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•	enhancing investors' understanding of the Parent Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•	eliminating duplicative disclosure and providing a more streamlined and readable presentation of information because a substantial portion of the Company's disclosure applies to both the Parent Company and the Operating Partnership; and

•	creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.

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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 and operation, acquisition, development and redevelopment of high-quality neighborhood and community shopping centers and other real estate assets in select markets in the United States. The terms "Company," "we," "us," and "our" refer to the Parent Company and the Operating Partnership, collectively, and those entities owned or controlled by the Parent Company and/or the Operating Partnership.

The Operating Partnership was formed on August 16, 2004, when the Parent Company contributed properties and the net proceeds from an initial public offering of shares of its common stock to the Operating Partnership. The Parent Company was organized in Maryland in 2004 to succeed in the development, acquisition, construction and real estate businesses of its predecessor. We believe the Company qualifies as a real estate investment trust (a “REIT”) under provisions of the Internal Revenue Code of 1986, as amended.

The Parent Company is the sole general partner of the Operating Partnership, and as of June 30, 2020 owned approximately 97.4% of the common partnership interests in the Operating Partnership (“General Partner Units”). The remaining 2.6% 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.

At June 30, 2020, we owned interests in 90 operating and redevelopment properties totaling approximately 17.6 million square feet. We also owned two development projects under construction as of this date.

 

We have prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.  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 financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 include all adjustments, consisting of normal recurring adjustments, necessary in the opinion of management to present fairly the financial information set forth therein.  The 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, 2019. 

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.

 

Components of Investment Properties

  

The composition of the Company’s investment properties as of June 30, 2020 and December 31, 2019 was as follows:

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		Balance at
		June 30, 2020				December 31, 2019
Investment properties, at cost:
Land, buildings and improvements		$	3,050,725			$	3,038,412
Furniture, equipment and other		7,932				7,775
Construction in progress		33,425				41,204
		$	3,092,082			$	3,087,391

Components of Rental Income including Allowance for Uncollectible Accounts

The Company recognized the following lease rental income for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Fixed Contractual Lease Payments - Operating Leases	54,574			63,654			109,918			129,193
Variable Lease Payments - Operating Leases	12,437			14,779			25,388			30,640
Bad Debt Reserve	(5,746	)		(695	)		(6,593	)		(1,446	)
Straight-Line Rent Adjustment	387			947			745			1,610
Straight-Line Rent Reserve for Uncollectibility	(881	)		—			(3,757	)		—
Amortization of In-Place Lease Liabilities, net	767			1,110			1,365			2,155
Total	61,538			79,795			127,066			162,152

The Company must make estimates as to the collectibility of its accounts receivable. In making these estimates, the Company reviews a variety of qualitative and quantitative data to make a subjective determination. An allowance for uncollectible accounts, including future credit losses of the accrued straight-line rent receivables, is maintained for estimated losses resulting from the inability of certain tenants to meet contractual obligations under their lease agreements.

Consolidation and Investments in Joint Ventures

 

The accompanying financial statements are presented on a consolidated basis and include all accounts of the Parent Company, the Operating Partnership, the taxable REIT subsidiary 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.  In general, a VIE is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) has equity investors that do not provide sufficient financial resources for the entity to support its activities, (b) does not have equity investors with voting rights or (c) has equity investors whose votes are disproportionate from their economics and substantially all of the activities are conducted on behalf of the investor with disproportionately fewer voting rights.   

The Operating Partnership accounts for properties that are owned by joint ventures in accordance with the consolidation guidance.  The Operating Partnership evaluates each joint venture and determines first whether to follow the VIE or the voting interest entity ("VOE") model. Once the appropriate consolidation model is identified, the Operating Partnership then evaluates whether it should consolidate the joint venture. Under the VIE model, the Operating Partnership consolidates an entity when it has (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the VOE model, the Operating Partnership consolidates an entity when (i) it controls the entity through ownership of a majority voting interest if the entity is not a limited partnership or (ii) it controls the entity through its ability to remove the other partners or owners in the entity, at its discretion, when the entity is a limited partnership.

