FEDERAL REALTY INVESTMENT TRUST Forward-Looking Statements The following discussion should be read in conjunction with the consolidated interim financial statements and notes thereto appearing in Item 1 of this report and the more detailed information contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSecurities and Exchange Commission (the "SEC") onFebruary 11, 2021 . Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations ofFederal Realty Investment Trust ("we" "our" or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements: •risks that our tenants will not pay rent, may vacate early or may file for bankruptcy or that we may be unable to renew leases or re-let space at favorable rents as leases expire; •risks that we may not be able to proceed with or obtain necessary approvals for any redevelopment or renovation project, and that completion of anticipated or ongoing property redevelopment or renovation projects that we do pursue may cost more, take more time to complete or fail to perform as expected; •risk that we are investing a significant amount in ground-up development projects that may be dependent on third parties to deliver critical aspects of certain projects, requires spending a substantial amount upfront in infrastructure, and assumes receipt of public funding which has been committed but not entirely funded; 14 -------------------------------------------------------------------------------- Table of Contents •risks normally associated with the real estate industry, including risks that occupancy levels at our properties and the amount of rent that we receive from our properties may be lower than expected, that new acquisitions may fail to perform as expected, that competition for acquisitions could result in increased prices for acquisitions, that costs associated with the periodic maintenance and repair or renovation of space, insurance and other operations may increase, that environmental issues may develop at our properties and result in unanticipated costs, and, because real estate is illiquid, that we may not be able to sell properties when appropriate; •risks that our growth will be limited if we cannot obtain additional capital; •risks of financing on terms which are acceptable to us, our ability to meet existing financial covenants and the limitations imposed on our operations by those covenants, and the possibility of increases in interest rates that would result in increased interest expense; •risks related to our status as a real estate investment trust, commonly referred to as a REIT, for federal income tax purposes, such as the existence of complex tax regulations relating to our status as a REIT, the effect of future changes in REIT requirements as a result of new legislation, and the adverse consequences of the failure to qualify as a REIT; •risks related to natural disasters, climate change and public health crises (such as the outbreak and worldwide spread of COVID-19), and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address them, may precipitate or materially exacerbate one or more of the above-mentioned risks, and may significantly disrupt or prevent us from operating our business in the ordinary course for an extended period. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this Quarterly Report on Form 10-Q. You should carefully review the risks and the risk factors included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and under Part II, Item 1A in this Quarterly Report on Form 10-Q, before making any investments in us. Overview We are an equity real estate investment trust ("REIT") specializing in the ownership, management, and redevelopment of high quality retail and mixed-use properties located primarily in communities where we believe retail demand exceeds supply, in strategically selected metropolitan markets in the Northeast and Mid-Atlantic regions ofthe United States ,California , andSouth Florida . As ofJune 30, 2021 , we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 105 predominantly retail real estate projects comprising approximately 25.3 million square feet. In total, the real estate projects were 92.7% leased and 89.6% occupied atJune 30, 2021 . Impacts of COVID-19 Pandemic We continue to monitor and address risks related to the novel coronavirus disease ("COVID-19") pandemic. SinceMarch 2020 when theWorld Health Organization characterized COVID-19 as a global pandemic, we have been and continue to be impacted by COVID-19 and the actions taken by federal, state, and local government to prevent its spread. These actions range from closure of nonessential businesses and ordering residents to generally stay at home at the onset of the pandemic to phased re-openings and capacity limitations and now to generally lifted restrictions as COVID-19 vaccination rates increase. These closures and restrictions, along with general concern over the spread of COVID-19, required a significant number of tenants to close their operations or to significantly limit the amount of business they are able to conduct, which impacted their ability to timely pay rent as required under our leases and also caused many tenants to close their business permanently. While improving, our cash flow and results of operations in the six months endedJune 30, 2021 continued to be materially adversely impacted, with vacancy levels remaining above historical levels. Although virtually all of our leases required the tenants to pay rent even while they were not operating, we entered into numerous agreements to abate, defer, and/or restructure tenant rent payments for varying periods of time, all with the objective of collecting as much cash as reasonably possible and maintaining occupancy to the maximum extent. We believe those actions will position many of our tenants to be able to return to payment of contractual rent as soon as possible after the impacts from the pandemic have subsided. During the three and six months endedJune 30, 2021 , we recognized collectibility related adjustments of$6.4 million and$21.2 million , respectively. This includes not only the impact of tenants recognized on a cash basis but also changes in our collectibility assessments from probable to not probable, disputed rents, and any rent abatements directly related to COVID-19. As ofJune 30, 2021 , the revenue from approximately 35% of our tenants (based on total commercial leases) is being recognized on a cash basis. We believe that the actions we have taken to improve our financial position and maximize our liquidity, as described further in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Annual Report on Form 10-K , will continue to mitigate the impact to our cash flow caused by tenants not timely paying contractual rent. See further discussion of the impact of COVID-19 on our business throughout Item 2. 15 -------------------------------------------------------------------------------- Table of Contents Business Continuity We transitioned our entire workforce to remote work inMarch 2020 with the exception of those employeeswho were critical to providing the necessary day-to-day property management functions required to keep our properties open and operating for essential businesses such as grocery stores and drug stores, and a few employeeswho were needed to carry out critical corporate functions. Although all of our corporate offices have reopened, many of our employees continue to work remotely as we transition to a hybrid work model. We have not laid off, furloughed, or terminated any employees nor have we modified the compensation of any of our employees as a result of COVID-19, and the transition to a largely remote workforce has not had any material adverse impacts on our financial reporting systems, our internal controls, or disclosure controls and procedures. Critical Accounting Policies There have been no significant changes to the critical accounting policies disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Annual Report on Form 10-K . 