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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o

 

Preliminary Proxy Statement

o

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials

o

 

Soliciting Material under §240.14a-12

 

KITE REALTY GROUP TRUST

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

ý

 

No fee required.

o

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

(1)

 

Title of each class of securities to which transaction applies:
        
 
    (2)   Aggregate number of securities to which transaction applies:
        
 
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
 
    (4)   Proposed maximum aggregate value of transaction:
        
 
    (5)   Total fee paid:
        
 

o

 

Fee paid previously with preliminary materials.

o

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

 

Amount Previously Paid:
        
 
    (2)   Form, Schedule or Registration Statement No.:
        
 
    (3)   Filing Party:
        
 
    (4)   Date Filed:
        
 

 


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LOGO

March 30, 2018

Dear Fellow Shareholder:

I am pleased to invite you to the 2018 Annual Meeting of Shareholders of Kite Realty Group Trust, which will be held on Wednesday, May 9, 2018, at 9:00 a.m. EDT, at 30 South Meridian Street, Eighth Floor, Indianapolis, Indiana 46204. At the meeting, shareholders will vote on the business items listed in the notice of the meeting on the following page. In addition to the formal business that will be transacted, management will respond to comments and questions of general interest to our shareholders.

I sincerely hope that you will attend and participate in the meeting. However, whether you plan to attend or not, it is important that your shares be represented and voted. Accordingly, please vote your shares. We have elected to provide access to our proxy materials on the Internet under the U.S. Securities and Exchange Commission's "notice and access" rules instead of mailing printed copies of those materials to each shareholder. We have sent to our shareholders a Notice of Internet Availability of Proxy Materials that provides instructions on how to access our proxy materials, which are available on the Internet at www.proxyvote.com.

I encourage you to review these materials carefully and to follow the voting instructions in the proxy statement to ensure that your votes are counted.

I look forward to seeing you at the annual meeting.

    Sincerely,

 

 

GRAPHIC

 

 

JOHN A. KITE

 

 

Chairman of the Board and Chief Executive Officer

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LOGO

KITE REALTY GROUP TRUST
30 South Meridian Street, Suite 1100
Indianapolis, Indiana 46204




NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 9, 2018



Dear Shareholder:

You are cordially invited to attend our 2018 annual meeting of shareholders, which will be held as follows:

WHEN:  

9:00 a.m. EDT on Wednesday, May 9, 2018

WHERE:  

Offices of Kite Realty Group Trust

   

30 South Meridian Street, Eighth Floor, Indianapolis, Indiana 46204

ITEMS OF BUSINESS:  

Elect nine trustees to serve one-year terms expiring in 2019;

   

Approve, on an advisory basis, the compensation of our named executive officers;

   

Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018; and

   

Transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

WHO CAN VOTE:  

Shareholders of record at the close of business on March 12, 2018, will be entitled to notice of and to vote at the meeting or any adjournments or postponements of the meeting.

VOTING BY PROXY:  

Pursuant to the U.S. Securities and Exchange Commission's "notice and access" rules, shareholders may access our proxy statement, the proxy card and our 2017 annual report online at www.proxyvote.com.

   

If you received printed materials you may vote by mail by marking, signing and dating your proxy card and returning it promptly in the postage-paid envelope provided, or you may vote by telephone by following the "Vote by Phone" instructions on the proxy card.

   

Whether or not you plan to attend the annual meeting, we urge you to vote now. If you attend the meeting, you may withdraw your proxy and vote in person, if you so desire.

 

    By Order of the Board of Trustees,

 

 

GRAPHIC

 

 

SCOTT E. MURRAY

 

 

Executive Vice President, General Counsel and Corporate Secretary

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TABLE OF CONTENTS

 
  Page

 

 

 
ABOUT THE MEETING: QUESTIONS & ANSWERS   1

PROPOSAL 1: ELECTION OF TRUSTEES

 

5

NOMINEES FOR ELECTION AT THE 2018 ANNUAL MEETING

 
5

VOTE REQUIRED AND RECOMMENDATION

  10

TRUSTEE SELECTION PROCESS

  11

TRUSTEE COMPENSATION

  14

CORPORATE GOVERNANCE AND BOARD MATTERS

 

16

BOARD LEADERSHIP STRUCTURE

 
17

BOARD COMMITTEES

  18

BOARD'S ROLE IN RISK OVERSIGHT

  20

COMMITTEE CHARTERS AND CORPORATE GOVERNANCE DOCUMENTS

  21

COMMUNICATIONS WITH THE BOARD

  21

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

  22

RESPONSE TO EXPECTED RECOMMENDATION OF INSTITUTIONAL SHAREHOLDER SERVICES ("ISS")

  22

EXECUTIVE OFFICERS

  23

PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

24

VOTE REQUIRED AND RECOMMENDATION

 
24

COMPENSATION DISCUSSION AND ANALYSIS

 

25

HIGHLIGHTS

 
25

COMPENSATION PHILOSOPHY AND OBJECTIVES

  27

RESULTS OF 2017 ADVISORY VOTES ON EXECUTIVE COMPENSATION

  30

COMPENSATION CONSULTANT

  30

PEER GROUP AND BENCHMARKING

  31

COMPONENTS OF EXECUTIVE COMPENSATION

  31

STATUS OF PERFORMANCE-BASED EQUITY AWARDS GRANTED SINCE 2015

  40

2018 COMPENSATION PROGRAM HIGHLIGHTS

  40

OTHER COMPENSATION PLANS AND PERSONAL BENEFITS

  41

SHARE OWNERSHIP REQUIREMENTS

  41

CLAWBACK POLICY

  41

TAX LIMITS ON EXECUTIVE COMPENSATION

  42

PAY RATIO DISCLOSURE

  42

SPECIAL NOTE REGARDING NON-GAAP FINANCIAL MEASURES

  43

COMPENSATION COMMITTEE REPORT

  44

COMPENSATION OF EXECUTIVE OFFICERS AND TRUSTEES

 

45

SUMMARY COMPENSATION TABLE

 
45

GRANT OF PLAN-BASED AWARDS IN 2017

  47

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2017

  49

OPTION EXERCISES AND SHARES VESTED IN 2017

  51

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

  52

EQUITY COMPENSATION PLAN INFORMATION

  55

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PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

56

VOTE REQUIRED AND RECOMMENDATION

 
56

RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  57

REPORT OF THE AUDIT COMMITTEE

  58

PRINCIPAL SHAREHOLDERS

 

59

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

62

OTHER MATTERS

 

63

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 
63

OTHER MATTERS TO COME BEFORE THE 2018 ANNUAL MEETING

  63

SHAREHOLDERS PROPOSALS AND NOMINATIONS FOR THE 2019 ANNUAL MEETING

  63

HOUSEHOLDING OF PROXY MATERIALS

  64

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR SHAREHOLDER MEETING ON MAY 9, 2018

 

65

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LOGO




PROXY STATEMENT



ABOUT THE MEETING: QUESTIONS & ANSWERS

Why am I receiving this proxy statement?

This proxy statement contains information related to the solicitation of proxies for use at our 2018 annual meeting of shareholders, to be held at 9:00 a.m. EDT on Wednesday, May 9, 2018, at 30 South Meridian Street, Eighth Floor, Indianapolis, Indiana 46204, for the purposes stated in the accompanying Notice of Annual Meeting of Shareholders. This solicitation is made by Kite Realty Group Trust on behalf of our Board of Trustees (the "Board"). "We," "our," "us," and the "Company" refer to Kite Realty Group Trust. This proxy statement, the proxy card and our 2017 annual report to shareholders are first being mailed and made available online to shareholders beginning on or about March 30, 2018.

What am I being asked to vote on, and what are the Board's voting recommendations?

Proposal   Proposal Description   Board's Voting
Recommendation
Proposal 1: Election of Trustees   The election of nine trustees to our Board   "FOR"

Proposal 2: Advisory Vote on Executive Compensation

 

The approval, on an advisory basis, of the compensation of our "named executive officers" (or "NEOs")

 

"FOR"

Proposal 3: Ratification of the Appointment of Ernst & Young LLP

 

The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2018

 

"FOR"

Who is entitled to vote at the annual meeting?

The close of business on March 12, 2018, is the record date for the annual meeting. Only holders of record of our common shares at the close of business on the record date are entitled to receive notice of, to attend and to vote at the annual meeting. Our common shares constitute the only class of securities entitled to vote at the meeting.

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What are the voting rights of shareholders?

Each common share outstanding on the record date entitles its holder to cast one vote on each matter to be voted on at the annual meeting.

Who can attend the annual meeting?

All holders of our common shares at the close of business on March 12, 2018, the record date for the annual meeting, or their duly appointed proxies, are authorized to attend the annual meeting. Admission to the meeting will be on a first-come, first-served basis. If you attend the meeting, you may be asked to present valid photo identification, such as a driver's license or passport, before being admitted. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

Please also note that if you hold your shares in "street name" (that is, through a bank, broker or other nominee), you will need to bring a copy of the brokerage statement reflecting your share ownership as of March 12, 2018.

What will constitute a quorum at the annual meeting?

The presence at the meeting, in person or by proxy, of the holders of a majority of the common shares outstanding on March 12, 2018, will constitute a quorum, permitting the shareholders to conduct business at the meeting. We will include abstentions and broker non-votes in the calculation of the number of shares considered to be present at the meeting for purposes of determining the presence of a quorum at the meeting. A broker non-vote occurs when a nominee holding shares for a beneficial owner has not received voting instructions from the beneficial owner and does not have discretionary authority to vote the shares.

As of the March 12, 2018 record date, there were 83,599,742 common shares outstanding.

How do I vote?

If your shares are registered directly in your name with our transfer agent, Broadridge Corporate Issuer Solutions, Inc., you are considered the shareholder of record with respect to those shares and the Proxy Notice was sent directly to you by us. In that case, you may instruct the proxy holders named in the proxy card (the "Proxy Agents") how to vote your common shares in one of the following ways:

Proxies submitted over the internet, by telephone or by mail must be received by 11:59 p.m. EDT on Tuesday, May 8, 2018.

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If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are the beneficial owner of shares held in "street name," and the Proxy Notice was forwarded to you by that organization. As a beneficial owner, you have the right to instruct that organization on how to vote the shares held in your account. You should instruct your broker or nominee how to vote your shares by following the voting instructions provided by your broker or nominee. You may also attend the meeting and vote in person if you bring the required proxy, as discussed below.

How are proxy card votes counted?

If your proxy card is properly completed and submitted, and not subsequently revoked, it will be voted as directed by you. If the proxy is submitted but voting instructions are not made, the persons designated as proxy holders on the proxy card will vote "FOR" the election of all nominees for our Board named in this proxy statement; "FOR" the advisory vote on executive compensation; "FOR" the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018; and as recommended by our Board with regard to any other matters that may properly come before the meeting, or, if no such recommendation is given, in the Board's own discretion. If the proxy is submitted and voting instructions are made for some, but not all, of the proposals, as to matters in which instructions are given, the proxy will be voted in accordance with those instructions, and for all other proposals, the proxy will be voted as described in the prior sentence.

If your common shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, under applicable rules of the New York Stock Exchange (the "NYSE") (the exchange on which our common shares are traded), the brokers will vote your shares according to the specific instructions they receive from you. If a broker that holds common shares for a beneficial owner does not receive voting instructions from that owner at least 10 days prior to the annual meeting, the broker may vote on the proposal only if it is considered a "routine" matter under the NYSE's rules. On non-routine matters, nominees do not have discretionary voting power and cannot vote without instructions from the beneficial owners, resulting in a so-called "broker non-vote." Pursuant to the rules of the NYSE, the election of trustees and the approval of the compensation of our named executive officers are "non-routine" matters, and a brokerage firm may not vote without instructions from its client on these matters, resulting in a broker non-vote. In contrast, ratification of the appointment of an independent registered public accounting firm is considered a "routine" matter under NYSE's rules, which means that a broker has discretionary voting authority to the extent it has not received voting instructions from its client on the matter.

If I plan to attend the annual meeting, should I still vote by proxy?

Yes. Voting in advance does not affect your right to attend the annual meeting. If you submit your proxy card and also attend the annual meeting, you do not need to vote again at the annual meeting unless you want to change your vote. Written ballots will be available at the meeting for shareholders of record. If you are not a shareholder of record but hold shares through a broker or nominee (i.e., in street name), you may vote your shares in person only if you obtain a legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares. Even if you plan to attend the annual meeting, we recommend that you also submit your proxy or voting instructions prior to the meeting as described above so that your vote will be counted if you later decide not to attend the annual meeting.

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Will any other matters be voted on?

The proposals set forth in this proxy statement constitute the only business that the Board intends to present at the annual meeting. The proxy does, however, confer discretionary authority upon the persons designated as proxy holders on the proxy card, or their substitutes, to vote on any other business that may properly come before the meeting. If the annual meeting is postponed or adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have revoked your proxy.

May I change or revoke my vote after I submit my proxy card?

Yes. You may revoke a previously granted proxy at any time before it is exercised by (i) delivering a written notice of revocation to our Secretary at 30 South Meridian Street, Suite 1100, Indianapolis, Indiana 46204, (ii) delivering a duly executed proxy bearing a later date to us or (iii) attending the meeting and voting in person. If your common shares are held by a broker, bank or any other persons holding common shares on your behalf, you must contact that institution to revoke a previously authorized proxy.

Who is soliciting the proxies and who pays the costs?

The enclosed proxy for the annual meeting is being solicited by the Board. Proxies also may be solicited, without additional compensation, by our trustees and officers by mail, telephone or other electronic means or in person. We are paying the costs of this solicitation, including the preparation, printing, mailing and website hosting of proxy materials. It is anticipated that banks, brokers and other custodians, nominees and fiduciaries will forward proxy materials to the beneficial owners of our common shares to obtain their voting instructions and that we will reimburse such persons for their out-of-pocket expenses.

You should rely only on the information provided in this proxy statement. We have not authorized anyone to provide you with different or additional information. You should not assume that the information in this proxy statement is accurate as of any date other than the date of this proxy statement or, where information relates to another date set forth in this proxy statement, then as of that date.

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PROPOSAL 1: ELECTION OF TRUSTEES

Our Board is currently comprised of nine trustees, each with terms expiring at the 2018 annual meeting. The nominees, all of whom are currently serving as trustees of the Company, have been recommended by our Board for re-election to serve as trustees for one-year terms until the 2019 annual meeting of shareholders and until their successors are duly elected and qualified.