 

In determining whether to consolidate a VIE with the Operating Partnership, we consider all relationships between the Operating Partnership and the applicable VIE, including development agreements, management agreements and other contractual arrangements, in determining whether we have the power to direct the activities of the VIE that most significantly affect the VIE's performance.  As of June 30, 2020, we owned investments in two joint ventures that were VIEs in which the partners did not have

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substantive participating rights and we were the primary beneficiary.  As of this date, these VIEs had total debt of $55.5 million, which were secured by assets of the VIEs totaling $115.2 million.  The Operating Partnership guarantees the debts 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 in accordance with the VIE model.

Glendale Multifamily Joint Venture

In May 2020, the Company formed a joint venture for the planned development of a multifamily project adjacent to our Glendale Town Center retail property. The Company contributed land to the joint venture valued at $1.6 million and retained a 12% interest in the joint venture. The Company's partner will serve as the operating member responsible for day-to-day management. Both members have substantive participating rights over major decisions that impact the economics and operations of the joint venture. The Company is accounting for the joint venture on the equity method as it has the ability to exercise influence but not control over operating and financial policies.

Income Taxes and REIT Compliance

Parent Company

The Parent Company, which is considered a corporation for federal income tax purposes, has been organized and intends to continue to operate in a manner that will enable it to maintain its qualification as a REIT for federal income tax purposes. As a result, it generally will not be subject to 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 federal corporate income tax on its undistributed REIT taxable income. REITs are subject to a number of organizational and operational requirements. If the Parent Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates for a period of four years following the year in which qualification is lost. We may also be subject to certain federal, state and local taxes on our income and property and to federal income and excise taxes on our undistributed taxable income even if the Parent Company does qualify as a REIT. The Operating Partnership intends to continue to make distributions to the Parent Company in amounts sufficient to assist the Parent Company in adhering to REIT requirements and maintaining its REIT status.

We have elected to treat Kite Realty Holdings, LLC as a taxable REIT subsidiary of the Operating Partnership, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. This election enables us to receive income and provide services that would otherwise be impermissible for a REIT. Deferred tax assets and liabilities are established for temporary differences between the financial reporting bases and the tax bases of assets and liabilities at the tax rates expected to be in effect when the temporary differences reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Operating Partnership

The allocated share of income and loss, other than the operations of our taxable REIT subsidiary, is included in the income tax returns of the Operating Partnership's partners. Accordingly, the only federal income taxes included in the accompanying consolidated financial statements are in connection with the Operating Partnership's taxable REIT subsidiary.

Noncontrolling Interests

We report the non-redeemable noncontrolling interests in subsidiaries as equity, and the amount of consolidated net income attributable to these noncontrolling interests is set forth separately in the consolidated financial statements.  The non-redeemable noncontrolling interests in consolidated properties for the six months ended June 30, 2020 and 2019 were as follows:

	2020				2019
Noncontrolling interests balance January 1	$	698			$	698
Net income allocable to noncontrolling interests,   excluding redeemable noncontrolling interests	—				—
Noncontrolling interests balance at June 30	$	698			$	698

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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. At June 30, 2020, the redemption value of the redeemable noncontrolling interests did not exceed the historical book value, and the balance was accordingly adjusted to historical book value. At December 31, 2019, the redemption value of the redeemable noncontrolling interests exceeded the historical book value, and the balance was accordingly adjusted to redemption value.

  

We allocate net operating results of the Operating Partnership after noncontrolling interests in the consolidated properties based on the partners’ respective weighted average ownership interest.  We adjust the redeemable noncontrolling interests in the Operating Partnership at the end of each reporting period to reflect their interests in the Operating Partnership or redemption value.  This adjustment is reflected in our shareholders’ and Parent Company's equity.  For the three and six months ended June 30, 2020 and 2019, the weighted average interests of the Parent Company and the limited partners in the Operating Partnership were as follows:

 

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Parent Company’s weighted average interest in Operating Partnership	97.4	%		97.6	%		97.4	%		97.6	%
Limited partners' weighted average interests in Operating Partnership	2.6	%		2.4	%		2.6	%		2.4	%

 

At June 30, 2020, the Parent Company's interest and the limited partners' redeemable noncontrolling ownership interests in the Operating Partnership were 97.4% and 2.6%. At December 31, 2019, the Parent Company's interest and the limited partners' redeemable noncontrolling ownership interests in the Operating Partnership were 97.5% and 2.5%.

