What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-22 compared with 2020-02-20 · 177 added, 268 removed, 313 unchanged (59% of the section changed)

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As of December 31, 2020, we owned interests in 90 operating and redevelopment properties totaling approximately 17.3 million square feet.

We also owned one development project under construction as of this date.

We also owned two development projects 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.

As has become more evident during the COVID-19 pandemic, strong real estate matters.

The strength of the Company's real estate is evidenced by our higher rent collection rates as compared to our peers, based upon publicly reported information by each peer as of February 19, 2021.

The Company has continued to improve its asset quality.

In addition, the Company's property type lends itself to retailers' current needs including curbside pick-up and buying online and picking up in store (BOPIS) that we believe will benefit from tenant demand for additional space.

The Company's operations were impacted by the bankruptcies of retailers during the COVID-19 pandemic.

The Company had leased space to national retailers that declared bankruptcy during 2020 that comprised 5.9% of our annualized base rent.

A portion of the retailers have vacated their space with us, which will lead to an expected decline in occupancy and rental revenue in 2021.

Project Focus, our disposition program completed in 2019, allowed us to dispose of weaker, non-core assets and reduce our exposure to at-risk tenants and resulted in $502 million in combined sales, the majority of which net proceeds were used to repay debt.

It also allowed us to focus our geographic footprint on locations that are benefiting from accelerating migration shifts.

In evaluating potential 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.

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.

We have aggressively targeted and executed leases with prominent grocers including Publix, Aldi, Whole Foods, and Trader Joe's, expanding retailers such as TJ Maxx, Ross Dress for Less, Burlington, and Old Navy, service and restaurant retailers and other retailers such as Ulta, REI, Five Below 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.

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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.

We ended 2020 with approximately $566.9 million of combined cash and borrowing capacity on our Credit Facility.

In addition, as of December 31, 2020, 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.

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, 2020, the value of the assets in our unencumbered asset pool was $1.3 billion.

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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.

Management reviews operational and development projects, land parcels and intangible assets for impairment on a property-by-property basis 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.

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Depreciation and amortization are suspended during the held-for-sale period.

Our operating properties have operations and cash flows that can be clearly distinguished from the rest of our activities.

Historically, the operations reported in discontinued operations include those operating properties that were sold or were considered

held for sale and for which operations and cash flows can be clearly distinguished.

The operations from these properties are eliminated from ongoing operations, and we will not have a continuing involvement after disposition.

In 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

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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.

Overage rent is included in rental income in the accompanying consolidated statements of operations for the years ended December 31, 2020 and 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.

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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 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 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.

As of December 31, 2020, we owned interests in 90 operating and redevelopment properties and two 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, 2020, 2019 and 2018:

# of Properties

2020 2019 2018

Operating Retail Properties 83 82 105

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Property Acquisition Activities

During the year ended December 31, 2019 , we acquired the properties listed in the table below.

During the years ended December 31, 2020 and 2019, we acquired the properties listed in the table below.

We did not acquire any properties in 2018.

Property Name

Acquisition Date

Pan Am Plaza Garage

Indianapolis, IN

Property Name MSA Acquisition Date Owned GLA

Pan Am Plaza Garage Indianapolis, IN March 2019 N/A

Nora Plaza Indianapolis, IN August 2019 139,670

Eastgate Crossing Raleigh, NC December 2020 156,276

Operating Property Disposition Activities

During the two years ended December 31, 2019 , we sold the operating properties listed in the table below.

Property Name

Disposition Date

Trussville Promenade

Birmingham, AL

February 2018

Memorial Commons

Goldsboro, NC

During the years ended December 31, 2020, 2019, and 2018, we sold the operating properties listed in the table below.

