BROOKFIELD PROPERTY REIT All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Quarterly Report and whose descriptions are incorporated into the applicable response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. Capitalized terms used, but not defined, in this Management's Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as in such Notes.Brookfield Property REIT Inc. ("the Company" or "BPYU") is an indirect subsidiary of Brookfield Property Partners L.P. ("BPY"), one of the world's largest commercial real estate companies. As used herein, the terms "we", "us" and "our" refer to BPYU and its subsidiaries. BPYU, through its subsidiaries and affiliates, is an owner and operator of retail properties.
Overview-Introduction
We own a property portfolio comprised primarily of Class A regional malls (defined primarily by sales per square foot). As ofJune 30, 2021 , we were the owner, either entirely or with joint venture partners, of 119 retail properties located throughoutthe United States comprising approximately 118 million square feet of gross leasable area, or GLA.
Our primary objective is to be an owner and operator of best-in-class retail properties that provide an outstanding environment and experience for our communities, retailers and consumers. Our strategy includes:
•increasing the permanent occupancy of our regional mall portfolio by converting temporary leases to permanent leases and leasing vacant space;
•renewing or replacing expiring leases at greater rental rates;
•actively recycling capital through the disposition of assets; investing in whole or partial interests in high-quality regional malls, anchor pads, and our development pipeline and repaying debt; and
•continuing to execute on our existing redevelopment projects and seeking additional opportunities within our portfolio for redevelopment.
Despite the recent economic disruption caused by COVID-19, we expect that the high quality nature of our stabilized properties and associated cash flows will continue to be in demand from investors, although our ability to execute on recycling of capital initiatives will likely be impacted in the short term. As ofJune 30, 2021 , the portfolio was 92.0% leased, compared to 94.8% leased atJune 30, 2020 . On a suite-to-suite basis, the leases commencing occupancy in the trailing 12 months exhibited initial rents that were 3.5% higher than the final rents paid on expiring leases.
Overview-BPY Transaction of 2021
OnApril 1, 2021 , Brookfield Asset Management Inc. ("Brookfield Asset Management" or "BAM") announced an agreement to acquire all of the limited partnership units of BPY that it does not already own ("BPY units") at a value of$18.17 per BPY unit, or$6.5 billion in total value (the "BPY Transaction"). Under the agreement, BPY unitholders had the ability to elect to receive, per BPY unit and subject to pro ration, a combination of (i) 0.3979 Class A limited voting shares of BAM ("Brookfield Shares"), (ii)$18.17 in cash, and/or (iii) 0.7268 of BPY preferred units with a liquidation preference of$25.00 per unit. Pro-ration will be based on a maximum cash consideration of approximately 50% of the total value of the BPY units ($3.27 billion in total cash payable to public unitholders), a maximum amount ofBrookfield Shares equal to approximately 42% of the total value of the BPY units (59.3 millionBrookfield Shares payable to public unitholders), and a maximum amount of BPY preferred units with a liquidation value of approximately 8% of the total value of the BPY units ($500 million in liquidation preference of BPY preferred units payable to public unitholders). The BPY Transaction closed onJuly 26, 2021 . BPY unitholders who failed to properly make an election, did not make an election prior to the election deadline of5:00 p.m. (Toronto time) onJuly 20, 2021 (or for beneficial holders an earlier deadline that may have been set by their broker or other intermediary), or elected to receive the default consideration received, per BPY unit, approximately$12.38 in cash, 0.0913 BAM shares and 0.0657 BPY preferred units (the "Default Consideration"). 47 -------------------------------------------------------------------------------- In accordance with the terms of the Company's charter, any holders of the Company's Class A stock ("BPYU Shareholders") at the closing of the BPY Transaction were entitled to receive the same per Default Consideration as was received by BPY unitholders who did not make an election, in the automatic exchange for their shares of Class A Stock. The aggregate consideration of$6.5 billion payable to BPY unitholders in the BPY Transaction includes the amount payable to the public holders of shares of the Company's Class A Stock. BPYU Shareholders were not entitled to any other consideration or payment in connection with the BPY Transaction, the BPY Transaction was not subject to a vote of BPYU Shareholders and BPYU Shareholders were not entitled to appraisal rights. Any BPYU Shareholders who wished to elect their preferred form of consideration rather than the Default Consideration, vote in favor of or against the BPY Transaction and/or exercise dissent rights in respect of the BPY Transaction, were entitled to convert their shares of Company Class A Stock into BPY units (pursuant to the terms of the Company's charter) before the election deadline if they wished to make an election and/or before the record date for the meeting of BPY unitholders if they wished to vote in favor of or against the BPY Transaction or exercise dissent rights. As a result of the BPY Transaction, the Company's Class A Stock ceased trading and was not listed on theNasdaq Stock Market effective prior to the opening of the market onJuly 27, 2021 . In addition, onJuly 20, 2021 , in anticipation of the closing of the BPY Transaction, the Company announced that it will be redeeming all of its outstanding 6.375% Series A Cumulative Redeemable Preferred Stock (Nasdaq: BPYUP) (the "BPYU Series A Preferred Stock") for cash onAugust 19, 2021 at its par value of$25.00 per share, plus all accumulated and unpaid dividends (whether or not declared) to, but not including,August 19, 2021 , which equals approximately$0.21250 per share, without interest, for total proceeds of$25.21250 . Upon redemption, the BPYU Series A Preferred Stock will no longer trade on theNasdaq Stock Market .
