KITE REALTY GROUP TRUST 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying historical financial statements and related notes thereto. 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. CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, 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. Currently, one of the most significant factors that could cause actual outcomes to differ significantly from our forward-looking statements is the adverse effect of the current pandemic of the novel coronavirus (“COVID-19”), including possible resurgences, variants and mutations, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as being heightened as a result of the ongoing and numerous adverse effects of COVID-19. Additional risks, uncertainties and other factors that might cause such differences, some of which could be material, include but are not limited to: • risks associated with the Company’s Merger (defined below) with Retail Properties of America, Inc. (“RPAI”), including the integration of the businesses of the combined company, the ability to achieve expected synergies or cost savings and potential disruptions to the Company’s plans and operations; • 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 (including the potential effects of inflation); • 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; • the competitive environment in which we operate, including potential oversupplies and reduction in demand for rental space; • acquisition, disposition, development and joint venture risks; • property ownership and management risks, including the relative illiquidity of real estate investments, and expenses, vacancies or the inability to rent space on favorable terms or at all; • our ability to maintain our status as a real estate investment trust (“REIT”) for U.S. federal income tax purposes; • potential environmental and other liabilities; • impairment in the value of real estate property we own; • the attractiveness of our properties to tenants, the actual and perceived impact of e-commerce on the value of shopping center assets and changing demographics and customer traffic patterns; 28 • business continuity disruptions and a deterioration in our tenant’s ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed to operate efficiently, causing costs to rise sharply and inventory to fall; • risks related to our current geographical concentration of our properties in Texas, Florida, New York, Maryland, and North Carolina; • civil unrest, acts of terrorism or war, acts of God, climate change, epidemics, pandemics (including COVID-19), natural disasters and severe weather conditions, including such events that may result in underinsured or uninsured losses or other increased costs and expenses; • changes in laws and government regulations including governmental orders affecting the use of our properties or the ability of our tenants to operate, and the costs of complying with such changed laws and government regulations; • possible short-term or long-term changes in consumer behavior due to COVID-19 and the fear of future pandemics; • our ability to satisfy environmental, social or governance standards set by various constituencies; • 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 Quarterly Report on Form 10-Q and, from time to time, in other reports we file with the Securities and Exchange Commission (the “SEC”) or in other documents that we publicly disseminate, including, in particular, the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. We undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. Overview Our Business and Properties Kite Realty Group Trust is a publicly held REIT which, through its majority-owned subsidiary, Kite Realty Group, L.P., owns interests in various operating subsidiaries and joint ventures engaged in the ownership, operation, acquisition, development, and redevelopment of high-quality, open-air shopping centers and mixed-use assets 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. Therefore, our operating results depend materially on, among other things, the ability of our tenants to make required lease payments, the health and resilience of the U.S. retail sector, interest rate volatility, job growth and real estate market and overall economic conditions. As of March 31, 2022, we owned interests in 181 operating retail properties totaling approximately 28.8 million square feet and one office property with 0.3 million square feet. Of the 181 operating retail properties, 11 contain an office component. We also owned seven development projects under construction as of this date. Merger with RPAI On October 22, 2021, we completed a merger with RPAI in accordance with the Agreement and Plan of Merger dated July 18, 2021 (the “Merger Agreement”), by and among the Company, its wholly owned subsidiary KRG Oak, LLC (“Merger Sub”) and RPAI, pursuant to which RPAI merged with and into Merger Sub (the “Merger”). Immediately following the closing of the Merger, Merger Sub merged with and into the Operating Partnership so that all of the assets and liabilities of the Company continue to be held at or below the Operating Partnership level. As a result of the Merger, we acquired 100 operating retail properties and five active