Property Name MSA Disposition Date Owned GLA

Trussville Promenade Birmingham, AL February 2018 463,836

Memorial Commons Goldsboro, NC March 2018 111,022

Tamiami Crossing 1

Naples, FL June 2018 121,705

Plaza Volente 1

Austin, TX June 2018 156,296

Livingston Shopping Center 1

Hamilton Crossing

November 2018

Fox Lake Crossing

December 2018

Las Vegas, NV

December 2018

Whitehall Pike

Bloomington, IN

Beechwood Promenade

Village at Bay Park

Green Bay, WI

Lakewood Promenade

Jacksonville, FL

Palm Coast Landing

Palm Coast, FL

Lowe's - Perimeter Woods

Charlotte, NC

Cannery Corner

Las Vegas, NV

Temple Terrace

University Town Center

Oklahoma City, OK

Gainesville Plaza

Gainesville, FL

Jacksonville, FL

Eastgate Plaza

Las Vegas, NV

Punta Gorda, FL

Landstown Commons

Virginia Beach, VA

Lima Marketplace

Fort Wayne, IN

September 2019

Hitchcock Plaza

September 2019

Merrimack Village Center

Manchester, NH

September 2019

Publix at Acworth

The Centre at Panola

Crown Point, IN

Bell Oaks Centre

Evansville, IN

November 2019

Boulevard Crossing

December 2019

South Elgin Commons

December 2019

Newark, NJ June 2018 139,559

Hamilton Crossing Alcoa, TN November 2018 175,464

Fox Lake Crossing Chicago, IL December 2018 99,136

Lowe's Plaza Las Vegas, NV December 2018 30,210

Whitehall Pike Bloomington, IN March 2019 128,997

Beechwood Promenade Athens, GA April 2019 297,369

Village at Bay Park Green Bay, WI May 2019 82,254

Lakewood Promenade Jacksonville, FL May 2019 196,655

Palm Coast Landing Palm Coast, FL May 2019 168,352

Lowe's - Perimeter Woods Charlotte, NC May 2019 166,085

Cannery Corner Las Vegas, NV May 2019 30,738

Temple Terrace Tampa, FL June 2019 90,328

University Town Center Oklahoma City, OK June 2019 348,877

Gainesville Plaza Gainesville, FL July 2019 162,189

Bolton Plaza Jacksonville, FL July 2019 154,155

Eastgate Plaza Las Vegas, NV July 2019 96,594

Burnt Store Punta Gorda, FL July 2019 95,625

Landstown Commons Virginia Beach, VA August 2019 398,139

Lima Marketplace Fort Wayne, IN September 2019 100,461

Hitchcock Plaza Aiken, SC September 2019 252,211

Merrimack Village Center Manchester, NH September 2019 78,892

Publix at Acworth Atlanta, GA October 2019 69,628

The Centre at Panola Atlanta, GA October 2019 73,075

Beacon Hill Crown Point, IN October 2019 56,820

Bell Oaks Centre Evansville, IN November 2019 94,958

Boulevard Crossing Kokomo, IN December 2019 124,634

South Elgin Commons Chicago, IL December 2019 128,000

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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:

Property Name

Transition to

During portions of the years ended December 31, 2020, 2019, and 2018, the following properties were under active redevelopment and removed from our operating portfolio:

Property Name MSA Transition to

Redevelopment 1

Transition to Operating Portfolio

Transition to Operating Portfolio Owned GLA

Courthouse Shadows 2

Naples, FL June 2013 Pending 124,802

Hamilton Crossing Centre 3, 4

Indianapolis, IN

City Center 4

White Plains, NY

December 2015

Fishers Station 4

Indianapolis, IN

December 2015

September 2018

Indianapolis, IN June 2014 Pending 89,983

City Center White Plains, NY December 2015 June 2018 363,103

Fishers Station Indianapolis, IN December 2015 September 2018 52,414

Beechwood Promenade 5

December 2015

December 2018

Athens, GA December 2015 December 2018 297,369

The Corner 3, 4

Indianapolis, IN

December 2015

Rampart Commons 4

Las Vegas, NV

December 2018

Indianapolis, IN December 2015 Pending 27,731

Rampart Commons Las Vegas, NV March 2016 December 2018 79,314

Burnt Store Marketplace 5

Punta Gorda, FL

Punta Gorda, FL June 2016 March 2018 95,625

Glendale Town Center 3

Indianapolis, IN

Indianapolis, IN March 2019 Pending 393,002

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1 Transition date represents the date the property was transferred from our operating portfolio into redevelopment status.

2 This property was sold in 2020.

3 This property has been identified as a redevelopment property and is not included in the operating portfolio or the same property pool.

4 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.