NOMINEES FOR ELECTION AT THE 2018 ANNUAL MEETING

The nominees for election at the 2018 annual meeting are:

Based on its review of the relationships between the trustee nominees and the Company, the Board has affirmatively determined that all of our trustee nominees except for Mr. John A. Kite are "independent" trustees under the rules of the NYSE.

The Board knows of no reason why any nominee would be unable to serve as a trustee. If any nominee is unavailable for election or service, the Board may designate a substitute nominee and the persons designated as proxy holders on the proxy card will vote for the substitute nominee recommended by the Board. Alternatively, the Board may, as permitted by our bylaws, decrease the size of our Board.

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The names, principal occupations and certain other information about the trustee nominees, as well as the key qualifications that led our Corporate Governance and Nominating Committee and our Board to conclude that such person is qualified to serve as a trustee, are set forth below.

JOHN A. KITE – Chairman of the Board of Trustees and Chief Executive Officer

Age: 52
Trustee Since: 2004
Committees: None

Background:

 

Mr. Kite has served as Chairman of the Board since December 2008, as a trustee since our formation in March 2004, and as our Chief Executive Officer since our initial public offering in August 2004. He also served as our President from our initial public offering until December 2008. From 1997 to our initial public offering in 2004, he served as President and Chief Executive Officer of our predecessor and other affiliated companies (the "Kite Companies"). Mr. Kite is responsible for the Company's strategic planning, operations, acquisitions and capital markets activities. Mr. Kite began his career in 1987 at Harris Trust and Savings Bank in Chicago, and he holds a B.A. degree in Economics from DePauw University.

Qualifications:

 

Mr. Kite's long tenure as our company's leader provides us with stability and continuity. In particular, Mr. Kite has in-depth, long-standing knowledge of our assets, operations, markets and employees. Mr. Kite continues to provide our Board and management team with invaluable experience in managing and operating our real estate company.

 

 

 
WILLIAM E. BINDLEY – Lead Independent Trustee

Age: 77
Trustee Since: 2004
Committees: Compensation Committee (Chairman), Corporate Governance and Nominating Committee

Background:

 

Mr. Bindley has served as our Lead Independent Trustee since our initial public offering in August 2004. He has been Chairman of Bindley Capital Partners, LLC, a private equity investment firm headquartered in Indianapolis, Indiana, since 2001. Mr. Bindley is also a founder and the current Chairman of Guardian Pharmacy Services, one of the largest providers of specialty pharmacy services to long-term care communities in the United States. Mr. Bindley also founded Priority Healthcare Corporation, a NASDAQ-listed national provider of bio-pharmaceuticals and complex therapies for chronic disease states. He served as Chairman of Priority Healthcare from 1995 to 2002, Chief Executive Officer from 1994 to 1997 and President from May 1996 to July 1996. Mr. Bindley was the Chairman, President, Chief Executive Officer and founder of Bindley Western Industries, Inc., a national pharmaceutical distributor and nuclear pharmacy operator that was a NYSE Fortune 200 company at the time of its merger into Cardinal Health, Inc. in February 2001. He previously served on the boards of Cardinal Health, Inc., Key Bank, NA, Bindley Western Industries, Priority Healthcare Corporation, and Shoe Carnival, Inc. He received both a B.S. degree in Industrial Economics and a Doctor of Management (H.C.) degree from Purdue University. He also completed the Wholesale Management Program at the Graduate School of Business at Stanford University. He is the past Vice Chairman of the United States Ski and Snowboard Association and serves on the President's Advisory Council at Purdue University.

Qualifications:

 

Mr. Bindley, through his extensive experience in leading health-care focused companies, brings our Board valuable insight into the operations of businesses outside of the real estate sector. Further, Mr. Bindley brings to our Board extensive public company leadership experience and is particularly well-equipped to address matters such as public company governance and compensation matters. In addition, his leadership of Bindley Capital Partners, LLC provides our Board insight into the investment community and experience with financial matters.

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VICTOR J. COLEMAN – Independent Trustee

Age: 56
Trustee Since: 2012
Committees: Compensation Committee, Corporate Governance and Nominating Committee

Background:

 

Mr. Coleman is the founder, Chief Executive Officer and Chairman of Hudson Pacific Properties (NYSE symbol: HPP), a Los Angeles-based office REIT focused on owning, operating and transforming irreplaceable office and media and entertainment properties in the gateway markets of Los Angeles, San Francisco, Silicon Valley and Seattle. Prior to Hudson Pacific, Mr. Coleman co-founded and led Arden Realty, Inc. as its President and Chief Operating Officer and as a Director, taking the company public in 1996 and selling it to GE Real Estate in 2006. Mr. Coleman is an active community leader, serving as a member of the founding Board of Directors at UCLA's Ziman Center for Real Estate and on the boards of the Ronald Reagan UCLA Medical Center, the Fisher Center for Real Estate & Urban Economics, the Los Angeles Sports & Entertainment Commission and the Los Angeles Chapter of the World Presidents' Organization. He is a former board member for several other public companies, including Douglas Emmett, Inc. (NYSE symbol: DEI). Mr. Coleman was the City of Hope's 2015 Spirit of Life Award recipient presented by the Los Angeles Real Estate & Construction Industries Council. He is also an investor in the NHL team, the Vegas Golden Knights. Mr. Coleman holds a Master of Business Administration degree from Golden Gate University and a Bachelor of Arts in History from the University of California, Berkeley.

Qualifications:

 

Mr. Coleman's significant real estate experience is a great asset to our company and our Board. Mr. Coleman brings critical real estate investment industry expertise to our company. He also has keen insight into the investment community as the chairman and chief executive officer of a publicly listed real estate investment trust.

 

 

 
LEE A. DANIELS – Independent Trustee

Age: 76
Trustee Since: 2014
Committees: Corporate Governance and Nominating Committee

Background:

 

Mr. Daniels is the managing principal of Lee Daniels & Associates, LLC, a consulting firm for government and community relations, which he founded in February 2007. Mr. Daniels also currently serves as Senior Adviser to the President at Elmhurst College. Mr. Daniels has served as a director of Inland Real Estate Income Trust, Inc. ("IREIT"), a publicly-registered non-traded real estate investment trust, since 2012. He is the Lead Independent Trustee and serves as Chairman of the Nominating and Corporate Governance Committee and a member of the Audit Committee of IREIT. Mr. Daniels served on the board of directors of Inland Diversified Real Estate Trust, Inc., a publicly-registered non-traded real estate investment trust from its inception in 2008 until its merger with Kite in 2014. Mr. Daniels founded Lee Daniels & Associates, LLC, a consulting firm for government and community relations, in February 2007. From 2007 to 2012, Mr. Daniels was a principal in a commercial real estate firm. From 1992 to 2006, Mr. Daniels was an equity partner at the Chicago law firm of Bell Boyd & Lloyd, and he had previously been an equity partner at Katten Muchin & Zavis from 1982 to 1991 and Daniels & Faris from 1967 to 1982. From 1971 to 1974, Mr. Daniels served as Special Assistant Attorney General for the State of Illinois. Mr. Daniels served as a member of the Illinois House of Representatives from 1975 to 2007, and he was Speaker of the Illinois House of Representatives from 1995 to 1997 and the Republican Leader from 1983 to 2003. Mr. Daniels currently serves as Chairman of the Board of Haymarket Center, a nonprofit drug and alcohol treatment center in Chicago. He also previously served on the boards of Elmhurst Memorial Hospital Healthcare, the Elmhurst Memorial Hospital Foundation, Suburban Bank and Trust Company of Elmhurst, Elmhurst Federal Savings and Loan Association and the DuPage Easter Seals. Mr. Daniels received his bachelor degree from the University of Iowa and his law degree from The John Marshall Law School in Chicago. He received a Distinguished Alumni Award from both The John Marshall Law School and the University of Iowa, and an Honorary Doctor of Laws from Elmhurst College.

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Qualifications:

 

Mr. Daniels, based on his more than forty-five years of legal practice, experience as a director of publicly-registered real estate investment trusts, experience as a commercial real estate broker and service in the government, is well-qualified to serve as a member of our Board.

 

 

 
GERALD W. GRUPE – Independent Trustee

Age: 79
Trustee Since: 2014
Committees: Audit Committee

Background:

 

Mr. Grupe was an independent director of Inland Diversified Real Estate Trust, Inc., a publicly registered, non-traded real estate investment trust, from October 2009 until June 2014. Mr. Grupe founded Ideal Insurance Agency, Inc. ("Ideal"), serving as president and chief executive officer from June 1980 to June 2009. Ideal provides insurance program administration, claims administration and related services to public and quasi-public entities in Illinois, including representing the Volunteer Firemen's Insurance Services, for which Mr. Grupe served as regional director from June 1974 to June 2009. Mr. Grupe retired from Ideal in June 2009. In addition, Mr. Grupe served as the chairman of the board of the Illinois Public Risk Fund from 1984 to June 2006 and its treasurer from June 2006 to June 2009.

Qualifications:

 

Mr. Grupe, through his extensive experience in the insurance industry, brings our Board valuable insight into the operations of businesses outside of the real estate sector. His leadership of Ideal and the Illinois Public Risk Fund provides our Board with unique insight into risk management.

 

 

 
CHRISTIE B. KELLY – Independent Trustee

Age: 57
Trustee Since: 2013
Committees: Audit Committee

Background:

 

Ms. Kelly is the global chief financial officer of Jones Lang LaSalle Incorporated (NYSE symbol: JLL), a publicly traded financial and professional services firm specializing in real estate. She joined Jones Lang LaSalle in July 2013, bringing with her 25 years of experience in financial management, mergers and acquisitions, information technology and investment banking. From 2009 to June 2013, she was the executive vice president and chief financial officer of Duke Realty Corporation (NYSE symbol: DRE), a publicly traded real estate investment trust. Prior to that, she was a Senior Vice President, Global Real Estate, with Lehman Brothers, where she led real estate equity syndication in the United States and Canada. She spent most of her early career at General Electric, holding a variety of domestic and global leadership roles for GE Real Estate, GE Capital, GE Corporate Audit, and GE Medical Systems. During her time at GE, she led deal teams analyzing more than $10 billion of real estate-related transactions in the mergers and acquisitions group, was a Six Sigma leader at GE Capital, achieved more than $100 million in global sourcing savings at GE Capital IT Solutions, and held financial leadership positions in Europe, Asia, and globally. Ms. Kelly holds a B.A. degree in economics from Bucknell University. Ms. Kelly serves on the board of directors for Park Hotels & Resorts Inc., a publicly traded lodging REIT.

Qualifications:

 

Ms. Kelly's significant real estate and financial experience provides our Board with a strong level of knowledge and expertise regarding real estate companies. Her career as a real estate investment executive enriches our corporate diversity and industry expertise. In particular, Ms. Kelly has first-hand and extensive experience in the development and operation of real estate assets through her roles with General Electric, Lehman Brothers, and Duke Realty. Additionally, Ms. Kelly's service as a chief financial officer of another publicly traded company provides a valuable operational and financial accounting perspective to our Board.

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DAVID R. O'REILLY – Independent Trustee

Age: 43
Trustee Since: 2013
Committees: Audit Committee, Compensation Committee

Background:

 

Mr. O'Reilly joined The Howard Hughes Corporation (NYSE symbol: HHC) in October 2016 as the Chief Financial Officer, where he is responsible for managing the company's investment and financial strategy and working with the executive team to unlock meaningful long-term value across the company's portfolio. Prior to joining The Howard Hughes Corporation, Mr. O'Reilly served as Executive Vice President, Chief Financial Officer and Chief Investment Officer of Parkway Properties, Inc., a NYSE-traded real estate investment trust focused on office properties. Prior to that, Mr. O'Reilly served as Executive Vice President of Banyan Street Capital and as Director of Capital Markets for Eola Capital LLC. He served in the investment banking industry as Senior Vice President of Barclays Capital Inc. and in a similar capacity for Lehman Brothers. During his career, Mr. O'Reilly has been involved in a broad range of financial advisory and merger and acquisition activities, including leveraged buyouts, initial public offerings and single asset and pooled CMBS transactions. Mr. O'Reilly graduated from Tufts University with a B.S. in Civil Engineering and received his M.B.A. from the Columbia University.

Qualifications:

 

Mr. O'Reilly's significant experience in commercial real estate investment and finance and his experience as a Chief Investment Officer and Chief Financial Officer of a publicly traded company allow him to make valuable contributions to the Company and the Board in these areas.

 

 

 
BARTON R. PETERSON – Independent Trustee

Age: 59
Trustee Since: 2013
Committees: Corporate Governance and Nominating Committee (Chairman)

Background:

 

Mr. Peterson served as senior vice president of corporate affairs and communications and as a member of the executive committee at Eli Lilly and Company from 2009 through 2017. Prior to joining Eli Lilly, Mr. Peterson was Managing Director at Strategic Capital Partners, LLC from June 2008 to June 2009. During spring 2008, Mr. Peterson was a fellow with the Institute of Politics of Harvard University's Kennedy School of Government. During the 2008-2009 academic year, Mr. Peterson was a Distinguished Visiting Professor of Public Policy at Ball State University. From 2000 to 2007, Mr. Peterson served two terms as Mayor of Indianapolis, Indiana. He also served as President of the National League of Cities in 2007. Mr. Peterson received a bachelor's degree from Purdue University in 1980 and earned his law degree from the University of Michigan in 1983.

Qualifications:

 

Mr. Peterson's experience in corporate affairs and communications at a major publicly traded company and his significant background and stature as a business and civic leader strengthen our Board and contribute unique experience in public outreach and governance that is invaluable to our company.