development projects along with multiple parcels of entitled land for future value creation, creating a top five open-air shopping center REIT. The combined high-quality, open-air portfolio is a mixture of predominantly necessity-based, grocery-anchored neighborhood and community centers, combined with vibrant mixed-use assets. The Merger more than doubled the Company’s presence in high-growth markets that have mild or temperate climates and no or relatively low income taxes, while also introducing and/or enhancing its presence in strategic gateway markets. In addition, the combined company 29 has additional opportunities to further increase shareholder value, including leasing of pandemic-related vacancies, optimizing net operating income (“NOI”) margins, lowering the Company’s cost of capital, and completing select development projects. Pursuant to the terms of the Merger Agreement, each outstanding share of RPAI common stock converted into the right to receive 0.623 common shares of the Company plus cash in lieu of fractional Company shares. The Operating Partnership issued an equivalent amount of General Partner Units to the Parent Company. Impacts on Business from COVID-19 In 2020, the COVID-19 pandemic had a significant adverse impact on many of our tenants and on our business. The effects of COVID-19, including related government restrictions, mandatory quarantines, “shelter in place” orders, border closures, “social distancing” practices, masking requirements and other travel and gathering restrictions and practices, have caused many of our tenants to close stores, reduce hours or significantly limit service, each of which may continue to create headwinds for our tenants. Since we cannot estimate when the containment measures will roll back, end, or be reinstated, we cannot estimate the ultimate operational and financial impact of COVID-19 on our business. As the domestic economy continues to recover, retailers continue to improve their operations to account for the pandemic, including using open-air centers as convenient shopping destinations and last-mile fulfillment through the use of in-store pickup, curbside pickup, and shipping from stores. Historically, economic indicators such as GDP growth, consumer confidence and employment have been correlated with demand for certain of our tenants’ products and services. If an economic recession returns, it could increase the number of our tenants that are unable to meet their lease obligations to us and could limit the demand for our space from new tenants. We expect the significance of the COVID-19 pandemic, including the extent of its effects on our business, financial performance and condition, operating results and cash flows and the economic slowdown, to be dictated by, among other things, the duration of the COVID-19 pandemic, including possible resurgences and mutations, the success of efforts to contain it, the efficacy of vaccines, including against variants of COVID-19, public adoption rates of vaccines and the impact of other actions taken in response to the pandemic. These uncertainties make it difficult to predict operating results for our business; therefore, there can be no assurances that we will not experience further declines in revenues, net income, Funds From Operations (“FFO”) or other operating metrics, which could be material. Inflation Most of our leases contain provisions designed to mitigate the adverse impact of inflation, including stated rent increases and requirements for tenants to pay a share of operating expenses, including common area maintenance, real estate taxes, insurance or other operating expenses related to the maintenance of our properties, including escalation clauses in certain leases. Most of our leases also include clauses that allow us to collect additional rent based on a percentage of tenants’ gross sales over stated thresholds, which sales generally increase as prices rise. In addition, we believe that the rental rates in many of our leases are below current market rates for comparable space and that upon renewal, such rates may be increased to be inline with current rates, which may offset certain inflationary expense pressures. We also periodically evaluate our exposure to interest rate fluctuations and enter into interest rate protection agreements to mitigate the impact of changes in interest rates on our variable rate debt. Operating Activity During the first quarter of 2022, we executed new and renewal leases on 182 individual spaces totaling 1,053,963 square feet (16.1% cash leasing spread on 105 comparable leases). New leases were signed on 72 individual spaces for 326,957 square feet of gross leasable area (“GLA”) (58.7% cash leasing spread on 26 comparable leases), while renewal leases were signed on 110 individual spaces for 727,006 square feet of GLA (8.9% cash leasing spread on 79 comparable leases). Comparable new and renewal leases are defined as those for which the space was occupied by a tenant within the last 12 months. Results of Operations The comparability of results of operations for the three months ended March 31, 2022 and 2021 is affected by our Merger with RPAI that was completed on October 22, 2021, in which we acquired 100 operating retail properties as well as five active development projects, along with our development, redevelopment, and operating property acquisition and disposition activities during these periods. Therefore, we believe it is most useful to review the comparisons of our results of operations for these periods in conjunction with the discussion of our activities during those periods, which is set forth below. 