EXHIBIT 99.1

Kite Realty Group, L.P. and subsidiaries
Index to Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Trustees of Kite Realty Group Trust

and the Partners of Kite Realty Group, L.P.

We have audited the accompanying consolidated balance sheets of Kite Realty Group, L.P. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive (loss) income, partners’ equity and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kite Realty Group L.P. and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Partnership changed its method for reporting discontinued operations as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, effective January 1, 2014.

/s/ Ernst & Young LLP

Indianapolis, Indiana

March 10, 2015

Kite Realty Group, L.P. and subsidiaries
Consolidated Balance Sheets

(in thousands, except unit data)

The accompanying notes are an integral part of these consolidated financial statements.

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Kite Realty Group, L.P. and subsidiaries
Consolidated Statements of Operations and Comprehensive (Loss) Income

(in thousands, except unit and per unit data)

The accompanying notes are an integral part of these consolidated financial statements.

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Kite Realty Group, L.P. and subsidiaries
Consolidated Statements of Partners’ Equity

(in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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Kite Realty Group, L.P. and subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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Kite Realty Group, L.P. and subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014

(in thousands, except unit and share and per unit and per share data)

Note 1. Organization

Kite Realty Group, L.P. (the “Partnership”) was formed on August 16, 2004, when Kite Realty Group Trust (the “General Partner”) contributed properties and the net proceeds from an initial public offering of shares of its common stock to the Partnership.  The General Partner was organized in Maryland in 2004 to succeed the development, acquisition, construction and real estate businesses of its predecessor.  We believe the General Partner qualifies as a real estate investment trust (a “REIT”) under provisions of the Internal Revenue Code of 1986, as amended. In this discussion, unless the context suggests otherwise, references to “we,” “us,” “our” and the “Partnership” refer to Kite Realty Group, L.P.

The Partnership is engaged in the ownership, operation, acquisition, development and redevelopment of neighborhood and community shopping centers in select markets in the United States.  The General Partner is the sole general partner of the Partnership, and as of December 31, 2014 owned approximately 98.1% of the common partnership interests in the Partnership (“General Partner Units”). The remaining 1.9% of the common partnership interests (“Limited Partner Units” and, together with the General Partner Units, the “Common Units”) are owned by the limited partners.  All of the General Partner’s property ownership, development and related business operations are conducted through the Partnership and the General Partner has no material assets or liabilities other than its investment in the Partnership. The General Partner issues public equity from time to time but does not have any indebtedness as all debt is incurred by the Partnership. In addition, the General Partner currently does not nor does it intend to guarantee any debt of the Partnership. The Partnership holds substantially all of the assets of the General Partner, including the General Partner’s ownership interests in its joint ventures. The Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.

On July 1, 2014, the General Partner and KRG Magellan, LLC, a Maryland limited liability company and wholly-owned subsidiary of the General Partner (“Merger Sub”), completed a merger with Inland Diversified Real Estate Trust, Inc. (“Inland Diversified”), in which Inland Diversified merged with and into the Merger Sub in a stock-for-stock exchange with a transaction value of approximately $2.1 billion, including the assumption of approximately $0.9 billion of debt. The General Partner then contributed the assets and liabilities of KRG Magellan to the Partnership in exchange for additional common units of the Partnership (the “Merger”).  See Note 10 for additional details.

The retail portfolio we acquired through the merger with Inland Diversified was comprised of 60 properties in 23 states.  The properties are located in a number of our existing markets and in various new markets including Westchester, New York; Bayonne, New Jersey; Las Vegas, Nevada; Virginia Beach, Virginia; and Salt Lake City, Utah.

Under the terms of the merger agreement, Inland Diversified shareholders received 1.707 newly issued common shares of the General Partner for each outstanding common share of Inland Diversified, resulting in a total issuance of approximately 201.1 million of the General Partner common shares.  The shares issued had a value of approximately $1.2 billion based on the closing price of the General Partner’s common shares on the day preceding the merger of $6.14.  The terms are prior to the one-for-four reverse share split completed in August 2014.  In addition, the reverse share split had the same impact on the number of outstanding Limited Partner Units.

At December 31, 2014, the Partnership owned interests in 120 operating properties, which seven were classified as held for sale, three redevelopment properties and four under-construction development projects.  In addition, as of December 31, 2014, we owned interests in other land parcels comprising 105 acres that are expected to be used for future expansion of existing properties or development of new retail or office properties.  We may also elect to sell such land to third parties under certain circumstances. These land parcels are classified as “Land held for development” in investment properties in the accompanying consolidated balance sheets.

