What changed in this filing

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Item 1. Business

2024-02-20 compared with 2023-02-21 · 52 added, 65 removed, 154 unchanged (43% of the section changed)

Unless the context suggests otherwise, references to “we,” “us,” “our” or the “Company” refer to Kite Realty Group Trust and our business and operations conducted through our directly or indirectly owned subsidiaries, including Kite Realty Group, L.P., our operating partnership (the “Operating Partnership”).

Kite Realty Group Trust is a publicly held REIT that, 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 that are primarily grocery-anchored and located in high-growth Sun Belt and select strategic gateway markets in the United States.

Kite Realty Group Trust is a publicly held REIT that, 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 that are primarily grocery-anchored and located in high-growth Sun Belt markets and select strategic gateway markets in the United States.

Following our merger with Retail Properties of America, Inc.

(“RPAI”) in 2021, we became a top-five open-air shopping center REIT based upon market capitalization.

We derive our revenue primarily from the collection of contractual rents and reimbursement payments from tenants under existing lease agreements at each of 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, the real estate market and overall economic conditions.

retail sector, interest rate volatility, stability in the banking sector, job growth, the real estate market, and overall economic conditions.

As of December 31, 2023, we owned interests in 180 operating retail properties totaling approximately 28.1 million square feet and one office property with 0.3 million square feet.

Of the 180 operating retail properties, 10 contain an office component.

We also owned three development projects under construction as of this date.

We also owned two development projects under construction as of this date and an additional two properties with future redevelopment opportunities.

Our retail operating portfolio was 93.9% leased to a diversified retail tenant base, with no single retail tenant accounting for more than 2.7% of our total annualized base rent (“ABR”).

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“Properties” for a list of our top 25 tenants by ABR.

On October 22, 2021, we completed a merger with Retail Properties of America, Inc.

(“RPAI”) in accordance with the Agreement and Plan of Merger dated July 18, 2021 (the “Merger Agreement”), by and among Kite Realty Group Trust, its wholly owned subsidiary KRG Oak, LLC (“Merger Sub”) and RPAI, pursuant to which RPAI merged with and into Merger Sub (the “Merger”) in a stock-for-stock exchange valued at approximately $4.7 billion, including the assumption of approximately $1.8 billion of debt.

We acquired 100 operating retail properties and five development projects through the Merger along with multiple parcels of entitled land for future value creation, creating a top five open-air shopping center REIT.

See Note 3 to the accompanying consolidated financial statements for additional details.

The Merger provided numerous positive benefits to the Company, including:

• Enhancing the portfolio quality by bolstering our presence in existing strategic markets across the Sun Belt along with providing entry into other strategic markets such as Washington, D.C.

• Providing multiple value creation opportunities including lease-up, completion and/or sale of development and redevelopment projects;

• Improving the strength of our balance sheet by reducing leverage and increasing liquidity to over $1.0 billion;

• Further strengthening leasing relationships to provide more optionality to tenants due to the expanded size of the portfolio.

Significant 2023 Activities

Operating Activities

• The Company realized a net loss attributable to common shareholders of $12.6 million for the year ended December 31, 2022;

• The Company generated Funds From Operations (“FFO”), as defined by NAREIT, of $431.2 million and FFO, as adjusted for merger and acquisition costs and the impact of prior period bad debt or the collection of accounts receivable previously written off, of $429.6 million;

• Same Property Net Operating Income (“Same Property NOI”), which includes the results from the properties acquired in the Merger with RPAI, grew by 5.1% in 2022 compared to 2021 primarily due to improved occupancy driven by strong leasing activity throughout the year along with an increase in overage rent from certain tenants;

• In 2022, we executed new and renewal leases on 782 individual spaces representing approximately 4.9 million square feet of retail space, achieving a blended cash leasing spread of 12.6% for comparable leases.

Excluding option renewals, the blended cash spreads for comparable new and non-option renewal leases was 18.1%.

These signings helped grow our retail leased percentage to 94.6% from 93.4% as of December 31, 2021;

• Our operating portfolio ABR per square foot was $20.02 as of December 31, 2022, an increase of $0.66 (or 3.4%) from the end of the prior year.

