnings from executive separation, and the excess of redemption value over carrying value of preferred stock redemption, which are not otherwise adjusted in the Company’s calculation of FFO. Our calculations of FFO1 and reconciliation to consolidated net income and FFO, as adjusted for the years ended December 31, 2019, 2018 and 2017 (unaudited) are as follows: ($ in thousands) Consolidated net (loss) income Less: net income attributable to noncontrolling interests in properties Less: (Gain) loss on sales of operating properties Add: impairment charges Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests FFO of the Operating Partnership1 Less: Limited Partners' interests in FFO FFO attributable to Kite Realty Group Trust common shareholders1 FFO of the Operating Partnership1 Add: loss on debt extinguishment FFO, as adjusted, of the Operating Partnership Years Ended December 31, 2019 $ (2 ) $ (528 ) (38,971 ) 37,723 2018 (46,451 ) $ (1,151 ) (3,424 ) 70,360 2017 13,888 (1,731 ) (15,160 ) 7,411 133,184 131,406 (3,153 ) 128,253 $ 151,856 171,190 (4,109 ) 167,081 $ 170,315 174,723 (3,966 ) 170,757 131,406 $ 11,572 142,978 $ 171,190 $ — 171,190 $ 174,723 — 174,723 $ $ $ ____________________ 1 “FFO of the Operating Partnership" measures 100% of the operating performance of the Operating Partnership’s real estate properties. “FFO attributable to Kite Realty Group Trust common shareholders” reflects a reduction for the redeemable noncontrolling weighted average diluted interest in the Operating Partnership. Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) 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) gains on sales of operating properties or impairment charges, (iii) other income and expense, (iv) noncontrolling interest EBITDA and (v) other non-recurring activity or items impacting comparability from period to period. Annualized Adjusted EBITDA is Adjusted EBITDA for the most recent quarter multiplied by four. Net Debt to Adjusted EBITDA is our share of net debt divided by Annualized Adjusted EBITDA. EBITDA, Adjusted EBITDA, Annualized Adjusted EBITDA and Net Debt to Adjusted EBITDA, as calculated by us, are not comparable to EBITDA and EBITDA-related measures reported by other REITs that do not define EBITDA and EBITDA-related measures 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. 53 Considering the nature of our business as a real estate owner and operator, we believe that EBITDA, Adjusted EBITDA and the ratio of Net Debt to Adjusted EBITDA are helpful to investors in measuring our operational performance because they exclude various items included in net income that do not relate to or are not indicative of our operating performance, such as gains or losses from sales of depreciated property and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. 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 and the related measures 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 Adjusted EBITDA. ($ in thousands) Consolidated net income Adjustments to net income: Depreciation and amortization Interest expense Income tax benefit of taxable REIT subsidiary Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) Adjustments to EBITDA: Unconsolidated EBITDA Gain on sales of operating properties Loss on debt extinguishment Other income and expense, net Noncontrolling interest Pro-forma adjustments 1 Adjusted EBITDA Annualized Adjusted EBITDA1 Company share of net debt: Mortgage and other indebtedness Less: Partner share of consolidated joint venture debt Less: Cash, cash equivalents, and restricted cash Plus: Company share of unconsolidated joint venture debt Plus: Debt Premium Less: Pro-forma adjustment 3 Company Share of Net Debt Net Debt to Adjusted EBITDA Three Months Ended December 31, 2019 $ 15,855 30,765 12,383 (94 ) 58,909 774 (14,005 ) 1,950 92 (132 ) (1,519 ) 46,069 $ 184,276 1,146,580 (1,117 ) (53,464 ) 22,148 6,722 (27,200 ) 1,093,669 5.9x ____________________ 1 Relates to annualized EBITDA for properties sold during the quarter and timing of overage rent and lease termination income. 2 Represents Adjusted EBITDA for the three months ended December 31, 2019 (as shown in the table above) multiplied by four. 3 Relates to timing of quarterly dividend payment being made prior to quarter-end resulting in five payments year to date. Comparison of Operating Results for the Years Ended December 31, 2019 and 2018 54 The following table reflects changes in the components of our consolidated statements of operations for the years ended December 31, 2019 and 2018: ($ in thousands) Revenue: Rental income Other property related revenue Fee income Total revenue Expenses: Property operating Real estate taxes General, administrative, and other Depreciation and amortization Impairment charge Total expenses Gains on sale of operating properties, net Operating income Interest expense Income tax benefit of taxable REIT subsidiary Loss on debt extinguishment Equity in loss of unconsolidated subsidiary Other expense, net Consolidated net loss Net income attributable to noncontrolling interests 2019 2018 Net change 2018 to 2019 $ 308,399 6,326 448 315,173 45,575 38,777 28,214 132,098 37,723 282,387 38,971 71,757 (59,268 ) 282 (11,572 ) (628 ) (573 ) (2 ) (532 ) $ $ 338,523 13,138 2,523 354,184 50,356 42,378 21,320 152,163 70,360 336,577 3,424 21,031 (66,785 ) 227 — (278 ) (646 ) (46,451 ) (116 ) (30,124 ) (6,812 ) (2,075 ) (39,011 ) (4,781 ) (3,601 ) 6,894 (20,065 ) (32,637 ) (54,190 ) 35,547 50,726 7,517 55 (11,572 ) (350 ) 73 46,449 (416 ) Net loss attributable to Kite Realty Group Trust common shareholders $ (534 ) $ (46,567 ) $ 46,033 Property operating expense to total revenue ratio 14.5 % 14.2 % 0.3 % Rental income decreased $30.1 million, or 8.9%, due to the following: ($ in thousands) Properties sold during 2018 and 2019 Properties under redevelopment or acquired during 2018 and/or 2019 Properties fully operational during 2018 and 2019 and other Total Net change 2018 to 2019 (37,041 ) 923 5,994 (30,124 ) $ $ The net increase of $6.0 million in rental income for properties that were fully operational during 2018 and 2019 is attributable to an increase in rental rates along with an increase in occupancy. Rental income for recently completed redevelopment projects and acquisitions increased $0.9 million primarily due to the completion of Rampart Commons and acquisition of Nora Plaza. Tenant reimbursements increased $3.3 million from 2018 to 2019 due to an increase in occupancy as noted above. The Company's recovery levels of recoverable operating expenses and real estate taxes were 89.7% and 87.7%, for the years ended December 31, 2019 and 2018. The Company has been able to continue to generate higher rents in its leasing process. The average rents for new comparable leases signed in 2019 were $21.62 per square foot compared to average expiring base rents of $15.96 per square foot in that period. The average base rents for renewals signed in 2019 were $14.71 per square foot compared to average expiring base rents of $14.24 per square foot in that period. 55 Due to Project Focus and the current year leasing activity, the quality of our operating retail portfolio continued to improve. This is evidenced by the increase in the annualized base rent per square foot to $17.83 per square foot as of December 31, 2019 from $16.84 per square foot as of December 31, 2018. In 2019, other property related revenue primarily consists of parking revenues and gains on sales of undepreciated assets. In 2018, other property-related revenue also included overage rent and lease termination income. In 2019, these items are included in rental income. This revenue decreased by $6.8 million, primarily as a result of non-recurring business interruption income of $2.8 million in 2018 and a decrease in gains on sales of undepreciated assets of $2.9 million. We recorded fee income of $0.4 million for the year ended December 31, 2019 compared to fee income of $2.5 million for the year ended December 31, 2018. The 2018 activity is for development services provided as part of a multi-family development at our Eddy Street Commons operating property. Property operating expenses decreased $4.8 million, or 9.5%, due to the following: ($ in thousands) Properties sold during 2018 and 2019 Properties under redevelopment or acquired during 2018 and/or 2019 Properties fully operational during 2018 and 2019 and other Total Net change 2018 to 2019 $ $ (4,772 ) 996 (1,005 ) (4,781 ) The net decrease of $1.0 million in property operating expenses for properties that were fully operational during 2018 and 2019 is primarily due to bad debt being included as a component of rental income in 2019 while it was a component of operating expense in 2018. This decrease due to the reclassification was partially offset by increases of $0.4 million in repairs and maintenance costs and $0.6 million in insurance expense. As a percentage of rental revenue, property operating expenses increased between years from 14.2% to 14.5%. The increase was mostly due to lower other property related revenue in 2019. Real estate taxes decreased $3.6 million, or 8.5%, due to the following: ($ in thousands) Properties sold during 2018 and 2019 Properties under redevelopment or acquired during 2018 and/or 2019 Properties fully operational during 2018 and 2019 and other Total Net change 2018 to 2019 $ $ (4,223 ) 151 471 (3,601 ) The net increase of $0.5 million in real estate taxes for properties that were fully operational during 2018 and 2019 is primarily due to an increase in current year tax assessments at certain operating properties. The majority of real estate tax expense is recoverable from tenants and such recovery is reflected in rental income. General, administrative and other expenses increased $6.9 million, or 32.3%. The increase is primarily due to costs incurred that are not incremental costs of obtaining a lease contract. These costs were $5.4 million in 2019 and are now expensed upon the adoption of ASU 2016-02, Leases. See additional discussion in Note 2 to the financial statements. The remainder of the increase is due to higher personnel costs. Depreciation and amortization expense decreased $20.1 million, or 13.2%, due to the following: 56 ($ in thousands) Properties sold during 2018 and 2019 Properties under redevelopment or acquired during 2018 and/or 2019 Properties fully operational during 2018 and 2019 and other Total Net change 2018 to 2019 (19,523 ) 3,846 (4,388 ) $ $ (20,065 ) The net increase of $3.8 million in properties under redevelopment or acquired during 2018 and 2019 is primarily due to the acquisition of Nora Plaza and Pan Am Plaza Garage. The net decrease of $4.4 million in depreciation and amortization at properties fully operational during 2018 and 2019 is primarily due to certain assets becoming fully depreciated in 2018. In 2019, we recorded impairment charges totaling $37.7 million related to a reduction in the expected holding period of certain operating properties. In 2018, we recorded impairment charges totaling $70.4 million related to a reduction in the expected holding period of certain operating and development properties. See additional discussion in Note 8 to the consolidated financial statements. Interest expense decreased $7.5 million or 11.3%. The decrease is due to the significant debt reduction from the successful completion of Project Focus. The Company incurred an $11.6 million loss on debt extinguishment for the year ended December 31, 2019 related to costs incurred to retire certain secured loans that were paid off in connection with property sales. We recorded a net gain of $39.0 million for the year ended December 31, 2019 on the sale of twenty-three assets, compared to a net gain of $3.4 million on the sale of six operating properties and the sale of an 80% interest in three operating properties to a joint venture with TH Real Estate for the year ended December 31, 2018. Management’s discussion of the financial condition, changes in financial condition and results of operations for the year ended December 31, 2017, with comparison to the year ended December 31, 2018, was included in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018. 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 59. In addition to cash generated from operations, we discuss below our other principal capital resources. In February 2019, we announced a plan to market and sell up to $500 million in non-core assets as part of a program designed to improve the Company’s portfolio quality, reduce its leverage, and focus operations on markets where we believe the Company can gain scale and generate attractive risk-adjusted returns. This program ("Project Focus") was completed in October 2019. The majority of the net proceeds were used to repay debt, further strengthening its balance sheet. 57 The recently-completed Project Focus has enhanced our liquidity position, reduced our leverage, and reduced our borrowing costs. We continue to focus on a balanced approach to growth and staggering and extending debt maturities in order to retain our financial flexibility. As of December 31, 2019, we had approximately $583 million available under our unsecured revolving credit facility for future borrowings based on the unencumbered asset pool allocated to the unsecured revolving credit facility. We also had $31.3 million in cash and cash equivalents as of December 31, 2019. 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, 2019. We have on file with the SEC a shelf registration statement on Form S-3 relating to the offer and sale, from time to time, of an indeterminate amount of equity and debt securities. Equity securities may be offered and sold by the Parent Company, and the net proceeds of any such offerings would be contributed to the Operating Partnership in exchange for additional General Partner Units. Debt securities may be offered and sold by the Operating Partnership with the Operating Partnership receiving the proceeds. From time to time, we may issue securities under this shelf registration statement to fund the repayment of long-term debt upon maturity, for other general corporate purposes or as otherwise set forth in the applicable prospectus supplement. In the future, we will continue to monitor the capital markets and may consider raising additional capital through the issuance of our common shares, preferred shares or other securities. We may also 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. Our Principal Liquidity Needs Short-Term Liquidity Needs Near-Term Debt Maturities. As of December 31, 2019, we did not have any debt scheduled to mature in 2020 or 2021, excluding scheduled monthly principal payments. 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 February 2020, our Board of Trustees declared a cash distribution of $0.3175 per common share and Common Unit for the first quarter of 2020. This distribution is expected to be paid on or about April 3, 2020 to common shareholders and Common Unit holders of record as of March 27, 2020. Other short-term liquidity needs also include expenditures for tenant improvements, renovation costs, external leasing commissions and recurring capital expenditures. During the year ended December 31, 2019, we incurred $4.3 million of costs for recurring capital expenditures on operating properties, $10.3 million of costs for tenant improvements and external leasing commissions, and $14.3 million to re-lease anchor space at our operating properties related to tenants open and operating as of December 31, 2019 (excluding development and redevelopment properties). We currently anticipate incurring approximately $14 million to $20 million of additional major tenant improvements and $14 million to $18 million related to releasing vacant anchor space at a number of our operating properties. As of December 31, 2019, we had one development project under construction at our Eddy Street Commons property across the street from the University of Notre Dame in South Bend, Indiana. Total estimated costs for this project, Eddy Street Commons - Phase II, are $90.8 million. This estimate consists of our projected costs of $10.0 million, tax increment financing of $16.1 million, and construction costs of $64.7 million for residential apartments and townhomes costs that we expect will be covered by an unrelated third party under a ground sublease that is currently being negotiated. We have provided a completion guaranty to the South Bend Redevelopment Commission and the South Bend Economic Development Commission on the construction of the entire project. We anticipate incurring the majority of the remaining costs for the project over the next 12 months. We believe we have the ability to fund this project through cash flow from operations. 