BRIXMOR PROPERTY GROUP INC. The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto. Historical results and percentage relationships set forth in the unaudited Condensed Consolidated Financial Statements and accompanying notes, including trends which might appear, should not be taken as indicative of future operations. Executive Summary Our CompanyBrixmor Property Group Inc. and subsidiaries (collectively, "BPG") is an internally-managed real estate investment trust ("REIT").Brixmor Operating Partnership LP and subsidiaries (collectively, the "Operating Partnership") is the entity through which BPG conducts substantially all of its operations and owns substantially all of its assets. BPG owns 100% of the limited liability company interests ofBPG Subsidiary LLC ("BPG Sub"), which, in turn, is the sole member ofBrixmor OP GP LLC (the "General Partner"), the sole general partner of theOperating Partnership . Unless stated otherwise or the context otherwise requires, "we," "our," and "us" mean BPG and theOperating Partnership , collectively. We own and operate one of the largest publicly-traded open-air retail portfolios by gross leasable area ("GLA") inthe United States ("U.S."), comprised primarily of community and neighborhood shopping centers. As ofSeptember 30, 2022 , our portfolio was comprised of 378 shopping centers (the "Portfolio") totaling approximately 67 million square feet of GLA. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Core-Based Statistical Areas in theU.S. , and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers. As ofSeptember 30, 2022 , our three largest tenants by annualized base rent ("ABR") were The TJX Companies, Inc. ("TJX"), The Kroger Co. ("Kroger"), and Burlington Stores, Inc. ("Burlington"). BPG has been organized and operated in conformity with the requirements for qualification and taxation as a REIT underU.S. federal income tax laws, commencing with our taxable year endedDecember 31, 2011 , has maintained such requirements through our taxable year endedDecember 31, 2021 , and intends to satisfy such requirements for subsequent taxable years. Our primary objective is to maximize total returns to our stockholders through consistent, sustainable growth in cash flow. Our key strategies to achieve this objective include proactively managing our Portfolio to drive internal growth, pursuing value-enhancing reinvestment opportunities, and prudently executing on acquisition and disposition activity, while also maintaining a flexible capital structure positioned for growth. In addition, as we execute on our key strategies, we do so guided by a commitment to operate in a socially responsible manner that allows us to realize our purpose of owning and operating properties that are the centers of the communities we serve.
We believe the following set of competitive advantages positions us to successfully execute on our key strategies:
•Expansive Retailer Relationships - We believe that the scale of our asset base and our nationwide footprint represent competitive advantages in supporting the growth objectives of the nation's largest and most successful retailers. We believe that we are one of the largest landlords by GLA to TJX, Kroger, and Burlington, as well as a key landlord to most major grocers and retail category leaders. We believe that our strong relationships with leading retailers afford us unique insight into their strategies and priority access to their expansion plans. •Fully-Integrated Operating Platform - We manage a fully-integrated operating platform, leveraging our national scope and demonstrating our commitment to operating with a strong regional and local presence. We provide our tenants with dedicated service through both our national accounts leasing team based inNew York and our network of four regional offices inAtlanta ,Chicago ,Philadelphia , andSan Diego , as well as our 13 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence, while also benefiting from the regional and local expertise of our leasing and operations teams. •Experienced Management - Senior members of our management team are seasoned real estate operators with extensive public company leadership experience. Our management team has deep industry knowledge and well-established relationships with retailers, brokers, and vendors through many years of operational and transactional experience, as well as significant capital markets capabilities and expertise in executing value-enhancing reinvestment opportunities. 27 --------------------------------------------------------------------------------
Factors That May Influence Our Future Results
We derive our rental income primarily from base rent and expense reimbursements paid by tenants to us under existing leases at each of our properties. Expense reimbursements primarily consist of payments made by tenants to us for a portion of property operating expenses, such as common area expenses, utilities, insurance, and real estate taxes, and certain capital expenditures related to the maintenance of our properties. Our ability to maintain or increase rental income is primarily dependent on our ability to maintain or increase rental rates, renew expiring leases, and/or lease available space. Increases in our property operating expenses, including repairs and maintenance, landscaping, snow removal, security, ground rent related to properties for which we are the lessee, utilities, insurance, real estate taxes, and various other costs, to the extent they are not reimbursed by tenants or offset by increases in rental income, will adversely impact our overall performance.
See " Forward-Looking Statements " included elsewhere in this Quarterly Report on Form 10-Q for the factors that could affect our rental income and/or property operating expenses.
