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) March 31, 2024 December 31, 2023 Assets: Investment properties, at cost $ 7,758,372 $ 7,740,061 Less: accumulated depreciation ( 1,452,715 ) ( 1,381,770 ) Net investment properties 6,305,657 6,358,291 Cash and cash equivalents 83,579 36,413 Tenant and other receivables, including accrued straight-line rent of $ 58,492 and $ 55,482 , respectively 118,057 113,290 Restricted cash and escrow deposits 5,385 5,017 Deferred costs, net 285,452 304,171 Short-term deposits 265,000 — Prepaid and other assets 131,765 117,834 Investments in unconsolidated subsidiaries 9,599 9,062 Total assets $ 7,204,494 $ 6,944,078 Liabilities and Equity: Liabilities: Mortgage and other indebtedness, net $ 3,167,513 $ 2,829,202 Accounts payable and accrued expenses 171,574 198,079 Deferred revenue and other liabilities 258,985 272,942 Total liabilities 3,598,072 3,300,223 Commitments and contingencies Limited Partners’ interests in the Operating Partnership 73,713 73,287 Equity: Common shares, $ 0.01 par value, 490,000,000 shares authorized, 219,603,862 and 219,448,429 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 2,196 2,194 Additional paid-in capital 4,887,573 4,886,592 Accumulated other comprehensive income 54,891 52,435 Accumulated deficit ( 1,413,828 ) ( 1,373,083 ) Total shareholders’ equity 3,530,832 3,568,138 Noncontrolling interests 1,877 2,430 Total equity 3,532,709 3,570,568 Total liabilities and equity $ 7,204,494 $ 6,944,078 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 March 31, 2024 2023 Revenue: Rental income $ 205,813 $ 203,063 Other property-related revenue 1,311 1,916 Fee income 315 1,771 Total revenue 207,439 206,750 Expenses: Property operating 28,081 27,314 Real estate taxes 26,534 27,183 General, administrative and other 12,784 13,384 Depreciation and amortization 100,379 108,071 Total expenses 167,778 175,952 Loss on sales of operating properties, net ( 236 ) — Operating income 39,425 30,798 Other (expense) income: Interest expense ( 30,364 ) ( 25,425 ) Income tax (expense) benefit of taxable REIT subsidiaries ( 158 ) 29 Equity in loss of unconsolidated subsidiaries ( 420 ) ( 244 ) Gain on sale of unconsolidated property, net 2,325 — Other income, net 3,628 403 Net income 14,436 5,561 Net income attributable to noncontrolling interests ( 280 ) ( 170 ) Net income attributable to common shareholders $ 14,156 $ 5,391 Net income per common share – basic and diluted $ 0.06 $ 0.02 Weighted average common shares outstanding – basic 219,501,114 219,233,569 Weighted average common shares outstanding – diluted 219,900,306 219,965,061 Net income $ 14,436 $ 5,561 Change in fair value of derivatives 2,542 ( 11,645 ) Total comprehensive income (loss) 16,978 ( 6,084 ) Comprehensive income attributable to noncontrolling interests ( 365 ) ( 82 ) Comprehensive income (loss) attributable to the Company $ 16,613 $ ( 6,166 ) 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, 2023 219,448,429 $ 2,194 $ 4,886,592 $ 52,435 $ ( 1,373,083 ) $ 3,568,138 Stock compensation activity 155,433 2 1,991 — — 1,993 Other comprehensive income — — — 2,456 — 2,456 Distributions to common shareholders — — — — ( 54,901 ) ( 54,901 ) Net income attributable to common shareholders — — — — 14,156 14,156 Adjustment to redeemable noncontrolling interests — — ( 1,010 ) — — ( 1,010 ) Balance at March 31, 2024 219,603,862 $ 2,196 $ 4,887,573 $ 54,891 $ ( 1,413,828 ) $ 3,530,832 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 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) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net income $ 14,436 $ 5,561 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 101,309 108,959 Loss on sales of operating properties, net 236 — Gain on sale of unconsolidated property, net ( 2,325 ) — Straight-line rent ( 3,126 ) ( 3,545 ) Compensation expense for equity awards 2,488 2,571 Amortization of debt fair value adjustments ( 3,243 ) ( 3,348 ) Amortization of in-place lease liabilities ( 2,266 ) ( 2,730 ) Changes in assets and liabilities: Tenant receivables ( 1,369 ) 1,103 Deferred costs and other assets ( 17,045 ) ( 5,196 ) Accounts payable, accrued expenses, deferred revenue and other liabilities ( 35,514 ) ( 39,772 ) Net cash provided by operating activities 