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CHARLES H. WURTZEBACH, PH.D. – Independent Trustee

Age: 69
Trustee Since: 2014
Committees: Audit Committee (Chairman)

Background:

 

Dr. Wurtzebach is currently Chairman, Department of Real Estate, and Douglas and Cynthia Crocker Endowed Director, The Real Estate Center at DePaul University in Chicago, Illinois, a position he has held since 2015. Dr. Wurtzebach joined the faculty at DePaul University in January 2009. From 1999 to November 2008, Dr. Wurtzebach served as managing director and property chief investment officer of Henderson Global Investors (North America)  Inc., where he was responsible for the strategic portfolio planning and the overall management of Henderson's North American business. Dr. Wurtzebach was president and chief executive officer of Heitman Capital Management from June 1994 to May 1998 and president of JMB Institutional Realty from June 1991 to June 1994. In addition, Dr. Wurtzebach was the Director of the Real Estate and Urban Land Economics program within the Graduate School of Business at the University of Texas at Austin from 1974 to 1986. Dr. Wurtzebach currently serves as an independent director of the board of directors of RREEF Property Trust, Inc., where he also serves as the Chairman of the Audit Committee. Dr. Wurtzebach currently serves as an independent director of the board of directors of Megalytics Inc. He also served as an independent director of Inland Diversified Real Estate Trust, Inc., a publicly registered, non-traded real estate investment trust, from 2009 until 2014 and as Chairman of the Audit Committee. Dr. Wurtzebach has co-authored or acted as co-editor of several books, including Modern Real Estate, co-authored with Mike Miles, and Managing Real Estate Portfolios, co-edited with Susan Hudson-Wilson, and numerous academic and professional articles. A frequently featured speaker at professional and academic gatherings, Dr. Wurtzebach was the 1994 recipient of the prestigious Graaskamp Award for Research Excellence presented by the Pension Real Estate Association and is a member of the American Real Estate Society and a past president and director of the Real Estate Research Institute. Dr. Wurtzebach obtained his bachelor degree from DePaul University, a master's degree in business administration from Northern Illinois University and a Ph.D. in finance from the University of Illinois at Urbana.

Qualifications:

 

Dr. Wurtzebach brings a variety of valuable perspectives to our Board through his academic experience as a real estate professor, industry experience as an executive for investment management companies and his board experience with a public non-listed REIT.

VOTE REQUIRED AND RECOMMENDATION

The affirmative vote of a majority of the votes cast at the annual meeting is necessary for the election of a trustee. For purposes of the election of trustees, a majority of the votes cast means that the number of votes cast "for" a trustee's election exceeds the number of votes cast "against" that trustee's election. Abstentions and other shares not voted (whether by broker non-vote or otherwise) will not be counted as votes cast and thus will have no effect on the result of the vote. There is no cumulative voting with respect to the election of trustees.

Pursuant to our corporate governance guidelines, if an incumbent trustee is not re-elected due to his or her failure to receive a majority of the votes cast in an uncontested election, the trustee will promptly offer to tender his or her resignation as a trustee, subject to acceptance by the Board. The Corporate Governance and Nominating Committee must make a recommendation to the Board as to whether to accept or reject such offer to resign or whether other action should be taken with respect to such offer to resign. The Board must publicly disclose within 90 days of certification of the shareholder vote its decision and rationale regarding whether to accept, reject or take other action with respect to such resignation offer. If any trustee's offer to resign is not accepted by the Board or

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if no action is taken with respect to such trustee's tendered resignation within the 90-day period, such trustee will continue to serve until his or her successor is elected and qualifies or his or her earlier resignation or removal. If any trustee's offer to resign is accepted by the Board, then such trustee will thereupon cease to be a trustee of the Company, and the Board, in its sole discretion, may fill the resulting vacancy or may decrease the size of the Board pursuant to the Company's bylaws.

OUR BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH OF THE
NOMINEES SET FORTH ABOVE.

TRUSTEE SELECTION PROCESS

QUALIFICATIONS

The Board has adopted a policy to be used for considering potential trustee candidates to further the Corporate Governance and Nominating Committee's goal of ensuring that our Board consists of a diversified group of qualified individuals who function effectively as a group. The policy provides that qualifications and credentials for consideration as a trustee nominee may vary according to the particular areas of expertise being sought as a complement to the existing composition of the Board. However, at a minimum, candidates for trustee must possess:

In addition to the aforementioned minimum qualifications, the Corporate Governance and Nominating Committee also believes that there are other qualities and skills that, while not a prerequisite for nomination, should be taken into account when considering whether to recommend a particular person. These factors include:

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IDENTIFICATION AND EVALUATION PROCESS

The Corporate Governance and Nominating Committee will seek to identify trustee candidates based on input provided by a number of sources, including (a) Corporate Governance and Nominating Committee members, (b) other members of the Board and (c) shareholders of the Company. The Corporate Governance and Nominating Committee also has the authority to consult with or retain advisors or search firms to assist in the identification of qualified trustee candidates; however, we do not currently employ a search firm or pay a fee to any third party to locate qualified trustee candidates.

As part of the identification process, the Corporate Governance and Nominating Committee will evaluate the skills, expertise and diversity possessed by the current Board and whether there are additional skills, expertise or diversity that should be added to complement the composition of the existing Board. The Corporate Governance and Nominating Committee may consult with other members of the Board in connection with the identification process. The Corporate Governance and Nominating Committee also will take into account the number of trustees expected to be elected at the next annual meeting and whether existing trustees have indicated a willingness to continue to serve as trustees if re-nominated. Once trustee candidates have been identified, the Corporate Governance and Nominating Committee will then evaluate each candidate in light of his or her qualifications and credentials and any additional factors that the Corporate Governance and Nominating Committee deems necessary or appropriate. Existing trustees who are being considered for re-nomination will be re-evaluated as part of the Corporate Governance and Nominating Committee's process of recommending trustee candidates. All candidates submitted by shareholders will be evaluated in the same manner as all other trustee candidates, provided that the procedures set forth in our bylaws have been followed.

After completing the identification and evaluation process described above, the Corporate Governance and Nominating Committee will recommend to the Board the nomination of a number of candidates equal to the number of trustee vacancies that will exist at the annual meeting of shareholders. The Board will then select the trustee nominees for shareholders to consider and vote upon at the shareholders' meeting.

SHAREHOLDER NOMINATIONS

For nominations for election to the Board by a shareholder, the shareholder must comply with the advance notice provisions and other requirements of Article II, Section 13 of our bylaws. These notice provisions require that the shareholder must have given timely notice thereof in writing to our Secretary. To be timely, a shareholder's notice must be delivered to our Secretary at our principal executive office not less than 90 days nor more than 120 days prior to the first anniversary of the date of mailing of the notice for the preceding year's annual meeting. In the event that the date of the mailing of the notice for the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the mailing of the notice for the preceding year's annual meeting, notice by the shareholder to be timely must be delivered not less than 90 days nor more than 120 days prior to the date of mailing of the notice for such annual meeting or the 10th day following the day on which public announcement of the date of mailing of the notice for such meeting is first made by us. The shareholder's notice must set forth:

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INDEPENDENCE OF TRUSTEES

NYSE listing standards require NYSE-listed companies to have a majority of independent board members and a nominating/corporate governance committee, compensation committee and audit committee, each comprised solely of independent trustees. Under the NYSE listing standards, no trustee of a company qualifies as "independent" unless the board of trustees of the company affirmatively determines that the trustee has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with such company). In addition, the NYSE listing standards contain the following restrictions upon a listed company's trustee independence:

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Our Board has evaluated the status of each trustee and has affirmatively determined, after considering all facts and circumstances, that each of our trustee nominees other than John A. Kite is "independent" as defined in the NYSE's listing standards. John A. Kite is not independent because he is an employee of the Company.

In making its independence determinations with respect to each trustee, the Board considered, among other things, relationships between the Company and its trustees and their immediate family members, as well as relationships among trustees and their immediate family members. The Board also considered an arrangement by which KMI Management, LLC ("KMI"), a company in which John A. Kite currently owns and Thomas K. McGowan previously owned direct or indirect interests, makes available to each trustee the use of an airplane owned by KMI on the same terms and conditions by which KMI makes the airplane available to our company for business-related travel and to third parties. During 2017, no trustee leased the use of the airplane. See "Certain Relationship and Related Party Transactions—Contracts with KMI Management" for a description of the arrangement between our company and KMI.

TRUSTEE COMPENSATION

Under our trustee compensation program, for the 2017-2018 year of service, each non-employee trustee received the following annual compensation for his or her service as a trustee of our Company:

Retainer (Cash)

 

$60,000

Equity (Common Shares)

 

$100,000

Committee Member (Cash)

 

Additional $7,500 to $12,500

Committee Chair (Cash)

 

Additional $15,000 to $25,000

Lead Independent Trustee (Cash)

 

$25,000

At the trustee's election, the cash retainer may be paid in deferred share units (described below) that are fully vested on the date of grant. The common share grants are subject to a one-year vesting period. In addition, each of our trustees received, and new trustees will receive, upon initial election to our Board, 750 restricted common shares that vest one year from the date of grant.

In 2006, the Board adopted the Trustee Deferred Compensation Plan (the "Trustee Plan"), which provides a deferred compensation arrangement for non-management trustees of the Company. Under the Trustee Plan, each non-management trustee may elect to defer eligible fee and retainer compensation until such time as the trustee's service on the Board is completed. Compensation that is deferred vests immediately and is credited as a number of deferred share units ("share units") to an individual account for each trustee. A share unit represents an unfunded right to receive one of the Company's common shares at a future date. Share units are credited with dividend equivalents to the extent dividends are paid on the Company's common shares.

In order to ensure that all non-management trustees hold meaningful equity ownership positions in the Company, our Board has established guidelines for non-management trustees regarding ownership of our common shares or units of limited partnership interest of Kite Realty Group, L.P. (our "Operating Partnership"). According to the guidelines in effect for the 2017-2018 service year,

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each non-management trustee was required to own common shares and/or units in an amount equal to at least five times the annual cash retainer paid to the trustees, to be achieved within five years of joining the Board.

The following table provides information on the compensation of our non-management trustees for the fiscal year ended December 31, 2017. Mr. Kite received no separate compensation for his service as a trustee of the Company. For information related to his compensation, please refer to the "Summary Compensation Table" included later in this document.

Name   Fees Paid in Cash   Common Share
and Unit
Awards (1)
  Total  

                   

William E. Bindley

  $ 112,500   $ 99,995   $ 212,495  

Victor J. Coleman

  $ 38,790   $ 138,705   $ 177,495  

Lee A. Daniels

  $ 67,500   $ 99,995   $ 167,495  

Gerald W. Grupe

  $ 72,500   $ 99,995   $ 172,495  

Christie B. Kelly

  $ 72,500   $ 99,995   $ 172,495  

David R. O'Reilly

  $ 82,500   $ 99,995   $ 182,495  

Barton R. Peterson

  $ 75,000   $ 99,995   $ 174,995  

Charles H. Wurtzebach

  $ 85,000   $ 99,995   $ 184,995  

(1)
The amounts disclosed in the "Common Share and Unit Awards" column reflect the aggregate grant date fair value of equity awards granted pursuant to the Equity Incentive Plan.

OUTSTANDING TRUSTEE EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2017

The following table provides information on the aggregate number of share awards outstanding as of the fiscal year ended December 31, 2017 for each of the trustees included in the above Trustee Compensation Table.

Name   Vested Restricted Common
Share Awards Outstanding as
of December 31, 2017 (#)
  Unvested Restricted Common
Share Awards Outstanding as
of December 31, 2017 (#)
  Total  

                   

William E. Bindley

  19,734   5,094   24,828  

Victor J. Coleman

  9,906   5,094   15,000  

Lee A. Daniels

  6,560   5,094   11,654  

Gerald W. Grupe

  6,560   5,094   11,654  

Christie B. Kelly

  9,906   5,094   15,000  

David R. O'Reilly

  8,276   5,094   13,370  

Barton R. Peterson

  8,276   5,094   13,370  

Charles H. Wurtzebach

  6,560   5,094   11,654  

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CORPORATE GOVERNANCE AND BOARD MATTERS

The business and affairs of the Company are managed under the direction of our Board, as provided by Maryland law, and the Company conducts its business through meetings of the Board and its three standing committees: the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee.

We have structured our corporate governance in a manner we believe closely aligns our interests with those of our shareholders. Notable features of our corporate governance include:

GRAPHIC   89% Independent Trustees. Eight of our nine trustees have been determined by us to be "independent" as defined by the NYSE listing standards.   GRAPHIC   No Classified Board. Our trustees are elected annually for one-year terms.

GRAPHIC

 

Entirely Independent Committees. All of the members of our Audit, Compensation and Corporate Governance and Nominating Committees are independent.

 

GRAPHIC

 

No Poison Pill. The Company does not have a "poison pill" or shareholder rights plan.

GRAPHIC

 

Lead Independent Trustee. We have a Lead Independent Trustee to strengthen the role of our independent trustees and encourage independent Board leadership.

 

GRAPHIC

 

Opted Out of Maryland Anti-Takeover Statutes. We have elected not to be subject to the Maryland Business Combination Statute and the Maryland Control Share Acquisition Statute.

GRAPHIC

 

Majority Voting for Trustees. Our trustees must be elected by a majority of votes cast in uncontested elections.

 

GRAPHIC

 

No Significant Related Party Transactions. We do not currently have any significant related party transactions and have robust related party transaction review and approval procedures.

GRAPHIC

 

Share Ownership Guidelines. Our share ownership guidelines require that our CEO and other named executive officers own shares or limited partnership units with an aggregate value of 10x and 3x or 2x base salary, respectively. All non-management trustees must hold shares or limited partnership units with an aggregate value of 5x their annual retainer, which ownership level must be obtained within 5 years of joining the Board.

 

 

 

 

GRAPHIC

 

Anti-Hedging Policy. Our anti-hedging policy prohibits our trustees, executives and employees from engaging in transactions designed to hedge against losses from their share ownership.

 

 

 

 

GRAPHIC

 

Board Refreshment Policy. Pursuant to our corporate governance guidelines, we actively evaluate each trustee on an annual basis to assess performance and ensure that fresh ideas and viewpoints are available to the Board. The average tenure of our current trustees is 6.4 years.

 

 

 

 

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BOARD LEADERSHIP STRUCTURE

CHAIRMAN

Mr. John A. Kite has served as Chairman of the Board since December 2008 and as our Chief Executive Officer and member of the Board since our initial public offering in 2004. Mr. Kite also served as our President from our initial public offering to December 2008.

Periodically, the Corporate Governance and Nominating Committee gives consideration to whether the combined role of the chairman and chief executive officer continues to be appropriate for our Company. The Corporate Governance and Nominating Committee, with the consensus of the other independent trustees, has concluded that Mr. Kite's extended tenure with our Company provides stable leadership that is beneficial to us and our shareholders. In particular, the Board recognizes that, given Mr. Kite's familiarity with our real estate properties and day-to-day operations and his long-standing experience with our Company, it is valuable to have him lead our board discussions.