Leasing Highlights
As of
The following table summarizes our executed leasing activity for the three
months ended
For the Three
Months Ended
Tenant Improvements Third Party Leasing
Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 417 2,791,073 $ 17.09 $ 4.91 $ 1.62 10.9 %
New and renewal leases 360 1,748,497 19.26 7.83 2.59 14.2 %
New leases 146 661,587 21.20 17.80 6.72 32.2 %
Renewal leases 214 1,086,910 18.08 1.76 0.08 11.8 %
Option leases 57 1,042,576 13.45 - - 5.8 %
For the Three
Months Ended
Tenant Improvements Third Party Leasing
Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 386 2,770,003 $ 14.54 $ 3.23 $ 1.43 10.7 %
New and renewal leases 332 1,719,493 16.62 5.20 2.31 12.3 %
New leases 161 745,712 17.43 9.62 5.28 26.3 %
Renewal leases 171 973,781 15.99 1.82 0.04 7.6 %
Option leases 54 1,050,510 11.14 - - 7.6 %
(1) Based on comparable leases only, which consist of new leases signed on
units that were occupied within the prior 12 months and renewal or option leases
signed with the same tenant in all or a portion of the same location or that
include the expansion into space that was occupied within the prior 12 months.
Excludes leases executed for terms of less than one year.
ABR PSF includes the GLA of lessee-owned leasehold improvements.
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The following table summarizes our executed leasing activity for the nine months
ended
For the Nine
Months Ended
Tenant Improvements Third Party Leasing
Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 1,234 7,983,658 $ 16.64 $ 4.73 $ 1.92 12.0 %
New and renewal leases 1,068 5,100,693 18.94 7.40 3.00 15.3 %
New leases 461 2,311,735 19.44 14.07 6.52 34.3 %
Renewal leases 607 2,788,958 18.52 1.87 0.09 11.1 %
Option leases 166 2,882,965 12.59 - - 6.8 %
For the Nine
Months Ended
Tenant Improvements Third Party Leasing
Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1)
New, renewal and option
leases 1,174 7,175,306 $ 15.78 $ 4.12 $ 1.68 9.1 %
New and renewal leases 1,048 4,695,124 18.12 6.29 2.57 10.1 %
New leases 464 2,100,392 18.00 12.71 5.63 22.1 %
Renewal leases 584 2,594,732 18.22 1.10 0.09 6.1 %
Option leases 126 2,480,182 11.36 - - 7.1 %
(1) Based on comparable leases only, which consist of new leases signed on
units that were occupied within the prior 12 months and renewal or option leases
signed with the same tenant in all or a portion of the same location or that
include the expansion into space that was occupied within the prior 12 months.
Excludes leases executed for terms of less than one year.
ABR PSF includes the GLA of lessee-owned leasehold improvements.
Acquisition Activity
•During the nine months ended
•During the nine months endedSeptember 30, 2021 , we acquired two shopping centers, one outparcel, and two land parcels for an aggregate purchase price of$66.7 million , including transaction costs and closing credits.
Disposition Activity
•During the nine months endedSeptember 30, 2022 , we disposed of 11 shopping centers and seven partial shopping centers for aggregate net proceeds of$168.2 million , resulting in aggregate gain of$58.2 million and aggregate impairment of$4.6 million . In addition, during the nine months endedSeptember 30, 2022 , we resolved contingencies related to previously disposed assets and had land at one shopping center seized through eminent domain for aggregate net proceeds of$2.8 million , resulting in net gain of$2.4 million . •During the nine months endedSeptember 30, 2021 , we disposed of nine shopping centers, 14 partial shopping centers, and one land parcel for aggregate net proceeds of$124.4 million resulting in aggregate gain of$49.5 million and aggregate impairment of$1.5 million . In addition, during the nine months endedSeptember 30, 2021 , we received aggregate net proceeds of less than$0.1 million from previously disposed assets resulting in aggregate gain of less than$0.1 million . 29
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Results of Operations
The results of operations discussion is combined for BPG and the
Comparison of the Three Months EndedSeptember 30, 2022 to the Three Months EndedSeptember 30, 2021 Revenues (in thousands) Three Months Ended September 30, 2022 2021 $ Change Revenues Rental income $ 304,643$ 290,013 $ 14,630 Other revenues 102 173 (71) Total revenues $ 304,745$ 290,186 $ 14,559 Rental income The increase in rental income for the three months endedSeptember 30, 2022 of$14.6 million , as compared to the corresponding period in 2021, was due to a$9.1 million increase for assets owned for the full period and a$5.5 million increase due to net acquisition and disposition activity. The increase for assets owned for the full period was due to (i) a$9.2 million increase in base rent; (ii) a$4.3 million increase in expense reimbursements; (iii) a$1.2 million increase in ancillary and other rental income; (iv) a$1.1 million increase in straight-line rental income, net; (v) a$0.3 million increase in percentage rents; partially offset by (vi) a$5.0 million decrease associated with revenues deemed uncollectible; (vii) a$1.4 million decrease in lease termination fees; (viii) a$0.6 million decrease in accretion of below-market leases, net of amortization of above-market leases and tenant inducements. The$9.2 million increase in base rent for assets owned for the full period was primarily due to contractual rent increases, positive rent spreads for new and renewal leases and option exercises of 12.0% during the nine months endedSeptember 30, 2022 and 10.1% during the year endedDecember 31, 2021 , an increase in weighted average billed occupancy, and a decrease in rent deferrals accounted for as lease modifications and rent abatements related to the current pandemic of the novel coronavirus ("COVID-19"). The$4.3 million increase in expense reimbursements was primarily attributable to increases in billed occupancy, reimbursable costs, and real estate taxes. The$5.0 million decrease associated with revenues deemed uncollectible was primarily attributable to reduced cash collections associated with amounts previously reserved.