58 Long-Term Liquidity Needs Our long-term liquidity needs consist primarily of funds necessary to pay for any new development projects, redevelopment of existing properties, non-recurring capital expenditures, acquisitions of properties, and payment of indebtedness at maturity. Potential Redevelopment Opportunities. We are currently evaluating additional redevelopment of several other properties. We believe we will have sufficient funding for these projects through cash flow from operations, borrowings on our unsecured revolving credit facility and proceeds from asset sales. 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, requiring us to satisfy these needs through additional borrowings, sales of common or preferred shares, issuance of Operating Partnership units, cash generated through property dispositions and/or participation in 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 the amount of existing retail space in the market. Our ability to access the capital markets will be dependent on a number of factors, including general capital market conditions. Capitalized Expenditures on Consolidated Properties The following table summarizes cash capital expenditures for our development and redevelopment properties and other capital expenditures for the year ended December 31, 2019: ($ in thousands) Developments Redevelopment Opportunities Recently completed redevelopments and other Big Box Surge activity Recurring operating capital expenditures (primarily tenant improvement payments) Total Year Ended December 31, 2019 1,445 1,021 13,755 24,197 12,860 53,278 $ $ We capitalize certain indirect costs such as interest, payroll, and other general and administrative costs related to these development activities. If we had experienced a 10% reduction in development and redevelopment activities, without a corresponding decrease in indirect project costs, we would have recorded additional expense of $0.2 million for the year ended December 31, 2019. Impact of Changes in Credit Ratings on Our Liquidity We have been assigned investment grade corporate credit ratings from two nationally recognized credit rating agencies. These ratings were unchanged during 2019. In the future, 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, 2019, we had cash and cash equivalents on hand of $31.3 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 highly rated 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. 59 Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018 Cash provided by operating activities was $138.0 million for the year ended December 31, 2019, a decrease of $16.4 million from the same period of 2018. The decrease was primarily due to a decrease in cash provided by operating activities due to our significant property sale activity partially offset by improvement in anchor and shop occupancy. Cash provided by investing activities was $416.6 million for the year ended December 31, 2019, as compared to cash provided by investing activities of $148.3 million in the same period of 2018. The major changes in cash provided by investing activities are as follows: • Net proceeds of $529.4 million related to the sale of twenty-three assets in 2019 compared to sale proceeds of $208.4 million from the sale of six assets in 2018 for net proceeds of $119 million and the sale of an 80% interest in three core assets for net proceeds of $89 million; • Acquisition of Nora Plaza and Pan Am Plaza Garage in 2019 for $58.2 million; and • Decrease in capital expenditures of $6.0 million, partially offset by a decrease in construction payables of $0.5 million. Cash used in financing activities was $547.2 million for the year ended December 31, 2019, compared to cash used in financing activities of $289.4 million in the same period of 2018. Highlights of significant cash sources and uses in financing activities during 2019 are as follows: • We used the proceeds from the sale of operating properties to pay down $395.5 million of secured and unsecured debt; • We paid $14.5 million of debt extinguishment costs; and • We made distributions to common shareholders and Common Unit holders of $137.1 million. Management’s discussion of the cash flows for the year ended December 31, 2017, with comparison to the year ended December 31, 2018, was included in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018. 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, 2019, we have outstanding letters of credit totaling $1.2 million, against which no amounts were advanced. Contractual Obligations The following table summarizes our contractual obligations based on contracts executed as of December 31, 2019. 60 ($ in thousands) 2020 2021 2022 2023 2024 Thereafter Total Consolidated Long-term Debt and Interest1 Development Activity and Tenant Allowances2 Operating Ground Leases Employment Contracts3 $ $ 50,122 $ 50,093 223,743 310,147 29,609 751,997 1,415,711 $ 8,927 $ — — — — — 8,927 $ 1,777 $ 1,789 1,815 1,636 1,600 70,554 79,171 $ 1,263 $ 375 — — — — 1,638 $ Total 62,089 52,257 225,558 311,783 31,209 822,551 1,505,447 ____________________ 1 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, 2019. Tenant allowances include commitments made to tenants at our operating and under construction development project. We have entered into employment agreements with certain members of senior management that have various expiration dates. 2 3 Obligations in Connection with Projects Under Construction We are obligated under various completion guarantees with lenders and tenants to complete all or portions of a development project and tenant-specific spacescurrently under construction. We believe we currently have sufficient financing in place to fund our investment in any existing or future projects through cash from operations or borrowings on our unsecured revolving credit facility. In addition, we have provided a repayment guaranty on a $33.8 million construction loan with the development of Embassy Suites at the University of Notre Dame consistent with our 35% ownership interest. As of December 31, 2019, the current outstanding loan balance is $33.6 million, of which our share is $11.8 million. Our share of estimated future costs for under construction and future developments and redevelopments is further discussed on page 58 in the "Short and Long-Term Liquidity Needs" section. Outstanding Indebtedness The following table presents details of outstanding consolidated indebtedness as of December 31, 2019 and 2018 adjusted for hedges: ($ in thousands) Senior unsecured notes Unsecured revolving credit facility Unsecured term loans Mortgage notes payable - fixed rate Mortgage notes payable - variable rate Net debt premiums and issuance costs, net Total mortgage and other indebtedness December 31, 2019 December 31, 2018 $ $ 550,000 $ — 250,000 297,472 55,830 (6,722 ) 1,146,580 $ 550,000 45,600 345,000 534,679 73,491 (5,469 ) 1,543,301 Consolidated indebtedness, including weighted average maturities and weighted average interest rates at December 31, 2019, is summarized below: 61 ($ in thousands) Fixed rate debt1 Variable rate debt Net debt premiums and issuance costs, net Total Outstanding Amount Ratio $ $ 1,113,672 39,630 (6,722 ) 1,146,580 97 % 3 % N/A 100 % Weighted Average Interest Rate Weighted Average Maturity (in years) 3.94 % 3.68 % N/A 3.93 % 5.7 7.6 N/A 5.8 _______ 1 Fixed rate debt includes, and variable rate date excludes, the portion of such debt that has been hedged by interest rate derivatives. As of December 31, 2019, $266.2 million in variable rate debt is hedged for a weighted average of 3.0 years. Mortgage indebtedness is collateralized by certain real estate properties and leases. Mortgage indebtedness is generally repaid in monthly installments of interest and principal and matures over various terms through 2030. Variable interest rates on mortgage indebtedness is based on LIBOR plus 160 basis points. At December 31, 2019, the one- month LIBOR interest rate was 1.76%. Fixed interest rates on mortgage loans range from 3.78% to 5.73%. 62 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 our variable-rate unsecured credit facility and unsecured term loans and 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 $1.1 billion of outstanding consolidated indebtedness as of December 31, 2019 (inclusive of net unamortized net debt premiums and issuance costs of $6.7 million). As of December 31, 2019, we were party to various consolidated interest rate hedge agreements totaling $266.2 million, with maturities over various terms through 2025. Reflecting the effects of these hedge agreements, our fixed and variable rate debt would have been $1.1 billion (97%) and $39.6 million (3%), respectively, of our total consolidated indebtedness at December 31, 2019. We do not have any fixed rate debt scheduled to mature during 2020 or 2021. A 100-basis point change in interest rates on our unhedged variable rate debt as of December 31, 2019 would change our annual cash flow by $0.4 million. Based upon the terms of our variable rate debt, we are most vulnerable to a change in short-term LIBOR interest rates. 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. 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, 2019 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, 2019. 63 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, 2019 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, 2019. 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. 64 Report of Independent Registered Public Accounting Firm The Shareholders and the Board of Trustees of Kite Realty Group Trust: Opinion on Internal Control over Financial Reporting We have audited Kite Realty Group Trust’s internal control over financial reporting as of December 31, 2019, 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). In our opinion, Kite Realty Group Trust (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 20, 2020, expressed an unqualified opinion thereon. Basis for Opinion The Company’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’s 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control Over Financial Reporting 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. /s/ Ernst & Young LLP Indianapolis, Indiana February 20, 2020 65 Report of Independent Registered Public Accounting Firm The Partners of Kite Realty Group, L.P. and subsidiaries and the Board of Trustees of Kite Realty Group Trust: Opinion on Internal Control over Financial Reporting We have audited Kite Realty Group, L.P. and subsidiaries’ internal control over financial reporting as of December 31, 2019, 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). In our opinion, Kite Realty Group, L.P and subsidiaries (the Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Partnership as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, partners’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 20, 2020 expressed an unqualified opinion thereon. Basis for Opinion The Partnership’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’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control Over Financial Reporting 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. /s/ Ernst & Young LLP Indianapolis, Indiana February 20, 2020 66 ITEM 9B. OTHER INFORMATION None 67 ITEM 10. INFORMATION ABOUT OUR EXECUTIVE OFFICERS PART III The information required by this Item is hereby incorporated by reference to the material appearing in our 2020 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. 68 ITEM 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULE (a) Documents filed as part of this report: PART IV (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. Other financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (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. ITEM 16. FORM 10-K SUMMARY Not applicable. 69 Exhibit No. Description Location EXHIBIT INDEX 2.1 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 3.1 3.2 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 3.3 Second Amended and Restated Bylaws of the Company, as amended 3.4 First Amendment to the Second Amended and Restated Bylaws of Kite Realty Group Trust, as amended 4.1 Form of Common Share Certificate 4.2 Indenture, dated September 26, 2016, between Kite Realty Group, L.P., as issuer, and U.S. Bank National Association, as trustee 4.3 First Supplemental Indenture, dated September 26, 2016, among Kite Realty Group, L.P., Kite Realty Group Trust, as possible future guarantor, and U.S. Bank National Association 4.4 Form of Global Note representing the Notes 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 4.1 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on September 27, 2016 Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on September 27, 2016 Incorporated by reference to Exhibits 4.2 and 4.3 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on September 27, 2016 4.5 Description of Registrant's Securities Filed herewith 10.1 Amended and Restated Agreement of Limited Partnership of Kite Realty Group, L.P., dated as of August 16, 2004 10.2 Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Kite Realty Group, L.P., dated as of December 7, 2010 10.3 Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of Kite Realty Group, L.P. 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 70 10.4 Amendment No. 3 to Amended and Restated Agreement of Limited Partnership of Kite Realty Group, L.P. 10.5 Amendment No. 4 to Amended and Restated Agreement of Limited Partnership of Kite Realty Group, L.P. 10.6 Amendment No. 5 to Amended and Restated Agreement of Limited Partnership of Kite Realty Group, L.P. 10.7 Executive Employment Agreement, dated as of July 28, 2014, by and between the Company and John A. Kite* 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 Executive Employment Agreement, dated as of July 28, 2014, by and between the Company and Thomas K. McGowan* Executive Employment Agreement, dated as of August 6, 2014, by and between the Company and Scott E. Murray* Executive Employment Agreement, dated as of October 1, 2018, by and between Kite Realty Group Trust and Heath R. Fear* 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 November 5, 2018, by and among Kite Realty Group Trust, Kite Realty Group, L.P. and Heath R. Fear* Indemnification Agreement, dated as of August 16, 2004, by and between Kite Realty Group, L.P. and William E. Bindley* Incorporated by reference to Exhibit 10.1 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 March 5, 2019 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 26, 2019 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 July 29, 2014 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 July 29, 2014 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 10.1 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on October 4, 2018 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 10.2 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on November 7, 2018 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 71 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 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 March 7, 2014, by and between Kite Realty Group, L.P. and Christie B. Kelly* 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* 10.30 Kite Realty Group Trust 2008 Employee Share Purchase Plan* 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 72 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, 2012 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, 2013 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, 2013 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, 2013 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 10.25 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 10.26 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 10.1 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on May 12, 2008 Incorporated by reference to Exhibit 10.32 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on August 20, 2004 10.32 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 10.33 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 10.34 Form of 2014 Outperformance LTIP Unit Award Agreement * 10.35 Form of 2016 Outperformance Plan LTIP Unit Agreement* 10.36 Kite Realty Group Trust 2013 Equity Incentive Plan, as amended and restated as of February 28, 2019 * 10.37 Form of Nonqualified Share Option Agreement under 2013 Equity Incentive Plan* 10.38 Form of Restricted Share Agreement under 2013 Equity Incentive Plan* 10.39 Schedule of Non-Employee Trustee Fees and Other Compensation* 10.40 Kite Realty Group Trust Trustee Deferred Compensation Plan* 10.41 Form of Performance Share Unit Agreement