 

Concurrent with the Parent Company’s initial public offering and related formation transactions, certain individuals received Limited Partner Units of the Operating Partnership in exchange for their interests in certain properties. The limited partners have the right to redeem Limited Partner Units for cash or, at the Parent Company's election, common shares of the Parent Company in an amount equal to the market value of an equivalent number of common shares of the Parent Company at the time of redemption. Such common shares must be registered, which is not fully in the Parent Company’s control. Therefore, the limited partners’ interest is not reflected in permanent equity. The Parent Company also has the right to redeem the Limited Partner Units directly from the limited partner in exchange for either cash in the amount specified above or a number of its common shares equal to the number of Limited Partner Units being redeemed.

 

There were 2,234,991 and 2,110,037 Limited Partner Units outstanding as of June 30, 2020 and December 31, 2019, respectively. The increase in Limited Partner Units outstanding from December 31, 2019 is due to non-cash compensation awards made to our executive officers in the form of Limited Partner Units.

Redeemable Noncontrolling Interests - Subsidiaries

  

Prior to the merger with Inland Diversified Real Estate Trust, Inc. ("Inland Diversified") in 2014, Inland Diversified formed joint ventures with the previous owners of certain properties and issued Class B units in three joint ventures that indirectly own those properties.  The Class B units related to one of these three joint ventures remain outstanding and are accounted for as noncontrolling interests in the remaining venture.  The remaining Class B units will become redeemable at the respective partner's election in October 2022 and the fulfillment of certain redemption criteria.  Beginning in November 2022, the Class B units can be redeemed at the election of either of our partner or us for cash or Limited Partner Units in the Operating Partnership.  The Class B units do not have a maturity date, and none are mandatorily redeemable unless either party has elected for the units to be

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redeemed. We consolidate this joint venture because we control the decision making and our joint venture partner has limited protective rights.

We classify the redeemable noncontrolling interests in certain subsidiaries in the accompanying consolidated balance sheets outside of permanent equity because, under certain circumstances, we may be required to pay cash to Class B unitholders in specific subsidiaries upon redemption of their interests.  The carrying amount of these redeemable noncontrolling interests is required to be reflected at the greater of initial book value or redemption value with a corresponding adjustment to additional paid-in capital. As of June 30, 2020 and December 31, 2019, the redemption amounts of these interests did not exceed their fair value, nor did they exceed the initial book value.  

The redeemable noncontrolling interests in the Operating Partnership and subsidiaries for the six months ended June 30, 2020 and 2019 were as follows:

	2020				2019
Redeemable noncontrolling interests balance January 1	$	52,574			$	45,743
Net income allocable to redeemable noncontrolling interests	188				372
Distributions declared to redeemable noncontrolling interests	(974		)		(1,586		)
Other, net including adjustments to redemption value	(7,159		)		777
Total limited partners' interests in Operating Partnership and other redeemable noncontrolling interests balance at June 30	$	44,629			$	45,306
Limited partners' interests in Operating Partnership	$	34,559			$	53,236
Other redeemable noncontrolling interests in certain subsidiaries	10,070				10,070
Total limited partners' interests in Operating Partnership and other redeemable noncontrolling interests balance at June 30	$	44,629			$	63,306

Fair Value Measurements

  

We follow the framework established under accounting standard FASB ASC 820 for measuring fair value of non-financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis but only in certain circumstances, such as a business combination or upon determination of an impairment.

Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

•	Level 1 fair value inputs are quoted prices in active markets for identical instruments to which we have access.

•	Level 2 fair value inputs are inputs other than quoted prices included in Level 1 that are observable for similar instruments, either directly or indirectly, and appropriately consider counterparty creditworthiness in the valuations.

•	Level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an instrument at the measurement date. The inputs are unobservable in the market and significant to the valuation estimate.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Recently Issued Accounting Pronouncements

  

Adoption of New Standards

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In the first quarter of 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

On January 1, 2020, we adopted ASU 2016-13, "Financial Instruments - Credit Losses," which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modified the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as well as reinsurance and trade receivables. In November 2018, the FASB issued ASU 2018-19, which clarifies that operating lease receivables are outside the scope of the new standard. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In April 2020, the FASB issued a question-and-answer document focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Under Topic 842, Leases, the Company would have to evaluate, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant or if a lease concession was under the enforceable rights and obligations within the existing lease agreement. The FASB clarified that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 is a lease modification. The Company made this election to evaluate COVID-related lease modifications on a disaggregated basis, with such election applied consistently to leases with similar characteristics and similar circumstances.

