BRIXMOR PROPERTY GROUP INC. The following discussion should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto. Historical results and percentage relationships set forth in the 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 common stock ofBPG Subsidiary Inc. ("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 believe we own and operate one of the largest open-air retail portfolios by gross leasable area ("GLA") inthe United States ("U.S."), comprised primarily of community and neighborhood shopping centers. As ofDecember 31, 2020 , our portfolio was comprised of 393 shopping centers (the "Portfolio") totaling approximately 69 million square feet of GLA. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas ("MSAs") 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 ofDecember 31, 2020 , our three largest tenants by annualized base rent ("ABR") were The TJX Companies, Inc. ("TJX"), The Kroger Co. ("Kroger"), andDollar Tree Stores, Inc. BPG has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under theU.S. federal income tax laws, commencing with our taxable year endedDecember 31, 2011 , has maintained such requirements through our taxable year endedDecember 31, 2020 , 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 managing 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 and Kroger, 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 11 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence, while also benefitting 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. 26 -------------------------------------------------------------------------------- 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 their proportionate share 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. 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 Annual Report on Form 10-K for the factors that could affect our rental income and/or property operating expenses. As discussed below, the COVID-19 pandemic is significantly impacting our business. See Item 1A. "Risk Factors" for a further discussion of other factors that could impact our future results. Impacts on Business from COVID-19 The global outbreak of COVID-19 and the public health measures that have been undertaken in response have had a significant adverse impact on our business, our tenants and the global economy. The effects of COVID-19, including related government restrictions, border closings, quarantines, "shelter-in-place" orders and "social distancing" guidelines, have forced many of our tenants to close stores, reduce hours or significantly limit service, and have resulted in a dramatic increase in national unemployment and a significant economic contraction. Since we cannot estimate when the COVID-19 pandemic and the responsive measures to combat it will end, we cannot estimate the ultimate operational and financial impact of COVID-19 on our business. Approximately 70% of our shopping centers are anchored by grocery stores. Grocery stores and other essential tenants have remained open throughout this time and many have experienced stable or increased sales, which we believe will help to partially mitigate the adverse impact of COVID-19 on our business. In addition, we have encouraged our tenants whose businesses have been impacted by COVID-19 to explore their eligibility for benefits under government assistance programs intended to provide financial support to affected businesses. COVID-19 significantly impacted our operations during 2020, and the following operating trends, combined with macroeconomic trends such as significantly increased unemployment and changes in consumer spending, lead us to believe that our operating results for 2021 will continue to be adversely affected by COVID-19. The following table presents information related to rent collections and store closures: As of February 5, 2021 Second Quarter 2020 Third Quarter 2020 Fourth Quarter 2020 Billed Base Rent Billed Base Rent Billed Base Rent Portfolio Percent of ABR Collected Collected Collected Composition By ABR Currently Closed Essential retailers(1) 99 % 99 % 99 % 34 % 0 % Hybrid retailers(2) 86 % 89 % 91 % 25 % 3 % Other retailers or services(3) 73 % 83 % 89 % 41 % 5 % Total 85 % 90 % 93 % 3 % (1) Businesses deemed essential for day-to-day living. (2) Businesses deemed essential for day-to-day living, but operating in a moderated capacity, and businesses deemed essential for day-to-day living in many, but not all jurisdictions. (3) Businesses deemed non-essential for day-to-day living. •Timing of rental payments: Certain tenants experiencing economic difficulties during the pandemic have sought rent relief, which has been provided on a case-by-case basis primarily in the form of rent deferrals, and, in more limited cases, in the form of rent abatements. Rent deferrals have significantly increased our Receivables, net. We are in ongoing discussions with our tenants regarding rent that has not yet been collected or addressed through executed deferral or abatement agreements. •Leasing activity: While lease execution velocity notably slowed in the second quarter of 2020, it has since recovered to levels similar to those experienced in prior periods. 27 -------------------------------------------------------------------------------- We have taken various steps to mitigate the impact of COVID-19 on our liquidity, including the deferral of approximately$130.0 million of capital expenditures originally anticipated in 2020 and the temporary suspension of our quarterly cash dividend in the second and third quarters of 2020. InJune 2020 andAugust 2020 , we issued an aggregate of$800.0 million principal amount of 4.050% Senior Notes due 2030, the net proceeds of which were used to repurchase our 3.875% Senior Notes due 2022, repay outstanding indebtedness under our$1.25 billion revolving credit facility (the "Revolving Facility"), and for general corporate purposes. As ofFebruary 5, 2021 , we have approximately$330.0 million in cash and cash equivalents and restricted cash, approximately$1.2 billion of remaining availability under the Revolving Facility, and no debt maturities until 2022. We expect the significance of the COVID-19 pandemic and the resulting economic slowdown on our financial and operational results to be dictated by, among other things, the scope, severity and duration of the pandemic, the speed and effectiveness of vaccine and treatment developments and deployment, potential mutations of COVID-19, including SARS-CoV-2 and the response thereto, the direct and indirect economic effects of the pandemic and containment measures, and potential sustained changes in consumer behavior. Adverse developments related to these conditions could increase the number of tenants that are unable to meet their lease obligations to us, that close their stores, and/or that file for bankruptcy protection, and could limit the demand for space from new tenants. Therefore, there can be no assurances that we will not experience declines in revenues, net income or funds from operations, which could be material. See
Item 1A. " Risk Factors" included elsewhere in this Annual Report on Form 10-K for additional information.