At December 31, 2013, we owned interests in 72 operating and redevelopment properties, two under-construction development projects, and 131 acres of land held for development.

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Note 2. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  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.

Components of Investment Properties

The Partnership’s investment properties, excluding properties held for sale, as of December 31, 2014 and December 31, 2013 were as follows:

Consolidation and Investments in Joint Ventures

The accompanying financial statements of the Partnership are presented on a consolidated basis and include all accounts of the Partnership, the taxable REIT subsidiary of the Partnership, subsidiaries of the Partnership that are controlled and any variable interest entities (“VIEs”) in which the 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 Partnership consolidates properties that are wholly owned as well as properties it controls but in which it owns less than a 100% interest.  Control of a property is demonstrated by, among other factors:

·                  our ability to refinance debt and sell the property without the consent of any other partner or owner;

·                  the inability of any other partner or owner to replace the Partnership as manager of the property; or

·                  being the primary beneficiary of a VIE. The primary beneficiary is defined as the entity that 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.

As of December 31, 2014, we had investments in two joint ventures that are VIEs in which we are the primary beneficiary.  As of this date, these VIEs had total debt of $62.0 million which is secured by assets of the VIEs totaling $115.3 million.  The Partnership guarantees the debt of these VIEs.

We consider all relationships between the Partnership and the 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.  We also continuously reassess primary beneficiary status.  During the twelve months ended December 31, 2014, 2013 and 2012 there were no changes to our conclusions regarding whether an entity qualifies as a VIE or whether we are the primary beneficiary of any previously identified VIE.

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Acquisition of Real Estate Properties

Upon acquisition of real estate operating properties, we estimate the fair value of acquired identifiable tangible assets and identified intangible assets and liabilities, assumed debt, and any noncontrolling interest in the acquiree at the date of acquisition, based on evaluation of information and estimates available at that date.  Based on these estimates, we allocate the estimated fair value to the applicable assets and liabilities.  In making estimates of fair values for the purpose of allocating purchase price, a number of sources are utilized, including information obtained as a result of pre-acquisition due diligence, marketing and leasing activities. The estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs.

A portion of the purchase price is allocated to tangible assets and intangibles, including:

·                  the fair value of the building on an as-if-vacant basis and to land determined either by comparable market data, real estate tax assessments, independent appraisals or other relevant data;

·                  above-market and below-market in-place lease values for acquired properties are based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over the remaining non-cancelable term of the leases.  Any below-market renewal options are also considered in the in-place lease values.  The capitalized above-market and below-market lease values are amortized as a reduction of or addition to rental income.  Should a tenant vacate, terminate its lease, or otherwise notify us of its intent to do so, the unamortized portion of the lease intangibles would be charged or credited to income; and

·                  the value of leases acquired.  We utilize independent and internal sources for our estimates to determine the respective in-place lease values.  Our estimates of value are made using methods similar to those used by independent appraisers.  Factors we consider in our analysis include an estimate of costs to execute similar leases including tenant improvements, leasing commissions and foregone costs and rent received during the estimated lease-up period as if the space was vacant.  The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.

·                  the fair value of any assumed financing that is determined to be above or below market terms.  We utilize third party and independent sources for our estimates to determine the respective fair value of each mortgage payable.  The fair market value of each mortgage payable is amortized to interest expense over the remaining initial terms of the respective loan.

We also consider whether a portion of the purchase price should be allocated to in-place leases that have a related customer relationship intangible value.  Characteristics the Partnership considers in allocating these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality, and expectations of lease renewals, among other factors.  To date, a tenant relationship has not been developed that is considered to have a current intangible value.

Certain properties we acquired from the Merger included earnout components to the purchase price, meaning the previous owner did not pay a portion of the purchase price of the property at closing, although they owned the entire property. We are not obligated to pay the contingent portion of the purchase prices unless space which was vacant at the time of acquisition is later leased by the seller within the time limits and parameters set forth in the acquisition agreements. The earnout payments are based on a predetermined formula applied to rental income received. The earnout agreements have an obligation period remaining of one year or less as of December 31, 2014. If at the end of the time period certain space has not been leased, occupied and rent producing, we will have no further obligation to pay additional purchase price consideration and will retain ownership of that entire property. Based on our best estimate, we have recorded a liability for the potential future earnout payments using estimated fair value measurements at the end of the period which include the lease-up periods, market rents and probability of occupancy. We have recorded this earnout amount as additional purchase price of the related properties and as a liability included in deferred revenue and intangibles, net and other liabilities on the accompanying consolidated balance sheets.