2021 Acquisitions and Disposition OnJanuary 4, 2021 , we acquired our partner's 20% interest in our joint venture arrangement related to the Pike & Rose hotel for$2.3 million , and repaid the$31.5 million mortgage loan encumbering the hotel. As a result of the transaction, we gained control of the hotel, and effectiveJanuary 4, 2021 , we have consolidated the asset. We also recognized a gain on acquisition of the controlling interest of$2.1 million related to the difference between the carrying value and fair value of the previously held equity interest. OnFebruary 22, 2021 , we acquired the fee interest at ourMount Vernon Plaza property inAlexandria, Virginia for$5.6 million . As a result of this transaction, the "operating lease right of use assets" and "operating lease liabilities" on our consolidated balance sheet decreased by$9.8 million . We now own the entire fee interest on this property. OnMarch 19, 2021 , we sold a portion ofGraham Park Plaza inFalls Church, Virginia for$20.3 million , resulting in a gain on sale of$15.6 million . During the six months endedJune 30, 2021 , we acquired the following properties: Gross Leasable Joint Venture Date Acquired Property City/State Area (GLA) Interest (1) Gross Value (in square feet) (in millions) April 30, 2021 Chesterbrook McLean, Virginia 90,000 80 %$ 32.1 (2) June 1, 2021 Grossmont Center La Mesa, California 933,000 60 %$ 175.0 (3) June 14, 2021 Camelback Colonnade Phoenix, Arizona 642,000 98 %$ 162.5 (4) June 14, 2021 Hilton Village Scottsdale, Arizona 93,000 98 %$ 37.5 (5) (1)These acquisitions were completed through newly formed joint ventures, for which we own the controlling interest listed above, and therefore, these properties are consolidated in our financial statements. (2)Approximately$1.9 million and$0.6 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and$8.0 million of net assets acquired were allocated to other liabilities for "below market leases." (3)Approximately$12.3 million and$2.6 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and$14.7 million of net assets acquired were allocated to other liabilities for "below market leases." (4)Approximately$11.6 million of net assets acquired were allocated to other assets for "acquired lease costs"and$28.3 million were allocated to other liabilities for "below market leases." (5)The land is controlled under a long-term ground lease that expires onDecember 31, 2076 , for which we have recorded a$10.4 million "operating lease right of use asset" (net of a$1.3 million above market liability) and an$11.6 million "operating lease liability." Approximately$2.7 million and$1.1 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and$3.6 million were allocated to other liabilities for "below market leases." 16 -------------------------------------------------------------------------------- Table of Contents 2021 Debt and Equity Transactions OnFebruary 5, 2021 , we repaid the$16.2 million mortgage loan onSylmar Towne Center, at par, prior to its original maturity date. OnFebruary 24, 2021 , we replaced our existing at-the-market ("ATM") equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to$500.0 million . OnMay 7, 2021 , we amended this ATM equity program, which reset the limit to$500.0 million . The new ATM equity program also allows shares to be sold through forward sales contracts. We intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline, repay indebtedness and/or for general corporate purposes. For the six months endedJune 30, 2021 , we issued 847,471 common shares at a weighted average price per share of$104.19 for net cash proceeds of$87.1 million including paying$0.9 million in commissions and$0.3 million in additional offering expenses related to the sales of these common shares. We also entered into forward sales contracts for the three and six months endedJune 30, 2021 for 1,194,733 and 1,526,051 shares, respectively, under our ATM equity program at a weighted average offering price of$117.47 and$115.30 , respectively. The forward price that we will receive upon physical settlement of the agreements is subject to the adjustment for (i) commissions, (ii) a floating interest rate factor equal to a specified daily rate less a spread, (iii) the forward purchasers' stock borrowing costs and (iv) scheduled dividends during the term of the forward sale agreements. The open forward shares may be settled at any time on or before multiple required settlement dates ranging fromMarch 2022 toJune 2022 . We have remaining capacity to issue up to$359.7 million in common shares under our ATM equity program as ofJune 30, 2021 . OnApril 16, 2021 , we repaid$100.0 million of our existing$400.0 million term loan, amended the agreement on the remaining$300.0 million to lower the current spread over LIBOR from 135 basis points to 80 basis points based on our current credit rating, and extended the initial maturity date toApril 16, 2024 , along with two one-year extensions, at our option. InJune 2020 , we provided notice for the early repayment of thePlaza Del Sol mortgage loan, at par, onSeptember 1, 2021 . Recently Issued Accounting Pronouncements See Note 2 to the consolidated financial statements. Capitalized Costs Certain external and internal costs directly related to the development, redevelopment and leasing of real estate, including pre-construction costs, real estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved, are capitalized. We capitalized certain external and internal costs related to both development and redevelopment activities of$197 million and$5 million for the six months endedJune 30, 2021 , and$202 million and$5 million for the six months endedJune 30, 2020 . We capitalized external and internal costs related to other property improvements of$34 million and$2 million , respectively, for the six months endedJune 30, 2021 , and$27 million and$2 million for the six months endedJune 30, 2020 . We capitalized external and internal costs related to leasing activities of$7 million and$1 million , respectively, for the six months endedJune 30, 2021 , and$5 million and$1 million , respectively, for the six months endedJune 30, 2020 . The amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities, other property improvements, and leasing activities were$5 million ,$2 million , and$1 million , respectively, for the six months endedJune 30, 2021 and$5 million ,$1 million , and$1 million , respectively for the six months endedJune 30, 2020 . Total capitalized costs were$246 million and$242 million for the six months endedJune 30, 2021 and 2020, respectively. Outlook Our long-term growth strategy is focused on growth in earnings, funds from operations, and cash flows primarily through a combination of the following: •growth in our comparable property portfolio, •growth in our portfolio from property developments and redevelopments, and •expansion of our portfolio through property acquisitions.
While the ongoing COVID-19 pandemic is impacting us in the short-term, our
long-term focus has not changed. See our 10-K filed on
Federal, state, and local governments have taken various actions to mitigate the
spread of COVID-19, including initially ordering closures of non-essential
businesses and ordering residents to generally stay at home. While many of these
restrictions have since been lifted, they required a significant number of
tenants to close their operations or to significantly limit the amount of
business they were able to conduct in their stores. These closures and
restrictions, along with general concerns over the
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spread of COVID-19 have impacted the tenants' ability to timely pay rent as
required under our leases and also caused many tenants to close their business
permanently. While we are seeing signs of considerable improvement in the past
few months, these economic hardships have adversely impacted our business, and
continue to have a negative effect on our financial results during the second
quarter of 2021. With very few exceptions, our leases require tenants to
continue to pay rent even while closed as a result of the pandemic, and while
many tenants did not pay rents and other charges during a portion of 2020, the
majority of our tenants have resumed paying all or a portion of their rent
and/or other charges as their businesses were able to reopen. Our percentage of
contractual rent actually collected has continued to increase since the low
point in April 2020 , including some tenants paying past due amounts. As of
June 30, 2021 , we have entered into agreements with approximately 32% of our
tenants (based on total commercial leases) to defer rent payments to later
periods, largely throughout the remainder of 2021, although some extend beyond,
and negotiations with other tenants are still ongoing. While increasing monthly
cash collection rates is a positive trend driven by government mandated
restrictions generally being lifted, we expect that our rent collections will
continue to be below our tenants' contractual rent obligations and historical
levels, which will continue to adversely impact our results of operations. We
are also experiencing a lower level of occupancy than in our past, largely due
to the pandemic, which will adversely impact our results until we can release
the space and the tenant commences paying rent as well as limit future vacancies
caused by the pandemic. We are, however, experiencing strong demand for our
commercial space as evidenced by the 1.1 million square feet of comparable space
retail leasing we've completed in the first half of 2021, as well as our overall
leased percentage at 92.7%, compared to our occupied percentage of only 89.6%.
The extent of the impact from COVID-19 will depend on future developments, which
are highly uncertain and cannot be predicted. Depending upon the duration of
tenant closures, future operating restrictions, and the overall economic
downturn resulting from COVID-19, we may find that even deferred rents are
difficult to collect, and we may experience higher vacancy levels. While the
duration and severity of the economic impact resulting from COVID-19 is unknown,
we seek to position the Trust to continue to participate in the resulting
economic recovery.
We continue to have several development projects in process being delivered as
follows:
•The first phase of construction on Santana West includes an eight story 376,000
square foot office building, with over 1,700 parking spaces. The building is
expected to cost between $250 million and $270 million with openings expected to
begin in 2022.