The Company entered into rent deferral agreements during the three months ended June 30, 2020 that provided for legally due rent to be paid back over a period of time, typically twelve to eighteen months. The Company continues to negotiate with certain tenants and expects to enter into additional rent deferral agreements during the three months ended September 30, 2020. Through August 4, 2020, the Company has deferred the payment by tenants of $6.0 million of contractually due rental income.

The future impact of such modifications is dependent upon the extent of lease concessions granted to tenants as a result of COVID-19 in future periods and the elections made by the Company at the time of entering into such concessions. There was not a material amount of rent abatement provided to tenants as a result of COVID-19 during the second quarter.

  

Basic earnings per share or unit is calculated based on the weighted average number of common shares or units outstanding during the period.  Diluted earnings per share or unit is determined based on the weighted average common number of shares or units outstanding during the period combined with the incremental average common shares or units that would have been outstanding assuming the conversion of all potentially dilutive common shares or units into common shares or units as of the earliest date possible.

  

Potentially dilutive securities include outstanding options to acquire common shares; Limited Partner Units, which may be exchanged for either cash or common shares, at the Parent Company’s option and under certain circumstances; and deferred common share units, which may be credited to the personal accounts of non-employee trustees in lieu of the payment of cash compensation 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 these amounts in the denominator would have no dilutive impact. Weighted average Limited Partner Units outstanding for the three and six months ended June 30, 2020 and 2019 were 2.2 million and 2.1 million, respectively.

  

Mortgage and other indebtedness consisted of the following as of June 30, 2020 and December 31, 2019:

 

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	As of June 30, 2020
	Principal				Unamortized Net Premiums				Unamortized Debt Issuance Costs				Total
Senior unsecured notes—fixed rate	$	550,000			$	—			$	(3,838	)		$	546,162
Unsecured revolving credit facility	200,000				—				(2,165		)		197,835
Unsecured term loan	250,000				—				(1,753		)		248,247
Mortgage notes payable—fixed rate	296,728				1,955				(33		)		298,650
Mortgage note payable—variable rate	55,470				—				(109		)		55,361
Total mortgage and other indebtedness	$	1,352,198			$	1,955			$	(7,898	)		$	1,346,255

 

	As of December 31, 2019
	Principal				Unamortized Net Premiums				Unamortized Debt Issuance Costs				Total
Senior unsecured notes - fixed rate	$	550,000			$	—			$	(4,231	)		$	545,769
Unsecured revolving credit facility	—				—				(2,625		)		(2,625		)
Unsecured term loans	250,000				—				(1,859		)		248,141
Mortgage notes payable - fixed rate	297,472				2,176				(40		)		299,608
Mortgage notes payable - variable rate	55,830				—				(143		)		55,687
Total mortgage and other indebtedness	$	1,153,302			$	2,176			$	(8,898	)		$	1,146,580

Consolidated indebtedness, including weighted average maturities and weighted average interest rates as of June 30, 2020, considering the impact of interest rate swaps, is summarized below:

 

	Outstanding Amount				Ratio			Weighted Average Interest Rate			Weighted Average Maturity (in years)
Fixed Rate Debt 1	$	1,096,729			81	%		4.17	%		5.5
Variable Rate Debt	255,470				19	%		1.41	%		2.2
Net Debt Premiums and Issuance Costs, Net	(5,944		)		N/A			N/A			N/A
Total	$	1,346,255			100	%		3.65	%		4.8

 

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1	Fixed rate debt includes, and variable rate date excludes, the portion of such debt that has been hedged by interest rate derivatives. As of June 30, 2020, $250 million in variable rate debt is hedged for a weighted average of 2.7 years.

Mortgage indebtedness is collateralized by certain real estate properties and leases, and is generally due in monthly installments of interest and principal and matures over various terms through 2030.

  

Variable interest rates on mortgage indebtedness is based on LIBOR plus 160 basis points.  At June 30, 2020, the one-month LIBOR interest rate was 0.16%.  Fixed interest rates on mortgage indebtedness range from 3.78% to 5.73%. 

Debt Issuance Costs

Debt issuance costs are amortized on a straight-line basis over the terms of the respective loan agreements.