Leasing Highlights As ofDecember 31, 2020 , billed and leased occupancy were 87.8% and 90.7%, respectively, as compared to 89.3% and 92.4%, respectively, as ofDecember 31, 2019 . The following table summarizes our executed leasing activity for the years endedDecember 31, 2020 and 2019 (dollars in thousands, except for per square foot ("PSF") amounts): For the Year Ended December 31, 2020 Tenant Improvements Third Party Leasing Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1) New, renewal and option leases 1,381 9,558,058$ 13.93 $ 3.47 $ 1.12 7.2 % New and renewal leases 1,184 6,202,624 15.46 5.33 1.73 7.3 % New leases 419 2,256,081 15.93 13.34 4.68 20.2 % Renewal leases 765 3,946,543 15.19 0.75 0.04 4.3 % Option leases 197 3,355,434 11.12 0.05 - 7.2 % For the Year Ended December 31, 2019 Tenant Improvements Third Party Leasing Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1) New, renewal and option leases 1,757 12,789,345$ 13.89 $ 7.16 $ 1.50 10.9 % New and renewal leases 1,506 7,887,596 16.20 11.57 2.44 13.1 % New leases 622 3,525,712 16.52 23.86 5.30 31.7 % Renewal leases 884 4,361,884 15.94 1.63 0.12 7.8 % Option leases 251 4,901,749 10.17 0.06 - 6.9 % (1) Based on comparable leases only, which consist of new leases signed on units that were occupied within the prior 12 months and renewal 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 year endedDecember 31, 2020 , we acquired two land parcels for an aggregate purchase price of$3.4 million , including transaction costs. 28 --------------------------------------------------------------------------------
•During the year ended
Disposition Activity •During the year endedDecember 31, 2020 , we disposed of 10 shopping centers, six partial shopping centers and one land parcel for aggregate net proceeds of$121.4 million resulting in aggregate gain of$32.6 million and aggregate impairment of$8.0 million . In addition, during the year endedDecember 31, 2020 , we received aggregate net proceeds of$1.0 million and resolved contingencies of$0.5 million from previously disposed assets resulting in aggregate gain of$1.5 million . •During the year endedDecember 31, 2019 , we disposed of 24 shopping centers and three partial shopping centers for aggregate net proceeds of$288.5 million resulting in aggregate gain of$53.4 million and aggregate impairment of$16.4 million . In addition, during the year endedDecember 31, 2019 , we received aggregate net proceeds of$1.6 million from previously disposed assets resulting in aggregate gain of$1.4 million .