•Phase III of Assembly Row includes 277,000 square feet of office space, 56,000
square feet of retail space, 500 residential units, and over 800 additional
parking spaces. The expected costs for Phase III are between $465 million and
$485 million , with spaces being delivered beginning in the second quarter of
2021. At June 30, 2021 , 150,000 square feet of office space has been delivered
and 13,000 square feet of retail space has opened.
•Phase III at Pike & Rose includes a 212,000 square foot office building (which
includes 7,000 square feet of ground floor retail space) and over 600 additional
parking spaces. The building is expected to cost between $128 million and $135
million . At June 30, 2021 , approximately 159,000 square feet has been leased, of
which approximately 45,000 square feet is our new corporate headquarters.
•Throughout the portfolio, we currently have redevelopment projects underway
with a projected total cost of approximately $274 million that we expect to
stabilize over the next several years.
The above includes our best estimates based on information currently known,
however, the completion of construction, final costs, and the timing of leasing
and openings will be dependent upon the duration of governmental restrictions
and the duration and severity of the economic impacts of COVID-19.
The development of future phases of Assembly Row , Pike & Rose and Santana Row
will be pursued opportunistically based on, among other things, market
conditions, tenant demand, and our evaluation of whether those phases will
generate an appropriate financial return.
We continue to review acquisition opportunities that complement our portfolio
and provide long-term growth opportunities. Initially, some of our acquisitions
do not contribute significantly to earnings growth; however, we believe they
provide long-term re-leasing growth, redevelopment opportunities, and other
strategic opportunities. Any growth from acquisitions is contingent on our
ability to find properties that meet our qualitative standards at prices that
meet our financial hurdles. Changes in interest rates may affect our success in
achieving earnings growth through acquisitions by affecting both the price that
must be paid to acquire a property, as well as our ability to economically
finance the property acquisition. Generally, our acquisitions are initially
financed by available cash and/or borrowings under our revolving credit facility
which may be repaid later with funds raised through the issuance of new equity
or new long-term debt. We may also finance our acquisitions through the issuance
of common shares, preferred shares, or downREIT units as well as through assumed
mortgages and property sales.
At June 30, 2021 , the leasable square feet in our properties was 92.7% leased
and 89.6% occupied. The leased rate is higher than the occupied rate due to
leased spaces that are being redeveloped or improved or that are awaiting
permits and, therefore,
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are not yet ready to be occupied. Our occupancy and leased rates are subject to
variability over time due to factors including acquisitions, the timing of the
start and stabilization of our redevelopment projects, lease expirations and
tenant closings and bankruptcies.
Lease Rollovers
For the second quarter of 2021, we signed leases for a total of 577,000 square
feet of retail space including 558,000 square feet of comparable space leases
(leases for which there was a prior tenant) at an average rental increase of 8%
on a cash basis. New leases for comparable spaces were signed for 415,000 square
feet at an average rental increase of 11% on a cash basis. Renewals for
comparable spaces were signed for 144,000 square feet at no average rental
increase on a cash basis. Tenant improvements and incentives for comparable
spaces were $51.35 per square foot, of which, $67.87 per square foot was for new
leases and $3.74 per square foot was for renewals for the three months ended
June 30, 2021 .
For the six months ended June 30, 2021 , we signed leases for a total of
1,091,000 square feet of retail space including 1,065,000 square feet of
comparable space leases (leases for which there was a prior tenant) at an
average rental increase of 8% on a cash basis. New leases for comparable spaces
were signed for 635,000 square feet at an average rental increase of 13% on a
cash basis. Renewals for comparable spaces were signed for 430,000 square feet
at an average rental increase of 1% on a cash basis. Tenant improvements and
incentives for comparable spaces were $42.20 per square foot, of which, $67.62
per square foot was for new leases and $4.70 per square foot was for renewals
for the six months ended June 30, 2021 .
The rental increases associated with comparable spaces generally include all
leases signed for retail space in arms-length transactions reflecting market
leverage between landlords and tenants during the period. The comparison between
average rent for expiring leases and new leases is determined by including
contractual rent on the expiring lease and annual market rent and in some
instances, projections of percentage rent, to be paid on the new lease. In
atypical circumstances, management may exercise judgment as to how to most
effectively reflect the comparability of spaces reported in this calculation. As
a result of accommodations made to certain tenants to help them to stay open
during and after the COVID-19 pandemic, we have found it necessary to exercise
more judgement in 2020 and 2021 than in prior years in order to appropriately
reflect the comparability of spaces in the calculation. The change in rental
income on comparable space leases is impacted by numerous factors including
current market rates, location, individual tenant creditworthiness, use of
space, market conditions when the expiring lease was signed, capital investment
made in the space and the specific lease structure. Tenant improvements and
incentives include the total dollars committed for the improvement (fit out) of
a space as it relates to a specific lease. Incentives include amounts paid to
tenants as inducement to sign a lease that do not represent building
improvements.
Historically, we have executed comparable space leases for 1.3 to 1.9 million
square feet of retail space each year. We expect some rental rates to continue
to be negatively impacted by the COVID-19 pandemic. Given the significant volume
of leasing we've achieved during the first six months of 2021, we expect the
overall volume in 2021 to be at the high end, or potentially exceed, our
historical averages given a larger amount of vacancy as a result of COVID-19.
Although we expect overall positive increases in annual rent for comparable
spaces, changes in annual rent for any individual lease or combinations of
individual leases reported in any particular period may be positive or negative
and we can provide no assurance that the annual rents on comparable space leases
will continue to increase at historical levels, if at all.
The leases signed in 2021 generally become effective over the following two
years though some may not become effective until 2024 and beyond. Further, there
is risk that some new tenants will not ultimately take possession of their space
and that tenants for both new and renewal leases may not pay all of their
contractual rent due to operating, financing or other matters. However, our
historical increases in rental rates do provide information about the
tenant/landlord relationship and the potential increase we may achieve in rental
income over time.