The Partnership determined that it was the acquirer for accounting purposes in the merger with Inland Diversified.  We considered the continuation of the Partnership’s existing management and a majority of the existing board members of the General Partner as the most significant considerations in our analysis.  Additionally, Inland Diversified had previously announced the transaction as a liquidation event and we believe this transaction was an acquisition of Inland Diversified by the General Partner.  See Note 10 for additional discussion.

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Investment Properties

Capitalization and Depreciation

Investment properties are recorded at cost and include costs of land acquisition, development, pre-development, construction, certain allocated overhead, tenant allowances and improvements, and interest and real estate taxes incurred during construction.  Significant renovations and improvements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset.  If a tenant vacates a space prior to the lease expiration, terminates its lease, or otherwise notifies the Partnership of its intent to do so, any related unamortized tenant allowances are expensed over the shortened lease period.  Maintenance and repairs that do not extend the useful lives of the respective assets are reflected in property operating expense.

Pre-development costs are incurred prior to vertical construction and for certain land held for development acquisitions during the due diligence phase and include contract deposits, legal, engineering, cost of internal resources and other professional fees related to evaluating the feasibility of developing or redeveloping a shopping center or other project.  These pre-development costs are capitalized and included in construction in progress in the accompanying consolidated balance sheets.  If we determine that the completion of a development project is no longer probable, all previously incurred pre-development costs are immediately expensed.  Once construction commences on the land, it is transferred to construction in progress.

We also capitalize costs such as acquisition of land, construction of buildings, interest, real estate taxes, and the costs of personnel directly involved with the development of our properties.  As a portion of a development property becomes operational, we expense a pro rata amount of related costs.

Depreciation on buildings and improvements is provided utilizing the straight-line method over estimated original useful lives ranging from 10 to 35 years.  Depreciation on tenant allowances, tenant inducements, and tenant improvements are provided utilizing the straight-line method over the term of the related lease.  Depreciation on equipment and fixtures is provided utilizing the straight-line method over 5 to 10 years. Depreciation may be accelerated for a redevelopment project including partial demolition of existing structure after the asset is assessed for impairment.

Impairment

Management reviews operational properties, development properties, land parcels and intangible assets for impairment on at least a quarterly basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  The review for possible impairment requires management to make certain assumptions and estimates and requires significant judgment.  Impairment losses for investment properties and intangible assets are measured when the undiscounted cash flows estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets.  Impairment losses are recorded as the excess of the carrying value over the estimated fair value of the asset.  If the Partnership decides to sell or otherwise dispose of an asset, its carrying value may differ from its sales price.

Held for Sale and Discontinued Operations

Operating properties held for sale include only those properties available for immediate sale in their present condition and for which management believes it is probable that a sale of the property will be completed within one year among other factors.  Operating properties held for sale are carried at the lower of cost or fair value less costs to sell.  Depreciation and amortization are suspended during the period during which the asset is held-for-sale.  We classified seven operating properties as held for sale and one operating property as held for sale as of December 31, 2014, and 2013, respectively.  Upon meeting the held-for-sale criteria, depreciation and amortization ceased for these operating properties.  The assets and liabilities associated with these properties are separately classified as held for sale in the consolidated balance sheets as of December 31, 2014.

Our operating properties have operations and cash flows that can be clearly distinguished from the rest of our activities. The operations reported in discontinued operations include those operating properties that were sold or were considered held-for-sale and for which operations and cash flows can be clearly distinguished.  The operations from these properties are eliminated from ongoing operations, and we will not have a continuing involvement after disposition.  In the first quarter of 2014, we adopted the provisions of ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of

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Components of an Entity and as a result the seven operating properties that are classified as held for sale as of December 31, 2014 are not included in discontinued operations in the accompanying Statements of Operations as the disposals neither individually nor in the aggregate represent a strategic shift that has or will have a major effect on our operations or financial results.  However, the 50th and 12th operating property is included in discontinued operations for the year ended December 31, 2014 and 2013, as the property was classified as held for sale as of December 31, 2013 and is reported under the former rules.

Escrow Deposits

Escrow deposits consist of cash held for real estate taxes, property maintenance, insurance and other requirements at specific properties as required by lending institutions.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents.  From time to time, such investments may temporarily be held in accounts that are in excess of FDIC and SIPC insurance limits; however the Partnership attempts to limit its exposure at any one time.  As of December 31, 2014, cash and cash equivalents included $16.1 million of funds set aside by the Partnership to affect a tax deferred purchase of real estate.  Such funds are not currently considered available for general corporate purposes.