30 Property Acquisitions In addition to the properties we acquired in the Merger, the following properties were acquired at various times during the period from January 1, 2021 through March 31, 2022: Property Name Metropolitan Statistical Area (MSA) Acquisition Date Owned GLA Nora Plaza outparcel Indianapolis, IN December 2021 23,722 Pebble Marketplace Las Vegas, NV February 2022 85,796 Operating Property Dispositions The following operating property was sold during the period from January 1, 2021 through March 31, 2022: Property Name MSA Disposition Date Owned GLA Westside Market Dallas, TX October 2021 93,377 Development and Redevelopment Projects The following properties were under active development or redevelopment at various times during the period from January 1, 2021 through March 31, 2022 and removed from our operating portfolio: Project Name MSA Transition to Development or Redevelopment ( 1) Transition to Operating Portfolio Owned Commercial GLA Hamilton Crossing Centre (2)(3) Indianapolis, IN June 2014 Pending 92,283 The Corner (2) Indianapolis, IN December 2015 Pending 24,000 Eddy Street Commons – Phase III South Bend, IN September 2020 March 2022 18,600 Glendale Town Center (2) Indianapolis, IN March 2019 December 2021 199,021 The Landing at Tradition – Phase II Port St. Lucie, FL September 2021 Pending 39,900 Carillon MOB (4) Washington, D.C. October 2021 Pending 126,000 Circle East (4) Baltimore, MD October 2021 Pending 82,000 One Loudoun Downtown – Residential and Pads G&H Commercial (4) Washington, D.C. October 2021 Pending 67,000 Shoppes at Quarterfield (4) Baltimore, MD October 2021 Pending 58,000 (1) Transition date represents the date the property was transferred from our operating portfolio into redevelopment status. For legacy RPAI projects, the transition date represents the later of the date of the closing of the Merger and the date the project was transferred into redevelopment status. (2) This property has been identified as a redevelopment property and is not included in the operating portfolio or the same property pool. The redevelopment projects at Hamilton Crossing Centre and The Corner will include the creation of a mixed-used development. (3) A portion of the Hamilton Crossing Centre redevelopment was sold in January 2022. (4) Project was assumed as part of the Merger with RPAI in October 2021. 31 Comparison of Operating Results for the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021 The following table reflects changes in the components of our consolidated statements of operations for the three months ended March 31, 2022 and 2021. Three Months Ended March 31, ($ in thousands) 2022 2021 Change Revenue: Rental income $ 189,858 $ 67,890 $ 121,968 Other property-related revenue 2,224 1,051 1,173 Fee income 2,309 434 1,875 Total revenue 194,391 69,375 125,016 Expenses: Property operating 25,928 10,269 15,659 Real estate taxes 26,859 9,400 17,459 General, administrative and other 13,309 7,276 6,033 Merger and acquisition costs 925 — 925 Depreciation and amortization 121,504 30,634 90,870 Total expenses 188,525 57,579 130,946 Gain on sales of operating properties, net 3,168 26,207 (23,039) Operating income 9,034 38,003 (28,969) Other (expense) income: Interest expense (25,514) (12,242) (13,272) Income tax benefit of taxable REIT subsidiary 71 118 (47) Equity in loss of unconsolidated subsidiaries (314) (318) 4 Other expense, net (103) (206) 103 Net (loss) income (16,826) 25,355 (42,181) Net loss (income) attributable to noncontrolling interests 22 (778) 800 Net (loss) income attributable to common shareholders $ (16,804) $ 24,577 $ (41,381) Property operating expense to total revenue ratio 13.3 % 14.8 % Rental income (including tenant reimbursements) increased $122.0 million, or 179.7%, due to the following: ($ in thousands) Net change 2021 to 2022 Properties or components of properties sold during 2021 or 2022 $ (533) Properties under redevelopment or acquired during 2021 and/or 2022 2,922 Properties acquired in the Merger with RPAI 120,848 Properties fully operational during 2021 and 2022 and other (1,269) Total $ 121,968 The net decrease of $1.3 million in rental income for properties fully operational during 2021 and 2022 is primarily due to a decrease in lease termination income of $1.0 million and lower tenant reimbursements due to lower recoverable real estate taxes. These variances were partially offset by higher base minimum rent of $0.5 million due to improved tenant performance and higher overage rent of $0.4 million. The occupancy of the fully operational properties increased from 88.4% for 2021 to 89.5% for 2022. Other property-related revenue primarily consists of parking revenues, gains on the sale of land and other miscellaneous activity. This revenue increased by $1.2 million primarily as a result of an increase in parking revenue of $0.4 million and specialty income of $1.0 million, partially offset by $0.3 million of gains on sales of undepreciated assets recognized during the three months ended March 31, 2021. No such gain was recognized during the three months ended March 31, 2022. We recorded fee income of $2.3 million and $0.4 million during the three months ended March 31, 2022 and 2021, respectively, from property management and development services provided to third parties and unconsolidated joint ventures. 