LEAD TRUSTEE

To strengthen the role of our independent trustees and encourage independent Board leadership, our Board established the position of lead independent trustee in connection with our initial public offering in August 2004. Our lead independent trustee is selected on an annual basis by the Board from among the independent trustees. Mr. William E. Bindley currently serves as our lead independent trustee and has served in that capacity since our initial public offering in 2004. The role of the lead trustee, among other things, is to serve as liaison (i) between the Board and management, including the Chief Executive Officer, (ii) among independent trustees and (iii) between interested third parties and the Board. In addition, Mr. Bindley meets several times a year with Mr. Kite, our Chairman and Chief Executive Officer.

The Board believes that our lead independent trustee is effective in mitigating any potential conflict of interest that might arise from the combined chairman/chief executive officer position. In particular, the Board recognizes that the lead independent trustee is actively engaged in setting board agendas, meets regularly with our chief executive officer to stay apprised of the important aspects of our business and presides over executive sessions of the non-management trustees at least once each quarter.

EXECUTIVE SESSIONS OF NON-MANAGEMENT TRUSTEES

Pursuant to our corporate governance guidelines and the NYSE listing standards, in order to promote open discussion among non-management trustees, our Board devotes a portion of each regularly scheduled board meeting to executive sessions without management participation. The lead trustee presides at these sessions. In addition, our corporate governance guidelines provide that if the group of non-management trustees includes trustees who are not independent, as defined in the NYSE's listing standards, at least one such executive session convened per year shall include only independent trustees.

BOARD MEETINGS

During 2017, the Board met four times, including telephonic meetings. Each trustee attended at least 75% of meetings of the Board and applicable committees on which he or she served during his or her period of service. Trustees are expected to attend, in person or by telephone, all Board meetings and meetings of committees on which they serve. In addition, pursuant to our corporate governance

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guidelines, trustees are expected to attend the Company's annual meeting of shareholders. Last year, eight of our nine trustees attended the annual meeting of shareholders. One trustee was not able to attend due to an unavoidable conflict.

BOARD COMMITTEES

The Board has a standing Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee. All members of the committees described below are "independent" of the Company as that term is defined in the NYSE's listing standards.

AUDIT COMMITTEE

Members:

Dr. Wurtzebach (Chair)
Mr. Grupe
Ms. Kelly
Mr. O'Reilly

  Responsibilities: The principal purpose of the Audit Committee is to assist the Board in the oversight of:

the integrity of our financial statements;

our compliance with legal and regulatory requirements;

the qualification, performance, compensation and independence of our independent auditors;

audits and other services performed by our independent auditors;

our financial statements, any significant financial reporting issues and any major issues as to the adequacy of internal controls;

the performance of our internal audit function; and

the preparation and submission of an Audit Committee Report for inclusion in the Company's proxy statement and/or annual report on Form 10-K.


 

 

Independence: Our Audit Committee's written charter requires that all members of the committee meet the independence, experience, financial literacy and expertise requirements of the NYSE, the Sarbanes-Oxley Act of 2002, the Exchange Act, and applicable rules and regulations of the SEC, all as in effect from time to time. All of the members of the Audit Committee meet the foregoing requirements. The Board has determined that each of Christie B. Kelly, David R. O'Reilly and Dr. Charles H. Wurtzebach is an "audit committee financial expert" as defined by the rules and regulations of the SEC.

 

 

Meetings: The Audit Committee met four times in 2017, including telephonic meetings. The Audit Committee Chair also met with our internal auditing personnel four times in 2017, including telephonic meetings.

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COMPENSATION COMMITTEE

Members:

Mr. Bindley (Chair)
Mr. Coleman
Mr. O'Reilly

  Responsibilities: The principal responsibilities of the Compensation Committee are to:

establish and approve the compensation of our Chief Executive Officer and evaluate his performance in light of the Company's goals and objectives;

determine and approve the compensation of the other executive officers;

recommend to the Board the compensation of trustees;

provide a description of the processes for the determination of executive and trustee compensation for inclusion in the proxy statement;

oversee and assist the Company in preparing the Compensation Discussion and Analysis for inclusion in the proxy statement; and

prepare and submit a Compensation Committee Report for inclusion in the Company's proxy statement.


 

 

Independence: All of the members of our Compensation Committee are independent in accordance with the NYSE's listing standards and in accordance with our corporate governance guidelines and the Compensation Committee charter.

 

 

Meetings: The Compensation Committee met five times in 2017, including telephonic meetings.

At the beginning of each year, the Compensation Committee evaluates the components of each executive officer's total compensation. The Chief Executive Officer may make compensation recommendations to the Compensation Committee with respect to the executive officers who report to him. The Compensation Committee may accept or reject such recommendations and also makes the sole determination of the compensation for the Chief Executive Officer.

The Compensation Committee utilizes, from time to time, the services of a compensation consultant or other advisor after taking into consideration all factors relevant to the independence from management of such compensation consultant or other advisor. The Compensation Committee is directly responsible for the appointment, compensation, and oversight of the work of any compensation consultant or other advisor retained by the Compensation Committee.

Since 2015, the Compensation Committee has engaged FTI Consulting, Inc. ("FTI Consulting"), a nationally recognized consulting firm, to comprehensively review the Company's compensation policies for its executive officers, to advise the Compensation Committee and to provide recommendations regarding various compensation decisions to be made by the Compensation Committee. The Compensation Committee takes these recommendations into account in making base salary determinations and incentive compensation awards to its executive officers and maintaining an incentive plan for the Company's executive officers and other employees.

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CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

Members:

Mr. Peterson (Chair)
Mr. Bindley
Mr. Coleman
Mr. Daniels

  Responsibilities: The principal responsibilities of the Corporate Governance and Nominating Committee are to:

identify individuals who are qualified to serve as trustees;

recommend such individuals to the Board, either to fill vacancies that occur on the Board from time to time or in connection with the selection of trustee nominees for each annual meeting of shareholders;

periodically assess the size of the Board to ensure it can effectively carry out its obligations;

develop, recommend, implement and monitor our corporate governance guidelines and our codes of business conduct and ethics;

oversee the evaluation of the Board and its committees and management;

ensure that we are in compliance with all NYSE corporate governance listing requirements; and

review and evaluate potential related party transactions in accordance with policies and procedures adopted by the Company from time to time.


 

 

Independence: All of the members of our Corporate Governance and Nominating Committee are independent in accordance with the NYSE's listing standards, our corporate governance guidelines and our Corporate Governance and Nominating Committee charter.

 

 

Meetings: The Corporate Governance and Nominating Committee met four times in 2017, including telephonic meetings.

BOARD'S ROLE IN RISK OVERSIGHT

One of our Board's important roles is to oversee various risks that we may face from time to time. While the full Board has primary responsibility for risk oversight, it relies on its committees, as appropriate, to monitor and address the risks that may be within the scope of a particular committee's expertise or charter. For example, the Audit Committee oversees the preparation and filing of our financial statements, compliance with legal and regulatory requirements and the performance of our internal audit function. The Board believes that the composition of its committees and the distribution of the particular expertise of each committee's members make this an appropriate structure to more effectively monitor these risks.

An important feature of the Board's risk oversight function is to receive periodic updates from its committees and members of management, as appropriate. Each of the three standing committees addresses risks specific to its respective area of oversight as follows:

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In addition to getting direct information on risk management from its committees, the Board receives regular updates directly from members of executive management. In particular, due to his executive management position, Mr. Kite frequently communicates with other members of our management and periodically updates the Board on the important aspects of the Company's day-to-day operations. The Board also receives regular updates from the Company's General Counsel and outside counsel regarding legal and regulatory developments and policies and mitigation plans intended to address the related risks. Mr. Kite meets or speaks by telephone individually with each of the trustees on at least an annual basis and several times each year with the lead independent trustee. Other members of management also have direct access to the chairperson of each Board committee and our lead independent trustee.

COMMITTEE CHARTERS AND CORPORATE GOVERNANCE DOCUMENTS

Our Board maintains charters for all Board committees and has adopted a written set of corporate governance guidelines, a code of business conduct and ethics and a code of ethics for our principal executive officers and senior financial officers. Our committee charters, corporate governance guidelines, code of business conduct and ethics and code of ethics are available on our website at www.kiterealty.com. Each of these documents is also available in print to any shareholder who sends a written request to such effect to Investor Relations, Kite Realty Group Trust, 30 South Meridian Street, Suite 1100, Indianapolis, Indiana 46204.

COMMUNICATIONS WITH THE BOARD

Shareholders and other interested parties may communicate with the Board by communicating directly with the presiding lead independent trustee by sending any correspondence they may have in writing to the "Lead Trustee" c/o the Corporate Secretary of Kite Realty Group Trust, 30 South Meridian Street, Suite 1100, Indianapolis, Indiana 46204, who will then directly forward such correspondence to the lead trustee. The lead trustee will decide what action, if any, should be taken with respect to the communication, including whether such communication should be reported to the Board.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee of our Board are William E. Bindley (chairman), Victor J. Coleman, and David R. O'Reilly, each of whom is an independent trustee. None of our named executive officers served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or the Compensation Committee. Accordingly, during 2017, there were no interlocks with other companies within the meaning of the SEC's proxy rules.

RESPONSE TO EXPECTED RECOMMENDATION OF INSTITUTIONAL SHAREHOLDER SERVICES ("ISS")

Consistent with Maryland law, our declaration of trust states that only the Board may amend our bylaws. This has been the case since our initial public offering in 2004. Over the course of the last 14 years as a publicly traded company, none of our shareholders has ever initiated a conversation with us on this topic or asked us to make any changes to our organizational documents with respect to this issue.

Prior to our 2017 annual meeting of shareholders, ISS adopted a new policy under which it generally recommends against members of a company's governance committee if the company does not grant to its shareholders the unilateral right to amend its bylaws. As a result of this new policy, ISS recommended against our incumbent corporate governance committee members for our 2017 trustee elections.

The majority of our shareholders rejected ISS's recommendation and voted in favor of our governance committee members. Each member received more than 76% of the votes cast.

Since that vote, we have not received any complaints from shareholders regarding our corporate governance, either generally or specific to ISS's new policy on bylaw amendments. In connection with preparing this proxy statement, we contacted our two largest shareholders, who together own more than 33% of our common shares, to affirmatively seek their feedback. Both shareholders accepted our invitations. During our subsequent teleconferences, both shareholders stated that they generally support giving shareholders the right to amend a company's bylaws but that they do not follow ISS's policy of voting against incumbent trustees where a company's legacy organizational documents do not already grant shareholders this right.

Based on this feedback and the 2017 shareholder vote, the Board decided not to propose any changes to our declaration of trust to address ISS's bylaw amendment policy at this time. We continue to pride ourselves on our strong corporate governance principles, and we will continue to regularly assess our practices in light of market developments and shareholder preferences.

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EXECUTIVE OFFICERS

Our executive officers are:

Name
  Age
  Title
John A. Kite   52   Chairman of the Board of Trustees and Chief Executive Officer
Thomas K. McGowan   53   President and Chief Operating Officer
Daniel R. Sink   50   Executive Vice President and Chief Financial Officer
Scott E. Murray   45   Executive Vice President, General Counsel and Corporate Secretary

The names, principal occupations and certain other information about our executive officers are set forth below, other than John A. Kite, whose background information is described above under the heading "Proposal 1—Election of Trustees." Our executive officers comprise all of our NEOs for 2017.

THOMAS K. McGOWAN—President and Chief Operating Officer

Mr. McGowan has served as President since 2008 and Chief Operating Officer since our initial public offering in 2004. Previously, he served as our Senior Executive Vice President and Executive Vice President. Mr. McGowan is primarily responsible for overseeing the development, redevelopment, leasing, construction and asset management functions of the Company. Before joining the Kite Companies, Mr. McGowan worked for eight years for real estate developer Mansur Development Corporation, and he holds a B.A. degree in Political Science from Indiana University.

DANIEL R. SINK—Executive Vice President and Chief Financial Officer

Mr. Sink has served as Executive Vice President and Chief Financial Officer since 2007. Previously, he had been Senior Vice President and Chief Financial Officer since our initial public offering in August 2004. His responsibilities include overseeing the following aspects of the Company's business: finance, accounting, tax planning, financial budgeting and administration. From 1989 through 1999, Mr. Sink was a senior manager of Olive, LLP (a predecessor of BKD, LLP), acting as a tax specialist in charge of tax consulting for the central Indiana real estate/construction group. Mr. Sink is a Certified Public Accountant and holds a B.S. degree in Accounting from Indiana University.

SCOTT E. MURRAY—Executive Vice President, General Counsel and Corporate Secretary

Mr. Murray has served as Executive Vice President, General Counsel and Corporate Secretary since 2014. Mr. Murray is responsible for managing the Company's legal affairs, which includes advising the company with respect to legal issues, managing the company's legal department, and engaging and directing outside counsel. Prior to joining the company, Mr. Murray was a commercial litigation partner in the national law firm of Barnes & Thornburg, LLP from 2006 to 2014 and an associate practicing commercial litigation at McDermott, Will & Emery, LLP from 2001 to 2006. Mr. Murray received a B.S. degree from Indiana University and a J.D. degree from Harvard Law School.

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PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION

We are presenting this proposal, commonly known as a "say-on-pay" proposal, to provide shareholders the opportunity to vote to approve on a non-binding advisory basis the compensation of our NEOs as described in this proxy statement.

We believe our executive compensation policies and procedures are centered on pay-for-performance principles and are closely aligned with the long-term interests of our shareholders. As described under the heading "Compensation Discussion and Analysis," our executive compensation program is designed to attract and retain outstanding executives, to reward them for superior performance and to ensure that compensation provided to them remains competitive. We seek to align the interests of our executives and shareholders by tying compensation to the achievement of key operating objectives that we believe enhance shareholder value over the long term and by encouraging executive share ownership so that a portion of each executive's compensation is tied directly to shareholder value.

For these reasons, we are recommending that our shareholders vote "FOR" the following resolution:

While the vote on this resolution is advisory in nature and therefore will not bind us to take any particular action, our Board intends to carefully consider the shareholder vote resulting from the proposal in making future decisions regarding the compensation of our NEOs.

VOTE REQUIRED AND RECOMMENDATION

The affirmative vote of a majority of the votes cast at the annual meeting with respect to the matter is required to endorse (on a non-binding advisory basis) the compensation of our named executive officers. For purposes of the vote on this proposal, abstentions and other shares not voted (whether by broker non-vote or otherwise) will not be counted as votes cast and will have no effect on the result of the vote.