Fair Value Measurements

Cash and cash equivalents, accounts receivable, escrows and deposits, and other working capital balances approximate fair value.

Fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  The fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs for identical instruments that are classified within Level 1 and observable inputs for similar instruments that are classified within Level 2) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3).  As further discussed in Note 13, the Partnership has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Note 3 includes a discussion of fair values recorded when we acquired a controlling interest in Parkside Town Commons development project.  Note 5 includes a discussion of fair values recorded when we transferred the Kedron Village property to the loan servicer. Note 10 includes a discussion of the fair values recorded in purchase accounting.  Level 3 inputs to these transactions include our estimations of market leasing rates, tenant-related costs, discount rates, and disposal values.

Derivative Financial Instruments

The Partnership accounts for its derivative financial instruments at fair value calculated in accordance with Topic 820—“Fair Value Measurements and Disclosures” in the ASC.  Gains or losses resulting from changes in the fair values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting.  We use derivative instruments such as interest rate swaps or rate locks to mitigate interest rate risk on related financial instruments.

Changes in the fair values of derivatives that qualify as cash flow hedges are recognized in other comprehensive income (“OCI”) while any ineffective portion of a derivative’s change in fair value is recognized immediately in earnings.  Upon settlement of the hedge, gains and losses associated with the transaction are recorded in OCI and amortized over the underlying term of the hedged transaction.  As of December 31, 2014 and 2013, all of our derivative instruments qualify for hedge accounting.

Revenue Recognition

As lessor, the Partnership has substantially all of the risks and benefits of ownership of the investment properties and accounts for its leases as operating leases.

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Minimum rent, percentage rent, and expense recoveries from tenants for common area maintenance costs, insurance and real estate taxes are our principal source of revenue.  Base minimum rents are recognized on a straight-line basis over the terms of the respective leases.  Certain lease agreements contain provisions that grant additional rents based on a tenant’s sales volume (contingent overage rent). Overage rent is recognized when tenants achieve the specified targets as defined in their lease agreements.  Overage rent is included in other property related revenue in the accompanying statements of operations.  As a result of generating this revenue, we will routinely have accounts receivable due from tenants. We are subject to tenant defaults and bankruptcies that may affect the collection of outstanding receivables. To address the collectability of these receivables, we analyze historical write-off experience, tenant credit-worthiness and current economic trends when evaluating the adequacy of our allowance for doubtful accounts and straight line rent reserve. Although we estimate uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates.

Gains from sales of real estate are recognized when a sale has been consummated, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property, the Partnership has transferred to the buyer the usual risks and rewards of ownership, and we do not have a substantial continuing financial involvement in the property.  As part of the Partnership’s ongoing business strategy, it will, from time to time, sell land parcels and outlots, some of which are ground leased to tenants.  Net gains realized on such sales were $1.5 million, $6.2 million, and $0.8 million for the years ended December 31, 2014, 2013, and 2012, respectively, and are classified as other property related revenue in the accompanying consolidated statements of operations.

Tenant Receivables and Allowance for Doubtful Accounts

Tenant receivables consist primarily of billed minimum rent, accrued and billed tenant reimbursements, and accrued straight-line rent.  We generally do not require specific collateral other than corporate or personal guarantees from its tenants.

An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of certain tenants or others to meet contractual obligations under their lease or other agreements.  Accounts are written off when, in the opinion of management, the balance is uncollectible.

For the years ended December 31, 2014, 2013 and 2012, allowance for doubtful accounts represented 0.9%, 1.0% and 0.8% of total revenues, respectively.

Other Receivables

Other receivables consist primarily of receivables due from municipalities and from tenants for non-rental revenue related activities.

Concentration of Credit Risk

We may be subject to concentrations of credit risk with regards to our cash and cash equivalents.  We place cash and temporary cash investments with high-credit-quality financial institutions.  From time to time, such cash and investments may temporarily be in excess of insurance limits.  In addition, our accounts receivable from and leases with tenants potentially subjects us to a concentration of credit risk related to our accounts receivable and revenue.  At December 31, 2014, 28%, 23% and 12% of total billed receivables were due from tenants leasing space in the states of Florida, Indiana, and Texas, respectively, compared to 40%, 25%, and 13% in 2013.  For the year ended December 31, 2014, 19%, 25% and 13% of the Partnership’s revenue recognized was from tenants leasing space in the states of Florida, Indiana, and Texas, respectively, compared to 30%, 36%, and 14% in 2013.  There were no significant changes in the concentration percentages for the year ended December 31, 2012 compared to 2013.