32 The increase in fee income is primarily related to development fee services for the development of a corporate campus for Republic Airways. Property operating expenses increased $15.7 million, or 152.5%, due to the following: ($ in thousands) Net change 2021 to 2022 Properties or components of properties sold during 2021 or 2022 $ (114) Properties under redevelopment or acquired during 2021 and/or 2022 1,016 Properties acquired in the Merger with RPAI 14,299 Properties fully operational during 2021 and 2022 and other 458 Total $ 15,659 The net increase of $0.5 million in property operating expenses for properties fully operational during 2021 and 2022 is primarily due to increases in repairs and maintenance expense of $0.9 million and insurance expense of $0.4 million, partially offset by a reduction in non-recoverable operating expenses. As a percentage of revenue, property operating expenses decreased from 14.8% to 13.3% due to an increase in revenue in 2022. Real estate taxes increased $17.5 million, or 185.7%, due to the following: ($ in thousands) Net change 2021 to 2022 Properties or components of properties sold during 2021 or 2022 (124) Properties under redevelopment or acquired during 2021 and/or 2022 545 Properties acquired in the Merger with RPAI 18,204 Properties fully operational during 2021 and 2022 and other (1,166) Total $ 17,459 The net decrease of $1.2 million in real estate taxes for properties that were fully operational during 2021 and 2022 is primarily due to successful real estate tax appeals at certain properties in the portfolio, most notably for certain of our Texas 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 $6.0 million, or 82.9%. This increase is primarily due to incremental head count as part of the Merger and higher share-based compensation expense. The Company incurred $0.9 million of merger and acquisition costs related to the Merger with RPAI during the three months ended March 31, 2022. These costs primarily consist of professional fees and technology costs. Depreciation and amortization expense increased $90.9 million, or 296.6%, primarily as a result of the Merger with RPAI as detailed below: ($ in thousands) Net change 2021 to 2022 Properties or components of properties sold during 2021 or 2022 $ 2,683 Properties under redevelopment or acquired during 2021 and/or 2022 1,005 Properties acquired in the Merger with RPAI 90,990 Properties fully operational during 2021 and 2022 and other (3,808) Total $ 90,870 The net decrease of $3.8 million in depreciation and amortization at properties fully operational during 2021 and 2022 is primarily due to the timing of additions and disposals at operating properties. Interest expense increased $13.3 million, or 108.4%, primarily due to interest costs of $13.5 million related to debt assumed in conjunction with the Merger. Net Operating Income and Same Property Net Operating Income We use property 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, 33 including merger and acquisition costs. 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 properties. Same Property NOI is net income excluding properties that have not been owned for the full periods presented. However, due to the size of the RPAI portfolio acquired in the Merger with RPAI, which closed in October 2021, the legacy RPAI properties have been deemed to qualify for the same property pool beginning in 2022 if they had a full first quarter of operations in 2021 within the legacy RPAI portfolio prior to the Merger. Same Property NOI also excludes (i) net gains from outlot sales, (ii) straight-line rent revenue, (iii) lease termination income in excess of lost rent, (iv) amortization of lease intangibles, and (v) 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 expiration of 12 months or the start date of a replacement tenant. The Company believes 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 periods presented. The Company believes such presentation eliminates disparities in net income due to the acquisition or disposition of properties during the particular periods 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. In order to provide meaningful comparative information across periods that, in some cases, predate the Merger, all information regarding the performance of the same property pool is presented as though the Merger was consummated on January 1, 2021 (i.e., as though the properties owned by RPAI prior to the Merger that are included in our same property pool had been owned by the Company for the entirety of all comparison periods for which same property pool information is presented). 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. The properties acquired in the Merger with RPAI qualify for the same property pool beginning in 2022 if they had a full first quarter of operations in 2021 within the legacy RPAI portfolio prior to the Merger. 