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Merger and Acquisitions
12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
Merger and Acquisitions
Merger and Acquisitions
 
 
The results of operations for all acquired properties during the years ended December 31, 2015, 2014, and 2013, respectively, have been included in continuing operations within our consolidated financial statements since their respective dates of acquisition.


The fair value of the real estate and related assets acquired were primarily determined using the income approach.  The income approach required us to make assumptions about market leasing rates, tenant-related costs, discount rates, and disposal values.  The estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs, as previously defined.  
 
 
Merger and acquisition costs are expensed as incurred and include transaction costs for completed and prospective acquisitions. As part of the Merger with Inland Diversified, we incurred significant costs in 2014 related to investment banking, lender, due diligence, legal, and professional fees.  Merger and acquisition costs for the years ended December 31, 2015, 2014, and 2013 were $1.6 million, $27.5 million and $2.2 million, respectively.
 
 
A preliminary estimation of the fair value of acquired tangible and intangible assets and liabilities was made at the dates of each acquisition.


2015 Acquisitions


In 2015, we acquired four operating properties for total consideration of $185.8 million, including the assumption of an $18.3 million loan, which are summarized below:

Property Name
 
MSA
 
Acquisition Date
 
 
 
 
 
Colleyville Downs
 
Dallas, TX
 
April 2015
Belle Isle Station
 
Oklahoma City, OK
 
May 2015
Livingston Shopping Center
 
New York - Newark
 
July 2015
Chapel Hill Shopping Center
 
Fort Worth, TX
 
August 2015


The following table summarizes the estimation of the fair value of assets acquired and liabilities assumed for the properties acquired in 2015:


($ in thousands)
 
Investment properties, net
$
176,223

Lease-related intangible assets, net
17,436

Other assets
435

Total acquired assets
194,094

 
 

Mortgage and other indebtedness
18,473

Accounts payable and accrued expenses
2,125

Deferred revenue and other liabilities
8,269

Total assumed liabilities
28,867

 
 

Fair value of acquired net assets
$
165,227




The leases at the acquired properties had a weighted average remaining life at acquisition of approximately 9.4 years.


The operating properties acquired in 2015 generated revenues of $8.8 million and a loss from continuing operations of $1.3 million (inclusive of depreciation and amortization expense of $5.8 million) since their respective dates of acquisition.


As of December 31, 2015, we finalized the fair values of the assets and liabilities acquired in 2015. There were no material adjustments to the fair values of acquired assets and assumed liabilities of our 2015 acquisitions during the year ended December 31, 2015.


2014 Merger and Acquisitions
 
 
In 2014, we acquired a total of 61 operating properties.  Upon completion of the Merger with Inland Diversified in July, we acquired 60 operating properties and in December we acquired an operating property in Las Vegas, Nevada.  The total purchase price of the assets acquired in the Merger was $2.1 billion.  As part of the Merger, we assumed $860 million of debt, maturing in various years through March 2023.  In addition, we assumed a $12.4 million mortgage with a fixed interest rate of 5.73%, maturing in June 2030, as part of the Las Vegas acquisition.
 
 
The following is a summary of our 2014 operating property acquisitions.
 
 
Property Name
 
MSA
 
Acquisition Date
 
  Purchase Price
($ in millions)
 
 
 
 
 
 
 
Merger with Inland Diversified
 
Various
 
July 2014
 
$
2,128.6

 
 
 
 
 
 
 
Rampart Commons
 
Las Vegas, NV
 
December 2014
 
32.3


 
 
The ranges of the most significant Level 3 assumptions utilized in determining the value of the real estate and related assets of each building acquired during the Merger are as follows:
 
 
 
 
Low
 
High
Lease-up period (months)
 
6

 
18

Net rental rate per square foot – Anchors (greater than 10,000 square feet)
 
$
5.00

 
$
30.00

Net rental rate per square foot – Small Shops
 
$
11.00

 
$
53.00

Discount rate
 
5.75
%
 
9.25
%

 
 
The following table summarizes the aggregate estimated fair values of the properties acquired in connection with the Merger with Inland Diversified on July 1, 2014:
 