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Earnings Per Unit

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

Potentially dilutive securities include outstanding options to acquire common shares of the General Partner, units under our outperformance plan (see Note 6), potential settlement of redeemable noncontrolling interests in certain joint ventures, and deferred common units, which may be credited to personal accounts of non-employee trustees in lieu of the payment of cash compensation or the issuance of common units to such trustees.  Due in part to our net loss attributable to common unitholders for the years ended December 31, 2014, 2013 and 2012, the potentially dilutive securities were not dilutive for these periods.

Approximately 1.0 million, 1.5 million and 1.7 million outstanding options to acquire common shares of the General Partner were excluded from the computation of diluted earnings per common unit because their impact was not dilutive for the twelve months ended December 31, 2014, 2013 and 2012, respectively.

On August 11, 2014, the General Partner completed a one-for-four reverse share split of its common shares. The reverse share split also adjusted the number of outstanding Partnership units on a one-for-four basis.  As a result of the reverse share split, the number of outstanding common units was reduced from approximately 339.3 million to approximately 84.9 million.  Unless otherwise noted, all common unit and per unit information contained herein has been restated to reflect the reverse share split as if it had occurred as of the beginning of the first period presented.

Income Taxes and REIT Compliance

General Partner

The General Partner, 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 General Partner and meet 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 General Partner 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 General Partner does qualify as a REIT.  We intend to continue to make distributions to the General Partner in amounts sufficient to assist the General Partner in adhering to REIT requirements and maintaining its REIT status.

We have elected to treat Kite Realty Holdings, LLC as a taxable REIT subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future.  This enables us to receive income and provide services that would otherwise be impermissible for REITs.  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 enacted 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.

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 its partners; accordingly the only federal income taxes included in the accompanying consolidated financial statements of the Partnership are in connection with its taxable REIT subsidiary.

Income tax benefit for the year ended December 31, 2014 was $0.2 million.  For the year ended December 31, 2013 the income tax provision was $0.3 million and for the year ended December 31, 2012, there was an insignificant amount of income tax benefit recorded.

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Other state and local income taxes were not significant in any of the periods presented.

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 noncontrolling interests in consolidated properties for the years ended December 31, 2014, 2013, and 2012 were as follows:

Redeemable Noncontrolling Interests — Limited Partners

We classify the Limited Partners’ interests in the Partnership in the accompanying consolidated balance sheets outside of permanent equity because we may be required to pay cash to these unitholders upon redemption of their interests in the Partnership under certain circumstances, such as the delivery of registered shares of the General Partner upon conversion.  The carrying amount is required to be reflected at the greater of historical book value or redemption value with a corresponding adjustment to General Partners’ equity.  As of December 31, 2014 and 2013, the redemption value of the Limited Partners’ interests exceeded the historical book value, and the balance was accordingly adjusted to redemption value through General Partners’ equity.

We allocate net operating results of the Partnership after preferred distributions and noncontrolling interest in the consolidated properties based on the partners’ respective weighted average ownership interest.  We adjust the Limited Partners’ interests in the Partnership at the end of each period to reflect their interests in the Partnership.  This adjustment is reflected in our General Partners’ equity.  The General Partners’ and the Limited Partners’ weighted average interests in the Partnership for the years ended December 31, 2014, 2013, and 2012 were as follows:

The General Partners’ and the Limited Partners’ interests in the Partnership at December 31, 2014 and 2013 were as follows:

Concurrent with the General Partners’ initial public offering and related formation transactions, certain individuals received Limited Partner Units of the Partnership in exchange for their interests in certain properties.  These Limited Partners were granted the right to redeem Partnership units on or after August 16, 2005 for cash or, at our election, common shares of the General Partner in an amount equal to the market value of an equivalent number of common shares of the General Partner at the time of redemption.  Such common shares must be registered, which is not fully in the General Partner’s control.  Therefore, the Limited Partners’ interest is not reflected in permanent equity.  The General Partner also has the right to redeem the Partnership 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 units being redeemed.  For the years ended December 31, 2014, 2013 and 2012, respectively, 22,000, 22,500, and 275,928 Partnership units were exchanged for the same number of common shares of the General Partner.