5 This property was sold in 2019.

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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.

We also use same property NOI ("Same Property NOI"), a non-GAAP financial measure, to evaluate the performance of our 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.

It also excludes net gains from outlot sales, straight-line rent revenue, lease termination income in excess of lost rent, amortization of lease intangibles and significant prior period expense recoveries and adjustments, if any.

When the Company receives payments in excess of any accounts receivable for terminating a lease, Same Property NOI will include such excess payments as monthly rent until the earlier of the following:

the expiration of 12 months or the start date of a replacement tenant.

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.

We believe such presentation 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.

Same Property NOI includes the results of properties that have been owned for the entire current and prior year reporting periods.

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.

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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.

A redevelopment property is first excluded from the same property pool when the execution of a redevelopment plan is likely and we 1) begin recapturing space from tenants or b) the contemplated plan significantly impacts the operations of the property.

At December 31, 2020, the same property pool excluded three properties in redevelopment, one recently completed development, two acquired properties, and three commercial properties.

The following table reflects Same Property NOI 1 and a reconciliation to net income attributable to common shareholders for the years ended December 31, 2020 and 2019 (unaudited):

($ in thousands)

Years Ended December 31,

($ in thousands) Years Ended December 31,

2020 2019 % Change

Leased percentage at period end 91.5 % 96.1 %

Economic Occupancy percentage 2

92.1 % 92.8 %

Same Property NOI $ 179,304 $ 191,970 (6.6) %

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Net operating income - non-same activity 3

10,084 38,403

Other (expense) income, net (357) (471)

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Net income attributable to noncontrolling interests (100) (532)

Net (loss) income attributable to common shareholders

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.

Net loss attributable to common shareholders $ (16,223) $ (534)

1 Same Property NOI excludes (i) The Corner, Glendale Town Center, and Hamilton Crossing redevelopments, (ii) Eddy Street Commons - Phases II and III developments, (iii) the recently acquired Eastgate Crossing and 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.

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.

3 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.

Our Same Property NOI decreased 6.6% in 2020 compared to 2019.

This decrease was primarily due to bad debt expense of $12.1 million in 2020 related to certain tenants that were impacted by the COVID-19 pandemic.

Funds From Operations

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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.

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.

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 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.

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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.

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 employee severance, 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 FFO 1 and reconciliation to consolidated net income and FFO, as adjusted for the years ended December 31, 2020, 2019 and 2018 (unaudited) are as follows:

($ in thousands)

Years Ended December 31,

Consolidated net (loss) income

($ in thousands) Years Ended December 31,

2020 2019 2018

Consolidated net loss $ (16,123) $ (2) $ (46,451)

net income attributable to noncontrolling interests in properties (528) (528) (1,151)

(Gain) loss on sales of operating properties

Gain on sales of operating properties (4,733) (38,971) (3,424)

impairment charges — 37,723 70,360

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FFO of the Operating Partnership 1

108,707 131,406 171,190

Limited Partners' interests in FFO (2,826) (3,153) (4,109)

FFO attributable to Kite Realty Group Trust common shareholders 1

$ 105,881 $ 128,253 $ 167,081

FFO of the Operating Partnership 1

$ 108,707 $ 131,406 $ 171,190

severance charge 3,253 — —

loss on debt extinguishment — 11,572 —

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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.

We define EBITDA, a non-GAAP financial measure, as net income before depreciation and amortization, interest expense and income tax expense of TRS.

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.

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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)

Three Months Ended

($ in thousands) Three Months Ended

December 31, 2020

Consolidated net income

Consolidated net loss $ (6,842)

Adjustments to net income:

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Gain on sales of operating properties 159

Loss on debt extinguishment

Severance charges 3,253

Other income and expense, net 408

Noncontrolling interest (132)

Pro-forma adjustments 1

Adjusted EBITDA 41,100

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Company share of unconsolidated joint venture debt 22,150

Pro-forma adjustment 3

Debt Premium 5,282

Company Share of Net Debt $ 1,149,364

Net Debt to Adjusted EBITDA

Net Debt to Adjusted EBITDA 7.0x

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Relates to annualized EBITDA for properties sold during the quarter and timing of overage rent and lease termination income.