 
($ in thousands)
 
Assets:
 
Investment properties, net
$
2,095,567

Deferred costs, net
143,210

Investments in marketable securities
18,602

Cash and cash equivalents
108,666

Accounts receivable, prepaid expenses, and other
20,157

Total assets
$
2,386,202

 
 

Liabilities:
 

Mortgage and other indebtedness, including debt premium of $33,298
$
892,909

Deferred revenue and other liabilities
129,935

Accounts payable and accrued expenses
59,314

Total Liabilities
1,082,158

 
 

Noncontrolling interests
69,356

Common stock issued
1,234,688

Total estimated fair value of acquired net assets
$
2,386,202




The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 5.8 years.
 
 
The following table summarizes the revenues and expenses of the properties acquired in 2014 subsequent to the respective acquisition dates. These revenues and expenses are included in the consolidated statement of operations for the year ended December 31, 2014:
 
($ in thousands)
Year ended December 31,
 
2014
Revenue
$
92,212

Expenses:
 

Property operating
14,262

Real estate taxes and other
11,254

Depreciation and amortization
43,257

Interest expense
14,845

Total expenses
83,618

Gain on sale and other (1)
2,153

Net income impact from 2014 acquisitions prior to income allocable to noncontrolling interests
10,747

Income allocable to noncontrolling interests
(1,284
)
Impact from 2014 acquisitions on income attributable to Kite Realty Trust
$
9,463


____________________
1
We sold eight properties that were acquired through the Merger in November and December 2014.

 
The following table presents unaudited pro forma financial information for the years ended December 31, 2014 and 2013 as if the Merger and the 2013 and 2014 property acquisitions had been consummated on January 1, 2013.  The pro forma results have been accounted for pursuant to our accounting policies and adjusted to reflect the results of Inland Diversified’s additional depreciation and amortization that would have been recorded assuming the allocation of the purchase price to investment properties, intangible assets and indebtedness had been applied on January 1, 2013.  The pro forma results exclude Merger and acquisition costs and reflect the termination of management agreements with affiliates of Inland Diversified as neither are expected to have a continuing impact on the results of the operations following the Merger and the results also reflect the pay down of certain indebtedness.
 
 
($ in thousands)
 
Twelve Months Ended
December 31,
(unaudited)
 
 
2014
 
2013
Total revenue
 
$
355,716

 
$
357,506

Consolidated net income
 
26,911

 
2,219


 
 
As of June 30, 2015, we finalized the fair values of the assets and liabilities acquired in the Merger. There were no material adjustments made to the fair values of acquired assets and assumed liabilities during 2015, except as described in Note 15.


2013 Acquisition Activities
 
 
In 2013, we acquired thirteen operating properties, which are summarized below:


Property Name
 
MSA
 
Acquisition Date
 
Purchase Price
($ in millions)
 
 
 
 
 
 
 
Shoppes of Eastwood
 
Orlando, FL
 
January 2013
 
$
11.6

Cool Springs Market
 
Nashville, TN
 
April 2013
 
37.6

Castleton Crossing
 
Indianapolis, IN
 
May 2013
 
39.0

Toringdon Market
 
Charlotte, NC
 
August 2013
 
15.9

 
 
 
 
 
 
 
Nine Property Portfolio
 
Various
 
November 2013
 
304.0


 
 
The following table summarizes our final aggregated estimated fair value of amounts recognized for each major class of asset and liability for these acquisitions:
 
 
($ in thousands)
Allocation to opening
balance sheet
Investment properties, net
$
419,080

Lease-related intangible assets
19,537

Other assets
293

Total acquired assets
438,910

 
 

Accounts payable and accrued expenses
2,204

Deferred revenue and other liabilities
29,291

Total assumed liabilities
31,495

 
 

Fair value of acquired net assets
$
407,415


 
 
The leases in the acquired properties had a weighted average remaining life at acquisition of approximately 4.6 years.
 
 
There were no material adjustments to the fair value determination of acquired assets and assumed liabilities for our 2013 acquisitions during the year ended December 31, 2014.