53,581 63,603 Cash flows from investing activities: Capital expenditures ( 28,200 ) ( 39,121 ) Net proceeds from sales of land 1,759 — Investment in short-term deposits ( 265,000 ) — Small business loan repayments — 146 Change in construction payables 485 ( 2,552 ) Distribution from unconsolidated joint venture 1,618 13 Net cash used in investing activities ( 289,338 ) ( 41,514 ) Cash flows from financing activities: Proceeds from issuance of common shares, net 22 25 Repurchases of common shares upon the vesting of restricted shares ( 867 ) ( 730 ) Debt and equity issuance costs ( 3,625 ) ( 47 ) Loan proceeds 385,345 162,000 Loan payments ( 41,269 ) ( 199,336 ) Distributions paid – common shareholders ( 54,862 ) ( 52,605 ) Distributions paid – redeemable noncontrolling interests ( 833 ) ( 671 ) Distributions to noncontrolling interests ( 620 ) — Net cash provided by (used in) financing activities 283,291 ( 91,364 ) Net change in cash, cash equivalents and restricted cash 47,534 ( 69,275 ) Cash, cash equivalents and restricted cash, beginning of period 41,430 121,970 Cash, cash equivalents and restricted cash, end of period $ 88,964 $ 52,695 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) March 31, 2024 December 31, 2023 Assets: Investment properties, at cost $ 7,758,372 $ 7,740,061 Less: accumulated depreciation ( 1,452,715 ) ( 1,381,770 ) Net investment properties 6,305,657 6,358,291 Cash and cash equivalents 83,579 36,413 Tenant and other receivables, including accrued straight-line rent of $ 58,492 and $ 55,482 , respectively 118,057 113,290 Restricted cash and escrow deposits 5,385 5,017 Deferred costs, net 285,452 304,171 Short-term deposits 265,000 — Prepaid and other assets 131,765 117,834 Investments in unconsolidated subsidiaries 9,599 9,062 Total assets $ 7,204,494 $ 6,944,078 Liabilities and Equity: Liabilities: Mortgage and other indebtedness, net $ 3,167,513 $ 2,829,202 Accounts payable and accrued expenses 171,574 198,079 Deferred revenue and other liabilities 258,985 272,942 Total liabilities 3,598,072 3,300,223 Commitments and contingencies Limited Partners’ interests in the Operating Partnership 73,713 73,287 Partners’ Equity: Common equity, 219,603,862 and 219,448,429 units issued and outstanding at March 31, 2024 and December 31, 2023, respectively 3,475,941 3,515,703 Accumulated other comprehensive income 54,891 52,435 Total Partners’ equity 3,530,832 3,568,138 Noncontrolling interests 1,877 2,430 Total equity 3,532,709 3,570,568 Total liabilities and equity $ 7,204,494 $ 6,944,078 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 March 31, 2024 2023 Revenue: Rental income $ 205,813 $ 203,063 Other property-related revenue 1,311 1,916 Fee income 315 1,771 Total revenue 207,439 206,750 Expenses: Property operating 28,081 27,314 Real estate taxes 26,534 27,183 General, administrative and other 12,784 13,384 Depreciation and amortization 100,379 108,071 Total expenses 167,778 175,952 Loss on sales of operating properties, net ( 236 ) — Operating income 39,425 30,798 Other (expense) income: Interest expense ( 30,364 ) ( 25,425 ) Income tax (expense) benefit of taxable REIT subsidiaries ( 158 ) 29 Equity in loss of unconsolidated subsidiaries ( 420 ) ( 244 ) Gain on sale of unconsolidated property, net 2,325 — Other income, net 3,628 403 Net income 14,436 5,561 Net income attributable to noncontrolling interests ( 67 ) ( 104 ) Net income attributable to common unitholders $ 14,369 $ 5,457 Allocation of net income: Limited Partners $ 213 $ 66 Parent Company 14,156 5,391 $ 14,369 $ 5,457 Net income per common unit – basic and diluted $ 0.06 $ 0.02 Weighted average common units outstanding – basic 223,109,983 222,186,023 Weighted average common units outstanding – diluted 223,509,175 222,917,515 Net income $ 14,436 $ 5,561 Change in fair value of derivatives 2,542 ( 11,645 ) Total comprehensive income (loss) 16,978 ( 6,084 ) Comprehensive income attributable to noncontrolling interests ( 67 ) ( 104 ) Comprehensive income (loss) attributable to common unitholders $ 16,911 $ ( 6,188 ) 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, 2023 $ 3,515,703 $ 52,435 $ 3,568,138 Stock compensation activity 1,993 — 1,993 Other comprehensive income attributable to Parent Company — 2,456 2,456 Distributions to