The accompanying consolidated statements of operations include amortization of debt issuance costs as a component of interest expense as follows:

  

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		Six Months Ended June 30,
		2020				2019
Amortization of debt issuance costs		$	1,172			$	1,514

 

Unsecured Revolving Credit Facility and Unsecured Term Loans

 

As of June 30, 2020, we had an unsecured revolving credit facility (the "Credit Facility") with a total commitment of $600 million that matures in April 2023 (inclusive of one twelve-month extension option).

The Operating Partnership has the option to increase the borrowing availability of the Credit Facility to $1.2 billion, subject to certain conditions, including obtaining commitments from lenders. 

On October 25, 2018, the Operating Partnership entered into a Term Loan Agreement (the “Agreement”) with KeyBank National Association, as Administrative Agent (the “Agent”), and the other lenders party thereto, providing for an unsecured term loan facility of up to $250 million (the “Term Loan”). The Term Loan ranks pari passu with the Operating Partnership’s existing $600 million unsecured revolving credit facility documented in the Operating Partnership’s Fifth Amended and Restated Credit Agreement, dated as of July 28, 2016, as amended (the “Existing Credit Agreement”), and other unsecured indebtedness of the Operating Partnership. 

The Term Loan has a scheduled maturity date of October 24, 2025, which maturity date may be extended for up to three additional periods of one year at the Operating Partnership’s option subject to certain conditions. 

The Operating Partnership has the option to increase the Term Loan to $300 million, subject to certain conditions, including obtaining commitments from any one or more lenders, whether or not currently party to the Agreement, to provide such increased amounts. The Operating Partnership is permitted to prepay the Term Loan in whole or in part, at any time, subject to a prepayment fee if prepaid on or before October 25, 2023.

In March 2020, we borrowed $300 million on the Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. Proceeds from the Credit Facility borrowings may in the future be used for working capital, general corporate or other purposes permitted under the Credit Facility. In June 2020, we repaid $100 million on the Credit Facility. As of June 30, 2020, there was $200 million outstanding under the Credit Facility.  Additionally, we had letters of credit outstanding which totaled $1.2 million, against which no amounts were advanced as of June 30, 2020.

The amount that we may borrow under our Credit Facility is limited by the value of the assets in our unencumbered asset pool.  As of June 30, 2020, the value of the assets in our unencumbered asset pool, calculated pursuant to the Credit Facility agreement, was $1.4 billion. Considering outstanding borrowings on the line of credit, term loans, unsecured notes and letters of credit, we had $354.2 million available under our Credit Facility for future borrowings as of June 30, 2020.    

Our ability to borrow under the Credit Facility is subject to our compliance with various restrictive and financial covenants, including with respect to liens, indebtedness, investments, dividends, mergers and asset sales.  As of June 30, 2020, we were in compliance with all such covenants.

Senior Unsecured Notes

The Operating Partnership has $550 million of senior unsecured notes maturing at various dates through September 2027 (the "Notes").  The Notes contain a number of customary financial and restrictive covenants. As of June 30, 2020, we were in compliance with all such covenants.

Fair Value of Fixed and Variable Rate Debt

  

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In order to manage potential future variable interest rate risk, we enter into interest rate derivative agreements from time to time.  All such agreements are designated as cash flow hedges. 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.  

As of June 30, 2020, we were party to various cash flow derivative agreements with notional amounts totaling $250.0 million.  These derivative agreements effectively fix the interest rate underlying certain variable rate debt instruments over expiration dates through 2025.  Utilizing a weighted average interest rate spread over LIBOR on all variable rate debt resulted in fixing the weighted average interest rate at 4.20%.

These interest rate derivative agreements are the only assets or liabilities that we record at fair value on a recurring basis.  The valuation of these assets and liabilities is determined using widely accepted techniques including discounted cash flow analysis.  These techniques consider the contractual terms of the derivatives (including the period to maturity) and use observable market-based inputs such as interest rate curves and implied volatilities.  We also incorporate credit valuation adjustments into the fair value measurements to reflect nonperformance risk on both our part and that of the respective counterparties.

 We determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties.  As of June 30, 2020 and December 31, 2019, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.  As a result, we determined our derivative valuations were classified within Level 2 of the fair value hierarchy.