1 Represents Adjusted EBITDA for the three months ended December 31, 2020 (as shown in the table above) multiplied by four.

Relates to timing of quarterly dividend payment being made prior to quarter-end resulting in five payments year to date.

2 Partner share of consolidated joint venture debt is calculated based upon the partner's pro-rata ownership of the joint venture, multiplied by the related secured debt balance.

Comparison of Operating Results for the Years Ended December 31, 2020 and 2019

The following table reflects changes in the components of our consolidated statements of operations for the years ended December 31, 2020 and 2019:

($ in thousands)

Net change 2018 to 2019

($ in thousands) 2020 2019 Net change 2019 to 2020

Rental income $ 257,670 $ 308,399 $ (50,729)

Other property related revenue 8,597 6,326 2,271

Fee income 378 448 (70)

Total revenue 266,645 315,173 (48,528)

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Equity in loss of unconsolidated subsidiary (1,685) (628) (1,057)

Other expense, net

Consolidated net loss

Other income (expense), net 254 (573) 827

Consolidated net income (16,123) (2) (16,121)

Net income attributable to noncontrolling interests (100) (532) 432

Net loss attributable to Kite Realty Group Trust common shareholders

Net (loss) income attributable to Kite Realty Group Trust (16,223) (534) $ (15,689)

Property operating expense to total revenue ratio 15.4 % 14.5 % 0.9 %

Rental income decreased $50.7 million, or 16.4%, due to the following:

($ in thousands)

Net change 2018 to 2019

Properties sold during 2018 and 2019

($ in thousands) Net change 2019 to 2020

Properties sold during 2019 $ (31,809)

Properties under redevelopment or acquired during 2019 and/or 2020 856

Properties fully operational during 2019 and 2020 and other (19,776)

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.

Total $ (50,729)

The net decrease of $19.8 million in rental income for properties that were fully operational during 2019 and 2020 is primarily due to $17.4 million of bad debt expense for certain non-cash straight-line rent and billed rent receivables related to tenants that are financially distressed due to the COVID-19 pandemic.

In addition, the Company had a reduction in minimum rent due to a decrease in occupancy due to certain closures, most notably by certain anchor tenants, such as Stein Mart, 24 Hour Fitness, and New York Sports Club that have declared bankruptcy during the COVID-19 pandemic.

While leasing activity was reduced during 2020, the Company has been able to continue to generate higher rents on new leases and renewals.

The average rents for new comparable leases signed in 2020 were $20.77 per square foot compared to average expiring base rents of $19.04 per square foot in that period.

The average base rents for renewals signed in 2020 were $16.10 per square foot compared to average expiring base rents of $15.18 per square foot in that period.

Due to Project Focus and the current year leasing activity, the quality of our operating retail portfolio continued to improve.

Following the completion of Project Focus in 2019 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 $18.42 per square foot as of December 31, 2020 from $17.83 per square foot as of December 31, 2019.

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.

Other property related revenue primarily consists of parking revenues and gains on sales of undepreciated assets.

This revenue increased by $2.3 million, primarily as a result of higher gains on sales of undepreciated assets of $5.7 million partially offset by a decrease in parking revenues of $2.0 million.

We recorded fee income of $0.4 million for the years ended December 31, 2020 and 2019, respectively, from property management services provided to unconsolidated joint ventures.

Property operating expenses decreased $4.6 million, or 10.0%, due to the following:

($ in thousands)

Net change 2018 to 2019

Properties sold during 2018 and 2019

($ in thousands) Net change 2019 to 2020

Properties sold during 2019 $ (4,592)

Properties under redevelopment or acquired during 2019 and/or 2020 381

Properties fully operational during 2019 and 2020 and other (352)

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.

Total $ (4,563)

The net decrease of $0.4 million in property operating expenses for properties that were fully operational during 2019 and 2020 is primarily due to a continued focus on cost controls over certain operating expense spend in 2020.

These provided savings of $1.4 million that were partially offset by an increase in insurance costs of $1.0 million due to higher premiums across the real estate industry that were realized upon renewal.

As a percentage of rental revenue, property operating expenses increased between years from 14.5% to 15.4%.

The increase was mostly due to lower other property related revenue in 2019.