under 2013 Equity Incentive Plan* 10.42 Form of Performance Restricted Share Agreement under 2013 Equity Incentive Plan* 10.43 Form of Appreciation Only LTIP Unit Agreement* 10.44 Fifth Amended and Restated Credit Agreement, dated as of July 28, 2016, by and among Kite Realty Group, L.P., KeyBank National Association, as Administrative Agent, and the other lenders party thereto 10.45 First Amended and Restated Springing Guaranty, dated as of July 28, 2016, by Kite Realty Group Trust 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 10.5 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 February 3, 2016 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 17, 2019 Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on May 14, 2013 Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on May 14, 2013 Incorporated by reference to Exhibit 10.49 of the Annual Report on Form 10-K of Kite Realty Group Trust filed with the SEC on February 20, 2018 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 10.38 of the Annual Report on Form 10-K of Kite Realty Group Trust filed with the SEC on February 27, 2017 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 November 7, 2018 Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on March 5, 2019 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, 2016 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 July 29, 2016 73 10.46 10.47 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 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 10.48 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 10.49 Guaranty, dated as of April 30, 2012, by the Company and certain subsidiaries of the Operating Partnership party thereto Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on May 4, 2012 Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on March 4, 2013 Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on August 27, 2013 Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Kite Realty Group Trust filed with the SEC on May 4, 2012 10.50 First Amendment to Fifth Amended and Restated Credit Agreement, dated as of April 24, 2018, by and among Kite Realty Group, L.P., Kite Realty Group Trust, 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 April 25, 2018 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 26, 2018 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 October 26, 2018 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 10.51 Term Loan Agreement, dated as of October 25, 2018, by and among Kite Realty Group, L.P., KeyBank National Association, as Administrative Agent, and the other lenders party thereto 10.52 Springing Guaranty, dated as of October 25, 2018, by Kite Realty Group Trust 10.53 21.1 23.1 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 List of Subsidiaries Filed herewith Consent of Ernst & Young LLP relating to the Parent Company Filed herewith 23.2 Consent of Ernst & Young LLP relating to the Operating Filed herewith Partnership 31.1 Certification of principal executive officer of the Parent Filed herewith 31.2 31.3 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 Filed herewith Filed herewith 74 31.4 32.1 32.2 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 99.1 Material U.S. Federal Income Tax Considerations Filed herewith 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith Filed herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 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 104 Cover Page Interactive Data File (formatted as Inline XBRL Filed herewith and contained in Exhibit 101) ____________________ * Denotes a management contract or compensatory, plan contract or arrangement. 75 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURES KITE REALTY GROUP TRUST (Registrant) /s/ John A. Kite John A. Kite Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Heath R. Fear Heath R. Fear Executive Vice President and 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/ Heath R. Fear Heath R. Fear Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 20, 2020 (Date) February 20, 2020 (Date) February 20, 2020 (Date) February 20, 2020 (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. 76 Signature Title Date /s/ John A. Kite (John A. Kite) Chairman, Chief Executive Officer, and Trustee (Principal Executive Officer) /s/ William E. Bindley Trustee (William E. Bindley) /s/ Victor J. Coleman Trustee (Victor J. Coleman) /s/ Christie B. Kelly Trustee (Christie B. Kelly) /s/ David R. O’Reilly Trustee (David R. O’Reilly) February 20, 2020 February 20, 2020 February 20, 2020 February 20, 2020 February 20, 2020 /s/ Barton R. Peterson Trustee February 20, 2020 (Barton R. Peterson) /s/ Lee A. Daniels (Lee A. Daniels) Trustee February 20, 2020 /s/ Charles H. Wurtzebach Trustee (Charles H. Wurtzebach) February 20, 2020 /s/ Heath R. Fear (Heath R. Fear) /s/ David E. Buell (David E. Buell) Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 20, 2020 Senior Vice President, Chief Accounting Officer February 20, 2020 77 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, 2019 and 2018 Statements of Operations and Comprehensive Income for the Years Ended December 31, 2019, 2018, and 2017 Statements of Shareholders’ Equity for the Years Ended December 31, 2019, 2018, and 2017 Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017 Kite Realty Group, L.P. and subsidiaries Balance Sheets as of December 31, 2019 and 2018 Statements of Operations and Comprehensive Income for the Years Ended December 31, 2019, 2018, and 2017 Statements of Partner's Equity for the Years Ended December 31, 2019, 2018, and 2017 Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017 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-3 F-4 F-5 F-6 F-7 F-8 F-9 F-10 F-11 F-12 F-37 F-41 Report of Independent Registered Public Accounting Firm The Shareholders and Board of Trustees of Kite Realty Group Trust: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Kite Realty Group Trust (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, 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 20, 2020 expressed an unqualified opinion thereon. Adoption of ASU No. 2016-02 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-1 Description of the Matter How We Addressed the Matter in Our Audit Impairment of Investment Property At December 31, 2019, the Company’s net consolidated investment properties totaled $2.4 billion. As discussed in Note 2 of the consolidated financial statements, the Company’s investment properties are reviewed for impairment on a property-by-property basis on at least a quarterly basis, or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Impairment losses for investment properties are measured when the undiscounted cash flows estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets. Impairment losses are recorded as the excess of the carrying value over the estimated fair value of the asset. Auditing management’s evaluation of investment properties for impairment was complex due to the significant estimation uncertainty in determining the estimated future undiscounted cash flows and fair value of investment properties where an indicator of potential impairment was identified. In particular, these estimates were sensitive to significant assumptions such as projected net operating income, anticipated hold period, expected capital expenditures and the capitalization rate used to estimate the property’s residual value, all of which can be affected by expectations about future market conditions, rental demand, and competition, as well as management’s intent to hold and operate the property over the term assumed in the analysis. We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls related to the Company’s process for evaluating investment properties for impairment, including controls over management’s review of the significant assumptions described above. To test the Company’s evaluation of investment properties for impairment, we performed audit procedures that included, among others, assessing the methodologies, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by management in its analysis. We compared the significant assumptions used by management to historical actual results of the property, relevant observable market information for recent sales of comparable assets, real estate industry publications, current industry trends or other relevant factors. We also involved a valuation specialist to assist in evaluating certain assumptions. As part of our evaluation, we assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the future undiscounted cash flows and fair value of certain properties that would result from changes in the assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2004. Indianapolis, Indiana February 20, 2020 F-2 Report of Independent Registered Public Accounting Firm The Partners of Kite Realty Group, L.P. and subsidiaries and the Board of Trustees of Kite Realty Group Trust: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Kite Realty Group, L.P. and subsidiaries (the Partnership) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, partner’s equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2019, 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 20, 2020 expressed an unqualified opinion thereon. Adoption of ASU No. 2016-02 As discussed in Note 2 to the consolidated financial statements, the Partnership changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments. Basis for Opinion These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Partnership’s auditor since 2015. Indianapolis, Indiana February 20, 2020 F-3 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 $27,256 and $31,347, respectively Restricted cash and escrow deposits Deferred costs, net Prepaid and other assets Investments in unconsolidated subsidiaries Assets held for sale Total Assets Liabilities and Shareholders' Equity: Mortgage and other indebtedness, net Accounts payable and accrued expenses Deferred revenue and other liabilities Total Liabilities Commitments and contingencies Limited Partners' interests in Operating Partnership and other Equity: Kite Realty Group Trust Shareholders' Equity: Common Shares, $.01 par value, 225,000,000 shares authorized, 83,963,369 and 83,800,886 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively Additional paid in capital Accumulated other comprehensive loss Accumulated deficit Total Kite Realty Group Trust Shareholders' Equity Noncontrolling Interest Total Equity Total Liabilities and Shareholders' Equity December 31, 2019 December 31, 2018 $ 3,087,391 $ (666,952 ) 2,420,439 3,641,120 (699,927 ) 2,941,193 31,336 35,376 55,286 21,477 73,157 34,548 12,644 — $ 2,648,887 $ 58,059 10,130 95,264 12,764 13,496 5,731 3,172,013 $ 1,146,580 $ 69,817 90,180 1,306,577 1,543,301 85,934 83,632 1,712,867 52,574 45,743 840 2,074,436 (16,283 ) (769,955 ) 1,289,038 698 1,289,736 2,648,887 $ 838 2,078,099 (3,497 ) (662,735 ) 1,412,705 698 1,413,403 3,172,013 $ The accompanying notes are an integral part of these consolidated financial statements. F-4 Kite Realty Group Trust Consolidated Statements of Operations and Comprehensive Income ($ in thousands, except share and per share data) Year Ended December 31, 2019 2018 2017 Revenue: Rental income Other property related revenue Fee income Total revenue Expenses: Property operating Real estate taxes General, administrative, and other Depreciation and amortization Impairment charges Total expenses Gains on sale of operating properties, net Operating income Interest expense Income tax benefit of taxable REIT subsidiary Loss on debt extinguishment Equity in loss of unconsolidated subsidiary Other expense, net Consolidated net (loss) income Net income attributable to noncontrolling interests Net (loss) income attributable to Kite Realty Group Trust Net (loss) income per common share – basic Net (loss) income per common share – diluted Weighted average common shares outstanding - basic Weighted average common shares outstanding - diluted Dividends declared per common share Consolidated net (loss) income Change in fair value of derivatives Total comprehensive (loss) income Comprehensive loss (income) attributable to noncontrolling interests Comprehensive (loss) income attributable to Kite Realty Group Trust $ 308,399 $ 6,326 448 315,173 45,575 38,777 28,214 132,098 37,723 282,387 38,971 71,757 (59,268 ) 282 (11,572 ) (628 ) (573 ) (2 ) (532 ) (534 ) 338,523 $ 13,138 2,523 354,184 50,356 42,378 21,320 152,163 70,360 336,577 3,424 21,031 (66,785 ) 227 — (278 ) (646 ) (46,451 ) (116 ) (46,567 ) (0.01 ) $ (0.01 ) $ (0.56 ) $ (0.56 ) $ 346,444 11,998 377 358,819 49,643 43,180 21,749 172,091 7,411 294,074 15,160 79,905 (65,702 ) 100 — (415 ) 13,888 (2,014 ) 11,874 0.14 0.14 83,926,296 83,926,296 83,693,385 83,693,385 83,585,333 83,690,418 1.270 $ 1.270 $ (2 ) $ (13,158 ) (13,160 ) (160 ) (13,320 ) $ (46,451 ) $ (6,647 ) (53,098 ) 44 (53,054 ) $ 1.225 13,888 3,384 17,272 (2,092 ) 15,180 $ $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. F-5 Kite Realty Group Trust Consolidated Statements of Shareholders’ Equity ($ in thousands, except share data) Balances, December 31, 2016 Stock compensation activity Other comprehensive income attributable to Kite Realty Group Trust Distributions declared to common shareholders Net income attributable to Kite Realty Group Trust Acquisition of partner's noncontrolling interest in Fishers Station operating property Exchange of redeemable noncontrolling interests for common shares Adjustment to redeemable noncontrolling interests Balances, December 31, 2017 Stock compensation activity Other comprehensive loss attributable to Kite Realty Group Trust Distributions declared to common shareholders Net loss attributable to Kite Realty Group Trust Exchange of redeemable noncontrolling interests for common shares Adjustment to redeemable noncontrolling interests Balances, December 31, 2018 Stock compensation activity Other comprehensive loss attributable to Kite Realty Group Trust Distributions declared to common shareholders Net loss attributable to Kite Realty Group Trust Exchange of redeemable noncontrolling interests for common shares Adjustment to redeemable noncontrolling interests Balances, December 31, 2019 Common Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Shares 83,545,398 $ 48,670 — — — 12,000 83,606,068 $ 163,318 — — — 31,500 — 83,800,886 $ 152,184 — — — 10,299 — 83,963,369 $ 835 $ 1 — — — 836 $ 2 — — — — 838 $ 2 — — — — 840 $ 2,062,360 $ 5,915 — — — (3,750 ) 236 6,657 2,071,418 $ 5,695 — — — 561 425 2,078,099 $ 6,147 — — — 167 (9,977 ) 2,074,436 $ (316 ) $ — 3,306 — — — — — 2,990 $ — (6,487 ) — — — — (3,497 ) $ — (12,786 ) — — — — (16,283 ) $ (419,305 ) $ 1,643,574 5,916 3,306 (102,402 ) 11,874 — — (102,402 ) 11,874 (6,487 ) (106,335 ) — — — (3,750 ) 236 6,657 (509,833 ) $ 1,565,411 5,697 — — (106,335 ) (46,567 ) — — (46,567 ) 561 425 (662,735 ) $ 1,412,705 6,149 (12,786 ) — — (106,686 ) (534 ) (106,686 ) (534 ) 167 (9,977 ) (769,955 ) $ 1,289,038 — — The accompanying notes are an integral part of these consolidated financial statements. F-6 Kite Realty Group Trust Consolidated Statements of Cash Flows ($ in thousands) Cash flow from operating activities: Consolidated net (loss) income Adjustments to reconcile consolidated net (loss) income to net cash provided by operating activities: Gain on sale of operating properties Impairment charge Loss on debt extinguishment Straight-line rent Depreciation and amortization Compensation expense for equity awards Amortization of debt fair value adjustment Amortization of in-place lease liabilities Changes in assets and liabilities: Tenant receivables Deferred costs and other assets Accounts payable, accrued expenses, deferred revenue, and other liabilities Net cash provided by operating activities Cash flow from investing activities: Acquisitions of interests in properties Capital expenditures, net Net proceeds from sales of operating properties Change in construction payables Capital contribution to unconsolidated joint venture Net cash provided by (used in) investing activities Cash flow from financing activities: Proceeds from issuance of common shares, net Repurchases of common shares upon the vesting of restricted shares Acquisition of partner's interest in Fishers Station operating property Loan proceeds Loan transaction costs Loan payments Debt extinguishment costs Distributions paid – common shareholders Distributions paid – redeemable noncontrolling interests Acquisition of partners' interests in Territory joint venture Net cash used in financing activities Increase in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash beginning of year Cash, cash equivalents, and restricted cash end of year