OUR BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" APPROVAL OF THE ADVISORY RESOLUTION DESCRIBED ABOVE.

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COMPENSATION DISCUSSION AND ANALYSIS

HIGHLIGHTS



Operationally, 2017 was another strong year. Same-property net operating income ("NOI") continued to climb. Occupancy remained steady, with a solid increase in small shop leased percentage. And our balance sheet remained strong. Consider the following:

  2017 Operational Achievements
    ü
    Realized net income attributable to common shareholders of $11.9 million for the year;

    ü
    Increased same-property NOI by 3.2%, excluding the impact of our redevelop, repurpose and reposition program (the "3-R" program), or by 2.9% when including this short-term impact;

    ü
    Improved our average base rent ("ABR") to $16.32 per square foot from $15.78 last year—a 3.4% increase;

    ü
    Increased our annual dividend by 5.0% at the end of 2017;

    ü
    Maintained a strong retail leased percentage of 94.8%;

    ü
    Increased our small-shop leased percentage to 90.5%—exceeding our stated 90% goal one year earlier than predicted;

    ü
    Prudently recycled $78 million in capital by selling lower quality, non-core assets, using $23.5 million in proceeds to generate 12.3% average returns through our 3-R program and using the remaining proceeds to pay down debt;

    ü
    Executed over 2.3 million square feet of new and renewal leases for 393 individual spaces;

    ü
    Generated solid lease spreads of 23% for new leases and 6.6% for renewals, for a blended rate of 9%;

    ü
    Implemented fixed CAM initiative and increased proportion of enrolled portfolio to 20%;

    ü
    Opened 147 new tenants, focusing on high-quality omnichannel, experiential, restaurant, and service-based tenants;

    ü
    Continued top-tier efficiency metrics;

    ü
    Extended our debt maturities so that only $82.4 million is due before the end of 2020;

    ü
    Maintained debt coverage ratio of 3.5x;

    ü
    Achieved floating rate debt exposure of only 8%; and

    ü
    Maintained investment-grade debt ratings.

Please see "Special Note Regarding Non-GAAP Financial Measures" below for information regarding the performance metrics described above.

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These operational accomplishments played an important role in the Compensation Committee's decisions for 2017. We made our compensation decisions for 2017 based on a desire to encourage our NEOs to continue to focus on operational metrics, improving the portfolio, reducing debt, and growing free cash flow. We strongly believe that, over time, accomplishing these goals will drive the Company's share price upward, position the Company to continue to increase its dividend, and ultimately generate positive total shareholder return ("TSR"). Moreover, we recognize that the compensation actually realized by our executive officers in the coming years will reflect the Company's absolute and relative TSR due to the performance measures built into our performance-based equity awards.

With these goals firmly in mind, we note the following compensation-related highlights for 2017:

  2017 Compensation Highlights
    ü
    Communicated during 2017 with our largest institutional shareholders to gather feedback on our executive compensation practices.

    ü
    Awarded short-term incentive compensation pursuant to an objective, formula-based plan with pre-established rigorous performance metrics. The following table reflects Mr. Kite's cash incentives presented based on the maximum potential payout that could be earned under the program during the past three years. As demonstrated below, the Company uses rigorous performance hurdles that have resulted in a payout between 58% and 63% of his potential payout.
 
   
  Actual Payout  
Performance Year   Potential
Maximum
Cash Bonus
  % of
Maximum
Potential
  Amount  

2017

  $ 1,812,500     63 % $ 1,150,817  

2016

  $ 1,750,000     57 % $ 990,500  

2015

  $ 1,750,000     58 % $ 1,006,250  
    ü
    Applied an executive compensation program reflecting a pay-for-performance structure where the significant majority of the total compensation during 2017 for our NEOs was tied to operational results or TSR and was therefore at risk, as illustrated below.*
GRAPHIC   GRAPHIC

*
Amounts are based on the Summary Compensation Table on page 45.

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    ü
    Approved grants of restricted shares that vest over three years and are subject to additional three-year no-sell provisions.

    ü
    Continued to demonstrate pay-for-performance alignment with our shareholders evident by the fact both of the performance-based equity programs with measurement periods ending in 2017 (the 2014 Outperformance Plan ("OPP") and the 2015 annual performance share units ("PSUs") concluded with no value being earned.

    ü
    Adopted a compensation clawback policy in March 2017.

COMPENSATION PHILOSOPHY AND OBJECTIVES

Our compensation program is designed to attract and retain outstanding senior executives, ensure that compensation provided to them remains competitive relative to the compensation paid to similarly-situated senior executives at comparable publicly traded REITs, and reward them for superior performance. The program is designed to reward both short- and long-term performance and to align our senior executives' and shareholders' interests. To that end, we believe the compensation packages we provide to our NEOs should include both cash and share-based incentive compensation that reward performance as measured, in large part, against corporate and individual goals that will enhance shareholder value over the long term.

We believe the overall compensation of our senior executives primarily should reflect their accomplishments as a management team in achieving established key operating objectives. We also believe the achievement of these key objectives will ultimately enhance shareholder value as reflected in an increased market price of our shares. We believe the compensation of our senior executives should not be based on the short-term performance of our shares, whether favorable or unfavorable. In this regard, the restricted common shares historically granted to our senior executives vest over a service period ranging from three to five years, and certain grants included a "no-sell" restriction prohibiting the executive officers from transferring or disposing of the shares for a specified period after the award vests, except to the extent necessary to satisfy tax obligations. We believe the long-term price of our shares will reflect our operating performance, which is indicative of the management of our company by our senior executives. Our senior executives also are subject to the downside risk of a decrease in the value of their compensation in the event the price of our common shares declines.

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The Compensation Committee is responsible for establishing, implementing and continually monitoring adherence with our compensation philosophy as applied to our NEOs.

  Compensation and Governance Practices Aligned with Shareholder Best Practices
    ü
    Majority Voting for Uncontested Trustee Elections. Enacted in response to a shareholder request.

    ü
    Share Ownership Guidelines. Require that our CEO own shares with an aggregate value of 10x base salary and that our other NEOs own shares with an aggregate value of 3x or 2x base salary.

    ü
    Anti-Hedging Policy. Prohibits our trustees, executives and employees from engaging in transactions designed to hedge against losses from their share ownership.

    ü
    Formulaic Short-Term Incentive Plan. Grants of short-term incentive compensation are based on the achievement of pre-established targets and performance metrics.

    ü
    Linked Long-Term Incentive Compensation to TSR. Grants of PSUs that will be earned over a three-year period based on absolute and relative TSR.

    ü
    Long Vesting Periods. We generally make our executive equity awards subject to a vesting period of at least three years and additional post-vesting holding or no-sell periods.

    ü
    Employ a Clawback Policy. Adopted a policy applicable to our NEOs that allows for the recoupment of incentive awards under certain circumstances.

For more information related to the processes and procedures of the Compensation Committee in determining the compensation for our NEOs, including the role of any NEO in this process, see "Information Regarding Corporate Governance and Board and Committee Meetings—Board Committees—Compensation Committee," above.

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Consistent with our overall philosophy and objectives, certain compensation practices we follow and those that we avoid are as follows:

    What we do       What we don't do
GRAPHIC   Pay for performance. We place a heavy emphasis on performance-based compensation to align our executives' and shareholders' interests.   GRAPHIC   No Excess Perquisites. We do not provide any supplemental executive retirement plans, company cars, club memberships or other significant perquisites.

GRAPHIC

 

Share Ownership Guidelines. In order to further align our executives' and shareholders' interests, our share ownership guidelines require our CEO and other NEOs to own shares or limited partnership units with an aggregate value of 10x and 3x or 2x base salary, respectively.

 

GRAPHIC

 

No Tax Gross Ups. Our executives are not entitled to gross-up payments in the event they are required to pay excise taxes upon a change in control.

GRAPHIC

 

Double Trigger Severance. Under our executives' employment agreements, a "change in control," by itself, is not sufficient to trigger severance and equity acceleration—it must also be accompanied by a qualifying termination.

 

GRAPHIC

 

No Hedging. Our anti-hedging policy prohibits our executives from engaging in transactions designed to hedge against losses from their share ownership.

GRAPHIC

 

Independent Compensation Consultant. The Compensation Committee has retained FTI Consulting, a nationally recognized compensation consulting firm, to review and provide recommendations regarding our executive compensation program.

 

GRAPHIC

 

No Single Trigger Severance. Our executives are not entitled to severance or equity acceleration upon the occurrence of a change in control, by itself, in the absence of a qualifying termination.

GRAPHIC

 

Compensation Risk Assessment. The Compensation Committee conducts a compensation risk assessment to ensure that our executive compensation program does not encourage excessively risky behaviors.

 

GRAPHIC

 

No Executive Retirement or Health Benefits. Our executive officers participate in the same retirement and health plans as our other employees.

GRAPHIC

 

Annual Say on Pay Vote. We ask our shareholders to vote on our executive compensation practices on a yearly basis.

 

GRAPHIC

 

No Dividends on Unearned Performance Awards. Our executive officers are not entitled to any dividends or distributions on unearned equity awards subject to performance-based vesting criteria.

GRAPHIC

 

Clawback Policy. We proactively adopted a clawback policy consistent with proposed Rule 10D-1 of the Exchange Act. The policy is applicable to all of our executive officers.

 

 

 

 

GRAPHIC

 

Equity in Lieu of Cash. We provide our executives the option to receive 50% of their short-term incentive compensation in restricted shares, and we provide an equity match award of up to 20% to encourage our executives to do so.

 

 

 

 

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RESULTS OF 2017 ADVISORY VOTES ON EXECUTIVE COMPENSATION

In establishing and recommending compensation for 2017 performance for our NEOs, the Compensation Committee reviewed the results of the vote on the non-binding resolution to approve the 2016 compensation of our NEOs at our 2017 annual meeting of shareholders. Prior to the 2017 annual meeting, we reached out to our largest institutional shareholders to discuss our compensation practices and corporate governance issues. These shareholders did not raise any concerns with respect to either topic. The absence of such concerns was further reflected in the vote at our 2017 annual meeting, where approximately 96.6% of the shares voted were voted in support of the compensation paid to our NEOs for 2016.

Based on the results of the non-binding shareholder advisory vote on the frequency of shareholder votes on executive compensation at our 2017 annual meeting of shareholders, the Compensation Committee and the Board determined that shareholder advisory votes on the compensation of NEOs will take place every year, until and unless our shareholders vote to hold such advisory votes with a different frequency, at which time our Board will carefully consider the shareholder vote resulting from the proposal and continue to evaluate the options for how frequently we hold "say-on-pay" votes.

COMPENSATION CONSULTANT

The Compensation Committee has engaged FTI Consulting to serve as the Compensation Committee's compensation consultant and to provide recommendations regarding various compensation decisions to be made by the Compensation Committee. The Compensation Committee took FTI Consulting's recommendations into account in making base salary determinations and incentive compensation awards to our NEOs.

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PEER GROUP AND BENCHMARKING

In making compensation decisions, the Compensation Committee compares the Company's compensation programs and performance to certain peer group companies. For compensation decisions made in 2017 and early 2018 with respect to fiscal year 2017 performance, the Compensation Committee, with the assistance of FTI Consulting, used a peer group consisting of the following companies:

 
   
   
  Comparable Group Rationale
Company   Implied Market
Capitalization
($mm)
  Enterprise
Value
($mm)
  Retail
REIT
  Comparable
Product
Assets
  Implied Market
Capitalization
  Enterprise
Value

Acadia Realty Trust

    2,576.1     4,807.5   ü   ü   ü   ü

Agree Realty Corporation

    1,460.1     1,919.5   ü       ü   ü

Cedar Realty Trust, Inc.

    541.7     1,327.7   ü   ü   ü   ü

DDR Corp.

    2,962.0     7,495.2   ü   ü   ü   ü

Pennsylvania Real Estate Investment Trust

    840.7     2,866.2   ü       ü   ü

Ramco-Gershenson Property Trust

    1,125.0     2,295.2   ü   ü   ü   ü

Retail Opportunity Investments Corp.

    2,389.6     3,745.3   ü   ü   ü   ü

Retail Properties of America, Inc.

    2,931.9     4,762.5   ü   ü   ü   ü

Seritage Growth Properties

    2,304.8     3,485.3   ü       ü   ü

Tanger Factory Outlet Centers, Inc.

    2,461.0     4,226.2   ü   ü   ü   ü

Urban Edge Properties

    3,124.4     4,152.5   ü   ü   ü   ü

Urstadt Biddle Properties, Inc.

    840.7     1,386.6   ü   ü   ü   ü

Washington Prime Group Inc.

    1,555.1     4,705.0   ü       ü   ü

Weingarten Realty Investors

    4,236.1     6,588.1   ü   ü   ü   ü

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kite Realty Group Trust

  1,631.2   3,313.6                

Peer Median (Excluding KRG)

  2,347.2   3,948.9                

As of 11/14/17

                           

Our peer group is designed to include REITs that invest in shopping center assets and select regional malls. Our peer group remained unchanged from 2016, except for the removal of Equity One, Inc., which merged into Regency Centers Corporation; the removal of Regency Centers Corporation, which was no longer of comparable size following such merger; and the addition of Agree Realty Corporation, which is a retail REIT that is comparable in terms of implied market capitalization and enterprise value.

Although the Compensation Committee uses peer group data to guide its review of our NEOs' total compensation and generally reviews the compensation data of the peer group and industry to understand market competitive compensation, the Compensation Committee does not benchmark compensation to a specific percentage of the compensation of this comparative group or otherwise apply a formula or assign this comparative group a relative weight.

COMPONENTS OF EXECUTIVE COMPENSATION

This section describes the three components of compensation that form the basis for the Compensation Committee's compensation decisions related to the 2017 performance of our NEOs—base salaries, short-term incentive compensation and share-based incentive compensation awards. This section also discusses why we pay each component and the methodology the Compensation Committee used to determine the amounts to pay to each.

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BASE SALARIES

Base salaries are intended to provide our NEOs with a fixed and certain amount of compensation for services provided. The Compensation Committee determines the base salary level of our NEOs by evaluating, among other things, the responsibilities of the position held, the experience of the individual and the average base salaries of similarly situated employees in the Company's peer group. Base salaries for our NEOs typically are established in the first quarter of the year. The Compensation Committee reviewed base salaries in the first quarter of 2017 and decided to increase them as reflected in the table below to bring them more in line with the Company's peers.