The increase was mostly due to a decline in revenue in 2020 due to the impact of the COVID-19 pandemic.

Real estate taxes decreased $2.9 million, or 7.5%, due to the following:

($ in thousands)

Net change 2018 to 2019

Properties sold during 2018 and 2019

($ in thousands) Net change 2019 to 2020

Properties sold during 2019 $ (3,607)

Properties under redevelopment or acquired during 2019 and/or 2020 73

Properties fully operational during 2019 and 2020 and other 624

Total $ (2,910)

The net increase of $0.6 million in real estate taxes for properties that were fully operational during 2019 and 2020 is primarily due to an increase in current year tax assessments at certain operating properties.

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General, administrative and other expenses increased $2.6 million, or 9.3%.

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.

The increase is primarily due to $3.3 million of severance charges incurred during the fourth quarter of 2020.

Depreciation and amortization expense decreased $3.5 million, or 2.6%, due to the following:

($ in thousands)

Net change 2018 to 2019

Properties sold during 2018 and 2019

($ in thousands) Net change 2019 to 2020

Properties sold during 2019 $ (12,880)

Properties under redevelopment or acquired during 2019 and/or 2020 1,146

Properties fully operational during 2019 and 2020 and other 8,284

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.

Total $ (3,450)

The net increase of $1.1 million in properties under redevelopment or acquired during 2019 and 2020 is primarily due to a full year of operations for Nora Plaza and Pan Am Plaza Garage that were acquired in 2019.

The net increase of $8.3 million in depreciation and amortization at properties fully operational during 2019 and 2020 is primarily due to accelerated depreciation of certain tenant-related assets for tenants that vacated their spaces during 2020.

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.

In 2020, we did not record any impairment charges.

See additional discussion in Note 8 to the consolidated financial statements.

Interest expense decreased $8.9 million or 15.0%.

The decrease is due to the significant debt reduction from the successful completion of Project Focus.

The decrease is due to the significant debt reduction following the successful completion of Project Focus in 2019.

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.

There was no such activity in 2020.

We recorded a net gain of $4.7 million for the year ended December 31, 2020 on the sale of one redevelopment property, compared to a net gain of $39.0 million on the sale of 23 assets for the year ended December 31, 2019.

Management’s discussion of the financial condition, changes in financial condition and results of operations for the year ended December 31, 2019, 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, 2019.

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In addition to cash generated from operations, we discuss below our other principal capital resources.

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.

The recently-completed Project Focus has enhanced our liquidity position, reduced our leverage, and reduced our borrowing costs.

The completion of Project Focus in 2019 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.

As of December 31, 2020, we had approximately $523 million available under our Credit Facility for future borrowings based on the unencumbered asset pool allocated to the unsecured revolving credit facility.

We also had $43.6 million in cash and cash equivalents as of December 31, 2020.

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 were in compliance with all applicable financial covenants under our Credit Facility, our unsecured term loans, and our senior unsecured notes as of December 31, 2020.

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.

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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.

We plan to file a new shelf registration statement on Form S-3 prior to or upon expiration of the current registration statement.

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.

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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.

As of December 31, 2020, we did not have any debt scheduled to mature in 2021, excluding scheduled monthly principal payments.

Other Short-Term Liquidity Needs.

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In February 2021, our Board of Trustees declared a cash distribution of $0.17 per common share and Common Unit for the first quarter of 2021.

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.

This distribution is expected to be paid on or about April 15, 2021 to common shareholders and Common Unit holders of record as of April 8, 2021.

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, 2020, we incurred $1.7 million of costs for recurring capital expenditures on operating properties, $12.0 million of costs for tenant improvements and external leasing commissions, and $17.4 million to re-lease anchor space at our operating properties related to tenants open and operating as of December 31, 2020 (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.

We currently anticipate incurring approximately $16 million to $20 million of additional major tenant improvements costs related to releasing vacant space at a number of our operating properties.

As of December 31, 2020, we had two development projects under construction:

Eddy Street Commons in South Bend, Indiana and Glendale Town Center in Indianapolis, Indiana.

Total estimated costs for these projects are $56.9 million, of which our share is estimated to be $12.6 million.

We anticipate incurring the majority of the remaining costs for the projects over the next 18 months.

