KITE REALTY GROUP TRUST 10-Q

ITEM 1. FINANCIAL STATEMENTS KITE REALTY GROUP TRUST Consolidated Balance Sheets (Unaudited) ($ in thousands, except share and per share data) June 30, 2023 December 31, 2022 Assets: Investment properties, at cost $ 7,670,365 $ 7,732,573 Less: accumulated depreciation ( 1,244,282 ) ( 1,161,148 ) Net investment properties 6,426,083 6,571,425 Cash and cash equivalents 129,254 115,799 Tenant and other receivables, including accrued straight-line rent of $ 51,355 and $ 44,460 , respectively 109,552 101,301 Restricted cash and escrow deposits 5,700 6,171 Deferred costs, net 353,714 409,828 Prepaid and other assets 130,485 127,044 Investments in unconsolidated subsidiaries 10,311 10,414 Total assets $ 7,165,099 $ 7,341,982 Liabilities and Equity: Liabilities: Mortgage and other indebtedness, net $ 2,937,963 $ 3,010,299 Accounts payable and accrued expenses 178,227 207,792 Deferred revenue and other liabilities 289,671 298,039 Total liabilities 3,405,861 3,516,130 Commitments and contingencies Limited Partners’ interests in the Operating Partnership 60,927 53,967 Equity: Common shares, $ 0.01 par value, 490,000,000 shares authorized, 219,374,275 and 219,185,658 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively 2,194 2,192 Additional paid-in capital 4,894,907 4,897,736 Accumulated other comprehensive income 71,323 74,344 Accumulated deficit ( 1,275,617 ) ( 1,207,757 ) Total shareholders’ equity 3,692,807 3,766,515 Noncontrolling interests 5,504 5,370 Total equity 3,698,311 3,771,885 Total liabilities and equity $ 7,165,099 $ 7,341,982 The accompanying notes are an integral part of these consolidated financial statements. 4 KITE REALTY GROUP TRUST Consolidated Statements of Operations and Comprehensive Income (Unaudited) ($ in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenue: Rental income $ 205,836 $ 196,205 $ 408,899 $ 387,097 Other property-related revenue 1,883 3,729 3,799 4,919 Fee income 1,040 2,671 2,811 4,980 Total revenue 208,759 202,605 415,509 396,996 Expenses: Property operating 27,232 26,123 54,546 52,051 Real estate taxes 26,697 27,883 53,880 54,742 General, administrative and other 14,499 13,809 27,883 27,118 Merger and acquisition costs — ( 27 ) — 898 Depreciation and amortization 109,462 119,761 217,533 241,265 Total expenses 177,890 187,549 353,842 376,074 Gain on sales of operating properties, net 28,440 23,958 28,440 27,126 Operating income 59,309 39,014 90,107 48,048 Other (expense) income: Interest expense ( 27,205 ) ( 25,709 ) ( 52,630 ) ( 51,223 ) Income tax (expense) benefit of taxable REIT subsidiary ( 45 ) 188 ( 16 ) 259 Equity in earnings (loss) of unconsolidated subsidiaries 118 114 ( 126 ) ( 200 ) Other income (expense), net 304 ( 162 ) 707 ( 265 ) Net income (loss) 32,481 13,445 38,042 ( 3,381 ) Net income attributable to noncontrolling interests ( 423 ) ( 314 ) ( 593 ) ( 292 ) Net income (loss) attributable to common shareholders $ 32,058 $ 13,131 $ 37,449 $ ( 3,673 ) Net income (loss) per common share – basic and diluted $ 0.15 $ 0.06 $ 0.17 $ ( 0.02 ) Weighted average common shares outstanding – basic 219,354,275 219,073,778 219,294,255 219,027,729 Weighted average common shares outstanding – diluted 220,032,366 219,744,300 219,999,440 219,027,729 Net income (loss) $ 32,481 $ 13,445 $ 38,042 $ ( 3,381 ) Change in fair value of derivatives 8,642 17,559 ( 3,003 ) 56,497 Total comprehensive income 41,123 31,004 35,039 53,116 Comprehensive income attributable to noncontrolling interests ( 529 ) ( 727 ) ( 611 ) ( 930 ) Comprehensive income attributable to the Company $ 40,594 $ 30,277 $ 34,428 $ 52,186 The accompanying notes are an integral part of these consolidated financial statements. 5 KITE REALTY GROUP TRUST Consolidated Statements of Shareholders’ Equity (Unaudited) (in thousands, except share data) Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Shares Amount Balance at December 31, 2022 219,185,658 $ 2,192 $ 4,897,736 $ 74,344 $ ( 1,207,757 ) $ 3,766,515 Stock compensation activity 140,240 1 2,134 — — 2,135 Other comprehensive loss — — — ( 11,557 ) — ( 11,557 ) Distributions to common shareholders — — — — ( 52,659 ) ( 52,659 ) Net income attributable to common shareholders — — — — 5,391 5,391 Adjustment to redeemable noncontrolling interests — — ( 3,821 ) — — ( 3,821 ) Balance at March 31, 2023 219,325,898 $ 2,193 $ 4,896,049 $ 62,787 $ ( 1,255,025 ) $ 3,706,004 Stock compensation activity 48,377 1 2,959 — — 2,960 Other comprehensive income — — — 8,536 — 8,536 Distributions to common shareholders — — — — ( 52,650 ) ( 52,650 ) Net income attributable to common shareholders — — — — 32,058 32,058 Adjustment to redeemable noncontrolling interests — — ( 4,101 ) — — ( 4,101 ) Balance at June 30, 2023 219,374,275 $ 2,194 $ 4,894,907 $ 71,323 $ ( 1,275,617 ) $ 3,692,807 Balance at December 31, 2021 218,949,569 $ 2,189 $ 4,898,673 $ ( 15,902 ) $ ( 962,913 ) $ 3,922,047 Stock compensation activity 93,334 1 1,821 — — 1,822 Other comprehensive income — — — 38,713 — 38,713 Distributions to common shareholders — — — — ( 41,600 ) ( 41,600 ) Net loss attributable to common shareholders — — — — ( 16,804 ) ( 16,804 ) Adjustment to redeemable noncontrolling interests — — ( 5,597 ) — — ( 5,597 ) Balance at March 31, 2022 219,042,903 $ 2,190 $ 4,894,897 $ 22,811 $ ( 1,021,317 ) $ 3,898,581 Stock compensation activity 58,095 1 2,850 — — 2,851 Other comprehensive income — — — 17,146 — 17,146 Distributions to common shareholders — — — — ( 43,808 ) ( 43,808 ) Net income attributable to common shareholders — — — — 13,131 13,131 Adjustment to redeemable noncontrolling interests — — 3,239 — — 3,239 Balance at June 30, 2022 219,100,998 $ 2,191 $ 4,900,986 $ 39,957 $ ( 1,051,994 ) $ 3,891,140 The accompanying notes are an integral part of these consolidated financial statements. 6 KITE REALTY GROUP TRUST Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ 38,042 $ ( 3,381 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 219,315 242,634 Gain on sales of operating properties, net ( 28,440 ) ( 27,126 ) Straight-line rent ( 6,958 ) ( 8,359 ) Compensation expense for equity awards 5,133 5,603 Amortization of debt fair value adjustments ( 6,688 ) ( 6,835 ) Amortization of in-place lease liabilities ( 5,375 ) ( 1,915 ) Changes in assets and liabilities: Tenant receivables 268 ( 1,447 ) Deferred costs and other assets ( 14,074 ) ( 4,257 ) Accounts payable, accrued expenses, deferred revenue and other liabilities ( 20,798 ) ( 40,595 ) Net cash provided by operating activities 180,425 154,322 Cash flows from investing activities: Acquisitions of interests in properties — ( 65,765 ) Capital expenditures ( 67,767 ) ( 58,731 ) Net proceeds from sales of land 917 1,935 Net proceeds from sales of operating properties 78,556 65,408 Investment in short-term deposits — 125,000 Small business loan repayments 287 372 Change in construction payables ( 3,980 ) ( 717 ) Distribution from unconsolidated joint venture — 1,144 Net cash provided by investing activities 8,013 68,646 Cash flows from financing activities: Proceeds from issuance of common shares, net 40 20 Repurchases of common shares upon the vesting of restricted shares ( 731 ) ( 1,144 ) Debt and equity issuance costs ( 54 ) ( 662 ) Loan proceeds 293,095 120,000 Loan payments ( 361,162 ) ( 255,766 ) Distributions paid – common shareholders ( 105,243 ) ( 85,408 ) Distributions paid – redeemable noncontrolling interests ( 1,399 ) ( 1,219 ) Net cash used in financing activities ( 175,454 ) ( 224,179 ) Net change in cash, cash equivalents and restricted cash 12,984 ( 1,211 ) Cash, cash equivalents and restricted cash, beginning of period 121,970 100,363 Cash, cash equivalents and restricted cash, end of period $ 134,954 $ 99,152 The accompanying notes are an integral part of these consolidated financial statements. 7 KITE REALTY GROUP, L.P. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (in thousands, except unit data) June 30, 2023 December 31, 2022 Assets: Investment properties, at cost $ 7,670,365 $ 7,732,573 Less: accumulated depreciation ( 1,244,282 ) ( 1,161,148 ) Net investment properties 6,426,083 6,571,425 Cash and cash equivalents 129,254 115,799 Tenant and other receivables, including accrued straight-line rent of $ 51,355 and $ 44,460 , respectively 109,552 101,301 Restricted cash and escrow deposits 5,700 6,171 Deferred costs, net 353,714 409,828 Prepaid and other assets 130,485 127,044 Investments in unconsolidated subsidiaries 10,311 10,414 Total assets $ 7,165,099 $ 7,341,982 Liabilities and Equity: Liabilities: Mortgage and other indebtedness, net $ 2,937,963 $ 3,010,299 Accounts payable and accrued expenses 178,227 207,792 Deferred revenue and other liabilities 289,671 298,039 Total liabilities 3,405,861 3,516,130 Commitments and contingencies Limited Partners’ interests in the Operating Partnership 60,927 53,967 Partners’ Equity: Common equity, 219,374,275 and 219,185,658 units issued and outstanding at June 30, 2023 and December 31, 2022, respectively 3,621,484 3,692,171 Accumulated other comprehensive income 71,323 74,344 Total Partners’ equity 3,692,807 3,766,515 Noncontrolling interests 5,504 5,370 Total equity 3,698,311 3,771,885 Total liabilities and equity $ 7,165,099 $ 7,341,982 The accompanying notes are an integral part of these consolidated financial statements. 8 KITE REALTY GROUP, L.P. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Unaudited) (in thousands, except unit and per unit data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenue: Rental income $ 205,836 $ 196,205 $ 408,899 $ 387,097 Other property-related revenue 1,883 3,729 3,799 4,919 Fee income 1,040 2,671 2,811 4,980 Total revenue 208,759 202,605 415,509 396,996 Expenses: Property operating 27,232 26,123 54,546 52,051 Real estate taxes 26,697 27,883 53,880 54,742 General, administrative and other 14,499 13,809 27,883 27,118 Merger and acquisition costs — ( 27 ) — 898 Depreciation and amortization 109,462 119,761 217,533 241,265 Total expenses 177,890 187,549 353,842 376,074 Gain on sales of operating properties, net 28,440 23,958 28,440 27,126 Operating income 59,309 39,014 90,107 48,048 Other (expense) income: Interest expense ( 27,205 ) ( 25,709 ) ( 52,630 ) ( 51,223 ) Income tax (expense) benefit of taxable REIT subsidiary ( 45 ) 188 ( 16 ) 259 Equity in earnings (loss) of unconsolidated subsidiaries 118 114 ( 126 ) ( 200 ) Other income (expense), net 304 ( 162 ) 707 ( 265 ) Net income (loss) 32,481 13,445 38,042 ( 3,381 ) Net income attributable to noncontrolling interests ( 30 ) ( 182 ) ( 134 ) ( 326 ) Net income (loss) attributable to common unitholders $ 32,451 $ 13,263 $ 37,908 $ ( 3,707 ) Allocation of net income (loss): Limited Partners $ 393 $ 132 $ 459 $ ( 34 ) Parent Company 32,058 13,131 37,449 ( 3,673 ) $ 32,451 $ 13,263 $ 37,908 $ ( 3,707 ) Net income (loss) per common unit – basic and diluted $ 0.15 $ 0.06 $ 0.17 $ ( 0.02 ) Weighted average common units outstanding – basic 222,388,487 221,879,784 222,287,815 221,655,238 Weighted average common units outstanding – diluted 223,066,578 222,550,306 222,993,000 221,655,238 Net income (loss) $ 32,481 $ 13,445 $ 38,042 $ ( 3,381 ) Change in fair value of derivatives 8,642 17,559 ( 3,003 ) 56,497 Total comprehensive income 41,123 31,004 35,039 53,116 Comprehensive income attributable to noncontrolling interests ( 30 ) ( 182 ) ( 134 ) ( 326 ) Comprehensive income attributable to common unitholders $ 41,093 $ 30,822 $ 34,905 $ 52,790 The accompanying notes are an integral part of these consolidated financial statements. 9 KITE REALTY GROUP, L.P. AND SUBSIDIARIES Consolidated Statements of Partners’ Equity (Unaudited) (in thousands) General Partner Total Common Equity Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2022 $ 3,692,171 $ 74,344 $ 3,766,515 Stock compensation activity 2,135 — 2,135 Other comprehensive loss attributable to Parent Company — ( 11,557 ) ( 11,557 ) Distributions to Parent Company ( 52,659 ) — ( 52,659 ) Net income attributable to Parent Company 5,391 — 5,391 Adjustment to redeemable noncontrolling interests ( 3,821 ) — ( 3,821 ) Balance at March 31, 2023 $ 3,643,217 $ 62,787 $ 3,706,004 Stock compensation activity 2,960 — 2,960 Other comprehensive income attributable to Parent Company — 8,536 8,536 Distributions to Parent Company ( 52,650 ) — ( 52,650 ) Net income attributable to Parent Company 32,058 — 32,058 Adjustment to redeemable noncontrolling interests ( 4,101 ) — ( 4,101 ) Balance at June 30, 2023 $ 3,621,484 $ 71,323 $ 3,692,807 Balance at December 31, 2021 $ 3,937,949 $ ( 15,902 ) $ 3,922,047 Stock compensation activity 1,822 — 1,822 Other comprehensive income attributable to Parent Company — 38,713 38,713 Distributions to Parent Company ( 41,600 ) — ( 41,600 ) Net loss attributable to Parent Company ( 16,804 ) — ( 16,804 ) Adjustment to redeemable noncontrolling interests ( 5,597 ) — ( 5,597 ) Balance at March 31, 2022 $ 3,875,770 $ 22,811 $ 3,898,581 Stock compensation activity 2,851 — 2,851 Other comprehensive income attributable to Parent Company — 17,146 17,146 Distributions to Parent Company ( 43,808 ) — ( 43,808 ) Net income attributable to Parent Company 13,131 — 13,131 Adjustment to redeemable noncontrolling interests 3,239 — 3,239 Balance at June 30, 2022 $ 3,851,183 $ 39,957 $ 3,891,140 The accompanying notes are an integral part of these consolidated financial statements. 10 KITE REALTY GROUP, L.P. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ 38,042 $ ( 3,381 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 219,315 242,634 Gain on sales of operating properties, net ( 28,440 ) ( 27,126 ) Straight-line rent ( 6,958 ) ( 8,359 ) Compensation expense for equity awards 5,133 5,603 Amortization of debt fair value adjustments ( 6,688 ) ( 6,835 ) Amortization of in-place lease liabilities ( 5,375 ) ( 1,915 ) Changes in assets and liabilities: Tenant receivables 268 ( 1,447 ) Deferred costs and other assets ( 14,074 ) ( 4,257 ) Accounts payable, accrued expenses, deferred revenue and other liabilities ( 20,798 ) ( 40,595 ) Net cash provided by operating activities 180,425 154,322 Cash flows from investing activities: Acquisition of interests in properties — ( 65,765 ) Capital expenditures ( 67,767 ) ( 58,731 ) Net proceeds from sales of land 917 1,935 Net proceeds from sales of operating properties 78,556 65,408 Investment in short-term deposits — 125,000 Small business loan repayments 287 372 Change in construction payables ( 3,980 ) ( 717 ) Distribution from unconsolidated joint venture — 1,144 Net cash provided by investing activities 8,013 68,646 Cash flows from financing activities: Contributions from the General Partner 40 20 Repurchases of common shares upon the vesting of restricted shares ( 731 ) ( 1,144 ) Debt and equity issuance costs ( 54 ) ( 662 ) Loan proceeds 293,095 120,000 Loan payments ( 361,162 ) ( 255,766 ) Distributions paid – common unitholders ( 105,243 ) ( 85,408 ) Distributions paid – redeemable noncontrolling interests ( 1,399 ) ( 1,219 ) Net cash used in financing activities ( 175,454 ) ( 224,179 ) Net change in cash, cash equivalents and restricted cash 12,984 ( 1,211 ) Cash, cash equivalents and restricted cash, beginning of period 121,970 100,363 Cash, cash equivalents and restricted cash, end of period $ 134,954 $ 99,152 The accompanying notes are an integral part of these consolidated financial statements. 11 KITE REALTY GROUP TRUST AND KITE REALTY GROUP, L.P. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2023 (Unaudited) ($ in thousands, except share, per share, unit and per unit amounts and where indicated in millions or billions) NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Kite Realty Group Trust (the “Parent Company”), through its majority-owned subsidiary, Kite Realty Group, L.P. (the “Operating Partnership”), owns interests in various operating subsidiaries and joint ventures engaged in the ownership, operation, acquisition, development and redevelopment of high-quality, open-air shopping centers and mixed-use assets in select markets in the United States. The terms “Company,” “we,” “us,” and “our” refer to the Parent Company and the Operating Partnership, collectively, and those entities owned or controlled by the Parent Company and/or the Operating Partnership. The Operating Partnership was formed on August 16, 2004, when the Parent Company contributed properties and the net proceeds from an initial public offering of shares of its common stock to the Operating Partnership. The Parent Company was organized in Maryland in 2004 to succeed in the development, acquisition, construction and real estate businesses of its predecessor. We believe the Company qualifies as a real estate investment trust (“REIT”) under provisions of the Internal Revenue Code of 1986, as amended. The Parent Company is the sole general partner of the Operating Partnership, and as of June 30, 2023 owned approximately 98.6 % of the common partnership interests in the Operating Partnership (“General Partner Units”). The remaining 1.4 % of the common partnership interests (“Limited Partner Units” and, together with the General Partner Units, the “Common Units”) were owned by the limited partners. As the sole general partner of the Operating Partnership, the Parent Company has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership. The Parent Company and the Operating Partnership are operated as one enterprise. The management of the Parent Company consists of the same members as the management of the Operating Partnership. As the sole general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have any significant assets other than its investment in the Operating Partnership. The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) may have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the presentation not misleading. The unaudited consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 include all adjustments, consisting of normal recurring adjustments, necessary in the opinion of management to present fairly the financial information set forth therein. The unaudited consolidated financial statements in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the combined Annual Report on Form 10-K of the Parent Company and the Operating Partnership for the year ended December 31, 2022. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reported period. Actual results could differ from these estimates. The results of operations for the interim periods are not necessarily indicative of the results that may be expected on an annual basis. 12 As of June 30, 2023, the Company’s portfolio consisted of the following: Properties Square Footage Operating retail properties (1) 181 28,590,350 Office properties 1 287,291 Development and redevelopment projects: Carillon medical office building 1 126,000 The Corner (IN) 1 24,000 (1) Included within operating retail properties are 11 properties that contain an office component. Of the 181 operating retail properties, 178 are consolidated in these financial statements and the remaining three are accounted for under the equity method. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Components of Investment Properties The following table summarizes the composition of the Company’s investment properties as of June 30, 2023 and December 31, 2022 (in thousands) : Balance as of June 30, 2023 December 31, 2022 Land, buildings and improvements $ 7,589,842 $ 7,656,765 Construction in progress 80,523 75,808 Investment properties, at cost $ 7,670,365 $ 7,732,573 Components of Rental Income including Allowance for Uncollectible Accounts Rental income related to the Company’s operating leases is comprised of the following for the three and six months ended June 30, 2023 and 2022 (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Fixed contractual lease payments – operating leases $ 160,134 $ 152,652 $ 318,724 $ 302,476 Variable lease payments – operating leases 39,876 39,064 79,630 76,089 Bad debt reserve ( 233 ) ( 1,171 ) ( 1,788 ) ( 1,742 ) Straight-line rent adjustments 2,910 4,530 6,768 8,623 Straight-line rent recovery (reserve) for uncollectibility 504 ( 202 ) 190 ( 264 ) Amortization of in-place lease liabilities, net 2,645 1,332 5,375 1,915 Rental income $ 205,836 $ 196,205 $ 408,899 $ 387,097 The Company makes estimates as to the collectability of its accounts receivable. In making these estimates, the Company reviews a variety of qualitative and quantitative data and considers such facts as the credit quality of our customer, historical write-off experience and current economic trends, to make a subjective determination. An allowance for uncollectible accounts, including future credit losses of the accrued straight-line rent receivables, is maintained for estimated losses resulting from the inability of certain tenants to meet contractual obligations under their lease agreements. Consolidation and Investments in Joint Ventures The accompanying financial statements are presented on a consolidated basis and include all accounts of the Parent Company, the Operating Partnership, the taxable REIT subsidiaries (“TRSs”) of the Operating Partnership, subsidiaries of the Operating Partnership that are controlled and any variable interest entities (“VIEs”) in which the Operating Partnership is the primary beneficiary. As of June 30, 2023, we owned investments in two consolidated joint ventures that were VIEs in which the partners did not have substantive participating rights and we were the primary beneficiary. As of June 30, 2023, these consolidated VIEs had mortgage debt of $ 123.0 million, which were secured by assets of the VIEs totaling $ 227.2 million. The Operating Partnership guarantees the mortgage debt of these VIEs. The Operating Partnership is considered a VIE as the limited partners do not hold kick-out rights or substantive participating rights. The Parent Company consolidates the Operating Partnership as it is the primary beneficiary. 13 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 operated, and intends to continue to operate, in a manner that will enable it to maintain its qualification as a REIT for U.S. 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. Additionally, we may also be subject to certain taxes enacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including the nondeductible 1% excise tax on certain stock repurchases. We may also be subject to certain U.S. federal, state and local taxes on our income and property and to U.S. 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 TRS of the Operating Partnership. In addition, in connection with the merger with Retail Properties of America, Inc. (“RPAI”) in October 2021, we assumed RPAI’s existing TRS, IWR Protective Corporation, as a TRS of the Operating Partnership and we may elect to treat other subsidiaries as TRSs 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 TRSs, 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 TRSs. Noncontrolling Interests We report the non-redeemable noncontrolling interests in subsidiaries as equity, and the amount of consolidated net income attributable to these noncontrolling interests is set forth separately in the consolidated financial statements. The following table summarizes the non-redeemable noncontrolling interests in consolidated properties for the six months ended June 30, 2023 and 2022 (in thousands) : Six Months Ended June 30, 2023 2022 Noncontrolling interests balance as of January 1, $ 5,370 $ 5,146 Net income allocable to noncontrolling interests, excluding redeemable noncontrolling interests 134 62 Noncontrolling interests balance as of June 30, $ 5,504 $ 5,208 Noncontrolling Interests – Joint Venture Prior to the merger with RPAI, RPAI entered into a joint venture related to the development, ownership and operation of the multifamily rental portion of the expansion project at One Loudoun