Results of Operations
The results of operations discussion is combined for BPG and the
Comparison of the Year EndedDecember 31, 2020 to the Year EndedDecember 31, 2019 Revenues (in thousands) Year Ended December 31, 2020 2019 $ Change Revenues Rental income$ 1,050,943 $ 1,166,379 $ (115,436) Other revenues 2,323 1,879 444 Total revenues$ 1,053,266 $ 1,168,258 $ (114,992) Rental income The decrease in rental income for the year endedDecember 31, 2020 of$115.4 million , as compared to the corresponding period in 2019, was due to a$28.2 million decrease in rental income due to net disposition activity and an$87.2 million decrease for the remaining portfolio. The decrease for the remaining portfolio was due to (i) a$55.9 million increase in revenues deemed uncollectible; (ii) a$35.1 million decrease in straight-line rental income, net; (iii) a$3.2 million decrease in percentage rents; (iv) a$1.8 million decrease in accretion of above- and below-market leases and tenant inducements, net; (v) a$1.7 million decrease in expense reimbursements; and (vi) a$0.4 million decrease in ancillary and other rental income; partially offset by (vii) a$7.7 million increase in base rent; and (viii) a$3.2 million increase in lease termination fees. The increase in revenues deemed uncollectible and decrease in straight-line rental income, net were primarily attributable to COVID-19. The$7.7 million increase in base rent was primarily due to contractual rent increases, an increase in weighted average billed occupancy, and positive rent spreads for new and renewal leases and option exercises of 7.2% during the year endedDecember 31, 2020 and 10.9% during the year endedDecember 31, 2019 , partially offset by COVID-19 rent deferrals accounted for as lease modifications and rent abatements. Other revenues The increase in other revenues for the year endedDecember 31, 2020 of$0.4 million , as compared to the corresponding period in 2019, was primarily due to an increase in tax increment financing income. 29
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Operating Expenses (in thousands)
Year Ended December 31,
2020 2019 $ Change
Operating expenses
Operating costs $ 111,678 $ 124,876 $ (13,198)
Real estate taxes 168,943 170,988 (2,045)
Depreciation and amortization 335,583 332,431 3,152
Impairment of real estate assets 19,551 24,402 (4,851)
General and administrative 98,280 102,309 (4,029)
Total operating expenses $ 734,035 $ 755,006 $ (20,971)
Operating costs
The decrease in operating costs for the year ended December 31, 2020 of $13.2
million , as compared to the corresponding period in 2019, was primarily due to a
$3.8 million decrease in operating costs due to net disposition activity and a
$9.4 million decrease for the remaining portfolio primarily due to proactive
cost reductions taken in response to COVID-19 and favorable insurance captive
adjustments.
Real estate taxes
The decrease in real estate taxes for the year ended December 31, 2020 of $2.0
million , as compared to the corresponding period in 2019, was primarily due to a
$3.7 million decrease in real estate taxes due to net disposition activity,
partially offset by a $1.7 million increase for the remaining portfolio
primarily due to increases in assessments from several jurisdictions, partially
offset by an increase in capitalized real estate taxes.
Depreciation and amortization
The increase in depreciation and amortization for the year ended December 31,
2020 of $3.2 million , as compared to the corresponding period in 2019, was
primarily due to a $10.8 million increase for assets owned for the full year
primarily related to value-enhancing reinvestment capital expenditures and
tenant write-offs, partially offset by a decrease in depreciation and
amortization related to acquired in-place lease intangibles and a $7.6 million
decrease in depreciation and amortization due to net disposition activity.
Impairment of real estate assets
During the year ended December 31, 2020 , aggregate impairment of $19.6 million
was recognized on three shopping centers and one partial shopping center as a
result of disposition activity and three operating properties. During the year
ended December 31, 2019 , aggregate impairment of $24.4 million was recognized on
six shopping centers and one partial shopping center as a result of disposition
activity, three operating properties and one partial operating property.
Impairments recognized were due to changes in anticipated hold periods primarily
in connection with our capital recycling program.
General and administrative
The decrease in general and administrative costs for the year ended December 31,
2020 of $4.0 million , as compared to the corresponding period in 2019, was
primarily due to a decrease in marketing, professional and travel costs due to
COVID-19 and a decrease in net compensation costs, partially offset by an
increase in litigation and other non-routine legal expenses.
During the years ended December 31, 2020 and 2019, construction compensation
costs of $14.6 million and $14.7 million , respectively, were capitalized to
building and improvements and leasing legal costs of $0.8 million and $0.0
million , respectively, and leasing commission costs of $5.7 million and $6.0
million , respectively, were capitalized to deferred charges and prepaid
expenses, net.