Supplemental disclosures Cash paid for interest, net of capitalized interest Year Ended December 31, 2019 2018 2017 $ (2 ) $ (46,451 ) $ 13,888 (38,971 ) 37,723 11,572 (2,158 ) 134,860 5,375 (1,467 ) (3,776 ) 3,170 (6,265 ) (2,099 ) 137,962 (58,205 ) (53,278 ) 529,417 (542 ) (798 ) 416,594 (3,424 ) 70,360 — (3,060 ) 156,107 4,869 (2,630 ) (6,360 ) (642 ) (13,396 ) (990 ) 154,383 — (59,304 ) 218,387 (777 ) (9,973 ) 148,333 350 (533 ) — 75,000 — (470,515 ) (14,455 ) (133,258 ) (3,838 ) — (547,249 ) 7,307 45,506 52,813 $ 76 (350 ) — 399,500 (5,208 ) (551,379 ) — (106,316 ) (3,716 ) (21,993 ) (289,386 ) 13,330 32,176 45,506 $ (15,160 ) 7,411 — (4,696 ) 174,625 5,988 (2,913 ) (3,677 ) (3,442 ) (11,569 ) (5,832 ) 154,623 — (72,433 ) 76,075 (4,276 ) (1,400 ) (2,034 ) 28 (835 ) (3,750 ) 97,700 (357 ) (128,800 ) — (101,128 ) (3,922 ) (8,261 ) (149,325 ) 3,264 28,912 32,176 60,534 $ 67,998 $ 68,819 $ $ The accompanying notes are an integral part of these consolidated financial statements. F-7 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 $27,256 and $31,347, respectively Restricted cash and escrow deposits Deferred costs, net Prepaid and other assets Investments in unconsolidated subsidiaries Asset held for sale Total Assets Liabilities and Equity: Mortgage and other indebtedness, net Accounts payable and accrued expenses Deferred revenue and other liabilities Total Liabilities Commitments and contingencies December 31, 2019 December 31, 2018 $ 3,087,391 $ (666,952 ) 2,420,439 3,641,120 (699,927 ) 2,941,193 31,336 35,376 55,286 21,477 73,157 34,548 12,644 — $ 2,648,887 $ 58,059 10,130 95,264 12,764 13,496 5,731 3,172,013 $ 1,146,580 $ 69,817 90,180 1,306,577 1,543,301 85,934 83,632 1,712,867 Limited Partners' interests in Operating Partnership and other 52,574 45,743 Partners Equity: Parent Company: Common equity, 83,963,369 and 83,800,886 units issued and outstanding at December 31, 2019 and December 31, 2018, respectively Accumulated other comprehensive loss Total Partners Equity Noncontrolling Interests Total Equity Total Liabilities and Equity 1,305,321 (16,283 ) 1,289,038 698 1,289,736 2,648,887 $ 1,416,202 (3,497 ) 1,412,705 698 1,413,403 3,172,013 $ The accompanying notes are an integral part of these consolidated financial statements. F-8 Kite Realty Group, L.P. and subsidiaries Consolidated Statements of Operations and Comprehensive Income ($ in thousands, except unit and per unit data) Revenue: Rental income Other property related revenue Fee income Total revenue Expenses: Property operating Real estate taxes General, administrative, and other Depreciation and amortization Impairment charge Total expenses Gain on sale of operating properties, net Operating income Interest expense Income tax benefit of taxable REIT subsidiary Loss on debt extinguishment Equity in loss of unconsolidated subsidiaries Other expense, net Consolidated net (loss) income Net income attributable to noncontrolling interests Net (loss) income attributable to common unitholders Allocation of net (loss) income: Limited Partners Parent Company Net (loss) income per unit - basic Net (loss) income per unit - diluted Weighted average common units outstanding - basic Weighted average common units outstanding - diluted Distributions declared per common unit Consolidated net (loss) income Change in fair value of derivatives Total comprehensive (loss) income Comprehensive income attributable to noncontrolling interests Comprehensive (loss) income attributable to common unitholders Year Ended December 31, 2019 2018 2017 308,399 $ 6,326 448 315,173 45,575 38,777 28,214 132,098 37,723 282,387 38,971 71,757 (59,268 ) 282 (11,572 ) (628 ) (573 ) (2 ) (528 ) (530 ) $ 4 $ (534 ) (530 ) $ (0.01 ) $ (0.01 ) $ 338,523 $ 13,138 2,523 354,184 50,356 42,378 21,320 152,163 70,360 336,577 3,424 21,031 (66,785 ) 227 — (278 ) (646 ) (46,451 ) (1,151 ) (47,602 ) $ (1,035 ) $ (46,567 ) (47,602 ) $ (0.56 ) $ (0.56 ) $ 346,444 11,998 377 358,819 49,643 43,180 21,749 172,091 7,411 294,074 15,160 79,905 (65,702 ) 100 — — (415 ) 13,888 (1,733 ) 12,155 281 11,874 12,155 0.14 0.14 86,027,409 86,027,409 85,740,449 85,740,449 85,566,272 85,671,358 1.270 $ 1.270 $ (2 ) $ (13,158 ) (13,160 ) (528 ) (13,688 ) $ (46,451 ) $ (6,647 ) (53,098 ) (1,151 ) (54,249 ) $ 1.225 13,888 3,384 17,272 (1,733 ) 15,539 $ $ $ $ $ $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. F-9 Kite Realty Group, L.P. and subsidiaries Consolidated Statements of Partner's Equity ($ in thousands) General Partner Common Accumulated Other Comprehensive (Loss) Income Balances, December 31, 2016 Stock compensation activity Other comprehensive income attributable to Parent Company Distributions declared to Parent Company Net income attributable to Parent Company Acquisition of partner's interest in Fishers Station operating property Conversion of Limited Partner Units to shares of the Parent Company Adjustment to redeemable noncontrolling interests Balances, December 31, 2017 Stock compensation activity Other comprehensive loss attributable to Parent Company Distributions declared to Parent Company Net loss attributable to Parent Company Conversion of Limited Partner Units to shares of the Parent Company Adjustment to redeemable noncontrolling interests Balances, December 31, 2018 Stock compensation activity Other comprehensive loss attributable to Parent Company Distributions declared to Parent Company Net loss attributable to Parent Company Conversion of Limited Partner Units to shares of the Parent Company Adjustment to redeemable noncontrolling interests Balances, December 31, 2019 $ $ $ $ Equity 1,643,890 $ 5,916 — (102,402 ) 11,874 (3,750 ) 236 6,657 1,562,421 $ 5,697 — (106,335 ) (46,567 ) 561 425 1,416,202 $ 6,149 — (106,686 ) (534 ) 167 (9,977 ) 1,305,321 $ (316 ) $ — 3,306 — — — — — 2,990 $ — (6,487 ) — — — — (3,497 ) $ — (12,786 ) — — — — (16,283 ) $ Total 1,643,574 5,916 3,306 (102,402 ) 11,874 (3,750 ) 236 6,657 1,565,411 5,697 (6,487 ) (106,335 ) (46,567 ) 561 425 1,412,705 6,149 (12,786 ) (106,686 ) (534 ) 167 (9,977 ) 1,289,038 The accompanying notes are an integral part of these consolidated financial statements. F-10 Kite Realty Group, L.P. and subsidiaries Consolidated Statements of Cash Flows ($ in thousands) Cash flow from operating activities: Consolidated net (loss) income Adjustments to reconcile consolidated net (loss) income to net cash provided by operating activities: Gain on sale of operating properties, net of tax Impairment charge Loss on debt extinguishment Straight-line rent Depreciation and amortization Compensation expense for equity awards Amortization of debt fair value adjustment Amortization of in-place lease liabilities Changes in assets and liabilities: Tenant receivables Deferred costs and other assets Accounts payable, accrued expenses, deferred revenue, and other liabilities Net cash provided by operating activities Cash flow from investing activities: Acquisitions of interests in properties Capital expenditures, net Net proceeds from sales of operating properties Change in construction payables Capital contribution to unconsolidated joint venture Net cash provided by (used in) investing activities Cash flow from financing activities: Contributions from the Parent Company Distributions to the Parent Company for repurchases of common shares upon the vesting of restricted shares Acquisition of partner's interest in Fishers Station operating property Loan proceeds Loan transaction costs Loan payments Debt extinguishment costs Distributions paid – common unitholders Distributions paid – redeemable noncontrolling interests Acquisition of partners' interests in Territory joint venture Net cash used in financing activities Increase in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash beginning of year Cash, cash equivalents, and restricted cash end of year Supplemental disclosures Cash paid for interest, net of capitalized interest Year Ended December 31, 2019 2018 2017 $ (2 ) $ (46,451 ) $ 13,888 (38,971 ) 37,723 11,572 (2,158 ) 134,860 5,375 (1,467 ) (3,776 ) 3,170 (6,265 ) (2,099 ) 137,962 (58,205 ) (53,278 ) 529,417 (542 ) (798 ) 416,594 350 (3,424 ) 70,360 — (3,060 ) 156,107 4,869 (2,630 ) (6,360 ) (642 ) (13,396 ) (990 ) 154,383 — (59,304 ) 218,387 (777 ) (9,973 ) 148,333 76 (533 ) — 75,000 — (470,515 ) (14,455 ) (133,258 ) (3,838 ) — (547,249 ) 7,307 45,506 52,813 $ (350 ) — 399,500 (5,208 ) (551,379 ) — (106,316 ) (3,716 ) (21,993 ) (289,386 ) 13,330 32,176 45,506 $ (15,160 ) 7,411 — (4,696 ) 174,625 5,988 (2,913 ) (3,677 ) (3,442 ) (11,569 ) (5,832 ) 154,623 — (72,433 ) 76,075 (4,276 ) (1,400 ) (2,034 ) 28 (835 ) (3,750 ) 97,700 (357 ) (128,800 ) — (101,128 ) (3,922 ) (8,261 ) (149,325 ) 3,264 28,912 32,176 60,534 $ 67,998 $ 68,819 $ $ The accompanying notes are an integral part of these consolidated financial statements. F-11 Kite Realty Group Trust and Kite Realty Group, L.P. and subsidiaries Notes to Consolidated Financial Statements December 31, 2019 ($ in thousands, except share, per share, unit and per unit amounts and where indicated in millions or billions.) 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 select 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, 2019 owned approximately 97.5% of the common partnership interests in the Operating Partnership (“General Partner Units”). The remaining 2.5% of the common partnership interests (“Limited Partner Units” and, together with the General Partner Units, the “Common Units”) were 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. At December 31, 2019, we owned interests in 90 operating and redevelopment properties totaling approximately 17.4 million square feet. We also owned one development project under construction as of this date. Of the 90 properties, 87 are consolidated in these financial statements, and the remaining three are accounted for under the equity method. At December 31, 2018, we owned interests in 111 operating and redevelopment properties totaling approximately 21.9 million square feet. We also owned one development project under construction as of this date. Of the 111 properties, 108 are consolidated in these financial statements and the remaining three are accounted for under the equity method. 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. Components of Investment Properties The Company’s investment properties as of December 31, 2019 and December 31, 2018 were as follows: ($ in thousands) Investment properties, at cost: Land, buildings and improvements Furniture, equipment and other Construction in progress Balance at December 31, 2019 December 31, 2018 $ $ 3,038,412 $ 7,775 41,204 3,087,391 $ 3,600,743 7,741 32,636 3,641,120 F-12 Consolidation and Investments in Joint Ventures The accompanying financial statements are presented on a consolidated basis and include all accounts of the Parent Company, the Operating Partnership, the taxable REIT subsidiary of the Operating Partnership, subsidiaries of the Operating Partnership that are controlled and any variable interest entities (“VIEs”) in which the Operating Partnership 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 Operating Partnership accounts for properties that are owned by joint ventures in accordance with the consolidation guidance. The Operating Partnership evaluates each joint venture and determines first whether to follow the VIE or the voting interest entity ("VOE") model. Once the appropriate consolidation model is identified, the Operating Partnership then evaluates whether it should consolidate the joint venture. Under the VIE model, the Operating Partnership consolidates an entity when it 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. Under the VOE model, the Operating Partnership consolidates an entity when (i) it controls the entity through ownership of a majority voting interest if the entity is not a limited partnership or (ii) it controls the entity through its ability to remove the other partners or owners in the entity, at its discretion, when the entity is a limited partnership. In determining whether to consolidate a VIE with the Operating Partnership, we consider all relationships between the Operating Partnership and the applicable 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. As of December 31, 2019, we owned investments in two joint ventures that were VIEs in which the partners did not have substantive participating rights and we were the primary beneficiary. As of this date, these VIEs had total debt of $55.8 million, which were secured by assets of the VIEs totaling $114.1 million. The Operating Partnership guarantees the debt of these VIEs. The Operating Partnership is considered a VIE as the limited partners do not hold kick-out rights or substantive participating rights. The Parent Company consolidates the Operating Partnership as it is the primary beneficiary in accordance with the VIE model. TH Real Estate Joint Venture On June 29, 2018, the Company formed a joint venture involving TH Real Estate (the "TH Real Estate joint venture"). The Company sold three properties to the joint venture valued in the aggregate at $99.8 million and, after considering third party debt obtained by the venture upon formation, the Company contributed $10.0 million for a 20% noncontrolling ownership interest in the venture. The Company serves as the operating member responsible for day-to-day management of the properties and receives property management and leasing fees. Both members have substantive participating rights over major decisions that impact the economics and operations of the joint venture. The Company is accounting for the joint venture on the equity method as it has the ability to exercise influence, but not control over operating and financial policies. Embassy Suites at the University of Notre Dame In December 2017, we formed a new joint venture with an unrelated third party to develop and own an Embassy Suites full- service hotel next to our Eddy Street Commons operating property at the University of Notre Dame. We contributed $1.4 million of cash to the joint venture in return for a 35% ownership interest in the venture. The joint venture has entered into a $33.8 million construction loan, against which $33.6 million was drawn as of December 31, 2019. The joint venture is not considered a VIE. We are accounting for the joint venture under the equity method as both members have substantive participating rights and we do not control the activities of the venture. 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 F-13 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, as defined below. 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 having a lease in place at the acquisition date. 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 we consider 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. 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 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. Land is transferred to construction in progress once construction commences on the related project. We also capitalize costs such as land acquisition, building construction, interest, real estate taxes, and the costs of personnel directly involved with the development of our properties. As a portion of a development property becomes operational, we expense a pro rata amount of related costs. F-14 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 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 and development projects, land parcels and intangible assets for impairment on a property- by-property basis on at least a quarterly basis or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. This review for possible impairment requires certain assumptions, estimates, and 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. The evaluation of impairment is subject to certain management assumptions including projected net operating income, anticipated hold period, expected capital expenditures and the capitalization rate used to estimate the property's residual value. 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. Asset Held for Sale and Discontinued Operations Operating properties will be classified as held for sale only when those properties are 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 classified as held for sale 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. Restricted Cash and 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. In addition, escrow deposits include $13.2 million of proceeds from the sale of an operating property to be utilized to acquire a potential asset in a tax-deferred exchange. 