Downtown – Pads G & H. The Company owns 90 % of the joint venture. During the three months ended June 30, 2023, the Company originated a 10-year $ 95.1 million mortgage payable at a fixed interest rate of 5.36 % secured by the joint venture project. In conjunction with the loan origination, the joint venture’s construction loan was repaid. Under terms defined in the joint venture agreement, after construction completion and stabilization of the development project (as defined in the joint venture agreement), the Company has the ability to call, and the 14 joint venture partner has the ability to put to the Company, subject to certain conditions, the joint venture partner’s interest in the joint venture at fair value. The Company expects that these conditions will be met in the second half of 2023. The joint venture is considered a VIE primarily because the Company’s joint venture partner does not have substantive kick-out rights or substantive participating rights. The Company is considered the primary beneficiary as it has a controlling financial interest in the joint venture. As such, the Company has consolidated this joint venture and presented the joint venture partner’s interests as noncontrolling interests. Redeemable Noncontrolling Interests – Limited Partners Limited Partner Units are redeemable noncontrolling interests in the Operating Partnership. We classify redeemable noncontrolling interests in the Operating Partnership in the accompanying consolidated balance sheets outside of permanent equity because we may be required to pay cash to holders of Limited Partner Units upon redemption of their interests in the Operating Partnership or deliver registered shares upon their conversion. The carrying amount of the redeemable noncontrolling interests in the Operating Partnership is reflected at the greater of historical book value or redemption value with a corresponding adjustment to additional paid-in capital. As of June 30, 2023 and December 31, 2022, the redemption value of the redeemable noncontrolling interests in the Operating Partnership exceeded the historical book value, and the balances were accordingly adjusted to redemption value. We allocate net operating results of the Operating Partnership after noncontrolling interests in the consolidated properties based on the partners’ respective weighted average ownership interest. We adjust the redeemable noncontrolling interests in the Operating Partnership at the end of each reporting period to reflect their interests in the Operating Partnership or redemption value. This adjustment is reflected in our shareholders’ and Parent Company’s equity. For the three and six months ended June 30, 2023 and 2022, the weighted average interests of the Parent Company and the limited partners in the Operating Partnership were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Parent Company’s weighted average interest in Operating Partnership 98.6 % 98.7 % 98.7 % 98.8 % Limited partners’ weighted average interests in Operating Partnership 1.4 % 1.3 % 1.3 % 1.2 % As of June 30, 2023, the Parent Company’s interest and the limited partners’ redeemable noncontrolling ownership interests in the Operating Partnership were 98.6 % and 1.4 %. As of December 31, 2022, the Parent Company’s interest and the limited partners’ redeemable noncontrolling ownership interests in the Operating Partnership were 98.7 % and 1.3 %. Concurrent with the Parent Company’s initial public offering and related formation transactions, certain individuals received Limited Partner Units of the Operating Partnership in exchange for their interests in certain properties. The limited partners have the right to redeem Limited Partner Units for cash or, at the Parent Company’s election, common shares of the Parent Company in an amount equal to the market value of an equivalent number of common shares of the Parent Company at the time of redemption. Such common shares must be registered, which is not fully in the Parent Company’s control. Therefore, the limited partners’ interest is not reflected in permanent equity. The Parent Company also has the right to redeem the Limited Partner Units directly from the limited partner in exchange for either cash in the amount specified above or a number of its common shares equal to the number of Limited Partner Units being redeemed. There were 3,034,212 and 2,870,697 Limited Partner Units outstanding as of June 30, 2023 and December 31, 2022, respectively. The increase in Limited Partner Units outstanding from December 31, 2022 is due to non-cash compensation awards granted to our executive officers in the form of Limited Partner Units. Redeemable Noncontrolling Interests – Subsidiaries Prior to the merger with Inland Diversified Real Estate Trust, Inc. (“Inland Diversified”) in 2014, Inland Diversified formed joint ventures with the previous owners of certain properties and issued Class B units in three joint ventures that indirectly own those properties. As of June 30, 2022, the Class B units related to one of these joint ventures that owned Crossing at Killingly Commons, our multi-tenant retail property in Dayville, Connecticut, were outstanding and accounted for as noncontrolling interests in the remaining venture. In October 2022, the remaining Class B units became redeemable at the partner’s election and the fulfillment of certain redemption criteria for cash or Limited Partner Units in the Operating Partnership. In October 2022, we received notice from our joint venture partner of its exercise of their right to redeem the remaining Class B units for cash in the amount of $ 9.7 million, which redemption was funded using cash on October 3, 2022. Prior to the redemption, the Class B units did not have a maturity date and were not mandatorily redeemable unless either party 15 had elected for the units to be redeemed. Prior to the redemption, we consolidated this joint venture because we controlled the decision-making and our joint venture partner had limited protective rights. Prior to the redemption, we classified the redeemable noncontrolling interests related to the remaining Class B units in the accompanying consolidated balance sheets outside of permanent equity because, under certain circumstances, we could have been required to pay cash to the Class B unitholders in this subsidiary upon redemption of their interests. The carrying amount of these redeemable noncontrolling interests is required to be reflected at the greater of initial book value or redemption value with a corresponding adjustment to additional paid-in capital. As of June 30, 2022, the redemption amounts of these interests did not exceed their fair value nor did they exceed the initial book value. The redeemable noncontrolling interests in the Operating Partnership and subsidiaries for the six months ended June 30, 2023 and 2022 were as follows (in thousands) : Six Months Ended June 30, 2023 2022 Redeemable noncontrolling interests balance as of January 1, $ 53,967 $ 55,173 Net income allocable to redeemable noncontrolling interests 459 230 Distributions declared to redeemable noncontrolling interests ( 1,456 ) ( 1,219 ) Other, net including adjustments to redemption value 7,957 2,995 Total limited partners’ interests in the Operating Partnership and other redeemable noncontrolling interests balance as of June 30, $ 60,927 $ 57,179 Limited partners’ interests in the Operating Partnership $ 60,927 $ 47,109 Other redeemable noncontrolling interests in certain subsidiaries — 10,070 Total limited partners’ interests in the Operating Partnership and other redeemable noncontrolling interests balance as of June 30, $ 60,927 $ 57,179 Fair Value Measurements We follow the framework established under Financial Accounting Standards Board 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 an impairment. Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows: • 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 valuation. • 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. Effects of Accounting Pronouncements Any recently issued accounting standards or pronouncements have been excluded as they are either not relevant to the Company or are not expected to have a material impact on the Company’s consolidated financial statements. 16 NOTE 3. ACQUISITIONS The Company did not acquire any properties during the six months ended June 30, 2023. The Company closed on the following asset acquisitions during the six months ended June 30, 2022 (dollars in thousands) : Date Property Name Metropolitan Statistical Area (MSA) Property Type Square Footage Acquisition Price February 16, 2022 Pebble Marketplace Las Vegas Multi-tenant retail 85,796 $ 44,100 April 13, 2022 MacArthur Crossing Dallas Two-tenant building 56,077 21,920 141,873 $ 66,020 The above acquisitions were funded using a combination of available cash on hand and proceeds from the Company’s unsecured revolving line of credit. Substantially all of the purchase price was allocated to investment properties. NOTE 4. DISPOSITIONS The Company closed on the following dispositions during the six months ended June 30, 2023 (dollars in thousands) : Date Property Name MSA Property Type Square Footage Sales Price Gain May 8, 2023 Kingwood Commons Houston Multi-tenant retail 158,172 $ 27,350 $ 4,740 June 8, 2023 Pan Am Plaza & Garage Indianapolis Land & garage — 52,025 23,700 158,172 $ 79,375 $ 28,440 The Company closed on the following dispositions during the six months ended June 30, 2022 (dollars in thousands) : Date Property Name MSA Property Type Square Footage Sales Price Gain January 26, 2022 Hamilton Crossing Centre Indianapolis Redevelopment (1) — $ 6,900 $ 3,168 June 16, 2022 Plaza Del Lago Chicago Multi-tenant retail (2) 100,016 58,650 23,958 100,016 $ 65,550 $ 27,126 (1) We sold a portion of the redevelopment at Hamilton Crossing Centre. (2) Plaza Del Lago also contains 8,800 square feet of residential space comprised of 18 multifamily rental units. There were no discontinued operations for the six months ended June 30, 2023 and 2022 as none of the dispositions represented a strategic shift that has had, or will have, a material effect on our operations or financial results. NOTE 5. DEFERRED COSTS AND INTANGIBLES, NET Deferred costs consist primarily of acquired lease intangible assets, broker fees and capitalized internal commissions incurred in connection with lease originations. Deferred leasing costs, lease intangibles and similar costs are amortized on a straight-line basis over the terms of the related leases. As of June 30, 2023 and December 31, 2022, deferred costs consisted of the following (in thousands) : June 30, 2023 December 31, 2022 Acquired lease intangible assets $ 472,486 $ 522,152 Deferred leasing costs and other 70,570 66,842 543,056 588,994 Less: accumulated amortization ( 189,342 ) ( 179,166 ) Total $ 353,714 $ 409,828 17 Amortization of deferred leasing costs, lease intangibles and other is included within “Depreciation and amortization” in the accompanying consolidated statements of operations and comprehensive income. The amortization of above-market lease intangibles is included as a reduction to “Rental income” in the accompanying consolidated statements of operations and comprehensive income. The amounts of such amortization included in the accompanying consolidated statements of operations and comprehensive income are as follows (in thousands) : Six Months Ended June 30, 2023 2022 Amortization of deferred leasing costs, lease intangibles and other $ 57,610 $ 81,821 Amortization of above-market lease intangibles $ 6,274 $ 6,630 NOTE 6. DEFERRED REVENUE, INTANGIBLES, NET AND OTHER LIABILITIES Deferred revenue and other liabilities consist of (i) the unamortized fair value of below-market lease liabilities recorded in connection with purchase accounting, (ii) retainage payables for development and redevelopment projects, (iii) tenant rent payments received in advance of the month in which they are due, and (iv) lease liabilities recorded upon adoption of ASU 2016-02, Leases (Topic 842) . The amortization of below-market lease liabilities is recognized as revenue over the remaining life of the leases (including option periods for leases with below-market renewal options) through 2085. Tenant rent payments received in advance are recognized as revenue in the period to which they apply, which is typically the month following their receipt. As of June 30, 2023 and December 31, 2022, deferred revenue, intangibles, net and other liabilities consisted of the following (in thousands) : June 30, 2023 December 31, 2022 Unamortized in-place lease liabilities $ 176,530 $ 188,815 Retainages payable and other 11,397 12,110 Tenant rents received in advance 33,576 29,947 Lease liabilities 68,168 67,167 Total $ 289,671 $ 298,039 The amortization of below-market lease intangibles is included as a component of “Rental income” in the accompanying consolidated statements of operations and comprehensive income and totaled $ 11.6 million and $ 8.5 million for the six months ended June 30, 2023 and 2022, respectively. NOTE 7. MORTGAGE AND OTHER INDEBTEDNESS The following table summarizes the Company’s indebtedness as of June 30, 2023 and December 31, 2022 (in thousands) : June 30, 2023 December 31, 2022 Mortgages payable $ 165,554 $ 233,621 Senior unsecured notes 1,924,635 1,924,635 Unsecured term loans 820,000 820,000 Unsecured revolving line of credit — — 2,910,189 2,978,256 Unamortized discounts and premiums, net 38,428 44,362 Unamortized debt issuance costs, net ( 10,654 ) ( 12,319 ) Total mortgage and other indebtedness, net $ 2,937,963 $ 3,010,299 18 Consolidated indebtedness, including weighted average interest rates and weighted average maturities as of June 30, 2023, considering the impact of interest rate swaps, is summarized below (dollars in thousands) : Amount Outstanding Ratio Weighted Average Interest Rate Weighted Average Years to Maturity Fixed rate debt (1) $ 2,727,256 94 % 4.02 % 4.3 Variable rate debt (2) 182,933 6 % 8.87 % 2.7 Debt discounts, premiums and issuance costs, net 27,774 N/A N/A N/A Total $ 2,937,963 100 % 4.32 % 4.2 (1) Fixed rate debt includes the portion of variable rate debt that has been hedged by interest rate swaps. As of June 30, 2023, $ 820.0 million in variable rate debt is hedged to a fixed rate for a weighted average of 2.2 years. (2) Variable rate debt includes the portion of fixed rate debt that has been hedged by interest rate swaps. As of June 30, 2023, $ 155.0 million in fixed rate debt is hedged to a floating rate for a weighted average of 2.2 years. Mortgages Payable The following table summarizes the Company’s mortgages payable (dollars in thousands) : June 30, 2023 December 31, 2022 Balance Weighted Average Interest Rate Weighted Average Years to Maturity Balance Weighted Average Interest Rate Weighted Average Years to Maturity Fixed rate mortgages payable (1) $ 137,621 5.09 % 8.6 $ 205,328 3.98 % 1.4 Variable rate mortgage payable (2) 27,933 6.81 % 0.1 28,293 5.96 % 0.6 Total mortgages payable $ 165,554 $ 233,621 (1) The fixed rate mortgages had interest rates ranging from 3.75 % to 5.73 % as of June 30, 2023 and December 31, 2022. (2) The interest rate on the variable rate mortgage is based on Bloomberg Short Term Bank Yield Index (“BSBY”) plus 160 basis points. The one-month BSBY rate was 5.21 % and 4.36 % as of June 30, 2023 and December 31, 2022, respectively. Subsequent to June 30, 2023, the Company amended the loan agreement to extend the maturity date to August 4, 2026, with a one-year extension option. In addition, the interest rate margin increased to 215 basis points. In conjunction with the extension, the Company made a $ 9.9 million paydown of the principal balance using available cash on hand. Mortgages payable are secured by certain real estate and, in some cases, by guarantees from the Operating Partnership, are generally due in monthly installments of principal and interest and mature over various terms through 2032. During the six months ended June 30, 2023, we (i) originated a 10-year $ 95.1 million mortgage payable at a fixed interest rate of 5.36 % secured by the multifamily rental portion of the expansion project at One Loudoun Downtown – Pads G & H, (ii) repaid mortgages payable totaling $ 161.5 million that had a weighted average fixed interest rate of 3.85 %, and (iii) made scheduled principal payments of $ 1.7 million related to amortizing loans. 