30--------------------------------------------------------------------------------
Other Income and Expenses (in thousands)
Year Ended December 31,
2020 2019 $ Change
Other income (expense)
Dividends and interest $ 482 $ 699 $ (217)
Interest expense (199,988) (189,775) (10,213)
Gain on sale of real estate assets 34,499 54,767 (20,268)
Loss on extinguishment of debt, net (28,052) (1,620) (26,432)
Other (4,999) (2,550) (2,449)
Total other expense $ (198,058) $ (138,479) $ (59,579)
Dividends and interest
The decrease in dividends and interest for the year ended December 31, 2020 of
$0.2 million , as compared to the corresponding period in 2019, was primarily due
to a $0.2 million decrease in investment income from marketable securities.
Interest expense
The increase in interest expense for the year ended December 31, 2020 of $10.2
million , as compared to the corresponding period in 2019, was primarily due to
higher overall debt obligations as we bolstered liquidity in response to
COVID-19.
Gain on sale of real estate assets
During the year ended December 31, 2020 , we disposed of seven shopping centers,
five partial shopping centers and one land parcel that resulted in aggregate
gain of $32.6 million . In addition, during the year ended December 31, 2020 , we
received aggregate net proceeds of $1.0 million and resolved contingencies of
$0.5 million from previously disposed assets resulting in aggregate gain of $1.5
million , and we received final insurance proceeds related to two shopping
centers that were damaged by Hurricane Michael resulting in aggregate gain of
$0.4 million . During the year ended December 31, 2019 , we disposed of 18
shopping centers and two partial shopping centers that resulted in aggregate
gain of $53.4 million . In addition, during the year ended December 31, 2019 , we
received aggregate net proceeds of $1.6 million from previously disposed assets
resulting in aggregate gain of $1.4 million .
Loss on extinguishment of debt, net
During the year ended December 31, 2020 , we repurchased all $500.0 million of
our 3.875% Senior Notes due 2022 and repaid our $7.0 million secured loan,
resulting in a $28.1 million loss on extinguishment of debt, net. Loss on
extinguishment of debt, net includes $26.2 million of prepayment fees and
$1.9 million of accelerated unamortized debt issuance costs and debt discounts,
net of premiums. During the year ended December 31, 2019 , we repaid $500.0
million of an unsecured term loan under our senior unsecured credit facility
agreement, as amended April 29, 2020 (the "Unsecured Credit Facility"),
resulting in a $1.6 million loss on extinguishment of debt due to the
acceleration of unamortized debt issuance costs.
Other
The increase in other expense for the year ended
Comparison of the Year EndedDecember 31, 2019 to the Year EndedDecember 31, 2018 See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year endedDecember 31, 2019 , filed with theSecurities and Exchange Commission ("SEC") onFebruary 10, 2020 , for a discussion of the comparison of the year endedDecember 31, 2019 to the year endedDecember 31, 2018 . 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 31 --------------------------------------------------------------------------------
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; •dispositions; •issuance of long-term debt; and •issuance of equity securities.
Uses
•maintenance capital expenditures; •leasing capital expenditures; •debt repayments; •dividend/distribution payments •value-enhancing reinvestment capital expenditures; •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 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 currently have investment grade credit ratings from all three major credit rating agencies. As ofDecember 31, 2020 , we had$1.2 billion of available liquidity under our Revolving Facility and$370.1 million of cash and cash equivalents and restricted cash. We intend to continue to enhance our financial and operational flexibility through the additional extension of the duration of our debt. As previously discussed under the header "Impacts on Business from COVID-19", the COVID-19 pandemic has had, and we expect will continue to have, an adverse impact on our liquidity and capital resources. Future decreases in cash flow from operations resulting from rent deferrals or abatements, tenant defaults, or decreases in rental rates or occupancy, would decrease the cash available for the capital uses described above, including payment of dividends. The decline in our stock price since the onset of the pandemic has decreased the likelihood of utilizing our at-the-market equity offering program in the near future. InJune 2020 andAugust 2020 , we issued an aggregate of$800.0 million principal amount of 4.050% Senior Notes due 2030, the net proceeds of which were used to repurchase our 3.875% Senior Notes due 2022, repay outstanding indebtedness under our Revolving Facility, and for general corporate purposes. However, the impacts of COVID-19 may increase risks related to the pricing and availability of future debt financing. In addition, a significant decline in our operating performance in the future could result