 
   
  Base Salary  
Named Executive Officer   2016   2017   Percentage Change
(from 2016 to 2017)
 
                     
John A. Kite   $ 700,000   $ 725,000   3.6%  
Thomas K. McGowan   $ 450,000   $ 465,000   3.3%  
Daniel R. Sink   $ 400,000   $ 415,000   3.8%  
Scott E. Murray   $ 335,000   $ 365,000   9.0%  

Each of our NEOs has an employment agreement with us. Each employment agreement prohibits the NEO's base salary from being reduced by us during the term of the agreement without the applicable executive's consent. Thus, each NEO's prior year's salary effectively serves as a minimum requirement for the NEO's salary for the ensuing year. The Compensation Committee has complete discretion to determine whether an increase in a NEO's base salary is merited. Future adjustments, if any, to the NEOs' base salaries will be in the sole discretion of the Compensation Committee.

SHORT-TERM INCENTIVE COMPENSATION

The Compensation Committee awards executives with annual short-term incentive compensation as a means to motivate and reward our NEOs. In February 2017, the Compensation Committee approved targets and performance metrics to evaluate 2017 performance using a formulaic approach. In February 2018, the Compensation Committee approved short-term incentive compensation for our NEOs based on these targets and metrics. Award determinations with respect

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to 2017 were based on the achievement of the following objective corporate performance metrics and a subjective assessment of each individual executive's performance, weighted as indicated:

PERFORMANCE
CRITERIA
  WEIGHTING   RATIONALE FOR INCLUDING IN PLAN
         
Funds From Operations ("FFO") per share, as adjusted   25%   Encourages focus on profitability as measured by the most frequently referenced REIT earnings measure; assigned highest weight because the Compensation Committee believes that our NEOs are principally accountable for the Company's financial performance as a whole

Same-property NOI growth (excluding redevelopment)

 

20%

 

Encourages focus on internal growth of existing portfolio as measured by a metric widely used by investors to compare the Company to its peers; assigned the second highest weight because it can be an indicator of how effectively the Company is managing its properties

Leverage (net debt to adjusted EBITDA ratio)

 

15%

 

Encourages focus on growth of the existing portfolio while maintaining leverage within acceptable levels; the Board has encouraged management to reduce leverage to improve the Company's ability to weather economic challenges and because the Board believes that public companies with lower leverage are viewed more favorably compared to higher leveraged companies

Portfolio lease percentage

 

10%

 

Seeks to reward executives for maintaining high occupancy levels

Number of 3-R project starts

 

10%

 

Seeks to reward executives for implementing the Company's 3-R initiative, which the Compensation Committee believes will help to drive both occupancy and same-property NOI

Individual performance objectives

 

20%

 

Represents the executive's success in fulfilling his or her responsibilities to the Company and in executing the Company's strategic business plan

In February 2017, the Compensation Committee established threshold, target and outperformance values for each of the foregoing corporate performance metrics. The target levels were consistent with published guidance or, for metrics for which public guidance was not provided, the Company's strategic plan. For 2017, each of our NEOs was eligible to receive a short-term incentive

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compensation award at the threshold, target or outperformance level equal to the following percentages of his annual base salary:

 
  % of Base Salary  
Named Executive Officer   Threshold   Target   Outperformance  
                     
John A. Kite   75%   125%   250%  
Thomas K. McGowan   45%   75%   150%  
Daniel R. Sink   45%   75%   150%  
Scott E. Murray   45%   75%   150%  

In reviewing Company performance, the Compensation Committee compared our 2017 results under each of the above performance criteria to the following ranges:

Factor    
  Threshold   Target   Outperformance    
  Actual Results
                         
2017 FFO (per diluted common share)   ARROW   $2.00   $2.03   $2.06   ARROW   $2.05 per diluted common share (adjusted for dispositions)

Same-property NOI growth

 

ARROW

 

2.0%

 

2.5%

 

3.0%

 

ARROW

 

2.9%

Leverage (net debt to adjusted EBITDA)

 

ARROW

 

7.0x

 

6.75x

 

6.5x

 

ARROW

 

6.92x

Portfolio lease percentage

 

ARROW

 

94.5%

 

95.0%

 

96.0%

 

ARROW

 

94.8%

Number of 3-R project starts

 

ARROW

 

3

 

5

 

7

 

ARROW

 

5

The Compensation Committee set the above ranges based on recommendations by our executive officers and subsequent review with the Company's independent compensation consultant. The target ranges for both per share FFO and same-property NOI growth were consistent with the Company's disclosed guidance at the time they were set. We note that the FFO target for 2017 ($2.03) was slightly lower than 2016 actual results ($2.07) because the Company expected to sell in 2017 – and ultimately sold – certain non-core properties, which diluted FFO and justified a year-over-year decrease in the target. Similarly, we note that the same-property NOI growth target for 2017 (2.5%) was slightly lower than 2016 actual results (2.9%) due to the projected disruption in the retail environment, which could include additional tenant bankruptcies, slower tenant growth, and other items outside of management's control. The target for portfolio lease percentage remained flat from 2016 to 2017 because the Compensation Committee believed that the Company was nearing maximum occupancy and that management would therefore be focusing more on retaining tenants and replacing unexpected vacancies rather than increasing occupancy.

The Compensation Committee ultimately applied the above ranges when making short-term incentive compensation determinations in February 2018 with respect to its evaluation of our NEOs' 2017 performance. With respect to FFO, we note that, when it initially set the 2017 FFO target, the Compensation Committee noted that the target's high relative weight could serve as a disincentive for management to sell assets and reduce leverage because any asset sales beyond those built into the Company model would necessarily dilute FFO and cause the Company to miss its FFO target. To avoid creating such a disincentive, the Compensation Committee included language in the resolution setting the FFO target stating that the Company's FFO performance would be adjusted to

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reflect any property sales in excess of those assumed in the Company's base model. Because the Company ultimately sold approximately $23 million more in operating properties for 2017 than had been assumed in its base model, the Compensation Committee adjusted the Company's FFO performance to omit $0.01 of FFO dilution caused by these excess sales.

With respect to the individual performance component of the short-term incentive compensation determination, the Compensation Committee concluded that each NEO merited a target performance rating, based on the combination of strong operational performance and sensitivity to our short-term TSR performance. While the management team had significant operational accomplishments, the Compensation Committee, in consultation with FTI Consulting, determined that the individual performance awards should be set at no greater than target level. The Compensation Committee considered that our executive officers accomplished the following achievements in making this determination:

The Compensation Committee also considered the input of Mr. Kite when assessing the individual performance component with respect to Messrs. McGowan, Sink and Murray, principally because the Compensation Committee believes that Mr. Kite's input is valuable given his knowledge of our operations, the day-to-day responsibilities and performance of our other NEOs, the real estate industry generally and the markets in which we operate.

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When evaluating each NEO's individual performance, the Compensation Committee also considered the Company's TSR, both on an absolute basis and as compared to our peers. After extensive consideration and in consultation with FTI Consulting, the Compensation Committee concluded that:

Based on the above formulas, the Company's actual results and the Compensation Committee's assessment of each NEO's performance, the following short-term incentive compensation was awarded. The awards were denominated in dollars and paid in cash with an option for each executive officer to receive a portion of the short-term incentive compensation in restricted common shares:

Named Executive Officer   2017 Year End
Short-Term
Incentive
Compensation
  % of 2017
Base
Salary
  2016 Year End
Short-Term
Incentive
Compensation
  % of 2016
Base
Salary
 
                           
John A. Kite   $ 1,150,817   159%   $ 990,500   142%  
Thomas K. McGowan   $ 442,866   95%   $ 382,050   85%  
Daniel R. Sink   $ 395,246   95%   $ 339,600   85%  
Scott E. Murray   $ 347,626   95%   $ 246,560   74%  

The Compensation Committee determined that each officer would be given the option to receive up to 50% of his short-term incentive compensation in restricted common shares, which would vest ratably over three years. To further align the interests of the NEOs with the interests of shareholders and to encourage them to take a long-term view of performance, the Compensation Committee determined that the Company would match an officer's election with additional restricted common shares by up to 20%, depending on the extent to which he elected to receive restricted common shares (i.e., up to an additional 20% in restricted common shares could be awarded). These additional restricted common shares, if any (the "Company match award"), would vest ratably over three years. None of our NEOs elected to take the Company match award for 2017.

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SHARE-BASED INCENTIVE COMPENSATION AWARDS

All share-based compensation awards to NEOs are granted by the Compensation Committee. The Compensation Committee awarded share-based incentive compensation because it believes such compensation aligns the interests of our senior executives with those of our shareholders, consistent with our pay-for-performance philosophy. For 2017, our equity compensation program was bifurcated into two components (the majority of which vests based on objective Company performance metrics) as follows:

    Annual Equity Awards  
                 
    PSUs (performance-based): Provides incentive to achieve long-term, objective goals and relative share performance as compared to our shopping center peers       Time-Based Restricted Awards: Promotes the retention of our executives over a multi-year vesting period, plus a three-year holding period following the vesting date    
                 
    60% Core LTI Compensation
  40% Core LTI Compensation

During the first few months of each year, the Compensation Committee typically reviews the prior year's performance of our NEOs and the Company, both on an absolute basis and relative to our peers, and determines whether to make share-based incentive compensation awards to our NEOs. The grant date of such awards is established when the Compensation Committee approves the grant and all key terms have been determined. In some cases, the Compensation Committee may select a future date as the grant date, so that the effective date of the grant is after the release of an earnings announcement or other material news.

Annual Equity Incentive Awards for 2017 Performance.    For its 2017 annual equity incentive awards, the Compensation Committee awarded PSUs that may be earned based on relative and absolute TSR over a three-year period and set targets for time-based awards to be determined at the end of the year.

The Compensation Committee approved target long-term incentive values at approximately the same cumulative amount as 2016, allocating 60% to PSUs and 40% to time-based share awards. The Compensation Committee set the following targets for each NEO:

Named Executive Officer   Total Target
Value
  =   Target PSU
Value
  +   Target
Time-Based
Award Value
 

                           

John A. Kite

  $ 1,700,000   =   $ 1,020,000   +   $ 680,000  

Thomas K. McGowan

  $ 700,000   =   $ 420,000   +   $ 280,000  

Daniel R. Sink

  $ 560,000   =   $ 336,000   +   $ 224,000  

Scott E. Murray

  $ 500,000   =   $ 300,000   +   $ 200,000  

PSU Awards.    The above-referenced PSUs may be earned over a three-year performance period from January 1, 2017, to December 31, 2019. One half of the target PSUs is subject to an absolute

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TSR requirement. For the NEOs to earn any portion of these "Absolute TSR PSUs," the Company must satisfy the following absolute TSR hurdles for the three-year period:

 
  Absolute TSR
Hurdles
(%)
  Percentage of Total
Target PSUs Earned
 

             

Threshold

  18%   25%  

Target

  24%   50%  

Maximum

  36%   100%  

If the Company's absolute TSR is less than the threshold set forth in the table above, then no Absolute TSR PSUs will be earned. If the Company's absolute TSR falls between the applicable hurdles, then the number of Absolute TSR PSUs earned will be determined based on linear interpolation.

The other half of the target PSUs is subject to a relative TSR requirement. For the NEOs to earn any portion of these "Relative TSR PSUs," the Company must satisfy the following relative TSR hurdles for the three-year period, as measured against the fifteen companies listed as the Company's compensation peer group in its 2017 proxy statement:

 
  Relative TSR
Hurdles
(Percentile)
  Percentage of Total
Target PSUs
Earned
 

             

Threshold

  30th   25%  

Target

  50th   50%  

Maximum

  80th   100%  

If the Company's relative TSR percentile is less than the threshold set forth in the table above, then no Relative TSR PSUs will be earned. If the Company's relative TSR percentile falls between the applicable hurdles, then the number of Relative TSR PSUs earned will be determined based on linear interpolation.

The maximum number of PSUs earned (including the Absolute TSR PSUs and the Relative TSR PSUs) cannot exceed 200% of the target PSUs granted. Any PSUs earned at the end of the three-year period will be fully vested.

Time-Based Award Targets and Awards.    The Compensation Committee set time-based equity incentive award targets equal to 40% of the overall target for the annual equity incentive award for 2017. The actual value of the ultimate restricted share award could vary upward or downward from the target value based on the Compensation Committee's evaluation of 2017 performance. The Compensation Committee had discretion to award restricted shares worth between 50% and 150% of the target value for each NEO. Based on its review of 2017 performance, in February 2018, the Compensation Committee determined that each executive officer would be awarded the target value for his time-based awards, resulting in the following value of time-based restricted awards: Mr. Kite – $680,000; Mr. McGowan – $280,000; Mr. Sink – $224,000; and Mr. Murray – $200,000.

In making this determination, the Compensation Committee took into account its assessment that, from an operational perspective, the Company performed strongly in 2017 despite significant disruption in the retail industry. The Company continued to increase rents year-over-year; it

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successfully completed its scheduled 3-R projects on time and on budget; it surpassed its 90% small shop leased goal one year earlier than anticipated; it positioned itself to increase its dividend by another 5%; it continued to successfully diversify its tenant lineup, bringing in several experiential, food-based, and serviced-based tenants; it continued to improve portfolio quality by selling non-core assets and raising ABR; and it continued to strengthen its balance sheet.

As it did with the short-term incentive compensation, the Compensation Committee considered the extent to which – if at all – it should factor in the Company's TSR in granting the time-based equity incentive awards. After extensive consultation with FTI Consulting, the Compensation Committee concluded that:

Based on all of these factors, the Compensation Committee decided to limit the time-based equity awards to the target level for 2017 for similar reasons as those listed with regard to the individual performance element of the annual cash bonus. With respect to the annual equity awards, an executive may choose to receive LTIP units instead of restricted shares. Whether an executive officer chooses to receive LTIP units or restricted common shares, the number of LTIP units or shares awarded is based on the closing price of our common shares on the grant date. Each of our executive officers elected to receive LTIP units instead of time-based restricted common shares, which, based on the closing price of our common shares on February 23, 2018, of $15.04, resulted in LTIP unit awards in the following amounts:

Named Executive Officer   LTIP Units
($ value)
  LTIP Units
(# of units)
 

John A. Kite

  $ 680,000   45,212  

Thomas K. McGowan

  $ 280,000   18,617  

Daniel R. Sink

  $ 224,000   14,893  

Scott E. Murray

  $ 200,000   13,297  

As would have been the case if granted as time-based restricted common shares, these LTIP units vest ratably over three years from the date of award, which was February 23, 2018 and will be subject to an additional two-year post-vesting holding period. While the Compensation Committee determined to make the foregoing grants to the NEOs based on 2017 performance, the awards were made in February 2018, and, therefore, the value of such awards are not part of 2017 compensation in the Summary Compensation Table included in this proxy statement.