Parent Company ( 54,901 ) — ( 54,901 ) Net income attributable to Parent Company 14,156 — 14,156 Adjustment to redeemable noncontrolling interests ( 1,010 ) — ( 1,010 ) Balance at March 31, 2024 $ 3,475,941 $ 54,891 $ 3,530,832 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 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) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net income $ 14,436 $ 5,561 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 101,309 108,959 Loss on sales of operating properties, net 236 — Gain on sale of unconsolidated property, net ( 2,325 ) — Straight-line rent ( 3,126 ) ( 3,545 ) Compensation expense for equity awards 2,488 2,571 Amortization of debt fair value adjustments ( 3,243 ) ( 3,348 ) Amortization of in-place lease liabilities ( 2,266 ) ( 2,730 ) Changes in assets and liabilities: Tenant receivables ( 1,369 ) 1,103 Deferred costs and other assets ( 17,045 ) ( 5,196 ) Accounts payable, accrued expenses, deferred revenue and other liabilities ( 35,514 ) ( 39,772 ) Net cash provided by operating activities 53,581 63,603 Cash flows from investing activities: Capital expenditures ( 28,200 ) ( 39,121 ) Net proceeds from sales of land 1,759 — Investment in short-term deposits ( 265,000 ) — Small business loan repayments — 146 Change in construction payables 485 ( 2,552 ) Distribution from unconsolidated joint venture 1,618 13 Net cash used in investing activities ( 289,338 ) ( 41,514 ) Cash flows from financing activities: Contributions from the General Partner 22 25 Repurchases of common shares upon the vesting of restricted shares ( 867 ) ( 730 ) Debt and equity issuance costs ( 3,625 ) ( 47 ) Loan proceeds 385,345 162,000 Loan payments ( 41,269 ) ( 199,336 ) Distributions paid – common unitholders ( 54,862 ) ( 52,605 ) Distributions paid – redeemable noncontrolling interests ( 833 ) ( 671 ) Distributions to noncontrolling interests ( 620 ) — Net cash provided by (used in) financing activities 283,291 ( 91,364 ) Net change in cash, cash equivalents and restricted cash 47,534 ( 69,275 ) Cash, cash equivalents and restricted cash, beginning of period 41,430 121,970 Cash, cash equivalents and restricted cash, end of period $ 88,964 $ 52,695 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 March 31, 2024 (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 that are primarily grocery-anchored and located in high-growth Sun Belt markets and select strategic gateway 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 (“IPO”) 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 sections 856-860 of the Internal Revenue Code of 1986, as amended. The Parent Company is the sole general partner of the Operating Partnership and, as of March 31, 2024, owned approximately 98.3 % of the common partnership interests in the Operating Partnership (“General Partner Units”). The remaining 1.7 % 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 March 31, 2024 and for the three months ended March 31, 2024 and 2023 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, 2023. 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 March 31, 2024, the Company’s portfolio consisted of the following: Properties Square Footage Operating retail properties (1) 180 28,096,542 Office properties 1 287,291 Development and redevelopment projects: Carillon medical office building 1 126,000 The Corner – IN (2) 1 24,000 Hamilton Crossing Centre 1 92,283 Edwards Multiplex – Ontario 1 124,614 (1) Included within operating retail properties are 10 properties that contain an office component. Of the 180 operating retail properties, 177 are consolidated within these financial statements and the remaining three are accounted for under the equity method. (2) This property is held in an unconsolidated joint venture in which the Company has a 50 % ownership interest. 