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. The following is a summary of our cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the years ended December 31, 2019, 2018, and 2017: Cash and cash equivalents Restricted cash and escrow deposits Total cash, cash equivalents, restricted cash, and escrow deposits $ 2019 31,336 21,477 52,813 $ 2018 35,376 10,130 45,506 $ 2017 24,082 8,094 32,176 Fair Value Measurements We follow the framework established under accounting standard FASB ASC 820, Fair Value Measurements and Disclosures, 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: 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 consider 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 8 to the Financial Statements, we have determined that 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 6 to the Financial Statements includes a discussion of the fair values recorded when we recognized impairment charges in 2019, 2018 and 2017. Level 3 inputs to these transactions include our estimations of disposal values. Derivative Financial Instruments The Company accounts for its derivative financial instruments at fair value calculated in accordance with ASC 820, Fair Value Measurements and Disclosures. 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. 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, 2019 and 2018, 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 minimum base rent, percentage rent, and expense reimbursements from tenants for common area maintenance costs, insurance and real estate taxes are our principal sources 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 rental income in the accompanying consolidated statements of operations for the year ended December 31, 2019. If we determine that collectibility is probable, we recognize income from rentals based on the methodology described above. We have accounts receivable due from tenants and are subject to the risk of tenant defaults and bankruptcies that may affect the collection of outstanding receivables. These receivables are reduced for credit loss that is recognized as a reduction to rental income. We regularly evaluate the collectibility of these lease-related receivables by analyzing past due account balances and consider such facts as the credit quality of our customer, historical write-off experience, tenant credit- worthiness and current economic trends when evaluating the collectibility of rental income. Although we estimate uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates. We recognize the sale of real estate when control transfers to the buyer. 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. Net gains realized on such sales were $0.2 million, $3.1 million, and $5.2 million for the years ended December 31, 2019, 2018, and 2017, respectively, and are classified as other property related revenue in the accompanying consolidated statements of operations. Tenant and Other Receivables and Allowance for Uncollectible Accounts F-16 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 from its tenants other than corporate or personal guarantees. Other receivables consist primarily of amounts due from municipalities and from tenants for non-rental revenue related activities. An allowance for uncollectible 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. The provision for revenues deemed uncollectible, represented 1.1%, 1.0%, 0.8% of total revenues in each of the years ended December 31, 2019, 2018 and 2017. 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. Total billed receivables due from tenants leasing space in the states of Florida, Indiana, and Texas, consisted of the following as of December 31, 2019 and 2018: Florida Indiana Texas As of December 31, 2019 2019 2018 36 % 19 % 7 % 56 % 14 % 3 % For the years ended December 31, 2019, 2018, and 2017, the Company's revenue recognized from tenants leasing space in the states of Florida, Indiana, and Texas, were as follows: Florida Indiana Texas Earnings Per Share Year Ended December 31, 2019 2018 2017 25 % 16 % 14 % 25 % 15 % 12 % 24 % 14 % 13 % 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; appreciation only LTIP units, 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, 2019, 2018 and 2017 were 2.1 million, 2.0 million and 2.0 million, respectively. F-17 Less than 0.1 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 each of the twelve months ended December 31, 2019, 2018 and 2017. In addition, Limited Partner Units, appreciation only LTIP units, and deferred common share units are excluded from the computation of diluted earnings per share due to the net loss position in 2018 and 2019. 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 and evaluating financial 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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. Our tax return for the year ended December 31, 2019 has not been filed. The taxability information presented for our dividends paid in 2019 is based upon management's estimate. Consequently, the taxability of dividends is subject to change. A summary of the tax characterization of the dividends paid by the Parent Company for the years ended December 31, 2019, 2018, and 2017 is as follows: Ordinary income Return of capital Capital gains Balance, end of year Operating Partnership 2019 2018 2017 29.7 % 35.2 % 35.1 % 100.0 % 56.0 % 44.0 % — % 100.0 % 65.2 % 24.3 % 10.5 % 100.0 % 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 U.S. federal income taxes included in the accompanying consolidated financial statements are in connection with the taxable REIT subsidiary. F-18 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 non-redeemable noncontrolling interests in consolidated properties for the years ended December 31, 2019, 2018, and 2017 were as follows: ($ in thousands) Noncontrolling interests balance January 1 Net income allocable to noncontrolling interests, excluding redeemable noncontrolling interests Distributions to noncontrolling interests Noncontrolling interests balance at December 31 Redeemable Noncontrolling Interests – Limited Partners 2019 2018 2017 $ 698 $ 698 $ — — 698 $ — — 698 $ $ 692 6 — 698 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, 2019, the redemption value of the redeemable noncontrolling interests in the Operating Partnership exceeded the historical book value, and the balance was accordingly adjusted to redemption value. At December 31, 2018, the redemption value of the redeemable noncontrolling interests in the Operating Partnership did not exceed the historical book value, and the balance was accordingly adjusted to historical book value. We allocate net operating results of the Operating Partnership after 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, 2019, 2018, and 2017, the weighted average interests of the Parent Company and the limited partners in the Operating Partnership were as follows: Parent Company’s weighted average interest in Operating Partnership Limited partners' weighted average interests in Operating Partnership Year Ended December 31, 2019 2018 2017 97.6 % 97.6 % 97.7 % 2.4 % 2.4 % 2.3 % At December 31, 2019, the Parent Company's interest and the limited partners' redeemable noncontrolling ownership interests in the Operating Partnership were 97.5% and 2.5%. At December 31, 2018, the Parent Company's interest and the limited partners' redeemable noncontrolling ownership interests in the Operating Partnership were 97.6% and 2.4%. 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 have the right to redeem Limited Partner Units 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. There were 2,110,037 and 2,035,349 Limited Partner Units outstanding as of December 31, 2019 and 2018, respectively. The increase in Limited Partner Units outstanding from December 31, 2018 is due primarily to non-cash compensation awards made to our executive officers. F-19 Redeemable Noncontrolling Interests - Subsidiaries Prior to our merger with Inland Diversified Real Estate Trust, Inc. ("Inland Diversified") in 2014, 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 one of these three joint ventures remain outstanding and are accounted for as noncontrolling interests in these properties. The remaining Class B units will become redeemable at our partner's election in October 2022 based on the joint venture agreement and the fulfillment of certain redemption criteria. Beginning in November 2022, with respect to the remaining 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 unless either party has elected for the units to be redeemed. We consolidate this joint venture because we control the decision making and our joint venture partner has limited protective rights. In March 2017, certain Class B unit holders exercised their right to redeem $8.3 million of their Class B units for cash. We funded the redemption in December 2017 using operating cash flows. In 2018, the same Class B unit holders exercised their right to redeem their remaining Class B units for cash. We funded $10.0 million of the redemption in August 2018 and the remaining $12.0 million in November 2018. We classify the remainder of the redeemable noncontrolling interests in a subsidiary in the accompanying consolidated balance sheets outside of permanent equity because, under certain circumstances, we may be required to pay cash to Class B unitholders in specific subsidiaries upon redemption of their interests. The carrying amount of these redeemable noncontrolling interests is required to be reflected at the greater of initial book value or redemption value with a corresponding adjustment to additional paid-in capital. As of December 31, 2019 and 2018, the redemption amounts of these interests did not exceed their fair value, nor did they exceed the initial book value. The redeemable noncontrolling interests in the Operating Partnership and subsidiaries for the years ended December 31, 2019, 2018, and 2017 were as follows: ($ in thousands) Redeemable noncontrolling interests balance January 1 Net income allocable to redeemable noncontrolling interests Distributions declared to redeemable noncontrolling interests Payment for partial redemption of redeemable noncontrolling interests Other, net including adjustments to redemption value $ 2019 45,743 $ 532 (3,191 ) — 9,490 2018 72,104 $ 116 (3,788 ) (22,461 ) (228 ) 2017 88,165 2,009 (4,155 ) (8,261 ) (5,654 ) Total limited partners' interests in Operating Partnership and other redeemable noncontrolling interests balance at December 31 $ 52,574 $ 45,743 $ 72,104 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 $ 42,504 $ 10,070 35,673 $ 10,070 39,573 32,531 $ 52,574 $ 45,743 $ 72,104 Reclassifications Certain amounts in the accompanying consolidated financial statements for 2017 and 2018 have been reclassified to conform to the 2019 consolidated financial statement presentation. The reclassifications had no impact on the net income previously reported. Effects of Accounting Pronouncements Adoption of New Standards Leases On January 1, 2019. we adopted Accounting Standards Update ("ASU") ASU 2016-02, Leases, using the modified retrospective approach along with electing the package of practical expedients. ASU 2016-02 amends the existing accounting F-20 standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making certain changes to lessor accounting, including the accounting for sales-type and direct financing leases. For leases with a term of one year or less, the Company made an accounting policy election by underlying asset to not recognize lease liabilities and right-of-use (ROU) assets, and expenses for these short-term leases is immaterial for all periods presented. The practical expedients include the following: • • • • The Company did not reassess whether any expired or existing contracts are or contain leases; The Company did not reassess the lease classification of any expired or existing leases; The Company did not reassess initial direct costs for any existing leases; and The Company elected to not separate non-lease components, such as common area maintenance, of a contract from the leases to which they relate when specific criteria are met. The new leasing standard also amended 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. Certain costs that were previously capitalized as a leasing cost no longer meet the requirements for capitalization under the new leasing standard. The Company capitalized $5.4 million less in leasing costs during the year ended December 31, 2019 as compared to the prior year. Note 9 to the Financial Statements includes a discussion of the lease rental income and expense for the year ended December 31, 2019 and future rental income and expense to be received or paid under non-cancelable operating leases. Derivatives and Hedging On January 1, 2019, we adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. ASU 2017-02 better aligns a company’s financial reporting for hedging activities with the economic objectives of those activities. The adoption of ASU 2017-12 did not have a material impact on our consolidated financial statements. New Standards Issued but Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses." The ASU sets forth a "current expected credit loss" (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets. Receivables arising from operating leases are not within the scope of this standard, but rather, are accounted for in accordance with the Leases standard. The new standard is effective for the Company beginning with the first quarter of 2020 and will not have a material impact on the Company's consolidated financial statements. Note 3. Share-Based Compensation Overview The Company's 2013 Equity Incentive Plan (the "Plan"), as amended and restated as of February 28, 2019, authorizes options to acquire common shares and other share-based compensation awards to be granted to employees and trustees for up to an additional 3,000,000 common share equivalents 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 Accounting Standards Codification. The total share-based compensation expense, net of amounts capitalized, included in general and administrative expenses for the years ended December 31, 2019, 2018, and 2017 was $5.3 million, $4.9 million, and $5.8 million, respectively. For the years ended December 31, 2019, 2018, and 2017, total share-based compensation cost capitalized for development activities was $1.1 million, $1.7 million, and $1.7 million, respectively. The Company recognizes forfeitures as they occur. As of December 31, 2019, there were 2,665,383 shares and units available for grant under the Plan. Share Options F-21 Pursuant to the Plan, the Company may periodically grant options to purchase common shares at an exercise price equal to the grant date fair value of the Company's common shares. Granted options typically vest over a five year period and expire 10 years from the grant date. The Company issues new common shares upon the exercise of options. A summary of option activity under the Plan as of December 31, 2019, and changes during the year then ended, is presented below: ($ in thousands, except share and per share data) Outstanding at January 1, 2019 Granted Exercised Expired Forfeited Outstanding at December 31, 2019 Exercisable at December 31, 2019 Exercisable at December 31, 2018 Aggregate Intrinsic Value Weighted-Average Remaining Contractual Term (in years) Options Weighted-Average Exercise Price $ $ 12 12 1.13 1.13 60,567 $ — (33,375 ) — (3,125 ) 24,067 $ 24,067 $ 60,567 $ 17.08 — 14.48 — 17.00 20.25 20.25 17.08 There were no options granted in 2019, 2018 or 2017. The aggregate intrinsic value of the 33,375 and 3,125 options exercised during the years ended December 31, 2019 and 2018 was $86,000 and $23,000, respectively. There were no options exercised in 2017. Restricted Shares In addition to share option grants, the Plan also authorizes the grant of share-based compensation awards in the form of restricted common shares. Under the terms of the Plan, these restricted shares, which are considered to be outstanding shares from the date of grant, typically vest over a period ranging from three 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, 2019 and changes during the year then ended: Restricted shares outstanding at January 1, 2019 Shares granted Shares forfeited Shares vested Restricted shares outstanding at December 31, 2019 Number of Restricted Shares 313,288 $ 154,440 (8,457 ) (138,269 ) 321,002 $ Weighted Average Grant Date Fair Value per share 18.99 15.84 17.63 19.74 17.19 The following table summarizes the restricted share grants and vestings during the years ended December 31, 2019, 2018, and 2017: ($ in thousands, except share and per share data) 2019 2018 2017 Number of Restricted Shares Granted Weighted Average Grant Date Fair Value per share Fair Value of Restricted Shares Vested 154,440 $ 202,043 