 

As of June 30, 2020, the estimated fair value of our interest rate derivatives represented a net liability of $35.4 million, including accrued interest payable of $0.4 million.  As of June 30, 2020, this was reflected in accounts payable and accrued expenses on the accompanying consolidated balance sheets.  At December 31, 2019, the estimated fair value of our interest rate hedges was a liability of $16.8 million, including accrued interest of $0.1 million.  As of December 31, 2019, this was reflected in accounts payable and accrued expenses on the accompanying consolidated balance sheets.

 

 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 $1.1 million was reclassified as a decrease to earnings during the three months ended June 30, 2020, and $0.3 million was reclassified as an increase to earnings during the three months ended June 30, 2019. As the interest payments on our hedges are made over the next 12 months, we estimate the increase to interest expense to be $5.2 million, assuming the current LIBOR curve. 

 

Distribution Payments

  

Our Board of Trustees declared a cash distribution of $0.052 for the second quarter of 2020 to common shareholders and Common Unit holders of record as of July 2, 2020. The distribution was paid on July 9, 2020.

  

Deferred costs consist primarily of acquired lease intangible assets, broker fees and capitalized 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.  At June 30, 2020 and December 31, 2019, deferred costs consisted of the following:  

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	June 30, 2020				December 31, 2019
Acquired lease intangible assets	$	57,748			$	60,862
Deferred leasing costs and other	59,098				62,109
	116,846				122,971
Less—accumulated amortization	(50,375		)		(49,814		)
Total	$	66,471			$	73,157

 

 Amortization of deferred leasing costs, leasing intangibles and other is included in depreciation and amortization expense in the accompanying consolidated statements of operations. The amortization of above market lease intangibles is included as a reduction to revenue. The amounts of such amortization included in the accompanying consolidated statements of operations are as follows:

	Six Months Ended June 30,
	2020				2019
Amortization of deferred leasing costs, lease intangibles and other	$	7,131			$	7,258
Amortization of above market lease intangibles	483				701

  

Deferred revenue and other liabilities consist of the unamortized fair value of below market lease liabilities recorded in connection with purchase accounting, retainage payables for development and redevelopment projects, and tenant rent payments received in advance of the month in which they are due.  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 2046.  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.

   

At June 30, 2020 and December 31, 2019, deferred revenue, intangibles, net and other liabilities consisted of the following:

 

	June 30, 2020				December 31, 2019
Unamortized in-place lease liabilities	$	48,224			$	50,072
Retainages payable and other	2,716				2,254
Tenant rents received in advance	8,579				10,839
Lease liabilities	26,770				27,015
Total	$	86,289			$	90,180

  

Other Commitments and Contingencies

  

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.

  

We are obligated under various completion guarantees with certain lenders and lease agreements with tenants to complete all or portions of a development 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 borrowings on the Credit Facility.

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In connection with the joint venture that owns the Embassy Suites at Notre Dame, we provided a repayment guaranty on a $33.8 million construction loan, of which our share is $11.8 million (reflecting our 35% ownership interest in the hotel). The guaranty's term is through the July 1, 2024 maturity date of the loan. The outstanding loan balance as of June 30, 2020 is $33.6 million and our share is $11.8 million.  The loan is secured by the hotel.

   

As of June 30, 2020, we had outstanding letters of credit totaling $1.2 million.  At that date, there were no amounts advanced against these instruments.

 

There were no operating properties sold during the six months ended June 30, 2020.

During the three months ended June 30, 2019, we sold eight operating properties for aggregate gross proceeds of $244.0 million and a net gain of $24.1 million.

During the three months ended March 31, 2019, we sold our Whitehall Pike operating property in Bloomington, Indiana for aggregate gross proceeds of $13.5 million and a net gain of $6.6 million.

As of June 30, 2019, in connection with the preparation and review of the financial statements, we evaluated five operating properties for impairment and recorded impairment charges totaling $25.1 million due to changes in facts and circumstances underlying the Company's expected future hold periods of these properties. A shortening of the expected future hold period is considered an impairment indicator under applicable accounting rules, and this indicator caused us to further evaluate the carrying value of the property. We concluded the estimated undiscounted cash flows over the expected holding periods did not exceed the carrying value of each asset, leading to the charges during the quarter. We estimated the fair value of each property, which aggregated $152.9 million, using the market approach by utilizing recent sales offers without adjustment.