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 (a) begin recapturing space from tenants or (b) the contemplated plan significantly impacts the operations of the property. For the three months ended March 31, 2022, the same property pool excludes (i) Glendale Town Center, which was reclassified from active redevelopment into our operating portfolio in December 2021, (ii) seven active development and redevelopment projects, (iii) Arcadia Village and Pebble Marketplace, which were acquired subsequent to January 1, 2021, and (iv) office properties. 34 The following table reflects Same Property NOI and a reconciliation to net (loss) income attributable to common shareholders for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, ($ in thousands) 2022 2021 Change Number of properties in same property pool for the period (1) 178 178 Leased percentage at period end 93.6 % 91.3 % Economic occupancy percentage (2) 90.4 % 89.7 % Same Property NOI $ 129,523 $ 122,252 5.9 % Reconciliation of Same Property NOI to most directly comparable GAAP measure: Net operating income – same properties $ 129,523 $ 122,252 Prior period collection impact – same properties 1,964 5,658 Net operating income – non-same activity (3) 7,808 (78,638) Total property NOI 139,295 49,272 182.7 % Other income, net 1,963 28 General, administrative and other (13,309) (7,276) Merger and acquisition costs (925) — Depreciation and amortization (121,504) (30,634) Interest expense (25,514) (12,242) Gain on sales of operating properties, net 3,168 26,207 Net loss (income) attributable to noncontrolling interests 22 (778) Net (loss) income attributable to common shareholders $ (16,804) $ 24,577 (1) Same Property NOI excludes (i) Glendale Town Center, which was reclassified from active redevelopment into our operating portfolio in December 2021, (ii) seven active development and redevelopment projects, (iii) Arcadia Village and Pebble Marketplace, which were acquired subsequent to January 1, 2021, 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) Includes non-cash activity across the portfolio as well as NOI from properties not included in the same property pool, including properties sold during both periods. Our Same Property NOI increased 5.9% for the three months ended March 31, 2022 compared to the same period of the prior year primarily due to improved collection activity and tenant performance resulting in a reduction in bad debt expense in 2022 compared to 2021, which was more heavily impacted by the COVID-19 pandemic. 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 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 excludes the 2021 gain on sale of the ground lease portfolios as these sales were part of our capital strategy distinct from our ongoing operating strategy of selling individual land parcels from time to time. 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 35 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. 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, merger and acquisition costs, the impact on earnings from employee severance, the excess of redemption value over carrying value of preferred stock redemption, and the impact of prior period bad debt or the collection of accounts receivable previously written off (“prior period collection impact”), 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 three months ended March 31, 2022 and 2021 (unaudited) are as follows: Three Months Ended March 31, ($ in thousands) 2022 2021 Net (loss) income $ (16,826) $ 25,355 Less: net income attributable to noncontrolling interests in properties (144) (132) Less: gain on sales of operating properties, net (3,168) (26,207) Add: depreciation and amortization of consolidated and unconsolidated entities, net of noncontrolling interests 121,847 30,971 FFO of the Operating Partnership (1) 101,709 29,987 Less: Limited Partners’ interests in FFO (1,118) (870) FFO attributable to common shareholders (1) $ 100,591 $ 29,117 FFO of the Operating Partnership (1) $ 101,709 $ 29,987 Add: merger and acquisition costs 925 — Less: prior period collection impact (1,096) (209) FFO, as adjusted, of the Operating Partnership $ 101,538 $ 29,778 (1) “FFO of the Operating Partnership” measures 100% of the operating performance of the Operating Partnership’s real estate properties. “FFO attributable to 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 interest expense, income tax expense of the taxable REIT subsidiary, and depreciation and amortization. For informational purposes, we also provide Adjusted EBITDA, which we define as EBITDA less (i) EBITDA from unconsolidated entities, (ii) gains on sales of operating properties or impairment charges, (iii) merger and acquisition costs, (iv) other income and expense, (v) noncontrolling interest EBITDA, and (vi) 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. 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 also provide 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. 