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 March 31, 2024 and December 31, 2023 (in thousands) : Balance as of March 31, 2024 December 31, 2023 Land, buildings and improvements $ 7,696,890 $ 7,684,066 Construction in progress 61,482 55,995 Investment properties, at cost $ 7,758,372 $ 7,740,061 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 months ended March 31, 2024 and 2023 (in thousands) : Three Months Ended March 31, 2024 2023 Fixed contractual lease payments – operating leases $ 160,540 $ 158,590 Variable lease payments – operating leases 40,470 39,754 Bad debt reserve ( 589 ) ( 1,555 ) Straight-line rent adjustments 3,363 3,858 Straight-line rent reserve for uncollectibility ( 237 ) ( 314 ) Amortization of in-place lease liabilities, net 2,266 2,730 Rental income $ 205,813 $ 203,063 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 factors 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. Short-Term Deposits As of March 31, 2024, the Company has $ 265.0 million in short-term deposits invested at Goldman Sachs Bank USA and KeyBank National Association, which will be used to satisfy all 2024 debt maturities. The deposit balance approximates fair value and earns interest at a weighted average rate of 5.34 % with a final maturity date of July 22, 2024. During the three months ended March 31, 2024, the Company earned $ 2.9 million of interest income on the deposits, which is recorded within “Other income, net” in the accompanying consolidated statements of operations and comprehensive income. 13 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 March 31, 2024, 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 March 31, 2024, these consolidated VIEs had mortgage debt totaling $ 111.5 million, which was secured by assets of the VIEs totaling $ 218.1 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. As of March 31, 2024, the Company also owned investments in four unconsolidated joint ventures accounted for under the equity method, which are not considered VIEs. On January 31, 2024, the joint venture that owned Glendale Center Apartments, of which we have an 11.5 % ownership interest, sold the 267 -unit property to a third party, resulting in a gain on sale of $ 20.2 million. The Company recognized its share of the gain on sale of unconsolidated property of $ 2.3 million during the three months ended March 31, 2024. In addition, the Company received a $ 1.6 million distribution upon the disposition of the property. The Company maintains an investment in the joint venture, which is in the process of winding up its activities and distributing remaining net assets. Glendale Center Apartments is adjacent to our Glendale Town Center operating retail property in the Indianapolis MSA. Income Taxes and REIT Compliance Parent Company The Parent Company 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 income tax on its undistributed REIT taxable income at regular corporate income tax rates. 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 income tax 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 and IWR Protective Corporation as TRSs with respect to the REIT, 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. 14 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 accompanying consolidated financial statements. The following table summarizes the non-redeemable noncontrolling interests in consolidated properties for the three months ended March 31, 2024 and 2023 (in thousands) : Three Months Ended March 31, 2024 2023 Noncontrolling interests balance as of January 1, $ 2,430 $ 5,370 Net income allocable to noncontrolling interests, excluding redeemable noncontrolling interests 67 104 Distributions to noncontrolling interests ( 620 ) — Noncontrolling interests balance as of March 31, $ 1,877 $ 5,474 Noncontrolling Interests – Joint Venture Prior to the October 2021 merger with Retail Properties of America, Inc. (“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. 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 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. As of March 31, 2024, these conditions for exercising the put and call options have been met but neither the Company nor the joint venture partner has exercised their respective options. 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 March 31, 2024 and December 31, 2023, 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 months ended March 31, 2024 and 2023, the weighted average interests of the Parent Company and the limited partners in the Operating Partnership were as follows: Three Months Ended March 31, 2024 2023 Parent Company’s weighted average interest in the Operating Partnership 98.4 % 98.7 % Limited partners’ weighted average interests in the Operating Partnership 1.6 % 1.3 % As of March 31, 2024, the Parent Company’s interest and the limited partners’ redeemable noncontrolling ownership interests in the Operating Partnership were 98.3 % and 1.7 %. As of December 31, 2023, the Parent Company’s interest and the limited partners’ redeemable noncontrolling ownership interests in the Operating Partnership were 98.4 % and 1.6 %. 