As of March 31, 2019, in connection with the preparation and review of the financial statements, we evaluated an operating property for impairment and recorded a $4.1 million impairment charge due to changes in our estimate of the fair value for a property in which we had previously concluded that undiscounted cash flows were insufficient to recover the carrying value. We estimated the fair value of the property to be $10.0 million using the market approach by utilizing a recent sales offer without adjustment. We compared the estimated fair value to the carrying value, which resulted in the recording of a non-cash impairment charge of $4.1 million for the three months ended March 31, 2019. This property was sold in May 2019.

Since first being reported in December 2019, the novel strain of coronavirus (COVID-19) has spread globally, including to every state in the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic, and subsequently, the United States declared a national emergency with respect to COVID-19.

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and how it may impact the Company's tenants and business partners. Certain segments of retailers and the Company experienced significant disruption during the three months ended June 30, 2020, and, going forward, the potential adverse effect of the COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market, global economy, and financial markets, and the extent of such effects, will depend on future developments, which are highly uncertain and cannot be predicted with confidence.  

The following operating trends, combined with macroeconomic trends such as a global economic slowdown or recession, reduced consumer spending and increased unemployment, lead us to believe that our operating results for the rest of 2020 and potentially beyond will continue to be significantly affected by COVID-19:

•	As of June 30, 2020, over 90% of our tenants have reopened. However, many of these retailers are operating in a lower capacity than normal due to COVID-19. Store closures or the inability to return to full capacity, particularly if for an extended period, increase the risk of business failures and lease defaults.

•	As of August 5, 2020, we have collected approximately 80% of rent billings for the three months ended June 30, 2020 and 87% of July rent billings.

•	Many of our tenants have taken on additional debt as a result of COVID-19, including loans administered by the Small Business Administration. To the extent this debt is not forgiven, the increased debt load may hamper their ability to continue to operate and to pay rent, which could cause the Company to realize decreased cash flow and increased vacancies at its properties

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Starting in March and continuing through July 2020, the Company received rent relief requests from a significant proportion of its tenants. Some tenants have asserted various legal arguments that they allege relieve them of the obligation to pay rent during the pandemic; the Company and its legal advisers generally disagree with these legal arguments. The Company has evaluated and will continue to evaluate tenant requests for rent relief based on many factors, including the tenant's financial strength, the tenant's operating history, potential co-tenancy impacts, the tenant's contribution to the shopping center in which it operates, the Company's assessment of the tenant's long-term viability, the difficulty or ease with which the tenant could be replaced, and other factors.

As a result of this evaluation, the Company has agreed to defer rent for approximately 300 of its tenants subject to certain conditions. As of August 4, 2020, the Company had deferred the collection of $6.0 million of rental income. To the extent the Company agrees to defer rent or is otherwise unable to collect rent for certain periods, the Company will realize decreased cash flow, which could significantly decrease the cash available for the Company's operating and capital uses.

 

Courthouse Shadows

On July 30, 2020, the Company sold its Courthouse Shadows redevelopment property for gross proceeds of approximately $14.0 million. As of June 30, 2020, total assets and liabilities for this property were approximately $10.8 million and $0.1 million, respectively.

Credit Facility

On August 4, 2020, the Company repaid $100 million on its Credit Facility. Subsequent to the pay down, there was $100 million outstanding under the Credit Facility.

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•	national and local economic, business, real estate and other market conditions, particularly in connection with low or negative growth in the U.S. economy as well as economic uncertainty;

•	financing risks, including the availability of, and costs associated with, sources of liquidity;

•	our ability to refinance, or extend the maturity dates of, our indebtedness;

•	the level and volatility of interest rates;

•	the financial stability of tenants, including their ability to pay rent and the risk of tenant insolvency and bankruptcy;

•	the competitive environment in which we operate;

•	acquisition, disposition, development and joint venture risks;

•	property ownership and management risks;

•	our ability to maintain our status as a real estate investment trust for federal income tax purposes;

•	potential environmental and other liabilities;

•	impairment in the value of real estate property we own;

•	the actual and perceived impact of e-commerce on the value of shopping center assets;

•	risks related to the geographical concentration of our properties in Florida, Indiana, Texas, Nevada and North Carolina;