36 The following table presents a reconciliation of our EBITDA, Adjusted EBITDA and Annualized Adjusted EBITDA to net income (the most directly comparable GAAP measure) and a calculation of Net Debt to Adjusted EBITDA. ($ in thousands) Three Months Ended March 31, 2022 Net loss $ (16,826) Depreciation and amortization 121,504 Interest expense 25,514 Income tax benefit of taxable REIT subsidiary (71) EBITDA 130,121 Unconsolidated EBITDA 454 Merger and acquisition costs 925 Gain on sales of operating properties, net (3,168) Other income and expense, net 417 Noncontrolling interests (144) Adjusted EBITDA 128,605 Annualized Adjusted EBITDA (1) $ 514,420 Company share of Net Debt: Mortgage and other indebtedness, net $ 3,179,118 Plus: Company share of unconsolidated joint venture debt 32,467 Less: Partner share of consolidated joint venture debt (2) (578) Less: cash, cash equivalents, restricted cash and short-term deposits (207,190) Less: debt discounts, premiums and issuance costs, net (49,100) Company share of Net Debt $ 2,954,717 Net Debt to Adjusted EBITDA 5.7x (1) Represents Adjusted EBITDA for the three months ended March 31, 2022 (as shown in the table above) multiplied by four. (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. 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 interest or dividend rate, the maturity date and the Company’s debt maturity ladder, the impact of financial metrics such as overall Company leverage levels and coverage ratios, and the Company’s ability 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. One of the benefits of the Merger was a strengthened balance sheet to provide the Company with increased liquidity, a well-staggered debt maturity ladder, and an appropriately sized development pipeline. As part of the Merger, we assumed an $850.0 million revolving line of credit, of which the borrowing capacity was $713.5 million as of March 31, 2022, along with other indebtedness. As of March 31, 2022, we had approximately $74.3 million in cash on hand, $7.8 million in restricted cash and escrow deposits, $713.5 million of remaining availability under our Revolving Facility, $125.0 million of short-term deposits, and $83.5 million of debt maturities for the remainder of 2022. Subsequent to March 31, 2022, we used the $125.0 million short-term deposit that matured on April 7, 2022 to repay borrowings on our revolving line of credit. We believe we will have adequate liquidity over the next 12 months and beyond to operate our business and meet our cash requirements. However, because we do not know the ultimate severity and length of the COVID-19 pandemic or the short- or long-term impact it may have on consumer behavior, and thus cannot predict the impact it will have on our tenants and on the debt and equity capital markets, we cannot estimate the ultimate impact it will have on our liquidity and capital resources. 37 Our Principal Capital Resources For a discussion of cash generated from operations, see “Cash Flows” beginning on page 39. In addition to cash generated from operations, our other principal capital resources are discussed below. Over the last several years, we have made substantial progress in enhancing our liquidity position and reducing our leverage and borrowing costs. We continue to focus on a balanced approach to growth and staggering debt maturities in order to retain our financial flexibility. As of March 31, 2022, we had approximately $713.5 million available under our Revolving Facility for future borrowings. We also had $199.3 million in cash, cash equivalents and short-term deposits as of March 31, 2022. We were in compliance with all applicable financial covenants under our Revolving Facility, unsecured term loans and senior unsecured notes as of March 31, 2022. On November 16, 2021, the Company filed with the SEC a shelf registration statement on Form S-3, which is effective for a term of three years, 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 for general corporate purposes, which may include acquisitions of additional properties, repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopment, and/or improvement of properties in our portfolio, working capital and other general purposes. On February 23, 2021, the Company and the Operating Partnership entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with each of BofA Securities, Inc., Citigroup Global Markets Inc., KeyBanc Capital Markets Inc. and Raymond James & Associates, Inc., pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $150.0 million of its common shares of beneficial interest, $0.01 par value per share under an at-the-market offering program (the “ATM Program”). On November 30, 2021, the Company and the Operating Partnership amended the Equity Distribution Agreement to reflect the filing by the Company and the Operating Partnership of a shelf registration statement on November 16, 2021 with the SEC. As of March 31, 2022, the Company has not sold any common shares under the ATM Program. The Operating Partnership intends to use the net proceeds, if any, to repay borrowings under its Revolving Facility and other indebtedness and for working capital and other general corporate purposes. The Operating Partnership may also use the net proceeds for acquisitions of operating properties and the development or redevelopment of properties, although there are currently no understandings, commitments or agreements to do so. 