in us not satisfying the financial covenants applicable to our debt and/or defaulting on our debt, which could impact our ability to incur additional debt, including the remaining capacity on our Revolving Facility. We have taken various steps to mitigate the impact of COVID-19 on our liquidity, including the deferral of approximately$130.0 million of capital expenditures originally anticipated in 2020 and the temporary suspension of our quarterly cash dividend in the second and third quarters of 2020. In addition, we have no debt maturities until 2022. However, since we do not know the ultimate severity, scope or duration of the pandemic, and thus cannot predict the impact it will ultimately have on our tenants and on the debt and equity capital markets, we cannot estimate the impact it will have on our liquidity and capital resources. In order to continue to qualify as a REIT for federal income tax purposes, we must distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding 32 -------------------------------------------------------------------------------- net capital gains. We intend to continue to satisfy this requirement and maintain our REIT status. Cash dividends paid to common stockholders for the years endedDecember 31, 2020 and 2019 were$170.4 million and$334.9 million , respectively. In response to COVID-19, our Board of Directors temporarily suspended the dividend in the second and third quarters of 2020. InOctober 2020 , our Board of Directors declared a quarterly cash dividend of$0.215 per common share for the fourth quarter of 2020. The dividend was paid onJanuary 15, 2021 to shareholders of record onJanuary 6, 2021 . InFebruary 2021 , our Board of Directors declared a quarterly cash dividend of$0.215 per common share for the first quarter of 2021. The dividend is payable onApril 15, 2021 to shareholders of record onApril 5, 2021 . Our Board of Directors will reevaluate the dividend on a quarterly basis, taking into account a variety of relevant factors, including REIT taxable income. Our cash flow activities are summarized as follows (dollars in thousands):Brixmor Property Group Inc. Year Ended December 31, 2020 2019 Net cash provided by operating activities$ 443,101
Net cash provided by (used in) investing activities (167,249)
(172,064)
Net cash provided by (used in) financing activities 72,712
(385,850)
Year Ended
2020 2019
Net cash provided by operating activities$ 443,101
Net cash provided by (used in) investing activities (167,249)
(172,285)
Net cash provided by (used in) financing activities 62,714
(385,519)
Cash, cash equivalents and restricted cash for BPG and theOperating Partnership were$370.1 million and$360.1 million , respectively, as ofDecember 31, 2020 . Cash, cash equivalents and restricted cash for BPG and theOperating Partnership were$21.5 million as ofDecember 31, 2019 . 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 year endedDecember 31, 2020 , our net cash provided by operating activities decreased$85.6 million as compared to the corresponding period in 2019. The decrease is primarily due to (i) a decrease from net working capital primarily due to decreased cash collection levels as a result of COVID-19; (ii) a decrease in net operating income due to net disposition activity; and (iii) an increase in cash outflows for interest expense; partially offset by (iv) an increase in lease termination fees; and (v) a decrease in cash outflows for general and administrative expense. Investing Activities Net cash provided by (used in) investing activities is 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 program. During the year endedDecember 31, 2020 , our net cash used in investing activities decreased$4.8 million as compared to the corresponding period in 2019. The decrease was primarily due to (i) a decrease of$110.3 million in improvements to and investments in real estate assets; and (ii) a decrease of$76.2 million in acquisitions of real estate assets; partially offset by (iii) a decrease of$167.8 million in net proceeds from sales of real estate assets; and (iv) a$13.9 million decrease in net proceeds from sales of marketable securities, net of purchases. Improvements to and investments in real estate assets During the years endedDecember 31, 2020 and 2019, we expended$284.8 million and$395.1 million , respectively, on improvements to and investments in real estate assets. In addition, during the years endedDecember 31, 2020 33 -------------------------------------------------------------------------------- and 2019, insurance proceeds of$7.5 million and$7.4 million , respectively, were received and included in improvements to and investments in real estate assets. 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 and tenant allowances. 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 ofDecember 31, 2020 , we had 60 in-process anchor space repositioning, redevelopment and outparcel development projects with an aggregate anticipated cost of$402.6 million , of which$207.2 million has been incurred as ofDecember 31, 2020 . 