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There were 1,639,443 and 1,661,446 Limited Partner Units outstanding as of December 31, 2014 and 2013, respectively.

Redeemable Noncontrolling Interests - Subsidiaries

Prior to the Merger, 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 remain outstanding subsequent to the Merger and are accounted for as noncontrolling interests in these properties.    The Class B units will become redeemable at our applicable partner’s election at future dates generally beginning in September 2015, March 2017 or October 2022 based on the applicable joint venture and the fulfillment of certain redemption criteria.  Beginning in June 2018, October 2022 and November 2022, with respect to our Territory, City Center and Crossing at Killingly joint ventures, respectively, the applicable Class B units can be redeemed at either our applicable partner’s or our election for cash or units in the Partnership.  None of the issued units have a maturity date and none are mandatorily redeemable.

On February 13, 2015, we acquired our partner’s redeemable interests in the City Center operating property for $34.4 million that was paid in a combination of cash and Limited Partner Units in the Partnership.  We funded the majority of the cash portion with a $30 million draw on our unsecured revolving credit facility.

We consolidate each of these joint ventures because we control the decision making of each of the joint ventures and our joint venture partners have limited protective rights.

We classify 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, because the fair value of the interests approximates the redemption value at December 31, 2014.  As of December 31, 2014, the redemption value of the redeemable noncontrolling interests exceeded the initial book value recorded upon our acquisition of Inland Diversified and as a result we have adjusted additional paid-in capital for the increase in redemption value.  As of December 31, 2014, the redemption amounts of these interests did not exceed the fair values of each interest.

The redeemable noncontrolling interests in the Partnership and subsidiaries for the years ended December 31, 2014, 2013, and 2012 were as follows:

(1)                                 Represents the noncontrolling interests’ share of the changes in the fair value of

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derivative instruments accounted for as cash flow hedges (see Note 13).

The following sets forth accumulated other comprehensive income (loss) allocable to noncontrolling interests for the years ended December 31, 2014, 2013, and 2012:

(1)                                 Represents the noncontrolling interests’ share of the changes in the fair value of derivative instruments accounted for as cash flow hedges (see Note 13).

Reclassifications

Certain amounts in the accompanying consolidated financial statements for 2013 and 2012 have been reclassified to conform to the 2014 consolidated financial statement presentation.  The reclassifications had no impact on net (loss) income previously reported.

Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (the “Update”).  The Update changes the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity or assets that meet the criteria to be classified as held for sale and that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results.  The Update also requires expanded disclosures for discontinued operations and requires an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting in the period in which it is disposed of or is classified as held for sale and for all prior periods that are presented in the statement where net income is reported.  The Update is effective for annual periods beginning on or after December 15, 2014, with early adoption permitted for disposals of assets that were not held for sale as of December 31, 2013.  We adopted the Update in the first quarter of 2014.  In March 2014, the Partnership disposed of its 50th and 12th operating property which had been classified as held for sale at December 31, 2013.  Accordingly, the revenues and expenses of this property and the associated gain on sale have been classified in discontinued operations in the 2014 consolidated statements of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing GAAP revenue recognition guidance as well as impact the existing GAAP guidance governing the sale of nonfinancial assets. The standard’s core principle is that a company will recognize revenue when it satisfies performance obligations, by transferring promised goods or services to customers, in an amount that reflects the consideration to which the company expects to be entitled in exchange for fulfilling those performance obligations. In doing so, companies will need to exercise more judgment and make more estimates than under existing GAAP guidance.

ASU 2014-09 will be effective for public entities for annual and interim reporting periods beginning after December 15, 2016 and early adoption is not permitted. ASU 2014-09 allows for either recognizing the cumulative effect of application (i) at the start of the earliest comparative period presented (with the option to use any or all of three practical expedients) or (ii) at the date of initial application, with no restatement of comparative periods presented.

We have not yet selected a transition method nor have we determined the effect of ASU 2014-09 on our ongoing financial reporting.

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Subsequent Events

In preparing the Consolidated Financial Statements, the Partnership has evaluated events and transactions occurring after December 31, 2014 and through March 10, 2015, the date the financial statements were available to be issued, for recognition or disclosure purposes.

Note 3. Parkside Town Commons

On December 31, 2012, we acquired a controlling interest in a development project called Parkside Town Commons (“Parkside”), which was historically accounted for under the equity method.  Parkside was owned in a joint venture with Prudential Real Estate Investors (“PREI”).