85,150 15.84 $ 15.35 22.15 2,270 2,038 2,529 F-22 As of December 31, 2019, there was $3.9 million of total unrecognized compensation cost related to restricted shares granted under the Plan, which is expected to be recognized in the consolidated statements of operations over a weighted-average period of 1.26 years. We expect to incur $1.8 million of this expense in 2020, $1.4 million in 2021, $0.6 million in 2022, and the remainder in 2023. Performance Awards In 2016, the Compensation Committee established overall target values for incentive compensation for each executive officer, with 40% of the target value being granted in the form of time-based awards and the remaining 60% being granted in the form of performance awards. In 2017, the Compensation Committee awarded each of the four named executive officers a three-year performance award in the form of PSUs. The PSUs may be earned over a three-year performance period from January 1, 2017 to December 31, 2019. The performance criteria will be based 50% on the absolute TSR achieved by the Company over the three-year measurement period and 50% on the relative TSR achieved by the Company measured against a peer group over the three-year measurement period. The total number of PSUs issued to the executive officers was based on a target value of $2.0 million, but may be earned in a range from 0% to 200% of the target value depending on our absolute TSR over the measurement period and our relative TSR over the measurement period in relation to the peer group. Approximately 73,000 PSU's were earned based upon the Company's performance on the relative TSR measurement. In 2018, the Compensation Committee awarded each of the four named executive officers a three-year performance award in the form of PSUs. The PSUs may be earned over a three-year performance period from January 1, 2018 to December 31, 2020. The performance criteria will be based 60% on the relative TSR achieved by the Company measured against a peer group over the three- year measurement period and 40% on the achievement of a defined funds available for distribution ("FAD"). The total number of PSUs issued to the executive officers was based upon a target value of $2.4 million, but may be earned in a range of 0% to 200% of the target. Additionally, any PSUs earned based on the achievement of the pre-established FAD goals will be subject to adjustment (either up or down 25%) based on the Company's absolute TSR over the three-year measurement period. The 2018 and 2017 PSUs were valued at an aggregate value of $2.2 million and $2.2 million, respectively, utilizing a Monte Carlo simulation. We expect to incur $0.7 million of this expense in 2020 and less than $0.1 million in 2021. Restricted Units Time-based restricted unit awards were made on a discretionary basis in 2017, 2018, and 2019 based on review of each prior year's performance. The following table summarizes the activity for time-based restricted unit awards for the year ended December 31, 2019: Restricted units outstanding at January 1, 2019 Restricted units granted Restricted units vested Restricted units outstanding at December 31, 2019 Number of Restricted Units 124,662 $ 84,987 (45,633 ) 164,016 $ Weighted Average Grant Date Fair Value per unit 17.60 14.11 18.10 15.65 The following table summarizes the time-based restricted unit grants and vestings during the years ended December 31, 2019, 2018, and 2017: ($ in thousands, except unit and per unit data) 2019 2018 2017 Number of Restricted Units Granted Weighted Average Grant Date Fair Value per Unit Fair Value of Restricted Units Vested 84,987 $ 92,019 44,490 14.11 $ 13.16 23.22 749 1,924 1,516 F-23 As of December 31, 2019, there was $1.5 million of total unrecognized compensation cost related to restricted units granted under the Plan, which is expected to be recognized in the consolidated statements of operations over a weighted-average period of 0.98 years. We expect to incur $1.0 million of this expense in 2020, $0.5 million in 2021, and the remainder in 2022. AO LTIP Units During 2019, in connection with its annual review of executive compensation and as described in the table below, the Compensation Committee of the Company's Board of Trustees approved an aggregate grant of AO LTIP Units (the “awards”) to the Company’s executive officers under the Plan. Executive Number of AO LTIP Units Participation Threshold per AO LTIP Unit John A. Kite Thomas A. McGowan Heath R. Fear Scott E. Murray 1,490,683 $ 372,671 $ 253,416 $ 186,335 $ 15.79 15.79 15.79 15.79 The Company entered into an award agreement with each executive officer with respect to his awards, which provide terms of vesting, conversion, distribution, and other terms. AO LTIP Units are designed to have economics similar to stock options and allow the recipient, subject to vesting requirements, to realize value above a threshold level set as of the grant date of the award (the “Participation Threshold”). The value of vested AO LTIP Units is realized through conversion into a number of vested LTIP Units in the Operating Partnership determined on the basis of how much the value of a common share of the Company has increased over the Participation Threshold. The AO LTIP Units are only exercisable and convertible into vested LTIP Units of the Operating Partnership to the extent that they become vested AO LTIP Units. The awards of AO LTIP Units are subject to both time-based and stock price performance-based vesting requirements. Subject to the terms of the award agreement, the AO LTIP Units shall vest and become fully exercisable as of the date that both of the following requirements have been met: (i) the grantee remains in continuous service from the grant date through the third anniversary of the grant date; and (ii) at any time during the five-year period following the grant date, the reported closing price per common share of the Company appreciates at least 20% over the applicable Participation Threshold per AO LTIP Unit (as set forth in the table above) for a minimum of 20 consecutive trading days. Any AO LTIP Units that do not become vested will be forfeited and become null and void as of the fifth anniversary of the grant date, but AO LTIP Units may also be forfeited earlier in connection with a corporate transaction or with the holder’s termination of service. The AO LTIP Units were valued using a Monte Carlo simulation, and the resulting total compensation expense of $3.7 million is being amortized over three years. We recognized $1.0 million of compensation expense in 2019. We expect to incur $1.2 million of this expense in 2020, $1.2 million of this expense in 2021, and the remainder in 2022. Note 4. Deferred Costs and Intangibles, net Deferred costs consist primarily of acquired lease intangible assets, broker fees and capitalized salaries and related benefits incurred in connection with lease originations. Deferred leasing costs, lease intangibles and similar costs are amortized on a straight-line basis over the terms of the related leases. At December 31, 2019 and 2018, deferred costs consisted of the following: ($ in thousands) Acquired lease intangible assets Deferred leasing costs and other Less—accumulated amortization Subtotal Less - asset held for sale Total F-24 $ $ 2019 60,862 $ 62,109 122,971 (49,814 ) 73,157 $ — 73,157 2018 81,852 69,870 151,722 (56,307 ) 95,415 (151 ) 95,264 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) 2020 2021 2022 2023 2024 Thereafter Total Amortization of above market leases Amortization of acquired lease intangible assets Total $ $ 926 $ 681 446 424 401 1,343 4,221 $ 4,846 $ 3,872 3,184 2,463 1,912 15,207 31,484 $ 5,772 4,553 3,630 2,887 2,313 16,550 35,705 Amortization of deferred leasing costs, leasing intangibles and other is included in depreciation and amortization expense in the accompanying consolidated statements of operations. The amortization of above market lease intangibles is included as a reduction to revenue. The amounts of such amortization included in the accompanying consolidated statements of operations are as follows: ($ in thousands) Amortization of deferred leasing costs, lease intangibles and other Amortization of above market lease intangibles Note 5. Deferred Revenue, Intangibles, Net and Other Liabilities For the year ended December 31, 2019 2018 2017 $ 14,239 $ 1,200 18,648 $ 2,553 22,960 4,025 Deferred revenue and other liabilities consist of the unamortized fair value of below market lease liabilities recorded in connection with purchase accounting, retainage payables for development and redevelopment projects, tenant rent payments received in advance of the month in which they are due, and lease liabilities recorded upon adoption of ASU 2016-02. The amortization of below market lease liabilities is recognized as revenue over the remaining life of the leases (including option periods for leases with below market renewal options) through 2046. 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, 2019 and 2018, deferred revenue, intangibles, net and other liabilities consisted of the following: ($ in thousands) Unamortized in-place lease liabilities Retainages payable and other Tenant rents received in advance Lease liabilities Total 2019 2018 $ $ 50,072 $ 2,254 10,839 27,015 90,180 $ 69,501 2,489 11,642 — 83,632 The amortization of below market lease intangibles is included as a component of minimum rent in the accompanying consolidated statements and was $5.0 million, $8.9 million and $7.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated net amounts of amortization of in-place lease liabilities and the increasing effect on minimum rent for each of the next five years and thereafter is as follows: F-25 ($ in thousands) 2020 2021 2022 2023 2024 Thereafter Total $ $ 3,192 2,973 2,772 2,584 2,474 36,077 50,072 Note 6. Disposals of Operating Properties and Impairment Charges In February 2019, the Company announced a plan to market and sell up to $500 million in non-core assets as part of a program designed to improve the Company's portfolio quality, reduce its leverage, and focus operations on markets where the Company believes it can gain scale and generate attractive risk-adjusted returns. During the year ended December 31, 2019, we sold twenty-three operating properties for aggregate gross proceeds of $543.8 million. The following summarizes our 2019 operating property dispositions: Property Name MSA Disposition Date Whitehall Pike Beechwood Promenade Village at Bay Park Lakewood Promenade Palm Coast Landing Lowe's - Perimeter Woods Cannery Corner Temple Terrace University Town Center Gainesville Plaza Bolton Plaza Eastgate Plaza Burnt Store Landstown Commons Lima Marketplace Hitchcock Plaza Merrimack Village Center Publix at Acworth The Centre at Panola Beacon Hill Bell Oaks Centre South Elgin Commons Boulevard Crossing Bloomington, IN Athens, GA Green Bay, WI Jacksonville, FL Palm Coast, FL Charlotte, NC Las Vegas, NV Tampa, FL Oklahoma City, OK Gainesville, FL Jacksonville, FL Las Vegas, NV Punta Gorda, FL Virginia Beach, VA Fort Wayne, IN Aiken, SC Manchester, NH Atlanta, GA Atlanta, GA Crown Point, IN Evansville, IN Chicago, IL Kokomo, IN March 2019 April 2019 May 2019 May 2019 May 2019 May 2019 June 2019 June 2019 June 2019 July 2019 July 2019 July 2019 July 2019 August 2019 September 2019 September 2019 September 2019 October 2019 October 2019 October 2019 November 2019 December 2019 December 2019 The Company recorded a net gain of $39.0 million as a result of the 2019 disposal activity. During 2019, in connection with the preparation and review of the financial statements for the applicable periods, we evaluated a total of seven operating properties for impairment and recorded a cumulative $37.7 million impairment charge due to changes in facts and circumstances underlying the Company's expected future hold period of these properties. A shortening of the expected future hold period is considered an impairment indicator under applicable accounting rules, and this indicator caused us to further evaluate the carrying value of these properties. We concluded the estimated undiscounted cash flows over the expected F-26 holding period did not exceed the carrying value of these assets given the new holding period, leading to the charge. We estimated the fair value using the market approach by utilizing recent sales offers without adjustment. We compared the estimate aggregate fair value of $176 million to the carrying values, which resulted in the recording of the non-cash impairment charge of $37.7 million for the year ended December 31, 2019. During the year ended December 31, 2018, we sold six operating properties for aggregate gross proceeds of $122.2 million. The following summarizes our 2018 operating property dispositions: Property Name MSA Disposition Date Trussville Promenade Memorial Commons Lake Lofts at Deerwood Hamilton Crossing Fox Lake Crossing Lowe's Plaza Birmingham, AL Goldsboro, NC Jacksonville, FL Knoxville, TN Chicago, IL Las Vegas, NV February 2018 March 2018 November 2018 November 2018 December 2018 December 2018 In addition, we entered into a joint venture with TH Real Estate by selling an 80% interest in three operating assets for an agreed upon value of $99.8 million. The properties sold to the joint venture were the following: Property Name MSA Disposition Date Livingston Shopping Center Plaza Volente Tamiami Crossing New York/Northern New Jersey June 2018 June 2018 Austin, TX Naples, FL June 2018 The Company recorded a net gain of $3.4 million as a result of the 2018 disposal activity. During 2018, in connection with the preparation and review of the financial statements for the applicable periods, we evaluated a total of seven operating properties and land previously held for development for impairment and recorded a cumulative $70.4 million impairment charge due to changes in facts and circumstances underlying the Company's expected future hold period of these properties and decision to not move forward with development of the land. A shortening of an expected future hold period is considered an impairment indicator under applicable accounting rules, and this indicator caused us to further evaluate the carrying value of these properties. We concluded the estimated undiscounted cash flows over the expected holding period did not exceed the carrying value of these assets given the new holding period, leading to the charge. We estimated the fair value using the market approach by utilizing recent sales offers without adjustment. We compared the estimated aggregate fair value of $130.2 million to the carrying values, which resulted in the recording of the non-cash impairment charges totaling $70.4 million for the year ended December 31, 2018. As of December 31, 2018, the Company classified its Whitehall Pike operating property as held for sale. This asset was sold in March 2019. During the year ended December 31, 2017, we sold four operating properties for aggregate gross proceeds of $76.1 million and a net gain of $15.2 million. The following summarizes our 2017 operating property dispositions. Property Name MSA Disposition Date Cove Center Clay Marketplace The Shops at Village Walk Wheatland Towne Crossing Stuart, FL Birmingham, AL Fort Myers, FL Dallas, TX March 2017 June 2017 June 2017 June 2017 In connection with the preparation and review of the financial statements for the three months ended March 31, 2017, we evaluated an operating property for impairment including shortening of the intended holding period. We concluded the estimated undiscounted cash flows over the expected holding period did not exceed the carrying value of the asset. The Company estimated the fair value of the property to be $26.0 million using Level 3 inputs within the fair value hierarchy, primarily using the market F-27 approach. We compared the fair value measurement to the carrying value, which resulted in the recording of a non-cash impairment charge of $7.4 million. This property was sold during 2017. The results of all the operating properties sold in 2019, 2018, and 2017 are not included in discontinued operations in the accompanying statements of operations as none of the operating properties individually, nor in the aggregate, represent a strategic shift that has had or will have a material effect on our operations or financial results. Note 7. Mortgage and Other Indebtedness Mortgage and other indebtedness consisted of the following as of December 31, 2019 and 2018: ($ in thousands) As of December 31, 2019 Unamortized Net Premiums Unamortized Debt Issuance Costs Total Principal Senior Unsecured Notes—Fixed Rate Maturing at various dates from September 2023 through September 2027; interest rates ranging from 4.00% to 4.57% at December 31, 2019 $ 550,000 $ — $ (4,231 ) $ 545,769 Unsecured Revolving Credit Facility Matures April 20221; borrowing level up to $583.4 million available at December 31, 2019; interest at LIBOR + 1.15% or 2.91% at December 31, 2019 — Unsecured Term Loans Matures October 2025; interest at LIBOR + 2.00% or 3.76% at December 31, 2019 250,000 — — (2,625 ) (2,625 ) (1,859 ) 248,141 Mortgage Notes Payable—Fixed Rate Generally due in monthly installments of principal and interest; maturing at various dates from April 2022 through June 2030; interest rates ranging from 3.78% to 5.73% at December 31, 2019 Mortgage Notes Payable—Variable Rate Due in monthly installments of principal and interest; maturing in February 2022; interest at LIBOR + 1.60% or 3.36% at December 31, 2019 Total mortgage and other indebtedness 297,472 2,176 (40 ) 299,608 55,830 $ 1,153,302 $ — 2,176 $ (143 ) 55,687 (8,898 ) $ 1,146,580 F-28 ($ in thousands) As of December 31, 2018 Unamortized Net Premiums Unamortized Debt Issuance Costs Total Principal Senior Unsecured Notes—Fixed Rate Maturing at various dates from September 2023 through September 2027; interest rates ranging from 4.00% to 4.57% at December 31, 2018 $ 550,000 $ — $ (4,864 ) $ 545,136 Unsecured Revolving Credit Facility Matures April 20221; borrowing level up to $449.5 million available at December 31, 2018; interest at LIBOR + 1.15%2 or 3.65% at December 31, 2018 Unsecured Term Loans $95 million matures July 2021; interest at LIBOR + 1.30%2 or 3.80% at December 31, 2018; $250 million matures October 2025; interest at LIBOR + 2.00% or 4.50% at December 31, 2018 Mortgage Notes Payable—Fixed Rate Generally due in monthly installments of principal and interest; maturing at various dates from September 2020 through June 2030; interest rates ranging from 3.78% to 6.78% at December 31, 2018 Mortgage Notes Payable—Variable Rate Due in monthly installments of principal and interest; maturing at various dates February 2022 through June 2025; interest at LIBOR + 1.50%- 1.60%, ranging from 4.00% to 4.10% at December 31, 2018 Total mortgage and other indebtedness 45,600 — (3,796 ) 41,804 345,000 — (2,470 ) 342,530 534,679 6,566 (584 ) 540,661 73,491 $ 1,548,770 $ — 6,566 $ (321 ) 73,170 (12,035 ) $ 1,543,301 ____________________ 1 The Company can extend the maturity date for two additional periods of six months each, subject to certain conditions. 