• The Company realized net income attributable to common shareholders of $47.5 million for the year ended December 31, 2023;

• The Company generated Funds From Operations (“FFO”), as defined by NAREIT, of $453.3 million;

• Same Property Net Operating Income (“Same Property NOI”) grew by 4.8% in 2023 compared to 2022 primarily due to contractual rent growth, higher base rent driven by positive new and renewal leasing spreads, lower bad debt expense, and an increase in overage rent from certain tenants;

• In 2023, we executed new and renewal leases on 740 individual spaces representing approximately 4.9 million square feet of retail space, achieving a blended cash leasing spread of 14.3% on 552 comparable leases.

The blended cash leasing spread for comparable new and non-option renewal leases was 22.7%;

• Our operating retail portfolio ABR per square foot was $20.70 as of December 31, 2023, an increase of $0.68 (or 3.4%) from the end of the prior year.

Financing and Capital Activities

• We increased the capacity on our $850.0 million unsecured revolving credit facility to $1.1 billion (the “2022 Revolving Facility”) in July 2022, which was undrawn as of December 31, 2022;

• We ended the year with approximately $1.2 billion of combined cash and borrowing capacity on our 2022 Revolving Facility;

• We entered into a seven-year $300.0 million unsecured term loan to repay 2022 and 2023 debt maturities, including a $200.0 million unsecured term loan scheduled to mature in November 2023;

• We used the $125.0 million short-term deposit that matured in April 2022 to repay borrowings on our unsecured revolving line of credit;

• We acquired Pebble Marketplace (Las Vegas metropolitan statistical area (“MSA”)), the two-tenant building adjacent to MacArthur Crossing (Dallas/Ft.

Worth MSA), and Palms Plaza (Miami MSA) for a total of $100.1 million;

• We completed major redevelopment construction activities at Eddy Street Commons – Phase III (South Bend, IN MSA), Shoppes at Quarterfield (Baltimore MSA), the residential and commercial portions of the project at One Loudoun Downtown (Washington, D.C.

MSA), and Circle East (Baltimore MSA);

• We received net proceeds of $75.7 million from the sale of Plaza Del Lago (Chicago MSA), a portion of Hamilton Crossing Centre (Indianapolis MSA) and the ground lease interest in Lowe’s at Lincoln Plaza (Worcester, MA MSA);

• We ended the year with full borrowing capacity on our $1.1 billion unsecured revolving credit facility (the “Revolving Facility”);

• We 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;

• We repaid the $95.0 million principal balance of the 4.23% senior unsecured notes due 2023;

• In January 2024, we completed a public offering of $350.0 million aggregate principal amount of 5.50% senior unsecured notes due 2034 (“Notes Due 2034”);

• We acquired Prestonwood Place (Dallas/Ft.

Worth MSA) for a gross purchase price of $81.0 million;

• We completed major development construction activities at The Landing at Tradition – Phase II (Port St.

Lucie, FL MSA) and placed this project in service;

• We received gross proceeds of $142.1 million from the sale of Kingwood Commons (Houston MSA), the undeveloped land and related parking garage at Pan Am Plaza (Indianapolis MSA), Reisterstown Road Plaza (Baltimore MSA), and Eastside (Dallas/Ft.

• We declared cash dividends totaling $0.97 per share during 2023.

We have $284.4 million of debt principal scheduled to mature through December 31, 2023, a debt service coverage ratio of 5.1x and approximately $115.8 million in cash on hand as of December 31, 2022.

We have $269.6 million of debt principal scheduled to mature through December 31, 2024, which we expect will be satisfied with proceeds from the Notes Due 2034, a net debt to EBITDA ratio of 5.1x and approximately $36.4 million in cash on hand as of December 31, 2023.

We have investment grade corporate credit ratings from all three major credit rating agencies.

these ratings were unchanged in 2022.

Impacts on Business from COVID-19

In 2020 and 2021, the COVID-19 pandemic had a significant adverse impact on many of our tenants and on our business.

As the domestic economy recovered from many of the effects of COVID-19, retailers improved 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.

We expect the ongoing effects of COVID-19 to be dictated by, among other things, the severity of the ongoing outbreak of COVID-19, 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, FFO or other operating metrics, which could be material.

Business Objectives and Strategies

Our primary business objectives are to increase the cash flow and value of our properties, achieve sustainable long-term growth and maximize shareholder value primarily through the ownership, operation, acquisition, development and redevelopment of high-quality, open-air shopping centers and mixed-used assets that are primarily grocery-anchored and located in high-growth Sun Belt and select strategic gateway markets.