Comparable Properties
Throughout this section, we have provided certain information on a "comparable
property" basis. Information provided on a comparable property basis includes
the results of properties that we owned and operated for the entirety of both
periods being compared except for properties that are currently under
development or are being repositioned for significant redevelopment and
investment. For the three and six months ended June 30, 2021 , all or a portion
of 98 properties were considered comparable properties and six properties were
considered non-comparable properties. For the three months ended June 30, 2021 ,
one portion of a property was moved from non-comparable properties to comparable
properties and two portions of properties were moved from acquisitions to
comparable properties. For the six months ended June 30, 2021 , two portions of
properties were moved from non-comparable properties to comparable properties,
one property and two portions of properties were moved from acquisitions to
comparable properties, and one portion of a property was removed from
non-comparable properties, as it was sold, compared to the designations as of
December 31, 2020 . While there is judgment surrounding changes in designations,
we typically move non-comparable properties to comparable properties once they
have stabilized, which is typically considered 90% physical occupancy or when
the growth expected from the redevelopment has been included in the comparable
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periods. We typically remove properties from comparable properties when the
repositioning of the asset has commenced and has or is expected to have a
significant impact to property operating income within the calendar
year. Acquisitions are moved to comparable properties once we have owned the
property for the entirety of comparable periods and the property is not under
development or being repositioned for significant redevelopment and investment.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2021 AND 2020
Change
2021 2020 Dollars %
(Dollar amounts in thousands)
Rental income $ 230,795 $ 175,479 $ 55,316 31.5 %
Mortgage interest income 830 748 82 11.0 %
Total property revenue 231,625 176,227 55,398 31.4 %
Rental expenses 42,918 36,417 6,501 17.9 %
Real estate taxes 29,323 30,599 (1,276) (4.2) %
Total property expenses 72,241 67,016 5,225 7.8 %
Property operating income (1) 159,384 109,211 50,173 45.9 %
General and administrative expense (12,846) (9,814) (3,032) 30.9 %
Depreciation and amortization (67,675) (62,784) (4,891) 7.8 %
Gain on sale of real estate and change in control of
interest - 11,682 (11,682) 100.0 %
Operating income 78,863 48,295 30,568 63.3 %
Other interest income 250 509 (259) (50.9) %
Interest expense (31,177) (34,073) 2,896 (8.5) %
Income (loss) from partnerships 123 (3,872) 3,995 (103.2) %
Total other, net (30,804) (37,436) 6,632 (17.7) %
Net income 48,059 10,859 37,200 342.6 %Net income attributable to noncontrolling interests (1,855)
(352) (1,503) 427.0 %
Net income attributable to the Trust $ 46,204 $ 10,507 $ 35,697 339.7 %
(1)Property operating income is a non-GAAP measure that consists of rental
income and mortgage interest income, less rental expenses and real estate taxes.
This measure is used internally to evaluate the performance of property
operations and we consider it to be a significant measure. Property operating
income should not be considered an alternative measure of operating results or
cash flow from operations as determined in accordance with GAAP. The
reconciliation of operating income to property operating income for the three
months ended June 30, 2021 and 2020 is as follows:
2021 2020
(in thousands)
Operating income $ 78,863 $ 48,295
General and administrative 12,846 9,814
Depreciation and amortization 67,675 62,784
Gain on sale of real estate and change in control of interest - (11,682)
Property operating income $ 159,384 $ 109,211
Property Revenues
Total property revenue increased $55.4 million , or 31.4%, to $231.6 million in
the three months ended June 30, 2021 compared to $176.2 million in the three
months ended June 30, 2020 . The percentage occupied at our shopping centers was
89.6% at June 30, 2021 compared to 90.8% at June 30, 2020 . The most significant
driver of the increase in property revenues is the lifting of COVID-19
restrictions during the three months ended June 30, 2021 as compared to the
three months ended June 30, 2020 when COVID-19 government imposed closures and
restrictions were at their height. Changes in the components of property revenue
are discussed below.
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Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from
tenants and percentage rent, and is net of collectibility related adjustments.
Rental income increased $55.3 million , or 31.5%, to $230.8 million in the three
months ended June 30, 2021 compared to $175.5 million in the three months ended
June 30, 2020 due primarily to the following:
•a $48.8 million decrease in collectibility related impacts including rent
abatements across all properties primarily due to moving a large number of
tenants from accrual basis to cash basis in the second quarter of 2020 and
higher collection rates in the second quarter of 2021, as tenants begin to
recover from the initial impacts of COVID-19,
•an increase of $4.1 million from non-comparable properties primarily driven by
redevelopment related occupancy increases at two of our properties, the opening
of Phase III at Assembly Row in 2021, and the opening of Freedom Plaza in 2020,
•an increase of $3.6 million from acquisitions (see Note 3 to the consolidated
financial statements for additional information), and
•an increase of $1.9 million from comparable properties primarily related to
higher net termination fees and legal fee income of $3.4 million , higher
percentage rent, specialty leasing, and parking income of $2.4 million primarily
due to the impacts of COVID-19 related closures and restrictions in 2020,
partially offset by lower average occupancy of approximately $4.6 million ,
partially offset by,
•a decrease of $3.3 million from 2020 property sales.
Property Expenses
Total property expenses increased $5.2 million , or 7.8%, to $72.2 million in the
three months ended June 30, 2021 compared to $67.0 million in the three months
ended June 30, 2020 . Changes in the components of property expenses are
discussed below.
Rental Expenses
Rental expenses increased $6.5 million , or 17.9%, to $42.9 million in the three
months ended June 30, 2021 compared to $36.4 million in the three months ended
June 30, 2020 . This increase is primarily due to the following:
•an increase of $6.4 million from comparable properties due primarily to higher
repairs and maintenance costs and utilities, as 2020 had lower costs as a result
of COVID-19 impacts,
•an increase of $1.3 million from non-comparable properties driven by the
opening of the Phase III office building at Pike & Rose in 2020, Phase III at
Assembly Row in 2021, and one of our redevelopments in late 2020, and
•an increase of $0.7 million from acquisitions,
partially offset by,
•a decrease of $1.0 million from 2020 property sales.
As a result of the changes in rental income and rental expenses as discussed
above, rental expenses as a percentage of rental income decreased to 18.6% in
the three months ended June 30, 2021 from 20.8% in the three months ended June
30, 2020 .
Real Estate Taxes
Real estate tax expense decreased $1.3 million , or 4.2%, to $29.3 million in the
three months ended June 30, 2021 compared to $30.6 million in the three months
ended June 30, 2020 . This decrease is primarily due the following:
•a decrease of $1.1 million from comparable properties primarily due to a
true-up of supplemental taxes at several of our California properties billed in
2020, and
•a decrease of $1.0 million from 2020 property sales,
partially offset by,
•an increase of $0.5 million from non-comparable properties due primarily to
increases in assessments as a result of our redevelopment activities, and
•an increase of $0.4 million from acquisitions.
Property Operating Income
Property operating income increased $50.2 million , or 45.9%, to $159.4 million
in the three months ended June 30, 2021 compared to $109.2 million in the three
months ended June 30, 2020 . This increase is primarily due to the lifting of
COVID-19 restrictions, which resulted in lower collectibility related
adjustments, higher percentage rent, specialty leasing, and parking
21
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income compared to 2020. Also contributing to the increase were higher lease
termination fees and legal fee income, 2021 acquisitions, redevelopment related
occupancy increases at one of our properties, and the opening of Phase III at
Assembly Row in 2021, partially offset by lower average occupancy from
comparable properties, and 2020 property sales.
Other Operating
General and Administrative
General and administrative expense increased $3.0 million , or 30.9%, to $12.8
million in the three months ended June 30, 2021
from $9.8 million in the three months ended June 30, 2020 . This increase is due
primarily to higher personnel related
costs.