Overview-Financial
The COVID-19 pandemic has spread globally, and has caused a global economic shutdown. The actions taken in response to the shutdown have interrupted business activities and supply chains; disrupted travel; contributed to significant volatility in the financial markets, resulting in a general decline in equity prices and lower interest rates; impacted social conditions; and adversely impacted local, regional, national and international economic conditions, as well as the labor markets. Accordingly, we caution you that our financial position and consolidated performance presented below may not be indicative of our results in future periods as a result of the ongoing and developing COVID-19 pandemic and its resulting impact on the global economy. Net loss attributable to BPYU increased from$290.9 million for the six months endedJune 30, 2020 to$377.1 million for the six months endedJune 30, 2021 primarily due to the increase in equity in loss of unconsolidated real estate affiliates and the decrease in gains on the sale of unconsolidated properties from the six months endedJune 30, 2020 compared to the six months endedJune 30, 2021 .
See Non-GAAP Supplemental Financial Measures below for a discussion of funds from operations ("FFO"), along with a reconciliation to Net (loss) income attributable to BPYU.
Operating Metrics
The following table summarizes selected operating metrics for our portfolio.
In-Place Rents Per Square Foot (all less anchors) (2) $ 82.65 $ 81.09 In-Place Rents Per Square Foot (<10K square feet) (2) $
61.47 $ 62.13
Percentage Occupied forTotal Retail Properties 91.1 % 94.2 % Percentage Leased forTotal Retail Properties 92.0 % 94.8 % (1) Metrics exclude properties acquired in the year ended December 31, 2020 and the six months endedJune 30, 2021 , reductions in ownership as a result of sales or other transactions, and certain redevelopments and other properties. (2) Rent is presented on a cash basis and consists of base minimum rent and common area costs. 48
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Lease Spread Metrics
The following table summarizes signed leases compared to expiring leases in the
same suite, for leases where (1) the downtime between new and previous tenant
was less than 24 months, (2) the occupied space between the previous tenant and
new tenant did not change by more than 10,000 square feet and (3) the new lease
is at least a year.
Term Initial Rent Expiring Initial Rent
# of Leases SF (in thousands) (in years) PSF (1) Rent PSF (2) Spread % Change
Trailing 12 Month
Commencements 552 1,923 6.8 $ 49.19 $ 47.52 $ 1.67 3.5 %
(1) Represents initial annual rent over the lease consisting of base minimum
rent and common area maintenance.
(2) Represents expiring rent at end of lease consisting of base minimum rent
and common area maintenance.
Results of Operations
Three months ended
Rental revenues decreased
Other property operating costs increased$13.4 million in the second quarter of 2021 compared to the second quarter of 2020, primarily due to the re-opening of properties that were closed due the effects of the COVID-19 pandemic in second quarter of 2020. The provision for impairment of$71.5 million during the second quarter of 2020 is related to an impairment charge recorded on one operating property. There were no impairment charges recorded during the second quarter of 2021 (Note 2). Interest expense increased$4.7 million , primarily related to default interest on properties for which the Company has suspended funding equity contributions to make contractual interest and/or principal payments during the second quarter of 2021 (Note 6). Loss on extinguishment of debt of$1.3 million is related to fees incurred on the payoff of mortgage debt at one operating property during second quarter of 2021 (Note 6). The gain on extinguishment of debt of$14.3 million is related to the debt buyback transactions that occurred in the second quarter of 2020 (Note 6). Equity in loss of Unconsolidated Real Estate Affiliates increased$16.2 million during the second quarter of 2021, primarily related to the decrease in expenses across the unconsolidated joint ventures (Note 5). Unconsolidated Real Estate Affiliates - loss on investment during the second quarter of 2021 is primarily related to the disposition of one equity accounted investment (Note 3).
Six months ended
Rental revenues decreased
Other property operating costs increased$12.5 million during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily due to the re-opening of properties that were closed due the effects of the COVID-19 pandemic in the second quarter of 2020. Provision for note receivable loss of$8.7 million during the six months endedJune 30, 2021 is primarily related to the write off of a note from our joint venture partner that was deemed uncollectible. The provision of impairment of$107.0 million during the six months endedJune 30, 2021 is related to an impairment charges recorded on three operating properties. Specifically,$77.5 million of impairment was recognized for two operating properties where the Company's expected holding period for assets changed due to an increased probability of a near-term disposition and$29.5 million of impairment was recognized based on an update to the Company's estimated probability of obtaining concessions from the creditor at an operating property for which the Company has suspended funding equity contributions to 49 --------------------------------------------------------------------------------
make contractual interest and/or principal payments. The provision for
impairment of
Gain from changes in control of investment properties of$1.8 million during the six months endedJune 30, 2021 is related to the conveyance of one operating property (Note 3). Loss from changes in control of investment properties of$15.4 million during the six months endedJune 30, 2020 is related to the acquisition of an additional interest at one operating property (Note 3). Gain on extinguishment of debt of$11.8 million during the six months endedJune 30, 2021 is primarily related to the conveyance of interest of one operating property (Note 3). The property was one of the properties where the Company strategically skipped debt service during 2020. The gain on extinguishment of debt of$14.3 million during the six months endedJune 30, 2020 is related to the debt buyback transactions that occurred in the second quarter of 2020 (Note 6). Equity in loss of Unconsolidated Real Estate Affiliates decreased$13.4 million during six months endedJune 30, 2021 , primarily related to the loss of revenues across the unconsolidated joint ventures. Additionally, there was an impairment charge of$3.4 million recorded on one unconsolidated operating property (Note 5). Unconsolidated Real Estate Affiliates - loss on investment during the six months endedJune 30, 2021 is primarily related to the disposition of one equity accounted investment (Note 3). The Unconsolidated Real Estate Affiliates - gain on investment during the six months endedJune 30, 2020 is primarily due to the sales of remaining interests in ABG and Aeropostale (Note 3).