Other revenues
Other revenues remained generally consistent for the three months ended
Operating Expenses (in thousands)
Three Months Ended September 30,
2022 2021 $ Change
Operating expenses
Operating costs $ 33,299 $ 32,774 $ 525
Real estate taxes 44,179 39,763 4,416
Depreciation and amortization 84,773 81,724 3,049
General and administrative 29,094 25,309 3,785
Total operating expenses $ 191,345 $ 179,570 $ 11,775
Operating costs
The increase in operating costs for the three months ended September 30, 2022 of
$0.5 million , as compared to the corresponding period in 2021, was due to a $0.6
million increase in operating costs due to net acquisition and disposition
activity, partially offset by a $0.1 million decrease for assets owned for the
full period.
Real estate taxes
The increase in real estate taxes for the three months ended September 30, 2022
of $4.4 million , as compared to the corresponding period in 2021, was due to a
$3.2 million increase in real estate taxes for assets owned for the full period,
primarily due to a decrease in favorable adjustments related to prior year
assessments and an increase in
30
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current year assessments, in addition to a
The increase in depreciation and amortization for the three months endedSeptember 30, 2022 of$3.0 million , as compared to the corresponding period in 2021, was primarily due to a$5.5 million increase attributable to net acquisition and disposition activity and capital expenditures for assets owned for the full period, partially offset by a$2.5 million decrease in accelerated depreciation and amortization related to tenant move-outs.
General and administrative
The increase in general and administrative costs for the three months ended
During the three months endedSeptember 30, 2022 and 2021, construction compensation costs of$4.4 million and$4.2 million , respectively, were capitalized to building and improvements and leasing legal costs of$0.7 million and$0.7 million , respectively and leasing commission costs of$2.1 million and$2.0 million , respectively, were capitalized to deferred charges and prepaid expenses, net.
Other Income and Expenses (in thousands)
Three Months Ended
2022 2021 $ Change
Other income (expense)
Dividends and interest $ 88 $ 51 $ 37
Interest expense (48,726) (48,918) 192
Gain on sale of real estate assets 15,768 11,122 4,646
Loss on extinguishment of debt, net - (27,116) 27,116
Other (789) 390 (1,179)
Total other expense $ (33,659) $ (64,471) $ 30,812
Dividends and interest
Dividends and interest remained generally consistent for the three months ended
Interest expense
The decrease in interest expense for the three months endedSeptember 30, 2022 of$0.2 million , as compared to the corresponding period in 2021, was primarily due to lower overall debt obligations, partially offset by a higher weighted average interest rate.
Gain on sale of real estate assets
During the three months endedSeptember 30, 2022 , one shopping center and three partial shopping centers were disposed of resulting in aggregate gain of$13.5 million . In addition, during the three months endedSeptember 30, 2022 , we had land at one shopping center seized through eminent domain resulting in an aggregate gain of$2.3 million . During the three months endedSeptember 30, 2021 , three shopping centers, five partial shopping centers, and one land parcel were disposed of resulting in aggregate gain of$11.1 million .
Loss on extinguishment of debt, net
During the three months endedSeptember 30, 2021 , we redeemed all$500.0 million of our 3.250% Senior Notes due 2023, resulting in a$27.1 million loss on extinguishment of debt. Loss on extinguishment of debt includes$25.5 million of prepayment fees and$1.6 million of accelerated unamortized debt issuance costs and debt discounts. Other The increase in other expense for the three months endedSeptember 30, 2022 of$1.2 million , as compared to the corresponding period in 2021, was primarily due to favorable tax adjustments in the prior year. 31 -------------------------------------------------------------------------------- Comparison of the Nine Months EndedSeptember 30, 2022 to the Nine Months EndedSeptember 30, 2021 Revenues (in thousands) Nine Months Ended September 30, 2022 2021 $ Change Revenues Rental income 908,903 853,407$ 55,496 Other revenues 602 3,549 (2,947) Total revenues$ 909,505 $ 856,956 $ 52,549 Rental income The increase in rental income for the nine months endedSeptember 30, 2022 of$55.5 million , as compared to the corresponding period in 2021, was due to a$44.7 million increase for assets owned for the full period and a$10.8 million increase due to net acquisition and disposition activity. The increase for assets owned for the full period was due to (i) a$24.9 million increase in base rent; (ii) a$9.2 million increase in expense reimbursements; (iii) a$6.3 million increase in straight-line rental income, net; (iv) a$4.6 million increase associated with revenues deemed uncollectible; (v) a$3.6 million increase in ancillary and other rental income; and (vi) a$2.6 million increase in percentage rents; partially offset by (vii) a$4.6 million decrease in lease termination fees; and (viii) a$1.9 million decrease in accretion of below-market leases, net of amortization of above-market leases and tenant inducements. The$24.9 million increase in base rent for assets owned for the full period was primarily due to contractual rent increases, positive rent spreads for new and renewal leases and option exercises of 12.0% during the nine months endedSeptember 30, 2022 and 10.1% during the year endedDecember 31, 2021 , an increase in weighted average billed occupancy, and a decrease in rent deferrals accounted for as lease modifications and rent abatements related to COVID-19. The$9.2 million increase in expense reimbursements was primarily attributable to increases in billed occupancy, reimbursable operating expenses, and real estate taxes. Other revenues The decrease in other revenues for the nine months endedSeptember 30, 2022 of$2.9 million , as compared to the corresponding period in 2021, was primarily due to a decrease in tax increment financing income.