Our primary business objectives are to (i) increase the cash flow and value of our properties, (ii) achieve sustainable long-term growth, and (iii) maximize shareholder value primarily through the ownership, operation, acquisition, development and redevelopment of high-quality, open-air shopping centers and mixed-used assets that are primarily grocery-anchored and located in high-growth Sun Belt markets and select strategic gateway markets.

We invest in properties with well-located real estate and strong demographics, and we use our leasing and management strategies to improve the long-term value and economic returns of our properties.

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• Operating Strategy :

Maximize the internal growth in revenue from our operating properties by leasing and re-leasing to a strong and diverse group of retail tenants at increasing rental rates, when possible , and redeveloping or renovating certain properties to make them more attractive to existing and prospective tenants and consumers;

Maximize the internal growth in revenue from our operating properties by leasing and re-leasing to a strong and diverse group of retail and mixed-use tenants at increasing rental rates, when possible , and redeveloping or renovating certain properties to make them more attractive to existing and prospective tenants and customers;

• Financing and Capital Preservation Strategy :

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• taking advantage of under-utilized land or existing square footage, reconfiguring properties for more profitable use, and adding ancillary income sources to existing properties.

We successfully executed our operating strategy in 2022 in a number of ways, as best evidenced by our strong growth in Same Property NOI.

Additionally, our leasing process continues to perform at a high level as evidenced by the execution of 782 new and renewal leases representing approximately 4.9 million square feet during the year ended December 31, 2022.

We successfully executed our operating strategy in 2023 in a number of ways, as best evidenced by our strong growth in Same Property NOI of 4.8%.

Additionally, our leasing platform continues to perform at a high level as evidenced by the execution of 740 new and renewal leases representing approximately 4.9 million square feet during the year ended December 31, 2023.

Our leased to occupied spread represents approximately $31.0 million of net operating income (“NOI”), the majority of which is expected to commence in 2024.

We have placed significant emphasis on maintaining a strong and diverse retail tenant mix, which has resulted in no tenant accounting for more than 2.5% of our ABR.

We have placed significant emphasis on maintaining a strong and diverse tenant mix, which has resulted in no tenant accounting for more than 2.7% of our ABR.

“Properties” for a list of our top tenants by gross leasable area (“GLA”) and ABR.

Financing and Capital Strategy.

We finance our acquisition, development, and redevelopment activities using the most advantageous sources of capital available to us at the time.

These sources may include the reinvestment of cash flows generated by operations, the sale of common or preferred shares through public offerings or private placements, the reinvestment of net proceeds from the disposition of assets, the incurrence of additional indebtedness through secured or unsecured borrowings, and entering into real estate joint ventures.

We finance our acquisition, development, redevelopment, leasing and re-leasing activities using the most advantageous sources of capital available to us at the time.

These sources may include (i) the reinvestment of cash flows generated by operations, (ii) the reinvestment of net proceeds from the disposition of assets, (iii) the incurrence of additional indebtedness through secured or unsecured borrowings, (iv) entering into real estate joint ventures, and (v) the sale of common or preferred shares through public offerings or private placements.

Our primary financing and capital strategy is to maintain a strong balance sheet and enhance our flexibility to fund operating and investment activities in the most cost-effective way.

We consider a number of factors when evaluating the amount and type of additional indebtedness we may elect to incur.

Among these factors are the construction costs or purchase price of properties to be developed or acquired, the estimated market value of our properties and the Company as a whole upon consummation of the financing, and the ability to generate durable cash flow to cover expected debt service.

Among these factors are (i) the construction costs or purchase price of properties to be developed or acquired, (ii) the estimated market value of our properties and the Company as a whole upon consummation of the financing, and (iii) the ability to generate durable cash flows to cover expected debt service.

Maintaining a strong balance sheet continues to be one of our top priorities.