Depreciation and Amortization
Depreciation and amortization expense increased $4.9 million , or 7.8%, to $67.7
million in the three months ended June 30, 2021 from $62.8 million in the three
months ended June 30, 2020 . This increase is due primarily to accelerated
depreciation related to a vacating tenant, placing redevelopment properties into
service, the acquisition of the previously unconsolidated Pike & Rose hotel
joint venture in January 2021 , and the opening of Phase III at Assembly Row and
Pike & Rose, partially offset by 2020 property sales.
Gain on Sale of Real Estate and Change in Control of Interest
The $11.7 million gain on sale of real estate, net for the three months ended
June 30, 2020 is due primarily to the sale of a building in Pasadena,
California .
Operating Income
Operating income increased $30.6 million , or 63.3%, to $78.9 million in the
three months ended June 30, 2021 compared to $48.3 million in the three months
ended June 30, 2020 . This increase is primarily due to the lifting of COVID-19
restrictions, which resulted in lower collectibility related adjustments, higher
percentage rent, specialty leasing, and parking income compared to 2020. Also
contributing to the increases were higher termination fees and legal fee income,
2021 acquisitions, redevelopment related occupancy increases at one of our
properties, and the opening of Phase III at Assembly Row in 2021, partially
offset by lower average occupancy at comparable properties, the prior year gain
related to the sale of a building in Pasadena, California , higher personnel
related costs, and 2020 property sales.
Other
Interest Expense
Interest expense decreased $2.9 million , or 8.5%, to $31.2 million in the three
months ended June 30, 2021 compared to $34.1 million in the three months ended
June 30, 2020 . This decrease is due primarily to the following:
•a decrease of $2.0 million from lower weighted average borrowings primarily
from our revolving credit facility and the repayment of The Shops at Sunset
Place mortgage loan in December 2020 , partially offset by the May 2020 debt
issuances in response to the COVID-19 pandemic, and
•an increase of $0.8 million in capitalized interest, primarily attributable to
the development of Santana West and Phase III of Assembly Row .
Gross interest costs were $37.7 million and $39.8 million in the three months
ended June 30, 2021 and June 30, 2020 , respectively. Capitalized interest was
$6.5 million and $5.7 million for the three months ended June 30, 2021 and June
30, 2020 , respectively.
Income (loss) from partnerships
Income from partnerships increased $4.0 million , or 103.2%, to $0.1 million in
the three months ended June 30, 2021 compared to a loss of $3.9 million in the
three months ended June 30, 2020 . This increase is due primarily to the
acquisition of the previously unconsolidated Pike & Rose hotel joint venture in
January 2021 and improved operating results at our restaurant joint ventures and
at our Assembly Row hotel joint venture, largely the result of the easing of
COVID-19 closures and restrictions.
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RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2021 AND 2020
Change
2021 2020 Dollars %
(Dollar amounts in thousands)
Rental income $ 447,930 $ 406,277 $ 41,653 10.3 %
Mortgage interest income 1,856 1,507 349 23.2 %
Total property revenue 449,786 407,784 42,002 10.3 %
Rental expenses 92,156 80,729 11,427 14.2 %
Real estate taxes 58,743 59,663 (920) (1.5) %
Total property expenses 150,899 140,392 10,507 7.5 %
Property operating income (1) 298,887 267,392 31,495 11.8 %
General and administrative expense (23,104) (20,065) (3,039) 15.1 %
Depreciation and amortization (131,549) (124,972) (6,577) 5.3 %
Gain on sale of real estate and change in control of
interest 17,428 11,682 5,746 49.2 %
Operating income 161,662 134,037 27,625 20.6 %
Other interest income 613 817 (204) (25.0) %
Interest expense (63,262) (62,518) (744) 1.2 %
Loss from partnerships (1,215) (5,036) 3,821 (75.9) %
Total other, net (63,864) (66,737) 2,873 (4.3) %
Net income 97,798 67,300 30,498 45.3 %Net income attributable to noncontrolling interests (3,358)
(2,030) (1,328) 65.4 % Net income attributable to the Trust$ 94,440 $ 65,270 $ 29,170 44.7 % (1)Property operating income is a non-GAAP measure that consists of rental income and mortgage interest income, less rental expenses and real estate taxes. This measure is used internally to evaluate the performance of property operations and we consider it to be a significant measure. Property operating income should not be considered an alternative measure of operating results or cash flow from operations as determined in accordance with GAAP. The reconciliation of operating income to property operating income for the six months endedJune 30, 2021 and 2020 is as follows: 2021 2020 (in thousands) Operating income$ 161,662 $ 134,037 General and administrative 23,104 20,065 Depreciation and amortization 131,549 124,972 Gain on sale of real estate and change in control of interest (17,428) (11,682) Property operating income$ 298,887 $ 267,392 Property Revenues Total property revenue increased$42.0 million , or 10.3%, to$449.8 million in the six months endedJune 30, 2021 compared to$407.8 million in the six months endedJune 30, 2020 . The percentage occupied at our shopping centers was 89.6% atJune 30, 2021 compared to 90.8% atJune 30, 2020 . The most significant driver of the increase in property revenues is the the lifting of COVID-19 restrictions during the 2021 as compared to 2020 when COVID-19 government imposed closures and restrictions were at their height. Changes in the components of property revenue are discussed below. Rental Income Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent, and is net of collectibility related adjustments. Rental income increased$41.7 million , or 10.3%, to$447.9 million in the six months endedJune 30, 2021 compared to$406.3 million in the six months endedJune 30, 2020 due primarily to the following: •a$37.1 million decrease in collectibility related impacts including rent abatements across all properties, primarily due to moving a large number of tenants from accrual basis to cash basis in 2020, as well higher collection rates in 2021, as tenants begin to recover from the the initial impacts of COVID-19, 23 -------------------------------------------------------------------------------- Table of Contents •an increase of$11.3 million from non-comparable properties driven by higher net termination fees, the opening of our new office building atSantana Row in early 2020, redevelopment related occupancy increases at one of our properties, the opening of Phase III atAssembly Row in 2021 and Pike & Rose in 2020, and the opening ofFreedom Plaza in 2020, and •an increase of$4.4 million from 2021 acquisitions (see Note 3 to the consolidated financial statements for additional information), partially offset by, •a decrease of$8.0 million from property sales, and •a decrease of$3.4 million from comparable properties primarily due to lower average occupancy of approximately$11.3 million , partially offset by higher rental rates of$2.7 million , higher recoveries of$2.1 million primarily the result of higher snow removal expense, and higher percentage rent of$1.2 million driven by a larger number of tenants moving to percentage rent deals due to the impacts of COVID-19. Property Expenses Total property expenses increased$10.5 million , or 7.5%, to$150.9 million in the six months endedJune 30, 2021 compared to$140.4 million in the six months endedJune 30, 2020 . Changes in the components of property expenses are discussed below. Rental Expenses Rental expenses increased$11.4 million , or 14.2%, to$92.2 million in the six months endedJune 30, 2021 compared to$80.7 million in the six months endedJune 30, 2020 due primarily to the following: •an increase of$11.9 million from comparable properties due to higher snow removal expense, repairs and maintenance costs and utilities as 2020 had lower costs as a result of COVID-19 impacts, demolition costs, and insurance costs, •an increase of$2.0 million from non-comparable properties, due primarily to the opening of the Phase III office building at Pike & Rose in 2020, one of our