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 March 31, 2022, we had $256.9 million of secured debt scheduled to mature prior to March 31, 2023, excluding scheduled monthly principal payments. We believe we have sufficient liquidity to repay this obligation from cash on hand, short-term deposits and, if needed, borrowings on our Revolving Facility. 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 and long term. Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our operating properties, scheduled interest payments of approximately $85.0 million and scheduled principal payments on our debt of approximately $2.6 million for the remainder of 2022, expected dividend payments to our common shareholders and Common Unit holders, and recurring capital expenditures. In February 2022, our Board of Trustees declared a cash distribution of $0.20 per common share and Common Unit for the first quarter of 2022. This distribution was paid on April 15, 2022 to common shareholders and Common Unit holders of record 38 as of April 8, 2022. Future distributions, if any, are at the discretion of the Board of Trustees, who will continue to evaluate our sources and uses of capital, liquidity position, operating fundamentals, maintenance of our REIT qualification and other factors they may deem relevant. Other short-term liquidity needs include expenditures for tenant improvements, external leasing commissions and recurring capital expenditures. During the three months ended March 31, 2022, we incurred $3.7 million for recurring capital expenditures on operating properties, $13.0 million for tenant improvements and external leasing commissions, which includes costs to re-lease anchor space at our operating properties related to tenants open and operating as of March 31, 2022 (excluding development and redevelopment properties). We currently anticipate incurring approximately $100 million of additional major tenant improvement costs related to executed leases for space that is currently vacant at a number of our operating properties over the next 12 to 18 months. We believe we have the ability to fund these costs through cash flow from operations or by borrowing on the Revolving Facility. As of March 31, 2022, we had seven development projects under construction, including five projects assumed in the Merger with RPAI. Total estimated costs for these projects are $176.1 million, of which our share is estimated to be $112.2 million. As of March 31, 2022, we have incurred $21.0 million of these costs. We anticipate incurring the majority of the remaining costs for these projects over the next 24 months and believe we have the ability to fund these projects through cash flow from operations or by borrowing on the Revolving Facility. Share Repurchase Program In February 2021, the Company’s Board of Trustees approved a share repurchase program, authorizing share repurchases up to an aggregate of $150.0 million (the “Share Repurchase Program”). In February 2022, the Company extended its Share Repurchase Program for an additional year and it will now terminate on February 28, 2023, if not terminated or extended prior to that date. In April 2022, the Company’s Board of Trustees authorized a $150.0 million increase to the size of the Share Repurchase Program, authorizing share repurchases up to an aggregate $300.0 million. As of March 31, 2022, the Company has not repurchased any shares under its Share Repurchase Program. The Company intends to fund any future repurchases under the Share Purchase Program with cash on hand or availability under the Revolving Facility, subject to any applicable restrictions. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements and other factors. 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, payment of indebtedness at maturity and obligations under ground leases. Selective Acquisitions, Developments and Joint Ventures . We may selectively pursue the acquisition, development and redevelopment of other properties, which would require additional capital. It is unlikely that we would have sufficient funds on hand to meet these long-term capital requirements. We would have to satisfy these needs through additional borrowings, sales of common or preferred shares, issuance of Operating Partnership units, cash generated through property dispositions 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 amount of existing retail space. Our ability to access the capital markets will be dependent on a number of factors, including general capital market conditions. Potential Debt Repurchase. We may from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase our senior unsecured notes maturing at various dates through September 2030 in open market transactions, by tender offer or otherwise, as market conditions warrant. Commitments under Ground Leases. We are obligated under 12 ground leases for approximately 98 acres of land as of March 31, 2022. Most of these ground leases require fixed annual rent payments and the expiration dates of the remaining initial terms of these ground leases range from 2023 to 2092. 