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
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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
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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
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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
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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
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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;
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•
•
•
•
inability to operate successfully in new markets where new properties are located;
inability to successfully integrate new properties into existing operations;
exposure to fluctuations in the general economy due to the significant time lag between commencement and
completion of 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
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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.
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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;
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•
•
the current environmental condition of our properties will not be affected by tenants and occupants, by the
condition of nearby properties, or by other unrelated third parties; or
future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations
or the interpretation thereof) will not result in environmental liabilities.
Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make
expenditures that adversely affect our cash flows 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
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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
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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
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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.
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Our shareholders have limited ability to prevent us from making any changes to our policies that they believe could harm
our business, prospects, operating results or share price.
Our 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.
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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
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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
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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