We acquired PREI’s 60% interest in the project for $13.3 million, including assumption of PREI’s $8.7 million share of indebtedness on the project.  We recorded a non-cash remeasurement loss upon consolidation of Parkside of $8.0 million, net, consisting of a $14.9 million loss on remeasurement of our equity investment and a $6.9 million gain on the acquisition of PREI’s interest at a discount.

Upon consolidation, we measured the acquired assets and assumed liabilities at fair value.  The fair value of the real estate and related assets acquired were estimated primarily using the market approach with the assistance of a third party appraisal.  The most significant assumption in the fair value estimated was the comparable sales value.  The estimate of fair value was determined to have primarily relied upon Level 3 inputs, as previously defined.

In November 2013, we sold 12.8 acres of adjacent land for a sales price of approximately $5.3 million for no gain or loss.

Note 4. Litigation Charge

In 2012, we paid $1.3 million to settle a claim by a former tenant.  In the fourth quarter of 2012, we partially recovered costs associated with the claim.  The net amount is reflected in the consolidated statement of operations for the year ended December 31, 2012 and has been paid, releasing us from the claim.

Note 5. Kedron Village

In July 2013, foreclosure proceedings were completed by the mortgage lender on the indebtedness secured by the Partnership’s Kedron Village operating property and the mortgage lender took title to the property in satisfaction of principal and interest due on the loan.

We reevaluated the Kedron Village property for impairment as of June 30, 2013 and determined that, based on the developments, the carrying value of the property was no longer fully recoverable considering the reduced holding period that considered the foreclosure proceedings.  Accordingly, we recorded a non-cash impairment charge of $5.4 million for the three months ended June 30, 2013 based upon the estimated fair value of the asset of $25.5 million using level 3 inputs.

During the year ended December 31, 2013, we recognized a non-cash gain of $1.2 million resulting from the transfer of the Kedron Village assets to the lender in satisfaction of the debt.  Also, in the third quarter, we reversed an accrual of unpaid interest (primarily default interest) of approximately $1.1 million.

The operations of Kedron Village were classified as discontinued operations in the consolidated statement of operations for the year ended December 31, 2013.

Note 6. Share-Based Compensation

Overview

The General Partner’s 2013 Equity Incentive Plan (the “Plan”) amended and restated the General Partner’s 2004 Equity Incentive Plan and authorized options and other share-based compensation awards to be granted to employees and trustees for up to an additional 1,500,000 common shares of the General Partner.  The Partnership accounts for its share-

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based compensation in accordance with the fair value recognition provisions provided under Topic 718—“Stock Compensation” in the ASC.

The total share-based compensation expense, net of amounts capitalized, included in general and administrative expenses for the years ended December 31, 2014, 2013, and 2012 was $2.9 million, $1.1 million, and $0.9 million, respectively.  Total share-based compensation cost capitalized for the years ended December 31, 2014, 2013, and 2012 was $0.8 million, $0.5 million, and $0.4 million, respectively, related to development and leasing activities.

As of December 31, 2014, there were 1,070,529 shares of the General Partner available for grant under the Plan.

Share Options

Pursuant to the Plan, the General Partner periodically grants options to purchase common shares at an exercise price equal to the grant date per-share fair value of the General Partner’s common shares.  Granted options typically vest over a five year period and expire ten years from the grant date.  The General Partner issues new common shares upon the exercise of options.

For the General Partner’s share option plan, the grant date fair value of each grant was estimated using the Black-Scholes option pricing model.  The Black-Scholes model utilizes assumptions related to the dividend yield, expected life and volatility of the General Partner’s common shares, and the risk-free interest rate.  The dividend yield is based on the General Partner’s historical dividend rate.  The expected life of the grants is derived from expected employee duration, which is based on the General Partner’s history, industry information, and other factors.  The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant.  Expected volatilities utilized in the model are based on the historical volatility of the General Partner’s share price and other factors.

A summary of option activity under the Plan as of December 31, 2014, and changes during the year then ended, is presented below:

The fair value on the respective grant dates of the 1,250 options granted for the year ended December 31, 2012 was $20.08 per option. There were no options granted in 2013 and 2014.

The aggregate intrinsic value of the 3,313, 40,639, and 4,631 options exercised during the years ended December 31, 2014, 2013 and 2012 was $40,196, $445,346, and $16,112, respectively.

The aggregate intrinsic value and weighted average remaining contractual term of the outstanding and exercisable options at December 31, 2014 were as follows:

As of December 31, 2014 there was less than $0.1 million of total unrecognized compensation cost related to outstanding unvested share option awards.