redevelopments in late 2020, and our new office building atSantana Row , and •an increase of$1.5 million from acquisitions, partially offset by, •a decrease of$2.6 million from our property sales. As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental income increased to 20.6% in the six months endedJune 30, 2021 from 19.9% in the six months endedJune 30, 2020 . Real Estate Taxes Real estate tax expense decreased$0.9 million , or 1.5%, to$58.7 million in the six months endedJune 30, 2021 compared to$59.7 million in the six months endedJune 30, 2020 . This increase is primarily due to the following: •a decrease of$1.7 million from our property sales, and •a decrease of$1.0 million from comparable properties primarily due to a true-up of supplemental taxes at several of ourCalifornia properties billed in 2020, partially offset by, •an increase of$1.3 million from non-comparable properties due primarily to the opening of our new office building atSantana Row in early 2020 and increases in assessments as a result of our redevelopment activities, and •an increase of$0.5 million from 2021 acquisitions. Property Operating Income Property operating income increased$31.5 million , or 11.8%, to$298.9 million in the six months endedJune 30, 2021 compared to$267.4 million in the six months endedJune 30, 2020 . This increase is primarily due to the lifting of COVID-19 restrictions during 2021, which resulted in lower collectibility related adjustments, and higher percentage rent. Also contributing to the increases were the opening of our new office building atSantana Row in early 2020, placing redevelopment properties into service, the opening of Phase III atAssembly Row in 2021, and property acquisitions, partially offset by lower average occupancy, higher snow removal expense at comparable properties, and property dispositions. 24 -------------------------------------------------------------------------------- Table of Contents Other Operating General and Administrative General and administrative expense increased$3.0 million , or 15.1%, to$23.1 million in the six months endedJune 30, 2021 from$20.1 million in the six months endedJune 30, 2020 . This increase is due primarily to higher personnel related costs. Depreciation and Amortization Depreciation and amortization expense increased$6.6 million , or 5.3%, to$131.5 million in the six months endedJune 30, 2021 from$125.0 million in the six months endedJune 30, 2020 . This increase is due primarily to accelerated depreciation from a vacating tenant, placing redevelopment properties into service, the acquisition of the previously unconsolidated Pike & Rose hotel joint venture inJanuary 2021 , and the opening of the Phase III office building at Pike & Rose, partially offset by 2020 property sales. Gain on Sale of Real Estate and Change in Control of Interest The$17.4 million gain on sale of real estate, net of tax for the six months endedJune 30, 2021 is due primarily to a$15.6 million gain related to the sale of a portion ofGraham Park Plaza inFalls Church, Virginia and a$2.1 million gain relating to the acquisition of the previously unconsolidated Pike & Rose hotel joint venture (see Note 3 for additional disclosure). The$11.7 million gain on sale of real estate, net of tax for the six months endedJune 30, 2020 is due to the sale of a building inPasadena, California . Operating Income Operating income increased$27.6 million , or 20.6%, to$161.7 million in the six months endedJune 30, 2021 compared to$134.0 million in the six months endedJune 30, 2020 . This increase is primarily due to the lifting of COVID-19 restrictions, which resulted in lower collectibility related adjustments and higher percentage rent compared to 2020. Also contributing to the increases were a higher net gain on the sale of real estate, the opening of our new office building atSantana Row in early 2020, placing redevelopment properties into service, the opening of Phase III atAssembly Row in 2021, and property acquisitions, partially offset by lower average occupancy, higher snow removal expense at comparable properties, property dispositions, and higher personnel related costs. Other Interest Expense Interest expense increased$0.7 million , or 1.2%, to$63.3 million in the six months endedJune 30, 2021 compared to$62.5 million in the six months endedJune 30, 2020 . This increase is due primarily to the following: •an increase of$5.0 million due to higher weighted average borrowings primarily from theMay 2020 debt issuances in response to the COVID-19 pandemic, partially offset by no borrowings on our revolving credit facility in 2021, and the repayment of The Shops atSunset Place mortgage loan inDecember 2020 , partially offset by, •a decrease of$2.7 million due to a lower overall weighted average borrowing rate, and •an increase of$1.6 million in capitalized interest, primarily attributable to the development of Phase III ofAssembly Row andSantana West . Gross interest costs were$76.3 million and$73.9 million in the six months endedJune 30, 2021 andJune 30, 2020 , respectively. Capitalized interest was$13.0 million and$11.4 million for the six months endedJune 30, 2021 andJune 30, 2020 , respectively. Loss from partnerships Loss from partnerships decreased$3.8 million , or 75.9%, to$1.2 million in the six months endedJune 30, 2021 compared to$5.0 million in the six months endedJune 30, 2020 . This decrease is due primarily to the acquisition of the previously unconsolidated Pike & Rose hotel joint venture inJanuary 2021 and improved operating results at our restaurant joint ventures and at ourAssembly Row hotel joint venture, largely the result of the easing of COVID-19 closures and restrictions. 25 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Due to the nature of our business and strategy, we typically generate significant amounts of cash from operations which is largely paid to our common and preferred shareholders in the form of dividends because as a REIT, we are generally required to make annual distributions to shareholders of at least 90% of our taxable income (cash dividends paid in the six months endedJune 30, 2021 were approximately$167.2 million ). Remaining cash flow from operations after dividend payments is used to fund recurring and non-recurring capital projects (such as tenant improvements and redevelopments), and regular debt service requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities). We maintain a$1.0 billion revolving credit facility to fund short term cash flow needs and also look to the public and private debt and equity markets, joint venture relationships, and property dispositions to fund capital expenditures on a long-term basis. Although we are seeing improvements in cash collections during 2021, we are still experiencing lower levels of cash from operations due to lower rent collections from tenants and lower occupancy, both a result of the COVID-19 pandemic (see further discussion under the "Outlook" section of this Item 2). While the overall economic impacts of the pandemic are unknown, we have taken multiple steps to strengthen our financial position, maximize liquidity, and to provide maximum flexibility during these uncertain times, including maintaining levels of cash significantly in excess of the cash balances we have historically maintained. During the six months endedJune 30, 2021 , there were no borrowings on our$1.0 billion unsecured revolving credit facility, and as ofJune 30, 2021 , we had cash and cash equivalents of$304.3 million . We also had outstanding forward sales agreements for net proceeds of$172.4 million as ofJune 30, 2021 , and the capacity to issue up to$359.7 million in common shares both under our ATM equity program. OnApril 16, 2021 , we repaid$100.0 million of our existing$400.0 million term loan, amended the agreement on the remaining$300.0 million to lower the current spread over LIBOR from 135 basis points to 80 basis points based on our current credit rating, and extended the initial maturity date toApril 16, 2024 , along with two one-year extensions, at our option. Subsequently, over the next 12 months, we have$124.2 million of secured debt maturing, which we intend to pay off prior to the maturity date, at par. Our overall capital requirements for