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• continually evaluating our operating properties for redevelopment and renovation opportunities that we believe will make them more attractive for leasing to new tenants, right-sizing of anchor spaces while increasing rental rates, and re-leasing spaces to existing tenants at increased rental rates;

• completing our three active development and redevelopment projects at The Landing at Tradition, Carillon and The Corner;

• completing our two active development and redevelopment projects at Carillon medical office building and The Corner – IN;

• evaluating the entitled land holdings to determine the optimal real estate use and capital allocation decisions;

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• the expected returns and related risks associated with the investments relative to our weighted cost of capital to make such investments;

• the current and projected cash flow and market value of the property and the potential to increase cash flow and market value if the property were to be successfully re-leased or redeveloped;

• the current and projected cash flows and market value of the property and the potential to increase cash flows and market value if the property were to be successfully re-leased or redeveloped;

• the price being offered for the property, the current and projected operating performance of the property, the tax consequences of the transaction, and other related factors;

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• the level of success of existing properties in the same or nearby markets.

We successfully executed our growth strategy with the completion of our transformative Merger with RPAI in October 2021 and select strategic acquisitions in 2022.

The Merger created a top five open-air shopping center REIT based upon enterprise value, enhanced our portfolio quality with entry into strategic gateway markets and bolstered our presence in existing markets, lowered our cost of capital, enhanced our near-term organic growth through lease-up and select development opportunities, and strengthened our balance sheet with limited near-term debt maturities.

During 2023, we acquired one asset for a gross purchase price of $81.0 million and generated aggregate gross proceeds of $142.1 million from property dispositions.

commercial real estate market continues to be highly competitive.

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Some of these competitors may have greater capital resources than we do, although we do not believe that any single competitor or group of competitors is dominant in any of the markets in which we own properties.

We face significant competition in our efforts to lease available space to prospective tenants at our operating, development and redevelopment properties.

We face significant competition in our efforts to lease available space to prospective tenants at our properties.

The nature of the competition for tenants varies based on the characteristics of each local market in which we own properties.

We believe that the principal competitive factors in attracting tenants in our market areas are location, demographics, rental rates, the presence of anchor stores, competitor shopping centers in the same geographic area and the maintenance, appearance, access and traffic patterns of our properties.

We believe that the principal competitive factors in attracting tenants in our market areas are location, demographics, rental rates, the presence of anchor tenants, competitor shopping centers in the same geographic area and the maintenance, appearance, access and traffic patterns of our properties.

There can be no assurance that in the future we will be able to compete successfully with our competitors in our development, acquisition and leasing activities.

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Our properties must comply with Title III of the Americans with Disabilities Act (the “ADA”) to the extent that such properties are public accommodations as defined by the ADA.

The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.

We believe our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA.

The ADA may require removal of structural barriers to allow access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.

We believe our existing properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA.

However, noncompliance with the ADA could result in orders requiring us to spend substantial sums to cure violations, pay attorneys’ fees or other amounts.

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In addition, some of our properties have tenants that may use hazardous or toxic substances in the routine course of their businesses.

In general, these tenants have covenanted in their lease agreements with us to use these substances, if any, in compliance with all environmental laws and agreed to indemnify us for any damages we may suffer as a result of their use of such substances.

However, these lease provisions may not fully protect us in the event that a tenant becomes insolvent.

Also, certain of our properties have contained asbestos-containing building materials (“ACBM”), and other properties may have contained such materials based on the date of its construction.

Also, certain of our properties have contained asbestos-containing building materials (“ACBM”) and other properties may have contained such materials based on the date of their construction.

Environmental laws require that ACBM be properly managed and maintained, and fines and penalties may be imposed on building owners or operators for failure to comply with these requirements.

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Neither existing environmental, health, safety and similar laws nor the costs of our compliance with these laws has had a material adverse effect on our financial condition or results operations, and management does not believe that they will in the future.

In addition, we have not incurred, and do not expect to incur, any material costs or liabilities due to environmental contamination at properties we currently own or have owned in the past.

However, we cannot predict the impact of new or changed laws or regulations on properties we currently own or may acquire in the future.

In addition, we have not incurred, and do not expect to incur, any material costs or liabilities due to environmental contamination at properties we currently own or operate or have owned or operated in the past.

However, we cannot predict the impact of new or changed laws or regulations on properties we currently own or operate or may acquire or operate in the future.

With environmental sustainability becoming a national priority, we have continued to demonstrate our strong commitment to be a responsible corporate citizen through resource reduction and employee training that has resulted in reductions of energy consumption, waste and improved maintenance cycles.

We carry comprehensive liability, fire, extended coverage, and rental loss insurance that covers all properties in our portfolio.