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STATUS OF PERFORMANCE – BASED EQUITY AWARDS GRANTED SINCE 2015

To assist with calculating realizable pay, we provide the following updates with respect to ongoing and completed performance-based equity awards made to our CEO in the past three years:

Grant Date   Threshold
Payout
(Units)
  Target
Payout
(Units)
  Maximum
Payout
(Units)
  Performance
Period
  Target/Actual
Earned Date
  Actual
Payout
                                 
3/4/15   9,213   18,427   36,854   3 years   12/31/17   0

1/14/16 (2016 OPP)

 



 



 


167,156

 

3 years

 


12/31/18

 

Undetermined, but tracking no payout

2/17/16

 


9,913

 


19,826

 


39,652

 

3 years

 


12/31/18

 

Undetermined, but tracking no payout

2/15/17

 


21,964

 


43,928

 


87,856

 

3 years

 


12/31/19

 

Undetermined, but tracking slightly above threshold

2018 COMPENSATION PROGRAM HIGHLIGHTS

For 2018, the Compensation Committee approved the following compensation structure:

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OTHER COMPENSATION PLANS AND PERSONAL BENEFITS

We maintain a defined contribution plan (the "401(k) Plan"). All of our full-time employees are eligible to participate in the 401(k) Plan and are permitted to contribute up to the maximum percentage allowable without exceeding the limits of the Internal Revenue Code. All amounts deferred by a participant, as well as the contributions we make under the 401(k) Plan, vest immediately in the participant's account. We may make "matching contributions" equal to 100% of the participant's contribution up to 3% of the employee's salary and 50% of the participant's contribution over 3% and up to 5% of the participant's salary, not to exceed an annual maximum determined under the Internal Revenue Code ($18,000 for 2017). During 2017, we made matching contributions totaling $32,400 to the NEOs.

We periodically provide certain benefits to our employees that we believe are important to attract and retain talented individuals. These benefits in 2017 included payments related to health care and life insurance. These benefits provided to our NEOs in 2017 are described in the Summary Compensation Table below. We do not offer defined benefit pension or supplemental executive retirement plans to any of our employees.

SHARE OWNERSHIP REQUIREMENTS

Pursuant to the Company's existing policy that was adopted in 2015, our NEOs are required to own a number of our common shares or units of limited partnership interest of our Operating Partnership with an aggregate value calculated as a multiple of his respective base salary, as follows:

Named Executive Officer   Multiple of
Base Salary
  Value of Minimum Share
Ownership Requirement
(based on 2017 Base Salary)
 

John A. Kite

  10x   $ 7,250,000  

Thomas K. McGowan

  3x   $ 1,395,000  

Daniel R. Sink

  3x   $ 1,245,000  

Scott E. Murray

  2x   $ 730,000  

Each of these NEOs had or will have until the later of five years from the adoption of the policy in 2015 or his becoming a NEO to comply with the minimum share ownership requirement.

CLAWBACK POLICY

In March 2017, the Board approved the adoption of a clawback policy for incentive-based executive compensation (the "Clawback Policy"). The Clawback Policy was adopted with the intent that it will meet the scope of the currently proposed SEC Rule 10D-1 and ultimately the associated NYSE listing exchange rules. Under the Clawback Policy, in the event that the Company is required to prepare an accounting restatement due to the Company's material noncompliance with a financial reporting requirement, the Company shall make reasonable efforts to recover from any current or former executive officer the amount of certain incentive-based compensation in excess of what would have been paid or granted to that executive officer under the circumstances reflected by the accounting restatement. The Clawback Policy applies to any incentive-based compensation paid to an executive officer within the three-year period preceding the date of the restatement.

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TAX LIMITS ON EXECUTIVE COMPENSATION

Under Section 162(m) of the Internal Revenue Code, a publicly held corporation is generally limited to a $1 million annual tax deduction for compensation paid to each of its "covered employees." Prior to the enactment of the Tax Cuts and Jobs Act (the "Tax Act"), which was signed into law on December 22, 2017, a publicly held corporation's covered employees included its chief executive officer and three other most highly compensated executive officers (other than the chief financial officer), and certain "qualified performance-based compensation" was excluded from the $1 million deduction limit. The Tax Act made certain changes to Section 162(m), effective for taxable years beginning after December 31, 2017. These changes include, among others, expanding the definition of "covered employee" to include a publicly held corporation's chief financial officer and repealing the qualified performance-based compensation exception, subject to a transition rule for remuneration provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after that date.

Although the Compensation Committee is mindful of the limits imposed by Section 162(m), even if it is determined that Section 162(m) applies or may apply to certain compensation packages, the Compensation Committee nevertheless reserves the right to structure the compensation packages and awards in a manner that may exceed the limitation on deduction imposed by Section 162(m) if it determines that such payments are consistent with our pay-for-performance philosophy and are in the best interests of the Company.

PAY RATIO DISCLOSURE

Pursuant to Item 402(u) of SEC Regulation S-K and Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, presented below is the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee (excluding our CEO). The ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u).

The Company identified its "median employee" as of December 31, 2017, by using Box 1 from Form W-2 for all Company employees employed as of that date. The Company annualized the reported compensation for all permanent employees that were hired during 2017. The Company did not make any cost-of-living or other adjustments.

In 2017, the total annual compensation for the Company's median employee was $87,510. The median employee was an hourly employee, and this total compensation included wages for regular hours worked; wages for overtime; bereavement pay; holiday pay; paid-time-off pay; a subjective, annual bonus; the Company's contributions towards dental, health and life insurance; the Company's contribution to the employee's heath savings account; and the Company's contribution to the employee under the 401(k) Plan. Using the total annual compensation from the Summary Compensation Table at page 45, our CEO's total annual compensation was $3,396,348. The ratio of our CEO's annual total compensation to our median employee's annual total compensation for fiscal year 2017 was 38.8 to 1.

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SPECIAL NOTE REGARDING NON-GAAP FINANCIAL MEASURES

This Compensation Discussion and Analysis contains certain non-GAAP financial measures, which are described in more detail as follows:

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COMPENSATION COMMITTEE REPORT

The Compensation Committee of our Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

    Respectfully submitted,

 

 

The Compensation Committee of the Board of Trustees

 

 

WILLIAM E. BINDLEY(Chairman)
VICTOR J. COLEMAN
DAVID R. O'REILLY

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COMPENSATION OF EXECUTIVE OFFICERS AND TRUSTEES

The following tables contain certain compensation information for our NEOs. Our NEOs for 2017 consist of our Chief Executive Officer; Chief Operating Officer; Chief Financial Officer; and Executive Vice President, General Counsel and Corporate Secretary.

SUMMARY COMPENSATION TABLE

The following table sets forth a summary of all compensation earned, awarded or paid to the NEOs for the fiscal years ended December 31, 2017, 2016 and 2015.

Name and Principal Position
  Year   Salary (1)   Bonus   Share and
PSU
Awards (2)
  Non-Equity
Incentive Plan
Compensation (3)
  All Other
Compensation (4)
  Total  

John A. Kite

  2017   $ 725,000     $ 1,504,875   $ 1,150,817   $ 15,656   $ 3,396,348  

Chairman and Chief

  2016   $ 700,000     $ 1,827,015   $ 990,500   $ 14,074   $ 3,531,589  

Executive Officer

  2015   $ 700,000     $ 1,021,162   $ 1,006,250   $ 12,342   $ 2,739,754  

                                           

Thomas K. McGowan

  2017   $ 465,000     $ 608,004   $ 442,866   $ 21,561   $ 1,537,431  

President and Chief

  2016   $ 450,000     $ 749,063   $ 382,050   $ 20,580   $ 1,601,693  

Operating Officer

  2015   $ 450,000     $ 386,231   $ 388,125   $ 19,312   $ 1,243,668  

                                           

Daniel R. Sink

  2017   $ 415,000     $ 501,708   $ 395,246   $ 26,456   $ 1,338,410  

Executive Vice President

  2016   $ 400,000     $ 614,868   $ 339,600   $ 24,674   $ 1,379,142  

and Chief Financial Officer

  2015   $ 400,000     $ 359,770   $ 345,000   $ 22,742   $ 1,127,512  

                                           

Scott E. Murray

  2017   $ 365,000     $ 418,125   $ 347,626   $ 26,456   $ 1,157,207  

Executive Vice President,

  2016   $ 335,000     $ 382,585   $ 246,560   $ 24,077   $ 988,222  

General Counsel and

  2015   $ 320,000     $ 132,594   $ 239,200   $ 22,742   $ 714,536  

Corporate Secretary

                             

(1)
"Salary" column represents total salary earned in each of the fiscal years shown.
(2)
The amounts disclosed in this column for 2017 reflect the aggregate grant date fair value of (a) the share-based incentive compensation for the 2016 fiscal year awarded to each NEO in February 2017 as LTIP units, and (b) PSUs awarded in February 2017 which will be earned, if at all, over a three-year performance period based 50% on absolute TSR and 50% on relative TSR, as follows:
 
  Share-Based Incentive
Awards for 2016
Performance
(LTIP Units)
  Performance Share
Units for 2017-2019
Performance
Period (PSUs)
   

John A. Kite

  $ 446,234   $ 1,058,641    

Thomas K. McGowan

  $ 172,107   $ 435,897    

Daniel R. Sink

  $ 152,981   $ 348,727    

Scott E. Murray

  $ 106,777   $ 311,348    

For the PSUs awarded in February 2017, the values at the grant date assuming that the highest level of performance conditions will be achieved were as follows: $2,040,000 for Mr. Kite; $840,000 for Mr. McGowan; $672,000 for Mr. Sink; and $600,000 for Mr. Murray.

The amounts disclosed in this column for 2016 reflect the aggregate grant date fair value of (a) restricted common shares awarded in March 2016 as match award incentive grants relating to 2015 short-term compensation, (b) the share-based incentive compensation for the 2015 fiscal year awarded to each NEO in February 2016 as LTIP units, (c) PSUs awarded in February 2016 which will be earned, if at all, over a three-year performance period based on

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  Match Award
Restricted Shares
  Share-Based Incentive
Awards for 2015
Performance
(LTIP Units)
  Performance Share
Units for 2016-2018
Performance
Period (PSUs)
  OPP Awards  

John A. Kite

      $ 519,738   $ 674,877   $ 632,400  

Thomas K. McGowan

      $ 200,459   $ 260,304   $ 288,300  

Daniel R. Sink

  $ 10,000   $ 178,198   $ 231,370   $ 195,300  

Scott E. Murray

      $ 118,799   $ 161,486   $ 102,300  

For the PSUs awarded in February 2016, the values at the grant date assuming that the highest level of performance conditions will be achieved were as follows: $1,050,000 for Mr. Kite; $405,000 for Mr. McGowan; $360,000 for Mr. Sink; and $251,250 for Mr. Murray. For the OPP Awards granted in January 2016, the values at the grant date assuming that the highest level of performance conditions will be achieved were as follows: $2,040,000 for Mr. Kite; $930,000 for Mr. McGowan; $630,000 for Mr. Sink; and $330,000 for Mr. Murray.

The amounts disclosed in this column for 2015 reflect the aggregate grant date fair value of (a) restricted common shares awarded in February 2016 as match award incentive grants relating to 2015 short-term incentive compensation, (b) the share-based incentive compensation for the 2014 fiscal year awarded to each NEO in February 2015 as restricted shares, some of which restricted shares were later converted into LTIP units on a one-for-one basis, and (c) PSUs awarded in February 2015 which will be earned, if at all, over a three-year performance period based on relative TSR, as follows.
 
  Match Award
(Restricted Shares)
  Share-Based Incentive
Awards for 2014
Performance
(Restricted Shares or
LTIP Units)
  Performance Share
Units for 2015-2017
Performance
Period (PSUs)
 
John A. Kite       $ 441,080   $ 580,082  
Thomas K. McGowan       $ 162,503   $ 223,728  
Daniel R. Sink   $ 9,983   $ 150,896   $ 198,891  
Scott E. Murray           $ 132,594  

For the PSUs awarded in March 2015, the values at the grant date assuming that the highest level of performance conditions will be achieved were as follows: $1,050,000 for Mr. Kite; $405,000 for Mr. McGowan; $360,000 for Mr. Sink; and $240,000 for Mr. Murray

All of the restricted shares represented by the amounts set forth in this column will vest ratably over three to five years from the date of grant, and all 2017, 2016 and 2015 awards are also subject to a three-year "no-sell" restriction prohibiting the executive officers from transferring the shares for a three-year period after the award vests, except to the extent necessary to satisfy tax obligations. The LTIP units will vest, if at all, only following the relevant performance period as described in more detail above in "Compensation Discussion and Analysis."
(3)
Represents the amount of the annual short-term incentive compensation earned by each NEO for fiscal year 2017, fiscal year 2016 and fiscal year 2015, respectively, including, if any, the amount of such short-term incentive compensation the NEO elected to receive in restricted common shares in lieu of cash, but excluding the amount of restricted common shares awarded as match award incentive grants relating thereto.
(4)
The amount shown in the "All Other Compensation" column reflects for each NEO:
    the value of premiums paid pursuant to health insurance benefits provided by the Company;
    the value of premiums paid pursuant to life insurance benefits provided by the Company; and
    matching contributions allocated by the Company pursuant to the 401(k) Plan.

The amount attributable to each such perquisite or personal benefit (as defined by SEC rules) for each NEO set forth above does not exceed the greater of $25,000 or 10% of the total amount of perquisites or benefits received by such NEO. The amount attributable to each item that is not a perquisite or personal benefit (as defined by SEC rules) does not exceed $10,000.

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GRANT OF PLAN-BASED AWARDS IN 2017

The following table sets forth information concerning the grants of plan-based awards made to each NEO in the fiscal year ended December 31, 2017.