the remainder of 2021 will continue to be impacted by the extent and duration of COVID-19 related closures, impacts on our cash collections, and overall economic impacts that might occur. Cash requirements will also be impacted by acquisition opportunities and the level and general timing of our redevelopment and development activities. While the amount of future expenditures will depend on numerous factors, we expect to see higher levels of capital investments in our properties under development and redevelopment, as we continue to invest in the current phase of these projects and are not expecting COVID-19 related halts in construction activities similar to those experienced in 2020. With respect to other capital investments related to our existing properties, we expect to incur levels more consistent with prior years with an overall increase compared to 2020. We believe that the cash on our balance sheet together with rents we collect, as well as our$1.0 billion revolving credit facility will allow us to continue to operate our business through the remainder of the COVID-19 pandemic. Given our recent ability to access the capital markets, we also expect debt or equity to be available to us. We also have the ability to delay the timing of certain development and redevelopment projects as well as limit future acquisitions, as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy. While we have seen improvements from the initial negative impacts of the COVID-19 pandemic, it has continued to affect our overall business during the quarter endedJune 30, 2021 , and we expect it will continue to negatively impact our business in the short term. We maintain our long term commitment to a conservative capital structure that will allow us to maintain strong debt service coverage and fixed-charge coverage ratios as part of our commitment to investment-grade debt ratings. 26 -------------------------------------------------------------------------------- Table of Contents Summary of Cash Flows Six Months Ended June 30, 2021 2020 (In thousands) Net cash provided by operating activities$ 247,209 $ 181,382 Net cash used in investing activities (509,974) (257,198) Net cash (used in) provided by financing activities (237,195) 923,439
(Decrease) increase in cash, cash equivalents and restricted cash (499,960)
847,623
Cash, cash equivalents, and restricted cash at beginning of year 816,896 153,614
Cash, cash equivalents, and restricted cash at end of period $ 316,936 $ 1,001,237
Net cash provided by operating activities increased $65.8 million to $247.2
million during the six months ended June 30, 2021 from $181.4 million during the
six months ended June 30, 2020 . The increase was primarily attributable to
higher net income before non-cash items and timing of cash receipts including
higher accounts receivable and lower prepaid rent balances in 2020 as a result
of the COVID-19 pandemic.
Net cash used in investing activities increased $252.8 million to $510.0 million
during the six months ended June 30, 2021 from $257.2 million during the six
months ended June 30, 2020 . The increase was primarily attributable to:
•a $323.2 million increase in acquisition of real estate primarily due to the
June 2021 acquisitions of three shopping centers in California and Arizona and
the April 2021 acquisition of a shopping center in Virginia (see Note 3 to the
consolidated financial statements for additional information),
partially offset by,
•the $31.1 million payoff of two mortgage notes receivable in May 2021 ,
•a $25.9 million decrease in capital expenditures due to timing of payments, and
•$12.9 million for net costs paid in 2020 relating to the partial sale under
threat of condemnation at San Antonio Center in 2019.
Net cash provided by financing activities decreased $1.2 billion to $237.2
million used during the six months ended June 30, 2021 from $923.4 million
provided in the six months ended June 30, 2020 . The decrease was primarily
attributable to:
•$700.1 million in net proceeds from the issuance of $400.0 million of 3.50%
unsecured senior notes and the $300.0 million reopening of our 3.95% unsecured
senior notes in May 2020 ,
•$398.7 million in net proceeds from our $400.0 million unsecured term loan
issued in May 2020 , and
•a $148.0 million increase in repayment of mortgages, finance leases, and notes
payable primarily due to the $100.0 million repayment of our $400.0 term loan
which was amended in April 2021 , the $31.5 million repayment of the mortgage
loan related to the Pike & Rose hotel in January 2021 , and the $16.2 million
repayment of the mortgage loan on Sylmar Towne Center in February 2021 ,
partially offset by
•$87.1 million in net proceeds from the issuance of common shares under our ATM
program during the six months ended June 30, 2021 .
27
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Table of Contents
Debt Financing Arrangements
The following is a summary of our total debt outstanding as of June 30, 2021 :
Original Principal Balance Stated Interest
Debt as of June 30, Rate as of
Description of Debt Issued 2021 June 30, 2021 Maturity Date
(Dollar amounts in thousands)
Mortgages payable
Secured fixed rate
Plaza Del Sol Acquired $ 7,943 5.23 % December 1, 2021 (6)
The AVENUE at White Marsh 52,705 52,705 3.35 % January 1, 2022 (7)
Montrose Crossing 80,000 64,618 4.20 % January 10, 2022 (8)
Azalea Acquired 40,000 3.73 % November 1, 2025
Bell Gardens Acquired 12,269 4.06 % August 1, 2026
Plaza El Segundo 125,000 125,000 3.83 % June 5, 2027
The Grove at Shrewsbury (East) 43,600 43,600 3.77 % September 1, 2027
Brook 35 11,500 11,500 4.65 % July 1, 2029
Hoboken (24 Buildings) (1) 56,450 56,450 LIBOR + 1.95% December 15, 2029
Various Hoboken (14 Buildings) (2) Acquired 32,263 Various Various through 2029
Chelsea Acquired 5,044 5.36 % January 15, 2031
Hoboken (1 Building) (3) Acquired 16,398 3.75 % July 1, 2042
Subtotal 467,790
Net unamortized debt issuance costs and premium (1,764)
Total mortgages payable, net 466,026 Notes payable Term loan (4) 300,000 300,000 LIBOR + 0.80% April 16, 2024 Revolving credit facility (5) 1,000,000 - LIBOR + 0.775% January 19, 2024 Various 7,239 3,043 11.31% Various through 2028 Subtotal 303,043 Net unamortized debt issuance costs
(1,418)
Total notes payable, net
301,625
Senior notes and debentures Unsecured fixed rate 2.75% notes 275,000 275,000 2.75 % June 1, 2023 3.95% notes 600,000 600,000 3.95 % January 15, 2024 1.25% notes 400,000 400,000 1.25 % February 15, 2026 7.48% debentures 50,000 29,200 7.48 % August 15, 2026 3.25% notes 475,000 475,000 3.25 % July 15, 2027 6.82% medium term notes 40,000 40,000 6.82 % August 1, 2027 3.20% notes 400,000 400,000 3.20 % June 15, 2029 3.50% notes 400,000 400,000 3.50 % June 1, 2030 4.50% notes 550,000 550,000 4.50 % December 1, 2044 3.625% notes 250,000 250,000 3.625 % August 1, 2046 Subtotal 3,419,200 Net unamortized debt issuance costs and premium
(13,918)
Total senior notes and debentures, net 3,405,282 Total debt, net$ 4,172,933 _____________________ 1)OnNovember 26, 2019 , we entered into two interest rate swap agreements that fix the interest rate on this mortgage loan at 3.67% 2)The interest rates on these mortgages range from 3.91% to 5.00%. 3)This mortgage loan has a fixed interest rate, however, the rate resets every five years until maturity. The current interest rate is fixed untilJuly 1, 2022 , and the loan is prepayable at par anytime after this date. 4)OnApril 16, 2021 , we repaid$100.0 million of the term loan, amended the agreement on the remaining$300.0 million to lower the current spread over LIBOR from 135 basis points to 80 basis points based on our current credit rating, and extended the initial maturity date toApril 16, 2024 , along with two one-year extensions, at our option. 5)During the six months endedJune 30, 2021 , there were no borrowings on our$1.0 billion revolving credit facility. 28 -------------------------------------------------------------------------------- Table of Contents 6)We have submitted a prepayment notice for this mortgage loan to be repaid, at par, onSeptember 1, 2021 . 7)We have submitted a prepayment notice for this mortgage loan to be repaid, at par, onNovember 2, 2021 . 