15 Concurrent with the Parent Company’s IPO 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 within 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 3,707,004 and 3,512,868 Limited Partner Units outstanding as of March 31, 2024 and December 31, 2023, respectively. The increase in Limited Partner Units outstanding from December 31, 2023 is due to non-cash compensation awards granted to our executive officers in the form of Limited Partner Units. The redeemable noncontrolling interests in the Operating Partnership for the three months ended March 31, 2024 and 2023 were as follows (in thousands) : Three Months Ended March 31, 2024 2023 Redeemable noncontrolling interests balance as of January 1, $ 73,287 $ 53,967 Net income allocable to redeemable noncontrolling interests 213 65 Distributions declared to redeemable noncontrolling interests ( 882 ) ( 728 ) Other, net including adjustments to redemption value 1,095 3,750 Total limited partners’ interests in the Operating Partnership balance as of March 31, $ 73,713 $ 57,054 Fair Value Measurements We follow the framework established under Financial Accounting Standards Board Accounting Standards Codification (“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 in the accompanying 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 upon 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 In March 2024, the SEC issued a final rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This final rule is effective for the Company for the fiscal year beginning in 2025 and requires companies to annually disclose, among other things, (i) climate-related risks that have had or are reasonably likely to have a material impact on the Company, including on its strategy, results of operations, or financial condition, (ii) activities to mitigate or adapt to such risks, including a quantitative and qualitative description of material expenditures incurred and impacts on estimates and assumptions, (iii) information about oversight by a company’s board of directors of climate-related risks and management’s role in managing material climate-related risks; and (iv) information on any climate-related targets or goals that are material to the company’s business, results of operations, or financial condition. In addition, the final rule requires (i) disclosure of Scope 1 and/or Scope 2 greenhouse gas (“GHG”) emissions on a phased-in basis when those emissions are material, (ii) the filing of an attestation 16 report covering the disclosure of the Scope 1 and/or Scope 2 emissions on a phased-in basis, and (iii) disclosure of the financial statement effects of severe weather events and other natural conditions. In April 2024, the SEC announced a stay of these climate disclosure rules pending judicial review. The Company will continue to evaluate the impact of this final rule until it becomes effective. NOTE 3. 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 March 31, 2024 and December 31, 2023, deferred costs consisted of the following (in thousands) : March 31, 2024 December 31, 2023 Acquired lease intangible assets $ 405,513 $ 433,771 Deferred leasing costs and other 78,858 74,662 484,371 508,433 Less: accumulated amortization ( 198,919 ) ( 204,262 ) Deferred costs, net $ 285,452 $ 304,171 The 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) : Three Months Ended March 31, 2024 2023 Amortization of deferred leasing costs, lease intangibles and other $ 21,278 $ 28,481 Amortization of above-market lease intangibles $ 2,704 $ 3,183 NOTE 4. 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 March 31, 2024 and December 31, 2023, deferred revenue, intangibles, net and other liabilities consisted of the following (in thousands) : March 31, 2024 December 31, 2023 Unamortized in-place lease liabilities $ 154,478 $ 159,449 Retainages payable and other 9,908 9,229 Tenant rents received in advance 26,115 35,339 Lease liabilities 68,484 68,925 Deferred revenue and other liabilities $ 258,985 $ 272,942 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 $ 5.0 million and $ 5.9 million for the three months ended March 31, 2024 and 2023, respectively. 