19 Unsecured Notes The following table summarizes the Company’s senior unsecured notes and exchangeable senior notes (dollars in thousands) : June 30, 2023 December 31, 2022 Maturity Date Balance Interest Rate Balance Interest Rate Senior notes – 4.23 % due 2023 September 10, 2023 $ 95,000 4.23 % $ 95,000 4.23 % Senior notes – 4.58 % due 2024 June 30, 2024 149,635 4.58 % 149,635 4.58 % Senior notes – 4.00 % due 2025 March 15, 2025 350,000 4.00 % 350,000 4.00 % Senior notes – LIBOR + 3.65 % due 2025 (1) September 10, 2025 80,000 9.19 % 80,000 8.41 % Senior notes – 4.08 % due 2026 September 30, 2026 100,000 4.08 % 100,000 4.08 % Senior notes – 4.00 % due 2026 October 1, 2026 300,000 4.00 % 300,000 4.00 % Senior exchangeable notes – 0.75 % due 2027 April 1, 2027 175,000 0.75 % 175,000 0.75 % Senior notes – LIBOR + 3.75 % due 2027 (2) September 10, 2027 75,000 9.29 % 75,000 8.51 % Senior notes – 4.24 % due 2028 December 28, 2028 100,000 4.24 % 100,000 4.24 % Senior notes – 4.82 % due 2029 June 28, 2029 100,000 4.82 % 100,000 4.82 % Senior notes – 4.75 % due 2030 September 15, 2030 400,000 4.75 % 400,000 4.75 % Total senior unsecured notes $ 1,924,635 $ 1,924,635 (1) $ 80,000 of 4.47 % senior unsecured notes has been swapped to a variable rate of three-month LIBOR plus 3.65 % through September 10, 2025. (2) $ 75,000 of 4.57 % senior unsecured notes has been swapped to a variable rate of three-month LIBOR plus 3.75 % through September 10, 2025. Unsecured Term Loans and Revolving Line of Credit The following table summarizes the Company’s term loans and revolving line of credit (dollars in thousands) : June 30, 2023 December 31, 2022 Maturity Date Balance Interest Rate Balance Interest Rate Unsecured term loan due 2024 – fixed rate (1) July 17, 2024 $ 120,000 2.68 % $ 120,000 2.68 % Unsecured term loan due 2025 – fixed rate (2) October 24, 2025 250,000 5.09 % 250,000 5.09 % Unsecured term loan due 2026 – fixed rate (3) July 17, 2026 150,000 2.73 % 150,000 2.73 % Unsecured term loan due 2029 – fixed rate (4) July 29, 2029 300,000 4.05 % 300,000 4.05 % Total unsecured term loans $ 820,000 $ 820,000 Unsecured credit facility revolving line of credit – variable rate (5) January 8, 2026 $ — 6.29 % $ — 5.56 % (1) $ 120,000 of Secured Overnight Financing Rate (“SOFR”)-based variable rate debt has been swapped to a fixed rate of 1.58 % plus a credit spread based on a ratings grid ranging from 0.80 % to 1.65 % through July 17, 2024. The applicable credit spread was 1.10 % as of June 30, 2023 and December 31, 2022. (2) $ 250,000 of SOFR-based variable rate debt has been swapped to a fixed rate of 5.09 % through October 24, 2025. The maturity date of the term loan may be extended for up to three additional periods of one year each at the Operating Partnership’s option, subject to certain conditions. (3) $ 150,000 of SOFR-based variable rate debt has been swapped to a fixed rate of 1.68 % plus a credit spread based on a ratings grid ranging from 0.75 % to 1.60 % through July 17, 2026. The applicable credit spread was 1.05 % as of June 30, 2023 and December 31, 2022. (4) $ 300,000 of SOFR-based variable rate debt has been swapped to a fixed rate of 2.70 % plus a credit spread based on a ratings grid ranging from 1.15 % to 2.20 % through November 22, 2023. The applicable credit spread was 1.35 % as of June 30, 2023 and December 31, 2022. (5) The revolving line of credit has two six-month extension options that the Company can exercise, at its election, subject to (i) customary representations and warranties, including, but not limited to, the absence of an event of default as defined in the unsecured credit agreement and (ii) payment of an extension fee equal to 0.075 % of the revolving line of credit capacity. 20 Unsecured Revolving Credit Facility In July 2022, the Operating Partnership, as borrower, and the Company entered into the Second Amendment (the “Second Amendment”) to the Sixth Amended and Restated Credit Agreement, dated as of July 8, 2021 (as amended, the “Credit Agreement”) with a syndicate of financial institutions to provide for an unsecured revolving credit facility aggregating $ 1.1 billion (the “Revolving Facility”) and a seven-year $ 300.0 million unsecured term loan (the “$ 300 M Term Loan”). Under the Second Amendment, the Operating Partnership has the option, subject to certain customary conditions, to increase the Revolving Facility and/or incur additional term loans in an aggregate amount for all such increases and additional loans of up to $ 600.0 million, for a total facility amount of up to $ 2.0 billion. The Revolving Facility has a scheduled maturity date of January 8, 2026, which maturity date may be extended for up to two additional periods of six months at the Operating Partnership’s option, subject to certain conditions. Borrowings under the Revolving Facility bear interest at a rate per annum equal to SOFR plus a margin based on the Operating Partnership’s leverage ratio or credit rating, respectively, plus a facility fee based on the Operating Partnership’s leverage ratio or credit rating, respectively. The SOFR rate is also subject to an additional 0.10 % spread adjustment as specified in the Second Amendment. The Revolving Facility is currently priced on the leverage-based pricing grid. In accordance with the Credit Agreement, the credit spread set forth in the leverage grid resets quarterly based on the Company’s leverage, as calculated at the previous quarter end. The Company may irrevocably elect to convert to the ratings-based pricing grid at any time. As of June 30, 2023, making such an election would have resulted in a lower interest rate; however, the Company had not made the election to convert to the ratings-based pricing grid. The Credit Agreement includes a sustainability metric based on targeted greenhouse gas emission reductions, which results in a reduction of the otherwise applicable interest rate margin by one basis point upon achievement of targets set forth therein. The following table summarizes the key terms of the Revolving Facility as of June 30, 2023 (dollars in thousands) : Leverage-Based Pricing Investment Grade Pricing Credit Agreement Maturity Date Extension Option Extension Fee Credit Spread Facility Fee Credit Spread Facility Fee SOFR Adjustment $ 1,100,000 unsecured revolving line of credit 1/8/2026 2 six -month 0.075 % 1.05 %– 1.50 % 0.15 %– 0.30 % 0.725 %– 1.40 % 0.125 %– 0.30 % 0.10 % The Operating Partnership’s ability to borrow under the Credit Agreement is subject to ongoing compliance by the Operating Partnership and its subsidiaries with various restrictive covenants, including with respect to liens, transactions with affiliates, dividends, mergers and asset sales. In addition, the Credit Agreement requires that the Operating Partnership satisfy certain financial covenants, including (i) a maximum leverage ratio; (ii) a minimum fixed charge coverage ratio; (iii) a maximum secured indebtedness ratio; (iv) a maximum unsecured leverage ratio; and (v) a minimum unencumbered interest coverage ratio. As of June 30, 2023, we were in compliance with all such covenants. As of June 30, 2023, we had letters of credit outstanding totaling $ 0.3 million, against which no amounts were advanced as of June 30, 2023. Unsecured Term Loans As of June 30, 2023, the Operating Partnership has the following unsecured term loans: (i) a $ 120.0 million unsecured term loan due July 2024 (the “$ 120 M Term Loan”), (ii) a $ 250.0 million unsecured term loan due October 2025 (the “$ 250 M Term Loan”), (iii) a $ 150.0 million unsecured term loan due July 2026 (the “$ 150 M Term Loan”), and (iv) the $ 300 M Term Loan that matures in July 2029, each of which bears interest at a rate of SOFR plus a credit spread. The $ 120 M Term Loan, $ 150 M Term Loan and $ 300 M Term Loan are each priced on a ratings-based pricing grid while the $ 250 M Term Loan is priced on a leverage-based pricing grid. The agreements related to the $ 150 M Term Loan and $ 300 M Term Loan include a sustainability metric based on targeted greenhouse gas emission reductions, which results in a reduction of the otherwise applicable interest rate margin by one basis point upon achievement of targets set forth in each agreement. 