•	civil unrest, acts of terrorism or war, acts of God, climate change, epidemics, pandemics (including COVID-19), natural disasters and severe weather conditions such as hurricanes, tropical storms, tornadoes, earthquakes, droughts, floods and fires, that may result in underinsured or uninsured losses;

•	changes in laws and government regulations;

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•	governmental orders affecting the use of our properties or the ability of our tenants to operate;

•	possible short-term or long-term changes in consumer behavior due to COVID-19 and the fear of future pandemics;

•	insurance costs and coverage;

•	risks associated with cybersecurity attacks and the loss of confidential information and other business disruptions;

•	other factors affecting the real estate industry generally; and

•	other risks identified in this Quarterly Report on Form 10-Q and, from time to time, in other reports we file with the Securities and Exchange Commission (the “SEC”) or in other documents that we publicly disseminate, including, in particular, the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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•	As of June 30, 2020, over 90% of our tenants have reopened. However, many of these retailers are operating in a lower capacity than normal due to COVID-19. Store closures or the inability to return to full capacity, particularly if for an extended period, increase the risk of business failures and lease defaults.

•	As of August 5, 2020, we have collected approximately 80% of rent billings for three months ended June 30, 2020, and 87% of July rent billings.

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We have received rent relief requests from many tenants as a result of COVID-19. Some tenants have asserted various legal arguments that they allege relieve them of the obligation to pay rent during the pandemic; the Company and its legal advisers generally disagree with these legal arguments. The Company has evaluated and will continue to evaluate tenant requests for rent relief based on many factors, including the tenant’s financial strength, the tenant’s operating history, potential co-tenancy impacts, the tenant’s contribution to the shopping center in which it operates, the Company’s assessment of the tenant’s long-term viability, the difficulty or ease with which the tenant could be replaced, and other factors. As a result of this evaluation, the Company has agreed to defer rent for many of its tenants, primarily small-shop tenants, subject to certain conditions. To the extent the Company agrees to defer rent or is otherwise unable to collect rent for certain periods, it could significantly decrease the cash available for the Company’s operating and capital uses.

•	Many of our tenants have taken on additional debt as a result of COVID-19, including loans administered by the Small Business Administration. To the extent this debt is not forgiven, the increased debt load may hamper their ability to continue to operate and to pay rent, which could cause the Company to realize decreased cash flow and increased vacancies at its properties

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•	Net proceeds of $254.2 million related to the sale of nine operating properties in 2019, compared to net proceeds over the same period in 2020 of $5.5 million related to the sales of land;

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•	Decrease in capital expenditures of $2.8 million and an increase in construction payables of $1.2 million as we substantially completed multiple anchor retenanting projects over the last twelve months; and

•	In 2019, we acquired the Pan Am Plaza Garage for a use of cash of $29.3 million; while, there was no such activity in 2020.

•	We borrowed $200.0 million, net, on the Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the current uncertainty in the global markets resulting from the COVID-19 pandemic; and

•	We made distributions to common shareholders and Common Unit holders of $28.0 million.

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•	the inability of our tenants to meet their lease obligations to us due to (a) continuing or increased closures of stores at our properties resulting from government or tenant actions related to the pandemic; or (b) local, regional or national economic conditions, including high unemployment and reduced consumer discretionary spending, caused by the pandemic;

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liquidity issues resulting from (i) reduced cash flow from operations due to the pandemic, (ii) the impact that lower operating results could have on the financial covenants in our debt agreements, and (iii) difficulty in our accessing debt and equity capital on attractive terms, or at all, and severe disruptions or instability in the global financial markets or deteriorations in credit and financing conditions;

•	our increased indebtedness and decreased operating revenues, which could increase our risk of default on our loans;

•	an acceleration of changes in consumer behavior in favor of e-commerce over certain of our tenants’ stores due to responses to the pandemic and concerns about contracting COVID-19 or other highly infectious or contagious diseases;

•	business continuity disruptions and a deterioration in the ability of us or our tenants to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants’ efficient operations;

•	issues related to personnel management and remote working, including increased cybersecurity risk and other technology and communication issues and increased costs and other disruptions in the event that our employees become unable to work as a result of health issues related to COVID-19;

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•	the scaling back or delay of a significant amount of planned capital expenditures, including planned redevelopment projects, which could adversely affect the value of our properties;

•	reduction or elimination of quarterly dividends; and

•	continued volatility of our share price.

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