Liquidity and Capital Resources
Our primary source of cash is from the ownership and management of our properties and strategic dispositions. In addition, we will also use financings as a source of capital. We may generate cash from refinancings or borrowings under our revolving credit facility (the "Facility"). Our primary uses of cash include payment of operating expenses, debt service, reinvestment in and redevelopment of properties, tenant allowances, dividends, share repurchases and strategic acquisitions. We anticipate maintaining financial flexibility by managing our future maturities and amortization of debt coming due at the corporate and property levels. AtJune 30, 2021 , we have debt coming due of$3.5 billion in the next twelve months. We believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of$417.0 million of consolidated unrestricted cash and$275.0 million of available capacity under our revolving credit facility as ofJune 30, 2021 , as well as refinancing options in the market and anticipated cash provided by operations.
Our key financing objectives include:
•to obtain property-secured debt with laddered maturities; and •to minimize the amount of debt that is cross-collateralized and/or recourse to us.
We may raise capital through public or private issuances of debt securities, preferred stock, Class A Stock, Common Units ofBPR OP, LP ("BPROP"), or other capital raising activities. In addition, we or our affiliates may repurchase our shares or corporate debt and bonds. We expect to be able to refinance the majority of debt obligations maturing in the near term or to exercise contractual extension options thereon, although there is no guarantee we will be able to do so. In certain instances, we plan to seek certain modifications to mortgages, including lease restructuring approvals and technical default waivers, and potentially interest deferrals. In addition, certain debt obligations are subject to financial covenants. As a result, in the shorter-term, the shutdown may negatively impact our ability to meet such covenants. We are reviewing the financial covenants of each debt instrument and, where applicable, working with our lenders to address debt instruments which may potentially approach or breach covenant limits. Such adjustments may include, but are not limited to, adjustment to the covenant limits, interest payment holidays, and temporary suspension of covenant testing. In order to maintain financial flexibility, we maintain capacity under our Facility. As atJune 30, 2021 , the available capacity under such credit facility was$275.0 million . We believe we will be able to continue to borrow funds on the Facility when and as required. 50 -------------------------------------------------------------------------------- The Company entered into a new credit agreement (the "Credit Agreement") dated as ofAugust 24, 2018 consisting of a revolving credit facility (the "Facility"), Term A-1 and A-2 loans, and a Term B loan. The Facility provides for revolving loans of up to$1.5 billion and borrowings bear interest at a rate equal to LIBOR plus 2.25%. The Facility is scheduled to mature inAugust 2022 and had outstanding borrowings of$1,225.0 million as ofJune 30 , 2021.The Term A-1 Loan had a total commitment outstanding of$900.0 million , with$700.0 million attributable to BPYU and$200.0 million attributable to an affiliate, and is scheduled to mature inAugust 2021 , bearing interest at a rate equal to LIBOR plus 2.25%. During the six months endedJune 30, 2021 , BPYU paid off the Term A-1 loan in the amount of$21.0 million . The Term A-2 Loan has a total commitment outstanding of$2.0 billion and is scheduled to mature inAugust 2023 , bearing interest at a rate equal to LIBOR plus 2.25%. During the six months endedJune 30, 2021 , the Company made principal payments in the total amount of$76.5 million , and the outstanding balance atJune 30, 2021 was$1,923.5 million . The Term B Loan has a total commitment outstanding of$2.0 billion and is scheduled to mature inAugust 2025 bearing interest at a rate equal to LIBOR plus 2.50%. During the six months endedJune 30, 2021 , the Company made a principal payment in the amount of$10.0 million . The total outstanding balance of the Term B loan as ofJune 30, 2021 was$1,940.0 million . The Term A-1, A-2, and B Loans are contractually obligated to be prepaid through net proceeds from property level refinances and asset sales as outlined in the Credit Agreement. The Credit Agreement contains certain restrictive covenants which limit material changes in the nature of our business conducted, including, but not limited to, mergers, dissolutions or liquidations, dispositions of assets, liens, incurrence of additional indebtedness, dividends, transactions with affiliates, prepayment of subordinated debt, negative pledges and changes in fiscal periods. In addition, we are required to maintain compliance with certain financial covenants related to a maximum net debt-to-value ratio and a minimum fixed-charge-coverage ratio, as defined in the Credit Agreement.