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 year endedDecember 31, 2020 , we acquired two land parcels for an aggregate purchase price of$3.4 million , including transaction costs. During the year endedDecember 31, 2019 , we acquired two shopping centers, two leases at an existing shopping center and one land parcel for an aggregate purchase price of$79.6 million , including transaction costs. 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 year endedDecember 31, 2020 , we disposed of 10 shopping centers, six partial shopping centers and one land parcel for aggregate net proceeds of$121.4 million . In addition, during the year endedDecember 31, 2020 , we received aggregate net proceeds of$1.0 million from previously disposed assets. During the year endedDecember 31, 2019 , we disposed of 24 shopping centers and three partial shopping centers for aggregate net proceeds of$288.5 million . In addition, during the year endedDecember 31, 2019 , we received aggregate net proceeds of$1.6 million from previously disposed assets. Financing Activities Net cash provided by (used in) financing activities is impacted by the nature, timing and magnitude of issuances and repurchases of debt and equity securities, as well as principal payments associated with our outstanding indebtedness and distributions made to our common stockholders. During the year endedDecember 31, 2020 , our net cash provided by financing activities increased$458.6 million as compared to the corresponding period in 2019. The increase was primarily due to (i) a$333.8 million increase in debt borrowings, net of repayments; and (ii) a$164.5 million decrease in distributions to common stockholders; partially offset by (iii) a$27.4 million increase in deferred financing and debt extinguishment costs; and (iv) a$12.3 million increase in repurchases of common stock. The increase in debt borrowings is primarily related to net proceeds from the issuances of our 4.050% Senior Notes due 2030, net of the repurchases of our 3.875% Senior Notes due 2022. 34
-------------------------------------------------------------------------------- Contractual Obligations Our contractual obligations relate to our debt, including unsecured notes payable and unsecured credit facilities, with maturities ranging from one year to 10 years, in addition to non-cancelable operating leases pertaining to our ground leases and administrative office leases. The following table summarizes our debt maturities (excluding extension options), interest payment obligations (excluding debt premiums and discounts and deferred financing costs) and obligations under non-cancelable operating leases (excluding renewal options) as ofDecember 31, 2020 :
Contractual Obligations
(in thousands) Payment due by period
2021 2022 2023 2024 2025 Thereafter Total
Debt(1) $ - $ 250,000 $ 850,000 $ 800,000 $ 700,000 $ 2,568,453 $ 5,168,453
Interest payments(2) 188,351 183,264 182,731 147,682 118,514 309,002 1,129,544
Operating leases 6,261 6,032 5,342 5,249 4,948 25,124 52,956
Total $ 194,612 $ 439,296 $ 1,038,073 $ 952,931 $ 823,462 $ 2,902,579 $ 6,350,953
(1) Debt includes scheduled maturities for unsecured notes payable and
unsecured credit facilities.
(2) As of December 31, 2020 , we incur variable rate interest on (i) a $350.0
million term loan; (ii) a $300.0 million term loan; and (iii) $250.0 million of
Floating Rate Senior Notes due 2022. We have in place seven interest rate swap
agreements with an aggregate notional value of $800.0 million , which effectively
convert variable interest payments to fixed interest payments. See Item 7A.
"Quantitative and Qualitative Disclosures" for a further discussion of these
and other factors that could impact interest payments. Interest payments for
these variable rate loans are presented using rates (including the impact of
interest rate swaps) as of December 31, 2020 .
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 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. The National Association of Real Estate Investment Trusts ("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.
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Our reconciliation of net income to NAREIT FFO for the years ended
Year Ended December 31,
2020 2019
Net income $ 121,173 $ 274,773
Depreciation and amortization related to real estate 331,558 328,534
Gain on sale of real estate assets (34,499)
(54,767)
Impairment of real estate assets 19,551 24,402 NAREIT FFO$ 437,783 $ 572,942 NAREIT FFO per diluted share$ 1.47 $ 1.91 Weighted average diluted shares outstanding 297,899
299,334
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 which 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
above- and below-market leases and tenant inducements, net, (v) straight-line
ground rent expense, and (vi) income (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 property 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 and corporate level expenses (including general and
administrative), and because it eliminates disparities in NOI due to the
acquisition or disposition of properties or the stabilization of completed new
development properties during the period presented and therefore provides a more
consistent metric for comparing the operating performance of our real estate
between periods.