Operating Expenses (in thousands)
Nine Months Ended September 30,
2022 2021 $ Change
Operating expenses
Operating costs 102,592 92,914 $ 9,678
Real estate taxes 128,123 124,908 3,215
Depreciation and amortization 254,132 246,356 7,776
Impairment of real estate assets 4,597 1,898 2,699 General and administrative 86,796 76,415 10,381 Total operating expenses$ 576,240 $ 542,491 $ 33,749 Operating costs The increase in operating costs for the nine months endedSeptember 30, 2022 of$9.7 million , as compared to the corresponding period in 2021, was due to an$8.6 million increase for assets owned for the full period primarily due to an increases in repair and maintenance, utility, and insurance costs, in addition to a$1.1 million increase in operating costs due to net acquisition and disposition activity.
Real estate taxes
The increase in real estate taxes for the nine months endedSeptember 30, 2022 of$3.2 million , as compared to the corresponding period in 2021, was primarily due to a$2.3 million increase in real estate taxes due to net acquisition and disposition activity and a$0.9 million increase for assets owned for the full period, primarily due to an increase in current year assessments. Depreciation and amortization The increase in depreciation and amortization for the nine months endedSeptember 30, 2022 of$7.8 million , as compared to the corresponding period in 2021, was primarily due to a$14.7 million increase attributable to net 32 -------------------------------------------------------------------------------- acquisition and disposition activity and capital expenditures for assets owned for the full period, partially offset by a$6.9 million decrease in accelerated depreciation and amortization related to tenant move-outs.
Impairment of real estate assets
During the nine months endedSeptember 30, 2022 , aggregate impairment of$4.6 million was recognized on two shopping centers, as a result of disposition activity. During the nine months endedSeptember 30, 2021 , aggregate impairment of$1.9 million was recognized on one shopping center, as a result of disposition activity and one operating property, which has subsequently been sold. Impairments recognized were due to changes in anticipated hold periods primarily in connection with our capital recycling program.
General and administrative
The increase in general and administrative costs for the nine months endedSeptember 30, 2022 of$10.4 million , as compared to the corresponding period in 2021, was primarily due to increases in net compensation costs, marketing, and travel and entertainment costs, partially offset by a decrease in litigation and other non-routine legal and professional expenses. During the nine months endedSeptember 30, 2022 and 2021, construction compensation costs of$12.9 million and$12.1 million , respectively, were capitalized to building and improvements and leasing legal costs of$3.1 million and$1.5 million , respectively and leasing commission costs of$6.0 million and$4.8 million , respectively, were capitalized to deferred charges and prepaid expenses, net.
Other Income and Expenses (in thousands)
Nine Months Ended
2022 2021 $ Change
Other income (expense)
Dividends and interest 198 242 $ (44)
Interest expense (143,934) (147,601) 3,667
Gain on sale of real estate assets 60,667 49,489 11,178
Loss on extinguishment of debt, net (221) (28,345) 28,124
Other (2,937) 694 (3,631)
Total other expense $ (86,227) $ (125,521) $ 39,294
Dividends and interest
Dividends and interest remained generally consistent for the nine months ended
Interest expense
The decrease in interest expense for the nine months endedSeptember 30, 2022 of$3.7 million , as compared to the corresponding period in 2021, was primarily due to lower overall debt obligations.
Gain on sale of real estate assets
During the nine months endedSeptember 30, 2022 , nine shopping centers and seven partial shopping centers were disposed of resulting in aggregate gain of$58.2 million . In addition, during the nine months endedSeptember 30, 2022 , we resolved contingencies related to previously disposed assets and had land at one shopping center seized through eminent domain resulting in aggregate net gain of$2.4 million . During the nine months endedSeptember 30, 2021 , eight shopping centers, 14 partial shopping centers, and one land parcel were disposed of resulting in aggregate gain of$49.5 million . In addition, during the nine months endedSeptember 30, 2021 , we resolved contingencies related to previously disposed assets resulting in aggregate gain of less than$0.1 million .