8)We have submitted a prepayment notice for this mortgage loan to be repaid, at par, onOctober 12, 2021 . Our revolving credit facility and other debt agreements include financial and other covenants that may limit our operating activities in the future. As ofJune 30, 2021 , we were in compliance with all financial and other covenants related to our revolving credit facility, term loan, and senior notes. Additionally, we were in compliance with all of the financial and other covenants that could trigger loan default on our mortgage loans. If we were to breach any of these financial and other covenants and did not cure the breach within an applicable cure period, our lenders could require us to repay the debt immediately and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. Many of our debt arrangements, including our public notes and our revolving credit facility, are cross-defaulted, which means that the lenders under those debt arrangements can put us in default and require immediate repayment of their debt if we breach and fail to cure a default under certain of our other debt obligations. As a result, any default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares. Our organizational documents do not limit the level or amount of debt that we may incur. The following is a summary of our scheduled principal repayments as ofJune 30, 2021 : Unsecured Secured Total (In thousands) 2021$ 449 $ 9,856 $ 10,305 2022 751 119,706 (1) 120,457 2023 275,765 3,549 279,314 2024 900,656 (2)(3) 3,688 904,344 2025 333 48,033 48,366 Thereafter 2,544,289 282,958 2,827,247$ 3,722,243 $ 467,790 $ 4,190,033 (3) __________________ 1) We have submitted prepayment notices to repay two mortgage loans, at par, in 2021, as compared to their stated maturity date, as referenced on page 28. These mortgage loans comprise$116.3 million of the scheduled principal repayments in 2022. 2) Our$300.0 million term loan initially matures onApril 16, 2024 , along with two one-year extensions, at our option. 3) Our$1.0 billion revolving credit facility matures onJanuary 19, 2024 , plus two six-month extensions at our option. As ofJune 30, 2021 , there was no outstanding balance under this credit facility. 4) The total debt maturities differ from the total reported on the consolidated balance sheet due to the unamortized net debt issuance costs and premium/discount on mortgage loans, notes payable, and senior notes as ofJune 30, 2021 . Interest Rate Hedging We may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into derivative instruments for speculative purposes. Interest rate swaps associated with cash flow hedges are recorded at fair value on a recurring basis. Effectiveness of cash flow hedges is assessed both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with cash flow hedges is recorded in other comprehensive loss which is included in "accumulated other comprehensive loss" on the balance sheet and statement of shareholders' equity. Cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate the default risk of the counterparty by monitoring the credit-worthiness of the counterparty which includes reviewing debt ratings and financial performance. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate swaps associated with cash flow hedges is recognized in earnings in the period affected. As ofJune 30, 2021 , we have two interest rate swap agreements that effectively fix the rate on a mortgage payable associated with our Hoboken portfolio at 3.67%. OurAssembly Row hotel joint venture is also a party to two interest rate swap 29 -------------------------------------------------------------------------------- Table of Contents agreements that effectively fix their debt at 5.206%. All swaps were designated and qualify as cash flow hedges. Hedge ineffectiveness has not impacted earnings as ofJune 30, 2021 . REIT Qualification We intend to maintain our qualification as a REIT under Section 856(c) of the Code. As a REIT, we generally will not be subject to corporate federal income taxes on income we distribute to our shareholders as long as we satisfy certain technical requirements of the Code, including the requirement to distribute at least 90% of our taxable income to our shareholders. Funds From Operations Funds from operations ("FFO") is a supplemental non-GAAP financial measure of real estate companies' operating performance.The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as follows: net income, computed in accordance withU.S. GAAP, plus real estate related depreciation and amortization and excluding gains and losses on the sale of real estate or changes in control, net of tax, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. We compute FFO in accordance with the NAREIT definition, and we have historically reported our FFO available for common shareholders in addition to our net income and net cash provided by operating activities. It should be noted that FFO: •does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income); •should not be considered an alternative to net income as an indication of our performance; and •is not necessarily indicative of cash flow as a measure of liquidity or ability to fund cash needs, including the payment of dividends. We consider FFO available for common shareholders a meaningful, additional measure of operating performance primarily because it excludes the assumption that the value of the real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation. We use FFO primarily as one of several means of assessing our operating performance in comparison with other REITs. Comparison of our presentation of FFO to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs. An increase or decrease in FFO available for common shareholders does not necessarily result in an increase or decrease in aggregate distributions because ourBoard of Trustees is not required to increase distributions on a quarterly basis. However, we must distribute at least 90% of our annual taxable income to remain qualified as a REIT. Therefore, a significant increase in FFO will generally require an increase in distributions to shareholders although not necessarily on a proportionate basis. 30 -------------------------------------------------------------------------------- Table of Contents The reconciliation of net income to FFO available for common shareholders is as follows: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (In thousands, except per share data) Net income$ 48,059
(1,855) (352) (3,358) (2,030)
Gain on sale of real estate and change in control of interest
- (11,682) (17,428) (11,682)
Depreciation and amortization of real estate assets 56,431 56,608 113,534 112,654
Amortization of initial direct costs of leases 9,181 4,809 13,925 9,709
Funds from operations 111,816 60,242 204,471 175,951
Dividends on preferred shares (1) (2,011) (2,011) (4,021) (4,021)
Income attributable to operating partnership units (2) 740 - 1,525 1,572
Income attributable to unvested shares (398) (249) (721) (541)
Funds from operations available for common shareholders
Weighted average number of common shares, diluted (1)(3) 78,203
75,394 77,881 76,126
Funds from operations available for common shareholders,
per diluted share (3) $ 1.41 $ 0.77 $ 2.58 $ 2.27
_____________________
(1)For the three and six months ended June 30, 2021 and 2020, dividends on our
Series 1 preferred stock were not deducted in the calculation of FFO available
to common shareholders, as the related shares were dilutive and included in
"weighted average common shares, diluted."
(2)For the three months ended June 30, 2020 , income attributable to operating
partnership units is not added back in the calculation of FFO available to
common shareholders, as the related shares are not dilutive and are not included
in "weighted average common shares, diluted" for this period.
(3)The weighted average common shares for the three months ended June 30, 2021
and 2020, and the six months ended June 30, 2020 used to compute FFO per diluted
common share includes operating partnership units that were excluded from the
computation of diluted EPS. Conversion of these operating partnership units is
dilutive in the computation of FFO per diluted share but is anti-dilutive for
the computation of dilutive EPS for these periods.
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