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31,
2019
Year Ended December 31,
2020 2019 Change
Number of properties 384 384 -
Percent billed 88.1 % 89.7 % (1.6 %)
Percent leased 91.0 % 92.9 % (1.9 %)
Revenues
Rental income $ 1,013,948 $ 1,062,483 $ (48,535)
Other revenues 2,299 1,793 506
1,016,247 1,064,276 (48,029)
Operating expenses
Operating costs (110,317) (118,008) 7,691
Real estate taxes (163,019) (161,116) (1,903)
(273,336) (279,124) 5,788
Same property NOI $ 742,911 $ 785,152 $ (42,241)
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The following table provides a reconciliation of net income to same property NOI for the periods presented (in thousands):
Year Ended December 31,
2020 2019
Net income $ 121,173 $ 274,773
Adjustments:
Non-same property NOI (22,431) (45,398)
Lease termination fees (6,238) (3,314)
Straight-line rental income, net 11,858 (23,427)
Accretion of above- and below-market leases and tenant inducements, net
(13,074) (15,230)
Straight-line ground rent expense 151 127
Depreciation and amortization 335,583 332,431
Impairment of real estate assets 19,551 24,402
General and administrative 98,280 102,309
Total other expense 198,058 138,479
Same property NOI $ 742,911 $ 785,152
Our Critical Accounting Estimates
Our discussion and analysis of our historical financial condition and results of
operations is based upon our Consolidated Financial Statements, which have been
prepared in accordance with GAAP. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results could ultimately differ from those estimates.
See Note 1 - Nature of Business and Financial Statement Presentation
to our Consolidated Financial Statements in this report for a discussion of
recently-issued and adopted accounting standards.
Revenue Recognition and Receivables
We enter into agreements with tenants which convey the right to control the use
of identified space at our shopping centers in exchange for rental revenue.
These agreements meet the criteria for recognition as leases under Accounting
Standards Codification ("ASC") 842, Leases. Rental revenue is recognized on a
straight-line basis over the terms of the related leases. The cumulative
difference between rental revenue recognized on our Consolidated Statements of
Operations and contractual payment terms is recognized as deferred rent and
included in Receivables, net on our Consolidated Balance Sheets. We commence
recognizing rental revenue based on the date we make the underlying asset
available for use by the tenant. Leases also typically provide for the
reimbursement 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 by the lessee and are recognized in
the period the applicable expenditures are incurred and/or contractually
required to be repaid.
We account for rental revenue (lease component) and common area expense
reimbursements (non-lease component) as one lease component under ASC 842. We
also include the non-components of our leases, such as the reimbursement of
utilities, insurance and real estate taxes, within this lease component. These
amounts are included in Rental income on our Consolidated Statements of
Operations.
Certain leases also provide for percentage rents based upon the level of sales
achieved by a lessee. Percentage rents are recognized upon the achievement of
certain pre-determined sales thresholds and are included in Rental income on our
Consolidated Statements of Operations.
Gains from the sale of depreciated operating properties are generally recognized
under the full accrual method, provided that various criteria relating to the
terms of the sale and subsequent involvement by us with the applicable property
are met.
We periodically evaluate the collectability of our receivables related to rental
revenue, straight-line rent, expense reimbursements and those attributable to
other revenue generating activities. We analyze individual tenant receivables
and consider tenant credit-worthiness, the length of time a receivable has been
outstanding, and current economic trends when evaluating collectability. Any
receivables that are deemed to be uncollectible are recognized
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as a reduction to Rental income on our Consolidated Statements of Operations.
Provision for doubtful accounts recognized prior to the adoption of ASC 842 is
included in Operating expenses on our Consolidated Statements of Operations in
accordance with our previous presentation and has not been reclassified to
Rental income.
Real Estate
Real estate assets are recognized on our Consolidated Balance Sheets at
historical cost, less accumulated depreciation and amortization. Upon
acquisition of real estate operating properties, management estimates the fair
value of acquired tangible assets (consisting of land, buildings, and tenant
improvements), identifiable intangible assets and liabilities (consisting of
above- and below-market leases and in-place leases), and assumed debt based on
an evaluation of available information. Based on these estimates, the fair value
is allocated to the acquired assets and assumed liabilities. Transaction costs
incurred during the acquisition process are capitalized as a component of the
asset's value.