Loss on extinguishment of debt, net
During the nine months endedSeptember 30, 2022 , we amended and restated our Unsecured Credit Facility, resulting in a$0.2 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs. During the nine months endedSeptember 30, 2021 , we redeemed all$500.0 million of our 3.250% Senior Notes due 2023 and repaid$350.0 million of an unsecured term loan under our Unsecured Credit Facility, resulting in a$28.3 33 --------------------------------------------------------------------------------
million loss on extinguishment of debt due to
Other
The increase in other expense for the nine months endedSeptember 30, 2022 of$3.6 million , as compared to the corresponding period in 2021, was primarily due to favorable tax adjustments and legal settlements in the prior year and an increase in transaction costs.
Liquidity and Capital Resources
We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months and beyond for all anticipated uses, including all scheduled payments on our outstanding debt, current and anticipated tenant and other capital improvements, stockholder distributions to maintain our qualification as a REIT, and other obligations associated with conducting our business.
Our primary expected sources and uses of capital are as follows:
Sources
•cash and cash equivalent balances;
•operating cash flow;
•available borrowings under the Unsecured Credit Facility;
•issuance of long-term debt;
•dispositions; and
•issuance of equity securities.
Uses
•debt repayments;
•maintenance capital expenditures;
•leasing capital expenditures;
•value-enhancing reinvestment capital expenditures;
•dividend/distribution payments;
•acquisitions; and
•repurchases of equity securities.
We believe our capital structure provides us with the financial flexibility and capacity to fund our current capital needs as well as future growth opportunities. We generate significant operating cash flow and have access to multiple forms of capital, including secured property level debt, unsecured corporate level debt, preferred equity, and common equity, which will allow us to efficiently execute on our strategic and operational objectives. We have investment grade credit ratings from all three major credit rating agencies. As ofSeptember 30, 2022 , we had$1.28 billion of available liquidity, including$1.25 billion under our Unsecured Credit Facility and$31.3 million of cash and cash equivalents and restricted cash. We intend to continue to enhance our financial and operational flexibility through periodic extensions of the duration of our debt. Material Cash Requirements Our expected material cash requirements for the twelve months endedSeptember 30, 2023 and thereafter are comprised of (i) contractually obligated expenditures; (ii) other essential expenditures; and (iii) opportunistic expenditures. 34
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Contractually Obligated Expenditures
The following table summarizes our debt maturities (excluding extension options), interest payment obligations, and obligations under non-cancelable operating leases (excluding renewal options), as ofSeptember 30, 2022 (dollars in millions): Twelve Months Ended
Contractually Obligated Expenditures
Debt maturities (1) $ - $ 5,118.5
Interest payments (1)(2) 188.8 812.5
Operating leases 6.1 54.5
Total $ 194.9 $ 5,985.5
(1) Amounts presented do not assume the issuance of new debt upon maturity of
existing debt.
(2) Scheduled interest payments for variable rate loans are presented using
rates (including the impact of interest rate swaps), as of September 30, 2022 .
See Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" in our
Annual Report on Form 10-K for the year ended December 31, 2021 for a further
discussion of these and other factors that could impact interest payments.
Other Essential Expenditures
We incur certain essential expenditures in the ordinary course of business, such
as common area expenses, utilities, insurance, real estate taxes, capital
expenditures related to the maintenance of our properties, leasing capital
expenditures, and corporate level expenses. The amount of common area expenses,
utilities, and capital expenditures related to the maintenance of our properties
that we incur depends on changes in the scope of services that we provide,
changes in prevailing market rates, and changes in the size and composition of
our Portfolio. We carry comprehensive insurance to protect our Portfolio against
various losses. The amount of insurance expense that we incur depends on the
assessed value of our Portfolio, prevailing market rates, changes in risk, and
the size and composition of our Portfolio. We incur real estate taxes in the
various jurisdictions in which we operate. The amount of real estate taxes that
we incur depends on the assessed values of our properties, changes in tax rates
assessed by various jurisdictions, and changes in the size and composition of
our Portfolio. Leasing capital expenditures represent tenant specific costs
incurred to lease or renew space, including tenant improvements, tenant
allowances, and external leasing commissions. The amount of leasing capital
expenditures that we incur depends on the volume and nature of leasing activity.
Leases typically provide for the reimbursement of property operating expenses
such as common area expenses, utilities, insurance, and real estate taxes, and
certain capital expenditures related to the maintenance of our properties.
However, these costs generally do not decrease if revenue or occupancy decrease,
and certain costs we incur are generally not reimbursed.
In order to continue to qualify as a REIT for federal income tax purposes, we
must meet several organizational and operational requirements, including a
requirement that we annually distribute to our stockholders at least 90% of our
REIT taxable income, determined without regard to the deduction for dividends
paid. We intend to continue to satisfy these requirements and maintain our REIT
status. Our board of directors will evaluate the dividend on a quarterly basis,
taking into account a variety of relevant factors, including REIT taxable
income. The following table summarizes our dividend activity for the third and
fourth quarters of 2022:
Third Fourth
Quarter 2022 Quarter 2022Dividend declared per common share $ 0.240 $
0.260
Dividend declaration date July 27, 2022 October 25, 2022
Dividend record date October 4, 2022 January 4, 2023
Dividend payable date October 17, 2022 January 17, 2023
Opportunistic Expenditures
We also utilize cash for opportunistic expenditures such as value-enhancing reinvestment and acquisition activity.