On
•The lenders have agreed to certain covenant relief in respect of the financial covenants through the fiscal quarter endingJune 30, 2021 (the "Covenant Relief Period"). The maximum total indebtedness to value ratio financial maintenance covenant is being eliminated permanently. The minimum fixed charge coverage ratio is being reduced to 1.20x during the Covenant Relief Period and increasing to 1.35x thereafter. •The Company agreed to maintain an ongoing liquidity covenant (set at$500 million ) which will be tested as of the last day of each month against the amount of unrestricted cash, undrawn available amounts under the Facility and undrawn amounts under the new Brookfield Liquidity Facility. The Company will enter into and maintain a$500 million Brookfield Liquidity Facility (the "Brookfield Liquidity Facility") and prior to the date the Company demonstrates compliance with the financial covenants in effect under the Credit Agreement prior to the First Amendment, any interest and principal payments thereunder must be paid-in-kind. •The Company will be required to "match-fund" drawings under the Facility in excess of$1.0 billion using proceeds of either the Brookfield Liquidity Facility or issuances of qualified equity interests. The match-funding requirement will be required to be made (i) monthly, whereby any drawing during that month is in excess of the prior highest balance of the revolver (in excess of$1.0 billion ), (ii) within 10 business days of a request from the agent if as of any day during a month, the excess draw amount would exceed$10 million and (iii) at any time of request for a revolving loan that the excess would be$100 million or greater (which would be match-funded substantially concurrently with the requested revolving loan draw).
•The Company will also be required to make additional prepayments of the Term A-2 loan with proceeds of certain equity, debt issuances and asset sales.
•The Company also agreed to a number of additional restrictions, including restrictions on incurring additional indebtedness, making of certain restricted payments and the use of proceeds under the revolving facility, which will apply either through the end of the Covenant Relief Period - and in the case of certain provisions, until the Company demonstrates compliance with the financial covenants in effect under the Credit Agreement prior to the First Amendment. As ofJune 30, 2021 , we are not aware of any instances of non-compliance with such covenants. Though there is potential for a risk of default, in the event the Company fails to maintain compliance with its financial covenants, the Credit Agreement provides for a cure period, during which the Company has the opportunity to raise additional cash and reduce net debt balance, such as through capital contributions from BPY, or disposition of assets. Management has determined that in the event of a 51 -------------------------------------------------------------------------------- default, it is probable that these market-based alternatives would be available, and that these actions would provide the necessary cash flows to prevent or cure an event of default, although there is no guarantee that these market-based alternatives would be available. During the six months endedJune 30, 2021 , the Company suspended equity contributions to make contractual interest and/or principal payments on twelve consolidated and unconsolidated property level mortgages, including four mortgages that are in maturity default. During the year endedDecember 31, 2020 , Company suspended equity contributions to make contractual interest and/or principal payments on eighteen consolidated and unconsolidated property level mortgages, including one mortgage that is in maturity default. The Company is currently engaging in negotiations with the creditors on these mortgages to obtain potential lender concessions or other relief. If the Company is unsuccessful in obtaining concessions from these creditors, it is possible that the property securing these loans would be transferred to the lenders. In such circumstances, the carrying value of the property may no longer be recoverable and may trigger an impairment charge. These mortgages are non-recourse and the creditors do not have security claims against the Company aside from the collateral property. During the six months endedJune 30, 2021 , the Company accrued$24.1 million of default interest related to these mortgages per contractual debt agreements. As ofDecember 31, 2020 , the Company has accrued$46.6 million of default interest related to these mortgages per contractual debt agreements.
As of
OnJune 1, 2021 , the Company closed on a new loan atFashion Place in the amount of$290.0 million at LIBOR plus 3.53% which matures onJune 9, 2026 . The loan replaced the previous loan in the amount of$226.7 million which matured onJune 1, 2021 . The origination of the loan incurred fees of$4.5 million , and upfront reserve of$2.6 million . OnMay 28, 2021 , the Company paid off the loan atDeerbrook Mall in the amount of$127.9 million . The transaction incurred debt extinguishment costs in the total amount of$1.3 million . OnMay 14, 2021 , the Company closed on a new loan atWillowbrook Mall in the amount of$155.0 million at LIBOR plus 3.68% which matures onJune 9, 2026 . The new loan replaced the previous loan in the amount of$177.5 million which matured onJune 5, 2021 . The origination of the loan incurred fees of$3.9 million , and upfront reserve of$1.7 million . OnMay 4, 2021 , the Company closed on a new loan atWhalers Village in the amount of$83.5 million at LIBOR plus 2.50% which matures onMay 4, 2024 . The loan replaced the previous loan in the amount of$80.0 million which was scheduled to mature onJanuary 6, 2022 . The origination of the loan incurred fees of$0.9 million as well as an upfront minimum liquidity reserve of$2.5 million . OnApril 20, 2021 , the Company closed on a new$1.0 billion loan secured by cross-collateralized mortgages at 16 properties with an interest rate of LIBOR plus 3.25% which matures onApril 20, 2024 . The loan replaced the previous loan which was encumbered by a$1.3 billion mortgage and matured onApril 23 , 2021.The origination of the loan incurred fees of$8.2 million as well as an upfront working capital reserve of$5.0 million . As ofJanuary 1, 2021 , the Company conveyedNorth Point Mall to the lender in satisfaction of$247.0 million in outstanding debt. Accordingly, the Company recognized a gain of$13.1 million included in gain on extinguishment of debt on our Consolidated Statements of Operations and Comprehensive Loss for the six months endedJune 30, 2021 . As ofJanuary 1, 2021 , the Company conveyedFlorence Mall to the lender in satisfaction of$90.0 million in outstanding debt. Accordingly, the Company recognized a loss of$4.2 million included inUnconsolidated Real Estate Affiliates - gain (loss) on investment, net on our Consolidated Statements of Operations and Comprehensive Loss for the six months endedJune 30, 2021 . OnFebruary 5, 2021 the Company closed on a new loan at Kenwood Towne Centre in the amount of$210.0 million . The new loan matures onFebruary 9, 2024 , and bears the interest rate at LIBOR plus 3.40%. The new loan replaced the previous debt of$194.0 million which was scheduled to mature onFebruary 9, 2021 . The origination of the new loan incurred fees of$5.0 million , which were capitalized.
As of
52
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As of June 30, 2021 , our proportionate share of total debt aggregated $22.9
billion . Our total debt includes our consolidated debt of $16.0 billion and our
share of unconsolidated real estate affiliates debt of $6.9 billion . Of our
proportionate share of total debt, $6.9 billion is recourse to the Company or
its subsidiaries (including the Facility) due to guarantees or other security
provisions for the benefit of the note holder.
The amount of debt due in the next three years represents 42.3% of our total
debt at maturity. The maximum amount due in any one of the next ten years is no
more than $5.2 billion at our proportionate share or approximately 22.6% of our
total debt at maturity.
The following table illustrates the scheduled payments for our proportionate
share of total debt as of
Consolidated Unconsolidated
(Dollars in thousands)
Remainder of 2021 $ 1,397,850 $ 492,297
2022 2,607,353 1,218,858
2023(1) 2,735,601 1,206,574
2024 3,409,299 1,763,029
2025(2) 3,136,458 494,112
2026 1,208,985 434,021
Subsequent 1,482,890 1,260,106
Total $ 15,978,436 $ 6,868,997
(1) Includes the Term A-2 Loan (Note 6).
(2) Includes the Term B Loan (Note 6).
We believe we will be able to extend the maturity date, repay under our
available line of credit or refinance the consolidated debt that is scheduled to
mature in 2021. We also believe that the joint ventures will be able to
refinance the debt of our unconsolidated real estate affiliates upon maturity;
however, there can be no assurance that we will be able to refinance or
restructure such debt on acceptable terms or otherwise, or that joint venture
operations or contributions by us and/or our partners will be sufficient to
repay such loans.
Reserves
With respect to our consolidated properties, for the three and six months endedJune 30, 2021 , our balance associated with potentially uncollectible revenues decreased by$10.4 million and$14.1 million , respectively. With respect to our Unconsolidated Real Estate Affiliates, for the three and six months endedJune 30, 2021 , our balance associated with potentially uncollectible revenues for our Unconsolidated Real Estate Affiliates increased by$5.9 million and$4.3 million , respectively, which includes$3.3 million and$2.6 million , respectively, for straight-line rent receivables. Of these amounts for the three and six months endedJune 30, 2021 , our share totaled$2.3 million and$1.7 million , respectively, which includes$1.6 million and$1.3 million , respectively, for straight-line rent receivables. With respect to our consolidated properties, for the year endedDecember 31, 2020 , we have recorded$42.3 million , associated with potentially uncollectible revenues, which includes$5.3 million , for straight-line rent receivables. With respect to our Unconsolidated Real Estate Affiliates, for the year endedDecember 31, 2020 , our Unconsolidated Real Estate Affiliates have recorded$68.7 million , associated with potentially uncollectible revenues, which includes$8.6 million , for straight-line rent receivables. Of these amounts for the year endedDecember 31, 2020 , our share totaled$33.8 million , which includes$4.2 million , for straight-line rent receivables. As ofJune 30, 2021 , the Company, including consideration of our share of Unconsolidated Real Estate Affiliates, has collected approximately 89% of second quarter rents. While working to preserve our profitability and cash flow, we are also working with our tenants regarding requests for lease concessions and other forms of assistance. The Company continues to make meaningful progress in its negotiations with national and local tenants to secure rental payments, despite a significant portion of the Company's tenants requesting rental assistance, whether in the form of deferral or rent reduction. As ofJune 30, 2021 , in 53 -------------------------------------------------------------------------------- response to the COVID-19 pandemic, the Company granted rent deferrals and rent abatements of 1% and 3% of rents, respectively. The rent abatements granted were considered lease modifications and will be recognized prospectively over the remaining lease terms from the period of the rent that was abated. While we anticipate that we may grant further rent concessions, such as the deferral or abatement of lease payments, such rent concession requests are evaluated on a case-by-case basis. Not all requests for rent relief will be granted as the Company does not intend to forgo its legally enforceable contractual rights that exist under its lease agreements.
Acquisitions and Joint Venture Activity
From time-to-time we may acquire whole or partial interests in high-quality retail properties or make strategic dispositions. Refer to Note 3 for more information.
OnJuly 26, 2021 , BPYU issued 13,875,894 shares of Class A stock at$18.17 per share for a total aggregate contribution of$252.1 million from a related Brookfield Entity. These funds will be used to redeem the outstanding 6.375% Series A Cumulative Redeemable Preferred Shares (the "BPYU Series A Preferred Stock") for cash onAugust 19, 2021 at its par value of$25.00 per share, plus all accumulated and unpaid dividends (whether or not declared) to, but not including,August 19, 2021 , which equals approximately$0.21250 per share, for total proceeds of$25.21250 . Upon redemption, the BPYU Series A Preferred Stock will no longer trade on theNasdaq Stock Market .
Developments and Redevelopments
We are currently redeveloping several consolidated and unconsolidated properties primarily to improve the productivity and value of the property, convert large-scale anchor boxes into smaller leasable areas and to create new in-line retail space and new restaurant venues. The execution of these redevelopment projects within our portfolio was identified as providing compelling risk-adjusted returns on investment. We have development and redevelopment activities totaling approximately$459.0 million under construction and$390.0 million in the pipeline. We continue to evaluate a number of other redevelopment projects to further enhance the quality of our assets. Expected returns are based on the completion of current and future redevelopment projects, and the success of the leasing and asset management plans in place for each project. Expected returns are subject to a number of variables, risks, and uncertainties including those disclosed within Part II, Item 1A of this Quarterly Report and those previously disclosed in our Annual Report. We also refer the reader to our disclosure related to forward-looking statements, below. The following table illustrates our planned redevelopments: Stabilized Proportionate Cost (1) Property Location Description Year Total To-Date
Major Development Summary (in millions, at share unless otherwise noted)
Active redevelopments
Macy's Redevelopment for theater and
Tysons Galleria McLean, VA multi level small shop expansion 2023 $ 108 $ 52
Alderwood Lynnwood, WA Sears Redevelopment - Residential 2023 13 9
Anchor Redevelopment for Retail and
Stonestown Galleria San Francisco, CA Entertainment 2023 151 115
Other Projects Various 2022-2024 187 121
Active developments/redevelopments $ 459 $ 297
In planning
Sears Redevelopment for Entertainment and
Oxmoor Center Louisville, KY Restaurants 2024 $ 19 $ 1
Cumberland Atlanta, GA Residential 2025 77 -
Northridge Northridge, CA Residential 2026 63 -
Ala Moana Honolulu, HI Residential Tower 2026 174 2
Other Projects Various 2023-2025 57 14
In planning $ 390 $ 17
Total retail developments $ 849 $ 314 (1) Costs are at BPYU's ownership share post
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Our investment in these projects for the six months ended June 30, 2021
increased from December 31, 2020 in conjunction with the applicable development
plan and as projects near completion. The continued progression of redevelopment
projects resulted in increases to our investment to date. Prior to the COVID-19
pandemic, our current projects were generally progressing in accordance with
their timeline and budget. The impact of the pandemic and associated
restrictions that have been put in place by local governments may cause delays
in construction and may impact our ability to progress pre-leasing efforts.
Capital Expenditures, Capitalized Interest and Overhead (at share)
The following table illustrates our capital expenditures, capitalized interest,
and internal costs associated with leasing and development overhead, which
primarily relate to ordinary capital projects at our operating properties. In
addition, we incurred tenant allowances and capitalized leasing costs for our
operating properties as outlined below. Capitalized interest is based upon
qualified expenditures and interest rates; capitalized leasing and development
costs are based upon time expended on these activities. These costs are
amortized over lives which are consistent with the related asset.
Six Months Ended June 30,
2021 2020
(Dollars in thousands)
Operating capital expenditures (1) $ 26,085 $ 71,624
Tenant allowances and capitalized leasing costs (2) 46,640 49,093
Capitalized interest and capitalized overhead 10,659 10,884
Total $ 83,384 $ 131,601 (1)Reflects only non-tenant operating capital expenditures.
(2)Tenant allowances paid on 2.0 million square feet for the six months ended
Class A Stock Dividend
Our Board of Directors declared Class A Stock dividends during 2021 and 2020 as follows: Declaration Date Record Date Payment Date Dividend Per Share 2021 February 1 February 26, 2021 March 31, 2021 $ 0.3325 2020 November 5 November 30, 2020 December 31, 2020 $ 0.3325 August 5 August 31, 2020 September 30, 2020 $ 0.3325 May 7 May 29, 2020 June 30, 2020 $ 0.3325 February 5 February 28, 2020 March 31, 2020 $ 0.3325 Class B Stock Dividend Our Board of Directors did not declare dividends on Class B-1 Stock, Class B-2 Stock, or Series B Preferred Stock during the six months endedJune 30, 2021 or during the six months endedJune 30, 2020 .
Preferred Stock Dividends
OnFebruary 13, 2013 , GGP issued, under a public offering, 10,000,000 shares of 6.375% Series A Cumulative Stock at a price of$25.00 per share. In connection with the BPY Transaction of 2018, each share was converted into one share of 6.375% Series A Preferred Stock. Our Board of Directors declared preferred stock dividends during 2021 and 2020 as follows: 55 --------------------------------------------------------------------------------
Declaration Date Record Date Payment Date Dividend Per Share 2021 May 6 June 15, 2021 July 1, 2021 $ 0.3984 February 1 March 15, 2021 April 1, 2021 $ 0.3984 2020 November 5 December 15, 2020 January 1, 2021 $ 0.3984 August 5 September 15, 2020 October 1, 2020 $ 0.3984 May 7 June 15, 2020 July 1, 2020 $ 0.3984 February 5 March 15, 2020 April 1, 2020 $ 0.3984 Summary of Cash Flows
Cash Flows from Operating Activities
Net cash (used in) provided by operating activities was$246.1 million for the six months endedJune 30, 2021 and$(154.6) million for the six months endedJune 30, 2020 . Significant components of net cash (used in) provided by operating activities include: •in 2021, equity in loss of Unconsolidated Real Estate Affiliates of$74.7 million ; •in 2021, depreciation and amortization of$300.3 million ; •in 2021, provision for impairment of$107.0 million ; •in 2021, accounts and notes receivable, net of$165.9 million ; •in 2020, equity in loss of Unconsolidated Real Estate Affiliates of$61.3 million ; •in 2020, depreciation and amortization of$320.2 million ; •in 2020, provision for impairment of$71.5 million ; and •in 2020, accounts and notes payable, net of$(282.1) million .
Cash Flows from Investing Activities
Net cash (used in) provided by investing activities was$63.0 million for the six months endedJune 30, 2021 and$(102.4) million for the six months endedJune 30, 2020 . Significant components of net cash (used in) provided by investing activities include: •in 2021, development of real estate and property improvements of$(124.5) million ; •in 2021, proceeds from sales of investment properties and unconsolidated real estate affiliates of$76.2 million ; •in 2021, contributions to unconsolidated real estate affiliates of$(36.6) million ; •in 2021, distributions received from unconsolidated real estate affiliates in excess of income of$147.5 million ; •in 2020, development of real estate and property improvements of$(159.5) million ; •in 2020, proceeds from sales of investment properties and unconsolidated real estate affiliates of$81.0 million ; •in 2020, contributions to unconsolidated real estate affiliates of$(54.9) million ; and •in 2020, distributions received from unconsolidated real estate affiliates in excess of income of$30.9 million .
Cash Flows from Financing Activities
Net cash (used in) provided by financing activities was$(22.2) million for the six months endedJune 30, 2021 and$270.3 million for the six months endedJune 30, 2020 . Significant components of net cash (used in) provided by financing activities include: •in 2021, proceeds from the refinancing or issuance of mortgages, notes and loans payable of$480.6 million ; •in 2021, principal payments on mortgages, notes, and loans payable of$(832.8) million ; •in 2021, buyback of Class A Stock of$(15.6) million ; •in 2021, issuance of ClassB Stock of$378.5 million ; •in 2021, cash distributions paid to stockholders of$(13.5) million ; •in 2020, proceeds from the refinancing or issuance of mortgages, notes and loans payable of$661.0 million ; •in 2020, principal payments on mortgages, notes, and loans payable of$(328.9) million ; •in 2020, buyback of Class A Stock of$(15.9) million ; •in 2020, series K preferred units redemption of$(27.9) million ; •in 2020, payment received on note receivable of$31.7 million ; and 56 --------------------------------------------------------------------------------
•in 2020, cash distributions paid to stockholders of
Seasonality
Although we have a year-long temporary leasing program, occupancies for short-term tenants and, therefore, rental income recognized, are higher during the fourth quarter of the year. In addition, the majority of our tenants have December or January lease years for purposes of calculating annual overage rent amounts. Accordingly, overage rent thresholds are most commonly achieved in the fourth quarter. As a result, revenue production is generally highest in the fourth quarter of each year.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our consolidated interim financial statements, which have been prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the preparation of the consolidated financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A disclosure of our critical accounting policies which affect our more significant judgments and estimates used in the preparation of our consolidated financial statements is included in our Annual Report in Management's Discussion and Analysis of Financial Condition and Results of Operations. For the six months endedJune 30, 2021 , there were no significant changes to these policies, except for the policies related to the application of lease modification guidance in Accounting Standards Update ("ASU") 2016-02, Leases ("ASC 842", "Topic 842", or "the new leasing standard") as a result of the COVID-19 pandemic as described in Note 2 and below.
Topic 842 - Lease Modification Q&A
Due to the business disruptions and challenges severely affecting the global economy caused by the global economic shutdown, lessors may provide rent deferrals and other lease concessions to lessees. InApril 2020 , theFinancial Accounting Standards Board staff issued a question and answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance to lease concessions provided as a result of the shutdown. Under existing lease guidance, economic relief that is agreed to or negotiated outside of the original lease agreement is typically considered a lease modification, in which case both the lessee and lessor would be required to apply the respective modification frameworks. However, if the lessee was entitled to the economic relief because of either contractual or legal rights, the relief would be accounted for outside of the modification framework. Although the original lease modification guidance in Accounting Standards Codification ("ASC") 842, Leases remain appropriate to address routine lease modifications, the Lease Modification Q&A established a different framework to account for certain lease concessions granted in response to the shutdown. The Lease Modification Q&A allows the Company, if certain criteria have been met, to make an accounting policy election to account for COVID-19 related lease concessions as either a lease modification or a negative variable adjustment to rental revenue. Such election is required to be applied consistently to leases with similar characteristics and similar circumstances.
The Company has elected to apply such relief and will avail itself of the election to treat leases as lease modifications, thereby avoiding performing a lease by lease analysis for the lease concessions that were (1) granted as relief due to the shutdown and (2) result in the cash flows remaining substantially the same or less than the original contract.
Refer also to the accounting policies discussed in Note 2 of the Consolidated Financial Statements.
REIT Requirements
In order to remain qualified as a REIT for Federal income tax purposes, we must
distribute at least 90% of our taxable ordinary income to stockholders. We are
also subject to federal income tax to the extent we distribute less than 100% of
our REIT taxable income, including capital gains. See Note 8 to the Consolidated
Financial Statements for more detail on our ability to remain qualified as a
REIT.
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--------------------------------------------------------------------------------Recently Issued Accounting Pronouncements
Refer to Note 2 of the Consolidated Financial Statements for recently issued accounting pronouncements.
Non-GAAP Supplemental Financial Measures and Definitions
Funds From Operations ("FFO")
The Company determines FFO based upon the definition set forth byNational Association of Real Estate Investment Trusts ("Nareit"). The Company determines FFO to be its share of consolidated net income (loss) attributable to common stockholders and redeemable non-controlling common unit holders computed in accordance with GAAP, adjusted for real estate related depreciation and amortization, excluding gains and losses from extraordinary items, excluding cumulative effects of accounting changes, excluding gains and losses from the sales of, or any impairment charges related to, previously depreciated operating properties, plus the allocable portion of FFO of unconsolidated joint ventures based upon the Company's economic ownership interest, and all determined on a consistent basis in accordance with GAAP. The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry. FFO facilitates an understanding of the operating performance of the Company's properties between periods because it does not give effect to real estate depreciation and amortization since these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, the Company believes that FFO provides investors with a clearer view of the Company's operating performance. We calculate FFO in accordance with standards established by Nareit, which may not be comparable to measures calculated by other companies who do not use the Nareit definition of FFO or do not calculate FFO in accordance with Nareit guidance. In addition, although FFO is a useful measure when comparing our results to other REITs, it may not be helpful to investors when comparing us to non-REITs.
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
In order to provide a better understanding of the relationship between the
Company's non-GAAP financial measures of FFO, a reconciliation of GAAP net
income attributable to BPYU to FFO has been provided. The Company's non-GAAP
financial measure does not represent cash flow from operating activities in
accordance with GAAP and should not be considered as an alternative to GAAP net
income (loss) attributable to BPYU and is not necessarily indicative of cash
flow. In addition, the Company has presented such financial measures on a
consolidated and unconsolidated basis (at the Company's proportionate share) as
the Company believes that given the significance of the Company's operations
that are owned through investments accounted for by the equity method of
accounting, the detail of the operations of the Company's unconsolidated
properties provides important insights into the income and FFO produced by such
investments.
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The following table reconciles GAAP net income attributable to BPYU to FFO for
the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net loss Attributable to BPYU $ (147,932) $ (209,050) $ (377,053) $ (290,877)
Provision for impairment excluded from FFO
- Consolidated Properties - 71,455 106,991 71,455
Provision for impairment excluded from FFO
- Unconsolidated Properties - 42,675 3,405 42,675
Unconsolidated Real Estate Affiliates -
gain on investment 13,637 - 17,848 -
Gain on sales of investment properties (3,591) 109 (4,615) (6,650)
Above and below market ground rent 939 939 1,878 2,505
Preferred stock dividends (3,985) (3,984) (7,969) (7,968)
Loss (gain) from changes in control of
investment properties and other - 15,433 (1,824) 15,433
Depreciation and amortization of
capitalized real estate costs -
Consolidated Properties 143,953 158,139 291,104 310,727
Depreciation and amortization of
capitalized real estate costs -
Unconsolidated Properties 109,563 112,534 214,087 230,193
Allocation of noncontrolling interests (1) (21,146) (39,079) (57,946) (65,348)
FFO $ 91,438 $ 149,171 $ 185,906 $ 302,145 (1) Noncontrolling interest holders' share of adjustments including depreciation, impairment, gain (loss) from changes in control of investment properties and other, Unconsolidated Real Estate Affiliates - gain on investment and gain on sales of investment properties.
Forward-Looking Statements
Certain statements made in this section or elsewhere in this report may be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that do not relate to historical or current facts or matters are forward-looking statements. When used, the words "may," "will," "seek," "expects," "anticipates," "believes," "targets," "intends," "should," "estimates," "could," "continue," "assume," "projects," "plans," or similar expressions, are intended to identify forward-looking statements. Although we believe the expectations reflected in any forward-looking statement are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and other factors. Accordingly, investors should use caution in relying on forward-looking statements.
Some of the other risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:
•the market price of BPY units and the combined business performance of BPY as a
whole;
•general volatility of conditions affecting the retail sector;
•the effects of the COVID-19 pandemic and the possibility of future outbreaks of
highly infectious or contagious diseases;
•our inability to acquire and maintain tenants or to lease space on terms
favorable to us;
•risks related to the bankruptcy or store closures of national tenants with
chains of stores in many of our properties;
•our inability to sell real estate quickly;
•risks related to perceptions by retailers and shoppers of the convenience and
attractiveness of our retail properties;
•risks related to the development, expansion and acquisitions of properties;
•risks related to competition in our business;
•risks related to natural disasters, pandemics/epidemics or terrorist attacks;
•risks related to cyber and data security breaches or information technology
failures;
•environmental uncertainties and related costs, including costs resulting from
uninsured potential losses;
•general risks related to inflation or deflation;
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•discontinuation of LIBOR; •risks relating to impairment charges for our real estate assets; •risks related to conflicts of interest with BPY and our status as a "controlled company" within the meaning of the rules of Nasdaq; •our dependence on our subsidiaries for cash; •risks related to our joint venture partners, including risks related to conflicts of interests, potential bankruptcies, tax-related obligations and financial support relating to such joint venture partners; •our inability to maintain status as a REIT, and possible adverse changes to tax laws; •risks related to our indebtedness and debt restrictions and covenants; •our inability to refinance, extend, restructure or repay near and indeterminate debt; •our inability to raise capital through financing activities or asset sales; and •risks related to the structure and trading of Class A Shares. We discuss these and other risks and uncertainties in our Annual Report and our quarterly periodic reports filed with theSecurities and Exchange Commission . The Company may update that discussion in its periodic reports, but otherwise takes no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.
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