 
   
   
   
   
   
   
   
  All Other
Share
Awards:
Amount of
Shares or
Share Units
(#)
  Full Grant
Date Fair
Value of
Share and
Option
Awards ($)
 
 
   
  Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards (1)
  Estimated Future Payouts
Under Equity Incentive
Plan Awards (#)
 
Name and
Principal Position
   
 
  Grant Date   Threshold   Target   Maximum   Threshold   Target   Maximum  

John A. Kite

  2/15/2017   $ 543,750   $ 906,250   $ 1,812,500         22,609  (2) $ 446,234  

Chairman and Chief

  2/15/2017  (3)       21,964   43,928   87,856     $ 1,058,665  

Executive Officer

                                     

                                                       

Thomas K. McGowan

  2/15/2017   $ 209,250   $ 348,750   $ 697,500         8,720  (2) $ 172,107  

President and Chief

  2/15/2017  (3)       9,044   18,088   36,176     $ 435,921  

Operating Officer

                                     

                                                       

Daniel R. Sink

  2/15/2017   $ 186,750   $ 311,250   $ 622,500         7,751  (2) $ 152,981  

Executive Vice

  2/15/2017  (3)       7,236   14,471   28,942     $ 348,751  

President and Chief
Financial Officer


 
                                   

                                                       

Scott E. Murray

  2/15/2017   $ 164,250   $ 273,750   $ 547,500         5,410  (2) $ 106,777  

Executive Vice

  2/15/2017  (3)       6,460   12,920   25,840     $ 311,372  

President, General
Counsel & Corporate
Secretary



 
                                   

(1)
Represents the possible payouts under the Company's annual short-term incentive compensation plan set by the Compensation Committee in February 2017. The amount of annual short-term incentive compensation eligible to be earned by each of the NEOs was based upon objective corporate performance metrics and a subjective assessment of each individual executive's performance. The actual amount earned by each NEO in 2017 is reported under the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.
(2)
Represents LTIP units awarded in February 2017 as share-based incentive compensation for the 2016 fiscal year. These LTIP units, will vest ratably over a period of three years, contingent on continued service by the officer through the applicable vesting date. The awards are also subject to a three-year "no-sell" restriction prohibiting the executive officers from transferring the units for a three-year period after the award vests, except to the extent necessary to satisfy tax obligations.
(3)
Represents PSUs awarded in February 2017 which will be earned, if at all, over a three-year performance period based 50% on absolute TSR and 50% on relative TSR. The units that are earned vest at the end of the performance period.

ADDITIONAL INFORMATION RELATED TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN BASED-AWARDS TABLE

Employment Agreements.    On July 28, 2014, we entered into new employment agreements with each of Messrs. Kite, McGowan and Sink. These new employment agreements were effective as of July 1, 2014 and superseded their previous agreements with us, which were initially entered into in 2004 in connection with our initial public offering and renewed annually each year thereafter. In addition, on August 6, 2014, we entered into an employment agreement with Mr. Murray in connection with his joining our Company.

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Executive Base Salary Annual Cash Incentive Target

John A. Kite

$ 725,000 125% of Base Salary

Thomas K. McGowan

$ 465,000 75% of Base Salary

Daniel R. Sink

$ 415,000 75% of Base Salary

Scott E. Murray

$ 365,000 75% of Base Salary

Bonuses and Equity Awards.    Each of our NEOs received in 2018 short-term incentive compensation related to 2017 performance that was paid in the form of cash. For a discussion of these awards, including their material terms and features, please see "Compensation Discussion and Analysis—Components of Executive Compensation—Short-Term Incentive Compensation" and the "Summary Compensation Table," including footnote 3 to such table. In 2017, 2016 and 2015, each of our NEOs received discretionary bonuses paid in the form of cash, common shares, and/or LTIP units related to 2016, 2015 and 2014 performance, respectively. See footnotes 2 and 3 to the "Summary Compensation Table" above. In recent years, we have also made additional grants of restricted common shares and/or LTIP units to each of our NEOs. See "Compensation Discussion and Analysis—Components of Executive Compensation—Grants of Share-Based Incentive Compensation Awards," the "Summary Compensation Table" and the "Grants of Plan Based Awards in 2017" Table, including the footnotes to such tables.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2017

The following table sets forth the outstanding equity awards for each NEO as of December 31, 2017.

 
  Option Awards (1)   Share Awards  
Name and
Principal Position
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
  Option
Exercise
Price
($) (2)
  Option
Expiration
Date
  Number of
Shares or
Units of
Shares That
Have Not
Vested
(#) (3)
  Market
Value of
Shares or
Units of
Shares That
Have Not
Vested
($) (4)
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested
(#) (5)
  Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
that Have
Not Vested
($) (6)
 

John A. Kite

  50,664     $ 49.16   3/7/2018          

Chairman and Chief

  15,000     $ 14.24   2/23/2019          

Executive Officer

  12,500     $ 16.60   2/22/2020          

  19,068     $ 21.04   2/18/2021          

          140,997   $ 2,763,541   150,522   $ 3,095,284  

                                                 

Thomas K. McGowan

  34,070     $ 49.16   3/7/2018          

President and Chief

  1,687     $ 16.60   2/22/2020          

Operating Officer

          50,825   $ 996,170   65,291   $ 1,359,465  

                                                 

Daniel R. Sink

  22,689     $ 49.16   3/7/2018          

Executive Vice President and Chief Financial Officer

          42,879   $ 840,428   48,064   $ 980,242  

                                                 

Scott E. Murray

                 

Executive Vice President, General Counsel and Corporate Secretary

          14,396   $ 282,162   31,700   $ 629,723  

(1)
Common share option awards vest over five years and expire ten years from the grant date. Twenty percent of the common share options vest on the one-year anniversary of the grant date and the remaining common share options vest monthly over the subsequent 48 months.
(2)
Takes into account our one-for-four reverse share split that occurred in August 2014.
(3)
Represents restricted common share awards granted prior to January 1, 2018 that are not fully vested as of December 31, 2017, all of which vest ratably over three to five years beginning on the first anniversary date of the grant and are not subject to any performance criteria, and in some cases are subject to a three-year "no-sell" restriction prohibiting the executive officers from transferring the shares for a three-year period after the award vests, except to the extent necessary to satisfy tax obligations. Also represents restricted shares that were granted July 2, 2014 and converted into an equal number of LTIP units in June 2015; such LTIP units vest ratably over three to five years beginning on the first anniversary date of the grant, are not subject to any performance criteria, and are subject to a three-year "no-sell" restriction.

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Name   Grant Date   # of Shares or
Units Granted
  Vesting Period
(Years)
 

John A. Kite

  5/9/13   24,041   5  

  2/24/14   30,616   5  

  3/25/14   50,000   5  

  7/2/14   183,224   4  

  3/4/15   15,694   3  

  3/4/15   18,765   5  

  2/17/16   23,791   5  

  2/15/17   22,609   3  

                 

Thomas K. McGowan

  5/9/13   10,683   5  

  2/24/14   11,466   5  

  3/25/14   20,000   5  

  7/2/14   54,967   4  

  3/4/15   6,456   3  

  3/4/15   6,913   5  

  2/17/16   9,176   5  

  2/15/17   8,720   3  

                 

Daniel R. Sink

  5/9/13   9,150   5  

  2/24/14   10,472   5  

  3/25/14   15,000   5  

  7/2/14   36,644   4  

  3/4/15   5,270   3  

  3/4/15   6,419   5  

  2/17/16   2,265   3  

  2/17/16   8,157   5  

  2/15/17   7,751   3  

                 

Scott E. Murray

  8/19/14   11,587   5  

  2/17/16   5,438   5  

  2/15/17   5,410   3  
(4)
Based on the closing share price on December 29, 2017, of $19.60.
(5)
Represents grants of LTIP units under our 2016 OPP. Also represents the 2016 and 2017 awards of PSUs that may be earned over a three-year performance period from January 1, 2016, to December 31, 2018, and January 1, 2017, to December 31, 2019, respectively. An eligible payout of up to 200% of target may be earned depending on our TSR over the three-year measurement period in relation to specific percentiles of the peer group. Following Note 6 below is a table reflecting the grant date, the number of units and estimated market value (in each case, based on achieving threshold performance goals, except that if the previous fiscal year's performance exceeded the threshold, then based on the next higher performance measure that exceeds the previous fiscal year's performance), and grant type.
(6)
Represents payout value of unearned equity incentive plan awards. For the LTIP units under our 2016 OPP, we used the maximum potential payout in this table. The threshold value for these awards is $0. For the 2016 PSUs, the value was determined based on achieving the threshold performance goal and using the closing share price on December 29, 2017, of $19.60. For the 2017 PSUs, the value was determined based on achieving the target performance goal and

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Name   Grant Date   # of Units   Estimated
Market Value
  Grant Type

John A. Kite

  2/17/16   86,768   $ 2,040,000   LTIP units under 2016 OPP

  2/17/16   9,913   $ 194,295   PSUs

  2/15/17   43,928   $ 860,989   PSUs

                     

Thomas K. McGowan

  2/17/16   39,556   $ 930,000   LTIP units under 2016 OPP

  2/17/16   3,823   $ 74,931   PSUs

  2/15/17   18,088   $ 354,525   PSUs

                     

Daniel R. Sink

  2/17/16   26,796   $ 630,000   LTIP units under 2016 OPP

  2/17/16   3,398   $ 66,601   PSUs

  2/15/17   14,471   $ 283,632   PSUs

                     

Scott E. Murray

  2/17/16   14,036   $ 330,000   LTIP units under 2016 OPP

  2/17/16   2,372   $ 46,491   PSUs

  2/15/17   12,920   $ 253,232   PSUs

OPTION EXERCISES AND SHARES VESTED IN 2017

The following table sets forth the number of share options that were exercised during 2017 and the value realized on exercise, and the amounts and value of restricted common shares that vested during 2017 for each NEO.

 
  Option Awards   Share Awards  
Name and Principal
Position
  Number of Shares
Acquired on Exercise
(#)
  Value Realized on
Exercise ($)
  Number of Shares
or Units
Acquired on Vesting
  Value Realized on
Vesting ($) (1)
 

John A. Kite

    $   84,475   $ 1,711,748  

Chairman and Chief Executive Officer

                 

                         

Thomas K. McGowan

    $   29,057   $ 593,765  

President and Chief Operating Officer

                 

                         

Daniel R. Sink

    $   22,740   $ 470,698  

Executive Vice President and Chief Financial Officer

                 

                         

Scott E. Murray

    $   3,405   $ 71,606  

Executive Vice President, General Counsel and Corporate Secretary

                 

(1)
Value realized on vesting was determined using the closing price of the Company's common shares on the respective dates that the restricted shares vested.

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

We may be required to make certain payments to our NEOs in the event their services are terminated or we experience a change in control. Under the terms of our employment agreements with Messrs. Kite, Sink, McGowan and Murray, the amount of these payments (and whether we would be required to make them) depends on the nature of the executive's termination. The various termination and change in control scenarios and the amounts we would be required to pay upon the occurrence of each are described below.

Termination by us without "Cause" (including our non-renewal of the employment agreement) or by the NEO for "Good Reason"

  In this scenario, the NEO would be entitled to:

compensation accrued at the time of termination

a lump sum severance payment equal to his "severance multiple" (which for Mr. Kite and Mr. McGowan is three and for Mr. Sink and Mr. Murray is two), multiplied by the sum of his base salary then in effect and the average annual cash incentive compensation actually paid to the executive with respect to the prior three fiscal years

 

a lump sum severance payment equal to his pro rata annual cash incentive compensation for the year of termination, subject to the performance criteria having been met for that year unless termination occurs in the year of a "change in control" (as defined in the executive's employment agreement)

 

continued medical, prescription and dental benefits to the executive and/or the executive's family for 18 months after the executive's termination date

 

full and immediate vesting of his equity awards that are subject only to time-vesting based on service

 

pro-rata vesting of his performance-based equity awards if the performance objectives are achieved at the end of the performance period, except that if the termination of employment occurs during an outstanding performance period in which a "change in control" (as defined in the executive's employment agreement) occurred, there will be full and immediate vesting of his performance-based equity awards as of his termination date at the greater of (A) the target level on his termination date or (B) actual performance as of his termination date

Termination by us for "Cause" or by the NEO without "Good Reason" (including his non-renewal of the employment agreement)

  In this scenario, the NEO would be entitled to:

compensation accrued at the time of termination

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Termination for Death or Disability

  In this scenario, the NEO would be entitled to:

compensation accrued at the time of termination

a lump sum payment equal to his pro rata annual cash incentive compensation target for the year of termination

 

continued medical, prescription and dental benefits to him and/or his family for 18 months after his termination date

 

full and immediate vesting of his equity awards, other than any performance-based equity award that is designated as an outperformance award and that specifically supersedes the vesting provision of his employment agreement

Change in Control

  Under the 2013 Equity Incentive Plan, in the event of a "corporate transaction" (as defined in the plan) where outstanding equity awards are not assumed by our corporate successor, the NEO would receive:

full and immediate vesting of all equity awards that were granted under our previous equity incentive plans

 

full and immediate vesting of all time-vested equity awards granted under the 2013 Equity Incentive Plan (unless we elect to cancel such awards and pay the value received in the corporate transaction by holders of shares for them)

 

settlement of performance awards (i) at target if less than half the performance period has passed or if actual performance is not determinable, and (ii) based on actual performance to date if at least half the performance period has passed

For purposes of the foregoing scenarios, "Cause," "Good Reason" and "Change in Control" are defined as follows:

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QUANTIFICATION OF BENEFITS UNDER TERMINATION EVENTS

The tables below set forth the amount that we would be required to pay each of the NEOs under the termination events described above or upon a change in control, assuming the termination or change in control occurred on December 31, 2017.

Benefits and Payments   Without Cause
or For Good
Reason (1)
  For Cause or
Without Good
Reason (2)
  Death or
Disability
  Change in
Control (No
Termination) (3)
 

                         

John A. Kite

                 
       

Cash Severance

  $ 5,936,995     $ 1,020,000    

Accelerated Vesting of Non-Vested Equity Awards

  $ 6,348,531 (4)   $ 6,348,531   $ 6,348,531  

Medical Benefits

  $ 21,234     $ 21,234    
       

Total

  $ 12,306,760     $ 7,389,765   $ 6,348,531  

                         

Thomas K. McGowan