The amount of value-enhancing reinvestment capital expenditures that we may
incur in future periods is contingent on a variety of factors that may change
from period to period, such as the number, total expected cost, and nature of
value-enhancing reinvestment projects that we execute. See "Improvements to and
investments in real estate assets" below for further information regarding our
in-process reinvestment projects and pipeline of future redevelopment
35
--------------------------------------------------------------------------------projects.
The amount of future acquisition activity depends on the availability of opportunities that further concentrate our Portfolio in attractive retail submarkets and optimize the quality and long-term growth rate of our asset base. Our acquisition strategy focuses on buying assets with strong growth potential that are located in our existing markets and will allow us to leverage our operational platform and expertise to create value. Our acquisition activity may include acquisitions of open-air shopping centers, non-owned anchor spaces, and retail buildings and/or outparcels at, or adjacent to, our shopping centers. We may also dispose of properties when we believe value has been maximized, where there is downside risk, or where we have limited ability or desire to build critical mass in a particular submarket.
Our cash flow activities are summarized as follows (dollars in thousands):
Nine Months Ended
2022 2021 $ Change
Net cash provided by operating activities
424,880$ 16,280 Net cash used in investing activities (474,479) (156,113) (318,366) Net cash used in financing activities (233,172) (234,490) 1,318 Net change in cash, cash equivalents and restricted cash (266,491) 34,277 (300,768) Cash, cash equivalents and restricted cash at beginning of period 297,743 370,087 (72,344) Cash, cash equivalents and restricted cash at end of period $ 31,252$ 404,364 $ (373,112)
Nine Months Ended
2022 2021 $ Change
Net cash provided by operating activities
424,880$ 16,280 Net cash used in investing activities (474,479) (156,113) (318,366) Net cash used in financing activities (218,943) (234,489) 15,546 Net change in cash, cash equivalents and restricted cash (252,262) 34,278 (286,540) Cash, cash equivalents and restricted cash at beginning of period 282,585 360,073 (77,488) Cash, cash equivalents and restricted cash at end of period $ 30,323$ 394,351 $ (364,028)
Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from tenant rental payments and expense reimbursements and cash outflows for property operating expenses, general and administrative expenses, and interest expense. During the nine months endedSeptember 30, 2022 , our net cash provided by operating activities increased$16.3 million as compared to the corresponding period in 2021. The increase was primarily due to (i) an increase in same property net operating income; (ii) a decrease in cash outflows for interest expense; and (iii) an increase in net operating income due to acquisition and disposition activity; partially offset by (iv) an increase in cash outflows for general and administrative expense; (v) a decrease in lease termination fees; and (vi) a decrease from net working capital. Investing Activities Net cash used in investing activities is primarily impacted by the nature, timing, and magnitude of acquisition and disposition activity and improvements to and investments in our shopping centers, including capital expenditures associated with our value-enhancing reinvestment activity. During the nine months endedSeptember 30, 2022 , our net cash used in investing activities increased$318.4 million as compared to the corresponding period in 2021. The increase was primarily due to (i) an increase of$343.0 million in acquisitions of real estate assets; (ii) an increase of$20.8 million in improvements to and investments in real estate assets; and (iii) an increase of$1.2 million in purchases of marketable securities, net of proceeds from sales; 36 --------------------------------------------------------------------------------
partially offset by (iv) an increase of
Improvements to and investments in real estate assets
During the nine months endedSeptember 30, 2022 and 2021, we expended$233.1 million and$212.4 million , respectively, on improvements to and investments in real estate assets. Included in these amounts are insurance proceeds of$3.3 million and$2.9 million , respectively, which were received during the nine months endedSeptember 30, 2022 and 2021. Maintenance capital expenditures represent costs to fund major replacements and betterments to our properties. Leasing related capital expenditures represent tenant specific costs incurred to lease space, including tenant improvements, tenant allowances, and external leasing commissions. In addition, we evaluate our Portfolio on an ongoing basis to identify value-enhancing reinvestment opportunities. Such initiatives are tenant driven and focus on upgrading our centers with strong, best-in-class retailers and enhancing the overall merchandise mix and tenant quality of our Portfolio. As ofSeptember 30, 2022 , we had 53 in-process anchor space repositioning, redevelopment, and outparcel development projects with an aggregate anticipated cost of$400.3 million , of which$214.1 million had been incurred as ofSeptember 30, 2022 . In addition, we have identified a pipeline of future redevelopment projects aggregating approximately$900.0 million of potential capital investment, which we expect to execute over the next several years. We expect to fund these projects with cash and cash equivalents, net cash provided by operating activities, proceeds from sales of real estate assets, and/or proceeds from capital markets transactions.