2 The interest rates on our unsecured revolving credit facility and unsecured term loan varied at certain parts of the year due to provisions in the agreement and the amendment and restatement of the agreement. The one month LIBOR interest rate was 1.76% and 2.50% as of December 31, 2019 and 2018, respectively. Debt Issuance Costs Debt issuance costs are amortized on a straight-line basis over the terms of the respective loan agreements. The accompanying consolidated statements of operations include the following amounts of amortization of debt issuance costs as a component of interest expense: ($ in thousands) Amortization of debt issuance costs For the year ended December 31, 2019 2018 2017 $ 2,762 $ 3,944 $ 2,534 Unsecured Revolving Credit Facility and Unsecured Term Loans On April 24, 2018, the Company and Operating Partnership entered into the First Amendment (the “Amendment”) to the Fifth Amended and Restated Credit Agreement (the “Existing Credit Agreement,” and as amended by the Amendment, the “Amended Credit Agreement”), dated as of July 28, 2016, by and among the Operating Partnership, as borrower, the Company, as guarantor (pursuant to a springing guaranty, dated as of July 28, 2016), KeyBank National Association, as administrative agent, and the other lenders party thereto. The Amendment increases (i) the aggregate principal amount available under the unsecured revolving credit facility (the “Credit Facility”) from $500 million to $600 million, (ii) the amount of the letter of credit issuances the Operating Partnership may utilize under the Credit Facility from $50 million to $60 million, and (iii) swingline loan capacity from $50 million to $60 million in same day borrowings. Under the Amended Credit Agreement, the Operating Partnership has the option to increase the Credit Facility to $1.2 billion (increased from $1 billion under the Existing Credit Agreement) upon the Operating Partnership’s request, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the Amended Credit Agreement, to provide such increased amounts. F-29 The Amendment extends the scheduled maturity date of the Credit Facility from July 28, 2020 to April 22, 2022 (which maturity date may be extended for up to two additional periods of six months at the Operating Partnership’s option subject to certain conditions). Among other things, the Amendment also improves the Operating Partnership’s leverage ratio calculation by changing the definition of capitalization rate to six and one-half percent (6.5%) from six and three-fourths percent (6.75%), which increases the Operating Partnership’s total asset value as calculated under the Amended Credit Agreement On October 25, 2018, the Operating Partnership entered into a Term Loan Agreement (the “Agreement”) with KeyBank National Association, as Administrative Agent (the “Agent”), and the other lenders party thereto, providing for an unsecured term loan facility of up to $250 million (the “Term Loan”). The Term Loan ranks pari passu with the Operating Partnership’s existing $600 million unsecured revolving credit facility documented in the Operating Partnership’s Fifth Amended and Restated Credit Agreement, dated as of July 28, 2016, as amended (the “Existing Credit Agreement”), and other unsecured indebtedness of the Operating Partnership. The Term Loan has a scheduled maturity date of October 24, 2025, which maturity date may be extended for up to three additional periods of one year at the Operating Partnership’s option subject to certain conditions. The Operating Partnership has the option to increase the Term Loan to $300 million, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the Agreement, to provide such increased amounts. The Operating Partnership is permitted to prepay the Term Loan in whole or in part, at any time, subject to a prepayment fee if prepaid on or before October 25, 2023. As of December 31, 2019, there was no balance outstanding under the Credit Facility. Additionally, we had letters of credit outstanding which totaled $1.2 million, against which no amounts were advanced as of December 31, 2019. The amount that we may borrow under our Credit Facility is limited by the value of the assets in our unencumbered asset pool. As of December 31, 2019, the value of the assets in our unencumbered asset pool, calculated pursuant to the Credit Facility agreement, was $1.4 billion. Taking into account outstanding borrowings on the line of credit, term loans, unsecured notes and letters of credit, we had $583.4 million available under our Credit Facility for future borrowings as of December 31, 2019. Our ability to borrow under the Credit Facility 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, 2019, we were in compliance with all such covenants. Senior Unsecured Notes The Operating Partnership has $550 million of senior unsecured notes maturing at various dates through September 2027 (the "Notes"). The Notes contain a number of customary financial and restrictive covenants. As of December 31, 2019, we were in compliance with all such covenants. Mortgage Loans Mortgage loans are secured by certain real estate and in some cases by guarantees from the Operating Partnership, and are generally due in monthly installments of interest and principal and mature over various terms through 2030. Debt Maturities The following table presents maturities of mortgage debt and corporate debt as of December 31, 2019: F-30 ($ in thousands) 2020 2021 2022 2023 2024 Thereafter Unamortized net debt premiums and issuance costs, net Total Other Debt Activity Scheduled Principal Payments Term Maturities Total $ $ 2,226 $ 2,303 1,043 806 854 5,576 12,808 $ — $ — 178,877 256,517 — 705,100 1,140,494 $ $ 2,226 2,303 179,920 257,323 854 710,676 1,153,302 (6,722 ) 1,146,580 For the year ended December 31, 2019, we had total new borrowings of $75.0 million and total repayments of $470.5 million. In addition to the items mentioned above, the components of this activity were as follows: • We retired sixteen fixed-rate secured loans and one variable-rate secured loan for $250.9 million in connection with the sale of operating properties; • We repaid $120.6 million on the Credit Facility using proceeds from the sale of operating properties; • We borrowed $30.0 million on the Credit Facility to fund the acquisition of the Pan Am Plaza Garage; • We borrowed $45.0 million on the Credit Facility to fund development activities, redevelopment activities, tenant improvement costs, and other working capital needs; and • We made scheduled principal payments on indebtedness during the year totaling $4.1 million. The amount of interest capitalized in 2019, 2018, and 2017 was $1.9 million, $1.8 million, and $3.1 million, respectively. Fair Value of Fixed and Variable Rate Debt As of December 31, 2019, the estimated fair value of fixed rate debt was $864.0 million compared to the book value of$847.5 million. The fair value was estimated using Level 2 and 3 inputs with cash flows discounted at current borrowing rates for similar instruments, which ranged from 3.19% to 3.78%. As of December 31, 2019, the estimated fair value of variable rate debt was $307.6 million compared to the book value of $305.8 million. The fair value was estimated using Level 2 and 3 inputs with cash flows discounted at current borrowing rates for similar instruments, which ranged from 3.39% to 3.47%. Note 8. Derivative Instruments, Hedging Activities and Other Comprehensive Income In order to manage potential future variable interest rate risk, we enter into interest rate derivative agreements from time to time. We do not use such agreements for trading or speculative purposes nor do we have any 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, 2019, we were party to various cash flow derivative agreements with notional amounts totaling $266.2 million. These derivative agreements effectively fix the interest rate underlying certain variable rate debt instruments over expiration dates through 2025. Utilizing a weighted average interest rate spread over LIBOR on all variable rate debt resulted in fixing the weighted average interest rate at 3.68%. These interest rate derivative 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. F-31 We determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. As of December 31, 2019 and December 31, 2018, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we determined our derivative valuations were classified within Level 2 of the fair value hierarchy. As of December 31, 2019, the estimated fair value of our interest rate derivatives represented a liability of $16.8 million, including accrued interest of $0.1 million. As of December 31, 2019, this balance is reflected in accounts payable and accrued expenses on the accompanying consolidated balance sheet. At December 31, 2018 the estimated fair value of our interest rate derivatives was a net liability of $3.5 million, including accrued interest receivable of $0.1 million. As of December 31, 2018, $3.6 million is reflected in prepaid and other assets and $7.1 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. Approximately $0.6 million was reclassified as an increase to earnings during the year ended December 31, 2019. Approximately $0.8 million and $2.5 million was reclassified as a reduction to earnings during the years ended December 31, 2018 and 2017, respectively. As the interest payments on our derivatives are made over the next 12 months, we estimate the increase to interest expense to be $1.5 million, assuming the current LIBOR curve. Unrealized gains and losses on our interest rate derivative agreements are the only components of the change in accumulated other comprehensive loss. Note 9. Lease Information Rental Income The Company receives rental income from the leasing of retail and office space. The leases generally provide for certain increases in base rent, reimbursement for certain operating expenses, and may require tenants to pay contingent rent to the extent their sales exceed a defined threshold. Certain tenants have the option in the lease agreement to extend their lease upon the expiration of their contractual term. Variable lease payments are based upon tenant sales information and are recognized once a tenant's sales volume exceeds a defined threshold. Variable lease payments for reimbursement of operating expenses are based upon the operating expense activity for the period. From a lessor perspective, the new accounting guidance adopted in 2019 remained mostly similar to legacy GAAP as the Company elected the practical expedient to not separate non-lease components from lease components. This election resulted in a change on the Company's consolidated statements of operations as the Company no longer presents minimum rents and tenant reimbursements as separate amounts because the Company now accounts for these amounts as a single combined lease component, rental income, on the basis of the lease component being the predominant component of the contract. As such, non-lease components, including common area maintenance reimbursements that are of a fixed nature are recognized on a straight-line basis over the term of the lease. Further, bad debt, which has previously been recorded in property operating expenses, has now been classified as a contra-revenue account in rental income in the Company’s consolidated statements of operations and comprehensive income for the year ended December 31, 2019. The Company recognized the following lease rental income for the year ended December 31, 2019: ($ in thousands) Fixed Contractual Lease Payments - Operating Leases Variable Lease Payments - Operating Leases Straight-Line Rent Adjustment Amortization of In-Place Lease Liabilities, net Total Year Ended December 31, 2019 $ $ 244,666 57,748 2,209 3,776 308,399 F-32 The weighted average remaining term of the lease agreements is approximately 4.5 years. During the years ended December 31, 2019, 2018, and 2017, the Company earned overage rent of $1.3 million, $1.2 million, and $1.1 million, respectively. As of December 31, 2019, future minimum rentals to be received under non-cancelable operating leases for each of the next five years and thereafter, excluding variable lease payments, are as follows: ($ in thousands) 2020 2021 2022 2023 2024 Thereafter Total $ 219,020 203,858 176,630 144,709 114,560 394,986 $ 1,253,763 Commitments under Ground Leases As of December 31, 2019, we are obligated under nine ground leases for approximately 47 acres of land. Most of these ground leases require fixed annual rent payments. The expiration dates of the remaining initial terms of these ground leases range from 2023 to 2092 with a weighted-average remaining term of 52.2 years. Certain of these leases have five- to ten-year extension options ranging in total from 20 to 25 years. Upon adoption of the Leases standard, the Company did not recognize value during the option period for the right-of- use assets and lease liabilities as it was not probable the extension options will be exercised. Upon adoption, the Company recorded a right of use asset of $27.0 million and corresponding liability of $27.3 million. The right of use asset is included in prepaid and other assets and the lease liability is included in deferred revenue and other liabilities. This value was determined utilizing an estimate of our incremental borrowing rate that was specific to each lease based upon the term and underlying asset. These rates ranged from 3.93% to 6.33% with a weighted-average incremental borrowing rate of 5.86%. Ground lease expense incurred by the Company on these operating leases for the years ended December 31, 2019, 2018, and 2017 was $1.8 million, $1.7 million, and $1.7 million, respectively. The Company made payments of $1.7 million for the year ended December 31, 2019, of which the majority was included in operating cash flows. Future minimum lease payments due under ground leases for the next five years ending December 31 and thereafter are as follows: ($ in thousands) 2020 2021 2022 2023 2024 Thereafter Total Note 10. Shareholders’ Equity Common Equity $ $ 1,777 1,789 1,815 1,636 1,600 70,554 79,171 Our Board of Trustees declared a cash distribution of $0.3175 per common share and Common Unit for the fourth quarter of 2019. This distribution