17 NOTE 5. MORTGAGE AND OTHER INDEBTEDNESS The following table summarizes the Company’s indebtedness as of March 31, 2024 and December 31, 2023 (in thousands) : March 31, 2024 December 31, 2023 Mortgages payable $ 152,038 $ 153,306 Senior unsecured notes 2,179,635 1,829,635 Unsecured term loans 820,000 820,000 Unsecured revolving line of credit — — 3,151,673 2,802,941 Unamortized discounts and premiums, net 28,067 35,765 Unamortized debt issuance costs, net ( 12,227 ) ( 9,504 ) Total mortgage and other indebtedness, net $ 3,167,513 $ 2,829,202 Consolidated indebtedness, including weighted average interest rates and weighted average maturities as of March 31, 2024, 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) $ 2,980,273 95 % 4.05 % 4.2 Variable rate debt (2) 171,400 5 % 9.09 % 2.4 Debt discounts, premiums and issuance costs, net 15,840 N/A N/A N/A Mortgage and other indebtedness, net $ 3,167,513 100 % 4.33 % 4.1 (1) Fixed rate debt includes the portion of variable rate debt that has been hedged by interest rate swaps. As of March 31, 2024, $ 820.0 million in variable rate debt is hedged to a fixed rate for a weighted average of 1.4 years. (2) Variable rate debt includes the portion of fixed rate debt that has been hedged by interest rate swaps. As of March 31, 2024, $ 155.0 million in fixed rate debt is hedged to a floating rate for a weighted average of 1.4 years. Mortgages Payable The following table summarizes the Company’s mortgages payable (dollars in thousands) : March 31, 2024 December 31, 2023 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) $ 135,638 5.09 % 7.8 $ 136,306 5.09 % 8.1 Variable rate mortgage payable (2) 16,400 7.50 % 2.3 17,000 7.59 % 2.6 Total mortgages payable $ 152,038 $ 153,306 (1) The fixed rate mortgages had interest rates ranging from 3.75 % to 5.73 % as of March 31, 2024 and December 31, 2023. (2) The interest rate on the variable rate mortgage is based on Bloomberg Short Term Bank Yield Index (“BSBY”) plus 215 basis points. The one-month BSBY rate was 5.35 % and 5.44 % as of March 31, 2024 and December 31, 2023, respectively. Mortgages payable, which 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 2033. During the three months ended March 31, 2024, we made scheduled principal payments of $ 1.3 million related to amortizing loans. 18 Unsecured Notes The following table summarizes the Company’s senior unsecured notes and exchangeable senior notes (dollars in thousands) : March 31, 2024 December 31, 2023 Maturity Date Balance Interest Rate Balance Interest Rate 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 – SOFR + 3.65 % due 2025 (1) September 10, 2025 80,000 9.21 % 80,000 9.27 % 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 – SOFR + 3.75 % due 2027 (2) September 10, 2027 75,000 9.31 % 75,000 9.37 % 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 % Senior notes – 5.50 % due 2034 (3) March 1, 2034 350,000 4.60 % — — % Total senior unsecured notes $ 2,179,635 $ 1,829,635 (1) $ 80,000 of 4.47 % senior unsecured notes due 2025 has been swapped to a variable rate of three-month Secured Overnight Financing Rate (“SOFR”) plus 3.65 % through September 10, 2025. (2) $ 75,000 of 4.57 % senior unsecured notes due 2027 has been swapped to a variable rate of three-month SOFR plus 3.75 % through September 10, 2025. (3) The coupon rate of the Notes Due 2034 (defined below) is 5.50 %; however, due to hedging activities, the Company’s interest rate is 4.60 %. During the three months ended March 31, 2024, the Company completed a public offering of $ 350.0 million in aggregate principal amount of 5.50 % senior unsecured notes due 2034 (“Notes Due 2034”). The Notes Due 2034 were priced at 98.670 % of the principal amount to yield 5.673 % to maturity and will mature on March 1, 2034, unless earlier redeemed. The proceeds will be used to satisfy the $ 269.6 million of debt maturities due in 2024 and for general corporate purposes. 