Acquisitions of and proceeds from sales of real estate assets
We continue to evaluate the market for acquisition opportunities and we may acquire shopping centers when we believe strategic opportunities exist, particularly where we can further concentrate our Portfolio in attractive retail submarkets and optimize the quality and long-term growth rate of our asset base. During the nine months endedSeptember 30, 2022 , we acquired seven shopping centers, one outparcel, and one land parcel and paid less than$0.1 million related to previously disposed assets for an aggregate purchase price of$409.7 million , including transaction costs and closing credits. During the nine months endedSeptember 30, 2021 , we acquired two shopping centers, one outparcel and two land parcels for an aggregate purchase price of$66.7 million , including transaction costs and closing credits. We may also dispose of properties when we believe value has been maximized, where there is downside risk, or where we have limited ability or desire to build critical mass in a particular submarket. During the nine months endedSeptember 30, 2022 , the Company disposed of 11 shopping centers and seven partial shopping centers for aggregate net proceeds of$168.2 million . In addition, during the nine months endedSeptember 30, 2022 , we had land at one shopping center seized through eminent domain for aggregate net proceeds of$2.8 million . During the nine months endedSeptember 30, 2021 , we disposed of nine shopping centers and 14 partial shopping centers for aggregate net proceeds of$124.4 million . In addition, during the nine months endedSeptember 30, 2021 , we received aggregate net proceeds of less than$0.1 million from previously disposed assets. Financing Activities
Net cash used in financing activities is primarily impacted by the nature, timing, and magnitude of issuances and repurchases of debt and equity securities, as well as borrowings or principal payments associated with our outstanding indebtedness, including our Unsecured Credit Facility, and distributions made to our common stockholders.
During the nine months endedSeptember 30, 2022 , our net cash used in financing activities decreased$1.3 million as compared to the corresponding period in 2021. The decrease was primarily due to (i) a$53.1 million increase in issuances of common stock; (ii) a$25.2 million decrease in deferred financing and debt extinguishment costs; partially offset by (iii) a$47.8 million increase in debt repayments, net of borrowings; (iv) a$24.2 million increase in distributions to our common stockholders; and (v) a$5.0 million increase in repurchases of common shares in conjunction with the equity award plans.
Non-GAAP Performance Measures
We present the non-GAAP performance measures set forth below. These measures
should not be considered as alternatives to, or more meaningful than, net income
(calculated in accordance with GAAP) or other GAAP financial
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measures, as an indicator of financial performance and are not alternatives to,
or more meaningful than, cash flow from operating activities (calculated in
accordance with GAAP) as a measure of liquidity. Non-GAAP performance measures
have limitations as they do not include all items of income and expense that
affect operations, and accordingly, should always be considered as supplemental
financial results to those calculated in accordance with GAAP. Our computation
of these non-GAAP performance measures may differ in certain respects from the
methodology utilized by other REITs and, therefore, may not be comparable to
similarly titled measures presented by such other REITs. Investors are cautioned
that items excluded from these non-GAAP performance measures are relevant to
understanding and addressing financial performance.
Funds From Operations
Nareit FFO (defined hereafter) is a supplemental, non-GAAP performance measure
utilized to evaluate the operating and financial performance of real estate
companies. Nareit defines funds from operations ("FFO") as net income (loss),
calculated in accordance with GAAP, excluding (i) depreciation and amortization
related to real estate, (ii) gains and losses from the sale of certain real
estate assets, (iii) gains and losses from change in control, (iv) impairment
write-downs of certain real estate assets and investments in entities when the
impairment is directly attributable to decreases in the value of depreciable
real estate held by the entity and (v) after adjustments for unconsolidated
joint ventures calculated to reflect FFO on the same basis.
Considering the nature of our business as a real estate owner and operator, we
believe that Nareit FFO is useful to investors in measuring our operating and
financial performance because the definition excludes items included in net
income that do not relate to or are not indicative of our operating and
financial performance, such as depreciation and amortization related to real
estate, and items which can make periodic and peer analyses of operating and
financial performance more difficult, such as gains and losses from the sale of
certain real estate assets and impairment write-downs of certain real estate
assets.