was paid on December 27, 2019 to common shareholders and Common Unit holders of record as of December 20, 2019. F-33 For the years ended December 31, 2019, 2018 and 2017, we declared cash distributions of $1.270, $1.270, and $1.225 respectively per common share and Common Units. Accrued but unpaid distributions on common shares and units was $27.3 million as of December 31, 2018 and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. Dividend Reinvestment and Share Purchase Plan We maintain a Dividend Reinvestment and Share Purchase Plan, which offers investors the option to invest all or a portion of their common share dividends in additional common shares. Participants in this plan are also able to make optional cash investments with certain restrictions. Note 11. Quarterly Financial Data (Unaudited) Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2019 and 2018. ($ in thousands, except per share data) Quarter Ended March 31, 2019 Quarter Ended June 30, 2019 Quarter Ended September 30, 2019 Quarter Ended December 31, 2019 Total revenue Gain (loss) on sale of operating properties, net $ Operating income (loss) Consolidated net income (loss) Net income (loss) attributable to Kite Realty Group Trust common shareholders Net income (loss) per common share – basic and diluted Weighted average Common Shares outstanding - basic Weighted average Common Shares outstanding - diluted 83,515 $ 6,587 22,976 5,988 5,715 0.07 81,480 $ 24,092 17,318 (1,697 ) 74,943 $ (5,714 ) 1,316 (20,117 ) (1,796 ) (19,735 ) (0.02 ) (0.24 ) 75,265 14,005 30,186 15,855 15,314 0.18 83,843,681 83,938,961 83,960,841 83,960,045 84,034,097 83,938,961 83,960,841 84,478,245 ($ in thousands, except per share data) Quarter Ended March 31, 2018 Quarter Ended June 30, 2018 Quarter Ended September 30, 2018 Quarter Ended December 31, 2018 Total revenue Gain (loss) on sale of operating properties, net $ Operating income (loss) Consolidated net income (loss) Net income (loss) attributable to Kite Realty Group Trust common shareholders Net income (loss) per common share – basic and diluted Weighted average Common Shares outstanding - basic Weighted average Common Shares outstanding - diluted Note 12. Commitments and Contingencies Other Commitments and Contingencies 89,763 $ 500 (1,532 ) (17,997 ) 91,736 $ 7,829 15,771 (1,062 ) (17,917 ) (1,366 ) (0.21 ) (0.02 ) 85,747 $ (177 ) 20,549 4,317 3,938 0.05 86,937 (4,725 ) (13,757 ) (31,709 ) (31,221 ) (0.37 ) 83,629,669 83,672,896 83,706,704 83,762,664 83,629,669 83,672,896 83,767,655 83,762,664 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 F-34 business. Management believes that such matters will not have a material adverse impact on our consolidated financial condition, results of operations or cash flows taken as a whole. We are obligated under various completion guarantees with 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 our investment in any existing or future projects through cash from operations and borrowings on our unsecured revolving credit facility. In 2017, we provided a repayment guaranty on a $33.8 million construction loan associated with the development of the Embassy Suites at the University of Notre Dame consistent with our 35% ownership interest. As of December 31, 2019, the current outstanding loan balance is $33.6 million, of which our share is $11.8 million. As of December 31, 2019, we had outstanding letters of credit totaling $1.2 million. At that date, there were no amounts advanced against these instruments. Note 13. Related Parties and Related Party Transactions Subsidiaries of the Company provide certain management, construction management and other services to certain entities owned by certain members of the Company’s management. During each of the years ended December 31, 2019, 2018 and 2017, we earned less than $0.1 million, from entities owned by certain members of management. We reimburse an entity owned by certain members of our management for certain travel and related services. During the years ended December 31, 2019, 2018 and 2017, we paid $0.8 million, $0.5 million and $0.3 million, respectively, to this related entity. Note 14. Acquisitions In 2019, we acquired one retail operating property for $29.0 million and one parking garage for $29.5 million. The fair value of the real estate and other assets acquired were primarily determined using the income approach. The income approach required us to make assumptions about market leasing rates, tenant-related costs, discount rates, and disposal values. The estimates of fair value primarily relied upon Level 2 and Level 3 inputs, as previously defined. The results of operations for each of the properties acquired during the year ended December 31, 2019 have been included in operations since their respective dates of acquisition. The following table summarizes the estimation of the fair value of assets acquired and liabilities assumed for the properties acquired in 2019: ($ in thousands) Investment properties, net Lease-related intangible assets, net Other assets Total acquired assets Accounts payable and accrued expenses Deferred revenue and other liabilities Total assumed liabilities $ 56,393 2,458 320 59,171 595 371 966 Fair value of acquired net assets $ 58,205 The leases at the acquired properties had a weighted average remaining life at acquisition of approximately 5.6 years. The range of the most significant Level 3 assumptions utilized in determining the value of the real estate and related assets acquired are as follows: F-35 Net rental rate per square foot - Anchors Net rental rate per square foot - Small Shops Discount rate We did not acquire any properties in 2018 or 2017. Note 15. Subsequent Events Dividend Declaration $ $ Low High $ $ 11.00 6.33 9.0 % 12.96 32.00 9.0 % On February 12, 2020, our Board of Trustees declared a cash distribution of $0.3175 per common share and Common Unit for the first quarter of 2020. This distribution is expected to be paid on or about April 3, 2020 to common shareholders and Common Unit holders of record as of March 27, 2020. F-36 Kite Realty Group Trust and Kite Realty Group, L.P. and subsidiaries Schedule III Consolidated Real Estate and Accumulated Depreciation ($ in thousands) Initial Cost Cost Capitalized Subsequent to Acquisition/Development Gross Carrying Amount Close of Period Name Encumbrances Land Improvements Land Improvements Land Improvements Total Building & Building & Building & Accumulated Depreciation Year Built / Renovated Acquired Year $ Operating Properties 12th Street Plaza * 54th & College * Bayonne Crossing Bayport Commons * Belle Isle * Bridgewater Marketplace * Burlington Coat Factory * Castleton Crossing * Chapel Hill Shopping Center City Center * Centennial Center Centennial Gateway Centre Point Commons Cobblestone Plaza * Colonial Square * Colleyville Downs * Cool Creek Commons * Cool Springs Market * Crossing at Killingly Commons * Delray Marketplace DePauw University Bookstore & Café Draper Crossing * Draper Peaks * Eastern Beltway Center Eastgate Pavilion * Eddy Street Commons Estero Town Commons * Fishers Station * — $ — 42,940 — — — — — 18,250 — 70,455 23,962 14,410 — — — — — — 55,830 — — — 34,100 — — — — 2,624 $ 2,672 47,809 7,005 9,130 3,407 29 9,761 — 20,565 58,960 5,305 2,918 11,221 7,521 5,446 6,062 12,644 21,999 18,750 64 9,054 11,498 23,221 8,026 1,900 8,973 4,008 13,293 $ — 44,246 20,648 41,426 8,668 2,773 29,309 35,072 180,235 72,704 48,969 22,372 45,526 18,566 38,534 13,374 22,870 34,806 87,353 663 27,156 47,093 45,659 18,067 36,762 9,953 15,773 — $ — — — — — — — — — — — — — — — — 40 — 1,284 — — 522 — — — — — 749 $ — 916 2,090 4,635 620 6 1,019 1,344 4,472 1,243 67 113 1,386 2,160 1,755 2,704 6,414 191 5,801 45 663 3,886 3,993 1,235 2,071 976 82 2,624 $ 2,672 47,809 7,005 9,130 3,407 29 9,761 — 20,565 58,960 5,305 2,918 11,221 7,521 5,446 6,062 12,684 21,999 20,034 64 9,054 12,020 23,221 8,026 1,900 8,973 4,008 14,042 $ — 45,162 22,738 46,061 9,288 2,779 30,328 36,416 184,708 73,947 49,035 22,485 46,912 20,726 40,289 16,078 29,285 34,996 93,155 708 27,819 50,980 49,652 19,302 38,833 10,930 15,854 16,666 $ 2,672 92,971 29,743 55,191 12,695 2,808 40,089 36,416 205,273 132,907 54,340 25,403 58,133 28,247 45,735 22,140 41,969 56,995 113,189 772 36,873 63,000 72,873 27,328 40,733 19,903 19,862 4,224 — 10,589 7,438 10,085 3,387 1,774 8,288 7,538 38,513 21,115 10,425 4,952 12,508 4,211 10,594 6,520 8,464 8,687 21,103 369 6,855 9,570 9,644 8,449 12,771 3,701 4,603 1978/2003 2008 2011 2008 2000 2008 1992/2000 1975 2001 2018 2002 2005 2007 2011 2010 2014 2005 1995 2010 2013 2012 2012 2012 1998/2006 1995 2009 2006 2018 2012 NA 2014 NA 2015 NA 2000 2013 2015 2014 2014 2014 2014 NA 2014 2015 NA 2013 2014 NA NA 2014 2014 2014 2004 NA NA NA F-37 Name Encumbrances Land Improvements Land Improvements Land Improvements Total Initial Cost Cost Capitalized Subsequent to Acquisition/Development Gross Carrying Amount Close of Period Building & Building & Building & Accumulated Depreciation Year Built / Renovated Acquired Year Operating Properties (continued) Geist Pavilion * Greyhound Commons * $ Holly Springs Towne Center * Holly Springs Towne Center - Phase II * Hunters Creek Promenade * Indian River Square * International Speedway Square * King's Lake Square * Kingwood Commons * Lake City Commons Lake City Commons - Phase II * Lake Mary Plaza Lithia Crossing * Market Street Village * Miramar Square Mullins Crossing * Naperville Marketplace Nora Plaza Northcrest Shopping Center Northdale Promenade * Oleander Place * Parkside Town Commons - Phase I * Parkside Town Commons - Phase II * Perimeter Woods * Pine Ridge Crossing * Plaza at Cedar Hill * Pleasant Hill Commons Portofino Shopping Center * Publix at Woodruff * Rampart Commons Rangeline Crossing * — $ — — 1,368 $ 2,629 12,319 8,449 $ 794 46,589 — $ — — 2,355 $ 861 3,964 1,368 $ 2,629 12,319 10,804 $ 1,655 50,553 12,172 $ 4,284 62,872 — — — — — — — — — — — 31,625 — — — — — — — — — — — — — 9,495 — 11,910 8,335 5,100 7,769 4,519 5,715 3,415 1,277 1,413 3,065 9,764 26,492 10,582 5,364 3,790 4,044 1,718 863 3,108 20,722 8,993 5,640 5,782 3,350 4,754 1,783 1,136 2,006 49,212 12,674 6,304 15,362 15,630 30,894 10,242 2,086 8,719 9,983 16,323 30,820 42,150 11,396 21,329 33,704 27,242 5,935 42,194 66,766 26,879 17,024 36,781 10,094 75,254 6,352 42,808 18,367 — 179 1,100 — — — — — — — — 389 — — — — — — (60 ) — — — — — — — — — 1,345 1,137 1,566 9,424 1,696 253 365 16 89 6,061 2,947 6,728 6,260 233 1,750 1,109 135 285 788 7,476 821 3,963 11,308 375 18,066 878 554 663 11,910 8,514 6,200 7,769 4,519 5,715 3,415 1,277 1,413 3,065 9,764 26,880 10,582 5,364 3,790 4,044 1,718 863 3,047 20,722 8,993 5,640 5,782 3,350 4,754 1,783 1,136 2,006 50,557 13,810 7,870 24,786 17,326 31,148 10,608 2,102 8,808 16,044 19,270 37,548 48,410 11,629 23,079 34,812 27,377 6,220 42,982 74,242 27,700 20,988 48,089 10,469 93,319 7,230 43,362 19,030 62,467 22,324 14,070 32,555 21,845 36,863 14,023 3,379 10,221 19,109 29,034 64,428 58,992 16,993 26,868 38,856 29,095 7,083 46,029 94,964 36,693 26,628 53,871 13,819 98,073 9,013 44,498 21,036 4,594 860 10,524 6,185 3,211 2,974 15,352 8,309 10,083 2,941 411 1,781 5,846 7,871 8,205 12,175 3,973 526 6,913 11,180 2,157 9,496 12,211 5,729 7,659 20,688 2,850 26,149 3,205 9,591 7,125 2006 2005 2013 2016 1994 1997/2004 1999 1986/2014 1999 2008 2011 2009 1994/2003 1970/2004 2008 2005 2008 2004 2008 2017 2012 2015 2017 2008 1994 2000 2008 1999 1997 2018 1986/2013 NA NA NA NA 2013 2005 NA 2003 2013 2014 2014 2014 2011 2005 2014 2014 NA 2019 2014 NA 2011 N/A N/A 2014 2006 2004 2014 2013 2012 2014 NA F-38 Name Encumbrances Land Improvements Land Improvements Land Improvements Total Operating Properties (continued) Initial Cost Cost Capitalized Subsequent to Acquisition/Development Gross Carrying Amount Close of Period Building & Building & Building & Accumulated Depreciation Year Built / Renovated Acquired Year Riverchase Plaza * Rivers Edge * Saxon Crossing Shoppes at Plaza Green * Shoppes of Eastwood * Shops at Eagle Creek * Shops at Julington Creek Shops at Moore Silver Springs Pointe Stoney Creek Commons * Sunland Towne Centre * Tarpon Bay Plaza * The Corner The Landing at Tradition * Toringdon Market * Traders Point * Traders Point II * Tradition Village Center * Waterford Lakes Village * Waxahachie Crossing Westside Market * $ — $ — 11,400 — — — 4,785 21,300 — — — — 14,750 — — — — — — — — 3,889 $ 5,647 3,764 3,749 1,688 4,550 2,372 6,284 7,580 628 14,774 4,273 3,772 18,505 5,448 9,443 2,376 3,140 2,317 1,411 4,194 11,404 $ 31,358 16,782 23,853 8,969 8,844 7,189 23,375 3,602 3,700 21,026 23,096 24,642 46,226 9,523 36,433 6,107 14,842 6,388 15,644 17,606 — $ — — — — — — — — — — — — — — — — — — — — 1,123 $ 1,938 597 1,844 502 5,197 347 1,606 1,712 5,913 5,039 5,056 22 536 542 2,838 1,164 566 571 155 536 3,889 $ 5,647 3,764 3,749 1,688 4,550 2,372 6,284 7,580 628 14,774 4,273 3,772 18,505 5,448 9,443 2,376 3,140 2,317 1,411 4,194 12,527 $ 33,295 17,380 25,697 9,471 14,041 7,536 24,981 5,313 9,613 26,066 28,152 24,663 46,762 10,065 39,271 7,271 15,408 6,960 15,798 18,142 16,416 $ 38,942 21,144 29,446 11,159 18,591 9,908 31,265 12,893 10,241 40,840 32,425 28,435 65,267 15,513 48,714 9,647 18,548 9,277 17,209 22,336 4,956 10,285 4,393 8,837 3,221 5,630 1,289 4,743 1,352 3,617 11,097 8,259 5,206 9,080 3,019 16,843 3,086 3,273 2,956 3,051 3,104 1991/2001 2011 2009 2000 1997 1998 2011 2010 2001 2000 1996 2007 2008 2007 2004 2005 2005 2006 1997 2010 2013 2006 2008 2014 2012 2013 2003 2014 2014 2014 NA 2004 NA 2014 2014 2013 NA NA 2014 2004 2014 2014 Total Operating Properties 353,302 619,105 2,090,834 3,452 181,911 622,557 2,272,745 2,895,302 604,449 F-39 Name Encumbrances Land Improvements Land Improvements Land Improvements Total Initial Cost Cost Capitalized Subsequent to Acquisition/Development Gross Carrying Amount Close of Period Building & Building & Building & Accumulated Depreciation Year Built / Renovated Acquired Year Office Properties Thirty South * Pan Am Plaza Garage * Union Station Parking Garage * $ — $ — — 1,643 $ — 904 9,600 $ — $ 29,536 2,650 — — 21,860 $ 276 1,832 1,643 $ — 904 31,461 $ 29,813 4,482 33,104 $ 29,813 5,386 12,752 3,551 1,903 1905/2002 1986 1986 2001 2019 2001 Total Office Properties — 2,547 41,787 — 23,969 2,547 65,756 68,303 18,205 Development and Redevelopment Properties Courthouse Shadows * Eddy Street Commons - Phase II Glendale Town Center* Hamilton Crossing Centre* The Corner * Total Development and Redevelopment Properties Other ** Bridgewater Marketplace * Landstown - Fulton Bank Pad KRG Development KRG New Hill * KRG Peakway Pan Am Plaza Total Other — — — — 4,999 2,209 1,494 5,549 304 8,182 4,394 43,832 10,326 3,681 — — — — — — — 3,011 — 155 4,999 2,209 1,494 5,549 304 8,182 4,394 46,843 10,326 3,836 13,181 6,603 48,337 15,875 4,140 2,339 40 32,221 4,226 — — 14,556 70,414 — 3,166 14,556 73,580 88,136 38,826 — — — — — — — 2,139 930 — 5,957 7,444 10,521 26,990 — — 885 — — — 885 — — — — — — — — — — — — — — 2,139 930 — 5,957 7,444 10,521 26,990 — — 885 — — — 885 2,139 930 885 5,957 7,444 10,521 27,875 — — 66 — — — 66 NA NA NA NA NA NA 2007 NA NA NA NA NA NA NA NA NA NA 2014 NA NA NA NA Line of credit/Term Loan/Unsecured notes 800,000 — — — — — — — — NA NA Grand Total $ 1,153,302 $ 663,198 $ 2,203,919 $ 3,452 $ 209,046 $ 666,650 $ 2,412,966 $ 3,079,616 $ 661,546 ____________________ * ** This property or a portion of the property is included as an unencumbered asset used in calculating our line of credit borrowing base. This category generally includes land held for development. We also have certain additional land parcels at our development and operating properties, which amounts are included elsewhere in this table. F-40 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, 2019, 2018, and 2017 are as follows: Balance, beginning of year Acquisitions Improvements Impairment Disposals Balance, end of year 2017 2019 2018 $ 3,633,376 $ 3,949,431 $ 3,988,819 — 78,947 (10,897 ) (107,438 ) $ 3,079,616 $ 3,633,376 $ 3,949,431 57,494 52,713 (56,948 ) (607,019 ) — 68,349 (73,198 ) (311,206 ) The unaudited aggregate cost of investment properties for U.S. federal tax purposes as of December 31, 2019 was $2.3 billion. Note 2. Reconciliation of Accumulated Depreciation The changes in accumulated depreciation of the Company for the years ended December 31, 2019, 2018, and 2017 are as follows: Balance, beginning of year Depreciation expense Impairment Disposals Balance, end of year $ 2019 695,012 $ 117,216 (19,226 ) 2018 660,276 $ 132,662 (2,838 ) (131,456 ) 661,546 $ (95,088 ) 695,012 $ $ 2017 556,851 148,346 (3,494 ) (41,427 ) 660,276 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-41

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