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) : March 31, 2024 December 31, 2023 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 3.82 % 300,000 3.82 % Total unsecured term loans $ 820,000 $ 820,000 Unsecured credit facility revolving line of credit – variable rate (5) January 8, 2026 $ — 6.49 % $ — 6.58 % (1) $ 120,000 of 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 March 31, 2024 and December 31, 2023. (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 March 31, 2024 and December 31, 2023. 19 (4) $ 300,000 of SOFR-based variable rate debt has been swapped to a fixed rate of 2.47 % plus a credit spread based on a ratings grid ranging from 1.15 % to 2.20 % through August 1, 2025. The applicable credit spread was 1.35 % as of March 31, 2024 and December 31, 2023. (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. 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 March 31, 2024, 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 March 31, 2024 (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 March 31, 2024, we were in compliance with all such covenants. Unsecured Term Loans As of March 31, 2024, 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. 20 The following table summarizes the key terms of the unsecured term loans as of March 31, 2024 (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) : Three Months Ended March 31, 2024 2023 Amortization of debt issuance costs $ 929 $ 888 Debt Discounts and Premiums Debt discounts and premiums, including the related value of interest rate swaps that were assumed in the October 2021 merger with RPAI, are amortized over the terms of the respective loan agreements. The following amounts of amortization are included as a component of “Interest expense” in the accompanying consolidated statements of operations and comprehensive income (in thousands) : Three Months Ended March 31, 2024 2023 Amortization of debt discounts, premiums and hedge instruments $ 3,756 $ 5,003 21 In addition, the estimated amounts of reduction to interest expense as of March 31, 2024 for each of the next five years and thereafter related to the amortization of debt discounts, premiums and assumed hedge instruments, assuming these instruments are held to maturity, are as follows (in thousands) : April 2024 through December 2024 $ 9,955 2025 7,807 2026 6,152 2027 5,235 2028 5,225 Thereafter 5,411 Total unamortized debt discounts, premiums and hedge instruments $ 39,785 The following table reconciles total unamortized debt discounts, premiums and hedge instruments as of March 31, 2024 to the balance of unamortized discounts and premiums, net (in thousands) : Unamortized discounts and premiums on mortgages payable, senior unsecured notes and unsecured term loans $ 37,274 Unamortized hedge instruments 2,511 Total unamortized debt discounts, premiums and hedge instruments 39,785 Unamortized hedge instruments (included in accumulated other comprehensive income) ( 2,511 ) Fair value of variable interest rate swaps ( 9,207 ) Unamortized discounts and premiums, net $ 28,067 Fair Value of Fixed and Variable Rate Debt As of March 31, 2024, the estimated fair value of fixed rate debt was $ 2.2 billion compared to the book value of $ 2.3 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 5.75 % to 7.11 %. As of March 31, 2024, the estimated fair value of variable rate debt was $ 839.9 million compared to the book value of $ 836.4 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 6.48 % to 7.33 %. NOTE 6. 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. 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 March 31, 2024 and December 31, 2023 (dollars in thousands) : Fair Value Assets (Liabilities) (1) Type of Hedge Number of Instruments Aggregate Notional Reference Rate Interest Rate Effective Date Maturity Date March 31, 2024 December 31, 2023 Cash Flow Four $ 250,000 SOFR 2.99 % 12/1/2022 10/24/2025 $ 6,287 $ 4,952 Cash Flow Two 100,000 SOFR 2.66 % 8/1/2022 8/1/2025 2,707 2,415 Cash Flow Two 200,000 SOFR 2.37 % 11/22/2023 8/1/2025 6,165 5,716 Cash Flow Three 120,000 SOFR 1.58 % 8/15/2022 7/17/2024 1,301 2,236 Cash Flow Three 150,000 SOFR 1.68 % 8/15/2022 7/17/2026 8,815 7,744 $ 820,000 $ 25,275 $ 23,063 Fair Value (2) Two $ 155,000 SOFR SOFR + 3.70 % 4/23/2021 9/10/2025 $ ( 9,207 ) $ ( 9,408 ) Forward-Starting Cash Flow (3) Three $ 150,000 SOFR 3.44 % 6/28/2024 6/28/2034 $ — $ ( 700 ) (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. 