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Restricted Shares

In addition to share option grants, the Plan also authorizes the grant of share-based compensation awards in the form of restricted common shares of the General Partner.  Under the terms of the Plan, these restricted shares, which are considered to be outstanding shares from the date of grant, typically vest over a period ranging from one to five years.  In addition, the General Partner pays dividends on restricted shares that are charged directly to equity.

The following table summarizes all restricted share activity to employees and non-employee members of the Board of Trustees of the General Partner as of December 31, 2014 and changes during the year then ended:

During the years ended December 31, 2014, 2013, and 2012, the General Partner granted 499,436, 103,685, and 67,667 restricted shares to employees and non-employee members of the Board of Trustees of the General Partner with weighted average grant date fair values of $22.62, $25.80, and $21.44, respectively.  The total fair value of shares vested during the years ended December 31, 2014, 2013, and 2012 was $1.6 million, $1.1 million, and $0.6 million, respectively.

As of December 31, 2013, there was $11.9 million of total unrecognized compensation cost related to restricted shares granted under the Plan, which is expected to be recognized over a weighted-average period of 2.1 years.  We expect to incur $3.3 million of this expense in fiscal year 2015, $2.9 million in fiscal year 2016, $2.6 million in fiscal year 2017, $2.3 million in fiscal year 2018, and the remainder in fiscal year 2019.

Outperformance Plan

In July 2014, the Compensation Committee of the Board of Trustees of the General Partner adopted the Kite Realty Group Trust 2014 Outperformance Plan for members of executive management and certain other employees, pursuant to which grantees are eligible to earn units in the Partnership based on the achievement of certain performance criteria of the General Partner’s common shares. Participants in the 2014 Outperformance Plan were awarded the right to earn, in the aggregate, up to $7.5 million of share-settled awards (the “bonus pool”) if, and only to the extent of which, based on the General Partners’ total shareholder return (“TSR”) performance measures are achieved for the three-year period beginning July 1, 2014 and ending June 30, 2017.  Awarded interests not earned based on the TSR measures are forfeited.

At the end of the three-year performance period, participants will receive their percentage interest in the bonus pool as units in the Partnership that vest over an additional two-year service period.  The compensation cost of the 2014 Outperformance Plan is fixed as of the grant date and is recognized regardless of whether the units are ultimately earned if the required service is determined.

The 2014 Outperformance Plan was valued at an aggregate value of $2.4 million utilizing a Monte Carlo simulation.  The value of the awards will be amortized to expense through the final vesting date of June 30, 2019 based upon a graded vesting schedule.  We expect to incur $0.7 million of this expense in fiscal year 2015, $0.7 million in fiscal year 2016, $0.6 million in fiscal year 2017, $0.3 million in fiscal year 2018, $0.1 million in fiscal year 2019.

Note 7. Deferred Costs and Intangibles, net

Deferred costs and intangibles consist primarily of financing fees incurred to obtain long-term financing, acquired lease intangible assets, and broker fees and capitalized salaries and related benefits incurred in connection with lease originations.  Deferred financing costs are amortized on a straight-line basis over the terms of the respective loan agreements.  Deferred leasing costs, lease intangibles and similar costs are amortized on a straight-line basis over the terms of the related leases.  At December 31, 2014 and 2013, deferred costs consisted of the following:

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The estimated aggregate amortization amounts from net unamortized acquired lease intangible assets for each of the next five years and thereafter are as follows:

(1)                                 Total excludes deferred costs and intangibles, net related to properties held for sale.

The accompanying consolidated statements of operations include amortization expense as follows:

Amortization of deferred leasing costs, leasing intangibles and other, excluding amortization of above market leases is included in depreciation and amortization expense, while the amortization of deferred financing costs is included in interest expense.

Note 8. Deferred Revenue, Intangibles, net and Other Liabilities

Deferred revenue, intangibles, net and other liabilities consist of unamortized fair value of in-place lease liabilities recorded in connection with purchase accounting, retainages payable for development and redevelopment projects, tenant rents received in advance and seller earnouts.  The amortization of in-place lease liabilities is recognized as revenue over the remaining life of the leases.  Tenant rents received in advance are recognized as revenue in the period to which they apply, usually the month following their receipt.

At December 31, 2014 and 2013, deferred revenue and other liabilities consisted of the following:

The estimated aggregate amortization of acquired lease intangibles (unamortized fair value of in-place lease liabilities) for each of the next five years and thereafter is as follows:

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