The fair value of tangible assets is determined as if the acquired property is
vacant. Fair value is determined using an exit price approach, which
contemplates the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
In allocating fair value to identifiable intangible assets and liabilities, the
value of above-market and below-market leases is estimated based on the present
value (using a discount rate reflecting the risks associated with the leases
acquired) of the difference between: (i) the contractual amounts to be paid
pursuant to the leases negotiated and in-place at the time of acquisition and
(ii) management's estimate of fair market lease rates for the property or an
equivalent property, measured over a period equal to the remaining
non-cancelable term of the lease, which includes renewal periods with fixed
rental terms that are considered to be below-market. The capitalized
above-market or below-market intangible is amortized as a reduction of, or
increase to, rental income over the remaining non-cancelable term of each lease.
The value of in-place leases is estimated based on management's evaluation of
the specific characteristics of each tenant lease, including: (i) fair market
rent and the reimbursement of property operating expenses, including common area
expenses, utilities, insurance and real estate taxes that would be forgone
during a hypothetical expected lease-up period and (ii) costs that would be
incurred, including leasing commissions, legal and marketing costs, and tenant
improvements and allowances, to execute similar leases. The value assigned to
in-place leases is amortized to Depreciation and amortization expense over the
remaining term of each lease.
Certain real estate assets are depreciated using the straight-line method over
the estimated useful lives of the assets. The estimated useful lives are as
follows:
Building and building and land improvements 20 - 40 years
Furniture, fixtures, and equipment 5 - 10 years
Tenant improvements The shorter of the term of the related lease
or useful life
Costs to fund major replacements and betterments, which extend the life of the
asset, are capitalized and depreciated over their respective useful lives, while
costs for ordinary repairs and maintenance activities are expensed to Operating
costs as incurred.
On a periodic basis, management assesses whether there are any indicators,
including property operating performance, changes in anticipated hold period and
general market conditions, including the impact of COVID-19, that the carrying
value of our real estate assets (including any related intangible assets or
liabilities) may be impaired. If an indicator is identified, a real estate asset
is considered impaired only if management's estimate of aggregate future
undiscounted and unleveraged property operating cash flows, taking into account
the anticipated probability-weighted hold period, are less than the carrying
value of the property. Various factors are considered in the estimation process,
including trends and prospects and the effects of demand and competition on
future operating income. Changes in any estimates and/or assumptions, including
the anticipated hold period, could have a material impact on the projected
operating cash flows. If management determines that the carrying value of a real
estate asset is impaired, a loss is recognized to reflect the estimated fair
value.
When a real estate asset is identified by management as held for sale, we discontinue depreciating the asset and estimate its sales price, net of estimated selling costs. If the estimated net sales price of an asset is less than its net carrying value, an impairment is recognized to reflect the estimated fair value. Properties classified as real estate
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held for sale represent properties that are under contract for sale and where
the applicable pre-sale due diligence period has expired prior to the end of the
reporting period.
In situations in which a lease or leases with a tenant have been, or are expected to be, terminated early, we evaluate the remaining useful lives of depreciable or amortizable assets in the asset group related to the lease terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and leasing commissions). Based upon consideration of the facts and circumstances surrounding the termination, we may accelerate the depreciation and amortization associated with the asset group.
Stock Based Compensation We account for equity awards in accordance with theFinancial Accounting Standards Board's Stock Compensation guidance, which requires that all share-based payments to employees and non-employee directors be recognized in the Consolidated Statements of Operations over the service period based on their fair value. Fair value is determined based on the type of award, using either the grant date market price of our common stock or a Monte Carlo simulation model. Equity compensation expense is included in General and administrative expenses on our Consolidated Statements of Operations.
Inflation
For the last several years inflation has been low and has had a minimal impact on the operating performance of our shopping centers; however, inflation may increase in the future. Most of our long-term leases contain provisions designed to mitigate the adverse impact of inflation, including contractual rent escalations and requirements for tenants to pay their proportionate share 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-level costs resulting from inflation. In addition, 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. With respect to our outstanding indebtedness, we periodically evaluate our exposure to interest rate fluctuations, and may continue to enter into interest rate protection agreements which mitigate, but do not eliminate, the impact of changes in interest rates on our variable rate loans. Off-Balance Sheet Arrangements We had no material off-balance sheet arrangements as ofDecember 31, 2020 . 39
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