We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage, geographic locations of our assets and industry practice.

We have a wholly owned captive insurance company, Birch Property and Casualty, LLC (“Birch”), which insures the first layer of general liability insurance for our properties subject to certain limitations.

Birch was formed as part of our overall risk management program and to stabilize insurance costs, manage exposure, and recoup expenses through the function of the captive program.

We capitalized Birch in accordance with the applicable regulatory requirements.

We also carry comprehensive liability, fire, extended coverage, and rental loss insurance that covers all properties in our portfolio.

We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, cost of the coverage, geographic locations of our assets and industry practice.

Certain risks such as loss from riots, war or acts of God, and, in some cases, flooding are not insurable or the cost to insure over these events is cost prohibitive;

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We align employees’ goals with our overall strategic direction to create a clear link between individual efforts and the long-term success of the Company and provide effective feedback on employees’ performance towards goals to ensure their growth and development.

We utilize the following tools to recognize our employees, advance our talent pool and create a sustainable and long-term enterprise:

(i) performance plans, (ii) talent recognition via our digital employee-to-employee Recognition Wall, (iii) Level Up award that recognizes employees who have made an extraordinary effort to help the Company achieve success, (iv) newly created FOCUSED award that acknowledges employees who have embodied our FOCUSED values (forward-thinking, optimistic, collaborative, urgent, sound, empowered, and dedicated) throughout the year, and (v) individual development planning, along with reward packages.

The Company also provides reimbursement for those seeking to further their education through degree or certification programs.

We use the following tools to recognize our employees, advance our talent pool and create a sustainable and long-term enterprise:

(i) performance plans, (ii) talent recognition via our digital employee-to-employee Recognition Wall, (iii) Level Up award that recognizes employees who have made an extraordinary effort to help the Company achieve success, (iv) FOCUSED award that acknowledges employees who have embodied our FOCUSED values (forward-thinking, optimistic, collaborative, urgent, sound, empowered, and dedicated) throughout the year, and (v) individual development planning, along with reward packages.

The Company also provides reimbursement for those seeking to further their education through degree or certification programs and in 2023, we implemented a learning management system to enhance our employees’ technical and professional development.

Community Development

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We are proud to be an active citizen of the communities in which we operate.

In furtherance of this commitment, we partner with and support local charitable organizations that we believe are contributing to the growth and development of the community and hosted dozens of free community events throughout our portfolio.

In furtherance of this commitment, we partner with and support local charitable organizations that we believe are contributing to the growth and development of the community and host dozens of free community events throughout our portfolio.

Our Kite Cares initiative contributes to the welfare of local youth and those in need.

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In 2020, we formed a cross-functional task force (the “ESG Task Force”) that is comprised of senior leadership and members from a variety of functional areas and is led by our Chief Executive Officer.

The ESG Task Force meets quarterly and focuses on setting, implementing, monitoring and communicating to our investors and other stakeholders our ESG strategy and related initiatives that are important and regularly report to the Board of Trustees.

In October 2022, the ESG Task Force issued the Company’s inaugural Corporate Responsibility Report for 2021, which is published on our website and provides a comprehensive overview of our ESG strategies and initiatives.

In July 2023, the ESG Task Force issued the Company’s annual Corporate Responsibility Report, which is published on our website and provides a comprehensive overview of our ESG strategies and initiatives.

The Company is committed to implementing sustainable business practices at our properties and is actively undertaking multiple projects to make our operations more energy efficient and reduce our environmental impact.

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• installing LED lighting in parking lots (72% of our properties have installed such LED lighting as of December 31, 2023, with a goal of 80% of the portfolio by the end of 2026);

• implementing smart meters and other initiatives aimed at water conservation, recycling and waste diversion (53 properties have implemented water efficiency measures and 129 properties have implemented waste efficiency measures, with a goal of 25% of the portfolio by the end of 2026);

• implementing smart meters and other initiatives aimed at water conservation, recycling and waste diversion (16% of our properties have implemented water efficiency measures, with a goal of 25% of the portfolio by the end of 2026);

• installing electric vehicle (“EV”) charging stations (240 charging stations have been installed across 24 properties for a total of 12% of the portfolio, with a goal of 20% of the portfolio by the end of 2026);

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

What changed 10-K

Item 1. Business