Our reconciliation of net income to Nareit FFO for the three and nine months
ended September 30, 2022 and 2021 is as follows (in thousands, except per share
amounts):
Three Months Ended September
30, Nine Months Ended
2022 2021 2022 2021
Net income $ 79,741 $ 46,145 $ 247,038 $ 188,944
Depreciation and amortization related to real
estate 83,712 80,778 250,991 243,601
Gain on sale of real estate assets (15,768) (11,122) (60,667) (49,489)
Impairment of real estate assets - - 4,597 1,898
Nareit FFO $ 147,685 $ 115,801 $ 441,959 $ 384,954
Nareit FFO per diluted share $ 0.49 $ 0.39 $ 1.47 $ 1.29
Weighted average diluted shares outstanding 301,341 298,269 300,784 298,209
Same Property Net Operating Income
Same property net operating income ("NOI") is a supplemental, non-GAAP
performance measure utilized to evaluate the operating performance of real
estate companies. Same property NOI is calculated (using properties owned for
the entirety of both periods and excluding properties under development and
completed new development properties that have been stabilized for less than one
year) as total property revenues (base rent, expense reimbursements, adjustments
for revenues deemed uncollectible, ancillary and other rental income, percentage
rents, and other revenues) less direct property operating expenses (operating
costs and real estate taxes). Same property NOI excludes (i) corporate level
expenses (including general and administrative), (ii) lease termination fees,
(iii) straight-line rental income, net, (iv) accretion of below-market leases,
net of amortization of above-market leases and tenant inducements, (v)
straight-line ground rent expense, net, and (vi) income or expense associated
with our captive insurance company.
Considering the nature of our business as a real estate owner and operator, we
believe that same property NOI is useful to investors in measuring the operating
performance of our portfolio because the definition excludes various items
included in net income that do not relate to, or are not indicative of, the
operating performance of our properties, such as depreciation and amortization,
corporate level expenses (including general and administrative), lease
termination fees, straight-line rental income, net, accretion of below-market
leases, net of amortization of above-market leases and tenant inducements, and
straight-line ground rent expense, net. We believe that same property NOI is
also useful to investors because it further eliminates disparities in NOI due to
the acquisition or
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--------------------------------------------------------------------------------disposition of properties or the stabilization of completed new development properties during the periods presented and therefore provides a more consistent metric for comparing the operating performance of our real estate between periods.
Comparison of the Three and Nine Months Ended
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 Change 2022 2021 Change
Number of properties 356 356 - 350 350 -
Percent billed 89.7 % 88.2 % 1.5 % 89.6 % 88.1 % 1.5 %
Percent leased 93.4 % 91.7 % 1.7 % 93.4 % 91.6 % 1.8 %
Revenues
Rental income $ 276,589 $ 266,171 $ 10,418 $ 815,834 $ 770,992 $ 44,842
Other revenues 101 173 (72) 593 537 56
276,690 266,344 10,346 816,427 771,529 44,898
Operating expenses
Operating costs (31,067) (30,849) (218) (94,297) (85,816) (8,481)
Real estate taxes (41,123) (38,179) (2,944) (117,967) (117,254) (713)
(72,190) (69,028) (3,162) (212,264) (203,070) (9,194)
Same property NOI $ 204,500 $ 197,316 $ 7,184 $ 604,163 $ 568,459 $ 35,704 The following table provides a reconciliation of net income to same property NOI for the periods presented (in thousands):
Three Months Ended September
30, Nine Months Ended
2022 2021 2022 2021
Net income $ 79,741 $ 46,145 $ 247,038 $ 188,944
Adjustments:
Non-same property NOI (13,165) (11,441) (47,436) (46,386)
Lease termination fees (694) (1,999) (2,754) (7,456)
Straight-line rental income, net (6,393) (4,951) (17,883) (10,627)
Accretion of below-market leases, net of
amortization of above-market leases and
tenant inducements (2,517) (1,974) (6,721) (6,326)
Straight-line ground rent expense, net 2 32 167 120
Depreciation and amortization 84,773 81,724 254,132 246,356
Impairment of real estate assets - - 4,597 1,898
General and administrative 29,094 25,309 86,796 76,415
Total other expense 33,659 64,471 86,227 125,521
Same property NOI $ 204,500 $ 197,316 $ 604,163 $ 568,459
Inflation
Prior to 2021, inflation was low and had a minimal impact on our operating and
financial performance; however, inflation has significantly increased in 2021
and 2022 and may continue to be elevated or increase further. With respect to
our shopping centers, our long-term leases generally contain provisions designed
to mitigate the adverse impact of inflation, including contractual rent
escalations and requirements for tenants to pay a portion of property operating
expenses, including common area expenses, utilities, insurance, and real estate
taxes, and certain capital expenditures related to the maintenance of our
properties, thereby reducing our exposure to increases in property operating
expenses resulting from inflation; however, we have exposure to increases in
certain non-reimbursable property operating expenses, including expenses
incurred on vacant units. We believe that many of our existing rental rates are
below current market rates for comparable space and that upon renewal or
re-leasing, such rates may be increased to be consistent with, or closer to,
current market rates, which may also offset certain inflationary expense
pressures. With respect to our outstanding indebtedness, we periodically
evaluate our exposure to interest rate fluctuations, and have and may continue
to enter into interest rate protection agreements that mitigate, but do not
eliminate, the impact of changes in interest rates on our variable rate loans.
With respect to general and
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administrative costs, we continually seek opportunities to offset inflationary
cost pressures through routine evaluations of our spending levels and through
ongoing efforts to utilize technology to enhance our operational efficiency.
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