21 The following table summarizes the key terms of the unsecured term loans as of June 30, 2023 (dollars in thousands) : Unsecured Term Loans Maturity Date Leverage-Based Pricing Credit Spread Investment Grade Pricing Credit Spread SOFR Adjustment $ 120,000 unsecured term loan due 2024 7/17/2024 1.20 % – 1.70 % 0.80 % – 1.65 % 0.10 % $ 250,000 unsecured term loan due 2025 10/24/2025 (1) 2.00 % – 2.55 % 2.00 % – 2.50 % 0.10 % $ 150,000 unsecured term loan due 2026 7/17/2026 1.20 % – 1.70 % 0.75 % – 1.60 % 0.10 % $ 300,000 unsecured term loan due 2029 7/29/2029 N/A 1.15 % – 2.20 % 0.10 % (1) The maturity date may be extended for up to three additional periods of one year each at the Operating Partnership’s option, subject to certain conditions. Under the agreement related to the $ 120 M Term Loan and the $ 150 M Term Loan, the Operating Partnership has the option to increase each of the term loans to $ 250.0 million upon the Operating Partnership’s request, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the term loan agreement, to provide such increased amounts. The Operating Partnership is permitted to prepay each of the $ 120 M Term Loan and $ 150 M Term Loan, in whole or in part, at any time without being subject to a prepayment fee. The Operating Partnership has the option to increase the $ 250 M Term Loan to $ 300.0 million, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the term loan agreement, to provide such increased amounts. The Operating Partnership is permitted to prepay the $ 250 M Term Loan in whole or in part, at any time, subject to a prepayment fee if prepaid on or before October 25, 2023. The Operating Partnership is permitted to prepay the $ 300 M Term Loan in whole or in part, at any time, subject to a prepayment fee if prepaid on or before July 29, 2024. The unsecured term loan agreements contain representations, financial and other affirmative and negative covenants and events of default that are substantially similar to those contained in the Credit Agreement. The unsecured term loan agreements all rank pari passu with the Operating Partnership’s Revolving Facility and other unsecured indebtedness of the Operating Partnership. Debt Issuance Costs Debt issuance costs are amortized over the terms of the respective loan agreements. The following amounts of amortization of debt issuance costs are included as a component of “Interest expense” in the accompanying consolidated statements of operations and comprehensive income (in thousands) : Six Months Ended June 30, 2023 2022 Amortization of debt issuance costs $ 1,782 $ 1,370 Fair Value of Fixed and Variable Rate Debt As of June 30, 2023, the estimated fair value of fixed rate debt was $ 1.9 billion compared to the book value of $ 2.1 billion. The fair value was estimated using Level 2 and 3 inputs with cash flows discounted at current borrowing rates for similar instruments, which ranged from 3.75 % to 8.56 %. As of June 30, 2023, the estimated fair value of variable rate debt was $ 850.5 million compared to the book value of $ 847.9 million. The fair value was estimated using Level 2 and 3 inputs with cash flows discounted at current borrowing rates for similar instruments, which ranged from 6.34 % to 7.34 %. NOTE 8. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND OTHER COMPREHENSIVE INCOME In order to manage potential future variable interest rate risk, we enter into interest rate derivative agreements from time to time. We do not use interest rate derivative agreements for trading or speculative purposes. The agreements with each of our derivative counterparties provide that in the event of default on any of our indebtedness, we could also be declared in default on our derivative obligations. 22 The following table summarizes the terms and fair values of the Company’s derivative financial instruments that were designated and qualified as part of a hedging relationship as of June 30, 2023 and December 31, 2022 (dollars in thousands) : Fair Value Assets (Liabilities) (1) Type of Hedge Number of Instruments Aggregate Notional Reference Rate Interest Rate Effective Date Maturity Date June 30, 2023 December 31, 2022 Cash Flow Four $ 250,000 SOFR 2.99 % 12/1/2022 10/24/2025 $ 8,633 $ 7,134 Cash Flow Two 100,000 SOFR 2.66 % 8/1/2022 8/1/2025 3,972 3,616 Cash Flow Two 200,000 SOFR 2.72 % 8/3/2022 11/22/2023 2,021 3,663 Cash Flow Three 120,000 SOFR 1.58 % 8/15/2022 7/17/2024 4,479 5,461 Cash Flow Three 150,000 SOFR 1.68 % 8/15/2022 7/17/2026 11,094 10,896 $ 820,000 $ 30,199 $ 30,770 Fair Value (2) Two $ 155,000 LIBOR LIBOR + 3.70 % 4/23/2021 9/10/2025 $ ( 13,423 ) $ ( 14,177 ) Forward-Starting Cash Flow Two $ 200,000 SOFR 2.37 % 11/22/2023 8/1/2025 $ 6,795 $ 4,370 (1) Derivatives in an asset position are included within “Prepaid and other assets” and derivatives in a liability position are included within “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets. (2) The derivative agreements swap a blended fixed rate of 4.52 % for a blended floating rate of LIBOR plus 3.70 %. In October 2022, we terminated two forward-starting interest rate swaps with notional amounts totaling $ 150.0 million and a maturity date of June 1, 2032 and received $ 30.9 million upon termination. This settlement is included as a component of “Accumulated other comprehensive income” in the accompanying consolidated balance sheets and is being reclassified to earnings over time as the hedged items are recognized in earnings. During the six months ended June 30, 2023, we accelerated the reclassification of $ 1.5 million in accumulated other comprehensive income as a reduction to interest expense as a result of a portion of the hedged forecasted transaction becoming probable not to occur. We currently expect that the debt issuance will occur during 2023. These interest rate derivative agreements are the only assets or liabilities that we record at fair value on a recurring basis. The valuation of these assets and liabilities is determined using widely accepted techniques including discounted cash flow analysis. These techniques consider the contractual terms of the derivatives (including the period to maturity) and use observable market-based inputs such as interest rate curves and implied volatilities. We also incorporate credit valuation adjustments into the fair value measurements to reflect nonperformance risk on both our part and that of the respective counterparties. We determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with our derivatives use Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. As of June 30, 2023 and December 31, 2022, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we determined our derivative valuations were classified within Level 2 of the fair value hierarchy. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to earnings over time as the hedged items are recognized in earnings. Approximately $ 3.5 million and $ 7.7 million was reclassified as an increase to earnings during the three and six months ended June 30, 2023, respectively. Approximately $ 3.3 million and $ 7.4 million was reclassified as a decrease to earnings during the three and six months ended June 30, 2022, respectively. As interest payments on our derivatives are made over the next 12 months, we estimate the decrease to interest expense to be approximately $ 29.9 million, assuming the current SOFR curve. Unrealized gains and losses on our interest rate derivative agreements are the only components of the change in accumulated other comprehensive income. 23 NOTE 9. SHAREHOLDERS’ EQUITY Distributions Our Board of Trustees declared a cash distribution of $ 0.24 per common share and Common Unit for the second quarter of 2023. This distribution was paid on July 14, 2023 to common shareholders and Common Unit holders of record as of July 7, 2023. For the six months ended June 30, 2023, we declared cash distributions totaling $ 0.48 per common share and Common Unit. For the three and six months ended June 30, 2022, we declared cash distributions of $ 0.21 and $ 0.41 , respectively, per common share and Common Unit. At-The-Market Offering Program In February 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”). In November 2021, the Company and the Operating Partnership amended the Equity Distribution Agreement to reflect their filing of a shelf registration statement on November 16, 2021 with the SEC. 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. As of June 30, 2023, the Company has no t sold any common shares under the ATM Program. Share Repurchase Program The Company has an existing share repurchase program under which it may repurchase, from time to time, up to a maximum of $ 300.0 million of its common shares (the “Share Repurchase Program”). The Company intends to fund any future repurchases under the Share Repurchase 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. In February 2023, the Company extended the Share Repurchase Program for an additional year so it will now terminate on February 28, 2024, if not terminated or extended prior to that date. As of June 30, 2023, the Company has no t repurchased any shares under the Share Repurchase Program. NOTE 10. EARNINGS PER SHARE OR UNIT Basic earnings per share or unit is calculated based on the weighted average number of common shares or units outstanding during the period. Diluted earnings per share or unit is calculated based on the weighted average number of common shares or units outstanding during the period combined with the incremental average common shares or units that would have been outstanding assuming the conversion of all potentially dilutive common shares or units into common shares or units as of the earliest date possible. Potentially dilutive securities include (i) outstanding options to acquire common shares; (ii) Limited Partner Units, which may be exchanged for either cash or common shares at the Parent Company’s option and under certain circumstances; (iii) appreciation-only Long-Term Incentive Plan (“AO LTIP”) units; and (iv) deferred common share units, which may be credited to the personal accounts of non-employee trustees in lieu of compensation paid in cash or the issuance of common shares to such trustees. Limited Partner Units have been omitted from the Parent Company’s denominator for the purpose of computing diluted earnings per share since the effect of including those amounts in the denominator would have no dilutive impact. Weighted average Limited Partner Units outstanding were 3.0 million for the three and six months ended June 30, 2023, and 2.8 million and 2.6 million for the three and six months ended June 30, 2022, respectively. Due to the net loss allocable to common shareholders and Common Unit holders for the six months ended June 30, 2022, no securities had a dilutive impact for this period. 24 NOTE 11. COMMITMENTS AND CONTINGENCIES Other Commitments and Contingencies We are obligated under various completion guarantees with certain lenders and lease agreements with tenants to complete all or portions of a development project and tenant-specific space currently under construction. We believe we currently have sufficient financing in place to fund these projects and expect to do so primarily through free cash flow or borrowings on the Revolving Facility. In 2017, we provided a repayment guaranty on a $ 33.8 million construction loan associated with the development of the Embassy Suites at the University of Notre Dame, consistent with our 35 % ownership interest. Our portion of the repayment guaranty is limited to $ 5.9 million and the guaranty’s term is through July 1, 2024, the maturity date of the construction loan. As of June 30, 2023, the outstanding loan balance was $ 33.1 million, of which our share was $ 11.6 million. The loan is secured by the hotel. In 2021, we provided repayment and completion guaranties on loans totaling $ 66.2 million associated with the development of The Corner mixed-use project in the Indianapolis MSA. As of June 30, 2023, the outstanding balance of the loans was $ 44.5 million, of which our share was $ 22.2 million. As of June 30, 2023, we had outstanding letters of credit totaling $ 0.3 million with no amounts advanced against these instruments. Legal Proceedings We are not subject to any material litigation nor, to management’s knowledge, is any material litigation currently threatened against us. We are parties to routine litigation, claims, and administrative proceedings arising in the ordinary course of business. Management believes that such matters will not have a material adverse impact on our consolidated financial condition, results of operations or cash flows taken as a whole. NOTE 12. SUBSEQUENT EVENTS Subsequent to June 30, 2023, we amended the loan agreement on a $ 27.9 million variable rate mortgage payable to extend the maturity date to August 4, 2026, with a one-year extension option. In addition, the interest rate margin increased to 215 basis points. In conjunction with the extension, we made a $ 9.9 million paydown of the principal balance using available cash on hand. On August 7, 2023, a wholly owned subsidiary of the Company (“KRG Development”) assigned to Pan Am Development Partners, LLC (“Assignee”) certain rights and obligations created by a certain project agreement for the development of a hotel on the Pan Am Plaza site across from the Indiana Convention Center in Indianapolis, IN, including certain future development rights and a right of first offer involving the project (collectively, the “Project Rights and Obligations”). Assignee is a wholly owned subsidiary of Circle Block Investors, LLC, the parent company that owns the Conrad Indianapolis hotel, of which Mr. Alvin E. Kite, our Chairman Emeritus and the father of John A. Kite, is the majority owner, and Mr. John A. Kite, our Chief Executive Officer and Chairman of the Board, and Mr. Thomas K. McGowan, our President and Chief Operating Officer, are minority owners. In connection with the transaction, Assignee assumed all Project Rights and Obligations from and after August 7, 2023 and will pay KRG Development an assignment fee of up to $ 3.5 million (the “Assignment Fee”), which is due and payable upon the completion of certain development activities that are expected to occur in 2024. In connection with the transactions, Mr. Kite and Mr. McGowan expressly acknowledged and agreed that they remain subject to their executive employment agreements with the Company, including, without limitation, the obligation of each executive to devote substantially all his business time and effort to the performance of his duties for the Company. Assignee will engage a team of full-time professionals to perform the Project Rights and Obligations. The transaction was approved by a special transaction committee of the independent trustees of the Company (the “Transaction Committee”) as well as the Company’s independent trustees. The Transaction Committee engaged a third-party financial advisor to assist it in determining the net value of the Project Rights and Obligations and establishing the Assignment Fee. 25