We believe we have the ability to fund these projects through cash flow from operations or by borrowing on the Credit Facility.

Long-Term Liquidity Needs

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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.

We believe we will have sufficient funding for these projects through cash flow from operations, borrowings on our Credit Facility and proceeds from asset sales.

Selective Acquisitions, Developments and Joint Ventures .

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The following table summarizes cash capital expenditures for our development and redevelopment properties and other capital expenditures for the year ended December 31, 2020:

($ in thousands)

December 31, 2019

($ in thousands) December 31, 2020

Developments $ 2,919

Redevelopment Opportunities 308

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Recurring operating capital expenditures (primarily tenant improvement payments) 12,797

Total $ 38,266

We capitalize certain indirect costs such as interest, payroll, and other general and administrative costs related to these development activities.

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Cash provided by operating activities was $95.5 million for the year ended December 31, 2020, a decrease of $42.4 million from the same period of 2019.

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 ;

Decrease in capital expenditures of $6.0 million , partially offset by a decrease in construction payables of $0.5 million .

The cash flows were negatively impacted due to the significant property sales activity throughout 2019 and reduced collection activity due to the COVID-19 pandemic.

Cash used in investing activities was $80.8 million for the year ended December 31, 2020, as compared to cash provided by investing activities of $416.6 million in the same period of 2019.

The major changes in cash used in and provided by investing activities are as follows:

• Net proceeds of $23.0 million related to the sale of one redevelopment property and five parcels of land in 2020 compared to sale proceeds of $529.4 million from the sale of 23 assets in 2019;

• Acquisition of Eastgate Crossing in 2020 for $65.3 million compared to the acquisition of Nora Plaza and Pan Am Plaza Parking Garage in 2019 for $58.2 million;

• Decrease in capital expenditures of $15.0 million, partially offset by a change in construction payables of $2.4 million in 2020.

Cash used in financing activities was $20.9 million for the year ended December 31, 2020, compared to cash used in financing activities of $547.2 million in the same period of 2019.

Highlights of significant cash sources and uses in financing activities during 2020 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;

We made distributions to common shareholders and Common Unit holders of $137.1 million .

• In March 2020, we borrowed $300.0 million on the Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic;

• During the remainder of 2020, we repaid the $300.0 million borrowing on the Credit Facility as we became incrementally more confident in the recovery from the COVID-19 pandemic;

• We borrowed $25.0 million on the Credit Facility to fund a portion of the purchase price of Eastgate Crossing;

• In 2019, we used the proceeds from the sale of operating properties to pay down $395.5 million of secured and unsecured debt;

• In 2019, we paid $14.5 million of debt extinguishment costs;

• In 2020, we made distributions to common shareholders and Common Unit holders of $39.7 million, compared to distributions of $137.1 million in 2019.

Management’s discussion of the cash flows for the year ended December 31, 2018, with comparison to the year ended December 31, 2019, 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, 2019.

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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 .

($ in thousands)

Debt and Interest 1

Development Activity and Tenant

Operating Ground

____________________

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.

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.

We are obligated under various completion guarantees with tenants to complete tenant-specific spaces currently 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 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.

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The following table presents details of outstanding consolidated indebtedness as of December 31, 2020 and 2019 adjusted for hedges:

($ in thousands)

($ in thousands) December 31,

2020 December 31,

Senior unsecured notes $ 550,000 $ 550,000

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Consolidated indebtedness, including weighted average maturities and weighted average interest rates at December 31, 2020, is summarized below:

($ in thousands)

Outstanding Amount

Weighted Average

Interest Rate

Weighted Average

($ in thousands) Outstanding Amount Ratio Weighted Average

Interest Rate Weighted Average

Fixed Rate Debt $ 1,095,966 94 % 4.17 % 5.0

Variable Rate Debt 1

Net debt premiums and issuance costs, net

80,110 6 % 1.60 % 1.5

Net Debt Premiums and Issuance Costs, Net (5,282) N/A N/A N/A

Total Consolidated Debt $ 1,170,794 100 % 4.00 % 4.7

1 Fixed rate debt includes, and variable rate date excludes, the portion of such debt that has been hedged by interest rate derivatives.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis