BROOKFIELD PROPERTY REIT All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Quarterly Report and which 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 ofSeptember 30, 2020 , we were the owner, either entirely or with joint venture partners, of 122 retail properties located throughoutthe United States comprising approximately 120 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. We operate our business to achieve this objective with a long term view and will continue to make decisions with that in mind, however, we will caution that in light of the novel coronavirus pandemic ("COVID-19" or "the global economic shutdown" or "the shutdown") and its impact on the global economy, we may be unable to achieve these objectives in the near term. 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 of
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$229.0 million for the nine months endedSeptember 30, 2019 to$461.5 million for the nine months endedSeptember 30, 2020 primarily due to the increase in equity in loss of unconsolidated real estate 50 -------------------------------------------------------------------------------- affiliates and the decrease in gains on the sale of unconsolidated properties from the nine months endedSeptember 30, 2019 compared to the nine months endedSeptember 30, 2020 .
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.
September 30, September 30,
2020 (1) 2019 (1)
In-Place Rents Per Square Foot (all less anchors) (2) $ 81.08 $ 79.95
In-Place Rents Per Square Foot (<10K square feet) (2) $ 61.87 $ 61.88
Percentage Occupied for Total Retail Properties 92.8 % 93.6 %
Percentage Leased for Total Retail Properties 93.4 % 95.0 %
(1) Metrics exclude properties acquired in the year ended December 31, 2019
and the nine months ended September 30, 2020 , 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.
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 870 3,109 6.6 $ 52.14 $ 49.90 $ 2.24 4.5 %
(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 increased$9.2 million , primarily due to the acquisition of an additional interest in four operating properties in the fourth quarter of 2019. The acquisition resulted in a$43.4 million increase in Rental Revenues during the third quarter of 2020 compared to the third quarter of 2019. This is partially offset by the provision for doubtful accounts, resulting in a$32.2 million decrease from the third quarter of 2020 compared to the third quarter of 2019. Real estate taxes increased$7.3 million , primarily due to the acquisition of an additional interest in four operating properties in the fourth quarter of 2019. The acquisition resulted in a$4.7 million increase in real estate taxes during the third quarter of 2020 compared to the third quarter of 2019. The provision of impairment of$38.8 million during the third quarter of 2019 is related to an impairment charge recorded on one operating property (Note 2). There were no operating property impairment charges during the third quarter of 2020. Depreciation and amortization increased$45.0 million , primarily due to the acquisition of an additional interest in four operating properties in the fourth quarter of 2019. The acquisition resulted in a$30.5 million increase in depreciation and amortization during the third quarter of 2020 compared to the third quarter of 2019.
Gain from changes in control of investment properties of
51
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Loss on extinguishment of debt of $27.5 million is related to the pre-payment
penalty related to the refinancing of debt at one property that occurred in the
third quarter of 2019 (Note 6).
Benefit from (provision for) income taxes decreased $19.8 million , primarily due
to the recognition of deferred taxes related to certain transactions effectuated
in the BPY Transaction in 2019
Equity in loss of Unconsolidated Real Estate Affiliates increased $60.3 million
during the third quarter of 2020, primarily related to decreased revenues in
unconsolidated joint ventures. Additionally, impairment charges of $2.5 million
were recorded on one operating property (Note 5).
Unconsolidated Real Estate Affiliates - gain on investment during the third
quarter of 2019 is due to the 49.3% sale of our interest in
Nine months ended
Rental revenues increased$64.9 million , primarily due to the acquisition of an additional interest in four operating properties in the fourth quarter of 2019. The acquisition resulted in a$139.2 million increase in Rental Revenues during the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . This is partially offset by the provision for doubtful accounts, resulting in$48.2 million decrease during the nine months endedSeptember 30, 2019 compared to the nine months endedSeptember 30, 2019 . Real estate taxes increased$20.6 million , primarily due to the acquisition of an additional interest in four operating properties in the fourth quarter of 2019. The acquisition resulted in a$14.1 million increase in real estate taxes during the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . The provision for impairment of$71.5 million during the nine months endedSeptember 30, 2020 is related to an impairment charges recorded on one operating property and the provision of impairment of$223.1 million during the nine months endedSeptember 30, 2019 is related to impairment charges recorded on two operating properties (Note 2). Depreciation and amortization increased$128.0 million , primarily due to the acquisition of an additional interest in four operating properties in the fourth quarter of 2019. The acquisition resulted in a$103.0 million increase in depreciation and amortization during the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . Loss from changes in control of investment properties of$15.4 million during the nine months endedSeptember 30, 2020 is related to the acquisition of an additional interest at one operating property (Note 3). The gain from changes in control of investment properties of$39.7 million during the nine months endedSeptember 30, 2019 is related to the acquisition of an additional interest at one operating property (Note 3). The gain on extinguishment of debt of$14.3 million during the nine months endedSeptember 30, 2020 is related to the debt buyback transactions that occurred in the second quarter of 2020 (Note 6). The loss on extinguishment of debt of$27.5 million during the nine months endedSeptember 30, 2019 is due to a pre-payment penalty related to the refinancing of debt at one property (Note 6).
Benefit from income taxes decreased
Equity in loss of Unconsolidated Real Estate Affiliates of
Unconsolidated Real Estate Affiliates - gain on investment during the nine months endedSeptember 30, 2020 is primarily due to the sales of remaining interests inABG andAero OpCo LLC (Note 3).The Unconsolidated Real Estate Affiliates - gain on investment during the nine months endedSeptember 30, 2019 relates to the sale of our 12.0% interest inBayside Marketplace and the 49.3% sale of our interest in ABG (Note 3). 52 --------------------------------------------------------------------------------
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. We believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of$173.3 million of consolidated unrestricted cash and$580.0 million of available capacity under our revolving credit facility as ofSeptember 30, 2020 , as well as 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. The future impact of the global economic shutdown on our level of liquidity is uncertain at this time. Measures undertaken by governments and companies in our principal markets have resulted in the temporary closure of many of our operating assets with the vast majority of the assets now open. The duration of such measures may impact our ability to collect rental income in our retail assets. The longer-term impact of the shutdown and resulting economic downturn could reduce demand for retail space. Consequently, we are reviewing, and where appropriate adjusting, our current capital expenditure and financing assumptions on existing and future projects to reflect any potential shorter- and longer-term impact of the shutdown. We are also reviewing contractual arrangements with our tenants to assess the rights and responsibilities of the Company and our tenants in response to the impact of the measures undertaken by governments and/or tenants. Potential responses may include, but are not limited to, extension of payment terms from tenants, adjustments to the duration of leases, payment holidays, and renegotiation of lease terms. 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 atSeptember 30, 2020 , the available capacity under such credit facility was$580.0 million . We believe we will be able to continue to borrow funds on the Facility when and as required. The Company entered into a new credit agreement (the "Credit Agreement") dated as ofAugust 24, 2018 consisting of 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$920.0 million as ofSeptember 30, 2020 . The Term A-1 Loan has 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 quarter endedSeptember 30, 2020 , the Company didn't make principal payments, and the remaining outstanding balance was$34.8 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%, and the outstanding balance atSeptember 30, 2020 was$2.0 billion . 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 quarter endedSeptember 30, 2020 , the Company made a principal payment in the total amount of 53 --------------------------------------------------------------------------------$5.0 million . The total outstanding balance of the Term B Loan as ofSeptember 30, 2020 was$1,955.0 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 applicable margin for the Term A Loans and the Facility will be LIBOR plus 3.00% during the Covenant Relief Period - and thereafter, will be LIBOR plus 3.00% if the total net indebtedness to value ratio is greater than 70%. •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 loans 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 ofSeptember 30, 2020 , we are not aware of any instances of non-compliance with such covenants. Though there is potential for a risk of default (See Note 17 for discussion specific to COVID-19), 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 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. OnMay 24, 2020 , the Company executed a series of transactions to repurchase corporate debt on the open market, funded by intercompany loans from BPY. The total amounts of debt repurchased had a par value of$59.6 million , and a cash repurchase price of$45.3 million . Following each repurchase, the repurchased debt was formally cancelled. As a result of the debt repurchase and cancellation, the Company recognized a gain of$14.3 million included in gain on extinguishment of debt on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months endedSeptember 30, 2020 . 54 -------------------------------------------------------------------------------- During the nine months endedSeptember 30, 2020 , the 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. In total, as ofSeptember 30, 2020 , the Company has suspended equity contributions to make contractual interest and/or principal payments on a total of$1.8 billion of property level mortgages and the related Investment in Real Estate securing these loans has a carrying value of$1.9 billion . OnApril 24, 2020 , the Company completed a one-year extension of a$1.3 billion loan secured by cross-collateralized mortgages on 15 properties with an interest rate of LIBOR plus 1.75%, which matures onApril 25, 2021 . An extension fee of$1.6 million was paid in conjunction with the extension. OnFebruary 28, 2020 , the Company closed a new loan at theMiami Design District joint venture in the amount of$500.0 million with an interest rate of 4.13%, which matures onMarch 1, 2030 . The loan replaced the previous debt of$480.0 million with an interest rate of LIBOR plus 2.50% that was scheduled to mature onMay 14, 2021 . As a result of the refinancing, the joint venture incurred$3.7 million of deferred financing costs that were capitalized.
As of
As ofSeptember 30, 2020 , our proportionate share of total debt aggregated$27.0 billion . Our total debt includes our consolidated debt of$16.5 billion and our share of unconsolidated real estate affiliates debt of$10.4 billion . Of our proportionate share of total debt,$6.8 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 30.2% of our total debt at maturity. The maximum amount due in any one of the next ten years is no more than$3.7 billion at our proportionate share or approximately of 13.7% 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 2020 $ 532,539 $ 278,541
2021(1) 2,926,152 1,103,845
2022 2,039,508 1,266,138
2023(2) 2,826,245 918,490
2024 2,203,411 1,580,310
2025(3) 3,200,001 500,927
Subsequent 2,808,473 4,777,473
Total $ 16,536,329 $ 10,425,724
(1) Includes the Term A-1 Loan (Note 6).
(2) Includes the Term A-2 Loan (Note 6).
(3) 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 2020. 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.
55
--------------------------------------------------------------------------------Reserves
With respect to our consolidated properties, for the three and nine months endedSeptember 30, 2020 , we have recorded$36.9 million and$59.8 million , respectively, associated with potentially uncollectible revenues, which includes$2.4 million and$7.4 million , respectively, for straight-line rent receivables. With respect to our Unconsolidated Real Estate Affiliates, for the three and nine months endedSeptember 30, 2020 , our Unconsolidated Real Estate Affiliates have recorded$47.4 million and$81.0 million , respectively, associated with potentially uncollectible revenues, which includes$3.0 million and$10.1 million , respectively, for straight-line rent receivables. Of these amounts for the three and nine months endedSeptember 30, 2020 , our share totaled$24.9 million and$40.1 million , respectively, which includes$1.5 million and$4.8 million , respectively, for straight-line rent receivables. As ofSeptember 30, 2020 , the Company, including consideration of our share of Unconsolidated Real Estate Affiliates, has collected approximately 65% of third quarter rents, and collections continue to increase subsequent to quarter end. 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, although we have not executed a significant number of agreements. 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.
56
--------------------------------------------------------------------------------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$445.0 million under construction and$365.0 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 $ 111 $ 28
Alderwood Lynnwood, WA Sears Redevelopment - Residential 2022 13 3
Anchor Redevelopment for Retail and
Stonestown Galleria San Francisco, CA Entertainment 2022 149 99
Other Projects Various 2020-2023 172 61
Active developments/redevelopments $ 445 $ 191
In planning
Sears Redevelopment for Entertainment and
Oxmoor Center Louisville, KY Restaurants 2024 $ 30 $ 1
Cumberland Atlanta, GA Residential 2024 19 -
Northridge Northridge, CA Residential 2025 50 -
Ala Moana Honolulu, HI Residential Tower 2025 157 1
Other Projects Various 2021-2025 109 16
In planning $ 365 $ 18
Total retail developments $ 810 $ 209 (1) Costs are at BPYU's ownership share post
Our investment in these projects for the nine months endedSeptember 30, 2020 increased fromDecember 31, 2019 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. 57 --------------------------------------------------------------------------------
Capital Expenditures, Capitalized Interest and Overhead (at share)
The following table illustrates our capital expenditures, capitalized interest,
and initial direct costs associated with leasing and development, 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 initial direct costs as incremental costs of a lease that would not
have been incurred if the lease had not been obtained. These costs are amortized
over lives which are consistent with the related asset.
Nine Months Ended
2020 2019
(Dollars in thousands)
Operating capital expenditures (1) $ 93,606 $ 122,537
Tenant allowances and capitalized leasing costs (2) 59,598 149,234
Capitalized interest and capitalized overhead 16,149 17,848
Total $ 169,353 $ 289,619 (1)Reflects only non-tenant operating capital expenditures. (2)Tenant allowances paid on 3.5 million square feet.
Class A Stock Dividend
Our Board of Directors declared Class A Stock dividends during 2020 and 2019 as
follows:
Declaration Date Record Date Payment Date Dividend Per Share
2020
November 5 November 30 December 31 $ 0.3325
August 5 August 31 September 30 0.3325
May 7 May 29 June 30 0.3325
February 5 February 28 March 31 0.3325
2019
November 4 November 29 December 31 $ 0.3300
August 1 August 30 September 30 0.3300
May 6 May 31 June 28 0.3300
February 6 February 28 March 29 0.3300
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 nine months ended September 30,
2020 . Our Board of Directors declared dividends on these classes of stock during
2019 as follows:
Class B-1 Stock Dividends
Declaration Date Record Date Payment Date Average Dividend Per Share
2019
November 4 December 25 December 25 $ 0.110
On
Class B-2 Stock Dividends
Declaration Date Record Date Payment Date Average Dividend Per Share
2019
November 4 December 25 December 25 $ 0.110
58--------------------------------------------------------------------------------
On
Combined Class
Declaration Date Record Date Payment Date Average Dividend Per Share
2019
May 25 June 25 June 25 $ 0.397
March 25 March 27 March 27 1.015
A dividend was declared on the Class B-1 Stock and the Series B Preferred Stock
of the Company in the amount equal to all unpaid dividends on such shares from
the date of issue to March 31, 2019 at the rate of 7.5% per annum payable on
March 27, 2019 to the holders of record of Class B-1 Stock and the Series B
Preferred Stock on March 27, 2019 for a combined distribution total of
approximately $467.3 million .
In the quarter ended June 30, 2019 , a dividend was declared on the Class B-1
Stock and the Series B Preferred Stock of the Company in the amount equal to all
unpaid dividends on such shares from March 31, 2019 to June 25, 2019 at the rate
of 7.5% per annum payable on June 25, 2019 to the holders of record of Class B-1
Stock and the Series B Preferred Stock on June 25, 2019 for a combined
distribution total of approximately $183.8 million .
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, each share was converted into one share of 6.375% Series A Preferred Stock. Our Board of Directors declared preferred stock dividends during 2020 and 2019 as follows: Declaration Date Record Date Payment Date Dividend Per Share 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 2019 November 4 December 13, 2019 January 1, 2020 $ 0.3984 August 1 September 13, 2019 October 1, 2019 0.3984 May 6 June 14, 2019 July 1, 2019 0.3984 February 6 March 15, 2019 April 1, 2019 0.3984 Summary of Cash Flows
Cash Flows from Operating Activities
Net cash (used in) provided by operating activities was$(93.7) million for the nine months endedSeptember 30, 2020 and$252.2 million for the nine months endedSeptember 30, 2019 . Significant components of net cash (used in) provided by operating activities include: •in 2020, equity in loss of Unconsolidated Real Estate Affiliates of$105.4 million ; •in 2020, depreciation and amortization of$485.4 million ; •in 2020, unconsolidated real estate affiliates - loss on investment, net of$(10.9) million ; •in 2020, loss from changes in control of investment properties and other, net of$15.4 million ; •in 2020, provision for impairment of$71.5 million ; •in 2020, gain on extinguishment of debt of$(14.3) million ; •in 2020, accounts and notes receivable, net of$(364.6) million ; •in 2020, prepaid expenses and other assets of$(27.6) million ; •in 2020, account payable and accrued expenses of$53.7 million ; •in 2019, depreciation and amortization of$357.4 million ; 59 -------------------------------------------------------------------------------- •in 2019, unconsolidated real estate affiliates - loss on investment, net of$(138.0) million ; •in 2019, provision for impairment of$223.1 million ; and •in 2019, account payable and accrued expenses of$(39.9) million .
Cash Flows from Investing Activities
Net cash (used in) investing activities was
•in 2020, development of real estate and property improvements of$(219.7) million ; •in 2020, proceeds from sales of investment properties and unconsolidated real estate affiliates of$84.5 million ; •in 2020, contributions to unconsolidated real estate affiliates of$(75.2) million ; •in 2020, distributions received from unconsolidated real estate affiliates in excess of income of$29.7 million ; •in 2019, development of real estate and property improvements of$(381.8) million ; •in 2019, proceeds from repayment of loans to joint venture partners of$18.0 million ; •in 2019, contributions to unconsolidated real estate affiliates of$(208.3) million ; •in 2019, distributions received from unconsolidated real estate affiliates in excess of income of$269.5 million ; •in 2019, loans to affiliates of$(330.0) million ; •in 2019, proceeds from loan to affiliates of$330.0 million ; and •in 2019, loans to joint venture and joint venture partners of$(97.5) million .
Cash Flows from Financing Activities
Net cash provided by financing activities was$267.9 million for the nine months endedSeptember 30, 2020 and$82.2 million for the nine months endedSeptember 30, 2019 . Significant components of net cash provided by financing activities include: •in 2020, proceeds from the refinancing or issuance of mortgages, notes and loans payable of$811.1 million ; •in 2020, principal payments on mortgages, notes, and loans payable of$(751.2) million ; •in 2020, buyback of Class A Stock of$(133.6) million ; •in 2020, issuance of ClassB Stock of$414.3 million ; •in 2020, series K preferred units redemptions of$(28.3) million ; •in 2020, payment received on note receivable of$31.7 million ; •in 2020, cash distributions paid to stockholders of$(54.9) million ; •in 2019, proceeds from the refinancing or issuance of mortgages, notes and loans payable of$4.7 billion , which includes a$1 billion bonds issuance; •in 2019, principal payments on mortgages, notes, and loans payable of$(3.4) billion ; •in 2019, buyback of Class A Stock of$(114.9) million ; •in 2019, buyback of Class B-1 Stock of$(224.5) million ; •in 2019, cash distributions to noncontrolling interests in consolidated real estate affiliates of$(67.0) million ; and •in 2019, cash distributions paid to stockholders of$(738.0) million .
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
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--------------------------------------------------------------------------------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 nine months endedSeptember 30, 2020 , 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.
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.
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 by Nareit. The
Company determines FFO to be its share of consolidated net income (loss)
attributable to BPYU computed in accordance with GAAP, adjusted for real estate
related depreciation and amortization, amortization of above and below market
rent on ground leases, 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
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--------------------------------------------------------------------------------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.
The following table reconciles GAAP net income attributable to BPYU to FFO for
the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net loss Attributable to BPYU $ (170,620) $ (33,423) $ (461,497) $ (228,988)
Provision for impairment excluded from FFO
- Consolidated Properties - 38,941 71,455 223,287
Provision for impairment excluded from FFO
- Unconsolidated Properties 2,470 - 45,145 -
Unconsolidated Real Estate Affiliates -
gain on investment - - - (104,354)
Gain on sales of investment properties (1,824) (5,093) (8,474) (10,640)
Above and below market ground rent 939 - 3,444 -
Preferred stock dividends (3,984) (3,984) (11,952) (11,952)
Loss (gain) from changes in control of
investment properties and other - (39,712) 15,433 (39,712)
Depreciation and amortization of
capitalized real estate costs -
Consolidated Properties 160,379 115,490 471,106 343,054
Depreciation and amortization of
capitalized real estate costs -
Unconsolidated Properties 114,527 131,987 344,720 406,818
Allocation of noncontrolling interests (1) (27,671) (24,177) (93,019) (98,425)
FFO $ 74,216 $ 180,029 $ 376,361 $ 479,088 (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 (the "Exchange
Act"). 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,
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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, including the recent novel coronavirus
outbreak. Our future results may be impacted by risks associated with the global
economic shutdown and the related global reduction in commerce and travel and
substantial volatility in stock markets worldwide, which may result in a
decrease of cash flows and impairment losses on our investments and real estate
properties, and we may be unable to achieve our expected returns. 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; •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; •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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