39 Capital Expenditures on Consolidated Properties The following table summarizes cash capital expenditures for our development and redevelopment projects and other capital expenditures for the three months ended March 31, 2022: ($ in thousands) Three Months Ended March 31, 2022 Active development and redevelopment projects $ 12,029 Recurring operating capital expenditures (primarily tenant improvements) and other 11,723 Total $ 23,752 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 $0.1 million for the three months ended March 31, 2022. Debt Maturities The following table presents maturities of mortgage debt and corporate debt as of March 31, 2022, presented on a calendar year basis: Secured Debt ($ in thousands) Scheduled Principal Payments Term Maturities Unsecured Debt Total 2022 $ 2,553 $ 83,520 $ — $ 86,073 2023 2,600 220,499 295,000 518,099 2024 2,721 — 269,635 272,356 2025 2,848 — 430,000 432,848 2026 2,981 — 685,000 687,981 Thereafter 30,181 2,480 1,100,000 1,132,661 $ 43,884 $ 306,499 $ 2,779,635 $ 3,130,018 Debt discounts, premiums and issuance costs, net 49,100 Total $ 3,179,118 Failure to comply with the obligations under our debt agreements (including payment obligations) could cause an event of default under such debt, which, among other things, could result in the loss of title to the assets securing the debt, acceleration of the payment of all principal and interest and/or termination of the agreements, or exposure to the risk of foreclosure. In addition, certain of our variable rate loans contain cross-default provisions that provide that a violation by us of any financial covenant set forth in our Revolving Facility will constitute an “Event of Default” under the loans, which could allow the lenders to accelerate the amounts due under our debt agreements if we fail to satisfy these financial covenants. See “Item 1A. Risk Factors – Risks Related to Our Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 for more information related to the risks associated with our indebtedness. Impact of Changes in Credit Ratings on Our Liquidity We have received investment grade corporate credit ratings from three nationally recognized credit rating agencies. These ratings did not change as of March 31, 2022. 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 March 31, 2022, we had cash, cash equivalents and restricted cash of $82.2 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 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 40 in several financial institutions in support of borrowings from those institutions. Such compensating balances were not material to the consolidated balance sheets. Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021 Cash provided by operating activities was $49.6 million for the three months ended March 31, 2022 and $31.3 million for the same period of 2021. The cash flows were positively impacted by the Merger, which generated incremental operating income, along with improved collection activity including previously deferred rent from the COVID-19 pandemic. This improvement was partially offset by costs paid as part of the Merger along with higher interest costs related to the debt assumed in the Merger. Cash used in investing activities was $62.2 million for the three months ended March 31, 2022 compared to cash provided by investing activities of $33.9 million for the same period of 2021. Highlights of significant cash sources and uses in investing activities are as follows: • We acquired Pebble Marketplace and deposited funds for the acquisition of a two-tenant building adjacent to MacArthur Crossing totaling $44.3 million during the three months ended March 31, 2022; • We received net proceeds of $39.9 million related to the sale of 16 ground leases during the three months ended March 31, 2021; and • Capital expenditures increased by $15.9 million, partially offset by a change in construction payables of $1.3 million for the three months ended March 31, 2022. Cash used in financing activities was $5.6 million for the three months ended March 31, 2022 compared to cash provided by financing activities of $120.8 million for the same period of 2021. Highlights of significant cash sources and uses in financing activities are as follows: • We borrowed $80.0 million on the Revolving Facility and used a portion of the proceeds to repay $42.2 million of mortgage debt during the three months ended March 31, 2022 compared to $25.6 million of debt repayments during the three months ended March 31, 2021; • We made distributions to common shareholders and holders of common partnership interests in the Operating Partnership of $42.2 million for the three months ended March 31, 2022 compared to distributions of $13.5 million for the three months ended March 31, 2021; and • In March 2021, we issued $175.0 million of exchangeable senior notes in a private placement offering to fund a portion of our 2022 debt maturities and other borrowings. In connection with this issuance, we incurred transaction costs of $4.9 million and purchased capped calls for $9.8 million. Critical Accounting Estimates We based the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There were no changes made by management to the critical accounting policies in the three months ended March 31, 2022. We discuss the most critical estimates in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.