22 (2) The derivative agreements swap a blended fixed rate of 4.52 % for a blended floating rate of three-month SOFR plus 3.70 %. (3) The forward-starting interest rate swaps were terminated in conjunction with the issuance of the Notes Due 2034. In December 2023, we entered into three forward-starting interest rate swap agreements with notional amounts totaling $ 150.0 million that swap a floating rate of compound SOFR for a fixed rate of 3.44 % with an effective date of June 28, 2024 and a maturity date of June 28, 2034. These interest rate swaps fixed the interest rate on a portion of the Notes Due 2034, which were issued in January 2024, and were subsequently terminated upon issuance of the Notes Due 2034. We received $ 0.7 million upon termination, which is included as a component of “Accumulated other comprehensive income” in the accompanying consolidated balance sheets and is being reclassified as a reduction to interest expense over the term of the debt. 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 year ended December 31, 2023, we accelerated the reclassification of $ 3.1 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. In January 2024, we completed a public offering of the Notes Due 2034. The remaining balance in accumulated other comprehensive income is being reclassified as a reduction to interest expense over the term of the debt. 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 have 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 March 31, 2024 and December 31, 2023, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we have determined that 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 $ 4.9 million and $ 4.2 million was reclassified as a reduction to interest expense during the three months ended March 31, 2024 and 2023, respectively. As interest payments on our derivatives are made over the next 12 months, we estimate the decrease to interest expense to be approximately $ 22.5 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. NOTE 7. SHAREHOLDERS’ EQUITY Distributions Our Board of Trustees declared a cash distribution of $ 0.25 per common share and Common Unit for the first quarter of 2024. This distribution was paid on April 12, 2024 to common shareholders and common unitholders of record as of April 5, 2024. For the three months ended March 31, 2023, we declared a cash distribution of $ 0.24 per common share and Common Unit. 23 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 March 31, 2024, 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 2024, the Company extended the Share Repurchase Program for an additional year to February 28, 2025, if not terminated or extended prior to that date. As of March 31, 2024, the Company has no t repurchased any shares under the Share Repurchase Program. NOTE 8. EARNINGS PER SHARE OR UNIT Basic earnings per share or unit is calculated based on the weighted average number of common shares/units outstanding during the period. Diluted earnings per share/unit is calculated based on the weighted average number of common shares/units outstanding during the period combined with the incremental average common shares/units that would have been outstanding assuming the conversion of all potentially dilutive common shares/units into common shares/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) 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 3.6 million and 3.0 million for the three months ended March 31, 2024 and 2023, respectively. NOTE 9. 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 March 31, 2024, the outstanding loan balance was $ 32.5 million, of which our share was $ 11.4 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 March 31, 2024, the outstanding balance of the loans was $ 65.6 million, of which our share was $ 32.8 million. 24 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 10. SUBSEQUENT EVENTS In connection with the preparation of our financial statements, we have evaluated events and transactions that occurred subsequent to March 31, 2024 for recognition and/or disclosure purposes. Based on this evaluation, there were no subsequent events from March 31, 2024 through the date the financial statements were issued. 25